PMGI First Day Decl

7/29/2019 PMGI First Day Decl

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IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF DELAWARE

In re:

PMGI Holdings, Inc., et al.,

1

Debtors.

Chapter 11

Case No. 13-12404 (CSS)

(Joint Administration Requested)

DECLARATION OF EZRA SHASHOUA

IN SUPPORT OF THE DEBTORS CHAPTER 11

PETITIONS AND REQUESTS FOR FIRST DAY RELIEF

EZRA SHASHOUA hereby declares, under penalty of perjury, as follows:

1.

I am the Chief Financial Officer of FriendFinder Networks Inc. (FFN together

with the above-captioned debtors and debtors-in-possession, the Debtors or the Company).

I perform my duties out of FFNs headquarters located at 6800 Broken Sound Parkway NW,

Suite 200, in Boca Raton, Florida. I submit this declaration (the Declaration) in support of the

Debtors chapter 11 petitions and requests for relief contained in certain first day applications

and motions filed on or shortly after the date hereof (the First Day Motions).

2. I joined FFN as the Chief Financial Officer in 2008. I previously served as anExecutive Vice President and Chief Financial Officer of Cruzan International, Inc., a publicly

held spirits company. Prior to my employment with Cruzan International, Inc., I served in a

1The Debtors in these Chapter 11 Cases, along with the last four (4) digits of each Debtor's federal tax identificationnumber, are: Blue Hen Group Inc. (9667), Argus Payments Inc. (4661), Big Island Technology Group, Inc. (9795),Confirm ID, Inc. (7020), Danni Ashe, Inc. (5271), Fastcupid, Inc. (7869), Fierce Wombat Games Inc. (2019),FriendFinder California Inc. (2750), FriendFinder Networks Inc. (0988), FRIENDFINDER VENTURES INC.

(3125), FRNK Technology Group (7102), General Media Art Holding, Inc. (2637), General MediaCommunications, Inc. (2237), General Media Entertainment, Inc. (2960), Global Alphabet, Inc. (7649), GMCIInternet Operations, Inc. (7655), GMI On-Line Ventures, Ltd. (7656), Interactive Network, Inc. (5941), MagnoliaBlossom Inc. (8925), Medley.com Incorporated (3594), NAFT NEWS CORPORATION (4385), Penthouse DigitalMedia Productions Inc. (1056), Penthouse Images Acquisitions, Ltd. (9228), PerfectMatch Inc. (9020), PLAYTIMEGAMING INC. (4371), PMGI Holdings Inc. (2663), PPM Technology Group, Inc. (9876), Pure EntertainmentTelecommunications, Inc. (9626), Sharkfish, Inc. (1221), Snapshot Productions, LLC (7091), Streamray Inc. (2716),Streamray Studios Inc. (1009), Tan Door Media Inc. (1100),Traffic Cat, Inc. (1223), Transbloom, Inc. (1168),Various, Inc. (7762), Video Bliss, Inc. (6760), West Coast Facilities Inc. (4751), XVHUB Group Inc. (9401). TheDebtors business address is 6800 Broken Sound Parkway NW, Suite 200, Boca Raton, FL 33487.

Case 13-12404-CSS Doc 16 Filed 09/17/13 Page 1 of 60


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similar capacity at NationsRent, Inc., a publicly held equipment rental company where I helped

lead a successful restructuring. Prior to my employment with NationsRent, Inc., I was employed

at 7-Eleven, Inc., where I served in a number of roles over an 18 year period, culminating in my

appointment as Chief Financial Officer. During my tenure at 7-Eleven, Inc., the company went

through a leveraged buyout, reorganization and sale. Prior to my time at 7-Eleven, Inc., I was an

attorney at the law firm of Sonnenschein Nath and Rosenthal. I hold a Bachelor of Arts from

Northwestern University and a Juris Doctorate from Illinois Institute of Technology-Chicago

Kent College of Law.

3.

As the Chief Financial Officer of FFN, I am authorized to submit this Declaration

on behalf of the Debtors. Except as indicated otherwise, all statements in this Declaration are

based upon my personal knowledge or my review of the Debtors books and records, other

relevant documents and information prepared or collected by the Debtors employees. If I were

called to testify as a witness in this matter, I could and would competently testify to each of the

facts set forth herein. In making the statements herein, I have relied in part upon others to

accurately record, prepare and collect necessary documentation and information.

4. Part I of this Declaration provides a brief overview of the Debtors and a summaryof these Chapter 11 Cases (as defined below). Part II of this Declaration describes in more detail

the Debtors business, the developments which led to the Debtors chapter 11 filings and their

goals in these Chapter 11 Cases. Part III sets forth the relevant details of the various First Day

Motions.

I.INTRODUCTION

5. The Debtors are an internet and technology company providing services in thesocial networking and web-based video sharing markets. The Debtors businesses consist of



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creating and operating technology platforms, which run several websites throughout the world

appealing to users of diverse cultures and interest groups. The Debtors are also engaged in

entertainment activities consisting of publishing, licensing, studio production and distribution of

adult entertainment and materials. The Debtors publish Penthouse and other adult-oriented

magazines and digests. Additionally, the Debtors license the Penthouse name for the

international publication of various adult magazines and for use on various products and provide

adult-oriented multimedia entertainment products and services, including content for pay-per-

view programming.

6.

The Debtors focus on three distinct lines of business. First, the Debtors are a

leading internet company providing services in the rapidly expanding markets of adult dating and

social networking. The Debtors websites include social networking and online personals, which

allow customers to socialize and connect with other users and groups, based on various interests,

including ethnic, cultural and entertainment interests. Secondly, the Debtors operate a wide

variety of internet websites, and offer online products and services, which provide adult-oriented

content. These websites include live and recorded video, online chat rooms, instant messaging,

and photo and video sharing. In order to provide content on these websites, the Debtors utilize a

number of performers whom provide entertainment services to the Debtors customers and

members on a daily basis. These performers have cultivated relationships with customers and

members that may span many years, and as a result, the customers and members are extremely

loyal to the entertainment services provided by the Debtors. Finally, the Debtors produce and

distribute original adult-themed pictorial and video content, license the globally recognized

Penthouse brand and publish several branded mens lifestyle magazines.



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7. In order to drive traffic to their websites, the Debtors employ a number ofmarketing programs. Currently, there are approximately 5,847 websites affiliated with, but not

owned by, the Debtors that help direct potential customers to the Debtors websites. The

Debtors maintain a referral and marketing program to compensate these affiliated parties based

upon the number of potential customers directed to the Debtors websites.

8. The Debtors are all located in the United States although, due to the internet-based nature of their business, their operations reach to over 200 countries around the globe. In

addition to the Debtors, the Debtors corporate group includes fifteen (15) non-debtor foreign

entities (the Non-Debtor Entities). None of the Non-Debtor Entities filed chapter 11

petitions. The Debtors have more than 435 employees and, together with the Non-Debtor

Entities, have more than 220 million members. The Debtors extensive network of more

than 8,000 websites included more than 750,000 subscribers as of December 31, 2012.

9. Although the Debtors continue to maintain and develop their networks, serve theircustomers and produce printed products, the Debtors have been actively pursuing a financial

restructuring or refinancing transaction since October 2012. Those efforts resulted in the

Company and certain holders of the Debtors secured debt entering into a Transaction Support

Agreement dated as of September 16, 2013 (as amended or modified, the TSA) pursuant to

which the parties agreed to pursue the confirmation of a plan of reorganization on terms set forth

in the TSA. Simply put, these Chapter 11 Cases are intended to implement a prompt financial

restructuring of the Debtors secured debt and is intended to satisfy in full the claims of the

Debtors general unsecured creditors.

10. The Debtors intend to file theirJoint Plan Of Reorganization Of PMGI Holdings,Inc. Et Al. Under Chapter 11 Of The Bankruptcy Code (as amended or modified, the Plan) and



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related solicitation documents, which embodies the Recapitalization Transaction contemplated

by the TSA prior to the first day hearing. In order to implement that transaction by way of

confirmation of the Plan on an expedited basis, the Debtors commenced the Chapter 11 Cases on

the date hereof (the Petition Date) by filing voluntary petitions for relief under title 11 of the

United States Code, 11 U.S.C. 101-1532 (the Bankruptcy Code), in the United States

Bankruptcy Court for the District of Delaware (the Bankruptcy Court). The Debtors intend

to seek confirmation of the Plan promptly in these Chapter 11 Cases.

11. Because the Debtors intend to operate their businesses in the ordinary courseduring the pendency of these Chapter 11 Cases, and in order to minimize the adverse effects of

the commencement of these Chapter 11 Cases on their business, the Debtors request various

forms of relief in the First Day Motions. The First Day Motions are described in greater detail in

Part III below, but generally, seek, among other things, the Bankruptcy Courts authority to: (a)

continue the Debtors operations with as little disruption as possible; (b) maintain the confidence

and loyalty of the Debtors customers and employees; (c) obtain authority to consensually use

cash collateral; (d) comply with applicable state statutes and regulations; (e) assume the TSA;

and (f) retain appropriate professionals. Maintaining the support of the Debtors key

constituencies, as well as operating the Debtors day-to-day business with minimal disruption

and erosion, is crucial to the success of the Debtors efforts to maximize the value of the

Debtors estates and to ensure an expeditious resolution of these Chapter 11 Cases.

