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You do not want to 301 a penalized domain to a new domain. The correct solution is to take and any all steps necessary to remove the penalty. At that point you can proceed as you wish. If the site is penalized by Google and had it's PR reduced to 0, then a 301 will not pass any PR since your site does not have any to pass. The only thing the 301 can do is let Google know the old penalized domain is related to the new site which is generally not a good thing. The only case where I would 301 a penalized domain to a non-penalized domain is where the following conditions where true: 1. The new domain complies with Google's standards 2. The old domain is being actively corrected so it will comply with Google's standards soon 3. The purpose of the redirect is primarily to move existing traffic and is not related to backlinks.

I would not waste my time on those satellite sites. I don't think that they were a good move in the beginning and messing with them now is even a bigger waste of time. Just an opinion. Sell them to your competitor for a good price.

I would them expire and spend the money savings on beer. And, spend the time savings improving my main website.

Rand also offers some encouragement on this thread over at http://www.seomoz.org/q/iffy-question. Stick with the quality content creation and doesn't chase after the types of links you talk about in your question.

I went through a phase of getting really frustrated about seeing competitors succeeding with dodgy link tactics. Then I decided to focus on differentiating our sites from competitors with great content, great usability and outreach into relevant communities. This wasn't just some random mission - I analysed site performance before and after SEO  began (we were late adopters of SEO) and realised that we are now converting and generating revenue much more effectively even though we don't yet dominate the SERPs quite to our heart's desire! With 13 retail sites to look after I simply don't have time to start a crusade against competitors employing dubious tactics. Black hat SEO can help a site to achieve high rankings, but it can't make visitors buy. If you are selling any product you still have to make shopping a comfortable experience, present your products well and most of all gain the trust of your visitors so they will take the plunge and complete an order. By all means report as you go along if you come across something Google might take seriously, but stay focused on developing and promoting your own site.

The most dangerous competitors are the ones who have yet to arrive.

The friend of mine with the pr2 site has some unique content that will benefit my readers.  I conducted an email interview with him.  I like the content and it brings value to my readers.

I would suggest contacting the group and first asking how the ads were placed. Just be honest and share you represent the site owner, you noticed the ads and want to understand why they exist. If they wish to verify your authenticity, they can always e-mail you using an e-mail address on the given domain. Either way, 5 out of 362 linking domains should not be any worry at all. While these links are not nofollowed, they are marked as featured links so Google likely devalues them anyway.

Thanks for your input on this matter been very useful Thanks again

Here this one is interetsing also, not that matt nver says the statment is not true. http://www.youtube.com/watch?v=DnfM_szmDh0

I have thought about this, it would not be too many companies that would do this, one there is a cost in doing so if you are a small company, also there is a huge risk if caught doing so, I am sure that the costs of getting caught would be huge.

Thank you for your very detailed answer.