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AGREEMENT OF MERGER AND
PLAN OF REORGANIZATION
among
BIRCH BRANCH, INC.
BIRCH BRANCH ACQUISITION CORP. and
FLUID AUDIO NETWORKS, INC.
SEPTEMBER 26,, 2006
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TABLE OF CONTENTS
-----------------
Page
----
1. The
Merger.................................................................1
1.1
Merger..............................................................1
1.2
Effective
Time......................................................2
1.3
Certificate of Incorporation, By-laws, Directors and
Officers.......2
1.4
Assets and
Liabilities..............................................2
1.5
Manner and
Basis of Converting Shares...............................3
1.6
Surrender
and Exchange of Certificates..............................3
1.7
Warrants............................................................4
1.8
Parent
Common Stock.................................................4
2. Representations and
Warranties of the Company..............................5
2.1
Organization, Standing, Subsidiaries,
Etc...........................5
2.2
Qualification.......................................................5
2.3
Capitalization of the
Company.......................................5
2.4
Company
Stockholders................................................5
2.5
Corporate
Acts and Proceedings......................................6
2.6
Compliance with Laws and
Instruments................................6
2.7
Binding
Obligations.................................................6
2.8
Broker's
and Finder's Fees..........................................6
2.9
Financial
Statements................................................6
2.10
Absence of
Undisclosed Liabilities..................................7
2.11
Changes.............................................................7
2.12
Employee Benefit
Plans; ERISA.......................................7
2.13
Title to
Property and Encumbrances..................................7
2.14
Litigation..........................................................8
2.15
Patents,
Trademarks, Etc............................................8
2.16
Disclosure..........................................................8
3. Representations and
Warranties of Parent and Acquisition Corp..............8
3.1
Organization and
Standing...........................................8
3.2
Corporate
Authority.................................................9
3.3
Broker's
and Finder's Fees..........................................9
3.4
Capitalization of
Parent............................................9
3.5
Acquisition
Corp...................................................10
3.6
Validity
of Shares.................................................10
3.7
SEC
Reporting and
Compliance.......................................10
3.8
Financial
Statements...............................................11
3.9
Governmental
Consents..............................................11
3.10
Compliance with
Laws and Instruments...............................11
3.11
No General
Solicitation............................................11
3.12
Binding
Obligations................................................11
3.13
Absence of
Undisclosed Liabilities.................................12
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3.14
Changes............................................................12
3.15
Tax Returns and
Audits.............................................13
3.16
Employee Benefit
Plans; ERISA......................................13
3.17
Litigation.........................................................14
3.18
Interested Party
Transactions......................................14
3.19
Questionable
Payments..............................................14
3.20
Obligations to
or by Stockholders..................................14
3.21
Assets and
Contracts...............................................14
3.22
Employees..........................................................15
3.23
Disclosure.........................................................15
4. Additional
Representations, Warranties and Covenants of the
Stockholders..15
5. Conduct of
Businesses Pending the
Merger..................................16
5.1
Conduct of
Business by the Company Pending the Merger..............16
5.2
Conduct of
Business by Parent and Acquisition Corp. Pending
the
Merger........................................................17
6. Additional
Agreements.....................................................18
6.1
Access and
Information.............................................18
6.2
Additional
Agreements..............................................18
6.3
Publicity..........................................................19
6.4
Appointment of
Directors...........................................19
6.5
Parent
Name Change and Exchange Listing............................19
6.6
Registration Rights
Agreement......................................19
6.7
Stock
Incentive Plan...............................................19
6.8
Private
Offering...................................................20
7. Conditions of
Parties' Obligations........................................20
7.1
Company
Obligations................................................20
7.2
Parent and
Acquisition Corp. Obligations...........................22
8. Non-Survival of
Representations and Warranties............................24
9. Amendment of
Agreement....................................................24
10.
Definitions...............................................................24
11.
Closing...................................................................28
12. Termination Prior to
Closing..............................................29
12.1
Termination of
Agreement...........................................29
12.2
Termination of
Obligations.........................................29
13.
Miscellaneous.............................................................30
13.1
Notices............................................................30
13.2
Entire
Agreement...................................................30
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13.3
Expenses...........................................................30
13.4
Time...............................................................30
13.5
Severability.......................................................30
13.6
Successors and
Assigns.............................................30
13.7
No Third Parties
Benefited.........................................31
13.8
Counterparts.......................................................31
13.9
Governing
Law......................................................31
iii
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LIST OF EXHIBITS AND SCHEDULES
------------------------------
Exhibits
--------
A
Certificate of Merger
B
Certificate of Incorporation of the Company
C
By-laws of the Company
D
Directors and Officers of the Surviving Corporation
E
Letter of Transmittal
F
Registration Rights Agreement
G
Form of Opinion of Company's Counsel
H
Form of Opinion of Parent's Counsel
I
Form of Release of Parent Officers and Directors
Company Disclosure Schedules
----------------------------
1.5
Holders of Parent Common Stock Post-Merger
1.7(a)(i) Treatment
of Company Warrants
2.4
Company Stockholders
2.9
Financial Statements
2.10
Undisclosed Liabilities
2.11
Changes/Indebtedness
2.12
Schedule of Employee Benefit Plans
2.13
Title to Properties and Encumbrances
2.14
Litigation
2.15
Patents, Trademarks, Etc.
