As filed with the Securities and Exchange Commission on September 27, 1996
Registration No. 333-______
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM SB-2
Registration Statement
Under the
Securities Act of 1933
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INDEPENDENCE BREWING COMPANY
(Exact name of Registrant as specified in its charter)
Pennsylvania 2082 23-2763840
(State or Other (Primary Standard Industrial (I.R.S. Employer
Jurisdiction Classification Code Number) Identification No.)
of Incorporation
or Organization)
1000 East Comly Street
Philadelphia, Pennsylvania 19149
(215) 537-2337
(Address and Telephone Number of Principal Executive Offices)
------------------------
Robert W. Connor, Jr.
President and Chief Executive Officer
Independence Brewing Company
1000 East Comly Street
Philadelphia, Pennsylvania 19149
(215) 537-2337
(Name, Address, and Telephone Number of Agent For Service)
------------------------
COPIES TO:
Barry M. Abelson, Esquire Rubi Finkelstein, Esquire
Brian M. Katz, Esquire Orrick, Herrington & Sutcliffe LLP
Pepper, Hamilton & Scheetz 666 Fifth Avenue
3000 Two Logan Square New York, New York 10103-0001
Eighteenth and Arch Streets (212) 506-5000
Philadelphia, PA 19103-2799
(215) 981-4000
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this 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, please 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. |_|
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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Proposed
Title of Each Proposed Maximum
Class of Maximum Aggregate
Securities Amount to be Offering Price Offering Price Amount of
to be Registered Registered Per Unit (1) (1) Registration Fee
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<S> <C> <C> <C> <C>
Common Stock, no par
value........................ 1,035,000 shares (2) $5.00 $ 5,175,000 $ 1,785.00
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Redeemable Warrants.......... 4,600,000 warrants (3) $0.50 $ 2,300,000 $ 794.00
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Common Stock issuable
upon exercise of
Redeemable Warrants.......... 4,600,000 shares (4) $6.00 $27,600,000 $ 9,518.00
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Total..................... $35,075,000 $12,097.00
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</TABLE>
(1) Estimated solely for purposes of determining the registration fee in
accordance with Rule 457(o) under the Securities Act of 1933.
(2) Includes 135,000 shares of Common Stock subject to the over-allotment
option granted by the Company to the Underwriter.
(3) Includes 600,000 Redeemable Warrants subject to the over-allotment option
granted by the Company to the Underwriter.
(4) Includes 600,000 shares of Common Stock issuable upon exercise of the
Redeemable Warrants granted by the Company to the Underwriter.
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 Section 8(a), may
determine.
<PAGE>
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.
PROSPECTUS
SUBJECT TO COMPLETION, DATED SEPTEMBER 27 1996 [LOGO]
INDEPENDENCE BREWING COMPANY
900,000 Shares of Common Stock and
4,000,000 Redeemable Warrants
Independence Brewing Company (the "Company") hereby offers 900,000 shares
(the "Shares") of common stock, no par value per share (the "Common Stock") and
4,000,000 redeemable Common Stock purchase warrants (the "Redeemable Warrants").
The Shares and the Redeemable Warrants (collectively, the "Securities") may be
purchased separately and will be separately tradeable immediately upon issuance.
It is currently anticipated that the initial public offering prices of the
Shares and the Redeemable Warrants will be $5.00 and $0.50, respectively. Each
Redeemable Warrant entitles the registered holder thereof to purchase one share
of Common Stock at an exercise price of $6.00, subject to adjustment, commencing
on the date of this Prospectus until _____, 2001 [60 months from the date of the
Prospectus] at which time the Redeemable Warrants shall expire. The Redeemable
Warrants are redeemable by the Company, with the consent of A.S. Goldmen & Co.,
Inc. (the "Underwriter"), at any time commencing on _____, 1997 [12 months from
the date of this Prospectus], at a redemption price of $0.10 per Redeemable
Warrant, provided that the average closing bid price of the Common Stock equals
or exceeds $8.00 per share for any 20 trading days within a period of 30
consecutive trading days ending on the fifth trading day prior to the date of
the notice of redemption. See "Description of Securities - Redeemable Warrants."
-------------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND
IMMEDIATE SUBSTANTIAL DILUTION. SEE "RISK FACTORS" BEGINNING ON PAGE 6
AND "DILUTION."
-------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
================================================================================
Underwriting Proceeds to
Price to Public Discount (1) Company (2)
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Per Share....................
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Per Redeemable Warrant.......
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Total........................
================================================================================
(1) Does not include additional compensation to the Underwriter in the form of
a non-accountable expense allowance equal to 3% of the gross proceeds of
this offering (the "Offering"). For indemnification arrangements with, and
additional compensation payable to, the Underwriter, see "Underwriting."
(2) Before deducting expenses estimated at $550,000 in the aggregate, payable
by the Company, including the non-accountable expense allowance payable to
the Underwriter.
(3) The Company has granted to the Underwriter a 45 day option, to purchase up
to an additional 135,000 shares of Common Stock and/or 600,000 Redeemable
Warrants on the same terms and conditions as set forth above solely to
cover over-allotments, if any. If such over-allotment option is exercised
in full, the total Price to Public, Underwriting Discount and Proceeds to
Company will be $___________, $___________ and $____________, respectively.
See "Underwriting."
------------------------------
The Securities are being offered by the Underwriter, subject to prior sale,
when, as and if delivered to and accepted by the Underwriter, and subject to the
approval of certain legal matters by its counsel and certain other conditions.
The Underwriter reserves the right to withdraw, cancel or modify the Offering
and to reject any order in whole or in part. It is expected that delivery of the
certificates representing the Securities and payment therefor will be made at
the offices of A.S. Goldmen & Co., Inc. at 99 Wood Avenue South, Iselin, New
Jersey 08830, or its counsel, on or about ______, 1996.
A.S. GOLDMEN & CO., INC.
The date of this Prospectus is _______________, 1996
<PAGE>
Prior to this Offering, there has been no public market for the Securities,
and no assurance can be given that such a market will develop upon completion of
this Offering, or if developed, that it will be sustained. The initial public
offering price of the Securities and the exercise price and other terms and
conditions of the Redeemable Warrants have been arbitrarily determined by
negotiations between the Company and the Underwriter and do not necessarily bear
any relationship to the Company's assets, book value, results of operations or
other generally accepted criteria of value. See "Underwriting." Application has
been made for listing of the Common Stock and the Redeemable Warrants on the
Nasdaq SmallCap Market ("Nasdaq") under the symbols IBCO and IBCW, respectively.
See "Risk Factors" and "Underwriting."
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ SMALLCAP MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
The Company intends to furnish the holders of the Common Stock with annual
reports containing audited financial statements after the close of each fiscal
year and make available such periodic reports as the Company may deem
appropriate or as may be required by law.
This Prospectus contains trademarks of other companies.
Pictures on inside cover
1. Picture of brewery and Company's Brewmaster.
2. Picture of Company's product line.
<PAGE>
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and must be read in
conjunction with, the more detailed information and financial data appearing
elsewhere in this Prospectus. Unless otherwise indicated herein, all share and
per share information does not give effect to (i) the exercise of the
Underwriter's over-allotment option to purchase up to an additional 135,000
shares of Common Stock and/or 600,000 Redeemable Warrants and the issuance of up
to 600,000 shares of Common Stock upon exercise of the Redeemable Warrants
included in the Underwriter's over-allotment option; (ii) the issuance of
4,000,000 shares of Common Stock issuable upon exercise of the Redeemable
Warrants; (iii) the issuance upon exercise of warrants granted to the
Underwriter (the "Underwriter Warrants") of up to 90,000 shares of Common Stock,
400,000 Redeemable Warrants and the underlying 400,000 shares of Common Stock
issuable upon exercise of the Redeemable Warrants contained in the Underwriter's
Warrants; (iv) 300,000 shares of Common Stock reserved for issuance upon the
exercise of stock options that may be granted pursuant to the Company's stock
option plan; (v) the issuance of 3,500,000 shares of Common Stock issuable upon
exercise of the Company's Series B Warrant; and (vi) the redemption of
fractional shares aggregating approximately 11 shares of Common Stock at $5.00
per share upon consummation of the Offering. See "Management--Stock Plan,"
"Certain Transactions--Private Placements" and "Underwriting." This Prospectus
contains forward-looking statements that involve certain risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth under "Risk Factors" and elsewhere in this Prospectus.
The Company
Independence Brewing Company (the "Company") is a regional producer of
fresh, high-quality, preservative-free craft-brewed ales, lagers, porters and
seasonal beers. The Company's products are marketed under the "Independence"
label. The Company currently produces three styles of beer, Independence Ale,
Independence Lager and Independence Gold, and one seasonal beer, Independence
Franklinfest, and anticipates commencing production of one porter, Independence
Porter, by the end of 1996. The Company brews, kegs and bottles its products at
its brewery in Philadelphia, Pennsylvania for wholesale distribution by
approximately 17 independent wholesale distributors in eight states and the
District of Columbia. The Company currently has the capacity to brew
approximately 12,000-14,000 barrels per year, which is in part dependent on
the style of beer produced. In addition to brewing its own products, the Company
has entered into contract brewing arrangements under which the Company produces
beers for third parties which market and sell such products under their own
label. The Company may also in the future develop and operate brewpubs,
independently or with third parties, that offer for sale, in addition to food,
the Company's beer brewed on the premises.
The market for beer in the United States consists of essentially three
segments: (i) economy beers, which are generally brewed by the largest domestic
brewers, such as Anheuser-Busch, Inc. ("Anheuser-Busch"), Miller Brewing Co.
("Miller"), Adolph Coors Co. ("Coors") and The Stroh Brewing Co. ("Stroh"),
(ii) imported beers, including widely promoted brands such as Heineken, Amstel,
Corona, Bass and Guinness and (iii) craft-brewed beers. The Company operates in
the growing craft-brewing segment of the domestic brewing industry which
consists of small, independent brewers whose predominant product is brewed with
high-quality ingredients. Craft-brewing refers to beers produced by
microbreweries, regional specialty breweries, brewpubs and contract brewers. The
Company believes that the growing demand for craft-brewed beers in the United
States is part of a broader shift in preferences on the part of a certain
segment of consumers from mass-produced products toward high-quality distinctive
foods and beverages. According to industry data, the craft-brewing segment of
the domestic beer market has had an average annual growth rate of approximately
46% from 1986
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<PAGE>
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through 1995 and, in 1995, the total combined sales for this segment reached
approximately 3.8 million barrels, with total share of the domestic beer market
increasing to 2% from 1.3% in 1994.
The Company believes that the quality of its products is enhanced by its
Brewmaster, Mr. William Moore. The Company recently received a bronze medal for
its Independence Gold brand at the 1996 Association of Brewers' international
beer competition, The World Beer Cup. Prior to joining the Company, Mr. Moore
served as the head brewer at Stoudt Brewery, a craft-brewer in Adamstown,
Pennsylvania. During Mr. Moore's tenure, Stoudt received fourteen medals at the
country's largest domestic beer festival, The Great American Beer Festival(R).
The Company's goal is to be one of the leading brewers of craft-brewed
beers in the United States. The Company intends to pursue this goal by
(i) expanding its product offerings, (ii) increasing the Company's distribution
network both within existing markets and in new markets, (iii) developing
consumer awareness through increased marketing and special events that showcase
the Company's products and (iv) developing consumer loyalty through the
production of high-quality products.
The Company was incorporated in Pennsylvania in May 1994. The Company's
executive offices are located at 1000 Comly Street, Philadelphia, Pennsylvania
19149, and its telephone number is (215) 537-2337.
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-4-
<PAGE>
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The Offering
Securities Offered.............. 900,000 shares of Common Stock and 4,000,000
Redeemable Warrants. Each Redeemable Warrant
entitles the holder thereof to purchase one
share of Common Stock at an initial exercise
price of $6.00 per share, from the date of
this Prospectus until _________, 2001 [60
months from the date of this Prospectus]. The
Redeemable Warrants are redeemable by the
Company, with the consent of the Underwriter,
at any time commencing ________ __, 1997 [12
months from the date of this Prospectus], at a
redemption price of $0.10 per Redeemable
Warrant, provided that the average closing bid
price of the Common Stock, as reported by
Nasdaq, or if not quoted on Nasdaq, as
reported by any other recognized quotation
system on which the price of the Common Stock
is quoted, equals or exceeds $8.00 per share
for any 20 trading days within a period of 30
consecutive trading days ending on the fifth
trading day prior to the date of notice of
redemption to the holders of the Redeemable
Warrants. See "Description of Securities."
Common Stock outstanding:
Prior to the Offering......... 2,307,070 shares
After the Offering............ 3,207,070 shares
Use of Proceeds................. Repayment of the Company's Debentures,
repayment of certain other outstanding
indebtedness, mandatory redemption of the
Company's Series B Preferred Stock, marketing
and sales, capital expenditures and working
capital. See "Use of Proceeds," "Certain
Transactions--Private Placements" and
"Description of Securities--Preferred Stock."
Risk Factors.................... The Securities offered hereby involve a high
degree of risk and immediate and substantial
dilution. See "Risk Factors" and "Dilution."
Proposed Nasdaq symbols:(1)
Common Stock.................. IBCO
Redeemable Warrants........... IBCW
- ----------
(1) Application has been made for quotation of the Common Stock and the
Redeemable Warrants on Nasdaq. See "Risk Factors--No Assurance of Public
Trading Market or Continued Nasdaq Inclusion; Risk of Low-Priced
Securities."
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-5-
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING
MATTERS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING AN INVESTMENT IN THE SHARES
OF COMMON STOCK AND THE REDEEMABLE WARRANTS OFFERED BY THIS PROSPECTUS. THIS
PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS AND THE TIMING OF CERTAIN EVENTS
COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING
STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH IN THE
FOLLOWING RISK FACTORS AND ELSEWHERE IN THIS PROSPECTUS.
Limited Operating History; Past and Possible Future Operating Losses. The
Company was founded in May 1994 and commenced distribution of its Independence
Ale in kegs and bottles in May 1995 and June 1995, respectively. The Company has
had significant losses since inception, including net losses of $(36,111) for
the period May 17, 1994 (inception) through December 31, 1994 and $(648,302) for
the year ended December 31, 1995. In addition, the Company had net losses of
$(416,667) and $(419,003) for the six months ended June 30, 1995 and 1996,
respectively. As of June 30, 1996, the Company had an accumulated deficit of
$(494,121) and a working capital deficit of $(696,623). For the period from
June 1994 through February 1995, the Company's principal activity was the
raising of capital, securing third party financing and completing construction
of its manufacturing facility. The Company's limited operating history makes any
prediction of future sales and operating results difficult. Accordingly,
although the Company has experienced sales growth, such growth should not be
considered indicative of future sales growth, if any, or of future operating
results. There can be no assurance that the Company's sales will grow or be
sustained in future periods or that the Company will become or remain profitable
in any future period. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Company's Financial Statements.
Unanticipated Manufacturing Limitations. The Company is currently operating
a refurbished bottling line which does not include all originally manufactured
parts. Incompatibility in re-manufactured parts has resulted in unanticipated
machine down-time, decreased bottling capacity and problems with the adhesion of
product labels to bottles. Under normal circumstances, using originally
manufactured parts, the Company's current bottling line has the capacity to fill
300 bottles per minute. However, due to unanticipated problems, the bottling
line has been able to fill only 35 bottles per minute. In addition, the Company
has experienced problems with product labels falling off during production. The
Company anticipates purchasing a new bottling line with a portion of the
proceeds of the Debentures (as described in "Certain Transactions--Private
Placements"). The new bottling line will be designed to significantly increase
the Company's bottling capacity and alleviate its labeling problems. The Company
recently paid a $30,000 deposit on this new bottling line. However, in the
absence of this new bottling line, the Company's business, financial condition
and results of operations will continue to be materially adversely affected by
the performance of its current bottling line. In addition, there can be no
assurance that the Company will complete the purchase of the new bottling line
or, if purchased, that the new bottling line will not have unanticipated
operating problems. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Certain Transactions--Private
Placements."
Conflict of Interest and Trademark Conflict. The Company is subject to risk
associated with a potential conflict of interest that may arise out of the
relationship between the Company and a third party. Robert W. Connor, Jr.,
President and Chief Executive Officer of the Company, is a director, officer
and a shareholder of Independence Brewing Company of Florida, Inc.
("Independence Florida"), a corporation that is currently operating a brewpub
in Ft. Lauderdale, Florida, utilizing the
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<PAGE>
"Independence" name and logo and the name "Independence Brewery and Restaurant"
(the "Independence Marks"). In addition, Independence Florida has filed federal
trademark and service mark applications for "Independence Brewery and
Restaurant" (the "Applications"). The Company and Mr. Connor have proposed to
enter into an agreement with Independence Florida whereby (i) Independence
Florida will transfer and assign all of its rights, title and interest in the
Independence Marks and the Applications to the Company, (ii) Independence
Florida will have a one year royalty free license to use the Independence Marks
and after one year, Independence Florida can exercise an option to enter into a
ten year royalty bearing license with the Company for such marks, such license
to be subject to termination upon certain conditions, (iii) Independence Florida
will repurchase Mr. Connor's interest in Independence Florida and (iv) the
Company will not operate a bar or restaurant in Independence Florida's
geographic region throughout the term of the license and for a period of two
years following termination of the license (the "Florida Agreement"). Upon
execution of the Florida Agreement, Mr. Connor will resign from his position as
an officer and member of the Board of Directors of Independence Florida. There
can be no assurance that such agreement will be executed, in which event, the
Company may take appropriate legal action to protect its intellectual property
rights with regard to Independence Florida and its use of the term
"Independence." The costs of litigation could be significant and may have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Certain Transactions-- Florida Agreement."
Risk of Third Party Claims of Infringement of Intellectual Property;
Uncertainty of Trademark Protection. The trademark application for the Company's
logo has been refused registration by the United States Patent and Trademark
Office based on a prior registration by Moosehead Brewing Company ("Moosehead")
of a registration for "The Taste of Independence." The Company has abandoned its
federal trademark application for its logo. In addition, Moosehead has a pending
U.S. trademark application for the mark "Independence" for beer. The Company is
currently negotiating a perpetual and exclusive license and purchase agreement
with Moosehead for the use of the term "Independence." There can be no assurance
that such license agreement will be executed. If the Company is unsuccessful in
these negotiations, the Company may find it necessary to change the brand name
of its products, thereby losing any existing brand recognition in its markets.
Such change may involve considerable expense, including costs involved with
building goodwill in a new brand, and may have a material adverse effect on the
Company's business, financial condition and results of operations. The Company
relies and will continue to rely on a combination of trade secret, copyright and
trademark laws, non-disclosure and other arrangements to protect its proprietary
rights. Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy or obtain and use information that the
Company regards as proprietary. There can be no assurance that the steps taken
by the Company to protect its proprietary information will prevent the
misappropriation and the unauthorized use of the Company's proprietary
information and such protections may not preclude competitors from developing
confusingly similar brand names or promotional materials or developing products
with taste and other qualities similar to the Company's products. See
"Business--Trademarks."
Possible Need For Additional Financing. The Company anticipates that the
net proceeds of the Offering will be sufficient to finance its activities for at
least the 12 months following the date of this Prospectus. However, there can be
no assurance that the Company will not require additional financing and if
required, that such additional financing will
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<PAGE>
be available to the Company on acceptable terms, or at all. In addition,
substantially all of the Company's assets are currently pledged as collateral
securing certain indebtedness that will remain outstanding after this Offering.
This may adversely affect the Company's ability to obtain additional financing
in the future. Factors that may lead to a need for additional financing include
delays in market acceptance, the need for the Company to expand to meet market
demand and the acquisition or development of brewpubs. There can be no assurance
that the Company will not experience any of these or any other problems, which
may materially adversely affect the Company's financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business--Property."
Ability to Manage Growth; Expansion into New Markets. The Company's future
success depends in part on its ability to manage growth as it increases its
production capacity, replaces its bottling line, broadens the distribution of
its products to both existing and new markets, enters the brewpub business and
expands its product offerings. In attempting to expand the distribution of
products, the Company will be required to establish and manage relationships
with third party wholesale distributors, retailers and consumers in numerous
markets. Consumer tastes may vary from market to market and, therefore, there
can be no assurance that the Company will be successful in entering new markets
or in maintaining its existing markets. Continued expansion of the Company's
present business and entrance into the brewpub business will require hiring
several additional key employees, such as sales managers and individuals
experienced in the restaurant business. There can be no assurance that the
Company will be able to hire such persons when needed or on favorable terms or
that any such new employees will be successfully integrated into the Company's
management.
Competition. The Company competes in the craft-brewing segment of the
domestic beer market. The craft-brewing segment is highly competitive due to the
increased number of new craft-brewers, the recent emergence of products
developed by large domestic brewers designed to compete in the craft-brewing
segment, the efforts by other craft-brewers to expand their production
capacities and distribution and a general surplus of underutilized domestic
brewing capacity, which facilitates existing contract brewer expansion and the
entry of new contract brewers. Although domestic demand for craft-brewed beers
has increased over the past ten years, there can be no assurance that this
demand will continue. The Company anticipates intensifying competition in the
craft-brewing beer segment, and believes that, as a result, prices may fluctuate
and could decline. In addition, the Company's products also compete generally
with other beverages, including other segments of the domestic beer market and
soft-drinks. The Company competes with other beer and beverage companies not
only for consumer acceptance and loyalty but also for shelf and tap space in
retail establishments and for marketing focus by the Company's third-party
wholesale distributors and their customers, many of which also distribute and
sell other beverage products. See "Business--Competition." Many of the Company's
competitors possess marketing, financial and other resources substantially
greater than those of the Company, and there can be no assurance that the
Company will be able to achieve continued success in the face of intensified
competition from within the craft-brewing segment, from other segments of the
beer market and from beverages in general.
Entrance into the Brewpub Business. The growth of the Company may involve
acquiring existing brewpubs and/or developing new brewpubs, some, or all, of
which may include third party investors and/or third party financing. The
Company is currently in the process of evaluating acquisition targets and/or
sites to develop new brewpubs. As of the date of this Prospectus, the Company
has not entered into any agreements to either acquire or develop brewpubs. The
Company's ability to enter into the brewpub business will depend upon a variety
of factors, including but not limited to the availability and cost of suitable
acquisition candidates and/or building sites, the employment and training of
management, brewpub staff and other personnel, regulatory limitations regarding
common ownership of breweries and restaurants in certain states, acceptable
leasing or
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<PAGE>
financing terms of equipment, cost effective and timely construction of new
brewpubs (which construction can be delayed due to, among other reasons, labor
disputes, local zoning and licensing matters and weather conditions) and
securing required governmental permits and approvals. There can be no assurance
that the Company will be successful in acquiring or opening new brewpubs, that
those brewpubs will be opened in a timely manner, or that, if opened, those
brewpubs will be operated profitably. New brewpubs typically operate with below
normal profitability and incur certain additional costs in the process of
achieving operational efficiencies during the first several months of operation.
Consequently, future financial condition and results of operations may be
adversely affected by costs associated with entering the brewpub business.
Dependence on Key Personnel; Inexperience of Management. The Company's
success substantially depends upon the efforts of the Company's President and
Chief Executive Officer, Robert W. Connor, Jr. and the Company's Brewmaster,
William Moore. The loss of Mr. Connor or Mr. Moore could have a material adverse
effect on the Company's financial condition and results of operations. The
Company has recently entered into employment agreements with each of these
officers. The Company has applied for a key-man insurance policy for its benefit
on the life of Mr. Connor in the amount of $1,500,000. The Company's only two
executive officers are Robert W. Connor, Jr., President and Chief Executive
Officer and William Moore, Brewmaster and Secretary. The Company does not have
any other full-time executives, including one with financial or accounting
experience. Mr. Connor, who does not have significant accounting or financial
experience, is currently functioning as the Company's principal financial
officer. In addition, although Mr. Connor has five years of experience in
various aspects of brewing operations, Mr. Connor has overseen the operations of
a brewery only since forming the Company. The success of the Company is
dependent upon its ability to hire and retain qualified financial, technical,
marketing and other personnel. However, there can be no assurance that the
Company will be able to hire or retain such necessary personnel. See "Use of
Proceeds" and "Management."
Dependence on Distributors. Except for two counties in Pennsylvania where
the Company distributes its own products, the Company relies on third party
wholesale distributors, 17 as of the date of this Prospectus, for the
distribution of its products to retailers. Two wholesale distributors accounted
for approximately 44% of the Company's sales for the year ended December 31,
1995, three wholesale distributors accounted for approximately 62% of the
Company's sales for the six month period ended June 30, 1995 and three different
wholesale distributors accounted for approximately 40% of the Company's sales
for the six month period ended June 30, 1996. The loss of any wholesale
distributor, if not immediately replaced, could have an adverse effect on the
Company's business, financial condition and results of operations. The Company
generally depends upon its distributors to sell and create demand for the
Company's products among the distributors' retail customers. Such distributors
do not exclusively distribute the Company's products. The Company's distributors
often represent competing craft-brewed brands, as well as economy and import
brands. There can be no assurance that the Company's distributors will devote
sufficient resources to provide effective sales and promotion support to the
Company or continue to distribute the Company's products. See "Business--Product
Distribution."
Dependence on Suppliers. The Company purchases from its suppliers certain
ingredients, such as hops, malt and brewer's yeast, and packaging materials used
in the Company's products. Although to date the Company has been able to obtain
adequate supplies of these ingredients and materials in a timely manner from
existing sources, if the Company was unable to obtain sufficient quantities of
ingredients and materials, delays or reductions in product shipments could occur
which would have a material adverse effect on the Company's financial condition
and results of operations. Although the Company believes that there are
alternative sources available for its raw materials, there can be no assurance
that the Company will be able to acquire these products from other sources on a
timely or cost-effective basis if current suppliers are unable to supply them.
The Company does not have long-term purchase contracts with its suppliers. The
loss of a material supplier could materially
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adversely affect the Company's business, financial condition and results of
operations if there were a delay in shipments from alternative suppliers. See
"Business--Product Distribution."
Shortages of Supply. The supply, quality and price of raw materials used to
produce the Company's products can be affected by factors beyond the control of
the Company, such as drought, frost, other weather conditions, economic factors
affecting growing decisions, various plant diseases and pests. If any of the
foregoing were to occur, the Company's business, financial condition and results
of operations would be adversely affected. In addition, the Company's results of
operations are dependent upon its ability to accurately forecast its
requirements of raw materials. Any failure by the Company to accurately forecast
its demand for raw materials could result in the Company either being unable to
meet higher than anticipated demand for its products or producing excess
inventory, either of which may adversely affect the Company's business,
financial condition and results of operations.
Limited Product Line. The sale of a limited number of styles of beer has
accounted for substantially all revenue of the Company since the Company's
inception. The Company currently offers three styles of beer year-round and one
seasonal beer during certain times of the year, and anticipates the introduction
of a porter by the end of 1996. The Company believes that the sale of these
beers will continue to account for a significant portion of the Company's sales
for the foreseeable future. For the six month period ended June 30, 1996,
approximately 70% of the Company's revenues resulted from the sales of two
beers. Therefore, the Company's future operating results, particularly in the
near term, are significantly dependent upon the market acceptance of these
limited products. In addition, the Company may offer an old fashioned root beer
soft-drink in the future. There can be no assurance that the Company's current
management can develop the expertise necessary to enter the soft-drink business
or that the Company can recruit, hire and retain individuals experienced in the
soft-drink business. There can be no assurance that the Company will be
successful in developing, introducing and marketing new products on a timely and
regular basis. If the Company is unable to introduce new products or if the
Company's new products are not successful, the Company's sales may be adversely
affected as customers seek competitive products. The Company may also experience
increased costs in connection with developing new products in the period prior
to the distribution of such new products. In addition, the introduction or
announcement of new products by the Company could result in reduction of sales
of the Company's existing products, requiring the Company to manage carefully
product introductions in order to minimize disruption in sales of existing
products. There can be no assurance that the introduction of new product
offerings by the Company will not cause consumers to reduce purchases or
consumption of existing Company products. Such reduction of purchases or
consumption could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operation" and
"Business--Products."
Single-Site Manufacturing Facility. All of the Company's brewing and
bottling operations are performed at its facility in Philadelphia, Pennsylvania.
In the event this facility is damaged by fire or other casualty, which damage
could not be repaired in a short period of time, the Company's production would
be substantially interrupted and such casualty would have a material adverse
effect on the Company's business, financial condition and results of operations.
Portions of Offering Proceeds Benefiting President and Chief Executive
Officer. Net proceeds to the Company from the sale of the Securities offered
hereby will be used to repay the amount outstanding pursuant to the Company's
promissory note in favor of CoreStates Bank, N.A. in connection with a Small
Business Administration Loan (the "SBA Loan"), which totaled $412,080 at June
30, 1996. Robert W. Connor, Jr., President and Chief Executive Officer of the
Company, personally guaranteed the SBA Loan. The application of a portion of the
net proceeds of this Offering to the repayment of such obligation will result in
the termination of such guarantee. See "Certain Transactions--Guaranties" and
the Company's financial statements and notes related thereto.
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Sales Fluctuations Due to Seasonality. The Company believes that its third
party distributors have historically experienced decreased sales in the first
calendar quarter due to decreased consumption of beer after the holiday season.
Although the Company has not yet experienced sales fluctuations due to
seasonality because the Company has continued to expand its wholesale
distributors network, fluctuations in the Company's sales due to seasonality may
become evident in the future as the Company's sales increase.
Control By Existing Shareholders. Upon completion of this Offering, Mr.
Connor and Winfield Capital Corp., a Small Business Investment Company ("SBIC")
licensed by the Small Business Administration ("Winfield"), will own an
aggregate of 47.5% of the outstanding Common Stock. Consequently, Mr. Connor and
Winfield will likely continue to be able to elect the Company's directors, to
determine the outcome of corporate actions requiring shareholder approval and
otherwise to control the business affairs of the Company. However, Mr. Connor
and Winfield have no agreements or understandings between them concerning the
voting of their shares of Common Stock. Upon exercise of the Series B Warrant
(as further described in "Management's Discussion and Analysis of Financial
Results and Operations--Liquidity and Capital Resources"), Winfield would own an
aggregate of 66.3% of the outstanding Common Stock (assuming no exercise of the
Redeemable Warrants). However, Winfield has indicated to the Company that, due
to restrictions imposed by regulations governing SBICs, it does not intend to
exercise the Series B Warrant to the extent that such exercise would result in
Winfield owning 50% or more of the outstanding Common Stock. See "Principal
Shareholders."
Operating Hazards. The Company's 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. There can be
no assurance that any such contamination will not occur. The occurrence of such
a problem could result in a costly product recall and serious damage to the
Company's reputation for product quality, as well as claims for product
liability. In addition, the Company's products are not pasteurized and have a
limited shelf-life. Upon expiration of shelf-life, the Company's products are
returned to the Company by the distributors or retailers for disposal by the
Company. The Company may incur cost in connection with such returns, including
shipping expenses. 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 a general liability and product liability
insurance policy, there can be no assurance that the Company's insurance will be
adequate. See "Business--Brewing Operations."
Government Regulation. The manufacture and sale of alcoholic beverages is a
business that is highly regulated and taxed at the federal, state and local
levels. The Company's operations may be subject to more restrictive regulations
and increased taxation by federal, state and local governmental agencies than
are those of non-alcohol related businesses. For instance, brewery and wholesale
operations require various federal, state and local licenses, permits and
approvals. In addition, some states prohibit wholesalers and/or retailers from
holding an interest in any supplier such as the Company. Furthermore, some state
regulations may restrict the ability of the Company to change prices for its
products. Violation of such regulations can result in the loss, revocation or
suspension of existing licenses by the wholesaler, retailer and/or supplier.
The loss, revocation or suspension of any existing licenses, permits or
approvals could have a material adverse effect on the Company's business.
Because of the many and various state and federal licensing and permitting
requirements, there is a risk that one or more regulatory authorities could
determine that the Company has not complied with applicable licensing or
permitting regulations or does not maintain the approvals necessary for it to
conduct business within their jurisdictions. There can be no assurance that any
such regulatory action would not have a material adverse effect upon the
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Company's business. The federal government and each of the states levy excise
taxes on alcoholic beverages, including beers. The federal government currently
imposes an excise tax of $18.00 per barrel on every barrel of beer produced for
consumption in the United States by each brewing company with annual production
of over 2,000,000 barrels. The federal excise tax for brewing companies with
annual production under 2,000,000 barrels is $7.00 per barrel on all barrels up
to the first 60,000 barrels produced and $18.00 per barrel for each barrel
produced in excess of 60,000. In addition, sale of alcoholic beverages is
subject to state excise and other taxes which vary with each state. While the
Company believes that it is in compliance with its federal, state and local tax
obligations, any determination that the Company has additional federal, state or
local tax liability could have a material adverse effect on the Company's
financial condition and results of operations. See "Business--Government
Regulation."
Dram Shop Laws. The serving of alcoholic beverages to a person known to be
intoxicated may, under certain circumstances, result in the server's being held
liable to third parties for injuries caused by the intoxicated customer. If the
Company opens brewpubs, the Company will attempt to address this concern by
implementing employee training and designated-driver programs. The Company has
obtained host liquor and legal liquor liability insurance coverage for such
liability in connection with the Company hosting special events where liquor is
served. If the Company opens brewpubs, this coverage may be required to be
increased. There can be no assurance that increased coverage will be available
or, if available, will not be cost prohibitive. Future increases in premiums
could make it prohibitive for the Company to obtain adequate insurance coverage,
and large uninsured damage awards against the Company could have a material
adverse affect on the Company's financial condition and results of operations.
See "Business--Government Regulations."
Public Attitudes. The alcoholic beverage industry has become the subject of
considerable societal and political attention in recent years due to increasing
public concern over alcohol-related social problems including drunk driving,
underage drinking and health consequences from the misuse of alcohol, including
alcoholism. As an outgrowth of these concerns, the possibility exists that
advertising by beer producers could be restricted, that additional cautionary
labeling or packaging requirements might be imposed or that there may be renewed
efforts to impose increased excise or other taxes on beer sold in the United
States. If beer consumption in general were to come into disfavor among domestic
consumers, or if the domestic beer industry were subjected to significant
additional governmental regulations, the Company's business could be materially
adversely affected. See "Business--Government Regulation." In addition, consumer
tastes may change over time or may vary in the markets which the Company
currently operates and new markets in which the Company intends to enter and
there is no assurance that the same level of sales and operating margins can be
maintained in the Company's existing market or achieved in new markets.
Similarly, there can be no assurance that the Company's products will be
successful in its existing market or will penetrate new markets.
No Assurance of Future Consumer Demand for Craft-brewed Beer. The
craft-brewed beer segment of the domestic beer market has grown over the past
decade. The Company believes that one factor in such growth has been consumer
demand for more flavorful beers offered in a wider variety of styles. No
assurance can be given, however, that consumer demand for craft-brewed beers
will continue in the future. The Company's success also depends upon a number of
factors related to the level of discretionary consumer spending, including the
general state of the economy, federal and state tax laws and consumer confidence
in future economic conditions. Changes in consumer spending can affect both the
price of and demand for the Company's products and may, therefore, affect the
Company's business, financial condition and results of operations.
Arbitrary Determination of Public Offering Prices; Potential Volatility of
Common Stock and Redeemable Warrants. The initial public offering prices of the
Securities and the terms of the
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Redeemable Warrants were arbitrarily determined by negotiations between the
Company and the Underwriter and bear no relationship to the Company's asset
value, net worth or any other recognized criteria of value. See "Underwriting"
for a discussion of the factors to be considered in determining the initial
public offering prices. The trading price of the Common Stock or Redeemable
Warrants may be volatile and may be significantly affected by factors such as
actual or anticipated fluctuations in the Company's operating results,
announcements of new products by the Company or its competitors, developments
with respect to conditions and trends in the craft beer segment of the domestic
beer market, government regulation, general market conditions and other factors,
many of which are beyond the Company's control. In addition, the stock market
has from time to time experienced significant price and volume fluctuations that
have adversely affected the market prices of securities of companies'
irrespective of such companies' operating performances.
No Dividends. The Company has never paid and does not anticipate paying
dividends on the Common Stock for the foreseeable future. See "Dividend Policy."
Dilution. Purchasers of shares of Common Stock in the Offering will
experience immediate and substantial dilution of $3.39 in the net tangible book
value of their shares (assuming an initial public offering price of $5.00 per
share for the Common Stock). See "Dilution."
Impact of Private Placements. In connection with the sale of $800,000 of
Debentures and the issuance of $700,000 of Series B Preferred Stock in the
Private Placements (as such term is defined in "Management's Discussion and
Analysis of Financial Condition and Results of Operations"), the Company issued
common stock warrants at a per share exercise price below the assumed initial
public offering price. The Company intends to utilize a portion of the net
proceeds from this Offering to repay the Debentures and redeem the Series B
Preferred Stock. As a result, the Company will write off (i) unamortized
original issue discount of $1,245,825 and deferred financing costs of $32,000 in
connection with the Debentures and (ii) unamortized original issue discount of
$1,868,739 and deferred financing costs of $28,000 in connection with the Series
B Preferred Stock. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
No Assurance of Public Trading Market or Continued Nasdaq Inclusion; Risk
of Low-Priced Securities. Prior to the Offering, there has been no public market
for the Securities, and there can be no assurance that an active public market
will develop or, if developed, be sustained. The Company anticipates that the
Securities will be eligible for quotation on Nasdaq. In order to qualify for
continued quotation on Nasdaq, a company, among other things, must have
$2,000,000 in total assets, $1,000,000 in capital and surplus and a minimum bid
price of $1.00 per share. If the Company is unable to satisfy the maintenance
requirements for quotation on Nasdaq, of which there can be no assurance, it is
anticipated that the Securities would be quoted in the over-the-counter market
National Quotation Bureau "pink sheets" or on the NASD OTC Electronic Bulletin
Board. As a result, an investor may find it more difficult to dispose of, or
obtain, accurate quotations as to the market price of the Securities, which may
materially adversely affect the liquidity of the market for the Securities. In
addition, if the Securities are delisted from Nasdaq they might become subject
to the low-priced security or so-called "penny stock" rules that impose
additional sales practice requirements on broker-dealers who sell such
securities. For any transaction involving a penny stock the rules require, among
other things, the delivery, prior to the transaction, of a disclosure schedule
required by the Securities and Exchange Commission (the "Commission") relating
to the penny stock market. The broker-dealer also must disclose the commissions
payable to both the broker-dealer and the registered representative and current
quotations for the securities. Finally, monthly statements must be sent
disclosing recent price information for the penny stocks held in the customer's
account.
Although the Company believes that the Securities will not be defined as a
penny stock due to their anticipated inclusion on Nasdaq, in the event the
securities subsequently become characterized
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as a penny stock, the market liquidity for the Securities could be severely
affected. In such an event, the regulations relating to penny stocks could limit
the ability of broker-dealers to sell the Securities and, thus, the ability of
purchasers in this offering to sell their Securities in the secondary market.
Current Prospectus and State Registration Required to Exercise Redeemable
Warrants. The Redeemable Warrants are not exercisable unless, at the time of
exercise, the Company has a current prospectus covering the shares of Common
Stock issuable upon exercise of the Redeemable Warrant and such shares have been
registered, qualified or deemed to be exempt under the securities or "blue sky"
laws of the state of residence of the exercising holder of the Redeemable
Warrants. In addition, in the event that any holder of the Redeemable Warrants
attempts to exercise any Redeemable Warrants at any time after nine months from
the date of this Prospectus, the Company will be required to file a
post-effective amendment to the Registration Statement of which this Prospectus
is a part and deliver a current prospectus before the Redeemable Warrants may be
exercised. Although the Company has undertaken to use its best efforts to have
all of the shares of Common Stock issuable upon exercise of the Redeemable
Warrants registered or qualified on or before the exercise date and to maintain
a current prospectus relating thereto until the expiration of the Redeemable
Warrants, there is no assurance that it will be able to do so. The value of the
Redeemable Warrants may be greatly reduced if a current prospectus covering the
Common Stock issuable upon the exercise of the Redeemable Warrants is not kept
effective or if such Common Stock is not qualified or exempt from qualification
in the states in which the holders of the Redeemable Warrants then reside. The
Redeemable Warrants will be separately tradeable immediately upon issuance and
may be purchased separately from the Common Stock. Although the Securities will
not knowingly be sold to purchasers in jurisdictions in which the Securities are
not registered or otherwise qualified for sale, investors may purchase the
Redeemable Warrants in the secondary market or may move to jurisdictions in
which the shares underlying the Redeemable Warrants are not registered or
qualified during the period that the Redeemable Warrants are exercisable. In
such event, the Company will be unable to issue shares to those persons desiring
to exercise their Redeemable Warrants unless and until the shares are qualified
for sale in jurisdictions in which such purchasers reside, or an exemption from
such qualification exists in such jurisdictions, and holders of the Redeemable
Warrants would have no choice but to attempt to sell the Redeemable Warrants in
a jurisdiction where such sale is permissible or allow them to expire
unexercised. See "Description of Securities--Redeemable Warrants."
Speculative Nature of Redeemable Warrants; Adverse Effect of Possible
Redemption of Redeemable Warrants. The Redeemable Warrants do not confer any
rights of Common Stock ownership on the holders thereof, such as voting rights
or the right to receive dividends, but rather merely represent the right to
acquire shares of Common Stock at a fixed price for a limited period of time.
Specifically, holders of the Redeemable Warrants may, immediately upon issuance,
exercise their right to acquire Common Stock and pay an exercise price of $6.00
per share, subject to adjustment in the event of certain dilutive events, prior
to 60 months from the date of this Prospectus, after which date any unexercised
Redeemable Warrants will expire and have no further value. There can be no
assurance that the market price of the Common Stock will ever equal or exceed
the exercise price of the Redeemable Warrants, and consequently, whether it will
ever be profitable for holders of the Redeemable Warrants to exercise the
Redeemable Warrants.
The Redeemable Warrants are subject to redemption by the Company, with the
consent of the Underwriter, at any time, commencing 12 months following the date
of this Prospectus, on 30 days prior written notice, at a price of $0.10 per
Redeemable Warrant, provided that the average closing bid price for the Common
Stock equals of exceeds $8.00 per share for any 20 trading days within a period
of 30 consecutive trading days ending on the fifth trading day prior to the date
of the notice of redemption. Redemption of the Redeemable Warrants could force
the holders thereof to exercise the Redeemable Warrants and pay the exercise
price at a time when it may be disadvantageous for such holders to do so, to
sell the Redeemable Warrants at the current market price when they might
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otherwise wish to hold the Redeemable Warrants or to accept the redemption
price, which may be substantially less than the market value of the Redeemable
Warrants at the time of redemption. The holders of the Redeemable Warrants will
automatically forfeit their rights to purchase shares of Common Stock issuable
upon exercise of the Redeemable Warrants unless the Redeemable Warrants are
exercised before they are redeemed. See "Description of Securities--Redeemable
Warrants."
Shares Eligible For Future Sale. Upon completion of this Offering, the
Shares and Redeemable Warrants will be freely tradeable unless acquired by
affiliates of the Company. The remaining 2,307,070 shares of Common Stock and
Series B Warrant to purchase 3,500,000 shares of Common Stock which will be
outstanding upon consummation of the Offering were issued by the Company in
private transactions in reliance upon the "private placement" exception under
Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act") at
various times between February 1994 and September 1996, and are therefore
"restricted securities" within the meaning of Rule 144 promulgated under the
Securities Act ("Restricted Securities"). The market price of the Shares and/or
Redeemable Warrants of the Company could be adversely affected by the sale of
substantial amounts of Common Stock in the public market following the Offering.
No prediction can be made as to the effect that future sales of Common Stock and
of the availability of the shares of Common Stock for future sale will have on
the market prices of the Shares and the Redeemable Warrants prevailing from time
to time. The Redeemable Warrants being offered by the Company entitle the
holders of such Redeemable Warrants to purchase up to an aggregate of 4,000,000
shares of Common Stock at any time during the period commencing on the date of
this Prospectus and expiring 60 months from the date of this Prospectus. Sales
of either the Redeemable Warrants or the underlying shares of Common Stock, the
exercise of the Series B Warrant or even the existence of the Redeemable
Warrants or the Series B Warrant, may depress the price of the Common Stock or
the Redeemable Warrants in any market which may develop for such securities. See
"Description of Securities--Redeemable Warrants." All of the current holders of
the Common Stock (including shares upon the exercise of outstanding options)
have agreed that they will not offer to sell, pledge, contract to sell or
otherwise attempt to transfer or dispose of any beneficial interest in any
shares of Common Stock for a period of 13 months from the date of this
Prospectus (the "Lock-up Period") without the prior written consent of the
Underwriter. Upon the termination of the Lock-up Period, approximately 1,163,462
Restricted Securities will be immediately eligible for sale in the public market
in reliance on Rule 144. In addition, certain shareholders have the right to
register shares of Common Stock and the Series B Warrant. See "Shares Eligible
for Future Sale."
Authorization of Preferred Stock; Anti-Takeover Protections. The Company's
Articles of Incorporation, as amended (the "Articles"), authorize the issuance
of "blank check" preferred stock with such designations, rights and preferences
as may be determined from time to time by the Company's Board of Directors (the
"Board"). Accordingly, the Board is empowered, without shareholder approval, to
issue preferred stock with dividend, liquidation, conversion, voting or other
rights which could adversely affect the voting power or other rights of the
holders of the Common Stock (including those of the purchasers in the Offering).
Holders of the Common Stock will have no preemptive rights to subscribe for a
pro rata portion of any capital stock which may be issued by the Company. In the
event of issuance, such preferred stock could be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing a change in
control of the Company. Although the Company has no present intention to issue
any shares of preferred stock, there can be no assurance that the Company will
not do so in the future. See "Description of Securities." Furthermore, the
Company is subject to certain anti-takeover provisions of the Pennsylvania
Business Corporation Law of 1988, as amended (the "BCL"). The existence of these
provisions would be expected to have an anti-takeover effect, including possibly
discouraging takeover attempts that might result in a premium over the market
price for the Common Stock. See "Description of Securities--Pennsylvania
Anti-Takeover Laws."
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USE OF PROCEEDS
The net proceeds from the sale of the Securities offered by the Company
hereby, after deducting the underwriting discount and estimated offering
expenses, will be approximately $5,300,000 (or approximately $6,100,000 if the
Underwriter exercises its over-allotment option in full), assuming an initial
public offering price of $5.00 per share of Common Stock and $0.50 per
Redeemable Warrant. The Company intends to use the net proceeds as follows:
Approximate Approximate
Amount Percent
---------- -----------
Repayment of Debentures(1) .................. $ 829,229 16%
Repayment of Certain Other Outstanding
Indebtedness(2) ............................. 412,080 8
Redemption of Preferred Stock(3) ............ 721,237 14
Marketing and Sales(4) ...................... 1,500,000 28
Capital Expenditures(5) ..................... 750,000 14
Working capital ............................. 1,087,454 20
---------- ----
Total .................................... $5,300,000 100%
========== ====
- ----------
(1) Reflects repayment of the Company's Debentures, including all accrued and
unpaid interest outstanding at an assumed repayment date of November 30,
1996. See "Certain Transactions--Private Placements."
(2) Consists of the amount outstanding at June 30, 1996 pursuant to the SBA
Loan, which was issued on January 17, 1995 and accrues interest at a rate
equal to the prime rate plus 2% (effective rate of 10.25% at June 30,
1996).
(3) Payment of principal and all accrued dividends at an assumed repayment date
of November 30, 1996 in connection with the mandatory redemption of the
Company's Series B Preferred Stock upon the consummation of the Offering.
See "Description of Securities--Preferred Stock."
(4) Consists of anticipated expenditures in connection with hiring additional
sales personnel, including a sales manager, advertising, attendance at
trade shows, public relations activities and merchandising activities. Also
includes, anticipated expenses in connection with the potential acquisition
by the Company of existing brewpubs and/or the development of new brewpubs.
(5) Consists of anticipated expenditures in connection with the purchase of
additional fermenting equipment, kegs and laboratory equipment for testing
facilities.
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The initial application of the net proceeds of the Offering represents
management's estimate based upon current business and economic conditions.
Although the Company does not contemplate material changes in the proposed
allocation of the use of proceeds, to the extent the Company finds that an
adjustment is required by reason of existing business conditions, the amounts
shown may be adjusted among the uses indicated above.
The Company believes that the net proceeds of the Offering will be
sufficient to finance its activities for at least 12 months following the date
of this Prospectus; however, there can be no assurance that such net proceeds
will be sufficient to finance the Company's operations for such period. See
"Risk Factor-Possible Need For Additional Financing" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
To the extent that the Company's expenditures are less than projected
and/or the net proceeds of the Offering increase as a result of the exercise by
the Underwriter of its over-allotment option, or as a result of the exercise of
the Redeemable Warrants, the resulting balances will be used for the purposes
set forth above and/or for other general working capital expenses. The net
proceeds of the Offering that are not expended immediately will be deposited in
interest-bearing accounts, or invested in government obligations, certificates
of deposit or similar short-term, low risk investments.
DIVIDEND POLICY
The Company has never paid cash or other dividends and does not expect to
pay any cash or other dividends in the foreseeable future with respect to its
Common Stock. The Company's future dividend policy will depend upon the
Company's earnings, capital requirements, financial condition and other factors
considered relevant by the Company's Board of Directors (the "Board"). The
Company presently intends to retain any earnings which the Company may realize
in the foreseeable future to finance the growth of the Company.
