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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 an

Executive 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
The Debtors in these Chapter 11 Cases, along with the last four (4) digits of each Debtor's federal tax identification number, 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 Media Communications, Inc. (2237), General Media Entertainment, Inc. (2960), Global Alphabet, Inc. (7649), GMCI Internet Operations, Inc. (7655), GMI On-Line Ventures, Ltd. (7656), Interactive Network, Inc. (5941), Magnolia Blossom Inc. (8925), Medley.com Incorporated (3594), NAFT NEWS CORPORATION (4385), Penthouse Digital Media Productions Inc. (1056), Penthouse Images Acquisitions, Ltd. (9228), PerfectMatch Inc. (9020), PLAYTIME GAMING INC. (4371), PMGI Holdings Inc. (2663), PPM Technology Group, Inc. (9876), Pure Entertainment Telecommunications, 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). The Debtors business address is 6800 Broken Sound Parkway NW, Suite 200, Boca Raton, FL 33487.
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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 summary

of 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 the

social 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-perview 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 of

marketing 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 their

customers 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 their Joint 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 course

during 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 Debtors 12. 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 consolidated

substantially 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, the First Lien Collateral Agent) and the noteholders that are parties thereto from time to time (the First Lien Noteholders), (ii) the 11.5% NonCash 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 NonCash 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 of

PerfectMatch.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 Structure 16. The chart attached hereto as Exhibit A depicts the Debtors prepetition

organizational structure. C. Prepetition Capital Structure 17. 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) 18. First Lien Credit Documents As of the Petition Date, the First Lien Notes were outstanding in a principal

amount 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) 19. Non-Cash Pay Credit Documents As of the Petition Date, the Non-Cash Pay Second Lien Notes were outstanding in

a 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 are pari 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) 20. Cash Pay Credit Documents As of the Petition Date, the Cash Pay Second Lien Notes were outstanding in a

principal 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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are pari 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 Filing 21. These Chapter 11 Cases were commenced to implement the transactions set forth The Recapitalization

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

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 declining

financial 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 of

First 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 the normal course of business, more than 95% of the Debtors total sales result from credit card transactions. In order to process these transactions, the Debtors have relationships with approximately 25 credit card processors. These credit 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 the

First 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 Restructure 25. 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, the

Company 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 TSA 3 provides for among other

things: (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) use

commercially 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) upon

the mutual written consent of the Debtors, the Consenting First Lien Noteholders and the
The 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 between

the 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 and

Staton 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 the

Board 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, and

capital 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 goals

of (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. A. The First Day Motions are summarized below:

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 Debtors

related 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.
Capitalized 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 the

Debtors 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.
Section 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 or more 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 cases

is 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 of

Cash Collateral which is critical to the Debtors efforts to reorganize and maximize value for their estates, employees and creditors. 1. 44. Prepetition Secured Debt

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 NonCash 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 Pay

Second 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. 49. Intercreditor Agreements

Pursuant to that certain Intercreditor and Subordination Agreement, dated as of

October 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 are

subject 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. 51. Use of Cash Collateral

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, and

capital 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 were

negotiated 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 and

financing 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 of Bank 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 of

Bank 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 management

system 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 of

their 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 banking

needs. 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:

In 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 nondebtor affiliates (the Non-Debtor Affiliates) receive credit card payments, the cash proceeds of which are then transferred 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 purchases made from the Debtors websites and other businesses. The resulting funds are then reconciled by the Non-Debtor Affiliates, which then immediately transfer the funds to the bank account of the Debtor associated with the underlying business transaction. Accordingly, as approximately sixty percent (60%) of the Debtors credit card transactions, chargebacks, discounts, and commissions are processed by the Non-Debtor Affiliates Credit Card Processors, it is absolutely necessary to the Debtors business operations that the Non-Debtor Affiliates and the Credit 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 SunTrust Operating Accounts) with SunTrust, which are utilized by the East Coast Debtors.7 Funds generated by the East Coast Debtors respective businesses, including, inter alia, print, media and certain websites, are deposited into each East Coast Debtors respective SunTrust Operating Account multiple times each day. Deposits made into the SunTrust Operating Accounts include checks, wire transfers, automatic clearinghouse (ACH) transfers, credit card payments8 and cash. Funds in the SunTrust Operating Accounts are primarily disbursed, on a weekly basis, by the East Coast Debtors to fund the operating expenses of each East Coast Debtor, respectively. These operating expenses include, inter alia, payroll and marketing. While each individual East Coast Debtor primarily funds its own operations through its personal SunTrust Operating Account, the SunTrust Operating Accounts are used to fund the operational needs of all East Coast Debtors as needed. The Debtors also maintain four (4) Euro holding accounts (the SunTrust Euro Accounts) with SunTrust. Euro-denominated payments resulting from certain of the East Coast Debtors business operations are deposited into the SunTrust Euro Accounts. The funds deposited into the SunTrust Euro Accounts are primarily used to pay the East Coast Debtors Eurodenominated expenses. Approximately five (5) times a year, the Debtors transfer varying sums from the SunTrust Euro Accounts to the SunTrust Operating Accounts to cover the East Coast Debtors dollar-denominated expenses as needed. b. Wells Fargo Accounts: The Debtors maintain 28 checking accounts (the Wells Fargo Operating Account) with Wells Fargo, which are utilized by the West Coast Debtors. 9 Funds generated by the West Coast Debtors respective websitebased businesses are deposited into each West Coast Debtors respective Wells Fargo Operating Account multiple times each day. Deposits made into the Wells Fargo Operating Accounts include checks, wire transfers, ACH transfers, credit card payments and cash. Funds in each respective Wells Fargo Operating Account are primarily disbursed, on a weekly basis, by the West Coast Debtors to fund the operating expenses of each West Coast Debtor, respectively. Such operating expenses include, inter alia, payroll, vendor, account holders and
7

The 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.; General Media 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.

