SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "AGREEMENT") is made and
entered into as of February __, 2004, by and between PENTHOUSE INTERNATIONAL,
INC., a Florida corporation (the "COMPANY"), and LAURUS MASTER FUND, LTD., a
Cayman Islands company ("LAURUS" or the "PURCHASER").
RECITALS
WHEREAS, the Company has authorized the sale to the Purchaser of a
Convertible Term Note in the aggregate principal amount of Twenty-Four Million
Dollars ($24,000,000) (the "NOTE"), which Note is convertible into shares of the
Company's common stock, $.0025 par value per share (the "COMMON STOCK") at the
fixed conversion price set forth in the Note ("FIXED CONVERSION PRICE");
WHEREAS, the Company wishes to issue a warrant to the Purchaser to
purchase additional shares of the Company's Common Stock in connection with
Purchaser's purchase of the Note;
WHEREAS, Purchaser desires to purchase the Note and Warrant on the
terms and conditions set forth herein; and
WHEREAS, the Company desires to issue and sell the Note and Warrant to
Purchaser on the terms and conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises, representations, warranties and covenants hereinafter set forth
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. AGREEMENT TO SELL AND PURCHASE. Pursuant to the terms and conditions
set forth in this Agreement, on the Closing Date (as defined in Section 3), the
Company agrees to sell to the Purchaser, and the Purchaser hereby agrees to
purchase from the Company a Note in the amount of $24,000,000 convertible in
accordance with the terms thereof into shares of the Company's Common Stock in
accordance with the terms of the Note and this Agreement. The Note purchased on
the Closing Date shall be known as the "Offering." A form of the Note is annexed
hereto as Exhibit A. The Note will have a Maturity Date (as defined in the Note)
on a date which shall be thirty six (36) months from the date of issuance,
subject to acceleration in accordance with the terms thereof. Collectively, the
Note and Warrant (as defined in Section 2) and Common Stock issuable in payment
of the Note, upon conversion of the Note and upon exercise of the Warrant are
referred to as the "Securities".
2. Fees and Warrant. On the Closing Date
(a) The Company will issue and deliver to the Purchaser a
Warrant to purchase up to [________________] shares of Common Stock in
connection with the Offering (the "WARRANT") pursuant to Section 1 hereof. The
Warrant shall be delivered on the Closing Date in substantially the form of
Warrant annexed hereto as Exhibit B. All the representations, covenants,
warranties, undertakings, and indemnification, and other rights made or granted
to or for the benefit of the Purchaser by the Company are hereby also made and
granted in respect of the Warrant and shares of the Company's Common Stock
issuable upon exercise of the Warrant (the "WARRANT SHARES").
(b) Upon execution and delivery of this Agreement by the
Company and Purchaser, the Company shall pay to Laurus Capital Management, LLC,
manager of Purchaser a closing payment in an amount equal to three and one half
percent (3.5%) of the aggregate principal amount of the Note. The foregoing fee
is referred to herein as the "CLOSING PAYMENT".
(c) The Company shall reimburse the Purchaser for its
reasonable legal fees and expenses for services rendered to the Purchaser in
preparation of this Agreement and the Related Agreements (as hereinafter
defined), and expenses in connection with the Purchaser's due diligence review
of the Company and relevant matters. Purchaser's reimbursable due diligence
expenses shall not exceed $17,500 without the Company's prior approval.
(d) The Company shall pay to the Purchaser the Closing
Payment, legal fees and due diligence fees (net of deposits previously paid by
the Company) out of funds held pursuant to a Funds Escrow Agreement of even date
herewith among the Company, Purchaser, and the escrow agent named therein (the
"FUNDS ESCROW AGREEMENT") and a disbursement letter (the "DISBURSEMENT LETTER").
3. CLOSING, DELIVERY AND PAYMENT.
3.1 CLOSING. Subject to the terms and conditions herein, the closing of
the transactions contemplated hereby (the "CLOSING"), shall take place on the
date hereof, at such time or place as the Company and Purchaser may mutually
agree (such date is hereinafter referred to as the "CLOSING DATE").
3.2 DELIVERY. Pursuant to the Funds Escrow Agreement in the form
attached hereto as Exhibit C, at the Closing on the Closing Date, the Company
will deliver to the Purchaser, among other things, a Note in the form attached
as Exhibit A representing the principal amount of $24,000,000 and a Warrant in
the form attached as Exhibit B in the Purchaser's name representing the Warrant
Shares and the Purchaser will deliver to the Company, among other things, the
amounts set forth in the Disbursement Letter by certified funds or wire
transfer.
4. Representations and Warranties of the Company.
The Company hereby represents and warrants to the Purchaser as of the
date of this Agreement as set forth below which disclosures are supplemented by,
and subject to the
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Company's filings under the Securities Exchange Act of 1934 (collectively, the
"EXCHANGE ACT FILINGS"), copies of which have been provided to the Purchaser.
4.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Florida. The Company has the corporate power and authority to
own and operate its properties and assets, to execute and deliver this
Agreement, and the Note and the Warrant to be issued in connection with this
Agreement, the Real Estate Documentation (as hereafter defined), the
Registration Rights Agreement relating to the Securities dated as of the date
hereof between the Company and the Purchaser (the "REGISTRATION RIGHTS
AGREEMENT") and all other agreements, documents and instruments entered into in
connection with the transactions contemplated hereby and thereby (as each of the
same may be amended, modified and supplemented from time to time, collectively,
the "RELATED AGREEMENTS"), to issue and sell the Note and the shares of Common
Stock issuable upon conversion of the Note (the "NOTE SHARES"), to issue and
sell the Warrant and the Warrant Shares, and to carry out the provisions of this
Agreement and the Related Agreements and to carry on its business as presently
conducted. The Company is duly qualified and is authorized to do business and is
in good standing as a foreign corporation in all jurisdictions in which the
nature of its activities and of its properties (both owned and leased) makes
such qualification necessary, except for those jurisdictions in which failure to
do so would not have a material adverse effect on the Company or its business.
For purposes hereof, the term "REAL ESTATE DOCUMENTATION" shall mean (a) the
mortgage dated as of the date hereof made by the Company in favor of the
Purchaser covering the real property located at 00-00 Xxxx 00xx Xxxxxx, Xxx
Xxxx, Xxx Xxxx (the "REAL PROPERTY") and (b) all documents, instruments and
agreements entered into in connection therewith, as each of the same may be
amended, modified and supplemented from time to time.
4.2 SUBSIDIARIES. The Company owns (a) all of the issued and
outstanding capital stock and membership interests, as applicable, of NYC Realty
I LLC, P.H. Realty Associates, L.L.C., Del Sol Investments LLC and Del Sol
Investments SA de CV, and (b) 99% of the capital stock of General Media, Inc.,
General Media Art Holding, Inc., General Media Communications, Inc., General
Media Entertainment, Inc., General Media (UK), Ltd., GMCI Internet Operations,
Inc., GMI On-Line Ventures, Ltd., Penthouse Images Acquisitions, Ltd. and Pure
Entertainment Telecommunications, Inc.; each of which entities set forth in this
clause "(b)" are debtors (collectively, the "DEBTORS") in a Chapter 11
bankruptcy case currently pending the United States District Court for the
Southern District of New York (the "BANKRUPTCY COURT"). The Company does not own
or control any equity security or other interest of any other corporation,
limited partnership or other business entity.
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4.3 CAPITALIZATION; VOTING RIGHTS.