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DILUTION
After giving effect to the Private Placements, the Company had a pro forma
negative net tangible book value of $(23,481) or $(0.01) per share as of June
30, 1996. Net tangible book value per share is equal to the total tangible
assets of the Company less total liabilities, divided by the number of shares of
Common Stock outstanding. After giving effect to the receipt of the net proceeds
from the sale of the Securities offered hereby (after deducting the underwriting
discount and estimated offering expenses) and the initial application of the net
proceeds therefrom, the pro forma net tangible book value of the Company at June
30, 1996 would have been $5,166,053 or $1.61 per share, representing an
immediate dilution of $3.39 (or approximately 68%) per share to the public
investors as illustrated by the following table:
Assumed initial public offering
price per share of Common Stock........................... $5.00
Pro forma negative net tangible book value per share
of Common Stock before the Offering................. $(0.01)
Increase in pro forma net tangible book value per
share of Common Stock attributable to public
investors........................................... $ 1.62
------
Pro forma net tangible book value per share of
Common Stock after the Offering..................... $1.61
----
Dilution per share of Common Stock to public investors(1).... $3.39
====
- --------------
(1) In the event that the Underwriter exercises its over-allotment option in
full, the pro forma net tangible book value after this Offering would be
approximately $1.85 per share, which would result in immediate dilution in
pro forma net tangible book value to public investors of approximately
$3.15 per share.
The following table sets forth, as of the date of this Prospectus, the
number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the average price per share paid by
existing shareholders and by new investors purchasing shares of Common Stock
from the Company in this Offering.
<TABLE>
<CAPTION>
Number of Percent Percent of Total
Shares of Total Total Consid- Consider- Average Price
Purchased Shares eration Paid ation Paid Per Share
--------- ------ ------------ ---------- ---------
<S> <C> <C> <C> <C> <C>
Present Shareholders........... 2,307,070 72% 20% $1,138,974 $ 0.49
Public Investors............... 900,000 28% 80% 4,500,000(1) $ 5.00
--------- --- --- ---------
Total.......................... 3,207,070 100% 100% $5,638,974
========= === === =========
</TABLE>
- ----------
(1) Allocates no value to the Redeemable Warrants offered hereby.
The foregoing table assumes no exercise of the Redeemable Warrants or any
stock options. To the extent that any options issued by the Company in the
future or the Redeemable Warrants are exercised, there may be further dilution
to the new investors in this Offering.
-18-
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at June
30, 1996. This information should be read in conjunction with the financial
statements and the notes thereto which are included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
June 30, 1996
-----------------------------------------------
Pro Forma,
Actual Pro Forma(1) As Adjusted(1)(2)
----------- ----------- -----------------
<S> <C> <C> <C>
Short-term debt, including current portion of long-term debt $ 484,140 $ 120,840 $ 43,788
=========== =========== ===========
Long-term debt ............................................. $ 520,152 $ 1,320,152 $ 185,124
Series A Preferred Stock, $10.00 par value,
500,000 shares authorized; no shares
issued and outstanding, actual and pro forma; and no
shares issued and outstanding, pro forma as adjusted .... -- -- --
Series B Preferred Stock, $10.00 par value,
500,000 shares authorized; no shares issued and
outstanding, actual; 70,000 shares issued
and outstanding, pro forma and no shares
issued and outstanding, pro forma as adjusted ........... -- 700,000 --
Shareholders' equity:
Common Stock, no par value, 19,000,000
shares authorized, 1,176,715 shares
issued and outstanding, actual; 2,307,070
shares issued and outstanding,
pro forma; and 3,207,070 shares
issued and outstanding, pro forma as adjusted ......... 261,188 3,639,052 8,939,052
Accumulated deficit ..................................... (494,121) (515,616) (3,740,646)
----------- ----------- -----------
Total shareholders' equity ................................. (232,933) 3,123,436 5,198,406
----------- ----------- -----------
Total capitalization ....................................... $ 287,219 $ 5,143,588 $ 5,383,530
=========== =========== ===========
</TABLE>
- ----------
(1) Gives pro forma effect to (i) $800,000 of Debentures sold, including
$1,245,825 of original issue discount associated with the Series A
Warrants, (ii) $700,000 of Series B Preferred Stock sold, including
$1,868,739 of original issue discount associated with the Series C Warrant,
(iii) conversion of $263,300 of subordinated convertible notes and the
write off of unamortized original issue discount of $21,495; and (iv) the
redemption of fractional shares aggregating approximately 11 shares of
Common Stock at $5.00 per share. See "Certain Transactions--Private
Placements."
(2) Gives effect on an as adjusted basis to (i) the sale of 900,000 shares of
Common Stock and 4,000,000 Redeemable Warrants in connection with this
Offering at the assumed initial public offering prices of $5.00 and $.50,
respectively, (ii) repayment of the Company's SBA Loan of $412,080,
(iii) repayment of the $800,000 of Debentures and actual interest of
$29,229, plus the write off of unamortized original issue discount of
$1,245,825 and write off of deferred financing costs of approximately
$32,000 and (iv) redemption of $700,000 of Series B Preferred Stock and
accrued dividends of $21,237, plus the write off of unamortized original
issue discount of $1,868,739 and write off of deferred financing costs of
approximately $28,000. See "Use of Proceeds."
-19-
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below for the Company's statement of
operations data for the period from March 17, 1994 (inception) through December
31, 1994 and for the year ended December 31, 1995 and the balance sheet data at
December 31, 1995 are derived from the audited financial statements of the
Company which appear elsewhere in this Prospectus. The statement of operations
data for the six months ended June 30, 1996 and June 30, 1995 and the balance
sheet data at June 30, 1996 are derived from unaudited financial statements
which appear elsewhere in this Prospectus. In the opinion of the Company's
management, all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the information set forth therein have been made.
The results of operations for the most recent interim period are not necessarily
indicative of the Company's financial results for the entire current fiscal
year. The selected financial data should be read in conjunction with the
financial statements and the notes thereto and Management's Discussion and
Analysis of Financial Condition and Results of Operations, which are included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
May 17, 1994
(inception) to Year Ended Six Months Ended
December 31, December 31, ----------------
1994 1995 June 30, 1995 June 30, 1996
-------------- ----------- ------------- -------------
<S> <C> <C> <C>
Statement of Operations Data:
Sales ................................. -- $ 237,644 $ 43,516 $ 277,326
Excise taxes .......................... -- 13,338 2,000 11,193
----------- ----------- -----------
Net sales ........................... -- 224,306 41,516 266,133
Cost of goods sold .................... -- 486,229 212,485 388,685
----------- ----------- -----------
Gross loss .......................... -- (261,923) (170,969) (122,552)
Advertising, promotional and selling
expenses ............................. -- 93,039 46,206 74,926
General and administrative expenses ... $ 38,538 278,565 173,119 191,756
----------- ----------- ----------- -----------
Operating loss ...................... (38,538) (633,527) (390,294) (389,234)
Interest expense ...................... -- 51,729 28,807 51,453
Other income (expense), net ........... 2,427 38,450 3,327 21,684
----------- ----------- ----------- -----------
Loss before income taxes ............ (36,111) $ (646,806) $ (415,774) $ (419,003)
Income taxes(1) ....................... 1,496 893 --
----------- ----------- ----------- -----------
Net loss ............................ $ (36,111) $ (648,302) $ (416,667) $ (419,003)
=========== =========== =========== ===========
Net loss per share of Common Stock .... $ (0.02) $ (0.30) $ (0.21) $ (0.19)
=========== =========== =========== ===========
Weighted average shares outstanding(2) 1,712,656 2,136,463 2,008,511 2,212,133
</TABLE>
June 30, 1996
December 31 --------------------------
----------- Pro Forma,
1995 Actual As Adjusted (3)
------------ ----------- ---------------
Balance Sheet Data:
Working capital (deficit) ......... $ (237,543) $ (696,623) $ 4,421,183
Total assets ...................... 1,104,126 1,167,192 5,823,151
Total liabilities ................. 948,587 1,400,125 624,745
Shareholders' equity (deficiency).. 155,539 (232,933) 5,198,406
(1) The Company had elected to be taxed pursuant to Subchapter S of the
Internal Revenue Code of 1986, as amended, for the year ended December 31,
1995, but on December 1, 1995, the Company exceeded the maximum number of
shareholders as permitted under Subchapter S. Accordingly, all taxable
income or loss and tax credits are the responsibility of the Company's
shareholders for the period from January 1, 1995 through November 30, 1995.
The Company terminated its Subchapter S election and is now taxed as a C
corporation, effective
-20-
<PAGE>
December 1, 1995. Effective with the change to a C corporation, the Company
accounts for its income taxes in accordance with SFAS No. 109, Accounting
for Income Taxes. Income taxes reported for the year ended December 31,
1995 represents federal and state income taxes prior to 1995 when the
Company was taxed as a C corporation.
(2) Loss per share of Common Stock was computed based on the weighted average
number of common shares and common share equivalents outstanding during the
year, as restated for the 100% stock dividend, effected in the form of a
stock split, payable on February 10, 1996 for shareholders of record on
December 6, 1995. In August and September 1996, 1,038,188 shares issued
have been treated as outstanding for all periods in calculating loss per
common share because such shares were issued for consideration below the
proposed public offering price of $5.00 per share.
(3) Gives effect on an as adjusted basis to (i) the sale of 900,000 shares of
Common Stock and 4,000,000 Redeemable Warrants in connection with this
Offering at the assumed initial public offering prices of $5.00 and $.50,
respectively, (ii) repayment of the Company's SBA Loan of $412,080,
(iii) repayment of the $800,000 of Debentures and accrued interest of
$29,229, plus the write off of unamortized original issue discount of
$1,245,825 and write off of deferred financing costs of approximately
$32,000 and (iv) redemption of $700,000 of Series B Preferred Stock and
accrued dividends of $21,237, plus the write off of unamortized original
issue discount of $1,868,739 and write off of deferred financing costs of
approximately $28,000. See "Use of Proceeds."
-21-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis of financial condition and results of
operations is intended to assist in understanding the financial condition and
results of operations of the Company. The information contained in this section
should be read in conjunction with the financial statements and accompanying
notes thereto and the other sections contained in the Prospectus.
Overview
Independence Brewing Company was incorporated in May 1994 and began
distribution of its Independence Ale in kegs and bottles in May 1995 and June
1995, respectively. The Company's brewery, located in Philadelphia,
Pennsylvania, was completed and became operational in late February 1995 and
commenced brewing in March 1995. For the period from June 1994 through February
1995, the Company's principal activity was the raising of capital, securing
third party financing and completing construction of its brewing facility. The
Company currently produces three styles of beer, Independence Ale, Independence
Lager and Independence Gold, one seasonal beer, Independence Franklinfest, and
anticipates commencing production of one porter, Independence Porter, by the end
of 1996. The Company currently has the capacity to brew approximately 12,000-
14,000 barrels per year, which in part is dependent on the style of beer
produced. For the six months ended June 30, 1996, gross sales totaled $277,326
on 1,907 barrels of production, as compared to gross sales of $43,516 for the
comparable period in 1995 on 303 barrels of production. For the year ended
December 31, 1995, gross sales totaled $237,644 on 1,414 barrels of production.
The Company had no sales for the period from May 17, 1994 (inception) through
December 31, 1994. The Company believes that period-to-period comparisons of its
financial results should not be relied upon as an accurate indicator of future
performance. The Company's revenues are generated predominantly from sales of
beer to independent third party wholesale distributors. In addition, the Company
derives revenues from the sale of its products directly to retailers and from
contract brewing arrangements in which the Company produces beers for third
parties which market and sell such products under their own label. For the six
month period ended June 30, 1996, approximately 17% of the Company's revenues
resulted from its contract brewing operations.
The Company is currently operating a refurbished bottling line which does
not include all originally manufactured parts. Incompatibility in
re-manufactured parts has resulted in unanticipated machine down-time, decreased
bottling capacity and problems with the adhesion of product labels to bottles.
Under normal circumstances, using originally manufactured parts, the Company's
current bottling line has the capacity to fill 300 bottles per minute. However,
due to the unanticipated problems, the bottling line has been able to fill only
35 bottles per minute. In addition, the Company has experienced problems with
product labels falling off during production. As the Company has grown, demand
for the Company's products has at times exceeded its bottling capacity. This
increase in demand in conjunction with the Company's limited bottling capacity
has affected the Company's sales. In addition, this decreased capacity has
resulted in spreading smaller revenue over existing fixed and semi-variable
costs, which has negatively impacted the Company's operating margins. The
Company anticipates purchasing a new bottling line which will significantly
increase the Company's bottling capacity and alleviate its labeling problems.
The Company recently paid a $30,000 deposit on this new bottling line. See "Risk
Factors--Unanticipated Manufacturing Limitations" and "Certain
Transactions--Private Placements."
-22-
<PAGE>
In addition to the level of consumer demand and the availability of
bottling capacity, the Company's sales are also affected by other factors such
as new product introductions, wholesaler promotions and competitive
considerations. Sales in the beer industry generally reflect a degree of
seasonality, with lower sales in the first quarter of the calendar year due to
decreased consumption of beer after the holiday season. The Company operates
with little or no backlog of orders because of distributor demand for immediate
inventory and its ability to predict sales in future periods has, to date, been
limited.
The Company's capacity utilization has a significant impact on gross
profits. Most capital costs associated with building a brewery and fixed and
semi-variable costs related to operating a brewery are incurred prior to or
beginning upon commencement of production at the brewery. Because the initial
production level has been substantially below the brewery's maximum designed
production capacity, gross margins have been negatively impacted. The Company
expects this impact to be reduced as the brewery's actual production increases.
In addition, the Company expects the incremental costs of shipping beer from the
Company's existing brewery will continue to increase as the volume of beer
supplied to more distant markets increases.
Results of Operations
Six Months Ended June 30,1995 Compared to Six Months Ended June 30, 1996
Sales. Gross sales increased from $43,516 in the first six months of 1995
to $277,326 for the same period in 1996. The substantial increase in gross sales
was due in part to the Company's commencing distribution of its beer products in
May of 1995 and to a greater extent, the expansion of the Company's third party
wholesale distribution network from four distributors at June 30, 1995 to 17
distributors at June 30, 1996. This revenue increase reflected an increase in
sales volume from 303 barrels in the first six months of 1995 to 1,907 barrels
for the same period in 1996, with relatively stable sales prices.
Excise taxes. Excise taxes increased from $2,000 in the first six months of
1995 to $11,193 for the same period in 1996, reflecting the increased level of
sales volume on which federal and certain local excise taxes are paid. Excise
taxes as a percentage of sales declined in the first six months of 1995 as
compared to the same period in 1996 as a result of increased shipments to
jurisdictions where local excise taxes are paid by the third party wholesale
distributor rather than the brewer, as is the case in Maryland and the District
of Columbia.
Cost of goods sold. Costs of goods sold increased from $212,485 in the
first six months of 1995 to $388,685 for the same period in 1996, primarily due
to the increase in sales volume in 1996. Costs of goods sold as a percentage of
sales declined in the first six months of 1995 as compared to the same period in
1996, primarily due to increased sales which reduced per barrel fixed and
semi-variable costs associated with operating the brewery. Increases in raw
materials costs and utility costs from the first six months of 1995 compared to
the same period in 1996 are associated with increased sales and the utilization
of the production facility from the time the Company commenced brewing in March
1995. Repairs and maintenance increased from $6,676 for the six months ended
June 30, 1995 to $ 20,090 for the same period in 1996 due primarily to repairs
and maintenance related to the Company's bottling line.
Advertising, promotional and selling expenses. Advertising, promotional and
selling expenses increased from $46,206 in the first six months of 1995 to
$74,926 for the same period in 1996. Advertising, promotional and selling
expenses as a percentage of sales declined in the first six months of 1995 as
compared to the same period in 1996, primarily due to initial purchases of
-23-
<PAGE>
promotional items, such as apparel and other retail items used by third party
wholesale distributors made in the first six months of 1995 which were not made
in the comparable period.
General and administrative expenses. General and administrative expenses
increased from $173,119 in the first six months of 1995 to $191,756 for the same
period in 1996. General and administrative expenses as a percentage of sales
declined from the first six months of 1995 compared to the same period in 1996.
Increases in professional fees from $8,914 for the first six months ended June
30, 1995 to $49,089 in 1996 in connection with financing activities and other
relative small increases in general and administrative expenses as compared to
the increased level of sales represented the primary increases.
Interest expense. Interest expense increased from $28,807 in the first six
months of 1995 to $51,453 for the same period in 1996, due to the increase in
subordinated convertible notes from $0 at June 30, 1995 to $263,300 at June 30,
1996 and the amortization of deferred financing costs associated with these
obligations.
Other income (expense), net. Other income (expense), net increased from
$3,327 in the first six months of 1995 to $21,684 for the same period in 1996,
due primarily to event income received from two Company sponsored events held in
1996.
Year Ended December 31, 1995
The Company was incorporated in May 1994 and commenced brewing beer in
March 1995. The Company began distributing its Independence Ale in kegs and
bottles in May 1995 and June 1995, respectively. Therefore, the comparison of
the year ended December 31, 1994 to the year ended December 31, 1995 is not
meaningful and accordingly has not been presented.
Sales. Gross sales totaled approximately $237,644 for the year ended
December 31, 1995 on 1,415 barrels of production and relatively stable
sales prices.
Excise taxes. Excise taxes totaled approximately $13,338 for the year ended
December 31, 1995. The Company pays federal and certain local
excise taxes on sales volume. Accordingly, as sales increase excise taxes paid
by the Company will increase unless the Company increases shipments to
jurisdictions where local excise taxes are paid by the third party wholesale
distributor rather than the brewer, as is the case in Maryland and the District
of Columbia.
Cost of goods sold. Cost of goods sold totaled approximately $486,229 for
the year ended December 31, 1995. Raw materials costs and utility costs totaled
$183,250 for the year ended December 31, 1995. Repairs and maintenance totaled
$19,312 for the year ended December 31, 1995 as repairs and maintenance relating
to the Company's bottling line continued.
Advertising, promotional and selling expenses. Advertising, promotional and
selling expenses totaled $93,039 for the year ended December 31, 1995.
Advertising, promotional and selling expenses as a percentage of sales was 39%
for the year ended December 31, 1995. During 1995, the Company made initial
purchases of promotional items, such as apparel and other retail items used by
wholesale distributors.
General and administrative expenses. General and administrative expenses
totaled $278,565 for the year ended December 31, 1995. General and
administrative expenses as a percentage of sales was 117% for the year ended
December 31, 1995. Professional fees totaled $24,816 for the year ended December
31, 1995. Also included in general and administrative
-24-
<PAGE>
expenses for the year ended December 31, 1995, is $15,000 of non-cash
compensation paid to certain individuals who received Common Stock value at
$3.00 per share.
Interest expense. Interest expense totaled $51,729 for the year ended
December 31, 1995. Interest expense as a percentage of sales was 21.8% for the
year ended December 31, 1995. This interest is associated with the Company's SBA
Loan and Philadelphia Industrial Development Corporation ("PIDC") notes and to a
lesser extent the Company's subordinated convertible notes of $75,000, which
were originated in late December 1995.
Other income (expense), net. Other income (expense), net totaled $38,450
for the year ended December 31, 1995. Other income (expense), net as a
percentage of sales was 16.2% for the year ended December 31, 1995. Other income
(expense),net primarily represents income received from two Company sponsored
events held in 1995.
Liquidity and Capital Resources
To date, the Company has funded its operations and capital requirements
through the issuance of Common Stock, the SBA Loan and PIDC debt and issuance of
certain subordinated convertible notes in 1995 and during the six months ended
June 30, 1996. Net cash used in operating activities in 1995 and for the six
months ended June 30, 1996 was $444,663 and $247,918, respectively. Net cash
used in operating activities was primarily generated by net losses for the
respective periods and increases in the Company's accounts payable and accrued
expenses.
Net cash used in investing activities in 1994 and 1995 and for the six
months ended June 30, 1996 was $610,003, $413,709 and $40,143, respectively.
Cash used in investing activities was primarily for the purchase of fixed assets
relating to brewery equipment and other equipment. The Company expects to incur
approximately $700,000 of additional capital expenditures in the second half of
1996 for the purchase of additional kegs and the replacement of the Company's
bottling line. The Company has paid a deposit of $30,000 toward this new
bottling line. See "Use of Proceeds" and "Certain Transactions--Private
Placements." Net cash provided by financing activities in 1994 and 1995 and for
the six months ended June 30, 1996 was $598,994, $933,318 and $290,041,
respectively.
In anticipation of the closing of the financing transactions described
below (the "Private Placements"), the Company was advanced an aggregate of
$200,000 on May 6, 1996 and July 16, 1996, by Winfield to fund short term
operations. This advance was repaid in connection with the closing of the
Private Placements.
To fund operations, on August 12, 1996, September 13, 1996 and September
20, 1996, the Company sold an aggregate of $800,000 of debentures convertible
into shares of Series A Preferred Stock of the Company (the "Debentures") to
Winfield and certain shareholders of the Company (collectively referred to as
the "Purchasers"). To the extent that such shareholders did not so participate,
Winfield agreed to act as "standby" purchaser for the entire $800,000 in
Debentures being offered.
In consideration of the purchase by the Purchasers of the Debentures, the
Purchasers received warrants which entitled them to purchase 415,275 shares of
Common Stock for the aggregate exercise price of $2,076 (the "Series A
Warrants"). All of the Series A Warrants were exercised by the Purchasers on
September 13, 1996 and September 20, 1996. In addition, in consideration of the
purchase by Winfield of the Debentures, Winfield received (i) a warrant (the
"Preferred Warrant") that entitles Winfield to purchase 70,000 shares of Series
B Preferred Stock of the Company, par value $10.00 (the "Series B Preferred
Stock"), exercisable immediately for an
-25-
<PAGE>
aggregate exercise price of $700,000 and (ii) a warrant (the "Series C Warrant")
that entitles Winfield to purchase 622,913 shares of Common Stock for the
aggregate exercise price of $3,115. The Preferred Warrant and the Series C
Warrant were exercised by Winfield on September 13, 1996.
In consideration for agreeing to act as standby purchaser for the balance
of the Debentures not purchased by the Company shareholders and for agreeing to
allow all of the qualified shareholders of the Company to participate in the
purchase of the Debentures, Winfield received a warrant (the "Series B Warrant")
which entitles Winfield to purchase 3.5 million shares of Common Stock of the
Company at a price of $6.00 per share. The Series B Warrant is immediately
exercisable and expires five years following the Company's initial public
offering.
In connection with the Private Placements, Winfield received a $15,000
processing fee and a $45,000 commitment fee. In connection with the issuance and
anticipated repayment of the Debentures and the Series B Preferred Stock, the
Company will write off (i) unamortized original issue discount of $1,245,825 and
$1,868,739, respectively, and (ii) deferred financing costs of approximately
$32,000 and $28,000 relating to the Debentures and the Series B Preferred Stock,
respectively.
The Company had cash and cash equivalents at December 31, 1995 and June 30,
1996 of $2,782 and $4,762, respectively. The Company believes that cash flow
from the Private Placements will be sufficient to meet short-term liquidity
needs. Additionally, cash flow from the net proceeds from the Offering will be
used to redeem the Debentures and Series B Preferred Stock described above,
repay the SBA Loan, expand marketing and sales, pay certain capital expenditures
and pay working capital expenditures. See "Use of Proceeds."
During the period June 25, 1994 through December 1, 1995, the Company
offered for sale and sold to investors a total of 207,914 shares of Common Stock
(the "Original Shares"). During the period of December 1995 through May 1996,
the Company offered and sold to investors notes, convertible into shares of
Common Stock at maturity, in the aggregate principal amount of $263,300
(together with the Original Shares, the "Rescission Securities"). Because
certain of the applicable provisions of federal and state securities laws
relating to the registration of securities for offer and sale may have not been
complied with in connection with the offer and sale of the Rescission
Securities, the Company offered to repurchase the Rescission Securities for cash
in an amount equal to the original purchase price plus interest from the date of
purchase, less any dividends, interest payments or cash distributions in respect
to the Rescission Securities. The Company received rescission acceptances from
five shareholders whose investment totalled $24,750 for 9,000 shares of Common
Stock. On September 27, 1996, the Company repurchased such shares of Common
Stock for an aggregate purchase price, including interest, of $26,927.03. On
September 27, 1996, the Company also sold 9,000 shares of Common Stock to four
shareholders for an aggregate purchase price of $24,750. No underwriters were
involved and no commissions were paid.
Impact of Inflation
Although the Company has not attempted to calculate the effect of
inflation, management does not believe inflation has had a material effect on
its results of operations. Production and raw material costs are expected to
increase over time as a result of general economic inflation, and there can be
no assurance that the Company will be able to offset the resulting negative
effects on its business through increasing the sale prices of its product.
-26-
<PAGE>
Net Operating Loss Carryovers
As a result of the Offering, the Company will experience an "ownership
change" for purposes of determining its ability to use its net operating loss
("NOL") carryovers as deductions against future taxable income under federal
income tax law. Its annual NOL deductions after the Offering will be limited to
a dollar amount determined by multiplying the value of the Company's outstanding
stock as of the Offering date by an index rate determined under federal law. The
annual limitation is expected to be approximately $900,000.
-27-
<PAGE>
BUSINESS
General
Independence Brewing Company (the "Company") is a regional producer of
fresh, high-quality, preservative-free craft-brewed ales, lagers, porters and
seasonal beers. The Company's products are marketed under the "Independence"
label. The Company currently produces three styles of beer, Independence Ale,
Independence Lager and Independence Gold; one seasonal beer, Independence
Franklinfest, and anticipates commencing production of one porter, Independence
Porter, by the end of 1996. The Company brews, kegs and bottles its products at
its brewery in Philadelphia, Pennsylvania for wholesale distribution by
approximately 17 independent wholesale distributors in eight states and the
District of Columbia. The Company currently has the capacity to brew
approximately 12,000-14,000 barrels per year, which is in part dependent on
the style of beer produced. In addition to brewing its own products, the Company
has entered into contract brewing arrangements in which the Company produces
beers for third parties which market and sell such products under their own
label. The Company may also in the future develop and operate brewpubs with
third parties that offer for sale, in addition to food, the Company's beer
brewed on the premises.
Industry Background
The market for beer in the United States consists of essentially three
segments: economy beers, imports and craft-brewed beers. Economy beers are
brewed by the largest domestic producers, such as Anheuser-Busch, Miller, Coors
and Stroh, each of which measures yearly volume in tens of millions of barrels,
and mid-sized and regional breweries, each of which produces hundreds of
thousands of barrels per year. The second largest segment of the U.S. beer
market is the import segment, which accounted for approximately 6% of all U.S.
beer sales in 1995. This segment includes well known, widely promoted brands
such as Heineken, Amstel, Corona, Bass and Guinness, as well as hundreds of
lesser known brands from dozens of countries.
The third segment of the U.S. beer market, and the segment in which the
Company operates, is made up of craft-brewed beers. The craft-brewing segment
consists of small, independent brewers whose predominant product is
preservative-free, hand-crafted beer that is brewed with high-quality, fresh
ingredients. Craft-brewing refers to beers produced by microbreweries, regional
specialty breweries, brewpubs and contract brewers. Small breweries which
generally produce less than 15,000 barrels per year are referred to as
microbreweries. Those breweries which were founded as microbreweries, but have
since outgrown the category are referred to as regional specialty breweries.
Breweries that sell their beers exclusively or primarily at their own bar or
restaurant are referred to as brewpubs. Companies which do not have their own
brewery, but rather market beer produced "under contract" by an existing,
usually regional, brewery are referred to as contract brewers.
Craft beers are full-flavored beers brewed with quality hops, malted
barley, yeast and water without adjuncts such as rice, corn or stabilizers or
water dilution used to lighten beer and dilute flavor for mass production and
consumption. According to industry data, the craft-brewing segment of the
domestic beer market has had an annual average growth rate of approximately 46%
from 1986 through 1995 and, in 1995, the total combined sales for this segment
reached approximately 3.8 million barrels, with total share of the domestic beer
market, excluding exports, increasing to 2% from 1.3% in 1994.
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The Company believes that the growing demand for craft-brewed beers in the
United States is part of a broader shift in preferences on the part of a certain
segment of consumers from mass-produced products toward high-quality distinctive
foods and beverages. The Company also believes that the primary cause for the
rapid growth of craft-brewed beers is consumers' rediscovery of and demand for
more traditional, full-flavored beers. Before Prohibition, the domestic beer
industry consisted of hundreds of small breweries that brewed such full-flavored
beers. Since the end of Prohibition, large domestic breweries have shifted
production to milder, lighter beers, which use lower cost ingredients, and can
be mass-produced to take advantage of economies of scale in production and
advertising. This shift toward these mass-produced beers has coincided with the
consolidation in the beer industry. According to industry reports, the domestic
beer market is dominated by five large companies. Anheuser-Busch, Miller, Coors,
Stroh and G. Heileman Brewing Co. produced approximately 92.5% of the beer sold
in the domestic beer market, including the craft-brewed beer market, in 1995.
Per capita beer consumption in the United States has declined in all but
two of the last 10 years and consecutively for the last five years. The Company
believes that as consumers began to drink less beer, they focused their
consumption on more flavorful, full bodied or otherwise distinctive beers.
Initially, the Company believes that this demand was met by imported beers from
the Netherlands, Germany, Canada and Mexico. Beginning in the late 1980's and
early 1990's, a number of domestic craft-brewers began selling flavorful, more
full-bodied beers, usually in small local geographic markets, and often through
their own brewpubs. In response to increased demand for more flavorful beers,
the number of craft-brewed beers has increased dramatically. This growth has
also been fueled by craft-brewers' ability to (i) deliver locally produced beer
fresher than beer made far away, (ii) promote the notion that beers made in
small quantities from all natural ingredients is better than mass produced beer,
(iii) appeal to regional loyalties and (iv) capitalize on the growing consumer
interest in beer making and brewing history. Currently, there are more than 900
craft-brewers in the United States. In addition to the many microbrewers and
contract brewers, the three major brewers (Anheuser-Busch, Miller and Coors)
have all entered this market, either through developing their own specialty
beers or by acquiring or forming partnerships with existing craft-brewers.
Strategy
The Company's goal is to be one of the leading brewers of craft-brewed
beers in the United States. To attain this goal, the Company intends to employ
the following strategies:
Expand Product Offerings
The Company intends to develop new products in order to introduce beer
drinkers to various styles of beer and to promote the Company's products. These
new products allow the Company's customers to try new styles of beer while
remaining loyal to the Independence brand. New products also help the Company
generate increased distribution and retailer focus on the Company's products.
The Company currently produces four principal brands of beer, including one
seasonal beer, all marketed under the "Independence" label, and anticipates
commencing production of one porter by the end of 1996. The Company anticipates
adding additional seasonal beers as well as other "draft only" beers in the
future. In addition, in light of the minimal additional production costs, the
Company may produce an old-fashioned root beer soft-drink in the future.
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Increase Distribution Network
The Company currently distributes its products generally through 17
independent wholesale distributors for resale in bars, restaurants, liquor
stores and other retail liquor license holders in Pennsylvania, New Jersey,
Delaware, Virginia, Maryland, Florida, the District of Columbia and
Massachusetts. The Company plans to expand its network of distributors both
within its existing markets and to new markets. The Company anticipates hiring a
sales manager after the Offering to manage the growth and productivity of its
sales force. In order to service an increased distribution network and build
relationships with additional distributors, the Company intends to hire
additional sales representatives to motivate distributors to increase sales of
the Company's products and to stimulate retailer and consumer demand. The
Company intends to implement market penetration and sales goals with each new
distributor, to regularly monitor the achievement of such goals, to establish
effective incentive programs for the distributors and their sales forces, to
train the distributors' sales forces and to hold motivational sessions for them
and accompany distributor sales people on their sales calls.
Develop Consumer Awareness
The Company intends to supplement its wholesale distributors' marketing
efforts by increasing the public's awareness of the Independence brand in the
territories in which its beers are marketed. A key component of the Company's
marketing strategy is to provide opportunities for potential consumers to learn
about and sample the Company's beers. The Company may in the future open
brewpubs which offer for sale, in addition to food, the Company's beer brewed on
the premises. See "Use of Proceeds." In addition, the Company anticipates that
it will continue to sponsor beer events throughout the year, such as September's
"Great Barley Fest", the Halloween "Broo Party", the "Midwinter Blues & Brews"
and the "Big East Brew Review" in the Spring, which bring consumers to its
brewing facility and promote the Independence product line. Moreover, the
Company has built and is currently expanding its database of retailers and
end-users of the Company's products. The Company intends to utilize this
database in a direct mail program which will convey information concerning the
Company's products and beer events and other general information about brewery
happenings. The Company believes that consumers will frequent the Company's
brewpubs, attend such events and receive such Company literature, which the
Company believes will create a public awareness of the Company's products.
Develop Consumer Loyalty Through High-Quality Products
The Company believes that it can develop brand loyalty by producing
consistent high-quality products. The Company currently produces its beers under
the supervision of its Brewmaster, Mr. William Moore. The Company recently
received a bronze medal for the Company's Independence Gold brand at the 1996
Association of Brewers' international beer competition, The World Beer Cup. In
addition, the Company leases and operates its owns brewing facilities to
optimize the quality and consistency of its products and to achieve the greatest
control over its production costs. The Company uses high-quality natural
ingredients in its brewing process and employs third party testing laboratories
to assure that high-quality standards are maintained. Management believes that
its award-winning Brewmaster, its emphasis on product quality and its control
over its production process are critical competitive advantages which have
resulted in superior quality award winning products. The Company intends to
capitalize on its high-quality products to build brand loyalty.
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Products
The Company produces a variety of unpasteurized full-flavored craft beers
using traditional European brewing methods which do not employ any cereal
adjuncts, syrups, sugars, additives or preservatives. The Company brews its
beers using high-quality two row malts, specialty roasted malts, imported and
domestic hops, cultured ale or lager yeast strains and other natural
ingredients. All of the Company's product formulas and brewing procedures have
been developed by Mr. William Moore. Mr. Moore has extensive experience in
product formulation. The Company recently received a bronze medal for its
Independence Gold brand at the Association of Brewers' 1996 international beer
competition, The World Beer Cup. In addition, while at Stoudt Brewery, a craft-
brewer in Adamstown, Pennsylvania, Mr. Moore produced beers which won seven
gold, six silver, and one bronze medal during the United States' largest
domestic beer festival, The Great American Beer Festival(R).
The Company presently produces three principal and one seasonal brand, each
with its own distinctive combination of flavor, color and clarity. In addition,
the Company intends to commence production of a porter by the end of 1996. For
the six month period ended June 30, 1996, approximately 70% of the Company's
revenue resulted from sales of Independence Ale and Independence Gold. The
Company's current product offerings include:
Independence Ale. A pale ale with both English and American influences,
Independence Ale is light amber in color due to the recipe's specialty
malts. This ale is made from two row malt and four specialty malts, plus a
touch of wheat, and three varieties of hops. It is full-bodied and has a
hoppy flavor with a dry nutty finish.
Independence Gold. Independence Gold has a golden color and a full-bodied
taste resulting from four distinctive malts. This beer has three different
kinds of hops which results in a clean, crisp finish.
Independence Lager. A full-bodied European-style lager with medium
bitterness, Independence Lager has a slight malt sweetness and a deep, rich
gold color. This lager is made from four different malts and three
varieties of domestic and imported hops resulting in a very clean taste
with a pleasant finish.
Independence FranklinFest. Independence Franklinfest is the Company's
version of a traditional Marzen style lager/Octoberfest. Light copper in
color and a nice malt sweetness. Rich, creamy and full bodied, Franklinfest
is brewed with seven different malts and three varieties of imported and
domestic hops, as well as authentic Bavarian lager yeast.
The Company anticipates brewing one porter by the end of 1996:
Independence Porter. Independence Porter will be a traditional American
porter brewed with five different malts resulting in a crisp dry finish.
This brew will contain roasted and chocolate malts and will be lightly
hopped. The chocolate malts will help give this porter a rich brown color.
In an effort to be responsive to changing consumer style and flavor
preferences, the Company engages continually in the development and testing of
new products. The Company believes that the continued success of craft brewers
will increasingly depend upon their ability to be innovative and attentive to
consumer desires for new and distinctive taste experiences. The Company's
brewing equipment enables it to develop and produce small batches of
experimental
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beer within 14 to 28 days for tasting, testing and analysis by management. The
Company intends to continue to introduce new and different seasonal brews from
time to time utilizing new and possibly exotic ingredients which it hopes will
appeal to its target market.
Brewing Facility
In November 1994, the Company leased a 32,000 square foot facility on
approximately 3.5 acres in Philadelphia, Pennsylvania and hired brewery
engineers to design and install a brewery to meet its special requirements.
Production began in February 1995 and the facility currently has an annual
capacity of 12,000-14,000 barrels, which is dependent in part on the style of
products produced. With the Company's anticipated new bottling line, this
capacity may be incrementally expanded by the addition of fermentation tanks,
finishing tanks and refrigeration equipment, at the existing facility.
Brewing Operations
Brewing Process. Beer is made primarily from four natural ingredients:
malted grain, hops, yeast and water. The grain most commonly used in brewing is
barley, owing to its distinctive germination characteristics, which make it easy
to ferment. The Company believes that it uses the finest barley crops, typically
using strains having two rows of grain in each ear. A wide variety of hops may
be used to add balance to the brew; some varieties best confer bitterness, while
others are chosen for their ability to impart distinctive aromas to the beer.
Nearly all the yeasts used to induce or augment fermentation of beer are of the
species Saccharomyces cerevisiae and Saccharomyces carlesbergenes, the
top-fermenting yeasts used in ale production and the bottom-fermenting yeasts
associated with lager, respectively.
Prior to the Company receiving the malts, third parties begin the malting
process by placing barley into a maltster which steeps the barley or wheat grain
in water, thereby facilitating germination, and then dries and cures the grain
through roasting. This process breaks down complex carbohydrates and proteins so
that they can be easily extracted. The malting process imparts color and adds
the distinctive flavor characteristic of barley. At this point, the malts are
delivered to the brewery where various malts are milled to a coarse grist and
mixed with warm water. This mixture, or "mash," is heated and stirred in the
mash mixer, a large mixing vessel. Mashing time and temperature affect the
flavor of the beer allowing the simple carbohydrates and proteins to be
converted into fermentable sugars. Naturally occurring enzymes cause this
biochemical conversion. The mash is then moved to the lauter tun where it is
strained and sparged (showered with hot water) to produce a liquid, high in
fermentable sugars, called "wort," which then is pumped into a brew kettle to be
boiled, concentrated and clarified. Hops are added during the boil to impart
bitterness, balance, and aroma. The specific blend of hops further affect the
flavor of the beer. After the boil, the wort is transferred to the whirlpool for
clarifying by separating any impurities and solids. Then, the wort is cooled by
heat exchanging. The entire brewing process, from mashing through heat
exchanging, is typically completed in 6-9 hours, depending on the formation and
style of the product being brewed. Next, the wort is moved to a fermenting tank,
where specially cultured, sterilized yeast is added to initiate fermentation.
During fermentation, the wort's sugars are metabolized by the yeast cells,
producing carbon dioxide, a natural source of carbonation, alcohol, esters and
ketones along with many other flavor compounds. After fermentation, the beer is
aged at cool temperatures for several weeks, at which time the beer is clarified
and the full flavor develops. Filtration, where called for by the beer style, is
the final step, removing unwanted yeast and naturally occurring sediment. The
beer is then moved to the finishing tank which is used to hold the finished
product for the calculation of tax. At this point, the beer is in its peak
condition and ready for bottling or keg racking.
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Brewing Equipment. The Company uses state of the art brewing equipment,
which is supplied by JV Northwest, one of the United States' leading brewing
equipment manufacturers. The Company's facility contains a four vessel 40 barrel
brewhouse with separate hot and cold liquor tanks. The four vessel system best
utilizes the Company's brewer's time as the flow process is constantly moving
forward from mash-mixer to lauter tun, brew kettle and whirlpool to enable
multiple batch brewing in a 10 to 12 hour day. An indoor silo houses 50,000 lbs
of two row malt which enables a lower bulk rate purchase cost. The mill room
features a digitally programmed grist case which weighs the milled malts prior
to auguring into the brewhouse. Current capacity is determined by the Company's
fermentation vessels, which consist of three 80 barrel and two 160 barrel
fermenters thus enabling annual production of between 12,000-14,000 barrels
depending on the production rates of ales to lager. Two 160 barrel finishing
tanks are used to measure production and check for proper carbonation. The
Company believes that its brewing methods are cost effective and produce
high-quality ales and lagers.
Bottling and Kegging. Like many other craft-brewed beers, the Company's
products are not pasteurized. Accordingly, they must be kept cool so that
oxidation and heat-induced aging will not adversely affect the original taste.
The Company packages its craft beers in both bottles and kegs. Bottled beer must
be polished filtered to more thoroughly remove undesirable spoiling elements and
enable at least a 90 day shelf-life. Twelve ounce bottles are rinsed through a
twist rinser, filled on a 34 valve filler, labeled on an automatic labeler, then
hand packed and sent to a case sealer before being stored in a 2,000 square foot
cold box. The bottles are freshness-dated for the benefit of consumers. Draft
beer is packaged in new sankey style kegs which are more expensive yet preferred
by retailers for there ease of handling and storage. Draft beer is also stored
in the Company's on-site cold storage. The Company's current bottling line is
manufactured with rebuilt parts and has the efficiency capacity to package 35
bottles per minute. The Company has paid a $30,000 deposit and intends to
purchase a new bottling line capable of packaging 150 bottles per minute which
the Company anticipates will be operational by the first quarter of 1997. This
new bottling line, with its 24 valve double pre-evacuation filler, will lower
the quantity of air in each bottle, thereby allowing the Company's product to
have a shelf-life of up to 120 days. See "Risk Factors-Unanticipated
Manufacturing Limitations," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Certain Transactions--Private
Placements."
Product Development and Quality Control. Research and product development
activities are on-going. Opportunities identified by the Company are formulated
and developed by the Company's Brewmaster, Mr. William Moore. Mr. Moore is in
charge of developing new beers, managing raw material selection, optimizing
efficiency and educating Company personnel regarding taste and other qualities.
Since most beer types fall into major categories or subcategories, an extensive
development process is not required to bring new products to market. Quality
control is led by Mr. Moore who has received quality control training at the
University of California at Davis' specially designed program for microbiology
and quality control. Mr. Moore monitors all major parameters to ensure
compliance with its specifications and the consistency of each brand from beer
to beer. These parameters include: gravity, alcohol, bitterness, color, foam
formation and stability, acid, airs, carbon dioxide, and fill levels, in
addition to all the requisite microbiological checks and shelf life stability
measurements. The Company currently uses third party testing laboratories to
assure that high-quality standards are maintained. After the Offering, the
Company anticipates adding the capability to do this testing on its own
premises. See "Use of Proceeds."
Ingredients and Raw Materials. The Company has several sources for the
purchase of ingredients or other raw materials. Malt, specialty malt, hops, and
yeast can be purchased from a number of suppliers whose prices are all
relatively competitive. The Company uses local municipal water supplied by the
City of Philadelphia for the Company's brewing operations, with a carbon
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filtration system at the brewery to remove chlorine and other impurities. The
Company's operations also utilize glass bottles, caps, labels, kegs and
corrugated and other paper products, all of which are anticipated to be
available from several sources. As with most agricultural products, the supply
and price of raw materials used to produce the Company's beers can be affected
by a number of factors beyond the control of the Company, such as frosts,
droughts, other weather conditions, economic factors affecting growing
decisions, various plant diseases and pests. If any of the foregoing were to
occur, no assurance can be given that such condition would not have an adverse
effect on the Company's business, financial condition and results of operations.
In addition, the Company's results of operations are dependent upon its ability
to accurately forecast its demand for raw materials. Any failure by the Company
to accurately forecast its demand for raw materials could result in the Company
either being unable to meet higher than anticipated demand for its products or
producing excess inventory, either of which may adversely affect the Company's
business, results of operations and financial condition.
Product Distribution
The Company's products are available for sale to consumers from kegs or in
bottles at restaurants, taverns, bars, sporting events and liquor stores, as
well at supermarkets, directly at the brewery and convenience stores. The
Company's products are generally delivered to these retail outlets through a
network of 17 independent wholesale distributors, whose principal business is
the distribution of beer and in some cases other alcoholic beverages, and who
typically have local distribution relationships with one or more national beer
brands. In addition, in two counties in Pennsylvania, the Company exclusively
sells its products directly to retailers. The Company, together with its
distributors, markets its products to retail outlets and generally relies on its
distributors to provide regular delivery to retailers, to maintain retail shelf
space and to oversee timely rotation of inventory to ensure the continuing
freshness of its products. The Company also intends to offer its products
directly to consumers at brewpubs which the Company may open in the future.
Marketing and Sales
Sales of the Company's draft beer began in May 1995, with bottle sales
commencing in June 1995. As of September 25, 1996, the Company maintained a
sales and marketing staff of five sales representatives, whose efforts are
focused primarily on assisting the Company's distributors with promotions and
product placements. In addition, the Company has retained seven additional sales
representatives on a commission basis, who provide similar services. The Company
anticipates hiring a sales manager after the Offering to manage the growth and
productivity of its sales force. See "Use of Proceeds." In order to service an
increased distribution network and build relationships with additional
distributors, the Company intends to hire additional sales representatives to
motivate distributors to increase sales of the Company's products and to
stimulate retailer and consumer demand. The Company presently markets its
products in a region comprised of Pennsylvania, New Jersey, Delaware, Virginia,
Maryland, Florida, the District of Columbia and Massachusetts.
The Company intends to advertise its products in local newspapers, on the
radio, and in specialty beer publications within these markets. In addition, the
Company promotes and anticipates that it will continue to promote its products
through its direct mail program, advertising in specialty beer publications, its
beer events and the use of point of sale promotional materials, such as table
tents, posters and signs in retail outlets. The advertising and promotional
materials are designed to stress the unique qualities of the Company's products,
such as product freshness and the styles of beers offered. These advertising and
promotional materials also highlight the Company's Brewmaster and the Company's
primary focus on product quality. The
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Company believes that this promotional campaign will help develop and maintain a
high-quality image for the Company's brewery and its products which the Company
anticipates will result in increased sales of the Company's products. The
Company currently conducts public relations activities internally through its
database of media contacts. See "Use of Proceeds" and "-Strategy--Develop
Consumer Awareness."
To promote retail product sales, the Company periodically offers
"post-offs," or volume price discounts to distributors. Distributors and
retailers often participate in these price discounts. In addition, the Company
anticipates that it may in the future offer such promotions in additional
markets in response to local competition.
Competition
The highly fragmented craft beer segment is one of the fastest growing
segments of the domestic beer industry. The Company competes primarily with
other participants in the craft beer segment, producers of imported beers and
mass-market national brewers. See "-Industry Background." Competition within the
domestic craft beer segment is based on product quality, taste, consistency and
freshness, ability to differentiate products, promotional methods and product
support, transportation costs, distribution coverage and, to a lesser degree,
price.
As the Company expands its distribution network within the mid-Atlantic
region and beyond, and as other craft brewers expand their distribution
networks, the Company expects to encounter increasing competition from other
regional specialty brewers, as well as from contract brewers. Although certain
of these competitors distribute their products nationally and may have superior
financial or other resources than the Company, management believes that the
Company possesses certain competitive advantages, such as a regional brewing
facility, its sales and marketing strategy and its high-quality products
produced by the Company's Brewmaster.
The Company also competes against producers of imported beers. Although
imported beers currently account for a much greater share of the domestic beer
market than craft beers, the Company believes that it possess significant
competitive advantages over certain importers, including lower transportation
costs, no importation duties, proximity to and familiarity with local consumers,
a high degree of product freshness, eligibility for lower federal excise taxes
and freedom from currency fluctuations.
In response to the rapid growth of the craft beer segment, several of the
major domestic brewers have introduced fuller-flavored beers, and others may be
expected to do so in the future. The Company expects that certain of the major
national brewers, with their superior financial resources, access to raw
materials and established national distribution networks, will seek further
participation in the continuing growth of the craft beer segment through
investments in, or the formation of distribution alliances with, craft brewers.
The increasing participation of the major national brewers will likely increase
competition for market share and increase price competition within the craft
beer segment. The Company believes that the participation by the major national
brewers will tend to increase advertising, distribution and consumer education
and awareness of craft beers, and thus contribute to further rapid growth of
this industry segment. See "Risk Factors--Competition."
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Contract Brewing Arrangements
The Company has entered into arrangements to provide contract brewing
services to third parties which market and sell beer produced by the Company,
but marketed by the third party under such party's own proprietary labels.
Although margins for contract brewing are lower compared to the sale of the
Company's own products to wholesale distributors, this business will be
continued until such time as the Company's own products fully utilize production
capacity. Approximately 9% and 17% of the Company's revenues resulted from
contract brewing in 1995 and the six month period ended June 30, 1996,
respectively.
The Company is currently under contract to brew "Hampton Gold" for
Old Peconic Brewing Company in Long Island, New York and "Jersey Shore Gold" for
Hunterdon Brewing Company, based in Hunterdon, New Jersey. Both arrangements
involve a minimum order size of 80 barrels and an annual production minimum of
5,500 cases. In addition to these two contract arrangements, the Company
produces the house brand beer for a national theme restaurant chain. With eight
current locations and one location which is anticipated to open by January 1997,
this entertainment company operates locations which range in size from a minimum
of 35,000 square feet to as much as 70,000 square feet. Its house brand is
currently provided in both bottle and keg versions in its Philadelphia and
Florida locations and will soon be available in its Atlanta and Chicago
locations. The Company has applied to receive licensing for sales to this
theme restaurant company's Texas locations. There is no assurance that the
Company will receive the appropriate license in Texas, that this relationship
will continue or that this relationship will provide significant future sales.