Parent Disclosure Schedules
---------------------------
3.1
Subsidiaries
3.21
Schedule
of Parent Bank Accounts
iv
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AGREEMENT OF MERGER AND PLAN OF REORGANIZATION
----------------------------------------------
THIS AGREEMENT OF MERGER AND PLAN OF REORGANIZATION is made and
entered into on SEPTEMBER 26,, 2006, by and among BIRCH BRANCH,
INC., a Colorado
corporation
("Parent"), BIRCH
BRANCH ACQUISITION CORP., a Delaware corporation
("Acquisition Corp."),
which is a wholly-owned subsidiary of Parent, and
FLUID
AUDIO NETWORKS, INC., a Delaware corporation (the "Company").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS,
the Board of
Directors of each of Acquisition Corp.,
Parent and the Company have each determined that it is fair to and in the
best
interests of their
respective
corporations and
shareholders
for Acquisition
Corp. to be merged with and into the Company (the "Merger") upon the terms and
subject to the conditions set forth herein;
WHEREAS, upon the
Closing ( as defined herein), the Board of
Directors of
Acquisition Corp.
and the Board of
Directors of the Company have
approved the Merger in accordance with the General Corporation Law of the State
of Delaware (the "DGCL"), and upon the terms and subject to
the conditions set
forth herein and in
the Certificate
of Merger (the
"Certificate
of Merger")
attached as
Exhibit A hereto;
and the Board of
Directors of Parent has also
approved this Agreement and the Certificate of Merger;
WHEREAS, the requisite
Stockholders
(as such term is
defined in
Section 10 hereof) will have approved, by written consent pursuant to Sections
228 and 251 of the DGCL, this Agreement and the Certificate of Merger and the
transactions contemplated hereby and thereby, including without limitation,
the
Merger, and Parent,
as the sole
stockholder of
Acquisition Corp.,
will have
approved this
Agreement,
the Certificate of Merger and the transactions
contemplated and described hereby and thereby, including without
limitation, the
Merger; and
WHEREAS,
contemporaneously with
the Closing
(as such term is
defined herein),
Parent (as it will exist as of the closing of the Merger) will
sell shares of its common stock, no par value per share,
in a private
offering
(the "Private
Offering") to
accredited investors,
pursuant to the terms
of a
Confidential Private
Offering Memorandum,
and as it may be
supplemented (the
"Memorandum"), for the
purpose of financing the ongoing business and operations
of the Surviving Corporation (as defined below) following the
Merger.
NOW,
THEREFORE,
in consideration of the mutual agreements and
covenants hereinafter set forth, the parties hereto agree as
follows:
1.
The
Merger.
1.1 Merger. Subject to
the terms and conditions of this Agreement
and the Certificate of
Merger, Acquisition
Corp. upon the Closing, shall be
merged with and into the Company in accordance with Section 251 of the DGCL.
At
the Effective Time (as
hereinafter defined),
the separate legal
existence of
1
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Acquisition
Corp. shall
cease, and the Company shall be the surviving
corporation in the Merger (sometimes hereinafter referred to as the "Surviving
Corporation") and
shall continue its corporate existence under the laws of
the
State of Delaware under the name Fluid Audio Networks, Inc.
1.2 Effective Time. The Merger shall become effective on the date
and at the time the
Certificate of Merger
is filed with the Secretary of State
of the State of Delaware in accordance with Section 251 of the DGCL
but no later
than November 30, 2006. The time at which the Merger shall
become effective
as
aforesaid is referred to hereinafter as the "Effective Time."
1.3 Certificate of Incorporation, By-laws, Directors and
Officers.
(a) The Certificate of Incorporation of the Company, as in
effect immediately
prior to the Effective
Time, attached as
Exhibit B hereto,
shall be the Certificate of Incorporation of the Surviving
Corporation from
and
after the Effective
Time until further
amended in accordance
with applicable
law.
(b) The By-laws of the
Company, as in effect
immediately
prior to the Effective Time, attached as Exhibit C hereto,
shall be the
By-laws
of the Surviving
Corporation from and after the Effective Time until amended in
accordance with
applicable
law, the Certificate of Incorporation of the
Surviving Corporation and such By-laws.
