-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ES/xudjGCt4b7IuvzQ44n1g4Vr+wCWuZY3zMshxRzAS1Md/t7I8LbmSgOO9rcmk3 TAEajPFLTH0ogSC4QE+Epw== 0000930413-04-001989.txt : 20040421 0000930413-04-001989.hdr.sgml : 20040421 20040421165238 ACCESSION NUMBER: 0000930413-04-001989 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20040415 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20040421 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PENTHOUSE INTERNATIONAL INC CENTRAL INDEX KEY: 0001164123 STANDARD INDUSTRIAL CLASSIFICATION: PERIODICALS: PUBLISHING OR PUBLISHING AND PRINTING [2721] IRS NUMBER: 651158257 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 333-83448 FILM NUMBER: 04745984 BUSINESS ADDRESS: STREET 1: 11 PENN PLAZA CITY: NEW YORK STATE: NY ZIP: 10001 BUSINESS PHONE: 7022481588 MAIL ADDRESS: STREET 1: 11 PENN PLAZA CITY: NEW YORK STATE: NY ZIP: 10001 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN PULP EXCHANGE INC DATE OF NAME CHANGE: 20011227 8-K 1 c32027_8k.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 Date of Report (Date of earliest event reported) April 15, 2004 PENTHOUSE INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) FLORIDA 65-1158257 (State of incorporation) (IRS Employer Identification No.) 2200 S.W. 10TH STREET, DEERFIELD BEACH, FLORIDA 33442 (Address of principal executive offices) (954) 363-4400 (Registrant's telephone number) ITEM 5. OTHER EVENTS BANKRUPTCY PROCEEDINGS We are an entertainment company with concentrations in publishing, licensing, real estate and digital commerce. We are structured as a holding company with assets consisting primarily of controlling interests in four distinct operating subsidiaries: General Media, Inc. ("General Media") acquired in November 2002, Internet Billing Company LLC ("iBill") acquired in March 2004 and two real estate holding subsidiaries, PH Realty Associates LLC ("PH Realty") acquired in February 2004, and Del Sol Investments LLC ("Del Sol") acquired in January 2004. Historically our revenues have been derived principally from the PENTHOUSETM related publishing activities conducted by our 99.5% owned subsidiary General Media and its subsidiaries. General Media failed to make a required principal payment in the amount of $1.3 million that was due on June 29, 2003 and an additional $1.45 million interest payment that was due on June 30, 2003 on its approximately $40.0 million outstanding principal amount of 15% Series C senior secured notes due March 29, 2004 issued by General Media (the "Senior Secured Notes"). On July 8, 2003, the trustee under the indenture governing the issuance of the Senior Secured Notes issued a notice of event of default and the Senior Secured Notes became callable. We entered into negotiations with the then holders of a majority of the principal amount of the Senior Secured Notes. When such negotiations failed, on August 12, 2003, General Media and eight of 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., General Media On-Line Ventures, Ltd., Penthouse Images Acquisitions, Ltd. and Pure Entertainment Telecommunications, Inc. (collectively, the "Debtors"), filed voluntary petitions for relief under Chapter 11 of Title 11 of the United States Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court"). As a result of the filing, no principal or interest payments have been or will be made on the Senior Secured Notes or other indebtedness incurred by the Debtors prior to August 12, 2003, until a plan of reorganization defining the payment terms has been approved by the Bankruptcy Court. Penthouse International, Inc. did not file for protection under the Bankruptcy Code and its activities, as well as the activities of our iBill and real estate subsidiaries, are not subject to the jurisdiction of the Bankruptcy Court. The Debtors are managing their properties and operating their businesses as "debtors-in-possession" subject to the jurisdiction, supervision and orders of the Bankruptcy Court (Case No. 03-15078) and in accordance with Sections 1107(a) and 1108 of the Bankruptcy Code. As debtors-in-possession, General Media and the other Debtors are authorized to operate their businesses, but may not engage in transactions outside the ordinary course of business without the approval of the Bankruptcy Court. On December 22, 2003, the Debtors filed a Joint Plan of Reorganization (the "December 2003 Plan") and the related disclosure statement. The December Plan was the result of negotiation between the Debtors, NAFT Ventures I LLC ("NAFT"), the lender under the Debtors' current DIP Facility, and three other parties who collectively hold approximately 89% of the principal amount of the outstanding Senior Secured Notes, and the official committee of unsecured credits appointed in the Debtor's bankruptcy case (the "Creditors' Committee"). Under the December 2003 Plan, the Senior Secured Noteholders would have exchanged their Senior Secured Notes for 100% of General Media's new common stock, plus new term loan notes of up to $27.0 million. The creditors' committee also supported the December Plan, pursuant to which the general unsecured creditors (holding claims aggregating between approximately $10.0 to12.0 million) would recover a total of $5.0 million, payable $2.0 million in cash and $3.0 million principal amount of the new term loan notes. No recovery was allotted for holders of General Media's preferred or common share equity under the December 2003 Plan. If the December 2003 Plan had been confirmed according to its terms, Penthouse International, Inc. (which acquired control of the equity of General Media in November 2002), as the 99.5% equity holder of General Media, would have lost our entire equity interest in General Media, which would have had severe negative consequences for us and our shareholders. On March 3, 2004, the Debtors filed a First Amended Joint Plan of Reorganization (the "First Amended Plan"), which was the result of negotiation between the Debtors, Dr. Luis Enrique Fernando Molina and Post Advisory Group, LLC ("Post"), a prospective senior secured lender to provide exit financing for the Debtors upon confirmation of the First Amended Plan. Under the proposed First Amended Plan, all holders of Senior Secured Notes would be paid in full in cash (inclusive of accrued and unpaid interest), and all unsecured creditors would be paid in full in cash the face amount of their allowed claims. Under the First Amended Plan, the outstanding $14.0 million stated amount of General Media preferred stock (issued in connection with a 2002 refinancing of the Senior Secured Notes) would have been reinstated under General Media's articles of incorporation. As a result, holders of the General Media preferred stock would be entitled to redeem the stated value of such securities in 2006 only out of available surplus, if any, of General Media and lose their right to elect directors of General Media. Under the First Amended Plan, the old common shares would have been cancelled and new shares representing 100% of the reorganized equity of General Media would have been issued to Penthouse International, Inc. in exchange for capital contribution of approximately $38 million. The holders of 75% of the outstanding General Media preferred stock, who are also holders of approximately 89% of the General Media Senior Secured Notes, informally objected to the Debtors First Amended Plan, and on March 11, 2004, filed their own Plan of Reorganization (the "Bell Plan") with the Bankruptcy Court. Under its terms, if the Bell Plan were confirmed by the Bankruptcy Court, Penthouse International, Inc. would lose its entire equity stake in General Media, which would have had severe negative consequences for our company and its stockholders. On March 31, 2004, Dr. Luis Enrique Fernando Molina (the trustee of our principal shareholder), our company, NAFT (the holder of General Media's DIP Financing facility) and the three holders of 75% of the outstanding shares of General Media Series A preferred stock, who also hold approximately 89% of the outstanding principal amount of General Media Senior Secured Notes (collectively, the "Majority General Media Preferred Stockholders") entered into a preferred stock purchase agreement. On April 15, 2004, Dr. Molina consummated the transactions under such agreement by purchasing all of the approximately $10.25 million face amount of General Media Series A preferred stock owned by the Majority General Media Preferred Stockholders. The consideration was paid in the form of Dr. Molina's 8% increasing rate $10.25 million promissory notes due as to principal on March 31, 2008. Interest under such notes (the "Molina Notes") is payable quarterly at the rate of 8% per annum until March 31, 2006, 9% per annum for the 12 months ending March 31, 2007 and 10% per annum thereafter. After the March 31, 2008 maturity date, interest on any unpaid amount is at the rate of 15% per annum. The Molina Notes are secured by the unconditional guaranty of our company and The Molina Vector Investment Trust (a family trust in which Dr. Molina is the sole voting trustee), and by a pledge by The Molina Vector Investment Trust of approximately 90% of the outstanding shares of our Series C Preferred Stock. Such shares of Series C Preferred Stock, issued in January 2004 in exchange for the equity in the entity owning the Ixapa-Zijuatanejo, Mexico real estate, have a stated liquidation value of $105.0 million, are convertible into our common stock at a price of $3.00, subject to an automatic anti-dilution adjustment to $0.11 per share which was triggered by the issuance of the previously disclosed Laurus Notes (as reported on the Form 8-K filed with the SEC on February 27, 2004) and have the power to elect a majority of the members of our board of directors. Under the terms of the March 31, 2004 agreement, the Majority General Media Preferred Stockholders agreed to withdraw the Bell Plan and support the Debtors' First Amended Plan, as further amended; provided, that if the Debtors are, for any reason, unable to obtain final confirmation of the First Amended Plan, as amended, by August 6, 2004, then NAFT and the Majority General Media Preferred Stockholders (in their capacity as holders of 89% of the Senior Secured Notes) could repurchase the shares of General Media preferred stock sold to Dr. Molina by causing Dr. Molina to pay $2.0 million in cash in exchange for cancellation of the Molina Note. In addition, the Majority General Media Preferred Stockholders could then file their own plan of reorganization or otherwise seek to effect a sale of the assets of the Debtors under Section 363 of the Bankruptcy Act. On April 21, 2004, the Debtors filed their Second Amended Plan with the Bankruptcy Court. Under the proposed Second Amended Plan, upon final confirmation: o all administrative and priority claims will be paid in full in cash on the effective date; o the claims of all holders of Senior Secured Notes will be paid in full in cash on the effective date, together with accrued and unpaid default interest and fees; o all allowed unsecured creditor claims (estimated at approximately $10.0 to $12.0 million) will be paid in full in cash at confirmation, without interest; o all outstanding General Media preferred stock (having a stated value of approximately $14.0 million) will be extinguished; and - 2 - o the existing common stock of General Media will be cancelled and new shares representing 100% of the common stock of reorganized General Media will be issued to our company. It is anticipated that the Debtors' Second Amended Plan, will be financed through a minimum of $30.0 million senior secured debt facility to be provided to the Debtors by Post and the balance (estimated at approximately $38 million) through capital contributions provided to the Debtors by our company. Our source of financing will be loans and equity to be provided by Dr. Molina and others. The proposed $30.0 million Post senior secured credit facility for the Debtors would be secured by a first priority lien on all of the assets of the Debtors and its subsidiaries. In accordance with a March 2, 2004 financing commitment from Post, indebtedness under this $30.0 million facility would be evidenced by notes of General Media and its subsidiaries that would mature on June 1, 2010 and pay an annualized rate of interest of 14%, provided, that such rate would increase to 16% in the event that the earnings before interest, taxes, depreciation and amortization of General Media and its subsidiaries is less than $2,000,000 for the three-month period ending immediately prior to the delivery of the proceeds. On March 2, 2004, we received a commitment from Dr. Molina to provide financing in an amount that, together with the proceeds of the Post debt financing(s) or other related "exit financing" for the