Government Regulation
The Company's business is highly regulated at federal, state and local
levels. Various permits, licenses and approvals necessary to the Company's
brewery and pub operations and the sale of alcoholic beverages are required from
various agencies, including the U.S. Treasury Department, Bureau of Alcohol,
Tobacco and Firearms (the "BATF"); state alcohol regulatory agencies in the
states in which the Company sells its products and state and local health,
sanitation, safety, fire and environmental agencies. In addition, the beer
industry is subject to substantial federal excise taxes, although the Company
benefits from favorable treatment granted to brewers producing less than 2
million barrels per year.
Management believes that the Company currently has all licenses, permits
and approvals necessary for its current operations. However, existing permits or
licenses could be lost, revoked or suspended if the Company were to fail to
comply with the terms of such permits or licenses, and additional permits or
licenses could in the future be required for the Company's existing or expanded
operations. If licenses, permits or approvals necessary for the Company's
brewery or pub operations were unavailable or unduly delayed, or if any such
permits or licenses were lost, revoked or suspended, the Company's ability to
conduct its business could be substantially and adversely affected.
Alcoholic Beverage Regulation and Taxation
The Company's brewery is subject to licensing and regulation by a number of
governmental authorities. The Company operates its brewery under federal
licensing requirements imposed by the BATF. The BATF requires the filing of a
"Brewer's Notice" upon the establishment of a new commercial brewery. In
addition, commercial brewers are required to file an amended Brewer's Notice
every time there is a material change in the brewing process or brewing
equipment, change
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in the brewery's location, change in the brewery's management or a material
change in the brewery's ownership. The Company's operations are subject to audit
and inspection by the BATF at any time. The Company will be required to amend
its Brewer's Notice in connection with the Offering. The Company does not
anticipate any governmental concerns in connection with such amendment, however,
there can be no assurance that none will be raised.
In addition to the regulations imposed by the BATF, the Company's brewery
is subject to various regulations concerning retail sales, pub operations,
deliveries and selling practices in states in which the Company sells its
products. Failure by the Company to comply with applicable federal or state
regulations could result in limitations on the Company's ability to conduct its
business. The BATF's permits can be revoked for failure to pay taxes, to keep
proper accounts, to pay fees, to bond premises, and to abide by federal
alcoholic beverage production and distribution regulations, or if holders of 10%
or more of the Company's equity securities are found to be of questionable
character. Permits from state regulatory agencies can be revoked for many of the
same reasons.
The Pennsylvania Liquor Control Board ("PLCB") issues operating licenses to
manufacturers of beverages containing alcohol located in the Commonwealth of
Pennsylvania. The PLCB also ensures compliance with state tax provisions. The
PLCB regulations provide certain operating, record-keeping and marketing
requirements for license holders. These requirements include posting of a
$10,000 bond upon issuance of a license, inspections of the brewery by
representatives of the PLCB, maintaining records of the amount of beer produced
and sold, limiting certain promotional activities and prohibiting sales by the
Company on Sunday. Failure by the Company to comply with the PLCB requirements
could result in fines, penalties or sanctions being imposed against the Company
which could range from written warnings to revocation of the Company's license.
The temporary or permanent loss of the Company's PLCB license would have a
material adverse effect on the Company's financial condition and results of
operations. PLCB regulations limit the Company's ability to increase its prices
to distributors within 180 days after a price decrease, except under certain
limited circumstances or with the prior consent of the PLCB. In addition, the
license issued by the PLCB to the Company will not be transferable or assignable
without the approval of the PLCB. As a result, a sale of the Company or its
business would be subject to, and may be delayed by, the required approval by
the PLCB.
The U.S. federal government currently imposes an excise tax of $18 per
barrel on every barrel of beer produced for consumption in the United States.
However, any brewer with production under 2 million barrels per year instead
pays federal excise tax in the amount of $7 per barrel on the first 60,000
barrels it produces annually. While the Company is not aware of any plans by the
federal government to reduce or eliminate this benefit to small brewers, any
such reduction in a material amount could have an adverse effect on the Company.
In addition, the Company will lose the benefit of this rate structure if it
exceeds the 2 million barrel production threshold. Individual states also impose
excise taxes on alcoholic beverages in varying amounts, which have also been
subject to change. It is possible that excise taxes will be increased in the
future by both the federal government and several states. In addition, increased
excise taxes on alcoholic beverages have been considered in connection with
various governmental budget-balancing or funding proposals. Any such increases
in excise taxes, if enacted, could adversely affect the Company.
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State and Federal Environmental Regulation
The Company's brewery operations are subject to environmental regulations
and local permitting requirements regarding, among other things, air emissions,
water discharges and the handling and disposal of wastes. While the Company has
no reason to believe the operations of its facility violate any such regulation
or requirement, if such a violation were to occur, the Company's business may be
adversely affected. In addition, if environmental regulations were to become
more stringent in the future, the Company could be adversely affected.
Dramshop Laws
The serving of alcoholic beverages to a person known to be intoxicated may,
under certain circumstances, result in the server's being liable to third
parties for injuries caused by the intoxicated customer. If the Company opens
brewpubs, the Company will attempt to address this concern by implementing
employee training and designated-driver programs. The Company has obtained host
liquor and legal liquor liability insurance coverage for its activities in
connection with marketing and promotional events that involve selling liquor.
Future increases in premiums could make it prohibitive for the Company to obtain
adequate insurance coverage or maintain its existing coverage, and large
uninsured damage awards against the Company could have a material adverse affect
on the Company's financial condition and results of operations.
Property
The Company currently leases an approximately 32,000 square foot facility
on approximately 3.5 acres in Philadelphia, Pennsylvania for its executive
offices and its brewery at a current cost of $5,600 per month, plus all
applicable taxes, insurance premiums, expenses for utilities and costs for any
other services assessed against the property. The lease on this facility
terminates on November 30, 2004. The rent expense increases each year of the
lease up to $9,333.33 per month in the final year of the lease. The Company has
an option to purchase such property. See "Risk Factors-Tax-Exempt Financing;
Possible Need For Additional Financing" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Trademarks
The Company has filed applications to register "1776" and "FranklinFest"
with the United States Patent and Trademark office (the "USPTO"). Although the
Company expects "1776" and "FranklinFest" to be registered in due course, there
can be no assurance any such trademarks will be registered, of if registered,
there can be no assurance that they will not be challenged at some later date.
The Company and Mr. Connor have proposed to enter into an agreement with
Independence Florida whereby (i) Independence Florida will transfer all of its
rights, title and interest in the Independence Marks and the Applications to the
Company, (ii) Independence Florida will have a one year royalty free license to
use the Independence Marks and after one year, Independence Florida can exercise
an option to enter into a ten year royalty bearing license with the Company for
such marks, such license to be subject to termination upon certain conditions,
(iii) Independence Florida will repurchase Mr. Connor's interest in Independence
Florida and (iv) the Company will not operate a bar or restaurant in
Independence Florida's geographic region throughout the term of the license and
for a period of two years following termination of the license (the "Florida
Agreement"). Upon execution of the Florida Agreement, Mr. Connor will resign
from his position as an officer and member of the Board of Directors of
Independence Florida. There can be no assurance that such agreement
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will be executed, in which event, the Company may take appropriate legal action
to protect its intellectual property rights with regard to Independence Florida
and its use of the term "Independence." The costs of such litigation could be
significant and may have a material effect on the Company's business, financial
condition and results of operations. See "Risk Factors--Conflict of Interest and
Trademark Conflict."
The Company is currently negotiating a perpetual and exclusive license and
purchase agreement with Moosehead for the use of the term "Independence." The
Company has proposed to Moosehead that this will be a two year license whereby
the Company will pay Moosehead $30,000 per year for such right and, upon
termination of such two-year period, all rights to the use of "Independence"
will be transferred to the Company for an additional payment of $30,000. See
"Risk Factors--Risk of Third Party Claims of Infringement of Intellectual
Property; Uncertainty of Trademark Protection."
The Company utilizes a number of recipes in the production of its beers and
protects these recipes as trade secrets. In addition, product packaging,
advertising and promotional design and artwork are important to the Company's
success, and such materials are considered protected by common law copyright.
See "Risk Factors--Risk of Third Party Claims of Infringement of Intellectual
Property; Uncertainty of Trademark Protection."
Employees
At September 25, 1996, the Company had 17 employees, including 10 in
production, five in sales and marketing, and two in administration. Of these,
eight are part-time employees. The Company believes its relations with its
employees to be good.
Legal Proceedings
The Company is not currently engaged in any legal proceedings that are
expected, individually or in the aggregate, to have a material adverse effect on
the business, results of operations or financial condition of the Company.
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MANAGEMENT
Directors and Officers
Set forth below is certain information regarding the Company's directors
and executive officers:
Name Age Position
---- --- --------
Robert W. Connor, Jr. 34 Chairman of the Board,
President, Chief Executive
Officer and Treasurer
William Moore 40 Director, Brewmaster and
Secretary
Stefan Karnavas 33 Director
Robert W. Connor, Jr. Mr. Connor, founder of the Company, has been the
Chairman of the Board, President, Chief Executive Officer and Treasurer of the
Company since May 1994. Prior to founding the Company, Mr. Connor was an
Investment Consultant with the Pennsylvania Merchant Group Ltd since October
1991 since July 1996, Mr. Connor has also been Vice President and Secretary and
a member of the Board of Directors of Independence Florida. Mr. Connor intends
to resign from such position upon the execution of the Florida Agreement.
William Moore. Mr. Moore has been the Company's Brewmaster and Secretary
since May 1994. Prior to joining the Company, Mr. Moore was the head brewer for
Stoudt's Brewery in Adamstown, Pennsylvania since 1990.
Stefan Karnavas. Mr. Karnavas has been a director of the Company since July
1996. Mr. Karnavas has been the Chief Financial Officer of the Cobblestone Golf
Group, Inc. since April 1996. Prior to that time, Mr. Karnavas was the Treasurer
of Horizon Cellular Telephone Company since July 1990.
The Company is currently searching for and anticipates hiring a Chief
Financial Officer who the Company anticipates will commence employment upon
consummation of the Offering or shortly thereafter.
Each member of the Board was elected to hold office for a period of one
year and until his successor is elected and qualified or until such director's
earlier death, resignation or removal. Directors will not receive any
compensation for serving on the Board. The officers are elected by the Board and
serve at the Board's discretion.
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Executive Compensation
The following table sets forth the compensation paid to the Company's Chief
Executive Officer for the year ended December 31, 1995 (the "Named Executive
Officer"). No other executive officer of the Company received total annual
salary and bonus in excess of $100,000 during the year ended December 31, 1995.
Summary Compensation Table
Name and Principal Position Annual Compensation
--------------------------- -------------------
Salary Bonus
------ -----
Robert W. Connor, Jr.
President, Chief Executive
Officer and Treasurer...............$30,000 --
- ----------
(1) Mr. Connor has entered into an employment agreement which provides for
certain increases in his annual salary upon completion of the Offering.
See "-Employment Agreements."
Employment Arrangements
Mr. Connor entered into a three-year employment agreement (the "Connor
Agreement") with the Company on August 12, 1996. Mr. Connor will serve as
President and Chief Executive Officer of the Company and will receive for his
services a base salary of $50,000 per year, subject to an increase up to
$100,000 upon the closing of the Offering, plus annual increases of not less
than 10% of the prior year's salary for the first two years after the Offering.
Mr. Connor is also eligible for an annual bonus as determined by the Board. In
addition, the Company has agreed to grant Mr. Connor options to purchase that
number of shares of Common Stock pursuant to the Company's Stock Plan equal to
2.5% of the issued and outstanding shares of Common Stock as of August 12, 1996
(not including shares issuable pursuant to any warrants of the Company). The
Connor Agreement provides that Mr. Connor is subject to a covenant not to
compete with the Company during the term of his employment and for a two-year
period after his employment with the Company terminates. If Mr. Connor is
terminated for any reason other than "cause", as defined therein, "total
disability", as defined therein, or the death of Mr. Connor, the Company must
pay Mr. Connor his salary as accrued through the date of termination and for two
years thereafter. During the term of the Agreement and at all times after his
termination, Mr. Connor has agreed to retain in confidence and not otherwise use
any confidential or proprietary information of the Company.
Mr. Moore entered into an employment agreement (the "Moore Agreement") with
the Company effective as of August 12, 1996 and terminating on December 31,
1999. Mr. Moore will serve as the Brewmaster of the Company and will receive a
base salary of $45,000 per year, plus annual increases based upon the salary
policies of the Company and Mr. Moore's contributions to the Company. Mr. Moore
is also eligible for an annual bonus as determined by the Board. Mr. Moore is
subject to a covenant not to compete with the Company during the term of his
employment and for a two-year period after his employment with the Company
terminates. In addition, if Mr. Moore is terminated for any reason other than
"cause", as defined in the Moore Agreement, "total disability", as defined
therein, or the death of Mr. Moore, the Company must pay Mr. Moore, or his
heirs, his salary as accrued through the date of termination and for two years
thereafter. During the term of the
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agreement and at all times after his termination, Mr. Moore has agreed to retain
in confidence and not otherwise use any confidential or proprietary information
of the Company.
Committees of the Board of Directors
Subsequent to the Offering, the Company anticipates that it will add at
least one additional individual to the Board and will form an Audit Committee
and a Compensation Committee. The Audit Committee will review the engagement of
the independent accountants, review and approve the scope of the annual audit
undertaken by the independent accountants and review the independence of the
accounting firm. The Audit Committee will also review the audit and non-audit
fees of the independent accountants and the adequacy of the Company's internal
control procedures. The Compensation Committee will review executive
compensation issues.
Stock Plan
The Company has adopted the Independence Brewing Company Omnibus Stock Plan
(the "Stock Plan") which provides for the grant of stock options to purchase up
to an aggregate of [300,000] shares of the Common Stock, stock appreciation
rights (including free-standing, tandem and limited stock appreciation rights)
("SARs"), restricted or unrestricted share awards, phantom stock, performance
awards, or any combination of the foregoing (collectively, "Awards").
Participation in the Stock Plan is open to all employees, directors and
consultants of the Company (the "Participants"). The Company believes that the
Stock Plan will promote the long-term growth and profitability of the Company by
providing key people associated with the Company with incentives to improve
shareholder value and to contribute to the growth and financial success of the
Company. Moreover, the Company believes that the Stock Plan will enable the
Company to attract, retain and reward the best available persons for positions
of substantial responsibility.
The Stock Plan will be administered by the Board, or in the alternative, a
committee appointed by the Board whose members are deemed to be "Non-Employee
Directors" as that term is defined in Rule 16b-3 under the Exchange Act of 1934
(the "Exchange Act") (such group administering the Stock Plan will be referred
to as the "Committee"). The persons eligible to receive Awards under the Stock
Plan are those Participants selected by the Committee in its discretion from
time to time.
All terms and conditions of Awards granted under the Stock Plan are
determined by the Committee, including the selection of Participants to whom
Awards will be granted, the types of Awards to be granted, the number of shares
to be covered by or used for reference purposes for each Award, the exercise
price or base price, respectively, of each stock option or SAR granted (price
may not be less than 100% of the fair market value for incentive stock options
("ISOs")), the expiration date of each stock option and SAR granted (subject to
a maximum of 10 years from the date of the grant), the vesting schedule and any
other material provisions.
In the event of any stock dividend, stock split, recapitalization,
reclassification, combination of shares, or other similar event, appropriate
proportional adjustments will be made in the number of shares reserved for
issuance under the Stock Plan, the number, kind and price of shares covered by
outstanding Awards, and any other matters which relate to Awards and which are
affected by the changes set forth above. The Stock Plan also provides for the
ability of the Committee to accelerate or change the exercise date of Awards,
and provides discretion to the Committee to take whatever other actions it deems
necessary or desirable with respect to all outstanding Awards upon the
occurrence of a "Change of Control," as such term is defined in the Stock Plan,
and a provision for the cancellation of Awards and a payment of appropriate
consideration to the holders of such canceled Awards upon the occurrence of
certain events constituting a Change of Control. Stock options and
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SARs may not be exercised more than 10 years after the date of grant (five years
after the date of grant with respect to an ISO granted to any person who owns
stock of the Company possessing 10% or more of the total voting power of all the
Company's stock) and Awards granted under the Stock Plan are not transferable
other than by will or the laws of descent and distribution.
The Committee has the discretion to award stock options to Participants as
either ISOs (employees only) or as non-qualified stock options ("NQSOs"). Stock
options awarded to Participants who are not employees are NQSOs. The exercise
price of an ISO must be not less than the fair market value of the Common Stock
on the date the option is granted (110% of fair market value with respect to an
ISO granted to any person who owns stock of the Company possessing 10% or more
of the total voting power of all the Company's stock), and is payable upon the
exercise of the option. The exercise price of a NQSO may be less than the fair
market value of the Common Stock on the date the option is granted. The number
of shares covered by ISOs granted to any optionee is limited such that the
aggregate fair market value of stock (determined as of the date of the grant)
with respect to which ISOs are exercisable for the first time by such optionee
in any calendar year shall not exceed $100,000, the excess ISOs will be treated
as NQSOs.
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PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock at September 20, 1996 including the effect of the
exercise of any outstanding warrants, and as adjusted to reflect the sale of the
Common Stock in the Offering by (i) each person known to the Company to
beneficially own more than 5% of the Common Stock, (ii) each director and the
Named Executive Officer of the Company and (iii) all directors and executive
officers as a group.
Percentage of
Outstanding
Shares
Number of of Common Stock
Name and Address of Shares Beneficially Before After
Beneficial Owner Owned(1) Offering Offering
- ------------------- -------- -------- --------
Robert W. Connor, Jr.......... 574,166 24.9% 17.9%
7501 McCallum Street
Philadelphia, PA 19118
Winfield Capital Corp.(2)..... 4,449,941 76.6% 66.3%
237 Mamaroneck Avenue
White Plains, NY 10605
William Moore................. 50,000 2.2% 1.6%
274 Diamond Street
Pottstown, PA 19464
Stefan Karnavas............... 19,220 * *
Cobblestone Golf
5220 Fiore Terrace
Apartment M-304
San Diego, CA 92122
All officers and directors as
a group (three persons)..... 643,386 27.9% 20.1%
- --------------------
* Represents less than 1% of the outstanding shares of Common Stock.
(1) As used in this table, "beneficial ownership" means the sole or shared
power to vote or direct the voting of a security, or the sole or shared
investment power with respect to a security (i.e., the power to dispose, or
direct the disposition, of a security). A person is deemed as of any date
to have "beneficial ownership" of any security that such person has the
right to acquire within 60 days after such date.
(2) Includes 3,500,000 shares of Common Stock exercisable upon the exercise of
the Series B Warrant granted to Winfield, which is exercisable within 60
days after September 20, 1996. See "Certain Transactions--Private
Placements."
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CERTAIN TRANSACTIONS
Private Placements
In anticipation of the closing of the financing transactions described
below (the "Private Placements"), the Company was advanced an aggregate of
$200,000 on May 6, 1996 and July 16, 1996, from Winfield to fund
short term operations. The Company's President and Chief Executive Officer,
Mr. Robert W. Connor, Jr., personally guaranteed each of the notes. The entire
principal amount of each note was repaid in connection with the closing of the
Private Placements and the personal guarantees were released.
To fund operations, on August 12, 1996, September 13, 1996 and September
20, 1996, the Company sold $800,000 of debentures convertible into shares of
Series A Preferred Stock of the Company (the "Debentures") to Winfield and
certain shareholders of the Company (collectively referred to as the
"Purchasers"). To the extent that such shareholders did not so participate,
Winfield agreed to act as "standby" purchaser for the entire $800,000 in
Debentures being offered.
In consideration of the purchase by the Purchasers of the Debentures, the
Purchasers received warrants which entitled them to purchase 415,275 shares of
Common Stock for the aggregate exercise price of $2,076 (the "Series A
Warrants"). All of the Series A Warrants were exercised by the Purchasers on
September 13, 1996 and September 20, 1996.
In addition, in consideration of the purchase by Winfield of the
Debentures, Winfield received (i) a warrant (the "Preferred Warrant") that
entitles Winfield to purchase 70,000 shares of Series B Preferred Stock of the
Company, par value $10.00 (the "Series B Preferred Stock"), exercisable
immediately for an aggregate exercise price of $700,000 and (ii) a warrant (the
"Series C Warrant") that entitles Winfield to purchase 622,913 shares of Common
Stock for the aggregate exercise price of $3,115. Winfield exercised the
Preferred Warrant and the Series C Warrant on September 13, 1996. The Company
has an obligation to redeem all outstanding shares of Series B Preferred Stock
upon the consummation of the Offering, including dividends payable to date.
Holders of the Series B Preferred Stock are entitled to receive dividends at the
rate of $1.40 per share per year. See "Use of Proceeds" and "Description of
Securities--Preferred Stock--Series B Preferred Stock."
In consideration for agreeing to act as standby purchaser for the balance
of the Debentures not purchased by the Company shareholders and for agreeing to
allow certain shareholders of the Company to participate in the purchase of the
Debentures, Winfield received a warrant (the "Series B Warrant") which entitles
Winfield to purchase 3.5 million shares of Common Stock of the Company at a
price of $6.00 per share. The Series B Warrant is immediately exercisable and
expires five years following the Company's initial public offering.
The holders of the shares of Common Stock that were issued upon exercise of
the Series A Warrants, the holders of the shares of Common Stock that were
issued upon exercise of the Series C Warrant and the holders of the Series B
Warrant are entitled to certain rights with respect to the registration under
the Securities Act, for resale to the public, of (i) the shares of Common Stock
that were issued upon exercise of the Series A Warrants and the Series C Warrant
and (ii) the Series B Warrant, respectively. See "Description of
Securities--Registration Rights."
The Company received approximately $1,310,000 of net proceeds from the sale
of the Debentures and the Series B Preferred Stock after accounting for a
$15,000 processing fee and a $45,000 commitment fee paid to Winfield and
approximately $130,000 in professional fees and expenses. Such net proceeds will
be applied, in approximate amounts, as follows: (i) working capital ($410,000);
(ii) new bottling line ($400,000); (iii) marketing and sales ($200,000);
(iv) trademark and
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patent expenses ($100,000); (v) kegs and keg equipment ($75,000); (vi) brewery
improvements ($50,000); (vii) packaging materials ($40,000) and (viii) point of
sales equipment ($35,000). The foregoing are estimated allocations of such
proceeds from which the actual use may differ. The Company intends to repay the
Debentures with a portion of the net proceeds from this Offering. See "Use of
Proceeds."
In connection with the issuance and anticipated repayment of the Debentures
and the Series B Preferred Stock, the Company will write off (i) unamortized
original issue discount of $1,245,825 and $1,868,739, respectively, and
(ii) deferred financing costs of approximately $32,000 and $28,000,
respectively.
Guaranties
On January 18, 1995, the Company borrowed $430,000 pursuant to the SBA
Loan. The SBA Loan is evidenced by a promissory note bearing interest at the
prime rate plus 2% (effective rate of 10.25% at June 30, 1996). Principal and
interest are payable monthly through January 18, 2002 when all unpaid interest
and principal are due in full. Robert W. Connor, Jr. personally guaranteed the
SBA Loan. Upon the consummation of the Offering, the SBA Loan will be repaid in
full with a portion of the net proceeds from this Offering, thereby releasing
Mr. Connor's guarantee. See "Use of Proceeds."
On February 1, 1995, the Company borrowed $250,000 pursuant to a
Philadelphia Industrial Development Corporation loan. The loan is evidenced by a
promissory note bearing annual interest at 3.75%. Principal and interest are
payable monthly through July 1, 2002. Robert W. Connor, Jr. personally
guaranteed this loan.
Florida Agreement
Robert W. Connor, Jr., President and Chief Executive Officer of the
Company, is a director, officer and a shareholder of Independence Brewing
Company of Florida, Inc. ("Independence Florida"), a corporation that is
currently operating a brewpub in Ft. Lauderdale, Florida, utilizing the
"Independence" name and logo and the name "Independence Brewery and Restaurant"
(the "Independence Marks"). In addition, Independence Florida has filed federal
trademark and service mark applications for "Independence Brewery and
Restaurant" (the "Applications"). The Company and Mr. Connor have proposed to
enter into an agreement with Independence Florida whereby (i) Independence
Florida will transfer all of its rights, title and interest in the Independence
Marks and the Applications to the Company, (ii) Independence Florida will have a
one year royalty free license to use the Independence Marks and after one year,
Independence Florida can exercise an option to enter into a ten year royalty
bearing license with the Company for such marks, such license to be subject to
termination upon certain conditions, (iii) Independence Florida will repurchase
Mr. Connor's interest in Independence Florida and (iv) the Company will not
operate a bar or restaurant in Independence Florida's geographic region
throughout the term of the license and for a period of two years following
termination of the license (the "Florida Agreement"). Upon execution of the
Florida Agreement, Mr. Connor will resign from his position as an officer and
member of the Board of Directors of Independence Florida. There can be no
assurance that such agreement will be executed, in which event, the Company may
take appropriate legal action to protect its
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intellectual property rights with regard to Independence Florida and its use of
the term "Independence." The costs of such litigation could be significant and
may have a material effect on the Company's business, financial condition and
results of operations.
All future transactions between the Company and its officers, directors and
principal stockholders and their affiliates will be approved by a majority of
the Board, including all of the non-employee directors, and will be on terms no
less favorable to the Company than could be obtained from unaffiliated third
parties.
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DESCRIPTION OF SECURITIES
As of the date of this Prospectus, the authorized capital of the Company
consists of 19,000,000 shares of Common Stock, no par value per share, 500,000
shares of Series A Preferred, $10.00 par value per share, and 500,000 shares of
Series B Preferred, $10.00 par value per share. As of the date of this
Prospectus, 2,307,070 shares of Common Stock are currently issued and
outstanding to approximately 48 holders, no shares of Series A Preferred are
currently issued and outstanding and 70,000 shares of Series B Preferred are
currently issued and outstanding to one holder. Upon completion of the Offering,
all of the outstanding shares of Series B Preferred will be redeemed, 5,000,000
additional shares of undesignated preferred stock will be authorized, and the
provisions establishing the Series A Preferred and Series B Preferred will be
eliminated. See "Use of Proceeds" and "Certain Transactions--Private
Placements."
There will be 3,207,070 shares of Common Stock issued and outstanding after
giving effect to the sale of the Common Stock offered hereby (3,342,070 shares
of Common Stock if the Underwriter's over-allotment option is exercised in
full).
Common Stock
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of shareholders and do not have cumulative voting
rights. Subject to applicable provisions of the BCL, shareholders holding a
majority of the shares of Common Stock constitute a quorum for the purposes of
convening a shareholders' meeting. Accordingly, a majority of the quorum may
elect all of the directors standing for election. Holders of Common Stock are
entitled to receive ratably such dividends, if any, as may be declared on the
Common Stock by the Board at such time and in such amounts as the Board may deem
advisable. Upon the liquidation, dissolution or winding up of the Company,
holders of Common Stock are entitled to receive ratably the net assets of the
Company available for distribution after the payment of all debts and other
liabilities of the Company, subject to prior and superior rights of holders of
Preferred Stock. Holders of Common Stock have no preemptive, subscription,
redemption or conversion rights. The outstanding shares of Common Stock are, and
the shares offered hereby, when issued and paid for, will be, fully paid and
nonassessable. The rights, preferences and privileges of holders of Common Stock
will be subject to the rights of the holders of shares of any series of
Preferred Stock that the Company may issue in the future.
Preferred Stock
Series A Preferred Stock
Holders of Series A Preferred Stock are entitled to receive dividends at a
rate of $1.80 per share per year, payable monthly in arrears. With respect to
the payment of dividends, the Series A Preferred ranks senior to the Common
Stock and the Series B Preferred. The Company has an obligation to redeem the
Series A Preferred under certain terms and conditions. Although there are
currently no shares outstanding, the Series A Preferred Stock is issuable upon
conversion of the Company's outstanding Debentures.
Series B Preferred Stock
Holders of Series B Preferred Stock are entitled to receive dividends at a
rate of $1.40 per share per year, payable monthly in arrears. The dividend rate
increases to $1.80 per share per year whenever the Company fails to timely pay
any dividend. The dividend rate remains at such rate until
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all accrued and unpaid dividends have been paid in full, at which time the
dividend rate reverts back to $1.40 per share per year. With respect to
dividends, the Series B Preferred ranks senior to the Common Stock. The Company
has an obligation to redeem the Series B Preferred under certain terms and
conditions. The outstanding Series B Preferred will be redeemed at $10.00 cash
per share plus all accrued and unpaid dividends upon the consummation of the
Offering. See "Use of Proceeds."
Undesignated Preferred Stock
Pursuant to an amendment to the Company's Articles of Incorporation to be
filed prior to the completion of the Offering, the Board will be authorized,
without further action by the shareholders, to issue up to 5,000,000 shares of
Preferred Stock in one or more series and to establish the designations,
preferences, qualifications, privileges, limitations, restrictions, options,
conversion rights and other special or relative rights of any series of
Preferred Stock so issued. The issuance of shares of Preferred Stock could
adversely affect the voting power and other rights of holders of the Common
Stock. Because the terms of the Preferred Stock may be fixed by the Board
without shareholder action, the Preferred Stock could be issued quickly with
terms designated to defeat a proposed takeover of the Company, or to make the
removal of management of the Company more difficult. The authority to issue
Preferred Stock or rights to purchase such stock could be used to discourage a
change in control of the Company. Management of the Company is not aware of any
such threatened transactions to obtain control of the Company, and the Board has
no current plans to designate and issue any additional shares of Preferred
Stock.
Redeemable Warrants
The Redeemable Warrants will be issued pursuant to a Warrant Agreement (the
"Warrant Agreement") between the Company and Continental Stock Transfer & Trust
Company, as Warrant Agent (the "Warrant Agent"). The following discussion of
certain terms and provisions of the Redeemable Warrants is qualified in its
entirety by reference to the detailed provisions of the Redeemable Warrants and
of the Warrant Agreement, the forms of which have been filed as exhibits to the
Registration Statement, of which this Prospectus forms a part.
Each Redeemable Warrant, when exercisable, will enable the holder to
purchase one share of Common Stock at an initial purchase price of $6.00 per
share, subject to adjustment for anti-dilutive events (the "Exercise Price"), at
any time for a period of 60 months commencing on the date of this Prospectus,
unless earlier redeemed by the Company as described below.
The Redeemable Warrants are redeemable by the Company, with the consent of
the Underwriter, at any time commencing ________, 1997 [12 months from the date
of this Prospectus] at a redemption price of $0.10 per Redeemable Warrant, on 30
days' prior written notice if the average closing bid price for Common Stock, as
reported on the Nasdaq SmallCap Market, or if the Common Stock is not quoted on
the Nasdaq SmallCap Market, as reported by any other recognized quotation system
on which the price of the Common Stock is quoted, equals or exceeds $8.00 per
share for any 20 trading days within a period of 30 consecutive trading days
ending on the fifth trading day prior to the date of notice of redemption. In
the event that the Redeemable Warrants are redeemed by the Company, holders of
the Redeemable Warrants will lose their right to exercise their Redeemable
Warrants except during the 30 day notice period. Upon receipt of notice of
redemption, holders of Redeemable Warrants would be required to: (i) exercise
the Redeemable Warrants and pay the exercise price at a time when it may be
disadvantageous for them to do so; (ii) sell the Redeemable Warrants at the then
market price, if any, when they might otherwise wish to hold the Redeemable
Warrants or (iii) accept the redemption price, which is likely to be
substantially less than the market value of the Redeemable Warrants at the time
of redemption. In the event that holders of the Redeemable Warrants elect not to
exercise their Redeemable Warrants upon notice of redemption
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thereof, and the Redeemable Warrants are subsequently redeemed prior to
exercise, the holders thereof would lose the benefit of the appreciated market
price of the Redeemable Warrants, if any, and/or the difference between the
market price of the underlying Common Stock as of such date and the exercise
price of such Warrants, as well as any possible future price appreciation in the
Common Stock. See "Risk Factors--Speculative Nature of Redeemable Warrants;
Adverse Effect of Possible Redemption of Redeemable Warrants."
The Redeemable Warrants contain anti-dilution provisions regarding certain
events, including but not limited to, stock dividends, stock splits and
reclassifications. The holders of Redeemable Warrants, as such, have no right to
vote on matters submitted to the shareholders of the Company or to receive
dividends and are not entitled to share in the assets of the Company in the
event of liquidation, dissolution or the winding-up of the Company's affairs.
However, upon the exercise of the Redeemable Warrants and issuance of shares of
Common Stock to the holder, such shares of Common Stock shall have rights
identical to all other shares of Common Stock.
No Redeemable Warrant will be exercisable unless, at the time of exercise,
the Company has filed a current Prospectus with the Commission covering the
shares of Common Stock to be issued upon exercise of such Redeemable Warrant and
such shares have been registered or qualified or deemed to be exempt under the
securities laws of the state of residence of the holder of such Redeemable
Warrant. The Company will use its best efforts to have all such shares so
registered or qualified on or before the exercise date of the Redeemable
Warrants and to maintain a current Prospectus relating thereto until the
expiration of the Redeemable Warrants, subject to the terms of the Warrant
Agreement. While it is the Company's intention to do so, there is no assurance
that it will be able to do so.
Series B Warrant
The Company has issued a warrant which entitles Winfield to purchase 3.5
million shares of Common Stock of the Company at a price of $6.00 per share (the
"Series B Warrant"). The Series B Warrant is immediately exercisable and expires
five years following the Company's initial public offering. The Series B Warrant
contains weighted-average anti-dilution provisions regarding certain events,
including but not limited to, the issuance of Common Stock at a price below the
then existing exercise price of the Series B Warrants, stock dividends, stock
splits and reclassifications.
Limitation of Liability of Directors and Indemnification of Directors and
Officers
As permitted by the BCL, the Company's Articles of Incorporation provide
that, subject to certain limited exceptions, directors of the Company shall not
be personally liable, as such, for monetary damages for any action taken unless
the director has breached or failed to perform the duties of his office under
the BCL and the breach or failure to perform constitutes self-dealing, willful
misconduct or recklessness. The effect of this provision is to limit the ability
of the Company and its shareholders (through shareholder derivative suits on
behalf of the Company) to recover monetary damages against a director for the
breach of certain fiduciary duties as a director (including breaches resulting
from grossly negligent conduct). In addition, the Company's Articles of
Incorporation provide that the Company shall, to the full extent permitted by
the BCL, indemnify all persons whom it has the power to indemnify pursuant
thereto, including directors and officers of the Company.
The Company's Bylaws provide that a director shall not be liable to the
Company for monetary damages as such for any action taken or omitted unless such
person did not act in good faith and in a manner he or she reasonably believed
to be in, or not opposed to, the best interests of the Company,
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<PAGE>
and failed to act with such care, including reasonable inquiry, skill and
diligence, as a person of ordinary prudence would use under similar
circumstances. The Company believes that this provision will assist it in
securing and maintaining the services of directors who are not employees of the
Company. The Company's Bylaws also provide for indemnification of the Company's
directors and officers to the fullest extent permitted by law for expenses
(including attorneys' fees) incurred as a result of the officer's or director's
status as an officer or director of the Company.
The Company currently plans to procure a directors' and officers' insurance
policy subsequent to the Offering to afford officers and directors coverage for
losses arising from claims based on breaches of duty, negligence, error and
other wrongful acts.
Pennsylvania Anti-Takeover Laws
Pennsylvania has adopted certain laws that may be deemed to be
"anti-takeover" in effect. One provision permits directors, in considering the
best interests of the Company, to consider the effects of any action upon its
employees, suppliers, customers, shareholders and creditors and the communities
in which the Company maintains facilities as well as other pertinent factors.
The effect of this provision is to put the considerations of these
constituencies on parity with one another, with the result that no one group,
including shareholders, is required to be the dominant or controlling concern of
directors in determining what is in the best interests of the Company.
In addition, the Company is also subject to certain additional
anti-takeover provisions under Pennsylvania law, including the following:
Control Transactions. This provision generally requires any person or group
that acquires 20% of the voting power over shares entitled to cast votes in an
election of directors to offer to purchase all outstanding shares for cash at
the statutory minimum fair value for their stock.
Business Combinations. This provision generally prohibits any person or
group that acquires at least 20% of the voting power of a corporation from
effecting a business combination with the corporation, such as a merger, an
asset sale and certain recapitalizations, for a period of up to five years from
the date such control was acquired. A corporation may opt out of this provision
on a case-by-case basis by approving a particular business combination in
compliance with applicable Pennsylvania statutory provisions prior to the date
such person or group acquires 20% of the voting power.
Control-Share Acquisition. This provision generally prevents a person or
group that crosses certain stock ownership thresholds of 20%, 33-1/3% or 50% for
the first time from voting those shares the ownership of which puts that person
over the relevant threshold unless voting power is restored to such shares by a
vote of shareholders as a whole and a vote of disinterested shareholders at a
shareholders meeting. Even if voting rights are restored by approval of a
resolution of shareholders, those rights will lapse and be lost if any proposed
control-share acquisition which is the subject of the shareholder approval is
not consummated within 90 days after shareholder approval is obtained. Also, any
business combinations occurring after the restoration of voting power may
require the acquiring person to pay severance compensation to Pennsylvania
employees of the corporation whose employment is terminated within 90 days
before or 24 months after the restoration of voting power.
Disgorgement. This provision generally requires any person or group that
acquires 20% or more of the voting power of a corporation to disgorge to the
corporation all profits realized from the sale of equity securities of the
corporation within 18 months after acquiring this control status if the
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<PAGE>
person or group purchased equity securities of the corporation within 24 months
prior to, or 18 months after, the acquisition of control status.
Each of these provisions will make it difficult and time-consuming for any
person or group to acquire the Company without the consent of the existing
shareholders. The Company may opt out of one or more of these provisions only by
an amendment to the Company's Articles of Incorporation approved by both the
Board of Directors and the shareholders. With respect to the control-share
acquisition and disgorgement provisions, such amendment would be required to be
adopted within 90 days after the date the shares offered hereby are registered
under the Exchange Act. The Company does not intend to opt out of any of these
provisions.
Registration Rights
The holders of the shares of Common Stock issued upon exercise of the
Series A Warrants and the Series C Warrant are entitled to specific rights with
respect to the registration under the Securities Act, for resale to the public,
of a total of 415,275 shares of Common Stock and 622,913 shares of Common Stock,
respectively, and the holder of the Series B Warrant is entitled to specific
rights with respect to the registration under the Securities Act for resale to
the public of the Series B Warrant (collectively, the "Registration
Securities"), pursuant to the terms of Registration Rights Agreements executed
in connection with the Private Placements (the "Agreements"). The Agreements
provide that at any time after the Offering, the holders of each of the
Registration Securities may twice require the Company, whether or not the
Company proposes to register its Common Stock for sale, to register all or part
of their Registration Securities and the Company must use its best efforts to
register such Registration Securities. In addition, the Agreements provide that,
with certain exceptions, in the event the Company proposes to register any
shares of Common Stock under the Securities Act by registration on Forms S-1,
S-2 or S-3 for its own account or otherwise, such holders are entitled to
include their Registration Securities in such registration, subject to certain
conditions and limitations, which include the right of the managing underwriter
of any such offering to exclude all or a portion of such Registration Securities
from such registration which the managing underwriter believes would materially
and adversely affect such registration. The Company is required to bear the
expenses of all such registrations (except underwriting discounts and selling
commissions). The holders of the Registration Securities have agreed not to
exercise such registration rights for a period of 13 months after the date of
this Prospectus without the prior consent of the Underwriter.
Transfer Agent and Registrar
The Transfer Agent and Registrar for the Common Stock is Continental Stock
Transfer & Trust Company, New York, New York.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, 3,207,070 shares of Common Stock and the
Series B Warrant to purchase 3,500,000 shares of Common Stock will be
outstanding. The 900,000 shares of Common Stock and 4,000,000 Redeemable
Warrants sold in the Offering (1,035,000 shares of Common Stock and 4,600,000
Redeemable Warrants if the Underwriter's over-allotment option is exercised in
full) will be freely tradeable without restriction or further registration under
the Securities Act unless acquired by an "affiliate" of the Company (as that
term is defined in the Securities Act) which securities will be subject to the
resale limitations of Rule 144 under the Securities Act ("Rule 144"). See
"Underwriting."
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<PAGE>
The remaining 2,307,070 shares of Common Stock and the Series B Warrant to
purchase 3,500,000 shares of Common Stock which will be outstanding upon
consummation of the Offering were issued by the Company in private transactions
in reliance upon the "private placement" exception under Section 4(2) of the
Securities Act at various times between February 1994 and September 1996, and
are therefore "restricted securities" within the meaning of Rule 144
("Restricted Securities"). In general, Rule 144 allows a person who has
beneficially owned Restricted Securities for at least two years, including
persons who may be deemed affiliates of the Company, to sell, within any
three-month period, up to the number of Restricted Securities that does not
exceed the greater of (i) one percent of the Common Stock or other units of the
class outstanding, and (ii) the average weekly trading volume in such securities
during the four calendar weeks preceding the date on which notice of the sale is
filed with the Commission. A person who is not deemed to have been an affiliate
of the Company at any time during the 90 days preceding a sale and who has
beneficially owned his Restricted Securities for at least three years would be
entitled to sell such Restricted Securities without regard to the volume
limitations described above and the other conditions of Rule 144.
Notwithstanding the foregoing, each officer and director of the Company,
all holders of the shares of Common Stock and all holders of any options,
warrants or other securities convertible, exercisable or exchangeable for shares
of Common Stock have agreed not to, directly or indirectly, offer, sell,
transfer, pledge, assign, hypothecate or otherwise encumber or dispose of any of
the Company's securities, whether presently owned, for a period of 13 months
after the date of this Prospectus without the prior consent of the Company and
the Underwriter (the "Lock-Up Period"). The foregoing restriction does not apply
to the 4,000,000 Redeemable Warrants (4,600,000 Redeemable Warrants if the
Underwriter's over-allotment option is exercised in full) and the underlying
shares of Common Stock. An appropriate legend shall be marked on the back of the
stock certificates representing all such securities. See "Underwriting." In
addition, the Company intends to file a registration statement on Form S-8 to
register 300,000 shares subject to the Stock Plan following the date of this
Prospectus. See "Management--Stock Plan." Market sales of a substantial number
of shares of Common Stock, or the availability of such shares for sale in the
public market, could adversely affect prevailing market prices of the Common
Stock. In addition, sales of either the Redeemable Warrants or the underlying
shares of Common Stock, the exercise of the Series B Warrant or even the
existence of the Redeemable Warrants or the Series B Warrant, may depress the
price of the Common Stock or the Redeemable Warrants in any market which may
develop for such securities. Upon the termination of the Lock-up Period,
approximately 1,163,462 Restricted Shares will be immediately eligible for sale
in the public market in reliance on Rule 144. The Commission has proposed
certain amendments to Rule 144 that would reduce by one year the holding periods
required for shares subject to Rule 144 to become eligible for resale in the
public market. This proposal, if adopted, would increase the number of shares of
Common Stock eligible for immediate resale following the expiration of the
Lockup Period. No assurance can be given as to whether or when the proposal will
be adopted by the Commission.
UNDERWRITING
A.S. Goldmen & Co., Inc. (the "Underwriter") has entered into an
Underwriting Agreement with the Company pursuant to which, and subject to the
terms and conditions thereof, it has agreed to purchase all of the Shares and
Redeemable Warrants offered by the Company hereby.
The Underwriter has advised the Company that it initially proposes to offer
the Shares and Redeemable Warrants to the public at the public offering prices
set forth on the cover page of this Prospectus and that the Underwriter may
allow to certain dealers who are members of the National Association of
Securities Dealers, Inc. (the "NASD") concessions of not in excess of $_____ per
Share, of which amount a sum not in excess of $______ per Share may in turn be
reallowed by such dealers
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<PAGE>
to other dealers. After the commencement of the Offering, the public offering
prices, the concessions and the reallowances may be changed. The Underwriter has
informed the Company that it does not expect sales to discretionary accounts to
exceed five percent of the total number of Securities offered by the Company
hereby.
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments which the Underwriter may be required to make in respect thereof. The
Company has agreed to pay the Underwriter a non-accountable expense allowance
equal to three percent of the gross proceeds derived from the sale of the Shares
and Redeemable Warrants underwritten.
Upon the exercise of any Redeemable Warrants more than one year after the
date of this Prospectus, which exercise was solicited by the Underwriter and to
the extent not inconsistent with the guidelines of the NASD and the Rules and
Regulations of the Commission, the Company has agreed to pay the Underwriter a
commission of four percent of the aggregate exercise price of such Redeemable
Warrants. However, no compensation will be paid to the Underwriter in connection
with the exercise of the Redeemable Warrants if (a) the market price of the
Common Stock is lower than the exercise price, (b) the Redeemable Warrants are
held in a discretionary account or (c) the Redeemable Warrants are exercised in
an unsolicited transaction where the holder of the Redeemable Warrant has not
stated in writing that the transaction was solicited and has not designated in
writing the Underwriter as the soliciting agent. Unless granted an exemption by
the Commission from Rule 10b-6 under the Exchange Act, as amended, the
Underwriter and any soliciting broker-dealers are prohibited from engaging in
any market-making activities or solicited brokerage activities with regard to
the Company's securities during the periods prescribed by exemption (xi) to Rule
10b-6 before the solicitation of the exercise of any Redeemable Warrants until
the later of termination of such solicitation activity or the termination (by
waiver or otherwise) of any right that the Underwriter and any soliciting
broker-dealers may have to receive a fee for the exercise of the Redeemable
Warrants following such solicitation. As a result, the Underwriter and any
soliciting broker-dealers may be unable to continue to provide a market for the
Company's securities during certain periods while the Redeemable Warrants are
exercisable. If the Underwriter has engaged in any of the activities prohibited
by Rule 10b-6 during the periods described above, the Underwriter undertakes to
waive unconditionally its right to receive a commission on the exercise of such
Redeemable Warrants.
Each director and officer of the Company, all present holders of the shares
of Common Stock and all holders of any options, warrants or other securities
convertible, exercisable or exchangeable for shares of Common Stock have agreed
not to directly or indirectly, offer, sell, transfer, pledge, assign,
hypothecate or otherwise encumber or dispose of any of the Company's securities,
whether or not presently owned, for a period of 13 months after the date of this
Prospectus without the prior written consent of the Company and the Underwriter.
The foregoing restriction does not apply to the 4,000,000 Redeemable Warrants
(4,600,000 Redeemable Warrants if the Underwriter exercises its over-allotment
option in full) and the underlying shares of Common Stock. An appropriate legend
shall be marked on the back of stock certificates representing all such
securities.
The Company has granted to the Underwriter, an option exercisable during
the 45-day period commencing on the date of this Prospectus to purchase from the
Company, at the offering price less underwriting discount, up to an aggregate of
an additional 135,000 shares of Common Stock and/or an additional 600,000
Redeemable Warrants, for the sole purpose of covering over-allotments, if any.
Upon consummation of the Offering, the Company shall sell to the
Underwriter or its designees, for nominal consideration, warrants (the
"Underwriter's Warrants") to purchase from the Company 90,000 shares of Common
Stock and 400,000 Redeemable Warrants. The Underwriter's
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<PAGE>
Warrants are initially exercisable at a price of $6.00 per share of Common Stock
and $0.60 per Redeemable Warrant for a period of four years commencing one year
from the date of this Prospectus.
The Underwriter's Warrants provide for adjustment of the type of securities
issuable upon exercise of the Underwriter's Warrants to reflect certain
subdivisions and combinations of the Common Stock. The Underwriter's Warrants
grant to the holders thereof certain rights of registration of the securities
issuable upon exercise of the Underwriter's Warrants.
During the term of the Underwriter's Warrants, the holders are given the
opportunity to profit from a rise in the market price of the Common Stock with a
resulting dilution in the interest of other shareholders. Moreover, the holders
may exercise the Underwriter's Warrants at a time when the Company would in all
likelihood be able to obtain equity capital on terms more favorable than those
provided in the Underwriter's Warrants.
Prior to this Offering, there has been no public market for any of the
Company's securities. Accordingly, the offering prices of the Shares and the
Redeemable Warrants and the terms of the Redeemable Warrants were determined by
negotiation between the Company and the Underwriter. Factors considered in
determining such price and terms, in addition to prevailing market conditions,
included the prospects for the industry in which the Company competes, an
assessment of the Company's management, the prospects of the Company, its
capital structure and such other factors which are deemed relevant.
The foregoing is a summary of certain terms of the Underwriting Agreement,
copies of which were filed with the Commission as an exhibit to the Registration
Statement of which this Prospectus is a part. Reference is hereby made to such
exhibit for a detailed description of the provisions thereof as summarized
above. See "Additional Information".
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby is being passed
upon for the Company by Pepper, Hamilton & Scheetz, Philadelphia, Pennsylvania.
Orrick, Herrington & Sutcliffe LLP, New York, New York, has acted as counsel to
the Underwriter in connection with the Offering.
