================================================================================
AGREEMENT OF MERGER AND
PLAN OF REORGANIZATION
among
BIRCH BRANCH, INC.
BIRCH BRANCH ACQUISITION CORP. and
FLUID AUDIO NETWORKS, INC.
SEPTEMBER 26,, 2006
================================================================================
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
i
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
ii
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
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
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
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
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
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
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
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
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,
7
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
8
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.
9
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.
10
(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 consents, approvals, orders, or
authorizations of, or registrations, qualifications, designations, declarations,
or filings with any federal or state governmental authority on the part of
Parent or Acquisition Corp. required in connection with the consummation of the
Merger shall have been obtained prior to, and be effective as of, the Closing.
3.10 Compliance with Laws and Instruments. The execution, delivery
and performance by Parent and/or Acquisition Corp. of this Agreement, the
Certificate of Merger and the other agreements to be made by Parent or
Acquisition Corp. pursuant to or in connection with this Agreement or the
Certificate of Merger and the consummation by Parent and/or Acquisition Corp. of
the transactions contemplated by the Merger Documents will not cause Parent
and/or Acquisition Corp. to violate or contravene (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 (v) any provision of their respective articles or
certificate of incorporation or by-laws as amended and in effect on and as of
the Closing Date and 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 agreement or contract to which Parent or Acquisition Corp. is
a party or by which Parent and/or Acquisition Corp. or any of their respective
properties is bound.
3.11 No General Solicitation. In issuing Parent Common Stock in
the Merger hereunder, neither Parent nor anyone acting on its behalf has offered
to sell the Parent Common Stock by any form of general solicitation or
advertising.
3.12 Binding Obligations. The Merger Documents constitute the
legal, valid and binding obligations of the Parent and Acquisition Corp., and
are enforceable against the Parent and Acquisition Corp., 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.
11
3.13 Absence of Undisclosed Liabilities. Neither Parent nor
Acquisition Corp. has any 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 the Parent SEC Documents, (b) to the extent set forth on or
reserved against in the audited balance sheet of Parent as of June 30, 2006 (the
"Parent Balance Sheet") or the Notes to the Parent Financial Statements, (c)
current liabilities incurred and obligations under agreements entered into in
the usual and ordinary course of business since June 30, 2006 (the "Parent
Balance Sheet Date"), none of which (individually or in the aggregate)
materially and adversely affects the condition (financial or otherwise),
properties, assets, liabilities, business operations, results of operations or
prospects of the Parent or Acquisition Corp., taken as a whole (the "Condition
of the Parent"), and (d) by the specific terms of any written agreement,
document or arrangement attached as an exhibit to the Parent SEC Documents.
3.14 Changes. Since the Parent Balance Sheet Date, except as
disclosed in the Parent SEC Documents, the Parent has not (a) incurred any
debts, obligations or liabilities, absolute, accrued or, to the Parent's
knowledge, contingent, whether due or to become due, except for 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 Parent
Balance Sheet and current liabilities incurred since the Parent 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) which could reasonably be expected to have
a material adverse effect on the Condition of the Parent, (g) entered into any
transaction other than in the usual and ordinary course of business, (h)
encountered any labor union difficulties, (i) made or granted any wage or salary
increase or made any increase in the amounts payable under any profit sharing,
bonus, deferred compensation, severance pay, insurance, pension, retirement or
other employee benefit plan, agreement or arrangement, other than in the
ordinary course of business consistent with past practice, or entered into any
employment agreement, (j) issued or sold any shares of capital stock, bonds,
notes, debentures or other securities or granted any options (including employee
stock options), warrants or other rights with respect thereto, (k) declared or
paid any dividends on or made any other distributions with respect to, or
purchased or redeemed, any of its outstanding capital stock, (l) suffered or
experienced any change in, or condition affecting, the financial condition of
the Parent other than changes, events or conditions in the usual and ordinary
course of its business, none of which (either by itself or in conjunction with
all such other changes, events and conditions) could reasonably be expected to
have a material adverse effect on the Condition of the Parent, (m) made any
change in the accounting principles, methods or practices followed by it or
depreciation or amortization policies or rates theretofore adopted, (n) made or
permitted any amendment or termination of any material contract, agreement or
license to which it is a party, (o) suffered any material loss not reflected in
the Parent Balance Sheet or its statement of income for the year ended on the
Parent Balance Sheet Date, (p) paid, or made any accrual or arrangement for
payment of, bonuses or special compensation of any kind or any severance or
termination pay to any present or former officer, director, employee,
stockholder or consultant, (q) made or agreed to make any charitable
12
contributions or incurred any non-business expenses in excess of $5,000 in the
aggregate, or (r) entered into any agreement, or otherwise obligated itself, to
do any of the foregoing.
3.15 Tax Returns and Audits. All required federal, state and local
Tax Returns of the Parent have been accurately prepared in all material respects
and duly and timely filed, and all federal, state and local Taxes required to be
paid with respect to the periods covered by such returns have been paid to the
extent that the same are material and have become due, except where the failure
so to file or pay could not reasonably be expected to have a material adverse
effect upon the Condition of the Parent. The Parent is not and has not been
delinquent in the payment of any Tax. The Parent has not had a Tax deficiency
assessed against it. None of the Parent's federal income tax returns nor any
state or local income or franchise tax returns has been audited by governmental
authorities. The reserves for Taxes reflected on the Parent Balance Sheet are
sufficient for the payment of all unpaid Taxes payable by the Parent with
respect to the period ended on the Parent Balance Sheet Date. There are no
federal, state, local or foreign audits, actions, suits, proceedings,
investigations, claims or administrative proceedings relating to Taxes or any
Tax Returns of the Parent now pending, and the Parent has not received any
notice of any proposed audits, investigations, claims or administrative
proceedings relating to Taxes or any Tax Returns.
3.16 Employee Benefit Plans; ERISA. (a) Except as disclosed in the
Parent SEC Documents, there are no "employee benefit plans" (within the meaning
of Section 3(3) of ERISA) nor any other employee benefit or fringe benefit
arrangements, practices, contracts, policies or programs other than programs
merely involving the regular payment of wages, commissions, or bonuses
established, maintained or contributed to by the Parent. Any plans listed in the
Parent SEC Documents are hereinafter referred to as the "Parent Employee Benefit
Plans."
(b) Any current and prior material documents, including all
amendments thereto, with respect to each Parent Employee Benefit Plan have been
given to the Company or its advisors.
(c) All Parent Employee Benefit Plans are in material
compliance with the applicable requirements of ERISA, the Code and any other
applicable state, federal or foreign law.