II.BACKGROUND

A. Overview of the Debtors12. In December 2007, FFN acquired Various, Inc., for approximately $401.0 million.

The aggregate purchase price of approximately $401.0 million consisted of approximately



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(i) $137.0 million in cash, (ii) notes valued at approximately $248.0 million, and (iii) warrants to

acquire approximately 2.9 million shares of common stock, subject to adjustment for certain

anti-dilution provisions, valued at approximately $16.0 million.

13. On October 27, 2010, FFN completed a debt restructuring, which consolidatedsubstantially all of its debt into three tranches with maturities on September 30, 2013 and

April 30, 2014. Those tranches were the (i) 14% Senior Secured Notes due 2013 (the First

Lien Notes) issued pursuant to the First Lien Indenture, dated as of October 27, 2010 (as

amended, restated, supplemented or otherwise modified from time to time, the First Lien

Indenture), and together with all agreements, documents, notes and instruments in respect

therefore (the First Lien Credit Documents), between and among the Debtors and

Wilmington Trust, a national banking association (as successor to U.S. Bank National

Association), as trustee and collateral agent (in its capacity as trustee, the First Lien Trustee

and in its capacity as collateral agent, theFirst Lien Collateral Agent)and the noteholders

that are parties thereto from time to time (the First Lien Noteholders), (ii) the 11.5% Non-

Cash Pay Secured Notes Due 2014 (the Non-Cash Pay Second Lien Notes) issued pursuant to

the Non-Cash Pay Second Lien Indenture, dated as of October 27, 2010 (as amended, restated,

supplemented or otherwise modified from time to time, the Non-Cash Pay Indenture) and

together with all agreements, documents, notes and instruments in respect therefore (the Non-

Cash Pay Credit Documents), between and among the Debtors and Computershare Trust

Company, N.A., a national banking association (as successor to U.S. Bank National Association)

as trustee and collateral agent (in its capacity as trustee, the Non-Cash Pay Trustee and in its

capacity as collateral agent, the Non-Cash Pay Collateral Agent) and the noteholders that are

parties thereto (the Non-Cash Pay Noteholders), and (iii) the 14% Cash Pay Secured Notes



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Due 2013 (the Cash Pay Second Lien Notes) issued pursuant to the Cash Pay Second Lien

Indenture, dated as of October 27, 2010 (as amended, restated, supplemented or otherwise

modified from time to time, the Cash Pay Indenture) and together with all agreements,

documents, notes and instruments in respect therefore (the Cash Pay Credit Documents),

between and among the Debtors and U.S. Bank National Association, a national banking

association as trustee and collateral agent (in its capacity as trustee, the Cash Pay Trustee and

in its capacity as collateral agent, the Cash Pay Collateral Agent) and the noteholders that are

parties thereto (the Cash Pay Noteholders).

14.

On May 16, 2011, the Company issued 5,000,000 shares of common stock at a

price of $10.00 per share and completed its Initial Public Offering (the IPO). The Company

raised gross proceeds of $50.0 million in the IPO, less underwriting fees, other offering fees and

commissions. The Company used the net proceeds of the IPO to repay a portion of its existing

indebtedness. Following the IPO, the equity of FFN was traded on NASDAQ Global Market

under the ticker symbol FFN from until August 7, 2013. Beginning on August 8, 2013, the

equity of FFN began trading on the OTCQB Marketplace under the ticker symbol FFNT.

15. On July 12, 2011, the Company acquired substantially all the assets ofPerfectMatch.com from Matrima, Inc., for approximately $2,000,000 in cash and common shares

of FFN worth approximately $500,000.



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B. Corporate Structure16. The chart attached hereto as Exhibit A depicts the Debtors prepetition

organizational structure.

C. Prepetition Capital Structure17. As of the Petition Date, the Debtors had outstanding debt obligations in the

aggregate principal amount of $530.9 million, consisting primarily of their obligations under the

First Lien Notes, the Non-Cash Pay Second Lien Notes and the Cash Pay Second Lien Notes.

(i) First Lien Credit Documents

18. As of the Petition Date, the First Lien Notes were outstanding in a principalamount of approximately $234,297,907.80, plus all interest accrued thereon at the applicable

default rate, plus all fees, costs, expenses, and costs of collection (including, without limitation,

reasonable attorneys, financial advisors and other professionals fees and expenses fees) as set

forth in the Existing First Lien Credit Documents. The First Lien Notes had a stated maturity of

September 30, 2013, and bear interest at a non-default rate per annum equal to 14.0%. The First

Lien Notes were issued by FFN and Interactive Network, Inc. (INI), and guaranteed by all of

the other Debtors. The First Lien Notes are collateralized by a first-priority lien on substantially

all of the Debtors assets as well as a pledge of the stock of certain of the Debtors. On

August 5, 2013, the First Lien Trustee declared all of the First Lien Notes to be due and payable

immediately. Holders of approximately 80% in principal amount of the First Lien Notes are

parties to the TSA.

(ii) Non-Cash Pay Credit Documents

19. As of the Petition Date, the Non-Cash Pay Second Lien Notes were outstanding ina principal amount of approximately $320,254,296, plus such all interest accrued thereon at the

applicable default rate, plus all fees, costs, expenses, and costs of collection (including, without



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limitation, reasonable attorneys fees) as set forth in the Non-Cash Pay Credit Documents. The

Non-Cash Pay Second Lien Notes had a stated maturity of April 30, 2014, and bear interest at a

non-default rate per annum of 11.5%. The Non-Cash Pay Second Lien Notes were issued by

FFN and INI and are guaranteed by all of the other Debtors. The Non-Cash Pay Second Lien

Notes are collateralized by a second-priority lien on substantially all of the Debtors assets as

well as a pledge of the stock of certain of the Debtors. The Non-Cash Pay Second Lien Notes

are subordinated to the First Lien Notes pursuant to that certain Intercreditor and Subordination

Agreement, dated October 27, 2010 (the First Lien ICA). The Non-Cash Pay Second Lien

Notes arepari passu with the Cash Pay Second Lien Notes pursuant to that certain Second Lien

Intercreditor Agreement, dated October 27, 2010 (the Second Lien ICA). Holders of

approximately 78% in principal amount of the Non-Cash Pay Second Lien Notes are parties to

the TSA.

(iii) Cash Pay Credit Documents

20. As of the Petition Date, the Cash Pay Second Lien Notes were outstanding in aprincipal amount of approximately $10,572,417.70, plus all interest accrued thereon at the

applicable default rate, plus all fees, costs, expenses, and costs of collection (including, without

limitation, reasonable attorneys fees) as set forth in the Cash Pay Credit Documents. The Cash

Pay Second Lien Notes had a stated maturity of September 30, 2014, and were issued with an

original issue discount of $276,000 or 2%. The Cash Pay Second Lien Notes were issued by

FFN and INI and are guaranteed by all of the other Debtors. The Cash Pay Second Lien Notes

are collateralized by a second-priority lien on substantially all of the Debtors assets as well as a

pledge of the stock of certain of the Debtors. The Cash Pay Second Lien Notes are subordinated

to the First Lien Notes pursuant to the First Lien ICA. The Non-Cash Pay Second Lien Notes



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arepari passu with the Cash Pay Second Lien Notes pursuant to the Second Lien ICA. As to

matters relating to collateral, liens and enforcement of rights and remedies, the Cash Pay Second

Lien Notes are included with the Non-Cash Pay Second Lien Notes for purposes of determining

the required consents or waivers. On August 7, 2013, the Cash Pay Second Lien Trustee

declared all of the Cash Pay Second Lien Notes to be due and payable immediately. All of the

Cash Pay Second Lien Notes are held indirectly by Marc H. Bell and Daniel C. Staton,

substantial holders of equity in FFN, consultants to the Company and the non-executive

chairmen of the Company. Messrs. Bell and Staton are not party to the TSA, however, pursuant

to the Bell/Staton Settlement (defined below), Messrs. Bell and Staton have agreed to support the

Plan. Thus, holders of 100% of the Cash Pay Second Lien Notes have agreed to support the

Plan.

D. Events Leading to the Chapter 11 Filing21. These Chapter 11 Cases were commenced to implement the transactions set forth

in the TSA and the Plan (the Recapitalization Transaction). The Recapitalization

Transaction will allow the Debtors to continue and improve their operations, and provide the

financial stability to grow and enhance their product lines and serve their customers.

