Asset Purchase Agreement - New Frontier Media Inc., Colorado Satellite Broadcasting Inc., Fifth Dimension Communications (Barbados) Inc. and Merlin Sierra Inc.
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (the "Agreement") is made to be effective
September 5, 1997 (the "Effective Date"), among NEW FRONTIER MEDIA, INC., a
Colorado corporation, COLORADO SATELLITE BROADCASTING, INC. ("Buyer"), a
wholly owned subsidiary of New Frontier Media, Inc., and FIFTH DIMENSION
COMMUNICATIONS (BARBADOS) INC., a Barbados corporation, and MERLIN SIERRA,
INC., a California corporation. New Frontier Media, Inc. and Buyer are
collectively referred to in this Agreement as "Buyers." Fifth Dimension
Communications (Barbados) Inc. and Merlin Sierra, Inc. are each referred to
in this Agreement as "Seller" and collectively referred to as "Sellers".
This Agreement sets forth the terms and conditions upon which Buyers
agree to purchase from Sellers, and Sellers agree to sell to Buyers, certain
properties and assets of Sellers ("Subject Assets") relating to the "Adult
Movies Business" of Sellers.
NOW THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties contained in this Agreement, the parties agree
as follows:
DEFINITIONS
"104 Agreement" means the asset purchase agreement made on the same date as
this Agreement among the Buyers and 1043133 Ontario Inc.
"124 Agreement" means the asset purchase agreement made on the same date as
this Agreement among the Buyers and 1248663 Ontario Inc., wherein the Buyers
agreed to purchase certain satellite uplinking and playback equipment and
certain call center equipment and related assets from 1248663 Ontario Inc.
and Merlin Sierra, Inc.
"5DBC" means Fifth Dimension Communications (Barbados) Inc.
"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.
"adverse or adversely", when used alone or in conjunction with other terms
(including without limitation "affect," "change" and "effect"), means any
event discovered by either party after the date hereof which is reasonably
likely in the respective business judgment of either Buyers or Sellers, as
the case may be, to be expected to (a) adversely affect the validity or
enforceability of this Agreement, or (b) adversely affect the business,
operation, management or properties of Sellers taken as a whole or Buyers, or
(c) impair Sellers or Buyers, or (d) adversely affect the respective
aggregate rights and remedies of either party under this Agreement.
Notwithstanding
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the foregoing no event affecting the adult movie industry generally shall be
deemed to constitute an adverse change, have an adverse effect or to
adversely affect or effect.
"Agreement" means this Agreement as originally in effect, including unless
the context otherwise specifically requires, all schedules and all exhibits
hereto, and as any of the same may from time to time be supplemented,
amended, modified or restated in the manner herein or therein provided.
"Applicable Law" shall mean any Law of any Authority, whether domestic or
foreign, including without limitation all federal and state securities and
environmental laws, to which a person or entity is subject or by which it or
any of its business or operations is subject or any of its property or assets
is bound.
"Authority" means any governmental or quasi-governmental authority, whether
administrative, executive, judicial, legislative or other, or any combination
thereof, including without limitation, any federal, provincial, state,
territorial, county, municipal or other government or governmental or
quasi-governmental agency, arbitrator, authority, board, body, branch,
bureau, central bank or comparable agency, or Entity, commission,
corporation, court, department, instrumentality, master, mediator, panel,
referee, system, or other political unit or subdivision or other Entity of
any of the foregoing whether domestic or foreign.
"Buyers' Disclosure Schedule" means the schedule attached as SCHEDULE 8.2(a).
"Closing" means the closing of the transactions contemplated herein and
"Closing Date" means the date on which the closing takes place.
"Collateral Agreements" means agreements and other documents executed or
required to be executed pursuant to the terms of this Agreement.
"Entity" means any corporation, firm, unincorporated organization,
association, partnership, limited liability company, trust (inter vivos or
testamentary), estate of a deceased, individual, business trust, joint stock
company, joint venture or other organization, entity or business, whether
acting in an individual, fiduciary or other capacity, or any Authority.
"Governmental Authorizations" means all approvals, concessions, consents,
franchises, licenses, permits, and other authorizations of all applicable
Authorities.
"material, materially or materiality", unless specifically stated otherwise,
shall be determined without regard to the fact that various provisions of
this Agreement set forth specific dollar amounts.
"Merlin" means Merlin Sierra, Inc.
"New Frontier" means New Frontier Media, Inc.
"Private Authorizations" means all approvals, concessions, consents,
franchises, licenses, permits, and other authorizations of all persons (other
that Authorities) including without
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limitation those with respect to copyrights, computer software programs,
patents, service marks, trademarks, trade names, technology and know-how.
"Subject Assets" means:
(a) any and all trademarks, proprietary rights and other intellectual
property rights owned by Sellers and associated with the Adult Movies
Business. These include but are not necessarily limited to the trade
names, trademarks and/or service marks listed on SCHEDULE 1(a),
"Trademarks List," and any goodwill associated with such trade names,
trademarks and/or service marks;
(b) any and all rights Sellers may have in adult programming in any format
(including master tapes) of feature length films and other films and
programming, interstitial or otherwise, that contain motion picture
material that is non-rated or X-rated and whose main theme embodies
nudity and/or sexually explicit material between consenting adults,
and all promotional materials and programming related thereto as set
forth in SCHEDULE 1(b), "Programming List." No representation or
warranty is made with respect to the nature and extent of the rights
Sellers may have in such programming;
(c) all subscriptions for the Adult Movies Business services as of the
Date of Closing, including all subscriber lists, past and present, and
any other marketing data related thereto, in the possession of
Sellers, as described in SCHEDULE 1(c), "Subscribers List" (and it is
understood that the subscriber lists shall be delivered on disk(s) in
electronic form only because of the length of such lists);
(d) a complete list of all advertisers, marketing partners and vendors
used by Sellers in relations to the Adult Movies business and related
services, with contact names, mailing addresses, and phone and fax
numbers; as set forth in SCHEDULE 1(d) "Vendors List";
(e) all rights, title and interest Sellers may have in 1-800 phone numbers
used for the Adult Movies Business and related services and in any
World Wide Web address and websites used in the Adult Movies Business;
(f) upon request of Buyers, Sellers shall provide copies of all papers,
computerized databases, and records in Sellers' custody or control
relating to any or all of the above described assets and the operation
of Sellers' Adult Movies Business, including but not limited to all
sales and subscription records, maintenance and production records,
and plans and designs of all structures, fixtures and equipment, but
excluding accounting and financial records and personnel and labor
relations records;
(g) all rights, title and interests in any permits, licenses, franchises,
consents or authorizations issued by, and all registrations and
filings with, any government agency solely in connection with Adult
Movies Business of Sellers, whenever
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issued or filed, (including but not limited to any permits or licenses
from the Canadian Radio-Television and Telecommunications Commission
and any permits or licenses from the Federal Communications Commission)
excepting only those which by law are non-transferable or those which
have expired;
(h) any tort or insurance proceeds arising out of any damages or
destruction of any of the Subject Assets herein between the date of
this Agreement and the Closing Date to the extent required to repair
or replace any subject asset being acquired hereunder; and
(i) all other assets to be transferred from Sellers to Buyer under
SECTION 1 of this Agreement.
"Transactions" means the transactions contemplated by this Agreement and all
Collateral Agreements.
ARTICLE 1. TRANSFER OF ASSETS
Subject to the terms and conditions set forth in this Agreement, Sellers
agree to sell, convey, transfer, assign and deliver to Buyer, and Buyers
agree to purchase from Sellers at the Closing described in ARTICLE 3, all of
the Subject Assets, whether tangible, intangible, real, personal or mixed,
and wherever located, including those assets set forth in the lists of
SCHEDULES 1(a) through (d) and as further described in this ARTICLE 1.
1.1 TRANSPONDER SUBLEASES. Pursuant to SCHEDULE 1.1, the Transponder Sublease
Agreements, 5DBC and its successors or assigns agree to sublease to Buyer,
all rights, title and interests 5DBC may have in and pursuant to the
Agreement between 5DBC and AT&T Corp. concerning Skynet Transponder Service
dated November 21, 1996, and the Agreement between 5DBC and Loral Skynet
concerning Skynet Transponder service dated April 29, 1997 ("Skynet
Transponder Agreements"). The terms and conditions of the Subleases to Buyer
shall be the substantially identical to the terms and conditions of the
Skynet Transponder Agreements. Buyer shall have the right to upgrade, if
available, the rights and interest under the Transponder Sublease Agreements
(for example, to a "Silver Service") at Buyers' expense. For each
Transponder Sublease Agreement, Buyer shall furnish and maintain throughout
the terms of the Skynet Transponder Agreements, to the lessors under the
Skynet Transponder Agreements, a security deposit in an amount equal to one
month of the monthly rate to be paid by 5DBC for the service provided under
the applicable Skynet Transponder Agreement. The deposit may be in the form
of cash or its equivalent or an acceptable letter of credit. Payments under
the Transponder Sublease Agreements shall be due five (5) working days before
the date on which payments by 5DBC are due pursuant to the applicable Skynet
Transponder Agreements. Ml payments under the Transponder Sublease Agreements
by Buyer shall be applied directly to 5DBC's obligations under the Skynet
Transponder Agreements. The Buyer shall be entitled to any renewal rights
5DBC may have pursuant to the Skynet Transponder Agreements. New Frontier
shall guarantee the obligations Buyer will have under the Transponder
Sublease Agreements. If 5DBC is in default of or cannot otherwise perform
its obligations under the Skynet Transponder Agreements
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(which reasons shall include the insolvency or bankruptcy of 5DBC), 5DBC
agrees to assign, according to the to the terms of those agreements and
contingent upon acceptance and approval of the assignments by the lessors
thereto, its interests in the Skynet Transponder Agreements to Buyers.
