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Mrs. Knowlton holds a Bachelor of Science degree in Business Administration from California State University, Sacramento, and a Masters degree in Business Administration from Saint Mary's College, Moraga, California. Prior to being appointed as a Special Agent of the FBI on February 22, 1982, Mrs. Knowlton worked in the Insurance Industry as a Claims Supervisor.
Mrs. Knowlton's first assignment was to the FBI's Sacramento Division where she was responsible for investigating bank robbery, fugitive, and kidnaping matters. She later transferred to the Oklahoma City Division where she was responsible for investigating white collar crime matters. In April, 1984, Mrs. Knowlton was transferred to the San Francisco Division where she was responsible for investigating foreign counterintelligence and white collar crime matters. Mrs. Knowlton was transferred to FBI Headquarters in April, 1989, and was assigned to the National Security and Inspection Divisions, respectively. In August, 1992, Mrs. Knowlton was transferred to the New Orleans Division as a white collar crime squad Supervisor. In May, 1995, she returned to FBI Headquarters as a Unit Chief in the Criminal Investigative Division.
In March, 1996, Mrs. Knowlton was designated Assistant Special Agent in Charge of the Washington Field Office. In that capacity she was responsible for foreign counterintelligence matters. In March, 1998, Mrs. Knowlton was promoted to Inspector. In March of 1999, Mrs. Knowlton was promoted to Special Agent in Charge, Washington Field Office. In August, 2001, Mrs. Knowlton was
promoted to Deputy Assistant Director of the National Security Division, Counterintelligence Operations Support.
I really desperately need her help!
http://lasvegas.fbi.gov/sacbio.htm
Currency Export And Co-Creator Of The "Euro" Unveils New Global Currency For Today's $1 Trillion International Barter Marketplace
Editor's Note: One of the foremost experts of currency, former Head of the Central Bank of Belgium and the co-architect of the euro, Bernard Lietaer, spoke at the International Reciprocal Trade Association's Annual Barter Congress four years ago, at its 2000 meeting in Phoenix.
In his one-hour talk Lietaer shared with the attendees various graphs that explained the monetary crisis that had occurred in the past five years, and why they would continue.
He observed that countertrade was growing rapidly because it provides a stability for the parties involved, and asserted that the commercial barter industry itself, could play in expanding and reinforcing the world economy.
He said the commercial barter industry had a window of opportunity wherein, if it came together, it could seize upon the potential to become as significant in 20 years as today's banking industry!
Then he explained the requirements for such attainment:
1) There would have to be an organization established to handle the clearing of all transactions over the Internet.
2) "Zones of cooperation" would need to be preserved among the barter companies, enabling the reduction of costs and increasing liquidity.
A majority of the major barter companies would have to "come to the table" and form an agreement of priority, then move forward to build an infrastructure for a new standard of value for international trade.
This visionary first step was never undertaken by the commercial barter industry. But Bernard Lietaer persevered. And now four years later he is undertaking some very exciting plans to turn the world economy around.
Details of a new global currency called the "terra" were unveiled by Bernard Lietaer during the Future of Money Summit at Colorado's Omi Interlocken Resort, October 29th. The summit was a gathering of futurists and strategists in the money world who discuss topics such as security of the money supply, banking fees, smart-cards that store money, and new technologies such as payment by fingerprint.
Lietaer emphasized that the terra is not designed to replace national currencies such as the dollar, yen or euro. And consumers won't see paper terras in their pockets, because the currency would remain entirely electronic.
But the average person should benefit if the currency can smooth business cycles and reduce the bouts of inflation and deflation that have plagued the global economy since currencies were allowed to float freely in 1971.
The terra is uniquely designed, unlike national currencies, to provide a stable international mechanism for contractual and payment purposes worldwide. Such a currency would eliminate the large costs corporations incur to protect against fluctuations in the value of the goods and services they trade.
According to Lietaer, it should also benefit commodity-dependent emerging countries, which have seen outside investments fall by one-third since the last vestiges of a gold-based money system were abandoned.
To get around the volatility in currencies, more international barter and the countertrade is occurring. Countertrade arrangements account for $1 trillion in international trade a year, and is growing at a 15% pace. "The terra is simply a standardization for international barter," Lietaer
explained.
"All economic textbooks define what money does, but not what it is. They always talk about the functions of money," he said. "My definition of money is an agreement within a community to use something as a medium of exchange."
Lietaer believes the terra could be a functioning currency within five to ten years, versus the 23 years the euro required, as his proposal needs no new legislation or international agreements to become operational.
"Many have a wait-and-see attitude to innovative proposals of this nature, but they shouldn't with the terra. It reduces risk, stabilizes the world economy, and is a more cost effective approach for international business," said Takashi Kiuchi, former CEO of Mitsubishi Electric America and chairman of The Future 500.
(This project is an initiative of the ACCESS Foundation, an international non-profit educational organization dedicated to the betterment of humankind through the understanding and use of complementary monetary innovations. For more information visit: www.terratrc.org.)
Couldn't tell ya. You tell me, greatness is a matter of public opinion.
No comment
What about them?
The Second Coming of the Sex Crazed Money Man is being written as we speak. You will like it I am sure. It will tell you all about g!'s second wife, and of course, you already know about "Operation Tantra" in Washington D.C. Would you like to see the chapter on TLXX?
You got that right...
No but Acs did. They may have forgot to mention the Department of Labor subpoena in their recent 8K, for the mountain of records requested by it, sort of a material ommission of a major event I would think. Payroll taxes and missing 401K money doesn't appear to be the smallest problem this firm now has. Wait till the FBI starts looking into the corporate espionage.
$4.8 million I'm willing to bet that its inaccurate and misleading.
Why should I? I think I'll wait a bit longer to see how deep the new management is going to dig itself into their holes before I add any more sense to this, but certainly it should prove interesting, especially in light of what happened in Las Vegas last week. It is so sad that two children have to suffer at the hands of extortionists.
Mataras was brought in by Acs as Secretary who usurped his authority. Safadi and Ochoa were introduced by Acs to Mataras. The three of them think they have seized control, but they left out quite a few facts in their SEC filing.
That sounds like a good idea.
Denver, Colorado Gabor S. Acs, in a teleconference with the SEC on April 15th, 2004 agreed to all the claims made by the SEC in a Complaint dated August 26th, 2003. A final determination by the Nevada District Court in Reno as to the final judgement amount is anticipated before the end of April.
In a separate complaint filed electronically by Gabor on the same day with the United States Securities and Exchange Commission against several present and former Officers and Directors of Telynx, Inc., a publicly traded company listed on the Pink Sheets under the symbol TLXX, Mr. Acs alleges that several false and misleading statements were made in the most recent 8K filing made by certain persons who are now representing that they control the company.
The electronic response confirmed that the Division of Enforcement of the United States Securities and Exchange Commission has received the complaint.
Some of the text of the electronic response is quoted below:
"We are always interested in hearing from members of the public, and you may be assured that the matter you have raised is being given careful consideration in view of the Commission's overall enforcement responsibilities under the federal securities laws. It is, however, the Commission's policy to conduct its inquiries on a confidential basis.
The Commission conducts its investigations in this manner to preserve the integrity of its investigative process as well as to protect persons against whom unfounded charges may be made or where the Commission determines that enforcement action is not necessary or appropriate. Subject to the provisions of the Freedom of Information Act, the existence or non-existence of an investigation as well as information which may be gathered thereunder is not disclosed unless made a matter of public record in proceedings brought before the Commission or in the courts.
Should you have any additional information or questions pertaining to this matter, please feel free to communicate directly with the undersigned at 450 Fifth Street, N.W., Washington, D.C. 20549-0908 or via e-mail at enforcement@sec.gov. We appreciate your interest in the work of the Commission and its Division of Enforcement.
Mr. Acs was not available for further comment.
Nan\: could you post a copy of the felony report on Acs? It is out of Washington State. Minor felonies are not always a grounds for deportation. Do you have the whole story behind the felony guilty plea? The charge was "Taking a Motor Vehicle without the owners permission."
Denver, Colorado Gabor S. Acs, in a teleconference with the SEC on April 15th, 2004 agreed to all the claims made by the SEC in a Complaint dated August 26th, 2003. A final determination by the Nevada District Court in Reno as to the final judgement amount is anticipated before the end of April.
In a separate complaint filed electronically by Gabor on the same day with the United States Securities and Exchange Commission against several present and former Officers and Directors of Telynx, Inc., a publicly traded company listed on the Pink Sheets under the symbol TLXX, Mr. Acs alleges that several false and misleading statements were made in the most recent 8K filing made by certain persons who are now representing that they control the company.
The electronic response confirmed that the Division of Enforcement of the United States Securities and Exchange Commission has received the complaint.
Some of the text of the electronic response is quoted below:
"We are always interested in hearing from members of the public, and you may be assured that the matter you have raised is being given careful consideration in view of the Commission's overall enforcement responsibilities under the federal securities laws. It is, however, the Commission's policy to conduct its inquiries on a confidential basis.
The Commission conducts its investigations in this manner to preserve the integrity of its investigative process as well as to protect persons against whom unfounded charges may be made or where the Commission determines that enforcement action is not necessary or appropriate. Subject to the provisions of the Freedom of Information Act, the existence or non-existence of an investigation as well as information which may be gathered thereunder is not disclosed unless made a matter of public record in proceedings brought before the Commission or in the courts.
Should you have any additional information or questions pertaining to this matter, please feel free to communicate directly with the undersigned at 450 Fifth Street, N.W., Washington, D.C. 20549-0908 or via e-mail at enforcement@sec.gov. We appreciate your interest in the work of the Commission and its Division of Enforcement.
Mr. Acs was not available for further comment.
Denver, Colorado Gabor S. Acs, in a teleconference with the SEC on April 15th, 2004 agreed to all the claims made by the SEC in a Complaint dated August 26th, 2003. A final determination by the Nevada District Court in Reno as to the final judgement amount is anticipated before the end of April.
In a separate complaint filed electronically by Gabor on the same day with the United States Securities and Exchange Commission against several present and former Officers and Directors of Telynx, Inc., a publicly traded company listed on the Pink Sheets under the symbol TLXX, Mr. Acs alleges that several false and misleading statements were made in the most recent 8K filing made by certain persons who are now representing that they control the company.
The electronic response confirmed that the Division of Enforcement of the United States Securities and Exchange Commission has received the complaint.
Some of the text of the electronic response is quoted below:
"We are always interested in hearing from members of the public, and you may be assured that the matter you have raised is being given careful consideration in view of the Commission's overall enforcement responsibilities under the federal securities laws. It is, however, the Commission's policy to conduct its inquiries on a confidential basis.
The Commission conducts its investigations in this manner to preserve the integrity of its investigative process as well as to protect persons against whom unfounded charges may be made or where the Commission determines that enforcement action is not necessary or appropriate. Subject to the provisions of the Freedom of Information Act, the existence or non-existence of an investigation as well as information which may be gathered thereunder is not disclosed unless made a matter of public record in proceedings brought before the Commission or in the courts.
Should you have any additional information or questions pertaining to this matter, please feel free to communicate directly with the undersigned at 450 Fifth Street, N.W., Washington, D.C. 20549-0908 or via e-mail at enforcement@sec.gov. We appreciate your interest in the work of the Commission and its Division of Enforcement.
Mr. Acs was not available for further comment.
Nanuck...did you get a copy of tpk's green card yet?
His phone number is 775-338-5550.
Denver, Colorado Gabor S. Acs, in a teleconference with the SEC on April 15th, 2004 agreed to all the claims made by the SEC in a Complaint dated August 26th, 2003. A final determination by the Nevada District Court in Reno as to the final judgement amount is anticipated before the end of April.
In a separate complaint filed electronically by Gabor on the same day with the United States Securities and Exchange Commission against several present and former Officers and Directors of Telynx, Inc., a publicly traded company listed on the Pink Sheets under the symbol TLXX, Mr. Acs alleges that several false and misleading statements were made in the most recent 8K filing made by certain persons who are now representing that they control the company.
The electronic response confirmed that the Division of Enforcement of the United States Securities and Exchange Commission has received the complaint.
Some of the text of the electronic response is quoted below:
"We are always interested in hearing from members of the public, and you may be assured that the matter you have raised is being given careful consideration in view of the Commission's overall enforcement responsibilities under the federal securities laws. It is, however, the Commission's policy to conduct its inquiries on a confidential basis.
The Commission conducts its investigations in this manner to preserve the integrity of its investigative process as well as to protect persons against whom unfounded charges may be made or where the Commission determines that enforcement action is not necessary or appropriate. Subject to the provisions of the Freedom of Information Act, the existence or non-existence of an investigation as well as information which may be gathered thereunder is not disclosed unless made a matter of public record in proceedings brought before the Commission or in the courts.
Should you have any additional information or questions pertaining to this matter, please feel free to communicate directly with the undersigned at 450 Fifth Street, N.W., Washington, D.C. 20549-0908 or via e-mail at enforcement@sec.gov. We appreciate your interest in the work of the Commission and its Division of Enforcement.
Mr. Acs was not available for further comment.
Denver, Colorado Gabor S. Acs, in a teleconference with the SEC on April 15th, 2004 agreed to all the claims made by the SEC in a Complaint dated August 26th, 2003. A final determination by the Nevada District Court in Reno as to the final judgement amount is anticipated before the end of April.
In a separate complaint filed electronically by Gabor on the same day with the United States Securities and Exchange Commission against several present and former Officers and Directors of Telynx, Inc., a publicly traded company listed on the Pink Sheets under the symbol TLXX, Mr. Acs alleges that several false and misleading statements were made in the most recent 8K filing made by certain persons who are now representing that they control the company.
The electronic response confirmed that the Division of Enforcement of the United States Securities and Exchange Commission has received the complaint.
Some of the text of the electronic response is quoted below:
"We are always interested in hearing from members of the public, and you may be assured that the matter you have raised is being given careful consideration in view of the Commission's overall enforcement responsibilities under the federal securities laws. It is, however, the Commission's policy to conduct its inquiries on a confidential basis.
The Commission conducts its investigations in this manner to preserve the integrity of its investigative process as well as to protect persons against whom unfounded charges may be made or where the Commission determines that enforcement action is not necessary or appropriate. Subject to the provisions of the Freedom of Information Act, the existence or non-existence of an investigation as well as information which may be gathered thereunder is not disclosed unless made a matter of public record in proceedings brought before the Commission or in the courts.
Should you have any additional information or questions pertaining to this matter, please feel free to communicate directly with the undersigned at 450 Fifth Street, N.W., Washington, D.C. 20549-0908 or via e-mail at enforcement@sec.gov. We appreciate your interest in the work of the Commission and its Division of Enforcement.
Mr. Acs was not available for further comment.
Denver, Colorado Gabor S. Acs, in a teleconference with the SEC on April 15th, 2004 agreed to all the claims made by the SEC in a Complaint dated August 26th, 2003. A final determination by the Nevada District Court in Reno as to the final judgement amount is anticipated before the end of April.
In a separate complaint filed electronically by Gabor on the same day with the United States Securities and Exchange Commission against several present and former Officers and Directors of Telynx, Inc., a publicly traded company listed on the Pink Sheets under the symbol TLXX, Mr. Acs alleges that several false and misleading statements were made in the most recent 8K filing made by certain persons who are now representing that they control the company.
The electronic response confirmed that the Division of Enforcement of the United States Securities and Exchange Commission has received the complaint.
Some of the text of the electronic response is quoted below:
"We are always interested in hearing from members of the public, and you may be assured that the matter you have raised is being given careful consideration in view of the Commission's overall enforcement responsibilities under the federal securities laws. It is, however, the Commission's policy to conduct its inquiries on a confidential basis.
The Commission conducts its investigations in this manner to preserve the integrity of its investigative process as well as to protect persons against whom unfounded charges may be made or where the Commission determines that enforcement action is not necessary or appropriate. Subject to the provisions of the Freedom of Information Act, the existence or non-existence of an investigation as well as information which may be gathered thereunder is not disclosed unless made a matter of public record in proceedings brought before the Commission or in the courts.
Should you have any additional information or questions pertaining to this matter, please feel free to communicate directly with the undersigned at 450 Fifth Street, N.W., Washington, D.C. 20549-0908 or via e-mail at enforcement@sec.gov. We appreciate your interest in the work of the Commission and its Division of Enforcement.
Mr. Acs was not available for further comment.
Yes Due, it will be very interesting indeed! LOL
Denver, Colorado Gabor S. Acs, in a teleconference with the SEC on April 15th, 2004 agreed to all the claims made by the SEC in a Complaint dated August 26th, 2003. A final determination by the Nevada District Court in Reno as to the final judgement amount is anticipated before the end of April.
In a separate complaint filed electronically by Gabor on the same day with the United States Securities and Exchange Commission against several present and former Officers and Directors of Telynx, Inc., a publicly traded company listed on the Pink Sheets under the symbol TLXX, Mr. Acs alleges that several false and misleading statements were made in the most recent 8K filing made by certain persons who are now representing that they control the company.
The electronic response confirmed that the Division of Enforcement of the United States Securities and Exchange Commission has received the complaint.
Some of the text of the electronic response is quoted below:
"We are always interested in hearing from members of the public, and you may be assured that the matter you have raised is being given careful consideration in view of the Commission's overall enforcement responsibilities under the federal securities laws. It is, however, the Commission's policy to conduct its inquiries on a confidential basis.
