<PAGE>
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended.................March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from.............to................
Commission file number 000-25067
PRIVATE MEDIA GROUP, INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
Nevada 87-0365673
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
Carrettera de Rubi 22-26, 08190 Sant Cugat del Valles, Barcelona, Spain
(Address of principal executive offices)
34-93-590-7070
--------------
Issuer's telephone number
Securities registered pursuant to Section 12(b) of the Exchange Act:None
Securities registered pursuant to Section 12(g) of the Exchange Act:Common Stock
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
Class Outstanding at May 10, 2000
----- ---------------------------
Common Stock, par value $.001 9,021,370
Transitional Small Business Disclosure Format: Yes No X
--- ---
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<PAGE>
PART I.
Item 1. Financial Statements
PRIVATE MEDIA GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,
December 31, (Unaudited)
------------ -------------------
1999 2000 2000
------------ ---- ----
SEK SEK USD
(in thousands)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents............................ 7,370 7,993 922
Trade accounts receivable............................ 67,992 76,865 8,866
Related party receivable............................. 6,821 6,970 804
Inventories - net (Note 2)........................... 40,209 45,134 5,206
Prepaid expenses and other current assets............ 15,973 28,409 3,277
------- ------- ------
TOTAL CURRENT ASSETS................................. 138,365 165,370 19,074
Library of photographs and videos - net.............. 83,885 87,589 10,103
Property, plant and equipment - net.................. 11,973 13,996 1,614
Goodwill (Note 3).................................... - 17,154 1,979
Other assets......................................... 26,585 30,680 3,539
------- ------- ------
TOTAL ASSETS......................................... 260,808 314,789 36,308
======= ======= ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term borrowings................................ 475 454 52
Accounts payable trade............................... 21,177 17,842 2,058
Income taxes payable................................. 797 1,128 130
Deferred tax liability............................... 755 755 87
Accrued other liabilities............................ 6,439 16,815 1,939
======= ======= ======
TOTAL CURRENT LIABILITIES............................ 29,644 36,995 4,267
SHAREHOLDERS' EQUITY
$4.00 Series A Convertible Preferred Stock........... - - -
10,000,000 shares authorized, 7,000,000
shares issued and outstanding
Common Stock, $.001 par value, 50,000,000............ 8,003 8,005 923
shares authorized 8,867,289 and 9,021,370
issued and outstanding at December 31, 1999
and March 31, 2000, respectively
Warrants............................................. - 9,696 1,118
Additional paid-in capital........................... 32,716 62,085 7,161
Stock dividends to be distributed.................... 9,368 3,035 350
Retained earnings.................................... 180,660 194,290 22,409
Accumulated other comprehensive income............... 416 684 79
------- ------- ------
TOTAL SHAREHOLDERS' EQUITY........................... 231,163 277,794 32,041
------- ------- ------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........... 260,808 314,789 36,308
======= ======= ======
</TABLE>
See accompanying notes to consolidated statements.
-1-
<PAGE>
PRIVATE MEDIA GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Three-months ended
March 31,
(unaudited)
------------------------------------
1999 2000 2000
------ ------ ------
SEK SEK USD
(in thousands)
<S> <C> <C> <C>
Net sales........................................ 45,706 60,019 6,923
Cost of sales.................................... 20,512 25,858 2,982
------ ------ -----
Gross profit..................................... 25,194 34,161 3,940
Selling, general and administrative expenses..... 12,425 17,266 1,991
------ ------ -----
Operating profit................................. 12,769 16,895 1,949
Interest expense................................. 136 132 15
Interest income.................................. 108 377 43
------ ------ -----
Income before income tax......................... 12,742 17,140 1,977
Income taxes..................................... - 475 55
------ ------ -----
Net income....................................... 12,742 16,665 1,922
------ ------ -----
Other comprehensive income:
Foreign currency adjustments..................... (191) 268 31
------ ------ -----
Comprehensive income............................. 12,551 16,933 1,953
====== ====== =====
Net income per share:
Basic............................................ 1.57 1.87 0.22
====== ====== =====
Diluted.......................................... 0.81 1.02 0.12
====== ====== =====
</TABLE>
See accompanying notes to consolidated statements.
-2-
<PAGE>
PRIVATE MEDIA GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three-months ended
March 31,
(unaudited)
--------------------------------------
1999 2000 2000
------ ------- ------
SEK SEK USD
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.................................................. 12,742 16,665 1,922
Adjustment to reconcile net income to net cash
flows from operating activities:
Depreciation............................................... 787 1,143 132
Amortization of photographs and videos..................... 6,162 5,230 603
Effects of changes in operating assets and liabilities:
Trade accounts receivable.................................. (9,609) (4,599) (531)
Related party receivable................................... (250) (149) (17)
Inventories................................................ (1,468) (636) (73)
Prepaid expenses and other current assets.................. (6,640) (11,656) (1,344)
Accounts payable trade..................................... 6,114 (3,682) (425)
Income taxes payable....................................... (200) (247) (29)
Accrued other liabilities.................................. 1,679 10,151 1,171
------ ------- ------
Net cash provided by operating activities................... 9,316 12,220 1,409
Cash flows from investing activities:
Investment in library of photographs and videos............. 6,748 8,934 1,030
Capital expenditures........................................ 1,271 564 65
Investments in other assets................................. 859 4,095 472
Cash acquired in acquisition................................ - 673 78
------ ------- ------
Net cash used in investing activities....................... 8,878 14,266 1,645
Cash flow from financing activities:
Conversion of warrants...................................... - 2,422 279
Long-term loan (repayments on loan)......................... 125 - -
Short-term borrowings (repayments).......................... 449 (21) (2)
------ ------- ------
Net cash (used in) provided by financing activities......... 574 2,401 277
Foreign currency translation adjustment..................... (191) 268 31
------ ------- ------
Net (decrease) increase in cash and cash equivalents........ 821 623 72
Cash and cash equivalents at beginning of the period........ 4,165 7,370 850
------ ------- ------
Cash and cash equivalents at end of the period.............. 4,987 7,993 922
====== ======= ======
Cash paid for interest...................................... 97 91 11
====== ======= ======
Cash paid for taxes......................................... 86 380 44
====== ======= ======
</TABLE>
See accompanying notes to consolidated statements.
-3-
<PAGE>
PRIVATE MEDIA GROUP, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with United States generally accepted accounting
principles ("U.S. GAAP") for interim financial information. Accordingly they do
not include all of the information and footnotes required by U.S. GAAP for
complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation of financial position and results of operations have been included.
Operating results for the three months period ended March 31, 2000 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2000. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on form
10-KSB for the year ended December 31, 1999.
The accompanying financial statements have been presented in Swedish Kronor
("SEK") which is the principal currency in which Private Media Group, Inc.
generate their cash flows.
Solely for the convenience of the reader, the accompanying consolidated
financial statements as of March 31, 2000 and for the three months then ended
have been translated into United States dollars ("USD") at the rate of SEK 8.67
per USD 1.00 the exchange rate of the Swedish Riksbank on March 31, 2000. The
translations should not be construed as a representation that the amounts shown
could have been, our could be, converted into US dollars at that or any other
rate.
2. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31, March 31,
------------ ---------
1999 2000
------------ ---------
SEK SEK
(in thousands)
<S> <C> <C>
Magazines................................... 19,798 18,236
Video cassettes............................. 15,214 17,165
DVDs........................................ 3,106 7,728
Other....................................... 2,090 2,005
------ ------
40,209 45,134
====== ======
</TABLE>
-4-
<PAGE>
PRIVATE MEDIA GROUP, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
3. Acquisition
On January 28, 2000, the Company acquired all of the outstanding shares of
Extasy Video B.V. ("Extasy") for total consideration of SEK 27,275,192. The
consideration consisted of 69,488 shares of the Company's common stock and
warrants to purchase 69,488 of the Company's common stock. The warrants are
exercisable during the period January 28, 2001 to January 28, 2004 at an
exercise price of USD 28.88. The excess of the purchase price over the fair
market value of the net assets acquired has resulted in goodwill of SEK
17,441,970.
The allocation of the purchase price is as follows:
<TABLE>
<CAPTION>
SEK
<S> <C>
Current assets.................................. 8,614,530
Fixed assets.................................... 3,141,461
Current liabilities............................. (1,922,768)
Goodwill........................................ 17,441,970
----------
27,275,192
==========
</TABLE>
The acquisition has been accounted for using the purchase method of
accounting and, accordingly, the operating results of Extasy has been included
in the Company's consolidated financial statements since the date of
acquisition. Goodwill is being amortized on a straight line basis over 10 years.
The following unaudited pro forma information for the three months ended
March 31, 1999 and 2000 assumes the acquisition occurred on January 1, 1999.
<TABLE>
<CAPTION>
Three months ended March 31,
-----------------------------
1999 2000
------------- -------------
SEK SEK
<S> <C> <C>
Revenues........................ 48,631 61,574
Net income...................... 12,784 16,479
Net income per share:
Basic........................... 1.56 1.84
============= =============
Diluted......................... 0.81 1.01
============= =============
</TABLE>
-5-
<PAGE>
PRIVATE MEDIA GROUP, INC.
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
4. Earnings per share
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Three-months ended
March 31,
----------------------------------
1999 2000
---------- ----------
<S> <C> <C>
Numerator:
Net income (SEK in thousands)............... 12,742 16,665
---------- ----------
Denominator:
Denominator for basic earnings per
share -- Weighted average shares............ 8,133,336 8,917,148
Effect of dilutive securities:
Preferred stock......................... 7,000,000 7,000,000
Common stock warrants................... 562,783 391,704
Stock dividends to be distributed....... 85,620 11,498
---------- ----------
Denominator for diluted earnings per
share -- weighted average shares and
assumed conversions......................... 15,781,739 16,320,350
---------- ----------
Earnings per share (SEK)
Basic....................................... 1.57 1.87
---------- ----------
Diluted..................................... 0.81 1.02
---------- ----------
</TABLE>
-6-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Report contains forward-looking statements that involve risk and
uncertainties. The Company's actual results could differ materially from those
anticipated in such forward looking statements as a result of certain factors,
including those set forth elsewhere in this Report.
The Company's principal currency is Swedish Kronor ("SEK"). Solely for the
convenience of the reader, the accompanying financial information has been
translated into United States dollars ("USD") at the rate of SEK 8.67 per USD
1.00, the exchange rate of the Swedish Riksbank on March 31, 2000. The
translations should not be construed as a representation that the amounts shown
could have been, or could be, converted into U.S. dollars at that or any other
rate.
Results of Operations
Three months ended March 31, 2000 compared to the three months ended March
31, 1999
Net sales. The Company reported net sales of SEK 60.0 million for the three
months ended March 31, 2000 which, compared to net sales of SEK 45.7 million for
the three months ended March 31, 1999, represents an increase of SEK 14.3
million, or 31.3%. The increase was mainly attributable to the DVD and Internet
sales, offset by a decrease in CD-Rom and video sales. The acquisition of Extasy
B.V. also added to net sales for the period although a large part of Extasy's
gross sales was eliminated as intercompany transactions. Sales of magazines
remained approximately the same in 2000 as in 1999. DVD sales for the three
months ended March 31, 2000 was SEK 8.2 million and should not be compared with
the three-month 1999 period since the Company released only a few titles in the
same period last year and the market was not ready. DVD sales for three months
ended March 31, 2000 almost equaled total sales for 1999 which was SEK 8.4
million. During the year 2000 the Company is planning to release 50 new titles
and 50 back-catalogue titles. Internet sales for the three months ended March
31, 2000 increased 227.4% to SEK 7.8 million compared to the three months ended
March 31, 1999. The management believes that the growth in DVD and Internet
sales will continue in 2000. The net sales reported does not include revenue
from the agreements made and announced during the year concerning the Private
Gold broadcasting joint venture. Net sales arising from the agreements will be
reported according to US GAAP.
Cost of Sales. The Company reported cost of sales of SEK 25.9 million for
the three months ended March 31, 2000 which, compared to cost of sales of SEK
20.5 million for the three months ended March 31, 1999, represents a increase of
SEK 5.3 million, or 26.1%. The gross profit for the three months ended March 31,
2000 was SEK 34.2 million, or 56.9% of net sales which, compared to gross profit
for the three months ended March 31, 1999 of SEK 25.2 million, or 55.1% of net
sales, represents an increase of 1.8% in gross profit in relation to net sales.
This increase is the result of product mix.
Selling, general and administrative expenses. The Company reported selling,
general and administrative expenses of SEK 17.3 million for the three months
ended March 31, 2000 which, compared to selling, general and administrative
expenses of SEK 12.4 million for the three months ended March 31, 1999,
represents an increase of SEK 4.8 million, or 39.0%. The increase was primarily
attributable to the Company's investment in Internet related activities and the
start-up of DVD. The investment expenses associated with Internet and DVD
activities are expected to continue in 2000.
Interest expense. The Company reported interest expense of SEK 0.13 million
for the three months ended March 31, 2000 which, compared to interest expense of
SEK 0.14 million for the three months ended March 31, 1999, represents an
increase of SEK 0.01 million. The small decrease is the result of lower average
short-term borrowings outstanding in 2000 compared to 1999.
-7-
<PAGE>
Income taxes. The Company reported income tax expenses of SEK 0.5 million
as compared to an income tax expense of SEK 0.0 million for the three months
ended March 31, 1999.
Net income. The Company reported net income of SEK 16.7 million as compared
to SEK 12.7 million for the three months ended March 31, 1999. The increase in
net income in 2000 of SEK 3.9 million, or 30.8% was primarily attributable to
increased sales.
Liquidity & Capital Resources
The Company reported a working capital surplus of SEK 128.4 million at
March 31, 2000, an increase of SEK 19.7 million compared to the year ended
December 31, 1999. The increase is principally attributable to increased
accounts receivable and prepaid expenses and other current assets.
Net cash provided by operating activities was SEK 12.2 million for the
three months ended March 31, 2000 was primarily the result of net income and
adjustments to reconcile net income to net cash flows from operating activities.
