PENTHOUSE INTERNATIONAL, INC.
SECURITIES PURCHASE AGREEMENT
FEBRUARY __, 2004
TABLE OF CONTENTS
PAGE
1. Agreement to Sell and Purchase. .........................................1
2. Fees and Warrant..........................................................2
3. Closing, Delivery and Payment.............................................2
3.1 Closing..........................................................2
3.2 Delivery.........................................................2
4. Representations and Warranties of the Company.............................2
4.1 Organization, Good Standing and Qualification....................3
4.2 Subsidiaries.....................................................3
4.3 Capitalization; Voting Rights....................................4
4.4 Authorization; Binding Obligations...............................4
4.5 Liabilities......................................................5
4.6 Agreements; Action...............................................5
4.7 Obligations to Related Parties...................................6
4.8 Changes..........................................................6
4.9 Title to Properties and Assets; Liens, Etc.......................7
4.10 Intellectual Property............................................7
4.11 Compliance with Other Instruments................................8
4.12 Litigation.......................................................8
4.13 Tax Returns and Payments.........................................9
4.14 Employees........................................................9
4.15 Registration Rights and Voting Rights............................9
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4.16 Compliance with Laws; Permits...................................10
4.17 Environmental and Safety Laws...................................10
4.18 Valid Offering..................................................10
4.19 Full Disclosure.................................................10
4.20 Insurance.......................................................11
4.21 SEC Reports.....................................................11
4.22 Listing.........................................................11
4.23 No Integrated Offering..........................................11
4.24 Stop Transfer...................................................11
4.25 Dilution........................................................11
5. Representations and Warranties of the Purchaser..........................12
5.1 No Shorting.....................................................12
5.2 Requisite Power and Authority...................................12
5.3 Investment Representations......................................12
5.4 Purchaser Bears Economic Risk...................................12
5.5 Acquisition for Own Account.....................................13
5.6 Purchaser Can Protect Its Interest..............................13
5.7 Accredited Investor.............................................13
5.8 Legends.........................................................13
6. Covenants of the Company.................................................14
6.1 Stop-Orders.....................................................14
6.2 Listing.........................................................14
6.3 Market Regulations..............................................14
6.4 Reporting Requirements..........................................14
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6.5 Use of Funds....................................................15
6.6 Access to Facilities............................................15
6.7 Taxes...........................................................15
6.8 Insurance.......................................................15
6.9 Intellectual Property...........................................16
6.10 Properties......................................................16
6.11 Confidentiality.................................................16
6.12 Required Approvals..............................................16
6.13 Reissuance of Securities........................................16
6.14 Opinion.........................................................17
7. Covenants of the Purchaser...............................................17
7.1 Confidentiality.................................................17
7.2 Non-Public Information..........................................17
7.3 Right to Substitute Collateral..................................17
8. Covenants of the Company and Purchaser Regarding Indemnification.........17
8.1 Company Indemnification.........................................17
8.2 Purchaser's Indemnification.....................................18
8.3 Procedures......................................................18
9. Conversion of Convertible Note...........................................18
9.1 Mechanics of Conversion.........................................18
9.2 Maximum Conversion..............................................19
10. Registration Rights......................................................20
10.1 Registration Rights Granted.....................................20
10.2 Indemnification.................................................20
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10.3 OFFERING RESTRICTIONS...........................................22
11. Miscellaneous............................................................22
11.1 Governing Law...................................................22
11.2 Survival........................................................22
11.3 Successors......................................................22
11.4 Entire Agreement................................................23
11.5 Severability....................................................23
11.6 Amendment and Waiver............................................23
11.7 Delays or Omissions.............................................23
11.8 Notices.........................................................23
11.9 Attorneys' Fees.................................................24
11.10 Titles and Subtitles............................................24
11.11 Facsimile Signatures; Counterparts..............................24
11.12 Broker's Fees...................................................24
11.13 Construction....................................................24
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PENTHOUSE INTERNATIONAL, INC.
SHARES OF SERIES D CONVERTIBLE PREFERRED STOCK AND COMMON STOCK WARRANTS
SUBSCRIPTION AGREEMENT
March 19, 2004
Mercator Advisory Group LLC
Mercator Momentum Fund, LP
Mercator Momentum Fund III, LP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Ladies and Gentlemen:
Penthouse International, Inc., a Florida corporation (the "COMPANY"), hereby
confirms its agreement with you (the "PURCHASERS"), as set forth below.
1. THE SECURITIES. Subject to the terms and conditions herein
contained, the Company proposes to issue and sell to the Purchasers an aggregate
of: (a) 4,000,000 shares (the "SHARES") of its Series D Convertible Preferred
Stock (the "SERIES D STOCK"), which shall be convertible into shares (the
"CONVERSION SHARES") of the Company's Common Stock (the "COMMON STOCK") in
accordance with the formula set forth in the Certificate of Determination
further described below and (b) three warrants, substantially in the form
attached hereto at EXHIBIT A (the "WARRANTS"), to acquire up to 12,000,000
shares of Common Stock (the "WARRANT SHARES"). The rights, preferences and
privileges of the Series D Stock are as set forth in the Certificate of
Determination of Series D Preferred Stock as filed with the Secretary of State
of the State of California (the "CERTIFICATE OF DETERMINATION") in the form
attached hereto as EXHIBIT B. The numbers of Conversion Shares and Warrant
Shares that any Purchaser may acquire at any time are subject to limitation in
the Certificate of Determination and in the Warrants, respectively, so that the
aggregate number of shares of Common Stock of which such Purchaser and all
persons affiliated with such Purchaser have beneficial ownership (calculated
pursuant to Rule 13d-3 of the Securities Exchange Act of 1934, as amended) does
not at any time exceed 9.99% of the Company's then outstanding Common Stock.
The Shares and the Warrants are sometimes herein collectively
referred to as the "SECURITIES." This Agreement and the Warrants are sometimes
herein collectively referred to as the "TRANSACTION DOCUMENTS."
The Securities will be offered and sold to the Purchasers
without such offers and sales being registered under the Securities Act of 1933,
as amended (together with the rules and regulations of the Securities and
Exchange Commission (the "SEC") promulgated thereunder, the "SECURITIES ACT"),
in reliance on exemptions therefrom.