22. The Recapitalization Transaction was made necessary by the Debtors decliningfinancial performance and pending debt maturities. The Debtors total revenue for the four

consecutive fiscal quarters ended June 30, 2013, was $293.70 million compared to $326.50

million for the four consecutive fiscal quarters ended June 30, 2012, representing a decrease of

approximately 10.1%. That revenue decline was primarily attributable to the decrease in internet

revenue, as social networking websites revenue decreased by approximately 17.6% during that

period due primarily to a decrease in traffic to the Companys websites. The live interactive

video websites revenue increased by approximately 7.8% during the same period; however the



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increase in live interactive websites revenue failed to offset the decrease in social networking

website revenue. The decrease in the Debtors internet revenues is attributable to a number of

factors, including, a decline in the Debtors website membership and increased advertising and

affiliate costs; however, the decrease in the Debtors revenues was also exacerbated by an

increase in credit card companies denying transactions and refusing to process transactions for

the Debtors internet businesses.2

23. In November 2012, the Company did not make certain payments to the holders ofFirst Lien Notes and Cash Pay Second Lien Notes, which constituted an event of default under

their respective Indentures. On November 5, 2012, certain of the First Lien Noteholders, agreed

to forbear from the exercise of their rights and remedies under the First Lien Indenture pursuant

to that certain Forbearance Agreement, as amended by the First Amendment to Forbearance

Agreement dated February 4, 2013, the Second Amendment to Forbearance Agreement dated

May 6, 2013, the Third Amendment to Forbearance Agreement dated June 7, 2013, and the

Fourth Amendment to Forbearance Agreement dated July 1, 2013 (collectively the Prior

Forbearance Agreement), which expired on July 31, 2013. Further, on August 5, 2013, the

First Lien Indenture was accelerated, but on August 7, 2013, certain of the First Lien

Noteholders agreed to forbear from the exercise of their rights and remedies pursuant to that

certain Forbearance Agreement entered into on August 5, 2013 (the Forbearance

Agreement). As of the Petition Date, all of the forbearance agreements had expired.

2 In order to operate their businesses, the Debtors rely on revenue from credit card transactions; in fact, in thenormal course of business, more than 95% of the Debtors total sales result from credit card transactions. In order toprocess these transactions, the Debtors have relationships with approximately 25 credit card processors. Thesecredit card processors provide the Debtors with processing service for all credit cards accepted by the Debtors,which include Visa, MasterCard and American Express.



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24. As detailed above, in early August 2013, the First Lien Trustee accelerated theFirst Lien Notes and the Cash Pay Second Lien Trustee accelerated the Cash Pay Second Lien

Notes. The Non-Cash Pay Second Lien Notes were not accelerated as of the Petition Date.

Despite the Debtors efforts detailed below, the Debtors were unable to obtain sufficient

financing or investment to repay their obligations under the First Lien Notes, Non-Cash Pay

Second Lien Notes and Cash Pay Second Lien Notes. As a result, the Debtors and holders of a

substantial majority of each of the First Lien Notes (collectively, the Consenting First Lien

Noteholders) and Non-Cash Pay Second Lien Notes (collectively, the Consenting Second

Lien Noteholders) agreed enter into the TSA and the Debtors filed these Chapter 11 Cases in

furtherance of the Recapitalization Transaction contemplated thereunder.

E. Efforts to Restructure25. Having determined that restructuring would be necessary, in late 2012, the

Debtors began to pursue a restructuring transaction and retained CRT Capital Group, Inc.

(CRT), to assist with those efforts. Beginning at that time and continuing throughout 2013,

the Company, pursued several options with third parties to (i) delever the Company, or

(ii) consummate a sale to a third party. None of those third-party transactions ultimately came to

fruition.

26. In parallel with its efforts to identify a potential third-party transaction, theCompany and the Consenting First Lien Noteholders and the Consenting Second Lien

Noteholders negotiated the terms of the Recapitalization Transaction. After substantial, arms

length negotiations, on September 16, 2013, the Company, the Consenting First Lien

Noteholders and the Consenting Second Lien Noteholders entered into the TSA.



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27. The Recapitalization Transaction set forth in the TSA3 provides for among otherthings: (i) the issuance of new first lien notes (the New First Lien Notes), (ii) the issuance of

new common stock of a reorganized FFN, (iii) the Bell/Staton Settlement (described below), and

(v) certain releases and exculpations. The TSA contemplates that the Recapitalization

Transaction will be implemented through a chapter 11 proceeding and the expedited

confirmation of the Plan. Pursuant to the TSA, the Plan classifies the various claims asserted

against the Debtors, and provides that all Administrative Expense Claims, Priority Tax Claims,

Other Priority Claims, and General Unsecured Claims (each as defined in the Plan) will be paid

in full in cash on the effective date or otherwise unimpaired.

28. Under the TSA the Company is obligated to, among other things: (i) usecommercially reasonable efforts in furtherance of the Recapitalization Transaction, and

(ii) subject to certain termination events related to the Board of Directors fiduciary duties,

pursue the confirmation of the Plan, which effects the Recapitalization Transaction. The TSA

further provides that the Consenting First Lien Noteholders and the Consenting Second Lien

Noteholders will, among other things: (i) if appropriately solicited under the Bankruptcy Code,

vote all claims in interest in support of a plan which effects the Recapitalization Transaction and

is materially consistent with the Plan Term Sheet, (ii) negotiate any plan documents in good faith,

(iii) grant certain releases detailed in the Plan Term Sheet, and (iv) not object or otherwise

oppose a plan that is materially consistent with the Plan Term Sheet and which implements the

Recapitalization Transaction.

29. The TSA includes certain termination events including, among others: (i) uponthe mutual written consent of the Debtors, the Consenting First Lien Noteholders and the

3The summary of the terms of the TSA contained herein is qualified in its entirety by reference to the TSA. If there

are any inconsistencies between this summary and the terms of the TSA, the TSA shall govern in all respects.



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Consenting Second Lien Noteholders, (ii) by the Debtors in the event that the Debtors continued

support of the Plan would be inconsistent with the exercise of its fiduciary duties, (iii) upon the

effective date of the Plan or upon closing of another transaction, including a merger or change of

control transaction that is approved by the Debtors, the Consenting First Lien Noteholders and

the Consenting Second Lien Noteholders, (iv) automatically after January 31, 2014, if the

Effective Date of the Plan has not occurred, or (v) by the Consenting First Lien Noteholders or

the Consenting Second Lien Noteholders upon the occurrence of certain events, including the

Debtors failure to comply with certain milestones detailed in the TSA.

F.

The Bell/Staton Settlement

30. The TSA and the Plan incorporate the terms of a consensual settlement betweenthe Company (with the consent of the Consenting First Lien Noteholders and the Consenting

Non-Cash Pay Second Lien Noteholders) on the one hand, and Messrs. Bell and Staton on the

other (the Bell/Staton Settlement). The Bell/Staton Settlement resolves certain outstanding

issues related to certain consulting agreements and other claims between the Company and

Messrs. Bell and Staton.

31. Pursuant to the Bell/Staton Settlement, among other things, (i) Messrs. Bell andStaton will each receive $500,000 in cash as full payment and release of all obligations of any of

the Debtors under those certain consulting agreements upon entry of a final order by the

Bankruptcy Court approving the use of Cash Collateral on a final basis (or otherwise on the

occurrence of the Effective Date of the Plan), (ii) the Plan will provide that the Cash Pay Second

Lien Notes will receive the same treatment as the Non-Cash Pay Second Lien Notes, (iii) Messrs.

Bell and Staton will support the Plan; (iv) Messrs. Bell and Staton will agree to and execute a

customary two (2) year non-competition and non-disparagement agreements, and (v) Messrs.

Bell and Staton will receive releases from the Company upon the confirmation of the Plan. The



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Bell/Staton Settlement also provides that that Bankruptcy Court retains authority to clawback

any payments made to Mr. Bell and/or Mr. Staton if (i) the Bankruptcy Court determines that

Mr. Bell, Mr. Staton, or any related party did not comply with their obligations under the

Bell/Staton Settlement, (ii) the TSA terminates in accordance with its terms and the Debtors

either withdraw the Plan or modify the Plan to be inconsistent in any material respect with the

Plan Term Sheet, (iii) the Debtors right to use Cash Collateral terminates, or (iv) confirmation

of the Plan is denied.

32. The Bell/Staton Settlement Agreement resolves consensually various issues,which could otherwise be the subject of litigation during these Bankruptcy Cases, including the

classification and treatment of the claims associated with the Cash Pay Second Lien Notes and

the classification and treatment of claims related to the consulting agreements.

33. In consultation with their professionals and after careful examination by theBoard of Directors, the Debtors determined ultimately that, rather than to continue to pursue

alternative transactions or seek additional forbearances from their secured lenders, executing the

TSA, commencing these Chapter 11 Cases, and pursuing the confirmation of a plan of

reorganization implanting the terms contained in the Plan Term Sheet, represented the

Companys best opportunity to sustain their going-concern operations and to preserve and

maximize value for their creditors and estates.

