8-K

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 Exchange Act of 1934

Date of Report (Date of earliest event reported)  October 19, 2004

CARE CONCEPTS I, INC.

(Exact name of registrant as specified in its charter)

Delaware	000-20958	86-0519152
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

2200 SW 10^th Street, Deerfield Beach, Florida 33442

(Address of Principal Executive Office) (Zip Code)

(954) 363-4797

(Registrant’s telephone number, including area code)

Not Applicable

(Former Name or Former Address, If Changed Since Last Report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

ITEM 1.01

Entry into a Material Definitive Agreement

ITEM 2.01

Completion of Acquisition or Disposition of Assets

ITEM 2.03

Creation of a Direct Financial Obligations

ITEM 3.02

Unregistered Sales of Equity Securities

I.

Overview

Care Concepts I, Inc. (the “Company”) is a media and marketing holding company with interests in online auctions and radio programming and, through the transaction disclosed below, owns an equity interest in Penthouse Media Group, Inc., an established media, entertainment and licensing company.

As previously disclosed in prior filings under the Securities Exchange Act of 1934, as amended, in July 2004, the Company entered into an agreement with PHSL Worldwide, Inc., formerly Penthouse International, Inc. (“PHSL”), to acquire 100% of the equity interests of Internet Billing Company LLC (“iBill”) from PHSL. Prior to June 2004, the Company had no business dealings or affiliation with PHSL.

On October 19, 2004, the Company consummated a series of transactions pursuant to agreements entered into in escrow on September 28, 2004 with GMI Investment Partners, PHSL and PET Capital Partners, LLC and its affiliates to acquire an equity interest in the reorganized General Media, Inc. (now known as Penthouse Media Group, Inc.) Penthouse Media Group, Inc. is the publisher of Penthouse Magazine, an adult content publication. The agreement and transaction was subject to final approval of the United States Bankruptcy Court for the Southern District of New York and the emergence of General Media and its subsidiaries from bankruptcy. The reorganized General Media emerged from bankruptcy protection on October 5, 2004 and was renamed Penthouse Media Group, Inc.

In order to finance its investment in reorganized Penthouse Media Group, Inc., the Company sold, in a series of private placement transactions, certain securities (the “Financing Securities”), represented by $9.525 million principal amount of its 10% Notes, due September 15, 2009 (the “10% Notes”), 35,000 shares of its Series E convertible preferred stock (the “Series E Preferred Stock”) and up to 54,500 shares of its Series F convertible redeemable senior secured preferred stock (the “Series F Preferred Stock”) to certain investors who provided $16.475 million in financing to the Company. In addition, the Company issued 45,000 shares of its Series G convertible preferred stock (the “Series G Preferred Stock”) to GMI Investment Partners.

In July 2004, the Company entered into an agreement to acquire iBill from PHSL in exchange for Company securities convertible into 49.9% of the Company’s fully-diluted common stock. As discussed below, the American Stock Exchange objected to the closing of the iBill transaction for, among other factors cited, public interest issues and has required the Company to supply additional information. Management believes that iBill is fully compliant with all applicable laws and is hopeful that it will be able to satisfy the inquiries of the AMEX so as to be able to consummate the iBill acquisition and retain its AMEX listing. If, however, the Company does not receive AMEX approval by January 21, 2005, it will nonetheless consummate the iBill acquisition and seek to relist its securities on the NASDAQ Stock Exchange or the NASD OTC-Bulletin Board. See V. Proposed iBill Acquisition and AMEX Approval. When the iBill transaction is consummated, PHSL will become the largest single shareholder of the Company.

Through these actual and contemplated investments, the Company is seeking to acquire interests in established operating businesses with ownership of well-known consumer brand names. A description of these transactions is set forth below.

Penthouse Media Group, Inc. (f/k/a General Media, Inc.)

Penthouse Media Group, Inc. is a brand-driven global entertainment business founded by Robert C. Guccione in 1965. Penthouse Media Group’s flagship PENTHOUSE^TM brand is one of the most recognized consumer brands in the world and is widely identified with premium entertainment for adult audiences. Penthouse Media Group caters to mens’ interests through various trademarked publications, movies, the Internet, location-based live entertainment clubs and consumer product licenses. In addition to its flagship publication PENTHOUSE Magazine, Penthouse Media Group produces four other adult publications - Forum, Variations, The Girls of PENTHOUSE and PENTHOUSE Letters. Penthouse Media Group also licenses the PENTHOUSE trademarks to third parties worldwide in exchange for royalty payments. Historically, Penthouse Media Group’ s consolidated revenues were

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derived principally from the PENTHOUSE^TM related publishing activities. Penthouse Media Group recently increased its royalty revenues from expanded licensing of trademarks to third parties, including for the establishment of nightclubs using the PENTHOUSE^TM brand.

Pursuant to the terms of the agreements disclosed below, the Company acquired its 39.3% non-voting equity interest in Penthouse Media Group, Inc. from PET Capital Partners LLC, and other affiliates of Marc H. Bell and Daniel Staton (the “Bell/Staton Group”). The Bell/Staton Group obtained control of the equity of Penthouse Media Group through the Chapter 11 reorganization of General Media, Inc. and its subsidiaries. The Bell/Staton Group purchased control of the senior debt of General Media in November 2003 and also provided the debtors with a $7 million debtor-in-possession credit facility. On August 12, 2004, the one-year anniversary of the original Chapter 11 filing, the United States Bankruptcy Court confirmed the reorganization plan of the Bell/Staton Group, and such plan became effective and the reorganized Penthouse Media Group emerged from bankruptcy on October 5, 2004. The Company acquired its equity interest as part of a multi-party settlement pursuant to which various parties at interest agreed to release claims subject to pending litigation, to make cash payments as disclosed herein and to deliver a short-term promissory note guaranteed by Dr. Luis Enrique Fernando Molina.

The investment by the Company was subject to the emergence from reorganization, the effect of which is a series of material changes in the capital structure and operations of Penthouse Media Group. The reorganized Penthouse Media Group issued $38.0 million of senior debt in cancellation of $50.0 million senior notes and approximately $11.0 million in unsecured debt. In addition, the Bell/Staton Group has provided a new $20.0 million credit facility to Penthouse Media Group.

As a result of the reorganization, the day to day operations of Penthouse Media Group were assumed by the Bell/Staton Group and Robert Guccione was replaced as Chairman and CEO. The Bell/Staton Group has advised that it intends to alter the editorial direction of the publications in order to broaden the overall appeal, expand the circulation, increase advertising revenues and enhance the brand name for ongoing licensing opportunities.

Pursuant to the agreements, the Company has the right to designate a member of the board of Penthouse Media Group and one board observer. The Company has certain rights set forth in a shareholder agreement intended to enable it to participate with the Bell/Staton Group in certain significant transactions, including the financings of Penthouse Media Group and the disposition of Penthouse Media Group. In addition, the Company has the right of first refusal to utilize the PENTHOUSE brand name for auction websites, lifestyle resorts (excluding casinos) and travel agencies and travel related websites.

Internet Billing Company, LLC (“iBill”)

In March 2004, PHSL acquired 100% of the members equity interests of iBill, a leading e-commerce company. iBill provides online payments and money transfer services over the Internet using proprietary iBill software that manages the sale of subscriptions, memberships and other downloadable products over the Internet.

iBill offers its services to Internet users through one or more of its websites accessed at www.ibill.com or, more commonly, through specially assigned hyperlinks to a secure iBill webpage. iBill hyperlinks are assigned to qualified small to medium-sized businesses and merchants with whom iBill enter into iBill Complete™ or iBill Processing Plus™ contracts. The iBill hyperlinks permit businesses, primarily offering adult-oriented products and services, to automatically refer its customers to iBill, at which time iBill assumes the consumer credit risk and processes the transaction. iBill’s user base consists of approximately 27.0 million consumers in the United States and approximately 38 other countries. The approximately 3,000 approved iBill merchants are offered services in sixteen languages and multiple currencies. Consumers can pay for services with credit cards, debit cards, electronic checks or telephone billing. iBill generates revenue from subscription sales, transaction fees and consulting fees. Historically, iBill has recorded net revenue averaging approximately 12% of the gross sales price of the product or service sold and defers payment of 10% of the gross sales price for six months or more. iBill processed and handled approximately $330.0 million in gross adult-oriented product Internet sales in 2003, averaging approximately 1.2 million transactions per month.

iBill offers to its participating merchants the iBill Complete ™ system. Under this arrangement, iBill sells the user a unique password used to access a desired website. Under its agreements, iBill offers multiple payment methods in multiple languages and currencies. Once a webpage is located and the user requests access to the member area, users

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interact with forms-based HTML pages to guide them through the subscription-buying process. iBill collects user information in the form of individual customer orders. iBill then accesses multiple databases to determine whether it is able to fulfill the user’s order. Historically iBill declines approximately 24% of subscription orders. For most of the accepted transactions, iBill establishes the price it will accept, establishes the price it is paying to its vendors, has discretion in supplier selection, purchases and takes title to the particular product, and becomes the “merchant of record.” The iBill Complete™ system represents over 95% of the total revenues generated by iBill.

In addition to iBill Complete™, iBill also offers its iBill Processing Plus™ program - a more traditional third party processing product to merchant websites that want to maintain control of the sale process. In these transactions, iBill acts as agent for the seller, and the website supplier sets the retail price paid by the consumer. In this situation, the website is the merchant of record for the transaction.

Approximately 80% of the transactions entered into by iBill in 2003 were with consumers purchasing from merchants offering adult oriented products or services containing high sexual content on limited access websites. As a result of the iBill transaction (in which the non-adult portion of the business was retained and resold to an unaffiliated third party by InterCept, Inc.), iBill anticipates that the majority of the revenues of its iBill business subsequent to March 2004 acquisition will be derived from these adult-oriented products and services. Because of the nature of their offerings, many of these merchant clients are unable to directly obtain merchant accounts from traditional banks and credit card processors. Additionally many of these merchants do not have the financial or technical resources necessary to manage the real time integration of risk management, password management dat abases, internal accounting and external financial network settlement. Accordingly, iBill represents a significant solution for these clients, in that iBill is capable of handling the entire relationship with the retail customer as the merchant of record and assumes the risk of a customer’s disputing the credit card charge that subsequently appears on his or her statement (called “charge backs”).

The market for Internet transaction processing is emerging, intensely competitive and characterized by rapid technological change. iBill competes with existing payment methods and other companies, including, among others:

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credit card merchant processors that offer their services to online merchants, including First Data, Concord EFS, Paymentech, VeriSign and Authorize;

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Yahoo! PayDirect offered by Yahoo!;

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e-mail payment services offered by the U.S. Postal Service through CheckFree; and

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MoneyZap and BidPay offered by Western Union, a subsidiary of First Data.

iBill also competes with providers of traditional payment methods, particularly credit cards, checks, money orders and Automated Clearing House, or ACH, transactions. Associations of traditional financial institutions such as Visa, MasterCard and the National Automated Clearing House Association (NACHA), generally set the features of these payment methods. The associations have initiated programs to enhance the usability of these payment methods for online transactions and could lower fees charged to online merchants. Either of these changes could make it more difficult for the iBill to retain and attract customers.

Many of these and other competitors have substantially greater capital and other financial resources than iBill does.

iBill was previously owned and operated by InterCept, Inc, a NASDAQ-listed company (“InterCept”), which purchased iBill in April 2002 for $112.0 million in cash. As disclosed on PHSL’s Form 8-K, in March 2004, InterCept sold iBill to PHSL for total consideration of $23.5 million, which transaction PHSL has been advised was part of InterCept’s strategy of exiting from merchant processing and adult entertainment processing in connection with the sale of InterCept announced in September 2004.

On April 21, 2004, PHSL received a letter from counsel to InterCept, claiming that Media Billing, LLC, an acquisition entity formed by PHSL to acquire the members interest of iBill (“Media Billing”) was in default in payment of the $750,000 purchase note under the Member Interest Purchase Agreement (the "InterCept Agreement") pursuant to which Media Billing purchased from InterCept on March 22, 2004 100% of the members interests of iBill. In addition, InterCept claims that Media Billing breached its obligation under the InterCept

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Agreement to replace InterCept's $3,000,000 letter of credit with First Data Merchant Services (“First Data”) on or before April 20, 2004. To date, such letter of credit has not been replaced, and InterCept has therefore claimed that Media Billing is obligated to pay it $3,000,000 in cash. In addition, InterCept has claimed that Dr. Molina has become obligated under his guaranty agreement to perform the obligations of Media Billing, currently aggregating approximately $3.8 million. PHSL and iBill have claimed that InterCept failed to deliver certain significant assets (including patents and certain other intellectual property rights) belonging to the iBill business in connection with the InterCept Agreement, and have demanded that, as a condition to any such payment, that such assets be properly transferred and assigned to iBill. The dispute has been submitted to arbitration befo re the American Arbitration Association. PHSL and iBill believe that they have valid legal positions and believe that this dispute will either be resolved in their favor or settled on mutually satisfactory terms.

In September 2004, InterCept announced that it has entered into a definitive agreement to be acquired by Fidelity National Financial (NYSE: FNF). Closing is subject to approval by the InterCept stockholders. The Company and iBill cannot be certain the effect of this transaction on the reciprocal claims disclosed above.

In addition, since the closing date of the InterCept Agreement, PHSL was provided a letter from the Department of Justice, anti-trust division (DOJ) that sets forth a request for information on the pricing policy set by each of iBill and certain competitors, including Paycom and CCBill, as regards a registration fee set by VISA USA in 2003. iBill responded to the request for information and, since the time of the initial letter of inquiry in March 2004, has not heard from the DOJ. Inasmuch as Media Billing and iBill are indemnified by InterCept for certain pre-closing liabilities of InterCept or iBill, including those described above, iBill has made an indemnification claim against InterCept. Since iBill and the Company believe that the potential damage claims being indemnified against may significantly exceed the approximately $3.8 million amount claimed by InterCept under the InterCept A greement, iBill and PHSL have taken the position that until a potential outcome is determinable or InterCept posts adequate collateral to secure its indemnification obligations, they will withhold payments under the InterCept Agreement.

On September 15, 2004, the bank sponsorship agreement between First Data Merchant Services, First Financial Bank and iBill expired and was not renewed. iBill had previously reached agreement with another bank to replace

First Data and, First Data agreed, based upon such change, to provide services for a transition period. Notwithstanding the agreement to provide transitional services, First Data terminated services on September 16, 2004. iBill obtained a temporary restraining order preventing First Data from terminating such activity, and First Data resumed service, however a subsequent preliminary injunction was not granted. IBill’s credit card processing sponsorship agreements with its other financial institutions were not affected and continue to settle in the normal course.

Subsequent to the termination of First Data services, iBill made arrangements with Symmetrex, one of its third-party processors, to redirect credit card transactions to the other financial institutions currently providing services. In September 2004, iBill entered into separate agreements with Bankcard, a VISA and MasterCard principal member, with CNP Worldwide, a VISA registered ISO and MasterCard MSP, and with Standard Payments, a VISA ISO for a US bank, for processing certain credit card transactions. The Company believes that these additions to its vendor list will provide iBill clients with greater choice and flexibility in processing their transactions. The previous vendor will continue to hold certain funds as reserves against any potential future chargebacks or credits, but all amounts will be released to iBill within one year of the termination of the agreement with the previous v endor in accordance with the terms for the First Data agreement.

In connection with the termination of its First Data bank sponsorship agreement, and resulting changes to its arrangement for processing domestic credit card transactions, payments for processing certain domestic transactions and the processing of domestic VISA transactions were disrupted. This resulted in iBill delaying certain payouts due to clients and in the loss of business and revenues from certain key customers. iBill is developing systems and procedures to improve the management of its cash receipts and satisfy its future obligations. Inasmuch as iBill has recouped the business from two significant customers since the termination of its First Data relationship, the Company does not believe that iBill’s recent loss of business and reduction in revenues is permanent or that it will have a material adverse effect upon future revenues and profits.

In October 2004, iBill reduced its staff through the termination of 45 employees and 15 independent contractors, approximately a 25% reduction in its work force. iBill effected this downsizing to improve efficiency, reduce annual operating costs by approximately $2.0 million and normalize its workforce size in a manner consistent with those of its competitors. Even after giving effect to its reduction, iBill believes that it continues to retain a workforce that is approximately 25% larger than CCBill and Paycom; its two principal competitors.

The Online Payments Industry and the Adult Content Industry

Upon consummation of the iBill acquisition, the Company will compete in an industry that relies on payments made over the Internet, in “cards-not-present” transactions, where the customer does not physically present the credit card. Market researchers expect continued growth in card-not-present transactions due to the rapid growth of the Internet. According to industry publications, 94% of the dollar value of all merchandise and services ordered online by consumers in 2003 will be purchased using credit card-based systems. In total, U.S. consumer electronic commerce is expected to grow from $66.6 billion in 2001 to $322.8 billion in 2006, representing a compound annual growth rate of 37.1%. As many leading websites have evolved their business models, they have migrated from providing content for free to charging for content. New technologies such as MP3 downloadable music continu e to broaden the online subscription applications. Additional content categories that have experienced considerable growth in paid members include portals such as Yahoo!; personals sites such as Match.com; dieting sites such as eDiets and weightwatchers; fantasy sports sites such as Sportsline.com; and multiplayer online games such as Everquest.com. The Company expects the expansion trend of new categories will benefit iBill’s business in selling and managing online members.

In the adult entertainment segment, new technologies have lowered costs and changed the way in which adult content is produced, distributed and viewed. Lower costs, in particular, have lowered barriers to entry and increased competition in the adult entertainment industry. The trend toward wider acceptance of sexually-explicit material and ongoing technological developments has contributed to a large and growing global market for adult content.

Demand for adult entertainment products has grown substantially in recent years. According to a 2003 Reuters report, the total worldwide adult entertainment market exceeds $31.0 billion annually, including magazines, DVDs, memberships and subscriptions, magazines, telephone sex lines, cable and satellite pay-per-view programming, adult videos and toys and other related products and services.

The proliferation of easy to use electronic equipment, such as VCRs and DVD players, which allow consumers to view high quality video products in the privacy of their home, has boosted demand for adult media content compatible with these formats. For example, the installed base of DVD players in Western Europe and the United States, which doubled in 2001, was expected to reach 48 million households by the end of 2003 in the United States alone. Also, the evolution of the Internet as a channel of commerce and content distribution has stimulated additional demand for adult media content. In addition, advances in cable, satellite and hotel communications systems have furnished another relatively new channel for the delivery of media content, including adult entertainment, into private homes, hotels and businesses. The next generation of mobile devices, including 3G mobile phones, provides a g lobal opportunity for growth in content distribution.

Management believes that the combination of the above market conditions and the worldwide recognition of the Penthouse brand name provide an opportunity for enhanced shareholder value for the Company from its Penthouse Media Group investment.

Regulation

Many of the Company’s actual and proposed activities take place around a highly regulated industry. As such the Company must be sensitive to local and federal government regulations, including, but not limited to, laws and regulations designed to protect minors and/or which prohibit the distribution of obscene material.

Federal and state obscenity laws define obscenity through reference to the U.S. Supreme Court's three-prong test set forth in Miller v. California, 413 U.S. 1593 (1973). This test is used to evaluate whether materials are obscene. Miller provides that the following must be considered: (a) whether the average person, applying contemporary community standards, would find that the work, taken as a whole, appeals to the prurient interest; (b) whether the work depicts or describes, in a patently offensive way, sexual conduct specifically defined by the applicable state law; and (c) whether the work, taken as a whole, lacks serious literary, artistic, political or scientific value. The Supreme Court has clarified the Miller test in recent years, advising that the prurient interest prong and patent offensiveness prong must be measured against the standards of an average person, applying contempor ary community standards, while the value prong of the test is to be judged according to a reasonable person standard.

Based upon its due diligence, the Company believes that each of Penthouse Media Group and iBill actively seeks to comply with all applicable state and federal laws and regulations in each jurisdiction where they conduct business.

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Moreover, the Company believes that iBill does not knowingly transact business with any business or individual that does not adhere to the same standards. IBill also maintains internal compliance measures that includes a “terminate and tell” policy under which it terminates its relationship with any business that it judges to be in violation of applicable laws and inform the appropriate enforcement agency.

To the Company’s knowledge, none of iBill, Penthouse Media Group, or their employees has ever violated any laws or regulations regarding obscenity or the protection of minors.

II.

Acquisition of the Penthouse Media Group Stock.

GMI Investment Partners, a New York partnership, entered into a settlement and securities purchase agreement, dated as of September 21, 2004 (the “PMG Stock Purchase Agreement”), with PET Capital Partners LLC, Absolute Return Europe Fund, Susan Devine, NAFT Ventures I LLC, Marc H. Bell, Daniel Staton (collectively, the “Bell/Staton Group”), PHLS, The Molina Vector Investment (“MVIT”), and Milberg Weiss Bershad & Schulman LLP (“Milberg Weiss”), as escrow agent. As part of the transactions contemplated by the PMG Stock Purchase Agreement, GMI Investment Partners agreed to purchase, for a price of $41.34 per share, a minimum of 241,908 shares and a maximum of 483,815 shares of Class B non-voting common stock General Media, Inc. (the “PMG Stock”), as reorganized, to represent between 24.15% and 48. 3% of the outstanding common stock of the reorganized General Media. GMI Investment Partners was granted the right to assign its rights and obligations, as “purchaser” of the PMG Stock, to the Company.

Under the terms of the PMG Stock Purchase Agreement, payment for the PMG Stock was required to be made to Milberg Weiss, as escrow agent by September 29, 2004, pending the “effective date” of the fourth amended and restated plan of reorganization of the General Media Debtors sponsored by the Bell/Staton Group (the “Plan”), and the emergence of the General Media Debtors from bankruptcy. On September 29, 2004, GMI Investment Partners assigned all of its rights as purchaser of the PMG Stock to the Company, and the Company deposited $16.350 million in escrow with Milberg Weiss for the purchase of 395,519 shares of PMG Stock, representing an aggregate of 39.3% of the outstanding common stock of Reorganized General Media. The Bell/Staton Group gave the Company an extension until October 19, 2004 to pay the remaining $3.650 million for the balance of the available PMG Stock and increase its percentage ownership in the outstanding General Media common stock from 39.3% to 48.3%, which option was not exercised by the Company.

On October 5, 2004, the Bell/Staton Group sponsored Plan became final, General Media and its subsidiaries emerged from bankruptcy, and the reorganized General Media changed its name to Penthouse Media Group, Inc. On the same date, the Company entered into a joinder agreement under which it agreed to assume all of the rights and obligations as Purchaser of the PMG Stock, including the obligations and benefits under the stockholders agreement described below. On October 19, 2004, PHSL delivered to Milberg Weiss an additional $1.0 million of escrowed funds required to be delivered under the PMG Stock Purchase Agreement. As a result, the $16.350 million of escrowed proceeds was released to the Bell/Staton Group and the Company consummated its purchase of the PMG Stock.

Pursuant to the General Media plan of reorganization (i) the Bell/Staton Group or their affiliates (which held approximately $40.0 million of senior secured notes of the General Media Debtors) shall hold approximately $27.0 million of seven year term loan, (ii) the unsecured creditors of the General Media Debtors received $2.0 million in cash and up to $11.0 million in the Term Loan, (iii) certain members of the Bell/Staton Group shall provide a maximum $20.0 million exit financing facility (of which approximately $8.0 million was drawn to pay cash expenses and payments in the bankruptcy case, (iv) all outstanding equity securities of old General Media, Inc. was cancelled, and (v) an aggregate of 1,000,000 shares of common stock of reorganized General Media was issued, of which (A) the Company shall own 100% of the non-voting common stock of reorganzed General Media, and (B) the Bell/Stat on Group or their affiliates will own all of the voting common stock of the Penthouse Media Group, Inc. Except for the fact that it is non-voting, the PMG Stock owned by the Company (representing 39.3% of the outstanding Penthouse Media Group, Inc. common stock) is identical in all respects to the voting common stock.

Under the terms of a stockholders agreement among the Company and members of the Bell/Staton Group, the parties have agreed to certain corporate governance and affirmative and negative covenants designed to protect the minority stockholder interests of the Company in Penthouse Media Group, Inc. In addition, for so long as it retains at least 50% of its equity, the Company is entitled to designate one member of the board of directors of Penthouse Media Group, Inc.

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As part of the PMG Stock Purchase Agreement, pending litigation involving Penthouse, MVIT, certain affiliates of PHSL and the Bell/Staton Group was settled.

III.

The Financing Securities.   Set forth below is a summary description of the Financing Securities.

10% Notes.  The Company issued an aggregate of $9,525,000 of 10% Notes to 18 investors (the “Investors”), none of whom were previously affiliated with the Company. Such 10% Notes:

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are payable as to interest only, at the rate of 10% per annum, payable semi-annually on June 30^th and December 31^st, based on a 360 day calendar year; provided, that interest on the 10% Notes shall be payable either 100% in cash, or at the option of the Company, 50% in cash and the balance in additional shares of Company common stock at the conversion price of the 10% Notes set forth below;

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unless previously converted into common stock (the “Note Conversion Shares”), shall be payable as to principal, together with all accrued an unpaid interest, on September 15, 2009 (the “Note Maturity Date”);

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upon the earlier of December 31, 2004 or the Company obtaining stockholder approval for the issuance of the 10% Notes and other Financing Securities, shall be convertible, at any time, at the option of the Investors at a price per share (the “Note Conversion Price”) equal to 50% of the average closing price of the Company’s common stock, as traded on the American Stock Exchange LLC or other National Securities Exchange, for the five trading days immediately prior to the date (the “Conversion Date”) that notice of conversion is given to the Company, subject to a minimum conversion price of $3.00 per share (the “Floor Price”); provided, that at the time of conversion, the Note Conversion Price is less than the Floor Price, the holders of the 10% Notes are entitled to receive additional shares of common stock from GMI Investment Partners or their affiliates, described as “Escrowed Shares” below; and.

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are secured by (i) a lien on the assets of Internet Billing Company LLC (“iBill”) subordinated to the lien granted to holders of the Series F Preferred Stock, and (ii) the pledge by the Company of a portion (pro rated with the Series F Senior Preferred Stock) of 100% of the members interest in iBill to be acquired by the Company and the Company’s 39.3% equity interest in the Reorganized General Media; which liens on iBill assets issued to holders of 10% Notes and the Series F Preferred Stock are subject and subordinate to a first priority lien that may be granted to one or more senior lenders providing up to $10.0 million of working capital financing to iBill;

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may not be prepaid by the Company until the holders of Series F Preferred Stock have elected whether or not to require redemption of the Series F Senior Preferred Stock; and

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are accompanied by warrants (the “10% Note Warrants”) to purchase up to one share of common stock for each $3.00 of 10% Notes purchased, as a result of which the Company issued 10% Note Warrants to purchase 3,175,000 additional shares of common stock at an exercise price of $3.00 per share.

Series E Preferred Stock.

  Simultaneous with its sale of the 10% Notes, the Company also raised $3.5 million from the sale of 35,000 shares of its Series E Preferred Stock to Monarch Pointe Fund LP (“Monarch”). Prior to such transaction, Monarch had no previous affiliation with the Company, although it had previously invested in Penthouse International, Inc. The Series E Preferred Stock:

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pays an annual dividend of 6% per annum, until the effective date of the Registration Statement registering the underlying conversion shares and Escrowed Shares issuable upon conversion of the Series E Preferred Stock for resale;

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is senior, at the rate of $100 per share, on liquidation and sale of control to the Company’s outstanding Series A Preferred, Stock, Series B Preferred Stock, Series C Preferred Stock and Series G Preferred Stock;

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is junior on liquidation and sale of control to the Company’s outstanding Series F Senior Preferred Stock;

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is not redeemable or secured by any liens on assets or capital stock; and

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upon the earlier to occur of (i) the Company’s obtaining stockholder approval, or (ii) December 31, 2004, shall be convertible into common stock (the “Series E Conversion Shares”) at a conversion price equal to 50% of the “Market Price” (as defined) of the Company’s common stock, as traded on the AMEX or any other national securities exchange (the “Series E Conversion Price”), subject to a $3.00 per share Floor Price; provided, that at the time of conversion, the Note Conversion Price is less than the Floor Price, the holders of the Series E Preferred Stock are entitled to receive additional shares of common stock from GMI Investment Partners or their affiliates, described as “Escrowed Shares” below; and

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are accompanied by warrants issued to Monarch and its affiliate, Mercator Advisory Group (the “Monarch Group Warrants”) to purchase approximately 430,000 shares of common stock at an exercise price equal to the Series E Conversion Price.

The Series F Preferred Stock.  Simultaneous with its sale of the 10% Notes and Series E Preferred Stock, the Company raised $3.45 million from the sale of 34,500 shares of its Series F Preferred Stock to Castlerigg Master Investments Limited (“Castlerigg”). Prior to such transaction, Castlerigg had no previous affiliation with the Company, although it had previously invested in Penthouse International, Inc. The Series F Preferred Stock:

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pays an annual dividend at the rate of 10% per annum, payable semi-annually on June 30^th and December 31^st , which dividend is payable either 100% in cash, or at the option of the Company, 50% in cash and the balance in additional shares of Company common stock valued at 50% of the volume weighted average price or “VWAP Price,” (as defined) for the five trading days prior to the dividend payment date, then in effect;

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is senior, at the rate of $100 per share, plus accrued dividends and any additional amounts owed by the Company with respect to the Series F Preferred Stock, on liquidation and sale of control or substantially all of the assets of the Company to the 10% Notes and to all other shares of capital stock of the Company, including, the Company’s outstanding Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series G Preferred Stock;

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unless previously converted into common stock is redeemable at the option of the holder, at $100 per share, plus accrued dividends and any additional amounts owed by the Company with respect to the Series F Preferred Stock, if any, on September 15, 2009, or an earlier date, if an event of default to the holders of the Series F Preferred Stock shall occur and be continuing (the “Mandatory Redemption Date”);

•

is secured by a lien and security interest on the assets of iBill, which will become a subsidiary of the Company upon the closing of the “iBill Acquisition” described below; which lien is senior to the lien on such assets granted to holders of 10% Notes and subject and subordinate only to a first priority lien that may be granted to one or more senior lender providing up to $10.0 million of working capital financing to iBill;

•

is secured by a pledge of a pro-rata percentage of 100% of the members interest of iBill, and a pro-rata percentage of the shares of PMG Stock; which pledged securities are apportioned among Castlerigg and the holders of the 10% Notes on a pro rata basis based upon the $3.45 million purchase price for the Series F Preferred Stock and the initial $9.525 million purchase price for the 10% Notes; as a result of which 26.59% of the iBill members interest and an aggregate of 105,168 shares of PMG Stock were pledged to the holders of Series F Preferred Stock, and the remaining 73.41% of the iBill members interest and 290,351 shares of PMG Stock were pledged to the holders of the 10% Notes of the Company; provided, that if additional 10% Notes (not to exceed

8

$4.475 million in the aggregate) are sold, or the holders of the Series F Preferred Stock exercises the Exchange Option described below to increase the stated value of the Series F Preferred Stock to $5.45 million, such allocation of the pledged iBill members interests and PMG Stock shall be appropriately readjusted; and

•

on the earlier to occur of December 31, 2004 or the Company obtaining stockholder approval, are convertible, at any time at the option of a Purchaser, into shares of the Company’s common stock (the “Series F Conversion Shares”), at a price per share equal to $3.00; provided, provided, that at the time of conversion, the “VWAP Price,” (as defined) for the five trading days prior to the conversion date is less than $3.00 per share, the holders of the Series F Preferred Stock are entitled to receive additional shares of common stock from GMI Investment Partners or their affiliates, described as “Escrowed Shares” below; and

•

are accompanied by three (3) year warrants (the “Series F Warrants”) entitling the Series F Preferred Stockholders to purchase at an exercise price of $3.00 per share an aggregate of 386,194 shares of the Company’s common stock.

In addition, at any time within on or before October 5, 2005, Castlerigg may, at its sole option, exchange shares of common stock of Penthouse International, Inc. previously purchased by Castlerigg for an aggregate of approximately $2,000,000 for (i) 20,000 additional shares of Series F Senior Preferred Stock, and (ii) 224,582 additional Series F Warrants (the “Exchange Option”).

The Escrowed Shares.

Notwithstanding the $3.00 per share Floor Price applicable to the conversion of the 10% Notes and Series E Preferred Stock and the $3.00 per share conversion price applicable to the Series F Preferred Stock, in the event that (as to the Series F Preferred Stock) the daily volume weighted average price (“VWAP”) of the Company’s common stock or (as to the 10% Notes and Series E Preferred Stock) the average closing price of Company common stock, as traded on the AMEX or on the Nasdaq Stock Exchange, the New York Stock Exchange or the NASD OTC-Bulletin Board (together with the AMEX, a “National Securities Exchange”), shall be less than the $3.00 per share on the date that notice of conversion is given to the Company by the holder of one of the Financing Securities, then such holder is entitled to receive from the escrow described below that number of additional shares of common stock of the Company (the “Escrowed Shares”) as shall represent, together with the number of 10% Note Conversion Shares, Series E Conversion Shares or Series F Conversion Shares (as applicable) (collectively, the “Conversion Shares”) issuable based on the $3.00 per share conversion price or Floor Price, an aggregate number of shares of common stock that would have been issuable on the applicable conversion date if the conversion price had been based upon 50% of the average VWAP of the Company’s common stock or 50% of the closing price of the Company’s common stock for the five trading days immediately prior to the conversion date (each, the “Assumed Conversion Price”); provided, that in no event would such Assumed Conversion Price ever be less than $0.50 per share (the “Assumed Floor Price”) irrespective of the Assumed Conversion Price.

A total of 29,929 shares of Series G Preferred Stock issued to GMI Partners represents the total amount of the Escrowed Shares. Such Escrowed Shares will, on December 31, 2004, be converted into 39,916,666 shares of common stock. The Company is only obligated to issue a maximum aggregate of 7,983,333 shares of its authorized and unissued common stock to the holders of 10% Notes, Series E Preferred Stock and Series F Preferred Stock as Conversion Shares. Accordingly, the Company is not responsible for the issuance of any additional shares of its common stock in connection with common stock that may be delivered to such security holders as Escrow Shares. As a result, there can be no additional dilution in connection with these securities.

Based on the sale of $9.525 million of 10% Notes, $3.5 million of Series E Preferred Stock and $5.45 million of Series F Preferred Stock (inclusive of $2.0 million of Series F Preferred Stock issuable upon exercise of the Exchange Option), a total of 30,791,666 shares of Company common stock are subject to potential issuance as Escrowed Shares. However, in view of the fact that the Company may elect to sell up $5.475 million of additional 10% Notes, a maximum of up to 39,916,666 Escrowed Shares of the Company are subject to potential issuance (i) up to a maximum of 25,000,000 of such Escrowed Shares to the holders of up to a maximum of $15,000,000 of 10% Notes, (ii) up to a maximum of 5,833,333 of such Escrowed Shares to the holders of $3,500,000 stated value of Series E Preferred Stock, and (iii) up to a maximum of 9,083,333 of such Escrowed Shares to the Purchasers upon conversion of th e maximum $5,450,000 stated value of Series F Preferred Stock.

9

To avoid further dilution to the Company if Escrowed Shares become issuable to holders of the 10% Notes, Series E Preferred Stock and/or Series F Preferred Stock, GMI Investment Partners and their affiliates and the Company, have entered into an escrow agreement with legal counsel to the holders of the Transactional Securities. Under the terms of such escrow agreement (the “Series G Preferred Stock Escrow Agreement”), an aggregate of 29,929 shares of the Company’s “Series G Preferred Stock” (described below) have been placed in escrow, which Escrowed Shares are automatically convertible into an aggregate of 39,916,666 shares of common stock of the Company by not later than December 31, 2004. In the event that the Assumed Conversion Price of Company common stock shall be less than $3.00 per share on any Conversion Date, within three business da ys after a Conversion Notice shall be delivered to counsel to the Company and to the holder of Financing Securities setting forth the calculation of the appropriate number of Escrowed Shares to be delivered to the holder of Financing Securities as Escrowed Shares, the escrow agents shall cause certificates evidencing such Escrowed Shares to be delivered to such converting security holder. Any Series G Preferred Stock or Common Stock no longer subject to issuance as Escrowed Shares or otherwise remaining in escrow following conversion into common stock of all outstanding 10% Notes, Series E Preferred Stock and Series F Senior Preferred Stock, will be returned to GMI Partners or its Affiliates.

The Financing Securities, including, any Escrowed Shares that a holder may acquire at any time, and any shares of common stock issuable upon exercise of warrants, are subject to limitation, so that the aggregate number of shares of common stock of which such holder and all persons affiliated with such holder have beneficial ownership (calculated pursuant to Rule 13d-3 of the Securities Exchange Act of 1934, as amended) does not at any time exceed 9.99% of the Company's then outstanding common stock.

All of the Financing Securities were offered and sold 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.

IV.

Transaction with GMI Investment Partners and Series G Preferred Stock.

In consideration of their (i) assignment to the Company of the right to purchase the PMG Stock, (ii) having provided or arranged for financing and financial accommodations that facilitated the acquisition of the PMG Stock and the potential acquisition of iBill, (iii) having provided iBill with transaction processing financing, (iv) having provided personal guarantees and ongoing indemnification to PHSL and iBill in connection with certain contingent liabilities, and (v) having provided and continuing to provide management and consulting services to the Company and iBill; the value of which financings, financial accommodations, indemnification and services are estimated to be in excess of approximately $85.0 million, as of September 23, 2004, and for the delivery of general releases and dismissal of claims by PHSL and Dr. Molina against the Bell/Staton Group, the Company entered into an ag reement with PHSL and GMI Investment Partners (the “September 23^rd Agreement”), under which the Company agreed that on the October 5, 2004 (Effective Date of the Plan) or as soon thereafter as is practicable, the Company will sell to GMI Investment Partners, 45,000 shares of newly authorized Series G convertible preferred stock, $1,000 per share stated value (the “Series G Preferred Stock”). On October 19, 2004, the Company completed the sale of the Series G Preferred Stock to GMI Investment Partners.

The Series G Preferred Stock:

•

is junior on liquidation and sale of control of the Company to the Series E Preferred Stock and Series F Senior Preferred Stock;

•

does not pay any dividend and is not secured by any assets or securities;

•

is not subject to mandatory redemption; and

•

upon the earlier to occur of December 31, 2004 or the Company obtaining stockholder approval, is automatically converted into an aggregate number of shares of Company common stock as shall equal (a) 68.0 million shares of common stock, less (b) a maximum of 7,983,333 Conversion Shares issuable at the $3.00 per share conversion price or Floor Price applicable to the Financing Securities.

Under the terms of the September 23^rd Agreement, the Company also agreed to issue the Transaction Securities to investors designated by GMI Investment Partners. Such agreement also provides that, if by December 31, 2004, the

10

AMEX does not approve the terms of the Company’s acquisition of the PMG Stock and the issuance of the Transaction Securities, then all shares of common stock issuable upon conversion or exercise of such Transaction Securities shall become immediately exercisable at the option of the holders, effective as of December 31, 2004. In addition, the September 23^rd Agreement provides that if, by January 21, 2005, the AMEX does not approve the proposed iBill acquisition, the Company will nonetheless consummate such transaction effective as at such date and issue to PHSL all shares of Series D Preferred Stock which shall become immediately convertible into common stock.

The partners of GMI Investment Partners are The Molina Vector Investment Trust, Faries Capital LLC, Granite Management LLC, Summit Capital Limited, and certain affiliates, financial partners and business associates of MVIT, Aries, Granite and Summit. MVIT is an affiliate of PHSL. As indicated above, GMI Investment Partners and its affiliates placed in escrow 29,929 of the 45,000 shares of Series G Preferred Stock, convertible into an aggregate of 39,916,666 shares of common stock, in the event and to the extent that Escrowed Shares shall be required to be issued out of escrow to holders of Series F Senior Preferred Stock, 10% Notes or Series E Preferred Stock.

Based upon the current market price of the Company’s common stock over the last five trading days, if all 10% Notes, and shares of Series E Preferred Stock and Series F Preferred Stock were currently convertible and were converted into Company common stock, all 39,916,666 escrowed shares would be issuable out of escrow to holders of such Financing Securities.

V.

Proposed iBill Acquisition and AMEX Approval

On July 22, 2004, the Company entered into a securities purchase agreement with Penthouse International, Inc., now known as PHSL Worldwide, Inc. (the “iBill Purchase Agreement”), pursuant to which the Company intended to acquire 100% of the members equity of Media Billing Company, LLC and its wholly owned subsidiary Internet Billing Company LLC (“iBill”). Under the terms of the iBill Purchase Agreement, in consideration for the equity of Media Billing and iBill, the Company agreed to issue to PHSL approximately 3.2 million shares of common stock and 330,000 shares of Series D convertible preferred stock (the “Series D Preferred Stock”) that is convertible into that number of shares of outstanding common stock as shall represent (together with the common stock issuable to PHSL) 49.9% of the fully-diluted common stock of the Company at the t ime of conversion. In August 2004, the Company announced its consummation of the iBill acquisition.

On September 20, 2004, the Company received a notice from the AMEX of its intention to de-list the Company’s common stock from trading on the AMEX, pending a hearing requested by the Company. The delisting notice stated, among other things, that the Company failed to furnish certain necessary information to the AMEX concerning iBill and that the iBill acquisition raised certain public interest concerns. On September 23, 2004, the Company agreed to rescind the closing of the iBill acquisition. However, the iBill Purchase Agreement continues to remain in full force and effect. As a result of its agreement to rescind the closing of the iBill acquisition, pending the resolution of all listing eligibility issues and AMEX approvals, the staff of the AMEX agreed to withdraw its notice of intent to de-list the Company’s securities.

The Company intends to use its best efforts to furnish the information requested by the AMEX on a timely basis and is hopeful that the staff of the AMEX will, upon receipt and review of such information, provide all necessary approvals for the iBill acquisition. There can be no assurance that the Company will be able to satisfactorily resolve all listing issues or that it will receive all such AMEX approvals associated with the iBill transaction.

However, if for any reason, AMEX approval has not been obtained by January 21, 2005, the Company will nevertheless close the iBill Acquisition, withdraw from the AMEX and seek to re-list its common stock on the NASDAQ Stock Exchange or the NASD OTC-Bulletin Board. There can be no assurance that the Company will be able to qualify for listing on such exchanges.

Following receipt of the AMEX notice of delisting, on September 23, 2004, each of the Company, PHSL and GMI Investment Partners entered into the September 23^rd Agreement that provides, inter alia, that the iBill acquisition will be consummated, all shares of the Company common stock and Series D Preferred Stock issuable to Penthouse upon consummation of the iBill Acquisition will be issued, and all of the Series D Preferred Stock will be converted (together with the common stock issuable to PHSL) into 85.0 million shares of Company common stock, upon the earlier to occur of (i) AMEX approval of the iBill acquisition, or (ii) January 21, 2005. The Company has delivered

11

to legal counsel to PHSL, for filing with the Secretary of State of the State of Delaware on the earlier of AMEX approval or January 21, 2005, a duly executed undated certificate of designation for the Series D Preferred Stock, containing no conditions to conversion of such securities into Company common stock.

Series D Preferred Stock.  An aggregate of 330,000 shares of Series D Preferred Stock will be issued to PHSL in consideration for the contemplated sale of iBill to CCI. The Series D Preferred Stock:

•

pays no dividend,

•

has a $100 per share liquidation value,

•

is unsecured and non-redeemable, and

•

upon the earlier to occur of (a) the Company obtaining stockholder approval and approval by the AMEX of the iBill acquisition, or (b) January 21, 2005, shall be automatically converted, together with approximately 3.2 million shares of Company common stock to be issued to PHSL in connection with the consummation of the iBill sale, into that number of shares of common stock that would represent 49.9% of the “Fully-Diluted Company common stock” at the time of conversion.

“Fully-Diluted Company common stock” means all outstanding shares of Company common stock and all additional common stock issuable upon exercise or conversion of all options, warrants, convertible notes or convertible preferred stock (including, for purposes of such definition, all common stock issuable in connection with the Financing Securities). It is anticipated that an aggregate of approximately 81.8 million shares of Company common stock (the “Series D Conversion Shares”) will be issued to PHSL upon full conversion of the Series D Preferred Stock. It is anticipated that, following the acquisition of the PMG Stock and consummation of the iBill acquisition, such Series D Conversion Shares and the 3.2 million shares of common stock (a total of up to 85.0 million shares of common stock) will be distributed to the holders of PHSL common stock and other securities convertible into or exercisable for shares of PHSL common stock in connection with the subsequent liquidation of that entity.

VI.

Anticipated Capitalization of the Company. Set forth below is a summary of the outstanding and pro forma capitalization of the Company, as a result of the issuance of the Financing Securities and consummation of the anticipated iBill acquisition.

(a)

Outstanding and Fully-Diluted common stock. As at the date hereof, the Company is authorized to issue an aggregate of 30,000,000 shares of common stock, of which approximately 15.7 million shares of common stock are currently outstanding, and approximately an additional 1.8 million shares are reserved for issuance to holders of outstanding warrants, options and convertible Series B and Series C preferred stock.

(b)

Pro Forma and Fully Diluted common stock.

On a fully-diluted basis, after giving effect to:

•

the issuance by not later than December 31, 2004 (upon automatic conversion of the Series G Preferred Stock) of (x) 68.0 million shares of common stock, less (y) up to 7,983,333 Conversion Shares and approximately 6,1 million Warrants Shares in connection with the Financing Securities and completion of the Company’s acquisition of the PMG Stock;

•

the issuance by not later than January 21, 2005 to PHSL (upon automatic conversion of the Series D Preferred Stock) of 85.0 million shares of common stock in connection with the consummation of the iBill acquisition; and

•

the issuance of all Conversion Shares (based on the stated $3.00 per share conversion or floor price set forth in the 10% Notes or certificates of designations of the Series E Preferred Stock and Series F Senior Preferred Stock) of all outstanding Preferred Stock,

12

it is anticipated that an aggregate of 170 million shares of Fully-Diluted Company common stock will be outstanding, before issuance of up to approximately 6.1 million shares of common stock (subject to anti-dilution adjustment) that may be issued upon exercise of warrants issued to holders of 10% Notes, Series E Preferred Stock and Series F Preferred Stock.

Upon obtaining stockholder approval and consummation of the iBill Acquisition, the Company will have (i) 250,000,000 authorized shares of common stock of which approximately 17,000,000 shares will be issued and outstanding, prior to conversion of any Series D Preferred Stock, Series E Preferred Stock, Series F Preferred Stock or Series G Preferred Stock; (ii) 5,000,000 shares of Preferred Stock authorized, 475,450 of which shares will be issued and outstanding; (iii) 1,000 authorized shares of Series A Preferred Stock of which no shares will be issued and outstanding; (iv)1,000 authorized shares of Series B Preferred Stock of which 1,000 shares will be issued and outstanding and will be convertible into up to 100,000 shares of common stock; (v) 10,000 authorized shares of Series C Preferred Stock of which 10,000 shares will be issued and outstanding and will be convertible into up to 1,0 00,000 shares of common stock; (vi) 330,000 authorized shares of Series D Preferred Stock of which 330,000 shares will be issued and outstanding and will be convertible into up to 81,800,000 shares of common stock; (vii) 35,000 authorized shares of Series E Preferred Stock of which 35,000 shares will be issued and outstanding and will be convertible into up to 1,166,666 shares of common stock (excluding Escrowed Shares); (viii) 54,500 authorized shares of Series F Preferred Stock of which 34,500 shares will be issued and outstanding and will be convertible into up to 1,150,000 shares of common stock (excluding Escrowed Shares); (ix) 45,000 authorized shares of Series G Preferred Stock of which 45,000 shares will be issued and outstanding and will be convertible into up to 68,000,000 shares of common stock, less a maximum of 7,983,333 Total Conversion Shares.

VII.

Stockholder Approval.  The Company intends to seek stockholder approval for the purpose of approving and ratifying all of the Transactions, including, without limitation:

•

the transactions contemplated by the PMG Stock Purchase Agreement,

•

consummation of the iBill acquisition,

•

the sale and issuance of the 10% Notes, the Warrants, the Series E Preferred Stock, the Series F Senior Preferred Stock, the Series G Preferred Stock, and the warrants and Warrant Shares issued in connection therewith, and

•

an amendment to the Certificate of Incorporation of the Company that shall increase the authorized common stock to 250.0 million shares of common stock.

The Company intends to seek stockholder approval, either by calling a special meeting of its stockholders or by obtaining the written consent for the above matters from the holders of the requisite majority of its outstanding shares. In accordance with the Securities Exchange Act of 1934, as amended, the Company will file a Form 14A Proxy Statement or a Form 14C Information Statement with the SEC, describing all of the foregoing transactions and, upon obtaining approval of such documents, mail the same to Company stockholders.

As used in the documents under which the Financing Securities were issued, the term “stockholder approval” also includes the filing and approval of a listing application for the additional shares of the Company’s common stock to be issued upon conversion of the 10% Notes, the Series E Preferred Stock, the Series F Preferred Stock and the Series G Preferred Stock, in accordance with the rules of the AMEX.

In the event that, for any reason, that an amended Certificate of Incorporation increasing the authorized shares of common stock to 250.0 million is not filed by December 31, 2004 or all of the foregoing “Stockholder Approval” conditions are not satisfied by December 31, 2004, then the Company shall is required to pay cash penalties to the holders of the Financing Securities of 2% of the purchase price of such securities for each month, or portion thereof, following December 31, 2004 that either of such conditions remain unsatisfied.

VIII.

Factors That May Affect Future Results

The following factors, among others, relating to our investment in Penthouse Media Group, Inc. and proposed acquisition of iBill could cause our actual future results to differ materially from those contained in forward-looking statements in this Report on Form 8-K.

13

There has been a significant decline in newsstand sales and circulation of Penthouse^TM publications.

In recent years, domestic newsstand circulation for men’s magazines has been declining and domestic average monthly newsstand circulation of Penthouse publications has decreased significantly. We believe that changes in the social climate that are adverse toward men’s magazines will continue. Unless Penthouse Media Group is able to successfully refocus its marketing efforts toward the sale of products and services around its Penthouse^TM brand through other outlets, such as retail video, cable television and the Internet, its revenues will continue to decline and our investment in Penthouse Media Group will be materially and adversely affected.

If Penthouse Media Group is unable to compete effectively with other forms of adult and non-adult entertainment, it will not be able to increase subscriber revenue.

The ability of Penthouse Media Group to increase revenue is also related to its ability to compete effectively with other forms of adult and non-adult entertainment. Penthouse Media Group faces competition in the adult entertainment industry from other providers of adult programming, adult video rentals and sales, books and magazines aimed at adult consumers, adult oriented telephone chat lines, and adult oriented Internet services. Its ability to compete depends on many factors, including the quality and appeal of Penthouse Media Group’s competitors' content, the technology utilized by its competitors, the effectiveness of their sales and marketing efforts and the attractiveness of their product offerings.

Many of the existing competitors of Penthouse Media Group, as well as potential new competitors, have significantly greater financial, technical and marketing resources than Penthouse Media Group does. This allows them to devote greater resources to the development and promotion of their product offerings. These competitors may also engage in more extensive technology research and development and adopt more aggressive pricing policies for their subscription-based content. Additionally, increased competition could result in price reductions, lower margins and negatively impact Penthouse Media Group’s future financial results.

Laws and government regulations governing adult content could have an adverse effect on our business.

Although the right to create adult content is protected by the First and Fourteenth Amendments to the United States Constitution, the First and Fourteenth Amendments do not protect the dissemination of this material, and several states and communities in which our products and services are provided have enacted laws regulating the distribution of late night programming with some offenses designated as misdemeanors and others as felonies, depending on numerous factors. The consequences for violating the state statutes are as varied as the number of states enacting them. The potential penalties for individuals (including corporate directors and officers) violating these federal laws include fines, community service, probation, forfeiture of assets and incarceration. Although iBill undertakes to comply with all applicable statutes and regulations, the Company cannot assure you that its effort s will be successful and that it will always comply with all applicable state and federal statutes and regulations.

Changes in laws and regulations regarding the dissemination of adult content may restrict the ability of Penthouse Media Group or iBill to sell or license its products.

While, to our knowledge, neither Penthouse Media Group or iBill has been subject to any enforcement action to prohibit the dissemination of any of its content to its customers, new laws or amendments to current ones may enable or facilitate governmental bodies to prohibit or proscribe the publication of material defined as "obscene" or in similar terms. For example, if a territory determines that Penthouse Media Group website content and the film, video and photo productions that comprise it is obscene according to their legal definition of that term, which definitions are in constant flux, Penthouse Media Group may be prohibited from carrying on business in certain jurisdictions, and may be subject to civil or criminal penalties.

Because iBill is involved in the adult content business, it may be more difficult for the Company to raise money or attract market support for its stock

Some investors, investment banking entities, market makers, lenders and others in the investment community may decide not to provide financing to iBill, or to participate in its public market or other activities, due to the nature of iBill business, which, in turn, may adversely affect the value of the Company’s stock, and its ability to attract market support.

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iBill relies on third party financial institutions and other services to process its payment transactions. If iBill loses access to these payment transaction sources, its business would be materially and adversely affected.

Because iBill is not a bank, it cannot belong to and directly access the credit card associations or the ACH payment network. As a result, iBill must rely on banks or their independent service operators to process its transactions. As disclosed in this Form 8-K, First Data has recently terminated the procession of iBill’s transactions, requiring iBill to obtain new banks and servicers for its transactions. iBill’s customers and its revenues were adversely impacted by the termination of its relationship with First Data. There can be no assurance that the new banks and servicers handling the iBill transactions will perform as well as First Data, or that they will not also terminate business with iBill in the future. iBill’s failure to smoothly maintain these processing services on acceptable terms would effectively shut down its Internet transaction processing business and hav e a material and adverse effect on iBill’s financial condition and future business prospects.

iBill might not successfully implement strategies to increase adoption of its electronic payment methods.

IBill’s future profitability will depend, in part, on its ability to implement successfully its strategy to increase adoption of its online payment methods. There is no assurance that the relatively new market for online payment mechanisms will remain viable. iBill expects to invest substantial amounts in marketing, infrastructure and technology to expand its iBill business. There is no assurance that iBill will have adequate capital resources to make such investments. In addition, investment in these programs will adversely affect its short-term profitability. iBill may also fail to successfully implement these programs or to substantially increase adoption of its electronic payment method by customers who pay for the service. Such failures would have an adverse effect on revenues, and cause iBill business to suffer.

iBill depends on online adult transactions for a significant percentage of its payment volume. If iBill‘s ability to process payments for websites offering adult content is impaired, its financial results and growth prospects would be significantly and adversely affected.

The vast majority of the dollar volume of all payments made through the iBill System as settlements are from purchases made at adult websites. iBill relies on these transactions for a substantial portion of its customer base and its payment volume. Regulators could choose to restrict or prohibit its sellers from advertising iBill for payments. If iBill’s ability to process payments for purchases made on online adult websites became impaired, or if these online adult sites took additional steps to integrate their own payment services, iBill’s business would suffer.

iBill faces strong competitors and its market evolves rapidly. If iBill does not compete effectively, the demand for its product may decline, and its business would suffer.

The market for iBill products is emerging, intensely competitive and characterized by rapid technological change. iBill competes with existing payment methods and other companies. Many of these competitors have longer operating histories, significantly greater financial, technical, marketing, customer service and other resources, greater name recognition or a larger base of customers in affiliated businesses than iBill has. The Company’s competitors may respond to new or emerging technologies and changes in customer requirements faster and more effectively than iBill can. They may devote greater resources to the development, promotion and sale of products and services than iBill can, and they may offer lower prices. These competitors have offered, and may continue to offer, their services for free in order to gain market share and we may be forced to lower iBill prices in response. Co mpeting services tied to established banks and other financial institutions may offer greater liquidity and engender greater consumer confidence in the safety and efficacy of their services than iBill does. If these competitors acquired significant market share, this could result in iBill losing market share, which would have a material adverse effect on the Company’s business.

Changes to credit card association rules or practices could negatively affect iBill service and could result in a termination of its ability to accept credit cards. If iBill is unable to accept credit cards, its competitive position would be seriously damaged.

iBill must comply with the operating rules of the credit card associations and NACHA as they apply to merchants. The associations' member banks set these rules, and the associations interpret the rules. Some of those member

15

banks compete with iBill. Visa, MasterCard, American Express or Discover could adopt new operating rules or interpretations of existing rules that iBill or its processors might find difficult or even impossible to comply with, in which case iBill could lose its ability to give customers the option of using credit cards to fund their payments. If iBill were unable to accept credit cards its competitive position would be seriously damaged.

MasterCard has announced that, effective May 1, 2004, it will require each customer that regularly uses iBill to accept payment for goods or services to enter into a contract with the bank that processes MasterCard transactions for iBill and to agree to observe MasterCard rules. iBill believes it can comply with this rule through changes to its User Agreement, but the Company is unable at this time to predict precisely how this rule will affect its business. It could require iBill to change the relationship among its customers and its credit card processing bank in ways that could increase the Company’s costs, reduce the attractiveness of its service, or both.

American Express has instituted a policy of not processing credit card charges for online adult-related content. If other credit card processing companies were to implement a similar policy, this could have a material adverse effect on iBill business, results of operations and financial condition.

iBill faces significant risks of losses due to fraud and disputes between senders and recipients.

iBill faces significant risks of loss due to fraud and disputes between senders and recipients, including:

•

unauthorized use of credit card and bank account information and identity theft;

•

merchant fraud and other disputes over the quality of goods and services;

•

breaches of system security;

•

employee fraud; and

•

use of the iBill system for illegal or improper purposes.

When a customer pays a merchant for goods or services through iBill using a credit card and the cardholder is defrauded or otherwise disputes the charge, the full amount of the disputed transaction gets charged back to iBill and its credit card processor levies additional fees against it, unless iBill can successfully challenge the chargeback. Chargebacks may arise from the unauthorized use of a cardholder's card number or from a cardholder's claim that a merchant failed to perform. If iBill chargeback rate becomes excessive, credit card associations can require iBill to pay fines and could terminate its ability to accept their cards for payments. Early in 2004, as a result of high chargeback rates in the second half of 2003, MasterCard determined that iBill violated its operating rules by having excessive chargebacks and fined iBill card processor $5,800,000, which was subsequently passed on to iBill. Although iBill resolved this situation to MasterCard's satisfaction and has reduced its chargeback rate, iBill cannot assure you that new causes of excessive chargebacks will not arise in the future.

iBill has taken measures to detect and reduce the risk of fraud, but it cannot assure you of their effectiveness. If these measures do not succeed, iBill business will suffer.

iBill incurs chargebacks and other losses from merchant fraud, payment disputes and insufficient funds.

iBill incurs substantial losses from merchant fraud, including claims from customers that merchants have not performed, that their goods or services do not match the merchant's description or that the customer did not authorize the purchase. iBill also incurs losses from erroneous transmissions and from customers who have closed bank accounts or have insufficient funds in them to satisfy payments. iBill’s liability for such items could have a material adverse effect on its business and result in iBill losing the right to accept credit cards for payment. If iBill is prohibited from accepting credit cards for payment, its ability to compete could be impaired, and its business would suffer.

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Unauthorized use of credit cards and bank accounts could expose iBill to substantial losses. If the Company is unable to detect and prevent unauthorized use of cards and bank accounts, its business would suffer.

The highly automated nature of, and liquidity offered by, iBill payment product makes it an attractive target for fraud. In configuring iBill product, it faces an inherent trade-off between customer convenience and security. Identity thieves and those committing fraud using stolen credit card or bank account numbers, often in bulk and in conjunction with automated mechanisms of online communication, potentially can steal large amounts of money from businesses such as iBill’s. iBill believes that several of its current and former competitors in the electronic payments business have gone out of business or significantly restricted their businesses largely due to losses from this type of fraud. iBill expects that technically knowledgeable criminals will continue to attempt to circumvent its anti-fraud systems, which can result in a significant adverse impact on iBill’s ability to re main in business.

Security and privacy breaches in iBill electronic transactions may expose it to additional liability and result in the loss of customers, either of which events could harm iBill business and cause its stock price to decline.

Any inability on iBill’s part to protect the security and privacy of its electronic transactions could have a material adverse effect on iBill profitability. A security or privacy breach could expose the Company to additional liability; increase its expenses relating to resolution of these breaches; and deter customers from using its product. Any failures in iBill security and privacy measures could have a material adverse effect on its business, financial condition and results of operations.

iBill could incur substantial losses from employee fraud and, as a result, its business would suffer.

The large volume of payments that iBill handle for its customers makes it vulnerable to employee fraud or other internal security breaches. There is no assurance that iBill internal security systems will prevent material losses from employee fraud.

iBill payment system might be used for illegal or improper purposes, which could expose the Company to additional liability and harm its business.

Despite measures iBill has taken to detect and prevent identify theft, unauthorized uses of credit cards and similar misconduct, iBill payment system remains susceptible to potentially illegal or improper uses. These may include illegal online gaming, fraudulent sales of goods or services, illicit sales of prescription medications or controlled substances, software and other intellectual property piracy, money laundering, bank fraud, child pornography trafficking, prohibited sales of alcoholic beverages and tobacco products and online securities fraud. Despite measures iBill has taken to detect and lessen the risk of this kind of conduct, the Company cannot assure you that these measures will succeed. IBill’s business could suffer if customers use its system for illegal or improper purposes.

In addition, iBill’s classify merchants who historically have experienced significant chargeback rates, such as online gaming-related service providers and online gaming merchants, as "higher risk". The legal status of many of these higher risk accounts is uncertain, and if these merchants are prohibited or restricted from operating in the future, iBill’s revenue from fees generated from these accounts would decline. Proposed legislation has been introduced in the U.S. Congress to clarify that operation of an Internet gaming business violates federal law, and to prohibit payment processors such as iBill from processing payments for online gaming merchants. Even if this proposed legislation is not enacted, online gaming merchants could be determined to violate existing federal and state gambling laws. In particular, the New York State Attorney General recently stated tha t even under current law, the processing of known gambling transactions may lead to liability for facilitating or aiding and abetting the underlying activity. If the online gaming merchants that accept iBill are operating illegally, iBill could be subject to civil and criminal lawsuits, administrative action and prosecution for, among other things, money laundering or for aiding and abetting violations of law. iBill would lose the revenues associated with these accounts and could be subject to material penalties and fines, both of which would seriously harm its business.

iBill is subject to U.S. and foreign government regulation of the Internet, the impact of which is difficult to predict.

There are currently few laws or regulations that apply specifically to the sale of goods and services on the Internet. The application to iBill of existing laws and regulations relating to issues such as banking, currency exchange,

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online gaming, electronic contracting, consumer protection and privacy is unclear. IBill’s liability if its customers violate laws on pricing, taxation, impermissible content, intellectual property infringement, unfair or deceptive practices or quality of services is also unclear. In addition, iBill may become subject to new laws and regulations directly applicable to the Internet or the Company’s activities. Any existing or new legislation applicable to iBill could expose it to substantial liability, including significant expenses necessary to comply with these laws and regulations, and reduce use of the Internet on which iBill depends. In addition, any increase in the taxation of electronic commerce transactions may make the Internet less attractive for consumers and businesses, which could have a material adverse effect on iBill business, results of operations and financial co ndition.

iBill financial success will remain highly sensitive to changes in the rate at which its customers fund payments using credit cards rather than bank account transfers or existing iBill account balances. The Company’s profitability could be harmed if the rate at which customers fund using credit cards goes up.

iBill pays significant transaction fees when senders fund payment transactions using credit cards, nominal fees when customers fund payment transactions by electronic transfer of funds from bank accounts and no fees when customers fund payment transactions from an existing iBill account balance. Senders may resist funding payments by electronic transfer from bank accounts because of the greater protection offered by credit cards, including the ability to dispute and reverse merchant charges, because of frequent flier miles or other incentives offered by credit cards or because of generalized fears regarding privacy or loss of control in surrendering bank account information to a third party.

Increases in credit card processing fees could increase iBill’s costs, affect its profitability, or otherwise limit iBill operations.

From time to time, Visa, MasterCard, American Express and Discover increase the interchange fees that they charge for each transaction using their cards. MasterCard implemented an increase to its interchange fees effective April 2002. iBill credit card processors have the right to pass any increases in interchange fees on to iBill. Any such increased fees could increase iBills’ operating costs and reduce its profit margins. Furthermore, iBill credit card processors require the Company to pledge cash as collateral with respect to its acceptance of Visa, MasterCard, American Express and Discover and the amount of cash that iBill is required to pledge could be increased at any time.

Customer complaints or negative publicity about iBill customer service could adversely affect use of its product and, as a result, its business could suffer.

Customer complaints or negative publicity about iBill customer service could severely diminish consumer confidence in and use of iBill services. Breaches of iBill customers' privacy and its security measures could have the same effect. Measures iBill sometimes takes to combat risks of fraud and breaches of privacy and security, such as freezing customer funds, can damage relations with iBill’s customers. These measures heighten the need for prompt and accurate customer service to resolve irregularities and disputes. Effective customer service requires significant personnel expense, and this expense, if not managed properly, could impact iBill profitability significantly. IBill’s inability to manage or train its customer service representatives properly could compromise iBill’s ability to handle customer complaints effectively. If it does not handle customer complaints effect ively, its reputation may suffer and iBill may lose its customers' confidence.

iBill may experience breakdowns in its payment processing system that could damage customer relations and expose iBill to liability, which could affect adversely its ability to provide reliable service.

A system outage or data loss could have a material adverse effect on the iBill business, financial condition and results of operations. To operate iBill’s business successfully, iBill must protect its payment processing and other systems from interruption by events beyond its control. iBill depends on two third parties for co-location of its data servers and rely upon these third parties for the physical security of its servers. iBill servers currently reside in facilities in Deerfield Beach, Florida. Currently iBill is not able to switch instantly to another back-up site in the event of failure of the main server site. This means that an outage at one facility could result in iBill system being unavailable for at least several hours. This downtime could result in increased costs and lost revenues, which would be detrimental to iBill’s business.

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iBill’s infrastructure could prove unable to handle a larger volume of customer transactions.

iBill’s failure to accommodate transaction growth could impair customer satisfaction, lead to a loss of customers, impair our ability to add customers or increase its costs, all of which would harm the Company’s business. In addition, since iBill merchant customers use its processing services and products for critical transactions, any errors, defects or other infrastructure problems could result in damage to their businesses. These customers could seek significant compensation from iBill for their losses. Even if unsuccessful, this type of claim likely would be time consuming and costly for iBill to address.

iBill may not protect its proprietary technology effectively, which would allow competitors to duplicate its products. This would make it more difficult for iBill to compete with them.

iBill’s success and ability to compete in its markets depend, in part, upon its proprietary technology. iBill relies primarily on copyright, trade secret and trademark laws to protect its technology including the source code for its proprietary software, documentation and other proprietary information. While iBill has filed five patent applications, it has not been granted any patents for features of its electronic payment processing system. There is no assurance that any of iBill’s patent applications will be granted or that if they are granted, they will be valid. A third party might try to reverse engineer or otherwise obtain and use iBill’s technology without its permission, allowing competitors to duplicate iBill products. In addition, the laws of some countries in which iBill sells its product may not protect software and intellectual property rights to the same extent as the laws of the U.S.

iBill depends on increasing development of the Internet

iBill’s business depends, in part, upon the Internet to generate business-to-business commerce and provide Web-enabled software access to customers. The Internet’s viability for conducting commerce and business profitably has not yet been fully established. Several factors may slow the growth of, or otherwise impede, online commerce including the lack of or slow development of enabling technologies, performance improvements and other necessary infrastructure, delays in the development or adoption of new standards and protocols required to handle increased levels of Internet activity, or increased or more stringent regulation or taxation. Changes in, or insufficient availability of, telecommunications services to support the Internet also could result in slower response times and adversely affect usage of the Internet generally. The occurrence of any of these events would have a m aterial, adverse effect on the iBill business, financial condition and results of operations.

IBill’s business strategy depends on the development and maintenance of strategic relationships

IBill’s success will depend in part on its ability to develop and maintain strategic relationships. The Company believes that such relationships will be important in order to validate iBill business strategy, facilitate broad market acceptance of its products and enhance its sales, marketing and distribution capabilities. Although iBill is currently negotiating arrangements with certain companies, it currently has entered into few formal strategic relationships. These relationships are still tenuous and there is no assurance that iBill will be able to enter into more of them or build upon those it has entered into. Any inability on iBill’s part to develop, attract or maintain strategic relationships, or the termination of one or more successful relationships, could have a material, adverse effect on its business, financial condition, results of operations and future prospects.

Workplace and other restrictions on access to the Internet may limit user traffic on iBill web sites.

Many offices, businesses and educational institutions restrict employee and student access to the Internet. Because iBill revenues are dependent on user traffic on its sites, an increase in these types of restrictions, or other similar policies, could harm the Company’s business, financial condition and operating results. In addition, access to iBill Web sites outside the United States may be restricted by governmental authorities or Internet service providers. If these restrictions become more prevalent, iBill growth could be hindered.

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iBill faces potential liability for Internet content.

iBill faces potential liability for negligence, copyright, patent, trademark infringement, defamation, indecency, disparagement and other claims based on the nature and content of the materials that iBill transmits. In addition, iBill could be exposed to liability with respect to the unauthorized duplication or transmission of content. Insurance may not cover potential claims of this type or may not be adequate to indemnify iBill for all liability that may be imposed. In addition, the indemnification for such liability that iBill generally requires from its content providers may be inadequate. Any imposition of liability that is not covered by insurance, is in excess of insurance coverage or is not covered by an indemnification by a content provider could have a material adverse effect on iBill business, results of operations and financial condition.

The adult-oriented content of iBill Web sites may also subject the Company to obscenity charges or other legal claims. iBill may also be subject to claims based upon the content that is available on its Web sites through links to other sites and in jurisdictions in which the Company has not previously distributed content. Implementing measures to reduce iBill’s exposure to this liability may require iBill to take steps that would substantially limit the attractiveness of its Web sites or their availability in various geographic areas, which could negatively impact their ability to generate revenue.

ITEM 9.01

Financial Statements and Exhibits.

Exhibits

Exhibit		Description
	&nbs p;
2.1	Settlement and securities purchase agreement, dated as of September 21, 2004 (the “PMG Stock Purchase Agreement”), with PET Capital Partners LLC, Absolute Return Europe Fund, Susan Devine, NAFT Ventures I LLC, Marc H. Bell, Daniel Staton (collectively, the “Bell/Staton Group”), Penthouse International, Inc., The Molina Vector Investment, and Milberg Weiss Bershad & Schulman LLP, as escrow agent.
2.2	Stockholders agreement, dated October 19, 2004 among the Bell/Staton Group and the Company.
2.3	August 22, 2004 securities purchase agreement, as amended, between the Company and Penthouse International, Inc. (“PII”) and Certificate of Series D Convertible Preferred Stock.
10.1	Form of subscription agreement, dated as of September 20, 2004, between the Company and holders of 10% convertible subordinated secured notes of the Company due 2009 (the “10% Notes”).
10.2	Form of 10% Note.
10.3	Form of security agreement between the Company and holders of 10% Notes.
10.4	Form of pledge agreement among the Company, the holders of 10% Notes and holders of Series F preferred stock.
10.5	Form of subscription agreement, dated as of September 20, 2004, between the Company and Monarch Pointe Fund, Ltd., as holder of 35,000 shares of Series E convertible preferred stock (the “Series E Preferred”).
10.6	Certificate of designation for Series E Preferred Stock.
10.7	Form of subscription agreement, dated as of September 28, 2004, between the Company and Castlerigg Master Investments Limited and Vestcap International Management Limited, as holders of 34,500 shares of Series F convertible senior secured preferred stock (the “Series F Preferred”).
10.8	Certificate of designation for Series F Preferred Stock.
10.9	Form of security agreement between the Company and holders of Series F Preferred Stock.
10.10	Form of pledge agreement among the Company, the holders of 10% Notes and holders of Series F preferred stock.
10.11	September 23, 2004 stock purchase agreement among GMI Investment Partners, Penthouse International, Inc. and the Company
10.12	Certificate of designation for Series G convertible preferred stock issuable to GMI Partners (the “Series G Preferred”).
10.13	Form of registration rights agreement between the Company and holders of Transaction Securities.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.

	CARE CONCEPTS I, INC.
Dated:  October 25, 2004	By:	/s/ STEVE MARKLEY
		Steve Markley Chief Executive Officer

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INDEX TO EXHIBITS

Exhibit		Description
	&nbs p;
2.1	Settlement and securities purchase agreement, dated as of September 21, 2004 (the “PMG Stock Purchase Agreement”), with PET Capital Partners LLC, Absolute Return Europe Fund, Susan Devine, NAFT Ventures I LLC, Marc H. Bell, Daniel Staton (collectively, the “Bell/Staton Group”), Penthouse International, Inc., The Molina Vector Investment, and Milberg Weiss Bershad & Schulman LLP, as escrow agent.
2.2	Stockholders agreement, dated October 19, 2004 among the Bell/Staton Group and the Company.
2.3	August 22, 2004 securities purchase agreement, as amended, between the Company and Penthouse International, Inc. (“PII”) and Certificate of Series D Convertible Preferred Stock.
10.1	Form of subscription agreement, dated as of September 20, 2004, between the Company and holders of 10% convertible subordinated secured notes of the Company due 2009 (the “10% Notes”).
10.2	Form of 10% Note.
10.3	Form of security agreement between the Company and holders of 10% Notes.
10.4	Form of pledge agreement among the Company, the holders of 10% Notes and holders of Series F preferred stock.
10.5	Form of subscription agreement, dated as of September 20, 2004, between the Company and Monarch Pointe Fund, Ltd., as holder of 35,000 shares of Series E convertible preferred stock (the “Series E Preferred”).
10.6	Certificate of designation for Series E Preferred Stock.
10.7	Form of subscription agreement, dated as of September 28, 2004, between the Company and Castlerigg Master Investments Limited and Vestcap International Management Limited, as holders of 34,500 shares of Series F convertible senior secured preferred stock (the “Series F Preferred”).
10.8	Certificate of designation for Series F Preferred Stock.
10.9	Form of security agreement between the Company and holders of Series F Preferred Stock.
10.10	Form of pledge agreement among the Company, the holders of 10% Notes and holders of Series F preferred stock.
10.11	September 23, 2004 stock purchase agreement among GMI Investment Partners, Penthouse International, Inc. and the Company
10.12	Certificate of designation for Series G convertible preferred stock issuable to GMI Partners (the “Series G Preferred”).
10.13	Form of registration rights agreement between the Company and holders of Transaction Securities.

EX-2.1

EXHIBIT 2.1

SETTLEMENT AND SECURITIES PURCHASE AGREEMENT

THIS AGREEMENT (“Agreement”), dated this 21^st day September 2004 (the “Execution Date”), is entered into by and among PET CAPITAL PARTNERS, LLC (“PET”), ABSOLUTE RETURN EUROPE FUND (“ARE”), EUROPEAN CATALYST FUND (“ECF”), SUSAN DEVINE (“Devine”), NAFT VENTURES I LLC (“NAFT”), MARC H. BELL (“Bell”), DANIEL STATON (“Staton”), DR. LUIS ENRIQUE MOLINA GALEANA (“Molina”), PENTHOUSE INTERNATIONAL, INC., a Florida corporation (“PII”), THE MOLINA VECTOR INVESTMENT TRUST, a California trust (the “Molina Trust”); GMI INVESTMENT PARTNERS, a New York general partnership (“GMI Partners”); and MILBERG WEISS BERSHAD & SCHULMAN LLP (the “E scrow Agent”).  Each of PET, ARE, Devine, NAFT, Bell, Staton, Molina, PII, the Molina Trust, GMI Partners and the Escrow Agent is hereinafter referred to individually as a “Party” and collectively as the “Parties”).

I N T R O D U C T I O N:

This Agreement has been entered into with reference to the following:

A.  On August 12, 2003, General Media, Inc., a Delaware corporation (“GMI”) and its direct and indirect subsidiaries consisting of 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, with GMI, the “Debtors”) filed a petition for reorganization under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court, Southern District of New York (the “Bankruptcy Court”), Case No. 03-15078 (SMB) (the “Bankruptcy Case”).  

B.

PET, ARE, ECF, Devine and NAFT (collectively, the “Senior Note Holder Parties”) own, approximately $35,500,000 in aggregate principal amount of 15% Senior Notes of GMI due 2004 (the “Senior Notes”) issued by General Media, Inc. (“GMI”); which Senior Notes, represent, in the aggregate, approximately 96% of all Allowed Class 2A Senior Note Claims in the Bankruptcy Case, which voted in favor of Debtors’ Fourth Amended Joint Plan of Reorganization, filed with the Bankruptcy Court on August 12, 2004 (the “Plan”).  As at the date of this Agreement, the Senior Note Holder Parties estimate that they have, or will prior to the Effective Date have, invested approximately $37,000,000 to purchase Senior Notes, provide the DIP Credit Facility and to pay fees and expenses associated with the Bankruptcy Case.

C.

Pursuant to a preferred stock purchase agreement, dated as of March 31, 2004, among PET, ARE, Devine, NAFT, Molina, PII and the Molina Trust (the “Preferred Stock Purchase Agreement”) (a) PET and ARE sold 100% of the outstanding shares of GMI Preferred Stock to Molina for increasing rate notes aggregating

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$10,248,341.98 (the “Molina Notes”), (b) the Molina Trust and PII guaranteed payment of the Molina Notes, and (c) the Molina Trust secured its guaranty by pledging to PET and ARE 10,050,000 shares of PII Series C Preferred Stock (the “Pledged PII Series C Preferred Stock”).

D.

On July 9, 2004, PET and ARE filed in the Supreme Court of the State of New York, New York County (the “NY Supreme Court”) a motion for summary judgment under Section 3213 of the New York Civil Practice Law and Rules against Molina, the Molina Trust and PII alleging that Molina has defaulted in his obligations under the Molina Notes (the “Molina Collection Action”), and on August 25, 2004, through the Escrow Agent, as pledgee agent, PET and ARE sought to (i) foreclose on the Pledged PII Series C Preferred Stock, and (ii) vote such Pledged PII Series C Preferred Stock to reconstitute the board of directors of PII.   

E.

On August 12, 2004, PII, Molina and the Molina Trust commenced an action in the NY Supreme Court against Bell, Staton, PET, NAFT, ARE and Devine, index no. 602604/04 (the “PII Litigation”), which was removed to the Bankruptcy Court.

F.

The Parties hereto desire to (a) resolve, settle and dismiss, with prejudice, the Molina Collection Action, the PII Litigation, all other claims, causes of action and other disputes involving the Parties, and all other claims, objections to, appeals of and motions in opposition to, the Plan (collectively, the “Disputes”), and (b) provide for a mechanism by which GMI Partners or its “Permitted Transferee” (as hereinafter defined) may purchase shares of New GMI Common Stock, and participate, as equity owners, in the future operations of the Reorganized Debtors.

NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, the parties hereto agree as follows:

1.

Definitions.

Unless otherwise separately defined herein, all capitalized terms, when used in this Agreement, shall have the same meaning as such terms are defined in the Plan.  As used in this Agreement, the term “Person” shall mean and include any one or more individual, corporation, partnership, limited liability corporation, entity, trust, instrumentality or governmental authority.  As used here, the term “Affiliate” shall have the same meaning as is defined in Rule 405 promulgated under the Securities Act of 1933, as amended (the “Securities Act”).  As used herein, the term “GMI Corporations” shall mean and include the Reorganized GMI, each of the Reorganized Debtors and any future Subsidiaries of GMI or the Reorganized Debtors.

2.

Accuracy of Statements Contained in the Introduction.

In addition to the other representations and warranties made by one or more of the Parties that are set forth elsewhere in this Agreement, it is expressly understood and agreed that (a) the accuracy of the statements set forth in Clause A and Clause E of the Introduction to this Agreement constitutes the several representations and warranties of PII, Molina and the Molina Trust, (b) the accuracy of the statements set forth in Clause B (other than the last sentence

2

thereof, which is an estimate only) and Clause D of the Introduction to this Agreement constitutes the several representations and warranties of PET, ARE, Devine, NAFT, Bell and Staton, and (c) the accuracy of the statements set forth in Clause C of the Introduction to this Agreement constitutes the several representations and warranties of all Parties other than GMI Partners and the Escrow Agent.  PET and NAFT are “Affiliates” (as that term is defined under Rule 405 under the Securities Act of 1933, as amended) of Bell and Staton.

3.

Purchase of New GMI Common Stock.

(a)

On the Effective Date

of the Plan, GMI Partners (the “Purchaser”) shall purchase from the Senior Note Holder Parties, and the Senior Note Holder Parties shall sell to the Purchaser, a minimum of 241,908 shares of New GMI Common Stock to a maximum of 483,815 shares of New GMI Common Stock (the “Subject Shares”).  If all 483,815 Subject Shares shall be purchased, the same shall represent, in the aggregate, the same aggregate number of shares of New GMI Common Stock as shall be issued to and owned of record and beneficially by all Senior Note Holder Parties or their Affiliates immediately following the Effective Date of the Plan.  The aggregate number of Subject Shares that GMI Partners shall purchase shall (within such minimum and maximum amounts) be as determined by the GMI Partners.  

(b)

Immediately following the Effective Date, the Certificate of Incorporation of Reorganized General Media shall be amended to authorize 100.0 million shares of voting Common Stock (the “Common Stock”), and 100.0 million shares of Class B Non-Voting Common Stock (the “Class B Common Stock”).  The rights, preferences and privileges of the Common Stock and the Class B Common Stock shall be identical in all respects, except that the Class B Common Stock shall be non-voting.  Once authorized, the Purchaser will exchange with the Reorganized General Media its shares of Common Stock for a like number of shares of Class B Common Stock, which Class B Common Stock shall thereupon constitute the Subject Shares.  Upon such exchange by the Purchaser, the total issued and outstanding capital stock of Reorganized General Media shall consist: (i) as to the Senior Note Holder Parties or their Affiliates, an aggregate of 967,630 shares of Common Stock, less the aggregate number of Subject Shares acquired by the Purchaser hereunder (up to a maximum of 483,815 Subject Shares), (ii) as to other holders of Senior Notes, an aggregate of 32,370 shares of Common Stock; and (iii) as to the Purchaser, the minimum of 241,908 shares to a maximum of 483,815 shares of Class B Common Stock issued as the Subject Shares.  Stock certificates evidencing such Class B Common Stock shall be issued to the Purchaser as soon as practicable following the Effective Date of the Plan.  

Notwithstanding the foregoing, immediately prior to the earliest to occur of: (i) consummation of a sale of all or substantially all of the assets or capital stock of the GMI Corporations to any unaffiliated third party, or the merger, consolidation or combination of the GMI Corporations with any Person who is not an Affiliate of any of the Parties or their Affiliates (a “Sale of Control”), (ii) consummation of an underwritten initial public

3

offering of securities of Reorganized GMI or the “reverse merger” of the GMI Corporations with or into a publicly traded company (a “Public GMI Entity”), the Purchaser shall have the right to exchange all shares of Class B Common Stock of Reorganized GMI for a like number of shares of Common Stock.

(c)

The purchase price for each of the Subject Shares shall be $41.338 per Subject Share, or a minimum aggregate sum of Ten Million ($10,000,000) Dollars to a maximum aggregate sum of Twenty Million ($20,000,000) Dollars (the “Purchase Price”).  Such Purchase Price shall be payable in full in cash in immediately available funds on the Funding Date to the Escrow Agent, as provided in Section 3(d) below.  

(d)

On or before 5:00 P.M. (New York time) on Wednesday, September 29, 2004 (the “Funding Date”) the Purchaser shall cause to be delivered to the attorneys’ escrow account of the Escrow Agent, the full Purchase Price by wire transfer of immediately available funds; provided, that, if on or before the Funding Date (i) GMI Partners shall elect to purchase, for $20,000,000, the maximum of 483,315 Subject Shares, and (ii) PII and the Purchaser shall deliver irrevocable and unconditional instructions to Newman & Newman P.C., to be executed by PII, Newman & Newman P.C. and the Purchaser and in form and content satisfactory to the Senior Note Holders in the exercise of their sole discretion (the “Irrevocable Wire Instructions”), to wire up to $500,000 of the escrowed funds referred to in Section 6(d) below to the Esc row Agent on the Escrow Funds Release Date, the same shall be deemed timely delivery of $500,000 of such $20,000,000 Purchase Price to the Escrow Agent for purposes of this Section 3(d).  In the event the full minimum $10,000,000 Purchase Price for 241,907.5 Subject Shares is not so received by 5:00 P.M. (New York Time) on the Funding Date in accordance with the preceding sentence, this Agreement shall be deemed to be null and void ab initio and the Parties shall, in all respects, be returned to the status quo ante, except as provided in Section 4 below.  The Purchase Price, the Stockholders Agreement, the New Molina Note, the New PII Guaranty, the New Molina Trust Guaranty, the Purchaser Non-Recourse Guaranty, the Confession of Judgment, the Molina Collection Action Stipulations of Dismissal, the Option Subject Shares, the related stock powers and the General Releases described in Section 4 (collectively, the “Escrow Property”) shall be held by the Escr ow Agent, all in accordance with the terms of this Agreement and the escrow agreement annexed hereto as Exhibit A and made a part hereof (the “Escrow Agreement”).

4.

Termination and Settlement of Disputes; General Releases and Deliveries by Escrow Agent.

(a)

PII Litigation Stipulations of Dismissal. On the Execution Date of this Agreement, all of the relevant Parties to the PII Litigation shall cause such litigation to be dismissed with prejudice, and shall directly, or through their counsel, cause stipulations of dismissal of the PII Litigation, with prejudice (the “PII Litigation Stipulations of Dismissal”) to be filed in the Bankruptcy Court and/or in the New York Supreme Court, as appropriate.

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(b)

Settlement of Molina Collection Action.

(i)

Each of the Parties hereto do hereby agree that, on the Funding Date, all of the terms and conditions and conditions of the Preferred Stock Purchase Agreement shall be deemed to be null and void, ab initio and without and further force or effect, and (i) the Molina Notes shall be returned to Molina, marked “cancelled”, and (ii) the Escrow Agent, in its capacity as pledgee, shall return the Pledged PII Series C Preferred Stock to the Molina Trust.  

(ii)

Each of the Senior Note Holder Parties, Bell, Staton, PII, Molina and the Molina Trust, do hereby agree to settle, for the Settlement Payment hereinafter described, all disputes and controversies in connection with the Preferred Stock Purchase Agreement and the Molina Collection Action. On the Funding Date, the relevant Parties shall directly, or through their counsel, cause stipulations of dismissal of the Molina Collection Action, with prejudice (the “Molina Collection Action Stipulations of Dismissal”) to be executed and delivered to the Escrow Agent, to be held as part of the Escrow Property, and delivered or destroyed by the Escrow Agent in accordance with this Agreement and in the Escrow Agreement.

(iii)

In full settlement of the Molina Collection Action, Molina hereby covenants and agrees that he is justly indebted to the Senior Note Holder Parties in the amount of $2.0 million and hereby agrees to pay to the Senior Note Holder Parties the sum of $2.0 million (the “Settlement Payment”) in the manner hereinafter set forth. The Settlement Payment shall be evidenced by Molina’s $2.0 million promissory note due as to principal and accrued interest on December 31, 2004 and in the form of Exhibit B annexed hereto (the “New Molina Note”).  Such New Molina Note shall be represented by a 6% $2.0 million note, payable in full in cash, together with all interest accrued thereon, on December 31, 2004.  In addition, on the Funding Date, Molina shall execute and deliver to the Escrow Agent a confession of judgment in the form of Exhibit C annexed hereto (the “Confession of Judgment”).  

(iv)

Each of the Molina Trust and PII do hereby agree to unconditionally and irrevocably guaranty payment in full of the New Molina Note, pursuant to the terms of the separate guarantees in the form of Exhibit D-1 annexed hereto (the “New Molina Trust Guaranty”) and Exhibit D-2 annexed hereto (the “New PII Guaranty”).  In addition, the Purchaser of the Subject Shares shall execute and deliver to the Escrow Agent its non-recourse guaranty of the New Molina Note in the form of Exhibit E annexed hereto (the “Purchaser Non-Recourse Guaranty”); pursuant to which Purchaser Non-Recourse Guaranty, if a default in payment of the New Molina Note shall occur and be continuing, in addition to (and not in lieu of) any other rights and remedies available t o the holder(s) of the New Molina Note, whether under the Confession of Judgment, the New Molina Trust Guaranty, the New PII Guaranty, or otherwise, the Senior

5

Note Holder Parties may (x) as their sole remedy against the Purchaser, at their option: (A) repurchase from the Purchaser, for $1.00 per Subject Share, 48,381 of  the aggregate number of Subject Shares acquired by the Purchaser hereunder (the “Option Subject Shares”), and (B) cancel all of the Licenses to the Licensed Rights described in Section 7(i) below, and (y) cancel the Transaction Processing Agreement described in Section 7(h) below.  

(v)

In addition to any other right or remedy available to them under this Section 4(b), if an event of default under the Molina Note shall occur and be continuing, the Senior Note Holder Parties may (A) immediately cause the Escrow Agent to file and record the Confession of Judgment in the appropriate court and jurisdiction in the United States and/or Mexico, and (B) immediately cancel the Resort License and the Magazine License described in Section 7(k) below.

(c)

Withdrawal of Plan Objections. On the Execution Date, each of PII, Molina and the Molina Trust shall, by written stipulations filed or placed on the record in the Bankruptcy Court, (i) withdraw any and all motions made by or on its behalf for reconsideration of the Confirmation Order of the Plan, (ii) withdraw all motions relating to 2004 discovery, and (iii) consent to an order with respect to the $1.0 million deposit referred to in Section 6(d) consistent with this Agreement and (iv) waive its right to file with the Bankruptcy Court or any other court or tribunal any further objections to the Plan or appeals of the Confirmation Order.

(d)

Bell/Staton Group Releases On the Execution Date, PII, Molina, the Molina Trust, on behalf of themselves and their respective Affiliates shall (i) execute general releases to each of the Senior Note Holder Parties, Bell, Staton, and their respective officers, directors, shareholders, agents, attorneys, members, partners and Affiliates, in form and substance reasonably satisfactory to such Parties and their counsel, which releases shall expressly exclude the transactions contemplated by this Agreement, including, without limitation, the provisions of Section 4(b) above (the “Bell/Staton Group Releases”), and (ii) cause such Bell/Staton Group Releases to be delivered to the Escrow Agent to be held in escrow pursuant to this Agreement and the Escrow Agreement.

(e)

 PII Group Releases On the Execution Date, each of the Senior Note Holder Parties, Bell and Staton, on behalf of themselves and their respective Affiliates, shall (i) execute general releases to each of PII, Molina, the Molina Trust, and their respective officers, directors, shareholders, agents, attorneys, members, partners, trustees and Affiliates, in form and substance reasonably satisfactory to such Parties and their counsel, which releases shall expressly exclude the transactions contemplated by this Agreement (the “PII Group Releases”), and (ii) cause such PII Group Releases to be delivered to the Escrow Agent to be held in escrow pursuant to this Agreement and the Escrow Agreement.

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(f)

Deliveries by Escrow Agent. Pursuant to the Escrow Agreement:

(i)

If the Effective Date of the Plan shall occur by October 31, 2004, the Escrow Agent shall (A) deliver the Purchase Price to the Senior Note Holder Parties (inclusive of, if applicable, the $500,000 in cash wired to the Escrow Agent by Newman & Newman P.C. in accordance with the Irrevocable Wire Instructions), in proportion to their respective interests in the Common Stock, or as they may otherwise agree in writing, (B) cause the Molina Collection Action Stipulations of Dismissal to be filed in the New York Supreme Court and deliver the General Releases to the relevant Parties or their counsel, (C) retain in escrow pursuant to the terms of the Escrow Agreement, the Confession of Judgment and Option Subject Shares acquired by the Purchaser, (D) deliver the Stockholders Agreement to the relevant Parties, and (E) deliver to the Senior Note Holder Part ies the New Molina Note, the New PII Guaranty the New Molina Trust Guaranty, the Purchaser Non-Recourse Guaranty.    