Debtors, would be sufficient to fully fund the Debtors' Second Amended Plan. Under the terms of his commitment, the initial $10.0 million invested in our company would be provided in consideration for newly designated shares of our 12% convertible preferred stock, convertible into common stock at $0.11 per share. The new series of preferred stock would, together with our Series C Preferred Stock owned by the Molina Vector Trust, have the power to elect a majority of the members of our board of directors. The balance of the financing to be provided would be evidenced by our 13% notes due 2012. Such proposed notes would pay interest only for three years, payable at our option either in cash or accrue, and be amortized as to principal after three years in 20 quarterly installments of principal, plus accrued interest until maturity. Our 13% notes payable to Dr. Molina or his affiliates would be guaranteed by our Del Sol Investments LLC and Del Sol Investments SA de CV subsidiaries and secured by (i) a pledge of the capital stock of such subsidiaries and our equity in General Media, and (ii) a mortgage on the property owned by our Del Sol subsidiaries; in each case, subordinated to the prior liens held by Post or other providers of exit financing. Upon confirmation of the Debtors' Second Amended Plan, as amended, we intend that General Media will enter into a long-term employment agreement with Robert C. Guccione under which he will continue to serve as Chairman of General Media and Editor-in-Chief of all PENTHOUSE publications. In addition, subject only to our obligations to the holders of our $24.0 million mortgage note on the property, Mr. Guccione will continue to occupy the townhouse located at 14-16 East 67th Street, New York, New York under a lifetime lease at an annual rental of $1.00 per annum. As at the date of this Form 10-K, a hearing on confirmation of the Debtors' Second Amended Plan, has been tentatively scheduled for June 2004. There can be no assurance that: o we and the Debtors will be able to obtain financing from Post, Dr. Molina or any other third parties in an aggregate amount sufficient to fund the Debtors' proposed Second Amended Plan, as amended; or o the Bankruptcy Court will issue a final order confirming a plan of reorganization. RECENT FINANCING In April 2004, we sold 10,090,158 shares of our common stock for $1.2 million ($0.11 per share) to Western Pacific Investment Corp. and its affiliates, a private family investment group located in California. In a related transaction, The Molina Vector Investment Trust sold an aggregate of 2,424,242 shares of its common stock to certain of the purchasers for $6,061. Neither Western Pacific nor any of their affiliates have had any prior association with our company prior to such investment. We made this issuance in reliance upon the exemption from registration set forth in Section 4(2) of the Securities Act. DELAY IN FILING OUR FORM 10-K Our Form 10-K Annual Report for the fiscal year ended December 31, 2003 (the "2003 Form 10-K") was due to be filed with the Securities and Exchange Commission on or before April 15, 2004. For the reasons outlined below, we - 3 - were unable to make such filing on a timely basis and presently anticipate that our 2003 Form 10-K will be filed on or before May 15, 2003. We were unable to timely file the 2003 Form 10-K for the following reasons: o As reported in our Form 8-K and Form 8-K/A filed on April 6, 2004 and April 8, 2004, respectively, we only engaged Stonefield Josephson, Inc. as our new auditors as of April 2, 2004. Although an account manager at such firm, through a prior affiliation, is familiar with the accounts of our General Media subsidiary, such firm was unable to complete the audit and all necessary procedures by April 15, 2004; and o As disclosed in our Form 10-Q filing for the nine months ended September 30, 2003 and in the Form 8-K filings subsequent thereto, since November 2003 and through the first three and one-half months of 2004 we have effected a number of significant transactions, including a change of control, a significant acquisition and private financings. All of these items need to be reviewed by our new auditors and properly disclosed in a "subsequent events" footnote in the footnotes to our audited consolidated financial statements as at December 31, 2003 and for the fiscal year then ended. In addition to the foregoing, as a result of our recent acquisition of iBill, in anticipation of confirming a satisfactory plan of reorganization for General Media and subsidiaries, and in order to be in compliance with the Sarbanes-Oxley Act of 2002 (including the rules issued by the Securities and Exchange Commission thereunder), we are seeking to expand our board of directors to obtain the services of qualified independent individuals to constitute a majority of our board of directors. In such connection, we are also seeking to engage the services of additional senior executive officers, including a qualified Chief Financial Officer, establish a code of ethics for this person and our other senior executive officers, and appoint an audit committee consisting solely of independent members of our board of directors. These efforts are ongoing, and we hope to have achieved substantially all, if not all, of our efforts to reorganize our corporate infrastructure in time to make appropriate disclosures in our 2003 Form 10-K, when filed with the Securities and Exchange Commission. As a result of our inability to timely file our 2003 Form 10-K, our common stock, which trades on the National Association of Securities Dealers over-the-counter bulletin board (the "OTC-BB") under the symbol "PHSL," will have an "E" designation added to such symbol. In addition, the OTC-BB has the right to delist our shares from trading on the OTC-BB as a result of our inability to timely file our 2003 Form 10-K, and if we do not file our 2003 Form 10-K within the near future, it may be anticipated that our shares will be delisted from trading. Such delisting would constitute a default under certain agreements we have entered into and could materially and adversely affect our business and future prospects, including our future ability to raise capital. ITEM 7. EXHIBITS EXHIBITS - THE FOLLOWING DOCUMENTS ARE ATTACHED AS EXHIBITS TO THIS REPORT ON FORM 8-K: 99.1 Subscription agreement, dated as of April 13, 2004 between Penthouse International, Inc. and Western Pacific Investment Corp. 99.2 Common Stock purchase agreement, dated as of April 13, 2004 between The Molina Vector Investment Trust and Western Pacific Investment Corp. 99.3 Preferred Stock Purchase Agreement, dated as of March 31, 2004, among PET Capital Partners, LLC, Absolute Return Europe Fund, Susan Devine, NAFT Ventures I, LLC, Dr. Luis Enrique Molina Galeana, The Molina Vector Investment Trust and Penthouse International, Inc. - 4 - Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunder duly authorized. PENTHOUSE INTERNATIONAL, INC. By: /s/ Claude Bertin -------------------------------- Claude Bertin Executive Vice President April 21, 2004 EX-99.1 3 c32027_ex99-1.txt EXHIBIT 99.1 PENTHOUSE INTERNATIONAL, INC. SHARES OF COMMON STOCK SUBSCRIPTION AGREEMENT April 13, 2004 Western Pacific Investment Corp. 5843 Hempstead Drive Agoura Hills, California 91301-4426 Attn: Stanley Weiner, President Gentlemen: Penthouse International, Inc., a Florida corporation (the "COMPANY"), hereby confirms its agreement with you (the "PURCHASER"), as set forth below. 1. THE SECURITIES. Subject to the terms and conditions herein contained, the Company proposes to issue and sell to those specific designees of the Purchaser set forth in Section 3 below (the "PURCHASE DESIGNEES") an aggregate of 10,909,158 shares (the "SHARES") of its Common Stock, $0.0025 par value per share (the "COMMON Stock"). The 10,909,158 Shares and the 2,424,242 additional shares of Common Stock of the Company being purchased by the Purchaser Designees pursuant to that certain Stock Purchase Agreement dated April 13, 2004, simultaneous with the Closing under this Agreement, directly from The Molina-Vector Investment Trust (the "Trust") are sometimes herein collectively referred to as the "SECURITIES." This agreement ("Agreement") and the Common Stock Purchase Agreement, dated of even date herewith, between the Purchaser and the Trust (the "TRUST PURCHASE AGREEMENT") are sometimes herein collectively referred to as the "TRANSACTION DOCUMENTS." The Securities will be offered and sold to the Purchaser Designees 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 EDGAR system) to Purchaser its periodic and current 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, 2002. These reports, 1 forms, schedules, statements, documents, filings and amendments, are collectively referred to as the "DISCLOSURE DOCUMENTS." All references in this Agreement to (a) 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, and (b) "Purchaser" shall be deemed to mean and include all "PURCHASER DESIGNEES" (as specified in Section 3 hereof). 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to and agrees with Purchaser as follows; PROVIDED, HOWEVER, that Purchaser 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 in the United States Bankruptcy Court for the Southern District of New York (the "BANKRUPTCY CASE"), (b) the Purchaser 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 an 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) Each of the Company and its subsidiaries set forth on SCHEDULE A attached hereto (the "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 based on a reasonable person standard (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 2 the Disclosure Documents or on SCHEDULE A, the Company 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, or owner of any indebtedness of 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 enter into and execute, deliver and perform its obligations under the Transaction Documents, including, without limitation, to transfer and sell the Shares to Purchaser. 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 Company has sole legal, nominal and beneficial ownership and title to the Shares, free and clear of all adverse interests, liens, claims and encumbrances, and has the sole right to vote or direct the voting of the Shares. The delivery of the Certificate or certificates representing the Shares owned by the Company, duly endorsed or accompanies by duly executed stock powers, will transfer to Purchaser good and indefeasible title to such shares, free and clear of all liens, proxies, encumbrances and claims of every kind and the Company will forever warrant and defend (with counsel acceptable to Purchaser) such title, and indemnify Purchaser for all adverse claims, demands, or liability with respect to the validity of such title or transfer thereof, against any claimants thereto. The Shares 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 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. 3 (e) No consent, approval, authorization, license, qualification, exemption or order of any court or governmental agency or body or third party or other act 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 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, or (ii) as are not required to be obtained on or prior to the Closing Date that will be obtained when required. (f) Except as set forth on SCHEDULE D, none of the Company or the Subsidiaries or any of their operations, 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, applicable law, rule or regulation applicable to it or any of its properties or assets, or (iii) except as described in the Disclosure Documents, in default or breach (nor has any event occurred which with notice or passage of time, or both, would constitute a default or breach) 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 or breach would, individually or in the aggregate, have a Material Adverse Effect or which would create any liability, obligation, cost or expense to for Purchaser after the Closing. (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) (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; (c) give any third party the right to terminate or accelerate any obligation of Company 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 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 are accurate and complete and 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 are accurate and complete and 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 4 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 are accurate and complete and 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 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, or any other party that, if determined adversely to the Company or any such Subsidiary, would, individually or in the aggregate, have a Material Adverse Effect, would adversely effect the Company's performance under the Agreement or which may result in an obligation or liability on Purchaser after the closing of this transaction or which have created or might in the future create a lien or adverse claim against the Shares, that have not been corrected or disclosed in writing to Purchaser, nor are there any threats thereof known to the Company, 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. (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 5 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. (m) There are no legal or governmental proceedings nor are there any 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 or breach under any of the contracts described in the Disclosure Documents, has received a notice or claim of any such default or breach 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. All 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, 6 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 Purchaser in Section 6 hereof, it is not necessary in connection with the offer, sale and delivery of the Securities to the Purchaser in the manner contemplated by this Agreement to register any of the Securities under the Securities Act. (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 Dayani Partners, LLP, 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 Shares by Purchaser 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 Shares under the securities or "blue sky" laws of any jurisdiction within the United States that is the residence or domicile of the Purchaser. (y) The Company has no reason to believe that the Proposed Plan will not be approved within the twelve months of the date of this Agreement. 