As filed with the Securities and Exchange Commission on May 24, 1996
Registration No. 333-3548
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
MICHIGAN BREWERY, INC.
(Exact name of registrant as specified in its charter)
MICHIGAN
(State or other Jurisdiction
of Incorporation or
Organization)
5813
(Primary Standard Industrial
Classification Code Number)
38-3196031
(I.R.S. Employer
Identification Number)
199 WALDEN DRIVE
GAYLORD, MICHIGAN 49735
(517) 731-0401
(Address, including zip code, and telephone number of registrant's
principal executive offices and principal place of business)
WILLIAM F. ROLINSKI, PRESIDENT
MICHIGAN BREWERY, INC.
1999 WALDEN DRIVE
GAYLORD, MICHIGAN 49735
(517) 731-0401
(Name, address, including zip code, and telephone number of agent for service)
COPIES TO:
Joseph T. Kinning, Esq. Jeffrey C. Robbins, Esq.
Briggs and Morgan, Parsinen Bowman
Professional Association Kaplan & Levy P.A.
2400 IDS Center 100 South Fifth Street, Suite 1100
Minneapolis, Minnesota 55402 Minneapolis, Minnesota 55402
(612) 334-8514 (612) 333-2111
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
OFFERING PRICE AGGREGATE
TITLE OF EACH CLASS OF PROPOSED AMOUNT PER OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED TO BE REGISTERED(1) UNIT(2) PRICE(2) REGISTRATION FEE
--------------------------- ------------------- ------- -------- ----------------
<S> <C> <C> <C> <C>
Units, each consisting of one share of
Common Stock, $.01 par value, and one
Class A Warrant to purchase one share of
Common Stock 2,587,500(3) $6.00 $15,525,000 $ 5,354
Common Stock, $.01 par value per share 2,587,500(4) $8.00 $20,700,000 $ 7,138
Common Stock, $.01 par value per share 75,000(5) $6.00 $ 450,000 $ 156
Total -- -- $36,675,000 $ 12,648(6)
</TABLE>
(1) Pursuant to Rule 416 under the Securities Act of 1933, as amended, this
registration statement also covers such additional securities as may become
issuable upon exercise of Class A Warrants and the Representative's Warrant
through operation of the antidilution provisions thereof.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Act of 1933, as amended.
(3) Includes 337,500 Units subject to an option granted to the Underwriters to
cover over-allotments, if any.
(4) Issuable upon exercise of the Class A Warrants, including 337,500 shares
underlying Units subject to an option granted to the Underwriters to cover
over-allotments, if any.
(5) Represents shares held by a selling shareholder who invested in the
Company's Pre-Bridge Financing.
(6) The Company paid $12,492 of this registration fee via cashier's check on
April 15, 1996. The remaining balance has been wire transferred to the
Securities and Exchange Commission's account at Mellon Bank.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(a)
MAY DETERMINE.
================================================================================
EXPLANATORY NOTE
Two forms of Prospectus are included in this Registration Statement. The first
Prospectus (the "Public Offering Prospectus") will be used in connection with an
underwritten offering of an aggregate of 2,250,000 Units of Michigan Brewery,
Inc. (the "Company"). The second Prospectus (the "Selling Shareholder
Prospectus") will be used in connection with the offering by a selling
shareholder of up to 75,000 shares of Common Stock of the Company. The Public
Offering Prospectus and the Selling Shareholder Prospectus are identical except
that the additional cover page included herein and labeled "Additional Cover
Page" and the additional pages relating solely to the selling shareholder
included herein and labeled "Additional pages to be substituted in the Selling
Shareholder Prospectus" shall be substituted in the Selling Shareholder
Prospectus for the corresponding pages in the Public Offering Prospectus.
MICHIGAN BREWERY, INC.
----------
CROSS-REFERENCE SHEET SHOWING LOCATION IN THE
PROSPECTUS OF INFORMATION REQUIRED BY
ITEMS OF FORM SB-2
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS
<S> <C> <C>
1. Front of Registration Statement and Outside
Front Cover Page Front Cover of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus Outside Front Cover Page; Prospectus
Summary; Inside Front Cover Page; Risk
Factors; Outside Back Cover Page
3. Summary Information and Risk Factors Outside Front Cover Page; Prospectus
Summary; Risk Factors; Dilution;
Underwriting
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Outside Front Cover Page; Risk Factors;
Underwriting
6. Dilution Dilution
7. Selling Security Holders *
8. Plan of Distribution Outside Front Cover Page; Underwriting
9. Legal Proceedings Business
10. Directors, Executive Officers, Promoters and
Control Persons Management; Principal Shareholders
11. Security Ownership of Certain Beneficial
Owners and Management Principal Shareholders
12. Description of Securities Description of Securities
13. Interest of Named Experts and Counsel *
14. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities Underwriting
15. Organization Within Last Five Years Business; Management's Discussion and
Analysis of Financial Condition and Results
of Operations
16. Description of Business Business
17. Management's Discussion and Analysis or Plan
of Operation Management's Discussion and Analysis of
Financial Condition and Results of
Operations
18. Description of Property Business
19. Certain Relationships and Related
Transactions Management; Certain Transactions
20. Market for Common Equity and Related
Shareholder Matters Outside Front Cover of Prospectus; Risk
Factors; Dividend Policy; Description of
Securities
21. Executive Compensation Management
22. Financial Statements Financial Statements
23. Changes In and Disagreements With Accountants
on Accounting and Financial Disclosure *
</TABLE>
*Omitted from Prospectus because item is inapplicable or answer is in the
negative.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MAY 24, 1996
PROSPECTUS
[LOGO] BIG BUCK 2,250,000 UNITS
BREWERY MICHIGAN BREWERY, INC.
& STEAKHOUSE EACH UNIT CONSISTING OF ONE SHARE OF COMMON STOCK
AND ONE REDEEMABLE CLASS A WARRANT
Michigan Brewery, Inc. (the "Company") is offering 2,250,000 Units (the
"Offering"), each Unit consisting of one share of Common Stock and one
redeemable Class A Warrant. The Class A Warrants are immediately exercisable and
transferable separate from the Common Stock. Each Class A Warrant entitles the
holder to purchase at any time until four years following the date of this
Prospectus one share of Common Stock at an exercise price of $8.00 per share,
subject to adjustment. The Class A Warrants are subject to redemption by the
Company for $.01 per warrant at any time 90 days after the date of this
Prospectus, on 30 days written notice, provided that the closing high bid price
of the Common Stock exceeds $9.00 per share (subject to adjustment) for any 20
consecutive trading days. See "Description of Securities."
Prior to this Offering, there has been no market for the Company's securities.
It is currently anticipated that the initial public offering price per Unit (the
"Price to Public") will be between $5.00 and $6.00. See "Underwriting" for
information relating to the factors considered in determining the Price to
Public. The Company's Common Stock, Class A Warrants and Units have been
approved for designation as Nasdaq SmallCap Market securities under the symbols
"BBUC," "BBUCW" and "BBUCU," respectively, pending completion of this Offering.
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY IS SPECULATIVE AND INVOLVES A
HIGH DEGREE OF RISK AND SUBSTANTIAL DILUTION. SEE "RISK FACTORS" BEGINNING ON
PAGE 6 HEREIN AND "DILUTION."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
<S> <C> <C> <C>
Per Unit $ $ $
Total(3) $ $ $
</TABLE>
(1) The Company has agreed to pay R. J. Steichen & Company, as Representative
of the several Underwriters (the "Representative"), a nonaccountable
expense allowance equal to 2.5% of the total Price to Public. The Company
has also agreed to sell to the Representative, for nominal consideration,
a five-year warrant to purchase up to 225,000 of shares of Common Stock
at an exercise price of 120% of the Price to Public. In addition, the
Company has agreed to indemnify the Underwriters against certain
liabilities. See "Underwriting."
(2) Before deducting expenses of the Offering estimated at $300,000, which does
not include the nonaccountable expense allowance described in Note 1 above.
(3) The Underwriters have been granted an option to purchase up to 337,500
additional Units from the Company for the purpose of covering
over-allotments, if any. If the Underwriters exercise the over-allotment
option in full, the total Price to Public, Underwriting Discount and
Proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting."
The Units are offered by the several Underwriters, subject to prior sale, when,
as and if delivered to and accepted by them. The Underwriters reserve their
rights to withdraw, cancel or modify such offer and to reject orders in whole or
in part. It is expected that delivery of certificates representing the Units
will be made on or about , 1996 in Minneapolis, Minnesota.
[LOGO]
RJ
STEICHEN
& COMPANY
The date of this Prospectus is , 1996
[PHOTO]
CAPTION: THE GAYLORD BREWERY FEATURES A LARGE, OPEN AND VISUALLY STIMULATING
DINING AREA.
[PHOTO]
CAPTION: THE GAYLORD BREWERY BREWHOUSE HAS THE CAPACITY TO PRODUCE 10,000
BARRELS OF BEER PER YEAR.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE UNITS, COMMON
STOCK AND CLASS A WARRANTS OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT
OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE
NASDAQ SMALL-CAP MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT
ANY TIME.
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED BY THE MORE DETAILED INFORMATION AND
FINANCIAL STATEMENTS APPEARING ELSEWHERE IN THIS PROSPECTUS. ALL INFORMATION
CONCERNING THE COMPANY'S AUTHORIZED, ISSUED AND OUTSTANDING COMMON STOCK AND ALL
FINANCIAL INFORMATION PRESENTED ON A PER SHARE BASIS REFLECTS A 112.5-FOR-ONE
STOCK SPLIT EFFECTIVE JANUARY 19, 1996. UNLESS OTHERWISE INDICATED, INFORMATION
IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE UNDERWRITERS' OPTION TO PURCHASE
FROM THE COMPANY UP TO 337,500 ADDITIONAL UNITS TO COVER OVER-ALLOTMENTS, IF
ANY.
THE COMPANY
The business of Michigan Brewery, Inc. (the "Company") is to develop, own and
operate microbrewery/restaurants known as Big Buck Brewery and Steakhouses ("Big
Buck Breweries" or "Breweries"). In May 1995, the Company opened its first Big
Buck Brewery in Gaylord, Michigan adjoining I-75 approximately 200 miles north
of Detroit (the "Gaylord Brewery"), which is currently the Company's only
Brewery. The approximately 29,000 square-foot Gaylord Brewery will serve as a
model for the three Big Buck Breweries which the Company intends to develop and
open over the next eighteen months using the proceeds of this Offering and real
estate financing.
A Big Buck Brewery offers casual dining featuring moderately priced steaks,
ribs, chicken and other food and a distinctive selection of beers which are
microbrewed on-site. The Company also sells its microbrewed beer off-site
through wholesale distributors in order to promote customer interest in the
Brewery. The Company's selection of beers ranges from a light golden ale to a
dark full-bodied stout and is designed to satisfy the tastes of a broad spectrum
of consumers. A key element of the Company's strategy is to capitalize on the
growing interest of consumers in high quality, more flavorful microbrewed beer.
The Company believes it will generate customer loyalty to its beers and its
restaurant operations through customer identification with each local Big Buck
Brewery.
The Company believes the appearance of the Gaylord Brewery has contributed to
its popularity as an eating and drinking establishment. The Gaylord Brewery
features a large, open and visually stimulating dining area which highlights the
array of stainless steel and copper brewing equipment used to brew the Company's
craftbrewed beer. The Gaylord Brewery features a 4,000 square foot dining area
and a 1,600 square foot bar area. The interior is decorated with rustic
wood-finished interiors, mounted deer racks, 36-foot high vaulted ceilings and
warm lighting. The restaurant's specially commissioned Amish handcarved wooden
furniture and overhead genuine Tennessee whisky barrel lighting fixtures add
character to the building's decor. The friendly and attentive staff, on-site
brewing and summertime outdoor seating and live music are designed to create an
appealing atmosphere for lunch, dinner and bar customers.
Consumer interest in more flavorful beer has resulted in significant growth in
the craftbrewed beer market during the last several years, despite a decline in
per capita beer consumption. The number of microbreweries in the United States
has grown from 21 in 1985 to approximately 280 in 1995. During the same period,
the annual production of craftbrewed beer in the United States has grown from
75,000 barrels to approximately 3.7 million barrels. Despite these high levels
of growth, sales of craftbrewed beers represented less than 2% of total beer
sales in the United States in 1995.
The Company has an option until June 30, 1996 to purchase a site in Sault St.
Marie, Michigan adjacent to the international bridge connecting the upper
peninsula of Michigan with Ontario, Canada. The Company is negotiating for the
purchase of a site in suburban Detroit, Michigan which would be accessible to
the over 3.2 million Detroit metro area residents. The Company expects to locate
the third new Brewery in an Upper Great Lakes state other than Michigan.
The Company was incorporated in 1993 under the laws of the State of Michigan.
The Company's principal executive offices are located at 1999 Walden Drive,
Gaylord, Michigan 49735 and its telephone number is (517) 731-0401.
-3-
THE OFFERING
Securities Offered ................ 2,250,000 Units, each Unit consisting
of one share of Common Stock and one
redeemable Class A Warrant. Each
Class A Warrant is immediately
exercisable and transferable
separately from the Common Stock.
Each Class A Warrant entitles the
holder to purchase at any time until
four years following the date of this
Prospectus one share of Common Stock
at an exercise price of $8.00,
subject to adjustment. The Class A
Warrants are subject to redemption by the
Company for $.01 per warrant at any time 90
days after the date of this Prospectus, on
30 days written notice, provided that the
high closing bid price of the Common Stock
exceeds $9.00 per share (subject to
adjustment) for any 20 consecutive trading
days. Holders of Class A Warrants may
exercise their rights until the close of
business on the date fixed for redemption,
unless extended by the Company. See
"Description of Securities."
Common Stock Outstanding ......... 2,650,000 shares prior to the Offering and
4,968,120 shares after the Offering(1).
Nasdaq SmallCap
Market Symbols:
Common Stock .................... BBUC
Warrants ........................ BBUCW
Units ........................... BBUCU
Use of Proceeds .................. Development and opening of three new
Big Buck Breweries and repayment of
debt. See "Use of Proceeds."
RISK FACTORS
An investment in the Units is highly speculative and involves a high degree of
risk and substantial dilution. See "Risk Factors" beginning on page 6 and
"Dilution."
(1) Includes the conversion of the Pre-Bridge Convertible Note into
68,120 shares of Common Stock at a conversion price of $3.67 per
share (See "Description of Securities -- Prior Offerings"). Does not
include: (i) 2,250,000 shares issuable upon exercise of the Class A
Warrants offered hereby; (ii) 212,500 shares reserved for issuance
upon exercise of the Pre-Bridge Warrant and the Bridge Warrants (see
"Description of Securities -- Prior Offerings"); (iii) up to 225,000
shares issuable upon exercise of the Representative's Warrant; (iv)
300,000 shares reserved for issuance under the Company's 1996 Stock
Option Plan; (v) 100,000 shares reserved for issuance under the
Company's 1996 Director Stock Option Plan and (vi) 25,000 shares
issuable upon exercise of outstanding options.
-4-
SUMMARY SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
1994(1) 1995 1995(1) 1996
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Restaurant sales $ -- $ 2,380,641 $ -- $ 803,327
Wholesale beer and gift shop
sales -- 302,959 -- 83,118
Total revenue -- 2,683,600 -- 886,445
Cost of sales -- 1,298,735 -- 354,255
Operating expenses 12,338 1,376,854 7,040 476,585
Selling, general and
administrative
expenses -- 823,299 33,912 318,901
Interest expense -- 288,790 6,267 124,147
Net loss $ (12,338) $(1,104,078) $ (47,219) $ (387,443)
Net loss per common share $ (0.01) $ (0.45) $ (0.02) $ (0.13)
Weighted average shares
outstanding 1,056,241 2,481,676 2,330,169 2,879,345
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
AS
ACTUAL ADJUSTED(2)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit) $(2,140,891) $ 8,884,734
Total assets 6,422,250 15,997,875
Total liabilities 4,775,002 3,325,002
Shareholders' equity 1,647,248 12,672,873
</TABLE>
(1) The Company began development of the Gaylord Brewery on May 1, 1994 and the
Gaylord Brewery began operations on May 26, 1995. Prior thereto, the Company
had no operations or revenues.
(2) As adjusted to reflect: (i) the sale of 2,250,000 Units offered hereby
(at an assumed public offering price of $5.50 per Unit) and the
application of the estimated net proceeds therefrom and (ii) the
conversion of the Pre-Bridge Convertible Note into 68,120 shares of
Common Stock at a conversion price of $3.67 per share. See "Description
of Securities -- Prior Offerings."
-5-
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING RISK
FACTORS SHOULD BE CONSIDERED CAREFULLY BY PROSPECTIVE INVESTORS IN EVALUATING
THE COMPANY AND ITS BUSINESS BEFORE PURCHASING THE UNITS.
LACK OF PROFITABILITY; LACK OF OPERATING HISTORY; DEPENDENCE ON GAYLORD
BREWERY
The Company has been operating the Gaylord Brewery since May 26, 1995 and the
Company had a net loss of $1.1 million during the year ended December 31, 1995
and a net loss of $387,000 during the three months ended March 31, 1996. The
Company had a working capital deficit of $2.1 million and an accumulated deficit
of $387,000 at March 31, 1996. Prior to the opening of the Gaylord Brewery, the
Company had no operations or revenues. Accordingly, the Company's operations are
subject to all of the risks inherent in the establishment of a new business
enterprise, including the lack of operating history. The likelihood of success
of the Company must be considered in light of the problems, expenses,
difficulties, complications and delays frequently encountered in connection with
the establishment of a business. There can be no assurance that future
operations of the Gaylord Brewery, or any Big Buck Brewery, will be profitable.
Future revenues and profits, if any, will depend upon various factors, including
the quality of restaurant operations, the acceptance of the Company's beer and
general economic conditions. Frequently, restaurants experience a decline of
revenue growth or of actual revenues following a period of excitement which
accompanies their opening. There is no assurance that the Company can operate
profitably or that it will successfully implement its expansion plans, in which
case the Company will continue to be dependent on the revenues of the Gaylord
Brewery.
DEVELOPMENT OF FUTURE BREWERIES; EXPANSION PLAN RISKS
The total cost of developing, constructing and opening the Gaylord Brewery was
approximately $5.8 million, which included approximately $3.1 million for design
and construction; $1.3 million for equipment, furniture and fixtures relating to
the restaurant; $1.0 million for brewing and bottling equipment and $400,000 for
land. Management believes that each new Brewery will be of a building style and
size suitable to its location. Accordingly, the Company has not developed a
standardized Brewery layout nor obtained actual cost estimates for development
of new Breweries.
The Company anticipates it will develop and open three additional Big Buck
Breweries during the next eighteen months. The Company estimates that the costs
of developing and opening the three additional Big Buck Breweries will be
approximately $21.0 million depending on the locations, site conditions,
construction costs and sizes and types of Breweries built. The Company intends
to obtain real estate financing for up to 55% of the costs of developing and
opening the three Breweries. The Company has not yet received any commitments
for such real estate financing and there are no assurances that such financing
will be available on terms acceptable or favorable to the Company, or at all.
Successful expansion of the Company's operations will be largely dependent upon
a variety of factors, some of which are currently unknown or beyond the
Company's control, including customer acceptance of Big Buck Brewery restaurants
and Big Buck beer; the ability of the Company's management to identify suitable
sites and to negotiate purchases and financing of such sites; timely and
economic development and construction of Breweries; timely approval from local
governmental authorities; the hiring of skilled management and other personnel;
the ability of the Company's management to apply its policies and procedures to
a much larger number of Breweries; the availability of adequate financing; the
general ability to successfully manage growth and the general state of the
economy. Although the Company is in the process of exploring the opening of
three new Breweries, the Company has entered into only one option agreement to
acquire a site and there are presently no agreements to design, construct or
otherwise develop these new Breweries. There can be no assurance that the
Company will be able to open new Breweries.
-6-
The Company's strategy includes operating a brewhouse at each Big Buck Brewery.
Successful operation of separate brewhouses will require the Company to overcome
various organizational challenges such as increasing production to maximum
designed capacity levels and establishing and maintaining quality control over
numerous geographically separated Breweries. In attempting to expand beer
distribution, the Company will be required to establish and manage relationships
with wholesale distributors, retailers and consumers in new markets. The Company
is the sole promoter of sales of its beer in new markets. Consumer tastes and
preferences may vary from market to market. There can be no assurance that the
Company will be successful in entering new markets.
NEED FOR FINANCING
The Company's ability to execute its business strategy is dependent on its
ability to obtain substantial financing for the development of additional
Breweries. The Company intends to obtain real estate financing for up to 55% of
the costs of developing and opening the three new Breweries it intends to open
during the next eighteen months. However, no assurance can be given that the
Company will obtain this financing or that it and the proceeds of this Offering
will provide the Company with the funds required to develop and open the three
additional Breweries. In addition, the Company will require further financing to
develop and open additional Breweries. The Company anticipates that future
development and expansion will be financed through the public or private sale of
additional equity (including, potentially, Common Stock issued in connection
with the exercise of Class A Warrants offered hereby) or debt securities,
capital leases and other credit facilities. There can be no assurance that any
additional funds will be available or that such funds, if available, will be on
terms acceptable to the Company or its shareholders. New investors may seek and
obtain substantially better terms than those available to investors purchasing
in this Offering and the Company's issuance of securities in the future may
result in substantial dilution.
MICHIGAN LAW MAY LIMIT GROWTH
The Company is licensed under Michigan law as a "microbrewery." A microbrewery
in Michigan is limited to the production of not more than 20,000 barrels of beer
per year by all breweries owned or controlled by the same person, whether within
or outside Michigan. Without a change in current law, the Company will limit its
sales of beer off-site so as to reserve its brewing capacity for sales of beer
on-site which provide the Company higher margins but do not reach the same
customer base. Legislation has been introduced in Michigan (House Bill No. 4005)
which would increase the maximum production of a microbrewery to not more than
60,000 barrels of beer per year and would apply this restriction only to
breweries located within Michigan. In the event this or comparable legislation
is not passed, the Company intends to alter its expansion plans to increase its
emphasis on sales of beer on-site. There can be no assurance that such
legislation will pass, that any such legislation will pass in a form which would
facilitate the Company's expansion plans, or that if such legislation is not
passed, the Company will be able to successfully alter its expansion plans. See
"Business -Government Regulation."
COMPETITION; CERTAIN FACTORS AFFECTING THE RESTAURANT AND BREWING INDUSTRIES
The restaurant industry is highly competitive with respect to price, service,
food quality (including taste, freshness, and nutritional value) and location.
New restaurants have a high failure rate. The restaurant industry is also
generally affected by changes in consumer preferences, national, regional and
local economic conditions, and demographic trends. The performance of individual
restaurants may also be affected by factors such as traffic patterns,
demographic considerations, and the type, number and location of competing
restaurants. In addition, factors such as inflation, increased food, labor and
employee benefit costs, and the lack of availability of experienced management
and hourly employees may also adversely affect the restaurant industry in
general and the Company's restaurants in particular. Restaurant operating costs
are further affected by increases in the minimum hourly wage,
-7-
unemployment tax rates and similar matters over which the Company has no
control. There are numerous well-established competitors, including national,
regional and local restaurant chains, possessing substantially greater
financial, marketing, personnel and other resources than the Company. The
Company also competes with a large variety of locally owned restaurants, diners
and other establishments that offer moderately priced food to the public. The
Company also competes with other microbrewery restaurants in a highly
competitive and developing microbrewery and brewpub restaurant market. Other
restaurants and companies could utilize the Big Buck Brewery format or a related
format. There can be no assurance that the Company will be able to respond to
various competitive factors affecting the restaurant industry.
The domestic beer market is highly competitive due to: the enormous advertising
and marketing expenditures by national and major regional brewers; the
continuing proliferation of microbreweries, regional craft breweries, brewpubs
and other small craftbrewers; the more recent introduction of fuller-flavored
products by certain major national brewers and a general surplus of domestic
brewing capacity, which facilitates existing contract brewer expansion and the
entry of new contract brewers. Although domestic demand for craftbrewed beers
has increased dramatically over the past decade, there can be no assurance that
this demand will continue. The Company anticipates intensifying competition in
the craftbrewed beer market. Most of the Company's brewing competitors possess
marketing, financial, personnel and other resources substantially greater than
those of the Company, and there can be no assurance that the Company will be
able to succeed against intensified competition in the craftbrewed and
fuller-flavored beer markets. See "Business -- Competition."
BREWERY OPERATING HAZARDS
The Company's brewing operations are subject to certain hazards and liability
risks faced by all brewers, such as potential contamination of ingredients or
products by bacteria or other external agents that may be wrongfully or
accidentally introduced into products or packaging. The Company's products are
not pasteurized. While the Company has never experienced a contamination problem
in its products, the occurrence of such a problem could result in a costly
product recall and serious damage to the Company's reputation for product
quality. The Company's operations are also subject to certain injury and
liability risks normally associated with the operation and possible malfunction
of brewing and other equipment. Although the Company maintains insurance against
certain risks under various general liability and product liability insurance
policies, there can be no assurance that the Company's insurance will be
adequate.
BEER AND LIQUOR REGULATION
A significant percentage of revenues of the Gaylord Brewery is derived from beer
sales. On-site sales of beer accounted for 20% of revenues and off-site sales of
beer accounted for an additional 2% of revenues during the period from inception
through December 31, 1995. These percentages are expected to increase over the
next few years in relation to food sales. The Company must comply with federal
licensing requirements imposed by the Bureau of Alcohol, Tobacco and Firearms of
the United States Department of Treasury, as well as the licensing requirements
of states and municipalities where its restaurants are or will be located.
Failure to comply with federal, state or local regulations could cause the
Company's licenses to be revoked and force it to cease the brewing and/or sale
of its beer. Typically, licenses must be renewed annually and may be revoked or
suspended for cause at any time. Additionally, state liquor laws may prevent or
impede the expansion of the Company's Breweries into certain markets. While the
Company has not experienced and does not anticipate any significant problems in
obtaining required licenses, permits or approvals, any difficulties, delays or
failures in obtaining such required licenses, permits or approvals could delay
or prevent the opening of a
-8-
Brewery in a particular area. In addition, changes
in legislation, regulations or administrative interpretation of liquor laws
after the opening of a Brewery in a jurisdiction may prevent or hinder the
Company's expansion or operations in that jurisdiction or increase operating
costs. See "Business -- Government Regulation."
RESTAURANT REGULATION
The restaurant industry is subject to numerous federal, state and local
government regulations, including those relating to the preparation and sale of
food and to building and zoning requirements. The Company is subject to
regulation by air and water pollution control divisions of the Environmental
Protection Agency of the United States and by various states and municipalities
in which its Breweries are or will be located. The Company is also subject to
laws governing its relationship with employees, including minimum wage
requirements, overtime, working and safety conditions and citizenship
requirements. Restaurant operating costs are affected by increases in the
minimum hourly wage, unemployment tax rates, sales taxes and similar matters,
such as any government mandated health insurance, over which the Company has no
control.
The Company is subject to "dram-shop" laws in Michigan and will be subject to
such statutes in certain other states into which it expands. These laws
generally provide someone injured by an intoxicated person the right to recover
damages from an establishment which wrongfully served alcoholic beverages to
such person. The Company carries liquor liability coverage as part of its
existing comprehensive general liability insurance. However, a judgment against
the Company under a dram-shop statute in excess of the Company's liability
coverage could have a material adverse effect on the Company. See "Business --
Government Regulation."
TAXES; SMALL BREWERS EXCISE TAX CREDIT
The United States government currently imposes an excise tax of $18 on each
barrel of beer produced for domestic consumption in the United States. However,
each brewer with production under 2,000,000 barrels per year is granted a small
brewer's excise tax credit in the amount of $11 per barrel on its first 60,000
barrels produced annually. No assurance can be given that the federal government
will not reduce or eliminate this credit. To the extent Company-wide production
increases to amounts over 60,000 barrels per year, there will be an increase in
the average federal excise tax rate of the Company. Michigan currently imposes
an excise tax of $6.30 per barrel on each barrel of beer sold in Michigan.
However, each "microbrewery" under Michigan law (presently with production under
20,000 barrels per year) is granted a craftbrewer's excise tax credit in the
amount of $2 per barrel. To the extent Company-wide production increases to
amounts over 20,000 barrels per year, there will be an increase in the average
Michigan excise tax rate of the Company. Other states and municipalities into
which the Company may expand also impose excise or other taxes or special
charges on alcoholic beverages in varying amounts, which amounts are subject to
change. It is possible that in the future the rate of excise taxation could be
increased by either the federal or state governments, or both. Future increases
in excise taxes on alcoholic beverages, if enacted, could adversely affect the
Company. See "Business -- Government Regulation."
DEPENDENCE ON KEY PERSONNEL; NEED FOR ADDITIONAL PERSONNEL
The Company's future success will depend in large part upon the continued
service of its key management personnel including William F. Rolinski, Gary J.
Hewett, Anthony P. Dombrowski and Scott A. Graham. Given the Company's limited
operating history, the Company is dependent on its ability to identify, hire,
train and motivate qualified personnel necessary to enable it to continue
operations. The Company does not have key person life insurance policies on any
of its employees. The departure of key employees could have a material adverse
effect on the Company's business. The Company's success will also be dependent
upon its ability to attract and retain qualified people, including additional
management personnel. No assurance can be given that the Company's current
employees will continue to work for the Company or that the Company will be able
to obtain the services of additional personnel necessary for the Company's
growth. To date, the Company has not entered into any employment agreements with
its personnel. See "Management."
-9-
LACK OF PUBLIC MARKET; DETERMINATION OF OFFERING PRICE
Prior to this Offering, there has been no public market for the Company's
securities. Although the Company's Common Stock, Class A Warrants and Units have
been approved for designation as Nasdaq SmallCap Market securities, pending
completion of this offering, there can be no assurance that an active public
market will develop or be sustained. The offering price of the Units has been
arbitrarily determined by negotiations between the Company and the Underwriters
and bears no relationship to the Company's earnings, book value, net worth or
any other financial statement criteria of value and may not be indicative of the
market price for the Units after this Offering. The Company makes no
representation as to any objectively determinable value of the securities
offered hereby. See "Underwriting."
In addition, if the Company's securities do not continue to trade on the Nasdaq
SmallCap Market, the securities offered hereby would become subject to certain
rules of the Securities and Exchange Commission relating to "penny stocks." Such
rules require broker-dealers to make a suitability determination for purchasers
and to receive the purchaser's prior written consent for a purchase transaction,
thus restricting the ability to purchase or sell the securities in the open
market.
CURRENT PROSPECTUS AND STATE REGISTRATION REQUIRED TO EXERCISE WARRANTS;
POSSIBLE REDEMPTION OF WARRANTS
Purchasers of Units will be able to exercise the Class A Warrants, and the
Company will be able to issue the shares of Common Stock underlying such
Warrants, only if a current prospectus relating to the Common Stock underlying
the Class A Warrants is then in effect and only if the Common Stock is qualified
for sale or exempt from qualification under the applicable securities laws of
the states in which the holders of Class A Warrants reside. Although the Company
will use its best efforts to (i) maintain the effectiveness of a current
prospectus covering the shares of Common Stock underlying the Class A Warrants
pursuant to the Securities Act of 1933, as amended (the "Securities Act"), and
(ii) to maintain the registration of such Common Stock under the securities laws
of the states in which the Company initially qualifies the Units for sale in the
Offering, there can be no assurance that the Company will be able to do so. The
Company will not be able to issue shares of Common Stock to those persons
desiring to exercise the Class A Warrants if a prospectus is not kept effective
under the Securities Act or if the Common Stock underlying the Class A Warrants
is not qualified or exempt from qualification in the state where the holders of
the Class A Warrants reside. In such a case, the holders of the Class A Warrants
could lose the benefit of owning the Class A Warrants unless they could resell
the Class A Warrants. The Class A Warrants are subject to redemption at any time
by the Company at $.01 per warrant at any time 90 days after the date of this
Prospectus, on 30 days prior written notice, if the high closing bid price of
the Common Stock exceeds $9.00 per share (subject to adjustment) for 20
consecutive trading days. If the Class A Warrants are redeemed, Warrantholders
will lose their right to exercise the Class A Warrants except during such 30 day
redemption period. Redemption of the Class A Warrants could force the holders to
exercise the Class A Warrants at a time when it may be disadvantageous for the
holders to do so or to sell the Class A Warrants at the then market price or
accept the redemption price of $.01 per warrant. See "Description of Securities
- -- Class A Warrants."
CONTROL BY MANAGEMENT
The current officers and directors of the Company will beneficially own
approximately 46% of the outstanding Common Stock after completion of this
Offering. After completion of this Offering, assuming the exercise of all Class
A Warrants, the current officers and directors of the Company will beneficially
own approximately 33% of the outstanding Common Stock. Accordingly, such persons
would be able to exert substantial influence over the composition of the
Company's Board of Directors and generally direct the affairs of the Company and
may have the power to control the outcome of shareholder approvals of business
acquisitions, mergers and combinations and other actions. See "Principal
Shareholders" and "Description of Securities."
-10-
DILUTION
Purchasers of the Units offered hereby will experience immediate and substantial
dilution of 55% or $3.02 per share in the net tangible book value per share of
Common Stock (assuming the entire offering price of the Units is allocated to
Common Stock). Additional dilution could result from future financings or the
issuance of stock options. See "Dilution."
SEASONALITY AND FLUCTUATIONS IN QUARTERLY RESULTS
The Company's sales and earnings are expected to fluctuate based on seasonal
patterns. The Company anticipates that its highest earnings will occur in the
second and third calendar quarters. In addition, quarterly results in the future
are likely to be substantially affected by the timing of new Brewery openings.
Because of the seasonality of the Company's business and the impact of new
Brewery openings, results for any quarter are not necessarily indicative of the
results for a full fiscal year.
UNCERTAIN TRADEMARK PROTECTION; PROPRIETARY MARKS
The Company's ability to successfully operate will depend in part upon its
ability to register and protect its trademarks. The Company has applied for
registration of a number of trademarks and service marks with the United States
Patent and Trademark Office, including BIG BUCK BREWERY AND STEAKHOUSE and BIG
BUCK BEER. The United States Patent and Trademark Office has made no preliminary
determinations on the Company's applications. In the event the Company is denied
registration, the Company may incur significant expense in creating and
developing new marks or in operating under its existing marks, and may be
restricted in where it can locate future Breweries using the Company's marks.