(c) The directors and
officers listed in
Exhibit D hereto
shall be the directors and officers of the Surviving Corporation,
and each shall
hold his respective office or offices from and after the Effective
Time (except,
in the case of directors, as described in Section 6.4) until his
successor shall
have been elected and shall have qualified in accordance with
applicable law, or
as otherwise provided
in the Certificate
of Incorporation or By-laws of the
Surviving Corporation.
1.4 Assets and
Liabilities. At the
Effective Time, the Surviving
Corporation shall possess all the rights, privileges, powers and
franchises of a
public as well as of a private nature, and be subject to all the
restrictions,
disabilities and
duties of each of Acquisition Corp. and the Company
(collectively, the "Constituent Corporations"); and all the rights,
privileges,
powers and franchises of each of the Constituent Corporations, and
all property,
real, personal
and mixed, and all debts due to any of the constituent
corporations on whatever account, as well for stock subscriptions as all other
things in action or belonging to each of the Constituent
Corporations, shall
be
vested in the
Surviving Corporation;
and all property, rights, privileges,
powers and franchises,
and all and every
other interest shall be thereafter as
effectively the
property of the Surviving Corporation as they were of the
several and
respective
constituent
corporations,
and the title to any real
estate vested
by deed or otherwise in either of the such Constituent
Corporations shall not
revert or be in any way impaired by the Merger; but all
rights of creditors
and all liens upon any
property of any of the
Constituent
Corporations shall be
preserved unimpaired, and all debts, liabilities and
duties of the Constituent Corporations shall thenceforth attach to
the Surviving
Corporation, and may be enforced against it to the same extent as
if said debts,
liabilities and duties had been incurred or contracted by it.
2
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1.5 Manner
and Basis of Converting Shares.
(a) At the
Effective Time:
(i) each share of common stock, par value $.01 per
share, of Acquisition
Corp. that shall be outstanding immediately prior to the
Effective Time shall, by virtue of the Merger and without any
action on the part
of the holder thereof, be converted into the right to receive ten
(10) shares of
common stock, $.001 par value per share, of the Surviving
Corporation,
so that
at the Effective
Time, Parent shall be the holder of all of the issued and
outstanding shares of the Surviving Corporation;
(ii) the shares of common stock, par value $.001 per
share, of the Company (the "Company Common Stock"), which shares at the Closing
will constitute all of the issued and outstanding shares of capital
stock of the
Company, beneficially
owned by the
Stockholders listed in
Schedule 2.4 (other
than shares of Company Common Stock as to which appraisal rights are perfected
pursuant to the applicable provisions of the DGCL and not withdrawn
or otherwise
forfeited), shall, by virtue of the Merger and without any action
on the part of
the holders thereof, be converted into the right to receive the
number of shares
of Parent Common Stock
specified in Schedule 1.5 for each of the Stockholders,
which shall be equal to approximately 2.78 shares of Parent Common Stock for
each share of Company Common Stock (based on 11,098,552 shares of
Company Common
Stock pre-Merger
(including
outstanding
warrants and
convertible
debt) and
30,808,584
shares of Parent Common Stock allocated to the Stockholders
post-Merger, which
does not include
the Common
Stock issued in the Private
Offering); and
(iii) each share of Company Common Stock held in the
treasury of the Company, if any, immediately prior to the Effective
Time shall
be cancelled in the Merger and cease to exist.
(b) After the
Effective Time,
there shall be no further
registration of
transfers on the stock transfer books of the Surviving
Corporation of the
shares of Company Common Stock that were outstanding
immediately prior to the Effective Time.
1.6 Surrender and
Exchange of
Certificates. Promptly
after the
Effective Time
and upon (i) surrender of a certificate or certificates
representing shares of
Company Common Stock that were outstanding immediately
prior to the
Effective Time or an affidavit and indemnification in form
reasonably acceptable
to counsel for the Parent stating that such Stockholder
has lost its
certificate or
certificates or that
such have been destroyed and
(ii) delivery of a
Letter of Transmittal
(as described in Section 4
hereof),
Parent shall
issue to each record holder of the Company Common Stock
surrendering such
certificate or
certificates
and Letter of
Transmittal,
a
certificate or
certificates
registered
in the name of such Stockholder
representing the
number of shares of Parent Common Stock that such Stockholder
shall be entitled to receive as set forth in Section 1.5(a)(ii) hereof. Until
the certificate,
certificates or affidavit is or are surrendered together with
3
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the Letter of
Transmittal as
contemplated
by this Section 1.6 and Section 4
hereof, each
certificate or affidavit that immediately prior to the Effective
Time represented any outstanding shares of Company Common Stock
shall be deemed
at and after the
Effective Time to
represent only the right to receive
upon
surrender as aforesaid the Parent Common Stock specified in Schedule 1.5
hereof
for the holder thereof
or to perfect any rights of appraisal which such holder
may have pursuant to the applicable provisions of the DGCL.