1.2 FUTURE SATELLITE RIGHTS. Buyers shall have a right of first refusal to
obtain satellite transponder service rights on Nahuel, AsiaSat and IntelSat
satellites to the extent 5DBC may have such rights in such satellites and
desires to sublease those transponder service rights to third parties for use
in Adult Movies Programming.
ARTICLE 2. PURCHASE PRICE
2.1 PAYMENT OF PURCHASE PRICE. In consideration for the transfer and
assignment of the Subject Assets and in consideration of the representations,
warranties and covenants of Sellers set forth herein, Buyers on the
conditions set forth herein:
(a) shall pay, subject to ARTICLE 5, an earnest money deposit in the
amount of US$85,000.00;
(b) shall deliver to Sellers at the Closing (as hereinafter defined)
US$2,339,828.00 plus taxes as provided in ARTICLE 6, payable in cash
as more fully described in SECTION 3.2;
(c) shall deliver at the Closing a promissory note in the amount of
US$814,289.00 executed by Buyer and payable to Sellers in the form
substantially similar to that set forth in SCHEDULE 2.1(c). Buyer's
performance under the promissory note shall be guaranteed by New
Frontier. Additionally, in order to secure Buyer's obligations
pursuant to the promissory note, at the Closing Buyer shall execute
and deliver to Sellers a security agreement in the form attached as
Exhibit A to SCHEDULE 2.1(c) pursuant to which Buyer shall grant to
Sellers a security interest/lien in all of its furniture, fixtures,
equipment and inventory, ranking first in priority over all other
security interests/lienholders, except the interests of Buyers' chief
financial institutions which shall have a first priority up to an
amount of US$2,000,000.00;
(d) shall deliver to Sellers at the Closing Date, a certificate
for 840,000 shares of common stock of New Frontier, such shares to
be "restricted" from transfer as that term is defined by Rule 144
promulgated under the Securities Act of 1933, as amended, duly
registered in the name of Sellers (or such other parties as Sellers
may direct) equivalent in value to US$3,402,000.00, the value of
which is agreed to be US$4.05 per share, and which was determined
by allowing a 19% discount of the closing bid price on New Frontier's
"free-trading" common stock on April 14, 1997;
(e) shall deliver to Sellers (or to such other parties as Sellers may
direct) at the
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Closing Date and subject to SCHEDULE 2.1(e), the "Warrant Purchase
Agreement," a total of 400,000 warrants for New Frontier common stock
exerciseable at US$5.00 per share;
(f) shall pay to Sellers any and all "Formula Profits" exceeding
US$2,000,000.00 in the first twelve months of operations of the
business by Buyer after the Closing Date. "Formula Profits" shall
equal the total revenue derived from operations less the actual
operating costs of Buyer, provided that for the purposes of
calculating Formula Profits the amount attributed to operating costs
shall not exceed 125% of the projected costs as set forth in SCHEDULE
2.1(f), the "Valuation of the Adult Business Companies as of March 31,
1997." Formula Profits shall be payable by Buyer to Sellers within
three months after the completion of the first twelve months of
operation of the business by Buyer. If Formula Profits are not paid
within such three month period, Buyer shall pay to Sellers interest on
the outstanding balance of Formula Profits, such interest to be
calculated at 24% per annum from the last day of such three month
period, compounded daily, and payable on the last day of every
calendar month. New Frontier hereby guarantees Buyer's obligations
under this SECTION 2.1(f); and
(g) shall assume and discharge, and shall indemnify Sellers against,
liabilities and obligations of Sellers under the leases, contracts or
other agreements, if any, specified on SCHEDULE 4 but only to the
extent that such liabilities or obligations accrue on or after the
Closing Date.
2.2 ALLOCATION OF THE PURCHASE PRICE. The parties agree that the Purchase Price
(defined as the sum of the amounts specified in SECTIONS 2.1 (b) and (c) above
and the transfer of the stocks and warrants as referred to in SECTIONS 2.1 (d)
and (e) above) shall be allocated as set forth in SCHEDULE 2.2 and that such
allocation will be used by the parties in reporting the transaction contemplated
by this Agreement for tax purposes.
ARTICLE 3. THE CLOSING
The closing of the purchase and sale of the Subject Assets by Sellers to
Buyers (the "Closing") shall take place at 2500 Don Reid Drive, Ottawa,
Ontario, sixty-four (64) days after the date of this Agreement or at such
other place and/or time as the parties may agree in writing (the "Closing
Date"). In the event that the conditions specified in this Agreement have
not be fulfilled by such date, either Sellers or Buyers may extend the
Closing Date for a period or periods not exceeding an aggregate of thirty
(30) days by written notice to the other parties.
3.1 SELLERS' OBLIGATIONS AT CLOSING.
(a) At the Closing Sellers shall deliver or cause to be delivered to
Buyer:
(i) assignment and assumption agreements for personal property
leases, all contracts and agreements of Sellers to be assumed in
connection herewith,
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in form and substance reasonably satisfactory to Buyers' counsel,
and accompanied by all consents required by this Agreement and
the personal property leases, contracts and agreements being
assigned;
(ii) instruments of assignment and transfer (including a bill of sale)
of all the Subject Assets in form and substance reasonably
satisfactory to Buyers' counsel; and
(iii) such other documents as shall be reasonably requested by Buyers
or Buyers' counsel (for example, a BULK SALES ACT affidavit).
(b) Simultaneously, with the consummation of the transfer, Sellers,
through its officers, agents and employees, shall put Buyer into full
possession and enjoyment of all the Subject Assets to be sold,
conveyed, transferred, assigned and delivered by this Agreement.
(c) Sellers, at any time before or after the Closing Date shall execute,
acknowledge, and deliver any further deeds, assignments, conveyances
and other assurances, documents and instruments of transfer,
reasonably requested by Buyers and shall take any other action
consistent with the terms of this Agreement that may be reasonably
requested by Buyers for the purpose of assigning, transferring,
granting, conveying and confirming to Buyers, or reducing to
possession, any or all property and assets to be conveyed or
transferred by this Agreement. If requested by Buyers, Sellers
further agrees to prosecute or otherwise enforce in their own names
for the benefit of Buyers any claims, rights, or benefits that are
transferred to Buyers by this Agreement and that require prosecution
or enforcement in any of Sellers' names. Any prosecution or
enforcement of claims, rights, or benefits under this Section shall be
solely at Buyer's expense, unless the prosecution or enforcement is
made necessary by a breach of this Agreement by Sellers.
3.2 BUYER'S OBLIGATIONS AT CLOSING. At the Closing Buyers shall deliver to
Sellers against delivery of the items specified in SECTION 2.1, a certified bank
or cashier's check, or a wire transfer of immediately available funds, in the
amount of US$2,339,828.00 plus taxes pursuant to ARTICLE 6 payable to Sellers
and the promissory note payable to Sellers in the amount of US$814,289.00.
Sellers shall notify Buyers within five (5) days of the Closing Date whether the
amount payable at Closing shall be delivered by certified bank or cashier's
check, or by wire transfer. At closing, Buyers shall deliver to Sellers such
documents that shall be reasonably requested by Sellers or Sellers' counsel.
ARTICLE 4. ASSUMPTION OF LIABILITIES
Buyers are not assuming any debt, liability or obligation of Sellers, whether
known or unknown, fixed or contingent, except as herein specifically
otherwise provided. Sellers agree to indemnify and hold Buyers harmless
against all debts, claims, liabilities and obligations of Sellers not
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expressly assumed by Buyers hereunder, and to pay any and all attorneys' fees
and legal costs incurred by Buyers, its successors and assigns in connection
therewith. Buyers shall have the benefit of and shall perform and assume all
leases, contracts and agreements, if any, specifically listed on SCHEDULE 4,
in accordance with the terms and conditions thereof, except to the extent
modifications are specifically set forth in SCHEDULE 4 and except to the
extent set forth in the assignments or assignment and assumption agreements
for such leases, contract and agreements.
ARTICLE 5. RETURN OF DEPOSIT
Upon execution of this Agreement, Buyers shall pay to Sellers an earnest
money deposit of US$21,250.00. Upon parties' final acceptance of the form
and content of the schedules to this Agreement, Buyers shall pay to Sellers a
further earnest money deposit of US$63,750.00. Such deposits shall be
returned to Buyers if the Transactions are not closed due to: (a) the failure
of any conditions set forth in ARTICLE 11 to be met at or before the Closing
as a result of any act or omission by Sellers; or (b) the occurrence of any
default by Sellers described in SECTION 17.3. If the Transactions are not
closed for any other reason, the deposit shall be retained by Sellers. Upon
Closing, the deposit shall be applied towards the payment due to Sellers
under SECTION 2.1(b).