The net income of SEK 16.7 million and the adjustments to reconcile net income
to net cash flows from operating activities, representing amortization of
photographs and videos of SEK 5.2 million, depreciation of SEK 1.1 million,
provided a total of SEK 23.0 million. The total of SEK 23.0 million was then
primarily reduced by the increases in trade accounts receivable, inventories,
related party receivable, prepaid expenses, accounts payable trade and other
current assets and income taxes payable totaling SEK 21.0 million, offset by SEK
10.2 million from accrued other liabilities. Net cash provided by operating
activities was SEK 9.3 million for three months ended March 31, 1999. The
increase in cash provided by operating activities in 2000 compared to 1999 is
principally the result of net income and adjustments to reconcile net income to
net cash flows from operating activities.
Net cash used in investing activities for the three months ended March 31,
2000 was SEK 14.3 million. The investing activities were principally investment
in library of photographs and videos of SEK 8.9 million which was carried out in
order to maintain the 2000 release schedule. In addition to investment in
library of photographs and videos, SEK 0.6 million was invested in capital
expenditures and SEK 4.1 million in other assets. The increase over the
comparable three-month 1999 period was principally due to increased investments
in library of photographs in order to maintain inventory levels and increased
investments in other assets represented primarily by loans to Private Circle,
Inc.
Net cash provided by financing activities for the three months ended March
31, 2000 was SEK 2.4 million represented primarily by conversion of warrants.
The increase over the comparable three-month 1999 period was primarily due to
conversion of warrants.
The Company has historically relied on positive cash flows from operations
and equity financing to finance working capital needs and investing activities.
The Company expects to have adequate working capital for the next twelve months.
During this period the Company intends to rely on positive cash flows from
operations and equity financing to finance working capital needs and necessary
investing activities. The Company's long-term expansion plans will require
additional sources of funding. The Company plans to meet these funding
requirements through a combination of increases in short-term credit lines,
additional long-term borrowings and/or equity financing.
-8-
<PAGE>
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
The Company entered into a Share Purchase Agreement dated as of January 28,
2000, with A.J.J.M. Heesbeen Beher BV providing for the purchase by the Company
of all of the outstanding stock of Extasy Video BV in exchange for 69,488 shares
of the Company's Common Stock and Warrants. The Warrants are exercisable for
69,488 shares of the Company's Common Stock at $28.88 per share, which Warrants
are exercisable between January 28, 2001 and January 28, 2004. These securities
were sold in reliance upon the exemption under Section 4(2) of the Securities
Act of 1933.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
10.1 Share Purchase Agreement dated as of January 28, 2000, by and
between Private Media Group, Inc. and A.J.J.M. Heesbeen Beheer BV.
EX-27 - Financial Data Schedule
b. Reports on Form 8-K:
None.
-9-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
PRIVATE MEDIA GROUP, INC.
(Registrant)
Date: May 15, 2000 /s/ Johan Gillborg
----------------------------------------
Johan Gillborg
Chief Financial Officer
(Principal Financial and Accounting Officer)
-10-
<PAGE>
INDEX TO EXHIBITS
10.1 Share Purchase Agreement dated as of January 28, 2000, by and between
Private Media Group, Inc. and A.J.J.M. Heesbeen Beheer BV.
EX-27 Financial Data Schedule
-11-
<PAGE>
EXHIBIT 10.1
------------
SHARE PURCHASE AGREEMENT
between
Private Media Group, Inc.
and
A.J.J.M. Heesbeen Beheer BV
Page 1 of 21
<PAGE>
SHARE PURCHASE AGREEMENT
THIS AGREEMENT is made and entered into as of the 28th day of January 2000
by and between
Private Media Group, Inc. 3230 Flamingo Road, Suite 156, Las Vegas, Nevada 89121
USA a company duly incorporated and organized under the laws of Nevada, U.S.A.,
hereinafter referred to as the "Purchaser".
and
A.J.J.M. Heesbeen Beheer BV a company duly incorporated and organized under the
laws of The Netherlands, having its registered office in Knegsel, The
Netherlands, hereinafter referred to as the "Seller".
WITNESSETH:
WHEREAS, the Seller is the holder of all of the issued and outstanding shares,
numbered from one (1) to forty (40), each having a par value of NLG 1,000, in
Extasy Video BV, a company duly incorporated and organized under the laws of The
Netherlands, having its registered office in Best, The Netherlands, hereinafter
referred to as the "Company", and
WHEREAS, the Company in accordance with the provision regarding the object of
its activities as set out in its duly registered articles of association is
engaged, directly and indirectly in the business of video and digital video disc
sales and distribution; and
WHEREAS, the Seller is desirous of selling to the Purchaser and the Purchaser is
desirous of purchasing from the Seller in exchange for (restricted) common
shares and stock options in the Seller, subject to the terms and conditions
contained herein, all of the Shares of the Company; and
WHEREAS, the Purchaser shall issue the number of new common shares as stipulated
in Section 3 below in favor of the Seller.
NOW, THEREFORE, in consideration of the mutual covenants and undertaking set
forth herein and in the Schedules hereto, the parties agree as follows:
1. INTERPRETATION
- -----------------
1.1 In this Agreement
"Business Day" means the day (other than a Saturday or
Sunday) on which banks are generally open in
the Sweden and in The Netherlands for normal
business;
"Closing" means completion of the sale and purchase of
the Shares in accordance with Section 4
below.
"Confidential Information" means any and all information of any kind or
nature whatsoever,
Page 2 of 21
<PAGE>
whether written or oral, including, without
limitation, financial information, trade
secrets, client lists another proprietary
business information, regarding the Company
or the Seller, which information is not known
to the general public or to persons
unaffiliated with the Company or the Seller,
as the case may be;
"Insurance Policies" means the insurance policies shortly
described in Schedule 1;
"Intellectual Property" means trademarks and video rights;
"Material Adverse Effect" means any effect which gives rise to or is
reasonably likely to give rise to a material
adverse effect on the business, prospects,
assets or financial condition of the Company;
"Material Agreement" means existing agreements of the Company,
either having an annual turnover exceeding
USD 10,000 during 1999 or which cannot be
terminated at the Company's discretion by
applying a notice period shorter than three
(3) months;
"Shares" means all of the issued and outstanding
shares, numbered from one (1) to forty (40),
each having a par value of NLG 1,000, in
Extasy Video BV;
"USD" means the lawful currency of the United
States of America.
1.2 Any statement in this Agreement (including the Schedules) qualified by the
expression "to the best of the Seller's knowledge" or "so far as the Seller
is aware" or any similar expression shall mean that it is made after due
and careful enquiry of the board members of the Seller.
1.3 The headings in this Agreement do not affect its interpretation.
1.4 The Schedules form part of this Agreement.
2. SALE OF THE SHARES
- ---------------------
The Seller shall sell and the Purchaser shall purchase the Shares and all
rights now and hereafter attaching or accruing thereto, free and clear of
any pledges, liens, security interests, claims, charges and encumbrances.
