Document:

BP53713 -- Care Concepts -- Exhibit 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) :

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(i)

pay an annual dividend (A)  at the rate of 10% per annum, payable semi-annually on June 30th and December 31st , 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 Company 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 anticipated 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 

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(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 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 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 Preferred 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.   

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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 Shares, 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 are 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 

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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 Purchase 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 import) shall be deemed to mean and include all such financial statements and schedules, documents, exhibits and other information which is incorporated by reference in the Disclosure Documents.

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 capital 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. shall be cancelled, and (v) an 

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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”).  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 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,  (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 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:

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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 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);

(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 

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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 Purchasers 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 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 

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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 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 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 price 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 outstanding 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 “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 

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 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, 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 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 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 the business, condition (financial or other), properties, prospects or results of operations of the Company and the Subsidiaries, taken as a whole (any such event, a "Material Adverse Effect").  As of the Closing Date, the Company 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 restrictions 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 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 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 subject, 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 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.

(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 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 

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 shown 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. 10th 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 favorable 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.

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(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 the 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 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.  Such Purchaser agrees that, in connection with any transfer of the Series F Senior Preferred Stock or the Series F Conversion Shares or the 

24

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 completeness 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.

25

(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 obligated 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.

26

(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 Registration 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 

27

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. 10th Street

 

Deerfield Beach, Florida 33442

Attention:  President 

Telephone:  (954) 363-4400

with a copy to:

Gersten 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

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.  

30

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]

31

 

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

32

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:

____________________________________

____________________________________

____________________________________

 

	 	 

33

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 AgreementBP53713 -- Care Concepts -- Exhibit 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.

1

“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.

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“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.

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“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 stockholders 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 30th and December 31st  (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 

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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 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 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 Corporation 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 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 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 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:

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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”) 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 Regulations, 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 Fifty 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 below 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 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 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 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 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 received 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 or 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 distribution 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 funds 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 payment 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. 

17

(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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