34. Given the Debtors current financial condition, financing arrangements, andcapital structure, the Debtors have been unable to obtain financing from sources on terms more

favorable than provided for in the Cash Collateral Order. The Debtors likewise have been unable

to obtain unsecured credit allowable under Section 364(b)(1) of the Bankruptcy Code as an

administrative expense.



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III.FIRST DAY MOTIONS

4

35. Concurrently with the filing of the voluntary petitions to commence these cases,the Debtors will be filing a number of First Day Motions. The Debtors anticipate that the

Bankruptcy Court will conduct a hearing within a business day or two after the commencement

of the cases (the First Day Hearing), during which the Bankruptcy Court will entertain the

arguments of counsel with respect to the relief sought in each of the First Day Motions.

36. Generally, the First Day Motions have been designed to meet the immediate goalsof (a) establishing procedures for the efficient administration of these Chapter 11 Cases; (b)

continuing the Debtors operations during these Chapter 11 Cases with as little disruption and

loss of productivity as possible; and (c) maintaining the confidence and support of the Debtors

key constituencies. I have reviewed each of the First Day Motions, including the exhibits,

attached thereto, and believe that the relief sought in each of the First Day Motions is narrowly

tailored to meet the goals described above and, ultimately, will be critical to the Debtors ability

to achieve success in these Chapter 11 Cases.

37. The First Day Motions are summarized below:A. Motion of the Debtors for Entry of an Order Authorizing and Directing the Joint

Administration of the Debtors Chapter 11 Cases for Procedural Purposes Only

38. By this motion, the Debtors request the joint administration of the Debtorsrelated chapter 11 cases for procedural purposes only. Specifically, the Debtors request that the

Court maintain one file and one docket for the Debtors cases under the PMGI Holdings Inc.

case and also request that the caption of their cases be modified to reflect the joint administration

of the cases.

4Capitalized terms used in Part III and not otherwise defined herein shall have the meanings ascribed to such terms

in the respective First Day Motions.



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39. Blue Hen Group Inc.; Argus Payments Inc.; Big Island Technology Group, Inc.;Confirm ID, Inc.; Danni Ashe, Inc.; Fastcupid, Inc.; Fierce Wombat Games Inc.; FriendFinder

California Inc.; FRIENDFINDER VENTURES INC.; FRNK Technology Group; General Media

Art Holding, Inc.; General Media Communications, Inc.; General Media Entertainment, Inc.;

Global Alphabet, Inc.; GMCI Internet Operations, Inc.; GMI On-Line Ventures, Ltd.; Interactive

Network, Inc.; Magnolia Blossom Inc.; Medley.com Incorporated; NAFT NEWS

CORPORATION; Penthouse Digital Media Productions Inc.; Penthouse Images Acquisitions,

Ltd.; PerfectMatch Inc.; Playtime Gaming Inc.; PMGI Holdings Inc.; PPM Technology Group,

Inc.; Pure Entertainment Telecommunications, Inc.; Sharkfish, Inc.; Snapshot Productions, LLC;

Streamray Inc.; Streamray Studios Inc.; Tan Door Media Inc.; Traffic Cat, Inc.; Transbloom,

Inc.; Various, Inc.; Video Bliss, Inc.; West Coast Facilities Inc.; and XVHUB Group Inc.

(collectively, the Subsidiaries) are direct or indirect wholly owned subsidiaries of

FriendFinder Networks Inc., such that the Debtors constitute affiliates of one another within

the meaning of 11 U.S.C. 101(2).5 Joint administration of these cases (a) is warranted because

the Debtors financial affairs and business operations are closely related, and (b) will avoid the

unnecessary administrative burden on the Court and parties-in-interest in these Chapter 11 Cases.

40. Joint administration will permit the Clerk to use a single general docket for theDebtors Chapter 11 Cases and to combine notices to creditors and other parties-in-interest of the

Debtors respective estates. Joint administration also will protect parties-in-interest by ensuring

that such parties-in-interest in each of the Debtors respective Chapter 11 Cases will be apprised

of the various matters before the Court in each of the Chapter 11 Cases.

5Section 101(2) of the Bankruptcy Code defines affiliate to include, in relevant part, a corporation 20 percent or

more of whose outstanding voting securities are directly or indirectly owned, controlled, or held with power to vote,by the debtor, or by an entity that directly or indirectly owns, controls, or holds with power to vote, 20 percent ormore of the outstanding voting securities of the debtor 11 U.S.C. 101(2).



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41. I understand that if the Court approves joint administration of the Debtors cases,the Debtors will be able to reduce fees and costs resulting from the administration of these

Chapter 11 Cases and ease the onerous administrative burden of having to file multiple

documents. I have also been advised that joint administration will ease the administrative burden

for the Court and all parties to these cases and obviate the need for duplicative notices, motions,

applications and orders, and thereby save time and expense for the Debtors and their estates.

42. Based on the foregoing, the Debtors believe that joint administration of the casesis in the best interests of the Debtors, their estates and all parties in interest, and should be

granted in all respects.

B. Motion of the Debtors for Entry of Interim and Final Orders Pursuant to 11 U.S.C. 361, 362, 363, and 507 (I) Authorizing the Use of Cash Collateral, (II) Granting

Adequate Protection and (III) Scheduling a Final Hearing Pursuant to Bankruptcy

Rule 4001(b) and Local Rule 4001-2

43. By this motion, the Debtors request the Bankruptcy Courts approval of the use ofCash Collateral which is critical to the Debtors efforts to reorganize and maximize value for

their estates, employees and creditors.

1. Prepetition Secured Debt44. On the Petition Date, the Debtors were obligated on approximately

$565,124,621.50 million of secured debt financing plus certain interest, fees, costs, expenses and

other charges due in connection therewith pursuant to the Existing First Lien Notes, Cash Pay

Second Lien Notes and Non-Cash Pay Second Lien Notes.

45. Pursuant to the First Lien Indenture and the agreements, guarantees, documents,notes and instruments in respect therefore (as amended, the Existing First Lien Credit

Documents), the Issuers issued the Existing First Lien Notes which are guaranteed by the other

Debtors. As of the Petition Date, the Debtors were obligated to the First Lien Trustee and



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Collateral Agent and the holders of the Existing First Lien Notes (the First Lien Noteholders

and together with the First Lien Trustee and Collateral Agent, the Senior Secured Parties) in

the approximate principal amount (including the applicable prepayment premium) of

$234,297,907.80, plus all interest accrued thereon at the applicable default rate, plus all fees,

costs, expenses, and costs of collection (including, without limitation, reasonable attorneys,

financial advisors and other professionals fees and expenses fees) as set forth in the Existing

First Lien Credit Documents, heretofore or hereafter incurred by the Senior Secured Parties in

connection therewith (the Senior Secured Parties Claim). The Debtors obligations in

respect of the Existing First Lien Credit Documents (collectively, the Prepetition First

Priority Obligations) are secured by liens against and security interests (the Prepetition First

Priority Liens) in substantially all of the assets of the Debtors (the Prepetition First Priority

Collateral), which liens were granted pursuant to certain Security Documents (as defined in the

First Lien Indenture) including, but not limited to, the Security and Pledge Agreement, dated as

of October 27, 2010, by and between the Debtors and the First Lien Trustee and Collateral

Agent, the Copyright Security Assignment, dated as of October 27, 2010, executed and delivered

by the Debtors to the First Lien Trustee and Collateral Agent, the Trademark Security

Agreement, dated as of October 27, 2010, executed and delivered by the Debtors to the First

Lien Trustee and Collateral Agent and certain account control agreements in favor of the First

Lien Trustee and Collateral Agent (as amended, collectively, the First Lien Security

Documents").

46. Pursuant to the Non-Cash Pay Second Lien Indenture and all agreements,guarantees, documents, notes and instruments in respect therefore (as amended, the Non-Cash

Pay Credit Documents), the Issuers issued the Non-Cash Pay Second Lien Notes which are



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guaranteed by the other Debtors. As of the Petition Date, the Debtors were obligated to the Non-

Cash Pay Second Lien Trustee and Collateral Agent and the holders of the Non-Cash Pay

Second Lien Notes (the Non-Cash Pay Noteholders and together with the Non-Cash Pay

Trustee and Collateral Agent, the Non-Cash Pay Secured Parties) in the approximate amount

of $320,254,296, plus all interest accrued thereon at the applicable default rate, plus all fees,

costs, expenses, and costs of collection (including, without limitation, reasonable attorneys,

financial advisors and other professionals fees and expenses fees) as set forth in the Non-Cash

Pay Credit Documents, heretofore or hereafter incurred by the Non-Cash Pay Secured Parties in

connection therewith (the Non-Cash Pay Secured Parties Claim). The Debtors obligations

in respect of the Non-Cash Pay Credit Documents (collectively, the Non-Cash Pay Second

Priority Obligations) are secured by liens against and security interests (the Non-Cash Pay

Second Priority Liens) in substantially all of the assets of the Debtors (the Non-Cash Pay

Second Priority Collateral), which liens were granted pursuant to the Security Documents (as

defined in the Non-Cash Pay Indenture) including, but not limited to, the Security and Pledge

Agreement, dated as of October 27, 2010, by and between the Debtors and the Non-Cash Pay

Trustee and Collateral Agent, the Copyright Security Assignment, dated as of October 27, 2010,

executed and delivered by the Debtors to the Non-Cash Pay Trustee and Collateral Agent, the

Trademark Security Agreement dated as of, October 27, 2010, executed and delivered by the

Debtors to the Non-Cash Pay Trustee and Collateral Agent and certain account control

agreements in favor of the Non-Cash Pay Trustee and Collateral Agent (as amended,

collectively, the Non-Cash Pay Security Documents").