EXPERTS
The financial statements of the Company as of December 31, 1995 and for the
period from May 17, 1994 (inception) through December 31, 1994 and the year
ended December 31, 1995 included in this Prospectus or in the Registration
Statement of which this Prospectus forms a part, have been audited by Grant
Thornton LLP, independent certified public accountants, whose reports thereon
appear herein and elsewhere in this Registration Statement. Such financial
statements are included in reliance upon the reports of Grant Thornton LLP,
given upon the authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company is not currently subject to the information requirements of the
Exchange Act. As a result of the Offering, the Company will be required to file
reports and other information with the Commission pursuant to the informational
requirements of the Exchange Act.
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<PAGE>
The Company has filed with the Commission a Registration Statement on Form
SB-2 under the Securities Act, with respect to the Securities offered hereby. As
permitted by the rules and regulations of the Commission, this Prospectus, which
is part of the Registration Statement, omits certain information, exhibits,
schedules and undertakings set forth in the Registration Statement. For further
information pertaining to the Company and the Common Stock, reference is made to
such Registration Statement and the exhibits and schedules thereto. Statements
contained in this Prospectus as to the contents or provisions of any documents
referred to herein are not necessarily complete, and in each instance, reference
is made to the copy of the document filed as an exhibit to the Registration
Statement. The Registration Statement may be inspected without charge at the
Office of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
Copies of the Registration Statement may be obtained from the Commission at
prescribed rates from the Public Reference Section of the Commission at such
address, and at the Commission's regional offices located at 7 World Trade
Center, Suite 1300, New York, New York 10048, and at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. In addition,
registration statements and certain other filings made with the Commission
through its Electronic Data Gathering, Analysis and Retrieval ("EDGAR") system
are publicly available through the Commission's site on the Internet's World
Wide Web, located at http://www.sec.gov. The Registration Statement, including
all exhibits thereto and amendments thereof, has been filed with the Commission
through EDGAR.
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<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Certified Public Accountants F-2
Independence Brewing Company Financial Statements F-3
Notes to Independence Brewing Company Financial Statements F-7
F-1
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors and Shareholders
Independence Brewing Company
We have audited the accompanying balance sheet of Independence Brewing
Company as of December 31, 1995, and the related statements of operations,
changes in shareholders' equity (deficiency) and cash flows for the period from
May 17, 1994 (inception) through December 31, 1994 and for the year ended
December 31, 1995. 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 audit.
We conducted our audit 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 provides 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 Independence Brewing Company
as of December 31, 1995, and the results of its operations and cash flows for
the period from May 17, 1994 (inception) through December 31, 1994 and for the
year ended December 31, 1995 in conformity with generally accepted accounting
principles.
Philadelphia, Pennsylvania
September 27, 1996
F-2
<PAGE>
Independence Brewing Company
BALANCE SHEETS
December 31, June 30,
ASSETS 1995 1996
----------- -----------
(unaudited)
Current assets
Cash and cash equivalents $ 2,782 $ 4,762
Accounts receivable 15,080 62,001
Inventories 90,355 86,547
----------- -----------
Total current assets 108,217 153,310
Equipment and leasehold improvements, net 956,593 964,172
Deferred charges 21,273 32,353
Other 18,043 17,357
----------- -----------
$ 1,104,126 $ 1,167,192
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities
Current maturities of long-term debt $ 75,600 $ 120,840
Current maturities of capital lease
obligations 3,228 3,360
Promissory note payable -- 100,000
Subordinated convertible notes 75,000 263,300
Advances from officer 5,150 14,040
Accounts payable and accrued expenses 186,782 348,393
----------- -----------
Total current liabilities 345,760 849,933
Long-term liabilities
Deferred rent 21,676 28,558
Capital lease obligations 3,195 1,482
Long-term debt 577,956 520,152
----------- -----------
Total liabilities 948,587 1,400,125
----------- -----------
Commitments and contingencies -- --
Shareholders' equity (deficiency)
Common stock, no par value - authorized,
2,000,000 shares; issued and
outstanding, 1,166,538 and 1,176,712
shares in 1995 and 1996, respectively 230,657 261,188
Accumulated deficit (75,118) (494,121)
----------- -----------
Total shareholders' equity (deficiency) 155,539 (232,933)
----------- -----------
$ 1,104,126 $ 1,167,192
=========== ===========
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
Independence Brewing Company
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from Six months ended
May 17, 1994 June 30,
(inception) through Year ended -------------------------
December 31, 1994 December 31, 1995 1995 1996
----------------- ----------------- ---------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Sales $ -- $ 237,644 $ 43,516 $ 277,326
Less excise taxes -- 13,338 2,000 11,193
----------- ----------- ----------- -----------
Net sales -- 224,306 41,516 266,133
Cost of goods sold -- 486,229 212,485 388,685
----------- ----------- ----------- -----------
Gross loss -- (261,923) (170,969) (122,552)
----------- ----------- ----------- -----------
Advertising, promotional and
selling expenses -- 93,039 46,206 74,926
General and administrative expenses 38,538 278,565 173,119 191,756
----------- ----------- ----------- -----------
38,538 371,604 219,325 266,682
----------- ----------- ----------- -----------
Operating loss (38,538) (633,527) (390,294) (389,234)
----------- ----------- ----------- -----------
Other income (expense)
Interest expense -- (51,729) (28,807) (51,453)
Other, net 2,427 38,450 3,327 21,684
----------- ----------- ----------- -----------
2,427 (13,279) (25,480) (29,769)
----------- ----------- ----------- -----------
Loss before income taxes (36,111) (646,806) (415,774) (419,003)
Income taxes -- 1,496 893 --
----------- ----------- ----------- -----------
NET LOSS $ (36,111) $ (648,302) $ (416,667) $ (419,003)
=========== =========== =========== ===========
Per share data
Net loss per common share $ (0.02) $ (0.30) $ (0.21) $ (0.19)
=========== =========== =========== ===========
Weighted average shares outstanding 1,712,656 2,136,463 2,008,511 2,212,133
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
Independence Brewing Company
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIENCY)
Period from May 17, 1994 (inception) through
December 31, 1994, year ended December 31, 1995
and six months ended June 30, 1996
<TABLE>
<CAPTION>
Common stock Total
------------------------ shareholders'
Number of Accumulated equity
shares Amount deficit (deficiency)
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Issuance of common stock 444,750 $ 427,744 $ -- $ 427,744
Net loss for the period from May 17, 1994
(inception) through December 31, 1994 -- -- (36,111) (36,111)
----------- ----------- ----------- -----------
Balance at December 31, 1994 444,750 427,744 (36,111) 391,633
Issuance of common stock 140,081 412,208 -- 412,208
100% stock dividend 581,707 -- -- --
Net loss for the year ended
December 31, 1995 -- -- (648,302) (648,302)
Reclassification of previously
undistributed losses -- (609,295) 609,295 --
----------- ----------- ----------- -----------
Balance at December 31, 1995 1,166,538 230,657 (75,118) 155,539
Issuance of common stock (unaudited) 10,174 30,531 -- 30,531
Net loss for the six months ended
June 30, 1996 (unaudited) -- -- (419,003) (419,003)
----------- ----------- ----------- -----------
Balance at June 30, 1996 (unaudited) 1,176,712 $ 261,188 $ (494,121) $ (232,933)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE>
Independence Brewing Company
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from Six months ended
May 17, 1994 June 30,
(inception) through Year ended --------------------------
December 31, 1994 December 31, 1995 1995 1996
------------------- ----------------- ---------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net loss $ (36,111) $(648,302) $(416,667) $(419,003)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation and amortization -- 61,865 27,691 33,610
Issuance of common stock for services 13,750 18,000 -- --
Decrease (increase) in accounts receivable (5,350) (9,730) 199 (46,921)
Decrease (increase) in inventories (14,208) (76,147) (52,443) 3,808
Decrease (increase) other (20,589) 2,545 1,854 12,095
Increase in accounts payable and
accrued expenses 1,353 185,430 132,593 161,611
Increase in deferred rent -- 21,676 9,000 6,882
--------- --------- --------- ---------
Net cash used in operating
activities (61,155) (444,663) (297,773) (247,918)
--------- --------- --------- ---------
Cash flows from investing activities
Purchases of property and equipment (610,003) (400,071) (339,353) (40,143)
Other -- (13,638) (13,638) --
--------- --------- --------- ---------
Net cash used in investing
activities (610,003) (413,709) (352,991) (40,143)
--------- --------- --------- ---------
Cash flows from financing activities
Proceeds from subordinated convertible
notes -- 75,000 -- 188,300
Proceeds from (repayments of) long-term
debt, net 180,000 473,482 500,000 (12,564)
Proceeds from issuance of common stock 413,994 384,836 302,300 6,996
Payments under capital lease obligations -- -- -- (1,581)
Advances from officers, net 5,000 -- 150 8,890
Proceeds from note payable -- -- -- 100,000
--------- --------- --------- ---------
Net cash provided by financing
activities 598,994 933,318 802,450 290,041
--------- --------- --------- ---------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS (72,164) 74,946 151,686 1,980
Cash and cash equivalents (deficit) at
beginning of year -- (72,164) (72,164) 2,782
--------- --------- --------- ---------
Cash and cash equivalents (deficit) at
end of year $ (72,164) $ 2,782 $ 79,522 $ 4,762
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
Independence Brewing Company
NOTES TO FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Independence Brewing Company (the Company) is engaged in the manufacture,
bottling, distribution and sale of beer and ale products primarily in the
Mid-Atlantic area. The Company competes with other beer and beverage
companies not only for consumer acceptance and loyalty but also for shelf
and tap space in retail establishments and for marketing focus by the
Company's distributors and their customers, all of which also distribute
and sell other beers and alcoholic beverage products.
The manufacture and sale of alcoholic beverages is a business that is
highly regulated and taxed at the federal, state and local levels. The
Company's operations may be subject to more restrictive regulations and
increased taxation by federal, state and governmental agencies than are
those of non-alcohol related businesses.
1. Interim Financial Information
The financial statements of the Company as of June 30, 1996 and for the six
months ended June 30, 1995 and 1996 and related footnote information are
unaudited. All adjustments (consisting only of normal recurring
adjustments) have been made which, in the opinion of management, are
necessary for a fair presentation. Results of operations for the six months
ended June 30, 1996 are not necessarily indicative of the results that may
be expected for any future period.
2. Basis of Financial Statement Presentation
The accounting and reporting policies of the Company conform with generally
accepted accounting principles and predominant practices within the brewing
industry.
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. These estimates and assumptions also affect reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
3. Supplemental Cash Flow Information
Cash and cash equivalents include cash on hand and short-term, highly
liquid investments with original maturities at the time of purchase of
three months or less. Cash paid for income taxes for the period from May
17, 1994 (inception) through December 31, 1994 and for the year ended
December 31, 1995 was $-0- and $1,496, respectively, and for the six months
ended June 30, 1995 and 1996 was $893 and $-0-, respectively. Cash paid for
interest for the period from May 17, 1994 (inception) through December 31,
1994 and for the year ended December 31, 1995 was $-0- and $51,729,
respectively, and for the six months ended June 30, 1995 and 1996 was
$24,865 and $38,787, respectively.
(Continued)
F-7
<PAGE>
Independence Brewing Company
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
4. Inventories
Inventories, which consist principally of hops, bottles and packaging, are
stated at the lower of cost or market determined on the first-in, first-out
basis.
5. Concentrations of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of temporary cash
investments and trade receivables. The Company places its temporary cash
investments with high credit quality financial institutions. The Company
sells primarily to independent beer and ale distributors primarily in the
Mid-Atlantic area. Receivables arising from these sales are not
collateralized; however; credit risk is minimized as a result of the
diverse nature of the Company's customer base.
6. Revenue Recognition
The Company recognizes revenue when goods are shipped to its customers. The
Company records bad debt expense at the time it is judged that an account
receivable is uncollectible.
7. Depreciation and Amortization
Equipment and leasehold improvements are carried at cost. Depreciation of
equipment and amortization of leasehold improvements are computed using the
straight-line method over the estimated useful lives of the assets or the
lease term, if less. Amortization of intangibles is provided by the
straight-line method over periods ranging from three to five years.
The Financial Accounting Standards Board (FASB) issued a new standard,
Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of, which provides guidance on when to recognize and how to
measure impairment losses of long-lived assets and certain identifiable
intangibles and how to value long-lived assets to be disposed of. The
adoption of this new statement is not expected to have a material impact on
the Company's financial position or results of operations. The Company is
required to adopt this new standard for the year ended December 31, 1996.
8. Advertising, Promotional and Selling Expenses
Advertising, promotional and selling expenses are charged to expense during
the period in which they are incurred. Total advertising, promotional and
selling expenses for the period from May 17, 1994 (inception) through
December 31, 1994 and for the year ended December 31, 1995 were $-0- and
$93,039, respectively, and for the six months ended June 30, 1995 and 1996
were $46,206 and $74,926, respectively.
(Continued)
F-8
<PAGE>
Independence Brewing Company
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
9. Income Taxes
The Company had elected to be taxed pursuant to Subchapter S of the
Internal Revenue Code for the year ended December 31, 1995, but on December
1, 1995, the Company exceeded the maximum number of shareholders as
permitted under Subchapter S. Accordingly, all taxable income or loss and
tax credits are the responsibility of the Company's shareholders for the
period from January 1, 1995 through November 30, 1995. Accordingly, the
Company terminated its Subchapter S election and is now taxed as a C
corporation, effective December 1, 1995. Effective with the change to a C
corporation, the Company accounts for its income taxes in accordance with
SFAS No. 109, Accounting for Income Taxes. Under the liability method
specified by SFAS No. 109, deferred tax assets and liabilities are
determined based on the difference between the financial statement and tax
bases of assets and liabilities as measured by the enacted tax rates which
will be in effect when these differences reverse. Deferred tax expense is
the result of changes in deferred tax assets and liabilities. The principal
type of account resulting in differences between assets and liabilities for
financial statement and tax return purposes is accumulated depreciation.
Income taxes reported on the statement of operations represents federal and
state income taxes prior to 1995 when the Company was taxed as a C
corporation.
As a result of the Proposed Public Offering (note O), the Company will
experience an "ownership change" for purposes of determining its ability to
use its net operating loss (NOL) carryovers as deductions against future
taxable income under federal income tax law. Its annual NOL deductions
after the Proposed Public Offering will be limited to a dollar amount
determined by multiplying the value of the Company's outstanding stock as
of the offering date by an index rate determined under federal law. The
annual limitation is expected to be approximately $900,000.
10. Fair Value of Financial Instruments
The Company adopted, effective January 1, 1995, SFAS No. 107, Disclosures
about Fair Value of Financial Instruments, which requires entities to
disclose the estimated fair value of their assets and liabilities
considered to be financial instruments. Financial instruments consist
primarily of cash and cash equivalents, accounts receivable and long-term
debt. Based on the borrowing rates currently available to the Company,
long-term debt approximates fair value at December 31, 1995 and June 30,
1996.
11. Related Party Transactions
The Company has entered into numerous related party transactions involving
indebtedness, including the guaranteeing of certain indebtedness. These
transactions are described in notes E, F, G, I3, L and M.
(Continued)
F-9
<PAGE>
Independence Brewing Company
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
12. Loss Per Common Share
Loss per common share was computed based on the weighted average number of
common shares and common share equivalents outstanding during the year, as
restated for the 100% stock dividend, effected in the form of a stock
split, payable on February 10, 1996 for shareholders of record on December
6, 1995 (note J). Warrants were not considered because they are
antidilutive. In connection with the Private Placements (note L), 1,038,188
shares issued have been treated as outstanding for all periods in
calculating loss per common share because such shares were issued for
consideration below the Proposed Public Offering price of $5.00 per share
(note O). Fully dilutive loss per common share has not been presented
because it was antidilutive.
13. Reclassification
Certain 1994 and 1995 amounts have been reclassified to conform to the 1996
financial statement presentation.
NOTE B - INVENTORIES
Inventories consist of the following:
December 31, June 30,
1995 1996
----------- ----------
(unaudited)
Raw materials $10,661 $15,022
Work in process 8,128 13,288
Finished goods 12,387 7,098
Packaging 59,179 51,139
------- -------
$90,355 $86,547
======= =======
NOTE C - EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements consist of the following:
Estimated December 31, June 30,
useful lives 1995 1996
------------ ----------- -----------
(unaudited)
Brewing equipment 5 to 20 years $ 859,815 $ 888,151
Leasehold improvements 10 years 156,906 153,463
Transportation equipment 5 years -- 15,250
---------- ----------
1,016,721 1,056,864
Less accumulated depreciation
and amortization 60,128 92,692
---------- ----------
$ 956,593 $ 964,172
========== ==========
(Continued)
F-10
<PAGE>
Independence Brewing Company
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE C - EQUIPMENT AND LEASEHOLD IMPROVEMENTS - Continued
Depreciation expense for the period from May 17, 1994 (inception) through
December 31, 1994 and for the year ended December 31, 1995 was $-0- and
$60,128, respectively, and for the six months ended June 30, 1995 and 1996
was $27,000 and $32,564, respectively.
NOTE D - DEFERRED CHARGES
Deferred charges consist of the following:
December 31, June 30,
1995 1996
------------ -----------
(unaudited)
Deferred interest (original issue discount) $ 9,372 $32,910
Financing fees 11,221 11,221
Organizational costs 2,417 2,417
------- -------
23,010 46,548
Less accumulated amortization 1,737 14,195
------- -------
$21,273 $32,353
======= =======
NOTE E - SUBORDINATED CONVERTIBLE NOTES
During December 1995, $75,000 was loaned to the Company from certain
shareholders and officers of the Company. These notes accrued interest at a
rate of 10% per annum and were payable within one year of origination.
These notes were convertible at maturity, at the discretion of the
noteholders, into shares of common stock at $3.00 per share. As a condition
to the extension of credit, the Company agreed to issue to the holders
common stock valued at $3.00 per share in an amount equal to 12.5% of the
principal amount borrowed on the date the obligation became due or the date
of repayment of the principal and interest, whichever was earlier. These
obligations are subordinated to the Company's long-term debt. Accordingly,
the Company issued a total of 3,124 shares of common stock associated with
these notes. A deferred interest charge of $3.00 per share was assigned to
these shares and is being amortized over the terms of the notes to which
they relate. At December 31, 1995, a deferred interest charge of $9,372 was
recorded. No amortization was taken for the year ended December 31, 1995
due to the origination dates of the notes. Amortization expense for the six
months ended June 30, 1995 and 1996 was $-0- and $4,686, respectively.
Subsequent to year-end, another $188,300 was loaned to the Company from
certain shareholders and others. These notes accrued interest at a rate of
10% per annum and were payable within one year of origination. These notes
were convertible at maturity, at the discretion of the noteholders, into
shares of common stock at $3.00 per share. As a condition to the extension
of credit, the Company issued to the noteholders common stock valued at
$3.00 per share in an amount equal to 12.5% of the respective notes.
Accordingly, the Company has issued a total of 7,844 shares of common stock
associated with these notes. In 1996, a deferred interest charge of
$23,532, or $3.00 per share, was assigned to these shares and is being
amortized over the terms of the notes to which they relate. These notes are
subordinated to the Company's long-term debt. Amortization expense for the
six months ended June 30, 1996 was $6,726.
(Continued)
F-11
<PAGE>
Independence Brewing Company
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE E - SUBORDINATED CONVERTIBLE NOTES - Continued
On August 12, 1996, all of the foregoing notes were converted into 92,182
shares of common stock. Additionally, aggregate unamortized deferred
interest charges of $17,708 were written off as of August 12, 1996 (note
M).
NOTE F - LONG-TERM DEBT
Long-term debt consists of the following:
December 31, June 30,
1995 1996
----------- -----------
(unaudited)
Small Business Administration (SBA) Note (1) $419,248 $412,080
Philadelphia Industrial Development Corporation
(PIDC) Note (2) 234,308 228,912
-------- --------
653,556 640,992
Less current portion 75,600 120,840
-------- --------
$577,956 $520,152
======== ========
(1) Principal and interest payments of $3,584 are due monthly and increase to
$6,082 on March 1, 1997. Interest is payable at the prime rate plus 2%
(10.50% and 10.25% at December 31, 1995 and June 30, 1996, respectively).
Interest expense for the year ended December 31, 1995 was $42,392 and for
the six months ended June 30, 1995 and 1996 was $18,849 and $32,677,
respectively. The note is secured by substantially all of the Company's
assets, an annuity and certificate of deposit, and personal guarantees of
the Company's President.
(2) Principal and interest payments of $3,389 are due monthly. Interest is
payable at 3.75%. Interest expense for the year ended December 31, 1995 was
$6,763 and for the six months ended June 30, 1995 and 1996 was $1,685 and
$4,382, respectively. The note is secured by substantially all of the
Company's assets and personal guarantees of the Company's President.
Principal repayments due on long-term debt at June 30, 1996 are as follows
(unaudited):
Year ended June 30,
-------------------
1997 $ 120,840
1998 107,409
1999 108,718
2000 110,077
2001 111,488
Thereafter 82,460
-----------
$ 640,992
===========
F-12
<PAGE>
Independence Brewing Company
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE G - ADVANCES FROM OFFICER
Advances totalling $5,150 and $14,040 at December 31, 1995 and June 30,
1996, respectively, were due to the President. These advances did not bear
interest and have been classified as current at December 31, 1995 and June
30, 1996.
NOTE H - CAPITAL LEASE OBLIGATIONS
In May 1996, the Company entered into an equipment lease which qualified as
a capital lease. Monthly payments totaled $302, with the lease expiring in
November 1997. The related asset, with a cost of $9,640 and accumulated
depreciation of $1,928 and $2,892 as of December 31, 1995 and June 30,
1996, respectively, is reflected on the balance sheet in brewing equipment.
In connection with the lease on the manufacturing facility, the Company has
the option to purchase the building beginning after the second year of the
lease for terms, as defined therein. Depreciation is being provided over
the estimated useful lives of the assets (three years) and totaled $1,928
and $964 for the year ended December 31, 1995 and six months ended June 30,
1996, respectively.
Future minimum payments under the capital lease at June 30, 1996 are as
follows (unaudited):
Year ended June 30,
-------------------
1996 $ 3,624
1997 1,510
------------
5,134
Less amount representing interest 292
Present value of minimum lease payments 4,842
Less current portion 3,360
------------
Long-term capital lease obligations $ 1,482
============
F-13
<PAGE>
Independence Brewing Company
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE I - COMMITMENTS AND CONTINGENCIES
1. Operating Leases
The Company has entered into noncancellable agreements for the purposes of
renting its manufacturing facility and leasing certain office and
manufacturing-related equipment. In connection with the lease on the
manufacturing facility, the Company has the option to purchase the building
beginning after the second year of the lease for terms, as defined therein.
The following is a schedule by year of approximate future minimum payments
for such agreements with terms in excess of one year (unaudited):
Year ended June 30,
-------------------
1997 $ 68,100
1998 69,700
1999 71,300
2000 73,900
2001 78,000
Thereafter 345,300
------------
$ 706,300
The Company has entered into a sublease agreement for a portion of its
rented manufacturing facility. This sublease is on a month-to-month basis
and has provided approximately $8,000 of rental income for the year ended
December 31, 1995. Rent expense for the year ended December 31, 1995 was
$82,321. Rent expense for the six months ended June 30, 1995 and 1996 was
$31,494 and $35,570, respectively.
2. Other
In the normal course of business, the Company has been named as a defendant
in certain lawsuits. Although the ultimate outcome of these suits cannot be
ascertained at this time, it is the opinion of management that the
resolution of such suits will not have a material adverse effect on the
financial position or results of operations of the Company.
3. Employment Agreements
On August 12, 1996, the Company entered into a three-year employment
agreement with the President and Chief Executive Officer expiring on August
12, 1999. Compensation under this agreement is $50,000 per year, subject to
an increase up to $100,000 upon closing of the Proposed Public Offering
(note P), plus annual increases of not less than 10% of the prior year's
salary for the first two years after the Proposed Public Offering and
annual bonuses as determined by the Board. The agreement provides for a
covenant not to compete with the Company during the term of employment and
for a two year period after employment ends. Finally, if terminated for any
reason other than "cause," "disability" or "death," each as defined
therein, the Company shall pay salary accrued through the date of
termination and for two years thereafter.
(Continued)
F-14
<PAGE>
Independence Brewing Company
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE I - COMMITMENTS AND CONTINGENCIES - Continued
Additionally, on August 12, 1996, the Company entered into an employment
agreement with the brewmaster expiring on December 31, 1999. Compensation
under this agreement is $45,000 per year, plus annual increases and bonuses
as determined by the Board. The agreement provides for a covenant not to
compete with the Company during the term of employment and for a two year
period after employment ends. Finally, if terminated for any reason other
than "cause," "disability" or "death," each as defined therein, the Company
shall pay salary accrued through the date of termination and for two years
thereafter.
4. Purchase Commitments
The Company has entered into a purchase agreement to purchase new bottling
line equipment approximating $400,000. The Company has paid $30,000 towards
the commitment.
5. Trademark Protection
Robert W. Connor, Jr., President and Chief Executive Officer of the
Company, is a director, officer and a shareholder of Independence Brewing
Company of Florida, Inc. ("Independence Florida"), a corporation that is
currently operating a brewpub in Ft. Lauderdale, Florida, utilizing the
"Independence" name and logo and the name "Independence Brewery and
Restaurant" (the "Independence Marks"). In addition, Independence Florida
has filed federal trademark and service mark applications for "Independence
Brewery and Restaurant" (the "Applications"). The Company and Mr. Connor
have proposed to enter into an agreement with Independence Florida whereby
(i) Independence Florida will transfer and assign all of its rights, title
and interest in the Independence Marks and the Applications to the Company,
(ii) Independence Florida will have a one year royalty free license to use
the Independence Marks and after one year, Independence Florida can
exercise an option to enter into a ten year royalty bearing license with
the Company for such marks, such license to be subject to termination upon
certain conditions, (iii) Independence Florida will repurchase Mr. Connor's
interest in Independence Florida and (iv) the Company will not operate a
bar or restaurant in Independence Florida's geographic region throughout
the term of the license and for a period of two years following termination
of the license (the "Florida Agreement"). Upon execution of the Florida
Agreement, Mr. Connor will resign from his position as an officer and
member of the Board of Directors of Independence Florida. There can be no
assurance that such agreement will be executed, in which event, the Company
may take appropriate legal action to protect its intellectual property
rights with regard to Independence Florida and its use of the term
"Independence." The costs of litigation could be significant and may have a
material adverse effect on the Company's business, financial condition and
results of operations.
The trademark application for the Company's logo has been refused
registration by the United States Patent and Trademark Office based on a
prior registration by Moosehead Brewing Company ("Moosehead") of a
registration for "The Taste of Independence." The Company has abandoned its
federal trademark application for its logo. In addition, Moosehead has a
pending U.S. trademark application for the mark "Independence" for beer.
The Company is currently negotiating a perpetual and exclusive license and
purchase agreement with Moosehead for the use of the term "Independence."
There can be no assurance that such license agreement will be executed. If
the Company is unsuccessful in these negotiations, the Company may find it
necessary to change the brand name of its products, thereby losing any
existing brand recognition in its markets. Such change may involve
considerable expense, including costs involved with building goodwill in a
new brand, and may have a material adverse effect on the Company's
business, financial condition and results of operations.
NOTE J - SHAREHOLDERS' EQUITY
For the period from May 17, 1994 (inception) through December 31, 1994, the
Company sold 439,750 shares of its common stock priced at $2.75 per share
through private offerings aggregating $413,994. In addition, the Company
issued 5,000 shares of its common stock valued at $2.75 per share to an
individual who provided services to the Company.
During 1995, the Company sold 130,957 shares of its common stock priced at
$2.75 or $3.00 per share through private offerings aggregating $384,836. In
addition, the Company issued 6,000 shares of its common stock valued
between $2.75 and $3.00 per share to individuals who provided services to
the Company.
On December 6, 1995, the Board of Directors declared a 100% stock dividend,
effected in the form of a stock split, payable on February 10, 1996 for
shareholders of record on December 6, 1995. As a result of this dividend,
issued and outstanding shares increased from 581,707 to 1,163,414 in 1995
prior to the Company issuing certain convertible investor notes.
Finally, 3,124 shares of common stock valued at $3.00 per share were issued
to holders of the convertible investor notes discussed in note E.
As a result of the Company's termination of its Subchapter S status on
November 30, 1995, the Company has reclassified its previously
undistributed accumulated losses to common stock.
During the six months ended June 30, 1996, the Company sold 2,332 shares of
its common stock priced at $3.00 per share through private offerings
aggregating $6,996. Additionally, 7,844 shares of common stock valued at
$3.00 per share were issued to holders of the convertible investor notes
discussed in note E.
The Company, in connection with the Private Placements discussed in note L,
amended and restated its Articles of Incorporation whereby the Company is
authorized to issue 20,000,000 shares of capital stock, of which 19,000,000
shares are common stock, no par value; 500,000 shares are Series A
preferred stock, par value $10.00 per share (Series A Preferred Stock); and
500,000 shares are Series B preferred stock, par value $10.00 per share
(Series B Preferred Stock).
(Continued)
F-15
<PAGE>
Independence Brewing Company
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE J - SHAREHOLDERS' EQUITY - Continued
Holders of outstanding shares of Series A Preferred Stock shall be entitled
to receive cumulative cash dividends at a rate of $1.80 per share per
annum. Holders of outstanding shares of Series B Preferred Stock shall be
entitled to receive cumulative cash dividends at a rate of $1.40 per share
per annum. Both the Series A Preferred Stock and Series B Preferred Stock
contain mandatory redemption provisions whereby the Company shall redeem
all outstanding shares on the five-year anniversary date of the date of
issuance of such shares at $10.00 cash per share on the occurrence of
certain events, as defined, together with an amount on each redemption date
equal to the accrued and unpaid dividends on such shares to the redemption
date.
NOTE K - MAJOR CUSTOMER INFORMATION
Two customers accounted for approximately 21% and 23% of the Company's
sales during the year ended December 31, 1995. Three customers accounted
for approximately 30%, 21% and 11%, respectively, of the Company's sales
during the six months ended June 30, 1995. Three different customers
accounted for approximately 16%, 12% and 12%, respectively, of the
Company's sales during the six months ended June 30, 1996.
NOTE L - PRIVATE PLACEMENTS
In anticipation of the closing of the financing transactions described
below (the Private Placements), the Company was advanced $100,000 on each
of May 6, 1996 and July 16, 1996, respectively, from Winfield Capital
Corporation (Winfield). These notes accrued interest at a rate of 12.75%
per annum and were due no later than August 15, 1996. The Company's
President personally guaranteed each of the notes. The entire principal
amount of each note was repaid in connection with the closing of the
Private Placements, and the personal guarantees were released.
On August 12, 1996, September 13, 1996 and September 20, 1996, the Company
sold $800,000 of debentures convertible into shares of Series A Preferred
Stock of the Company (the Debentures) to Winfield and certain shareholders
of the Company (collectively, the Purchasers). To the extent that such
shareholders did not so participate, Winfield agreed to act as "standby"
purchaser for the entire $800,000 in Debentures being offered. The
Debentures bear interest at a rate of 12.75% per annum, provided that if
the Debentures are prepaid, as otherwise permitted, the Debentures will
bear interest at a rate of 14% per annum from the date of issuance. The
Company is obligated to make monthly principal payments aggregating $22,222
along with accrued interest, commencing 24 months after the sale of the
Debentures. The Company intends to repay the Debentures with a portion of
the net proceeds from the Proposed Public Offering (note P).
In consideration of the purchase by the Purchasers of the Debentures, the
Purchasers received warrants which entitled them to purchase 415,275 shares
of common stock for the aggregate exercise price of $2,076 (the Series A
Warrants). All of the Series A Warrants were exercised by the Purchasers on
September 13, 1996 and September 20, 1996.
(Continued)
F-16
<PAGE>
Independence Brewing Company
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE L - PRIVATE PLACEMENTS - Continued
In addition, in consideration of the purchase by Winfield of the
Debentures, Winfield received (i) a warrant (the Preferred Warrant) that
entitled Winfield to purchase 70,000 shares of Series B Preferred Stock of
the Company, par value $10.00, exercisable immediately for an aggregate
exercise price of $700,000 and (ii) a warrant (the Series C Warrant) that
entitled Winfield to purchase 622,913 shares of common stock for the
aggregate exercise price of $3,115. Winfield exercised the Preferred
Warrant and the Series C Warrant on September 13, 1996. The Company has an
obligation to redeem all outstanding shares of Series B Preferred Stock
upon the consummation of the Proposed Public Offering (Note P), including
dividends payable to date.
In consideration for agreeing to act as standby purchaser for the balance
of the Debentures not purchased by the Company shareholders and for
agreeing to allow certain shareholders of the Company to participate in the
purchase of the Debentures, Winfield received a warrant (the Series B
Warrant) which entitles Winfield to purchase 3,500,000 shares of common
stock of the Company at a price of $6.00 per share. The Series B Warrant is
immediately exercisable and expires five years following the Company's
initial public offering (note P).
The holders of the shares of stock that were issued upon exercise of the
Series A Warrants, the holders of the shares of common stock that were
issued upon exercise of the Series C Warrant and the holders of the Series
B Warrant are entitled to certain rights with respect to the registration
under the Securities Act, for resale to the public, of the shares of common
stock underlying the Series A Warrants and the Series C Warrant and of the
Series B Warrant, respectively.
NOTE M - RESCISSION OFFER
During the period from June 25, 1994 through December 1, 1995, the Company
offered for sale and sold to investors a total of 207,914 shares of the
Company's common stock (the Original Shares). During the period from
December 1995 through May 1996, the Company offered and sold to investors
notes, convertible into shares of common stock at maturity in the aggregate
principal amount of $263,300 (together with the Original Shares, the
Rescission Securities). Because certain of the applicable provisions of
federal and state securities laws relating to the registration of
securities for offer and sale may not have been complied with in connection
with the offer or sale of the Rescission Securities, the Company offered to
repurchase the Rescission Securities for cash in an amount equal to the
original purchase price plus interest from the date of purchase, less any
dividends, interest payments or cash distributions in respect to the
Rescission Securities. The Company received rescission acceptances from
five shareholders whose investment totalled $24,750 for 9,000 shares of
common stock. On September 27, 1996, the Company repurchased such shares of
common stock for an aggregate purchase price, including interest, of
$26,927.03. The Company subsequently sold 9,000 shares of common stock to
four shareholders for an aggregate purchase price of $24,750. No
underwriters were involved and no commissions were paid.
The investors to which various notes were sold rejected the Rescission
Offer, and on August 12, 1996, these investors converted these notes into
common stock (note E).
F-17
<PAGE>
Independence Brewing Company
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE N - STOCK OPTION PLAN
The Company adopted a nonqualified stock option plan under
which it may grant up to 300,000 shares of common stock. The Company may
not grant any options with a purchase price of less than fair market value
of the common stock as of the date of the grant. Through September 27,
1996, the Company has not granted any options under the Plan.
The FASB issued a new standard, SFAS No. 123, Accounting for Stock-Based
Compensation, which contains a fair value-based method for valuing
stock-based compensation that entities may use, which measures compensation
cost at the grant date based on the fair value of the award. Compensation
is then recognized over the service period, which is usually the vesting
period. Alternatively, the standard permits entities to continue accounting
for employee stock options and similar equity instruments under Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees. Entities that continue to account for stock options using APB
Opinion No. 25 are required to make pro forma disclosures of net income and
earnings per share, as if the fair value-based method of accounting defined
in SFAS No. 123 had been applied. Management anticipates that the Company
will continue to follow APB Opinion No. 25. The Company will be required to
adopt the new standard for its year ending December 31, 1996.
NOTE O - PROPOSED PUBLIC OFFERING (UNAUDITED)
The Company anticipates a public offering in November 1996 of 900,000
shares (the Shares) of common stock, no par value per share (the Common
Stock) and 4,000,000 redeemable Common Stock purchase warrants (the
Redeemable Warrants). The Shares and the Redeemable Warrants (collectively,
the Securities) may be purchased separately and will be separately tradable
immediately upon issuance. It is currently anticipated that the initial
public offering prices of the Shares and the Redeemable Warrants will be
$5.00 and $0.50, respectively. In anticipation of the public offering, the
Company will redeem all its outstanding fractional shares for cash. Each
Redeemable Warrant entitles the registered holder thereof to purchase one
share of Common Stock at an exercise price of $6.00 subject to adjustment,
commencing on the date of this Prospectus until ____, 2001 (60 months from
the date of the Prospectus) at which time the Redeemable Warrants shall
expire. The Redeemable Warrants are redeemable by the Company, with the
consent of the underwriter, at any time commencing one year, after the
offering, at a redemption price of $0.10 per Redeemable Warrant, provided
that the average closing bid price of the Common Stock equals or exceeds
$8.00 per share for any 20 trading days within a period of 30 consecutive
trading days ending on the fifth trading day prior to the date of the
notice of redemption.
The Company has granted to the underwriter a 45-day option to purchase up
to an additional 135,000 shares of Common Stock and/or 600,000 Redeemable
Warrants on the same terms and conditions as set forth above solely to
cover overallotments.
The underwriter of the public offering will receive a discount of 10% and a
nonaccountable expense allowance equal to 3% of the gross proceeds of the
public offering. In addition, the Company has agreed to sell to the
underwriter, for nominal consideration, warrants to purchase 90,000 shares
of Common Stock and 400,000 Redeemable Warrants. The shares and warrants
under the underwriter's warrants will be exercisable at prices not yet
determined for a period of five years from the date of the public offering.
F-18
<PAGE>
Independence Brewing Company
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE P - PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The following represents a pro forma balance sheet of the Company as if the
Private Placements (note L) and Proposed Public Offerings (note O) occurred
on June 30, 1996. The pro forma condensed financial statement is unaudited
and has been prepared using the historical financial statements of the
Company, and are qualified entirely by reference to, and should be read in
conjunction with, such historical financial statements. The pro forma
financial statements are provided for informational and comparative
purposes only. The pro forma financial statement does not purport to be
indicative of the results of operations and financial position of the
Company had such transactions in fact occurred on June 30, 1996 or during
the periods presented or during any future period.
Actual Pro forma
June 30, June 30,
1996 1996
----------- -----------
Assets
Current assets $ 150,470 $ 4,830,764
Property and equipment 964,172 964,172
Other 49,710 28,215
----------- -----------
$ 1,164,352 $ 5,823,151
=========== ===========
Liabilities and shareholders' equity (deficiency)
Current liabilities $ 849,933 $ 409,581
Long-term debt 520,152 185,124
Other liabilities 30,040 30,040
Shareholders' equity (deficiency) (235,773) 5,198,406
----------- -----------
$ 1,164,352 $ 5,823,151
=========== ===========
The pro forma June 30, 1996 balance sheet gives effect to (i) the sale of
900,000 shares of common stock and 4,000,000 Redeemable Warrants in
connection with this offering at the assumed initial pubic offering prices
of $5.00 and $.50, respectively, (ii) repayment of the Company's SBA loan
of $412,080 (note F), (iii) repayment of the $800,000 of debentures and
accrued interest of $29,229, plus the write-off of unamortized
original issue discount of $1,245,825 and write-off of deferred financing
costs of $32,000, (iv) redemption of $700,000 of Series B Preferred Stock
and accrued dividends of $21,237, plus the write-off of unamortized
original issue discount of $1,868,739 and write-off of deferred financing
costs of $28,000, and (v) conversion of $263,300 of subordinated
convertible notes and the write-off of unamortized original issue discount
of $21,485.
The pro forma effect on the reported loss of the Company of $3,668,368 for
the six months ended June 30, 1996 effect (i) the write-off of unamortized
original issue discount of $3,136,059, (ii) the write-off of financing
costs aggregating $60,000, and (iii) payment of assumed accrued interest
and dividends aggregating $50,466.
F-19
<PAGE>
================================================================================
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those 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 the Underwriter. This
Prospectus does not constitute an offer to sell, or a solicitation of an offer
to buy, to any person in any jurisdiction in which such offer to sell or
solicitation is not authorized, or in which the person making such offer or
solicitation is not qualified to do so, or to any person to whom it is unlawful
to make such 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 time subsequent to
the date hereof.
----------
TABLE OF CONTENTS
Page
----
Prospectus Summary.......................................... 3
Risk Factors................................................ 6
Use Of Proceeds............................................ 17
Dividend Policy............................................ 18
Dilution .................................................. 19
Capitalization............................................. 26
Selected Financial Data.................................... 21
Management's Discussion And Analysis Of Financial
Condition And Results Of Operations............... 23
Business .................................................. 29
Management................................................. 41
Principal Shareholders..................................... 45
Certain Transactions....................................... 46
Description Of Securities.................................. 49
Shares Eligible For Future Sale............................ 53
Underwriting............................................... 54
Legal Matters.............................................. 56
Experts .................................................. 56
Additional Information..................................... 56
Index to Financial Statements.............................. F-1
----------
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.
================================================================================
================================================================================
INDEPENDENCE BREWING
COMPANY
900,000 Shares of
Common Stock
and
4,000,000 Redeemable Warrants
----------
PROSPECTUS
----------
A.S. GOLDMEN & CO., INC.
, 1996
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Pursuant to Sections 1741-1747 of the BCL, Article VII of the Company's
Bylaws provides that the Company shall, in the case of directors and officers,
and may, in the case employees and agents, indemnify any such person who is or
was a party (other than a party acting on his or her own behalf) or who is
threatened to be made such a party, to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (including actions brought by or in the right of the Company where
certain standards of conduct have been met), by reason of the fact that such
person is or was a director or officer of the Company, or is or was serving at
the request of the Company on behalf of another enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him or her in connection with such action if
he or she met certain requisite standards of conduct. In all such cases, the
Company shall indemnify any such person against all such expenses actually and
reasonably incurred by him or her in connection with any such action to the
extent that such person has been successful on the merits or in defense of any
such action. The indemnification provisions of the Bylaws are non-exclusive.
Item 25. Other Expenses of Issuance and Distribution.
The following table sets forth an itemized statement of all estimated
expenses, all of which will be paid by the Company, in connection with the
issuance and distribution of the securities being registered:
SEC registration fee................................................... $12,097
Nasdaq SmallCap Market listing fee...................................... 10,000
National Association of Securities Dealers, Inc. fee.................... $4,008
Printing and engraving fees............................................ $50,000
Registrant's counsel fees and expenses................................ $135,000
Accounting fees and expenses........................................... $60,000
Blue Sky expenses and counsel fees..................................... $40,000
Transfer agent and registrar fees....................................... $5,000
Miscellaneous.......................................................... $34,895
--------
TOTAL................................................................. $355,000
========
II-1
<PAGE>
Item 26. Recent Sales of Unregistered Securities.
Since inception, the Company has made sales of the following unregistered
securities:
Common Stock. (i) In May 1994, the Company issued 290,000 shares of Common
Stock to two persons, one of whom is the Company's Chairman of the Board,
President and Chief Executive Officer and the other of whom is the Company's
Secretary and Brewmaster. The shares were issued for nominal consideration as
founder's stock. No underwriters were involved and no commissions were paid. The
shares of Common Stock were issued in reliance on the exemption from
registration contained in Section 4(2).
(ii) In June 1994, the Company issued 151,150 shares of Common Stock to
eight persons for an aggregate purchase price of $415,662.50. No underwriters
were involved and no commissions were paid. The shares of Common Stock were
issued in reliance on the exemption from registration contained in Section 4(2).
(iii) In February 1995, the Company issued 21,904 shares of Common Stock to
five persons, one of which is the Company's Chairman of the Board, President and
Chief Executive Officer, for an aggregate purchase price of $60,236. No
underwriters were involved and no commissions were paid. The shares of Common
Stock were issued in reliance on the exemption from registration contained in
Section 4(2).
(iv) In March 1995, the Company issued 36,946 shares of Common Stock to 10
persons, one of which is a director of the Company, for an aggregate purchase
price of $93,683.50. No underwriters were involved and no commissions were paid.
The shares of Common Stock were issued in reliance on the exemption from
registration contained in Section 4(2).
(v) In April 1995, the Company issued 8,333.33 shares to one person who is
the Company's Chairman of the Board, President and Chief Executive Officer for a
purchase price of $24,999.99. No underwriters were involved and no commissions
were paid. The shares of Common Stock were issued in reliance on the exemption
from registration contained in Section 4(2).
(vi) In May 1995, the Company issued 7,373.66 shares of Common Stock to 10
persons, one of which is a director of the Company for an aggregate purchase
price of $22,120.98. No underwriters were involved and no commissions were paid.
The shares of Common Stock were issued in reliance on the exemption from
registration contained in Section 4(2).
(vii) In June 1995, the Company issued 17,000 shares of Common Stock to
seven persons for an aggregate purchase price of $36,000. No underwriters were
involved and no commissions were paid. The shares of Common Stock were issued in
reliance on the exemption from registration contained in Section 4(2).
(viii) In July 1995, the Company issued 13,500 shares of Common Stock to
two persons for an aggregate purchase price of $40,500. No underwriters were
involved and no commissions were paid. The shares of Common Stock were issued in
reliance on the exemption from registration contained in Section 4(2).
(ix) In August 1995, the Company issued 1,000 shares of Common Stock to one
person for an aggregate purchase price of $3,000. No underwriters were involved
and no commissions were paid. The shares of Common Stock were issued in reliance
on the exemption from registration contained in Section 4(2).
II-2
<PAGE>
(x) In September 1995, the Company issued 12,500 shares of Common Stock to
three persons, one of which is the Company's Chairman of the Board, President
and Chief Executive Officer, for an aggregate purchase price of $37,499.99. No
underwriters were involved and no commissions were paid. The shares of Common
Stock were issued in reliance on the exemption from registration contained in
Section 4(2).
(xi) In October 1995, the Company issued 10,000 shares of Common Stock to
two persons, one of which is the Company's Chairman of the Board, President and
Chief Executive Officer, for an aggregate purchase price of $30,000. No
underwriters were involved and no commissions were paid. The shares of Common
Stock were issued in reliance on the exemption from registration contained in
Section 4(2).
(xii) In November 1995, the Company issued 5,333.33 shares of Common Stock
to four persons for an aggregate purchase price of $13,000. No underwriters were
involved and no commissions were paid. The shares of Common Stock were issued in
reliance on the exemption from registration contained in Section 4(2).
(xiii) In December 1995, the Company issued 6,666 shares of Common Stock to
one person for the purchase price of $19,998. No underwriters were involved and
no commissions were paid. The shares of Common Stock were issued in reliance on
the exemption from registration contained in Section 4(2).
(xiv) In January 1996, the Company issued 2,332 shares of Common Stock to
one person for the purchase price of $6,996. In addition, the Company issued
581,706.32 shares of Common Stock to all shareholders of record on December 6,
1995 in connection with a 100% stock dividend. No underwriters were involved and
no commissions were paid. The shares of Common Stock were issued in reliance on
the exemption from registration contained in Section 4(2).
(xv) In February 1996, the Company issued 4,582.5 shares of Common Stock to
four persons, one of which is a director of the Company, in consideration for
certain loans made to the Company by such persons. No underwriters were involved
and no commissions were paid. The shares of Common Stock were issued in reliance
on the exemption from registration contained in Section 4(2).
(xvi) In March 1996, the Company issued 2,916 shares of Common Stock to one
company and one person in consideration for certain loans made to the Company by
such company and person. No underwriters were involved and no commissions were
paid. The shares of Common Stock were issued in reliance on the exemption from
registration contained in Section 4(2).
(xvii) In May 1996, the Company issued 345 shares of Common Stock to two
persons in consideration for certain loans made to the Company by such persons.
No underwriters were involved and no commissions were paid. The shares of Common
Stock were issued in reliance on the exemption from registration contained in
Section 4(2).
(xviii) In August 1996, the Company issued 95,396 shares of Common Stock to
one company and nine persons in consideration for their conversion of certain
notes into the Common Stock of the Company. No underwriters were involved and no
commissions were paid. The shares of Common Stock were issued in reliance on the
exemption from registration contained in Section 4(2).
(xix) In September 1996, the Company issued 415,275 shares of Common Stock
to one company and seven persons in consideration for their exercise of the
Series A Warrants at an aggregate exercise price of $2,076. The Company also
issued 622,913 shares of Common Stock to one company in
II-3
<PAGE>
consideration for its exercise of the Series C Warrant at an aggregate exercise
price of $3,115. No underwriters were involved and no commissions were paid. The
shares of Common Stock were issued in reliance on the exemption from
registration contained in Section 4(2).
During the period June 25, 1994 through December 1, 1995, the Company
offered for sale and sold to investors a total of 207,914 shares of Common Stock
(the "Original Shares"). During the period of December 1995 through May 1996,
the Company offered and sold to investors notes, convertible into shares of
Common Stock at maturity, in the aggregate principal amount of $263,300
(together with the Original Shares, the "Rescission Securities"). Because
certain of the applicable provisions of federal and state securities laws
relating to the registration of securities for offers and sales may have not
been complied with in connection with the offer or sale of the Rescission
Securities, the Company offered to repurchase the Rescission Securities for cash
in an amount equal to the original purchase price plus interest from the date of
purchase, less any dividends, interest payments or cash distributions in respect
to the Rescission Securities. The Company received rescission acceptances from
five shareholders whose investment totalled $24,750 for 9,000 shares of Common
Stock. On September 27, 1996, the Company repurchased such shares of Common
Stock for an aggregate purchase price, including interest, of $26,927.03. On
September 27, 1996, the Company also sold 9,000 shares of Common Stock to four
shareholders for an aggregate purchase price of $24,750. No underwriters were
involved and no commissions were paid. The shares of Common Stock were issued in
reliance on the exemption from registration contained in Section 4(2).