In connection with the sale of the Securities, the Company has
made available (including electronically via the Commission's ▇▇▇▇▇ system) to
Purchasers its periodic and current
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reports, forms, schedules, proxy statements and other documents (including
exhibits and all other information incorporated by reference) filed with the SEC
under the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT") since
January 1, 2000. These reports, forms, schedules, statements, documents, filings
and amendments, are collectively referred to as the "DISCLOSURE DOCUMENTS." All
references in this Agreement to financial statements and schedules and other
information which is "contained," "included" or "stated" in the Disclosure
Documents (or other references of like import) shall be deemed to mean and
include all such financial statements and schedules, documents, exhibits and
other information which is incorporated by reference in the Disclosure
Documents.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to and agrees with Purchasers and Mercator Advisory
Group, LLC ("MAG" and, with the Purchasers, the "MERCATOR GROUP") as follows;
PROVIDED, HOWEVER, that each member of the Mercator Group acknowledges that (a)
the following direct and indirect Subsidiaries of the Company; namely, General
Media, Inc. and its direct and indirect subsidiaries, General Media Art Holding,
Inc., General Media Communications, Inc., General Media Entertainment, Inc.,
General Media (UK), Ltd., GMCI Internet Operations, Inc., GMI On-Line Ventures,
Ltd., Penthouse Images Acquisitions, Ltd. and Pure Entertainment
Telecommunications, Inc. (collectively the "GENERAL MEDIA GROUP"), are all
debtors in a Chapter 11 bankruptcy case pending iin the United States Bankruptcy
Court for the Southern District of New York (the "BANKRUPTCY CASE"), (b) the
Mercator Group and its representatives have been furnished copies of Debtors'
First Amended Joint Plan of Reorganization, dated March 4, 2004 (the "Proposed
Plan") and have had and opportunity to ask questions of the Company and its
bankruptcy counsel, and (c) all representations and warranties of the Company,
to the extent related to the General Media Group, are qualified in their
entirety by reference to the status of the Bankruptcy Case:
(a) The Disclosure Documents as of their respective dates
did not, and will not (after giving effect to any updated disclosures therein)
as of the Closing Date as defined in Section 3 below, contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading. The Disclosure Documents and the documents incorporated or
deemed to be incorporated by reference therein, at the time they were filed or
hereafter are filed with the Commission, complied and will comply, at the time
of filing, in all material respects with the requirements of the Securities Act
and/or the Exchange Act, as the case may be, as applicable.
(b) SCHEDULE A attached hereto sets forth a complete list
of the subsidiaries of the Company (the "SUBSIDIARIES"). Each of the Company and
its Subsidiaries has been duly incorporated and each of the Company and the
Subsidiaries is validly existing in good standing as a corporation under the
laws of its jurisdiction of incorporation, with the requisite corporate power
and authority to own its properties and conduct its business as now conducted as
described in the Disclosure Documents and is duly qualified to do business as a
foreign corporation in good standing in all other jurisdictions where the
ownership or leasing of its properties or the conduct of its business requires
such qualification, except where the failure to be so qualified would not,
individually or in the aggregate, have a material adverse effect on the
business, condition (financial or other), properties, prospects or results of
operations of the Company and the Subsidiaries, taken as a whole (any such
event, a "MATERIAL ADVERSE EFFECT"); as of the Closing Date, the Company will
have the authorized, issued and outstanding capitalization set forth in on
SCHEDULE B attached hereto (the "COMPANY CAPITALIZATION"); except as set forth
in the Disclosure Documents or on SCHEDULE A, the Company
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10.02 Mercator Sub Agmt
does not have any subsidiaries or own directly or indirectly any of the capital
stock or other equity or long-term debt securities of or have any equity
interest in any other person; all of the outstanding shares of capital stock of
the Company and the Subsidiaries have been duly authorized and validly issued,
are fully paid and nonassessable and were not issued in violation of any
preemptive or similar rights and are owned free and clear of all liens,
encumbrances, equities, and restrictions on transferability (other than those
imposed by the Securities Act and the state securities or "Blue Sky" laws) or
voting; except as set forth in the Disclosure Documents, all of the outstanding
shares of capital stock of the Subsidiaries are owned, directly or indirectly,
by the Company; except as set forth in the Disclosure Documents, no options,
warrants or other rights to purchase from the Company or any Subsidiary,
agreements or other obligations of the Company or any Subsidiary to issue or
other rights to convert any obligation into, or exchange any securities for,
shares of capital stock of or ownership interests in the Company or any
Subsidiary are outstanding; and except as set forth in the Disclosure Documents
or on SCHEDULE C, there is no agreement, understanding or arrangement among the
Company or any Subsidiary and each of their respective stockholders or any other
person relating to the ownership or disposition of any capital stock of the
Company or any Subsidiary or the election of directors of the Company or any
Subsidiary or the governance of the Company's or any Subsidiary's affairs, and,
if any, such agreements, understandings and arrangements will not be breached or
violated as a result of the execution and delivery of, or the consummation of
the transactions contemplated by, the Transaction Documents.
(c) The Company has the requisite corporate power and
authority to execute, deliver and perform its obligations under the Transaction
Documents. Each of the Transaction Documents has been duly and validly
authorized by the Company and, when executed and delivered by the Company, will
constitute a valid and legally binding agreement of the Company, enforceable
against the Company in accordance with its terms except as the enforcement
thereof may be limited by (A) bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium or other similar laws now or hereafter in effect relating
to or affecting creditors' rights generally or (B) general principles of equity
and the discretion of the court before which any proceeding therefore may be
brought (regardless of whether such enforcement is considered in a proceeding at
law or in equity) (collectively, the "ENFORCEABILITY EXCEPTIONS").
(d) The Shares and the Warrants have been duly authorized
and, when issued upon payment thereof in accordance with this Agreement, will
have been validly issued, fully paid and nonassessable. The Conversion Shares
issuable have been duly authorized and validly reserved for issuance, and when
issued upon conversion of the Shares in accordance with the terms of the
Certificate of Determination, will have been validly issued, fully paid and
nonassessable. The Warrant Shares have been duly authorized and validly reserved
for issuance, and when issued upon exercise of the Warrants in accordance with
the terms thereof, will have been validly issued, fully paid and nonassessable.
The Common Stock of the Company conforms to the description thereof contained in
the Disclosure Documents. The stockholders of the Company have no preemptive or
similar rights with respect to the Common Stock.
