YNOT EUROPE – New Frontier Media Inc. and a hostile takeover group led by Channel Islands-based holding company Longkloof Limited have reached a settlement in the U.S. federal lawsuit New Frontier filed against its opponents in May.

The settlement ends a proxy battle for control of Boulder, Colo.-based New Frontier, a publicly traded company. In addition, the settlement puts to rest pending litigation in which New Frontier alleged Longkloof sought to force acceptance of its unsolicited buyout offer by mounting a civil conspiracy to manipulate the NASDAQ stock market.

Under the terms of the settlement agreement, the Longkloof parties — including a publicly traded South African conglomerate, several of its wholly owned subsidiaries, and officers, employees and other affiliates of the companies, most of which are based in Europe — will terminate their proxy contest, withdraw their notice of intent to nominate four candidates for election to the company’s board of directors, and not support any candidates not recommended by the existing board. In addition, the Longkloof parties will make no further moves in their buyout plan, including placing a standstill order on the associated companies’ attempts to secure more of New Frontier’s outstanding common stock.

Currently, Longkloof and its associates own about 15.9 percent of all New Frontier shares.

In exchange, New Frontier has agreed to sell, merge or make a similar change of control by Dec. 31. If the change fails to occur, Longkloof will have the right to appoint one person to New Frontier’s board of directors for a term expiring at the 2013 annual meeting of shareholders. Under some circumstances, New Frontier may be obligated to include Longkloof’s designee on the slate of nominees presented by to shareholders at the 2013 annual meeting.

The settlement but leaves in place a special committee New Frontier’s board appointed to consider buyout offers from both the Longkloof group and Luxembourg-based adult industry conglomerate Manwin. In a statement distributed late last week, New Frontier indicated it continues to evaluate “strategic alternatives to maximize shareholder value, which includes, but is not limited to, a potential sale of the company.”

“We are pleased to have reached this mutually beneficial agreement with the Longkloof parties, and believe that this settlement, which avoids a potentially costly and distracting proxy contest and the related litigation, is in the best interests of New Frontier Media and our shareholders,” the board of directors noted in the statement. “With these matters now fully resolved, the special committee can concentrate entirely on its ongoing strategic review process, which encompasses evaluating, among other options, acquisition proposals received from the Longkloof parties and other parties.”