(ii)

In the event that for any reason, other than as a direct result of a material breach by any of the PII Group Parties of their covenants and agreements set forth in Section 6(a) of this Agreement, the Effective Date of the Plan shall not have occurred by October 31, 2004, then at the sole option of either the Purchaser or Bell and Staton, this Agreement may be terminated, and not later than five business days following receipt of written notice of termination from the terminating Party.  If this Agreement shall be so terminated, the Escrow Agent shall (A) deliver the Purchase Price, together with all interest accrued thereon and the Purchaser Non-Recourse Guaranty to PII, the Purchaser or their designee, (B) deliver the $2.0 Million Molina Note, the New PII Guaranty and the New Molina Trust Guaranty to the Senior Note Holder Parties, (C) retain in escrow the Confession of Judgment, to be recorded in the appropriate jurisdiction(s) if an event of default in payment of the $2.0 Million Molina Note shall occur, (D) cause the Molina Collection Action Stipulations of Dismissal to be filed in the New York Supreme Court, and deliver the General Releases to the relevant Parties or their counsel, and (E) destroy all copies of the executed Stockholders Agreement.  In the event that the Effective Date of the Plan shall not have occurred by October 31, 2004 as a direct result of a material breach by any of the PII Group Parties of their covenants and agreements set forth in Section 6(a) of this Agreement, the Escrow Agent shall continue to hold the Escrow Property until it receives instructions from all the Parties hereto or a final order of a court of competent jurisdiction.

5.

Representations and Warranties of the Parties.  In addition to (and not in lieu of) the representations and warranties of the Parties set forth in Section 2 of this Agreement, the respective Parties do hereby represent and warrant, as follows:

(a)

By the Senior Note Holder Parties, Bell and Staton. Each of the Senior Note Holder Parties, Bell and Staton, individually and on behalf of their respective Affiliates (collectively, the “Bell/Staton Group Parties”) severally make the following representations and warranties to Molina, PII, the Molina Trust, GMI Partners and the Purchaser:

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(i)

This Agreement has been duly executed and delivered by the Bell/Staton Group Parties and represents a legal and binding obligation upon each of them, enforceable in accordance with its terms, except to the extent enforcement may be limited by bankruptcy or insolvency laws or other principles of equity.

(ii)

The execution and delivery and performance of this Agreement by such Bell/Staton Group Parties will not violate any requirement of law or contractual obligation of such Party or Parties and will not result in, or require, the creation or imposition of any lien on any of its or their properties or revenues.

 (iii)

Immediately prior to the sale of the Subject Shares to the Purchaser, the Senior Note Holder Parties will own or be entitled to own of record and beneficially an aggregate of 967,630 shares of New GMI Common Stock.   

(iv)

On the Effective Date, the Senior Note Holder Parties shall have the full power and authority to sell and transfer to the Purchaser all right, title and interest in and to the Subject Shares, free and clear of all liens, claims, encumbrances, security interests or rights of third parties (collectively, “Liens”) of any kind.

(b)

By the PII, Molina, the Molina Trust and GMI Partners. Each of PII, Molina, the Molina Trust and GMI Partners (collectively, the “PII Group Parties”) severally represent and warrant to each of the Bell/Staton Group Parties, as follows:

(i)

The Subject Shares are being purchased by GMI Partners, on behalf of its Permitted Transferee, pursuant to an exemption from registration contained in the Securities Act of 1933, as amended, and any successor statute (the “Securities Act”) based in part upon each PII Group Party’s representations that such Person is an “accredited investor” within the meaning of Regulation D under the Securities Act.  Each PII Group Party confirms that he or it has received or has had full access to all the information it considers necessary or appropriate to make an informed investment decision with respect to the Subject Shares to be purchased by it under this Agreement. Each PII Group Party further confirms that he or it has had an opportunity to ask questions and receive answers from the Bell/Staton Group Parties regarding the Debtors business, management and financial affairs and the terms and conditions of the Plan and to obtain additional information (to the extent the Bell/Staton Group Parties possessed such information or could acquire it without unreasonable effort or expense) necessary to verify any information furnished to the PII Group Parties or to which the PII Group Parties had access.

(ii)

Each member of the PII Group Parties has substantial experience in evaluating and investing in private placement transactions of securities in companies similar to the Debtors so that he or it is capable of evaluating the merits and risks of its investment in the Debtors and has the capacity to protect his or its own interests.  Each member of the PII Group Parties must bear the economic risk of this investment until the Subject Shares are sold pursuant to (A) an effective registration statement under the Securities Act, or (B) an exemption from registration is available with respect to such sale.

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(iii)

Each member of the PII Group Parties is acquiring the Subject Shares for such member of the PII Group Parties’ own account for investment only, and not as a nominee or agent and not with a view towards or for resale in connection with their distribution.

(iv)

Each member of the PII Group Parties represents that by reason of its or his, or of its management's, business and financial experience, that he or it has the capacity to evaluate the merits and risks of his or its investment in the Subject Shares and to protect his or its own interests in connection with the transactions contemplated in this Agreement.  Further, each member of the PII Group Parties is aware of no publication of any advertisement in connection with the transactions contemplated in the Agreement.

(v)

Each member of the PII Group Parties represents that he or it is an accredited investor within the meaning of Regulation D under the Securities Act.

(vi)

The Permitted Transferee of GMI Partners referred to in Section 8 below, does hereby covenant and agree, upon execution of the Joinder Agreement referred to in such Section 8, that it complies with all of the representations and warranties set forth in this Section 6(b).

(vii)

The stock certificate(s) evidencing the Subject Shares, when delivered to the Purchaser or its Permitted Transferee shall contain the following legend:

The securities 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 securities 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.

6.

Covenants and Agreement of the Parties Prior to the Effective Date of the Plan.  

(a)

By the PII Group Parties. Each member of the PII Group Parties do hereby covenant and agree, on his or its own behalf and on behalf of all of his or its respective Affiliates, that from and after the date of this Agreement through and including the earlier to occur of (A) termination of this Agreement pursuant to the provisions hereof, or (B) the Effective Date of the Plan:

(i)

without incurring any additional liability, cost or expense, he or it shall support the consummation of the Plan and all efforts of the Debtors and the Senior Note Holder Parties to consummate the Plan and cause the Effective Date to occur as soon as practicable, but in no event later than October 31, 2004; and

9

(ii)

he or it shall (A) refrain from making, sponsoring, or otherwise participating in any press releases or other public announcements or statements that are derogatory to the Bell/Staton Group Parties, or any member thereof, and  (B) not make any public announcements concerning this Agreement and the transactions contemplated hereby, other than the press releases in the form of Exhibit F annexed hereto which is agreed by the PII Group Parties are the only press releases required by applicable securities laws, one to be issued on the Funding Date and one to be issued on the Effective Date of the Plan.

(b)

By the Bell/Staton Group Parties. Each member of the Bell/Staton Group Parties do hereby covenant and agree, on his or its own behalf and on behalf of all of his or its respective Affiliates, that from and after the date of this Agreement through and including the earlier to occur of (A) termination of this Agreement pursuant to the provisions hereof, or (B) the Effective Date of the Plan:

(i)

without incurring any additional liability, he or it shall use his or its best efforts to consummate the Plan and cause the Effective Date to occur Date to occur as soon as practicable, but in no event later than October 31, 2004;

(ii)

pending the Funding Date, he or it shall take no further action in connection with the Molina Collection Action, seeking to foreclose upon or sell the Pledged Series C Preferred Stock or attempting to reconstitute the board of directors of PII, and from and after the Funding Date, shall fully comply with all of the provisions of Section 4 of this Agreement;

(iii)

he or it shall (A) refrain from making, sponsoring, or otherwise participating in any press releases or other public announcements or statements that are derogatory to the PII Group Parties or any member thereof, and  (B) not make any public announcements concerning this Agreement and the transactions contemplated hereby, other than the press releases in the form of Exhibit F annexed hereto which is agreed by the Bell/Staton Group Parties are the only press releases required by applicable securities laws, one to be issued on the Funding Date and one to be issued on the Effective Date of the Plan; and

(iv)

he or it shall not, in any material respect, amend, modify, restate or otherwise change the Plan, any of the terms or conditions of any Exhibit or Schedule to the Plan, the capitalization of the Reorganized GMI and Reorganized Debtors, or any of the terms of the New GMI Common Stock, the New GMI Term Loan Notes and the Exit Financing Facility, without, in each instance, the written prior approval of both Charles Arnold and A.J. Nassar, as representatives of the PII Group Parties (the “PII Group Representatives”).

(c)

Waiver of Covenants and Conditions. Prior to the Effective Date of the Plan, the respective covenants and obligations of the respective Parties set forth in this Agreement, including Section 6 hereof, may be waived in writing (i) by Bell and Staton,

10

acting on behalf of all of the Bell/Staton Group Parties (the “Bell/Staton Group Representatives”), and (ii) by Charles L. Samel and A.J. Nassar, acting on behalf of all of the PII Group Parties.

(d)

Release of PII Escrowed Funds. On the Funding Date or as soon thereafter as is practicable, but in no event later than the Effective Date of the Plan (the “Escrow Funds Release Date”), the Bell/Staton Group Parties and the PII Group Parties shall, to the extent applicable: (i) cause $500,000 of the $1.0 million deposit posted by PII in escrow with Newman & Newman P.C. in connection with the Bankruptcy Case to be wired by Newman & Newman P.C. to the Bell/Station Group Parties in accordance with Section 7(r) of this Agreement; and (ii) cause Newman & Newman P.C. to deliver $500,000 to the Escrow Agent, as part of the $20,000,000 Purchase Price, in accordance with the Irrevocable Wire Instructions; provided, that if the Purchase Price shall be less than $20,000,000, such $500,000 delivered to the Escrow Agent shall be r emitted to the Reorganized Debtors.

7.

Covenants and Agreement of the Parties After the Effective Date of the Plan.  

(a)

Boards of Directors. For so long as the Purchaser shall be the record and beneficial owner of 100% of the Subject Shares of Reorganized General Media (with such percentage subject to reduction at the rate of 1% for each 4,838 Subject Shares in excess of the minimum 241,908 Subject Shares acquired by the Purchaser hereunder), each member of the Bell/Staton Group Parties hereby agrees that he or it will vote all of his or its shares of Common Stock of Reorganized GMI, whether now owned or hereafter acquired, in favor of the election as a member of the board of directors of each of the GMI Corporations (collectively, the “Boards of Directors”) one (1) representative of the Purchaser (the “Purchaser Board Representative”).  In addition to one Purchaser Board Representative, the Boards of Directors shall permit a second representative of the Purchaser to attend meetings as an invited guest; provided, such Person shall have no right to vote or otherwise participate in meetings. The Purchaser Board Representative and the invited guest shall be Persons who shall be reasonably acceptable to the Bell/Staton Group Parties; provided, that neither Molina, the Molina Trust, any executive officer of PII, nor any of their Affiliates or associates shall serve as the Purchaser Board Representative, without the prior written approval of the Bell/Staton Group Representatives.  In the event that the initial Purchaser Board Representative shall fail or be unable to serve as a member of the Boards of Directors, such vacancy shall be filled solely by another designee of the Purchaser reasonable acceptable to the Bell/Staton Group Parties.  At each regular or special meeting of the stockholders of the GMI Corporations called for the purpose, in whole or in part, to elect directors of such GMI Corporation, all Parties shall v ote all of their shares of New GMI Common Stock to implement the provisions of this Section 7(a).   It is understood and agreed that the foregoing agreement of the Bell/Staton Group Parties shall terminate upon the sale or transfer of any of their Reorganized GMI Common Stock to any Person who is not an Affiliate of such transferor, but only with respect to the voting of such sold or transferred shares of Reorganized GMI Common Stock.

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The GMI Corporations shall, from and after the Effective Date of the Plan: (A) conduct regularly scheduled in-person joint meetings of the Boards of Directors of the GMI Corporations not less than quarterly and within 45 days after the end of each fiscal quarter; (B) provide written notice (delivered by hand, certified mail, facsimile transmission or email) of such regular meetings to all members of the Boards of Directors not less than ten (10) days prior to the dates of such meetings;  and (C) furnish all members of the Boards of Directors with the most currently available financial information and reports concerning the GMI Corporations, including the Annual Financial Statements and quarterly financial statements referred to in Section 7(c)(i) and (ii) above.  Unless prior notice shall be waived, special meetings of the Boards of Directors may be called in-person or by telephone conference call upon not less than one business (1) day’s prior notice (delivered by hand, certified mail, facsimile transmission or email) to all members of the Boards of Directors and to such legal counsel as may, from time to time, be designated by the Purchaser Board Representative as his or her counsel.

(b)

Management of the GMI Corporations. The GMI Corporations shall be managed solely by the respective Boards of Directors of each of the GMI Corporations, and, subject at all times to the provisions of this Section 7 and the “Stockholders Agreement” (as hereinafter defined), such Boards of Directors shall have the sole authority to manage, control and operate the GMI Corporations, establish policy, enter into agreements, consummate acquisitions, financings and other transactions, appoint, hire or fire all executive officers, agents, professional and others providing services to any or all of the GMI Corporations, and otherwise exercise all functions and authority otherwise granted to a board of directors of a Delaware corporation.

(c)

Financial Statements. The Parties hereto do hereby agree that for so long as the Purchaser shall continue to be the record and beneficial owner of at least 50% of the Subject Shares (with such percentage subject to reduction at the rate of 1% for each 9,676 Subject Shares in excess of the minimum 241,908 Subject Shares acquired by the Purchaser hereunder):

(i)

within 90 days after the end of each fiscal year, the GMI Corporations shall furnish to all shareholders (including the Purchaser) consolidated financial statements as at such fiscal year end at for the fiscal year then ended (the “Annual Financial Statements”) complying in all material respects with Regulation S-X promulgated under the Securities Act; which Annual Financial Statements shall be audited by recognized accounting firm designated by the GMI Board of Directors (the “Accountants”); and

(ii)

within 45 days after the end of each of its fiscal quarters, Reorganized GMI shall furnish to all shareholders (including the Purchaser) unaudited consolidated balance sheets, statements of operations and statements of cash flows complying in all material respects with Regulation S-X promulgated under the Securities Act, which shall have been reviewed (but not audited) by the Accountants and certified as accurate by the Chief Financial Officer of Reorganized GMI.

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(d)

Certain Related Party Transactions. Except as otherwise expressly provided in this Agreement, from and after the Effective Date of the Plan and thereafter for so long as the Purchaser or any of his or its Affiliates shall continue to own 100% of the aggregate number of Subject Shares purchased hereunder (with such percentage subject to reduction at the rate of 1% for each 4,838 Subject Shares in excess of the minimum 241,908 Subject Shares acquired by the Purchaser hereunder), none of the GMI Corporations shall (i) make any loans or advances, (ii) sell, lease or otherwise assign or transfer any assets or properties of any of the GMI Corporations (whether tangible or intangible), or (iii) enter into any agreement, license, joint venture or related arrangement or transaction, whether written or oral with (individually or collectively, a “R elated Party Transaction”), to or with any of Bell, Staton, their Affiliates or any other of the Bell/Staton Group Parties or any Affiliate of any of such Persons (individually, a “Related Party” and collectively, “Related Parties”), unless and until, prior to consummation thereof, such Related Party Transaction (A) shall have, as to its terms and conditions, been fully disclosed in writing to all members of the Boards of Directors (including the Purchaser Board Representative), and (B) shall have been approved in writing by either of the Purchaser Board Representative or by the Purchaser.  Notwithstanding the foregoing (x) the Boards of Directors of the GMI Corporations shall have the sole right to engage all attorneys, accountants or other professionals to render services on behalf of the GMI Corporations, irrespective of whether or not the same constitutes a Related Party Transaction, and (y) the GMI Corporations may lease office space from the Bell/Staton G roup Parties or their Affiliates in Boca Raton, Florida, under a five year “triple net” lease, providing for rental of $15.00 per square foot and $9.00 per square foot for common area maintenance, and the GMI Corporations may enter into a renewal of such lease and any other lease of space from the Related Parties; provided, such leases are at market rates and customary terms for offices leases in the area.

(e)

Acquisitions of Securities by Related Parties. From and after the Effective Date of the Plan, neither GMI nor any of the other GMI Corporations shall issue or sell to any Related Party, and no Related Party shall purchase or otherwise receive from any of the GMI Corporations, any notes, debentures, or (other than employee stock options not otherwise prohibited by Section 7(g) hereof) any shares of capital stock, options, warrants, rights or other securities of any of the GMI Corporations (individually and collectively, a “Securities Acquisition”), unless (i) all of the terms and conditions of such Securities Acquisition shall have been fully disclosed in writing to all members of the Boards of Directors (including the Purchaser Board Representative) not less than twenty (20) days prior to consummation thereof, (ii) the terms and conditions of the proposed Securities Acquisition shall, in the aggregate, be no less favorable to the GMI Corporations (individually and collectively) than the terms and conditions of a financing that are otherwise available to any or all of the GMI Corporations from any unaffiliated Person that is not a Related Party, and (iii) the Purchaser shall be offered an opportunity to participate, on a pro-rata basis (determined by relation to the percentage by which the outstanding Subject Shares then owned by the Purchaser bears to the outstanding New GMI Common Stock owned by the Related Party or Related Parties) with the Related Party or Related Parties in such Securities Acquisition, and upon the same terms and conditions.  

13

(f)

Related Party Financing Agreements. From and after the Effective Date of the Plan and for so long as the Related Parties shall have, directly or indirectly, designated a majority of the Board of Directors of the GMI Corporations, no Related Party shall (i) in his or its capacity as a lender, declare a default or otherwise accelerate the indebtedness evidenced by the New GMI Term Loan Notes, the Indenture relating to the New GMI Term Loan Notes, under the Exit Financing Facility, or under any amendments, modifications or restatements of any of the foregoing (each a “Related Party Financing Agreement”), solely by reason of the occurrence and continuation of a non-monetary default under any such Related Party Financing Agreement or (ii) in his or its capacity as a lender, absent a monetary default, amend, modify, restate or otherwi se change the terms of any Related Party Financing Agreement that, individually or in the aggregate, would be materially adverse to the GMI Corporations.  In the event that a monetary default under any of the Related Party Financing Agreements should occur and be continuing, if any Related Party shall elect to advance additional funds to the GMI Corporations, the covenants and provisions contained in Section 7(f) above shall be applicable to any such additional financing or any amendment, modification or restatement to any Related Party Financing Agreement that may be proposed by any Related Party.

(g)

Limitations on Certain Remuneration. The Parties hereto do hereby agree that, from and after the Effective Date and thereafter for so long as the Purchaser or any of his or its Affiliates shall continue to own 100% of the aggregate number of Subject Shares purchased hereunder (with such percentage subject to reduction at the rate of 1% for each 4,838 Subject Shares in excess of the minimum 241,908 Subject Shares acquired by the Purchaser hereunder), without the prior written consent of the Purchaser Board Representative or the Purchaser, neither GMI nor any of the GMI Corporations shall:

(i)

create or establish any stock option, stock purchase or other stock bonus plan or stock pool (a “Stock Plan”), or grant or issue any employee stock options, warrants or other rights to purchase New GMI Common Stock or capital stock of any of the GMI Corporations (“Stock Rights”) that, individually or in the aggregate, would exceed 10% of the then outstanding shares of New GMI Common Stock or capital stock of any other GMI Corporation, on a fully-diluted basis, after giving effect to all then outstanding securities convertible into or exercisable or exchangeable for shares of New GMI Common Stock or capital stock of any of the GMI Corporations (“Fully-Diluted Stock”);

(ii)

grant to any one or more Related Party any Stock Rights that would exceed, individually or in the aggregate, three (3%) percent of the Fully-Diluted Stock of New GMI or any other GMI Corporations; provided, that in the event and to the extent that either Bell or Staton shall, pursuant to two year or longer employment agreements acceptable to the Board of Directors of Reorganized General Media, devote substantially all of their business and professional time to the GMI Corporations, such three (3%) percent limitation may be increased by such Board of Directors to up to six (6%) percent.

14

(iii)

make any payments of cash or other property, whether as salaries, bonuses, management fees, consulting fees, performance bonuses, loans, advances, or otherwise to any one or more Related Party (collectively, “Related Party Payments”) that, individually or in the aggregate, would exceed on an annual basis more than ten percent (10%) of the net income before income taxes of the GMI Corporations; provided, that (A) no Related Party Payments may be made if the same would cause any default or event of default to occur under any loan agreement or other credit facility to which the GMI Corporations, or any of them, may be a party, and (B) subject to the foregoing limitations, Bell and Staton shall be entitled to receive annual compensation (which shall not include reimbursement for actual out-of-pocket business expenses incurred by such Part ies, accompanied by vouchers therefore) from the GMI Corporations (x) initially, not to exceed an aggregate of $500,000 per annum, and (y) subject to increase in each fiscal year of the GMI Corporations following the first anniversary of the Effective Date of the Plan, at the rate of ten (10%) of the consolidated earnings before interest, taxes, depreciation and amortization (“EBITDA”) of the GMI Corporations; provided, that in no event shall the aggregate annual compensation from the GMI Corporations payable to Bell and Station exceed $1,000,000 per annum.  In addition, Bell and Staton shall be entitled to participate in any bonus pool or program approved by the Board of Directors of the GMI Corporations; provided that such participation by both Bell and Staton shall not exceed 50% of such bonus pool.  Notwithstanding the foregoing, the limitations on Related Party Payments set forth in this Section 7(g)(iii) shall not be applicable to compensation paid to employees of Affiliates of Bell and Staton who perform actual services for any of the GMI Corporations and who receive customary and reasonable compensation; which compensation shall not be deemed a Related Party Payment for purposes of this Section 7(g)(iii).

(h)

Transaction Processing Agreement. On the Effective Date of the Plan, if Care Concepts I, Inc., a Delaware corporation (“CCI”) shall acquire the Subject Shares from GMI Partners, the Reorganized Debtors shall enter into a five (5) year non-exclusive Internet transaction processing agreement with Internet Billing Company, LLC (“iBill”), a wholly-owned Subsidiary of CCI, pursuant to which iBill shall, at competitive industry transaction processing rates and subject to mutually satisfactory performance standards, process transactions for the Reorganized Debtors on their web sites (the “Transaction Processing Agreement”).

(i)

Licensing Agreements. Subject to the provisions of Section 4(b) above, following the Effective Date of the Plan, the Purchaser or its Affiliates (the “Designated Licensees”) shall be granted the right of first refusal to obtain from the GMI Corporations ten (10) year world-wide exclusive licenses (the “Licenses”) to use all “Penthouse” and related trademarks owned or used by the Reorganized Debtors (the “Licensed Rights”) in connection with the ownership, operation, marketing, distribution and licensing of (i) auction websites, (ii) lifestyle resorts (excluding casinos), and (iii) travel agencies and travel related websites.  Such Licenses of the Licensed Rights shall (A) provide for mutually agreed upon quarterly royalties payable to the Reorganized Debtors based upon net revenue s derived by the Designated Licensees from the use of the Licensed Rights,

15

subject to mutually agreed upon minimum annual royalties, and (B) contain such other terms and conditions as shall be no less favorable to the Designated Licensees than the terms offered to the Reorganized Debtors by any unaffiliated third Person, including, without limitation, a requirement that content be presented in multiple languages.  

(j)

Senior Debt Refinancing and Capital Contribution. Upon the Effective Date of the Plan, the Bell/Staton Group Parties shall own, in the aggregate, approximately $24,000,000 of outstanding New GMI Term Loan Notes.  Following the Effective Date of the Plan, the Reorganized Debtors may undertake, and (subject to the provisions of this Section 7(j)), shall have the right on one or more occasion to, refinance all or a portion of the New GMI Term Loan Notes and the Exit Refinancing Facility, all upon such terms and conditions as shall be acceptable to the Boards of Directors, in the exercise of their sole and absolute discretion (individually and collectively, the “Senior Debt Refinancing”).  In connection with each such Senior Debt Refinancing, for so long as the Purchaser or any of his or its Affiliates shall continue to ow n 100% of the aggregate number of Subject Shares purchased hereunder (with such percentage subject to reduction at the rate of 1% for each 4,838 Subject Shares in excess of the minimum 241,908 Subject Shares acquired by the Purchaser hereunder), the Parties hereto do hereby covenant and agree as follows:

(i)

The Senior Debt Refinancing shall, to the extent applicable, comply with all of the affirmative and negative covenants set forth in the Trust Indenture under which the New GMI Term Loan Notes were issued.

(ii)

The Bell/Staton Group Parties shall, upon consummation of each Senior Debt Refinancing, with respect to the New GMI Term Loan Notes owned by the Bell/Staton Group Parties, contribute to the equity of New GMI a cash amount (the “Capital Contribution”) equal to twenty-five (25%) percent of the principal amount of any such New GMI Term Loan Notes (such percentage subject to increase to up to fifty (50%) percent, at the rate of 1% for each 9,676 Subject Shares in excess of the minimum 241,908 Subject Shares acquired by Purchaser hereunder) being refinanced and repaid to the Bell/Staton Group Parties in connection with such Senior Debt Refinancing until such time as the Bell/Staton Group shall have made aggregate cash Capital Contributions to New GMI of $5,000,000 (subject to increase (A) at the rate of $20.67 for each Su bject Share in excess of the minimum 241,908 Subject Shares acquired by Purchaser hereunder, and (B) as provided in Section 7(j)(iv) below).  No additional consideration, whether in cash, notes, property or shares of New GMI Common Stock or other securities of the GMI Corporations shall be issued to the Bell/Staton Group Parties or any other Related Party in connection with any such Capital Contribution.

(iii)

In the event that any or all of the GMI Corporations shall consummate one or more Senior Debt Refinancing(s), the proceeds of which Senior Debt Refinancing(s) are used, in whole or in part, to repay the principal

16

amount of the New GMI Term Loan Notes held by the Bell/Staton Group Parties, and, in connection with such Senior Debt Refinancing(s), Reorganized General Media shall issue New GMI Common Stock or convertible securities, options, warrants or rights to purchase New GMI Common Stock (“New Equity”) that shall result in aggregate dilution of more than five percent (5%) to all then existing holders of the Reorganized General Media Common Stock and the Subject Shares, then and in such event (unless otherwise agreed by the Purchaser), any dilution in excess of five percent (5%) shall, at the option of the Bell/Staton Group Parties, either (A) be borne solely by the Bell/Staton Group Parties, or (B) the Bell/Staton Group Parties shall increase their cash Capital Contribution set forth in Section 7(j)(iii) above by an amount equal to $500,000 for every 100 basis points of New Equity in excess of 5%; provided, that such additional Capital Contributions, when combined with any additional payments made by the Bell/Staton Group Parties pursuant to Section 7(j)(iv) below shall not, in the aggregate, exceed $2,500,000, subject to increase to up to $5,000,000, at the rate of $10.33 for each Subject Share in excess of the minimum 241,908 Subject Shares acquired by Purchaser hereunder.

(iv)

In the event that, in connection with any Senior Debt Refinancing(s), the proceeds of which are used, in whole or in part, to repay the principal amount of the New GMI Term Loan Notes held by the Bell/Staton Group Parties, the annual interest rate payable under any term loan notes issued to the holder(s) of such Senior Debt Refinancing(s) (the “Future Term Notes”) shall exceed 12% per annum, then, and in such event, the Bell/Staton Group Parties may, at their option, either (A) pay to the GMI Corporations an annual sum equal to the amount by which such annual interest rate shall exceed 12% (the “Excess Amount”), either in cash or by a reduction of Related Party Payments otherwise permitted by Section 7(j)(iii) above, or (B) pay such Excess Amount by increasing their Capital Contribution to the GMI Corporations by that cash amount which, if invested by the GMI Corporations at the same annual interest rate then being charged by the issuer of the Future Term Notes, would equal the Excess Amount; provided, however, that such additional payments, when combined with any additional Capital Contributions pursuant to Section 7(j)(iii) above, shall not, in the aggregate, exceed $2,500,000, subject to increase to up to $5,000,000, at the rate of $10.33 for each Subject Share in excess of the minimum 241,908 Subject Shares acquired by Purchaser hereunder.

(v)

It is understood and agreed that, except as expressly set forth above, and subject to Section 7(e) of this Agreement, in the event that any of the GMI Corporations shall issue New Equity or other equity or equity-type securities, the dilution to holders of Common Stock or Subject Shares resulting therefrom shall be borne proportionately by all then existing holders of the Reorganized General Media Common Stock and the Subject Shares.

17

(k)

Licenses to Molina or Molina Affiliates. Following the Effective Date of the Plan and, subject to payment in full of the New Molina Note, as contemplated by Section 4(b), in no event later than December 31, 2004, the Reorganized Debtors shall grant to Molina or his Affiliates ten (10) year exclusive licenses throughout the Country of Mexico (the “Molina Licenses”) to use all “Penthouse” and related trademarks owned or used by the Reorganized Debtors in connection with the ownership, operation, marketing, distribution and licensing of (i) a Spanish language edition of Penthouse Magazine (the “Magazine License”), and (ii) resorts, vacation homes, Penthouse Clubs, convention centers and related real estate activities (the “Resort License”).  The Magazine License will provide that (w) a minimum annual royalty not to exceed $250,000 shall be payable to the Reorganized Debtors against a percentage royalty to be agreed upon, but not to exceed 7% of annual net revenues, (x) publication shall commence by January 1, 2006 and continue uninterrupted thereafter, (y) for mutually agreed upon circulation levels to be obtained by the licensee after December 31, 2006, and (z) for oversight by Reorganized GMI as to standards of content and quality of such Mexican version of Penthouse Magazine.  The Resort License shall (A) provide that a minimum annual royalty of $200,000 shall be payable to the Reorganized Debtors against a percentage royalty to be agreed upon, but not to exceed 5% of annual net revenues, payable quarterly, that are derived from use of the Licensed Rights, and (B) require the licensee to complete construction of the initial phase of the development and commence payment of royalties by not later than twenty-four (24) months after the date of the Resort License.  The final te rms and conditions of the Magazine License and the Resort License shall be as mutually agreed upon between Molina and the Boards of Directors of Reorganized Debtors (with the Purchaser Representatives abstaining from voting thereon).  Notwithstanding the foregoing, the minimum annual royalties and percentage royalties set forth above in this Section 7(k) shall be no less favorable to the holder(s) of the Molina Licenses than those that may be obtained in the future from the Reorganized Debtors by any unaffiliated third party for similar licenses in similar circumstances, and are subject to prospective adjustment if more favorable terms are so granted to unaffiliated third parties by the Reorganized Debtors.

(l)

Stockholders Agreement. On the Funding Date, the Bell/Staton Group Parties and the Purchaser shall enter into a stockholders agreement in substantially the form of Exhibit G annexed hereto and made a part hereof (the “Stockholders Agreement”), which shall be delivered to the Escrow Agent pending the Effective Date.  

(m)

Robert C. Guccione. None of the PII Group Parties nor any of their Affiliates or associates (including Charles L. Samel) shall, directly or indirectly aid, abet, assist or otherwise participate with Robert C. Guccione or his Affiliates in connection with the use of any “Penthouse” and “Penthouse” related trademarks.  In addition, PII Group Parties and Charles L. Samel shall cooperate in all respects with the Reorganized Debtors in any legal effort (whether before the Bankruptcy Court or otherwise) to enjoin or otherwise compel Robert C. Guccione or his Affiliates to cease the use of or transfer ownership of all such “Penthouse” and “Penthouse” related trademarks to the Reorganized Debtors.  No member of the family of Robert C. Guccione shall be

18

employed by or otherwise render services to the GMI Corporations. Nothing contained in this Agreement shall obligate any of the GMI Corporations or any of the Bell/Staton Group Parties to maintain or service the indebtedness on the townhouse located at 14-16 East 67^th Street, New York, New York (the “Townhouse”), currently owned by PH Realty Associates LLC, a Subsidiary of PII; it being understood that such Townhouse is the sole responsibility of PII or any successor owner thereof.  

(n)

Audit of Historical Financial Statements of Debtors. The Parties hereto do hereby agree that Stonefield Josephson & Company (the “PII Auditors”) shall complete, as soon as practicable following the Effective Date (i) an audit of the consolidated financial statements of GMI and the other Debtors as at December 31, 2003 and for the fiscal year then ended (the “Debtors 2003 Financial Statements”). If requested by Purchaser or the American Stock Exchange, the PII Auditors or other accountants selected by the Reorganized GMI Board of Directors, shall also audit the consolidated financial statements of GMI and the other Debtors as at June 30, 2004 and for the six months then ended (the “Debtors June 30, 2004 Financial Statements”), and (ii) an unaudited pro-forma consolidated balance sheet of the Reorganized Debtors, after giving effect to the consummation of the Plan on the Effective Date and the transactions contemplated by this Agreement (the “Pro-Forma Opening Balance Sheet”). Such Debtors 2003 Financial Statements, Debtors June 30, 2004 Financial Statements and Pro-Forma Opening Balance Sheet shall be prepared in accordance with generally accepted accounting principles and in compliance with Regulation S-X, as promulgated under the Securities Act. The costs of preparation of the foregoing financial statements, to the extent in excess of costs heretofore paid by PII for such work, shall be borne by the Reorganized Debtors.

(o)

Use of Penthouse and other Tradenames and Trademarks. On the Effective Date of the Plan, PII shall amend and restate its Articles of Organization to, among other things, change its corporate name to a name not using the word “Penthouse,” In addition, from and after the Effective Date of the Plan, neither the Purchaser nor any of the PII Group Parties shall use any trade mark, trade name or other intellectual property owned by or otherwise belonging to any of the Reorganized Debtors, except to the extent expressly permitted by the Licenses, the Transaction Processing Agreement or otherwise by this Agreement or any Exhibit hereto.

(p)

Return of Debtors’ Property Located at Townhouse. PII shall use its best efforts and shall support the Reorganized Debtors efforts, if any, to obtain all or certain of the personal property and assets currently owned by the Reorganized Debtors and located at the Townhouse.

(q)

Non-Competition Agreement. Concurrently with the Funding Date, PII shall deliver to the Bell/Staton Group Parties an agreement substantially in the form of Exhibit H annexed hereto (the “Non-Competition Agreement”) executed by Charles L. Samel and Jason Galanis, which shall provide that for a period of five years after the Effective Date of the Plan, neither of them shall compete, directly or indirectly, with the

19

business of the Reorganized Debtors, as currently conducted; provided, that the foregoing Non-Competition Agreement shall not be deemed to prohibit their participation in the ownership and management of PII or CCI or their subsidiaries.

(r)

Certain Additional Payments and Dividend Distributions. PII hereby acknowledges that the Bell/Staton Group Parties have incurred certain $500,000 of costs and expenses, unrelated to the Bankruptcy Case, in connection with the Molina Collection Case, the PII Litigation, the negotiation of this Agreement and the preferred stock purchase agreement, dated as of August 31, 2004.  PII hereby agrees to reimburse the Bell/Staton Group Parties for such expenses.  Accordingly, on the Funds Release Escrow Date, PII shall instruct Newman & Newman P.C. to reimburse the Bell/Staton Group Parties in the amount of $500,000 for such expenses.  Such amount shall be , in addition to (an not in lieu of) the $500,000 to be wired to the Escrow Agent, as part of the Purchase Price pursuant to the Irrevocable Wire Instructions.  In addition, the Purchaser, on behalf of itself and any subsequent transferee of Subject Shares (including the Permitted Transferee) hereby irrevocably instructs the Reorganized General Media that the Senior Note Holder Parties are entitled to receive from the GMI Corporations following the Effective Date of the Plan, on a cumulative basis and in such proportions as among them as PET shall designate, preferential dividends equal to the sum of (i) $500,000, plus (ii) simple interest on such amount (calculated from the Funding Date to the date of full or partial payment) at the rate of 8% per annum, which shall be offset from any dividend payments or related distributions to be made with respect to the Subject Shares.

8.

Sale of Subject Shares to CCI.

(a)

On the Effective Date of the Plan, GMI Partners intends to sell and assign to CCI, or a newly formed Subsidiary of CCI, all of the Subject Shares, in exchange for securities of CCI.  Except for CCI or its subsidiary (the “Permitted Transferee”), prior to or on the Effective Date, GMI Partners shall not sell, transfer or assign any of the Subject Shares or agree to do so, to any Person, other than such Permitted Transferee.

(b)

On or before the Effective Date of the Plan, CCI shall execute and deliver a joinder or related agreement whereby such Person shall agree to perform and be bound by all of the terms and conditions of this Agreement and the Stockholders Agreement, as though it were an original Party signatory hereto.

9.

Miscellaneous.

(a)

Entire Agreement.  This Agreement, the Plan and all Exhibits and Schedules to the Plan and to this Agreement (collectively, the “Transaction Documents”), contains the entire agreement between the Parties hereto with respect to the subject matter hereof.  There are no agreements which are not set forth in the Transaction Documents.  This Agreement may not be amended or revised except by a writing signed by the Party to be charged with enforcement.

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(b)

Binding Effect; Assignment.  This Agreement shall be binding upon and inure to the benefit of the Parties hereto and their respective successors and Permitted Assigns.  Except as set forth in Section 8, none of the rights or obligations set forth in this Agreement may be assigned by any Party to any other Person, without the prior written consent of the Purchaser Representative and the Bell/Staton Group Representatives.

(c)

Survival. The covenants and agreements of the Parties set forth in Section 7 of this Agreement shall survive indefinitely the consummation of the purchase and sale of the Subject Shares contemplated hereby. The covenants and agreements of the Parties to the Stockholders Agreement shall continue to survive following consummation of this Agreement for the term of such Stockholders Agreement.

(d)

Separate Counterparts.  This Agreement may be executed in counterparts, each of which when so executed shall constitute an original and all of which when taken together shall constitute but one instrument.  A telephone line facsimile transmission of this Agreement bearing a signature on behalf of a Party hereto shall be legal and binding on such Party.

(e)

Expenses.  Each of Bell/Staton Group Parties and the PII Group Parties agree to pay their respective costs and expenses in connection with the negotiation and execution of this Agreement.

(f)

Cumulative Remedies.  The remedies of the Parties hereunder shall be cumulative, and the exercise by any of the Parties of any of its remedies at law or in equity to recover any damages shall not affect any other remedy available to such Party or Parties and the exercise by any Party or Parties of any of its remedies at law or in equity to recover any damages shall not affect any other remedy available to such Party or Parties.

(g)

Notices.  Except as otherwise expressly provided herein, all notices hereunder, to be effective, shall be in writing and shall be mailed by certified mail, postage and fees prepaid, or delivered personally or by telephone line facsimile transmission to the Party to be notified as set forth on the signature pages of this Agreement, and shall be effective on receipt.  A Party may change the address to which such communications are to be directed to it by giving written notice to the other Parties hereto of such change in the manner above provided.  Copies of all notices shall be sent to counsel to the respective Parties; being the same counsel designated in the Preferred Stock Purchase Agreement.

(h)

Severability.  The provisions of this Agreement are severable, and the invalidity of any provision shall not affect the validity of any other provision.

(i)

No Waiver.  The failure of a Party at any time or times to require performance of any provision hereof shall in any manner affect its right at a later time to enforce the same.  No waiver by a Party of any condition, or of the breach of any term,

21

covenant, representation, warranty or agreement contained in this Agreement, whether by conduct or otherwise, in any one or more instances shall be deemed to be or construed as a further or continuing waiver of any such condition or breach or a waiver of any other condition or of the breach of any other term, covenant, representation, warranty or agreement contained in this Agreement.

(j)

Reviewed by Attorneys. Each of the Parties represents to all other Parties that he or it (A) understands fully the terms of this Agreement and the consequences of the execution and delivery of this Agreement, (B) has been afforded an opportunity to have this Agreement reviewed by, and to discuss this Agreement and document executed in connection herewith with, such attorneys and other persons as such Party may wish, and (C) has entered into this Agreement and executed and delivered all documents in connection herewith of his or its own free will and accord and without threat, duress or other coercion of any kind by any person or entity.  The Parties hereto acknowledge and agree that neither this Agreement nor the other documents executed pursuant hereto shall be construed more favorably in favor of one than the other based upon which Party or which Party’s counsel drafted the same, it being acknowledged that all Parties hereto contributed substantially to the negotiation and preparation of this Agreement and the other documents executed pursuant hereto or in connection herewith.

(k)

Governing Law; Consent to Jurisdiction and Process; Waiver of Jury Trial; Process Agents.  This Agreement shall be governed by and construed in accordance with the laws of the State of New York.  THE PARTIES HERETO CONSENT TO THE JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN THE STATE OF NEW YORK, SITTING IN THE COUNTY OF NEW YORK AND FURTHER CONSENT THAT ANY PROCESSOR NOTICE OR OTHER APPLICATION TO ANY COURT OR A JUDGE THEREOF MAY BE SERVED WITHIN OR WITHOUT THE STATE OF NEW YORK BY CERTIFIED MAIL OR BY PERSONAL SERVICE, PROVIDED A REASONABLE TIME FOR APPEARANCE IS ALLOWED.  EACH PARTY HERETO HEREBY WAIVES ITS RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY LEGAL PROCEEDING ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT.  The Bell/Staton Group Parties hereby designate Milberg Weiss Bershad & Schulman LLP, or a ny other law firm with whom Arnold N. Bressler, Esq. may be affiliated (the “Bell/Staton Group Parties Agent”) as their agent for service of process, and the PII Group Parties hereby designate Gersten Savage Kaplowitz Wolf & Marcus LLC, or any other law firm with whom Stephen A. Weiss, Esq. may be affiliated (the “PII Group Parties Agent”) as their agent for service of process.

Concurrently with the execution and delivery of this Agreement, the PII Group Parties shall execute and deliver to the Bell/Staton Group Parties an Appointment Letter appointing the PII Group Parties Agent as their respective designee, appointee and agent to receive, accept and acknowledge, for and on behalf of the PII Group Parties, service of any and all legal process, summons, notices and documents which may be served in any action, suit or proceeding relating to this Agreement, any Exhibit hereto or the

22

transactions contemplated hereby 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.  Similarly, the Bell/Staton Group Parties shall execute and deliver to the PII Group Parties an Appointment Letter appointing the Bell/Staton Group Parties Agent as their respective designee, appointee and agent to receive, accept and acknowledge, for and on behalf of the Bell/Staton Group Parties, service of any and all legal process, summons, notices and documents which may be served in any action, suit or proceeding relating to this Agreement, any Exhibit hereto or the transactions contemplated hereby 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.  Each of the Parties 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 PII Group Parties or the Bell/Staton Group Parties, as applicable, shall immediately deliver an Appointment Letter to a new designee, appointee and agent with offices in New York, New York, reasonably satisfactory to the other Parties, which shall irrevocably agree to act as such, with the powers and for purposes specified in this Section 9(k).  Each of the Parties agrees that service upon their respective Process Agent as provided for herein shall constitute valid and effective personal service upon such Parties with respect to all matters and that the failure of Process Agent to give any notice of such service to any of the Parties designating such Process Agent shall not impair or affect in any way the validity of such service or any judgment rendered in any action or proceeding based thereon.

(l)

Headings.  The Article and Section headings, captions, headers and footers contained in this Agreement are for convenience only and shall not form part of or affect the interpretation of this Agreement.

(m)

Further Assurances.  Each Party to this Agreement will perform any and all acts and execute any and all documents as may be reasonably necessary and proper under the circumstances in order to accomplish the intents and purposes of this Agreement and to carry out its provisions.

[Remainder of This Page Intentionally Left Blank]

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IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be duly executed by their respective representatives thereunto duly authorized, as of the date 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

EUROPEAN CATALYST FUND

By:

Pet Capital Partners LLC, Attorney-in-Fact

By:

Naft Ventures I LLC, Managing Member

By:______________________________________

Name:

Marc H. Bell

Title:

Managing Member

NAFT VENTURES I LLC

By:______________________________________

Name:

Marc H. Bell

Title:

Managing Member

24

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

_________________________________________

MARC H. BELL

_________________________________________

DANIEL STATON

_________________________________________

Dr. LUIS ENRIQUE MOLINA GALEANA

PENTHOUSE INTERNATIONAL INC.

By:______________________________________

Name:

Charles L. Samel

Title:

Executive Vice President

THE MOLINA VECTOR INVESTMENT TRUST

By:______________________________________

Name:

Dr. Luis Enrique Molina Galeana

Title:

Trustee

GMI INVESTMENT PARTNERS

By:______________________________________

Name:

A.J. Nasser, Partner

MILBERG WEISS BERSHAD & SCHULMAN LLP

By:______________________________________

Arnold N. Bressler, a Member of the Firm

25

EX-2.2

EXHIBIT 2.2

SHAREHOLDERS’ AGREEMENT

SHAREHOLDERS’ AGREEMENT

THIS SHAREHOLDERS AGREEMENT (this "Agreement") dated as of ___________ __, 2004 is entered into by and among PET CAPITAL PARTNERS, LLC (“PET”), ABSOLUTE RETURN EUROPE FUND (“ARE”), NAFT VENTURES I LLC (“NAFT”), MARC H. BELL (“Bell”), DANIEL STATON (“Staton”), CARE CONCEPTS I, INC., a Delaware corporation (“CCI”); and PENTHOUSE MEDIA GROUP INC., formerly known as GENERAL MEDIA, INC., a Delaware corporation (the “Company”), as amended from time to time to add such other person(s) who may hereafter become a party to this Agreement.  PET, ARE, NAFT, Bell, Staton, individually and together with their respective Affiliates, are hereinafter sometimes individually referred to as a “Bell/Staton Group Party” and collectively referred to as the “ Bell/Staton Group Parties.”  The Bell/Staton Group Parties and CCI and such other persons who may hereafter become a party to this Agreement are sometimes referred to herein individually as a "Shareholder" and collectively as the "Shareholders."

Recitals

A.

Concurrently herewith certain of the Bell/Staton Group Parties have sold to CCI and CCI has purchased from such Bell/Staton Group Parties an aggregate of 483,815 shares (the "CCI Stock") of non-voting common stock of the Company, $.01 par value per share (the “Company Common Stock”) pursuant to the terms and conditions of that certain Settlement and Securities Purchase Agreement, dated September __, 2004 (the “Purchase Agreement”);

B.

CCI is the “Permitted Assignee” (as that term is defined in the Purchase Agreement) of Granite Financial Partners LLC (“Granite”).  Accordingly, all references in the Purchase Agreement to the term “Purchaser” or “the Purchaser” shall mean and refer only to CCI.

C.

Pursuant to the terms of the Purchase Agreement (i) the shares of CCI Stock are intended to represent an equal number and percentage of the outstanding shares of the voting common stock of the Company owned by the Bell/Staton Group; and (ii) subject to the provisions of the Purchase Agreement and this Agreement, it is the intention of CCI and the other Parties to the Purchase Agreement that, until such time as this Agreement shall be terminated in accordance with the terms hereof, the management of the Company and its current and future direct and indirect Subsidiaries (collectively, the “Corporations”) and control of the board of directors of the Corporations shall be vested in the Bell/Staton Group Parties; and

D.

The Shareholders and the Company have agreed that it is in their mutual best interest and in the best interest of the Company to provide certain rights, obligations and restrictions with respect to (i) the management of the Company, and (ii) the shares of Company Common Stock now or hereafter owned by any Shareholder and/or any other capital stock of the Company, preferred stock or other securities that are convertible into, exchangeable for or having rights to purchase shares of capital stock of the Company (such capital stock, securities, preferred stock and Common Stock are hereinafter referred to collectively as “Stock”).

Agreement

NOW THEREFORE, in consideration of the premises, the mutual covenants and agreements herein contained, and other valuable consideration, the receipt, adequacy and sufficiency whereof are hereby acknowledged, the parties hereto, intending to be legally bound, do hereby covenant and agree as follows:

ARTICLE 1

Definitions

1.1

Purchase Agreement. Unless otherwise separately defined in this Agreement, all capitalized terms, when used herein, shall have the same meaning as are defined in the Purchase Agreement  

1

ARTICLE II

Co-Sale Rights

2.1

Tag Along Rights.

(a)

In the event any one or more Shareholder, whether acting individually or as a group (a “Transferring Shareholder(s)”) proposes to sell, assign or otherwise transfer (collectively,”Transfer”) to any Person (other than another Shareholder or an Affiliate of a Transferring Shareholder) in any one or a series of transactions, a number of shares of Stock owned of record or beneficially by such Transferring Shareholder(s) or its or their Affiliate(s) that shall represent, in the aggregate, 10% or more of the then outstanding shares of Stock of the Company, such Transferring Shareholder shall deliver a written notice (the “Sale Notice”) to the Company and to each other Shareholder, specifying in reasonable detail the identity of the proposed transferee(s) and the terms and conditions of the proposed Transfer.  Any Shareholder may elect to partici pate in the contemplated Transfer, on the same terms and conditions as the Transferring Shareholder or its or their Affiliates, by delivering written notice to the Transferring Shareholder or its or their Affiliates within twenty (20) days after receipt by such Shareholder of the Sale Notice.  If any Shareholder elects to participate in such Transfer, such Shareholder will be entitled to sell in the contemplated Transfer, at the price per share of Stock offered by the proposed transferee in the Transfer, for each share of Stock held by such Shareholder on a fully-diluted basis (after giving effect to the conversion into Common Stock of all securities convertible into such Common Stock or exercise of outstanding warrants, options or other rights to purchase Common Stock), and otherwise on the same terms and conditions as the Transferring Shareholder(s) or its or their Affiliate(s), a number of shares of Stock determined by multiplying (i) the number of shares of Stock to be sold in the contemplated trans fer, by (ii) the quotient determined by dividing (A) the number of shares of Stock held by such Shareholder, by (B) the sum of (1) the aggregate number of shares of Stock held by the Shareholders electing to participate in such Transfer and (2) the aggregate number of shares of Stock held by the Transferring Shareholder(s) and/or its or their Affiliate(s).  

(b)

Each Shareholder who elects to participate in a Transfer pursuant to this Article II (each such Shareholder, a "Participant") shall effect its participation in the Transfer by promptly delivering to the Transferring Shareholder for Transfer to the prospective purchaser one or more certificates, properly endorsed for Transfer, which represent

the type and number of shares of Stock which such Participant elects to sell.

(c)

The stock certificate or certificates that the Participant delivers to the Transferring Shareholder pursuant to this section shall be transferred to the prospective purchaser in consummation of the Transfer of the Common Stock pursuant to the terms and conditions specified in the Sale Notice, and the Transferring Shareholder shall concurrently therewith remit to each Participant that portion of the proceeds to which such Participant is entitled by reason of its participation in such Transfer.  To the extent that any prospective purchaser or purchasers prohibits such assignment or otherwise refuses to purchase shares or other securities from a Participant exercising its rights of co-sale hereunder, the Transferring Shareholder shall not sell or otherwise Transfer to such prospective purchaser or purchasers any Stock unless and until, simultaneously with such sale or Transfer, such Transferr ing Shareholder shall purchase such shares or other securities from such Participant on the same terms and conditions specified in the Sale Notice.

(d)

The exercise or non-exercise of the rights of the Shareholders hereunder to participate in one or more Transfers of Stock made by a Transferring Shareholder shall not adversely affect their rights to participate in subsequent Transfers of Stock subject to this section.

2.2

Obligation to Sell.  So long as a majority of the Company’s Board of Directors has been designated by the Bell/Staton Group Parties, in the event the Company or any of the Bell/Staton Group Parties receive(s) a written bona fide offer from a Person which is not an Affiliate of Bell or Staton to purchase all or substantially all of the assets of the Corporations or all of the outstanding shares of Stock

2

of the Company, regardless of the form of the proposed transaction, whether by purchase of assets or Stock, merger, tender offer, consolidation or like combination (a “Sale of Control”), at the written request of the Company or the Bell/Staton Group Parties (each a “Selling Party”), as the case may be, all other Shareholders (including any Affiliate of a Shareholder then owning shares of Stock)) shall participate pro rata in such Sale of Control and/or vote all of such Shareholder’s shares of Stock in favor of the transaction. The Selling Party shall give to each of the Shareholders a notice (an “Obligation to Sell Notice”) containing a description of the material terms of such proposed Sale of Control transaction including the name and address of the proposed transferee, the number of shares of Stock to be sold, the consideration per share off ered for such shares by the proposed transferee, the payment terms and closing date, which shall be a date not less than sixty (60) days after the giving of the Obligation to Sell Notice, and including a copy of any written offer, letter of intent, term sheet or contract of sale.  All Shareholders shall be treated equally under this Section 2.2.  It shall be a condition of the obligation to sell under this Section 2.2 that all material facts and circumstances and all material aspects of any transaction under this Section 2.2 shall be fully disclosed.

ARTICLE III

Corporate Governance

3.1

Boards of Directors. For so long as CCI shall be the record and beneficial owner of 100% of the Subject Shares of Reorganized GMI (with such percentage subject to reduction at the rate of 1% for each 4,838 Subject Shares in excess of the minimum 241,908 Subject Shares acquired by CCI), each Bell/Staton Group Party hereby agrees that he or it will vote all of his or its shares of Stock of the Company and the Corporations, whether now owned or hereafter acquired, in favor of the election as a member of the board of directors of each of the Company and the Corporations (collectively, the “Boards of Directors”) one (1) representative of CCI (the “CCI Board Representative”).  In addition to one CCI Board Representative, the Boards of Directors shall permit a second representative of CCI to attend meetings as an invited guest; provided, such Person shall h ave no right to vote or otherwise participate in meetings. The CCI Board Representative and the invited guest shall be Persons who shall be reasonably acceptable to the Bell/Staton Group Parties; provided, that neither Dr. Luis Enrique Molina Galeana, The Molina Vector Investment Trust, a California Trust, any executive officer of Penthouse International Inc., a Florida Corporation, nor any of their Affiliates or associates shall serve as the CCI Board Representative, without the prior written approval of Bell and Staton, acting on behalf of the Bell/Staton Group Parties.  In the event that the initial CCI Board Representative shall fail or be unable to serve as a member of the Boards of Directors, such vacancy shall be filled solely by another designee of CCI reasonably acceptable to the Bell/Staton Group Parties.  At each regular or special meeting of the Shareholders of the Company or any of the Corporations called for the purpose, in whole or in part, to elect directors of any such Corporation, all Shareholders shall vote all of their shares of Stock to implement the provisions of this Section 3.1.  It is understood and agreed that the foregoing agreement of the Bell/Staton Group Parties shall terminate upon the sale or transfer of any of their Reorganized GMI Common Stock to any Person who is not an Affiliate of such transferor, but only with respect to the voting of such sold or transferred shares of Reorganized GMI Common Stock.

The Company and the Corporations shall, from and after the Effective Date of the Plan: (A) conduct regularly scheduled in-person joint meetings of the Boards of Directors of the Company and the Corporations not less than quarterly and within 45 days after the end of each fiscal quarter; (B) provide written notice (delivered by hand, certified mail, facsimile transmission or email) of such regular meetings to all members of the Boards of Directors not less than ten (10) days prior to the dates of such meetings;  and (C) furnish all members of the Boards of Directors with the most currently available financial information and reports concerning the Company and the Corporations, including the Annual Financial Statements and quarterly financial statements referred to in Section 3.3(i) and (ii) below.  Unless prior notice shall be waived, special meetings of the Boards of Directors may be c alled in-person or by telephone conference call upon not less than one (1) business day prior notice (delivered by hand, certified mail, facsimile transmission or email) to all members of the Boards of Directors and to such legal counsel as may, from time to time, be designated by the CCI Board Representative as his or her counsel.

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3.2

Management of the Corporations.  The Company and the Corporations shall be managed solely by the respective Boards of Directors of each of the Company and the Corporations, and, subject at all times to the provisions of this Article III, such Boards of Directors shall have the sole authority to manage, control and operate the Company and the Corporations, establish policy, enter into agreements, consummate acquisitions, financings and other transactions, appoint, hire or fire all executive officers, agents, professional and others providing services to any or all of the Company and the Corporations, and otherwise exercise all functions and authority otherwise granted to a board of directors of a Delaware corporation.

3.3

Financial Statements.  The Shareholders do hereby agree that for so long as CCI shall continue to be the record and beneficial owner of at least 50% of the Subject Shares (with such percentage subject to reduction at the rate of 1% for each 9,676 Subject Shares in excess of the minimum 241,908 Subject Shares acquired by CCI):

(i)

within 90 days after the end of each fiscal year, the Company and the Corporations shall furnish to all Shareholders (including CCI) consolidated financial statements as at such fiscal year end at for the fiscal year then ended (the “Annual Financial Statements”) complying in all material respects with Regulation S-X promulgated under the Securities Act; which Annual Financial Statements shall be audited by a recognized accounting firm designated by the Boards of Directors (the “Accountants”); and

(ii)

within 45 days after the end of each of its fiscal quarters, the Company and the Corporations shall furnish to all shareholders (including CCI) unaudited consolidated balance sheets, statements of operations and statements of cash flows complying in all material respects with Regulation S-X promulgated under the Securities Act, which shall have been reviewed (but not audited) by the Accountants and certified as accurate by the chief financial officer of the Company or such Corporation.

3.4

Indemnification.  The Company shall not amend the indemnification provisions of the Company’s Certificate of Incorporation (as amended, the “Charter”) or Bylaws to either (i) eliminate or reduce any of the rights and benefits created by this Agreement, or to (ii) eliminate or reduce the indemnification provided for all directors, who became directors on or after the Effective Date, and such provisions as so written shall be deemed to be a contract with each director who became a director on or after the Effective Date, regarding his or her indemnification by the Company.  The Company shall also enter into separate indemnification agreements with each director who became a director on or after the Effective Date.

ARTICLE IV

Related Party Transactions

4.1

Certain Related Party Transactions. Except as otherwise expressly provided in this Agreement, from and after the Effective Date of the Plan and thereafter for so long as CCI or any of its Affiliates shall continue to own 100% of the aggregate number of Subject Shares (with such percentage subject to reduction at the rate of 1% for each 4,838 Subject Shares in excess of the minimum 241,908 Subject Shares acquired by CCI), none of the Company and the Corporations shall (i) make any loans or advances, (ii) sell, lease or otherwise assign or transfer any assets or properties of any of the Company and the Corporations (whether tangible or intangible), or (iii) enter into any agreement, license, joint venture or related arrangement or transaction, whether written or oral with (individually or collectively, a “Related Party Transaction”), to or with any of Bell, Staton, their Af filiates or any other of the Bell/Staton Group Parties or any Affiliate of any of such Persons (individually, a “Related Party” and collectively, “Related Parties”), unless and until, prior to the consummation thereof, such Related Party Transaction (A) shall have, as to its terms and conditions, been fully disclosed in writing to all members of the Boards of Directors (including the CCI Board Representative), and (B) shall have been approved in writing by either of the CCI Board Representative or by CCI.  Notwithstanding the foregoing (x) the Boards of Directors of the Company and the Corporations shall have the sole right to engage all attorneys, accountants or other professionals to render services on behalf of the Company and the Corporations,

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irrespective of whether or not the same constitutes a Related Party Transaction, and (y) the Company and the Corporations may lease office space from the Bell/Staton Group Parties or their Affiliates in Boca Raton, Florida, under a five year “triple net” lease, providing for rental of $15.00 per square foot and $9.00 per square foot for common area maintenance, and the Company and the Corporations may enter into a renewal of such lease and any other lease of space from the Related Parties; provided, such leases are at market rates and customary terms for offices leases in the area.

4.2

Acquisitions of Securities by Related Parties. From and after the Effective Date of the Plan, neither GMI nor any of the Corporations shall issue or sell to any Related Party, and no Related Party shall purchase or otherwise receive from any of the Corporations, any notes, debentures, or any shares of capital stock, options, warrants, rights or other securities of any of the Corporations (individually and collectively, a “Securities Acquisition”), unless (i) all of the terms and conditions of such Securities Acquisition shall have been fully disclosed in writing to all members of the Boards of Directors (including the CCI Board Representative) not less than twenty (20) days prior to consummation thereof, (ii) the terms and conditions of the proposed Securities Acquisition shall, in the aggregate, be no less favorable to the Corporations (individually and collectively) tha n the terms and conditions of a financing that are otherwise available to any or all of the Corporations from any unaffiliated Person that is not a Related Party, and (iii) CCI shall be offered an opportunity to participate, on a pro-rata basis (determined by relation to the percentage by which the outstanding New GMI Common Stock then owned by CCI bears to the outstanding New GMI Common Stock owned by the Related Party or Related Parties) with the Related Party or Related Parties in such Securities Acquisition, and upon the same terms and conditions.  

4.3

Related Party Financing Agreements.  From and after the Effective Date of the Plan and for long as the Related Parties shall have, directly or indirectly, designated a majority of the Board of Directors of the Company and the Corporations, no Related Party shall (i) in his or its capacity as a lender, declare a default or otherwise accelerate the indebtedness evidenced by the New GMI Term Loan Notes, the Indenture relating to the New GMI Term Loan Notes, under the Exit Financing Facility, or under any amendments, modifications or restatements of any of the foregoing (each a “Related Party Financing Agreement”), solely by reason of the occurrence and continuation of a non-monetary default under any such Related Party Financing Agreement or (ii) in his or its capacity as a lender, absent a monetary default, amend, modify, restate or otherwise change the terms of any Re lated Party Financing Agreement that, individually or in the aggregate, would be materially adverse to the Corporations.  In the event that a monetary default under any of the Related Party Financing Agreements should occur and be continuing, if any Related Party shall elect to advance additional funds to the Corporations, the covenants and provisions contained in Section 4.2 above shall be applicable to any such additional financing or any amendment, modification or restatement to any Related Party Financing Agreement that may be proposed by any Related Party.

4.4

Limitations on Certain Remuneration.  The Shareholders do hereby agree that, from and after the Effective Date of the Plan and thereafter for so long as CCI of any of its Affiliates shall continue to own 100% of the aggregate number of Subject Shares (with such percentage subject to reduction at the rate of 1% for each 4,838 Subject Shares in excess of the minimum 241,908 Subject Shares acquired by CCI), without the prior written consent of the CCI Board Representative or CCI, neither GMI nor any of the Corporations shall:

(i)

create or establish any stock option, stock purchase or other stock bonus plan or stock pool (a “Stock Plan”), or grant or issue any employee stock options, warrants or other rights to purchase New GMI Common Stock or capital stock of any of the Corporations (“Stock Rights”) that, individually or in the aggregate, would exceed 10% of the then outstanding shares of New GMI Common Stock or capital stock of any other Corporation, on a fully-diluted basis, after giving effect to all then outstanding securities convertible into or exercisable or exchangeable for shares of New GMI Common Stock or capital stock of any of the Corporations (“Fully-Diluted Stock”);

(ii)

grant to any one or more Related Party any Stock Rights that would exceed, individually or in the aggregate, three (3%) percent of the Fully-Diluted Stock of New GMI or any other

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Corporations; provided, that in the event and to the extent that either Bell or Staton shall, pursuant to two year or longer employment agreements acceptable to the Board of Directors of the reorganized GMI, devote substantially all of their business and professional time to the Company and the Corporations, such three (3%) percent limitation may be increased by such Board of Directors to up to six (6%) percent;

(iii)

make any payments of cash or other property, whether as salaries, bonuses, management fees, consulting fees, performance bonuses, loans, advances, or otherwise to any one or more Related Party (collectively, “Related Party Payments”) that, individually or in the aggregate, would exceed on an annual basis more than ten percent (10%) of the net income before income taxes of the Corporations; provided, that (A) no Related Party Payments may be made if the same would cause any default or event of default to occur under any loan agreement or other credit facility to which the Corporations, or any of them, may be a party, and (B) subject to the foregoing limitations, Bell and Staton shall be entitled to receive annual compensation (which shall not include reimbursement for actual out-of-pocket business expenses, accompanied by vouchers therefore) from the Corporations (x) initially, not to exceed an aggregate of $500,000 per annum, and (y) subject to increase in each fiscal year of the Corporations following the first anniversary of the Effective Date of the Plan, at the rate of ten (10%) of the consolidated earnings before interest, taxes, depreciation and amortization (“EBITDA”) of the Corporations; provided, that in no event shall the aggregate annual compensation from the Corporations payable to Bell and Station exceed $1,000,000 per annum.  In addition, Bell and Staton shall be entitled to participate in any bonus pool or program approved by the Board of Directors of the Corporations; provided that such participation by both Bell and Staton shall not exceed 50% of such bonus pool.  Notwithstanding the foregoing, the limitations on Related Party Payments set forth in this Section 4.4(iii) shall not be applicable to compensation paid to employees of Affiliates of Bell and Staton who perform actual services for any of the Corporations and who receive customa ry and reasonable compensation; which compensation shall not be deemed a Related Party Payment for purposes of this Section 4.4(iii).

ARTICLE V

Miscellaneous

5.1

No Right of Employment.  No Shareholder shall have any right of employment or other benefits, or any right to be a Director or officer of the Company, solely as a consequence of owning Stock in the Company.  Each Shareholder who is a Director or officer of the Company acknowledges that, if the Board of Directors determines that salary or other compensation (other than dividends) shall be paid to any Director or officer of the Company, the Company shall be under no obligation to pay each other Director or officer a proportionate share of such salary or compensation.

5.2

Filing of Agreement.  A copy of this Agreement, as amended from time to time, shall be filed with and retained by the Secretary of the Company.

5.3

Company Designee.  All rights granted to the Company by the terms of this Agreement may be exercised by such person, persons, entity or entities as the Board of Directors of the Company, in its sole discretion, shall designate acting by vote or unanimous written consent.

5.4

Termination of Agreement.  

(a)

This Agreement shall terminate as to any Shareholder upon the transfer of 50% or more, in the aggregate, of his or its Stock; provided, that any transferee of any shares of Stock from a Shareholder, which is an Affiliate of such Shareholder, shall, as a condition to any such Transfer, execute a counterpart of this Agreement pursuant to which such transferee shall assume all of the rights and obligations hereunder.  

(b)

This Agreement shall, as to all Parties hereto, terminate and be of no further force or effect upon the earliest to occur of: (i) consummation of a Sale of Control, or (ii) consummation of an underwritten initial public offering of securities of the Company or the “reverse merger” of the Corporations with or into a publicly traded company.

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5.5

Endorsement of Stock Certificates.  So long as a Shareholder’s Stock shall be subject to this Agreement, all certificates representing such Shareholder’s Stock owned by the Shareholders shall have conspicuously endorsed thereon a legend substantially as follows:

“TRANSFER RESTRICTED

THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS UPON TRANSFER PURSUANT TO A SHAREHOLDERS’ AGREEMENT BY AND AMONG THE COMPANY AND ITS SHAREHOLDERS.  A COPY OF THE SHAREHOLDERS’ AGREEMENT MAY BE OBTAINED FROM THE COMPANY WITHOUT CHARGE UPON THE WRITTEN REQUEST OF THE HOLDER HEREOF.

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT COVERING SUCH SHARES UNDER THAT ACT AND ANY APPLICABLE STATE SECURITIES LAWS, UNLESS, IN THE OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, AN EXEMPTION FROM REGISTRATION THEREUNDER IS AVAILABLE.”

5.6

Binding Effect; Joinder Agreeement.  This Agreement shall inure to the benefit of and be binding upon the Company and each of the Shareholders who are parties hereto, and their respective Affiliates, heirs, executors, successors or assigns.  For so long as this Agreement shall remain in force and effect any assignee of a Shareholder (which is an Affiliate of such Shareholder) shall, as a condition to consummation of the Transfer of any Stock to such Person, execute and deliver to the Company and to all other Shareholders a joinder or counterpart of this Agreement, pursuant to which such Person shall agree to be bound by all of the terms and conditions of this Agreement, as though an original party signatory hereto.

5.7

Entire Agreement.  This Agreement represents the complete agreement among the parties hereto with respect to the transactions contemplated hereby and supersedes all prior written or oral agreements and understandings.

5.8

Pronouns.  Whenever the context of this Agreement permits, the masculine gender shall include the feminine and neuter genders, and any reference to the singular or plural shall be interchangeable with the other.

5.9

Separability.  The invalidity or unenforceability of any one or more provisions of this Agreement shall not affect the other provisions hereof, and this Agreement shall be construed in all respects as if any such invalid or unenforceable provisions were omitted.

5.10

Headings.  The headings in this Agreement have been inserted for convenience of reference only and shall not constitute a part of this Agreement.

5.11

Adjustments.  If there shall be any change in the Stock of the Company through merger, consolidation, reorganization, recapitalization, stock dividend, stock split, anti-dilution addition, combination or exchange of shares, or the like (any such event being an “Adjustment”), all of the terms and provisions of this Agreement shall apply to any new, additional or different shares or securities issued as a result of such Adjustment and the price and number of securities subject to the provisions hereof shall be adjusted accordingly.

5.12

Notices.  All notices, requests, demands, and other communications under this Agreement shall be in writing and shall be deemed to have been duly given on the date of service if served personally on the party to whom notice is to be given, on the date of transmittal of services via telecopy to the party to whom notice is to be given (with a confirming copy delivered within 24 hours thereafter), or on the third day after mailing if mailed to the party to whom notice is to be given, by first class mail, registered or certified, postage prepaid, or via a nationally recognized overnight courier providing a receipt for delivery and properly addressed as set forth on Schedule I hereto.  Any party may change its address for purposes of this paragraph by giving notice of the new address to each of the other parties in the manner set forth above.

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5.13

Failure to Comply with the Provisions of this Agreement.  In addition to any other legal or equitable remedies which it or they may have, the Company and the Shareholders may enforce their rights under any provision of this Agreement by actions for specific performance (to the extent permitted by law) and each party hereto acknowledges and agrees that the parties hereto will be irreparably damaged in the event that this Agreement is breached.  Further, the Company may refuse to transfer on its books record ownership of Stock which shall have been sold or transferred in violation of this Agreement or to recognize any transferee as one of the Company’s shareholders for any purpose (including without limitation, for purposes of dividend and voting rights) until all applicable provisions of this Agreement have been complied with in full.  All remedies provided by this Agre ement are in addition to other remedies provided by law.

5.14

Waiver, Amendment.  This Agreement may not be amended or modified, and no provision hereof may be waived, without the written consent of both (i) the BSG Representatives (or in the event of their deaths or inability to serve, members of the Bell/Station Group Parties holding at least a majority of all of the shares of Stock owned by all Bell/Station Group Parties, and (ii) CCI or its Permitted Transferee.  

5.15

Counterparts.  This Agreement may be executed in multiple counterparts, each of which shall have the force and effect of an original and all of which together shall constitute but one and the same document.

5.16

Governing Law.  This Agreement is executed and delivered in the State of New York, and this Agreement shall be governed by and construed in accordance with the laws of the State of New York for all purposes and in all respects, without regard to the conflict of laws provisions of such state.  

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IN WITNESS WHEREOF, the Company and the Shareholders have executed this Shareholders’ Agreement as of the day and year first above written.

THE COMPANY:

GENERAL MEDIA, INC.

By: __________________________

THE SHAREHOLDERS:

PET CAPITAL PARTNERS, LLC

By:

Naft Ventures I LLC, Managing Member

By __________________________

Name:

Marc H. Bell

Title:

Managing Member

EUROPEAN CATALYST FUND

By:

Pet Capital Partners LLC, Attorney-in-Fact

By:

Naft Ventures I LLC, Managing Member

By __________________________

Name:

Marc H. Bell

Title:

Managing Member

NAFT VENTURES I LLC

By:___________________________

Name:

Marc H. Bell

Title:

Managing Member

______________________________

MARC H. BELL

______________________________

DANIEL C. STATON

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CARE CONCEPTS I, INC.

By ___________________________

Name:

_______________________

Title:

_______________________

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SCHEDULE I

General Media, Inc.

2 Penn Plaza

New York, NY  10001

Care Concepts I, Inc.

All other parties:

c/o Mark Bell Capital Partners LLC

6800 Broken Sound Parkway

Boca Raton, FL  33487

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EX-2.3

EXHIBIT 2.3

SECURITIES PURCHASE AGREEMENT

by and among

CARE CONCEPTS I, INC.

and

PENTHOUSE INTERNATIONAL, INC.

DATED:  JULY 22, 2004

EXHIBITS

Exhibit A

Certificate of Designations for CCI Series D Preferred Stock

Exhibit B

July 6, 2004 Draft of Penthouse Form 10-K

Exhibit C

Lock up Agreement

SECURITIES PURCHASE AGREEMENT

This Securities Purchase Agreement (this “Agreement”) is made and entered into this 22nd day of July 2004, by and among PENTHOUSE INTERNATIONAL, INC., a corporation organized and existing under the laws of the State of Florida (“Penthouse”); and CARE CONCEPTS I, INC., a corporation formed under the laws of the State of Delaware (“CCI”).  Penthouse and CCI are referred to herein individually as a “Party” and collectively as the “Parties.”

PREAMBLE

WHEREAS, Penthouse is the owner of 99.5% of the members interest in Media Billing Company, L.L.C., a New York limited liability company (“Media Billing”) and Dr. Luis Enrique Fernando Molina and Charles L. Samel (collectively, the “Media Billing Managers”) are the owners of 0.5% of the members interest in Media Billing; and

WHEREAS, pursuant to the terms of a member interest purchase agreement, dated as of March 22, 2004 (the “iBill Purchase Agreement”) among Media Billing, Internet Billing Company, LLC, a Georgia limited liability company (“iBill”), and InterCept, Inc., a Georgia corporation (“InterCept”), Media Billing acquired from InterCept 100% of the members interest of iBill (the “iBill Equity”); and

WHEREAS, through its subsidiary ibid America, Inc. (“iBid America”), CCI operates a website at www.ibidusa.com which offers local and national businesses the opportunity to advertise discounted services to a wider audience and to also provide a popular online auction-format  to increase sales of savings certificates to consumers to be used for discounted retail purchases; and

WHEREAS, CCI auction operations offer ibidusa.com users the convenience of paying for savings certificates by credit, debit, or online checks, where such payment services are provided by third party vendors contracted by ibid America; and

WHEREAS, iBill offers substantially similar payments services as current ibidusa.com vendors in the normal course of its business as one of the largest online payment providers on the Internet and the successful vertical combination of a payment engine and auction services has identifiable precedent in the United States; and

WHEREAS, CCI proposes to acquire from Penthouse and certain of its Affiliates, 100% of the members interests in Media Billing (the “Media Billing Equity”), and Penthouse is willing to sell to CCI the Media Billing Equity, all upon the terms and conditions hereinafter described; and

WHEREAS, in sole consideration for its acquisition of the Media Billing Equity, CCI shall issue to Penthouse certain securities of CCI (the “CCI Securities”) consisting of: (i) that number of shares of CCI common stock as shall represent 19.9% of the issued and outstanding shares of CCI Common Stock, immediately prior to giving effect to such issuance, and (ii) 330,000 shares of newly designated Series D voting convertible preferred stock of CCI (the “CCI Series D Preferred Stock”); and

WHEREAS, the obligations of the Parties to effect the exchange of the Media Billing Equity for the CCI Securities is subject to the conditions set forth in Article V hereof;

WHEREAS, The Molina-Vector Investment Trust (the “Penthouse Majority Stockholder”) is the record and beneficial owner of (i) 137,699,055 shares of common stock of Penthouse; and (ii) 10,500,000 shares of the convertible voting 4% Series C preferred stock of Penthouse, $10.00 stated value per share (the “Penthouse Series C Preferred Stock”); and

WHEREAS, pursuant to the terms of the Penthouse Series C Preferred Stock, consent is required from the Penthouse Majority Stockholder, as the holder of a majority of the shares of Penthouse Series C Preferred Stock; and

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WHEREAS, the Parties intend that the Transaction qualify as a tax free exchange transaction within the meaning of Section 351 of the Internal Revenue Code of 1986, as amended (the “Code”); and

WHEREAS, the Parties are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by the provisions of Section 4(2) of the Securities Act of 1933, as amended  (the “Securities Act”).

NOW, THEREFORE, in consideration of the premises and the mutual covenants, representations and warranties contained herein, the Parties hereto, intending to be legally bound, hereby agree as follows:

CERTAIN DEFINITIONS

In addition to other terms defined in this Agreement, as used in this Agreement, the following additional terms shall have the meanings set forth below:

“Affiliate” means, as to any Person, any other Person which, directly or indirectly, alone or together with other Persons, controls or is controlled by or is under common control with such Person. “Control” “controlled by” and “under common control with”, as and with respect to any Person, means the power, directly or indirectly, to direct or cause the direction of the management and policies of such Person.

“Agreement Date” means the date of this Agreement.

"Agreement" means this Agreement.

“Alternative Acquisition” shall have the meaning set forth in Section 4.04(c) of this Agreement.

“AMEX” shall mean the American Stock Exchange, Inc.   

“Applicable Law” means any domestic or foreign law, statute, regulation, rule, policy, guideline or ordinance applicable to the businesses of the Parties.

"Business Day" means any day, Monday through Friday, on which U.S. federally chartered banks are open for business in Fort Lauderdale, Florida.

"CCI Common Stock" shall mean the authorized common stock, $.001 par value per share, of CCI.

“CCI Common Stock Equivalents” shall mean Common Stock Equivalents applicable to CCI.  

“CCI Closing Date Common Stock” shall mean such number of shares of CCI Common Stock as shall represent on the Closing Date 19.9% of aggregate number of issued and outstanding shares of CCI Common Stock as at the Closing Date immediately prior to giving effect to such issuance.

“CCI Disclosure Schedule” shall mean the disclosure schedule delivered by CCI to Penthouse concurrently with the execution and delivery of this Agreement.

"CCI Material Adverse Effect" shall mean any event or condition that could reasonably be expected to have a material and adverse affect on the business, results of operation, financial condition or prospects of CCI and its Subsidiaries taken as a consolidated whole; provided, however, that any such effect resulting from (i) any change in economic or business conditions generally, or (ii) any change in generally accepted accounting principles or interpretations thereof, shall not be considered when determining if an CCI Material Adverse Effect has occurred.

"CCI Preferred Stock" shall mean the authorized preferred stock, $.001 par value per share, of CCI.

“CCI Securities” means the collective reference to (a) the CCI Closing Date Common Stock, and (b) 330,000 shares of the CCI Series D Preferred Stock.

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"CCI Series B Preferred Stock" shall mean the 10,000 authorized shares of Series B Preferred Stock of CCI.

"CCI Series C Preferred Stock" shall mean the 45,000 authorized shares of Series C Preferred Stock of CCI.

"CCI Series D Preferred Stock" shall mean the 330,000 shares of Series D Preferred Stock of CCI to be authorized pursuant to the CCI Series D Preferred Certificate of Designations.

“CCI Series D Preferred Stock Certificate of Designations” shall mean the certificate of designation in the form of Exhibit A annexed hereto and made a part hereof, that sets forth the rights, privileges and designations of the CCI Series D Preferred Stock to be issued to Penthouse on the Closing Date.

"CCI SEC Reports" shall mean all periodic filings required to be made by CCI with the Commission under the  Securities Act and the Exchange Act.

“CCI Stockholder Consents” shall have the meaning set forth in Section 4.06 of this Agreement.

"Closing" shall mean the consummation of the Media Billing Purchase.

"Closing Date" shall mean the date and time as of which the Closing actually takes place.

"Code" shall mean the United States Internal Revenue Code.   

“Common Stock Equivalents” shall mean, with respect to the applicable Person, any issued and outstanding notes, debentures or preferred stock that is convertible into shares of common stock of such Person, any options, warrants or securities exercisable for shares of common stock of such Person, or other rights entitling the holder to purchase common stock of such Person or exchange property or other assets for common stock of such Person.

"Commission" shall mean the United States Securities and Exchange Commission.

“Conditions Subsequent” shall have the meaning as defined in Article VI of this Agreement.

"Contract" shall mean any agreement, contract, obligation, promise, commitment or undertaking of any kind (whether written or oral and whether express or implied), other than those that have been terminated.

“Conversion Date” shall mean the date of automatic conversion of the Series D Preferred Stock into CCI Common Stock, which date shall be the date on which the Final EBITDA Calculation of the Fiscal 2004 EBITDA or Fiscal 2005 EBITDA of iBill shall be determined, as contemplated by Section 4.14(e) of this Agreement; provided, that (a) all Required Media Billing Purchase Approvals shall have been obtained, and (b) if the Final EBITDA Calculation of the Fiscal 2004 EBITDA shall reflect an actual Fiscal 2004 EBITDA of iBill of $6.5 million or more, the Conversion Date shall be the date upon which such Final EBITDA Calculation of the Fiscal 2004 EBITDA of iBill shall have been delivered or agreed upon.

“Current Penthouse Form 10-K” shall mean the July 6, 2004 draft of Form 10-K Annual Report of Penthouse for the fiscal year ended December 31, 2003.

"DGCL" shall mean the Delaware General Corporation Law, as amended.

“EBITDA” shall mean with respect to any one or more Persons, (a) the net income after taxes of such Person(s) for the applicable fiscal period in question, as determined in accordance with GAAP, plus (b) without duplication for such fiscal period the sum of  (i) all taxes on the income of such Person(s), (ii) all interest expense deducted in determining the net income of such Person(s), (iii) all deductions for depreciation, amortization and other non-cash charges, including good-will or impairment charges, and (iv) other deductions for extraordinary or non-recurring charges.

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“EBITDA Calculation” shall mean the calculation of the Fiscal 2004 EBITDA and/or Fiscal 2005 EBITDA of iBill, as reviewed or audited by Markum & Kligman, LLC, Stonefield Josephson & Company, or another recognized firm of independent accountants mutually acceptable to the respective boards of directors of each of CCI and Penthouse.

"Employee Benefit Plan" shall mean any plan, policy, program, practice, agreement, understanding or arrangement (whether written or oral) providing compensation or other benefits (other than ordinary cash compensation) to any current or former director, officer, employee or consultant (or to any dependent or beneficiary thereof), of a Person, which are now, or were since inception of such Person, maintained by such Person , or under which such Person has or could have any obligation or liability, whether actual or contingent, including, without limitation, all incentive, bonus, deferred compensation, vacation, holiday, cafeteria, medical, disability, stock purchase, stock option, warrant, stock appreciation, phantom stock, restricted stock or other stock-based compensation plans, policies, programs, practices or arrangements.

“Environmental Claim" shall mean any accusation, allegation, notice of violation, action, claim, Encumbrance, Lien, demand, abatement or other Order or direction (conditional or otherwise) by any Governmental Authority or any Person for personal injury (including sickness, disease or death), tangible or intangible property damage, damage to the environment, nuisance, pollution, contamination or other adverse effects on the environment, or for fines, penalties or restrictions resulting from or based upon (i) the existence, or the continuation of the existence, of a Release (including, without limitation, sudden or non-sudden accidental or non-accidental Releases) of, or exposure to, any Hazardous Material or other substance, clinical, material, pollutant, contaminant, odor, audible noise, or other Release in, into or onto the environment (including, without limitation, the air, soil, sur face water or groundwater) at, in, by, from or related to the Facilities or any activities conducted thereon; (ii) the environmental aspects of the transportation, storage, treatment or disposal of Hazardous Materials in connection with the operation of the Facilities; or (iii) the violation, or alleged violation, of any Environmental Laws, Orders or Governmental Permits of or from any Governmental Authority relating to environmental matters connected with the Facilities.

"Environmental, Health and Safety Liabilities" shall mean any cost, damage, expense, liability, obligation or other responsibility arising from or under any Environmental Law, as well as any liability for torts and damages according to general Danish rules, regulations and ordinary principles, including case law, or Occupational Safety and Health Law and consisting of or relating to: (a) any environmental, health or safety matter or condition (including on-site or off- site contamination, generation, handling and disposal of Hazardous Materials, occupational safety and health, and regulation of chemical and Hazardous Materials); (b) fines, penalties, judgments, awards, settlements, legal or administrative proceedings, damages, losses, litigation, including civil and criminal claims, demands and responses, investigative, remedial, response or inspection costs and expenses arising under E nvironmental Law or Occupational Safety and Health Law; (c) financial responsibility under Environmental Law or Occupational Safety and Health Law for cleanup costs or corrective action, including any investigation, cleanup, removal, containment or other rededication or response actions required by applicable Environmental Law or Occupational Safety and Health Law and for any natural resource damages; or (d) any other compliance, corrective, investigative or remedial measures required under Environmental Law or Occupational Safety and Health Law.  

"Environmental Law" shall mean any Law concerning the environment, or activities that might threaten or result in damage to the environment or human health, or any Law that is concerned in whole or in part with the environment and with protecting or improving the quality of the environment and human and employee health and safety and includes, but is not limited to, the Danish Environmental Protection Act, the Danish Soil Pollution Act, the Danish Act on Chemical Substances and Products, the Danish Act on Environmental Gene Technology, the Danish Act on Compensation for Environmental Damages, the Danish Act on Working Environment, as such laws have been amended or supplemented, and the regulations, statutory orders, local council waste by-laws, and other binding by-laws and guidance and practice notes adopted under any of those laws.

"Exchange Act" shall mean the United States Securities Exchange Act of 1934, as amended, or any successor law.

“Fiscal 2004 EBITDA” shall mean the EBITDA of iBill for the twelve consecutive month period that commenced on January 1, 2004 and will end on December 31, 2004.

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“Fiscal 2005 EBITDA” shall mean the EBITDA of iBill for the twelve consecutive month period that will commence on January 1, 2005 and will end on December 31, 2005

“Fully-Diluted CCI Common Stock” means, at any applicable point in time, the issued and outstanding shares of CCI Common Stock, on a fully-diluted basis, after giving effect to (i) all issued and outstanding shares of CCI Common Stock, (ii) the conversion into CCI Common Stock of all issued and outstanding shares of CCI Preferred Stock, (iii) all shares of CCI Common Stock issuable upon exercise of any outstanding options, warrants or other rights to purchase CCI Common Stock, and/or (iv) all shares of CCI Common Stock issuable upon conversion of any outstanding notes, debentures, preferred stock, or other securities convertible into or exchangeable for shares of CCI Common Stock.

"GAAP" means generally accepted United States accounting principles in effect from time to time.

"Governmental Authority" shall mean any court, tribunal, authority, agency, commission, bureau, department, official or other instrumentality of the United States, or any other country or any provincial, state, local, county, city or other political subdivision.

"Governmental Permit" shall mean any license, franchise, permit or other authorization of any Governmental Authority.

"Hazardous Materials" shall mean any substance, material or waste which is regulated by any Environmental Law.

“iBill”  shall mean Internet Billing Company, LLC, a Georgia Limited Liability company.

“iBill Business” shall mean the business of providing various services that enable, among other things, merchants (providing services to both adult-related and non-adult-related customers) to accept and process real-time payments for goods and services over the Internet, as well as services related to outsourced payment processing, transaction processing, risk management, transaction security, fraud control, reporting tools, subscription, accounting/bookkeeping services, shopping cart functionality, marketing, payment options, interface, and back office management.

"iBill Material Adverse Effect" shall mean an event that that could reasonably be expected to have a material and adverse affect on the iBill Business, results of operation, financial condition or prospects of Media Billing and its iBill Subsidiary taken as a consolidated whole; provided, however, that any such effect resulting from (i) any change in economic or business conditions generally, or (ii) any change in generally accepted accounting principles or interpretations thereof, shall not be considered when determining if an iBill Material Adverse Effect has occurred.

“iBill Financial Statements”  shall have the meaning set forth in Section 3.05 of this Agreement.

"Intellectual Property" shall mean all (i) patent and patent rights, trademarks and trademark rights, trade names and trade name rights, copyrights and copyright rights, service marks and service mark rights, and all pending applications for and registration of the same; (ii) brand names, trade dress, business and product names, logos and slogans, and (iii) proprietary technology, including all know-how, trade secrets, quality control standards, reports (including test reports), designs, processes, market research and other data, computer software and programs (including source codes and related documentation), formulae, inventions and other ideas, methodologies, and technical information, (iv) claims of the owner of any intellectual property for infringement of its rights by a third party, no matter when arising, and (v) other intellectual property.

"Law" shall mean any United States, state or local (including common law) statute, code, directive, ordinance, rule, regulation or other requirement.

"Lien" shall mean any lien, pledge, hypothecation, levy, mortgage, deed of trust, security interest, claim, lease, charge, option, right of first refusal, easement, or other real estate declaration, covenant, condition, restriction or servitude, transfer restriction under any shareholder or similar agreement, encumbrance or any other restriction or limitation whatsoever.

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"Lock-up Agreement" shall have the meaning as defined in Section 4.12.

“Media Billing” shall mean Media Billing Company, L.L.C., a New York limited liability company.

“Media Billing Equity” shall mean 100% of the members interests in Media Billing.

"Media Billing Disclosure Schedule" shall mean the disclosure schedule concerning Media Billing and iBill delivered by Penthouse to CCI concurrently with the execution and delivery of this Agreement.

“Media Billing Purchase” shall mean the consummation of the purchase by CCI of the Media Billing Equity in exchange for the CCI Securities.

"Order" shall mean any order, consent, consent order, injunction, judgment, decree, consent decree, ruling, writ, assessment or arbitration award.

"Organizational Documents" shall mean: (a) the articles or certificate of incorporation, memorandum of association, articles of association and the by-laws of a corporation; (b) the partnership agreement and any statement of partnership of a general partnership; (c) the limited partnership agreement and the certificate of limited partnership of a limited partnership; (d) the articles or certificate of formation and operating agreement of a limited liability company; (e) any charter, trust certificate or document or similar document adopted or filed in connection with the creation, formation or organization of a Person; and (f) any and all amendments to any of the foregoing.

"Penthouse SEC Reports" shall mean all periodic filings required to be made by Penthouse with the Commission under the Securities Act and the Exchange Act.

"Person" shall mean any individual, corporation (including any non-profit corporation), general or limited partnership, limited liability company, joint venture, estate, trust, association, organization, labor union or other entity or governmental body or Governmental Authority.

"Proceeding" shall mean any claim, action, investigation, arbitration, litigation or other judicial, administrative or regulatory proceeding.

"Representatives" shall mean officers, directors, employees, agents, attorneys, accountants, advisors and representatives.

“Required Media Billing Purchase Approvals” shall mean the occurrence of all of the following (i) the Media Billing Purchase and the terms of the CCI Series D Preferred Stock shall have been approved or consented to by the requisite holders of a majority of the outstanding CCI Common Stock, (ii) all necessary filings with the Commission and mailings to CCI stockholders shall have been made and such time periods for filings and mailings have been complied with, and (iii) the Media Billing Purchase shall have been approved by the AMEX.

"Securities Act" shall mean the United States Securities Act of 1933, as amended, or any successor law.

“Series D Preferred Designees” shall mean the Persons who shall be designated by the holder(s) of the CCI Series D Preferred Stock to serve as members of the board of directors of CCI and each of its direct and indirect Subsidiaries.

"Subsidiary" shall mean with respect to any Person, any corporation, joint venture, limited liability company, partnership, association or other business entity of which 50% or more of the total voting power of stock or other equity entitled to vote generally in the election of directors or managers or equivalent Persons thereof is owned or controlled, directly or indirectly, by such Person.

"Tax Authority" shall mean the Internal Revenue Service, and any state, local or foreign government or any agency or subdivision thereof.

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"Taxes" shall mean all taxes, charges, fees, customs, duties or other assessments, however denominated, including all interest, penalties, additions to tax or additional taxes that may become payable in respect thereof, imposed by a Tax Authority, which shall  include, without limitation, all income taxes, payroll and employee withholding taxes, unemployment insurance, social security, sales and use taxes, excise taxes, capital taxes, franchise taxes, gross receipt taxes, occupation taxes, real and personal property taxes, value added taxes, stamp taxes, transfer taxes, workers' compensation taxes, taxes relating to benefit plans and other obligations of the same or similar nature.