The Commission conducts its investigations in this manner to preserve the integrity of its investigative process as well as to protect persons against whom unfounded charges may be made or where the Commission determines that enforcement action is not necessary or appropriate. Subject to the provisions of the Freedom of Information Act, the existence or non-existence of an investigation as well as information which may be gathered thereunder is not disclosed unless made a matter of public record in proceedings brought before the Commission or in the courts.
Should you have any additional information or questions pertaining to this matter, please feel free to communicate directly with the undersigned at 450 Fifth Street, N.W., Washington, D.C. 20549-0908 or via e-mail at enforcement@sec.gov. We appreciate your interest in the work of the Commission and its Division of Enforcement.
Mr. Acs was not available for further comment.
Yes, Gabor S. Acs is "The Penny King"
The Penny King and Tipi Tom are not one and the same person.
Denver, Colorado Gabor S. Acs, in a teleconference with the SEC on April 15th, 2004 agreed to all the claims made by the SEC in a Complaint dated August 26th, 2003. A final determination by the Nevada District Court in Reno as to the final judgement amount is anticipated before the end of April.
In a separate complaint filed electronically by Gabor on the same day with the United States Securities and Exchange Commission against several present and former Officers and Directors of Telynx, Inc., a publicly traded company listed on the Pink Sheets under the symbol TLXX, Mr. Acs alleges that several false and misleading statements were made in the most recent 8K filing made by certain persons who are now representing that they control the company.
The electronic response confirmed that the Division of Enforcement of the United States Securities and Exchange Commission has received the complaint.
Some of the text of the electronic response is quoted below:
"We are always interested in hearing from members of the public, and you may be assured that the matter you have raised is being given careful consideration in view of the Commission's overall enforcement responsibilities under the federal securities laws. It is, however, the Commission's policy to conduct its inquiries on a confidential basis.
The Commission conducts its investigations in this manner to preserve the integrity of its investigative process as well as to protect persons against whom unfounded charges may be made or where the Commission determines that enforcement action is not necessary or appropriate. Subject to the provisions of the Freedom of Information Act, the existence or non-existence of an investigation as well as information which may be gathered thereunder is not disclosed unless made a matter of public record in proceedings brought before the Commission or in the courts.
Should you have any additional information or questions pertaining to this matter, please feel free to communicate directly with the undersigned at 450 Fifth Street, N.W., Washington, D.C. 20549-0908 or via e-mail at enforcement@sec.gov. We appreciate your interest in the work of the Commission and its Division of Enforcement.
Mr. Acs was not available for further comment.
Denver, Colorado Gabor S. Acs, in a teleconference with the SEC on April 15th, 2004 agreed to all the claims made by the SEC in a Complaint dated August 26th, 2003. A final determination by the Nevada District Court in Reno as to the final judgement amount is anticipated before the end of April.
In a separate complaint filed electronically by Gabor on the same day with the United States Securities and Exchange Commission against several present and former Officers and Directors of Telynx, Inc., a publicly traded company listed on the Pink Sheets under the symbol TLXX, Mr. Acs alleges that several false and misleading statements were made in the most recent 8K filing made by certain persons who are now representing that they control the company.
The electronic response confirmed that the Division of Enforcement of the United States Securities and Exchange Commission has received the complaint.
Some of the text of the electronic response is quoted below:
"We are always interested in hearing from members of the public, and you may be assured that the matter you have raised is being given careful consideration in view of the Commission's overall enforcement responsibilities under the federal securities laws. It is, however, the Commission's policy to conduct its inquiries on a confidential basis.
The Commission conducts its investigations in this manner to preserve the integrity of its investigative process as well as to protect persons against whom unfounded charges may be made or where the Commission determines that enforcement action is not necessary or appropriate. Subject to the provisions of the Freedom of Information Act, the existence or non-existence of an investigation as well as information which may be gathered thereunder is not disclosed unless made a matter of public record in proceedings brought before the Commission or in the courts.
Should you have any additional information or questions pertaining to this matter, please feel free to communicate directly with the undersigned at 450 Fifth Street, N.W., Washington, D.C. 20549-0908 or via e-mail at enforcement@sec.gov. We appreciate your interest in the work of the Commission and its Division of Enforcement.
Mr. Acs was not available for further comment.
Looks like a breaking out situation:
http://www.otcbb.com/asp/quotes.asp?Sort=4&Quotes=phsl&Bullet.x=41&Bullet.y=8
Heading for a double?
http://www.otcbb.com/asp/quotes.asp?Sort=4&Quotes=phsl&Bullet.x=41&Bullet.y=8
Fry, roast, catch her in 22 lies, perjury, it will be interesting...
MEMBER INTEREST PURCHASE AGREEMENT
BY AND AMONG
MEDIA BILLING, L.L.C.,
INTERNET BILLING COMPANY, LLC
AND
INTERCEPT, INC.,
THE SOLE MEMBER OF INTERNET BILLING COMPANY, LLC
DATED AS OF MARCH 16, 2004
MEMBER INTEREST PURCHASE AGREEMENT
THIS MEMBER INTEREST PURCHASE AGREEMENT (this "AGREEMENT") is made and entered into as of March 16, 2004, by and among Media Billing, L.L.C., a New York limited liability company ("PURCHASER"); Internet Billing Company, LLC, a Georgia limited liability company (the "COMPANY," formerly known as Internet Merger Company, LLC, a Georgia limited liability company, and successor in interest by merger to a Georgia limited liability company also known as Internet Billing Company, LLC); and InterCept, Inc., a Georgia corporation ("SELLER"). Seller is the sole member of the Company, and Seller and the Company are sometimes together referred to as the "INTERCEPT PARTIES."
R E C I T A L S
A. The Company is primarily engaged in the business of providing various services that enable, among other things, merchants (providing services to both adult-related and non-adult-related customers) to accept and process real-time payments for goods and services over the Internet, as well as services related to outsourced payment processing, transaction processing, risk management, transaction security, fraud control, reporting tools, subscription, accounting/bookkeeping services, shopping cart functionality, marketing, payment options, interface, and back office management (the "SUBJECT BUSINESS," which shall specifically exclude any assets to be transferred in the transaction to Seller or one of its Affiliates as contemplated in Section C below and otherwise described herein).
B. As of the date hereof, Seller owns 100% of the member interests of the Company, constituting a 100% ownership interest in the Company under the terms of the Company's Operating Agreement, and is entitled to that percentage of the profits of the Company and must bear that percentage of the Company's losses.
C. Seller wishes to sell to Purchaser and Purchaser wishes to purchase from Seller 100% of the member interests of the Company. Prior to the closing, the Company will transfer certain of its assets, including its non-adult-related customers and certain claims of the Company, to an affiliate of Seller. By virtue of this acquisition, Purchaser will acquire, through the Company, substantially all of the Company's customer relationships (other than those specifically transferred to an affiliate of Seller as otherwise described herein) and the "iBill" trademark, and such other trademarks and other assets currently owned by the Company as identified herein. In addition, Purchaser will acquire (1) a perpetual royalty-free license to the Company of Seller's NexGen and iBill transaction processing and support software, and (2) an assignment of rights in any other components of the Company's existing infrastructure not owned by the Company but necessary to continue services to the Company's customers consistent with the services provided to them on the date hereof, all as specifically subject to the terms and conditions set forth in this Agreement.
D. The Company has significant financial obligations, including customer obligations, that Purchaser and the Company after Closing will be required to satisfy pursuant to this Agreement. Additionally, Purchaser is releasing Seller from liability to certain parties to which it has provided security or guarantees on behalf of or for the benefit of the Company. Purchaser has agreed to indemnify Seller for any claims or losses related to these matters pursuant to the terms of this Agreement. To secure Purchaser's performance of these obligations, Purchaser is providing to Seller an insurance policy with a policy limit of at least $20,000,000 that Seller may make claims against to satisfy indemnification claims up to that amount.
E. The above sale and purchase, including the asset transfers, licenses and insurance policy referenced in Paragraphs C and D and all of the transactions contemplated herein, are hereinafter collectively referred to as the "CONTEMPLATED TRANSACTIONS."
NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants, representations, warranties, conditions and agreements herein contained, the parties hereto, intending to be legally bound, hereby agree as follows:
ARTICLE 1
DEFINITIONS
The following terms used in this Member Interest Purchase Agreement shall have the following respective meanings:
"2002 FINANCIAL STATEMENTS" has the meaning set forth in
Section 3.7(a).
"ACCOUNTS RECEIVABLE" has the meaning set forth in Section
3.19.
"AFFILIATE" means, with respect to any Person, (i) a director,
officer, manager, member or stockholder of such Person, (ii) a spouse, parent,
sibling or descendant of such Person (or spouse, parent, sibling or descendant
of any director or executive officer of such Person), and (iii) any other Person
that, directly or indirectly through one or more intermediaries, Controls, or is
Controlled by, or is under common Control with, such Person.
"AGE-RESTRICTED SERVICES" means goods and services related to
the adult entertainment industry.
"AGREEMENT" has the meaning set forth in the preamble.
"ASSET TRANSFERS" has the meaning set forth in Section 2.1(a).
"ASSET TRANSFER AGREEMENTS" has the meaning set forth in
Section 2.1(a).
"BALANCE SHEET" means the balance sheet set forth in the Most
Recent Financial Statements. "BALANCE SHEET DATE" means December 31, 2003.
"BOARD OF DIRECTORS" means, with respect to any Person, the
board of directors of such Person.
"BREAK-UP FEE" has the meaning set forth in Section 13.2.
"BUSINESS DAY" means any day that is not a Saturday, Sunday or
a day on which banking institutions in Atlanta, Georgia are not required to be
open.
"BYLAWS" means, with respect to any Person, the bylaws of such
Person.
"CASH PAYMENT" has the meaning set forth in Section 2.1(c).
"CLAIM" has the meaning set forth in Section 11.3.
"CLAIMANT" has the meaning set forth in Section 11.3.
"CLOSING" has the meaning set forth in Section 10.1.
"CLOSING DATE" has the meaning set forth in Section 10.1.
"CLOSING DATE BALANCE SHEET" has the meaning set forth in
Section 2.2(a).
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPANY" has the meaning set forth in the preamble.
"CONFIDENTIAL INFORMATION" means Intellectual Property Rights
of Seller, the Company and Purchaser and all information of a proprietary or
confidential nature relating to Seller, the Company, Purchaser, the Subject
Business or the Contemplated Transactions (other than information that is in the
public domain at the time of its use or disclosure other than as a result of the
breach by such party of its agreement hereunder).
"CONTEMPLATED TRANSACTIONS" has the meaning set forth in the
preamble.
"CONTRACT" means any loan or credit agreement, note, bond,
mortgage, indenture, lease, sublease, purchase order or other agreement,
instrument, permit, concession, franchise, license contract, obligation,
promise, or undertaking (whether written or oral and whether express or
implied).
"CONTROL" means, with respect to any Person, the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of such Person.
"CREDIT AGREEMENT" has the meaning set forth in Section 9.12.
"DEERFIELD BEACH LEASE" means the lease for the Company's main
office location in Deerfield Beach, Florida.
"EMPLOYEE PLAN" means any "employee benefit plan" (as defined
in Section 3(3) of ERISA) as well as any other plan, program or arrangement
involving direct and indirect compensation, under which the Company or any ERISA
Affiliate of the Company has any present or future obligations or Liability on
behalf of its employees or former employees, contractual employees or their
dependents or beneficiaries.
"ENCUMBRANCES" means and includes Taxes, security interests,
mortgages, liens, pledges, charges, claims, conditions, easements, reservations,
restrictions, clouds, equities, rights of way, options, community property
rights, rights of first refusal and all other encumbrances, whether or not
relating to the extension of credit or the borrowing of money, or any other
restriction of any kind, including any restriction on use, voting, transfer,
receipt of income, or exercise of any other attribute of ownership.
"ENVIRONMENTAL LAWS" has the meaning set forth in Section 3.8.
"ERISA" means the Employment Retirement Income Security Act of
1974, as amended.
"ESTIMATED WORKING CAPITAL DEFICIT" means the estimate of the
Company as of the Closing Date of the amount calculated by subtracting the total
liabilities of the Company transferred in the Subject Business from the current
assets of the Company transferred in the Subject Business, specifically to
include any cash held as security for the letter of credit securing the
Deerfield Beach Lease, both as reflected on the Pre-Closing Balance Sheet.
"EVENT OF DEFAULT" has the meaning set forth in Section 11.8.
"FINANCIAL STATEMENTS" has the meaning set forth in Section
3.7(a).
"FINAL WORKING CAPITAL DEFICIT" has the meaning set forth in
Section 2.2(a).
"FINE" has the meaning set forth in Section 9.10.
"FIRST DATA" has the meaning set forth in Section 8.5.
"FIRST DATA LETTER OF CREDIT" has the meaning set forth in
Section 9.13.
"GAAP" means generally accepted accounting principles, as
commonly practiced in the United States, and as applied on a basis consistent
with the basis on which the Balance Sheet and the other financial statements
referred to in Section 3.7 were prepared.
"GOVERNMENTAL ENTITY" means any court, administrative agency
or commission or other governmental authority or instrumentality, domestic or
foreign, Federal, state or local.
"GUARANTOR" has the meaning set forth in Section 9.14.
"GUARANTY AGREEMENT" has the meaning set forth in Section
9.14.
"INITIAL DEPOSIT" has the meaning set forth in Section 2.1(d).
"INSURANCE POLICY" has the meaning set forth in Section 9.6.
"INTELLECTUAL PROPERTY RIGHTS" means, whether patentable or
unpatentable and whether or not reduced to practice, all industrial and
intellectual property rights, including, without limitation, patents, patent
applications, patent rights, trademarks (registered and unregistered), trademark
applications, trade names, service marks, service mark applications, copyrights
(in both published and unpublished works), copyright applications, know-how,
trade secrets, proprietary processes and formulae, software, confidential
information, technical information, data, process technology, franchises,
licenses, inventions, discoveries, instructions, marketing materials, trade
dress, logos, slogans, corporate names, fictitious business names, internet
domain names, customer and supplier lists, rights in telephone numbers, pricing
and costing information, business and marketing plans, advertising and
promotional materials, and designs and all documentation and media constituting,
describing or relating to the foregoing, including, without limitation, manuals,
memoranda and records together with all translations, adaptations, derivations,
including all goodwill associated therewith.
"INTERCEPT PARTIES" has the meaning set forth in the preamble.
"IPS" has the meaning set forth in Section 2.1(a).
"KNOWLEDGE" of a party to this Agreement shall mean the
current awareness of management of that party, which with respect to (i) Seller
(on or before Closing) and the Company shall only include John Collins, Lynn
Boggs, John Perry, Scott Meyerhoff and Linda Pinne, and (ii) Purchaser and
Seller (following Closing) shall only include Jason Galanis and Charles Samel.
"LAW" means any law, statute, treaty, rule, directive,
regulation or Order of any Governmental Entity.
"LEASED REAL PROPERTY" means the Company's leased premises in
Deerfield Beach, Florida and Woodland Hills, California.
"LEASES" has the meaning set forth in Section 3.10.
"LENDER CONSENT" has the meaning set forth in Section 9.12.
"LIABILITY" of a Person means any liability or obligation,
whether known or unknown, asserted or unasserted, absolute or contingent,
accrued or unaccrued, liquidated or unliquidated and whether due or to become
due, joint or several, regardless of when asserted, including all liability for
Taxes, and whether or not the same is required to be accrued on the financial
statements of such Person.
"LOSS" or "LOSSES" means any and all losses, Liabilities,
demands, claims, actions, causes of action, assessments, shortages, damages
(including incidental and consequential), costs, expenses (including court
costs, the cost of any investigation, expert witnesses and preparation, and
attorneys', accountants' and other professionals' fees including the value of
services of in-house accountants and attorneys), assessments, Tax deficiencies
and Taxes incurred, whether directly or indirectly, net of any accruals
reflected on the Closing Date Balance Sheet, in connection with the receipt of
indemnification payments (including interest or penalties thereon) arising from
or in connection with any such matter that is the subject of indemnification
under Article 11 whether or not involving Third Party Claims.
"MATERIAL ADVERSE CHANGE" or "MATERIAL ADVERSE EFFECT" means,
whether in the whole or in the aggregate, with respect to any Person, any
material adverse change in the business, operations, assets (including levels of
working capital and components thereof), condition (financial or otherwise),
operating results, Liabilities, employee relations or business prospects of such
Person or any material casualty loss or damage to the assets of such Person,
whether or not covered by insurance.
"MEMBER INTEREST" the meaning set forth in Section 2.1(b).
"MOST RECENT FINANCIAL STATEMENTS" has the meaning set forth
in Section 3.7(a).
"NELSON MULLINS" has the meaning set forth in Section 7.5.
"NON-COMPETITION PERIOD" has the meaning set forth in Section
12.1.
"NOTE" has the meaning set forth in Section 2.1(c).
"OBLIGOR" has the meaning set forth in Section in Section
11.3.
"ORDERS" means judgments, writs, decrees, compliance
agreements, injunctions or orders of any Governmental Entity or arbitrator.
"ORDINARY COURSE" means, with respect to the Company, the
ordinary course of commercial operations engaged in by the Company, consistent
with past practice.
"ORGANIZATIONAL DOCUMENTS" means (i) the articles or
certificate of incorporation and the bylaws of a corporation; (ii) the
partnership agreement and any statement of partnership of a general partnership;
(iii) the limited partnership agreement and the certificate of limited
partnership of a limited partnership; (iv) the articles of organization or
certificate of formation and operating agreement or limited liability company
agreement of any limited liability company, (v) any charter or similar document
adopted or filed in connection with the creation, formation, or organization of
a Person; and (vi) any amendment to any of the foregoing.