3. CONSIDERATION FOR SALE AND TRANSFER (EXCHANGE)
- -------------------------------------------------
3.1 At the Closing, subject to the terms and conditions of this Agreement, and
in full consideration for the aforesaid sale, conveyance and delivery of
Shares, the Purchaser shall:
(a) deliver share certificates to the Seller for a number of issued common
shares in the
Page 3 of 21
<PAGE>
Purchaser (the "New Shares"). The total value and hence number of New
Shares issued in favor of the Seller shall equal the dollar amount,
calculated at the NLG rate to the USD at the date of this agreement,
of the Company's net revenue for twelve-month ending December 31,
1999, as per Schedule 2. The share price for each New Share shall be
the share price at closing of the market on the day of this agreement,
as per Schedule 2; and
(b) shall issue stock options to the Seller, equal to the number of New
Shares issued, on the terms and conditions as set forth in Schedule
3.1 (b) (the "Options"). The exercise price shall be the share price
at closing of the market on the day of this agreement. Each of the
Options issued pursuant to the terms of this Agreement and Schedule
3.1 (b) shall be exercisable between January 28, 2001 and January 28,
2004, and
collectively referred to as the "Consideration".
3.2 Notwithstanding the above, endorsed in blank share certificates
representing 50 percent of the New Shares shall be deposited with the
Purchaser's U.S. based attorney (the "Escrow Agent"), for a period of one
(1) year following the closing for delivery to the Seller on the first
anniversary of the closing, in accordance with an escrow agreement attached
hereto as Schedule 3.2 (the "Escrow Agreement"), upon satisfaction of all
of the terms and conditions of this Agreement.
4. CLOSING
- ----------
4.1 Closing shall take place on January 28, 2000 (the "Closing Date").
4.2 At Closing the Seller shall procure:
(a) the delivery to the Purchaser of
(i) the share certificates representing the Shares, free and clear
of all liens, security interests, claims charges and
encumbrances, duly endorsed for transfer
(ii) the written resignations of each of the board members of the
Company, effective as of the Closing Date, in each case
acknowledging that he has no claim against the Company whether
for loss of office or otherwise;
(iii) a certificate from the Company's Managing Director, President
or CEO, dated the Closing Date, listing any necessary consents,
waivers, approvals, authorizations, registrations, fillings and
notifications, to which shall be attached evidence satisfactory
to the Purchaser that the same have been obtained or made and
are in full force and effect, or stating that none is
necessary.
(iv) the Articles of Incorporation, and all amendments thereto,
certified by the appropriate Dutch Authority;
(v) the resolutions of the board of directors and stockholders of
the Seller taking appropriate action to authorize and approve
the execution, delivery and performance of this Agreement, the
offer, sale and delivery of the Shares and each
Page 4 of 21
<PAGE>
other agreement and document required to be executed and
delivered pursuant hereto and thereto, and approving and
authorizing the other transactions contemplated hereby and
thereby;
(vi) the Escrow Agreement between the Escrow Agent, the Purchaser
and the Seller;
(vii) the consultant agreement stipulated in Section 7.6 below:
(viii) a new lease agreement agreeable to both parties reflecting the
same conditions as those mentioned in Schedule 5.9 (a) except
that an option to extend the lease agreement until ten (10)
years from the date of this agreement shall be included.
(ix) certification of recent date by the tax authorities of The
Netherlands, confirming that the Company has no due and unpaid
tax liabilities;
(x) copies of such other documents and papers as Purchaser or its
counsel may reasonably request in connection therewith, all in
form and substance reasonably satisfactory to Purchaser and its
counsel.
(b) that a general meeting and a board meeting of the Company is held at
which it is resolved that:
(i) such persons as the Purchaser nominates are appointed as
directors and deputy directors of the Company.
(c) that the Company is released from all guarantees and indemnities given
by it in respect of the Seller's liabilities or those of any person
connected with the Seller.
4.3 Upon completion of all matters referred to in Section 4.2 above the
Purchaser shall deliver 50 percent of the share certificates for the New
Shares and 100 percent of the Options to the Seller and deposit the
remaining share certificates and Options with the Escrow Agent as set forth
in Section 3.2 above.
5. REPRESENTATIONS AND WARRANTIES OF THE SELLER
- -----------------------------------------------
The Seller hereby represents and warrants to the Purchaser as the date
hereof and as of the Closing Date that:
5.1 Power and authority of the Seller
(a) The Seller is a company duly organized and validly existing under the
laws of The Netherlands.
(b) The Seller has full power and authority to execute and deliver this
Agreement and each other document or instrument delivered in
connection herewith and to consummate the transactions contemplated
hereby.
Page 5 of 21
<PAGE>
5.2 Violation of Laws and Regulations
The execution and delivery of this Agreement by the Seller and the
completion of the transactions contemplated hereby:
(a) will not violate any provision of the articles of association of the
Seller;
(b) will not to any material extent violate any statute, rule, regulation,
order or decree of any public body or authority by which the Seller or
any of its properties or assets is bound; and
(c) will not to any material extent result in a violation or breach of, or
constitute a default under, any license, franchise, permit, agreement
or other instrument to which the Seller is a party, or by which the
Seller or any of its properties or assets is bound,
excluding from the foregoing Section 5.2 (a) to (c) violations, breaches or
defaults which, either individually or in the aggregate, would not prevent
the Seller from performing its obligations under this Agreement or the
completion of the transactions contemplated by this Agreement.
5.3 Corporate records and documentation
Seller has furnished to Purchaser a complete and correct copy of the
Company's certificate of incorporation, articles of association and bylaws.
The Company's certificate of incorporation , articles of association and
bylaws are in full force and effect, and the Company is not in violation of
any of the provisions thereof.
5.4 Title to the Shares
The Seller owns the Shares free and clear of all liens, encumbrances,
claims, options and restrictions of every kind. The Seller has good and
marketable title to the Shares and has the right, power and authority to
exchange and deliver the Shares to the Purchaser in accordance with the
terms of this Agreement.
5.5 The Shares
The Shares represent one hundred per cent (100%) of all of the issued share
capital of the Company and one hundred per cent (100%) of the voting power
of the Shares, and the Shares have been duly authorized, validly issued and
are fully paid. There are no outstanding obligations, warrants, debentures,
option, preemptive rights or other agreements to which the Seller or the
Company is a party or otherwise bound, providing for the issuance of any
additional shares or for the purchase, repurchase, redemption or other
acquisition of the Shares, except for this Agreement.
5.6 Financial
(a) The Company has neither an equity interest in, nor the right or option
to acquire an equity interest, any other entity, and the Company is
not a participant, as a partner or otherwise, in any joint venture.
Page 6 of 21
<PAGE>
(b) The Company has delivered to the Purchaser the following financial
statements translated into English, attached hereto as Schedule 5.6
(b);
(i) balance sheets for the Company for the fiscal years 1997 and
1998 together with the accountants' report and notes;
(ii) profit and loss statements of the Company for the fiscal years
1997 and 1998;
(iii) balance sheet for the Company as of December 31, 1999; and
(iv) profit and loss statements of the Company as of December 31,
1999,
collectively referred to as the "Financial Statements".
