Exhibit 10.1
AGREEMENT AND PLAN OF MERGER
by and among
AXTIVE CORPORATION,
AXTIVE ACQUISITION CORP.,
THINKSPARK CORPORATION
and
XXXXX XXXXXXX
Dated as of May 23, 2003
TABLE OF CONTENTS
ARTICLE I DEFINITIONS ........................................................ 1
1.1 Definitions ............................................................ 1
1.2 Interpretation ......................................................... 5
ARTICLE II THE MERGER AND THE SURVIVING CORPORATION .......................... 6
2.1 The Merger ............................................................. 6
2.2 Effective Time of the Merger ........................................... 6
2.3 Certificate of Incorporation, Bylaws and Board of Directors of
Surviving Corporation .................................................. 6
2.4 Further Assurances ..................................................... 7
ARTICLE III CONVERSION OF SHARES ............................................. 7
3.1 Conversion of Shares ................................................... 7
3.2 Target Treasury Stock .................................................. 7
3.3 Target Options ......................................................... 7
3.4 Newco Shares ........................................................... 7
ARTICLE IV CLOSING ........................................................... 8
4.1 Closing ................................................................ 8
4.2 Exchange of Certificates ............................................... 8
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE TARGET PRINCIPAL
SHAREHOLDER ................................................................... 8
5.1 Organization and Good Standing ......................................... 9
5.2 Power, Authorization and Validity ...................................... 9
5.3 Capitalization ......................................................... 10
5.4 Subsidiaries ........................................................... 10
5.5 No Violation of Existing Agreements. ................................... 10
5.6 Litigation; Legal Impediments .......................................... 11
5.7 Target Financial Statements; Books and Records ......................... 12
5.8 Liabilities and Obligations ............................................ 13
5.9 Accounts and Notes Receivable .......................................... 13
5.10 Assets ................................................................ 13
5.11 Agreements and Commitments ............................................ 14
5.12 Customers and Suppliers ............................................... 18
5.13 Intellectual Property ................................................. 18
5.14 Compliance with Laws .................................................. 19
5.15 Permits ............................................................... 20
5.16 Employees ............................................................. 20
5.17 Tax Matters ........................................................... 22
5.18 Insurance ............................................................. 25
5.19 WARN Compliance ....................................................... 25
5.20 Absence of Certain Changes ............................................ 26
5.21 Corporate Documents ................................................... 27
5.22 Certain Transactions and Agreements ................................... 27
5.23 Absence of Certain Business Practices ................................. 28
5.24 Bank Accounts and Powers of Attorney .................................. 28
5.25 No Brokers ............................................................ 28
5.26 Advisability of Obtaining Separate Counsel ............................ 28
5.27 No Implied Representations ............................................ 29
5.28 Disclosure ............................................................ 29
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF AXTIVE AND NEWCO ................. 29
6.1 Organization and Good Standing ......................................... 29
6.2 Power, Authorization and Validity ...................................... 29
6.3 No Violation of Existing Agreements .................................... 30
6.4 Information Delivered .................................................. 30
6.5 No Implied Representations ............................................. 31
6.6 No Brokers ............................................................. 31
ARTICLE VII CERTAIN COVENANTS ................................................. 31
7.1 Future Cooperation ..................................................... 31
7.2 Tax Matters ............................................................ 31
7.3 Repayment of Related Party Indebtedness ................................ 32
7.4 Execution of Certain Agreements by Target Employees .................... 33
7.5 Non-Disclosure of Target Proprietary Information ....................... 33
7.6 Employment Agreements .................................................. 35
7.7 Collectible A/R Deficiency ............................................. 35
ARTICLE VIII INDEMNIFICATION .................................................. 35
8.1 Indemnification by the Target Principal Shareholder .................... 35
8.2 Indemnification by Axtive .............................................. 37
8.3 Notice of Claim ........................................................ 39
8.4 Survival of Representations and Warranties ............................. 39
8.5 Indemnification Limitation ............................................. 40
ARTICLE IX NONCOMPETITION COVENANTS ........................................... 41
9.1 Prohibited Activities .................................................. 41
9.2 Equitable Relief ....................................................... 42
9.3 Reasonable Restraint ................................................... 42
9.4 Severability; Reformation .............................................. 43
9.5 Material and Independent Covenant ...................................... 43
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ARTICLE X MISCELLANEOUS ....................................................... 43
10.1 Successors and Assigns ................................................ 43
10.2 Entire Agreement ...................................................... 43
10.3 No Joint Venture ...................................................... 43
10.4 Absence of Third Party Beneficiary Rights ............................. 43
10.5 Expenses .............................................................. 44
10.6 Notices ............................................................... 44
10.7 Exercise of Rights and Remedies ....................................... 45
10.8 Public Announcement ................................................... 45
10.9 Confidentiality. ...................................................... 45
10.10 Construction of Agreement ............................................ 46
10.11 Knowledge ............................................................ 46
10.12 Reformation and Severability ......................................... 47
10.13 Governing Law ........................................................ 47
10.14 Dispute Resolution ................................................... 47
10.15 Counterparts ......................................................... 48
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is dated and effective
as of May 23, 2003, by and among Axtive Corporation, Inc., a Delaware
corporation ("Axtive"), Axtive Acquisition Corp., a Delaware corporation and a
wholly owned subsidiary of Axtive ("Newco"), ThinkSpark Corporation, a Delaware
corporation ("Target"), and Xxxxx Xxxxxxx (the "Target Principal Shareholder").
RECITALS
A. The respective boards of directors of Newco and Target (collectively
referred to as the "Constituent Corporations") (1) deem it advisable and in the
best interests of their respective Constituent Corporations and their respective
stockholders that Newco merge with and into Target upon the terms and conditions
set forth herein (the "Merger") and (2) have adopted and approved this Agreement
and the transactions contemplated hereby.
B. The stockholders of Newco and Target have approved the Merger in
accordance with the GCL.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants contained
herein, the parties hereto, intending to be legally bound, agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. Capitalized terms used in this Agreement shall have the
following meanings:
"AAA Rules" has the meaning set forth in Section 10.14.
"Affiliate" of, or "Affiliated" with, a specified person or entity means a
person or entity that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the specified person or entity.
"Agreement" has the meaning set forth in the preamble to this Agreement.
"Axtive" has the meaning set forth in the preamble to this Agreement.
"Axtive Ancillary Agreements" has the meaning set forth in Section 6.2(a).
"Axtive Confidential Information" has the meaning set forth in Section
10.9(a).
"Axtive Expiration Date" has the meaning set forth in Section 8.4(b).
"Axtive Indemnified Persons" has the meaning set forth in Section 8.1(a).
"Axtive Losses" has the meaning set forth in Section 8.1(a).
"Balance Sheet Date" has the meaning set forth in Section 5.7(a)(ii).
"Claim" has the meaning set forth in Section 8.1(d).
"Closing" has the meaning set forth in Section 4.1.
"Closing Date" has the meaning set forth in Section 4.1.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collectible A/R" has the meaning set forth in Section 5.9(b).
"Competitive Business" means any business or activity that relates to the
business of, or involves the provision of services or products that directly or
indirectly competes with the business of, Target or the Surviving Corporation
(including any subsidiary thereof) as currently conducted.
"Constituent Corporations" has the meaning set forth in the Recitals of
this Agreement.
"Dispute" has the meaning set forth in Section 10.14.
"Effective Time" has the meaning set forth in Section 2.2.
"Employee benefit plan" has the meaning set forth in Section 5.16(c).
"Employee pension benefit plan" has the meaning set forth in Section
5.16(c).
"Employee Plans" has the meaning set forth in Section 5.16(c).
"Employment Agreements" has the meaning set forth in Section 7.6.
"Encumbrances" means all liens, encumbrances, mortgages, pledges, security
interests, conditional sales agreements, charges, options, preemptive rights,
rights of first refusal, reservations, restrictions or other encumbrances or
defects in title.
"ERISA" has the meaning set forth in Section 5.16(c).
"ERISA Affiliate" has the meaning set forth in Section 5.16(c).
"GAAP" means generally accepted accounting principles.
"GCL" means the General Corporation Law of the State of Delaware, as
amended.
"Governmental Authority" means any federal, state, local or foreign
government, political subdivision or governmental or regulatory authority,
agency, board, bureau, commission, instrumentality or court or
quasi-governmental authority.
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"Government Bid" has the meaning set forth in Section 5.11(c)(i).
"Government Contract" means any prime contract, subcontract, letter
contract, purchase order or delivery order, task order, or other agreement of
any kind executed or submitted to or on behalf of any independent or executive
agency, division, subdivision, audit group or procuring office of a Governmental
Authority or any prime contractor or higher level subcontractor of a prime
contractor, or under which any Governmental Authority or any such prime
contractor or higher level subcontractor otherwise has or may acquire any right
or interest.
"Interim Balance Sheet" has the meaning set forth in Section 5.7(a)(ii).
"Interim Financial Statements" has the meaning set forth in Section
5.7(a)(ii).
"Law" or "Laws" means any and all federal, state, local or foreign
statutes, laws, ordinances, proclamations, codes, regulations, licenses,
permits, authorizations, approvals, consents, legal doctrines, published
requirements, orders, decrees, judgments, injunctions and rules of any
Governmental Authority, including those covering environmental, Tax, energy,
safety, health, transportation, bribery, recordkeeping, zoning, discrimination,
antitrust and wage and hour matters, in each case as amended and in effect from
time to time.
"Letter of Intent" means that certain letter of intent dated December 23,
2002 by and among Axtive, Target and Xxxxx Xxxxxxx, as amended or supplemented.
"Loss" or "Losses" means all liabilities, losses, claims, damages, actions,
suits, proceedings, demands, assessments, adjustments, fees, costs and expenses
(including reasonable attorneys' fees and costs and expenses of investigation),
net of income Tax effects with respect thereto (including income Tax benefits
recognized in connection therewith and income Taxes upon any indemnification
recovery therefor) and net of insurance proceeds paid to the party incurring
such loss.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Merger" has the meaning set forth in the Recitals of this Agreement.
"Merger Consideration" has the meaning set forth in Section 3.1.
"Merger Filing" has the meaning set forth in Section 2.2.
"Newco" has the meaning set forth in the preamble to this Agreement.
"Noncompete Term" has the meaning set forth in Section 9.1(a).
"Permits" means licenses (other than licenses for the use of intangible
property), franchises, permits, authorizations of transportation authorities,
operating authorizations, titles (including motor vehicle titles and current
registrations), certificates and other authorizations issued by Governmental
Authorities.
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"Permitted Encumbrances" means (a) any Encumbrances reflected or reserved
against in the Interim Balance Sheet that is not in excess of $10,000; (b)
Encumbrances for property or ad valorem Taxes reflected or reserved against in
the Interim Balance Sheet or that are being contested in good faith and by
appropriate proceedings if adequate reserves with respect thereto are maintained
on Target's books in accordance with GAAP; (c) obligations under any operating
and capital leases described in Schedule 5.11; and (d) all contracts,
agreements, instruments, obligations, Encumbrances, defects and irregularities
of title, if any, affecting Target assets that do not materially detract from
the value or materially interfere with the use, as currently used, of the
properties subject thereto or affected thereby or otherwise materially impair
the business operations being conducted thereon.
"Post-Closing Period" has the meaning set forth in Section 7.5(b).
"Post-Transfer Period" has the meaning set forth in Section 7.2(b).
"Pre-Transfer Period" has the meaning set forth in Section 7.2(a).
"Required Consents" has the meaning set forth in Section 5.5(b).
"Schedules" means the disclosure schedules delivered by Target and the
Target Principal Shareholder concurrently with the execution and delivery of
this Agreement.
"SEC" means the Securities and Exchange Commission.
"SEC Documents" has the meaning set forth in Section 6.4(a).
"Series A Stock" has the meaning set forth in Section 8.5(b)(i).
"Surviving Corporation" has the meaning set forth in Section 2.1.
"Target" has the meaning set forth in the preamble to this Agreement.
"Target Ancillary Agreements" has the meaning set forth in Section 5.2(a).
"Target Common Stock" has the meaning set forth in Section 5.3(a).
"Target Expiration Date" has the meaning set forth in Section 8.4(a).
"Target Financial Statements" has the meaning set forth in Section 5.7(a).
"Target Indemnified Persons" has the meaning set forth in Section 8.2(a).
"Target Intellectual Property" has the meaning set forth in Section
5.13(a).
"Target Losses" has the meaning set forth in Section 8.2(a).
"Target Owned Intellectual Property" has the meaning set forth in Section
5.13(a).
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"Target Principal Shareholder" has the meaning set forth in the preamble to
this Agreement.
"Target Proprietary Information" has the meaning set forth in Section
7.5(a).
"Target Shareholder" has the meaning set forth in Section 3.1.
"Target Subsidiary" means any corporation, limited liability company,
partnership, joint venture or other entity, whether incorporated or
unincorporated, of which: (a) Target or any other Target Subsidiary is a general
partner; or (b) at least a majority of the securities or other equity interests
having by their terms ordinary voting power to elect a majority of the members
of the board of directors, board of managers or any similar governing body of
such entity is, directly or indirectly, owned or controlled by Target and/or by
any one or more of the Target Subsidiaries.
"Target Used Intellectual Property" has the meaning set forth in Section
5.13(a).
"Taxes" shall mean all taxes, charges, fees, levies or other assessments,
including income, alternative or add-on minimum, profits, gross income, gross
receipts, excise, property, ad valorem, sales, use, value added, withholding,
occupation, use, service, license, payroll, employment, severance, social
security, Medicare, unemployment, franchise, license, stamp, environmental or
windfall profit tax, premium, custom duty, transfer or recording taxes, fees and
charges, imposed by the United States or any state, local or foreign government
or subdivision or agency thereof, whether computed on a separate, consolidated,
unitary, combined or any other basis; and such term shall include any interest,
fines, penalties, addition to tax or additional amounts attributable to or
imposed with respect to any such taxes, charges, fees, levies or other
assessments.
"Tax Returns" shall mean all returns, declarations of estimated tax
payments, reports, forms, estimates, information returns, statements and other
documentation, including any related or supporting information filed with
respect to any of the foregoing, maintained, filed or to be filed with any
Taxing Authority in connection with the determination, assessment, collection or
administration of any Taxes.
"Taxing Authority" shall mean any Governmental Authority exercising any
Taxing authority or any other authority exercising Tax regulatory authority.
"Territory" has the meaning set forth in Section 9.1(a).
"Third Person" has the meaning set forth in Section 8.1(d).
"Threshold Amount" has the meaning set forth in Section 8.1(c)
"WARN Act" has the meaning set forth in Section 5.19.
