Exhibit 10.7
NON-COMPETITION, NON-SOLICITATION AND
TRADE SECRECY AGREEMENT
THIS NON-COMPETITION, NON-SOLICITATION AND TRADE SECRECY AGREEMENT is made
to be effective as of the 10th day of February, 2006, and is entered into by
and among NEW FRONTIER MEDIA, INC., a Colorado corporation (the "Parent
Company"), MRG ENTERTAINMENT, INC., a California corporation (the "Company"),
and XXXXXXX XXXXX XXXXXXXX ("Owner"). Capitalized terms not otherwise defined in
this Agreement shall have the meanings ascribed in the Purchase Agreement (as
defined below).
WHEREAS, Owner is a trustor and beneficiary of the Xxxxxxxx Family
Trust dated June 15, 2001 (the "Xxxxxxxx Trust");
WHEREAS, prior to the Closing, the Xxxxxxxx Trust owned (i) fifty
percent (50%) of the issued and outstanding shares of the Company (the "MRG
Shares"), and (ii) fifty percent (50%) of the issued and outstanding shares of
Lifestyles Entertainment, Inc., a California corporation (the "Lifestyle
Shares," and collectively with the MRG Shares, the "Shares");
WHEREAS, after the Closing, the Company is a wholly-owned subsidiary of
the Parent Company;
WHEREAS, the Parent Company, Owner, Marc Xxxxxxxx Xxxxxxxxx, the
Xxxxxxxx Trust and the Marc Xxxxxxxx Xxxxxxxxx Trust dated May 11, 2001
(together with the Xxxxxxxx Trust, the "Trusts") entered into that certain Stock
Purchase Agreement dated February 6, 2006 (the "Purchase Agreement"), pursuant
to which the Trusts sold, transferred and assigned to the Parent Company all of
the Shares and all of the goodwill of the Company, with the Parent Company
continuing to operate the Company's businesses;
WHEREAS, prior to the date hereof, the Company and the Parent Company
were each engaged in the entertainment, production, marketing and distribution
businesses and in producing, licensing and selling motion pictures and
television programs (collectively, the "Products");
WHEREAS, the Parent Company's and the Company's businesses, as
currently conducted and as will be conducted during the Term (as herein
defined), involve marketing and distributing the Products in every state in the
United States and various foreign countries (the "Business");
WHEREAS, Owner has financially benefited directly from the purchase and
sale of the Shares and was Co-President and Secretary of the Company and will
remain the Co-President of the Company pursuant to the terms and conditions of
that certain Employment Agreement of even date herewith between Owner and the
Company ("Employment Agreement"); and
WHEREAS, the parties intend for the non-competition and
non-solicitation covenants contained in this Agreement to be lawful pursuant to
California Business and Professions Code Section 16001 (Sale of Goodwill or
Corporate Shares); and
WHEREAS, as a material inducement to, and a condition of, the Parent
Company's willingness to enter into the Purchase Agreement and to consummate the
transactions contemplated therein, Owner agreed to execute and deliver this
Agreement which restricts Owner's ability to disclose or use Proprietary
Information (as hereinafter defined), to engage in a Competitive Business (as
hereinafter defined), and to engage in other related activities, all as set
forth herein.
NOW, THEREFORE, in consideration of the economic benefits received by
Owner pursuant to the Purchase Agreement and the premises herein contained and
for other good and valuable consideration, the receipt and legal sufficiency of
which are hereby acknowledged, the Parent Company, the Company and Owner hereby
agree as follows:
1. NON-COMPETITION; NON-SOLICITATION; PROPRIETARY INFORMATION.
(a) OWNER COVENANTS. Owner agrees that during the Term (as herein
defined), he shall not in the Territory (as herein defined), directly or
indirectly:
(i) engage, manage, operate, control, join, or participate in
any Competitive Business, whether such engagement shall be as an employer,
officer, director, owner, agent, employee, partner, investor, trustee,
consultant or other participant;
(ii) sell, solicit, or accept business or orders from Customers
(as herein defined) of the Company with respect to products that are
substantially similar to the Products;
(iii) sell or assist in the design, development, manufacture,
production, licensing, sale, marketing or support of any Products;
(iv) interfere with, disrupt or attempt to disrupt
relationships, contractual or otherwise, between the Company and its employees,
contractors and Customers;
(v) hire any employees of the Company, except for Owner's
personal assistant;
(vi) interfere with any supplier, vendor or Customer or attempt
to disrupt relationships, contractual or otherwise, between the Company and any
supplier, vendor or Customer;
(vii) solicit or submit orders with regard to any Products to
any supplier, vendor or Customer which is competitive with the Business; or
(viii) disclose to any person or entity, or use for his own
benefit or for the benefit of any other person or entity, any Proprietary
Information; provided, however, that the foregoing prohibition against
disclosure of Proprietary Information shall not apply to Owner's disclosure of
Proprietary Information that (a) to any technical, financial or legal
professionals that Owner retains in connection with my affiliation with the
Company; provided that all such professionals agree to and do keep all such
information confidential, (b) that Owner is required to disclose pursuant to
judicial action or decree having jurisdiction over Owner or (c) that is
available to the general public through no fault of Owner.