1.7
Warrants.
--------
(a) (i) At the Effective Time, all outstanding warrants
issued by the Company to purchase shares of Company Common Stock (the "Company
Warrants") that have not been surrendered by the holder thereof
in exchange for
Company Common Stock,
will, at the Effective
Time, be deemed be a warrant (the
"Parent Warrants")
to acquire the same
number of shares of Parent Common Stock
as the holder of such
Company Warrants would have been entitled to receive
pursuant to the Merger had such holder exercised such Company
Warrants in full
immediately prior to
the Effective
Time at a price per
share of Parent Common
Stock equal to the
exercise price for the shares of Company Common Stock
otherwise purchasable
pursuant to such
Company Warrant. Schedule 1.7(a)(i)
attached hereto
sets forth the name of
each holder of Company
Warrants, the
aggregate number of
shares of Company
Common Stock that each
such person may
purchase pursuant
to the exercise of his or her Company Warrants and the
aggregate number of
shares of Parent
Common Stock
that each such
person may
purchase upon
exercise of Parent
Warrants acquired pursuant to this Section
1.7(a)(i). By its
signature hereunder,
Parent expressly assumes the obligation
to issue Parent Common
Stock to the holders of Parent Warrants upon exercise
thereof, in accordance with the provisions of this Section
1.7(a)(i).
(ii) Without
limiting
the generality of the
foregoing, the Company and the Parent shall take all corporate
actions as may be
necessary and desirable in order to effectuate the transactions
contemplated by
this Section 1.7(a).
(b) Parent shall take all action necessary and appropriate,
on or prior to the
Effective Time, to
authorize and reserve a number of shares
of Parent Common
Stock sufficient for issuance upon the exercise of Parent
Warrants following the Effective Time as contemplated by this
Section 1.7.
(c) Other than the Company Warrants, all options, warrants
and rights to purchase Company Common Stock outstanding as of the
Effective Date
will be exercised or terminated prior to or effective upon the
Effective Time,
and neither Parent nor
Acquisition
Corp. shall assume or have any
obligation
with respect to such options, warrants or rights.
1.8 Parent Common
Stock. Parent agrees that it will cause the
Parent Common
Stock into which the
Company Common
Stock is converted at the
Effective Time pursuant to Section 1.5(a)(ii) to be available for
such purpose.
Parent currently has 1,287,393 shares of common stock outstanding. Following a
three and three-quarters shares-for-one forward split, there shall
be a total of
4,827,724 shares
outstanding
in the Parent.
Parent further covenants that
immediately prior to
the Effective
Time there will be no
more than
4,827,724
shares of Parent Common Stock issued and outstanding, and that no other common
or preferred stock or
equity securities
or any options,
warrants, rights or
other agreements or
instruments
convertible,
exchangeable or exercisable into
common or preferred stock or other equity securities shall be issued or
outstanding.
4
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2.
Representations and
Warranties of the Company. As of the Closing, the
Company hereby
represents
and warrants to Parent and
Acquisition
Corp. as
follows:
2.1
Organization, Standing, Subsidiaries, Etc.
-----------------------------------------
(a) The Company is a corporation duly organized and
existing in good standing under the laws of the State of
Delaware, and has
all
requisite power and authority (corporate and other) to carry on its
business, to
own or lease its
properties and assets,
to enter into this
Agreement and the
Certificate of Merger
and to carry out the terms hereof and thereof. Copies of
the Certificate
of Incorporation and By-laws of the Company that have been
delivered to
Parent and Acquisition Corp. prior to the execution of this
Agreement are true and complete and have not since been amended or
repealed.
(b) Other than Disk
Faktory ( the "Subsidiaries"), the
Company has no
subsidiaries
or direct or indirect
interest (by way of stock
ownership or otherwise) in any firm, corporation, limited liability company,
partnership,
association or
business. The Company owns all of the issued
and
outstanding capital
stock or membership
interests of the Subsidiaries free and
clear of all Liens, and the Subsidiaries have no outstanding
options, warrants
or rights to purchase capital stock or other equity securities of such
Subsidiaries, other
than the capital stock or membership interests owned by the
Company. Unless the context otherwise requires, all references in
this Section 2
to the "Company"
shall be treated as
being a reference to
the Company and the
Subsidiaries taken together as one enterprise.
2.2 Qualification.
The Company is duly qualified to conduct
business as a foreign
corporation and is in good standing the State of Delaware
and in each other
jurisdiction
wherein the nature of its activities or its
properties owned or leased makes such qualification necessary,
except where the
failure to be so
qualified would not have a material adverse effect on the
condition (financial or otherwise), properties, assets, liabilities, business
operations, results of
operations or
prospects of the Company taken as a whole
(the "Condition of the Company").
