EXHIBIT 2.1
-----------
EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
BRIDGELINE SOFTWARE, INC.,
PURPLE MONKEY STUDIOS, INC.,
XXXXXXX XXXXXXXXX
AND
XXXXXX XXXXXXXX
AUGUST 31, 2007
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (the "AGREEMENT") is made as of this 31st
day of August, 2007 by and among Bridgeline Software, Inc., a Delaware
corporation, with a principal place of business at 00 Xxxxx Xxxx, Xxxxxx,
Xxxxxxxxxxxxx 00000 ("BRIDGELINE"), Purple Monkey Studios, Inc. (the "SELLER"),
an Illinois corporation, with a principal place of business at 000 Xxxxx Xxxxxx
Xxxxxx, Xxx Xxxx, Xxxxxxxx 00000, and Xxxxxxx Xxxxxxxxx and Xxxxxx Xxxxxxxx
(together, the "SHAREHOLDERS").
RECITALS
WHEREAS, the Shareholders own 100% of the issued and outstanding shares of
the capital stock of Seller (the "SHARES");
WHEREAS, the Boards of Directors of each of Bridgeline and Seller have, in
accordance with the laws of the State of Delaware and the State of Illinois,
respectively, approved the merger of Seller with and into Bridgeline, pursuant
to which all of the Shares will be converted into common stock of Bridgeline,
$0.001 par value per share (the "BRIDGELINE COMMON STOCK") and Seller will merge
with and into Bridgeline, with Bridgeline being the surviving corporation;
WHEREAS, it is the intention of the parties that the merger shall qualify
as a reorganization within the meaning of Section 368(a)(1)(A) of the Internal
Revenue Code of 1986, as amended (the "CODE") and that this Agreement shall
constitute a "plan of reorganization" for the purposes of Section 368 of the
Code; and
WHEREAS, each of the parties to the Agreement desires to make certain
representations, warranties, and agreements in connection with the transaction
between the parties and to prescribe various conditions thereto.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, and for other good and valuable consideration, the receipt,
adequacy and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
THE MERGER
1.1. THE MERGER. Subject to and upon the terms and conditions of this
Agreement, at the effective time of the merger of the Seller with and into
Bridgeline, and pursuant to the Delaware General Corporation Law ("DGCL") and
the Illinois Business Corporation Act ("IBCA"), the Seller will be merged with
and into Bridgeline (the "MERGER") and the separate existence of the Seller
shall thereupon cease, in accordance with the applicable provisions of the DGCL
and the IBCA. As a result of the Merger, Bridgeline will be the surviving
corporation
2
and shall survive as a going concern (sometimes referred to herein as the
"SURVIVING COMPANY" or "BRIDGELINE"). The Certificate of Incorporation and
By-laws of the Surviving Company shall be those of Bridgeline as they are in
existence immediately prior to the Merger. The separate corporate existence of
Seller with all its rights, privileges, powers, assets, liabilities, operations,
intellectual property, contract rights, employees, and franchises shall be
extinguished in the Merger. The name of the Surviving Company shall be
"Bridgeline Software, Inc." On the Closing Date (as such term is defined below),
the parties shall cause a Certificate of Merger, meeting the requirements of
Section 251 of the DGCL (the "CERTIFICATE OF MERGER") and Articles of Merger
meeting the requirements of Section 11.25 of the IBCA (the "ARTICLES OF MERGER"
and together with the Certificate of Merger, the "MERGER DOCUMENTS"), to be
promptly executed and filed with the Secretary of State of the State of Delaware
and the Secretary of State of the State of Illinois, respectively. The Merger
shall become effective (the "EFFECTIVE TIME") upon the close of business on the
date that the filing of the Certificate of Merger with the Secretary of State of
the State of Delaware and the Articles of Merger with the Secretary of State of
the State of Illinois has been completed or at such other time or date than may
otherwise be indicated in the Certificate of Merger and Articles of Merger.
1.2. CONVERSION OF SHARES; EXCHANGE PROCEDURES AND BOOT.
(a) By virtue of the Merger, automatically and without any action on the
part of the holder thereof, the Shares outstanding immediately prior to the
Effective Time (other than any shares held as treasury stock by the Seller,
which shall be cancelled, retired and cease to exist, and for which no payment
hereunder shall be made) shall become and be converted into (i) the right to
receive such number of shares of Bridgeline Common Stock as is equal to the
quotient obtained by dividing $1,905,000 by the Effective Price (as defined
below) (the "BRIDGELINE STOCK"); (ii) $495,000 in immediately available funds
(the "CASH CONSIDERATION"); (iii) the payment of or assumption by Bridgeline of
up to $210,000 of Seller's indebtedness evidenced by Seller's line of credit
with The Private Bank and Trust Company (the "GUARANTEED INDEBTEDNESS" and
together with the Bridgeline Stock and Cash Consideration, the "INITIAL MERGER
CONSIDERATION") on or before September 7, 2007, and (iv) the Earn-Out
Consideration (as defined below) (together with the Initial Merger
Consideration, the "MERGER CONSIDERATION"). The Initial Merger Consideration
shall be subject to adjustment as set forth in Section 1.2(b). The term
"EFFECTIVE PRICE" shall mean the average closing price for Bridgeline Common
Stock as reflected on the Nasdaq Capital Market for the ten (10) trading days
ending on the date which is two trading days prior to the Closing Date.
(b) Following the final determination of the Seller Net Working Capital (as
defined below) in accordance with Section 1.3, if the Seller Net Working Capital
is less than $380,000 (the "TARGET AMOUNT"), the aggregate dollar value of the
Initial Merger Consideration shall be decreased by the amount by which the
Seller Net Working Capital is less than the Target Amount, dollar for dollar. If
the Seller Net Working Capital exceeds the Target Amount, the aggregate value of
the Initial Merger Consideration shall be increased by the amount by which the
Seller Net Working Capital exceeds the Target Amount, dollar for dollar. "SELLER
NET WORKING CAPITAL" shall mean, as of the close of business on the last
business day preceding the Closing Date, the dollar value of the difference
between (x) the sum of accounts receivables of Seller, notes receivables of
customers of Seller and cash of Seller in an amount at least equal to
3
$50,000 and (y) accounts payable of Seller and accrued expenses of Seller
(excluding deferred revenue and corporate income tax liabilities of Seller
(which are to be paid by Seller prior to Closing) and the Guaranteed
Indebtedness). The Seller Net Working Capital shall be calculated using the same
methodology in which the Target Amount was calculated. Any adjustment to the
aggregate dollar value of the Initial Merger Consideration shall be pro rated
between the Bridgeline Stock and Cash Consideration.
(c) The Seller and the Shareholders shall cause to be delivered to
Bridgeline on the Closing Date the certificates representing all of the Shares
of Seller issued and outstanding immediately prior to the Closing, as evidenced
by the stock ledger and stock transfer records of the Seller (collectively, the
"SELLER CERTIFICATES"), and stock powers separate from the certificates
transferring ownership to Bridgeline. Upon surrender of the Seller Certificates
for exchange and cancellation to Bridgeline together with the stock powers, the
Shareholders shall receive certificates representing the Bridgeline Stock.
(d) No dividend or other distribution payable after the Closing with
respect to Bridgeline Stock shall be paid to the holder of any unsurrendered
Seller Certificate until the holder thereof surrenders such Seller Certificate,
at which time such holder shall receive all dividends and distributions, without
interest thereon, previously payable but withheld from such holder pursuant
hereto.
(e) After the Closing, the holder of shares of the capital stock of the
Seller shall cease to be, and shall have no rights as, a stockholder of the
Seller, other than to receive the Merger Consideration pursuant to the
provisions hereof.
(f) Notwithstanding the foregoing, neither Bridgeline nor the Seller or any
other person shall be liable to any former holder of shares of any capital stock
of the Seller for any shares or any dividends or distributions with respect
thereto properly delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws.
(g) In the event any Seller Certificates shall have been lost, stolen or
destroyed, upon receipt of an affidavit of lost stock certificate as to such
loss, theft or destruction and to the ownership of such certificate by the
person claiming such certificate to be lost, stolen or destroyed, and the
receipt by Bridgeline of appropriate indemnification, Bridgeline will cause to
be delivered in exchange for such lost, stolen or destroyed certificate the
shares of Bridgeline Stock deliverable in respect thereof.
(h) If any certificate representing shares of Bridgeline Stock is to be
issued in a name other than the name in which the Seller Certificates have been
surrendered and exchanged, it shall be a condition of the issuance thereof that
the certificate(s) so surrendered shall be properly endorsed (or accompanied by
an appropriate instrument of transfer) and otherwise in proper form for transfer
(including, but not limited to, that the signature of the transferor shall be
properly guaranteed by a commercial bank, trust company, member firm of a
national or regional securities exchange or other eligible guarantor
institution), and that the person requesting such exchange shall pay to
Bridgeline in advance any transfer or other taxes
4
required by reason of the issuance of certificate(s) representing shares of
Bridgeline Stock in any name other than that of the registered holder of the
Seller certificate(s) representing the Shares surrendered, or required for any
other reason, or shall establish to the satisfaction of Bridgeline that such tax
has been paid or is not payable.
1.3. DETERMINATION OF SELLER NET WORKING CAPITAL,
(a) The Shareholders shall deliver to Bridgeline, within thirty (30) days
following the Closing Date, the Shareholders' determination of the amount of the
Seller Net Working Capital (the "SELLER NET WORKING CAPITAL NOTICE"). Bridgeline
shall have fourteen (14) days from the date of receipt of the Seller Net Working
Capital Notice to either (i) accept the calculations and conclusions made in the
Seller Net Working Capital Notice or (ii) give notice to the Shareholders in
writing that Bridgeline intends to dispute the amounts included in the Seller
Net Working Capital Notice, and such notice shall set forth in reasonable detail
the disputed amount and the basis for such dispute. Any such dispute by
Bridgeline must be reasonable and made in good faith. If Bridgeline accepts the
amount of the Seller Net Working Capital set forth in the Seller Net Working
Capital Notice, the adjustments set forth in Section 1.2(b) shall occur no later
than five (5) days following acceptance of such computation.
(b) If Bridgeline notifies the Shareholders that it intends to dispute the
amounts included in the Seller Net Working Capital Notice in accordance with
Section 1.3(a) above, then Bridgeline and the Shareholders shall negotiate in
good faith to resolve the dispute. If Bridgeline and the Shareholders are unable
to reach a resolution within ten (10) business days after receipt by the
Shareholders of Bridgeline's written notice of dispute, then Bridgeline and the
Shareholders shall submit the matter to a mutually acceptable independent public
accounting firm registered with the Public Company Accounting Oversight Board
(PCAOB) (the "INDEPENDENT ACCOUNTING FIRM"), which shall, within thirty (30)
calendar days after such submission, determine the amount of the Seller Net
Working Capital. The determination of the amount of the Seller Net Working
Capital by the Independent Accounting Firm shall be final, non-appealable and
binding on the parties.
(c) In the event that the Independent Accounting Firm determines that the
amount of the Seller Net Working Capital stated by the Shareholders in the
Seller Net Working Capital Notice is accurate and correct in all material
respects, then Bridgeline shall pay all reasonable costs and expenses charged by
the Independent Accounting Firm; otherwise, such reasonable costs and expenses
shall be paid by the Shareholders. The adjustments set forth in Section 1.2(b)
shall occur no later than five (5) days following the Independent Accounting
Firm's determination of the amount of the Seller Net Working Capital.
5
1.4. EARN-OUT CONSIDERATION.
(a) The Shareholders shall be entitled to earn additional consideration
(the "EARN-OUT") during the Complete Earn-Out Period (as defined below), in an
amount, up to $900,000 in the aggregate, payable in cash in accordance with the
terms of this Section 1.4 (the "EARN-OUT CONSIDERATION").
(b) The followings terms shall have the following meanings for purposes of
this Agreement:
"CHICAGO BUSINESS UNIT" shall mean the division of Bridgeline in Chicago,
Illinois following the Merger (formerly the Seller).
"COMPLETE EARN-OUT PERIOD" shall mean the Initial Earn-Out Period and the
Secondary Earn-Out Period (as defined below), if any, for a total of up to
sixteen (16) full calendar quarters following the Closing Date.
"EARN-OUT AMOUNT" shall mean the amount to be paid to Shareholders
following an Earn-Out Period or Additional Earn-Out Period, as the case may be,
as calculated in accordance with this Section 1.4.
"INITIAL EARN-OUT PERIOD" shall mean the period beginning on the Closing
Date (as defined below) and continuing for the twelve (12) calendar quarters
immediately following the Closing (each calendar quarter, an "EARN-OUT PERIOD"),
with the first Earn-Out Period to include the first full calendar quarter
following the Closing Date plus the period between the Closing Date and the
first day of such calendar quarter.
"POST-MERGER EBITDA" shall mean the sum of (a) net income of the Seller
Business (as defined below) earned during an Earn-Out Period or Additional
Earn-Out Period, as the case may be, and (b) interest expenses, taxes,
depreciation and amortization of the Seller Business during such Earn-Out Period
or Additional Earn-Out Period, exclusive of any corporate overhead allocation or
corporate marketing allocation, each as determined in accordance with generally
accepted accounting principals consistently applied ("GAAP").
"SECONDARY EARN-OUT PERIOD" shall mean the period beginning on the first
day of the first full calendar quarter following the Initial Earn-Out Period and
continuing for the four (4) calendar quarters immediately following the Initial
Earn-Out Period (each such calendar quarter, an "ADDITIONAL EARN-OUT PERIOD").
"SELLER BUSINESS" shall mean the business and operations (which include
revenues generated from the sale and licensing of software solutions, web
application development and hosting services in any state) associated
exclusively with the operations of the Chicago Business Unit following the
completion of the Merger independent of the remaining business and operations of
Bridgeline.
6
(c) The Earn-Out shall be paid as follows: if the Post-Merger EBITDA of an
Earn-Out Period is at least equal to $85,000, each Shareholder shall receive a
cash payment equal to $37,500.