Preferred Stock. In September 1996, the Company issued 70,000 shares of
Series B Preferred to one company for an aggregate exercise price of $700,000
pursuant to the exercise of the Preferred Warrant. No underwriters were involved
and no commissions were paid. The shares of Common Stock were issued in reliance
on the exemption from registration contained in Section 4(2).
Convertible Debentures. In August 1996, the Company sold to one company a
$450,000 debenture convertible into shares of Series A Preferred. No
underwriters were involved and no commissions were paid. The convertible
debenture was issued in reliance on the exemption from registration contained in
Section 4(2).
In September 1996, the Company sold to one company and seven shareholders
of the Company an aggregate of $350,000 of debentures convertible into shares of
Series A Preferred. No underwriters were involved and no commissions were paid.
The convertible debenture was issued in reliance on the exemption from
registration contained in Section 4(2).
II-4
<PAGE>
Item 27. Exhibits
(a) Exhibits:
Exhibit
No. Description
- -------- -----------
1.1 - Form of Underwriting Agreement.
3.1 - Amended and Restated Articles of Incorporation of Independence
Brewing Company.
3.2 - Amended and Restated By-Laws of Independence Brewing Company.
4.1 - Specimen Common Stock Certificate.*
4.2 - Form of Warrant Certificate (included in Exhibit 4.3).
4.3 - Form of Warrant Agreement between Independence Brewing Company and
Continental Stock Transfer & Trust Company.
4.4 - Form of Underwriter's Warrant Agreement between Independence Brewing
Company and A.S. Goldmen & Co., Inc.
5.1 - Opinion of Pepper, Hamilton & Scheetz.*
10.1 - Amended and Restated Independence Brewing Company Omnibus Stock
Plan.*
10.2 - Promissory Note made by Independence Brewing Company in favor of
Winfield Capital Corp., dated as of May 9, 1996.
10.3 - Allonge to Promissory Note dated May 9, 1996 by and among
Independence Brewing Company, Winfield Capital Corp. and Robert W.
Connor, Jr., dated as of August 12, 1996.
10.4 - Promissory Note made by Independence Brewing Company in favor of
Winfield Capital Corp., dated as of July 16, 1996.
10.5 - Allonge to Promissory Note dated July 16, 1996 by and among
Independence Brewing Company, Winfield Capital Corp. and Robert W.
Connor, Jr., dated as of August 12, 1996.
10.6 - Securities Purchase Agreement, dated as of August 12, 1996, by and
among Independence Brewing Company, Robert W. Connor, Jr.,
individually and Winfield Capital Corp. and the additional investors
who executed a counterpart to this Securities Purchase Agreement.
10.7 - Convertible Debenture made by Independence Brewing Company in favor
of Winfield Capital Corp., dated August 12, 1996 (identical
Convertible Debentures, except as to the payee of the debentures,
the date of the debentures and the principal amount thereto, were
entered into with Winfield Capital Corp. dated September 13, 1996
for $180,000; Donaldson, Lufkin & Jenrette Securities Corporation
(TIN 13-2741729) Custodian F/B/O Matthew Giuffrida Account No.
4cc 713989-1 dated September 20, 1996 for $50,000; Jacque deSaint
Phalle dated September 20, 1996 for $25,000; Leo J. Nolan dated
September 20, 1996 for $25,000; Michael Thompson dated September 20,
1996 for $20,000; Robert W. Connor, Sr. dated September 20, 1996 for
$20,000; Louis Schwartz dated September 20, 1996 for $20,000 and
Thaddeus Nowinski dated September 20, 1996 for $10,000).
10.8 - Series B Preferred Stock Warrant, dated August 12, 1996, to purchase
70,000 shares of Series B Preferred Stock of Independence Brewing
Company granted to Winfield Capital Corp.
10.9 - Series A Warrant, dated August 12, 1996, to purchase 233,592 shares
of Common Stock of Independence Brewing Company granted to Winfield
Capital Corp. (identical Series A Warrants, except as to the grantee
of the warrants, the date of the warrants and the number of shares
of Common Stock subject thereto, were entered into with Winfield
Capital Corp. dated September 13, 1996 for 93,531 shares of Common
Stock; Donaldson, Lufkin & Jenrette Securities Corporation
(TIN 13-2741729) Custodian F/B/O Matthew Giuffrida Account No.
4cc 713989-1 dated September 20, 1996 for 25,955 shares of
Common Stock; Jacque deSaint Phalle dated September 20, 1996 for
12,977.5 shares of Common Stock; Leo J. Nolan
II-5
<PAGE>
dated September 20, 1996 for 12,977.5 shares of Common Stock;
Michael Thompson dated September 20, 1996 for 10,382 shares of
Common Stock; Robert W. Connor, Sr. dated September 20, 1996 for
10,382 shares of Common Stock; Louis Schwartz dated September 20,
1996 for 10,382 shares of Common Stock and Thaddeus Nowinski dated
September 20, 1996 for 5,191 shares of Common Stock).
10.10 - Warrant, dated August 12, 1996, to purchase 3,500,000 shares of
Common Stock of Independence Brewing Company granted to Winfield
Capital Corp.
10.11 - Series C Warrant, dated August 12, 1996, to purchase 622,912 shares
of Common Stock of Independence Brewing Company granted to Winfield
Capital Corporation.
10.12 - Lease Agreement made the 11th of November, 1994, by and between Alan
R. Sizmur and Angeles Sizmur, Husband and Wife, and Independence
Brewing Company.
10.13 - Addendum to the Lease Agreement by and between Alan R. Sizmur and
Angeles Sizmur, husband and wife, and Independence Brewing Company.
10.14 - Employment Agreement, dated as of August 12, 1996, between
Independence Brewing Company and Robert W. Connor, Jr.*
10.15 - Employment Agreement, dated as of August 12, 1996, between
Independence Brewing Company and William Moore.
10.16 - Agreement among Independence Brewing Company, Independence Brewing
Company of Florida, Inc. and Robert W. Connor, Jr.*
10.17 - License Agreement between Independence
Brewing Company and Moosehead Brewing Company.*
10.18 - Registration Rights Agreement, dated as of August 12, 1996, by and
between Independence Brewing Company and the investors listed on
Schedule A thereto.
10.19 - Registration Rights Agreement, dated as of August 12, 1996, by and
between Independence Brewing Company and Winfield Capital Corp.
10.20 - Registration Rights Agreement (Series C Warrants), dated as of
August 12, 1996, by and between Independence Brewing Company and
Winfield Capital Corp.
11.1 - Statement re Computation of Per Share Earnings.
23.1 - Consent of Grant Thornton LLP (included on page II-8 of the
Registration Statement).
23.2 - Consent of Pepper, Hamilton & Scheetz (included in Exhibit 5.1)*
24.1 - Powers of Attorney (included on Signature Pages)
27.1 - Financial Data Schedule for the year ended December 31, 1995.
27.2 - Financial Data Schedule for six months ended June 30, 1996.
- -------------
* To be filed by Amendment.
Item 28. Undertakings.
Insofar as indemnification for liabilities arising under the Securities Act
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 Commission such indemnification is
against public policy as expressed in the Securities 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
II-6
<PAGE>
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 Securities Act and will be governed by the final adjudication
of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, treat the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant under Rule
424(b)(1), or (4), or 497(h) under the Securities Act as part of this
registration statement as of the time the Commission declared it effective.
(2) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration
statement, and that offering of the securities at that time as the initial
bona fide offering of those securities.
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 underwriter to
permit prompt delivery to each purchaser.
II-7
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated September 27, 1996 accompanying the
financial statements of Independence Brewing Company contained in the
Registration Statement and Prospectus. We consent to the use of the
aforementioned report in the Registration Statement and Prospectus, and to the
use of our name as it appears under the caption "Experts."
GRANT THORNTON LLP
Philadelphia, PA
September 27, 1996
II-8
<PAGE>
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 for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of
Philadelphia, Commonwealth of Pennsylvania, on the 26th day of September, 1996.
INDEPENDENCE BREWING COMPANY
By: /s/ Robert W. Connor, Jr.
____________________________
Robert W. Connor, Jr.
President and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Robert W. Connor, Jr. his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and agent
or his substitute, may lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates stated.
/s/ Robert W. Connor, Jr.
- ------------------------- September 26, 1996
Robert W. Connor, Jr. Chairman of the Board, President
and Chief Executive Officer
(principal financial officer and
principal accounting officer)
/s/ William Moore
- ------------------------- September 26, 1996
William Moore Director
/s/ Stefan Karnavas
- ------------------------- September 26, 1996
Stefan Karnavas Director
II-9
<PAGE>
Exhibit Index
Exhibit
No. Description
- -------- -----------
1.1 - Form of Underwriting Agreement.
3.1 - Amended and Restated Articles of Incorporation of Independence
Brewing Company.
3.2 - Amended and Restated By-Laws of Independence Brewing Company.
4.1 - Specimen Common Stock Certificate.*
4.2 - Form of Warrant Certificate (included in Exhibit 4.3).
4.3 - Form of Warrant Agreement between Independence Brewing Company and
Continental Stock Transfer & Trust Company.
4.4 - Form of Underwriter's Warrant Agreement between Independence Brewing
Company and A.S. Goldmen & Co., Inc.
5.1 - Opinion of Pepper, Hamilton & Scheetz.*
10.1 - Amended and Restated Independence Brewing Company Omnibus Stock
Plan.*
10.2 - Promissory Note made by Independence Brewing Company in favor of
Winfield Capital Corp., dated as of May 9, 1996.
10.3 - Allonge to Promissory Note dated May 9, 1996 by and among
Independence Brewing Company, Winfield Capital Corp. and Robert W.
Connor, Jr., dated as of August 12, 1996.
10.4 - Promissory Note made by Independence Brewing Company in favor of
Winfield Capital Corp., dated as of July 16, 1996.
10.5 - Allonge to Promissory Note dated July 16, 1996 by and among
Independence Brewing Company, Winfield Capital Corp. and Robert W.
Connor, Jr., dated as of August 12, 1996.
10.6 - Securities Purchase Agreement, dated as of August 12, 1996, by and
among Independence Brewing Company, Robert W. Connor, Jr.,
individually and Winfield Capital Corp. and the additional investors
who executed a counterpart to this Securities Purchase Agreement.
10.7 - Convertible Debenture made by Independence Brewing Company in favor
of Winfield Capital Corp., dated August 12, 1996 (identical
Convertible Debentures, except as to the payee of the debentures,
the date of the debentures and the principal amount thereto, were
entered into with Winfield Capital Corp. dated September 13, 1996
for $180,000; Donaldson, Lufkin & Jenrette Securities Corporation
(TIN 13-2741729) Custodian F/B/O Matthew Giuffrida Account No.
4cc 713989-1 dated September 20, 1996 for $50,000; Jacque deSaint
Phalle dated September 20, 1996 for $25,000; Leo J. Nolan dated
September 20, 1996 for $25,000; Michael Thompson dated September 20,
1996 for $20,000; Robert W. Connor, Sr. dated September 20, 1996 for
$20,000; Louis Schwartz dated September 20, 1996 for $20,000 and
Thaddeus Nowinski dated September 20, 1996 for $10,000).
10.8 - Series B Preferred Stock Warrant, dated August 12, 1996, to purchase
70,000 shares of Series B Preferred Stock of Independence Brewing
Company granted to Winfield Capital Corp.
10.9 - Series A Warrant, dated August 12, 1996, to purchase 233,592 shares
of Common Stock of Independence Brewing Company granted to Winfield
Capital Corp. (identical Series A Warrants, except as to the grantee
of the warrants, the date of the warrants and the number of shares
of Common Stock subject thereto, were entered into with Winfield
Capital Corp. dated September 13, 1996 for 93,531 shares of Common
Stock; Donaldson, Lufkin & Jenrette Securities Corporation
(TIN 13-2741729) Custodian F/B/O Matthew Giuffrida Account No.
4cc 713989-1 dated September 20, 1996 for 25,955 shares of
Common Stock; Jacque deSaint
II-10
<PAGE>
Phalle dated September 20, 1996 for 12,977.5 shares of Common Stock;
Leo J. Nolan dated September 20, 1996 for 12,977.5 shares of Common
Stock; Michael Thompson dated September 20, 1996 for 10,382 shares
of Common Stock; Robert W. Connor, Sr. dated September 20, 1996 for
10,382 shares of Common Stock; Louis Schwartz dated September 20,
1996 for 10,382 shares of Common Stock and Thaddeus Nowinski dated
September 20, 1996 for 5,191 shares of Common Stock).
10.10 - Warrant, dated August 12, 1996, to purchase 3,500,000 shares of
Common Stock of Independence Brewing Company granted to Winfield
Capital Corp.
10.11 - Series C Warrant, dated August 12, 1996, to purchase 622,912 shares
of Common Stock of Independence Brewing Company granted to Winfield
Capital Corporation.
10.12 - Lease Agreement made the 11th of November, 1994, by and between Alan
R. Sizmur and Angeles Sizmur, Husband and Wife, and Independence
Brewing Company.
10.13 - Addendum to the Lease Agreement by and between Alan R. Sizmur and
Angeles Sizmur, husband and wife, and Independence Brewing Company.
10.14 - Employment Agreement, dated as of August 12, 1996, between
Independence Brewing Company and Robert W. Connor, Jr.*
10.15 - Employment Agreement, dated as of August 12, 1996, between
Independence Brewing Company and William Moore.
10.16 - Agreement among Independence Brewing Company, Independence Brewing
Company of Florida, Inc. and Robert W. Connor, Jr.*
10.17 - License Agreement between Independence Brewing Company and Moosehead
Brewing Company.*
10.18 - Registration Rights Agreement, dated as of August 12, 1996, by and
between Independence Brewing Company and the investors listed on
Schedule A thereto.
10.19 - Registration Rights Agreement, dated as of August 12, 1996, by and
between Independence Brewing Company and Winfield Capital Corp.
10.20 - Registration Rights Agreement (Series C Warrants), dated as of
August 12, 1996, by and between Independence Brewing Company and
Winfield Capital Corp.
11.1 - Statement re Computation of Per Share Earnings.
23.1 - Consent of Grant Thornton LLP (included on page II-8 of the
Registration Statement).
23.2 - Consent of Pepper, Hamilton & Scheetz (included in Exhibit 5.1)*
24.1 - Powers of Attorney (included on Signature Pages)
27.1 - Financial Data Schedule for the year ended December 31, 1995.
27.2 - Financial Data Schedule for six months ended June 30, 1996.
- -------------
* To be filed by Amendment.
II-11
EXHIBIT 1.1
900,000 Shares of Common Stock
and 4,000,000 Redeemable Warrants
INDEPENDENCE BREWING COMPANY
UNDERWRITING AGREEMENT
----------------------
Iselin, New Jersey
____________, 1996
A.S. GOLDMEN & CO., INC.
99 Wood Avenue South
Iselin, New Jersey 08830
Ladies and Gentlemen:
Independence Brewing Company, a Pennsylvania corporation (the
"Company"), confirms its agreement with A.S. Goldmen & Co., Inc. (the
"Underwriter"), with respect to the sale by the Company and the purchase by the
Underwriter of 900,000 shares (the "Shares") of the Company's common stock, no
par value (the "Common Stock"), and 4,000,000 redeemable warrants (the
"Redeemable Warrants"), each exercisable to purchase one (1) additional share of
Common Stock. The Shares and Redeemable Warrants will be separately tradeable
upon issuance and are hereinafter referred to as the "Firm Securities". Each
Redeemable Warrant is exercisable commencing ________________, 1996 [the
effective date of the Registration Statement] until _____________, 2001 [60
months from the effective date of the Registration Statement], unless previously
redeemed by the Company, on thirty (30) days written notice, at an initial
exercise price equal to $6.00 per share, subject to adjustment. With the consent
of the Underwriter, the Redeemable Warrants may be redeemed by the Company at a
redemption price of ten cents ($.10) per Redeemable Warrant at any time
commencing ______________, 1997 [12 months after the effective date of the
Registration Statement] provided that the average closing bid price of the
Common Stock equals or exceeds $8.00 per share for any twenty (20) trading days
within a period of thirty (30) consecutive trading days ending on the fifth
(5th) trading day prior to the date of the notice of redemption. Upon the
Underwriter's request, as provided in Section 2(b) of this Agreement, the
Company shall also issue and sell to the Underwriter up to an additional 135,000
shares of Common Stock and/or up to an additional 600,000 Redeemable Warrants
for the purpose of covering over-allotments, if any. Such 135,000 Shares and/or
600,000 Redeemable Warrants are hereinafter collectively referred to as the
"Option Securities." The Company also proposes to issue and sell to the
Underwriter or its designees warrants (the "Underwriter's Warrants"), pursuant
to an underwriter's warrant agreement (the "Underwriter's Warrant Agreement"),
for the purchase of up to an additional 90,000 shares of Common Stock and/or up
<PAGE>
to an additional 400,000 Redeemable Warrants. The shares of Common Stock and the
Redeemable Warrants issuable upon exercise of the Underwriter's Warrants are
hereinafter collectively referred to as the "Underwriter's Securities." The
shares of Common Stock issuable upon exercise of the Redeemable Warrants
(including the Redeemable Warrants issuable upon exercise of the Underwriter's
Warrants) are hereinafter referred to as the "Warrant Shares." The Firm
Securities, the Option Securities, the Underwriter's Warrants, the Underwriter's
Securities, and the Warrant Shares are hereinafter collectively referred to as
the "Securities" and are more fully described in the Registration Statement and
the Prospectus referred to below.
1. Representations and Warranties of the Company. The Company
represents and warrants to, and covenants and agrees with, the Underwriter as of
the date hereof, and as of the Closing Date (hereinafter defined) and the Option
Closing Date (hereinafter defined), if any, as follows:
(a) The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement, and amendments
thereto, on Form SB-2 (Registration No. 333-_____), including any related
preliminary prospectus or prospectuses (each a "Preliminary Prospectus"), for
the registration of the Securities, under the Securities Act of 1933, as amended
(the "Act"), which registration statement and amendment or amendments have been
prepared by the Company in conformity with the requirements of the Act, and the
rules and regulations of the Commission under the Act. The Company will not file
any other amendment to such registration statement which the Underwriter shall
have objected to in writing after having been furnished with a copy thereof.
Except as the context may otherwise require, such registration statement, as
amended, on file with the Commission at the time it becomes effective (including
the prospectus, financial statements, schedules, exhibits and all other
documents filed as a part thereof or incorporated therein (including, but not
limited to, those documents or that information incorporated by reference
therein) and all information deemed to be a part thereof as of such time
pursuant to paragraph (b) of Rule 430A of the rules and regulations under the
Act), is hereinafter called the "Registration Statement," and the form of
prospectus in the form first filed with the Commission pursuant to Rule 424(b)
of the rules and regulations under the Act is hereinafter called the
"Prospectus." For purposes hereof, "Rules and Regulations" mean the rules and
regulations adopted by the Commission under either the Act or the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as applicable.
(b) Neither the Commission nor any state regulatory authority
has issued any order preventing or suspending the use of any Preliminary
Prospectus, the Registration Statement or the Prospectus or any part of any
thereof and no proceedings for a stop order suspending the effectiveness of the
Registration Statement or any of the Company's securities have been instituted
or are pending or threatened. Each Preliminary Prospectus and the Registration
Statement, at the time of filing thereof, conformed with the requirements of the
Act and the Rules and Regulations, and none of the Preliminary Prospectus nor
the Registration Statement, at the time of filing thereof, 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, in light of the
circumstances in which they were made, not misleading; provided, however, that
this representation and warranty does not apply to statements made or statements
2
<PAGE>
omitted in reliance upon and in conformity with written information furnished to
the Company with respect to the Underwriter by or on behalf of the Underwriter
expressly for use in the Preliminary Prospectus or the Registration Statement.
(c) When the Registration Statement becomes effective and at
all times subsequent thereto up to the Closing Date and each Option Closing
Date, if any, and during such longer period as the Prospectus may be required to
be delivered in connection with sales by the Underwriter or a dealer, the
Registration Statement and the Prospectus will contain all statements which are
required to be stated therein in accordance with the Act and the Rules and
Regulations, and will conform to the requirements of the Act and the Rules and
Regulations; and, at and through such dates, neither the Registration Statement
nor the Prospectus, nor any amendment or supplement thereto, will contain any
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 light of
the circumstances in which they were made, not misleading; provided, however,
that this representation and warranty does not apply to statements made or
statements omitted in reliance upon and in conformity with written information
furnished to the Company with respect to the Underwriter by or on behalf of the
Underwriter expressly for use in the Registration Statement or the Prospectus or
any amendment thereof or supplement thereto.
(d) The Company does not own an interest in any corporation,
partnership, trust, joint venture or other business entity. The Company has been
duly organized and is validly existing as a corporation in good standing under
the laws of the jurisdiction of its incorporation. The Company is duly qualified
and licensed and in good standing as a foreign corporation in each jurisdiction
in which its ownership or leasing of any properties or the character of its
operations require such qualification or licensing. The Company has all
requisite power and authority (corporate and other), and has obtained any and
all necessary authorizations, approvals, orders, licenses, certificates,
franchises and permits of and from all governmental or regulatory officials and
bodies (including, without limitation, those having jurisdiction over
environmental or similar matters), to own or lease its properties and conduct
its business as described in the Prospectus; the Company is and has been doing
business in compliance with all such authorizations, approvals, orders,
licenses, certificates, franchises and permits and with all federal, state,
local and foreign laws, rules and regulations to which it is subject; and the
Company has not received any notice of proceedings relating to the revocation or
modification of any such authorization, approval, order, license, certificate,
franchise or permit which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would materially and adversely affect
the condition, financial or otherwise, or the earnings, business affairs,
prospects, stockholders' equity, value, operations, properties, business or
results of operations of the Company. The disclosure in the Registration
Statement concerning the effects of federal, state, local and foreign laws,
rules and regulations on the Company's business as currently conducted and as
contemplated are correct in all respects and do not omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances in which they were made, not misleading.
(e) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus under "Capitalization" and
"Description of Securities" and will have the adjusted capitalization set forth
therein on the Closing Date and the Option Closing Date, if any, based upon the
3
<PAGE>
assumptions set forth therein, and the Company is not a party to or bound by any
instrument, agreement or other arrangement providing for it to issue any capital
stock, rights, warrants, options or other securities, except for this Agreement,
the Underwriter's Warrant Agreement and the Warrant Agreement (as defined in
Section 1(af) of this Agreement) and as described in the Prospectus. The
Securities and all other securities issued or issuable by the Company on or
prior to the Closing Date and each Option Closing Date, if any, conform or, when
issued and paid for, will conform, in all respects to the descriptions thereof
contained in the Registration Statement and the Prospectus. All issued and
outstanding securities of the Company have been duly authorized and validly
issued and are fully paid and non-assessable; the holders thereof have no rights
of rescission with respect thereto and are not subject to personal liability by
reason of being such holders; and none of such securities were issued in
violation of the preemptive rights of any holder of any security of the Company
or any similar contractual right granted by the Company. The Securities to be
sold by the Company hereunder and pursuant to the Underwriter's Warrant
Agreement and the Warrant Agreement are not and will not be subject to any
preemptive or other similar rights of any stockholder, have been duly authorized
and, when issued, paid for and delivered in accordance with the terms hereof and
thereof, will be validly issued, fully paid and non-assessable and conform to
the descriptions thereof contained in the Prospectus; the holders thereof will
not be subject to any liability solely as such holders; all corporate action
required to be taken for the authorization, issue and sale of the Securities has
been duly and validly taken; and the certificates representing the Securities,
when delivered by the Company, will be in due and proper form. Upon the issuance
and delivery pursuant to the terms hereof and the Underwriter's Warrant
Agreement of the Securities to be sold by the Company hereunder and thereunder
to the Underwriter, the Underwriter will acquire good and marketable title to
such Securities, free and clear of any lien, charge, claim, encumbrance, pledge,
security interest, defect or other restriction or equity of any kind whatsoever
asserted against the Company or any affiliate (within the meaning of the Rules
and Regulations) of the Company.
(f) The financial statements of the Company and the notes
thereto included in the Registration Statement, each Preliminary Prospectus and
the Prospectus fairly present the financial position, income, changes in
stockholders' equity and the results of operations of the Company at the
respective dates and for the respective periods to which they apply and the pro
forma financial information included in the Registration Statement and the
Prospectus presents fairly on a basis consistent with that of the audited
financial statements included therein, what the Company's pro forma
capitalization would have been for the respective dates to which they apply
after giving effect to the adjustments described therein. Such financial
statements have been prepared in conformity with generally accepted accounting
principles and the Rules and Regulations, consistently applied throughout the
periods involved. There has been no adverse change or development involving a
material prospective change in the condition, financial or otherwise, or in the
earnings, business affairs, prospects, stockholders' equity, value, operations,
properties, business or results of operations of the Company, whether or not
arising in the ordinary course of business, since the date of the financial
statements included in the Registration Statement and the Prospectus; and the
outstanding debt, the property, both tangible and intangible, and the business
of the Company conform in all respects to the descriptions thereof contained in
the Registration Statement and the Prospectus. The financial information set
forth in the Prospectus under the headings "Capitalization," "Selected Financial
4
<PAGE>
Data" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" fairly presents, on the basis stated in the Prospectus,
the information set forth therein and such financial information has been
derived from or compiled on a basis consistent with that of the audited
financial statements included in the Prospectus.
(g) The Company (i) has paid all federal, state, local and
foreign taxes for which it is liable, including, but not limited to, withholding
taxes and amounts payable under Chapters 21 through 24 of the Internal Revenue
Code of 1986, as amended (the "Code"), and has furnished all information returns
it is required to furnish pursuant to the Code, (ii) has established adequate
reserves for such taxes which are not due and payable, and (iii) does not have
any tax deficiency or claims outstanding, proposed or assessed against it.
(h) No transfer tax, stamp duty or other similar tax is
payable by or on behalf of the Underwriter in connection with (i) the issuance
by the Company of the Securities, (ii) the purchase by the Underwriter of the
Securities from the Company, (iii) the consummation by the Company of any of its
obligations under this Agreement or the Underwriter's Warrant Agreement, or
(iv) resales of the Securities in connection with the distribution contemplated
hereby.
(i) The Company maintains insurance policies, including, but
not limited to, general liability, property, personal and product liability
insurance, and surety bonds which insure the Company and its employees against
such losses and risks generally insured against by comparable businesses. The
Company (i) has not failed to give notice or present any insurance claim with
respect to any insurable matter under the appropriate insurance policy or surety
bond in a due and timely manner, (ii) does not have any disputes or claims
against any underwriter of such insurance policies or surety bonds, nor has the
Company failed to pay any premiums due and payable thereunder, or (iii) has not
failed to comply with all conditions contained in such insurance policies and
surety bonds. There are no facts or circumstances under any such insurance
policy or surety bond which would relieve any insurer of its obligation to
satisfy in full any valid claim of the Company.
(j) There is no action, suit, proceeding, inquiry,
arbitration, investigation, litigation or governmental proceeding (including,
without limitation, those pertaining to environmental or similar matters),
domestic or foreign, pending or threatened against (or circumstances that may
give rise to the same), or involving the properties or business of, the Company
which (i) questions the validity of the capital stock of the Company, this
Agreement, the Underwriter's Warrant Agreement or the Warrant Agreement or of
any action taken or to be taken by the Company pursuant to or in connection with
this Agreement, the Underwriter's Warrant Agreement or the Warrant Agreement,
(ii) is required to be disclosed in the Registration Statement which is not so
disclosed (and such proceedings as are summarized in the Registration Statement
are accurately summarized in all respects), or (iii) might materially and
adversely affect the condition, financial or otherwise, or the earnings,
business affairs, prospects, stockholders' equity, value, operations,
properties, business or results of operations of the Company.
5
<PAGE>
(k) The Company has full legal right, power and authority to
authorize, issue, deliver and sell the Securities, to enter into this Agreement,
the Underwriter's Warrant Agreement and the Warrant Agreement and to consummate
the transactions provided for in such agreements; and each of this Agreement,
the Underwriter's Warrant Agreement and the Warrant Agreement have each been
duly and properly authorized, executed and delivered by the Company. Each of
this Agreement, the Underwriter's Warrant Agreement and the Warrant Agreement
constitutes a legal, valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms (except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other laws of general application relating to or affecting the enforcement of
creditors' rights and the application of equitable principles in any motion,
legal or equitable, and except as obligations to indemnify or contribute to
losses may be limited by applicable law). None of the Company's issue and sale
of the Securities, execution or delivery of this Agreement, the Underwriter's
Warrant Agreement and the Warrant Agreement, its performance hereunder and
thereunder, its consummation of the transactions contemplated herein and
therein, or the conduct of its business as described in the Registration
Statement and the Prospectus and any amendments or supplements thereto,
conflicts with or will conflict with or results or will result in any breach or
violation of any of the terms or provisions of, or constitutes or will
constitute a default under, or result in the creation or imposition of any lien,
charge, claim, encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever upon, any property or assets
(tangible or intangible) of the Company pursuant to the terms of (i) the
certificate of incorporation or by-laws of the Company, (ii) any license,
contract, indenture, mortgage, lease, deed of trust, voting trust agreement,
stockholders' agreement, note, loan or credit agreement or other agreement or
instrument evidencing an obligation for borrowed money, or any other agreement
or instrument to which the Company is a party or by which it is or may be bound
or to which its properties or assets (tangible or intangible) are or may be
subject, or (iii) any statute, judgment, decree, order, rule or regulation
applicable to the Company of any arbitrator, court, regulatory body or
administrative agency or other governmental agency or body (including, without
limitation, those having jurisdiction over environmental or similar matters),
domestic or foreign, having jurisdiction over the Company or any of its
activities or properties.
(l) No consent, approval, authorization or order of, and no
filing with, any arbitrator, court, regulatory body, administrative agency,
government agency or other body, domestic or foreign, is required for the
issuance of the Securities pursuant to the Prospectus and the Registration
Statement, this Agreement, the Underwriter's Warrant Agreement and the Warrant
Agreement, the performance of this Agreement, the Underwriter's Warrant
Agreement and the Warrant Agreement and the transactions contemplated hereby and
thereby, except such as have been obtained under the Act, state securities laws
and the rules of the National Association of Securities Dealers, Inc. (the
"NASD") in connection with the Underwriter's purchase and distribution of the
Securities.
(m) All executed agreements, contracts or other documents or
copies of executed agreements, contracts or other documents filed as exhibits to
the Registration Statement to which the Company is a party or by which it may be
bound or to which its assets, properties or business may be subject have been
duly and validly authorized, executed and delivered by the Company, and
constitute legal, valid and binding agreements of the Company, enforceable
6
<PAGE>
against the Company in accordance with their respective terms (except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting the enforcement of creditors' rights and the application of equitable
principles in any motion, legal or equitable, and except as obligations to
indemnify or contribute to losses may be limited by applicable law). The
descriptions in the Registration Statement of agreements, contracts and other
documents are accurate and fairly present the information required to be shown
with respect thereto by Form SB-2; and there are no agreements, contracts or
other documents which are required by the Act to be described in the
Registration Statement or filed as exhibits to the Registration Statement which
are not described or filed as required; and the exhibits which have been filed
are complete and correct copies of the documents of which they purport to be
copies.
(n) Subsequent to the respective dates as of which information
is set forth in the Registration Statement and the Prospectus, and except as may
otherwise be indicated or contemplated herein or therein, the Company has not
(i) issued any securities or incurred any liability or obligation, direct or
contingent, for borrowed money, (ii) entered into any transaction other than in
the ordinary course of business, or (iii) declared or paid any dividend or made
any other distribution on or in respect of any class of its capital stock; and,
subsequent to such dates, and except as may otherwise be disclosed in the
Prospectus, there has not been any change in the capital stock, debt (long or
short term) or liabilities of the Company or any material change in the
condition, financial or otherwise, or the earnings, business affairs, prospects,
stockholders' equity, value, operations, properties, business or results of
operations of the Company.
(o) No default exists in the due performance and observance of
any term, covenant or condition of any license, contract, indenture, mortgage,
lease, deed of trust, voting trust agreement, shareholders' agreement, note,
loan or credit agreement or any other agreement or instrument evidencing an
obligation for borrowed money, or any other agreement or instrument to which the
Company is a party or by which the Company is or may be bound or to which the
property or assets (tangible or intangible) of the Company is or may be subject.
(p) The Company has generally enjoyed a satisfactory
employer-employee relationship with its employees and the Company is in
compliance with all federal, state, local and foreign laws, rules and
regulations respecting employment, employment practices, terms and conditions of
employment and wages and hours. There are no pending investigations involving
the Company by the United States Department of Labor or any other governmental
agency responsible for the enforcement of any federal, state, local or foreign
laws, rules and regulations relating to employment. There is no unfair labor
practice charge or complaint against the Company pending before the National
Labor Relations Board or any strike, picketing, boycott, dispute, slowdown or
stoppage pending or threatened against or involving the Company, or any
predecessor entity, and none has ever occurred. No representation question
exists respecting the employees of the Company, and no collective bargaining
agreement or modification thereof is currently being negotiated by the Company.
No grievance or arbitration proceeding is pending under any expired or existing
collective bargaining agreements of the Company. No labor dispute with the
employees of the Company exists or is imminent.
7
<PAGE>
(q) The Company does not maintain, sponsor or contribute to
any program or arrangement that is an "employee pension benefit plan," an
"employee welfare benefit plan" or a "multiemployer plan," as such terms are
defined in Sections 3(2), 3(l) and 3(37), respectively, of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") ("FMSA Plans"). The
Company does not maintain or contribute, now or at any time previously, to a
defined benefit plan, as defined in Section 3(35) of ERISA. No ERISA Plan (or
any trust created thereunder) has engaged in a "prohibited transaction" within
the meaning of Section 406 of ERISA or Section 4975 of the Code which could
subject the Company to any tax penalty on prohibited transactions and which has
not adequately been corrected. Each ERISA Plan is in compliance with all
material reporting, disclosure and other requirements of the Code and ERISA as
they relate to any such ERISA Plan. Determination letters have been received
from the Internal Revenue Service with respect to each ERISA Plan which is
intended to comply with Code Section 401(a), stating that such ERISA Plan and
the attendant trust are qualified thereunder. The Company has never completely
or partially withdrawn from a "multiemployer plan."
(r) Neither the Company, nor any of its employees, directors,
stockholders or affiliates (within the meaning of the Rules and Regulations),
has taken or will take, directly or indirectly, any action designed to or which
has constituted or which might be expected to cause or result in, under the
Exchange Act or otherwise, the stabilization or manipulation of the price of any
security of the Company, whether to facilitate the sale or resale of the
Securities or otherwise.
(s) None of the trademarks, trade names, service marks,
service names, copyrights, patents and patent applications, and none of the
licenses and rights to the foregoing, presently owned or held by the Company are
in dispute or are in conflict with the right of any other person or entity. The
Company (i) owns or has the right to use, free and clear of all liens, charges,
claims, encumbrances, pledges, security interests, defects or other restrictions
or equities of any kind whatsoever, all trademarks, trade names, service marks,
service names, copyrights, patents and patent applications, and licenses and
rights with respect to the foregoing, used in the conduct of its business as now
conducted or proposed to be conducted without infringing upon or otherwise
acting adversely to the right or claimed right of any person, corporation or
other entity under or with respect to any of the foregoing and (ii) is not
obligated or under any liability whatsoever to make any payments by way of
royalties, fees or otherwise to any owner or licensee of, or other claimant to,
any trademark, trade name, service mark, service name, copyright, patent or
patent application. There is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental or other proceeding, domestic or
foreign, pending or threatened (or circumstances that may give rise to the same)
against the Company which challenges the exclusive rights of the Company with
respect to any trademarks, trade names, service marks, service names,
copyrights, patents, patent applications or licenses or rights to the foregoing
used in the conduct of its business.
(t) The Company owns and has the unrestricted right to use all
trade secrets, know-how (including all unpatented and/or unpatentable
proprietary or confidential information, systems or procedures), inventions,
technology, designs, processes, works of authorship, computer programs and
technical data and information that are material to the development,
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manufacture, operation and sale of all products and services sold or proposed to
be sold by the Company, free and clear of and without violating any right, lien,
or claim of others, including, without limitation, former employers of its
employees; provided, however, that the possibility exists that other persons or
entities, completely independent of the Company or its employees or agents,
could have developed trade secrets or items of technical information similar or
identical to those of the Company. The Company is not aware of any such
development of similar or identical trade secrets or technical information by
others.
(u) The Company has good and marketable title to, or valid and
enforceable leasehold estates in, all items of real and personal property stated
in the Prospectus to be owned or leased by it, free and clear of all liens,
charges, claims, encumbrances, pledges, security interests, defects or other
restrictions or equities of any kind whatsoever, other than liens for taxes not
yet due and payable.
(v) Grant Thornton LLP, whose report is filed with the
Commission as a part of the Registration Statement, are independent certified
public accountants as required by the Act and the Rules and Regulations.
(w) Each holder of any securities of the Company and each
director and officer of the Company has executed an agreement pursuant to which
he, she or it has agreed, for a period of thirteen (13) months following the
effective date of the Registration Statement, not to, directly or indirectly,
offer, offer to sell, sell, grant an option for the purchase or sale of,
transfer, assign, pledge, hypothecate or otherwise encumber (whether pursuant to
Rule 144 of the Rules and Regulations or otherwise) any securities issued or
issuable by the Company, whether or not owned by or registered in the name of
such persons, or dispose of any interest therein, without the prior written
consent of the Company and the Underwriter (collectively, the "Lock-Up
Agreements"). In addition, certain holders of securities of the Company have
agreed to waive registration rights obtained from the Company. The Company will
cause its transfer agent to mark an appropriate legend on the face of stock
certificates representing all of such securities and to place "stop transfer"
orders on the Company's stock ledgers.
(x) There are no claims, payments, issuances, arrangements or
understandings, whether oral or written, for services in the nature of a
finder's or origination fee with respect to the sale of the Securities hereunder
or any other arrangements, agreements, understandings, payments or issuances
that may affect the Underwriter's compensation, as determined by the NASD.
(y) The Securities have been approved for quotation on The
Nasdaq SmallCap Market ("Nasdaq").
(z) Neither the Company nor any of its directors, officers,
stockholders, employees, agents or any other person acting on behalf of the
Company has, directly or indirectly, given or agreed to give any money, gift or
similar benefit (other than legal price concessions to customers in the ordinary
course of business) to any customer, supplier, employee or agent of a customer
or supplier, or any official or employee of any governmental agency or
instrumentality of any government (domestic or foreign) or any political party
or candidate for
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office (domestic or foreign) or any other person who was, is or may be in a
position to help or hinder the business of the Company (or assist the Company in
connection with any actual or proposed transaction) which (i) might subject the
Company or any other such person to any damage or penalty in any civil, criminal
or governmental litigation or proceeding (domestic or foreign), (ii) if not
given in the past, might have had a material and adverse effect on the
condition, financial or otherwise, or the earnings, business affairs, prospects,
stockholders' equity, value, operations, properties, business or results of
operations of the Company, or (iii) if not continued in the future, might
materially and adversely affect the condition, financial or otherwise, or the
earnings, business affairs, prospects, stockholders' equity, value, operations,
properties, business or results of operations of the Company. The Company's
internal accounting controls are sufficient to cause the Company to comply with
the Foreign Corrupt Practices Act of 1977, as amended.
(aa) Except as set forth in the Prospectus, no officer,
director or stockholder of the Company, and no affiliate or associate (as these
terms are defined in the Rules and Regulations) of any of the foregoing persons
or entities, has or has had, either directly or indirectly, (i) an interest in
any person or entity which (A) furnishes or sells services or products which are
furnished or sold or are proposed to be furnished or sold by the Company, or
(B) purchases from or sells or furnishes to the Company any goods or services,
or (ii) a beneficial interest in any contract or agreement to which the Company
is a party or by which the Company may be bound. Except as set forth in the
Prospectus under "Certain Transactions," there are no existing agreements,
arrangements, understandings or transactions, or proposed agreements,
arrangements, understandings or transactions, between or among the Company and
any officer, director or any person listed in the "Principal Stockholders"
section of the Prospectus, or any affiliate or associate of any of the foregoing
persons or entities.
(ab) The minute books of the Company have been made available
to the Underwriter, contain a complete summary of all meetings and actions of
the directors and stockholders of the Company since the time of its
incorporation, and reflect all transactions referred to in such minutes
accurately in all material respects.
(ac) Except and to the extent described in the Prospectus, no
holder of any securities of the Company or of any options, warrants or other
convertible or exchangeable securities of the Company has the right to include
any securities issued by the Company in the Registration Statement or any
registration statement to be filed by the Company or to require the Company to
file a registration statement. No person or entity holds any anti-dilution
rights with respect to any securities of the Company.
(ad) The Company has (i) entered into an employment agreement
with each of Robert W. Connor, Jr. and William Moore in the form filed as
Exhibit ___ and ______, respectively, to the Registration Statement, and
(ii) purchased key-man life insurance on the life of Robert W. Connor, Jr. in
the amount of $1,500,000, which policy names the Company as the sole beneficiary
thereof.
(ae) Any certificate signed by any officer of the Company and
delivered to the Underwriter or to Underwriter's Counsel (as defined in Section
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4(d) herein), shall be deemed a representation and warranty by the Company to
the Underwriter as to the matters covered thereby.
(af) The Company has entered into a warrant agreement,
substantially in the form filed as Exhibit ___ to the Registration Statement
(the "Warrant Agreement"), with Continental Stock Transfer & Trust Company, in
form and substance satisfactory to the Underwriter, with respect to the
Redeemable Warrants which provides, among other things, for the payment of
commissions contemplated by Section 4(y) hereof. The Warrant Agreement has been
duly and validly authorized by the Company and, assuming due execution by the
parties thereto other than the Company, constitutes a valid and legally binding
agreement of the Company, enforceable against the Company in accordance with its
terms (except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting the enforcement of creditors' rights and the
application of equitable principles in any action, legal or equitable, and
except as obligations to indemnify or contribute to losses may be limited by
applicable law).
(ag) The Company has filed a Form 8-A with the Commission
providing for the registration under the Exchange Act of the Securities and such
Form 8-A has been declared effective by the Commission.
2. Purchase, Sale and Delivery of the Securities.
(a) On the basis of the representations, warranties,
covenants and agreements herein contained, but subject to the terms
and conditions herein set forth, the Company agrees to sell to the Underwriter,
and the Underwriter agrees to purchase from the Company, the Firm Securities at
a price equal to $____ per share of Common Stock [90% of the initial public
offering price] and $____ per Redeemable Warrant [90% of the initial public
offering price].
(b) In addition, on the basis of the representations,
warranties, covenants and agreement, herein contained, but subject to the terms
and conditions herein set forth, the Company hereby grants an option to the
Underwriter to purchase all or any part of the Option Securities at a price
equal to $________ per share of Common Stock [90% of the initial public offering
price] and $________ per Redeemable Warrant [90% of the initial public offering
price]. The option granted hereby will expire forty five (45) days after (i) the
date the Registration Statement becomes effective, if the Company has elected
not to rely on Rule 430A under the Rules and Regulations, or (ii) the date of
this Agreement if the Company has elected to rely upon Rule 430A under the Rules
and Regulations, and may be exercised in whole or in part from time to time only
for the purpose of covering over-allotments which may be made in connection with
the offering and distribution of the Firm Securities upon notice by the
Underwriter to the Company setting forth the number of Option Securities as to
which the Underwriter is then exercising the option and the time and date of
payment and delivery for any such Option Securities. Any such time and date of
delivery (an "Option Closing Date") shall be determined by the Underwriter, but
shall not be later than seven (7) full business days after the exercise of said
option, nor in any event prior to the Closing Date, unless otherwise agreed upon
by the Underwriter and the Company. Nothing herein contained shall obligate the
Underwriter to exercise the option granted hereby. No Option Securities shall be
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delivered unless the Firm Securities shall be simultaneously delivered or shall
theretofore have been delivered as herein provided.
(c) Payment of the purchase price for, and delivery of
certificates for, the Firm Securities shall be made at the offices of the
Underwriter at 99 Wood Avenue South, Iselin, New Jersey 08830, or at such other
place as shall be agreed upon by the Underwriter and the Company. Such delivery
and payment shall be made at 10:00 a.m. (New York City time) on ____________,
1996 or at such other time and date as shall be agreed upon by the Underwriter
and the Company but not less than three (3) nor more than seven (7) full
business days after the effective date of the Registration Statement (such time
and date of payment and delivery being herein called the "Closing Date"). In
addition, in the event that any or all of the Option Securities are purchased by
the Underwriter, payment of the purchase price for, and delivery of certificates
for, such Option Securities shall be made at the above mentioned office of the
Underwriter or at such other place as shall be agreed upon by the Underwriter
and the Company. Delivery of the certificates for the Firm Securities and the
Option Securities, if any, shall be made to the Underwriter against payment by
the Underwriter of the purchase price for the Firm Securities and the Option
Securities, if any, to the order of the Company by New York Clearing House
funds. Certificates for the Firm Securities and the Option Securities, if any,
shall be in definitive, fully registered form, shall bear no restrictive legends
and shall be in such denominations and registered in such names as the
Underwriter may request in writing at least two (2) business days prior to the
Closing Date or the relevant Option Closing Date, as the case may be. The
certificates for the Firm Securities and the Option Securities, if any, shall be
made available to the Underwriter at such offices or such other place as the
Underwriter may designate for inspection, checking and packaging no later than
9:30 a.m. on the last business day prior to the Closing Date or the relevant
Option Closing Date, as the case may be.
(d) On the Closing Date, the Company shall issue and sell to
the Underwriter or its designees the Underwriter's Warrants for an aggregate
purchase price of twenty dollars ($20.00), which warrants shall entitle the
holders thereof to purchase an aggregate of an additional 90,000 shares of
Common Stock and/or an additional 400,000 Redeemable Warrants. The Underwriter's
Warrants shall be exercisable for a period of four (4) years commencing one (1)
year from the effective date of the Registration Statement at a price equaling
one hundred and twenty percent (120%) of the initial public offering price of
the shares of Common Stock and the Redeemable Warrants, respectively. The
Underwriter's Warrant Agreement and the form of the certificates for the
Underwriter's Warrant shall be substantially in the form filed as Exhibit ___ to
the Registration Statement. Payment for the Underwriter's Warrants shall be made
on the Closing Date.
3. Public Offering of the Shares and the Redeemable Warrants.
As soon after the Registration Statement becomes effective as the Underwriter
deems advisable, the Underwriter shall make a public offering of the Firm
Securities and such of the Option Securities as the Underwriter may determine
(other than to residents of or in any jurisdiction in which qualification of the
shares of Common Stock and the Redeemable Warrants is required and has not
become effective) at the price and upon the other terms set forth in the
Prospectus. The Underwriter may from time to time increase or decrease the
public offering price after distribution of the shares of Common Stock and the
Redeemable Warrants has been completed to such extent as the Underwriter, in its
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sole discretion, deems advisable. The Underwriter may enter into one or more
agreements as the Underwriter, in its sole discretion, deems advisable with one
or more broker-dealers who shall act as dealers in connection with such public
offering.
4. Covenants and Agreements of the Company. The
Company covenants and agrees with the Underwriter as follows:
(a) The Company shall use its best efforts to cause the
Registration Statement and any amendments thereto to become effective as
promptly as practicable and will not at any time, whether before or after the
effective date of the Registration Statement, file any amendment to the
Registration Statement or supplement to the Prospectus or file any document
under the Act or the Exchange Act before termination of the offering of the
Securities to the public by the Underwriter of which the Underwriter shall not
previously have been advised and furnished with a copy, or to which the
Underwriter shall have objected or which is not in compliance with the Act, the
Exchange Act and the Rules and Regulations.
(b) As soon as the Company is advised or obtains knowledge
thereof, the Company will advise the Underwriter and confirm the same in
writing, (i) when the Registration Statement, as amended, becomes effective,
when any post-effective amendment to the Registration Statement becomes
effective and, if the provisions of Rule 430A promulgated under the Act will be
relied upon, when the Prospectus has been filed in accordance with said Rule
430A, (ii) of the issuance by the Commission of any stop order or of the
initiation, or the threatening, of any proceeding the outcome of which may
result in the suspension of the effectiveness of the Registration Statement or
any order preventing or suspending the use of the Preliminary Prospectus or the
Prospectus, or any amendment or supplement thereto, or the institution of any
proceedings for that purpose, (iii) of the issuance by the Commission or by any
state securities commission of any proceedings for the suspension of the
qualification of any of the Securities for offering or sale in any jurisdiction
or of the initiation, or the threatening, of any proceeding for that purpose,
(iv) of the receipt of any comments from the Commission, and (v) of any request
by the Commission for any amendment to the Registration Statement or any
amendment or supplement to the Prospectus or for additional information. If the
Commission or any state securities regulatory authority shall enter a stop order
or suspend such qualification at any time, the Company will make every effort to
obtain promptly the lifting of such order.
(c) The Company shall file the Prospectus (in form and
substance satisfactory to the Underwriter) with the Commission, or transmit the
Prospectus by a means reasonably calculated to result in filing the same with
the Commission, pursuant to Rule 424(b)(1) of the Rules and Regulations (or, if
applicable and if consented to by the Underwriter, pursuant to Rule 424(b)(4) of
the Rules and Regulations) within the time period specified in Rule 424(b)(1)
(or, if applicable and if consented to by the Underwriter, Rule 424(b)(4)).
