EXHIBIT 10.1

 

ASSET PURCHASE AGREEMENT

 

BY AND AMONG

 

DIGITAL GENERATION SYSTEMS, INC.,

 

DG SYSTEMS ACQUISITION III CORPORATION,

 

MEDIA DVX, INC.

 

and

 

STARNET, L.P.

 

April 15, 2005

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TABLE OF CONTENTS

 

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ARTICLE 1.  

   PLAN OF ACQUISITION    1

1.1.  

   Acquisition of Assets.    1

1.2.  

   Liabilities Not Assumed    2

1.3.  

   Purchase Price    2

1.4.  

   Purchase Price Adjustments; Prorations    3

1.5.  

   Closing    4

1.6.  

   Conveyance Documents.    4

1.7.  

   Conditions Precedent to Closing    5

1.8.  

   Further Assurances    6

1.9.  

   Allocation of the Purchase Price    6

ARTICLE 2.  

   REPRESENTATIONS AND WARRANTIES OF SELLER    6

2.1.  

   Organization, Good Standing and Qualification of Seller    6

2.2.  

   Power and Authority of Seller    6

2.3.  

   Authority and Validity    6

2.4.  

   Binding Effect    6

2.5.  

   Necessary Approvals and Consents    6

2.6.  

   No Conflict with Other Instruments    7

2.7.  

   Title to Assets.    7

2.8.  

   Condition of Tangible Assets    7

2.9.  

   Intellectual Property    7

2.10.

   Taxes    9

2.11.

   Litigation and Government Claims    9

2.12.

   Financial Information.    9

2.13.

   Solvency    9

2.14.

   Insurance Notices    10

2.15.

   Licenses and Permits    10

2.16.

   Compliance with Laws; No Judgments, Decrees, or Orders in Restraint of
Business    10

2.17.

   No Violation of Any Instrument    10

2.18.

   Employee Benefit Plans    10

2.19.

   Employee Matters.    11

2.20.

   Absence of Changes    11

2.21.

   Contracts and Commitments.    11

2.22.

   Contracts with Affiliates and Others    12

2.23.

   Significant Customers    12

2.24.

   No Brokerage Fees    12

2.25.

   No Misrepresentations    12

ARTICLE 3.  

   REPRESENTATIONS AND WARRANTIES OF PURCHASER    13

3.1.  

   Organization and Good Standing    13

3.2.  

   Authority and Validity    13

3.3.  

   Binding Effect    13

 

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3.4.  

   Necessary Approvals and Consents    13

3.5.  

   Non-Contravention    13

3.6.  

   Litigation    13

3.7.  

   No Brokerage Fees    13

ARTICLE 4.  

   COVENANTS    14

4.1.  

   Payment of Obligations Not Assumed    14

4.2.  

   Noncompetition and Nonsolicitation Agreements    14

4.3.  

   Seller’s Employees.    14

4.4.  

   Transaction Costs    15

4.5.  

   Nondisclosure    15

4.6.  

   Information for Filings    15

4.7.  

   Satellite Transition    15

4.8.  

   Business Transition Services    16

4.9.  

   Pathfire Agreement    16

4.10.

   Corporate Name    16

ARTICLE 5.  

   REGISTRATION RIGHTS    16

5.1.  

   Demand Registration    16

5.2.  

   Form S-3 Registration.    16

5.3.  

   Piggyback Registration.    16

5.4.  

   Expenses    17

5.5.  

   Termination    17

5.6.  

   Eligibility for Form S-3    17

5.7.  

   Miscellaneous    17

ARTICLE 6.  

   INDEMNIFICATION AND CERTAIN REMEDIES    18

6.1.  

   Indemnification by Seller    18

6.2.  

   Indemnification by Purchaser    19

6.3.  

   Conduct of Indemnification Proceedings    19

6.4.  

   Limitations of Liability    20

6.5.  

   Certain Remedies    21

6.6.  

   Attorneys’ Fees    21

6.7.  

   Nonexclusive Remedies    21

ARTICLE 7.  

   MISCELLANEOUS    21

7.1.  

   Reliance    21

7.2.  

   Entire Agreement    21

7.3.  

   Counterparts    21

7.4.  

   Notices    22

7.5.  

   Successors and Assigns    22

7.6.  

   Applicable Law, Venue and Jurisdiction    22

7.7.  

   Waiver and Other Action    22

7.8.  

   Severability    22

7.9.  

   Certain Defined Terms    23

7.10.

   Confidentiality    23

7.11.

   Survival    23

 

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ASSET PURCHASE AGREEMENT

 

THIS ASSET PURCHASE AGREEMENT (“Agreement”), dated as of April 15, 2005 (the
“Effective Date”), is entered into by and among DIGITAL GENERATION SYSTEMS,
INC., a Delaware corporation (“Parent”), DG SYSTEMS ACQUISITION III CORPORATION,
a Delaware corporation and wholly owned subsidiary of Parent (“Purchaser”),
MEDIA DVX, INC., a Delaware corporation (“Seller”), and for the purposes of
Section 4.7 hereof only, StarNet, L.P., a Pennsylvania limited partnership
(“StarNet”). Seller and Purchaser are collectively referred to herein as the
“Parties.”

 

WHEREAS, Seller desires to sell, and Purchaser desires to purchase,
substantially all of the assets of Seller used in or for the digital media
exchange services for the advertising and broadcast industries and related
business operations conducted by Seller (the digital media exchange services for
the advertising and broadcast industries and related business operations
conducted by Seller being referred to herein as the “Business”) in accordance
with this Agreement;

 

NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants
herein, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the Parties agree as follows:

 

ARTICLE 1.

PLAN OF ACQUISITION

 

1.1. Acquisition of Assets.

 

(a) Upon the terms and conditions stated in this Agreement, Seller hereby sells,
and Purchaser hereby acquires, the assets, business, property, goodwill, and
rights of Seller of every kind and character, whether real or personal, tangible
or intangible, owned or leased, used in or for the Business, excluding only the
Excluded Assets (as defined in Section 1.1(b)). The items being sold and
purchased are collectively referred to herein as the “Assets.” Without limiting
the foregoing, the Assets include:

 

(i) all of the properties and assets described on Exhibit A;

 

(ii) all of Seller’s Intellectual Property Rights (as hereinafter defined) used
in or for the Business;

 

(iii) all rights in any data processing systems and equipment used exclusively
in or for the Business, including operations manuals, computer hardware,
software, including, without limitation, delivery and billing software,
databases and related documentation, whether located at Seller’s offices or at
broadcast destinations, cable networks or cable systems;

 

(iv) all client, customer and supplier lists related to the Business;

 

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(v) all rights of Seller under the Material Agreements (defined in Section 2.21,
below), including, without limitation, as subsequently amended and supplemented
and all rights of Seller under any personal property leases relating to the
Business;

 

(vi) all other intangible properties and assets of the Business, including,
without limitation, any Internet domain name registrations used in or for the
Business;

 

(vii) all accrued, asserted or unasserted claims of Seller against third parties
relating to the Business; and

 

(viii) all files, books and records of all kinds and forms regarding the
foregoing.

 

(b) The Assets sold and acquired hereunder shall not include any of the
following (the “Excluded Assets”):

 

(i) All cash, cash equivalents, accounts receivable of Seller as of the Closing
Date (the “Accounts Receivable”) and marketable securities;

 

(ii) All claims, rights and interest in and to any refunds of Taxes or other
fees of any nature;

 

(iii) Seller’s minute books and other similar corporate records;

 

(iv) All rights, claims and causes of action against a third party to which
Seller has actual or asserted liabilities or obligations that are not assumed by
Purchaser;

 

(v) All other assets, properties, rights, licenses, permits or privileges of any
kind that Seller does not use in the operation of the Business;

 

(vi) the properties and assets described on Exhibit B; and

 

(vii) all furniture, fixtures and leasehold improvements used in or for the
Business.

 

1.2. Liabilities Not Assumed. Purchaser does not assume, and shall not be
responsible for, the payment, performance, or discharge of any liabilities or
obligations of Seller, whether now existing or hereafter arising, that have not
been disclosed in Seller’s Financial Statements (as defined herein) or otherwise
disclosed to Purchaser as of the date of the Agreement. Without limiting the
preceding sentence, Seller, and not Purchaser, shall be responsible for any and
all liabilities, responsibilities and obligations relating to the Excluded
Assets.