47. Pursuant to the Cash Pay Second Lien Indenture and all agreements, documents,notes and instruments in respect therefore (as amended, the Cash Pay Credit Documents), the



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Issuers issued the Cash Pay Second Lien Notes which are guaranteed by the other Debtors. As

of the Petition Date, the Debtors were obligated to the Cash Pay Second Lien Trustee and

Collateral Agent and the holders of the Cash Pay Second Lien Notes (the Cash Pay

Noteholders and together with the Cash Pay Trustee and Collateral Agent, the Non-Cash Pay

Secured Parties) in the approximate principal amount (including the applicable prepayment

premium) of $10,572,417.70, plus all interest accrued thereon at the applicable default rate, plus

all fees, costs, expenses, and costs of collection (including, without limitation, reasonable

attorneys, financial advisors and other professionals fees and expenses fees) as set forth in the

Cash Pay Credit Documents, heretofore or hereafter incurred by the Cash Pay Secured Parties in

connection therewith (the Cash Pay Secured Parties Claim). The Debtors obligations in

respect of the Cash Pay Credit Documents (collectively, the Cash Pay Second Priority

Obligations) are secured by liens against and security interests (the Cash Pay Second

Priority Liens) in substantially all of the assets of the Debtors (the Cash Pay Second Priority

Collateral), which liens were granted pursuant to the Security Documents (as defined in the

Cash Pay Indenture) including, but not limited to, the Security and Pledge Agreement, dated as

of October 27, 2010, by and between the Debtors and the Cash Pay Trustee and Collateral Agent,

the Copyright Security Assignment, dated as of October 27, 2010, executed and delivered by the

Debtors to the Cash Pay Trustee and Collateral Agent, the Trademark Security Agreement dated

as of, October 27, 2010, executed and delivered by the Debtors to the Cash Pay Trustee and

Collateral Agent and certain account control agreements in favor of the Cash Pay Trustee and

Collateral Agent (as amended, collectively, the Cash Pay Security Documents").

48. Where applicable, the Prepetition First Priority Obligations, the Non-Cash PaySecond Priority Obligations and the Cash Pay Second Priority Obligations are collectively



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referred to as the Prepetition Secured Obligations; the First Lien Credit Documents, the

Non-Cash Pay Credit Documents and the Cash Pay Credit Documents are collectively referred to

as the Prepetition Credit Documents; the Senior Secured Parties, the Non-Cash Pay Secured

Parties and the Cash Pay Secured Parties are collectively referred to as the Secured Parties;

the Prepetition First Priority Collateral, the Non-Cash Pay Second Priority Collateral and the

Cash Pay Second Priority Collateral are collectively referred to as the Prepetition Collateral;

and the Prepetition First Priority Liens, the Non-Cash Pay Second Priority Liens and the Cash

Pay Second Priority Liens are collectively referred to as the Prepetition Liens.

2.

Intercreditor Agreements

49. Pursuant to that certain Intercreditor and Subordination Agreement, dated as ofOctober 27, 2010 (the Intercreditor Agreement) among the Debtors and the Trustees and

Collateral Agents (a) the Non-Cash Pay Secured Parties agree to subordinate their right to

payment under the Non-Cash Pay Credit Documents and (b) the Non-Cash Pay Secured Parties

and the Cash Pay Secured Parties agreed to subordinate their right to take enforcement action

under the Non-Cash Pay Security Documents and the Cash Pay Security Documents,

respectively, until the Prepetition First Priority Obligations have been paid in full on the terms

set forth in the Intercreditor Agreement.

50. The Non-Cash Pay Credit Documents and the Cash Pay Credit Documents aresubject to that certain Intercreditor and Subordination Agreement dated as of October 27, 2010

(the Second Lien Intercreditor Agreement) among the Debtors and each of the Non-Cash

Pay Trustee and Collateral Agent and the Cash Pay Trustee and Collateral Agent.

3. Use of Cash Collateral51. The availability to the Debtors of sufficient working capital, liquidity, and other

financial accommodations are vital to their ability to continue their operations. The Debtors do



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not have sufficient available sources of working capital and financing to carry on the normal

course operation of their businesses without use of the Cash Collateral. The Debtors ability to

maintain business relationships with their vendors, suppliers, and customers, and to finance their

day-to-day operations, is essential to the Debtors continued viability. In addition, the Debtors

need for use of Cash Collateral is critical and immediate. In the absence of the use of Cash

Collateral, the continued operation of the Debtors businesses would not be possible.

Accordingly, the Debtors and their estates would suffer immediate and irreparable harm unless

the Debtors are authorized to use Cash Collateral on the terms and conditions set forth herein and

in accordance with the Initial Budget. If the Debtors are not authorized to use Cash Collateral,

the Debtors businesses will shut down. The use of Cash Collateral, therefore, is critical to the

Debtors ability to operate their businesses going forward and to maximize the value of their

assets for the benefit of their creditors

52. Given the Debtors current financial condition, financing arrangements, andcapital structure, the Debtors have been unable to obtain financing from sources on terms more

favorable than provided for in Cash Collateral Motion and the Proposed Interim Order. The

Debtors likewise have been unable to obtain unsecured credit allowable under Section 364(b)(1)

of the Bankruptcy Code as an administrative expense.

53. The terms of the Cash Collateral arrangement described in the Motion werenegotiated by the parties in good faith and at arms length and the Debtors believe they are fair

and reasonable, reflect the Debtors exercise of prudent business judgment consistent with their

fiduciary duties, and are supported by reasonably equivalent value and fair consideration.

54. The Debtors do not have sufficient available sources of working capital andfinancing to operate their businesses or maintain their properties in the ordinary course of



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business without the authorized use of Cash Collateral. Absent obtaining use of Cash Collateral,

the Debtors businesses will be shut down, their ability to reorganize or realize going concern

value in their enterprises will be hindered, and serious and irreparable harm to the Debtors, their

estates and their creditors and equity holders will occur. The preservation and maintenance of

the Debtors businesses and their assets is necessary to maximize returns for all creditors, and is

significant and necessary to a successful resolution of these cases.

C. Motion of the Debtors for Entry of an Order (A) Authorizing the Maintenance ofBank Accounts and Continued Use of Existing Business Forms and Checks, (B)

Authorizing the Continued Use of Existing Cash Management System, (C) Waiving

Certain Investment and Deposit Guidelines, and (D) Granting Administrative

Expense Status to Postpetition Intercompany Claims

55. By this motion, the Debtors seek an order: (a) authorizing the maintenance ofBank Accounts and continued use of existing Business Forms; (b) authorizing, but not directing,

continued use of existing Cash Management System; (c) waiving certain of the investment and

deposit Guidelines set forth by the Office of the United States Trustee for the District of

Delaware; (d) granting administrative expense status to postpetition intercompany claims; and

(e) providing any additional relief required in order to effectuate the foregoing.

56. As described in the Cash Management Motion, the Debtors cash managementsystem is necessary not only for the efficient functioning of the Debtors business. For an

enterprise like the Debtors, whose operations are so highly dependent on their ability to manage

the high volume of cash receipts and cash disbursements received and made on a daily basis,

maintaining their existing cash management system is crucial.

57. Prior to the commencement of the Chapter 11 Cases, and in the ordinary course oftheir businesses, the Debtors maintained approximately 68 bank accounts (collectively, the

Bank Accounts). The Bank Accounts are part of a carefully constructed and highly-

automated cash management system (the Cash Management System) that ensures the



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Debtors ability to efficiently monitor and control their cash position. The Debtors Cash

Management System is maintained primarily with SunTrust Banks, Inc. (SunTrust), and

Wells Fargo Bank, N.A. (Wells Fargo). In addition, the Debtors maintain one account each

with HSBC Bank Brazil S.A. (HSBC Brazil), Commerzbank AG (Commerzbank) and

AtlasMont Banka AD Podgorica (AtlasMont), and two accounts with CaixaBank, S.A.