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(b) DEFINITIONS. The terms set forth below shall have the following
meanings:
(i) "Affiliate" means, as to any Person, (a) any subsidiary of
such Person and (b) any other Person which, directly or indirectly, controls, is
controlled by, or is under common control with, such Person and includes, in the
case of a Person other than an individual, each officer or director, general
partner, member, trustee or beneficiary of such Person, and each Person who is
the beneficial owner of 10% or more of such Person's outstanding stock or other
equity interests having ordinary voting power of such Person. For the purposes
of this definition, "control" means the possession of the power to direct or
cause the direction of management and policies of such Person, whether through
the ownership of voting stock, by contract or otherwise.
(ii) "Competitive Business" means a business or division of a
business engaged in the Business.
(iii) "Customer" means any of the following who purchased
Products from the Company at any time during the period beginning twenty-four
(24) months prior to the effective date of this Agreement and ending on the date
of termination or expiration of this Agreement: (1) distributors of the
Products, and (2) producers of the Products.
(iv) "Erotic Products" means those Products the substance or
content of which is of an adult-oriented nature (that is, those Products that
have as any material plot element either suggestive, erotic or sensual themes
and/or scenes).
(v) "Non-Erotic Products" shall mean any Products of the Company
other than the Erotic Products, and shall specifically include any business
line, product line or content genre in which the Company or its Affiliates has
developed strategic plans or taken actual steps to compete or distribute
Products in such areas.
(vi) "Person" means any natural person, corporation,
partnership, limited liability company, trust, unincorporated organization or
other entity.
(vii) "Proprietary Information" shall mean any and all
confidential and/or proprietary knowledge, data or information of the Company.
By way of illustration but not limitation, "Proprietary Information" includes
(a) trade secrets, inventions, ideas, processes, formulas, source and object
codes, data, programs, other works of authorship, know-how, improvements,
discoveries, developments, designs and techniques; and (b) information regarding
plans for research, development, new products, projects, potential projects,
current projects, projects in development and future projects, forecasts, plans,
contracts, releases, marketing and selling, customer/client information,
customer/client lists, vendors, vendor lists, pricing information and costs,
corporation and personal business opportunities, Rolodex cards or other lists of
names, addresses or telephone numbers, other than Owner's personal address book,
Company-related information on computer disks or files, or any other electronic
information of any kind, and budgets and unpublished financial statements and
information, and licenses; and (c) information regarding the skills and
compensation of other employees of the Company. "Proprietary Information"
includes information developed by Owner in the course of Owner's services for
the Company, as well as other confidential information to which Owner may have
access in connection with Owner's services. "Proprietary Information" also
includes the confidential information of other individuals or entities with
which Company or any of its owners, predecessors, successors, subsidiaries,
affiliates, parents, or its shareholders, directors and officers has a business
relationship. Notwithstanding the foregoing, it is understood that, at all such
times, Owner is free to use information which is generally known in the trade or
industry, which is not gained as result of a breach of this Agreement, and
Owner's own skill, knowledge, know-how and experience to whatever extent and in
whichever way Owner wishes.
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(viii) "Term" means the five (5) year period commencing on the
effective date of this Agreement (whether or not Owner is employed by Company
for such 5 year period).
(ix) "Territory" means the United States of America and the
foreign jurisdictions in which the Company or the Parent Company conducts the
Business.
(c) EXCEPTIONS.
(i) Owner may own capital stock or other securities of any
corporation, the securities of which are publicly owned or regularly traded in
the over-the-counter market or on any securities exchange, provided that Owner
shall not acquire, in the aggregate, beneficial ownership (as determined under
Rule 13d-3 of the Securities Exchange Act of 1934) of more than five percent
(5%) of the issuer's outstanding securities of that class.