 

1.3. Purchase Price. Subject to Section 1.4, the total consideration to be paid
by Purchaser to Seller at Closing for the Assets is (the following subsections
(a)-(c) are collectively referred to as the “Purchase Price”):

 

(a) the payment to Seller in cash of an amount equal to ONE MILLION FIVE HUNDRED
THOUSAND DOLLARS ($1,500,000) (by wire transfer in accordance with the wiring
instructions for Seller set forth on Schedule 1.4);

 

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(b) the issuance to Seller of 1,550,388 restricted shares (the “Purchase
Shares”) of Parent’s common stock, $0.001 par value (“Parent Stock”). The number
of Purchase Shares shall be equal to TWO MILLION DOLLARS ($2,000,000) of Parent
Stock determined based on the average closing price for the ten consecutive
trading days ending on the trading day that is three trading days prior to
Closing, as reported on the NASDAQ National Market; and

 

(c) the execution of a promissory note from Purchaser to Seller, in the form
attached hereto as Exhibit C, in the original principal amount of SIX MILLION
FIVE HUNDRED THOUSAND DOLLARS ($6,500,000), along with the Loan Agreement, dated
as of the Closing Date, between the Parties (the “Loan Agreement”) and the Loan
Documents (as defined in the Loan Agreement).

 

1.4. Purchase Price Adjustments; Prorations. The Purchase Price shall be
adjusted, without duplication, as follows:

 

(a) The Purchase Price shall be increased or decreased, as required, to
effectuate the proration of revenues and expenses as of the Closing Date,
including, without limitation, all accrued, asserted or unasserted claims of
Seller against third parties relating to the Business, all prepaid expenses and
deposits of or for the Business, and any Accounts Receivable. All revenues and
expenses arising from the operation of the Business (except for taxes arising
from the transfer of the Assets under this Agreement) shall be prorated between
Purchaser and Seller in accordance with the principle that Seller shall be
credited for all revenues and shall be responsible for all expenses, costs, and
liabilities allocable to the operations of the Business for the period prior to
the Closing Date, and Purchaser shall receive credit for all revenues and shall
be responsible for all expenses, costs, and obligations allocable to the
operations of the Business for the period after the Closing Date.

 

(b) Purchaser shall use commercially reasonable efforts to collect the Accounts
Receivable and shall be allowed to offset any adjustments or prorations owed to
Seller under Section 1.4(a) against the Accounts Receivable. Amounts collected
with respect to accounts receivable shall be applied to the oldest account
balances based on the principle of “first in, first out.”

 

(c) Within 120 days following the Closing Date, Purchaser shall prepare and
deliver to Seller a certificate executed by a duly authorized representative of
Purchaser (the “Adjustment Certificate”), showing in such detail as shall be
reasonably satisfactory to Seller, Purchaser’s good faith determination at the
Closing Date of the Purchase Price and the calculation thereof, including
adjustments, prorations or offsets in accordance with Section 1.4(a) and (b)
hereof, and including the amount of any Accounts Receivable which remain
uncollected by Purchaser, which certificate will be accompanied by appropriate
documentation supporting the amounts and numbers proposed in such certificate.
Each Party will provide the other reasonable access to all records in its
possession which were used in the preparation of Adjustment Certificate or which
may otherwise be necessary for the preparation thereof. Seller will review the
Adjustment Certificate and will give written notice (an “Objection Notice”) to
Purchaser of any objection it has to the calculations shown

 

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in such certificate within thirty (30) days after receipt. Such notice will set
forth Seller’s proposal as to each item to which it objects, together with
appropriate support for such objections, including Purchaser’s reduction for
uncollected Accounts Receivable. If Seller does not deliver an Objection Notice
within such 30-day period, then the Adjustment Certificate shall be deemed to be
conclusive, final and binding on the Parties. Purchaser and Seller will endeavor
in good faith to resolve any objections within thirty (30) days after the
receipt by Purchaser of Seller’s timely objections. If such objections or
disputes have not been resolved by the end of such 30-day period, the disputed
portion only of the items contained in the Adjustment Certificate will be
determined within the following thirty (30) days by a national accounting firm
that is mutually acceptable to Purchaser and Seller (in either case, the
“Arbitrator”). The determination of the Arbitrator will, with respect to each
item in dispute, be within the range of such item as proposed by Purchaser in
the Adjustment Certificate and Seller in the Objection Notice. The determination
of the Arbitrator will be final and will be binding upon the Parties. Purchaser
and Seller will bear equally the expenses of the Arbitrator incurred in
connection with such determination. The difference in the Purchase Price paid at
Closing and the definitive Purchase Price determined in accordance with this
Section 1.4(c) shall be settled in immediately available funds within five (5)
business days after the mutual agreement of Seller and Purchaser.

 

(d) Seller expressly agrees that if it receives any revenues or other payments
from customers included in the Assets after the Closing Date, it shall remit to
Purchaser the monies so received within five (5) business days after receipt
thereof, and Seller shall promptly apportion such amounts in accordance with the
terms of this Section 1.4 and deliver to Purchaser the amount, if any, to which
Purchaser is entitled pursuant to the terms hereof.

 

(e) There shall be no adjustment for, and Seller shall remain solely liable with
respect to, any agreements not included in the Material Agreements and any other
obligation or liability not being assumed by Purchaser. An adjustment and
proration shall be made in favor of Purchaser to the extent that Purchaser
assumes any liability under any Material Agreements to refund (or to credit
against payments otherwise due) any security deposit or similar prepayment paid
to Seller by any third party.

 

1.5. Closing. The closing of the transactions contemplated by this Agreement
(the “Closing”) will take place at one or more locations agreed upon by the
Parties concurrently with the execution of this Agreement or at such other date
agreed upon by the Parties, which date shall be referred to as the “Closing
Date.”

 

1.6. Conveyance Documents.

 

(a) At the Closing, Seller shall execute and/or deliver to Purchaser:

 

(i) a Bill of Sale in form mutually acceptable to the Parties;

 

(ii) an Assignment and Assumption Agreement in a form mutually acceptable to the
Parties;

 

(iii) required consents, approvals or releases from third parties; and

 

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(iv) a certificate as to (a) the incumbency of the officer of Seller executing
this Agreement and other documents in connection with this Agreement and (b) the
resolutions adopted by the Board of Directors of Seller authorizing and
approving the transactions contemplated by this Agreement.

 

(b) At the Closing, Purchaser and Parent, as the case may be, shall execute
and/or deliver or cause to be delivered to Seller:

 

(i) the Purchase Price;

 

(ii) an Assignment and Assumption Agreement in a form mutually acceptable to the
Parties;

 

(iii) the Loan Documents;

 

(iv) required consents, approvals or releases from third parties; and

 

(v) a certificate as to (a) the incumbency of the officer of Purchaser and
Parent executing this Agreement and other documents in connection with this
Agreement and (b) the resolutions adopted by the Board of Directors of Purchaser
and Parent authorizing and approving the transactions contemplated by this
Agreement.

 

(c) Delivery of the documents at the Closing may be made by telecopy or (to some
extent) in person. The original or definitive copies of documents delivered by
telecopy shall be sent by the delivering Party to the other Party or Parties by
courier within three business days after the date of the Closing. Each Party
shall also deliver such other certificates and documents as the other Party or
Parties may reasonably request to consummate the transactions contemplated by
this Agreement. All actions taken at the Closing shall be deemed to have been
taken simultaneously at the time the last of any such actions is taken or
completed.

 

1.7. Conditions Precedent to Closing. The obligations of each Party to close the
transactions contemplated hereby is subject to the fulfillment of the following
conditions, or waiver thereof by the party to whom the obligation is due, at or
prior to Closing, and the Parties will use commercially reasonable efforts to
cause such conditions to be fulfilled:

 

(a) The representations and warranties made by each Party herein are true and
correct in all material respects as of the date hereof (except for
representations and warranties that speak as of a certain date which shall be
true and correct as of such date). Each Party shall have complied with all of
its covenants required to be performed at or prior to the Closing, including the
execution and delivery of the documents described in Section 1.6.

 

(b) No action or proceeding by or before any court or other governmental body
shall have been instituted or threatened by any governmental body or person
whatsoever which shall seek to restrain, prohibit or invalidate the transactions
contemplated by this Agreement or which might affect the right of Purchaser to
own the Assets or to own or operate the Business after the Closing.

 

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1.8. Further Assurances. After the Closing, the Parties shall execute and
deliver such additional documents and take such additional actions as may
reasonably be deemed necessary or advisable by any Party to consummate the
transactions contemplated by this Agreement and to vest more fully in Purchaser
the ownership of the Business and Assets transferred and conveyed pursuant to
this Agreement, or intended so to be.