There is no assurance that the Company's marks will be granted trademark
registration for all or any of the uses proposed in the Company's applications.
In the event that the Company's marks are granted registration, there is no
assurance that such marks will be enforceable against prior users in the areas
where the Company conducts or will conduct operations or against infringers of
such marks.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of Units, Common Stock and Class A Warrants in the public market following
this Offering could adversely affect prevailing market prices. The holders of
2,281,011 shares of Common Stock outstanding prior to this Offering have agreed
with the Representative not to sell or otherwise dispose of any shares of Common
Stock beneficially held by them for a period of 180 days after the date of this
Prospectus without the prior written consent of the Representative. The Company
has agreed to use its best efforts to register for the benefit of certain
investors an aggregate of 212,500 shares of Common Stock under the Securities
Act and state securities laws at such time as it becomes eligible to use Form
S-3 under the Securities Act. Approximately 125,000 and 144,000 shares of
currently outstanding Common Stock held by non-affiliates will be eligible for
sale in the public market pursuant to Rule 144 under the Securities Act
beginning in August 1998 and January 1999, respectively. Beginning in January
1998, 6,000 shares of currently outstanding Common Stock held by an affiliate
will be eligible for sale in the public market, subject to compliance with Rule
144. Between September 1996 and November 1997, 2,375,011 shares of currently
outstanding Common Stock held by affiliates will become eligible for sale in the
public market, subject to compliance with Rule 144. Concurrent with this
Offering, the Company is registering for resale under the Securities Act the
68,120 shares of Common Stock purchasable upon conversion of the Pre-Bridge
Convertible Note. Additional shares of Common Stock may become eligible for sale
in the public market from time to time upon exercise of warrants, stock options
and convertible promissory notes. See "Registration of Other Securities,"
"Shares Eligible for Future Sale" and "Underwriting."
MICHIGAN ANTI-TAKEOVER LAWS
Upon completion of this Offering, the Company will be subject to Michigan
statutes regulating business combinations and restricting voting rights of
certain persons acquiring shares of Common Stock which may hinder or delay a
change in control of the Company. See "Description of Securities."
-11-
USE OF PROCEEDS
The net proceeds to the Company from this Offering (at an assumed initial public
offering price of $5.50 per Unit), after deducting estimated costs and expenses
of this Offering, are expected to be approximately $10.8 million (or $12.4
million if the Underwriters' over-allotment option is exercised in full). The
Company intends to use the net proceeds as follows:
<TABLE>
<CAPTION>
DOLLAR PERCENTAGE OF
USE OF PROCEEDS AMOUNT USE OF PROCEEDS
<S> <C> <C>
Development and opening of new
breweries $ 9,600,000 89%
Repayment of notes 1,200,000 11
Total $10,800,000 100%
</TABLE>
The Company plans to use approximately $9.8 million of the proceeds of this
Offering for the development and opening of three new Big Buck Breweries. The
Company intends to obtain real estate financing for up to 55% of the costs of
developing and opening the three new Breweries. The Company currently estimates
that the cost of developing and opening the three new Breweries, including
equipment, furniture, fixtures and pre-opening expenses, will aggregate
approximately $21.0 million, depending upon the locations, site conditions,
construction costs and sizes and types of Breweries built. There can be no
assurance that the Company will be able to develop and open the three new Big
Buck Breweries at such costs or obtain the necessary financing on terms
favorable to the Company. In addition, the Company's expansion plans will be
altered absent the enactment of an amendment to current Michigan law.
See "Risk Factors -- Michigan Law May Limit Growth."
In February 1996, the Company obtained for $25,000 an option to purchase for
$375,000 a seven acre site in Sault St. Marie, Michigan. This option expires on
June 30, 1996.
Approximately $1.2 million of the net proceeds will be used to repay the
Pre-Bridge Non- Convertible Note, the Bridge Notes, and the April 10, 1996
promissory note to Casimer I. Zaremba. See "Certain Transactions" and
"Description of Securities -- Prior Offerings."
Pending use of the net proceeds for the above purposes, the Company intends to
invest such funds in short-term bank deposits, United States government
securities and other short-term investment-grade securities.
DIVIDEND POLICY
The Company has never paid or declared any cash dividends on its Common Stock
and does not intend to pay dividends on its Common Stock in the foreseeable
future. The Company presently expects to retain its earnings to finance the
development and expansion of its business. The payment by the Company of
dividends, if any, on its Common Stock in the future is subject to the
discretion of the Board of Directors and will depend on the Company's earnings,
financial condition, capital requirements and other relevant factors. In
addition, the Company's ability to pay dividends is prohibited by the terms of
its credit facility with its bank. Investors who anticipate a need for immediate
income from their investment should not purchase the Units offered hereby.
-12-
PRIOR S CORPORATION STATUS
Since inception, the Company had elected to be treated for federal income tax
purposes as an S corporation under Subchapter S of the Internal Revenue Code of
1986, as amended, and had been treated as an S corporation for state income tax
purposes under comparable tax laws. As a result, the Company's losses through
February 5, 1996, the date of termination of the Company's S corporation status
(the "Termination Date") and the effective date of the Bridge Financing, were
for federal and state income tax purposes included in the personal tax returns
of the Company's shareholders. See "Description of Securities -- Prior
Offerings." On the Termination Date, the Company became responsible for payment
of state and federal income taxes on earnings, if any, subsequent to the
Termination Date. On such date, the Company's cumulative undistributed losses
were reclassified from accumulated deficit to additional paid-in capital.
-13-
CAPITALIZATION
The following table sets forth as of March 31, 1996: (i) the actual
capitalization of the Company and (ii) the capitalization of the Company as
adjusted to give effect to the sale by the Company of the 2,250,000 Units
offered hereby (at an assumed initial public offering price of $5.50 per Unit)
and the application of the estimated net proceeds therefrom (see "Use of
Proceeds"). This table should be read in conjunction with the Financial
Statements and notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1996
AS ADJUSTED
ACTUAL (1)(2)
<S> <C> <C>
Short-term Debt:
Bridge notes, net of debt discount $1,236,050 $ --
Line of credit 110,000 110,000
Current maturities of long-term debt
and notes payable 445,018 245,018
Total short-term debt $1,791,068 $ 355,018
Long-term Debt, net of current maturities $2,402,229 $ 2,402,229
Shareholders' Equity:
Common stock, $.01 par value, 10,000,000
shares authorized, 2,650,000 shares
issued and outstanding; 4,968,120
shares issued and outstanding as
adjusted(2) 26,500 49,681
Warrants(3) 26,100 26,100
Class A warrants -- 112,500
Additional paid-in capital(4) 1,982,091 12,872,035
Accumulated deficit(4) (387,443) (387,443)
Total shareholders' equity 1,647,248 12,672,873
Total capitalization $4,049,477 $15,075,102
</TABLE>
(1) Reflects the conversion of the Pre-Bridge Convertible Note into 68,120
shares of Common Stock at a conversion price of $3.67 per share. See
"Description of Securities -- Prior Offerings."
(2) Does not include: (i) 2,250,000 shares issuable upon exercise of the Class A
Warrants offered hereby; (ii) 212,500 shares reserved for issuance upon
exercise of the Pre-Bridge Warrant and the Bridge Warrants (see "Description
of Securities -- Prior Offerings"); (iii) up to 225,000 shares issuable upon
exercise of the Representative's Warrant; (iv) 300,000 shares reserved for
issuance under the Company's 1996 Stock Option Plan; (v) 100,000 shares
reserved for issuance under the Company's 1996 Director Stock Option Plan
and (vi) 25,000 shares issuable upon exercise of outstanding options.
(3) Represents at March 31, 1996 the actual fair value of the Pre-Bridge
Warrants and Bridge Warrants. See "Description of Securities -- Prior
Offerings."
(4) Reflects the February 5, 1996 conversion from S corporation to C corporation
status and the reclassification of $1.1 million in cumulative undistributed
losses from accumulated deficit to additional paid-in capital.
-14-
DILUTION
At March 31, 1996, the net tangible book value of the Company was $1.3 million
or $0.48 per share. Net tangible book value per share represents the Company's
tangible assets less total liabilities. Net tangible book value dilution per
share represents the difference between the amount per share paid by the
purchasers of Units in the Offering (assuming the entire offering price of the
Units is allocated to Common Stock) and the pro forma net tangible book value
per share of Common Stock immediately after completion of this Offering. After
giving effect to: (i) the sale by the Company of the 2,250,000 Units offered
hereby and (ii) the conversion of the Pre-Bridge Convertible Note into 68,120
shares of Common Stock at a conversion price of $3.67 per share (see
"Description of Securities -- Prior Offerings"), the pro forma net tangible book
value of the Company at March 31, 1996, would have been approximately $12.3
million, or $2.48 per share. This represents an immediate increase in net
tangible book value of approximately $2.00 per share to existing investors and
an immediate dilution of approximately $3.02 per share to purchasers of Units in
this Offering, as illustrated by the following:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price $5.50
Net tangible book value at March 31, 1996 $0.48
Increase in net tangible book value attributable
to new investors 2.00
Net tangible book value after the Offering and the
conversion of the Pre-Bridge Convertible Note 2.48
Dilution in net tangible book value to new investors $3.02
</TABLE>
The following table summarizes on a pro forma basis the differences between the
existing shareholders and new investors with respect to the number of shares of
Common Stock purchased from the Company, the total consideration paid to the
Company and the average consideration paid per share (assuming the entire
offering price of the Units is allocated to Common Stock).
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION(2) AVERAGE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
<S> <C> <C> <C> <C> <C>
Existing
shareholders 2,650,000 53% $ 3,257,470 21% $1.23
New investors(1) 2,318,120 47% 12,625,000 79% 5.45
Total 4,968,120 100% $15,882,470 100% $3.20
</TABLE>
(1) Represents purchases of Common Stock in this Offering as part of the
Units and the conversion of the Pre-Bridge Convertible Note (See
"Description of Securities -- Prior Offerings").
(2) The foregoing table does not take into consideration (i) 2,250,000 shares
issuable upon exercise of the Class A Warrants offered hereby; (ii) the
exercise of the Pre-Bridge Warrants and the Bridge Warrants to purchase an
aggregate of 212,500 shares of Common Stock (See "Description of Securities
-- Prior Offerings"); (iii) up to 225,000 shares issuable upon exercise of
the Representative's Warrant; (iv) 300,000 shares reserved for issuance
under the Company's 1996 Stock Option Plan; (v) 100,000 shares reserved for
issuance under the Company's 1996 Director Stock Option Plan and (vi) 25,000
shares issuable upon exercise of outstanding options.
-15-
SELECTED FINANCIAL DATA
The following selected financial data of the Company for the years ended
December 31, 1994 and 1995, are derived from the financial statements, included
elsewhere in this Prospectus which have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report included elsewhere
herein. The selected financial data as of March 31, 1996 and for the three
months ended March 31, 1995 and 1996 have been derived from the Company's
unaudited financial statements, which, in the opinion of the Company's
management, contain all adjustments, consisting of normal adjustments necessary
for a fair presentation of the financial position and results of operations. The
operating results for the three months ended March 31, 1996 are not necessarily
indicative of the results for the full year of operations. The Selected
Financial Data should be read in conjunction with the financial statements and
related notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
1994(1) 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenue:
Restaurant sales $ -- $ 2,380,641 $ -- $ 803,327
Wholesale beer and gift shop
sales -- 302,959 -- 83,118
Total revenue -- 2,683,600 -- 886,445
Costs and expenses:
Cost of sales -- 1,298,735 -- 354,255
Operating expenses 12,338 1,376,854 7,040 476,585
Selling, general and
administrative expenses -- 823,299 33,912 318,901
Total costs and expenses 12,338 3,498,888 40,952 1,149,741
Loss from operations (12,338) (815,288) (40,952) (263,296)
Interest expense -- 288,790 6,267 124,147
Net loss $ (12,338) $(1,104,078) $ (47,219) $ (387,443)
Net loss per common share $ (0.01) $ (0.45) $ (0.02) $ (0.13)
Weighted average shares outstanding 1,056,241 2,481,676 2,330,169 2,879,345
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
ACTUAL AS ADJUSTED(2)
<S> <C> <C>
Balance Sheet Data:
Working capital
(deficit) $(2,140,891) $ 8,884,734
Total assets 6,422,250 15,997,875
Total liabilities 4,775,002 3,325,002
Shareholders' equity 1,647,248 12,672,873
</TABLE>
(1) The Company began development of the Gaylord Brewery on May 1, 1994 and the
Gaylord Brewery began operations on May 26, 1995. Prior thereto, the Company
had no operations or revenues.
(2) As adjusted to reflect: (i) the sale of 2,250,000 Units offered hereby
(at an assumed initial public offering price of $5.50 per Unit) and the
application of the estimated net proceeds therefrom and (ii) the
conversion of the Pre-Bridge Convertible Note into 68,120 shares of
Common Stock at a conversion price of $3.67 per share. See "Description
of Securities -- Prior Offerings."
-16-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company was capitalized in 1994 to develop, own and operate microbrewery/
restaurants with the name Big Buck Brewery and Steakhouses. Until May 1995 when
the Gaylord Brewery opened, the Company had no operations or revenues and its
activities were devoted solely to development.
Future revenues and profits will depend upon various factors, including market
acceptance of Big Buck Breweries and general economic conditions. The Company's
present sole source of revenue is the Gaylord Brewery. There can be no
assurances that the Company will successfully implement its expansion plans, in
which case the Company will continue to be dependent on the revenues from the
Gaylord Brewery. The Company also faces all of the risks, expenses and
difficulties frequently encountered in connection with the expansion and
development of a new business. Furthermore, to the extent that the Company's
expansion strategy is successful, it must manage the transition to multiple
site, higher volume operations, the control of overhead expenses and the
addition of necessary personnel.
The Company's sales and earnings are expected to fluctuate based on seasonal
patterns. The Company anticipates that its highest earnings will occur in the
second and third quarters. Quarterly results in the future are likely to be
substantially affected by the timing of new Brewery openings. Because of the
seasonality of the Company's business and the impact of new Brewery openings,
results for any quarter are not necessarily indicative of the results that may
be achieved for a full fiscal year and cannot be used to indicate financial
performance for the entire year.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996
The Company had no revenues for the three months ended March 31, 1995 and had a
net loss of $47,000 for this period. The loss was primarily attributable to
costs and expenses related to the development of the Big Buck Brewery format.
For the three months ended March 31, 1996, the Company had a net loss of
$387,000. For this period, the Company had total revenue of $886,000, $803,000
or 91% of which was derived from restaurant operations. Cost of sales, which
consists of food, beverage and supply costs, was $354,000 or 40% of total
revenue. Operating expenses, which include restaurant wages and benefits,
payroll taxes, occupancy costs, utilities, repairs and maintenance, were
$477,000 or 54% of total revenue. Selling, general and administrative expenses
were $319,000 or 36% of total revenue. The net loss for the three months ended
March 31, 1996 is primarily attributable to the Company's corporate overhead
structure and reduced sales due to expected reduced seasonal demand.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
The Company had no revenues for the period from January 1, 1994 through May 25,
1995. During that period, the Company developed the Big Buck Brewery format and
completed construction of the Gaylord Brewery. The Company charged to operations
all costs associated with pre-opening expenses during the two year period ended
December 31, 1995. For future Breweries, the Company anticipates that such
expenses will be capitalized and charged to operations over the 12 months
following the opening of a new Brewery if it is determined that such costs are
recoverable. The Gaylord Brewery opened on May 26, 1995. During the approximate
seven months ended December 31, 1995, the Company had total revenue of $2.7
million.
For the year ended December 31, 1994, the Company had a net loss of $12,000 and
for the period from May 1, 1994 through May 25, 1995, the Company had a net loss
of $218,000. These losses can be attributed primarily to the costs and expenses
related to the development of the Big Buck Brewery format, the construction of
the Gaylord Brewery and the development of the Company's operating structure.
-17-
For the year ended December 31, 1995, the Company had a net loss of $1.1
million. During this period, the Company had total revenue of $2.7 million, $2.4
million or 89% of which was derived from restaurant operations and on-site sales
of beer and $303,000 or 11% of which was derived from wholesale beer and gift
shop sales operations. The Company did not begin selling its beer on a wholesale
basis until November 1995. Cost of sales was $1.3 million or 48% of revenue.
Total operating expenses and selling, general and administrative expenses were
$2.2 million or 82% of revenue. Although there is no assurance the cost and
expense percentages will show improvement, management believes that costs
incurred during the year ended December 31, 1995, reflect certain inefficiencies
and expenses associated with opening the Gaylord Brewery and that the loss for
this period is primarily attributable to the Company's corporate overhead
structure and costs and expenses incurred in the completion of the development
and start-up of operations at the Gaylord Brewery.
LIQUIDITY AND CAPITAL RESOURCES
Prior to this Offering, the Company has met its capital requirements through
capital contributions, loans from its principal shareholders and officers, bank
borrowings and certain private placement offerings. During the years ended
December 31, 1994 and 1995, the Company sold 2,500,000 shares of Common Stock
which generated $2.4 million in net proceeds.
In July 1995, the Company secured a $1.9 million mortgage on the Gaylord
Brewery's land and building and a $800,000 equipment loan. These notes are
subject to monthly payments of principal and interest at 10.2% per annum and are
payable in full by October 1, 2000. These notes are collateralized by all assets
of the Company and are guaranteed by certain shareholders.
In August 1995, the Company obtained a line of credit with a bank with a maximum
borrowing limit of $325,000, with monthly interest payable at the bank's prime
rate plus 1%. The line is collateralized by all of the assets of the Company,
guaranteed by certain shareholders and is due on demand. The Company had
borrowed up to the maximum limit of $325,000 as of December 31, 1995 with the
balance being paid down to $110,000 as of March 31, 1996.
In December 1995, the Company entered into a financing agreement with Pyramid
Partners, L.P. ("Pyramid") for the issuance of (i) a $250,000 non-interest
bearing promissory note (the "Pre-Bridge Convertible Note") which, upon the
earlier of the completion of this Offering or January 1997, is convertible into
a number of shares of Common Stock equal to $250,000 divided by the lesser of
(x) $4.00 or (y) two-thirds of the Price to Public of the Units in this Offering
(the "Pre-Bridge Shares"), (ii) a $250,000 non-convertible promissory note
bearing interest at 10% per annum which will become due upon the earlier of the
completion of this Offering or July 1996 (the "Pre-Bridge Non-Convertible Note")
and (iii) warrants (the "Pre-Bridge Warrants") to purchase 62,500 shares of
Common Stock at the lesser of (x) $4.00 or (y) two-thirds of the Price to Public
of the Units in this Offering, (collectively the "Pre-Bridge Financing").
In February 1996, the Company sold, for $25,000 each, 60 bridge units (the
"Bridge Units"), each Bridge Unit consisting of (i) 2,500 shares of Common Stock
(the "Bridge Common Stock"), (ii) a $12,500 principal amount promissory note
bearing interest at 10% per annum due upon the earlier of 20 days after the
completion of this Offering or August 1996 (the "Bridge Notes") and (iii)
warrants to purchase 2,500 shares of Common Stock at $5.00 per share expiring in
February 2001 (the "Bridge Warrants"), (collectively the "Bridge Financing").
The Pre-Bridge Financing and the Bridge Financing are collectively referred to
as the "Pre-Offering Financings."
The proceeds of the Pre-Offering Financings were used to retire certain debt,
purchase additional brewing and bottling equipment, purchase the option to
acquire a site in Sault St. Marie, Michigan for a future Brewery and for working
capital. See "Description of Securities -- Prior Offerings."
-18-
The Company used $262,000 and $549,000 in cash for operating activities for the
year ended December 31, 1995 and the three months ended March 31, 1996. At March
31, 1996, the Company had a working capital deficit of $2.1 million. Since
inception, the Company's principal capital requirements have been the funding of
(i) the development of the Company and the Big Buck Brewery format and (ii) the
construction of the Gaylord Brewery and the acquisition of its furniture,
fixtures and equipment. Total capital expenditures for the Gaylord Brewery were
approximately $5.8 million.
The Company anticipates it will develop and open three additional Big Buck
Breweries during the next eighteen months. The Company intends to obtain real
estate financing for up to 55% of the costs of developing and opening the three
new Breweries. The proceeds of this Offering together with such financing are
expected to be sufficient to finance these expansion plans depending on the
definitive locations, site conditions, construction costs and sizes and types of
Breweries built. The Company believes that the proceeds of the Offering together
with the real estate financing will satisfy the financial needs of the Company
during the next eighteen months. There are no assurances that such real estate
financing will be available on terms acceptable or favorable to the Company, or
at all. Without such additional financing, the Company's development plans will
be slower than planned or even unachievable.
-19-
BUSINESS
OVERVIEW
The business of Michigan Brewery, Inc. is to develop, own and operate
microbrewery/restaurants known as Big Buck Brewery and Steakhouses. In May 1995,
the Company opened its first Big Buck Brewery in Gaylord, Michigan adjoining
I-75 approximately 200 miles north of Detroit, which is currently the Company's
only Brewery. The approximately 29,000 square-foot Gaylord Brewery will serve as
a model for the three Big Buck Breweries which the Company intends to develop
and open over the next eighteen months using the proceeds of this Offering and
real estate financing.
A Big Buck Brewery offers casual dining featuring moderately priced steaks,
ribs, chicken and other food and a distinctive selection of beers which are
microbrewed on-site. The Company also sells its microbrewed beer off-site
through wholesale distributors in order to promote customer interest in the
Brewery. The Company's selection of beers ranges from a light golden ale to a
dark full-bodied stout and is designed to satisfy the tastes of a broad spectrum
of consumers. A key element of the Company's strategy is to capitalize on the
growing interest of consumers in high quality, more flavorful microbrewed beer.
The Company believes it will generate customer loyalty to its beers and its
restaurant operations through customer identification with each local Big Buck
Brewery.
The Company believes the appearance of the Gaylord Brewery has contributed to
its popularity as an eating and drinking establishment. The Gaylord Brewery
features a large, open and visually stimulating dining area which highlights the
array of stainless steel and copper brewing equipment used to brew the Company's
craftbrewed beer. The Gaylord Brewery features a 4,000 square foot dining area
and a 1,600 square foot bar area. The interior is decorated with rustic
wood-finished interiors, mounted deer racks, 36-foot high vaulted ceilings and
warm lighting. The restaurant's specially commissioned Amish handcarved wooden
furniture and overhead genuine Tennessee whisky barrel lighting fixtures add
character to the buildings decor. The friendly and attentive staff, on-site
brewing and summertime outdoor seating and live music are designed to create an
appealing atmosphere for lunch, dinner and bar customers.
Consumer interest in more flavorful beer has resulted in significant growth in
the craftbrewed beer market during the last several years, despite a decline in
per capita beer consumption. The number of microbreweries in the United States
has grown from 21 in 1985 to approximately 280 in 1995. During the same period,
the annual production of craftbrewed beer in the United States has grown from
75,000 barrels to approximately 3.7 million barrels. Despite these high levels
of growth, sales of craftbrewed beers represented less than 2% of total beer
sales in the United States in 1995.
The Company has an option until June 30, 1996 to purchase a site in Sault St.
Marie, Michigan adjacent to the international bridge connecting the upper
peninsula of Michigan with Ontario, Canada. The Company is negotiating for the
purchase of a site in suburban Detroit, Michigan which would be accessible to
the over 3.2 million Detroit metro area residents. The Company expects to locate
the third new Brewery in an Upper Great Lakes state other than Michigan.
THE CRAFTBREWED AND SPECIALTY BEER MARKET
The Company's brewing operations are in the relatively small but rapidly growing
craftbrewing segment of the United States brewing industry, which includes
microbreweries such as the Company, contract brewers, regional specialty brewers
and brewpubs. Craftbrewed beers are distinguishable from other domestically
produced beers by their flavor and brewing styles. Consumer interest in higher
quality, more flavorful beer has resulted in significant growth in the
craftbrewed beer market during the last several years. Over the five-year period
ended December 31, 1994, according to industry sources, shipments in the United
States craftbrewed beer segment increased at a compound annual growth rate of
approximately 39% while shipments in the United States beer industry experienced
no meaningful growth.
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BUSINESS STRATEGY -- EXPANSION PLANS
Upon completion of the three Big Buck Breweries which the Company intends to
develop and open with the proceeds of this Offering and other financing, the
Company intends to develop and open additional Big Buck Breweries throughout the
upper midwest and eventually across the United States.
The Company believes that one of the primary factors for the popularity to date
of the Gaylord Brewery is the development of customer loyalty to its craftbrewed
beers. The Company believes patrons of the Gaylord Brewery, who may order a Big
Buck beer with a meal or merely sample a Big Buck beer at the bar, have
developed a loyalty to one of the distinctive Big Buck beers for a variety of
reasons including (i) the opportunity to identify their favorite Big Buck beer
with the Brewery, (ii) the opportunity to sample any of the nine handcrafted
beers available at the Brewery and to select a favorite beer, (iii) the quality
of Big Buck beer and (iv) the desire to support the local Brewery. Increased
customer loyalty to Big Buck beers results in repeat business at Big Buck
Brewery, thereby increasing revenues from restaurant operations and off-site
retail sales.
While craftbrewed beers currently have less than a 2% share of the national beer
market, there are numerous cities wherein craftbrewed beers have a significantly
higher share of the local market including San Francisco (17%), Boston (9%) and
Denver (10%). The Company believes that these higher market shares for
craftbrewed beer result from the same customer preferences that it has
experienced at its Gaylord Brewery. The Company will seek to develop customer
loyalty to its Big Buck beers at each new Brewery.
Future Big Buck Brewery sites will be selected by management after consideration
of various strategic, regulatory, physical and demographic attributes.
Management believes that locations like that of the Gaylord Brewery adjacent to
major expressways significantly increase restaurant patronage. Management also
reviews the demographic attributes of potential communities in which it may
expand. These attributes include traffic counts, population, sales tax revenues,
alcohol consumption and hotel capacity and occupancy rates. In addition,
management will consider the laws of each state applicable to the Company before
expanding into any new state. It is expected that Big Buck Breweries located in
metropolitan areas will be larger than those located outside of metropolitan
areas and are expected to achieve higher revenues.
RESTAURANT OPERATIONS
GENERAL. A Big Buck Brewery restaurant offers craftbrewed beer brewed on-site
along with a menu featuring steaks, ribs and chicken in a unique,
architecturally spacious setting. The Brewery offers nine different types of
beers ranging from a light golden ale to a full-bodied stout. The Company
attempts to create an exciting yet casual restaurant where patrons can have fun
and feel comfortable.
DESIGN AND LAYOUT. The Gaylord Brewery features a restaurant with a 4,000
square-foot dining area which is designed to create a dramatic visual impact on
customers. The Gaylord Brewery restaurant features warm lighting, 36-foot high
vaulted ceilings, mounted deer racks and a rustic wood-finished interior which
highlights the array of stainless steel and copper brewing tanks and equipment.
The on-site brewing equipment, which consists of strategically placed rows of
stainless steel and copper tanks and pipes, is an integral aspect of the design
and enhances the visual impact of the restaurant. The restaurant's dining and
bar areas seat approximately 400 and the layout is flexible, permitting tables
to be rearranged to accommodate customer demand. A wall of television sets,
including a ten foot screen television set, adjacent to the bar area provides
customers the opportunity to watch sporting and other special events. During
summer months, the Gaylord Brewery features an adjacent approximately 7,000
square-foot tent covered area with live music and outdoor seating. The Gaylord
Brewery will serve as a model for future Breweries.
MENU AND PRICING. The menu at a Big Buck Brewery restaurant consists of
appetizers, soups, meal-sized salads, and entrees, including steaks, ribs,
hamburgers, chicken, fish,
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pastas as well as a variety of desserts. Management analyzes menu items for
popularity, profitability and ease of preparation. The menu items are selected
to complement the Company's craftbrewed beers. The restaurant menu is designed
to offer a broad range of prices that convey value to the customer. Entrees
range in price from $4.45 to $27.95 with most entrees priced around $12.00. From
inception through December 31, 1995, the sale of beer accounted for 22.8% of the
Gaylord Brewery's restaurant sales.
CUSTOMERS. The Company believes its Big Buck Brewery restaurant appeals to a
wide range of customers and will draw its clientele from throughout the region
in which it is located. The Gaylord Brewery is located 221 miles north of
Detroit at exit 282 on I-75, allowing passersby to conveniently visit the
Brewery. The Gaylord Brewery opens at 11:30 a.m. daily (noon on Sundays).
BREWING OPERATIONS
GENERAL. The brewhouse at the Gaylord Brewery presently has the capacity to brew
10,000 barrels of beer per year, and is designed to produce 20,000 barrels per
year with the installation of additional fermentation tanks. Future Breweries
will be built with initial brewing capacities of 3,000 to 5,000 barrels per year
and are also expected to have production capacities of 20,000 barrels per year
with the installation of additional fermentation tanks. The Company intends to
purchase and install additional fermentation tanks as demand for its beers
requires increased production. Each brewhouse will be custom designed to be
integrated into the restaurant layout in the most efficient and aesthetic
manner.
OFF-SITE DISTRIBUTION. The Company sells its microbrewed beer off-site through
wholesale distributors in order to promote customer interest in the Brewery. The
Company transports its beer to each distributor for redistribution to retailers
which include bars, pubs, restaurants and supermarkets. The beer is available by
the keg to be served on draft at restaurants, bars and pubs and is available in
bottles for retail sales. Currently, off-site sales of the Company's beer are
generally limited to within 120 miles of the Gaylord Brewery. Off-site sales of
beer accounted for approximately 2% of revenues during the period from inception
through December 31, 1995. The Gaylord Brewery currently has the capacity to
meet additional demand for off-site sales of beer.
PROMOTION OF PRODUCTS WITHIN LOCAL MARKETS. The Company markets its beer locally
with the use of point of sale materials as well as several forms of other
promotional materials including coasters, tap handles and color brochures. These
items are, for the most part, used by retailers to promote Big Buck beer within
their establishment. In addition, the Company offers guided tours of the Gaylord
Brewery to further increase consumer awareness of Big Buck beer. The Company
believes that its educational and promotional methods are more effective in
communicating with consumers than broad-based, less flexible national beer
advertising campaigns.
BREWING EQUIPMENT. The Company's brewing equipment was designed and built by
J.V. Northwest, Inc. of Wilsonville, Oregon and is automated wherever possible.
The system begins with a 47 foot tall, stainless steel grain silo fabricated to
replicate a giant beer bottle. The silo is painted "beer bottle brown" and the
label was hand painted by a commissioned artist. The Gaylord Brewery houses a
20-barrel mash tun; lauter tun; a brew kettle; 50-barrel hot liquor tank;
50-barrel cold liquor tank; six- 40 barrel fermenters; two-40 barrel
conditioning tanks and seven-10 barrel bright beer serving tanks. Filtering is
done through a diatonaceous earth filtering system which removes yeast and other
naturally occurring material resulting in a clear final product. The brewhouse
permits the production of a wide range of beer styles which can be adapted to
market demand for various beer styles today and into the future. It is
contemplated that the Company will use similar equipment at all brewhouses built
in additional Big Buck Breweries.
BOTTLING, KEGGING AND PACKAGING. The Company uses a technologically advanced
bottling line to bottle its beer for off-site retail sales. The bottle filler
utilizes a carbon dioxide
-22-
environment during the bottling process to extend shelf life. Kegs are filled by
a keg rack system and the kegs are stored pending shipment to wholesale
distributors in a specially designed cooler. The Company's kegs have the Big
Buck Brewery and Steakhouse name and logo stamped into the top rail for easy
identification and a handsome appearance. The Company also sells its beer in a
container called a "party pig," a plastic pressurized unit holding 2.25 gallons
(one case) of beer. The pressurization allows beer to be served from the
customer's refrigerator, boat or golf cart. Party pigs are sold through the
Company's gift shop.
QUALITY CONTROL. As the Company opens future Breweries, quality control of each
brewhouse will be under the supervision of the Company's Chief Brewmaster. As
with the Gaylord Brewery, each brewhouse will contain a laboratory to monitor
and maintain quality assurance in the brewing and packaging processes.
INGREDIENTS AND RAW MATERIALS. The Company currently purchases its malted barley
from market sources on a competitive bid basis. Raw materials such as hops are
available from multiple sources at competitive prices. The Company also uses
competitive sources for its supply of packaging materials such as bottles,
labels, six pack carriers and shipping cases.
BREWING PROCESS
Beer is made primarily from four natural ingredients: malted barley, hops, yeast
and water. The Company uses only the finest barley, primarily two row, in its
production. The universal spice of beer is hops. Hops, like the grapes used in
wine, are varietal. Brewers select hops based on specific varieties grown in
select areas around the world. Some hop varieties are selected for their
bittering qualities, while others are chosen for their ability to impart
distinctive aromas to the beer. Yeast is a uni-cellular organism whose
metabolism converts sugar into alcohol and carbon dioxide. The Company uses only
specially selected yeast. The entire brewing process from mashing through
filtration typically is completed in 14 to 21 days, depending on the
formulation and style of the beer being brewed.
FROM GRAIN TO GLASS . . .
HOW BIG BUCK BEER IS MADE
Malted barley is cracked in a roller mill (1). Milled barley is called grist.
Hot water (2) (called "liquor") and grist are mixed in the mash tun (3),
producing the mash. A sweet, clear liquid called wort is filtered out of the
mash in the lauter tun (4) and transferred to the kettle (5). The wort is
brought to a rolling boil in the kettle. Some hops are added early to provide a
mild bitterness. Other hops (finishing hops) are put in later to give an aroma.
The hot wort is cooled to fermentation temperature through a heat exchanger (6).