"PART" means a part or section of a Disclosure Letter.
"PERMITS" means all permits, licenses, authorizations,
registrations, franchises, approvals, certificates, variances and similar rights
obtained, or required to be obtained, from Governmental Entities.
"PERMITTED ENCUMBRANCE" means (i) any Encumbrance for Taxes
not yet due or delinquent or being contested in good faith by appropriate
Proceedings for which adequate reserves have been established in accordance with
GAAP, (ii) any statutory Encumbrance arising in the ordinary course of business
by operation of Law with respect to a liability that is not yet due or
delinquent, (iii) any minor imperfection of title or similar Encumbrance which
individually does not materially impair the value of the property subject to
such Encumbrance or the use of such property in the conduct of the Subject
Business, and (iv) Encumbrances associated with the Leases.
"PERSON" shall be construed broadly and shall include an
individual, a partnership, a corporation, a limited liability company, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization or a Governmental Entity (or any department, agency or political
subdivision thereof) and any and all officers, directors and any other managers
of the preceding.
"PRE-CLOSING BALANCE SHEET" has the meaning set forth in
Section 7.3.
"PROCEEDING" means actions, audits, suits, claims, hearings,
investigations or legal or administrative or arbitration proceedings.
"PROCESSING AGREEMENTS" has the meaning set forth in Section
8.5.
"PURCHASER" has the meaning set forth in the preamble.
"PURCHASER DISCLOSURE LETTER" means the disclosure letter
delivered by Purchaser to Seller concurrently with the execution and delivery of
this Agreement.
"PURCHASE PRICE" has the meaning set forth in Section 2.1(c).
"PURCHASE PRICE ADJUSTMENT" has the meaning set forth in
Section 2.2(b).
"PURCHASER ADJUSTMENT PAYMENT" has the meaning set forth in
Section 2.2(b).
"PURCHASER REVIEW PERIOD" has the meaning set forth in Section
2.2(a).
"RESOLUTION PERIOD" has the meaning set forth in Section
2.2(d).
"SEC" shall mean the Securities and Exchange Commission.
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended from time to time.
"SELECTED AUDITOR" shall mean Ernst & Young.
"SELLER" has the meaning set forth in the preamble.
"SELLER ADJUSTMENT PAYMENT" has the meaning set forth in
Section 2.2(b).
"SELLER DISCLOSURE LETTER" means the disclosure letter
delivered by Seller to Purchaser concurrently with the execution and delivery of
this Agreement.
"SELLER REVIEW PERIOD" has the meaning set forth in Section
2.2(d).
"SGS" has the meaning set forth in Section 8.5.
"SOFTWARE LICENSE AGREEMENT" has the meaning set forth in
Section 9.2.
"SUBJECT BUSINESS" has the meaning set forth in the recitals.
"TAX RETURNS" means returns, reports, statements,
declarations, forms and information statements with respect to Taxes, including
any schedule or attachment thereto, required to be submitted to or be filed with
the IRS or any other federal, foreign, state, local or provincial taxing
authority, domestic or foreign.
"TAXES" or "TAX," as applicable, means taxes, fees,
assessments, levies, duties, tariffs, imports, and governmental impositions or
charges of any kind in the nature of (or similar to) taxes, payable to any
federal, state, local or foreign taxing authority whether or not disputed,
including without limitation (a) income (including whether or not based upon net
income, gross income, income as specially defined, earnings, profits or selected
items of income, earnings or profits), franchise, profits, gains, gross
receipts, excise, sales, use, ad valorem, transfer, net worth, value added,
license, withholding, payroll, employment, social security (or similar),
workers' compensation, unemployment compensation, environmental, utility,
excise, severance, production, stamp, occupation, premium, customs duties,
property or windfall profits, alternative or add-on minimum taxes, or any other
tax of any kind whatsoever, together with all interest and penalties, additions
to tax and other additional amounts imposed by any taxing authority (domestic or
foreign), and (b) any liability for the payment of any amount of the type
described in the immediately preceding clause (a) as a result of (1) being a
"transferee" within the meaning of Section 6901 of the Code or any other
applicable Law, (2) being a member of an affiliated or combined group within the
meaning of the Code or any other applicable Law or (3) any contractual
obligation.
"THIRD PARTY CLAIM" means any claim brought by a Person who is
not a party to this Agreement.
"THIRD PARTY INTELLECTUAL PROPERTY RIGHTS" has the meaning set
forth in Section 3.12(a).
"TRANSACTION SERVICES" shall mean the business of providing
transaction processing solutions for consumer-to-business, business-to-business,
and person-to-person electronic commerce for third parties.
"TRANSFERRED CUSTOMERS" has the meaning set forth in Section
9.4.
"TRANSFERRED CLAIMS" has the meaning set forth in Section 9.5.
"TRANSITION PERIOD" has the meaning set forth in the
introductory paragraph of Article 5.
"TRANSITION SUPPORT AGREEMENT" has the meaning set forth in
Section 9.3.
ARTICLE 2
PURCHASE AND SALE OF MEMBER INTERESTS
2.1. PURCHASE AND SALE OBLIGATION.
(a) THE IBC ASSET TRANSFER. Immediately before the Closing, Seller shall cause the Company to transfer to both Seller and Seller's and the Company's Affiliate, InterCept Payment Solutions, LLC ("IPS"), the Transferred Customers (and related contracts and relationships), the Transferred Claims, certain software, and other assets and liabilities (collectively, the "ASSET TRANSFERS") all as more fully described in, and in accordance with the terms and conditions set forth in, the Asset Transfer Agreements attached hereto as EXHIBIT 2.1(A) (the "ASSET TRANSFER AGREEMENTS"), and IPS shall license certain software to the Company pursuant to the Software License Agreement.
(b) SALE OF MEMBER INTEREST. Upon the terms and subject to the conditions set forth in this Agreement, at the Closing, and immediately after the Asset Transfers from the Company to Seller or its Affiliates as contemplated herein, Seller shall transfer, assign and sell to Purchaser, and Purchaser shall purchase, acquire and accept from Seller, all of Seller's right, title and interest in and to Seller's interest as a member of the Company (the "MEMBER INTEREST"). The Member Interest will constitute all of the Company's member interests upon the Closing. The Member Interest shall be delivered by Seller to Purchaser free and clear of all Encumbrances.
(c) PURCHASE OF MEMBER INTEREST. In exchange for the Member Interest, on the Closing Date, Purchaser shall:
(1) pay to Seller in immediately available funds the amount of (x)
$750,000 MINUS (y) the amount, if any, by which the Estimated
Working Capital Deficit of the Company exceeds $22,000,000 (the
"CASH PAYMENT");
(2) deliver to Seller a promissory note in the amount of (x)
$750,000 PLUS (y) the amount, if any, by which the Estimated
Working Capital Deficit of the Company is less than $22,000,000
(the "NOTE") (collectively, the amounts payable in the Cash
Payment and the Note shall be the "PURCHASE PRICE");
(3) cause the Insurance Policy to be delivered to Seller; and
(4) enter into the agreements as set forth in Article 9 hereof.
(d) INITIAL DEPOSIT. Upon the signing of this Agreement and subject to the terms of Sections 13.1 and 13.2, Purchaser shall make a nonrefundable deposit of $750,000 (the "INITIAL DEPOSIT") into the
following depository account of Seller with Bank of America, N.A. as designated in writing by Seller on the date hereof. The Initial Deposit shall be credited at Closing toward the cash portion of the Purchase Price set forth in Section 2.1(c) above.
2.2. PURCHASE PRICE ADJUSTMENT.
(a) Within 45 days following the Closing (the "PURCHASER REVIEW PERIOD"), Purchaser shall deliver to Seller (i) a final closing balance sheet of the Company as of the Closing Date (reflecting the Subject Business transferred at Closing and excluding the Asset Transfers) prepared in accordance with GAAP (other than exceptions to GAAP specified in the notes to the Pre-Closing Balance Sheet) using the same accounting principles, policies and practices used to prepare the Pre-Closing Balance Sheet (the "CLOSING DATE BALANCE SHEET"); and (ii) Purchaser's calculation of the final working capital deficit of the Company determined by the sum of the value of the current assets of the Company and the total liabilities of the Company as determined in the Closing Date Balance Sheet (the "FINAL WORKING CAPITAL DEFICIT") using the same methodology used to calculate the Estimated Working Capital Deficit.
(b) If
(i) the Final Working Capital Deficit is less than (i.e., a lesser negative number) the Estimated Working Capital Deficit, then Purchaser shall pay Seller such difference (the "PURCHASER ADJUSTMENT PAYMENT") as provided in Section 2.2(e) below, or
(ii) the Final Working Capital Deficit is greater than (i.e., a greater negative number) the Estimated Working Capital Deficit, then Seller shall pay Purchaser such difference (the "SELLER ADJUSTMENT PAYMENT") as provided in Section 2.2(e) below,
and in either event the Purchase Price shall be adjusted accordingly (in either case, the "PURCHASE PRICE ADJUSTMENT").
(c) If Purchaser fails to deliver the Closing Date Balance Sheet to Seller during the Purchaser Review Period, then Purchaser shall have the right to extend the Purchaser Review Period for up to an additional 15 days by providing written notice to Seller before the end of the Purchaser Review Period. If Purchaser fails to deliver the Closing Date Balance Sheet to Seller during the extended Purchaser Review Period, as extended, then Purchaser shall be deemed to have waived its rights to the Purchase Price Adjustment, and Seller may submit a Closing Date Balance Sheet to Purchaser if it would be entitled to the Purchaser Adjustment Payment thereunder.
(d) Provided Purchaser delivers the Closing Date Balance Sheet to Seller before the end of the Purchaser Review Period, Seller shall have 20 business days after its receipt of the Closing Date Balance Sheet to review and dispute the Closing Date Balance Sheet, including the computation of the Final Working Capital Deficit (the "SELLER REVIEW PERIOD"). If Seller fails to dispute the Closing Date Balance Sheet, including the computation of the Final Working Capital Deficit, during the Seller Review Period, Seller shall be deemed to have accepted the terms of the Closing Date Balance Sheet, including the Seller Adjustment Payment or the Purchaser Adjustment Payment thereunder, as determined by Purchaser. If Seller disputes the computation of the Final Working Capital Deficit during the Seller Review Period, then Seller and Purchaser shall have 20 business days from the delivery of notice of its dispute to Purchaser to reach an agreement with regard to the disputed computation (the "RESOLUTION PERIOD"). If the parties fail to reach an agreement during the Resolution Period, then the dispute shall be submitted to the Selected Auditor for full and final resolution applying the principles, policies and practices referenced in Section 2.2(a). The Selected Auditor shall make a determination of the Final Working Capital Deficit and the Seller Adjustment Payment or the Purchaser Adjustment Payment
thereunder, as applicable, within 60 days following the end of the Resolution Period. For purposes of this Agreement, the determination of the Selected Auditor with respect to the Purchase Price Adjustment shall be final and conclusive as to all parties, absent clear error. If Purchaser fails to deliver the Closing Date Balance Sheet to Seller as described in Section 2.2(c), and Seller submits to Purchaser a Closing Date Balance Sheet, then the review provisions described in this Section 2.2(d) for the benefit of Seller shall apply for the benefit of Purchaser, and the same dispute resolution procedures shall be applicable in the event of an unresolved dispute.
(e) Following final determination of the amount of the Purchase Price Adjustment, if any, in accordance with the above paragraphs, (i) Seller shall remit the Seller Adjustment Payment, if any, to Purchaser or the Company in immediately available funds within five business days after the final determination of the Purchase Price Adjustment, or (ii) either Purchaser or the Company (being jointly and severally obligated to do so) shall remit to Seller the Purchaser Adjustment Payment, if any, in immediately available funds within five business days after the final determination of the Purchase Price Adjustment, provided that if Purchaser and the Company fail to make the Purchaser Adjustment Payment in such period, Seller, at its sole option, may immediately draw against the Letter to Credit for the amount of the Purchaser Adjustment Payment.
(f) The fees and expenses of the Selected Auditor shall be split equally between Purchaser, on the one hand, and Seller, on the other hand.
(g) During all periods contemplated in this Section 2.2, the parties shall reasonably cooperate with each other (and the Selected Auditor if applicable), including providing reasonable access to each party's books and records, to facilitate the determination of the Final Working Capital Deficit and any Purchase Price Adjustment.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND SELLER
To the Knowledge of Seller with respect to all representations and warranties set forth in this Article 3 other than Section 3.1, Seller represents and warrants to Purchaser as follows:
3.1. CAPITALIZATION AND ORGANIZATION. Seller is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Georgia. The Company is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Georgia and is foreign qualified to transact business and is in good standing in the States of Florida and California. Except as set forth in PART 3.1 of the Seller Disclosure Letter, the Company is not foreign qualified or required to be foreign qualified in any other state. Seller owns the Member Interest, which constitutes 100% of the outstanding member interests of the Company and there are no rights, options, warrants or other agreements to acquire any additional membership interests of the Company. The Company has delivered to Purchaser complete and correct copies of its Articles of Organization and Operating Agreement, each as amended to date, and the records of any and all proceedings and actions at all meetings of, or taken by written consent by, the manager and member of the Company. The Company owns equity positions in the entities listed in PART 3.1 of the Seller Disclosure Letter in the percentages stated therein.
3.2. AUTHORITY. Seller and the Company have the power and authority to execute and deliver this Agreement. Seller and the Company have taken all necessary corporate action, including all action required by their respective board of directors or board of managers, to authorize the execution and delivery of this Agreement. Upon execution, this Agreement shall constitute the legal, valid, and binding obligation of Seller and the Company, enforceable against Seller and the Company in accordance with its terms and conditions, except as such enforcement may be subject to or limited by bankruptcy, insolvency, reorganization, moratorium or other similar Laws now or hereafter in effect affecting creditors' rights generally, and by general principles of equity.
3.3. NO GOVERNMENT CONSENTS. Except as disclosed in PART 3.3 of the Seller Disclosure Letter, no approval, authorization, consent, permission, or waiver to or from, or notice, filing, or recording to or with, any Government Entity is necessary for the valid execution and delivery of this Agreement by Seller and the Company.
3.4. NO THIRD PARTY CONSENTS. Except as disclosed in PART 3.4 of the Seller Disclosure Letter, no approval, authorization, consent, permission, or waiver to or from, or notice, filing, or recording to or with, any Person that is a party to a material contract or agreement with Seller or the Company is necessary for (a) the execution and delivery of this Agreement by Seller and the Company; or (b) the transfer and assignment to Purchaser at Closing of the Leases and the material Contracts of the Company.
3.5. NO CONFLICTS. Except as disclosed in PART 3.5 of the Seller Disclosure Letter, the execution and delivery by the Company and Seller of this Agreement and the consummation of the Contemplated Transactions do not and will not (i) conflict with, or result in any violation of, or cause a default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, amendment, the loss of any material benefit under, any term, condition or provision of the Organizational Documents of the InterCept Parties, any material Contract to which the any of the InterCept Parties is a party, or by which the InterCept Parties or their respective properties may be bound, or (ii) violate any Law applicable to the InterCept Parties or any of their respective properties. Except as set forth on PART 3.5 of the Seller Disclosure Letter, there are no agreements between Seller and any other Person with respect to its Member Interest that would prevent or encumber Seller's right to transfer its Member Interest in the Company as contemplated herein.
3.6. NO ADDITIONAL BROKERS. Except as set forth in PART 3.6 of the Seller Disclosure Letter, no investment banker, broker or finder is entitled to receive a commission or fee in respect of this Agreement or the transactions contemplated hereby, based upon any arrangement or agreement made by or on behalf of either of Seller or the Company.
3.7. FINANCIAL STATEMENTS.
(a) The (i) unaudited consolidated balance sheets and statements of operations for the Company as of and for the period from April 9, 2002 to December 31, 2002 (the "2002 FINANCIAL STATEMENTS"); and (ii) the unaudited consolidated balance sheets and statements of operations for the Company as of and for the one year period ended December 31, 2003 (the "MOST RECENT FINANCIAL STATEMENTS") (collectively, the 2002 Financial Statements and the Most Recent Financial Statements are referred to as the "FINANCIAL STATEMENTS") fairly present the combined financial position of the Company with regard to the Financial Statements as of the respective dates thereof and the results of their operations for the respective periods thereof. The Financial Statements were prepared in accordance with GAAP (except as disclosed on PART 3.7 of the Seller Disclosure Letter and for the absence of normal footnote disclosures and the absence of immaterial normal year-end adjustments in the Most Recent Financial Statements).
(b) Except as set forth on PART 3.7 of the Seller Disclosure Letter, the Company has no material obligations or liabilities of any nature (matured or unmatured, fixed or contingent) other than (i) those set forth or adequately provided for (including any reserves) in the Most Recent Financial Statements, (ii) those incurred in the ordinary course of business and not required to be set forth in the Most Recent Financial Statements under GAAP, (iii) those incurred in the ordinary course of business since the date of the Most Recent Financial Statements and consistent with past practice and (iv) those incurred in connection with the execution of this Agreement.
3.8. ENVIRONMENTAL MATTERS. Neither Seller nor the Company has received any notice of any pending or threatened investigation, Proceeding or claim with respect to the Company to the effect that the Company is or may be liable to any person or entity, or responsible or potentially responsible for the costs of any remedial or removal action or other cleanup costs, as a result of noncompliance with any applicable Laws relating to pollution or protection of the environment ("ENVIRONMENTAL LAWS"). There is no past or present action, activity, condition or circumstance that could be expected to give rise to any such liability on the part of the Company to any person or entity or for any such cleanup costs.