(ii) After February __, 2009 until the expiration of the Term,
in the event that Owner is not then an employee of the Company or its
Affiliates, the parties agree that the restrictions in this Agreement shall not
be construed to prohibit Owner from developing or producing any individual
motion picture or television program which is not an Erotic Product, or
arranging for the distribution thereof by a third party where (x) the
development, or production of such individual motion picture(s) or television
program(s) does not adversely affect the revenues and profitability of the
Company or its Affiliates and (y) such individual motion picture(s) or
television program(s) is not a sequel to any Product developed, produced or
distributed by the Company and its Affiliates. The parties further acknowledge
that after February __, 2009 until the expiration of the Term with regard to
Non-Erotic Products, Owner shall have the right to seek the Company's consent to
engage in business activities on a case-by-case basis which activities otherwise
are prohibited by this Agreement, but which activities do not adversely affect
the revenues and profitability the Company or its Affiliates are generating from
any of its existing or projected business lines, product lines or content genre,
which consent shall not be unreasonably withheld or delayed. For purposes of
this Agreement, "Non-Erotic Products" shall mean any Products of the Company
other than the Erotic Products, and shall specifically include any business
line, product line or content genre in which the Company or its Affiliates has
developed strategic plans or taken actual steps to compete or distribute
Products in such areas.
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(d) EXTENSION OF TIME; TERMINATION OF AGREEMENT. In the event that
Owner breaches any covenant, obligation or duty in this Agreement or its
subparts, any such duty, obligation, or covenants to which the parties agreed by
this Agreement and its subparts shall automatically toll from the date of the
first breach, and all subsequent breaches, until the resolution of the breach
through private settlement, judicial or other action, including all appeals. The
duration and length of Owner's duties and obligations as agreed by this
Agreement and its subparts shall continue upon the effective date of any such
settlement, or judicial or other resolution. This Agreement shall terminate and
be of no further force or effect in the event the Company and the Parent Company
cease to engage in the Business.
2. ACKNOWLEDGEMENTS; WAIVER.
(a) Valuable Consideration. Owner is entering into this Agreement in
consideration for, and as an inducement to his execution of the Purchase
Agreement and the consummation of the transactions contemplated thereby and the
commitment of the Parent Company to perform its obligations undertaken therein,
which Owner acknowledges is adequate, valid and legal consideration for his
execution of this Agreement.
(b) Proprietary Information Agreement. Nothing in this Section
1(b)(vi) shall be construed to reduce or modify the length of the term of that
certain Employee Proprietary Information and Inventions Agreement of even date
herewith between Owner and the Company.
(c) Reasonable. Owner agrees and acknowledges that the duration of
the Term and the geographic scope on the restrictions in this Agreement and its
subparts are reasonable. Owner also acknowledges and agrees that the limitation
in this Agreement and its subparts is reasonably necessary for the protection of
the Company, that through the Purchase Agreement, of which this Agreement is a
part, he shall receive adequate consideration for any loss of opportunity
associated with the provisions herein, and that these provisions provide a
reasonable way of protecting the Company's and the Parent Company's business
value and goodwill which was imparted to him.
(d) Legal Representation. Owner acknowledges that he has had the
opportunity to consult with his own legal counsel regarding the terms of this
Agreement, including, without limitation, the breadth of its geographic scope,
the length of the Term and the Company's and Parent Company's remedies.
(e) Waiver. Owner hereby waives any and all right to attack the
validity of the terms hereof on the grounds of the breadth of their geographic
scope or the length of the Term.
(f) Fully Enforced. Owner and the Company hereby agree that this
Agreement shall be enforced as fully as possible under applicable law.
3. ENFORCEMENT.
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(a) Legal and Equitable Remedies. In view of the nature of the
rights in goodwill, employee relations, trade secrets, Proprietary Information,
and business reputation and prospects of the Company and Parent Company to be
protected under this Agreement, Owner understands and agrees that the Company or
the Parent Company could not be reasonably or adequately compensated in damages
in an action at law for Owner's breach of his obligations hereunder.