1.2 Interpretation. For all purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires:
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(a) the terms defined in Section 1.1 and elsewhere in this Agreement
include the plural as well as the singular;
(b) all accounting terms not otherwise defined herein have the
meanings ascribed to them in accordance with GAAP;
(c) the words "herein," "hereof," and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision; and
(d) the terms "include," "includes" and "including" are not limiting
and the term "or" has, except where otherwise indicated, the inclusive
meaning represented by the phrase "and/or."
ARTICLE II
THE MERGER AND THE SURVIVING CORPORATION
2.1 The Merger. Upon the terms and subject to the conditions of this
Agreement, at the Effective Time in accordance with the GCL, Newco shall be
merged with and into Target and the separate existence of Newco shall thereupon
cease. Target shall be the surviving corporation in the Merger (hereinafter
sometimes referred to as the "Surviving Corporation").
2.2 Effective Time of the Merger. The Merger shall become effective at
such time (the "Effective Time") as (a) holders of a majority of Target Common
Stock approve the Merger, and (b) a certificate of merger, in form mutually
acceptable to Axtive and Target, is filed with the Secretary of State of the
State of Delaware (the "Merger Filing"). The Merger Filing shall be made
simultaneously with or as soon as practicable after the Closing and the
execution of this Agreement.
2.3 Certificate of Incorporation, Bylaws and Board of Directors of
Surviving Corporation. As a result of the Merger and at the Effective Time:
(a) The Certificate of Incorporation of Newco in effect immediately
prior to the Effective Time, a copy of which has been provided to Target,
shall become the Certificate of Incorporation of the Surviving Corporation,
except that such Certificate of Incorporation shall be amended as of the
Effective Time to change the name of the Surviving Corporation to
"ThinkSpark Corporation". After the Effective Time, the Certificate of
Incorporation of the Surviving Corporation may be amended in accordance
with its terms and as provided by the GCL.
(b) The Bylaws of Newco in effect immediately prior to the Effective
Time, a copy of which has been provided to Target, shall become the Bylaws
of the Surviving Corporation, and thereafter may be amended in accordance
with their terms and as provided by the Certificate of Incorporation of the
Surviving Corporation and the GCL.
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(c) The board of directors of Newco as constituted immediately prior
to the Effective Time shall be the board of directors of the Surviving
Corporation.
(d) The officers of Newco as constituted immediately prior to the
Effective Time shall be the officers of the Surviving Corporation.
2.4 Further Assurances. Target agrees that if, at any time after the
Effective Time, Axtive considers or is advised that any further deeds,
assignments or assurances are reasonably necessary or desirable to vest, perfect
or confirm in the Surviving Corporation title to any property or rights of
Target, Axtive and any of its officers are hereby authorized by Target to
execute and deliver all such proper deeds, assignments and assurances and do all
other things reasonably necessary or desirable to vest, perfect or confirm title
to such property or rights in the Surviving Corporation and otherwise to carry
out the purposes of this Agreement, in the name of Target or otherwise.
ARTICLE III
CONVERSION OF SHARES
3.1 Conversion of Shares. At the Effective Time, by virtue of the Merger,
and without any action on the part of any holder of any capital stock of Target
(each a "Target Shareholder" and collectively, the "Target Shareholders"), each
issued and outstanding share of Target Common Stock as of the Effective Time
shall be converted into the right to receive, and become exchangeable for,
Fifteen and No/100 Dollars ($15.00) in cash (the "Merger Consideration"). The
Merger Consideration shall be issued to the Target Shareholders as set forth in
Schedule 3.1 at Closing.
3.2 Target Treasury Stock. All shares of Target Common Stock that are held
by Target as treasury stock, if any, shall be canceled and retired and no Merger
Consideration shall be delivered or paid in exchange therefor.
3.3 Target Options. All rights to acquire capital stock of Target (whether
in the form of options, warrants or rights to convert securities) shall have
been exercised or terminated prior to the Effective Time, such that no rights or
options to purchase or receive any shares of Target's capital stock or the
Surviving Corporation's capital stock shall be outstanding from and after the
Effective Time.
3.4 Newco Shares. At the Effective Time, by virtue of the Merger and
without any action on the part of Axtive, as the sole holder of capital stock of
Newco, each issued and outstanding share of common stock, par value $.001 per
share, of Newco shall automatically be converted into one share of common stock,
par value, $.001 per share, of the Surviving Corporation.
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ARTICLE IV
CLOSING
4.1 Closing. The closing of this Agreement and the transactions
contemplated hereunder (the "Closing") shall take place at the offices of
Gardere Xxxxx Xxxxxx LLP, 0000 Xxx Xxxxxx, Xxxxx 0000, Xxxxxx, Xxxxx 00000-0000,
contemporaneously with the execution hereof and on the date hereof or at such
other time and date as Axtive, Target and the Target Principal Shareholder may
mutually agree upon (the "Closing Date"), but for all purposes shall be deemed
to occur as of the close of business on the Closing Date.
4.2 Exchange of Certificates.
(a) As of the Effective Time, all shares of Target Common Stock that
are outstanding immediately prior thereto shall, by virtue of the Merger
and without further action, cease to exist, and each share of Target Common
Stock shall be converted into, and shall only represent, the right to
receive from Axtive the Merger Consideration as set forth for each Target
Shareholder in Schedule 3.1.
(b) At the Closing or as soon as reasonably practicable thereafter,
each Target Shareholder shall surrender the certificates representing his
shares of Target Common Stock (the "Target Certificates") to Axtive duly
endorsed in blank by the Target Shareholder or accompanied by duly executed
blank stock powers, for cancellation or an affidavit of lost (or
non-issued) certificate and agreement to indemnify in form reasonably
satisfactory to Axtive (an "Affidavit"). At the Closing, or as soon as
practicable thereafter upon receipt of a Target Shareholder's duly endorsed
or accompanied Target Certificates and of any Affidavits, Axtive shall, as
set forth on Schedule 3.1, deliver to the Target Shareholder the Merger
Consideration with respect to his shares of Target Common Stock (by wire
transfer in accordance with the wiring instructions for the Target
Shareholder set forth on Schedule 3.1 or as otherwise set forth on Schedule
3.1 or in the Target Shareholder's transmittal of his Target Certificates
and/or Affidavits).
(c) After the Effective Time, there shall be no further registration
of transfers of the shares of Target Common Stock on the stock transfer
books of Target. If, after the Effective Time, Target Certificates are
presented for transfer or for any other reason, they shall be canceled and
exchanged and certificates for Axtive Common Stock shall be delivered.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE
TARGET PRINCIPAL SHAREHOLDER
Subject to the qualifications and exceptions set forth in the Schedules
with respect to this ARTICLE V, the Target Principal Shareholder hereby
represents and warrants to Axtive as follows:
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5.1 Organization and Good Standing. Target is a corporation duly
organized, validly existing and in good standing under the Laws of the State of
Delaware and has the requisite corporate power and authority to own, operate and
lease its properties and to carry on its business as now conducted. Target is
duly qualified to do business as a foreign corporation and is in good standing
in each jurisdiction listed in Schedule 5.1, which is each jurisdiction in which
the ownership of its properties, the employment of its personnel or the conduct
of its business requires it to be so qualified, except where the failure to so
qualify would not reasonably be expected to have a material adverse effect on
Target, its assets, properties or financial condition (a "Material Adverse
Effect"). Schedule 5.1 also sets forth, with respect to each Target Subsidiary,
such Target Subsidiary's jurisdiction of organization and each jurisdiction in
which such Target Subsidiary is duly qualified to do business as a foreign
corporation, which is each jurisdiction in which the ownership of such Target
Subsidiary's properties, the employment of its personnel or the conduct of its
business requires it to be so qualified, except where the failure to so qualify
would not reasonably be expected to have a Material Adverse Effect.
Certificate(s), each dated within 20 days of Closing, of (a) existence and good
standing for Target issued by the appropriate Governmental Authorities of the
State of Delaware and (b) qualification or authority to do business (or similar
certificates) for Target issued by the appropriate Governmental Authorities of
each other jurisdiction listed on Schedule 5.1 have been delivered to Axtive.
5.2 Power, Authorization and Validity.
(a) Target has the requisite corporate right, power, legal capacity
and authority to enter into and perform its obligations under this
Agreement and all agreements to which Target is or will be a party as
contemplated by this Agreement (the "Target Ancillary Agreements"). The
execution, delivery and performance of this Agreement and the Target
Ancillary Agreements by Target have been duly and validly approved by
Target's board of directors and the Target Shareholders, as required by
applicable Law.
(b) Except for the Merger Filings and the Required Consents, no
filing, authorization, approval or consent, governmental or otherwise, is
necessary to enable Target to enter into, and to perform its obligations
under, this Agreement and the Target Ancillary Agreements.
(c) This Agreement has been duly and validly executed and delivered
by Target and the Target Principal Shareholder. Assuming the due
authorization, execution, and delivery thereof by Axtive and Newco, this
Agreement constitutes, and the Target Ancillary Agreements, when executed
and delivered by Target, will constitute, valid and binding obligations of
Target and the Target Principal Shareholder, as the case may be,
enforceable against each of them in accordance with their respective terms,
except as to the effect, if any, of:
(i) Applicable bankruptcy, insolvency, reorganization,
moratorium or other similar Laws affecting the rights of creditors
generally;
(ii) Rules of Law governing specific performance, injunctive
relief and other equitable remedies; and
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(iii) Any rights to indemnification being limited under
applicable securities Laws;
provided, however, that the Target Ancillary Agreements will not be
effective until the earlier of the date set forth therein or the Effective
Time.
5.3 Capitalization.
(a) Authorized/Outstanding Capital Stock. The authorized capital
stock of Target consists of 100,000 shares of common stock, $0.001 par
value per share (the "Target Common Stock"), of which 58,658 shares are
issued and outstanding as of the Closing Date, and all of which issued and
outstanding shares are held of record and beneficially owned by the Target
Shareholders. Target has no authorized or issued shares of preferred stock.
All issued and outstanding shares of Target Common Stock have been duly
authorized and validly issued, are fully paid and nonassessable, are not
subject to any right of rescission and have been offered, issued, sold and
delivered by Target in compliance with all applicable Laws, including
registration or qualification requirements (or applicable exemptions
therefrom) of applicable federal and state securities Laws. None of such
shares were issued in violation of the preemptive rights of any past or
present stockholder.
(b) Options; Rights. There are none of the following applicable to
any of Target's outstanding securities or the outstanding securities of or
equity interests in any Target Subsidiary: (i) stock appreciation rights,
options, warrants, conversion privileges or preemptive or other rights or
agreements of any kind outstanding to purchase or otherwise acquire any of
Target's authorized but unissued capital stock; (ii) options, warrants,
conversion privileges or preemptive or other rights or agreements
outstanding to which Target or any Target Shareholder is a party involving
the purchase or other acquisition of any share of Target capital stock;
(iii) liabilities for dividends accrued but unpaid; or (iv) voting
agreements, rights of first refusal or other restrictions (other than
normal restrictions on transfer under applicable federal and state
securities Laws).
5.4 Subsidiaries. Except as set forth in Schedule 5.4, Target does not
own, of record or beneficially, or control, directly or indirectly, any capital
stock, securities convertible into or exchangeable for capital stock or any
other equity interest in any corporation, association or other business entity.
Except as set forth in Schedule 5.4, Target is not, directly or indirectly, a
participant in any joint venture, limited liability company, partnership or
other noncorporate entity.
5.5 No Violation of Existing Agreements.
(a) Neither the execution and delivery of this Agreement or any
Target Ancillary Agreement by Target, nor the consummation of the
transactions provided for herein or therein, will conflict with, result in
the creation of any Encumbrance, other than a Permitted Encumbrance, upon
any of the properties or assets of Target under or (with or without notice
or lapse of time, or both) result in a termination or right of termination,
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breach, default, violation, acceleration of performance or right of
acceleration of performance of:
(i) Any provision of the Certificate of Incorporation or Bylaws
of Target, as currently in effect;
(ii) Any material instrument or contract to which Target or the
Target Principal Shareholder is a party or by which Target or any of
its properties or assets may be bound or affected; or
(iii) Any Laws applicable to Target or the Target Principal
Shareholder or any of the properties or assets of Target or the Target
Principal Shareholder and that would have a Material Adverse Effect.
(b) The consummation of the Merger by Target will not require the
consent of any third party, other than as set forth in Schedule 5.5 (the
"Required Consents"). Each of the Required Consents has either been
delivered to Axtive or Axtive has waived its delivery for purposes of
Closing.
5.6 Litigation; Legal Impediments. Except as set forth in Schedule 5.6:
(a) There is no claim, action, suit, proceeding or, to the knowledge
of Target, investigation (including any product liability, warranty or
similar claim, action, suit, proceeding or, to the knowledge of Target,
investigation) that has been asserted against Target or any Target
Subsidiary since December 31, 2002, other than as set forth in the Target
Financial Statements, pending or, to the knowledge of Target, threatened
against or affecting Target, at law or in equity, before any Governmental
Authority. No written notice of any claim, action, suit, proceeding or
investigation, whether pending or threatened, has been received by Target
and, to the knowledge of Target, there is no basis therefor.
(b) To the knowledge of Target, no person, firm, corporation or
entity has a claim against Target or any Target Subsidiary (or a successor
in interest to Target) based upon:
(i) Ownership or rights to ownership of any shares of Target
Common Stock or of any securities of or equity interests in any Target
Subsidiary;
(ii) Any rights as a Target securities holder, including any
option or other right to acquire any Target securities, any preemptive
rights or any rights to notice or to vote, or
(iii) Any rights it may have under any agreement between Target
and any Target securities holder or former Target securities holder in
such holder's capacity as such.
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(c) There is no order, decree or ruling by any Governmental Authority
or, to the knowledge of Target, threat thereof that would prohibit or
render illegal the transactions provided for in this Agreement.
(d) There is no litigation or proceeding pending or, to the knowledge
of Target, threatened that would have the probable effect of enjoining or
preventing the consummation of any of the transactions provided for in this
Agreement.
5.7 Target Financial Statements; Books and Records
(a) Target has delivered to Axtive complete and correct copies of the
following consolidated financial statements, which are attached to Schedule
5.7 (the "Target Financial Statements").
(i) the audited balance sheets of Target as of December 31,
2001 and 2002 and the related audited statements of operations,
stockholders' equity and cash flows for the two-year period ended
December 31, 2002, together with the related notes and schedules and;
and
(ii) the unaudited balance sheet (the "Interim Balance Sheet")
of Target as of March 31, 2003 (the "Balance Sheet Date") and the
related unaudited statement of operations for the interim period ended
on the Balance Sheet Date, together with any related notes and
schedules (such Interim Balance Sheet, the related statement of
operations and the related notes and schedules are referred to herein
as the "Interim Financial Statements").