A cold liquor tank (7) is occasionally added in warm climates when producing
lagers which require lower fermentation temperatures. Yeast is added to the cold
wort in the uni-tank (8) and fermentation begins. Fermentation is the process by
which brewers yeast transforms the sweet wort into a flavorful solution
containing alcohol and carbon dioxide. After fermentation, the green beer is
aged to develop its final smooth taste. Filtration (9) removes yeast to clarify
the beer. After filtration, the finished beer is stored in a bright beer tank
(10) (serving tank) until it is ready to be served. A Brewery will keg (11)
and/or bottle and distribute the beer as well as serve it on the premise
directly out of the bright beer tank. At this point, the beer (12) is at the
height of its freshness and flavor.
[LINE ART GRAPHIC ILLUSTRATING THE BREWING PROCESS]
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BEER VARIETIES
The Company believes that its diverse and high quality beer varieties encourage
the trial of new beer and, over time, help to create more knowledgeable and
sophisticated beer drinkers. The Company's beers cover a full range of flavors
from very light, to medium, to very dark and heavy.
BILL'S PRIVATE STOCK: American-style low calorie or "light" beer. This beer
is formulated to appeal to those who prefer a low-calorie brew. Private Stock
is an all malt brew with a touch of Czechoslovakian Saaz hops.
WOLVERINE WHEAT: This American wheat beer is made from a blend of malted barley
and malted wheat. The wheat imparts a unique, refreshing flavor to the beer.
Wolverine Wheat is straw in color, lightly hopped, crisp and refreshing.
BIG BUCK BEER: Big Buck is the Company's flagship brand and its top seller. This
is a standard American-style beer with a small amount of corn added to the grist
to give the brew a smooth, easy-drinking character that most American consumers
have come to expect in a beer. Big Buck beer has a rich golden color and a light
malt character balanced with a mild dose of hops.
RASPBERRY WHEAT: A version of Wolverine Wheat, this beer is flavored with pure
fruit to impart a subtle raspberry nose, a delicate fruit flavor and a slight
pink hue.
ANTLER ALE: An amber ale formulated as a transitional flavor between lighter and
darker beers. Antler Ale has a light amber color while maintaining a mild, clean
flavor and a low hopping rate.
REDBIRD ALE: Similar to a traditional pale ale, Redbird Ale has a reddish copper
appearance and medium body and well hopped. This is a heartier beer with a
medium body and a pleasant hop bitterness.
BILLY BOCK: A full bodied bock beer which gets its distinctive character from a
blend of four different grains and three hop varieties. Billy Bock has a deep
reddish brown color and is generously hopped to balance the full body and
complex character.
BLACK RIVER STOUT: A cream stout which is slightly sweet with a moderate hop
bitterness. The rich flavor and black color of this brew comes from six
different grains. Deep flavors of coffee and caramel are present in this brew.
BLACK'N BERRY: A Black'n Tan is generally a stout mixed with pale or amber
ale. Black'n Berry is a new twist, Black River Stout and Raspberry Wheat. The
delicate fruit qualities are accented by the heavy stout flavor.
SALES AND MARKETING
The Company's primary sources of advertising include television, outdoor
billboards, radio and newspapers, which generally cover the local market, with
the exception of billboards in more distant geographical areas of Michigan. In
addition to these sources, the Company uses local travel publications including
golf and vacation planners which are distributed at no additional fee to
previous visitors of the area as well as inquiries via the local travel
information center and tourism bureau. The Company also distributes four-color
brochures promoting the Gaylord Brewery to major corporations and various travel
welcome centers throughout Michigan as well as local hotels and resorts. During
the year ended December 31, 1995, the Company incurred approximately $200,000 in
advertising expenses.
The Company strives to provide its customers with a dining experience that will
encourage repeat business and promote "word of mouth" advertising. To supplement
its service-oriented marketing efforts, the Company sells merchandise including
hats, t-shirts, sweatshirts and other items bearing the Big Buck Brewery name
and logo.
COMPETITION
The restaurant and brewing industries are highly competitive. The restaurant
industry is highly competitive with respect to price, service, food quality
(including taste, freshness and
-24-
nutritional value) and location. New restaurants have a high failure rate. The
restaurant industry is also generally affected by changes in consumer
preferences, national, regional and local economic conditions, and demographic
trends. The performance of individual restaurants may also be affected by
factors such as traffic patterns, demographic considerations, and the type,
number and location of competing restaurants. In addition, factors such as
inflation, increased food, labor and employee benefit costs, and the lack of
availability of experienced management and hourly employees may also adversely
affect the restaurant industry in general and the Company's restaurants in
particular. Restaurant operating costs are further affected by increases in the
minimum hourly wage, unemployment tax rates and similar matters over which the
Company has no control. There are numerous well-established competitors,
including national, regional and local restaurant chains, possessing
substantially greater financial, marketing, personnel and other resources than
the Company. The Company also competes with a large variety of locally owned
restaurants, diners, and other establishments that offer moderately priced food
to the public. The Company also competes with other microbrewery restaurants in
a highly competitive and developing microbrewery and brewpub restaurant market.
The domestic beer market is highly competitive due to: the enormous advertising
and marketing expenditures by national and major regional brewers; the
continuing proliferation of microbreweries, regional craft breweries, brewpubs,
and other small craftbrewers; the more recent introduction of fuller-flavored
products by certain major national brewers and a general surplus of domestic
brewing capacity, which facilitates existing contract brewer expansion and the
entry of new contract brewers. Although domestic demand for craftbrewed beers
has increased dramatically over the past decade, there can be no assurance that
this demand will continue. The Company anticipates intensifying competition in
the craftbrewed and fuller-flavored beer markets.
GOVERNMENT REGULATION
BEER AND LIQUOR REGULATION. A significant percentage of revenues of Big Buck
Breweries is derived from beer sales. On-site sales of beer sales of beer
accounted for 20% of revenues and off-site sales of beer accounted for an
additional 2% of revenues during the period from inception through December 31,
1995. These percentages are expected to increase over the next few years in
relation to food sales. The Company must comply with federal licensing
requirements imposed by the Bureau of Alcohol, Tobacco and Firearms of the
United States Department of Treasury, as well as the licensing requirements of
states and municipalities where its Breweries are or will be located. Failure to
comply with federal, state or local regulations could cause the Company's
licenses to be revoked and force it to cease the brewing and/or sale of its
beer. Typically, licenses must be renewed annually and may be revoked or
suspended for cause at any time. Management believes the Company is operating in
substantial compliance with applicable laws and regulations governing its
operations.
RESTAURANT REGULATION. The restaurant industry is subject to numerous federal,
state and local government regulations, including those relating to the
preparation and sale of food and to building and zoning requirements. The
Company is subject to regulation by air and water pollution control divisions of
the Environmental Protection Agency of the United States and by various states
and municipalities in which its Breweries are or will be located. The Company is
also subject to laws governing its relationship with employees, including
minimum wage requirements, overtime, working and safety conditions and
citizenship requirements. Restaurant operating costs are affected by increases
in the minimum hourly wage, unemployment tax rates, sales taxes and similar
matters, such as any government mandated health insurance, over which the
Company has no control. Management believes the Company is operating in
substantial compliance with applicable laws and regulations governing its
operations.
The federal government currently imposes an excise tax of $18 on each barrel of
beer produced for domestic consumption in the United States. However, each
brewer with production
-25-
under 2,000,000 barrels per year is granted a small brewer's excise tax credit
in the amount of $11 per barrel on its first 60,000 barrels produced annually.
To the extent Company-wide production increases to amounts over 60,000 barrels
per year, there will be an increase in the average federal excise tax rate of
the Company. The Company is not aware of any plans by the federal government to
reduce or eliminate the small brewer's credit. Michigan currently imposes an
excise tax of $6.30 per barrel on each barrel of beer sold in Michigan. However,
each brewer which is a "microbrewery" under Michigan law (presently with
production under 20,000 barrels per year) is granted a microbrewer's excise tax
credit in the amount of $2 per barrel. To the extent Company-wide production
increases to amounts over 20,000 barrels per year, there will be an increase in
the average Michigan excise tax rate of the Company. Increased excise taxes on
alcoholic beverages have been considered by the United States Congress as an
additional source of tax revenue in connection with various proposals and could
be included in future legislation.
The Company is licensed under Michigan law as a "microbrewery." A microbrewery
in Michigan is limited to the production of not more than 20,000 barrels of beer
per year by all breweries owned or controlled by the same person, whether within
or outside Michigan. Without a change in current law, the Company will limit its
sales of beer off-site so as to reserve its brewing capacity for sales of beer
on-site which provides the Company higher margins but do not reach the same
customer base. Legislation has been introduced in Michigan (House Bill No. 4005)
which would increase the maximum production of a microbrewery to not more than
60,000 barrels of beer per year and would apply this restriction only to
breweries located within Michigan. In the event this or comparable legislation
is not passed, the Company intends to alter its expansion plans to increase its
emphasis on sales of beer on-site.
The Company is subject to "dram-shop" laws in Michigan and will be subject to
such statutes in certain other states into which it expands. These laws
generally provide someone injured by an intoxicated person the right to recover
damages from an establishment which wrongfully served alcoholic beverages to
such person. The Company carries liquor liability coverage as part of its
existing comprehensive general liability insurance.
EMPLOYEES
At March 15, 1996, the Company employed approximately 120 persons, four of whom
served in executive and administrative capacities, seven of whom served as
restaurant management personnel, and the remainder of whom were hourly
personnel. No employee is covered by a collective bargaining agreement, and the
Company has never experienced an organized work stoppage, strike or labor
dispute. The Company considers relations with its employees to be satisfactory.
TRADEMARKS AND SERVICE MARKS
The Company applied for registration of a number of trademarks and service marks
with the United States Patent and Trademark Office on February 1, 1996,
including BIG BUCK BREWERY AND STEAKHOUSE and BIG BUCK BEER. The United States
Patent and Trademark Office has made no preliminarily determinations on the
Company's applications. In the event the Company is denied registration, the
Company may incur significant expense in creating and developing new marks or in
operating under its existing marks, and may be restricted in where it can locate
future Breweries using the Company's marks. There is no assurance that the
Company's marks will be granted trademark registration for all or any of the
uses proposed in the Company's application. In the event that the Company's
marks are granted registration, there is no assurance that such marks will be
enforceable against prior users in areas where the Company conducts operations.
The Company regards its marks as having substantial value and as being an
important factor in the marketing of its BIG BUCK BREWERY restaurants and beer.
The Company's policy is to pursue registration of its marks whenever possible
and to oppose vigorously any infringement of its marks.
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PROPERTIES
The Company's executive offices are located in Gaylord, Michigan. The Company
leases approximately 1,000 square feet of office space for $1,250 per month. The
lease on this office space will expire in August 1996, but may be extended by
the Company for one additional year for $1,310 per month.
The Company owns the Gaylord Brewery, including the real property on which it is
located. See "-- Restaurant Operations" for a description of the Gaylord
Brewery. In the opinion of management, the Company's properties are adequately
covered by insurance.
LITIGATION
The Company is involved in legal actions in the ordinary course of its business.
Although the outcomes of any such legal actions cannot be predicted, in the
opinion of management there is no legal proceeding pending against or involving
the Company for which the outcome is likely to have a material adverse effect
upon the financial position or results of operations of the Company.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The directors, executive officers and key employees of the Company are as
follows:
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NAME AGE POSITION(S)
<S> <C> <C>
William F. Rolinski 48 Chief Executive Officer, President and Director
Gary J. Hewett 34 Chief Operating Officer and Executive Vice
President
Anthony P. Dombrowski 35 Chief Financial Officer
Scott A. Graham 30 Brewmaster
Blair A. Murphy, M.D. 42 Director
Henry T. Siwecki 52 Director
Casimer I. Zaremba 75 Director
</TABLE>
William F. Rolinski is a founder of the Company and has been the Chief Executive
Officer, President and a Director since its formation in 1993. From 1987 to
1994, Mr. Rolinski was the founder, secretary and Corporate Counsel of Ward Lake
Energy, Inc., an independent producer of natural gas in Michigan. While Mr.
Rolinski was at Ward Lake, the company drilled and produced over 500 natural gas
wells with combined reserves of over $200 million.
Gary J. Hewett became the Chief Operating Officer and Executive Vice President
of the Company in April 1996. From 1989 to March 1996, he served in various
capacities at Hooters of America, Inc., a national restaurant chain, including
Vice President of Franchise Operations in which Mr. Hewett was responsible for
the operational support of 84 franchised restaurants and Vice President of
Company Operations where he was responsible for the operation of 28
company-owned restaurants. Mr. Hewett's responsibilities at Hooters included
supervision of site selection, restaurant design and layout, training and new
restaurant openings. From 1986 to 1989, Mr. Hewett was employed by the Marriott
Corporation as a restaurant general manager.
Anthony P. Dombrowski is a consultant to the Company acting in the capacity
of Chief Financial Officer since January 1996. For the past two years, Mr.
Dombrowski has operated his own financial and consulting business. Mr.
Dombrowski began his career with Price Waterhouse LLP in 1982. From 1989 to
1995, Mr. Dombrowski was the Chief Financial Officer of Ward Lake Energy,
Inc. Mr. Dombrowski devotes approximately 90% of his time to the Company.
Scott A. Graham has been the Company's Brewmaster since March 1995. For the five
years prior to joining the Company, Mr. Graham was employed by Bayside Beverage
Corp., a beer and wine wholesaler, in various positions including brand manager
and purchasing agent. Mr. Graham holds a diploma in Brewing Technology from the
Siebel Institute of Technology. Upon earning his diploma, Mr. Graham served a
nine month apprenticeship at the Frankenmuth Brewery under the supervision of
German Master Brewer Fred Scheer.
Blair A. Murphy, M.D. is a founder of the Company and has been a Director
since its formation in 1993. Dr. Murphy has been a urological surgeon since
1990 and is presently a self-employed medical practitioner.
Henry T. Siwecki has been a Director since August 1995. For more than the last
five years, Mr. Siwecki has been the sole owner and president of Siwecki
Construction, Inc., a commercial and residential construction contractor.
Casimer I. Zaremba is a founder of the Company and has been a Director since
its formation in 1993. Mr. Zaremba has been a private investor for more than
the past five years.
Messrs. Murphy, Siwecki and Zaremba (the Company's non-employee Directors)
receive options pursuant to the 1996 Director Stock Option Plan described under
"-- Director Stock Option Plan." Management members of the Board receive no
compensation as Board members.
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Board members are paid their expenses, if any, which are incurred solely to
participate in meetings of the Board or Board committees.
COMMITTEES
The Board of Directors has a Compensation Committee and an Audit Committee, both
of which consist of only non-management Board members. The Audit Committee,
which is comprised of Messrs. Murphy, Siwecki and Zaremba, is responsible for
recommending independent public accountants, reviewing with the independent
public accountants the scope and results of the audit engagement, establishing
and monitoring the Company's financial policies and control procedures,
reviewing and monitoring the provision of non-audit services by the Company's
public accountants and reviewing all potential conflict of interest situations.
The Compensation Committee, consisting of Messrs. Murphy, Siwecki and Zaremba,
determines and establishes the salaries, bonuses and other compensation of the
executive officers of the Company.
EXECUTIVE COMPENSATION
The following table sets forth all cash compensation paid by the Company for the
period May 26, 1995 through December 31, 1995 to the Company's Chief Executive
Officer. Prior to May 26, 1995, Mr. Rolinski was not paid for his services. No
other executive officer received compensation in excess of $100,000 during
either of the last two fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
OTHER ANNUAL
NAME OF INDIVIDUAL POSITION SALARY(1) COMPENSATION(2)
<S> <C> <C> <C>
William F. Rolinski Chief Executive Officer $32,000 $7,300
</TABLE>
(1) The current annual salary of Mr. Rolinski is $150,000.
(2) Represents an automobile allowance.
STOCK OPTION PLAN
In January 1996, the Board of Directors and shareholders of the Company adopted
the Michigan Brewery, Inc. 1996 Stock Option Plan (the "Plan"). The Plan
provides for the granting of options to designated employees and consultants of
the Company, to purchase up to an aggregate of 300,000 shares of Common Stock.
Options that qualify as "incentive stock options" within the meaning of Section
422 of the Internal Revenue Code of 1986 and options that do not qualify as such
"incentive stock options" ("nonstatutory stock options") may be granted under
the Plan. The Plan is administered by the Board of Directors, or a committee
designated by the Board, which determines the employees, officers, directors and
others who are to receive options, the type of option to be granted and the
number of shares subject to each option and the exercise price of each option.
Options may not be granted under the Plan after January 2006. Stock options must
be granted at an exercise price not less than the fair market value of the
Common Stock on the dates the options are granted (or, for persons who own more
than 10% of the Company's outstanding voting stock, not less than 110% of such
fair market value). Aside from the maximum number of shares of Common Stock
reserved for issuance under the Plan, there is no minimum or maximum number of
shares which may be subject to options granted under the Plan. However, the
aggregate fair market value (determined as of the time the option is granted) of
shares of Common Stock with respect to which incentive stock options become
exercisable for the first time by an optionee under Plan during any calendar
year may not exceed $100,000. Options may not be transferred other than by will
or the laws of descent and distribution and during the lifetime of an optionee
may be exercised only by the optionee. The term of each option, which is fixed
by the Board of Directors, may not exceed ten years from the date the option is
granted (except that the term may not exceed five years for incentive stock
options granted to persons who own more than
-29-
10% of the Company's outstanding voting stock). Gary J. Hewett, Anthony P.
Dombrowski and Scott A. Graham, executive officers of the Company, have been
granted options to purchase 50,000, 30,000 and 30,000 shares respectively, at
the Price to Public of the Units sold pursuant to this Prospectus, subject to
the completion of this Offering. Such options will become exercisable in equal
amounts over a four year period. Executive officers of the Company as a group
(four persons) have been granted an aggregate of 110,000 options. Options for an
additional 56,000 shares at the Price to Public of the Units sold pursuant to
this Prospectus have been granted to employees who are not officers of the
Company, subject to the completion of this Offering.
DIRECTOR STOCK OPTION PLAN
In January 1996, the Company adopted the 1996 Director Stock Option Plan (the
"DSOP"), pursuant to which 100,000 shares of Common Stock have been reserved for
the grant of non-incentive stock options to the Company's outside directors.
Under the DSOP, upon registration of the Units under the Securities Act, the
Company automatically grants an initial option for the purchase of 5,000 shares
of Common Stock to each outside director and thereafter grants stock options
annually for each year of continued service on the Board for the purchase of an
additional 5,000 shares of Common Stock. Each option is granted at fair market
value on the date of grant and is exercisable for a period of ten years
commencing one year after the date of grant. No options have been granted under
the DSOP to date.
INDEMNIFICATION
The Bylaws generally provide that the Company will indemnify its directors and
officers to the fullest extent authorized or permitted under the Michigan
Business Corporation Act and that the Company will advance expenses at the
request of a director or officer. In addition, the Articles of Incorporation
generally limit the personal liability of directors for monetary damages for
breaches of fiduciary duty.
-30-
CERTAIN TRANSACTIONS
Siwecki Construction, Inc. served as the general contractor of the Gaylord
Brewery. Siwecki Construction, Inc. is wholly-owned by Henry T. Siwecki. The
Company purchased $3.4 million of general contractor services from Siwecki
Construction, Inc. for the Gaylord Brewery. Upon completion of the
construction of the Gaylord Brewery, the Company and Siwecki Construction,
Inc. agreed that $250,000 of the amounts which the Company owed Siwecki
Construction Inc. would be satisfied by the issuance of 125,000 shares of
Common Stock. This reflected a valuation of $2.00 per share which was greater
than two times the book value of the Common Stock at that time. Subsequent to
both the completion of the construction of the Gaylord Brewery and the
negotiation and issuance of the 125,000 shares of Common Stock, Mr. Siwecki
became a director of the Company. The Company may employ Siwecki
Construction, Inc. as general contractor for construction of future
Breweries. The Company believes the terms of its transactions with Siwecki
Construction, Inc. with respect to the Gaylord Brewery were no less favorable
to the Company than those that could be obtained from unaffiliated third
parties.
Zaremba Equipment, Inc. provided certain equipment to the Company for use at
the Gaylord Brewery. Zaremba Equipment, Inc. is owned by Walter Zaremba, a
founding shareholder and former director of the Company. The Company
purchased an aggregate of $71,780 of equipment, including a dump truck, five
trailers, and maintenance equipment, from Zaremba Equipment, Inc. for the
Gaylord Brewery between August and September 1995. The Company believes the
terms of its transactions with Zaremba Equipment, Inc. with respect to the
Gaylord Brewery were no less favorable to the Company than those that could
be obtained from unaffiliated third parties.
The Company issued a promissory note for $250,000, with annual interest thereon
at nine percent (9%), to Casimer I. Zaremba on March 17, 1995 which was due and
payable on May 17, 1995. A portion of the proceeds of the Pre-Bridge Financing
was used to repay $50,000 borrowed thereunder. On April 10, 1996, the Company
and Casimer I. Zaremba agreed to replace such promissory note with a new
promissory note for $175,000, with annual interest thereon at nine percent (9%),
to Casimer I. Zaremba. Such new promissory note is due and payable June 30,
1996, but the same may be pre-paid, without penalty, at any time by the Company.
A portion of the proceeds of the Bridge Financing was used to repay $50,000
borrowed thereunder. The Company will use a portion of the proceeds of the
Offering to retire this promissory note on or before June 30, 1996. The Company
believes the terms of its transactions with Casimer I. Zaremba with respect to
the Gaylord Brewery were no less favorable to the Company than those that could
be obtained from unaffiliated third parties.
The Company has entered into a $750,000 revolving credit facility with Gornick
Holdings Ltd. Partnership. Prior to the Pre-Offering Financings, the Company had
borrowed $250,000 under this credit facility. Messrs. Rolinski, Murphy, Zaremba
and Siwecki, shareholders of the Company, guaranteed repayment of this facility.
A portion of the proceeds of the Pre-Offering Financings was used to repay the
$250,000 borrowed thereunder. The revolving credit facility was terminated by
the Company on April 1, 1996.
The Company has entered into a loan agreement with NBD Bank for three separate
loan facilities which aggregate $3.0 million. Messrs. Rolinski, Murphy and
Zaremba, each a director of the Company, have personally guaranteed repayment of
all amounts under this loan agreement. Upon completion of this Offering, Messrs.
Rolinski, Murphy and Zaremba do not intend to personally guarantee obligations
of the Company.
The Company and its affiliates will only engage in other material transactions
with promoters if the transactions are (i) on terms no less favorable to the
Company or its affiliates than those that are generally available from
unaffiliated third parties and (ii) ratified by a majority of independent
outside members of the Company's Board of Directors who do not have an interest
in the transactions.
-31-
REGISTRATION OF OTHER SECURITIES
Concurrently with this Offering, the Company is registering the Pre-Bridge
Shares for resale to the public. Such resale will not be underwritten by the
Underwriter.
Upon the Company becoming eligible to use Form S-3 under the Securities Act, the
Company intends to register for resale to the public on behalf of Pyramid and
the holders of the Bridge Units, the Bridge Common Stock and the shares of
Common Stock issuable upon exercise of the Pre-Bridge Warrants and the Bridge
Warrants. Such resale will not be underwritten by the Underwriter. These
registrations for resale are expected to be included in a Registration Statement
on Form S-3 (the "Secondary Registration Statement") intended to be filed by the
Company approximately one year after the date of this Prospectus. The Company
will not receive any proceeds from the resale of these securities. However, the
Company would receive proceeds upon the exercise of the Pre-Bridge Warrants and
the Bridge Warrants.
Sales of the Pre-Bridge Shares or the shares registered in the Secondary
Registration Statement, or even the potential of such sales at any time, may
have an adverse effect on the market price of the Units offered hereby. See
"Description of Securities -- Prior Offerings," and "Shares Eligible for
Future Resale."
-32-
PRINCIPAL SHAREHOLDERS
The following table contains certain information as of the date of the Offering
as to the number of shares of Common Stock beneficially owned by (i) each person
who beneficially owns 5% or more of the Company's Common Stock, (ii) each person
who is a director of the Company and (iii) all persons who are directors and
officers of the Company as a group, and as to the percentage of the outstanding
shares held by them on such date. Each person identified below possesses sole
voting and investment power with respect to such shares.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENT OF OUTSTANDING SHARES(1)
OWNED (1) BEFORE OFFERING AFTER OFFERING
<S> <C> <C> <C>
William F. Rolinski(2) 840,008 31.7 16.9
Casimer I. Zaremba(2) 675,007 25.5 13.6
Dr. Blair A. Murphy(2) 635,007 24.0 12.8
Henry T. Siwecki(2)(3) 136,989 5.2 2.8
All Directors and Executive Officers
as a group (seven persons)(3) 2,287,011 86.3 46.0
</TABLE>
(1) Securities "beneficially owned" by a person are determined in accordance
with the definition of "beneficial ownership" set forth in the regulations
of the Securities and Exchange Commission and, accordingly, may include
securities owned by or for, among others, the spouse, children or certain
other relatives of such person as well as other securities as to which the
person has or shares voting or investment power or has the option or right
to acquire Common Stock within 60 days after the date of the Offering.
Shares of Common Stock subject to options, warrants or convertible debt
securities currently exercisable or exercisable within 60 days after the
date of the Offering, are deemed to be outstanding for purposes of computing
the percentage of shares beneficially owned by the person holding such
options, warrants or convertible debt securities, but are not deemed to be
outstanding for purposes of computing such percentage for any other person.
Assumes identified persons do not purchase Units in this Offering.
(2) The address of Messrs. Rolinski, Murphy, Zaremba and Siwecki is c/o
Michigan Brewery, Inc., 1999 Walden Drive, Gaylord, Michigan 49735.
(3) Includes 6,000 shares of Common Stock subject to currently exercisable
warrants.
-33-
DESCRIPTION OF SECURITIES
UNITS
Each Unit offered hereby consists of one share of Common Stock and one
redeemable Class A Warrant. Class A Warrants are immediately exercisable and
separately transferrable from the Common Stock. Each Class A Warrant entitles
the holder to purchase at any time until redemption or four years following the
date of this Prospectus one share of Common Stock at an exercise price of $8.00
per share, subject to adjustment.
CAPITAL STOCK
The Company's Articles of Incorporation authorize it to issue 10,000,000 common
shares, with a par value of $.01 per share. After the closing of this Offering,
there will be issued and outstanding 4,968,120 shares of Common Stock (5,305,620
shares if the Underwriters' over-allotment option is exercised in full) and
Class A Warrants to purchase 2,250,000 shares of Common Stock, (2,587,500 shares
if the Underwriters' over-allotment is exercised in full), and the
Representative's Warrant to purchase up to 225,000 shares of Common Stock.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held of record
at each meeting of shareholders. No share of Common Stock is entitled to
preference over any other share, and each share of Common Stock is equal in all
respects to any other share. In any distribution of assets, whether voluntary or
involuntary, holders are entitled to receive pro rata the assets available to
holders of Common Stock after creditors have been paid in full and after any
liquidation preference of any other class of stock has been satisfied. The
outstanding shares are, and the stock offered hereby, upon payment therefor will
be fully paid and nonassessable.
The board of directors of the Company has the authority to issue the remaining
unissued authorized shares without shareholder approval. Shares could be issued
to deter or delay a takeover or other change in control of the Company.
Holders of the Common Stock have no preemptive rights to purchase additional
securities which may be offered by the Company. There is no cumulative voting
for the election of directors. Accordingly, the owners of a majority of
outstanding voting shares may elect all of the directors if they choose to do
so. All shares of Common Stock are entitled to participate equally in all
dividends when, as and if declared by the board of directors out of funds
legally available therefor.
RESTRICTIONS ON CERTAIN PURCHASES OF STOCK
Section 436.19b of the Michigan Liquor Control Act (the "Liquor Act") prohibits
the acquisition of 10% or more of the outstanding stock of a licensed
corporation, such as the Company, without the prior approval of the Michigan
Liquor Control Commission (the "Liquor Commission"). The Liquor Commission makes
its determination as to whether a person's interest in acquiring 10% or more of
the outstanding stock of the Company will be approved in accordance with the
application for license provisions of Section 436.1105 of the Liquor Act.
Pursuant to Section 436.1105, a person seeking to acquire 10% or more of the
outstanding stock of the Company must (i) provide the Liquor Commission
information regarding such person, including without limitation thereto,
information regarding other alcoholic liquor business management experience, in
such form, and with such updates, as may be required by the Liquor Commission;
(ii) respond to written or oral questions from the Liquor Commission and (iii)
consent to the performance of any background investigation that may be required
by the Liquor Commission, including without limitation thereto, an investigation
of certain past criminal convictions.
-34-
Section 436.31 of the Liquor Act prohibits certain persons (a "Prohibited
Person") from owning securities of the Company. A manufacturer, mixed spirit
drink manufacturer, warehouseman, wholesaler, outstate seller of beer, outstate
seller of wine, outstate seller of mixed spirit drinks or vendor of spirits may
not have any of the following: (i) a financial interest, directly or indirectly,
in the establishment, maintenance, operation or promotion of the business of the
Company; (ii) an interest by ownership in fee, leasehold, mortgage or otherwise,
directly or indirectly, in the establishment, maintenance, operation or
promotion of the business of the Company (iii) an interest directly or
indirectly by interlocking directors in a corporation or by interlocking stock
ownership in a corporation in the establishment, maintenance, operation or
promotion of the business of the Company. In addition, a stockholder of a
manufacturer may not have any interest described in subpart (ii) of the above
sentence. Finally, a Prohibited Person may not purchase the stock of the Company
and place the stock in any portfolio under an arrangement, written trust
agreement, or investment trust agreement, and sell the participating shares
within the State of Michigan.
In light of these statutory restrictions, the Company's Articles of
Incorporation state that the acquisition of 10% or more of the outstanding stock
of the Company requires the prior approval of the Liquor Commission and that no
person shall acquire any outstanding stock of the Company in violation of
Section 436.31 of the Liquor Act, as it may be amended from time to time.
Article X of the Company's Articles of Incorporation further provides that any
shares of Common Stock purchased in violation of Section 436.19b or Section
436.31 of the Liquor Act (shares held by a "Disqualified Holder") may be
repurchased by the Company at any time by action of the Board of Directors. Such
redemptions will be subject to the following terms and conditions: (i) the
redemption price of the shares to be redeemed shall be equal to the fair market
value of such shares or such other redemption price as required by pertinent
state or federal law pursuant to which the redemption is required; (ii) if less
than all the shares held by a Disqualified Holder are to be redeemed, the shares
to be redeemed shall be selected in such manner as shall be determined by the
Board of Directors; (iii) at least thirty(30) days' written notice of the date
upon which redemption is to occur shall be given to a Disqualified Holder
(unless waived in writing by the Disqualified Holder) provided that redemption
may occur on the date on which written notice shall be given to the Disqualified
Holder if the funds necessary to effect the redemption shall have been deposited
in trust for the benefit of the Disqualified Holder and subject to immediate
withdrawal by the Disqualified Holder upon surrender of the stock certificates
for the shares to be redeemed; (iv) from and after the date upon which
redemption occurs or such earlier date as mandated by pertinent state or federal
law, any and all rights of whatever nature, which may be held by the
Disqualified Holder of shares selected for redemption (including without
limitation any rights to vote such shares), shall cease and terminate and the
Disqualified Holder shall thenceforth be entitled only to receive the funds
payable upon redemption and (v) such other terms and conditions as the Board of
Directors shall determine.
These provisions of the Company's Articles of Incorporation would delay and
could prevent a change in control of the Company.
PRIOR OFFERINGS
In December 1995, the Company entered into a financing agreement with Pyramid
Partners, L.P. ("Pyramid") for the issuance of (i) a $250,000 non-interest
bearing promissory note (the "Pre-Bridge Convertible Note") which, upon the
earlier of the completion of this Offering or January 1997, is convertible into
a number of shares of Common Stock equal to $250,000 divided by the lesser of
(x) $4.00 or (y) two-thirds of the Price to Public of the Units in this Offering
(the "Pre-Bridge Shares"), (ii) a $250,000 non-convertible promissory note
bearing interest at 10% per annum which will become due upon the earlier of the
completion of this Offering or July 1996 (the "Pre-Bridge Non Convertible Note")
and (iii) warrants (the "Pre-Bridge Warrants") to purchase 62,500 shares of
Common Stock at the lesser of (x) $4.00
-35-
or (y) two-thirds of the Price to Public of the Units in this Offering. These
sales to Pyramid are collectively referred to herein as the "Pre-Bridge
Financing."
Concurrently with this Offering, the Company is registering the Pre-Bridge
Shares for resale to the public. Such resale will not be underwritten by the
Underwriter. The Company will not receive any proceeds from such resales. Sales
of Pre-Bridge Shares, or even the potential of such sales at any time, may have
an adverse effect on the market prices of the securities offered hereby. See
"Registration of Other Securities."
In February 1996, the Company sold, for $25,000 each, 60 bridge units (the
"Bridge Units"). Each Bridge Unit consisted of (i) 2,500 shares of Common Stock
(the "Bridge Common Stock"), (ii) a $12,500 principal amount promissory note
bearing interest at 10% per annum due upon the earlier of 20 days after the
completion of this Offering or August 1996 (the "Bridge Notes") and (iii)
warrants to purchase 2,500 shares of Common Stock at $5.00 per share expiring in
February 2001 (the "Bridge Warrants"). The sales of the Bridge Units are
referred to herein as the "Bridge Financing." The Pre-Bridge Financing and the
Bridge Financing are collectively referred to herein as the "Pre-Offering
Financings."
The Pre-Offering Financings resulted in the aggregate sale of (i) a $250,000
promissory note convertible upon completion of this Offering into 68,120 shares
of Common Stock, (ii) 150,000 shares of Common Stock, (iii) $1.0 million of
principal amount of promissory notes outstanding and due upon completion of this
Offering and (iv) the issuance of warrants to purchase an aggregate of 212,500
shares of Common Stock. The Pre-Bridge Warrants and the Bridge Warrants expire
five years from their respective dates of issuance.
Upon the Company becoming eligible to use Form S-3 under the Securities Act, the
Company intends to register for resale to the public on behalf of Pyramid and
the holders of the Bridge Units the Bridge Common Stock and the shares of Common
Stock issuable upon exercise of the Pre-Bridge Warrants and the Bridge Warrants.