3.9. LITIGATION. Except as set forth on PART 3.9 of the Seller Disclosure Letter, neither the Company nor Seller, nor any officer, director, employee, agent or Affiliate of the Company is a party to any material pending or threatened Proceeding, whether at law or in equity, or before or by any Governmental Entity or arbitrator, nor does any basis exist for any such Proceeding.
3.10. LEASES. The leases disclosed in PART 3.10 of the Seller Disclosure Letter (the "LEASES") constitute all material leasing or rental contracts, agreements, and other commitments and arrangements in effect as of the execution of this Agreement and to which the Company is a party.
3.11. PERSONNEL, BENEFIT ARRANGEMENTS AND EMPLOYEE PLANS.
(a) LIST OF PERSONNEL. PART 3.11(a)(1) of the Seller Disclosure Letter contains a true and complete list of the names, positions and current compensation levels of all salaried or annual employees and of the Company. PART 3.11(a)(2) of the Seller Disclosure Letter contains a true and complete list of the names, positions and current compensation levels of all other employees of the Company, including without limitation, temporary employees and employees compensated on an hourly or commission basis, who are not included on PART 3.11(a)(1) of the Seller Disclosure Letter.
(b) EMPLOYEE RELATIONS. There is no labor strike, dispute, slowdown, stoppage, or similar activity pending or threatened against the Company. Except as described in PART 3.11(b) of the Seller Disclosure Letter, there are no Proceedings pending before the Equal Employment Opportunity Commission or any federal, state, or local agency or court against Seller pertaining to the Company or the employees of the Company.
(c) LIST OF EMPLOYEE PLANS. The Employee Plans set forth in PART 3.11(c) of the Seller Disclosure Letter is accurate list of the Employee Plans of the Company.
(d) NO LIABILITIES OR OBLIGATIONS. Except as reflected on the Financial Statements, the Company has no liabilities or obligations to any beneficiaries, governmental authorities, or any other parties arising out of or relating to the Employee Plans.
(e) NO MULTI-EMPLOYER OR CERTAIN OTHER PLANS. None of the Employee Plans is a multi-employer plan, as defined in Section 3(37) of ERISA, or is subject to Title IV of ERISA or Code section 412; and neither the Company nor any of its Affiliates has or has had any liability or other obligation in
connection with any such multi-employer plan, or plan which is or was subject to Title IV of ERISA or Code section 412.
(f) WARN ACT COMPLIANCE. The Company has complied in all respects with the Worker Adjustment and Retraining Notification Act.
3.12. INTELLECTUAL PROPERTY.
(a) PART 3.12 of the Seller Disclosure Letter lists (1) material patents, patent applications, registered and unregistered trademarks and service marks, trade names, domain names, registered and unregistered copyrights, including software, and maskworks owned by the Company, (2) material licenses, sublicenses and other agreements as to which Company is a party and under which a third party is authorized or permitted to use such Intellectual Property Rights listed pursuant to Section 3.12(a)(1), and (3) material licenses, sublicenses and other agreements as to which Company is a party and pursuant to which Company is authorized to use third party (including Seller or any of its Affiliates other than the Company) patents, trademarks or copyrights, including software ("THIRD PARTY INTELLECTUAL PROPERTY RIGHTS"), which are incorporated solely in, are, or form a primary part of material product or service offerings of Company to conduct its business. PART 3.12 of the Seller Disclosure Letter does not, and need not, include or describe Intellectual Property Rights of a generalized nature such as know how and goodwill. The Company is not in violation of any license, sublicense, or agreement described in PART 3.12 of the Seller Disclosure Letter. The Intellectual Property Rights and Third Party Intellectual Property Rights set forth on PART 3.12 of the Seller Disclosure Letter are all those in existence that are necessary for the operation of the Company's businesses as they are currently conducted, including the Subject Business. The Company, or its wholly-owned subsidiary, is the owner of all right, title, and interest in and to each of such Intellectual Property Rights or licensee of such Third Party Intellectual Property Rights, free and clear of all Encumbrances, other than Permitted Encumbrances.
(b) Except as disclosed in PART 3.12 of the Seller Disclosure Letter, there is no unauthorized use, disclosure, infringement or misappropriation of any Intellectual Property Rights of the Company, or misappropriation of any trade secret material owned by the Company, by any third party, including any former employee of the Company.
(c) All material patents and registered and unregistered trademarks, service marks and copyrights held by the Company are valid and existing. The Company has not received any written notice of any assertion or claim challenging the validity of any Intellectual Property Rights of the Company. Except as described in PART 3.12 of the Seller Disclosure Letter, the Company has not been sued, or threatened to be sued, in any suit or other Proceeding which involves a claim of infringement of any patents, trademarks, service marks, copyrights or misappropriation of any trade secret or violation of other proprietary right of any third party. Except as described in PART 3.12 of the Seller Disclosure Letter, there is no claim, nor has the Company recognized any facts or circumstances which could lead to a claim, of infringement of any patents, trademarks, service marks, copyrights or misappropriation of any trade secret or violation of other proprietary right of any third party. Except as described in PART 3.12 of the Seller Disclosure Letter, the Company has not received written notice that any third party is challenging the ownership of any of the Company's Intellectual Property Rights. Except as described in PART 3.12 of the Seller Disclosure Letter, the Company has not brought or threatened to bring any action, suit, or Proceeding for infringement of Intellectual Property Rights or breach of any license or agreement involving its Intellectual Property Rights against any third party. There are no pending or threatened interference Proceedings or re-examinations involving any patents or patent applications of the Company.
3.13. ABSENCE OF CHANGES. Except as set forth on PART 3.13 of the Seller Disclosure Letter, since the Balance Sheet Date and other than the Asset Transfers, with respect to the Company there has not occurred any of the following:
(a) change in the Company's authorized or issued membership interests; grant of any option or right to purchase any membership interests or similar rights with respect to the Company or any of its subsidiaries; issuance of any security convertible into membership interest or similar rights; grant of any registration rights; purchase, redemption, retirement, or other acquisition by the Company of any membership interests or similar rights; or declaration or payment of any dividend or other distribution or payment in respect of membership interests;
(b) amendment to the Organizational Documents of the Company or any of its subsidiaries;
(c) payment or increase by the Company or any of its subsidiaries of any bonuses, salaries, or other compensation to any stockholder, member, director, officer, or employee (except for year-end bonuses and salary increases in the Ordinary Course of Business) or entry into any employment, severance, or similar contract with any director, officer, or employee;
(d) adoption of, or increase in the payments to or benefits under, any profit sharing, bonus, deferred compensation, savings, insurance, pension, retirement, or other employee benefit plan for or with any employees of the Company or any of its subsidiaries, other than an adoption or increase of Seller affecting all of its subsidiaries;
(e) damage to or destruction or loss of any asset or property of the Company or any of its subsidiaries, whether or not covered by insurance, that has or could have a Material Adverse Effect on the properties, assets, business, or financial condition of the Company or any of its subsidiaries, taken as a whole;
(f) entry into, termination of, or receipt of notice of termination of (i) any license, distributorship, dealer, sales representative, joint venture, credit, or similar agreement, or (ii) any contract or transaction involving a total remaining commitment by or to the Company or any of its subsidiaries of at least $100,000;
(g) sale (other than sales of inventory in the Ordinary Course of Business), lease, or other disposition of any asset or property of the Company or any of its subsidiaries or mortgage, pledge, or imposition of any new Encumbrance on any material asset or property of the Company or any of its subsidiaries, including the sale, lease, or other disposition of any of the Intellectual Property Rights;
(h) cancellation or waiver of any claims or rights with a value to the Company or any of its subsidiaries in excess of $100,000;
(i) material change in the accounting methods used by the Company or any of its subsidiaries; or
(j) agreement, whether oral or written, by the Company or any of its subsidiaries to do any of the foregoing.
3.14. TAX RETURNS. The Company has filed all Tax returns and reports that it is required to file with the appropriate Governmental Entities. Such returns and reports are accurate and complete, and the Company has paid in full all Taxes, interest, penalties, assessments, or deficiencies shown to be due on
such reports, claimed to be due by any taxing authority, or otherwise due and owing. The Company has made all withholdings of Tax required to be made under all applicable federal state and local tax regulations.
3.15. TITLE TO ASSETS, PROPERTIES AND RIGHTS AND RELATED MATTERS.
(a) Except as set forth on PART 3.15(a) of the Seller Disclosure Letter, the Company has good title to the Intellectual Property Rights as provided in Section 3.12 and to all other assets, properties and interests in properties, real, personal or mixed, reflected on the Balance Sheet or acquired after the Balance Sheet Date (except inventory or other property sold or otherwise disposed of since the Balance Sheet Date in the Ordinary Course and accounts receivable and notes receivable paid in full subsequent to the Balance Sheet Date), free and clear of all Encumbrances, except for Permitted Encumbrances. Except as set forth on PART 3.15 of the Seller Disclosure Letter, and except for inventory and supplies in transit in the Ordinary Course, all material tangible personal property is located on one or more of the Leased Real Properties.
(b) Except as set forth on PART 3.15(b) of the Seller Disclosure Letter, neither the Company, nor any of its subsidiaries, has transferred to Seller or any of its Affiliates any material assets other than in the Ordinary Course.
3.16. AGREEMENTS, NO DEFAULTS. Except as set forth on PART 3.16 of the Seller Disclosure Letter, the Company is not a party to any:
(a) Contract for the employment of any officer, individual employee or other Person on a full-time, part-time, consulting or other basis or agreement with any Affiliates;
(b) Contract relating to the borrowing of money or to the mortgaging, pledging or otherwise placing an Encumbrance, other than Permitted Encumbrances, on any asset owned by the Company and/or used in the Subject Business;
(c) Contract relating to any guarantee of any obligation for borrowed money or otherwise;
(d) Contract with respect to the lending or investing of funds;
(e) Contract relating to the licensing of any rights of any third party;
(f) Contract or group of related Contracts with the same party (excluding purchase orders entered into in the Ordinary Course which are to be completed within three months of entering into such purchase orders) for the purchase or sale of products or services under which the undelivered balance of such products and services has a purchase price in excess of $100,000; or
(g) Contract that prohibits it from freely engaging in business anywhere in the world.
3.17. COMPLIANCE. Except as set forth in PART 3.17, the Company has not received any notice of violation from any government or regulatory agency related to an alleged violation of any statute, ordinance, regulation, order or requirement relating to its operations, and the Company and Seller have no Knowledge of any such violation.
3.18. BANK ACCOUNTS; POWERS OF ATTORNEY. PART 3.18 of the Seller Disclosure Letter sets forth a complete and correct list of (a) the names of each bank account in which the Company has an account or
safe deposit box, and the names of all persons authorized to draw thereon, or have access thereto and (b) the names of all Persons holding general or special powers of attorney from the Company and a summary of the terms thereof.
3.19. ACCOUNTS RECEIVABLE. Except as set forth in PART 3.19 of the Seller Disclosure Letter, the accounts receivable of the Company that are reflected on the Most Recent Financial Statements or on the accounting records of the Company as of the Closing Date (the "ACCOUNTS RECEIVABLE") have arisen in the Ordinary Course in the aggregate recorded amounts thereof, net of any applicable reserve reflected in the Most Recent Financial Statements. Except as set forth in PART 3.19 of the Seller Disclosure Letter, the Accounts Receivable (a) arose from bona fide sales or services transactions in the ordinary course of business and are payable on ordinary trade terms, (b) are not the subject of any actions or Proceedings brought by or on behalf of the Company, (c) have not been challenged or disavowed by the obligor of such Accounts Receivable, and (d) are, to the Knowledge of the Company, fully collectible subject to any aggregate reserve reflected in the Most Recent Financial Statements.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to the Company and Seller as follows:
4.1. CORPORATE EXISTENCE. Purchaser is a New York limited liability company duly organized, validly existing and in good standing under the laws of its jurisdiction of organization. Penthouse International, Inc. owns 99% of the member interests of Purchaser, and Mr. Charles L. Samel ("Samel") and Dr. Luis Enrique Molina G. respectively own .5% of the member interests of Purchaser and are the sole managers of Purchaser.
4.2. CORPORATE POWER AND AUTHORIZATION. Purchaser has the power, authority, and legal right to execute this Agreement, to consummate the Contemplated Transactions, to execute any instrument necessary to fully complete the terms of this Agreement, and to otherwise perform all of its obligations hereunder. The execution, delivery, and performance of this Agreement and all other agreements required hereunder have been duly authorized by all necessary corporate or other similar action. This Agreement and all other agreements required hereunder have been duly executed and delivered by Purchaser and, assuming due and valid execution and delivery by all other parties hereto, constitute the legal, valid, and binding obligations of Purchaser, enforceable against Purchaser in accordance with their terms and conditions except as such enforcement may be subject to or limited by bankruptcy, insolvency, reorganization, moratorium or other similar Laws now or hereafter in effect affecting creditors' rights generally, and by general principles of equity.
4.3. NO ADDITIONAL BROKERS. Except as set forth on PART 4.3 of the Purchaser Disclosure Letter, no investment banker, broker or finder is entitled to receive a commission or fee from the execution of this Agreement or from the consummation of the Contemplated Transactions, based upon any arrangement or agreement made by or on behalf of Purchaser.
4.4. NO CONSENTS REQUIRED. Except as otherwise provided in this Agreement, no Permit, consent, approval or authorization of, or any notification of or filing with, any Person or Governmental Entity is required in connection with the execution and delivery by Purchaser of this Agreement, any other agreement required hereunder, or the consummation of any of the Contemplated Transactions to be performed by Purchaser.
4.5. FINANCIAL RESOURCES. On the Closing Date, Purchaser:
(a) owns property having a value, at fair valuations, greater than the amount required to pay its debts;
(b) has capital sufficient to carry on its business and transactions and all business and transactions in which it is about to engage following acquisition of the Subject Business; and
(c) does not intend or believe it will incur following consummation of the Contemplated Transactions debts beyond its ability to repay them as they mature.
4.6. NO RESTRICTIONS. The execution and delivery of this Agreement, the execution and delivery of the other agreements contemplated by this Agreement, and the consummation of the Contemplated Transactions do not and will not result in:
(a) the breach of any contract to which Purchaser is a party or by which Purchaser is bound,
(b) the violation of the Organizational Documents of Purchaser, including but not limited to the organizational agreement of Purchaser, or
(c) the violation of any statute, regulation, or governmental order by which Purchaser is bound.
4.7. PURCHASE FOR OWN ACCOUNT. Purchaser is purchasing the Member Interest of the Company for its own account for investment, not as a nominee or agent for any other Person, and not with a view to, or for sale in connection with, the distribution of any part thereof, and Purchaser has no present intention of distributing the same.
4.8. RELIANCE UPON PURCHASER'S REPRESENTATIONS. Purchaser understands that the Member Interest is not registered under the Securities Act nor qualified under applicable state securities law on the ground that the sale provided for in this Agreement is exempt from registration under the Securities Act and qualification under applicable state securities law, and that Seller's reliance on such exemptions is predicated on Purchaser's representations set forth in this Agreement.
4.9. PURCHASER IS ON AN "AS IS" BASIS; RECEIPT OF ALL MATERIAL
INFORMATION. Purchaser represents that it is purchasing the Company on an "as is" basis. Purchaser believes that, as of Closing, Purchaser will have received all the information Purchaser considers necessary or appropriate for deciding whether to purchase the Member Interest of the Company. By Closing, Purchaser will have had a satisfactory opportunity to ask questions and receive answers from Seller and the Company regarding the terms and conditions of the purchase of the Member Interest and the business, properties, prospects, and financial condition of the Company. Also by Closing, Purchaser will have had a satisfactory opportunity to obtain additional information sufficient to satisfy itself with respect to the foregoing. Purchaser hereby acknowledges that by participating in the Closing, it will be affirming:
(a) that it has taken advantage of its opportunity to ask questions and receive answers from Seller and the Company, and
(b) that every material fact necessary to induce Purchaser into its purchase of the Member Interest of the Company is addressed in this Agreement or in the accompanying Seller Disclosure Letter.
4.10. INVESTMENT EXPERIENCE. Purchaser's officers are experienced in evaluating and investing in securities, and Purchaser acknowledges that through their expertise, it is able to make investment decisions for itself, can bear the economic risk of its investment and has such knowledge and
experience in financial and business matters that it is capable of evaluating the merits and risks of the investment in the Member Interest.
4.11. RESTRICTED SECURITIES. Purchaser understands that the Member Interest may not be sold, transferred or otherwise disposed of without registration under the Securities Act and/or qualification under applicable state securities law, or an exemption therefrom, and that in the absence of an effective registration statement and/or applicable state qualification covering the Member Interest or an available exemption from registration under the Securities Act and/or qualification under applicable state securities law, the Member Interest must be held indefinitely.
4.12. NO KNOWLEDGE OF BREACH OF THE COMPANY'S OR SELLER'S
REPRESENTATIONS OR WARRANTIES. To the Knowledge of Purchaser, there are no facts, events or occurrences which would cause the Company or Seller to be in breach of any of their respective representations or warranties contained in this Agreement.
4.13. COMPANY INSURANCE. Purchaser acknowledges that the Company's insurance policies are held by Seller and that at Closing, Purchaser shall be required to obtain new insurance policies for the Company.
4.14. CERTAIN RELATED DOCUMENTS. The ancillary documents to be executed by Purchaser in connection with this Agreement have been duly executed and delivered by the parties thereto other than Seller and the Company and constitute the legal, valid, and binding obligations of such parties, enforceable against such parties in accordance with their terms and conditions.