(d) Within forty-five (45) calendar days after the end of each calendar
quarter (i.e., the three (3) months ended March 31, June 30, September 30 and
December 31 of each relevant calendar year) or portion thereof that is included
within an Earn-Out Period, Bridgeline shall prepare an income statement
reflecting the Seller Business calculated in accordance with GAAP for such
Earn-Out Period or Additional Earn-Out Period, as the case may be, and a related
calculation of Post-Merger EBITDA for such Earn-Out Period or Additional
Earn-Out Period, such calculation of Post-Merger EBITDA to reflect as closely as
reasonably possible the Post-Merger EBITDA that would have been achieved by the
Seller during such Earn-Out Period or Additional Earn-Out Period, if the Merger
had not occurred (each such income statement and Post-Merger EBITDA calculation
are collectively referred to herein as the "INCOME STATEMENT"). Bridgeline shall
provide to the Shareholders a preliminary draft of the Income Statement within
thirty (30) days after the end of each calendar quarter. For purposes of
computing the Post-Merger EBITDA of the Seller Business, the following rules
shall apply: (i) there shall be no (A) allocations of any Bridgeline costs,
expenses or other financial items charged to the Chicago Business Unit except to
the extent directly incurred by the Seller Business or (B) compensation charge
to the Chicago Business Unit for issuance of stock options (regardless of
whether required by GAAP) and (ii) without the prior written consent of each
Shareholder (which shall not be unreasonably withheld, conditioned or delayed)
there shall be no (A) incurrence by Bridgeline of reimbursable expenditures on
behalf of the Chicago Business Unit, (B) charge-offs against the Chicago
Business Unit (other than charge-offs required by GAAP), or (C) other accounting
adjustments with respect to the Seller Business by Bridgeline that adversely
affect the Earn-Out or Additional Earn-Out, as the case may be (except as
required to be made in accordance with GAAP). Promptly following Bridgeline's
determination of such Post-Merger EBITDA for an Earn-Out Period or Additional
Earn-Out Period, Bridgeline shall deliver the Income Statement to each
Shareholder, which shall include a statement of the total amount owed to each
Shareholder, if any, based on the calculation set forth above (each Income
Statement and each such accompanying statement of the Earn-Out Amount, if any,
are collectively referred to herein as the "EARN-OUT NOTICE").
(e) The Shareholders shall have fourteen (14) days from the date of receipt
of an Earn-Out Notice to either (i) accept the calculations and conclusions made
in the Earn-Out Notice or (ii) give notice to Bridgeline in writing that the
Shareholders intend to dispute the amounts included in the Earn-Out Notice, and
such notice shall set forth in reasonable detail the disputed amount and the
basis for such dispute. Any such dispute by the Shareholders must be reasonable
and made in good faith.
(f) If, within the fourteen (14) day period provided for in Section 1.4(e),
the Shareholders either affirmatively notify Bridgeline that they accept the
calculations and conclusions made in the Earn-Out Notice or do not otherwise
give notice to Bridgeline in writing that they intend to dispute the amounts
included in the Earn-Out Notice, then within five (5) business days following
the expiration of such fourteen (14) day period provided for in Section 1.4(e)
or, if earlier, the date of Bridgeline's receipt of such affirmative notice of
the
7
Shareholders' acceptance of the calculations and conclusions made in the
Earn-Out Notice, Bridgeline shall pay to each Shareholder the Earn-Out Amount.
(g) (i) If the Shareholders notify Bridgeline that they intend to dispute
the amounts included in the Earn-Out Notice in accordance with Section
1.4(e)(ii) above, then Bridgeline and the Shareholders shall negotiate in good
faith to resolve the dispute. If Bridgeline and the Shareholders are unable to
reach a resolution within ten (10) business days after receipt by Bridgeline of
the Shareholders' written notice of dispute, then Bridgeline and the
Shareholders shall submit the matter to an Independent Accounting Firm, which
shall, within thirty (30) calendar days after such submission, determine the
Earn-Out Amount, if any. The determination of the Earn-Out Amount by the
Independent Accounting Firm shall be final, non-appealable and binding on the
parties.
(ii) In the event that the Independent Accounting Firm determines that the
Earn-Out Amount stated by Bridgeline under Section 1.4(d) is accurate and
correct in all material respects, then (A) the Shareholders shall pay all
reasonable costs and expenses charged by the Independent Accounting Firm (the
"EARN-OUT IAF FEE") and (B) if an Earn-Out Amount is due under such Earn-Out
Notice, within five (5) business days of the parties' receipt of such report by
the Independent Accounting Firm, Bridgeline shall pay such Earn-Out Amount to
each Shareholder (which payment may be in an amount net of the Earn-Out IAF Fee
otherwise due from the Shareholders to the Independent Accounting Firm, if
Bridgeline chooses in its sole discretion to pay directly to the Independent
Accounting Firm the Earn-Out IAF Fee due from the Shareholders).
(iii) In the event that the Independent Accounting Firm determines that
Bridgeline's calculations and conclusions made in the Earn-Out Notice are
inaccurate or misstated such that the Earn-Out Notice includes no Earn-Out
Amount, then (A) Bridgeline shall pay the Earn-Out IAF Fee and (B) within five
(5) business days of the parties' receipt of such report by the Independent
Accounting Firm, Bridgeline shall pay to each Shareholder the Earn-Out Amount
determined by the Independent Accounting Firm.
(h) Each of the Earn-Out and Additional Earn-Out is computed on a
quarter-by-quarter basis and is not cumulative.
(i) In the event that the Shareholders have not earned the Earn-Out Amount
for any individual Earn-Out Period (a "DEFICIENT PERIOD") and the Chicago
Business Unit has generated at least a cumulative aggregate Post-Merger EBITDA
of at least $450,000 during the previous twelve (12) calendar quarters, then the
Shareholders shall be entitled to earn additional consideration (the "ADDITIONAL
EARN-OUT"), in an amount equal to the Earn-Out Amount in the aggregate with
respect to each Deficient Period during the Secondary Earn-Out Period, payable
in cash in accordance with the terms of this Section 1.4(i). The Additional
Earn-Out shall be paid as follows: to the extent that the Post-Merger EBITDA for
each applicable Additional Earn-Out Period is at least equal to $85,000, each
Shareholder shall receive the Earn-Out Amount for each applicable Deficient
Period.
8
(j) In the event of (x) a sale of the Seller Business by any means, (y) the
consolidation of the Seller Business with or into any other existing or future
business unit or affiliate of Bridgeline or (z) any other recapitalization,
reorganization or other event, in each case the consequences of which are that
the operation of the Seller Business are no longer able to be clearly separated
from those of the other businesses or business units of Bridgeline, then the
provisions of this Section 1.4 shall be modified in good faith, and shall be
binding on any purchaser or successor of Bridgeline or the Seller Business, to
provide that each Shareholder shall receive the Earn-Out Amount for the
remaining Earn-Out Periods, as they become otherwise payable.
1.5. TAX-FREE REORGANIZATION. It is the intention of the parties hereto
that the Merger shall qualify as a "reorganization" within the meaning of
Section 368(a) of the Code and that this Agreement shall constitute a "plan of
reorganization" for the purposes of Section 368 of the Code. All aspects of the
transactions contemplated by this Agreement shall be implemented in a manner
consistent with this intent.
1.6. CLOSING. The closing (the "CLOSING") of the transactions contemplated
by this Agreement shall take place at 10:00 a.m. Central time, on a date to be
specified by Bridgeline and Seller (the "CLOSING DATE"), at the offices of Much
Shelist, Xxxxxxxxx Xxxxx & Xxxxxxxxxx, P.C., 000 X. Xxxxxx Xxxxx, Xxxxx 0000,
Xxxxxxx, XX 00000. The Closing may take place by mail, facsimile (with originals
to follow) or overnight delivery. The Closing shall become effective as of the
Effective Time.
1.7 AGREEMENTS REGARDING STOCK OPTIONS. In connection with the Closing, all
outstanding options to acquire Seller common stock (the "SELLER OPTIONS") shall
be terminated. Each holder of Seller Options (individually, a "SELLER
OPTIONHOLDER" and collectively, the "SELLER OPTIONHOLDERS") shall receive
incentive stock options to purchase the number of shares of Bridgeline Common
Stock set forth opposite each Seller Optionholder's name on Exhibit 1.7 to this
Agreement. Such options shall have an exercise price equal to the closing price
of the Bridgeline Common Stock as of the date of grant and shall be vested in
full.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER AND THE SHAREHOLDERS
In order to induce Bridgeline to enter into this transaction, the Seller
and the Shareholders represent and warrant to Bridgeline that, except as set
forth in the disclosure schedules of Seller (the "DISCLOSURE SCHEDULES"), the
statements made in this Article II are true and correct as of the date hereof,
except to the extent such representations and warranties are specifically made
as of a particular date (in which case such representations and warranties will
be true and correct as of such date). The Disclosure Schedule will be arranged
in paragraphs corresponding to the numbered and lettered sections contained in
this Article II and the disclosure in any paragraph shall qualify other sections
in this Article II to the extent that it is apparent from a reading of such
disclosure that it also qualifies or applies to such other sections. Whenever in
this Article
9
II the term "to the knowledge of the Seller" is used, it shall mean the
knowledge of Xxxxxxx Xxxxxxxxx and Xxxxxx Xxxxxxxx.
2.1. ORGANIZATION AND CORPORATE POWER. Seller is a corporation duly
organized, validly existing and in corporate good standing under the laws of the
State of Illinois and has the power and authority to carry on its business as
presently conducted. Seller is not duly qualified to do business as a foreign
corporation in any state and there is no jurisdiction wherein the character of
its property, or the nature of the activities presently conducted by it, makes
such qualification necessary, except where the failure to be so qualified will
not have a Material Adverse Effect on the Seller. For purposes of this
Agreement, the term "MATERIAL ADVERSE EFFECT", when used with respect to any
party to this Agreement, means a material adverse effect upon the results of
operations, financial condition, assets, liabilities, intellectual property,
tangible properties or business of such entity, taken as a whole.
2.2. AUTHORIZATION. Seller has the right, power and legal capacity and has
taken all necessary legal director and shareholder action required for the due
and valid authorization, execution, delivery and performance by Seller of this
Agreement and any other agreement or instrument executed by Seller in connection
herewith (collectively, the "TRANSACTION DOCUMENTS") and the consummation of the
transactions contemplated herein or therein. This Agreement is, and to the
extent that Seller is a party thereto, each of the Transaction Documents is, a
valid and binding obligation of Seller enforceable in accordance with its
respective terms, except to the extent that such enforcement may be subject to
applicable bankruptcy, reorganization, insolvency, fraudulent conveyance or
other laws affecting creditors' rights generally and to the application of
general equitable principles.
2.3. NO CONFLICTS. Except as set forth on the Disclosure Schedules, the
execution, delivery and performance of this Agreement and the Transaction
Documents, and the consummation of the transactions contemplated hereby and
thereby by Seller, and compliance with the provisions hereof, do not and will
not: (a) violate, conflict with or result in a breach of any provision or
constitute a default under (i) the Articles of Incorporation or By-laws of
Seller (the "SELLER CHARTER DOCUMENTS"), or (ii) any contract or agreement to
which Seller is a party or to which the assets or business of Seller may be
subject, except where such violation would not have a Material Adverse Effect on
Seller; or (b) violate any judgment, ruling, order, writ, injunction, award,
decree, statute, law, ordinance, code, rule or regulation of any court or
foreign, federal, state, county or local government or any other governmental,
regulatory or administrative agency or authority which is applicable to the
assets, properties or business of Seller, except where such violation would not
have a Material Adverse Effect on Seller.
2.4. GOVERNMENT APPROVALS. Except for filing with and acceptance by the
Delaware Secretary of State and Illinois Secretary of State of applicable merger
certificates, no consent, approval, license, order or authorization of, or
registration, qualification, declaration, designation, or filing (each a
"CONSENT") with any court, arbitral tribunal, administrative agency or
commission or other governmental or regulatory agency (each a "GOVERNMENTAL
ENTITY"), is or will be required on the part of the Seller in connection with
the execution, delivery and performance of this Agreement, the other Transaction
Documents and any other agreements or
10
instruments executed by Seller in connection herewith or therewith, the failure
of which would have a Material Adverse Effect on Seller.
2.5. AUTHORIZED AND OUTSTANDING EQUITY INTERESTS. The Disclosure Schedule
sets forth the issued and outstanding capital stock of Seller, all of which is
held by the Shareholders and is validly issued and outstanding, and all options
and warrants to acquire capital stock of Seller. Such equity interests are all
of the issued and outstanding equity interests, actual or contingent, in Seller
and are validly issued and free from any restrictions on transfer, except for
restrictions imposed by federal or state securities laws. Except as set forth in
the Seller Charter Documents, there are no voting agreements, voting trusts,
registration rights, rights of first refusal, preemptive rights, buy-sell
agreements, co-sale rights, or other restrictions applicable to any capital
stock or equity interests in Seller. All of the issued and outstanding capital
stock in Seller was issued in transactions complying with or exempt from the
registration requirements of the Securities Act of 1933, as amended (the
"SECURITIES ACT") and any applicable state "blue sky" laws. Any equity interests
in Seller that consist of contractual or so-called "phantom" equity interests
are separately identified on the Disclosure Schedule, and all of such interests
have been effectively terminated prior to the Closing without any direct or
indirect payment by Seller in respect thereof.
2.6. SUBSIDIARIES. Seller does not have, and at no time during its
existence has it had, any subsidiaries. Except as set forth on the Disclosure
Schedule, Seller does not have any investment or other interest in, or any
outstanding loan or advance to or from, any person or entity, including, without
limitation, any officer, director or shareholder.