7 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 Purchaser Designees, and the Purchaser Designees agree to purchase from the Company, an aggregate of 10,909,158 Shares of Common Stock, for an aggregate purchase price for all of the Shares of $1,200,007.30 (the "PURCHASE PRICE"). Such Purchase Price, being an average of $0.11 per share, shall be payable in cash in immediately available funds on the Closing Date to an account designated by the Company. The 10,909,158 Shares of Common Stock shall be purchased by the following Purchaser Designees, at the respective Purchase Prices allocable to each such Purchaser Designee, all as set forth below: H. Robert Weiner Trust of 1983 - 3,110,700 Shares of Common Stock for $594,143.95 Blanche Weiner Trust of 1982 - 3,110,700 Shares of Common Stock for $594,143.95; Elliot Bruce Weiner - 2,343,879 Shares of Common Stock for $5,859.70; Elana May Essers - 1,171,939.5 Shares of Common Stock for $2,929.85; Terrence Samuel Weiner - 1,171,939.5 Shares of Common Stock for $2,929.85. One or more certificates in definitive form for the Shares that the Purchaser Designees has agreed to purchase shall be delivered by or on behalf of the Company, on a date which shall be not later than five business days following the Closing Date, against payment by or on behalf of the Purchaser, 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 payment for the Shares shall be made at the offices of the Purchaser, at not later than 12:00 noon (Los Angeles time) on or before April 15, 2004 (the "CLOSING"), or at such date as the Purchaser and the Company may agree upon, such time and date of delivery against payment being herein referred to as the "CLOSING DATE." 4. CERTAIN COVENANTS OF THE COMPANY. The Company covenants and agrees with the Purchaser as follows: (a) 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. (b) 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. (c) None of the proceeds of the Shares will be used to reduce or retire any insider note or convertible debt held by an officer or director of the Company. 8 (d) Subject to Section 10 of this Agreement, the 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. (e) 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. (f) 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 Purchaser to purchase and accept delivery of the Securities. 5. CONDITIONS OF THE PURCHASER' OBLIGATIONS. The obligation of the 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 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 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 the Purchaser relating to the issuance of the Securities or the Purchaser's activities in connection therewith or any other transactions contemplated by this Agreement, the other Transaction Documents or the Disclosure Documents. (c) The Purchaser 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 Purchaser shall have received an opinion of Gersten Savage Kaplowitz Wolf & Marcus, LLP, counsel to the Company, reasonably satisfactory to the Purchaser, with respect to the authorization of the Shares and other customary matters in the form attached hereto as EXHIBIT A. (e) Prior to the close of this transaction, the Company shall give Purchaser immediate notice of the occurrence of any event or the receipt by the Company of any notice or knowledge the effect of which would be to make a representation or warranty of the Company herein untrue or misleading if made on or immediately following the occurrence of such event or the receipt of such notice or knowledge. the Company hereby agrees to protect, 9 indemnify, and defend Purchaser, and Purchaser's nominee, against and to hold Purchaser, and Purchaser's nominee, harmless from any and all costs, claims, losses, attorneys' fees, liabilities, and other expenses that Purchaser, or Purchaser's nominee, may incur or to which Purchaser, or Purchaser's nominee, may be exposed as a result of the Company's breach of or the falsity of any of the Company's representations or warranties in this Agreement or as a result of the Company's breach of or failure to perform or observe any of the Company's covenants in this Agreement. 6. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. (a) The Purchaser represents and warrants to the Company that the Securities to be acquired by it hereunder are being acquired for its own account for investment and with no intention of distributing or reselling such Securities 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. Notwithstanding the foregoing, the Purchaser may elect to assign all or a portion of the Shares to its stockholder, to the relatives of such stockholder or any trust established for the benefit of such persons; and the Company does hereby consent to any such assignment(s). 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 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, the 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) The 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. The Purchaser agrees to the imprinting, so long as appropriate, of the following legend on the Securities: 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. 10 The legend set forth above may be removed if and when the Securities 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 Securities 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 the Purchaser, upon request, with a substitute certificate, not bearing such legend at such time as such legend is no longer applicable. The Purchaser agrees that, in connection with any transfer of the Securities 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 Securities. (c) The Purchaser is an "accredited investor" within the meaning of Rule 501(a) of Regulation D under the Securities Act. The Purchaser did not learn of the opportunity to purchase Shares or any other security issuable by the Company through any form of general advertising or public solicitation. (d) The 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) The 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) The Purchaser represents and warrants to the Company that neither it nor any of its directors, officers, employees, agents, partners, stockholders, 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) The 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 11 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) The 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"). The 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. (i) The 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) The 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 PURCHASER NOT TO SHORT STOCK. The Purchaser and its affiliates and assigns agree: (i) not to short the Company Common Stock; and (ii) to limit its sales of the Company's Common Stock in the open market to approximately 25% 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 the Purchaser if at the Closing Date: (i) the representations and warranties made by the 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 12 benefits to the Company of the sale of the Securities to the 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 the 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 all of the Shares purchased pursuant to this Agreement as well as the shares purchased from The Molina-Vector Investment Trust under the Trust Purchase Agreement (collectively, the "REGISTRABLE SECURITIES") for an offering to be made on a continuous basis pursuant to Rule 415 (the "REGISTRATION STATEMENT"). The Registration Statement required hereunder shall be on Form S-1 or SB-2. The Company shall use its best efforts to cause such Registration Statement to become effective within 60 days after the initial filing with the SEC. The Company shall use its best efforts to keep such Registration Statement continuously effective under the Securities Act until the date which is three years after the date that such Registration Statement is declared effective by the SEC or such earlier date when all Registrable Securities covered by such Registration Statement have been sold or may be sold without volume restrictions pursuant to Rule 144(k) as determined by the counsel to the Company pursuant to a written opinion to such effect addressed and acceptable to the Company's transfer agent. The Company shall use its best efforts to enable the holders of Registrable Shares to sell the Registrable Shares legally under the state securities or "blue sky" laws during all times during which the Registrable Shares may be sold pursuant to the Registration Statement. 10. EVENT OF DEFAULT. If an Event of Default (as defined below) occurs and remains uncured for a period of 5 days, the Company shall pay liquidated damages to Purchaser equal to two percent (2.00%) of the $1,200,007.30 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. An "EVENT OF DEFAULT" shall mean 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 90 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. 13 Notwithstanding the foregoing, Purchaser acknowledges 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, to the address set forth for such party on the signature page hereto. If to the Company: Penthouse International, Inc. 2200 S.W. 10th Street, Deerfield Beach, Florida 33442 Attention: President Telephone: (954) 363-4400 with a copy to: Gertsten Savage Kaplowitz Wolf & Marcus, LLP 101 East 52nd Street, New York, New York 10022 Attn: Stephen A. Weiss, Esq. Telephone: (212) 752-9700 Facsimile: (212) 980-5192 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 Purchaser set forth in this Agreement shall survive until the third anniversary of the Closing. 13. FEES AND EXPENSES. Within five (5) days of Closing, the Company agrees to pay Purchaser's out-of-pocket expenses (including legal fees of Purchaser's legal counsel, incurred in connection with the preparation and negotiation of the Transaction Documents up to a maximum of $10,000). If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, 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 14. SUCCESSORS. This Agreement shall inure to the benefit of and be binding upon the Purchaser 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. Except as otherwise provided in Section 6(a) of this Agreement, neither the Company nor the 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 or the 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 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 or the Purchaser at law or in equity or otherwise. No waiver of or consent to any departure by the Company or the 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 and the Purchaser. 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 or the 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 15 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. 