 

1.9. Allocation of the Purchase Price. Purchaser and Seller shall jointly,
within thirty (30) days after the Closing Date, prepare a schedule in accordance
with the provisions of the Internal Revenue Code of 1986, as amended (the
“Code”), reflecting the allocation of the Purchase Price proportionately among
the Assets (the “Tax Allocation Schedule”). Purchaser and Seller shall cooperate
and provide such information in order to prepare the Tax Allocation Schedule.
Purchaser and Seller shall report the purchase of the Assets in accordance with
the Tax Allocation Schedule and Section 1060 of the Code for purposes of all
federal, state and local tax returns (including amended returns and claims for
refund and the filing of IRS Form 8594)) and information reports.

 

ARTICLE 2.

REPRESENTATIONS AND WARRANTIES OF SELLER

 

Seller represents and warrants to Purchaser as of the Effective Date as follows:

 

2.1. Organization, Good Standing and Qualification of Seller. Seller is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. Seller is qualified to do business, and is in good
standing, in each jurisdiction in which the nature of the business conducted or
the ownership or leasing of its properties makes such qualification necessary.

 

2.2. Power and Authority of Seller. Seller has the requisite corporate power and
authority, and all Permits (as defined herein) from governmental authorities, to
own, lease and operate its properties and assets and to carry on its business.

 

2.3. Authority and Validity. Seller has the corporate power and authority to
execute, deliver and perform its obligations under this Agreement and the other
documents executed by it in connection with this Agreement; and the execution,
delivery and performance by Seller of this Agreement and the other documents
executed by it in connection with this Agreement have been duly authorized by
all necessary corporate action.

 

2.4. Binding Effect. This Agreement and the other documents executed by Seller
in connection with this Agreement have been duly executed and delivered by it
and are its legal, valid and binding obligations, enforceable against it in
accordance with their terms, except as may be limited by (i) bankruptcy,
insolvency or other similar laws affecting creditors’ rights generally, and (ii)
equitable principles of general applicability.

 

2.5. Necessary Approvals and Consents. Other than the consents, approvals and
releases of third parties described on Schedule 2.5 hereto that will be
delivered by Seller on or prior to Closing (except as otherwise provided
herein), no authorization, consent, permit, license or approval of, or
declaration, registration or filing with, any person (including any governmental
authority) is required as a condition to the execution, delivery or performance
by Seller of this Agreement or the other documents executed by it in connection
with this Agreement or the consummation by Seller of the transactions
contemplated hereby and thereby.

 

 

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2.6. No Conflict with Other Instruments. Having obtained the consents, approvals
and releases of third parties set forth on Schedule 2.5, neither the execution,
delivery or performance by Seller of this Agreement or the other documents
executed by it in connection with this Agreement nor the consummation by Seller
of the transactions contemplated hereby or thereby will violate, breach,
conflict with, or constitute a default under, or permit the termination or the
acceleration or maturity of, or result in the imposition of any lien, claim, or
encumbrance upon any property or asset of Seller pursuant to, Seller’s Articles
of Incorporation or Bylaws or any note, bond, indenture, mortgage, deed of
trust, evidence of indebtedness, loan or lease agreement, other agreement or
instrument judgment, order, injunction or decree by which Seller is bound or to
which any of the Assets are subject.

 

2.7. Title to Assets.

 

(a) Seller has good title to all of the Assets, including those properties and
assets described on Exhibit A.

 

(b) The Assets are owned free and clear of any lien, claim, or encumbrance,
except as set forth on Schedule 2.7 hereto and except for:

 

(i) liens for taxes, assessments, or other governmental charges not yet
delinquent;

 

(ii) statutory liens incurred in the ordinary course of business of the Business
that are not yet delinquent;

 

(iii) immaterial mechanics, materialmen’s and similar liens;

 

(iv) rights reserved to any governmental authority to regulate the affected
Asset, including zoning laws and ordinances, none of which, individually or in
the aggregate, adversely affect or interfere with the right or ability to own,
use, dispose of or operate any of the Assets; and

 

(v) rights of others under Assumed Contracts.

 

(c) As of the Closing Seller will have conveyed to Purchaser, and Purchaser will
own or lease, all assets of Seller necessary to or used or useful in the conduct
of the Business as conducted by Seller immediately before the Closing Date.

 

2.8. Condition of Tangible Assets. Except as set forth on Schedule 2.8, the
tangible Assets are in reasonable operating condition and repair (except for
ordinary wear and tear), are sufficient for the uses to which Seller uses them
in the ordinary course of business of the Business, and conform with all
applicable laws, regulations and ordinances.

 

2.9. Intellectual Property. Seller owns or is properly licensed to use all
Intellectual Property Rights used in or necessary to the conduct of the
Business. Schedule 2.9 sets forth a true

 

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and complete list and summary description of all Seller’s Intellectual Property
Rights. “Intellectual Property Rights” means any and all (i) trade names,
trademarks, service marks, mask works and all registrations and applications for
any of the foregoing; (ii) works of authorship, all copyrights related thereto
and all registrations and applications therefor; (iii) inventions, discoveries,
designs, industrial models, and all United States and foreign patent rights
covered by, disclosed in, or otherwise related thereto, all registrations and
applications therefor, and all reissues, divisions, continuations-in-part,
re-examinations and extensions thereof, (iv) right to sue for past infringement
and improper, unlawful or unfair use of any of the foregoing, (v) rights under
intellectual property license agreements which grant licenses to Intellectual
Property Rights of any other person to Seller (the “Intellectual Property
Licenses”), (vi) goodwill associated with the foregoing, and (vii) undocumented
intellectual property, including know-how, trade secrets, processes, technology,
discoveries, unpatented inventions and designs, software, formulae, procedures
and other intellectual property, documentation relating to any of the foregoing,
shop rights and the right to sue for past infringement or improper, unlawful or
unfair use or disclosure thereof and the right to apply for patent, design or
similar protection therefor anywhere in the world.

 

(a) Seller possesses all right, title and interest in and to all Intellectual
Property Rights in which Seller has an ownership interest (the “Owned
Intellectual Property”), free and clear of any encumbrance or other ownership
interest of any other person. Other than as set forth on Schedule 2.9(a), Seller
has not granted to any person or obligated itself to grant to any person any
license, option or other right in or with respect to any of the Owned
Intellectual Property, whether or not requiring payment to Seller. No person has
either asserted any rights in or offered to grant Seller a license or any other
right of use with respect to the Owned Intellectual Property. Seller has no
obligation to compensate any person for any development, license, use, sale,
distribution or modification of any of the Owned Intellectual Property. None of
the Owned Intellectual Property was developed as part of the performance of any
obligation for any person other than Seller which would require the taking of
any action, whether or not actually taken, in order for all rights to the Owned
Intellectual Property to become vested in or retained by Seller.

 

(b) Neither Seller, nor, to the knowledge of Seller, any other person, is in
breach of or default under any Intellectual Property License or any other
contract or legal requirement relating to the Owned Intellectual Property or any
Intellectual Property Rights licensed to Seller (the “Licensed Intellectual
Property”). Each Intellectual Property License to which Seller is a party is
now, and will be in the foreseeable future (through the termination date set
forth therein), valid and in full force and effect.

 

(c) To the knowledge of Seller, the development, license, use, sale,
distribution, modification and other exploitation of the Owned Intellectual
Property and the Licensed Intellectual Property has not infringed on or
otherwise violated the rights of any other person or constituted an unlawful
disclosure, use or misappropriation of the right or rights of any other person.
Seller has not (i) infringed, misappropriated or otherwise violated, (ii)
contributed to the infringement, misappropriation or other violation by others,
or (iii) induced infringement, misappropriation or other violation by others of
the Intellectual Property Rights of any person. Seller has not received any
assertion, complaint, demand or any notice whatsoever alleging any such
infringement, misappropriation or other violation. To the knowledge of Seller,
no person is infringing upon, misappropriating or otherwise violating rights to
the Owned Intellectual Property. No complaint, allegation, charge or any
assertion whatsoever that any Owned Intellectual Property is invalid,
unenforceable, incomplete or defective in any other way, has been made by any
person.

