Case Document 4 Filed 04/13/04 Page 1 of 12 Chief Judge Coughenour I ll lIIl as SW, Hansen .., . satin-001725313 a APR i3 2% At seams ELI-SHE masses Datum ?Sim 0F Wrens UNITED STATES DISTRICT COURT 5? WESTERN DISTRICT on AT SEATTLE UNITED STATES oF AMERICA, Plaintiff, v. PLEA AGREEMENT on. ENTERPRISES, INC. Defendant. 2 N0. The United States of America, by and through John McKay, United States Attorney for the Western District of Washington, and Robert and Susan Loitz, Assistant United States Attorneys for said District, and the defendant GB. ENTERPRISES, INC. by and through its attorneys, Gerald A. Feffer and James T. Fuller, enter into the following Plea Agreement, purSuant to Federal Rule of Criminal Proeedure 1. Waiver of indictment. Defendant GEE, having been advised of the right to he charged by Indictment, agrees to waive that right and enter a plea of guilty to the charge brought by the United States Attorney in an Information. 2. jlfhe S?harge. Defendant GEE, having been advised of the right to have this matter tried before a jury, agrees to waive that right and enter a plea of guilty to the following charge contained in the Information: Making and Subscribing a False Income Tax Return in violation of Title 26, United States Code, Section 7206(1). PLEA AGREEMENT - 1 UNITED STATES 601 [1wa 511113111. Sums Stein Enterpnses, Inc WAsumemR sum?3903 {206i Case Document 4 Filed 04/13/04 Page 2 of 12 By entering this plea of guilty, Defendant GEE hereby waives all objections to the form of the charging document. 3 2. Corporate Authorisation. Defendant GEE represents that it is authorized 4 to enter into this Plea Agreement. On or before the date and ?ling of the Plea 5 Agreement, GEE shall provide to the United States and the Court a true and correct a copy of the resolution issued by GBE's Board of Directors authorizing GEE to enter into 7 "this Plea Agreement and to appear at the Rule 11 hearing and enter the plea on behalf of the company. GEE has voluntarily agreed to appear at the guilty plea hearing through 9 an of?cer of the company. to 3. Elements of the Offense. The elements of the offense of Making and 11 Subscribing a False Income Tart Return as charged in the Information, in violation of 12 Title 26, United States Code, Section 7206(1), are as follows: 13 First, Defendant GEE made or caused to be made and a representative of la Defendant GEE signed an income tax return for GEE for the calendar year 1996 15 that was false as to a material matter; to Second, the return contained a written declaration that it was made under 17 the penalties of perjury; ts Third, Defendant GEE did not believe the return to be true and correct as 19 to the material matter charged in the Information; and, so Fourth, Defendant GEE made, or caused to be made and signed the return 21 willfully, with the specific intent to violate the law. 22 4. The Penalties. Defendant GEE understands that the statutory penalties for 23 the offense of Making and Subscribing a False Income Tax Return, as charged in the 24 Information are as follows: 25 A fine of up to Five Hundred Thousand dollars a period of as probation of up to Five (5) years; assessment of the costs of prosecution; and a Four 27 Hundred dollar ($400.00) penalty assessment. as Defendant GEE understands that in addition to the statutory maximum PLEA AGREEMENT - 2 barren srares arroausr GB Enterprises, Inc. en Ill-non 51'th Stine 510] SEATTLE. Warrants-run sitter-3m [2.06) ass-rain Case Document 4 Filed 04/13/04 Page 3 of 12 penalties set forth above, the Court may order Defendant GEE to pay restitution to any victim of the offense, including all past due tart liabilities, civil penalties, and interest as required by law. Defendant GEE further understands that it may be ?ned under the Alternative Fines Provision set forth in Title 13, United States Code, Section 3571M), which provides: ?If any person derives pecuniary gain from the offense, or if the offense results in a pecuniary loss to a person other than the defendant, the defendant may be ?ned not more than the greater of twice the gross gain or twice the gross loss unless imposition of a ?ne under this subsection would unduly complicate or prolong the sentencing process. Defendant GEE agrees that the special assessment is due and payable at or before the entry of the guilty plea and any other monetary penalty the Court imposes, hicluding any fine, costs or restitution, is due and payable immediately upon irnposition