In 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 appropriate Debtors bank account. The 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.; FriendFinder California 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 Operating Account functions as the West Coast Debtors primary operating account and is used to fund the operational expenses of other West Coast Debtors. Various maintains an average daily balance of $1,319,178.51 in its Wells Fargo Operating Account, 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 Payroll Accounts disburse payments to fund the West Coast Debtors bi-weekly payroll obligations and maintain a $1,000 minimum balance. The Payroll Accounts receive weekly disbursements from the Wells Fargo Operating Accounts to fund payroll for the West Coast Debtors. The West Coast Debtors also maintain four (4) sweep accounts (the Sweep Accounts) with Wells Fargo. The Sweep Accounts function as savings accounts for the Wells Fargo Operating Accounts held by Various, Medley, FriendFinder California Inc., and Fastcupid, Inc. (collectively, the Major Operating Accounts). Once a day, Major Operating Account funds exceeding a certain minimum amount (the Minimum Amounts) 10 are swept into the Sweep Accounts. The swept funds remain in the Sweep Accounts for one day and then are deposited back into the respective Major Operating Account. c. HSBC Account: The Debtors maintain a single checking account with HSBC Bank (the HSBC Account). In order to process credit card payments in Brazil, the Debtors are required to maintain a bank account with a qualified Brazilian bank. Credit card transactions processed in Brazil in connection with the Debtors businesses, averaging approximately $1,363 per day, are deposited into the HSBC Account multiple times each day. The HSBC Account is swept on a daily basis and maintains a $10,973 minimum balance in order to cover potential credit card chargebacks, credits and fees. The swept funds are deposited into the Wells Fargo Operating Accounts. d. Commerzbank Account: The Debtors maintain a single checking account with Commerzbank (the Commerzbank Account). Historically, in order to process credit card payments in Germany, the Debtors were required to maintain a bank account with a qualified German bank. This is no longer required and the Commerzbank 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 (the Caixa Accounts). In order to process credit card payments in Spain, the Debtors are required to maintain a bank account with a qualified Spanish bank. Credit card transactions processed in Spain in connection with the Debtors businesses, averaging approximately $8,000 per day, are deposited into the Caixa Accounts multiple times each day. The Caixa Accounts are swept on a daily basis
10

The 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 card chargebacks, credits and fees. The swept funds are deposited into the Wells Fargo Operating Account held by Various. f. AtlasMont Account: The Debtors maintain a single checking account with AtlasMont (the AtlasMont Account). In order to process credit card payments in Serbia, the Debtors are required to maintain a bank account with a qualified Serbian bank. Credit card transactions processed in Serbia in connection with the Debtors businesses, averaging approximately (-$320) per day, are deposited into the AtlasMont Account multiple times each day. The AtlasMont Account is swept on a daily basis and maintains a $0 minimum balance. The swept funds are deposited into the Wells Fargo Operating Account held by Various. 59. Despite the separate banking structure of the East Coast Debtors and West Coast

Debtors, 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 with In addition, the Debtors maintain pre-printed

the relevant Debtors name printed thereon.

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 to Among the Intercompany

intercompany claims (the Intercompany Transactions).

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 fund

transfers, 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) All Prepetition 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, retain

their 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. 65. Employees

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 the

Debtors 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 have

agreements 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. 68. Wages, Salaries and Payroll Obligations

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 September

13, 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 and

B 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 to

the 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 and

local 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 The Debtors seek authority to honor and process the prepetition obligations with

$600,000.

respect to the Payroll Taxes. 3. 74. Vacation Time and Sick/Personal Days

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 used

for 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. 76. Employee Benefit Plans

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. 77. Medical/Dental/Vision Plans

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 Insurance The Dental Plan is self-funded by the Debtors and the

Company (the Dental Plan).

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 by

Vision 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. 80. Other Insurance Plans

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. 81. Workers Compensation Insurance

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. 82. Retirement Plan

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. 83. Flexible Spending

The Debtors offer their Employees the ability to contribute a portion of their

compensation, 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. 84. Expense Reimbursement

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 have not yet submitted their requests for accrued and unpaid Business Expenses. Therefore, as of the Petition Date, the Debtors estimate that approximately $1,800 in Business Expenses have been incurred but remain unpaid. The Debtors seek authority to continue their prepetition practices with respect to the Business Expenses and to pay all prepetition amounts outstanding in connection therewith. g. 85. Prepetition Withholding Obligations

The Debtors also seek authorization to pay all Employee federal and state

withholding and payroll-related taxes relating to prepetition periods, including, but not limited to, all withholding taxes, Social Security taxes, unemployment taxes, Medicare taxes, and garnishments, as well as all other withholdings such as contributions to savings, retirement or pension plans, insurance contributions, and charitable contributions, if any (collectively, the Withholding Obligations). As of the Petition Date, the Debtors estimate that the amount of accrued and outstanding Withholding Obligations is approximately $850,000. 86. The Debtors routinely withhold from Employee paychecks the Withholding

Obligations, and are required to transmit these amounts to third parties. The Debtors believe that such withheld funds, to the extent that they remain in the Debtors possession, constitute moneys held in trust and therefore, are not property of the Debtors bankruptcy estates. Thus, whether or not such funds are prepetition amounts, the Debtors believe that directing such funds to the appropriate parties does not require Court approval. Nevertheless, out of an abundance of caution, the Debtors are seeking Court authority to pay any outstanding amounts owed by the