(d) The Company will give the Underwriter notice of its
intention to file or prepare any amendment to the Registration Statement
(including any post-effective amendment) or any amendment or supplement to the
Prospectus (including any revised prospectus which the Company proposes for use
in connection with the offering of any of the Securities which differs from the
corresponding prospectus on file at the Commission at the time the Registration
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Statement becomes effective, whether or not such revised prospectus is required
to be filed pursuant to Rule 424(b) of the Rules and Regulations), and will
furnish the Underwriter with copies of any such amendment or supplement a
reasonable amount of time prior to such proposed filing or use, as the case may
be, and will not file any such amendment or supplement to which the Underwriter
or Orrick, Herrington & Sutcliffe LLP, its counsel ("Underwriter's Counsel"),
shall object.
(e) The Company shall endeavor in good faith, in cooperation
with the Underwriter, at or prior to the time the Registration Statement becomes
effective, to qualify the Securities for offering and sale under the securities
laws of such jurisdictions as the Underwriter may designate to permit the
continuance of sales and dealings therein for as long as may be necessary to
complete the distribution contemplated hereby, and shall make such applications,
file such documents and furnish such information as may be required for such
purpose; provided, however, the Company shall not be required to qualify as a
foreign corporation or file a general or limited consent to service of process
in any such jurisdiction. In each jurisdiction where such qualification shall be
effected, the Company will, unless the Underwriter agrees that such action is
not at the time necessary or advisable, use all reasonable efforts to file and
make such statements or reports at such times as are or may reasonably be
required by the laws of such jurisdiction to continue such qualification.
(f) During the time when a prospectus is required to be
delivered under the Act, the Company shall use all reasonable efforts to comply
with all requirements imposed upon it by the Act, the Exchange Act and the Rules
and Regulations so far as necessary to permit the continuance of sales of or
dealings in the Securities in accordance with the provisions hereof and the
Prospectus, or any amendments or supplements thereto. If, at any time when a
prospectus relating to the Securities 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 Underwriter's Counsel, 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, in the light of the circumstances in which they were made,
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 the Underwriter
promptly and prepare and file with the Commission an appropriate amendment or
supplement in accordance with Section 10 of the Act, each such amendment or
supplement to be satisfactory to Underwriter's Counsel, and the Company will
furnish to the Underwriter copies of such amendment or supplement as soon as
available and in such quantities as the Underwriter may request.
(g) As soon as practicable, but in any event not later than
forty five (45) days after the end of the 12-month period beginning on the day
after the end of the fiscal quarter of the Company during which the effective
date of the Registration Statement occurs (ninety (90) days in the event that
the end of such fiscal quarter is the end of the Company's fiscal year), the
Company shall make generally available to its security holders, in the manner
specified in Rule 158(b) of the Rules and Regulations, and to the Underwriter,
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an earnings statement which will be in the detail required by, and will
otherwise comply with, the provisions of Section 11(a) of the Act and Rule
158(a) of the Rules and Regulations, which statement need not be audited unless
required by the Act, covering a period of at least twelve (12) consecutive
months after the effective date of the Registration Statement.
(h) During a period of seven years after the date hereof, the
Company will furnish to its stockholders, as soon as practicable, annual reports
(including financial statements audited by independent public accountants) and
unaudited quarterly reports of earnings and will deliver to the Underwriter:
i) concurrently with furnishing such quarterly
reports to its stockholders statements of income of the
Company for such quarter in the form furnished to the
Company's stockholder and certified by the Company's
principal financial or accounting officer;
ii) concurrently with furnishing such annual reports to
its stockholders, a balance sheet of the Company as at the end
of the preceding fiscal year, together with statements of
operations, stockholders' equity and cash flows of the Company
for such fiscal year, accompanied by a copy of the report
thereon of the Company's independent certified public
accountants;
iii) as soon as they are available, copies of all
reports (financial or other) mailed to stockholders;
iv) as soon as they are available, copies of all
reports and financial statements furnished to or filed
with the Commission, the NASD or any securities exchange;
v) every press release and every material news
item or article of interest to the financial community in
respect of the Company or its affairs which was released
or prepared by or on behalf of the Company; and
vi) any additional information of a public nature
concerning the Company (and any future subsidiaries) or its
business which the Underwriter may request.
During such seven-year period, if the Company has active subsidiaries,
the foregoing financial statements will be on a consolidated basis to the extent
that the accounts of the Company and its subsidiaries are consolidated, and will
be accompanied by similar financial statements for any significant subsidiary
which is not so consolidated.
(i) The Company will maintain a transfer and warrant agent
and, if necessary under the jurisdiction of incorporation of the Company, a
registrar (which may be the same entity as the transfer agent) for the Common
Stock and the Redeemable Warrants.
(j) The Company will furnish to the Underwriter, without
charge and at such place as the Underwriter may designate, copies of each
Preliminary Prospectus, the Registration Statement and any pre-effective or
post-effective amendments thereto (one of which will be signed and will include
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all financial statements and exhibits), the Prospectus, and all amendments and
supplements thereto, including any prospectus prepared after the effective date
of the Registration Statement, in each case as soon as available and in such
quantities as the Underwriter may request.
(k) On or before the effective date of the Registration
Statement, the Company shall provide the Underwriter with originally-executed
copies of duly executed, legally binding and enforceable Lock-Up Agreements
which are in form and substance satisfactory to the Underwriter. On or before
the Closing Date, the Company shall deliver instructions to its transfer agent
authorizing such transfer agent to place appropriate legends on the certificates
representing the securities of the Company subject to the Lock-Up Agreements and
to place appropriate stop transfer orders on the Company's ledgers.
(l) The Company agrees that, for a period of thirteen (13)
months commencing with the effective date of the Registration Statement, and
except as contemplated by this Agreement, it will not, without the prior written
consent of the Underwriter, issue, sell, contract or offer to sell, grant an
option for the purchase or sale of, assign, transfer, pledge, distribute or
otherwise dispose of, directly or indirectly, any shares of Common Stock or any
option, right or warrant with respect to any shares of Common Stock or any type
of capital stock having voting or dividend rights on a parity with or superior
to the Common Stock, except for options to purchase up to an aggregate of
300,000 shares of Common Stock which have been or may be granted pursuant to the
Company's stock option plan.
(m) Neither the Company nor any of its officers, directors,
stockholders or affiliates (within the meaning of the Rules and Regulations)
will take, directly or indirectly, any action designed to stabilize or
manipulate the price of any securities of the Company, or which might in the
future reasonably be expected to cause or result in the stabilization or
manipulation of the price of any such securities.
(n) The Company shall apply the net proceeds from the sale of
the Securities offered to the public in the manner set forth under "Use of
Proceeds" in the Prospectus. No portion of the net proceeds will be used,
directly or indirectly, to acquire any securities issued by the Company.
(o) The Company shall timely file all such reports, forms or
other documents as may be required (including, but not limited to, any Form SR
required by Rule 463 under the Act) from time to time under the Act, the
Exchange Act, and the Rules and Regulations, and all such reports, forms and
documents will comply as to form and substance with the applicable requirements
under the Act, the Exchange Act and the Rules and Regulations.
(p) The Company shall furnish to the Underwriter as early as
practicable prior to each of the date hereof, the Closing Date and each Option
Closing Date, if any, but no later than two (2) full business days prior
thereto, a copy of the latest available unaudited interim financial statements
of the Company (which in no event shall be as of a date more than thirty (30)
days prior to the date hereof, the Closing Date or the relevant Option Closing
Date, as the case may be) which have been read by the Company's independent
public accountants, as stated in their letters to be furnished pursuant to
Section 6(i) hereof.
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(q) The Company shall cause the Securities to be quoted on
Nasdaq and, for a period of seven (7) years from the date hereof, use its best
efforts to maintain the Nasdaq quotation of the Securities to the extent
outstanding.
(r) For a period of five (5) years from the Closing Date, the
Company shall furnish or cause to be furnished to the Underwriter and at the
Company's sole expense, (i) daily consolidated transfer sheets relating to the
Common Stock and the Redeemable Warrants and (ii) a list of holders of all of
the Company's securities.
(s) For a period of five (5) years from the Closing Date, the
Company shall, at the Company's sole expense, (i) promptly provide the
Underwriter, upon any and all requests of the Underwriter, with a "blue sky
trading survey" for secondary sales of the Company's securities, prepared by
counsel to the Company, and (ii) take all necessary and appropriate actions to
further qualify the Company's securities in all jurisdictions of the United
States in order to permit secondary sales of such securities pursuant to the
"blue sky" laws of those jurisdictions, provided that such jurisdictions do not
require the Company to qualify as a foreign corporation.
(t) As soon as practicable, but in no event more than five (5)
business days before the effective date of the Registration Statement, the
Company agrees to file a Form 8-A with the Commission providing for the
registration under the Exchange Act of the Securities. As soon as practicable,
but in no event more than thirty (30) days after the effective date of the
Registration Statement, the Company agrees to take all necessary and appropriate
actions to be included in Standard and Poor's Corporation Descriptions and
Moody's OTC Manual and to continue such inclusion for a period of not less than
seven (7) years.
(u) Without the prior written consent of the Underwriter, the
Company hereby agrees that it will not, for a period of thirteen (13) months
from the effective date of the Registration Statement, (i) adopt, propose to
adopt or otherwise permit to exist any employee, officer, director, consultant
or compensation plan or arrangement permitting the grant, issue, sale or entry
into any agreement to grant, issue or sell any option, warrant or other contract
right (x) at an exercise price that is less than the greater of the initial
public offering price of the shares of Common Stock set forth herein and the
fair market value per share of Common Stock on the date of grant or sale or
(y) to any of its executive officers or directors or to any holder of five
percent (5%) or more of the Common Stock or any holder of five percent (5%) or
more of the Common Stock as the result of the exercise or conversion of
equivalent securities, including, but not limited to options, warrants or other
contract rights and securities convertible, directly or indirectly, into shares
of Common Stock (it being acknowledged that clause (y) does not apply to options
to purchase up to an aggregate of three hundred thousand (300,000) shares of
Common Stock which have been or may be granted pursuant to the Company's stock
option plan); (ii) permit the maximum number of shares of Common Stock or other
securities of the Company purchasable at any time pursuant to options, warrants
or other contract rights to exceed three hundred thousand (300,000) shares of
Common Stock; (iii) permit the payment for such securities with any form of
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consideration other than cash; or (iv) permit the existence of stock
appreciation rights, phantom options or similar arrangements.
(v) Until the completion of the distribution of the Firm
Securities and, if applicable, the Option Securities to the public, the Company
shall not, without the prior written consent of the Underwriter, issue, directly
or indirectly, any press release or other communication or hold any press
conference with respect to the Company or its activities or the offering
contemplated hereby, other than trade releases issued in the ordinary course of
the Company's business consistent with past practices with respect to the
Company's operations.
(w) For a period equal to the lesser of (i) seven (7) years
from the date hereof, and (ii) the sale to the public of the Underwriter's
Securities, the Company will not take any action or actions which may prevent or
disqualify the Company's use of Form S-1 (or other appropriate form) for the
registration under the Act of the Underwriter's Securities.
(x) Commencing one year from the date hereof, the Company
shall pay the Underwriter a commission equal to four percent (4%) of the
exercise price of the Redeemable Warrants, payable upon exercise thereof on the
terms set forth in the Warrant Agreement. The Company will not solicit the
exercise of the Redeemable Warrants other than through the Underwriter.
(y) For a period of twenty four (24) months after the
effective date of the Registration Statement, the Company shall not restate,
amend or alter any term of any written employment, consulting or similar
agreement entered into between the Company and any officer, director or key
employee as of the effective date of the Registration Statement in a manner
which is more favorable to such officer, director or key employee, without the
prior written consent of the Underwriter. For a period of twenty four (24)
months from the effective date of the Registration Statement, neither the
Company nor any future subsidiary shall enter into an employment, consulting or
similar agreement with any individual with whom the Company has entered into an
employment, consulting or similar agreement as of the effective date of the
Registration Statement, without the prior written consent of the Underwriter.
(z) For a period of five (5) years from the effective date of
the Registration Statement, the Company shall obtain and maintain such insurance
policies, including, but not limited to, general liability and property
insurance, and surety bonds which will insure or protect the Company and its
employees against such losses and risks generally insured or protected against
by comparable businesses.
(aa) For a period of five (5) years from the date hereof, the
Company will retain Grant Thornton LLP (or another accounting firm acceptable to
the Underwriter) as its independent certified public accountants and, during
such period, the Company will promptly submit to the Underwriter copies of all
accountant's
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management reports and similar correspondence between the Company's
accountants and the Company.
5. Payment of Expenses.
(a) The Company hereby agrees to pay (such payment
to be made, at the discretion of the Underwriter, on the Closing Date and any
Option Closing Date (to the extent not paid on the Closing Date or a previous
Option Closing Date)) all expenses and fees (other than fees of Underwriter's
Counsel except as provided in subsection (iv) below and the Underwriter's travel
costs and expenses) incident to the performance of the obligations of the
Company under this Agreement, the Underwriter's Warrant Agreement and the
Warrant Agreement, including, without limitation, (i) the fees and expenses of
accountants and counsel for the Company, (ii) all costs and expenses incurred in
connection with the preparation, duplication, printing, (including mailing and
handling charges) filing, delivery and mailing (including the payment of
postage, overnight delivery or courier charges with respect thereto) of the
Registration Statement and the Prospectus and any amendments and supplements
thereto and the printing, mailing (including the payment of postage, overnight
delivery or courier charges with respect thereto) and delivery of this
Agreement, the Underwriter's Warrant Agreement and the Warrant Agreement and
agreements with selected dealers, and related documents, including the cost of
all copies thereof and of each Preliminary Prospectus and of the Prospectus and
any amendments thereof or supplements thereto supplied to the Underwriter and
such dealers as the Underwriter may request, in such quantities as the
Underwriter may request, (iii) the printing, engraving, issuance and delivery of
the Securities, (iv) the qualification of the Securities under state or foreign
securities or "blue sky" laws and determination of the status of such securities
under legal investment laws, including the costs of printing and mailing the
"Preliminary Blue Sky Memorandum," the "Supplemental Blue Sky Memorandum" and
"Legal Investments Survey," if any, and disbursements and fees of counsel in
connection therewith (such blue sky counsel fees not to exceed $40,000 in the
aggregate), (v) advertising costs and expenses, including, but not limited to
costs and expenses in connection with "road shows," information meetings and
presentations, bound volumes and prospectus memorabilia and "tombstone"
advertisement expenses, (vi) costs and expenses in connection with due diligence
investigations, including, but not limited to, the fees of any independent
counsel or consultants, (vii) fees and expenses of a transfer and warrant agent
and registrar for the Securities, (viii) applications for assignments of a
rating of the Securities by qualified rating agencies, (ix) the fees payable to
the Commission and the NASD, and (x) the fees and expenses incurred in
connection with the listing of the Securities on Nasdaq and any other exchange.
(b) If this Agreement is terminated by the Underwriter in
accordance with the provisions of Section 6, Section 10(a) or Section 11 hereof,
the Company shall reimburse and indemnify the Underwriter for all of its actual
out-of-pocket expenses, including the fees and disbursements of Underwriter's
Counsel.
(c) The Company further agrees that, in addition to the
expenses payable pursuant to Section 5(a) hereof, it will pay to the Underwriter
on the Closing Date by certified or bank cashier's check, or, at the election of
the Underwriter, by deduction from the proceeds of the offering of the Firm
Securities, a non-accountable expense allowance equal to three percent (3%) of
the gross proceeds received by the Company from the sale of the Firm Securities.
In the event the Underwriter elects to exercise the overallotment option
described in Section 2(b) hereof, the Company further agrees to pay to the
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<PAGE>
Underwriter on each Option Closing Date, by certified or bank cashier's check,
or, at the Underwriter's election, by deduction from the proceeds of the Option
Securities purchased on such Option Closing Date, a non-accountable expense
allowance equal to three percent (3%) of the gross proceeds received by the
Company from the sale of such Option Securities.
6. Conditions of the Underwriter's Obligations. The
obligations of the Underwriter hereunder shall be subject to the continuing
accuracy of the representations and warranties of the Company herein as of the
date hereof and as of the Closing Date and each Option Closing Date, if any, as
if they had been made on and as of the Closing Date and each Option Closing
Date, as the case may be; the accuracy on and as of the Closing Date and each
Option Closing Date, if any, of the statements of officers of the Company made
pursuant to the provisions hereof; the performance by the Company on and as of
the Closing Date and each Option Closing Date, if any, of its covenants and
obligations hereunder; and to the following further conditions:
(a) The Registration Statement shall have become effective not
later than 12:00 p.m., New York time, on the date of this Agreement or such
later date and time as shall be consented to in writing by the Underwriter, and,
at the Closing Date and each Option Closing Date, if any, no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for that purpose shall have been instituted or shall
be pending or contemplated by the Commission and any request on the part of the
Commission for additional information shall have been complied with to the
reasonable satisfaction of Underwriter's Counsel. If the Company has elected to
rely upon Rule 430A of the Rules and Regulations, the price of the shares of
Common Stock and any price-related information previously omitted from the
effective Registration Statement pursuant to such Rule 430A shall have been
transmitted to the Commission for filing pursuant to Rule 424(b) of the Rules
and Regulations within the prescribed time period, and prior to the Closing Date
the Company shall have provided evidence satisfactory to the Underwriter of such
timely filing, or a post-effective amendment providing such information shall
have been promptly filed and declared effective in accordance with the
requirements of Rule 430A of the Rules and Regulations.
(b) The Underwriter shall not have advised the Company that
the Registration Statement, or any amendment thereto, contains an untrue
statement of fact which, in the Underwriter's reasonable opinion, is material,
or omits to state a fact which, in the Underwriter's reasonable opinion, is
material and is required to be stated therein or is necessary to make the
statements therein, in light of the circumstances in which they were made not
misleading, or that the Prospectus, or any supplement thereto, contains an
untrue statement of fact which, in the Underwriter's reasonable opinion, is
material, or omits to state a fact which, in the Underwriter's reasonable
opinion, is material and is required to be stated therein or is necessary to
make the statements therein, in light of the circumstances in which they were
made, not misleading.
(c) On or prior to the Closing Date, the Underwriter shall
have received from Underwriter's Counsel such opinion or opinions with respect
to the organization of the Company, the validity of the Securities, the
Registration Statement, the Prospectus and such other related matters as the
Underwriter may request and Underwriter's Counsel shall have received such
20
<PAGE>
papers and information as they may request in order to enable them to pass upon
such matters.
(d) At the time this Agreement is executed, the Underwriter
shall have received the favorable opinion of Pepper, Hamilton & Scheetz, counsel
to the Company, dated the Closing Date, addressed to the Underwriter, in form
and substance satisfactory to Underwriter's Counsel, to the effect that:
i) the Company (A) has been duly organized and is
validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation, (B) is duly
qualified and licensed and in good standing as a foreign
corporation in each jurisdiction in which its ownership or
leasing of any properties or the character of its operations
requires such qualification or licensing, and (C) has all
requisite power and authority (corporate and other) and has
obtained any and all necessary authorizations, approvals,
orders, licenses, certificates, franchises and permits of and
from all governmental or regulatory officials and bodies
(including, without limitation, those having jurisdiction over
environmental or similar matters), to own or lease its
properties and conduct its business as described in
the Prospectus; to such counsel's knowledge, the Company is
and has been doing business in compliance with all such
authorizations, approvals, orders, licenses, certificates,
franchises and permits obtained by it from governmental or
regulatory officials and agencies and all federal, state,
local and foreign laws, rules and regulations to which it is
subject; and, to such counsel's knowledge, the Company has not
received any notice of proceedings relating to the revocation
or modification of any such authorization, approval, order,
license, certificate, franchise or permit which, singly or in
the aggregate, if the subject of an unfavorable decision,
ruling or finding, would materially and adversely affect the
condition, financial or otherwise, or the earnings, business
affairs, prospects, stockholders' equity, value, operations,
properties, business or results of operations of the Company.
The disclosure in the Registration Statement concerning the
effects of federal, state, local and foreign laws, rules and
regulations on the Company's business as currently conducted
and as contemplated are correct in all material respects and
do not omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light
of the circumstances in which they were made, not misleading;
ii) the Company does not own an interest in any
corporation, partnership, trust, joint venture, or other
business entity;
iii) the Company has a duly authorized, issued and
outstanding capitalization as set forth in the Prospectus
under "Capitalization" and the Company is not a party to or
bound by any instrument, agreement or other arrangement
providing for it to issue any capital stock, rights, warrants,
options or other securities, except for this Agreement, the
Underwriter's Warrant Agreement and the Warrant Agreement and
21
as described in the Prospectus. The Securities and all other
securities issued or issuable by the Company conform, or when
issued and paid for, will conform, in all respects to the
descriptions thereof contained in the Registration Statement
and the Prospectus. All issued and outstanding securities of
the Company have been duly authorized and validly issued and
are fully paid and non-assessable; the holders thereof have no
rights of rescission with respect thereto and are not subject
to personal liability by reason of being such holders; and
none of such securities were issued in violation, of the
preemptive rights of any holders of any security of the
Company or any similar contractual right granted by the
Company. The Securities to be sold by the Company hereunder
and under the Underwriter's Warrant Agreement and the
Warrant Agreement are not and will not be subject to any
preemptive or other similar rights of any stockholder, have
been duly authorized and, when issued, paid for and
delivered in accordance with the terms hereof and thereof,
will be validly issued, fully paid and non-assessable and
conform to the descriptions thereof contained in the
Prospectus; the holders thereof will not be subject to any
liability solely as such holders; all corporate action
required to be taken for the authorization, issue and sale
of the Securities has been duly and validly taken; and the
certificates representing the Securities are in due and
proper form. The Underwriter's Warrants constitute valid and
binding obligations of the Company to issue and sell, upon
exercise thereof and payment therefor, the number and type
of securities of the Company called for thereby. Upon the
issuance and delivery pursuant to this Agreement, the
Underwriter's Warrant Agreement and the Warrant Agreement of
the Securities to be sold by the Company hereunder and
thereunder, the Underwriter will acquire good and marketable
title to such Securities, free and clear of any lien,
charge, claim, encumbrance, pledge, security interest,
defect or other restriction or equity of any kind whatsoever
asserted against the Company or any affiliate (within the
meaning of the Rules and Regulations) of the Company. No
transfer tax is payable by or on behalf of the Underwriter
in connection with (A) the issuance by the Company of the
Securities, (B) the purchase by the Underwriter of the
Securities from the Company, (C) the consummation by the
Company of any of its obligations under this Agreement, the
Underwriter's Warrant Agreement or the Warrant Agreement, or
(D) resales of the Securities in connection with the
distribution contemplated hereby;
iv) the Registration Statement is effective under the
Act, and, if applicable, filing of all pricing information has
been timely made in the appropriate form under Rule 430A, and
no stop order suspending the use of the Preliminary
Prospectus, the Registration Statement or the Prospectus or
any part of any thereof or suspending the effectiveness of the
Registration Statement has been issued and no proceedings for
that purpose have been instituted or are pending, threatened
or contemplated under the Act;
v) each of the Preliminary Prospectus, the
Registration Statement, and the Prospectus and any
amendments or supplements thereto (other than the
financial statements and schedules and other financial
22
<PAGE>
and statistical data included therein, as to which no opinion
need be rendered) comply as to form in all material respects
with the requirements of the Act and the Rules and
Regulations;
vi) to such counsel's knowledge, (A) there are no
agreements, contracts or other documents required by the Act
to be described in the Registration Statement and the
Prospectus and filed as exhibits to the Registration Statement
(or required to be filed under the Exchange Act if upon such
filing they would be incorporated, in whole or in part, by
reference therein) other than those described in the
Registration Statement and the Prospectus and filed as
exhibits thereto, and the exhibits which have been filed are
correct copies of the documents of which they purport to be
copies; (B) the descriptions in the Registration Statement and
the Prospectus and any supplement or amendment thereto of
agreements, contracts and other documents to which the Company
is a party or by which it is bound are accurate and fairly
represent the information required to be shown by Form SB-2;
(C) there is no action, suit, proceeding, inquiry,
arbitration, investigation, litigation or governmental
proceeding (including, without limitation, those pertaining to
environmental or similar matters), domestic or foreign,
pending or threatened against (or circumstances that may give
rise to the same), or involving the properties or business of,
the Company which (I) is required to be disclosed in the
Registration Statement which is not so disclosed (and such
proceedings as are summarized in the Registration Statement
are accurately summarized in all respects), or (II) questions
the validity of the capital stock of the Company or of this
Agreement, the Underwriter's Warrant Agreement or the Warrant
Agreement or of any action taken or to be taken by the Company
pursuant to or in connection with any of the foregoing; (D) no
statute or regulation or legal or governmental proceeding
required to be described in the Prospectus is not described as
required; and (E) there is no action, suit or proceeding
pending or threatened against or affecting the Company before
any court, arbitrator or governmental body, agency or official
(or any basis thereof known to such counsel) in which there is
a reasonable possibility of an adverse decision which may
result in a material adverse change in the condition,
financial or otherwise, or the earnings, business affairs,
prospects, stockholders' equity, value, operation, properties,
business or results of operations of the Company, which could
adversely affect the present or prospective ability of the
Company to perform its obligations under this Agreement, the
Underwriter's Warrant Agreement or the Warrant Agreement or
which in any manner draws into question the validity or
enforceability of this Agreement, the Underwriter's Warrant
Agreement or the Warrant Agreement;
vii) the Company has full legal right, power and
authority to enter into each of this Agreement, the
Underwriter's Warrant Agreement and the Warrant Agreement and
to consummate the transactions provided for herein and
therein; and each of this Agreement, the Underwriter's Warrant
Agreement and the Warrant Agreement has been duly authorized,
executed and delivered by the Company. Each of this Agreement,
the Underwriter's Warrant Agreement and the Warrant Agreement,
assuming due authorization, execution and delivery by each
23
<PAGE>
other party thereto, constitutes a legal, valid and binding
agreement of the Company, enforceable against the Company in
accordance with its terms (except as such enforceability may
be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general
application relating to or affecting the enforcement of
creditors' rights and the application of equitable principles
in any action, legal or equitable, and except as obligations
to indemnify or contribute to losses may be limited by
applicable law). None of the Company's execution or delivery
of this Agreement, the Underwriter's Warrant Agreement and the
Warrant Agreement, its performance hereunder and thereunder,
its consummation of the transactions contemplated herein and
therein, or the conduct of its business as described in the
Registration Statement and the Prospectus and any amendments
or supplements thereto, conflicts with or will conflict with
or results or will result in any breach or violation of any of
the terms or provisions of, or constitutes or will constitute
a default under, or result in the creation or imposition of
any lien, charge, claim, encumbrance, pledge, security
interest, defect or other restriction or equity of any kind
whatsoever upon, any property or assets (tangible or
intangible) of the Company pursuant to the terms of (A) the
certificate of incorporation or bylaws of the Company, (B) any
license, contract, indenture, mortgage, lease, deed of trust,
voting trust agreement, stockholders' agreement, note, loan or
credit agreement or any other agreement or instrument
evidencing an obligation for borrowed money, or any other
agreement or instrument to which the Company is a party or by
which it is or may be bound or to which its properties or
assets (tangible or intangible) are or may be subject, (C) any
statute applicable to the Company or (D) any judgment, decree,
order, rule or regulation applicable to the Company of any
arbitrator, court, regulatory body or administrative agency
or other governmental agency or body (including, without
limitation, those having jurisdiction over environmental or
similar matters), domestic or foreign, having jurisdiction
over the Company or any of its activities or properties;
viii) no consent, approval, authorization or order of,
and no filing with, any arbitrator, court, regulatory body,
administrative agency, government agency or other body,
domestic or foreign (other than such as may be required under
"blue sky" laws and the rules of the NASD, as to which no
opinion need be rendered), is required in connection with the
issuance of the Securities pursuant to the Prospectus, the
Registration Statement, this Agreement, the Underwriter's
Warrant Agreement and the Warrant Agreement, or the
performance of this Agreement, the Underwriter's Warrant
Agreement and the Warrant Agreement and the transactions
contemplated hereby and thereby;
ix) the properties and business of the Company conform
to the description thereof contained in the Registration
Statement and the Prospectus; and the Company has good and
marketable title to, or valid and enforceable leasehold
estates in, all items of real and personal property stated in
the Prospectus to be owned or leased by it, in each case free
and clear of all liens, charges, claims, encumbrances,
pledges, security interests, defects or other restrictions or
24
<PAGE>
equities of any kind whatsoever, other than those referred to
in the Prospectus and liens for taxes not yet due and payable;
x) the Company is not in breach of, or in default
under, any term or provision of any license, contract,
indenture, mortgage, lease, deed of trust, voting trust
agreement, stockholders' agreement, note, loan or credit
agreement or any other agreement or instrument evidencing an
obligation for borrowed money, or any other agreement or
instrument to which the Company is a party or by which it is
or may be bound or to which its property or assets (tangible
or intangible) are or may be subject; and the Company is not
in violation of any term or provision of (A) its certificate
of incorporation or by-laws, (B) any authorization, approval,
order, license, certificate, franchise or permit of any
governmental or regulatory official or body, or (C) any
judgement, decree, order, statute, rule or regulation to which
it is subject;
xi) the statements in the Prospectus under
"Prospectus Summary," "Business," "Management,"
"Principal Stockholders," "Certain Transactions," "Shares
Eligible For Future Sale," and "Description of Securities"
have been reviewed by such counsel, and insofar as they refer
to statements of law, descriptions of statutes, licenses,
rules or regulations or legal conclusions, are correct in all
material respects;
xii) the Securities have been accepted for quotation
on Nasdaq;
xiii) the Company owns or has the right to use, free and
clear of all liens, charges, claims, encumbrances, pledges,
security interests, defects or other restrictions or equities
of any kind whatsoever, all trademarks, trade names, service
marks, service names, trade names, copyrights, patents and
patent applications, and licenses and rights with respect to
the foregoing, used in the conduct of its business as now
conducted or proposed to be conducted without infringing upon
or otherwise acting adversely to the right or claimed right of
any person, corporation or other entity under or with respect
to the foregoing; and there is no action, suit, proceeding,
inquiry, arbitration, investigation, litigation or
governmental or other proceeding, domestic or foreign, pending
or threatened (or circumstances that may give rise to the
same) against the Company which challenges the exclusive
rights of the Company with respect to any trademarks, trade
names, service marks, service names, copyrights, patents or
patent applications, or licenses or rights to the foregoing,
used in the conduct of its business;
xiv) the persons listed under the captions "Principal
Stockholders" in the Prospectus are the respective "beneficial
owners" (as such phrase is defined in Rule 13d-3 under the
Exchange Act) of the securities set forth opposite their
respective names thereunder as and to the extent set forth
therein;
25
<PAGE>
xv) to such counsel's knowledge, neither the Company
nor any of its directors, officers, stockholders, employees,
agents or any other person acting on behalf of the Company
has, directly or indirectly, given or agreed to give any
money, gift or similar benefit (other than legal price
concessions to customers in the ordinary course of business)
to any customer, supplier, employee or agent of a customer or
supplier, or any official or employee of any governmental
agency or instrumentality of any government (domestic or
foreign) or any political party or candidate for office
(domestic or foreign) or other person who was, is or may be in
a position to help or hinder the business of the Company (or
assist it in connection with any actual or proposed
transaction) which (A) might subject the Company or any such
person to any damage or penalty in any civil, criminal or
governmental litigation or proceeding (domestic or foreign),
(B) if not given in the past, might have had a material and
adverse effect on the condition, financial or otherwise, or
the earnings, business affairs, prospects, stockholders'
equity, value, operations, properties, business or results of
operations of the Company, or (C) if not continued in the
future, might materially and adversely affect the condition,
financial or otherwise, or the earnings, business affairs,
prospects, stockholders' equity, value, operations,
properties, business or results of operations of the Company;
xvi) except as disclosed in the Prospectus, no person,
corporation, trust, partnership, association or other entity
has the right to include and/or register any securities of the
Company in the Registration Statement, require the Company to
file any registration statement or, if filed, to include any
security in such registration statement;
xvii) there are no claims, payments, issuances,
arrangements or understandings, whether oral or written, for
services in the nature of a finder's or origination fee with
respect to the sale of the Securities hereunder or financial
consulting arrangement or any other arrangements, agreements,
understandings, payments or issuances that may affect the
Underwriter's compensation, as determined by the NASD;
xviii) the minute books of the Company contain a complete
summary of all meetings and actions of the directors and
stockholders of the Company since the time of its
incorporation and reflect all transactions referred to in such
minutes accurately in all material respects;
xix) assuming due execution by the parties thereto, the
Lock-Up Agreements are legal, valid and binding obligations of
the parties thereto, enforceable against such parties and any
subsequent holder of the securities subject thereto in
accordance with their terms; and
xx) the Company (A) does not maintain, sponsor or
contribute to any ERISA Plans, (B) does not maintain or
contribute, now or at any time previously, to a defined
benefit plan, as defined in Section 3(35) of ERISA, and
26
<PAGE>
(C) has never completely or partially withdrawn from a
"multiemployer plan," as defined in Section 3(37) of
ERISA.
Such counsel shall state that such counsel has participated in
conferences with officers and other representatives of the Company and
representatives of the independent public accountants for the Company, at which
conferences such counsel made inquiries of such officers, representatives and
accountants and discussed the contents of the Preliminary Prospectus, the
Registration Statement, the Prospectus and related matters and, although such
counsel is not passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Preliminary Prospectus, the Registration Statement or the Prospectus, on the
basis of the foregoing, no facts have come to the attention of such counsel
which lead them to believe that either the Registration Statement or any
amendment thereto, at the time such Registration Statement or amendment became
effective, or the Preliminary Prospectus or the Prospectus, or any amendment or
supplement thereto, as of the date of the Preliminary Prospectus and the
Prospectus, and as of the date of such opinion, contained 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 light of the
circumstances in which they were made, not misleading (it being understood that
such counsel need express no opinion with respect to the financial statements
and schedules and other financial and statistical data included in the
Preliminary Prospectus, the Registration Statement or the Prospectus, or any
supplements or amendments thereto).
In rendering such opinion, such counsel may rely (a) as to
matters involving the application of laws other than the laws of the United
States and jurisdictions in which they are admitted, to the extent such counsel
deems proper and to the extent specified in such opinion, if at all, upon an
opinion or opinions (in form and substance satisfactory to Underwriter's
Counsel) of other counsel acceptable to Underwriter's Counsel, familiar with the
applicable laws; and (b) as to matters of fact, to the extent they deem proper,
on certificates and written statements of responsible officers of the Company
and certificates or other written statements of officers of departments of
jurisdictions having custody of documents respecting the corporate existence or
good standing of the Company, provided that copies of any such statements or
certificates shall be delivered to Underwriter's Counsel, if requested. Such
opinion shall not state that it is to be governed or qualified by, or that it is
otherwise subject to, any treatise, written policy or other document relating to
legal opinions, including without limitation, the Legal Opinion Accord of the
ABA Section of Business Law (1991) or any comparable state accord. The opinion
of such counsel for the Company shall state that the opinion of any such other
counsel is in form satisfactory to such counsel and that the Underwriter and
they are justified in relying thereon.
(e) At the Closing Date, the Underwriter shall have received
the favorable opinion of ________________, patent and trademark counsel to the
Company, dated the Closing Date, addressed to the Underwriter, in form and
substance satisfactory to Underwriter's Counsel, and in substantially the form
of Schedule A attached hereto.
(f) At each Option Closing Date, if any, the Underwriter shall
have received the favorable opinion of Pepper, Hamilton & Scheetz, counsel to
27
<PAGE>
the Company, and ______________, patent and trademark counsel to the Company,
dated such Option Closing Date, addressed to the Underwriter and in form and
substance satisfactory to Underwriter's Counsel confirming, as of the Option
Closing Date, the statements made by each of Pepper, Hamilton & Scheetz and
__________________________ in their respective opinions delivered on the Closing
Date.
(g) On or prior to each of the Closing Date and each Option
Closing Date, if any, Underwriter's Counsel shall have been furnished with such
documents, certificates and opinions as they may reasonably require for the
purpose of enabling them to review or pass upon the matters referred to in
Section 6(c) hereof, or in order to evidence the accuracy, completeness or
satisfaction of any of the representations, warranties or conditions of the
Company herein contained.
(h) Prior to each of the Closing Date and each Option Closing
Date, if any, (i) there shall have been no material adverse change or
development involving a prospective adverse change in the condition, financial
or otherwise, or the earnings, business affairs, stockholders' equity, value,
operations, properties, business or results of operations of the Company,
whether or not in the ordinary course of business, from the latest dates as of
which such matters are set forth in the Registration Statement and the
Prospectus; (ii) there shall have been no transaction, not in the ordinary
course of business, entered into by the Company from the latest date as of which
the financial condition of the Company is set forth in the Registration
Statement and the Prospectus; (iii) the Company shall not be in default under
any provision of any instrument relating to any outstanding indebtedness; (iv)
the Company shall not have issued any securities (other than the Securities) or
declared or paid any dividend or made any distribution in respect of its capital
stock of any class and there shall not have been any change in the capital
stock, debt (long or short term) or liabilities or obligations of the Company
(contingent or otherwise) from the latest dates as of which such matters are set
forth in the Registration Statement and the Prospectus; (v) no material amount
of the assets of the Company shall have been pledged or mortgaged, except as set
forth in the Registration Statement and the Prospectus; (vi) no action, suit,
proceeding, inquiry, arbitration, investigation, litigation or governmental or
other proceeding, domestic or foreign, shall be pending or threatened (or
circumstances giving rise to same) against the Company or affecting any of its
properties or business before or by any court or federal, state or foreign
commission, board or other administrative agency wherein an unfavorable
decision, ruling or finding may materially and adversely affect the condition,
financial or otherwise, or the earnings, business affairs, stockholders' equity,
value, operations, properties, business or results of operations of the Company,
except as set forth in the Registration Statement and Prospectus; and (vii) no
stop order shall have been issued under the Act with respect to the Registration
Statement and no proceedings therefor shall have been initiated, threatened or
contemplated by the Commission.
(i) At each of the Closing Date and each Option Closing Date,
if any, the Underwriter shall have received a certificate of the Company signed
by the principal executive officer and by the chief financial or chief
accounting officer of the Company, dated the Closing Date or the relevant Option
Closing Date, as the case may be, to the effect that each of such persons has
carefully examined the Registration Statement, the Prospectus and this
Agreement, and that:
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<PAGE>
i) The representations and warranties regarding the
Company in this Agreement are true and correct, as if made on
and as of the Closing Date or the Option Closing Date, as the
case may be, and the Company has complied with all agreements
and covenants and satisfied all conditions contained in this
Agreement on its part to be performed or satisfied at or prior
to such Closing Date or Option Closing Date, as the case may
be;
ii) No stop order suspending the effectiveness of the
Registration Statement or any part thereof has been issued,
and no proceedings for that purpose have been instituted or
are pending or, to the best of each of such person's
knowledge, are contemplated or threatened under the Act;
iii) The Registration Statement and the Prospectus and,
if any, each amendment and each supplement thereto contain all
statements and information required to be included therein,
and none of the Registration Statement, the Prospectus or any
amendment or supplement thereto includes any untrue statement
of a material fact or omits to state any material fact
required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which
they were made, not misleading and neither the Preliminary
Prospectus nor any supplement thereto included any untrue
statement of a material fact or omitted to state any material
fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which
they were made, not misleading; and
iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectus, (A) the Company has not incurred any material
liabilities or obligations, direct or contingent; (B) the
Company has not paid or declared any dividends or other
distributions on its capital stock; (C) the Company has not
entered into any transactions not in the ordinary course of
business; (D) there has not been any change in the capital
stock or long-term debt or any increase in the short-term
borrowings (other than any increase in short-term borrowings
in the ordinary course of business) of the Company; (E) the
Company has not sustained any material loss or damage to its
property or assets, whether or not insured; (F) there is no
litigation which is pending or threatened (or circumstances
giving rise to same) against the Company or any affiliate
(within the meaning of the Rules and Regulations) of the
Company which is required to be set forth in an amended or
supplemented Prospectus which has not been set forth; and
(G) there has occurred no event required to be set forth in an
amended or supplemented Prospectus which has not been set
forth.
References to the Registration Statement and the Prospectus in this Section 6(i)
are to such documents as amended and supplemented at the date of such
certificate.
(j) By the Closing Date, the Underwriter will have received
clearance from the NASD as to the amount of compensation allowable or payable to
the Underwriter, as described in the Registration Statement.
29
<PAGE>
(k) At the time this Agreement is executed, the Underwriter
shall have received a letter, dated such date, addressed to the Underwriter and
in form and substance satisfactory in all respects (including the non-material
nature of the changes or decreases, if any, referred to in clause (iii) below)
to the Underwriter and Underwriter's Counsel, from Grant Thornton LLP:
i) confirming that they are independent certified
public accountants with respect to the Company within the
meaning of the Act and the Rules and Regulations;
ii) stating that it is their opinion that the financial
statements of the Company included in the Registration
Statement comply as to form in all material respects with the
applicable accounting requirements of the Act and the Rules
and Regulations and that the Underwriter may rely upon the
opinion of Grant Thornton LLP with respect to such financial
statements and supporting schedules included in the
Registration Statement;
iii) stating that, on the basis of a limited review
which included a reading of the latest unaudited interim
financial statements of the Company, a reading of the latest
available minutes of the stockholders and board of directors
and the various committees of the board of directors of the
Company, consultations with officers and other employees of
the Company responsible for financial and accounting matters
and other specified procedures and inquiries, nothing has come
to their attention which would lead them to believe that
(A) the pro forma financial information contained in the
Registration Statement and Prospectus does not comply as to
form in all material respects with the applicable accounting
requirements of the Act and the Rules and Regulations or is
not fairly presented in conformity with generally accepted
accounting principles applied on a basis consistent with that
of the audited financial statements of the Company or the
unaudited pro forma financial information included in the
Registration Statement, (B) the unaudited financial statements
and supporting schedules of the Company included in the
Registration Statement do not comply as to form in all
material respects with the applicable accounting requirements
of the Act and the Rules and Regulations or are not fairly
presented in conformity with generally accepted accounting
principles applied on a basis substantially consistent with
that of the audited financial statements of the Company
included in the Registration Statement, or (C) at a specified
date nor more than five (5) days prior to the effective date
of the Registration Statement, there has been any change in
the capital stock or long-term debt of the Company, or any
decrease in the stockholders' equity or net current assets or
net assets of the Company as compared with amounts shown in
the June 30, 1996 balance sheet included in the Registration
Statement, other than as set forth in or contemplated by the
Registration Statement, or, if there was any change or
decrease, setting forth the amount of such change or decrease,
and (D) during the period from June 30, 1996 to a specified
date not more than five (5) days prior to the effective date
of the Registration Statement, there was any decrease in net
30
<PAGE>
revenues, net earnings or net earnings per share of Common
Stock, in each case as compared with the corresponding period
beginning June 30, 1995, other than as set forth in or
contemplated by the Registration Statement, or, if there was
any such decrease, setting forth the amount of such decrease;
iv) setting forth, at a date not later than five (5)
days prior to the effective date of the Registration
Statement, the amount of liabilities of the Company (including
a break-down of commercial paper and notes payable to banks);
v) stating that they have compared specific dollar
amounts, numbers of shares, percentages of revenues and
earnings, statements and other financial information
pertaining to the Company set forth in the Prospectus, in each
case to the extent that such amounts, numbers, percentages,
statements and information may be derived from the general
accounting records, including work sheets, of the Company and
excluding any questions requiring an interpretation by legal
counsel, with the results obtained from the application of
specified readings, inquiries and other appropriate procedures
(which procedures do not constitute an audit in accordance
with generally accepted auditing standards) set forth in the
letter and found them to be in agreement,
vi) statements as to such other matters incident to
the transaction contemplated hereby as the Underwriter
may request.
(l) At the Closing Date and each Option Closing Date, if any,
the Underwriter shall have received from Grant Thornton LLP a letter, dated as
of the Closing Date or the relevant Option Closing Date, as the case may be, to
the effect that (i) they reaffirm the statements made in the letter furnished
pursuant to Section 6(k) hereof, (ii) if the Company has elected to rely on Rule
430A of the Rules and Regulations, to the further effect that they have carried
out procedures as specified in clause (v) of Section 6(k) hereof with respect to
certain amounts, percentages and financial information as specified by the
Underwriter and deemed to be a part of the Registration Statement pursuant to
Rule 430A(b) and have found such amounts, percentages and financial information
to be in agreement with the records specified in such clause (v).
(m) On each of Closing Date and Option Closing Date, if any,
there shall have been duly tendered to the Underwriter the appropriate number of
Securities.
(n) No order suspending the sale of the Securities in any
jurisdiction designated by the Underwriter pursuant to Section 4(e) hereof shall
have been issued on either the Closing Date or the Option Closing Date, if any,
and no proceedings for that purpose shall have been instituted or shall be
contemplated.
(o) On or before the effective date of the Registration
Statement, the Company shall have executed and delivered to the Underwriter the
Underwriter's Warrant Agreement, substantially in the form filed as Exhibit ___
31
<PAGE>
to the Registration Statement. On or before the Closing Date, the Company shall
have executed and delivered to the Underwriter the Underwriter's Warrants in
such denominations and to such designees as shall have been provided to the
Company.
(p) On or before Closing Date, the Securities shall have been
duly approved for quotation on Nasdaq, subject to official notice of issuance.
(q) On or before Closing Date, there shall have been delivered
to the Underwriter all of the Lock-Up Agreements, in form and substance
satisfactory to Underwriter's Counsel.
(r) On or before the effective date of the Registration
Statement, the Company and Continental Stock Transfer and Trust Company shall
have executed and delivered to the Underwriter the Warrant Agreement,
substantially in the form filed as Exhibit ___ to the Registration Statement.
(s) At least two (2) full business days prior to the date
hereof, the Closing Date and each Option Closing Date, if any, the Company shall
have delivered to the Underwriter the unaudited interim financial statements
required to be so delivered pursuant to Section 4(p) of this Agreement.
If any condition to the Underwriter's obligations hereunder to
be fulfilled prior to or at the Closing Date or at any Option Closing Date, as
the case may be, is not so fulfilled, the Underwriter may terminate this
Agreement or, if the Underwriter so elects, it may waive any such conditions
which have not been fulfilled or extend the time for their fulfillment.
7. Indemnification
(a) The Company agrees to indemnify and hold harmless the
Underwriter (for purposes of this Section 7, "Underwriter" shall include the
officers, directors, partners, employees, agents and counsel of the
Underwriter), and each person, if any, who controls the Underwriter
("controlling person") within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, from and against any and all losses, claims, damages,
expenses or liabilities, joint or several (and actions in respect thereof),
whatsoever (including but not limited to any and all expenses whatsoever
reasonably incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim whatsoever), as such are
incurred, to which the Underwriter or such controlling person may become subject
under the Act, the Exchange Act or any other statute or at common law or
otherwise or under the laws of foreign countries, arising out of or based upon
(A) any untrue statement or alleged untrue statement of a material fact
contained (i) in any Preliminary Prospectus, the Registration Statement or the
Prospectus (as from time to time amended and supplemented); (ii) in any
post-effective amendment or amendments or any new registration statement and
prospectus in which is included securities of the Company issued or issuable
upon exercise of the Securities; or (iii) in any application or other document
or written communication (in this Section 7, collectively referred to as
"applications") executed by the Company or based upon written information
furnished by the Company in any jurisdiction in order to qualify the Securities
under the securities laws thereof or filed with the Commission, any state
32
<PAGE>
securities commission or agency, the NASD, Nasdaq or any securities exchange;
(B) the omission or alleged omission therefrom of a material fact required to be
stated therein or necessary to make the statements therein not misleading (in
the case of the Prospectus, in light of the circumstances in which they were
made); or (C) any breach of any representation, warranty, covenant or agreement
of the Company contained herein or in any certificate by or on behalf of the
Company or any of its officers delivered pursuant hereto, unless, in the case of
clause (A) or (B) above, such statement or omission was made in reliance upon
and in conformity with written information furnished to the Company with respect
to the Underwriter by or on behalf of the Underwriter expressly for use in any
Preliminary Prospectus, the Registration Statement or the Prospectus, or any
amendment thereof or supplement thereto, or in any application, as the case may
be. The indemnity agreement in this Section 7(a) shall be in addition to any
liability which the Company may have at common law or otherwise.
(b) The Underwriter agrees to indemnify and hold harmless the
Company, each of its directors, each of its officers who signed the Registration
Statement, and each person, if any, who controls the Company within the meaning
of the Act, to the same extent as the foregoing indemnity from the Company to
the Underwriter but only with respect to statements or omissions, if any, made
in any Preliminary Prospectus, the Registration Statement or the Prospectus or
any amendment thereof or supplement thereto or in any application made in
reliance upon, and in strict conformity with, written information furnished to
the Company with respect to the Underwriter by the Underwriter expressly for use
in such Preliminary Prospectus, the Registration Statement or Prospectus or any
amendment thereof or supplement thereto or in any such application, provided
that such written information or omissions only pertain to disclosures in the
Preliminary Prospectus, the Registration Statement or the Prospectus directly
relating to the transactions effected by the Underwriter in connection with the
offering contemplated hereby. The Company acknowledges that the statements with
respect to the Underwriter and the public offering of the Securities set forth
under the heading "Underwriting" and the stabilization legend in the Prospectus
have been furnished by the Underwriter expressly for use therein and constitute
the only information furnished in writing by or on behalf of the Underwriter for
inclusion in any Preliminary Prospectus, the Registration Statement or the
Prospectus. The indemnity agreement in this Section 7(b) shall be in addition to
any liability which the Underwriter may have at common law or otherwise.