"Transactions Documents" means the agreements, documents or instruments executed and delivered by a party hereto as contemplated under this Agreement.

ARTICLE I

SALE OF THE MEDIA BILLING EQUITY

1.1

Transfer of the Media Billing Equity.  Subject to the terms and conditions of this Agreement, at the Closing, Penthouse hereby agrees to transfer, convey, assign, set over and deliver (“Transfer”) to CCI, and CCI shall acquire and accept from Penthouse, all and not less than all of the Media Billing Equity, free and clear of all Liens.  

1.2

Consideration for Transfer of the Media Billing Equity.  At the Closing and in sole consideration for the Transfer of the Media Billing Equity, CCI shall transfer, convey and deliver to Penthouse all, and not less than all, of the shares of the CCI Securities.  The rights, privileges and designations of the CCI Series D Preferred Stock shall be as set forth in the CCI Series D Preferred Certificate of Designations annexed hereto as Exhibit A and made a part hereof.

1.3

Capitalization of CCI.  At the date of this Agreement and as at the Closing Date, CCI shall be authorized by its certificate of incorporation to issue an aggregate of 30,000,000 shares of CCI Common Stock, 10,000 shares of CCI Series B Preferred Stock, 45,000 shares of CCI Series C Preferred Stock and 330,000 shares of CCI Series D Preferred Stock.  Schedule 1.3 to the CCI Disclosure Schedule sets forth as at the date of this Agreement (i) the issued and outstanding shares of CCI Common Stock, (ii) the rights, designations and privileges of the authorized shares of CCI Series B Preferred Stock and CCI Series C Preferred Stock (collectively, the “Existing CCI Preferred Stock”), and (iii) the aggregate number of options, warrant and other securities exercisable for shares of CCI Common Stock.  As at the date of this Agreement and at the Closing Date (i) no shares of CCI Series A Preferred Stock shall be authorized, issued and outstanding, (ii) 1,000 shares of CCI Series B Preferred Stock shall be issued and outstanding, and (ii) 10,000 shares of CCI Series C Preferred Stock shall be issued and outstanding.  As at the date of this Agreement and at the Closing Date, the Fully-Diluted CCI Common Stock shall be not more than the number of shares of CCI Common Stock set forth on Schedule 2.02(a) to the CCI Disclosure Schedule.

1.4

Capitalization of Media Billing.  As at the date of this Agreement and as at the Closing Date, Media Billing shall have an aggregate of one thousand (1,000) units of membership equity interests (the “Units”) issued and outstanding, of which (i) Penthouse is the record and beneficial owner of nine hundred and ninety (990) Units, (ii) Charles L. Samel is the record and beneficial owner of five (5) Units, and (iii) Dr. Luis Enrique Fernando Molina is the record and beneficial owner of five (5) Units.  The sole asset of Media Billing is its ownership of 100% of the membership equity interests in Internet Billing Company, LLC.

1.5

Rights and Privileges of CCI Series D Preferred Stock.   Pursuant to the CCI Series D Preferred Certificate of Designations, the CCI Series D Preferred Stock to be issued to Penthouse at the Closing:

(a)

shall have a liquidation preference of $100.00 per share, with the priorities set forth in the CCI Series D Preferred Stock Certificate of Designation;

(b)

shall not pay a dividend;

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(c)

subject to obtaining of the Required Media Billing Purchase Approvals, shall be entitled to vote, as a separate class, at each regular or special meeting of stockholders of CCI to elect one member of a maximum seven Person board of directors of CCI and each CCI Subsidiary;

(d)

shall not be convertible into CCI Common Stock until the Conversion Date;

(e)

upon the determination of the Final EBITDA Calculation of the Fiscal 2005 EBITDA of iBill (as contemplated by Section 4.14 hereof), shall be automatically converted into an aggregate number of shares of CCI Common Stock as shall represent that number of shares of CCI Common Stock which, when added to the aggregate number of shares of Closing Date CCI Common Stock, shall equal a percentage of the Fully-Diluted CCI Common Stock (the “Conversion Percentage”) as at the Conversion Date equal to Forty-Nine and 9/10 percent (49.9%) of such Fully-Diluted Common Stock, if either the Fiscal 2004 EBITDA or the Fiscal 2005 EBITDA of iBill shall equal or exceed $6.5 million; with such 49.9% Conversion Percentage to be subject to pro-rata decrease, at the rate of 1.0% for each $216,666.67 by which highest Fiscal 2004 EBITDA and Fiscal 2005 EBITDA of iBill shall be less than $6.5 m illion; and

(f)

shall contain such other rights, privileges and designations as shall be set forth in the CCI Series D Preferred Stock Certificate of Designations annexed hereto as Exhibit A and made a part hereof.

1.6

Closing and Closing Date.  The Closing of the Media Billing Purchase shall take place at the offices of Gersten Savage Kaplowitz Wolf & Marcus LLP not later than five days after all of the conditions to closing specified in this Agreement (other than those conditions requiring the execution or delivery of a Document or the taking of some action at the Closing) have been fulfilled or waived by the Party entitled to waive that condition; provided, however, that (a) the Parties shall use their best  efforts to effect the Closing by September 30, 2004, and (b) the Closing may take place by facsimile or other means as may be mutually agreed upon in advance by the Parties. The date on which the Closing is held is referred to in this Agreement as the “Closing Date.”

1.7

Deliveries at Closing by Penthouse.  At the Closing, subject to the terms and conditions of this Agreement, Penthouse shall execute and/or deliver, or cause to be executed and/or delivered, to CCI, the documents and instruments referred to in this Section 1.7 below:

(a)

the Transfer, by assignment of members interests, of 100% of the Media Billing Equity to CCI;

(b)

unanimous resolutions of the board of directors of Penthouse and the written consents of  each of the Penthouse Majority Stockholder and other holders of the outstanding shares of Penthouse Series A Preferred Stock and Series C Preferred Stock, authorizing this Agreement and the Transactions contemplated hereby;

(c)

an assignment to Penthouse from the Media Billing Managers of their 0.5% collective members interest in Media Billing; and

(d)

the Lock-up Agreement executed by the Penthouse Majority Stockholder referred to in Section 4.11 of this Agreement; and

(e)

such other Documents as may be reasonably requested by CCI and its counsel, that are necessary to effect the Closing.

1.8

Deliveries at Closing by CCI.   At the Closing, subject to the terms and conditions of this Agreement, CCI shall execute and deliver or cause to be executed and delivered to Penthouse:

(a)

stock certificates evidencing (i) all shares of the CCI Closing Date Common Stock, and (ii) all 330,000 shares of CCI Series D Preferred Stock;

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(b)

a copy of a filing receipt or certified copy of the CCI Series D Preferred Certificate of Designations from the Secretary of State of Delaware, evidencing the filing and recordation of the CCI Series D Preferred Stock Certificate of Designations for the CCI Series D Preferred Stock;

(c)

the unanimous resolutions of the CCI Board of Directors and the written consents of those Persons who are the holders of a majority of all issued and outstanding shares of CCI Common Stock (the “CCI Majority Stockholders”) authorizing this Agreement, the issuance of the CCI Series D Preferred Stock and the transactions contemplated hereby; and

(d)

the Lock-up Agreement executed by the CCI Principal Stockholders referred to in Section 4.12 hereof.

1.9

Restrictions on Resale.  The CCI Securities will not be registered under the Securities Act, or the securities laws of any state, and cannot be transferred, hypothecated, sold or otherwise disposed of until; (i) a registration statement with respect to such securities is declared effective under the Securities Act, or (ii) CCI receives an opinion of counsel for the stockholders, reasonably satisfactory to counsel for CCI, that an exemption from the registration requirements of the Securities Act is available.

The certificates representing the CCI Securities that shall have been issued pursuant to this Agreement shall contain a legend substantially as follows:

“THE SECURITIES WHICH ARE REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNTIL A REGISTRATION STATEMENT WITH RESPECT THERETO IS DECLARED EFFECTIVE UNDER SUCH ACT, OR CARE CONCEPTS RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER REASONABLY SATISFACTORY TO COUNSEL FOR CARE CONCEPTS THAT AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT IS AVAILABLE.”

ARTICLE II

REPRESENTATIONS AND WARRANTIES OF CCI

Except as set forth in the CCI Disclosure Schedule, disclosure in any one of which shall apply to any and all representations and warranties made in this Agreement, and except as otherwise disclosed in writing by CCI to Penthouse, CCI hereby represents and warrants to Penthouse, as of the date of this Agreement and as of the Closing Date, as follows:

2.1

Organization, Standing And Power. CCI is a company duly incorporated, validly existing and in good standing under the laws of the State of Delaware and has corporate power and authority to conduct its business as presently conducted by it and to enter into and perform this Agreement and to carry out the transactions contemplated by this Agreement.  CCI is duly qualified to do business as a foreign corporation doing business in each state in which it owns or leases real property and where the failure to be so qualified and in good standing would have a Material Adverse Effect on CCI or its business.  Except as set forth in Schedule 2.01 to the CCI Disclosure Schedule, CCI does not have an ownership interest in any corporation, partnership (general or limited), limited liability company or other entity, whether foreign or domestic (collectively such owners hip interests including capital stock).

2.2

Capitalization.

(a)

The capitalization of CCI as set forth on Schedule 2.02(a) to the CCI Disclosure Schedule is true and accurate in all material respects.

 (b)

 Schedule 2.02(b) to the CCI Disclosure Statement sets forth the names of each of the record and beneficial owners of five percent (5%) or more of the Fully-Diluted CCI Common Stock as at the date of this Agreement, including holders of CCI Common Stock Equivalents.   

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(c)

Except as disclosed in Schedule 2.02(c) to the CCI Disclosure Statement, no CCI Common Stock have been reserved for issuance to any Person, and there are no other outstanding rights, warrants, options or agreements for the purchase of CCI Common Stock.

(d)

All outstanding shares of CCI Common Stock are validly issued, fully paid, non-assessable, not subject to pre-emptive rights and have been issued in compliance with all state and federal securities laws or other Applicable Law.

(e)

As at the date of this Agreement and on the Closing Date, the Fully-Diluted CCI Common Stock shall be not more than 18.0 million shares of CCI Common Stock.  

2.3

Authority For Agreement.  The execution, delivery, and performance of this Agreement by CCI has been duly authorized by all necessary corporate and shareholder action, and this Agreement, upon its execution by the Parties, will constitute the valid and binding obligation of CCI enforceable against it in accordance with and subject to its terms, except as enforceability may be affected by bankruptcy, insolvency or other laws of general application affecting the enforcement of creditors' rights.   The execution, delivery and performance of this Agreement and compliance with its provisions by CCI will not violate any provision of Applicable Law and will not conflict with or result in any breach of any of the terms, conditions, or provisions of, or constitute a default under (whether with or without notice or lapse of time or both), CCI's Certificate of Incorp oration or Bylaws, in each case as amended, or, in any material respect, any indenture, lease, loan agreement or other agreement or instrument to which CCI is a party or by which it or any of its properties are bound, or any decree, judgment, order, statute, injunction, charge, rule or regulation or other restriction of any governmental agency applicable to CCI except to the extent that any breach or violation of any of the foregoing would not constitute or result in a Material Adverse Effect on CCI.  Except as set forth in Schedule 2.03 to the CCI Disclosure Schedule, no consent, filing with or notification to, or approval or authorization of any governmental, regulatory or other authority is required on the part of CCI in connection with the execution, delivery and performance of this Agreement.  

2.4

Issuance Of CCI Securities.  The CCI Securities to be issued to Penthouse on the Closing Date, will when issued pursuant to this Agreement be duly and validly authorized and issued, fully paid and non-assessable.

2.5

Financial Statements.

(a)

CCI has made available to Penthouse copies of its audited financial statements at December 31, 2001, 2002 and 2003 and for the three fiscal years then ended, and the unaudited financial statement as at March 31, 2004 and for the three months then ended (collectively, “CCI Financial Statements”).  

(b)

Each set of financial statements (including, in each case, any related notes thereto) contained in the CCI Financial Statements was prepared in accordance with GAAP applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto).  Such financial statements fairly present the consolidated financial position of CCI as at the dates thereof and the consolidated results of their operations and their consolidated cash flows for the periods then ended, subject, in the case of unaudited interim financial statements, to normal, recurring year-end audit adjustments.

(c)

To the knowledge of CCI, except as disclosed in the consolidated financial statements contained in the CCI Financial Statements or on Schedule 2.05(c) hereof, there has been no CCI Material Adverse Effect in the financial condition, operations or business of CCI since March 31, 2004.

(d)

Except as otherwise disclosed in the consolidated financial statements contained in the CCI Financial Statements, CCI does not have any liabilities or obligations that would be required to be set forth in financial statements audited in accordance with GAAP.

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2.6

Absence Of Certain Changes Or Events.  Since March 31, 2004, except as set forth in Schedule 2.06 to the CCI Disclosure Schedule:

(a)

there has not been (i) any CCI Material Adverse Effect or (ii) any damage, destruction, or loss to CCI (whether or not covered by insurance) materially and adversely affecting the business, operations, properties, assets, or condition of CCI;

(b)

CCI has not (i) amended its articles of incorporation;  (ii) declared or made, or agreed to declare or make, any payment of dividends or distributions of any assets of any kind whatsoever to stockholders or purchased or redeemed, or agreed to purchase or redeem, any outstanding capital stock; (iii) waived any rights of value which in the aggregate are extraordinary or material considering the business of CCI; (iv) made any material change in its method of management, operation, or accounting; (v) entered into any other material transaction; (vi) made any accrual or arrangement for payment of bonuses or special compensation of any kind or any severance or termination pay to any present or former officer or employee; (vii) increased the rate of compensation payable or to become payable by it to any of its officers or any of its employees whose monthly compensation exceeds $15,000; or (viii) made any increase in any profit sharing, bonus, deferred compensation, insurance, pension, retirement, or other employee benefit plan, payment, or arrangement made to, for, or with its officers, directors, or employees;

(c)

CCI has not (i) borrowed or agreed to borrow any funds or incurred, or become subject to, any material obligation or liability (absolute or contingent) except liabilities incurred in the ordinary course of business; (ii) paid any material obligation or liability (absolute or contingent) other than current liabilities reflected in or shown on the most recent CCI balance sheet, and current liabilities incurred since that date in the ordinary course of business; (iii) sold or transferred, or agreed to sell or transfer, any of its assets, properties, or rights (except assets, properties, or rights not used or useful in its business which, in the aggregate have a value of less than $5,000), or canceled, or agreed to cancel, any debts or claims (except debts or claims which in the aggregate are of a value of less than $5,000); (iv) made or permitted any amendment or termination of any cont ract, agreement, or license to which it is a party if such amendment or termination is material, considering the business of CCI; or (v) issued, delivered, or agreed to issue or deliver any stock, bonds or other corporate securities including debentures (whether authorized and unissued or held as treasury stock);

(d)

to the best knowledge of CCI, CCI has not become subject to any law or regulation which materially and adversely affects, or in the future may adversely affect, the business, operations, properties, assets, or condition of CCI; and

(e)

as at the date of this Agreement and as at the Closing Date, the aggregate CCI liabilities which would be required to be disclosed on a balance sheet prepared in accordance with GAAP do not and will not exceed $75,000 in the aggregate.

2.7

Intellectual Property And Intangible Assets.  To the knowledge of CCI, CCI has full legal right, title and interest in and to all of the Intellectual Property utilized in the operation of its business.  No rights of any other person are violated by the use by CCI of any Intellectual Property.  None of the Intellectual Property utilized in the operation of the business of CCI has ever been declared invalid or unenforceable, or is the subject of any pending or, to the knowledge of CCI, threatened action for opposition, cancellation, declaration, infringement, or invalidity, unenforceability or misappropriation or like claim, action or proceeding.

2.8

Approvals And Consents.  Except as shall be set forth in Schedule 2.08 to the CCI Disclosure Schedule, no consent, waiver, approval, order or authorization of, or registration, declaration or filing with, any court, administrative agency or commission or other federal, state, county, local or other foreign governmental authority, instrumentality, agency or commission or any third party, including a party to any agreement with CCI, is required by or with respect to CCI in connection with the execution and delivery of this Agreement or the consummation of the Transaction contemplated hereby, except as provided herein.  

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2.9

Litigation.  There is no action, suit, investigation, audit or proceeding pending against, or to the best knowledge of CCI threatened against or affecting, CCI or any of its assets or properties before any court or arbitrator or any governmental or other body, agency or official which could have an CCI Material Adverse Effect.

2.10

Interested Party Transactions.  Except as set forth on Schedule 2.10 to the CCI Disclosure Schedule, CCI is not indebted to any officer or director of CCI (except for compensation and reimbursement of expenses incurred in the ordinary course of business and payment of which is not overdue), and no such Person is indebted to CCI, except as disclosed in the reports filed with the Commission.

2.11

Compliance With Applicable Laws.   The business of CCI has not been, and is not being, conducted in violation of any Applicable Law, except for possible violations which both individually  and also in the aggregate have not had and are not reasonably likely to have an CCI Material Adverse Effect.  No investigation or review by any governmental entity with respect to CCI is pending or, to the knowledge of CCI after reasonable inquiry, threatened, nor has any governmental entity indicated an intention to conduct the same, except for investigations or reviews which both individually and also in the aggregate would not have, nor be reasonably likely to have, an CCI Material Adverse Effect.   CCI is a fully compliant reporting company under the Exchange Act, and has not been threatened or subject to delisting on any exchange on which it is traded .

2.12

No Undisclosed Liabilities.  There are no liabilities or debts of CCI of any kind whatsoever, whether accrued, contingent, absolute, determined, determinable or otherwise, and there is no existing condition, situation or set of circumstances which could reasonably be expected to result in such a liability or debt.

2.13

Tax Returns And Payment.  CCI has duly and timely filed all Tax Returns required to be filed by it and has duly and timely paid all Taxes shown thereon to be due, except as reflected in the CCI Financial Statements.   Except as disclosed in the CCI Financial Statements, there is no claim for Taxes that is a lien against the property of CCI other than liens for Taxes not yet due and payable, none of which Taxes is material.  CCI has not received notification of any audit of any Tax Return of CCI being conducted or pending by a Tax authority, no extension or waiver of the statute of limitations on the assessment of any Taxes has been granted by CCI which is currently in effect, and CCI is not a party to any agreement, contract or arrangement with any Tax authority or otherwise, which may result in the payment of any amount in excess of the amount reflec ted on the CCI Financial Statements.

2.14

Labor And Employment Matters  CCI is not a party to or bound by any collective bargaining agreement or any other agreement with a labor union, and, to the knowledge of CCI, there has been no effort by any labor union or any other person during the twenty-four (24) months prior to the date hereof to organize any employees or consultants of CCI who are not already members of a collective bargaining unit into one or more collective bargaining units, nor, to the knowledge of the CCI, are any such efforts being conducted.  There is no pending or, to the knowledge of CCI, threatened labor dispute, strike or work stoppage which affects or which may affect the business of CCI, or which may interfere with its continued operations.  To the knowledge of CCI, neither CCI nor any agent, representative or employee thereof has within the last twenty-four (24) months commi tted any unfair labor practice as defined in the National Labor Relations Act, as amended, and there is no pending or threatened charge or complaint against CCI by or with the National Labor Relations Board or any representative thereof.  There has been no strike, walkout or work stoppage involving any of the employees or consultants of CCI during the twenty-four (24) months prior to the date hereof.  CCI has complied, in all material respects, with applicable laws, rules and regulations relating to employment, civil rights and equal employment opportunities or other employment practices, including but not limited to, the Civil Rights Act of 1964, the Fair Labor Standards Act, the Americans with Disabilities Act, as amended and the Immigration Reform and Control Act of 1986, as amended.  CCI has received no notice of any claim before any governmental body brought by or on behalf of any employee, prospective employee, former employee, retiree, labor organization or other representative of emplo yees or any governmental body or, to the knowledge of CCI is any such claim threatened against CCI.  CCI is not a party to, or otherwise bound by, any order relating to its employees or employment practices.  CCI has paid in full to all of its employees all wages, salaries, commissions, bonuses, benefits and other compensation due and payable to such employees.  No current or former employee of CCI is (i) absent on a military leave of absence and/or eligible for rehire under the terms of the Uniformed Services Employment and Reemployment Rights Act, or (ii) absent on a leave of absence under the Family and Medical Leave Act.

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2.15

Employee Benefits.  There is no employee benefit plan (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”)), and (ii) no other benefit plan, program, contract or arrangement of any kind whatsoever, covering the employees or consultants of CCI or which is sponsored, maintained or contributed to by CCI or to which CCI has an obligation to contribute (all such employee benefit plans and other benefit plans, programs, contracts or arrangements hereinafter individually and collectively called the “Employee Benefit Plan(s)”).  

2.16

Environmental Laws.  iBid is in compliance with all Environmental Laws and has received no notice from any Governmental Authority of any actual or potential Environmental Claim or any Environmental Health and Safety Liabilities.

2.17

CCI SEC Reports.  All CCI SEC Reports are true, correct and complete in all material respects, are not misleading and do not omit to state any material fact which is necessary to make the statements contained in such public filings not misleading in any material respect.  Since November 12, 2002, the filing of all CCI SEC Reports under the Exchange Act have been timely made.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF PENTHOUSE

Except as set forth in the Media Billing Disclosure Schedule, disclosure in any one of which shall apply to any and all representations and warranties made in this Agreement, and except as otherwise disclosed in writing to CCI, Penthouse hereby represents and warrants to CCI as of the date of this Agreement and as of the Closing Date (a) with respect to Penthouse, as applicable, and (b) with respect to Media Billing and iBill (collectively, the “iBill Companies”) as to all matters set forth in this Article III:

3.1

Organization, Standing And Power.  Penthouse is a company duly incorporated, validly existing and in good standing under the laws of the State of Florida; each of the iBill Companies is a Person duly organized, validly existing and in good standing under the laws of its jurisdiction of formation; each of Penthouse and the iBill Companies has all requisite power and authority to conduct its respective businesses as presently conducted by it and to enter into and perform this Agreement and to carry out the transactions contemplated by this Agreement.  Each of Penthouse and the iBill Companies is duly qualified to do business as a foreign corporation doing business in each state in which it owns or leases real property and where the failure to be so qualified and in good standing would have a Material Adverse Effect on Penthouse or the applicable iBill Company or the iBill Business.

3.2

Capitalization.

(a)

The capitalization of Media Billing and iBill as set forth in Section 1.3 of this Agreement is true and accurate in all material respects.   

(b)

 No Media Billing Equity has been reserved for issuance to any Person, and there are no other outstanding rights, warrants, options or agreements for the purchase of Media Billing Equity.  Media Billing has no Subsidiaries, other than iBill.

(c)

All outstanding Media Billing Equity is validly issued, fully paid, non-assessable, not subject to pre-emptive rights and have been issued in compliance with all state and federal securities laws or other Applicable Law.

3.3

Authority For Agreement.  The execution, delivery, and performance of this Agreement by Penthouse has been duly authorized by all necessary corporate action, and this Agreement, upon its execution by the Parties, will constitute the valid and binding obligation of Penthouse enforceable against it in accordance with and subject to its terms, except as enforceability may be affected by bankruptcy, insolvency or other laws of general application affecting the enforcement of creditors' rights.   The execution, delivery and performance of this Agreement and compliance with its provisions by Penthouse will not violate any provision of Applicable Law and

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will not conflict with or result in any breach of any of the terms, conditions, or provisions of, or constitute a default under (whether with or without notice or lapse of time or both), Penthouse's Certificate of Incorporation or Bylaws, in each case as amended, or any indenture, lease, loan agreement or other agreement or instrument to which Penthouse is a party or by which it or any of its properties are bound, or any decree, judgment, order, statute, injunction, charge, rule or regulation or other restriction of any governmental agency applicable to Penthouse except to the extent that any breach or violation of any of the foregoing would not constitute or result in a Material Adverse Effect on Penthouse.  Except as set forth in Schedule 2.03 to the Media Billing Disclosure Schedule, no consent, filing with or notification to, or approval or authorization of any governmental, regulatory or other authority is required on the part of Penthouse in connection with the execution, delivery and performance of this Agreement.  

3.4

Media Billing Equity.  Penthouse is the record and beneficial owner of 99.5% of the Media Billing Equity and the Media Billing Managers are the record and beneficial owners of 0.5% of the Media Billing Equity.  On the Closing Date, each of the Media Billing Managers shall assign to Penthouse their entity aggregate 0.5% interests in the Media Billing Equity to enable Penthouse to deliver 100% of the Media Billing Equity to CCI at the Closing.

3.5

Financial Statements.

(a)

On or before the Closing Date, CCI will have received the audited financial statements of Internet Billing Company, LLC for (i) the twelve months ending December 31, 1999; (ii) the twelve months ending December 31, 2000; (iii) the twelve months ending December 31, 2001, together with an unqualified opinion expressed by Grant Thorton.  In addition, CCI will have received the audited financial statements of Intercept, Inc., the 100% member of iBill, for (i) the twelve months ending December 31, 2002; and (ii) the twelve months ending December 31, 2003, together with an unqualified opinion expressed by Deloitte and Touche.  CCI has heretofore received true and correct copies of the annual report of Intercept, Inc. as filed on Form 10-K with the US Securities and Exchange Commission for the periods ending December 31, 2002 and 2003.

(b)

On or before sixty (60) days following the Closing Date of the Media Billing Purchase, Penthouse shall (i) provide CCI with the audited financial statements for the iBill Business for the two fiscal years ended December 31, 2003 (the “Historical iBill Financial Statements”), and (ii) provide CCI with the unaudited financial statements for the iBill Business for the comparative quarters ended June 30, 2003 and June 30, 2004.  Penthouse shall made available to CCI true copies of the Historical iBill Financial Statements, and the unaudited financial statement of the iBill Companies as at June 30, 2003 and June 30, 2004 and for the respective three months then ended.   For ease of reference, all of the foregoing financial statements are hereinafter sometimes collectively referred to as the “iBill Financial Statements.”

(c)

Each of financial statements (including, in each case, any related notes thereto) contained in the iBill Financial Statements was prepared in accordance with GAAP applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto).  Such iBill Financial Statements fairly present the consolidated financial position of the relevant Person as at the dates thereof and the consolidated results of their operations and their consolidated cash flows for the periods then ended, subject, in the case of unaudited interim financial statements, to normal, recurring year-end audit adjustments.

(d)

To the knowledge of Penthouse, since March 31, 2004, except as otherwise disclosed in the applicable iBill Financial Statements or on Schedule 3.05 to the Media Billing Disclosure Schedule, there has been no Penthouse Material Adverse Effect or iBill Material Adverse Effect.

(e)

Except as otherwise disclosed in the applicable iBill Financial Statements or on Schedule 3.05 to the Media Billing Disclosure Schedule, the iBill Companies do not have any liabilities or obligations that would be required to be set forth in financial statements audited in accordance with GAAP.

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3.6

Absence Of Certain Changes Or Events.  Since March 31, 2004, except as otherwise disclosed in the applicable iBill Financial Statements or on Schedule 3.06 to the Media Billing Disclosure Schedule:

(a)

there has not been (i) any Penthouse Material Adverse Effect or iBill Material Adverse Effect, or (ii) any damage, destruction, or loss (whether or not covered by insurance) materially and adversely affecting the business, operations, properties, assets, or condition of Penthouse or the iBill Companies;

(b)

the iBill Companies have not (i) amended its Articles of Organization;  (ii) declared or made, or agreed to declare or make, any payment of dividends or distributions of any assets of any kind whatsoever to stockholders or purchased or redeemed, or agreed to purchase or redeem, any outstanding capital stock;

(c)

Neither Penthouse, nor the iBill Companies has (i) waived any rights of value which in the aggregate are extraordinary or material in respect of the iBill Business; (ii) made any material change in its method of management, operation, or accounting for the iBill Business; (iii) entered into any other material transaction relative to the iBill Companies; (iv) made any accrual or arrangement for payment of bonuses or special compensation of any kind or any severance or termination pay to any present or former officer or employee of the iBill Companies; (v) increased the rate of compensation payable or to become payable by it to any of officers or employees of the iBill Companies whose monthly compensation exceeds $15,000; or (vi) made any increase in any profit sharing, bonus, deferred compensation, insurance, pension, retirement, or other employee benefit plan, payment, or arrangement made to, for, or with officers, directors, or employees of the iBill Companies;

(d)

Except in connection with a proposed $5.0 million revolving line of credit for the iBill Companies and its negotiations with respect to the Plan Financings disclosed on Schedule 3.06 to the Media Billing Disclosure Schedule, Penthouse has not with respect to the iBill Companies (i) borrowed or agreed to borrow any funds or incurred, or become subject to, any material obligation or liability (absolute or contingent) except liabilities incurred in the ordinary course of business; (ii) paid any material obligation or liability (absolute or contingent) other than current liabilities reflected in or shown on the most recent Penthouse balance sheet, and current liabilities incurred since that date in the ordinary course of business; (iii) sold or transferred, or agreed to sell or transfer, any of its assets, properties, or rights (except assets, properties, or rights not used or use ful in its business which, in the aggregate have a value of less than $5,000), or cancelled, or agreed to cancel, any debts or claims (except debts or claims which in the aggregate are of a value of less than $5,000); (iv) made or permitted any amendment or termination of any contract, agreement, or license to which it is a party if such amendment or termination is material, in respect of the iBill Business; or (v) issued, delivered, or agreed to issue or deliver any stock, bonds or other corporate securities including debentures (whether authorized and unissued or held as treasury stock);  and

(e)

to the best knowledge of Penthouse, none of the iBill Companies has become subject to any law or regulation which materially and adversely affects, or in the future may adversely affect, its business, operations, properties, assets, or financial condition.

3.7

Intellectual Property And Intangible Assets.  Except as set forth on Schedule 3.07 to the Media Billing Disclosure Schedule, to the knowledge of Penthouse, each of the iBill Companies has full legal right, title and interest in and to all of the Intellectual Property utilized in the operation of its business.  No rights of any other person are violated by the use by the iBill Companies of any Intellectual Property.  None of the Intellectual Property utilized in the operation of the business of the iBill Companies has ever been declared invalid or unenforceable, or is the subject of any pending or, to the knowledge of Penthouse, threatened action for opposition, cancellation, declaration, infringement, or invalidity, unenforceability or misappropriation or like claim, action or proceeding.

3.8

Approvals And Consents.  Except As Contemplated By This Agreement, No Consent, Waiver, Approval, Order Or Authorization Of, Or Registration, Declaration Or Filing With, Any Court, Administrative Agency Or Commission Or Other Federal, State, County, Local Or Other Foreign Governmental Authority, Instrumentality, Agency Or Commission Or Any Third Party, Including A Party To Any Agreement With Penthouse, Is Required By Or With Respect To Penthouse In Connection With The Execution And Delivery Of This Agreement Or The Consummation Of The Transaction Contemplated Hereby.  

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3.9

Litigation.  Except as disclosed in the Current Penthouse Draft Form 10-K or on Schedule 3.09 to the Media Billing Disclosure Schedule, there is no action, suit, investigation, audit or proceeding pending against, or to the best knowledge of Penthouse threatened against or affecting, any of the iBill Companies or any of its assets or properties before any court or arbitrator or any governmental or other body, agency or official which could have an Penthouse Material Adverse Effect.

3.10

Interested Party Transactions.  Except as disclosed in the Current Penthouse Draft Form 10-K or as set forth on Schedule 3.10 to the Media Billing Disclosure Schedule, none of the iBill Companies is indebted to any officer or director of the iBill Companies, Penthouse or any other Subsidiary of Penthouse (except for compensation and reimbursement of expenses incurred in the ordinary course of business and payment of which is not overdue), and no such Person is indebted to Penthouse, except as disclosed in the reports filed with the Commission.

3.11

Compliance With Applicable Laws.   Except as disclosed in the Current Penthouse Draft Form 10-K or on Schedule 3.11 to the Media Billing Disclosure Schedule, neither the iBill Companies nor the iBill Business has been, or is being, conducted in violation of any Applicable Law, except for possible violations which both individually and in the aggregate have not had and are not reasonably likely to have an iBill Material Adverse Effect.  No investigation or review by any governmental entity with respect to the iBill Companies is pending or, to the knowledge of Penthouse after reasonable inquiry, threatened, nor has any governmental entity indicated an intention to conduct the same, except for investigations or reviews which both individually and also in the aggregate would not have, nor be reasonably likely to have, an iBill Material Adverse Effect. & nbsp; 

3.12

No Undisclosed Liabilities.  There are no material undisclosed liabilities or debts of the iBill Companies, whether accrued, contingent, absolute, determined, determinable or otherwise, and there is no existing condition, situation or set of circumstances which could reasonably be expected to result in such a liability or debt which have not been disclosed in this Agreement or in the Current Penthouse Draft Form 10-K.

3.13

Tax Returns And Payment.  All Tax Returns with respect to the iBill Companies required to be filed by has duly and timely filed and all Taxes shown thereon to be due have been paid, except as reflected in Schedule 3.13 to the Media Billing Disclosure Schedule.   Except as disclosed in Schedule 3.13 to the Media Billing Disclosure Schedule or in the applicable iBill Financial Statements, there is no claim for Taxes that is a lien against the property of the iBill Companies other than liens for Taxes not yet due and payable, none of which Taxes is material.  Penthouse has not received notification of any audit of any Tax Return of the iBill Companies being conducted or pending by a Tax authority, no extension or waiver of the statute of limitations on the assessment of any Taxes has been granted by Penthouse which is currently in effect, a nd the iBill Companies are not a party to any agreement, contract or arrangement with any Tax authority or otherwise, which may result in the payment of any amount in excess of the amount reflected on the applicable iBill Financial Statements.

3.14

Labor And Employment Matters.  None of the iBill Companies is a party to or bound by any collective bargaining agreement or any other agreement with a labor union, and, to the knowledge of Penthouse, there has been no effort by any labor union or any other person during the twenty-four (24) months prior to the date hereof to organize any employees or consultants of the iBill Companies  who are not already members of a collective bargaining unit into one or more collective bargaining units, nor, to the knowledge of the Penthouse, are any such efforts being conducted.  There is no pending or, to the knowledge of Penthouse, threatened labor dispute, strike or work stoppage which affects or which may affect the business of the iBill Companies, or which may interfere with its continued operations.  To the knowledge of Penthouse, neither Penthouse, any othe r iBill Companies nor any agent, representative or employee thereof has within the last twenty-four (24) months committed any unfair labor practice as defined in the National Labor Relations Act, as amended, and there is no pending or threatened charge or complaint against Penthouse by or with the National Labor Relations Board or any representative thereof.  There has been no strike, walkout or work stoppage involving any of the employees or consultants of iBill Companies during the twenty-four (24) months prior to the date hereof.  Each of the iBill Companies has complied, in all material respects, with applicable laws, rules and regulations relating to employment, civil rights and equal employment opportunities or other employment practices, including but not

16

limited to, the Civil Rights Act of 1964, the Fair Labor Standards Act, the Americans with Disabilities Act, as amended and the Immigration Reform and Control Act of 1986, as amended.  Penthouse has received no notice of any claim before any governmental body brought by or on behalf of any employee, prospective employee, former employee, retiree, labor organization or other representative of employees or any governmental body or, to the knowledge of Penthouse is any such claim threatened against any of the iBill Companies.  The iBill Companies are not a party to, or otherwise bound by, any order relating to its employees or employment practices.  The iBill Companies have paid in full to all of its employees all wages, salaries, commissions, bonuses, benefits and other compensation due and payable to such employees.  

3.15

Employee Benefits.  There is no employee benefit plan (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”)), and (ii) no other benefit plan, program, contract or arrangement of any kind whatsoever, covering the employees or consultants of Penthouse or which is sponsored, maintained or contributed to by any iBill Companies or to which such iBill Companies has an obligation to contribute (all such employee benefit plans and other benefit plans, programs, contracts or arrangements hereinafter individually and collectively called the “Employee Benefit Plan(s)”).  

3.16

Business; Liabilities.  The iBill Business of the iBill Companies is fully described in the Current Penthouse Draft Form 10-K.

3.17

Environmental Laws.  Except where non-compliance would not have an iBill Material Adverse Effect, each of the iBill Companies is in compliance with all Environmental Laws and has received no notice from any Governmental Authority of any actual or potential Environmental Claim or any Environmental Health and Safety Liabilities.

3.18

Penthouse SEC Reports.  Except as otherwise disclosed in the Current Penthouse Draft Form 10-K, all Penthouse SEC Reports are true, correct and complete in all material respects, are not misleading and do not omit to state any material fact which is necessary to make the statements contained in such public filings not misleading in any material respect.  

ARTICLE IV

CERTAIN COVENANTS AND AGREEMENTS OF THE PARTIES

4.1

Conduct Of Business Of The Ibill Companies Pending Closing.  Penthouse covenants and agrees that, during the period from the date of this Agreement until the Closing Date, it will take such steps as lie within its powers to insure that the iBill Companies conduct the iBill Business only as presently operated and solely in the ordinary course, and consistent with such operation.  In addition to the foregoing and, in connection therewith, Penthouse undertakes that it shall take such steps as lie within its powers to insure that the iBill Companies do not, without the prior written consent of CCI, do any of the following:

(a)

amend or restate its Articles of Organization or operating agreement;

(b)

pay or agree to pay to any employee, officer or director compensation that is in excess of the current compensation level of such employee, officer or director other than salary increases or payments made in the ordinary course of business or as otherwise provided in any contracts or agreements with any such employees;

(c)

merge or consolidate either of the iBill Companies with any other Person or acquire or agree to acquire the assets or securities or any other Person, other than CCI;

(d)

issue any equity interests in either of the iBill Companies or any other securities convertible or exercisable or exchangeable for equity interests in either of the iBill Companies;

(e)

sell, transfer, or otherwise dispose of all or substantially all of the assets required for the operation of the iBill Business;

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(f)

create, incur, assume, or guarantee any indebtedness for money borrowed or other securities that are convertible into members interest or other equity of either Media Billing or iBill, or issue options, warrants or other securities that are exercisable or exchangeable for members interest or other equity of either Media Billing or iBill;

(g)

other than with respect to a maximum $5.0 million working capital line of credit, create, incur, assume or guarantee any material indebtedness for money borrowed by either Media Billing or the iBill Companies, except in the ordinary course of the iBill Business, or create or suffer to exist any mortgage, lien or other encumbrance on any of  the material assets of the iBill Companies, except those in existence on the date hereof or those granted pursuant to agreements in effect on the date of this Agreement or any amendments or modifications to such agreements;

(h)

fail to notify CCI immediately in the event of any material loss of or damage to any of the material assets of the iBill Companies or any other iBill Material Adverse Effect;

(i)

fail to pay premiums in respect of all present insurance coverage on the iBill Companies of the types and in the amounts as are in effect as of the date of this Agreement;

(j)

fail to seek to preserve the present material employees, reputation and business organization of the iBill Companies or their relationship with its significant clients and others having business dealings with them;

(k)

fail to use commercially reasonable efforts to comply with and not be in default or violation under any known law, regulation, decree or order applicable to the iBill Business, operations or assets where such violation would have an iBill Material Adverse Effect;

(l)

terminate or waive any material right of substantial value other than in the ordinary course of business;

(m)

except for contracts entered into in the ordinary course of the business of the iBill Companies, enter into any material contract or commitment;

(n)

change any of the accounting principles or practices used by it, except as may be required as a result of a change in law or in GAAP, whether in respect of Taxes or otherwise; or

(o)

fail to comply with the terms and conditions of this Agreement.

4.2

Conduct Of Business of CCI Pending Closing.  CCI covenants and agrees that, during the period from the date of this Agreement until the Closing Date, CCI shall, other than as contemplated by this Agreement or for the purposes of effecting the Closing of the Media Billing Purchase pursuant to this Agreement, conduct its business as presently operated and solely in the ordinary course, and consistent with such operation, and, in connection therewith.  In addition, CCI covenants and agrees that, without the prior written consent of Penthouse, neither CCI shall directly nor permit any CCI Subsidiary to:

(a)

amend or restate its Certificate of Incorporation or Bylaws;

(b)

pay or agree to pay to any employee, officer or director compensation that is in excess of the current compensation level of such employee, officer or director other than salary increases or payments made in the ordinary course of business or as otherwise provided in any contracts or agreements with any such employees;

(c)

merge or consolidate with any other Person or acquire or agree to acquire the assets, securities or business of any other Person;

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(d)

issue any shares of its capital stock or any notes, debentures or other securities convertible into shares of capital stock, or grant any options, warrants or other rights entitling the holder(s) to purchase or otherwise receive shares of capital stock of CCI or any Subsidiary;

(e)

create, incur, assume, or guarantee any indebtedness for money borrowed, or create or suffer to exist any mortgage or other Lien on any of its assets, except those in existence on the date hereof or those granted pursuant to agreements in effect on the date of this Agreement;

(f)

make any capital expenditure or series of capital expenditures;

(g)

declare or pay any dividends on or make any distribution of any kind with respect to the CCI Common Stock or any CCI Preferred Stock;

(h)

fail to pay premiums in respect of all present insurance coverage of the types and in the amounts as are in effect as of the date of this Agreement;

(i)

fail to preserve the present employees, reputation and business organization of CCI and CCI’s relationship with its clients and others having business dealings with it;

(j)

change its outstanding capital stock or issue any  shares or take any action affecting the capitalization of CCI;

(k)

fail to use commercially reasonable efforts to comply with and not be in default or violation under any law, regulation, decree or order applicable to CCI’s business or operations where such violation could have an CCI  Material Adverse Effect;

(l)

grant any severance or termination pay to any director, officer or any other employees of CCI, other than pursuant to agreements in effect on the date of this Agreement or as otherwise disclosed in the documents delivered pursuant to this Agreement;

(m)

change any of the accounting principles or practices used by it, except as may be required as a result of a change in law or in GAAP, whether in respect of Taxes or otherwise;

(n)

terminate or waive any right of substantial value other than in the ordinary course of business;

(o)

enter into any material contract or commitment;

(a)

sell, transfer or otherwise dispose of any assets;

(q)

fail to notify Penthouse immediately in the event of any material loss of or damage to any of CCI’s assets; or

(r)

fail to comply with the terms of this Agreement.

4.3

Operation Of The Ibill Companies Following The Closing.  Following the Closing of the Media Billing Purchase, the iBill Business shall continue be operated and managed solely by Charles L. Samel, one of the Media Billing Managers, and the existing iBill management, or by other Persons designated solely by Penthouse or the Series D Preferred Designees on the CCI Boards; provided, however, that until December 31, 2005, neither CCI shall cause, nor shall CCI or the Media Billing Managers or Series D Preferred Designees permit either of the iBill Companies to do, any of the following, without, in each case, the prior written approval or consent of (i) all Series D Preferred Designees on the CCI Boards, and (ii) a majority of the remaining members of the applicable CCI Boards (defined below):

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(a)

amend or restate it and General Media subsidiaries of Penthouses Articles of Organization or operating agreement;

(b)

pay or agree to pay to any employee, officer or director compensation that is in excess of the current compensation level of such employee, officer or director other than salary increases or payments made in the ordinary course of business consistent with past practice, or as otherwise provided in any contracts or agreements with any such employees;

(c)

merge or consolidate either of the iBill Companies with any other Person or acquire or agree to acquire the assets or securities or any other Person, other than CCI;

(d)

issue any equity interests in either of the iBill Companies or any other securities convertible or exercisable or exchangeable for equity interests in either of the iBill Companies;

(e)

sell, transfer, or otherwise dispose of all or substantially all of the assets required for the operation of the iBill Business, except in the ordinary course of business, consistent with past practices;

(f)

create, incur, assume, or guarantee any indebtedness for money borrowed or other securities that are convertible into members interest or other equity of either Media Billing or iBill, or issue options, warrants or other securities that are exercisable or exchangeable for members interest or other equity of either Media Billing or iBill;

(g)

other than with respect to a maximum $5.0 million working capital line of credit, create, incur, assume or guarantee any material indebtedness for money borrowed by either Media Billing or the iBill Companies, except in the ordinary course of the iBill Business, or create or suffer to exist any mortgage, lien or other encumbrance on any of  the material assets of the iBill Companies, except those in existence on the date hereof or those granted pursuant to agreements in effect on the date of this Agreement or any amendments or modifications to such agreements;

(h)

fail to notify CCI immediately in the event of any material loss of or damage to any of the material assets of the iBill Companies or any other iBill Material Adverse Effect;

(i)

fail to pay premiums in respect of all present insurance coverage on the iBill Companies of the types and in the amounts as are in effect as of the date of this Agreement;

(j)

fail to seek to preserve the present material employees, reputation and business organization of the iBill Companies or their relationship with its significant clients and others having business dealings with them;

(k)

fail to use commercially reasonable efforts to comply with and not be in default or violation under any known law, regulation, decree or order applicable to the iBill Business, operations or assets where such violation would have an iBill Material Adverse Effect;

(l)

terminate or waive any material right of substantial value other than in the ordinary course of business;

(m)

except for contracts entered into in the ordinary course of the business of the iBill Companies, enter into any material contract or commitment;

(n)

change any of the accounting principles or practices used by it, except as may be required as a result of a change in law or in GAAP, whether in respect of Taxes or otherwise; or

(o)

fail to comply with the terms of this Agreement.

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4.4

The CCI Boards.

On the Closing Date the board of directors of CCI (the “CCI Board of Directors”) and each of its consolidated Subsidiaries (collectively, with the CCI Board of Directors, the “CCI Boards” (other than Foster Sports, Inc. and IBid America, Inc.)) shall consist of six (6) Persons, of which (i) a Person designated by Penthouse shall constitute one (1) member of the CCI Boards; (ii) Persons designated by the existing management of CCI shall constitute two (2)  members of the CCI Boards, and (iii) three (3) members of the CCI Boards shall be independent directors within the meaning of the Sarbanes-Oxley Act of 2002.  

4.5

CCI Stockholders Consent; Information Statements And Amex Approval.

(a)

On the Closing Date and simultaneous with the Media Billing Purchase, CCI and the CCI Principal Stockholders shall deliver to Persons designated by Penthouse their irrevocable consents and proxies coupled with an interest in the form of Exhibit C-2 annexed hereto (the “CCI Stockholder Consents”), duly executed by the holders of a majority of the issued and outstanding shares of CCI Common Stock and (to the extent they are entitled vote) CCI Preferred Stock (the “CCI Majority Stockholders”), pursuant to which such CCI Majority Stockholders shall irrevocably consent to and/or agree to vote all of their shares of CCI Common Stock and CCI Preferred Stock IN FAVOR OF all of the following matters:

(i)

the Media Billing Purchase;

(ii)

the issuance of all shares of CCI Closing Date Common Stock and all shares of CCI Series D Preferred Stock to Penthouse in connection with the Media Billing Purchase;  

(iii)

the amendment of the CCI certificate of incorporation to, among other things, increase the authorized CCI Common Stock from 30,000,000 shares to 300,000,000 shares of CCI Common Stock; and

(iv)

further amending the CCI certificate of incorporation to change the corporate name of CCI from Care Concepts I, Inc. to such other name as shall be selected by the CCI Board of Directors.

(b)

Promptly following the Closing Date of the Media Billing Purchase, CCI shall, in cooperation with Penthouse and its counsel, promptly prepare and file with the Commission a Form 14C Information Statement disclosing the purchase of the Media Billing Equity, the CCI Stockholder Consents and the other proposed transactions contemplated hereby (the “CCI Information Statement”), and cause such CCI Information Statement to mailed to all stockholders of CCI as soon as practicable thereafter.  Following the requisite waiting period, CCI shall file an amendment to its Certificate of Incorporation as contemplated by Section 4.05(a) above.

(c)

Prior to the Closing Date of the Media Billing Purchase, CCI shall undertake to obtain the approval by the AMEX for:

(i)

the purchase by CCI of the Media Billing Equity;

(ii)

the issuance of all shares of CCI Closing Date Common Stock and CCI Series D Preferred Stock to Penthouse in connection with the Media Billing Purchase;  and

(iii)

the other transactions, if any, contemplated by this Agreement.

4.6

Announcements.  No Party shall issue any press release or otherwise make any public statement with respect to this Agreement or the transactions contemplated hereby without the prior consent of the other Parties hereto (which consent shall not be unreasonably withheld or delayed), except as may be required by Applicable Law or securities regulation.  Notwithstanding anything in this Section 4.04 to the contrary, the Parties will, to the extent

21

practicable, consult with each other before issuing, and provide each other the opportunity to review and comment upon, any such press release or other public statements with respect to this Agreement and the transactions contemplated hereby whether or not required by Applicable Law.

4.7

Penthouse Majority Stockholder Consent; Information Statement Or Stockholders Meeting.

(a)

On the Closing Date and simultaneous with the Media Billing Purchase, Penthouse shall deliver to CCI, the irrevocable consent and proxy coupled with an interest (the “Penthouse Majority Stockholder Consent”), duly executed by the Penthouse Majority Stockholder, pursuant to which such Penthouse Majority Stockholder shall (subject at all times to the exercise of the fiduciary duties of its Affiliate or representatives, as contemplated by Section 4.10 hereof) irrevocably consent to and/or agree to vote all of its shares of Penthouse Common Stock and Penthouse Series C Preferred Stock IN FAVOR OF the purchase by CCI of the Media Billing Equity and the issuance of the CCI Securities contemplated by this Agreement.

(b)

Promptly following the Closing Date of the Media Billing Purchase, Penthouse shall, in cooperation with CCI and its counsel, promptly prepare and file with the Commission a Form 14C Information Statement disclosing the purchase of the Media Billing Equity, the CCI Stockholder Consents and the other proposed transactions contemplated hereby (the “Penthouse Information Statement”), and cause such Penthouse Information Statement to mailed to all stockholders of Penthouse as soon as practicable thereafter.  

4.8

Expenses.  From and after the Closing Date of the Media Billing Purchase, Penthouse shall be responsible to pay or reimburse CCI for its expenses (including professional fees, costs of listing shares of CCI Common Stock on the AMEX and the cost of the Fairness Opinions contemplated hereby) associated with consummation of the Media Billing Purchase; provided, that all of such costs and expenses shall be approved in advance by Penthouse prior to their incurrence by CCI.  In such connection, Penthouse has paid to Adorno and Yoss, LLP, counsel to CCI the sum of $25,000 in connection with such anticipated expenses.

4.9

Access To Information.  

(a)

Inspection by Penthouse.  CCI will make available for inspection by Penthouse and its advisers, during normal business hours and in a manner so as not to interfere with normal business operations, all of CCI’s records (including tax records), books of account, premises, contracts and all other documents in CCI’s possession or control that are reasonably requested by Penthouse or its advisers to inspect and examine the business and affairs of CCI.  CCI will cause its managerial employees and regular independent accountants to be available upon reasonable advance notice to answer questions of Penthouse and its representatives concerning the financial condition, business and affairs of CCI.  Penthouse and the Penthouse Majority Stockholder will treat and hold as confidential any information they receive from CCI in the course of the reviews contemplated b y this Section 4.09(a).  No examination by Penthouse, the Penthouse Majority Stockholder or their representatives will, however, constitute a waiver or relinquishment by Penthouse or the Penthouse Majority Stockholder of its rights to rely on CCI’s covenants, representations and warranties made herein or pursuant hereto.

(b)

Inspection by CCI.  Penthouse will make available for inspection by CCI, during normal business hours and in a manner so as not to interfere with normal business operations, all of Penthouse’s records (including tax records), books of account, premises, contracts and all other documents in the iBill Companies’ possession or control that are reasonably requested by CCI to inspect and examine the business and affairs of Penthouse and the other iBill Companies.  Penthouse will cause its managerial employees and regular independent accountants to be available upon reasonable advance notice to answer questions of CCI concerning the business and affairs of Penthouse and the iBill Companies.  CCI will treat and hold as confidential any information they receive from Penthouse and the iBill Companies in the course of the reviews contemplated by this Section 4.0 9(b).  No examination by CCI will, however, constitute a waiver or relinquishment by CCI of its rights to rely on Penthouse’s covenants, representations and warranties made herein or pursuant hereto.

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4.10

Approvals By Principal Stockholders; Fiduciary Duties.  By their execution and delivery of this Agreement, each of Molina, the Penthouse Majority Stockholder and the CCI Principal Stockholders do hereby approve, adopt and ratify this Agreement, the Media Billing Purchase and the related transactions contemplated hereby and pursuant to all exhibits hereto, subject at all times to the terms and conditions contained herein.  

4.11

Lock Up Agreement.  On the Closing Date of the Media Billing Purchase, each of the Penthouse Majority Stockholder and the CCI Principal Stockholders shall execute and deliver to CCI an agreement with respect to resales of all shares of CCI Common Stock issued and issuable in connection with the transactions contemplated hereby, all in the form of Exhibit D annexed hereto and made a part hereof (the “CCI Lock-up Agreement”).  

4.12

Finders Fee.  On the Closing Date of the Media Billing Purchase, CCI will issue as a finders fee to the Persons listed on Schedule 4.12 to the CCI Disclosure Schedule, 40,000 shares of newly authorized Series E preferred stock, $0.001 par value per share (the “CCI Series E Preferred Stock”); which Series E Preferred Stock shall (a) have a liquidation preference of $100.00 per share, and (b) at the Conversion Date of the Series D Preferred Stock be automatically converted into 4,000,000 shares of CCI Common Stock.  The rights and privileges of the Series E Preferred Stock shall be in form and substance reasonably acceptable to counsel to CCI and Penthouse.

4.13

Certificates of Designation.  On the Closing Date of its purchase of the Media Billing Equity, CCI shall cause to be filed with the Secretary of State of the State of Delaware, the CCI Series D Preferred Certificate of Designation and the Certificate of Designation for the Series E Preferred Stock.

4.14

Calculation of EBITDA.  

(a)

Promptly following each of December 31, 2004 and December 31, 2005, CCI shall engage Markum & Kligman, LLC, Stonefield Josephson & Company, or another recognized firm of independent accountants mutually acceptable to the CCI Boards (the “Auditors”) to audit in accordance with GAAP the consolidated financial statements of Media Billing and its iBill Subsidiary as at December 31, 2004 and December 31, 2005 and for the respective twelve months then ended, including therein, the consolidated balance sheet, statement of income and statement of cash flows of such Person(s) as at December 31, 2004, December 31, 2005 and for the applicable twelve months then ended (respectively, the “Fiscal 2004 Financial Statements” and “Fiscal 2005 Financial Statements”).  The Auditors shall undertake to deliver the Fiscal 2004 and Fiscal 2005 Financial Statements to each of Penthouse and CCI by not later than March 31, 2005 (as to the Fiscal 2004 Financial Statements) and March 31, 2006 (as to the Fiscal 2005 Financial Statements.  In addition to the Financial Statements, the Auditors shall provide the boards of directors of each of CCI and Penthouse with the EBITDA Calculation of the Fiscal 2004 EBITDA of iBill and the EBITDA Calculation of the Fiscal 2005 EBITDA of iBill which shall be derived from the statement of income contained in the Fiscal 2004 Financial Statements and Fiscal 2005 Financial Statements.

(b)

Upon request of Penthouse, and subject only to the execution of such customary non-disclosure and related agreements as may be reasonably requested by the Auditors, CCI shall instruct the Auditors to provide Penthouse with copies of all of the work papers and files prepared or reviewed by the Auditors in connection with preparation of the Fiscal 2004 Financial Statements and the Fiscal 2004 EBITDA Calculation and the Fiscal 2005 Financial Statements and the Fiscal 2005 EBITDA Calculation.   In the event, that either Penthouse or CCI or their representatives shall dispute or disagree with either the Fiscal 2004 EBITDA Calculation or the Fiscal 2005 EBITDA Calculation of such Person(s), the Party so disputing or disagreeing shall notify the other Party or Parties in writing not later than thirty (30) days following receipt of the relevant EBITDA Calculation, specifying in suc h written notice (the “Dispute Notice”) the nature and amount of any such disputed items; it being understood that any items in the relevant EBITDA Calculation not timely disputed by a disputing Party shall be deemed, for all purposes, acceptable to such disputing Party, and may not be subsequently disputed by such Party.  In the event that a disputing Party or Parties shall fail to timely submit a Dispute Notice in accordance with this Section 4.14(b), the relevant EBITDA Calculation prepared by the Auditors shall be deemed, for all purposes, to be final and binding on all Parties to this Agreement.

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(c)

In the event that a disputing Party shall timely submit a Dispute Notice and the issues raised therein cannot be resolved by mutual agreement among the Parties, within thirty (30) days from the date a Dispute Notice shall be given, the disputing Party may submit the disputed issues or items contained in the relevant EBITDA Calculation to final and binding arbitration to be conducted by, and in accordance with the then obtaining rules of, the American Arbitration Association in Miami, Florida before a representative of either Ernst & Young or Deloitte & Touche (the “Arbitrating Accountants”).  So long as the Arbitrating Accountants do not exceed their authority as provided in this Section 4.14, the decision and award of the Arbitrating Accountant shall be final and binding upon all parties hereto and may be enforced in any court of competent jurisdiction.< /P>

(d)

At such time as (i) the relevant EBITDA Calculation shall be mutually agreed upon by CCI and Penthouse or, (ii) if the subject of a Dispute Notice, such EBITDA Calculation shall be finally determined by the Arbitrating Accountants from which determination no appeal has or can be taken, for all purposes of this Agreement such EBITDA Calculation shall be deemed final and binding upon the Parties.  In such event, such EBITDA Calculation, as the same may have been adjusted or modified, as aforesaid (the “Final EBITDA Calculation”) shall serve as the basis for the final Conversion Percentage and total number of shares of Fully-Diluted CCI Common Stock into which the Series D Preferred Stock shall be converted pursuant to Section 1.5(e) of this Agreement and the CCI Series D Preferred Stock Certificate of Designations.  

(e)

Unless such Conversion Date shall have occurred earlier by reason of the Final EBITDA Calculation of the Fiscal 2004 EBIDTA of iBill reflecting a Fiscal 2004 EBITDA of $6.5 million or more, the date on which the Final EBITDA Calculation of the Fiscal 2005 EBITDA of iBill shall be determined, as set forth herein, shall be the “Conversion Date” for purposes of the automatic conversion of the Series D Preferred Stock into CCI Common Stock.

(f)

By a date that shall be not later than ten (10) days following determination of the Final EBITDA Calculation (i) Penthouse shall deliver all shares of Series D Preferred Stock to the transfer agent of CCI for conversion into CCI Common Stock and (ii) CCI shall instruct the transfer agent of CCI deliver to Penthouse the appropriate number of shares of CCI Common Stock resulting from such conversion.

4.15

Operation Of Existing CCI Subsidiaries; Right Of First Refusal.

(a)

Subject to the right of the members of the CCI Boards to exercise their fiduciary responsibilities in connection with the management thereof, the existing operating Subsidiaries of CCI prior to the Closing Date identified on Schedule 2.01 to the CCI Disclosure Schedule (the “Existing CCI Subsidiaries”) shall at all times following the Closing Date, be managed by their existing executive officers and only in the ordinary course of their respective businesses, consistent with the covenants set forth in Section 4.02 above.  Notwithstanding the foregoing, the Existing Ibid Subsidiaries shall be able to operate in the ordinary course of business for a period of at least one year from the date of the conversion of Series D Preferred Stock.

(b)

In the event that CCI or the CCI Boards shall elect to sell the assets or securities of any of the Existing CCI Subsidiaries, the executive officers of such Existing CCI Subsidiaries or their Affiliates or designees shall be granted a sixty (60) day right of first refusal to purchase such Existing CCI Subsidiaries at a purchase price mutually agreed upon by the applicable CCI Board(s) and such executive officers or their designee(s), or, at the sole option of the applicable CCI Board(s), at such price determined by an independent investment banking firm engaged by CCI for such purpose.

ARTICLE V

CONDITIONS TO MEDIA BILLING PURCHASE

5.1

Conditions Precedent to Obligations of CCI.  Consummation of the purchase of the Media Billing Equity on the Closing Date by CCI and issuance of the CCI Securities to Penthouse is subject to the fulfillment on or prior to the Closing Date of each of the following conditions:

(a)

The representations and warranties of Penthouse contained in Article III hereof (with specific reference, inclusive of the Media Billing Disclosure Schedule) shall be true and correct as of the Agreement

24

Date and shall be true and correct in all material respects at and as of the Closing Date as if made on the Closing Date.

(b)

Penthouse shall have performed or complied in all material respects with all obligations, agreements and covenants required to be performed by it hereunder prior to or on the Closing Date, including all covenants and agreements on its part to be performed, as set forth in Article IV above.

(c)

Penthouse shall have made the deliveries required to be made in Section 1.7 above.

(d)

on or before July 31, 2004, CCI shall have received an opinion from an investment banking firm or other business evaluation firm mutually acceptable to CCI and Penthouse, addressed to the board of directors of CCI, to the effect that the Media Billing Purchase and related transactions contemplated by this Agreement are fair to the stockholders of CCI from a financial point of view (the “Media Billing Fairness Opinion”);

(e)

The AMEX shall have raised no objections to this Agreement or the consummation of the transactions contemplated hereby;

(f)

If and to the extent that final Media Billing Disclosure Schedules shall not have been delivered, all such Media Billing Disclosure Schedules shall have been completed and shall be approved by CCI; and

(g)

There shall not have occurred since March 31, 2004, any iBill Material Adverse Effect, other than as disclosed in the Media Billing Disclosure Schedule or the Current Penthouse Draft Form 10-K.

5.2

Conditions Precedent to Obligations of Penthouse.  Consummation of the Transfer by Penthouse of the Media Billing Equity to CCI is subject to the fulfillment on or prior to the Closing Date of each of the following conditions:

(a)

The representations and warranties of CCI contained in Article II hereof (with specific reference, inclusive of the CCI Disclosure Schedule) shall be true and correct as of the Agreement Date and shall be true and correct in all material respects at and as of the Closing Date as if made on the Closing Date;

(b)

CCI shall have complied in all material respects with all obligations, agreements and covenants required to be performed by them or it hereunder prior to or on the Closing Date of the Transaction, including all covenants and agreements on their part to be performed, as set forth in Article IV above;

(c)

CCI shall have made the deliveries required to be made in Section 1.8 above;

(d)

If and to the extent that final CCI Disclosure Schedules shall not have been delivered, all such CCI Disclosure Schedules shall have been completed and shall be approved by Penthouse;  and

(e)

There shall not have occurred any CCI Material Adverse Effect.

ARTICLE VI

MISCELLANEOUS

6.1

Termination.  The Parties may terminate this Agreement as provided below:

(a)

CCI and Penthouse may terminate this Agreement by mutual written agreement at any time prior to the Closing of the purchase of the Media Billing Equity contemplated by Section 1 hereof.

(b)

CCI may terminate this Agreement by giving written notice to Penthouse at any time prior to the Closing (i) if Penthouse or the Penthouse Majority Stockholder has breached any material representation,

25

warranty, or covenant contained in this Agreement, CCI has notified Penthouse in writing of the breach, and the breach has continued without cure for a period of 10 days after the notice of breach (ii) if all of the conditions to CCI’s obligations to consummate the Closing shall not have been satisfied by September 30, 2004 (the “Outside Closing Date”), or (iii) if the Closing of the purchase of the Media Billing Equity shall not have occurred on or before the Outside Closing Date, unless the failure results primarily from CCI or any of the CCI Principal Stockholders itself or themselves breaching any material representation, warranty, or covenant on its or his part to be observed or performed that is contained in this Agreement.

(c)

Penthouse may terminate this Agreement by giving written notice to CCI at any time prior to the Closing (i) if CCI or any of the CCI Principal Stockholders have breached any material representation, warranty, or covenant contained in this Agreement, Penthouse has notified CCI in writing of the breach, and the breach has continued without cure for a period of 10 days after the notice of breach (ii) if all of the conditions to Penthouse’s obligations to consummate the Closing shall not have been satisfied by the Outside Closing Date, or (iii) if the Closing shall not have occurred on or before the Outside Closing Date, unless the failure results primarily from Penthouse or the Penthouse Majority Stockholder wishing to exercise the right of termination themselves breaching any representation, warranty, or covenant on their part to be observed or performed that is contained in this Agreement.   

6.2

Effect of Termination.

(a)

If any Party terminates this Agreement pursuant to Section 6.1, all rights and obligations of the Parties hereunder shall terminate without any liability of any Party to any other Party (except for any liability of any Party then in breach); provided, that Penthouse shall be obligated following such termination to pay the fees specified in Section 4.08 of this Agreement.

(b)

As a material inducement to CCI and Penthouse and the Penthouse Majority Stockholder entering into this Agreement, each such Party and each of the other Parties hereby agrees that, notwithstanding anything contained elsewhere in this Agreement, if this Agreement is terminated prior to Closing due to any Party’s breach, the non-breaching Party or Parties’ shall have no adequate remedy at law.  Accordingly, in addition to any claim for monetary damages, the non-breaching Party or Parties shall have the right to seek specific enforcement of this Agreement.

6.3

Entire Agreement, Survival.

(a)

This Agreement, and the documents referred to in it, constitute the entire agreement and understanding of the Parties and supersede any previous agreements made or existing between the Parties or any of them before or simultaneously with this Agreement and relating to the subject matter of this Agreement (all of which shall be deemed to have been terminated by mutual consent with effect from the date of this Agreement).  

(b)

Each of the Parties acknowledges and agrees that on entering into this Agreement, and the documents referred to herein, does not rely on, and shall have no remedy in respect of, any statement, representation, warranty or understanding (whether negligently or innocently made) of any person (whether party to this Agreement or not) other than as expressly set out in this Agreement.

(c)

Except as otherwise permitted by this Agreement no change to its terms shall be effective unless it is in writing and signed by or on behalf of each of the Parties.

6.4

Jurisdiction and Governing Law.  

(a)

This Agreement shall be governed by and construed in accordance with the substantive laws of the State of Delaware.

(b)

Irrespective of conflict of law or choice of law issues or provisions, each of the Parties hereby submit to the exclusive jurisdiction of the courts of Florida for all purposes in connection with this Agreement.

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6.5

Schedules; Tables of Contents and Headings, Notices.  Any section of the Disclosure Schedule required to be attached and not attached to this Agreement on the Agreement Date shall be deemed to have been attached thereto with the following thereon: “None.” The table of contents and section headings of this Agreement and titles given to Schedules to this Agreement are for reference purposes only and are to be given no effect in the construction or interpretation of this Agreement. All notices and other communications under this Agreement shall be in writing and shall be deemed given when (a) delivered personally (including by confirmed legible facsimile transmission and contemporaneous first-class mailing for overnight delivery), (b) delivered by a responsible overnight courier service, or (b) five business days after being deposited first class, or a irmail class if to a different country, in the mails, in each such case delivered or mailed to the Parties at the addresses set forth below (or to such address as a Party may have specified by notice given to the other Parties pursuant to this provision).

6.6

Separability.  In the event that any provision hereof would, under applicable law, be invalid or unenforceable in any respect (a) such provision shall be enforced to the maximum extent permissible under applicable law, and (b) the invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.

6.7

Miscellaneous Provisions.

(a)

 Subject and without prejudice to Section 6.2(a), all rights and remedies of any Party under any provision of this Agreement shall be in addition to any other rights and remedies provided for by any law of any kind (including all forms of legal and equitable relief, including specific performance), all rights and remedies contemplated in the preceding part of this sentence shall be independent and cumulative, and may, to the extent permitted by law, be exercised concurrently or separately, and the exercise of any one right or remedy shall not be deemed to be an election of such right or remedy or to preclude or waive the exercise of any other right or remedy.

(b)

Any Party may waive compliance by another with any of the provisions of this Agreement provided that (i) no waiver of any provision shall be construed as a waiver of any other provision, (ii) any waiver must be in writing and shall be strictly construed, and (iii) a waiver in any one instance shall not be deemed a waiver in any subsequent instance.

(c)

This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns.  The provisions of this Agreement (i) are for the sole benefit of the Parties, and (ii) shall not create or be deemed to create any third party beneficiary rights in any Person not a party to this Agreement and consequently no term of this Agreement is enforceable by any Person who is not a party to it.  No assignment of this Agreement or of any rights or obligations hereunder, and no declaration of trust in respect of any such rights or the benefit of this Agreement, may be made by any Party (by operation of law or otherwise) without the prior written consent of the other Parties and any attempted assignment or declaration of trust without the required consent shall be void.

(d)

This Agreement may be executed via fax and in counterparts, each of which shall be an original, but which together shall constitute one and the same Agreement.

6.8

Indemnification.  

Penthouse shall indemnify and hold harmless CCI, its stockholders, controlling persons and affiliates for any loss, liability, claim, damage or expense arising from or in connection with any and all transactions arising out of the Membership Interest Purchase Agreement between Media Billing Company, LLC, Internet Billing Company, LLC and InterCept, Inc.

[THE BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK – SIGNATURE PAGES FOLLOW]

27

IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above written.

CARE CONCEPTS I, INC.

By:________________________________________

Name:

Gary Spaniak, Jr.

Title:

President

By:________________________________________

Name:

Steve Markley

Title:

Chief Executive Officer

PENTHOUSE INTERNATIONAL, INC.

By:__________________________________________

Charles L. Samel,

Executive Vice President

MEDIA BILLING, LLC

By:________________________________________

Name:

Charles Samel

Title:

Manager

CHARLES L. SAMEL

By:__________________________________________

Charles L. Samel, an individual

JASON GALANIS.

By:___________________________________________

Jason Galanis,, an individual,  as co- trustee of

The Molina-Vector Investment Trust

28

CERTIFICATE OF DESIGNATION OF PREFERENCES AND RIGHTS OF

SERIES D CONVERTIBLE PREFERRED STOCK

OF

CARE CONCEPTS I, INC.

a Delaware corporation

The undersigned, Steve Markley and Gary Spaniak, Jr., do hereby certify that:

1.

They are the President and Secretary, respectively, of CARE CONCEPTS I, INC., a corporation organized and existing under the Delaware General Corporation Law (“DGCL”) of the State of Delaware (the “Corporation”).

2.

Pursuant to authority conferred upon the Board of Directors by the Certificate of Incorporation of the Corporation, and pursuant to the provisions of Section 151 of the DGCL, the Board of Directors of the Corporation, pursuant to meetings held July 22, 2004 and August 26, 2004, adopted a resolution establishing the rights, preferences, privileges and restrictions of, and the number of shares comprising, the Corporation’s Series D Convertible Preferred Stock, which resolution is as follows:

RESOLVED, that a series of Preferred Stock in the Corporation, having the rights, preferences, privileges and restrictions, and the number of shares constituting such series and the designation of such series, set forth below be, and it hereby is, authorized by the Board of Directors of the Corporation pursuant to authority given by the Corporation’s Articles of Incorporation.

NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors hereby fixes and determines the Determinations of, the number of shares constituting, and the rights, preferences, privileges and restrictions relating to, a new series of Preferred Stock as follows:

1.

Definitions.  For the purposes of this Certificate of Designation and in addition to other terms defined herein, the following definitions shall apply:

Affiliate means, as to any Person, any other Person which, directly or indirectly, alone or together with other Persons, controls or is controlled by or is under common control with such Person. “Control” “controlled by” and “under common control with”, as and with respect to any Person, means the power, directly or indirectly, to direct or cause the direction of the management and policies of such Person.

“AMEX” shall mean the American Stock Exchange, Inc.

“Applicable Law” means any domestic or foreign law, statute, regulation, rule, policy, guideline or ordinance applicable to the businesses of the Corporation.

“Business Day” means any day, Monday through Friday, on which U.S. federally chartered banks are open for business in New York, New York, and Fort Lauderdale, Florida.

1

“Closing” shall mean the consummation by the Corporation of the Media Billing Purchase.

“Closing Date” shall mean the date and time as of which the Closing actually takes place.

“Closing Date Common Stock” shall mean such number of shares of Common Stock as shall represent on the Closing Date 19,9% of aggregate number of issued and outstanding shares of Common Stock of the Corporation as at the Closing Date immediately prior to giving effect to such issuance.

“Code” shall mean the United States Internal Revenue Code.

“Commission” shall mean the United States Securities and Exchange Commission.

“Common Stock” shall mean the authorized common stock, $.001 par value per share, of the Corporation.

“Common Stock Equivalent” shall mean any issued and outstanding notes, debentures or Preferred Stock that is convertible into shares of Common Stock, any options, warrants or securities exercisable for shares of Common Stock, or other rights entitling the holder to purchase Common Stock or exchange property or other assets for Common Stock.

“Conversion Date” shall mean the date of automatic conversion of the Series D Preferred Stock into CCI Common Stock, which date shall be the date on which the Final EBITDA Calculation of the Fiscal 2004 EBITDA or Fiscal 2005 EBITDA of iBill shall be determined, as contemplated by Section 4.14(e) of the Securities Purchase Agreement; provided, that (a) all Required Media Billing Purchase Approvals shall have been obtained, and (b) if the Final EBITDA Calculation of the Fiscal 2004 EBITDA shall reflect an actual Fiscal 2004 EBITDA of iBill of $6.5 million or more, the Conversion Date shall be the date upon which such Final EBITDA Calculation of the Fiscal 2004 EBITDA of iBill shall have been delivered or agreed upon.

“Corporation Securities” means the collective reference to (a) the Closing Date Common Stock, and (b) 330,000 shares of the Series D Preferred Stock.

“DGCL” shall mean the Delaware General Corporation Law, as amended,

“EBITDA” shall mean with respect to any one or more Persons, (a) the net income after taxes of such Person(s) for the applicable fiscal period in question, as determined in accordance with GAAP, plus (b) without duplication for such fiscal period the sum of (1) all taxes on the income of such Person(s), (ii) all interest expense deducted in determining the net income of such Person(s), (iii) all deductions for depreciation, amortization and other non-cash charges, including good-will or impairment charges, and (iv) other deductions for extraordinary or non-recurring charges.

2

“EBITDA Calculation” shall mean the calculation of the Fiscal 2004 EBITDA and/or Fiscal 2005 EBITDA of the relevant Person or Persons, as reviewed or audited by Markum & Kligman, LLC, Stonefleld Josephson & Company, or another recognized firm of independent accountants mutually acceptable to the respective boards of directors of each of Corporation and Penthouse.

“Exchange Act” shall mean the United States Securities Exchange Act of 1934, as amended, or any successor law.

“Fiscal 2004 EBITDA” shall mean the EBITDA of iBill for the twelve consecutive month period that commenced on January 1, 2004 and will end on December 31, 2004.

“Fiscal 2005 EBITDA” shall mean the EBITDA of iBill for the twelve consecutive month period that will commence on January 1, 2005 and will end on December 31, 2005.

“Fully-Diluted Common Stock” means, at any applicable point in time, the issued and outstanding shares of Common Stock of the Corporation, on a fully-diluted basis, after giving effect to (i) all issued and outstanding shares of Common Stock, (ii) the conversion into Common Stock of all issued and outstanding shares of Preferred Stock, (iii) all shares of Common Stock issuable upon exercise of any outstanding options, warrants or other rights to purchase Common Stock, and/or (iv) all shares of Common Stock issuable upon conversion of any outstanding notes, debentures, preferred stock, or other securities convertible into or exchangeable for shares of Common Stock.

“GAAP” means generally accepted United States accounting principles in effect from time to time.

“Governmental Authority” shall mean any court, tribunal, authority, agency, commission, bureau, department, official or other instrumentality of the United States, or any other country or any provincial, state, local, county, city or other political subdivision.

“Holder(s)” shall mean the individual or collective reference to Penthouse and any other holder(s) of the Series D Preferred Stock.

“iBill” shall mean Internet Billing Company, LLC, a Georgia Limited Liability company.

“Law” shall mean any United States, state or local (including common law) statute, code, directive, ordinance, rule, regulation or other requirement.

“Media Billing” shall mean Media Billing Company, L.L.C., a New York limited liability company.

“Media Billing Equity” shall mean 100% of the members interests in Media Billing.

“Media Billing Purchase” shall mean the consummation of the purchase by Corporation of the Media Billing Equity in exchange for the Corporation Securities.

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“Person” shall mean any individual, corporation (including any non-profit corporation), general or limited partnership, limited liability company, joint venture, estate, trust, association, organization, labor union or other entity or governmental body or Governmental Authority.

“Preferred Stock” shall mean the authorized preferred stock, $.001 par value per share, of the Corporation.

“Proceeding” shall mean any claim, action, investigation, arbitration, litigation or other judicial, administrative or regulatory proceeding.

“Representatives” shall mean officers, directors, employees, agents, attorneys, accountants, advisors and representatives.

“Required Media Billing Purchase Approvals” shall mean the occurrence of all of the following (i) the Media Billing Purchase and the conversion of the Corporation Series D Preferred Stock shall have been approved or consented to by the requisite holders of’ a majority of the outstanding Common Stock of the Corporation, (ii) all necessary filings with the Commission and mailings to the Corporation’s stockholders shall have been made, and (iii) the conversion of the Corporation’s Series D Preferred Stock shall be permitted by the AMEX.

“Securities Act” shall mean the United States Securities Act of 1933, as amended, or any successor law.

“Securities Purchase Agreement” means that certain securities purchase agreement, dated July 13, 2004, as amended July 26, 2004, among the Corporation and Penthouse.

“Series B Preferred Stock” shall mean the 10,000 authorized shares of Series B Preferred Stock of the Corporation.

“Series C Preferred Stock” shall mean the 45,000 authorized shares of Series C Preferred Stock of the Corporation.

“Series D Preferred Stock” shall mean the 330,000 shares of Series D Preferred Stock of the Corporation to be authorized pursuant to this Series D Preferred Certificate of Designations.

“Series D Preferred Stock Certificate of Designations” shall mean this Certificate of Designation.

“Series D Preferred Designee” shall mean the Person who shall be designated by the Holder(s) of the Series D Preferred Stock to serve as a member of the board of directors of the Corporation and each of its direct and indirect Subsidiaries.

“Stated Value” shall mean the $100.00 per share stated value payable in respect of each of the authorized and issued series of the Series D Preferred Stock of the Corporation, as applicable, in connection with any Liquidation Event (as hereinafter defined in Section 7(a)) redemption or other sale or disposition of such Series D Preferred Stock.

4

“Subsidiary” shall mean with respect to any Person, any corporation, joint venture, limited liability company, partnership, association or other business entity of which 50% or more of the total voting power of stock or other equity entitled to vote generally in the election of directors or managers or equivalent Persons thereof is owned or controlled, directly or indirectly, by such Person.

“Transfer of Control” shall mean the occurrence of any one of the following events: (a) the sale, conveyance, exchange or disposition (collectively, “Transfer”) of all or substantially all of the assets of the Corporation, (b) the Transfer of all or substantially all of the assets of all or substantially all of the Subsidiaries of the Corporation, or (c) the consummation of a transaction or series of related transactions (whether by tender offer, merger, consolidation or like combination) in which either (i) more than fifty percent (50%) of the voting power of the Corporation is disposed of, or (ii) the power to elect a majority of the Board of Directors of the Corporation is invested in one or more Person(s) who are not currently stockholders of the Corporation or of Penthouse or Affiliates of such Persons.

2.

Determination.  The series of Preferred Stock is hereby designated Series D Convertible Preferred Stock (the “Series D Preferred Stock”).

3.

Authorized Shares. The number of authorized shares constituting the Series D Preferred Stock shall be three hundred and thirty thousand (330,000) shares of such series.

4.

Designation and Stated Value.  The Board of Directors of ‘the Corporation, pursuant to authority granted in its Certificate of Incorporation, hereby creates a Series of Preferred Stock designated as “Series D Preferred Stock.” Upon initial issuance by the Corporation, the price per share of the Series D Preferred Stock and the Stated Value of each share of Series D Preferred Stock upon any Liquidation Event, or otherwise, shall be one hundred (S 100,00) dollars (the “Stated Value”).

5.

Number.  The number of shares of Series D Preferred Stock the Corporation is authorized to issue is 330,000 shares of Series D Preferred Stock. Such number may be increased or decreased by resolution of the Board of Directors.

6.

Dividend Rights.  The Series D Preferred Stock shall not pay any dividend.

7.

Liquidation Rights.

(a)

Liquidation, Dissolution or Winding Up.  If (A) the Corporation shall commence a voluntary case under the Federal bankruptcy laws or any other applicable Federal or state bankruptcy, insolvency or similar law, or consent to the entry of an order for relief In an involuntary case under any law or to the appointment of a receiver, liquidator, assignee, custodian, trustee or sequestrator (or other similar official) of the Corporation or of any substantial part of its property, or make an assignment for the benefit of its creditors, or admit in writing its inability to pay its debts generally as they become due, or if a decree or order for relief in respect of the Corporation shall be entered by a court having jurisdiction in the premises in an

5

involuntary case under the Federal bankruptcy laws or any other applicable Federal or state bankruptcy, insolvency or similar law resulting in the appointment of a receiver, liquidator, assignee, custodian, trustee or sequestrator (or other similar official) of the Corporation or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and any such decree or order shall be unstayed and in effect for a period of 30 consecutive days and, on account of any such event (“Insolvency Proceeding”), or (B) the Corporation shall otherwise liquidate, dissolve or wind up, a “Liquidation Event” shall be deemed to have occurred for purposes of this Certificate of Designation. If a Liquidation Event shall occur, the available funds and assets of the Corporation and its Subsidiaries shall be distributed in the following manner:

(i)

Senior Liquidation Preference. Upon the occurrence of any Liquidation Event, the holder(s) of the issued and outstanding shares of Series D Preferred Stock shall be entitled to be paid a liquidation preference at the Series D Stated Value per share, out of the Available Funds and Assets (A) pari passu and at the same time as payment shall be made to the holders of the Series B Preferred Stock and Series C Preferred Stock, and (B) senior, prior to, and before any payment or distribution (or any setting apart of any payment or distribution) of any available funds and assets of the Corporation or any Subsidiary on any shares of Series A Preferred Stock, or Common Stock of the Corporation. If, upon a Liquidation Event, the available funds and assets of the Corporation and its Subsidiaries to be distributed to the holders of the Series B Preferred S tock, Series C Preferred Stock and Series 1) Preferred Stock shall be insufficient to permit the payment to such shareholders of their full preferential amount described in this subsection, then all of such available funds and assets shall be distributed among the holders of then outstanding series of such Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock pro rata, according to the number of outstanding shares of such Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock held by each holder thereof. The Corporation shall not create, designate or authorize any series of Preferred Stock with liquidation preferences or rights senior to the liquidation preferences and rights held by the holders f the Series D Preferred Stock.

(ii)

Other Shares of Junior Preferred Stock. Subject to payment in full of the Stated Value liquidation preference of the Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock as provided above, the holder(s) of all other series of Preferred Stock of the Corporation then outstanding shall be entitled to be paid, out of the remaining available funds and assets, if any, and prior and in preference to any payment or distribution (or any setting apart of nay payment or distribution) of any available finds and assets on any shares of Common Stock, the amount of any liquidation preference or other payment required under the terms of such Preferred Stock.

(iii)

Remaining Assets. If there are any available finds and assets remaining after the payment or distribution (or the setting aside for payment or distribution) to the holders of the Preferred Stock of their full preferential amounts described in Sections here above, then all such remaining available finds and assets shall be distributed among the holders of the then outstanding Common Stock pro rata according to the number of shares of Common Stock held by each holder thereof.

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(b)

Merger or Sale of Assets.  At the option of the holders of the Series D Preferred Stock, with such series voting as a separate series, upon the consummation of a transaction or series of related transactions affecting the Corporation that shall constitute a Transfer of Control, for all purposes of this Certificate of Designation, a Liquidation Event shall be deemed to have occurred. In such event the Corporation shall, at the sole option of the holders of a majority of the outstanding Series D Preferred Stock, either (i) distribute, upon consummation of and as a condition to, such Transfer of Control an amount equal to the $100.00 per share Stated Value liquidation preference with respect to each outstanding share of Series D Preferred Stock, (ii) issue to the holders of the Series D Preferred Stock that number of shares of common stock of the successor or acquiring corporation or of the Corporation, if it is the surviving corporation, and/or other property as is receivable upon or as a result of such Transfer of Control, as though each Holder of Series D Preferred Stock had converted his or its Series D Preferred Stock into shares of Common Stock, at the applicable Conversion Percentage of Fully-Diluted Common Stock, immediately prior to such Transfer of Control or (iii) require the Corporation, or such successor, resulting, surviving or purchasing corporation, as the case may be, and without benefit of any additional consideration therefor, to execute and deliver to the Holder of Series D Preferred Stock shares of its preferred stock with substantially identical rights, preferences, privileges, powers, restrictions and other terms as the Series D Preferred Stock equal to the number of shares of Series D Preferred Stock held by such Holder divided by the Fully-Diluted Common Stock of the Corporation immediately prior to such Transfer of Cont rol multiplied by the Fully-Diluted Common Stock of the Corporation or such successor, resulting or purchasing or surviving corporation, as the case may be, immediately after the consummation of such Transfer of Control; provided, that all Holders of Series D Preferred Stock shall be deemed to elect the option set forth in clause (i) above if at least a majority in interest of such Holders elect such option. For purposes of this Section 7(b), “common stock of the successor or acquiring corporation” shall include stock of such corporation of any class which is not preferred as to dividends or assets over any other class of stock of such corporation and which is not subject to redemption and shall also include any evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable for any such stock, either immediately or upon the arrival of a specified date or the happening of a specified event and any warrants or other rights to subscribe for or p urchase any such stock..

(c)

Non-Cash Consideration. If any assets of the Corporation distributed to shareholders in connection with any Liquidation Event are other than cash, then the value of such assets shall be their fair market value as determined by the Board of Directors in good faith, except that any securities to be distributed to shareholders in connection with a Liquidation Event shall be valued as follows:

(i)

The method of valuation of securities not subject to investment representation letter or other similar restrictions on free marketability shall be as follows:

(A)

unless otherwise specified in a definitive agreement for the acquisition of the Corporation, if the securities to be distributed are shares of Common Stock of the Corporation or other securities that are traded on

7

a National Securities Exchange, the same shall be determined based on its then Fair Market Value; and

(B)

if there is no public market as described in clause (A) above, then the value shall be the fair market value thereof, as determined in good faith by the Board of Directors,

(ii)

The method of valuation of securities subject to investment letter or other restrictions on free marketability shall be to make a thirty percent (30%) discount from the Fair Market Value to reflect the approximate fair market value thereof as determined in good faith by the Board of Directors.

8.

Voting Rights.

(a)

After the Required Media Billing Purchase Approvals have been obtained and then until such time as the Fiscal 2004 EBITDA or Fiscal 2005 EBITDA of iBill shall have been determined in accordance with the provisions of Section 4.14 of the Securities Purchase Agreement, the Holders of a majority of the. issued and outstanding shares of Series D Preferred Stock, present in person or by proxy at each stockholders’ meeting or in connection with any consent requested of stockholders, shall have the right, voting as a separate class, to elect to the Board of Directors of the Corporation and each direct or indirect Subsidiary of the Corporation (collectively, the “Boards”) one (l) Person to serve as a member of the six (6) Person Boards, Until such time as (i) all Required Media Billing Purchase Approvals have been obtained, and (ii) the Fiscal 2004 EBITDA or Fiscal 2005 EBITDA of iBill shall have been determined in accordance with the provisions of Section 4.14 of the Securities Purchase Agreement, the Corporation shall not, by amendment of its Certificate of Incorporation or By-Laws or otherwise, increase the size of the entire Boards to in excess of six (6) Persons, without the prior written consent of the Holders of a majority of the issued and outstanding shares of Series D Preferred Stock. The remaining members of the Boards shall be elected, at any regular or special meeting of stockholders of the Corporation called in whole or in part to elect members of any of the Boards, by the holders of a majority of the issued and outstanding shares of Common Stock present in person or by proxy at such stockholders’ meeting.

(b)

At such time as (i) all Required Media Billing Purchase Approvals shall have been obtained, and (ii) the Series D Preferred Stock shall have been automatically converted into Common Stock of the Corporation, based upon the final determination of the Fiscal 2004 EBITDA or Fiscal 2005 EBITDA of iBill in accordance with the provisions of the Securities Purchase Agreement, all of the members of the Boards of the Corporation and each of its direct or indirect Subsidiaries shall be elected by the holders of a majority of the issued and outstanding shares of the Common Stock of the Corporation, present in person or by proxy at each stockholders’ meeting or in connection with any consent requested of stockholders.

(c)

Notice to Holders of Series D Preferred Stock. The Corporation shall provide ‘each holder of Series D Preferred Stock with prior notification of any meeting of the stockholders (and copies of proxy materials and other information sent to stockholders). In the

8

event of any taking by the Corporation of a record of its stockholders for the purpose of determining stockholders who are entitled to receive payment of any dividend or other distribution, any right to subscribe for, purchase or otherwise acquire (including by way of merger, consolidation or recapitalization) any share of any class or any other securities or  property, or to receive any other right, or for the purpose of determining stockholders who are entitled to vote in connection with any proposed Liquidation Event, the Corporation shall mail a notice to each holder of Series D Preferred Stock, at least thirty (30) days prior to (or such shorter period that the Corporation first becomes aware of) the consummation of the transaction or event, whichever is earlier, of the date on which any such action is to be taken for the purpose of such dividend, distribution , right or other event, and a brief statement regarding the amount and character of such dividend, distribution, right or other event to the extent known at such time.

(d)

Rights of Holders of Series D Preferred Stock.  To the extent that, under the DGCA the approval of the holders of Series D Preferred Stock, voting separately as a class or series as applicable, is required to authorize a given action of the Corporation, and to the extent approval of the holders of Series D Preferred Stock is required for any specific action of the Corporation set forth herein, the affirmative approval of the holders of at least a majority of the shares of Series D Preferred Stock, represented by written consent of the holders of a majority of the shares of Series D Preferred Stock (except as otherwise may be required under the DGCA) shall constitute the approval of such action by the class or series as applicable. Holders of Series D Preferred Stock shall be entitled to notice of all stockholder meetings or written consent s (and copies of proxy materials and other information sent to stockholders), which notice would be provided pursuant to the Corporation’s Bylaws and Delaware law.

9.

Conversion.

(a)

Series D Preferred Stock Conversion. The shares of Series D Preferred Stock shall not be convertible into shares of Common Stock of the Corporation until such time as all Required Media Billing Purchase Approvals have been satisfied, (collectively, the “Conversion Condition”). At such time as such Conversion Conditions shall have been satisfied, all shares of issued and outstanding Series D Preferred Stock shall thereafter be automatically converted into an aggregate number of shares of Common Stock of the Corporation as shall represent that number of shares of Common Stock which, when added to the aggregate number of shares of Closing Date Common Stock, shall equal a percentage of the Fully-Diluted Common Stock (the “Conversion Percentage”) as at the Conversion Date equal to Forty-Nine and 9/10 percent (49.9%) of such Fully-Diluted Common Stock.

(b)

Adjustments to Fully-Diluted Common Stock and Conversion Percentage.

(i)

Adjustment for Stock Splits and Combinations. If the Corporation shall at any time, or from time to time after the date shares of the Series D Preferred Stock are first issued (the “Original Series D Issue Date”) and prior to the Conversion Date, effect a subdivision of the outstanding Common Stock, then the Fully-Diluted Common Stock in effect immediately prior thereto shall be proportionately decreased and, conversely, if the Corporation

9

shall at any time or from time to time after the Original Series D Issue Date combine the outstanding shares of Common Stock, the Fully-Diluted Common Stock then in effect immediately before the combination shall be proportionately increased. However, in neither event shall any such adjustments effect the applicable Conversion Percentage. Any adjustment under this Section 9(b)(i) shall become effective at the close of business on the date the subdivision or combination becomes effective.