(e) No consent, approval, authorization, license,
qualification, exemption or order of any court or governmental agency or body or
third party is required for the performance of the Transaction Documents by the
Company or for the consummation by the Company of any of the transactions
contemplated thereby, or the application of the proceeds of the issuance of the
Securities
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10.02 Mercator Sub Agmt
as described in this Agreement, except for such consents, approvals,
authorizations, licenses, qualifications, exemptions or orders (i) as have been
obtained on or prior to the Closing Date, (ii) as are not required to be
obtained on or prior to the Closing Date that will be obtained when required, or
(iii) the failure to obtain which would not, individually or in the aggregate,
have a Material Adverse Effect.
(f) Except as set forth on SCHEDULE D, none of the Company
or the Subsidiaries is (i) in material violation of its articles of
incorporation or bylaws (or similar organizational document), (ii) in breach or
violation of any statute, judgment, decree, order, rule or regulation applicable
to it or any of its properties or assets, which breach or violation would,
individually or in the aggregate, have a Material Adverse Effect, or (iii)
except as described in the Disclosure Documents, in default (nor has any event
occurred which with notice or passage of time, or both, would constitute a
default) in the performance or observance of any obligation, agreement, covenant
or condition contained in any contract, indenture, mortgage, deed of trust, loan
agreement, note, lease, license, franchise agreement, permit, certificate or
agreement or instrument to which it is a party or to which it is subject, which
default would, individually or in the aggregate, have a Material Adverse Effect.
(g) The execution, delivery and performance by the Company
of the Transaction Documents and the consummation by the Company of the
transactions contemplated thereby and the fulfillment of the terms thereof will
not (a) violate, conflict with or constitute or result in a breach of or a
default under (or an event that, with notice or lapse of time, or both, would
constitute a breach of or a default under) any of (i) the terms or provisions of
any contract, indenture, mortgage, deed of trust, loan agreement, note, lease,
license, franchise agreement, permit, certificate or agreement or instrument to
which any of the Company or the Subsidiaries is a party or to which any of their
respective properties or assets are subject, (ii) the articles of incorporation
or bylaws of any of the Company or the Subsidiaries (or similar organizational
document) or (iii) any statute, judgment, decree, order, rule or regulation of
any court or governmental agency or other body applicable to the Company or the
Subsidiaries or any of their respective properties or assets or (b) result in
the imposition of any lien upon or with respect to any of the properties or
assets now owned or hereafter acquired by the Company or any of the
Subsidiaries; which violation, conflict, breach, default or lien would,
individually or in the aggregate, have a Material Adverse Effect.
(h) The audited consolidated financial statements included
in the Disclosure Documents present fairly the consolidated financial position,
results of operations, cash flows and changes in shareholders' equity of the
entities, at the dates and for the periods to which they relate and have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis; the interim unaudited consolidated financial statements
included in the Disclosure Documents present fairly the consolidated financial
position, results of operations and cash flows of the entities, at the dates and
for the periods to which they relate subject to year-end audit adjustments and
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis with the audited consolidated financial statements
included therein; the selected financial and statistical data included in the
Disclosure Documents present fairly the information shown therein and have been
prepared and compiled on a basis consistent with the audited financial
statements included therein, except as otherwise stated therein; and each of the
auditors previously
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10.02 Mercator Sub Agmt
engaged by the Company or to be engaged in the future by the Company is an
independent certified public accountant as required by the Securities Act for an
offering registered thereunder.
(i) Except as described in the Disclosure Documents, there
is not pending or, to the knowledge of the Company, threatened any action, suit,
proceeding, inquiry or investigation, governmental or otherwise, to which any of
the Company or the Subsidiaries is a party, or to which their respective
properties or assets are subject, before or brought by any court, arbitrator or
governmental agency or body, that, if determined adversely to the Company or any
such Subsidiary, would, individually or in the aggregate, have a Material
Adverse Effect or that seeks to restrain, enjoin, prevent the consummation of or
otherwise challenge the issuance or sale of the Securities to be sold hereunder
or the application of the proceeds therefrom or the other transactions described
in the Disclosure Documents.
(j) The Company and the Subsidiaries own or possess
adequate licenses or other rights to use all patents, trademarks, service marks,
trade names, copyrights and know-how that are necessary to conduct their
businesses as described in the Disclosure Documents. None of the Company or the
Subsidiaries has received any written notice of infringement of (or knows of any
such infringement of) asserted rights of others with respect to any patents,
trademarks, service marks, trade names, copyrights or know-how that, if such
assertion of infringement or conflict were sustained, would, individually or in
the aggregate, have a Material Adverse Effect.
(k) Each of the Company and the Subsidiaries possesses all
licenses, permits, certificates, consents, orders, approvals and other
authorizations from, and has made all declarations and filings with, all
federal, state, local and other governmental authorities, all self-regulatory
organizations and all courts and other tribunals presently required or necessary
to own or lease, as the case may be, and to operate its respective properties
and to carry on its respective businesses as now or proposed to be conducted as
set forth in the Disclosure Documents ("PERMITS"), except where the failure to
obtain such Permits would not, individually or in the aggregate, have a Material
Adverse Effect and none of the Company or the Subsidiaries has received any
notice of any proceeding relating to revocation or modification of any such
Permit, except as described in the Disclosure Documents and except where such
revocation or modification would not, individually or in the aggregate, have a
Material Adverse Effect.
(l) Subsequent to the respective dates as of which
information is given in the Disclosure Documents and except as described
therein, (i) the Company and the Subsidiaries have not incurred any material
liabilities or obligations, direct or contingent, or entered into any material
transactions not in the ordinary course of business or (ii) the Company and the
Subsidiaries have not purchased any of their respective outstanding capital
stock, or declared, paid or otherwise made any dividend or distribution of any
kind on any of their respective capital stock or otherwise (other than, with
respect to any of such Subsidiaries, the purchase of capital stock by the
Company), (iii) there has not been any material increase in the long-term
indebtedness of the Company or any of the Subsidiaries, (iv) there has not
occurred any event or condition, individually or in the aggregate, that has a
Material Adverse Effect, and (v) the Company and the Subsidiaries have not
sustained any material loss or interference with respect to their respective
businesses or properties from fire, flood, hurricane, earthquake, accident or
other calamity, whether or not covered by insurance, or from any labor dispute
or any legal or governmental proceeding.