2.7. FINANCIAL INFORMATION. Seller has previously delivered to Bridgeline
the unaudited balance sheets of Seller as of December 31, 2005 and December 31,
2006 and the profit and loss statements for the years then ended (collectively,
the "ANNUAL SELLER FINANCIAL STATEMENTS"). In addition, Seller has previously
delivered to Bridgeline the unaudited balance sheet of Seller at July 31, 2007,
and the related statements of earnings and cash flows for the seven months then
ended ( the "INTERIM SELLER FINANCIAL STATEMENTS"). The Annual and Interim
Seller Financial Statements present fairly, in all material respects, the
financial condition and results of operations of Seller as of and for the
relevant periods recorded under unaudited cash basis accounting applied on a
basis consistent with prior periods. Except as set forth on the Disclosure
Schedule, Seller has no liability, contingent or otherwise, which is not
adequately reflected in or reserved against in the Annual or Interim Seller
Financial Statements that is reasonably likely to materially and adversely
affect the financial condition of Seller. Except as set forth in the Interim
Seller Financial Statements or on the Disclosure Schedule, since July 31, 2007
(the "BALANCE SHEET Date"), (i) there has been no change in the business,
property, assets, liabilities, condition (financial or otherwise), operations,
results of operations or affairs of Seller except for changes in the ordinary
course of business which, in the aggregate, would not have a Material Adverse
Effect, and (ii) none of the business, property, assets, liabilities, condition
(financial or otherwise), operations, results of operations or affairs of Seller
have been materially adversely affected by any occurrence or development, in the
aggregate, whether or not insured against. Seller is solvent and the Pre-Merger
EBITDA (as defined below) of Seller is at least equal to $50,000. "PRE-MERGER
EBITDA" shall mean net income increased by interest expense, taxes, depreciation
and amortization on a cash basis. Seller's projections that were provided to
11
Bridgeline were made in good faith and neither Seller nor the Shareholders have
any knowledge that such projections are materially false or misleading.
2.8. EVENTS SUBSEQUENT TO THE DATE OF THE FINANCIAL STATEMENTS. Except as
set forth on the Disclosure Schedule, or in the Seller Financial Statements,
since the Balance Sheet Date, Seller has not, in excess of $5,000 (i) issued any
equity interest, (ii) borrowed any amount or incurred or become subject to any
material liability (absolute, accrued or contingent), except liabilities under
contracts entered into in the ordinary course of business, (iii) discharged or
satisfied any lien or encumbrance or incurred or paid any obligation or
liability (absolute, accrued or contingent) other than current liabilities shown
on the Seller Financial Statements and incurred in the ordinary course of
business, (iv) declared or made any payment, other than ordinary payments of
compensation in amounts consistent with the historic levels, or distribution to
shareholders or purchased or redeemed any Shares or other equity interests,
except for the exercise of stock options or similar rights, (v) mortgaged,
pledged or subjected to lien any of its assets, tangible or intangible, other
than liens of current real property taxes not yet due and payable or such
liabilities or obligations which would not have a Material Adverse Effect on
Seller, (vi) sold, assigned or transferred any of its tangible assets except in
the ordinary course of business, or canceled any material debt or claim, except
in the ordinary course of business, in an individual amount in excess of $2,500,
or $7,500 in the aggregate, (vii) sold, assigned, transferred or granted any
license with respect to any patent, trademark, trade name, service xxxx,
copyright, trade secret or other intangible asset, except pursuant to license or
other agreements entered into in the ordinary course of business, in an
individual amount in excess of $2,500, or $7,500 in the aggregate, (viii)
suffered any material loss of property or knowingly waived any right of
substantial value whether or not in the ordinary course of business, (ix) made
any change in officer compensation, (x) made any material change in the manner
of business or operations of Seller, (xi) entered into any transaction except in
the ordinary course of business or as otherwise contemplated hereby, or (xii)
entered into any commitment (contingent or otherwise) to do any of the
foregoing.
2.9. LITIGATION. Except as otherwise set forth on the Disclosure Schedule,
there is no litigation or governmental proceeding or investigation, pending or,
to Seller's or the Shareholders' knowledge, threatened, against Seller or
affecting any of Seller's properties or assets, or against any director,
officer, key employee, present or former shareholder of Seller in his capacity
as such, nor to Seller's or the Shareholders' knowledge has there occurred any
event or does there exist any condition on the basis of which any litigation,
proceeding or investigation might properly be instituted. Except as set forth on
the Disclosure Schedule, each incident or proceeding described on the Disclosure
Schedule is fully covered by insurance except to the extent of applicable
insurance deductibles. To Seller's or the Shareholders' knowledge, Seller is not
in default with respect to any order, writ, injunction, decree, ruling or
decision of any court, commission, board or other government agency, except for
such order, writ, injunction, decree, ruling or decision which would not have a
Material Adverse Effect on Seller.
2.10. COMPLIANCE WITH LAWS AND OTHER INSTRUMENTS. Except as set forth on
the Disclosure Schedule, the Seller is in compliance with the Seller Charter
Documents, and in all material respects with the provisions of each mortgage,
indenture, lease, license, other agreement or instrument, judgment, decree,
judicial order, statute and regulation by which it is bound or to
12
which its properties are subject and where non-compliance would not have a
Material Adverse Effect on Seller.
2.11. TAXES.
(a) The term "TAXES" as used in this Agreement means all federal, state,
local, foreign net income, alternative or add-on minimum tax, estimated, gross
income, gross receipts, sales, use, ad valorem, value added, transfer,
franchise, capital profits, lease, service, license, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, property,
environmental or windfall profit taxes, customs, duties and other taxes,
governmental fees and other like assessments and charges of any kind whatsoever,
together with all interest, penalties, additions to tax and additional amounts
with respect thereto, and the term "TAX" means any one of the foregoing Taxes.
The term "TAX RETURNS" as used herein means all returns, declarations, reports,
claims for refund, information statements and other documents relating to Taxes,
including all schedules and attachments thereto, and including all amendments
thereof, and the term "Tax Return" means any one of the foregoing Tax Returns.
"TAX AUTHORITY" means any governmental authority responsible for the imposition
of any Tax.
(b) The Seller has timely filed all Tax Returns required to be filed by it
and has paid all Taxes owed (whether or not shown as due on such returns),
including, without limitation, all Taxes which the Seller is obligated to
withhold for amounts paid or owing to employees, creditors and third parties.
All Tax Returns filed by the Seller were complete and correct in all material
respects. Except as set forth on the Disclosure Schedule, none of the Tax
Returns filed by the Seller or Taxes payable by the Seller have been the subject
of an audit, action, suit, proceeding, claim, examination, deficiency or
assessment by any governmental authority, and no such audit, action, suit,
proceeding, claim, examination, deficiency or assessment is currently pending
or, to the knowledge of the Seller or the Shareholders, threatened. Except as
set forth on the Disclosure Schedule, the Seller is not currently the
beneficiary of any extension of time within which to file any Tax Return, and
the Seller has not waived any statute of limitation with respect to any Tax or
agreed to any extension of time with respect to a Tax assessment or deficiency.
All material elections with respect to Taxes with respect to the Seller, as of
the Closing Date, are set forth in the Seller Financial Statements or in the
Disclosure Schedule.
(c) To the Seller's and the Shareholders' knowledge, no circumstances exist
or have existed which would constitute grounds for assessment against the Seller
of any tax liability with respect to any period for which Tax Returns have been
filed, including, but not limited to, any circumstances relating to the
existence of a valid subchapter S corporation election for the Seller for any
such period. The Seller's election to be taxed as a subchapter S corporation
under Section 1361 of the Code has been in effect throughout the existence of
the Seller and, accordingly, the Seller has never been subject to any federal
income tax by reason of being a "C Corporation" ( as that term is defined in the
Code). No shareholder is a nonresident alien for purposes of U.S. income
taxation, including for purposes of Section 897 of the Code.
13
(d) Neither the Seller nor any Shareholder is a party to any Tax sharing
agreement or similar arrangement. The Seller has never been a member of a group
filing a consolidated federal income Tax Return (other than a group the common
parent of which was the Seller), and neither the Seller nor any Shareholder has
any liability for the Taxes of any Person. "Person" shall mean an individual or
entity, including a partnership, limited liability company, corporation,
association, joint stock company, trust, joint venture, unincorporated
organization or Governmental Entity (or any department, agency, or political
subdivision thereof).
(e) There are no liens for Taxes upon any of the assets, other than for ad
valorem Taxes not yet due and payable. The unpaid Taxes of the Seller did not,
as of December 31, 2006, exceed by any material amount the reserve for actual
Taxes (as opposed to any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) as shown on the Annual Seller
Financial Statements, and will not exceed by any material amount such reserve as
adjusted for the passage of time through the Closing Date in accordance with the
past custom and practice of the Seller in filing its Tax Returns. The Seller has
not incurred any liability for Taxes from January 1, 2007 through the Closing
Date other than in the ordinary course of business consistent with past
practice. The Seller is not obligated to file any Tax Return in any jurisdiction
(whether foreign or domestic) other than those jurisdictions in which it
currently files Tax Returns.
(f) Each Plan (as defined in Section 2.20) that is a non-qualified deferred
compensation plan subject to Section 409A of the Code has been operated in good
faith compliance with Section 409A of the Code and IRS Notice 2005-1 since
January 1, 2005 and the Seller does not have, and does not expect to have any
future, Tax withholding obligation in respect of Section 409A under any Plan.
(g) The Seller is not a party to any agreement, contract, arrangement or plan
that has resulted or would result, separately or in the aggregate, in the
payment of (i) any "excess parachute payments" within the meaning of Section
280G of the Code (without regard to the exceptions set forth in Sections
280G(b)(4) and 280G(b)(5) of the Code).
(h) The Seller has not been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(1)(A)(2) of the Code.
2.12. REAL PROPERTY.
(a) The Disclosure Schedule sets forth the addresses and uses of all real
property that Seller owns, leases or subleases, and any lien or encumbrance on
any such owned real property or Seller's leasehold interest therein, specifying
in the case of each such lease or sublease, the name of the lessor or sublessor,
as the case may be, the lease term and the rental obligations of the lessee
thereunder.
14
(b) There are no defaults by Seller under any existing leases, subleases or
other contractual obligations pertaining to real property that Seller owns,
leases or subleases, and to the knowledge of Seller, by any other party, which
might curtail in any material respect the present use of Seller's property
listed on the Disclosure Schedule.
2.13. PERSONAL PROPERTY & CAPITAL EQUIPMENT. The Disclosure Schedule sets
forth a full and complete list of all personal property, including capital
equipment, owned or leased by Seller. Except as set forth on the Disclosure
Schedule, and except for property sold or otherwise disposed of in the ordinary
course of business, Seller has good and marketable title, free and clear of any
lien, charge, restriction or encumbrance, to all of such personal property. All
material items of such personal property used in the operation of the business
of Seller are in good operating condition, normal wear and tear accepted.
2.14. INTELLECTUAL PROPERTY.
(a) The "SELLER INTELLECTUAL PROPERTY" consists of all trade secrets,
copyrights, patents, trademarks, service marks, trade dress, all registrations
and applications with respect thereto and all licenses or rights under the same,
that are owned or used by the Seller and are necessary or incidental to the
operation of the business, including without limitation, any of the foregoing
embodied or contained in any of the following: net lists; domain names and URLs
and textual information contained in web sites; schematics; processes; customer
and supplier lists; know-how and show-how; computer software programs, source
code and object code; complete system build software; development and test
tools, documentation, specifications, programmer and user manuals used by the
Seller to install, operate, maintain, correct, test, repair enhance, extend,
modify, prepare derivative works based upon, design, develop, reproduce and
package software; all license and other rights in any third-party product,
intellectual property, proprietary or personal rights, documentation, or
tangible or intangible property; all documents, record and electronic files
relating to the design, end user documentation, manufacturing, quality control,
sales, marketing, or customer support; and all products of the Seller currently
being licensed or sold or that are currently being developed, including all
hardware products and tools, software products and tools, and services that are
currently licensed, offered or under development by the Seller (the "SELLER
PRODUCTS & SERVICES").
As used in this Agreement "software" means any and all current and prior
and currently under development versions and releases, and predecessors of the
software and computer programs and applications of the Seller to the extent
related to the business as currently being conducted or as currently required or
as reasonably can be anticipated to be conducted in the future, including all
such software and computer programs in machine readable source code forms and in
machine executable object code forms and all related specifications (including
all logic architectures, algorithms and logic flows and all physical,
functional, operating and design parameters), any data used by or related to
software, work in progress relating to corrections, modifications, revisions,
upgrades, translations or enhancements, all Seller and third party development
and test tools used to develop or test the software, third party application
program interfaces to the software written by them and all methods of
implementation and packaging, together with all associated know-how and show-how
and all related Documentation. As used in
15
this Agreement, "DOCUMENTATION" means all documentation, specifications, manuals
and other materials relating to the software, including programmer and user
manuals which are used by the Seller to install, operate, maintain, correct,
test, repair, enhance, extend, modify, prepare derivative works based upon,
design, develop, reproduce and package such software.
(b) The Disclosure Schedule lists: (i) all patents, copyright
registrations, mask works, trademarks, service marks, trade dress, any renewal
rights for any of the foregoing, and any applications and registrations for any
of the foregoing, which are included in the Seller Intellectual Property and
owned or licensed by or on behalf of the Seller and are necessary to its
business (except for standard off-the-shelf software such as Microsoft Office);
(ii) all Seller Products & Services; and (iii) all licenses, sublicenses and
other agreements to which the Seller is a party and pursuant to which the Seller
or any other person is authorized to use the Seller Intellectual Property or
exercise any other right with regard thereto. The Seller has delivered to
Bridgeline true and complete copies of the agreements described in (iii) hereof.
(c) The Seller Intellectual Property consists solely of items and rights
which are either: (i) owned by the Seller; (ii) in the public domain; or (iii)
rightfully used and authorized for use by the Seller and its successors pursuant
to a valid license. All Seller Intellectual Property which consists of licenses
or other rights to third party intellectual property is set forth on the
Disclosure Schedule. The Seller has all rights in the Seller Intellectual
Property necessary to commercially exploit the same in connection with the
Seller's current, former, and planned or scheduled (whether for release or
development) activities in all geographic locations and fields of use in which
the Seller currently operates or is scheduled to operate, and to sublicense any
or all such rights to third parties, including the right to grant further
sublicenses. All software created by the Seller is as described in the
Documentation and performs in all material respects in accordance with the
specifications included in the Documentation (subject to software errors or bugs
which do not interfere with the operation of the software). The Seller has taken
all reasonable measures to protect the proprietary nature of each item of Seller
Intellectual Property. No other person or entity has any rights to any of the
Seller Intellectual Property (except pursuant to agreements or licenses
specified on the Disclosure Schedule), and, to the knowledge of Seller, no other
person or entity is infringing, violating or misappropriating any of the Seller
Intellectual Property. The Seller owns or has the right to use all Intellectual
Property necessary (i) to use, market and distribute the products, marketed,
sold or licensed, and to provide the services provided, by the Seller to other
parties, or (ii) to operate the Seller's internal systems that are material to
the business or operations of the Seller, including, without limitation,
computer hardware systems, software applications and embedded systems (the
"SELLER INTERNAL SYSTEMS"). Each item of Seller Intellectual Property will be
owned or available for use by Bridgeline immediately following the Closing on
substantially identical terms and conditions as it was immediately prior to the
Closing, except for any changes that do not, either individually or on the
aggregate, have a Material Adverse Effect on Seller. Except as set forth on the
Disclosure Schedule, the Seller's software, to the Seller's knowledge, and the
Seller Internal Systems are free from significant defects or programming errors
which interfere with the operation and use of the software and Seller Internal
Systems and conform in all material respects to the written documentation and
specifications therefor.