(ii)

Adjustment for Certain Dividends and Distributions. In the event the Corporation at any time, or from time to time after the Original Series D Issue Date and prior to the Conversion Date, shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in additional shares of Common Stock, then and in each such event the number of shares of Fully-Diluted Common Stock then in effect shall be increased as of the time of such issuance or, in the event such a record date shall have been fixed, as of the close of business on such record date. Such increase in the Fully-Diluted Common Stock shall not, however, affect the applicable Conversion Percentage.

(iii)

Adjustments for Other Dividends and Distributions. In the event the Corporation at any time or from time to time after the Original Series D Issue Date shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in securities of the Corporation other than shares of Common Stock, then and in each such event provision shall be made so that the holders of such Series D Preferred Stock shall receive upon conversion thereof in addition to the number of shares of Common Stock receivable thereupon, the amount of securities of the Corporation that they would have received had their Series D Preferred Stock been converted into Common Stock on the date of such event and had thereafter, during the period from the date of such event to and including the conversion date, retained such securities receivable by them as aforesaid during such period giving application to all adjustments called for during such period under this Section 9(b)(iii) with respect to the rights of the holders of the Series D Preferred Stock.

(iv)

Adjustments for reclassifications, consolidations, merger, splits and combinations. If at any time while the Series D Preferred Stock remains outstanding and any shares thereof have not been converted into Common Stock, in case of any reclassification or change of outstanding Common Stock issuable upon conversion of the Series D Preferred Stock (other than a change in par value per share, or from par value per share to no par value per share, or from no par value per share to par value per share or as a result of a subdivision or combination of outstanding securities issuable upon conversion of the Series D Preferred Stock) or in case of any consolidation, merger or mandatory share exchange of the Corporation with or into another corporation (other than a merger or mandatory share exchange with another corporation in which the Corporation is a continuing corporation and which does not result in any reclassification or change, other than a change in par value per share, or from par value per share to no par value per share, or from no par value per share to par value per share, or as a result of a subdivision or combination of outstanding Common Stock upon conversion of the Series D Preferred Stock), or in the case of any sale or transfer to another corporation of the property of the Corporation as an entirety or substantially as an entirety, the Corporation, or such

10

successor, resulting or purchasing corporation., as the case may be, shall, without payment of any additional consideration therefor, execute a new Series D Preferred Stock providing that the holder shall have the right to convert such new Series D Preferred Stock (upon terms and conditions not less favorable to the holder than those in effect pursuant to the Series D Preferred Stock) and to receive upon such exercise, in lieu of the Common Stock theretofore issuable upon conversion of the Series D Preferred Stock, the kind and amount of shares. of stock, other securities, money or property receivable upon such reclassification, change, consolidation, merger, mandatory share exchange, sale or transfer by the holder of the Common Stock issuable upon conversion of the Series D Preferred Stock had the Series D Preferred Stock been converted immediately prior to such reclas sification, change, consolidation, merger, mandatory share exchange or sale or transfer. The provisions of this Section shall similarly apply to successive reclassifications, changes, consolidations, mergers, mandatory share exchanges and sales and transfers.

10.

Miscellaneous.

(a)

Loss, Theft, Destruction of Preferred Stock. Upon receipt of evidence satisfactory to the Corporation of the loss, theft, destruction or mutilation of shares of Series D Preferred Stock and, in the case of any such Loss, theft or destruction, upon receipt of indemnity or security reasonably satisfactory to the Corporation, or, in the case of any such mutilation, upon surrender and cancellation of the Series D Preferred Stock, the Corporation shall make, issue and deliver, in lieu of such lost, stolen, destroyed or mutilated shares of Series D Preferred Stock, new shares of Series D Preferred Stock of like tenor. The Series D Preferred Stock shall be held and owned upon the express condition that the provisions of this Section are exclusive with respect to the replacement of mutilated, destroyed, Lost or stolen shares of Series D Preferred Stock and shall preclude any and all other rights and remedies notwithstanding any law or statute existing or hereafter enacted to the contrary with respect to the replacement of negotiable instruments or other securities without the surrender thereof

(b)

Who Deemed Absolute Owner. The Corporation may deem the Person in whose name the Series D Preferred Stock shall be registered upon the registry books of the Corporation to be, and may treat it as, the absolute owner of the Series D Preferred Stock for the purpose of the conversion of the Series D Preferred Stock and for all other purposes, and the Corporation shall not be affected by any notice to the contrary. All such payments and such conversion shall be valid and effectual to satisfy and discharge the liability upon the Series D Preferred Stock to the extent of the sum or sums so paid or the conversion so made.

(c)

Register.  The Corporation shall keep at its principal office a register in which the Corporation shall provide for the registration of the Series D Preferred Stock. Upon any transfer of the Series D Preferred Stock in accordance with the provisions hereof, the Corporation shall register such transfer on the Series B Preferred Stock register.

(d)

Reservation of Common Stock.  The Corporation shall have a sufficient number of shares of Common Stock available to reserve for issuance upon the conversion of all outstanding shares of Series B Preferred Stock. The Corporation will at all times reserve and

11

keep available out of its authorized Common Stock, solely for the purpose of issuance upon the conversion of Series D Preferred Stock as herein provided, such number of shares of Common Stock as shall then be issuable upon the conversion of all outstanding shares of Series D Preferred Stock. The Corporation covenants that all shares of Common Stock which shall be so issued shall be duly and validly issued, folly paid and non-assessable. The Corporation will take all such action as may be so taken without violation of any applicable Law or regulation, or of any requirement of any national securities exchange upon which the Common Stock may be listed to have a sufficient number of authorized but unissued shares of Common Stock to issue upon conversion of the Series B Preferred Stock. The Corporation will not take any action which results in any adjustment of the conversio n rights if the total number of shares of Common Stock issued and issuable after such action upon conversion of the Series B Preferred Stock would exceed the total number of shares of Common Stock then authorized by the Corporation’s Certificate of incorporation, as amended.

(e)

No Reissuance of Preferred Stock. Any shares of Series D Preferred Stock acquired by the Corporation by reason of purchase, conversion or otherwise shall be canceled, retired and eliminated from the shares of Series B Preferred Stock that the Corporation shall be authorized to issue. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock subject to the conditions and restrictions on issuance set forth in the Articles of Incorporation or in any certificate of Determination creating a series of Preferred Stock or any similar stock or as otherwise required by law.

(f)

Severability. If any right, preference or limitation of the Series B Preferred Stock set forth herein is invalid, unlawful or incapable of being enforced by reason of any rule, law or public policy, all other rights, preferences and limitations set forth herein that can be given effect without the invalid, unlawful or unenforceable right, preference or Limitation shall nevertheless remain in full force and effect, and no right, preference or limitation herein shall be deemed dependent upon any other such right, preference or limitation unless so expressed herein.

11.

The number of authorized shares of Preferred Stock of the Corporation is 5,000,000, and the number of authorized shares of Series D Preferred Stock, none of which has been issued, is 330,000 shares.

12.

Cancellation.  The Series D Preferred Stock shall automatically be cancelled in the event the Corporation elects to rescind the Securities Purchase Agreement.

[the balance of this page intentionally left blank)

12

Each of the undersigned declares under penalty of perjury that the matters set out in the foregoing Certificate are true of his own knowledge. Executed in the State of Florida on this ___ day of August, 2004.

______________________________

Name:  Gary Spaniak, Jr.

Title:  President

______________________________

Name:  Steve Markley

Title:  Chief Executive Officer

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EX-10.1

EXHIBIT 10.1

Care Concepts I, Inc.

10% Convertible Senior Secured Notes due 2009 and Warrants

SUBSCRIPTION AGREEMENT

September 28, 2004

To the Person Executing this

Subscription Agreement as

Purchasers on the Signature Pages

Ladies and Gentlemen:

Care Concepts I, Inc., a Delaware corporation (the "Company"), hereby confirms its agreement with you (the "Purchaser"), as set forth below.

1.

The Offering and the Transactions

A.

The Notes.  Subject to the terms and conditions herein contained, the Company proposes to issue and sell to the Purchaser (i) a $_________ principal amount of the Company’ 10% convertible senior secured promissory notes, due September 15, 2009 (the “Note”); and (ii) three (3) year warrants entitling the Purchaser to purchase at an exercise price of $3.00 per share (the “Exercise Price”) that number of shares of the Company’s common stock, $0.001 per share (the “Common Stock”) as shall be determined by dividing the $_________ principal amount of the Note by $3.00 (the “Warrant”).  

The Note and the Warrant is being sold to the Purchaser hereunder, together with an aggregate of: (i) up to $15,000,000 principal amount of Notes identical to the Note (collectively, with the Purchaser’s Note, hereinafter referred to as the “10% Notes” or “Notes”), and (ii) warrants, identical to the Warrant, entitling all holders (including the Purchaser) to purchase an aggregate of 5,000,000 shares of Common Stock at the Exercise Price (collectively, with the Purchaser’s Warrant, the “Warrants”), that are being offered and sold by the Company to other investors (collectively, with the Purchaser, the “Purchasers”).  

The Notes:

(a)

shall be payable as to interest only, at the rate of 10% per annum, payable semi-annually on June 30^th and December 31^st, based on a 360 day calendar year; which semi-annual interest shall be payable either 100% in cash, or at the option of the Company, 50% in cash and the balance in additional shares of Company Common Stock valued at the Conversion Price (as hereinafter defined) for the five trading days prior to the interest payment date, but without regard to the “Assumed Floor Price” (as hereinafter defined) then in effect; provided,

1

that if any of the Purchasers converts their Notes, in whole or in part, accrued interest on the outstanding balance of the Notes shall be paid on the next scheduled interest payment date, and a pro rata amount of interest shall be paid for any period of less than six months;

(b)

unless previously converted by the Purchaser into common stock, $0.001 par value per share, of the Company (the “Common Stock”), shall be payable as to principal, together with all accrued an unpaid interest, and any and all late charges and other amounts that may be due under the Note, on September 15, 2009 (the “Maturity Date”);

(c)

at such time as the Company shall have obtained the approval of the holders of a majority of the approximately 19.6 million shares of outstanding Common Stock of the Company for (i) the acquisition of the GMI Stock, (ii) the sale and issuance of all “Transaction Securities” described below (including the Note and Warrants), and (iii) an amendment to the Company’s certificate of incorporation increasing its 30,000,000 shares of authorized Common Stock to 250.0 million shares of Common Stock (collectively the “Stockholder Approval”), but in no event later than December 31, 2004, shall be convertible, at any time, at the option of the Purchaser into shares of Common Stock of the Company (the “Note Conversion Shares”), at a price per share (the “Conversion Price”) that shall be equal to 50% of the average closing price of Company Common Stock, as traded on the American Stock Exchange, LLC (the “AMEX”) or on the Nasdaq Stock Exchange, the New York Stock Exchange or the NASD OTC-Bulletin Board (together with the AMEX, a “National Securities Exchange”), for the five trading days immediately prior to the date (the “Conversion Date”) that notice of conversion is given to the Company by the Purchaser (the “Conversion Notice”); provided, however, that in no event shall the Conversion Price be less than $3.00 per share (the “Floor Price”);

(d)

be secured by a lien and security interest (the “Lien”) on the assets of the Internet Billing Company LLC (“iBill”) subsidiary of the Company, as set forth in the Security Agreement.  The Lien securing the Notes shall be expressly (i) subject and subordinate to the first priority Lien on the assets of iBill now existing or hereafter granted to any person, firm or corporation (the “Senior Lender”) providing up to $10.0 million of working capital financing to iBill (the “iBill Senior Financing”), and (ii) subject and subordinate to the second priority Lien granted to the holders of up to $3.45 million of 10% senior secured Series F convertible redeemable preferred stock of the Company that may be issued on or before September 15, 2004 and (unless convert ed) are subject to mandatory redemption on September 15, 2009 (the “Series F Senior Preferred Stock”); and

(e)

be secured by (i) Media Billing’s pledge of a pro-rata percentage of 100% of the members interest of iBill, and (ii) a pro-rata percentage of the 395,519 shares of “GMI Stock” in the “Reorganized General Media” (as those terms are hereinafter defined) to be owned by the Company; which pledged securities shall be apportioned among the Purchasers and the holders of the Series F Preferred Stock on a pro rata basis based upon the initial $9.525 million Purchase Price for the 10% Notes and the initial $3.45 million purchase price for the Series F Preferred Stock; provided, that if additional 10% Notes are sold following the date hereof (not to exceed $4.475 million in the aggregate) or if $2.0 million of Penthouse equity shall be exchanged for an additional $2.0 million of Series F Preferred Stock, such allocation of the pledged iBill members interests and GMI Stock shall be appropriately readjusted; it being

2

anticipated that (subject to the above adjustment) 73.41% of the iBill members interest and 290,351 shares of GMI Stock will initially be pledged to the Purchasers of Notes, and 26.59% of the iBill members interest and an aggregate of 105,168 shares of GMI Stock will be pledged to the holders of the Series F Preferred Stock of the Company; and

(f)

be substantially in the form attached hereto at Exhibit A and made a part hereof.

(g)

Notwithstanding the foregoing $3.00 per share Floor Price, described in Paragraph 1.A.(c) above, in the event that 50% of the average closing price of Company Common Stock, as traded on the AMEX or another National Securities Exchange, for the five trading days immediately prior to the Conversion Date, shall be less than the $3.00 Floor Price on the date (the “Conversion Date”) that notice of conversion is given to the Company by the Purchaser (the “Conversion Notice”), then, and in such event, the Purchaser shall be entitled to receive from the “Escrowed Shares,” hereinafter defined, that number of additional shares of Common Stock of the Company (the “Adjustment Shares”) as shall represent, together with the number of Note Conversion Shares issued at the Conversion Price then in effect, the aggregate number of shares of Common Stock that would have been issuable (a) based upon the Conversion Price then in effect, and (b) assuming that the Floor Price had been reduced to $1.00 per share (the “Assumed Floor Price”).  

A maximum of up to 39,916,666 Adjustment Shares of the Company are subject to potential issuance to (i) up to a maximum of 25,000,000 of such Adjustment Shares, to the Purchaser and other Purchasers of up to a maximum of $15,000,000 of 10% Notes (ii) up to a maximum of 5,833,333 of such Adjustment Shares to the holders of $3,500,000 stated value of Series E convertible preferred stock hereinafter described (the “Series E Preferred Stock”), and (iii) up to a maximum of 9,083,333 of such Adjustment Shares to the holders of $5,450,000 stated value of Series F Senior Preferred Stock. Such maximum number of Adjustment Shares shall be subject to adjustment in the event that the Assumed Floor Price is lowered pursuant to the terms of the 10% Notes.  

For the avoidance of doubt, if for example, the Purchaser sends a Conversion Notice to convert $1,000,000 of its Note and the Conversion Price (calculated based upon 50% of the average closing price of Company, as traded on the AMEX or another National Securities Exchange, for the five trading days immediately prior to the Conversion Date) shall be $1.00 per share, notwithstanding the $3.00 Floor Price set forth above and in the Note, the Purchaser would be entitled to receive for no additional consideration, out of the Escrowed Shares described below, an additional 666,667 shares of Common Stock.  In such example, however, based on the $0.50 per share Assumed Floor Price, in no event would the Company be required to issue more than 1,666,667 Adjustment Shares, even if the Conversion Price then in effect was less than $0.50.  

(h)

To avoid further dilution to the Company if Adjustment Shares become issuable to holders of the Series F Senior Preferred Stock, 10% Notes and Series E Preferred Stock, GMI Investment Partners, a principal stockholder of the Company, and their affiliates described in Section 1B below and the Company, have entered into an

3

escrow agreement with legal counsel to the Company and legal counsel to the holders of each of the 10% Notes, Series F Senior Preferred Stock and Series E Preferred Stock.  Under the terms of the escrow agreement (the “Series G Preferred Stock Escrow Agreement”), an aggregate of 29,929 shares of the Company’s “Series G Preferred Stock” (described below) that are automatically convertible into an aggregate of 39,916,666 shares of Common Stock of the Company by not later than December 31, 2004, are being placed in escrow (the “Escrowed Shares”).  Such Escrowed Shares includes shares of Series G Preferred Stock convertible into a maximum of 25,000,000 shares of Common Stock being held for the benefit of the Purchaser and all other Purchasers of Notes.   In the event that the Conversion Price shall be less than $3.00 per share on any Conversion Date, within three (3) Business Days after a Conversion Notice shall be delivered to counsel to the Company and to the Purchaser setting forth the calculation of the appropriate number of Escrowed Shares to be delivered to the Purchaser as Adjustment Shares, the Escrow Agents shall cause certificates evidencing such Adjustment Shares (up to the maximum 25,000,000 Adjustment Shares available to Purchaser and all other Purchasers of 10% Notes) to be delivered to the Purchasers.  The Purchaser hereby agrees to the terms set forth in the Series G Preferred Stock Escrow Agreement, including the appointment of Granite Financial Partners LLC, as a Series G Preferred Stock Escrow Agent. Similar escrow arrangements are also available with counsel to the holders of Series F Senior Preferred Stock and Series E Preferred Stock. Any Escrowed Shares no longer subject to issuance as Adjustment Shares or otherwise remaining in escrow following conversion into Common Stock of all outstanding 10% Notes, Series E Preferred Stock and Series F Senior Preferred Stock, shall be promptly returned to GMI Partners or its Affiliates.  

(i)

The Note Conversion Shares, any Adjustment Shares that the Purchaser may acquire at any time, and any shares of Common Stock issuable upon exercise of the Warrants (the “Note Warrant Shares”), are subject to limitation, so that the aggregate number of shares of Common Stock of which such Purchaser and all persons affiliated with such Purchaser have beneficial ownership (calculated pursuant to Rule 13d-3 of the Securities Exchange Act of 1934, as amended) does not at any time exceed 9.99% of the Company's then outstanding Common Stock.

(j)

The Note, all other Notes, the Note Conversion Shares, the Adjustment Shares, and any Note Warrant Shares that may be issued to the Purchaser and other Purchasers of Notes are sometimes herein collectively referred to as the "Securities."  This Agreement, the form of Notes, the Warrants in the form of Exhibit B annexed hereto, the Security Agreement in the form of Exhibit C annexed hereto (the “Security Agreement”), the Pledge Agreement in the form of Exhibit D annexed hereto (the “Pledge Agreement”), the Registration Rights Agreement in the form of Exhibit E annexed hereto (the “Registration Rights Agreement”), the GMI Stock Purchase Agreement in the form of Exhibit F annexed hereto , the Series G Preferred Stock Escrow Agreement in the form of Exhibit G annexed hereto, and the Plan (a copy of which has been provided to Purchaser) are sometimes herein collectively referred to as the "Transaction Documents."

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(k)

The Securities will be offered and sold to the Purchaser 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.

(l)

In connection with the sale of the Securities, the Company has made available (including electronically via the SEC’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, forms, schedules, statements, documents, filings and amendments, are collectively referred to as the "Disclosure Documents."  All references in this Agreement to financial statements and schedules and other information which is "contained," "included" or "stated" in the Disclosure Documents (or other references of like import) sh all 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.

B.

The Transactions, Issuance of Transaction Securities and Use of Proceeds.

(a)

Use of Proceeds. The proceeds from the sale of up to $15.0 million of 10% Notes, up to $3.5 million of Series E Preferred Stock and up to $3.45 million of Senior Series F Preferred Stock (together with the shares of Series G Preferred Stock to be issued to GMI Investment Partners described below, collectively referred to as the “Transaction Securities”) shall be utilized by the Company to pay the $16.35 million of the $20.0 million purchase price for approximately 39.5% of the outstanding common stock of General Media, Inc. (the “GMI Stock”), as reorganized (the “Reorganized General Media” and, together with certain of its subsidiaries (the “General Media Debtors”).  The GMI Stock is being purchased by the Company from GMI Investment Partners in connection with the transactions contemplated by a settlement and securities purchase agreement, dated as of September 21, 2004, by and among PET Capital Partners LLC, Absolute Return Europe Fund, Susan Devine, NAFT Ventures I LLC, Marc H. Bell, Daniel Staton (collectively, the “Bell/Staton Group”), Penthouse International, Inc., MVIT, GMI Investment Partners and Milberg Weiss Bershad & Schulman LLP (“Milberg Weiss”), as escrow agent (the “GMI Stock Purchase Agreement”).  

Under the terms of the GMI Stock Purchase Agreement, a minimum of $10.0 million and a maximum of $20.0 million is required to be paid as the purchase price for between 24.15% and 48.3% of the GMI Stock by September 29, 2004.  It is anticipated that the Company will pay $16.350 million by such date and purchase approximately 81.75% of the GMI Stock, representing an aggregate of 39.5% of the outstanding common stock of General Media.  However, the Bell/Staton Group has given the Company an extension until October 13, 2004 to pay the remaining $3.650 million for the GMI Stock and increase its percentage ownership in the outstanding General Media common stock from 39.5% to 48.3%. The balance of the proceeds in excess of $20.0 million, if any, from the sale of the Transaction Securities will be used by the Company only to pay transaction expenses and for working c apital and other corporate purposes for its iBill subsidiary.  The Company intends to continue to offer the 10% Notes (and/or other

5

equity or equity type convertible securities subordinated to the Series F Preferred Stock) through October 31, 2004.  Although the Company presently intends to purchase the remaining available GMI Stock, it reserves the right to allocate all net proceeds from the sale of additional 10% Notes or other securities to working capital and general business purposes for its prospective iBill subsidiary.

(b)

Escrow of Proceeds. The aforesaid $16.35 million to $20.0 million purchase price for the GMI Stock shall be deposited with the Escrow Agent and released to the Bell/Staton Group only upon the closing (the “Plan Closing”) of the transactions contemplated by the Fourth Amended and Restated Joint Plan of Reorganization of the General Media Debtors (the “Plan”), including, but not limited to, the purchase of up to 48.3% of the GMI Stock by the Company and the consummation of the transactions contemplated by the Transaction Documents.   A copy of the GMI Purchase Agreement and the Plan has been made available to each Purchaser.

(c)

Capitalization of Reorganized GMI. Pursuant to the Plan, the General Media Debtors shall be emerging from the Chapter 11 bankruptcy currently pending in the United States Bankruptcy Court for the Southern District of New York, Case No. 03-15078 (SMB) (the “Bankruptcy Case”) as a result of which (i) the Bell/Staton Group or their affiliates shall hold approximately $27.0 million of seven year New GMI Term Loan Notes, (ii) the unsecured creditors shall receive $2.0 million in cash and up to $11.0 million in New GMI Term Loan Notes, (iii) certain members of the Bell/Staton Group shall provide a maximum $20.0 million Exit Financing Facility (of which approximately $8.0 million shall be drawn to pay cash expenses and payments in the Bankruptcy Case, (iv) all outstanding equity securities of General Media, Inc. shall be cancel led, and (v) an aggregate of 1,000,000 shares of Common Stock of Reorganized General Media shall be issued, of which (A) the Company shall own the GMI Stock, to represent approximately between 39.5% and 48.3% of the outstanding common stock of Reorganized GMI, and (B) an equal number of Notes of Reorganized GMI common stock shall be owned by the Bell/Staton Group or their affiliates.

(d)

Reserved Shares.The Company will reserve for issuance to the Purchasers of up to $15.0 million of Notes, the purchasers of $3.5 million of Series E convertible preferred stock of the Company (the “Series E Preferred Stock”), and the purchasers of the $5.45 million stated value of Series F Senior Preferred Stock, a maximum of 7,983,333 million shares of Common Stock that may be issuable: (i) as Note Conversion Shares upon conversion of Notes, (ii) upon conversion of the Series E Preferred Stock, and (iii) upon conversion of the Series F Senior Preferred Stock, to holders of Notes, Series E Preferred Stock and Series F Preferred Stock based on the $3.00 per share Conversion Price as to the Series F Senior Preferred Stock and the $3.00 per share Floor Price applicable upon conversion of the Series E Preferred Stock and the Notes (collectively the “Conversion Shares”).  The Company shall also reserve for issuance an additional (i) 5,000,000 Note Warrant Shares issuable upon exercise of the Warrants sold to Purchasers of Notes, (ii) a maximum of 610,776 shares of Common Stock issuable upon exercise of warrants (similar to the Warrants) sold to purchasers of the Series F Senior Preferred Stock, and (iii) a maximum of 430,504 shares of Common Stock issuable upon exercise of warrants (similar to the Warrants) sold to purchasers of the Series E Senior Preferred Stock (collectively, the “Warrant Shares”).  GMI Investment Partners shall also place in escrow an aggregate of 29,929 shares of Series G Preferred Stock that is automatically convertible on or

6

before December 31, 2004 into 39,916,666 shares of Common Stock.  Such 39,916,666 Escrowed Shares shall be reserved as Adjustment Shares for potential issuance to the holders of Notes, Series E Preferred Stock and Series F Senior Preferred Stock.  The maximum of (i) 7,983,333 shares of Common Stock that may be issuable as Conversion Shares, (ii) 39,916,666 shares of Common Stock that may be issued as Adjustment Shares, and (iii) a maximum of 6,041,280 shares of Common Stock (subject to anti-dilution adjustment) that may be issued as Warrant Shares are collectively referred to as the “Reserved Shares”).  

(e)

Series G Preferred Stock. In consideration of their (i) assignment to the Company of the right to purchase the GMI Stock, (ii) having provided financing and financial accommodations that facilitated the acquisitions of iBill and the GMI Stock, (iii) having provided iBill with transaction processing financing, (iv) having provided personal guarantees and ongoing indemnification to Penthouse and iBill in connection with certain contingent liabilities, and (v) having and continuing to provide management and consulting services to the Company and iBill; the fair value of which financings, financial accommodations, indemnification and management services are estimated to be in excess of approximately $85.0 million, on the Effective Date of the Plan and transfer of title to the GMI Stock to CCI, it is contemplated that CCI shall sell and issue to GMI Investment Partners, 45,000 shares of newly authorized Series G convertible preferred stock, $1,000 per share stated value (the “Series G Preferred Stock”).  The Series G Preferred Stock will:

(i)

be junior on liquidation and sale of control of the Company to the Series E Preferred Stock and Series F Senior Preferred Stock;

(ii)

not pay any dividend or be secured by any assets of the Company;

(iii)

not be subject to mandatory redemption; and

(iv)

upon the earlier of December 31, 2004 or the Company obtaining Stockholder Approval, the Series G Preferred Stock shall be automatically converted in an aggregate number of shares of Common Stock as shall equal 68.0 million shares less all Conversion Shares.

The partners of GMI Investment Partners are The Molina Vector Investment Trust (“MVIT”), Aries Capital LLC (“Aries”), Granite Management LLC (“Granite”) and certain affiliates, financial partners and business associates of MVIT, Aries and Granite.  MVIT is an affiliate of Penthouse.  GMI Investment Partners shall escrow an aggregate of 39,916,666 of such shares of Common Stock it shall receive upon conversion of its Series G Preferred Stock, in the event and to the extent that such Adjustment Shares shall be required to be issued to holders of Notes, Series E Preferred Stock and Series F Senior Preferred Stock.

(f)

Anticipated Capitalization of the Company.  Upon issuance of the Transaction Securities, in addition to the Notes and the Series G Preferred Stock (the terms of which are described above), it is anticipated that the Capitalization of the Company shall be as follows:

7

(i)

Notes. Up to $15.0 million of Notes, containing the terms and conditions set forth above;

(ii)

Series A, B and C Preferred Stock. No shares of Series A Preferred Stock are issued, 1,000 shares of Series B Preferred Stock, convertible into 100,000 shares of Common Stock, and 10,000 shares of Series C Preferred Stock are issued, convertible into 1,000,000 shares of Common Stock;

(iii)

Series D Preferred Stock. An aggregate of 330,000 shares of Series D Preferred Stock have been issued to Penthouse in partial consideration for the contemplated sale of iBill to CCI.  The Series D Preferred Stock (A) pays no dividend, (B) has a $100 per share liquidation value, (C) is unsecured and non-redeemable, and (D) on the earlier to occur of (x) the Company obtaining Stockholder Approval and approval by the AMEX of the iBill, or (y) January 21, 2005, shall be automatically converted, together with approximately 3.2 million shares of Company Common Stock to be issued to Penthouse in connection with the consummation of the iBill sale, into that number of shares of Common Stock that would represent 49.9% of the “Fully-Diluted Company Common Stock” at the time of conversion.  Fully-Diluted Company Common St ock means all outstanding shares of Company Common Stock and all additional Common Stock issuable upon exercise or conversion of all options, warrants, convertible notes or convertible preferred stock (including, for purposes of such definition, all Common Stock issuable in connection with the Transaction Securities).  It is anticipated that an aggregate of approximately 81.4 million shares of Company Common Stock (the “Series D Conversion Shares”) will be issued to Penthouse upon full conversion of the Series D Preferred Stock.  It is anticipated that, following the acquisition of the GMI Stock and consummation of the iBill acquisition, such Series D Conversion Shares and the 3.2 million shares of Common Stock (a total of up to 85.0 million shares of Common Stock) will be distributed to the holders of Penthouse Common Stock and other securities convertible into or exercisable for shares of Penthouse Common Stock in connection with the subsequent liquidation of that entity.< /P>

(iv)

Series E Preferred Stock. $3.5 million represented by 35,000 shares of Series E Preferred Stock to be issued to Monarch Pointe Fund LP (“Monarch”) which shall: (A) pay an annual dividend of 6% per annum, until the effective date of the Registration Statement registering the underlying conversion shares and Adjustment Shares issuable upon conversion of the Series E Preferred Stock for resale; (B) be senior, at the rate of $100 per share, on liquidation and sale of control to the Company’s outstanding Series A Preferred, Stock, Series B Preferred Stock, Series C Preferred Stock and Series G Preferred Stock, (C) be junior on liquidation and sale of control to the Company’s outstanding Series F Senior Preferred Stock; (D) not be redeemable or secured by any Liens on assets of iBill or pledge of equity of iBill or Reorganized GMI; and (E) upon the earlier to occur of (x) the Company’s obtaining of Stockholder approval, or (y) December 31, 2004, shall be convertible into Common Stock at a conversion price equal to 50% of the “Market Price” (as defined) of the Company’s Common Stock, as traded on the AMEX or any other national securities exchange (the “Series E Conversion Price”), subject to a floor of $3.00 per share; provided, that at the time of conversion, the holders of the Series E Preferred Stock shall be entitled to receive the benefit of the issuance of Adjustment Shares on the same terms and conditions as holders of the Series F

8

Senior Preferred Stock and shares of Series F Senior Preferred Stock.  In addition, Monarch and its affiliate, Mercator Advisory Group (“Mercator”) will receive warrants (the “Monarch Group Warrants”) to purchase approximately 430,504 additional shares of Common Stock at an exercise price equal to the Series E Conversion Price.

(v)

Series F Senior Preferred Stock. Up to an aggregate of $5.45 million, represented by up to 54,500 shares of Series F Preferred Stock to be issued to Vestcap International Management Limited, Castlerigg Master Investments Limited and Brivis Investments Limited or their affiliates (collectively “Castlerigg”) which shall: (A) pay an annual dividend of 10% per annum, of which 50% is payable in cash and the balance payable in additional shares of Common Stock at the Conversion Price then in effect (but without regard for the $0.50 per share assumed floor; (B) be senior, at the rate of $100 per share, on liquidation and sale of control to the Notes and the Company’s outstanding Series A Preferred, Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series G Pr eferred Stock, (C) unless previously converted into Common Stock shall be redeemable at the option of the holders on September 15, 2009; (D) be secured by a second priority Lien on the assets of iBill senior to the Lien granted to the holders of the Notes, and by the pledge of equity of iBill and Reorganized GMI, on a pari passu basis with the holders of the Notes; and (E) be convertible upon the earlier of December 31, 2004 or the Company’s obtaining of Stockholder Approval into Common Stock at a conversion price equal to $3.00 per share (the “Series F Conversion Price”); provided, that if at the time of conversion, 50% of the “Market Price” (as defined) of the Company’s Common Stock, as traded on the AMEX or any other national securities exchange shall be less than $3.00, the holders of the Series F Preferred Stock shall be entitled to receive the benefit of the issuance of Adjustment Shares from the Escrowed Shares on the same terms and conditions as holders of the Notes and shares of Series E Preferred Stock. In addition, Castlerigg will receive warrants (the “Castlerigg Warrants”) to purchase approximately 610,776 additional shares of Common Stock at an exercise price of $3.00 per share.

(vi)

Outstanding and Fully-Diluted Common Stock. As at the date hereof, the Company is authorized to issue an aggregate of 30,000,000 shares of Common Stock, of which approximately 17.0 million shares of Common Stock are currently outstanding.  On a fully-diluted basis, after giving effect to:

(A)

the issuance by not later than December 31, 2004 (upon automatic conversion of the Series G Preferred Stock) of (x) 68.0 million shares of Common Stock, less (y) up to 7,983,333 Conversion Shares, in connection with the completion of the Company’s acquisition of the GMI Stock (to occur not later than October 31, 2004);

(B)

the issuance by not later than January 21, 2005 to Penthouse International Inc. (upon automatic conversion of the Series D Preferred Stock) of 85.0 million shares of Common Stock in connection with the consummation of the acquisition of 100% of the members equity of iBill (the “iBill Acquisition”), and

9

(C)

after giving effect to the issuance of all Conversion Shares (based on a $3.00 per share Conversion Price in the Series F Preferred Stock and the stated floor price set forth in the 10% Notes and certificates of designations of the Series E Preferred Stock) of all outstanding Preferred Stock,

it is anticipated that an aggregate of 170,000,000 shares of Fully-Diluted Company Common Stock will be outstanding, before issuance of up to approximately 6,100,000 shares of Common Stock (subject to anti-dilution adjustment) that may be issued as Warrant Shares to holders of 10% Notes, Series E Preferred Stock and Series F Preferred Stock.  

(g)

Stockholder Approval. Penthouse and other Company stockholders holding in excess of 50% of the outstanding shares of Company Common Stock have provided the Company with irrevocable and unconditional written approvals and consents to all of the Transactions, including, without limitation (i) the transactions contemplated by the GMI Stock Purchase Agreement, (ii) consummation of the iBill Acquisition, (iii) an amendment to the Certificate of Incorporation of the Company that, inter alia, shall increase the authorized Common Stock to 250.0 million shares of Common Stock, (iv) the sale and issuance of the 10% Notes, the Warrants, the Series E Preferred Stock, the Series F Senior Preferred Stock, the Series G Preferred Stock, and the other Warrant Shares, and (v) all of the related transactions described herein (the “Stockhold er Approval”).  The term “Stockholder Approval” shall also include the filing and approval of a listing application for the additional shares of the Company’s Common Stock to be issued upon conversion of the 10% Notes, the Series E Preferred Stock, the Series F Senior Preferred Stock and the Series G Preferred Stock, in accordance with the rules of the AMEX.   Such Stockholder Approval, in lieu of a special meeting of stockholders, are permissible under Delaware corporate law and pursuant to Section 705 and Section 712 of the rules and regulations of the AMEX.  Following the Closing Date, the Company will, in accordance with the Securities Exchange Act of 1934, as amended, file a Form 14C Information Statement with the SEC, describing the Transactions and, upon approval of such Information Statement, mail same to the Company stockholders.  No further vote or approval is required of Company stockholders receiving such Information Statement.  Accordingly , it is anticipated that the “Stockholder Approval” condition to the rights of holders of the 10% Notes, the Series E Preferred Stock, the Series F Senior Preferred Stock and the Series G Preferred Stock to convert such Securities into Common Stock, and the rights of holders of Warrants and other warrants to exercise such Securities will be obtained on or before November 30, 2004.  

In the event that, for any reason, all of the foregoing “Stockholder Approval” conditions are not satisfied by December 31, 2004, then the Company shall pay to the Purchaser in cash 2% of the $3,450,000 Purchase Price for the Series F Senior Preferred Stock for each month following December 31, 2004 that such Stockholder Approval conditions remain unsatisfied (provided, however, that to the extent that the Purchaser exercises its Exchange Option, the payment shall also be based on the purchase price of the Penthouse stock so exchanged).  The Company has agreed to pay a similar penalty to the holders of the 10% Notes and the Series E Preferred Stock.

10

(h)

AMEX Approval. In August 2004, the Company announced its consummation of the acquisition of Media Billing Company, LLC and its wholly owned subsidiary Internet Billing Company LLC (“iBill”), pursuant to the terms of a securities purchase agreement, dated July 22, 2004, as amended (the “iBill Purchase Agreement”).  On September 20, 2004, the Company received a notice from the AMEX of its intention to de-list the Company’s Common Stock from trading on the AMEX, pending a hearing requested by the Company.  The delisting notice stated, among other things, that the Company failed to furnish certain necessary information to the AMEX concerning iBill and that the iBill Acquisition raised certain public interest concerns.  On September 23, 2004, the Company agreed to rescind the closing of the iBill Acquisition.  However, the iBill Purchase Agreement continues to remain in full force and effect.  As a result of its agreement to rescind the closing of the iBill Acquisition, pending the resolution of all listing eligibility issues and AMEX approvals, the staff of the AMEX agreed to withdraw its notice of intent to de-list the Company’s securities.  

The Company intends to furnish the information requested by the AMEX on a timely basis and is hopeful that the staff of the AMEX will, upon receipt and review of such information, provide all necessary approvals for the iBill Acquisition.  There can be no assurance that the Company will be able to satisfactorily resolve all listing issues or that it will receive all such AMEX approvals associated with the iBill transaction.  However, if for any reason, AMEX approval has not been obtained by January 21, 2005, the Company will nevertheless close the iBill Acquisition, withdraw from the AMEX and seek to re-list its Common Stock on another National Securities Exchange.  

Following receipt of the AMEX notice of delisting, on September 23, 2004, each of the Company, Penthouse and GMI Investment Partners entered into an agreement (the “September 23^rd Agreement”) that provides that the iBill Acquisition will be consummated, all shares of the Company Common Stock and Series D Preferred Stock issuable to Penthouse upon consummation of the iBill Acquisition will be issued, and all of the Series D Preferred Stock will be converted into approximately 81.4 million shares of Company Common Stock, upon the earlier to occur of (i) AMEX Approval of the iBill Acquisition, or (ii) January 21, 2005.  The Company has delivered to legal counsel to Penthouse, for filing with the Secretary of State of the State of Delaware on the earlier of AMEX Approval or January 21, 2005, a duly executed undated certificate of desi gnation for the Series D Preferred Stock, containing no conditions to conversion of such securities into Common Stock.

In addition, pursuant to the September 23^rd Agreement, the Company has also delivered to legal counsel to Penthouse, for delivery to the 10% Note holders or filing with the Secretary of State of the State of Delaware, as applicable, on the earlier of Stockholder Approval or December 31, 2004 (i) duly executed 10% Notes, and (ii) duly executed undated certificates of designation for each of the Series E Preferred Stock, Series F Senior Preferred Stock and the Series G Preferred Stock, which Notes and Certificates contain no conditions to conversion of any of such securities into Company Common Stock.

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2.

Representations and Warranties of the Company. The Company represents and warrants to and agrees with Purchaser, as follows:

(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 SEC, complied and will comply, at the time of filing, in all material respects with the requirements of the Securities Act and/or the Exchange Act, as the case may be, as applicable.

(b)

Schedule A attached hereto sets forth a complete list of the subsidiaries of the Company (the "Subsidiaries").  Each of the Company and its Subsidiaries has been duly incorporated and each of the Company and the Subsidiaries is validly existing in good standing as a corporation under the laws of its jurisdiction of incorporation, with the requisite corporate power and authority to own its properties and conduct its business as now conducted as described in the Disclosure Documents and is duly qualified to do business as a foreign corporation in good standing in all other jurisdictions where the ownership or leasing of its properties or the conduct of its business requires such qualification, except where the failure to be so qualified would not, individually or in the aggregate, have a material adverse effect on the business, condition (financial or other), properties, prospects or results of operations of the Company and the Subsidiaries, taken as a whole based on a reasonable person standard (any such event, a "Material Adverse Effect").  As of the Closing Date, the Company has and will have the authorized, issued and outstanding capitalization set forth above in Section 1 this Agreement (the “Company Capitalization”).  Except as set forth in 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 own any indebtedness of, any other person.  All of the outstanding Notes 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 fre e 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 Notes 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, Notes of capital stock of or ownership interests in the Company or any Subsidiary are outstanding.

(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 take on the Indebtedness evidenced in the Notes and to permit the conversion of such Notes into Common Stock of the Company. Each of the Transaction Documents has been duly and validly authorized by the Company and, when executed and

12

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 Securities 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 Note Conversion Shares issuable have been duly authorized and validly reserved for issuance, and when issued upon conversion of the Notes in accordance with the terms of the Notes, 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.  Company has sole legal, nominal and beneficial ownership and title to the Securities and has the right to vote or direct the voting of the Common Stock, which upon conversion shall be free and clear of all adverse interests, liens, claims and encumbrances.  The delivery of the Note Conversion Shares to Purchaser, duly endorsed or accompanied 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 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.

(e)

The Conversion Price, Floor Price, Note Conversion Shares and Adjustment Shares issuable upon conversion of the Note issued to Purchaser hereunder, all other terms and conditions of conversion of the Note and the collateral granted to the Purchaser securing the Note shall be (i) as described in this Agreement, and (ii) identical in all material respects to the conversion price, terms and conditions of conversion and collateral granted to all other Purchasers of Notes and to the holders of Company Series E Preferred Stock and Series F Senior Preferred Stock.

(f)

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, (ii) as are not required to be obtained on or prior to the Closing Date that will be obtained when required.

(g)

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

13

Disclosure Documents, in default or breach (nor has any event occurred which with notice or passage of time, or both, would constitute a default) in the performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, deed of trust, loan agreement, note, lease, license, franchise agreement, permit, certificate or agreement or instrument to which it is a party or to which it is subject, which default would, individually or in the aggregate, have a Material Adverse Effect or which would create any liability, obligation, cost or expense to or for Purchaser after the Closing.

(h)

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), or (b) result in the imposition of any lien upon or with respect to any of the properties or assets now owned or hereafter acquired by the Company or any of the Subsidiaries; which violation, conflict, breach, default or lien would, individually or in the aggregate, have a Material Adverse Effect, or (c) give any third party the right to terminate or accelerate any obligation of Company under (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.

(i)

The audited consolidated financial statements included in the Disclosure Documents present fairly the consolidated financial position, results of operations, cash flows and changes in shareholders' equity of the entities, at the dates and for the periods to which they relate and have been prepared in accordance with generally accepted accounting principles applied on a consistent basis; the interim unaudited consolidated financial statements included in the Disclosure Documents are accurate and complete, present fairly the consolidated financial position, results of operations and cash flows of the entities, at the dates and for the periods to which they relate subject to year-end audit adjustments and have been prepared in accordance with generally accepted accounting principles applied on a consistent basis with the audited consolidated financial st atements included therein; the selected financial and statistical data included in the Disclosure Documents are accurate and complete, 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.

(j)

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

14

or governmental agency or body, that, if determined adversely to the Company or any such Subsidiary, would, individually or in the aggregate, have a Material Adverse Effect, would adversely affect the Company’s performance under this 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 Common Shares, that have not been corrected or disclosed in writing to Purchaser, nor are there any threats thereof known to 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.

(k)

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.

(l)

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, exc ept as described in the Disclosure Documents.

(m)

Subsequent to the respective dates as of which information is given in the Disclosure Documents and except as described therein, (i) the Company and the Subsidiaries have not incurred any material liabilities or obligations, direct or contingent, or entered into any material transactions not in the ordinary course of business or (ii) the Company and the Subsidiaries have not purchased any of their respective outstanding capital stock, or declared, paid or otherwise made any dividend or distribution of any kind on any of their respective capital stock or otherwise (other than, with respect to any of such Subsidiaries, the purchase of capital stock by the Company), (iii) there has not been any material increase in the long-term indebtedness of the Company or any of the Subsidiaries, (iv) there has not occurred any event or condition, individually or in the aggregate, that has a Material Adverse Effect, and (v) the Company and the Subsidiaries have not sustained any material loss or interference with respect to their respective businesses or properties from fire, flood, hurricane, earthquake, accident or other calamity, whether or not covered by insurance, or from any labor dispute or any legal or governmental proceeding.

(n)

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

15

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.

(o)

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.

(p)

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.

(q)

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").

(r)

None of the Company or the Subsidiaries or, to the knowledge of any of such entities' directors, officers, employees, agents or controlling persons, has taken, directly or indirectly, any action designed, or that might reasonably be expected, to cause or result in the stabilization or manipulation of the price of the Common Stock.

(s)

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.

16

(t)

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.

(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)

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 Notes and the transactions contemplated by the Transaction Documents.

(w)

The Common Stock currently trades on the AMEX.  Except as described in this Agreement or 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 AMEX or National Association of Securities Dealers.  The Company will use its best efforts, consistent with the disclosures contained in Section 1(B)(h) above, to maintain its listing on the AMEX and, if such listing shall not be maintained, will obtain a listing on another National Securities Exchange.

(x)

The Company is eligible to use Form S-1 or SB-2 for the resale of the Note Conversion Shares and any Adjustment Shares by the Purchasers or their 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 Note Conversion Shares under the securities or "blue sky" laws of any jurisdiction within the United States that is the residence or domicile of any Purchaser.  

3.

Purchase, Sale and Delivery of the Notes.  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, and Purchaser agrees to purchase from the Company, a principal amount of Notes in the amounts shown on the signature page hereto.  

One or more Notes and Warrants that the Purchaser has agreed to purchase shall be delivered by or on behalf of the Company, 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.  Payment for the Notes shall be made at the offices of the Company, 2200 S.W. 10^th Street, Deerfield Beach Florida at not later than 5:00 p.m. (New York time) on or before Wednesday, September 29, 2004 (the “Closing”), or at such date as the Purchaser and the Company may agree upon, such time and date of delivery against

17

payment being herein referred to as the "Closing Date."  The aggregate purchase price for the Notes (the “Purchase Price”) shall be paid by wire transfer of immediately available funds to the attorneys’ escrow escrow account of Gersten, Savage Kaplowitz Wolf & Marcus, LLP, counsel to the Company, or at the request of the Company, directly to the attorneys’ escrow account of Milberg Weiss Bershad & Schulman LLP, as Escrow Agent, under the GMI Securities Purchase Agreement.  At the Closing or not later than five (5) days after completion of the Closing, the Company shall deliver one or more duly executed Notes and Warrants to the Purchaser to his or its address designated in writing to the Company.  The GMI Stock Purchase Agreement was executed by the parties on September 23, 2004.  In the event that for any reason the Effective Date of the Plan referred to in the GMI Stock Purchase Agreement shall not be consummated by October 31, 2004, all escrowed funds shall be immediately returned to the Purchaser.  In such event, the Company has authorized its counsel to give irrevocable instructions to Milberg Weiss Bershad & Schulman LLP, as Escrow Agent, under the GMI Securities Purchase Agreement, to deliver to the Purchaser the full Purchase Price for the Note and the full purchase prices of all other Notes to the other Purchasers of Notes, respectively.

4.

Certain Covenants of the Company.  The Company covenants and agrees with each 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 sale of the Securities will be used to reduce or retire any insider note or convertible debt held by an officer or director of the Company.

(d)

Subject to Section 10 of this Agreement, the Note Conversion Shares and any Adjustment Shares will be listed on the American Stock Exchange (“AMEX”), or such market on which the Company's Common Stock 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 Common Stock from the Closing Date until the date that is 90 days following the effective date of the 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.

18

(g)

On the Closing Date, the Company shall file with the Secretary of State of the State of Florida, UCC-1 Financing Statements to perfect the Purchaser’s Lien on the assets of iBill.

5.

Conditions of the Purchaser's Obligations.  The obligation of each Purchaser to purchase a Note or 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 any Purchaser relating to the issuance of the Securities or any Purchaser's activities in connection therewith or any other transactions contemplated by this Agreement, the other Transaction Documents or the Disclosure Documents.

(c)

The 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)

Upon Conversion, Purchaser shall have received an opinion of Gersten Savage Kaplowitz Wolf & Marcus LLP counsel to the Company, with respect to the authorization of the Shares and other customary matters terms, reasonably satisfactory to the Purchaser.

Prior to the close of this transaction, Company shall give Purchaser immediate notice of the occurrence of any event or the receipt by Company of any notice or knowledge the effect of which would be to make a representation or warranty of Company herein untrue or misleading if made on or immediately following the occurrence of such event or the receipt of such notice or knowledge.  Company hereby agrees to protect, 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 Company’s breach of or the falsity of any of Company’s representa tions or warranties in this Agreement or as a result of Company’s breach of or failure to perform or observe any of Company’s covenants in this Agreement.

19

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 (including the Notes and the Note Conversion Shares that it may acquire upon conversion thereof, as the case may be) are being acquired for his its own account for investment and with no intention of distributing or reselling such Securities (including the Notes and the Note Conversion Shares that it may acquire upon conversion or exercise thereof, as the case may be) or any part thereof or interest therein in any transaction which would be in violation of the securities laws of the United States of America or any State.  Nothing in this Agreement, however, shall prejudice or otherwise limit a Purchaser's right to sell or otherwise dispose of all or any part of such Notes or Note Conversion Shares under an effective registration statement under the Securities Act and in compliance with applicable state securities laws or under an exemption from such registration.  By executing this Agreement, each Purchaser further represents that such Purchaser does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participation to any Person with respect to any of the Securities.

(b)

The Purchaser understands that the Notes and the Note Conversion Shares and Adjustment Shares that may be acquired upon conversion of the Notes 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 (including the Notes the Note Conversion Shares and any Adjustment Shares that he or it may acquire upon conversion or exercise thereof, as the case may be):

The Securities 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 Securities may not be transferred unless, if the Company requests, the Company has received a written opinion from counsel in form and substance satisfactory to the Company stating that such transfer is being made in compliance with all applicable federal and state securities laws.

The legend set forth above may be removed if and when the Notes or the Note Conversion Shares or the Adjustment Shares, as the case may be, are disposed of pursuant to an effective registration statement under the Securities Act or in the opinion of counsel to the Company experienced in the area of United States Federal securities laws such legends are no longer required under applicable requirements of the Securities Act.  The Notes, the Note Conversion Shares and the Adjustment Shares shall also bear any other legends required by applicable Federal or state securities laws, which legends may be removed when in the opinion

20

of counsel to the Company experienced in the applicable securities laws, the same are no longer required under the applicable requirements of such securities laws.  The Company agrees that it will provide each Purchaser, upon request, with a substitute certificate, not bearing such legend at such time as such legend is no longer applicable.  The Purchaser agrees that, in connection with any transfer of the Notes or the Note Conversion Shares or the Adjustment Shares 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 Notes or the Note Conversion Shares or any Adjustmen t Shares.

(c)

The Purchaser is an "accredited investor" within the meaning of Rule 501(a) of Regulation D under the Securities Act.  No Purchaser learned of the opportunity to purchase Notes 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 he or 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 him or it has been duly and properly authorized and this Agreement has been duly executed and delivered by him or it or on his or 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 him or it; and (iii) the purchase of the Securities to be purchased by him or 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 he or it nor any of its directors, officers, employees, agents, partners, members, or controlling persons has taken, directly or indirectly, any actions designed, or might reasonably be expected to cause or result in the stabilization or manipulation of the price of the Common Stock.

(g)

The Purchaser acknowledges he or his 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 he or they deemed necessary of, and to receive answers from, representatives of the Company concerning the terms and conditions of the offering of the Securities and the merits and risks of investing in the Securities; (ii) access to information about the Company and the Company's financial condition, results of operations,

21

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 he or it has based his or 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 his or its respective affiliates and assigns agree not to engage in short sales or other hedging transactions with respect to the Company Common Stock as long as Notes are outstanding.  

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 Purchaser in Section 6 are not true and correct in all material respects; or

(ii)

as to the Company, the sale of the Securities hereunder (i) is prohibited or enjoined by any applicable law or governmental regulation or (ii) subjects the Company to any penalty, or in its reasonable judgment, other onerous condition under or pursuant to any applicable law or government regulation that would materially reduce the benefits to the Company of the sale of the Securities to such Purchaser, so long as such regulation, law or onerous condition was not in effect in such form at the date of this Agreement.

(b)

This Agreement may be terminated in the sole discretion of Purchaser by notice to the Company given in the event that the Company shall have failed, refused or been

22

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 NASD 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 45 days from the Closing Date, the Company shall prepare and file with the SEC a Registration Statement (the “Registration Statement”) covering the resale of the maximum number of (a) Conversion Shares (including all Adjustment Shares), and (b) Warrant Shares (collectively, the "Registrable Securities") as set forth in the Registration Rights Agreement.  

10.

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:

Care Concepts I, Inc.

2200 S.W. 10^th Street

Deerfield Beach, Florida 33442

Attention:  President

Telephone:  (954) 363-4400

with a copy to:

Gertsten Savage Kaplowitz Wolf & Marcus, LLP

101 East 52^nd 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.

23

11.

Survival Clause.  The respective representations, warranties, agreements and covenants of the Company and the Purchaser set forth in this Agreement shall survive until the fifth anniversary of the Closing.

12.

Successors.  This Agreement shall inure to the benefit of and be binding upon 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. Neither the Company nor any Purchaser may assign this Agreement or any rights or obligation hereunder without the prior written consent of the other party.

13.

Fees and Expenses.  On the Closing Date, Company agrees to pay Purchaser out of pocket attorneys' fees, payable to counsel to the Purchaser of the Note in connection with sicj counsel’s review and negotiation of the Transaction Documents.

14.

No Waiver; Modifications in Writing.  No failure or delay on the part of the Company or 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 Purchaser at law or in equity or otherwise.  No waiver of or consent to any departure by the Company or 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 fo rth 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 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.

15.

Purchaser’s Representative; Senior Debt.   By his or its execution of this Agreement, the Purchaser does hereby irrevocably appoint A.J. Nassar, Charles L. Samel, or either of them (or if the Purchaser shall be Western Pacific Investment Corp. or its Affiliates, Hooman Dayani, Esq.), as the Purchaser’s representative and agent (the “Purchaser Representative”) for the sole purpose of executing any subordination, intercreditor or similar agreement or undertaking with any Senior Lender to the Company or any of its Subsidiaries in connection with any iBill Senior Financing or any other senior secured financing(s) that the Company or any of its present or future Subsidiaries may hereafter engage in, whether in connection with any acquisition, working capital financing or other transaction (collectively,

24

“Senior Debt”).  Nothing contained in the Notes or this Agreement shall impose any limitation on the amount or the ability of the Company and/or its present or future subsidiaries (including iBill) to incur indebtedness for money borrowed, including additional Senior Debt, in such amounts as the Board of Directors of the Company may, in the exercise of its sole discretion, determine.  Notwithstanding the foregoing, Purchaser is only in agreement with the provisions of this Paragraph 15, and the Paragraph 15 shall only be binding on Purchaser if all Purchasers of the Notes agree to this paragraph.

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 NEW YORK, 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 NEW YORK, NEW YORK 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, re-capitalization, 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 upon conversion, 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 issue the conversion rights of Purchaser against impairment.  

21.

Facsimile Signatures. Facsimile signatures shall be construed and considered original signatures for purposes of enforcement of the terms of this agreement.

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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,

Care Concepts I, Inc.

By:

___________________________

Name:

Gary Spaniak, Jr.

Title:

President

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Purchaser Signature Page:

ACCEPTED AND AGREED TO

This __ day of September 2004:

_____________________________

By:

_______________________

Title

_______________________

Amount of Notes Purchased:  $_________

Purchase Price:  $_________

Address for Notice to Purchaser:

____________________________________

____________________________________

____________________________________

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Exhibit A

Note

Exhibit B

Warrant

Exhibit C

Security Agreement

Exhibit D

Pledge Agreement

Exhibit E

Registration Rights Agreement

Exhibit F

GMI Stock Purchase Agreement

EX-10.2

EXHIBIT 10.2

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

10% CONVERTIBLE SECURED NOTE

FOR VALUE RECEIVED, CARE CONCEPTS I, INC., a Delaware corporation (the “Company”), hereby promises to pay to ______________________________________, having an address at ________________________________________________________________ (the “Holder”) or his or its registered assigns or successors in interest, on order, the sum of ________________________________________ DOLLARS ($_________), or such other amount as may be from time to time owing to the Holder hereunder, together with any accrued and unpaid interest hereon, on September 15, 2009 (the “Maturity Date”) if not sooner paid.

For purposes hereof, a “Business Day” means any day on which United States federally chartered banks are open for business and a “Trading Day” means each day the applicable National Market (as defined in Section 2.4) on which the Common Stock (as defined in Section 1.2) is traded is open and available to trade securities.  Capitalized terms used herein without definition shall have the meanings ascribed to such terms in that certain Subscription Agreement dated as of September 20, 2004 between the Company and the Holder (the “Purchase Agreement”).

The following terms shall apply to this Note:

ARTICLE I
INTEREST & AMORTIZATION

1.1.

Interest Rate and Payment.  Interest on this Note shall be payable as to the outstanding principal only, at the rate of 10% per annum, payable semi-annually on June 30^th and December 31^st of each year (each an “Interest Payment Date”) based on a 360 day calendar year.  The Company shall have the right on each Interest Payment Date to pay interest on this Note payable either (a) 100% in cash, or (b) at the option of the Company, 50% in cash and the balance in additional shares of Company Common Stock valued at the Conversion Price (as hereinafter defined) for the five trading days prior to the interest payment date, but without regard to the “Assumed Floor Price” (as hereinafter defined) then in effect.  In the event that the Holder elects to convert all or any part of this Note, acc rued interest on the outstanding balance of this Note shall be paid on the next scheduled Interest Payment Date, and a pro rata amount of interest shall be paid for any period of less than six months.

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1.2.

Principal Payment.  Unless previously converted by the Holder into common stock, $0.001 par value per share, of the Company (the “Common Stock”), shall be payable as to principal, together with all accrued and unpaid interest, on September 15, 2009 (the “Maturity Date”).

1.3

Prepayment.

At such time (and only at such time) as all shares of Common Stock issuable upon conversion of the entire amount of this Note (the “Conversion Shares”) shall have been registered for resale under the Securities Act of 1933, as amended, pursuant to an effective Registration Statement covering such Conversion Shares, or an exemption from such registration requirements shall be available with respect to the Conversion Shares, the Company shall have the right, upon not less than ninety (90) days prior written notice to the registered Holder of this Note (the “Prepayment Notice”), to prepay all or any portion of this Note, together with accrued interest on the principal amount so prepaid; provided, however, that the Holder of this Note shall have the absolute right to convert all or any portion of this Note into Common Sto ck at the Conversion Price then in effect, at any time on or before the date (the “Prepayment Date”) set forth in such Prepayment Notice on which all or any portion of this Note shall be so prepaid. The parties acknowledge that the Company shall provide a copy of such Prepayment Notice to the holders of the Company’s Series F Senior Preferred Stock upon at least ninety (90) days prior to the Prepayment Date and that the holders of such Series F Preferred Stock shall have the right to require the Company to redeem all or a portion of such Series F Senior Preferred Stock by written notice provided to the Company within thirty (30) days of receipt of such Prepayment Notice.     

ARTICLE II
CONVERSION RIGHTS

2.1.

Holder’s Conversion Rights. Upon the earlier to occur of (a) December 31, 2004, or (b) the Corporation’s obtaining “Stockholder Approval” (as that term is defined in the Subscription Agreement) and until the Maturity Date, the Holder shall have the right, but not the obligation, to convert all or any portion of the then aggregate outstanding principal amount of this Note, together with Interest due hereon, into shares of Common Stock subject to the terms and conditions set forth in this Article II.  The Holder may exercise such right by delivery to the Company of a written notice of conversion not less than three (3) Business Days prior to the date upon which such conversion shall occur.  The date upon which such conversion shall occur is the conversion date (“Conversion Date”).  Holder shall h ave the right to convert any portion of the then aggregate outstanding amount of this Note, together with interest due thereon at any time.

2.2.

Conversion Limitation. Notwithstanding anything contained herein to the contrary, pursuant to the terms of this Note, the Holder shall not be entitled to convert on a Conversion Date (as defined in Section 3.3(a)) that number of shares of Common Stock which would be in excess of the sum (i) the number of shares of Common Stock actually owned by the Holder and its affiliates on a Conversion Date and (ii) the number of shares of Common Stock issuable upon the conversion of this Note and exercise of the warrants held by such Holder and its affiliates with respect to which the determination of this proviso is being made on a Conversion Date, which would result in beneficial ownership by the Holder and its affiliates of

2

more than 9.99% of the outstanding shares of Common Stock of the Company on such date.  For the purposes of the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Exchange Act and Regulation 13d-3 thereunder.  The Holder may void the limitation described in this Section 2.2 upon 75 days prior notice to the Company or without any notice requirement upon an Event of Default.

2.3.

Procedures for Conversion.

(a)

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

(b)

Pursuant to the terms of the Notice of Conversion, the Company will issue instructions to the transfer agent (together with such other documents as the transfer agent may request) within two (2) Business Days of the date of the delivery to Company of the Notice of Conversion.  If the Registration Statement (as defined in the Registration Rights Agreement) is effective or the Conversion Shares are eligible for sale pursuant to Rule 144 promulgated under the Securities Act of 1933, the Company shall cause the transfer agent to transmit the certificates representing the “Conversion Shares” and any “Adjustment Shares” (as hereinafter defined) to any address or depositary directed by the Holder within three (3) Business Days after receipt by the Company of the Notice of Conversion (the “Delivery Date”).  

2.4.

Conversion Mechanics.  

(a)

The number of shares of Common Stock to be issued upon each conversion of this Note (the “Conversion Shares”) shall be determined by dividing that portion of the principal and interest to be converted, if any, by the “Conversion Price” then in effect.  The Conversion Price shall be equal to 50% of the average closing price of Company, as traded on the American Stock Exchange, Inc. (the “AMEX”) or on the Nasdaq Stock Exchange, the New York Stock Exchange or the NASD OTC-Bulletin Board (together with the AMEX, a “National Securities Exchange”), for the five Trading Days immediately prior to the Conversion Date; provided, however, that in no event shall the Conversion Price be less than $3.00 per share (the “Floor Price”).   ; 

(b)

Notwithstanding the foregoing $3.00 per share Floor Price, in the event that 50% of the average closing price of Company Common Stock, as traded on the AMEX or

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another National Securities Exchange, for the five trading days immediately prior to the Conversion Date, shall be less than the $3.00 Floor Price on the date the Conversion Notice is given to the Company by the Holder, then, and in such event, the Holder shall be entitled to receive from the “Escrowed Shares,” hereinafter defined, that number of additional shares of Common Stock of the Company (the “Adjustment Shares”) as shall represent, together with the number of Note Conversion Shares issued at the Conversion Price then in effect, the aggregate number of shares of Common Stock that would have been issuable (a) based upon the Conversion Price then in effect, and (b) assuming that the Floor Price had been reduced to $0.50 per share (the “Assumed Floor Price”).  

A maximum of up to 39,916,666 Adjustment Shares of the Company are subject to potential issuance to (i) up to a maximum of 25,000,000 of such Adjustment Shares, to the Holder of this Note and other Holders of to a maximum of $15,000,000 of 10% Notes (ii) up to a maximum of 5,833,333 of such Adjustment Shares to the holders of $3,500,000 stated value of Series E Preferred Stock referred to in the Subscription Agreement, and (iii) up to a maximum of 9,083,333 of such Adjustment Shares to the holders of the $5,450,000 stated value of Series F Senior Preferred Stock referred to in the Subscription Agreement..  

For the avoidance of doubt, if for example, the Holder of this Note sends a Conversion Notice to convert $1,000,000 of its Note and the Conversion Price (calculated based upon 50% of the average closing price of Company, as traded on the AMEX or another National Securities Exchange, for the five trading days immediately prior to the Conversion Date) shall be $1.00 per share, notwithstanding the $3.00 Floor Price in this Note, the Holder would be entitled to receive for no additional consideration, out of the Escrowed Shares described below, an additional 666,667 shares of Common Stock.  In such example, however, based on the $0.50 per share Assumed Floor Price, in no event would the Company be required to issue more than 1,666,667 Adjustment Shares, even if the Conversion Price then in effect was less than $0.50.  

To avoid further dilution to the Company if Adjustment Shares become issuable to the Holder, other holders of the Notes, and the holders of Series F Senior Preferred Stock and Series E Preferred Stock, GMI Investment Partners, a principal stockholder of the Company, and their affiliates described in the Subscription Agreement, have agreed to place in a joint escrow between legal counsel to the Company and legal counsel to the respective holders of each of the Notes, the Series F Senior Preferred Stock and Series E Preferred Stock an aggregate of 29,929 shares of the Company’s “Series G Preferred Stock” (described below) that are automatically convertible into an aggregate of 39,916,666 shares of Common Stock of the Company by not later than December 31, 2004 (the “Escrowed Shares”).   In the event that the Conversion Price shal l be less than $3.00 per share on any Conversion Date, within three (3) Business Days after a Conversion Notice shall be delivered to counsel to the Company and to the Holder setting forth the calculation of the appropriate number of Escrowed Shares to be delivered to the Purchaser as Adjustment Shares, the Escrow Agents shall cause certificates evidencing such Adjustment Shares (up to the maximum of 25,000,000 Adjustment Shares available to Holder of this Note and all other Holders of 10% Notes) to be delivered to the Purchaser.  

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(c)

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

(d)

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

(i)

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

(ii)

Stock Splits, Combinations and Dividends.  If the shares of Common Stock outstanding at any time after the date hereof are subdivided or combined into a greater or smaller number of shares of Common Stock, or if a dividend is paid on the Common Stock in shares of Common Stock, the Conversion Price or the Adjustment Shares to be issued, as the case may be, shall be proportionately reduced in case of subdivision of shares or stock dividend or proportionately increased in the case of combination of shares, in each such case by the ratio which the total number of shares of Common Stock outstanding immediately after such event bears to the total number of shares of Common Stock outstanding immediately prior to such event.

2.5.

Reorganizations, Consolidations, etc.

In the event, at any time after the date hereof, of any capital reorganization, or any reclassification of the capital stock of the Company (other than a change in par value or from par value to no par value or from no par value to par value or as a result of a stock dividend or subdivision, split-up or combination of shares), or the consolidation or merger of the Company with or into another person (other than a consolidation or merger in which the Company is the continuing corporation and which does not result in any change in the powers, designations, preferences and rights (or the qualifications, limitations or restrictions, if any) of the capital stock of the Company as amended from time to time) (any such transaction, an “Extraordinary Transaction”), then all of the amounts owed under this Note shall be exercisable for the kind and number of shares of stock or other securities or property of the Company, or of the corporation resulting from or surviving such Extraordinary Transaction, that a holder of the number of shares of Conversion Shares deliverable (immediately prior to the effectiveness of the Extraordinary Transaction) upon conversion of the amounts owed under this Note would have been entitled to receive upon such Extraordinary Transaction.  

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ARTICLE III
EVENTS OF DEFAULT

Upon the occurrence and continuance of an Event of Default beyond any applicable grace period, the Holder, at its sole and absolute discretion, may make all sums of principal and interest fees then remaining unpaid hereon and all other amounts payable hereunder due and payable within ten (10) Business Days after written notice from Holder to Company (each occurrence being a “Default Notice Period”), provided, however, that such Default Notice Period shall not apply to Sections 3.4, 3.5 and 3.6 below.  If, with respect to any Event of Default within the Default Notice Period the Company cures the Event of Default, the Event of Default will be deemed to no longer exist, and except for the payment of late fees by Company, any rights and remedies of Holder pertaining to such Event of Default will be of no further force or effect.

The occurrence and continuation of any of the following events is an “Event of Default”:

3.1.

Failure to Pay Principal or Interest.  The Company fails to pay when due any installment of Interest hereon or the unpaid principal amount of this Note on the Maturity Date in accordance herewith.

3.2.

Material Breach of Covenant.  The Company breaches any material covenant or other term or condition of this Note, the Purchase Agreement, or in any Transaction Document, in any material respect and such breach, if subject to cure, continues for a period of thirty (30) calendar days after notice of such breach is given by the Holder.

3.3.

Material Breach of Representations and Warranties.  Any material representation or warranty of the Company made herein, in the Purchase Agreement, or in any Transaction Document shall have been false or misleading when made and shall not be cured for a period of thirty (30) calendar days.

3.4.

Receiver or Trustee.  The Company shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business; or such a receiver or trustee shall otherwise be appointed.

3.5.

Judgments.  Any money judgment, writ or similar final process shall be entered or filed against the Company or any of its property or other assets for more than $1,000,000, and shall remain unvacated, unbonded or unstayed for a period of ninety (90) days.

3.6.

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

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3.7.

Failure to Cause to Exist an Effective Registration Statement.  The Company’s failure to file and cause to exist a current effective Registration Statement (as defined in the Registration Rights Agreement) by June 30, 2005 covering resale of the Conversion Shares and any Adjustment Shares issuable in connection with conversion of the entire amount of this Note (the “Required Effective Date”).  

3.8.

Guaranty; Security Agreement and Pledge Agreement.  (a) If either Media Billing Company, LLC (“Media Billing”) and Internet Billing Company, LLC (“iBill”), as guarantors of payment of this Note (each, a “Guarantor”) shall repudiate, purport to revoke or fail to perform any of its obligations under any guaranty agreement made by such Guarantor in favor of the Holder or (b) if an Event of Default shall have occurred and be continuing under and as defined in any Security Agreement or Pledge Agreement (each as defined hereafter) which shall not have been cured during any applicable cure or grace period.  For purposes hereof, (i) “Security Agreement” means a security agreement providing for the Holder of this Note and all other Notes with a subordinated Lien on the assets o f iBill, and (ii) “Pledge Document” means the Pledge Agreement dated as of the date hereof, pursuant to which the Company has pledged to all Holders of Notes and holders of shares of Series F Senior Preferred Stock all shares of common stock of General Media, Inc. owned by the Company.

3.9.

Failure to Exercise Certain Contractual Rights.  If following December 31, 2004, either Penthouse International, Inc. or GMI Investment Partners shall fail or refuse, within ten (10) days of receipt of notice from the Holder of this Note, to exercise the rights granted to such entities under Section 6 of a stock purchase agreement, dated September 23, 2004, among GMI Investment Partners, Penthouse International, Inc. and the Company.

3.10.

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

ARTICLE IV
SUBORDINATION AND DEFAULT RELATED PROVISIONS

4.1.

Subordination on Liquidation or Sale of Control.  In the event of the dissolution or liquidation of the Company, or (a) the sale, in any one or a series of transactions, of all or substantially all of the assets and properties of the Company and its consolidated subsidiaries, (b) the merger or consolidation of the Company with any other entity, or (c) a tender offer, takeover bid or related transaction; in each case, involving any one or more third person, firm or corporation not a current Affiliate of the Company or Penthouse International, Inc., that upon completion of or in connection with such transaction, shall have the power to elect a majority of the members of the board of directors of the Company (each a “Sale of Control”), the right of the Holder of this Note to receive payments hereunder shall be expressly subjec t and subordinated to the rights of the holders of the Series F Senior Preferred Stock of the Company to receive payment in full of their Redemption Amounts, if any.

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4.2

Subordination on Prepayment.  In the event that the holders of the Company’s Series F Senior Preferred Stock request the Company to redeem all or a portion of such Series F Senior Preferred Stock in accordance with Section 1.3, the rights of the Holder of the Note to receive any prepayment shall be expressly subject and subordinated to the rights of  the holder of the Series F Senior Preferred Stock to redemption of the shares of Series F Senior Preferred Stock and payment of  the Redemption Amounts.

4.3

Payment Grace Period.  After the occurance of an Event of Default hereunder and during the continuation thereof, until cured, a default interest rate of ten percent (10%) per annum above the then applicable interest rate hereunder shall apply to the monetary amounts due.

4.4

Conversion Privileges.  The conversion privileges set forth in Article II shall remain in full force and effect immediately from the date hereof and until this Note is paid in full or until all of the then outstanding Principal Amount and interest and other fees payable hereunder shall have been converted into shares of Common Stock.

ARTICLE V
MISCELLANEOUS

5.1.

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

5.2.

Notices.  Any notice herein required or permitted to be given shall be in writing and shall be deemed effectively given:  (i) upon personal delivery to the party notified, (ii) when sent by confirmed telex or facsimile if sent during normal business hours of the recipient, if not, then on the next Business Day, (iii) five days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (iv) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt.  All communications shall be sent to the Company at the address provided in the Purchase Agreement executed in connection herewith, and to the Holder at the address provided in the Purchase Agreement for such Holder, or at such other address as the Company or the Holder may designate by ten days advance written notice to the other parties hereto.  A Notice of Conversion shall be deemed given when made to the Company pursuant to the Purchase Agreement.

5.3.

Amendment Provision.  The term “Note” and all reference thereto, as used throughout this instrument, shall mean this instrument as originally executed, or if later amended or supplemented, then as so amended or supplemented, and any successor instrument issued pursuant to Section 2.5 hereof, as it may be amended or supplemented. The parties acknowledge

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that this Note may not be amended in any manner that would adversely affect the rights and preferences of the holders of the Series F Senior Preferred Stock  without the express written consent of the holders of the Series F Senior Preferred Stock.

5.4.

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

5.5.

Governing Law.

(a)

This Note cannot be changed or terminated orally, and shall be governed by and construed in accordance with the laws of the State of New York, without regard to principles of conflicts of laws.  Any action brought by either party against the other concerning the transactions contemplated by this Note shall be brought only in any state or federal court sitting in the Borough of Manhattan, City of New York; provided that nothing contained in this Note shall be deemed to preclude Holder from bringing suit or taking other legal action in any other court of competent jurisdiction and nothing shall be deemed to preclude the Company from asserting any defenses or counterclaims in any such actions.  Both the Company and the individual executing this Note on behalf of the Company agree to submit to the jurisdiction of such courts and waive trial by j ury. The Company and the individual executing this Note further consent that any summons, subpoena or other process or papers (including, without limitation, any notice or motion or other application to either of the aforementioned courts or a judge thereof) or any notice in connection with any proceedings hereunder, may be served by registered or certified mail, return receipt requested, or by personal service provided a reasonable time for appearance is permitted, or in such other manner as may be permissible under the rules of said courts.  The Company and the individual executing this Note waive any objection to jurisdiction and venue of any action instituted hereon in the Supreme Court for the State of New York, County of New York or the United States District Court for the Southern District of New York and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens in any action brought in either such court.

(b)

The prevailing party shall be entitled to recover from the other party its reasonable attorney’s fees and costs.  

(c)

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

5.6.

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

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5.7.

Security Interests.  The Holder of this Note has been granted a security interest in certain assets of the Company and iBill, as more fully described in the Security Agreement and the Pledge Agreement.

5.8.

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

 [Balance of page intentionally left blank; signature page follows.]

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IN WITNESS WHEREOF, the Company has caused this Convertible Term Note to be signed in its name effective as of this _______ day of September, 2004.

CARE CONCEPTS I, INC.

By:________________________________

Name:______________________________

Title:_______________________________

WITNESS:

_______________________________

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EXHIBIT A

NOTICE OF CONVERSION

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

[Name and Address of Holder]

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

1.

Date of Conversion

_______________________

2.

Shares To Be Delivered:

_______________________

Date: ____________

.

By:_______________________________

Name:_____________________________

Title:______________________________

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EX-10.3

EXHIBIT 10.3

SECURITY AGREEMENT

THIS SECURITY AGREEMENT (this “Agreement”), dated as of September 24, 2004 (the “Effective Date”), is made by and among (A) CARE CONCEPTS I, INC., a Delaware corporation (“CCI”), MEDIA BILLING COMPANY LLC, a New York limited liability company “Media Billing”) and INTERNET BILLING COMPANY LLC, a Georgia limited liability company (“iBill”); (B) NEWMAN & NEWMAN, P.C. (the “Collateral Agent”), acting on behalf of the “Secured Parties” (hereinafter defined): and (C) the persons or entities who have executed this Agreement on the signature page hereof as “Secured Parties.   Each of CCI, Media Billing and iBill are hereinafter individually referred to as a “Debtor” and are hereinafter sometimes collectively referred to as the “Debtors.”

WHEREAS, as at the Effective Date, pursuant to subscription agreements dated as of September 20, 2004 (the “Purchase Agreements”), CCI has sold and issued to the Secured Parties (the “Note Secured Parties”) up to $15,000,000 of CCI’s 10% convertible secured notes due September 15, 2009 (the “Notes”); and

WHEREAS, pursuant to the Purchase Agreements, CCI has sold and issued to certain other Secured Parties (the “Series F Secured Parties”) up to $5,450,000 of CCI’s 10% convertible secured redeemable Series F preferred stock (the “Series F Senior Preferred Stock”), and

WHEREAS, to the extent not previously converted into shares of CCI common stock, $0.001 par value per share (“CCI Common Stock”), the obligation of CCI to (a) pay the accrued interest on the Notes and the then outstanding principal amount of Notes, and any other amounts that may be due and payable on September 15, 2009 (the “Note Maturity Date”), and (b) redeem and repurchase any then outstanding shares of Series F Senior Preferred Stock by September 15, 2009 (the “Mandatory Redemption Date”) have been unconditionally and irrevocably guaranteed by the Debtors, pursuant to a Continuing Unconditional Guaranty, dated as of the Effective Date; and

WHEREAS, the obligation of the Secured Parties to purchase the principal of and accrued interest and any other amounts due on the Notes is conditioned upon, among other things, the execution and delivery of this Agreement by the Debtors to the Secured Parties.

NOW, THEREFORE, each of the Debtors and the Secured Parties agree as follows:

1.

Definitions and Incorporation by Reference.  Capitalized terms used but not defined in this Agreement shall have the meanings assigned to such terms in the Notes.  In addition, terms not defined in this Agreement or the Notes that are defined in the New York

1

Uniform Commercial Code (the “Code”) shall have the same meaning in this Agreement as in the Code.  

2.

Grant and Priority of Security Interests to Secured Parties; Subordination to Senior Obligations and Senior Liens.  

(a)

The Debtors hereby jointly and severally grant to the Secured Parties a lien and security interest (“Lien”) in and to the Collateral (as defined in Section 3 below) to secure the payment and performance of all of the “Obligations” (as defined in Section 4 below).  The priority of the Secured Parties Lien, as between the Note Secured Parties and the Series F Secured Parties, shall be as set forth in Section 2(b) below.  Except for (i) the first priority liens and security interests (the “First Priority Lien”) on the assets and properties of the Debtors that may be hereafter granted by CCI or any of the Debtors to any person, firm, corporation or other entity (the “Senior Lender”), securing a maximum of $10,000,000 principal amount of indebtedness to be outstanding from time t o time, together with all interest, fees and other costs associated therewith (collectively, “Senior Debt”), hereafter issued under any line of credit or similar loan or credit agreement or facility or any restatement, amendment or modification thereof (the “Senior Loan Agreement”), the Secured Parties Lien granted under this Agreement shall constitute a priority lien and security interest senior to all other liens and security interests.  The Secured Parties do hereby irrevocably and unconditionally authorize the Collateral Agent to execute on behalf of each of the Secured Parties a Subordination Agreement (as defined below), for the purpose of subordinating the Secured Parties Lien to such First Priority Lien of the Senior Lender up to and including the maximum amount of the Senior Debt.

(b)

The Secured Parties Lien granted to the Secured Parties shall constitute a third priority lien and security interest (the “Third Priority Lien”) securing CCI’s obligations under the Notes, and are subject and subordinated only to the (i) First Priority Lien held by the Senior Lender and those additional existing Liens, if any, on the Collateral that are listed on Schedule A annexed hereto, and (ii) the second priority lien and security interest (the “Second Priority Lien”) securing CCI’s Obligations to the holders of Series F Senior Preferred Stock.  The First Priority Lien, those additional existing Liens, if any, on the Collateral that are listed on Schedule A annexed hereto, and the Second Priority Lien are hereinafter referred to as the “Senior Liens.”  Except for the Senior Liens, the Debtors shall not grant any liens or security interests in and to the Collateral that shall be senior to or have a priority over the Third Priority Lien granted to the Secured Parties hereunder.

(c)

The Secured Parties do hereby covenant and agree that (i) the Obligations be, and the same hereby are, expressly subject and subordinated in all respects, to the prior payment in full of all indebtedness and related obligations that are or may be now or hereafter granted by the Debtors and/or CCI to any one or more holders of the Senior Liens, and (ii) the Secured Parties Lien is hereby subject and subordinated in all respects, to Senior Liens now or hereafter granted by the Debtors and/or CCI.  Each of the Secured Parties does hereby irrevocably and unconditionally appoint the Collateral Agent, as their agent and attorney-in-fact to execute and deliver upon behalf of each Secured Party any intercreditor agreement,

2

subordination agreement or similar agreement (collectively, “Subordination Agreements”) as may, from time to time be requested by any one or more Senior Lender to confirm or evidence the subordination provisions herein set forth.

3.

Collateral.  The collateral in which the Secured Parties is granted a security interest by this Agreement (collectively, the “Collateral”) is all of the following property of the Debtors, whether now owned or existing or hereafter acquired or arising and wherever located:

(a)

All accounts, accounts receivable, contracts, notes, bills, acceptances, choses in action, chattel paper, instruments, documents and other forms of obligations at any time owing to the Debtors arising out of goods sold or leased or for services rendered by the Debtors, the proceeds thereof and all of the Debtors’ rights with respect to any goods represented thereby, whether or not delivered, goods returned by customers and all rights as an unpaid vendor or lienor, including rights of stoppage in transit and of recovering possession by proceedings including replevin and reclamation, together with all customer lists, books and records, ledger and account cards, computer tapes, software, disks, printouts and records, whether now in existence or hereafter created, relating thereto (collectively referred to hereinafter as “Accounts”);

(b)

All goods of the Debtors, including without limitation, all machinery, equipment, motor vehicles, parts, supplies, apparatus, appliances, tools, patterns, molds, dies, blueprints, fittings, furniture, furnishings, fixtures and articles of tangible personal property of every description now or hereafter owned by the Debtors or in which the Debtors may have or may hereafter acquire any interest, at any location;

(c)

All inventory of the Debtors wherever located in the United States of America and any state, district, territory or other political subdivision thereof, including without limitation, all goods manufactured or acquired for sale or lease, and any piece goods, raw materials, work in process and finished merchandise, findings or component materials, and all supplies, goods, incidentals, office supplies, packaging materials and any and all items used or consumed in the operation of the business of the Debtors or which may contribute to the finished product or to the sale, promotion and shipment thereof, in which the Debtors now or at any time hereafter may have an interest, whether or not the same is in transit or in the constructive, actual or exclusive occupancy or possession of the Debtors or is held by the Debtors or by others for the Debtors are accou nt (collectively referred to hereinafter as “Inventory”);

(d)

All general intangibles of the Debtors, now existing or hereafter owned or acquired or arising or in which the Debtors now has or hereafter acquires any rights, business records, inventions, designs, patents, patent applications, trademarks, trademark registrations and applications therefor, goodwill, trade names, trade secrets, trade processes, copyrights, copyright registrations and applications therefor, licenses, permits, franchises, customer lists, computer programs, software, software source codes, software object codes, all claims under guaranties, tax refund claims, rights and claims against carriers and shippers, leases, claims under insurance policies, all rights to indemnification and all other intangible personal property and intellectual property of every kind and nature;

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(e)

All rights now or hereafter arising to the Debtors under contracts, leases, agreements or other instruments to perform services, to hold and use land and facilities, and to enforce all rights thereunder;

(f)

All books and records relating to any of the Collateral (including without limitation, customer data, credit files, computer programs, printouts, and other computer materials and records of the Debtors pertaining to any of the foregoing);

(g)

all of the Debtors interest in any company, limited liability company, partnership or entity, whether now held or hereafter acquired, and any capital stock, equity units or membership interests in any other corporation , partnership, limited liability company or other business entity;

(h)

All accessions to, substitutions for and all replacements, products and proceeds of the foregoing, including without limitation proceeds of insurance policies insuring the Collateral.

Notwithstanding anything to the contrary, express or implied, set forth above, CCI shall have the absolute right at any time, or from time to time, to substitute as Collateral for all of the foregoing assets and properties of Debtors, an irrevocable bank letter of credit or indemnity bond or similar surety issued by a bonding or insurance company for a term lasting until the payoff of all obligations under the Note, with a Best “AA” rating or better (collectively, “Cash Equivalent Collateral”), in aggregate face amount equal to not less than (a) the maximum $15,000,000 original outstanding principal amount of Notes, less (b) the principal amount of all Notes that have been converted into Common Stock immediately prior to the date such Cash Equivalent Collateral shall be posted with the Secured Parties or the Collateral Agent.  The form and co ntent of any such Cash Equivalent Collateral shall be subject to the approval of the Secured Parties; such approval not to be unreasonably withheld or delayed.  Upon delivery and acceptance of such Cash Equivalent Collateral, the Secured Parties shall cause to be delivered to CCI such UCC-3 Termination Statements as may be required to terminate all Liens and other security interests on all Collateral, excluding the Cash Equivalent Collateral substituted therefore.

4.

Obligations.  The security interest granted pursuant to this Agreement secures the payment and performance of the following indebtedness, liabilities and obligations (collectively, the “Obligations”):

(a)

all the obligation of CCI to the Secured Parties to pay the periodic interest due and principal amount of and any other amounts payable under the Notes as they become due;

(b)

all of the obligations of the Debtors under the Continuing Unconditional Guaranty;

(c)

all of the obligations and liabilities of CCI under the Pledge Agreement; and

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(d)

all liabilities and obligations of CCI and the Debtors under this Agreement.

5.

Representations, Warranties and covenants.  The Debtors hereby represent, warrant and covenant as follows:

5.1

Power and Authority.  The Debtors have full power and authority to enter into this Agreement, grant to the Secured Parties a valid security interest in the Collateral and perform all of their obligations under this Agreement, no further action by the Board of Directors or the shareholders or members of the Debtors being necessary.  The execution, delivery and performance by the Debtors of this Agreement do not conflict with, or constitute a breach or default under, any judgment, indenture, loan agreement contract or other agreement or instrument to which the Debtors are a party or by which the Debtors or any of its property is bound.

5.2

Governmental Authorization.  No authorization, consent or approval or other action by, and no notice to or other filing with, any governmental authority or regulatory body is required for the grant by the Debtors of the security interest granted pursuant to this Agreement, the due execution and delivery by the Debtors of this Agreement or the performance by the Debtors of any of its obligations under this Agreement.

5.3

Title to Collateral.  Subject to the security interest granted by this Agreement and the Senior Liens, the Debtors are the owners and holders of all the Collateral, free and clear of any security interest, lien, charge, encumbrance or other adverse claim, and the Debtors will defend all of the Collateral (whether now owned or hereafter acquired) against all claims and demands of all persons at any time claiming the same or any interest therein, and will take all steps to maintain the Secured Parties Lien as a valid and fully perfected lien first in priority to all other Liens, in each case subject only to the Senior Liens.  Except for the Senior Liens securing Senior Debt, in the event and to the extent that either of the Debtors shall grant any additional liens or security interests on their assets, such additional liens shall be expressly subject and subordinated to the Secured Parties Lien granted hereunder.

5.4

Place of Business and Name.  The Debtors’ chief place of business is at the address set forth next to such Debtors’ signature below.  No Debtor shall have changed its name, except as indicated below the Debtors’ signature below.  No Debtor will change its name or the location of its chief place of business, without the prior written consent of the Secured Parties, which shall not be unreasonably withheld.

5.5

Financing Statements; Related Instruments.  No financing statement covering any of the Collateral or any proceeds thereof is currently on file in any public office in any jurisdiction, other than financing statements covering the Senior Liens.  At the request of the Secured Parties, the Debtors will execute and deliver to the Secured Parties one or more financing statements in form and substance satisfactory to the Secured Parties and will pay the cost of filing the same in all public offices where filing is deemed by the Secured Parties to be

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necessary or desirable.  The Debtors promise to pay to the Secured Parties all fees and expenses incurred in filing financing statements and any continuation statements or amendments thereto, which fees and expenses shall become a part of the Obligations secured by this Agreement.  A carbon, photographic or other reproduction of this Agreement or any financing statement covering the Collateral or any part thereof shall be sufficient as a financing statement.

5.6

Transfers of Collateral.  Neither the Debtors nor their agents, servants or employees will sell, encumber, assign or offer to sell, encumber or assign or otherwise transfer the Collateral, either in whole or in part, or any interest therein without the prior written consent of the Collateral Agent, other than as contemplated by the Notes or the Series F Senior Preferred Stock.  

5.7

Compliance with Laws.  The Debtors agree to comply in all material respects with all statutes, laws, ordinances, rules and regulations applicable to it and to the conduct of its businesses.

5.8

Taxes.  The Debtors will pay promptly when due all taxes and assessments upon or with respect to the Collateral, the Obligations, this Agreement or any other instrument executed pursuant to this Agreement.  The Debtors hereby authorize the Collateral Agent to discharge upon five (5) days prior written notice any taxes, assessments, liens, security interests or other encumbrances at any time levied or placed on the Collateral, to pay for any insurance on the Collateral required to be maintained by the Debtors hereunder, and pay for, make or provide for any maintenance, repair or preservation of the Collateral as herein required; provided, however, that the Collateral Agent shall be under no obligation to do so.

5.9

Schedules, Inspection of Books and Records.  The Debtors will furnish to the Secured Parties from time to time (i) statements and schedules further identifying and describing the Collateral and detailing sales or other transfers of the Collateral and payments received or accounts owing with respect to the Collateral for the periods specified by the Secured Parties, and (ii) such other reports in connection with the Collateral as the Secured Parties may reasonably request, all in reasonable detail.  The Debtors will permit the Secured Parties or their duly authorized representatives upon reasonable prior notice to examine their books and records during business hours and shall furnish to the Secured Parties such financial statements and other financial data as the Secured Parties may reasonably request from time to time.

5.10

Accounts.  With respect to the Accounts:

(a)

The Debtors’ records concerning all Accounts are and will be kept solely in the State of New York and at the Debtors’ chief place of business specified on the signature page below.  The Debtors will not remove any of such records from such address without the prior written consent of  the Collateral Agent, which shall not be unreasonably withheld.  Without in any way excusing a breach by the Debtors of the foregoing sentence, if for any reason any of such records concerning the Accounts shall at any time be moved to another location or

6

locations, the Debtors will promptly notify the Collateral Agent of any such change in the location of such records and will execute and deliver such financing statements and do such other acts and things as the Collateral Agent may request pursuant to Section 10 hereof.

(b)

Each item of Accounts is, or at such time as it becomes part of the Collateral will be, a bona fide, valid and legally enforceable obligation of the account debtor or other obligor in respect thereof, subject to no defense known to the Debtors, set-off or counterclaim against the Debtors and in connection with which there is no default with respect to any payment or performance on the part of the Debtors or any other party.

(c)

The Debtors will at all times keep accurate and complete records of payment and performance by the Debtors, the respective account debtors and all other parties obligated on the Accounts.

(d)

The Debtors will immediately inform the Collateral Agent of any default in payment or performance by the Debtors or any account debtor or other parties obligated on, and of claims made by others in regard to, the Accounts and shall not change the terms thereof (or terminate or permit the impairment of any of its rights thereunder) without the prior written consent of the Collateral Agent, which shall not be unreasonably withheld.  The Debtors will make all payments and perform all undertakings on the Debtors’ part to be paid or performed with respect to Accounts when due.  The Debtors hereby authorize the Secured Parties to cure any default in payment or performance by the Debtors with respect to the Accounts; provided, however, that the Secured Parties shall be under no obligation to do so, and provided further, that the Secured Parties’ curing of any default shall not constitute a waiver by the Secured Parties of any default under this Agreement.  The Debtors agrees to reimburse the Secured Parties on demand with interest at the Maximum Rate for any payment made or any expense incurred by the Secured Parties pursuant to the foregoing authorization, and any payment made or expense incurred by the Secured Parties pursuant to the foregoing authorization shall be part of the Obligations secured hereunder.