(Caixa). HSBC Brazil, Commerzbank, Caixa and AtlasMont are used in connection with

credit card transactions within the nations of Brazil, Germany, Spain and Serbia, respectively. 6

58. The Debtors utilize Wells Fargo and SunTrust for a majority of their bankingneeds. The Debtors Cash Management System is divided into two major parts and has been in

place since the Debtors acquired Various Inc. (Various) and its affiliates (collectively, the

West Coast Debtors) in December 2007 (the Various Acquisition). The West Coast

Debtors maintain operating accounts with Wells Fargo and cash receipts related to the West

Coast Debtors businesses are deposited into accounts with Wells Fargo. Those Debtors that

were part of the Debtors corporate family prior to the Various Acquisition (collectively, the

East Coast Debtors) maintain operating accounts with SunTrust and cash receipts related to

the East Coast Debtors businesses are deposited into accounts with SunTrust. The Debtors

Cash Management System as of the Petition Date is summarized as follows:

6In the normal course of business, more than ninety-seven percent (97%) of the Debtors total sales result from

credit card transactions. Similar to credit card transactions involving only the Debtors, certain of the Debtors non-

debtor affiliates (the Non-Debtor Affiliates) receive credit card payments, the cash proceeds of which are thentransferred to the Debtors. Specifically, certain merchant banks (collectively, the Credit Card Processors)process the Non-Debtor credit card transactions, chargebacks, discounts, and commissions resulting from purchasesmade from the Debtors websites and other businesses. The resulting funds are then reconciled by the Non-DebtorAffiliates, which then immediately transfer the funds to the bank account of the Debtor associated with theunderlying business transaction. Accordingly, as approximately sixty percent (60%) of the Debtors credit cardtransactions, chargebacks, discounts, and commissions are processed by the Non-Debtor Affiliates Credit CardProcessors, it is absolutely necessary to the Debtors business operations that the Non-Debtor Affiliates and theCredit Card Processors be permitted to continue to operate in the ordinary course of business.



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a. SunTrust Accounts: The Debtors maintain 21 checking accounts (the SunTrustOperating Accounts) with SunTrust, which are utilized by the East CoastDebtors.7 Funds generated by the East Coast Debtors respective businesses,including, inter alia, print, media and certain websites, are deposited into eachEast Coast Debtors respective SunTrust Operating Account multiple times each

day. Deposits made into the SunTrust Operating Accounts include checks, wiretransfers, automatic clearinghouse (ACH) transfers, credit card payments8 andcash. Funds in the SunTrust Operating Accounts are primarily disbursed, on aweekly basis, by the East Coast Debtors to fund the operating expenses of eachEast Coast Debtor, respectively. These operating expenses include, inter alia,payroll and marketing. While each individual East Coast Debtor primarily fundsits own operations through its personal SunTrust Operating Account, the SunTrustOperating Accounts are used to fund the operational needs of all East CoastDebtors as needed. The Debtors also maintain four (4) Euro holding accounts(the SunTrust Euro Accounts) with SunTrust. Euro-denominated paymentsresulting from certain of the East Coast Debtors business operations are

deposited into the SunTrust Euro Accounts. The funds deposited into theSunTrust Euro Accounts are primarily used to pay the East Coast Debtors Euro-denominated expenses. Approximately five (5) times a year, the Debtors transfervarying sums from the SunTrust Euro Accounts to the SunTrust OperatingAccounts to cover the East Coast Debtors dollar-denominated expenses asneeded.

b. Wells Fargo Accounts: The Debtors maintain 28 checking accounts (the WellsFargo Operating Account) with Wells Fargo, which are utilized by the WestCoast Debtors.9 Funds generated by the West Coast Debtors respective website-based businesses are deposited into each West Coast Debtors respective WellsFargo Operating Account multiple times each day. Deposits made into the WellsFargo Operating Accounts include checks, wire transfers, ACH transfers, creditcard payments and cash. Funds in each respective Wells Fargo OperatingAccount are primarily disbursed, on a weekly basis, by the West Coast Debtors tofund the operating expenses of each West Coast Debtor, respectively. Suchoperating expenses include, inter alia, payroll, vendor, account holders and

7The SunTrust Operating Accounts are utilized respectively by the following East Coast Debtors: Video Bliss, Inc.;

General Media Communications, Inc.; Penthouse Digital Media Productions, Inc.; General Media Art Holding, Inc.;West Coast Facilities Inc.; Pure Entertainment Telecommunications, Inc.; GMCI Internet Operations, Inc.; GeneralMedia Entertainment, Inc.; PMGI Holdings Inc.; Penthouse Images Acquisitions, Ltd.; GMI On-Line Ventures,Ltd.; Interactive Network, Inc.; FriendFinder Networks Inc.; and Tan Door Media Inc.

8In the ordinary course of the Debtors business, credit card payments received by the Debtors are initially

processed by various merchant banks (credit card processors) which remit the processed funds to the appropriateDebtors bank account.

9The Wells Fargo Operating Accounts are utilized respectively by the following West Coast Debtors: Big Island

Technology Group, Inc.; Confirm ID, Inc.; Various; Global Alphabet, Inc.; Medley.com, Incorporated (Medley);PPM Technology Group, Inc.; Steamray, Inc.; Argus Payments Inc.; Fierce Wombat Games, Inc.; FriendFinderCalifornia Inc. (FF California); Fastcupid, Inc. (Fastcupid); PerfectMatch Inc. (PerfectMatch);PLAYTIME GAMING INC.; Magnolia Blossom Inc.; and NAFT NEWS CORPORATION.



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marketing affiliate obligations. Further, VariousVarious Wells Fargo OperatingAccount functions as the West Coast Debtors primary operating account and isused to fund the operational expenses of other West Coast Debtors. Variousmaintains an average daily balance of $1,319,178.51 in its Wells Fargo OperatingAccount, with an average daily bank credit of $2,762,190.54 and an average daily

bank debit of $2,762,169.30. The West Coast Debtors also maintain six (6)payroll accounts (the Payroll Accounts) with Wells Fargo. The PayrollAccounts disburse payments to fund the West Coast Debtors bi-weekly payrollobligations and maintain a $1,000 minimum balance. The Payroll Accountsreceive weekly disbursements from the Wells Fargo Operating Accounts to fundpayroll for the West Coast Debtors. The West Coast Debtors also maintain four(4) sweep accounts (the Sweep Accounts) with Wells Fargo. The SweepAccounts function as savings accounts for the Wells Fargo Operating Accountsheld by Various, Medley, FriendFinder California Inc., and Fastcupid, Inc.(collectively, the Major Operating Accounts). Once a day, Major OperatingAccount funds exceeding a certain minimum amount (the Minimum

Amounts)

10

are swept into the Sweep Accounts. The swept funds remain in theSweep Accounts for one day and then are deposited back into the respectiveMajor Operating Account.

c. HSBC Account: The Debtors maintain a single checking account with HSBCBank (the HSBC Account). In order to process credit card payments in Brazil,the Debtors are required to maintain a bank account with a qualified Brazilianbank. Credit card transactions processed in Brazil in connection with theDebtors businesses, averaging approximately $1,363 per day, are deposited intothe HSBC Account multiple times each day. The HSBC Account is swept on adaily basis and maintains a $10,973 minimum balance in order to cover potentialcredit card chargebacks, credits and fees. The swept funds are deposited into theWells Fargo Operating Accounts.

d. Commerzbank Account: The Debtors maintain a single checking account withCommerzbank (the Commerzbank Account). Historically, in order to processcredit card payments in Germany, the Debtors were required to maintain a bankaccount with a qualified German bank. This is no longer required and theCommerzbank Account has not been used by the Debtors since August 2009.Currently, there is only $1,691 in the Commerzbank Account.

e. Caixa Accounts: The Debtors maintain two checking accounts with Caixa (theCaixa Accounts). In order to process credit card payments in Spain, theDebtors are required to maintain a bank account with a qualified Spanish bank.Credit card transactions processed in Spain in connection with the Debtorsbusinesses, averaging approximately $8,000 per day, are deposited into the CaixaAccounts multiple times each day. The Caixa Accounts are swept on a daily basis

10The Minimum Amounts are as follows: Various ($2,000,000 - $3,000,000); Medley ($150,000 - $420,000); FF

California ($0); and Fastcupid ($30,000).



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and maintain a $140,000 minimum balance in order to cover potential credit cardchargebacks, credits and fees. The swept funds are deposited into the WellsFargo Operating Account held by Various.

f. AtlasMont Account: The Debtors maintain a single checking account withAtlasMont (the AtlasMont Account). In order to process credit card paymentsin Serbia, the Debtors are required to maintain a bank account with a qualifiedSerbian bank. Credit card transactions processed in Serbia in connection with theDebtors businesses, averaging approximately (-$320) per day, are deposited intothe AtlasMont Account multiple times each day. The AtlasMont Account isswept on a daily basis and maintains a $0 minimum balance. The swept funds aredeposited into the Wells Fargo Operating Account held by Various.