(c) Promptly after receipt by an indemnified party under this
Section 7 of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against one or more
indemnifying parties under this Section 7, notify each party against whom
indemnification is to be sought in writing of the commencement thereof (but the
failure to so notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 7 (except to the extent that it
has been prejudiced in any material respect by such failure) or from any
liability which it may have otherwise). In case any such action is brought
against any indemnified party, and it notifies an indemnifying party or parties
of the commencement thereof, the indemnifying party or parties will be entitled
to participate therein, and to the extent it or they may elect by written notice
delivered to the indemnified party promptly after receiving the aforesaid notice
from such indemnified party, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party. Notwithstanding the
33
<PAGE>
foregoing, an indemnified party shall have the right to employ its own counsel
in any such case but the fees and expenses of such counsel shall be at the
expense of such indemnified party unless (i) the employment of such counsel
shall have been authorized in writing by the indemnifying parties in connection
with the defense of such action at the expense of the indemnifying party,
(ii) the indemnifying parties shall not have employed counsel reasonably
satisfactory to such indemnified party to have charge of the defense of such
action within a reasonable time after notice of commencement of the action, or
(iii) such indemnified party shall have reasonably concluded that there may be
defenses available to it which are different from or additional to those
available to one or all of the indemnifying parties (in which event the
indemnifying parties shall not have the right to direct the defense of such
action on behalf of the indemnified party or parties), in any of which events
such fees and expenses of one additional counsel shall be borne by the
indemnifying parties. In no event shall the indemnifying parties be liable for
fees and expenses of more than one counsel (in addition to any local counsel)
separate from their own counsel for all indemnified parties in connection with
any one action or separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances. An
indemnifying party will not, without the prior written consent of the
indemnified parties, settle, compromise or consent to the entry of any judgment
with respect to any pending or threatened claim, action, suit or proceeding in
respect of which indemnification or contribution may be sought hereunder
(whether or not the indemnified parties are actual or potential parties to such
claim or action), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such claim, action, suit or proceeding and (ii) does not include a statement
as to or an admission of fault, culpability or a failure to act by or on behalf
of any indemnified party. Anything in this Section 7 to the contrary
notwithstanding, an indemnifying party shall not be liable for any settlement of
any claim or action effected without its written consent; provided, however,
that such consent may not be unreasonably withheld.
(d) In order to provide for just and equitable contribution in
any case in which (i) an indemnified party makes a claim for indemnification
pursuant to this Section 7, but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
the express provisions of this Section 7 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party shall contribute to the amount
paid as a result of such losses, claims, damages, expenses or liabilities (or
actions in respect thereof) (A) in such proportion as is appropriate to reflect
the relative benefits received by each of the contributing parties, on the one
hand, and the party to be indemnified, on the other hand, from the offering of
the Securities or (B) if the allocation provided by clause (A) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (A) above but also the relative
fault of each of the contributing parties, on the one hand, and the party to be
indemnified, on the other hand, in connection with the statements or omissions
that resulted in such losses, claims, damages, expenses or liabilities, as well
as any other relevant equitable considerations. In any case where the Company is
a contributing party and the Underwriter is the indemnified party, the relative
benefits received by the Company, on the one hand, and the Underwriter, on the
other, shall be deemed to be in the same proportion as the total net proceeds
34
from the offering of the Securities (before deducting expenses) bear to the
total underwriting discounts received by the Underwriter hereunder, in each case
as set forth in the table on the cover page of the Prospectus. Relative fault
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company or by
the Underwriter, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission. The amount paid by an indemnified party as a result of the losses,
claims, damages, expenses or liabilities (or actions in respect thereof)
referred to in the first (1st) sentence of this Section 7(d) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7(d), the Underwriter shall not
be required to contribute any amount in excess of the underwriting discount
applicable to the Securities purchased by the Underwriter hereunder. No person
guilty of fraudulent misrepresentation (within the meaning of Section 12(f) of
the Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. For purposes of this Section 7(d), each
person, if any, who controls the Company or the Underwriter within the meaning
of the Act, each officer of the Company who has signed the Registration
Statement and each director of the Company shall have the same rights to
contribution as the Company or the Underwriter, as the case may be, subject in
each case to this Section 7(d). Any party entitled to contribution will,
promptly after receipt of notice of commencement of any action against such
party in respect to which a claim for contribution may be made against another
party or parties under this Section 7(d), notify such party or parties from whom
contribution may be sought, but the omission to so notify such party or parties
shall not relieve the party or parties from whom contribution may be sought from
any obligation it or they may have hereunder or otherwise than under this
Section 7(d), or to the extent that such party or parties were not adversely
affected by such omission. Notwithstanding anything in this Section 7 to the
contrary, no party will be liable for contribution with respect to the
settlement of any action or claim effected without its written consent. The
contribution agreement set forth above shall be in addition to any liabilities
which any indemnifying party may have at common law or otherwise.
8. Representations, Warranties, Covenants and Agreements to
Survive Delivery. All representations, warranties, covenants and agreements of
the Company contained in this Agreement, or contained in certificates of
officers of the Company submitted pursuant hereto, shall be deemed to be
representations, warranties, covenants and agreements at the Closing Date and
each Option Closing Date, if any, and such representations, warranties,
covenants and agreements of the Company, and the respective indemnity and
contribution agreements contained in Section 7 hereof, shall remain operative
and in full force and effect regardless of any investigation made by or on
behalf of the Underwriter, the Company or any of their agents, and shall survive
the termination of this Agreement or the issuance and delivery of the Securities
to the Underwriter.
9. Effective Date. This Agreement shall become effective at
10:00 a.m., New York City time, on the next full business day following the date
hereof, or at such earlier time after the Registration Statement becomes
effective as the Underwriter, in its discretion, shall release the Securities
for sale to the public; provided, however, that the provisions of Sections 5, 7
35
<PAGE>
and 10 of this Agreement shall at all times be effective. For purposes of this
Section 9, the Securities to be purchased hereunder shall be deemed to have been
so released upon the earlier of dispatch by the Underwriter of telegrams to
securities dealers releasing such shares for offering or the release by the
Underwriter for publication of the first newspaper advertisement which is
subsequently published relating to the Securities.
10. Termination.
(a) Subject to Section 10(b) hereof, the Underwriter shall
have the right to terminate this Agreement: (i) if any domestic or international
event or act or occurrence has materially adversely disrupted, or in the
Underwriter's opinion will in the immediate future materially adversely disrupt,
the financial markets; or (ii) if any material adverse change in the financial
markets shall have occurred; or (iii) if trading generally shall have been
suspended or materially limited on or by, as the case may be, any of the New
York Stock Exchange, the American Stock Exchange, the NASD, the Boston Stock
Exchange, the Commission or any governmental authority having jurisdiction over
such matters; or (iv) if trading of any of the securities of the Company shall
have been suspended, or if any of the securities of the Company shall have been
delisted, on any exchange or in any over-the-counter market; or (v) if the
United States shall have become involved in a war or major hostilities, or if
there shall have been an escalation in an existing war or major hostilities, or
a national emergency shall have been declared in the United States; or (vi) if a
banking moratorium shall have been declared by any state or federal authority;
or (vii) if a moratorium in foreign exchange trading shall have been declared;
or (viii) if the Company shall have sustained a material or substantial loss by
fire, flood, accident, hurricane, earthquake, theft, sabotage or other calamity
or malicious act which, whether or not such loss shall have been insured, will,
in the Underwriter's opinion, make it inadvisable to proceed with the delivery
of the Securities; or (ix) if there shall have been such a material adverse
change in the conditions or prospects of the Company, or if there shall have
been such a material adverse change in the general market, political or economic
conditions, in the United States or elsewhere, as in the Underwriter's judgment
would make it inadvisable to proceed with the offering, sale and/or delivery of
the Securities; or (x) if Robert W. Conner, Jr. shall no longer serve the
Company in his present capacities.
(b) If this Agreement is terminated by the Underwriter in
accordance with the provisions of Section 6, 10(a) or 11 hereof or if this
Agreement shall not be carried out within the time specified herein, or within
any extension thereof granted by the Underwriter, by reason of any failure on
the part of the Company to perform any undertaking or satisfy any condition of
this Agreement to be performed or satisfied by it (including, without
limitation, pursuant to Section 6, Section 10(a) or Section 11 hereof), then the
Company shall promptly reimburse and indemnify the Underwriter for all of its
actual out-of-pocket expenses, including the fees and disbursements of
Underwriter's Counsel. In addition, in any of such events the Company shall
remain liable for all "blue sky" counsel fees and expenses and "blue sky" filing
fees (such blue sky counsel fees not to exceed $40,000 in the aggregate).
Notwithstanding any contrary provision contained in this Agreement, any election
hereunder or any termination of this Agreement (including, without limitation,
pursuant to Sections 6, 10 and 11 hereof), and whether or not this Agreement is
otherwise carried out, the provisions of Section 5 and Section 7 shall not be in
36
<PAGE>
any way be affected by such election or termination or failure to carry out the
terms of this Agreement or any part hereof.
11. Default by the Company. If the Company shall fail at the
Closing Date or any Option Closing Date, as applicable, to sell and deliver the
number of Securities which it is obligated to sell hereunder on such date, then
this Agreement shall terminate (or, if such default shall occur with respect to
any Option Securities to be purchased on an Option Closing Date, the Underwriter
may, at its option, by notice from the Underwriter to the Company, terminate the
Underwriter's obligation to purchase Option Securities from the Company on such
date) without any liability on the part of any non-defaulting party other than
pursuant to Section 5, Section 7 and Section 10 hereof. No action taken pursuant
to this Section 11 shall relieve the Company from liability, if any, in respect
of such default.
12. Notices. All notices and communications hereunder,
except as herein otherwise specifically provided, shall be in writing and shall
be deemed to have been duly given if mailed or transmitted by any standard form
of telecommunication. Notices to the Underwriter shall be directed to the
Underwriter at A.S. Goldmen & Co., Inc., 99 Wood Avenue South, Iselin, New
Jersey 08830, Attention: Mr. Stuart Winkler, with a copy to Orrick, Herrington &
Sutcliffe LLP, 666 Fifth Avenue, New York, New York 10103, Attention: Lawrence
B. Fisher, Esq. Notices to the Company shall be directed to the Company at
Independence Brewing Company, 1000 East Comly Street, Philadelphia, Pennsylvania
19149, Attention: Robert W. Connor, Jr., with a copy to Pepper, Hamilton &
Sheetz, 3000 Two Logan Square, Eighteenth and Arch Streets, Philadelphia,
Pennsylvania 19103-2799, Attention: Barry M. Abelson, Esq.
13. Parties. This Agreement shall inure solely to the benefit
of, and shall be binding upon, the Underwriter, the Company and the controlling
persons, directors and officers referred to in Section 7 hereof, and their
respective successors, legal representatives and assigns, and no other person
shall have or be construed to have any legal or equitable right, remedy or claim
under or in respect of or by virtue of this Agreement or any provisions herein
contained. No purchaser of Securities from the Underwriter shall be deemed to be
a successor by reason merely of such purchase.
14. Construction. This Agreement shall be governed by
and construed and enforced in accordance with the laws of the State
of New York, without giving effect to choice of law or conflict of
laws principles.
15. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an
original, and all of which taken together shall be deemed to be one
and the same instrument.
16. Entire Agreement; Amendments. This Agreement and
the Underwriter's Warrant Agreement constitute the entire agreement
of the parties hereto and supersede all prior written or oral
agreements, understandings and negotiations with respect to the
subject matter hereof. This Agreement may not be amended except in
a writing signed by the Underwriter and the Company.
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<PAGE>
If the foregoing correctly sets forth the understanding
between the Underwriter and the Company, please so indicate in the space
provided below for that purpose, whereupon this letter shall constitute a
binding agreement between us.
Very truly yours,
INDEPENDENCE BREWING COMPANY
By:________________________________
Name: Robert W. Connor, Jr.
Title: President
Confirmed and accepted as of
the date first above written.
A.S. GOLDMEN & CO., INC.
By:___________________________________
Name: Stuart Winkler
Title: Vice President
Microfilm Number ___________ Filed with the Department of State on AUG 09 1996
Entity Number 2581076
_________________________________________________
Secretary of the Commonwealth
ARTICLES OF AMENDMENT-DOMESTIC BUSINESS CORPORATION
DSCB:15-1915 (Rev 91)
In compliance with the requirements of 15 Pa.C.S. Section 1915 (relating to
articles of amendment), the undersigned business corporation, desiring to amend
its Articles, hereby states that:
1. The name of the corporation is: ____Independence Brewing Company ___________
_______________________________________________________________________________
2. The (a) address of this corporations's current registered office in this
Commonwealth or (b) name of its commercial registered office provider and the
county of venue is (the Department is hereby authorized to correct the following
information to conform to the records of the Department):
(a) 1000 East Comly Street, Philadelphia, PA 19149 Philadelphia
____________________________________________________________________________
Number and Street City State Zip County
(b) c/o:
____________________________________________________________________________
Name of Commercial Registered Office Provider County
For a corporation represented by a commercial registered office provider, the
county in (b) shall be deemed the county in which the corporation is located for
venue and official publication purposes.
3. The statute by or under which it was incorporated is: _____PA Business______
_Corporation Law of 1988_____
4. The date of its incorporation is: __5/17/94________________________________
5. (Check, and if appropriate complete, one of the following):
_X_The amendment shall be effective upon filing these Articles of Amendment in
the Department of State.
___The amendment shall be effective on: _______________ at ____________________
Date Hour
6. (Check one of the following):
_X_The amendment was adopted by the shareholders (or members) pursuant to
15 Pa.C.S. Section 1914(a) and (b).
___The amendment was adopted by the board of directors pursuant to 15 Pa.C.S.
Section 1914(c).
7. (Check, and if appropriate complete, one of the following):
___The amendment adopted by the corporation, set forth in full, is as follows:
_X_The amendment adopted by the corporation as set forth in full in Exhibit A
attached hereto and made a part hereof, consisting of pages 1 through 25.
<PAGE>
8. (Check if the amendment restates the Articles):
_X_The restated Articles of Incorporation supersede the original Articles
and all amendments thereto.
IN TESTIMONY WHEREOF, the undersigned corporation has caused these Articles
of Amendment to be signed by a duly authorized officer thereof this 9th day of
August, 1996.
INDEPENDENCE BREWING COMPANY
----------------------------
(Name of Corporation)
BY: /s/ DOMINIC S. LIBERI
-------------------------
(Signature)
TITLE: ATTORNEY-IN-FACT
----------------------
<PAGE>
AMENDED AND RESTATED
ARTICLES OF
INCORPORATION OF
INDEPENDENCE BREWING
COMPANY
FIRST: The name of the Corporation is INDEPENDENCE BREWING COMPANY (the
-----
"Corporation").
SECOND: The purposes for which the Corporation is formed are as follows:
------
(a) To manufacture and produce for sale at wholesale and at retail craft
brewed ales, lagers and seasonal beers as well as other beverages for
consumption, including, but not limited to, soft drinks.
(b) To engage in any other lawful act or activity for which corporations
may be organized under the Pennsylvania Business Corporation Law.
THIRD: The post office address of the principal office of the
-----
Corporation is 1000 East Comly Street, Philadelphia, PA. 19149. The resident
agent of the Corporation is Robert W. Connor, Jr., whose post office address is
1000 East Comly Street, Philadelphia, PA. 19149. Said resident agent is a
citizen of the Commonwealth of Pennsylvania, and actually resides therein.
FOURTH: The Corporation is authorized to issue Twenty Million
------
(20,000,000) shares of capital stock, of which Nineteen Million (19,000,000)
shares are common stock, no par value per share (the Common Stock), Five Hundred
------------
Thousand (500,000) shares are Series A Preferred Stock, par value of Ten Dollars
($10.00) per share (the Series A Preferred Stock), and Five Hundred Thousand
------------------------
(500,000) shares are Series B Preferred Stock, par value of Ten Dollars ($10.00)
per share (the Series B Preferred Stock) (the Series A Preferred Stock and the
------------------------
Series B Preferred Stock sometimes collectively being the Preferred Stock).
---------------
Except as otherwise provided in these Articles of Incorporation, the Corporation
shall have the power to create and issue, with or without any connection to the
issue and sale of any shares of capital stock or other securities, warrants
entitling the holders thereof to purchase from the Corporation any shares of its
Common Stock or Series B Preferred Stock, upon such terms and conditions and at
such times and prices as the Board of Directors may provide and which shall be
incorporated in an instrument or instruments evidencing such rights.
The preferences, conversion rights, voting powers, restrictions,
limitations as to dividends, rights and qualifications of the Common Stock, the
Series A Preferred Stock and the Series B Preferred Stock are as follows:
1
<PAGE>
A. COMMON STOCK.
------------
1. Voting Rights. Except as otherwise provided herein, every holder of
-------------
Common Stock shall be entitled to cast, in person or by proxy, one vote for each
share of Common Stock held of record by such holder on all matters to be voted
on by shareholders. The holders of shares of Common Stock and (to the extent
permitted by Sections B1 and C1 of this Article Fourth), the holders of shares
of Preferred Stock, voting as one group, shall have the right to vote on all
matters submitted to a vote of shareholders with each share of Common Stock
having one vote and each share of Preferred Stock having one vote. Nothing in
these Articles of Incorporation shall be deemed to negate or prohibit or reduce
the rights of all of the shareholders to cumulative voting in the election of
directors.
2. Dividends. Subject to the provisions of law and these Articles of
---------
Incorporation, dividends may be declared and paid on the Common Stock of the
Corporation at such time and in such amounts as the Board of Directors may deem
advisable; provided that, in all events, no dividends may be paid with respect
-------------
to shares of Common Stock until such time as all shares of Preferred Stock have
been redeemed by the Corporation as provided herein, and payment therefor has
been made together with payment of all accrued and unpaid dividends on such
shares of Preferred Stock.
3. Liquidation Rights. In the event of the dissolution, liquidation or
------------------
winding up of the Corporation, whether voluntary or involuntary, after payment
or provision for payment of the debts and other liabilities of the Corporation
and the preferential amounts required to be paid to the holders of Preferred
Stock as provided in paragraphs B and C of this Article Fourth, each share of
Common Stock shall be entitled to share ratably with all other shares of Common
Stock in all remaining net assets of the Corporation.
B. SERIES A PREFERRED STOCK.
------------------------
1. Voting Rights.
-------------
(a) During any period in which any one or more of the conditions
described in paragraph B1(c) shall exist (a "Voting Period"), the number of
-------------
directors constituting the Board of Directors shall be automatically increased
by the smallest number that, when added to the number of directors then
constituting the Board of Directors, shall (together with the directors elected
by the holders of Series B Preferred Stock pursuant to paragraph C.1) constitute
a majority of such increased Board of Directors, and the holders of shares of
Series A Preferred Stock, voting as a class, shall be entitled to elect all such
additional directors. When the holders of Series A Preferred Stock vote as a
class, the affirmative vote of the holders of Fifty-One Percent (51%) or more
2
<PAGE>
of the shares of outstanding Series A Preferred Stock, represented in person or
by proxy, at a meeting at which a quorum of Series A Preferred Stock is present
shall be sufficient to approve any matter with respect to which said holders are
entitled to vote.
(b) During any Voting Period, holders of Series A Preferred Stock shall
be entitled to cast, in person or by proxy, one vote for each share of Series A
Preferred Stock held of record by such holder on all matters to be voted on by
shareholders, except as otherwise provided herein, and as such, the holders of
shares of Series A Preferred Stock shall vote together with the holders of
shares of Common Stock and with the holders of shares of Series B Preferred
Stock, all voting as one group, on all matters submitted to a vote of
shareholders, except as otherwise provided herein.
(c) A Voting Period shall commence:
(i) If the Corporation cannot or fails to redeem any shares of Series A
Preferred Stock that it is obligated to redeem within five (5) business days
after any of the time provided in paragraph B.3 (a) hereof (for any reason,
including by operation of law or as a result of an Act of Bankruptcy (as defined
in paragraph (c)(iv), below, without regard to the Corporation's financial or
legal ability to effect such redemption), as of 5:00 p.m. New York, New York
time on the date on which the Corporation was obligated to redeem such shares of
Series A Preferred Stock;
(ii) If any accumulated dividends (whether or not declared by the
Corporation, and whether or not funds are then legally available in an amount
sufficient therefor) on shares of Series A Preferred Stock shall be unpaid as of
5:00 p.m. New York, New York time on the fifth (5th) business day after the date
on which the Corporation is obligated to pay such dividends;
(iii) If any of the representations, warranties or covenants of the
Corporation set forth in that certain Securities Purchase Agreement by and among
the Corporation, the holders of Series A Preferred Stock and certain holders of
Common Stock of the Corporation of approximate even date herewith (the
Agreement) proves to be inaccurate or misleading in any respect, or the
- ---------
Corporation is in breach or default of any of its covenants, warranties,
agreements or undertakings set forth in the Agreement or the other "Purchase
Documents" (as defined in the Agreement);
(iv) Upon the commencement of any voluntary or involuntary case under
the federal bankruptcy laws or any state insolvency or similar laws seeking the
liquidation or reorganization of the Corporation, or the appointment of a
receiver, liquidator, assignee, custodian, trustee, or similar official for the
Corporation or the Corporation's property, or the failure or
3
<PAGE>
inability of the Corporation to generally pay its debts as they become due, or
the making by the Corporation of an assignment for the benefit of creditors
(except that in the case of any involuntary action, the Corporation shall have
sixty (60) days to have such case dismissed) (each, an Act of Bankruptcy);
-----------------
(v) Upon the termination of the employment of Robert W. Connor, Jr.
(Connor) with the Corporation for any reason;
------
(vi) Upon the failure by the Corporation to perform or observe any
material obligation or undertaking, except where such failure is not due to any
fault or inaction on the part of the Corporation, (A) under any contract or
instrument requiring the Corporation to pay in excess of, or to provide products
or services valued in excess of, One Hundred Thousand Dollars ($100,000), or
(B) under one or more contracts or instruments requiring the Corporation to pay
in excess of, or to provide products or services valued in excess of, One
Hundred Thousand Dollars ($100,000) in the aggregate, as of the time of the last
to occur of such failure (whether or not any default has been declared or
asserted thereunder); or
(vii) Upon the occurrence of any of the events set forth in paragraph
B.5 of this Article Fourth without the consent of the holders of a majority of
the outstanding shares of Series A Preferred Stock.
(d) The Voting Period, and the voting rights so created upon the
occurrence of the conditions set forth in subparagraph (c) hereof, shall
continue unless and until: (i) the Corporation shall have redeemed all shares of
Series A Preferred Stock that were subject to mandatory redemption (without
regard to the Corporation's legal ability to effect such redemption) as provided
herein and which were not timely redeemed, and full payment therefor has been
made, (ii) if the Voting Period commenced solely as a result of an event
referenced in paragraph B.1(c)(ii) hereof, all accumulated and unpaid dividends
on shares of Series A Preferred Stock shall have been paid through the last
dividend payment date, or (iii) if the Voting Period commenced solely as a
result of an event referenced in paragraph B.1(c)(iii) hereof, the performance
or cure of any representation, warranty, covenant or breach of the Corporation
referenced in such paragraph.
(e) Upon the termination of a Voting Period, the special voting rights
of the Series A Preferred Stock described in paragraph Bl(b) hereof shall cease,
subject always, however, to the revesting of such voting rights in the holders
of Series A Preferred Stock upon the further occurrence of any of the events
described in paragraph B1(c).
(f) Within one (1) day after the accrual of any right of the holders of
Series A Preferred Stock to elect directors pursuant
4
<PAGE>
to paragraph B1(b) hereof, the Board of Directors shall call a special meeting
of the holders of Series A Preferred Stock to be held ten (10) days after the
date of mailing of such notice. If the Corporation fails to send such notice as
provided above, the meeting may be called by any holder of Series A Preferred
Stock on like notice. The record date for determining the holders of Series A
Preferred Stock entitled to notice of and to vote at such special meeting shall
be the close of business on the day on which such notice is given.
(g) The terms of office of all persons who are directors of the
Corporation at the time of a special meeting of holders of Series A Preferred
Stock to elect directors pursuant to paragraph Bl(b) shall continue,
notwithstanding the election at such meeting by the holders of Series A
Preferred Stock of the number of directors that they are entitled to elect, and
the persons so elected by the holders of Series A Preferred Stock, together with
the incumbent directors, shall constitute the duly elected directors of the
Corporation.
(h) Simultaneously with the expiration of a Voting Period, the terms of
office of the directors elected by the holders of Series A Preferred Stock
pursuant to paragraph B.1(c) shall terminate, the persons elected by the holders
of Common Stock, and the directors elected by the holders of Series B Preferred
Stock pursuant to paragraph C.1(b), and who are incumbent shall constitute the
directors of the Corporation, and the voting rights of the holders of Series A
Preferred Stock to elect directors pursuant to paragraph B.1(c) shall be
suspended.
(i) Except as provided in paragraph B.1(h) hereof, the directors elected
by holders of Series A Preferred Stock pursuant to paragraphs B.1(b) and B.1(c)
may be removed only by the holders of Series A Preferred Stock. If a director
elected by the holders of Series A Preferred Stock resigns, is removed or dies,
the vacancy on the Board of Directors may be filled only by the holders of
Series A Preferred Stock. Any holder of Series A Preferred Stock may call a
meeting of holders of Series A Preferred Stock for the purpose of filling such a
vacancy.
2. Dividends.
---------
(a) Holders of outstanding shares of Series A Preferred Stock shall be
entitled to receive, out of funds legally available therefor, cumulative cash
dividends at the rate of One Dollar and Eighty Cents ($1.80) per share per
annum. Such dividends shall become payable in arrears commencing on the first
day of the first month after the date of issuance of any shares of Series A
Preferred Stock, and thereafter shall continue to accrue at such rate and shall
be payable in arrears on the first day of each successive month thereafter until
the date on which all shares of
5
<PAGE>
Series A Preferred Stock have been redeemed and all amounts paid with respect
thereto, including accrued but unpaid dividends.
(b) So long as any shares of Series A Preferred Stock remain
outstanding, no dividends shall be declared or paid upon, nor shall any dividend
or other distribution be made with respect to, any shares of any other class of
stock of the Corporation, and, except as otherwise permitted herein, no shares
of any class of stock of the Corporation other than the shares of Series A
Preferred Stock shall be redeemed, purchased or otherwise acquired by the
Corporation. Notwithstanding the foregoing, the Corporation may declare
dividends with respect to shares of Series B Preferred Stock, at the times
otherwise required in these Articles of Incorporation, and the Corporation may
pay such dividends at the times otherwise required in these Articles of
Incorporation, provided that the Corporation may not pay such dividends until
all accrued and unpaid dividends with respect to the shares of Series A
Preferred Stock have been paid in full.
3. Redemption
----------
(a) Mandatory Redemption.
--------------------
(i) The Corporation shall redeem all outstanding shares of Series A
Preferred Stock on the five (5) year anniversary date of the date of issuance of
such shares (each, a "Redemption Date"), at $10 cash per share together with an
---------------
amount on each Redemption Date equal to the accrued and unpaid dividends on such
shares (whether or not declared by the Corporation) to the Redemption Date (the
Redemption Price).
- ----------------
(ii) Notwithstanding the provisions of paragraph B.3(a)(i) hereof, the
Corporation shall be obligated to redeem all or any portion (as set forth in
the notice provided in subparagraphs B.3 (a) (ii)(a), B.3(a)(ii)(b) or
B.3.(a)(ii)(c) hereof) of the shares of Series A Preferred Stock and pay the
Redemption Price for such shares within one (1) day of receipt of written notice
from the holders of fifty-one percent (51%) or more of the shares of outstanding
Series A Preferred Stock, at any time during the pendency of any Voting Period;
(iii) Notwithstanding the provisions of paragraph B.3(a)(i) hereof, in
the event of (A) the consummation of any offering of the Corporation's Common
Stock to the public pursuant to a registration statement filed with the
Securities and Exchange Commission (other than a registration statement on Form
S-4 or Form S-8) as the result of which shares of Common Stock of the
Corporation are listed on either the New York Stock Exchange, the American Stock
Exchange, or any NASDAQ stock market (a Public Offering), or (B) the closing of
---------------
a sale by the Corporation of all or substantially all of its assets, or a
merger, consolidation or other combination of the Corporation with or into
another business
6
<PAGE>
entity (each such event being a Sale), or (C) the termination of the employment
----
of Connor with the Corporation for any reason, or (D) upon the occurrence of an
Act of Bankruptcy, or (E) upon a material breach of the Purchase Documents the
Corporation shall redeem each share of Series A Preferred Stock, which
redemption shall occur on the date of the closing of such Public Offering or
Sale, or termination of such employment, or occurrence of such Act of Bankruptcy
or breach of such Purchase Documents, as the case may be, and the Corporation
shall pay to each such holder of shares of Series A Preferred Stock cash in the
amount of the Redemption Price for each share of Series A Preferred Stock.
(iv) Notwithstanding the provisions of paragraph B.3(a)(i) hereof, if,
at any time beginning August 1, 1998 the Corporation or any holder of Common
Stock or any holder of Series A Preferred Stock of the Corporation as of the
date hereof receives a bona fide offer to purchase all or substantially all of
the Corporation's assets, or all or substantially all of the capital stock of
the Corporation, the Corporation shall provide written notice to the holders of
Series A Preferred Stock within ten (10) days of receipt of said offer setting
forth all of the relevant terms and conditions thereof. If the holders of
Fifty-One Percent (51%) or more of the outstanding shares of Series A Preferred
Stock desire for such offer to be accepted, such holders of Series A Preferred
Stock shall provide written notice to the Corporation within thirty (30) days
thereafter to that effect, and the Corporation and/or such holders of Common
Stock, as the case may be, shall thereafter either accept the offer, or no later
than 120 days after receipt of notice from such holders of Series A Preferred
Stock, acquire all of the warrants, shares of Common Stock and other securities
(other than the shares of Series A Preferred Stock), held by all holders of
Series A Preferred Stock, on the same terms and conditions as the proposed
offer. The Corporation shall thereupon immediately redeem all of the outstanding
shares of Series A Preferred Stock at the Redemption Price for each said share
as of the closing of said sale, and as a condition thereof. If the Corporation
is unable to fully pay such amounts in cash, then the offer must be accepted by
the Corporation or said holders of shares of Common Stock, as the case may be,
closing with respect thereto shall occur as soon as possible, and the provisions
of paragraph B.3 (a) hereof shall continue to apply with respect to the shares
of Series A Preferred Stock.
(b) General Provisions for Redemptions.
----------------------------------
(i) Except as provided in paragraphs B.3(a)(ii), (iii) and (iv) hereof,
whenever shares of Series A Preferred Stock are to be redeemed, the Corporation
shall mail, not fewer than thirty (30) nor more than forty-five (45) days prior
to the applicable redemption date, a written notice of redemption by first-class
mail, postage prepaid, to each holder of shares of Series A Preferred Stock to
be redeemed (a Notice of Redemption), as its
--------------------
7
<PAGE>
name and address appear on the stock books of the Corporation. Each Notice of
Redemption shall state (A) the Redemption Date, (B) the Redemption Price,
(C) the number of shares of Series A Preferred Stock to be redeemed, (D) the
place or places where such shares of Series A Preferred Stock are to be
redeemed, and (E) the provision of these Articles of Incorporation under which
the redemption is being made. No defect in the Notice of Redemption or in the
mailing thereof shall affect the validity of the redemption proceedings.
(ii) Notice of Redemption having been mailed with respect to any shares
of Series A Preferred Stock and provision for payment of the Redemption Price
for such on the applicable Redemption Date having been made by the Corporation,
then, unless default be made in the payment of the Redemption Price with respect
to such shares of Series A Preferred Stock when and as due, (A) the shares of
Series A Preferred Stock designated for redemption in such notice shall not be
entitled to any dividends accruing after the Redemption Date, and (B) on such
Redemption Date all rights of the respective holders of such shares with respect
to their ownership of such shares of Series A Preferred Stock shall cease,
except the right to receive the Redemption Price, upon presentation and
surrender of the respective certificates representing such shares.
(iii) On each Redemption Date, each holder of shares of Series A
Preferred Stock called for redemption shall surrender the certificate evidencing
the shares of Series A Preferred Stock to be redeemed. If fewer than all of the
shares represented by a certificate are to be redeemed, the Corporation shall
issue a new certificate for the shares not redeemed.
(iv) Shares of Series A Preferred Stock that have been redeemed,
purchased or otherwise acquired by the Corporation shall be retired and may not
be reissued.
(v) If the Corporation is unable to pay the full Redemption Price for
any shares of Series A Preferred Stock which the Corporation has become
obligated to redeem at or prior to such time, each holder of Series A Preferred
Stock which is to be otherwise redeemed shall have the right to have redeemed by
the Corporation a number of such holder's shares of Series A Preferred Stock
equal to the product of the total number of shares of Series A Preferred Stock
the Corporation is able to redeem at the Redemption Date times a fraction, the
numerator of which shall be the total number of shares of Series A Preferred
Stock which the Corporation shall have become obligated to redeem from such
holder at or prior to such Redemption Date, and the denominator of which shall
be the total number of shares of Series A Preferred Stock which the Corporation
shall have become obligated to redeem at or prior to such Redemption Date.
8
<PAGE>
(vi) Except as otherwise provided in this paragraph (vi), the
Corporation shall not redeem shares of the Series A Preferred Stock at the time
otherwise required for redemption unless all dividends on such shares of stock
(accrued through the date of redemption) shall have been paid, or declared and a
sum sufficient for the payment thereof set apart. If the Redemption Price for
any such shares cannot be paid in full because the Corporation is prohibited by
law from paying any of the accrued but unpaid dividends on such shares, then
(A) such Redemption Price shall be deemed reduced by the amount of such
dividends that the Corporation is prohibited by law from paying, (B) such shares
shall be redeemed in accordance with the requirements of this paragraph
B.3(b)(vi), and (C) such unpayable and accrued and unpaid dividends shall be
added in equal amounts per share to the accrued and unpaid dividends on the
shares of Series A Preferred Stock remaining outstanding in the hands of such
holder; provided that, in no event shall the Corporation purchase or redeem the
-------------
last share of Series A Preferred Stock held by such holder unless the
Corporation shall have paid to such holder all accrued and unpaid dividends on
all shares of Series A Preferred Stock held by such holder at any time.
4. Liquidation Rights.
------------------
(a) In the event of any liquidation, dissolution or winding up of the
affairs of the Corporation, whether voluntary or involuntary, the holders of
shares of the Series A Preferred Stock shall be entitled to receive out of the
assets of the Corporation available for distribution to shareholders, before any
distribution or payment shall be made in respect of the holders of shares of
Common Stock but pari passu with holders of Series B Preferred Stock, a
liquidation distribution in the amount of Ten Dollars ($10.00) per share plus an
amount equal to all accrued but unpaid dividends thereon to the date fixed for
such distribution or payment; provided that if, upon any such liquidation,
dissolution or winding up of the affairs of the Corporation, the assets of the
Corporation available for distribution to shareholders shall be insufficient to
permit the payment in full to the holders of Series A Preferred Stock and Series
B Preferred Stock of the amounts to which they are each entitled, then all of
such available assets shall be distributed to the holders of shares of Series A
Preferred Stock and Series B Preferred Stock ratably in proportion to the
liquidation payment otherwise due under paragraphs B.4(a) and C.4(a) to each
such holder. The holders of shares of Series A Preferred Stock shall not be
entitled to receive any additional distributive amounts with respect to shares
of Series A Preferred Stock upon such liquidation, dissolution or winding up of
the affairs of the Corporation resulting in any distribution of assets to
shareholders.
(b) If, upon any such liquidation, dissolution or winding up of the
affairs of the Corporation, no shares of Series B Preferred Stock are issued and
outstanding and the assets of the
9
<PAGE>
Corporation available for distribution to shareholders shall be insufficient to
permit the payment in full to the holders of Series A Preferred Stock of the
amounts to which they are entitled, then all of such available assets shall be
distributed to the holders of shares of Series A Preferred Stock ratably in
proportion to the liquidation payment otherwise due under paragraph B.4(a) to
each such holder.
(c) The purchase or redemption by the Corporation of stock of any class,
in any manner permitted by law, shall not for the purpose of this paragraph B.4
be regarded as a liquidation, dissolution or winding up of the Corporation. A
consolidation or merger of the Corporation with or into any other corporation or
corporations, or the consolidation or merger of any other corporation or
corporations into the Corporation, or the sale or transfer by the Corporation of
all or any part of its assets shall be deemed to be a liquidation, dissolution
and winding up of the Corporation for the purpose of this paragraph B.4, and
shall entitle the holders of Series A Preferred Stock to receive at the closing
thereof in cash the amounts specified in paragraph B.4(a) or B.4(b), as the
case may be.
(d) At least twenty (20) days prior written notice of the date on which
any such liquidation, dissolution or winding up of the affairs of the
Corporation shall be sent by first class mail, postage prepaid, to each holder
of Series A Preferred Stock at his or its address as shown on the records of the
Corporation.
5. Restrictions. Until the first to occur of a Public Offering or the
------------
redemption by the Corporation of, and payment for, all of the shares of Series A
Preferred Stock and all accrued and unpaid dividends thereon, the Corporation
shall not undertake any of the actions set forth in this paragraph B.5.
(a) Ordinary Course. Without taking any action or making any expenditure
---------------
outside of the normal and ordinary course of business, the Corporation shall
(i) carry on its business in substantially the same manner consistent with past
operations, (ii) not enter into any obligation out of the ordinary course of
business requiring the annual payment in an amount in excess of Ten Thousand
Dollars ($10,000) in the aggregate for each such obligation except as permitted
pursuant to the "Budget" (as defined in the Agreement), (iii) not incur or
increase any indebtedness for borrowed money other than (A) for working capital
purposes in the aggregate amount of not more than $150,000, provided that if the
Corporation desires to incur such indebtedness in excess of such amounts the
Corporation may do so with the consent of the holders of Fifty-One percent (51%)
or more of the outstanding shares of Series A Preferred Stock, which consent
shall not be unreasonably withheld, or (B) pursuant to borrowing facilities in
existence as of the date hereof, or refinancings of such borrowing facilities on
terms no less favorable to the Corporation than are applicable as
10
<PAGE>
of the date hereof, (iv) preserve its present business organization intact,
except as set forth in the budget, (v) use its best efforts to keep available
the services of present officers, except as set forth in the Budget (vi) except
in accordance with the Budget, make no material increase in levels of officer
staffing, (vii) preserve its present relationships in all material respects with
persons having business dealings with the Corporation, and (viii) not increase
the amount of, or prepay, any payment pursuant to any contract or agreement.
(b) Extraordinary Actions. Except in the manner permitted by these
---------------------
Articles of Incorporation, the Corporation shall not, and shall not attempt to,
(i) enter into any merger, consolidation or other combination with or into, or
purchase any other business entity or the assets constituting a principal
portion of another business, or (ii) liquidate or dissolve, or (iii) amend its
Articles of Incorporation or bylaws, or alter its corporate structure, or
(iv) purchase an equity interest in any entity, or (v) establish any partly or
wholly owned subsidiaries or joint ventures, or (vi) propose or enter into, or
consummate any agreement with respect to the sale, transfer or other disposition
of any of its assets outside of the ordinary course of its business consistent
with its past practices, or (vii) change the location or nature of its business,
or (viii) invest in any endeavor not strictly related to such business and the
property used in the conduct of such business.
(c) Issuance of Capital Stock or Securities. Except with respect to the
---------------------------------------
exercise of certain warrants to purchase shares of Series B Preferred Stock
outstanding on the Closing Date (as defined in the Agreement) and except with
respect to the exercise of certain warrants to purchase shares of Common Stock
outstanding on the Closing Date, the Corporation shall not issue any shares of
capital stock, nor issue any rights to acquire any shares of capital stock nor
issue any securities or other obligations convertible into shares of capital
stock, nor redeem any of its shares of capital stock other than the shares of
Series A Preferred Stock or shares of Series B Preferred Stock. Notwithstanding
the foregoing, the Corporation shall be entitled to issue shares of capital
stock, or rights to acquire shares of capital stock or securities or other
obligations convertible into share of capital stock for the purpose of redeeming
shares of Series A Preferred Stock or Series B Preferred Stock provided that any
such shares or rights or other obligations shall not have any rights or
preferences (whether by way of liquidation, dividend, voting or otherwise)
senior to shares of Series A Preferred Stock or shares of Series B Preferred
Stock if any such shares remain outstanding after the date of such issuance.
(d) Encumbrances. Except as permitted pursuant to paragraph 3.5(a), the
------------
Corporation shall not pledge, sell, lease, transfer, dispose or otherwise
encumber any of its assets, or
11
<PAGE>
permit the creation or existence of any lien, encumbrance or other security
interest in or on any of its assets, other than liens for indebtedness existing
on the date hereof, liens for indebtedness in accordance with the Budget, and
liens with respect to permitted capital improvements pursuant to subparagraph
B.6(g) hereof.
(e) Distributions. The Corporation shall not declare or pay any
-------------
dividends, or make any distributions in cash, securities, capital stock or
otherwise, on its shares of capital stock (other than dividends payable
with
respect to shares of the Series A Preferred Stock or Series B Preferred Stock),
or in any other manner whatsoever advance, transfer or distribute cash or cash
equivalents to the holders of Common Stock or its directors, officers or other
personnel, or repurchase any outstanding shares of capital stock (other than the
Series A Preferred Stock or Series B Preferred Stock).
(f) Capital Improvements. The Corporation shall not expend in excess of
--------------------
Thirty Thousand Dollars ($30,000) in the aggregate in any fiscal year for
capital improvements or similar corporate purposes, except in accordance with
the Budget.
(h) Transactions with Related Persons. The Corporation shall not enter
---------------------------------
into any contract, agreement or other obligation with any person or affiliate of
any person who, directly or indirectly, owns any shares of its capital stock, or
any officer, director or other management personnel or employee, or affiliate,
on terms and conditions any less favorable than would be received from any
independent third party in the ordinary course of business.
C. SERIES B PREFERRED STOCK.
1. Voting.
------
(a) Subject to Paragraph C1(d) below, every holder of Series B
Preferred Stock shall be entitled to cast, in person or by proxy, one vote for
each share of Series B Preferred Stock held of record by such holder on all
matters to be voted on by shareholders, except as otherwise provided herein, and
as such, the holders of shares of Series B Preferred Stock shall vote together
with the holders of shares of Common Stock and with the holders of shares of
Series A Preferred Stock on all matters submitted to a vote of shareholders,
except as otherwise provided herein.
(b) Subject to the provisions of paragraph C.1(d) hereof, at any meeting
of the shareholders of the Corporation held for the election of directors, the
holders of shares of Series B Preferred Stock, voting as a class, shall be
entitled to elect one (1) director of the Corporation. Where the holders of
Series B Preferred Stock vote as a class, the affirmative vote of the
12
<PAGE>
holders of Fifty-One Percent (51%) or more of the shares of outstanding Series
B Preferred Stock, represented in person or by proxy, at a meeting at which a
quorum of Series B Preferred Stock is present shall be sufficient to approve any
matter with respect to which said holders are entitled to vote.
(c) During any period in which any one or more of the conditions
described in paragraph C.1(d) shall exist (a Series B Voting Period), the number
----------------------
of directors constituting the Board of Directors shall be automatically
increased by the smallest number that, when added to the number of directors
then constituting the Board of Directors, shall (together with the directors
elected by the holders of Series B Preferred Stock pursuant to paragraph C.1(b))
constitute a majority of such increased Board of Directors, and the holders of
shares of Series B Preferred Stock, voting as a class, shall be entitled to
elect all such additional directors.
(d) A Series B Voting Period shall commence only if no shares of Series
A Preferred Stock are then issued and outstanding, and then only:
(i) If the Corporation cannot or fails to redeem any shares of Series B
Preferred Stock that it is obligated to redeem within five (5) business days
after the time provided in paragraph C.3(a) hereof (for any reason, including
by operation of law or as a result of an Act of Bankruptcy, without regard to
the Corporation's financial or legal ability to effect such redemption), as of
5:00 p.m. New York, New York time on the date on which the Corporation was
obligated to redeem such shares of Series B Preferred Stock;
(ii) If any accumulated dividends (whether or not declared by the
Corporation, and whether or not funds are then legally available in an amount
sufficient therefor) on shares of Series B Preferred Stock shall be unpaid as of
5:00 p.m. New York, New York time on the fifth (5th) business day after the date
on which the Corporation is obligated to pay such dividends;
(iii) If any of the representations, warranties or covenants of the
Corporation to the holders of Series B Preferred Stock set forth in the
Agreement proves to be inaccurate or misleading in any respect, or the
Corporation is in breach or default of any of its covenants, warranties,
agreements or undertakings set forth in the Agreement and the other Purchase
Documents;
(iv) Upon the occurrence of an Act of Bankruptcy;
(v) Upon the termination of the employment of Connor with the
Corporation for any reason;
(vi) Upon the failure by the Corporation to perform or observe any
material obligation or undertaking, except where such failure
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<PAGE>
is not due to any fault or inaction on the part of the Corporation, (A) under
any contract or instrument requiring the Corporation to pay in excess of, or to
provide products or services valued in excess of, One Hundred Thousand Dollars
($100,000), or (B) under one or more contracts or instruments requiring the
Corporation to pay in excess of, or to provide products or services valued in
excess of, One Hundred Thousand Dollars ($100,000) in the aggregate, as of the
time of the last to occur of such failure (whether or not any default has been
declared or asserted thereunder); or
(vii) Upon the occurrence of any of the events set forth in paragraph
B.5 of this Article Fourth without the consent of the holders of a majority of
the outstanding shares of Series B Preferred Stock.
(e) The Series B Voting Period, and the voting rights so created upon
the occurrence of the conditions set forth in subparagraph (d) hereof, shall
continue unless and until: (i) the Corporation shall have redeemed all shares of
Series B Preferred Stock that were subject to mandatory redemption (without
regard to the Corporation's legal ability to effect such redemption) as provided
herein and which were not timely redeemed, and full payment therefor has been
made, (ii) if the Series B Voting Period commenced solely as a result of an
event referenced in paragraph C.1(d)(ii) hereof, all accumulated and unpaid
dividends on shares of Series B Preferred Stock shall have been paid through the
last dividend payment date, (iii) if the Series B Voting Period commenced solely
as a result of an event referenced in paragraph C.1(d)(iii) hereof, the
performance or cure of any representation, warranty, covenant or breach of the
Corporation referenced in such paragraph, or (iv) upon the issuance and full
payment therefor of any shares of Series A Preferred Stock pursuant to the terms
of the Agreement.
(f) Upon the termination of a Series B Voting Period, the voting rights
described in paragraph C.1(d) hereof shall cease, subject always, however, to
the revesting of such voting rights in the holders of Series B Preferred Stock
upon the further occurrence of any of the events described in paragraph C.1(d).
(g) Within one (1) day after the accrual of any right of the holders of
Series B Preferred Stock to elect directors pursuant to paragraph C.l(d) hereof,
the Board of Directors shall call a special meeting of the holders of Series B
Preferred Stock to be held ten (10) days after the date of mailing of such
notice. If the Corporation fails to send such notice as provided above, the
meeting may be called by any holder of Series B Preferred Stock on like notice.
The record date for determining the holders of Series B Preferred Stock entitled
to notice of and to vote at such special meeting shall be the close of business
on the day on which such notice is given.
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<PAGE>
(h) The terms of office of all persons who are directors of the
Corporation at the time of a special meeting of holders of Series B Preferred
Stock to elect directors pursuant to paragraph C.1(d) shall continue,
notwithstanding the election at such meeting by the holders of Series B
Preferred Stock of the number of directors that they are entitled to elect, and
the persons so elected by the holders of Series B Preferred Stock, together with
the incumbent directors, shall constitute the duly elected directors of the
Corporation.
(i) Simultaneously with the expiration of a Series B Voting Period, the
terms of office of the directors elected by the holders of Series B Preferred
Stock pursuant to paragraph C.1(d) shall terminate, the persons elected by the
holders of Common Stock, and the directors elected by the holders of Series B
Preferred Stock pursuant to paragraph C.1(b), and who are incumbent shall
constitute the directors of the Corporation, and the voting rights of the
holders of Series B Preferred Stock to elect directors pursuant to paragraph
C.1(d) shall be suspended.
(j) Except as provided in paragraph C.1(i) hereof, the directors elected
by holders of Series B Preferred Stock pursuant to paragraphs C.1(b), C.1(c) and
C.1(d) may be removed only by the holders of Series B Preferred Stock. If a
director elected by the holders of Series B Preferred Stock resigns, is removed
or dies, the vacancy on the Board of Directors may be filled only by the holders
of Series B Preferred Stock. Any holder of Series B Preferred Stock may call a
meeting of holders of Series B Preferred Stock for the purpose of filling such a
vacancy.
2. Dividends.
---------
(a) Holders of outstanding shares of Series B Preferred Stock shall be
entitled to receive, out of funds legally available therefor, cumulative cash
dividends at the rate of One Dollar and Forty Cents ($1.40) per share per annum
Such dividends shall become payable, in arrears, commencing on the first day of
the first month after the date of issuance of any shares of Series B Preferred
Stock, and thereafter shall continue to accrue at such rate and shall be payable
on the first day of each successive month thereafter until the date on which all
shares of Series B Preferred Stock have been redeemed and all amounts paid with
respect thereto, including accrued but unpaid dividends. Notwithstanding the
foregoing, if the Corporation fails to pay any dividend with respect to shares
of Series B Preferred Stock as of the date provided herein, dividends shall
thereafter accrue with respect to shares of Series B Preferred Stock at the rate
of One Dollar and Eighty Cents ($1.80) per share per annum until all accrued and
unpaid dividends with respect to shares of Series B Preferred Stock have been
paid in full, at which time dividends shall thereafter accrue at the rate of One
Dollar and Forty Cents ($1.40) per share
15
<PAGE>
per annum unless and until the Corporation again fails to pay any such dividend.