(e)

If there shall occur and be continuing an event of default in respect of the Obligations, the Debtors shall, upon request of the Collateral Agent, in the name of the Secured Parties or the Debtors, at any time notify the account debtor or other obligor on any item of the Accounts, of the Secured Parties’ security interest.  The Collateral Agent may, in its own name or the name of the Secured Parties or  Debtors, at any time after the occurrence and during the continuation of an Event of Default (as defined below), demand, sue for, collect or receive any money or property payable or receivable on any Accounts and settle, release, compromise, adjust, sue upon, foreclose, realize upon or otherwise enforce any item of Accounts as the Collateral Agent may determine, and for the purpose of realizing the Secured Parties’ rights herein, th e Collateral Agent may receive, open and dispose of mail addressed to the Debtors and endorse notes, checks, drafts, money orders, documents of title or other forms of payment on behalf of and in the name of the Debtors.  The Debtors agrees to reimburse the Collateral Agent on demand with interest at the Default Rate for any payment made or any expense incurred by

7

the Collateral Agent pursuant to the foregoing authorization, and any payment made or expense incurred by the Collateral Agent pursuant to the foregoing authorization shall be part of the obligations secured hereunder.

6.

Events of Default.  The Debtors shall be in default under this Agreement upon the occurrence of any of the following (each, an "Event of Default")

(a)

CCI shall fail or refuse to pay the periodic interest payments due, any other charges due and the principal amount of the Notes on their September 15, 2009 Maturity Date; or

(b)

CCI shall fail or refuse to redeem and repurchase for cash by September 15, 2009 (the “Mandatory Redemption Date”) and to pay periodic dividends with respect to any then outstanding shares of Series F Senior Preferred Stock (each a “Payment Obligation” and collectively, the “Payment Obligations”); or

(c)

an “Event of Default” under the Notes or under the Certificate of Designation for the Series F Senior Preferred Stock (other than a default in payment of a  Payment Obligation) shall occur and shall be continuing and (if capable of cure) remain uncured for more than thirty (30) days following receipt by CCI of notice of such event of default;

(d)

Debtors shall repudiate any of their Obligations under the Continuing Unconditional Guaranty; or

(e)

CCI shall breach any of its obligations and liabilities under the Pledge Agreement, which breach shall occur and be shall be continuing and (if capable of cure) remain uncured for more than thirty (30) days following receipt by CCI of notice.

(f)

any representation or warranty made by the Debtors herein shall prove to be false or erroneous in any material respect.

7.

Rights and Remedies Upon Default.  Upon the occurrence and during the continuation of any Event of Default, the Collateral Agent, acting on behalf of the Secured Parties may accelerate all the obligations and shall have, in addition to all other rights and remedies provided herein or by applicable law, all of the rights and remedies of a secured party under the Code, including, but not limited to, the right to take possession of the Collateral, and the right, without further notice to the Debtors, to take the Collateral in satisfaction in full of all of the Obligations.  The Debtors agrees that, to the extent notice of sale shall be required, at least thirty (30) Business Days, notice to the Debtors of the time and place of any public sale or the time after which any private sale or any other intended disposition is to be made shall co nstitute reasonable notification of such sale or disposition.  The Collateral Agent on behalf of the Secured Parties shall also have the right to apply for and have a receiver appointed by a court of competent jurisdiction in any action taken to enforce the Secured Parties’ rights and remedies

8

hereunder, to manage, protect and preserve the Collateral or continue the operation of the business of the Debtors, and the Collateral Agent shall be entitled to collect all revenues and profits thereof and apply the same to the payment of all expenses and other charges of such receivership, including the compensation of the receiver, and to the payment of the obligations until a sale or other disposition of such Collateral shall be finally made and consummated.  In the event of any disposition or collection of or any other realization upon all or any part of the Collateral, the Collateral Agent shall apply the proceeds of such disposition, collection or other realization as follows:

(a)

First, to the payment of the reasonable costs and expenses of the Secured Parties in exercising or enforcing their rights hereunder, including, but not limited to, attorneys fees, and/or costs and expenses incurred in retaking, holding or preparing the Collateral for sale, lease or other disposition, and in collecting or attempting to collect any of the Collateral, and to the payment of all amounts payable to the Secured Parties pursuant to Section 7 hereof;

(b)

Second, to the payment of the Obligations; and

(c)

Third, after payment in full of all of the obligations, the surplus, if any, shall be paid to the Debtors or to whomsoever may be lawfully entitled to receive such surplus.

8.

Indemnity and Expenses.  The Debtors agrees to indemnify the Collateral Agent and the Secured Parties from and against any and all claims, losses and liabilities arising out of or resulting from this Agreement (including, without limitation, enforcement of this Agreement or any actions taken by the Collateral Agent and the Secured Parties pursuant to Section 9 of this Agreement) except claims, losses or liabilities resulting from the Secured Parties’ own negligence or willful misconduct.  The Debtors will, on demand, pay to the Collateral Agent or the Secured Parties the amount of any and all reasonable costs and expenses, including, but not limited, to the reasonable fees and disbursements of their counsel and of any experts or agents, which the Secured Parties may incur in connection with (i) the exercise or enforcement by the S ecured Parties of any of their rights or remedies hereunder, or (ii) any failure by the Debtors to perform any of the Obligations.

9.

Further Assurances and Power of Attorney.  The Debtors will execute and deliver to the Collateral Agent, at its request, at any time and from time to time, such financing statements and other instruments (and pay the cost of filing or recording the same in all public offices deemed necessary or desirable by the Collateral Agent) and do such other acts and things as the Collateral Agent may reasonably deem necessary or desirable in order to establish and maintain a valid security interest in the Collateral in favor of the Secured Parties (free and clear of all other security interests, liens, charges, encumbrances and other claims, whether voluntarily or involuntarily created, except as permitted by Section 6.3 hereof) or in order to facilitate the collection of the Collateral.  To effectuate the rights and remedies of the Secured Parti es hereunder, effective upon the occurrence of an Event of Default, the Debtors hereby irrevocably appoint the Collateral Agent, on behalf of the Secured Parties, as the  attorney-in-fact for the

9

Debtors in the name of the Debtors or the Secured Parties, with full power of substitution, to sign, execute and deliver any and all instruments and documents and do any and all acts and things to the same extent as the Debtors could do, to sell, assign and transfer any Collateral, including, but not limited to, taking all action necessary or the preservation of any rights pertaining to the Collateral beyond reasonable care in the custody or preservation thereof.  The Collateral Agent and Secured Parties may exercise their rights and remedies with respect to the Collateral without resorting or regard to other security or sources for payment.  All rights and remedies of the Secured Parties hereunder or with respect to the obligations or the Collateral shall be cumulative and may be exercised singularly or concurrently.

10.

Assignment.  If at any time or times by sale, assignment, negotiation, pledge or otherwise, the Secured Parties transfer any of the Obligations, such transfer shall carry with it the Secured Parties’ rights and remedies under this Agreement with respect to the obligations transferred, and the transferee shall become vested with such rights and remedies whether or not they are specifically referred to in the transfer.  If and to such extent such Secured Parties retains any other Obligations, the Secured Parties shall continue to have the rights and remedies herein set forth with respect thereto.

11.

Notices.  Unless otherwise provided, any notice required or permitted under this Agreement shall be given in writing and shall be deemed effectively given upon personal delivery to the party to be notified or five days after deposit with the United States Post Office, by registered or certified mail, or two days after deposit with a nationally recognized express courier, postage prepaid and sent (i) if to a Secured Parties, at the address of the Secured Parties set forth in the Debtors’ records, or (ii) if to the Debtors, at the Debtors’ principal place of business or at such other address as the Debtors shall have furnished to the Secured Parties in writing.

12.

Governing Law.  This Agreement shall be governed by and construed under the laws of the State of New York.  Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.  This Agreement shall be given a fair and reasonable construction in accordance with the intention of the parties.   

13.

Action by Collateral Agent.  

(a)

All actions, rights and remedies of Secured Parties hereunder may be exercised by the Collateral Agent, acting on behalf of all Secured Parties, and such action and exercise of rights and remedies shall be effective as if exercised pursuant to the written consent or direction of those Secured Parties holding not less than 60% in dollar amount of the outstanding Payment Obligations under the Notes (the “Required Direction”).  Absent such Required Direction, the Collateral Agent shall take no action and exercise no rights or remedies

10

of the Secured Parties under this Agreement, other than in respect of executing any Subordination Agreements contemplated by Section 2(b) above.  Similarly, consent to any request by the Debtors (whether to modification of this Agreement, or any agreement executed in connection herewith) shall require consent of only the Secured Parties holding not less than 60% in dollar amount of the outstanding Payment Obligations under the Notes, and such consent shall be effective as if exercised by pursuant to the unanimous consent of all Secured Parties.  

(b)

Any Secured Parties which elects not to participate with such Secured Parties in exercising rights or remedies hereunder, or in providing consent to a request of the Debtors, hereby irrevocably appoints the Collateral Agent as its attorney-in-fact in its name, with full power of substitution, to sign, execute and deliver any and all instruments and documents and do any and all acts and things to the same extent as such Secured Parties could do, to sell, assign and transfer any Collateral, including, but not limited to, taking all action necessary or the preservation of any rights pertaining to the Collateral beyond reasonable care in the custody or preservation thereof.  

(c)

Each Secured Party does hereby agree to indemnify, defend and hold harmless, the Collateral Agent from and against any cost, expense, liability or other obligation in connection with the performance of its duties hereunder as Collateral Agent.  Each Secured Party acknowledges and agrees that, except for execution and delivery of one or more Subordination Agreements, the Collateral Agent shall not be required to take any action or exercise any of the rights and remedies of Secured Parties under this Agreement or the Pledge Agreement, unless and until the Collateral Agent shall have received a written Required Direction in form and content acceptable to the Collateral Agent.  Similarly, CCI and the Debtors acknowledge that the Collateral Agent shall be responsible solely to the Secured Parties under this Agreement and the Pledge Agreement and shall have no fiduciary, legal or other responsibility hereunder to CCI, the Debtors or any of their Affiliates.

(d)

The Collateral Agent hereby acknowledges and agrees that it has a fiduciary duty to the Secured Parties to act in good faith, in the best interests of the Secured Parties and in accordance with their directions.

14.

Miscellaneous.  Neither this Agreement nor any provision hereof may be changed, waived discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought.  This Agreement shall be binding upon the Debtors and its successors and assigns, and all persons claiming under or through the Debtors or any such successor or assign, and shall inure to the benefit of and be enforceable by the Secured Parties and their successors and assigns.

[the balance of this page is intentionally left blank]

11

IN WITNESS WHEREOF, the parties have executed this Security Agreement as of the day and year first above written.

“CCI”

CARE CONCEPTS I, INC.

By: __________________________________

Name:

Title:

“DEBTORS”

MEDIA BILLING COMPANY, LLC,

a New York limited liability company

By: __________________________________

Name:

Charles L. Samel,

Title:

Executive Vice President

INTERNET BILLING COMPANY, LLC

a Georgia limited liability company

By: __________________________________

Name:

Charles L. Samel

Title:

Executive Vice President

“COLLATERAL AGENT”

NEWMAN & NEWMAN, P.C.

By:__________________________________

Name:

 Jay M. Newman

Title:

 President

110 East 59^th Street

New York, New York 10022

Telephone:  (212) 371-9400

Facsimile:  (212) 371-8022

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NOTE SECURED PARTIES

13

EX-10.4

EXHIBIT 10.4

PLEDGE AGREEMENT

THIS PLEDGE AGREEMENT (as the same may be amended, restated, modified and otherwise supplemented from time to time, this “Pledge Agreement”), dated as of September 28, 2004 is made by CARE CONCEPTS I, INC., a Delaware corporation (“CCI” or the “Pledgor”), in favor of NEWMAN & NEWMAN, P.C. (the “Collateral Agent”), on behalf of the persons or entities who have executed this Pledge Agreement on the signature pages hereof as “Pledgees.”

W I T N E S S E T H :

WHEREAS, pursuant to the terms of certain Subscription Agreements dated as of the date hereof (the “Purchase Agreements”) by and between CCI and the various holders of (a) CCI 10% Convertible Secured Notes due September 15, 2009 in the principal amount of $9,525,000 (the “Notes”) and (b) shares of CCI Series F senior secured redeemable preferred stock (the “Senior Preferred Stock” and together with the Notes, the “Senior Securities”), Pledgor has agreed to grant to the holders of the Senior Securities certain collateral consisting of 395,519 shares of common stock of General Media, Inc., a Delaware corporation, representing all of the shares of General Media, Inc. owned by Pledgor and approximately 39% of the outstanding capital stock of General Media, Inc., as at the da te hereof (collectively, the “Pledged Securities”);

WHEREAS, Pledgor is the legal and beneficial owner of the Pledged Securities (as hereinafter defined); and

WHEREAS, the holders of the Senior Securities (the “Pledgees”) have appointed the Collateral Agent to act on their behalf pursuant to this Agreement, including the enforcement of all of their rights and remedies hereunder; and

WHEREAS, in order to induce Pledgees to enter into the Purchase Agreements, Pledgor has agreed to secure its obligations under the Purchase Agreements by, among other things, pledging 290,350 Pledged Securities to Pledgees pursuant to this Agreement, and 105,168 Pledged Securities to the holders of the Senior Preferred Stock pursuant to a separate pledge agreement executed as of the date hereof (the “Series F Preferred Pledge Agreement”), in accordance herewith.

NOW, THEREFORE, in consideration of the promises and to induce Pledgees to enter into the Purchase Agreements, the Pledgor hereby agrees with Pledgees as follows:

1.

Defined Terms.

(a)

Unless otherwise defined herein, terms defined in the Purchase Agreements and used herein shall have the meanings given to them in the Purchase Agreements.

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(b)

The following terms shall have the following meanings:

“Code”:  the Uniform Commercial Code from time to time in effect in the State of New York.

“Collateral”:  (i) the Pledged Securities, and (ii) all Proceeds of any and all of the foregoing.

“Event of Default”:  as defined in Section 9.

“Issuer”:  as defined in Section 5(a).

 “Permitted Transfer”:  any sale, assignment, transfer, exchange or other disposition of any Pledged Securities by any Pledgor or any permitted successor or assign, whether in exchange for money or other property, gift, bequest or otherwise, permitted under the terms of this Pledge Agreement.

“Person” means an individual, a partnership, a corporation (including a business trust), a joint stock company, a trust, an unincorporated association, a joint venture, a limited liability company, a limited liability partnership or other entity, or a government or any agency, instrumentality or political subdivision thereof.

“Pledged Securities”:  all of the shares of capital stock of General Media, Inc. owned by Pledgor, including, without limitation, all of Pledgor’s rights to payments, profits, proceeds, properties, assets, equity and distributions in respect of such Pledged Securities, if any, together with all certificates, options or rights of any nature whatsoever that may be issued or granted by the Issuer to Pledgor in respect of the Pledged Securities while this Pledge Agreement is in effect.

“Obligations”:  shall have the same meaning as is defined in Section 4 of the Security Agreement, dated of even date, between Media Billing Company LLC, Internet Billing Company LLC the Pledgor and Ezzat Jallad, as Collateral Agent.

“Proceeds”:  all “proceeds” as such term is defined in Section 9-102(a)(64) of the Code and, in any event, shall include, without limitation, all dividends or other income from the Pledged Securities, collections thereon or distributions with respect thereto.

“Secured Obligations”:  the collective reference to all of the Obligations of the Pledgor.

“Transfer”:  as defined in Section 6(b).

2.

Pledge; Grant of Security Interest.  The Pledgor hereby transfers and assigns to Pledgees, 290,350 shares of the Pledged Securities owned of record or beneficially by the Pledgor and hereby grants to Pledgees a first priority security interest in the Collateral of the Pledgor, as collateral security for the prompt and complete payment and performance when due

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(whether at the stated maturity, by acceleration or otherwise) of the Secured Obligations.  The Pledged Securities shall be allocated among each of the Pledgees, based upon their respective Purchase Prices for Notes, and  in the manner set forth on the signature page of this Agreement.

3.

Delivery to Collateral Agent.

(a)

Pledgor shall deliver to the Collateral Agent on behalf of the Pledgees (i) simultaneously with or prior to the execution and delivery of this Pledge Agreement, all certificates representing the Collateral and (ii) promptly upon the receipt thereof by or on behalf of Pledgor, all other certificates and instruments constituting Collateral of the Pledgor.  Prior to such delivery, all such certificates and instruments constituting Collateral of the Pledgor shall be held in trust by the Pledgor for the benefit of Pledgees pursuant hereto.  All such certificates shall be delivered in suitable form for transfer by delivery or shall be accompanied by duly executed instruments of transfer or assignment in blank.

(b)

If any amount payable under or in connection with any of the Collateral shall be or become evidenced by any promissory note, other Instrument or Chattel Paper, such note, Instrument or Chattel Paper shall be immediately delivered to Collateral Agent, duly endorsed in a manner satisfactory to Pledgees, to be held as Collateral pursuant to this Pledge Agreement.

(c)

The Pledgor authorizes Collateral Agent to, and Collateral Agent shall file such UCC or other applicable financing statements as may be reasonably requested by Collateral Agent in order to perfect and protect the security interest created hereby in the Collateral.

(d)

The Pledgor agrees to execute and deliver to Collateral Agent such other consents, acknowledgments, agreements, instruments and documentation as Collateral Agent may reasonably request from time to time to effectuate the conveyance, transfer, assignment and grant to Collateral Agent, of all of the Pledgees’ right, title and interest in and to the Collateral and any distributions with respect thereto.

4.

Transfer Powers.  If at any time any equity interest in any Issuer is evidenced by a certificate or other written instrument or document (a “certificate”), the Pledgor shall immediately deliver such certificate to Collateral Agent and, concurrently with the delivery of each certificate by the Pledgor, the Pledgor shall deliver an undated transfer power covering such certificate, duly executed in blank with signature guaranteed, in the form attached hereto in Schedule 2 or such other form as reasonably acceptable to Collateral Agent to be held as part of the Collateral pursuant hereto.

5.

Representations and Warranties.  The Pledgor represents and warrants that:

(a)

As of the Closing Date, the Pledged Securities described in the WHEREAS clauses of this Agreement accurately reflects the ownership interest of Pledgor in General Media, Inc. (the “Issuer”) and that the percentage of Pledged Securities pledged to the Pledgees and the holders of the Notes equals their pro rata share of the dollar amount of the outstanding stated value of the Senior Preferred Stock and the principal amount of the Notes as of the date hereof.

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(b)

The Pledgor is the record and beneficial owner of, and has good and marketable title to, the Pledged Securities of the Pledgor, free of any and all liens or options in favor of, or claims of, any other Person, except for the security interest created by this Pledge Agreement.

(c)

To the best of the Pledgor’s knowledge, the exercise by Pledgees of their rights and remedies hereunder will not violate any law or governmental regulation or any material contractual restriction, in each case, binding on or affecting the Pledgor or any of his property.

(d)

No authorization, approval or action by, and no notice of filing with any Governmental Authority or with any Issuer is required either (i) for the pledge made by the Pledgor or for the granting of the security interest by the Pledgor pursuant to this Pledge Agreement or (ii) to the best of the Pledgor’s knowledge, for the exercise by Pledgees of their rights and remedies hereunder (except as may be required by the Uniform Commercial Code in the applicable jurisdiction or laws affecting the offering and sale of securities).

(e)

Upon filing of UCC financing statements describing the Collateral, the security interest created by this Pledge Agreement will constitute a valid, perfected first-priority security interest in the Pledged Securities of the Pledgor and in the other Collateral arising therefrom, enforceable in accordance with its terms against all creditors of the Pledgor, each Issuer or any Person purporting to purchase any Pledged Securities of the Pledgor (or any portion thereof) therefrom or otherwise claiming by, through or under the Pledgor or such Issuer, except as affected by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors’ rights generally, and general equitable principles (whether considered in a proceeding in equity or at law).

6.

Covenants. The Pledgor covenants and agrees with Collateral Agent, on behalf of all Pledgees, that, from and after the date of this Pledge Agreement until this Pledge Agreement is terminated and the security interests created hereby are released, that:

(a)

If the Pledgor shall, as a result of its ownership of the Pledged Securities of Pledgor, become entitled to receive or shall receive any certificate (including, without limitation, any certificate representing a dividend or a distribution in connection with any reclassification, increase or reduction of capital or any certificate issued in connection with any reorganization), option or rights, whether in addition to, in substitution of, as a conversion of, or in exchange for any shares of the Pledged Securities of the Pledgor, or otherwise in respect thereof, the Pledgor shall accept the same as the agent of Pledgees, hold the same in trust for Pledgees and deliver the same forthwith to Pledgees in the exact form received, duly endorsed by the Pledgor to Pledgees, if required, together with an undated transfer power covering such certificate duly execu ted in blank by the Pledgor and with signature guaranteed, to be held by Pledgees, subject to the terms hereof, as additional collateral security for the Secured Obligations.  Except in connection with any distributions that are not prohibited under Section 7 hereof, any sums paid upon or in respect of the Pledged Securities of any Pledgor as a dividend or other distribution or upon the

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liquidation or dissolution of any Issuer shall be paid over to Pledgees to be held by it hereunder as additional collateral security for the Secured Obligations, and in case any distribution of capital shall be made on or in respect of the Pledged Securities of any Pledgor or any property shall be distributed upon or with respect to the Pledged Securities of the Pledgor pursuant to any recapitalization, reclassification or reorganization of any Issuer, the property so distributed shall be delivered to Pledgees to be held by it hereunder as additional collateral security for the Secured Obligations.  If any sums of money or property so paid or distributed in respect of the Pledged Securities of any Pledgor shall be received by any Pledgor, the Pledgor shall, until such money or property is paid or delivered to Pledgees, hold such money or p roperty in trust for Pledgees, segregated from other funds of Pledgor, as additional collateral security for the Secured Obligations.

(b)

Without the prior written consent of the Collateral Agent, the Pledgor will (1) except for any Permitted Transfer, sell, assign, transfer, exchange, or otherwise dispose of, or grant any option with respect to, the Collateral or any portion thereof, (2) create, incur or permit to exist any security interest, encumbrance, lien or option in favor of, or any claim of any Person with respect to, any of the Collateral, or any interest therein, except for the security interests created by this Pledge Agreement or (3) enter into any agreement or undertaking restricting the right or ability of any Issuer to sell, assign or transfer any of the Collateral.  Notwithstanding the foregoing, any Permitted Transfer shall be further conditioned on the following conditions being satisfied:

(i)

No Event of Default shall exist prior to, and taking into account, the proposed Transfer, including without limitation pursuant to the Note, or immediately thereafter;

(ii)

The transferee with respect to such Transfer shall have executed and delivered a pledge agreement in substance and form similar in all material respects to this Pledge Agreement and shall have agreed to be bound thereby;

(iii)

Collateral Agent shall have received an opinion of counsel of the transferee, in form and substance reasonably satisfactory to the Collateral Agent and the Pledgees; and

(iv)

The transferee of the Transfer shall have delivered to the Collateral Agent an undated transfer power covering any certificate or certificates to be issued to such transferee, such undated transfer power to be duly executed in blank with signature guaranteed.

Upon satisfaction by the Pledgor and the transferee of the conditions set forth herein, in such case, the applicable Issuer shall cause the certificate (if any) evidencing the Pledged Securities of such transferring Pledgor that is subject to the Permitted Transfer to be cancelled and shall immediately thereafter cause a new certificate evidencing the equity interests subject to the Permitted Transfer to be issued in the name of the transferee and shall deliver such certificate to Pledgees to be held pursuant to and under the terms of this Pledge Agreement.

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(c)

The Pledgor shall warrant and defend title to and ownership of the Collateral at its own expense against the claims and demands of all other parties claiming an interest therein, shall maintain the security interest created by this Pledge Agreement as a first priority security interest and shall defend such security interest against claims and demands of all Persons whomsoever.  At any time and from time to time, upon the written request of the Collateral Agent, the Pledgor will promptly and duly execute and deliver such further instruments and documents and take such further actions at its expense as Collateral Agent may reasonably request for the purposes of obtaining or preserving the full benefits of this Pledge Agreement and of the rights and powers herein granted.  If any amount payable under or in connection with any of the Collateral shall be or become evidenced by any promissory note, other instrument or chattel paper, such note, instrument or chattel paper shall be immediately delivered to the Collateral Agent, duly endorsed in a manner satisfactory to Collateral Agent, to be held as Collateral pursuant to this Pledge Agreement.

(d)

From time to time, the Pledgor will execute and deliver to the Collateral Agent such additional documents and will provide such additional information and perform such additional acts as the Collateral Agent may require to carry out the terms of this Pledge Agreement.

7.

Dividends; Voting Rights.  Unless an Event of Default shall have occurred and be continuing, the Pledgor shall be permitted, subject to Section 6(a), to receive all distributions and to exercise all voting and company rights with respect to the Pledged Securities; provided, however, that no vote shall be cast or company right exercised or other action taken which, in Collateral Agent’ reasonable judgment, would impair the Collateral or which would be inconsistent with or result in any violation of any provision of this Pledge Agreement.

8.

Rights of Pledgees.  

(a)

All money Proceeds received by Collateral Agent on behalf of the Pledgees hereunder shall be applied as provided in Section 10(a).

(b)

If an Event of Default shall occur and be continuing, at the Collateral Agent’s option, (1) Pledgees shall have the right to receive any and all cash dividends or other distributions paid in respect of the Pledged Securities and make application thereof to the Secured Obligations in such order as Pledgees may determine, and (2) the Pledged Securities shall be registered in the name of Pledgees or its nominee, and Collateral Agent on behalf of the Pledgees may thereafter exercise (A) all voting and other rights pertaining to the Pledged Securities at any meeting of owners of the applicable Issuer or otherwise and (B) any and all rights of conversion, exchange, subscription and any other rights, privileges or options pertaining to such Pledged Securities as if it were the absolute owner thereof (including, without limitation, the right to excha nge at its discretion any and all of the Pledged Securities upon the merger, consolidation, reorganization, recapitalization or other fundamental change in the company structure of any Issuer, or upon the exercise by any Pledgor or Pledgees of any right, privilege or option pertaining to such Pledged Securities, and in connection therewith, the right to deposit and

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deliver any and all of the Pledged Securities with any committee, depository, transfer agent, registrar or other designated agency upon such terms and conditions as the Collateral Agent may determine), all without liability except to account for property actually received by it, but the Collateral Agent shall have no duty to any Pledgor to exercise any such right, privilege or option and shall not be responsible for any failure to do so or delay in so doing.

9.

Events of Default.

The occurrence and continuation of each of the following shall constitute an event of default (“Event of Default”) hereunder:

(a)

An Event of Default shall occur and be continuing under the Note, the Purchase Agreements or the Certificate of Designation of Preferences and Rights of Series F Convertible Preferred Stock;

(b)

The Pledgor shall fail or refuse to pay interest, when due, or the principal amount of any of the Notes on September 15, 2009 (the “Maturity Date”); or

(c)

The Pledgor shall fail to perform or observe any covenant or condition to be performed or observed hereunder within thirty (30) days of the occurrence thereof.

(d)

any representation or warranty made by Pledgor herein shall prove to be false or erroneous in any material respect.

Upon the occurrence of an Event of Default, the Collateral Agent shall promptly and in any event within three (3) business days provide written notice to the Pledgees of such Event of Default.

10.

Remedies.  In exercising any of their rights and remedies under this Agreement, the Collateral Agent shall act on behalf of the Pledgees only on an equal and equitable pro-rata basis, as among all Pledgees, as their respective individual outstanding balances then owed to them in respect of the outstanding principal amount of all Notes and outstanding stated amount of all Senior Preferred Stock may appear and shall bear to each other.

(a)

If an Event of Default shall have occurred and be continuing, at any time at their election, the Collateral Agent shall apply all or any part of Proceeds held by Collateral Agent in payment of the Secured Obligations

(b)

If an Event of Default shall have occurred and be continuing, Collateral Agent shall exercise, in addition to all other rights and remedies granted in this Pledge Agreement and in any other instrument or agreement securing, evidencing or relating to the Secured Obligations, all rights and remedies of a secured party under the Code.  Without limiting the generality of the foregoing, Collateral Agent, without resort to any other collateral or remedy under the Note or demand of performance or other demand, presentment, protest, advertisement or notice of any kind (except any notice required by law referred to below) to or upon Pledgor or any other Person (including without limitation the Issuer) (all and each of which demands, defenses, advertisements and notices are hereby waived), may in such circumstances forthwith collect, receive, appropriate an d realize upon the Collateral, or any part thereof, and/or may forthwith

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sell, assign, give an option or options to purchase or otherwise dispose of and deliver the Collateral or any part thereof (or contract to do any of the foregoing), in one or more parcels at public or private sale or sales, in the over-the-counter market, at any exchange, broker’s board or office of Collateral Agent or elsewhere upon such terms and conditions as it may deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk.  Collateral Agent shall apply any Proceeds from time to time held by it and the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale, after deducting all reasonable costs and expenses of every kind incurred in respect thereof or incidental to the care or safekeeping of any of the Collateral or in any way relating to the Collateral or its rights hereunder, including, without limitation, actual and reasonable attorneys’ fees and disbursements of counsel to Collateral Agent, to the payment in whole or in part of the Secured Obligations, in such order as Collateral Agent may elect, and only after such application and after the payment by Collateral Agent of any other amount required by any provision of law, including, without limitation, Section 9-615 of the Code, need Collateral Agent account for the surplus, if any, to CCI.  To the extent permitted by applicable law, the Pledgor waives all claims, damages and demands it may acquire against Collateral Agent arising out of the exercise by it of any rights hereunder except for any claim, damage or demand arising from the gross negligence or willful misconduct of Collateral Agent.  If any notice of a proposed sale or other disposition of Collateral shall be required by law, such notice shall be deemed reasonable and proper if given at least 10 days before such sale or other disposition.  Pledgor shall, jointly and severally, remain liable for any deficiency if the proceeds of any sale or other disposition of Collateral are insufficient to pay the Secured Obligations and the reasonable fees and disbursements of any attorneys employed by Collateral Agent to collect such deficiency.

11.

Irrevocable Authorization and Instruction to Issuer.  The Pledgor hereby authorizes and instructs the Issuer to comply with any instruction received by the Pledgor (or any of them) from Collateral Agent in writing that (a) states that an Event of Default has occurred and (b) is otherwise in accordance with the terms of this Pledge Agreement, without any other or further instructions from the Pledgor (or any of them), and Pledgor agrees that the Issuer shall be fully protected in so complying.

12.

Appointment as Attorney-in-Fact.

(a)

The Pledgor hereby irrevocably constitutes and appoints Collateral Agent and any officer or agent of Collateral Agent, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of the Pledgor and in the name of the Pledgor and in Collateral Agent’s own name, from time to time in Collateral Agent’s discretion, for the purpose of carrying out the terms of this Pledge Agreement, to take any and all appropriate action and to execute any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Pledge Agreement, including, without limitation, any financing statements, endorsement, assignment or other instruments of transfer.

(b)

The Pledgor hereby ratifies all that said attorneys shall lawfully do or cause to be done pursuant to the power of attorney granted in Section 12(a).  All powers, authorizations

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and agencies contained in this Pledge Agreement are coupled with an interest and are irrevocable until this Pledge Agreement is terminated and the security interests created hereby are released.

13.

Duty of and Actions by Collateral Agent.  

(a)

Collateral Agent’s sole duty with respect to the custody, safekeeping and physical preservation of the Collateral in its possession, under Section 9-207 of the Code or otherwise, shall be to deal with it in the same manner as Collateral Agent deals with similar securities and property for their own account.  Notwithstanding the foregoing, Collateral Agent hereby acknowledges and agrees that it has a fiduciary duty to the Pledgees to act with the utmost integrity, fidelity and good faith and has an obligation to provide undivided service and loyalty to the Pledgees.

(b)

All actions, rights and remedies of Pledgees hereunder may be exercised by the Collateral Agent, acting on behalf of all Pledgees, and such action and exercise of rights and remedies shall be effective as if exercised pursuant to the written consent or direction of those Pledgees holding not less than 60% in dollar amount of the then outstanding principal amount of the Notes and the then outstanding stated value of the Senior Preferred Stock (the “Required Direction”).  Absent such Required Direction, the Collateral Agent shall take no action and exercise no rights or remedies of the Pledgees under this Agreement.  Similarly, consent to any request by the Pledgor (whether to modification of this Agreement, or any agreement executed in connection herewith) shall require consent of only the Pledgees holding not less than 60% in dollar amount of the then outstanding principal amount of the Notes and the then outstanding stated value of the Senior Preferred Stock, and such consent shall be effective as if exercised by pursuant to the unanimous consent of all Pledgees.  

(c)

Any Pledgee who decides not to participate with such Pledgees in exercising rights or remedies hereunder, or in providing consent to a request of the Pledgor, hereby irrevocably appoints the Collateral Agent as its attorney-in-fact in its name, with full power of substitution, to sign, execute and deliver any and all instruments and documents and do any and all acts and things to the same extent as such Pledgee could do, to sell, assign and transfer any Collateral, including, but not limited to, taking all action necessary or the preservation of any rights pertaining to the Collateral beyond reasonable care in the custody or preservation thereof.  

(d)

Each Pledgee does hereby agree to indemnify, defend and hold harmless, the Collateral Agent from and against any cost, expense, liability or other obligation in connection with the performance of its duties hereunder as Collateral Agent.  Each Pledgee acknowledges and agrees that the Collateral Agent shall not be required to take any action or exercise any of the rights and remedies of Pledgees under this Agreement or the Pledge Agreement, unless and until the Collateral Agent shall have received a written Required Direction in form and content acceptable to the Collateral Agent.  Similarly, the Pledgor acknowledges that the Collateral Agent shall be responsible solely to the Pledgees under this Agreement and the Pledge Agreement and shall have no fiduciary, legal or other responsibility

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hereunder to the Pledgor or any of its Affiliates. Notwithstanding the foregoing, Collateral Agent hereby acknowledges and agrees that it has a fiduciary duty to the Pledgees to act with the utmost integrity, fidelity and good faith and has an obligation to provide undivided services and loyalty to the Pledgees.

14.

No Assumption.  Notwithstanding any of the foregoing, whether or not an Event of Default shall have occurred hereunder and whether or not Collateral Agent elects to foreclose on the security interest in the Collateral as set forth herein, neither the execution of this Pledge Agreement, receipt by Collateral Agent of any of Pledgor’s rights, title and interests in and to any distributions, now or hereafter due to any Pledgor from any Issuer, nor Collateral Agent’s foreclosure of the security interest in the Collateral, shall in any way be deemed to obligate Collateral Agent to assume any of any Pledgor’s obligations, duties, expenses or liabilities under the any agreement as presently existing or as hereafter amended, or under any and all other agreements now existing or hereafter drafted or executed in respect of the Issuer ( collectively, the “Issuer Obligations”), unless Pledgees otherwise expressly agrees to assume any or all of the Issuer Obligations in writing.  In the event of foreclosure by Collateral Agent, the Pledgor shall remain bound and obligated to perform the Issuer Obligations and Collateral Agent shall not be deemed to have assumed any of such Issuer Obligations except as provided in the preceding sentence.

15.

Execution of Financing Statements.  The Pledgor authorizes Collateral Agent to file financing statements with respect to the Collateral without the signature of the Pledgor in such form and in such filing offices as Collateral Agent reasonably determines appropriate to perfect the security interests of Collateral Agent under this Pledge Agreement.  A carbon, photographic or other reproduction of this Pledge Agreement shall be sufficient as a financing statement for filing in any jurisdiction.

16.

Indemnification.  The Pledgor hereby agrees to indemnify, defend and hold Collateral Agent, and its respective successors and assigns harmless from and against any and all damages, losses, claims, costs or expenses (including reasonable attorneys’ fees) and any other liabilities whatsoever that Collateral Agent or its respective successors or assigns may incur by reason of this Pledge Agreement or by reason of any assignment of a Pledgor’s right, title and interest in and to any or all of the Collateral.

17.

Further Documentation.  The Pledgor hereby agrees to execute all such instruments as may be required to perfect the security interest created hereby and pay the cost of filing or recording the same in the public records specified by Collateral Agent.

18.

Consent and Waiver.  The Pledgor agrees that, without the prior written consent of Collateral Agent, Pledgor shall not take any action that would operate to dilute the interest of the Pledgor or Pledgees in any Issuer other than as permitted by this Pledge Agreement.  The Pledgor further agrees that, upon the written request of Collateral Agent after an Event of Default has occurred and is continuing, the Pledgor may be removed as a member or stockholder of any Issuer and replaced with the assignee designated in such request.  

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19.

Notices.  All notices required or permitted hereunder shall be in writing and shall be deemed effectively given:  (a) upon personal delivery to the party to be notified, (b) when sent by confirmed facsimile if sent during normal business hours of the recipient, if not, then on the next business day, (c) three (3) business days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one day after deposit with a receipt.  All communications shall be sent to the Pledgor at the applicable address as set forth on the signature page hereof, to Collateral Agent at the address set forth on the signature page hereto, or at such other address as a Pledgor or Collateral Agent may designate by written notice to the other parties hereto given in accordance herewith.

20.

Severability.  Any provision of this Pledge Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

21.

Amendments in Writing; No Waiver; Cumulative Remedies.

(a)

None of the terms or provisions of this Pledge Agreement may be waived, amended, restated, supplemented or otherwise modified except by a written instrument executed by the Pledgor and Collateral Agent, provided that any provision of this Pledge Agreement may be waived by Collateral Agent, with the prior consent of all Pledgees, in a letter or agreement executed by Collateral Agent or by facsimile transmission from Collateral Agent.

(b)

Collateral Agent shall not by any act (except by a written instrument pursuant to Section 21(a) hereof), delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any Event of Default or in any breach of any of the terms and conditions hereof.  No failure to exercise, nor any delay in exercising on the part of Collateral Agent, any right, power or privilege hereunder shall operate as a waiver thereof.  No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege.  A waiver by Collateral Agent of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which Collateral Agent would otherwise have on any fu ture occasion.

(c)

The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law.

22.

Section Headings.  The section headings used in this Pledge Agreement are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof.

23.

Successors and Assigns.  This Pledge Agreement shall be binding upon the executors, heirs, administrators, successors and assigns of the Pledgor and shall inure to the benefit of Collateral Agent and its successors and assigns, provided that no Pledgor may assign

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his rights or obligations under this Pledge Agreement, except as otherwise expressly provided in Section 6(b) hereof, without the prior written consent of Collateral Agent and any such purported assignment shall be null and void.

24.

Governing Law.  THIS PLEDGE AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO CONFLICTS OF LAWS RULES.

25.

Submission to Jurisdiction.  The parties hereto hereby agree that any suit, action or other legal proceeding by or against any party hereto (or any party’s affiliates or designees) with respect to or arising out of this Pledge Agreement shall be brought exclusively in the United States District Court for the Southern District of New York or the courts of the State of New York, in the City of New York, as the party instituting such suit, action or other legal proceeding may elect, except that actions to enforce an interim or final arbitration award may be filed in any court having jurisdiction.  By execution and delivery of this Pledge Agreement each party hereto (for itself, its affiliates and its designees) irrevocably and unconditionally consents and submits to the exclusive jurisdiction of such courts and the appellate courts t herefrom.  The parties hereto hereby irrevocably consent to the service of process in any such action or proceeding by the mailing of copies thereof by registered or certified mail, first class postage prepaid to the addresses set forth in Section 19.

26.

Venue.  The parties hereto hereby irrevocably waive any objection which they may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Pledge Agreement brought in the courts referred to in Section 25 above and hereby further irrevocably waive and agree not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum.

12

IN WITNESS WHEREOF, the undersigned has caused this Pledge Agreement to be duly executed and delivered as of the date first above written.

CARE CONCEPTS I, INC.

By:________________________________

Name:

Gary Spaniak, Jr.

Title:

President

Address:

2200 S.W. 10^th Avenue

Deerfield Beach, Florida 33442

COLLATERAL AGENT:

NEWMAN & NEWMAN, P.C.

By:  Jay M. Newman, President

Address:

110 East 59^th Street

New York, NY 10022

Telephone:  (212) 371-9400

Facsimile:  (212) 371-8022

13

NUMBER AND % OF PLEDGED SECURITIES

HOLDERS OF 10% NOTES

__________  shares (

%)

H. ROBERT WEINER TRUST OF 1983

___________________________________

Elliott Bruce Weiner, Trustee

__________  shares (

%)

BLANCHE WEINER TRUST OF 1982

___________________________________

Stanley B. Weiner, Trustee

__________  shares (

%)

___________________________________

__________  shares (

%)

___________________________________

__________  shares (

%)

___________________________________

__________  shares (

%)

___________________________________

__________  shares (

%)

___________________________________

__________  shares (

%)

___________________________________

__________  shares (

%)

___________________________________

___________ shares (

%)

___________________________________

14

EX-10.5

EXHIBIT 10.5

Care Concepts I, Inc.

Shares of Series E Convertible Preferred Stock and Common Stock Warrants

SUBSCRIPTION AGREEMENT

September 28, 2004

Mercator Advisory Group LLC

Monarch Pointe Fund, Ltd.

555 South Flower Street, Suite 4500

Los Angeles, California  90071

Ladies and Gentlemen:

Care Concepts I, Inc., a Delaware corporation (the “Company”), hereby confirms its agreement with Monarch Pointe Fund, Ltd. (the “Purchaser”) and Mercator Advisory Group, LLC (“MAG”) as set forth below.

1.

The Offering and the Transactions.

A.

The Securities.  Subject to the terms and conditions herein contained, the Company proposes to issue and sell to the Purchaser an aggregate of: (a) 35,000 shares (the “Shares”) of its Series E Convertible Preferred Stock (the “Series E Stock”), which shall be convertible into shares (the “Conversion Shares”) of the Company's Common Stock, $0.001 par value per share (the “Common Stock”) in accordance with the formula set forth in the Certificate of Designation further described below.  For no additional compensation, the Company shall issue to Purchaser and MAG four warrants, substantially in the form attached hereto at Exhibit A (the “Warrants”), to acquire 430,504 shares of Common Stock calculated by dividing $2,333,333 by the Market Price (as defined below) of the Common Stock as of September 20, 2004 (the “Warrant Shares”).  The rights, preferences and privileges of the Series E Stock are as set forth in the Certificate of Designation of Series E Stock as filed with the Secretary of State of the State of Delaware (the “Certificate of Designation”) in the form attached hereto as Exhibit B.  The number of Conversion Shares and Warrant Shares that the Purchaser and MAG may acquire at any time are subject to the limitations set forth in the Certificate of Designation and in the Warrants, respectively, so that the aggregate number of shares of Common Stock of which the Purchaser, MAG and all persons affiliated with the Purchaser and/or MAG have beneficial ownership (calculated pursuant to Rule 13d-3 of the Securities Exchange Act of 1934, as amended) does not at any time exceed 9.99% of the Company's then outstanding Common Stock.

1

(a)

Terms of the Series E Stock.  The Series E Stock shall:

(i)

pay an annual dividend of 6% per annum, until the effective date of the Registration Statement registering the underlying Conversion Shares and Adjustment Shares issuable upon conversion of the Series E Stock for resale, as well as the Warrant Shares;

(ii)

on liquidation or a sale of control of the Company, be senior, at the rate of $100 per share, to the Company’s outstanding Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series G Preferred Stock, and pari passu with the Company’s outstanding Series D Preferred Stock;

(iii)

be junior on liquidation and sale of control to the Company’s outstanding Series F Senior Preferred Stock;

(iv)

not be redeemable or secured by any Liens on assets of iBill or pledge of equity of iBill or Reorganized GMI; and

(v)

upon the approval by the holders of a majority of the approximately 19.6 million shares of outstanding Common Stock of the Company of the acquisition of the GMI Stock and issuance of all “Transaction Securities” (including the 10% Notes, the Series E Preferred Stock, the Series F Senior Preferred Stock and the Series G Preferred Stock) described below, and  an amendment to the Company’s certificate of incorporation increasing its 30,000,000 shares of authorized Common Stock to 250.0 million shares of Common Stock (collectively “Stockholder Approval”), the Series E Preferred Stock shall be convertible into Conversion Shares, at any time, at the option of the Purchaser, at a price per share (the “Series E Preferred Conversion Price”) that shall be equal to 50% of &# 147;Market Price” (as hereinafter defined), as traded on the American Stock Exchange, LLC (the “AMEX”) or on the Nasdaq Stock Exchange, the New York Stock Exchange or the NASD OTC-Bulletin Board (together with the AMEX, a “National Securities Exchange”) immediately prior to the date (the “Conversion Date”) that notice of conversion is given to the Company by the Purchaser (the “Conversion Notice”); provided, however, that in no event shall the Series E Preferred Market Price be less than $3.00 per share (the “Floor Price”), subject to adjustment as set forth in the Certificate of Designation.  As used herein and in the Certificate of Designations for the Series E Stock, the term “Market Price” shall mean the average of the lowest three (3) intra-day trading prices of the Common Stock of the Company, as traded on AMEX or any other National Securities Exchange, for the ten (10) trading days immed iately preceding the date of determination of such Market Price.

(b)

Notwithstanding the foregoing $3.00 per share Floor Price, in the event that 50% of Market Price shall be less than the $3.00 Floor Price, on the Conversion Date, then, and in such event, the Purchaser shall be entitled to receive from the “Escrowed Shares,” hereinafter defined, that number of additional shares

2

of Common Stock of the Company (the “Adjustment Shares”) as shall represent, together with the number of Series E Conversion Shares issuable at the Series F Preferred Conversion Price then in effect, the aggregate number of shares of Company Common Stock that would have been issuable on the Conversion Date (i) based upon the Series E Preferred Conversion Price then in effect, and (ii) assuming that the Floor Price had been reduced to $0.50 per share (the “Assumed Floor Price”).   

A maximum of up to 39,916,666 Adjustment Shares of the Company are subject to potential issuance (i) up to a maximum of 5,833,333 of such Adjustment Shares to the holders of $3,500,000 stated value of the Series E Preferred Stock, (ii) up to a maximum of 25,000,000 of such Adjustment Shares to the holders of up to a maximum of $15,000,000 of 10% Notes of the Company due September 15, 2009 (the “10% Notes”) hereinafter described, and (iii) up to a maximum of 9,083,333 of such Adjustment Shares to the Purchaser upon conversion of the maximum $5,450,000 stated value of Series F Senior Preferred Stock.  Such maximum number of Adjustment Shares shall be subject to adjustment in the event that the Assumed Floor Price is lowered pursuant to the Certificate of Designation of the Series F Senior Preferred Stock.  

For the avoidance of doubt, if for example, the Purchaser sends a Conversion Notice to convert $1,000,000 of his or its Series E Preferred Stock and (absent the Floor Price) the Series E Preferred Conversion Price would be calculated at $1.00 per share, notwithstanding the Series E Preferred Conversion Price set forth above and in the Certificate of Designations for the Series E Preferred Stock, in addition to 333,333 Series E Conversion Shares, the Purchaser shall be entitled to receive out of the Escrowed Shares (defined below) 1,666,667 Adjustment Shares of Common Stock of the Company.  However, based upon the $0.50 per shares Assumed Floor Price, in no event would the Purchaser be entitled to receive more than 1,666,667 Adjustment Shares in such example, even if the Series F Preferred Conversion Price then in effect (absent the $3.00 Floor Price or $0.50 Assum ed Floor Price) was less than $0.50.  

(c)

To avoid further dilution to the Company if Adjustment Shares become issuable to holders of the Series E Preferred Stock, Series F Senior Preferred Stock and 10% Notes, GMI Investment Partners, a principal stockholder of the Company, and their affiliates described in Section 1B below and the Company, have agreed to place in a joint escrow between legal counsel to the Company and legal counsel to the holders of each of the Series F Senior Preferred Stock, 10% Notes and Series E Preferred Stock an aggregate of 29,929 shares of the Company’s “Series G Preferred Stock” (described below) that are automatically convertible into an aggregate of 39,916,666 shares of Common Stock of the Company by not later than December 31, 2004 (the “Escrowed Shares”).   In the event that the Series E Preferred Conversion Price shall be less than $3.00 per share on any Conversion Date, within three (3) Business Days after a Conversion Notice shall be delivered to counsel to the Company and to the Purchaser setting forth the

3

calculation of the appropriate number of Escrowed Shares to be delivered to the Purchaser as Adjustment Shares, the Escrow Agents shall cause certificates evidencing such Adjustment Shares (up to the maximum 5,833,333 Adjustment Shares available to Purchaser) to be delivered to the Purchaser.  Similar escrow arrangements will be available with counsel to the holders of 10% Notes and Series F Senior Preferred Stock Any Escrowed Shares no longer subject to issuance as Adjustment Shares or otherwise remaining in escrow following conversion into Common Stock of all outstanding 10% Notes, Series E Preferred Stock and Series F Senior Preferred Stock, shall be promptly returned to GMI Partners or its Affiliates.  

(d)

The issuance of Conversion Shares, any Adjustment Shares and Warrant Shares to Purchaser and/or MAG are subject to limitation, so that the aggregate number of shares of Common Stock of which the Purchaser, MAG and all persons affiliated with Purchaser and MAG have beneficial ownership (calculated pursuant to Rule 13d-3 of the Securities Exchange Act of 1934, as amended) does not at any time exceed 9.99% of the Company's then outstanding Common Stock.

(e)

The Series E Stock, the Conversion Shares, the Warrants, the Warrant Shares and any Adjustment Shares that may be issued to the Purchaser of Series E Stock and MAG are sometimes herein collectively referred to as the “Securities.”  This Agreement, the Warrant in the form of Exhibit A, the Certificate of Designation for the Series E Stock in the form of Exhibit B, the Registration Rights Agreement in the form of Exhibit C annexed hereto (the “Registration Rights Agreement”), the GMI Stock Purchase Agreement in the form of Exhibit D, and the Plan (a copy of which has been furnished to the Purchaser) are sometimes herein collectively referred to as the “Transaction Documents.”

(f)

The Securities will be offered and sold to the Purchaser 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.

(g)

In connection with the sale of the Securities, the Company has made available (including electronically via the SEC’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, forms, schedules, statements, documents, filings and amendments, are collectively referred to as the “Disclosure Documents.”  All references in this Agreement to financial statements and schedules and other information which is "contained," "included" or "stated" in the Disclosure Documents (or other references of like import) shall be deeme d to mean and include all such financial statements and schedules, documents, exhibits and other information which is incorporated by reference in the Disclosure Documents.

4

B.

The Transactions, Issuance of Transaction Securities and Use of Proceeds.

(a)

Use of Proceeds.  The proceeds from the sale of up to $15.0 million of 10% Notes, up to $3.5 million of Series E Stock and up to $3.45 million of Senior Series F Preferred Stock (together with the shares of Series G Preferred Stock to be issued to GMI Investment Partners described below, collectively referred to as the “Transaction Securities”) shall be utilized by the Company to pay $16.35 million of the $20.0 million purchase price for approximately 39.5% of the outstanding common stock of General Media, Inc. (the “GMI Stock”), as reorganized (the “Reorganized GMI” and, together with certain of its subsidiaries, the “General Media Debtors”).  The GMI Stock is being purchased by the Company from GMI Investment Partners in connection with the transactions contemplated by a Settlement and Securities Purchase Agreement, dated as of September 21, 2004, by and among PET Capital Partners LLC, Absolute Return Europe Fund, Susan Devine, NAFT Ventures I LLC, Marc H. Bell, Daniel Staton (collectively, the “Bell/Staton Group”), Penthouse International, Inc., MVIT, GMI Investment Partners and Milberg Weiss Bershad & Schulman LLP, as Escrow Agent (the “GMI Stock Purchase Agreement”).  Under the terms of the GMI Stock Purchase Agreement, a minimum of $10.0 million and a maximum of $20.0 million is required to be paid as the purchase price for between 24.15% and 48.3% of the GMI Stock by September 29, 2004.  It is anticipated that the Company will pay $16.350 million by such date and purchase approximately 81.75% of the GMI Stock, representing an aggregate of 39.5% of the outstanding common stock of General Media.  However, the Bell/Staton Group has given the Company an extension until October 13, 2004 to pay the remaining $3.650 mi llion for the GMI Stock and increase its percentage ownership in the outstanding General Media common stock from 39.5% to 48.3%. The balance of the proceeds in excess of $20.0 million, if any, from the sale of the Transaction Securities will be used by the Company and its subsidiaries (other than Reorganized GMI) for working capital and other corporate purposes.  The Company intends to continue to offer the Transaction Securities (and/or other equity or equity type convertible securities subordinated to the Series F Preferred Stock) through October 31, 2004.  Although the Company presently intends to purchase the remaining available GMI Stock, it reserves the right to allocate all net proceeds from the sale of additional Transaction Securities or other securities to working capital and general business purposes for its prospective iBill subsidiary.

(b)

Escrow of Proceeds.  The aforesaid $16.35 million to $20.0 million purchase price for the GMI Stock shall be deposited with the Escrow Agent and released to the Bell/Staton Group only upon the closing (the “Plan Closing”) of the transactions contemplated by the Fourth Amended and Restated Joint Plan of Reorganization of the General Media Debtors, a copy of which has been made available to the Purchaser (the “Plan”).  

(c)

Capitalization of Reorganized GMI.  Pursuant to the Plan, the General Media Debtors shall be emerging from the Chapter 11 bankruptcy currently pending in the United States Bankruptcy Court for the Southern District of New York, Case No. 03-

5

15078 (SMB) (the “Bankruptcy Case”) as a result of which (i) the Bell/Staton Group or their affiliates shall hold approximately $27.0 million of seven year New GMI Term Loan Notes, (ii) the unsecured creditors shall receive $2.0 million in cash and up to $11.0 million in New GMI Term Loan Notes, (iii) certain members of the Bell/Staton Group shall provide a maximum $20.0 million Exist Financing Facility (of which approximately $8.0 million shall be drawn to pay cash expenses and payments in the Bankruptcy Case, (iv) all outstanding equity securities of General Media, Inc. shall be cancelled, and (v) an aggregate of 1,000,000 shares of Common Stock of Reorganized GMI shall be issued, of which (A) the Company shall own the GMI Stock, to represent approximately between 39.5% and 48.3% of the outstanding common stock of Reorganize d GMI, and (B) an equal number of shares of Common Stock of Reorganized GMI shall be owned by the Bell/Staton Group or their affiliates.

(d)

Reserved Shares.  The Company will reserve for issuance to (i) the Purchaser of 35,000 shares of Series E Stock up to 1,166,666 shares of Common Stock upon conversion of the Series E Stock, (ii) the holders of up to $15.0 million of 10% Notes up to 15,000,000 shares of Company Common Stock upon full conversion of the 10% Notes, and (iii) the holders of up to $5,450,000 Series F Preferred Stock, up to 1,815,000 shares of Company Common Stock upon full conversion of such Series F Stock, a maximum of 9,066,667 million shares of Common Stock that may be issuable: (i) upon conversion of 10% Notes, (ii) as Conversion Shares upon conversion of the Series E Preferred Stock, and (iii) upon conversion of the Series F Senior Preferred Stock, to holders of 10% Notes, Series E Preferred Stock and Series F Preferred Stock (collectively the “Tota l Conversion Shares”).  The Company shall also reserve for issuance an additional (i) 5,000,000 shares of Common Stock issuable upon exercise of warrants (similar to the Warrants) sold to purchasers of 10% Notes (the “Note Warrant Shares”), (ii) a maximum of 610,776 Series F Warrant Shares issuable to in connection with the Series F Warrants, and (iii) a maximum of 430,504 shares of Common Stock issuable upon exercise of warrants (similar to the Series F Warrants) sold to Purchasers of the Series E Preferred Stock (collectively, the “Warrant Shares”).  GMI Investment Partners shall also place in escrow an aggregate of 29,929 shares of Series G Preferred Stock that is automatically convertible on or before December 31, 2004 into 39,916,666 shares of Common Stock.  Such 39,916,666 Escrowed Shares shall be reserved as Adjustment Shares for potential issuance to the holders of 10% Notes, Series E Preferred Stock and Series F Senior Preferred Stock.   The maximum of (i) 7,983,333 shares of Common Stock that may be issuable as Total Conversion Shares, (ii) 39,916,666 shares of Common Stock that may be issued as Adjustment Shares, and (iii) 6,041,280 shares of Common Stock (subject to anti-dilution adjustment) that may be issued as Warrant Shares are collectively referred to as the “Reserved Shares”.    

(e)

Series G Preferred Stock.  In consideration of their (i) assignment to the Company of the right to purchase the GMI Stock, (ii) having provided financing and financial accommodations that facilitated the acquisitions of iBill and the GMI Stock, (iii) having provided iBill with transaction processing financing, (iv) having providing personal guarantees and ongoing indemnification to Penthouse and iBill in connection with certain contingent liabilities, and (v) having and continuing to provide management

6

and consulting services to the Company and iBill; the fair value of which financings, financial accommodations, indemnification and management services are estimated to be in excess of approximately $85.0 million, on the Effective Date of the Plan and transfer of title to the GMI Stock to CCI, it is contemplated that CCI shall sell and issue to GMI Investment Partners, 45,000 shares of newly authorized Series G convertible preferred stock (the “Series G Preferred Stock”).  The Series G Preferred Stock will:

(i)

be junior on liquidation and sale of control of the Company to the Series E Stock and Series F Senior Preferred Stock;

(ii)

not pay any dividend or be secured by any assets of the Company;

(iii)

not be subject to mandatory redemption; and

(iv)

upon the Company obtaining Stockholder Approval, the Series G Preferred Stock shall be automatically converted in an aggregate number of shares of Common Stock as shall equal 68.0 million shares less all Total Conversion Shares.

(v)

The partners of GMI Investment Partners are The Molina Vector Investment Trust (“MVIT”), Aries Capital LLC (“Aries”), Granite Management LLC (“Granite”) and certain affiliates, financial partners and business associates of MVIT, Aries and Granite.  MVIT is an affiliate of Penthouse.  GMI Investment Partners shall escrow for potential retirement, an aggregate of 39,916,666 of such shares of Common Stock it shall receive upon conversion of its Series G Preferred Stock, in the event and to the extent that the Company shall be required to issue Adjustment Shares.

(f)

Anticipated Capitalization of the Company.  Upon issuance of the Transaction Securities, in addition to the Series E Stock and the shares of Series G Preferred Stock (the terms of which are described above), it is anticipated that the Capitalization of the Company shall be as follows:

(i)

10% Notes.  Up to $15.0 Million of 10% Notes will be issued.  Such 10% Notes shall:

(A)

shall be payable as to interest only, at the rate of 10% per annum, payable semi-annually on June 30th and December 31st, based on a 360 day calendar year; provided, that interest on the 10% Notes shall be payable either 100% in cash, or at the option of the Company, 50% in cash and the balance in additional shares of Company “Common Stock” at the “Series F Assumed Conversion Price, (but without regard to the Assumed Floor Price);

7

(B)

unless previously converted into Common Stock (the “Note Conversion Shares”), shall be payable as to principal, together with all accrued an unpaid interest, on September 15, 2009 (the “Note Maturity Date”);

(C)

upon the earlier of December 31, 2004 or the Company obtaining Stockholder Approval, shall be convertible, at any time, at the option of the Purchaser at a price per share (the “Note Conversion Price”) that shall be equal to 50% of the average closing price of Company, as traded on the AMEX or other National Securities Exchange, for the five trading days immediately prior to the date (the “Conversion Date”) that notice of conversion is given to the Company by the Purchaser (the “Conversion Notice”), subject to a Note Conversion Price floor of $3.00 per share; provided, that at the time of conversion, the holders of the 10% Notes shall be entitled to receive the benefit of the issuance of Adjustment Shares on the same terms and conditions as holders of the Series F Senior Preferred Stock and shares of Series E Preferred St ock; and

(D)

be secured by (i) a Lien on the assets of the iBill, and (ii) the pledge by the Company of a portion (pro rated with the Series F Senior Preferred Stock) of its 39.5% to 48.3% equity interest in the “Reorganized General Media” (as that term is hereinafter defined).  The Lien securing the 10% Notes shall be expressly (A) subject and subordinate to the first priority Lien on the assets of iBill now existing or hereafter granted to Senior Lender providing up to $10.0 million of working capital iBill Senior Financing, and (B) subject and subordinate to the Lien granted to the Purchaser of the Series F Senior Preferred Stock.

In addition, the holders of the 10% Notes will receive warrants (the “10% Note Warrants”) to purchase up to 5,000,000 additional shares of Common Stock at an exercise price of $3.00 per share

(ii)

Series A, B and C Preferred Stock.  No shares of Series A Preferred Stock are issued, 1,000 shares of Series B Preferred Stock, convertible into 100,000 shares of Common Stock, and 10,000 shares of Series C Preferred Stock are issued, convertible into 1,000,000 shares of Common Stock;

(iii)

Series D Preferred Stock.  An aggregate of 330,000 shares of Series D Preferred Stock have been issued to Penthouse in partial consideration for the contemplated sale of iBill to CCI.  The Series D Preferred Stock (A) pays no dividend, (B) has a $100 per share liquidation value, (C) is unsecured and non-redeemable, and (D) on the earlier to occur of (x) the Company obtaining Stockholder Approval and approval by the AMEX of the iBill, or (y) January 21, 2005, shall be automatically converted, together with approximately 3.2 million shares of Company Common Stock to be issued to Penthouse in connection with the consummation of the iBill sale, into that number of shares of Common Stock that would represent 49.9% of

8

the “Fully-Diluted Company Common Stock” at the time of conversion.  Fully-Diluted Company Common Stock means all outstanding shares of Company Common Stock and all additional Common Stock issuable upon exercise or conversion of all options, warrants, convertible notes or convertible preferred stock (including, for purposes of such definition, all Common Stock issuable in connection with the Transaction Securities).  It is anticipated that an aggregate of approximately 81.4 million shares of Company Common Stock (the “Series D Conversion Shares”) will be issued to Penthouse upon full conversion of the Series D Preferred Stock.  It is anticipated that, following the acquisition of the GMI Stock and consummation of the iBill acquisition, such Series D Conversion Shares and the 3.2 million shares of Commo n Stock (a total of up to 85.0 million shares of Common Stock) will be distributed to the holders of Penthouse Common Stock and other securities convertible into or exercisable for shares of Penthouse Common Stock in connection with the subsequent liquidation of that entity.

(iv)

Series F Senior Preferred Stock.  Up to an aggregate of $3.45 million, represented by up to 34,500 shares of Series F Preferred Stock to be issued to Vestcap International Management Limited, Castlerigg Master Investments Limited and Brivis Investments Limited or their affiliates (collectively “Castlerigg”) which shall: (A) pay an annual dividend of 10% per annum, of which 50% is payable in cash and the balance payable in additional shares of Common Stock at the Conversion Price then in effect (but without regard for the $0.50 per share assumed floor; (B) be senior, at the rate of $100 per share, on liquidation and sale of control to the Notes and the Company’s outstanding Series A Preferred, Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferre d Stock and Series G Preferred Stock, (C) unless previously converted into Common Stock shall be redeemable at the option of the holders on September 15, 2009; (D) be secured by a second priority Lien on the assets of iBill senior to the Lien granted to the holders of the Notes, and by the pledge of equity of Reorganized GMI, on a pari passu basis with the holders of the Notes; and (E) be convertible upon the earlier of December 31, 2004 or the Company’s obtaining of Stockholder Approval into Common Stock at a conversion price equal to $3.00 per share (the “Series F Conversion Price”); provided, that if at the time of conversion, 50% of the “Market Price” (as defined) of the Company’s Common Stock, as traded on the AMEX or any other national securities exchange shall be less than $3.00, the holders of the Series F Preferred Stock shall be entitled to receive the benefit of the issuance of Adjustment Shares from the Escrowed Shares on the same terms and conditions a s holders of the Notes and shares of Series E Preferred Stock. In addition, Castlerigg will receive warrants (the “Castlerigg Warrants”) to purchase approximately 975,000 additional shares of Common Stock at an exercise price of $3.00 per share.

(v)

Outstanding and Fully-Diluted Common Stock.  As at the date hereof, the Company is authorized to issue an aggregate of 30,000,000 shares of Common Stock, of which approximately 17.0 million shares of Common Stock are currently outstanding.  On a fully-diluted basis, after giving effect to:

9

(A)

the issuance by not later than December 31, 2004 (upon automatic conversion of the Series G Preferred Stock) of (x) 68.0 million shares of Common Stock, less (y) up to 7,983,333 Conversion Shares, in connection with the completion of the Company’s acquisition of the GMI Stock (to occur not later than October 31, 2004);

(B)

the issuance by not later than January 21, 2005 to Penthouse International Inc. (upon automatic conversion of the Series D Preferred Stock) of 85.0 million shares of Common Stock in connection with the consummation of the acquisition of 100% of the members equity of iBill (the “iBill Acquisition”), and

(C)

after giving effect to the issuance of all Conversion Shares (based on a $3.00 per share Conversion Price stated conversion or floor price set forth in the 10% Notes or certificates of designations of the Series E Preferred Stock and Series F Senior Preferred Stock) of all outstanding Preferred Stock, it is anticipated that an aggregate of 170,000,000 shares of Fully-Diluted Company Common Stock will be outstanding, before issuance of up to approximately 6,100,000 shares of Common Stock (subject to anti-dilution adjustment) that may be issued as Warrant Shares to holders of 10% Notes, Series E Preferred Stock and Series F Preferred Stock.  

(g)

Stockholder Approval.  Penthouse and other Company stockholders holding in excess of 50% of the outstanding shares of Company Common Stock have provided the Company with irrevocable and unconditional written approvals and consents to all of the Transactions, including, without limitation (i) the transactions contemplated by the GMI Stock Purchase Agreement, (ii) consummation of the iBill Acquisition, (iii) an amendment to the Certificate of Incorporation of the Company that, inter alia, shall increase the authorized Common Stock to 250.0 million shares of Common Stock, (iv) the sale and issuance of the 10% Notes, the Warrants, the Series E Preferred Stock, the Series F Senior Preferred Stock, the Series G Preferred Stock, and the other Warrant Shares, and (v) all of the related transactions described herein (the “Stockholder Approval”).  The term “Stockholder Approval” shall also include the filing and approval of a listing application for the additional shares of the Company’s Common Stock to be issued upon conversion of the 10% Notes, the Series E Preferred Stock, the Series F Senior Preferred Stock and the Series G Preferred Stock, in accordance with the rules of the AMEX.  Such Stockholder Approval, in lieu of a special meeting of stockholders, are permissible under Delaware corporate law and pursuant to Section 705 and Section 712 of the rules and regulations of the AMEX.  Following the Closing Date, the Company will, in accordance with the Securities Exchange Act of 1934, as amended, file a Form 14C Information Statement with the SEC, describing the Transactions and, upon approval of such Information Statement, mail same to the Company stockholders.  No further vote or approval is required of Company stockholders receiving such Information Statement.  Accordingly, it is anticipated that the “Stockholder Approval” condition to the rights of holders of the 10% Notes, the Series E Preferred Stock, the Series F Senior Preferred Stock and the Series G Preferred Stock to convert such Securities into Common Stock, and the rights of holders of Warrants and other warrants to exercise such Securities will be obtained on or before November 30, 2004.  

10

In the event that, for any reason, all of the foregoing “Stockholder Approval” conditions are not satisfied by December 31, 2004, then the Company shall pay to the Purchaser in cash 2% of the $3,450,000 Purchase Price for the Series F Senior Preferred Stock for each month following December 31, 2004 that such Stockholder Approval conditions remain unsatisfied (provided, however, that to the extent that the Purchaser exercises its Exchange Option, the payment shall also be based on the purchase price of the Penthouse stock so exchanged).  The Company has agreed to pay a similar penalty to the holders of the 10% Notes and the Series E Preferred Stock.

(h)

AMEX Approval.  In August 2004, the Company announced its consummation of the acquisition of Media Billing Company, LLC and its wholly owned subsidiary Internet Billing Company LLC (“iBill”), pursuant to the terms of a securities purchase agreement, dated July 22, 2004, as amended (the “iBill Purchase Agreement”).  On September 20, 2004, the Company received a notice from the AMEX of its intention to de-list the Company’s Common Stock from trading on the AMEX, pending a hearing requested by the Company.  The delisting notice stated, among other things, that the Company failed to furnish certain necessary information to the AMEX concerning iBill and that the iBill Acquisition raised certain public interest concerns.  On September 23, 2004, the Company agreed to rescind the closing of the iBill Acquisition; however, the iBill Purchase Agreement continues to remain in full force and effect.  As a result of its agreement to rescind the closing of the iBill Acquisition, pending the resolution of all listing eligibility issues and AMEX approvals, the staff of the AMEX agreed to withdraw its notice of intent to de-list the Company’s securities.  

The Company intends to furnish the information requested by the AMEX on a timely basis and is hopeful that the staff of the AMEX will, upon receipt and review of such information, provide all necessary approvals for the iBill Acquisition.  There can be no assurance that the Company will be able to satisfactorily resolve all listing issues or that it will receive all such AMEX approvals associated with the iBill transaction.  However, if for any reason, AMEX approval has not been obtained by January 21, 2005, the Company will nevertheless close the iBill Acquisition, withdraw from the AMEX and seek to re-list its Common Stock on another National Securities Exchange.  

Following receipt of the AMEX notice of delisting, on September 23, 2004, each of the Company, Penthouse and GMI Investment Partners entered into an agreement (the “September 23rd Agreement”) that provides that the iBill Acquisition will be consummated, all shares of the Company Common Stock and Series D Preferred Stock issuable to Penthouse upon consummation of the iBill Acquisition will be issued, and all of the Series D Preferred Stock will be converted into approximately 81.4 million shares of Company Common Stock, upon the earlier to occur of (i) AMEX Approval of the iBill Acquisition, or (ii) January 21, 2005.  The Company has delivered to legal counsel to Penthouse, for filing with the Secretary of State of the State of Delaware on the earlier of AMEX Approval or January 21, 2005, a duly executed undated certificate of designation for the S eries D Preferred Stock, containing no conditions to conversion of such securities into Common Stock.

11

In addition, pursuant to the September 23rd Agreement, the Company has also delivered to legal counsel to Penthouse, for delivery to the 10% Note holders or filing with the Secretary of State of the State of Delaware, as applicable, on the earlier of Stockholder Approval or December 31, 2004 (i) duly executed 10% Notes, and (ii) duly executed undated certificates of designation for each of the Series E Preferred Stock, Series F Senior Preferred Stock and the Series G Preferred Stock, which Notes and Certificates contain no conditions to conversion of any of such securities into Company Common Stock.

2.

Representations and Warranties of the Company.  The Company represents and warrants to and agrees with Purchaser and MAG as follows; provided, however, that Purchaser and MAG each acknowledges that (i) 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”), (ii) the Purchaser and MAG and their respective representatives have been furnished copies of Debtors’ Second Amended Joint Plan of Reorganization, dated April 19, 2004 (the “Proposed Plan”) and have had and opportunity to ask questions of the Company and its bankruptcy counsel, and (iii) 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 CommissionSEC, complied and will comply, at the time of filing, in all material respects with the requirements of the Securities Act and/or the Exchange Act, as the case may be, as applicable.

(b)

Schedule A attached hereto sets forth a complete list of the subsidiaries of the Company (the "Subsidiaries").  Each of the Company and its Subsidiaries has been duly incorporated and each of the Company and the Subsidiaries is validly existing in good standing as a corporation under the laws of its jurisdiction of incorporation, with the requisite corporate power and authority to own its properties and conduct its business as now conducted as described in the Disclosure Documents and is duly qualified to do business as a foreign corporation in good standing in all other jurisdictions where the ownership or leasing of its properties or the conduct of its business requires such qualification, except where the failure to be so qualified would not, individually or in the aggregate, have a material adverse effect on the business,

12

condition (financial or other), properties, prospects or results of operations of the Company and the Subsidiaries, taken as a whole (any such event, a "Material Adverse Effect"); as of the Closing Date, the Company will have the authorized, issued and outstanding capitalization set forth in on Schedule B attached hereto (the “Company Capitalization”); except as set forth in the Disclosure Documents or on Schedule A, the Company does not have any subsidiaries or own directly or indirectly any of the capital stock or other equity or long-term debt securities of or have any equity interest in any other person; all of the outstanding shares of capital stock of the Company and the Subsidiaries have been duly authorized and validly issued, are fully paid and nonassessable and were not issued in violation of any pre emptive 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 relat ing to the ownership or disposition of any capital stock of the Company or any Subsidiary or the election of directors of the Company or any Subsidiary or the governance of the Company's or any Subsidiary's affairs, and, if any, such agreements, understandings and arrangements will not be breached or violated as a result of the execution and delivery of, or the consummation of the transactions contemplated by, the Transaction Documents.

(c)

The Company has the requisite corporate power and authority to execute, deliver and perform its obligations under the Transaction Documents.  Each of the Transaction Documents has been duly and validly authorized by the Company and, when executed and delivered by the Company, will constitute a valid and legally binding agreement of the Company, enforceable against the Company in accordance with its terms except as the enforcement thereof may be limited by (A) bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws now or hereafter in effect relating to or affecting creditors' rights generally or (B) general principles of equity and the discretion of the court before which any proceeding therefore may be brought (regardless of whether such enforcement is considered in a proceeding at law or in equity) (colle ctively, the "Enforceability Exceptions").

(d)

The Shares and the Warrants have been duly authorized and, when issued upon payment thereof in accordance with this Agreement, will have been validly issued, fully paid and nonassessable.  The Conversion Shares issuable have been duly authorized and validly reserved for issuance, and when issued upon conversion of the Shares in accordance with the terms of the Certificate of Designation, will have been validly issued, fully paid and nonassessable.  The Warrant Shares have been duly

13

authorized and validly reserved for issuance, and when issued upon exercise of the Warrants in accordance with the terms thereof, will have been validly issued, fully paid and nonassessable.  The Common Stock of the Company conforms to the description thereof contained in the Disclosure Documents.  The stockholders of the Company have no preemptive or similar rights with respect to the Common Stock.

(e)

No consent, approval, authorization, license, qualification, exemption or order of any court or governmental agency or body or third party is required for the performance of the Transaction Documents by the Company or for the consummation by the Company of any of the transactions contemplated thereby, or the application of the proceeds of the issuance of the Securities as described in this Agreement, except for such consents, approvals, authorizations, licenses, qualifications, exemptions or orders (i) as have been obtained on or prior to the Closing Date, (ii) as are not required to be obtained on or prior to the Closing Date that will be obtained when required, or (iii) the failure to obtain which would not, individually or in the aggregate, have a Material Adverse Effect.

(f)

Except as set forth on Schedule D, none of the Company or the Subsidiaries is (i) in material violation of its articles of incorporation or bylaws (or similar organizational document), (ii) in breach or violation of any statute, judgment, decree, order, rule or regulation applicable to it or any of its properties or assets, which breach or violation would, individually or in the aggregate, have a Material Adverse Effect, or (iii) except as described in the Disclosure Documents, in default (nor has any event occurred which with notice or passage of time, or both, would constitute a default) in the performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, deed of trust, loan agreement, note, lease, license, franchise agreement, permit, certificate or agreement or instrument to which it is a party or to which it is subject, which default would, individually or in the aggregate, have a Material Adverse Effect.

(g)

The execution, delivery and performance by the Company of the Transaction Documents and the consummation by the Company of the transactions contemplated thereby and the fulfillment of the terms thereof will not (a) violate, conflict with or constitute or result in a breach of or a default under (or an event that, with notice or lapse of time, or both, would constitute a breach of or a default under) any of (i) the terms or provisions of any contract, indenture, mortgage, deed of trust, loan agreement, note, lease, license, franchise agreement, permit, certificate or agreement or instrument to which any of the Company or the Subsidiaries is a party or to which any of their respective properties or assets are subject, (ii) the articles of incorporation or bylaws of any of the Company or the Subsidiaries (or similar organizational document) or (iii) any statute, judgment, decree, order, rule or regulation of any court or governmental agency or other body applicable to the Company or the Subsidiaries or any of their respective properties or assets or (b) result in the imposition of any lien upon or with respect to any of the properties or assets now owned or hereafter acquired by the Company or any of the Subsidiaries; which violation, conflict, breach, default or lien would, individually or in the aggregate, have a Material Adverse Effect.

14

(h)

The audited consolidated financial statements included in the Disclosure Documents present fairly the consolidated financial position, results of operations, cash flows and changes in shareholders' equity of the entities, at the dates and for the periods to which they relate and have been prepared in accordance with generally accepted accounting principles applied on a consistent basis; the interim unaudited consolidated financial statements included in the Disclosure Documents present fairly the consolidated financial position, results of operations and cash flows of the entities, at the dates and for the periods to which they relate subject to year-end audit adjustments and have been prepared in accordance with generally accepted accounting principles applied on a consistent basis with the audited consolidated financial statements included therein; the selected financial and statistical data included in the Disclosure Documents present fairly the information shown therein and have been prepared and compiled on a basis consistent with the audited financial statements included therein, except as otherwise stated therein; and each of the auditors previously 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 no pending or, to the knowledge of the Company, threatened any action, suit, proceeding, inquiry or investigation, governmental or otherwise, to which any of the Company or the Subsidiaries is a party, or to which their respective properties or assets are subject, before or brought by any court, arbitrator or governmental agency or body, that, if determined adversely to the Company or any such Subsidiary, would, individually or in the aggregate, have a Material Adverse Effect or that seeks to restrain, enjoin, prevent the consummation of or otherwise challenge the issuance or sale of the Securities to be sold hereunder or the application of the proceeds therefrom or the other transactions described in the Disclosure Documents.

(j)

The Company and the Subsidiaries own or possess adequate licenses or other rights to use all patents, trademarks, service marks, trade names, copyrights and know-how that are necessary to conduct their businesses as described in the Disclosure Documents.  None of the Company or the Subsidiaries has received any written notice of infringement of (or knows of any such infringement of) asserted rights of others with respect to any patents, trademarks, service marks, trade names, copyrights or know-how that, if such assertion of infringement or conflict were sustained, would, individually or in the aggregate, have a Material Adverse Effect.

(k)

Each of the Company and the Subsidiaries possesses all licenses, permits, certificates, consents, orders, approvals and other authorizations from, and has made all declarations and filings with, all federal, state, local and other governmental authorities, all self-regulatory organizations and all courts and other tribunals presently required or necessary to own or lease, as the case may be, and to operate its respective properties and to carry on its respective businesses as now or proposed to be conducted as set forth in the Disclosure Documents ("Permits"), except where the failure to obtain such

15

Permits would not, individually or in the aggregate, have a Material Adverse Effect and none of the Company or the Subsidiaries has received any notice of any proceeding relating to revocation or modification of any such Permit, except as described in the Disclosure Documents and except where such revocation or modification would not, individually or in the aggregate, have a Material Adverse Effect.

(l)

Subsequent to the respective dates as of which information is given in the Disclosure Documents and except as described therein, (i) the Company and the Subsidiaries have not incurred any material liabilities or obligations, direct or contingent, or entered into any material transactions not in the ordinary course of business or (ii) the Company and the Subsidiaries have not purchased any of their respective outstanding capital stock, or declared, paid or otherwise made any dividend or distribution of any kind on any of their respective capital stock or otherwise (other than, with respect to any of such Subsidiaries, the purchase of capital stock by the Company), (iii) there has not been any material increase in the long-term indebtedness of the Company or any of the Subsidiaries, (iv) there has not occurred any event or condition, individually or in the aggregate, that has a Material Adverse Effect, and (v) the Company and the Subsidiaries have not sustained any material loss or interference with respect to their respective businesses or properties from fire, flood, hurricane, earthquake, accident or other calamity, whether or not covered by insurance, or from any labor dispute or any legal or governmental proceeding.

(m)

There are no material legal or governmental proceedings nor are there any material contracts or other documents required by the Securities Act to be described in a prospectus that are not described in the Disclosure Documents.  Except as described in the Disclosure Documents, none of the Company or the Subsidiaries is in default under any of the contracts described in the Disclosure Documents, has received a notice or claim of any such default or has knowledge of any breach of such contracts by the other party or parties thereto, except for such defaults or breaches as would not, individually or in the aggregate, have a Material Adverse Effect.

(n)

Each of the Company and the Subsidiaries has good and marketable title to all real property described in the Disclosure Documents as being owned by it and good and marketable title to the leasehold estate in the real property described therein as being leased by it, free and clear of all liens, charges, encumbrances or restrictions, except, in each case, as described in the Disclosure Documents or such as would not, individually or in the aggregate, have a Material Adverse Effect.  All material leases, contracts and agreements to which the Company or any of the Subsidiaries is a party or by which any of them is bound are valid and enforceable against the Company or any such Subsidiary, are, to the knowledge of the Company, valid and enforceable against the other party or parties thereto and are in full force and effect.

(o)

Each of the Company and the Subsidiaries has filed all necessary federal, state and foreign income and franchise tax returns, except where the failure to so file such returns would not, individually or in the aggregate, have a Material Adverse

16

Effect, and has paid all taxes shown as due thereon; and other than tax deficiencies which the Company or any Subsidiary is contesting in good faith and for which adequate reserves have been provided in accordance with generally accepted accounting principles, there is no tax deficiency that has been asserted against the Company or any Subsidiary that would, individually or in the aggregate, have a Material Adverse Effect.

(p)

None of the Company or the Subsidiaries is, or immediately after the Closing Date will be, required to register as an "investment company" or a company "controlled by" an "investment company" within the meaning of the Investment Company Act of 1940, as amended (the "Investment Company Act").

(q)

None of the Company or the Subsidiaries or, to the knowledge of any of such entities' directors, officers, employees, agents or controlling persons, has taken, directly or indirectly, any action designed, or that might reasonably be expected, to cause or result in the stabilization or manipulation of the price of the Common Stock.

(r)

None of the Company, the Subsidiaries or any of their respective Affiliates (as defined in Rule 501(b) of Regulation D under the Securities Act) directly, or through any agent, engaged in any form of general solicitation or general advertising (as those terms are used in Regulation D under the Securities Act) in connection with the offering of the Securities or engaged in any other conduct that would cause such offering to be constitute a public offering within the meaning of Section 4(2) of the Securities Act.  Assuming the accuracy of the representations and warranties of the 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 Mercator Advisory Group, the Company does not know of any claims for services, either in the nature of a finder's fee or financial

17

advisory fee, with respect to the offering of the Shares and the transactions contemplated by the Transaction Documents.

(w)

The Common Stock currently trades on the American Stock Exchange.  Except as described in the Disclosure Documents, the Company currently is not in violation of, and the consummation of the transactions contemplated by the Transaction Documents will not violate, any rule of the National Association of Securities Dealers.

(x)

The Company is eligible to use Form S-1 or SB-2 for the resale of the Conversion Shares and the Warrant Shares by Purchaser or their transferees and the Warrant Shares by MAG or its transferees.  The Company has no reason to believe that it is not capable of satisfying the registration or qualification requirements (or an exemption therefrom) necessary to permit the resale of the Conversion Shares and the Warrant Shares under the securities or "blue sky" laws of any jurisdiction within the United States that is the residence or domicile of any Purchaser.  

3.

Purchase, Sale and Delivery of the Shares.  On the basis of the representations, warranties, agreements and covenants herein contained and subject to the terms and conditions herein set forth, the Company agrees to issue and sell to the Purchaser, and Purchaser agrees to purchase from the Company, 35,000 Shares of Series E Stock at $100.00 per Share.  In connection with the purchase and sale of Shares, for no additional consideration (a) the Purchaser and MAG will receive Warrants to purchase up to an aggregate of 430,504 shares of Common Stock calculated by dividing $2,333,333 by the Market Price as of September 20, 2004, subject to adjustment as set forth in the Warrants. The allocation of the Warrants is set forth on the signature page of this Subscription Agreement.

One or more certificates in definitive form for the Shares that the Purchaser have agreed to purchase, as well as the Warrants, shall be delivered by or on behalf of the Company, against payment by or on behalf of the 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 delivery of and payment for the Shares and the Warrants shall be made at the offices of MAG, 555 South Flower Street, Suite 4500, Los Angeles, California 90071, at not later than 12:00 noon (Los Angeles time) on Wednesday, September 29, 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”.  The aggregate $ 3.5 million Purchase Price for the Series E Stock (the “Purchase Price”) shall be paid by wire transfer of immediately available funds to the attorneys’ escrow account of Gersten, Savage Kaplowitz Wolf & Marcus, LLP, counsel to the Company, or at the request of the Company (subject to the execution of the GMI Stock Purchase Agreement) to the attorneys’ escrow account of Milberg Weiss Bershad & Schulman LLP, as Escrow Agent, under the GMI Securities Purchase Agreement.  At the Closing or not later than five (5) days after completion of the Closing, (a) the Company shall deliver one or more duly executed certificates evidencing the Series E Stock to the Purchaser to his or its address designated in writing

18

to the Company, (b) the escrow shall release the $210,000 due diligence fee and the $15,000 legal fees to MAG and (c) the escrow shall release the balance of the Purchase Price to the Company.  If for any reason the GMI Stock Purchase Agreement shall not be executed by September 21, 2004 (unless extended by mutual agreement of the parties to the GMI Stock Purchase Agreement to not later than September 30, 2004), all escrowed funds shall be immediately returned to the Purchaser.

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 Series E Stock will be used to reduce or retire any insider note or convertible debt held by an officer or director of the Company.

(d)

Subject to Section 10 of this Agreement, the Conversion Shares and the Warrant Shares will be listed on the AMEX, 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 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's 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 material respects (other than representations and warranties with a Material Adverse Effect qualifier, which shall be true and correct as written) on and as of the Closing Date; the Company shall have complied in all

19

material respects with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to the Closing Date.

(b)

None of the issuance and sale of the Securities pursuant to this Agreement or any of the transactions contemplated by any of the other Transaction Documents shall be enjoined (temporarily or permanently) and no restraining order or other injunctive order shall have been issued in respect thereof; and there shall not have been any legal action, order, decree or other administrative proceeding instituted or, to the Company's knowledge, threatened against the Company or against any Purchaser relating to the issuance of the Securities or any Purchaser's activities in connection therewith or any other transactions contemplated by this Agreement, the other Transaction Documents or the Disclosure Documents.

(c)

The 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, and/or Florida counsel reasonably satisfactory to the Purchaser, with respect to the authorization of the Shares, the Warrants and the Warrant Shares and other customary matters in the form attached hereto as Exhibit C.

(e)

The Purchaser shall have received a copy of a fully executed GMI Purchase Agreement; which agreement shall provide, inter alia, that all funds (including the Purchase Price for the Series E Stock that has been wired to the attorney’s escrow account of Milberg Weiss, as Escrow Agent, will only be released to the Bell/Staton Group upon written confirmation that the General Media Debtors have emerged from bankruptcy.

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 (including the Conversion Shares and the Warrant Shares that it may acquire upon conversion or exercise thereof, as the case may be) are being acquired for its own account for investment and with no intention of distributing or reselling such Securities (including the Conversion Shares and the Warrant Shares that it may acquire upon conversion or exercise thereof, as the case may be) or any part thereof or interest therein in any transaction which would be in violation of the securities laws of the United States of America or any State.  Nothing in this Agreement, however, shall prejudice or otherwise limit a Purchaser's right to sell or otherwise dispose of all or any part of such Conversion Shares or Warrant Shares under an effective registra tion statement under the Securities Act and in compliance with applicable state securities laws or under an exemption from such registration.  By executing this

20

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 (including the Conversion Shares and the Warrant Shares that it may acquire upon conversion or exercise thereof, as the case may be):

The shares of stock evidenced by this certificate have not been registered under the U.S. Securities Act of 1933, as amended, and may not be offered, sold, pledged or otherwise transferred ("transferred") in the absence of such registration or an applicable exemption therefrom. In the absence of such registration, such shares may not be transferred unless, if the Company requests, the Company has received a written opinion from counsel in form and substance satisfactory to the Company stating that such transfer is being made in compliance with all applicable federal and state securities laws.

The legend set forth above may be removed if and when the Conversion Shares or the Warrant Shares, as the case may be, are disposed of pursuant to an effective registration statement under the Securities Act or in the opinion of counsel to the Company experienced in the area of United States Federal securities laws such legends are no longer required under applicable requirements of the Securities Act.  The Shares, the Warrants, the Conversion Shares and the Warrant Shares shall also bear any other legends required by applicable Federal or state securities laws, which legends may be removed when in the opinion of counsel to the Company experienced in the applicable securities laws, the same are no longer required under the applicable requirements of such securities laws.  The Company agrees that it will provide the Purchaser, upon request, w ith 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 Conversion Shares or the Warrant Shares by it pursuant to an effective registration statement under the Securities Act, such Purchaser will comply with all prospectus delivery requirements of the Securities Act.  The Company makes no representation, warranty or agreement as to the availability of any exemption from registration under the Securities Act with respect to any resale of the Shares, the Conversion Shares or the Warrant Shares.

21

(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 on erous 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, members, or controlling persons has taken, directly or indirectly, any actions designed, or might reasonably be expected to cause or result in the stabilization or manipulation of the price of the Common Stock.

(g)

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 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 i nformation contained in the Disclosure Documents.

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(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, MAG and their respective affiliates and assigns agree not to short the Company Common Stock as long as shares of the Series E Stock are outstanding.  

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:  

(1)

the representations and warranties made by any Purchaser in Section 6 are not true and correct in all material respects; or

(2)

as to the Company, the sale of the Securities hereunder (i) is prohibited or enjoined by any applicable law or governmental regulation or (ii) subjects the Company to any penalty, or in its reasonable judgment, other onerous condition under or pursuant to any applicable law or government regulation that would materially reduce the benefits to the Company of the sale of the Securities to such Purchaser, so long as such regulation, law or onerous condition was not in effect in such form at the date of this Agreement.

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(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 45 days from the Closing Date, the Company shall prepare and file with the SEC a Registration Statement (the “Registration Statement”) covering the resale of the maximum number of (a) Conversion Shares issuable upon conversion of the Notes, the Series E Stock and the Series F Preferred Stock, (b) Adjustment Shares, (c) Warrant Shares issuable upon exercise of the Warrants, and (d) the Note Warrant Shares and the Series F Warrant Shares (collectively, the “Registrable Securities”) as set forth in the Registration Rights Agreement.  

(a)

Until the Registration Statement shall have been declared effective by the SEC (the “Effective Date”), the Shares shall pay a mandatory monthly dividend, at an annual rate equal to the product of multiplying (i) the $100.00 per share Series E Purchase Price, by (ii) 6.0% (the “Dividend”).  The Dividend shall be payable monthly in arrears in cash. Payment shall be made on or before the 5th day of the following month by wire transfer to the account designated by Purchaser in writing.  

(b)

From and after the Effective Date, the Dividend shall no longer be payable.  Subject to the prior rights of holders of all classes of stock at the time outstanding having prior rights as to dividends, the holder of the Shares shall be entitled to receive, when, as and if declared by the Board of Directors, out of any assets of the Company legally available therefor, such dividends as may be declared from time to time by the Board of Directors.

10.

Event of Default.  If an Event of Default (as defined below) occurs and remains uncured for a period of 5 days, the Purchaser shall have the right to (i) exercise any or all of the rights given to the Purchaser relating to the Securities, as further described in the Certificate of Designation and (ii) the Floor Price and Assumed Floor Price shall be adjusted as set forth in Section 7(d)(i) of the Certificate of Designation for the Series E Stock.  In addition, from and including the day following the date on which an Event of Default of the nature specified in clause (ii), (v) or (vi) of the definition of Event of Default below shall occur, until the date on which the Company has cured such Event of Default by filing the registration statement with the SEC, the Company shall pay

24

liquidated damages to Holder equal to $4,666 for each day during which such situation exists. Any amounts to be paid as liquidated damages shall be paid in cash monthly in arrears on or before the 10th day following the end of the month or partial month to which they relate.  