 

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2.10. Taxes. All monies required to be withheld by Seller from employees or
collected from customers for income taxes, social security, medicare, and
unemployment insurance taxes, and sales, excise and use taxes; and all such
taxes required to be paid by Seller to governmental authorities have been
collected or withheld and paid to the respective governmental authorities, or
such monies have been accrued, reserved against and entered upon the books of
Seller. All federal, state, county and local income, gross receipts, excise,
property, franchise, license, sales, use, withholding and other tax and
information returns and declarations required to have been filed before the
Effective Date by Seller have been duly and timely filed, and each such return
correctly reflects the tax liability and all other information required to be
reported therein. Seller has paid in full all taxes, penalties, interest and
related charges and fees to the extent such payments were or are required before
and as of the Effective Date, and Seller will pay all income taxes, payroll and
employee benefits, social security, withholding, sales, use, unemployment
insurance taxes, and any and all other taxes and assessments due and payable by
Seller to all city, state, county and federal taxing authorities for periods up
to and through the date immediately preceding the Effective Date. Seller does
not have any deficiency with respect to any tax period or any liability with
respect to taxes or penalties and interest thereon, or related charges and fees,
whether or not assessed. No waivers or extensions of statutes of limitations or
deadlines for assessments or collection of taxes is in effect. There are no
pending or threatened claims, assessments, proposals to assess deficiencies or
audits with respect to any taxes owed or allegedly owed by Seller, nor, to the
knowledge of Seller, is there any basis for any such action. The tax returns and
reports of Seller have not been audited by the Internal Revenue Service or any
other taxing authority for any period ending after June 1, 2001.

 

2.11. Litigation and Government Claims. Except as described on Schedule 2.11,
there is no suit, claim, action or litigation, or governmental, administrative,
arbitral or other similar proceeding, investigation or inquiry, pending or, to
the knowledge of Seller, threatened against or affecting Seller and to which the
Business or the Assets are subject. None of such pending matters will, severally
or in the aggregate, have a material adverse effect on the Business or Assets.

 

2.12. Financial Information.

 

(a) As set forth in Schedule 2.12, Seller has delivered to Purchaser financial
information with respect to the Business (the “Financial Statements”). The
Financial Statements have been prepared from the books and records of Seller,
and on a basis consistent with preceding periods and throughout the periods
involved. The Financial Statements present accurately and fairly, the financial
information purported to be provided to Purchaser.

 

(b) Seller’s books of account relating in any manner to the Business have been
kept accurately in the ordinary course of business; the transactions entered
therein represent bona fide transactions; and the revenues, expenses, assets and
liabilities of Seller have been properly recorded in such books in all material
respects.

 

2.13. Solvency. Immediately after giving effect to the consummation of the
transactions contemplated by this Agreement, (i) Seller will be able to pay its
debts as they become due, (ii) the property of Seller will not constitute
unreasonably small capital, and Seller will not have insufficient

 

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capital with which to conduct its business, and (iii) taking into account
pending and threatened litigation, final judgments against Seller in actions for
money damages are not reasonably anticipated to be rendered at a time when, or
in amounts such that, Seller will be unable to satisfy any such judgments
promptly in accordance with their terms.

 

2.14. Insurance Notices. Seller has not received notice from any insurer of the
intention (whether or not subject to conditions) of any insurer to discontinue
any insurance coverage relating to the Business or any of the Assets because of
the operation or condition of any of the Assets or any of the real property
leased or subleased by Seller.

 

2.15. Licenses and Permits. Seller possesses all the licenses, authorizations,
and permits listed in Schedule 2.15, accurate and complete copies of which have
been delivered to Purchaser (the “Permits”). The Permits constitute all of the
licenses, authorizations, and permits necessary under law or otherwise for
Seller to conduct the Business as now being conducted and to construct, own,
operate, maintain and use the Assets in the manner in which they are now being
constructed, operated, maintained and used. Each of such Permits and Seller’s
rights with respect thereto is valid and subsisting, in full force and effect,
and enforceable by Seller in accordance with its terms. Seller is in compliance
in all material respects with the terms of such Permits. None of such Permits
have been or, to the knowledge of Seller, are threatened to be revoked,
canceled, suspended or modified. Except as set forth in Schedule 2.15, all of
the Permits are transferable to Purchaser.

 

2.16. Compliance with Laws; No Judgments, Decrees, or Orders in Restraint of
Business. As conducted by Seller, the Business is in compliance in all material
respects with all applicable statutes, laws, ordinances, decrees, orders, rules
and regulations of any governmental body. Seller is not a party to or subject to
any judgment, order or decree entered in any suit or proceeding brought by any
governmental authority or any other person enjoining or restricting Seller in
respect of any business practice or the acquisition of any property or the
conduct of its business.

 

2.17. No Violation of Any Instrument. Seller is not in violation of or in
default under, nor has any event occurred that, with the lapse of time or the
giving of notice or both, would constitute a violation of or default under, or
permit the termination or the acceleration of maturity of, or result in the
imposition of a lien, claim, or encumbrance upon any Asset pursuant to, its
Articles of Incorporation or Bylaws or any note, bond, indenture, mortgage, deed
of trust, evidence of indebtedness, agreement, judgment, order, injunction or
decree to which it is a party, by which it is bound or to which any of the
Assets or the Business is subject.

 

2.18. Employee Benefit Plans. Seller does not have or maintain any pension,
profit-sharing, thrift or other retirement plan, employee stock ownership plan,
deferred compensation, stock option, stock purchase, performance share, bonus or
other incentive plan, severance plan, health, group insurance or other welfare
plan, or other similar plan, agreement, policy or understanding, including any
“employee benefit plan” within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended (“ERISA”), under which Seller
or any other corporation or trade or business under common control with Seller
(an “ERISA Affiliate”) as determined under Sections 414(b), (c) or (m) of the
Internal Revenue Code of 1986, as amended, has any current or future obligation
or liability or under which any present or former employee of the Seller or an
ERISA Affiliate has any current or future right to benefits that would justify
the attachment of any liens on, or any other recourse to, the Assets.

 

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2.19. Employee Matters.

 

(a) Seller is not a party to any collective bargaining or other labor union
contract.

 

(b) Except as set forth on Schedule 2.19, in all material respects, Seller is in
compliance with applicable laws and regulations regarding employment, wages,
hours, equal opportunity, unfair labor practices and payment of Social Security
and other taxes, and no complaint alleging any violation of such laws or
regulations by Seller has been filed or, to the knowledge of Seller, threatened
to be filed with or by any governmental body.

 

2.20. Absence of Changes. Since January 1, 2004, except as described in Schedule
2.20, there has not been:

 

(a) any event that, individually or when taken together with all other events,
would create a material adverse effect on the financial condition of Seller, the
Business or the Assets;

 

(b) any theft, damage, destruction, casualty loss, condemnation or eminent
domain proceeding materially affecting any of the Assets, whether or not covered
by insurance;

 

(c) any sale, assignment or transfer of any of the Assets, except for inventory
in the ordinary course of business consistent with past practices and other
assets;

 

(d) any waiver by Seller of any material rights related to the Business or its
operations or any of the Assets;

 

(e) any change by Seller in its accounting or tax reporting methods, principles
or practices;

 

(f) any other transaction, agreement or commitment entered into by Seller
affecting the Business or any of the Assets, except in the ordinary course of
business consistent with past practices and in an amount that would not have a
material affect on Seller individually or in the aggregate;

 

(g) a loss of any customer who paid Seller more than $75,000 in any year since
2002; or

 

(h) any agreement or understanding to do or resulting in any of the foregoing.

 

2.21. Contracts and Commitments.

 

(a) Schedule 2.21 lists each agreement and arrangement, whether written or oral,
(x) to which Seller is a party or by which Seller or any of the Assets is bound
and (y) that relates to and is material to the Business or the Assets and (z)
which is being assigned to and assumed by Purchaser (“Material Agreements”),
including without limitation (i) any agreements or arrangements under which
Seller has any liability in excess of $40,000; (ii) any leases or licenses with
a term of one year or more or pursuant to which Seller is entitled to or
obligated to pay in excess of $40,000; (iii) any capital or operating leases or
conditional sales agreements relating to vehicles or equipment pursuant to which
Seller is entitled or obligated to pay in excess of $40,000; (iv) any service

 

11

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agreements or arrangements with an aggregate obligation in excess of $40,000;
(v) any employment, consulting, noncompetition, separation, collective
bargaining, union or labor agreements or arrangements; (vi) any agreement
evidencing, securing or otherwise relating to any indebtedness in excess of
$40,000 for which Seller has any liability, (vii) any agreement with or for the
benefit of any stockholder, director, officer or employee of Seller, or any
affiliate or family member thereof; and (viii) any other agreement or
arrangement pursuant to which Seller could be required to make or be entitled to
receive aggregate payments in excess of $40,000 and which is not cancelable
without penalty upon 30 days notice.