20. NO IMPAIRMENT. The Company will not, by amendment of its Certificate of Incorporation, or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, or take any action which would dilute or adversely affect the ownership interest of Purchaser in the Company, but will at all times in good faith assist in carrying out of all of the provisions of this Agreement, and to take all such actions as may be necessary or appropriate in order to protect and insure the rights of Purchaser against impairment. [the balance of this page intentionally left blank] 16 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 and the Purchaser. Very truly yours, PENTHOUSE INTERNATIONAL, INC. By: ----------------------------- Name: Claude Bertin Title: Vice President ACCEPTED AND AGREED: WESTERN PACIFIC INVESTMENT CORP. By: ------------------------------- Stanley Weiner, President Address: 5843 Hempstead Drive Agoura Hills, CA 91301-4426 Hooman Dayani, Esq. DAYANI PARTNERS, LLP 4751 Wilshire Boulevard, Suite 203 Los Angeles, California 90010 Tel: (323) 658-1184 Fax: (323) 658-6512 Number of Shares Purchased at Closing: 10,909,158 Purchase Price: $1,200,007.30 17 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 18 EXHIBIT A 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 Common 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. 4. The Company's execution and delivery of the Transaction Documents and the issue and sale of the Shares, 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 pursuant to the Transaction Documents, except such as have been obtained or made and such as may be required under applicable securities laws. 6. On the assumption that the representations of the Purchaser in the Subscription Agreement are correct and complete, the offer and sale of the Shares 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. 7. We know of no pending or overtly threatened action, proceeding or governmental investigation with respect to the Company's sale of Shares pursuant to the Transaction Documents. -1- EX-99.2 4 c32027_ex99-2.txt EXHIBIT 99.2 COMMON STOCK PURCHASE AGREEMENT COMMON STOCK PURCHASE AGREEMENT (this "AGREEMENT"), dated as of April 13, 2004, by and among MOLINA-VECTOR INVESTMENT TRUST, a revocable trust organized under the laws of the State of California (the "STOCKHOLDER"), on the one hand, and WESTERN PACIFIC INVESTMENT CORP., a California corporation ("WPIC"), on the other hand. WHEREAS: A. The Stockholder is a major stockholder of Penthouse International, Inc. (the "Company"), a corporation organized under the laws of the State of Florida. Shares of the common stock, $0.0025 par value per share, of the Company (the "COMMON STOCK") are quoted on the OTC Bulletin Board under the symbol PHSL.OB. B. The Stockholder and WPIC are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by the provisions of Section 4(1) of the Securities Act of 1933, as amended (the "SECURITIES ACT"). C. The Company andWPIC are concurrently entering into a Subscription Agreement of even date herewith (the "STOCK PURCHASE AGREEMENT") pursuant to which the Company will issue and sell to WPIC or its designees, and WPIC or its designees will purchase from the Company for One Million Two Hundred Thousand and Seven Dollars and 30/100 Dollars ($1,200,007.30), an aggregate of 10,909,158 shares of Common Stock (the "PURCHASED COMPANY STOCK"); which Purchased Common Stock will, upon issuance, represent approximately 3.5% of the issued and outstanding shares of Common Stock of the Company. D. The parties hereto agree that concurrently with the closing under the Stock Purchase Agreement, the Stockholder will sell to WPIC or its designees, and WPIC or its designees will purchase from the Stockholder, additional shares of the Common Stock on the terms and conditions set forth below. E. Contemporaneous with the execution and delivery of this Agreement and the Stock Purchase Agreement, the Company and WPIC are executing and delivering a Registration Rights Agreement in the form attached to the Stock Purchase Agreement as EXHIBIT C (the "REGISTRATION RIGHTS AGREEMENT"), pursuant to which the Company has agreed to provide certain registration rights to WPIC or its designees, with respect to the resale of the Purchased Company Stock and the Trust Common Shares (as defined below) in order to provide for an orderly disposition of the Purchased Company Stock and the -1- Trust Common Shares if WPIC or its designees decides to do so under the Securities Act and the rules and regulations promulgated thereunder, and applicable state securities laws. NOW, THEREFORE, the Stockholder and WPIC hereby agree as follows: 1. CERTAIN DEFINITIONS. For purposes of this Agreement, the terms AGREEMENT, COMMON STOCK, COMPANY, WPIC, SECURITIES Act, STOCK PURCHASE AGREEMENT, PURCHASED COMPANY STOCK and STOCKHOLDER shall have the meanings set forth above, the term "TRUST COMMON SHARES" shall have the meaning set forth in Section 2(a) below, the terms CLOSING and CLOSING DATE shall have the meanings set forth in Section 2(b)(iii) below, and the terms TRUSTEE and BENEFICIARIES shall have the meanings set forth in Section 4(a) below. 2. PURCHASE AND SALE OF COMMON SHARES. (1) GENERALLY. Except as otherwise provided in this Section 2 and subject to the satisfaction (or waiver) of the conditions set forth in Section 6 and Section 7 below, on the "CLOSING DATE" (as hereinafter defined) the designees of WPIC set forth below in this Section 2(a) (the "WPIC DESIGNEES") shall purchase from the Stockholder an aggregate of 2,424,242 shares of the Common Stock of the Company (the "TRUST COMMON SHARES") for cash in the amount of $0.0025 per share, and the Stockholder shall sell the Trust Common Shares to the designees of WPIC in such amounts. The WPIC Designees and the number of Trust Common Shares purchased by each such WPIC Designee are as follows: (i) Elliott Bruce Weiner - 1,212,121 Trust Common Shares; (ii) Elana May Essers - 606,060.5 Trust Common Shares, and (iii) Terrence Samuel Weiner - 606,060.5 Trust Common Shares. (2) PURCHASE OF TRUST COMMON SHARES; FORM OF PAYMENT; CLOSING DATE. (1) On the Closing Date (as defined below), the Stockholder shall sell 2,424,242 of the Trust Common Shares to the WPIC Designees and the WPIC Designees shall purchase such Trust Common Shares from the Stockholder and pay to the Stockholder an aggregate of $6,060.61 as the purchase price of such Trust Common Shares. The Stockholder shall deliver to the WPIC Designees stock certificates duly endorsed and registered in the name of the WPIC Designees evidencing their record ownership of the Trust Common Shares by a date that shall be not later than five (5) business days following the Closing Date. Notwithstanding the foregoing deliveries or any other provision of this Agreement to the contrary, the WPIC Designees shall, for all purposes, be deemed to be the record and beneficial owner of the aforesaid Trust Common Shares as of the Closing Date described below. -2- (2) The WPIC Designees shall pay the purchase price for the Trust Common Shares to be purchased by them to the Stockholder against delivery by the Stockholder of certificates representing such shares, and the Stockholder shall deliver such certificates to WPIC Designees against delivery by WPIC Designees of the purchase price. (3) Subject to the satisfaction (or waiver) of the conditions thereto set forth in Section 6 and Section 7 below, the date and time of the sale of the Trust Common Shares pursuant to this Agreement (the "CLOSING") shall be concurrent with the Closing under the Stock Purchase Agreement or such other date or time as WPIC and the Stockholder may mutually agree ("CLOSING DATE"). The Closing shall occur at the Los Angeles offices of WPIC, or at such other place as WPIC and the Stockholder may otherwise mutually agree. 3. WPIC'S REPRESENTATIONS AND WARRANTIES. WPIC hereby represents and warrants to the Stockholder on behalf of itself and all WPIC Designees, as follows: (1) ORGANIZATION, GOOD STANDING AND QUALIFICATION. WPIC is a corporation duly organized, validly existing and in good standing under the laws of the State of California and has all the requisite power and authority to carry on its business as now conducted and as proposed to be conducted. (2) PURCHASE FOR OWN ACCOUNT. WPIC is purchasing the Trust Common Shares for WPIC's own account and not with a present view towards the distribution thereof; provided, however, that WPIC may at its option elect to assign all or a portion of the Trust Common Shares to the WPIC Designees; all of which transfers are acceptable to the Stockholder. WPIC understands that it and WPIC Designees must bear the economic risk of this investment indefinitely, unless the Trust Common Shares are registered pursuant to the Securities Act and any applicable state securities or blue sky laws or an exemption from such registration is available, and that the Company has no present intention of registering any of the Trust Common Shares other than as contemplated by the Registration Rights Agreement. Notwithstanding anything in this Section 3(b) to the contrary, by making the foregoing representation, neither WPIC nor any WPIC Designee does not agree to hold the Trust Common Shares for any minimum or other specific term and reserves the right to dispose of the Trust Common Shares at any time in accordance with or pursuant to a registration statement or an exemption from registration under the Securities Act and any applicable state securities laws. (3) INFORMATION. WPIC has been furnished all materials relating to the business, finances and operations of the Company and its subsidiaries and materials relating to the offer and sale of the Trust Common Shares, which have been requested by WPIC. WPIC has been afforded the opportunity to ask questions of the Company and has received what WPIC believes to be satisfactory answers to any such inquiries. WPIC understands that -3- its investment in the Trust Common Shares involves a high degree of risk. Neither such inquiries nor any other due diligence investigation conducted by WPIC or its counsel or any of its representatives shall modify, amend or affect WPIC's right to rely on the Stockholder's representations and warranties contained in Section 4 below. (4) GOVERNMENTAL REVIEW. WPIC understands that no United States federal or state agency or any other government or governmental agency has passed upon or made any recommendation or endorsement of the Trust Common Shares. (5) ACCREDITED INVESTOR STATUS. WPIC is an "Accredited Investor" as that term is defined in Rule 501(a) of Regulation D. (6) AUTHORIZATION; ENFORCEMENT. WPIC has the requisite power and authority to enter into and perform its obligations under this Agreement and to purchase the Trust Common Shares in accordance with the terms hereof. This Agreement has been duly and validly authorized, executed and delivered on behalf of WPIC and is a valid and binding agreement of WPIC enforceable against WPIC in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and other laws affecting creditors' rights and remedies generally and to general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity). (7) RESTRICTIONS ON TRANSFER. WPIC understands and acknowledges that the Trust Common Shares have not been registered under the Securities Act. Unless and until otherwise permitted, the Trust Common Shares and each certificate and other document evidencing any of the Trust Common Shares shall be endorsed with the legend substantially in the following form: "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED UNLESS (A) COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT, (B) IN COMPLIANCE WITH RULE 144 UNDER SUCH ACT, OR (C) THE COMPANY HAS BEEN FURNISHED WITH AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY TO THE EFFECT THAT NO REGISTRATION IS REQUIRED FOR SUCH TRANSFER." 4. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER. The Stockholder hereby represents and warrants to WPIC as follows: (1) ORGANIZATION AND POWER. The Stockholder is a trust established by Luis Enrique Molina G. (the "Trustee") for the benefit of members of his family (the "BENEFICIARIES") duly organized and validly existing under the laws of the State of California. The Stockholder has full legal capacity to enter into this Agreement and the -4- other documents contemplated hereby to which the Stockholder is a party, and to perform its obligations hereunder and thereunder. (2) AUTHORIZATION. The execution, delivery and performance by the Stockholder of this Agreement and the other documents contemplated hereby to which the Stockholder is a party and the consummation of the transactions contemplated hereby and thereby have been duly and validly authorized by all requisite action, and no other act, consent, approval or order of or proceeding on the part of the Stockholder, the Trustee or the Beneficiaries or notice to or filing with, any tribunal or third party is necessary to authorize the execution, delivery or performance of this Agreement or the other documents contemplated hereby to which the Stockholder is a party and the consummation of the transactions contemplated hereby or thereby. This Agreement has been duly executed and delivered by the Stockholder and this Agreement constitutes, and the other documents contemplated hereby to which the Stockholder is a party upon execution and delivery by WPIC will each constitute, a valid and binding obligation of the Stockholder, enforceable in accordance with its terms. (3) ABSENCE OF CONFLICTS. Neither the execution and the delivery of this Agreement and the other documents contemplated hereby to which the Stockholder is a party, nor the consummation of the transactions contemplated hereby and thereby, including without limitations the transfer and sale of the Trust Common Shares will (a) conflict with, result in a breach of any of the provisions of, (b) constitute a default under, (c) result in the violation of, (d) give any third party the right to terminate or to accelerate any obligation under, (e) result in the creation of any lien upon the Trust Common Shares or upon any assets or properties of Stockholder under, or (f) require any authorization, consent, approval, execution or other action by or notice to any court or other governmental body or any person under, any indenture, mortgage, lease, loan agreement or other agreement or instrument to which the Stockholder is bound or affected, or any statute, regulation, rule, judgment, order, decree or other restriction of any government, governmental agency or court to which the Stockholder is subject. (4) Litigation. There are no notices, actions, suits, proceedings, orders, violations of law or investigations pending or any other matters, to the best of the Stockholder's knowledge, threatened against or affecting the Stockholder or the Trust Common Shares, at law or in equity, or before or by any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, which would adversely affect the Stockholder's performance under this Agreement, the other documents contemplated hereby to which the Stockholder is a party or the consummation of the transactions contemplated hereby or thereby, which may result in an obligation or liability on WPIC after the closing of this transaction or which have created or might in the future create a lien or adverse claim against the Trust Common Shares, that have not been corrected or disclosed in writing to WPIC, nor are there any threats thereof known to Stockholder. -5- (5) TRUST COMMON SHARES. Stockholder has sole legal, nominal and beneficial ownership and title to the Trust Common Shares, free and clear of all adverse interests, liens, claims and encumbrances, and has the sole right to vote or direct the voting of the Trust Common Shares. The delivery of the Certificate or certificates representing the Trust Common Shares owned by the Stockholder, duly endorsed or accompanied by duly executed stock powers, will transfer to WPIC good and indefeasible title to such shares, free and clear of all liens, proxies, encumbrances and claims of every kind and Stockholder will forever warrant and defend (with counsel acceptable to WPIC) such title, and indemnify WPIC for all adverse claims, demands, or liability with respect to the validity of such title or transfer thereof, against any claimants thereto. Upon delivery at Closing of certificates representing the Trust Common Shares, good and valid title to the Trust Common Shares will pass to WPIC free and clear of any liens or restrictions of any kind. (6) DISCLOSURE. Neither this Article 4 nor any document delivered by such the Stockholder to WPIC on the Closing Date contains or, on the Closing Date, will contain, when taken as a whole, any untrue statement of a material fact or omits a material fact necessary to make the statements contained herein not misleading. Prior to the close of this transaction, Stockholder shall give WPIC immediate notice of the occurrence of any event or the receipt by Stockholder of any notice or knowledge the effect of which would be to make a representation or warranty of Stockholder herein untrue or misleading if made on or immediately following the occurrence of such event or the receipt of such notice or knowledge. Stockholder hereby agrees to protect, indemnify, and defend WPIC, and WPIC's nominee, against and to hold WPIC, and WPIC's nominee, harmless from any and all costs, claims, losses, attorneys' fees, liabilities, and other expenses that WPIC, or WPIC's nominee, may incur or to which WPIC, or WPIC's nominee, may be exposed as a result of Stockholder's breach of or the falsity of any of Stockholder's representations or warranties in this Agreement or as a result of Stockholder's breach of or failure to perform or observe any of Stockholder's covenants in this Agreement. 5. COVENANTS. (1) SATISFACTION OF CONDITIONS. The parties shall use their best efforts to satisfy in a timely manner each of the conditions set forth in Section 6 and Section 7 of this Agreement. (2) BLUE SKY LAWS. The Stockholder shall, on or before the Closing Date, take such action as the Stockholder shall reasonably determine is necessary to qualify the Trust Common Shares for sale to WPIC pursuant to this Agreement under applicable securities or "blue sky" laws of the applicable states of the United States or obtain exemption therefrom, and shall provide evidence of any such action so taken to WPIC on or prior to the Closing Date. -6- 6. CONDITIONS TO THE STOCKHOLDER'S OBLIGATION TO SELL. The obligation of the Stockholder hereunder to issue and sell Trust Common Shares to WPIC at the Closing hereunder is subject to the satisfaction, at or before the Closing Date, of each of the following conditions thereto; PROVIDED, HOWEVER, that these conditions are for the Stockholder's sole benefit and may be waived by the Stockholder at any time in its sole discretion. (1) WPIC shall have executed the signature page to this Agreement and the Registration Rights Agreement, and delivered the same to the Stockholder. (2) The representations and warranties of WPIC shall be true and correct as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date, which representations and warranties shall be true and correct as of such date), and WPIC shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by WPIC at or prior to the Closing Date. (3) No statute, rule, regulation, executive order, decree, ruling, injunction; action, proceeding or interpretation shall have been enacted, entered, promulgated, endorsed or adopted by any court or governmental authority of competent jurisdiction or any self-regulatory organization, or the staff of any thereof, having authority over the matters contemplated hereby which questions the validity of, or challenges or prohibits the consummation of, any of the transactions contemplated by this Agreement. (4) All of the conditions to the obligations of the Company to sell the Purchased Company Stock to WPIC under the Stock Purchase Agreement shall have been satisfied. 7. CONDITIONS TO WPIC'S OBLIGATION TO PURCHASE COMMON SHARES. The obligation of WPIC hereunder to purchase common Shares to be purchased by it hereunder is subject to the satisfaction, at or before the Closing Date, of each of the following conditions, provided that these conditions are for WPIC's sole benefit and may be waived by WPIC at any time in WPIC's sole discretion: (1) The Stockholder shall have executed the signature pages to this Agreement and delivered the same to WPIC. (2) The representations and warranties of the Stockholder shall be true and correct as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date, which representations and warranties shall be true and correct as of such date) and the Stockholder shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Stockholder at or prior to the Closing Date. -7- (3) No statute, rule, regulation, executive order, decree, ruling, injunction, action, proceeding or interpretation shall have been enacted, entered, promulgated, endorsed or adopted by any court or governmental authority of competent jurisdiction or any self-regulatory organization, or the staff of any thereof, having authority over the matters contemplated hereby which questions the validity of, or challenges or prohibits the consummation of, any of the transactions contemplated by this Agreement. (4) All of the conditions to the obligations of WPIC to purchase the Purchased Company Stock from the Company under the Stock Purchase Agreement shall have been satisfied. (5) The Company shall have executed the Registration Rights Agreement and delivered same to WPIC. 8. MISCELLANEOUS. (1) GOVERNING LAW; JURISDICTION. This Agreement shall be governed by and construed in accordance with the laws of the State of California applicable to contracts made and to be performed in the State of California. Each of the parties irrevocably agrees that any and all suits or proceedings based on or arising under this Agreement may be brought only, and shall be resolved in the federal or state courts located in the City of Los Angeles, California and consents to the jurisdiction of such courts for such purpose. Each of the parties irrevocably waives the defense of an inconvenient forum to the maintenance of such suit or proceeding in any such court. Each of the parties further agrees that service of process upon such party mailed by first class mail to the address set forth in Section 8(f) shall be deemed in every respect effective service of process upon such party in any such suit or proceeding. Nothing herein shall affect the right of WPIC to serve process in any other manner permitted by law. Each of the parties agrees that a final non-appealable judgment in any such suit or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on such judgment or in any other lawful manner. (2) COUNTERPARTS. This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party. This Agreement, once executed by a party, may be delivered to the other parties hereto by facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement. In the event any signature is delivered by facsimile transmission, the party using such means of delivery shall cause the manually executed Execution Page(s) hereof to be physically delivered to the other party within five (5) days of the execution hereof. (3) HEADINGS. The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement. -8- (4) SEVERABILITY. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement or the validity or enforceability of this Agreement in any other jurisdiction. (5) ENTIRE AGREEMENT; AMENDMENTS; WAIVER. This Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Stockholder nor WPIC make any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement may be waived or amended other than by an instrument in writing signed by the Stockholder and by WPIC. Any waiver by WPIC, on the one hand, or the Stockholder, on the other hand, of a breach of any provision of this Agreement shall not operate as or be construed to be a waiver of any other breach of such provision of or any breach of any other provision of this Agreement. The failure of WPIC, on the one hand, or the Stockholder, on the other hand to insist upon strict adherence to any term of this Agreement on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. (6) NOTICES. Any notices required or permitted to be given under the terms of this Agreement shall be sent by certified or registered mail (return receipt requested) or delivered personally or by courier or by confirmed telecopy, and shall be effective five days after being placed in the mail, if mailed, or upon receipt or refusal of receipt, if delivered personally or by courier or confirmed telecopy, in each case addressed to a party. The addresses for such communications shall be: If to the Stockholder Molina-Vector Investment Trust 2224 Main Street Santa Monica, California 90405 Telephone No.: (310) 396-4400 Facsimile No: (310) 861-5290 Attention: Luis Enrique Molina G., Trustee If to WPIC or any WPIC Designee Western Pacific Investment Corp. 5843 Hempstead Drive Agoura Hills, CA 91301-4426 Email: westernpacific@earthlink.net Tel.: (310) 902-1641 Attention: Stanley Weiner Each party hereto may from time to time change its address or facsimile number for notices under this Section 8 by giving at least ten (10) days' prior written notice of such changed address or facsimile number, in the case of WPIC to the Stockholder, and in the case of the Stockholder to all of WPIC. -9- (7) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and assigns. The Stockholder shall not assign this Agreement or any rights or obligations hereunder without the prior written consent of each of WPIC. (8) THIRD PARTY BENEFICIARIES. This Agreement is intended for the benefit of the parties hereto, the WPIC Designees and their respective permitted successors and assigns, and is not for the benefit of nor may any provision hereof be enforced by any other person. (9) SURVIVAL. The representations and warranties of the Stockholder and the agreements, indemnities and covenants of the Stockholder shall survive the Closing notwithstanding any due diligence investigation conducted by or on behalf of WPIC. Moreover, none of the representations and warranties made by the Stockholder herein shall act as a waiver of any rights or remedies WPIC may have under applicable federal or state securities laws. The Stockholder agrees to indemnify and hold harmless WPIC and each of its officers, directors, employees, partners, stockholders, agents and affiliates for loss or damage relating to the Trust Common Shares purchased hereunder arising as a result of or related to any breach by the Stockholder or any of its representations or covenants set forth herein, including advancement of expenses as they are incurred. (10) FURTHER ASSURANCES. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. (11) TERMINATION. In the event that the Closing Date shall not have occurred on or before April 15, 2004, unless the parties agree otherwise, this Agreement shall terminate at the close of business on such date. Notwithstanding any termination of this Agreement, any party not in breach of this Agreement shall preserve all rights and remedies it may have against another party hereto for a breach of this Agreement prior to or relating to the termination hereof. (12) JOINT PARTICIPATION IN DRAFTING. Each party to this Agreement has participated in the negotiation and drafting of this Agreement. As such, the language used herein shall be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be applied against any party to this Agreement. (13) EQUITABLE RELIEF. Each party acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the other parties by vitiating the intent and purpose of the transactions contemplated hereby. Accordingly, each party acknowledges that the remedy at law for a breach of its obligations hereunder will be inadequate and agrees, in the event of a breach or threatened breach by such party of the -10- provisions of this Agreement, that the other parties shall be entitled, in addition to all other available remedies, to an injunction restraining any breach and requiring immediate issuance and transfer, without the necessity of showing economic loss and without any bond or other security being required. (14) DETERMINATIONS. Except as otherwise expressly provided herein, all consents, approvals and other determinations to be made by WPIC pursuant to this Agreement and all waivers and amendments to or of any provisions in this Agreement prior to the Closing Date to be binding upon WPIC shall be made by WPIC and except as otherwise expressly provided herein, all consents, approvals and other determinations (other than amendments to the terms and provisions of this Agreement) to be made by WPIC pursuant to this Agreement and all waivers and amendments to or of any provisions in this Agreement after the Closing Date shall be made by WPIC. (15) ATTORNEYS' FEES AND DISBURSEMENTS. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party or parties shall be entitled to receive from the other party or parties reasonable attorneys' fees and disbursements, including all costs and expenses incurred, in addition to any other relief to which the prevailing party or parties may be entitled. (16) ASSUMPTION. By entering into this Agreement, WPIC is not assuming or agreeing to assume or discharge any liability or obligation of the Stockholder whatsoever, whether now existing or hereinafter incurred, including without limitation, any liability or obligation relating to the Trust Common Shares or the sale thereof. (17) EXPENSES. The Company shall pay the expenses of the Stockholder and WPIC, representing the fees and expenses of their respective legal counsel. (18) WAIVERS. No action taken pursuant to this Agreement, including any investigation by or on behalf of any party, shall be deemed to constitute a waiver by the party taking such action, or compliance with any representation, warranty, covenant or agreement contained herein. The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach. The waiver by any party hereto at or before the closing of this transaction of any condition to its obligations hereunder which is not fulfilled shall preclude such party from seeking redress from the other party hereto for breach of any representation, warranty, covenant or agreement contained in this Agreement. [THE BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK] -11- IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date first above written. THE STOCKHOLDER: MOLINA-VECTOR INVESTMENT TRUST By: Name: Luis Enrique Molina G. Title: Trustee --------------------------------- ------------------- WPIC: WESTERN PACIFIC INVESTMENT CORP. By: Name: STANLEY WEINER, Title: President --------------------------------- ------------------- The Transaction contemplated by this Agreement has been reviewed and approved by Company on this 13th day of April, 2004 PENTHOUSE INTERNATIONAL, INC., A FLORIDA CORPORATION By: Name: Claude Bertin Title: Vice President --------------------------------- ------------------- -12- EX-99.3 5 c32027_ex99-3.txt EXHIBIT 99.3 PREFERRED STOCK PURCHASE AGREEMENT AGREEMENT dated as of March 31, 2004, by and between PET CAPITAL PARTNERS, LLC ("PET"), ABSOLUTE RETURN EUROPE FUND ("ARE"), SUSAN DEVINE ("DEVINE"), NAFT VENTURES I LLC ("NAFT"), DR. LUIS ENRIQUE MOLINA GALEANA (the "PURCHASER"), PENTHOUSE INTERNATIONAL, INC., a Florida corporation (the "GUARANTOR"), and THE MOLINA VECTOR INVESTMENT TRUST (the "MOLINA TRUST"). Each of PET, ARE and Devine is hereinafter referred to individually as a "SELLER" and collectively as the "SELLERS"). W I T N E S S E T H: WHEREAS, the Sellers own (a) 15% Senior Notes due 2004 (the "SENIOR NOTES") issued by General Media, Inc. ("GMI"), and (b) shares of GMI Preferred Stock (the "PREFERRED STOCK);" and, WHEREAS, GMI and certain of its subsidiaries (collectively the "DEBTORS") are currently debtors in a Chapter 11 case (the "BANKRUPTCY CASE") pending in the U.S. Bankruptcy Court for the Southern District of New York (the "BANKRUPTCY COURT"); WHEREAS, on March 4, 2004 the Debtors with the support of the Guarantor filed a First Amended Joint Plan of Reorganization (the "DEBTORS PLAN") with the Bankruptcy Court; and WHEREAS, pursuant to the Plan, the Debtors propose, inter alia, to (a) pay in cash 100% of the principal amount of and accrued interest (at the default rate) and costs on all outstanding Senior Notes, and (b) reinstate the Preferred Stock in accordance with the terms thereof; and WHEREAS, the Sellers and NAFT have (a) objected to the Debtors Plan for a variety of reasons, including their position that the Debtors Plan, as presently filed by Debtors, impairs the value of the Preferred Stock, and (b) filed on March 11, 2004 a revised plan of reorganization on behalf of the Sellers and NAFT (the "SELLERS' PLAN"); NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, the parties hereto agree as follows: 1 1. PURCHASE AND SALE OF PREFERRED STOCK. Upon the terms and subject to the conditions contained herein, Sellers agree to sell, and Purchaser agrees to purchase the Preferred Stock. 2. PURCHASE PRICE. The aggregate purchase price for the Preferred Stock shall be as set forth in SCHEDULE A annexed hereto and made a part hereof (the "PURCHASE PRICE"). The Purchase Price shall be allocated as among the Sellers as set forth on SCHEDULE A annexed hereto; provided, however, that PET shall have the right to reallocate the Purchase Price among the Sellers by written notice to the Purchaser so long as (a) no other Seller shall object in writing to such reallocation, and (b) the aggregate amount of the Purchase Price shall not be increased. (a) At the "Closing" (as that term is hereinafter defined), upon (i) the execution and delivery to Purchaser of an assignment of all of Sellers' right, title and interest in and to and under the Preferred Stock, in the form of EXHIBIT G attached hereto (the "PREFERRED STOCK ASSIGNMENT"), and (ii) satisfaction of the provisions of Section 7 hereof, the Purchaser shall pay the Purchase Price allocated between the Sellers in the manner as set forth in SCHEDULE A attached hereto, by the issuance to the Sellers of promissory notes of the Purchaser (the "PURCHASER NOTES"), in such amounts and allocated between the Sellers as set forth in SCHEDULE A attached hereto. (b) The Purchaser Notes shall: (i) be payable as to interest only until the fourth anniversary of the Closing, when the Purchaser Notes shall mature and all unpaid principal of and accrued interest on the Purchaser Notes shall be due and payable (the "MATURITY DATE"); (ii) bear interest prior to the second anniversary of the Closing at the rate of 8% per annum, between the second anniversary and the third anniversary of the Closing at the rate of 9% per annum and between the third anniversary and the fourth anniversary of the Closing at the rate of 10% per annum interest; 2 (iii) bear interest at the rate of 15% per annum, from and after the occurrence and during the continuation of an event of default under the Purchaser Notes, and if and to the extent not paid in full by the Maturity Date; (iv) be payable as to interest in cash quarterly, commencing June 30, 2004; (v) be subject to prepayment at any time or from time to time, without prepayment penalty of any kind; and (vi) be qualified in their entirety by reference to the form of Purchaser Notes annexed hereto as EXHIBIT A and made a part hereof. 3. CLOSING. The closing of the purchase and sale of the Preferred Stock (the "CLOSING") shall take place at the offices of Milberg Weiss Bershad Hynes & Lerach LLP, One Pennsylvania Plaza, New York, New York 10119, no later than 12:00 noon New York time on April 15, 2004 (the "CLOSING DATE"). 4. REPRESENTATIONS AND WARRANTIES OF GUARANTOR AND PURCHASER. The Guarantor and the Purchaser severally and not jointly and severally represents and warrants to Sellers as follows: (a) NO VIOLATIONS; VALIDITY. No provision of any agreement, instrument or understanding, or of any order, judgment, decree, statute, rule or regulation of any court or governmental authority, to which Purchaser or the Guarantor is a party or by which he or it is bound or subject, has been or will be violated by the execution by him or it of, or the performance or satisfaction of any agreement or condition upon his or its part to be performed or satisfied under, this Agreement. This Agreement and each of the other instruments executed or to be executed by Purchaser and Guarantor pursuant to this Agreement constitutes or will constitute the valid and legally binding obligations of Purchaser and Guarantor in accordance with its terms except as enforcement may be limited by applicable bankruptcy, insolvency and other laws relating to or affecting creditors' rights generally and subject also to general principles of equity affecting the right to specific performance and injunctive relief. 