EXHIBIT 10.5
May 5, 1998
▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇'s Film AB
Box 30018
10425 Stockholm, Sweden
Re: Letter of Understanding
Dear ▇▇. ▇▇▇▇▇▇▇▇:
Private Media Group, Inc. (hereinafter referred to as "PRVT" wishes to
express its intention to make an offer to acquire all of the issued and
outstanding share of ▇▇▇'s Film AB (hereinafter referred to as "Max's"), as
detailed on Exhibit A attached hereto.
It is intended that the offer to purchase (the "Formal Agreement") or the
"Agreement") shall substantially contain the following terms:
1. The closing of the transaction contemplated hereby shall take place on
or before July 20, 1998 or such other date as may be mutually
acceptable to PRVT and Max's (hereinafter referred to as the "Closing"
or "Close").
2. PRVT wishes to acquire all of the outstanding shares of ▇▇▇'s in
exchange for Common Shares of PRVT to be issued at various dates.
3. The Agreement to be negotiated and executed between PRVT and ▇▇▇'s
based upon further negotiations between the parties, will contain a
set purchase price of USD 2.6 million (two million six hundred
thousand United States Dollars) detailed as follows:
(a) USD 1,300,000 in value of common stock of PRVT at closing in
exchange for 100 percent of the outstanding shares of Max's.
(b) An additional USD 650,000 in value of common stock of PRVT if
Max's nets 5,000,000 SEK within one year of its acquisition by
PRVT.
(c) An additional USD 650,000 in value of common stock of PRVT if
▇▇▇'s nets 5,000,000 SEK during the second year after its
acquisition by PRVT.
(d) Warrants to purchase up to 50,000 shares of PRVT at anytime
during the three year period after closing at the price
determined by 3(g) below.
(e) For the purpose of this paragraph "net" means profit before
taxes.
(f) For the purposes of this paragraph "SEK" is hereby defined as
Swedish Kroner.
(g) For the purposes of this paragraph, the USD value of each share
of PRVT shall be determined as being the average closing price
for the twenty business days prior to the Closing.
(h) All shares to be issued to the shareholders of ▇▇▇'s shall be
restricted shares as such is commonly known under the United
States Securities Act of 1933 and will bear the appropriate
restrictive legend thereon. As such, there will be limitations on
their transferability and saleability, within the United States
of America, unless a registration is in effect or an exemption
from registration is in effect. PRVT agrees to file an
appropriate re-sale Registration Statement covering any of these
shares within twelve (12) months from their issue date.
(i) In the event that ▇▇▇'s does not net the aforementioned 5,000,000
SEK within one year after acquisition and/or during the second
year after acquisition as referred to 3(b) and 3(c) above, the
number of shares referred to in 3(b) and/or 3(c) above shall be
reduced on a pro-rata basis for the year that said goal was not
reached. For example, should ▇▇▇'s only net 2,500,000 SEK during
the first year after its acquisition, only an additional USD
325,000 in value of common stock of PRVT will be issued.
4. A Formal Agreement shall be negotiated and executed between PRVT and
▇▇▇'s and shall include such reasonable representations, warranties
and conditions as are normally made in connection with such a
transaction and in such form as is mutually agreeable to the parties.
Such representations and warranties shall survive the closing of the
transaction for a period of two (2) years and shall be true and
correct as of the date they are made or will be true and correct by
the time of Closing. Such representations shall be made by the parties
to the best of their knowledge, information and belief after having
made reasonable inquiry. Such representations and warranties shall
include but are not limited to the following:
(a) Representations by PRVT:
i. PRVT is a valid and existing Nevada corporation;
ii. PRVT owns all right, title, estate and interest in and to
its assets free and clear of all liens, encumbrances,
charges or claims, save and except for those liabilities
which a list of which will be provided to Max's; and
iii. PRVT has not granted nor entered into any other agreement,
option or understanding, or commitment or any encumbrance
of or disposal of its assets or any interest therein, or
any right of privilege capable of becoming an agreement or
option with respect to the assets, with the exception of an
earlier agreement to acquire all of the outstanding shares
of an subsidiaries of Milcap Media Limited and Cinecraft
Limited.
iv. The authorized capital of PRVT consists of 50,000,000
Common Shares with a par value of $.001, of which 8,081,669
are presently outstanding and 10,000,000 preferred shares
with a par value of $.001, of which 7,000,000 have been
designated as $4.00 series "a" convertible preferred stock
and are outstanding. In addition to the Common Shares,
there are currently 875,000 common stock purchase warrants
outstanding having an exercise price of $4.00 per share and
an expiration date of December 31, 2000.