ARTICLE 5
COVENANTS DURING THE TRANSITION PERIOD
The Company, Seller and Purchaser agree to abide by the following covenants from and after the date of this Agreement until the Closing or the earlier termination of this Agreement pursuant to Section 13.1 (the "TRANSITION
PERIOD").
5.1. CONSENTS, APPROVALS, ETC. The Company, Seller and Purchaser shall each use commercially reasonable efforts:
(a) to cooperate with one another in determining whether any filings are required to be made with, or consents, permits, authorizations or approvals are required to be obtained from, any other Person or Governmental Entity in connection with the execution and delivery of this Agreement and the consummation of the Contemplated Transactions, and timely making all such filings and timely seeking all such consents, permits, authorizations or approvals (provided that Seller shall only be required to obtain the consent of applicable parties under its Senior credit facility); and
(b) to take, or cause to be taken, all other actions and do, or cause to be done, all other things necessary, proper or advisable to consummate and make effective the Contemplated Transactions as soon as reasonably practicable.
5.2. AFFIRMATIVE COVENANTS OF THE COMPANY AND SELLER. Except as otherwise consented to in writing by Purchaser, the Company shall, and Seller shall cause the Company:
(a) to conduct its operations in the Ordinary Course (including the collection of receivables and the payment of payables) and use reasonable efforts to preserve intact its business organization, keep
available the services of officers and employees, and maintain satisfactory relationships with suppliers, customers and others having business relationships with them;
(b) to maintain its assets in customary repair, order and condition, maintain insurance reasonably comparable to that in effect on the Balance Sheet Date, replace in accordance with past practice inoperable, worn out or obsolete assets with modern assets of comparable quality and, in the event of a casualty, loss or damage to any of such assets or properties before the Closing Date for which the Company is insured or the condemnation of any assets or properties, either repair or replace such assets or property or, if Purchaser agrees, retain such insurance or condemnation proceeds;
(c) to use its reasonable efforts to obtain all consents known by the Company or Seller to be needed, or specified by Purchaser, on or before the Closing Date, to the Contemplated Transactions (provided that Seller shall only be required to obtain the consent of applicable parties under its Senior credit facility); and
(d) to maintain its insurance policies in full force and effect, or shall renew or replace the same before the expiration or termination of the expiring policies with policies from a reputable insurance carrier with a "Best's Rating" equal to or better than that of the existing carrier, containing insurance coverage in the same or greater amount than the existing policies in substantially the same form and substance as the existing policies.
5.3. NEGATIVE COVENANTS OF THE COMPANY AND SELLER. Without the prior written consent of Purchaser, except as expressly contemplated by this Agreement, the Company shall not, and Seller shall cause the Company not:
(a) to sell, lease, transfer or assign any of its material assets, tangible or intangible, other than inventory sold in the Ordinary Course and the Asset Transfers;
(b) except as set forth on PART 5.3(b) of the Seller Disclosure Letter, to acquire or agree to acquire by merging or consolidating with, or by purchasing any material portion of the capital stock or assets of, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof;
(c) to amend the Organizational Documents of the Company;
(d) to split, combine, reclassify, encumber or make any change in the Company's membership interests, or issue any new member interests or issue or become a party to any subscriptions, warrants, rights, options, convertible securities or other agreements or commitments of any character relating to the interests of the Company;
(e) to incur or commit to incur any capital expenditures in excess of $250,000 in the aggregate;
(f) to incur, assume or guarantee any long-term or short-term indebtedness except under existing credit facilities or replacements for the same;
(g) to distribute any cash or assets to its members, or make any payments to Seller or any of its affiliates, to the extent necessary to ensure that on the Closing Date, the Company shall have at least the amount of cash (restricted and unrestricted) on its balance sheet at Closing as reflected on the Balance Sheet; or
(h) to authorize any of the foregoing, or enter into any agreement to do any of the foregoing.
5.4. TAX MATTERS. Except as set forth on PART 5.4 of the Seller Disclosure Letter, without the prior written consent of Purchaser, the Company shall not make or change any election, change an annual accounting period, adopt or change any accounting method, file any amended Tax Return, enter into any closing agreement, settle any Tax claim or assessment, surrender any right to claim a refund of Taxes, consent to any extension or waiver of the limitation period applicable to any Tax claim or assessment relating to Company, or take any other similar action relating to the filing of any Tax Return or the payment of any tax, if such election, adoption, change, amendment, agreement, settlement, surrender, consent or other action would have the effect of increasing the Tax liability of the Company for any period ending after the Closing Date or decreasing any Tax attribute existing on the Closing Date.
5.5. REAL PROPERTY AND LEASES.
(a) MAINTENANCE OF REAL PROPERTY. Seller will cause the Company to maintain the Leased Real Property, including any and all improvements situated thereon, in substantially the same condition as of the date of this Agreement, ordinary wear and tear and acts of God excepted, and shall not demolish or remove any of the existing improvements situated thereon, or erect new improvements on the Leased Real Property or any portion thereof, without the prior written consent of Purchaser.
(b) LEASES. Except with regard to assisting Purchaser with its efforts to obtain any necessary consents related to the Company's leases, Seller will not cause or permit the Company's leases to be amended, modified, extended renewed or terminated, nor shall the Company enter into any new lease, sublease, license or other agreement for the use or occupancy of any real property, without the prior written consent of Purchaser.
5.6. ADDITIONAL COVENANTS OF SELLER AND THE COMPANY.
(a) Seller and the Company shall cooperate with Purchaser in preparing and making all filings or submissions to Governmental Entities required, if any, in connection with the Contemplated Transactions. Seller and the Company, at any time before or after the Closing, shall execute, acknowledge and deliver any further assignments, assurances, documents and instruments of transfer reasonably requested by Purchaser, and shall take any other action consistent with the terms of this Agreement that may reasonably be requested by Purchaser, for the purpose of delivering the Member Interest to Purchaser, and obtaining the consents necessary to complete the Contemplated Transactions.
(b) Seller shall use its, and shall cause the Company to use its, commercially reasonable efforts to fulfill the conditions set forth in Article 7 of this Agreement over which they have control or influence and to complete the Contemplated Transactions.
5.7. COVENANTS OF PURCHASER.
(a) Purchaser shall cooperate with Seller and the Company in preparing and making all filings or submissions to Governmental Entities required in connection with the Contemplated Transactions, if any.
(b) Purchaser shall use its reasonable efforts to obtain all consents and releases related to the Processing Agreements and the contracts related to the Leased Real Property (provided that Purchaser shall only be required to obtain the consents of First Data and SGS under the Processing Agreements).
(c) Purchaser shall use its commercially reasonable efforts to fulfill all of the conditions set forth in Article 8 of this Agreement over which it has control or influence, and to complete the Contemplated Transactions.
5.8. EXPENSES. Except as otherwise provided in this Agreement, each of Seller on one hand, and Purchaser on the other hand, shall pay its own expenses incidental to the preparation of this Agreement, the carrying out of the provisions of this Agreement and the consummation of the Contemplated Transactions, including without limitation its own respective legal, accounting, brokerage and other costs, if any, incurred in connection with the Contemplated Transactions.
ARTICLE 6
CONDITIONS TO EACH PARTY'S OBLIGATIONS
The respective obligations of each party hereto to effect the Contemplated Transactions are subject to the satisfaction at or before the Closing of all the following conditions, unless waived (to the extent such conditions can be waived) in writing by Purchaser or Seller, as applicable:
6.1. NO INJUNCTIONS OR RESTRAINTS. No temporary restraining order, preliminary or permanent injunction or other Order issued by any Governmental Entity nor other legal restraint or prohibition preventing the Contemplated Transactions shall be in effect.
6.2. STATUTES. No action shall have been taken or threatened, and no Law or Order shall have been enacted, promulgated or issued or deemed applicable to the transactions contemplated hereby by any Governmental Entity that would:
(a) make the Contemplated Transactions illegal or substantially delay the consummation of any material aspect of the transactions contemplated hereby;
(b) compel the Company or Purchaser to dispose or hold separate all or a material portion of the Subject Business or assets of the Company, Purchaser or any Affiliate thereof as a result of the consummation of the Contemplated Transactions; or
(c) render any party unable to consummate the Contemplated Transactions.
ARTICLE 7
CONDITIONS TO THE OBLIGATIONS OF PURCHASER
The obligations of Purchaser to effect the Contemplated Transactions are subject to the satisfaction at or before the Closing of all the following conditions, unless waived (to the extent such conditions can be waived) in writing by Purchaser:
7.1. REPRESENTATIONS AND WARRANTIES TRUE AND COMPLETE AT CLOSING.
Seller shall deliver a certificate to the Purchaser confirming that the representations and warranties of Seller and the Company contained in this Agreement shall be true and complete in all material respects at and as of the Closing Date with the same effect as if such representations and warranties had been made at and as of the Closing Date.
7.2. PERFORMANCE OF COVENANTS AND AGREEMENTS. Seller shall deliver a certificate to the Purchaser confirming that the all of the covenants and agreements required to be performed by the Company and Seller at or before the Closing pursuant to the terms of this Agreement shall have been duly performed in all material respects.
7.3. PRE-CLOSING BALANCE SHEET. Purchaser shall have received from Seller an estimated balance sheet of the Company reflecting the Subject Business transferred at Closing, and excluding the Asset Transfers, (the "PRE-CLOSING BALANCE SHEET") and which is set forth on EXHIBIT 7.3 attached hereto.
7.4. CLOSING DELIVERIES. Purchaser shall have received duly executed copies of the closing documents set forth in Section 10.1(a) and such documents shall be in full force and effect.
7.5. OPINION OF COUNSEL. Purchaser shall have received the opinion of Nelson Mullins Riley & Scarborough, L.L.P. ("NELSON MULLINS"), counsel to the Company and Seller, in the form and substance attached hereto as EXHIBIT 7.5 dated as of the Closing Date.
7.6. RESIGNATIONS OF MANAGER AND OFFICERS. The sole manager and any officers of the Company shall have submitted written resignations to the Company with respect to such party's position with the Company.
7.7. CONSENTS. Purchaser shall have received, in writing and in form and substance reasonably acceptable to Purchaser, all consents, approvals, Orders and waivers of, and all filings and registrations with, all Governmental Entities, and applicable parties under Seller's senior credit facility, that are required for the consummation of the Contemplated Transactions.
Notwithstanding anything in this Agreement to the contrary, Purchaser's conditions to closing this Agreement pursuant to Sections 7.1, 7.2 and 7.7, as such sections may in any manner relate to contract consents required in order to close the Contemplated Transactions shall be limited to the consent of applicable parties under Seller's senior credit facility.
ARTICLE 8
CONDITIONS TO THE OBLIGATIONS OF
SELLER
The obligations of Seller to effect the Contemplated Transactions are subject to the satisfaction at or before the Closing of all the following conditions, unless waived (to the extent such conditions can be waived) in writing by Seller:
8.1. REPRESENTATIONS AND WARRANTIES TRUE AND COMPLETE AT CLOSING.
Purchaser shall deliver a certificate to Seller confirming that all of the representations and warranties of Purchaser contained in this Agreement shall be true and complete in all material respects at and as of the Closing Date with the same effect as if such representations and warranties had been made at and as of the Closing Date.
8.2. PERFORMANCE OF COVENANTS AND AGREEMENTS. Purchaser shall deliver a certificate to Seller confirming that all of the covenants and agreements required to be performed by Purchaser at or before the Closing pursuant to the terms of this Agreement shall have been duly performed in all material respects.
8.3. CLOSING DELIVERIES. Seller shall have received duly executed copies of the closing documents set forth in Section 10.1(b) and such documents shall be in full force and effect.
8.4. OPINIONS OF COUNSEL. Seller shall have received the opinion of Gersten, Savage, Kaplowitz, Wolf & Marcus, LLP, counsel to Purchaser, in form and substance attached hereto as EXHIBIT 8.4 dated as of the Closing Date.
8.5. CONSENTS. Seller shall have received, in writing and in form and substance reasonably acceptable to Seller, all consents, approvals, Orders and waivers of, and all filings and registrations with, all Governmental Entities, and the release from any and all remaining liability or obligations under the Company's processing agreement (the "PROCESSING AGREEMENTS") with First Data Merchant Services, Inc. (together with its Affiliates, "FIRST DATA") and Shared Global Systems, Inc. (together with its Affiliates, "SGS"), including any Seller guaranty thereof.
Notwithstanding anything in this Agreement to the contrary, Seller's conditions to closing this Agreement pursuant to Sections 8.1, 8.2 and 8.5, as such sections may in any manner relate to contract consents required in order to close the Contemplated Transactions, shall be limited to Seller's release from any and all remaining liability or obligations under the Processing Agreements, including any Seller guaranty thereof, and provided that the letter of credit currently securing the Company's obligations under the Processing Agreement with First Data shall be released, or otherwise addressed, in accordance with Section 9.13.
ARTICLE 9
ADDITIONAL AGREEMENTS
9.1. COOPERATION. The InterCept Parties on the one hand, and Purchaser on the other hand, shall cooperate fully with each other and their respective employees, legal counsel, accountants and other representatives and advisers in connection with the steps required to be taken as part of their respective obligations under this Agreement both before and after the Closing; and shall, at any time and from time to time after the Closing, upon the request of the other, do, execute, acknowledge and deliver, or will cause to be done, executed, acknowledged and delivered, all such further acts, deeds, assignments, transfers, conveyances, powers of attorney, receipts, acknowledgments, acceptances and assurances as may be reasonably required to satisfy and perform the obligations of such party hereunder.
9.2. SOFTWARE LICENSE AGREEMENT. At Closing, the Company and Seller or its Affiliates shall enter into a software license agreement in the form attached hereto as EXHIBIT 9.2 (the "SOFTWARE LICENSE AGREEMENT") providing for the royalty-free, non-exclusive, non-transferable, perpetual license of the NexGen and iBill transaction processing and support software from Seller or its Affiliates to the Company.
9.3. TRANSITION SUPPORT SERVICES AGREEMENT. At Closing, the Company or its Affiliates and Seller shall enter into a transition support services agreement in the form attached hereto as EXHIBIT 9.3 (the "TRANSITION SUPPORT AGREEMENT") providing that Seller shall provide to the Company or its Affiliates post-Closing certain services currently performed by Seller for the Company or its Affiliates, as well as for other services Seller or its Affiliates may desire from the Company, for a period not to exceed six months.
9.4. TRANSFER OF CUSTOMERS. Purchaser and Seller agree that Seller shall retain some of the Company's non-adult content customer relationships acquired since April 8, 2002. As such, immediately before Closing, Seller shall cause the Company to transfer the customers listed on PART 9.4 of the Seller
Disclosure Letter (the "TRANSFERRED CUSTOMERS") to Seller or an Affiliate of Seller in one of the Asset Transfer Agreements.
9.5. TRANSFER OF CLAIMS. Seller and Purchaser acknowledge and agree that immediately before Closing, the Company will assign to Seller or an Affiliate of Seller all of its rights to the claims as set forth on PART 9.5 of the Seller Disclosure Letter (the "TRANSFERRED CLAIMS") in the Asset Transfer Agreements. The Parties acknowledge that the value of such Claims shall be removed from the Closing Balance Sheet for purposes of all calculations of the Purchase Price Adjustment.
9.6. INSURANCE POLICY. At Closing, to secure Purchaser's indemnification obligations pursuant to Sections 11.2(d) and 11.2 (e), Purchaser shall deliver or cause to be delivered to Seller a validly issued insurance policy (the "INSURANCE POLICY") in the face amount of $20,000,000, in substantially the form attached hereto as EXHIBIT 9.6, which shall be issued by insurance companies satisfactory to Seller in its sole discretion. The Insurance Policy shall have a term of two years and shall provide that Seller as beneficiary thereof which may, from time to time, make a claim against the Insurance Policy by following the procedures set forth therein. Purchaser shall have paid all premiums for the term of the Insurance Policy before Closing and the Insurance Policy shall have no deductible. The face amount of the Insurance Policy will be reduced from $20,000,000 to $5,000,000 on the 375th day following the Closing.
9.7. CONFIDENTIALITY. The InterCept Parties on the one hand and Purchaser on the other hand shall hold in trust and confidence all Confidential Information about the other and shall not make any copies of, distribute, or use any such Confidential Information except as necessary to prepare for the completion of the Contemplated Transactions. After the Closing, neither Seller on the one hand nor Purchaser and the Company on the other hand shall make any unauthorized disclosure of Confidential Information about the other for a period of five years. If the Contemplated Transactions do not occur, then each such party, upon the first request in writing from the other, shall return to the other all Confidential Information in its possession, without retaining any copies thereof, and neither the InterCept Parties on the one hand nor Purchaser on the other hand shall make any unauthorized disclosure of Confidential Information about the other for a period of five years from the date of this Agreement. Notwithstanding the foregoing, any party may disclose Confidential Information to the extent disclosure is mandated by the legal requirements of such party, the Nasdaq Stock Market, or the SEC, as well as to professional advisors, directors and senior executives as reasonably necessary. This Agreement may also be disclosed to third parties if reasonably necessary to secure consents or approvals to consummate the Contemplated Transactions, or, to the extent necessary, to comply with diligence requirements in connection with financing or other transactions that may be proposed by the Company in the future. The parties will cooperate to draft a press release for the announcement of this Agreement as soon as possible after the execution of this Agreement by all parties. The provisions of this Section 9.7 are cumulative with the provisions of the Non-Disclosure Agreement previously signed by Seller and Purchaser, provided that in the event of a conflict between the confidentiality provisions of that agreement and this Agreement, the confidentiality provisions of this Agreement shall govern. Notwithstanding anything in this Agreement or the referenced Non-Disclosure Agreement to the contrary, any party to this Agreement (and any employee, representative, or other agent of any party to this Agreement) may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of the transactions contemplated by this Agreement and all materials of any kind (including opinions or other tax analyses) that are provided to it relating to such tax treatment and tax structure. However, any such information relating to the tax treatment or tax structure is required to be kept confidential to the extent necessary to comply with any applicable federal or state securities laws.