The Holder need not provide and the Company hereby waives any presentment, demand, protest or other notice of any kind, and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such declaration may be rescinded and annulled by Holder at any time prior to payment hereunder. No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.  

As used in this Agreement, the term "Event of Default" shall mean (i) the commencement by the Company of a voluntary case or proceeding under the bankruptcy laws or the Company's failure to discharge or stay a bankruptcy proceeding within 60 days of such action being taken against the Company, (ii) the Company’s failure to file the Registration Statement with the SEC within 45 days after the Closing Date or the Company’s failure or inability to cause such Registration Statement be declared effective by the SEC within 70 days after the Closing Date, (iii) the failure of the Company to pay the expenses referred to below or the Due Diligence Fee within five (5) days of the Closing, (iv) the Company’s failure to make timely payments of the Dividend, (v) the Company’s failure to file the Information Statement relating t o Stockholder Approval with the SEC within five (5) trading days after the Closing Date as required by Section 1(B)(g) of this Agreement, or (vi) the Company’s failure to obtain SEC approval of the Information Statement relating to Stockholder Approval on or before November 30, 2004.

11.

Notices.  All communications hereunder shall be in writing and shall be hand delivered, mailed by first-class mail, couriered by next-day air courier or by facsimile and confirmed in writing (i) if to the Company, at the addresses set forth below, or (ii) if to a Purchaser or MAG, to the address set forth for such party on the signature page hereto.

If to the Company:

Care Concepts I, 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

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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 first anniversary of the Closing.

13.

Fees and Expenses.  Within five (5) days of Closing, the Company agrees to pay Purchaser's expenses (including legal fees of its legal counsel incurred in connection with the preparation and negotiation of the Transaction Documents of $15,000.  If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the Warrants or the Certificate of Designation, the prevailing party or parties shall be entitled to receive from the other party or parties reasonable attorneys’ fees, costs and necessary disbursements in addition to any other relief to which the prevailing party or parties may be entitled.  

14.

Successors.  This Agreement shall inure to the benefit of and be binding upon Purchaser, MAG and the Company and their respective successors and legal representatives, and nothing expressed or mentioned in this Agreement is intended or shall be construed to give any other person any legal or equitable right, remedy or claim under or in respect of this Agreement, or any provisions herein contained; this Agreement and all conditions and provisions hereof being intended to be and being for the sole and exclusive benefit of such persons and for the benefit of no other person. Neither the Company nor any Purchaser may assign this Agreement or any rights or obligation hereunder without the prior written consent of the other party.

15.

No Waiver; Modifications in Writing.  No failure or delay on the part of the Company, MAG or any Purchaser in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy.  The remedies provided for herein are cumulative and are not exclusive of any remedies that may be available to the Company, MAG or any Purchaser at law or in equity or otherwise.  No waiver of or consent to any departure by the Company, MAG or any Purchaser from any provision of this Agreement shall be effective unless signed in writing by the party entitled to the benefit thereof, provided that notice of any such waiver shall be given to each party hereto as set for th below.  Except

26

as otherwise provided herein, no amendment, modification or termination of any provision of this Agreement shall be effective unless signed in writing by or on behalf of each of the Company, MAG and the 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, MAG or any Purchaser from the terms of any provision of this Agreement shall be effective only in the specific instance and for the specific purpose for which made or given.  Except where notice is specifically required by this Agreement, no notice to or demand on the Company in any case shall entitle the Company to any other or further notice or demand in similar or other circumstances.

16.

Entire Agreement.  This Agreement, together with Transaction Documents, constitutes the entire agreement among the parties hereto and supersedes all prior agreements, understandings and arrangements, oral or written, among the parties hereto with respect to the subject matter hereof and thereof.

17.

Severability.  If any provision of this Agreement is held to be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Agreement shall not in any way be affected or impaired thereby.

18.

APPLICABLE LAW.  THE VALIDITY AND INTERPRETATION OF THIS AGREEMENT, AND THE TERMS AND CONDITIONS SET FORTH HEREIN SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT GIVING EFFECT TO PROVISIONS RELATING TO CONFLICTS OF LAW TO THE EXTENT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.  THE PARTIES HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREE THAT ACTIONS, SUITS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT MAY BE BROUGHT ONLY IN STATE OR FEDERAL COURTS LOCATED IN THE CITY OF LOS ANGELES, CALIFORNIA AND HEREBY SUBMIT TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS FOR SUCH PURPOSE.

19.

Facsimile Signatures.  Facsimile signatures shall be construed and considered original signatures for purposes of enforcement of the terms of this agreement.

20.

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.

[the balance of this page intentionally left blank B signature page follows]

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If the foregoing correctly sets forth our understanding, please indicate your acceptance thereof in the space provided below for that purpose, whereupon this Agreement shall constitute a binding agreement among the Company, the Purchaser and MAG.

Very truly yours,

CARE CONCEPTS I, INC.

By:

___________________________

Name:

Charles L. Samel

Title:

Executive Vice-President

ACCEPTED AND AGREED:

28

Monarch Pointe Fund, Ltd.

By:    

David Firestone

Its:

President

Number of Shares Purchased at Closing:  35,000

Purchase Price:  $3,500,000

Warrants:  344,403

Mercator Advisory Group, LLC

By:     

David Firestone

Its:

Managing Member

Warrants:  86,100

Addresses for Notice to Purchaser and MAG

Mercator Advisory Group, LLC

555 South Flower Street, Suite 4500

Los Angeles, California 90071

Attention:  David Firestone

Facsimile:  (213) 533-8285

with copy to:

David C. Ulich, Esq.

Sheppard, Mullin, Richter & Hampton LLP

333 South Hope Street, 48th Floor

Los Angeles, California 90071

Facsimile: (213) 620-1398

29

Schedule A

Direct and Indirect Subsidiaries of Care Concepts I, Inc.

Media Billing LLC

Subsidiary of Media Billing, LLC

Internet Billing Company, LLC

30

Exhibit A

Warrant

31

Exhibit B

Certificate of Designation of

Series E Convertible Preferred Stock of Care Concepts I, Inc.

32

Exhibit C

Registration Rights Agreement

33

Exhibit “D”

GMI Preferred Stock Purchase Agreement

34

EX-10.6

EXHIBIT 10.6

CERTIFICATE OF DESIGNATION OF PREFERENCES AND RIGHTS OF

SERIES E CONVERTIBLE PREFERRED STOCK

OF

CARE CONCEPTS I, INC.

a Delaware corporation

The undersigned, Gary Spaniak, Jr. and Charles Pearlman, do hereby certify that:

1.

They are the President and an Assistant Secretary, respectively, of CARE CONCEPTS I, INC., a corporation organized and existing under the Delaware General Corporation Law (“DGCL”) of the State of Delaware (the “Corporation”).

2.

Pursuant to authority conferred upon the Board of Directors by the Certificate of Incorporation of the Corporation, and pursuant to the provisions of Section 151 of the DGCL, the Board of Directors of the Corporation, pursuant to a meeting held September 20, 2004, adopted a resolution establishing the rights, preferences, privileges and restrictions of, and the number of shares comprising, the Corporation’s Series E Convertible Preferred Stock, which resolution is as follows:

RESOLVED, that a series of Preferred Stock in the Corporation, having the rights, preferences, privileges and restrictions, and the number of shares constituting such series and the designation of such series, set forth below be, and it hereby is, authorized by the Board of Directors of the Corporation pursuant to authority given by the Corporation’s Articles of Incorporation.

NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors hereby fixes and determines the Determinations of, the number of shares constituting, and the rights, preferences, privileges and restrictions relating to, a new series of Preferred Stock as follows:

1.

Definitions.  For the purposes of this Certificate of Designation and in addition to other terms defined herein, the following definitions shall apply:

“10% Notes” shall mean the maximum of $15.0 million of the Corporation’s 10% convertible secured notes due September 15, 2009 to be issued pursuant to the transactions contemplated by the Subscription Agreement.

“Affiliate means, as to any Person, any other Person which, directly or indirectly, alone or together with other Persons, controls or is controlled by or is under common control with such Person. “Control” “controlled by” and “under common control with”, as and with respect to any Person, means the power, directly or indirectly, to direct or cause the direction of the management and policies of such Person.

“Adjustment Shares”  shall have the meaning defined in Section 7(b) of this Certificate of Designation and as “Additional Shares” in the Subscription Agreement.

“AMEX” shall mean the American Stock Exchange, Inc.

“Applicable Law” means any domestic or foreign law, statute, regulation, rule, policy, guideline or ordinance applicable to the businesses of the Corporation.

1

“Business Day” means any day, Monday through Friday, on which U.S. federally chartered banks are open for business in New York, New York, and Fort Lauderdale, Florida.

“Commission” shall mean the United States Securities and Exchange Commission.

“Common Stock” shall mean the authorized common stock, $.001 par value per share, of the Corporation.

“Common Stock Equivalent” shall mean any issued and outstanding notes, debentures or Preferred Stock that is convertible into shares of Common Stock, any options, warrants or securities exercisable for shares of Common Stock, or other rights entitling the holder to purchase Common Stock or exchange property or other assets for Common Stock.

 “Conversion Price” shall mean a price equal to fifty (50%) percent of the Market Price as at the Conversion Notice Date; provided, that in no event shall the Conversion Price be lower than the Floor Price.

“Conversion Notice” shall have the meaning defined in Section 7(b) of this Series E Certificate of Designations.

 “Conversion Notice Date” shall mean the date on which a Holder of Series E Preferred Stock shall deliver a Conversion Notice to the Corporation.

“DGCL” shall mean the Delaware General Corporation Law, as amended,

“Floor Price” shall mean $3.00 per share of Common Stock.

“Exchange Act” shall mean the United States Securities Exchange Act of 1934, as amended, or any successor law.

 “Fully-Diluted Common Stock” means, at any applicable point in time, the issued and outstanding shares of Common Stock of the Corporation, on a fully-diluted basis, after giving effect to (i) all issued and outstanding shares of Common Stock, (ii) the conversion into Common Stock of all issued and outstanding shares of Preferred Stock, (iii) all shares of Common Stock issuable upon exercise of any outstanding options, warrants or other rights to purchase Common Stock, and/or (iv) all shares of Common Stock issuable upon conversion of any outstanding notes, debentures, preferred stock, or other securities convertible into or exchangeable for shares of Common Stock.

“GAAP” means generally accepted United States accounting principles in effect from time to time.

“Governmental Authority” shall mean any court, tribunal, authority, agency, commission, bureau, department, official or other instrumentality of the United States, or any other country or any provincial, state, local, county, city or other political subdivision.

“Holder(s)” shall mean the individual or collective reference to Monarch Pointe Fund, Ltd. and any other holder(s) of the Series E Preferred Stock.

 “Law” shall mean any United States, state or local (including common law) statute, code, directive, ordinance, rule, regulation or other requirement.

2

“Market Price” shall mean the average of the lowest three (3) intra-day trading prices of the Common Stock of the Corporation, as traded on the AMEX or any other National Securities Exchange, for the ten (10) trading days immediately preceding the date of determination of such Market Price.

“National Securities Exchange” shall mean the individual and collective reference to the New York Stock Exchange, the AMEX, the Nasdaq Stock Market, and/or the NASD OTC-Bulletin Board.

“Person” shall mean any individual, corporation (including any non-profit corporation), general or limited partnership, limited liability company, joint venture, estate, trust, association, organization, labor union or other entity or governmental body or Governmental Authority.

“Preferred Stock” shall mean the authorized preferred stock, $.001 par value per share, of the Corporation.

“Proceeding” shall mean any claim, action, investigation, arbitration, litigation or other judicial, administrative or regulatory proceeding.

“Representatives” shall mean officers, directors, employees, agents, attorneys, accountants, advisors and representatives.

 “Securities Act” shall mean the United States Securities Act of 1933, as amended, or any successor law.

“Series A Preferred Stock” shall mean the 1,000 authorized shares of Series A Preferred Stock of the Corporation.

“Series B Preferred Stock” shall mean the 10,000 authorized shares of Series B Preferred Stock of the Corporation.

“Series C Preferred Stock” shall mean the 45,000 authorized shares of Series C Preferred Stock of the Corporation.

“Series D Preferred Stock” shall mean the 330,000 shares of Series D Preferred Stock of the Corporation issued to Penthouse pursuant to the Series D Preferred Stock Certificate of Designations and the Series D Preferred Stock Certificate of Designation Amendment.

“Series E Preferred Stock” shall mean the 35,000 shares of Series E Preferred Stock of the Corporation authorized to be issued pursuant to this Series E Preferred Stock Certificate of Designations.

“Series E Stated Value” shall mean the $100.00 per share stated value payable in respect of each of the authorized and issued series of the Series E Preferred Stock of the Corporation, as applicable, in connection with any Liquidation Event (as hereinafter defined in Section 7(a)) redemption or other sale or disposition of such Series E Preferred Stock.

“Series F Preferred Stock” shall mean the maximum of 54,500 shares of 10% Series F Convertible Redeemable Secured Preferred Stock of the Corporation to be issued pursuant to the transactions contemplated by the Subscription Agreement.

“Series G Preferred Stock” shall mean the 45,000 shares of Series G Convertible Preferred Stock of the Corporation to be issued pursuant to the transactions contemplated by the Subscription Agreement.

3

“Subsidiary” shall mean with respect to any Person, any corporation, joint venture, limited liability company, partnership, association or other business entity of which 50% or more of the total voting power of stock or other equity entitled to vote generally in the election of directors or managers or equivalent Persons thereof is owned or controlled, directly or indirectly, by such Person.

“Subscription Agreement” shall mean the subscription agreement, dated September 20, 2004, between the Holder(s) of Series E Preferred Stock, Mercator Advisory Group, LLC and the Corporation.

“Transfer of Control” shall mean the occurrence of any one of the following events: (a) the sale, conveyance, exchange or disposition (collectively, “Transfer”) of all or substantially all of the assets of the Corporation, (b) the Transfer of all or substantially all of the assets of all or substantially all of the Subsidiaries of the Corporation, or (c) the consummation of a transaction or series of related transactions (whether by tender offer, merger, consolidation or like combination) in which either (i) more than fifty percent (50%) of the voting power of the Corporation is disposed of, or (ii) the power to elect a majority of the Board of Directors of the Corporation is invested in one or more Person(s) who are not currently stockholders of the Corporation or of Penthouse or Affiliates of such Persons.

2.

Determination.  The series of Preferred Stock is hereby designated Series E Convertible Preferred Stock (the “Series E Preferred Stock”).

3.

Authorized Shares.  The number of authorized shares constituting the Series E Preferred Stock shall be thirty five thousand (35,000) shares of such series.

4.

Dividends.  Until such date (the “Effective Date”) as a registration statement covering the Common Stock issuable upon conversion of the Series E Preferred Stock, certain additional shares of Common Stock purchased on the Issue Date from an affiliate of the Corporation, and other shares of Common Stock issuable upon exercise of certain warrants issued on the Issue date to the Holder of the Series E Preferred Stock (collectively, the “Registrable Securities”), on Form S-1 or other applicable form for registering securities under the Securities Act of 1933, as amended (the “Registration Statement”) shall have been declared effective by the Securities and Exchange Commission, each Share of Series E Preferred Stock shall pay a mandatory monthly dividend, at an annual rate equal to the product of m ultiplying (i) the $100.00 per share Series E Purchase Price, by (ii) six percent (6.0%).  Such dividend shall be payable monthly in arrears in cash.  From and after the Effective Date of the Registration Statement, no further mandatory dividends shall be payable on the Series E Preferred Stock.  Subject to the prior rights of holders of all classes of stock at the time outstanding having prior rights as to dividends, the holder of the Series E Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors, out of any assets of the Corporation legally available therefor, such dividends as may be declared from time to time by the Board of Directors.

5.

Liquidation Preference.

(a)

Liquidation, Dissolution or Winding Up.  If (A) the Corporation shall commence a voluntary case under the Federal bankruptcy laws or any other applicable Federal or state bankruptcy, insolvency or similar law, or consent to the entry of an order for relief In an involuntary case under any law or to the appointment of a receiver, liquidator, assignee, custodian, trustee or sequestrator (or other similar official) of the Corporation or of any substantial part of its property, or make an assignment for the benefit of its creditors, or admit in writing its inability to pay its debts generally as they become due, or if a decree or order for relief in respect of the Corporation shall be entered by a court having jurisdiction in the premises in an involuntary case under the Federal bankruptcy laws or any other

4

applicable Federal or state bankruptcy, insolvency or similar law resulting in the appointment of a receiver, liquidator, assignee, custodian, trustee or sequestrator (or other similar official) of the Corporation or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and any such decree or order shall be unstayed and in effect for a period of 30 consecutive days and, on account of any such event (“Insolvency Proceeding”), or (B) the Corporation shall otherwise liquidate, dissolve or wind up, a “Liquidation Event” shall be deemed to have occurred for purposes of this Certificate of Designation. If a Liquidation Event shall occur, the available funds and assets of the Corporation and its Subsidiaries shall be distributed in the following manner:

(i)

Liquidation Preference. Upon the occurrence of any Liquidation Event, the holder(s) of the issued and outstanding shares of Series E Preferred Stock shall be entitled to be paid a liquidation preference at the Series E Stated Value per share, out of the Available Funds and Assets (A) junior to and subordinated to all payments as shall be made to the holders of the Series F Preferred Stock, (B) pari passu and at the same time as payment shall be made to the holders of the Series D Preferred Stock, and (C) senior, prior to, and before any payment or distribution (or any setting apart of any payment or distribution) of any available funds and assets of the Corporation or any Subsidiary on any shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series G Preferred Stock or Common Stock of the Corporation . If, upon a Liquidation Event, after payment in full of all payments as shall be made to the holders of the Series F Preferred Stock, the available funds and assets of the Corporation and its Subsidiaries to be distributed to the holders of the Series D and Series E Preferred Stock shall be insufficient to permit the payment to such shareholders of their full preferential amount described in this subsection, then all of such available funds and assets shall be distributed among the holders of then outstanding series of such Series D Preferred Stock and Series E Preferred Stock pro rata, according to the number of outstanding shares of such Series D Preferred Stock and Series E Preferred Stock held by each holder thereof. Except for the Series F Preferred Stock, the Corporation shall not create, designate or authorize any series of Preferred Stock with liquidation preferences or rights senior to the liquidation preferences and rights held by the holders of the Series E Preferred Stock.

(ii)

Other Shares of Junior Preferred Stock. Subject to payment in full of the Stated Value liquidation preference, first to the holders of the Series F Preferred Stock, then to the Series D Preferred Stock and Series E Preferred Stock, as provided above, the holder(s) of all other series of Preferred Stock of the Corporation then outstanding (including the Series B Preferred Stock, Series C Preferred Stock and Series G Preferred Stock) shall be entitled to be paid, out of the remaining available funds and assets, if any, and prior and in preference to any payment or distribution (or any setting apart of nay payment or distribution) of any available finds and assets on any shares of Common Stock, the amount of any liquidation preference or other payment required under the terms of such Preferred Stock.

(iii)

Remaining Assets. If there are any available finds and assets remaining after the payment or distribution (or the setting aside for payment or distribution) to the holders of the Preferred Stock of their full preferential amounts described in Sections here above, then all such remaining available finds and assets shall be distributed among the holders of the then outstanding Common Stock pro rata according to the number of shares of Common Stock held by each holder thereof.

(b)

Merger or Sale of Assets.  At the option of the holders of the Series E Preferred Stock, with such series voting as a separate series, upon the consummation of a transaction or series of related transactions affecting the Corporation that shall constitute a Transfer of Control, for all purposes of this Certificate of Designation, a Liquidation Event shall be deemed to have occurred. In such event the Corporation shall, at the sole option of the holders of a majority of the outstanding Series E Preferred Stock, either (i) distribute, upon consummation of and as a condition to, such Transfer of Control an

5

amount equal to the $100.00 per share Series E Stated Value liquidation preference with respect to each outstanding share of Series E Preferred Stock, (ii) issue to the holders of the Series E Preferred Stock that number of shares of common stock of the successor or acquiring corporation or of the Corporation, if it is the surviving corporation, and/or other property as is receivable upon or as a result of such Transfer of Control, as though each Holder of Series E Preferred Stock had converted his or its Series E Preferred Stock into shares of Common Stock, at the applicable Conversion Percentage of Fully-Diluted Common Stock, immediately prior to such Transfer of Control or (iii) require the Corporation, or such successor, resulting, surviving or purchasing corporation, as the case may be, and without benefit of any additional consideration t herefor, to execute and deliver to the Holder of Series E Preferred Stock shares of its preferred stock with substantially identical rights, preferences, privileges, powers, restrictions and other terms as the Series E Preferred Stock equal to the number of shares of Series E Preferred Stock held by such Holder divided by the Fully-Diluted Common Stock of the Corporation immediately prior to such Transfer of Control multiplied by the Fully-Diluted Common Stock of the Corporation or such successor, resulting or purchasing or surviving corporation, as the case may be, immediately after the consummation of such Transfer of Control; provided, that all Holders of Series E Preferred Stock shall be deemed to elect the option set forth in clause (i) above if at least a majority in interest of such Holders elect such option. For purposes of this Section 5(b), “common stock of the successor or acquiring corporation” shall include stock of such corporation of any class which is not preferred as to dividends o r assets over any other class of stock of such corporation and which is not subject to redemption and shall also include any evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable for any such stock, either immediately or upon the arrival of a specified date or the happening of a specified event and any warrants or other rights to subscribe for or purchase any such stock..

(c)

Non-Cash Consideration. If any assets of the Corporation distributed to shareholders in connection with any Liquidation Event are other than cash, then the value of such assets shall be their fair market value as determined by the Board of Directors in good faith, except that any securities to be distributed to shareholders in connection with a Liquidation Event shall be valued as follows:

(i)

The method of valuation of securities not subject to investment representation letter or other similar restrictions on free marketability shall be as follows:

(A)

unless otherwise specified in a definitive agreement for the acquisition of the Corporation, if the securities to be distributed are shares of Common Stock of the Corporation or other securities that are traded on a National Securities Exchange, the same shall be determined based on its then Market Value; and

(B)

if there is no public market as described in clause (A) above, then the value shall be the fair market value thereof, as determined in good faith by the Board of Directors,

(ii)

The method of valuation of securities subject to investment letter or other restrictions on free marketability shall be to make a thirty percent (30%) discount from the Market Value to reflect the approximate fair market value thereof as determined in good faith by the Board of Directors.

6.

Voting Rights.  Except as otherwise required by law, the holder of shares of Series E Preferred Stock shall not have the right to vote on matters that come before the shareholders.  

6

7.

Conversion Rights.  The holders of Series E Preferred Stock will have the right to convert their shares of Series E Preferred Stock into Common Stock upon the following terms and conditions:

(a)

Right to Convert.  Upon the earlier to occur of (i) December 31, 2004, or (ii) the Corporation’s obtaining “Stockholder Approval” (as that term is defined in the Subscription Agreement), subject to and in compliance with the provisions of this Section 7, any issued and outstanding shares of Series E Preferred Stock may, at the option of the Holder, be converted at any time or from time to time into fully paid and non-assessable shares of Common Stock at the Conversion Price in effect at the time of conversion, determined as provided herein; provided, that a holder of Series E Preferred Stock may at any given time convert only up to that number of shares of Series E Preferred Stock so that, upon conversion, the aggregate beneficial ownership of the Corporation’s Common Stock (calculated pursuant to Rule 13d-3 of the Sec urities Exchange Act of 1934, as amended) of such holder and all persons affiliated with such holder is not more than 9.99% of the Corporation’s Common Stock then outstanding.

(b)

Mechanics of Conversion.  Before any holder of Series E Preferred Stock shall be entitled to convert the same into shares of Common Stock, he shall surrender and deliver the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for the Common Stock, and shall give written notice to the Corporation at such office that he elects to convert the same and shall state therein the number of shares of Series E Preferred Stock being converted (the “Conversion Notice”).  Such Conversion Notice shall be delivered either simultaneous with, or not earlier than five (5) business days prior to, deliver of the certificate or certificates for conversion, as aforesaid.  Thereupon, the Corporation shall promptly issue and deliver at such office to such holder of Series E Pre ferred Stock a certificate or certificates for the number of shares of Common Stock to which he shall be entitled.  Each conversion of Series E Preferred Stock into shares of Common Stock shall be deemed to have been made immediately prior to the close of business on the date of such surrender and delivery of the shares of Series E Preferred Stock to be converted (each, a “Conversion Date”), and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such Conversion Date.

Notwithstanding the $3.00 per share Floor Price, in the event that the Conversion Price shall be less than the $3.00 Floor Price on the Conversion Date, then and in such event the Holder(s) of Series E Preferred Stock shall be entitled to receive from the “Escrowed Shares” defined in the Subscription Agreement, that number of additional shares of Common Stock (the “Adjustment Shares”) as shall represent, together with the number of Conversion Shares issuable at the then Series E Preferred Conversion Price in effect, the aggregate number of shares of Company Common Stock that would have been issuable (i) based upon the Conversion Price then in effect, and (ii) assuming that the Floor Price had been reduced to $0.50 per share (the “Assumed Floor Price”), up to a maximum aggregate of 5,833,333 of such Adjustment Shares, if all 35,00 0 shares of Series E Stock are converted; provided, that in no event would such Assumed Floor Price ever be less than $0.50 per share.

For the avoidance of doubt, if for example, the Holder sends a Conversion Notice to convert $1,000,000 of his or its Series E Preferred Stock and the Conversion Price then in effect shall be $1.00 per share, notwithstanding the $3.00 Floor Price set forth above, in addition to 333,333 Conversion Shares, the Corporation shall sell to such Holder an additional 666,667 shares of Common Stock for a total of $666.67.  However, based upon the $0.50 Assumed Floor Price, in no event will the Corporation be required to issue more than 1,666,667 Adjustment Shares in such example, even if the Conversion Price then in effect is less than $0.50.

7

(c)

Conversion Price.  The number of shares of Common Stock into which one share of Series E Preferred Stock shall be convertible shall be determined by dividing the $100.00 per share Series E Purchase Price by the Conversion Price, as the same shall be adjusted pursuant to Section 7(d) below.

(d)

Adjustments to Floor Price and Assumed Floor Price.  The Floor Price and Assumed Floor Price shall be subject to adjustment as set forth below in this Section 7(d).   

(i)

Adjustment upon Occurrence of an Event of Default.  If an Event of Default occurs, as defined in the Subscription Agreement for the Series E Preferred Stock, the Floor Price and Assumed Floor Price shall be reduced to seventy five percent (75%) of the Floor Price and Assumed Floor Price.

(ii)

Adjustment for Stock Splits and Combinations.  If the Corporation shall at any time, or from time to time after the date shares of the Series E Preferred Stock are first issued (the "Original Issue Date"), effect a subdivision of the outstanding Common Stock, the Floor Price and Assumed Floor Price in effect immediately prior thereto shall be proportionately decreased, and conversely, if the Corporation shall at any time or from time to time after the Original Issue Date combine the outstanding shares of Common Stock, the Floor Price and Assumed Floor Price then in effect immediately before the combination shall be proportionately increased.  Any adjustment under this Section 7(d)(ii) shall become effective at the close of business on the date the subdivision or combination becomes effective.

(iii)

Adjustment for Certain Dividends and Distributions.  In the event the Corporation at any time, or from time to time after the Original Issue Date, shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in additional shares of Common Stock, then and in each such event the Floor Price and Assumed Floor Price then in effect shall be decreased as of the time of such issuance or, in the event such a record date shall have been fixed, as of the close of business on such record date, by multiplying the Floor Price and Assumed Floor Price then in effect by a fraction:

(A)

the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and

(B)

the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution; provided, however, if such record date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Floor Price and Assumed Floor Price shall be recomputed accordingly as of the close of business on such record date and thereafter, the Floor Price and Assumed Floor Price shall be adjusted pursuant to this Section 7(d)(iii) as of the time of actual payment of such dividends or distributions.

(iv)

Adjustments for Other Dividends and Distributions.  In the event the Corporation at any time or from time to time after the Original Issue Date shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in securities of the Corporation other than shares of Common Stock, then and in each such event provision shall be made so that the holders of such Series E Preferred Stock shall receive upon conversion thereof in addition to the number of shares of Common Stock receivable thereupon, the amount of

8

securities of the Corporation that they would have received had their Series E Preferred Stock been converted into Common Stock on the date of such event and had thereafter, during the period from the date of such event to and including the conversion date, retained such securities receivable by them as aforesaid during such period giving application to all adjustments called for during such period under this paragraph (f) with respect to the rights of the holders of the Series E Preferred Stock.

(v)

Adjustments to Floor Price and Assumed Floor Price for Certain Diluting Issues.

(A)

Special Definitions.  For purposes of this Section 7(d)(v), the following definitions apply:

(1)

"Options" shall mean rights, options, or warrants to subscribe for, purchase or otherwise acquire either Common Stock or Convertible Securities (defined below).

(2)

"Convertible Securities" shall mean any evidences of indebtedness, shares (other than Common Stock and Series E Preferred Stock) or other securities convertible into or exchangeable for Common Stock.

(3)

“Additional Shares of Common Stock" shall mean all shares of Common Stock issued (or, pursuant to Section 7(d)(v)(C), deemed to be issued) by the Corporation after the Original Issue Date; provided, that “Additional Shares of Common Stock” shall not mean or include any shares of Common Stock issued or issuable:

(a)

upon conversion of shares of Series E Preferred Stock;

(b)

to officers, directors or employees of, or consultants to, the Corporation pursuant to stock option or stock purchase plans or agreements on terms approved by the Board of Directors, but not exceeding, at any one time, more than five (5%) percent of the fully-diluted shares of Common Stock then issued and outstanding (net of any repurchases of such shares), subject to adjustment for all subdivisions and combinations;

(c)

in connection with any acquisition, joint venture or similar combination, as full or partial consideration for the assets, securities or properties of any other person, firm or corporation, whether by purchase, exchange, merger, consolidation or like combination;

(d)

as a dividend or distribution on Series E Preferred Stock;

(e)

for which adjustment of the Floor Price and Assumed Floor Price is made pursuant to Section 7(d); or

(f)

any shares of Common Stock issued or issuable as “Adjustment Shares” within the meaning defined in the Subscription Agreement and in Section 7(b) above.  

9

(B)

No Adjustment of Floor Price and Assumed Floor Price.  Any provision herein to the contrary notwithstanding, no adjustment in the Floor Price and Assumed Floor Price shall be made in respect of the issuance of Additional Shares of Common Stock unless the consideration per share (determined pursuant to this Section 7(d) for an Additional Share of Common Stock issued or deemed to be issued by the Corporation is less than the Floor Price and Assumed Floor Price in effect on the date of, and immediately prior to such issue.

(C)

Deemed Issue of Additional Shares of Common Stock.  In the event the Corporation at any time or from time to time after the Original Issue Date shall issue any Options or Convertible Securities or shall fix a record date for the determination of holders of any class of securities then entitled to receive any such Options or Convertible Securities, then the maximum number of shares (as set forth in the instrument relating thereto without regard to any provisions contained therein designed to protect against dilution) of Common Stock issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date, provided further that in any such case in which Additional Shares of Common Stock are deemed to be issued:

(i)

No further adjustments in the Floor Price and Assumed Floor Price shall be made upon the subsequent issue of Convertible Securities or shares of Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities;

(ii)

If such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase in the consideration payable to the Corporation, or decrease in the number of shares of Common Stock issuable, upon the exercise, conversion or exchange thereof, the Floor Price and Assumed Floor Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities (provided, however, that no such adjustment of the Floor Price and Assumed Floor Price shall effect Common Stock previously issued u pon conversion of the Series E Preferred Stock);

(iii)

Upon the expiration of any such Options or rights, the termination of any such rights to convert or exchange, or the expiration of any rights related to such Convertible Securities, the Floor Price and Assumed Floor Price, to the extent in any way affected by or computed using such Options or Convertible Securities (unless such Options or Convertible Securities were merely deemed to be included in the numerator and denominator for purposes of determining the number of shares of Common Stock outstanding for purposes of this Section 7(d)) shall be recomputed to reflect the issuance of only the number of shares of Common Stock (and Convertible Securities that remain in effect) actually issued upon the exercise of such Options or rights related to such Convertible Securities.

(iv)

No readjustment pursuant to clause (ii) or (iii) above shall have the effect of increasing the Floor Price and Assumed Floor Price to an amount which exceeds the lower of (a) the Floor Price and Assumed Floor Price on the original adjustment date, or (b) the Floor Price and Assumed Floor Price that would have resulted from any issuance of Additional Shares of Common Stock between the original adjustment date and such readjustment date.

10

(D)

Adjustment of Floor Price and Assumed Floor Price Upon Issuance of Additional Shares of Common Stock.  In the event this Corporation, at any time after the Original Issue Date shall issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to Section 7(d)(v)(C)) without consideration or for a consideration per share less than the Floor Price and Assumed Floor Price in effect on the date of and immediately prior to such issue, then and in such event, the Floor Price and Assumed Floor Price shall be reduced, concurrently with such issue, to a price (calculated to the nearest cent) determined by multiplying the Floor Price and Assumed Floor Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of shares of Common Stock which the aggregate consideration received by the Corporation for the total number of additional shares of Common Stock so issued would purchase at the Floor Price and Assumed Floor Price in effect immediately prior to such issuance, and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of such Additional Shares of Common Stock so issued.  For the purpose of the above calculation, the number of shares of Common Stock outstanding immediately prior to such issue shall be calculated on a fully diluted basis, as if all shares of Series E Preferred Stock and all Convertible Securities had been fully converted into shares of Common Stock and any outstanding warrants, options or other rights for the purchase of shares of stock or convertible securities had been fully exercised (and the resulting securities fully converted into shares of Common Stock, if so convertible) as of such date.

(E)

Determination of Consideration.  For purposes of this Section 7(d)(v), the consideration received by the Corporation for the issue of any Additional Shares of Common Stock shall be computed as follows:

(i)

Cash and Property:  Such consideration shall:

1.

insofar as it consists of cash, be computed at the aggregate amount of cash received by the Corporation excluding amounts paid or payable for accrued interest or accrued dividends;

2.

insofar as it consists of property other than cash, be computed at the fair value thereof at the time of such issue, as determined in good faith by the Board of Directors; and

3.

in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (1) and (2) above, as determined in good faith by the Board of Directors.

(ii)

Options and Convertible Securities.  The consideration per share received by the Corporation for Additional Shares of Common Stock deemed to have been issued pursuant to Section 7(d)(v), relating to Options and Convertible Securities shall be determined by dividing

1.

the total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein designed to protect against

11

dilution) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities by

2.

the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein designed to protect against the dilution) issuable upon the exercise of such Options or conversion or exchange of such Convertible Securities.

(vi)

Adjustment for Reclassification Exchange or Substitution.  If the Common Stock issuable upon the conversion of the Series E Preferred Stock shall be changed into the same or a different number of shares of any class or classes of stock, whether by capital reorganization, reclassification or otherwise (other than a subdivision or combination of shares or stock dividend provided for above, or a reorganization, merger, consolidation or sale of assets provided for elsewhere in this paragraph (f)), then and in each such event the holder of each share of Series E Preferred Stock shall have the right thereafter to convert such share into the kind and amount of shares of stock and other securities and property receivable upon such reorganization, reclassification or other change, by holders of the number of shares of Common Stock into whic h such shares of Series E Preferred Stock might have been converted immediately prior to such reorganization, reclassification, or change, all subject to further adjustment as provided herein.

(vii)

Reorganization, Mergers, Consolidations or Sales of Assets.  If at any time or from time to time there shall be a capital reorganization of the Common Stock (other than a subdivision, combination, reclassification or exchange of shares provided for elsewhere in this Section 7(d)) or a merger or consolidation of the Corporation with or into another corporation, or the sale of all or substantially all of the Corporation’s properties and assets to any other person, then, as a part of such reorganization, merger, consolidation or sale, provision shall be made so that the holders of the Series E Preferred Stock shall thereafter be entitled to receive upon conversion of such Series E Preferred Stock, the number of shares of stock or other securities or property of the Corporation or of the successor corporation resulting from such merger o r consolidation or sale, to which a holder of Common Stock deliverable upon conversion would have been entitled on such capital reorganization, merger, consolidation or sale.  In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 7(d) with respect to the rights of the holders of the Series E Preferred Stock after the reorganization, merger, consolidation or sale to the end that the provisions of this Section 7(d) (including adjustment of the Conversion Price then in effect and the number of shares purchasable upon conversion of the Series E Preferred Stock) shall be applicable after that event as nearly equivalent as may be practicable.

(viii)

Certificate of Adjustment.  In each case of an adjustment or readjustment of the Conversion Price or the securities issuable upon conversion of the Series E Preferred Stock, the Corporation shall compute such adjustment or readjustment in accordance herewith and the Corporation’s Chief Financial Officer shall prepare and sign a certificate showing such adjustment or readjustment, and shall mail such certificate by first class mail, postage prepaid, to each registered holder of the Series E Preferred Stock at the holder’s address as shown in the Corporation’s books. The certificate shall set forth such adjustment or readjustment, showing in detail the facts upon which such adjustment or readjustment is based.

12

(e)

Notices of Record Date.  In the event of (A) any taking by the Corporation of a record of the holders of any class or series of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution or (B) any reclassification or recapitalization of the capital stock of the Corporation, any merger or consolidation of the Corporation or any transfer of all or substantially all of the assets of the Corporation to any other corporation, entity or person, or any voluntary or involuntary dissolution, liquidation or winding up of the Corporation, the Corporation shall mail to each holder of Series E Preferred Stock at least 10 days prior to the record date specified therein, a notice specifying (1) the date on which any such record is to be taken for the purpose of such dividend or distributi on and a description of such dividend or distribution, (2) the date on which any such reorganization, reclassification, transfer, consolidation, merger, dissolution, liquidation or winding up is expected to become effective and (3) the time, if any is to be fixed, as to when the holders of record of Common Stock (or other securities) shall be entitled to exchange their shares, of Common Stock (or other securities) for securities or other property deliverable upon such reorganization, reclassification, transfer, consolidation, merger, dissolution, liquidation or winding up.

(f)

Fractional Shares.  No fractional shares of Common Stock shall be issued upon conversion of the Series E Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay cash equal to the product of such fraction multiplied by the fair market value of one share of the Corporation’s Common Stock on the date of conversion, as determined in good faith by the Board of Directors.

(g)

Reservation of Stock Issuable Upon Conversion.  The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series E Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of Series E Preferred Stock, and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of Series E Preferred Stock, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose.

(h)

Notices. Any notice required by the provisions of this Section 7 to be given to the holders of shares of Series E Preferred Stock shall be deemed given (A) if deposited in the United States mail, postage prepaid, or (B) if given by any other reliable or generally accepted means (including by facsimile or by a nationally recognized overnight courier service), in each case addressed to each holder of record at his address (or facsimile number) appearing on the books of the Corporation.

(i)

Payment of Taxes.  The Corporation will pay all transfer taxes and other governmental charges that may be imposed in respect of the issue or delivery of shares of Common Stock upon conversion of shares of Series E Preferred Stock.

(j)

No Dilution or Impairment.  The Corporation shall not amend its Articles of Incorporation or participate in any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, for the purpose of avoiding or seeking to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, without the approval of a majority of the then outstanding Series E Preferred Stock.  

8.

No Reissuance of Preferred Stock.  Any shares of Series E Preferred Stock acquired by the Corporation by reason of purchase, conversion or otherwise shall be canceled, retired and eliminated from the shares of Series E Preferred Stock that the Corporation shall be authorized to issue.  All such shares

13

shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock subject to the conditions and restrictions on issuance set forth in the Articles of Incorporation or in any certificate of Determination creating a series of Preferred Stock or any similar stock or as otherwise required by law.

9.

Severability.  If any right, preference or limitation of the Series E Preferred Stock set forth herein is invalid, unlawful or incapable of being enforced by reason of any rule, law or public policy, all other rights, preferences and limitations set forth herein that can be given effect without the invalid, unlawful or unenforceable right, preference or limitation shall nevertheless remain in full force and effect, and no right, preference or limitation herein shall be deemed dependent upon any other such right, preference or limitation unless so expressed herein.

Each of the undersigned declares under penalty of perjury that the matters set out in the foregoing Certificate are true of his own knowledge.  Executed in New York, New York on this __ day of September, 2004.  

________________________________

Name:

Gary Spaniak, Jr.

Title:

President

_______________________________

Name:

 Charles Pearlman

Title:

Assistant Secretary

14

EX-10.7

EXHIBIT 10.7

Care Concepts I, Inc.

10% Series F Convertible Senior Secured Preferred Stock due 2009

SUBSCRIPTION AGREEMENT

September 28, 2004

Vestcap International Management Limited

Arawak Chambers

Sea Meadow House

Roadtown, Tortola

British Virgin Islands

Castlerigg Master Investments Limited

40 West 57th Street

New York, New York 10019

Gentlemen:

Care Concepts I, Inc., a Delaware corporation (the "Company"), hereby confirms its agreement with each of Vestcap International Management Limited and Castlerigg Master Investments Limited (“Castlerigg”) (individually, the “Purchaser” and collectively, the "Purchasers"), as set forth below.

1.

The Offering and the Transactions

A.

The Series F Senior Preferred Stock.  Subject to the terms and conditions herein contained, the Company proposes to issue and sell to the Purchasers (i) an aggregate of 34,500 shares of the Company’ 10% convertible senior secured preferred stock (the “Series F Senior Preferred Stock”); and (ii) three (3) year warrants (the “Series F Warrants”) entitling the Purchasers to purchase at an exercise price of $3.00 per share (the “Exercise Price”) an aggregate of 386,194 shares of the Company’s common stock, $0.001 par value per share (the “Common Stock”) for an aggregate purchase price of $3,450,000 (the “Purchase Price”).

In addition, at any time within one (1) year from the Closing Date (as hereinafter defined) the  Castlerigg may, at its sole option, exchange shares of common stock of Penthouse International, Inc. (“Penthouse”) previously purchased by Castlerigg  for an aggregate of approximately $2,000,000 for (i) 20,000 additional shares of Series F Senior Preferred Stock, and (ii) 224,582 additional Series F Warrants (the “Exchange Option”).  

(a)

The Series F Senior Preferred Stock  being offered and sold by the Company shall, as more specifically described in the Certificate of Designations of the Series F Senior Preferred Stock and the Transaction Documents (as defined below) :

1

(i)

pay an annual dividend (A)  at the rate of 10% per annum, payable semi-annually on June 30^th and December 31^st , based on a 360 day calendar year, (B) payable either 100% in cash, or at the option of the Company, 50% in cash and the balance in additional shares of Company Common Stock valued at the 50% of the “VWAP Price,” (as hereinafter defined) for the five trading days prior to the dividend payment date, but without regard to the “Assumed Floor Price” (as hereinafter defined) then in effect, and (C) if  a Purchaser converts the Series F Preferred Stock, in whole or in part, accrued and unpaid dividends on the amount so converted shall be paid upon conversion (pro-rated for any period of less than six months);

(ii)

be senior, at the rate of $100 per share, plus accrued dividends and any additional amounts owed by the Company with respect to the Series F Senior Preferred Stock, on liquidation and sale of control or substantially all of the assets of the Company to the “10% Notes” (as hereinafter defined) and to all shares of capital stock of the Company, including, without limitation, the Company’s outstanding Series A Preferred, Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series G Preferred Stock;

(iii)

unless previously converted into Common Stock shall be redeemable at the option of  a Purchaser or any subsequent holder, at $100 per share, plus accrued dividends and any additional amounts owed by the Company with respect to the Series F Senior Preferred Stock, if any, on September 15, 2009 or such sooner date as may be provided in the Transaction Documents (the “Mandatory Redemption Date”);

(iv)

be secured by a lien and security interest (“Lien”) on the assets of the Internet Billing Company LLC (“iBill”), which will become a subsidiary of the Company upon the closing of the iBill Acquisition, as defined below, and Media Billing Company, LLC, as set forth in the Security Agreement. The Lien securing the Series F Senior Preferred Stock shall be expressly (A) subject and subordinate only to the first priority Lien on the assets of iBill now existing or hereafter granted to any person, firm or corporation (the “Senior Lender”) providing up to $10.0 million of working capital financing to iBill (the “iBill Senior Financing”), and (B) senior to the subordinated Lien granted to the holders of up to $15.0 million of 10% senior secured notes of the Compan y due September 15, 2009 (the “10% Notes”);

(v)

be secured by: (A) Media Billing’s pledge of a pro-rata percentage of 100% of the members interest of iBill, and (B) a pro-rata percentage of the 395,519 shares of “GMI Stock” (hereinafter defined) to be owned by the Company; which pledged securities shall be apportioned among the Purchasers and the holders of the 10% Notes on a pro rata basis based upon the $3.45 million Purchase Price hereunder and the initial $9.525 million purchase price for the 10% Notes; provided, that if additional 10% Notes are sold following the date hereof (not to exceed $4.475 million in the aggregate) or the Purchaser elects the Exchange Option to increase the Stated Value of the Series F Preferred Stock to $5.45 million, such allocation of the pledged iBill members interests and GMI Stock shall be appropriately readjusted; it being anticipate d that (subject to the above adjustment) 26.59% of the iBill members interest and an aggregate of 105,168 shares of GMI Stock will initially be pledged to the Purchasers, and the remaining 73.41% of the iBill members interest and 290,351 shares of GMI Stock will be pledged to the holders of the 10% Notes of the Company; and

2

(vi)

at such time as the Company shall have obtained  Stockholder Approval, as defined in Section 1(B)(g) below for, but in no event later than December 31, 2004, shall be convertible, at any time at the option of  a Purchaser, into shares of the Company’s Common Stock (the “Series F Conversion Shares”), at a price per share equal to $3.00 (the “Series F Preferred Conversion Price” or the “Conversion Price”); and

(vii)

be substantially in the form attached hereto at Exhibit A and made a part hereof.

(b)

Notwithstanding the foregoing $3.00 per share Conversion Price, in the event that the “VWAP” (as defined) of Company Common Stock, as traded on the American Stock Exchange, LLC (the “AMEX”) or on the Nasdaq Stock Exchange, the New York Stock Exchange or the NASD OTC-Bulletin Board (together with the AMEX, a “National Securities Exchange”), shall be less than the $3.00 per share on the date (the “Conversion Date”) that notice of conversion is given to the Company by  a Purchaser (the “Conversion Notice”), then, and in such event,  such Purchaser shall be entitled to receive from the “Escrowed Shares,” hereinafter defined, that number of additional shares of Common Stock of the Company (the “Adjustment Shares”) as shall rep resent, together with the number of Series F Conversion Shares (inclusive of Series F Conversion Shares issuable upon exercise of the Exchange Option) issuable at the $3.00 per share Series F Preferred Conversion Price, the aggregate number of shares of Company Common Stock that would have been issuable on the Conversion Date if the Series F Conversion Price had been based upon 50% of the average VWAP of the Company’s Common Stock for the five trading days immediately prior to the Conversion Date (the “Assumed Series F Preferred Conversion Price”); provided, that in no event would such Assumed Series F Preferred Conversion Price ever be less than $0.50 per share, except upon adjustment (the “Assumed Floor Price”).   The term “VWAP” means the daily volume weighted average price of the Company’s Common stock on the National Securities Exchange as reported by Bloomberg Financial L.P. (based on a trading day from 9:30 a.m. Eastern Time to 4:00 p.m. Eastern Time) using the VWAP function on the date in question.

A maximum of up to 39,916,666 Adjustment Shares of the Company are subject to potential issuance (i) up to a maximum of 25,000,000 of such Adjustment Shares to the holders of up to a maximum of $15,000,000 of 10% Notes, (ii) up to a maximum of 5,833,333 of such Adjustment Shares to the holders of $3,500,000 stated value of Series E convertible preferred stock hereinafter described (the “Series E Preferred Stock”), and (iii) up to a maximum of 9,083,333 of such Adjustment Shares to the Purchasers upon conversion of the maximum $5,450,000 stated value of Series F Senior Preferred Stock. Notwithstanding anything contained herein to the contrary, such maximum number of Adjustment Shares shall be subject to adjustment in the event that the Assumed Floor Price is lowered pursuant to the Certificate of Designation of the Series F Senior P referred Stock.   In the event that there are not a sufficient number of Escrowed Shares in escrow to issue all of the Adjustment Shares, then the Company shall have the obligation to issue to the applicable Purchaser the difference between (i) the number of Adjustment Shares issuable to such Purchaser if there was a sufficient number of Escrowed Shares  and (ii) the number of Escrowed Shares issued to the Purchaser.   

3

For the avoidance of doubt, if for example, a Purchaser sends a Conversion Notice to convert $1,000,000 of his or its Series F Senior Preferred Stock and the Assumed Series F Preferred Conversion Price (calculated based upon 50% of the average VWAP of Company, as traded on the AMEX or another National Securities Exchange, for the five trading days immediately prior to the Conversion Date) shall be $1.00 per share, notwithstanding the $3.00 Series F Preferred Conversion Price set forth above and in the Certificate of Designations for the Series F Senior Preferred Stock, in addition to 333,333 Series F Conversion Shares,  such  Purchaser shall be entitled to receive out of the Escrowed Shares described below an additional 666,667 Adjustment Shares of Common Stock of the Company.  In no event, however, would  such Purchaser be entitled to receive more than 1,666,667 Adjustment Shares in such example, even if the Assumed Series F Preferred Conversion Price then in effect was less than $0.50, unless the Assumed Floor Price is lowered pursuant to the anti-dilution provisions set forth in the Certificate of Designation of the Series F Senior Preferred Stock.  

(c)

To avoid further dilution to the Company if Adjustment Shares become issuable to holders of the Series F Senior Preferred Stock, 10% Notes and Series E Preferred Stock, GMI Investment Partners, a principal stockholder of the Company, and their affiliates described in Section 1B below and the Company, have entered into an escrow agreement  with McLaughlin & Stern, LLP,  as escrow agent for the holders  of the Series F Senior Preferred Stock and with the attorneys for the holders of the 10% Notes and Series E Preferred Stock.  Under the terms of such escrow agreement (the “Series G Preferred Stock Escrow Agreement”), an aggregate of 29,929 shares of the Company’s “Series G Preferred Stock” (described below) are being placed in escrow (the “Escrowed Shares”); which Escrowed Share s, including 9,083,333 Escrowed Shares being held for the benefit of the Purchasers, are automatically convertible into an aggregate of 39,916,666 shares of Common Stock of the Company by not later than December 31, 2004.   The Purchasers hereby agree to the terms set forth in the Series G Escrow Agreement, including the appointment of McLaughlin & Stern LLP, as a Series G Preferred Stock Escrow Agent.  In the event that the Assumed Series F Preferred Conversion Price shall be less than $3.00 per share on any Conversion Date, within three (3) Business Days after a Conversion Notice shall be delivered to counsel to the Company and to the Purchaser setting forth the calculation of the appropriate number of Escrowed Shares to be delivered to the Purchaser as Adjustment Shares, the Escrow Agents shall cause certificates evidencing such Adjustment Shares (up to the maximum 9,083,333 Adjustment Shares available to Purchasers) to be delivered to the Purchasers.  Similar escrow arrangements a re also available with counsel to the holders of 10% Notes and Series E Preferred Stock Any Escrowed Shares no longer subject to issuance as Adjustment Shares or otherwise remaining in escrow following conversion into Common Stock of all outstanding 10% Notes, Series E Preferred Stock and Series F Senior Preferred Stock, shall be promptly returned to GMI Partners or its Affiliates.  

(d)

The Series F Conversion Shares, any Adjustment Shares that a Purchaser may acquire at any time, and any shares of Common Stock issuable upon exercise of the Series F Warrants (the “Series F Warrant Shares”), are subject to limitation, so that the aggregate number of shares of Common Stock of which such Purchaser and all persons affiliated with such Purchaser have beneficial ownership (calculated pursuant to Rule 13d-3 of the Securities

4

Exchange Act of 1934, as amended) does not at any time exceed 9.99% of the Company's then outstanding Common Stock. The Warrants shall be deemed unexerciseable to the extent necessary to comply with this provision prior to any restriction being placed on the Purchaser’s right to receive Series F Conversion Shares or Adjustment Shares.

(e)

The Series F Senior Preferred Stock, the Series F Conversion Shares, the Series F Warrants, the Series F Warrant Shares and any Adjustment Shares that may be issued to the Purchasers of Series F Senior Preferred Stock are sometimes herein collectively referred to as the "Securities."  This Agreement, the Certificate of Designation for the Series F Senior Preferred Stock in the form of Exhibit A, the Series F Warrants in the form of Exhibit B, the Security Agreement granting the Purchasers a Lien on the assets of iBill in the form of Exhibit C, the Pledge Agreement in the form of Exhibit D annexed hereto, the Registration Rights Agreement in the form of Exhibit E annexed hereto (the “Registration Rights Agreement”), the GMI Stock P urchase Agreement in the form of Exhibit F, the guaranty of iBill of certain obligations of the Company with respect to the Series F Preferred Stock in the form of Exhibit G hereto, the escrow agreement with respect to the  Escrowed Shares in the form of Exhibit H (the “Series G Escrow Agreement”, the Irrevocable Transfer Agent Instructions in the form of Exhibit I, the 10% Notes in the form of Exhibit J and the Plan (a copy of which has been furnished to  each  Purchaser) are sometimes herein collectively referred to as the "Transaction Documents."

(f)

The Securities will be offered and sold to the Purchasers without such offers and sales being registered under the Securities Act of 1933, as amended (together with the rules and regulations of the Securities and Exchange Commission (the "SEC") promulgated thereunder, the "Securities Act"), in reliance on exemptions therefrom.

(g)

In connection with the sale of the Securities, the Company has made available (including electronically via the SEC’s EDGAR system) to each 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, forms, schedules, statements, documents, filings and amendments, are collectively referred to as the "Disclosure Documents."  All references in this Agreement to financial statements and schedules and other information which is "contained," "included" or "stated" in the Disclosure Documents (or other references of like impor t) 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.

B.

The Transactions, Issuance of Transaction Securities and Use of Proceeds.

(a)

Use of Proceeds.  The proceeds from the sale of up to $15.0 million of 10% Notes, up to $3.5 million of Series E Preferred Stock and up to $3.45 million of Senior Series F Preferred Stock (together with the shares of Series G Preferred Stock to be issued to GMI Investment Partners described below, collectively referred to as the “Transaction Securities”) shall be utilized by the Company to pay the $16.35 million of the $20.0 million purchase price for approximately 39.5% of the outstanding common stock of General Media, Inc.

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(the “GMI Stock”), as reorganized (the “Reorganized General Media” and, together with certain of its subsidiaries (the “General Media Debtors”).  The GMI Stock is being purchased by the Company from GMI Investment Partners in connection with the transactions contemplated by a settlement and securities purchase agreement, dated as of September 21, 2004, by and among PET Capital Partners LLC, Absolute Return Europe Fund, Susan Devine, NAFT Ventures I LLC, Marc H. Bell, Daniel Staton (collectively, the “Bell/Staton Group”), Penthouse International, Inc., MVIT, GMI Investment Partners and Milberg Weiss Bershad & Schulman LLP (“Milberg Weiss”), as escrow agent (the “GMI Stock Purchase Agreement”).  

Under the terms of the GMI Stock Purchase Agreement, a minimum of $10.0 million and a maximum of $20.0 million is required to be paid as the purchase price for between 24.15% and 48.3% of the GMI Stock by September 29, 2004.  It is anticipated that the Company will pay $16.350 million by such date and purchase approximately 81.75% of the GMI Stock, representing an aggregate of 39.5% of the outstanding common stock of General Media.  However, the Bell/Staton Group has given the Company an extension until October 13, 2004 to pay the remaining $3.650 million for the GMI Stock and increase its percentage ownership in the outstanding General Media common stock from 39.5% to 48.3%. The balance of the proceeds in excess of $20.0 million, if any, from the sale of the Transaction Securities will be used by the Company only to pay transaction expenses and for working c apital and other corporate purposes for its iBill subsidiary.  The Company intends to continue to offer the Transaction Securities (and/or other equity or equity type convertible securities subordinated to the Series F Preferred Stock) through October 31, 2004.  Although the Company presently intends to purchase the remaining available GMI Stock, it reserves the right to allocate all net proceeds from the sale of additional Transaction Securities or other securities to working capital and general business purposes for its prospective iBill subsidiary.

(b)

Escrow of Proceeds.  The aforesaid $16.35 million to $20.0 million purchase price for the GMI Stock shall be deposited with the Escrow Agent and released to the Bell/Staton Group only upon the closing (the “Plan Closing”) of the transactions contemplated by the Fourth Amended and Restated Joint Plan of Reorganization of the General Media Debtors (the “Plan”), including, but not limited to, the purchase of up to 48.3% of the GMI Stock by the Company and the consummation of the transactions contemplated by the Transaction Documents.   A copy of the GMI Purchase Agreement and the Plan has been made available to each Purchaser.

(c)

Capitalization of Reorganized GMI.

Pursuant to the Plan, the General Media Debtors shall be emerging from the Chapter 11 bankruptcy currently pending in the United States Bankruptcy Court for the Southern District of New York, Case No. 03-15078 (SMB) (the “Bankruptcy Case”) as a result of which (i) the Bell/Staton Group or their affiliates shall hold approximately $27.0 million of seven year New GMI Term Loan Series F Senior Preferred Stock, (ii) the unsecured creditors shall receive $2.0 million in cash and up to $11.0 million in New GMI Term Loan Series F Senior Preferred Stock, (iii) certain members of the Bell/Staton Group shall provide a maximum $20.0 million Exit Financing Facility (of which approximately $8.0 million shall be drawn to pay cash expenses and payments in the Bankruptcy Case, (iv) all outstanding equity securities of General Media, Inc. shal l be cancelled, and (v) an

6

aggregate of 1,000,000 shares of Common Stock of Reorganized General Media shall be issued, of which (A) the Company shall own the GMI Stock, to represent approximately between 39.5% and 48.3% of the outstanding common stock of Reorganized GMI, and (B) an equal number of shares of Common Stock of Reorganized GMI shall be owned by the Bell/Staton Group or their affiliates.

(d)

Reserved Shares.  The Company will reserve for issuance to (i) the Purchasers of the maximum 54,500 shares of Series F Senior Preferred Stock, 1,815,000 shares of Common Stock, (ii) the holders of up to $15.0 million of the Company’s 10% convertible secured notes due September 15, 2009 (the “10% Notes”), up to 5,000,000 shares of Common Stock, and (iii) the purchasers of $3.5 million of Series E convertible preferred stock of the Company (the “Series E Preferred Stock”), 1,166,666 million shares of Common Stock that may be issuable: (i) upon conversion of 10% Notes, (ii) upon conversion of the Series E Preferred Stock, and (iii) upon conversion of the Series F Senior Preferred Stock (collectively, based on the $3.00 Conversion Price or Floor Place, the “Conversion Shares< /B>”).  The Company shall also reserve for issuance an additional (i) 5,000,000 shares of Common Stock issuable upon exercise of warrants (similar to the Warrants) sold to purchasers of 10% Notes (the “Note Warrant Shares”), (ii) a maximum of 610,776 Series F Warrant Shares issuable to in connection with the Series F Warrants, and (iii) a maximum of 430,504 shares of Common Stock issuable upon exercise of warrants (similar to the Series F Warrants) sold to purchasers of the Series E Senior Preferred Stock (collectively, the “Warrant Shares”).  GMI Investment Partners shall also place in escrow pursuant to the Series G Escrow Agreement an aggregate of 29,929 shares of Series G Preferred Stock that is automatically convertible on or before December 31, 2004 into 39,916,666 shares of Common Stock.  Such 39,916,666 Escrowed Shares, when issued, shall be reserved as Adjustment Shares for potential issuance to the holders of 10% Notes, Series E Pr eferred Stock and Series F Senior Preferred Stock.  The maximum of (i) 7,983,333 shares of Common Stock that may be issuable as Conversion Shares, (ii) 39,916,666 shares of Common Stock that may be issued as Adjustment Shares,  (iii) 6,041,280 shares of Common Stock (subject to anti-dilution adjustment) that may be issued as Warrant Shares and (iv) a sufficient number of shares of Common Stock for the payment of dividends on the Series F Senior Preferred Stock are collectively referred to as the “Reserved Shares”).  

(e)

Series G Preferred Stock.  In consideration of their (i) assignment to the Company of the right to purchase the GMI Stock, (ii) having provided financing and financial accommodations that facilitated the acquisitions of iBill and the GMI Stock, (iii) having provided iBill with transaction processing financing, (iv) having providing personal guarantees and ongoing indemnification to Penthouse and iBill in connection with certain contingent liabilities, and (v) having and continuing to provide management and consulting services to the Company and iBill; the fair value of which financings, financial accommodations, indemnification and management services are estimated to be in excess of approximately $85.0 million, on the Effective Date of the Plan and transfer of title to the GMI Stock to CCI, it is contemplated that CCI shall sell and issu e to GMI Investment Partners, 45,000 shares of newly authorized Series G convertible preferred stock, $1,000 per share stated value (the “Series G Preferred Stock”).  The Series G Preferred Stock will:

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(i)

be junior on liquidation and sale of control of the Company to the Series E Preferred Stock and Series F Senior Preferred Stock;

(ii)

not pay any dividend or be secured by any assets of the Company;

(iii)

not be subject to mandatory redemption; and

(iv)

upon the earlier of December 31, 2004 or the Company obtaining Stockholder Approval, the Series G Preferred Stock shall be automatically converted into an aggregate number of shares of Company Common Stock as shall equal 68.0 million shares less all Conversion Shares.

The partners of GMI Investment Partners are The Molina Vector Investment Trust (“MVIT”), Aries Capital LLC (“Aries”), Granite Management LLC (“Granite”) and certain affiliates, financial partners and business associates of MVIT, Aries and Granite.  MVIT is an affiliate of Penthouse.  GMI Investment Partners shall escrow as Escrowed Shares, an aggregate of 39,916,666 of such shares of Common Stock it shall receive upon conversion of its Series G Preferred Stock, in the event and to the extent that Adjustment Shares shall be required to be issued to holders of Series F Senior Preferred Stock, 10% Notes or Series E Preferred Stock.

(a)

Anticipated Capitalization of the Company.  Upon issuance of the Transaction Securities, in addition to the Series F Senior Preferred Stock and the shares of Series G Preferred Stock (the terms of which are described above), it is anticipated that the Capitalization of the Company shall be as follows:

(i)

10% Notes.  Up to $15.0 Million of 10% Notes will be issued.  Such 10% Notes shall:

(A)

shall be payable as to interest only, at the rate of 10% per annum, payable semi-annually on June 30^th and December 31^st, based on a 360 day calendar year; provided, that interest on the 10% Notes shall be payable either 100% in cash, or at the option of the Company, 50% in cash and the balance in additional shares of Company Common Stock at the “Series F Assumed Conversion Price” (but without regard to the Assumed Floor Price);

(B)

unless previously converted into Common Stock (the “Note Conversion Shares”), shall be payable as to principal, together with all accrued an unpaid interest, on September 15, 2009 (the “Note Maturity Date”);

(C)

upon the earlier of December 31, 2004 or the Company obtaining Stockholder Approval, shall be convertible, at any time, at the option of the Purchasers at a price per share (the “Note Conversion Price”) that shall be equal to 50% of the average closing price of Company, as traded on the AMEX or other National Securities Exchange, for the five trading days immediately prior to the date (the “Conversion Date”) that notice of conversion is given to the Company by  a Purchaser (the “Conversion Notice”), subject to a Note

8

Conversion Price floor of $3.00 per share; provided, that at the time of conversion, the holders of the 10% Notes shall be entitled to receive the benefit of the issuance of Adjustment Shares on the same terms and conditions as holders of the Series F Senior Preferred Stock and shares of Series E Preferred Stock; and.

(D)

be secured by (i) a lien on the assets of the iBill which shall be subordinate to the lien granted to Purchasers, and (ii) the pledge by the Company of a portion (pro rated with the Series F Senior Preferred Stock) of its 100% members interest in iBill and the Company’s 39.5% to 48.3% equity interest in the “Reorganized General Media” (as that term is hereinafter defined) based upon the relative Purchase Price hereunder and the aggregate purchase prices paid for the 10% Notes.  The Lien on the assets of iBill securing the 10% Notes shall be expressly (A) subject and subordinate to the first priority Lien on the assets of iBill now existing or hereafter granted to Senior Lender providing up to $10.0 million of working capital iBill Senior Financing, and (B) subject and subordinate to the Lien on the assets of iBill granted to the P urchasers of the Series F Senior Preferred Stock;

(E)

shall be junior to the Series F Senior Preferred Stock upon the occurrence of a Liquidation Event as defined in the Certificate of Designations for the Series F Senior Preferred; and

(F)

shall not be subject to prepayment except upon a minimum 30 days prior written notice to the Purchasers to require redemption of the Series F Senior Preferred Stock prior to any such prepayment as more specifically provided in the 10% Notes;

In addition, the holders of the 10% Notes will receive warrants (the “10% Note Warrants”) to purchase up to 5,000,000 additional shares of Common Stock at an exercise price of $3.00 per share

(ii)

Series A, B and C Preferred Stock.  No shares of Series A Preferred Stock are issued, 1,000 shares of Series B Preferred Stock, convertible into 100,000 shares of Common Stock, and 10,000 shares of Series C Preferred Stock are issued, convertible into 1,000,000 shares of Common Stock;

(iii)

Series D Preferred Stock.  An aggregate of 330,000 shares of Series D Preferred Stock have been issued to Penthouse in partial consideration for the contemplated sale of iBill to CCI.  The Series D Preferred Stock (A) pays no dividend, (B) has a $100 per share liquidation value, (C) is unsecured and non-redeemable, and (D) on the earlier to occur of (x) the Company obtaining Stockholder Approval and approval by the AMEX of the iBill, or (y) January 21, 2005, shall be automatically converted, together with approximately 3.2 million shares of Company Common Stock to be issued to Penthouse in connection with the consummation of the iBill sale, into that number of shares of Common Stock that would represent 49.9% of the “Fully-Diluted Company Common Stock” at the time of conversion.  Fully-Diluted Company Com mon Stock means all outstanding shares of Company Common Stock and all additional Common Stock issuable upon exercise or conversion of all options, warrants, convertible notes or convertible preferred stock (including, for purposes of such

9

definition, all Common Stock issuable in connection with the Transaction Securities).  It is anticipated that an aggregate of approximately 81.4 million shares of Company Common Stock (the “Series D Conversion Shares”) will be issued to Penthouse upon full conversion of the Series D Preferred Stock.  It is anticipated that, following the acquisition of the GMI Stock and consummation of the iBill acquisition, such Series D Conversion Shares and the 3.2 million shares of Common Stock (a total of up to 85.0 million shares of Common Stock) will be distributed to the holders of Penthouse Common Stock and other securities convertible into or exercisable for shares of Penthouse Common Stock in connection with the subsequent liquidation of that entity.

(iv)

Series E Preferred Stock.  $3.5 million represented by 35,000 shares of Series E Preferred Stock to be issued to Monarch Pointe Fund LP (“Monarch”) which shall: (A) pay an annual dividend of 6% per annum, until the effective date of the Registration Statement registering the underlying conversion shares and Adjustment Shares issuable upon conversion of the Series E Preferred Stock for resale; (B) be senior, at the rate of $100 per share, on liquidation and sale of control to the Company’s outstanding Series A Preferred, Stock, Series B Preferred Stock, Series C Preferred Stock and Series G Preferred Stock, (C) be junior on liquidation and sale of control to the Company’s outstanding Series F Senior Preferred Stock; (D) not be redeemable or secured by any Liens on assets of iBill or pledge of equity of iBi ll or Reorganized GMI; and (E) upon the earlier to occur of (x) the Company’s obtaining of Stockholder approval, or (y) December 31, 2004, shall be convertible into Common Stock at a conversion price equal to 50% of the “Market Price” (as defined) of the Company’s Common Stock, as traded on the AMEX or any other national securities exchange (the “Series E Conversion Price”), subject to a floor of $3.00 per share; provided, that at the time of conversion, the holders of the Series E Preferred Stock shall be entitled to receive the benefit of the issuance of Adjustment Shares on the same terms and conditions as holders of the Series F Senior Preferred Stock and shares of Series F Senior Preferred Stock.  In addition, Monarch and its affiliate, Mercator Advisory Group (“Mercator”) will receive warrants (the “Monarch Group Warrants”) to purchase approximately 430,000 additional shares of Common Stock at an exercise p rice equal to the Series E Conversion Price.

(v)

Outstanding and Fully-Diluted Common Stock.  As at the date hereof, the Company is authorized to issue an aggregate of 30,000,000 shares of Common Stock, of which 15,672,145 shares of Common Stock are currently outstanding.  On a fully-diluted basis, after giving effect to:

(A)

the issuance by not later than December 31, 2004 (upon automatic conversion of the Series G Preferred Stock) of (x) 68.0 million shares of Common Stock, less (y) up to 7,983,333 Conversion Shares and approximately 6,400,000 Warrants Shares in connection with the completion of the Company’s acquisition of the GMI Stock (to occur not later than October 31, 2004);

(B)

the issuance by not later than January 21, 2005 to Penthouse International Inc. (upon automatic conversion of the Series D Preferred Stock) of 85.0 million shares of Common Stock in connection with the consummation of the acquisition of 100% of the members equity of iBill (the “iBill Acquisition”), and

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(C)

after giving effect to the issuance of all Conversion Shares (based on a $3.00 per share Conversion Price and the stated $3.00 per share conversion or floor price set forth in the 10% Notes or certificates of designations of the Series E Preferred Stock and Series F Senior Preferred Stock) of all outstanding Preferred Stock,

it is anticipated that an aggregate of 170,000,000 shares of Fully-Diluted Company Common Stock will be outstanding, before issuance of up to approximately 6,100,000 shares of Common Stock (subject to anti-dilution adjustment) that may be issued as Warrant Shares to holders of 10% Notes, Series E Preferred Stock and Series F Preferred Stock.  Upon  the consummation of the transactions contemplated by the Transaction Documents (including Stockholder Approval and consummation of the iBill Acquisition), the Company will have (i) 250,000,000 authorized shares of Common Stock of which approximately 17,000,000 shares will be issued and outstanding, prior to conversion of any Series D Preferred Stock, Series E Preferred Stock, Series F Preferred Stock or Series G Preferred Stock; (ii) 5,000,000 shares of Preferred Stock authorized  475,450 of  which shares will be issued and outstanding; (iii) 1,000 authorized shares of Series A Preferred Stock of which no shares will be issued and outstanding; (iv)1,000 authorized shares of Series B Preferred Stock of which 1,000 shares will be issued and outstanding and will be convertible into up to 100,000 shares of Common Stock; (v) 10,000 authorized shares of Series C Preferred Stock of which 10,000 shares will be issued and outstanding and will be convertible into up to 1,000,000 shares of Common Stock; (vi) 330,000 authorized shares of Series D Preferred Stock of which 330,000 shares will be issued  and outstanding and will be convertible into up to 85,000,000 shares of Common Stock; (vii) 35,000 authorized shares of Series E Preferred Stock of which 35,000 shares will be issued  and outstanding and will be convertible into up to 1,166,666 shares of Common Stock (excluding Adjustment Shares); (viii) 54,500 authorized shares of Series F Preferred Stock of which 34,500 shares will be issued  and outstandi ng and will be convertible into up to 1,150,000 shares of Common Stock (excluding Adjustment Shares); (ix) 45,000 authorized shares of Series G Preferred Stock of which 45,000 shares will be issued  and outstanding and will be convertible into up to 68,000,000 shares of Common Stock, less a maximum of 7,983,333 Total Conversion Shares; and (x)  since the date of its most recent Form 10-Q quarterly report, no additional shares of Common Stock will be issuable upon the exercise  of options, warrants and conversion rights in addition to those shares of Common Stock issuable in (iii) –(ix)  above.

(g)

Stockholder Approval.  Penthouse and other Company stockholders holding in excess of 50% of the outstanding shares of Company Common Stock have provided the Company with irrevocable and unconditional written approvals and consents to all of the Transactions, including, without limitation (i) the transactions contemplated by the GMI Stock Purchase Agreement, (ii) consummation of the iBill Acquisition, (iii) an amendment to the Certificate of Incorporation of the Company that, inter alia, shall increase the authorized Common Stock to 250.0 million shares of Common Stock, (iv) the sale and issuance of the 10% Notes, the Warrants, the Series E Preferred Stock, the Series F Senior Preferred Stock, the Series G Preferred Stock, and the other Warrant Shares, and (v) all of the related transactions described herein (the “Sto ckholder Approval”).  The term “Stockholder Approval” shall also include the filing and approval of a listing application for the additional shares of the Company’s Common Stock to be issued upon conversion of the 10% Notes, the Series E Preferred Stock, the Series F

11

Senior Preferred Stock and the Series G Preferred Stock, in accordance with the rules of the AMEX. Such Stockholder Approval, in lieu of a special meeting of stockholders, are permissible under Delaware corporate law and pursuant to Section 705 and Section 712 of the rules and regulations of the AMEX.  Following the Closing Date, the Company will, in accordance with the Securities Exchange Act of 1934, as amended, file a Form 14C Information Statement with the SEC, describing the Transactions and, upon approval of such Information Statement, mail same to the Company stockholders.  No further vote or approval is required of Company stockholders receiving such Information Statement.  Accordingly, it is anticipated that the “Stockholder Approval” condition to the rights of holders of the 10% Notes, the Series E Preferred Stock, the Series F Sen ior Preferred Stock and the Series G Preferred Stock to convert such Securities into Common Stock, and the rights of holders of Warrants and other warrants to exercise such Securities will be obtained on or before November 30, 2004.  

In the event that, for any reason, that an amended Certificate of Incorporation increasing the authorized shares of Common Stock to 250.0 million is not filed by December 31, 2004 or all of the foregoing “Stockholder Approval” conditions   are not satisfied by December 31, 2004, then the Company shall pay to the Purchasers in cash 2% of the $3,450,000 Purchase Price for the Series F Senior Preferred Stock for each month, or portion thereof,  following December 31, 2004 that either of such  conditions remain unsatisfied (provided, however, that to the extent that  Castlerigg exercises its Exchange Option, the payment shall also be based on the purchase price of the Penthouse stock so exchanged).  The Company has agreed to pay a similar penalty to the holders of the 10% Notes and the Series E Preferred Stock.

(h)

AMEX Approval.  In August 2004, the Company announced its consummation of the acquisition of Media Billing Company, LLC and its wholly owned subsidiary Internet Billing Company LLC (“iBill”), pursuant to the terms of a securities purchase agreement, dated July 22, 2004, as amended (the “iBill Purchase Agreement”).  On September 20, 2004, the Company received a notice from the AMEX of its intention to de-list the Company’s Common Stock from trading on the AMEX, pending a hearing requested by the Company.  The delisting notice stated, among other things, that the Company failed to furnish certain necessary information to the AMEX concerning iBill and that the iBill Acquisition raised certain public interest concerns.  On September 23, 2004, the Company agreed to rescind the closing of the iBill Acquisition.  However, the iBill Purchase Agreement continues to remain in full force and effect.  As a result of its agreement to rescind the closing of the iBill Acquisition, pending the resolution of all listing eligibility issues and AMEX approvals, the staff of the AMEX agreed to withdraw its notice of intent to de-list the Company’s securities.  

The Company shall use its best efforts to furnish the information requested by the AMEX on a timely basis and is hopeful that the staff of the AMEX will, upon receipt and review of such information, provide all necessary approvals for the iBill Acquisition.  There can be no assurance that the Company will be able to satisfactorily resolve all listing issues or that it will receive all such AMEX approvals associated with the iBill transaction.  However, if for any reason, AMEX approval has not been obtained by January 21, 2005, the Company will nevertheless close the iBill Acquisition, withdraw from the AMEX and seek to re-list its Common Stock on another National Securities Exchange.  

12

Following receipt of the AMEX notice of delisting, on September 23, 2004, each of the Company, Penthouse and GMI Investment Partners entered into an agreement (the “September 23^rd Agreement”) that provides that the iBill Acquisition will be consummated, all shares of the Company Common Stock and Series D Preferred Stock issuable to Penthouse upon consummation of the iBill Acquisition will be issued, and all of the Series D Preferred Stock will be converted into approximately 81.4 million shares of Company Common Stock, upon the earlier to occur of (i) AMEX Approval of the iBill Acquisition, or (ii) January 21, 2005.  The Company has delivered to legal counsel to Penthouse, for filing with the Secretary of State of the State of Delaware on the earlier of AMEX Approval or January 21, 2005, a duly executed undated certificate of desi gnation for the Series D Preferred Stock, containing no conditions to conversion of such securities into Common Stock.

2.

Representations and Warranties of the Company.  The Company represents and warrants to and agrees with each Purchaser, severally, as follows:

(a)

The Disclosure Documents and the other documents provided to the holders of the Series F Senior Preferred Stock 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 SEC, complied and will comply, at the time of filing, in all material respects with the requirements of the Securities Act and/or the Exchange Act, as the case may be, as applicable.

(b)

Schedule A attached hereto sets forth a complete list of the subsidiaries of the Company (the "Subsidiaries").  Each of the Company and its Subsidiaries has been duly incorporated and each of the Company and the Subsidiaries is validly existing in good standing as a corporation under the laws of its jurisdiction of incorporation, with the requisite corporate power and authority to own its properties and conduct its business as now conducted as described in the Disclosure Documents and is duly qualified to do business as a foreign corporation in good standing in all other jurisdictions where the ownership or leasing of its properties or the conduct of its business requires such qualification, except where the failure to be so qualified would not, individually or in the aggregate, have a material adverse effect on th e business, condition (financial or other), properties, prospects or results of operations of the Company and the Subsidiaries, taken as a whole (any such event, a "Material Adverse Effect").  As of the Closing Date, the Company has and will have the authorized, issued and outstanding capitalization set forth in Section 1 of this Agreement (the “Company Capitalization”); except as set forth in 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 any other person; all of the outstanding Series F Senior Preferred Stock 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 r estrictions on transferability (other than those imposed by the Securities Act and

13

the state securities or "Blue Sky" laws) or voting; except as set forth in the Disclosure Documents, all of the outstanding 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, Series F Senior Preferred Stock or capital stock of or ownership interests in the Company or any Subsidiary are outstanding.

(c)

The Company and each Subsidiary has the requisite corporate power and authority to execute, deliver and perform its obligations under the Transaction Documents.  Each of the Transaction Documents has been duly and validly authorized by the Company and, when executed and delivered by the Company and each Subsidiary, will constitute a valid and legally binding agreement of the Company, enforceable against the Company and each Subsidiary 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 suc h enforcement is considered in a proceeding at law or in equity) (collectively, the "Enforceability Exceptions").

(d)

The Securities have been duly authorized and, when issued upon payment thereof in accordance with this Agreement, will have been validly issued, fully paid and nonassessable.  The Conversion Shares issuable have been duly authorized and validly reserved for issuance, and when issued upon conversion of the Series F Senior Preferred Stock in accordance with the terms of the Series F Senior Preferred Stock, will have been validly issued, fully paid and nonassessable. The Common Stock of the Company conforms to the description thereof contained in the Disclosure Documents.  The stockholders of the Company have no preemptive or similar rights with respect to the Common Stock.

(e)

The Conversion Price, Floor Price, Assumed Floor Price, Conversion Shares and Adjustment Shares issuable upon conversion of the Series F Senior Preferred Stock issued to Purchasers hereunder, all other terms and conditions of conversion of the Series F Senior Preferred Stock and the collateral granted to the Purchasers securing the Series F Senior Preferred Stock shall be (i) as described in this Agreement, and (ii) identical in all material respects to the conversion price, terms and conditions of conversion and collateral granted to all other Purchasers of Series F Senior Preferred Stock and to the holders of Company Series E Preferred Stock.

(f)

No consent, approval, authorization, license, qualification, exemption or order of any court or governmental agency or body or third party is required for the performance of the Transaction Documents by the Company and each Subsidiary or for the consummation by the Company and each Subsidiary 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, (ii) as are not required to be obtained

14

on or prior to the Closing Date that will be obtained when required, or (iii) the failure to obtain which would not, individually or in the aggregate, have a Material Adverse Effect.

(g)

None of the Company or the Subsidiaries is (i) in material violation of its articles of incorporation or bylaws (or similar organizational document), (ii) in breach or violation of any statute, judgment, decree, order, rule or regulation applicable to it or any of its properties or assets, which breach or violation would, individually or in the aggregate, have a Material Adverse Effect, or (iii) except as described in the Disclosure Documents, in default (nor has any event occurred which with notice or passage of time, or both, would constitute a default) in the performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, deed of trust, loan agreement, note, lease, license, franchise agreement, permit, certificate or agreement or instrument to which it is a party or to which it is subje ct, which default would, individually or in the aggregate, have a Material Adverse Effect.

(h)

The execution, delivery and performance by the Company of the Transaction Documents and the consummation by the Company of the transactions contemplated thereby and the fulfillment of the terms thereof will not (a) violate, conflict with or constitute or result in a breach of or a default under (or an event that, with notice or lapse of time, or both, would constitute a breach of or a default under) any of (i) the terms or provisions of any contract, indenture, mortgage, deed of trust, loan agreement, note, lease, license, franchise agreement, permit, certificate or agreement or instrument to which any of the Company or the Subsidiaries is a party or to which any of their respective properties or assets are subject, (ii) the articles of incorporation or bylaws of any of the Company or the Subsidiaries (or similar organizational documen t) or (iii) any statute, judgment, decree, order, rule or regulation of any court or governmental agency or other body applicable to the Company or the Subsidiaries or any of their respective properties or assets or (b) result in the imposition of any lien upon or with respect to any of the properties or assets now owned or hereafter acquired by the Company or any of the Subsidiaries; which violation, conflict, breach, default or lien would, individually or in the aggregate, have a Material Adverse Effect.

(i)

The audited consolidated financial statements included in the Disclosure Documents present fairly the consolidated financial position, results of operations, cash flows and changes in shareholders' equity of the entities, at the dates and for the periods to which they relate and have been prepared in accordance with generally accepted accounting principles applied on a consistent basis; draft audited financial statements of iBill as at December 31, 2003 and for the fiscal year then ended, the August 31 Balance Sheet (as hereinafter defined) and the interim unaudited consolidated financial statements included in the Disclosure Documents present fairly the consolidated financial position, results of operations and cash flows of the entities, at the dates and for the periods to which they relate subject to year-end audit adjustments and have been prepar ed in accordance with generally accepted accounting principles applied on a consistent basis with the audited consolidated financial statements included therein; the selected financial and statistical data included in the Disclosure Documents present fairly the information shown therein and have been prepared and compiled on a basis consistent with the audited financial statements included therein, except as otherwise stated therein; and each of the auditors previously engaged by the Company or to be engaged in the future by the Company is an

15

independent certified public accountant as required by the Securities Act for an offering registered thereunder. Neither the Company nor iBill has liabilities or obligations of any nature, whether known, unknown, absolute, accrued, contingent or otherwise and whether due or to become due, except (a) as and to the extent shown or provided for on their respective financial statements and (b) for liabilities and obligations that were incurred after the date of their respective financial statements in the ordinary course of business.  Since the date of the their respective financial statements there has not occurred or come to exist any Material Adverse Effect or any event, occurrence, fact, condition, change, development or effect that, individually or in the aggregate, would reasonably be expected to become or result in a Material Adverse Effect.  Except as sho wn on their respective financial statements, neither the Company nor iBill is directly or indirectly liable upon or with respect to (by discount, repurchase agreements or otherwise), or obligated in any other way to provide funds in respect of, or to guarantee or assume, any debt, obligation or dividend of any Person, except endorsements in the ordinary course of business in connection with the deposit, in banks or other financial institutions, of items for collection.

(j)

Except as described in the Disclosure Documents and in Schedule 2(j), there is not pending or, to the knowledge of the Company, threatened any action, suit, proceeding, inquiry or investigation, governmental or otherwise, to which any of the Company or the Subsidiaries is a party, or to which their respective properties or assets are subject, before or brought by any court, arbitrator or governmental agency or body, that, if determined adversely to the Company or any such Subsidiary, would, individually or in the aggregate, have a Material Adverse Effect or that seeks to restrain, enjoin, prevent or delay 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.

(k)

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.

(l)

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

16

received any notice of any proceeding relating to revocation or modification of any such Permit, except as described in the Disclosure Documents and except where such revocation or modification would not, individually or in the aggregate, have a Material Adverse Effect.

(m)

Subsequent to the respective dates as of which information is given in the Disclosure Documents and except as described therein, (i) the Company and the Subsidiaries have not incurred any material liabilities or obligations, direct or contingent, or entered into any material transactions not in the ordinary course of business or (ii) the Company and the Subsidiaries have not purchased any of their respective outstanding capital stock, or declared, paid or otherwise made any dividend or distribution of any kind on any of their respective capital stock or otherwise (other than, with respect to any of such Subsidiaries, the purchase of capital stock by the Company), (iii) there has not been any material increase in the long-term indebtedness of the Company or any of the Subsidiaries, (iv) there has not occurred any event or condition , individually or in the aggregate, that has or reasonably could be expected to have 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.

(n)

There are no material legal or governmental proceedings nor are there any material contracts or other documents required by the Securities Act to be described in a prospectus that are not described in the Disclosure Documents.  Except as described in the Disclosure Documents, none of the Company or the Subsidiaries is in default under any of the contracts described in the Disclosure Documents, has received a notice or claim of any such default or has knowledge of any breach of such contracts by the other party or parties thereto, except for such defaults or breaches as would not, individually or in the aggregate, have a Material Adverse Effect.

(o)

Each of the Company and the Subsidiaries has good and marketable title to all real property described in the Disclosure Documents as being owned by it and good and marketable title to the leasehold estate in the real property described therein as being leased by it, free and clear of all liens, charges, encumbrances or restrictions, except, in each case, as described in the Disclosure Documents or such as would not, individually or in the aggregate, have a Material Adverse Effect. There are no outstanding any liens, charges, encumbrances or restrictions with respect to the assets of Media Billing or iBill, except for equipment leases described in Schedule A to the Security Agreement.  All material leases, contracts and agreements to which the Company or any of the Subsidiaries is a party or by which any of them is bound are valid and enforceable against the Company or any such Subsidiary, are, to the knowledge of the Company, valid and enforceable against the other party or parties thereto and are in full force and effect.

(p)

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

17

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.

(q)

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").

(r)

None of the Company or the Subsidiaries or, to the knowledge of any of such entities' directors, officers, employees, agents or controlling persons, has taken, directly or indirectly, any action designed, or that might reasonably be expected, to cause or result in the stabilization or manipulation of the price of the Common Stock.

(s)

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  each Purchaser in Section 6 hereof, it is not necessary in connection with the offer, sale and delivery of the Securities to each  Purchaser in the manner contemplated by this Agreement to register any of the Securities under the Securities Act.

(t)

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.

(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)

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 Series F Senior Preferred Stock and the transactions contemplated by the Transaction Documents.

(w)

The Common Stock currently trades on the AMEX.  Except as described in this Agreement or the Disclosure Documents, the Company currently is not in violation of, and the consummation of the transactions contemplated by the Transaction Documents will not

18

violate, any rule of the AMEX or National Association of Securities Dealers.  The Company shall use its best efforts, but consistent with the disclosures contained in Section 1(B)(h) above, to maintain its listing on the AMEX, and if such listing cannot be maintain, will obtain and maintain its listing on another National Securities Exchange.

(x)

The Company is eligible to use Form S-1 or SB-2 for the resale of the Conversion Shares and any Adjustment Shares by the Purchasers or their transferees.  The Company has no reason to believe that it is not capable of satisfying the registration or qualification requirements (or an exemption therefrom) necessary to permit the resale of the Conversion Shares under the securities or "blue sky" laws of any jurisdiction within the United States that is the residence or domicile of any Purchaser.  

(y)

On or before September 29, 2004, the Company shall furnish to the Purchaser an unaudited management prepared balance sheet of iBill dated as of August 31, 2004, including therein cash balances, other assets, accounts and notes payable (the “August 31 Balance Sheets”).  The August 31 Balance Sheet shall reflect no liabilities or obligations owed by iBill to InterCept, Inc. of the nature reflected on the December 31, 2003 financial statements of iBill.

3.

Purchase, Sale and Delivery of the Series F Senior Preferred Stock.  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 each Purchaser, and each Purchaser agrees to purchase from the Company, the Series F Senior Preferred Stock in the amounts shown on the signature page hereto.  

The shares Series F Senior Preferred Stock that each Purchaser has agreed to purchase shall be delivered by or on behalf of the Company, against payment by or on behalf of such 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.  Payment for the Series F Senior Preferred Stock shall be made at the offices of the Company, 2200 S.W. 10^th Street, Deerfield Beach Florida at not later than 5:00 p.m. (New York time) on or before Wednesday, September 29, 2004 (the “Closing”), or at such date as  each Purchaser and the Company may agree upon, such time and date of delivery against payment being herein referred to as the "Closing Date."  The aggregate purchase price for the Series F Senior Preferred Stock (the “Purchase Price”) shall be paid by wire transfer of immediately available funds to the attorneys’ escrow account of Gersten, Savage Kaplowitz Wolf & Marcus, LLP, counsel to the Company, or at the request of the Company to the attorneys’ escrow account of Milberg Weiss Bershad & Schulman LLP, as Escrow Agent, under the GMI Securities Purchase Agreement, pending the Effective Date of the Plan.  McLaughlin & Stern LLP, counsel to the Purchasers may retain in escrow certain fees and expenses payable under Section 17 from the funds to be wired by the Purchasers, which amounts may be released upon the Effective Date of the Plan. At the Closing or not later than five (5) days after the Effective Date of the Plan, the Company shall deliver one or more duly executed certificates evidencing the Series F Senior Preferred Stock and the Warrants to  each Purchaser to his or its address designated in writing to the Company.  If for

19

any reason the Effective Date of the Plan, the delivery of not less than 39.5% of the issued and outstanding shares of GMI Stock to the Company and the consummation of the transactions contemplated by the Transaction Documents shall not occur by October 31, 2004, the Purchase Price  shall be immediately returned to the Purchasers.

4.

Certain Covenants of the Company.  The Company covenants and agrees with each 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 Series F Senior Preferred Stock will be used to reduce or retire any insider note or convertible debt held by an officer or director of the Company.

(d)

Subject to Section 10 of this Agreement, the Series F Conversion Shares, the Warrant Shares, the shares issuable upon the payment of dividends and any Adjustment Shares will be listed on the AMEX, or such other National Securities Market on which the Company's Common Stock are subsequently listed or traded, immediately following their issuance. In addition to any other rights and remedies of a Purchaser pursuant to the Transaction Documents, the Company shall pay to each Purchaser in cash on the first day of each month an amount equal to the product of (i) 2% for each month or portion thereof and (ii) the Liquidation Preference, as defined in the Certificate of Designations, in the event that the shares of Common Stock are not timely listed on AMEX or such other National Securities Market.

(e)

The Company shall ensure that no officer or director of the Company sells any shares of Common Stock from the Closing Date until the date that is 90 days following the effective date of the 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  each  Purchaser to purchase and accept delivery of the Securities.