(b) The Target Financial Statements have been prepared on an accrual
basis and, in all material respects, are in accordance with GAAP (except
for the absence of notes in the Interim Financial Statements) and fairly
and accurately represent the financial condition of Target at the
respective dates specified therein and the results of operations for the
respective periods specified therein. The Target Financial Statements
reflect all material transactions of the business of Target during the
periods covered thereby consistent with the basis of accounting
historically used by Target, and all documentation that is necessary to
support such transactions is maintained by Target.
(c) The books, records and accounts of Target:
(i) Are in all material respects true and complete;
(ii) Have been maintained in accordance with reasonable business
practices on a basis consistent with prior years;
(iii) Accurately and fairly reflect the transactions entered
therein, including disposition of assets of Target or any Target
Subsidiary, in all material respects; and
(iv) Accurately and fairly reflect in all material respects the
basis for the Target Financial Statements.
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5.8 Liabilities and Obligations. Except as set forth in Schedule 5.8,
Target has no material debt, liability or obligation of any nature, whether
accrued, absolute, contingent or otherwise, and whether due or to become due,
that is not reflected or disclosed in Target Financial Statements. Schedule 5.8
contains a reasonable estimate by Target and the Target Principal Shareholder of
the maximum amount that may be payable with respect to material liabilities that
are not fixed. For each such liability for which the amount is not fixed or is
contested, Target has provided a summary description of the liability together
with copies of all relevant documentation relating thereto. Attached to Schedule
5.8 is (a) a detailed debt schedule setting forth information regarding Target's
outstanding indebtedness for borrowed money (including overdrafts) as of the
date hereof including outstanding principal amounts, accrued interest, interest
rates, account and creditor information and applicable prepayment penalties, and
(b) an accurate list of the trade accounts payable of Target or any Target
Subsidiary as of the second business day preceding the Closing Date.
5.9 Accounts and Notes Receivable.
(a) Schedule 5.9 sets forth an accurate list of the accounts and
notes receivable of Target or any Target Subsidiary as of the Balance Sheet
Date and of those invoiced between the Balance Sheet Date and the second
business day preceding the Closing Date (including with respect to each
such invoice, the invoice number, the customer name, the amount of such
invoice, and an accurate aging of the receivable based on 30-day aging
categories), including any such amounts that are not reflected in the
Interim Balance Sheet. Receivables from and advances to employees, the
Target Principal Shareholder and any entities or persons related to or
Affiliates of the Target Principal Shareholder are separately identified in
Schedule 5.9.
(b) Except as set forth in Schedule 5.9, the accounts receivable set
forth in Schedule 5.9 (the "Collectible A/R") represent valid and bona fide
sales to third parties incurred in the ordinary course of business, subject
to no defenses, set-offs or counterclaims other than those resulting from
applicable insolvency or similar Laws and are collectible in the amounts
shown on Schedule 5.9 net of reserves reflected in the Interim Financial
Statements with respect to the accounts receivable as of the Balance Sheet
Date, and net of reserves reflected in the books and records of Target
(consistent with the methods used in the Target Financial Statements) with
respect to accounts receivables of Target after the Balance Sheet Date.
5.10 Assets.
(a) Target or a Target Subsidiary owns and, in the case of real
property, has good and marketable title to, or, in the case of assets being
leased, valid leasehold interests in, all of its assets as shown on the
Interim Balance Sheet, free and clear of all Encumbrances (other than for
Taxes not yet due and payable and Permitted Encumbrances), other than such
material assets set forth in Schedule 5.10 as were sold by Target in the
ordinary course of business since the Balance Sheet Date or which are
subject to capitalized leases. Except as set forth in Schedule 5.10, there
are no UCC financing statements of record naming Target or any Target
Subsidiary as debtor.
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(b) Except as specifically described in Schedule 5.10, the tangible
and intangible assets of Target include all the assets used in the
operation of the business of Target as conducted at the Balance Sheet Date,
except for dispositions of assets since such date in the ordinary course of
business, consistent with past practices. The machinery and equipment
included in such assets are in good condition and repair, normal wear and
tear excepted.
(c) Except as set forth in Schedule 5.10, all leases of real or
personal property to which Target or a Target Subsidiary is a party are in
full force and effect and afford Target or such Target Subsidiary peaceful
and undisturbed possession of the subject matter of the lease. Target has
provided Axtive with true and correct copies of all such leases.
(d) To the knowledge of Target, Target is not in violation of any
material zoning, building, safety or environmental Law applicable to the
operation of owned or leased or occupied properties, and Target has not
received any notice of such violation with which it has not complied or had
waived.
5.11 Agreements and Commitments.
(a) Identification of Agreements and Commitments. Except as set forth
in Schedule 5.11, or as listed in any Schedule set forth in Section 5.13 or
Section 5.16, neither Target nor any Target Subsidiary is a party or
subject to any oral or written agreement, obligation or commitment that is
material to Target, its financial condition, business or prospects or which
is described below:
(i) Any contract, commitment, letter agreement, quotation or
purchase order providing for payments by or to Target or any Target
Subsidiary in an aggregate amount of
(A) $50,000 or more in the ordinary course of business; or
(B) $10,000 or more not in the ordinary course of business;
(ii) any Government Contract;
(iii) Any license agreement as licensor (except for any
nonexclusive software license granted by Target or any Target
Subsidiary to end-user customers where the form of the license,
excluding standard immaterial deviations, has been provided to
Axtive);
(iv) Any agreement by Target or any Target Subsidiary to
encumber, transfer or sell rights in or with respect to any Target
Intellectual Property;
(v) Any agreement for the sale or lease of real or personal
property involving more than $10,000 per year;
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(vi) Any dealer, distributor, sales representative, original
equipment manufacturer, value added remarketer or other agreement for
the distribution of products of Target or any Target Subsidiary;
(vii) Any franchise agreement or financing statement;
(viii) Any stock redemption or purchase agreement;
(ix) Any joint venture contract or arrangement or any other
agreement that involves a sharing of profits with other persons;
(x) Any instrument evidencing indebtedness for borrowed money
by way of direct loan, sale of debt securities, purchase money
obligations, conditional sale, guarantee or otherwise, except for
trade indebtedness or any advance to any employee of Target or any
Target Subsidiary incurred or made in the ordinary course of business,
and except as disclosed in the Target Financial Statements; or
(xi) Any agreement containing covenants purporting to limit the
freedom of Target or any Target Subsidiary to compete in any line of
business in any geographic area or solicit employees or obligating
Target or any Target Subsidiary to maintain the confidentiality of
information.
(b) Validity of Agreements and Commitments. All agreements,
obligations and commitments listed in Schedule 5.11 or any Schedule set
forth in Section 5.13 or Section 5.16, as the case may be, are valid and in
full force and effect in all material respects, and except as set forth in
Schedule 5.11, a true and complete copy of each has been delivered or been
made available to Axtive or its counsel. Except as noted on Schedule 5.11,
to the knowledge of Target, neither Target nor a Target Subsidiary that is
a party thereto, nor any other party, is in breach of or default under any
material terms of any such agreement, obligation or commitment. Target is
not a party to any contract or arrangement that it reasonably expects will
have a Material Adverse Effect.
(c) Government Contracts.
(i) Except as set forth in Schedule 5.11, with respect to each
Government Contract and bid or proposal in response to a solicitation
with respect to a Government Contract ("Government Bid") to which
Target or any Target Subsidiary is a party: (A) all representations
and certifications made by Target or the Target Subsidiary were
accurate in all material respects as of their effective date, and
Target or the Target Subsidiary has fully complied with such
representations and certifications in all material respects; (B) to
the knowledge of Target, no termination or default, cure notice or
show cause notice has been issued and remains unresolved, and no
event, condition or omission has occurred or exists that would
constitute grounds for such action; (C) neither a Governmental
Authority nor any prime contractor, subcontractor, vendor or other
third party has notified Target or the Target Subsidiary in writing
that Target or the Target Subsidiary has breached or violated any
applicable Law; and (D) to the
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knowledge of Target, no money due to Target or the Target Subsidiary
has been withheld or set off.
(ii) Except as set forth in Schedule 5.11: (A) to the knowledge
of Target, none of the officers, employees, Affiliates, consultants,
agents or representatives of Target or any Target Subsidiary is (or
during the last five years has been) under any administrative, civil
or criminal investigation or indictment by any Governmental Authority
with respect to the conduct of the business of Target or any Target
Subsidiary; (B) to the knowledge of Target, there is no pending audit
or investigation of Target, any Target Subsidiary, or any of their
respective officers, employees, Affiliates, consultants, agents or
representatives resulting in any material adverse finding with respect
to any material alleged irregularity, misstatement or omission arising
under or relating to any Government Contract or Government Bid; (C) to
the knowledge of Target, no cost incurred by Target or any Target
Subsidiary pertaining to any Government Contract or Government Bid is
the subject of an investigation or has been disallowed by a
Governmental Authority; and (D) during the last five years, neither
Target nor any Target Subsidiary has made any voluntary disclosure to
any Governmental Authority with respect to any material alleged
irregularity, misstatement or omission arising under or relating to
any Government Contract or Government Bid.
(iii) Except as set forth in Schedule 5.11, with respect to each
Government Contract and bid or proposal in response to a solicitation
with respect to a Government Bid to which Target or any Target
Subsidiary is a party, there are, to the knowledge of Target: (A) no
outstanding claims against Target or the Target Subsidiary , either by
a Governmental Authority or any prime contractor, subcontractor,
vendor or other third party; and (B) no outstanding disputes between
Target or the Target Subsidiary, on the one hand, and any Governmental
Authority, on the other hand. Except as disclosed in Schedule 5.11, to
the knowledge of Target, no event, condition or omission has occurred
that would constitute grounds for a claim or a dispute under clauses
(A) or (B) of the immediately preceding sentence. Except as disclosed
in Schedule 5.11, to the knowledge of Target, neither Target nor any
Target Subsidiary has any interest in any pending or potential claim
under the Contract Disputes Act against any Governmental Authority of
the U.S. government or any prime contractor, subcontractor or vendor
arising under or relating to any Government Contract or Government
Bid.
(iv) Except as disclosed in Schedule 5.11, to the knowledge of
Target, none of Target, any Target Subsidiary, or any of their
respective officers, employees, Affiliates, consultants, agents or
representatives is (or during the last five years has been) suspended
or debarred from doing business with any Governmental Authority or is
(or during the last five years was) the subject of a finding of
noncompliance, non-responsibility or ineligibility for contracting
with any Governmental Authority. To the knowledge of Target, no valid
basis or specific circumstances exist that with the passage of time
could reasonably be
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expected to result in the suspension or disbarment of Target, any
Target Subsidiary, or any of their respective officers, employees,
Affiliates, consultants, agents or representatives from bidding on
contracts or subcontracts for or with any Governmental Authority.
(v) With respect to all Government Contracts to which Target or
any Target Subsidiary is a party, to the extent applicable thereto,
and except as set forth in Schedule 5.11:
(A) the rates and rate schedules submitted to any
Governmental Authority of the U.S. government have
been closed for all years prior to 1999;
(B) Target and any Target Subsidiary are in compliance in
all material respects with all national security
obligations, including those specified in the National
Industry Security Program Operating Manual, DOD
5220.22-M (January 1995);
(C) Target and any Target Subsidiary have reached
agreement with appropriate representatives of the
Governmental Authority approving and closing all
indirect costs charged to Government Contracts for
each of the years in the period 1997-2001, and those
years are closed;
(D) Target and any Target Subsidiary are not subject to
any forward pricing rate agreements;
(E) all of the product or service warranties and
guarantees extended by Target or any Target Subsidiary
currently in effect are contained therein, there have
not been any modifications to or deviations from such
warranties and guarantees and no written claims, or
claims threatened in writing, exist against Target or
any Target Subsidiary with respect to such warranties
and guarantees;
(F) all reports, documents and notices required to be
filed, maintained or furnished with or to any
Governmental Authority by Target or any Target
Subsidiary have been so filed, maintained or furnished
and all such reports, documents and notices were
complete and correct in all material respects on the
date filed or furnished;
(G) Target and any Target Subsidiary are not aware of any
costs, in connection with any work-in-progress, with
respect to which there is any reason to believe will
not be covered by the current contract price;
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(H) Target and any Target Subsidiary are in compliance
with all aspects of the Foreign Corrupt Practices Act
and the Anti-Kickback Act and, to the knowledge of
Target, there is no basis for any claim to be brought
against Target under either the Foreign Corrupt
Practices Act or the Anti-Kickback Act;
(I) to the knowledge of Target, Target and any Target
Subsidiary have never received a negative performance
rating on any Government Contract; and
(J) to the knowledge of Target, within the five years
preceding the Effective Time, Target and any Target
Subsidiary have not received any notice of deficiency
from any Governmental Authority in any area of service
or production.
(d) Set forth on Schedule 5.11(d) is a list of all release
agreements, settlement agreements or similar agreements entered into by
Target or any Target Subsidiary since December 31, 2002 and on or before
the date of this Agreement with respect to a claim or claims, whether
pursuant to a lease, other agreement or otherwise. A copy of each such
agreement has been provided to Axtive.
5.12 Customers and Suppliers. Schedule 5.12 contains an accurate list of
each customer of Target or any Target Subsidiary that individually represents 5%
or more of Target's consolidated revenues for the 24-month period ended on the
Balance Sheet Date. Except as set forth in Schedule 5.12, to the knowledge of
Target, no customer or supplier of Target or any Target Subsidiary will cease to
do business with Target after the consummation of the transactions contemplated
hereby, which cessation would reasonably be expected to have a Material Adverse
Effect. Except as set forth in Schedule 5.12, since December 31, 2002, Target
has not experienced any material difficulties in obtaining any inventory items
necessary to the operation of its business, and no such shortage of supply of
inventory items is pending or, to the knowledge of Target, threatened. Neither
Target nor any Target Subsidiary is required to provide any bonding or other
financial security arrangements in any amount in connection with any
transactions with any of its customers or suppliers.
5.13 Intellectual Property.
(a) Target or a Target Subsidiary owns all right, title and interest
in ("Target Owned Intellectual Property"), or, to the knowledge of Target,
has the right to use ("Target Used Intellectual Property" and, together
with the Target Owned Intellectual Property, the "Target Intellectual
Property"), all domestic and foreign patent applications, patents, patent
licenses, trademark applications, trademarks, service marks, trade names,
copyrights applications, copyrights, trade secrets, know-how, technology,
material software licenses and other intellectual property and proprietary
rights used in the conduct of the business of Target and the Target
Subsidiaries as presently conducted.