59. Despite the separate banking structure of the East Coast Debtors and West CoastDebtors, the Debtors reconcile cash receipts, deposits and debits in the Cash Management

System on a daily basis, and perform a reconciliation of all of the Bank Accounts in the Cash

Management System once a month. The Debtors transition into chapter 11 will be significantly

less disruptive (and is required by some key agreements) if the Bank Accounts are maintained

following the commencement of the Chapter 11 Cases with the same account numbers and,

where applicable, automated relationship. The Debtors further request authority to deposit funds

in and withdraw funds from all such accounts postpetition, subject to the same access rights and

limitations existing prior to the Petition Date, including, but not limited to, checks, wire

transfers, ACH, electronic funds transfers, and other debits and to treat the Bank Accounts for all

purposes as debtor-in-possession accounts.

60. In the ordinary course of business, the Debtors use pre-printed check stock withthe relevant Debtors name printed thereon. In addition, the Debtors maintain pre-printed

correspondence and business forms, including, but not limited to, letterhead, envelopes,

promotional materials, and other business forms (collectively, along with the Debtors checks,

the Business Forms). To minimize administrative expense and delay, the Debtors request



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authority to continue to use their Business Forms substantially in the forms existing immediately

prior to the Petition Date, without reference to the Debtors Debtor-in-Possession status.

61. The Debtors maintain business relationships with each other that give rise tointercompany claims (the Intercompany Transactions). Among the Intercompany

Transactions, Various transfers approximately $1,250,000 a week to Medley, which Medley then

uses to pay for certain of the Debtors marketing expenses. Additionally, Various pays an

average of $60,000 a week on account employee health benefit obligations incurred by other

Debtors. Further, approximately twice a month, Various pays an average of $200,000 to certain

Debtors to fund the payroll obligations of other Debtors where that Debtor is unable to meet its

payroll obligation. Various also pays approximately $12,000 a month for PerfectMatchs

leasehold obligation related to commercial office space leased by PerfectMatch in Redman,

Washington.

62. Further, the Debtors have various Intercompany Transactions with non-debtors.Once a month, Debtor Penthouse Digital Media Productions Inc. transfers an average of 25,000

(approximately $33,148) to NAFT MEDIA, S.L., a non-Debtor affiliate of the Debtors (NAFT

MEDIA). NAFT MEDIA uses these funds to pay its monthly bill from Telefnica S.A., which

provides essential satellite and video distribution services for NAFT MEDIA.

63. The Debtors maintain records of its Intercompany Transactions, including fundtransfers, and thus can ascertain, trace and account for Intercompany Transactions. The Debtors

reconcile all Intercompany Transactions on a monthly basis. The Debtors will continue to

maintain records and appropriately reconcile all Intercompany Transactions postpetition.



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D. Motion of the Debtors for Entry of an Order (A) Authorizing Debtors to Pay (I) AllPrepetition Employee Obligations, and (II) Prepetition Withholding Obligations,

and (B) Directing Banks to Honor Related Transfers

64. In order to enable the Debtors to maintain morale during this critical time, retaintheir current Employees, Account Holders and Independent Service Providers, and minimize the

personal hardship such Employees, Account Holders and Independent Service Providers may

suffer if prepetition employee-related obligations are not paid when due or honored as expected,

the Debtors seek authority, in their discretion, to pay and honor, as the case may be, (a) all

prepetition claims of Employees, including, but not limited to, claims for Wages and certain

costs and disbursements related to the foregoing, up to the statutory cap of $12,425 per

Employee, (b) any claims or payments pursuant to the Employee Benefit Plans, (c) all prepetition

federal and state Withholding Obligations (collectively, the Employee Obligations) and (d) all

prepetition claims of Account Holders for Distributions and (e) all prepetition claims for

Independent Service Providers.

1. Employees65. The Debtors employ individuals in five locationsnamely: (i) New York, (ii)

Florida, (iii) California, (iv) Nevada and (v) Taiwan. The Debtors have a total of approximately

435 employees (the Employees). Out of the total 435 employees, approximately 15 are part

time workers and 420 are full time workers. In addition, approximately 300 of the Employees

are salaried employees and 135 are hourly.

66. The Debtors also have approximately 4,000 account holders who perform on theDebtors internet websites for customers and members on an independent basis (the Account

Holders). The Debtors utilize an in-house team to manage the Account Holders. The Account

Holders perform on a daily to weekly basis and provide entertainment services to the Debtors

customers and members. The Account Holders have cultivated relationships with customers and



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members that may span many years, and as a result, the customers and members are extremely

loyal to the Account Holders and entertainment provided by the Debtors. The Debtors estimate

that a majority of its sales for its entertainment sector take place through their Account Holder

structure. If the Debtors are unable to continue to pay the Account Holders (in accordance with

the terms described below), the Debtors will lose the services of the Account Holders, their

institutional knowledge and their relationships with the Debtors customers. If the Debtors were

not longer to utilize the services of the Account Holders the Debtors sales would collapse.

Therefore, the Account Holders are a critical component of the Debtors ability to obtain new

customers and maintain long-term customers.

67. In addition to the Employees and the Account Holders, the Debtors also haveagreements with fifty-two (52) additional independent contractors that provide services that are

imperative to the Debtors ongoing business operations, including providing assistance with

collections and maintaining the Debtors websites (the Independent Service Providers). If

the Debtors are unable to pay the Independent Service Providers, they will lose the services of

the Independent Service Providers, their institutional knowledge and the Debtors business

operations will be severely compromised.

2. Wages, Salaries and Payroll Obligations68. All Employees are paid hourly wages or salary (collectively, the Wages) every

other Friday (the Pay Date) for the two-week period prior to the week ending in the Pay Date.

Due to the Debtors various operating businesses, the Debtors operate five different payroll

systems. For example, in July 2013, Employees paid by several of the Debtors were paid on July

5, 2013 and July 19, 2013 (such schedule, an A Payroll). Alternatively, in July 2013,

Employees paid by other Debtor entities were paid on July 12, 2013 and July 26, 2013 (such

schedule, a B Payroll). In addition, the Debtors pay their Employees in Taiwan once a month,



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on the tenth day of the following month (such schedule, a C Payroll). Payroll averages

approximately $1,500,000.00 per month in the aggregate, including the Debtors portion of the

Payroll Taxes (as defined below). Approximately 70% of the Employees are paid through

electronic fund transfers, i.e. direct deposit, while the remaining 30% of the Employees are paid

by physical checks.

69. The Debtors last regular payroll dates were as follows: A Payroll September13, 2013; B-Payroll September 6, 2013, C-Payroll September 10, 2013 for the prior payroll

period. The next payroll dates are scheduled as follows: A Payroll September 27, 2013, B

Payroll September 20, 2013, and C Payroll on or about October 10, 2013. The Debtors

estimate that, as of the Petition Date, approximately $1,389,250 in Wages and Salaries has

accrued and is owed to their Employees, with no Employees owed in excess of $12,425.

70. Automatic Data Processing, Inc. (ADP) processes payments for A Payroll andB Payroll for the Debtors. The Debtors pay ADP a total of approximately $15,000 per month on

account of payroll administration and certain other payroll related services. The Debtors

estimate that there are no accrued and unpaid costs in connection with ADP. The Debtors

request the authority to continue pay the approximately $15,000 monthly fee in the ordinary

course of business.

71. The Account Holders receive bimonthly distributions which are directly tied tothe sales generated by the Account Holder; generally an Account Holder receives approximately

30% of each sale (Distribution). The Debtors typically collect approximately 70% of the

sales generated by the Account Holders. On average, the Account Holders receive an aggregate

amount of approximately $2.5 million per month in Distributions. The Debtors estimate that, as

of the Petition Date approximately $35,000 has accrued and is owed to the Account Holders.



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The Account Holders are also entitled to certain bonus payments associated with contests run on

the Debtors websites. In addition, the Account Holders receive a referral bonus for referring

new Account Holders to the Debtors businesses. The Debtors request authority to pay all

prepetition amounts owing to the Account Holders for their services, and to continue to pay such

amounts in the ordinary course of business and consistent with their business practices.

72. The Independent Service Providers receive monthly payments for their services.The Debtors estimate that, as of the Petition Date approximately $65,000 has accrued and is

owed to the Independent Service Providers. The Debtors request authority to pay all prepetition

amounts owing to the Independent Service Providers for their services, and to continue to pay

such amounts in the ordinary course of business and consistent with their business practices.

73. The Debtors, as employers, are required by law to withhold federal, state andlocal taxes from Wages and Salaries for remittance to appropriate tax authorities (the Employee

Taxes). In addition, the Debtors are required to pay, from their own funds, the social security

and Medicare taxes and pay, based on a percentage of gross payroll and subject to state-imposed

limits, additional amounts for state and federal unemployment insurance (together with the

Employee Taxes, the Payroll Taxes) and remit the same to the appropriate authorities

(collectively, the Taxing Authorities). For Employees, the Debtors pay Payroll Taxes to

various Taxing Authorities in accordance with the Internal Revenue Code and applicable state

law. The Debtors average two-week total obligation for Payroll Taxes is approximately

$600,000. The Debtors seek authority to honor and process the prepetition obligations with

respect to the Payroll Taxes.