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Debtors for Withholding Obligations, in the ordinary course of business, including those incurred prior to the Petition Date. E. Motion of the Debtors for Entry of an Order Authorizing the Debtors to Honor Credit Card Transactions, Chargebacks, Discounts and Commissions in the Ordinary Course of Business 87. In the normal course of business, more than 95% of the Debtors total sales are

settled through credit card transactions. During the post-petition period, the Debtors expect to continue accepting credit cards as the primary source of payments for purchases in the normal course of their day-to-day operations. By this motion, the Debtors seek entry of an order authorizing the Debtors to continue to honor certain credit card transactions, chargebacks, discounts and related expenses. 88. The Debtors have approximately 25 separate agreements with a number of credit

card processors, including, but not limited to, Humboldt Bank NA, Netbilling and PayPal (collectively, the Debtor Credit Card Processors), governing the terms and conditions of credit card payments, discounts, and commissions, all as more specifically described herein (collectively, the Debtor Agreements). 89. The Debtor Credit Card Processors provide the Debtors with credit card

transaction processing services for all credit cards accepted by the Debtors, including Visa, MasterCard and American Express. Pursuant to the Debtor Agreements, subject to certain fees, commissions, and other costs of administration in processing credit card transactions, the Debtors are permitted to accept the credit cards for purchases in connection with the Debtors businesses, including access to the Debtors websites. 90. Honoring the credit card charges and the commensurate expenses incurred

pursuant to the Debtor Agreements in the ordinary course of the Debtors business operations, is absolutely necessary in the website-based business context. Without the ability to assure the
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Debtor Credit Card Processors that transactions will continue to occur in the ordinary course after the Petition Date, the Debtor Credit Card Processors may attempt to adjust the reserve amounts and the timing of payments to the Debtors. The strain on the Debtors cash flow could be severe absent the relief requested herein. Furthermore, the Debtor Credit Card Processors are likely to seek a setoff of all such charges against funds currently in their possession that they would otherwise remit timely to the Debtors, rather than maintain the status quo and continue normal operations during these Chapter 11 Cases. 91. As a majority of the Debtors revenues are generated from website-based

purchases, the use of credit cards is inextricably linked to the Debtors ability to continue normal postpetition operations. Even a slight delay in implementing the relief requested herein could cause the Debtor Credit Card Processors to refuse to do business with the Debtors on the terms and basis of their ordinary course relationships, which could have a significant and material adverse affect on the Debtors net cash flow and revenue, and would likely result in a corresponding decline in the value of the Debtors estates. 92. The relief requested herein with respect to authorizing the Debtors to honor credit

card charge backs, commissions and discounts in the ordinary course of business, including any pre-petition amounts that may currently be outstanding, is necessary to ensure and maintain credit card processing and the uninterrupted flow of revenue. 93. The Debtors strongly believe that continuation of their existing relationships with

the Debtor Credit Card Processors is imperative to their continued operation and chances to maximize value, and that honoring all of the Debtors obligations due to the Debtor Credit Card Processors is essential to assure the maintenance of the value of their estates and critical to the continued uninterrupted receipt of normal operating revenue.

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94.

In addition to the Debtors Agreements, certain of the Debtors non-debtor

affiliates (the Non-Debtor Affiliates) have approximately ten (10) agreements with approximately five (5) different credit card processors (collectively, the Non-Debtor Credit Card Processors, and together with the Debtor Credit Card Processors, the Credit Card Processors), governing the terms and conditions of credit card payments, discounts, and commissions, as more specifically described herein (the Non-Debtor Agreements). Like the Debtor Credit Card Processors, pursuant to the Non-Debtor Agreements, subject to certain fees, commissions, and other costs of administration in processing credit card transactions, the Debtors are permitted to accept the credit cards for purchases in connection with the Debtors businesses, including the Debtors websites. 95. Approximately 60% of the Debtors credit card transactions, chargebacks,

discounts, and commissions are processed by the Non-Debtor Credit Card Processors, it is absolutely necessary to the Debtors ongoing business operations that the Non-Debtor Affiliates and the Non-Debtor Credit Card Processors be permitted to continue to operate pursuant to the Non-Debtor Agreements in the ordinary course of business. 96. Non-Debtor Credit Card Processors may ultimately continue to operate in the

ordinary course, as they are unaffected by these Chapter 11 Cases and, thus, do not require any additional approval to conduct business as normal or require additional reserves. However, out of an abundance of caution, the Debtors seek entry of an order authorizing the Debtors, in their sole discretion, to continue honoring, in the ordinary course, any terms relating to the NonDebtor Credit Card Agreements and any credit card transactions, chargebacks, discounts, commissions and related expenses resulting from the Non-Debtor Agreements between both the Debtors and the Non-Debtor Credit Card Processors.

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F.

Motion of the Debtors for Entry of an Order Authorizing, but not Directing, the Debtors to Honor Certain Prepetition Obligations to Customers and Marketing Affiliates, and to Otherwise Continue Certain Prepetition Incentive Practices and Programs in the Ordinary Course of Business 97. The Debtors maintain a variety of customer-related programs that provide direct

benefits to the Debtors customers and promote customer loyalty, including without limitation, rebates, guarantees, rewards, contests and refunds. The Debtors seek entry of an order

authorizing, but not directing, the Debtors, in their sole discretion, to (a) honor outstanding obligations owed under the Debtors Customer and Marketing Programs, and (b) provide refunds, credit adjustments and/or discounts in satisfaction of accrued prepetition obligations incurred by the Debtors under their Customer and Marketing Programs. These Customer and Marketing Programs will help to maintain customer and marketing affiliate satisfaction and loyalty and are therefore a central component of the Debtors business operations and their continuation without interruption throughout the duration of these Chapter 11 Cases is critical. 98. The success and viability of the Debtors businesses and the Debtors ability to