(d) There are no pending, or to the knowledge of the
Parent, threatened, claims or lawsuits which have been asserted or instituted
against any Parent Employee Benefit Plan, the assets of any of the trusts or
funds under the Parent Employee Benefit Plans, the plan sponsor or the plan
administrator of any of the Parent Employee Benefit Plans or against any
fiduciary of a Parent Employee Benefit Plan with respect to the operation of
such plan.
(e) There is no pending, or to the knowledge of the Parent,
threatened, investigation or pending or possible enforcement action by the
Pension Benefit Guaranty Corporation, the Department of Labor, the Internal
Revenue Service or any other government agency with respect to any Parent
Employee Benefit Plan.
13
(f) No actual or, to the knowledge of Parent, contingent
liability exists with respect to the funding of any Parent Employee Benefit Plan
or for any other expense or obligation of any Parent Employee Benefit Plan,
except as disclosed on the financial statements of the Parent or the Parent SEC
Documents, and to the knowledge of the Parent, no contingent liability exists
under ERISA with respect to any "multi-employer plan," as defined in Section
3(37) or Section 4001(a)(3) of ERISA.
3.17 Litigation. There is no legal action, suit, arbitration or
other legal, administrative or other governmental proceeding pending or, to the
knowledge of the Parent, threatened against or affecting the Parent or
Acquisition Corp. or their properties, assets or business. To the knowledge of
the Parent, neither Parent nor Acquisition Corp. is 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.
3.18 Interested Party Transactions. Except as disclosed in the
Parent SEC Documents, no officer, director or stockholder of the Parent or any
Affiliate or "associate" (as such term is defined in Rule 405 under the
Securities Act) of any such Person or the Parent has or has had, either directly
or indirectly, (a) an interest in any Person that (i) furnishes or sells
services or products that are furnished or sold or are proposed to be furnished
or sold by the Parent or (ii) purchases from or sells or furnishes to the Parent
any goods or services, or (b) a beneficial interest in any contract or agreement
to which the Parent is a party or by which it may be bound or affected.
3.19 Questionable Payments. Neither the Parent, Acquisition Corp.
nor to the knowledge of the Parent, any director, officer, agent, employee or
other Person associated with or acting on behalf of the Parent or Acquisition
Corp., has used any corporate funds for unlawful contributions, gifts,
entertainment or other unlawful expenses relating to political activity; made
any direct or indirect unlawful payments to government officials or employees
from corporate funds; established or maintained any unlawful or unrecorded fund
of corporate monies or other assets; made any false or fictitious entries on the
books of record of any such corporations; or made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment.
3.20 Obligations to or by Stockholders. Except as disclosed in the
Parent SEC Documents, the Parent has no liability or obligation or commitment to
any stockholder of Parent or any Affiliate or "associate" (as such term is
defined in Rule 405 under the Securities Act) of any stockholder of Parent, nor
does any stockholder of Parent or any such Affiliate or associate have any
liability, obligation or commitment to the Parent.
3.21 Assets and Contracts. Except as expressly set forth in a
schedule to this Agreement, the Parent Balance Sheet or the notes thereto, the
Parent is not a party to any written or oral agreement not made in the ordinary
course of business that is material to the Parent. Parent does not own any real
property. Parent is not a party to or otherwise barred by any written or oral
(a) agreement with any labor union, (b) agreement for the purchase of fixed
assets or for the purchase of materials, supplies or equipment in excess of
normal operating requirements, (c) agreement for the employment of any officer,
individual employee or other Person on a full-time basis or any agreement with
any Person for consulting services, (d) bonus, pension, profit sharing,
retirement, stock purchase, stock option, deferred compensation, medical,
14
hospitalization or life insurance or similar plan, contract or understanding
with respect to any or all of the employees of Parent or any other Person, (e)
indenture, loan or credit agreement, note agreement, deed of trust, mortgage,
security agreement, promissory note or other agreement or instrument relating to
or evidencing Indebtedness for Borrowed Money or subjecting any asset or
property of Parent to any Lien or evidencing any Indebtedness, (f) guaranty of
any Indebtedness, (g) lease or agreement under which Parent is lessee of or
holds or operates any property, real or personal, owned by any other Person, (h)
lease or agreement under which Parent is lessor or permits any Person to hold or
operate any property, real or personal, owned or controlled by Parent, (i)
agreement granting any preemptive right, right of first refusal or similar right
to any Person, (j) agreement or arrangement with any Affiliate or any
"associate" (as such term is defined in Rule 405 under the Securities Act) of
Parent or any present or former officer, director or stockholder of Parent, (k)
agreement obligating Parent to pay any royalty or similar charge for the use or
exploitation of any tangible or intangible property, (1) covenant not to compete
or other restriction on its ability to conduct a business or engage in any other
activity, (m) distributor, dealer, manufacturer's representative, sales agency,
franchise or advertising contract or commitment, (n) agreement to register
securities under the Securities Act, (o) collective bargaining agreement, or (p)
agreement or other commitment or arrangement with any Person continuing for a
period of more than two months from the Closing Date that involves an
expenditure or receipt by Parent in excess of $1,000. The Parent maintains no
insurance policies and insurance coverage of any kind with respect to Parent,
its business, premises, properties, assets, employees and agents. Schedule 3.21
contains a true and complete list and description of each bank account, savings
account, other deposit relationship and safety deposit box of Parent, including
the name of the bank or other depository, the account number and the names of
the individuals having signature or other withdrawal authority with respect
thereto. Except as disclosed on Schedule 3.21, no consent of any bank or other
depository is required to maintain any bank account, other deposit relationship
or safety deposit box of Parent in effect following the consummation of the
Merger and the transactions contemplated hereby. Parent has furnished to the
Company true and complete copies of all agreements and other documents disclosed
or referred to in Schedule 3.21 or the Parent Balance Sheet or the notes
thereto, as well as any additional agreements or documents, requested by the
Company.
3.22 Employees. Other than pursuant to ordinary arrangements of
employment compensation, Parent is not under any obligation or liability to any
officer, director, employee or Affiliate of Parent.
3.23 Disclosure. There is no fact relating to Parent that Parent
has not disclosed to the Company in writing that materially and adversely
affects nor, insofar as Parent can now foresee, will materially and adversely
affect, the condition (financial or otherwise), properties, assets, liabilities,
business operations, results of operations or prospects of Parent. No
representation or warranty by Parent herein and no information disclosed in the
schedules or exhibits hereto by Parent 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.