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10.02 Mercator Sub Agmt
(m) There are no material legal or governmental proceedings
nor are there any material contracts or other documents required by the
Securities Act to be described in a prospectus that are not described in the
Disclosure Documents. Except as described in the Disclosure Documents, none of
the Company or the Subsidiaries is in default under any of the contracts
described in the Disclosure Documents, has received a notice or claim of any
such default or has knowledge of any breach of such contracts by the other party
or parties thereto, except for such defaults or breaches as would not,
individually or in the aggregate, have a Material Adverse Effect.
(n) Each of the Company and the Subsidiaries has good and
marketable title to all real property described in the Disclosure Documents as
being owned by it and good and marketable title to the leasehold estate in the
real property described therein as being leased by it, free and clear of all
liens, charges, encumbrances or restrictions, except, in each case, as described
in the Disclosure Documents or such as would not, individually or in the
aggregate, have a Material Adverse Effect. All material leases, contracts and
agreements to which the Company or any of the Subsidiaries is a party or by
which any of them is bound are valid and enforceable against the Company or any
such Subsidiary, are, to the knowledge of the Company, valid and enforceable
against the other party or parties thereto and are in full force and effect.
(o) Each of the Company and the Subsidiaries has filed all
necessary federal, state and foreign income and franchise tax returns, except
where the failure to so file such returns would not, individually or in the
aggregate, have a Material Adverse Effect, and has paid all taxes shown as due
thereon; and other than tax deficiencies which the Company or any Subsidiary is
contesting in good faith and for which adequate reserves have been provided in
accordance with generally accepted accounting principles, there is no tax
deficiency that has been asserted against the Company or any Subsidiary that
would, individually or in the aggregate, have a Material Adverse Effect.
(p) None of the Company or the Subsidiaries is, or
immediately after the Closing Date will be, required to register as an
"investment company" or a company "controlled by" an "investment company" within
the meaning of the Investment Company Act of 1940, as amended (the "INVESTMENT
COMPANY ACT").
(q) None of the Company or the Subsidiaries or, to the
knowledge of any of such entities' directors, officers, employees, agents or
controlling persons, has taken, directly or indirectly, any action designed, or
that might reasonably be expected, to cause or result in the stabilization or
manipulation of the price of the Common Stock.
(r) None of the Company, the Subsidiaries or any of their
respective Affiliates (as defined in Rule 501(b) of Regulation D under the
Securities Act) directly, or through any agent, engaged in any form of general
solicitation or general advertising (as those terms are used in Regulation D
under the Securities Act) in connection with the offering of the Securities or
engaged in any other conduct that would cause such offering to be constitute a
public offering within the meaning of Section 4(2) of the Securities Act.
Assuming the accuracy of the representations and warranties of the Purchasers in
Section 6 hereof, it is not necessary in connection with the offer, sale and
delivery of the Securities to the Purchasers in the manner contemplated by this
Agreement to register any of the Securities under the Securities Act.
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10.02 Mercator Sub Agmt
(s) Except as set forth in the Disclosure Documents, there
is no strike, labor dispute, slowdown or work stoppage with the employees of the
Company or any of the Subsidiaries which is pending or, to the knowledge of the
Company or any of the Subsidiaries, threatened.
(t) Each of the Company and the Subsidiaries carries
general liability insurance coverage comparable to other companies of its size
and similar business.
(u) Each of the Company and the Subsidiaries maintains
internal accounting controls which provide reasonable assurance that (A)
transactions are executed in accordance with management's authorization, (B)
transactions are recorded as necessary to permit preparation of its financial
statements and to maintain accountability for its assets, (C) access to its
material assets is permitted only in accordance with management's authorization
and (D) the values and amounts reported for its material assets are compared
with its existing assets at reasonable intervals.
(v) Except for a fee payable to Mercator Advisory Group,
the Company does not know of any claims for services, either in the nature of a
finder's fee or financial advisory fee, with respect to the offering of the
Shares and the transactions contemplated by the Transaction Documents.
(w) The Common Stock is listed on the National Association
of Securities Dealers, Inc. OTC Bulletin Board (the "NASD OTC-BB"). Except as
described in the Disclosure Documents, the Company currently is not in violation
of, and the consummation of the transactions contemplated by the Transaction
Documents will not violate, any rule of the National Association of Securities
Dealers.
(x) The Company is eligible to use Form S-1 or SB-2 for the
resale of the Conversion Shares and the Warrant Shares by Purchasers or their
transferees and the Warrant Shares by MAG or its transferees. The Company has no
reason to believe that it is not capable of satisfying the registration or
qualification requirements (or an exemption therefrom) necessary to permit the
resale of the Conversion Shares and the Warrant Shares under the securities or
"blue sky" laws of any jurisdiction within the United States that is the
residence or domicile of any Purchaser.
3. PURCHASE, SALE AND DELIVERY OF THE SHARES. On the basis of
the representations, warranties, agreements and covenants herein contained and
subject to the terms and conditions herein set forth, the Company agrees to
issue and sell to the Purchasers, and Purchasers agree to purchase from the
Company, 4,000,000 Shares of Series D Stock at $1.00 per Share in the amounts
shown on the signature page hereto. In connection with the purchase and sale of
Shares, for no additional consideration, the Purchasers will receive Warrants to
purchase up to an aggregate of 3,000,000 shares of Common Stock, and MAG will
receive Warrants to purchase up to an aggregate of 9,000,000 shares of Common
Stock, subject to adjustment as set forth in the Warrants.
One or more certificates in definitive form for the Shares
that the Purchasers have agreed to purchase, as well as the Warrants, shall be
delivered by or on behalf of the Company, against payment by or on behalf of the
Purchasers, of the purchase price therefor by wire transfer of immediately
available funds to the account of the Company previously designated by it in
writing. Such delivery of and payment for the Shares and the Warrants shall be
made at the offices of Sheppard, Mullin, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, LLP, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇,
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10.02 Mercator Sub Agmt
at not later than 12:00 noon (Los Angeles time) on March 19, 2004 (the
"CLOSING"), or at such date as the Purchasers and the Company may agree upon,
such time and date of delivery against payment being herein referred to as the
"CLOSING DATE." At the Closing or not later than five (5) days after completion
of the Closing, the Company agrees to pay to Mercator Advisory Group, LLC a Due
Diligence fee of $240,000, payable by wire transfer of immediately available
funds to an account of MAG previously designated by it in writing.