of the sentence provided for in this Plea Agreement. Defendant GEE further agrees that if any ?nancial obligation including restitution imposed by the court at sentencing is not paid in full at sentencing, GEE will submit completed Financial Statement of Debtor forms as requested by the United States Attorney?s Of?ce. Defendant GEE and the United States further understand that pursuant to Rule the speci?c sentence that the Court must. impose in this case has been agreed upon. by the parties and the Court, if it accepts the pleas of guilty, must either impose the speci?ed sentence or allow Defendant GEE to withdraw its plea of guilty and the United States to withdraw from this Plea Agreement. 5. Rights Waived by Pleading Guilty. Defendant GEE understands that, by leading guilty, it knowingly and voluntarily waives the following rights: a. The right to plead not guilty, and to persist in a plea of not guilty; b. The right to a speedy and public trial before an impartial jury; c. The right to the effective assistance of counsel at trial, including, if Defendant could not afford an attorney, the right to have the Court appoint one for PLEA AGREEMENT - 3 ounce stares arronusv on Enterprises, Inc. ?minim- - WnsHIHG'ton assurance {2116] restate Case Document 4 Filed 04/13/04 Page 4 of 12 Defendant; d. The right to be presumed innocent until guilt has hoen established at trial, beyond a reasonable doubt; e. The right to confront and cross-examine witnesses against Defendant at trial; f. The right to compel or subpoena witnesses to appear on Defendant's behalf at trial; g. The right to testify or to remain silent at trial. at which trial such silence could not be used against Defendant; and h. The right to appeal a ?nding of guilt or any pretrial rulings. 6. applicabiligg oi Sentencigg Guidelines. Defendant GBE understands that the United States Sentencing Guidelines promulgated by the United States Sentencing Commission appl}r to this case, subject to the terms of this Plea Agreement and Rule of the Federal Rules of Criminal PIoeedure. Speci?cally, the November 1995 Edition of the Federal Sentencing Guidelines Manual, as amended through November I, 1995, shall apply to this case. Defendant GEE may not withdraw its guilty plea soler because of the sentence imposed by the Court, provided the Court imposes the speci?c sentence provided for in this Plea Agreement. 7. Ultimate Sentepce. Defendant GBE acknowledges that this Plea Agreement is governed by Rule of the Federal Rules of Criminal Procedure. Pursuant to Rule the United States and Defendant GEE have agreed that the speci?c sentence that the Court must intpose in this case is as follows: a. ?ag. A fine of Five Hundred Thousand dollars This line is due and payable inrmediately upon the imposition of the sentence provided for in this Plea Agreement. b. Assessments. A penalty assessment of Four Hundred dollars This assessment is due and payable upon the entry of the guilty plea. No PLEA AGREEMENT - 4 ounce stares arrest-tar GB Enterprises, Inc. set times smear. suns stun SEATTLE. 93101-3903 1iCase Document 4 Filed 04/13/04 Page 5 of 12 additional assessment for costs of prosecution will be imposed on Defendant GEE. c. Restimtion. Restitution as provided in paragraph 3 of this Plea Agreement. d. Probag'oa. Organizational probation for a period of three (3) years pursuant to USSG Sections 3D1.1 and 3131.2. The terms of probation shall include the following standard conditions (1) through (7), with the modi?cation of condition (7) as set forth below, and specific provisions (8) through (11): (1) Within thirty days from the date of this judgment, Defendant GEE shall designate an of?cer to act as its representative and. to be the primary contact with the probation officer; (2) Defendant GEE shall anSWer truthfully all inquiries by the probation officer and follow the instructions of the probation of?cer; Defendant GEE shall notify the probation of?cer ten days prior to any change in principal business or mailing address; (4) Defendant GEE shall permit a probation officer to visit at any of its operating business sites; (5) Defendant GEE shall notify the probation officer within seventy?two hours of any criminal prosecution, major civil litigation, or administrative proceeding against it; (6) Defendant GEE shall not dissolve, change its name, or change the name under which it does business unless this judgment and all criminal monetary penalties imposed by this Court are