4. Additional Representations, Warranties and Covenants of the
Stockholders. Promptly after the Effective Time, Parent shall cause to be mailed
to each holder of record of Company Common Stock that was converted pursuant to
Section 1.5 hereof into the right to receive Parent Common Stock a letter of
transmittal ("Letter of Transmittal"), in substantially the form attached hereto
as Exhibit E, which shall contain additional representations, warranties and
covenants of such Stockholder, including, without limitation, that (i) such
Stockholder has full right, power and authority to deliver such Company Common
15
Stock and Letter of Transmittal, (ii) the delivery of such Company Common Stock
will not violate or be in conflict with, result in a breach of or constitute a
default under, any indenture, loan or credit agreement, deed of trust, mortgage,
security agreement or other agreement or instrument to which such Stockholder is
bound or affected, (iii) such Stockholder has good, valid and marketable title
to all shares of Company Common Stock indicated in such Letter of Transmittal
and that such Stockholder is not affected by any voting trust, agreement or
arrangement affecting the voting rights of such Company Common Stock, (iv) such
Stockholder is an "accredited investor," as such term is defined in Regulation D
under the Securities Act and that such Stockholder is acquiring Parent Common
Stock for investment purposes, and not with a view to selling or otherwise
distributing such Parent Common Stock in violation of the Securities Act or the
securities laws of any state, and (v) such Stockholder has had an opportunity to
ask and receive answers to any questions such Stockholder may have had
concerning the terms and conditions of the Merger and the Parent Common Stock
and has obtained any additional information that such Stockholder has requested.
Delivery shall be effected, and risk of loss and title to the Parent Common
Stock shall pass, only upon delivery to the Parent (or an agent of the Parent)
of (x) certificates evidencing ownership thereof as contemplated by Section 1.6
hereof (or affidavit of lost certificate), and (y) the Letter of Transmittal
containing the representations, warranties and covenants contemplated by this
Section 4.
5. Conduct of Businesses Pending the Merger.
-----------------------------------------
5.1 Conduct of Business by the Company Pending the Merger. Prior
to the Effective Time, unless Parent or Acquisition Corp. shall otherwise agree
in writing or as otherwise contemplated by this Agreement:
(a) the business of the Company shall be conducted only in
the ordinary course;
(b) the Company shall not (i) directly or indirectly
redeem, purchase or otherwise acquire or agree to redeem, purchase or otherwise
acquire any shares of its capital stock; (ii) amend its Certificate of
Incorporation or By-laws; or (iii) split, combine or reclassify the outstanding
Company Common Stock or declare, set aside or pay any dividend payable in cash,
stock or property or make any distribution with respect to any such stock;
(c) the Company shall not (i) issue or agree to issue any
additional shares of, or options, warrants or rights of any kind to acquire any
shares of, Company Common Stock; (ii) acquire or dispose of any fixed assets or
acquire or dispose of any other substantial assets other than in the ordinary
course of business; (iii) incur additional Indebtedness or any other liabilities
or enter into any other transaction other than in the ordinary course of
business; (iv) enter into any contract, agreement, commitment or arrangement
with respect to any of the foregoing; or (v) except as contemplated by this
Agreement, enter into any contract, agreement, commitment or arrangement to
dissolve, merge, consolidate or enter into any other material business
combination;
(d) the Company shall use its best efforts to preserve
intact the business organization of the Company, to keep available the service
of its present officers and key employees, and to preserve the good will of
those having business relationships with it;
16
(e) the Company will not, nor will it authorize any
director or authorize or permit any officer or employee or any attorney,
accountant or other representative retained by it to, make, solicit, encourage
any inquiries with respect to, or engage in any negotiations concerning, any
Acquisition Proposal (as defined below). The Company will promptly advise Parent
orally and in writing of any such inquiries or proposals (or requests for
information) and the substance thereof. As used in this paragraph, "Acquisition
Proposal" shall mean any proposal for a merger or other business combination
involving the Company or for the acquisition of a substantial equity interest in
it or any material assets of it other than as contemplated by this Agreement.
The Company will immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any person conducted heretofore
with respect to any of the foregoing; and
(f) except for the employment agreements contemplated by
Section 7.1(g)(5), the Company will not enter into any new employment agreements
with any of its officers or employees or grant any increases in the compensation
or benefits of its officers and employees other than increases in the ordinary
course of business and consistent with past practice or amend any employee
benefit plan or arrangement.
5.2 Conduct of Business by Parent and Acquisition Corp. Pending
the Merger. Prior to the Effective Time, unless the Company shall otherwise
agree in writing or as otherwise contemplated by this Agreement:
(a) the business of Parent and Acquisition Corp. shall be
conducted only in the ordinary course; provided, however, that Parent shall take
the steps necessary to have discontinued its existing business without liability
to Parent or Acquisition Corp. as of the Closing Date;
(b) neither Parent nor Acquisition Corp. shall (A) directly
or indirectly redeem, purchase or otherwise acquire or agree to redeem, purchase
or otherwise acquire any shares of its capital stock; (B) amend its articles or
certificate of incorporation or by-laws; or (C) split, combine or reclassify its
capital stock or declare, set aside or pay any dividend payable in cash, stock
or property or make any distribution with respect to such stock; and
(c) neither Parent nor Acquisition Corp. shall (A) issue or
agree to issue any additional shares of, or options, warrants or rights of any
kind to acquire shares of, its capital stock; (B) acquire or dispose of any
assets other than in the ordinary course of business (except for dispositions in
connection with Section 5.2(a) hereof); (C) incur additional Indebtedness or any
other liabilities or enter into any other transaction except in the ordinary
course of business; (D) enter into any contract, agreement, commitment or
arrangement with respect to any of the foregoing, or (E) except as contemplated
by this Agreement, enter into any contract, agreement, commitment or arrangement
to dissolve, merge; consolidate or enter into any other material business
contract or enter into any negotiations in connection therewith.
(d) neither Parent nor Acquisition Corp. will, nor will
they authorize any director or authorize or permit any officer or employee or
any attorney, accountant or other representative retained by them to, make,
solicit, encourage any inquiries with respect to, or engage in any negotiations
concerning, any Acquisition Proposal (as defined below for purposes of this
paragraph). Parent will promptly advise the Company orally and in writing of any
17
such inquiries or proposals (or requests for information) and the substance
thereof. As used in this paragraph, "Acquisition Proposal" shall mean any
proposal for a merger or other business combination involving the Parent or
Acquisition Corp. or for the acquisition of a substantial equity interest in
either of them or any material assets of either of them other than as
contemplated by this Agreement. Parent will immediately cease and cause to be
terminated any existing activities, discussions or negotiations with any person
conducted heretofore with respect to any of the foregoing; and
(e) neither the Parent nor Acquisition Corp. will enter
into any new employment agreements with any of their officers or employees or
grant any increases in the compensation or benefits of their officers or
employees.