ARTICLE 6. TAXES
Buyers shall pay all sales, use and transfer taxes arising out of the
transfer of the Subject Assets, including any foreign transfer taxes and
shall pay its portion, prorated as of the Closing Date, of state, provincial,
and local real and personal property taxes of the business being sold
hereunder; to a maximum of the amount such taxes that would have been payable
if the sale of the Subject Assets had been made by a company located in the
Province of Ontario, Canada. Buyers shall not be responsible for any
business, occupation, withholding or similar tax, or for any income, sales,
use, value-added or similar taxes related to any period, or transaction
occurring during any period, before the Closing Date.
ARTICLE 7. REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers, jointly and severally, hereby represent and warrant to Buyers that
the following facts and circumstances are and will be at all times up to the
Closing Date, except as contemplated hereby, true and correct, and hereby
acknowledge that such facts and circumstances constitute the basis upon which
Buyers are induced to enter into and perform this Agreement. Each warranty
set forth in this ARTICLE 7 shall survive eighteen (18) months past the
Closing Date and any investigation made by or on behalf of Buyers. Buyers
shall conduct their own due diligence investigation and that investigation
shall include an investigation into whether Sellers is or has operated in
accordance with the warranties and representations of Sellers. If prior to
the closing date, Buyers believe they have discovered any breach of the
representations and warranties of Sellers, they shall forthwith advise
Sellers in writing of such breach. If Sellers does not or cannot cure such
breach prior to the Closing Date, Buyers may elect to close (in which case
the
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breach shall be deemed non-material) or not close provided such breach is
material. If Buyers fail to give such notice then the breach will be deemed
non-material.
7.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. Each Seller is a
corporation organized, validly existing, and in good standing under the laws
of its jurisdiction of incorporation. Each Seller has all necessary corporate
powers to own its properties and to carry on its business as now owned and
operated by it, and is duly qualified to transact any business and is in good
standing in all jurisdictions in which the nature of its business or its
properties makes such qualification necessary.
7.2 FINANCIAL STATEMENTS. SCHEDULE 7.2(a) is the Combined Financial
Statements for the years ending March 31, 1997 and 1996 for Sellers and
1043133 Ontario Inc., certified by Ernst & Young, chartered accountants,
whose opinions with respect to such financial statements are included into
this Agreement. SCHEDULE 7.2(b) sets forth unaudited combined balance sheets
of Sellers and others as of June 30, 1997 (the "Stub Period Date"), together
with related unaudited combined statements of changes in financial positions
and unaudited combined statements of income and retained earnings for the
three (3) month period then ending, as prepared by Sellers. These financial
statements in SCHEDULES 7.2(a) and (b) are referred to as the "Financial
Statements." The Financial Statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") consistently followed by
Sellers throughout the periods indicated, are complete and correct in all
material respects and accurately and fairly depict the present financial
position of Sellers as of the respective dates of the balance sheets included
in the Financial Statements, and the results of their operations for the
respective periods indicated. Sellers have no liabilities or obligations of
any nature (known or unknown, absolute, accrued, contingent or otherwise) of
the type required to be reflected or disclosed in a balance sheet (or notes
thereto) prepared in accordance with GAAP that were not frilly reflected or
reserved against in the Financial Statements. The Audited Financial
Statements being provided by Sellers shall contain in footnotes or otherwise
information concerning adjustments and add-back payments as reflected on page
7 of the Letter of Understanding dated April 14, 1997 Sellers from New
Frontier, which is attached as SCHEDULE 7.2(c). The Financial Statements
accurately reflect the revenues and expenses of Sellers' Adult Movies
Business.
7.3 ABSENCE OF SPECIFIED CHANGES. Since March 31, 1997, there has not been
any:
(a) adverse material changes in the financial condition, liabilities,
assets, business, operating results or prospects of Sellers with
respect to their Adult Movies Business;
(b) destruction, damage to, or loss of any of the Subject Assets (whether
or not covered by insurance) that materially and adversely effects the
assets, financial condition, business, assets or prospects of Sellers
with respect to their Adult Movies Business;
(c) labor trouble or other event or condition of any character materially
and adversely effecting the financial condition, business, assets or
prospects of Sellers;
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(d) revaluation by Sellers of any of the Subject Assets in a manner that
would be materially adverse to Buyers;
(e) execution, creation, amendment, nonrenewal or termination of any
material contract, agreement or license to which Sellers are a party,
except in the ordinary course of business or except as can be
terminated prior to the Closing Date without materially adversely
effecting the Subject Assets;
(f) creation or assumption by Sellers of any mortgage, pledge, security
interest or lien or other encumbrance on any material asset of Sellers
related to their Adult Movies Business, except as set forth in
SCHEDULE 7.3(f);
(g) receipt by Sellers of notice of any loss of, or material order
cancellation by, any major customers of Sellers, except as set forth
in SCHEDULE 7.3(g);
(h) other event or condition of any character of which Sellers have
knowledge that has or might reasonably have a material adverse effect
on the financial condition, business, assets, operating results or
prospects of their Adult Movies Business, except as set forth in
SCHEDULE 7.3(h); or
(i) agreement by Sellers to do any of the things described in the
preceding clauses (a) through (h).
7.4 SUBJECT ASSETS SUFFICIENT FOR OPERATIONS. The Subject Assets, together
with the "Subject Assets" described in the 124 Agreement and in the 5DBC
Agreement, constitute all assets of Sellers (except premises) which are
necessary for the continued uninterrupted operation by Sellers of its Adult
Movies Business as now conducted. Except as stated in SCHEDULE 4, none of the
Subject Assets are held under any lease, security agreement, conditional
sales, contract, or other title of retention or security agreement, or are in
the possession of anyone other than Sellers.
7.5 TRADE NAMES, TRADEMARKS AND COPYRIGHTS. Except as set forth SCHEDULE IN
7.5, Sellers do not use or own any trademark, service mark, trade name, trade
secret, or brand name in their Adult Movies Business. To the actual
knowledge of Sellers, no person has made any outstanding claims against
Sellers in respect of any trademark, trademark registration or application,
service mark, trade name, copyright, copyright registration or application or
brand name, the use of which is necessary or contemplated in connection with
the performance of any contract to which Sellers are a party.
7.6 TRADE SECRETS. Sellers are not aware of any trade secrets owned by, used
in or necessary for the operation of its Adult Movies Business.
7.7 TITLE TO ASSETS. To the best of Sellers' knowledge, Sellers have good and
marketable title to all the Subject Assets free and clear of mortgages,
liens, pledges, charges, encumbrances, equities, claims, easements, rights of
way, covenants, conditions, or restrictions, except for (i) those disclosed
in Sellers' balance sheet as of the Stub Period Date, included in the
Financial
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Statements, or in the Schedules to this Agreement; (ii) the lien of current
taxes not yet due and payable; and (iii) possible minor matters that, in the
aggregate, are not substantial in amount and do not materially detract from
or interfere with the present or intended use of any of these assets, nor
materially impair the operations of the Adult Movies Business. All the
Subject Assets are in good operating condition and repair, ordinary wear and
tear excepted. Sellers are in possession of all premises leased to it from
others and used in connection with their Adult Movies Business.
7.8 DEALERS AND DISTRIBUTORS. SCHEDULE 7.8 to this Agreement is a correct and
current list of all dealers and distributors of Sellers together with
summaries of the sales made to each customer during the most recent fiscal
year. Except as indicated in SCHEDULE 7.8, Sellers have no information and
are not aware of any facts indicating that any dealers or distributors of the
services offered by their Adult Movies Business intend to cease doing
business with Sellers or alter the amount of the business that they are
presently doing with Sellers where such cessation or alteration would have a
material adverse effect on their Adult Movies Business.
7.9 INSURANCE POLICIES. SCHEDULE 7.9 to this Agreement is a description of
all insurance policies held by Sellers concerning the Subject Assets. All
these policies are in the respective principal amounts set forth in SCHEDULE
7.9. Sellers have maintained and now maintain (a) insurance on all the
Subject Assets of a type customarily insured, covering property damage by
fire or other casualty, and (b) adequate insurance protection against all
liabilities, claims, and risks against which it is customary to insure. Such
insurance coverage will be cancelled as of Closing.
7.10 OTHER CONTRACTS. Copies of all contracts which will be assigned to or
assumed by Buyers under this Agreement are attached as part of SCHEDULE 4.
Except as set forth in SCHEDULE 4 and to the best of Sellers' knowledge, the
Subject Assets will not at Closing or thereafter (as a result of actions or
conduct of Sellers) be bound or potentially bound by, any distributor's or
manufacturer's representative or agency agreement, any output or requirements
agreement, any agreement not entered into in the ordinary course of business,
any indenture, mortgage, deed of trust, lease or any other agreement that is
unusual in nature, duration or amount (including, without limitation, any
agreement requiring the performance by Sellers of any obligation for a period
of time extending beyond one year from Closing Date or calling for
consideration of more than US$10,000.00 or requiring purchases at prices in
excess of, or sales at prices lower than, prevailing market prices). To the
best of Sellers' knowledge, there is no default or event that with notice or
lapse of time, or both, would constitute a default by any party to any of the
agreements listed in SCHEDULE 4 and such contracts remain in full force and
effect. Sellers have not received notice that any party to any of the
agreements listed in SCHEDULE 4 intends to cancel or terminate any of these
agreements or to exercise or not exercise any options under any of these
agreements. Sellers are not parties to, nor are Sellers or the Subject Assets
bound by, any agreement that is materially adverse to the business, assets,
property, operating results, prospects or financial condition of Sellers.