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(b) Set forth on Schedule 5.13(b) is a true and complete list of all
copyright, trademark registrations (and any applications therefor) and
patents (and any applications therefor) constituting Target Owned
Intellectual Property. Target has no knowledge of any material loss,
cancellation, termination of expiration of any such registration or patent
except as set forth on Schedule 5.13(b). Target or a Target Subsidiary has
taken reasonable measures to protect all Target Owned Intellectual
Property. Except as set forth on Schedule 5.13(b), Target has no knowledge
of any infringement of any Target Owned Intellectual Property by any third
party.
(c) The Target Used Intellectual Property is listed in Schedule
5.13(c). Target or a Target Subsidiary has obtained appropriate licensing
rights to the Target Used Intellectual Property and the use by Target or
the Target Subsidiary of the Target Used Intellectual Property does not
infringe the rights of the licensors of the Target Used Intellectual
Property. To the knowledge of Target, neither Target nor any Target
Subsidiary is using any confidential information or trade secrets of any
former employer of any past or present employees.
(d) To the knowledge of Target, the business of Target and the Target
Subsidiaries as conducted as of the date hereof, including the business of
development, production, marketing, licensing and sale of commercial
products using Target Intellectual Property and proprietary rights, does
not infringe or violate any of the patents, trademarks, service marks,
trade names, copyrights, trade secrets, proprietary rights or other
intellectual property of any other person, and neither Target nor any
Target Subsidiary has received any written or oral claim or notice of
infringement or potential infringement of the intellectual property of any
other person or entity.
5.14 Compliance with Laws
(a) Except as set forth in Schedule 5.14, Target has complied and is
and will be at the Closing Date in compliance with all Laws, applicable to
Target, any Target Subsidiary or to the assets, properties and business of
Target or any Target Subsidiary, as such business is currently conducted,
except where failure to so comply would not reasonably be expected to cause
a Material Adverse Effect, including all applicable Laws pertaining to:
(i) The sale, licensing, leasing, ownership or management of
Target's or any Target Subsidiary's owned, leased, occupied or
licensed real or personal property, products or technical data;
(ii) Employment or employment practices, terms and conditions of
employment or wages and hours;
(iii) fire prevention, building standards, zoning or other
similar matters;
(iv) The Export Administration Act and regulations promulgated
thereunder or other Laws applicable to the export or re-export of
controlled commodities or technical data; or
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(v) The Immigration Reform and Control Act; provided, however,
that this Section 5.14 shall not apply with respect to any Law to the
extent the Target Principal Shareholder has provided a representation
and warranty elsewhere in this Agreement as to full past and present
compliance by Target with such Law.
(b) Except as set forth in Schedule 5.14, to the knowledge of Target,
Target is in material compliance with the provisions of the Americans with
Disabilities Act.
5.15 Permits. Target and each Target Subsidiary has received all Permits
from and has made all filings with third parties, including Governmental
Authorities, that are necessary to the conduct of its business as presently
conducted, except where failure to receive such permit or make such filing would
not reasonably be expected to cause a Material Adverse Effect. Such Permits are
valid, and neither Target nor any Target Subsidiary has received any written
notice that any Governmental Authority intends to cancel, terminate or not renew
any such Permit. Target has conducted and is conducting its business in
compliance with the requirements, standards, criteria and conditions set forth
in such Permits, as well as the applicable orders, approvals and variances
related thereto, except where any such noncompliance would not reasonably be
expected to cause a Material Adverse Effect.
5.16 Employees.
(a) Except as set forth in Schedule 5.16(a), neither Target nor any
Target Subsidiary has any employment contract or material consulting
agreement currently in effect that is not terminable at will and if
terminated would result in penalty or payment of compensation by Target or
the Target Subsidiary.
(b) Except as set forth in Schedule 5.16(b), neither Target nor any
Target Subsidiary:
(i) Has ever been and is not now experiencing a union
organizing effort;
(ii) Is subject to any collective bargaining agreement with
respect to any of its employees;
(iii) Is subject to any other contract, written or oral, with any
trade or labor union or similar organization that acts as its
employees' exclusive bargaining representative; and
(iv) To the knowledge of Target, has any material current labor
dispute, and Target has no knowledge of any facts indicating that the
consummation of the transactions provided for herein will have a
material adverse effect on its labor relations.
(c) Schedule 5.16(c) contains a list of all pension, retirement,
disability, medical, dental or other health plans, life insurance or other
death benefit plans, profit sharing, deferred compensation agreements,
stock, option, bonus or other incentive plans, vacation, sick, holiday or
other paid leave plans, severance plans or other similar
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employee benefits plan maintained, contributed to, or required to be
contributed to, by Target or any ERISA Affiliate for the benefit of any
Target or Target Subsidiary employee, former employee or retired employee
(the "Employee Plans"), including all "employee benefit plans" as defined
in Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"). "ERISA Affiliate" as used in this Schedule 5.16(c) shall
mean any other person or entity under common control with Target within the
meaning of Section 414(b), (c), (m) or (o) of the Code and the regulations
thereunder. Neither Target nor any Target Subsidiary maintains,
participates in or contributes to, nor has it ever, maintained,
participated in, or contributed to, any Employee Plan which is subject to
Part 3 of Subtitle B of Title I of ERISA, Title IV of ERISA, Section 412 of
the Code, or any multiemployer plan as defined in Section 3(37) of ERISA.
Target has delivered true and complete copies of all the Employee Plans,
together with the most recent summary plan descriptions, if any, required
under ERISA, and the three most recent annual reports (Forms 5500 and all
schedules thereto), if any, required under ERISA, to Axtive. Each of the
Employee Plans, and its operation and administration, is in material
compliance with all applicable, federal, state, local and other Laws,
including the requirements of ERISA and the Code. Except as set forth in
Schedule 5.16(c), any such Employee Plans that are "employee pension
benefit plans" (as defined in Section 3(2) of ERISA) which are intended to
qualify under Section 401(a) of the Code have received favorable
determination letters that such plans satisfy the qualification
requirements of the Tax Reform Act of 1986. In addition, to the knowledge
of Target, no "prohibited transaction," within the meaning of Section 406
of ERISA or Section 4975 of the Code, has occurred with respect to any
Employee Plan. The group health plans as defined in Section 4980B(g) of the
Code that benefit employees of Target or any Target Subsidiary are in
material compliance with the continuation coverage requirements of Section
4980B of the Code. There are no outstanding violations of Section 4980B of
the Code with respect to any Employee Plan, covered employees or qualified
beneficiaries. No Employee Plan provides life insurance, medical or other
medical benefits to any employee upon his or her retirement or termination
of employment for any reason, except as may be required by statute. Except
as set forth in Schedule 5.16(c) (which does not identify any individual by
name, Social Security number or in any other manner), no employee of Target
or any Target Subsidiary and no person subject to any Target health plan
has made medical claims during the twelve months preceding the date hereof
for $25,000 or in the aggregate, or, to the knowledge of Target, has any
catastrophic illness.
(d) To the knowledge of Target, no employee of Target is in material
violation of any term of any employment contract, patent disclosure
agreement or noncompetition agreement or any other contract or agreement,
or any restrictive covenant, relating to the right of any such employee to
be employed by Target or any Target Subsidiary or to use trade secrets or
proprietary information of others. To the knowledge of Target, the
employment of any employee of Target or any Target Subsidiary does not of
itself subject Target or any Target Subsidiary to any liability to any
third party.
(e) Except as set forth in Schedule 5.16(e), neither Target nor any
Target Subsidiary is a party to any:
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(i) Agreement with any executive officer or other key employee
of Target or any Target Subsidiary
(A) the benefits of which are contingent, or the terms of
which are materially altered, upon the occurrence of a
transaction involving Target in the nature of any of
the transactions contemplated by this Agreement, or
any other business combination transaction;
(B) providing any term of employment or compensation
guarantee; or
(C) providing severance benefits or other benefits after
the termination of employment of such employee
regardless of the reason for such termination of
employment; or
(ii) Agreement or plan, including any stock option plan, stock
appreciation rights plan or stock purchase plan, any of the benefits
of which will be materially increased, or the vesting of benefits of
which will be materially accelerated, by the occurrence of any of the
transactions contemplated by this Agreement or the value of any of the
benefits of which will be calculated on the basis of any of the
transactions contemplated by this Agreement.
(f) A list of all employees, officers and development consultants of
Target and any Target Subsidiary and their current compensation and
benefits or related agreements as of the date of this Agreement is set
forth on Schedule 5.16(f), and Target has no knowledge that any of its key
development employees (each of whom is listed on Schedule 5.16(f)) intends
to leave the employ of Target or any Target Subsidiary.
(g) Except as set forth in Schedule 5.16(g), all contributions due
from Target or any Target Subsidiary with respect to any of the Employee
Plans have been made or accrued on the Target Financial Statements, and no
further contributions will be due or will have accrued thereunder as of the
Closing Date.
(h) Except as set forth in Schedule 5.16(h), as of the Closing Date,
there are no outstanding payment obligations due to any employee of Target
or any Target Subsidiary, or any claims outstanding by any employee, for
accrued and unpaid wages, salaries, bonuses, pensions, severance pay or
other benefits.
5.17 Tax Matters. Except as disclosed in Schedule 5.17:
(a) Returns and Reports.
(i) All Tax Returns required to be filed with any Taxing
Authority in any jurisdiction by or for Target on or before the
Closing Date have been duly and timely filed, or extensions of time
within which to file such Tax Returns have been obtained; and
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(ii) All such Tax Returns are true, correct and complete in all
material respects
(b) Payment.
(i) Target has timely paid or has made adequate provision for
the payment of all Taxes for which Target is or may become liable for
payment, insofar as such Taxes are, were or will be due and payable
with respect to taxable periods ending on or prior to the Closing
Date, or, in the case of taxable periods beginning before the Closing
Date and ending after the Closing Date, with respect to the pro rata
portions of such periods up to and including the Closing Date;
(ii) All Tax deficiencies assessed against Target as a result of
any examination of Tax Returns of Target have been paid or are being
contested in good faith; and
(iii) Target is not the subject of, nor has it been notified in
writing, or otherwise to the knowledge of Target, that it is the
subject of, any investigation, assessment, adjustment, audit or other
proceeding proposing any deficiency in respect of any Tax, and to the
knowledge of Target, no investigation, assessment, adjustment, or
audit has been threatened.
(c) Taxes. Target has made adequate provisions on the Target
Financial Statements for all Taxes payable by Target for any period for
which no Tax Return has yet been filed or for which Tax Returns have been
filed but payment of the Tax shown to be due thereon is not yet due.
Furthermore, adequate reserves have been maintained to pay such Taxes as
they are due.
(d) Extensions. Except for extensions to file Tax Returns requested
in the ordinary course of business, no agreements, waivers or other
arrangements exist providing for an extension of time or statutory periods
of limitation with respect to payment by, or assessment against, Target of
any Tax and no request for any such arrangements, waivers or other
agreements have been made. Furthermore, no unrevoked power of attorney with
respect to any Tax has been executed or filed with the Internal Revenue
Service or any other Taxing Authority.
(e) Proceedings. No claims, actions, suits or proceedings have been
asserted as of the date hereof against Target in respect of any Tax.
(f) Section 341(f) Election. No election under Section 341(f) of the
Code has been or will be filed by or on behalf of Target.
(g) Tax Liens. There are no Tax liens as of the date hereof upon any
of the assets or properties of Target, except for statutory liens for Taxes
not yet due or delinquent.
(h) Withholding. The amounts of Taxes withheld by or on behalf of
Target with respect to all amounts paid to employees of Target or creditors
or other parties for
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all periods ending on or before the Closing Date have been proper and
accurate in all material respects, and all deposits required with respect
to amounts paid to such employees, creditors or other parties have been
made in compliance in all material respects with the provisions of all
applicable Tax Laws.
(i) Tax Sharing Agreements. Target is not party to, nor has any
obligations under, any tax sharing or similar agreement or arrangement
other than agreements among Target and Target Subsidiaries as set forth on
Schedule 5.17, all of which have been disclosed to Axtive prior to the
Closing Date. Target is not otherwise liable or obligated to indemnify any
person or entity with respect to any Taxes.
(j) Records. Target has made the following items available for
inspection by Axtive:
(i) Complete and correct copies of all Tax Returns of Target
that have been required to be filed for the last three calendar years
or for taxable periods ending within the last three calendar years and
for such longer period as Axtive has requested in writing not to
exceed the period of the relevant statutes of limitation;
(ii) Complete and correct copies of all ruling requests, private
letter rulings, revenue agent reports, information document requests
and responses thereto, notices of proposed deficiencies, deficiency
notices, applications for changes in method of accounting, protests,
petitions, closing agreements, settlement agreements and any similar
documents submitted by, received by or agreed to by, or on behalf of,
Target and relating to for the last three calendar years or for
taxable periods ending within the last three calendar years and for
such longer period as Axtive has requested in writing, not to exceed
the period of the relevant statute of limitations; and
(iii) Copies of all record retention agreements currently in
effect between Target and any Taxing Authority.
(k) Accounting Methods.
(i) Target has not agreed to make any adjustment by reason of a
change in its accounting method that would affect the taxable income
or deductions of Target for any period following the Closing Date;
(ii) Target will not be required to include in a taxable period
on or after the Closing Date taxable income attributable to income
that economically accrued in a taxable period ending on or before the
Closing Date; and
(iii) Target is not required to include income in any amount
under Section 481 of the Code (or any comparable provisions of state,
local or foreign Law), by reason of a change in accounting methods or
otherwise, as a result of actions taken prior to the Closing Date.
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(iv) Target currently utilizes the accrual method of accounting
for income tax purposes. Such method of accounting has not changed in
the past five years.
(l) Transfer Pricing Agreements. There are no transfer pricing
agreements made by Target with any Taxing Authority.
(m) Excess Parachute Payments. Target is not a party to any
agreement, contract, arrangement or plan that would result, separately or
in the aggregate, in the payment of any "excess parachute payments" within
the meaning of Section 280G of the Code.
(n) Controlled Foreign Corporation. Target does not own any interest
in any "controlled foreign corporation" (within the meaning of Section 957
of the Code), "passive foreign investment company" (within the meaning of
Section 1297 of the Code) or other entity the income of which is required
to be included in the income of Target whether or not distributed.
(o) S Corporation Status. Target made, for U.S. federal income tax
purposes, a valid election under Section 1362 of the Code and made a
corresponding state or local Tax election in all applicable jurisdictions
to be an "S" corporation effective as of June 18, 2001. The Company is, and
has been at all times since such date, and will be at all times through the
date immediately preceding the Closing, an S corporation (within the
meaning of Section 1361(a)(1) of the Code) for purposes of the Code and the
purposes of all corresponding provisions of applicable state and local law.