6. Additional Agreements.
---------------------
6.1 Access and Information. The Company, Parent and Acquisition
Corp. shall each afford to the other and to the other's accountants, counsel and
other representatives full access during normal business hours throughout the
period prior to the Effective Time of all of its properties, books, contracts,
commitments and records (including but not limited to tax returns) and during
such period, each shall furnish promptly to the other all information concerning
its business, properties and personnel as such other party may reasonably
request; provided, that no investigation pursuant to this Section 6.1 shall
affect any representations or warranties made herein. Each party shall hold, and
shall cause its employees and agents to hold, in confidence all such information
(other than such information which (i) is already in such party's possession or
(ii) becomes generally available to the public other than as a result of a
disclosure by such party or its directors, officers, managers, employees, agents
or advisors, or (iii) becomes available to such party on a non-confidential
basis from a source other than a party hereto or its advisors, provided that
such source is not known by such party to be bound by a confidentiality
agreement with or other obligation of secrecy to a party hereto or another party
until such time as such information is otherwise publicly available; provided,
however, that (A) any such information may be disclosed to such party's
directors, officers, employees and representatives of such party's advisors who
need to know such information for the purpose of evaluating the transactions
contemplated hereby (it being understood that such directors, officers,
employees and representatives shall be informed by such party of the
confidential nature of such information), (B) any disclosure of such information
may be made as to which the party hereto furnishing such information has
consented in writing, and (C) any such information may be disclosed pursuant to
a judicial, administrative or governmental order or request; provided, however,
that the requested party will promptly so notify the other party so that the
other party may seek a protective order or appropriate remedy and/or waive
compliance with this Agreement and if such protective order or other remedy is
not obtained or the other party waives compliance with this provision, the
requested party will furnish only that portion of such information which is
legally required and will exercise its best efforts to obtain a protective order
or other reliable assurance that confidential treatment will be accorded the
information furnished). If this Agreement is terminated, each party will deliver
to the other all documents and other materials (including copies) obtained by
such party or on its behalf from the other party as a result of this Agreement
or in connection herewith, whether so obtained before or after the execution
hereof.
6.2 Additional Agreements. Subject to the terms and conditions
herein provided, each of the parties hereto agrees to use its commercially
reasonable efforts to take, or cause to be taken, all action and to do, or cause
to be done, all things necessary, proper or advisable under applicable laws and
18
regulations to consummate and make effective the transactions contemplated by
this Agreement, including using its commercially reasonable efforts to satisfy
the conditions precedent to the obligations of any of the parties hereto to
obtain all necessary waivers, and to lift any injunction or other legal bar to
the Merger (and, in such case, to proceed with the Merger as expeditiously as
possible). In order to obtain any necessary governmental or regulatory action or
non-action, waiver, consent, extension or approval, each of Parent, Acquisition
Corp. and the Company agrees to take all reasonable actions and to enter into
all reasonable agreements as may be necessary to obtain timely governmental or
regulatory approvals and to take such further action in connection therewith as
may be necessary. In case at any time after the Effective Time any further
action is necessary or desirable to carry out the purposes of this Agreement,
the proper officers and/or directors of Parent, Acquisition Corp. and the
Company shall take all such necessary action.
6.3 Publicity. No party shall issue any press release or public
announcement pertaining to the Merger that has not been agreed upon in advance
by Parent and the Company, except as Parent reasonably determines to be
necessary in order to comply with the rules of the Commission or of the
principal trading exchange or market for Parent Common Stock; provided, that in
such case Parent will use its best efforts to allow the Company to review and
reasonably approve any press release or public announcement prior to its
release.
6.4 Appointment of Directors. Parent shall accept the resignation
of the current officers and directors of Parent as provided by Section 7.2(f)(7)
hereof, and shall cause the persons listed as directors in Exhibit D hereto to
be elected to the Board of Directors of Parent, in each case immediately upon
the Effective Time, except that the resignation and appointment of certain
directors shall be delayed until compliance with Section 14(f) of the Exchange
Act and rules promulgated thereunder, as set forth in Section 7.2(f)(7) hereof.
At the first annual meeting of Parent stockholders and thereafter, the election
of members of Parent's Board of Directors shall be accomplished in accordance
with the by-laws of Parent.
6.5 Parent Name Change and Exchange Listing. At the Effective
Time, Parent shall take all required legal actions, including the filing of an
Information Statement on Schedule 14C under the Exchange Act, to change its
corporate name to Fluid Audio Networks, Inc. Promptly following the Effective
Time, Parent shall take all required actions to, upon satisfaction of the
original listing requirements, list the Parent Common Stock for trading on the
American Stock Exchange.
6.6 Registration Rights Agreement. As of the Effective Time,
Parent shall enter into a Registration Rights Agreement with the Stockholders on
substantially the terms set forth in the form of agreement attached as Exhibit
F.
6.7 Stock Incentive Plan. At the Effective Time, Parent shall
establish an incentive compensation plan (the "Parent Incentive Plan") to
authorize for issuance under the Company Incentive Plan approximately up to
1,500,000 shares of Parent Common Stock, or an aggregate of approximately ten
percent (10%) of the number of shares of Parent Common Stock to be issued and
outstanding following the Merger and after giving effect to the number of shares
of Parent Common Stock issued pursuant to the Private Offering. Stock options
issuable pursuant to the Parent Incentive Plan shall be used for attracting and
19
retaining employees, directors and outside consultants and such other purposes
as may be deemed by Parent's Board of Directors and shall be granted from time
to time under the guidance and approval of Parent's Board of Directors or
Compensation Committee.
6.8 Private Offering. Company shall cause the Private Offering to
be consummated contemporaneously with the Effective Time. Parent will issue one
share of its Common Stock for each share of the Common Stock sold in the Private
Placement. It shall be a condition of the Closing of this transaction that the
Private Offering shall have raised a minimum of $3,000,000. In the event that
the Company fails to raise $3,000,000 by November 30, 2006, the Company shall
convey 100,000 shares of its common stock to Parent. A certificate for 100,000
shares shall be held in escrow by Parent's counsel for support of the condition;
provided, however that the said 100,000 shares shall be returned the Company in
the event that the Agreement terminates under the provisions of Section 12.1 (a)
or (b) of this Agreement..
7. Conditions of Parties' Obligations.
----------------------------------
7.1 Company Obligations. The obligations of Parent and Acquisition
Corp. under this Agreement and the Certificate of Merger are subject to the
fulfillment at or prior to the Closing of the following conditions, any of which
may be waived in whole or in part by Parent.
(a) No Errors, etc. The representations and warranties of
the Company under this Agreement shall be deemed to have been made again on the
Closing Date and shall then be true and correct in all material respects.
(b) Compliance with Agreement. The Company shall have
performed and complied in all material respects with all agreements and
conditions required by this Agreement to be performed or complied with by it on
or before the Closing Date.