successfully maximize value for the stakeholders in these Chapter 11 Cases are dependent in large part upon the loyalty of their existing customers and maintaining strong relationships with marketing affiliates. The Customer and Marketing Programs are fundamental to the continued success of the Debtors businesses because, by design, the Customer and Marketing Programs encourage new and repeat business and ensure customer satisfaction, thereby retaining current customers, attracting new customers and ultimately increasing the Debtors revenue. Maintaining the Customer and Marketing Programs is critical to both obtaining new customers and the continuation of customer loyalty and satisfaction, and failure to continue these programs would severely and irreparably impair the Debtors customer relations. Absent the Customer and Marketing Programs, the Debtors ability to generate revenue would be negatively impacted.
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Indeed, if the Debtors are unable to continue the Customer and Marketing Programs without interruption, they will be at a significant disadvantage compared to their competitors. Therefore, the ability to continue to provide the Customer and Marketing Programs is vital to the Debtors ability to emerge from chapter 11 protection with a strong market share and customer base. 99. Prior to the Petition Date, in the ordinary course of their businesses and as is

customary in the industries in which the Debtors operate, the Debtors implemented certain Customer and Marketing Programs, including but not limited to the following:

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a. The Debtors maintain a promotional rebate program for qualifying customers (the Rebates Program). Pursuant to the Rebates Program, qualifying customers are entitled to a cash bonus to be spent on member-related services in exchange for certain purchases, which purchases include, among other things, (i) first time customer orders; and (ii) customer purchases in excess of specified dollar amount targets. The Debtors determine the amount of the individual cash bonus based on a number of factors, including the size of an applicable customers purchase. Additionally, pursuant to the Rebates Program, qualifying customers are entitled to an additional subscription period at no cost to the qualifying customer, based upon the length of a subscription period purchased by the qualifying customer. If the Debtors fail to seamlessly provide accrued benefits earned pursuant to the Rebates Program, the Debtors businesses may suffer irreparable harm. It is therefore vital to the Debtors continued business operations and Customer Programs that the Debtors be permitted to continue the Rebates Program. b. The Debtors maintain a results guaranteed program for its customers, subject to certain terms and conditions (the Guarantee Program). Pursuant to the Guarantee Program, qualifying customers who (i) purchase a membership subscription; and (ii) fail to obtain certain results within a specified period of time, are entitled to an additional subscription period at no cost to the qualifying customer. Due to the nature of the Guarantee Program, the Debtors are unable to estimate the total amount of free subscriptions owing by the Debtors under the Guarantee Program as of the Petition Date. 11 However, out of an abundance of caution, the Debtors seek authority to provide to qualifying customers any benefits owed as of the Petition Date on account of the Debtors Guarantee Program. total operational and administrative cost to the Debtors to continue providing no-cost subscription periods to qualifying customers is insignificant in comparison to the potential negative impact resulting from unsatisfied customers whom may choose to terminate their ongoing customer relationships with the Debtors. Consistently, the Guarantee Program is an essential element in both maintaining customer relationships and is a critical element of the Debtors Customer Programs. c. The Debtors maintain a rewards program for qualifying customers (the Rewards Program). Pursuant to the Rewards Program, qualifying customers whom engage in certain member-related activities are entitled to receive reward points that can be redeemed for certain member-related benefits, including free subscription periods. Examples of qualifying member-related activities include posting content to the Debtors websites and general customer purchases. Approximately 32,048 customers participate in the Debtors Rewards Program on an average monthly basis. The Rewards Program is designed to reward repeated customer interaction with the Debtors websites. Due to the nature of the Rewards Program, the Debtors are unable to estimate the total amount of rewards,
11

From January 1, 2013 through July 12, 2013, the Debtors honored only seven (7) guarantees pursuant to the Guarantee Program.

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such as free subscriptions, owing by the Debtors under the Rewards Program as of the Petition Date. The Rewards Program is a critical element of the Debtors Customer Programs. It is an essential element in both maintaining customer relationships and promoting active marketing for the Debtors. d. The Debtors maintain a contest program for qualifying customers (the Contest Program). Pursuant to the Contest Program, qualifying customers are entitled to receive prizes for participating in Debtor-sponsored contests. The Debtors hold contests every three to six weeks for their customers, which cover varying topics such as drawing and video contests. Approximately 1,000 to 5,000 customers participate in any given contest. Awards earned by qualifying customers pursuant to the Contest Program include member-related benefits such as free subscription periods. The Contest Programs are designed to generate goodwill between the Debtors and its customers. The Contest Program is a critical element of the Debtors Customer Programs. It is an essential element in both maintaining customer relationships and promoting active marketing for the Debtors at a local level. e. Consistent with industry practice, the Debtors maintain a refunds program for qualifying customers (the Refunds Program). Pursuant to the Refunds Program, the Debtors provide qualifying customers with refunds on account of purchases made by the qualifying customers in connection with the Debtors businesses. This policy assures that the Debtors customers will remain satisfied and continue to purchase other goods and services. Due to the nature of the Refunds Program, the Debtors generally receive few requests for refunds and are unable to estimate the total amount of potential refunds owing by the Debtors, if any, under the Refunds Program as of the Petition Date. The total operational and administrative cost to the Debtors to continue providing refunds to qualifying customers is insignificant in comparison to the potential negative impact resulting from unsatisfied customers who may choose to terminate their business relationships with the Debtors. Consistently, the Refunds Program is an essential element in both maintaining customer relationships and is a critical element of the Customer Programs. f. Currently, there are approximately 5,847 marketing websites affiliated with, but not owned by, the Debtors (the Affiliated Websites) that direct potential customers to the Debtors websites. The Debtors maintain a referral and marketing program (the Referral and Marketing Program) for the Affiliated Websites. Pursuant to the Referral and Marketing Program, qualifying Affiliated Websites that direct potential customers to a Debtor-owned website are entitled to a fee based upon the number of potential customers directed to the Debtors websites. Additionally, pursuant to the Referral and Marketing Program, the Affiliated Website that directs the most potential customers to the Debtors websites over a specified period of time is entitled to receive a cash award or other prize, such as a free trip to a major sporting event. In an average month, approximately 2,114 Affiliated Websites direct potential customers to the
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Debtors websites. Pursuant to the Referral and Marketing Program, the average fee paid to an Affiliated Website during a one-month period is $1,813. The Debtors believe that as of the Petition Date, there are currently no amounts due to the Affiliated Websites pursuant to the Referral and Marketing Program. The Referral and Marketing Program is a critical component of the Debtors ability to direct potential customers to the Debtors websites. The continued and uninterrupted referral of potential customers to the Debtors websites is central to the Debtors ability to operate and generate cash. Any interruption in the Debtors ability to direct potential customers to the Debtors websites could result in immediate and irreparable harm to the Debtors businesses. It is therefore vital to the Debtors continued business operations and Marketing Programs that the Debtors be permitted to continue the Referral and Marketing Program. 100. The Debtors creditors also will benefit from the relief sought herein. If the