4. CERTAIN COVENANTS OF THE COMPANY. The Company covenants and
agrees with each Purchaser as follows:
(a) $3,550,000 of the gross proceeds received from the sale
of the Securities shall be wired to the attorneys' escrow account of Messrs.
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇▇▇, L.L.P., counsel for Intercept, Inc., in
order to enable Media Billing, L.L.C., a 99% owned Subsidiary of the Company to
consummate its acquisition of the members interest of Internet Billing Company,
LLC (the "INTERNET BILLING ACQUISITION").
(b) None of the Company or any of its Affiliates will sell,
offer for sale or solicit offers to buy or otherwise negotiate in respect of any
"security" (as defined in the Securities Act) which could be integrated with the
sale of the Securities in a manner which would require the registration under
the Securities Act of the Securities.
(c) The Company will not become, at any time prior to the
expiration of three years after the Closing Date, an open-end investment
company, unit investment trust, closed-end investment company or face-amount
certificate company that is or is required to be registered under the Investment
Company Act.
(d) None of the proceeds of the Series D Stock will be used
to reduce or retire any insider note or convertible debt held by an officer or
director of the Company.
(e) Subject to Section 10 of this Agreement, the Conversion
Shares and the Warrant Shares will be listed on the NASD OTC-BB, or such market
on which the Company's shares are subsequently listed or traded, immediately
following their issuance.
(f) The Company shall ensure that no officer or director of
the Company sells any shares of Company Common Stock from the Closing Date until
the date that is 90 days following the effective date of the First Registration
Statement, as defined in Section 9 below.
(g) The Company will use its best efforts to do and perform
all things required to be done and performed by it under this Agreement and the
other Transaction Documents and to satisfy all conditions precedent on its part
to the obligations of the Purchasers to purchase and accept delivery of the
Securities.
(h) The Company will pay to ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ a cash
finders fee of $125,000 and within ten days of the Closing issue to ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇ a warrant, substantially identical to the Warrants, entitling such
person or his designee to purchase 500,000 shares of Company Common Stock at the
same per share exercise price as set forth in the Warrants.
-8-
10.02 Mercator Sub Agmt
5. CONDITIONS OF THE PURCHASERS' OBLIGATIONS. The obligation
of each Purchaser to purchase and pay for the Securities is subject to the
following conditions unless waived in writing by the Purchaser:
(a) The representations and warranties of the Company
contained in this Agreement shall be true and correct in all material respects
(other than representations and warranties with a Material Adverse Effect
qualifier, which shall be true and correct as written) on and as of the Closing
Date; the Company shall have complied in all material respects with all
agreements and satisfied all conditions on its part to be performed or satisfied
hereunder at or prior to the Closing Date.
(b) None of the issuance and sale of the Securities
pursuant to this Agreement or any of the transactions contemplated by any of the
other Transaction Documents shall be enjoined (temporarily or permanently) and
no restraining order or other injunctive order shall have been issued in respect
thereof; and there shall not have been any legal action, order, decree or other
administrative proceeding instituted or, to the Company's knowledge, threatened
against the Company or against any Purchaser relating to the issuance of the
Securities or any Purchaser's activities in connection therewith or any other
transactions contemplated by this Agreement, the other Transaction Documents or
the Disclosure Documents.
(c) The Purchasers shall have received certificates, dated
the Closing Date and signed by the Chief Executive Officer and the Chief
Financial Officer of the Company, to the effect of paragraphs 5(a) and (b).
(d) The Purchasers shall have received an opinion of
▇▇▇▇▇▇▇ Savage ▇▇▇▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇, LLP, counsel to the Company, and/or
Florida counsel reasonably satisfactory to the Purchasers, with respect to the
authorization of the Shares, the Warrants and the Warrant Shares and other
customary matters in the form attached hereto as EXHIBIT C.
(e) The Internet Billing Acquisition shall be consummated
with the proceeds from the sale of the Securities acquired by the Purchasers.
(f) The closing bid price of the Company Common Stock on
the Closing Date is equal to or in excess of $0.065 per share.
(g) The Common Stock Purchase Agreement between the
Purchaser and The ▇▇▇▇▇▇-Vector Investment Trust (the "TRUST") shall have been
executed and performed by all parties thereto, and all the conditions to the
obligations of the Trust to sell to the Purchasers those shares referenced in
such Common Stock Purchase Agreement shall have been satisfied.
6. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.
(a) Each Purchaser represents and warrants to the Company
that the Securities to be acquired by it hereunder (including the Conversion
Shares and the Warrant Shares that it may acquire upon conversion or exercise
thereof, as the case may be) are being acquired for its own account for
investment and with no intention of distributing or reselling such Securities
(including the Conversion Shares and the Warrant Shares that it may acquire upon
conversion or exercise thereof, as
-9-
10.02 Mercator Sub Agmt
the case may be) or any part thereof or interest therein in any transaction
which would be in violation of the securities laws of the United States of
America or any State. Nothing in this Agreement, however, shall prejudice or
otherwise limit a Purchaser's right to sell or otherwise dispose of all or any
part of such Conversion Shares or Warrant Shares under an effective registration
statement under the Securities Act and in compliance with applicable state
securities laws or under an exemption from such registration. By executing this
Agreement, each Purchaser further represents that such Purchaser does not have
any contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participation to any Person with respect to any of the
Securities.
(b) Each Purchaser understands that the Securities
(including the Conversion Shares and the Warrant Shares that it may acquire upon
conversion or exercise thereof, as the case may be) have not been registered
under the Securities Act and may not be offered, resold, pledged or otherwise
transferred except (a) pursuant to an exemption from registration under the
Securities Act (and, if requested by the Company, based upon an opinion of
counsel acceptable to the Company) or pursuant to an effective registration
statement under the Securities Act and (b) in accordance with all applicable
securities laws of the states of the United States and other jurisdictions.