5.18 Insurance. Copies of all insurance policies of Target and each Target
Subsidiary for the current policy year, all of which are in full force and
effect, have been made available to Axtive or its counsel. Except as set forth
in Schedule 5.18, Target has no knowledge that any such insurance policy will
not be renewed in the normal course by any insurer thereunder. Schedule 5.18
sets forth an accurate list of all claims or losses valued within the last 90
days provided by each applicable insurance company showing all workers'
compensation, property, marine, inland marine, fidelity, aviation, liability,
auto or other insurance claims relating to any event or occurrence that took
place or was discovered at any time during the past five policy years. Schedule
5.18 contains the following information with respect to all insurance policies
carried by Target for each of the last five policy years: (i) insurer, (ii) type
of policy, (iii) coverage period and (iv) policy limits and deductibles,
self-insured retentions or retrospective loss limits. Except as set forth in
Schedule 5.18, none of such policies are "claims made" policies. Any open claims
as of the Closing Date are recoverable under such policies, except to the extent
of any applicable deductible or loss retention as set forth on Schedule 5.18.
5.19 WARN Compliance. Since the Balance Sheet Date, neither Target nor any
Target Subsidiary has incurred any liability or obligation under the Worker
Adjustment and Retraining Notification Act (the "WARN Act") or similar state
Laws. Target has not (a) closed any facilities or discontinued any operating
unit with 50 or more workers; (b) laid off or terminated 33% or more of the
total workforce at any single site of employment, or (c) laid off or terminated
500 or more workers at a single site of employment during the 90-day period
preceding the Closing
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Date. Further, Target and the Target Subsidiaries are fully and solely
responsible for any WARN Act liability or notice requirements relating to any
events occurring prior to and through the Closing Date.
5.20 Absence of Certain Changes. Since the Balance Sheet Date, except as
set forth in Schedule 5.20, or as otherwise contemplated by this Agreement or
the Target Ancillary Agreements, there has not been with respect to Target or
any Target Subsidiary:
(a) Any change in the financial condition, properties, assets,
liabilities business, results of operations or prospects of Target or any
Target Subsidiary, which change by itself or in conjunction with all other
such changes, whether or not arising in the ordinary course of business,
has had or can reasonably be expected to have a Material Adverse Effect;
(b) Any contingent liability incurred by Target or any Target
Subsidiary as guarantor or surety with respect to the obligations of
others;
(c) Any material Encumbrance placed on any of the properties of
Target or any Target Subsidiary;
(d) Any material obligation or liability incurred by Target or any
Target Subsidiary other than in the ordinary course of business;
(e) Except for the Merger, any purchase or sale or other disposition,
or any agreement or other arrangement for the purchase, sale or other
disposition, of any of the properties or assets of Target or any Target
Subsidiary other than in the ordinary course of business;
(f) Any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties, assets or
business, as currently conducted, of Target or any Target Subsidiary;
(g) any change in the authorized capital stock of Target or in its
outstanding securities or any change in any Target Shareholder's ownership
interests in Target or any grant of any options, warrants, calls,
conversion rights or commitments;
(h) Any declaration, setting aside or payment of any dividend on, or
the making of any other distribution in respect of, the capital stock of
Target, any split, stock dividend, combination or recapitalization of the
capital stock of Target or any direct or indirect redemption, purchase or
other acquisition by Target of the capital stock of Target;
(i) Any material labor dispute or claim of material unfair labor
practices, any change in the compensation payable or to become payable to
any officers, employees or agents of Target or any Target Subsidiary
earning compensation at an anticipated annual rate in excess of $25,000, or
any bonus payment or arrangement made to or with any of such officers,
employees or agents; or any change in the compensation payable or to become
payable to any of the other officers, employees or agents of Target or any
Target
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Subsidiary other than normal annual compensation increases in accordance
with past practices or any bonus payment or arrangement made to or with any
of such other officers, employees or agents other than normal bonuses or
other arrangements made in accordance with past practices;
(j) Any material change with respect to the management, supervisory,
development or other key personnel of Target or any Target Subsidiary (such
management, supervisory, development and other key personnel of Target
being listed on Schedule 5.20(j));
(k) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to Target or any Target Subsidiary or any payment or
discharge of a material lien or liability of Target or any Target
Subsidiary;
(l) any waiver of any material rights or claims of Target or any
Target Subsidiary;
(m) any material breach, amendment or termination of any material
contract, agreement, Permit or other right to which Target or any Target
Subsidiary is a party or any of its property is subject;
(n) Any obligation, or material liability incurred by Target or any
Target Subsidiary to any of its officers, directors or shareholders, or any
loans or advances made to any of its officers, directors, shareholders or
affiliate except normal compensation and expense allowances payable to
officers; or
(o) any other material transaction by Target or any Target Subsidiary
outside the ordinary course of business.
5.21 Corporate Documents. Target has made available to Axtive for
examination all documents and information with respect to Target or any Target
Subsidiary reasonably requested by Axtive or its legal counsel or accountants,
including the following:
(a) Copies of Target's Articles of Incorporation and Bylaws as
currently in effect;
(b) Target's minute book containing all records of all proceedings,
consents, actions and meetings of Target's directors and shareholders;
(c) Target's stock ledger, journal and other records reflecting all
stock issuances and transfers; and
(d) All Permits and all applications for Permits.
5.22 Certain Transactions and Agreements. Except as set forth in Schedule
5.22, no person who is a Target Shareholder, officer or director of Target or a
member of any Target Shareholder's, officer's or director's immediate family:
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(a) has any direct or indirect ownership or financial interest in, or
is a director, officer, employee or affiliate of, any corporation, firm,
association or business organization that is a client, supplier, customer,
lessor, lessee of Target or any Target Subsidiary or that competes with
Target or any Target Subsidiary (except with respect to any interest in
less than 1% of the outstanding voting shares of any corporation the stock
of which is publicly traded on a national securities exchange, the Nasdaq
Stock Market or over the counter);
(b) is directly or indirectly interested in any material contract or
informal arrangement with Target or any Target Subsidiary, except for
compensation for services as an officer, director or employee of Target and
except for the normal rights of a shareholder;
(c) has any interest in any property, real or personal, tangible or
intangible, including inventions or any Target Intellectual Property, used
in the business of Target, except for the normal rights of a shareholder;
or
(d) has any outstanding and unpaid debt obligations due and owing to
Target or any Target Subsidiary.
5.23 Absence of Certain Business Practices. Neither Target, any Target
Subsidiary, nor any of their Affiliates has given or offered to give anything of
value to any governmental official, political party or candidate for government
office that was illegal to give or offer to give nor has it otherwise taken any
action which would constitute a violation of the Foreign Corrupt Practices Act
of 1977, as amended, or any similar Law.
5.24 Bank Accounts and Powers of Attorney. Schedule 5.24 sets forth each
bank, savings institution and other financial institution with which Target or
any Target Subsidiary has an account or safe deposit box and the names of all
persons authorized to draw thereon or to have access thereto. Each person
holding a power of attorney or similar grant of authority on behalf of Target or
any Target Subsidiary is identified on Schedule 5.24. Except as disclosed on
Schedule 5.24, neither Target nor any Target Subsidiary has given any revocable
or irrevocable powers of attorney to any person, firm, corporation or
organization relating to its business for any purpose whatsoever.
5.25 No Brokers. Neither Target nor any Target Subsidiary is obligated for
the payment of fees or expenses of any investment banker, broker or finder in
connection with the origin, negotiation or execution of this Agreement or in
connection with any transaction contemplated hereby.
5.26 Advisability of Obtaining Separate Counsel. Each of Target and the
Target Principal Shareholder hereby acknowledges that Axtive has advised and
encouraged them to obtain separate counsel to review this Agreement and to
represent Target and the Target Principal Shareholder in the negotiating and
closing of this Agreement and the related transactions, and further each of
Target and the Target Principal Shareholder represent and warrant that the
decision whether to obtain such legal counsel has been made independently and in
the exercise of each such party's discretion.
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5.27 No Implied Representations. Notwithstanding anything to the contrary
contained in this Agreement, it is the express understanding of Axtive and Newco
that the Target Principal Shareholder is not making any representation or
warranty whatsoever, express or implied, other than those representations and
warranties of the Target Principal Shareholder expressly set forth in this
Agreement.
5.28 Disclosure. The Target Principal Shareholder and Target have fully
provided Axtive or its representatives with all the information that Axtive has
requested in analyzing whether to consummate the Merger and the other
transactions described in this Agreement. The representations and warranties of
the Target Principal Shareholder in this Agreement, and the schedules thereto
delivered to Axtive do not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF AXTIVE AND NEWCO
Axtive hereby represents and warrants to the Target Principal Shareholder
as follows:
6.1 Organization and Good Standing. Axtive is a corporation duly
organized, validly existing and in good standing under the Laws of the State of
Delaware. Newco is a corporation duly organized, validly existing and in good
standing under the Laws of the State of Delaware. Each of Axtive and Newco has
the requisite corporate power and authority to own, operate and lease its
properties and to carry on its business as now conducted and as proposed to be
conducted. Each of Axtive and Newco is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction in which the
ownership of its properties, the employment of its personnel or the conduct of
its business requires it to be so qualified, except where the failure to so
qualify would not have a material adverse effect on Axtive, its assets,
properties or financial condition taken as a whole.
6.2 Power, Authorization and Validity.
(a) Each of Axtive and Newco has the requisite corporate right,
power, legal capacity and authority to enter into and perform its
obligations under this Agreement and all agreements to which it is or will
be a party as contemplated by this Agreement (the "Axtive Ancillary
Agreements"). The execution, delivery and performance of this Agreement and
the Axtive Ancillary Agreements by Axtive and Newco have been duly and
validly approved by the boards of directors of Axtive and Newco and by
Axtive, as the sole shareholder of Newco, as required by applicable Law.
(b) Except for the Merger Filings and such filings as may be required
under federal or state securities Laws, no filing, authorization, approval
or consent, governmental or otherwise, is necessary to enable Axtive and
Newco to enter into, and to perform their obligations under, this Agreement
and the Axtive Ancillary Agreements.
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(c) This Agreement has been duly and validly executed and delivered
by Axtive and Newco. Assuming the due authorization, execution, and
delivery thereof by Target and the Target Principal Shareholder, this
Agreement constitutes, and the Axtive Ancillary Agreements, when executed
and delivered by Axtive and/or Newco will constitute, valid and binding
obligations of Axtive and Newco, as the case may be, enforceable against
each of them in accordance with their respective terms, except as to the
effect, if any, of:
(i) Applicable bankruptcy, insolvency, reorganization,
moratorium or other similar Laws affecting the rights of creditors
generally;
(ii) Rules of Law governing specific performance, injunctive
relief and other equitable remedies; and
(iii) Any rights to indemnification being limited under
applicable securities Laws;
provided, however, that the Axtive Ancillary Agreements will not be
effective until the earlier of the date set forth therein or the Effective
Time.
6.3 No Violation of Existing Agreements.
(a) Neither the execution and delivery of this Agreement or any
Axtive Ancillary Agreement by Axtive or Newco, nor the consummation of the
transactions provided for herein or therein, will conflict with, will
result in a termination or right of termination, breach, default,
violation, acceleration of performance or right of acceleration of
performance of:
(i) Any provision of the Certificate of Incorporation or Bylaws
of either of Axtive or Newco, as currently in effect;
(ii) Any material instrument or contract to which Axtive or
Newco is a party or by which Axtive or any of its properties or assets
may be bound or affected; or
(iii) Any Laws applicable to Axtive or Newco or any of the
properties or assets of Axtive or Newco and that would have a material
adverse effect on the properties, assets or business of either.
(b) Other than the Merger Filings, the consummation of the Merger by
Axtive and Newco will not require the consent of any third party.
6.4 Information Delivered. Axtive has:
(a) Delivered to Target and the Target Principal Shareholder copies
of Axtive's Form 10-KSB for the fiscal year ended December 31, 2001, Forms
10-QSB for the fiscal quarters ended March 31, 2002, June 30, 2002 and
September 30, 2002, and
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definitive Information Statement dated October 4, 2002, each as filed with
the SEC (collectively referred to herein as the "SEC Documents"); and
(b) Provided the Target Shareholders the opportunity to ask questions
of and receive answers from Axtive concerning the terms and conditions of
this Agreement and to obtain from Axtive any additional information that
Axtive possesses or can acquire without unreasonable effort or expense
necessary to verify the accuracy of the information described in the SEC
Documents.
6.5 No Implied Representations. Notwithstanding anything to the contrary
contained in this Agreement, it is the express understanding of the Target
Principal Shareholder and Target that Axtive and Newco are not making any
representation or warranty whatsoever, express or implied, other than those
representations and warranties of Axtive and Newco expressly set forth in this
Agreement.
6.6 No Brokers. Neither Axtive nor Newco is obligated for the payment of
fees or expenses of any investment banker, broker or finder in connection with
the origin, negotiation or execution of this Agreement or in connection with any
transaction contemplated hereby.
ARTICLE VII
CERTAIN COVENANTS
7.1 Future Cooperation. Following the Closing, the Target Principal
Shareholder shall deliver or cause to be delivered to Axtive, and Axtive shall
deliver or cause to be delivered to the Target Principal Shareholder, such
additional instruments as the Target Principal Shareholder or Axtive, may
reasonably request of the other for the purpose of fully carrying out this
Agreement. The Target Principal Shareholder will cooperate and use his
commercially reasonable efforts to have the present officers, directors and
employees of Target cooperate with Axtive and the Surviving Corporation at and
after the Closing in furnishing information, evidence, testimony and other
assistance in connection with any actions, proceedings, arrangements or disputes
of any nature with respect to matters pertaining to all periods prior to the
Closing.
7.2 Tax Matters.
(a) Target shall be responsible for all Taxes of Target regardless of
when due and payable, with respect to the following: (i) all taxable
periods ending on or prior to the Closing Date (the "Pre-Transfer Period");
(ii) all taxable periods beginning before the Closing Date and ending after
the Closing Date, but only with respect to the pro rata portion of such
period up to and including the Closing Date; and (iii) any Taxes for which
Target is otherwise liable under this Agreement. Axtive and the Surviving
Corporation shall cause such Taxes to be paid by the Surviving Corporation
to the extent Target has made adequate provision for the payment of such
Taxes as represented and warranted by the Target Principal Shareholder
pursuant to Section 5.17(b)(i).
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(b) The Surviving Corporation shall be responsible for all Taxes of
the Surviving Corporation, regardless of when due and payable, with respect
to the following: (i) all taxable periods beginning after the Closing Date
(the "Post-Transfer Period"); (ii) all taxable periods beginning before the
Closing Date and ending after the Closing Date, but only with respect to
the pro rata portion of such periods commencing after the Closing Date; and
(iii) any Taxes for which the Surviving Corporation is otherwise liable
under this Agreement.