(a) The authorized capital stock of the Company, as of the
date hereof consists of 770,000,000 shares, of which 750,000,000 are shares of
Common Stock, par value $0.0025 per share, _________shares of which are issued
and outstanding, and 20,000,000 of which are shares of preferred stock, par
value $.0025 per share of which 11,555,000 shares are issued outstanding. 5,000
shares of Preferred Stock are designated as Series A Preferred Stock of which
5,000 shares are outstanding and owned by General Media International, Inc.;
5,000 shares of Preferred Stock are designated as Series B Preferred Stock, of
which no shares are issued and outstanding; and 11,550,000 shares of Preferred
Stock are designated as Series C Preferred Stock of which 11,550,000 are
outstanding and of which 10,500,000 shares are owned by Del Sol Investments G.P.
and 1,050,00 shares are owned by A & L Capital. The authorized capital
stock/membership interests of each guarantor of the Company's obligations to
Purchaser (each a "Guarantor" and collectively "Guarantors"), together with the
related par value per share and number of issued and outstanding
shares/membership interests, in each case, as of the date hereof, are set forth
on SCHEDULE 4.3(a).
(b) Except as disclosed on SCHEDULE 4.3(b), other than (i) the
shares reserved for issuance under the Company's stock option plans; and (ii)
shares which may be granted pursuant to this Agreement and the Related
Agreements, there are no outstanding options, warrants, rights (including
conversion or preemptive rights and rights of first refusal), proxy or
stockholder agreements, or arrangements or agreements of any kind for the
purchase or acquisition from the Company any of its securities. Except as
disclosed on SCHEDULE 4.3(b), neither the offer, issuance or sale of any of the
Note or Warrant, or the issuance of any of the Note Shares or Warrant Shares,
nor the consummation of any transaction contemplated hereby will result in a
change in the price or number of any securities of the Company outstanding,
under anti-dilution or other similar provisions contained in or affecting any
such securities.
(c) All issued and outstanding shares of the Company's Common
Stock (i) have been duly authorized and validly issued and are fully paid and
nonassessable and (ii) were issued in compliance with all applicable state and
federal laws concerning the issuance of securities.
(d) The rights, preferences, privileges and restrictions of
the shares of the Common Stock are as stated in the Company's Certificate of
Incorporation (the "CHARTER"). The Note Shares and Warrant Shares have been duly
and validly reserved for issuance. When issued in compliance with the provisions
of this Agreement and the Company's Charter, the Securities will be validly
issued, fully paid and nonassessable, and will be free of any liens or
encumbrances; PROVIDED, HOWEVER, that the Securities may be subject to
restrictions on transfer under state and/or federal securities laws as set forth
herein or as otherwise required by such laws at the time a transfer is proposed.
4.4 AUTHORIZATION; BINDING OBLIGATIONS. All corporate action on the
part of the Company, its officers and directors necessary for the authorization
of this Agreement and the Related Agreements, the performance of all obligations
of the Company hereunder at the Closing and, the authorization, sale, issuance
and delivery of the Note and Warrant has been taken or will be taken prior to
the Closing. The Agreement and the Related Agreements, when executed
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and delivered and to the extent it is a party thereto, will be valid and binding
obligations of the Company enforceable in accordance with their terms, except
(a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other laws of general application affecting enforcement of creditors' rights,
and (b) general principles of equity that restrict the availability of equitable
or legal remedies. The sale of the Note and the subsequent conversion of the
Note into Note Shares are not and will not be subject to any preemptive rights
or rights of first refusal that have not been properly waived or complied with.
The issuance of the Warrant and the subsequent exercise of the Warrant for
Warrant Shares are not and will not be subject to any preemptive rights or
rights of first refusal that have not been properly waived or complied with.
4.5 LIABILITIES. The Company, to the best of its knowledge, has no
contingent or other liabilities, except current liabilities incurred in the
ordinary course of business and liabilities disclosed in any Exchange Act
Filings, or any other liabilities and obligations which, individually or in the
aggregate, could reasonably be expected to have a material adverse effect on the
business, assets, liabilities, financial condition, prospects or operations of
the Company and its subsidiaries, when taken as a consolidated whole (a
"MATERIAL ADVERSE EFFECT").
4.6 AGREEMENTS; ACTION. Except as set forth on SCHEDULE 4.6 or as
disclosed in any Exchange Act Filings:
(a) Except for the Debtors or where the existence of any of the
following could not be reasonably expect to have a Material Adverse Effect,
there are no agreements, understandings, instruments, contracts, proposed
transactions, judgments, orders, writs or decrees to which the Company or any
Guarantor is a party or to its knowledge by which it or any Guarantor is bound
which may involve (i) obligations (contingent or otherwise) of, or payments to,
the Company and/or any Guarantor in excess of $50,000 in the aggregate for the
Company and the Guarantors (other than obligations of, or payments to, the
Company and/or any Guarantor arising from purchase or sale agreements entered
into in the ordinary course of business), or (ii) the transfer or license of any
patent, copyright, trade secret or other proprietary right to or from the
Company or any Guarantor (other than licenses arising from the purchase of "off
the shelf" or other standard products), or (iii) provisions restricting the
development, manufacture or distribution of the Company's or any Guarantor's
products or services, or (iv) indemnification by the Company or any Guarantor's
with respect to infringements of proprietary rights.
(b) Since December 31, 2003, the Company has not (i) declared
or paid any dividends, or authorized or made any distribution upon or with
respect to any class or series of its capital stock, (ii) incurred any
indebtedness for money borrowed or any other liabilities (other than ordinary
course obligations) individually in excess of $100,000 or, in the case of
indebtedness and/or liabilities individually less than $100,000, in excess of
$250,000 in the aggregate, (iii) made any loans or advances to any person not in
excess, individually or in the aggregate, of $50,000, other than ordinary
advances for travel expenses, or (iv) sold, exchanged or otherwise disposed of
any of its assets or rights, other than the sale of its inventory in the
ordinary course of business.
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(c) For the purposes of subsections (a) and (b) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such subsections.
4.7 OBLIGATIONS TO RELATED PARTIES. Except as set forth on SCHEDULE 4.7
or as disclosed in the Exchange Act Filings, there are no obligations of the
Company to officers, directors, stockholders or employees of the Company other
than (a) for payment of salary for services rendered and for bonus payments, (b)
reimbursement for reasonable expenses incurred on behalf of the Company, (c) for
other standard employee benefits made generally available to all employees
(including stock option agreements outstanding under any stock option plan
approved by the Board of Directors of the Company) and (d) obligations listed in
the Company's financial statements or disclosed in any of its Exchange Act
Filings. Except as described above or set forth on SCHEDULE 4.7, none of the
officers, directors or, to the best of the Company's knowledge, key employees or
stockholders of the Company or any members of their immediate families, are
indebted to the Company, individually or in the aggregate, in excess of $50,000
or have any direct or indirect ownership interest in any firm or corporation
with which the Company is affiliated or with which the Company has a business
relationship, or any firm or corporation which competes with the Company, other
than passive investments in publicly traded companies (representing less than 1%
of such company) which may compete with the Company. Except as described above,
no officer, director or stockholder, or any member of their immediate families,
is, directly or indirectly, interested in any material contract with the Company
and no agreements, understandings or proposed transactions are contemplated
between the Company and any such person. Except as set forth on SCHEDULE 4.7 or
as disclosed in the Exchange Act Filings, the Company is not a guarantor or
indemnitor of any indebtedness of any other person, firm or corporation.