Accordingly, Owner specifically agrees that the Company and Parent Company shall
be entitled to temporary and permanent injunctive relief, specific performance,
and other equitable relief to enforce the provisions of this Agreement, and that
such relief may be granted without the necessity of proving actual damages, and
without bond. Owner acknowledges and agrees that the restrictive covenants
described in this Agreement are essential and material to this Agreement and the
Purchase Agreement, and that upon breach of this Agreement by him, the Company
or Parent Company is entitled to withhold providing payments or consideration
either under the Earnout Agreement (as herein defined), equitable relief to
prevent continued breach, to recover damages and to seek any other remedies
available to the Company or Parent Company. This provision with respect to
injunctive relief shall not, however, diminish the right of the Company or
Parent Company to claim and recover damages or other remedies in addition to
equitable relief. Notwithstanding the foregoing, neither Parent Company nor
Company, as applicable, shall withhold payments or consideration under the
Earnout Agreement unless Parent Company and/or Company has received an interim
award of relief granted pursuant to an application filed with AAA (as herein
defined) pursuant to Section 3(c) below or as ordered by a court of competent
jurisdiction. For purposes of this Agreement, the term "Earnout Agreement" means
that certain Earnout Agreement of even date herewith among the Parent Company,
the Trusts, Marc Xxxxxxxx Xxxxxxxxx and Owner.
(b) Blue Pencil. If any covenant, word, clause, phrase, provision,
restriction, or section contained herein is held to be unenforceable because of
the scope of such covenant, word, clause, phrase, provision, restriction,
section, the length of the Term or the geographic scope (the Territory) covered
thereby, the undersigned agree that the court making such determination shall
have the power to reduce the scope, the length of the Term, and the geographic
scope (the Territory) or any such provisions and, in its reduced form, said
provision shall then be enforceable. Should any other portion of this Agreement
be declared invalid for any reason, said provision shall be severed and all
other provisions shall continue to be effective and binding. Moreover,
notwithstanding any judicial determination that any term, word, clause, phrase,
provision, restriction, or section of this Agreement is not specifically
enforceable, the parties intend that the Company shall nonetheless be entitled
to recover monetary damages as a result of any breach hereof.
(c) Choice of Law; Jurisdiction; Venue. The parties hereto intend to
and hereby confer jurisdiction to enforce the covenants contained in Section 1
upon the courts of any state within the geographical scope of such covenants. In
the event that the courts of any one or more of such states shall hold such
covenants wholly unenforceable by reason of the breadth of their scope or
otherwise, it is the intention of the parties hereto that such determination not
bar or in any way affect the Company's right to the relief provided above in the
courts of any other state within the geographical scope of such covenants as to
breaches of such covenants in such other respective jurisdictions, the above
covenants as they relate to each state being, for this purpose, severable into
diverse and independent covenants. Notwithstanding the foregoing provisions of
this Section 3(c), the Company in its sole discretion may bring any enforcement
action hereunder in the jurisdiction where the alleged breach hereunder has
occurred, in California, in Colorado or in the jurisdiction where the Company
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conducts business and Owner hereby consents (to both personal jurisdiction and
venue) to such action, if any, being brought in such jurisdictions and venues.
Further notwithstanding anything contained in this Agreement to the contrary,
the parties agree the Company or the Parent Company, or both, may, in their sole
discretion, file an application with the American Arbitration Association
("AAA") pursuant to and in accordance with the Optional Rules for Emergency
Measures of Protection adopted by the AAA, as the same may be modified or
supplemented from time to time (the "Emergency AAA Rules"), to seek an interim
award of emergency relief to enjoin Owner from engaging in any activity in
violation of this Agreement. Any such interim arbitration shall be subject to
and conducted in strict accordance with the Emergency AAA Rules. Nothing in this
Section 3(c) shall (i) be construed to require the Company or Parent Company to
seek any form or relief by initiating any such emergency action with the AAA, or
(ii) reduce or impair the Company's right to bring an action at law or equity
under this Agreement in a court of competent jurisdiction located in California,
Colorado or such other jurisdiction where the Company or Parent Company conducts
business.
(d) Prevailing Party Attorney's Fees and Costs. If any legal action
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 provisions of this Agreement, the successful or prevailing party shall be
entitled to recover reasonable attorneys' fees, court costs and all expenses
even if not taxable as court costs (including, without limitation, all such
fees, costs and expenses incident to appeals), incurred in that action or
proceeding, in addition to any other relief to which such party may be entitled.