16
(d) The Seller is not, nor as a result of the execution or delivery of this
Agreement, the other Transaction Documents and all other agreements contemplated
hereby, or performance of the Seller's obligations hereunder, will the Seller
be, in violation of any license, sublicense or other agreement to which the
Seller is a party. The Disclosure Schedule lists all contracts or agreements
under which the Seller is obligated to provide any consideration (whether
financial or otherwise) to any third party, or under which any third party
otherwise would be entitled to any consideration, with respect to any exercise
of rights by the Seller or Bridgeline in the Seller Intellectual Property. The
Disclosure Schedule identifies each item of Seller Intellectual Property that is
owned by a party other than the Seller, and the license or agreement pursuant to
which the Seller uses it (excluding off-the-shelf software programs licensed by
the Seller pursuant to "shrink wrap" or "click wrap" licenses, such exclusion
only extending to programs used by the Seller solely for non-revenue generating
administrative functions).
(e) Except as set forth on the Disclosure Schedule, the use, reproduction,
modification, distribution, licensing, sublicensing, sale or any other exercise
of rights by the Seller with respect to any of the Seller Products & Services
does not infringe any intellectual property right, right of privacy, or right in
personal data of any person or entity. No claims (i) challenging the validity,
effectiveness or ownership by the Seller of any of the Seller Intellectual
Property, or (ii) to the effect that the use, reproduction, modification,
manufacturing, distribution, licensing, sublicensing, sale or any other exercise
of rights by the Seller with respect to any of the Seller Products and Services
infringes or will infringe on any intellectual property or other proprietary or
personal right of any person, have been asserted to the Seller or, to the
knowledge of the Seller or the Shareholders, are threatened by any person, nor
to the knowledge of the Seller or the Shareholders, are there any valid grounds
for any bona fide claim of any such kind. All granted or issued patents and mask
works and all registered trademarks listed on the Disclosure Schedule and all
registered copyrights held by the Seller are valid, enforceable and subsisting.
To the knowledge of the Seller and the Shareholders, there are no pending or
unissued patent rights which infringe upon or impair the Seller Intellectual
Property. To the knowledge of the Seller and the Shareholders, there is no
unauthorized use, infringement or misappropriation of any of the Seller
Intellectual Property by any third party, employee or former employee.
(f) The Seller has not disclosed the source code for any of the software
owned by the Seller or other confidential information constituting, embodied in
or pertaining to the software to any person or entity, except pursuant to the
agreements listed on the Disclosure Schedule, and the Seller has taken
reasonable measures to prevent disclosure of such source code. No parties other
than the Seller possess any current or contingent rights to any source code that
is part of the Seller Intellectual Property.
(g) Except as set forth on the Disclosure Schedule, all of the
copyrightable materials (including software) incorporated in or bundled with the
Seller's Products & Services have been created by employees of the Seller within
the scope of their employment by the Seller or by independent contractors of the
Seller who have executed agreements expressly assigning all right, title and
interest in such copyrightable materials to the Seller. No portion of such
copyrightable materials was jointly developed with any third party. The
Disclosure Schedule
17
lists all parties who have created any portion of, or otherwise have any rights
in or to, the Seller Intellectual Property, other than employees of the Seller
who have no rights in or to any Seller Intellectual Property. Except as set
forth on the Disclosure Schedule, the Seller has secured from all parties who
have created any portion of, or otherwise have any rights in or to, the Seller
Intellectual Property valid and enforceable written assignments of any such work
or other rights to Seller and has delivered true and complete copies of such
assignments to Bridgeline.
(h) The Disclosure Schedule identifies each license or other agreement (or
type of license or other agreement) pursuant to which the Seller has licensed,
distributed or otherwise granted any rights to any third party with respect to,
any Seller Intellectual Property. The Disclosure Schedule includes a true and
complete list of support and maintenance agreements relating to Seller
Intellectual Property including the identity of the parties entitled to receive
such service or maintenance, and the term of such agreements.
(i) Except as set forth on the Disclosure Schedule, the Seller has obtained
written agreements from all employees and third parties with whom Seller has
shared confidential proprietary information (i) of the Seller, or (ii) received
from others which the Seller is obligated to treat as confidential, which
agreements require such employees and third parties to keep such information
confidential. The Seller has delivered or given access to all copies of such
written agreements, as executed, to Bridgeline. None of the present or former
employees, officers or directors of the Seller owns directly or indirectly, in
whole or in part, any Seller Intellectual Property or application therefor.
(j) To the knowledge of the Seller and the Shareholders, none of the Seller
Internal Systems, or the use thereof, infringes or violates, or constitutes a
misappropriation of, any Intellectual Property rights of any person or entity.
The Disclosure Schedule lists any complaint, claim or notice, or written threat
thereof, received by the Seller alleging any such infringement, violation or
misappropriation; and the Seller has delivered to Bridgeline complete and
accurate copies of all written documentation in the possession of the Seller
relating to any such complaint, claim, notice or threat. The Seller has
delivered to Bridgeline complete and accurate copies of all written
documentation in the Seller's possession relating to claims or disputes known to
the Seller concerning any Seller Intellectual Property.
2.15. AGREEMENTS OF DIRECTORS, OFFICERS, EMPLOYEES AND CONSULTANTS. Except
as set forth on the Disclosure Schedule, to Seller's knowledge, no current or
former officer or employee of or consultant to Seller is in violation of any
term of any employment contract, non-competition agreement, non-disclosure
agreement, patent disclosure or assignment agreement or other contract or
agreement containing restrictive covenants relating to the conduct of any such
current or former shareholder, officer, employee, or consultant or otherwise
relating to the use of trade secrets or proprietary information of others by any
such person. The Disclosure Schedule sets forth the name and address of each
person currently serving as an officer or a director of Seller, and each person
listed on the Disclosure Schedule was duly elected and is presently serving as
such officer or director. Set forth on the Disclosure Schedule is a list of all
current and former officers, directors, employees, and consultants of Seller.
Each current and former officer, employee and consultant of the Seller has
executed a non-disclosure and non-
18
competition agreement with Seller in the form provided to Bridgeline. Except as
disclosed on the Disclosure Schedule, since January 1, 2007, Seller has not paid
or become committed to pay any bonus or similar additional compensation to any
officer, director or employee of Seller.
2.16. GOVERNMENTAL LICENSES. Seller has all the material permits, licenses,
orders, franchises and other rights and privileges of all federal, state, local
or foreign governmental or regulatory bodies necessary for Seller to conduct its
business as presently conducted. All such permits, licenses, orders, franchises
and other rights and privileges are in full force and effect and, to Seller's
knowledge, no suspension or cancellation of any of them is threatened, and none
of such permits, licenses, orders, franchises or other rights and privileges
will be materially adversely affected by the consummation of the transactions
contemplated by this Agreement or any of the Transaction Documents.
2.17. LIST OF MATERIAL CONTRACTS AND COMMITMENTS. The Disclosure Schedule
sets forth a complete and accurate list of all material contracts to which
Seller is a party or by or to which any of its assets or properties is bound or
subject. As used on the Disclosure Schedule, the phrase "SELLER MATERIAL
CONTRACT" means and includes every material agreement or material understanding
of any kind, written or oral, which is legally enforceable by or against Seller,
and specifically includes without limitation (a) contracts and other agreements
with any current or former officer, director, employee, consultant or
shareholder or any partnership, company, joint venture or any other entity in
which any such person or entity has an interest; (b) agreements with any labor
union or association representing any Seller employee; (c) contracts and other
agreements for the provision of services other than by employees of Seller which
entail a reasonably foreseeable financial consequence to any contracting party
of at least $15,000; (d) bonds or other security agreements provided by any
party in connection with the business of Seller; (e) contracts and other
agreements for the sale of any of the assets or properties of Seller other than
in the ordinary course of business or for the grant to any person or entity of
any preferential rights to purchase any of said assets or properties; (f) joint
venture agreements relating to the assets, properties or business of Seller or
by or to which any of its assets or properties are bound or subject; (g)
contracts or other agreements under which Seller agrees to indemnify any party,
to share tax liability of any party, or to refrain from competing with any
party; (h) any contracts or other agreements with regard to any indebtedness of
Seller; or (i) any other contract or other agreement whether or not made in the
ordinary course of business and involving a reasonably foreseeable financial
consequence to any contracting party of at least $15,000. Seller has delivered
to Bridgeline true, correct and complete copies of all such contracts, together
with all modifications and supplements thereto. Except as set forth on the
Disclosure Schedule, each of the contracts listed on the Disclosure Schedule is
in full force and effect. Seller is not in breach of any of the material
provisions of any such Seller Material Contract, nor, to the knowledge of Seller
and the Shareholders, is any other party to any such contract in default
thereunder, nor, to the knowledge of Seller, does any event or condition exist
which with notice or the passage of time or both would constitute a default of a
material provision thereunder, except for any such breach or default that
individually and in the aggregate would not have a Material Adverse Effect on
Seller.
2.18. ACCOUNTS RECEIVABLE. The Disclosure Schedule sets forth a full and
complete list of Seller's accounts receivable and accounts receivable reserve as
of the close of business on the
19
date immediately preceding the Closing Date. Except as set forth on the
Disclosure Schedule, all accounts and notes receivable reflected on the Seller
Financial Statements, and all accounts and notes receivable arising subsequent
to the date of such balance sheets, have arisen in the ordinary course of
business and represent valid obligations owing to Seller. Except as set forth on
the Disclosure Schedule, to the knowledge of Seller, none of Seller's
receivables are subject to any claim of offset, recoupment, setoff or
counterclaim and neither Seller nor the Shareholders has knowledge of any
specific facts or circumstances (whether asserted or unasserted) that could give
rise to any such claim. No material amount of receivables are contingent upon
the performance by Seller of any obligation or contract other than normal
warranty repair and replacement. No person has any lien on any such receivables
and no agreement for deduction or discount has been made with respect to any
such receivables. Except as set forth on the Disclosure Schedule, to the
knowledge of Seller and the Shareholders, all of Seller's accounts and notes
receivable reflected on the Seller Financial Statements and all accounts and
notes receivable arising subsequent to the date of such balance sheets are
collectible in full by Seller in the ordinary course of business.
2.19. INSURANCE COVERAGE. The Disclosure Schedule hereto contains an
accurate summary of the insurance policies currently maintained by Seller.
Except as described on the Disclosure Schedule, there are currently no claims
pending against Seller pursuant to any insurance policy currently in effect and
covering the property, the business or the employees of Seller.
2.20. EMPLOYEE MATTERS. Except as set forth on the Disclosure Schedule,
neither the Seller nor any person that together with the Seller would be treated
as a single employer (an "ERISA AFFILIATE") under Section 414 of the Code has
established or maintains or is obligated to contribute to (a) any bonus,
severance, stock option, or other type of incentive compensation plan, program,
agreement, policy, commitment, contract or arrangement (written or oral), (b)
any pension, profit-sharing, retirement or other plan, program or arrangement,
or (c) any other employee benefit plan, fund or program, including, but not
limited to, those described in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"). All such plans (individually, a
"PLAN" and collectively, the "PLANS") have been operated and administered in all
material respects in accordance with their terms, as applicable, with the
requirements prescribed by any and all statutes, orders, rules and regulations,
including but not limited to ERISA and the Code. No act or failure to act by the
Seller has resulted in, nor does the Seller have knowledge of a non-exempt
"prohibited transaction" (as defined in ERISA) with respect to the Plans.
Neither the Seller nor any ERISA Affiliate maintains or has ever maintained or
contributed to any Plan subject to Title IV of ERISA. With respect to the
employees and former employees of the Seller, there are no employee
post-retirement medical or health plans in effect, except as required by Section
4980B of the Code. The Seller has funded, or made adequate reserves for, the
full amounts of the employer contributions that are required under the terms of
said plan to be paid by the Seller with respect to the year ended December 31,
2006 and the period from and including January 1, 2007 through and including the
Closing Date.
2.21. CUSTOMERS. Except as set forth on the Disclosure Schedule:
20
(a) No significant customer of Seller has canceled or otherwise terminated,
or to Seller's or the Shareholders' knowledge, threatened to cancel or otherwise
to terminate its relationship with Seller, or has during the last twelve (12)
months decreased materially, or threatened to decrease or limit materially, its
usage or purchase of the Seller Products & Services except for normal cyclical
changes related to customers' businesses and except for changes which have not
had a Material Adverse Effect on Seller.
(b) No supplier or customer has notified Seller that it intends to cancel
or otherwise substantially modify its relationship with Seller or to decrease
materially or limit its services, supplies or materials to Seller, or its usage
or purchase of the services of Seller, and, to the knowledge of Seller, the
consummation of the transactions contemplated hereby will not materially
adversely affect the relationship of Bridgeline with any such supplier or
customer.
2.22. NO BROKERS OR FINDERS. Except as set forth on the Disclosure
Schedule, no person or entity has or will have, as a result of the actions of
Seller or the Shareholders, any right, interest or claim against or upon Seller
or the Shareholders for any commission, fee or other compensation as a finder or
broker arising from the transactions contemplated by this Agreement.
2.23. TRANSACTIONS WITH INSIDERS. Except as set forth on the Disclosure
Schedule, there are no currently outstanding loans, leases or other contracts
between Seller and any officer or director of Seller, or any person or entity
owning five percent (5%) or more of the total number of Shares, or any
respective family member or affiliate of any such officer, director or
shareholder.