Each Purchaser agrees to the imprinting, so long as
appropriate, of the following legend on the Securities (including the Conversion
Shares and the Warrant Shares that it may acquire upon conversion or exercise
thereof, as the case may be):
THE SHARES OF STOCK EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED,
SOLD, PLEDGED OR OTHERWISE TRANSFERRED ("TRANSFERRED") IN THE ABSENCE OF
SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. IN THE ABSENCE OF
SUCH REGISTRATION, SUCH SHARES MAY NOT BE TRANSFERRED UNLESS, IF THE
COMPANY REQUESTS, THE COMPANY HAS RECEIVED A WRITTEN OPINION FROM COUNSEL
IN FORM AND SUBSTANCE SATISFACTORY TO THE COMPANY STATING THAT SUCH
TRANSFER IS BEING MADE IN COMPLIANCE WITH ALL APPLICABLE FEDERAL AND STATE
SECURITIES LAWS.
The legend set forth above may be removed if and when the
Conversion Shares or the Warrant Shares, as the case may be, are disposed of
pursuant to an effective registration statement under the Securities Act or in
the opinion of counsel to the Company experienced in the area of United States
Federal securities laws such legends are no longer required under applicable
requirements of the Securities Act. The Shares, the Warrants, the Conversion
Shares and the Warrant Shares shall also bear any other legends required by
applicable Federal or state securities laws, which legends may be removed when
in the opinion of counsel to the Company experienced in the applicable
securities laws, the same are no longer required under the applicable
requirements of such securities laws. The Company agrees that it will provide
each Purchaser, upon request, with a substitute certificate, not bearing such
legend at such time as such legend is no longer applicable. Each Purchaser
agrees that, in connection with any transfer of the Conversion Shares or the
Warrant Shares by it pursuant to an effective registration statement under the
Securities Act, such Purchaser will comply with all prospectus delivery
requirements of the Securities Act. The Company makes no representation,
warranty or agreement as to the availability of any exemption from registration
under the Securities Act with respect to any resale of the Shares, the
Conversion Shares or the Warrant Shares.
-10-
10.02 Mercator Sub Agmt
(c) Each Purchaser is an "accredited investor" within the
meaning of Rule 501(a) of Regulation D under the Securities Act. No Purchaser
learned of the opportunity to purchase Shares or any other security issuable by
the Company through any form of general advertising or public solicitation.
(d) Each Purchaser represents and warrants to the Company
that it has such knowledge, sophistication and experience in business and
financial matters so as to be capable of evaluating the merits and risks of the
prospective investment in the Securities, having been represented by counsel,
and has so evaluated the merits and risks of such investment and is able to bear
the economic risk of such investment and, at the present time, is able to afford
a complete loss of such investment.
(e) Each Purchaser represents and warrants to the Company
that (i) the purchase of the Securities to be purchased by it has been duly and
properly authorized and this Agreement has been duly executed and delivered by
it or on its behalf and constitutes the valid and legally binding obligation of
the Purchaser, enforceable against the Purchaser in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights generally and to general principles of equity; (ii) the
purchase of the Securities to be purchased by it does not conflict with or
violate its charter, by-laws or any law, regulation or court order applicable to
it; and (iii) the purchase of the Securities to be purchased by it does not
impose any penalty or other onerous condition on the Purchaser under or pursuant
to any applicable law or governmental regulation.
(f) Each Purchaser represents and warrants to the Company
that neither it nor any of its directors, officers, employees, agents, partners,
members, or controlling persons has taken, directly or indirectly, any actions
designed, or might reasonably be expected to cause or result in the
stabilization or manipulation of the price of the Common Stock.
(g) Each Purchaser acknowledges it or its representatives
have reviewed the Disclosure Documents and further acknowledges that it or its
representatives have been afforded (i) the opportunity to ask such questions as
it has deemed necessary of, and to receive answers from, representatives of the
Company concerning the terms and conditions of the offering of the Securities
and the merits and risks of investing in the Securities; (ii) access to
information about the Company and the Company's financial condition, results of
operations, business, properties, management and prospects sufficient to enable
it to evaluate its investment in the Securities; and (iii) the opportunity to
obtain such additional information which the Company possesses or can acquire
without unreasonable effort or expense that is necessary to verify the accuracy
and completeness of the information contained in the Disclosure Documents.
(h) Each Purchaser represents and warrants to the Company
that it has based its investment decision solely upon the information contained
in the Disclosure Documents and such other information as may have been provided
to it or its representatives by the Company in response to their inquiries, and
has not based its investment decision on any research or other report regarding
the Company prepared by any third party ("THIRD PARTY REPORTS"). Each Purchaser
understands and acknowledges that (i) the Company does not endorse any Third
Party Reports and (ii) its actual results may differ materially from those
projected in any Third Party Report.
-11-
10.02 Mercator Sub Agmt
(i) Each Purchaser understands and acknowledges that (i) any
forward-looking information included in the Disclosure Documents supplied to
Purchaser by the Company or its management is subject to risks and
uncertainties, including those risks and uncertainties set forth in the
Disclosure Documents; and (ii) the Company's actual results may differ
materially from those projected by the Company or its management in such
forward-looking information.
(j) Each Purchaser understands and acknowledges that (i)
the Securities are offered and sold without registration under the Securities
Act in a private placement that is exempt from the registration provisions of
the Securities Act and (ii) the availability of such exemption depends in part
on, and that the Company and its counsel will rely upon, the accuracy and
truthfulness of the foregoing representations and Purchaser hereby consents to
such reliance.
7. COVENANTS OF PURCHASERS NOT TO SHORT STOCK. Each Purchaser
and its affiliates and assigns agree: (i) not to short the Company Common Stock
as long as shares of the Series D Stock are outstanding; and (ii) to limit its
sales of the Company's Common Stock in the open market to approximately 10-15%
of the Company's average dollar trading volume or less.
8. TERMINATION.
(a) This Agreement may be terminated in the sole discretion
of the Company by notice to each Purchaser if at the Closing Date:
(i) the representations and warranties made by any
Purchaser in Section 6 are not true and correct in all material respects; or
(ii) as to the Company, the sale of the Securities
hereunder (i) is prohibited or enjoined by any applicable law or governmental
regulation or (ii) subjects the Company to any penalty, or in its reasonable
judgment, other onerous condition under or pursuant to any applicable law or
government regulation that would materially reduce the benefits to the Company
of the sale of the Securities to such Purchaser, so long as such regulation, law
or onerous condition was not in effect in such form at the date of this
Agreement.