Such resales will not be underwritten by the Underwriter. The Company will not
receive any proceeds from such resales. These registrations for resale to the
public are expected to be included in a Registration Statement on Form S-3
intended to be filed by the Company approximately one year after the date of
this Prospectus (the "Secondary Registration Statement"). Sales of shares
registered in the Secondary Registration Statement, or even the potential of
such sales at any time, may have an adverse effect on the market price of the
Units offered hereby.
CLASS A WARRANTS
The Class A Warrants included as part of the Units being offered hereby will be
issued under and governed by the provisions of a Warrant Agreement (the "Warrant
Agreement") between the Company and Norwest Bank Minnesota, N.A., as Warrant
Agent (the "Warrant Agent"). The following summary of the Warrant Agreement is
not complete and is qualified in its entirety by reference to the Warrant
Agreement, a copy of which has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part.
The shares of Common Stock and the Class A Warrants offered as part of the Units
are detachable and separately transferable. One Class A Warrant entitles the
holder thereof ("Warrantholder") to purchase one share of Common Stock during
the four years following the date of this Prospectus, subject to earlier
redemption, provided that at such time a current prospectus relating to the
shares of Common Stock issuable upon exercise of the Class A Warrants is in
effect and the issuance of such shares is qualified for sale or exempt from
qualification under applicable state securities laws. Each Class A Warrant will
be exercisable at an exercise price of $8.00 per share, subject to adjustment in
certain events.
The Class A Warrants are subject to redemption by the Company beginning 90 days
after the date of this Prospectus, on not less than 30 days written notice, at a
price of $.01 per warrant at any time following a period of 20 consecutive
trading days where the per share closing high bid price of the Common Stock
exceeds $9.00 (subject to adjustment). For these purposes, the closing high bid
price of the Common Stock shall be determined by the closing
-36-
bid price as reported by the Nasdaq SmallCap Market so long as the Common Stock
is quoted on the Nasdaq SmallCap Market and, if the Common Stock is listed on a
national securities exchange, shall be determined by the last reported sale
price on the primary exchange on which the Common Stock is traded.
Warrantholders will automatically forfeit all rights thereunder except the right
to receive the $.01 redemption price per warrant unless the Class A Warrants are
exercised before they are redeemed.
The Warrantholders are not entitled to vote, receive dividends or exercise any
of the rights of holders of shares of Common Stock for any purpose. The Class A
Warrants are in registered form and may be presented for transfer, exchange or
exercise at the office of the Warrant Agent. Although the Company has applied
for listing of the Class A Warrants on the Nasdaq SmallCap Market, there is
currently no established market for the Class A Warrants, and there is no
assurance that any such market will develop.
The Warrant Agreement provides for adjustment of the exercise price and the
number of shares of Common Stock purchasable upon exercise of the Class A
Warrants to protect Warrantholders against dilution in certain events, including
stock dividends, stock splits, reclassification and any combination of Common
Stock, or the merger, consolidation or disposition of substantially all the
assets of the Company.
The Class A Warrants may be exercised upon surrender of the certificate therefor
on or prior to the expiration date (or earlier redemption date) at the offices
of the Warrant Agent, with the form of "Election to Purchase" on the reverse
side of the certificate properly completed and executed as indicated,
accompanied by payment of the full exercise price (by certified or cashier's
check payable to the order of the Company) for the number of Class A Warrants
being exercised.
MICHIGAN ANTI-TAKEOVER LAWS
Generally, upon the Company having greater than 100 shareholders, depending upon
the final distribution of the shares of the Common Stock, the Company will be
subject to Chapters 7A and 7B of the Michigan Business Corporation Act. Chapters
7A and 7B may affect attempts to acquire control of the Company. In general,
under Chapter 7A, "business combinations" (defined to include, among other
transactions, certain mergers, dispositions of assets or shares and
recapitalizations) between covered Michigan business corporations or their
subsidiaries and an "interested shareholder" (defined as the direct or indirect
beneficial owner of at least 10% of the voting power of a covered corporation's
outstanding shares) can be consummated only if approved by at least 90% of the
votes of each class of the corporation's shares entitled to vote and by at least
two-thirds of such voting shares not held by the interested shareholder or such
shareholder's affiliates, unless five years have elapsed after the person
involved became an "interested shareholder" and unless certain price and other
conditions are satisfied. The Board may exempt "business combinations" with a
particular "interested shareholder" by resolution adopted prior to the time the
"interested shareholder" attained that status.
In general, under Chapter 7B of the Michigan Business Corporation Act, an entity
that acquires "Control Shares" of the Company may vote the Control Shares on any
matter only if a majority of all shares, and of all non-"Interested Shares," of
each class of shares entitled to vote as a class, approve such voting rights.
Interested Shares are shares owned by officers of the Company,
employee-directors of the Company and the entity making the Control Share
acquisition. Control Shares are shares that, when added to shares already owned
by an entity, would give the entity voting power in the election of directors
over any of three thresholds: one-fifth, one-third and a majority. The effect of
the statute is to condition the acquisition of voting control of a corporation
on the approval of a majority of the pre-existing disinterested shareholders.
The Board has the option of choosing to amend the Bylaws before a Control Share
acquisition occurs to provide that Chapter 7B does not apply to the Company.
-37-
TRANSFER AGENT AND REGISTRAR
Norwest Bank Minnesota, N.A. is the transfer agent and registrar for the
Common Stock, the Class A Warrants and the Units.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, there will be 4,968,120 shares of Common Stock
issued and outstanding (5,305,620 shares if the Underwriters' over-allotment
option is exercised in full) and 7,218,120 shares (7,893,120 if the
Underwriters' over-allotment option is exercised in full) upon exercise of all
outstanding Class A Warrants. The Units, Class A Warrants and shares of Common
Stock purchased in this Offering will be freely tradable without registration or
other restriction under the Securities Act, except for any shares purchased by
an "affiliate" of the Company (as defined in the Securities Act). Shares
purchased by an "affiliate" of the Company will be subject to Rule 144.
All of the Company's currently outstanding securities were acquired in reliance
upon the "private placement" exemptions provided by the Securities Act and are
deemed restricted securities within the meaning of Rule 144 ("Restricted
Shares"). Restricted Shares may not be sold unless they are registered under the
Securities Act or are sold pursuant to an applicable exemption from
registration, including an exemption under Rule 144. Between September 1996 and
November 1997, 2,375,011 shares of currently outstanding Common Stock held by
affiliates will become eligible for sale in the public market, subject to
compliance with Rule 144.
In general, under Rule 144 as currently in effect, any person (or person whose
shares are aggregated) including persons deemed to be affiliates, whose
restricted securities have been fully paid for and held for at least two years
from the later of the date of issuance by the Company or acquisition from an
affiliate, may sell such securities in broker's transactions or directly to
market makers, provided that the number of shares sold in any three-month period
may not exceed the greater of 1% of the then-outstanding shares of Common Stock
or the average weekly trading volume of the shares of Common Stock in the
over-the-counter market during the four calendar weeks preceding the sale. Sales
under Rule 144 are also subject to certain notice requirements and the
availability of current public information about the Company. After three years
have elapsed from the later of the issuance of restricted securities by the
Company or their acquisition from an affiliate, such securities may be sold
without limitation by persons who are not affiliates under the rule.
Concurrent with this Offering, the Company is registering for resale under the
Securities Act the 68,120 shares of Common Stock purchasable upon conversion of
the Pre-Bridge Convertible Note. In addition, upon the Company being eligible to
use Form S-3 under the Securities Act, the Company has agreed to register for
resale the Bridge Common Stock and the shares of Common Stock issuable upon
exercise of the Pre-Bridge Warrants and the Bridge Warrants.
Following this Offering, the Company cannot predict the effect, if any, that
sales of the Common Stock or the availability of such Common Stock for sale will
have on the market price prevailing from time to time. Nevertheless, sales by
existing shareholders of substantial amounts of Common Stock could adversely
affect prevailing market prices for the Common Stock if and when a public market
exists.
-38-
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement between the
Company and the Underwriters, the Underwriters have severally agreed to purchase
from the Company the following respective number of Units:
<TABLE>
<CAPTION>
NUMBER OF
NAME UNITS
<S> <C>
R.J. Steichen & Company ....................
Total ..................................... 2,250,000
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters are
subject to approval of certain legal matters by counsel and to various other
conditions. The nature of the Underwriters' obligations are such that they are
committed to purchase and pay for all of the Units if any are purchased.
The Underwriters propose to offer the Units initially to the public at the Price
to Public set forth on the cover page of this Prospectus, and at such price less
a concession not in excess of $ per Unit to certain selected dealers. The
Underwriters and such dealers may reallow part of such concessions not in excess
of $ per Unit to other securities dealers. Each of the concessions allowed will
be to members of the National Association of Securities Dealers, Inc. The
Underwriters will purchase the Units from the Company at the Price to Public set
forth on the cover page of this Prospectus less an underwriting discount of $
per Unit. After the initial public offering, the public offering price and other
selling terms may be changed by the Underwriters. The Underwriters have advised
the Company that they do not intend to confirm sales of Units to any accounts
over which they exercise discretionary authority.
The Company has granted the Underwriters a 45-day over-allotment option to
purchase up to an aggregate of 337,500 additional Units exercisable at the Price
to Public less the underwriting discount. The Underwriters may exercise such
option only to cover over-allotments made in connection with the sale of the
Units offered hereby.
The Company's directors who own 2,281,011 shares of Common stock in the
aggregate have agreed that they will not sell, grant any option for the sale of
or otherwise dispose of any equity securities of the Company (or any securities
convertible into or exercisable or exchangeable for equity securities of the
Company) for a period of 180 days after the date hereof without the prior
written consent of R.J. Steichen & Company (the "Representative").
The Company has agreed to indemnify the Underwriters against certain
liabilities, losses and expenses, including liabilities under the Securities
Act, or to contribute to payments that the Underwriters may be required to make
in respect thereof. Insofar as indemnification for liabilities under the
Securities Act may be permitted by contract, the Company has been advised that
in the opinion of the Commission, such indemnification is against public policy
as expressed in the Securities Act and is therefore unenforceable.
The Company has agreed to sell to the Representative, for $50, five year
warrants to purchase up to 225,000 shares of Common Stock at an exercise price
of 120% of the Price to Public (the "Representative's Warrant"). The
Representative's Warrant may be exercised commencing one year after the date of
this Prospectus. The exercise price and the number of shares may, under certain
circumstances, be subject to adjustment pursuant to anti-dilution provisions.
The Representative's Warrant also provides for certain demand and participatory
registration rights with respect to such Warrant and the shares of Common Stock
issuable upon its exercise. Any profits realized by the Representative on the
sale of the Representative's
-39-
Warrant or the securities issuable upon exercise thereof may be deemed to
constitute additional underwriting compensation.
The Company has agreed to pay the Representative a nonaccountable expense
allowance equal to 2.5% of the aggregate offering price of the Units or $309,375
($355,781 if the Underwriters' over-allotment option is exercised in full).
Prior to the Offering, there existed no public market for the securities of the
Company. The initial public offering price of the Units has been arbitrarily
determined by negotiations between the Company and the Underwriters, bears no
relationship to the Company's earnings, book value, net worth or any other
financial criteria of value and may not be indicative of the market price for
the Units after this Offering. There can be no assurance that the price at which
the Common Stock, the Class A Warrants or the Units will sell in the public
market after this Offering will not be lower than the initial public offering.
The foregoing is a brief summary of the provisions of the Underwriting Agreement
and does not purport to be a complete statement of its terms and conditions. A
copy of the Underwriting Agreement has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Briggs and Morgan, Professional Association, Minneapolis, Minnesota.
Certain legal matters will be passed upon for the Underwriter by Parsinen Bowman
Kaplan & Levy P.A., Minneapolis, Minnesota.
EXPERTS
The financial statements as of December 31, 1994 and 1995 and for the years then
ended included herein have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said report.
ADDITIONAL INFORMATION
Upon completion of this Offering, the Company will be subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended, and in
accordance therewith will file periodic reports and other information with the
Securities and Exchange Commission (the "Commission"). Such periodic reports and
other information may be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the regional offices of the Commission located at 75 Park Place, 14th
Floor, New York, New York 10007, and Suite 1400, Northwestern Atrium Center, 500
West Madison St., Chicago, Illinois 60661. Copies of such material may be
obtained at prescribed rates from the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Washington D.C. 20549.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2 under the Securities Act of
1933, as amended, with respect to the Units offered by this Prospectus. For
further information about the Company and the Common Stock, reference is made to
the Registration Statement and to the consolidated financial statements and
exhibits filed as a part thereof, copies of which can be inspected at and made
at the addresses referenced above. Statements contained in this Prospectus as to
the contents of any contract or any other document are not necessarily complete
and in each instance reference is made to the copy of such contract or document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference.
-40-
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
<S> <C>
Report of Independent Public Accountants F-2
Balance Sheets F-3
Statements of Operations F-4
Statements of Shareholders' Equity F-5
Statements of Cash Flows F-6
Notes to Financial Statements F-7
</TABLE>
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Michigan Brewery, Inc.:
We have audited the accompanying balance sheets of Michigan Brewery, Inc. (a
Michigan corporation) as of December 31, 1994 and 1995, and the related
statements of operations, shareholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Michigan Brewery, Inc. as of
December 31, 1994 and 1995, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
February 9, 1996
F-2
MICHIGAN BREWERY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31,
1994 1995 1996
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $181,185 $ 339,062 $ 90,203
Inventories -- 140,195 91,134
Prepaids and other 8,000 36,236 50,545
Total current assets 189,185 515,493 231,882
PROPERTY AND EQUIPMENT, net 601,477 5,751,313 5,824,064
OTHER ASSETS -- 85,785 366,304
$790,662 $ 6,352,591 $6,422,250
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable -- trade $ -- $ 246,246 $ 403,860
Accounts payable -- related party -- 480,986 30,972
Accrued expenses -- 145,496 146,873
Notes payable to shareholders 500,000 300,000 200,000
Line of credit -- 325,000 110,000
Current maturities of long-term debt -- 731,068 1,481,068
Total current liabilities 500,000 2,228,796 2,372,773
LONG-TERM DEBT -- 2,714,141 2,402,229
COMMITMENTS AND CONTINGENCIES (Note 7)
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value, 10,000,000
shares authorized; 2,025,000,
2,500,000 and 2,650,000 shares issued and
outstanding 20,250 25,000 26,500
Warrants -- 18,600 26,100
Additional paid-in capital 282,750 2,482,470 1,982,091
Accumulated deficit (12,338) (1,116,416) (387,443)
Total shareholders' equity 290,662 1,409,654 1,647,248
$790,662 $ 6,352,591 $6,422,250
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-3
MICHIGAN BREWERY, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
YEARS ENDED DECEMBER 31 ENDED MARCH 31,
1994 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUE:
Restaurant sales $ -- $ 2,380,641 $ -- $ 803,327
Wholesale beer and
gift shop sales -- 302,959 -- 83,118
Total revenue -- 2,683,600 -- 886,445
COSTS AND EXPENSES:
Cost of sales -- 1,298,735 -- 354,255
Operating expenses -- 1,376,854 7,040 476,585
Selling, general and
administrative expenses 12,338 823,299 33,912 318,901
Total costs and
expenses 12,338 3,498,888 40,952 1,149,741
LOSS FROM OPERATIONS (12,338) (815,288) (40,952) (263,296)
INTEREST EXPENSE -- 288,790 6,267 124,147
NET LOSS $ (12,338) $(1,104,078) $ (47,219) $ (387,443)
NET LOSS PER COMMON SHARE $ (0.01) $ (0.45) $ (0.02) $ (0.13)
WEIGHTED AVERAGE SHARES
OUTSTANDING (Note 1) 1,056,241 2,481,676 2,330,169 2,879,345
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
MICHIGAN BREWERY, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
ADDITIONAL
PAID-IN ACCUMULATED
SHARES AMOUNT WARRANTS CAPITAL DEFICIT
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993 -- $ -- $ -- $ -- $ --
Sale of common stock for $.01
per share 2,025,000 20,250 -- -- --
Additional shareholders'
capital contributions -- -- -- 282,750 --
Net loss -- -- -- -- (12,338)
BALANCE, December 31, 1994 2,025,000 20,250 -- 282,750 (12,338)
Sale of common stock for $.01
per share 350,000 3,500 -- -- --
Additional shareholders'
capital contributions -- -- -- 1,950,970 --
Issuance of common stock for
property and services at $2.00
per share 125,000 1,250 -- 248,750 --
Issuance of warrants (Note 3) -- -- 18,600 -- --
Net loss -- -- -- -- (1,104,078)
BALANCE, December 31, 1995 2,500,000 $25,000 $18,600 $ 2,482,470 $(1,116,416)
Effects of conversion to
C Corporation (unaudited) -- -- -- (1,116,416) 1,116,416
Sale of common stock for $4.95
per share (unaudited) 150,000 1,500 -- 616,037 --
Issuance of warrants
(unaudited) -- -- 7,500 -- --
Net loss (unaudited) -- -- -- -- (387,443)
BALANCE, March 31, 1996
(unaudited) 2,650,000 $26,500 $26,100 $ 1,982,091 $ (387,443)
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
MICHIGAN BREWERY, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31 ENDED MARCH 31,
1994 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (12,338) $(1,104,078) $ (47,219) $(387,443)
Adjustments to reconcile
net loss to cash flows used
in operating activities --
Depreciation and amortization -- 156,497 -- 110,231
Change in operating assets and
liabilities:
Inventories -- (140,195) -- 49,061
Prepaids and other (8,000) (28,236) -- (14,309)
Accounts payable -- 727,232 29,552 (292,400)
Accrued expenses -- 145,496 -- 1,377
Other -- (19,039) -- (15,615)
Net cash used in
operating activities (20,338) (262,323) (17,667) (549,098)
INVESTING ACTIVITIES:
Purchases of property and
equipment, net (601,477) (5,047,757) (1,673,484) (139,756)
FINANCING ACTIVITIES:
Proceeds from line-of-credit
borrowings -- 325,000 -- --
Payments on line-of-credit
borrowings -- -- -- (215,000)
Proceeds from issuance of debt to
shareholders 500,000 300,000 500,000 --
Payments on debt to shareholders -- (500,000) -- (100,000)
Proceeds from long-term debt -- 3,484,437 -- 750,000
Payments on long-term debt -- (39,228) -- (316,562)
Proceeds from issuance of
common stock 20,250 3,500 2,250 617,537
Proceeds from issuance of
warrants -- 18,600 -- 7,500
Capital contributions 282,750 1,945,970 1,197,750 --
Payment of deferred offering and
financing costs -- (70,322) -- (303,480)
Net cash provided by
financing activities 803,000 5,467,957 1,700,000 439,995
INCREASE IN CASH 181,185 157,877 8,849 (248,859)
CASH, beginning of period -- 181,185 -- 339,062
CASH, end of period $ 181,185 $ 339,062 $ 8,849 $ 90,203
SUPPLEMENTAL CASH FLOW
INFORMATION:
Interest paid $ -- $ 114,510 -- $ 89,000
Income taxes paid -- -- -- --
NONCASH TRANSACTION:
Issuance of common stock for
property and services -- 250,000 -- --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
MICHIGAN BREWERY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF BUSINESS
Michigan Brewery, Inc. (the Company) was organized to develop, own and operate
microbrewery/restaurants known as Big Buck Brewery and Steakhouses. The Company
currently operates one brewery in Gaylord, Michigan (the Brewery) and intends to
open three additional breweries in the next 12 to 18 months. The Company also
intends to utilize each brewery for bottling and wholesale distribution of its
private label beer.
The Company began construction on the Brewery after the purchase of the land in
May 1994 and it opened to the general public on May 26, 1995. Prior to the
opening of the Brewery, the Company was in the development stage. The Company
has met its capital requirements primarily through initial shareholder
contributions, loans from its principal shareholders and officers, bank
borrowings and certain private placement offerings. During February 1996, the
Company received net proceeds of approximately $1,265,000 through a private
placement offering (see Note 7).
The Company incurred a net loss of $1,104,078 and $387,443 for the year ended
December 31, 1995 and the three months ended March 31, 1996, respectively, and
had a working capital deficit of $2,140,891 as of March 31, 1996. The loss for
these periods is primarily attributable to costs and expenses incurred in the
completion of the development and start-up of operations at the Brewery and
unfavorable weather conditions during the first quarter of 1996.
The Company has limited operating history and future revenues and profits will
depend upon various factors, including market acceptance of the Big Buck Brewery
and Steakhouse concept and general economic conditions. The Company's ability to
meet its expansion plan and achieve profitability depends on its ability to
obtain substantial financing for the development of additional breweries. There
are no assurances that such financing will be available on terms acceptable or
favorable to the Company.
INTERIM FINANCIAL STATEMENTS
The balance sheet as of March 31, 1996 and the related statements of operations,
shareholders' equity and cash flows for the three-month periods ended March 31,
1995 and 1996 are unaudited. However, in the opinion of management these interim
financial statements include all adjustments (consisting of only normal
recurring adjustments) which are necessary for the fair presentation of the
results for the interim periods presented. The results of operations for the
unaudited three-month period ended March 31, 1996 are not necessarily indicative
of the results which may be expected for the entire 1996 fiscal year.
INVENTORIES
Inventories consist principally of restaurant food items, raw materials used in
the brewing process, finished goods, including beer in kegs and beer held in
fermentation prior to the filtration and packaging process, and retail goods for
resale. Inventories are stated at the lower of cost (first-in, first-out) or
market and consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 MARCH 31, 1996
(UNAUDITED)
<S> <C> <C>
Food $ 52,369 $32,580
Brewery 53,345 39,534
Retail goods 34,481 19,020
$140,195 $91,134
</TABLE>
F-7
PREOPENING EXPENSES
It is the Company's policy to capitalize the direct and incremental costs
associated with opening a new brewery which consist primarily of hiring and
training the initial work force and other direct costs. These costs will be
amortized over the first 12 months of the Brewery's operations if the
recoverability of such costs can be reasonably assured. Expenses incurred prior
to opening the Brewery, the Company's first, were charged to operations when
incurred due to the developmental nature of the Brewery.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Improvements are capitalized, while
repair and maintenance costs are charged to operations when incurred. Property
and equipment are depreciated using the straight-line method for financial
reporting purposes and accelerated methods for income tax reporting purposes
over their estimated useful lives. Property and equipment consisted of the
following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, ESTIMATED
1994 1995 1996 USEFUL LIVES
(UNAUDITED)
<S> <C> <C> <C> <C>
Land and improvements $108,885 $ 546,296 $ 546,296 20 years
for
improvements
Building and improvements -- 3,076,914 3,079,366 40 years
Brewery equipment 206,271 932,567 1,017,580 12-30 years
Restaurant equipment -- 807,717 845,354 10 years
Furniture, fixtures and equipment -- 480,136 494,722 5-7 years
Construction in progress 286,321 -- --
Deposits on brewing equipment -- 60,672 60,672
601,477 5,904,302 6,043,990
Accumulated depreciation -- (152,989) (219,926)
$601,477 $5,751,313 $5,824,064
</TABLE>
OTHER ASSETS
Other assets consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
(UNAUDITED)
<S> <C> <C>
Deferred offering costs $ -- $173,480
Deferred financing costs,
net 66,746 158,170
Other 19,039 34,654
$85,785 $366,304
</TABLE>
Deferred offering costs consist of legal, accounting and other costs associated
with the Company's proposed initial public offering of units (see Note 7). Such
costs will be reclassified to shareholders' equity upon the successful
completion of an offering. Such costs will be expensed if an offering of its
units is not completed.
Deferred financing costs consist primarily of underwriting and legal fees
associated with the issuance of notes payable and bridge notes during 1995 and
1996 (see Notes 3 and 7).
F-8
Amortization of deferred financing costs is recorded using the effective
interest method over the life of the related notes.
NET LOSS PER SHARE
Net loss per share was computed by dividing net loss by the weighted average
number of shares of common stock and common stock equivalents outstanding during
each period. Common stock equivalents include the effects of options and
warrants which are assumed to be exercised or converted into common stock at the
beginning of the period. Pursuant to Securities and Exchange Commission rules,
shares of stock sold and stock options and warrants granted within one year of
the date of the contemplated initial public offering have been included in the
calculation of common share equivalents, using the treasury stock method, as if
they were outstanding for all periods presented, even if the effect is
antidilutive.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. The
ultimate outcomes could differ from those estimates.
RECENTLY ISSUED ACCOUNTING STANDARD
During 1995, the Company adopted the provisions of Financial Accounting
Standards Board (FASB) Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," (SFAS No. 121)
which establishes accounting standards for the recognition and measurement of
impairment of long-lived assets, certain identifiable intangibles and goodwill
either to be held or disposed of. The adoption of SFAS No. 121 had no impact on
the Company's financial position or results of operations.
2. RELATED-PARTY TRANSACTIONS:
NOTES PAYABLE TO SHAREHOLDERS
As discussed in Note 3, the Company has promissory notes due to certain
shareholders. Of the total amount due under the promissory notes, $500,000 and
$250,000 was due to two director/shareholders as of December 31, 1994 and 1995
and $50,000 was due to an officer/shareholder as of December 31, 1995.
PURCHASES OF PROPERTY AND SERVICES
The general contractor hired to construct the Brewery building was a company
owned by a director/shareholder. During 1995, this director/shareholder received
shares of common stock in exchange for a $250,000 reduction of the payable due
by the Company. The total amount of property and services purchased from this
company during 1995 was $3,393,000, of which $480,986 remained unpaid as of
December 31, 1995.
During 1995, the Company purchased vehicles totaling $71,780 from an
equipment company owned by a director/shareholder.
SHAREHOLDER GUARANTEES
Certain director/shareholders have guaranteed a substantial portion of the
Company's long-term debt (see Note 3).
F-9
3. DEBT:
NOTES PAYABLE TO SHAREHOLDERS
The aggregate amount of promissory notes to shareholders was $500,000 at
December 31, 1994, $300,000 at December 31, 1995 and $200,000 as of March 31,
1996. The notes are unsecured, interest accrues at an annual rate of 9% to 9.7%
and principal is due on demand.
LINE OF CREDIT
The Company has a line of credit with a bank with a maximum borrowing limit of
$325,000, with monthly interest payable at the bank's prime rate plus 1% (9.50%
at December 31, 1995). The line is collateralized by all of the assets of the
Company, guaranteed by certain shareholders, and due on demand. The Company had
borrowed up to the maximum limit of $325,000 as of December 31, 1995 with the
balance being paid down to $110,000 as of March 31, 1996.
LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 MARCH 31, 1996
(UNAUDITED)
<S> <C> <C>
Mortgage note payable to bank, monthly principal
payments of $5,760 plus interest at 10.2%,
remaining balance due on October 1, 2000,
collateralized by all assets of the Company and
guaranteed by certain shareholders .................... $1,863,480 $1,846,200
Note payable to bank, monthly principal payments of
$13,333 plus interest at 10.2%, remaining balance
due on October 1, 2000, collateralized by all assets
of the Company and guaranteed by certain
shareholders .......................................... 773,333 733,333
Bridge loan (see below) 500,000 500,000
Bridge notes payable (see Note 7) -- 750,000
Revolving credit note payable to a partnership with a
$750,000 limit; interest at prime plus 1% (9.2% at
December 31,1995), payable on October 20, 1998;
convertible to common stock upon holder's election,
such that each $50,000 of debt is converted to a 1%
equity interest in the Company, not to exceed 15%;
collateralized by personal guarantees of the
shareholders; repaid during March 1996 ................ 250,000 --
Notes payable to bank, due in monthly installments
through 1998 and 1999, interest at 10.95% to 13%,
concluding on September 19, 1999, collateralized by
certain equipment ..................................... 76,996 67,714
Total ................................................ 3,463,809 3,897,247
Less -- Original issue discount, being amortized
through January 1997 .................................. 18,600 13,950
Less -- Current maturities ............................. 731,068 1,481,068
Long-term debt ....................................... $2,714,141 $2,402,229
</TABLE>
F-10
In December 1995, the Company entered into a bridge loan with a limited
partnership which consisted of a $250,000 convertible promissory note
(convertible note), a $250,000 nonconvertible promissory note (nonconvertible
note) and warrants to purchase an aggregate of 62,500 shares of common stock at
the lesser of two-thirds of an initial public offering price or $4.00 per share
expiring in December 2000. The convertible note is noninterest-bearing, is
collateralized by certain brewery equipment and is convertible into common stock
upon the earlier of an initial public offering or January 1997 at the lesser of
two-thirds of an initial public offering price or $4.00 per share. The
nonconvertible note bears interest at 10%, is secured by certain brewery
equipment and is due upon the earlier of an initial public offering or July
1996. The warrants were recorded at their estimated fair value of $0.30 per
warrant.
Maturities of long-term debt as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1996 (excluding the original discount) $ 749,668
1997 250,779
1998 498,803
1999 244,230
2000 1,720,329
$3,463,809
</TABLE>
4. INCOME TAXES:
The Company has been an S corporation since inception for federal income tax
purposes. As a result, the Company's losses through December 31, 1995 were, for
federal and state income tax purposes, included in the personal tax returns of
the Company's shareholders.
As more fully described in Note 5, the Company organized a private placement
offering of debt and common stock which caused the income tax status of the
Company to change, and the Company is no longer eligible for S corporation
status effective February 5, 1996. Under the provisions of FASB Statement No.
109, "Accounting for Income Taxes," deferred tax assets and liabilities are
computed based on the difference between the financial statement and tax bases
of assets and liabilities using currently enacted tax rates.
As of December 31, 1995, the Company's deferred taxes would have consisted
primarily of preopening costs not currently deductible and accelerated methods
of depreciation used for tax purposes. If the termination of S corporation
status had occurred at December 31, 1995, there would have been no effect on the
financial statements, as the Company would have recorded a full valuation
allowance against the net deferred tax asset due to the uncertainty of realizing
the related benefits.
As of March 31, 1995, the Company had net operating loss carryforwards for
income tax purposes of approximately $350,000. These net operating loss
carryforwards expire in the year 2010. Because of the lack of profitability, a
full valuation allowance has been recorded against the net deferred tax asset.
5. SHAREHOLDERS' EQUITY:
ORIGINAL ISSUANCES
At the inception and during the development of the Company, 2,500,000 shares
of common stock were issued for consideration ranging from $.01 to $2.04 per
share.
STOCK OPTION PLAN
During January 1996, the Company adopted the 1996 Stock Option Plan (the Plan),
pursuant to which options to acquire an aggregate of 300,000 shares of the
Company's
F-11
common stock may be granted. Under the Plan, the board of directors may grant
options to purchase shares of the Company's stock to eligible employees,
nonemployees and contractors at a price not less than 100% of the fair market
value at the time of the grant for both incentive and nonstatutory stock
options. Options granted under the Plan vest annually over four years from date
of grant and are exercisable for ten years, except that the term may not exceed
five years for incentive stock options granted to persons who own more than 10%
of the Company's outstanding voting stock. During January 1996, 166,000 options
at an initial public offering price were granted under the Plan.
DIRECTOR STOCK OPTION PLAN
During January 1996, the Company adopted the 1996 Director Stock Option Plan
(the Director's Plan) pursuant to which options to acquire an aggregate of
100,000 shares of the Company's common stock may be granted to outside
directors. Under the Director's Plan, 5,000 options will automatically be
granted to each outside director upon an initial public offering and thereafter
5,000 options will be granted annually for each year of continued service by the
outside director. Each option is granted at fair market value on the date of
grant and is exercisable for a period of ten years commencing one year after the
date of grant. No options have been granted under the Director's Plan to date.
OTHER STOCK OPTIONS
The Company granted options to purchase 25,000 shares of common stock at an
initial public offering price to a consulting firm for services rendered.
6. LEGAL PROCEEDINGS:
The Company is involved in legal actions in the ordinary course of its business.
Although the outcomes of any such legal actions cannot be predicted, in the
opinion of management there is no legal proceeding pending against or involving
the Company for which the outcome is likely to have a material adverse effect
upon the financial position or results of operations of the Company.
7. PRIVATE PLACEMENT AND PROPOSED PUBLIC OFFERING:
On January 19, 1996, the Company declared a 112.50-for-1 stock split which has
been retroactively reflected in the accompanying financial statements.
During February 1996, the Company sold 60 units in a private placement offering
at an offering price of $25,000 per unit. Each unit consisted of (i) 2,500
shares of common stock at $4.95 per share, (ii) a $12,500 principal amount
promissory note bearing interest at 10%, unsecured and due the earlier of 20
days after an initial public offering or August 1996, and (iii) warrants to
purchase 2,500 shares of common stock at an exercise price of $5.00 per share
expiring in February 2001. The Company received net proceeds of approximately
$1,265,000 after the payment of $235,000 in related underwriting discount and
offering costs. The net proceeds were used to pay off certain debt and purchase
brewery equipment and will be used for working capital purposes.
The Company intends to file with the Securities and Exchange Commission a Form
SB-2 Registration Statement for the sale of 2,250,000 units, each unit
consisting of one share of common stock and one redeemable Class A warrant
(excluding the underwriters' overallotment option to purchase an additional
337,500 units), which will represent approximately 47% of the ownership of the
Company. The proceeds from the offering will be used to finance the development
of additional facilities, pay off indebtedness and for working capital. There
can be no assurances that the Company will complete this proposed public
offering.
F-12
[PHOTO]
CAPTION: A VIEW OF GAYLORD BREWERY FROM THE INTERSTATE HIGHWAY.
[PHOTO]
CAPTION: BIG BUCK OFFERS A SELECTION OF CRAFTBREWED BEERS RANGING FROM LIGHT
TO DARK.
================================================================================
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES IT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE
SUBSEQUENT TO THE DATE HEREOF.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Page
Prospectus Summary 3
Risk Factors 6
Use of Proceeds 12
Dividend Policy 12
Prior Subchapter S Corporation Status 13
Capitalization 14
Dilution 15
Selected Financial Data 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 17
Business 20
Management 28
Certain Transactions 31
Registration of Other Securities 32
Principal Shareholders 33
Description of Securities 34
Shares Eligible for Future Sale 38
Underwriting 39
Legal Matters 40
Experts 40
Additional Information 40
Financial Statements F-1
</TABLE>
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING
TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
2,250,000 UNITS
MICHIGAN BREWERY, INC.