2.24. GUARANTEES. Except as set forth on the Disclosure Schedule, Seller
has not assumed, guaranteed, endorsed or otherwise become directly or
contingently liable on or for any indebtedness of any other person or entity,
except guarantees by endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business.
2.25. BANK ACCOUNTS, SIGNING AUTHORITY, POWERS OF ATTORNEY. Except as set
forth on the Disclosure Schedule, Seller has no account or safe deposit box in
any bank and no person or entity has any power, whether singly or jointly, to
sign any checks on behalf of Seller, to withdraw any money or other property
from any bank, brokerage or other account of Seller, or to act pursuant to any
power of attorney granted by Seller at any time for any purpose.
2.26. BOOKS AND RECORDS. The books and records of Seller delivered to
Bridgeline for inspection include copies of the by-laws and other governing
documents as currently in effect and accurately record therein in all material
respects all actions, proceedings, consents and meetings of the Board and
shareholders of Seller and any committees thereof.
2.27. PRIVACY AND DATA COLLECTION. The Seller has at all times complied
with all laws and regulations relating or applicable to privacy, publicity, data
protection, collection, storage, transfer, release and use of personal
information and user information gathered or accessed in the
21
course of the business and operations of the Seller. The Seller has at all times
complied in all material respects with all rules, policies and procedures
established by the Seller from time to time with respect to privacy, publicity,
data protection, collection, storage, transfer and use of personal information
and user information gathered or accessed in the course of the business and
operations of the Seller (collectively, the "SELLER PRIVACY POLICIES"),
noncompliance with which would result in a Material Adverse Effect on Seller. No
claims have been asserted or, to the knowledge of the Seller and the
Shareholders, threatened against the Seller by any Person or governmental entity
alleging a violation of such Person's, or any other Person's, privacy,
publicity, personal or confidentiality rights under any such laws, or a breach
or other violation of any of the Seller Privacy Policies, where such violation
would have a Material Adverse Effect on Seller. The Seller has taken
commercially reasonable measures (including but not limited to, implementing and
monitoring compliance with adequate measures with respect to technical and
physical security) to ensure that personal and consumer information is protected
against loss and against unauthorized access, use, modification, disclosure or
other misuse. To the knowledge of the Seller, there has been no unauthorized
access to, use, modification, disclosure or other misuse of such information.
Neither the execution, delivery nor performance of this Agreement or the
consummation of the transactions contemplated hereby shall result in any breach
or violation of the Seller Privacy Policies or violate any Law with respect to
such data or information.
2.28. FOREIGN CORRUPT PRACTICES ACT. The Seller has not taken any action
which would cause it to be in violation of the Foreign Corrupt Practices Act of
1977, as amended, or any rules and regulations thereunder. There is not now, and
there has never been, any employment by the Seller of, or record ownership in
the Seller by, any governmental or political official in any country in the
world.
2.29. DISCLOSURE. Neither the representations or warranties made by the
Seller in this Agreement, nor the Seller Disclosure Schedule or any other
certificate executed and delivered by the Seller pursuant to this Agreement,
when taken together, contains any untrue statement of a material fact, or omits
to state a material fact necessary to make the statements or facts contained
herein or therein not misleading in light of the circumstances under which they
were furnished.
ARTICLE III
REPRESENTATIONS, COVENANTS AND RIGHTS OF SHAREHOLDERS
In order to induce Bridgeline to enter into this transaction, the
Shareholders represent and warrant to Bridgeline that, except as set forth in
the disclosure schedules of the Shareholders (the "SHAREHOLDERS' DISCLOSURE
SCHEDULES"), the statements made in this Article III are true and correct as of
the date hereof, except to the extent such representations and warranties are
specifically made as of a particular date (in which case such representations
and warranties will be true and correct as of such date). The Shareholders'
Disclosure Schedules will be arranged in paragraphs corresponding to the
numbered and lettered sections contained in this Article III and the disclosure
in any paragraph shall qualify other sections in this Article III to the extent
that it is apparent from a reading of such disclosure that it also qualifies or
applies to such other sections.
22
3.1. OWNERSHIP OF SHARES. Each Shareholder has valid title to and owns
beneficially and of record all of the Shares set forth opposite his name on
Schedule 3.1 to the Shareholders' Disclosure Schedules, and has good and
marketable title to such Shares, free and clear of any and all transfer
restrictions (other than those imposed by relevant securities laws), options,
liens, claims, pledges, voting trusts and agreements, security interests,
charges and other restrictions or encumbrances of any kind or nature. Each
Shareholder has the absolute and unconditional right, power, authority and
capacity to execute and perform this Agreement and any of the Transaction
Documents to which he is a party and to consummate the transactions contemplated
hereby. Except as set forth on the Shareholders' Disclosure Schedules, the
Shareholders have not granted any option or other commitment or are not
otherwise a party to or bound by any agreement obligating such Shareholder to
sell, pledge or otherwise grant any interest in the Shares to any person or
entity.
3.2. AUTHORIZATION. The Transaction Documents shall include all documents
executed and delivered at the Closing to which each Shareholder is a party. This
Agreement and each of the Transaction Documents to which each Shareholder is a
party have been duly executed and delivered by such Shareholder and constitute
the valid and binding obligations of such Shareholder enforceable against such
Shareholder in accordance with their respective terms, except to the extent that
such enforcement may be subject to applicable bankruptcy, reorganization,
insolvency, fraudulent conveyance or other laws affecting creditors' rights
generally and to the application of general equitable principles.
3.3. NO CONFLICTS. Except as set forth on the Shareholders' Disclosure
Schedule, the execution, delivery and performance of this Agreement and the
Transaction Documents to which a Shareholder is a party and the consummation of
the transactions contemplated hereby and thereby by the Shareholders do not and
will not violate, conflict with, result in a breach of or constitute a default
under (or which with notice or lapse of time, or both, would constitute a breach
of or default under), or result in the creation of any lien, security interest
or other encumbrance under (a) any note, agreement, contract, license,
instrument, lease or other obligation to which such Shareholder is a party or by
which such Shareholder is bound, and for which such Shareholder has not
previously obtained a written waiver of such breach or default, which waiver has
been delivered to Bridgeline, except where such violation would not have a
Material Adverse Effect on such Shareholder, (b) any judgment, order, decree,
ruling or injunction known and applicable to such Shareholder, or (c) any
statute, law, regulation or rule of any governmental agency or authority.
3.4. SHAREHOLDERS' INVESTMENT REPRESENTATIONS.
NOTWITHSTANDING THE REPRESENTATIONS AND WARRANTIES SET FORTH IN THIS
SECTION 3.4 WHICH ARE INTENDED TO COMPLY WITH THE REQUIREMENTS OF FEDERAL AND
STATE SECURITIES LAWS, FOR PURPOSES OF THIS AGREEMENT, INCLUDING WITHOUT
LIMITATION THE INDEMNITY OBLIGATIONS OF BRIDGELINE SET FORTH HEREIN, BRIDGELINE
ACKNOWLEDGES AND AGREES THAT (1) EACH SHAREHOLDER IS RELYING ON THE
REPRESENTATIONS AND WARRANTIES OF BRIDGELINE SET FORTH IN THIS
23
AGREEMENT, (2) SUCH REPRESENTATIONS AND WARRANTIES OF BRIDGELINE ARE A MATERIAL
INDUCEMENT TO EACH SHAREHOLDER TO ENTER INTO THIS AGREEMENT AND TO EFFECTUATE
THE TRANSACTIONS CONTEMPLATED HEREIN AND (3) THE REPRESENTATIONS AND WARRANTIES
OF SHAREHOLDERS IN THIS SECTION 3.4 SHALL NOT LIMIT OR OTHERWISE ABROGATE IN ANY
RESPECT THE REPRESENTATIONS AND WARRANTIES OF BRIDGELINE IN THIS AGREEMENT.
Each Shareholder represents individually that his present intention is to
acquire the shares of Bridgeline Stock to be issued in connection with this
Agreement for his own account and that such Bridgeline Stock is being and will
be acquired for the purpose of investment and not with a view to distribution or
resale thereof. Each Shareholder represents that he has had an opportunity to
ask questions of and receive answers from the authorized representatives of
Bridgeline and to review any relevant documents and records concerning the
business of Bridgeline and the terms and conditions of this investment and that
any such questions have been answered to such Shareholder's satisfaction. Each
Shareholder acknowledges that he has been called to his attention that this
investment involves a high degree of risk and that Bridgeline has a limited
operating history. Each Shareholder acknowledges that he can bear the economic
risks of his investment in the Bridgeline Stock and that he has such knowledge
and experience in financial or business matters that he is capable of evaluating
the merits and risks of this investment in the Bridgeline Stock and protecting
his own interests in connection with this investment. Except as set forth on the
Shareholders' Disclosure Schedules attached hereto, each Shareholder hereby
represents and warrants to Bridgeline that he is an "accredited investor" as
such term is defined under Section 501(a) of Regulation D promulgated under the
Securities Act. Each Shareholder understands that the Bridgeline Stock to be
issued in connection with the transactions contemplated hereby has not been
registered under the Securities Act and that such shares must be held
indefinitely unless a subsequent disposition thereof is permitted under the
Securities Act or is exempt from such registration. Each Shareholder further
represents that he understands and agrees that until transferred as herein
provided, or transferred pursuant to the provisions of Rule 144 of the
Securities Act, all certificates evidencing the Bridgeline Stock to be issued in
connection with the Closing, whether upon initial issuance or upon transfer
thereof, shall bear a legend (and Bridgeline will make a notation on its
transfer books to such effect) prominently stamped or printed thereon reading
substantially as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT
WITH A VIEW TO DISTRIBUTION OR RESALE AND MAY NOT BE SOLD, MORTGAGED,
PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS, OR UNLESS AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
24
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BRIDGELINE
In order to induce Seller and the Shareholders to enter into this
transaction, Bridgeline represents and warrants to Seller and the Shareholders
that, except as set forth in the disclosure schedules of Bridgeline (the
"BRIDGELINE DISCLOSURE SCHEDULES"), the statements made in this Article IV are
true and correct as of the date hereof, except to the extent such
representations and warranties are specifically made as of a particular date (in
which case such representations and warranties will be true and correct as of
such date). The Bridgeline Disclosure Schedule will be arranged in paragraphs
corresponding to the numbered and lettered sections contained in this Article IV
and the disclosure in any paragraph shall qualify other sections in this Article
IV to the extent that it is apparent from a reading of such disclosure that it
also qualifies or applies to such other sections.
4.1. ORGANIZATION AND QUALIFICATION. Bridgeline is a corporation duly
organized, validly existing and in corporate good standing under the laws of the
State of Delaware and has the power and authority to carry on its business as
presently conducted. Bridgeline is duly qualified to do business as a foreign
corporation in the States of Georgia, Massachusetts, New York and Virginia and
there is no other jurisdiction wherein the character of its property, or the
nature of the activities presently conducted by it, makes such qualification
necessary, except where the failure to be so qualified will not have a Material
Adverse Effect on Bridgeline. Each subsidiary of Bridgeline is a corporation
duly organized, validly existing and in corporate good standing under the laws
of its jurisdiction of incorporation.
4.2. AUTHORITY. This Agreement, and to the extent Bridgeline is a party to
the Transaction Documents, each of the Transaction Documents, has been duly
authorized, executed and delivered by Bridgeline and constitutes a legal, valid
and binding obligation of Bridgeline, enforceable against it in accordance with
its terms except to the extent that such enforcement may be subject to
applicable bankruptcy, reorganization, insolvency, fraudulent conveyance or
other laws affecting creditors' rights generally and to the application of
general equitable principles. Bridgeline has the right, power and authority to
enter into this Agreement and to carry out the terms and provisions of this
Agreement, and to enter into and carry out the terms of all agreements and
instruments required to be delivered by Bridgeline by the terms of this
Agreement, without obtaining the consent of any third parties or authorities.
This Agreement and the transactions contemplated hereby have been unanimously
approved by the Board of Directors of Bridgeline and no additional corporate
action or authorization is required by Bridgeline in connection with the
consummation of the transactions contemplated by this Agreement.
4.3. NO CONFLICTS. The execution, delivery and performance of this
Agreement and the Transaction Documents, and the consummation of the
transactions contemplated hereby and thereby by Bridgeline, and compliance with
the provisions hereof, do not and will not: (a) violate, conflict with or result
in a breach of any provision or constitute a default under (i) the Certificate
of Incorporation or By-laws of Bridgeline (the "BRIDGELINE CHARTER DOCUMENTS"),
or
25
(ii) any contract or agreement to which Bridgeline is a party or to which the
assets or business of Bridgeline may be subject, except where such violation
would not have a Material Adverse Effect on Bridgeline; or (b) violate any
judgment, ruling, order, writ, injunction, award, decree, statute, law,
ordinance, code, rule or regulation of any court or foreign, federal, state,
county or local government or any other governmental, regulatory or
administrative agency or authority which is applicable to the assets, properties
or business of Bridgeline, except where such violation would not have a Material
Adverse Effect on Bridgeline.
4.4. GOVERNMENT APPROVALS. Except as set forth in the Bridgeline Disclosure
Schedules and except for filing with and acceptance by the Delaware Secretary of
State and Illinois Secretary of State of applicable merger certificates and
filings pursuant to Regulation D of the Securities Act, no Consent with any
Governmental Entity, is or will be required on the part of Bridgeline in
connection with the execution, delivery and performance of this Agreement, the
other Transaction Documents and any other agreements or instruments executed by
Bridgeline in connection herewith or therewith, the failure of which would have
a Material Adverse Effect on Bridgeline.
4.5. AUTHORIZED AND OUTSTANDING STOCK. As of the date of this Agreement,
the authorized capital stock of Bridgeline consists of 20,000,000 shares of
Common Stock, of which 8,122,273 shares are validly issued and outstanding as of
August 14, 2007, and 1,000,000 shares of preferred stock, none of which are
issued and outstanding. All of the issued and outstanding shares of capital
stock of Bridgeline were issued (i) in transactions complying with or exempt
from the registration provisions of the Securities Act, and (ii) in compliance
with or in transactions exempt from the registration provisions of applicable
state securities or "blue-sky" laws. Bridgeline is the sole owner of all capital
stock of its subsidiaries. Except as set forth on the Bridgeline Disclosure
Schedules, as of the date of this Agreement, there are no outstanding warrants,
options, promissory notes, commitments, preemptive rights, rights to acquire or
purchase, conversion rights or demands of any character relating to the capital
stock or other securities of Bridgeline. There are no voting trusts or voting
agreements with respect to any shares of Bridgeline Common Stock. Any equity
interests in Bridgeline that consist of contractual or so-called "phantom"
equity interests are separately identified on the Bridgeline Disclosure
Schedules.