 

(b) Seller has performed all of its obligations in all material respects under
each Material Agreement, and to the knowledge of Seller, there exists no breach
or default (or event that with notice or lapse of time would constitute a breach
or default) by Seller under any Material Agreement.

 

(c) Each Material Agreement is valid, binding and in full force and effect and
enforceable against Seller in accordance with its respective terms. There has
been no termination or threatened termination or notice of default under any
Material Agreement. Seller has delivered to Purchaser a copy of each written
Material Agreement and a written summary of all material terms of each oral
Material Agreement.

 

(d) Except as set forth in Schedule 2.5, no consent of any person is required in
connection with the transactions contemplated by this Agreement to preserve the
rights of Seller under or to prevent any disadvantage to Seller in respect of
any Material Agreement. All consents set forth on Schedule 2.5 will be obtained
on or prior to the Closing Date.

 

2.22. Contracts with Affiliates and Others. Except as set forth on Schedule
2.22, no director or officer of Seller, nor any person who is a spouse or
descendant of such director or officer, serves as a director, officer,
shareholder, partner or equity owner of any customer or supplier of the Business
or any entity that is a competitor of Seller.

 

2.23. Significant Customers. Set forth on Schedule 2.23 is a correct and
complete list of each customer of the Business, together with the amount (in
dollars) of gross revenues of the Business derived from such customer during the
years ended December 31, 2004 and 2003. Seller has not received any notice from
such customer that such customer has terminated or ceased, or has significantly
reduced the volume or amount of, its business with the Business or has any
intent to do any of the foregoing after the Closing, whether because of the
Closing or otherwise.

 

2.24. No Brokerage Fees. Other than as set forth in Schedule 2.24, neither
Seller nor any officer, director or employee of Seller has employed any broker
or finder or incurred any liability for any brokerage fees, or commissions or
finders’ fees in connection with the transactions contemplated hereby.

 

2.25. No Misrepresentations. The representations, warranties and statements made
by Seller in or pursuant to this Agreement (including the Schedules hereto) are
true, complete and correct in all material respects and do not contain any
untrue statement of a material fact or omit to state any material fact necessary
to make any such representation, warranty or statement, under the circumstances
in which it is made, not misleading. To the best of the knowledge of Seller,
Seller has disclosed to Purchaser all facts known to them that are material to
the operations and financial condition of the Business.

 

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ARTICLE 3.

REPRESENTATIONS AND WARRANTIES OF PURCHASER

 

Purchaser represents and warrants to Seller as of the Effective Date as follows:

 

3.1. Organization and Good Standing. Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.

 

3.2. Authority and Validity. Purchaser has the corporate power and authority to
execute, deliver and perform its obligations under this Agreement and the other
documents executed by it in connection with this Agreement; and the execution,
delivery, and performance by it of this Agreement and the other documents
executed by it in connection with this Agreement have been duly authorized by
all necessary corporate action.

 

3.3. Binding Effect. This Agreement and the other documents executed by
Purchaser in connection with this Agreement have been duly executed and
delivered by it and are its legal, valid and binding obligations, enforceable
against it in accordance with their terms, except as may be limited by (i)
bankruptcy, insolvency, or other similar laws affecting creditors’ rights
generally, and (ii) equitable principles of general applicability.

 

3.4. Necessary Approvals and Consents. No authorization, consent, permit,
license or approval of, or declaration, registration, or filing with, any person
(including any or governmental authority) is required as a condition to the
execution, delivery, or performance by Purchaser of this Agreement or the other
documents executed by Purchaser in connection with this Agreement or the
consummation by it of the transactions contemplated hereby and thereby.

 

3.5. Non-Contravention. The execution, delivery and performance by Purchaser of
this Agreement or the other documents executed by Purchaser in connection with
this Agreement and the consummation of the transactions contemplated hereby and
thereby do not and will not (i) violate or conflict with the Articles of
Incorporation or Bylaws of Purchaser, (ii) violate or conflict with any note,
bond, indenture, mortgage, deed of trust, evidence of indebtedness, loan or
lease agreement, other agreement or instrument judgment, order, injunction or
decree by which Purchaser is bound or affected or (iii) violate or conflict with
any applicable statutes, laws, ordinances, decrees, orders, rules and
regulations of any governmental body.

 

3.6. Litigation. There is no suit, claim, action or litigation, or governmental,
administrative, arbitral or other similar proceeding, investigation or inquiry,
pending or, to the knowledge of Purchaser, threatened against or affecting
Purchaser which in any manner challenges or seeks to prevent, enjoin, alter or
materially delay the transactions contemplated in this Agreement or the other
documents executed by Purchaser in connection with this Agreement.

 

3.7. No Brokerage Fees. Neither Purchaser nor any officer, director or employee
of Purchaser has employed any broker or finder or incurred any liability for any
brokerage fees or commissions or finders’ fees in connection with the
transactions contemplated hereby.

 

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ARTICLE 4.

COVENANTS

 

4.1. Payment of Obligations Not Assumed. All obligations of Seller not
specifically assumed by Purchaser in this Agreement, including all liability for
income taxes, sales taxes and other taxes accruing prior to the Closing Date or
relating to the purchase of the Business and the Assets, shall be paid by
Seller, and Purchaser shall have no responsibility therefor.

 

4.2. Noncompetition and Nonsolicitation Agreements. Seller acknowledges and
agrees that (i) Purchaser would not have entered into this Agreement to purchase
the Assets but for the following noncompetition and nonsolicitation covenants of
Seller, (ii) this Section 4.2 is supported by good and sufficient consideration
and (iii) Seller and its directors, officers and stockholders possess
information concerning the Business and the Assets that would enable them to
injure Purchaser and diminish the value of the investment by Purchaser in the
Business and the Assets if Seller or its directors, officers or stockholders
should engage in any business that is competitive with the business conducted by
Purchaser or Parent. Therefore, Seller (on behalf of itself and its directors,
officers and stockholders) hereby agrees to the following:

 

(a) For a period of five (5) years after the Closing Date, Seller will not,
directly or indirectly, engage in any business that provides the same or any
substantially similar services or products as those included in the Business
without the prior written consent of Purchaser, as specifically authorized or
approved by its Board of Directors.

 

(b) For a period of five (5) years after the Closing Date, Seller agrees not to,
directly or indirectly, solicit for employment or employ any employee of
Purchaser, Parent or their subsidiaries, or any person who was an employee of
Purchaser, Parent or their subsidiaries within 12 months prior to such
solicitation or employment, or induce or attempt to induce any employee of
Purchaser, Parent or their subsidiaries to terminate such employee’s employment.

 

(c) For purposes of this Section 4.2, the term “indirectly” means the
performance of services or taking of any action by any business or entity in
which Seller either owns or possesses more than a 5% interest in profits, losses
or capital, or the right to direct or control such business or entity, or for
which Seller acts as an agent or representative, or to which Seller provides
consulting or advisory services, or any of the same by any person who is an
officer or director of Seller.

 

4.3. Seller’s Employees.

 

(a) Purchaser shall offer employment to the employees of Seller listed on
Exhibit D hereto with respect to the Business on the Closing Date (a “Seller
Employee”). However, Purchaser does not covenant as to the actual employment of
any Seller Employee or to any terms and conditions of any such employment.

 

(b) Seller Employees shall be employed by Purchaser solely in accordance with
Purchaser’s hiring and other employment policies and procedures, which may
differ from Seller’s employment policies and procedures.

 

(c) Purchaser will arrange to provide medical and dental insurance benefits to
the Seller Employees and their dependents consistent with Purchaser’s employee
benefits as promptly as is practicable after the Closing Date pursuant to
medical and life insurance plans sponsored or maintained by Purchaser.

 

 

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(d) Purchaser will not be liable for any severance payments asserted against
Seller or any other liability, including, without limitation, any liability with
respect to health care continuation coverage under COBRA, or obligation to, any
former employees of Seller or Seller Employee who does not accept an offer of
employment from Purchaser.

 

(e) No Employment Contract. The understandings set forth in this Section 4.3 are
solely for the purpose of defining the obligations between Purchaser and Seller
with respect to the individuals employed in the operation of Seller as of the
Closing and will not be construed as creating any employment contract or other
contract between Purchaser, Parent or Seller, on the one hand, and any such
employee, on the other. All such employees will remain terminable at will by
Purchaser or Seller, as the case may be. No third party beneficiaries are
intended by this Section 4.3.