4.8 CHANGES. Since December 31, 2003, except as disclosed in any
Exchange Act Filing or in any Schedule to this Agreement or to any of the
Related Agreements, there has not been:
(a) Any change in the assets, liabilities, financial
condition, prospects or operations of the Company, other than changes in the
ordinary course of business, none of which individually or in the aggregate has
had or could reasonably be expected to have a Material Adverse Effect;
(b) Any resignation or termination of any officer, key
employee or group of employees of the Company;
(c) Any material change, except in the ordinary course of
business, in the contingent obligations of the Company by way of guaranty,
endorsement, indemnity, warranty or otherwise;
(d) Any damage, destruction or loss, whether or not covered by
insurance, which could reasonably be expected to have a Material Adverse Effect;
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(e) Any waiver by the Company of a valuable right or of a
material debt owed to it;
(f) Any direct or indirect material loans made by the Company
to any stockholder, employee, officer or director of the Company, other than
advances made in the ordinary course of business;
(g) Any material change in any compensation arrangement or
agreement with any employee, officer, director or stockholder;
(h) Any declaration or payment of any dividend or other
distribution of the assets of the Company;
(i) Any labor organization activity
related to the Company;
(j) Any debt, obligation or liability incurred, assumed or
guaranteed by the Company, except those for immaterial amounts and for current
liabilities incurred in the ordinary course of business;
(k) Any sale, assignment or transfer of any patents,
trademarks, copyrights, trade secrets or other intangible assets;
(l) Any change in any material agreement to which the Company
is a party or by which it is bound which may materially and adversely affect the
business, assets, liabilities, financial condition, operations or prospects of
the Company;
(m) Any other event or condition of any character that, either
individually or cumulatively, could reasonably be expected to have a Material
Adverse Effect; or
(n) Any arrangement or commitment by the Company to do any of
the acts described in subsection (a) through (m) above.
4.9 TITLE TO PROPERTIES AND ASSETS; LIENS, ETC. Except as set forth on
SCHEDULE 4.9, the Company has good and marketable title to its properties and
assets, and good title to its leasehold estates, in each case subject to no
mortgage, pledge, lien, lease, encumbrance or charge, other than (a) those
resulting from taxes which have not yet become delinquent, (b) minor liens and
encumbrances which do not materially detract from the value of the property
subject thereto or materially impair the operations of the Company, and (c)
those that have otherwise arisen in the ordinary course of business. All
facilities, machinery, equipment, fixtures, vehicles and other properties owned,
leased or used by the Company are in good operating condition and repair and are
reasonably fit and usable for the purposes for which they are being used. Except
as set forth on SCHEDULE 4.9, the Company is in compliance with all material
terms of each lease to which it is a party or is otherwise bound.
4.10 INTELLECTUAL PROPERTY.
(a) Except where a breach of the representations contained in this
Section 4.10 could not reasonably be expected to have a Material Adverse Effect,
(i) the Company owns
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or possesses sufficient legal rights to all patents, trademarks, service marks,
trade names, copyrights, trade secrets, licenses, information and other
proprietary rights and processes necessary for its business as now conducted and
to the Company's knowledge as presently proposed to be conducted (the
"INTELLECTUAL PROPERTY"), without any known infringement of the rights of
others; and (ii) there are no outstanding options, licenses or agreements of any
kind relating to the foregoing proprietary rights, nor is the Company bound by
or a party to any options, licenses or agreements of any kind with respect to
the patents, trademarks, service marks, trade names, copyrights, trade secrets,
licenses, information and other proprietary rights and processes of any other
person or entity other than such licenses or agreements arising from the
purchase of "off the shelf" or standard products.
(b) Except as set forth in SCHEDULE 4.10(b), the Company has
not received any communications alleging that the Company has violated any of
the patents, trademarks, service marks, trade names, copyrights or trade secrets
or other proprietary rights of any other person or entity, nor is the Company
aware of any basis therefor.
(c) The Company does not believe it is or will be necessary to
utilize any inventions, trade secrets or proprietary information of any of its
employees made prior to their employment by the Company, except for inventions,
trade secrets or proprietary information that have been rightfully assigned to
the Company.
4.11 COMPLIANCE WITH OTHER INSTRUMENTS. Except as set forth on SCHEDULE
4.11 or as disclosed in the Exchange Act Filings, the Company is not in
violation or default of any term of its Charter or Bylaws, or of any material
provision of any mortgage, indenture, contract, agreement, instrument or
contract to which it is party or by which it is bound or of any judgment,
decree, order or writ. The execution, delivery and performance of and compliance
with this Agreement and the Related Agreements to which it is a party, and the
issuance and sale of the Note by the Company and the other Securities by the
Company each pursuant hereto, will not, with or without the passage of time or
giving of notice, result in any such material violation, or be in conflict with
or constitute a default under any such term or provision, or result in the
creation of any mortgage, pledge, lien, encumbrance or charge upon any of the
properties or assets of the Company or the suspension, revocation, impairment,
forfeiture or nonrenewal of any permit, license, authorization or approval
applicable to the Company, its business or operations or any of its assets or
properties.
4.12 LITIGATION. Except as set forth on SCHEDULE 4.12 or as disclosed
in the Exchange Act Filings, there is no action, suit, proceeding or
investigation pending or, to the Company's knowledge, currently threatened
against the Company that prevents the Company to enter into this Agreement or
the Related Agreements, or to consummate the transactions contemplated hereby or
thereby, or which might result, either individually or in the aggregate, in any
material adverse change in the assets, condition, affairs or prospects of the
Company, financially or otherwise, or any change in the current equity ownership
of the Company, nor is the Company aware that there is any basis for any of the
foregoing. The Company is not a party or subject to the provisions of any order,
writ, injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company currently pending or which the Company intends to initiate.
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4.13 TAX RETURNS AND PAYMENTS. The Company has timely filed all tax
returns (federal, state and local) required to be filed by it. All taxes shown
to be due and payable on such returns, any assessments imposed, and to the
Company's knowledge all other taxes due and payable by the Company on or before
the Closing, have been paid or will be paid prior to the time they become
delinquent. Except as set forth on SCHEDULE 4.13 or disclosed in the Exchange
Act Filings, the Company has not been advised (a) that any of its returns,
federal, state or other, have been or are being audited as of the date hereof,
or (b) of any deficiency in assessment or proposed judgment to its federal,
state or other taxes. The Company has no knowledge of any liability of any tax
to be imposed upon its properties or assets as of the date of this Agreement
that is not adequately provided for.
4.14 EMPLOYEES. Except as set forth on SCHEDULE 4.14, the Company has
no collective bargaining agreements with any of its employees. There is no labor
union organizing activity pending or, to the Company's knowledge, threatened
with respect to the Company. Except as disclosed in the Exchange Act Filings or
on SCHEDULE 4.14, the Company is not a party to or bound by any currently
effective employment contract, deferred compensation arrangement, bonus plan,
incentive plan, profit sharing plan, retirement agreement or other employee
compensation plan or agreement. Except where a breach of the following could not
reasonably be expected to have a Material Adverse Effect, to the Company's
knowledge, (i) no employee of the Company, nor any consultant with whom the
Company has contracted, is in violation of any term of any employment contract,
proprietary information agreement or any other agreement relating to the right
of any such individual to be employed by, or to contract with, the Company
because of the nature of the business to be conducted by the Company; and to the
Company's knowledge the continued employment by the Company of its present
employees, and the performance of the Company's contracts with its independent
contractors, will not result in any such violation, (ii) the Company is not
aware that any of its employees is obligated under any contract (including
licenses, covenants or commitments of any nature) or other agreement, or subject
to any judgment, decree or order of any court or administrative agency, that
would interfere with their duties to the Company, (iii) the Company has not
received any notice alleging that any such violation has occurred, and (iv)
except for employees who have a current effective employment agreement with the
Company, no employee of the Company has been granted the right to continued
employment by the Company or to any material compensation following termination
of employment with the Company. Except as disclosed in Exchange Act Filings or
as set forth on SCHEDULE 4.14, the Company is not aware that any officer, key
employee or group of employees intends to terminate his, her or their employment
with the Company, nor does the Company have a present intention to terminate the
employment of any officer, key employee or group of employees.