4. NOTICES. Any notices required or permitted hereunder shall be given
to the appropriate party at the address specified below or at such other address
as the party shall specify in writing, with a copy of all notices to Xxxxxxx
Xxxx, Esq., Wolf, Rifkin, Xxxxxxx & Xxxxxxxx, LLP, 00000 X. Xxxxxxx Xxxx, Xxxxx
Xxxxx, Xxx Xxxxxxx, Xxxxxxxxxx 00000 and to E. Xxx Xxxxxxxx, Esq., Kamlet
Shepherd & Xxxxxxxx, LLP, 0000 Xxxxxxxx Xxxxxx, Xxx. 0000, Xxxxxx, Xxxxxxxx
00000 . Such notice shall be deemed given upon personal delivery to the
appropriate address or if sent by certified or registered mail, three (3) days
after the date of mailing.
5. BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto, and their respective heirs,
legal representatives, successors and assigns. No assignment or transfer of
rights and obligations hereunder shall be made by Owner. The Company or the
Parent Company may assign or transfer any rights and obligations hereunder to
(i) any Affiliate of the Company and/or Parent Company, (ii) a third party that
acquires by merger, stock purchase or asset purchase (x) more than fifty percent
(50%) of the voting equity interests in the Company or the Parent Company, as
applicable, or (y) all or substantially all of the assets of the Company or the
Parent Company, as applicable.
6. CAPTIONS; DEFINITIONS. The titles or captions of sections contained
in this Agreement are inserted only as a matter of convenience and for reference
and in no way define, limit, extend or describe the scope of this Agreement or
the intent of any provision hereof. The parties agree to all definitions in the
statement of parties to this Agreement and in the other introductory language to
this Agreement.
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7. CONTROLLING LAW; AMENDMENT; ENTIRE AGREEMENT; WAIVER. This Agreement
shall be construed in accordance with and governed by the laws of the
jurisdiction in which an enforcement action pursuant to Section 3 is brought,
without giving effect to the principles of conflict of laws thereof. No
provision of this Agreement or any related document shall be construed against
or interpreted to the disadvantage of any party hereto by any court or other
governmental or judicial authority by reason of such party's having or being
deemed to have structured or drafted such provision. This Agreement sets forth
the entire agreement and understanding of the parties hereto with regard to the
subject matter hereof and supersedes any and all prior agreements, arrangements
and understandings, written or oral, pertaining to the subject matter hereof. No
representation, promise or inducement relating to the subject matter hereof has
been made to a party that is not embodied in this Agreement, and no party shall
be bound by or liable for any alleged representation, promise or inducement not
so set forth. This Agreement may not be altered or amended except in writing
signed by the Company, the Parent Company and Owner. The failure of any party
hereto at any time to require performance of any provisions hereof shall in no
manner affect the right to enforce the same. No waiver by any party hereto of
any condition, or of the breach of any term, provision, warranty,
representation, agreement or covenant contained in this Agreement, whether by
conduct or otherwise, in any one or more instances shall be deemed or construed
as a further or continuing waiver of any such condition or breach or a waiver of
any other condition or of the breach of any other term, provision, warranty,
representation, agreement or covenant herein contained.
8. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument. This Agreement shall become effective
when one or more counterparts have been signed by each of the parties to this
Agreement and delivered to each of the other parties to this Agreement.
[SIGNATURE PAGE(S) TO FOLLOW]
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IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
THE PARENT COMPANY:
New Frontier Media, Inc.,
a Colorado corporation
Address for Notice:
New Frontier Media, Inc. By: /s/ Xxxxxxx Xxxxxx
0000 Xxxxxxxxxx Xxxxxx --------------------
Suite 200 Name: Xxxxxxx Xxxxxx
Xxxxxxx, XX 00000 ------------------
Facsimile: (000) 000-0000 Title:CEO
-----------------
Attention: Xxxxxxx Xxxxxx,
Xxxxx Xxxxxx, and
Xxxxxx Xxxxxxx
THE COMPANY:
MRG Entertainment, Inc.,
a California corporation
Address for Notice:
New Frontier Media, Inc. By: /s/ Xxxxx Xxxxxx
0000 Xxxxxxxxxx Xxxxxx --------------------
Suite 200 Name: Xxxxx Xxxxxx
Xxxxxxx, XX 00000 ------------------
Facsimile: (000) 000-0000 Title:CFO
-----------------
Attention: Xxxxxxx Xxxxxx,
Xxxxx Xxxxxx, and
Xxxxxx Xxxxxxx
OWNER:
Address for Notice: /s/ Xxxxxxx Xxxxx Xxxxxxxx
------------------------ ------------------------------------
------------------------ Xxxxxxx Xxxxx Xxxxxxxx
Phone No:
----------------
Facsimile No:
------------
Email:
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