7.11 COMPLIANCE WITH LAWS. Sellers have received no notice of any violation
of any statutes, laws or regulations (including, without limitation any
applicable obscenity, environmental, health, building, zoning, or other law,
ordinance or regulations) from any Authority the violation of which may
materially adversely affect the Adult Movies Business. Sellers are not in
violation of or default under any provisions of their Articles of
Incorporation or Bylaws, both as amended.
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The execution, delivery and performance of the Agreement and the consummation
of the Transactions will not result in any such violation or default, or be
in conflict with or constitute, with or without the passage of time or the
giving of notice or both, a default under Sellers' Articles of Incorporation
or Bylaws, both as amended. To the best of Sellers' actual knowledge, all
licenses, permits, approvals, registrations, qualifications, certificates and
other authorizations necessary for the conduct of Sellers' Adult Movies
Business as presently conducted (the "Licenses") have been duly obtained, are
in full force and effect, and there are no proceedings pending or threatened
which may result in the revocation, cancellation, suspension or modification
of any of such Licenses.
7.12 LITIGATION. There is no suit, action, arbitration or legal,
administrative or other proceeding, or governmental investigation ("Actions")
pending or, to the best knowledge of Sellers, threatened, against or
affecting Sellers, or any of its business, assets or financial condition, or
against any officer, director or employee of Sellers in connection with such
officer's, director's or employee's relationship with or actions taken on
behalf of Sellers. Sellers are not party to or subject to the provisions of
any order, writ, injunction, judgment or decree of any court or government
agency or instrumentality, and there are no actions or claims by Sellers
currently pending or, to which Sellers intend to initiate. To the best
knowledge of Sellers, there has not occurred any event nor does there exist
any condition on the basis of which any litigation, proceeding or
investigation is likely to be instituted by or against Sellers. Sellers are
not in default with respect to any order, writ, injunction or decree of any
federal, state, local or foreign court, department, agency or instrumentality.
7.13 AGREEMENT WILL NOT CAUSE BREACH OR VIOLATION. Neither the entry into
this Agreement nor the consummation of the transactions contemplated hereby
will result in or constitute any of the following events where the occurrence
of such event would render Sellers materially unable to comply with this
Agreement: (a) a default or an event that, with notice or lapse of time or
both, would be a default, breach or violation of any lease, license,
promissory note, conditional sales contract, commitment, indenture, mortgage,
deed of trust or other agreement, instrument or arrangement; (b) an event
that would permit any party to terminate any agreement or to accelerate the
maturity of any indebtedness or other obligation; (c) the creation or
imposition of any lien, charge or encumbrance on any of the Subject Assets;
or (d) the violation of any law, regulation, ordinance, judgment, order or
decree.
7.14 AUTHORITY AND CONSENTS. Except as set forth in SCHEDULE 7.14, Sellers
has the right, power, legal capacity and authority to enter into, and perform
its obligations under this Agreement, and no approvals or consents of any
persons other than the shareholders of Sellers are necessary in connection
with it. The execution and delivery of this Agreement and the consummation of
this transaction by Sellers have been, or prior to the Closing will have
been, duly authorized by all necessary corporate action of Sellers (including
any necessary action by Sellers' security holders). This Agreement
constitutes a legal, valid and binding obligation of Sellers enforceable in
accordance with its terms except as limited by bankruptcy and insolvency laws
and by other laws affecting the rights of creditors generally.
7.15 INTEREST IN CUSTOMERS, SUPPLIERS AND COMPETITORS. Except as set forth in
SCHEDULE 7.15 or as contemplated by a Collateral Agreement, neither Sellers
nor any officer or director or
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shareholder of Sellers, nor any spouse or child of any of them has any direct
or indirect interest in any competitor, supplier or customer of Sellers or in
any person with whom Sellers are doing business.
7.16 DOCUMENTS DELIVERED. Each copy or original of any agreement, contract or
other instrument which is identified in any exhibit or schedule delivered by
Sellers or its counsel to Buyers (or their counsel or representatives),
whether before or after the execution hereof, is in fact what it is purported
to be by Sellers and has not been amended, canceled or otherwise modified.
7.17 FULL DISCLOSURE. None of the representations and warranties made by
Sellers or made in any letter, certificate or memorandum furnished or to be
furnished by Sellers or on their behalf, contains or will contain any untrue
statement of a material fact, or omits any material fact the omission of
which would make the statements made misleading and materially adverse to
Buyers. Except matters of general knowledge within the Adult Movies industry
and other matters generally available to the public, there is no fact known
to Sellers which materially adversely affects the condition, assets,
liabilities, business, or operations of the Sellers' Adult Movies Business
that has not been set forth herein or heretofore communicated to Buyer in
writing.
7.18 TRANSPONDER LEASE AGREEMENTS. 5DBC specifically represents and warrants
that it is not in default or otherwise been notified of any potential
material default or breach regarding the Skynet Transponder leases, except as
disclosed in SCHEDULE 7.18. To the extent necessary, 5DBC shall cooperate
with Buyers in obtaining any consents required with respect to Buyer's
sublease of the Skynet Transponders.
7.19 SOLVENCY. As of the execution and delivery of this Agreement, and, after
giving effect to the consummation of the Transactions, Sellers will be
solvent.
7.20 TAX MATTERS. Sellers shall continue to be responsible for and will
discharge all obligations and liabilities in respect to taxes pertaining to
their Adult Movies Business and the Subject Assets which arise or accrue for
all periods ending on or before the Closing Date (but excluding the taxes
referred to in ARTICLE 6). Sellers will indemnify and hold harmless Buyers
against any and all claims and demands incurred by Buyers that directly or
indirectly arise out of such obligations or liabilities. Without limiting the
foregoing, Sellers will be responsible for all federal, state, provincial,
local, foreign and other net income, gross income, gross receipts,
alternative or add on minimum, profits, sales, use, occupation, value-added,
ad valorem, transfer, franchise, license, lease, service use, withholding,
payroll, employment, excise, severance, premium, property, windfall profits,
customs, duties, or other taxes, fees assessments, or charges of any kind
whatsoever, together with any interest, penalties or additions to tax imposed
with respect thereto, or any obligations to any agreements or arrangements
with respect to and taxes described above.
7.21 EMPLOYMENT MATTERS. Buyer shall be under no obligation to offer
employment to any of Sellers' employees employed in connection with the Adult
Movies Business ("affected employees"), except as otherwise stated in this
Agreement. Buyer may, however, choose to
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retain the services of or to offer employment to one or more of the affected
employees, should it wish to do so, subject to SECTION 13.4.
Sellers will continue to be responsible for and will discharge all
obligations and liabilities in respect of the affected employees which arise
or accrue prior to, on or after the Closing Date. Sellers will indemnify and
save harmless Buyers against any and all claims and demands incurred by
Buyers that directly or indirectly pertain to or arise out of such
obligations or liabilities. Without limiting the forgoing, Sellers will be
responsible for and will bear and discharge any and all obligations and
liabilities for wages, severance pay, termination pay, notice of termination
of employment or pay in lieu of such notice, damages for wrongful discharge
or other employee benefits or claims, including vacation pay, which may arise
in connection with the employment or dismissal of any of the affected
employees, including any interest, award, judgment or penalty relating
thereto and any costs or expenses incurred by Buyers in defending against any
claim or demand relating to such obligation or liabilities.
7.22 124 AGREEMENT.
(a) The equipment (including without limitation essential spares and
replacement parts) and software technology, furniture, machinery,
appliances, and other tangible personal property and technology as
specifically set forth in SCHEDULE 1(a) of the 124 Agreement is
substantially similar to the equipment and technology used by Sellers
in connection with or historically allocated to their Adult Movies
Business carried on by the Sellers as of July 31, 1997 at the Uplink
Facility.
(b) The uplink facility to be operated, maintained, managed and sustained
under SECTION 1.1 of the 124 Agreement shall be of a substantially
similar nature and quality as those services currently being provided
by Sellers to their present subscribers.
(c) The "Subject Assets" described in the 124 Agreement constitute all
assets (other than premises) necessary for the continued uninterrupted
operation by 1248663 Ontario Inc. of the call center and uplink
facility as now conducted on behalf of the Sellers in respect of their
Adult Movies Business.
(d) SCHEDULE 1(b) of the 124 Agreement contains a complete list of the
hardware, equipment, furniture, machinery, appliances, software and
other tangible personal property now used at the Ottawa Call Center.