4.15 REGISTRATION RIGHTS AND VOTING RIGHTS. Except as set forth on
SCHEDULE 4.15 and except as disclosed in Exchange Act Filings, the Company is
presently not under any obligation, and has not granted any rights, to register
any of the Company's presently outstanding securities or any of its securities
that may hereafter be issued. Except as set forth on SCHEDULE 4.15 and except as
disclosed in Exchange Act Filings, to the Company's knowledge, no stockholder of
the Company has entered into any agreement with respect to the voting of equity
securities of the Company.
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4.16 COMPLIANCE WITH LAWS; PERMITS. Except as set forth on SCHEDULE
4.16 or as disclosed in the Exchange Act Filings, to its knowledge, the Company
is not in violation in any material respect of any applicable statute, rule,
regulation, order or restriction of any domestic or foreign government or any
instrumentality or agency thereof in respect of the conduct of its business or
the ownership of its properties which violation could reasonably be expected to
have a Material Adverse Effect. No governmental orders, permissions, consents,
approvals or authorizations are required to be obtained and no registrations or
declarations are required to be filed in connection with the execution and
delivery of this Agreement and the issuance of any of the Securities, except
such as has been duly and validly obtained or filed, or with respect to any
filings that must be made after the Closing, as will be filed in a timely
manner. The Company has all material franchises, permits, licenses and any
similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could reasonably be expected to have a
Material Adverse Effect.
4.17 ENVIRONMENTAL AND SAFETY LAWS. The Company is not in violation of
any applicable statute, law or regulation relating to the environment or
occupational health and safety, and to its knowledge, no material expenditures
are or will be required in order to comply with any such existing statute, law
or regulation. Except as set forth on SCHEDULE 4.17, no Hazardous Materials (as
defined below) are used or have been used, stored, or disposed of by the Company
or, to the Company's knowledge, by any other person or entity on any property
owned, leased or used by the Company. For the purposes of the preceding
sentence, "HAZARDOUS MATERIALS" shall mean (a) materials which are listed or
otherwise defined as "HAZARDOUS" or "TOXIC" under any applicable local, state,
federal and/or foreign laws and regulations that govern the existence and/or
remedy of contamination on property, the protection of the environment from
contamination, the control of hazardous wastes, or other activities involving
hazardous substances, including building materials, or (b) any petroleum
products or nuclear materials.
4.18 VALID OFFERING. Assuming the accuracy of the representations and
warranties of the Purchaser contained in this Agreement, the offer, sale and
issuance of the Securities will be exempt from the registration requirements of
the Securities Act of 1933, as amended (the "SECURITIES ACT"), and will have
been registered or qualified (or are exempt from registration and qualification)
under the registration, permit or qualification requirements of all applicable
state securities laws.
4.19 FULL DISCLOSURE. The Company has provided the Purchaser with all
information requested by the Purchaser in connection with its decision to
purchase the Note and Warrant, including all information the Company believes is
reasonably necessary to make such investment decision. Neither this Agreement,
the exhibits and schedules hereto, the Related Agreements nor any other document
delivered by the Company to Purchaser or its attorneys or agents in connection
herewith or therewith or with the transactions contemplated hereby or thereby,
contain any untrue statement of a material fact nor omit to state a material
fact necessary in order to make the statements contained herein or therein, in
light of the circumstances in which they are made, not misleading. Any financial
projections and other estimates provided to the Purchaser by the Company were
based on the Company's experience in the industry and on assumptions of fact and
opinion as to future events which the Company, at the date of the issuance of
such projections or estimates, believed to be reasonable.
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4.20 INSURANCE. The Company has general commercial, product liability,
fire and casualty insurance policies with coverages which the Company believes
are customary for companies similarly situated to the Company in the same or
similar business.
4.21 SEC REPORTS. Except as set forth on SCHEDULE 4.21, the Company has
filed all proxy statements, reports and other documents required to be filed by
it under the Exchange Act. The Company has furnished the Purchaser with copies
of (i) its Annual Report on Form 10-K(SB) for the fiscal year ended December 31,
2002 and (ii) its Quarterly Reports on Form 10-Q(SB) for the fiscal quarters
ended March 31, 2003, June 30, 2003 and September 30, 2003, and the Form 8-K
filings which it has made during 2003 to date (collectively, the "SEC REPORTS").
Except as set forth on SCHEDULE 4.21, each SEC Report was, at the time of its
filing, in substantial compliance with the requirements of its respective form
and none of the SEC Reports, nor the financial statements (and the notes
thereto) included in the SEC Reports, as of their respective filing dates,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
4.22 LISTING. The Company's Common Stock is listed for trading on the
OTC BB and satisfies all requirements for the continuation of such listing. The
Company has not received any notice that its Common Stock will be delisted from
the OTC BB or that its Common Stock does not meet all requirements for listing.
4.23 NO INTEGRATED OFFERING. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would cause the offering of the
Securities pursuant to this Agreement to be integrated with prior offerings by
the Company for purposes of the Securities Act which would prevent the Company
from selling the Securities pursuant to Rule 506 under the Securities Act, or
any applicable exchange-related stockholder approval provisions, nor will the
Company or any of its affiliates or subsidiaries take any action or steps that
would cause the offering of the Securities to be integrated with other
offerings.
4.24 STOP TRANSFER. The Securities are restricted securities as of the
date of this Agreement. The Company will not issue any stop transfer order or
other order impeding the sale and delivery of any of the Securities at such time
as the Securities are registered for public sale or an exemption from
registration is available, except as required by state and federal securities
laws.
4.25 DILUTION. The Company specifically acknowledges that its
obligation to issue the shares of Common Stock upon conversion of the Note and
exercise of the Warrant is binding upon the Company and enforceable regardless
of the dilution such issuance may have on the ownership interests of other
shareholders of the Company.
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5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
The Purchaser hereby represents and warrants to the Company as follows
(such representations and warranties do not lessen or obviate the
representations and warranties of the Company set forth in this Agreement):
5.1 NO SHORTING. Neither the Purchaser nor any of its affiliates and
investment partners will or will cause any person or entity, directly or
indirectly, to engage in "short sales" of the Company's Common Stock or any
"hedging" transactions involving such Common Stock for as long as the Note
remains outstanding.
5.2 REQUISITE POWER AND AUTHORITY. Purchaser has all necessary power
and authority under all applicable provisions of law to execute and deliver this
Agreement and the Related Agreements and to carry out their provisions. All
corporate action on Purchaser's part required for the lawful execution and
delivery of this Agreement and the Related Agreements have been or will be
effectively taken prior to the Closing. Upon their execution and delivery, this
Agreement and the Related Agreements will be valid and binding obligations of
Purchaser, enforceable in accordance with their terms, except (a) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application affecting enforcement of creditors' rights, and (b) as
limited by general principles of equity that restrict the availability of
equitable and legal remedies.