Debtors are prohibited from honoring and maintaining the Customer and Marketing Programs consistent with their past business practices, then customers and marketing affiliates lost confidence in the Debtors will damage the Debtors businesses to an extent that far exceeds the cost associated with honoring and continuing such practices. Approval of the Customer and Marketing Programs will protect the Debtors goodwill and going concern value during these Chapter 11 Cases and enhance the Debtors value. 101. It is beyond question that one of the Debtors most valuable assets is their

business relationship with their current and future customers. These business relationships were developed, in part, through the implementation of Customer and Marketing Programs aimed at generating new customers, guaranteeing customer satisfaction and fostering customer loyalty. Discontinuance of these programs would likely undermine customer satisfaction, jeopardize customers loyalty to the Debtors, and would potentially negatively affect the decisions of future customers about accessing the Debtors services and therefore would have an adverse impact on the Debtors revenues. Accordingly, maintaining the relationship with the Debtors current and future customers and marketing affiliates is critical to the Debtors success in these Chapter 11 Cases.
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102.

In the Debtors industries, customer loyalty is of critical importance.

Accordingly, it is vital that the Debtors not alienate their customer base following the commencement of these Chapter 11 Cases. Further, as a large amount of new customers are derived from the Debtors marketing affiliates, it is of paramount importance that the Debtors be permitted to maintain their current individualized-incentive programs with marketing affiliates. The Debtors desire to assuage any such fears by minimizing the effects of these Chapter 11 Cases. G. Motion of the Debtors for Entry of Interim and Final Orders Pursuant to Sections 105(a) and 366 of the Bankruptcy code (A) Prohibiting Utilities from Altering, Refusing, or Discontinuing Service, (B) Deeming Utilities Adequately Assured of Future Performance, and (C) Establishing Procedures for Determining Adequate Assurance of Payment 103. In connection with the operation of their businesses and management of their

estates, the Debtors obtain electricity, gas, waste management, internet, telecom, alarm and/or other similar services (collectively, the Utility Services) from a number of utility companies (collectively, the Utility Providers). 104. In the ordinary course of business, the Debtors regularly incur utility expenses for

Utility Services provided by various Utility Providers. The Debtors have a long and established payment history with most or all of the Utility Providers. The Debtors aggregate average monthly cost for utility services is approximately $640,218. 105. Uninterrupted utility services are essential to the preservation of the Debtors

estates and assets, and therefore, to the success of these Chapter 11 Cases. Should any Utility Provider refuse or discontinue service, even for a brief period, the Debtors ability to preserve and maximize the value of their respective estates could be severely and irreparably harmed. For example, a lack of electricity, telephone or internet services would render the Debtors websites inoperable, effectively shutting down a large portion of the Debtors business operations.
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Indeed, any interruption of utility services would disrupt the Debtors ability to operate and maintain their businesses and would thereby negatively affect the Debtors customer relationships, revenues and profits. Such a result could seriously jeopardize the Debtors

reorganization efforts and, ultimately, value and creditor recoveries. It is therefore critical that utility services continue uninterrupted. H. Motion of the Debtors for Entry of an Order (A) Authorizing the Debtors to Pay Prepetition Excise, Income and Similar Taxes and Regulatory Fees in the Ordinary Course of Business, and (B) Authorizing Banks and Financial Institutions to Honor and Process Checks and Transfers Related Thereto 106. In connection with the normal operation of their businesses, the Debtors pay an

assortment of excise, income and similar taxes (collectively, the Taxes) to various federal, state, local and foreign taxing authorities (collectively, the Taxing Authorities) and pay various regulatory fees (the Regulatory Fees, and together with the Taxes, the Taxes and Fees) to certain federal, state, local and foreign regulatory authorities (collectively, the Regulatory Authorities, and together with the Taxing Authorities, the Taxing and Regulatory Authorities). These Taxes and Fees include, without limitation, the following:

