| AsianDivaGirlsWebDude |
06-17-2009 05:57 PM |
...And then there are those pesky pending Legal Proceedings (excerpts follow):
Quote:
Legal Proceedings
We are currently a party to several legal proceedings, including the ones discussed below. Management presently believes that the ultimate outcome of these pending proceedings will be favorable to us. However, litigation is subject to inherent uncertainties and unfavorable rulings could occur.
An unfavorable ruling could include monetary damages or, in cases for which injunctive relief is sought, an injunction prohibiting us from selling one or more services or conducting enjoined activities. Were an unfavorable ruling to occur, there exists the possibility of a material adverse impact on the business or results of operations for the period in which the ruling occurs or future periods.
On December 28, 2007, Broadstream Capital Partners, Inc., or Broadstream, filed a lawsuit against us in the State Superior Court of California, County of Los Angeles, Central District, and we subsequently removed the case to the Federal District Court for the Central District of California. The complaint alleged breach of contract, breach of covenant of good faith and fair dealing, breach of fiduciary duty and constructive fraud arising out of a Non-Disclosure Agreement.
The complaint alleged, among other things, that Broadstream entered into a Non-Disclosure Agreement with us that required Broadstream?s prior written consent for us to knowingly acquire Various or any of its subsidiaries and that such consent was not obtained. On April 7, 2008, Broadstream filed its first amended complaint, which added a new cause of action for intentional interference with prospective economic advantage. On February 4, 2009, Broadstream filed its third amended complaint which dismisses the allegations of breach of fiduciary duty and constructive fraud.
The complaint seeks damages which plaintiff alleges to be in excess of $20.0 million, plus interest, costs and punitive damages. Broadstream later served supplemental disclosures asserting between $100 million and $500 million in damages plus punitive damages. We responded with a motion for summary judgment dated March 12, 2009, which was denied. The plaintiff withdrew its claim for breach of covenant of good faith and fair dealing. The trial is set for July 28, 2009. We dispute all of Broadstream?s claims and intend to defend the lawsuit vigorously.
On December 23, 2005, Robert Guccione, our former president, filed an action against us and some of our officers, among other defendants, in New York State Court for breach of contract, fraud, unjust enrichment, promissory estoppel, failure to pay severance and conspiracy to defraud. The amount of damages requested in the complaint against us is approximately $9.0 million and against the officers is in excess of $10.0 million. Some of the counts in the complaint also demand an unspecified amount of damages.
Mr. Guccione filed an amended complaint on June 5, 2007 to include additional claims relating to ownership of certain United Kingdom, Jersey and Guernsey trademarks and add as a party Penthouse Publications Limited, an entity with no current affiliation with us, as party plaintiff. Mr. Guccione agreed to dismiss the count for conspiracy to defraud only.
Mr. Guccione filed a second amended complaint on December 20, 2007 adding General Media International, Inc. an entity with no current affiliation with us, as party plaintiff and a new claim for inducement to breach a contract. We filed our motion to dismiss the second amended complaint on January 31, 2008, which was granted in part and denied in part. The court dismissed the claims for unjust enrichment and promissory estoppel.
On August 14, 2008, Mr. Guccione filed a voluntary petition for Chapter 7 bankruptcy. We filed a proof of claim on January 13, 2009. On March 3, 2009, the Trustee filed an Adversary Proceeding against the defendants in the New York state court action seeking to ratify agreements to purchase United Kingdom, Jersey and Guernsey trademarks and to establish the extent, perfection and priority of the defendants? liens in the New York state court action, on the shares of General Media International Inc. and the U.S. $200,000 held in escrow for the sale of the United Kingdom, Jersey and Guernsey trademarks.
Our response to the Adversary Complaint was filed May 14, 2009. Our response to the Second Amended Complaint is due June 25, 2009 and a Pre-Trial Conference is set for June 9, 2009. We and our officers believe that we have meritorious defenses to all claims and intend to vigorously defend the lawsuit.