5.3 INVESTMENT REPRESENTATIONS. Purchaser understands that the
Securities are being offered and sold pursuant to an exemption from registration
contained in the Securities Act based in part upon Purchaser's representations
contained in the Agreement, including, without limitation, that the Purchaser is
an "accredited investor" within the meaning of Regulation D under the Securities
Act of 1933, as amended (the "SECURITIES ACT"). The Purchaser confirms that 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 Note and the Warrant to be purchased by it under this Agreement and the Note
Shares and the Warrant Shares acquired by it upon the conversion of the Note and
the exercise of the Warrant, respectively. The Purchaser further confirms that
it has had an opportunity to ask questions and receive answers from the Company
regarding the Company's business, management and financial affairs and the terms
and conditions of the Offering, the Note, the Warrant and the Securities and to
obtain additional information (to the extent the Company possessed such
information or could acquire it without unreasonable effort or expense)
necessary to verify any information furnished to the Purchaser or to which the
Purchaser had access.
5.4 PURCHASER BEARS ECONOMIC RISK. Purchaser has substantial experience
in evaluating and investing in private placement transactions of securities in
companies similar to the Company so that it is capable of evaluating the merits
and risks of its investment in the Company and has the capacity to protect its
own interests. Purchaser must bear the economic risk of this investment until
the Securities are sold pursuant to (i) an effective registration statement
under the Securities Act, or (ii) an exemption from registration is available
with respect to such sale.
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5.5 ACQUISITION FOR OWN ACCOUNT. Purchaser is acquiring the Note and
Warrant and the Note Shares and the Warrant Shares for Purchaser's 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.
5.6 PURCHASER CAN PROTECT ITS INTEREST. Purchaser represents that by
reason of its, or of its management's, business and financial experience,
Purchaser has the capacity to evaluate the merits and risks of its investment in
the Note, the Warrant and the Securities and to protect its own interests in
connection with the transactions contemplated in this Agreement, and the Related
Agreements. Further, Purchaser is aware of no publication of any advertisement
in connection with the transactions contemplated in the Agreement or the Related
Agreements.
5.7 ACCREDITED INVESTOR. Purchaser represents that it is an accredited
investor within the meaning of Regulation D under the Securities Act.
5.8 LEGENDS.
(a) The Note shall bear substantially the following legend:
"THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY APPLICABLE, STATE SECURITIES LAWS. THIS NOTE AND THE 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 OR SUCH SHARES UNDER SAID ACT
AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO PENTHOUSE INTERNATIONAL, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED."
(b) The Note Shares and the Warrant Shares, if not issued by
DWAC system (as hereinafter defined), shall bear a legend which shall be in
substantially the following form until such shares are covered by an effective
registration statement filed with the SEC:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE, STATE
SECURITIES LAWS. THESE SHARES MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH SECURITIES ACT AND APPLICABLE STATE LAWS OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO PENTHOUSE
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INTERNATIONAL, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
(c) The Warrant shall bear substantially the following legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. THIS WARRANT AND THE
COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT OR THE UNDERLYING
SHARES OF COMMON STOCK UNDER SAID ACT AND APPLICABLE STATE SECURITIES
LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO PENTHOUSE
INTERNATIONAL, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
6. COVENANTS OF THE COMPANY.
The Company covenants and agrees with the Purchaser as follows:
6.1 STOP-ORDERS. The Company will advise the Purchaser, promptly after
it receives notice of issuance by the Securities and Exchange Commission (the
"SEC"), any state securities commission or any other regulatory authority of any
stop order or of any order preventing or suspending any offering of any
securities of the Company, or of the suspension of the qualification of the
Common Stock of the Company for offering or sale in any jurisdiction, or the
initiation of any proceeding for any such purpose.
6.2 LISTING. The Company shall promptly secure the listing of the
shares of Common Stock issuable upon conversion of the Note and upon the
exercise of the Warrant on the OTC BB (the "PRINCIPAL MARKET") upon which shares
of Common Stock are listed (subject to official notice of issuance) and shall
maintain such listing so long as any other shares of Common Stock shall be so
listed. The Company will maintain the listing of its Common Stock on the
Principal Market, and will comply in all material respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the
National Association of Securities Dealers ("NASD") and such exchanges, as
applicable.
6.3 MARKET REGULATIONS. The Company shall notify the SEC, NASD and
applicable state authorities, in accordance with their requirements, of the
transactions contemplated by this Agreement, and shall take all other necessary
action and proceedings as may be required and permitted by applicable law, rule
and regulation, for the legal and valid issuance of the Securities to Purchaser
and promptly provide copies thereof to Purchaser.
6.4 REPORTING REQUIREMENTS. The Company will timely file with the SEC
all reports required to be filed pursuant to the Exchange Act and refrain from
terminating its status as
14
an issuer required by the Exchange Act to file reports thereunder even if the
Exchange Act or the rules or regulations thereunder would permit such
termination.
6.5 USE OF FUNDS. The Company agrees that it will use the proceeds of
the sale of the Note and Warrant only to (a) retire indebtedness encumbering the
Real Property held by the lenders set forth in SCHEDULE 6.5 and (b) enable the
Company to purchase the Real Property; provided, that if on or after the Closing
Date the Company provides the Holder with a guaranty or other collateral (other
than cash collateral) acceptable to the Holder and its counsel in their sole and
absolute discretion, in an amount significant to cover not less than the first
twelve months of payments of principal and accrued interest due under the Note
and taxes and insurance payable in connection with the Real Property, the Holder
shall either not require at the Closing the cash collateral referred to in the
Cash Collateral Deposit Letter, or release such cash collateral and terminate
the Cash Collateral Deposit Letter following the Closing Date.
6.6 ACCESS TO FACILITIES. The Company will permit and cause the
Guarantors to permit any representatives designated by the Purchaser (or any
successor of the Purchaser), upon reasonable notice and during normal business
hours, at such person's expense and accompanied by a representative of the
Company and/or the Guarantors, as applicable, to (a) visit and inspect any of
the properties of the Company and/or the Guarantors, (b) examine the corporate
and financial records of the Company and/or the Guarantors (unless such
examination is not permitted by federal, state or local law or by contract) and
make copies thereof or extracts therefrom and (c) discuss the affairs, finances
and accounts of the Company and/or the Guarantors with the directors, officers
and independent accountants of the Company and/or the Guarantors, as applicable.
Notwithstanding the foregoing, neither the Company nor any Guarantor shall be
required to provide any material, non-public information to the Purchaser unless
the Purchaser signs a confidentiality agreement and otherwise complies with
Regulation FD, under the federal securities laws.
6.7 TAXES. The Company will and will cause the Guarantors to promptly
pay and discharge, or cause to be paid and discharged, when due and payable, all
lawful taxes, assessments and governmental charges or levies imposed upon the
income, profits, property or business of the Company and the Guarantors, as
applicable; provided, however, that any such tax, assessment, charge or levy
need not be paid if the validity thereof shall currently be contested in good
faith by appropriate proceedings and if the Company and the Guarantors, as
applicable, shall have set aside on its books adequate reserves with respect
thereto, and provided, further, that the Company and the Guarantors, as
applicable, will pay all such taxes, assessments, charges or levies forthwith
upon the commencement of proceedings to foreclose any lien which may have
attached as security therefor.
6.8 INSURANCE. The Company will and will cause the Guarantors to keep
its and their respective assets which are of an insurable character insured by
financially sound and reputable insurers against loss or damage by fire,
explosion and other risks customarily insured against by companies in similar
business similarly situated as the Company and the Guarantors, as applicable;
and the Company will and will cause the Guarantors to maintain, with financially
sound and reputable insurers, insurance against other hazards and risks and
liability to persons and property to the extent and in the manner which the
Company and the Guarantors, as applicable, reasonably believe is customary for
companies in similar business similarly situated
15
as the Company and the Guarantors, as applicable, and to the extent available on
commercially reasonable terms.