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a. In the normal course of their businesses, the Debtors incur excise taxes (the Excise Taxes) in the state of Washington. The Excise Taxes are assessed in the state of Washington based upon the Debtors gross proceeds and sales. The Debtors pay the Excise Taxes on a quarterly basis, and estimate that the approximate aggregate amount of $18,902 was outstanding in respect thereof as of the Petition Date b. The Debtors pay income/franchise taxes (the Income/Franchise Taxes) to applicable Taxing Authorities in many U.S. jurisdictions as well as in the United Kingdom. The Income/Franchise Taxes are established by the Debtors income tax base, the capital employed by the Debtors operations and/or a variety of other factors. Timely payment of the Income/Franchise Taxes allows the Debtors to continue operating their businesses in such jurisdictions. The Debtors typically pay the Income/Franchise Taxes on a quarterly or annual basis, as the case may be, and are currently obligated to pay certain Income/Franchise Taxes postpetition based upon amounts that partially accrued pre-petition. The Debtors estimate that the aggregate approximate amount of $57,224 was accrued in respect of Income/Franchise Taxes as of the Petition Date. c. The Debtors are also required to pay a variety of minimum business and occupation taxes (Occupation Taxes) to applicable Taxing and Regulatory Authorities in several U.S. jurisdictions, including, the state of Ohio, Palm Beach County, Florida, and the City of Boca Raton, Florida. The Debtors typically pay the Occupation Taxes on an annual basis, and estimate that the aggregate approximate amount of $2,638 was accrued in respect of Occupation Taxes as of the Petition Date. d. The Debtors pay personal property taxes (the Property Taxes) to the Counties of San Francisco and Santa Clara on account of certain computers and other personal property they own that is physically located in the state of California. The Debtors typically pay the Property Taxes on an annual basis and are currently obligated to pay certain Property Taxes post-petition based upon amounts that partially accrued pre-petition. The Debtors estimate that the aggregate approximate amount of $61,495 was accrued in respect of Property Taxes as of the Petition Date.

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e. The Debtors incur certain Regulatory Fees consisting of amounts owed to federal, state and local governments, which require the Debtors to obtain business licenses and to pay corresponding license and permit fees. The requirements for a company to obtain a business license and the manner that the Regulatory Fees are computed vary greatly according to the various federal, state and local government laws and regulations. The Debtors typically pay the Regulatory Fees on an annual or semi-annual basis and are currently obligated to pay certain Regulatory Fees post-petition based upon amounts that partially accrued prepetition. The Debtors estimate that the aggregate approximate amount of $22,790 was accrued in respect of Regulatory Fees as of the Petition Date. f. Value Added Taxes i. In the normal course of their businesses, the Debtors incur value added taxes (VAT) in connection with the sale of their products and services in certain foreign jurisdictions, including countries in the European Union, Norway, and Switzerland. A VAT is analogous to a sales tax. VAT is collected by the Debtors from customers that reside within a VAT jurisdiction and then remitted by the Debtors on a quarterly basis to the respective Taxing Authority. The Debtors possess two categories of VAT obligations. ii. Pursuant to the first category of VAT obligations, the Debtors pay their current VAT obligations (the Current VAT Payments) twenty days after the end of each business quarter to the applicable Taxing Authority. Under the second category of VAT obligations, the Debtors pay certain previously accrued VAT (the Structured VAT Payments) pursuant to separate settlement agreements entered into between the Debtors and the nations of France and Switzerland (the VAT Agreements). Currently, the Debtors pay approximately 96,000 (approximately $126,796) in Structured VAT Payments on a monthly basis to the nation of France in accordance with the terms the parties VAT Agreement. Additionally, the Debtors pay approximately $157,750 in Structured VAT Payments on a bi-monthly basis to the nation of Switzerland in accordance with the terms of the parties VAT Agreement. iii. The Debtors believe that they are current with respect to the Structured VAT Payments and will continue to make the required Structured VAT Payments pursuant to the VAT Agreements in the ordinary course of business during the pendency of these Chapter 11 Cases. The Current VAT Payments have been collected from the Debtors customers and accrued by the Debtors from the period of July 1, 2013 through the Petition Date in the approximate amount of $1,334,314. This collected and accrued amount together with any VAT collected from the Petition Date through September 30, 2013 will be due and payable on October 21, 2013. The Debtors seek authority to pay any currently accrued but unpaid
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Current VAT Payments and to continue to make Structured VAT Payments in accordance with the VAT Agreements provided that any such payments fall within any aggregate cap contained in any final order entered by this Court. iv. In the aggregate, the Debtors estimate that approximately $163,049 in Taxes and Fees have accrued, not including the Current VAT Payments collected and accrued in the approximate amount of $1,334,314 as of the Petition Date. In addition to the Taxes and Fees owed but not yet paid as of the Petition Date, the Taxes and Fees may also include amounts paid by checks sent prior to the Petition Date that have not cleared the Debtors bank accounts on the Petition Date, though the Debtors are not aware of any such checks. Out of an abundance of caution, the Debtors request authority to pay an amount not in excess of $1,548,216 in respect of Taxes and Fees accrued, but unpaid as of the Petition Date, including the Current VAT Payments accrued and collected as of the Petition Date (excluding amounts paid prior to the Petition Date by checks that have not yet cleared as of the Petition Date). 107. The Debtors seek authority to pay, in the Debtors sole discretion, subject to the

requirements imposed on the Debtors under any order regarding the Debtors use of cash collateral, prepetition Taxes and Fees accrued for the benefit of the Taxing and Regulatory Authorities, including, without limitation, Taxes and Fees subsequently determined to have accrued for periods prior to the Petition Date, in an aggregate amount (excluding amounts paid prepetition by checks that have not yet cleared on the Petition Date) not to exceed $1,548,216. I. Motion Requesting Entry of an Order Pursuant to 11 U.S.C. 107(b)(1), Fed. R. Bankr. P. 9018, and Local Rule 9018-1(B) Authorizing Debtors to File Certain Confidential Commercial and Proprietary Information Under Seal 108. By the Motion, the Debtors request entry of an order authorizing the Debtors to