(c) The forgoing Financial Statements:
(i) are complete and correct in all material respects and give a
true and fair view of the financial position and results of the
operations of the Company as of said dates and for said periods
and have been prepared from and in accordance with the books
and records of the Company;
(ii) have been prepared in accordance with the specific principles
and rules contained in Schedule 5.6 (c) (ii) and are in
conformity with Dutch law and GAAP, applied on a basis
consistent with that of preceding periods; and
(iii) contain and reflect such reserves as were necessary and
required by the laws, principles and rules referred to under
(ii) above to be reflected in such statements as of said dates
for all liabilities, actual, contingent or accrued, and for all
reasonably anticipated losses and costs (in excess of expected
receipts) and for all warranty claims, discounts or refunds
with respect to services and/or products already rendered or
sold, such reserves being based upon events or circumstances in
existence or likely to occur in the future with respect to any
contracts or commitments of the Company.
(d) The Company has not received nor will receive any conditional or
unconditional shareholders' contributions.
(e) The Company has not pledged any assets, has no commitments or
contingent liabilities and the Company has full and exclusive title to
all assets in the balance sheets of the Financial Statements and the
assets of the Company are not the subject of any encumbrances or
restrictions of whatever nature.
(f) The activities of the Company during the period from December 31, 1999
to the date hereof have been conducted in the ordinary course of
business with a view to maintaining its business as a going concern
and there has not occurred or arisen since December 31, 1999 with
respect to the Company:
Page 7 of 21
<PAGE>
(i) any material adverse change in its financial conditions or in
the operations of its business; or
(ii) any obligations, commitments or liabilities, liquidated or
unliquidated, contingent or otherwise, except obligations,
commitments and liabilities arising in the ordinary course of
business and which are not material in relation to its
business; or
(iii) any amendment or termination, or any agreement to amend or
terminate any Material Agreement, save in the ordinary course
of business; or
(iv) any extraordinary event or any extraordinary loss suffered or
any waiver of any debts, claims, rights under any Material
Agreement, or other rights representing a value in excess of
USD 10,000; or
(v) any damages, destruction, or loss or any other event or
condition, whether covered by insurance or not, materially and
adversely affecting its properties and business representing
loss to property in the aggregate in excess of USD 10,000; or
(vi) any sale, assignment, transfer, pledge, lease or other disposal
of any individual asset with a value in excess of USD 10,000;
or
(vii) any increase in the rates of compensation (including bonuses)
payable or to become payable to any officer, employee, agent,
independent contractor or consultant other than as set out in
Schedule 5.6 (f) (vii); or
(viii) any change of accounting methods, principles or practices; or
(ix) any investment in fixed assets that exceed individually USD
10,000 or in the aggregate USD 10,000; or
(x) any transaction other than in the ordinary course of business;
and the Company has not agreed or arranged to do any of the forgoing.
(g) Since December 31, 1999 no dividends or interim dividends have been
declared or paid by the Company.
(h) To the best of the Seller's knowledge, all accounts receivable of
whatever nature appearing in the accounts of the Company are fully
collectible and will be fully paid up to the book value upon the date
each account's receivable falls due.
(i) The budgets and forecasted result for the Company for the year 2000,
Schedule 5.6 (i), have been prepared with all reasonable care and
there is no reason to assume that the budgets and forecasted result of
the Company are not accurate.
5.7 Taxes
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<PAGE>
(a) All notices, computations and returns which ought to have been given
or made have been properly and duly submitted by the Company to the
relevant taxation or excise authority and all information, notices,
computations and returns submitted to such authorities are true and
accurate and are not subject of any material dispute nor are likely to
become the subject of any material dispute with such authorities.
(b) All taxes of any nature whatsoever for which the Company is liable
have been duly paid or reserved for in the accounts.
(c) The Company has never suffered any investigation, audit or visit by
any taxation or excise authority except for a VAT (value added tax)
inspection, and the Seller is not aware of nay such investigation,
audit or visit planned for the next twelve months.
(d) All amounts required to be withheld or collected under applicable
foreign, federal, state, local or other tax laws and regulations by
the Company for income taxes, social security taxes, unemployment
insurance and other employee withholding taxes, or other taxes, have
been so withheld or collected, and such withholding or collection has
either been paid to the respective governmental agencies or set aside
in accounts for such purpose or accrued and reserved against and
entered on the Financial Statements.
(e) The Company is not primarily or jointly and severally liable for the
taxes of any other person as a result of having been an affiliate or
receiving substantially all of the assets of such person.
5.8 Assets and Properties
(a) The Company has exclusive title to all of the personal and real
property and other assets reflected in the accounts, and as further
itemized in Schedule 5.8 (a). The assets will not be subject to
encumbrances, mortgages, liens, charges or other restrictions and the
Company has not provided any guarantees.
(b) All personal property of the Company are usable to the benefit of the
Company's business and are in good physical repair and condition,
ordinary wear and tear excepted.
(c) All Assets whether or not recorded on the books of the Company that
heretofore have been used in the Company's business have been included
in the transfer to the Purchaser under the terms of this Agreement.
5.9 Leasehold Properties
(a) The leases and other agreements or instruments under which the Company
holds, leases or is entitled to the use of any leased property
described in Schedule 5.9 (a) are in full force and effect, and all
rentals or other payments payable thereunder prior to the date hereof
have been duly paid. No default or event of default by the Company
exists and no event which, whit notice or lapse of time or both, would
constitute a default by the Company has occurred and is continuing
under the terms or provisions, expressed or implied, of any such lease
or agreement to which any of such properties is subjects, nor has the
Company received notice
Page 9 of 21
<PAGE>
of such default. The Company has not violated any applicable law,
ordinance, regulation, order or requirement relating to its leased
properties, nor has the Company failed to comply in any material
respect with any provision or condition of any such lease, agreement
or other instrument with respect to properties it leases.
(b) The leased property including installations and improvements thereon,
leased or occupied by the Company, is not the subject of any official
complaint or notice of violation of any applicable zoning or building
code, and no such violation is known to exist; there is no zoning or
building code or any other restriction of whatever nature in regard of
use or occupancy, which is likely to preclude or impair the use and
occupancy of that leased property, including installations and
improvements thereon, after the Closing Date for the purposes for
which they are presently used.
(c) The leased property is fully maintained in good repair and is
currently used by the Company and no part of any leased property is
leased to a third party.
(d) The Seller is not aware of any circumstances that could adversely
affect the present use of the leased property.
5.10 Compliance with statutes and licenses
The operations of the Company have been conducted in all respects in
accordance with and meet the applicable laws and regulations of all
governmental, municipal or other authorities having jurisdiction over the
Company. All governmental and other authority licenses and permits required
for the operation of the Company are, to a material extent, in full force
and effect and no violations are or have been recorded in respect of any
such existing licenses or permits and remain uncorrected and no proceeding
is pending which seeks the revocation or limitation of any such existing
licenses or permits.
5.11 Agreements
(a) There are no other Material Agreements than those listed in Schedule
5.11 (a), of which full copies (to the extent such agreements are in
writing or a summary thereof of any oral agreements) have been
disclosed to the Purchaser.