3 (b) AUTHORIZATIONS; APPROVALS. No authorization or approval of, or filing with, or compliance with any applicable order, judgment, decree, statute, rule or regulation of, any court or governmental authority, or approval, consent, release or action of any third party, which has not been obtained, is required in connection with the execution and delivery by Purchaser and Guarantor of, or the performance or satisfaction of, any agreement of Purchaser and Guarantor contained in or contemplated by, this Agreement. (c) CAPITALIZATION The authorized, issued and outstanding shares of capital stock of the Guarantor is as set forth on SCHEDULE B annexed hereto and made a part hereof. As at the Closing, in excess of 90% of the issued and outstanding shares of Series C convertible preferred stock of the Guarantor is owned by the Molina Vector Investment Trust, and such shares of Series C convertible preferred stock of the Guarantor at the Closing will have the power to elect a majority of the members of the board of directors of the Guarantor. The amended and restated certificate of incorporation of Guarantor, as amended to date, has been furnished to counsel to the Sellers. (d) INVESTMENT INTENT. The Preferred Stock to be acquired by the Purchaser hereunder will be acquired for investment for Purchaser's own account and not with a view to a sale or other distribution thereof within the purview of, and none of the Preferred Stock will be offered, sold, or otherwise disposed of by Purchaser in violation of, any applicable provisions of the Securities Act of 1933, as amended (the "ACT"), any state "blue sky" or other securities laws or any rules and regulations thereunder. Purchaser acknowledges that the Preferred Stock has not been registered by the Sellers under Act, any state "blue sky" or other securities laws or any rules and regulations thereunder and are being offered and sold in reliance upon exemptions from the registration requirements of said Act and such laws. The Preferred Stock is subject to restrictions and transferability and resale and may not be transferred or resold except as permitted under said Act or such laws pursuant to registration or exemption therefrom. The Purchaser further acknowledges that he will be required to bear the financial risks of any investment in the Preferred Stock for an indefinite period of time. (e) FURTHER LIMITATION OF TRANSFER. The Purchaser further acknowledges that, pursuant to the provisions of Article Fourth, Section (B)(ii) of the GMI Certificate of 4 Incorporation, the Preferred Stock may not be separately transferred or assigned without the simultaneous assignment of the Senior Notes. Purchaser agrees to purchase from the Sellers the shares of Preferred Stock listed on SCHEDULE A annexed hereto, with full knowledge of such limitation and restriction on transfer of the Preferred Stock, and agrees that the Sellers shall have no obligation to Purchaser by reason of their sale of the Preferred Stock without a sale of Senior Notes; the entire risk being borne by the Purchaser. (f) NO RELIANCE OR REPRESENTATIONS. Guarantor hereby represents that, as the owner of 99.5% of the common stock of GMI, and Purchaser hereby represents that, as the indirect controlling shareholder of Guarantor, it and he is fully familiar with all the affairs of the Guarantor and Debtors, and each acknowledges that neither Sellers, nor their affiliates have made any representations or warranties in connection with this Agreement or the transactions contemplated herein, except those expressly set forth in Section 5. (g) MODIFIED PLAN. On or before April 30, 2004, the Guarantor and the Purchaser shall cause the Debtors to file with the Bankruptcy Court the Debtors' Second Amended and Restated Plan of Reorganization substantially in the form of EXHIBIT B annexed hereto and made a part hereof (the "MODIFIED PLAN"). The Guarantor and the Purchaser shall not permit or cause the Debtors to amend, alter or modify the Modified Plan in any manner that shall materially and adversely affect the treatment of any holders of Senior Notes of the Debtors, without in each instance, the affirmative written consent of PET, as representative of the Sellers (the "SELLERS' REPRESENTATIVE"). 5 5. REPRESENTATIONS AND WARRANTIES OF SELLERS. Each Seller represents and warrants to Purchaser as follow: (a) GOOD TITLE. It has full and unrestricted power and authority to sell, assign and transfer its Preferred Stock to Purchaser in the manner provided herein, free and clear of any liens, claims, charges, options, and encumbrances of any kind or description, subject only to the limitations set forth in Section 4(e) above. (b) NO RELIANCE OR REPRESENTATIONS. Such Seller acknowledges that neither Purchaser nor his affiliates has made any representations or warranties in connection with this Agreement or the transactions contemplated herein, except those expressly set forth in Section 4. (c) NO VIOLATIONS; VALIDITY. No provision of any material agreement, instrument or understanding, or of any material order, judgment, decree, statute, rule or regulation of any court or governmental authority to which such Seller is a party or by which it is bound or subject, has been or will be violated by the execution by such Seller of, or the performance or satisfaction of any agreement or condition upon its part to be performed or satisfied under, this Agreement. This Agreement and each of the other instruments executed or to be executed by such Seller pursuant to this Agreement has been duly authorized and constitutes or will constitute the valid and legally binding obligations of such Seller in accordance with its terms except as enforcement may be limited by applicable bankruptcy, insolvency and other laws relating to or affecting creditors' rights generally and subject also to general principles of equity affecting the right to specific performance and injunctive relief. (d) AUTHORIZATIONS; APPROVALS. No authorization or approval of, or filing with, or compliance with any applicable order, judgment, decree, statute, rule or regulation of, any court or governmental authority, or approval, consent, release or action of any third party, is required in connection with the execution and delivery by such Seller of, or the performance or satisfaction of any agreement of such Seller contained in or contemplated by, this Agreement. 6. COLLATERAL TO SECURE PAYMENT OF PURCHASER NOTES. Each of the Purchaser and the Guarantor do hereby covenant and agree that, as collateral to secure payment of the Purchaser Notes, at the Closing: 6 (a) the Guarantor shall unconditionally individually guaranty the obligations of the Purchaser under the Purchaser Notes in accordance with the guaranty annexed hereto as EXHIBIT C-1 and made a part hereof (the "PENTHOUSE GUARANTY"), (b) in his capacity as sole trustee of the Molina Trust, the Purchaser shall cause the Molina Trust to unconditionally guaranty the obligations of the Purchaser under the Purchaser Notes in accordance with the guaranty annexed hereto as EXHIBIT C-2 and made a part hereof (the "TRUST GUARANTY"), (c) in his capacity as sole trustee of the Molina Trust, the Purchaser shall cause the Molina Trust to secure such Trust Guaranty by granting to the Sellers a first priority lien and security interest in and to all of the shares of Series C Preferred Stock of Purchaser that is owned of record by the Molina Trust and listed on SCHEDULE C annexed hereto and made a part hereof (the "PENTHOUSE CONTROL STOCK"). At the Closing, the Sellers, as obligees, Milberg Weiss Bershad Hynes & Lerach LLP, as pledgee, and the Molina Trust as record owner of 90.9% of the issued and outstanding Penthouse Control Stock, as pledgor, shall execute the pledge agreement in the form of EXHIBIT D annexed hereto and made a part hereof (the "PLEDGE AGREEMENT"). (d) At the Closing, the Purchaser and the Molina Trust shall cause to be delivered to the pledgeholder certificates evidencing all 10,500,000 shares of the Penthouse Control Stock (the "PLEDGED STOCK"), owned of record by the Molina Trust, accompanied by stock powers duly endorsed for transfer and with the signatures of the record owner of the Pledged Stock appropriately guaranteed by a bank or member firm of the New York Stock Exchange, Inc. 7. PAYMENT OF SENIOR NOTES. In accordance with the Modified Plan, upon the effective date thereof following final confirmation by the Bankruptcy Court of the "Debtors Final Plan," as hereinafter defined (the "EFFECTIVE DATE"), all holders of the Senior Notes, including the Sellers, shall be paid in full, by wire transfer of immediately available funds to accounts designated by the Sellers and other holders of Senior Notes, the entire then outstanding principal amount of and accrued interest (at the default rate) on all Senior Notes held by the Sellers and all other holders of such Senior Notes, together with costs associated therewith. 7 8. ADDITIONAL COVENANTS AND AGREEMENTS OF THE PARTIES. (a) PURCHASER AND GUARANTOR COVENANTS. The Sellers do hereby condition their support of the Modified Plan and the Debtors' Final Plan, as contemplated by this Agreement, upon the Purchaser and Guarantor complying with the following covenants and agreements: (i) all of the hearings in the Bankruptcy Case, currently scheduled for March 31, 2004 and April 1, 2004, shall be adjourned until April 22, 2004, at the earliest; (ii) by not later than Friday, April 9, 2004, the Purchaser shall cause the Debtors to file the Modified Plan with the Bankruptcy Court; (iii) in no event shall the Purchaser or Guarantor permit or cause the Debtors to materially amend, alter or modify the Modified Plan in any manner that shall materially and adversely affect the treatment of any holders of Senior Notes or the Sellers, without in each instance, the affirmative written consent of the Sellers' Representative; (iv) the Guarantor shall use its best efforts to cause the Bankruptcy Court to hold a hearing on or before June 30, 2004 to confirm the Modified Plan, as the same may hereafter be amended or modified in accordance with this Agreement, and which shall be supported by the Guarantor and the Purchaser (collectively, the "DEBTORS' FINAL PLAN"); and (v) the Guarantor shall use its best efforts to cause the Bankruptcy Court to execute an order confirming that the Debtors' Final Plan has become final (the "CONFIRMATION ORDER") by a date that shall be on or before July 31, 2004 or such other date thereafter as shall be reasonably practicable and acceptable to the Bankruptcy Court (the "CONFIRMATION ORDER DATE"); (b) SELLERS AND NAFT COVENANTS. The Purchaser and the Guarantor do hereby condition their purchase of the Preferred Stock and their agreement to grant the collateral to secure payment of the Purchaser Notes specified in this Agreement, upon the Sellers and NAFT complying with the following covenants and agreements. On or before the Closing Date, the Sellers and NAFT shall: 8 (i) withdraw in writing the Sellers' Plan and any and all motions or other related objections in opposition to the Debtors Plan, (ii) support the Modified Plan and the Debtors' Final Plan, as amended or modified in accordance with this Agreement, and (iii) not directly or indirectly, whether in conjunction with any other class of creditors of the Debtors, holders of GMI Preferred Stock, or other third parties, take any action to either (A) oppose such Modified Plan or Debtors' Final Plan, as amended or modified in accordance with this Agreement, or (B) support any competing plan of reorganization sponsored by any third person, firm or corporation, at any preliminary or final confirmation hearings in connection with the Debtors Bankruptcy Case. (c) ADDITIONAL COVENANTS OF THE PARTIES. (i) On or before the Closing Date, the Purchaser and Guarantor shall cause the Debtors to execute and deliver general releases to the Sellers Group (as that term is hereinafter defined) in form and substance reasonably satisfactory to the Sellers Group and their counsel, which releases shall exclude the transactions contemplated by this Agreement. (ii) On or before the Closing Date, the Sellers Group will execute and deliver to the Debtors general releases in form and substance reasonably satisfactory to the Debtors and their counsel, which releases shall exclude the transactions contemplated by this Agreement as well as the substantial contribution motion of NAFT to the extent that the same relates to the Debtors' original Plan of Reorganization and Disclosure Statement and to proposed transactions with Curtis and Vornado. (iii) On or immediately following the Confirmation Order Date, the Purchaser shall assign to the Guarantor and the Guarantor shall assume from the Purchaser all, and not less than all, of the obligations under the Purchaser Notes, all pursuant to the assumption agreement in the form of EXHIBIT E annexed hereto (the "PENTHOUSE ASSUMPTION AGREEMENT"); provided, however, that such assignment and assumption shall not release the Purchaser from his obligations under the Purchaser Notes. 