(g)

The Company shall deliver certificates representing the shares of Common Stock no later than the third business day after  delivery  of a conversion notice with respect to the Series F Senior Preferred Stock (the “Delivery Date”) which certificates shall not bear a legend as set forth in Section 4(b). The Company understands that a delay in the issuance of such certificate could result in economic loss to the Purchasers.  As compensation to the Purchasers

20

for such loss and in addition to all of the Purchasers rights and remedies under the Transaction Documents, the Company agrees to pay late payments to   the Purchasers for late issuance of Common Stock upon Conversion for each business day beyond two (2) business days from the Delivery Date in the amount of $100 for each $10,000 in Purchase Price for the shares of Series F Senior Preferred Stock being converted.  Each Purchaser shall have the right to rescind the conversion notice in the event of the Company’s failure to deliver the certificates, as herein provided, within two business days of the Delivery Date provided however that such rescission shall not abate the payments set forth in this paragraph.

(h)

In lieu of delivering physical certificates representing the Common Stock issuable upon conversion, provided the Company’s transfer agent is participating in the Depository Trust Company (“DTC”) Fast Automated Securities Transfer program, upon request of the Purchaser and its compliance with the provisions contained in this paragraph, so long as the certificates therefore do not bear a legend and the Purchaser thereof is not obligated to return such certificate for the placement of a legend thereon, the Company shall use its best efforts to cause its transfer agent to electronically transmit the Common Stock issuable upon conversion to the Purchaser by crediting the account of Purchaser’s Prime Broker with DTC through its Deposit Withdrawal Agent Commission system.

(i)

If during the period commencing with the Effective Date of the Plan and terminating on the later of (A) three (3) years after the effectiveness of the registration statement being filed pursuant to the Registration Rights Agreement (the “Registration Statement”), and (B) December 31, 2005, the Company issues shares of its Common Stock (or other instruments convertible into shares of Common Stock) in conjunction with the issuance of warrants, options  or other rights to purchase Common Stock (the “New Warrants”) but (1) with more favorable warrant coverage, then the  Company  shall issue to each Purchaser additional Warrants to purchase additional Shares equal to the difference between the new Warrants and the Series F Warrants or (2) which New Warrants or rights contain terms more favorabl e than the Series F Warrants issued herewith,  each Purchaser shall have the right to require the Company to issue the Purchasers new Series F Warrants(s)  or amend the existing Series F Warrants containing such “favored terms.”

(j)

Except for (i) issuances of not more than 10% of its then outstanding Fully-Diluted Common Stock in the form of Common Stock or as options or warrants to executive employees, consultants and/or non-principal stockholder independent directors, (ii) issuances of Common Stock or securities convertible into or exercisable for Common Stock to principal stockholders, officers, directors or their Affiliates in connection with the acquisition of the securities or assets of any person, firm or corporation, other than the Reorganized General Media or iBill (a “Related Party Acquisition”), which Related Party Acquisition shall have been approved by the non-interested members of the Company’s board of directors and (if material) shall be accompanied by an independent fairness opinion from an investment banking firm that is reasonably acceptable to the Purchasers, or (iii)  issuances of Common Stock or securities convertible into or exercisable for Common Stock to principal stockholders, officers or directors or their Affiliates in connection with one or more financings made or arranged by the Company

21

by such persons (a “Related Party Financing”),  which Related Party Financing shall have been approved by the non-interested members of the Company’s board of directors and (if material) shall be accompanied by an independent fairness opinion from an investment banking firm that is reasonably acceptable to the Purchasers, the Company shall not issue any additional shares of its Common Stock or other securities convertible into or exercisable for Common Stock to principal stockholders, officers, directors or their Affiliates.

(k)

On or before the first day that all “Registrable Securities” (as defined in the Registration Rights Agreement) issuable to the Purchasers in connection with the Series F Senior Preferred Stock and Series F Warrants shall become available for public sale or distribution, the Company shall have included in public filings under the Securities Exchange Act of 1934, as amended, or the Securities Act of 1933, as amended, all material non-public information previously furnished by the Company to the Purchasers. Thereafter, each of the Company, its officers, directors, employees and agents shall in no event disclose non-public information to the Purchasers, advisors to or representatives of the Purchasers. In the event that the Company fails to release such information in accordance with this Section 4(k), each  Purchaser shall have the right to publicly disseminate and release such information in such manner as may be determined by Purchaser upon written notice to the Company.

(l)

In the event that the Effective Date under the Plan shall not occur by October 31, 2004 or, for any other reason, the transactions under the GMI Securities Purchase Agreement shall be terminated or the transactions contemplated by the Transaction Documents have not been consummated, all of the Purchase Price shall be promptly returned by the Escrow Agent under the GMI Securities Purchase Agreement directly to  each Purchaser.  To facilitate the foregoing, on the Closing Date, Gersten Savage Kaplowitz Wolf & Marcus, LLP shall issue irrevocable instructions, in the form annexed hereto, to Milberg Weiss Bershad & Schulman LLP, as Escrow Agent, under the GMI Securities Purchase Agreement, consistent with the above.

(m)

On the Closing Date, counsel to the Purchasers shall be authorized to file with the Secretary of State of the State of Florida, UCC –1 Financing Statements to perfect the Purchasers’ Lien on the assets of iBill and Media Billing Company LLC

(n)

Except as specifically provided in the 10% Notes, neither the Company nor any of its Subsidiaries shall pay any  of the Company’s obligations under the 10% Notes prior to payment in full of all amounts that may be owed to the Purchasers upon redemption of the then outstanding shares of Series F Senior Preferred Stock.

(o)

The Company shall not amend the terms of the 10% Notes in a manner which would adversely affect the  Purchasers.

(p)

The company shall not amend the iBill Purchase Agreement in any manner that would postpone or delay the consummation of the transactions thereunder.

22

(q)

The Company shall (i) on or before October 15, 2004, obtain a commitment letter for Senior Debt financing for iBill in the amount of up to $10,000,000 from a reputable financial institution not otherwise affiliated with the Company, which Senior Debt financing shall be conditional upon the completion of the iBill Acquisition and guaranteed by the Company; (ii) undertake (but without legal obligation) to sell up to $3,650,000 of additional securities (subordinated to the Series F Preferred Stock) for the purpose of increasing its 39.5% percentage ownership in the GMI Stock to up to 48.3%, and (iii) use its best efforts to sell up to an additional $5,475,000 of 10% Notes or other securities subordinated to the Series F Preferred Stock; the proceeds of all of which financings shall be used for additional working capital and other corporate purposes of t he Company’s iBill subsidiary.

5.

Conditions of  each Purchaser's Obligations.  The obligation of each Purchaser to purchase and pay for the Securities is subject to the following conditions unless waived in writing by  such  Purchaser:

(a)

The representations and warranties of the Company contained in this Agreement shall be true and correct in all material respects (other than representations and warranties with a Material Adverse Effect qualifier, which shall be true and correct as written) on and as of the Closing Date; the Company shall have complied in all material respects with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to the Closing Date.

(b)

None of the issuance and sale of the Securities pursuant to this Agreement or any of the transactions contemplated by any of the other Transaction Documents shall be enjoined (temporarily or permanently) and no restraining order or other injunctive order shall have been issued in respect thereof; and there shall not have been any legal action, order, decree or other administrative proceeding instituted or, to the Company's knowledge, threatened against the Company or against any Purchaser relating to the issuance of the Securities or any Purchaser's activities in connection therewith or any other transactions contemplated by this Agreement, the other Transaction Documents or the Disclosure Documents.

(c)

The Purchasers shall have received certificates, dated the Closing Date and signed by the Chief Executive Officer and the Chief Financial Officer of the Company, to the effect of paragraphs 5(a) and (b).

6.

Representations and Warranties of  Each Purchaser.   Each Purchaser hereby severally and not jointly  represents and warrants to the Company as follows:

(a)

The Securities to be acquired by such Purchaser hereunder (including the Series F Senior Preferred Stock and the Series F Conversion Shares that it may acquire upon conversion thereof, as the case may be) are being acquired for his its own account for investment and with no intention of distributing or reselling such Securities (including the Series F Senior Preferred Stock and the Series F Conversion Shares that it may acquire upon conversion or exercise thereof, as the case may be) or any part thereof or interest therein in any transaction

23

which would be in violation of the securities laws of the United States of America or any State.  Nothing in this Agreement, however, shall prejudice or otherwise limit  such Purchaser's right to sell or otherwise dispose of all or any part of such Series F Senior Preferred Stock or Series F Conversion Shares under an effective registration statement under the Securities Act and in compliance with applicable state securities laws or under an exemption from such registration.  By executing this Agreement, each Purchaser further represents that such Purchaser does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participation to any Person with respect to any of the Securities.

(b)

Such Purchaser understands that the Series F Senior Preferred Stock and the F Series F Conversion Shares and Adjustment Shares that may be acquired upon conversion of the Series F Senior Preferred Stock 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.

Such Purchaser agrees to the imprinting, so long as appropriate, of the following legend on the Securities (including the Series F Senior Preferred Stock the Series F Conversion Shares and any Adjustment Shares that he or it may acquire upon conversion or exercise thereof, as the case may be):

The Securities 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 Securities 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.

A certificate shall not bear such legend (and the Purchaser shall be entitled to have such legend removed) if, the Series F Conversion Shares, the Adjustment Shares or the Dividend Shares, as the case may be are duly registered for resale under the Securities Act of 1933, as amended, or in the opinion of counsel for the Purchaser thereof (which counsel shall be reasonably satisfactory to the Company), the securities represented thereby are not, at such time required by law to bear a legend. The Series F Senior Preferred Stock, the Series F Conversion Shares and the Adjustment Shares shall also bear any other legends required by applicable Federal or state securities laws, which legends may be removed when in the opinion of counsel to the Company experienced in the applicable securities laws, the same are no longer required under the applicable require ments of such securities laws.  The Company agrees that it will provide each Purchaser, upon request, with a substitute certificate, not bearing such legend at such time as such legend is no longer applicable.  Such Purchaser agrees that, in connection with any transfer of the Series F Senior Preferred Stock or the Series F Conversion Shares or the

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Adjustment Shares 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 Series F Senior Preferred Stock or the Series F Conversion Shares or any Adjustment Shares.

(c)

Such Purchaser is an "accredited investor" within the meaning of Rule 501(a) of Regulation D under the Securities Act.   Such  Purchaser did not learn of the opportunity to purchase Series F Senior Preferred Stock or any other security issuable by the Company through any form of general advertising or public solicitation.

(d)

Such Purchaser 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 purchase of the Securities to be purchased by  such Purchaser (i) has been duly and properly authorized and this Agreement has been duly executed and delivered by him or it or on his or its behalf and constitutes the valid and legally binding obligation of the Purchaser, enforceable against  such 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)  does not conflict with or violate its charter, by-laws or any law, regulation or court order applicable to him or it; and (iii) does not impose any penalty or other onerous condition on such Purchaser under or pursuant to any applicable law or governmental regulation.

(f)

Such Purchaser acknowledges he or his 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 he or they deemed necessary of, and to receive answers from, representatives of the Company concerning the terms and conditions of the offering of the Securities and the merits and risks of investing in the Securities; (ii) access to information about the Company and the Company's financial condition, results of operations, business, properties, management and prospects sufficient to enable it to evaluate its investment in the Securities; and (iii) the opportunity to obtain such additional information which the Company possesses or can acquire without unreasonable effort or expense that is necessary to verify the accuracy and complete ness of the information contained in the Disclosure Documents.

(g)

Such Purchaser has based his or 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").  Such 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.

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(h)

Such Purchaser understands and acknowledges that (i) any forward-looking information included in the Disclosure Documents supplied to such 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.

(i)

Such 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 such Purchaser hereby consents to such reliance.

7.

Covenants of  each Purchaser Not to Short Stock.  Each Purchaser, and his or its respective affiliates and assigns agree not to engage in short sales with respect to the Company Common Stock as long as Series F Senior Preferred Stock are outstanding.  For purposes of this section, a “Short Sale” by a  Purchaser shall mean a sale of Common Stock by such Purchaser that is marked as a short sale and that is made at a time when there is no equivalent offsetting long position in Common Stock held by  such Purchaser.  For purposes of determining whether there is an equivalent offsetting long position in Common Stock held by a Purchaser, (i) Conversion Shares and Warrant Shares that have not yet been issued on conversion of the Series F Senior Preferred Stock or exercise of the Warrant but which the Company is o bligated to issue as a result of receipt of a notice of Conversion or receipt of documents and payment required for exercise of the Warrant shall be deemed to be held long by such Purchaser but (ii) Conversion Shares and Warrant Shares that have not yet been issued on conversion of the  Series F Senior Preferred Stock or exercise of the Warrant and which are not subject to receipt of a notice of conversion or receipt of documents and payment required for exercise of the Warrant  shall not be deemed to be held long by such Purchaser.            

8.

Termination.

(a)

This Agreement may be terminated in the sole discretion of the Company by notice to  each Purchaser if at the Closing Date:  

(i)

the representations and warranties made by such Purchaser in Section 6 are not true and correct in all material respects; or

(ii)

as to the Company, the sale of the Securities hereunder (i) is prohibited or enjoined by any applicable law or governmental regulation or (ii) subjects the Company to any penalty, or in its reasonable judgment, other onerous condition under or pursuant to any applicable law or government regulation that would materially reduce the benefits to the Company of the sale of the Securities to such Purchaser, so long as such regulation, law or onerous condition was not in effect in such form at the date of this Agreement.

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(b)

This Agreement may be terminated in the sole discretion of  each Purchaser by notice to the Company given in the event that (i) 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 (ii) the Company does not purchase the GMI Stock and the “Effective Date of the Plan” (as defined in the GMI Stock Purchase Agreement) does not occur by October 31, 2004, or (iii) 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 NASD 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 45 days from the Closing Date, the Company shall prepare and file with the SEC a Registration Statement (the “Registration Statement”) covering the resale of the maximum number of (a) Conversion Shares (including all Adjustment Shares and a minimum of 750,000 shares representing shares of Common Stock which may be issued as dividends on the Series F Senior Preferred Stock), and (b) Warrant Shares (collectively, the "Registrable Securities") as set forth in the Registration Rights Agreement.  In the event that such Registration Statement shall not be initially filed with the SEC within 75 days of the Closing Date or declared effective by the SEC within 100 days of the Closing Date, in either case, and notwithstanding anything to the contrary contained in the Registra tion Rights Agreement or this Agreement, the Company shall pay to the Purchasers cash payments of 2% of the $3.45 million Purchase Price for the Series F Senior Preferred Stock for each month and the approximately $2.0 million purchase price previously paid for Common Stock of Penthouse, or portion thereof, that such initial filing is delayed and 2% for each month or portion thereof that such effective date shall be delayed.  Such payments are in addition to, and not in lieu of, any other payments that may be owed to  a  Purchaser under this Agreement and shall be payable within 30 days of the end of each month of delay.

If a Registration Statement covering all the Registrable Securities, as defined in the Registration Rights Agreement is (i) not effective on any day after the Registration Statement has initially been declared effective by the SEC, or (ii) sales of all the Registrable Securities required to be included on such Registration Statement cannot be made pursuant to the Registration Statement (including, without limitation, because of a failure to keep the Registration Statement effective, to disclose such information as is necessary for sales to be made pursuant to the Registration Statement, to register sufficient shares of Common Stock), then, as partial relief for the damages to any Purchaser by reason of any such delay in or reduction of its ability to sell the underlying shares of Common Stock (which remedy shall not be exclusive of any other remedies available at law or in equity), the Company shall pay to each Purchaser on the first day of each month an amount in cash equal to the product of (i) the Liquidation Preference per share of Series F Preferred Stock multiplied by (ii) .00067

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multiplied by the number of days after the Registration Statement has been declared effective by the SEC that such Registration Statement is not available for the sale of at least all the Registrable Securities required to be included on such Registration Statement; provided however that such payments shall not be payable to the Purchasers for the first 30 days after the Registration Statement is not effective (or 60 days in the case of a material acquisition) and further provided that the foregoing proviso shall only be applicable once in any 12 month period.

10.

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:

Care Concepts I, Inc.

2200 S.W. 10^th Street

Deerfield Beach, Florida 33442

Attention:  President

Telephone:  (954) 363-4400

with a copy to:

Gersten Savage Kaplowitz Wolf & Marcus, LLP

101 East 52^nd Street,

New York, New York 10022

Attn: Stephen A. Weiss, Esq.

Telephone:  (212) 752-9700

Facsimile:  (212) 980-5192

A copy of all notices to the Purchasers shall be sent to:

McLaughlin & Stern LLP

260 Madison Avenue

New York, NY 10016

Attn: Steven Schuster, Esq.

Telephone: (212) 448-1100

Facsimile:  (212) 448-0066

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

28

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.

11.

Survival Clause.  The respective representations, warranties, agreements and covenants of the Company and the Purchasers set forth in this Agreement shall survive until the fifth anniversary of the Closing.

12.

Successors.  This Agreement shall inure to the benefit of and be binding upon Purchasers and the Company and their respective successors and legal representatives, and nothing expressed or mentioned in this Agreement is intended or shall be construed to give any other person any legal or equitable right, remedy or claim under or in respect of this Agreement, or any provisions herein contained; this Agreement and all conditions and provisions hereof being intended to be and being for the sole and exclusive benefit of such persons and for the benefit of no other person. Neither the Company nor any Purchaser may assign this Agreement or any rights or obligation hereunder without the prior written consent of the other party.

13.

No Waiver; Modifications in Writing.  No failure or delay on the part of the Company or a 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 a Purchaser at law or in equity or otherwise.  No waiver of or consent to any departure by the Company or a 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  each  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 a 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.

14.

Subordination to Senior Debt.   By his or its execution of this Agreement, each  Purchaser does hereby irrevocably covenant and agree to execute and deliver to any Senior Lender any subordination, intercreditor or similar agreement or undertaking in form and content reasonably satisfactory to such Purchaser between or among such Senior Lender and the Company or any of its Subsidiaries, in connection with any iBill Senior Financing or any other senior secured financing(s) that the Company or any of its present or future Subsidiaries, other than iBill and Media Billing, may hereafter engage in, whether in connection with any acquisition, working capital financing or other transaction not to exceed $10,000,000 in the

29

aggregate (collectively, “Senior Debt”).  Subject at all times to the maintenance of the priority of Purchasers’ Lien on the assets of iBill (subordinated only as set forth above), nothing contained in the Certificate of Designation for the Series F Senior Preferred Stock or this Agreement shall impose any limitation on the amount or the ability of the Company and/or its present or future subsidiaries, including iBill or Media Bill, to incur indebtedness for money borrowed, in such amounts as the Board of Directors of the Company may, in the exercise of its sole discretion, determine.

15.

Entire Agreement; Inconsistencies  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. In the event of any inconsistency or conflict between the terms and conditions of the Transaction Documents and the description of the terms of the applicable Transaction Document contained herein, then the terms and conditions contained in such Transaction Document shall control.

16.

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.

17.

Expenses.

The Company shall reimburse the Purchasers for their legal fees and expenses incurred in connection with the preparation and negotiation of the Transaction Documents, which obligation shall be effective upon the Closing, even if  a Purchaser has a right to the return of the Purchase Price pursuant to Section 3 after the Closing Date. . Other than the amounts contemplated in the immediately preceding sentence, each party shall pay the fees and expenses of its advisers, counsel, accountants, and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement.

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 NEW YORK, 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 NEW YORK, NEW YORK AND HEREBY SUBMIT TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS FOR SUCH PURPOSE.  

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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.

Facsimile Signatures.  Facsimile signatures shall be construed and considered original signatures for purposes of enforcement of the terms of this agreement.

[the balance of this page left blank – signature page follows]

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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 Purchasers.

Very truly yours,

Care Concepts I, Inc.

By:

___________________________

Name:

Gary Spaniak, Jr.,

Title:

 President

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Purchaser Signature Page:

ACCEPTED AND AGREED TO

This __ day of September 2004:

Vestcap International Management Limited     

_____________________________ By:        ______________________ Title:      ______________________ Amount of Series F Senior Preferred Stock
Purchased:  $_________ Purchase Price:  $_________ Address for Notice to Purchaser: ____________________________________ ____________________________________ ____________________________________




Castlerigg Master Investments Limited

_____________________________ By:        ______________________ Title:      ______________________ Amount of Series F Senior Preferred Stock
Purchased:  $_________ Purchase Price:  $_________ Address for Notice to Purchaser: ____________________________________ ____________________________________ ____________________________________

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Schedule A

Direct and Indirect Subsidiaries of Care Concepts I, Inc.

[to be furnished]

Media Billing, LLC

Internet Billing Company, LLC

Exhibit A

Series F Senior Preferred Stock Certificate of Designation

(attached hereto)

Exhibit B

Series F Warrant

Exhibit C

Security Agreement

Exhibit D

Pledge Agreement

Exhibit E

Registration Rights Agreement

Exhibit F

GMI Stock Purchase Agreement

EX-10.8

EXHIBIT 10.8

CERTIFICATE OF DESIGNATION OF PREFERENCES AND RIGHTS OF

SERIES F CONVERTIBLE REDEEMABLE SECURED PREFERRED STOCK

OF

CARE CONCEPTS I, INC.

a Delaware corporation

The undersigned, Gary Spaniak, Jr. and Charles Pearlman, do hereby certify that:

1.

They are the President and an Assistant Secretary, respectively, of CARE CONCEPTS I, INC., a corporation organized and existing under the Delaware General Corporation Law (“DGCL”) of the State of Delaware (the “Corporation”).

2.

Pursuant to authority conferred upon the Board of Directors by the Certificate of Incorporation of the Corporation, and pursuant to the provisions of Section 151 of the DGCL, the Board of Directors of the Corporation, pursuant to a meeting held September 20, 2004, adopted a resolution establishing the rights, preferences, privileges and restrictions of, and the number of shares comprising, the Corporation’s Series F Convertible Preferred Stock, which resolution is as follows:

RESOLVED, that a series of Preferred Stock in the Corporation, having the rights, preferences, privileges and restrictions, and the number of shares constituting such series and the designation of such series, set forth below be, and it hereby is, authorized by the Board of Directors of the Corporation pursuant to authority given by the Corporation’s Articles of Incorporation.

NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors hereby fixes and determines the Determinations of, the number of shares constituting, and the rights, preferences, privileges and restrictions relating to, a new series of Preferred Stock as follows:

1.

Definitions.  Unless otherwise defined in this Certificate of Designation, all capitalized terms used herein, shall have the same meaning as is defined in the Subscription Agreement.  For the purposes of this Certificate of Designation and in addition to other terms defined herein, the following definitions shall apply:

“Affiliate” means, as to any Person, any other Person which, directly or indirectly, alone or together with other Persons, controls or is controlled by or is under common control with such Person. “Control” “controlled by” and “under common control with”, as and with respect to any Person, means the power, directly or indirectly, to direct or cause the direction of the management and policies of such Person.

“10% Notes”

shall mean up to $15.0 million of the Corporation’s 10% secured convertible notes due September 15, 2009, that have been issued in connection with the Transactions described in the Subscription Agreement.

“Adjustment Shares”  shall have the meaning defined in Section 7(b) of this Series F Certificate of Designation and as “Additional Shares” in the Subscription Agreement.

“AMEX” shall mean the American Stock Exchange, Inc.

“Applicable Law” means any domestic or foreign law, statute, regulation, rule, policy, guideline or ordinance applicable to the businesses of the Corporation.

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“Assumed Floor Price” shall mean $0.50 per share of Common Stock.

 “Business Day” means any day, Monday through Friday, on which U.S. federally chartered banks are open for business in New York, New York, and Fort Lauderdale, Florida.

 “Commission” shall mean the United States Securities and Exchange Commission.

“Common Stock” shall mean the authorized common stock, $.001 par value per share, of the Corporation.

“Common Stock Equivalent” shall mean any issued and outstanding notes, debentures or Preferred Stock that is convertible into shares of Common Stock, any options, warrants or securities exercisable for shares of Common Stock, or other rights entitling the holder to purchase Common Stock or exchange property or other assets for Common Stock.

“Conversion Price” shall mean a price equal to $3.00 per share of Common Stock.

“Conversion Notice”  shall have the meaning defined in Section 7(b) of this Series F Certificate of Designations.

 “Conversion Date” shall mean the date on which a Holder of Series F Preferred Stock shall deliver a Conversion Notice to the Corporation.

“DGCL” shall mean the Delaware General Corporation Law, as amended,

“Exchange Act” shall mean the United States Securities Exchange Act of 1934, as amended, or any successor law.

“Exchange Option”  shall mean the option of the initial Holder of shares of Series F Preferred Stock to exchange certain securities for up to 20,000 additional shares of Series F Preferred Stock, all as described in the Subscription Agreement.

“Fully-Diluted Common Stock” means, at any applicable point in time, the issued and outstanding shares of Common Stock of the Corporation, on a fully-diluted basis, after giving effect to (i) all issued and outstanding shares of Common Stock, (ii) the conversion into Common Stock of all issued and outstanding shares of Preferred Stock, (iii) all shares of Common Stock issuable upon exercise of any outstanding options, warrants or other rights to purchase Common Stock, and/or (iv) all shares of Common Stock issuable upon conversion of any outstanding notes, debentures, preferred stock, or other securities convertible into or exchangeable for shares of Common Stock.

“GAAP” means generally accepted United States accounting principles in effect from time to time.

“Governmental Authority” shall mean any court, tribunal, authority, agency, commission, bureau, department, official or other instrumentality of the United States, or any other country or any provincial, state, local, county, city or other political subdivision.

“Holder(s)” shall mean the individual or collective reference to holder(s) of the Series F Preferred Stock.

2

“Law” shall mean any United States, state or local (including common law) statute, code, directive, ordinance, rule, regulation or other requirement.

“Market Price” shall mean the average VWAP per share of the Common Stock of the Corporation, as traded on the AMEX or any other National Securities Exchange, for the five (5) trading days immediately preceding a Conversion Date.

“National Securities Exchange”  shall mean the individual and collective reference to the New York Stock Exchange, the AMEX, the Nasdaq Stock Market, and the NASD OTC-Bulletin Board.

“Person” shall mean any individual, corporation (including any non-profit corporation), general or limited partnership, limited liability company, joint venture, estate, trust, association, organization, labor union or other entity or governmental body or Governmental Authority.

“Preferred Stock” shall mean the authorized preferred stock, $.001 par value per share, of the Corporation.

“Proceeding” shall mean any claim, action, investigation, arbitration, litigation or other judicial, administrative or regulatory proceeding.

“Representatives” shall mean officers, directors, employees, agents, attorneys, accountants, advisors and representatives.

 “Securities Act” shall mean the United States Securities Act of 1933, as amended, or any successor law.

“Subscription Agreement” shall mean the subscription agreement, dated of event date, among the Corporation and the purchasers of the Series F Preferred Stock.

“Series A Preferred Stock” shall mean the 1,000 authorized shares of Series A Preferred Stock of the Corporation.

“Series B Preferred Stock” shall mean the 10,000 authorized shares of Series B Preferred Stock of the Corporation.

“Series C Preferred Stock” shall mean the 45,000 authorized shares of Series C Preferred Stock of the Corporation.

“Series D Preferred Stock” shall mean the 330,000 shares of Series D Preferred Stock of the Corporation issued to Penthouse pursuant to the Series D Preferred Stock Certificate of Designations and the Series D Preferred Stock Certificate of Designation Amendment.

“Series E Preferred Stock” shall mean the 35,000 shares of Series E Preferred Stock of the Corporation to be issued pursuant to pursuant to the transactions contemplated by the Subscription Agreement.

“Series F Stated Value” shall mean the $100.00 per share stated value payable in respect of each of the authorized and issued series of the Series F Preferred Stock of the Corporation, as applicable, in connection with any Liquidation Event (as hereinafter defined in Section 7(a)) redemption or other sale or disposition of such Series F Preferred Stock.

3

“Series F Preferred Stock” shall mean the 54,500 shares of 10% Series F Convertible Redeemable Secured Preferred Stock of the Corporation to be issued pursuant to this Series F Certificate of Designation.

“Series G Preferred Stock” shall mean the shares of Series G Convertible Preferred Stock of the Corporation to be issued pursuant to the transactions contemplated by the Subscription Agreement.

“Subsidiary” shall mean with respect to any Person, any corporation, joint venture, limited liability company, partnership, association or other business entity of which 50% or more of the total voting power of stock or other equity entitled to vote generally in the election of directors or managers or equivalent Persons thereof is owned or controlled, directly or indirectly, by such Person.

“Subscription Agreement”  shall mean the subscription agreement dated September 28, 2004 between the Holder(s) of the Series F Preferred Stock and the Corporation.

“Transactions”

shall mean the transactions (including the issuance of the 10% Notes, Series E Preferred Stock, Series F Preferred Stock and Series G Preferred Stock) that are described or defined in the Subscription Agreement.

“Transfer of Control” shall mean the occurrence of any one of the following events or  the consummation of a transaction or series of transactions which results in: (a the sale, conveyance, exchange or disposition (collectively, “Transfer”) of all or substantially all of the assets of the Corporation, (b) the Transfer of all or substantially all of the assets of all or substantially all of the Subsidiaries of the Corporation, or (c) the consummation of a transaction or series of related transactions (whether by tender offer, merger, consolidation or like combination) in which either (i) more than fifty percent (50%) of the voting power of the Corporation is disposed of, or (ii) the power to elect a majority of the Board of Directors of the Corporation is invested in one or more Person(s) who are not currently st ockholders of the Corporation or of Penthouse or Affiliates of such Persons.

“VWAP” shall mean the daily volume weighted average price of the Corporation’s Common Stock on the National Securities Exchange, as reported by Bloomberg Financial L.P. (Based on a trading day from 9:30 a.m. Eastern Time to 4:00 p.m. Eastern Time) using the VWAP function on the date in question.

2.

Determination.  The series of Preferred Stock is hereby designated Series F Convertible Redeemable Secured Preferred Stock (the “Series F Preferred Stock”).

3.

Authorized Shares.  The number of authorized shares constituting the Series F Preferred Stock shall be fifty four thousand five thousand (54,500) shares of such series.

4.

Dividends.  The Series F. Preferred Stock shall pay an annual dividend (A) of at the rate of 10% per annum, payable semi-annually on June 30^th and December 31^st  (each a “Dividend Payment Date”), based on a 360 day calendar year.  Such semi-annual dividend shall be payable on each Dividend Payment Date either 100% in cash, or at the option of the Corporation , 50% in cash and the balance in additional shares of  Common Stock, calculated for such purposes by dividing the amount of the dividend then payable by 50% of the Market Price of the  Common Stock on such Dividend Payment Date (but without regard to the Assumed Floor Price). The Corporation shall provide the Holders with a minimum of six business days notice of the  Dividend Payment Date in the event that the Corporation elects to pay a

4

portion of the dividend in shares of Common Stock.  In the event the Holder of Series F Preferred Stock shall convert the Series F Preferred Stock, in whole or in part, accrued and unpaid dividends on the amount so converted shall be payable as of the Conversion Date, pro-rated for any period of less than six months.

5.

Liquidation Preference.

(a)

Liquidation, Dissolution or Winding Up.  If (A) the Corporation shall commence a voluntary case under the Federal bankruptcy laws or any other applicable Federal or state bankruptcy, insolvency or similar law, or consent to the entry of an order for relief In an involuntary case under any law or to the appointment of a receiver, liquidator, assignee, custodian, trustee or sequestrator (or other similar official) of the Corporation or of any substantial part of its property, or make an assignment for the benefit of its creditors, or admit in writing its inability to pay its debts generally as they become due, or if a decree or order for relief in respect of the Corporation shall be entered by a court having jurisdiction in the premises in an involuntary case under the Federal bankruptcy laws or any other applicable Federal or state bankrupt cy, insolvency or similar law resulting in the appointment of a receiver, liquidator, assignee, custodian, trustee or sequestrator (or other similar official) of the Corporation or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and any such decree or order shall be unstayed and in effect for a period of 30 consecutive days and, on account of any such event (“Insolvency Proceeding”), or (B) the Corporation shall otherwise liquidate, dissolve or wind up, a “Liquidation Event” shall be deemed to have occurred for purposes of this Certificate of Designation. If a Liquidation Event shall occur, the available funds and assets of the Corporation and its Subsidiaries shall be distributed in the following manner:

(i)

Senior Liquidation Preference. Upon the occurrence of any Liquidation Event, the holder(s) of all of the then issued and outstanding shares of Series F Preferred Stock shall be entitled to be paid a liquidation preference at the Series F Stated Value per share plus accrued dividends (collectively, the “Series F Stated Value Liquidation Preference”), out of the Available Funds and Assets, senior to and before all payments as shall be made (A) to the holders of any other Series of Preferred Stock of the Corporation, including, without limitation, the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series G Preferred Stock and (B) to the holders of Common Stock of the Corporation. If, upon a Liquidation Event, the available funds and assets of the Co rporation and its Subsidiaries to be distributed to the holders of the Series F Preferred Stock shall be insufficient to permit the payment to such shareholders of their full preferential amount described in this subsection, then all of such available funds and assets shall be distributed among the holders of then outstanding series of such Series F Preferred Stock pro rata, according to the number of outstanding shares of such Series F Preferred Stock held by each holder thereof. The Corporation shall not create, designate or authorize any series of Preferred Stock with liquidation preferences or rights either senior to, or in parity with, the liquidation preferences and rights held by the holders of the Series F Preferred Stock.

(ii)

Other Shares of Junior Preferred Stock. Subject to payment in full of the Stated Value liquidation preference, first to the holders of the Series F Preferred Stock and then to the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series G Preferred Stock, the holder(s) of all other series of Preferred Stock of the Corporation then outstanding shall be entitled to be paid, out of the remaining available funds and assets, if any, and prior and in preference to any payment or distribution (or any setting apart of nay payment or distribution) of any available finds and assets on any shares of Common Stock, the amount of any liquidation preference or other payment required under the terms of such Preferred Stock.

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(iii)

Remaining Assets. If there are any available finds and assets remaining after the payment or distribution (or the setting aside for payment or distribution) to the holders of the Preferred Stock of their full preferential amounts described in Section 5 hereof, then all such remaining available finds and assets shall be distributed among the holders of the then outstanding Common Stock pro rata according to the number of shares of Common Stock held by each holder thereof.

(b)

Merger or Sale of Assets.  At the option of the holders of the Series F Preferred Stock, with such series voting as a separate series, upon the consummation of a transaction or series of related transactions affecting the Corporation that shall constitute a Transfer of Control, for all purposes of this Certificate of Designation, a Liquidation Event shall be deemed to have occurred. In such event the Corporation shall, at the sole option of the holders of a majority of the outstanding Series F Preferred Stock, either (i) distribute, upon consummation of and as a condition to, such Transfer of Control an amount equal to the Series F Stated Value Liquidation Preference with respect to each outstanding share of Series F Preferred Stock, (ii) issue to the holders of the Series F Preferred Stock that number of shares of common stock of the succ essor or acquiring corporation or of the Corporation, if it is the surviving corporation, and/or other property as is receivable upon or as a result of such Transfer of Control, as though each Holder of Series F Preferred Stock had converted his or its Series F Preferred Stock into shares of Common Stock, at the applicable Conversion Percentage of Fully-Diluted Common Stock, immediately prior to such Transfer of Control or (iii) require the Corporation, or such successor, resulting, surviving or purchasing corporation, as the case may be, and without benefit of any additional consideration therefor, to execute and deliver to the Holder of Series F Preferred Stock shares of its preferred stock with no less favorable rights, preferences, privileges, powers, restrictions and other terms as the Series F Preferred Stock equal to the number of shares of Series F Preferred Stock held by such Holder divided by the Fully-Diluted Common Stock of the Corporation immediately prior to such Transfer of Control multiplied by the Fully-Diluted Common Stock of the Corporation or such successor, resulting or purchasing or surviving corporation, as the case may be, immediately after the consummation of such Transfer of Control; provided, that all Holders of Series F Preferred Stock shall be deemed to elect the option set forth in clause (i) above if at least a majority in interest of such Holders elect such option. For purposes of this Section 5(b), “common stock of the successor or acquiring corporation” shall include stock of such corporation of any class which is not preferred as to dividends or assets over any other class of stock of such corporation and which is not subject to redemption and shall also include any evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable for any such stock, either immediately or upon the arrival of a specified date or the happening of a specified event and any warrants or other rights to subscribe for or purchase any suc h stock..

(c)

Non-Cash Consideration. If any assets of the Corporation distributed to shareholders in connection with any Liquidation Event are other than cash, then the value of such assets shall be their fair market value as determined by the Board of Directors in good faith, except that any securities to be distributed to shareholders in connection with a Liquidation Event shall be valued as follows:

(i)

The method of valuation of securities not subject to investment representation letter or other similar restrictions on free marketability shall be as follows:

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(A)

unless otherwise specified in a definitive agreement for the acquisition of the Corporation, if the securities to be distributed are shares of Common Stock of the Corporation or other securities that are traded on a National Securities Exchange, the same shall be determined based on its then Market Value; and

(B)

if there is no public market as described in clause (A) above, then the value shall be the fair market value thereof, as determined in good faith by the Board of Directors,

(ii)

The method of valuation of securities subject to investment letter or other restrictions on free marketability shall be to make a thirty percent (30%) discount from the Market Value to reflect the approximate fair market value thereof as determined in good faith by the Board of Directors.

6.

Voting Rights.  Except as otherwise required by law or this Certificate, the holder of shares of Series F Preferred Stock shall not have the right to vote on matters that come before the shareholders.  

7.

Conversion Rights.  The holders of Series F Preferred Stock will have the right to convert their shares of Series F Preferred Stock into Common Stock upon the following terms and conditions:

(a)

Right to Convert.  Upon the earlier to occur of (i) Receipt by the Corporation of the Stockholder Approval (as defined in Section 1(B)(g) of the Subscription Agreement), or (ii) December 31, 2004, and subject to and in compliance with the provisions of this Section 7, any issued and outstanding shares of Series F Preferred Stock may thereafter, at the option of the Holder, be converted at any time or from time to time into fully paid and nonassessable shares of Common Stock at the Conversion Price in effect at the Conversion Date, determined as provided herein; provided, that a holder of Series F Preferred Stock may at any given time convert only up to that number of shares of Series F Preferred Stock so that, upon conversion, the aggregate beneficial ownership of the Corporation’s Common Stock (calculated pursuant to Rule 13d - -3 of the Securities Exchange Act of 1934, as amended) of such holder and all persons affiliated with such holder is not more than 9.99% of the Corporation’s Common Stock then outstanding.

(b)

   Cap Regulations.  If the Corporation is limited in the number of shares of Common Stock it may issue by virtue of (i) the number of authorized shares or (ii) the applicable rules and regulations of its National Securities Exchange as may be applicable (collectively, the “Cap Regulations”), (i) the Corporation will take all steps reasonably necessary to be in a position to issue shares of Common Stock on conversion of the Series F Preferred Stock and the exercise of the Warrants , as defined in the Subscription Agreement,without violating the Cap Regulations. If at any time after December 31, 2004, the then issuable number of shares of Common Stock upon conversion of all of the then outstanding Series F Preferred Stock and the exercise of the Warrants pursuant to the Cap Regulations (the “Cap Amount&# 148;) is less than the number of shares of Common Stock  which would then be otherwise issuable upon conversion of all of the then outstanding shares of Series F Preferred Stock and the exercise of the Warrants without regard to such Cap Regulations (a “Trading Market Trigger Event”), the Corporation shall immediately notify the holders of Series F Preferred Stock of such occurrence and shall take immediate action (including, if necessary, seeking the approval of its shareholders to authorize the listing or issuance of the full number of shares of Common Stock which would be issuable upon the conversion of the then outstanding shares of Series F Preferred Stock but for

7

the Cap Amount) to eliminate any prohibitions under applicable law or the rules or regulations of any stock exchange, interdealer quotation system or other self-regulatory organization with jurisdiction over the Corporation or any of its securities on the Corporation’s ability to list or issue shares of Common Stock in excess of the Cap Amount (“Trading Market Prohibitions”).  In this event, the holder of a share of Series F Preferred Stock which can not be converted as result of the Cap Regulations after all such Series F Preferred Stock which can be converted under the Cap Amount have been converted (each such share, an “Unconverted Share”) shall have the option, exercisable in such holder’s sole and absolute discretion, to elect either of the following remedies: (A) if permitted by the Cap Re gulations, require the Corporation to issue shares of Common Stock in accordance with such holder's notice of conversion at the Conversion Price; or

(B)

if permitted by the Cap Regulations, require the Corporation to redeem such Unconverted Share for an amount (the “Cap Limitation Redemption Amount"), payable in cash, equal to:

       V        x

M

     CP

where:

“V” means the liquidation preference of the Unconverted Share plus any accrued but unpaid dividends and any other obligations of the Corporation thereon;

“CP” means the conversion price in effect on the date of redemption (the “Initial Redemption Date”) specified in the notice from the holder of the Unconverted Share electing this remedy; and

“M” means the highest closing price per share of the Common Stock  during the period beginning on the Redemption Date and ending on the date of payment of the Cap Limitation Redemption Amount.

A holder of more than one Unconverted Share may elect one of the above remedies with respect to some of such Unconverted Shares and the other remedy with respect to other Unconverted Shares.   The Cap Limitation Redemption Amount payable under the provisions of this Section 7(b) shall be payable within thirty (30) days of the Initial Redemption Date.

(b)    Mechanics of Conversion.  Before any holder of Series F Preferred Stock shall be entitled to convert the same into shares of Common Stock, he shall surrender and deliver the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for the Common Stock, and shall give written notice to the Corporation at such office that he elects to convert the same and shall state therein the number of shares of Series F Preferred Stock being converted (the “Conversion Notice”).  Such Conversion Notice shall be delivered either simultaneous with, or not earlier than five (5) business days prior to, deliver of the certificate or certificates for conversion, as aforesaid.  Thereupon, the Corporation shall, at the option of the Holder, DWAC the shares to an account specified by the Holder, or issue and deliver within three (3) business days of delivery of such Conversion Notice and certificate for conversion at such office to such holder of Series F Preferred Stock a certificate or certificates for the number of shares of Common Stock to which he shall be entitled.  Each conversion of Series F Preferred Stock into shares of Common Stock shall be deemed to have been made immediately prior to the

8

close of business on the date of such Conversion Notice shall be given (each, a “Conversion Date”), and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such Conversion Date.

Notwithstanding the $3.00 per share Conversion Price, in the event that the Market Price of the Common Stock, as traded on a National Securities Exchange, shall be less than the $3.00 per share on the Conversion Date, then, and in such event, the Holder(s) of Series F Preferred Stock Purchaser shall be entitled to receive from the “Escrowed Shares” defined in the Subscription Agreement, that number of additional shares of Common Stock (the “Adjustment Shares”) as shall represent, together with the number of Series F Conversion Shares (inclusive of Series F Conversion Shares issuable upon exercise of the Exchange Option) issuable at the $3.00 per share Conversion Price, the aggregate number of shares of Common Stock that would have been issuable on the Conversion Date if the Series F Conversion Price had been based upon Fi fty Per Cent (50%) of the Market Price on the Conversion Date (the “Assumed Conversion Price”); provided, that in no event would such Assumed Conversion Price ever be less than $0.50 per share (the “Assumed Floor Price”).  A maximum of up to 9,083,333 Adjustment Shares of the Corporation have been issued and placed in escrow and are subject to potential delivery to the holders of Series F Preferred Stock upon conversion of all  54,500 shares of Series F Senior Preferred Stock.  Such number of Adjustment Shares shall be subject to further adjustment in the event that the Assumed Floor Price is lowered pursuant to this  Certificate of Designation. In the event that there are not a sufficient number of Escrowed Shares in escrow to issue all of the Adjustment Shares, then the Corporation shall have the obligation to issue to the Holder the difference between (i) the number of Adjustment Shares issuable to such Holder if there was a sufficient number of Escrowed Shares  and (ii) the number of Escrowed Shares issued to the Holder

For the avoidance of doubt, if for example, a holder of Series F Preferred Stock sends a Conversion Notice (a “Converting Holder”) to convert $1,000,000 of his or its Series F Senior Preferred Stock and that 50% of the Market Price on the Conversion Date shall be $1.00 per share, notwithstanding the $3.00 Series Conversion Price in this Certificate of Designations, in addition to 333,333 Series F Conversion Shares, such Converting Holder shall be entitled to receive out of the Escrowed Shares an additional 666,667 Additional Shares of Common Stock of the Corporation.  In no event, however, would the Converting Holder be entitled to receive more than 1,666,667 Additional Shares in such example, even if the Market Price then in effect was less than $0.50, unless the Assumed Floor Price is lowered pursuant to the anti-dilution provisions set forth be low in Section 7(d) below.  

(c)

Conversion Price.  The number of shares of Common Stock into which one share of Series F Preferred Stock shall be convertible shall be determined by dividing the $100.00 per share Series F Purchase Price by the $3.00 per share Conversion Price, as the same shall be adjusted pursuant to Section 7(d) below.

(d)

Adjustments to Conversion Price and Assumed Floor Price.  The Conversion Price and Assumed Floor Price shall be subject to adjustment as set forth below in this Section 7(d).   

(i)

Adjustment for Stock Splits and Combinations.  If the Corporation shall at any time, or from time to time after the date shares of the Series F Preferred Stock are first issued (the "Original Issue Date"), effect a subdivision of the outstanding Common Stock, the Conversion Price and Assumed Floor Price in effect immediately prior thereto shall be proportionately decreased, and conversely, if the Corporation shall at any time or from time to time after the Original Issue Date combine

9

the outstanding shares of Common Stock, the Conversion Price and Assumed Floor Price then in effect immediately before the combination shall be proportionately increased.  Any adjustment under this Section 7(d)(i) shall become effective at the close of business on the date the subdivision or combination becomes effective.

(ii)

Adjustment for Certain Dividends and Distributions.  In the event the Corporation at any time, or from time to time after the Original Issue Date, shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in additional shares of Common Stock, then and in each such event the Conversion Price and Assumed Floor Price then in effect shall be decreased as of the time of such issuance or, in the event such a record date shall have been fixed, as of the close of business on such record date, by multiplying the Conversion Price and Assumed Floor Price then in effect by a fraction:

(A)

the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and

(B)

the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution; provided, however, if such record date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Conversion Price and Assumed Floor Price shall be recomputed accordingly as of the close of business on such record date and thereafter, the Conversion Price and Assumed Floor Price shall be adjusted pursuant to this Section 7(d)(ii) as of the time of actual payment of such dividends or distributions.

(iii)

Adjustments for Other Dividends and Distributions.  In the event the Corporation at any time or from time to time after the Original Issue Date shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in securities of the Corporation other than shares of Common Stock, then and in each such event provision shall be made so that the holders of such Series F Preferred Stock shall receive upon conversion thereof in addition to the number of shares of Common Stock receivable thereupon, the amount of securities of the Corporation that they would have received had their Series F Preferred Stock been converted into Common Stock on the date of such event and had thereafter, during the period from the date of such event to and including the conversion da te, retained such securities receivable by them as aforesaid during such period giving application to all adjustments called for during such period under this Section 7(d)(iii) with respect to the rights of the holders of the Series F Preferred Stock.

(iv)

Adjustments to Assumed Floor Price for Certain Diluting Issues.

(A)

Special Definitions.  For purposes of this Section 7(d)(iv), the following definitions apply:

(1)

"Options" shall mean rights, options, or warrants to subscribe for, purchase or otherwise acquire either Common Stock or Convertible Securities (defined below).

(2)

"Convertible Securities" shall mean any evidences of indebtedness, shares (other than Common Stock and Series F Preferred Stock) or other securities convertible into or exchangeable for Common Stock.

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(3)

“Additional Shares of Common Stock" shall mean all shares of Common Stock issued (or, pursuant to Section 7(d)(iv)(C), deemed to be issued) by the Corporation after the Original Issue Date; provided, that “Additional Shares of Common Stock” shall not mean or include any shares of Common Stock issued or issuable:

(x)

upon conversion of shares of Series F Preferred Stock, including shares of Series F Preferred Stock received upon exercise of the Exchange Option;

(y)

to officers, directors or employees of, or consultants to, the Corporation pursuant to stock option or stock purchase plans or agreements on terms approved by the Board of Directors, but not exceeding, at any one time, more than five (5%) percent of the fully-diluted shares of Common Stock then issued and outstanding (net of any repurchases of such shares), subject to adjustment for all subdivisions and combinations;

(z)

as a dividend or distribution on Series F Preferred Stock;

(aa)

for which adjustment of the Conversion Price and Assumed Floor Price is made pursuant to Section 7(d); or

(bb)

any shares of Common Stock issued or issuable as “Adjustment Shares” within the meaning defined in the Subscription Agreement and in Section 7(b) above.  

(B)

No Adjustment of Assumed Floor Price.  Any provision herein to the contrary notwithstanding, no adjustment in the Assumed Floor Price shall be made in respect of the issuance of Additional Shares of Common Stock unless the consideration per share (determined pursuant to this Section 7(d) for an Additional Share of Common Stock issued or deemed to be issued by the Corporation is less than the Assumed Floor Price in effect on the date of, and immediately prior to such issue.

(C)

Deemed Issue of Additional Shares of Common Stock.  In the event the Corporation at any time or from time to time after the Original Issue Date shall issue any Options or Convertible Securities or shall fix a record date for the determination of holders of any class of securities then entitled to receive any such Options or Convertible Securities, then the maximum number of shares (as set forth in the instrument relating thereto without regard to any provisions contained therein designed to protect against dilution) of Common Stock issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shal l have been fixed, as of the close of business on such record date, provided further that in any such case in which Additional Shares of Common Stock are deemed to be issued:

(i)

No further adjustments in the Assumed Floor Price shall be made upon the subsequent issue of Convertible Securities or shares of Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities;

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(ii)

If such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase in the consideration payable to the Corporation, or decrease in the number of shares of Common Stock issuable, upon the exercise, conversion or exchange thereof, the Assumed Floor Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities (provided, however, that no such adjustment of the Assumed Floor Price shall effect Common Stock previously issued upon conversion of the Series F Preferred Stock );

(iii)

Upon the expiration of any such Options or rights, the termination of any such rights to convert or exchange, or the expiration of any rights related to such Convertible Securities, the Assumed Floor Price, to the extent in any way affected by or computed using such Options or Convertible Securities (unless such Options or Convertible Securities were merely deemed to be included in the numerator and denominator for purposes of determining the number of shares of Common Stock outstanding for purposes of this Section 7(d)) shall be recomputed to reflect the issuance of only the number of shares of Common Stock (and Convertible Securities that remain in effect) actually issued upon the exercise of such Options or rights related to such Convertible Securities.

(iv)

No readjustment pursuant to clause (ii) or (iii) above shall have the effect of increasing the Assumed Floor Price to an amount which exceeds the lower of (a) the Assumed Floor Price on the original adjustment date, or (b) the Assumed Floor Price that would have resulted from any issuance of Additional Shares of Common Stock between the original adjustment date and such readjustment date.

(D)

Adjustment of Assumed Floor Price Upon Issuance of Additional Shares of Common Stock.  In the event this Corporation, at any time after the Original Issue Date shall issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to Section 7(d)(iv)(C)) without consideration or for a consideration per share less than the Assumed Floor Price in effect on the date of and immediately prior to such issue, then and in such event, the Assumed Floor Price shall be reduced, concurrently with such issue, to a price (calculated to the nearest cent) determined by multiplying the Assumed Floor Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of shares of Common Stock which the aggregate consideration r eceived by the Corporation for the total number of additional shares of Common Stock so issued would purchase at the Assumed Floor Price in effect immediately prior to such issuance, and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of such Additional Shares of Common Stock so issued.  For the purpose of the above calculation, the number of shares of Common Stock outstanding immediately prior to such issue shall be calculated on a fully diluted basis, as if all shares of Series F Preferred Stock and all Convertible Securities had been fully converted into shares of Common Stock and any outstanding warrants, options or other rights for the purchase of shares of stock or convertible securities had been fully exercised (and the resulting securities fully converted into shares of Common Stock, if so convertible) as of such date.

(E)

Determination of Consideration.  For purposes of this Section 7(d)(iv), the consideration received by the Corporation for the issue of any Additional Shares of Common Stock shall be computed as follows:

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(i)

Cash and Property:  Such consideration shall:

1.

insofar as it consists of cash, be computed at the aggregate amount of cash received by the Corporation excluding amounts paid or payable for accrued interest or accrued dividends;

2.

insofar as it consists of property other than cash, be computed at the fair value thereof at the time of such issue, as determined in good faith by the Board of Directors; and

3.

in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (1) and (2) above, as determined in good faith by the Board of Directors.

(ii)

Options and Convertible Securities.  The consideration per share received by the Corporation for Additional Shares of Common Stock deemed to have been issued pursuant to Section 7(d)(iv), relating to Options and Convertible Securities shall be determined by dividing

1.

the total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein designed to protect against dilution) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities by

2.

the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein designed to protect against the dilution) issuable upon the exercise of such Options or conversion or exchange of such Convertible Securities.

(v)

Adjustment for Reclassification Exchange or Substitution.  If the Common Stock issuable upon the conversion of the Series F Preferred Stock shall be changed into the same or a different number of shares of any class or classes of stock, whether by capital reorganization, reclassification or otherwise (other than a subdivision or combination of shares or stock dividend provided for above, or a reorganization, merger, consolidation or sale of assets provided for elsewhere in this Section 7(d)), then and in each such event the holder of each share of Series F Preferred Stock shall have the right thereafter to convert such share into the kind and amount of shares of stock and other securities and property receivable upon such reorganization, reclassification or other change, by holders of the number of shares of Common Stock into which such shares of Series F Preferred Stock might have been converted immediately prior to such reorganization, reclassification, or change, all subject to further adjustment as provided herein.

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(vi)

Reorganization, Mergers, Consolidations or Sales of Assets.  If at any time or from time to time there shall be a capital reorganization of the Common Stock (other than a subdivision, combination, reclassification or exchange of shares provided for elsewhere in this Section 7(d)) or a merger or consolidation of the Corporation with or into another corporation, or the sale of all or substantially all of the Corporation’s properties and assets to any other person, then, as a part of such reorganization, merger, consolidation or sale, provision shall be made so that the holders of the Series F Preferred Stock shall thereafter be entitled to receive upon conversion of such Series F Preferred Stock, the number of shares of stock or other securities or property of the Corporation or of the successor corporation resulting from such merger o r consolidation or sale, to which a holder of Common Stock deliverable upon conversion would have been entitled on such capital reorganization, merger, consolidation or sale.  In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 7(d) with respect to the rights of the holders of the Series F Preferred Stock after the reorganization, merger, consolidation or sale to the end that the provisions of this Section 7(d) (including adjustment of the Floor Price or Assumed Floor Price then in effect and the number of shares purchasable upon conversion of the Series F Preferred Stock) shall be applicable after that event as nearly equivalent as may be practicable.

(vii)

Certificate of Adjustment.  In each case of an adjustment or readjustment of the Conversion Price or the securities issuable upon conversion of the Series F Preferred Stock, the Corporation shall compute such adjustment or readjustment in accordance herewith and the Corporation’s Chief Financial Officer shall prepare and sign a certificate showing such adjustment or readjustment, and shall mail such certificate by first class mail, postage prepaid, to each registered holder of the Series F Preferred Stock at the holder’s address as shown in the Corporation’s books. The certificate shall set forth such adjustment or readjustment, showing in detail the facts upon which such adjustment or readjustment is based.

(e)

Notices of Record Date.  In the event of (A) any taking by the Corporation of a record of the holders of any class or series of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution or (B) any reclassification or recapitalization of the capital stock of the Corporation, any merger or consolidation of the Corporation or any transfer of all or substantially all of the assets of the Corporation to any other corporation, entity or person, or any voluntary or involuntary dissolution, liquidation or winding up of the Corporation, the Corporation shall mail to each holder of Series F Preferred Stock at least 10 days prior to the record date specified therein, a notice specifying (1) the date on which any such record is to be taken for the purpose of such dividend or distributi on and a description of such dividend or distribution, (2) the date on which any such reorganization, reclassification, transfer, consolidation, merger, dissolution, liquidation or winding up is expected to become effective and (3) the time, if any is to be fixed, as to when the holders of record of Common Stock (or other securities) shall be entitled to exchange their shares, of Common Stock (or other securities) for securities or other property deliverable upon such reorganization, reclassification, transfer, consolidation, merger, dissolution, liquidation or winding up.

(f)

Fractional Shares.  No fractional shares of Common Stock shall be issued upon conversion of the Series F Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay cash equal to the product of such fraction multiplied by the fair market value of one share of the Corporation’s Common Stock on the date of conversion, as determined in good faith by the Board of Directors.

(g)

Reservation of Stock Issuable Upon Conversion.  The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series F Preferred Stock, such number of its

14

shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of Series F Preferred Stock, and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of Series F Preferred Stock, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose.

(h)

Notices. Any notice required by the provisions of this Section 7 to be given to the holders of shares of Series F Preferred Stock shall be deemed given (A) if deposited in the United States mail, postage prepaid, or (B) if given by any other reliable or generally accepted means (including by facsimile or by a nationally recognized overnight courier service), in each case addressed to each holder of record at his address (or facsimile number) appearing on the books of the Corporation.

(i)

Payment of Taxes.  The Corporation will pay all transfer taxes and other governmental charges that may be imposed in respect of the issue or delivery of shares of Common Stock upon conversion of shares of Series F Preferred Stock.

(j)

No Dilution or Impairment.  The Corporation shall not amend its Articles of Incorporation or participate in any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, for the purpose of avoiding or seeking to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, without the approval of Holders of a majority of the then outstanding Series F Preferred Stock.  

8.

Certain Negative Covenants.

Without the written consent or approval of Holders of a majority of the then outstanding Series F Preferred Stock, the Corporation shall not cause or permit its Internet Billing Company LLC (“iBill”) or Media Billing Company subsidiary or any newly formed subsidiary of iBill (with iBill, the “iBill Group”) to:

(a)

incur indebtedness for money borrowed, as the deferred purchase price for assets or securities, or as lease obligations that would be required to be capitalized on a balance sheet prepared in accordance with generally accepted accounting principles (collectively, “Indebtedness”), other than: (i) current outstanding Indebtedness; (ii) the maximum $10.0 million of Senior Debt expressly permitted pursuant to the Subscription Agreement and the related security agreement executed as of September 29, 2004 for the benefit of the Holders of Series F Preferred Stock; (iii) other unsecured Indebtedness or Indebtedness secured by Liens on assets of the iBill Group which Liens are expressly made subject and subordinated to the priority Liens granted to the Holder(s) of Series F Preferred Stock (collectively, “Permitted iBill Group Indebtedness”);

(b)

encumber the assets of the iBill Group with liens, mortgages or security interests (collectively, “Liens”), other than (i) Liens currently existing; (ii) Liens incurred in favor of the Holders of the Series F Preferred Stock and to the Holders of the 10% Notes; and (iii) Liens incurred or to be incurred in connection with Permitted iBill Group Indebtedness;

(c)

except for guarantees in favor of the holders of Permitted iBill Group Indebtedness, the holders of the 10% Notes and the Holders of the Series F Preferred Stock, guaranty Indebtedness of any other Person, including the Corporation or any other subsidiary or Affiliate of the Corporation; or

15

(d)

except for Liens granted in favor of the holders of Permitted iBill Group Indebtedness, the holders of the 10% Notes and the Holders of the Series F Preferred Stock, other than in connection with Indebtedness incurred by another member of the iBill Group, permit the assets of any member of the iBill Group to cross-collateralize or otherwise secure loans or indebtedness to any other Person.

9.

Redemption.

(a)

Mandatory Redemption.  Unless previously converted into shares of Common Stock as contemplated hereby, any shares of Series F Preferred Stock issued and outstanding as at September 15, 2009 (the “Mandatory Redemption Date”) shall, at the option of the then Holder(s) of Series F Preferred Stock, be subject to mandatory redemption and repurchase by the Corporation, at the Per Share Redemption Price.   The Per Share Redemption Price shall for a price per share of Series F Preferred Stock (the “Per Share Redemption Price”) as shall be equal to the sum of (a) the $100.00 Series F Stated Value per share, (b) all accrued and unpaid dividends, if any, then outstanding on such share of Series F Preferred Stock and (c) any other amounts owed by the Corporation to the Holder(s) with respect to the Series F Preferred Stock. Any Holder of Series F Preferred Stock seeking to redeem his or its Series F Preferred Stock shall, at any time on commencing September 16, 2009 and ending December 31, 2009 (the “Mandatory Redemption Period”), deliver a notice to the Corporation of such Holder’s intention to effect a mandatory redemption of his or its Series F Preferred Stock (the “Mandatory Redemption Notice”).  If any Holder of Series F Preferred Stock shall fail or refuse to deliver a Mandatory Redemption Notice by 5:00 P.M. (Eastern Standard Time) to the Corporation on December 31, 2009, all rights of mandatory redemption set forth in this Section 9 shall expire.  Payment of an amount (the “Redemption Amount”) equal to the product of the Per Share Redemption Price and the number of shares of Series F Preferred Stock to be redeemed, as set forth in a timely delivered Mandatory Redemption Notice, shall be paid by the Corporation in immediately available fun ds to the Holder or his designees on a date (the “Redemption Date”) which shall be not later than thirty (30) days following the date of the Redemption Notice.   Unless a Redemption Notice shall be timely delivered within the Mandatory Redemption Period, all rights of Holders of Series F Preferred Stock under this Section 9 shall expire.

(b)

Mandatory Redemption Event.  Upon the occurrence and continuance of one of the following redemption events (each, a “Mandatory Redemption Event”), beyond any applicable grace period, the Holder, at its sole and absolute discretion, may require a mandatory redemption by the Corporation of the Per Share Redemption Price payable within ten (10) Business Days after written notice from Holder to Corporation (each occurrence being a “Redemption Notice Period”), provided, however, that such Redemption Notice Period shall not apply to Sections (iv), (v) and (vi) below.  If, with respect to any Mandatory Redemption Event within the Redemption Notice Period the Corporation cures the Mandatory Redemption Event, the Mandatory Redemption Event will be deemed to no longer exist, and except for the paym ent of late fees by Corporation, any rights and remedies of Holder pertaining to such Mandatory Redemption Event will be of no further force or effect.

(i)

Failure to Pay Dividend.  The Corporation fails to pay when due any dividend in accordance herewith.

(ii)

Material Breach of Covenant.  The Corporation breaches any material covenant or other term or condition of this Certificate, the Subscription Agreement, or in any Transaction Document executed in connection with the Subscription Agreement, in any material respect and such

16

breach, if subject to cure, continues for a period of thirty (30) calendar days after notice of such breach is given by the Holder.

(iii)

Material Breach of Representations and Warranties.  Any material representation or warranty of the Corporation made herein, in the Subscription Agreement, or in any Transaction Document shall have been false or misleading when made and shall not be cured for a period of thirty (30) calendar days.

(iv)

Receiver or Trustee.  The Corporation or iBill shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business; or such a receiver or trustee shall otherwise be appointed.

(v)

Judgments.  Any money judgment, writ or similar final process shall be entered or filed against the Corporation or iBill or any of their property or other assets for more than $1,000,000, and shall remain unvacated, unbonded or unstayed for a period of ninety (90) days.

(vi)

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

(vii)

Failure to Cause an Effective Registration Statement.  The Corporation’s failure by June 30, 2005 to cause to exist a current effective Registration Statement (as defined in the Registration Rights Agreement) covering resale of the Conversion Shares and any Additional Shares issuable in connection with conversion of all issued and outstanding shares of Series F Preferred Stock (the “Required Effective Date”).  

(viii)

Guaranty; Security Agreement and Pledge Agreement.  (a) If either Media Billing Company, LLC (“Media Billing”) or iBill, as guarantors of payment of the Corporation’s obligations with respect to the Series F Preferred Stock (each, a “Guarantor”) shall repudiate, purport to revoke or fail to perform any of its obligations under any guaranty agreement made by such Guarantor in favor of the Holder or (b) if an Mandatory Redemption Event shall have occurred and be continuing under and as defined in any Security Agreement or Pledge Agreement (each as defined hereafter) which shall not have been cured during any applicable cure or grace period.  For purposes hereof, (i) “Security Agreement” means a security agreement providing for the Holder of the Series F Preferred Stock  with a subordinated lien on the assets of iBill, and (ii) “Pledge Document” means the Pledge Agreement dated as of the date hereof, pursuant to which the Corporation has pledged to all Holders of certain promissory notes and holders of shares of Series F Senior Preferred Stock all shares of common stock of General Media, Inc. owned by the Corporation.

(ix)

Acceleration of iBill Senior Debt.  If any holder of principal amount indebtedness of a Guarantor that ranks senior to the Series F Preferred Stock shall notify a Guarantor in writing demanding acceleration of such debt obligations or if any such holder commences an action to require payment of such obligation.

(x)

Failure to Obtain Stockholder Approval.  If by March 31, 2005, the Corporation shall fail to obtain Stockholder Approval as defined in Section 1(B)(g) of the Subscription Agreement.

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(xi)

Failure to Exercise Certain Contractual Rights.  If (A) Penthouse International, Inc. shall fail or refuse following December 31, 2004, or (B) GMI Investment Partners shall fail or refuse, following January 21, 2005, in either case, within ten (10) days of receipt of written notice from any Holder of Series F Senior Preferred Stock, to exercise the rights granted to such entities under Section 6 of a stock purchase agreement, dated September 23, 2004, among GMI Investment Partners, Penthouse International, Inc. and the Corporation.

(xii)

Failure to Receive the Adjustment Shares.  If the Holder fails receive the Adjustment Shares pursuant to Section 7 of this Certificate of Designations for any reason other than the failure of Holder’s counsel to deliver such Adjustment Shares.

(xiii)

Redemption of 10% Notes. If (i) the Holder fails to receive the notice of prepayment  in a timely manner as provided in the 10% Notes, as defined in the Subscription Agreement,   (ii) the Company redeems the holders of the 10% Notes prior to the redemption of the Holder’s shares of Series F Preferred Stock or any other action by the Company which is not in accordance with the terms and conditions of the 10% Notes or the Company’s covenants with respect to the 10% Notes in the Subscription Agreement.

(d)

Security for Payment.  The obligation of the Corporation to pay the Redemption Amount on the Redemption Date (the “Mandatory Redemption Obligation”) is secured under the terms of a Security Agreement and a Pledge Agreement constituting Exhibits to the Subscription Agreement.

10.

No Reissuance of Preferred Stock.  Any shares of Series F Preferred Stock acquired by the Corporation by reason of purchase, conversion or otherwise shall be canceled, retired and eliminated from the shares of Series F Preferred Stock that the Corporation shall be authorized to issue.  All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock subject to the conditions and restrictions on issuance set forth in the Articles of Incorporation or in any certificate of Determination creating a series of Preferred Stock or any similar stock or as otherwise required by law.

11.

Severability.  If any right, preference or limitation of the Series F Preferred Stock set forth herein is invalid, unlawful or incapable of being enforced by reason of any rule, law or public policy, all other rights, preferences and limitations set forth herein that can be given effect without the invalid, unlawful or unenforceable right, preference or limitation shall nevertheless remain in full force and effect, and no right, preference or limitation herein shall be deemed dependent upon any other such right, preference or limitation unless so expressed herein.

 Each of the undersigned declares under penalty of perjury that the matters set out in the foregoing Certificate are true of his own knowledge.  Executed in New York, New York on this __ day of September, 2004.  

________________________________

Name:

Gary Spaniak, Jr.

Title:

President

_______________________________

Name:

Charles Pearlman

Title:

Assistant Secretary

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EX-10.9

EXHIBIT 10.9

SECURITY AGREEMENT

THIS SECURITY AGREEMENT (this “Agreement”), dated as of September 29, 2004 (the “Effective Date”), is made by and among (A) CARE CONCEPTS I, INC., a Delaware corporation (“CCI”), MEDIA BILLING COMPANY LLC, a New York limited liability company “Media Billing”) and INTERNET BILLING COMPANY LLC, a Georgia limited liability company (“iBill”); (B) EZZAT JALLAD (the “Collateral Agent”), acting on behalf of the “Secured Parties” (hereinafter defined): and (C) the persons or entities who have executed this Agreement on the signature page hereof as “Secured Parties.   Each of Media Billing and iBill are hereinafter individually referred to as a “Debtor” and are hereinaft er sometimes collectively referred to as the “Debtors.”

WHEREAS, as at the Effective Date, pursuant to subscription agreements dated as of September 20, 2004 (the “Purchase Agreements”), CCI has sold and issued to other secured parties (the “Note Secured Parties”), who are not a party to this Agreement, up to $15,000,000 of CCI’s 10% convertible secured notes due September 15, 2004 (the “Notes”); and

WHEREAS, pursuant to the Purchase Agreements, CCI has sold and issued to certain of the Secured Parties (the “Series F Secured Parties”) up to $5,450,000 of CCI’s 10% convertible secured redeemable Series F preferred stock (the “Series F Senior Preferred Stock”), and

WHEREAS, to the extent not previously converted into shares of CCI common stock, $0.001 par value per share (“CCI Common Stock”), the obligation of CCI to (a) pay the accrued interest on the Notes and the then outstanding principal amount of Notes that may be due and payable on September 15, 2009 (the “Note Maturity Date”), and (b) redeem and repurchase any then outstanding shares of Series F Senior Preferred Stock by September 15, 2009 (the “Mandatory Redemption Date”) have been unconditionally and irrevocably guaranteed by the Debtors, pursuant to a Continuing Unconditional Guaranty, dated as of the Effective Date; and

WHEREAS, the obligation of the Secured Parties to purchase the Series F Senior Preferred Stock is conditioned upon, among other things, the execution and delivery of this Agreement by the Debtors to the Secured Parties.

NOW, THEREFORE, each of the Debtors and the Secured Parties agree as follows:

1.

Definitions and Incorporation by Reference.  Capitalized terms used but not defined in this Agreement shall have the meanings assigned to such terms in the Notes.  In addition, terms not defined in this Agreement or the Notes that are defined in the New York Uniform Commercial Code (the “Code”) shall have the same meaning in this Agreement as in the Code.  

1

2.

Grant and Priority of Security Interests to Secured Parties; Subordination to Senior Obligations and Senior Liens.  

(a)

The Debtors hereby jointly and severally grant to the Secured Parties a first lien and security interest (“Lien”) in and to the Collateral (as defined in Section 3 below) to secure the payment and performance of all of the “Obligations” (as defined in Section 4 below).  The priority of the Secured Parties Lien, as between the Note Secured Parties and the Series F Secured Parties, shall be as set forth in Section 2(b) below.   Except for the first priority liens and security interests (the “First Priority Lien”) on the assets and properties of the Debtors that may be hereafter granted by CCI or any of the Debtors to any person, firm, corporation or other entity (the “Senior Lender”), securing a maximum of $10,000,000 principal amount of indebtedness to be outstanding fro m time to time, together with all interest, fees and other reasonable costs associated therewith (collectively, “Senior Debt”), hereafter issued under any line of credit or similar loan or credit agreement or facility or any restatement, amendment or modification thereof (the “Senior Loan Agreement”), the Secured Parties Lien granted under this Agreement shall constitute a first priority lien and security interest senior to all other liens and security interests.  The Secured Parties agree to enter into a Subordination Agreement (as defined below) in form and content reasonably acceptable to Secured Parties, to subordinate the Secured Parties Lien to such Senior Lender up to and including the maximum amount of such Senior Debt. Notwithstanding anything contained herein to the contrary, until the Company has paid or disposed  (a final nonappealable disposition) of the claim by Intercept, Inc. as described in the schedules to the Subscription Agreement,(i) then the a mount of the Senior Debt shall not exceed $5,000,000 and (ii) the Company shall not incur any Senior Debt if the payment of any amounts in connection with such dispute with Intercept, Inc. or an award or judgment to Intercept, Inc. would cause or could reasonably be expected to cause an acceleration of the Senior Debt.

(b)

The Secured Parties Lien granted to the Series F Secured Parties shall constitute a first priority Lien and security interest securing CCI’s obligation to redeem and repurchase the Series F Senior Preferred Stock, and upon execution by the CCI or the Debtors of any Senior Loan Agreement with any holder(s) of Senior Debt, and execution of the Subordination Agreement (as defined below) shall be subordinated only to the First Priority Lien securing Senior Debt and those additional existing Liens, if any, on the Collateral that are listed on Schedule A annexed hereto (the “Senior Liens”).  The Note Secured Parties shall receive a Lien on the assets of Debtors that shall constitute a third priority lien and security interest (the “Third Priority Lien”) securing CCI’s obligations under the Notes, and s hall be subordinated only to the Senior Liens and the Lien held by the Series F Secured Parties.  Except for the Senior Liens, the Debtors shall not grant any liens or security interests in and to the Collateral that shall be senior to, be parri passu with or have a priority over the Lien granted to the Series F Secured Parties hereunder and the Third Priority Lien granted to the Note Secured Parties under a separate security agreement.

(c)

  The Secured Parties do hereby covenant and agree, , that (i) the Obligations shall be, and the same hereby are, expressly made subject and subordinated in all respects, in accordance with the provisioins of the Subordination Agreement referred to below, to the prior

2

payment in full of all indebtedness and related obligations that may be now or hereafter granted by the Debtors and/or CCI to any one or more Senior Lender, and (ii) the Secured Parties Lien is hereby subject and subordinated in all respects, to Senior Liens now or hereafter granted by the Debtors and/or CCI.  Each of the Secured Parties do irrevocably and unconditionally consent and agree to execute and deliver to any one or more Senior Lender any intercreditor agreement, subordination agreement or similar agreement (collectively, “Subordination Agreements”), in form and content reasonably acceptable to Secured Parties, as may, from time to time be requested by any one or more Senior Lender to confirm or evidence the subordination provisions herein set forth; such consent and executed Subordination Agreement not be unreasonably withheld or delayed .

3.

Collateral.  The collateral in which the Secured Parties is granted a security interest by this Agreement (collectively, the “Collateral”) is any and all of the assets of Debtors, including all of the following property of the Debtors, whether now owned or existing or hereafter acquired or arising and wherever located:

(a)

All accounts, accounts receivable, contracts, notes, bills, acceptances, choses in action, chattel paper, instruments, documents and other forms of obligations at any time owing to the Debtors arising out of goods sold or leased or for services rendered by the Debtors, the proceeds thereof and all of the Debtors’ rights with respect to any goods represented thereby, whether or not delivered, goods returned by customers and all rights as an unpaid vendor or lienor, including rights of stoppage in transit and of recovering possession by proceedings including replevin and reclamation, together with all customer lists, books and records, ledger and account cards, computer tapes, software, disks, printouts and records, whether now in existence or hereafter created, relating thereto (collectively referred to hereinafter as “Accounts”);

(b)

All goods of the Debtors, including without limitation, all machinery, equipment, motor vehicles, parts, supplies, apparatus, appliances, tools, patterns, molds, dies, blueprints, fittings, furniture, furnishings, fixtures and articles of tangible personal property of every description now or hereafter owned by the Debtors or in which the Debtors may have or may hereafter acquire any interest, at any location;

(c)

All inventory of the Debtors wherever located in the United States of America and any state, district, territory or other political subdivision thereof, including without limitation, all goods manufactured or acquired for sale or lease, and any piece goods, raw materials, work in process and finished merchandise, findings or component materials, and all supplies, goods, incidentals, office supplies, packaging materials and any and all items used or consumed in the operation of the business of the Debtors or which may contribute to the finished product or to the sale, promotion and shipment thereof, in which the Debtors now or at any time hereafter may have an interest, whether or not the same is in transit or in the constructive, actual or exclusive occupancy or possession of the Debtors or is held by the Debtors or by others for the Debtors are accou nt (collectively referred to hereinafter as “Inventory”);

3

(d)

All general intangibles of the Debtors, now existing or hereafter owned or acquired or arising or in which the Debtors now has or hereafter acquires any rights, business records, inventions, designs, patents, patent applications, trademarks, trademark registrations and applications therefor, goodwill, trade names, trade secrets, trade processes, copyrights, copyright registrations and applications therefor, licenses, permits, franchises, customer lists, computer programs, software, software source codes, software object codes, all claims under guaranties, tax refund claims, rights and claims against carriers and shippers, leases, claims under insurance policies, all rights to indemnification and all other intangible personal property and intellectual property of every kind and nature;

(e)

All rights now or hereafter arising to the Debtors under contracts, leases, agreements or other instruments to perform services, to hold and use land and facilities, and to enforce all rights thereunder;

(f)

All books and records relating to any of the Collateral (including without limitation, customer data, credit files, computer programs, printouts, and other computer materials and records of the Debtors pertaining to any of the foregoing);

(g)

all of the Debtors interest in any company, limited liability company, partnership or entity, whether now held or hereafter acquired, and any capital stock, equity units or membership interests in any other corporation , partnership, limited liability company or other business entity;

(h)

All accessions to, substitutions for and all replacements, products and proceeds of the foregoing, including without limitation proceeds of insurance policies insuring the Collateral.

Notwithstanding anything to the contrary, expressed or implied, set forth above, CCI shall have the absolute right at any time, or from time to time, to substitute as Collateral for all of the foregoing assets and properties of Debtors, an irrevocable stand – by bank letter of credit drawable upon presentation of a site draft (collectively, “Cash Equivalent Collateral”), in aggregate face amount equal to not less than (a) $5,450,000, less (b) the Stated Value of all Series F Preferred Stock converted into Common Stock immediately prior to the date such Cash Equivalent Collateral shall be posted with the Secured Parties or the Collateral Agent.  The form and content of any such Cash Equivalent Collateral and issuing bank shall be acceptable to Secured Parties; such acceptance not to be unreasonably withheld or delayed.  Upon delivery and acceptance of such Cash Equivalent Collateral, the Secured Parties shall cause to be delivered to CCI such UCC-3 Termination Statements as may be required to terminate all Liens and other security interests on all Collateral, excluding the Cash Equivalent Collateral substituted therefore.

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4.

Obligations.  The security interest granted pursuant to this Agreement secures the payment and performance of all of the obligations owed to the Secured Parties by Debtors and CCI under any of the Subscription Agreement and the documents referred to below in this Section 4, including the following indebtedness, liabilities and obligations (collectively, the “Obligations”):

(a)

all of the obligation of CCI to the Series F Secured Parties (i) to pay the periodic dividends due with respect to the Series F Senior Preferred Stock and (ii) to redeem and repurchase any outstanding shares of Series F Senior Preferred Stock in accordance with the terms of the Certificate of Designation of Preferences and Rights of Series F Convertible Redeemable Secured Preferred Stock.;

(b)

all of the obligations of the Debtors under the Continuing Unconditional Guaranty;

(c)

all of the obligations and liabilities of CCI under the Pledge Agreement; and

(d)

all liabilities and obligations of CCI and the Debtors under this Agreement.

5.

Representations, Warranties and covenants.  The Debtors hereby represents, warrants and covenants as follows:

5.1

Power and Authority.  The Debtors have full power and authority to enter into this Agreement, grant to the Secured Parties a valid security interest in the Collateral and perform all of its obligations under this Agreement, no further action by the Board of Directors or the shareholders or members of the Debtors being necessary.  The execution, delivery and performance by the Debtors of this Agreement do not conflict with, or constitute a breach or default under, any judgment, indenture, loan agreement contract or other agreement or instrument to which the Debtors are a party or by which the Debtors or any of its property is bound.

5.2

Governmental Authorization.  No authorization, consent or approval or other action by, and no notice to or other filing with, any governmental authority or regulatory body is required for the grant by the Debtors of the security interest granted pursuant to this Agreement, the due execution and delivery by the Debtors of this Agreement or the performance by the Debtors of any of its obligations under this Agreement.

5.3

Title to Collateral.  Subject to the security interest granted by this Agreement and the Senior Liens, the Debtors are the owner and holder of all the Collateral, free and clear of any security interest, lien, charge, encumbrance or other adverse claim, and the Debtors will defend all of the Collateral (whether now owned or hereafter acquired) against all claims and demands of all persons at any time claiming the same or any interest therein, and will take all steps to maintain the Secured Parties Lien as a valid and fully perfected lien first in priority to all other Liens, in each case subject only to the Senior Liens.  Except for the Senior Liens securing Senior Debt, in the event and to the extent that either of the Debtors shall grant any additional liens or security interests on their assets, such additional liens shall be expressly subject and subordinated to the Secured Parties Lien granted hereunder.

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5.4

Place of Business and Name.  The Debtors’ chief place of business is at the address set forth next to such Debtors’ signature below.  No Debtor shall have changed its name, except as indicated below the Debtors’ signature below.  No Debtor will change its name or the location of its chief place of business, without the prior written consent of the Secured Parties, which shall not be unreasonably withheld.

5.5

Financing Statements; Related Instruments.  No financing statement covering any of the Collateral or any proceeds thereof is currently on file in any public office in any jurisdiction, other than financing statements covering the Senior Liens.  At the request of the Secured Parties, the Debtors will execute and deliver to the Secured Parties one or more financing statements in form and substance satisfactory to the Secured Parties and will pay the cost of filing the same in all public offices where filing is deemed by the Secured Parties to be necessary or desirable.  The Debtors promise to pay to the Secured Parties all fees and expenses incurred in filing financing statements and any continuation statements or amendments thereto, which fees and expenses shall become a part of the Obligations secured by this Agreement.  A ca rbon, photographic or other reproduction of this Agreement or any financing statement covering the Collateral or any part thereof shall be sufficient as a financing statement.

5.6

Transfers of Collateral.  Neither the Debtors nor its agents, servants or employees will sell, assign or offer to sell or assign or otherwise transfer the Collateral, either in whole or in part, or any interest therein without the prior written consent of the Collateral Agent, other than as contemplated by the Notes or the Series F Senior Preferred Stock.  

5.7

Compliance with Laws.  The Debtor agrees to comply in all material respects with all statutes, laws, ordinances, rules and regulations applicable to it and to the conduct of its businesses.

5.8

Taxes.  The Debtors will pay promptly when due all taxes and assessments upon or with respect to the Collateral, the Obligations, this Agreement or any other instrument executed pursuant to this Agreement.  The Debtors hereby authorize the Collateral Agent to discharge upon five (5) days prior written notice any taxes, assessments, liens, security interests or other encumbrances at any time levied or placed on the Collateral, to pay for any insurance on the Collateral required to be maintained by the Debtors hereunder, and pay for, make or provide for any maintenance, repair or preservation of the Collateral as herein required; provided, however, that the Collateral Agent shall be under no obligation to do so.

5.9

Schedules, Inspection of Books and Records.  The Debtors will furnish to the Secured Parties from time to time (i) statements and schedules further identifying and describing the Collateral and detailing sales or other transfers of the Collateral and payments received or accounts owing with respect to the Collateral for the periods specified by the Secured Parties, and (ii) such other reports in connection with the Collateral as the Secured Parties may reasonably request, all in reasonable detail.  The Debtors will permit the Secured Parties or their duly authorized

6

representatives upon reasonable prior notice to examine its books and records during business hours and shall furnish to the Secured Parties such financial statements and other financial data as the Secured Parties may reasonably request from time to time.

5.10

Senior Lender.  The Senior Lender may not be an Affiliate of the Debtors. For purposes of this Agreement, Affiliate means, as to any individual or entity (collectively, a”Person”), any other Person which, directly or indirectly, alone or together with other Persons, controls or is controlled by or is under common control with such Person. “Control” “controlled by” and “under common control with”, as and with respect to any Person, means the power, directly or indirectly, to direct or cause the direction of the management and policies of such Person.

5.11

Accounts.  With respect to the Accounts:

(a)

The Debtors’ records concerning all Accounts are and will be kept solely in the State of New York and at the Debtors’ chief place of business specified on the signature page below.  The Debtors will not remove any of such records from such address without the prior written consent of  the Collateral Agent, which shall not be unreasonably withheld.  Without in any way excusing a breach by the Debtors of the foregoing sentence, if for any reason any of such records concerning the Accounts shall at any time be moved to another location or locations, the Debtors will promptly notify the Collateral Agent of any such change in the location of such records and will execute and deliver such financing statements and do such other acts and things as the Collateral Agent may request pursuant to Section 10 hereof.

(b)

Each item of Accounts is, or at such time as it becomes part of the Collateral will be, a bona fide, valid and legally enforceable obligation of the account debtor or other obligor in respect thereof, subject to no defense known to the Debtors, set-off or counterclaim against the Debtors and in connection with which there is no default with respect to any payment or performance on the part of the Debtors or any other party.

(c)

The Debtors will at all times keep accurate and complete records of payment and performance by the Debtors, the respective account debtors and all other parties obligated on the Accounts.

(d)

The Debtors will immediately inform the Collateral Agent of any default in payment or performance by the Debtors or any account debtor or other parties obligated on, and of claims made by others in regard to, the Accounts and shall not change the terms thereof (or terminate or permit the impairment of any of its rights thereunder) without the prior written consent of the Collateral Agent, which shall not be unreasonably withheld.  The Debtors will make all payments and perform all undertakings on the Debtors’ part to be paid or performed with respect to Accounts when due.  The Debtors hereby authorizes the Secured Parties to cure any default in payment or performance by the Debtors with respect to the Accounts; provided, however, that the Secured Parties shall be under no obligation to do so, and provided further, that the Secured Parties’

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curing of any default shall not constitute a waiver by the Secured Parties Agent of any default under this Agreement.  The Debtors agrees to reimburse the Secured Parties on demand with interest at the Maximum Rate for any payment made or any expense incurred by the Secured Parties pursuant to the foregoing authorization, and any payment made or expense incurred by the Secured Parties pursuant to the foregoing authorization shall be part of the Obligations secured hereunder.

(e)

If there shall occur and be continuing an event of default in respect of the Obligations, the Debtors shall, upon request of the Collateral Agent, in the name of the Secured Parties or the Debtors, at any time notify the account debtor or other obligor on any item of the Accounts, of the Secured Parties’ security interest.  The Collateral Agent may, in its own name or the name of the Secured Parties or  Debtors, at any time after the occurrence and during the continuation of an Event of Default (as defined below), demand, sue for, collect or receive any money or property payable or receivable on any Accounts and settle, release, compromise, adjust, sue upon, foreclose, realize upon or otherwise enforce any item of Accounts as the Collateral Agent may determine, and for the purpose of realizing the Secured Parties’ rights herein, th e Collateral Agent may receive, open and dispose of mail addressed to the Debtors and endorse notes, checks, drafts, money orders, documents of title or other forms of payment on behalf of and in the name of the Debtors.  The Debtors agrees to reimburse the Collateral Agent on demand with interest at the Default Rate for any payment made or any expense incurred by the Collateral Agent pursuant to the foregoing authorization, and any payment made or expense incurred by the Collateral Agent pursuant to the foregoing authorization shall be part of the obligations secured hereunder.

6.

Events of Default.  The Debtors shall be in default under this Agreement upon the occurrence of any of the following (each, an "Event of Default")

(a)

CCI shall fail or refuse (i) to pay the periodic interest due and principal amount of the Notes on their September 15, 2009 Maturity Date, and (ii) to redeem and repurchase for cash by September 15, 2009 (the “Mandatory Redemption Date”) and to pay periodic dividends with respect to any then outstanding shares of Series F Senior Preferred Stock (each a “Payment Obligation” and collectively, the “Payment Obligations”);

(b)

an “Event of Default” under the Notes or under the Certificate of Designation for the Series F Senior Preferred Stock (other than a default in payment of a  Payment Obligation) shall occur and be shall be continuing and (if capable of cure) remain uncured for more than thirty (30) days following receipt by CCI of notice of such event of default;

(c)

Debtors shall repudiate any of their Obligations under the Continuing Unconditional Guaranty; or

(d)

CCI shall breach any of its obligations and liabilities under the Pledge Agreement, which breach shall occur and be shall be continuing and (if capable of cure) remain uncured for more than thirty (30) days following receipt by CCI of notice.

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7.

Rights and Remedies Upon Default.  Upon the occurrence and during the continuation of any Event of Default, the Collateral Agent, acting on behalf of the Secured Parties may accelerate all the obligations and shall have, in addition to all other rights and remedies provided herein or by applicable law, all of the rights and remedies of a secured party under the Code, including, but not limited to, the right to take possession of the Collateral, and the right, without further notice to the Debtors, to take the Collateral in satisfaction in full of all of the Obligations.  The Debtors agrees that, to the extent notice of sale shall be required, a minimum of 15 days notice to the Debtors of the time and place of any public sale or the time after which any private sale or any other intended disposition is to be made shall constitute reason able notification of such sale or disposition.  The Collateral Agent on behalf of the Secured Parties shall also have the right to apply for and have a receiver appointed by a court of competent jurisdiction in any action taken to enforce the Secured Parties’ rights and remedies hereunder, to manage, protect and preserve the Collateral or continue the operation of the business of the Debtors, and the Collateral Agent shall be entitled to collect all revenues and profits thereof and apply the same to the payment of all expenses and other charges of such receivership, including the compensation of the receiver, and to the payment of the obligations until a sale or other disposition of such Collateral shall be finally made and consummated.  In the event of any disposition or collection of or any other realization upon all or any part of the Collateral, the Collateral Agent shall apply the proceeds of such disposition, collection or other realization as follows:

(a)

First, to the payment of the reasonable costs and expenses of the Secured Parties in exercising or enforcing their rights hereunder, including, but not limited to, costs and expenses incurred in retaking, holding or preparing the Collateral for sale, lease or other disposition, and in collecting or attempting to collect any of the Collateral, and to the payment of all amounts payable to the Secured Parties pursuant to Section 7 hereof;

(b)

Second, to the payment of the Obligations; and

(c)

Third, after payment in full of all of the obligations, the surplus, if any, shall be paid to the Debtors or to whomsoever may be lawfully entitled to receive such surplus.

8.

Indemnity and Expenses.  The Debtors agrees to indemnify the Collateral Agent and the Secured Parties from and against any and all claims, losses and liabilities arising out of or resulting from this Agreement (including, without limitation, enforcement of this Agreement or any actions taken by the Collateral Agent and the Secured Parties pursuant to Section 9 of this Agreement) except claims, losses or liabilities resulting from the Secured Parties’ own negligence or willful misconduct.  The Debtors will, on demand, pay to the Collateral Agent or the Secured Parties the amount of any and all reasonable costs and expenses, including, but not limited, to the reasonable fees and disbursements of their counsel and of any experts or agents, which the Secured Parties may incur in connection with (i) the exercise or enforcement by the S ecured Parties of any of their rights or remedies hereunder, or (ii) any failure by the Debtors to perform any of the Obligations.

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9.

Further Assurances and Power of Attorney.  The Debtors will execute and deliver to the Collateral Agent, at its request, at any time and from time to time, such financing statements and other instruments (and pay the cost of filing or recording the same in all public offices deemed necessary or desirable by the Collateral Agent) and do such other acts and things as the Collateral Agent may reasonably deem necessary or desirable in order to establish and maintain a valid security interest in the Collateral in favor of the Secured Parties (free and clear of all other security interests, liens, charges, encumbrances and other claims, whether voluntarily or involuntarily created, except as permitted by Section 6.3 hereof) or in order to facilitate the collection of the Collateral.  To effectuate the rights and remedies of the Secured Parti es hereunder, effective upon the occurrence of an Event of Default, the Debtors hereby irrevocably appoints the Collateral Agent, on behalf of the  Secured Parties, as the  attorney-in-fact for the Debtors in the name of the Debtors or the Secured Parties, with full power of substitution, to sign, execute and deliver any and all instruments and documents and do any and all acts and things to the same extent as the Debtors could do, to sell, assign and transfer any Collateral, including, but not limited to, taking all action necessary or the preservation of any rights pertaining to the Collateral beyond reasonable care in the custody or preservation thereof.  The Collateral Agent and Secured Parties may exercise their rights and remedies with respect to the Collateral without resorting or regard to other security or sources for payment.  All rights and remedies of the Secured Parties hereunder or with respect to the obligations or the Collateral shall be cumulative and may be exercised sin gularly or concurrently.

10.