Of the common shares outstanding all, except for 581,669
shares, together with all of the preferred shares, and all
of the common stock warrants are being held in escrow until
the close of the transactions between PRVT and Milcap Media
Limited and Cinecraft Limited.
v. PRVT warrants that it will use its best efforts to
negotiate a three year consultancy contract with a company
to be designated by ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ on or before Closing.
Said contract will contain, in general, fir ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
or other members of said company, to provide all services
that may be, in good faith, required by PRVT in connection
with the needs of Max's, PRVT, or any of its subsidiaries.
In addition, PRVT warrants that it will use its best
efforts to enter into a three year employment agreement
between ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, employing him as Chief Financial
Officer of ▇▇▇'s, with all powers and time requirement,
normally associated with such position. In consideration
for said services, said company and/or ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ shall
receive a gross combined monthly income and/or ▇▇▇▇▇
▇▇▇▇▇▇▇▇ shall receive a gross combined monthly consulting
fee and/or salary if a total of 70,000 SEK and shall be
responsible for all its own expenses, with the exception of
travel expenses required to perform its obligation under
the contract and such other expenses as may be agreed upon
between the parties. Said consultancy agreement shall be
between the company designated by ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and the
entity designated by PRVT.
vi. PRVT warrants and represents that, for the three years
after the Closing, ▇▇▇'s will have access to at least the
same level of
working capital as it has had access to for the past two
years and that the territory within which it has had access
to for the past two years and that the territory within
which it operates shall not be reduced. In addition, no
changes shall be made with respect to ▇▇▇'s operating
practices, except as necessary to conform with the
operations of PRVT or its subsidiaries.
(b) Representations by ▇▇▇'s:
i. Max's is a valid and existing corporation under the laws of
Sweden.
ii. The unaudited financial information provided by ▇▇▇'s to
PRVT is true and correct in all material respects and does
not fail to state any material facts, the omission of which
would be materially misleading.
iii. ▇▇▇'s owns all right, title, estate and interest in and to
its assets free and clear of all liens, encumbrances,
charges or claims, save and except for liabilities to be
disclosed to PRVT.
iv. The Audited financial statements of ▇▇▇'s will be made
available promptly.
v. EXHIBIT A attached hereto accurately describes the current
Stockholders, Officers and Director of ▇▇▇'s. It also
indicates the irrevocable allocations for the individual
pro rata share of the purchase price described under
Section 3 a) b) and c) of this Letter of Understanding. The
equity structure and the Shareholders of ▇▇▇'s will remain
unchanged, and the same as described on Exhibit A until the
Closing Date.
(c) Representations by ▇▇▇▇ and ▇▇▇'s:
i. There are no actions, suits or proceedings pending against
the parties which could involve the possibility of any
materially adverse judgment or ruling against or liability
of the parties which could affect the assets or the
business of either party;
ii. By the Closing, all Boards of Directors, Shareholders, and
regulatory approval that may be required by either party to
effect the closing of the transaction will have been
obtained;
iii. The parties and their Officers, Directors, Shareholders
have the right to enter into this Letter of Understanding
without requiring
the consent of any person (other than those that have
already been acquired and regulator approval) and the
entering into this Letter of Understanding doe not and will
not violate any agreement to which either party may be
bound; and
iv. At the Closing, the parties will not have any outstanding
tax liability including, without limiting the generality of
the foregoing, federal, national or state corporate tax..
v. No finders fee is due to any person or entity.
vi. Until a formal agreement is reached between the parties,
each of the parties shall be totally responsible for all
legal, administrative, and other expenses necessary to
implement this Letter of Understanding, prepare the formal
agreement discussed herein, and take all necessary actions
to consummate the transactions contemplated herein.
vii. None of the parties herein shall have any obligation to pay
nor the right to claim compensation from any other party if
no formal agreement is reached.