file certain documents, to the extent that the Debtors are required to file by the Bankruptcy Code or Bankruptcy Rules (the Excluded Documents) under seal or in redacted form to protect from disclosure information regarding the Debtors Members, Marketing Affiliates and Account Holders, including information regarding the (i) names and all identifying information regarding the Debtors Members (Member Information), (ii) agreements to which the Debtors
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Members, Marketing Affiliates and/or Account Holders are parties with the Debtors (the Agreements), (iii) names and all identifying information regarding the Marketing Affiliates (Marketing Affiliate Information), and (iv) names and all identifying information regarding the Account Holders (Account Holder Information, and collectively with the Member Information, the Agreements, and the Marketing Affiliate Information, the Confidential Information). 109. The Excluded Documents include:

a. excluded portions of affidavits of service which relate to, and include information regarding, the Confidential Information, including the notice of commencement and the section 341 meeting of creditors, the notice of notice procedures and master service list, the notice of the time fixed for filing proofs of claim, the notice of the objection deadline and hearing to consider approval of any plan of reorganization and adequacy of the related disclosure statement, and any other pleadings, notices, or documents which were or will be served in the Debtors Chapter 11 Cases (the Excluded Affidavits); b. excluded portions of the Debtors schedules of executory contracts which relate to, and include information regarding, the Confidential Information (the Excluded Contract Schedules); c. excluded portions of the Debtors consolidated list of creditors holding the thirty (30) largest unsecured claims which relate to, and include information regarding, the Confidential Information (the Excluded Creditors List);

d. excluded portions of publicly available hearing transcripts which relate to, and include information regarding, the Confidential Information (the Excluded Transcripts); e. excluded portions of the Creditor Matrix submitted with the voluntary petitions, pursuant to Local Rule 1007-1(a) which relate to, and include information regarding the Confidential Information (the Excluded Creditor Matrix); and f. any other affidavits, pleadings, notices, or documents which relate to, and include information regarding, the Confidential Information, and were or will be filed and/or served in these Chapter 11 Cases. 110. The Confidential Information related to the Excluded Affidavits, the Excluded

Contract Schedules, the Excluded Creditors List, the Excluded Transcripts, the Excluded
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Creditor Matrix, and other pleadings, notices, and documents, is one of the Debtors most important and valuable assets. It has been the practice of the Debtors to maintain the Member Information, the Marketing Affiliate Information and the Account Holders Information in strict confidence. The information is highly-sensitive commercial information which, if made publicly available, could be used by the Debtors competitors to their advantage and to the detriment of the Debtors businesses. Further, the Debtors Members, Account Holders and Marketing

Affiliates depend upon the Debtors to maintain the Confidential Information in strict confidence. If the Confidential Information were publicly revealed, it could substantially interfere with the Debtors ability to maintain and attract new Members, and otherwise operate their businesses. 111. Disclosing the identities of the Debtors Members, the Marketing Affiliates or the

Account Holders will interfere with the Debtors ability to continue to operate their businesses and to successfully reorganize their businesses. J. Motion of the Debtors for Entry of an Order (A) Authorizing the Debtors to File a Consolidated List of Creditors in Lieu of Submitting a Separate Mailing Matrix for Each Debtor and (B) Waiving the Requirement to File the List of Equity Security Holders 112. The Debtors seek entry of an order: (a) authorizing the Debtors to file a

consolidated list of creditors in lieu of submitting separate mailing matrices for each Debtor; and (b) waiving the requirement that FriendFinder file a list of equity security holders. 113. The Chapter 11 Cases involve thirty-nine (39) separate debtors. In the ordinary

course of their businesses, the Debtors do not maintain presently lists of the names and addresses of their respective creditors on a Debtor-specific basis. Requiring the Debtors to segregate and convert their computerized records to provide thirty-nine separate Debtorspecific creditor matrices would be an unnecessarily burdensome task and would result in duplicate mailings.
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114.

Approximately 32,822,761 shares of FriendFinders common stock are actively

traded on public exchanges. Preparing a list of FriendFinders equity security holders with last known addresses would prove expensive and time-consuming to the extent that the Debtors were even able to ascertain such information. The Debtors further submit that, if it becomes necessary for such equity security holders to file proofs of interest, which is unlikely given that such interests will be cancelled pursuant to the terms and conditions of the joint chapter 11 plan, the Debtors will provide them with notice of the deadline therefor and an opportunity to assert such interests. K. Motion of the Debtors for Entry of an Order Authorizing the Debtors to Pay Certain Prepetition Mechanics Liens and Shipping and Warehousing Charges in the Ordinary Course of Business 115. The Debtors are engaged in the distribution of printed materials along with certain

other products. As part of their business operations, the Debtors rely on a variety of service providers, common carriers, shippers, truckers and a network of warehouse facilities, including FedEx Corporation (FedEx), United Parcel Service of America, Inc. (UPS), the United States Postal Service (USPS), Iron Mountain Incorporated (Iron Mountain), Hollywood Vaults Inc. (Hollywood Vaults), DataSafe (DataSafe) and Peninsula Storage Center (Penninsula, and, together with FedEx, UPS, USPS, Iron Mountain, Hollywood Vaults and DateSafe, the Shippers and Warehouses). The Debtors distribution businesses depend upon the regular shipping of printed materials and other products on an individual and monthly basis. The Debtors printed materials and products are shipped to retail stores across the globe and directly to individual customers. It is essential to the Debtors distribution businesses that the Debtors system of shipping and delivery continue without interruption. 116. The services provided by the Shippers and Warehouses, including the timely,