2.3 Capitalization of the Company. The authorized capital stock
of
the Company consists
of 20,000,000
shares of Company
Common Stock, and the
Company has no authority to issue any other capital stock.
There are
11,098,552
shares of Company Common Stock issued and outstanding and committed
to be issued
and outstanding
upon the conversion of all options and
warrants, on a fully
diluted basis, and such shares are duly authorized, validly issued, fully paid
and nonassessable.
All shares,
options and warrants
are disclosed in Schedule
1.7(a)(i). Otherwise,
the Company has no
outstanding warrants,
stock options,
rights or commitments
to issue Company Common Stock or other Equity Securities
of the Company, and there are no outstanding securities convertible or
exercisable into or
exchangeable
for Company Common Stock or other Equity
Securities of the Company.
2.4 Company Stockholders. Schedule 2.4 hereto contains a
true and
complete list of the
names and addresses of the record owner of all of the
outstanding shares of
Company Common Stock
and other Equity
Securities of the
Company, together with
the number and percentage (on a fully-diluted basis) of
securities held.
To the knowledge of the Company, except as described in
Schedule 2.4, there is no voting trust, agreement or arrangement among any of
the beneficial
holders of Company
Common Stock
affecting the exercise
of the
voting rights of Company Common Stock.
5
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2.5 Corporate Acts and
Proceedings. The
execution, delivery
and
performance of this
Agreement and the
Certificate
of Merger (together, the
"Merger Documents")
have been duly
authorized by the Board of Directors of the
Company and have been approved by the requisite vote of the Stockholders, and
all of the corporate acts and other proceedings required for the due and valid
authorization,
execution, delivery
and performance of the Merger Documents and
the consummation of the Merger have been validly and appropriately
taken, except
for the filing of the Certificate of Merger referred to in Section
1.2.
2.6 Compliance with Laws and Instruments. To the knowledge of the
Company, the business,
products and operations of the Company have been and are
being conducted in compliance in all material respects with all
applicable laws,
rules and regulations, except for such violations thereof for which the
penalties, in the
aggregate,
would not have a
material adverse
effect on the
Condition of the Company. The execution, delivery and performance
by the Company
of the Merger
Documents and the consummation by the Company of the
transactions
contemplated by this Agreement: (a) will not require any
authorization,
consent
or approval of, or filing or registration with, any court or
governmental agency
or instrumentality,
except such as shall have been obtained prior to the
Closing, (b) will not cause the Company to violate or contravene in
any material
respect (i) any
provision of law, (ii)
any rule or regulation of any agency or
government, (iii) any
order, judgment or decree of any court, or (iv) any
provision of the
Certificate of
Incorporation or
By-laws of the Company, (c)
will not violate or be in conflict with, result in a breach of or
constitute
(with or without notice or lapse of time, or both) a default under, any
indenture, loan or credit agreement, deed of trust, mortgage,
security agreement
or other contract, agreement or instrument to which the Company is
a party or by
which the Company or any of its properties is bound or affected,
except as would
not have a material adverse effect on the Condition of the Company,
and (d) will
not result in the creation or imposition of any material Lien
upon any property
or asset of the Company.
2.7 Binding
Obligations.
The Merger
Documents constitute the
legal, valid and binding obligations of the Company and are
enforceable against
the Company
in accordance with their respective terms, except as such
enforcement is
limited by bankruptcy, insolvency and other similar laws
affecting the
enforcement
of creditors' rights generally and by general
principles of equity.
2.8 Broker's and Finder's Fees. No Person has, or as a result
of
the transactions contemplated herein will have, any right or valid
claim against
the Company, Parent,
Acquisition
Corp. or any
Stockholder for any commission,
fee or other
compensation as a
finder or broker, or
in any similar
capacity,
except as set forth in the section of the Memorandum entitled "Compensation to
Placement Agents and Advisors."
2.9 Financial Statements. Attached hereto as Schedule 2.9
are the
Company's audited
Consolidated
Balance Sheet, Consolidated Statement of
Operations,
Consolidated Statement
of Changes in Shareholders' Equity and
Consolidated Statement
of Cash Flows as of and for the year ended December 31,
2005, and the
Company's unaudited Consolidated Balance Sheet (the "Balance
Sheet") as of June 30, 2006 (the "Balance Sheet Date") and related
Statement of
Operations,
Consolidated Statement
of Changes in Shareholders' Equity and
Consolidated Statement of Cash Flows as of and for the six months
ended June 30,
2006. Such financial statements (i) are in accordance with the
books and records
6
<PAGE>
of the Company, (ii)
present fairly in all material respects the financial
condition of the Company at the dates therein specified and the results of
its
operations and changes in financial position for the periods therein
specified
and (iii) have been prepared in accordance with generally accepted accounting
principles ("GAAP") applied on a basis consistent with prior
accounting periods.