 

4.4. Transaction Costs. Purchaser will pay all attorneys’, accountants’,
finders’, brokers’, and other fees, costs and expenses that it incurs in
connection with the preparation, negotiation, execution, and performance of this
Agreement or any of the transactions contemplated by this Agreement. Seller will
pay all attorneys’, accountants’, finders’, brokers’, and other fees, costs and
expenses incurred by Seller in connection with the preparation, negotiation,
execution, and performance of this Agreement or any of the transactions
contemplated by this Agreement.

 

4.5. Nondisclosure. Seller acknowledges and agrees that all customer, prospect
and marketing lists, sales data, Intellectual Property Rights, proprietary
information and trade secrets of Seller (collectively, the “Confidential
Information”) are valuable, special and unique assets constituting part of the
Assets and, following the Closing, will be owned exclusively by Purchaser. Prior
to and after the Closing, Seller agrees to treat the Confidential Information as
confidential and not to disclose any Confidential Information to any person or
make use of any Confidential Information for its own purposes or for the benefit
of any other person (other than Purchaser), except (a) to the extent Seller is
required to disclose the Confidential Information pursuant to applicable laws
and regulations or by any subpoena or similar legal process; provided, however,
that in such instance, Seller agrees to provide Purchaser with prompt written
notice of such requirement so that Purchaser may seek an appropriate protective
order from such disclosure, (b) to the extent such Confidential Information
becomes publicly available (other than as a result of a breach of this
Agreement), or (c) to the extent reasonably necessary for Seller to operate its
business as currently conducted.

 

4.6. Information for Filings. Upon written request, Seller agrees to use its
commercially reasonable efforts to furnish Purchaser with all information
concerning Seller as is required for inclusion in any application or filing made
by Purchaser to the Securities and Exchange Commission or any other governmental
body in connection with the transactions contemplated by this Agreement.

 

4.7. Satellite Transition. Purchaser shall have until August 31, 2005 to
transition any Assets from Seller’s satellite services to its own satellite
services and will pay StarNet $48,000 per month during such time period and
until the satellite transition is complete. StarNet agrees that it will not take
any action to terminate Seller’s satellite services prior to August 31, 2005.

 

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4.8. Business Transition Services. Purchaser shall have the right to request
that Seller provide personnel to assist in the orderly transition of the
Business from Seller to Purchaser for the services and at the rates set forth on
Schedule 4.8, terminable on ten (10) business days prior notice.

 

4.9. Pathfire Agreement. When and as due, Seller shall pay the “2004 Guarantee,”
as such term is defined in that certain First Amendment to Technology License
and Services Agreement, dated April 15, 2005, between Pathfire, Inc. and Seller
(the “Pathfire Agreement”). Purchaser assumes all other liabilities related to
the Pathfire Agreement.

 

4.10. Corporate Name. Within sixty (60) days after the date hereof, Seller shall
take such action as is necessary to change its corporate name to remove the
words “Media DVX” or any word or expression similar thereto.

 

ARTICLE 5.

REGISTRATION RIGHTS

 

5.1. Demand Registration. Beginning on the first anniversary following the
Closing Date, if Parent shall receive a written request from Seller that Parent
file a registration statement under the Securities Act of 1933, as amended (the
“Securities Act”), covering the registration of the Purchase Shares in an amount
determined by Seller, then Parent shall use its reasonable best efforts to
effect as soon as practicable the registration under the Securities Act of all
of such Purchase Shares. Parent is obligated to effect up to two registrations
pursuant to this Section 5.1.

 

5.2. Form S-3 Registration.

 

(a) Following the Closing Date, if Parent shall receive a written request from
Seller that Parent effect a registration under the Securities Act on Form S-3,
the reasonably anticipated aggregate offering price to the public of which would
equal or exceed $500,000, then Parent shall use its reasonable best efforts to
file as soon as practicable, but in no event later than 60 days from the date of
its receipt of such written request, the registration under the Securities Act
of all of the Purchase Shares in an amount determined by Seller. Parent is
obligated to effect up to one registration pursuant to this Section 5.2(a) each
twelve months.

 

(b) Notwithstanding the foregoing, Parent shall not be obligated to effect any
such registration pursuant to this Section 5.2 if (i) Form S-3 is not available
for such offering; (ii) Parent shall furnish to Seller a certificate signed by
the President of Parent stating that, in the good faith judgment of the Board of
Directors of Parent, it would be seriously detrimental to Parent and its
stockholders for such Form S-3 registration to be effected at such time, in
which event Parent shall have the right to defer the filing of the Form S-3
registration statement for a period of not more than 90 days after receipt of
the request of Seller under this Section 5.2, provided that Parent may delay a
request for registration not more than once in any one year; or (iii) if Parent
has, within the 12-month period preceding the date of such request, already
effected one such registration on Form S-3 for Seller pursuant to this Section
5.2.

 

5.3. Piggyback Registration.

 

(a) If Parent proposes to register any of its securities under the Securities
Act in connection with the public offering of such securities (other than a
registration relating solely to the

 

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sale of securities to participants in a Parent stock plan, or a registration on
any form that does not include substantially the same information as would be
required to be included in a registration statement covering the sale of the
Purchase Shares), Parent shall, at each such time, promptly give Seller written
notice of such registration. Upon the written request of Seller given within
twenty (20) days after receipt of such notice by Parent, Parent shall use its
reasonable best efforts to cause to be registered under the Securities Act all
of the Purchase Shares that Seller has requested to be registered. In the event
that Parent decides for any reason not to complete the registration of
securities, Parent shall have no obligation under this Section 5.3(a) to
continue with the registration of the Purchase Shares. Any request pursuant to
this Section 5.3(a) to register the Purchase Shares as part of an underwritten
public offering of securities shall specify that such Purchase Shares are to be
included in the underwriting on the same terms and conditions as the securities
otherwise being sold through underwriters under such registration.

 

(b) If the underwriters advise Parent that marketing factors require a
limitation on the number of securities, including the Purchase Shares, to be
included in such offering, then Parent shall so advise Seller, and the number of
securities, including the Purchase Shares, that may be included in the
registration shall be apportioned first to Parent, then wholly to Seller, and
then pro rata among any other selling holders of Parent’s securities according
to the total amount of securities otherwise entitled to be included therein
owned by each such other selling holder.

 

5.4. Expenses. Parent shall be responsible for the payment of all reasonable
expenses for the registrations pursuant to Section 5.1. 5.2 and 5.3, with the
exception of applicable underwriting discounts and commissions. The expenses to
be paid by Parent shall include, without limitation, all registration, filing,
and qualification fees, printing and accounting fees, and attorneys’ fees for
Parent and Seller.

 

5.5. Termination. The registration rights granted under Sections 5.1, 5.2 and
5.3 of this Agreement shall terminate as to Seller on the date on which all of
the Purchase Shares held by Seller may be sold under Rule 144 of the Securities
Act during any 90 day period.

 

5.6. Eligibility for Form S-3. Parent represents and warrants that it meets the
requirements for the use of Form S-3 for registration of the sale by Seller of
the Purchase Shares as of the Effective Date, and Parent shall use its best
efforts to file all reports required to be filed by Parent with the SEC in a
timely manner so as to thereafter maintain such eligibility for the use of Form
S-3.

 

5.7. Miscellaneous. Parent shall prepare and file such registration statements
with the SEC and under applicable blue sky laws; shall cause such registration
statements to become effective, shall keep such registration statements
effective at all times until the date on which all of the Purchase Shares so
registered have been sold; shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to the registration
statement and the prospectus used in connection with the registration statement
as may be necessary to keep the registration statement effective at all times
during the registration period; shall, as promptly as practicable after becoming
aware of such event, notify Seller by telephone and facsimile of the happening
of any event, of which Parent has knowledge, as a result of which the prospectus
included in the registration statement, as then in effect, includes an untrue
statement of a material fact or omission to state a material fact required to be
stated therein or necessary to make the statements

 

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therein not misleading, and, use commercially reasonable efforts promptly to
prepare a supplement or amendment to the registration statement to correct such
untrue statement or omission, and deliver such number of copies of such
supplement or amendment to Seller as Seller may reasonably request; and shall do
and cause to be done all such other things as are customarily done in connection
with customary registration rights agreements, including, without limitation,
providing opinions and letters from counsel and accountants to Parent and
indemnifying Seller to the extent permitted by law.

 

ARTICLE 6.