(c) No Default or Adverse Change. There shall not exist on
the Closing Date any Default or Event of Default or any event or condition that,
with the giving of notice or lapse of time, or both, would constitute a Default
or Event of Default, and since the Balance Sheet Date, there shall have been no
material adverse change in the Condition of the Company.
(d) Certificate of Officer. The Company shall have
delivered to Parent and Acquisition Corp. a certificate dated the Closing Date,
executed on its behalf by the Chairman and Chief Executive Officer of the
Company, certifying the satisfaction of the conditions specified in paragraphs
(a), (b) and (c) of this Section 7.1.
(e) Opinion of the Company's Counsel. Parent and
Acquisition Corp. shall have received from David Wagner & Associates, P.C.
Greenwood Village, Colorado, counsel for the Company, a favorable opinion dated
the Closing Date to the effect set forth in Exhibit G hereto.
(f) No Restraining Action. No action or proceeding before
any court, governmental body or agency shall have been threatened, asserted or
instituted to restrain or prohibit, or to obtain substantial damages in respect
of, this Agreement or the Certificate of Merger or the carrying out of the
transactions contemplated by the Merger Documents.
20
(g) Private Placement. The Company shall have raised at
least $3,000,000 in accordance with Section 6.8 above.
(h) Supporting Documents. Parent and Acquisition Corp.
shall have received the following:
(1) Copies of resolutions of the Board of Directors
and the Stockholders of the Company, certified by the Secretary of the Company,
authorizing and approving the execution, delivery and performance of the Merger
Documents and all other documents and instruments to be delivered pursuant
hereto and thereto.
(2) A certificate of incumbency executed by the
Secretary of the Company certifying the names, titles and signatures of the
officers authorized to execute any documents referred to in this Agreement and
further certifying that the Certificate of Incorporation and By-laws of the
Company delivered to Parent and Acquisition Corp. at the time of the execution
of this Agreement have been validly adopted and have not been amended or
modified.
(3) A certificate, dated the Closing Date, executed
by the Company's Secretary, certifying that, except for the filing of the
Certificate of Merger: (i) all consents, authorizations, orders and approvals
of, and filings and registrations with, any court, governmental body or
instrumentality that are required for the execution and delivery of this
Agreement and the Certificate of Merger and the consummation of the Merger shall
have been duly made or obtained, and all material consents by third parties that
are required for the Merger have been obtained; and (ii) no action or proceeding
before any court, governmental body or agency has been threatened, asserted or
instituted to restrain or prohibit, or to obtain substantial damages in respect
of, this Agreement or the Certificate of Merger or the carrying out of the
transactions contemplated by the Merger Documents.
(4) Evidence as of a recent date of the good
standing and corporate existence of the Company issued by the Secretary of State
of the State of Delaware and evidence that the Company is qualified to transact
business as a foreign corporation and is in good standing in Iowa and each other
state of the United States and in each other jurisdiction where the character of
the property owned or leased by it or the nature of its activities makes such
qualification necessary.
(5) Employment Agreements between Parent and each of
the following individuals: Robert Buch, James Williams, Michael Raeford, and
David Williams, each of which agreements shall be effective as of the Closing
Date.
(6) Such additional supporting documentation and
other information with respect to the transactions contemplated hereby as Parent
and Acquisition Corp. may reasonably request.
(i) Proceedings and Documents. All corporate and other
proceedings and actions taken in connection with the transactions contemplated
hereby and all certificates, opinions, agreements, instruments and documents
mentioned herein or incident to any such transactions shall be reasonably
satisfactory in form and substance to Parent and Acquisition Corp. The Company
21
shall furnish to Parent and Acquisition Corp. such supporting documentation and
evidence of the satisfaction of any or all of the conditions precedent specified
in this Section 7.1 as Parent or its counsel may reasonably request.
7.2 Parent and Acquisition Corp. Obligations. The obligations of
the Company under this Agreement and the Certificate of Merger are subject to
the fulfillment at or prior to the Closing of the conditions precedent specified
in paragraph (f) of Section 7.1 hereof and the following additional conditions:
(a) No Errors, etc. The representations and warranties of
Parent and Acquisition Corp. under this Agreement shall be deemed to have been
made again on the Closing Date and shall then be true and correct in all
material respects.
(b) Compliance with Agreement. Parent and Acquisition Corp.
shall have performed and complied in all material respects with all agreements
and conditions required by this Agreement and the Certificate of Merger to be
performed or complied with by them on or before the Closing Date.
(c) No Default or Adverse Change. There shall not exist on
the Closing Date any Default or Event of Default or any event or condition, that
with the giving of notice or lapse of time, or both, would constitute a Default
of Event of Default, and since the Parent Balance Sheet Date, there shall have
been no material adverse change in the Condition of the Parent.
(d) Certificate of Officer. Parent and Acquisition Corp.
shall have delivered to the Company a certificate dated the Closing Date,
executed on their behalf by their respective President, certifying the
satisfaction of the conditions specified in paragraphs (a), (b), and (c) of this
Section 7.2.
(e) Opinion of Parent's Counsel. The Company shall have
received from Gary Agron. Esq. Greenwood Village, Colorado, counsel for Parent,
a favorable opinion dated the Closing Date to the effect set forth in Exhibit H
hereto.
(f) Supporting Documents. The Company shall have received
the following:
(1) Copies of resolutions of Parent's and
Acquisition Corp.'s respective boards of directors and the sole shareholder of
Acquisition Corp., certified by their respective Secretaries, authorizing and
approving, to the extent applicable, the execution, delivery and performance of
this Agreement, the Certificate of Merger and all other documents and
instruments to be delivered by them pursuant hereto and thereto.
(2) A certificate of incumbency executed by the
respective Secretaries of Parent and Acquisition Corp. certifying the names,
titles and signatures of the officers authorized to execute the documents
referred to in paragraph (1) above and further certifying that the articles or
certificates of incorporation and by-laws of Parent and Acquisition Corp.
appended thereto have not been amended or modified.
(3) A certificate, dated the Closing Date, executed
by the Secretary of each of the Parent and Acquisition Corp., certifying that,
except for the filing of the Certificate of Merger: (i) all consents,
22
authorizations, orders and approvals of, and filings and registrations with, any
court, governmental body or instrumentality that are required for the execution
and delivery of this Agreement and the Certificate of Merger and the
consummation of the Merger shall have been duly made or obtained, and all
material consents by third parties required for the Merger have been obtained;
and (ii) no action or proceeding before any court, governmental body or agency
has been threatened, asserted or instituted to restrain or prohibit, or to
obtain substantial damages in respect of, this Agreement or the Certificate of
Merger or the carrying out of the transactions contemplated by any of the Merger
Documents.