2.10 Absence
of Undisclosed Liabilities. The Company has no
material obligation
or liability (whether accrued, absolute, contingent,
liquidated or
otherwise,
whether due or to become due), arising out of any
transaction entered into at or prior to the Closing, except (a) as disclosed in
Schedule 2.10 and/or
Schedule 2.11 hereto, (b) to the extent set forth on
or
reserved against in
the Balance Sheet,
(c) current
liabilities
incurred and
obligations under
agreements
entered into in the
usual and ordinary course of
business since the
Balance Sheet Date,
none of which
(individually or in
the
aggregate) has had or
will have a material
adverse effect on the
Condition of
the Company and (d) by the specific terms of any written agreement,
document or
arrangement identified in the Schedules.
2.11 Changes. Since the Balance Sheet Date, except as disclosed
in
Schedule 2.11 hereto, the Company has not (a) incurred any debts,
obligations or
liabilities, absolute,
accrued, contingent or otherwise, whether due or to
become due, except for
fees, expenses and
liabilities
incurred in
connection
with the Merger and related transactions and current liabilities
incurred in the
usual and ordinary
course of business,
(b) discharged
or satisfied any
Liens
other than those
securing, or paid any
obligation
or liability other than,
current liabilities shown on the Balance Sheet and current
liabilities
incurred
since the Balance Sheet Date, in each case in the usual and
ordinary course of
business, (c)
mortgaged,
pledged or subjected to Lien any of its assets,
tangible or intangible, other than in the usual and ordinary course
of business,
(d) sold, transferred
or leased any of its assets, except in the usual and
ordinary course of business, (e) cancelled or compromised any
debt or claim, or
waived or released any
right, of material
value, (f) suffered any physical
damage, destruction or loss (whether or not covered by insurance)
materially and
adversely affecting
the Condition of the Company, or (g) entered into any
transaction other than in the usual and ordinary course of
business.
2.12 Employee Benefit Plans; ERISA. Schedule 2.12 lists all: (i)
"employee benefit
plans" as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), maintained or contributed to
by the Company and covering employees of the Company, including (i) any such
plans that are "employee welfare benefit plans" as defined in Section 3(1)
of
ERISA and (ii) any such plans that are "employee pension benefit plans" as
defined in Section 3(2) of ERISA (collectively, the "Company Benefit Plans");
and (ii) life and health insurance, hospitalization, savings, bonus, deferred
compensation,
incentive compensation, holiday, vacation, severance pay, sick
pay, sick leave,
disability,
tuition refund, service award, company car,
scholarship, relocation, patent award, fringe benefit and other
employee benefit
plans, contracts
(other than individual
employment,
consultancy or
severance
contracts), policies or practices of the Company providing employee
or executive
compensation or benefits to its employees, other than the Company Benefit
Plans
(collectively, the
"Benefit Arrangements"). Each Company Benefit Plan and
Benefit Arrangement
has been maintained and administered in all material
respects in accordance with applicable law.
2.13 Title to Property
and Encumbrances.
Except as disclosed
in
Schedule 2.13 hereto,
the Company has good, valid and indefeasible marketable
title to all properties and assets used in the conduct of
its business
(except
for property held under valid and subsisting leases which are in full force
and
effect and which are not in default) free of all Liens and other
encumbrances,
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except Permitted Liens
and such ordinary and customary imperfections of title,
restrictions and
encumbrances
as do not,
individually
or in the aggregate,
materially detract from the value of the property or assets or
materially impair
the use made thereof
by the Company in its business. Without limiting the
generality of the foregoing, the Company has good and
indefeasible title to all
of its properties and assets reflected in the Balance Sheet, except
for property
disposed of in the usual and ordinary course of business since the
Balance Sheet
Date and for property held under valid and subsisting leases which are in full
force and effect and which are not in default.
2.14 Litigation. Except as set forth on Schedule 2.14, there is
no
legal action,
suit, arbitration or other legal, administrative or other
governmental
proceeding pending
or, to the best knowledge of the Company,
threatened against
or affecting the Company or its properties, assets or
business, and after
reasonable
investigation, the
Company is not aware of any
incident, transaction,
occurrence
or circumstance that might reasonably be
expected to result in or form the basis for any such action,
suit, arbitration
or other proceeding.
The Company is not in
default with respect
to any order,
writ, judgment,
injunction, decree,
determination or award of any court or any
governmental agency or instrumentality or arbitration
authority.