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ARTICLE 8. BUYERS' REPRESENTATIONS AND WARRANTIES
Buyers represents, warrants, and covenants to, and agrees with Sellers as
follows:
8.1 ORGANIZATION AND BUSINESS: POWER AND AUTHORITY: EFFECT OF TRANSACTION.
(a) Each Buyer (i) is a corporation duly organized, validly existing and
in good standing under the laws of its jurisdiction of incorporation;
(ii) has all requisite power and authority to own or hold under lease
its properties and to conduct its business as now conducted and as
presently proposed to be conducted, and has in full force and effect
all Governmental Authorizations and Private Authorizations and has
made all governmental filings, to the extent required for such
ownership and lease of its property and conduct of its business and is
in good standing in such jurisdictions in which the failure to be in
good standing would have a material adverse effect upon its property
or the nature of its business or operations.
(b) Each Buyer has all requisite power and authority (corporate and other)
and has in full force and effect all Governmental Authorizations and
Private Authorizations in order to enable it to execute and deliver,
and to perform its obligations under, this Agreement and each
Collateral Agreement executed or required to be executed pursuant
hereto or thereto or to consummate the Transactions and the Collateral
Agreements; and the execution, delivery and performance of this
Agreement and each Collateral Agreement has been duly authorized by
all requisite corporate or other action. No further action or approval
on the part of Buyers' stockholders is required in connection with the
execution, delivery and performance of this Agreement or each
Collateral Agreement or the consummation of the Transactions. This
Agreement has been duly executed and delivered by each Buyer and
constitutes, and each Collateral Agreement executed or required to be
executed pursuant hereto or thereto or to consummate the Transactions
when executed and delivered by Buyers will constitute, legal, valid
and binding obligations of Buyers enforceable in accordance with their
respective terms.
(c) Neither the execution and delivery of this Agreement or any Collateral
Agreement, nor the consummation of the Transactions, nor compliance
with the terms, conditions and provisions hereof or thereof by Buyers:
(i) will conflict with, or result in a material breach or violation
of; or constitute a material default under, any Applicable Law on
the part of Buyers or will conflict with, or result in a material
breach or violation of; or constitute a material default under,
or permit the acceleration of any obligation or liability in, or
but for any requirement of giving notice or passage of time or
both would constitute such a conflict with, material breach or
violation of, or material default under, or permit any such
acceleration in, any contractual obligation of Buyers;
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(ii) will require any Governmental Authorization or Private
Authorization, except for filing requirements under Applicable
Law in connection with the issuance of Buyers' shares to Sellers.
8.2 FINANCIAL AND OTHER INFORMATION
(a) Buyers have heretofore furnished to Sellers copies of the consolidated
financial statements of New Frontier and all of its subsidiaries
("Buyers' Financial Statements"). Buyers' Financial Statements,
including in each case the notes thereto, have been prepared in
accordance with GAAP applied on a consistent basis throughout the
periods covered thereby, except as otherwise noted therein or as set
forth in SCHEDULE 8.2(a) (Buyers' Disclosure Schedule), and are true,
accurate and complete, do not contain any untrue statement of material
fact or omit to state a material fact required by GAAP to be stated
therein or necessary in order to make the statements contained therein
not misleading, and fairly present the financial condition and the
results of operations of Buyers, on the bases therein stated, as of
the respective dates thereof, and for the respective periods covered
thereby subject, in the case of unaudited financial statements, to
normal year-end audit adjustments and accruals.
(b) Neither Buyers' Disclosure Schedule, Buyers' Financial Statements,
this Agreement, any Collateral Agreement, or any data, information or
statement furnished or to be furnished by or on behalf of Buyers
pursuant to this Agreement or any Collateral Agreement or required to
consummate the Transactions, contains or will contain any untrue
statement of material fact or omits or will omit to state a material
fact required to be stated herein or therein or necessary in order to
make statements contained herein or therein not misleading and all
Collateral Agreements, data, information or statements are and will be
true, accurate and complete.
8.3 CHANGES IN CONDITION. Since the date of the most recent financial
statements forming part of Buyers' Financial Statements, there has been no
material adverse change in Buyers taken as a whole or individually. Except
matters of general applicability to Buyers' industries, there is no event
known to Buyers which materially adversely affects Buyers taken as a whole or
individually, or the ability of Buyers to perform any of the obligations set
forth in this Agreement or any Collateral Agreement or to consummate the
Transactions.
8.4 COMPLIANCE WITH PRIVATE AUTHORIZATIONS. Each Buyer has obtained all
Private Authorizations which are necessary for the ownership by such Buyer of
its properties and the conduct of its business as now conducted or as
presently proposed to be conducted or which, if not obtained and maintained,
could, singly or in the aggregate, materially adversely affect such Buyer.
Neither Buyer is in breach or violation of, or is in default in the
performance, observance or fulfillment of, any Private Authorization, and no
event exists or has occurred, which constitutes, or but for any requirement
of giving of notice or passage of time or both would constitute, such a
breach, violation or default, under any contractual obligation of such Buyer
or
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Private Authorization, except for such defaults, breaches or violations, as
do not and will not have in the aggregate any material adverse affect on such
Buyer or the ability of such Buyer to perform any of its obligations set
fourth in this Agreement or any Collateral Agreement or to consummate the
Transactions. No Private Authorization is the subject of any pending or, to
Buyers' knowledge, information or belief, threatened attack, revocation or
termination.
8.5 COMPLIANCE WITH GOVERNMENTAL AUTHORIZATIONS AND APPLICABLE LAW.
(a) Each Buyer has obtained all other Governmental Authorizations which
are necessary for the ownership or uses of its properties and the
conduct of its business as now conducted or as presently proposed to
be conducted and which, if not obtained and maintained, would singly
or in the aggregate, have any material adverse affect on such Buyer
and its subsidiaries taken as a whole. No other Governmental
Authorization is subject of any pending or, to Buyers' knowledge,
information and belief, threatened challenge or proceeding to revoke
or terminate any such Governmental Authorization. Buyers' have no
reason to believe that any other Governmental Authorization would not
be renewed in the name of Buyer by the granting Authority in the
ordinary course.
(b) Neither Buyers nor any officer or director (in connection with the
business, operations and properties of such Buyer) is in or is charged
with or, to such Buyer's knowledge, information and belief, at any
time since its organization has been in or has been charged with, or
is threatened or under investigation with respect to, breach or
violation of, or default in the performance, observance or fulfillment
of, any Governmental Authorization or any Applicable Law, and no event
exists or has occurred, which constitutes, or but for any requirement
of giving notice or passage of time or both would constitute, such a
breach, violation or default, under:
(i) any Governmental Authorization or any Applicable Law, except for
such breaches, violations or defaults as do not and will not have
in the aggregate any material adverse affect on Buyers taken as a
whole or the ability of Buyers to perform any of the obligations
set forth in this Agreement or any Collateral Agreement or to
consummate the Transactions, or
(ii) any requirement of any insurance carrier, applicable to its
business, operations or properties.
8.6 AUTHORIZED AND OUTSTANDING STOCK.
(a) The authorized and outstanding capital stock of New Frontier is as set
forth below:
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DESCRIPTION AUTHORIZED ISSUED AND OUTSTANDING
Common 50,000,000 4,192,511
Preferred 5,000,000 none
(b) The warrants for New Frontier common stock issued and outstanding as
of July 28, 1997 is as follows:
HOLDER WARRANT(S) TO PURCHASE EXPIRATION DATE EXERCISE PRICE
Original Private
Placement 189,000 12/31/97 $ 5.50
National Securities 20,000 10/12/98 4.00
New Frontier
Employees 146,666 10/15/99 6.00
Quarto 400,000(i) 9/20/2001 6.00(ii)
(i) Subject to upward adjustment pursuant to the terms of the Quarto
Warrant Agreement.
(ii) Subject to downward adjustment pursuant to the terms of the Quarto
Warrant Agreement.
Buyers represent and warrant that: (i) Colorado Satellite Broadcasting, Inc.
is a wholly owned subsidiary of New Frontier; (ii) except as set forth above
in this SECTION 8.6, there are no options, warrants, commitments or other
rights to purchase shares or other securities of the Buyers; (iii) except as
set forth above in this SECTION 8.6, no securities or obligations convertible
into or exchangeable for shares or other securities of the Buyers have been
authorized or agreed to be issued or are outstanding; (iv) there are no
shareholders agreements or similar agreements (including agreements that
contain voting arrangements) with respect to any or all of the shares of
either Buyer; and (v) SCHEDULE 8.6 is a list of all persons who own 5% or
more of the issued and outstanding shares of any class of shares of New
Frontier.
8.7 DISCLOSURE. None of the representations and warranties made by Buyers or
made in any letter, certificate or memorandum furnished or to be furnished by
Buyers or on their behalf, contains or will contain any untrue statement of a
material fact, or omits any material fact the omission of which would make
the statements made misleading and materially adverse to Sellers.
8.8 CONTINUING REPRESENTATION AND WARRANTY. Except for those representations
and warranties which speak as of a specific date, all of the representations and
warranties of Buyers set forth in this Article shall be true and correct on the
Closing Date with the same force and effect as though
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made on and as of that date and those, if any which speak as of a specific
date shall be true and correct on the Closing Date.
8.9 SOLVENCY. As of the execution and delivery of this Agreement, and, after
giving effect to the consummation of the transactions contemplated herein,
Buyers taken as a whole and individually will be solvent.