(b) This Agreement may be terminated in the sole discretion
of either Purchaser by notice to the Company given in the event that the Company
shall have failed, refused or been unable to satisfy all conditions on its part
to be performed or satisfied hereunder on or prior to the Closing Date, or if
after the execution and delivery of this Agreement and immediately prior to the
Closing Date, trading in securities of the Company or in securities generally on
the New York Stock Exchange, the American Stock Exchange, the Nasdaq National or
Small Cap Market or the OTC Bulletin Board shall have been suspended or minimum
or maximum prices shall have been established on any such exchange.
(c) This Agreement may be terminated by mutual written
consent of all parties.
9. REGISTRATION. Within 60, days from the Closing Date, the
Company shall prepare and file with the SEC a Registration Statement covering
the resale of the maximum number of Conversion Shares issuable upon conversion
of the Shares and the Warrant Shares as well as the
-12-
10.02 Mercator Sub Agmt
shares purchased from the ▇▇▇▇▇▇-Vector Investment Trust (collectively, the
"REGISTRABLE SECURITIES") as set forth in the Registration Rights Agreement
attached hereto as EXHIBIT C.
10. EVENT OF DEFAULT. If an Event of Default (as defined
below) occurs and remains uncured for a period of 5 days, the Purchasers shall
have the right to (i) exercise any or all of the rights given to the Purchasers
relating to the Securities, as further described in the Certificate of
Determination or (ii) immediately convert any or all of the Series D Stock into
shares of Common Stock. In addition, from and including the day following the
date on which an Event of Default occurs, until the date on which the Company
has cured all such situations as have arisen, the Company shall pay liquidated
damages to Holder equal to two percent (2.00%) of the $4,000,000 purchase price
for each complete month or partial month during which such situation exists. Any
amounts to be paid as liquidated damages shall be paid in cash monthly in
arrears on or before the 10th day following the end of the month or partial
month to which they relate.
The Holder need not provide and the Company hereby waives any
presentment, demand, protest or other notice of any kind, and the Holder may
immediately and without expiration of any grace period enforce any and all of
its rights and remedies hereunder and all other remedies available to it under
applicable law. Such declaration may be rescinded and annulled by Holder at any
time prior to payment hereunder. No such rescission or annulment shall affect
any subsequent Event of Default or impair any right consequent thereon.
An "EVENT OF DEFAULT" shall include the commencement by the
Company of a voluntary case or proceeding under the bankruptcy laws or the
Company's failure to: (i) discharge or stay a bankruptcy proceeding within 60
days of such action being taken against the Company, (ii) file the Registration
Statement with the SEC within 60 days after the Closing Date, other than due to
a delay caused by the review process of the SEC and not by the Company, (iii)
the de-listing of the Company's Common Stock from the NASD OTC-BB except for any
periods when the stock is listed on the NASDAQ Small Stock Market, the NASDAQ
National Stock Market, the AMEX or the NYSE, or (iv) pay the expenses referred
to below or the Due Diligence Fee within five (5) days of the Closing.
Notwithstanding the foregoing, Purchasers acknowledge that
General Media, Inc. (a 99.5% owned subsidiary of the Company) and subsidiaries
of General Media, Inc., are debtors in a Chapter 11 bankruptcy case currently
pending in the United States Bankruptcy Court for the Southern District of New
York.
11. NOTICES. All communications hereunder shall be in writing
and shall be hand delivered, mailed by first-class mail, couriered by next-day
air courier or by facsimile and confirmed in writing (i) if to the Company, at
the addresses set forth below, or (ii) if to a Purchaser or MAG, to the address
set forth for such party on the signature page hereto.
If to the Company:
Penthouse International, Inc.
▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Acting Chairman & CEO
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (212)
-13-
10.02 Mercator Sub Agmt
with a copy to:
Gertsten Savage ▇▇▇▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇, LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
All such notices and communications shall be deemed to have
been duly given: (i) when delivered by hand, if personally delivered; (ii) five
business days after being deposited in the mail, postage prepaid, if mailed
certified mail, return receipt requested; (iii) one business day after being
timely delivered to a next-day air courier guaranteeing overnight delivery; (iv)
the date of transmission if sent via facsimile to the facsimile number as set
forth in this Section or the signature page hereof prior to 6:00 p.m. on a
business day, or (v) the business day following the date of transmission if sent
via facsimile at a facsimile number set forth in this Section or on the
signature page hereof after 6:00 p.m. or on a date that is not a business day.
Change of a party's address or facsimile number may be designated hereunder by
giving notice to all of the other parties hereto in accordance with this
Section.
12. SURVIVAL CLAUSE. The respective representations,
warranties, agreements and covenants of the Company and the Purchasers set forth
in this Agreement shall survive until the first anniversary of the Closing.
13. FEES AND EXPENSES. Within five (5) days of Closing, the
Company agrees to pay Purchasers' out-of-pocket expenses (including legal fees
of ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, LLP incurred in connection with the
preparation and negotiation of the Transaction Documents up to $50,000. If any
action at law or in equity is necessary to enforce or interpret the terms of
this Agreement, the Warrants or the Certificate of Determination, the prevailing
party or parties shall be entitled to receive from the other party or parties
reasonable attorneys' fees, costs and necessary disbursements in addition to any
other relief to which the prevailing party or parties may be entitled.
14. SUCCESSORS. This Agreement shall inure to the benefit of
and be binding upon Purchasers, MAG and the Company and their respective
successors and legal representatives, and nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any other person any legal
or equitable right, remedy or claim under or in respect of this Agreement, or
any provisions herein contained; this Agreement and all conditions and
provisions hereof being intended to be and being for the sole and exclusive
benefit of such persons and for the benefit of no other person. Neither the
Company nor any Purchaser may assign this Agreement or any rights or obligation
hereunder without the prior written consent of the other party.
15. NO WAIVER; MODIFICATIONS IN WRITING. No failure or delay
on the part of the Company, MAG or any Purchaser in exercising any right, power
or remedy hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, power or remedy preclude
-14-
10.02 Mercator Sub Agmt
any other or further exercise thereof or the exercise of any other right, power
or remedy. The remedies provided for herein are cumulative and are not exclusive
of any remedies that may be available to the Company, MAG or any Purchaser at
law or in equity or otherwise. No waiver of or consent to any departure by the
Company, MAG or any Purchaser from any provision of this Agreement shall be
effective unless signed in writing by the party entitled to the benefit thereof,
provided that notice of any such waiver shall be given to each party hereto as
set forth below. Except as otherwise provided herein, no amendment, modification
or termination of any provision of this Agreement shall be effective unless
signed in writing by or on behalf of each of the Company, MAG and the
Purchasers. Any amendment, supplement or modification of or to any provision of
this Agreement, any waiver of any provision of this Agreement, and any consent
to any departure by the Company, MAG or any Purchaser from the terms of any
provision of this Agreement shall be effective only in the specific instance and
for the specific purpose for which made or given. Except where notice is
specifically required by this Agreement, no notice to or demand on the Company
in any case shall entitle the Company to any other or further notice or demand
in similar or other circumstances.