2.15 Patents,
Trademarks, Etc. Schedule 2.15 sets forth a list of
all United States and foreign patents, trademarks, trade names,
copyrights, and
applications therefor
used by the Company
exclusively
in and material to
the
conduct of its business (the "Patent and Trademark Rights"). Except
as disclosed
in Schedule 2.15, (a) the Company owns or possesses adequate licenses or other
valid rights to use all Patent and Trademark Rights; and (b) to the Company's
knowledge, the conduct
of its business as now being conducted does not conflict
with any valid patents, trademarks, trade names or copyrights of
others in any
way which has a material adverse effect on the business or
financial
condition
of the Company or its business.
2.16 Disclosure. There is no fact relating to the Company that
the
Company has not disclosed to Parent that materially and adversely affects or,
insofar as the Company can now foresee, will materially and adversely
affect,
the condition
(financial
or otherwise), properties, assets, liabilities,
business operations or
results of operations of the Company. No representation
or warranty by the Company herein and no information disclosed in the schedules
or exhibits hereto by
the Company contains
any untrue statement
of a material
fact or omits
to state a material fact necessary to make the statements
contained herein or therein not misleading.
3.
Representations
and Warranties of
Parent and Acquisition Corp. As of
the Closing, Parent
and Acquisition Corp.
jointly and severally
represent and
warrant to the Company, as follows:
3.1 Organization
and Standing. Parent is a corporation duly
organized and existing in good standing under the laws of the State
of Colorado.
Acquisition Corp. is a
corporation duly organized and existing in good standing
under the laws of the State of Delaware. Parent and Acquisition Corp. have
heretofore delivered
to the Company complete and correct copies of their
respective Articles
or Certificates of Incorporation and By-laws as now in
effect. Parent and
Acquisition Corp. have full corporate power and authority to
carry on their respective businesses as they are now being
conducted and as now
proposed to be conducted and to own or lease their
respective
properties
and
assets. Except
as disclosed in Schedule 3.1 hereto, neither Parent nor
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Acquisition Corp. has any subsidiaries (except Parent as the sole
stockholder of
Acquisition Corp.) or
direct or indirect interest (by way of stock ownership or
otherwise) in any firm, corporation, limited liability company, partnership,
association or business. Parent owns all of the issued and
outstanding
capital
stock of Acquisition
Corp. free and clear of all Liens, and Acquisition Corp.
has no outstanding
options, warrants or rights to purchase
capital stock or
other equity securities of Acquisition Corp., other than the
capital stock owned
by Parent. Unless the context otherwise requires, all references in
this Section
3 to the "Parent"
shall be treated as being a reference to the Parent and
Acquisition Corp. taken together as one enterprise.
3.2 Corporate
Authority. Each of
Parent and/or Acquisition Corp.
(as the case may be) has full corporate power and authority to enter into the
Merger Documents
and the other
agreements
to be made
pursuant to the
Merger
Documents, and to
carry out the transactions contemplated hereby and thereby.
All corporate acts and proceedings required for the authorization, execution,
delivery and performance of the Merger Documents and such other
agreements and
documents by Parent and/or Acquisition Corp. (as the case may be)
have been duly
and validly taken or
will have been so taken prior to the Closing. Each of the
Merger Documents
constitutes a legal,
valid and binding
obligation of
Parent
and/or Acquisition Corp. (as the case may be), each enforceable
against them in
accordance with
their respective terms, except as such enforcement may be
limited by
bankruptcy,
insolvency,
reorganization
or other similar laws
affecting creditors' rights generally and by general principles of
equity.
3.3 Broker's and Finder's Fees. Except for the firms engaged by
the Company described
in Section 2.8, no
person, firm,
corporation
or other
entity is entitled by
reason of any act or
omission of Parent or
Acquisition
Corp. to any broker's or finder's fees, commission or other similar
compensation
with respect to the execution and delivery of this Agreement or the
Certificate
of Merger, or with respect to the consummation of the transactions
contemplated
hereby or thereby.
Parent and Acquisition Corp. jointly and severally indemnify
and hold Company
harmless from and against any and all loss, claim or liability
arising out of any
such claim
from any other
Person who claims he,
she or it
introduced
Parent or Acquisition Corp. to, or assisted them with, the
transactions contemplated by or described herein.
3.4 Capitalization
of Parent.
The authorized capital stock of
Parent consists of (a)
500,000,000
shares of common
stock, no par value per
share (the "Parent Common Stock"), of which not more than 4,827,724
shares will
be, prior to the
Effective Time, issued and outstanding, after taking into
consideration the
three and three quarters-for-one forward split of Parent
Common Stock as indicated in Section 7.2(f)(7)(iii) hereof, and (b) 50,000,000
shares of preferred stock, no par value per share, of which no
shares are issued
or outstanding.