(b) The Company has neither received nor given notice of termination of
any Material Agreement.
(c) No party to any Material Agreement has the right to terminate or
modify its obligations as a result of the transactions contemplated
herein.
(d) The Company is not in default under any Material Agreement, which
default will have a Material Adverse Effect.
5.12 Litigation
No actions, suits, proceedings or governmental investigation is pending or
to the best of the Seller's
Page 10 of 21
<PAGE>
knowledge, threatened against the Seller or the Company. To the best of
the Seller's knowledge, neither the Seller nor the Company is in default
with respect to any order, injunction or decree by any court or
governmental department or agency.
5.13 Intellectual Property
The Company owns or has valid licenses, or other agreements to use, the
Intellectual Property, free and clear of all liens, pledges, or other
encumbrances. The use by the Company of the Intellectual Property does not
infringe the rights of any third parties.
5.14
(a) Except as described in Schedule 5.14 (a) the Company does not have any
written or oral contracts of employment with any employee of the
Company, and the Company is not a party to or subject to any
collective bargaining agreements and has not been a party to or
subject to any collective bargaining agreement or plan during the last
5 years.
(b) Neither the Company nor the Seller have received notice from any
Employee of the Company that any such employee is terminating his or
her employment with the Company, nor, to the best knowledge of the
Seller, does any such employee intend to terminate his or her
employment with the Company, nor is their cause to assume that any
Employee of the Company will leave his/her employment as a result of
the transactions contemplated hereby.
(c) There are no deferred compensation agreements, pensions, profit
sharing, severance pay, retirement plans or other agreement plans,
practices or programs providing any employee benefits. Full
reservations have been made in the Financial Statements for all
present and/or future liabilities in respect of pensions and other
payments related to compensations to be paid to employees.
(d) Neither the Seller nor any director, officer or other Employee of the
Seller, the Company, or any relatives of any of the foregoing owns,
directly or indirectly, individually or collectively, any interest in
any corporation, company, partnership, entity or organization which is
in a business similar or competitive to the business or the Company or
which has any existing undisclosed contractual relationship with the
Company.
(e) The Seller and the members of the board of directors of the Company
have no claims for compensation of any nature whatsoever relating to
the period before the Closing.
(f) The Company has complied in all material respect with all applicable
laws, ordinances, rules, regulations, agreements and requirements
relating to the employment of labor. The Company is not liable for any
arrears of wages or any taxes or penalties for failure to comply with
any of the foregoing.
(g) Annexed hereto as Schedule 5.14 (g) is a list of all employees
together with a list of all other persons being authorized to sign for
the Company, including all persons authorized to
Page 11 of 21
<PAGE>
operate any bank accounts and safe deposits. Schedule 5.14 (g) also
includes those employees holding credit cards for the Company.
5.15 Environmental
(a) The Company has complied in all material respects with all relevant
environmental laws and environmental licenses and all environmental
licenses are valid and subsisting and the Company has not received any
written notice that nay such environmental license is being revoked,
amended, varied, withdrawn or not renewed.
(b) No proceedings have been issued or are outstanding against the Company
in respect of any breach of any legislation concerning the
environment.
5.16 Insurance
The Insurance Policies are currently in effect and will be maintained up to
the Closing Date. The Insurance Policies collectively provide the types and
amounts of insurance coverage normal and customary for similarly situated
companies in The Netherlands.
5.17 Conduct of Business
(a) The Company has conducted its business at all times in accordance wit
and has complied wit applicable national and local laws relating to
its operations and business, and is not a party to or subject to any
judgment, decree or order entered in any suit or proceeding brought by
any governmental or local agency or authority or an other person or
party enjoining or otherwise restraining or restricting the Company
with respect to any business activity or practice in the conduct of
business which is related to, necessary or incidental to the business
conducted by it and will not be, in respect of circumstances, existing
before or upon the Closing Date or related thereto; there is no
controversy or investigation pending or threatened with respect to the
Company's business by any governmental or local agency or authority or
any other person or party.
(b) The Company is not and shall not be liable, due to circumstances
existing before or upon Closing or related thereto, to compensate for
damages caused to the environment, or third parties by
products/services sold or otherwise in excess of what has been
provided for in the accounts.
5.18 Relationship to the Seller and related companies
There are no agreements between the Company and the Seller or any of its
affiliated companies officers, directors or stockholders other than in the
ordinary course of business.
5.19 There are no fee splitting, revenue or profit sharing agreements between
the Seller and/or Company and any third party, except for as provided in
Schedule 5.19.
5.20 Investment Representation
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<PAGE>
Seller represents to the Purchaser that it is acquiring the New Shares, the
Options and the options shares (collectively, the "Securities") for
investment and with no present intention of distributing or reselling the
Securities or any part thereof in violation of any applicable law. Neither
the New Shares, the Options or the options shares (collectively, the
"Securities") have been registered or qualified under applicable securities
laws. Accordingly, the Securities may not be sold or transferred by the
Seller unless they are registered under applicable securities laws or an
exemption from registration or qualification is available. Seller
acknowledges that certificate evidencing the Securities will bear a legend
restricting their transfer to ensure compliance with applicable securities
laws.
6. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
- --------------------------------------------------
The Purchaser hereby represents and warrants as of the Closing Date that:
6.1 Power and authority of the Purchaser
(a) The Purchaser is a company duly organized and validly existing under
the laws of Nevada.
(b) Upon approval of this Agreement by the board of directors and the
approval, if necessary, of the General Meeting of the Shareholders of
the Purchaser as contemplated by Section 9 below, the Purchaser has
full power and authority to purchase the Shares and to perform all
other undertakings hereunder and the execution, delivery and
performance of this Agreement. Upon approval this Agreement is a valid
and binding obligation of the Purchaser enforceable against the
Purchaser in accordance with the terms herein.
6.2 Violation of Laws and Regulations
Assuming all filings, registrations, approvals, notifications etc required
by applicable laws are duly made, the execution and delivery of this
Agreement by the Purchaser and the completion of the transactions
contemplated hereby:
(a) will not violate any provision of the article of association of the
Purchaser;
(b) will not violate any statute, rule, regulation, order or decree of any
public body or authority by which the Purchaser or any of its
properties or assets is bound; and
(c) will not result in a violation, breach of or constitute a default
under any license, franchise, permit, agreement or other instrument to
which the Purchaser is a party, or by which the Purchaser or any of
its properties or assets is bound,
excluding from the foregoing Section 6.2 (a) to (c) violations, breaches or
defaults which, either individually or in the aggregate, would not prevent
the Purchaser from performing its obligations under this Agreement or the
completion of the transactions contemplated by this Agreement.
7. COVENANTS AND OTHER UNDERTAKINGS OF THE PARTIES
- --------------------------------------------------
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<PAGE>
7.1 The Seller shall afford to the officers, representatives and advisers of
the Purchaser access to the plants, properties, books and records of the
Company and will furnish to the Purchaser such additional financial and
operation data and other information as to the business and properties of
the Company ("Due Diligence").