6.9 INTELLECTUAL PROPERTY. The Company shall and shall cause the
Guarantors to maintain in full force and effect its and their respective
corporate existences, rights and franchises and all licenses and other rights to
use Intellectual Property owned or possessed by them and reasonably deemed to be
necessary to the conduct of their respective businesses.
6.10 PROPERTIES. The Company will keep and cause the Guarantors to keep
their respective properties in good repair, working order and condition,
reasonable wear and tear excepted, and from time to time make all needful and
proper repairs, renewals, replacements, additions and improvements thereto; and
the Company will and will cause the Guarantors to at all times comply with each
provision of all leases to which they are a party or under which they occupy
property if the breach of such provision could reasonably be expected to have a
material adverse effect.
6.11 CONFIDENTIALITY. The Company agrees that it will not disclose, and
will not include in any public announcement, the name of the Purchaser, unless
expressly agreed to by the Purchaser or unless and until such disclosure is
required by law or applicable regulation, and then only to the extent of such
requirement.
6.12 REQUIRED APPROVALS. For so long as the Note is outstanding, the
Company, without the prior written consent of the Purchaser, shall not and shall
not cause any Guarantor to:
(a) directly or indirectly declare or pay any dividends, other
than dividends with respect to its preferred stock;
(b) liquidate, dissolve or effect a material reorganization;
(c) become subject to (including, without limitation, by way
of amendment to or modification of) any agreement or instrument which by its
terms would (under any circumstances) restrict the Company's and/or any
Guarantor's right to perform the provisions of this Agreement or any of the
agreements contemplated thereby; or
(d) materially alter or change the scope of the business of
the Company and/or any Guarantor.
6.13 REISSUANCE OF SECURITIES. The Company agrees to reissue
certificates representing the Securities without the legends set forth in
Section 5.7 above at such time as (a) the holder thereof is permitted to dispose
of such Securities pursuant to Rule 144(k) under the Securities Act, or (b) upon
resale subject to an effective registration statement after such Securities are
registered under the Securities Act. The Company agrees to cooperate with the
Purchaser in connection with all resales pursuant to Rule 144(d) and Rule 144(k)
and provide legal opinions necessary to allow such resales provided the Company
and its counsel receive reasonably requested representations from the selling
Purchaser and broker, if any.
16
6.14 OPINION. On the Closing Date, the Company will deliver to the
Purchaser an opinion acceptable to the Purchaser from the Company's and
Guarantors' legal counsel. The Company will provide, at the Company's expense,
such other legal opinions in the future as are reasonably necessary for the
conversion of the Note and exercise of the Warrant.
7. COVENANTS OF THE PURCHASER.
The Purchaser covenants and agrees with the Company as follows:
7.1 CONFIDENTIALITY. The Purchaser agrees that it will not disclose,
and will not include in any public announcement, the name of the Company, unless
expressly agreed to by the Company or unless and until such disclosure is
required by law or applicable regulation, and then only to the extent of such
requirement.
7.2 NON-PUBLIC INFORMATION. The Purchaser agrees not to effect any
sales in the shares of the Company's Common Stock while in possession of
material, non-public information regarding the Company if such sales would
violate applicable securities law.
7.3 RIGHT TO SUBSTITUTE COLLATERAL. So long as no Event of Default
shall have occurred and be continuing under and as defined in the Note or under
any other Related Agreement, the Purchaser and each Holder of the Notes agree
that the Company or its affiliates, including Guarantors, may substitute for the
pledge of the members interests of the Guarantors and mortgages on the NYC Real
Property, the pledge of the equity of the Del Sol Investments, LLC and Del Sol
Investments SA de CV subsidiaries of the Company and first priority mortgage
liens on the real estate assets located in Mexico currently owned by Del Sol
Investments, LLC and Del Sol Investments SA de CV (the "SUBSTITUTE COLLATERAL");
provided, that (a) the then current appraised value (as determined by an
appraisal firm acceptable to the Purchaser in it sole discretion) of such
Substitute Collateral shall be not less than 400% of the then outstanding
principal amount of the Notes, (b) there shall be no title or potential
environmental liability related to such Substitute Collateral, (c) the Purchaser
shall have received a legal opinion of recognized counsel, acceptable to the
Purchaser and its counsel in their sole discretion, covering such matters as the
Purchaser and its counsel shall request, including, without limitation, opinions
covering the valid, first priority lien of the Purchaser in and to such
Substitute Collateral, and the absence of fraudulent conveyance and preference
risks associated with the conveyance to the Purchaser of such Substitute
Collateral, (d) the Purchaser shall have received a deed in lieu of foreclosure
relating to the Substitute Collateral in form and substance acceptable to the
Purchaser and its counsel in their sole discretion and (e) the Purchaser shall
have determined that the acceptance of the Substitute Collateral does not in any
manner whatsoever adversely affect the collateral positions of the Purchaser as
in effect immediately prior to the date such Substitute Collateral is intended
to be pledged to the Purchaser.
8. COVENANTS OF THE COMPANY AND PURCHASER REGARDING INDEMNIFICATION.
8.1 COMPANY INDEMNIFICATION. The Company agrees to indemnify, hold
harmless, reimburse and defend Purchaser, each of Purchaser's officers,
directors, agents, affiliates, control persons, and principal shareholders,
against any claim, cost, expense, liability, obligation, loss or damage
(including reasonable legal fees) of any nature, incurred by or
17
imposed upon the Purchaser which results, arises out of or is based upon (i) any
misrepresentation by Company and/or any Guarantor or breach of any warranty by
Company and/or any Guarantor in this Agreement or in any exhibits or schedules
attached hereto or any Related Agreement, or (ii) any breach or default in
performance by Company and/or any Guarantor of any covenant or undertaking to be
performed by Company and/or any Guarantor hereunder, or any other agreement
entered into by the Company and Purchaser and/or the Company and any Guarantor
relating hereto.
8.2 PURCHASER'S INDEMNIFICATION. Purchaser agrees to indemnify, hold
harmless, reimburse and defend the Company and each of the Company's officers,
directors, agents, affiliates, control persons and principal shareholders, at
all times against any claim, cost, expense, liability, obligation, loss or
damage (including reasonable legal fees) of any nature, incurred by or imposed
upon the Company which results, arises out of or is based upon (i) any
misrepresentation by Purchaser or breach of any warranty by Purchaser in this
Agreement or in any exhibits or schedules attached hereto or any Related
Agreement; or (ii) any breach or default in performance by Purchaser of any
covenant or undertaking to be performed by Purchaser hereunder, or any other
agreement entered into by the Company and Purchaser relating hereto.
8.3 PROCEDURES. The procedures and limitations set forth in Section
10.2(c) and (d) shall apply to the indemnifications set forth in Sections 8.1
and 8.2 above.
9. CONVERSION OF CONVERTIBLE NOTE.
9.1 MECHANICS OF CONVERSION.
(a) Provided the Purchaser has notified the Company of the
Purchaser's intention to sell the Note Shares and the Note Shares are included
in an effective registration statement or are otherwise exempt from registration
when sold: (i) Upon the conversion of the Note or part thereof, the Company
shall, at its own cost and expense, take all necessary action (including the
issuance of an opinion of counsel) to assure that the Company's transfer agent
shall issue shares of the Company's Common Stock in the name of the Purchaser
(or its nominee) or such other persons as designated by the Purchaser in
accordance with Section 9.1(b) hereof and in such denominations to be specified
representing the number of Note Shares issuable upon such conversion; and (ii)
The Company warrants that no instructions other than these instructions have
been or will be given to the transfer agent of the Company's Common Stock and
that after the Effective Date (as hereinafter defined) the Note Shares issued
will be freely transferable subject to the prospectus delivery requirements of
the Securities Act and the provisions of this Agreement, and will not contain a
legend restricting the resale or transferability of the Note Shares.