Parent has no
outstanding
options, rights or commitments to
issue shares of Parent
Common Stock or any
other Equity Security
of Parent or
Acquisition Corp.,
and there are no outstanding securities convertible or
exercisable into or
exchangeable for shares of Parent Common Stock or any other
Equity Security
of Parent or Acquisition Corp. There is no voting trust,
agreement or arrangement among any of the beneficial holders of Parent Common
Stock affecting the
nomination or election
of directors or the exercise of the
voting rights of
Parent Common Stock.
All outstanding shares of the capital
stock of Parent are validly issued and outstanding, fully paid and
nonassessable, and
none of such shares
have been issued in
violation of the
preemptive rights of any person.
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<PAGE>
3.5 Acquisition
Corp.
Acquisition
Corp. is a wholly-owned
subsidiary of Parent that was formed specifically for the purpose of
the Merger
and that has not conducted any business or acquired any
property, and will
not
conduct any business or acquire any property prior to the Closing Date,
except
in preparation
for and otherwise in connection with the transactions
contemplated by this
Agreement,
the Certificate of Merger and the other
agreements to be made pursuant to or in connection with this Agreement and the
Certificate of Merger.
3.6 Validity of Shares. The 30,808,584 shares of Parent Common
Stock to be issued at the Closing pursuant to Section 1.5(a)(ii) hereof, when
issued and delivered in accordance with the terms hereof and of the
Certificate
of Merger, shall be duly and validly issued, fully paid and
nonassessable. Based
in part on the representations and warranties of the Stockholders as
contemplated by Section 4 hereof and assuming the accuracy thereof,
the issuance
of the Parent Common Stock upon the Merger pursuant to Section 1.5(a)(ii) will
be exempt from the
registration and
prospectus delivery
requirements
of the
Securities Act and from the qualification or registration requirements of any
applicable state blue sky or securities laws.
3.7 SEC Reporting and Compliance. (a) Parent filed a
registration
statement on Form 10-SB under the Exchange Act on September 13,
2004. Parent is
subject to Section 12(g) of the Exchange Act, and has filed with
the Commission
all reports required
to be filed by
companies registered
pursuant to
Section
12(g) of the Exchange
Act.
(b) Parent has
delivered to the
Company true and complete
copies of all annual reports on Form 10-KSB, quarterly reports on Form 10-QSB,
current reports
on Form 8-K and other statements reports and filings
(collectively, the
"Parent SEC Documents") filed by the Parent with the
Commission. None of
the Parent SEC
Documents, as of their
respective
dates,
contained any untrue statement of a material fact or omitted to
state a material
fact necessary in order to make the statements contained therein
not misleading.
(c) Parent has not filed, and nothing has occurred with
respect to which Parent would be required to file, any report on
Form 8-K. Prior
to and until the Closing, Parent will provide to the Company
copies of any and
all amendments
or supplements to the Parent SEC Documents filed with the
Commission since
September 26, 2006 and any and all subsequent statements,
reports and filings filed by the Parent with the Commission or delivered to the
stockholders of Parent.
(d) Parent is not an investment company within the meaning
of Section 3 of the Investment Company Act.
(e) The shares of
Parent Common
Stock are quoted on the
Over-the-Counter (OTC)
Bulletin Board under the symbol "BHBH.OB," and Parent is
in compliance in all material respects with all rules and
regulations of the OTC
Bulletin Board applicable to it and the Parent Stock. The OTC
Bulletin Board has
cleared the Form 211
filed by Parent
pursuant to Rule 15c2-11(a)(5) of the
Exchange Act.
(f) Between the date
hereof and the Closing
Date, Parent
shall continue to
satisfy the filing
requirements of the
Exchange Act and all
other requirements of applicable securities laws and the OTC
Bulletin Board.
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<PAGE>
(g) To the best
knowledge of Parent,
Parent has otherwise
complied with the Securities Act, Exchange Act and all other
applicable federal
and state securities laws.
3.8 Financial
Statements. The
balance sheets, and
statements of
operations, statements of changes in shareholders' equity and
statements of cash
flows contained in the Parent SEC Documents (the "Parent Financial
Statements")
(i) have been prepared
in accordance
with GAAP applied on a
basis consistent
with prior periods (and, in the case of unaudited financial information, on a
basis consistent with
year-end audits),
(ii) are in accordance
with the books
and records of the Parent, and (iii) present fairly in all material
respects the
financial condition of the Parent at the dates therein specified
and the results
of its operations
and changes in
financial position
for the periods
therein
specified. The financial statements included in the Annual Report
on Form 10-KSB
for the fiscal year ended June 30, 2006, are audited by, and
include the related
report of Miller & McCollum, Parent's independent certified
public accountants.
The financial
information
included in the Annual Report on Form 10-KSB but
reflects all adjustments (including normally recurring accounts) that Parent
considers necessary
for a fair
presentation of such
information and have been
prepared in
accordance
with
generally accepted accounting principles,
consistently applied.
3.9 Governmental
Consents. All c
