Noncompetition and Confidentiality Agreement - New Frontier Media Inc., Colorado Satellite Broadcasting Inc., Fifth Dimension Communications (Barbados) Inc. and Merlin Sierra Inc.
NONCOMPETITION AND CONFIDENTIALITY AGREEMENT THIS NONCOMPETITION AND CONFIDENTIALITY AGREEMENT is entered into as of this _____ day of__________ , 1997, by and among New Frontier Media, Inc., and Colorado Satellite Broadcasting, Inc., a Colorado corporation, (collectively "Buyers") and Fifth Dimension Communications (Barbados), Inc. and Merlin Sierra, Inc., (collectively, "Sellers"), Background Buyers are acquiring certain assets and contracting for certain services from Sellers for an Adult Movies Business; As a condition to Buyers' willingness to consummate the transactions contemplated by the Purchase Agreement to which this Agreement is an exhibit, Buyers have required that Sellers and Sellers agree to the covenants not to compete and the confidentiality agreements provided in this Agreement. NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein and in the Purchase Agreement and foregoing premises, the parties hereby covenant and agree as follows. 1. DEFINITIONS. The following terms shall have the following meanings: (a) "Adult Movies Business" means any and all present or contemplated satellite broadcast services on television or any other medium, including cable television and the Internet, which broadcasts, replays, and/or otherwise exploits feature length adult programming and all related promotional content and other programming of a non-rated or X-rated nature and whose main theme embodies nudity and/or sexually explicit material between consenting adults and such other related business assets as are necessary for the operation thereof. (b) "Purchase Agreement" shall mean the Asset Purchase Agreement between New Frontier Media, Inc. and Colorado Satellite Broadcasting, Inc. as buyers and Fifth Dimension Communications (Barbados) Inc. and Merlin Sierra, Inc., as sellers, dated September 5, 1997. 2. NONCOMPETITION. During the period commencing on the Closing Date of the Purchase Agreement, and ending on the expiration of five years following that date, Sellers and their officers or directors shall not, directly or indirectly, manage, operate, join, advise, control, or be connected as an officer, director, employee, partner, guarantor, adviser, or consultant in or beneficially own or control, directly or indirectly, ten (10) percent or more of the voting, profit sharing, or equity interests in, any corporation, partnership, joint venture, or other business venture (an "Interest in a Business") which competes in the Adult Movies Business of Buyers in any location throughout the world. 1 <PAGE> 3. CONFIDENTIALITY. Sellers shall keep confidential all of and shall not disclose to any other party or provide any other party access to, the confidential or proprietary information of the assets and services being acquired by Buyers pursuant to the purchase Agreement not in the public domain, including but not limited to, information relating to such matters as Buyers or the Adult Movies Business' products, services, finances, methods of operation and competition, research data, market reports, distribution methods, marketing plans and strategies, operational requirements, personnel, customers and suppliers and distributors, trade secrets, technical information, processes, systems, procedures, know-how, improvements, price lists, projections and other financial data, invoices, financial statements, or any other compilation of information used in the Adult Movies Business which gives Buyers an opportunity to obtain an advantage over its competitors who do not know or use such information. This shall include both information acquired by Sellers before and after the date of this Agreement (collectively "Confidential Information"). 4. NON-SOLICITATION OF EMPLOYEES. For the period commencing on the Closing Date of the Purchase Agreement, and ending on the expiration date of five years follow that date, neither Seller shall, either on its own account or for any person, firm, or company, solicit, interfere with, or endeavor to cause any officer, employee or consultant of Buyers, who is employed or otherwise engaged to provide services to buyers, to leave his or her employment or engagement with Buyers or induce or attempt to induce any such person to terminate or breach any employment, noncompetition, or confidentiality agreement such person may have with Buyers. 5. NON-SOLICITATION OF CUSTOMERS. For the duration of this Agreement, Sellers shall not solicit, induce, or attempt to induce any past or current customer or distributor of Buyers to do business with Sellers or any affiliate in regard to a matter included in the Adult Movies Business or to cease doing business in whole or in part with Buyers. 6. STAY OF TIME. In the event Sellers violate any provision of this Agreement, the running of the term of this agreement shall be automatically tolled starting on the day of such violation and resuming on the date such violation ceases. 7. EQUITABLE RELIEF. The parties acknowledge and agree that in the event of any breach of this Agreement by Sellers (i) Buyers' remedies at law are and will be inadequate; (ii) such breach will substantially diminish the value of the assets proprietary interest that are being acquired by Buyers through the Purchase Agreement; and (iii) will cause irreparable injury in a short period of time. In the event of a breach or threatened breach by Sellers of the provisions of this Agreement, the parties hereto agree that Buyers shall be entitled to equitable relief to protect its interests therein, including, but not limited to, preliminary and permanent injunctive relief. Such relief and all other rights and remedies of Buyers provided herein shall be cumulative with any other rights provided to it in the Purchase agreement or otherwise provided to it under applicable law and nothing herein shall preclude Buyers from pursuing any other remedies available to it for a breach or threatened breach, including without limitation the recovery of damages for Sellers. 