reliable delivery of goods for the Debtors, and the storage of such goods for later distribution to
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their customers, is an absolute necessity to the Debtors ability to conduct business. The Debtors have a reputation for reliability and dependability among their customers. Many of the Debtors pricing policies and marketing strategies revolve around their reliability and dependability. This reputation depends in substantial part on the timely delivery of product to the Debtors customers. In turn, the Debtors ability to make timely deliveries depends on a successful and efficient system for receipt of the products that the Debtors sell. This supply and delivery system involves the use of reputable service providers. For example, due to the large amount of printed material and other products sold by the Debtors, the Debtors rely on several warehouse facilities to store the Debtors products prior to distribution to the Debtors customers. 117. It is essential for the Debtors continuing business viability, as well as to the value

of their estates, that they receive certain critical services and maintain a reliable and efficient distribution system. Because the Debtors are in many cases dependent on third parties to carry out various distribution functions, it is essential that the filing of these Chapter 11 Cases not provide an excuse for any third party to cease performing timely services. The Debtors

continuing business viability and the Debtors efforts to maximize value for creditors depends on the Debtors ability to receive certain critical services and to maintain a reliable and efficient distribution system. For example, if the Debtors cannot produce and ship dated printed material for timely receipt and shelving to its retail customers, those customers (and the consumers purchasing such goods) may lose confidence, the Debtors will lose valuable shelf-life for their product in stores and products may be returned, thereby causing irreparable damage to their businesses. At the very least, the Debtors will likely suffer a significant loss of credibility and customer goodwill, thereby causing substantial harm to the Debtors businesses.

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118.

The Debtors have negotiated attractive rates with each of the Shippers and

Warehouses, which allow the Debtors to remain completive in pricing their products. The Debtors do not believe that they would be able to obtain such attractive replacement rates with other companies in a timely manner in the event that the Shippers and Warehouses refuse to continue servicing the Debtors needs. Because the Debtors businesses depend upon the

uninterrupted and timely delivery of their products, it is essential that the Debtors be permitted to continue working with the current slate of Shippers and Warehouses without disruption. 119. By this motion, the Debtors seek to prevent the breakdown of their distribution

operations, including, but not limited to, their shipping and warehouse network. They request authority to pay certain prepetition claims and satisfy certain potential liens, including mechanics liens and shipping and warehouse charges, as, in their business judgment, the Debtors determine, subject to the requirements imposed on the Debtors under any order regarding the Debtors use of cash collateral, is necessary or appropriate to (a) obtain the release of critical or valuable goods detained in transit pending payment, (b) maintain a reliable, efficient, and smooth distribution system, and (c) induce critical service providers to continue to provide services and the Shippers and Warehouses to continue to carry goods and make timely delivery. 120. The Debtors currently have one account each with Iron Mountain, Hollywood

Vaults, DataSafe and Peninsula, and two accounts each with FedEx, UPS and USPS. Pursuant to the accounts with Iron Mountain, Hollywood Vaults, DataSafe and Peninsula, the Debtors pay Iron Mountain, Hollywood Vaults, DataSafe and Peninsula once a month for prior services rendered. Pursuant to both accounts with FedEx and UPS, and one account with USPS, the Debtors pay FedEx, UPS and USPS once a week for prior services rendered. Pursuant to the

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Debtors remaining account with USPS, the Debtors prepay $47,500 to USPS approximately once a month for services anticipated to be rendered by USPS. If the Debtors do not pay the Mechanics Liens and Shipping and Warehousing Charges, certain of the Shippers and Warehouses may abruptly discontinue services, withhold shipment of essential goods, and may even refuse to release essential goods. L. Motion of the Debtors for an Order, Pursuant to Sections 105(a) and 365(a) of the Bankruptcy Code, Authorizing the Assumption of Transaction Support Agreement 121. The TSA is the lynchpin of the Debtors consensual restructuring and forms the

roadmap to their prompt exit from these Chapter 11 Cases. Due to the critical importance of the TSA, and its impact on these Chapter 11 Cases I believe it is in the best interests of the Debtors to assume the TSA. This Declaration, specifically Sections I and II detail the importance of the TSA. M. Chapter 11 and Ordinary Course Professionals 122. The Debtors have filed, or will soon file, and are seeking entry of orders

authorizing them to employ and retain various professionals to assist them in the conduct of these cases, including: (a) (b) (c) (d) (e) 123. Greenberg Traurig, LLP as counsel for the Debtors; Akerman Senterfitt LLP as special corporate and conflicts counsel for the Debtors; Sitrick and Company as corporate communications and public relations consultants to the Debtors; SSG Capital Advisors, LLC, as the financial advisor to the Debtors; and BMC Group, Inc. as administrative advisor for the Debtors and claims and noticing agent for the Clerk of this Bankruptcy Court.

The Debtors further have filed an application for an administrative order

establishing procedures for the interim and monthly compensation and reimbursement of expenses of professionals.
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necessary under the circumstances of these Chapter 11 Cases. Indeed, with the filing of these chapter 11 cases, the Debtors and their professionals will turn their attention to various issues requiring their professional expertise that are expected to arise as a result of the filing of these Chapter 11 Cases. IV. CONCLUSION 124. For the reasons described herein and in the First Day Motions, I believe that the

prospect for achieving these objectives for the benefit of creditors and other stakeholders will be substantially enhanced if this Bankruptcy Court grants the relief requested in each of the First Day Motions and respectfully request the Bankruptcy Court to do so. [Signature on next page]

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I declare, pursuant to 26 U.S.C. 1746, under penalty of perjury, that the foregoing is true and correct to the best of my information, knowledge and belief. Dated: September 17, 2013 /s/ Ezra Shashoua Ezra Shashoua

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Exhibit A Organizational Chart

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