4.6. SEC FILINGS. Bridgeline has made available to the Seller and the
Shareholders a true and complete copy of its SB-2 Registration Statement and all
amendments, supplements and exhibits (including, without duplication, exhibits
incorporated by reference) to such registration statement (collectively, the
"BRIDGELINE SEC REPORTS"). The Bridgeline SEC Reports (i) were prepared in
compliance with the requirements of the Securities Act , and (ii) did not at the
time they were filed contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
26
ARTICLE V
ADDITIONAL AGREEMENTS
5.1. LEGAL CONDITIONS TO THE MERGER. Each of Bridgeline, Seller and the
Shareholders will use all reasonable efforts to take actions necessary to comply
promptly with all legal requirements which may be imposed on it with respect to
the Merger. Each of Bridgeline, Seller and the Shareholders will use all
reasonable efforts to take all actions to obtain (and to cooperate with the
other parties in obtaining) any consent required to be obtained or made by
Seller, Bridgeline or the Shareholders in connection with the Merger, or the
taking of any action contemplated thereby or by this Agreement.
5.2. EMPLOYEE MATTERS. Nothing contained herein will be considered as
requiring Seller or Bridgeline to continue the employment of any employee for
any specified period, at any specified location or under any specified job
category, except as specifically provided for in an offer letter or other
agreement of employment. Except as otherwise set forth herein, it is
specifically understood that continued employment with Seller or employment with
Bridgeline is not offered or implied for any employees of Seller.
Notwithstanding anything herein to the contrary, any severance or other
termination costs that are payable to an employee upon his or her termination of
employment shall be paid by Bridgeline if such termination occurs following the
Closing Date.
5.3. ADDITIONAL AGREEMENTS. In case at any time after the Closing Date any
further action is reasonably necessary or desirable to carry out the purposes of
this Agreement or to vest the Surviving Corporation with full title to all
properties, assets, rights, approvals, immunities and franchises of Seller, the
parties will take all such action. 5.4. PUBLIC ANNOUNCEMENTS. Except as may be
required by law or stock market regulations, neither Bridgeline nor Seller will
disseminate any press release or other announcement concerning this Agreement or
the transactions contemplated herein to any third party (except to the
directors, officers and employees of the parties to this Agreement whose direct
involvement is necessary for the consummation of the transactions contemplated
under this Agreement, or to the attorneys, advisors and accountants of the
parties hereto) without the prior written agreement of Bridgeline and Seller.
5.5. CONFIDENTIALITY. Seller, Bridgeline and the Shareholders have
previously entered into a Non-Disclosure Agreement (the "CONFIDENTIALITY
AGREEMENT"), concerning each party's obligations to protect the confidential
information of the other party. Seller, the Shareholders and Bridgeline each
hereby affirm each of their obligations under such Confidentiality Agreement.
5.6. TERMINATION OF SELLER 401(K) PLAN. Seller shall terminate its
tax-qualified 401(k) plan (the "SELLER 401(K) PLAN") immediately prior to the
Closing.
27
5.7. BENEFIT PLANS. As soon as administratively practicable after the
Closing Date and to the extent allowable under the Bridgeline Benefit Plans (as
defined below), Bridgeline shall take all reasonable action so that employees of
Seller shall be entitled to participate in each employee benefit plan, program
or arrangement of Bridgeline of general applicability (the "BRIDGELINE BENEFITS
PLANS") to the same extent as similarly-situated employees of Bridgeline and its
subsidiaries (it being understood that inclusion of the employees of Seller in
the Bridgeline Benefits Plans may occur at different times with respect to
different plans).
5.8 LOCK UP AGREEMENT. Each Shareholder acknowledges and agrees that he
will not (1) offer, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, pledge, hypothecate, grant
any option, right or warrant to purchase, or otherwise transfer or dispose of,
directly or indirectly, the Bridgeline Stock; (2) enter into any swap or other
arrangement that transfers to another, in whole or in part, any of the economic
consequences of ownership of the Bridgeline Stock, whether any such transaction
described in clause (1) or (2) above is to be settled by delivery of the
Bridgeline Stock, in cash or otherwise, or (3) make any demand for or exercise
any right with respect to, the registration of the Bridgeline Stock or any
security convertible into or exercisable or exchangeable for the Bridgeline
Stock for a period of one (1) year subsequent to the Closing Date. Each
Shareholder further agrees not to enter into any private transaction involving
the Bridgeline Stock unless (i) Bridgeline receives an opinion of counsel
acceptable in form and substance to Bridgeline to the effect that the proposed
transaction is exempt from the registration requirements of the Act and (ii) the
proposed transferee agrees to be bound by all the provisions in this Section 5.8
prior to any such private transaction. Notwithstanding anything to the contrary
contained herein, the restrictions contained herein shall not apply to the
transfer of the Bridgeline Stock by the Shareholders to any trust, partnership
or limited liability company for the direct or indirect benefit of such
Shareholder and/or the immediate family of such Shareholder for estate planning
purposes, provided that (i) the trustee of the trust, partnership or the limited
liability company, as the case may be, agrees in writing to be subject to the
restrictions of this Section 5.8 and (ii) any such transfer shall not involve a
disposition for value.
5.9 RESTRICTIVE UNDERTAKINGS.
(A) NONCOMPETITION COVENANT. The restrictive covenants set forth in this
Section 5.9 are a material inducement for Bridgeline to enter into this
Agreement. For good and valuable consideration provided pursuant to this
Agreement, the receipt and sufficiency of which is hereby acknowledged, each
Shareholder agrees that, during the Restrictive Period (as hereinafter defined),
he shall not, directly or indirectly, (i) invest (except for the ownership of
less than 3% of the capital stock of a publicly held company), or hold a
directorship or other position of authority in any of Bridgeline's Direct
Competitors ("DIRECT COMPETITORS" defined as: any person or entity, or a
department or division of an entity, whereby more than 25% of the person's or
entity's total revenues are derived from the Competitive Services ("COMPETITIVE
SERVICES" defined as design and development for third parties of: on-demand web
property management tools and custom web applications (including but not limited
to content management, analytics, eCommerce, digital asset management,
relationship management, eNewsletters, eSurveys, event registration, and grants
management), custom application development, usability engineering, eCommerce
development, rich media development,
28
eTraining development, and search engine optimization), (ii) undertake
preparation of or planning for an organization or offering of Competitive
Services, (iii) combine or collaborate with other employees or representatives
of Bridgeline or any third party for the purpose of organizing, engaging in, or
offering Competitive Services, or (iv) be employed by, serve as a consultant to
or otherwise provide services to (whether as principal, partner, shareholder,
member, officer, director, stockholder, agent, joint venturer, creditor,
investor or in any other capacity), or participate in the management of a Direct
Competitor or participate in any other business that Bridgeline may currently be
engaged. The foregoing restrictive covenant shall terminate with respect to a
Shareholder if such Shareholder's employment by Bridgeline is terminated
following the Closing without "cause" or for "good reason" in accordance with
the terms of his Employment Agreement.
(B) NONSOLICITATION OF CUSTOMERS. Each Shareholder agrees that, during the
Restrictive Period, he shall not directly or indirectly, either for himself or
for any other person, corporation, partnership, limited liability company or any
other business entity, service or supervise or assist the servicing or
supervision of, divert or take away or attempt to divert or take away, or
directly or indirectly call on or solicit or attempt to call on or solicit any
of the Clients (as hereinafter defined) of Bridgeline, or communicate, advise or
consult with, write or respond to, or inform any such Client for the purpose of
soliciting, selling or recommending Competitive Services, or otherwise attempt
to induce any such Client to terminate, modify or reduce such Client's
relationship with Bridgeline.
(C) NONSOLICITATION OF EMPLOYEES. Each Shareholder agrees that, during the
Restrictive Period, he shall not directly or indirectly (including but not
limited to, through the use of "headhunters," recruiters or employment agencies,
and whether on-line or off-line recruiting activities) or by action in concert
with others, hire, recruit or otherwise induce or influence (or seek to induce
or influence) any person who is or shall be hereafter engaged (as an employee,
agent, independent contractor or otherwise) by Bridgeline to terminate such
Person's employment or engagement with Bridgeline, or employ or engage, seek to
employ or engage, or cause any other Person, corporation, partnership, limited
liability company or other business entity (whether for-profit or non-profit) to
employ or engage or seek to employ or engage any such person. This restriction
includes that such Shareholder shall not (i) disclose to any third party the
names, backgrounds or qualification of any of Bridgeline's employees or
otherwise identify them as potential candidates for employment, or (ii)
participate in any pre-employment interviews or consultations with such
employee.
(D) RESTRICTIVE PERIOD. For purposes of this Section, the term Bridgeline
shall include Bridgeline and any of its subsidiaries, divisions or business
units. For purposes of this Section, the term "Restrictive Period" shall mean
the period commencing on the Closing Date and ending on the later of: (i) the
three-year anniversary thereof, or (ii) twelve (12) months following the
termination of such Shareholder's employment relationship with Bridgeline. For
the purposes of this Section, "Client" shall mean any person or entity to which
Bridgeline has provided services to at any time within the twelve (12) months
preceding this Agreement or thereafter or made Proposals to at any time within
180 days preceding this Agreement or thereafter. "Proposal" shall mean any
Client-specific, BONA FIDE proposal for services that included a description of
services, time line and proposed fees for the project.
29
(E) GEOGRAPHIC RESTRICTIONS REASONABLE. Each Shareholder expressly declares
that the territorial and time limitations contained in this Section are entirely
reasonable and are properly and necessarily required for the adequate protection
of the business, operations, trade secrets and goodwill of Bridgeline and are
given as an integral part of the merger, but for which Bridgeline would not have
entered into this Agreement. It is the desire and intent of each Shareholder and
Bridgeline that the provisions of this Section shall be enforced to the fullest
extent permissible under the laws and public policies applied in each
jurisdiction in which enforcement is sought. Accordingly, if any particular
provision of this Section, including but not limited to, any territorial or time
limitations set forth in this Section, shall be adjudicated to be invalid or
unenforceable by a court of competent jurisdiction, whether due to passage of
time, change of circumstances or otherwise, the provisions of this Section shall
be deemed amended to delete therefrom the portion thus adjudicated to be invalid
or unenforceable, or to reduce said territorial or time limitations to such
areas or periods of time as said court shall deem reasonable, such deletion or
reduction to apply only with respect to the operation of this Section in the
particular jurisdiction in which such adjudication is made.
(F) RIGHTS CUMULATIVE. The non-competition and non-solicitation provisions
contained herein are in addition to, and not in limitation of, any rights that
Bridgeline may have under any other contract, law or otherwise, including but
not limit to, the Employment Agreements between Bridgeline and each Shareholder.
Each Shareholder acknowledges that the remedy at law for any breach of this
Section may be inadequate. Each Shareholder agrees that upon any such breach of
this Section, Bridgeline or shall, in addition to all other available remedies
(including but not limited to, seeking an injunction or other equitable relief),
be entitled to injunctive relief without having to prove the inadequacy of the
remedies available at law and without being required to post bond or other
security.
(G) COMPUTATION OF RESTRICTIVE PERIOD. All time periods in this Section
shall be computed by excluding from such computation any time during which a
Shareholder is in violation of any provision of this Section and any time during
which there is pending in any court of competent jurisdiction any action
(including any appeal from any final judgment) in which action Bridgeline seeks
to enforce the agreements and covenants in this Section or in which any person
or entity contests the validity of such agreements and covenants or their
enforceability or seeks to avoid their performance or enforcement which is
determined adversely against such Shareholder or such other party.
5.10 GUARANTEED INDEBTEDNESS. Bridgeline shall, in its sole discretion, pay
or assume the Guaranteed Indebtedness on or before September 7, 2007 and shall
take all steps necessary to release the Shareholders and their family members
from any continuing obligations in connection with the Guaranteed Indebtedness
including, without limitation, any outstanding guarantees. To the extent any of
the Shareholders and/or their family members are not released from any
continuing obligations in connection with the Guaranteed Indebtedness,
Bridgeline shall indemnify and hold them harmless from and against any Losses
(as defined in Section 8.2) such Shareholders and/or family members may incur in
connection with the Guaranteed Indebtedness.
30
5.11 REPORTS UNDER EXCHANGE ACT. With a view to making available to the
Shareholders the benefits of Rule 144 promulgated under the Securities Act or
any other similar rule or regulation of the Securities and Exchange Commission
(the "COMMISSION") that may at any time permit the Shareholders to sell
securities of Bridgeline to the public without registration ("RULE 144"),
Bridgeline agrees, at all times, to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT"); and
(c) furnish to the Shareholders, promptly upon request, (i) a written
statement by Bridgeline that it has complied with the reporting requirements of
the Securities Act and the Exchange Act, and (ii) such other information as may
be reasonably requested to permit the Shareholders to sell such securities
pursuant to Rule 144 without registration.
ARTICLE VI
CONDITIONS PRECEDENT
6.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligations of each party to effect the Merger will be subject to the
satisfaction prior to the Closing Date of the following conditions:
(a) Governmental Approvals. Other than the filing of the Merger Documents
with the Secretary of State of the State of Delaware and the Secretary of State
of the State of Illinois, all statutory requirements and all Consents of
Governmental Entities legally required for the consummation of the Merger and
the transactions contemplated by this Agreement will have been filed, occurred,
or been obtained, other than such Consents for which the failure to obtain would
not have a material adverse effect on the consummation of the Merger or the
other transactions contemplated hereby.
(b) No Restraints. No statute, rule or regulation, and no final and
nonappealable order, decree or injunction will have been enacted, entered,
promulgated or enforced by any court or Governmental Entity of competent
jurisdiction which enjoins or prohibits the consummation of the Merger.
(c) Life Insurance Policies. Seller shall have assigned to the Shareholders
all of the rights, obligations and liabilities under those certain life
insurance policies owned by the Seller on the lives of the Shareholders.