8.10 INTERPRETATION. For the purposes of this ARTICLE 8, New Frontier and
Colorado Satellite Broadcasting, Inc. are each considered to be a "Buyer".
ARTICLE 9. SELLERS' OBLIGATIONS BEFORE CLOSING
Sellers covenant that, except as otherwise agreed in writing by Buyer, from
the date of this Agreement until the Closing:
9.1 BUYERS' ACCESS TO PREMISES AND INFORMATION. Buyers and its counsel,
accountants and other representatives shall be entitled to have full access
during normal business hours to all Sellers' properties, books, accounts,
records, contracts and documents of or relating to the Subject Assets.
Sellers shall furnish or cause to be furnished to Buyers and their
representatives all data and information concerning the Subject Assets and
Adult Movies Business that may reasonably be requested.
9.2 CONDUCT OF BUSINESS IN NORMAL COURSE. Each Seller shall carry on its
business and activities diligently and in substantially the same manner as
they previously have been carried on, and shall not make or institute any
unusual or novel methods of purchase, sale, lease, management, accounting or
operation that will vary materially from the methods used by Seller as of the
date of this Agreement if it would have a material adverse affect on the
Sellers' Adult Movies Business.
9.3 PRESERVATION OF BUSINESS AND RELATIONSHIPS. Each Seller shall use its
best efforts, without making any commitments on behalf of Buyers, to preserve
the Sellers' Adult Movies Business intact, to keep available to each Seller,
its present officers and employees, and to preserve its present relationships
with suppliers, customers and others having business relationships with it.
9.4 MAINTENANCE OF INSURANCE. Each Seller shall continue to carry its
existing insurance, subject to variations in amounts required by the ordinary
operations of their businesses. At the request of Buyers and at Buyers' sole
expense, the amount of insurance against fire and other casualties which, at
the date of this Agreement, Sellers carry on any of the Subject Assets or in
respect of their operations shall be increased by such amount or amounts as
Buyers shall specify.
9.5 NEW TRANSACTIONS. Sellers shall not do or agree to enter into any
contract, commitment or transaction which would materially adversely effect
the ability of Sellers to perform any obligation set forth in this Agreement
of any Collateral Agreement.
9.6 EXISTING AGREEMENTS. Except in ordinary course of business, Sellers
shall not modify,
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amend, cancel or terminate any of its existing contracts or agreements, or
agree to do any of those acts without the consent of Buyers, if doing so
would materially adversely affect the Adult Movies Business.
9.7 CONSENT OF OTHERS. As soon as reasonably practical after the execution
and delivery of this Agreement, and in any event on or before the Closing
Date, Sellers shall obtain the written consent of the persons described in
SCHEDULE 7.14 in form and substance satisfactory to Buyers and will furnish
to Buyers executed copies of those consents.
9.8 REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. Each Seller shall use
its reasonable commercial efforts to assure that all representations and
warranties of Sellers set forth in this Agreement and in any written
statements delivered to Buyers by Sellers under this Agreement will also be
true and correct as of the Closing Date as if made on that date and that all
conditions precedent to Closing shall have been met. Sellers shall promptly
disclose to Buyers any information contained in the Schedules to this
Agreement which, because of an event occurring after the date hereof, is
incomplete or is no longer correct as of all times after the date hereof
until the Closing Date; provided, however, that none of such disclosures
shall be deemed to modify, amend or supplement the representations and
warranties of Sellers or the schedules hereto for the purposes of ARTICLE 11,
unless Buyer shall have consented thereto in writing.
9.9 STATUTORY FILINGS. Sellers shall cooperate fully with Buyers in
preparing and filing all information and documents required under any
statutes or governmental rules or regulations pertaining to the Transactions,
including but not limited to, any licenses required by Industry Canada and
the rules promulgated thereunder.
ARTICLE 10. BUYERS' OBLIGATIONS BEFORE CLOSING
10.1 GENERAL OBLIGATIONS AND CONFIDENTIALITY. Prior to the Closing Date (or,
in the event the Closing does not occur, for a period of two years following
the date of this Agreement) Buyers shall use their best efforts to preserve
the confidentiality of any commercial information which is confidential and
which Sellers identify in writing as confidential which is disclosed to
Buyers or to their representatives by Sellers; provided that Buyers at all
times shall not be materially restricted in their investigation of the assets
or matters relating thereto. The above provisions of this Section shall not
apply to any information which (i) is already known to Buyers at the time of
disclosure by Sellers, (ii) is published or through no fault of Buyers
becomes published or (iii) is lawfully disclosed to Buyer by a third party.
Whether or not the Closing shall take place, Sellers waive any cause of
action, right or claim arising out of the access of Buyers or their
representatives to any trade secrets or other confidential business
information of Sellers from the date of this Agreement until the Closing
Date, except for the intentional competitive misuse by Buyers or its
representatives of such trade secrets or other confidential business
information (identified as confidential as required by this Article) if the
Closing does not take place.
10.2 SELLERS' ACCESS TO PREMISES AND INFORMATION. Each Seller and its
counsel, accountants and other representatives shall be entitled to have full
access during normal business hours to all Buyers' properties, books,
accounts, records, contracts and documents. The Buyers shall furnish
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or cause to be furnished to each Seller and its representatives all data and
information concerning Buyers that may reasonably be requested.
ARTICLE 11. CONDITIONS PRECEDENT TO BUYER'S PERFORMANCE
The obligation of Buyers to purchase the Subject Assets under this Agreement
are subject to the satisfaction, at or before the Closing, of all the
conditions set out below in this Article. Buyers may waive any or all of
these conditions; provided, however, that no such waiver of a condition shall
constitute a waiver by Buyers of any of its other rights or remedies, at law
or in equity, if Sellers shall be in default of any of their representations,
warranties or covenants under this Agreement.
11.1 ACCURACY'S OF SELLERS' REPRESENTATIONS AND WARRANTIES. All
representations and warranties by Sellers contained in this Agreement or in
any Collateral Agreement or in any written statement delivered by Sellers
thereunder shall be true on and as of the Closing as though such
representations and warranties were made on and as of that date. Buyers shall
have received a certificate, dated the Closing Date, signed by Sellers'
Presidents certifying, in such detail as Buyers and their counsel may
reasonably request, that the representations and warranties set out herein
are true and correct as of the Closing Date.
11.2 SELLERS' PERFORMANCE. Sellers shall have performed, satisfied, and
complied with all covenants, agreements, and conditions required by this
Agreement to be performed or complied with by Sellers on or before the
Closing Date.
11.3 CERTIFICATION BY SELLERS. Buyers shall have received a certificate,
dated the Closing Date, signed by Sellers' Presidents certifying, in such
detail as Buyer and its counsel may reasonably request, that the
representations and warranties set out herein are true and correct as of the
Closing Date.
11.4 OPINION OF SELLERS' COUNSEL. Buyers shall have received from counsel for
Sellers, opinions dated the Closing Date, in form and substance reasonably
satisfactory to Buyers and their counsel, stating that:
(a) each Seller is a corporation duly organized, validly existing and in
good standing under the applicable laws of the jurisdiction of their
incorporation and have all necessary corporate power to own their
properties as now owned and operate their businesses as now operated;
(b) all corporate proceedings required by law or by the provisions of this
Agreement to be taken by each Seller on or before the Closing Date in
connection with the execution and delivery of this Agreement and the
consummation of the Transactions have been duly and validly taken;
(c) this Agreement has been duly and validly authorized and, when executed
and delivered by each Seller will be valid and binding on such Seller
and enforceable
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in accordance with its terms, except as limited by bankruptcy and
insolvency laws and by other laws affecting the rights of creditors
generally; and
(d) neither the execution nor delivery of this Agreement nor the
consummation of the Transactions will constitute a default, or an
event that would with notice or lapse of time or both constitute a
default under, or violation or breach of Seller's articles of
incorporation or bylaws.
In rendering their opinions, counsel for each Seller may rely on certificates
of governmental authorities, certificates of Seller's officers, directors or
shareholders, and on opinions of associate counsel.
11.5 ABSENCE OF LITIGATION. No action, suit or proceeding before any court or
any governmental body or authority, pertaining to the Transactions or their
consummation shall have been instituted or threatened on or before the
Closing Date.
11.6 CORPORATE APPROVAL. The execution and delivery of this Agreement by
Sellers, and the performance of their covenants and obligations under it,
shall have been duly authorized by all necessary corporate action, and Buyer
shall have received copies of all resolutions pertaining to that
authorization, certified by the secretaries of Sellers.
11.7 CONSENTS. All necessary agreements and consents of any parties (other
than Buyers, their shareholders or directors, and Authorities in the United
States of America) to the consummation of the Transaction, or otherwise
pertaining to the matters covered by this Agreement, shall have been obtained.
11.8 APPROVAL OF DOCUMENTATION. The form and substance of all certificates,
instruments, opinions and other documents delivered to Buyers under this
Agreement shall be satisfactory in all reasonable respects to Buyers and
their counsel.
11.9 CONSULTING AGREEMENT. Buyers and the Shareholders identified in
SCHEDULE 11.9 shall enter into a consulting agreement substantially in the
form of SCHEDULE 11.9.