(c) Axtive shall promptly notify, or shall cause the Surviving
Corporation to promptly notify, the Target Principal Shareholder in writing
upon receipt by Axtive, the Surviving Corporation or any Affiliates
thereof, of notice of any pending or threatened Tax liabilities that relate
to the Pre-Transfer Period. The Target Principal Shareholder shall have the
sole right to control any Tax audit or administrative or court proceeding
with respect to such Taxes. Axtive agrees that it will cooperate
reasonably, and shall cause the Surviving Corporation to cooperate
reasonably with the Target Principal Shareholder and his counsel in defense
against or compromise of any claim in any such proceeding.
(d) After the Closing Date, Axtive, the Surviving Corporation or any
Affiliates thereof shall make available to the Target Principal Shareholder
such records of the Surviving Corporation as the Target Principal
Shareholder may reasonably require for the preparation of any Tax Returns,
or other similar governmental reports or forms, and the preparation and
defense of any audit or administrative or court proceeding. The Target
Principal Shareholder shall cooperate with the Surviving Corporation in,
and shall make available to the Surviving Corporation such records as the
Surviving Corporation may reasonably require for, the preparation of any
Tax Returns, including the period beginning on the first date of Target's
current taxable year through the Closing Date.
(e) Any party requesting cooperation, information or actions under
this Section 7.2 shall reimburse the other party for all reasonable
out-of-pocket costs and expenses paid or incurred in connection therewith,
which costs and expenses shall not, however, include per diem charges for
employees or allocations of overhead charges.
(f) All refunds of Taxes paid by Target that are attributable to
periods prior to the Pre-Transfer Period and not accrued in the Target
Financial Statements shall be for the account of the Target Shareholders.
Axtive and the Surviving Corporation shall take such actions as reasonably
requested by the Target Principal Shareholder to obtain such refunds and
deliver to the Target Principal Shareholder any such refunds (less direct
costs incurred by Axtive or the Surviving Corporation in connection
therewith) within ten days upon receipt thereof. All refunds of Taxes paid
by Axtive, the Surviving Corporation or any Affiliates thereof attributable
to the Post-Transfer Period shall be for the account of the Surviving
Corporation.
7.3 Repayment of Related Party Indebtedness. Except as set forth on
Schedule 7.3, at or before the Closing, each Target Shareholder shall repay to
Target all amounts outstanding as advances to or receivables from such Target
Shareholder, each of which advances or receivables is specifically reflected in
Schedule 5.8.
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7.4 Execution of Certain Agreements by Target Employees. The Target
Principal Shareholder will use all commercially reasonable efforts to cause all
present employees of Target and any Target Subsidiary to execute Axtive's forms
of assignments of copyright and other intellectual property rights,
noncompetition and trade secret agreements and confidentiality agreements.
7.5 Non-Disclosure of Target Proprietary Information.
(a) The Target Principal Shareholder recognizes and acknowledges, by
virtue of his involvement with and ownership interest in Target, had and
may continue to have access, to confidential, proprietary, and highly
sensitive information relating to the business of Target and the Target
Subsidiaries, which are valuable, special, and unique assets of Target (the
"Target Proprietary Information"). The Target Proprietary Information
includes information pertaining to:
(i) The identities of customers and clients with which or whom
Target or any Target Subsidiary does or seeks to do business, as well
as the point of contact persons and decision-makers at these customers
and clients, including their names, addresses, e-mail addresses and
positions;
(ii) The past or present purchasing history and the past and/or
current job requirements of each past and/or existing customer and
client;
(iii) The volume of business and the nature of the business
relationship between Target or any Target Subsidiary and its customers
and clients;
(iv) The business plans and strategy of Target or any Target
Subsidiary, including customer or client assignments and
rearrangements, sales and administrative staff expansions, marketing
and sales plans and strategy, proposed adjustments in compensation of
sales personnel, revenue, expense and profit projections, industry
analyses, and any proposed or actual implemented technology changes;
(v) Information regarding the employees of Target or any
Target Subsidiary, including their identities, skills, talents,
knowledge, experience, and compensation;
(vi) The financial results and business condition of Target or
any Target Subsidiary;
(vii) Computer programs and software developed by Target or any
Target Subsidiary and tailored to its needs by its employees,
independent contractors, consultants or vendors;
(viii) Information relating to Target's or any Target
Subsidiary's engineers, designers, contractors, or persons likely to
become engineers, designers, or contractors;
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(ix) Any past, present or future merchandise or supply sources
of Target or any Target Subsidiary;
(x) System designs, procedure manuals, automated data programs,
reports and personnel procedures of Target or any Target Subsidiary;
and
(xi) Notwithstanding the foregoing, "Target Proprietary
Information" does not include the following:
(A) information that has become publicly known through no
wrongful act of the receiving party;
(B) information that has been rightfully received from a
third party authorized by the party that is the owner, creator or
compiler thereof to make such disclosure without restriction;
(C) information that has been approved or released by
written authorization of the party that is the owner, creator or
compiler thereof; or
(D) information that is being or has been disclosed
pursuant to a valid court order after a reasonable attempt has
been made to notify the party that is the owner, creator or
compiler thereof.
(b) In light of the foregoing, and in connection with and in
consideration for the Merger Consideration to be received pursuant to the
terms of this Agreement, the Target Principal Shareholder hereby agrees
that for a period of five years and one day after the Closing Date (such
time period to be referred to hereafter as the "Post-Closing Period") the
Target Principal Shareholder will not use, publish, disclose or divulge,
directly or indirectly, at any time, any Target Proprietary Information for
his own benefit or for the benefit of any person, entity, or corporation
other than Target, to any person who is not then a current employee of the
Surviving Corporation, without the express, written consent of Axtive,
unless such disclosure is required by Law, provided, that prior to
disclosing any Target Proprietary Information pursuant to this clause, the
Target Principal Shareholder shall, to the extent possible, give prior
written notice to Axtive and the Surviving Corporation thereof and provide
Axtive and the Surviving Corporation the opportunity to contest such
disclosure. To the extent that the Target Principal Shareholder has
obligations similar to those outlined in this Section 7.5 in any other
agreement with Axtive and/or the Surviving Corporation, including any
employment agreement, then the terms of this Section 7.5 shall control to
the extent Section 7.5 provides for a broader scope and/or longer duration
of such obligations.
(c) Because of the difficulty of measuring economic losses as a
result of the breach of the covenants in Section 7.5(b), because a breach
of such covenants would diminish the value of the assets and business of
Target being sold pursuant to this Agreement, and because of the immediate
and irreparable damage that would be caused for which the Surviving
Corporation or Axtive would have no other adequate remedy, the Target
Principal Shareholder agrees that the covenants in Section 7.5(b) may be
enforced against him by injunctions, restraining orders and other equitable
actions. Nothing herein
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shall be construed as prohibiting the Surviving Corporation or Axtive from
pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages.
7.6 Employment Agreements. Concurrently with the execution of this
Agreement, the Surviving Corporation shall enter into a mutually acceptable
Employment Agreement with each of the individuals identified on Schedule 7.6
(collectively, the "Employment Agreements").
7.7 Collectible A/R Deficiency. To the extent a claim for indemnification
for a breach of the representation and warranty in Section 5.9(b) is paid under
Section 8.1, the account receivable for which such indemnification payment was
made shall be assigned to the Target Principal Shareholder at the time of such
payment. Axtive shall cause the Surviving Corporation to reasonably cooperate
and assist the Target Principal Shareholder in collecting any assigned accounts
receivable.
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification by the Target Principal Shareholder. The Target
Principal Shareholder hereby makes the following covenants:
(a) General Indemnification. Subject to the limitations set forth in
this ARTICLE VIII, the Target Principal Shareholder covenants and agrees
that he will indemnify, defend, protect and hold harmless Axtive, Newco and
the Surviving Corporation, their respective officers, directors, employees,
stockholders, agents, representatives and Affiliates and each person, if
any, who controls or may control them (the "Axtive Indemnified Persons")
from and against any and all Losses as a result of or arising out of the
following: (i) until the Target Expiration Date, any breach of the
representations and warranties given or made by the Target Principal
Shareholder in this Agreement, any Target Ancillary Agreement or any
certificate, document or instrument delivered by or on behalf of Target or
the Target Principal Shareholder pursuant hereto; (ii) any breach, default
or nonfulfillment of any covenant or agreement on the part of the Target
Principal Shareholder or Target under this Agreement or any Target
Ancillary Agreement; or (iii) the failure of Target or the Target Principal
Shareholder to deliver any Required Consent at or before the Closing
(collectively, the "Axtive Losses").
(b) Exclusive Remedy. The exclusive remedy of any Axtive Indemnified
Person, absent fraud, for any Axtive Loss shall be pursuant to this Section
8.1. Notwithstanding the foregoing, this limitation shall not apply to
equitable relief sought by Axtive with regard to the covenants of the
Target Principal Shareholder set forth in Section 7.5 and ARTICLE IX.
(c) Threshold Amount. Axtive Indemnified Persons shall have no claims
under this Section 8.1 against the Target Principal Shareholder unless and
until the Axtive Losses exceed $10,000, (the "Threshold Amount"), and then
only for the amount by which such Axtive Losses exceed the Threshold
Amount.
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(d) Third Person Claims. Promptly after the receipt by any Axtive
Indemnified Person of notice or discovery of any claim, action or
proceeding (each a "Claim") by a person or entity not a party to this
Agreement ("Third Person") giving rise to an Axtive Loss, Axtive or the
Axtive Indemnified Person (if other than Axtive) shall give the Target
Principal Shareholder written notice of such Claim in accordance with this
Section 8.1. Within seven days of delivery of such written notice, the
Target Principal Shareholder may, with Axtive's written consent, which
consent shall not be unreasonably withheld, at the expense of the Target
Principal Shareholder, elect to take all necessary steps properly to
contest such Claim or to prosecute or defend such Claim to conclusion or
settlement, provided that the Target Principal Shareholder pursues the same
diligently and in good faith. If the Target Principal Shareholder makes the
foregoing election, then he shall take all necessary steps to contest any
such Claim or to prosecute or defend such Claim to conclusion or
settlement, and shall notify Axtive and the Axtive Indemnified Person of
the progress of any such Claim, shall permit the Axtive Indemnified Person,
at its expense, to participate in such prosecution, defense or settlement
negotiations (provided, however, that if a conflict of interest exists that
would make it inappropriate, in the reasonable opinion of the Axtive
Indemnified Person, for the same counsel to represent both the Axtive
Indemnified Person and the Target Principal Shareholder in the resolution
of such Claim, then the Axtive Indemnified Person may retain separate
counsel, the fees and expenses of which shall not be borne by the Axtive
Indemnified Person, but shall instead be borne by the Target Principal
Shareholder as Axtive Losses) and shall provide the Axtive Indemnified
Person with reasonable access to all relevant information and documents
relating to the Claim and the Target Principal Shareholder's prosecution or
defense thereof. If the Target Principal Shareholder does not timely make
such election or fails diligently to pursue such prosecution, defense or
settlement, then the Axtive Indemnified Person shall be free to contest
such Claim or to prosecute or defend such Claim to conclusion or settlement
through counsel of its choice, at the cost and expense of the Target
Principal Shareholder, shall take all necessary steps regarding the same,
shall notify the Target Principal Shareholder of the progress of any such
Claim, shall permit the Target Principal Shareholder, at his expense, to
participate in such prosecution or defense and shall provide the Target
Principal Shareholder with reasonable access to all relevant information
and documents relating to the Claim and the Axtive Indemnified Person's
prosecution or defense thereof. Subject to the limitations set forth in
this ARTICLE VIII, the Target Principal Shareholder shall reimburse the
Axtive Indemnified Person for the amount paid in such settlement and any
other liabilities or expenses incurred by the Axtive Indemnified Person in
connection therewith as Axtive Losses. In either case, the party not in
control of a Claim will fully cooperate, and will cause its counsel, if
any, to fully cooperate, with the other party in the conduct of the
prosecution or defense of such Claim. Neither party will compromise or
settle any such Claim without the written consent of either the Axtive
Indemnified Person (if the Target Principal Shareholder defends the Claim)
or the Target Principal Shareholder (if the Axtive Indemnified Person
defends the Claim), such consent not to be unreasonably withheld; provided,
however, that notwithstanding the foregoing, any Axtive Indemnified Person
shall be entitled to refuse to consent to any such proposed settlement and
the Target Principal Shareholder's liability hereunder shall not be limited
by the amount of
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the proposed settlement if such settlement does not provide for the
complete release of the Axtive Indemnified Person.
(e) Non-Third Person Claims. If any Axtive Indemnified Person asserts
the existence of a Claim giving rise to Axtive Losses (but excluding Claims
by Third Persons), the Axtive Indemnified Person shall give the Target
Principal Shareholder written notice of such Claim in accordance with
Section 8.3 and Section 10.6. If the Target Principal Shareholder, within
30 days after the giving of notice by such Axtive Indemnified Person, shall
not give written notice to such Axtive Indemnified Person announcing the
Target Principal Shareholder's intent to contest the assertion of such
Claim by the Axtive Indemnified Person, such assertion shall be deemed
accepted and the amount of such Claim shall be deemed a valid Claim. In the
event, however, that the Target Principal Shareholder contests such
assertion by giving the written notice to the Axtive Indemnified Person
within this 30-day period, then the parties shall act in good faith to
reach agreement regarding such Claim. If the parties, acting in good faith,
cannot reach agreement with respect to such Claim within 30 days after the
notice provided by the Target Principal Shareholder, and a dispute shall
arise with respect to such Claim, the prevailing party shall be entitled to
reimbursement of costs and expenses incurred in connection with such
dispute, including reasonable attorneys' fees, subject to the limitations
set forth in this ARTICLE VIII.
8.2 Indemnification by Axtive. Axtive hereby makes the following
covenants:
(a) General Indemnification. Subject to the limitations set forth in
this ARTICLE VIII, Axtive covenants and agrees that it will indemnify,
defend, protect and hold harmless the Target Principal Shareholder and his
agents, representatives, Affiliates, beneficiaries and heirs and employees
(the "Target Indemnified Persons") from and against any and all Losses as a
result of or arising out of the following: (i) until the Axtive Expiration
Date, any breach of the representations and warranties of Axtive or Newco
set forth herein or in the Schedules or certificates attached hereto; (ii)
any breach, default or nonfulfillment of any covenant or agreement on the
part of Axtive or Newco under this Agreement; or (c) all Taxes for the
Post-Transfer Period (collectively, the "Target Losses").
(b) Exclusive Remedy. The exclusive remedy of any Target Indemnified
Person, absent fraud, for any Target Loss shall be pursuant to this Section
8.2.
(c) Threshold Amount. Target Indemnified Persons shall have no claims
under this Section 8.2 against Axtive unless and until the Target Losses
exceed the Threshold Amount, and then only for the amount by which such
Target Losses exceed the Threshold Amount.