INDEMNIFICATION AND CERTAIN REMEDIES

 

6.1. Indemnification by Seller. Seller shall indemnify and hold Purchaser, and
its officers, directors, affiliates, employees, agents and shareholders,
harmless from and against any and all losses, liabilities, damages, costs and
expenses (including reasonable attorneys’ fees) (a “Loss and Expense”) asserted
against or incurred by Purchaser, or any of its officers, directors, affiliates,
employees, agents and shareholders, resulting from or arising out of or in
connection with any or all of:

 

(a) any material misrepresentation or breach by Seller of any warranty,
agreement or covenant contained in this Agreement or any other document
executed, delivered or furnished by Seller in connection herewith;

 

(b) the failure to comply with any applicable bulk transfer laws relating to the
transfer of the Assets;

 

(c) income, franchise, sales, use and other taxes, including any penalties and
interest with respect thereto, of or relating to the Assets, the Business or any
other assets or operations of Seller conducted before the Closing Date;

 

(d) sales, transfer and other taxes, including any penalties and interest with
respect thereto, resulting from the consummation of the transactions
contemplated by this Agreement;

 

(e) liabilities and obligations of the Business before the Closing Date,
liabilities and obligations relating to the Excluded Assets (whether before, on
or after the Closing Date), and other liabilities and obligations of Seller or
the Business not specifically assumed by Purchaser in this Agreement;

 

(f) any actual or threatened violation of or noncompliance with, or remedial
obligation arising under, any applicable federal, state, or local laws, rules or
regulations, common law or strict-liability provisions, and any judicial or
administrative interpretations thereof (including any judicial or administrative
orders or judgments), relating to health, safety, industrial hygiene, pollution
or environmental matters (“Environmental Laws”) arising from any event,
condition, circumstance, activity, practice, incident, action or plan existing
or occurring before the Closing Date relating in any way to the Assets or the
Business (including the ownership, operation or use of the Assets and the
conduct of the Business before the Closing Date), including the presence of any
underground storage tanks or any solid or hazardous waste, hazardous substance,
pollutant, contaminant, oil, petroleum product, commercial product or other
substance (i) which is listed, regulated or designated as toxic or hazardous, or
with respect to which remedial obligations may be

 

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imposed, under any Environmental Laws or (ii) exposure to which may pose a
health or safety hazard (“Environmental Materials”) on, in, under or affecting
all or any portion of Seller’s properties or any surrounding areas, and any
spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting,
escaping, leeching, dumping or disposing into the environment (including the
abandonment or discarding of barrels, containers, and other closed receptacles
containing any hazardous substance, pollutant or contaminant) (“Release”) or
threatened Release with respect to such underground storage tanks or
Environmental Materials, and the storage, disposal or treatment, or
transportation for storage, disposal or treatment, of Environmental Materials;
but excluding any violation of or non-compliance with, or remedial obligation
arising under, any Environmental Laws that is attributable solely to (A) a
change by Purchaser in the structure or condition of any of the Assets or (B)
the use by Purchaser of the Assets on or after the Closing Date; and

 

(g) any Loss and Expense of defending against any claims which may be made
against Purchaser by any person claiming violations of any local, state or
federal laws relating to employment, including wages, hours, concerted activity,
nondiscrimination, occupational health and safety and the payment and
withholding of taxes, where such claims are for periods occurring before the
Closing Date.

 

6.2. Indemnification by Purchaser. Purchaser shall indemnify and hold Seller
harmless from and against any Loss and Expense asserted against or incurred by
Seller (a) resulting from or arising out of or in connection with any material
misrepresentation or breach by Purchaser of any warranty, agreement or covenant
contained in this Agreement or any other document executed, delivered or
furnished by Purchaser in connection herewith, (b) resulting from or arising out
of or in connection with the ownership of the Assets and/or operation of the
Business by Purchaser on and after the Closing Date, other than liabilities not
assumed by Purchaser herein, or (c) in connection with any liabilities or
obligations of Seller or the Business specifically assumed by Purchaser in this
Agreement.

 

6.3. Conduct of Indemnification Proceedings. In case any proceeding or claim
(including any governmental investigation) shall be instituted or asserted by a
Person not party to this Agreement against any party to this Agreement in
respect of which indemnity may be sought pursuant to Sections 6.1 or 6.2, such
Person (the “Indemnified Party”) shall promptly notify the Person against whom
such indemnity may be sought (the “Indemnifying Party”) in writing. As a
condition to the Indemnified Party’s right to recover from the Indemnifying
Party pursuant to this Section 6, the Indemnified Party shall afford the
Indemnifying Party the right to assume and control the defense of such
proceeding or claim through counsel selected by the Indemnifying Party and
reasonably satisfactory to such Indemnified Party and shall cooperate fully with
the Indemnifying Party’s efforts to defend such proceeding or claim, in which
case the Indemnifying Party shall pursue the defense of such proceeding or claim
diligently and in good faith and pay the fees and disbursements of such counsel
related to such proceeding. In any such proceeding, any Indemnified Party shall
have the right to retain its own counsel, but the fees and expenses of such
counsel shall be at the expense of such Indemnified Party unless (i) the
Indemnifying Party and the Indemnified Party shall have mutually agreed to the
retention of such counsel or (ii) the named parties to any such proceeding
(including any impleaded parties) include both the Indemnified Party and the
Indemnifying Party and representation of both parties by the same counsel would
be inappropriate due to actual or potential conflicting interests between them.
It is understood that all such fees and expenses shall be reimbursed as they are
incurred. In the case of any such separate firm for the

 

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Indemnified Parties, such firm shall be designated in writing by the Indemnified
Parties. The Indemnifying Party shall not be liable for any settlement of any
proceeding effected without its written consent (which consent shall not be
unreasonably withheld), but, if settled with such consent, or if there be a
final judgment for the plaintiff, the Indemnifying Party shall indemnify and
hold harmless such Indemnified Parties from and against any Loss and Expense (to
the extent provided in this Section 6) by reason of such settlement or judgment.

 

6.4. Limitations of Liability. The obligations to indemnify pursuant to this
Article VI are subject to the following limitations:

 

(a) Except as expressly provided otherwise herein, (i) each representation and
warranty set forth in Section 2.10 (Taxes), Section 2.18 (Employee Benefit
Plans), and Section 6.1(f) contained herein shall survive the Closing until, and
will expire and be of no further force and effect on, the conclusion of ninety
(90) days after the expiration of the appropriate statute of limitations with
respect thereto, (ii) each representation and warranty set forth in Section 2.1
(Organization, Good Standing and Qualification of Seller), 2.2 (Power and
Authority of Seller), 2.3 (Authority and Validity), Section 2.4 (Binding
Effect), Section 2.6 (No Conflict with Other Instruments), Section 2.7 (Title to
Assets), Section 3.1 (Organization and Good Standing), Section 3.2 (Authority
and Validity), and Section 3.3 (Binding Effect) shall survive forever, and (iii)
each other representation and warranty set forth in Article II and Article III
shall survive until, and will be of no further effect on, the conclusion of
eighteen (18) months after the Closing Date.

 

(b) No Indemnified Party shall be entitled to recover for any Loss and Expense
incurred for breaches of representations and warranties (including any
representation and warranty contained in any certificate delivered pursuant to
this Agreement) unless a claim for such Loss and Expense has been asserted by
written notice, specifying the details of the alleged claim, delivered promptly
to the Indemnifying Party.

 

(c) The indemnification obligation of an indemnifying party in this Section 6.3
shall not be affected by the failure of the indemnified party to give notice in
accordance with this Section 6.3 unless the indemnifying party is materially
prejudiced thereby; provided, however, that the amount that the indemnifying
party’s liability shall be reduced or limited is the extent of any actual
prejudice.

 

(d) No indemnitee shall have the right to be indemnified pursuant to this
Article VI until such indemnitee shall have incurred, on a cumulative basis,
aggregate Loss and Expense in an amount exceeding Fifty Thousand Dollars
($50,000), in which event such indemnitee shall be indemnified for the aggregate
amount of any Loss and Expense subject to indemnification under this Article VI.

 

(e) Notwithstanding anything to the contrary contained herein, the maximum
liability for breaches of representations and warranties by Seller in this
Agreement shall not exceed the amount of Five Hundred Thousand Dollars
($500,000) in the aggregate; provided, however, that the maximum liability for
breaches of representations and warranties by Seller in Section 2.7 (Title to
Assets) only shall not exceed the amount of the Purchase Price. Nothing in this
Article VI shall limit claims by a party against another party for fraudulent or
willful misrepresentation or fraudulent conduct or preclude a party from
exercising equitable remedies against another party, including, without
limitation, specific performance or injunctions, except that Seller’s maximum
liability under any such equitable remedies shall not exceed the maximum
liability specified in this Section.