Assignment.  If at any time or times by sale, assignment, negotiation, pledge or otherwise, the Secured Parties transfer any of the Obligations, such transfer shall carry with it the Secured Parties’ rights and remedies under this Agreement with respect to the obligations transferred, and the transferee shall become vested with such rights and remedies whether or not they are specifically referred to in the transfer.  If and to such extent such Secured Parties retains any other Obligations, the Secured Parties shall continue to have the rights and remedies herein set forth with respect thereto.

11.

Notices.  Unless otherwise provided, any notice required or permitted under this Agreement shall be given in writing and shall be deemed effectively given (a) upon personal delivery to the party to be notified, (b) when sent by confirmed facsimile if sent during normal business hours of the recipient, if not, then on the next business day,or (c) five days after deposit with the United States Post Office, by registered or certified mail, or two days after deposit with a nationally recognized express courier, postage prepaid and sent (i) if to a Secured Parties, at the address of the Secured Parties set forth in the Debtors’ records, or (ii) if to the Debtors, at the Debtors’ principal place of business or at such other address as the Debtors shall have furnished to the Secured Parties in writing.

12.

Governing Law.  This Agreement shall be governed by and construed under the laws of the State of New York.  Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited or invalid under applicable law, such provision shall be ineffective

10

only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.  This Agreement shall be given a fair and reasonable construction in accordance with the intention of the parties.   

13.

Action by Collateral Agent.  

(a)

All actions, rights and remedies of Secured Parties hereunder may be exercised by the Collateral Agent, acting on behalf of all Secured Parties, and such action and exercise of rights and remedies shall be effective as if exercised pursuant to the written consent or direction of those Secured Parties holding not less than 75% in dollar amount of the outstanding Payment Obligations under the Series F Senior Preferred Stock (the “Required Direction”).  Absent such Required Direction, the Collateral Agent shall take no action and exercise no rights or remedies of the Secured Parties under this Agreement, other than in respect of executing any Subordination Agreements contemplated by Section 2(b) above.  Similarly, consent to any request by the Debtors (whether to modification of this Agreement, or any agreement executed in conn ection herewith) shall require consent of only the Secured Parties holding not less than 75% in dollar amount of the outstanding Payment Obligations under the Notes and Series F Senior Preferred Stock, and such consent shall be effective as if exercised by pursuant to the unanimous consent of all Secured Parties.  

(b)

Any Secured Parties which elects not to participate with such Secured Parties in exercising rights or remedies hereunder, or in providing consent to a request of the Debtors, hereby irrevocably appoints the Collateral Agent as its attorney-in-fact in its name, with full power of substitution, to sign, execute and deliver any and all instruments and documents and do any and all acts and things to the same extent as such Secured Parties could do, to sell, assign and transfer any Collateral, including, but not limited to, taking all action necessary or the preservation of any rights pertaining to the Collateral beyond reasonable care in the custody or preservation thereof.  

(c)

Each Secured Party does hereby agree to indemnify, defend and hold harmless, the Collateral Agent from and against any cost, expense, liability or other obligation in connection with the performance of its duties hereunder as Collateral Agent.  Each Secured Party acknowledges and agrees that, except for execution and delivery of one or more Subordination Agreements, the Collateral Agent shall not be required to take any action or exercise any of the rights and remedies of Secured Parties under this Agreement or the Pledge Agreement, unless and until the Collateral Agent shall have received a written Required Direction in form and content acceptable to the Collateral Agent.  Similarly, CCI and the Debtors acknowledge that the Collateral Agent shall be responsible solely to the Secured Parties under this Agreement and the Pledge Agreement and shall have no fiduciary, legal or other responsibility hereunder to CCI, the Debtors or any of their Affiliates.

(d)

 The Collateral Agent shall have the right to resign as the collateral agent upon ten (10) days written notice to the Debtors and the Secured Parties. Secured Parties holding not less than 75% in dollar amount of the outstanding Payment Obligations under the Series F Senior

11

Preferred Stock may remove or replace the Collateral Agent. In the case of the Collateral Agent=s resignation or removal pursuant to the foregoing each of the Secured Parties shall have pari passu rights hereunder based upon the number of shares of Series F Preferred Stock then held by each of the Secured Parties or their transferees. Upon receipt by the Debtors of written notice of the appointment of a successor Collateral Agent, such collateral agent shall have all of the rights of the Collateral Agent hereunder.

14.

Miscellaneous.  Neither this Agreement nor any provision hereof may be changed, waived discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought.  This Agreement shall be binding upon the Debtors and its successors and assigns, and all persons claiming under or through the Debtors or any such successor or assign, and shall inure to the benefit of and be enforceable by the Secured Parties and their successors and assigns.

[the balance of this page is intentionally left blank]

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IN WITNESS WHEREOF, the parties have executed this Security Agreement as of the day and year first above written.

“CCI”

CARE CONCEPTS I, INC.

By:

___________________________

Name:

Gary Spaniak, Jr.

Title:

President

“DEBTORS”

MEDIA BILLING COMPANY, LLC,

a New York limited liability company

By:

___________________________

Name:

Charles L. Samel,

Title:

Executive Vice President

INTERNET BILLING COMPANY, LLC

a Georgia limited liability company

By:

___________________________

Name:

Charles L. Samel

Title:

Executive Vice President

“COLLATERAL AGENT”

______________________

Ezzat Jallad

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“SECURED PARTIES”

VESTCAP INTERNATIONAL

MANAGEMENT

LIMITED

By:

___________________________

Name:

Title:

CASTLERIGG MASTER

INVESTMENTS LIMITED

By:

___________________________

Name:

Title:

14

EX-10.10

EXHIBIT 10.10

PLEDGE AGREEMENT

THIS PLEDGE AGREEMENT (as the same may be amended, restated, modified and otherwise supplemented from time to time, this “Pledge Agreement”), dated as of September 28, 2004 is made by CARE CONCEPTS I, INC., a Delaware corporation, MEDIA BILLING COMPANY LLC, a New York limited liability company “Media Billing”) (“CCI” and “Media Billing Company”  are sometimes collectively referred to as the  “Pledgors”), in favor of NEWMAN & NEWMAN, P.C. (the “Collateral Agent”), on behalf of CASTLERIGG MASTER INVESTMENTS LIMITED (“Castlerigg”) and VESTCAP INTERNATIONAL MANAGEMENT LIMITED (“Vestcap”, Castlerigg and Vestcap are collectively referred to as the “Pledgees.&# 148;).

W I T N E S S E T H :

WHEREAS, pursuant to the terms of certain Subscription Agreements dated as of the date hereof (the “Purchase Agreements”) by and between CCI and the various holders of (a) CCI 10% Convertible Secured Notes due September 15, 2009 in the aggregate principal amount of $9,525,000, as at the date hereof (such $9,525,000 of notes, together with up to $4,475,000 of additional notes that may hereafter be issued by CCI , collectively referred to as the “Notes”) and (b) shares of CCI Series F senior secured redeemable preferred stock (the “Senior Preferred Stock” and together with the Notes, the “Senior Securities”), (i)  CCI has agreed to grant to the holders of the Senior Securities certain collateral consisting of 483,815 shares of common stock of General Media, I nc., a Delaware corporation (“General Media”), representing all of the shares of General Media, Inc. owned by  CCI and approximately 48% of the outstanding capital stock of General Media, Inc., as at the date hereof, and (ii) Media Billing has agreed to grant to the holders of the Senior Securities certain collateral consisting of 100% of the members interest of Internet Billing Company LLC, a Georgia limited liability company (“iBill”), that is currently owned by Penthouse International, Inc. and is to be owned by CCI on or before January 21, 2005 (collectively, the “Pledged Securities”);

WHEREAS, Pledgors  are the legal and beneficial owner of the Pledged Securities (as hereinafter defined); and

WHEREAS, the holders of the Senior Securities (the “Pledgees”) have appointed the Collateral Agent to act on their behalf pursuant to this Agreement, including the enforcement of all of their rights and remedies hereunder; and

WHEREAS, in order to induce Pledgees to enter into the Purchase Agreements, Pledgors have agreed to secure  their obligations under the Purchase Agreements and the Transaction Documents, as defined therein, by, among other things, pledging the Pledged Securities to the holders of Senior Securities in the percentage amounts hereinafter described;

NOW, THEREFORE, in consideration of the promises and to induce Pledgees to enter into the Purchase Agreements, the Pledgors hereby agree with Pledgees as follows:

1.

Defined Terms.

(a)

Unless otherwise defined herein, terms defined in the Purchase Agreements and used herein shall have the meanings given to them in the Purchase Agreements.

(b)

The following terms shall have the following meanings:

“Code”: the Uniform Commercial Code from time to time in effect in the State of New York.

“Collateral”: the Pledgees pro rata percentage interests (described in Section 2 below) in (i) the Pledged Securities, and (ii) all Proceeds of any and all of the foregoing.

“Event of Default”: as defined in Section 9.

“Issuer”: as defined in Section 5(a).

 “Permitted Transfer”: any sale, assignment, transfer, exchange or other disposition of any Pledged Securities by any Pledgor or any permitted successor or assign, whether in exchange for money or other property, gift, bequest or otherwise, permitted under the terms of this Pledge Agreement.

“Person” means an individual, a partnership, a corporation (including a business trust), a joint stock company, a trust, an unincorporated association, a joint venture, a limited liability company, a limited liability partnership or other entity, or a government or any agency, instrumentality or political subdivision thereof.

“Pledged Securities”: all of the members interest of iBill and all of the shares of capital stock of General Media owned by Media Billing and CCI respectively including, without limitation, all of Pledgors’ rights to payments, profits, proceeds, properties, assets, equity and distributions in respect of such Pledged Securities, if any, together with all certificates, options or rights of any nature whatsoever that may be issued or granted by the Issuer to Pledgors in respect of the Pledged Securities while this Pledge Agreement is in effect.

“Proceeds”: all “proceeds” as such term is defined in Section 9-102(a)(64) of the Code and, in any event, shall include, without limitation, all dividends or other income from the Pledged Securities, collections thereon or distributions with respect thereto.

 “Secured Obligations”: the collective reference to all obligations of CCI and its subsidiaries under the Transaction Documents.

“Transfer”: as defined in Section 6(b).

2.

Pledge; Grant of Security Interest. The Pledgors hereby transfer and assign (a) 41.29% of the Pledged Securities, represented by 41.29% of the members interest of iBill and 199,788 shares of the common stock of General Media to Castlerigg and Vestcap (in such proportions as between them as they shall instruct Pledgors in writing), and (b) 58.71% of the Pledged Securities to the holders of the Notes pursuant to a separate pledge agreement executed as of the date hereof, in accordance herewith; provided, however, if and to the extent that  CCI

2

shall, on or before October 31, 2004, issue, for cash, up to $4,475,000 of additional Notes in excess of the initial $9,525,000 Notes currently outstanding, such percentages of the Pledged Securities shall be appropriately adjusted based upon the total cash investments by holders of Notes and Senior Preferred Stock. Pledgors hereby grant to each Pledgee a first priority security interest in their portion of the Collateral of the Pledgors, as collateral security for the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of the Secured Obligations.

3.

Delivery to Collateral Agent.

(a)

Pledgors shall deliver to the Collateral Agent on behalf of the Pledgees (i) simultaneously with or prior to the execution and delivery of this Pledge Agreement, all certificates representing the Collateral and (ii) promptly upon the receipt thereof by or on behalf of Pledgors, all other certificates and instruments constituting Collateral of the Pledgors. Prior to such delivery, all such certificates and instruments constituting Collateral of the Pledgors shall be held in trust by the Pledgors for the benefit of Pledgees pursuant hereto. All such certificates shall be delivered in suitable form for transfer by delivery or shall be accompanied by duly executed instruments of transfer or assignment in blank.

(b)

If any amount payable under or in connection with any of the Collateral shall be or become evidenced by any promissory note, other Instrument or Chattel Paper, such note, Instrument or Chattel Paper shall be immediately delivered to Collateral Agent, duly endorsed in a manner satisfactory to Pledgees, to be held as Collateral pursuant to this Pledge Agreement.

(c)

The Pledgors authorize Collateral Agent to, and Collateral Agent shall file such UCC or other applicable financing statements as may be reasonably requested by Collateral Agent in order to perfect and protect the security interest created hereby in the Collateral.

(d)

The Pledgors agree to execute and deliver to Collateral Agent such other consents, acknowledgments, agreements, instruments and documentation as Collateral Agent may reasonably request from time to time to effectuate the conveyance, transfer, assignment and grant to Collateral Agent, of all of the Pledgees’ right, title and interest in and to the Collateral and any distributions with respect thereto.

4.

Transfer Powers. If at any time any equity interest in any Issuer is evidenced by a certificate or other written instrument or document (a “certificate”), the Pledgors shall immediately deliver such certificate to Collateral Agent and, concurrently with the delivery of each certificate by the Pledgors, the Pledgors shall deliver an undated transfer power covering such certificate, duly executed in blank with signature guaranteed, in the form attached hereto in Schedule 2 or such other form as reasonably acceptable to Collateral Agent to be held as part of the Collateral pursuant hereto.

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5.

Representations and Warranties. The Pledgors represent and warrants that:

(a)

As of the Closing Date, the Pledged Securities described in the WHEREAS clauses of this Agreement accurately reflects the ownership interest of  CCI in General Media, Inc. (the “Issuer”) and that the percentage of Pledge securities pledged to each of the Pledgees and the holders of the Notes equals their pro rata share of the dollar amount of the outstanding stated value of the Senior Preferred Stock and the principal amount of the Notes as of the date hereof.

(b)

The Pledgors  are the record and beneficial owner of, and have good and marketable title to, the Pledged Securities of the Pledgors, free of any and all liens or options in favor of, or claims of, any other Person, except for the security interest created by this Pledge Agreement.

(c)

To the best of the Pledgors’ knowledge, the exercise by Pledgees of their rights and remedies hereunder will not violate any law or governmental regulation or any material contractual restriction, in each case, binding on or affecting the Pledgors or any of m their property.

(d)

No authorization, approval or action by, and no notice of filing with any Governmental Authority or with any Issuer is required either (i) for the pledge made by the Pledgors or for the granting of the security interest by the Pledgors pursuant to this Pledge Agreement or (ii) to the best of the Pledgors’ knowledge, for the exercise by Pledgees of their rights and remedies hereunder (except as may be required by the Uniform Commercial Code in the applicable jurisdiction or laws affecting the offering and sale of securities).

(e)

Upon filing of UCC financing statements describing the Collateral, the security interest created by this Pledge Agreement will constitute a valid, perfected first-priority security interest in the Pledged Securities of the Pledgors and in the other Collateral arising therefrom, enforceable in accordance with its terms against all creditors of the Pledgors, each Issuer or any Person purporting to purchase any Pledged Securities of the Pledgors (or any portion thereof) therefrom or otherwise claiming by, through or under the Pledgors or such Issuer, except as affected by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors’ rights generally, and general equitable principles (whether considered in a proceeding in equity or at law).

6.

Covenants. The Pledgors covenant and agree with Collateral Agent, on behalf of all Pledgees, that, from and after the date of this Pledge Agreement until this Pledge Agreement is terminated and the security interests created hereby are released, that:

(a)

If the Pledgors shall, as a result of its ownership of the Pledged Securities of Pledgors, become entitled to receive or shall receive any certificate (including, without limitation, any certificate representing a dividend or a distribution in connection with any reclassification, increase or reduction of capital or any certificate issued in connection with any reorganization), option or rights, whether in addition to, in substitution of, as a conversion of, or in exchange for any shares of the Pledged Securities of the Pledgors, or otherwise in respect thereof, the Pledgors shall accept the same as the agent of Pledgees, hold the same in trust for Pledgees and deliver the same forthwith to Pledgees in the exact form received, duly endorsed by the Pledgor to Pledgees, if required, together with an undated transfer power covering such

4

certificate duly executed in blank by the Pledgors and with signature guaranteed, to be held by Pledgees, subject to the terms hereof, as additional collateral security for the Secured Obligations. Except in connection with any distributions that are not prohibited under Section 7 hereof, any sums paid upon or in respect of the Pledged Securities of Pledgors as a dividend or other distribution or upon the liquidation or dissolution of any Issuer shall be paid over to Pledgees to be held by it hereunder as additional collateral security for the Secured Obligations, and in case any distribution of capital shall be made on or in respect of the Pledged Securities of  Pledgors or any property shall be distributed upon or with respect to the Pledged Securities of the Pledgors pursuant to any recapitalization, reclassification or reorganization of any Issuer , the property so distributed shall be delivered to Pledgees to be held by it hereunder as additional collateral security for the Secured Obligations. If any sums of money or property so paid or distributed in respect of the Pledged Securities of  the Pledgors shall be received by  Pledgors, the Pledgors shall, until such money or property is paid or delivered to Pledgees, hold such money or property in trust for Pledgees, segregated from other funds of Pledgor, as additional collateral security for the Secured Obligations.

(b)

Without the prior written consent of the Collateral Agent, the Pledgors will not (1) except for any Permitted Transfer, sell, assign, transfer, exchange, or otherwise dispose of, or grant any option with respect to, the Collateral or any portion thereof, (2) create, incur or permit to exist any security interest, encumbrance, lien or option in favor of, or any claim of any Person with respect to, any of the Collateral, or any interest therein, except for the security interests created by this Pledge Agreement or (3) enter into any agreement or undertaking restricting the right or ability of any Issuer to sell, assign or transfer any of the Collateral. Notwithstanding the foregoing, any Permitted Transfer shall be further conditioned on the following conditions being satisfied:

(i)

No Event of Default shall exist prior to, and taking into account, the proposed Transfer, including without limitation pursuant to the Note, or immediately thereafter;

(ii)

The transferee with respect to such Transfer shall have executed and delivered a pledge agreement in substance and form similar in all material respects to this Pledge Agreement and shall have agreed to be bound thereby;

(iii)

Collateral Agent shall have received an opinion of counsel of the transferee, in form and substance reasonably satisfactory to the Collateral Agent and the Pledgees; and

(iv)

The transferee of the Transfer shall have delivered to the Collateral Agent an undated transfer power covering any certificate or certificates to be issued to such transferee, such undated transfer power to be duly executed in blank with signature guaranteed.

Upon satisfaction by the Pledgors and the transferee of the conditions set forth herein, in such case, the applicable Issuer shall cause the certificate (if any) evidencing the Pledged Securities of such transferring Pledgors that is subject to the Permitted Transfer to be cancelled and shall immediately thereafter cause a new certificate evidencing the equity interests subject to the Permitted Transfer to be issued in the name of the transferee and shall deliver such certificate to Pledgees to be held pursuant to and under the terms of this Pledge Agreement.

5

(c)

The Pledgors shall warrant and defend title to and ownership of the Collateral at its own expense against the claims and demands of all other parties claiming an interest therein, shall maintain the security interest created by this Pledge Agreement as a first priority security interest and shall defend such security interest against claims and demands of all Persons whomsoever. At any time and from time to time, upon the written request of the Collateral Agent, the Pledgors will promptly and duly execute and deliver such further instruments and documents and take such further actions at its expense as Collateral Agent may reasonably request for the purposes of obtaining or preserving the full benefits of this Pledge Agreement and of the rights and powers herein granted. If any amount payable under or in connection with any of the Collat eral shall be or become evidenced by any promissory note, other instrument or chattel paper, such note, instrument or chattel paper shall be immediately delivered to the Collateral Agent, duly endorsed in a manner satisfactory to Collateral Agent, to be held as Collateral pursuant to this Pledge Agreement.

(d)

From time to time, the Pledgors will execute and deliver to the Collateral Agent such additional documents and will provide such additional information and perform such additional acts as the Collateral Agent may require to carry out the terms of this Pledge Agreement.

7.

Dividends; Voting Rights. Unless an Event of Default shall have occurred and be continuing, the Pledgors shall be permitted, subject to Section 6(a), to receive all distributions and to exercise all voting and company rights with respect to the Pledged Securities; provided, however, that no vote shall be cast or company right exercised or other action taken which, in Collateral Agent’ reasonable judgment, would impair the Collateral or which would be inconsistent with or result in any violation of any provision of this Pledge Agreement.

8.

Rights of Pledgees.

(a)

All money Proceeds received by Collateral Agent on behalf of the Pledgees hereunder shall be applied as provided in Section 10(a).

(b)

If an Event of Default shall occur and be continuing, at the Collateral Agent’s option, (1) Pledgees shall have the right to receive any and all cash dividends or other distributions paid in respect of the Pledged Securities and make application thereof to the Secured Obligations in such order as Pledgees may determine, and (2) the Pledged Securities shall be registered in the name of Pledgees or its nominee, and Collateral Agent on behalf of the Pledgees may thereafter exercise (A) all voting and other rights pertaining to the Pledged Securities at any meeting of owners of the applicable Issuer or otherwise and (B) any and all rights of conversion, exchange, subscription and any other rights, privileges or options pertaining to such Pledged Securities as if it were the absolute owner thereof (including, without limitation, the right to exchange at its discretion any and all of the Pledged Securities upon the merger, consolidation, reorganization, recapitalization or other fundamental change in the company structure of any Issuer, or upon the exercise by Pledgors or Pledgees of any right, privilege or option pertaining to such Pledged Securities, and in connection therewith, the right to deposit and deliver any and all of the Pledged Securities with any committee, depository, transfer agent, registrar or other designated agency upon such terms and conditions as the Collateral Agent may determine), all without liability except to account for property actually received by it, but the Collateral Agent shall have no duty to  Pledgorsto exercise any such right, privilege or option and shall not be responsible for any failure to do so or delay in so doing.

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9.

Events of Default.

The occurrence and continuation of each of the following shall constitute an event of default (“Event of Default”) hereunder:

(a)

An Event of Default shall occur and be continuing under the Note, the Purchase Agreement or the Certificate of Designation of Preferences and Rights of Series F Convertible Preferred Stock.;

(b)

The Pledgors shall fail or refuse to pay dividends, when due, or if requested by the holder of such Senior Securities, shall fail to redeem any then outstanding shares of Senior Preferred Stock on September 15, 2009 (the “Mandatory Redemption Date”); or

(c)

The Pledgors shall fail to perform or observe any covenant or condition to be performed or observed hereunder within thirty (30) days of the occurrence thereof.

(d)

any representation or  warranty made by Pledgors herein or in the Transaction Documents, as defined in the Purchase Agreement, shall prove to be false or misleading in any material respect.

Upon the occurrence of an Event of Default, the Collateral Agent shall promptly and in any event within three (3) business days provide written notice to the Pledgees of such Event of Default.

10.

Remedies. In exercising any of their rights and remedies under this Agreement, the Collateral Agent shall act on behalf of the Pledgees only on an equal and equitable pro-rata basis, as among all Pledgees, as their respective individual outstanding balances then owed to them in respect of the outstanding principal amount of all Notes and outstanding stated amount of all Senior Preferred Stock may appear and shall bear to each other.

(a)

If an Event of Default shall have occurred and be continuing, at any time at their election, the Collateral Agent shall apply all or any part of Proceeds held by Collateral Agent in payment of the Secured Obligations

(b)

If an Event of Default shall have occurred and be continuing, Collateral Agent shall exercise, in addition to all other rights and remedies granted in this Pledge Agreement and in any other instrument or agreement securing, evidencing or relating to the Secured Obligations, all rights and remedies of a secured party under the Code. Without limiting the generality of the foregoing, Collateral Agent, without resort to any other collateral or remedy under the Note or demand of performance or other demand, presentment, protest, advertisement or notice of any kind (except any notice required by law referred to below) to or upon Pledgors or any other Person (including without limitation the Issuer) (all and each of which demands, defenses, advertisements and notices are hereby waived), may in such circumstances forthwith collect, receive, appr opriate and realize upon the Collateral, or any part thereof, and/or may forthwith sell, assign, give an option or options to purchase or otherwise dispose of and deliver the Collateral or any part thereof (or contract to do any of the foregoing), in one or more parcels at public or private sale or sales, in the over-the-counter market, at any exchange, broker’s board or office of Collateral Agent or elsewhere upon such terms and conditions as it may deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk. Collateral Agent shall apply any Proceeds from time to

7

time held by it and the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale, after deducting all reasonable costs and expenses of every kind incurred in respect thereof or incidental to the care or safekeeping of any of the Collateral or in any way relating to the Collateral or its rights hereunder, including, without limitation, actual and reasonable attorneys’ fees and disbursements of counsel to Collateral Agent, to the payment in whole or in part of the Secured Obligations, in such order as Collateral Agent may elect, and only after such application and after the payment by Collateral Agent of any other amount required by any provision of law, including, without limitation, Section 9-615 of the Code, need Collateral Agent account for the surplus, if any, to CCI. To the extent permitted by applicable law, the Pledgors waive all claims, damages and demands it may acquire against Collateral Agent arising out of the exercise by  them of any rights hereunder except for any claim, damage or demand arising from the gross negligence or willful misconduct of Collateral Agent. If any notice of a proposed sale or other disposition of Collateral shall be required by law, such notice shall be deemed reasonable and proper if given at least 10 days before such sale or other disposition. Pledgors shall, jointly and severally, remain liable for any deficiency if the proceeds of any sale or other disposition of Collateral are insufficient to pay the Secured Obligations and the reasonable fees and disbursements of any attorneys employed by Collateral Agent to collect such deficiency.

11.

Irrevocable Authorization and Instruction to Issuer. The Pledgors hereby authorize and instruct the Issuer to comply with any instruction received by the Pledgors (or any of them) from Collateral Agent in writing that (a) states that an Event of Default has occurred and (b) is otherwise in accordance with the terms of this Pledge Agreement, without any other or further instructions from the Pledgors (or any of them), and Pledgors agree that the Issuer shall be fully protected in so complying.

12.

Appointment as Attorney-in-Fact.

(a)

The Pledgors hereby irrevocably constitutes and appoints Collateral Agent and any officer or agent of Collateral Agent, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of the Pledgors and in the name of the Pledgors and in Collateral Agent’s own name, from time to time in Collateral Agent’s discretion, for the purpose of carrying out the terms of this Pledge Agreement, to take any and all appropriate action and to execute any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Pledge Agreement, including, without limitation, any financing statements, endorsement, assignment or other instruments of transfer.

(b)

The Pledgors hereby ratifiy all that said attorneys shall lawfully do or cause to be done pursuant to the power of attorney granted in Section 12(a). All powers, authorizations and agencies contained in this Pledge Agreement are coupled with an interest and are irrevocable until this Pledge Agreement is terminated and the security interests created hereby are released.

13.

Duty of and Actions by Collateral Agent.

(a)

Collateral Agent’s sole duty with respect to the custody, safekeeping and physical preservation of the Collateral in its possession, under Section 9-207 of the Code or

8

otherwise, shall be to deal with it in the same manner as Collateral Agent deals with similar securities and property for their own account. Notwithstanding the foregoing, Collateral Agent hereby acknowledges and agrees that it has a fiduciary duty to the Pledgees to act with the utmost integrity, fidelity and good faith and has an obligation to provide undivided service and loyalty to the Pledgees.

(b)

All actions, rights and remedies of Pledgees hereunder may be exercised by the Collateral Agent, acting on behalf of all Pledgees, and such action and exercise of rights and remedies shall be effective as if exercised pursuant to the written consent or direction of Castlerigg (the “Required Direction”). Absent such Required Direction, the Collateral Agent shall take no action and exercise no rights or remedies of the Pledgees under this Agreement. Similarly, consent to any request by the Pledgors (whether to modification of this Agreement, or any agreement executed in connection herewith) shall require consent of only Castlerigg, and such consent shall be effective as if exercised by pursuant to the unanimous consent of all Pledgees.

(c)

Any Pledgee who decides not to participate with such Pledgees in exercising rights or remedies hereunder, or in providing consent to a request of the Pledgor, hereby irrevocably appoints the Collateral Agent as its attorney-in-fact in its name, with full power of substitution, to sign, execute and deliver any and all instruments and documents and do any and all acts and things to the same extent as such Pledgee could do, to sell, assign and transfer any Collateral, including, but not limited to, taking all action necessary or the preservation of any rights pertaining to the Collateral beyond reasonable care in the custody or preservation thereof.

(d)

Each Pledgee does hereby agree to indemnify, defend and hold harmless, the Collateral Agent from and against any cost, expense, liability or other obligation in connection with the performance of its duties hereunder as Collateral Agent. Each Pledgee acknowledges and agrees that the Collateral Agent shall not be required to take any action or exercise any of the rights and remedies of Pledgees under this Agreement or the Pledge Agreement, unless and until the Collateral Agent shall have received a written Required Direction in form and content acceptable to the Collateral Agent. Similarly, the Pledgors acknowledge that the Collateral Agent shall be responsible solely to the Pledgees under this Agreement and the Pledge Agreement and shall have no fiduciary, legal or other responsibility hereunder to the Pledgors or any of  their Affi liates. Notwithstanding the foregoing, Collateral Agent hereby acknowledges and agrees that it has a fiduciary duty to the Pledgees to act with the utmost integrity, fidelity and good faith and has an obligation to provide undivided services and loyalty to the Pledgees.

14.

No Assumption. Notwithstanding any of the foregoing, whether or not an Event of Default shall have occurred hereunder and whether or not Collateral Agent elects to foreclose on the security interest in the Collateral as set forth herein, neither the execution of this Pledge Agreement, receipt by Collateral Agent of any of Pledgors’ rights, title and interests in and to any distributions, now or hereafter due to any Pledgor from any Issuer, nor Collateral Agent’s foreclosure of the security interest in the Collateral, shall in any way be deemed to obligate Collateral Agent to assume any of any Pledgors’ obligations, duties, expenses or liabilities under the any agreement as presently existing or as hereafter amended, or under any and all other agreements now existing or hereafter drafted or executed in respect of the Issuer (collectively,

9

the “Issuer Obligations”), unless Pledgees otherwise expressly agrees to assume any or all of the Issuer Obligations in writing. In the event of foreclosure by Collateral Agent, the Pledgors shall remain bound and obligated to perform the Issuer Obligations and Collateral Agent shall not be deemed to have assumed any of such Issuer Obligations except as provided in the preceding sentence.

15.

Execution of Financing Statements. The Pledgors authorize Collateral Agent to file financing statements with respect to the Collateral without the signature of the Pledgor in such form and in such filing offices as Collateral Agent reasonably determines appropriate to perfect the security interests of Collateral Agent under this Pledge Agreement. A carbon, photographic or other reproduction of this Pledge Agreement shall be sufficient as a financing statement for filing in any jurisdiction.

16.

Indemnification. The Pledgors hereby agree to indemnify, defend and hold Collateral Agent, and its respective successors and assigns harmless from and against any and all damages, losses, claims, costs or expenses (including reasonable attorneys’ fees) and any other liabilities whatsoever that Collateral Agent or its respective successors or assigns may incur by reason of this Pledge Agreement or by reason of any assignment of a Pledgors’ right, title and interest in and to any or all of the Collateral.

17.

Further Documentation. The Pledgors hereby agree to execute all such instruments as may be required to perfect the security interest created hereby and pay the cost of filing or recording the same in the public records specified by Collateral Agent.

18.

Consent and Waiver. The Pledgors agree that, without the prior written consent of Collateral Agent, Pledgors shall not take any action that would operate to dilute the interest of the Pledgors or Pledgees in any Issuer other than as permitted by this Pledge Agreement. The Pledgors further agree that, upon the written request of Collateral Agent after an Event of Default has occurred and is continuing, the Pledgors may be removed as a member or stockholder of any Issuer and replaced with the assignee designated in such request.

19.

Notices. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed facsimile if sent during normal business hours of the recipient, if not, then on the next business day, (c) three (3) business days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one day after deposit with a receipt. All communications shall be sent to the Pledgors at the applicable address as set forth on the signature page hereof, to Collateral Agent at the address set forth on the signature page hereto, to the Pledgees at the addresses set forth in the Purchase Agreements or at such other address as a Pledgor or Collateral Agent may designate by written notice to the other partie s hereto given in accordance herewith.

20.

Severability. Any provision of this Pledge Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

10

21.

Amendments in Writing; No Waiver; Cumulative Remedies.

(a)

None of the terms or provisions of this Pledge Agreement may be waived, amended, restated, supplemented or otherwise modified except by a written instrument executed by the Pledgor and Collateral Agent, provided that any provision of this Pledge Agreement may be waived by Collateral Agent, with the prior consent of all Pledgees, in a letter or agreement executed by Collateral Agent or by facsimile transmission from Collateral Agent.

(b)

Collateral Agent shall not by any act (except by a written instrument pursuant to Section 21(a) hereof), delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any Event of Default or in any breach of any of the terms and conditions hereof. No failure to exercise, nor any delay in exercising on the part of Collateral Agent, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by Collateral Agent of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which Collateral Agent would otherwise have on any futur e occasion.

(c)

The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law.

22.

Section Headings. The section headings used in this Pledge Agreement are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof.

23.

Successors and Assigns. This Pledge Agreement shall be binding upon the executors, heirs, administrators, successors and assigns of the Pledgors and shall inure to the benefit of Collateral Agent and its successors and assigns, provided that no Pledgor may assign its rights or obligations under this Pledge Agreement, except as otherwise expressly provided in Section 6(b) hereof, without the prior written consent of Collateral Agent and any such purported assignment shall be null and void.

24.

Governing Law. THIS PLEDGE AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO CONFLICTS OF LAWS RULES.

25.

Submission to Jurisdiction. The parties hereto hereby agree that any suit, action or other legal proceeding by or against any party hereto (or any party’s affiliates or designees) with respect to or arising out of this Pledge Agreement shall be brought exclusively in the United States District Court for the Southern District of New York or the courts of the State of New York, in the City of New York, as the party instituting such suit, action or other legal proceeding may elect, except that actions to enforce an interim or final arbitration award may be filed in any court having jurisdiction. By execution and delivery of this Pledge Agreement each party hereto (for itself, its affiliates and its designees) irrevocably and unconditionally consents and submits to the exclusive jurisdiction of such courts and the appellate courts therefrom. The parties hereto

11

hereby irrevocably consent to the service of process in any such action or proceeding by the mailing of copies thereof by registered or certified mail, first class postage prepaid to the addresses set forth in Section 19.

26.

Venue. The parties hereto hereby irrevocably waive any objection which they may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Pledge Agreement brought in the courts referred to in Section 25 above and hereby further irrevocably waive and agree not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum.

[the balance of this page intentionally left blank]

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IN WITNESS WHEREOF, the undersigned has caused this Pledge Agreement to be duly executed and delivered as of the date first above written.

CARE CONCEPTS I, INC.

By:________________________________

Name: Gary Spaniak, Jr.

Title:  President

Address: 

2200 S.W. 10^th Avenue

Deerfield Beach, Florida 33442

MEDIA BILLING COMPANY LLC

By:________________________________

Address:

COLLATERAL AGENT:

NEWMAN & NEWMAN, P.C.

__________________________________

By: Jay M. Newman, President

Address: 

110 East 59^th Street

New York, NY 10022

Telephone: (212) 371-9400

Facsimile: (212) 371-8022

ACCEPTED AND AGREED TO:

PENTHOUSE INTERNATIONAL, INC.

By:_______________________________________

Charles L. Samel, Executive Vice President

13

PLEDGEES:

CASTLERIGG MASTER INVESTMENTS LIMITED

By: ____________________________________________

VESTCAP INTERNATIONAL MANAGEMENT LIMITED

By:____________________________________________

14

EX-10.11

EXHIBIT 10.11

This Stock Purchase Agreement (“Agreement”) is made and entered into as of the 23rd day of September 2004, by and among GMI Investment Partners, a New York general partnership (the “Seller”); Care Concepts I, Inc., a Delaware corporation (the “Company”); and Penthouse International, Inc., a Florida corporation (“PSHL”). The Seller, the Company and PSHL are hereinafter collectively referred to as the “Parties.”

W I T N E S S E T H:

WHEREAS, the partners of the Seller consist of The Molina Vector Investment Trust, a California trust (“MVIT”), Faries Capital LLC, a California limited liability company (“Faries”), Granite Management, LLC, a Florida limited liability company (“Granite”) and Summit Trading Limited, a Bahamian holding Corporation (“Summit”); MVIT, Faries, Granite and Summit being are hereinafter individually referred to as a "Partner" and collectively as the "Partners"); and

WHEREAS, on September 23, 2004, the Seller entered into a settlement and securities purchase agreement, by and among PET Capital Partners LLC, Absolute Return Europe Fund, Susan Devine, NAFT Ventures I LLC, Marc H. Bell, Daniel Staton (collectively, the “Bell/Staton Group”), PSHL, MVIT, the Seller and Milberg Weiss Bershad & Schulman LLP, as Escrow Agent (the “Settlement and Stock Purchase Agreement”); and

WHEREAS, pursuant to the Settlement and Stock Purchase Agreement, it is contemplated that upon the Effective Date of the Plan, or as soon thereafter as is practicable, the Seller shall purchase from the Bell/Staton Group, for a cash purchase price of not less than $10,000,000 and not more than $20,000,000, an aggregate of from 241,908 shares to up to 483,815 shares of Class B Non-Voting Common Stock (the “Subject Shares”) of Reorganized General Media, at a purchase price of $41.338 per share (the “Purchase Price”); and

WHEREAS, the Company is willing to purchase from the Seller, and the Seller is willing to sell to the Company, all of the Subject Shares, all upon the terms and subject to the conditions hereinafter set forth;

NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the parties hereto intending to be bound hereby, it is mutually agreed as follows:

1.

Definitions.

Unless otherwise separately defined herein, all capitalized terms used herein shall have the same meaning as are defined in either (i) the Settlement and Stock Purchase Agreement, or (ii) a subscription agreement dated as of September 28, 2004, among the Company and certain purchasers (including certain of the Partners or their affiliates) of up to $15,000,000 of 10% secured notes of the Company due September 15, 2009 (the “Note Subscription Agreement”).

1

2.

Sale and Purchase.

The Company hereby agrees, effective as of that date that shall be one (1) Business Day immediately prior to the Effective Date of the Plan (the “Closing Date”), to purchase from the Seller and the Seller does hereby agree to sell and transfer to the Company, simultaneous with the Effective Date of the Plan, all and not less than all of the Subject Shares of Reorganized General Media.

On the Closing Date or as soon thereafter as is practicable, against delivery by the Company to the Seller of the stock certificates and instruments evidencing the “Company Securities” hereinafter defined, the Seller shall deliver to the Company one or more stock certificates evidencing the Subject Shares, duly endorsed by the record owner for transfer or accompanied by stock powers in form and content satisfactory to transfer legal and beneficial title and ownership to the Subject Shares to the Company.

3.

Consideration and Delivery of Company Securities.

(a)

In full consideration for the Subject Shares, the Company hereby agrees to issue to the Seller on the Closing Date: (a) up to $15.0 million of Notes, (b) 35,000 shares of the Company’s Series E Preferred Stock, (c) up to 34,500 shares of the Company’s Series F Preferred Stock, (d) 45,000 shares of the Company’s Series G Preferred Stock, (e) Warrants entitling the holders of the Notes to purchase up to 5,000,000 shares of Company Common Stock (the “Note Warrants”), (f) the Monarch Group Warrants, and (g) the Castlerigg Warrants (all of the foregoing defined as the “Company Securities”).

(b)

On or before the Closing Date, the Seller shall have the right to request that the Company issue directly to certain persons or entities designated by the Seller as “Seller’s Designees” certain of the Notes, all of the shares of Series E Preferred Stock, all of the shares of Series F Preferred Stock, the Monarch Group Warrants and the Castlerigg Warrants (collectively, the “Designated Securities”). On the Closing Date, in accordance with the Subscription Agreement and related subscription agreements issued in connection with the Series E Preferred Stock and Series F Preferred Stock (collectively, the “Subscription Agreements”), the Company shall deliver or caused to be delivered:

(i)

$1,525,000 of Notes and 508,333 Note Warrants to Elliott Bruce Weiner, as Trustee of the H. Robert Weiner Trust of 1983, as to an undivided 50% interest, and Stanley B. Weiner, as Trustee of the Blanche Weiner Trust of 1982, as to an undivided 50% interest,

(ii)

all of remaining Notes and up to 4,491,667 Note Warrants to other Seller’s Designees indicated in writing by the Seller,

(iii)

all of the shares of Series E Preferred Stock and the Monarch Group Warrants to Mercator Advisory Group LLC and Monarch Pointe Fund, Ltd.,

2

(iv)

all of the shares of Series F Preferred Stock and the Castlerigg Warrants to Castlerigg Master Investments Limited and Vestcap International Management Limited;

(v)

29,929 shares of Series G Preferred Stock shall be deemed Escrowed Shares and delivered to Messrs. Gersten Savage Wolf Kaplowitz & Marcus LLP, McLaughlin & Stern, LLP and Dayani Partners LLP (collectively, the “Series G Preferred Stock Joint Escrow Agents”), to be held pursuant to an escrow agreement among the Seller, the Company and the Series G Preferred Stock Escrow Agents, dated as of September 27, 2004 (the “Series G Preferred Stock Escrow Agreement”); and

(vi)

the 15,071 share balance of the Series G Preferred Stock to the Seller.

4.

Escrowed Shares and Adjustment Shares.

(a)

Pending pending conversion into Company Common Stock of all of the outstanding Notes, shares of Series E Preferred Stock and Series F Preferred Stock, the Series G Preferred Stock Joint Escrow Agents shall be retained in escrow, as Escrowed Shares, (i) the initial escrowed shares of Series G Preferred Stock referred to in Section 3(b)(v) above, and (ii) upon automatic conversion of such 30,000 shares of Series G Preferred Stock into an aggregate of 39,916,666 shares of Common Stock of the Company, that aggregate number of shares of such Common Stock as shall be equal to 500% of the maximum aggregate number of Conversion Shares issuable upon conversion of all then outstanding issued Notes, shares of Series E Preferred Stock and Series F Preferred Stock, based upon the $3.00 per share “Conversion Price” of the Series F Preferred S tock and $3.00 per share “Floor Price” of the Series E Preferred Stock and Notes, below which such Series E Preferred Stock and Notes Securities may not be converted.

(b)

For the avoidance of doubt, if an aggregate of $21,000,000 principal amount or Stated Value of Notes, shares of Series E Preferred Stock and Series F Preferred Stock are issued and outstanding at the Closing Date, the maximum number of Conversion Shares issuable upon conversion into Common Stock of such convertible securities would, based upon the $3.00 per share Series F Preferred Stock Conversion Price and Note and Series E Preferred Stock Floor Price, be 7,000,000 shares of Common Stock. However, pursuant to the Subscription Agreements, if on each applicable Conversion Date, the Company’s Common Stock shall trade below such Conversion Price then in effect, up to a maximum of 35,000,000 Adjustment Shares could be subject to delivery by the Series G Preferred Stock Joint Escrow Agents to the holders of such Convertible Securities, b ased upon an “Assumed Floor Price” of $0.50 per share. Each of the Parties hereto do hereby agree to all of the terms and conditions of such escrow arrangements and the Series G Preferred Stock Escrow Agreement.

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5.

Joinder Agreement.

On the Closing Date, the Company shall execute and deliver to the Bell/Staton Group Parties such joinder or related agreement reasonably satisfactory to the Seller and the Bell/Staton Group Parties, pursuant to which the Company shall covenant and agree to be bound by all of the terms and conditions of the Settlement and Stock Purchase Agreement and the Stockholders Agreement, as though it was an original party signatory thereto.

6.

Failure to Obtain Exchange Approvals.

In the event that, for any reason, that: (i) by December 31, 2004, the American Stock Exchange LLC (“AMEX”), the New York Stock Exchange, Inc. or the NASDAQ Stock Exchange, Inc. (a “National Securities Exchange”) shall fail to approve the terms of the Company’s acquisition of the Subject Shares, the issuance of the Company Securities and the listing on the AMEX or another National Securities Exchange of all shares of Company Common Stock issuable upon conversion or exercise of the Company Securities; or (ii) by January 21, 2005, the AMEX shall have refused to approve the proposed acquisition by the Company of Media Billing Company, LLC and Internet Billing Company, LLC (the “iBill Acquisition”) contemplated by the securities purchase agreement (the “i Bill Purchase Agreement”), dated as of July 22, 2004, as amended, between the Company and Penthouse International, Inc. (“PSHL”), and the listing on the AMEX of (A) approximately 3.2 million shares of Common Stock, and (B) all shares of Company Common Stock issuable upon conversion of the 330,000 shares of Company Series D convertible preferred stock (the “PSHL Series D Preferred”) proposed to be issued at the closing of the iBill Acquisition (collectively, the “Exchange Approvals”), then, notwithstanding anything to the contrary contained in the iBill Purchase Agreement, the Certificate of Designations applicable to the PSHL Series D Preferred or in the Notes and Certificates of Designations applicable to the Series E Preferred Stock, Series F Preferred Stock or Series G Preferred Stock:

(a)

the iBill Acquisition shall, for all purposes be deemed to be closed and consummated effective as of January 21, 2005;

(b)

all shares of Company Common Stock issuable upon conversion of the PSHL Series D Preferred shall become immediately convertible at the option of PHSL, effective as of January 21, 2005; and

(c)

all shares of Company Common Stock issuable upon conversion or exercise of the Notes, the Series E Preferred Stock, the Series F Preferred Stock, the Series G Preferred Stock and other Company Securities shall become immediately convertible into or exercisable for shares of Company Common Stock, at the option of the holders thereof, effective as of December 31, 2004.

To facilitate the foregoing agreement of the Parties, the Company hereby has executed and delivered in escrow to Gersten Savage Kaplowitz Wolf & Marcus LLP, (the “Escrow Agent”) new Notes, and new Certificates of Designation with respect to each of the PSHL Series D Preferred, the Series E Preferred Stock, the Series F Preferred and the Series G Preferred Stock, in the forms of Exhibit “A”, Exhibit “B”, Exhibit “C”, Exhibit “D” and Exhibit “E” annexed hereto (collectively, the “Escrowed Securities”); which Escrowed Securities, by their terms, eliminate all restrictions upon or conditions to the immediate conversion of such PSHL Series D Preferred and Company Securities into shares of Company Common Stock. At 12:00 Noon (New York time) on December 31, 2004 (or sooner if Exchange Approval shall have been previously obtained), such Escrow Agent is hereby irrevocably and unconditionally authorized and directed

4

by all of the Parties to (i) deliver the New Notes to the purchasers thereof, (ii) file the Certificates of Designation for the Series E Preferred Stock, Series F Preferred and Series G Preferred Stock with the Secretary of State of the State of Delaware, and (iii) instruct the transfer agent of the Company to issue all of the Company Securities. In addition at 12:00 Noon (New York time) on January 21, 2005 (or sooner if AMEX approval shall be previously obtained), such Escrow Agent is hereby irrevocably and unconditionally authorized and directed by all of the Parties to (i) to file the escrowed Certificates of Designation for the PSHL Series D Preferred with the Secretary of State of the State of Delaware, and (ii) instruct the transfer agent of the Company to issue all of the Company Common Stock issuable to PSHL at closing of the iBill Acquisition in accordance with the terms of the iBill Agreement. The Escrow Agent is also hereby irrevocably and unconditionally authorized and directed to take such other actions as may be required by Delaware Law to effectuate the foregoing.

7.

Rescission of Closing under iBill Purchase Agreement.

The Parties hereto acknowledge that the Company has recently received from the AMEX a notice of its intention, subject to a hearing if requested by the Company, to delist the Company Common Stock from listing and registration on the AMEX (the “Delisting Notice”). The AMEX has also advised the Company that it will withdraw such Delisting Notice, if the Company and PSHL rescind the closing of the iBill Acquisition, pending completion of AMEX review and approval or rejection of such iBill Acquisition. In order to comply with the AMEX’s request, pursuant to a separate agreement between PSHL and the Company, dated of even date herewith (the “Rescission Agreement”), PSHL and the Company have agreed to rescind the closing and consummation of the iBill Acquisition, pending receipt of approval of the iBill Acquisition by the AMEX; provided, that all of the terms and conditions of the iBill Purchase Agreement continue to remain in full force and effect.

In order to facilitate the intent of the Parties and the provisions Section 6 of this Agreement, PSHL and the Company do hereby irrevocably and unconditionally agree that in the event that either (i) the AMEX shall, for any reason by January 21, 2005, not approve, in all respects, the consummation of the iBill Acquisition and the listing on the AMEX of the Company Common Stock and shares of Common Stock issuable upon conversion of the PSHL Series D Preferred, or (ii) at any time prior to January 31, 2005, the Company shall breach any of its covenants and agreements set forth in Section 4.2 of the iBill Purchase Agreement:

5

(a)

the iBill Acquisition shall, for all purposes, be deemed effective and closed as of January 21, 2005, on the identical terms and conditions set forth in the iBill Purchase Agreement (provided that all rights of rescission set forth in the iBill Purchase Agreement shall be deemed forever waived); and

(b)

the Company shall voluntarily withdraw from the AMEX, and immediately apply for listing of its Common Stock on another National Securities Exchange or trade on the NASD OTC-Bulletin Board.  

8.

Miscellaneous.

(a)

This Agreement shall be deemed to have been made and delivered in the State of New York and shall be governed as to validity, interpretation, construction, effect and in all other respects by the internal substantive laws of the State of New York, without giving effect to the choice of law rules thereof.

(b)

This Agreement may only be amended by a written instrument executed by the Company and the Seller.

(c)

This Agreement constitutes the entire agreement of the parties hereto with respect to the subject matter hereof, and supersedes all prior agreements and understandings of the parties, oral and written, with respect to the subject matter hereof.

(d)

This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same document.

(e)

All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed duly given when delivered by hand or mailed by registered or certified mail, postage prepaid, return receipt requested, as follows:

If to the Seller:

GMI Investment Partners

c/o Granite Financial Partners, LLC

407 SE 9th Street

Suite 100

Fort Lauderdale, Florida 33316

Attn: AJ Nassar

and

GMI Investment Partners

c/o Faries Capital, LLC

421 North Rodeo Drive

Beverly Hills CA 90210

Attn: Charles L. Samel

6

If to the Company,

Care Concepts I, Inc.

2200 S.W. 10^th Street

Deerfield Beach, FL 33442

Attention: President

Telephone: (954) 363-4400

If to PSHL:

Penthouse International, Inc.

2200 S.W. 10^th Street

Deerfield Beach, FL 33442

Attention: Charles L. Samel,

Executive Vice-President

Telephone: (954) 363-4400

(f)

This Agreement shall inure to the benefit of, and be binding upon, the parties hereto and their respective heirs, legal representatives, successors and assigns. Nothing herein contained, express or implied, is intended to confer upon any person other than the parties hereto and their respective heirs, legal representatives and successors, any rights or remedies under or by reason of this Agreement.

(g)

The headings contained herein are for the sole purpose of convenience of reference, and shall not in any way limit or affect the meaning or interpretation of any of the terms or provisions of this Agreement.

(h)

Any provision of this Agreement which is held by a court of competent jurisdiction to be prohibited or unenforceable in any jurisdiction(s) shall be, as to such jurisdiction(s), ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction.

(i)

This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed in the State of New York. Each of the parties irrevocably agrees that any and all suits or proceedings based on or arising under this Agreement may be brought only in and shall be resolved in the federal or state courts located in the City of New York, County of New York 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 6(e) shall be deemed in every respect effective service of process upon such par ty in any such suit or proceeding.

(j)

Nothing herein shall affect the right of a party 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.

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(k)

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 in addition to any other relief to which the prevailing party or parties may be entitled.

[The balance of this page is intentionally left blank.]

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IN WITNESS WHEREOF, this Agreement has been executed and delivered by the parties hereto as of the date first above written.

CARE CONCEPTS I, INC.

By: ______________________________

Name: Gary Spaniak, Jr.,

Its: President

GMI INVESTMENT PARTNERS

By: GRANITE MANAGEMENT, LLC

By:______________________________

A.J. Nassar, Member

FARIES CAPITAL, LLC

By:______________________________

Charles L. Samel, member

THE MOLINA VECTOR INVESTMENT TRUST

By:________________________________

Jason Galanis, Co-Trustee

SUMMIT TRADING LIMITED

By:________________________________

Richard Fixaris, President

PENTHOUSE INTERNATIONAL, INC.

By:______________________________________

Charles L. Samel, Executive Vice-President

GERSTEN SAVAGE KAPLOWITZ WOLF & MARCUS, LLP

(as Escrow Agent only)

By:___________________________________________

9

EX-10.12

EXHIBIT 10.12

CERTIFICATE OF DESIGNATION OF PREFERENCES AND RIGHTS OF

SERIES G CONVERTIBLE PREFERRED STOCK

OF

CARE CONCEPTS I, INC.

a Delaware corporation

The undersigned, Gary Spaniak, Jr. and Charles Pearlman, do hereby certify that:  

1.

They are the President and an Assistant Secretary, respectively, of CARE CONCEPTS I, INC., a corporation organized and existing under the Delaware General Corporation Law (“DGCL”) of the State of Delaware (the "Corporation").  

2.

Pursuant to authority conferred upon the Board of Directors by the Certificate of Incorporation of the Corporation, and pursuant to the provisions of Section 151 of the DGCL, the Board of Directors of the Corporation, pursuant to a meeting held September 20, 2004, adopted a resolution establishing the rights, preferences, privileges and restrictions of, and the number of shares comprising, the Corporation's Series G Convertible Preferred Stock, which resolution is as follows:  

RESOLVED, that a series of Preferred Stock in the Corporation, having the rights, preferences, privileges and restrictions, and the number of shares constituting such series and the designation of such series, set forth below be, and it hereby is, authorized by the Board of Directors of the Corporation pursuant to authority given by the Corporation's Articles of Incorporation.  

NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors hereby fixes and determines the Determinations of, the number of shares constituting, and the rights, preferences, privileges and restrictions relating to, a new series of Preferred Stock as follows:  

 1.

Definitions.  For the purposes of this Certificate of Designation and in addition to other terms defined herein, the following definitions shall apply:

Affiliate means, as to any Person, any other Person which, directly or indirectly, alone or together with other Persons, controls or is controlled by or is under common control with such Person. “Control” “controlled by” and “under common control with”, as and with respect to any Person, means the power, directly or indirectly, to direct or cause the direction of the management and policies of such Person.

“10% Notes”  shall mean the maximum $15.0 million of 10% convertible secured notes due September 15, 2009 of the Corporation.

“AMEX” shall mean the American Stock Exchange, LLC   

“Applicable Law” means any domestic or foreign law, statute, regulation, rule, policy, guideline or ordinance applicable to the businesses of the Corporation.

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“Bankruptcy Case” means the Chapter 11 bankruptcy case in the United States Bankruptcy Court for the Southern District of New York, Case No. 03-15078 (SMB).

"Business Day" means any day, Monday through Friday, on which U.S. federally chartered banks are open for business in New York, New York.

"Common Stock" shall mean the authorized common stock, $.001 par value per share, of  the Corporation.

“Common Stock Equivalents” shall mean any issued and outstanding notes, debentures or Preferred Stock that is convertible into shares of Common Stock, any options, warrants or securities exercisable for shares of Common Stock, or other rights entitling the holder to purchase Common Stock or exchange property or other assets for Common Stock.

"Closing" shall mean the consummation and closing by the Corporation of the GMI Stock Purchase, pursuant to the GMI Stock Purchase Agreement.

"Closing Date" shall mean the date and time as of which the Closing actually takes place.

"Commission" shall mean the United States Securities and Exchange Commission.

 “Conversion Date” shall mean the date on which a Holder of Series G Preferred Stock shall deliver a Conversion Notice to the Corporation.

"DGCL" shall mean the Delaware General Corporation Law, as amended.

"Exchange Act" shall mean the United States Securities Exchange Act of 1934, as amended, or any successor law.

 “Fully-Diluted Common Stock” means, at any applicable point in time, the issued and outstanding shares of Common Stock of the Corporation, on a fully-diluted basis, after giving effect to (i) all issued and outstanding shares of Common Stock, (ii) the conversion into Common Stock of all issued and outstanding shares of Preferred Stock, (iii) all shares of Common Stock issuable upon exercise of any outstanding options, warrants or other rights to purchase Common Stock, and/or (iv) all shares of Common Stock issuable upon conversion of any outstanding notes, debentures, preferred stock, or other securities convertible into or exchangeable for shares of Common Stock.

"GAAP" means generally accepted United States accounting principles in effect from time to time.

“GMI”  means General Media, Inc., a Delaware corporation, as reorganized after emerging from bankruptcy in the Bankruptcy Case, together with the other GMI Debtors

“GMI Debtors” means GMI and certain of its subsidiaries who were debtors-in-possession in the Bankruptcy Case.

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“GMI Partners” means GMI Investment Partners, a New York general partnership.

“GMI Partners Group”   means the collective reference to GMI and its investors, designees and business associates that, together with GMI Partners, will be the record and beneficial owners of the Transaction Securities as at the Closing Date.

“GMI Stock” means the 483,815 shares of GMI Class B Common Stock being purchased by GMI Partners pursuant to the GMI Stock Purchase Agreement.

“GMI Stock Purchase”  means the purchase by the Corporation of the GMI Stock from GMI Partners pursuant to the GMI Stock Purchase Agreement, in consideration for the Corporation’s issuance of the Transaction Securities.

“GMI Stock Purchase Agreement”  means the purchase agreement, dated as of September 23, 2004, between GMI Partners and the Corporation.

"Governmental Authority" shall mean any court, tribunal, authority, agency, commission, bureau, department, official or other instrumentality of the United States, or any other country or any provincial, state, local, county, city or other political subdivision.

“Holder(s)”  shall mean the individual or collective reference to GMI Partners and any other holder(s) of the Series G Preferred Stock.

"Law" shall mean any United States, state or local (including common law) statute, code, directive, ordinance, rule, regulation or other requirement.

“Note Warrants”  shall mean the maximum 5,000,000 warrants to purchase Common Stock of the Corporation issued in connection with the issuance of the 10% Notes.

"Person" shall mean any individual, corporation (including any non-profit corporation), general or limited partnership, limited liability company, joint venture, estate, trust, association, organization, labor union or other entity or governmental body or Governmental Authority.

"Proceeding" shall mean any claim, action, investigation, arbitration, litigation or other judicial, administrative or regulatory proceeding.

“Preferred Stock" shall mean the 5,000,000 shares of preferred stock, $.001 par value per share, of the Corporation, authorized pursuant to its certificate of incorporation, as amended to date.

“Required Stockholder Approvals” shall mean the occurrence of all of the following:

(i)

the receipt by the Corporation of the irrevocable and unconditional written approval and consents by the holders of a majority of the outstanding shares of Common Stock of the Corporation to (A) the purchase of the GMI Stock and all of the transactions contemplated by the GMI Stock Purchase Agreement, (B) the Corporation’s joinder in and execution of the

3

Settlement and Securities Purchase Agreement and the Stockholder Agreement, (C) an amendment to the Certificate of Incorporation of the Company that, inter alia, shall increase the authorized Common Stock to 250.0 million shares of Common Stock and change the name of the Corporation, (D) the sale and issuance of the Transaction Securities, and (E) all of the related transactions in connection with the foregoing;

(ii)

the filing and approval of a listing application for the additional shares of the Corporation’s Common Stock to be issued upon conversion of the 10% Notes, the Series E Preferred Stock, the Series F Senior Preferred Stock and the Series G Preferred Stock, in accordance with the rules of the AMEX;

(iii)

the filing by the Corporation under the Exchange Act of a Form 14C Information Statement with the Commission, describing the transactions contemplated by the Stockholders Consent; and

(iv)

upon approval of such Information Statement by the Commission, the mailing of same to the Corporation’s stockholders.  

"Securities Act" shall mean the United States Securities Act of 1933, as amended, or any successor law.

"Series B Preferred Stock" shall mean the 10,000 authorized shares of Series B Preferred Stock of the Corporation.

"Series C Preferred Stock"-- shall mean the 45,000 authorized shares of Series C Preferred Stock of the Corporation.

"Series D Preferred Stock"-- shall mean the 330,000 shares of Series D Preferred Stock of the Corporation.

“Series E Preferred Stock”  shall mean the maximum 35,000 shares of Series E convertible preferred stock of the Corporation to be authorized pursuant to the Series E Certificate of Designations.

“Series E Preferred Stock Certificate of Designations”  shall mean the Certificate of Designations of the rights and preferences attributable to the Series E Preferred Stock.

“Series E Warrants”  shall mean the common stock purchase warrants of the Corporation issued in connection with the issuance of the Series E Preferred Stock.

“Series F Preferred Stock”  shall mean the 54,500 shares of 10% Series F convertible redeemable secured senior preferred stock of the Corporation to be authorized pursuant to the Series F Certificate of Designations.

 “Series F Preferred Stock Certificate of Designations”  shall mean the Certificate of Designations of the rights and preferences attributable to the Series F Preferred Stock..

“Series F Warrants” shall mean the common stock purchase warrants of the Corporation issued in connection with the issuance of the Series F Preferred Stock.

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"Series G Preferred Stock" shall mean the 45,000 shares of Series G Preferred Stock of the Corporation to be authorized pursuant to this Series G Preferred Stock Certificate of Designations.

“Series G Preferred Stock Certificate of Designations”  shall mean this Certificate of Designations of the rights and preferences attributable to the Series G Preferred Stock.

“Settlement and Securities Purchase Agreement” means that certain settlement and securities purchase agreement, dated as of September 23, 2004, among Penthouse International, Inc., Dr. Luis Enrique Fernando Molina, the Molina Vector Investment Trust, GMI Partners and additional Persons, designated therein as the “Bell/Staton Group Parties”.

 “Stated Value” shall mean the $1,000.00 per share stated value payable in respect of each of the authorized and issued series of the Series G Preferred Stock of the Corporation, as applicable, in connection with any Liquidation Event (as hereinafter defined in Section 7(a)) redemption or other sale or disposition of such Series G Preferred Stock.

"Subsidiary" shall mean with respect to any Person, any corporation, joint venture, limited liability company, partnership, association or other business entity of which 50% or more of the total voting power of stock or other equity entitled to vote generally in the election of directors or managers or equivalent Persons thereof is owned or controlled, directly or indirectly, by such Person.

“Transaction Conversion Shares”  means the aggregate number of shares of Common Stock of the Corporation that are issuable upon full conversion of all (i) 10% Notes, (ii) shares of Series E Preferred Stock, and (iii) Series F Preferred Stock, at the conversion prices set forth in the 10% Notes, Series E Certificate of Designations and Series F Certificate of Designations, subject to the $3.00 per share “Conversion Price” and “Floor Price” described therein.

“Transaction Securities” means the collective reference to the Series E Preferred Stock, the Series F Preferred Stock, the Series G Preferred Stock, the Series E Warrants and the Series F Warrants and the Note Warrants issued to the GMI Partners Group pursuant to the GMI Stock Purchase Agreement.

 “Transfer of Control” shall mean the occurrence of any one of the following events: (a) the sale, conveyance, exchange or disposition (collectively, “Transfer”) of all or substantially all of the assets of the Corporation, (b) the Transfer of all or substantially all of the assets of all or substantially all of the Subsidiaries of the Corporation, or (c) the consummation of a transaction or series of related transactions (whether by tender offer, merger, consolidation or like combination) in which either (i) more than fifty percent (50%) of the voting power of the Corporation is disposed of, or (ii) the power to elect a majority of the Board of Directors of the Corporation is invested in one or more Person(s) who are not currently stockholders of the Corporation or of Penthouse or Affiliates of such Persons.

2.

Determination.  The series of Preferred Stock is hereby designated Series G Convertible Preferred Stock (the “Series G Preferred Stock”).

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3.

Authorized Shares.  The number of authorized shares constituting the Series G Preferred Stock shall be forty five thousand (45,000) shares of such series.

4.

Designation and Stated Value.  The Board of Directors of the Corporation, pursuant to authority granted in its Certificate of Incorporation, hereby creates a Series of Preferred Stock designated as “Series G Preferred Stock.”  Upon initial issuance by the Corporation, the price per share of the Series G Preferred Stock and the Stated Value of each share of Series G Preferred Stock upon any Liquidation Event, or otherwise, shall be one thousand ($1,000.00) dollars (the “Stated Value”).

5.

Number.  The number of shares of Series G Preferred Stock the Corporation is authorized to issue is 45,000 shares of Series G Preferred Stock. Such number may be increased or decreased by resolution of the Board of Directors.

6.

Dividend Rights.  The Series G Preferred Stock shall not pay any dividend.

7.

Liquidation Rights

(a)

Liquidation, Dissolution or Winding Up.  If (A) the Corporation shall commence a voluntary case under the Federal bankruptcy laws or any other applicable Federal or state bankruptcy, insolvency or similar law, or consent to the entry of an order for relief in an involuntary case under any law or to the appointment of a receiver, liquidator, assignee, custodian, trustee or sequestrator (or other similar official) of the Corporation or of any substantial part of its property, or make an assignment for the benefit of its creditors, or admit in writing its inability to pay its debts generally as they become due, or if a decree or order for relief in respect of the Corporation shall be entered by a court having jurisdiction in the premises in an involuntary case under the Federal bankruptcy laws or any other applicable Federal or s tate bankruptcy, insolvency or similar law resulting in the appointment of a receiver, liquidator, assignee, custodian, trustee or sequestrator (or other similar official) of the Corporation or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and any such decree or order shall be unstayed and in effect for a period of 30 consecutive days and, on account of any such event (“Insolvency Proceeding”), or (B) the Corporation shall otherwise liquidate, dissolve or wind up, a “Liquidation Event” shall be deemed to have occurred for purposes of this Certificate of Designation.  If a Liquidation Event shall occur, the available funds and assets of the Corporation and its Subsidiaries shall be distributed in the following manner:

(i)  Senior Liquidation Preference. Upon the occurrence of any Liquidation Event after all 10% Notes are paid, the holder(s) of the issued and outstanding shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock (collectively, the “Senior Preferred Stock”) shall be entitled to be paid a liquidation preference at the their respective stated value or liquidation value per share, out of the Available Funds and Assets, senior, prior to, and before any payment or distribution (or any setting apart of any payment or distribution) of any available funds and assets of the Corporation or any Subsidiary on any shares of Series G Preferred Stock or Common Stock of the Corporation. Upon the occurrence of any Liqu idation Event, and after payment or distribution (or the setting apart of any payment or distribution) of any available funds and assets of the Corporation or any Subsidiary on any shares of the holder(s) of the issued and outstanding shares of Senior Preferred Stock (in their respective orders of priority), the

6

holder(s) of the issued and outstanding shares of Series G Preferred Stock shall be entitled to be paid a liquidation preference at the their respective stated value or liquidation value per share, out of the available funds and assets of the Corporation, senior, prior to, and before any payment or distribution (or any setting apart of any payment or distribution) of any available funds and assets of the Corporation or any Subsidiary on any shares of Common Stock of the Corporation. If, upon a Liquidation Event, the available funds and assets of the Corporation and its Subsidiaries to be distributed to the holders of the Series G Preferred Stock shall be insufficient to permit the payment to such shareholders of their full preferential amount described in this subsection, then all of such available funds and assets shall be distributed among the holders of then outstanding series of such Series G Preferred Stock pro rata, according to the number of outstanding shares of such Series G Preferred Stock held by each holder thereof.

(ii)

Remaining Assets. If there are any available funds and assets remaining after the payment or distribution (or the setting aside for payment or distribution) to the holders of the Preferred Stock of their full preferential amounts described above, then all such remaining available funds and assets shall be distributed among the holders of the then outstanding Common Stock pro rata according to the number of shares of Common Stock held by each holder thereof.

(b)

Merger or Sale of Assets.  At the option of the holders of the Series G Preferred Stock, with such series voting as a separate series, upon the consummation of a transaction or series of related transactions affecting the Corporation that shall constitute a Transfer of Control, for all purposes of this Certificate of Designation, a Liquidation Event shall be deemed to have occurred.  In such event the Corporation shall, at the sole option of the holders of a majority of the outstanding Series G Preferred Stock, either (i)  distribute, upon consummation of and as a condition to, such Transfer of Control an amount equal to the $1000.00 per share Stated Value liquidation preference with respect to each outstanding share of Series G Preferred Stock, (ii) issue to the holders of the Series G Preferred Stock that number of shares of common stock of the successor or acquiring corporation or of the Corporation, if it is the surviving corporation, and/or other property as is receivable upon or as a result of such Transfer of Control, as though each Holder of Series G Preferred Stock had converted his or its Series G Preferred Stock into shares of Common Stock, at the applicable Conversion Percentage of Fully-Diluted Common Stock, immediately prior to such Transfer of Control or (iii) require the Corporation, or such successor, resulting, surviving or purchasing corporation, as the case may be, and without benefit of any additional consideration therefor, to execute and deliver to the Holder of Series G Preferred Stock shares of its preferred stock with substantially identical rights, preferences, privileges, powers, restrictions and other terms as the Series G Preferred Stock equal to the number of shares of Series G Preferred Stock held by such Holder divided by the Fully-Diluted Common Stock of the Corporation immediate ly prior to such Transfer of Control multiplied by the Fully-Diluted Common Stock of the Corporation or such successor, resulting or purchasing or surviving corporation, as the case may be, immediately after the consummation of such Transfer of Control; provided, that all Holders of Series G Preferred Stock shall be deemed to elect the option set forth in clause (i) above if at least a majority in interest of such Holders elect such option.  For purposes of this Section 7(b), “common stock of the successor or acquiring corporation” shall include stock of such corporation of any class which is not preferred as to dividends or assets over any other class of stock of such corporation and which is not subject to redemption and shall also include any evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable for any such stock, either immediately or

7

upon the arrival of a specified date or the happening of a specified event and any warrants or other rights to subscribe for or purchase any such stock..  

(c)  Non-Cash Consideration. If any assets of the Corporation distributed to shareholders in connection with any Liquidation Event are other than cash, then the value of such assets shall be their fair market value as determined by the Board of Directors in good faith, except that any securities to be distributed to shareholders in connection with a Liquidation Event shall be valued as follows:

(i)

The method of valuation of securities not subject to investment representation letter or other similar restrictions on free marketability shall be as follows:

(A)  unless otherwise specified in a definitive agreement for the acquisition of the Corporation, if the securities to be distributed are shares of Common Stock of the Corporaiton or other securities that are traded on a National Securities Exchange, the same shall be determined based on its then Fair Market Value; and

(B)  if there is no public market as described in clause (A) above, then the value shall be the fair market value thereof, as determined in good faith by the Board of Directors.

(ii)

The method of valuation of securities subject to investment letter or other restrictions on free marketability shall be to make a thirty percent (30%) discount from the Fair Market Value to reflect the approximate fair market value thereof, as determined in good faith by the Board of Directors.

3.

Voting Rights.  

The Series G Preferred Stock shall not be entitled to vote.

9.

Conversion.

(a)

Series G Preferred Stock Conversion.  The shares of Series G Preferred Stock shall not be convertible into shares of Common Stock of the Corporation until the earlier to occur of (i) December 31, 2004, or (ii) the Corporation shall have obtained all Required Stockholder Approvals.  Thereafter, all shares of issued and outstanding Series G Preferred Stock shall thereafter be automatically converted into an aggregate number of shares of Common Stock of the Corporation as shall represent (a) 68,000,000 shares of Common Stock of the Corporation, less (b) the Transaction Conversion Shares.

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(b)

Adjustments to Fully-Diluted Common Stock  and Conversion Percentage.

(i)

Adjustment for Stock Splits and Combinations.  If the Corporation shall at any time, or from time to time after the date shares of the Series G Preferred Stock are first issued (the "Original Series G Issue Date") and prior to the Conversion Date, effect a subdivision of the outstanding Common Stock, then  the Fully-Diluted Common Stock in effect immediately prior thereto shall be proportionately decreased and, conversely, if the Corporation shall at any time or from time to time after the Original Series G Issue Date combine the outstanding shares of Common Stock, the Fully-Diluted Common Stock then in effect immediately before the combination shall be proportionately increased.  However, in neither event shall any such adjustments effect the applicable Conversion Percentage.  Any adjustment under this Section 9(b)(i) shall become effective at the close of business on the date the subdivision or combination becomes effective.

(ii)

Adjustment for Certain Dividends and Distributions.  In the event the Corporation at any time, or from time to time after the Original Series G Issue Date and prior to the Conversion Date, shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in additional shares of Common Stock, then and in each such event the number of shares of Fully-Diluted Common Stock then in effect shall be increased as of the time of such issuance or, in the event such a record date shall have been fixed, as of the close of business on such record date.  Such increase in the Fully-Diluted Common Stock shall not, however, affect the applicable Conversion Percentage.

(iii)

Adjustments for Other Dividends and Distributions.  In the event the Corporation at any time or from time to time after the Original Series G  Issue Date shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in securities of the Corporation other than shares of Common Stock, then and in each such event provision shall be made so that the holders of such Series G Preferred Stock shall receive upon conversion thereof in addition to the number of shares of Common Stock receivable thereupon, the amount of securities of the Corporation that they would have received had their Series G Preferred Stock been converted into Common Stock on the date of such event and had thereafter, during the period from the date of such event to and including the conversion date, retained such securities receivable by them as aforesaid during such period giving application to all adjustments called for during such period under this Section 9(b)(iii) with respect to the rights of the holders of the Series G Preferred Stock.

(iv)

Adjustments for reclassifications, consolidation, merger, splits and combinations.  If at any time while the Series G Preferred Stock remains outstanding and any shares thereof have not been converted into Common Stock, in case of any reclassification or change of outstanding Common Stock issuable upon conversion of the Series G Preferred Stock (other than a change in par value per share, or from par value per share to no par value per share, or from no par value per share to par value per share or as a result of a subdivision or combination of outstanding securities issuable upon conversion of the Series G Preferred Stock) or in case of any consolidation, merger or mandatory share exchange of the Corporation with or into another corporation (other than a merger or mandatory share exchange with another corporation in which th e Corporation is a continuing corporation and which does not result in any reclassification or change, other than a change in par value per share, or from par value per share to no par value per share, or from no par value per share to par value per share, or as a

9

result of a subdivision or combination of outstanding Common Stock upon conversion of the Series G Preferred Stock), or in the case of any sale or transfer to another corporation of the property of the Corporation as an entirety or substantially as an entirety, the Corporation, or such successor, resulting or purchasing corporation, as the case may be, shall, without payment of any additional consideration therefor, execute a new Series G Preferred Stock providing that the holder shall have the right to convert such new Series G Preferred Stock (upon terms and conditions not less favorable to the holder than those in effect pursuant to the Series G Preferred Stock) and to receive upon such exercise, in lieu of the Common Stock theretofore issuable upon conversion of the Series G Preferred Stock, the kind and amount of shares of stock, other securities, mon ey or property receivable upon such reclassification, change, consolidation, merger, mandatory share exchange, sale or transfer by the holder of the Common Stock issuable upon conversion of the Series G Preferred Stock had the Series G Preferred Stock been converted immediately prior to such reclassification, change, consolidation, merger, mandatory share exchange or sale or transfer. The provisions of this Section shall similarly apply to successive reclassifications, changes, consolidations, mergers, mandatory share exchanges and sales and transfers.

10.

Miscellaneous

(a)

Loss, Theft, Destruction of Preferred Stock. Upon receipt of evidence satisfactory to the Corporation of the loss, theft, destruction or mutilation of shares of Series G Preferred Stock and, in the case of any such loss, theft or destruction, upon receipt of indemnity or security reasonably satisfactory to the Corporation, or, in the case of any such mutilation, upon surrender and cancellation of the Series G Preferred Stock, the Corporation shall make, issue and deliver, in lieu of such lost, stolen, destroyed or mutilated shares of Series G Preferred Stock, new shares of Series G Preferred Stock of like tenor. The Series G Preferred Stock shall be held and owned upon the express condition that the provisions of this Section are exclusive with respect to the replacement of mutilated, destroyed, lost or stolen shares of Series G Pr eferred Stock and shall preclude any and all other rights and remedies notwithstanding any law or statute existing or hereafter enacted to the contrary with respect to the replacement of negotiable instruments or other securities without the surrender thereof.

(b)

Who Deemed Absolute Owner.  The Corporation may deem the Person in whose name the Series G Preferred Stock shall be registered upon the registry books of the Corporation to be, and may treat it as, the absolute owner of the Series G Preferred Stock for the purpose of the conversion of the Series G Preferred Stock and for all other purposes, and the Corporation shall not be affected by any notice to the contrary. All such payments and such conversion shall be valid and effectual to satisfy and discharge the liability upon the Series G Preferred Stock to the extent of the sum or sums so paid or the conversion so made.

(c)

Register. The Corporation shall keep at its principal office a register in which the Corporation shall provide for the registration of the Series G Preferred Stock. Upon any transfer of the Series G Preferred Stock in accordance with the provisions hereof, the Corporation shall register such transfer on the Series G Preferred Stock register.

(b)

Reservation of Common Stock. The Corporation shall have a sufficient number of shares of Common Stock available to reserve for issuance upon the conversion of all outstanding shares of Series G Preferred Stock. The Corporation will at all times reserve and keep available out of its authorized Common Stock, solely for the purpose of issuance upon the conversion of

10

Series G Preferred Stock as herein provided, such number of shares of Common Stock as shall then be issuable upon the conversion of all outstanding shares of Series G Preferred Stock. The Corporation covenants that all shares of Common Stock which shall be so issued shall be duly and validly issued, fully paid and non-assessable. The Corporation will take all such action as may be so taken without violation of any applicable law or regulation, or of any requirement of any nacional securities exchange upon which the Common Stock may be listed to have a sufficient number of authorized but unissued shares of Common Stock to issue upon conversion of the Series G Preferred Stock. The Corporation will not take any action which results in any adjustment of the conversion rights if the total number of shares of Common Stock issued and issuable after such action u pon conversion of the Series G Preferred Stock would exceed the total number of shares of Common Stock then authorized by the Corporation's Certificate of incorporation, as amended.

(c)

No Reissuance of Preferred Stock.  Any shares of Series G Preferred Stock acquired by the Corporation by reason of purchase, conversion or otherwise shall be canceled, retired and eliminated from the shares of Series G Preferred Stock that the Corporation shall be authorized to issue.  All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock subject to the conditions and restrictions on issuance set forth in the Articles of Incorporation or in any certificate of Determination creating a series of Preferred Stock or any similar stock or as otherwise required by law.

(d)

Severability.  If any right, preference or limitation of the Series G Preferred Stock set forth herein is invalid, unlawful or incapable of being enforced by reason of any rule, law or public policy, all other rights, preferences and limitations set forth herein that can be given effect without the invalid, unlawful or unenforceable right, preference or limitation shall nevertheless remain in full force and effect, and no right, preference or limitation herein shall be deemed dependent upon any other such right, preference or limitation unless so expressed herein.

11.

The number of authorized shares of Preferred Stock of the Corporation is 5,000,000, and the number of authorized shares of Series G Preferred Stock, none of which has been issued, is 45,000 shares.

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Each of the undersigned declares under penalty of perjury that the matters set out in the foregoing Certificate are true of his own knowledge.  Executed at Pompano Beach, Florida on this ___ day of September, 2004.  

CARE CONCEPTS I, INC.

_______________________________

Name:

Gary Spaniak, Jr.

Title:

President

_______________________________

Name:

Steve Markley

Title:

Chief Executive Officer

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EX-10.13

EXHIBIT 10.13

REGISTRATION RIGHTS AGREEMENT

AGREEMENT dated as of September ___, 2004, between MONARCH POINTE FUND, LTD., (the “Fund”) and MERCATOR ADVISORY GROUP, LLC (“Mercator”) (the Fund and Mercator are referred to individually as a “Holder” and collectively as the “Holders”), and CARE CONCEPTS I, INC., a Delaware corporation (the “Company”).

WHEREAS, the Fund has purchased, for $3,500,000, an aggregate of 35,000 shares of Series E Convertible Preferred Stock (the “Series E Stock”) from the Company, and has the right to cause its Series E Stock to be converted into shares of Common Stock, $0.001 par value (the “Common Stock”), of the Company, pursuant to the conversion formula set forth in the Certificate of Determination;

WHEREAS, the Fund and Mercator have purchased a Warrant (together, the “Warrants”) from the Company, and the Holders, together, have the right to purchase in the aggregate up to 430,504 shares of the Common Stock through the exercise of the Warrants; and

WHEREAS, the Company desires to grant to the Holders the registration rights set forth herein with respect to the shares of Common Stock issuable upon the conversion of the Series E Stock and the exercise of the Warrants, as well as the Penthouse Principal Stockholders Shares.

NOW, THEREFORE, the parties hereto mutually agree as follows:

1.

Registrable Securities. As used herein the terms “Registrable Security” means each of the shares of Common Stock (i) issued upon the conversion of the Series E Stock (the “Conversion Shares”) or (ii) upon exercise of the Warrants (the “Warrant Shares”); provided, however, that with respect to any particular Registrable Security, such security shall cease to be a Registrable Security when, as of the date of determination that (a) it has been effectively registered under the Securities Act of 1933, as amended (the “Securities Act”), and disposed of pursuant thereto, or (b) registration under the Securities Act is no longer required for the immediate public distribution of such security. The term “Registrable Securities” means any an d/or all of the securities falling within the foregoing definition of a “Registrable Security.” In the event of any merger, reorganization, consolidation, recapitalization or other change in corporate structure affecting the Common Stock, such adjustment shall be made in the definition of “Registrable Security” as is appropriate in order to prevent any dilution or enlargement of the rights granted pursuant to this Section 1.

2.

Registration.

(a)

The Company shall file a registration statement (the “Registration Statement”) with the Securities and Exchange Commission (the “Commission”) within forty-five (45) days from the date of this Agreement in order to register the resale of the Registrable Securities under the Securities Act. In addition, the Company shall promptly respond to all comments from the staff of the Commission and shall use its best efforts to cause such Registration Statement to be declared effective by the Commission within seventy (70) days after the initial filing thereof. Once effective, the Company shall maintain the effectiveness of the Registration Statement until the earlier of (i) the date that all of the Registrable Securities have

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been sold, or (ii) the date thatthe Company receives an opinion of counsel to the Company that all of the Registrable Securities may be freely traded without registration under the Securities Act, under Rule 144 promulgated under the Securities Act or otherwise.

(b)

As the number of shares of Common Stock that can be acquired by the Holders upon the conversion of the Series E Stock may vary, from time to time, based on the market price of the Common Stock, it is not possible to determine the maximum number of shares of Common Stock that may be acquired by the Holders through the conversion of the Series E Stock. Therefore, the Company will initially include in the Registration Statement as Registrable Securities, an aggregate of 7,430,504 shares of Common Stock, represented by the sum of (i) up to 7,000,000 Conversion Shares, and (ii) 430,504 Warrants.

(c)

If at any time the number of shares of Common Stock covered by the Registration Statement is less than the sum of (i) the number of any and all Registrable Securities held by the Holders, (ii) the number of Warrant Shares that could be acquired by the Holders through the exercise of the Warrants, and (iii) the number of Conversion Shares that could be acquired by the Holders through the conversion of the Series E Stock, the Company shall register additional shares of Common Stock under the Securities Act.

(d)

Depending on whether the Registration Statement has previously become effective with the Commission, the Company shall register additional shares under Section 2(c) either by amending the Registration Statement to increase the number of shares that it covers or by filing a new registration statement. Any such new registration statement shall thereafter be deemed part of the Registration Statement for the purposes of this Agreement.

3.

Covenants of the Company with Respect to Registration.

The Company covenants and agrees as follows:

(a)

The Company shall use its best efforts to cause the Registration Statement to become effective with the Commission as promptly as possible and in no event more than 100 days after the date of this Agreement (provided, however, that the Company shall not be liable to the Holders or in default of this covenant in event that the Commission’s review process delays such effectiveness). If any stop order shall be issued by the Commission in connection therewith, the Company shall use its best reasonable efforts to obtain promptly the removal of such order. Following the effective date of the Registration Statement, the Company shall, upon the request of any Holder, forthwith supply such reasonable number of copies of the Registration Statement, preliminary prospectus and prospectus meeting the requirements of the Securities Act, and any other documents necessary or incidental to the public offering of the Registrable Securities, as shall be reasonably requested by the Holder to permit the Holder to make a public distribution of the Holder's Registrable Securities. The obligations of the Company hereunder with respect to the Holder's Registrable Securities are subject to the Holder's furnishing to the Company such appropriate information concerning the Holder, the Holder's Registrable Securities and the terms of the Holder's offering of such Registrable Securities as the Company may reasonably request in writing.

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(b)

The Company shall pay all costs, fees and expenses in connection with the Registration Statement filed pursuant to Section 2 hereof including, without limitation, the Company's legal and accounting fees, printing expenses, and blue sky fees and expenses; provided, however, that each Holder shall be solely responsible for the fees of any counsel retained by the Holder in connection with such registration and any transfer taxes or underwriting discounts, commissions or fees applicable to the Registrable Securities sold by the Holder pursuant thereto.

(c)

The Company will take all necessary action which may be required to qualify or register the Registrable Securities included in the Registration Statement for the offer and sale under the securities or blue sky laws of such states as are reasonably requested by each Holder of such securities, provided that the Company shall not be obligated to execute or file any general consent to service of process or to qualify as a foreign corporation to do business under the laws of any such jurisdiction.

4.

Additional Terms.

(a)

The Company shall indemnify and hold harmless the Holders and each underwriter, within the meaning of the Securities Act, who may purchase from or sell for any Holder, any Registrable Securities, from and against any and all losses, claims, damages and liabilities caused by any untrue statement of a material fact contained in the Registration Statement, any other registration statement filed by the Company under the Securities Act with respect to the registration of the Registrable Securities, any post-effective amendment to such registration statements, or any prospectus included therein or caused by any omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages or liabilities are caused by any such untrue statement or omission based upon information furnished or required to be furnished in writing to the Company by the Holders or underwriter expressly for use therein, which indemnification shall include each person, if any, who controls any Holder or underwriter within the meaning of the Securities Act and each officer, director, employee and agent of each Holder and underwriter; provided, however, that the indemnification in this Section 4(a) with respect to any prospectus shall not inure to the benefit of any Holder or underwriter (or to the benefit of any person controlling any Holder or underwriter) on account of any such loss, claim, damage or liability arising from the sale of Registrable Securities by the Holder or underwriter, if a copy of a subsequent prospectus correcting the untrue statement or omission in such earlier prospectus was provided to such Holder or underwriter by the Company prior to the subject sale and the subsequent prospectus was not delivered or sent by the Holder or underwriter to the pu rchaser prior to such sale and provided further, that the Company shall not be obligated to so indemnify any Holder or any such underwriter or other person referred to above unless the Holder or underwriter or other person, as the case may be, shall at the same time indemnify the Company, its directors, each officer signing the Registration Statement and each person, if any, who controls the Company within the meaning of the Securities Act, from and against any and all losses, claims, damages and liabilities caused by any untrue statement of a material fact contained in the Registration Statement, any registration statement or any prospectus required to be filed or furnished by reason of this Agreement or caused by any omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, insofar as such losses, claims, damages or liabilities are caused by any untrue statement or omission based upon information furnished in writing to the Company b y the Holder or underwriter expressly for use therein.

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(b)

If for any reason the indemnification provided for in the preceding section is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, claim, damage, liability or expense referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party thereunder, shall contribute to the amount paid or payable by the indemnified party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect the relative fault of the indemnified party and the indemnifying party, as well as any other relevant equitable considerations.

(c)

Neither the filing of a Registration Statement by the Company pursuant to this Agreement nor the making of any request for prospectuses by the Holder shall impose upon any Holder any obligation to sell the Holder's Registrable Securities.

(d)

Each Holder, upon receipt of notice from the Company that an event has occurred which requires a Post-Effective Amendment to the Registration Statement or a supplement to the prospectus included therein, shall promptly discontinue the sale of Registrable Securities until the Holder receives a copy of a supplemented or amended prospectus from the Company, which the Company shall provide as soon as practicable after such notice.

(e)

If the Company fails to keep the Registration Statement referred to above continuously effective during the requisite period, then the Company shall, promptly upon the request of any Holder, use its best efforts to update the Registration Statement or file a new registration statement covering the Registrable Securities remaining unsold, subject to the terms and provisions hereof.

(f)

Each Holder agrees to provide the Company with any information or undertakings reasonably requested by the Company in order for the Company to include any appropriate information concerning the Holder in the Registration Statement or in order to promote compliance by the Company or the Holder with the Securities Act.

(g)

The Company agrees that it shall cause each of its directors, officers and shareholders owning ten percent (10%) or more of the Company’s outstanding Common Stock to refrain from selling any shares of the Company’s Common Stock until the Registration Statement has been declared effective.

(h)

Each Holder agrees with the Company that such Holder will not short sell the Company’s shares of Common Stock, either before or after the effective date of the Registration Statement. This covenant shall terminate concurrently with the termination of the Company's obligation to maintain the effectiveness of the Registration Statement pursuant to Section 2(a).

5.

Governing Law. The Registrable Securities will be, if and when issued, delivered in California. This Agreement shall be deemed to have been made and delivered in the State of California and shall be governed as to validity, interpretation, construction, effect and in all other respects by the internal substantive laws of the State of California, without giving effect to the choice of law rules thereof.

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6.

Amendment. This Agreement may only be amended by a written instrument executed by the Company and the Holders.

7.

Entire Agreement. This Agreement constitutes the entire agreement of the parties hereto with respect to the subject matter hereof, and supersedes all prior agreements and understandings of the parties, oral and written, with respect to the subject matter hereof.

8.

Execution in Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same document.

9.

Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed duly given when delivered by hand or mailed by registered or certified mail, postage prepaid, return receipt requested, as follows:

If to the Holders,	Mercator Advisory Group, LLC
	Monarch Pointe Fund, Ltd.
	555 South Flower Street, Suite 4500
	Los Angeles, CA 90071
	Facsimile: 213-533-8285
	Attention: Harry Aharonian
With a copy to	David C. Ulich, Esq.
	Sheppard, Mullin, Richter & Hampton LLP
	333 South Hope Street, 48th Floor
	Los Angeles, California 90071
	Facsimile: (213) 620-1398
If to the Company,	Care Concepts I, Inc.
	2200 S.W. 10th Street
	Deerfield Beach, FL 33442
	Attention: AJ Nassar, President
	Telephone: (954) 363-4400
With a copy to	Gersten Savage Kaplowitz Wolf & Marcus, LLP
	101 East 52nd Street
	10th Floor
	New York, New York 10022
	Telephone No.: (212) 752-9700
	Facsimile No.: (212) 980-15192
	Attention: Stephen A. Weiss, Esq.

10.

Binding Effect; Benefits. Any Holder may assign its rights hereunder. This Agreement shall inure to the benefit of, and be binding upon, the parties hereto and their respective heirs, legal representatives, successors and assigns. Nothing herein contained, express

5

or implied, is intended to confer upon any person other than the parties hereto and their respective heirs, legal representatives and successors, any rights or remedies under or by reason of this Agreement.

11.

Headings. The headings contained herein are for the sole purpose of convenience of reference, and shall not in any way limit or affect the meaning or interpretation of any of the terms or provisions of this Agreement.

12.

Severability. Any provision of this Agreement which is held by a court of competent jurisdiction to be prohibited or unenforceable in any jurisdiction(s) shall be, as to such jurisdiction(s), ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction.

13.

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 in 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 9 shall be deemed in every respect eff ective service of process upon such party in any such suit or proceeding. Nothing herein shall affect the right of a Fund 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.

14.

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 in addition to any other relief to which the prevailing party or parties may be entitled.

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IN WITNESS WHEREOF, this Agreement has been executed and delivered by the parties hereto as of the date first above written.

CARE CONCEPTS I, INC.

By:                                                              

Name: A.J. Nassar

Its:    President

HOLDERS:

MONARCH POINTE FUND, LTD.

By:                                                              

Name: David Firestone 

Its:    President

MERCATOR ADVISORY GROUP, LLC

By:                                                              

Name: David Firestone

Its:    Managing Member

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