BIG BUCK
[LOGO]
BREWERY
& STEAKHOUSE
EACH UNIT CONSISTING OF
ONE SHARE OF
COMMON STOCK
AND
ONE REDEEMABLE
CLASS A WARRANT
----------
PROSPECTUS
----------
[LOGO]
RJ
STEICHEN
& COMPANY
, 1996
================================================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article V, Section 3 of the Registrant's Bylaws generally provides that the
Registrant will indemnify its directors and officers to the fullest extent
authorized or permitted under the Michigan Business Corporation Act and that the
Company will make advancements of expenses at the request of a director or
officer. The Michigan Business Corporation Act authorizes a corporation, under
certain circumstances, to indemnify its directors and officers (including to
reimburse them for expenses incurred). Reference is made to Exhibit 3.2 of this
Registration Statement for the complete text of the Registrant's Bylaws.
The Registrant's Restated Articles of Incorporation generally limit the personal
liability of directors for monetary damages for breaches of fiduciary duty. If a
director were to breach such duty in performing his or her duties as a director,
neither the Registrant nor its shareholders could recover monetary damages from
the director, and the only course of action available to the Registrant's
shareholders would be equitable remedies, such as an action to enjoin or rescind
a transaction involving a breach of fiduciary duty. To the extent claims against
directors are limited to equitable remedies, the provision in the Restated
Articles of Incorporation may reduce the likelihood of derivative litigation and
may discourage shareholders or management from initiating litigation against
directors for breach of their fiduciary duty.
Under the Restated Articles of Incorporation, liability for monetary damages
remains for (i) any breach of duty of loyalty to the Registrant or its
shareholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) violations of
Section 551(1) of the Michigan Business Corporation Act, (iv) any transaction
from which the director derived an improper personal benefit or (v) any act or
omission that occurred before the effective date of the provision of the
Articles of Incorporation.
Reference is made to Exhibit 3.1 of this Registration Statement for the complete
text of the Restated Articles of Incorporation.
Michigan corporations are also authorized to obtain insurance to protect
directors and officers from certain liabilities, including liabilities against
which corporations cannot indemnify their directors and officers.
For provisions regarding the indemnification of the Registrant and the directors
and officers of the Registrant by the Underwriter against certain liabilities,
including liabilities under the Securities Act, reference is made to Section 7
of the Underwriting Agreement, filed as Exhibit 1.1 to this Registration
Statement.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The table below sets forth estimated expenses in connection with the issuance
and distribution of the Common Stock being offered:
<TABLE>
<CAPTION>
<S> <C>
SEC registration fee $ 12,500
NASD corporate finance review fee 4,000
Small-Cap Market qualification fee 17,500
*Printing expenses 40,000
*Fees and expenses of counsel for the Company 80,000
*Fees and expenses of accountants for the Company 80,000
*Transfer Agent and Registrar fees 17,000
*Blue Sky fees and related expenses 10,000
*Miscellaneous 39,000
Total $300,000 **
</TABLE>
* Estimated
** Does not include the Underwriter's nonaccountable expense allowance equal
to 2.5% of the total Price to Public.
II-1
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The following transactions reflect the issuance during the previous three years
of securities not registered under the Securities Act, giving retroactive effect
to a one for 112.5-for-one stock split in January 1996.
Between September 1994 and November 1995, the Company sold an aggregate of
2,500,000 shares of Common Stock to six individuals, including five officers and
directors, for a total aggregate consideration of approximately $2.4 million. Of
the amount of securities sold, 2,136,699 shares were sold for cash and 363,301
shares were issued as a result of the conversion of $250,000 of the Company's
indebtedness to a certain purchaser and the satisfaction of two $50,000
promissory notes by certain purchasers. All such securities were sold through
direct private placements with the purchasers, no broker/dealer or underwriter
was involved and no commissions were paid to any person in respect thereto.
In December 1995, the Company sold to one accredited investor a $250,000
convertible secured promissory note, a $250,000 nonconvertible secured
promissory note and a warrant to purchase 62,500 shares of Common Stock. These
securities were sold for an aggregate purchase price of $500,000.
In February 1996, the Company issued 60 bridge units, each unit consisting of
2,500 shares of Common Stock, $12,500 in the principal amount of notes and
warrants for the purchase of an aggregate of 2,500 shares of Common Stock. These
Units were sold at a purchase price of $25,000 per Unit. All of the purchasers
of the Units were accredited investors as that term is defined under Rule 501 of
Regulation D under the Securities Act.
The Company paid aggregate commissions to R.J. Steichen & Company, a
broker/dealer, totalling $130,000 for sales described in paragraphs 3 and 4
above.
All of the above sales were made in reliance on Section 4(2) of the Securities
Act as transactions not involving a public offering. In addition, the sales
described in paragraphs 3 and 4 above were made in reliance upon Rules 505 and
506 of Regulation D under the Securities Act. With regard to the reliance by the
Company upon the exemption from registration provided under Section 4(2) of the
Securities Act for the sales of securities disclosed above, inquiries were made
by the Company to establish that such sales were qualified for exemption from
the registration requirements. In particular, the Company confirmed that with
respect to the exemption claimed under Section 4(2) of the Securities Act (i)
each purchaser referred to gave written assurance of investment intent and
certificates for the shares sold to each purchaser bear a legend consistent with
such investment intent and restricting transfer and (ii) sales within any
offering were made to a limited number of persons. No general solicitation to
the public was made in connection with such sales.
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
<S> <C>
Form of Underwriting Agreement (including Form of Representative's Warrant,
1.1 Agreement Among Underwriters and Selected Dealers' Agreement)
3.1 Restated Articles of Incorporation
3.2 Amended and Restated Bylaws
4.1 Specimen Form of the Company's Common Stock Certificate
4.2 Form of Warrant Agreement (including Form of Redeemable Class A Warrant)
Form of Subscription and Investment Representation Agreement, dated December
1995, between the Company and Pyramid Partners, LP (including Form of
Convertible Secured Promissory Note, Form of Non-Convertible Secured Promissory
4.3 Note and Form of Warrant)
5.1 Opinion of Briggs and Morgan, Professional Association
II-2
10.1 1996 Stock Option Plan
10.2 1996 Director Stock Option Plan
Loan Agreement, dated July 28, 1995, by and among the Company, William F.
10.3 Rolinski, Dr. Blair Murphy, Walter Zaremba, Casimer Zaremba and NBD Bank
11.1 Computation of Net Loss Per Share
Consent of Briggs and Morgan, Professional Association (filed as part of
23.1 Exhibit 5.1)
23.2 Consent of Arthur Andersen LLP
24.1 Power of Attorney (set forth on the Signature Page hereof)
</TABLE>
ITEM 28. UNDERTAKINGS.
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) Reflect, in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in
the registration statement; and notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of the securities offered would not exceed that which
was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Securities and Exchange Commission
pursuant to Rule 424(b) of the Securities Act of 1933 if in the
aggregate, the changes in volume and price represent no more than a
20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement; and
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For purposes of determining liability, treat each post-effective amendment
as a new registration statement of the securities offered, and the offering
of the securities at that time to be the initial bona fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
The undersigned Registrant hereby undertakes to provide to the Underwriters at
the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of 1933,
the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Gaylord and State of Michigan, on May 24, 1996.
MICHIGAN BREWERY, INC.
By: /S/ WILLIAM F. ROLINSKI
William F. Rolinski
President and Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities
indicated and on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/S/ WILLIAM F. ROLINSKI President, Chief Executive Officer and May 24, 1996
William F. Rolinski Director
/S/ ANTHONY P. DOMBROWSKI Chief Financial Officer (Principal Financial May 24, 1996
Anthony P. Dombrowski Officer and Accounting Officer)
* Director
Casimer I. Zaremba
* Director
Blair A. Murphy
* Director
Henry T. Siwecki
* /S/ WILLIAM F. ROLINSKI
William F. Rolinski,
As Attorney-in-Fact
Dated: May 24, 1996
</TABLE>
II-5
[ADDITIONAL COVER PAGE]
SUBJECT TO COMPLETION, DATED MAY 24, 1996
[LOGO] BIG BUCK 75,000 UNITS
BREWERY MICHIGAN BREWERY, INC.
& STEAKHOUSE COMMON STOCK
PROSPECTUS
Pyramid Partners, L.P. (the "Selling Shareholder") is hereby offering (the
"Selling Shareholder Offering") up to 75,000 Shares of Common Stock (the
"Shares") of Michigan Brewery, Inc. (the "Company"). Concurrent with the Selling
Shareholder Offering, the Company is offering 2,250,000 Units (the "Offering"),
each Unit consisting of one share of Common Stock and one redeemable Class A
Warrant. The Company will not receive any of the proceeds from the sale of the
Shares by the Selling Shareholder. See "Use of Proceeds." The Class A Warrants
are immediately exercisable and transferable separate from the Common Stock.
Each Class A Warrant entitles the holder to purchase at any time until four
years following the date of this Prospectus one share of Common Stock at an
exercise price of $8.00 per share, subject to adjustment. The Class A Warrants
are subject to redemption by the Company for $.01 per warrant at any time 90
days after the date of this Prospectus, on 30 days written notice, provided that
the closing high bid price of the Common Stock exceeds $9.00 per share (subject
to adjustment) for any 20 consecutive trading days. See "Description of
Securities."
Prior to this Offering, there has been no market for the Company's securities.
It is currently anticipated that the initial public offering price per Unit (the
"Price to Public") will be between $5.00 and $6.00. See "Underwriting" for
information relating to the factors considered in determining the Price to
Public. The Company's Common Stock, Class A Warrants and Units have been
approved for designation as Nasdaq SmallCap Market securities under the symbols
"BBUC," "BBUCW" and "BBUCU," respectively, pending completion of this Offering.
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY IS SPECULATIVE AND INVOLVES A
HIGH DEGREE OF RISK AND SUBSTANTIAL DILUTION. SEE "RISK FACTORS" BEGINNING ON
PAGE 6 HEREIN AND "DILUTION."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) SHAREHOLDER(3)
<S> <C> <C> <C> <C>
Per Unit $ $ $ $
Total(4) $ $ $ $
</TABLE>
(1) The Company has agreed to pay R. J. Steichen & Company, as Representative
of the several Underwriters (the "Representative"), a nonaccountable
expense allowance equal to 2.5% of the total Price to Public. The Company
has also agreed to sell to the Representative, for nominal consideration,
a five-year warrant to purchase up to 225,000 shares of Common Stock at
an exercise price of 120% of the Price to Public. In addition, the
Company has agreed to indemnify the Underwriters against certain
liabilities. See "Underwriting."
(2) Before deducting expenses of the Offering estimated at $300,000, which does
not include the nonaccountable expense allowance described in Note 1 above.
(3) Per Share of Common Stock.
(4) The Underwriters have been granted an option to purchase up to 337,500
additional Units from the Company for the purpose of covering
over-allotments, if any. If the Underwriters exercise the over-allotment
option in full, the total Price to Public, Underwriting Discount and
Proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting."
The Shares are offered by Pyramid Partners, L.P.
The Units are offered by the several Underwriters, subject to prior sale, when,
as and if delivered to and accepted by them. The Underwriters reserve their
rights to withdraw, cancel or modify such offer and to reject orders in whole or
in part. It is expected that delivery of certificates representing the Units
will be made on or about , 1996 in Minneapolis, Minnesota.
The date of this Prospectus is ____________, 1996
[Additional pages to be substituted in the Selling Shareholder Prospectus.]
THE OFFERINGS
Securities Offered:
Offering ....................... 2,250,000 Units, each Unit consisting
of one share of Common Stock and one
redeemable Class A Warrant. Each
Class A Warrant is immediately
exercisable and transferable
separately from the Common Stock.
Each Class A Warrant entitles the
holder to purchase at any time until
four years following the date of this
Prospectus one share of Common Stock
at an exercise price of $8.00,
subject to adjustment. The Class A
Warrants are subject to redemption by
the Company for $.01 per warrant at
any time 90 days after the date of
this Prospectus, on 30 days written
notice, provided that the high
closing bid price of the Common Stock
exceeds $9.00 per share (subject to
adjustment) for any 20 consecutive
trading days. Holders of Class A
Warrants may exercise their rights
until the close of business on the
date fixed for redemption, unless
extended by the Company. See
"Description of Securities."
Selling Shareholder Offering ... Up to 75,000 shares of Common
Stock(1)
Common Stock Outstanding ........ 2,650,000 shares prior to the Offering and
4,968,120 shares after the Offering(2).
Nasdaq SmallCap
Market Symbols:
Common Stock ................. BBUC
Warrants ...................... BBUCW
Units ......................... BBUCU
Use of Proceeds ................. Development and opening of three new
Big Buck Breweries and repayment of
debt. See "Use of Proceeds."
RISK FACTORS
An investment in the Units is highly speculative and involves a high degree of
risk and substantial dilution. See "Risk Factors" beginning on page 6 and
"Dilution."
(1) These shares of Common Stock will be acquired by the Selling
Shareholder upon completion of the Offering pursuant to the
conversion of the Pre-Bridge Convertible Note. Pursuant to this
conversion, the Selling Shareholder will acquire up to 75,000 shares
of Common Stock.
(2) Includes the conversion of the Pre-Bridge Convertible Note into
68,120 shares of Common Stock at a conversion price of $3.67 per
share (See "Description of Securities -- Prior Offerings). Does not
include; (i) 2,250,000 shares issuable upon exercise of the Class A
Warrants offered hereby; (ii) 212,500 shares reserved for issuance
upon exercise of the Pre-Bridge Warrant and the Bridge Warrants (see
"Description of Securities -- Prior Offerings"); (iii) up to 225,000
shares issuable upon exercise of the Representative's Warrant; (iv)
300,000 shares reserved for issuance under the Company's 1996 Stock
Option Plan; (v) 100,000 shares reserved for issuance under the
Company's 1996 Director Stock Option Plan and (vi) 25,000 shares
issuable upon exercise of outstanding options.
-4-
[Additional pages to be substituted in the Selling Shareholder Prospectus.]
USE OF PROCEEDS
The net proceeds to the Company from this Offering (at an assumed initial public
offering price of $5.50 per Unit), after deducting estimated costs and expenses
of this Offering, are expected to be approximately $10.8 million (or $12.4
million if the Underwriters' over-allotment option is exercised in full). The
Company intends to use the net proceeds as follows:
<TABLE>
<CAPTION>
DOLLAR PERCENTAGE OF
USE OF PROCEEDS AMOUNT USE OF PROCEEDS
<S> <C> <C>
Development and opening of new
breweries $ 9,600,000 89%
Repayment of notes 1,200,000 11
Total $10,800,000 100%
</TABLE>
The Company plans to use approximately $9.8 million of the proceeds of this
Offering for the development and opening of three new Big Buck Breweries. The
Company intends to obtain real estate financing for up to 55% of the costs of
developing and opening the three new Breweries. The Company currently estimates
that the cost of developing and opening the three new Breweries, including
equipment, furniture, fixtures and pre-opening expenses, will aggregate
approximately $21.0 million, depending upon the locations, site conditions,
construction costs and sizes and types of Breweries built. There can be no
assurance that the Company will be able to develop and open the three new Big
Buck Breweries at such costs or obtain the necessary financing on terms
favorable to the Company. In addition, the Company's expansion plans will be
altered absent the enactment of an amendment to current Michigan law. See "Risk
Factors -- Michigan Law May Limit Growth." The Company will not receive any of
the proceeds from the sale of the Shares by the Selling Shareholder.
In February 1996, the Company obtained for $25,000 an option to purchase for
$375,000 a seven acre site in Sault St. Marie, Michigan. This option expires
on June 30, 1996.
Approximately $1.2 million of the net proceeds will be used to repay the
Pre-Bridge Non- Convertible Note, the Bridge Notes, and the April 10, 1996
promissory note to Casimer I. Zaremba. See "Certain Transactions" and
"Description of Securities -- Prior Offerings."
Pending use of the net proceeds for the above purposes, the Company intends to
invest such funds in short-term bank deposits, United States government
securities and other short-term investment-grade securities.
DIVIDEND POLICY
The Company has never paid or declared any cash dividends on its Common Stock
and does not intend to pay dividends on its Common Stock in the foreseeable
future. The Company presently expects to retain its earnings to finance the
development and expansion of its business. The payment by the Company of
dividends, if any, on its Common Stock in the future is subject to the
discretion of the Board of Directors and will depend on the Company's earnings,
financial condition, capital requirements and other relevant factors. In
addition, the Company's ability to pay dividends is prohibited by the terms of
its credit facility with its bank. Investors who anticipate a need for immediate
income from their investment should not purchase the Units offered hereby.
-12-
[Additional pages to be substituted in the Selling Shareholder Prospectus.]
PRINCIPAL AND SELLING SHAREHOLDERS
The following table contains certain information as of the date of the Offering
as to the number of shares of Common Stock beneficially owned by (i) each person
who beneficially owns 5% or more of the Company's Common Stock, (ii) the Selling
Shareholder, (iii) each person who is a director of the Company and (iv) all
persons who are directors and officers of the Company as a group, and as to the
percentage of the outstanding shares held by them on such date. Each person
identified below possesses sole voting and investment power with respect to such
shares.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED PRIOR TO SHARES BENEFICIALLY
OFFERING(1) OWNED AFTER OFFERING(1)
SHARES
OFFERED
NUMBER PERCENTAGE HEREBY NUMBER PERCENTAGE
<S> <C> <C> <C> <C> <C>
William F. Rolinski(2) 840,008 31.7 -- 840,008 16.9
Casimer I. Zaremba(2) 675,007 25.5 -- 675,007 13.6
Dr. Blair A. Murphy(2) 635,007 24.0 -- 635,007 12.8
Henry T. Siwecki(2) 136,989(3) 5.2 -- 136,989(3) 2.8
Pyramid Partners, L.P.
730 East Lake Street
Wayzata, Minnesota 55391 137,500(4) 5.2 75,000 62,500 1.3
All Directors and Executive
Officers as a group (seven
persons) 2,287,011(3) 86.3 -- 2,287,011(3) 46.0
</TABLE>
(1) Securities "beneficially owned" by a person are determined in accordance
with the definition of "beneficial ownership" set forth in the regulations
of the Securities and Exchange Commission and, accordingly, may include
securities owned by or for, among others, the spouse, children or certain
other relatives of such person as well as other securities as to which the
person has or shares voting or investment power or has the option or right
to acquire Common Stock within 60 days after the date of the Offering.
Shares of Common Stock subject to options, warrants or convertible debt
securities currently exercisable or exercisable within 60 days after the
date of the Offering, are deemed to be outstanding for purposes of computing
the percentage of shares beneficially owned by the person holding such
options, warrants or convertible debt securities, but are not deemed to be
outstanding for purposes of computing such percentage for any other person.
Assumes identified persons do not purchase Units in this Offering.
(2) The address of Messrs. Rolinski, Murphy, Zaremba and Siwecki is c/o
Michigan Brewery, Inc., 1999 Walden Drive, Gaylord, Michigan 49735.
(3) Includes 6,000 shares of Common Stock subject to currently exercisable
warrants.
(4) Includes 62,500 shares of Common Stock subject to currently exercisable
warrants.
-33-
[Additional pages to be substituted in the Selling Shareholder Prospectus.]
================================================================================
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES IT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE
SUBSEQUENT TO THE DATE HEREOF.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Page
Prospectus Summary 3
Risk Factors 6
Use of Proceeds 12
Dividend Policy 12
Prior Subchapter S Corporation Status 13
Capitalization 14
Dilution 15
Selected Financial Data 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 17
Business 20
Management 28
Certain Transactions 31
Registration of Other Securities 32
Principal Shareholders 33
Description of Securities 34
Shares Eligible for Future Sale 38
Underwriting 39
Legal Matters 40
Experts 40
Additional Information 40
Financial Statements F-1
</TABLE>
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING
TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
75,000 SHARES
MICHIGAN BREWERY, INC.
BIG BUCK
[LOGO]
BREWERY
& STEAKHOUSE
COMMON STOCK
----------
PROSPECTUS
----------
, 1996
================================================================================
INDEX TO EXHIBITS
EXHIBITS DESCRIPTION PAGE
- -------- ----------- ----
1.1 Form of Underwriting Agreement (including Form of
Representative's Warrant, Agreement Among Underwriters and
Selected Dealers' Agreement)
3.1 Restated Articles of Incorporation *
3.2 Amended and Restated Bylaws *
4.1 Specimen Form of the Company's Common Stock Certificate *
4.2 Form of Warrant Agreement (including Form of Redeemable
Class A Warrant) *
4.3 Form of Subscription and Investment Representation
Agreement, dated December 1995, between the Company and
Pyramid Partners, LP (including Form of Convertible
Secured Promissory Note, Form of Non-Convertible Secured
Promissory Note and Form of Warrant) *
5.1 Opinion of Briggs and Morgan, Professional Association
10.1 1996 Stock Option Plan *
10.2 1996 Director Stock Option Plan *
10.3 Loan Agreement, dated July 28, 1995, by and among the
Company, William F. Rolinski, Dr. Blair Murphy, Walter
Zaremba, Casimer Zaremba and NBD Bank *
11.1 Computation of Net Loss Per Share *
23.1 Consent of Briggs and Morgan, Professional Association
(filed as part of Exhibit 5.1)
23.2 Consent of Arthur Andersen LLP
* Previously filed.
2,250,000 UNITS
MICHIGAN BREWERY, INC.
EACH UNIT CONSISTING OF ONE SHARE OF COMMON STOCK
AND ONE REDEEMABLE CLASS A WARRANT
UNDERWRITING AGREEMENT
________________, 1996
R. J. Steichen & Company
As Representative of the Several Underwriters
801 Nicollet Mall, Suite 1100
Minneapolis, Minnesota 55402-2526
Ladies and Gentlemen:
Michigan Brewery, Inc., a Michigan corporation (the "Company"),
proposes, subject to the terms and conditions stated herein, to issue and sell
to the several underwriters (the "Underwriters"), for whom you are acting as
representative (the "Representative" or "you"), an aggregate of 2,250,000 units,
each unit consisting of one share of $.01 par value common stock (the "Common
Stock") and one redeemable Class A Warrant (the "Class A Warrants"). Each Class
A Warrant will be immediately exercisable and transferable separate from the
Common Stock and will entitle the holder to purchase at any time until four
years following the date of the Prospectus described below one share of Common
Stock at an exercise price of $8.00 per Class A Warrant, subject to adjustment.
The Class A Warrants will be subject to redemption by the Company for $.01 per
warrant at any time 90 days after the date of the Prospectus described below, on
30 days written notice, provided that the closing high bid price of the Common
Stock exceeds $9.00 per share (subject to adjustment) for any 20 consecutive
trading days prior to such notice. The 2,250,000 units to be purchased from the
Company are referred to herein as the "Firm Units." In addition, solely for the
purpose of covering over-allotments with respect to the Firm Units, the Company
proposes to grant to the Underwriters, for their accounts, the option to
purchase an additional 337,500 units (the "Option Units"). The Firm Units and
Option Units purchased pursuant to this Underwriting Agreement are herein
referred to as the "Units." The Company hereby confirms its agreement with
respect to the purchase of the Units by the Underwriters. Further, the Company
hereby confirms its agreement to issue to the Representative a warrant to
purchase a number of shares of Common Stock equal to 10% of the number of Firm
Units purchased by the Underwriters, as described in Section 12 hereof (the
"Representative's Warrant").
1. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the Underwriters as follows:
(a) The Company has prepared in conformity in all material
respects with the requirements of the Securities Act of 1933, as
amended (the "Act"), and the applicable rules and regulations (the
"Rules and Regulations") of the Securities and Exchange Commission
(the "Commission") thereunder, and has filed with the Commission, a
registration statement on Form SB-2 (File No. 333-3548), including a
Prospectus relating to the Units, and has filed with the Commission
before the effective date of the registration statement (the
"Effective Date") one or more amendments thereto. Copies of such
registration statement and amendments (including all forms of the
preliminary prospectus), including the exhibits to the Registration
Statement, have been delivered to you. Any such preliminary
prospectus (as described in Rule 430 under the Act) included at any
time as part of such registration statement is herein called a
"Preliminary Prospectus." As used herein, the term "Registration
Statement" shall, except where the context otherwise requires, mean
said registration statement (and all exhibits thereto) as amended by
all amendments filed prior to its effective date; and the term
"Prospectus" shall, except where the context otherwise requires, mean
said final prospectus on file with the Commission when the
Registration Statement became effective (except that, if the
prospectus filed by the Company pursuant to Rules 424(b) and 430A
under Act shall differ from the prospectus included in the
Registration Statement, the term "Prospectus" shall, except where the
context otherwise requires, mean the prospectus so filed pursuant to
Rules 424(b) and 430A from and after the date on which it shall have
been first used). Reference herein to the Registration Statement, to
any Preliminary Prospectus, to the Prospectus or to any amendment of
or supplement to the Prospectus includes all documents and
information incorporated therein by reference. The Registration
Statement has been declared effective by the Commission and no
post-effective amendment with respect to such Registration Statement
has heretofore been filed with the Commission. No stop order
suspending the effectiveness of the Registration Statement has been
issued nor has any proceeding for that purpose been initiated or
threatened by the Commission.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus, and each
Preliminary Prospectus, at the time of filing thereof with the
Commission, conformed in all material respects to the requirements of
the Act and the Rules and Regulations of the Commission thereunder
and did not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary
in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that none of the representations and warranties in this
subparagraph shall apply to statements in, or omissions from, any
Preliminary Prospectus which are based upon and conform to written
information furnished to the Company by or on behalf of any
Underwriter, directly or through the Representative, specifically for
use in the preparation thereof.
(c) When the Registration Statement became effective and
at all times subsequent thereto up to each Closing Date and upon the
effective date of any post-effective amendment to the Registration
Statement, the Registration Statement and the Prospectus, and any
amendments thereof or supplements thereto, did and will in all
material respects conform to the requirements of the Act and of the
applicable Rules and Regulations of the Commission thereunder; and
neither the Registration Statement (as amended, if the Company shall
have filed with the Commission any post-effective amendment thereto)
nor the Prospectus did or will include an untrue statement of a
material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the
light of the circumstances under which they were made, not
misleading; provided, however, that the Company makes no
representations or warranties as to information contained in or
omitted from the Registration Statement or the Prospectus, or any
such amendment or supplement, in reliance upon and in conformity with
written information furnished to the Company by or on behalf of any
Underwriter, directly or through the Representative, specifically for
use in the preparation thereof. There is no contract or document
required to be described in the Registration Statement or Prospectus,
or to be filed as an exhibit to the Registration Statement, which was
not described or filed as required.
(d) Arthur Andersen LLP, the accountants who have examined
certain financial statements of the Company filed with the Commission
as part of the Registration Statement and the Prospectus, are
independent public accountants within the meaning of the Act and the
Rules and Regulations. The financial statements of the Company,
together with related notes and summaries thereof, set forth in the
Registration Statement and Prospectus in all material respects
present fairly the financial position, results of operations and cash
flows of the Company as of the dates and for the periods indicated.
All such financial statements (including the related notes) have been
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods concerned, except as
disclosed therein.
(e) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus,
and other than as described in the Registration Statement and
Prospectus, (i) the Company has not incurred any material liabilities
or obligations, contingent or otherwise, or entered into any material
transaction, except obligations incurred and transactions entered
into in the ordinary course of business that in the aggregate are not
material; (ii) the Company has not paid or declared any dividend or
other distribution on its Common Stock; (iii) there has not been any
change in the Common Stock or material increase in the long-term or
short-term debt of the Company (including any capitalized lease
obligation), or any issuance of options, warrants, or rights to
purchase Common Stock of the Company, or any material adverse change
in the business, financial position, results of operations, executive
officers, capitalization, properties, or net worth of the Company;
(iv) no material loss or damage to the property or business of the
Company has been sustained as a result of fire, explosion, flood or
other calamity, whether or not covered by insurance, or as a result
of any labor dispute or court or governmental action, order, or
decree; and (v) there has not been any development involving a
prospective material adverse change in or affecting the general
affairs, management, financial position, shareholders' equity, or
results of operations of the Company, otherwise than as set forth in
the Prospectus.
(f) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation, with corporate power and authority to
own its properties and conduct its business as it is currently being
carried on and is duly qualified to do business as a foreign
corporation and is in good standing in all other states or
jurisdictions in which the ownership or lease of property or the
conduct of its business requires such qualification and in which the
failure to so qualify would have a material adverse effect on its
business condition (financial or other), or properties. Except as
described in the Prospectus, the Company has all necessary and
material authorizations, approvals and orders of and from all
governmental regulatory officials and bodies to own its properties
and conduct its business as described in the Prospectus and is, to
the best of its knowledge, conducting its business in substantial
compliance with all applicable laws, rules and regulations of the
jurisdictions in which it is conducting business. Without limiting
the generality of the foregoing, the Company is operating in
substantial compliance with the licensing and other applicable legal
requirements imposed by federal, state, and local authorities with
respect to the production and sale, on- and off-site, of its various
beers.
(g) The Company is not in violation of its articles of
incorporation, bylaws, or other governing documents and is not in
default in the performance of any obligation, agreement or condition
contained in any lease agreement or in any bond, debenture, note or
any other evidence of indebtedness or in any material contract,
indenture, loan agreement or license where such default would have a
material adverse effect on the business condition (financial or
other) or properties of the Company, which violation or default has
not been waived. The issuance, sale, and delivery by the Company of
the Units to be sold hereunder, the compliance by the Company with
all of the provisions of this Agreement, and the consummation of the
transactions herein contemplated and the fulfillment of the terms
hereof will not conflict with or result in a material breach of any
of the terms or provisions of, or constitute a material default
under, the articles of incorporation or bylaws or other governing
documents of the Company, or any indenture, mortgage, deed of trust,
loan agreement, or other agreement or instrument to which the Company
is a party or by which it is bound, or to which any property of the
Company is subject, or conflict with or violate in any material
manner any law or any order, rule, or regulation applicable to the
Company of any court, or of any federal or state regulatory body or
administrative agency, having jurisdiction over the Company or any of
its properties which conflict, breach, or default has not been waived
if it would have a material adverse effect on the business condition
(financial or other) or properties of the Company.
(h) The Company has the duly authorized and outstanding
capitalization as set forth in the Prospectus. The outstanding Common
Stock of the Company is duly authorized and validly issued, fully
paid, and nonassessable and conforms to the description of such
capital stock contained in the Prospectus. No preemptive rights or
similar rights of any security holders of the Company exist with
respect to the issuance and sale of the Units by the Company. Except
as described in the Prospectus, the Company has no agreement with any
security holder which gives such security holder the right to require
the Company to register under the Act any securities of any nature
owned or held by such person either in connection with the
transactions contemplated by this Agreement or after a demand for
registration by such holder. The Units conform in all material
respects in substance to all statements in relation thereto contained
in the Registration Statement and the Prospectus. The Company has all
requisite power and authority (corporate and other) to issue, sell,
and deliver the Units in accordance with and upon the terms and
conditions set forth in this Agreement and in the Registration
Statement and Prospectus; and all corporate action required to be
taken by the Company for the due and proper authorization, issuance,
sale, and delivery of the Units has been validly and sufficiently
taken. Upon payment for and delivery of the Units to be sold by the
Company pursuant to this Agreement, the Underwriters will acquire
good and marketable title to such Units, free and clear of all
claims, liens, or encumbrances of any kind. The certificates
evidencing the Units (including the shares of Common Stock and the
Class A Warrants included therein) will comply as to form with all
applicable provisions of the laws of the State of Michigan, the Act,
and the Rules and Regulations of the Commission. The Company has
reserved a sufficient number of shares of Common Stock for possible
issuance upon exercise of the Class A Warrants, and upon exercise of
any of such warrants and payment therefor as provided by the terms
thereof, the holders of such warrants will receive shares of Common
Stock which are validly issued, fully paid, and nonassessable and
free and clear of all claims, liens, or encumbrances of any kind.
(i) The Company has full legal power, right, and authority
(corporate and other) to enter into this Underwriting Agreement and
to perform and discharge its obligations hereunder, and this
Underwriting Agreement has been duly authorized, executed, and
delivered on behalf of the Company and is the valid and binding
obligation of the Company, subject, as to the enforcement of
remedies, to applicable bankruptcy, insolvency, moratorium, and other
laws affecting the rights of creditors generally and by general
equitable principles, and except as enforceability of the
indemnification or contribution provisions may be limited by federal
or state securities laws or principles of public policy.
(j) No approval, authorization, consent, registration,
qualification, or order of any court or any public board or body
(other than in connection with or incompliance with the provisions of
the Act and the securities or Blue Sky laws of various jurisdictions)
is legally required for the issuance, sale, and delivery of the Units
by the Company.
(k) The Company has no subsidiaries.
(l) Each of the Company's directors has entered into a
separate agreement with the Representative pledging, without the
Representative's prior written consent, not to directly or indirectly
sell, offer to sell, contract to sell, grant any option for the sale,
or otherwise dispose of any shares of Common Stock owned by such
person or with respect to which such person has the power of
designation during the period beginning from the date of such
agreement and continuing to and including the date 180 days after the
date of the Prospectus.
(m) Except as described in the Notes to the financial
statements included as part of the Prospectus, the Company has good
and marketable title, free and clear of all liens, encumbrances,
equities, charges, or claims, to all of the property, real and
personal, described in the Registration Statement and Prospectus as
being owned by it, except as otherwise set forth in the Registration
Statement and Prospectus and except for such as are not in the
aggregate material in relation to the property of the Company and do
not materially affect the value of such property; and, except as
otherwise stated in the Registration Statement and Prospectus, the
Company has valid and binding leases to the real and/or personal
property described in the Registration Statement and Prospectus as
under lease to it with such exceptions as do not materially interfere
with the conduct of the business.
(n) There are no actions, suits, or proceedings or
investigations pending before any court or governmental agency,
authority, or body to which the Company is a party or of which the
business or property of the Company is the subject which, if decided
adversely, would have a material adverse effect on the general
affairs, condition (financial or other), business, properties, net
worth, or results of operations of the Company, and, to the best of
the Company's knowledge, no such actions, suits, or proceedings are
threatened.