9.8. ABILITY OF NELSON MULLINS TO REPRESENT SELLER POST-CLOSING IN
MATTERS RELATED TO THE COMPANY. The parties to this Agreement agree and acknowledge that Nelson Mullins has represented Seller and the Company pre-Closing and will continue to represent Seller post-Closing. Purchaser agrees, for itself and the Company post-Closing, and after consultation with its own counsel, that the client/attorney relationship that currently exists between Nelson Mullins and the Company shall cease upon Closing, and that the Company hereby waives any conflict that might be deemed to be present between Nelson Mullins and the Company post-Closing arising out of Nelson Mullins' prior representation of the Company. Accordingly, Purchaser agrees, for itself and for the Company post-Closing, that Nelson Mullins may represent Seller in any dispute between Seller on one hand and Purchaser or the Company on the other hand, notwithstanding the client/attorney relationship that currently exists between Nelson Mullins and the Company.
9.9. PAYMENT OF TAXES.
(a) Seller shall pay all Taxes relating to or arising from operations of the Company on or before the Closing Date.
(b) Seller, the Company and Purchaser agree to furnish, or to cause to be furnished in good faith to each other, such cooperation and assistance as is reasonably necessary to file any future returns, to respond to audits, to negotiate settlements with Governmental Entities and to prosecute and defend against Tax claims.
(c) The Purchase Price shall be allocated as set forth on SCHEDULE 9.9(c). Such allocation shall also conform to the requirements of Section 1060 of the Code and the regulations thereunder and any comparable provisions of state or local law. Seller and Purchaser shall jointly complete and separately file Form 8594 with their respective tax returns for the tax year in which the Closing Date occurs in accordance with such allocation. Each of Seller and Purchaser hereby covenants and agrees that it will not take a position on any income, property or other Tax Return, before any Governmental Entity charged with the collection of any income, property or other Tax, or in any judicial proceeding that is in any way inconsistent with the terms of this Agreement.
9.10. PAYMENT OF FINES. Notwithstanding any other provision of this Agreement, if (a) at any time within 180 days following the Closing Date the Company is assessed any fine, assessment, levy or other charge by First Data or any credit card association (any such event, a "FINE") including without limitation in relation to chargebacks or the manner in which the Company's business is conducted, (b) such Fine relates to any period on or before the Closing Date and was not fully reserved against in the Closing Balance Sheet or previously paid in full, and (c) Purchaser notifies Seller in writing of such Fine before the close of business on the 180th day following the Closing Date, then Seller shall remit to the Company the amount of such Fine, net of aggregate reserves or holdbacks reflected in the Closing Date Balance Sheet, in immediately available funds within five business days after Purchaser notifies Seller in writing of such Fine. Purchaser and the Company agree that, contingent upon Seller's payment or reimbursement of such Fine, the Company and Seller hereby assign to Seller the following:
(1) all refunds of Fines actually paid by Seller to First Data or card associations before or in respect of periods before Closing;
(2) any actual or potential causes of action against any of the Company's processing providers or other vendors by reason of any act or omission that may have resulted in the Company suffering a Fine for activities occurring before Closing, and for which Seller has paid the Fine; and
(3) any right to recover from (or pass through to) merchants, consumers, or other Persons any Fines suffered by the Company for activities occurring before Closing; and for which Seller has paid the Fine.
If Seller reimburses Purchaser for any Fines in accordance with this Agreement, Purchaser covenants and agrees that it shall use reasonable best efforts to recover the amount of any such Fines from the merchant, consumers, or other Persons whose activities led to the incurrence of the Fines and shall pay any amount so recovered to Seller as reimbursement for amounts previously paid by Seller to Purchaser (or the Company following the Closing).
9.11. CUSTOMER ACCOUNT MAINTENANCE. Purchaser acknowledges and agrees that for a period of one year following the Closing, Purchaser shall cause Company and its Affiliates to maintain all customer accounts consistent with the requirement of each customer agreement, as may be amended from time to time by the Company and such customer, including but not limited to the timely payment of all obligations (whether or not incurred before the Closing Date) and appropriate reserve maintenance. Notwithstanding the foregoing, nothing herein shall prevent the Company from terminating, amending or modifying any customer agreement at any time in accordance with the terms of such agreement. In the event of any termination of a customer agreement by the Company, the Company shall perform all of its obligations under such customer agreement, including the timely payment of all obligations and appropriate reserve maintenance. It is specifically agreed that no customers shall be third party beneficiaries of this provision.
9.12. BANK OF AMERICA CREDIT FACILITY. Notwithstanding any representations, warranties, agreements, or covenants herein to the contrary, all of Seller's and its subsidiaries' assets, including Seller's ownership interests in the Company, are pledged to, or are subject to security interests in favor of, Bank of America, N.A. and other lenders, pursuant to that certain Credit Agreement dated September 19, 2003, as amended (the "CREDIT AGREEMENT"). Additionally, each of Seller's subsidiaries, including the Company, guaranteed Seller's obligations to the lenders in the Credit Agreement. To effect the Contemplated Transactions, Seller must therefore obtain the consent of the lenders pursuant to the terms of the Credit Agreement (the "LENDER CONSENT"), and each representation, warranty, agreement or covenant herein is qualified by this section and to the necessity of obtaining the Lender Consent.
9.13. FIRST DATA LETTER OF CREDIT. On or before April 20, 2004, Purchaser shall cause First Data to release Seller's $3,000,000 letter of credit currently securing the Company's obligations under the Processing Agreements (the "FIRST DATA LETTER OF CREDIT"). If the First Data Letter of Credit is not released on or before April 20, 2004, Purchaser shall pay Seller $3,000,000 (less the aggregate amount of any draws previously paid by Purchaser to Seller as provided in the following sentence) in immediately available funds on or before April 20, 2004. In addition, if a full or partial draw upon the First Data Letter of Credit is made before it is released or before Purchaser shall have paid Seller $3,000,000, Purchaser shall pay Seller the amount of any such draw in immediately available funds within two (2) business days.
9.14. GUARANTY OF NOTE AND FIRST DATA LETTER OF CREDIT. At Closing, Dr. Luis Enrique Molina G. (the "GUARANTOR") shall enter into that certain Guaranty Agreement attached hereto as EXHIBIT 9.14 (the "GUARANTY AGREEMENT") with Seller whereby Guarantor shall guarantee both (i) Purchaser's obligations under the Note, and (ii) Purchaser's obligations under Section 9.13.
ARTICLE 10
THE CLOSING
10.1. CLOSING. The closing of the purchase and sale of the Member Interest and the consummation of the Contemplated Transactions (the "CLOSING") shall take place at 10:00 a.m., local time, not later than March 15, 2004 in the offices of Nelson Mullins in Atlanta, Georgia, or at such other location as the parties mutually agree. The Closing will take place as soon as practicable after the satisfaction or waiver (to the extent the same may be waived) of the conditions set forth in Articles 6, 7 and 8. The date on which the Closing takes place is hereinafter referred to as the "CLOSING DATE." The following shall occur on the Closing Date:
(a) DELIVERIES BY THE COMPANY AND SELLER. At the Closing, Seller shall deliver or cause to be delivered the following to Purchaser:
(1) a certificate in proper form and order for transfer
representing the Member Interest;
(2) certified copies of the resolutions of the Company's manager
and member authorizing and approving this Agreement and the
Contemplated Transactions;
(3) certified copies of the resolutions of Seller's Board of
Directors authorizing and approving this Agreement and the
Contemplated Transactions;
(4) a certificate of the manager of the Company certifying (i)
the Company's Organizational Documents (ii) the incumbency of
each officer of the Company executing this Agreement or any
agreement, instrument or document contemplated hereby, and
(iii) certifying compliance with the conditions set forth in
Sections 7.1 and 7.2;
(5) a certificate of the Secretary of Seller certifying Seller's
Articles of Incorporation and Bylaws and the incumbency of
each officer of Seller executing this Agreement or any
agreement, instrument or document contemplated hereby;
(6) a certificate executed by the President of Seller certifying
compliance with the conditions set forth in Sections 7.1 and
7.2;
(7) the resignations of the managing members and all officers of
the Company;
(8) the Software License Agreement
(9) the Transition Support Agreement;
(10) written evidence of the Asset Transfers; and
(11) the legal opinion of Nelson Mullins.
(b) DELIVERIES BY PURCHASER. At the Closing, Purchaser shall deliver, or cause to be delivered, the following to the Company and Seller:
(1) The Cash Payment;
(2) the Note;
(3) the Guaranty Agreement;
(4) certified copies of the resolutions of Purchaser's board of
managers authorizing and approving this Agreement and the
Contemplated Transactions;
(5) a certificate of the Secretary of Purchaser certifying
Purchaser's Organizational Documents and the incumbency of
each officer of Purchaser executing this Agreement or any
agreement, instrument or document contemplated hereby;
(6) a certificate executed by the President of Purchaser
certifying compliance with the conditions set forth in
Section 8.1 and 8.2;
(7) the Software License Agreement;
(8) the Transition Support Agreement;
(9) the Insurance Policy; and
(10) the legal opinion of Gersten, Savage, Kaplowitz, Wolf &
Marcus, LLP.
ARTICLE 11
INDEMNIFICATION
11.1. INDEMNIFICATION BY SELLER IN FAVOR OF PURCHASER. Seller hereby agrees to indemnify and hold harmless Purchaser for any and all Losses Purchaser may suffer, sustain or incur which, directly or indirectly, arise or result from or are incident or related to:
(a) the untruth, inaccuracy or breach of any material representation or warranty of the Company or Seller contained in this Agreement, the Seller Disclosure Letter, or any certificate delivered in connection herewith or therewith;
(b) the breach of any material agreement or covenant of the Company or Seller contained in this Agreement, in any other document or agreement listed in Article 10, or in the Seller Disclosure Letter (provided that with respect to the Company, Seller shall be obligated to indemnify and hold harmless Purchaser only with respect to pre-Closing agreements and covenants of the Company and not to any agreement or covenant of the Company post-Closing);
(c) any action, suit, Proceeding, demand, assessment or judgment (including, without limitation, those commenced or obtained against Seller) incident to any of the matters indemnified against under clauses (a) or (b) above; or
(d) the matters described on EXHIBIT 11.1(d).
Seller shall reimburse Purchaser on demand for any Losses Purchaser may suffer at any time after the execution of the Agreement in accordance with this Article 11. Except as provided in this Agreement, consummation of the Contemplated Transactions shall not be deemed or construed to be a waiver of any right or remedy of Purchaser.
11.2. INDEMNIFICATION BY PURCHASER AND THE COMPANY IN FAVOR OF SELLER.
Purchaser and, after the Closing, the Company agree, jointly and severally, to indemnify and hold harmless Seller for any and all Losses Seller may suffer, sustain, or incur which, directly or indirectly, arise or result from or are incident or related to:
(a) the untruth, inaccuracy or breach of any material representation or warranty of Purchaser contained in this Agreement, the Purchaser Disclosure Letter or any certificate delivered in connection herewith or therewith;
(b) the breach of any material agreement or covenant of Purchaser contained in this Agreement, in any other document or agreement listed in Article 10, or in the Purchaser Disclosure Letter;
(c) after the Closing, the breach of any agreement or covenant of the Company contained in this Agreement or in any other document or agreement listed
Continued in full document...
http://biz.yahoo.com/e/040406/phsl.ob8-k.html
Form 8-K for PENTHOUSE INTERNATIONAL INC
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6-Apr-2004
Acquisition or Disposition of Assets, Changes in Certifying Accountan
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
ACQUISITION OF iBILL
THE PURCHASE AGREEMENT
On March 16, 2004, Media Billing, LLC, a New York limited liability company 99% of which is owned by our company ("Media Billing"), entered into the Member Interest Purchase Agreement (the "iBill Agreement"), by and among our subsidiary Media Billing, Internet Billing Company, LLC ("iBill") and InterCept, Inc. ("InterCept"), the sole membership holder of iBill. The iBill Agreement closed on March 22, 2004. Pursuant to the iBill Agreement, Media Billing purchased 100% of the membership interests in iBill from InterCept, whereupon iBill became a wholly owned subsidiary of Media Billing.
Total consideration for the transaction, including capitalized transaction costs, was approximately $34.0 million, inclusive of consulting and banking fees of approximately 2.6 million. The purchase price we paid for iBill consists of the following:
The sum of $1.5 million, of which (i) $750,000 was paid in cash, and (ii) $750,000 is evidenced by a promissory note of Media Billing maturing in two weeks (the "iBill Note"). An additional $2,804,000 in cash was loaned by Penthouse International to iBill and was placed on deposit with First Data Merchant Services to be held as a restricted cash reserve. The cash payment is subject to reduction within 45 days of the closing date, to the extent that the actual working capital deficit, as defined, of iBill exceeded $22.0 million on the closing date of the iBill Agreement. Similarly, the iBill note is subject to increase within 45 days of the closing date, to the extent that the actual working capital deficit of iBill as at the closing date was less than $22.0 million.
In addition, Media Billing agreed to indemnify InterCept for any claims or losses related to iBill's financial obligations. We also agreed to release InterCept from liability to certain parties to which it has provided security or guarantees on behalf of or for the benefit of iBill. Consequently, at closing we delivered to InterCept a maximum $20.0 million indemnity insurance policy that InterCept may make claims against to satisfy and pay any claims that we have agreed to indemnify InterCept. The policy has a term of two years. However, the face amount of the policy will be reduced from $20.0 million to $5.0 million on the 375th day following the closing date of the iBill Agreement. We paid an approximately $2.178 million insurance premium for this coverage. We entered into a secured borrowing arrangement with an affiliate of American International Group ("AIG"). The policy is underwritten on an equal basis by an affiliate of CNA, an A-rated carrier, and Lloyds of London. We believe that it is unlikely that we are at risk of loss based on the credit ratings of these insurers.
At the closing of the iBill acquisition, a software license agreement and a transition support services agreement was entered into between iBill and InterCept. In addition, the agreement provides that on or before April 20, 2004 Media Billing shall obtain the release from First Data Merchant Services, Inc. of InterCept's $3.0 million letter of credit, which currently serves to secure iBill's obligations under certain of its processing agreements. On the closing date, Dr. Luis Enrique Fernando Molina, our majority stockholder, entered into an agreement with InterCept whereby he guaranteed Media Billing's obligations under the iBill Note as well as the letter of credit.
The description of the purchase of IBill contained in this Current Report on Form 8-K is qualified in its entirety by reference to the text of the iBill Agreement, which is attached hereto as Exhibit 2.01 hereto and is incorporated by reference herein in its entirety.
BUSINESS OF iBILL
iBill is a provider of turnkey e-commerce solutions for businesses selling products and services over the Internet. iBill provides secure Internet payment processing solutions and transaction services that enable Web Merchants to accept and process real-time payments for goods and services purchased on the Internet. iBill also manages all back-office functions including reporting, tracking, customer service and sales transactions.
During its seven year history, iBill's yearly processed transactions have grown from approximately $2.4 million to over $330.0 million in 2003. To accommodate its business growth, the iBill organization has grown to approximately 220 persons, occupying a 50,000 square foot facility located in Deerfield Beach, Florida.
iBill's client base consists of merchants offering products and services over the Internet. Approximately 80% of the payment transactions processed by iBill are for merchants offering adult oriented products or services containing high sexual content on limited access websites. Because of the nature of their offerings, many of these merchant clients are unable to directly purchase merchant accounts from traditional banks and credit card processors. Accordingly, iBill represents a significant solution for these clients, in that iBill handles their entire credit, screening and payment process for the merchant, and assumes the risk of a customer's disputing the credit card charge subsequently appearing on his or her statement. iBill provides payment to its clients through its credit processing arrangement with First Data Corporation.
iBill generates recurring fee income principally by collecting funds from consumers on behalf of Web merchant clients and retaining a percentage of client revenue. We believe that iBill is one of the largest Web-based transaction service providers in the United States.
iBill believes that it differentiates itself from its competition through its proprietary real-time Internet-based merchant interface software technology that incorporates multiple payment options, fraud screening and automated customer service and support functionality. iBill offers its clients two core products: IBILL COMPLETE, an all inclusive payment processing solution and PROCESSING PLUS, a strictly transaction processing service. The iBill brand is marketed to consumers in two visible and selective ways:
o Whenever a customer seeks to make a purchase at the website of an iBill merchant client, they are automatically redirected to an iBill branded pay page to complete the payment process. The iBill pay pages are offered in 16 different languages.
o When the consumers receives their credit card bill, the charge for the purchase is in the name of iBill (with iBill's 800 number) rather than in the name of the merchant. This is significant in that it provides the consumers with confidentiality so that the often provocative name of the sexually oriented merchant's web site does not appear on the users' credit card statements.
In order to further enhance consumer privacy, iBill intends to offer debit card purchase arrangements under which a consumer purchases in advance the right to use the iBill processing system for a defined dollar amount of transactions, and is then free to effect such transactions on all of the merchant websites being serviced under the iBill system.