5. Each party shall provide the other party and its duly appointed
representatives with reasonable access to the assets and all
corresponding books, records, files, technical reports and data, legal
opinions and other particulars in possession of each party, prior to
the Closing, in order that each party may satisfy itself as to the
title of the other party to the assets and all matters relating to the
use and application thereof , to otherwise determine the accuracy of
the matter set forth herein and to provide the parties with the
necessary information to make full, true and plain disclosure to the
public markets and its Shareholders to such extent as required by law
and applicable regulation.
6. All relevant information about PRVT and Max's, including backgrounds
of the Officers and Directors and major Stockholders, financial
statements, minute books, records, material contracts, etc., shall be
exchanged between the parties as part of the due diligence review.
7. The data and information coming the possession of any party to this
Letter of Understanding which is otherwise not publicly known shall be
deemed strictly confidential and shall not be disclosed to any third
person whether orally or in writing, including the media, without the
prior written consent of the parties to this Letter of Understanding.
This prohibition shall not prevent any party to this Letter of
Understanding from making such disclosures as are required by virtue
of any law to which it is subject or by regulatory bodies having
jurisdiction and specifically does not apply to news releases that any
party wishes or it is required
to make. A copy of a news release that contains information about the
intentions set out herein shall be provided to all parties
concurrently with the issue of the news release. Nothing in this
paragraph shall prevent any party from furnishing to any entity with
which it is in good faith negotiating in furtherance of its
obligations contemplated herein such information as may reasonably be
required to give a written confidentiality commitment prior to
receiving any such information. The confidentiality commitment shall
prohibit the party to whom disclosure is made from disseminating any
information received by it to any third parties.
8. The transaction as contemplated herein shall be subject to the
following conditions precedent being satisfied:
(a) Approval of the terms and conditions by all of the Boards of
Directors and Shareholders, if necessary or recommended by
counsel, of the respective parties;
(b) Completion of the usual due diligence review of all aspects of
the transaction by ▇▇▇▇ and ▇▇▇'s, respectively;
(c) The negotiations and execution of a Formal Agreement between PRVT
and ▇▇▇'s upon terms and conditions mutually satisfactory to the
parties hereto and their counsel; and
(d) The negotiation and execution of a consultancy contract with a
company to be designated by ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ as provided for in
4(a)(v).
(e) Such other conditions precedent as are normally provided for in
connection with a transaction of this nature and which are
mutually agreeable to the parties.
9. Between the date of acceptance hereof by ▇▇▇'s and the date the Formal
Agreement is executed, ▇▇▇'s shall into enter into nor continue
negotiations with any other third party for the sale of the stock or
assets of ▇▇▇'s or any one thereof, nor any negotiations that would
conflict with, or otherwise affect this Letter of Understanding.
10. At the appropriate time after the execution of this Letter of
Understanding, a comprehensive press release shall be issued by PRVT
with respect to the entire transaction. Said press release will
specifically indicate that the transaction is subject to numerous
contingencies and conditions precedent any one of which would cause
the failure of the transaction.
11. If a formal agreement between the parties has not been formalized and
executed on or before July 13, 1998, unless otherwise extended through
the written consent
of all parties hereto, this Letter of Understanding shall terminate
automatically. In addition, either party may terminate this Letter of
Understanding, for any reason, upon thirty (30) days written notice to
the other party.
12. All requirements for notice contained herein shall be deemed effective
upon delivery to the addresses of the respective parties contained
herein by certified mail, courier, facsimile delivery, or personal
delivery.
13. Each of the parties specifically agrees that this Letter of
Understanding shall be governed by the laws of the Country of the
United States of America and specifically the State of Nevada, and
that any dispute that may arise, including those under Paragraph 7 or
9 of this Letter of Understanding, shall be settled exclusively by the
Courts of Nevada.
The foregoing will serve as a basis for entering into detailed negotiations
with all the individual corporations belonging to ▇▇▇'s with the intent of
entering into a definitive Formal Agreement, which agreement shall contain such
other or expanded terms and conditions as are appropriate to the subject
transaction and agreed to between the parties hereto and shall be in a forma
satisfactory to each of the parties hereto and their respective counsels.