(o) The Company has not, directly or indirectly, at any
time during the past five years (i) made any contributions to any
candidate for political office or failed to disclose fully any
contribution in violation of law or (ii) made any payment to any
state, federal, or foreign governmental officer or official, or other
person charged with similar public or quasi-public duties, other than
payments required or permitted by applicable law.
(p) The Company owns or possesses the right to utilize all
the patents, patent applications, trademarks, service marks, trade
names, trademark registrations, service mark registrations,
copyrights, licenses, inventions, trade secrets, and similar rights
necessary for the present conduct of its business as described in the
Prospectus, except for such patents, patent applications, trademarks,
service marks, trade names, trademark registrations, service mark
registrations, copyrights, licenses, inventions, trade secrets, or
other similar rights which if not owned, possessed, or acquired would
not have a material adverse effect on the business of the Company.
The Company has not received any notice of, and has no reason to
believe any person or entity could claim any infringement of, or make
a claim for license or similar fees for, any patents, patent
applications, trademarks, service marks, trade names, trademark
registrations, service mark registrations, copyrights, licenses,
inventions, trade secrets, or other similar rights of others, or any
claim with respect thereto, which would have a material adverse
effect on the business of the Company.
(q) The Company has filed all necessary federal, state,
and foreign income, payroll, and franchise tax returns or if not
filed, has obtained all necessary extensions and has paid all taxes
as shown as due on any such returns; and there is no material tax
deficiency which has been asserted against the Company, and the
Company has no material obligation to pay any taxes except as may be
stated in the Prospectus.
(r) All prior offers or sales of the securities of the
Company were exempt from registration under the Act and all
applicable state blue sky laws.
(s) No securities of the Company have been sold within
three years prior to the date hereof, except as set forth in Part II
of the Registration Statement.
(t) The Company knows of no outstanding claims for
services in the nature of a finder's fee or origination fee with
respect to the sale of the Units or the Representative's Warrants
hereunder resulting from its acts for which the Underwriters may be
responsible. The Company will indemnify the Underwriters for and hold
the Underwriters harmless against any claim for such finder's fees or
origination fees.
(u) Each contract to which the Company is a party and
which is filed as a part of or incorporated by reference into the
Registration Statement has been duly and validly executed, is in full
force and effect in all material respects in accordance with its
terms, and none of such contracts have been assigned by the Company,
and the Company knows of no present situation or condition or fact
which would prevent compliance by the Company with the terms of such
contracts, as amended to date.
(v) The Company intends to apply the proceeds from the
sale of the Units by it to the purposes and in the manner set forth
in the Prospectus.
(w) The Company maintains insurance which is in full force
and effect, of the types and in an amount, in the judgment of the
Company and except as otherwise disclosed in the Prospectus,
reasonable for its present business taking into account its
operations and assets, including, but not limited to, insurance
covering all personal property owned or leased by the Company against
theft, damage, destruction, acts of vandalism, and all other risks
customarily insured against.
(x) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or
specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain
accountability for assets, (iii) access to assets is permitted only
in accordance with management's general or specific authorization,
and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
(y) The Company has no defined benefit pension plan or
other pension benefit plan which is intended to comply with the
provisions of the Employee Retirement Income Security Act of 1974, as
amended, except as disclosed in the Registration Statement and
Prospectus.
(z) All material transactions between the Company and its
officers, directors, promoters, and its shareholders who beneficially
own 5% or more of any class of the Company's voting securities
required to be disclosed in the Prospectus have been accurately
disclosed in the Prospectus, and the terms of each such transaction
are fair to the Company and no less favorable to the Company than the
terms that could have been obtained from unrelated parties.
2. Purchase of the Units by the Underwriters.
(a) On the basis of the representations and warranties
herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to sell to the Underwriters in the
respective amounts set forth in Appendix A hereto, and the
Underwriters agree severally but not jointly in the respective
amounts set forth in Appendix A hereto to purchase from the Company,
the Firm Units. The purchase price for each Firm Unit shall be at a
discount of eight percent (8%) from the Price to Public of $_______
per Unit.
(b) The Company hereby grants to the several Underwriters,
for their accounts, an option severally but not jointly to purchase
from the Company, solely for the purpose of covering over-allotments
in the sale of Firm Units, all or any portion of an aggregate of
337,500 Option Units for a period of 45 days from the date hereof at
the same purchase price per Option Unit as the purchase price per
Firm Unit set forth in Section 2(a) above. The number of Option Units
to be purchased by each Underwriter shall be determined by
multiplying the number of Option Units to be sold by the Company to
the several Underwriters pursuant to the Representative's notice of
exercise (as described in Section 3 below) by a fraction, the
numerator of which is the number of Firm Units to be purchased by
such Underwriter as set forth opposite its name in Appendix A and the
denominator of which is 2,250,000 (subject to such adjustments to
eliminate any fractional Unit purchases as the Representative and the
Company may mutually agree).
3. Delivery of and Payment for Units. Delivery of certificates for
the Firm Units and payment therefor shall be made at the offices of the
Representative, 801 Nicollet Mall, Suite 1100, Minneapolis, Minnesota 55402-2526
(or such other place as mutually may be agreed upon), at ________ a.m.,
Minneapolis, Minnesota time, on ______________, 1996 (the "First Closing Date").
The option to purchase Option Units granted in Section 2(b) hereof may be
exercised from time to time during the 45-day term thereof by written notice to
the Company from the Representative. Such notice shall set forth the aggregate
number of Option Units as to which the option is being exercised, and the time
and date, not earlier than either the First Closing Date or the second business
day after the day on which the option shall have been exercised but not later
than the fourth business day after the date of such exercise, as determined by
the Representative, when the Option Units are to be delivered (the "Second
Closing Date"). Delivery and payment for such Option Units to be purchased by
the several Underwriters is to be at the offices set forth above for delivery
and payment of the Firm Units. The First Closing Date and the Second Closing
Date are sometimes herein individually called the "Closing Date" and
collectively called the "Closing Dates." Delivery of certificates for the Units
shall be made by or on behalf of the Company to the Underwriters against payment
by the Underwriters of the purchase price therefor by wire transfer or certified
or official bank check to the order of the Company payable in next day funds.
You have advised the Company that each Underwriter has authorized you to accept
delivery of its Units and to make payment and give receipt therefor. The
certificates for such Units shall be registered in such names and denominations
as you shall have requested at or before 12:00 Noon, Minneapolis, Minnesota
time, at least two full business days prior to the applicable Closing Date. Such
certificates will be made available for checking and packaging at least 24 hours
prior to each closing at the offices of the Representative set forth above. Time
shall be of the essence and delivery at the time and place specified in this
Agreement is a further condition to the Underwriters' obligations hereunder.
4. Covenants of the Company. The Company covenants and agrees with
each Underwriter that:
(a) The Company will use its best efforts to cause the
Registration Statement to become and remain effective, up to each
Closing Date. The Company will notify the Representative promptly of
any request by the Commission for any amendment of or supplement to
the Registration Statement or the Prospectus or for additional
information, will prepare and file with the Commission, promptly upon
the Representative's request, any amendments of or supplements to the
Registration Statement or Prospectus which, in the Representative's
reasonable opinion, may be necessary or advisable in connection with
the distribution of the Units; and will not file any amendments and
supplements to the Registration Statement as originally filed with
the Commission unless it shall first have delivered copies of such
amendments or supplements to you, or file any such amendment or
supplement to which you shall have reasonably objected in writing to
the Company. The Company will immediately advise the Representative
by telephone, confirming such advice in writing (i) when notice is
received from the Commission that the Registration Statement has
become effective, (ii) of any order suspending the effectiveness of
the Registration Statement or of any proceedings or examination under
the Act, as soon as the Company is advised thereof, and (iii) of any
order or communication of any public authority addressed to the
Company suspending or threatening to suspend qualification of the
Units for sale in any state. The Company will use its best efforts to
prevent the issuance of any stop order or other such order, and,
should a stop order or other such order be issued, to obtain as soon
as possible the lifting thereof.
(b) If, at any time when a prospectus relating to the
Units is required to be delivered under the Act, any event shall have
occurred as a result of which, in the opinion of counsel for the
Company or in the reasonable opinion of counsel for you, the
Prospectus, as then amended or supplemented, includes an untrue
statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading, or if it is necessary at any time to amend or
supplement the Prospectus to comply with the Act, the Company will
notify you promptly and prepare and file with the Commission an
appropriate amendment or supplement.
(c) The Company will use its best efforts to take or cause
to be taken at its sole expense all necessary action and furnish to
its counsel and to whomever you may reasonably direct such
information as may be required in qualifying the Units for offering
and sale under the Blue Sky or securities laws of such states as you
and the Company shall designate for so long as may be necessary to
complete the distribution of the Units. The Company shall not,
however, be required to register or qualify as a foreign corporation
or as a dealer in securities or, except as to matters and
transactions related to the offering or sale of the Units, consent to
service of process in any state.
(d) The Company will furnish to you or to the several
Underwriters upon your order, from time to time and without charge,
copies of the Registration Statement, each Preliminary Prospectus,
the Prospectus (including all documents from which information is
incorporated by reference), and all amendments of and supplements to
any of such documents, in each case as soon as available and in such
quantities as you may from time to time reasonably request for the
purposes contemplated by the Act. The Company authorizes each
Underwriter and all dealers to whom any of the Units may be sold by
the Underwriters to use the Preliminary Prospectuses and Prospectuses
supplied, as from time to time amended or supplemented, in connection
with the sale of the Units as and to the extent permitted by federal
and applicable state and local securities laws.
(e) The Company will furnish to you, two copies of the
Registration Statement and all amendments thereof, including all
exhibits and schedules.
(f) The Company will, for a period of five (5) years after
the Effective Date, furnish directly to you as soon as the same shall
be sent to shareholders generally, copies of all annual or interim
shareholder reports of the Company, and will, for the same period,
also furnish you with the following: (i) two copies of any report,
application, or document (other than exhibits, which, however, will
be furnished on request) which the Company shall file with the
Commission or any securities exchange; (ii) as soon as the same shall
be sent to shareholders generally, copies of each communication which
shall be sent to shareholders; and (iii) from time to time such other
information concerning the Company as you may reasonably request,
provided that the Company shall not be required to furnish any
information pursuant hereto that is not furnished to its shareholders
or not otherwise made publicly available.
(g) The Company will, for a period of two (2) years after
the Effective Date, furnish directly to you, quarterly profit and
loss statements, reports of the Company's cash flow, and statements
of application of the proceeds of the offering in such reasonable
detail as you may request.
(h) The Company will make generally available to its
security holders as soon as practicable, but in any event not later
than eighteen months after the effective date of the Registration
Statement, a statement of earnings of the Company (which need not be
audited) complying with Section ll(a) of the Act and the rules and
regulations of the Commission thereunder (including at the option of
the Company Rule 158).
(i) Whether or not this Agreement becomes effective or is
terminated or canceled or the sale of the Units to the several
Underwriters is consummated, and regardless of the reason for or
cause of any such termination, cancellation, or failure to
consummate, the Company will pay or cause to be paid (A) all expenses
(including any transfer taxes) incurred in connection with the
delivery to the Underwriters of the Units, (B) all expenses and fees
(including, without limitation, fees and expenses of the Company's
accountants and counsel, excluding, however, fees of the
Underwriters' counsel) in connection with the preparation, printing,
filing, delivery, and shipping of the Registration Statement
(including the financial statements therein and all amendments,
schedules, and exhibits thereto), each Preliminary Prospectus, the
Prospectus, and any amendment thereof or supplement thereto, (C) all
fees and reasonable expenses, including all reasonable legal fees and
expenses of the Company's counsel, incurred in connection with the
qualification of the Units for offering and sale by the several
Underwriters or by dealers under the securities or Blue Sky laws of
the states and other jurisdictions which you and the Company mutually
shall designate in accordance with Section 4(c) hereof, (D) all costs
and expenses incident to qualification with Nasdaq, (E) postage and
express charges and other expenses in connection with delivery of the
Preliminary and Final Prospectus to the several Underwriters, and (F)
all other costs and expenses incident to the performance of their
obligations hereunder that are not otherwise specifically provided
for herein. In addition to and not in lieu of the foregoing, the
Company shall pay to the Representative on each Closing Date for
out-of-pocket expenses (including fees of Underwriters' counsel), a
nonaccountable expense allowance equal to 2.5% of the aggregate Price
to Public for all the Units sold to the several Underwriters on each
Closing Date. If the Underwriters withdraw from the sale of the Units
as herein proposed for any reason, or if the sale of the Units as
herein proposed is abandoned by the Company, the Company will
reimburse the Representative in the amount of all actual accountable
expenses (including fees and disbursements of counsel) incurred by
the Representative in connection with the contemplated purchase,
offer, and sale of the Units, including without limitation, expenses
incurred in their investigation, preparation to market, and marketing
of the Units, and in contemplation of performing and in performance
of its obligations hereunder, such expenses and fees to be evidenced
by appropriate receipts, invoices, or other documentation.
(j) The Company will not, during the 180 days following
the effective date of the Registration Statement, except with the
Representative's prior written consent, offer for sale, sell,
distribute, or otherwise dispose of any Common Stock or sell or grant
options, rights, or warrants with respect to any Common Stock,
otherwise than in accordance with this Agreement, pursuant to the
Company's 1996 Stock Option Plan and 1996 Director Stock Option Plan
and options granted thereunder and any other options, warrants, or
similar rights outstanding on the date hereof or as contemplated by
the Prospectus.
(k) The Company will prepare, file, and use its best
efforts to cause a separate Registration Statement to become
effective under the Act and applicable blue sky laws on the Effective
Date with respect to the contemplated offer and sale of securities by
Pyramid Partners, L.P. as described in the Prospectus.
(l) The Company authorizes the several Underwriters and
all dealers to whom any of the Units may be sold by the Underwriters
in connection with the distribution of the Units, to use the
Prospectus as from time to time amended or supplemented in connection
with the offering and sale of the Units and in accordance with the
applicable provisions of the Act and the applicable Rules and
Regulations and applicable state "blue sky" or securities laws.
(m) The Company shall not request an effective date nor
allow the Registration Statement to be declared effective without the
prior approval of the Representative.
(n) Within the time during which the Prospectus is
required to be delivered under the Act, the Company will comply, at
its own expense, with all requirements imposed upon it by the Act, by
the Rules and Regulations, by the Exchange Act, and by any order of
the Commission, so far as necessary to permit the continuance of
sales or dealings in the Units.
(o) The Company agrees to file with the Commission all
required reports on Form SR in accordance with the provisions of Rule
463 promulgated under the Act and to provide a copy of such reports
to the Representative and its counsel.
(p) The Company shall file an application and take all
other steps necessary to have the Units (including the Common Stock
and Class A Warrants included therein) listed on the National
Association of Securities Dealers, Inc. SmallCap Market on or prior
to the Effective Date and shall use its best efforts to maintain such
inclusion on the Nasdaq SmallCap Market.
(q) The Company will reserve and keep available that
maximum number of its authorized but unissued shares of Common Stock
which are issuable upon exercise of the Class A and Representative's
Warrants during the term of such warrants.
(r) Prior to the Closing Date, no discussions will be held
by officers, directors, or any other affiliate or associate of the
Company with any member of the news media and no news release or
other publicity about the Company will be permitted without prior
approval of the Company's and the Underwriters' respective legal
counsel.
(s) The Company shall have obtained CUSIP numbers for the
Units, Common Stock, and Class A Warrants prior to the Effective
Date.
(t) The Company shall supply to the Representative, at the
Company's cost, two complete bound volumes of all of the documents
relating to the public offering, within a reasonable time after the
Closing Date, not to exceed four (4) months. The volumes shall be
hard cover bound in book format.
5. Conditions of Underwriters' Obligations. The obligations of the
several Underwriters herein shall be subject to the accuracy of the
representations and warranties and covenants on the part of the Company herein
as of the date hereof, and as of each Closing Date, to the accuracy of the
written statements of Company officers made pursuant to the provisions hereof,
to the performance by the Company of its obligations hereunder and to the
following additional conditions:
(a) The Company's Registration Statement shall have become
effective under the Act not later than 4:00 P.M., Minneapolis,
Minnesota time, on the date of this Agreement, or on such other time
and date as shall be satisfactory to you, no stop order suspending
the effectiveness of the Registration Statement or any amendment
thereof or supplement or the qualification of the Units for offering
or sale shall have been issued, and no proceedings for that purpose
shall have been instituted or shall be pending or, to the knowledge
of the Company or the Representative, shall be threatened by the
Commission or by any state securities authority, and any request of
the Commission for additional information (to be included in the
Registration Statement or the Prospectus or otherwise) shall have
been complied with to your satisfaction.
(b) You shall not have advised the Company that the
Registration Statement or Prospectus, or any amendment thereof or
supplement thereto, contains an untrue statement of fact that, in
your reasonable opinion, is material, or omits to state a fact that,
in your reasonable opinion, is material and is required to be stated
therein or is necessary to make the statements therein not
misleading; provided that this Section 5(b) shall not apply to
statements in, or omissions from, the Registration Statement or
Prospectus, or any amendment thereof or supplement thereto that are
based upon and conform to written information provided by or on
behalf of any Underwriter, directly or through the Representative,
specifically for use in the Registration Statement or Prospectus.
(c) On or prior to each Closing Date, the form and
validity of the Units, the legality and sufficiency of the corporate
proceedings and matters relating to the incorporation of the Company
and other matters incident to the issuance of the Units, the form of
the Registration Statement and the Prospectus and of any amendments
thereof or supplements thereto filed prior to such Closing Date
(other than financial statements and schedules and other financial or
statistical data included therein), the authorization, execution, and
delivery of this Agreement, and the description of the Units
contained in, the Prospectus shall have been reasonably approved by
you. In connection with such determination, the Company shall have
furnished to you such documents as you may have requested for the
purpose of enabling you to pass upon such matters.
(d) On each Closing Date, there shall have been furnished
to you, as Representative of the several Underwriters, the favorable
opinion (addressed to you as Representative of the several
Underwriters) of Briggs & Morgan, Professional Association, counsel
for the Company, dated such Closing Date, and in form and substance
reasonably satisfactory to counsel for the Underwriters, and such
counsel may rely upon appropriate written representations or
certificates of public officials, of the transfer agent and registrar
for the Company's securities, and of appropriate officers of the
Company (provided a copy of such written representations or
certificates are furnished to the Representative), to the effect
that:
(i) The Company is a corporation duly
incorporated, validly existing, and in good standing under
the laws of the State of Michigan, with corporate power
and authority to own or lease its properties and conduct
its business as described in the Prospectus. The Company
has no subsidiaries, other than as described in the
Prospectus. The Company has been duly qualified as a
foreign corporation for the transaction of business and is
in good standing under the laws of each other jurisdiction
in which it owns or leases properties, or conducts any
business, so as to require such qualification, or is
subject to no material liability or disability by reason
of failure to be so qualified in any such jurisdiction.
(ii) The authorized capital stock of the Company
is as set forth in the Prospectus. The outstanding shares
of Common Stock of the Company have been duly authorized
and validly issued and are fully paid and nonassessable.
The Units have been duly authorized and, upon issuance,
delivery, and payment therefor as described in the
Underwriting Agreement, will be validly issued, fully
paid, and nonassessable. Upon delivery of the Units
pursuant to this Agreement, good and valid title to such
Units, free and clear of all liens, encumbrances,
equities, or claims, will have been transferred to the
Underwriters (assuming the Underwriters are bona fide
purchasers within the meaning of Article 8 of the Uniform
Commercial Code as enacted in the relevant jurisdiction).
The issuance, sale, and delivery of the Representative's
Warrant has been duly authorized and the shares (the
"Warrant Shares") of Common Stock issuable upon the
exercise thereof have been reserved for issuance upon such
exercise. The Warrant Shares, when issued, sold, and
delivered in accordance with the terms of the
Representative's Warrant, will be validly issued, fully
paid, and nonassessable.
(iii) The authorized capital stock of the
Company conforms as to legal matters in all material
respects to the description thereof set forth in the
Prospectus under the captions "Description of Securities."
The certificates representing the Units are in proper form
under Michigan law. Except as disclosed in the Prospectus,
to the knowledge of such counsel, no preemptive rights,
contractual or otherwise, of securityholders of the
Company exist with respect to the issuance, sale, or
delivery of the Units or the Representative's Warrant
pursuant to this Agreement. Except as disclosed in the
Prospectus, no rights to require registration of the
securities of the Company because of the filing of the
Registration Statement exist that have not been waived.
(iv) The Registration Statement has become
effective under the Act and, to such counsel's knowledge,
no stop order suspending the effectiveness of the
Registration Statement or suspending or preventing the use
of the Prospectus is in effect and, to such counsel's
knowledge, no proceedings for that purpose have been
instituted or are pending by the Commission. All
securities issued by the Company and not included in the
Registration Statement were exempt from registration under
the Act and the applicable state blue sky laws. No
consent, approval, authorization, order, registration, or
qualification of or with any court or governmental agency
or body is required by the Company for the issuance, sale,
and delivery of the Units by the Company, or the
consummation by the Company of the transactions
contemplated by this Agreement, except the registration
under the Act of the Units and such consents, approvals,
authorizations, registrations, or qualifications as may be
required under state securities or blue sky laws in
connection with the purchase and distribution of the Units
by the Underwriters.
(v) The Registration Statement and the
Prospectus comply as to form in all material respects with
the requirements of the Act and with the Rules and
Regulations, except the financial statements, the notes
thereto, and the related schedules and other financial and
statistical data contained therein, as to which such
counsel need not express an opinion.
(vi) Such counsel knows of no contracts, leases,
documents, or pending legal proceedings that are required
to be described in the Prospectus or to be filed as
exhibits to the Registration Statement that are not so
described or filed.
(vii) The Underwriting Agreement and the
Representative's Warrant have been duly authorized by all
requisite corporate action, executed, and delivered by the
Company and constitute the valid and binding obligations
of the Company enforceable in accordance with their
respective terms, subject as to the enforcement of
remedies, to applicable bankruptcy, insolvency,
moratorium, and other laws affecting the rights of
creditors generally and by general equitable principles,
and except as enforceability of the indemnification or
contribution provisions may be limited by federal or state
securities laws or principles of public policy.
(viii) The execution and delivery of this
Agreement and the issuance, sale, and delivery of the
Representative's Warrant, the Units, and the Warrant
Shares and consummation of the other transactions
contemplated by this Agreement will not conflict in any
material respect with or result in a material breach or
material violation of any of the terms or provisions of,
or constitute a default in any material respect under, any
indenture, mortgage, deed of trust, loan agreement, or
other agreement or instrument known to such counsel to
which the Company is a party or by which the Company is
bound or to which any of the property or assets of the
Company is subject, nor will any such action result in any
violation of the provisions of the Articles of
Incorporation or Bylaws of the Company or any statute or
any order, rule, or regulation known to such counsel of
any court or governmental agency or body having
jurisdiction over the Company or any of its properties.
(ix) To the knowledge of such counsel and other
than as set forth in the Prospectus, there are no legal or
governmental proceedings pending to which the Company is a
party or of which any property of the Company is the
subject which, if determined adversely to the Company,
would individually or in the aggregate have a material
adverse effect on the financial position, shareholders'
equity, or results of operations of the Company; and to
the knowledge of such counsel, no such proceedings are
threatened by governmental authorities or others.
(x) To the knowledge of such counsel, the
Company owns or possesses the proprietary rights necessary
in connection with the business conducted by it as
described in the Prospectus, such counsel has not received
any notice or is otherwise aware of any infringement of or
conflict with asserted rights of others with respect to
any proprietary rights, and such counsel is not aware of
any facts which would render any proprietary rights
invalid or inadequate to protect the interest of the
Company therein.
(xi) The statements made in the Prospectus under
the captions "Description of Securities" and
"Underwriting," insofar as they purport to constitute
summaries of legal matters, documents, or proceedings
referred to therein, fairly present the information called
for therein with respect to such matters.
(xii) Although such counsel cannot guarantee the
accuracy and completeness of the statements contained in
the Registration Statement or in the Prospectus, on the
basis of such counsel's discussions and meetings with
officers of the Company, representatives of the Company's
independent auditors, the Representative and counsel to
the Underwriters, all in connection with such counsel's
participation in the preparation of the Registration
Statement and the Prospectus, its examination of the
documents referred to in the Registration Statement and in
the Prospectus, and its procedures forming the basis of
the opinions expressed above, nothing came to such
counsel's attention that led such counsel to believe that
the Registration Statement, as of the date it was declared
effective, except as to the financial statements and
notes, schedules, and related financial and statistical
data included therein (as to which such counsel need not
express an opinion) contained an untrue statement of a
material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements
therein not misleading, or that the Prospectus, as of its
date or on the date of such counsel's opinion, contained
or contains an untrue statement of a material fact or
omitted or omits to state a material fact required to be
stated therein or necessary to make the statements
therein, in light of the circumstances under which they
were made, not misleading.
(e) On each Closing Date, these shall have furnised to you
the favorable opinion (addressed to you as Representative of the
several Underwriters) of special Michigan counsel to the Company
(acceptable to the Representative), dated such Closing Date, and in
form and substance reasonably satisfactory to counsel to the
Underwriters, and such counsel may rely upon appropriate written
representations or certificates of public officials, of the transfer
agent and registrar for the Company's securities, and of appropriate
officers of the company (provided a copy of such written
representations or certificates are furnished to the Representative),
to the effect tha the statements made in the Prospectus under the
caption "Business -- Government Regulation," insofar as they purport
to constitute summaries of legal matters, documents, or proceedings
referred to therein, fairly present the information called for
therein with respect to such matters.
(f) Parsinen Bowman Kaplan & Levy P.A., counsel to the
Underwriters, shall have furnished to you such opinion or opinions
with respect to the incorporation of the Company, the validity of the
Units being delivered at such closing, the Registration Statement,
the Prospectus, and other related matters as you may reasonably
request, and such counsel shall have received such papers and
information as they may reasonably request to enable them to pass
upon such matters.
(g) At the time of execution of this Agreement, you, as
Representative of the several Underwriters, shall have received from
Arthur Andersen LLP a letter dated the date of such execution, in
form and substance satisfactory to the Representative, to the effect
that they are independent accountants with respect to the Company
within the meaning of the Act and the applicable published
instructions, and Regulations thereunder, and further stating in
effect that:
(i) In their opinion, the audited financial
statements included in the Registration Statement and
Prospectus covered by their report included therein,
comply as to form in all material respects with the
applicable requirements of the Act and the published
instructions and Rules and Regulations thereunder.
(ii) On the basis of (A) a reading of the
minutes of the shareholders' and directors' meetings of
the Company, since December 31, 1995, (B) inquiries of
certain officials of the Company responsible for financial
and accounting matters, (C) a reading of the Company's
monthly operating statements subsequent to December 31,
1995, and (D) other specified procedures and inquiries
(but not an audit in accordance with generally accepted
accounting principles), nothing came to their attention
causing them to believe: (1) that the financial statements
of the Company contained in the Prospectus and any
amendment thereof or supplement thereto do not comply as
to form, in all material respects, with the applicable
accounting requirements of the Act and the published Rules
and Regulations or were not prepared in conformity with
generally accepted accounting principles and practices
applied on a basis consistent in all material respects
with those followed in the preparation of the audited
financial statements of the Company included therein or
(2) with respect to the period subsequent to December 31,
1995, there were, at a specified date, not more than five
(5) business days prior to the date of the letter, any
changes or any material increases or decreases in capital
stock, long-term or short-term debt or shareholders'
equity, decreases in net assets, net current assets, or
net worth or any material decrease, as compared with the
corresponding period of the prior year, in revenues or net
income of the Company as compared with the amounts shown
in the December 31, 1995 balance sheet included in the
Registration Statement, except as disclosed or referred to
in the Prospectus and Registration Statement.
(iii) Certain information set forth on the cover
of the Prospectus and in the Prospectus under the headings
"Prospectus Summary," "Risk Factors," "Use of Proceeds,"
"Prior S Corporation Status," "Capitalization,"
"Dilution," "Selected Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results
of Operations," "Business," "Management," "Certain
Transactions," "Principal Shareholders," "Description of
Securities," and "Shares Eligible for Future Sale" and
that are expressed in dollars (or percentages derived from
dollar amounts) or numbers have been compared to
accounting records of the Company which were subject to
the internal accounting controls of the Company and are in
agreement with such records or computations made
therefrom, excluding any questions of legal
interpretation.
(h) You as Representative of the several Underwriters
shall have received from Arthur Andersen LLP a letter dated as of
each Closing Date, to the effect that such accountants reaffirm, as
of such Closing Date, and as though made on such Closing Date, the
statements made in the letter furnished by such accountants pursuant
to subparagraph (g) of this Section 5, except that the specified date
referred to in such letter will be a date not more than five (5)
business days prior to such Closing Date.
(i) At each Closing Date, the Company shall have performed
all material obligations and covenants and satisfied all material
conditions on its part to be performed or satisfied on or prior
thereto (except any condition satisfaction of which shall have been
waived as herein provided) and compliance with the provisions of this
subparagraph (i) shall be evidenced by a certificate of an executive
officer of the Company.
(j) On each Closing Date, there shall have been furnished
to you as Representative of the several Underwriters a certificate,
dated as of such Closing Date and addressed to you as Representative
of the several Underwriters, signed by the principal executive
officer and principal financial officer of the Company to the effect
that: (i) the representations and warranties and covenants of the
Company in this Agreement are true and correct in all material
respects as if made at and as of such Closing Date and the Company
has complied in all material respects with all the agreements and
satisfied all the material conditions on its part to be performed or
satisfied hereunder at or prior to such Closing Date; (ii) no stop
order or other order suspending the effectiveness of the Registration
Statement or any amendment or supplement thereto or the qualification
of the Units for offering or sale has been issued and no proceedings
for that purpose have been instituted or are pending or, to the
knowledge of the respective signers thereof, are threatened by the
Commission or any state or regulatory body; (iii) neither the
Registration Statement, as of the date it was declared effective, nor
the Prospectus, as of its date and the Closing Date, included any
untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which
they were made, not misleading; (iv) since the effective date of the
Registration Statement no event has occurred which should have been
set forth in an amendment or supplement to the Prospectus which has
not been set forth in such an amendment or supplement; and (v)
subsequent to the respective dates as of which information is given
in the Registration Statement and Prospectus and except as set forth
in or contemplated by the Prospectus, the Company has not incurred
any material liability or obligation, direct or contingent, whether
or not in the ordinary course of business, or entered into any
material transaction, outside of the ordinary course of business, and
there has not been any material change in the Common Stock, or any
increase in the short-term or long-term debt, including any
capitalized lease obligation (other than in the ordinary course of
its business and in an amount which is not material) or any issuance
of options, warrants, convertible securities, or other rights to
purchase the Common Stock of the Company or any material adverse
change in the general affairs, business, key personnel,
capitalization, or financial position of the Company (other than the
issuance of Common Stock pursuant to existing options); and
subsequent to the date of the Underwriting Agreement, the Company has
not sustained any material loss or damage to its property or
interference with its business by strike, fire, flood, accident, or
other calamity, whether or not any of the foregoing is insured, that
would have a material adverse effect upon the Company.
(k) Briggs & Morgan, Professional Association, counsel to
the Company, shall deliver to you as Representative of the several
Underwriters a Blue Sky Memorandum reasonably satisfactory to you,
confirming that all requisite action for the offer and sale of the
Units in all jurisdictions requested has been taken.
(l) On each Closing Date, there shall have been furnished
to you as Representative of the several Underwriters a certificate of
the Secretary of the Company, dated as of the Closing Date, with the
documents listed herein attached, and to the effect and certifying as
follows: (i) attached thereto are true and correct copies of the
Articles of Incorporation of the Company, as amended to the date of
the certificate, and stating that there have been no changes or
amendments to the attached Articles of Incorporation of the Company,
and no resolutions have been adopted by the Board of Directors or
shareholders of the Company relating to (1) the amendment of said
Articles of Incorporation, (2) the merger, consolidation, or
dissolution of the Company, or (3) the sale of all or substantially
all of the assets or business of the Company, and that the Company is
in good standing in the State of Michigan and has paid all of its
corporate franchise taxes due as of the date of such certificate;
(ii) attached thereto is a true and correct copy of the Bylaws of the
Company as in effect as of the date of such certificate and no
resolutions have been adopted by the Board of Directors or
shareholders of the Company relating to changes or amendments to the
attached Bylaws; (iii) attached thereto are true and correct copies
of the resolutions of the Board of Directors of the Company relating
to the preparation and signing of the Registration Statement and this
Agreement, the issuance, sale, and delivery of the Units and other
related matters; such resolutions have not been amended, modified, or
rescinded and are in full force and effect as of the date of such
certificate and are the only resolutions adopted by the Board of
Directors of the Company with respect to the offering contemplated by
the Registration Statement; (iv) attached thereto are true and
correct copies of all material correspondence with respect to the
Registration Statement and Prospectus and related matters between the
Company, its counsel, and the Commission; (v) this Agreement, as
executed and delivered by the Company, is in substantially the form
presented to and approved by officers authorized to do so by the
Board of Directors of the Company; (vi) attached thereto is a
specimen of the certificate for the Common Stock in the form
authorized and approved for use by the Board of Directors of the
Company; and (vii) the persons who have signed the Registration
Statement and all amendments thereto were duly elected at the
respective times of such signing and duly acting as officers and
directors of the Company or as an attorney-in-fact therefor, as set
forth in the Registration Statement.
(m) The Company's Units shall be accepted for listing on
the National Association of Securities Dealers, Inc. Small-Cap Market
on or prior to the effective date of the Registration Statement under
the Act.