either fully satisfied or are equally enforceable against successors and assigns; Defendant GEE shall not waste, nor without permission of the probation of?cer sell, assign or n-ansfer its assets, unless this judgment and all criminal monetary penalties imposed by this Court are fully satis?ed; (3) No Fur er iol 'ons - Defendant GEE shall commit no further tax offenses, including but not limited to aiding and abetting an individual or PLEA AGREEMENT 5 Lianne stares arroaasr . sat Unrest Eraser. Stine-51m GB Ememn?es? ItlL. Sean-LE, (10415] 553?7970 ifCase Document 4 Filed 04/13/04 Page 6 of 12 business entity to commit tax offenses and further including any offense involving the improper claim of a deduction from income of any amount of commission paid or transferred to a foreign bank account or to a foreign business entity or to an individual in a foreign country if said commission is not a bona ?de ordinary and necessary business expense. Nothing herein shall prohibit the United States from proceeding administratively, civilly, or criminally against defendant GEE in any separate proceeding for any such alleged tax offense involving any subsequent tax period. Accounting for Foreign Transfe? -- On an annual basis, Defendant GEE will provide an accounting to the United States Probation Office of all itransfers of funds to and from foreign bank accounts and to and from foreign business entities and to and from all individuals in foreign countries in which it is a participant or where such transfers are undertaken at its direction or on its behalf, and will, if requested by the United States Probation Office, provide the transfer documents showing the source of and the recipient of, including originating and receiving banks, all international transfers of funds, and all documents relating to the reasons for the transfers; (10) as and Staff Defendant GEE shall form a tax and accounting staff separate and apart from Defendant Alpha Technologies, Inc. (11) Independent Firm Defendant GEE shall engage an independent CPA firm not previously associated with the preparation of its income tax returns to prepare GEE's income tax remrns. 8. Bestimtion. Defendant GEE shall make restitution to the Internal Revenue Service, an agency of the United States by paying past due corporate income taxes, civil penalties, and interest in the amount of Thirty-Five Million Five Hundred Five Thousand Two Hundred Forty Nine dollars plus additional interest from March 10, 2004, less credit for certain overpayments of estimated tastes by Defendants ATI and GEE pursuant to the schedules of overpayments attached to the PLEA AGREEMENT - 6 UNITED srsres aTToannv GE Enter rises Inc. 51m Seams. Wasnmmorrs?stol-Silt? {2135} 553d?? Case Document 4 Filed 04/13/04 Page 7 of 12 Closing Agreement on Final Determination Covering Specific Matters between Defendant GEE and the Internal Revenue Service (the ?Closing Agreement?) entered into in conjunction with this Plea Agreement. These schedules are captioned: ATI Tax Liability Per Returanrepayment-s as Adjusted and GEE Tax Liability Per Rentranrcpavments as Adjusted. Said corporate income taxes, civil penalties, and interest shall be paid immediately upon of the sentence provided for in this Plea Agreement pursuant to and in express conformity with the terms of the Closing Agreement. 9. Statement ofFacts. The parties agree on the following facts in support of Defendant guilty plea and for purposes of calculating the base offense level of the Sentencing Guidelines. Defendant GBE admits it is guilty of the charged offense. a. Defendants Alpha Technologies, Inc. and (3.3. Enterprises, Inc. are Washington corporations, with their principal places of business in Bellingham, Washington. Fred Kaiser controls ATI and a group of related ?Alpha? corporate entities worldwide. The Alpha corporate entities manage product lines that includes uninterruptible power supplies and related products for the cable television and cellular telephone industries. Grace L. Borsari is the sole shareholder of GEE, which manufactures ?Alpha? branded products. Mr. Kaiser and Ms. Borsari are close business associates. h. In 1995, GEE paid an eight percent ?sales commission? on most product sales to ATI, the entityr primarily responsible for administration and sales. ATI was responsible for the maintenance of a regional sales network principally comprised of independent sales representatives. ATI paid these independent sales representatives a smaller sales commission, amounting to approximately one-half of gross sales commissions. c. The balance of the sales commissions paid by GEE to ATI was recorded on hooks in a commissions clearing account. From time to time during 1996, at the direction of Mr. Kaiser, ATI wire transferred amounts from the PLEA AGREEMENT - 7 UNITED status GE Enterprises, Inn. Edi Huron STREET. Snme?l?? SEATTLE. 