(4) A certificate of Corporate Stock Transfer, Inc.,
Parent's transfer agent and registrar, certifying as of the business day prior
to the Closing Date, and 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, a true and complete list of the names and addresses of
the record owners of all of the outstanding shares of Parent Common Stock,
together with the number of shares of Parent Common Stock held by each record
owner.
(5) A letter from Corporate Stock Transfer, Inc.,
Parent's transfer agent and registrar setting forth that the number of shares of
Parent Common Stock that would be issued and outstanding as of the Closing Date
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, but
prior to the closing of the Merger, is no more than 4,827,724 shares of Parent
Common Stock.
(6) An agreement in writing from Miller & McCollum,
in form and substance reasonably satisfactory to the Company, to deliver copies
of the audit opinions and audit reports with respect to any and all financial
statements of Parent that had been audited by such firm.
(7) (i) The executed resignations from Birch Branch
of Michael L. Schumacher and George A. Powell as directors and officers of
Parent, with the officer resignations to take effect at the Effective Time, with
the resignation of Mr. Powell as director to take effect at the Effective Time,
and with the resignation of Mr. Schumacher to take effect upon compliance with
Section 14(f) of the Exchange Act and rules promulgated thereunder, (ii)
executed releases of Birch Branch from Michael L. Schumacher and George A.
Powell and an indemnity by the Company of Michael L. Schumacher relating to the
time period between the Effective Time and compliance with Section 14(f) of the
Exchange Act and rules promulgated thereunder, in the form attached hereto as
Exhibit I, and (iii) stock power executed in blank by Michael L. Schumacher for
50,000 post-split shares of Parent common stock(which shares shall be cancelled
and retired by Parent) evidencing the cancellation of 50,000 post-split shares
of Parent Common Stock owned by him in consideration for $500,000 and the
agreement described in clause (8) below.
(8) On the Closing Date, Michael L. Schumacher shall
exchange 50,000 post-split shares of Parent's common stock for all of Parent's
rights, title and interest in any real estate assets and shall assume all debt
of Parent in connections therewith.
23
(9) Evidence in form and substance reasonably
satisfactory to the Company of the termination as of or prior to the Effective
Time of all of Parent's agreements with any entities.
(10) Evidence as of a recent date of the good
standing and corporate existence of the Parent made available to the Company by
the Secretary of State of Colorado and evidence that the Parent is qualified to
transact business as a foreign corporation and is in good standing in each state
of the United States and in each other jurisdiction where the character of the
property owned or leased by it or the nature of its activities makes such
qualification necessary.
(11) Evidence as of a recent date of the good
standing and corporate existence of Acquisition Corp. issued by the Secretary of
State of Delaware.
(12) Such additional supporting documentation and
other information with respect to the transactions contemplated hereby as the
Company may reasonably request.
(g) Proceedings and Documents. All corporate and other
proceedings and actions taken in connection with the transactions contemplated
hereby and all certificates, opinions, agreements, instruments and documents
mentioned herein or incident to any such transactions shall be satisfactory in
form and substance to the Company. Parent and Acquisition Corp. shall furnish to
the Company such supporting documentation and evidence of satisfaction of any or
all of the conditions specified in this Section 7.2 as the Company may
reasonably request.
The Company and Parent may waive compliance with any of the
conditions precedent specified in this Section 7.2.
8. Non-Survival of Representations and Warranties. The representations
and warranties of the parties made in Sections 2 and 3 of this Agreement
(including the Schedules to the Agreement which are hereby incorporated by
reference) shall survive for six months beyond the Effective Time. This Section
8 shall not limit any claim for fraud or any covenant or agreement of the
parties which by its terms contemplates performance after the Effective Time.
9. Amendment of Agreement. This Agreement and the Certificate of Merger
may be amended or modified at any time in all respects by an instrument in
writing executed (i) in the case of this Agreement by the parties hereto and
(ii) in the case of the Certificate of Merger by the parties thereto.
10. Definitions. Unless the context otherwise requires, the terms defined
in this Section 10 shall have the meanings herein specified for all purposes of
this Agreement, applicable to both the singular and plural forms of any of the
terms herein defined.
"Acquisition Corp." means Birch Branch Acquisition Corp., a
Delaware corporation.
"Acquisition Proposal" shall have the meaning assigned to such
term in each of Section 5.1(e) and Section 5.2(d) hereof, as applicable.
24
"Affiliate" shall mean any Person that directly or indirectly
controls, is controlled by, or is under common control with, the indicated
Person.
"Agreement" shall mean this Agreement.
"Balance Sheet" and "Balance Sheet Date" shall have the meanings
assigned to such terms in Section 2.9 hereof.
"Benefit Arrangements" shall have the meaning assigned to it in
Section 2.12 hereof.
"Certificate of Merger" shall have the meaning assigned to it in
the second recital of this Agreement.
"Closing" and "Closing Date" shall have the meanings assigned to
such terms in Section 11 hereof.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Commission" shall mean the U.S. Securities and Exchange
Commission.
"Company" shall mean Fluid Audio Networks, inc., a Delaware
corporation.
"Company Common Stock" shall have the meaning assigned to it in
Section 1.5(a)(ii).
"Company Benefit Plans" shall have the meaning assigned to it in
Section 2.12 hereof.
"Company Warrants" shall have the meaning assigned to it in
Section 1.7(a) hereof.
"Condition of the Company" shall have the meaning assigned to it
in Section 2.2 hereof.
"Condition of the Parent" shall have the meaning assigned to it in
Section 3.13 hereof.
"Constituent Corporations" shall have the meaning assigned to it
in Section 1.4 hereof.
"Default" shall mean a default or failure in the due observance or
performance of any covenant, condition or agreement on the part of the Company
to be observed or performed under the terms of this Agreement or the Certificate
of Merger, if such default or failure in performance shall remain unremedied for
five (5) days.
"DGCL" shall have the meaning assigned to it in the second recital
hereof.
"Effective Time" shall have the meaning assigned to it in Section
1.2 hereof.
25
"Equity Security" shall mean any stock or similar security of an
issuer or any security (whether stock or Indebtedness for Borrowed Money)
convertible, with or without consideration, into any stock or similar equity
security, or any security (whether stock or Indebtedness for Borrowed Money)
carrying any warrant or right to subscribe to or purchase any stock or similar
security, or any such warrant or right.