11.10 CONDITION OF ASSETS. The Subject Assets shall not have been materially
or adversely affected in any way as a result of any fire, accident, storm or
other casualty or labor or civil disturbance or act of God or the public
enemy.
11.11 NON-COMPETITION AGREEMENT. The shareholders of Sellers shall each have
duly executed and delivered to Buyers a Non-competition Agreement
substantially in the form of SCHEDULE 11.11.
11.12 AGREEMENT ON SCHEDULES. At the date of execution of this Agreement by
the parties, the form and content of the schedules to this Agreement had not
be settled by the parties and it is a condition precedent to Buyers'
performance under this Agreement that such schedules be settled prior to
Closing.
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ARTICLE 12. CONDITIONS PRECEDENT TO SELLERS' PERFORMANCE
The obligations of Sellers to sell and transfer the Subject Assets under this
Agreement are subject to the satisfaction, at or before the Closing, of all the
following conditions:
12.1 ACCURACY OF BUYERS' REPRESENTATIONS AND WARRANTIES. All representations
and warranties by Buyers contained in this Agreement or in any Collateral
Agreement or in any written statement delivered by Buyers thereunder shall be
true on and as of the Closing as though such representations and warranties
were made on and as of that date. Sellers shall have received a certificate,
dated the Closing Date, signed by Buyers' Presidents certifying, in such
detail as Sellers and their counsel may reasonably request, that the
representations and warranties set out herein are true and correct as of the
Closing Date.
12.2 BUYERS' PERFORMANCE. Buyers shall have performed and complied with all
covenants and agreements, and satisfied all conditions that it is required by
this Agreement to perform, comply with, or satisfy, before or at the Closing.
12.3 OPINION OF BUYERS' COUNSEL. Buyers shall have furnished Sellers with an
opinion from counsel for Buyers, dated the Closing Date, satisfactory to
Sellers and their counsel, stating that:
(a) Buyers are corporations duly organized, validly existing and in good
standing under the laws of the State of Colorado and have all
requisite corporate power to perform their obligations under this
Agreement;
(b) all corporate proceedings required by law or by the provisions of this
Agreement to be taken by Buyers on or before the Closing Date in
connection with the execution and delivery of this Agreement and the
consummation of the Transactions shall have been duly and validly
taken;
(c) this Agreement has been duly and validly authorized and, when executed
and delivered by Buyers will be valid and binding on Buyers and
enforceable in accordance with its terms, except as limited by
bankruptcy and insolvency laws and by other laws affecting the rights
of creditors generally;
(d) neither the execution nor delivery of this Agreement nor the
consummation of the Transactions will constitute a default, or an
event that would with notice or lapse of time or both constitute a
default under, or violation or breach of Buyers' articles of
incorporation or bylaws;
(e) the shares described in SECTION 2.1(d) and the Warrants described in
SECTION 2.1(e) have been duly authorized and, when issued and
delivered pursuant the this Agreement, will have been validly issued,
and will be fully paid and nonassessable; the stockholders of New
Frontier will have no preemptive rights or other rights with respect
to such shares or warrants; when such warrants are exercised in
accordance with their terms, the New Frontier shares that are due
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Sellers upon such exercise will have been validly issued, and will be
fully paid and non-assessable; the stockholders of New Frontier will
have no preemptive rights with respect to the shares issued upon the
exercise of such warrants; and
(f) to the best of such counsel's knowledge, there is no legal action
pending or threatened against either of Buyers which could have a
material adverse affect on Buyers.
In rendering its opinion, counsel for Buyers may rely on certificates of
governmental authorities and on opinions of associate counsel.
12.4 BUYERS' CORPORATE APPROVAL. Buyers shall have received corporate
authorization and approval for the execution and delivery of this Agreement
and all corporate action necessary or proper to fulfill the obligations of
Buyers to be performed under this Agreement on or before the Closing Date.
12.5 BOARD OF DIRECTORS APPOINTMENT. 5DBC shall have the right to appoint at
least one director to the Board of Directors of New Frontier and 5DBC shall
be entitled to have one additional nonvoting representative whom shall enjoy
all the rights and privileges of board members of New Frontier except for the
right to vote and whose expenses (traveling and lodging) shall be paid by New
Frontier. With respect to the right to appoint at least one director, at such
time after the Closing Date as 5DBC shall request, one designee of 5DBC shall
be appointed as a member of the Board of Directors of New Frontier, to hold
office until the next annual meeting of stockholders of New Frontier and
until such designee's successor shall have been elected and qualified (or the
earlier resignation or removal of such designee). Thereafter, so long as 5DBC
(and its affiliates) continue to own not less than 300,000 (as presently
constituted) shares of New Frontier, 5DBC shall, subject to the conditions
hereinafter set forth, be entitled to designate one management nominee for
election as a member of the Board of Directors of New Frontier.
Notwithstanding the foregoing, 5DBC shall not have the right to designate a
nominee for election as a member of the Board of Directors, or if such right
of designation shall have been exercised, such designee shall not have the
right to continue to serve as a member if his/her so serving would cause New
Frontier to violate any statute or regulation applicable to New Frontier.
12.6 CONSULTANT CONTRACT - DANIEL BENDER. Buyer shall enter into a
Consultant Agreement with Daniel Bender, provided Daniel Bender is prepared
to enter into such agreement, for a period of one year following the Closing
Date and in the amount of US$100,000.00 in a form substantially similar to
SCHEDULE 12.6, which shall be executed and delivered by Buyer on the Closing
Date.
12.7 AUDIO/VISUAL PRODUCTION AGREEMENT. Buyer shall enter into an
Audio/Visual Production Agreement with Diorio Productions Inc., provided
Diorio Productions Inc. is prepared to enter into such agreement, in a form
substantially similar to SCHEDULE 12.7, whereby Buyer agrees to purchase
Cdn$30,000.00 of interstitial programming per month for the acquired Adult
Movies Business for a period of nine (9) months following the Closing Date,
which agreement shall be executed and delivered by Buyer on the Closing Date.
12.8 AGREEMENT ON SCHEDULES. At the date of execution of this Agreement by
the parties, the
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form and content of the schedules to this Agreement had not be settled by the
parties and it is a condition precedent to Sellers' performance under this
Agreement that such schedules be settled prior to Closing and shall be
initialled by the signing officers of the parties.
12.9 CAPITALIZATION OF BUYERS. Prior to the Closing Date, the Buyers shall
have raised and received the net proceeds from a share offering of New
Frontier stock of not less than US$7,000,000 gross.
ARTICLE 13. SELLERS' OBLIGATIONS AFTER THE CLOSING.
13.1 PRESERVATION OF GOODWILL. Following the Closing, Sellers will restrict
their activities so that Buyers' reasonable expectations with respect to the
goodwill, business reputation, employee relations and prospects connected
with the Subject Assets will not be materially impaired. In furtherance but
not in limitation of this general obligation, Sellers agree that, for the
period of two (2) years following the Closing Date, or as long as Buyers or
its assigns or successors in interest carry on a like business in the
counties or areas specified, whichever is shorter:
(a) Sellers and their shareholders will not engage in any business or
activity which is substantially the same as, any business or activity
presently conducted by Sellers if such business or activity extends to
any of the geographic areas set forth in SCHEDULE 11.11 in which
Sellers have heretofore engaged in business or otherwise established
its goodwill, business reputation, or any customer relations. The
parties intend that the covenant contained herein shall be construed
as a series of separate covenants, one for each geographic area
specified in SCHEDULE 11.11. Except for geographic coverage, each
separate covenant shall be deemed identical in terms to the covenant
set forth above. If, in any judicial proceeding, a court shall refuse
to enforce any of the separate covenants deemed included in this
Section, then this unenforceable covenant shall be deemed eliminated
from these provisions for the purpose of those proceedings to the
extent necessary to permit the remaining separate covenants to be
enforced.
(b) Sellers and their shareholders will not disclose to any person or use
for their own benefit any price lists, pricing data, customer lists or
similar matters possessed by them relating to the Subject Assets or
the business transferred to Buyer unless they first clearly
demonstrate to Buyer that such matters are at the time of the proposed
disclosure or use of common knowledge within the trade.
13.2 SELLERS' INDEMNITIES. Sellers shall indemnify, defend and hold harmless
Buyers against and in respect of any and all claims, demands, losses, costs,
expenses, obligations, liabilities, damages, recoveries and deficiencies,
including interest, penalties and reasonable attorneys' fees, that Buyers
shall incur or suffer, which arise, result from or relate to any breach of,
or failure by Sellers to perform, any of their representations, warranties,
covenants or agreements in this Agreement or in any schedule, certificate,
exhibit or other instrument furnished or to be furnished by Sellers under
this Agreement. Notwithstanding any other provision of this Agreement,
Sellers shall not be liable to Buyer on any warranty, representation or
covenant made
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by Sellers in this Agreement, or under any of their indemnities in this
Agreement, regarding any single claim, loss, expense, obligation or other
liability that does not exceed US$2,500.00; provided, however, that when the
aggregate amount of all such claims, losses, expenses, obligations and
liabilities not exceeding US$2,500.00 each reaches US$25,000.00, Sellers
shall thereafter be liable in full for all such breaches and indemnities and
regarding all those claims, losses, expenses, obligations, and liabilities.