93101-3993 {105) 553-79'r'? .Case Document 4 Filed 04/13/04 Page 8 of 12 commissions clearing account either to Alpha Technologies GRC, Ltd. a Cayman Islands corporation, or to Alphatec. Ltd., a Cypriot corporation. d. GEE reported the entire amount of its sales commissions paid into the ATI commissions clearing account as an ordinary and necessary business expense for which GEE claimed a deduction. However, in truth, GEE and ATI [Chew that GEE was only entitled to deduct that portion of the sales conunissions that was socially paid to independent sales representatives and could not deduct that portion of the sales commissions that was transferred off-shore to Alpha Technologies, GRC, Ltd., and Alphalec, Ltd. These residual commissions were not bona ?de ordinary and necessary business expenses because there were no services rendered to GEE or ATI and consequently, there was no justification for the deduction of these residual commissions by GEE. e. For 1996, GEE reported in its federal tax return sales commissions of $9,577,418. In truth, $5,03l,490 was improperly.r included in the claimed deduction. This failure to accurately report only the legitimate business expense relating to commission results in an additional tax owing for 1996 of $1,721,369. For the eight year period beginning in 1994 and continuing through 2001, GEE exaggerated its true sales commissions by $56,879,352, thereby resulting in an additional tax liability in excess of $19,564,000, exclusive of civil penalties and interest. 10. Non-?osecution of additional Offenses. As part of this Plea Agreement and the Plea Agreement between the United States and Defendant ATI (the Plea Agreement?), the United States Attorney?s Office for the Western District of Washington and the Tax Division of the United States Department of Justice agree not to prosecute Defendants ATI and GEE for any additional offenses known to them as of the Itime of this Agreement that are based upon evidence in their possession at this time, or that arise out of the conduct giving rise to this investigation, the improper deduction as a business expense of sales commissions paid by GEE to and transferred by ATI off-shore. The United States Attorney?s Office for the Western PLEA AGREEMENT - meant-iv dill UNION Sinner SUITE 51m TIC. GB EH 1355? I Sea?r'ruh 93101-3903 {zoo Sill-mo Case Document 4 Filed 04/13/04 Page 9 of 12 District of Washington and the Tax Division of the United States Department of Justice further agree not to prosecute Fred Kaiser, Grace L. Borsari, or any employee (or agents) of either Defendant or GBE individually for any offenses that are based upon evidence in their possession at this time, or that arise out of the conduct giving rise to this investigation, the improper deduction as a business expense of sales commissions paid by GBE to ATI and transferred by ATI off-shore. in this regard, Defendant GEE recognizes that the United States has agreed not to prosecute all of the criminal charges that the United States contends were contended by these defendants and by individuals associated with or employed by these defendants solely because of the promises made by Defendant GEE in this Agreement and by Defendant ATI in the ATI Plea Agreement. Defendant GBE acknowledges, however, that the United States Attorney?s Of?ine will provide the United States Probation Of?ce with evidence of all relevant conduct committed by each of the defendants. ll. Voluntarigess of Plea. Defendant GEE acknowledges that it has entered into this Plea Agreement freely and voluntarily, and that no threats or promises, other than the promises contained in this Plea Agreement, were made to induce Defendant GBE to enter this plea of guilty. 12. Statutes of Limitation. In the event that this Agreement or the ATI Plea Agreement is not accepted by the Court for any reason, or Defendants ATI andtor GBE have breached any of the terms of their respective Plea Agreements, all statutes of limitations that have not expired as of the date of this Plea Agreement shall be deemed to have been tolled from the date of this Plea Agreement to: (1) 30 days following the date of non-acceptance of this Plea Agreement or the ATI Plea Agreement by the Court; or (2) 30 days following the date on which a breach of this Plea Agreement or the ATI Plea Agreement by a defendant is discovered by the United States Attorney?s Office. 