16. ENTIRE AGREEMENT. This Agreement, together with
Transaction Documents, constitutes the entire agreement among the parties hereto
and supersedes all prior agreements, understandings and arrangements, oral or
written, among the parties hereto with respect to the subject matter hereof and
thereof.
17. SEVERABILITY. If any provision of this Agreement is held
to be invalid or unenforceable in any respect, the validity and enforceability
of the remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby.
18. APPLICABLE LAW. THE VALIDITY AND INTERPRETATION OF THIS
AGREEMENT, AND THE TERMS AND CONDITIONS SET FORTH HEREIN SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT
GIVING EFFECT TO PROVISIONS RELATING TO CONFLICTS OF LAW TO THE EXTENT THE
APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. THE
PARTIES HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREE THAT ACTIONS, SUITS OR
PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT MAY BE BROUGHT ONLY IN
STATE OR FEDERAL COURTS LOCATED IN THE CITY OF LOS ANGELES, CALIFORNIA AND
HEREBY SUBMIT TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS FOR SUCH PURPOSE.
19. COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
-15-
10.02 Mercator Sub Agmt
If the foregoing correctly sets forth our understanding, please indicate your
acceptance thereof in the space provided below for that purpose, whereupon this
Agreement shall constitute a binding agreement among the Company, the Purchasers
and MAG.
Very truly yours,
Penthouse International, Inc.
By: ___________________________
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇
Title: Vice President
ACCEPTED AND AGREED:
Mercator Momentum Fund, LP Mercator Momentum Fund III, LP
By: Mercator Advisory Group LLC By: Mercator Advisory Group LLC
Its: General Partner Its: General Partner
_______________________ _______________________
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Managing Member Managing Member
Number of Shares Purchased at
Number of Shares Purchased at Closing: __________
Closing: ________
Purchase Price: $_________
Purchase Price: $_________
Mercator Advisory Group LLC
___________________________
By: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Its: Managing Member
-16-
10.02 Mercator Sub Agmt
Addresses for Notice:
Mercator Advisory Group, LLC
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with copy to:
▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Sheppard, Mullin, ▇▇▇▇▇▇▇ & Hampton LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
-17-
10.02 Mercator Sub Agmt
SCHEDULE A
Direct and Indirect Subsidiaries of Penthouse International, Inc.
General Media, Inc.
Del Sol Investments, LLC
PH Realty Associates
Media Billing LLC
SUBSIDIARIES OF GENERAL MEDIA, INC.:
General Media Art Holding, Inc., General Media
Communications, Inc., General Media Entertainment,
Inc., General Media (UK), Ltd., GMCI Internet
Operations, Inc., GMI On-Line Ventures, Ltd.,
Penthouse Images Acquisitions, Ltd. and Pure
Entertainment Telecommunications, Inc.
SUBSIDIARY OF DEL SOL INVESTMENTS, LLC:
Del Sol Investments SA de CV (Mexico)
SUBSIDIARY OF MEDIA BILLING, LLC
Internet Billing Company, LLC (proposed)
Schedule A
EXHIBIT A
Warrant
(attached hereto)
Exhibit A
EXHIBIT B
Certificate of Determination of
Series D Convertible Preferred Stock
of
Penthouse International, Inc.
Exhibit B
EXHIBIT C
Form of Legal Opinion
1. The Company is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Florida, with corporate power to
own its properties and to conduct its business.
2. The Company has the corporate power to execute, deliver and perform
the Transaction Documents. The Transaction Documents have been duly authorized
by all requisite corporate action by the Company and constitute the valid and
binding obligations of the Company, enforceable in accordance with their terms
(subject to bankruptcy, equitable principles and other customary exceptions).
3.
(a) The authorized capital stock of the Company consists of
20,000,000 shares of Preferred Stock, and 750,000,000 shares of Common Stock.
(b) The shares of the Company's Series D Stock have been duly
authorized and, upon issuance, delivery, and payment therefor as described in
the Subscription Agreement, will be validly issued, fully paid and
nonassessable.
(c) The shares of the Company's Common Stock initially issuable
upon conversion of the shares of Series D Stock sold have been duly authorized
and reserved for issuance and, upon issuance and delivery upon conversion of the
Shares as described in the Certificate of Determination, will be validly issued,
fully paid and nonassessable.
(d) The shares of the Company's Common Stock issuable upon exercise
of the Warrants have been duly authorized and reserved for issuance, and upon
issuance, delivery, and payment therefor in accordance with the Warrants, will
be validly issued, fully paid and nonassessable.
4. The Company's execution and delivery of the Transaction Documents
and the issue and sale of the Shares and the Warrants, on the terms and
conditions set forth in the Subscription Agreement, will not violate any law of
the United States or the State of Florida, any rule or regulation of any
governmental authority or regulatory body of the United States or the State of
Florida or any provision of the Company's Amended and Restated Articles of
Incorporation or Bylaws.
5. No consent, approval, order or authorization of, and no notice to or
filing with, any governmental agency or body or any court is required to be
obtained or made by the Company for the issuance and sale of the Shares sold and
the Warrants pursuant to the Transaction Documents, except such as have been
obtained or made and such as may be required under applicable securities laws.
-1-
6. On the assumption that the representations of the Purchasers in the
Subscription Agreement are correct and complete, the offer and sale of the
Shares and the Warrants pursuant to the terms of the Subscription Agreement are
exempt from the registration requirements of Section 5 of the Securities Act of
1933, as amended, and from the qualification requirements of California
securities statutes and regulations, and, under such securities laws as they
presently exist, the issuance of the Company's Common Stock upon conversion of
the Shares and exercise of the Warrants would also be exempt from such
registration and qualification requirements.
7. We know of no pending or overtly threatened action, proceeding or
governmental investigation with respect to the Company's sale of Series D Stock
and Warrants pursuant to the Transaction Documents.
-2-