(b) Purchaser will give notice of its decision to exercise its
right to convert the Note or part thereof by telecopying or otherwise delivering
an executed and completed notice of the number of shares to be converted to the
Company (the "NOTICE OF CONVERSION"). The Purchaser will not be required to
surrender the Note until the Purchaser receives a credit to the account of the
Purchaser's prime broker through the DWAC system (as defined below),
representing the Note Shares or until the Note has been fully satisfied. Each
date on which a Notice of Conversion is telecopied or delivered to the Company
in accordance with the
18
provisions hereof shall be deemed a "CONVERSION DATE." Pursuant to the terms of
the Notice of Conversion, the Borrower will issue instructions to the transfer
agent accompanied by an opinion of counsel within two (2) Business Days of the
date of the delivery to Borrower of the Notice of Conversion and shall cause the
transfer agent to transmit the certificates representing the Conversion Shares
to the Holder by crediting the account of the Purchaser's prime broker with the
Depository Trust Company ("DTC") through its Deposit Withdrawal Agent Commission
("DWAC") system within three (3) business days after receipt by the Company of
the Notice of Conversion (the "DELIVERY DATE").
(c) The Company understands that a delay in the delivery of
the Note Shares in the form required pursuant to Section 9 hereof beyond the
Delivery Date could result in economic loss to the Purchaser. In the event that
the Company fails to direct its transfer agent to deliver the Note Shares to the
Purchaser via the DWAC system within the time frame set forth in Section 9.1(b)
above and the Note Shares are not delivered to the Purchaser by the Delivery
Date, as compensation to the Purchaser for such loss, the Company agrees to pay
late payments to the Purchaser for late issuance of the Note Shares in the form
required pursuant to Section 9 hereof upon conversion of the Note in the amount
equal to the greater of (i) $500 per business day after the Delivery Date or
(ii) the Purchaser's actual damages from such delayed delivery. Notwithstanding
the foregoing, the Company will not owe the Purchaser any late payments if the
delay in the delivery of the Note Shares beyond the Delivery Date is solely out
of the control of the Company and the Company is actively trying to cure the
cause of the delay. The Company shall pay any payments incurred under this
Section in immediately available funds upon demand and, in the case of actual
damages, accompanied by reasonable documentation of the amount of such damages.
Such documentation shall show the number of shares of Common Stock the Purchaser
is forced to purchase (in an open market transaction) which the Purchaser
anticipated receiving upon such conversion, and shall be calculated as the
amount by which (A) the Purchaser's total purchase price (including customary
brokerage commissions, if any) for the shares of Common Stock so purchased
exceeds (B) the aggregate principal and/or interest amount of the Note, for
which such Conversion Notice was not timely honored.
Nothing contained herein or in any document referred to herein or
delivered in connection herewith 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 or dividends
required to be paid or other charges hereunder exceed the maximum amount
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Company to a Purchaser and thus refunded to the
Company.
9.2 MAXIMUM CONVERSION. The Purchaser shall not be entitled to convert
on a Conversion Date, nor shall the Company be permitted to require the
Purchaser to accept, that amount of a Note in connection with that number of
shares of Common Stock which would be in excess of the sum of (i) the number of
shares of Common Stock beneficially owned by the Purchaser on a Conversion Date,
and (ii) the number of shares of Common Stock issuable upon the conversion of
the Note with respect to which the determination of this proviso is being made
on a Conversion Date, which would result in beneficial ownership by the
Purchaser of more than 4.99% of the outstanding shares of Common Stock of the
Company on such Conversion 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
19
thereunder. The Purchaser may void the foregoing conversion limitation upon 75
days prior notice to the Company or without any notice requirement upon the
occurrence of an Event of Default.
10. REGISTRATION RIGHTS.
10.1 REGISTRATION RIGHTS GRANTED. The Company hereby grants
registration rights to the Purchaser pursuant to a Registration Rights Agreement
dated as of even date herewith between the Company and the Purchaser.
10.2 INDEMNIFICATION.
(a) In the event of a registration of any Registrable
Securities under the Securities Act pursuant to the Registration Rights
Agreement, the Company will indemnify and hold harmless the Purchaser, and its
officers, directors and each other person, if any, who controls the Purchaser
within the meaning of the Securities Act, against any losses, claims, damages or
liabilities, joint or several, to which the Purchaser, or such persons may
become subject under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in any registration statement under which such Registrable
Securities were registered under the Securities Act pursuant to the Registration
Rights Agreement, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse the Purchaser, and each such person for any reasonable legal
or other expenses incurred by them in connection with investigating or defending
any such loss, claim, damage, liability or action; provided, however, that the
Company will not be liable in any such case if and to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission so made in
conformity with information furnished by or on behalf of the Purchaser or any
such person in writing specifically for use in any such document.
(b) In the event of a registration of the Registrable
Securities under the Securities Act pursuant to the Registration Rights
Agreement, the Purchaser will indemnify and hold harmless the Company, and its
officers, directors and each other person, if any, who controls the Company
within the meaning of the Securities Act, against all losses, claims, damages or
liabilities, joint or several, to which the Company or such persons may become
subject under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in the registration statement under which such Registrable Securities
were registered under the Securities Act pursuant to the Registration Rights
Agreement, any preliminary prospectus or final prospectus contained therein, or
any amendment or supplement thereof, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
will reimburse the Company and each such person for any reasonable legal or
other expenses incurred by them in connection with investigating or defending
any such loss, claim, damage, liability or action, provided, however, that the
Purchaser
20
will be liable in any such case if and only to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission so made in conformity
with information furnished in writing to the Company by or on behalf of the
Purchaser specifically for use in any such document.
(c) Promptly after receipt by an indemnified party hereunder
of notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof, but the omission so to notify
the indemnifying party shall not relieve it from any liability which it may have
to such indemnified party other than under this Section 10.2(c) and shall only
relieve it from any liability which it may have to such indemnified party under
this Section 10.2(c) if and to the extent the indemnifying party is prejudiced
by such omission. In case any such action shall be brought against any
indemnified party and it shall notify the indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to participate in and, to the
extent it shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 10.2(c) for any legal expenses subsequently incurred by
such indemnified party in connection with the defense thereof; if the
indemnified party retains its own counsel, then the indemnified party shall pay
all fees, costs and expenses of such counsel, provided, however, that, if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be reasonable defenses available to it which are different from
or additional to those available to the indemnifying party or if the interests
of the indemnified party reasonably may be deemed to conflict with the interests
of the indemnifying party, the indemnified party shall have the right to select
one separate counsel and to assume such legal defenses and otherwise to
participate in the defense of such action, with the reasonable expenses and fees
of such separate counsel and other expenses related to such participation to be
reimbursed by the indemnifying party as incurred.