13. Applicag'on of mis Pleg Agreement. The United States and Defendant GEE acknowledge that this Plea Agreement is made putatiant to Rule of the Federal Rules of Criminal Procedure. If the Court rejects any part of the sentence PLEA AGREEMENT -r 9 UNITED STATES nter . not GB Fuses! 11? sun-Ls, Wasnmt-?rostittlUl-Sa?a tans) sea-?two Case Document 4 Filed 04/13/04 Page 10 of 12 1 provided for in this Plea Agreement, the United States and Defendant GBE will be given 2 the opportunity to withdraw from the Plea Agreement and GEE will be given the 3 opportunity to withdraw the plea of guilty. 4 14. Post-Plea Qondugt. Defendant GEE understands that the terms of this Plea 5 Agreement only to conduct that occurred prior to the execution of this Agreement. a If between the date of this Plea Agreement and sentencing either or both of Defendants 7 ATI and GEE should engage in conduct that would warrant an increase in either a defendant?s adjusted offense level or justify an upward departure under the Sentencing 9 Guidelines (examples of which include, but are not limited to: obstruction of justice, to failure to appear for a court proceeding, criminal. conduct while pending sentencing, and 11 false statements to law enforcement agents, the probation of?cer or Court), the United 12 States is free under this Agreement to withdraw from this Plea Agreement. 13 15. of Plea Agreements. This Plea Agreement shall he 14 conditioned upon the Court?s acceptance of the ATI Plea Agreement. GEE understands 15 that this Plea Agreement is one part of a two-part package plea agreement with the 16 United States. and that if ATI does not enter a plea pursuant to its agreement with the 17 United States, or subsequently withdraws its plea entered pursuant to that agreement ts prior to sentencing, GEE will be free to withdraw its plea under this Plea Agreement 19 and the United States will be free to withdraw from both plea agreements. This Plea an Agreement is also conditioned upon the execution of the Closing Agreement as provided 21 in paragraph 8 of this Plea Agreement. 22 16. Qotnpletengss of The United States and Defendant GEE 23 acknowledge that these terms together with the ATI Plea Agreement and the Closing 24 Agreement constitute the entire Agreement between the parties. This Agreement only 25 binds the United States Attorney?s Of?ce for the Western District of Washington and the 26 Tax Division of the United States Department of Justice. It does not bind an}? other 27 I 23 I PLEA AGREEMENT - 10 UNITED stares arrosner GE Enterprises, Inc. an UNthl hatin?umi also Ses'nu. Paint-3903 (306} Case Document 4 Filed 04/13/04 Page 11 of 12 1 United StateS Attorney?s Of?ce or any ether office or agency of the United States, er 2 any state or local prosecutorDated this 11% day of ?gertx 2004. PLEA AGREEMENT - 11 GB Enterp??es, Inc. Defendant EB. Enterprises, Inc. By: Its: MW Attorney fchDefe'Il?EmTGB. Enterprises, Inc. Assistant United 5 . e; SUSAN LOITZ Aesretant United 3 Attorney UNITED ATTORNEY 6011le STREET, SUITE 510:: Sim-11.x. WASHINGTON eater-3m: {206) 5534970 Case Document 4 Filed 04/13/04 Page 12 of 12 INSTRUCTIONS FOR PAYING SPECIAL ASSESSMENTS PRIOR TO SENTENCING 1. 3 ecial Assessments ?nd prior to sentencing must he paid to the ark, United States Court. 2. Special Assessments must be paid bNa first party, certified, or cashiers check, or a mane order. 0 second party checks W111 be accepted. No post-dated ecks W111 be accepted. 3. $11 checks must be made out in U.S. dollars to ?Clerk, U.S. District on . 4. All cheeks or money orders must be accompanied by the attached form entitled, ?Plea A reement oral Assessment Payments.? The entire form must be ?l ed out or Clerk, United States District Court, W111 not accept the payment. PLEA AGREEMENT SPECIAL ASSESSMENT PAYMENT DATE: FROM: TO: CLERK, U.S. DISTRICT COURT ATTN: INTAKE TEAM CASE NAME: United States v. GB Entem?ses, Ing. CASE DOCKET NUMBER: NAME: 93 Enterprises, Inc. SINGLE DEFENDANTS: Single TOTAL SPECIAL ASSESSMENT PER DEFENDANT AS SET FORTH IN THE PLEA AGREEMENT: $400.09 PLEA AGREEMENT - 12 UNITED srrosnsr En es . so: Inc Seancewissm?orun 981111-3911: [2051 ass?Two