Currently, iBill processes over 130,000 transactions daily and its consumer and client service center handles approximately 470,000 contacts via voice or email per month. Typically, iBill customer refunds or "charge backs" are posted within 5 to 10 days of the refund request and seen on the customer's statement within two billing cycles.
As a result of the significance of potential consumer charge backs, iBill pays its merchant clients for processed transactions usually within 15 to 30 days cycles after the end of each month, depending upon the volume of business generated by a specific merchant client.
E-commerce transactions, especially those involve adult-oriented sexual content, expose the online merchant to significant risks, including liability for fraudulent "card not-present" transactions. iBill's risk management division integrates sophisticated fraud detection and prevention tools to combat fraudulent Internet-based transactions, and uses the following multi-phased approach:
o incoming transactions are first run through a series of comprehensive internal negative databases of known fraudulent credit card numbers, IP addresses and email addresses - these databases are updated and maintained on a daily basis;
o multiple velocity checks are used on both authorized and declining transactions to identify suspicious customer and/or merchant activity. For example, checks are in place to signal if a consumer has been declined more than five times in the past two days using the same IP address, or checks on cards that are used more than eight times in a one week period. If the cardholder or merchant fails any of these tests, the system will institute temporary blocking protocols;
o banking network scrubbing is performed on the transaction and includes address verification service checks and card verification value validation; and
o the previous days' authorized transactions are aggregated and analyzed by iBill's risk management group on a daily basis.
Our present strategy is to
o offer through our merchant clients, the opportunity for customers viewing our clients' Websites to prepay iBill for a specified dollar amount of purchases at any one of the 4,000 or more iBill client Websites; a service that we believe will both increases confidentiality for the Website user and significantly eliminate charge back risks to iBill; and
o offer to the thousands of its merchant clients offering adult-oriented products over the Internet, access to PENTHOUSE brand, including the ability to offer subscriptions, videos and other promotional offerings at our PENTHOUSE clubs and related venues. In this way we feel that we will be able to enhance both the revenue base of iBill and that of General Media, our subsidiary that ones and operates our Penthouse publications and media businesses.
Based on the financial information provided to us by InterCept, for the fiscal year ended December 31, 2003 iBill generates net revenues of approximately $36.9 million and net income before taxes of $1.0 million, as compared to net revenues and a net pre-tax loss of approximately $58.4 million and $3.0 million for fiscal 2002.
RISK FACTORS
RISKS RELATED TO THE BUSINESS OF IBILL.
IF iBILL IS UNABLE TO MAINTAIN A RELATIONSHIP WITH A FIRST DATA CORPORATION OR
ANOTHER BANKING SOURCE TO SPONSOR AND PROCESS OUR MERCHANT PAYMENT TRANSACTIONS,
WE WOULD BE UNABLE TO OPERATE A SIGNIFICANT PORTION OUR BUSINESS. iBill assumes the credit risk and processes payment transactions for its merchant client under an agreement with First Data Corporation. First Data changes iBill a percentage of each sale for sponsoring the transaction through its wholly owned bank, First Financial Bank, Utah. Such agreement is subject to termination by First Data on 90 days notice. First Data has recently increased its rates and, as a condition to providing the consent to the change of control of iBill, negotiated a transaction agreement with Penthouse pursuant to which iBill has agreed to migrate its processing to a new financial institution. The agreement provides for this transition to be completed in 90 days, with a second 90 day extension period available to us. Although we believe that iBill will be
able to enter into a similar relationship with another banking source, if we are unable to do so on financially acceptable terms, if at all, iBill could lose a majority, if not all, of its revenue base, which would have a material, adverse effect on our results of operations and financial condition.
IF iBILL'S CHARGE-BACK RATE IS EXCESSIVE, CREDIT CARD ASSOCIATIONS CAN FINE IT OR TERMINATE ITS ABILITY TO ACCEPT CREDIT CARDS FOR PAYMENT. In cases of fraud or disputes between cardholders and merchants, iBill faces charge-backs when cardholders dispute items for which they have been billed. Charge-backs may arise from the unauthorized use of the cardholder's name or bank account information or from a cardholder's claim that a merchant failed to perform. If a billing dispute between a card holder and a merchant is not resolved in favor of the merchant, the transaction is normally charged back to the merchant, and the purchase price is refunded to the cardholder. If iBill's charge-back rate becomes excessive, our credit bank can fine it or terminate its agreement. If iBill is prohibited from accepting credit cards for payment, this would materially adversely affect our financial condition and results of operations. We cannot predict with certainty, however, whether or when First Data or any other bank or financing source processing iBill credit card transactions will fine iBill or elect to terminate their agreements with us.
Visa recently announced revisions to its charge-back monitoring program that are designed to reduce the impact of charge-backs on the Visa payment system. The new rules heighten the scrutiny on problematic merchants and place greater responsibility on acquirers like iBill to deal appropriately with merchants that have excessive levels of chargebacks. Effective October 1, 2003, Visa reduced the charge-back threshold from 2.5% to 1.0% for VisaUSA transactions, and effective January 1, 2004, the charge-back threshold dropped from 2.5(degree)/o to 2.0% for Visa International transactions. Merchants that exceed these charge-back thresholds become subject to Visa's charge-back monitoring program. This monitoring program results in greater scrutiny of transactions, potential fines and possible suspension from the Visa payments system. In addition, Visa has issued a detailed program that specifies the responsibilities of the acquirer and the fees and actions required when a merchant is placed into the charge-back monitoring program. Implementation of the new rules by Visa will require iBill to further reduce the charge-back activity of its sponsored merchants. If any of iBill's merchants do not meet the new Visa thresholds, Visa could impose fees and take further action, including termination of the merchant. Any such fines or termination could negatively affect our results of operations.
CHANGES IN CARD ASSOCIATION FEES, PRODUCTS OR PRACTICES COULD INCREASE iBILL'S COSTS OR OTHERWISE LIMIT ITS OPERATIONS. From time to time, the card associations increase the interchange fees that they charge processors and the sponsoring banks. For example, Visa increased its interchange fees by 0.19% in April 2003. At their sole discretion, iBill's sponsoring banks may seek to increase their Visa and MasterCard sponsorship fees they impose, all of which are based upon the dollar amount of the payment transactions iBill processes. Competitive pressures might force iBill to absorb a portion of those increases in the future, which would increase iBill's operating costs and reduce its margins. Furthermore, the rules and regulations of the various card associations and networks prescribe certain capital requirements for settlement banks. Any increase in that capital requirement may adversely affect a bank's ability to serve as iBill's settlement bank.
Visa's RIS program identifies merchants that have excessive fraud counts each month. Visa places merchants with monthly fraud activity in excess of 1,500 transactions and $50,000 and a fraud to sales ratio of .50% or more in the program. Fines under this program escalate from $5,000 in the first month of the program to $100,000 after the fifth month. iBill has been placed in the RIS program. iBill has informed its merchants that iBill will be passing this fine to the merchants.
Visa has also established a monitoring program for its acquiring banks in which Visa compares the number of fraudulent transactions processed through a bank against unpublished thresholds for a given industry. Visa notified iBill's acquiring bank, First Financial Bank (First Data), that First Data had exceeded the program thresholds. First Data notified iBill that it intends to allocate the fine amongst its merchants. iBill has informed its merchants that iBill will be passing this fine to the merchants.
ONLINE PAYMENT PROCESSING SYSTEMS MIGHT BE USED FOR ILLEGAL OR IMPROPER
PURPOSES, WHICH COULD EXPOSE iBILL TO ADDITIONAL LIABILITY AND HARM ITS BUSINESS. Despite iBill's efforts to review and monitor the types of transactions it processes, all online payment processing systems remain susceptible to potentially illegal or improper uses. These may include illegal online gaming, fraudulent sales of goods and services, software and other intellectual property
piracy, child pornography trafficking, prohibited sales of alcoholic beverages and tobacco products and online securities fraud. iBill's business could suffer if customers use its system for illegal or improper purposes.
UNAUTHORIZED DISCLOSURE OF MERCHANT AND CARDHOLDER DATA, WHETHER THROUGH BREACH
OF iBILL'S COMPUTER SYSTEMS OR OTHERWISE, COULD EXPOSE iBILL AND US TO PROTRACTED AND COSTLY LITIGATION. iBill collects and stores sensitive data about merchants and cardholders, including names, addresses, social security numbers, drivers license numbers, checking and savings account numbers and payment history records, such as account closures and returned checks. In addition, iBill maintains a database of cardholder data relating to specific transactions, including payment card numbers and cardholder addresses, to process the transactions and for fraud prevention and other internal processes. If a person penetrates iBill's network security or otherwise misappropriates sensitive merchant or cardholder data, iBill could be subject to liability or business interruption.
Hackers have in the past penetrated computer systems of payment processors. If iBill suffers such an attack, it may be subject to liability, including claims for unauthorized purchases with misappropriated card information, impersonation or other similar fraud claims. iBill could also be subject to liability for claims relating to misuse of personal information, such as unauthorized marketing purposes. These claims also could result in protracted and costly litigation.
IN THE EVENT WE DO NOT RETAIN OUR GENERAL MEDIA GROUP SUBSIDIARIES, WE WILL BE
UNABLE TO UTILIZE OUR PENTHOUSE BRAND. Our Penthouse publishing and media businesses are owned by our General Media subsidiary. General Media and its subsidiaries are currently debtors-in-possession in a bankruptcy case pending in the United States Bankruptcy Court for the Southern District of New York. Although we have proposed a plan of reorganization that, if approved by the creditors and the bankruptcy court, would enable us to retain our 99.5% equity interest in General Media and its subsidiaries, there can be no assurance that our plan will be approved or that we will succeed in our efforts. In the event that a competing plan of reorganization is confirmed or the assets of General Media and subsidiaries are sold to an unaffiliated third party, we would lose all of our equity in both General Media and in the Penthouse trademarks, brands and related intellectual property. As such, we would be unable to implement our strategy of combining our Penthouse name and brands with our iBill business. The loss of General Media and our Penthouse business, trademarks, brands and related intellectual property would have a material adverse effect on our overall business strategy and prospects.
RISKS RELATED TO THE iBILL ACQUISITION
OUR ACQUISITION OF iBILL WILL RESULT IN THE RECORDING OF SUBSTANTIAL GOODWILL. The acquisition of iBill will be accounted for as a purchase by our company, through our subsidiary Media Billing, of 100% of the capital stock of iBill. As a result, the excess of the value of the consideration issued to InterCept as iBill's former stockholder (approximately $23.5 million) over the fair value of the identifiable iBill tangible assets acquired, less the fair value of liabilities assumed, will be recorded by our company as goodwill. The amount of such goodwill will be established based upon the balance sheet of iBill as at March 22, 2004, subject to adjustment 45 days thereafter, and may be assumed to be substantial. According to applicable accounting rules, goodwill and other intangible assets must be evaluated on a regular basis and the re-evaluation may result in impairment charges which may reduce our company's future net income.
ONLY INTERCEPT OBTAINED A FORMAL VALUATION DETERMINING THE FAIRNESS OF THE
ACQUISITION CONSIDERATION. The acquisition consideration was determined by arms' length negotiations between Registrant's management and InterCept, but there was no formal valuation of iBill by an independent third party. InterCept obtained a fairness opinion issued by SunTrust Robertson Humphrey, an investment banking firm. Since the acquisition of iBill did not require the approval of our stockholders, we are unable to determine whether our stockholders, other than The Molina Vector Investment Trust and its affiliated persons, would have agreed with the determination by our company's board of directors that the terms of the iBill acquisition were fair to our company and in the best interests of our stockholders.
TO FINANCE THE IBILL ACQUISITION, WE ISSUED SECURITIES CONVERTIBLE INTO OR
EXERCISABLE FOR A SIGNIFICANT NUMBER OF SHARES OF OUR COMMON STOCK, AND FUTURE
SALES OF SUCH SHARES MAY LOWER THE PRICE OF OUR COMMON STOCK. Our company had 293,679,473 shares of our common stock outstanding prior to the iBill acquisition. To assist us in financing the iBill acquisition (including payment of the premium on the indemnity insurance policy we obtained), we issued the Mercator Momentum Funds and its affiliates (the "Mercator Group") an aggregate of 4,000,000 of shares of our Series D preferred stock convertible into an aggregate of 36,363,636 shares of our common stock. In addition, the Mercator Group has been issued warrants to purchase an additional 12,000,000 shares of our common stock and has purchased, for nominal consideration, 14,345,500 additional shares of common stock from the Molina Vector Investment Trust, our principal stockholder and an affiliate of Dr. Luis Enrique Fernando Molina. Under a registration rights agreement, we are obligated, by no later than May 23, 2004, to register for resale under the Securities Act of 1933, as amended (the "Securities Act') all shares of common stock issuable in connection with our Series D preferred stock and warrants and shares purchased from the Molina Trust.
Sales of substantial amounts of common stock into the public market could lower the market price of such shares.
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
As of the date of this Current Report on Form 8-K, our authorized capitalization consisted of 770,000,000 shares of capital stock, comprising: (i) 750,000,000 shares of common stock, par value $0.0025 per share, and (ii) 20,000,000 shares of preferred stock, par value $0.0025 per share.
COMMON STOCK
As of the date of this Current Report on Form 8-K, there were 293,679,473 shares of our common stock issued and outstanding, all of which were fully paid, non-assessable and entitled to vote. Each share of our common stock entitles its holder to one vote on each matter submitted to our stockholders (subject under certain conditions to the rights of the holders of our preferred stock - see below).
SERIES A PREFERRED STOCK
We are authorized to issue 5,000 shares of Series A Preferred Stock. As of the date of this Current Report on Form 8-K, there were 5,000 shares of our Series A Preferred Stock issued and outstanding, all of which were fully paid, non-assessable and entitled under certain circumstances to vote. The shares of Series A Preferred Stock have a stated value of one thousand dollars ($1,000) per share. To the extent that under the Business Corporation Act of the State of Florida (the "FBCA") the approval of the holders of Series A Preferred Stock, voting separately as a class or series as applicable (whether by written consent or otherwise), is required to authorize a given action of our company, the affirmative approval of the holders of at least a majority of the shares of Series A Preferred Stock constitutes the approval of the action by such holders. Holders of Series A Preferred Stock are entitled to notice of all stockholder meetings or written consents (and copies of proxy materials and other information sent to stockholders) with respect to which they would be entitled to vote. The shares of Series A Preferred Stock are not convertible into shares of our common stock.
As at the date hereof, two thirds of the 5,000 issued and outstanding shares of Series A Preferred Stock are owned of record and beneficially by General Media International, Inc., a corporation wholly-owned by Robert C. Guccione. The remaining shares of Series A Preferred Stock are owned by the Robert C. Guccione Family Trust.
SERIES B PREFERRED STOCK
We are authorized to issue 5,000 shares of Series B Preferred Stock. As of the date of this Current Report on Form 8-K, no shares of our Series B Preferred Stock are issued and outstanding.
SERIES C PREFERRED STOCK
We are authorized to issue 11,550,000 shares of Series C Preferred Stock. As of the date of this Current Report on Form 8-K, there were 11,550,000 shares of our Series C Preferred Stock issued and outstanding. The shares of Series C Preferred Stock have a stated value of ten dollars ($10.00) per share.
To the extent that under the FBCA the approval of the holders of Series C Preferred Stock, voting separately as a class or series as applicable (whether by written consent or otherwise), is required to authorize a given action of our company, the affirmative approval of the holders of at least a majority of the shares of Series C Preferred Stock constitutes the approval of the action by such holders. Holders of Series C Preferred Stock are entitled to notice of all stockholder meetings or written consents (and copies of proxy materials and other information sent to stockholders) with respect to which they would be entitled to vote.
In addition, the holders of a majority of the issued and outstanding shares of Series C Preferred Stock shall have the right, voting as a separate class, to elect to our board of directors such number of persons who shall constitute an absolute majority of the members of the board. The holders of a majority of the issued and outstanding shares of Series C Preferred Stock shall also have the right to fill any vacancies on our board or to increase the number of members thereof in order to maintain a majority of our board of directors. The remaining members of our board of directors shall be elected by the holders of a majority of the issued and outstanding shares of our common stock.
The Series C Preferred Stock is convertible into shares of our common stock, at the option of the holder, at a price
per share equal to the figure $10.00 divided by eighty percent (80%) of the fair market value of a share of common stock on the market where such shares are then traded, where the fair market value means the average of the three lowest closing per share bid prices of the common stock over the ten (10) trading days immediately prior to the date of the conversion. The minimum conversion price is $3.00 per share, subject to reduction to the lowest price at which shares of our common stock or securities convertible or exercisable for such shares are issued subsequent to the November 2003 date of original issuance of the Series C Preferred Stock. Based upon February 2004 sale of $24.0 million principal amount of notes convertible at $0.11 per share and our March 2004 Series D preferred stock convertible into common stock at $0.11 per share, the conversion price of the shares of Series C preferred Stock has been reduced to $0.11.
As of the date of this Current Report on Form 8-K, The Molina-Vector Investment Trust owns of record 10,500,000 shares of Series C Preferred Stock, or 90.9% of the authorized shares. The remaining 1,050,000 shares of Series C Preferred Stock are owned by ANL Capital LLC. The Molina-Vector Investment Trust is a trust created by Dr. Luis Enrique Fernando Molina for the benefit of his minor children. Dr. Molina serves as the sole trustee of the Molina Vector Investment Trust, with sole power to convert and dispose of its shares of Series C Preferred Stock.