9 9. FAILURE TO CONFIRM THE DEBTORS FINAL PLAN. (a) If the Confirmation Order on the Debtors' Final Plan shall not be executed by the Bankruptcy Court by 5:00 P.M. (New York time) on August 6, 2004, whether as a result of (i) the failure or refusal of Post Advisory Group, LLC or its affiliates (collectively, "POST") or any other person, firm or corporation subsequently offering to provide exit financing to the Debtors, to provide the Debtors with $30.0 million or more of "Exit Financing" (as set forth in the Post commitment letter dated March 2, 2004), or (ii) subject at all times to compliance by Sellers and NAFT with their covenants contained in Section 8(b)(iii) above, if, prior to August 6, 2004, a plan of reorganization shall be proposed by any person, firm or corporation that is not supported directly or indirectly by the Guarantor (a "COMPETING PLAN"), which Competing Plan offers payment to the creditors in excess of the Modified Plan (as the same may hereafter be modified or amended in accordance with this Agreement) AND GMI does not further amend such Modified Plan (as the same may hereafter be modified or amended in accordance with this Agreement) to at least match the terms of such Competing Plan, or (iii) for any other reason, then and in such event: (i) the Purchaser shall withdraw his commitment to finance the Plan, the Modified Plan or any other Debtors' Final Plan, and will not, directly or indirectly (A) propose or participate in any Section 363 sale of the assets or business of Debtors (a "363 SALE"), (B) present any plan of reorganization, or (C) support any plan of reorganization, other than a plan acceptable to PET (the "NEW PET PLAN"); (ii) the Guarantor shall withdraw its support of the Plan, the Modified Plan or any other Debtors' Final Plan and support no plan other than the New PET Plan; and (iii) the Guarantor shall work to cause the Debtors to withdraw the Plan, the Modified Plan or any other Debtors' Final Plan and, instead work to cause the Debtors to propose the New PET Plan on or before September 30, 2004, or such later date as PET shall specify. (b) In the event that any of the events set forth in Section 9(a) above shall occur in the Bankruptcy Case, then and within ninety (90) days after the occurrence of any of 10 such events (the "OPTION Period"), either the Purchaser or the Sellers' Representative shall have the right and option, exercisable upon ten (10) days prior written notice to the other parties hereto (the "REPURCHASE OPTION") to require the Purchaser to: (A) transfer back to the Sellers all shares of the Preferred Stock purchased pursuant to this Agreement and (B) repurchase all, and not less than all, of the Purchaser Notes, by the payment to the Sellers (pro-rata as among them as the dollar amount of Preferred Stock owned by each Seller set forth on SCHEDULE A hereto bears to the total amount of Preferred Stock owned by all Sellers) of the aggregate sum of Two Million Dollars ($2,000,000), payable to the Sellers by wire transfer of immediately available funds. Upon such transfer and payment, the Sellers shall deliver the Purchaser Notes to the Purchaser for cancellation and the Purchaser shall have no further obligation thereunder or hereunder. The reciprocal rights of the Purchaser or the Sellers' Representative set forth in this Section 9(b) shall expire and be of no further force or effect, unless the Repurchase Option shall have been exercised within such ninety (90) day Option Period. 10. CLOSING CONDITIONS. (a) The obligation of the Sellers to consummate the Closing is subject to the satisfaction of all of the following conditions on the Closing Date: (i) the Purchaser, Guarantor and the Molina Trust, on the one hand, and the Sellers, Marc Bell Capital Partners, NAFT, Marc H. Bell, Daniel C. Staton, Russell Frye and Florian Homm (the "SELLERS GROUP"), on the other hand, shall exchange mutual general releases, which releases shall exclude the transactions contemplated by this Agreement; (ii) The Purchaser shall have executed and delivered to each Seller the Purchaser Notes; (iii) The Molina Trust will execute the Trust Guaranty and the Pledge Agreement; (iv) The Guarantor will execute and deliver the Penthouse Guaranty; (v) The Sellers shall have duly transferred and delivered to the Purchaser the Preferred Stock in accordance with the provisions of Section 2 above; and 11 (vi) Each of the Purchaser and the Molina Trust shall have executed and delivered to Sellers an appointment letter in the form of EXHIBIT F attached hereto (the "APPOINTMENT LETTER") appointing Gersten Savage Kaplowitz Wolf & Marcus, LLP as service of process agent (the "PROCESS AGENT") as provided in Section 16 hereunder, which Appointment Letter shall have been signed by Process Agent to indicate its acceptance of such appointment. (b) The obligation of the Purchaser to consummate the Closing is subject to the satisfaction of all of the following conditions on the Closing Date: (i) The Sellers shall have executed and delivered to the Purchaser the Preferred Stock Assignment; and (ii) The Purchaser shall receive from the Seller Group the mutual releases contemplated by Section 10(a)(i) above. 11. DIP LOAN. In accordance with the Debtors' Final Plan, the Debtors shall have arranged to retire and pay in full, by wire transfer of immediately available funds, all principal of, accrued interest on and fees related to (the "DIP LOAN PURCHASE PRICE"), the Financing Agreement dated February 10, 2004, as approved by the Bankruptcy Court by Order dated February 13, 2004 (the "DIP LOAN FACILITY"). Following the Confirmation Order Date, the Debtors shall pay the DIP Loan Purchase Price by wire transfer of immediately available funds to NAFT, as follows: Chase Bank New York, New York Acct # 140-094-221 For the Benefit of Lehman Brothers, Inc. NAFT Ventures I LLC 831-05486-18-475 NAFT shall deliver such releases in respect of the Financing Agreement, all in such form and content as shall be reasonably required by Purchaser and its legal counsel. 12. FURTHER ASSURANCES. From and after the date of this Agreement and the Closing, each of the parties hereto shall from time to time, at the request of any other party and without further consideration, do, execute and deliver, or cause to be done, executed and delivered, all 12 such further acts, things and instruments as may be reasonably requested or required more effectively to evidence and give effect to the transactions provided for in this Agreement. 13. ASSIGNMENT AND PARTIES IN INTEREST. This Agreement shall be binding upon, and shall inure to the benefit of and be enforceable by, the parties hereto and their respective legal representatives, successors and assigns. Except for the foregoing permitted assignments, no other person shall acquire or have any rights under this Agreement. 14. ENTIRE AGREEMENT; MODIFICATION; WAIVER. This Agreement contains the entire agreement and understanding among the parties hereto with respect to the subject matter hereof and supersedes all prior negotiations and understandings, if any, and there are no agreements, representations or warranties other than those set forth, provided for or referred to herein. Neither this Agreement nor any provisions hereof may be modified, amended, waived, discharged or terminated, in whole or in part, except in writing signed by the party to be charged. 15. INTERPRETATION. (a) GOVERNING LAW. This Agreement shall be governed and construed and enforced in accordance with the laws of the State of New York applicable to contracts made and to be performed exclusively in that State without giving effect to the principles of conflict of laws. (b) INTERPRETATION. All pronouns and words used in this Agreement shall be read in the appropriate number and gender, the masculine, feminine and neuter shall be interpreted interchangeably and the singular shall include the plural and vice versa, as the circumstances may require. 16. JURISDICTION; SERVICE OF PROCESS. Each of the parties hereto agree that any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement or the transactions contemplated hereby may only be brought in the federal court sitting in the State of New York or any other New York court, and each of the parties hereby consents to the jurisdiction of such courts (and of the appropriate appellate courts therefrom) in any such suit, action or proceeding and irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the 13 venue of any such suit, action or proceeding in any such court or that any such suit or proceeding which is brought in any such court has been brought in an inconvenient forum. Concurrently with the execution and delivery of this Agreement, the Purchaser, the Guarantor and the Molina Trust shall execute and deliver to Sellers an Appointment Letter in form and substance of EXHIBIT F appointing Process Agent and its successors as their respective designee, appointee and agent to receive, accept and acknowledge, for and on behalf of the Purchaser, the Guarantor and the Molina Trust, service of any and all legal process, summons, notices and documents which may be served in any action, suit or proceeding relating to the Purchaser Notes, this Agreement, the Pledge Agreement or any ancillary document thereof with respect to any action filed before the courts of the United States District Court of the Southern District of New York or of the courts of the State of New York sitting in New York, Borough of Manhattan, which service may be made on any such designee, appointee and agent in accordance with legal procedures prescribed for such courts. The Purchaser, the Guarantor and the Molina Trust, agree to take any and all action necessary to continue such designation in full force and effect and should such designee, appointee and agent become unavailable for this purpose for any reason, the Purchaser, the Guarantor and the Molina Trust will immediately deliver an Appointment Letter in the form of EXHIBIT F to a new designee, appointee and agent with offices in New York, New York, reasonably satisfactory to Sellers, which shall irrevocably agree to act as such, with the powers and for purposes specified in this Section 16. The Purchaser, the Guarantor and the Molina Trust agree that service upon Process Agent as provided for herein shall constitute valid and effective personal service upon the Purchaser, the Guarantor and the Molina Trust with respect to all matters and that the failure of Process Agent to give any notice of such service to any of the Purchaser and the Molina Trust shall not impair or affect in any way the validity of such service or any judgment rendered in any action or proceeding based thereon. 17. HEADINGS; FACSIMILE SIGNATURES; COUNTERPARTS. The article and section headings in this Agreement are for reference purposes only and shall not define, limit or affect the meaning or interpretation of this Agreement. This Agreement may be executed by facsimile signature and in two or more counterparts, each of which shall be deemed an original but all of which shall constitute one and the same instrument. 14 18. NOTICES. The parties hereby agree that all notices, requests, claims, demands and other communications hereunder shall be in writing, in English, and shall be given or made by delivery in person, by overnight courier service, or by telefax, to the respective Parties at the following addresses (or at such other address for a Party as shall be specified in a notice given in accordance with this Section 18), PROVIDED HOWEVER that Purchaser shall always maintain an address in the city of Mexico, Distrito Federal, Mexico, to receive any request for payment under this Agreement, the Guaranty or the Promissory Note: DR. LUIS ENRIQUE MOLINA GALEANA: SELLERS: NAFT: ANL 6800 Broken Sound Parkway 6800 Broken Sound Parkway Reforma 122-9 Piso Suite 2001 Suite 2001 C.P. 06600 Boca Raton, FL 33487 Boca Raton, FL 33487 Mexico D.F. (561) 988-1707 (561) 988-1707 Email: fermoli@anl.com.mx Fax: 011-52-55-91-0550
[the balance of this page intentionally left blank] 15 IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. PET CAPITAL PARTNERS, LLC By: Naft Ventures I LLC, Managing Member By ---------------------------------------- Name: Marc H. Bell Title: Managing Member ABSOLUTE RETURN EUROPE FUND By: Pet Capital Partners LLC, Attorney- in-Fact By: Naft Ventures I LLC, Managing Member By ---------------------------------------- Name: Marc H. Bell Title: Managing Member ------------------------------------------- Dr. LUIS ENRIQUE MOLINA GALEANA PENTHOUSE INTERNATIONAL INC. By ---------------------------------------- Name: Title: NAFT VENTURES I LLC By: ---------------------------------------- Name: Marc H. Bell Title: Managing Member 16 SUSAN DEVINE By: Pet Capital Partners LLC, Attorney- in-Fact By: Naft Ventures I LLC, Managing Member By ---------------------------------------- Name: Marc H. Bell Title: Managing Member THE MOLINA VECTOR INVESTMENT TRUST By ---------------------------------------- Name: Dr. Luis Enrique Molina Galeana Title: Trustee 17 EXHIBIT C-2 UNCONDITIONAL AND IRREVOCABLE GUARANTY The undersigned hereby unconditionally and irrevocably personally guarantees the full payment and performance, when due, of all obligations of Dr. Luis Enrique Molina Galeana, as set forth in agreement, dated as of March 31, 2004, among Pet Capital Partners LLC, Absolute Return Europe Fund, Susan Devine, Dr. Luis Enrique Molina Galeana, Penthouse International, Inc. and the undersigned (the "Purchase Agreement"). Unless otherwise defined herein, all capitalized terms used in this guaranty shall have the same meaning as is defined in the Purchase Agreement. The undersigned hereto agrees that any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement or the transactions contemplated hereby may only be brought in federal court sitting in the State of New York or any other New York court, and the undersigned hereby consents to the jurisdiction of such courts (and of the appropriate appellate courts therefrom) in any such suit, action or proceeding and irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any such court or that any such suit or proceeding which is brought in any such court has been brought in an inconvenient forum THE MOLINA-VECTOR INVESTMENT TRUST By: --------------------------------------- Name: Dr. Luis Enrique Molina Galeana Title: Trustee Date: April 15, 2004 -----END PRIVACY-ENHANCED MESSAGE-----