3. Vacation Time and Sick/Personal Days74. Unless otherwise provided for in an Employment Agreement, Employees receive

paid personal time off (PTO Days) based on their length of service. Eligible Employees



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accrue PTO Days in hourly increments at a rate dependent upon that Employees years of

continual service (the Accrual Rate). Part-time Employees (employees regularly scheduled to

work less than 40 hours but at least 30 hours) accrue PTO Days at one-half (1/2) the rate that

full-time employees accrue PTO Dates. Employees who are regularly scheduled to work less

than 30 hours a week are not eligible for PTO Days. The Debtors have established a maximum

amount of PTO Days that an Employee may accrue (the Accrual Cap), which is presently set

at 1.5 times the Employees Accrual Rate. The Accrual Cap is dependent upon the years of

continual employment with the Company. The Accrual Cap for an Employee who has been

employed: (i) less than four (4) years is 30 PTO Days, (ii) between five (5) and seven (7) years is

38 PTO Days, (iii) more than eight (8) years is 45 PTO Days. Once an employee reaches their

Accrual Cap, the Employee will cease accruing PTO Days until the employee uses sufficient

PTO Days to fall below their Accrual Cap.

75. The Debtors do not offer vacation or sick days; however, PTO Days may be usedfor vacation, personal time, or illness. Accrued, unused paid time off is paid out upon separation

from the company. As of the Petition Date, the Debtors estimate that they owe an aggregate

amount of approximately $2.124 million for accrued PTO Days. The Debtors request authority

to continue to honor their PTO Days policies in the ordinary course of business, and to honor all

prepetition obligations related thereto in a manner consistent with their prepetition practices.

4. Employee Benefit Plans76. In the ordinary course of business, and as is customary for companies of their

size, the Debtors maintain various employee benefits and policies that provide their Employees

with medical, dental, disability insurance, and other benefits which are described in more detail

below (collectively, the Employee Benefit Plans). Some of the Employee Benefit Plans are



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fully funded by the Employees, and others are funded either partially or fully through

contributions made by the Debtors.

a. Medical/Dental/Vision Plans77. The Debtors offer their Employees a traditional health insurance plan

administered by Aetna Life Insurance Company (the Employee Health Plan). With respect to

the Employee Health Plan, the Debtors pay health insurance claims via electronic transfer when

the issued claims total $20,000 or more, with a monthly closeout payment made on the first

banking of each month for the remaining balance one month in arrears. In addition, the Debtors

have a stop loss carrier for the Employee Health Plan, Aetna Life Insurance Company (Aetna),

who covers any claims over $150,000 (individual claims) $4,135,008.96 (aggregate). On

average, the Debtors incur an annual aggregate cost of approximately $3.4 million in connection

with the Employee Health Plan. The Debtors pay a monthly premium of approximately

$250,000 in connection with the Employee Health Plan. As of the Petition Date, the Debtors

estimate that the accrued and unpaid costs for the Employee Health Plan is approximately

$200,000 for all of its Employees.

78. The Debtors also offer a dental plan administered by Aetna Life InsuranceCompany (the Dental Plan). The Dental Plan is self-funded by the Debtors and the

Employees. The Debtors pay approximately $25,000 monthly premium and the Employees

contribute approximately $5,000 to the monthly premium, which the Debtors deduct directly

from the participating Employees paychecks.

79. In addition, the Debtors offer a vision plan to their Employees administered byVision Service Plan (the Vision Plan). The Vision Plan is a fully insured plan and no claims

are processed, accrued for or paid for by the Debtor, however the Debtors pay approximately

$800 per month. The Employees contribute approximately $3,000 per month, which the Debtors



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deduct directly from the participating Employees paychecks. As of the Petition Date, the

Debtors estimate that they owe approximately $22,260 for the accrued and unpaid monthly

premiums of the Dental and Vision Plans.

b. Other Insurance Plans80. The Debtors offer various short-term disability insurance plans to the Employees

which are fully funded by the participating Employees, including short-term and long-term

disability insurance. In addition, the Debtors provide a group term life insurance (the Group

Term Life Insurance) which provides for one time the Employees annual salary, not to

exceed $50,000 for all full-time employees. The Debtors also offer a short term disability policy

(the Short Term Disability Insurance) to all Employees that are not located in New York and

Florida which includes an Accidental Death and Dismemberment benefit. The Debtors pay

approximately $1,000 per month in the aggregate for the Group Term Life Insurance and

approximately $1,000 per month in the aggregate for the Short Term Disability Insurance. The

Debtors offer voluntary life insurance and dependent life insurance in addition to the basic life

insurance, along with additional accidental death and dismemberment insurance and long term

disability and employees bear the premium costs (which vary depending on age, amount of

coverage elected, or other factors). As of the Petition Date, the Debtors estimate the amount of

accrued and unpaid costs for the Group Term Life Insurance to be $935 and for Short Term

Disability Insurance to be $805. The Debtors seek authority to pay all prepetition amounts owed

on account of the Basic Life Insurance and to continue their prepetition practices with respect to

such benefit.

c. Workers Compensation Insurance81. Under the applicable law, the Debtors are required to maintain workers

compensation insurance programs to provide their Employees with workers compensation



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insurance coverage for claims arising from or related to their employment with the Debtors and

to satisfy the Debtors obligations arising under or related to these programs (collectively, the

Workers Compensation Programs). The Workers Compensation Programs cover all

Employees in the United States and are administered primarily through workers compensation

insurance policies with the Insurance Company of Pennsylvania and Chartis, Inc. The Debtors

pay an aggregate annual premium of approximately $130,000.00 on account of the Workers

Compensation Programs. It is critical that the Debtors be permitted to continue their workers

compensation insurance. In addition, failure to maintain this insurance in the various states in

which the Debtors do business could result in the institution of administrative or legal

proceedings against the Debtors and their officers and directors and an inability of the Debtors to

continue as a going concern. The Debtors request authority to pay any and all prepetition

amounts due or that may become due with respect to the Workers Compensation Programs. The

Debtors further seek authority to maintain and continue their prepetition practices with respect to

the Workers Compensation Programs, including, among other things, allowing workers

compensation claimants, to the extent they hold valid claims, to proceed with their claims under

the Workers Compensation Programs.

d. Retirement Plan82. Employees who are 21 years of age or older are eligible to enroll in a 401(k) plan

(the Retirement Plan) on the first month on or after they meet the eligibility requirements.

Employees may contribute to the Retirement Plan through salary deferrals and may contribute up

to the IRS limit each year. The Debtors make matching contributions at the end of each pay

period, generally equal to 100% of the Employees elective deferral up to the IRS limit; however

the Debtors do not make contributions which exceed 4% of the Employees compensation.

Employees are always 100% vested in their personal contributions and cannot forfeit the



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contributions. Employees are vested in the Debtors contributions over time based on length of

employment. The Retirement Plan is administered by Securian Financial Group (Securian)

and the Retirement Plan runs consistent with the calendar year. On average, the Debtors remit

approximately $60,000 monthly directly to Securian to match the contributions of their

Employees. As of the Petition Date, the Debtors believe that the aggregate amount of accrued

but unpaid matching contributions under the Retirement Plan is approximately $30,000. The

Debtors seek authority to continue to honor and make funding contributions to the Retirement

Plan in the ordinary course of business.

e.

Flexible Spending

83. The Debtors offer their Employees the ability to contribute a portion of theircompensation, which amounts are generally deducted automatically from each participating

Employee's paycheck, into flexible spending accounts for health and dependent care (the

Flexible Spending Program). Approximately 120 Employees participate in the Flexible

Spending Program, for which the Debtors pay approximately $750 per month to administer. The

Debtors estimate that are no accrued and unpaid costs in connection with administration of the

Flexible Spending. The Debtors seek authority to continue their prepetition practices with

respect to the Flexible Spending Program.

f. Expense Reimbursement84. The Debtors have a formal policy whereby their Employees seek reimbursement

of business-related expenses. The Debtors reimburse Employees on a weekly basis for certain

ordinary course expenses incurred within the scope of the Employees employment, including

travel, lodging, transportation, meals, cell phone bills, fax charges and other miscellaneous

expenses (collectively, the Business Expenses). All reimbursement requests must be

submitted to the AP department by means of an approved expense report along with the receipts.



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The Debtors average weekly Business Expenses are approximately $20,000, and are paid in full

in the normal course of business, but usually not later than two weeks after submission of

approved expense forms. Although the Debtors encouraged the submission of reimbursement

requests prior to the Petition Date, the Debtors anticipate that many Employees will ha

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