SERIES D PREFERRED STOCK
We are authorized to issue 4,000,000 shares of Series D Preferred Stock. As of the date of this Current Report on Form 8-K, there were 4,000,000 shares of our Series D Preferred Stock issued and outstanding, all of which were fully paid, non-assessable and entitled under certain circumstances to vote. The shares of Series D Preferred Stock have a stated value of one dollar ($1.00) per share.
To the extent that under the FBCA the approval of the holders of Series D Preferred Stock, voting separately as a class or series as applicable (whether by written consent or otherwise), is required to authorize a given action of our company, the affirmative approval of the holders of at least a majority of the shares of Series D Preferred Stock constitutes the approval of the action by such holders.
The Series D Preferred Stock is convertible into shares of our common stock, at the option of the holder, at a price per share equal to the aggregate stated value of such shares divided by eleven cents ($0.11). The aggregate stated value of the shares of Series D Preferred Stock presently issued and outstanding is $4,000,000, for an aggregate of 36,363,636 shares of our common stock issuable upon conversion of all shares of Series D Preferred Stock.
As at the date of this Form 8-K, Mercator Momentum Fund LP owns 2,040,000, or 51% of the outstanding shares of our Series D Preferred Stock, and Mercator Momentum Fund III, LP owns 1,960,000, or 49% of the outstanding shares of our Series D Preferred Stock.
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
On May 29, 2003, Eisner LLP ("Eisner") resigned as our independent certified public accountants. The report of Eisner on our consolidated financial statements as of and for the year ended December 31, 2002 did not contain an adverse opinion or a disclaimer of opinion; however, Eisner's report for the year ended December 31, 2002 contained a qualification due to uncertainty regarding our ability to generate sufficient funds from operations to make all the mandatory payments required by the Series C Notes of General Media, Inc. and our ability to continue as a going concern as described in Note 2 to our financial statements for the fiscal year ended December 31, 2002 and Note 3 to our financial statements for the fiscal year ended October 31, 2002. This uncertainty was also reported in Note 1 to our condensed consolidated financial statements for the three-month interim period ended March 31, 2003, which was not reviewed by an independent certified public accountant.
During the period from our inception on December 11, 2001 to our latest report on Form 10-K for the fiscal year ended December 31, 2002 and any subsequent interim period preceding Eisner's resignation there were no disagreements with Eisner on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Eisner, would have caused them to make reference thereto in their report on our financial statements except with respect to the interim quarterly period March 31, 2003.
On May 29, 2003, we received a letter from Eisner in which Eisner claimed that our Form 10Q for the period ending March 31, 2003 did not expressly disclose that those financial statements were not reviewed by Eisner or by other independent certified public accountants. In addition, Eisner claimed that we had requested Eisner to consider the accounting treatment regarding a specific transaction in which Eisner presented us with a contrary preliminary view, and that our financial statements in the Form 10-Q filing for the period ending March 31, 2003, applied an accounting treatment contrary to their preliminary view.
On May 30, 2003, we filed a current report on Form 8-K (the "Original 8-K") to report the resignation of Eisner as our independent certified public accountants and certain other matters. These matters included the appropriateness of the accounting treatment of a transaction involving our company in our financial statements contained in our Form 10-Q for the quarter ending March 31, 2003. Our company's treatment was contrary to a preliminary view by Eisner of the appropriate accounting treatment of such transaction and Eisner did not review our financial statements for the quarter ended March 31, 2003.
As previously disclosed in our Form 8-K filed on June 13, 2003, investors are urged not to rely on the 10-Q filed on May 23, 2003 for our quarterly period ending March 31, 2003. We filed an amended Form 10-Q for this quarter on September 25, 2003.
As of June 18, 2003, we engaged Weinberg and Company, P.A. ("Weinberg") as our independent accountants to audit our financial statements for our fiscal year ending December 31, 2003. We dismissed Weinberg as our auditors on March 26, 2004, primarily due to the fact that the staff member most familiar with the accounts of our General Media subsidiary left Weinberg to become associated with Stonefield Josephson, Inc. (see below). Weinberg never audited our financial statements, and we are unaware of any matter that would have resulted in Weinberg issuing an adverse opinion or a disclaimer of opinion, or one that was qualified or modified as to uncertainty, audit scope, or accounting principles.
On April 5, 2004 we provided Weinberg with a copy of this disclosure and requested that it furnish a letter to us, addressed to the Commission, stating that it agreed with the statements made herein as applicable thereto or the reasons why it disagreed. On April 6, 2004 we received a letter from Weinberg that it agreed with the statements contained herein as applicable thereto, and which is filed as Exhibit 16.1 to this Form 8-K.
On April 2, 2004, we engaged Stonefield Josephson, Inc. to serve as our independent certified public accountants to audit our financial statements for the fiscal years ended December 31, 2003 and 2004, and to review our unaudited consolidated financial statements. During our two most recent fiscal years, and during any subsequent period through April 2, 2004, we did not consult with Stonefield Josephson on any accounting or auditing issues.
ITEM 5. OTHER EVENTS
LAURUS MASTER FUND
In February of 2004, in order to financing the purchase of the townhouse located at 14-16 East 67th Street, New York, New York, we issued a convertible term note in the principal amount of $24,000,000 to the Laurus Master Fund, LLC ("Laurus") which is due on February 22, 2007 (the "Laurus Note"). The Laurus Note was issued pursuant to the terms of the Securities Purchase Agreement entered into between us and Laurus, each of which is attached hereto as Exhibits 4.01 and 10.01, respectively, and incorporated by reference in its entirety herein. The reason we issued the Laurus Note was to assist us in enabling our 99.5% owned subsidiaries, General Media, Inc. and its subsidiaries, to emerge from bankruptcy. Laurus is a private investment fund that provides asset based convertible financing to public companies.
The Laurus Note bears interest at the "prime rate" published in The Wall Street Journal from time to time, plus 3.5%, subject to a minimum interest rate of 7.5% per annum and a maximum interest rate of 13.5% per annum. At the closing, we placed in escrow approximately $1.8 million, representing an estimate of one years' minimum interest due on the Laurus Note. To the extent not applied toward interest payments on the Laurus Note, such interest reserve will be released to us if we retain the equity of General Media and its subsidiaries when such subsidiaries emerge from bankruptcy. Under the terms of the Laurus Note we commence payment of principal installments on a monthly basis commencing on September 30, 2004. We will be required to make monthly repayments of $200,000 per month for the first year, $400,000 per month for the second year and $600,000 every month thereafter until the maturity date.
The terms of the Laurus Note provide that Laurus may elect to receive its monthly payments of principal and interest in either cash or shares of our common stock. The number of shares of our common stock we would be required to issue is determined by dividing the applicable dollar amount by the figure $0.11. The portion of the monthly repayment amount that Laurus may elect to receive in shares of our common stock is limited by the trading price of our common stock during the period immediately preceding the election.
The Laurus Note is convertible at anytime while any portion thereof is outstanding into shares of our common stock at the same ratio used to determine the repayment option, i.e., one share of common stock for every $0.11 converted. We will under certain circumstances be required to maintain an effective registration statement with respect to the shares of common stock issuable by us.
In February 2004, Laurus sold approximately 50% of the Laurus Note to affiliates of Alexandra Global Master Fund, Ltd.
MERCATOR GROUP
In March 2004, we issued $4,000,000 of our newly authorized Series D preferred stock to Mercator Momentum Fund, LP, Mercator Momentum Fund III, LP and Mercator Advisory Group LP (collectively, the "Mercator Group") and five year warrants entitling the holders to purchase up to 12,000,000 shares of our common stock. The shares of Series D Preferred Stock, the certificate of designation for which is attached hereto as Exhibit 4.02, were issued pursuant to the terms of the Subscription Agreement entered into between us and the Mercator Group, a copy of which is attached hereto as Exhibit 10.02, each of which is exhibits is incorporated by reference in its entirety herein.
Our Series D preferred stock is convertible at the option of the holders into shares of our common stock at a conversion price of $0.11 per share, subject to weighted average anti-dilution and other adjustments. Our warrants are exercisable at any time at $0.12 per share. In a related transaction, The Molina Vector Investment Trust sold an aggregate of 14,345,500 shares of its common stock to the Mercator Group (representing approximately 9.1% of the 157,500,000 shares of common stock owned by the Trust) for $35,863.75.
Accordingly, the Mercator Group is presently the beneficial owner, as calculated pursuant to Rule 13d-3(d)(1) of the Exchange Act, of 62,709,136 shares of our common stock. Notwithstanding the foregoing, no shares of our common stock shall be issuable upon conversion of the Series D Preferred Stock or upon the exercise of warrants if such issuance would increase the aggregate number of shares of our common stock then owned by the Mercator Group to a number then constituting more than 9.99%, as determined in accordance with Rule 13d-3 of the Exchange Act, of our shares of our common stock then issued and outstanding. If all such 62,709,136 shares were held of record by the Mercator Group. It would be the owner of approximately 19.1 % of our shares of common stock then issued and outstanding.
GENERAL MEDIA PREFERRED STOCK PURCHASE AGREEMENT
On March 31, 2004, we, together with our principal stockholder, Dr. Luis Enrique Fernando Molina, entered into an agreement with the holders of 75% of the outstanding Class A preferred stock of General Media, Inc. Under the terms of such agreement, on April 15, 2004, Dr. Molina will acquire all shares of Class A preferred stock owned by such holders.
General Media and its subsidiaries are currently debtors in a bankruptcy case pending in the United States Bankruptcy Court for the Southern District of New York. On March 3, 2004, General Media and its subsidiaries filed their proposed first amended and restated plan of reorganization to be financed primarily through debt and equity financing to be provided by Dr. Molina or his affiliates. The holders of the Class A preferred stock, who also own approximately 89% of the approximately $46.0 million outstanding amount of General Media 15% senior secured notes due 2004, had originally objected to the General Media plan, and proposed a competing plan of reorganization that, if confirmed by the Bankruptcy Court, would cause us to lose ownership of General Media.
Under the terms of the March 31, 2004, agreement, Dr. Molina and our company will purchase the General Media Class A preferred stock from the sellers for approximately $10.25 million, payable on March 31, 2008 pursuant to a 7% increasing rate note given by Dr. Molina that we have guaranteed. The note is to be secured by a pledge of our Series C Preferred Stock held by The Molina-Vector Investment Trust, an affiliate of Dr. Molina. The 10,500,000 shares of Series C Preferred Stock held by the Molina Trust has a stated value of $105.0 million and is currently convertible into approximately 954.0 million shares of our common stock.
Under the terms of the agreement, the sellers and their affiliates agreed to waive all objections to and support our
proposed plan of reorganization and withdraw their competing plan. Closing of the purchase is scheduled to occur on or before April 15, 2004.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION, AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
To be filed by amendment to this Form 8-K.
(b) PRO FORMA FINANCIAL INFORMATION.
To be filed by amendment to this Form 8-K.
(c) EXHIBITS - THE FOLLOWING DOCUMENTS ARE ATTACHED AS EXHIBITS TO THIS
REPORT ON FORM 8-K:
2.01 Member Interest Purchase Agreement (the "iBill Agreement'), by and among our subsidiary Media Billing, Internet Billing Company, LLC ("iBill") and InterCept, Inc. ("InterCept"), the sole membership holder of iBill.
4.01 Amended and Restated Convertible Term Note issued to the Laurus Master Fund, Ltd. by Penthouse International, Inc.
4.02 Certificate of Designation of Series D Preferred Stock.
10.01 Securities Purchase Agreement by and between Laurus Master Fund, Ltd. and Penthouse International, Inc.
10.02 Subscription Agreement by and among Mercator Advisory Group LLC, Mercator Momentum Fund, LP, Mercator Momentum Fund III, LP International, Inc. and Penthouse International, Inc.
16.1 Letter from Weinberg & Company, P.A.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunder duly authorized.
PENTHOUSE INTERNATIONAL, INC.
By: /s/ Claude Bertin
-----------------
Claude Bertin
Executive Vice President
http://biz.yahoo.com/e/040406/phsl.ob8-k.html
Wow! 237 misleading statements documented for Congress:
http://www.house.gov/reform/min/pdfs_108_2/pdfs_inves/pdf_admin_iraq_on_the_record_rep.pdf
Glad to hear it....I'm surprised he has publicly taken a position against the current administrations secrecy policies. I have to agree with him though...
During his morning briefing, President George W. Bush reviews the progress of the war with members of the War Council Wednesday, April 2, 2003. Pictured with the President are, from left, Chairman of the Joint Chiefs of Staff Richard B. Myers, Vice President Dick Cheney, Chief of Staff Andy Card, Secretary of Defense Donald Rumsfeld and National Security Advisor Condoleezza Rice. White House photo by Eric Draper
On Friday morning, March 21, 2003, President George W. Bush meets with his war council in the Situation Room of the White House. Present at the table are, from foreground, National Security Advisor Condoleezza Rice, CIA Director George Tenet, Chief of Staff Andy Card, Secretary of State Colin Powell, Secretary of Defense Donald Rumsfeld and Chairman of the Joint Chiefs of Staff Richard B. Myers. White House photo by Eric Draper
http://cryptome.org/mil-dead-iqw.htm
Operation Quaqmire...
I don't know how or where they come up with the names for these military operations but the above is probably more suitable...
I also don't agree with all the information at the following link but it is an interesting perspective from an Eastern point of view of what the West is doing:
http://ftp.die.net/mirror/cryptome/cuw02.htm#Part%20Two
Interesting timing to release this information on the part of the government:
http://cryptome.org/nara040504.txt
The stacks of bodies is rising...
http://cryptome.org/mil-dead-iqw.htm
Hence to fight and conquer in all your battles
is not supreme excellence; supreme excellence consists
in breaking the enemy's resistance without fighting.
Thanks for the links...it would appear the Chinese are financing both sides...the truth definition of a third party.
ACLU to Sue Government Over 'No-Fly' List
By LESLIE MILLER, Associated Press Writer
WASHINGTON - American Civil Liberties Union (news - web sites)'s officials declined to comment in advance of their planned announcement Tuesday that they would file a class-action lawsuit challenging the list of travelers that the government has barred from flying because they're considered a threat. The civil rights group is representing seven plaintiffs.
Airlines are instructed to stop anyone on the "no fly" list that is compiled by the Transportation Security Administration. The ACLU contends, though, that some people are wrongfully put on the list.
David Nelson is a law-abiding 34-year-old lawyer from Belleville, Ill. But he says the government treats him as if he's a threat to commercial aviation who shouldn't be allowed on a plane.
Nelson says he believes his name appears on the government's "no-fly list," which names people deemed too dangerous to board commercial flights. For Nelson, it's a case of mistaken identity: he's not the David Nelson the government believes is a threat.
Still, he says he's been delayed at airports dozens of times as government officials questioned him.
Nelson is among seven people whom the ACLU brought together in a class-action lawsuit filed Tuesday against the TSA, which administers the list.
"Few would line up in sympathy for a trial lawyer delayed for a few minutes at the airport every time he wants to hop on the plane," Nelson said in an interview. "But surely it affects individuals of color disproportionately, individuals of Arab descent or who practice the Muslim religion, and it's very much those people on my mind when I volunteered to be a named plaintiff."
His colleagues in the lawsuit include a retired minister, a college student, an Air Force master sergeant, a human rights activist and two ACLU employees.
The lawsuit, filed in U.S. District Court in Seattle, claims the "no-fly list" violates airline passengers' constitutional protection against unreasonable searches and seizures and their right to due process. The civil rights group says the government has not put enough safeguards in place to ensure people with similar names aren't treated with suspicion.
"You can't force the same innocent people over and over and over again to shoulder the burden of our lack of decent intelligence," said Reginald Shuford, the ACLU's lead attorney on the case.
TSA spokesman Mark Hatfield said he couldn't comment on the case but is confident the "no-fly" list is legal.
"Our standard procedures and our systems in place, those we've created and those we've inherited, have all stood the legal tests they've been subjected to so far," he said.
The TSA administers two lists: "no-fly" and "selectee." Those on the "no-fly list" are not allowed to board a commercial aircraft. Those on the "selectee list" must go through more extensive screening before boarding.
Federal law enforcement and intelligence agencies recommend to the TSA who gets put on the lists, but little else is known about them. The government does not disclose how many people are on the lists or how people qualify to get on or off, nor does it confirm any names on the lists.
Hatfield said the problem of confusing innocent people with those on the lists points to the need for a broader TSA program that can conduct computerized background checks of all airline passengers and to rank them according to their risk of being terrorists.
"If we can create a system, and we believe we've architected one, that has a very accurate identification component, we're going to eliminate the vast majority of misidentification," Hatfield said.
The ACLU and other privacy advocates oppose the program, called the Computer Assisted Passenger Prescreening System, or CAPPS II.
"It doesn't make sense to replace this deeply flawed program with a larger program that will capture innocent people in larger numbers," ACLU spokesman Jay Stanley said.
The other plaintiffs in the lawsuit are:
_Michelle D. Green, 36, an Air Force master sergeant.
_Alexandra Hay, 22, a Middlebury College student.
_John Shaw, 74, a retired Presbyterian minister from Sammamish, Wash.
_Mohamed Ibrahim, 41, coordinator with the American Friends Service Committee.
_David C. Fathi, 41, senior staff attorney with the ACLU National Prison Project in Washington.
_Sarosh Syed, 26, special projects coordinator at the ACLU in Seattle.
___
On the Net:
Transportation Security Administration: http://www.tsa.gov
American Civil Liberties Union: http://www.aclu.org
To see the ACLU's complaint: http://www.aclu.org/SafeandFree.cfm?ID15419&c272
What is the product?
Have they built a reactor to get the by product yet?