(d) Third Person Claims. Promptly after the receipt by any Target
Indemnified Person of notice or discovery of any Claim by a Third Person
giving rise to a Target Loss, the Target Indemnified Person shall give
Axtive written notice of such Claim in accordance with this Section 8.2.
Within seven days of delivery of such written notice, Axtive may, with the
Target Principal Shareholder's written consent, which
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consent shall not be unreasonably withheld, at the expense of Axtive, elect
to take all necessary steps properly to contest such Claim or to prosecute
or defend such Claim to conclusion or settlement, provided that Axtive
pursues the same diligently and in good faith. If Axtive makes the
foregoing election, then Axtive shall take all necessary steps to contest
any such Claim or to prosecute or defend such Claim to conclusion or
settlement, and shall notify the Target Indemnified Person of the progress
of any such Claim, shall permit the Target Indemnified Person, at its
expense, to participate in such prosecution, defense or settlement
negotiations (provided, however, that if a conflict of interest exists that
would make it inappropriate, in the reasonable opinion of the Target
Indemnified Person, for the same counsel to represent both the Target
Indemnified Person and Axtive in the resolution of such Claim, then the
Target Indemnified Person may retain separate counsel, the fees and
expenses of which shall not be borne by the Target Indemnified Person, but
shall instead be borne by Axtive as Target Losses) and shall provide the
Target Indemnified Person with reasonable access to all relevant
information and documents relating to the Claim and Axtive's prosecution or
defense thereof. If Axtive does not timely make such election or fails
diligently to pursue such prosecution, defense or settlement, then the
Target Indemnified Person shall be free to contest such Claim or to
prosecute or defend such Claim to conclusion or settlement through counsel
of its choice, at the cost and expense of Axtive, shall take all necessary
steps regarding the same, shall notify Axtive of the progress of any such
Claim, shall permit Axtive, at its expense, to participate in such
prosecution or defense and shall provide Axtive with reasonable access to
all relevant information and documents relating to the Claim and the Target
Indemnified Person's prosecution or defense thereof. Subject to the
limitations set forth in this ARTICLE VIII, Axtive shall reimburse the
Target Indemnified Person for the amount paid in such settlement and any
other liabilities or expenses incurred by the Target Indemnified Person in
connection therewith as Target Losses. In either case, the party not in
control of a Claim shall fully cooperate, and shall cause its counsel, if
any, to fully cooperate, with the other party in the conduct of the
prosecution or defense of such Claim. Neither party shall compromise or
settle any such Claim without the written consent of either the Target
Indemnified Person (if Axtive defends the Claim) or Axtive (if the Target
Indemnified Person defends the Claim), such consent not to be unreasonably
withheld; provided, however, that notwithstanding the foregoing, any Target
Indemnified Person shall be entitled to refuse to consent to any such
proposed settlement and the Axtive's liability hereunder shall not be
limited by the amount of the proposed settlement if such settlement does
not provide for the complete release of the Target Indemnified Person.
(e) Non-Third Person Claims. If any Target Indemnified Person asserts
the existence of a Claim giving rise to Target Losses (but excluding Claims
by Third Persons), the Target Indemnified Person shall give Axtive written
notice of such Claim in accordance with Section 8.3 and Section 10.6. If
Axtive, within 30 days after the giving of notice by such Target
Indemnified Person, shall not give written notice to such Target
Indemnified Person announcing Axtive's intent to contest the assertion of
such Claim by the Target Indemnified Person, such assertion shall be deemed
accepted and the amount of such Claim shall be deemed a valid Claim. In the
event, however, that Axtive contests such assertion by giving the written
notice to the Target Indemnified Person within this 30-day period, then the
parties shall act in good faith to reach agreement regarding such
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Claim. If the parties, acting in good faith, cannot reach agreement with
respect to such Claim within 30 days after the notice provided by Axtive,
and a dispute shall arise with respect to such Claim, the prevailing party
shall be entitled to reimbursement of costs and expenses incurred in
connection with such dispute, including reasonable attorneys' fees, subject
to the limitations set forth in this ARTICLE VIII.
(f) Action by Target Principal Shareholder. If two or more Target
Indemnified Persons deliver, whether separately or together, a Claim to
Axtive pursuant to this Section 8.2 arising from or relating to the same or
a reasonably similar matter, then the Target Principal Shareholder shall
act on behalf of each such Target Indemnified Person for purposes of this
Section 8.2.
8.3 Notice of Claim. Any written notice of a Claim required under Section
8.1 or Section 8.2 shall be in writing, shall be given in accordance with
Section 10.6 and shall contain the following information to the extent
reasonably available to party giving the notice:
(a) The good faith estimate of the party giving the notice of the
reasonably foreseeable maximum amount of the alleged Losses (which amount
may be the amount of damages claimed by a Third Person in a Claim); and
(b) A brief description in reasonable detail of the facts,
circumstances or events giving rise to the alleged Losses based on good
faith belief thereof of the party giving the notice and the basis under
this Agreement for such Claim, including the identity and address of any
Third Person claimant (to the extent reasonably available to the party
giving the notice) and copies of any formal demand, complaint or other
document related to the Claim.
8.4 Survival of Representations and Warranties.
(a) Representations and Warranties of Target Principal Shareholder.
All representations and warranties of the Target Principal Shareholder
contained in ARTICLE V shall survive the Closing for a period of one year
and one day after the Closing Date (the "Target Expiration Date"),
regardless of any investigation made by or on behalf of the parties to this
Agreement (except to the extent Axtive has actual knowledge of a breach of
a representation and warranty at or before Closing), except that (i) the
representations and warranties contained in Section 5.3 and Section 5.10
shall survive the Closing for the Post-Closing Period, regardless of any
investigation made by or on behalf of the parties to this Agreement (except
to the extent Axtive has actual knowledge of a breach of a representation
and warranty at or before Closing), which shall be deemed to be the Target
Expiration Date therefor, and (ii) the representations and warranties
contained in Section 5.16 (but only with respect to Tax matters) and
Section 5.17 shall survive until such time as the applicable limitations
period has run, which shall be deemed to be the Target Expiration Date
therefor. Notwithstanding the preceding provisions of this Section 8.4(a),
any act or omission constituting fraud shall have no limit as to time.
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(b) Axtive's Representations. All representations and warranties of
Axtive contained in ARTICLE VI shall survive the Closing for a period of
one year and one day after the Closing Date (the "Axtive Expiration Date"),
regardless of any investigation made by or on behalf of the parties to this
Agreement (except to the extent Target has actual knowledge of a breach of
a representation and warranty at or before Closing). Notwithstanding the
preceding provisions of this Section 8.4(b), any act or omission
constituting fraud shall have no limit as to time.
8.5 Indemnification Limitation.
(a) Aggregate Limitation. The aggregate indemnification obligation of
the Target Principal Shareholder under Section 8.1 and of Axtive under
Section 8.2 shall each be limited to $300,000. Notwithstanding the
foregoing, the limitations set forth in this Section 8.5(a) shall not apply
to any Loss as a result of or arising from any act or omission constituting
fraud.
(b) Stock Purchase.
(i) At the Closing, the Target Principal Shareholder shall
purchase from Axtive 150 shares of its Series A Preferred Stock (such
shares being the "Series A Stock") for an aggregate purchase price of
$150,000. The Series A Stock shall be pledged to Axtive as security
for the first $150,000 of Axtive Losses in excess of the Threshold
Amount subject to indemnification by the Target Principal Shareholder
under Section 8.1, which pledge shall be evidenced by a separate
pledge agreement by and between Axtive and the Target Principal
Shareholder. Subject to the terms of this ARTICLE VIII, Axtive agrees,
on behalf of itself and the Axtive Indemnified Persons, to accept,
pursuant to the terms of such pledge agreement, a transfer or
transfers of shares of the Series A Stock valued on the basis of the
purchase price per share of $1,000.00 paid therefor by the Target
Principal Shareholder in payment of such Axtive Losses up to an
aggregate of $150,000.
(ii) Subject to the provisions of Section 8.1, including the
notice provisions thereof, if there are Axtive Losses in excess of the
Threshold Amount, Axtive shall give written notice to the Target
Principal Shareholder with respect to the amount of such Axtive Losses
and the basis therefor. The Target Principal Shareholder shall have
five business days from the date of receipt of such written notice to
pay or reimburse Axtive, on behalf of the Axtive Indemnified Persons
suffering such Axtive Losses, the full amount of such Axtive Losses or
to give written notice to Axtive disputing payment of such Axtive
Losses. If, after the expiration of such period, the full amount of
such Axtive Losses is not paid or reimbursed and the Target Principal
Shareholder has not given written notice disputing payment of such
Axtive Losses, Axtive shall cause the such Axtive Losses (net of any
payments or reimbursements by the Target Principal Shareholder with
respect thereto) to be satisfied with a transfer of shares of Series A
Stock, to the extent thereof, pursuant to Section 8.5(b)(i) and the
related pledge agreement on behalf of the Axtive Indemnified Persons.
If the Target Principal
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Shareholder has given timely written notice disputing payment of such
Axtive Losses, the provisions of Section 10.14 shall govern the
resolution of the dispute and no shares of Series A Stock shall be
transferred to Axtive until such dispute is resolved and only pursuant
to the terms of such resolution.
(iii) If, as of the expiration of nine months after the Closing
Date, Axtive determines there have been no transfers of shares of
Series A Stock pursuant to Section 8.5(b)(i) and the related pledge
agreement, no Claims subject to indemnification under Section 8.1 are
pending and no disputes with respect to indemnification obligations
under Section 8.1 are pending, then 75 shares of the Series A Stock
shall be released from the pledge pursuant to the terms of the pledge
agreement. Promptly following the Target Expiration Date and a
determination by Axtive, as of the Target Expiration Date, that no
Claims subject to indemnification under Section 8.1 are pending and no
disputes with respect to the Target Principal Shareholder's
indemnification obligations under Section 8.1 are pending, the pledge
of the Series A Stock (or the remaining balance thereof) and the
related pledge agreement shall be terminated. If Axtive determines, as
of the Target Expiration Date, that there are pending Claims subject
to indemnification under Section 8.1 and/or pending disputes with
respect to the Target Principal Shareholder's indemnification
obligations under Section 8.1, the pledge of the Series A Stock (or
the remaining balance thereof) and the related pledge agreement shall
continue in full force and effect until such pending Claims and/or
disputes are resolved to the satisfaction of Axtive. The
determinations by Axtive pursuant to this Section 8.5(b)(iii) shall be
made reasonably and in good faith and not unreasonably withheld or
delayed.
ARTICLE IX
NONCOMPETITION COVENANTS
9.1 Prohibited Activities.
(a) In connection with and for no additional consideration other than
the Merger Consideration, the Target Principal Shareholder will not for a
period of two years following the Closing Date and, if longer, for such
longer period as provided in the Target Principal Shareholder's offer of
employment and subsequent employment agreements with the Surviving
Corporation or its Affiliates (with such applicable period being herein
referred to as the "Noncompete Term"), without the prior written consent of
Axtive, directly or indirectly, for himself or on behalf of or in
conjunction with any other person, company, partnership, corporation or
business of whatever nature:
(i) engage, as an officer, director, shareholder, owner,
partner, joint venturer, or in a managerial or advisory capacity,
whether as an employee, independent contractor, consultant, advisor,
representative or agent, in any Competitive Business within a 100 mile
radius of where Target or any Target
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Subsidiary conducts business, or has conducted business within the
past three years (the "Territory");
(ii) recruit, hire, solicit, or attempt to recruit, hire or
solicit, directly or by assisting others, any employees or consultants
employed by or associated with Axtive or the Surviving Corporation or
any of their Affiliates, nor shall he contact or communicate with any
such employees or consultants for the purpose of inducing employees or
consultants to terminate their employment or association with Axtive
or the Surviving Corporation or any of their Affiliates, provided that
for purposes of this covenant, "employees or consultants" shall refer
to permanent employees, temporary employees or consultants who were
employed by, doing business with, or associated with Target, Axtive or
the Surviving Corporation or any of their Affiliates within six months
before the time of the attempted recruiting, hiring or solicitation;
or
(iii) call upon any person or entity which is, at that time, or
which has been, within one year prior to that time, a customer of
Target, Axtive or the Surviving Corporation or any Affiliates of such
parties within the Territory for the purpose of soliciting or selling
services or products in a Competitive Business within the Territory.
(b) To the extent that the Target Principal Shareholder has
obligations similar to those outlined in Section 9.1(a) in any other
agreement with Axtive and/or the Surviving Corporation (including any
employment agreement), then the terms of Section 9.1(a) shall control to
the extent Section 9.1(a) provides for a broader scope and/or longer
duration of such obligations.
(c) Notwithstanding the above, Section 9.1(a) shall not be deemed to
prohibit the Target Principal Shareholder from acquiring, as a passive
investor with no involvement in the operations of the business, not more
than 1% of the capital stock of a Competitive Business the stock of which
is publicly traded on a national securities exchange, the Nasdaq Stock
Market or over the counter.
9.2 Equitable Relief. Because of the difficulty of measuring economic
losses to Axtive and the Surviving Corporation as a result of a breach of the
covenants in this ARTICLE IX, because a breach of such covenant would diminish
the value of the assets and business of Target being sold pursuant to this
Agreement, and because of the immediate and irreparable damage that could be
caused to Axtive and the Surviving Corporation for which it would have no other
adequate remedy, the Target Principal Shareholder agrees that the covenants in
this ARTICLE IX may be enforced against him by injunctions, restraining orders
and other equitable actions.
9.3 Reasonable Restraint. It is agreed by the parties hereto that the
covenants in this ARTICLE IX are necessary in terms of time, activity and
territory to protect Axtive's and the Surviving Corporation's interest in the
assets and business being acquired pursuant to the terms of this Agreement and
impose a reasonable restraint on the Target Principal Shareholder in light
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of the activities and businesses of Target on the date of the execution of this
Agreement and the current plans of Target.
9.4 Severability; Reformation. The covenants in this ARTICLE IX are
severable and separate, and the unenforceability of any specific covenant shall
not affect the continuing validity and enforceability of any other covenant. In
the event any court of competent jurisdiction shall determine that the scope,
time or territorial restrictions set forth in this ARTICLE IX are unreasonable
and therefore unenforceable, then it is the intention of the parties that such
restrictions be enforced to the fullest extent that the court deems reasonable
and this Agreement shall thereby be reformed.
9.5 Material and Independent Covenant. The Target Principal Shareholder
acknowledges that his agreements and the covenants in this ARTICLE IX are
material conditions to Axtive's and Newco's agreements to execute and deliver
this Agreement and to consummate the transactions contemplated hereby and that
Axtive and Newco would not have entered into this Agreement without such
covenants. All of the covenants in this ARTICLE IX shall be construed as an
agreement independent of any other provision in this Agreement.