7.2 Notwithstanding the above, the Seller shall provide such other information,
and execute and deliver all such other and additional instruments, notices,
releases, undertakings, consents and other documents, and shall do all such
other acts and things, as may be reasonably requested by Purchaser as
necessary to assure to Purchaser all the rights and interests granted or
intended to be granted under this agreement.
7.3 After the Closing the Seller shall not sell, assign, transfer or otherwise
dispose of any part of the New Shares or the Options for one (1) year.
7.4 Notwithstanding the provisions of Section 7.3 above, the Seller may
transfer any or all of the New Shares and the Options in the Purchaser on
the terms and conditions set forth in Schedule 7.4, subject to U.S.
Securities law restrictions.
7.5 The Seller covenants with the Purchaser (for itself and as agent for the
Company) that it shall not:
(a) for a period of two (2) years from the Closing Date be concerned in
any business carrying on businesses in the Benelux countries which is
competitive with any of the business carried on by the Company as of
the Closing Date, except as provided for in Schedule 7.6; or
(b) for a period of two (2) years from Closing induce or attempt to induce
any employee to leave the employment of the Company or solicit any
customer or supplier of the Company; or
(c) make use of or (except as required by law or any competent regulatory
body) disclose or divulge to any third party any information of a
secret or confidential nature relating to the business or affairs of
the Company or its customers or suppliers.
7.6 The Seller shall ensure that Mr. Ad Heesbeen enters into a Consultant
Agreement either in the form attached as Schedule 7.6 or an agreement
reasonable satisfactory to the Purchaser.
7.7 The Seller will provide such other information, and execute and deliver all
such other and additional instruments, notices, releases, undertakings,
consents and other documents, and will do all such other acts and thins, as
may be reasonably requested by the Purchaser as necessary to assure to the
Purchaser all the rights and interest granted or intended to be granted
under this Agreement. The Seller shall take or shall cause to be taken such
other reasonable actions as the Purchaser may require to more effectively
transfer, convey and assign to, and vest in the Purchaser, and put the
Purchaser in possession of, the Shares as contemplated by this Agreement.
8. INDEMNIFICATION
- ------------------
8.1 Breach of Warranties
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<PAGE>
Subject to Section 8.3, Seller shall indemnify and hold harmless Purchaser
and the Company against and in respect of any damages, losses, costs or
expenses (including reasonable attorneys fees) that arise in connection
with any breach by the Seller of the representations, warranties or
covenants given herein, ("Losses").
8.2 Set-Off
The Purchaser shall be entitled to a set-off against the New Shares and the
Options deposited with the Escrow Agent for any Losses which are incurred
by the Purchaser or the Company and for which the Seller shall indemnify
the Purchaser pursuant to the terms of this Agreement, a "Claimed Set-Off".
buyer shall give the Seller written notice of any Claimed Set-Off. The
Seller shall have 20 days from the date of the Purchaser's written notice
to object to the Claimed Set-Off in writing and shall forward the same to
both the Purchaser and the Escrow Agent. If the Seller does not timely
object, the Purchaser may give unilateral written notice to the Escrow
Agent to release to the Purchaser an amount of New Shares and Options
necessary to satisfy the Claimed Set-Off, which unilateral notice the
Seller hereby acknowledges to be sufficient to authorize the Escrow Agent
to release the New Shares and Options as directed by the Purchaser. In
determining the number of New Shares and Options necessary to be released
in order to satisfy the Claimed Set-Off, the value of each New Share and
Option shall be the share price at closing on the day of this agreement, as
set forth in 3.1 (a) above. If the Seller does object in a timely manner,
the Escrow Agent shall not release any New Shares and Options to the
Purchaser until the Escrow Agent receives instructions which are signed by
both the Seller and the Purchaser, or until the dispute has been definitely
resolved by arbitral proceedings. If the Seller does timely object and the
Seller and the purchaser are unable to agree to the amount of a Claimed
Set-Off within thirty (30) days, either the Seller or the Purchaser may
institute arbitral proceedings for a determination of the amount of the
Claimed Set-Off.
8.3 Limitation of Liability
(a) The liability of the Seller shall be limited as follows:
(i) the Seller shall have no liability in respect of any breach or
breaches of the warranties or covenants unless the amount of
the liability in respect of such breach or breaches exceed in
aggregate the sum of USD 10,000 in which case (subject to the
other provisions of this Section 8) the whole amount of the
liability shall be payable;
(ii) the maximum aggregate liability of the Seller in respect of all
and any claims in respect of the warranties and covenants shall
not exceed the Consideration;
(iii) liability in respect of the warranties and covenants shall
terminate on the second anniversary of the Closing, except in
respect of any claim of which notice in writing (specifying in
reasonable detail the event, matter or default which gives rise
to the claim and, if practicable, an estimate of the amount
claimed) is given to the Seller before that date;
(iv) Irrespective of the time limit above, the Purchaser may, after
the two (2) years period, claim compensation for:
Page 15 of 21
<PAGE>
(1) taxes relating to the provisions of Section 5.7; and
(2) claims from third parties against the Company.
8.4 Notification
(a) In case either the Purchaser or the Company becomes aware of any claim
for which the Seller may be liable, the Purchaser shall, in order to
maintain the right to bring a claim against the Seller.
(i) as soon as reasonably practicable, but in no event later than
20 days after the date the Purchaser or the Company becomes
aware of any circumstance giving rise to a claim, given written
notice thereof to the Seller;
(ii) not make any admission of liability, agreement or compromise
with any person, body or authority in relation thereto, without
obtaining the prior written consent of the Seller which consent
shall not be unreasonably withheld or delayed;
(iii) take such action, as the Seller may reasonably request, to
avoid dispute, appeal, compromise or defend such claim, with
the proviso, however, that the Purchaser shall not (and shall
procure that the Company shall not) accept or pay or compromise
or make any submission in respect of such claim, without the
Seller's prior written consent thereto which consent shall not
be unreasonably withheld or delayed; and
(iv) given the Seller, or the Seller's duty authorized
representatives, reasonable access to relevant accounts,
documents and records of the Company to enable the Seller, or
the Seller's duty authorized representatives, to examine such
accounts, documents and records and to take photocopies
thereof.
9. CONDITIONS PRECEDENT AND RIGHT OF TERMINATION
- ------------------------------------------------
9.1 The obligation of the Purchaser to consummate this Agreement and the
transactions hereunder shall be conditioned upon an or each of the
following conditions precedent:
(a) the board of directors of Purchaser shall have approved this Agreement
and the transactions contemplated hereby.
(b) the General Meeting of the Shareholders of the Purchaser, if
necessary, shall have approved this Agreement and the transactions
contemplated including the issuance of the New Shares to the Seller.
(c) compatability and compliance with U.S. Federal and state securities
regulations, including, if necessary, registration of the New Shares
and Options under the provisions of the Securities Act of 1933, unless
an exemption from such registration is available.
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<PAGE>
(d) The Seller shall have performed and complied in all material respects
with all obligations, covenants and conditions herein which are
required to be performed or complied with by the Seller prior to or on
the Closing Date.
(e) The representations and warranties of the Seller set forth in Section
5 of this Agreement shall be true and correct in all material respects
on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of the Closing
Date.