"ERISA" shall have the meaning assigned to it in Section 2.12
hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Event of Default" shall mean (a) the failure of the Company to
pay any Indebtedness for Borrowed Money, or any interest or premium thereon,
within five (5) days after the same shall become due, whether such Indebtedness
shall become due by scheduled maturity, by required prepayment, by acceleration,
by demand or otherwise, (b) an event of default under any agreement or
instrument evidencing or securing or relating to any such Indebtedness, or (c)
the failure of the Company to perform or observe any material term, covenant,
agreement or condition on its part to be performed or observed under any
agreement or instrument evidencing or securing or relating to any such
Indebtedness when such term, covenant or agreement is required to be performed
or observed.
"GAAP" shall have the meaning assigned to it in Section 2.9
hereof.
"Indebtedness" shall mean any obligation of the Company which
under generally accepted accounting principles is required to be shown on the
balance sheet of the Company as a liability. Any obligation secured by a Lien
on, or payable out of the proceeds of production from, property of the Company
shall be deemed to be Indebtedness even though such obligation is not assumed by
the Company.
"Indebtedness for Borrowed Money" shall mean (a) all Indebtedness
in respect of money borrowed including, without limitation, Indebtedness which
represents the unpaid amount of the purchase price of any property and is
incurred in lieu of borrowing money or using available funds to pay such amounts
and not constituting an account payable or expense accrual incurred or assumed
in the ordinary course of business of the Company, (b) all Indebtedness
evidenced by a promissory note, bond or similar written obligation to pay money,
or (c) all such Indebtedness guaranteed by the Company or for which the Company
is otherwise contingently liable.
"Investment Company Act" shall mean the Investment Company Act of
1940, as amended.
"knowledge" and "know" means, when referring to any person or
entity, the actual knowledge of such person or entity of a particular matter or
fact, and what that person or entity would have reasonably known after due
inquiry. An entity will be deemed to have "knowledge" of a particular fact or
other matter if any individual who is serving, or who has served, as an
executive officer of such entity has actual "knowledge" of such fact or other
matter, or had actual "knowledge" during the time of such service of such fact
or other matter, or would have had "knowledge" of such particular fact or matter
after due inquiry.
"Letter of Transmittal" shall have the meaning assigned to it in
Section 4 hereof.
26
"Lien" shall mean any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind, including, without limitation, any
conditional sale or other title retention agreement, any lease in the nature
thereof and the filing of or agreement to give any financing statement under the
Uniform Commercial Code of any jurisdiction and including any lien or charge
arising by statute or other law.
"Memorandum" shall have the meaning assigned to it in the fourth
recital hereof.
"Merger" shall have the meaning assigned to it in the first
recital hereof.
"Merger Documents" shall have the meaning assigned to it in
Section 2.5 hereof.
"Parent" shall mean Birch Branch, Inc., a Colorado corporation.
"Parent Balance Sheet" and "Parent Balance Sheet Date" shall have
the meanings assigned to them in Section 3.13 hereof.
"Parent Common Stock" shall have the meaning assigned to it in
Section 3.4 hereof.
"Parent Employee Benefit Plans" shall have the meaning assigned to
it in Section 3.16 hereof.
"Parent Financial Statements" shall have the meaning assigned to
it in Section 3.8 hereof.
"Parent Incentive Plan" shall have the meaning assigned to it in
Section 6.7 hereof.
"Parent SEC Documents" shall have the meaning assigned to it in
Section 3.7(b) hereof.
"Parent Warrants" shall have the meaning assigned to it in Section
1.7(a) hereof.
"Patent and Trademark Rights" shall have the meaning assigned to
it in Section 2.15 hereof.
"Permitted Liens" shall mean (a) Liens for taxes and assessments
or governmental charges or levies not at the time due or in respect of which the
validity thereof shall currently be contested in good faith by appropriate
proceedings; (b) Liens in respect of pledges or deposits under workmen's
compensation laws or similar legislation, carriers', warehousemen's, mechanics',
laborers' and materialmens' and similar Liens, if the obligations secured by
such Liens are not then delinquent or are being contested in good faith by
appropriate proceedings; and (c) Liens incidental to the conduct of the business
of the Company that were not incurred in connection with the borrowing of money
or the obtaining of advances or credits and which do not in the aggregate
materially detract from the value of its property or materially impair the use
made thereof by the Company in its business.
27
"Person" shall include all natural persons, corporations, business
trusts, associations, limited liability companies, partnerships, joint ventures
and other entities and governments and agencies and political subdivisions.
"Private Offering" shall have the meaning assigned to it in the
fourth recital hereof.
"Securities Act" shall mean the Securities Act of 1933, as
amended.
"Stockholders" shall mean all of the stockholders of the Company.
"Subsidiaries" shall have the meaning assigned to it in Section
2.1(b) hereof.
"Surviving Corporation" shall have the meaning assigned to it in
Section 1.1 hereof.
"Tax" or "Taxes" shall mean (a) any and all taxes, assessments,
customs, duties, levies, fees, tariffs, imposts, deficiencies and other
governmental charges of any kind whatsoever (including, but not limited to,
taxes on or with respect to net or gross income, franchise, profits, gross
receipts, capital, sales, use, ad valorem, value added, transfer, real property
transfer, transfer gains, transfer taxes, inventory, capital stock, license,
payroll, employment, social security, unemployment, severance, occupation, real
or personal property, estimated taxes, rent, excise, occupancy, recordation,
bulk transfer, intangibles, alternative minimum, doing business, withholding and
stamp), together with any interest thereon, penalties, fines, damages costs,
fees, additions to tax or additional amounts with respect thereto, imposed by
the United States (federal, state or local) or other applicable jurisdiction;
(b) any liability for the payment of any amounts described in clause (a) as a
result of being a member of an affiliated, consolidated, combined, unitary or
similar group or as a result of transferor or successor liability, including,
without limitation, by reason of Regulation section 1.1502-6; and (c) any
liability for the payments of any amounts as a result of being a party to any
Tax Sharing Agreement or as a result of any express or implied obligation to
indemnify any other Person with respect to the payment of any amounts of the
type described in clause (a) or (b).
"Tax Return" shall include all returns and reports (including
elections, declarations, disclosures, schedules, estimates and information
returns (including Form 1099 and partnership returns filed on Form 1065)
required to be supplied to a Tax authority relating to Taxes.
11. Closing. The closing of the Merger (the "Closing") shall occur
concurrently with the Effective Time (the "Closing Date"). The Closing shall
occur at the offices of David Wagner & Associates, P.C. At the Closing, Parent
shall present for delivery to each Stockholder the certificate representing the
Parent Common Stock to be issued pursuant to Section 1.5(a)(ii) hereof to them
pursuant to Sections 1.6 and 4 hereof. Such presentment for delivery shall be
against delivery to Parent and Acquisition Corp. of the certificates, opinions,
agreements and other instruments referred to in Section 7.1 hereof, and the
certificates representing all of the Common Stock issued and outstanding
immediately prior to the Effective Time. Parent will deliver at such Closing to
the Company the officers' certificate and opinion referred to in Section 7.2
28
hereof. All of the other documents, certificates and agreements referenced in
Section 7 will also be executed as described therein. At the Effective Time, all
actions to be taken at the Closing shall be deemed to be taken simultaneously.