On or about November 27, 2006, a claimant filed a consumer class action arbitration at Judicial Arbitration and Mediation Services, Inc., or JAMS, in San Jose, California, alleging a nationwide class against Various, under a variety of legal theories related to, among other things, representations regarding the number of active users on its internet dating websites, causing the appearance of erroneous member profiles, and a failure to adequately remove or account for alleged erroneous member profiles.
The claimant is seeking unspecified damages. Various disputes the claims and intends to defend the arbitration vigorously.
In or about December 2007, Spark Network Services, Inc. served Various with a complaint for patent infringement and is seeking unspecified monetary damages as well as injunctive relief. The complaint alleges infringement of U.S. Patent No. 6,272,467 B1 titled ?System for Data Collection and Matching Compatible Profiles.?
Various moved for a stay of the federal case due to the USPTO?s reexamination of the patent at issue and the Federal Court granted the stay. The suit is in very early stages, and we intend to vigorously defend the claims asserted therein.
On November 4, 2008, Balthaser Online, Inc. filed a lawsuit for patent infringement against us, among other defendants, in the U.S. District Court for the Eastern District of Texas and is seeking unspecified monetary damages as well as injunctive relief. The complaint alleges infringement of U.S. Patent No. 7,000,180 titled ?Methods, Systems, and Processes for the Design and Creation of Rich-Media Applications Via the Internet.?
This suit is in very early stages and we intend to vigorously defend the claims asserted therein.
After our acquisition of Various in December 2007, we became aware that Various had not collected VAT from subscribers in the European Union nor had Various been paying VAT to the appropriate tax jurisdictions. The resulting liability for such omissions has yet to be determined and there can be no assurance that we will reach a favorable accommodation with the tax jurisdictions.
We have registered effective July 1, 2008 with the tax authorities of the applicable jurisdictions and effective July 29, 2008 have begun collecting VAT from our subscribers in the European Union.
We have initiated discussions with these tax jurisdictions on resolving the liability and we have come to a resolution with respect to the liability in certain tax jurisdictions but there can be no assurance that we will reach a favorable accommodation with all of these tax jurisdictions.
If we are unable to reach a favorable accommodation with these tax jurisdictions, the terms of the payment of these liabilities could adversely affect our financial condition. Our primary recourse to the sellers of Various for any losses suffered by us as a result of such liabilities (VAT-related or otherwise) is to offset the principal amount of the Subordinated Convertible Notes by the amount of any such losses.
On October 14, 2008, we made an indemnity claim against these notes under the acquisition agreement for Various in the amount of $64.3 million due to working capital adjustments resulting from the VAT liability which was not disclosed at the closing of the acquisition. As of March 31, 2009, the total amount of historical uncollected VAT payments was approximately $74.1 million, including approximately $35.5 million in potential penalties and interest. The sellers have denied responsibility for the VAT liability.
On or about March 26, 2009, Kevin Cammarata filed a complaint against our subsidiary FriendFinder California, Inc. and other defendants in the State Superior Court of California, County of Los Angeles in connection with their advertising on a free adult content website run by a third party known as Bright Imperial Limited. In April 2009, Various and FriendFinder Networks Inc. were added as defendants.
The complaint alleges that the defendants aided and abetted Bright Imperial Limited in engaging in below cost competition and unlawful use of ?loss leaders? in violation of California law by providing free, apparently professionally produced adult content. The plaintiff is seeking $10.0 million in damages, trebled to at least $30.0 million, plus injunctive relief and attorneys? fees.
On May 8, 2009, the Court denied the plaintiff?s request for an Order to Show Cause concerning its request for preliminary injunction, citing insufficient evidence among other factors. This suit is in very early stages and we intend to vigorously defend the claims asserted therein.
On or about April 22, 2009, Ms. Natalie Cedeno, the former human resources manager for Various, filed a complaint in State Superior Court of California, County of Santa Clara against us and some of our related entities and executives for amongst other things, wrongful termination, breach of oral and written contracts, retaliation, discrimination, and intentional infliction of emotional distress.
The complaint appears to be for amounts according to proof and requests amongst other things compensatory damages, punitive damages and attorney?s fees. We dispute the claims and we intend to vigorously defend the case.
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