Notwithstanding anything herein to the contrary, this Letter of Understanding
does not constitute an agreement between the parties but is meant to express the
intentions of the parties and their basic understandings so that further
negotiations may take place for the creation of a formal agreement. None of the
provisions of this Letter of Understanding are binding between the parties until
a formal agreement is reached, with the exception of Paragraph 7 dealing with
confidentiality and Paragraph 9 dealing with negotiations with other third
parties, which shall be binding upon the parties until the termination of this
Letter of Understanding by its own terms or by notice according to the
provisions contained herein.
In the event this Letter of Understanding sets forth your basis
understanding of the matters related hereto, please execute the attached copy of
the enclosed letter and return a copy to the undersigned no later than the end
of business on May 15, 1998.
Sincerely,
PRIVATE MEDIA GROUP, INC.
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
President
_________________________________
Corso Elvezia 4
CH-6900 Lugano, Switzerland
THE UNDERSIGNED acknowledges that the foregoing Letter of Understanding
sets out the basic terms pursuant to which the undersigned is prepared to
negotiate a Formal Agreement with Private Media Group, Inc.
DATED this 5 day of May, 1998
MAX'S FILM AB ON BEHALF OF ITSELF
AND ITS SHAREHOLDERS
By: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: President
------------------
__________________________
Box 30018
10425 Stockholm, Sweden
▇▇▇'S ADDENDUM
This Addendum is dated this 20/th/ day of August, 1998 and is executed by
and among Private Media Group, Inc, a Nevada, U.S.A. corporation (hereinafter
referred to as "PRVT") and ▇▇▇'s Film A.B., a Swedish corporation (hereinafter
referred to as "Max's").
WHEREAS, on May 5, 1998 the parties entered into a Letter of Understanding
(▇▇▇); and
WHEREAS, said agreement contemplated the closing of the transaction
provided for in said ▇▇▇ to occur on or before July 20, 1998; and
WHEREAS, all of the terms and conditions of the ▇▇▇ were not satisfied by
July 20, 1998 and no closing had taken place by that date; and
WHEREAS, the parties desire to continue the ▇▇▇ in full force and effect
and extend the time periods for compliance of the terms thereof,
NOW, THEREFORE, the parties agree as follows:
1. Paragraph 1 of the ▇▇▇ shall be and hereby is modified to change the date
contained therein for closing from July 20, 1998 to October 1, 1998.
2. Paragraph 11 of the ▇▇▇ shall be and hereby is modified to change the date
for a formal agreement from July 13, 1998 to October 1, 1998.
3. All other terms and conditions of the aforementioned ▇▇▇ or any previous
addendums thereto shall remain in full force and effect.
Private Media Group, Inc. Max's Film A.B.
By:___________________________ By:_____________________________
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
President & Secretary President
SECOND MAX'S ADDENDUM
This Second Addendum is dated this 12/th/ day of October, 1998 and is
executed by and among Private Media Group, Inc, a Nevada, U.S.A. corporation
(hereinafter referred to as "PRVT") and ▇▇▇'s Film A.B., a Swedish corporation
(hereinafter referred to as "Max's").
WHEREAS, on May 5, 1998 the parties entered into a Letter of Understanding
(▇▇▇); and
WHEREAS, said agreement contemplated the closing of the transaction
provided for in said ▇▇▇ to occur on or before July 20, 1998; and
WHEREAS, all of the terms and conditions of the ▇▇▇ were not satisfied by
July 20, 1998 and no closing had taken place by that date; and
WHEREAS, the parties entered into an addendum extending the period for
closing to October 1, 1998; and
WHEREAS, the parties desire to continue the ▇▇▇ in full force and effect
and extend the time periods for compliance of the terms thereof,
NOW, THEREFORE, the parties agree as follows:
1. Paragraph 1 of the ▇▇▇ shall be and hereby is modified to change the date
contained therein for closing from July 20, 1998 to December 31, 1998.
2. Paragraph 11 of the ▇▇▇ shall be and hereby is modified to change the date
for a formal agreement from July 13, 1998 to December 31, 1998.
3. All other terms and conditions of the aforementioned ▇▇▇ or any previous
addendums thereto shall remain in full force and effect.
Private Media Group, Inc. Max's Film A.B.
By:___________________________ By:___________________________
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
President & Secretary President