2 <PAGE> 8. NOTICES. (a) In the event a party believes that there has been a breach of this Agreement, it shall notify in writing the other party of the belief and provide a brief statement of the basis for such belief, provided that any failure to give such notice shall not act as a waiver of or otherwise affect in any way any rights or remedies the non-breaching party may have or relieve the other party from any duty or liability hereunder. In the event either Seller acquires or comes to own, control, directly or indirectly, an interest in a business, whether voluntarily or involuntarily, which business may reasonably be deemed to compete with the Adult Movies Business, Sellers shall promptly notify Buyers of such fact and identify the interest in the business and the nature of such business's activities as they may relate to the Adult Movies Business. (b) All notices or other communications which may be or are required to be given under this Agreement shall be in writing and shall be deemed to have been duly given on the date of service if served personally on the party to whom notice is to be given, or on the third day after mailing if mailed to a party to whom notice is to be given, by first class registered or certified, postage prepaid, and properly addressed as follows: Buyers: New Frontier Media, Inc. 1050 Walnut St. Suite 301 Boulder, CO 80302 Attn.: Mark H. Kreloff with a copy to: Mark L. Driver, Esq. The Law Office of Mark L. Driver, P.C. 3300 East First Ave., Suite 600 Denver, CO 80206 Sellers: Douglas Duncan 2500 Don Reid Drive Ontario, Canada K1H8P5 Stewart Duncan 2500 Don Reid Drive Ontario, Canada K1H8P5 Daniel Bender 27357 Valley Center Road Valley Center, CA 92082 with a copy to: Jamie Wyllie, Esq. Yegendorf, Brazeau, Sell, Prehogan & Wyllie 55 Metcalfe Street, Suite 750 3 <PAGE> Ontario, Canada K1H6L5 9. SUCCESSORS AND ASSIGNS. This Agreement shall be binding on and inure to the benefit of the parties hereto and their permitted and respective heirs, successors and assigns. No party shall have the right to assign this Agreement without the prior written consent of the other party, except that Buyers shall have the right to assign its rights hereunder to any successor in interest of the Adult Movies Business whether by merger, consolidation, purchase of assets or otherwise, or any other person or entity controlling or which at any time controls or is under common control with either Buyer or any of their subsidiaries, or successors. 10. SEPARATE COVENANTS. This Agreement shall be deemed to consist of a series of separate covenants. Sellers expressly agree that the character, duration, and geographical scope of this Agreement are reasonable in light of the circumstances as they exist on the date upon which this Agreement has been executed. However, should a determination nonetheless be made by a court of competent jurisdiction at a later date that the character, duration or geographic scope of this Agreement is unreasonable in light of the circumstances as the now or then exist, then it is the intention and agreement of the parties that this Agreement shall be construed by the court in such a manner as to impose only those restrictions on the conduct of Sellers which are reasonable in light of such circumstances and are necessary to assure Buyers of the intended benefit of this Agreement. If any of the provision of this Agreement shall otherwise contravene or be deemed invalid under the laws of any state or jurisdiction, such contravention or invalidity shall not invalidate all of the provisions of this Agreement but rather is shall be construed as not containing the provisions or provisions contravening or invalid under the laws of the state or jurisdiction, and the all other rights and obligations created hereby shall be construed and enforced accordingly. 11. GOVERNING LAW. This Agreement shall be construed and enforced in accordance with and governed by the laws of the State of Colorado, without regard to principles of conflicts of laws and the parties irrevocable commit to the jurisdiction and venue of the United States District Court for the District of Colorado to resolve any dispute arising hereunder or related hereto. 12. AMENDMENTS AND WAIVERS. Any amendments or modifications to this Agreement must be in writing signed by each party hereto or their successors or assigns. No breach of any covenant, agreement, warranty, or representation shall be deemed waived unless expressly waived in writing by the party who might assert such breach. No waiver of any right hereunder shall operate as a waiver of any other right or the same or similar right on another occasion. 13. ATTORNEYS' FEES. In the event that any action or proceeding is commenced by any party hereto for the purpose of enforcing any provision of this Agreement, the parties 4 <PAGE> to such action or proceeding may receive as part of any award, judgment, decision, or other resolution of such action or proceeding, their costs, and reasonable attorneys' fees. 14. ENTIRE AGREEMENT. This Agreement and the agreements referred to herein contain the entire understanding of the parties and supersede all prior or contemporaneous agreements and understandings. 15. COUNTERPARTS. This Agreement may be executed by the parties in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument. In Witness Whereof, the parties hereto have executed this Agreement on the date first above written. Buyers: New Frontier Media, Inc. By: ---------------------------- Its: ---------------------------- Colorado Satellite Broadcasting, Inc. By: ---------------------------- Its: ---------------------------- SELLERS: Fifth Dimension Communications (Barbados) Inc. By: ---------------------------- Its: ---------------------------- Merlin Sierra, Inc. By: ---------------------------- Its: ---------------------------- 5