13.3 ACCESS TO RECORDS. From and after the Closing, Sellers shall allow
Buyers, and their counsel, accountants and other representatives, such access
to records which after the Closing are in the custody or control of Sellers
as Buyers reasonably require in order to comply with its obligations under
the law or under contracts assumed by Buyers pursuant to this Agreement.
13.4 NONSOLICITATION OF EMPLOYEES. Except with the prior written consent of
Sellers, Buyers shall not, prior to the first anniversary of the Closing,
solicit any employee of Sellers or of any affiliate of Sellers to leave such
employment if such employee was at any time between the date hereof and the
Closing an employee of Seller.
13.5 RISK OF LOSS.
(a) Until the Closing Date the Subject Assets will remain at the risk of
Sellers. Sellers will maintain all risk insurance in respect of loss
or damage to or any other casualty in respect of the Subject Assets
which provides for loss settlement on a replacement cost basis if the
Subject Assets are repaired or replaced and on an actual cash value
basis if the Subject Assets are not repaired or replaced. In the event
of any loss, damage or claim, in respect of any risk for which
insurance is to be carried as aforesaid arising before the Closing
Date, Buyers, as an additional condition of closing, will be entitled
to be satisfied that the insurers have accepted the claim of Sellers
for payment in accordance with the terms of the policies. If any
destruction or damage occurs to the Subject Assets on or before the
Closing Date or if any or all of the Subject Assets are appropriated,
expropriated or seized by governmental or other lawful authority on or
before the Closing Date, Sellers will forthwith give notice thereof to
Buyers and Buyers will have the option, exercisable by notice to
Sellers on or before the Closing Date:
(i) to reduce the Purchase Price by an amount equal to the cost of
repair or, if destroyed or damaged beyond repair or if
appropriated, expropriated or seized, by an amount equal to the
replacement cost of the assets forming the part of the Subject
Assets so damaged or destroyed or appropriated, expropriated or
seized and to complete the purchase;
(ii) to complete the purchase without reduction of the Purchase Price,
in which event all proceeds of insurance or compensation for the
destruction or damage or appropriation, expropriation or seizure
will be payable to Buyers and all right and claim of Sellers to
any such amounts not paid by the Closing Date will be assigned to
Buyers; or
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(iii) to rescind this Agreement and not complete the purchase if, in
the opinion of Buyers, such destruction, damage, appropriation,
expropriation or seizure is material and in such event Sellers
and Buyers will be released from all obligations hereunder and
the deposit referred to in SECTION 2.1(a) shall be returned to
Buyers.
(b) If Buyers elect to reduce the Purchase Price pursuant to SECTION
13.5(a)(i), Sellers and Buyers will at the Closing Date determine the
amount of the reduction to the extent that it is then determinable and
will undertake to adjust such amount after the Closing Date, if
necessary.
ARTICLE 14. COSTS
14.1 FINDER'S OR BROKER'S FEES. Each party shall be responsible for its on
costs or for any commission or finder's fee incurred on behalf of that party
in connection with the Transactions.
14.2 EXPENSES. Each of the parties shall pay all costs and expenses,
including, but not limited to attorneys' fees, incurred or to be incurred by
it in negotiating and preparing this Agreement and in closing and carrying
the Transactions.
ARTICLE 15. FORM OF AGREEMENT
15.1 HEADINGS. The subject headings of the Articles and Sections of this
Agreement are included for purposes of convenience only and shall not affect
the construction or interpretation of any of its provisions.
15.2 ENTIRE AGREEMENT; MODIFICATION; WAIVER. This Agreement constitutes the
entire agreement between the parties pertaining to the subject matter
contained in it and supersedes all prior and contemporaneous agreements,
representations, and understandings of the parties. No supplement,
modification or amendment of this Agreement shall be binding unless executed
in writing by all the parties. No waiver of any of the provisions of this
Agreement shall be deemed, or shall constitute, a waiver of any other
provision, whether or not similar, nor shall any waiver constitute a
continuing waiver. No waiver shall be binding unless executed in writing by
the party making the waiver.
15.3 COUNTERPARTS. This Agreement may be executed simultaneously in one or
more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
ARTICLE 16. PARTIES
16.1 PARTIES IN INTEREST. Nothing in this Agreement, whether express or
implied, is intended to confer any rights or remedies under or by reason of
this Agreement on any persons other than the
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parties to it and their respective successors and permitted assigns, nor is
anything in this Agreement intended to relieve or discharge the obligation or
liability of any third persons to any party to this Agreement, nor shall any
provision give any third persons any right of subrogation or action over
against any party to this Agreement.
16.2 ASSIGNMENT. No party can assign this Agreement without the express
written consent of the other parties. This Agreement shall be binding on and
shall inure to the benefit of the parties to it and their respective heirs or
legal representatives, and their respective successors and permitted assigns.
ARTICLE 17. REMEDIES
17.1 RECOVERY OF LITIGATION COSTS. If any legal action or any arbitration or
other proceeding is brought for the enforcement of this Agreement, or because
of an alleged dispute, breach, default or misrepresentation in connection
with any of the provisions of this Agreement, the successful or prevailing
party or parties shall be entitled to recover reasonable attorneys' fees and
other costs incurred in that action or proceeding, in addition to any other
relief to which it or they may be entitled.
17.2 CONDITIONS PERMITTING TERMINATION. Subject to the provisions of ARTICLE
3 relating to the postponement of the Closing Date, either party may on the
Closing Date terminate this Agreement by written notice to the other, without
liability to the other, if any bona fide action or proceeding shall be
pending against either party on the Closing Date that could result in a
materially adverse judgment, decree or order that would prevent or make
unlawful the carrying out of this Agreement.
17.3 DEFAULTS PERMITTING TERMINATION. If a Buyer or Seller materially
defaults in the due and timely performance of any of its material warranties,
covenants, or agreements under this Agreement, the 124 Agreement or the 104
Agreement, the non-defaulting party or parties may on the Closing Date give
notice of termination of this Agreement, in the manner provided in ARTICLE 19.
The notice shall specify with particularity the default or defaults on which
the notice is based. The termination shall be on the first to occur of the
10th day after such notice or the Closing Date, unless the specified default
or defaults have been cured by such time.
ARTICLE 18. NATURE AND SURVIVAL OF REPRESENTATIONS AND
WARRANTIES
All representations, warranties, covenants and agreements of the parties
contained in this Agreement, or in any instrument, certificate, opinion or other
writing provided for in it, shall survive the Closing.
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ARTICLE 19. NOTICES
All notices, requests, demands and other communications 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 the party to whom notice is to be
given, by first class mail registered or certified, postage prepaid, and
properly addressed as follows:
Sellers: Douglas Duncan
2500 Don Reid Drive
Ontario, Canada
K1H 8P5
Stuart Duncan
2500 Don Reid Drive
Ontario, Canada
K1H 8P5
Daniel Bender
27357 Valley Center Road
Valley Center, California
92082
with copy to: Jamie Wyllie, Esq.
Yegendorf, Brazeau, Seller, Prehogan & Wyllie
55 Metcalfe Street, Suite 750
Ontario, Canada
K1H 6L5
Buyers: New Frontier Media, Inc.
1050 Walnut Street, Suite 301
Boulder, CO 80302
Attn.: Mark H. Kreloff
with copy to: The Law Office of Mark L. Driver, P.C.
3300 East First Ave. Suite 600
Denver, CO 80206
Attn.: Mark L. Driver
Any party may change its address for purposes of this Article by giving the
other parties written notice of the new address in the manner set forth above.
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ARTICLE 20. GOVERNING LAW
This Agreement shall be construed in accordance with, and governed by, the laws
of the State of Colorado.
ARTICLE 21. MISCELLANEOUS
21.1 ANNOUNCEMENTS. Sellers will not make any announcements to the public
concerning this Agreement or the Transactions without the prior approval of
Buyers, which will not be unreasonably withheld. Notwithstanding any failure of
Buyers to approve it, Sellers may make an announcement of substantially the same
information as therefore announced to the public by Buyers, or any announcement
required by applicable law, but Sellers shall in either case notify Buyers of
the contents thereof reasonably promptly in advance of its issuance.
21.2 REFERENCES. Unless otherwise specified, references to Sections or
Articles are to sections or articles in this Agreement.
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21.3 RELATED TRANSACTIONS. It is a condition of the obligations of the parties
to close the Transactions that on the Closing Date the transactions referred to
in the 104 Agreement and the 124 Agreement also close on the Closing Date.
IN WITNESS WHEREOF, the parties to this Agreement have duly executed it as of
the day and year first above written.
BUYERS: New Frontier Media, Inc.
By: /s/ MARK H. KRELOFF
-------------------------------
Its: President
------------------------------
Colorado Satellite Broadcasting, Inc.
By: /s/ MICHAEL WEINER
-------------------------------
Its: President
------------------------------
SELLERS:
Fifth Dimension Communications
(Barbados) Inc.
By: /s/ DOUGLAS DUNCAN
-------------------------------
Its authorized signing officer
Merlin Sierra, Inc.
By: /s/ DOUGLAS DUNCAN
-------------------------------
Its authorized signing officer
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