(d) In order to provide for just and equitable contribution in
the event of joint liability under the Securities Act in any case in which
either (i) the Purchaser, or any controlling person of the Purchaser, makes a
claim for indemnification pursuant to this Section 10.2 but it is judicially
determined (by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section 10.2 provides for indemnification in
such case, or (ii) contribution under the Securities Act may be required on the
part of the Purchaser or controlling person of the Purchaser in circumstances
for which indemnification is provided under this Section 10.2; then, and in each
such case, the Company and the Purchaser will contribute to the aggregate
losses, claims, damages or liabilities to which they may be subject (after
contribution from others) in such proportion so that the Purchaser is
responsible only for the portion represented by the percentage that the public
offering price of its securities offered by the registration statement bears to
the public offering price of all securities offered by such registration
statement, provided, however, that, in any such case, (A) the Purchaser will not
be required to contribute any amount in excess of the public offering price of
all such securities offered by it pursuant to such registration statement; and
(B) no person or entity guilty of fraudulent misrepresentation
21
(within the meaning of Section 10 of the Act) will be entitled to contribution
from any person or entity who was not guilty of such fraudulent
misrepresentation.
10.3 OFFERING RESTRICTIONS. Except as previously disclosed in the SEC
Reports or in the Exchange Act Filings, or stock or stock options granted to
employees or directors of the Company; or shares of preferred stock issued to
pay dividends in respect of the Company's preferred stock; or equity or debt
issued in connection with an acquisition of a business or assets by the Company;
or the issuance by the Company of stock in connection with the establishment of
a joint venture partnership or licensing arrangement, the Company will not issue
any securities with a continuously variable/floating conversion feature which
are or could be (by conversion or registration) free-trading securities (i.e.
common stock subject to a registration statement) prior to the full repayment or
conversion of the Note.
11. MISCELLANEOUS.
11.1 GOVERNING LAW. THIS AGREEMENT 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 AGREEMENT SHALL BE
BROUGHT ONLY IN THE STATE COURTS OF NEW YORK OR IN THE FEDERAL COURTS LOCATED IN
THE STATE OF NEW YORK. BOTH PARTIES AND THE INDIVIDUALS EXECUTING THIS AGREEMENT
AND OTHER AGREEMENTS ON BEHALF OF THE COMPANY AGREE TO SUBMIT TO THE
JURISDICTION OF SUCH COURTS AND WAIVE TRIAL BY JURY. IN THE EVENT THAT ANY
PROVISION OF THIS AGREEMENT OR ANY OTHER AGREEMENT DELIVERED IN CONNECTION
HEREWITH 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 ENFORCEABILITY OF ANY OTHER PROVISION
OF ANY AGREEMENT.
11.2 SURVIVAL. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by the Purchaser and
the closing of the transactions contemplated hereby to the extent provided
therein. All statements as to factual matters contained in any certificate or
other instrument delivered by or on behalf of the Company pursuant hereto in
connection with the transactions contemplated hereby shall be deemed to be
representations and warranties by the Company hereunder solely as of the date of
such certificate or instrument.
11.3 SUCCESSORS. Except as otherwise expressly provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, heirs, executors and administrators of the parties hereto and shall
inure to the benefit of and be enforceable by each person who shall be a holder
of the Securities from time to time, other than the holders of Common Stock
which has been sold by the Purchaser pursuant to Rule 144 or an
22
effective registration statement. Purchaser may not assign its rights hereunder
to a competitor of the Company. The Company acknowledges that the Purchaser may
at any time and from time to time sell participating interests in this Agreement
and the Related Agreements and/or sell, assign or transfer all or any part of
its rights under this Agreement and the Related Agreements to third party
transferees.
11.4 ENTIRE AGREEMENT. This Agreement, the exhibits and schedules
hereto, the Related Agreements and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and no party shall be liable or bound to any
other in any manner by any representations, warranties, covenants and agreements
except as specifically set forth herein and therein.
11.5 SEVERABILITY. In case any provision of the Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
11.6 AMENDMENT AND WAIVER.
(a) This Agreement may be amended or modified only upon the
written consent of the Company and the Purchaser.
(b) The obligations of the Company and the rights of the
Purchaser under this Agreement may be waived only with the written consent of
the Purchaser.
(c) The obligations of the Purchaser and the rights of the
Company under this Agreement may be waived only with the written consent of the
Company.
11.7 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power or remedy accruing to any party, upon any breach,
default or noncompliance by another party under this Agreement or the Related
Agreements, shall impair any such right, power or remedy, nor shall it be
construed to be a waiver of any such breach, default or noncompliance, or any
acquiescence therein, or of or in any similar breach, default or noncompliance
thereafter occurring. All remedies, either under this Agreement, the Note or the
Related Agreements, by law or otherwise afforded to any party, shall be
cumulative and not alternative.
11.8 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
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the Company
at the address as set forth on the signature page hereof, to the Purchaser at
the address set forth on the signature page hereto for such Purchaser, with a
copy in the case of the Purchaser to Xxxxx X. Xxxxxxxx, Xxxx & Xxxx LLP, 000
Xxxx Xxxxxx, Xxx Xxxx, XX 00000, facsimile number (000) 000-0000 and to Xxxx
Xxxxxx, 000 Xxxxx Xxx. 00xx Xxxxx, Xxx Xxxx, XX 00000, or at such other address
as the Company or the
23
Purchaser may designate by written notice to the other parties hereto given in
accordance herewith.
11.9 ATTORNEYS' FEES. In the event that any suit or action is
instituted to enforce any provision in this Agreement, the prevailing party in
such dispute shall be entitled to recover from the losing party all fees, costs
and expenses of enforcing any right of such prevailing party under or with
respect to this Agreement, including, without limitation, such reasonable fees
and expenses of attorneys and accountants, which shall include, without
limitation, all fees, costs and expenses of appeals.
11.10 TITLES AND SUBTITLES. The titles of the sections and subsections
of the Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
11.11 FACSIMILE SIGNATURES; COUNTERPARTS. This Agreement may be
executed by facsimile signatures and in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one
instrument.
11.12 BROKER'S FEES. Except as set forth on SCHEDULE 11.12 hereof, each
party hereto represents and warrants that no agent, broker, investment banker,
person or firm acting on behalf of or under the authority of such party hereto
is or will be entitled to any broker's or finder's fee or any other commission
directly or indirectly in connection with the transactions contemplated herein.
Each party hereto further agrees to indemnify each other party for any claims,
losses or expenses incurred by such other party as a result of the
representation in this Section 11.12 being untrue.
11.13 CONSTRUCTION. Each party acknowledges that its legal counsel
participated in the preparation of this Agreement and the Related Agreements
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 Agreement to favor any party against the other.
[Balance of page intentionally left blank; signature page follows.]
24
IN WITNESS WHEREOF, the parties hereto have executed the
SECURITIES PURCHASE AGREEMENT as of the date set forth in the first paragraph
hereof.
COMPANY: PURCHASER:
PENTHOUSE INTERNATIONAL, INC. LAURUS MASTER FUND, LTD.
By: By:
------------------------------ ------------------------------
Name: Name:
---------------------------- -----------------------------
Title: Title:
--------------------------- ----------------------------
Address: 00 Xxxx Xxxxx Address: c/o Ironshore Corporate Services Ltd.
Xxx Xxxx, Xxx Xxxx 00000 X.X. Xxx 0000 G.T.
Queensgate House, South Church Street
Grand Cayman, Cayman Islands
25
LIST OF EXHIBITS
Form of Convertible Term Note Exhibit A
Form of Warrant Exhibit B
Form of Opinion Exhibit C
Form of Escrow Agreement Exhibit D
26
EXHIBIT A
FORM OF CONVERTIBLE NOTE
A-1
EXHIBIT B
FORM OF WARRANT
B-1
EXHIBIT C
FORM OF OPINION
C-3