(f) The Purchaser shall have been given the opportunity to complete a Due
Diligence in accordance with Section 7.1 above.
(g) No Material Adverse Effect shall have occurred since December 31,
1999, as determined by Purchaser.
(h) No order of any court or governmental authority shall be in effect
which restrains or prohibits the transactions contemplated hereby and
no suit, action, investigation, inquiry pr proceeding by any
governmental authority or any other person or legal or administrative
proceeding shall be pending or threatened which challenges the
consummation of the transactions contemplated hereby or which may have
a Material Adverse Effect.
10. ANNOUNCEMENTS
- -----------------
No announcements concerning this transaction or any ancillary matter will
be made before, on or after Closing by any party to this agreement (or any
person connected with the party) except a required by law or the rules of
any stock exchange without the prior written approval of the Seller and
Purchaser.
11. NOTICES
- -----------
(a) All notices, consents or other communications under or in connection
with this Agreement shall be given in writing or by facsimile. Any
such notice or consent will be deemed to be given as follows:
(i) if in writing, when delivered; and
(ii) if by facsimile, when received.
However, a notice given in accordance with the above but received on a
non-Business Day or after business hours in the place of receipt will
only be deemed to be given at the opening of business on the next
Business Day.
(b) The addresses and facsimile numbers of each party for all notices
under or in connection with this Agreement are:
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<PAGE>
(i) in the case of the Seller:
A.J.J.M. Heesbeen Beheer BV
Att. Ad Heesbeen
Eikenbocht 2
5511 LG Knegsel
The Netherlands
(ii) in the case of the Purchaser:
Private Media Group, Inc.
Att: Johan Gillborg
Ctra. Rubi 22
08190 St. Cugat del Valles
Barcelona, SPAIN
Ph. + 34-93-590 70 70
Fax + 34-93-589- 25 11
or such other as a party may notify to the other party by no less than
five (5) Business Days' notice.
12. CONFIDENTIALITY
- -------------------
The parties undertake not to disclose any Confidential Information unless
(i) required to do so by law; (ii) required to do so by any applicable
stock exchange regulations; (iii) such disclosures are made in connection
with the ordinary course of business of the Company; or (iv) disclosure has
been consented to by the other party.
13. LANGUAGE
- ------------
The language of this Agreement is English and all documents and notices
hereunder shall be in English unless otherwise agreed by both parties.
14. WHOLE AGREEMENT
- -------------------
This Agreement, including the Schedules hereto and other documents referred
to herein which form a part hereof, contain the entire understanding of the
parties hereto with respect to the subject matter contained herein and
therein. All prior negotiations and agreements between the parties hereto
with respect to the transactions provided for herein are superseded by this
Agreement.
15. WAIVER
- ----------
The failure of any party to insist upon strict adherence to any term of
this Agreement on any occasion shall not be considered a waiver of nay
right hereunder, nor shall it deprive that party of the right thereafter to
insist upon the strict adherence to that term or any other terms of this
Page 18 of 21
<PAGE>
Agreement.
16. AMENDMENTS
- --------------
No change, termination or attempted modification of any of the provisions
of this Agreement shall be binding on the Seller or on the Purchaser unless
agreed by both parties in writing. No modification, termination,
rescission, discharge or cancellation of this Agreement shall affect the
right of the Purchaser or the Seller to enforce any claim, whether or not
liquidated, that accrued prior to the date of such notification,
termination, rescission, discharge or cancellation of this Agreement.
17. INVALIDITY
- --------------
If for any reason an term, warranty, representation, covenant herein shall
be declared or deemed void, invalid or unenforceable, such shall not render
void, invalid or unenforceable this agreement or any other term, covenant
or condition herein contained if in spite of the exclusion of the invalid
provision, the Agreement can be lien effect in line with the main purposes
of the parties.
18. ASSIGNMENT
- --------------
This Agreement may not be transferred, assigned, pledged, or hypothecated
by any party hereto, other than by operation of law. This Agreement shall
be binding upon and shall insure to the benefit of the parties hereto and
their respective heirs, executors, administrators, successors and permitted
assignees.
19. FEES AND EXPENSES
- ---------------------
Except as otherwise set forth in this Agreement, each party shall pay its
own and its advisers' fees and expenses (including financial and legal
advisors) whether relating to the preparation, the carrying out of this
Agreement, the Closing hereunder or the completion of the transactions
herein contemplated and no such fees or cost will be charged to the
Company.
20. GOVERNING LAW AND DISPUTES
- ------------------------------
20.1 This Agreement shall be governed by the substantive laws of Spain.
20.2 Any dispute, controversy or claim arising out of or in connection with
this Agreement, or the breach, termination or invalidity thereof shall be
settled by arbitration in accordance with laws of Spain. The arbitration
tribunal shall be composed of three arbitrators. The place of arbitration
including the making of the award shall be Barcelona, Spain. The language
to be used in the arbitration proceedings shall be English.
______________________________
IN WITNESS WHEREOF, the parties have duly executed the Agreement in two (2)
original copies of which
Page 19 of 21
<PAGE>
each party has retained one copy on the date first written above.
PRIVATE MEDIA GROUP, INC. A.J.J.M. HEESBEEN BEHEER BV
/S/ /S/
- --------------------------- -------------------------------
Director Director
Page 20 of 21
<PAGE>
List of Schedules for Share Purchase Agreement
Schedule 1 Insurance Policies
Schedule 2 PRVT Acquisition of Extasy B.V.
Schedule 3.1 (b) Terms and Conditions for Stock Options
Schedule 3.2 Escrow Agreement
Schedule 5.6 (b) Financial Statements
Schedule 5.6 (c) (ii) Accounting Principles and Rules
Schedule 5.6 (f) (vii) Increased in Employee Compensation
Schedule 5.6 (i) Company Budget and Forecast
Schedule 5.8 (a) Company Assets
Schedule 5.9 (a) Leased Property
Schedule 5.11 (a) Material Agreements
Schedule 5.14 (a) Employment Contracts
Schedule 5.14 (g) Authorized Corporation Signatories
Schedule 5.19 Fee splitting, revenue or profit sharing agreements
Schedule 7.4 Share and Stock Option Transfer Conditions
Schedule 7.6 Consultant Agreement
Page 21 of 21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> SWEDISH KRONOR
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 0.11534
<CASH> 7,993
<SECURITIES> 0
<RECEIVABLES> 83,835
<ALLOWANCES> 0
<INVENTORY> 45,134
<CURRENT-ASSETS> 165,370
<PP&E> 13,996
<DEPRECIATION> 0
<TOTAL-ASSETS> 314,789
<CURRENT-LIABILITIES> 36,995
<BONDS> 0
0
0
<COMMON> 8,005
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 314,789
<SALES> 60,019
<TOTAL-REVENUES> 60,019
<CGS> 25,858
<TOTAL-COSTS> 25,858
<OTHER-EXPENSES> 17,266
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 132
<INCOME-PRETAX> 17,140
<INCOME-TAX> 475
<INCOME-CONTINUING> 16,665
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,933
<EPS-BASIC> 1.87
<EPS-DILUTED> 1.02
</TABLE>