(n) All such opinions, certificates, letters, and
documents will be in compliance with the provisions hereof only if
they are reasonably satisfactory to you and to counsel for the
Underwriters. The Company will furnish you with such conformed copies
of such opinions, certificates, letters, and other documents as you
shall reasonably request. The Representative may waive in writing the
performance of any one or more of the conditions specified in this
Section 5 or extend the time for their performance. If any of the
conditions specified in this Section 5 shall not have been fulfilled
when and as required by this Agreement to be fulfilled, this
Agreement and all obligations of the several Underwriters hereunder
may be cancelled by you at, or at any time prior to, each Closing
Date. Any such cancellation shall be without liability of the
Underwriters to the Company or any liability of the Company to the
Underwriters, except pursuant to Section 4(i) hereof. Notice of such
cancellation shall be given to the Company in writing, or by telefax
or telephone and confirmed in writing by personal delivery or
delivery via the U.S. mails or via a national overnight courier
service.
6. Effective Date and Termination.
(a) This Agreement shall become effective immediately
after the time at which the Registration Statement shall have become
effective under the Act. Prior to the time it becomes effective, this
Agreement may be terminated by either party hereto by notice given in
accordance with Section 11. Except pursuant to Section 4(i), no party
hereto shall have any liability to the other by reason of any such
termination.
(b) After the date this Agreement becomes effective and
until the First Closing Date, this Agreement may be terminated by you
by giving notice to the Company, if determined in your sole and
absolute discretion (i) the Company shall have sustained a loss or
damage by fire, flood, accident, or other calamity which is material
to the property, business, or condition (financial or other) of the
Company, the Company or any properties of the Company shall have
become a party or subject to litigation material to the Company , or
there shall have been, since the respective dates as of which
information is given in the Registration Statement or the Prospectus,
any material adverse change or development involving a prospective
change in the general affairs, condition (financial or other),
business, executive officers, capitalization, properties, results of
operations, of the Company, whether or not in the ordinary course of
business, which loss, damage, or change, in your judgment, is so
material and adverse as to render it impracticable or inadvisable to
proceed with the public offering or delivery of the Units, whether or
not such loss shall have been insured, (ii) trading in securities
generally on the New York Stock Exchange or the American Stock
Exchange or the National Association of Securities Dealers, Inc.
Small-Cap Market or the over-the-counter market shall have been
suspended or minimum prices shall have been established on such
exchange or market by the Commission or by such exchange, (iii) a
general banking moratorium shall have been declared by federal or New
York or Minnesota state authorities, or (iv) there shall have been
such a serious, unusual, and material adverse change in general
economic, political, or financial conditions or the effect of
international conditions on the financial markets in the United
States shall be such as, in your judgment, makes it impracticable or
inadvisable to proceed with the public offering or delivery of the
Units. Any termination of this Agreement pursuant to this Section 6
shall be without liability of the Company to the Underwriters, except
as otherwise provided in Sections 4(i), 7, and 8 hereof, and without
liability of the Underwriters to the Company, except as provided in
Sections 7 and 8 hereof.
(c) Any notice referred to in this Section 6 may be given
at the address specified in Section 10 hereof in writing or by
telefax or telephone, and if by telefax or telephone, shall be
immediately confirmed in writing by personal delivery or delivery via
the U.S. mails or via a national overnight courier system.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter
within the meaning of the Act against any losses, claims, damages or
liabilities, joint or several, to which such Underwriter or such
controlling person may become subject, under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of a material fact made by the
Company in Section 1 hereof or contained (A) in the Registration
Statement any Preliminary Prospectus, or the Prospectus, or any
amendment thereof or supplement thereto, or (B) in any Blue Sky
application or other document executed by the Company specifically
for that purpose or based upon and conforming to written information
furnished by the Company filed in any state or other jurisdiction in
order to qualify any or all of the Units under the securities laws
thereof (any such application, document, or information being
hereinafter called a "Blue Sky Application"), (ii) the omission or
alleged omission to state in the Registration Statement any
Preliminary Prospectus, or the Prospectus, or any amendment thereof
or supplement thereto, or in any Blue Sky Application of a material
fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which
they were made, not misleading, or (iii) a breach of a representation
or warranty or covenant of the Company contained herein; and will
reimburse each Underwriter, its officers and directors, and each such
controlling person for any legal or other expenses reasonably
incurred by such Underwriter, its officers and directors, or such
controlling person in connection with investigating or defending any
such loss, claim, damage, liability, or action; provided, however,
that the Company will not be liable in any such case to the extent,
but only to the extent, that any such loss, claim, damage, or
liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in
reliance upon and in conformity with written information furnished to
the Company by or on behalf of any Underwriter, directly or through
the Representative, specifically for use in the preparation of the
Registration Statement or any amendment thereof or supplement
thereto, or any such Blue Sky Application or any such Preliminary
Prospectus or the Prospectus or any such amendment thereof or
supplement thereto; and provided, further, that the foregoing
indemnity agreement is subject to the condition that, insofar as it
relates to any untrue statement, alleged untrue statement, omission,
or alleged omission made in any Preliminary Prospectus but eliminated
or remedied in the Prospectus (as amended or supplemented), such
indemnity agreement shall not inure to the benefit of any Underwriter
(or to the benefit of any person who controls such Underwriter), if
the person asserting any loss, liability, claim, or damage purchased
the Units which are the subject thereof and a copy of the Prospectus
(as then supplemented or amended) was not sent or given by or on
behalf of such Underwriter to such person with or prior to the
written confirmation of the sale of such Units to such person. This
indemnity agreement will be in addition to any liability which the
Company may otherwise have.
(b) Each Underwriter will severally indemnify and hold
harmless the Company, each of its directors, each of its officers who
has signed the Registration Statement, and each person, if any, who
controls the Company within the meaning of the Act, against any
losses, claims, damages, or liabilities to which the Company or any
such director, officer, or controlling person may become subject,
under the Act or otherwise, insofar as such losses, claims, damages,
or liabilities (or actions in respect thereof) arise out of or are
based upon (i) any untrue statement or alleged untrue statement of a
material fact contained (A) in the Registration Statement, any
Preliminary Prospectus, or the Prospectus, or any amendment thereof,
or supplement thereto or (B) in any Blue Sky Application, or (ii) the
omission or alleged omission to state in the Registration Statement,
any Preliminary Prospectus, the Prospectus, or any amendment thereof
or supplement thereto or in any Blue Sky Application a material fact
required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were
made, not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company by or on
behalf of such Underwriter, directly or through the Representative,
specifically for use with reference to such Underwriter in the
preparation of the Registration Statement or any amendment thereof or
supplement thereto or any such Blue Sky Application or any such
Preliminary Prospectus or the Prospectus or any such amendment
thereof or supplement thereto; and will reimburse any legal or other
expenses reasonably incurred by the Company or any such director,
officer, or controlling person in connection with investigating or
defending any such loss, claim, damage, liability, or action. This
indemnity agreement will be in addition to any liability which such
Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under
this Section 7 of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made
against any indemnifying party under this Section 7, notify in
writing the indemnifying party of the commencement thereof; no
indemnification shall be available to any party who shall fail to
give notice as provided in this Section 7(c) if the party to whom
notice was not given was unaware of the proceeding to which such
notice would have related and was prejudiced by the failure to give
such notice but the omission so to notify such indemnifying party of
any such action, suit or proceeding shall not relieve it from any
liability that it may have to any indemnified party for contribution
or otherwise than under this Section. In case any such action is
brought against any indemnified party, and the indemnified party
notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein, and, to
the extent that it may wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, with counsel
who shall be to the reasonable satisfaction of such indemnified
party, and (notwithstanding subparagraph (a) and (b) of this Section
7) after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, the indemnifying
party will not be liable to such indemnified party under this Section
7 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than
reasonable costs of investigation except as provided below. The
indemnified party shall have the right to employ its counsel in any
such action, but the fees and expenses of such counsel shall be at
the expense of such indemnified party unless (i) the employment of
counsel by such indemnified party has been authorized in writing by
the indemnifying parties, (ii) the indemnified party shall have
reasonably concluded that there may be a conflict of interest between
the indemnifying parties, or any of them, and the indemnified party
in the conduct of the defense of such action (in which case the
indemnifying parties shall not have the right to direct the defense
of such action on behalf of the indemnified party), or (iii) the
indemnifying parties shall not have employed counsel to assume the
defense of such action within a reasonable time after notice of the
commencement thereof, in each of which cases the fees and expenses of
counsel shall be at the expense of the indemnifying parties;
provided, however, that the indemnifying parties shall not be liable
for the fees and expenses of more than one counsel for the
indemnified parties. Any such indemnifying party shall not be liable
to any such indemnified party on account of any settlement of any
claim or action effected by the indemnified party without the consent
of such indemnifying party.
8. Contribution. In order to provide for just and equitable
contribution in circumstances in which indemnification provided for in Section 7
is unavailable, each indemnifying party shall contribute to the aggregate
losses, claims, damages, expenses, and liabilities to which the indemnified
parties may be subject in such proportion so that the Underwriters are
responsible for that portion (the "Underwriting Portion") represented by the
percentage that the Underwriting Discounts appearing on the cover page of the
Prospectus bear to the public offering price (net of Underwriting Discounts)
appearing thereon and the Company is responsible for the remaining portion (the
"Residual Portion"); provided, however, (i) that no person guilty of fraudulent
misrepresentation (within the meaning of Section 1(f) of the Act) will be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation; and (ii) if such allocation is not permitted by applicable
law, then the relative fault of the Company, its directors, officers, and
controlling persons, on the one hand, and the Underwriters, their officers,
directors, and their controlling persons, on the other, in connection with the
statements or omissions which resulted in such damages and other relevant
equitable considerations shall also be considered. The relative fault shall be
determined by reference to, among other things, whether in the case of an untrue
statement of a material fact or the omission to state a material fact, such
statement or omission relates to information supplied by the Company or by the
Underwriters and the parties' relative intent, knowledge, access to information,
and opportunity to correct or prevent such untrue statement or omission. The
Company and the Underwriters agree that it would not be just and equitable if
the respective obligations of the Company on the one hand, and the Underwriters,
on the other, to contribute pursuant to this Section 8 were to be determined by
pro rata or per capita allocation of the aggregate damages (even if the
Underwriters, their officers, directors, and their controlling persons in the
aggregate were treated as one entity for such purpose) or by any other method of
allocation that does not take account of the equitable considerations referred
to in this Section 8. For purposes of this Section 8, the term "damages" shall
include any legal or other expense reasonably incurred by the indemnified party
in connection with investigating or defending any action or claim that is the
subject of the contribution provisions of this Section 8. Notwithstanding the
provisions of this Section 8, the Underwriters, their officers, directors, and
their controlling persons in the aggregate shall not be required to contribute
any amount in excess of the amount by which the total purchase price of the
Units purchased by them, directly or indirectly, from the Company pursuant to
this Agreement exceeds the amount of any damages that the Underwriters, their
officers, directors, and their controlling persons in the aggregate have
otherwise been required to pay by reason of such untrue statement or omission.
For purposes of this Section 8, each person, if any, who controls any
Underwriter within the meaning of the Act shall have the same rights to
contribution as the Underwriters, and each person, if any, who controls the
Company within the meaning of the Act, each officer who shall have signed the
Registration Statement and each director of the Company shall have the same
rights to contribution as the Company. Each party entitled to contribution
agrees that, upon the service of a summons or other initial legal process upon
it in any action instituted against it in respect of which contribution may be
sought, it will promptly give written notice of such service to the party or
parties from whom contribution may be sought, but the omission so to notify such
party or parties of any such service shall not relieve the party from whom
contribution may be sought from any obligation it may have hereunder or
otherwise. In case any such action, suit, or proceeding is brought against any
party, and such person so notifies a contributing party of the commencement
thereof, the contributing party will be entitled to participate therein with the
notifying party and any other contributing party similarly notified.
9. Survival of Indemnities, Contribution, Warranties and
Representations. The respective indemnity and contribution agreements of the
Company and the Underwriters contained in Sections 7 and 8 hereof, the
representations, warranties, and covenants of the Company contained in Sections
1 and 4 hereof shall remain operative and in full force and effect, regardless
of any investigation made by or on behalf of the Underwriters or the Company or
any of their respective directors or officers, or any controlling person
referred to in said Sections 7 and 8, and shall survive the delivery of, and
payment for, the Units.
10. Notices. Except as otherwise expressly provided in this
Agreement, all notices and other communications hereunder shall be in writing
and, if given to the Representative, shall be mailed, delivered, or telefaxed to
R.J. Steichen & Company, 801 Nicollet Mall, Suite 1100, Minneapolis, Minnesota
55402-2526, Attention: Patrick M. Sidders, Senior Vice President (telecopy
number 612/341-6262), with a copy to Jeffrey C. Robbins, Esq., Parsinen Bowman
Kaplan & Levy P.A., 100 South Fifth Street, Suite 1100, Minneapolis, Minnesota
55402 (telecopy number 612/333-6798), or if given to the Company shall be
mailed, delivered, or telefaxed and confirmed to it at Michigan Brewery, Inc.,
1999 Walden Drive, Gaylord, Michigan 49735, Attention: William F. Rolinski,
President (telecopy number 517/731-2788), with a copy to William T. Dolan, Esq.,
Briggs & Morgan, Professional Association, 2400 IDS Center, Minneapolis,
Minnesota 55402 (telecopy number 612/334-8650).
11. Representative's Warrant. In consideration of the agreement of
R.J. Steichen & Company to act as Representative of the several Underwriters and
upon payment of a purchase price of $50, the Company will issue, sell, and
deliver to the Representative, for its account, a Representative's Warrant to
purchase that number of shares of Common Stock of the Company equal to 10% of
the number of Firm Units purchased by the Underwriters in the offering. The
Representative's Warrant shall be issued on the Closing Date and shall be dated
as of the Effective Date. Such warrant shall be exercisable commencing one year
after the Effective Date for a period of four years thereafter at a price equal
to 120% of the per Unit public offering price. As to other terms, the
Representative's Warrant shall be in form and substance substantially the same
as Appendix A hereto. The Company represents and warrants that: (i) the
Representative's Warrant has been duly authorized; (ii) when it is issued, sold,
and delivered in accordance with the terms hereof, it will be a valid, binding,
and enforceable obligation of the Company; (iii) the securities issuable upon
exercise of such warrant has been duly authorized and reserved for issuance upon
exercise; (iv) and upon receipt by the Company of the consideration for such
securities in accordance with the terms of such warrant, the shares of Common
Stock shall have been duly and validly issued, fully paid and nonassessable.
12. Information Furnished by Underwriters. The statements relating to
stabilization activities of the Underwriters and under the caption
"Underwriting" in any Preliminary Prospectus and in the Prospectus, and, to the
extent the same relate to you, in any Blue Sky Application, constitute the
written information furnished by or on behalf of the Underwriters, directly or
through you, referred to in Section 1 hereof and in paragraphs (a) and (b) of
Section 7 hereof.
13. Parties. This Agreement is made solely for the benefit of the
Underwriters, the Company, any director, officer, or controlling person referred
to in Sections 7 and 8 hereof, and, their respective personal representatives,
successors, and assigns, and no other person shall acquire or have any right by
virtue of this Agreement. The term "personal representatives, successors, and
assigns," as used in this Agreement, shall not include any purchaser of Units
(as such purchaser) from the Underwriters.
14. Default of Underwriters. It shall be a condition to this
Agreement and the obligation of the Company to sell and deliver the Units
hereunder, and of each Underwriter to purchase the Units in the manner as
described herein that, except as hereinafter in this Section provided, each of
the Underwriters shall purchase and pay for all the Units agreed to purchased by
such Underwriter hereunder upon tender to the Representative of all such Units
in accordance with the terms hereof. If any Underwriter or Underwriters default
in their obligations to purchase Units hereunder on either the First or Second
Closing Date and the aggregate number of Units which such defaulting Underwriter
or Underwriters agreed but failed to purchase on such Closing Date does not
exceed 10% of the total number of Units which the Underwriters are obligated to
purchase on such Closing Date, the non-defaulting Underwriters shall be
obligated severally, in proportion to their respective commitments hereunder, to
purchase the Units which such defaulting Underwriters agreed but failed to
purchase on such Closing Date. If any Underwriter or Underwriters so default and
the aggregate number of Units with respect to which such default occurs is more
than the above percentage and arrangements satisfactory to the Representative
and the Company for the purchase of such Units by other persons are not made
within 36 hours after such default, this Agreement will terminate without
liability on the part of any non-defaulting Underwriter or the Company except
for the expenses to be paid by the Company pursuant to Section 4(i) hereof and
except to the extent provided in Sections 7 and 8 hereof.
In the event that Units to which a default relates are to be
purchased by the non-defaulting Underwriters or by another party or parties, the
Representative or the Company shall have the right to postpone the First or
Second Closing Date, as the case may be, for not more than five business days in
order that the necessary changes in the Registration Statement, Prospectus and
any other documents, as well as any other arrangements, may be
effected. As used in this Agreeement, the term "Underwriter" includes any person
substituted for an Underwriter under this Section. Nothing herein will relieve a
defaulting Underwriter from liability for its default.
15. Representative of Underwriters. You will act as Representative
for the several Underwriters in connection with all dealings hereunder, and any
action under or in respect of this Agreement taken by you as Representative will
be binding upon all the Underwriters.
16. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Minnesota, exclusive of
its conflict of laws rules. Please confirm, by signing and returning to us two
counterparts of this Agreement, that you are acting on behalf of yourself, as
Underwriter, and that the foregoing correctly sets forth the Agreement among the
Company and the Underwriter.
Very truly yours,
MICHIGAN BREWERY, INC.
By__________________________________________________
William F. Rolinski, President and
Chief Executive Officer
The foregoing Agreement is hereby confirmed and accepted as of the date first
above written:
R.J. STEICHEN & COMPANY
Acting as Representative of the
several Underwriters named in the
attached Appendix A
By_________________________________________
Patrick M. Sidders, Senior Vice President
APPENDIX A
Number of Firm Units
Name of Underwriter to be Purchased
- ------------------- ---------------
R.J. Steichen & Company. . . . . . . . . . . . . . . . .
TOTAL. . . . . . . . . . . . . . . 2,250,000
=========
APPENDIX B
Underwriter's Warrant
MICHIGAN BREWERY, INC.
COMMON STOCK PURCHASE WARRANT
Michigan Brewery, Inc., a Michigan corporation (the "Company"),
hereby agrees that, for value received, R.J. Steichen & Company or its assigns,
is entitled, subject to the terms set forth below, to purchase from the Company
at any time or from time to time after ___________________, 1997, and before
5:00 p.m., Minneapolis, Minnesota time, on, 2001, two hundred twenty five
thousand (225,000) shares of the Company's Common Stock at an exercise price of
$_____ per share (the "Warrant Shares")
1. Exercise of Warrant. The purchase rights granted by this Warrant
shall be exercised (in minimum quantities of 100 Warrant Shares) by the holder
surrendering this Warrant with the form of exercise attached hereto duly
executed by such holder, to the Company at its principal office, accompanied by
payment, in cash or by cashier's check payable to the order of the Company, of
the purchase price payable in respect of the Warrant Shares being purchased. If
less than all of the Warrant Shares purchasable hereunder are purchased, the
Company will, upon such exercise, execute and deliver to the holder hereof a new
Warrant (dated the date hereof) evidencing the number of Warrant Shares not so
purchased. As soon as practicable after the exercise of this Warrant and payment
of the purchase price, the Company will cause to be issued in the name of and
delivered to the holder hereof, or as such holder may direct, a certificate or
certificates representing the Warrant Shares purchased upon such exercise. The
Company may require that such certificate or certificates contain on the face
thereof a legend substantially as follows:
"The transfer of the shares represented by this certificate is
restricted pursuant to the terms of a Common Stock Purchase Warrant
dated __________________, 1996, issued by Michigan Brewery, Inc., a
copy of which is available for inspection at the offices of the
Company. Transfer may not be made except in accordance with the terms
of the Common Stock Purchase Warrant. In addition, no sale, offer to
sell or transfer of the shares represented by this certificate shall
be made without (i) the opinion of counsel satisfactory to the
Company that such sale, offer, or transfer may be made without
registration or qualification under the Securities Act of 1933, as
amended, and applicable state securities laws or (ii) such
registration or qualification."
2. Negotiability and Transfer. This Warrant is issued upon the
following terms, to which each holder hereof consents and agrees:
(a) Except where directed by a court of competent
jurisdiction pursuant to the dissolution or liquidation of a
corporate holder hereof, for the period ending one year from the date
hereof, title to this Warrant may not be sold, transferred, assigned,
or hypothecated; except that within such one-year period, title to
this Warrant may be transferred to (i) a person who is both an
officer or shareholder of R.J. Steichen & Company (the
"Representative"), (ii) a successor in interest to the business of
the Representative (a "Successor"), (iii) a person who is both an
officer and a shareholder of a Successor, or (iv) a person who is an
employee of the Representative or a Successor, but only if such
employee is also an officer of the Representative or a Successor. Any
such transfer is to be by endorsement (by the holder hereof executing
the form of assignment attached hereto) and delivery in the same
manner as in the case of a negotiable instrument transferrable by
endorsement and delivery.
(b) Until this Warrant is duly transferred on the books of
the Company, the Company may treat the registered holder of this
Warrant as absolute owner hereof for all purposes without being
affected by any notice to the contrary.
(c) Each successive holder of this Warrant, or of any
portion of the rights represented thereby, shall be bound by the
terms and conditions set forth herein.
3. Antidilution Adjustments. If the Company shall at any time
hereafter subdivide or combine its outstanding shares of Common Stock, or
declare a dividend payable in Common Stock, the exercise price in effect
immediately prior to the subdivision, combination, or record date for such
dividend payable in Common Stock shall forthwith be proportionately increased,
in the case of combination, or proportionately decreased, in the case of
subdivision or declaration of a dividend payable in Common Stock, and the number
of Warrant Shares purchasable upon exercise of this Warrant immediately
preceding such event, shall be changed to the number determined by dividing the
then current exercise price by the exercise price as adjusted after such
subdivision, combination, or dividend payable in Common Stock and multiplying
the result of such division against the number of Warrant Shares purchasable
upon the exercise of this Warrant immediately preceding such event, so as to
achieve an exercise price and number of Warrant Shares purchasable after such
event proportional to such exercise price and number of Warrant Shares
purchasable immediately preceding such event. All calculations hereunder shall
be made to the nearest cent or to the nearest one-hundredth of a share, as the
case may be. No fractional Warrant Shares are to be issued upon the exercise of
this Warrant, but the Company shall pay a cash adjustment in respect of any
fraction of a share which would otherwise be issuable in an amount equal to the
same fraction of the market price per share of Common Stock on the day of
exercise as determined in good faith by the Company. In case of any capital
reorganization or any reclassification of the shares of Common Stock of the
Company, or in the case of any consolidation with or merger of the Company into
or with another corporation, or the sale of all or substantially all of its
assets to another corporation, which is effected in such a manner that the
holders of Common Stock shall be entitled to receive stock, securities, or
assets with respect to or in exchange for Common Stock, then, as a part of such
reorganization, reclassification, consolidation, merger, or sale, as the case
may be, lawful provision shall be made so that the holder of the Warrant shall
have the right thereafter to receive, upon the exercise hereof, the kind and
amount of shares of stock or other securities or property which the holder would
have been entitled to receive if, immediately prior to such reorganization,
reclassification, consolidation, merger, or sale, the holder had held the number
of Warrant Shares which were then purchasable upon the exercise of the Warrant.
In any such case, appropriate adjustment (as determined in good faith by the
Board of Directors of the Company) shall be made in the application of the
provisions set forth herein with respect to the rights and interest thereafter
of the holder of the Warrant, to the end that the provisions set forth herein
(including provisions with respect to adjustments of the exercise price) shall
thereafter be applicable, as nearly as reasonably may be, in relation to any
shares of stock or other property thereafter deliverable upon the exercise of
the Warrant. When any adjustment is required to be made in the exercise price,
initial or adjusted, the Company shall forthwith determine the new exercise
price and (a) prepare and retain on file a statement describing in reasonable
detail the method used in arriving at the new exercise price and (b) cause a
copy of such statement to be mailed to the holder of the Warrant as of a date
within ten (10) days after the date when the circumstances giving rise to the
adjustment occurred.
4. Registration Rights. Prior to making any disposition of the
Warrant or of any Warrant Shares purchased upon exercise of the Warrant, the
holder will give written notice to the Company describing briefly the manner of
any such proposed disposition. The holder will not make any such disposition
until (i) the Company has notified the holder that, in the opinion of its
counsel, registration under the Act is not required with respect to such
disposition or (ii) a Registration Statement covering the proposed distribution
has been filed by the Company and has become effective. The Company agrees that,
upon receipt of written notice from the holder hereof with respect to such
proposed distribution, it will use its best efforts, in consultation with the
holder's counsel, to ascertain as promptly as possible whether or not
registration is required and will advise the holder promptly with respect
thereto, and the holder will cooperate in providing the Company with information
necessary to make such determination. If, at any time prior to the expiration of
seven (7) years from the date hereof, the Company shall propose to file
any Registration Statement (other than any registration on Forms S-4, S-8, or
any other similarly inappropriate form) under the Securities Act of 1933, as
amended (the "Act"), covering a public offering of the Company's shares of
Common Stock or other equity securities or debt with equity features, or if it
qualifies for a public distribution of any of the same under Section 3(b) of the
Act, it will notify the holder hereof at least thirty (30) days prior to each
such filing or qualification and will include in the Registration Statement or
cover by qualification (to the extent permitted by applicable regulation), the
Warrant Shares purchased by the holder or purchasable by the holder upon the
exercise of the Warrant to the extent requested by the holder hereof.
Notwithstanding the foregoing, the number of shares of the holders of the
Warrants proposed to be registered thereby shall be reduced pro rata with any
other selling shareholder (other than the Company) upon the reasonable request
of the managing underwriter of such offering.
At any time prior to the expiration of five (5) years from the date
hereof, and provided that a registration statement on Form S-3 (or its
equivalent) is then available to the Company, and on a one-time basis only, if
the holders of 50% or more of the Warrants and/or the Warrant Shares acquired
upon exercise of the Warrants request the registration of at least 51% of the
Warrant Shares on Form S-3 (or its equivalent), the Company shall promptly
thereafter use its best efforts to effect the registration under the Act of all
such Warrant Shares which such holders request in writing to be so registered,
and in a manner corresponding to the methods of distribution described in such
holders' request (and with respect to the "demand" registration rights referred
to immediately above, on a one-time basis only).
All expenses of any such registrations referred to in this Section 4,
except the fees of special counsel or accountants to such holders and
underwriting commissions or discounts and any transfer or other taxes applicable
to such Warrant Shares, shall be borne by the Company (which expenses of the
Company shall include all registration, filing, and NASD fees, Nasdaq fees,
printing expenses, fees and disbursements of counsel and accountants for the
Company, all internal expenses, blue sky fees and disbursements, and, if the
offering is underwritten and the Company is required to do so, fees and
disbursements of counsel for the underwriter of such securities). The Company
will mail to each record holder, at the last known post office address, written
notice of any exercise of the rights granted under this paragraph 4, by
certified or registered mail, return receipt requested, and each holder shall
have twenty (20) days from the date of deposit of such notice in the U.S. Mail
to notify the Company in writing whether such holder wishes to join in such
exercise. The Company will furnish the holder hereof with a reasonable number of
copies of any prospectus included in such filings and will amend or supplement
the same as required during the period of required use thereof. The Company will
maintain, at its expense, the effectiveness of any Registration Statement or the
Offering Statement filed by the Company, whether or not at the request of the
holder hereof, for a time sufficient to allow for the disposition of the Warrant
Shares, but not to exceed one hundred eighty (180) days, following the effective
date thereof (except that a Form S-3 Registration Statement or successor thereof
shall be maintained for up to 12 months after effectiveness).
In the case of the filing of any Registration Statement, and to the
extent permissible under the Act, and controlling precedent thereunder, the
Company and the holder hereof shall provide cross indemnification agreements to
each other in customary scope covering the accuracy and completeness of the
information furnished by each. The holder of the Warrant agrees to cooperate
with the Company in the preparation and filing of any such Registration
Statement or Offering Statement, and in the furnishing of information concerning
the holder for inclusion therein, or in any efforts by the Company to establish
that the proposed sale is exempt under the Act as to any proposed distribution.
Warrant Shares shall cease to be entitled to the registration rights set forth
in this Section 4 when they (i) shall have been disposed of pursuant to an
effective registration statement under the Act or (ii) they shall have been
distributed to the public pursuant to Rule 144 promulgated under the Act.
5. Right to Convert.
(a) The holder of this Warrant shall have the right to
require the Company to convert this Warrant (the "Conversion Right"),
at any time after it becomes exercisable and prior to its expiration,
into shares of Common Stock as provided for in this Section 5. Upon
exercise of the Conversion Right, the Company shall deliver to the
holder (without payment by the holder of any exercise price) that
number of shares of Common Stock equal to the number of shares of
Common Stock resulting from multiplying the number of Warrant Shares
requested to be converted hereunder times the quotient obtained by
dividing (x) the value of the Warrant at the time the Conversion
Right is exercised (determined by subtracting the aggregate exercise
price for the Warrant Shares in effect immediately prior to the
exercise of the Conversion Right from the aggregate Fair Market Value
(as determined below) for the Warrant Shares immediately prior to the
exercise of the Conversion Right) by (y) the Fair Market Value of one
share of Common Stock immediately prior to the exercise of the
Conversion Right.
(b) The Conversion Right may be exercised by the holder,
at any time or from time to time, prior to its expiration, on any
business day, by delivering a written notice (the "Conversion
Notice") to the Company at the offices of the Company exercising the
Conversion Right and specifying (i) the total number of Warrant
Shares the Warrantholder will purchase pursuant to such conversion
and (ii) a place, and a date not less than one (1) nor more than
twenty (20) business days from the date of the Conversion Notice, for
the closing of such purchase.
(c) At any closing under Section 5(b) hereof, (i) the
holder will surrender the Warrant, (ii) the Company will deliver to
the holder a certificate or certificates for the number of shares of
Common Stock issuable upon such conversion, together with cash, in
lieu of any fraction of a share, and (iii) the Company will deliver
to the holder a new Warrant representing the number of Warrant
Shares, if any, with respect to which the Warrant shall not have been
converted.
(d) "Fair Market Value" of a share of Common Stock as of a
particular date (the "Determination Date") shall mean:
(i) If the Company's Common Stock is traded on
an exchange or is quoted on the Nasdaq Stock Market or
Small-Cap Market, then the average closing or last sale
prices, respectively, reported for the ten (10) business
days immediately preceding the Determination Date; and
(ii) If the Company's Common Stock is not traded
on an exchange or on the Nasdaq Stock Market or Small-Cap
Market, but is traded in the over-the-counter market, then
the average of the closing bid and asked prices reported
for the ten (10) business days immediately preceding the
Determination Date.
6. Notices. The Company shall mail to the registered holder of the
Warrant, at his or her last known post office address appearing on the books of
the Company, not less than fifteen (15) days prior to the date on which (a) a
record will be taken for the purpose of determining the holders of shares of
Common Stock entitled to dividends (other than cash dividends) or subscription
rights or (b) a record will be taken (or in lieu thereof, the transfer books
will be closed) for the purpose of determining the holders of common stock
entitled to notice of and to vote at a meeting of shareholders at which any
capital reorganization, reclassification of common stock, consolidation, merger,
dissolution, liquidation, winding up, or sale of substantially all of the
Company's assets shall be considered and acted upon.
7. Reservation of Common Stock. A number of shares of Common Stock
sufficient to provide for the exercise of the Warrant and the Warrant Shares
included therein upon the basis herein set forth shall at all times be reserved
for the exercise thereof.
8. Miscellaneous. Whenever reference is made herein to the issue or
sale of shares of Common Stock, the term "Common Stock" shall include any stock
of any class of the Company other than preferred stock that has a fixed limit on
dividends or a payment preference in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Company. The Company will not, by
amendment of its Articles of Incorporation or through reorganization,
consolidation, merger, dissolution, or sale of assets, or by any other voluntary
act or deed, avoid or seek to avoid the observance or performance of any of the
covenants, stipulations, or conditions to be observed or performed hereunder by
the Company, but will, at all times in good faith, assist, insofar as it is
able, in the carrying out of all provisions hereof and in the taking of all
other action which may be necessary in order to protect the rights of the holder
hereof against dilution. Upon written request of the holder of this Warrant, the
Company will promptly provide such holder with a then current written list of
the names and addresses of all holders of warrants originally issued under the
terms of, and concurrent with, this Warrant. The representations, warranties,
and agreements herein contained shall survive the exercise of this Warrant.
References to the "holder of" include the immediate holder of Warrant Shares
purchased on the exercise of this Warrant, and the word "holder" shall include
the plural thereof. This Common Stock Purchase Warrant shall be interpreted
under the laws of the State of Michigan. All Warrant Shares or other securities
issued upon the exercise of the Warrant shall be validly issued, fully paid, and
nonassessable, and the Company will pay all taxes in respect of the issuer
thereof. Notwithstanding anything contained herein to the contrary, the holder
of this Warrant shall not be deemed a shareholder of the Company for any purpose
whatsoever until and unless this Warrant is duly exercised.
IN WITNESS WHEREOF, the undersigned has caused this Warrant to be
signed by its duly authorized officer this ________ day of __________, 1996.
MICHIGAN BREWERY, INC.
By__________________________________________________
William F. Rolinski, President and
Chief Executive Officer
WARRANT EXERCISE FORM
To be signed only upon exercise of Warrant.
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, of the Warrant Shares of Michigan Brewery, Inc. to which
such Warrant relates and herewith makes payment of $____ therefor in cash or by
certified check, and requests that such Warrant Shares be issued and be
delivered to the address for which is set forth below the signature of the
undersigned.
Dated:_____________________
_________________________
(Taxpayer's I.D. Number)
_________________________
(Signature)
_________________________
(Address)
ASSIGNMENT FORM
To be signed only upon authorized transfer of Warrant.
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers unto _______________________________ the right to purchase Warrant
Shares of Michigan Brewery, Inc. to which the within Warrant relates and
appoints _____________________________, attorney, to transfer said right on the
books of such corporation with full power of substitution in the premises.