31
(d) Automobiles. Seller shall have assigned to the Shareholders all of the
rights, obligations and liabilities under those certain automobiles owned by the
Seller and used by the Shareholders, which are a Chevrolet Suburban and an Acura
MDX.
(e) Stockholder Approval. This Agreement and the Merger shall have been
approved and adopted by the requisite stockholder approval in accordance with
the IBCA and the Seller Charter Documents.
6.2. CONDITIONS OF OBLIGATIONS OF BRIDGELINE. The obligations of Bridgeline
to effect the Merger are subject to the satisfaction of the following conditions
unless waived by Bridgeline:
(a) Representations and Warranties of Seller. The representations and
warranties of Seller set forth in this Agreement that are qualified as to
materiality shall be true and correct in all respects, and all other
representations and warranties of Seller set forth in this Agreement shall be
true and correct in all material respects, in each case as of the date of the
Closing, except (i) as otherwise contemplated by this Agreement, (ii) as a
result of actions taken or not taken at the direction of or after consultation
with and written concurrence of Bridgeline and (iii) for representations and
warranties specifically limited to an earlier date(s) (in which case such
representations and warranties shall be true and correct as of such date).
Bridgeline will have received a certificate signed by an officer of Seller to
such effect on the Closing Date.
(b) Representations and Warranties of the Shareholders. The representations
and warranties of the Shareholders set forth in this Agreement that are
qualified as to materiality shall be true and correct in all respects, and all
other representations and warranties of the Shareholders set forth in this
Agreement shall be true and correct in all material respects, in each case as of
the date of the Closing, except (i) as otherwise contemplated by this Agreement,
(ii) as a result of actions taken or not taken at the direction of or after
consultation with and written concurrence of Bridgeline and (iii) for
representations and warranties specifically limited to an earlier date(s) (in
which case such representations and warranties shall be true and correct as of
such date). Bridgeline will have received a certificate signed by each
Shareholder to such effect on the Closing Date.
(c) Performance of Obligations of Seller. Seller will have performed in all
material respects all agreements and covenants required to be performed by it
under this Agreement prior to the Closing Date except (i) as otherwise
contemplated or permitted by this Agreement and (ii) as a result of actions
taken or not taken at the direction of or after consultation with and written
concurrence of Bridgeline, and Bridgeline will have received a certificate
signed an officer of Seller to such effect on the Closing Date.
(d) Performance of Obligations of the Shareholders. The Shareholders will
have performed in all material respects all agreements and covenants required to
be performed by it under this Agreement prior to the Closing Date except (i) as
otherwise contemplated or permitted by this Agreement and (ii) as a result of
actions taken or not taken at the direction of or
32
after consultation with and written concurrence of Bridgeline, and Bridgeline
will have received a certificate signed by each Shareholder to such effect on
the Closing Date.
(e) No Material Adverse Effect. No event, occurrence, fact, condition,
change, development or effect that has not been disclosed in the Seller
Financial Statements or on the Disclosure Schedule shall exist or have occurred
or come to exist or been threatened that, individually or in the aggregate, has
had or resulted in or could be expected to become or result in a Material
Adverse Effect on Seller, and Bridgeline will have received from the Seller a
certificate signed by the Seller to such effect on the Closing Date.
(f) Stockholder Approval. The holders of not less than 100% of the
outstanding capital stock of Seller shall have executed a written consent to
approve and adopt this Agreement and the Merger, in accordance with the IBCA.
(g) Employment Agreements. Each of Xxxxxxx Xxxxxxxxx and Xxxxxx Xxxxxxxx
shall have entered into an employment agreement substantially in the forms
attached hereto as EXHIBIT 9.2G (the "EMPLOYMENT AGREEMENTS"), effective as of
the Closing Date, relating to his employment by the Surviving Corporation or any
successor entity after the Merger, which Employment Agreements shall be in full
force and effect in accordance with their terms.
(h) Legal Action. There will not be overtly threatened or pending any
action, proceeding or other application before any court or Governmental Entity
brought by any Person or Governmental Entity: (i) challenging or seeking to
restrain or prohibit the consummation of the transactions contemplated by this
Agreement, or seeking to obtain any material damages from Bridgeline or Seller
as a result of such transactions; or (ii) seeking to prohibit or impose any
limitations on Bridgeline's ownership or operation of all or any portion of
Seller's business or assets, or to compel Bridgeline to dispose of or hold
separate all or any portion of its or Seller's business or assets as a result of
the transactions contemplated by the Agreement which if successful would have a
material adverse effect on Bridgeline's ability to receive the anticipated
benefits of the Merger and the employment of the individuals referenced in
Section 9.2(g).
(i) Termination of Rights and Certain Securities. Any registration rights,
rights of first refusal, voting rights, rights to any liquidation preference or
redemption rights relating to any security of Seller will have been terminated
or waived or satisfied as of the Closing.
(j) Termination of Seller 401(k) Plan. The Seller 401(k) Plan shall have
been terminated in accordance with Section 5.6.
(k) Merger Filing. Seller shall have executed and delivered to Bridgeline a
counterpart signature page of the Merger Documents to be filed with the
Secretary of State of the State of Delaware and the Secretary of State of the
State of Illinois.
33
(l) Corporate Proceedings Satisfactory. All corporate and other proceedings
to be taken by Seller in connection with the transactions contemplated hereby
and all documents incident thereto will be satisfactory in form and substance to
Bridgeline and its counsel, and Bridgeline and its counsel will have received
all such counterpart originals or certified or other copies of such documents
and other closing documents as they reasonably may request.
(m) Supporting Documents. Seller shall have delivered to Bridgeline a
certificate (i) of the Secretary of State of the State of Illinois dated on or
around the Closing Date, certifying as to the corporate legal existence and good
standing of Seller, and (ii) of the Secretary of Seller, dated as of the Closing
Date, certifying on behalf of Seller (1) that attached thereto is a true and
complete copy of the Certificate of Incorporation of Seller, certified by the
Secretary of State of the State of Illinois, (2) that attached thereto is a true
and complete copy of the By-Laws of Seller as in effect on the date of such
certification, (3) that attached thereto is a true and complete copy of all
resolutions adopted by the Board of Directors and the stockholders of Seller
authorizing the execution, delivery and performance of the Agreement and the
consummation of the Merger, and (4) to the incumbency and specimen signature of
each officer of Seller executing on behalf of Seller this Agreement and the
other agreements related hereto.
(n) Seller Options. Seller shall take all actions necessary to terminate
all Seller Options in accordance with Section 1.7.
6.3. CONDITIONS OF OBLIGATION OF SELLER AND THE SHAREHOLDERS. The
obligation of Seller and the Shareholders to effect the Merger is subject to the
satisfaction of the following conditions unless waived by Seller and the
Shareholders:
(a) Representations and Warranties of Bridgeline. The representations and
warranties of Bridgeline set forth in this Agreement that are qualified as to
materiality shall be true and correct in all respects, and all other
representations and warranties of Bridgeline set forth in this Agreement shall
be true and correct in all material respects, in each case as of the date of the
Closing, except (i) as otherwise contemplated by this Agreement, (ii) as a
result of actions taken or not taken at the direction of or after consultation
with and written concurrence of Seller and (iii) for representations and
warranties specifically limited to an earlier date(s) (in which case such
representations and warranties shall be true and correct as of such date).
Seller and the Shareholders will have received a certificate signed by an
officer of Bridgeline to such effect on the Closing Date.
(b) Performance of Obligations of Bridgeline. Bridgeline will have
performed in all material respects all agreements and covenants required to be
performed by it under this Agreement prior to the Closing Date, and Seller and
the Shareholders will have received a certificate signed by an officer of
Bridgeline to such effect on the Closing Date.
(c) No Material Adverse Effect. No event, occurrence, fact, condition,
change, development or effect that has not been disclosed on the Bridgeline
Disclosure Schedules shall exist or have occurred or come to exist or been
threatened that, individually or in
34
the aggregate, has had or resulted in or could be expected to become or result
in a Material Adverse Effect on Bridgeline, and Seller will have received from
the Seller a certificate signed by Bridgeline to such effect on the Closing
Date.
(d) Merger Filing. Bridgeline shall have executed and delivered to Seller a
counterpart signature page of the Merger Documents to be filed with the
Secretary of State of the State of Delaware and the Secretary of State of the
State of Illinois.
(e) Delivery of Initial Merger Consideration. On the Closing Date,
Bridgeline shall deliver to the Seller stock certificates representing the
Bridgeline Stock and the Cash Consideration by wire transfer of immediately
available funds.
(f) Employment Agreements. Bridgeline shall have entered into the
Employment Agreements effective as of the Closing Date.
(g) Approvals. The board of directors of Bridgeline shall have executed a
written consent to approve and adopt this Agreement and the Merger, in
accordance with the Bridgeline Charter Documents and the DGCL.
(h) Legal Action. There will not be overtly threatened or pending any
action, proceeding or other application before any court or Governmental Entity
brought by any Person or Governmental Entity challenging or seeking to restrain
or prohibit the consummation of the transactions contemplated by this Agreement,
or seeking to obtain any material damages from Bridgeline or Seller as a result
of such transactions.
(i) Bridgeline Supporting Documents. Bridgeline shall have delivered to
Seller a certificate (i) of the Secretary of State of the State of Delaware
dated on or around the Closing Date, certifying as to the corporate legal
existence and good standing of Bridgeline, and (ii) of the Secretary of
Bridgeline, dated as of the Closing Date, certifying on behalf of Bridgeline:
(1) that attached thereto is a true and complete copy of the Certificate of
Incorporation of Bridgeline, certified by the Secretary of State of the State of
Delaware; (2) that attached thereto is a true and complete copy of the By-Laws
of Bridgeline as in effect on the date of such certification; (3) that attached
thereto is a true and complete copy of all resolutions adopted by the Board of
Directors of Bridgeline authorizing the execution, delivery and performance of
the Agreement and the consummation of the Merger; and (4) to the incumbency and
specimen signature of each officer of Bridgeline executing on behalf of
Bridgeline this Agreement and the other agreements related hereto.
(j) Corporate Proceedings Satisfactory. All corporate and other proceedings
to be taken by Bridgeline in connection with the transactions contemplated
hereby and all documents incident thereto will be satisfactory in form and
substance to Seller and its counsel, and Seller and its counsel will have
received all such counterpart originals or certified or other copies of such
documents and other closing documents as they reasonably may request.
35
(k) Bridgeline Stock Options. On the Closing Date, Bridgeline shall deliver
to the Seller Optionholders, stock option agreements for Bridgeline options in
accordance with Section 1.7 in substantially the form of Exhibit 6.3(l) hereto.
ARTICLE VII
FEES AND EXPENSES
Except as set forth in this Article VII, all fees and expenses incurred in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such fees and expenses, whether or not the Merger is
consummated; PROVIDED, HOWEVER, that if the Merger is consummated, Bridgeline
shall pay up to $35,000 for the reasonable legal expenses of counsel to the
Seller and the Shareholders incurred in connection with the Merger, it being
acknowledged and agreed to by the parties that the Shareholders shall be
personally responsible for any such expenses of Seller exceeding this limit.
ARTICLE VIII
GENERAL RELEASE AND INDEMNIFICATIONS
8.1. SHAREHOLDERS' RELEASE. The Shareholders, effective at the Closing,
hereby release and discharge Seller from and against any and all claims, demands
and liabilities which the Shareholders may have against Seller immediately prior
to the Closing, and the Shareholders specifically agree to indemnify, defend and
hold Seller and Bridgeline harmless against any and all obligations, debts,
bills, liabilities, causes of action and claims of every nature of the
Shareholders against Seller which accrue or have arisen prior to the Closing.
8.2. SHAREHOLDERS' INDEMNIFICATION. Subject to the limitations set forth in
Section 8.5 below, the Shareholders agree to indemnify and hold harmless
Bridgeline and its officers, directors, agents and employees to the fullest
extent lawful, from and against any and all actions, suits, claims,
counterclaims, proceedings, costs, losses, liabilities, obligations, demands,
damages, judgments, amounts paid in settlement and reasonable expenses,
including, without limitation, reasonable attorneys' fees and disbursements
(hereinafter collectively referred to as a "CLAIM," "LOSS" or "LOSSES") suffered
or incurred by Bridgeline to the extent relating to or arising out of any
inaccuracy in or breach, violation or nonobservance of the representations,
warranties, covenants or other agreements made by Seller or the Shareholders
herein or the Transaction Documents or failure of any certificate, document or
instrument delivered by or on behalf of Seller or the Shareholders pursuant
hereto or in connection herewith to be true and correct as of the Closing.
Notwithstanding the foregoing, to the extent that Bridgeline receives and
collects any insurance proceeds relating to a Claim or Loss covered by insurance
purchased by Seller prior to the Closing, then Bridgeline's claim for
indemnification hereunder shall be reduced, dollar-for-dollar, by the amount of
such proceeds received by Bridgeline for any insurable Claim or Loss.
36
8.3. BRIDGELINE'S INDEMNIFICATION. Subject to the limitations set forth in
Section 8.5 below, Bridgeline agrees to indemnify and hold harmless the
Shareholders to the fullest extent lawful, from and against any and all Claims
or Losses suffered or incurred by the Shareholders to the extent relating to or
arising out of any inaccuracy in or breach, violation or nonobservance of the
representations, warranties, covenants or other agreements made by Bridgeline
herein or the Transaction Documents or failure of any certificate, document or
instrument delivered by or on behalf of Seller or the Shareholders pursuant
hereto or in connection herewith to be true and correct as of the Closing the
Transaction Documents.