ARTICLE X
MISCELLANEOUS
10.1 Successors and Assigns. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of Law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
Axtive, Newco, the Surviving Corporation and Target, and the heirs and legal
representatives of the Target Principal Shareholder.
10.2 Entire Agreement. This Agreement (including the Schedules and any
Exhibits attached hereto), the Target Ancillary Documents and the Axtive
Ancillary Documents constitute the entire agreement and understanding among the
Target Principal Shareholder, Target, Newco and Axtive and supersede any prior
agreement and understanding relating to the subject matter hereof, whether oral
or written, including the Letter of Intent. This Agreement may be modified or
amended only by a written instrument executed by the Target Principal
Shareholder and Target, Newco and Axtive, acting through their respective
officers, duly authorized by their respective boards of directors.
10.3 No Joint Venture. Nothing contained in this Agreement shall be deemed
or construed as creating a joint venture or partnership among the parties. No
party is by virtue of this Agreement authorized as an agent, employee or legal
representative of any other party. No party shall have the power to control the
activities and operations of any other, and the parties' status is, and at all
times, shall continue to be, that of independent contractors with respect to
each other. Except as provided in Section 8.2(f) with respect to the Target
Principal Shareholder, no party shall have any power or authority to bind or
commit any other. No party shall hold itself out as having any authority or
relationship in contravention of this Section 10.3.
10.4 Absence of Third Party Beneficiary Rights. Except as expressly
provided in Section 10.5, no provisions of this Agreement are intended, nor
shall be interpreted, to provide or
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create any third party beneficiary rights or any other rights of any kind in any
client, customer, affiliate, partner or employee of any party or any other
person or entity, unless specifically provided otherwise herein.
10.5 Expenses. Unless otherwise provided in the Agreement, each party shall
bear its respective expenses and fees of its own accountants, attorneys,
investment bankers and other professionals incurred with respect to this
Agreement and the transactions described herein or in connection therewith.
Notwithstanding the foregoing, the parties hereto acknowledge that Target has
incurred, since the Balance Sheet Date and in connection with the Merger and the
related transactions described herein or in connection therewith, fees and
expenses for lawyers and accountants in the aggregate amount of $42,500, which
Axtive agrees to pay or to cause the Surviving Corporation to pay, on behalf of
Target, in the following manner: (a) fees and expenses of Xxxxxx and Xxxxx, LLP
in the aggregate amount of $30,000 in two equal installments, the first of which
shall be paid by wire transfer on the Closing Date and the second of which shall
be paid by wire transfer on or before the 45th day following the Closing Date;
and (b) fees and expenses of the independent auditors of ThinkSpark in the
aggregate amount of $12,500, which have been incurred by ThinkSpark since the
Balance Sheet Date in connection with the preparation of the audited Target
Financial Statements described in Section 5.7(a)(i) (which amount is an estimate
of the unpaid amount remaining under the original fee estimate provided to
ThinkSpark and Axtive by such independent auditors). Target shall not otherwise
incur, in connection with the Merger and the related transactions described
herein or in connection therewith, any additional fees and expenses for any
lawyers, accountants and other professionals for the period of time from the
Balance Sheet Date until the Closing Date, and if, for any reason, any such
additional fees and expenses are or have been incurred by Target, then on or
before the Closing Date the Target Principal Shareholder shall have paid, by
itself or together with one or more other Target Shareholders, the amount of
such additional fees or expenses incurred. The parties hereto agree that Xxxxxx
and Xxxxx, LLP shall be a third party beneficiary of this Agreement with respect
to this Section 10.5.
10.6 Notices. All notices and communications required or permitted
hereunder shall be in writing and may be given by (i) depositing the same in the
United States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, (ii) delivering the same
in person or by express or overnight delivery to an officer or agent of such
party or (iii) facsimile, and shall be deemed given upon actual delivery or, if
mailed by registered or certified mail, on the third business day following
deposit in the mails. All such notices and communications shall be addressed as
follows:
(a) If to Axtive, Newco or the Surviving Corporation, addressed to
them at:
Axtive Corporation
0000 Xxxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
Attn: President
Facsimile: 000-000-0000
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with a copy (which shall not constitute notice) to:
Gardere Xxxxx Xxxxxx LLP
0000 Xxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000-0000
Attn: Xxxxxxx X. Xxx, Esq.
Facsimile: 000-000-0000
(b) If to the Target Principal Shareholder, addressed to him as
follows:
Xxxxx Xxxxxxx
000 Xxxxx Xxxx
Xxxxxxxxx, Xxxxx 00000
with a copy (which shall not constitute notice) to:
Xxxxxx and Xxxxx, LLP
000 Xxxx Xx., Xxxxx 0000
Xxxxxx, Xxxxx 00000
Attn: Xxxxxxx X. Xxxxxx, Esq.
Facsimile: 000-000-0000
or such other address as any party hereto shall specify pursuant to this Section
10.5 from time to time.
10.7 Exercise of Rights and Remedies. Except as otherwise provided herein,
(i) any and all remedies expressly conferred herein upon a party shall be deemed
exclusive of any other remedy conferred hereby or by Law on such party, and the
exercise of any one remedy shall preclude the exercise of any other, (ii) no
delay of or omission in the exercise of any right, power or remedy accruing to
any party as a result of any breach or default by any other party under this
Agreement shall impair any such right, power or remedy, nor shall it be
construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later, and (iii) no waiver of any single
breach or default shall be deemed a waiver of any other breach or default
occurring before or after that waiver.
10.8 Public Announcement. Axtive and Target shall issue a press release
approved by both parties announcing the Merger as soon as practicable following
the execution of this Agreement; provided, however, that Axtive may make such
press releases or other public filings or announcements without the approval of
the other parties hereto upon the determination of Axtive's counsel that such
action is necessary to comply with any relevant Laws related thereto.
10.9 Confidentiality.
(a) Except as expressly authorized by Axtive in writing, Target and
the Target Principal Shareholder shall not directly or indirectly divulge
to any person or entity or use any Axtive Confidential Information, except
as required for the performance of its duties under this Agreement. As used
herein, "Axtive Confidential Information" consists of:
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(i) Any information designated by Axtive as confidential
whether developed by Axtive or disclosed to Axtive by a third party;
(ii) The source code to any Axtive software, and any trade
secrets relating to any of the foregoing; and
(iii) Any information relating to Axtive's product plans,
product designs, product costs, product prices, product names,
finances, marketing plans, business opportunities, personnel,
research development or know-how.
(b) The foregoing restriction shall apply to information about a
party whether or not it was obtained from such party's employees, acquired
or developed by the other party during such other party's performance under
this Agreement, or otherwise learned. The foregoing restrictions shall not
apply to information that:
(i) Has become publicly known through no wrongful act of the
receiving party;
(ii) Has been rightfully received from a third party authorized
by the party which is the owner, creator or compiler to make such
disclosure without restriction;
(iii) Has been approved or released by written authorization of
the party which is the owner, creator or compiler; or
(iv) Is being or has therefore been disclosed pursuant to a
valid court order after a reasonable attempt has been made to notify
the party, which is the owner, creator or compiler.
(c) Neither Axtive nor Target shall divulge the terms and conditions
of this Agreement, except as disclosed in accordance with Section 10.8, as
necessary to effect the terms and conditions of this Agreement or as
otherwise required by Law.
10.10 Construction of Agreement. The language in this Agreement shall not
be construed for or against either party. A reference to a Section, Schedule or
Exhibit refers to a section in, or a schedule or any exhibit attached to, this
Agreement, unless otherwise expressly set forth herein. The titles and headings
in this Agreement are for reference purposes only and shall not in any manner
limit the construction of this Agreement. For the purposes of such construction,
this Agreement shall be considered as a whole.
10.11 Knowledge. References in this Agreement to the knowledge of Target
(or similar phrases) refer to the actual knowledge of Xxxxx Xxxxxxx, Xxxxx
Xxxxx, Xxxxx Xxxxxx, Xxxxxxx X. Xxxxxxxx or M. Xxx Xxxxxxx. References in this
Agreement to the knowledge of Axtive or Newco (or similar phrases) refer to the
actual knowledge of Xxxxxx X. Xxxxxxx, XX, President and Chief Executive
Officer, or Xxxxx X. Xxxxxxx, Executive Vice President and Chief Financial
Officer.
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10.12 Reformation and Severability. In case any provision of this Agreement
shall be invalid, illegal or unenforceable, it shall, to the extent possible, be
modified in such manner as to be valid, legal and enforceable, but so as to most
nearly retain the intent of the parties, and if such modification is not
possible, such provision shall be severed from this Agreement, and in either
case, the validity, legality and enforceability of the remaining provisions of
this Agreement shall not in any way be affected or impaired thereby.
10.13 Governing Law. The laws of the State of Texas (without regard to its
choice of law principles that might apply the law of another jurisdiction) shall
govern the validity of this Agreement, the construction of its terms, and the
interpretation and enforcement of the rights and duties of the parties.
10.14 Dispute Resolution. Any dispute hereunder ("Dispute") shall be
settled by arbitration in Dallas, Texas and, except as herein specifically
stated, in accordance with the commercial arbitration rules of the American
Arbitration Association ("AAA Rules") then in effect. In all respects, however,
these arbitration provisions shall govern over any conflicting rules that may
now or hereafter be contained in the AAA Rules.
(a) Compensation of Arbitrator. Any such arbitration shall be
conducted before a single arbitrator who shall be compensated for his or
her services at a rate to be determined by the parties or by the American
Arbitration Association, but based upon a reasonable hourly or daily
consulting rate for the arbitrator if the parties are not able to agree
upon his or her rate of compensation.
(b) Selection of Arbitrator. The parties shall obtain from the
American Arbitration Association a list of arbitrators available to conduct
the arbitration who are lawyers familiar with Texas contract law and
experienced in mergers and acquisitions; provided, however, that such
lawyers cannot work for a firm then performing services for either party or
otherwise have a conflict of interest. The parties shall use their
reasonable efforts to agree upon an arbitrator on such list to conduct the
arbitration. If the parties are unable to agree upon an arbitrator, each
party shall choose one person from the list of arbitrators provided by the
American Arbitration Association, and the two persons so selected shall
select from the list provided by the American Arbitration Association the
person who shall act as the arbitrator.
(c) Burden of Proof. For any Dispute submitted to arbitration, the
burden of proof shall be as it would be if the Dispute were litigated in a
Texas judicial proceeding.
(d) Payment of Costs. Axtive and the Target Principal Shareholder
shall each pay 50% of the initial compensation to be paid to the arbitrator
in any such arbitration and 50% of the costs of transcripts and other
normal and regular expenses of the arbitration proceedings; provided,
however, that the prevailing party in any arbitration shall be entitled to
an award of attorneys' fees and costs, and all costs of arbitration,
including those provided for above, shall be paid by the non-prevailing
party, and the arbitrator shall be authorized to make such determinations.
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(e) Award. Upon the conclusion of any arbitration proceedings
hereunder, the arbitrator shall render findings of fact and conclusions of
law and a written opinion setting forth the basis and reasons for any
decision reached and shall deliver such documents to each party to this
Agreement along with a signed copy of the award. The arbitrator shall have
the authority to grant any equitable and legal remedies that would be
available in any judicial proceeding instituted to resolve a Dispute;
provided, however, the arbitrator shall not have the authority to add to,
detract from, or modify any provision hereof nor to award punitive damages
to any injured party. Subject to Section 10.14(d), the arbitrator shall
have the authority to order payment of damages, reimbursement of costs,
including those incurred to enforce this Agreement, and payment of interest
thereon to the prevailing party. A decision by the arbitrator shall be
final and binding.
(f) Judgment on Award. Any judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction over the subject
matter thereof.
(g) Exclusive Remedy. Except as specifically otherwise provided in
this Agreement, arbitration shall be the sole and exclusive remedy of the
parties for any Dispute arising out of this Agreement.
10.15 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument. Facsimile
transmission of any signed original document or retransmission of any signed
facsimile transmission shall be deemed the same as delivery of an original. At
the request of any party, the parties will confirm facsimile transmission by
signing a duplicate original document.
[Remainder of page intentionally left blank.]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
AXTIVE CORPORATION.
By: /s/ Xxxxx X. Xxxxxxx
-------------------------------------------------
Xxxxx X. Xxxxxxx, Executive Vice President and
Chief Financial Officer
AXTIVE ACQUISITION CORP.
By: /s/ Xxxxx X. Xxxxxxx
-------------------------------------------------
Xxxxx X. Xxxxxxx, Vice President and Secretary
THINKSPARK CORPORATION
By: /s/ Xxxxxxx X. Xxxxxxxx
-------------------------------------------------
Xxxxxxx X. Xxxxxxxx, President and Chief
Executive Officer
TARGET PRINCIPAL SHAREHOLDER:
/s/ Xxxxx Xxxxxxx
----------------------------------------------------
Xxxxx Xxxxxxx, Individually
LIST OF OMITTED SCHEDULES
The schedules to the foregoing Agreement and Plan of Merger listed below
have been omitted. Axtive Corporation agrees supplementally to furnish a copy of
any omitted schedule to the Securities and Exchange Commission upon request.
Document Description
Schedule 3.1 - Merger Consideration
Schedule 5.1 - Organization and Good Standing
Schedule 5.4 - Subsidiaries
Schedule 5.5 - Required Consents
Schedule 5.6 - Litigation; Legal Impediments
Schedule 5.7 - Financial Statements; Books and Records
Schedule 5.8 - Liabilities and Obligations
Schedule 5.9 - Accounts and Notes Receivable
Schedule 5.10 - Assets
Schedule 5.11 - Agreements and Commitments
Schedule 5.12 - Customers and Suppliers
Schedule 5.13(b) - Intellectual Property: List
Schedule 5.13(c) - Intellectual Property: Infringement
Schedule 5.14 - Compliance with Laws
Schedule 5.16(a) - Employees: Employment Agreements
Schedule 5.16(b) - Employees: Collective Bargaining
Schedule 5.16(c) - Employees: Benefit Plans
Schedule 5.16(e) - Employees: Executive Parachutes
Schedule 5.16(f) - Employees: Employee Compensation
Schedule 5.16(g) - Employees: Benefit Plan Contributions
Schedule 5.17 - Tax Matters
Schedule 5.18 - Insurance
Schedule 5.20 - Absence of Certain Changes
Schedule 5.20(j) - Changes of Management Personnel
Schedule 5.22 - Certain Transactions and Agreements
Schedule 5.24 - Bank Accounts and Powers of Attorney
Schedule 7.3 - Repayment of Related Party Indebtedness
Schedule 7.6 - Employment Agreements