Dated: _____________________________
_________________________
(Signature)
_________________________
(Address)
CONVERSION NOTICE
The undersigned hereby irrevocably elects to exercise the conversion
right as provided for in the foregoing Warrant and to purchase thereunder
_____________ shares of Common Stock of Michigan Brewery, Inc. and herewith
tenders the Warrant in full payment for the purchased shares, as provided for in
the foregoing Warrant. If the number of shares converted is less than all of the
shares purchasable under the Warrant, a new Warrant will be issued in the name
of the undersigned for the remaining balance of the shares purchasable
thereunder.
Please issue and deliver the certificate for such shares in the name
of, and pay any cash for any fractional share, to the undersigned at the address
set forth below on __________________________ (a date not less than one nor more
than 20 business days from the date this notice is delivered to the Company).
Dated: _____________________________
_________________________
(Signature)
_________________________
(Address)
2,250,000 UNITS
MICHIGAN BREWERY, INC.
EACH UNIT CONSISTING OF ONE SHARE OF COMMON STOCK
AND ONE REDEEMABLE CLASS A WARRANT
AGREEMENT AMONG UNDERWRITERS
_________________________ , 1996
R.J. Steichen & Company
As Representative of the Several Underwriters
801 Nicollet Mall, Suite 1100
Minneapolis, Minnesota 55402-2526
Ladies and Gentlemen:
1. Underwriting Agreement.
(a) We understand that Michigan Brewery, Inc., a Michigan corporation
(the "Company"), plans to enter into an underwriting agreement (the
"Underwriting Agreement") with you and other prospective underwriters, including
us, acting severally and not jointly, providing for the purchase from the
Company of 2,250,000 units (the "Firm Units"), each unit consisting of one share
of $.01 par value common stock (the "Common Stock") and one redeemable Class A
Warrant (the "Class A Warrants"), in the respective amounts set forth opposite
the name of each underwriter in Appendix A to the Underwriting Agreement, and
for the purchase from the Company of up to an additional 337,500 units (the
"Option Units"), at your option as representative of the several Underwriters
(the "Representative"), in the same percentage of the total number of Option
Units being purchased as the several underwriters are purchasing Firm Units for
the sole purpose of covering over-allotments made in connection with the sale of
the Firm Units. Each Class A Warrant will be immediately exercisable and
transferable following the date of the Prospectus described below one share of
Common Stock at an exercise price of $8.00 per share, subject to adjustment. The
Class A Warrants will be subject to redemption by the Company for $.01 per
warrant at any time 90 days after the date of the Prospectus described below, on
30 days written notice, provided that the closing high bid price of the Common
Stock exceeds $9.00 per share (subject to adjustment) for any 20 consecutive
trading days prior to such notice. The Firm Units and the Option Units are
herein collectively referred to as the "Units." The parties on whose behalf you
execute the Underwriting Agreement are herein referred to as the "Underwriters."
(b) We understand that changes may be made in those who are to be
Underwriters and in the respective number of Units to be purchased by them, but
that the number of Units to be purchased by us as set forth in such Appendix A
will not be changed without our consent, except as provided herein or in the
Underwriting Agreement.
(c) We desire to confirm the agreement among you, the undersigned and
the other Underwriters with respect to the purchase of the Units by the
Underwriters, severally and not jointly, from the Company. The aggregate number
of Units which any Underwriter will be obligated to purchase from the Company
pursuant to the terms of the Underwriting Agreement is herein referred to as the
"Underwriting Obligation" of that Underwriter.
2. Registration Statement and Prospectus. We have received copies of
the registration statement, the related prospectus, and the amendment or
amendments thereto filed with respect to the Units. We understand that such
registration statement and prospectus may be further amended. Such registration
statement and related prospectus, as amended from time to time, are hereinafter
respectively referred to as the "Registration Statement" and the "Prospectus."
We agree, if you as our Representative so request, to furnish a copy of any
revised preliminary prospectus to each person to whom we furnished a copy of any
previous preliminary prospectus.
3. Authority and Compensation of Representative. We hereby authorize
you, as our Representative and on our behalf, (i) to execute on our behalf the
Underwriting Agreement in the form attached hereto, but with such changes
therein as in your judgment, and upon the advice of counsel to the Underwriters,
Parsinen Bowman Kaplan & Levy P.A., will not be materially adverse to the
Underwriters; (ii) to exercise all the authority and discretion vested in the
Underwriters and in you by the provisions of the Underwriting Agreement; (iii)
to take all such action as you in your discretion may deem necessary or
advisable in order to carry out the provisions of the Underwriting Agreement and
this Agreement and the sale and distribution of the Units; and (iv) to determine
all matters relating to the public advertisement of the Units. We further
confirm that (i) insofar as it relates to us, the information in the
Registration Statement as amended to this date is correct and complete and is
not misleading; (ii) we are aware of and are willing to accept our
responsibilities under the Securities Act of 1933, as amended (the "1933 Act"),
as an Underwriter to be named in the Registration Statement; (iii) we are
willing to proceed with the underwriting of the Units in the manner contemplated
in the Underwriting Agreement and described in the Prospectus; and (iv) you are
authorized, in your discretion and on our behalf, with approval of counsel for
the Underwriters, to approve of, or to object to, any amendments to the
Registration Statement or any amendments or supplements to the Prospectus. As
our share of the compensation to be paid you for your services, we will pay you,
and we authorize you to charge our account therefor, $_____ for each Unit which
we purchase pursuant to the Underwriting Agreement.
4. Public Offering of Units.
(a) We authorize you, as Representative of the several Underwriters,
to manage the underwriting and the public offering of the Units and to take such
action in connection therewith and in connection with the purchase, carrying,
and resale of the Units, including without limitation the following, as you in
your sole discretion deem appropriate or desirable:
(i) to determine the time of the offering, the initial
offering price, the underwriting discount and concessions and
discounts to dealers, to change the public offering price and such
concession and discounts, to furnish the Company with the information
to be included in the Registration Statement and any amendments
thereof or supplement thereto with respect to the terms of the
offering, and to determine all matters relating to the advertising
and communications with dealers or others;
(ii) to reserve for sale to dealers selected by you
("Selected Dealers"), who shall be members of the National
Association of Securities Dealers, Inc. ("NASD"), all or part of our
Units, such reservations for sales to Selected Dealers to be in such
proportions as you may determine and such reservations for sales to
others to be as nearly as practicable in proportion to the respective
Underwriting Obligations of the Underwriters, unless you agree to a
smaller portion at the request of any Underwriter, and from time to
time to add to the reserved Units any Units retained by us remaining
unsold and to release to us any of our Units reserved but not sold;
(iii) to sell reserved Units as nearly as practicable in
proportion to the respective reservations to Selected Dealers under a
Selected Dealer Agreement in substantially the form attached hereto
or otherwise, at the public offering price less the applicable
Selected Dealers concession and to others at the public offering
price;
(iv) to buy Units for our account from Selected Dealers at
the public offering price, less such amount not in excess of the
applicable Selected Dealers concession as you determine; and
(v) to reserve for sale and sell to institutions or other
retail purchasers, for our account, such of our Units as you may
determine; provided, however, that such reservations and sales shall
be made for the respective accounts of the several Underwriters as
nearly as practicable to their respective underwriting obligations,
except for such sales for the account of a particular Underwriter
designated by such a purchaser.
(b) We understand that you will advise us when the Units are released
for public offering and of the number of Units sold or reserved for sale for our
account. We shall retain for direct sale any Units purchased by us and not so
sold or reserved. Direct sales will be made in accordance with the terms of
offering set forth in the Prospectus. With your consent, we may obtain release
from you for the direct sale of any Units held by you for sale pursuant to
subparagraphs (iii) and (v) of the preceding paragraph but not sold and paid
for. To the extent Units so released had not been reserved for sale to Selected
Dealers, the number of Units reserved for our account for sale to Selected
Dealers shall be correspondingly reduced. We will advise you from time to time,
at your request, of the number of Units retained by us which remain unsold and
of the number of Units remaining unsold which were returned to us by any
Selected Dealers or by you for the account of any Selected Dealers.
(c) If, prior to the termination of this Agreement, you shall
purchase or contract to purchase any Units sold directly by us (including any
Units which may have been issued on transfer or in exchange for the Units), in
your discretion you may (i) sell for our account the Units so purchased and
debit or credit our account for the loss or profit resulting from such sale,
(ii) charge our account with an amount equal to the concession to Selected
Dealers with respect thereto and credit such amount against the cost thereof, or
(iii) require us to purchase such Units at a price equal to the total cost of
such purchase including commissions and transfer taxes on redelivery.
5. Purchase in the Open Market. Any Units sold by us (otherwise than
through you) which you purchase in the open market at or below the initial
public offering price for the account of any Underwriter shall be repurchased by
us on demand at the cost of such purchase, plus commissions and taxes on
redelivery. Units delivered on such repurchase need not be the identical
certificates so purchased. In lieu of such action, you may in your discretion
sell for our account the Units so purchased and debit or credit our account for
the loss or profit resulting from such sale or charge our account with an amount
not in excess of the Selected Dealers concession with respect to such Units.
6. Payment and Delivery. On or before 9:00 A.M., Minneapolis time, on
the day fixed pursuant to the Underwriting Agreement as the First Closing Date,
we will deliver to you at the location specified by you, a certified or official
bank check or check in same day funds, payable to R.J. Steichen & Company, for
the initial public offering price (less an amount equal to the selling
concession) of the amount of Firm Units which we have agreed to purchase from
the Company. We agree to make similar payments for the Option Units, if any are
purchased, on or before 9:00 A.M., Minneapolis time, on the date fixed pursuant
to the Underwriting Agreement as the Second Closing Date. We authorize you, for
our account, to make payment of the purchase price of the Units which we have
agreed to purchase against delivery to you of such Units, and the difference
between such purchase price and the amount of our check or checks delivered to
you shall be credited to our account. You may, in your discretion, make payment
of the purchase price on our behalf as provided in the following section and, if
we are a member of, or clear through a member of, the Depository Trust Company
("DTC"), you may, in your discretion, deliver our Units through the facilities
of DTC. We authorize you, as our custodian, to take delivery of our Units and to
hold the same for our account, in your name or otherwise, subject to the
provisions of this Agreement, and to deliver our reserved Units against sales.
You will deliver to us our unreserved Units promptly, and our reserved but
unsold Units as soon as practicable after the termination of this Agreement.
After you receive payment for reserved Units sold for our account, you shall
remit to us the purchase price, if any, paid by us for such Units and debit or
credit our account with the difference between the sale price and such purchase
price.
7. Authority to Borrow. In connection with the purchase or carrying
of our Units, we authorize you, in your discretion, to advance your funds for
our account, charging current interest rates, to arrange loans for our account,
and in connection therewith to execute and deliver any notes or other
instruments and to hold or pledge as security any of our Units. Any lender may
rely on your instructions in all matters relating to any such loan. Any
securities of the Company held by you for our account may be delivered to us for
carrying purposes and, if so delivered, will be redelivered to you upon demand.
8. Stabilization and Over-allotment.
(a) We authorize you, in your discretion, to make purchases and sales
of the Units, Class A Warrants or Common Stock of the Company, in the open
market or otherwise, for long or short account on such terms as you deem
advisable, and to over-allot in arranging sales. Such purchases and sales and
over-allotments will be made for the accounts of the several Underwriters as
nearly as practicable in proportion to their respective Underwriting
Obligations. We authorize you, in your discretion, to cover any short position
incurred pursuant to this Section 8 by purchasing such securities of the
Company, on such terms and at such times during the term of this Agreement or
after its termination as you deem advisable. At no time will our net commitment
under this Section 8 exceed 15% of our Underwriting Obligation with respect to
the Units. We will on demand take up at cost any securities so purchased and
deliver any securities so sold or over-allotted for our account, and if any
Underwriter defaults in any such obligation, each nondefaulting Underwriter will
assume its proportionate share of such obligation without relieving the
defaulting Underwriter from liability.
(b) Upon request, we will advise you of the Units retained by us and
unsold and we will sell to you for the account of one or more of the
Underwriters such of our unsold Units at such price not less than the applicable
net price to Selected Dealers nor more than the public offering price as you may
determine.
(c) If you effect any stabilizing purchases pursuant to this Section
8, you will promptly notify us of the date and time when the first stabilizing
purchase was effected and the date and time when stabilizing was permanent. We
authorize you to file with the Securities and Exchange Commission (the "SEC")
such reports of purchases, sales, and transfers made for our account pursuant to
this Section 8 as may be necessary under the Securities Exchange Act of 1934 as
amended (the "1934 Act") or otherwise. We will furnish to you not later than
three (3) business days following the date on which stabilizing was terminated
any report required to be furnished to you by said Rule 17a-2.
9. 0pen Market Transactions.
(a) Except as permitted by you, we will not, during the term of this
Agreement, bid for, purchase, sell, or attempt to induce others to purchase or
sell, directly or indirectly, any securities of the Company or any right or
option to purchase any securities of the Company other than (i) as provided in
the Underwriting Agreement and this Agreement, ii) purchases from, or sales to,
Selected Dealers of the Units at the public offering price less the selling
concession, or (iii) purchases or sales by us of any securities of the Company
as broker on unsolicited orders for the accounts of others.
(b) We represent that we have not participated in any transaction
prohibited by the preceding paragraph and that we have at all times complied
with the provisions of Rule lOb-6 of the SEC applicable to this offering.
(c) We may, with your prior consent, make purchases of the Units from
and sales to other Underwriters at the public offering price, less all or any
part of the applicable selling concession.
10. Expenses and Settlement. You may charge our account with all
transfer taxes on sales made by you of the Units purchased by us under the
Underwriting Agreement and with our proportionate share (based upon our
underwriting obligation) of all other expenses incurred by you under this
Agreement or in connection with the purchase, carrying, sale, or distribution of
the Units. The accounts hereunder will be settled as promptly as practicable
following the termination of this Agreement, but you may reserve such amount as
you deem advisable for additional expenses. Your determination of the amount to
be paid to or by us will be conclusive. You may at any time make partial
distributions of credit balances or call for payment of debit balances. Any of
our funds in your hands may be held with your general funds without
accountability for interest. Notwithstanding any settlement, we will remain
liable for all taxes on transfers for our account and for our proportionate
share (based upon our Underwriting Obligation) of all expenses and liabilities
which may be incurred by or for the accounts of the Underwriters.
11. Termination. This Agreement shall terminate (i) on the
forty-fifth (45th) business day after the initial public offering of the Units
or (ii) on such earlier date as you may determine or (iii) on the termination of
the Underwriting Agreement, if the Underwriting Agreement shall be terminated by
its terms; provided, however, that you may extend this Agreement for a period or
periods not exceeding forty-five (45) days in the aggregate or terminate this
Agreement or any provisions hereof, whether or not extended at any time, without
prior notice.
12. Default by Underwriters.
(a) Default by one or more Underwriters hereunder or under Section 14
of the Underwriting Agreement shall not release the other Underwriters from
their obligations or affect the liability of any defaulting Underwriter to the
other Underwriters for damages resulting from such default. If one or more
Underwriters default under the Underwriting Agreement, you may arrange for the
purchase by others, including other nondefaulting Underwriters, of the Units not
taken up by the defaulting Underwriter or Underwriters, and we will at your
request increase pro rata with the other nondefaulting Underwriters the number
of Units which we are to purchase by an amount not exceeding ten percent (10%)
of our original underwriting obligation. In determining the number of Units
which we are obligated to purchase under this Section 12 you may allocate the
Units not taken up by the defaulting Underwriter or Underwriters so that no
nondefaulting Underwriter shall be required to purchase a fraction of a Unit.
(b) In the event of default by one or more Underwriters in respect of
their obligations under this Agreement to take up and pay for any securities of
the Company purchased by you for their respective accounts as authorized
hereunder, or to deliver any such securities sold or Units over-allotted by you
for their respective accounts, pursuant to any provision of this Agreement, and
to the extent that arrangements shall not have been made by you for other
persons to assume the obligations of such defaulting Underwriter or
Underwriters, each nondefaulting Underwriter shall assume its proportionate
share of the aforesaid obligations of each such defaulting Underwriter without
relieving any such defaulting Underwriter of its liability therefor.
13. Position of Representative. You will be under no liability to us
for any act or omission except for your lack of good faith in performance of the
obligations expressly assumed by you herein, and no obligations on your part
shall be implied hereby or inferred herefrom; provided, however, that nothing
contained in this Section 13 shall be deemed to relieve the Representative or
any Underwriter from any liability imposed under the 1933 Act. The rights and
liabilities of the Underwriters are several and not joint, and nothing herein
contained shall constitute the Underwriters a partnership, association, or
separate entity. If the Underwriters shall be deemed to constitute a partnership
for federal income tax purposes, it is the intent of each Underwriter to be
excluded from the application of Subtitle A, Chapter 1, Subchapter K, of the
Internal Revenue Code of 1986, as amended. Each Underwriter elects to be so
excluded and agrees not to take any position inconsistent with such position.
Each Underwriter authorizes you, as Representative, in your discretion, to
execute and file on behalf of the Underwriters, such evidence of election as may
be required by the Internal Revenue Service.
14. Title to Securities. The Units purchased by or for the account of
each Underwriter shall remain the property of such Underwriter until sold, and
no title to any such Units shall, in any event, pass to the Representative, as
such, by virtue of any of the provisions of this Agreement.
15. Indemnification.
(a) We will indemnify and hold harmless each other Underwriter and
each person, if any, who controls such Underwriter within the meaning of Section
15 of the 1933 Act to the extent and upon the terms which each Underwriter
agrees to indemnify the Company in the Underwriting Agreement.
(b) In the event, at any time, any claim or claims (whether alone or
together with another claim or claims) shall be asserted against you
individually or as a result of your having acted as Representative or against
any other Underwriter, or against any person who controls you or such other
Underwriter within the meaning of Section 15 of the 1933 Act, or otherwise
involving the Underwriters generally, relating to the Registration Statement or
any preliminary prospectus or the Prospectus, as from time to time amended or
supplemented, the public offering of the Units or any of the transactions
contemplated by this Agreement or the Underwriting Agreement, we authorize you
to make such investigation to retain such counsel (including, in your
discretion, separate counsel for any Underwriter or group of Underwriters;
provided, however, that we may elect to retain, at our expense, our own counsel)
and to take such other action as you shall deem necessary or desirable under the
circumstances, including settlement of any such claim or claims. We agree to pay
to you, on request, at such time or times as you determine, our proportionate
share (based upon our Underwriting Obligation) of all expenses incurred by you,
including, but not limited to, the disbursement and fees of counsel so obtained,
in investigating, defending against, or negotiating with respect to such claim
or claims, and in our proportionate share (based upon our Underwriting
Obligation) of any liability incurred by you, by any such other Underwriter or
by any such controlling person in respect to such claim or claims, and in our
proportionate share (based upon our Underwriting Obligation) of any liability
incurred by you, by any such other Underwriter or by any such controlling person
in respect of such claim or claims, whether such liability shall be the result
of a judgment or the result of any such settlement. There shall be credited
against any amount paid or payable by us pursuant to this paragraph any loss,
claim, damage, liability, or expense which is incurred by us as a result of any
such claim asserted against us, and if such loss, claim, damage, liability, or
expense is incurred by us subsequent to any payment by us pursuant to this
paragraph, appropriate provision shall be made to effect such credit, by refund
or otherwise. If any Underwriter or Underwriters default in its or theirs
obligation to make any payments under this paragraph, each nondefaulting
Underwriter shall be obligated to pay its proportionate share of all defaulted
payments, provided, however, that nothing herein relieves the defaulting
Underwriter from liability for its default. In addition, we will cooperate with
you and counsel retained by you in investigating, defending against, and/or
negotiating with respect to such claim or claims and will make available to you
and such counsel all records and documents and appropriate personnel which you
or such counsel deem relevant. We understand that the discharge of any
obligations that we may have under the provisions of this subsection shall not
relieve us of any obligation that we may have under subsection (a) of this
Section 15.
(c) The provisions of this Section 15 and our agreements contained
herein shall remain in full force and effect regardless of any investigation
made by or on behalf of any Underwriter or controlling person and shall survive
the delivery of the Units and the termination of this Agreement.
16. Blue Sky Registration. Upon request, you will inform us of the
jurisdictions as to which you have been advised by counsel that the Units have
been registered or qualified for sale under the respective securities laws, but
you do not assume any responsibility or obligation as to our right to sell the
Units in any jurisdiction.
17. Capital Requirements. We confirm that our ratio of aggregate
indebtedness to net capital is such that we may, in accordance with and pursuant
to Rule l5c3-1 promulgated by the SEC under the 1933 Act and any applicable rule
relating to capital requirements of any securities exchange to which we are
subject or any restriction imposed upon us by any such exchange or any
governmental authority, agree to purchase the Units that we are obligated to
purchase hereunder and under the Underwriting Agreement.
18. Notices. Any notice from you to us shall be mailed or telegraphed
to us at our address as set forth in the Underwriter's Questionnaire furnished
to you by us.
19. Representations. You represent that you are a member in good
standing of the NASD, and we represent that we are either (a) a member in good
standing of the NASD who agrees to comply with all applicable rules of the NASD,
including without limitation, the NASD's Interpretation with Respect to Free
Riding and Withholding and Sections 8, 24, 25, and 36 of Article III of the
NASD's Rules of Fair Practice, or (b) a foreign dealer not eligible for
membership in the NASD who hereby agrees to make no sales within the United
States, its territories, or its possessions (except that we may participate in
group sales under Section 5 hereof) nor to persons who are citizens thereof or
residents therein, and in making other sales to comply with the NASD
interpretation mentioned above and Sections 8, 24 and 36 of Article III as if we
were an NASD member and to comply with Section 25 of such article as that
section applies to a nonmember foreign dealer. We agree not to offer any of the
Units to persons over whose accounts we exercise investment discretion without
their specific advance consent.
We represent that the Company is not an "affiliate" of ours, nor is
any director, officer or holder of five percent (5%) or more of the voting
securities of the Company a "Person associated with" our firm (as such terms are
defined in the Bylaws of the NASD).
20. Undertaking to Mail Prospectus. As contemplated by Rule 15c2-8
under the 1934 Act, you agree to mail a copy of the Prospectus mentioned in the
Underwriting Agreement to any person making a written request therefor during
the period referred to in such Rule, the mailing to be made to the address given
in the request. We confirm that we have delivered all Preliminary Prospectuses
and revised Preliminary Prospectuses required to be delivered. We acknowledge
that the copies of the Preliminary Prospectus furnished to us have been
distributed to dealers who have been notified of the foregoing requirements
pertaining to the delivery of Preliminary Prospectuses and Prospectuses. You
have heretofore delivered to us such number of copies of Preliminary
Prospectuses as have been reasonably requested by us, receipt of which is hereby
acknowledged, and will deliver such number of copies of Prospectuses as will be
reasonably requested by us.
21. Execution of Agreement. This Agreement has been executed by us
and is delivered to you in duplicate. Your confirmation hereof shall constitute
this Agreement a valid and binding contract between you and us and each other
party to a similarly confirmed Agreement substantially identical hereto, and
this and such other Agreements shall constitute the Agreement Among
Underwriters.
Please confirm that the foregoing correctly states the understanding
between us by signing and returning to us a counterpart hereof.
Very truly yours,
_______________________________
Corporate or firm name of Underwriter
By_____________________________
As Attorney-in-Fact
CONFIRMED AS OF THE DATE
FIRST WRITTEN ABOVE.
R.J. Steichen & Company
As Representative of the
Several Underwriters
By____________________
Its____________________
2,250,000 UNITS
MICHIGAN BREWERY, INC.
SELECTED DEALER AGREEMENT
Ladies and Gentlemen:
1. The several Underwriters named in the Prospectus referred to below
(the "Underwriters") have agreed to purchase, subject to the terms and
conditions set forth in the Underwriting Agreement referred to in the Prospectus
(the "Underwriting Agreement"), from Michigan Brewery, Inc., a Michigan
corporation (the "Company"), an aggregate of 2,250,000 Units, each Unit
consisting of one share of the Company's Common Stock and a Redeemable Class A
Common Stock Purchase Warrant to purchase one share of the Company's Common
Stock (the "Firm Units"). In addition, we have been granted an option to
purchase from the Company up to an additional 337,500 Units (the "Optional
Units"), to cover over-allotments in connection with the sale of the Firm Units.
The Firm Units and the Optional Units are hereinafter collectively called the
"Units." The Units and the terms upon which they are to be offered for sale by
the several Underwriters are more particularly described in the enclosed
Prospectus.
2. The Units are to be offered to the public by us at a price of $
per Unit (hereinafter called the "Public Offering Price") and in accordance with
the terms of offering set forth in the Prospectus.
3. The Underwriters are offering, subject to the terms and conditions
hereof, a portion of the Units for sale to (i) certain dealers which are members
of the National Association of Securities Dealers, Inc. (the "NASD") and which
agree to comply with the provisions of Section 24 of Articles III of the Rules
of Fair Practice of the NASD and (ii) foreign dealers or institutions ineligible
for membership in the NASD which agree (a) not to resell the Units to purchasers
in, or to persons who are nationals or residents of, the United States of
America, or when there is a public demand for the Units, to persons specified as
those to whom members of the NASD participating in a distribution may not sell,
and (b) to comply, as though such foreign dealer or institution were a member of
the NASD, with the NASD's interpretation with respect to free-riding and
withholding and with Sections 8, 24 and 25, to the extent applicable to foreign
nonmember brokers or dealers, and Section 36 of such Rules (such dealers and
institutions agreeing to purchase Units hereunder being hereinafter referred to
as "Selected Dealers") at the Public Offering Price less a selling concession of
$________ per Unit, payable as hereinafter provided, out of which concession an
amount not exceeding $________ per Unit may be reallowed by Selected Dealers to
members of the NASD or to foreign dealers or institutions ineligible for
membership therein which agree as aforesaid. This offering is made subject to
delivery of the Units and their acceptance by us, to the approval of all legal
matters by counsel and to other terms and conditions herein not forth.
4. We, acting as Underwriters, may buy Units from, or sell Units to,
any Selected Dealer, and any Selected Dealer may buy Units from, or sell Units
to, any other Selected Dealer or to us at the Public Offering Price less all or
any part of the concession. We, acting as Underwriters, after the initial public
offering may change the Public Offering Price, the concession and the
reallowance.
5. If prior to the termination of this Agreement, we purchase or
contract to purchase, in the open market or otherwise, for our account any Units
purchased by you hereunder, you agree to pay us on demand for our account an
amount equal to the concession of such Units. In addition, we may charge you
with any transfer taxes and broker's commission or dealer's mark-up paid in
connection with such purchase or contract to purchase.
6. We shall act as Underwriters under this Agreement and shall have
full authority to take such action as we may deem advisable in respect of all
matters pertaining to the public offering of the Units.
7. If you desire to purchase any of the Units, your indication of
interest should reach us promptly be telephone or facsimile transmission at the
offices of the Representative of the several Underwriters, R.J. Steichen &
Company, 801 Nicollet Mall, Minneapolis, Minnesota 55402-2526. We reserve the
right to reject all subscriptions in whole or in part, to make allotments and to
close the subscription books at any time without notice. The Units allotted to
you will be confirmed, to the terms and conditions of this Agreement.
8. The privilege of purchasing the Units is extended to you by us
only to the extent that we may lawfully sell the Units to dealers in your state.
9. Any of the Units purchased by you under the terms of this
Agreement may be immediately reoffered to the public in accordance with the
terms of the offering thereof set forth herein and in the Prospectus, subject to
the securities laws of the various states. Neither you nor any other person is
or has been authorized to give any information or to make any representations in
connection with the sale of the Units other than as contained in the Prospectus.
10. This Agreement will terminate when we shall have determined that
the public offering of the Units has been completed and upon notice to you by
facsimile transmission of such termination, but, if not previously terminated,
this Agreement will terminate at the close of business on the 30th full business
day after the date hereof; provided, however, that we shall have the right to
extend this Agreement for an additional period or periods not exceeding 30 full
business days in the aggregate upon notice to you by facsimile transmission.
11. For the purpose of stabilizing the market in the Common Stock of
the Company, we have been authorized to make purchases and sales thereof, in the
open market or otherwise, and, in arranging for sale of the Units, to
over-allot.
12. You agree to advise us from time to time upon request, prior to
the termination of this Agreement, of the number of Units purchased by you
hereunder and remaining unsold at the time of such request, and, if in our
opinion any such Units shall be needed to make delivery of the Units sold or
over-allotted for our account, you will, forthwith upon our request, grant to us
for our account the right, exercisable promptly after receipt of notice from you
that such right has been granted, to purchase, at the Public Offering Price less
the selling concession or such part thereof as we shall determine, such number
of Units owned by you as shall have been specified in our request.
13. On becoming a Selected Dealer, and in offering and selling the
Units, you agree (which agreement shall also be for the benefit of the Company)
to comply with all applicable requirements of the Securities Act of 1933, as
amended (the "Act), and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). You confirm that you are familiar with Rule 15c2-8 under the
Exchange Act relating to the distribution of the preliminary and final
prospectuses for securities of an issuer and confirm that you have complied and
will comply therewith.
14. Upon request, you will be informed as to the jurisdictions in
which we have been advised that the Units have been qualified for sale under the
respective securities or Blue Sky laws of such jurisdictions, but we do not
assume any obligation or responsibility as to the right of any Selected Dealer
to sell the Units in any jurisdiction or as to any sale therein. You authorize
us to file on your behalf a New York State Notice, if required.
15. Additional copies of the Prospectus will be supplied to you in
reasonable quantities upon request.
16. It is expected that public advertisement of the Units will be
made soon after the effective date of the Registration Statement or such later
date as the initial offering price of the Units is determined if the Company
elects to rely on Rule 430A under the Act. Twenty-four hours after such
advertisement shall have appeared, but not before, you will be free to advertise
at your own expense, over your own name, subject to any restriction of local
laws, but your advertisement must conform in all respect to the requirements of
the Act, including any and all Industry Guides, the rules of the NASD and the
National Association of American Securities Administrators and must be delivered
to the SEC, NASD and any state securities administrator requiring such delivery
in accordance with the requirements of each respective organization or state
securities administrator, and we shall not be under any obligation or liability
in respect of your advertisement.
17. No Selected Dealer is authorized to act as our agent, or
otherwise to act on our behalf, in offering or selling the Units to the public
or otherwise.
18. We shall not be under any liability for or in respect of the
value, validity or form of the Units, or delivery of the certificates for the
Units, or the performance by anyone of any agreement on his part, or the
qualification of the Units for sale under the laws of any jurisdiction, or for
or in respect of any matter connected with this Agreement, except for lack of
good faith and for obligations expressly assumed by us in this Agreement. The
foregoing provisions shall not be deemed a waiver of any liability imposed under
the Act.
19. Payment for the Units sold to you hereunder is to be made at the
Public Offering Price, on or about ____________, 1996, or such later date as we
may advise, by certified or official bank check, payable to the order of R.J.
Steichen & Company in current funds, at such place as we shall specify on one
day's notice to you against delivery of certificates for the Units.
Notwithstanding the foregoing, if transactions in the Units can be settled
through the facilities of the Depository Trust Company, payment for and delivery
of Units purchased by you hereunder will be made through the facilities of the
Depository Trust Company, if you are a member, unless you have otherwise
notified us prior to the date specified in our telex or telegram to you, or, if
you are not a member, settlement may be made through a correspondent who is a
member pursuant to instructions you may send us prior to such specified date.
20. Notice to us should be addressed to us c/o R.J. Steichen &
Company, 801 Nicollet Mall, Suite 1100, Minneapolis, Minnesota 55402-2526.
Notices to you shall be deemed to have been duly given if mailed or transmitted
by facsimile to you at the address to which this letter is addressed.
21. If you desire to purchase any of the Units, please confirm your
subscription by signing and returning to us your confirmation overleaf on the
duplicate copy of this letter enclosed herewith even though you have previously
advised us thereof by telephone or facsimile transmission.
Very truly yours,
R.J. STEICHEN & COMPANY
As Representative of the Several Underwriter
________________________, 1996 By______________________________________
Its_____________________________________
ACCEPTANCE
We confirm our agreement to purchase __________________ Units of the
above issue subject to all the terms and conditions set forth in this Agreement.
We acknowledge receipt of the Prospectus and no other statements, written or
oral. We further state that in purchasing the Units, we have relied upon the
Prospectus and upon no other statement whatsoever, written or oral.
Dated: _________________, 1996
_______________________________________
Print corporate name or firm name of Selected Dealer
_______________________________________
Signature of authorized officer or partner
_______________________________________
Print name of person signing
Address:
_______________________________________
_______________________________________
May 24,1996
(612) 334-8514
Michigan Brewery, Inc.
1999 Walden Drive
Gaylord, Michigan 49735
Gentlemen:
Michigan Brewery, Inc., a Michigan corporation (the "Company"), has
filed a registration statement on Form SB-2, Registration Number 333-3548 (the
"Registration Statement"), under the Securities Act of 1933, as amended (the
"Act"), in connection with (i) the proposed sale by the Company to R.J. Steichen
& Company as representative of the several underwriters (the "Representative")
of 2,250,000 Units, each Unit consisting of one share of the Company's common
stock, $.01 par value (the "Common Stock"), and one redeemable Class A Warrant
to purchase one share of Common Stock, (ii) the proposed sale by the Company to
the Representative of up to 337,500 additional Units pursuant to the exercise of
an overallotment option, and (iii) the sale of up to 75,000 shares of Common
Stock by a selling shareholder (collectively, the "Securities").
We have examined the Registration Statement, the form of Underwriting
Agreement, the Company's Restated Articles of Incorporation, Amended and
Restated Bylaws, form of stock certificate, corporate proceedings and such other
legal documents as we deemed relevant as a basis for the opinion hereinafter
expressed.
Based on the foregoing, it is our opinion that when the Registration
Statement is declared effective by order of the Securities and Exchange
Commission, and the Securities are issued and sold in accordance with the
Registration Statement, the Underwriting Agreement and their terms, the
Securities will be legally issued, fully-paid and nonassessable.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the references to our firm under the caption
"Legal Matters" in the Prospectus included in such Registration Statement.
Yours very truly,
BRIGGS AND MORGAN,
Professional Association
By: /s/ Joseph T. Kinning
Joseph T. Kinning
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
and to all references to our firm included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
May 24, 1996