 

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6.5. Certain Remedies. Each Party acknowledges that a refusal without just cause
by such Party to comply with the agreements made herein will cause irreparable
harm to the other Party or Parties for which there may be no adequate remedy at
law. In such circumstance, a Party or Parties not in default at the time of such
refusal shall be entitled, in addition to other remedies at law or in equity, to
specific performance of this Agreement by the Party or Parties that so refused
to comply with or breached this Agreement.

 

6.6. Attorneys’ Fees. In any action or proceeding to enforce the terms of this
Agreement or the other documents executed in connection herewith, the prevailing
Party or Parties shall be entitled to recover reasonable attorneys’ fees
incurred in connection with such enforcement action or proceeding.

 

6.7. Nonexclusive Remedies. Notwithstanding anything to the contrary in this
Agreement, but subject to Sections 6.3(d) and (e), the rights and remedies
provided in this Article 6 shall not be exclusive of any other rights or
remedies afforded to any Party, whether by contract, at law or in equity. The
rights and remedies provided in this Agreement are cumulative, and the exercise
of any one right or remedy by any Party shall not preclude or constitute a
waiver of its right to exercise any or all other rights or remedies to which it
is entitled.

 

ARTICLE 7.

MISCELLANEOUS

 

7.1. Reliance. Notwithstanding the investigations conducted, and the
opportunities to investigate and to verify afforded, by each Party hereunder,
each Party agrees that the other Party or Parties are entitled to rely upon the
representations and warranties of that Party made in this Agreement and the
other documents executed, delivered or furnished in connection herewith.

 

7.2. Entire Agreement. This Agreement, the Exhibits and Schedules hereto, and
the other documents executed or delivered pursuant hereto contain the complete
agreement among the Parties with respect to the transactions contemplated hereby
and supersede all prior agreements and understandings among the Parties with
respect to such transactions. Section and other headings are for reference only
and shall not affect the interpretation or construction of this Agreement. The
Parties have not made any representations or warranties except as expressly set
forth in this Agreement, the Exhibits, the Schedules, or in any other document
executed, delivered or furnished in connection herewith.

 

7.3. Counterparts. This Agreement may be executed in any number of counterparts,
each of which when so executed and delivered shall be deemed an original, and
such counterparts together shall constitute only one original.

 

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7.4. Notices. All notices, demands, requests and other communications that may
be or are required to be given, made, sent by any Party to any other Party
pursuant to this Agreement shall be in writing and shall be delivered
personally, delivered by courier, or sent for delivery on the next business day
by a nationally recognized overnight delivery service which guaranties next
business day delivery, or transmitted by telecopy, addressed as follows:

 

If to Purchaser:    Digital Generation Systems, Inc.      750 West John
Carpenter Freeway, Suite 700      Irving, Texas 75039      Attn: Omar A.
Choucair      Fax: (972) 581-2100 If to Seller:    Lenfest Enterprises, LLC     
1332 Enterprise Drive, Suite 200      West Chester, Pennsylvania 19380     
Attn: Thomas K. Pasch      Fax: (610) 918-8442

 

Each Party may designate by notice in writing a new address to which any notice,
demand, request or communication may thereafter be so given, made, or sent. Each
notice, demand, request or communication that is mailed, delivered or
transmitted in the manner described above shall be deemed sufficiently given,
made, sent and received for all purposes at such time as it is delivered to or
received by the addressee (with the return receipt, the delivery receipt, the
affidavit of courier, or (with respect to a telecopy) the confirmation being
deemed conclusive evidence of such delivery or receipt) or at such time as
delivery or receipt is refused by the addressee upon presentation.

 

7.5. Successors and Assigns. This Agreement and the rights, interests and
obligations hereunder shall be binding upon and shall inure to the benefits of
the Parties and their respective heirs, personal representatives, successors and
permitted assigns. No Party may assign its or his rights or obligations under
this Agreement without the prior written consent of the other Parties; any
purported assignment without that consent shall be void.

 

7.6. Applicable Law, Venue and Jurisdiction. The laws of the State of Texas
shall govern this Agreement, its terms and conditions, the interpretation
hereof, and the rights and obligations of the Parties hereunder. Any action at
law or in equity brought to interpret or enforce this Agreement or any other
document executed or delivered in connection herewith shall be brought and
prosecuted to final adjudication in federal or state courts located in Dallas
County, Texas, and the Parties consent to the jurisdiction of such Texas state
and federal courts and agree to the validity of service of process in any such
action by registered or certified mail, return receipt requested.

 

7.7. Waiver and Other Action. This Agreement may be amended, modified or
supplemented only by a written instrument executed by the Party or Parties
against which enforcement of the amendment, modification or supplement is
sought.

 

7.8. Severability. If any provision of this Agreement is held to be illegal,
invalid or unenforceable, such provision shall be fully severable, and this
Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision were never a part hereof; the remaining provisions
hereof shall remain in full force and effect and shall not be affected by the
illegal, invalid or unenforceable provision or by its severance; and in lieu of
such illegal, invalid or unenforceable provision, there shall be added
automatically as part of this Agreement, a provision as similar in its terms to
such illegal, invalid or unenforceable provision, may be possible and be legal,
valid or enforceable.

 

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7.9. Certain Defined Terms. When used in this Agreement, (i) “including” shall
not signify any limitation or restriction, (ii) “hereof,” “herein,” “hereby” and
similar terms shall be deemed references to this Agreement as a whole, (iii)
“person” shall include natural persons, entities of any kind, and governmental
authorities, and (iv) “Section,” “Exhibit” and “Schedule” shall refer to a
Section, an Exhibit and a Schedule, respectively, of or to this Agreement,
unless otherwise stated. Pronouns referring to any gender shall be deemed
references to each other gender as appropriate.

 

7.10. Confidentiality. At all times after the Effective Date, each of the
Parties will hold, and will cause its officers, representatives, brokers,
attorneys, advisers and affiliates and such affiliates’ respective officers,
representatives, brokers, attorneys, advisers and affiliates to hold, in
confidence and not disclose to other persons for any reason whatsoever this
Agreement, the terms hereof, or the transactions contemplated hereby
(collectively, the “Information”), except to the extent (i) necessary for such
Party to consummate and give full effect to the transactions contemplated
hereby, (ii) such Information is otherwise available from third persons without
restriction on its further disclosure or is required by order of any court or by
law or by any regulatory agency to which any Party is subject or in connection
with any civil or administrative proceeding (each Party agreeing to give prior
notice, to the extent practicable, to the other party of any required disclosure
of the Information to or before any court or regulatory agency or in any civil
or administrative proceeding), or (iii) such Information is or becomes publicly
known other than through actions, direct or indirect, of the other party hereto,
any of its officers, representatives, brokers, attorneys, advisers or
affiliates, or any of such affiliates, respective officers, representatives,
brokers, attorneys, advisers or affiliates, or any affiliate of any of them.

 

7.11. Survival. The following sections shall survive the Closing for so long as
any obligation remains outstanding thereunder: Sections 1.4, 1.9, 4.7, 4.8, 4.9,
Article 5, Article 6, Sections 7.4, 7.5, 7.6, 7.7, 7.8, and 7.10.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]

 

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IN WITNESS WHEREOF, the Parties have executed this Agreement as of the Effective
Date.

 

PURCHASER:   PARENT: DG SYSTEMS ACQUISITION III   DIGITAL GENERATION SYSTEMS,
INC. CORPORATION         By:  

/s/ Scott K. Ginsburg

--------------------------------------------------------------------------------

  By:  

/s/ Scott K. Ginsburg

--------------------------------------------------------------------------------

Name:   Scott K. Ginsburg   Name:   /s/ Scott K. Ginsburg Title:   Chief
Executive Officer   Title:   Chief Executive Officer

 

SELLER:

 

MEDIA DVX, INC.

 

By:  

/s/ H. Chase Lenfest

--------------------------------------------------------------------------------

Name:   H. Chase Lenfest Title:   President

 

As to Section 4.7 hereof only:

 

STARNET, L.P.

 

By:   StarNet Management, LLC,     its general partner By:  

/s/ H. Chase Lenfest

--------------------------------------------------------------------------------

Name:   H. Chase Lenfest Title:   President