12. Termination Prior to Closing.
----------------------------
12.1 Termination of Agreement. This Agreement may be terminated at
any time prior to the Closing:
(a) By the mutual written consent of the Company,
Acquisition Corp. and Parent;
(b) By the Company, if Parent or Acquisition Corp. (i)
fails to perform in any material respect any of its agreements contained herein
required to be performed by it on or prior to the Closing, (ii) if within 14days
fails to provide, in Company's sole discretion, adequate representations,
warranties or covenants as contained herein, which failure or breach is not
cured within thirty (30) days after the Company has notified Parent and
Acquisition Corp. of its intent to terminate this Agreement pursuant to this
paragraph (b); or (iii) if within 14 days the Company, in its sole discretion
discovers anything in the course of its due diligence which would make the
Closing materially adverse to the Company.
(c) By Parent and Acquisition Corp., if the Company (i)
fails to perform in any material respect any of its agreements contained herein
required to be performed by it on or prior to the Closing Date, (ii) materially
breach any of its representations, warranties or covenants contained herein,
which failure or breach is not cured within thirty (30) days after Parent or
Acquisition Corp. has notified the Company of its intent to terminate this
Agreement pursuant to this paragraph, (iii) the Company shall have failed to
raise at least $3,000,000 on or before November 30, 2006 in accordance with
Section 6.8 above.
(d) By either the Company, on the one hand, or Parent and
Acquisition Corp., on the other hand, if there shall be any order, writ,
injunction or decree of any court or governmental or regulatory agency binding
on Parent, Acquisition Corp. or the Company, which prohibits or materially
restrains any of them from consummating the transactions contemplated hereby;
provided, that the parties hereto shall have used their best efforts to have any
such order, writ, injunction or decree lifted and the same shall not have been
lifted within ninety (90) days after entry, by any such court or governmental or
regulatory agency; or
(e) By either the Company, on the one hand, or Parent and
Acquisition Corp., on the other hand, if the Closing has not occurred on or
prior to December 31, 2006 for any reason other than delay or nonperformance of
the party seeking such termination.
12.2 Termination of Obligations. Termination of this Agreement
pursuant to this Section 12 shall terminate all obligations of the parties
hereunder, except for the obligations under Sections 6.1, 13.3 and 13.9 and
obligation to return common stock under Section 6.8; provided, however, that
termination pursuant to paragraphs (b) or (c) of Section 12.1 shall not relieve
the defaulting or breaching party or parties from any liability to the other
parties hereto.
29
13. Miscellaneous.
-------------
13.1 Notices. Any notice, request or other communication hereunder
shall be given in writing and shall be served either personally by overnight
delivery or delivered by mail, certified return receipt and addressed to the
following addresses:
Birch: Birch Branch, Inc.
-----
2525 Fifteenth Street, Suite 3H
Denver, Colorado 80211
Attn: Michael Schumacher, Chief Executive Officer
Fluid: Fluid Audio Networks, Inc.
-----
5813-A Uplander Way
Culver City, California 90230
Attn: Justin Beckett, Chief Executive Officer
Notices shall be deemed received at the earlier of actual receipt
or three (3) business days following mailing. Counsel for a party (or any
authorized representative) shall have authority to accept delivery of any notice
on behalf of such party.
13.2 Entire Agreement. This Agreement, including the schedules and
exhibits attached hereto and other documents referred to herein, contains the
entire understanding of the parties hereto with respect to the subject matter
hereof. This Agreement supersedes all prior agreements and undertakings between
the parties with respect to such subject matter.
13.3 Expenses. Each party shall bear and pay all of the legal,
accounting and other expenses incurred by it in connection with the transactions
contemplated by this Agreement.
13.4 Time. Time is of the essence in the performance of the
parties' respective obligations herein contained.
13.5 Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
13.6 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors,
assigns and heirs.
30
13.7 No Third Parties Benefited. This Agreement is made and
entered into for the sole protection and benefit of the parties hereto, their
successors, assigns and heirs, and no other Person shall have any right or
action under this Agreement.
13.8 Counterparts. This Agreement may be executed in one or more
counterparts, with the same effect as if all parties had signed the same
document. Each such counterpart shall be an original, but all such counterparts
together shall constitute a single agreement.
13.9 Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Colorado. The
parties to this Agreement agree that any breach of any term or condition of this
Agreement or the transactions contemplated hereby shall be deemed to be a breach
occurring in the State of Colorado by virtue of a failure to perform an act
required to be performed in the State of Colorado. The parties to this Agreement
irrevocably and expressly agree to submit to the jurisdiction of the courts of
the State of Colorado for the purpose of resolving any disputes among the
parties relating to this Agreement or the transactions contemplated hereby. The
parties irrevocably waive, to the fullest extent permitted by law, any objection
which they may now or hereafter have to the laying of venue of any suit, action
or proceeding arising out of or relating to this Agreement and the transactions
contemplated hereby, or any judgment entered by any court in respect hereof
brought in Denver, Colorado, and further irrevocably waive any claim that any
suit, action or proceeding brought in Denver, Colorado has been brought in an
inconvenient forum. With respect to any action before the above courts, the
parties hereto agree to service of process by certified or registered United
States mail, postage prepaid, addressed to the party in question.
[SIGNATURE PAGE FOLLOWS]
31
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be
binding and effective as of the day and year first above written.
PARENT:
BIRCH BRANCH, INC.
By: _______________________________________
Michael Schumacher ,Chief Executive
Officer
ACQUISITION CORP.:
BIRCH BRANCH ACQUISITION CORP.
By: _______________________________________
Michael Schumacher ,Chief Executive
Officer
THE COMPANY:
FLUID AUDIO NETWORKS, INC.
By: _______________________________________
Justin Beckett, Chief Executive Officer
32
EXHIBIT D
Directors and Officers of Surviving Corporation
Name Position
- ---- --------
................................... Chairman of Board of Directors and Chief
Executive Officer
................................... Chief Operating Officer
Chief Financial Officer
................................... Vice President, Secretary, Treasurer and
Director
................................... Vice President
................................... Vice President
................................... Director*
................................... Director*
................................... Director
__________________________
* Election as a director will become effective on the 11th day after
mailing of an Information Statement in accordance with Section 14(f) of
the Securities Exchange Act of 1934 and Rule 14f-1 promulgated
thereunder.
1