8.4. THIRD PARTY CLAIMS. In the event that a party (the "INDEMNITEE")
desires to make a claim against another party (the "INDEMNITOR") pursuant to
Section 8.2 or Section 8.3 in connection with any action, suit, proceeding or
demand at any time instituted against or made upon the Indemnitee by any third
party for which the Indemnitee may seek indemnification hereunder (a "THIRD
PARTY CLAIM"), the Indemnitee shall promptly notify, in writing, the Indemnitor
of such Third Party Claim and of the Indemnitee's claim of indemnification with
respect thereto. The Indemnitor shall have thirty (30) days after receipt of
such notice to notify the Indemnitee if he/she or it has elected to assume the
defense of such Third Party Claim. If the Indemnitor elects to assume the
defense of such Third Party Claim, the Indemnitor shall be entitled at his/her
or its own expense to conduct and control the defense and settlement of such
Third Party Claim through counsel of his or its own choosing; PROVIDED, HOWEVER,
that the Indemnitee may participate in the defense of such Third Party Claim
with his/her or its own counsel at his/her or its own expense and the Indemnitor
may not settle any Third Party Claim without the Indemnitee's consent, which
shall not be unreasonably withheld. If the Indemnitor fails to notify the
Indemnitee within thirty (30) days after receipt of the Indemnitee's written
notice of a Third Party Claim, the Indemnitee shall be entitled to assume the
defense of such Third Party Claim at the expense of the Indemnitor; PROVIDED,
HOWEVER, that the Indemnitee may not settle any Third Party Claim without the
Indemnitor's consent, which shall not be unreasonably withheld.
8.5. LIMITATIONS OF LIABILITY.
(a) The Shareholders and Bridgeline shall have no liability with respect to
the matters described in Sections 8.2 and 8.3, respectively, for any individual
Claim or Loss less than $5,000 (the "MINIMUM CLAIM AMOUNT") and until the total
of all Claims or Losses, including those less than the Minimum Claim Amount,
exceeds $25,000 (the "BASKET"), at which point the Shareholders or Bridgeline,
as the case may be, shall be obligated to indemnify the other party from and
against all such Claims or Losses which shall exceed the Basket; PROVIDED,
HOWEVER, that these limitations shall not apply to any Claims or Losses incurred
by Bridgeline as a result of or with respect to any breach of the
representations contained in Sections 3.1 (Ownership of Shares), 2.11 (Taxes)
and 2.14 (Intellectual Property). Notwithstanding anything contained in this
Agreement to the contrary, except for (x) the representations set forth in
Sections 3.1 (Ownership of Shares) and 2.11 (Taxes), which shall be uncapped,
and (y) and the representations set forth in Section 2.14 (Intellectual
Property), which shall not exceed the sum of $1,000,000, each party's indemnity
obligation under this Agreement shall not exceed the sum of $750,000.
37
(b) In any situation in which an indemnification payment is due from the
Shareholders hereunder, Bridgeline shall seek to satisfy such obligation, in
whole or in part, in the following manner: (i) first, by acceptance of a cash
payment by the Shareholders equal to the value of the Claim or Loss, and (i)
second, by withholding or setting off the amount of the Earn-Out payments that
may then be due or may subsequently become payable to the Shareholder. In any
situation in which an indemnification payment is due from Bridgeline hereunder,
the Shareholders shall seek to satisfy such obligation, in whole or in part, (i)
by acceptance of a cash payment by Bridgeline equal to the fair value of the
Claim or Loss as of the time the Claim or Loss is incurred by the Shareholders
or (ii) if mutually agreed to by the Shareholders and Bridgeline, by issuance of
such additional number of shares of Bridgeline Common Stock as is equal to the
value of the Claim or Loss as of the time the Claim or Loss is incurred by the
Shareholders (the value for computing the number of shares of Bridgeline Common
Stock to be issued shall be equal to the average closing price of the Bridgeline
Common Stock during the thirty day period preceding the Claim or Loss).
(c) No action or claim for Losses pursuant to this Article VIII shall be
brought or asserted after the relevant date of survival referred to in Article
IX hereof (the "REPRESENTATION EXPIRATION DATE"). The amount of any Claims or
Losses suffered by an Indemnitee shall be reduced by any tax benefit that has
been realized or that is reasonably certain to be realized, and any insurance
benefits or claims against third parties which are actually received by such
party in respect of or as a result of such Claims or Losses, or the facts or
circumstances relating thereto. If any Losses for which indemnification is made
hereunder are subsequently reduced by any tax benefit or insurance payment, the
value of such tax benefit or other benefit or the amount of such payment or
other recovery shall be remitted to the Indemnitor.
(d) Bridgeline and the Shareholders acknowledge and agree that, except as
to Claims or Losses attributable to fraud, their sole remedy against the other
for any matter arising out of a breach, violation or nonobservance of any
representation, warranty, covenant or other agreement contained in this
Agreement is set forth in this Article VIII, and that except to the extent a
party has asserted a claim for indemnification prior to the Representation
Expiration Date, neither party shall have any remedy against the other party for
any breach, violation or nonobservance of a representation, warranty, covenant
or other agreement made by such other party in this Agreement. The parties
acknowledge that this Section 8.5 has been negotiated fully by the parties and
that neither party would have entered into this Agreement but for the inclusion
of this Section 8.5.
8.6. EXPENSES; REIMBURSEMENT. Subject to the limitations set forth in
Section 8.5 above, an Indemnitor hereunder promptly shall reimburse the
Indemnitee for all Losses constituting reasonable expenses (including reasonable
attorneys' fees and disbursements) as they are incurred in connection with
investigating, preparing to defend or defending any third-party action, suit,
claim or proceeding (including any inquiry or investigation) for which indemnity
is available under either Section 8.2 or Section 8.3, as applicable.
38
8.7. NOTICE. Each party shall provide written notice to the other of any
claim with respect to which it seeks indemnification promptly after the
discovery of any matters giving rise to a claim for indemnification; PROVIDED,
HOWEVER, that the failure of such party to give notice as provided herein shall
not relieve the Indemnitor of its obligations under this Article VIII, except if
and to the extent that the Indemnitor has been materially prejudiced thereby.
8.8. SURVIVAL. Subject to the provisions and limitations set forth in
Section 8.5(c) and in Article IX below, the obligations of Bridgeline and the
Shareholders under this Article VIII shall survive and continue in effect
following the Closing until all Claims or Losses are resolved.
ARTICLE IX
SURVIVAL; WAIVER OF INDEMNITY OR CONTRIBUTION
9.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Except as provided herein,
all representations, warranties, covenants and other agreements of the parties
contained herein shall survive the execution and delivery of this Agreement and
continue in effect following the Closing for a period commencing on the Closing
Date and ending on the date that is 18 months after the Closing Date.
Notwithstanding the preceding sentence, the representations set forth in Section
3.1 (Ownership of Shares) with respect to the Shareholders' ownership of the
Shares shall survive and continue in effect indefinitely after the Closing and
the representations set forth in Sections 2.11 (Taxes) shall survive until the
expiration of the applicable statute of limitations relating to any applicable
Tax Return referred to therein. In addition, Bridgeline's obligations pursuant
to Section 5.11 shall survive and continue in effect until the Bridgeline Stock
has been sold.
9.2 NO INDEMNITY OR CONTRIBUTION; WAIVER. The Shareholders shall not be
entitled to make any claim for indemnity or contribution or any other similar
claim against Seller with respect to any Claim or Losses for which the
Shareholders are liable under Article VIII to the extent such Claim or Loss
relates to an event occurring prior to the Closing Date. To the extent that the
Shareholders may now or in the future have the right to assert any Claim against
Seller that relates to an event occurring prior to the Closing Date, the
Shareholders hereby waive any such right and hereby release and forever
discharge Seller from any such Claim. For purposes of clarification, nothing in
this Section 9.2 shall limit any Claim Shareholders may have against Bridgeline
arising under this Agreement, including without limitation, for failure to pay
the Merger Consideration.
ARTICLE X
TAX MATTERS
Bridgeline, Seller and the Shareholders shall use reasonable efforts to
cause the Merger to be treated as a reorganization within the meaning of Section
368(a) of the Code and shall not knowingly take or fail to take any action which
action or failure to act would jeopardize the
39
qualification of the Merger as a reorganization within the meaning of Section
368(a) of the Code. The parties (a) without the other party's prior approval,
shall not file any Tax Return or take any position inconsistent with the
treatment of the Merger as a reorganization described in Section 368(a) of the
Code and shall not settle any tax dispute with respect to any pre-closing period
to the extent that the issue relates to the income, gain or losses of the other
party, and (b) shall comply with the record keeping and information-reporting
requirements set forth in Treas. Reg. 1.368-3.
ARTICLE XI
MISCELLANEOUS
11.1. PARTIES IN INTEREST. Except as otherwise set forth herein, all
covenants, agreements, representations, warranties and undertakings contained in
this Agreement shall be binding on and shall inure to the benefit of the
respective heirs, successors and assigns of the parties hereto (including
permitted transferees of any of the Shares or Bridgeline Stock). Except as may
be required to be disclosed by order of a court or otherwise required by law,
the parties agree to maintain in confidence the terms of this Agreement, except
that the parties hereto may disclose such terms to its accountants, lawyers,
bankers and advisors in the ordinary course. Except as otherwise specifically
provided herein, this Agreement shall not confer any rights or remedies upon any
person other than the parties hereto and their respective heirs, successors and
assigns. Notwithstanding anything to the contrary set forth herein, the
Shareholders are not intended third party beneficiaries of any of the Seller's
representations and warranties contained in this Agreement.
11.2. NOTICES. All notices, requests, consents, reports and demands shall
be in writing and shall be hand delivered, sent by fax or other electronic
medium, or sent by Federal Express or other overnight courier service providing
proof of delivery, to Bridgeline or the Shareholder, at the addresses set forth
below or to such other address for any such party as may be furnished in writing
to the other parties hereto:
Bridgeline: Xxxxxx X. Xxxxxx, President
Bridgeline Software, Inc.
00 Xxxxx Xxxx
Xxxxxx, XX 00000
Fax No.: 000-000-0000
With copy to: Xxxxxx X. Xxxxxx, Esq.
Xxxxx, Xxxxxx-Xxxxx & Xxxxxxxxx, P.C.
0000 Xxxxxxx Xxxx
Xxxxxxx, XX 00000
Fax No.: 000-000-0000
40
Seller/Shareholders: 000 Xxxxx Xxxxxx Xxxxxx
Xxx Xxxx, XX 00000
With copy to: Xxxxxxx Xxxx, Esq.
Much Shelist Xxxxxxxxx Xxxxx & Xxxxxxxxxx, P.C.
000 X. Xxxxxx Xxxxx, Xxxxx 0000
Xxxxxxx, XX 00000
Fax No: 000-000-0000
11.3. SEVERABILITY. All agreements and covenants contained in this
Agreement are severable, and in the event that any of them shall be held to be
invalid or unenforceable by any court of competent jurisdiction, then this
Agreement shall be interpreted as if such invalid agreements or covenants were
not contained herein.
11.4. COUNTERPARTS. This Agreement and any exhibit hereto may be executed
in multiple counterparts, each of which shall constitute an original, but all of
which shall constitute but one and the same instrument. One or more counterparts
of this Agreement or any exhibit hereto may be delivered via fax, with the
intention that they shall have the same effect as an original counterpart
hereof.
11.5. EFFECT OF HEADINGS/GENDER REFERENCES. The article and section
headings herein are for convenience only and shall not affect the construction
or interpretation hereof. The use of any gender in the Agreement shall be deemed
to include the other genders, and the use of the singular in this Agreement
shall be deemed to include the plural (and vice versa), wherever appropriate.
11.6. GOVERNING LAW. This Agreement shall be deemed a contract made under
the laws of the State of Delaware and together with the rights and obligations
of the parties hereunder, shall be construed under and governed by the laws of
such state. Any action or proceeding seeking to enforce any provision of, or
based on any right arising out of, this Agreement or any of the transactions
contemplated hereby, shall be brought against any of the parties in the courts
of the Commonwealth of Massachusetts, and each of the parties irrevocably
submits to the exclusive jurisdiction of such courts (and of the appropriate
appellate courts) in any such action or proceeding, waives any objection to
venue laid therein, agrees that all claims in respect of any action or
proceeding shall be heard and determined only in any such court and agrees not
to bring any action or proceeding arising out of or relating to this Agreement
or any transaction contemplated hereby in any other court. Process in any action
or proceeding referred to in the preceding sentence may be served on any party
anywhere in the world.
11.7. POST-CLOSING TAX MATTERS. Bridgeline agrees that it will cooperate
with the preparation of all tax returns of Seller for the period up to the
Closing Date. The Shareholders agree that such tax returns shall be prepared in
a manner consistent with Seller's historical practices.
41
11.8. NON-TRANSFERABILITY OF EARN-OUT PAYMENTS. Any rights of the
Shareholders to receive Earn-Out payments pursuant to this Agreement shall be
non-transferable without the prior written consent of Bridgeline.
Notwithstanding the foregoing, each Shareholder may transfer all or any of such
rights (a) as a gift to any member of his family or to any trust for the benefit
of any such family member or such Shareholder, PROVIDED THAT any such transferee
shall agree in writing with Bridgeline, as a condition precedent to such
transfer, to be bound by all of the provisions of this Agreement relating to the
Earn-Out payments, or (b) by will or the laws of descent and distribution, in
which event each such transferee shall be bound by all of the provisions of this
Agreement relating to the Earn-Out payments or (c) by court order, in which
event each such transferee shall be bound by all of the provisions of this
Agreement relating to the Earn-Out payments. As used herein, the word "family"
shall include any spouse, lineal ancestor or descendant, brother or sister.
11.9. DISCLOSURE. Certain information set forth in the Schedules has been
included and disclosed solely for informational purposes and may not be required
to be disclosed pursuant to the terms and conditions of the Agreement. The
disclosure of any such information shall not be deemed to constitute an
acknowledgement or agreement that the information is required to be disclosed in
connection with the representations and warranties made in the Agreement or that
the information is material, nor shall any information so included and disclosed
be deemed to establish a standard of materiality or otherwise used to determine
whether any other information is material.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
42
SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT
IN WITNESS WHEREOF, the parties hereto have executed this Agreement and
Plan of Merger on the date written above.
BRIDGELINE SOFTWARE, INC.
By: /s/ Xxxxxx X. Xxxxxx
----------------------------
Name: XXXXXX X. XXXXXX
Title: President and Chief Executive Officer
PURPLE MONKEY STUDIOS, INC.
By: /s/ Xxxxxxx Xxxxxxxxx
----------------------------
Name:
Title:
SHAREHOLDERS:
/s/ Xxxxxxx Xxxxxxxxx
--------------------------
XXXXXXX XXXXXXXXX
/s/ Xxxxxx Xxxxxxxx
--------------------------
XXXXXX XXXXXXXX
43