(b) So long as any shares of Series B Preferred Stock remain
outstanding, no dividends shall be declared or paid upon, nor shall any dividend
or other distribution be made with respect to, any shares of any other class of
stock of the Corporation, and, except as otherwise permitted herein, no shares
of any class of stock of the Corporation other than the shares of Series B
Preferred Stock shall be redeemed, purchased or otherwise acquired by the
Corporation. Notwithstanding the foregoing, the Corporation may declare
dividends with respect to shares of Series A Preferred Stock, at the times
otherwise required in these Articles of Incorporation, and the Corporation may
pay such dividends at the times otherwise required in these Articles of
Incorporation.
3. Redemption
----------
(a) Mandatory Redemption.
--------------------
(i) The Corporation shall redeem all outstanding shares of Series B
Preferred Stock on the five (5) year anniversary date of the date of issuance of
such shares (each, a "Series B Redemption Date"), at $10 cash per share together
------------------------
with an amount on each Series B Redemption Date equal to the accrued and unpaid
dividends on such shares (whether or not declared by the Corporation) to the
Redemption Date (the "Series B Redemption Price").
-------------------------
(ii) Notwithstanding the provisions of paragraph C.3(a)(i) hereof, the
Corporation shall be obligated to redeem all or any portion (as set forth in the
notice provided in subparagraphs C.3(a)(ii)(a), C.3(a)(ii)(b) or C.3.(a)(ii)(c)
hereof) of the shares of Series B Preferred Stock and pay the Series B
Redemption Price for such shares within one (1) day of receipt of written notice
from the holders of fifty-one percent (51%) or more of the shares of outstanding
Series B Preferred Stock, at any time during the pendency of any Series B Voting
Period;
(iii) Notwithstanding the provisions of paragraph C.3(a)(i) hereof, in
the event of (A) the consummation of any Public Offering, or (B) the closing of
a Sale by the Corporation, or (C) the termination of the employment of Connor
with the Corporation for any reason, or (D) upon the occurrence of an Act of
Bankruptcy, or (E) upon a material breach of the Purchase Documents, the
Corporation shall redeem each share of Series B Preferred Stock, which
redemption shall occur on the date of the closing of such Public Offering or
Sale, or termination of such employment, or occurrence of such Act of Bankruptcy
or breach of such Purchase Documents, as the case may be, and the Corporation
shall redeem the Series B Preferred Stock for the Series B Redemption Price.
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<PAGE>
(iv) Notwithstanding the provisions of paragraph C.3(a)(i) hereof, if,
at any time beginning August 1, 1998 the Corporation or any holder of Common
Stock of the Corporation as of the date hereof receives a bona fide offer to
purchase all or substantially all of the Corporation's assets, or all or
substantially all of the capital stock of the Corporation, the Corporation shall
provide written notice to the holders of Series B Preferred Stock within ten
(10) days of receipt of said offer setting forth all of the relevant terms and
conditions thereof. If the holders of Fifty-one Percent (51%) or more of the
outstanding shares of Series B Preferred Stock desire for such offer to be
accepted, such holders of Series B Preferred Stock shall provide written notice
to the Corporation within thirty (30) days thereafter to that effect, and the
Corporation and/or such holders of Common Stock, as the case may be, shall
thereafter either accept the offer, or no later than 120 days after receipt of
notice from such holders of Series B Preferred Stock, acquire all of the
warrants, shares of Common Stock and other securities (other than the shares of
Series B Preferred Stock), held by all holders of Series B Preferred Stock, on
the same terms and conditions as the proposed offer. The Corporation shall
thereupon immediately redeem all of the outstanding shares of Series B Preferred
Stock at the Series B Redemption Price for each said share as of the closing of
said sale, and as a condition thereof. If the Corporation is unable to fully pay
such amounts in cash, then the offer must be accepted by the Corporation or said
holders of shares of Common Stock, as the case may be, closing with respect
thereto shall occur as soon as possible, and the provisions of paragraph B.3(a)
hereof shall continue to apply with respect to the shares of Series B Preferred
Stock.
(b) Optional Redemption By Corporation. Commencing on the first day of
----------------------------------
the nineteenth month following the date hereof, and provided that neither an Act
of Bankruptcy, a commitment by an underwriter to undertake a Public Offering,
nor a merger, consolidation or other combination with or into, or purchase of
any other business entity or the assets constituting a principal portion of
another business by the Corporation has occurred as of such date, then the
Corporation may, out of funds legally available therefor, redeem all or any
portion of the shares of Series B Preferred Stock, pro rata as among all holders
thereof, at an amount equal to the Series B Redemption Price per share.
(c) General Provisions for Redemptions.
----------------------------------
(i) Except as provided in paragraphs C.3(a)(ii), (iii) and (iv) hereof,
whenever shares of Series B Preferred Stock are to be redeemed, the Corporation
shall mail, not fewer than thirty (30) nor more than forty-five (45) days prior
to the applicable redemption date, a written notice of redemption by first-class
mail, postage prepaid, to each holder of shares of Series B Preferred Stock to
be redeemed (a Series B Notice of Redemption),
-----------------------------
17
<PAGE>
as its name and address appear on the stock books of the Corporation. Each
Notice of Redemption shall state (A) the Series B Redemption Date, (B) the
Series B Redemption Price, (C) the number of shares of Series B Preferred Stock
to be redeemed, (D) the place or places where such shares of Series B Preferred
Stock are to be redeemed, and (E) the provision of these Articles of
Incorporation under which the redemption is being made. No defect in the Series
B Notice of Redemption or in the mailing thereof shall affect the validity of
the redemption proceedings.
(ii) Notice of Redemption having been mailed with respect to any shares
of Series B Preferred Stock and provision for payment of the Series B Redemption
Price for such on the Series B Redemption Date having been made by the
Corporation, then, unless default be made in the payment of the sum of the
Series B Redemption Price with respect to such shares of Series B Preferred
Stock when and as due, (A) the shares of Series B Preferred Stock designated for
redemption in such notice shall not be entitled to any dividends accruing after
the specified Series B Redemption Date, and (B) on such Series B Redemption Date
all rights of the respective holders of such shares with respect to their
ownership of such shares of Series B Preferred Stock shall cease, except the
right to receive the Series B Redemption Price, upon presentation and surrender
of the respective certificates representing such shares.
(iii) On each Series B Redemption Date, each holder of shares of Series
B Preferred Stock called for redemption shall surrender the certificate
evidencing the shares of Series B Preferred Stock to be redeemed. If fewer than
all of the shares represented by a certificate are to be redeemed, the
Corporation shall issue a new certificate for the shares not redeemed.
(iv) Shares of Series B Preferred Stock that have been redeemed,
purchased or otherwise acquired by the Corporation shall be retired and may not
be reissued.
(v) If the Corporation is unable to pay the full Series B Redemption
Price for any shares of Series B Preferred Stock which the Corporation has
become obligated (or elected, as the case may be) to redeem at or prior to such
time, each holder of Series B Preferred Stock which is to be otherwise redeemed
shall, subject to the provisions of paragraph C.3(c)(vi) hereof, have the right
to have redeemed by the Corporation a number of such holder's shares of Series B
Preferred Stock equal to the product of the total number of shares of Series B
Preferred Stock the Corporation is able to redeem at the Series B Redemption
Date times a fraction, the numerator of which shall be the total number of
shares of Series B Preferred Stock which the Corporation shall have become
obligated (or elected, as the case may be) to redeem from such holder at or
prior to such Series B Redemption Date, and the denominator of which shall be
the total number of shares of Series B Preferred Stock which the Corporation
shall have become obligated
18
<PAGE>
(or elected, as the case may be) to redeem at or prior to such Series B
Redemption Date.
(vi) Except as otherwise provided in this paragraph (vi), the
Corporation shall not redeem shares of the Series B Preferred Stock at the time
otherwise required for redemption unless all dividends on such shares of stock
(accrued through the date of redemption) shall have been paid, or declared and a
sum sufficient for the payment thereof set apart. If the Series B Redemption
Price for any such shares cannot be paid in full because the Corporation is
prohibited by law from paying any of the accrued but unpaid dividends on such
shares, then (A) such Series B Redemption Price shall be deemed reduced by the
amount of such dividends that the Corporation is prohibited by law from paying,
(B) such shares shall be redeemed in accordance with the requirements of this
paragraph C.3(c)(vi), and (C) such unpayable and accrued and unpaid dividends
shall be added in equal amounts per share to the accrued and unpaid dividends on
the shares of Series B Preferred Stock remaining outstanding in the hands of
such holder; provided that, in no event shall the Corporation purchase or redeem
-------------
the last share of Series B Preferred Stock held by such holder unless the
Corporation shall have paid to such holder all accrued and unpaid dividends on
all shares of Series B Preferred Stock held by such holder at any time.
4. Liquidation Rights.
------------------
(a) In the event of any liquidation, dissolution or winding up of the
affairs of the Corporation, whether voluntary or involuntary, the holders of
shares of the Series B Preferred Stock shall be entitled to receive out of the
assets of the Corporation available for distribution to shareholders, before any
distribution or payment shall be made in respect of the holders of shares of
Common Stock but on a parity with holders of Series A Preferred Stock, a
liquidation distribution in the amount of Ten Dollars ($10.00) per share plus an
amount equal to all accrued but unpaid dividends thereon to the date fixed for
such distribution or payment; provided that if, upon any such liquidation,
-------------
dissolution or winding up of the affairs of the Corporation, the assets of the
Corporation available for distribution to shareholders shall be insufficient to
permit the payment in full to the holders of Series A Preferred Stock and Series
B Preferred Stock of the amounts to which they are each entitled, then all of
such available assets shall be distributed to the holders of shares of Series A
Preferred Stock and Series B Preferred Stock ratably in proportion to the
liquidation payment otherwise due under paragraphs B.4(a) and C.4(a) to each
such holder. The holders of shares of Series B Preferred Stock shall not be
entitled to receive any additional distributive amounts with respect to shares
of Series B Preferred Stock upon such liquidation, dissolution or winding up of
the affairs of the Corporation resulting in any distribution of assets to
shareholders.
19
<PAGE>
(b) If, upon any such liquidation, dissolution or winding up of the
affairs of the Corporation, no shares of Series A Preferred Stock are issued and
outstanding and the assets of the Corporation available for distribution to
shareholders shall be insufficient to permit the payment in full to the holders
of Series B Preferred Stock of the amounts to which they are entitled, then all
of such available assets shall be distributed to the holders of shares of Series
B Preferred Stock ratably in proportion to the liquidation payment otherwise due
under paragraph C.4(a) to each such holder.
(c) The purchase or redemption by the Corporation of stock of any class,
in any manner permitted by law, shall not for the purpose of this paragraph C.4
be regarded as a liquidation, dissolution or winding up of the Corporation. A
consolidation or merger of the Corporation with or into any other corporation or
corporations, or the sale or transfer by the Corporation of all or any part of
its assets shall be deemed to be a liquidation, dissolution and winding up of
the Corporation for the purpose of this paragraph C.4, and shall entitle the
holders of Series B Preferred Stock to receive at the closing thereof in cash
the amounts specified in paragraph C.4(a).
(d) At least twenty (20) days prior written notice of the date on which
any such liquidation, dissolution or winding up of the affairs of the
Corporation shall be sent by first class mail, postage prepaid, to each holder
of Series B Preferred Stock at his or its address as shown on the records of the
Corporation.
5. Restrictions. Until the first to occur of a Public Offering or the
------------
redemption by the Corporation of, and payment for, all of the shares of Series B
Preferred Stock and all accrued and unpaid dividends thereon, the Corporation
shall not undertake any of the actions set forth in this paragraph B.5.
(a) Ordinary Course. Without taking any action or making any expenditure
---------------
outside of the normal and ordinary course of business, the Corporation shall
(i) carry on its business in substantially the same manner consistent with past
operations, (ii) not enter into any obligation out of the ordinary course of
business requiring the annual payment in an amount in excess of Ten Thousand
Dollars ($10,000) in the aggregate for each such obligation except as permitted
pursuant to the Budget, (iii) not incur or increase any indebtedness for
borrowed money other than (A) for working capital purposes in the aggregate
amount of not more than $150,000, provided that if the Corporation desires to
incur such indebtedness in excess of such amounts the Corporation may do so with
the consent of the holders of Fifty-One percent (51%) or more of the outstanding
shares of Series B Preferred Stock, which consent shall not be unreasonably
withheld, or (B) pursuant to borrowing facilities in existence as of the date
hereof, or refinancings of such borrowing facilities on terms no less favorable
to the Corporation than are applicable as of the
20
<PAGE>
date hereof, (iv) preserve its present business organization intact, except as
set forth in the budget, (v) use its best efforts to keep available the services
of present officers, except as set forth in the Budget (vi) except in accordance
with the Budget, make no material increase in levels of officer staffing, (vii)
preserve its present relationships with persons having business dealings with
the Corporation, and (viii) not increase the amount of, or prepay, any payment
pursuant to any contract or agreement.
(b) Extraordinary Actions. Except in the manner permitted by these
---------------------
Articles of Incorporation, the Corporation shall not, and shall not attempt to,
(i) enter into any merger, consolidation or other combination with or into, or
purchase any other business entity or the assets constituting a principal
portion of another business, or (ii) liquidate or dissolve, or (iii) amend its
charter or bylaws, or alter its corporate structure, or (iv) purchase an equity
interest in any entity, or (v) establish any partly or wholly owned subsidiaries
or joint ventures, or (vi) propose or enter into, or consummate any agreement
with respect to the sale, transfer or other disposition of any of its assets
outside of the ordinary course of its business consistent with its past
practices, or (vii) change the location or nature of its business, or (viii)
invest in any endeavor not strictly related to such business and the property
used in the conduct of such business.
(c) Issuance of Capital Stock or Securities. Except with respect to the
---------------------------------------
exercise of certain warrants to purchase shares of Common Stock outstanding on
the Closing Date, the Corporation shall not issue any shares of capital stock,
nor issue any rights to acquire any shares of capital stock nor issue any
securities or other obligations convertible into shares of capital stock, nor
redeem any of its shares of capital stock other than the shares of Series A
Preferred Stock or shares of Series B Preferred Stock. Notwithstanding the
foregoing, the Corporation shall be entitled to issue shares of capital stock,
or rights to acquire shares of capital stock or securities or other obligations
convertible into share of capital stock for the purpose of redeeming shares of
Series A Preferred Stock or shares of Series B Preferred Stock provided that any
such shares or rights or other obligations shall not have any rights or
preferences (whether by way of liquidation, dividend, voting or otherwise)
senior to shares of Series A Preferred Stock or shares of Series B Preferred
Stock if any such shares remain outstanding after the date of such issuance.
(d) Encumbrances. The Corporation shall not pledge, sell, lease,
------------
transfer, dispose or otherwise encumber any of its assets, or permit the
creation or existence of any lien, encumbrance or other security interest in or
on any of its assets, other than liens for indebtedness existing on the date
hereof, liens for indebtedness in accordance with the Budget, and liens
21
<PAGE>
with respect to permitted capital improvements pursuant to subparagraph C.6(g)
hereof.
(e) Distributions. The Corporation shall not declare or pay any
-------------
dividends, or make any distributions in cash, securities, capital stock or
otherwise, on its shares of capital stock (other than dividends payable with
respect to shares of the Series A Preferred Stock or Series B Preferred Stock),
or in any other manner whatsoever advance, transfer or distribute cash or cash
equivalents to the holders of Common Stock or its directors, officers or other
personnel, or repurchase any outstanding shares of capital stock (other than the
Series A Preferred Stock or Series B Preferred Stock).
(f) Capita1 Improvements. The Corporation shall not expend in excess of
--------------------
Thirty Thousand Dollars ($30,000) in the aggregate in any fiscal year for
capital improvements or similar corporate purposes, except in accordance with
the Budget.
(g) Transactions with Related Persons. The Corporation shall not enter
---------------------------------
into any contract, agreement or other obligation with any person or affiliate of
any person who, directly or indirectly, owns any shares of its capital stock, or
any officer, director or other management personnel or employee, or affiliate,
on terms and conditions any less favorable than would be received from any
independent third party in the ordinary course of business.
FIFTH: Except as otherwise provided in Article Fourth, paragraph B.1
-----
hereof, the Corporation shall have three (3) directors, which number may be
increased or decreased only by an amendment hereto, and Robert W. Connor, Jr.,
William Moore and Stefan Karnavas act as such until their successors are duly
elected and qualified. Notwithstanding the foregoing, the present directors may,
following the date hereof but prior to the 1997 annual meeting of stockholders,
add two (2) director positions to the Board and shall be permitted to fill such
vacancies by appointment in the manner specified in the bylaws of the
Corporation.
SIXTH: If the Corporation desires to issue any shares of its Common
-----
Stock or any securities exercisable for, any stock rights, warrants, or other
securities convertible into, or exchangeable or exercisable for shares of Common
Stock, it shall first afford each holder of warrants to purchase shares of
Common Stock which warrants are outstanding immediately after the Closing Date
(as defined in the Agreement), by written notice, the right to purchase such
shares of Common Stock or such other securities within thirty (30) days of such
notice for cash (or on such other terms as are intended to be offered by the
Corporation) at the price at which such shares of Common Stock or such other
securities are to be issued. Such warrant holders shall be entitled to
22
<PAGE>
exercise such right by providing written notice to the Corporation to such
effect within such thirty (30) day period. Each warrant holder desiring to
purchase such shares of Common Stock or other securities shall be entitled to
purchase that number of shares of Common Stock or other securities so that,
after giving effect to such issuance (and the exchange of all securities or
instruments convertible into shares of Common Stock), each warrant holder will
continue to maintain his or its same proportionate Common Stock ownership in the
Corporation as of the date of such notice (assuming for the purpose of such
computation the issuance of all shares of Common Stock issuable upon exercise of
any outstanding warrants, options or similar contractual rights, or conversion
rights as of such date, upon completion of the proposed issuance at the price
set forth in the notice).
The rights of the warrant holders set forth herein shall not apply to
any securities to be issued (i) to the public pursuant to a Public Offering of
Common Stock, (ii) to officers, directors, or employees of the Corporation as
part of the Incentive Stock Plan (as defined in the Agreement), (iii) upon
exercise of any warrants outstanding immediately after the Closing Date, (iv)
upon conversion of any debentures of the Corporation outstanding immediately
after the Closing Date, and (v) as a result of a stock split, stock dividend or
reclassification of shares of Common Stock.
Except as provided herein and in the Agreement, the holders of shares of
Common Stock of the Corporation shall not have preemptive rights.
SEVENTH: The following provisions are hereby adopted for the purpose of
-------
defining, limiting and regulating the powers of the Corporation and of the
directors and shareholders:
(a) Except as otherwise provided in these Articles of Incorporation, the
Board of Directors of the Corporation is hereby empowered to authorize the
issuance from time to time of shares of its stock of any class, whether now or
hereafter authorized, and securities convertible into shares of its stock, of
any class or classes, whether now or hereafter authorized, for such
consideration as the Board of Directors may deem advisable.
(b) Except as otherwise provided in these Articles of Incorporation, the
Corporation reserves the right to make, from time to time, any amendments of its
charter which may now or hereafter be authorized by law, including any
amendments which alter the contract rights of any class of stock as expressly
set forth in the charter.
(c) Notwithstanding any provision of law requiring any action to be
taken or authorized by the affirmative vote of the holders of a greater
proportion of the votes of all classes or of
23
<PAGE>
any class of stock of the Corporation, such action shall be effective and valid
if taken or authorized by the affirmative vote of a majority of the total number
of votes entitled to be cast thereon, except as otherwise provided in these
Articles of Incorporation.
(d) Except as otherwise provided in these Articles of Incorporation, no
contract or other transaction between this Corporation and any other
corporation, partnership, individual or other entity and no act of this
Corporation shall in any way be affected or invalidated by the fact that any of
the directors of this Corporation are directors, principals, partners or
officers of such other entity, or are pecuniarily or otherwise interested in
such contract, transaction or act; provided that (i) the existence of such
relationship or such interest shall be disclosed to the Board of Directors or to
a committee of the Board of Directors if the matter involves a committee
decision, and the contract, transaction or act shall be authorized, approved or
ratified by a majority of disinterested directors on the Board or on such
committee, as the case may be, even if the number of disinterested directors
constitutes less than a quorum or (ii) the contract, transaction or act shall be
authorized, ratified or approved in any other manner permitted by the
Pennsylvania General Corporation Law.
(e) Except as otherwise provided in these Articles of Incorporation, the
Board of Directors shall have the power to classify or reclassify any unissued
stock, whether now or hereafter authorized, by setting or changing the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications, or terms or conditions of
redemption of such stock.
(f) Except as contemplated in the Agreement and the other "Purchase
Documents" (as defined in the Agreement), to the maximum extent that limitations
on the liability of directors and officers are permitted by the Pennsylvania
Business Corporation Law of 1988, as from time to time amended, no director or
officer of the Corporation shall have any liability to the Corporation or its
shareholders for money damages. This limitation on liability applies to events
occurring at the time a person serves as a director or officer of the
Corporation whether or not such person is a director or officer at the time of
any proceeding in which liability is asserted. No amendment or repeal of this
paragraph, or the adoption of any provision of the Corporation's Articles of
Incorporation inconsistent with this paragraph, shall apply to or affect in any
respect the liability of any director or officer of the Corporation with respect
to any alleged act or omission which occurred prior to such amendment, repeal or
adoption.
(h) To the maximum extent permitted by the Pennsylvania Business
Corporation Law, as from time to time amended, the Corporation shall indemnify
its currently acting and its former
24
<PAGE>
directors against any and all liabilities and expenses incurred in connection
with their services in such capacities, shall indemnify its currently acting and
its former officers to the full extent that indemnification shall be provided to
directors, and may indemnify its employees and agents and persons who serve and
have served, at its request as a director, officer, partner, trustee, employee
or agent of another corporation, partnership, joint venture or other enterprise,
as may be determined by the Board of Directors. The Corporation shall, also to
the same extent, advance expenses to its directors, officers and other persons,
if any, and may by Bylaw, resolution or agreement make further provision for
indemnification of directors, officers, employees and agents. No amendment or
repeal of this paragraph, or the adoption of any provision of the Corporation's
Articles of Incorporation inconsistent with this paragraph, shall apply to or
affect in any respect the indemnification of any director or officer of the
Corporation with respect to any alleged act or omission which occurred prior to
such amendment, repeal or adoption.
EIGHTH: These Amended and Restated Articles of Incorporation include all
------
provisions of the Articles of Incorporation of the Corporation and all
amendments thereto as currently in effect.
NINTH: The Board of Directors of the Corporation, by unanimous written
-----
consent filed with the minutes of proceedings of the Board of Directors, adopted
a resolution declaring that the amendments set forth in the foregoing Amended
and Restated Articles of Incorporation were advisable, approved the Amended and
Restated Articles of Incorporation as substantially hereinabove set forth, and
directed that they be submitted for action thereon by the shareholders of the
Corporation.
TENTH: A description, as amended, of each class of stock which the
-----
Corporation is authorized to issue, including the preferences, conversion and
other rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption, is set forth in Article
FOURTH above.
25
EXHIBIT 3.2
AMENDED AND RESTATED BYLAWS
OF
INDEPENDENCE BREWING COMPANY
(a Pennsylvania corporation)
Date: ________, 1996
ARTICLE I
OFFICES AND FISCAL YEAR
Section 1.01 REGISTERED OFFICE. The registered office of the
corporation in Pennsylvania shall be at 1000 East Comly Street, Philadelphia,
PA. 19149 until otherwise established by an amendment of the Articles of
Incorporation (the "Articles") or by the board of directors (the "Board") as
permitted pursuant to the Pennsylvania Business Corporation Law of 1988, as
amended ("PBCL").
Section 1.02 OTHER OFFICE. The corporation may also have offices at
such other places within or without Pennsylvania as the board of directors may
from time to time appoint or the business of the corporation may require.
Section 1.03. FISCAL YEAR. The fiscal year of the corporation shall
begin the 1st day of January in each year.
ARTICLE II
NOTICE - WAIVERS - MEETINGS GENERALLY
Section 2.01. MANNER OF GIVING NOTICE.
(a) General Rule. Whenever written notice is required to be
given by any person under the provisions of the PBCL or by the Articles or these
bylaws, it may be given to the person either personally or by sending a copy
thereof by first class or express mail, postage prepaid, or by telegram (with
messenger service specified), telex or TWX (with answerback received) or courier
service, charges prepaid, or by facsimile transmission, to the address (or to
the telex, TWX or facsimile number) of the person appearing on the books of the
corporation or, in the case of directors, supplied by the directors to the
corporation for the purpose of notice. If the notice is sent by mail, telegraph
or courier service, it shall be deemed to have been given to the person entitled
thereto when deposited in the United States mail or with a telegraph office or
courier service for delivery to that person or, in the case of telex or TWX,
when dispatched or, in the case of facsimile, when received. A notice of meeting
shall specify the place, day and hour of the meeting and any other information
required by any other provision of the PBCL, the Articles or these bylaws.
<PAGE>
(b) Adjourned Shareholder Meetings. When a meeting of
shareholders is adjourned, it shall not be necessary to give any notice of the
adjourned meeting or of the business to be transacted at an adjourned meeting,
other than by announcement at the meeting at which the adjournment is taken,
unless the board fixes a new record date for the adjourned meeting or these
bylaws require notice of the business to be transacted and such notice has not
previously been given.
Section 2.02. NOTICE OF MEETINGS OF THE BOARD. Notice of a regular
meeting of the Board and notice of every special meeting of the Board shall be
given to each director by telephone or in writing at least 24 hours (in the case
of notice by telephone, telex, TWX or facsimile transmission) or 48 hours (in
the case of notice by telegraph, courier service or express mail) or five days
(in the case of notice by first class mail) before the time at which the meeting
is to be held. Every such notice shall state the time and place of the meeting.
Neither the business to be transacted at, nor the purpose of, any regular or
special meeting of the Board need be specified in a notice of a meeting.
Section 2.03. NOTICE OF MEETINGS OF SHAREHOLDERS.
(a) General Rule. Written notice of every meeting of the
shareholders shall be given by, or at the discretion of, the secretary to each
shareholder of record entitled to vote at the meeting at least:
(1) ten (10) days prior to the day named for a meeting called to
consider a fundamental transaction under 15 Pa.C.S. Chapter 19 regarding
amendments of incorporation, mergers, consolidations, share exchanges, sale of
assets, divisions, conversions, liquidations and dissolution; or
(2) ten (10) days prior to the day named for the meeting in any other
case.
If the secretary neglects or refuses to give notice of a meeting, the
person or persons calling the meeting may do so. In the case of a special
meeting of shareholders, the notice shall specify the general nature of the
business to be transacted. The corporation shall not have a duty to augment the
notice.
(b) Notice Of Action By Shareholders On Bylaws. In the case
of a meeting of shareholders that has as one its purposes action on the bylaws,
written notice shall be given to each shareholder that the purpose, or one of
the purposes, of the meeting is to consider the adoption, amendment or repeal of
the bylaws. There shall be included in, or enclosed with, the notice a copy of
the proposed amendment or a summary of the changes to be effected thereby.
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<PAGE>
Section 2.04. WAIVER OF NOTICE.
(a) Written Waiver. Whenever any written notice is required to
be given under the provisions of the PBCL, the Articles or these bylaws, a
waiver thereof in writing, signed by the person or persons entitled to the
notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of the notice. Except as otherwise required by this
subsection, neither the business to be transacted at, nor the purpose of, a
meeting need be specified in the waiver of notice of the meeting.
(b) Waiver By Attendance. Attendance of a person at any
meeting shall constitute a waiver of notice of the meeting except where a person
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting was not lawfully
called or convened.
Section 2.05. MODIFICATION OF PROPOSAL CONTAINED IN NOTICE. Whenever
the language of a proposed resolution is included in a written notice of a
meeting required to be given under the provisions of the PCBL or the Articles or
these bylaws, the meeting considering the resolution may without further notice
adopt it with such clarifying or other amendments as do not enlarge its original
purpose.
Section 2.06 EXCEPTION TO REQUIREMENT OF NOTICE.
(a) General Rule. Whenever any notice or communication is
required to be given to any person under the provisions of the PBCL or by the
Articles or these bylaws or by the terms of any agreement or other instrument or
as a condition precedent to taking any corporate action and communication with
that person is then unlawful, the giving of the notice or communication to that
person shall not be required.
(b) Shareholders Without Forwarding Addresses. Notice or other
communications shall not be sent to any shareholder with whom the corporation
has been unable to communicate for more than 24 consecutive months because
communications to the shareholder are returned unclaimed or the shareholder has
otherwise failed to provide the corporation with a current address. Whenever the
shareholder provides the corporation with a current address, the corporation
shall commence sending notices and other communications to the shareholder in
the same manner as to other shareholders.
Section 2.07. USE OF CONFERENCE TELEPHONE AND SIMILAR EQUIPMENT. One
or more persons may participate in a meeting of the board of directors or the
shareholders of the corporation by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other. Participation in a meeting pursuant to this section
shall constitute presence in person at the meeting.
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<PAGE>
ARTICLE III
SHAREHOLDERS
Section 3.01. PLACE OF MEETING. All meetings of the shareholders of the
corporation shall be held at the registered office of the corporation unless
another place is designated by the board of directors in the notice of a
meeting.
Section 3.02. ANNUAL MEETING. The Board may fix the date and time of
the annual meeting of the shareholders, but if no such date and time is fixed by
the board, the meeting for any calendar year shall be held on the 2nd day of
February in such year, if not a legal holiday under the laws of Pennsylvania,
and, if a legal holiday, then on the next succeeding business day, not a
Saturday, at 7:00 o'clock P.M., and at said meeting the shareholders then
entitled to vote shall elect directors and shall transact such other business as
may properly be brought before the meeting. If the annual meeting shall not have
been called and held within six months after the designated time, any
shareholder may call the meeting at any time thereafter. Except as otherwise
provided in the articles, at least one meeting of the shareholders shall be held
in each calendar year for the election of directors.
Section 3.03. SPECIAL MEETINGS.
(a) Call Of Special Meetings. Special meetings of the
shareholders may be called at any time:
(1) by the Board or the President;
(2) unless otherwise provided in the Articles, by shareholders entitled
to cast at least 20% of the vote that all shareholders are entitled to cast at
the particular meeting.
The Board or the President shall call a special meeting of the
holders of Series A Preferred Stock within one (1) day after the commencement of
a "Voting Period" as defined in the Articles. The Board or the President shall
call a special meeting of the holders of Series B Preferred Stock within one (1)
day after the commencement of a "Series B Voting Period" as defined in the
Articles. If the Board and the President fail to send such notice as provided
above, the meeting may be called by any holder of Series A Preferred Stock or
Series B Preferred Stock, as the case may be, on like notice. The record date
for determining the holders of Series A Preferred Stock and Series B Preferred
Stock entitled to notice of and to vote at such special meetings shall be the
close of business on the day on which such notice is given.
(b) Fixing Of Time For Meeting. At any time, upon written
request of any person who has called a special meeting, it shall be the duty of
the Secretary to fix the
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<PAGE>
time of the meeting which shall be held not more than 60 days after the receipt
of the request, except as otherwise provided herein. If the Secretary neglects
or refuses to fix a time of the meeting, the person or persons calling the
meeting may do so.
Section 3.04. QUORUM AND ADJOURNMENT.
(a) General Rule. A meeting of shareholders of the corporation
duly called shall not be organized for the transaction of business unless a
quorum is present. The presence in person or by proxy of shareholders entitled
to cast at least a majority of the votes that all shareholders are entitled to
cast on a particular matter to be acted upon at the meeting shall constitute a
quorum for the purposes of consideration and action on the matter.
(b) Withdrawal Of A Quorum. The shareholders present at a
duly organized meeting can continue to do business until adjournment
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum.
(c) Adjournment For Lack Of Quorum. If a meeting cannot be
organized because a quorum has not attended, those present may, except as
provided in the PBCL, adjourn the meeting to such time and place as they may
determine.
(d) Adjournments Generally. Any meeting at which directors are
to be elected shall be adjourned only from day to day, or for such longer
periods not exceeding 15 days each as the shareholders present and entitled to
vote shall direct, until the directors have been elected. Any other regular or
special meeting may be adjourned for such period as the shareholders present and
entitled to vote shall direct.
(e) Electing Directors At Adjourned Meeting. Those
shareholders entitled to vote who attend a meeting called for the election of
directors that has been previously adjourned for lack of a quorum, although less
than a quorum as fixed in this section, shall nevertheless constitute a quorum
for the purpose of electing directors.
(f) Other Action In Absence Of Quorum. Those shareholders
entitled to vote who attend a meeting of shareholders that has been previously
adjourned for one or more periods aggregating at least 15 days because of an
absence of a quorum, although less than a quorum as fixed in this section, shall
nevertheless constitute a quorum for the purpose of acting upon any matter set
forth in the notice of the meeting if the notice states that those shareholders
who attend the adjourned meeting shall nevertheless constitute a quorum for the
purpose of acting upon the matter.
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<PAGE>
Section 3.05. ACTION BY SHAREHOLDERS.
(a) General Rule. Except as otherwise provided in the PBCL or
the Articles or these bylaws, whenever any corporate action is to be taken by
vote of the shareholders of the corporation, it shall be authorized upon
receiving the affirmative vote of a majority of the votes cast by all
shareholders entitled to vote thereon.
(b) Interested Shareholders. Any merger or other transaction
authorized under 15 Pa.C.S. Subchapter 19C between the corporation or subsidiary
thereof and a shareholder of the corporation, or any voluntary liquidation
authorized under 15 Pa.C.S. Subchapter 19F in which a shareholder is treated
differently from other shareholders of the same class (other than any dissenting
shareholders), shall require the affirmative vote of the shareholders entitled
to cast at least a majority of the votes that all shareholders other than the
interested shareholder are entitled to cast with respect to the transaction,
without counting the vote of the interested shareholder. For the purposes of the
preceding sentence, interested shareholder shall include the shareholder who is
a party to the transaction or who is treated differently from other shareholders
and any person, or group of persons, that is acting jointly or in concert with
the interested shareholder and any person who, directly or indirectly, controls,
is controlled by or is under common control with the interested shareholder. Any
interested shareholder shall not include any person who, in good faith and not
for the purpose of circumventing this subsection, is an agent, bank, broker,
nominee or trustee for one or more other persons, to the extent that the other
person or persons are not interested shareholders.
(c) Exceptions. Subsection (b) shall not apply to a
transaction:
(1) that has been approved by a majority vote of the Board without
counting the votes of directors who:
(i) are directors or officers of, or have a material equity interest
in, the interested shareholder; or
(ii) were nominated for election as a director by the interested
shareholder, and first elected as a director, within 24 months of the date of
the vote on the proposed transaction; or
(2) in which the consideration to be received by the shareholders for
shares of any class of which shares are owned by the interested shareholder is
not less than the highest amount paid by the interested shareholder in acquiring
shares of the same class.
(d) Additional Approvals. The approvals required by
subsection (b) shall be in addition to, and not in lieu of, any other approval
required by the PBCL, the Articles or these bylaws, or otherwise.
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<PAGE>
Section 3.06. ORGANIZATION. At every meeting of the shareholders, the
Chairman of the Board, if there be one, or, in the case of vacancy in office or
absence of the Chairman of the Board, one of the following officers present in
the order stated: the Vice Chairman of the Board, if there be one, the
President, the Vice Presidents in their order of rank and seniority, or a person
chosen by vote of the shareholders present, shall act as chairman of the
meeting. The Secretary or, in the absence of the Secretary, an Assistant
Secretary, or in the absence of both the Secretary and Assistant Secretaries, a
person appointed by the chairman of the meeting, shall act as secretary.
Section 3.07. VOTING RIGHTS OF SHAREHOLDERS. Unless otherwise
provided in the Articles, every shareholder of the corporation shall be entitled
to one vote for every share standing in the name of the shareholder on the books
of the corporation.
Section 3.08. VOTING AND OTHER ACTION BY PROXY.
(a) General Rules. Every shareholder entitled to vote at a
meeting of shareholders or to express consent or dissent to corporate action in
writing without a meeting may authorize another person to act for the
shareholder by proxy. The presence of, or vote or other action at a meeting of
shareholders, or the expression of consent or dissent to corporate action in
writing, by a proxy of a shareholder shall constitute the presence of, or vote
or action by, or written consent or dissent of the shareholder. Where two or
more proxies of a shareholder are present, the corporation shall, unless
otherwise expressly provided in the proxy, accept as the vote of all shares
represented thereby the vote cast by a majority of them and, if a majority of
the proxies cannot agree whether the shares represented shall be voted or upon
the manner of voting the shares, the voting of the shares shall be divided
equally among those persons.
(b) Execution And Filing. Every proxy shall be executed in
writing by the shareholder or by the duly authorized attorney-in-fact of the
shareholder and filed with the Secretary of the corporation. A telegram, telex,
cablegram, datagram or similar transmission from a shareholder or
attorney-in-fact, or a photographic, facsimile or similar reproduction of a
writing executed by a shareholder or attorney-in-fact:
(1) may be treated as properly executed for purposes of this section; and
(2) shall be so treated if it sets forth a confidential and unique
identification number or other mark furnished by the corporation to the
shareholder for the purposes of a particular meeting or transaction.
(c) Revocation. A proxy, unless coupled with an interest,
shall be revocable at will, notwithstanding any other agreement or any provision
in the proxy to the contrary, but the revocation of a proxy shall not be
effective until written notice thereof has
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<PAGE>
been given to the secretary of the corporation. An unrevoked proxy shall not be
valid after three years from the date of its execution unless a longer time is
expressly provided therein. A proxy shall not be revoked by the death or
incapacity of the maker unless before the vote is counted or the authority is
exercised, written notice of the death or incapacity is given to the secretary
of the corporation.
(d) Expenses. Unless otherwise restricted in the Articles, the
corporation shall pay the reasonable expenses of solicitation of votes, proxies
or consents of shareholders by or on behalf of the Board or its nominees for
election to the Board, including solicitation by professional proxy solicitors
and otherwise.
Section 3.09. VOTING BY FIDUCIARIES AND PLEDGEES. Shares of the
corporation standing in the name of a trustee or other fiduciary and shares held
by an assignee for the benefit of creditors or by a receiver may be voted by the
trustee, fiduciary, assignee or receiver. A shareholder whose shares are pledged
shall be entitled to vote the shares until the shares have been transferred into
the name of the pledgee, or a nominee of the pledgee, but nothing in this
section shall affect the validity of a proxy given to a pledgee or nominee.
Section 3.10. VOTING BY JOINT HOLDERS OF SHARES.
(a) General Rule. Where shares of the corporation are held
jointly or as tenants in common by two or more persons, as fiduciaries or
otherwise:
(1) if only one or more of such persons is present in person or by
proxy, all of the shares standing in the names of such persons shall be deemed
to be represented for the purpose of determining a quorum and the corporation
shall accept as the vote of all the shares the vote cast by a joint owner or a
majority of them; and
(2) if the persons are equally divided upon whether the shares held by
them shall be voted or upon the manner of voting the shares, the voting of the
shares shall be divided equally among the persons without prejudice to the
rights of the joint owners or the beneficial owners thereof among themselves.
(b) Exception. If there has been filed with the Secretary of
the corporation a copy, certified by an attorney at law to be correct, of the
relevant portions of the agreement under which the shares are held or the
instrument by which the trust or estate was created or the order of court
appointing them or of an order of court directing the voting of the shares, the
persons specified as having such voting power in the document latest in date of
operative effect so filed, and only those persons, shall be entitled to vote the
shares but only in accordance therewith.
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<PAGE>
Section 3.11. VOTING BY CORPORATIONS.
Voting By Corporate Shareholders. Any corporation that
is a shareholder of this corporation may vote by any of its officers or agent,
or by proxy appointed by any officer or agent, unless some other person, by
resolution of the board of directors of the other corporation or provision of
its articles or bylaws, a copy of which resolution or provision certified to be
correct by one of its officers has been filed with the Secretary of this
corporation, is appointed its general or special proxy in which case that person
shall be entitled to vote the shares.
Section 3.12. DETERMINATION OF SHAREHOLDERS OF RECORD.
(a) Fixing Record Date. The Board may fix a time prior to the
date of any meeting of shareholders as a record date for the determination of
the shareholders entitled to notice of, or to vote at, the meeting, which time,
except in the case of an adjourned meeting, shall be not more than 30 days prior
to the date of the meeting of shareholders. Only shareholders of record on the
date fixed shall be so entitled notwithstanding any transfer of shares on the
books of the corporation after any record date fixed as provided in this
subsection. The Board may similarly fix a record date for the determination of
shareholders of record for any other purpose. When a determination of
shareholders of record has been made as provided in this section for purposes of
a meeting, the determination shall apply to any adjournment thereof unless the
board fixes a new record date for the adjourned meeting.
(b) Determination When A Record Date Is Not Fixed. If a
record date is not fixed:
(1) The record date for determining shareholders entitled to notice of
or to vote at a meeting of shareholders shall be at the close of business on the
date next preceding the day on which notice is given or, if notice is waived, at
the close of business on the day immediately preceding the day on which the
meeting is held.
(2) The record date for determining shareholders entitled to express
consent or dissent to corporate action in writing without a meeting, when prior
action by the board of directors is not necessary, to call a special meeting of
the shareholders or propose an amendment of the articles, shall be the close of
business on the day on which the first written consent or dissent, request for a
special meeting or petition proposing an amendment of the articles is filed with
the Secretary of the corporation.
(3) The record date for determining shareholders for any other purpose
shall be at the close of business on the day on which the board of directors
adopts the resolution relating thereto.
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Section 3.13. VOTING LISTS.
(a) General Rule. The officer or agent having charge of the
transfer books for shares of the corporation shall make a complete list of the
shareholders entitled to vote at any meeting of shareholders, arranged in
alphabetical order, with the address of and of the number of shares held by
each. The list shall be produced and kept open at the time and place of the
meeting and shall be subject to the inspection of any shareholder during the
whole time of the meeting for the purposes thereof.
(b) Effect Of List. Failure to comply with the requirements of
this section shall not affect the validity of any action taken at a meeting
prior to a demand at the meeting by any shareholder entitled to vote thereat to
examine the list. The original share register or transfer book, or a duplicate
thereof kept in this Commonwealth, shall be prima facie evidence as to who are
the shareholders entitled to examine the list or share register or transfer book
or to vote at any meeting of shareholders.
Section 3.14 JUDGES OF ELECTION.
(a) Appointment. In advance of any meeting of shareholders of
the corporation, the Board may appoint judges of election, who need not be
shareholders, to act at the meeting or any adjournment thereof. If judges of
election are not so appointed, the presiding officer of the meeting may, and on
the request of any shareholder shall, appoint judges of election at the meeting.
The number of judges shall be one or three. A person who is a candidate for
office to be filled at the meeting shall not act as a judge.
(b) Vacancies. In case any person appointed as a judge fails
to appear or fails or refuses to act, the vacancy may be filled by appointment
made by the Board in advance of the convening of the meeting or at the meeting
by the presiding officer thereof.
(c) Duties. The judges of election shall determine the number
of shares outstanding and the voting power of each, the shares represented at
the meeting, the existence of a quorum, the authenticity, validity and effect of
proxies, receive votes or ballots, hear and determine all challenges and
questions in any way arising in connection with the right to vote, count and
tabulate all votes, determine the result and do such acts as may be proper to
conduct the election or vote with fairness to all shareholders. The judges of
election shall perform their duties impartially, in good faith, to the best of
their ability and as expeditiously as is practical. If there are three judges of
election, the decision, act or certificate of a majority shall be effective in
all respects as the decision, act or certificate of all.
(d) Report. On request of the presiding officer of the
meeting, or of any shareholder, the judge shall make a report in writing of any
challenge or question or matter
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<PAGE>
determined by them, and execute a certificate of any fact found by them.
Any report or certificate made by them shall be prima facie evidence of the
facts stated therein.
Section 3.15. CONSENT OF SHAREHOLDERS IN LIEU OF MEETING. Any
action required or permitted to be taken at a meeting of the shareholders or of
a class of shareholders may be taken without a meeting (i) if, prior or
subsequent to the action, a consent or consents thereto by all of the
shareholders who would be entitled to vote at a meeting for such purpose shall
be filed with the secretary of the corporation, or (ii) upon the written consent
of shareholders who would have been entitled to cast the minimum number of votes
that would be necessary to authorize the action at a meeting at which all
shareholders entitled to vote thereon were present and voting, in which event
the action shall not become effective until after at least ten days' written
notice of the action has been given to each shareholder entitled to vote thereon
who has not consented thereto and the consents shall be filed with the Secretary
of the corporation.
ARTICLE IV
BOARD OF DIRECTORS
Section 4.01. POWERS; PERSONAL LIABILITY.
(a) General Rule. Unless otherwise provided by
statute all powers vested by law in the corporation shall be exercised by or
under the authority of, and the business and affairs of the corporation shall be
managed under the direction of, the Board.
(b) Standard Of Care; Justifiable Reliance. A
director shall stand in a fiduciary relation to the corporation and shall
perform his or her duties as a director, including duties as a member of any
committee of the board upon which the director may serve, in good faith, in a
manner the director reasonably believes to be in the best interests of the
corporation and with such care, including reasonable inquiry, skill and
diligence, as a person of ordinary prudence would use under similar
circumstances. In performing his duties, a director shall be entitled to rely in
good faith on information, opinions, reports or statements, including financial
statements and other financial data, in each case prepared or presented by any
of the following:
(1) One or more officers or employees of the
corporation whom the director reasonably believes to be reliable and competent
in the matters presented.
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(2) Counsel, public accountants or other persons as
to matters which the director reasonably believes to be within the professional
or expert competence of such person.
(3) A committee of the Board upon which the director
does not serve, duly designated in accordance with law, as to matters within its
designated authority, which committee the director reasonably believes to merit
confidence.
A director shall not be considered to be acting in good faith if the director
has knowledge concerning the matter in question that would cause his or her
reliance to be unwarranted.
(c) Consideration Of Factors. In discharging the
duties of their respective positions, the board of directors, committees of the
board and individual directors may, in considering the best interests of the
corporation, consider the effects of any action upon employees, upon suppliers
and customers of the corporation and upon communities in which offices or other
establishments of the corporation are located, and all other pertinent factors.
The consideration of those factors shall not constitute a violation of
subsection (b).
(e) Personal Liability Of Directors.
(1) A director shall not be personally liable, as
such, for monetary damages for any action taken, or any failure to take any
action, unless: (i) the director has breached or failed to perform the duties of
his or her office under this section; and (ii) the breach or failure to perform
constitutes self-dealing, willful misconduct or recklessness.
(2) The provisions of paragraph (1) shall not apply
to the responsibility or liability of a director pursuant to any criminal
statute, or the liability of a director for the payment of taxes pursuant to
local, State or Federal law.
(f) Notation Of Dissent. A director who is present
at a meeting of the Board, or of a committee of the Board, at which action on
any corporate matter is taken shall be presumed to have assented to the action
taken unless his dissent is entered in the minutes of the meeting or unless the
director files a written dissent to the action with the secretary of the meeting
before the adjournment thereof or transmits the dissent in writing to the
Secretary of the corporation immediately after the adjournment of the meeting.
The right to dissent shall not apply to a director who voted in favor of the
action. Nothing in this section shall bar a director from asserting that minutes
of the meeting incorrectly omitted his dissent if, promptly upon receipt of a
copy of such minutes, the director notifies the secretary in writing, of the
asserted omission or inaccuracy.
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Section 4.01. QUALIFICATION AND SELECTION OF DIRECTORS.
(a) Qualifications. Each director of the corporation
shall be a natural person of full age who need not be a resident of Pennsylvania
or a shareholder of the corporation.
(b) Election of Directors. Except as otherwise
provided in these bylaws, directors of the corporation shall be elected by the
shareholders. In elections for directors, voting need not be by ballot, except
upon demand made by a shareholder entitled to vote at the election and before
the voting begins. The candidates receiving the highest number of votes from
each class or group of classes, if any, entitled to elect directors separately
up to the number of directors to be elected by the class or group of classes
shall be elected. If at any meeting of shareholders, directors of more than one
class are to be elected, each class of directors shall be elected in a separate
election.
Section 4.03. NUMBER AND TERM OF OFFICE.
(a) Number. Subject to such other provisions as may
be set forth in the Articles, the board of directors shall consist of such
number of directors, not less than 2 nor more than 5, as may be determined from
time to time by a majority of the entire Board.
(b) Term of Office. Subject to such other provisions
as may be set forth in the Articles, each director shall hold office until the
expiration of the term for which he was elected and until a successor has been
selected and qualified or until his or her earlier death, resignation or
removal. A decrease in the number of directors shall not have the effect of
shortening the term of any incumbent directors.
(c) Resignation. Any director may resign at any time
upon written notice to the corporation. The resignation shall be effective upon
receipt thereof by the corporation or at such subsequent time as shall be
specified in the notice of resignation.
Section 4.04. VACANCIES.
(a) General Rule. Except as provided otherwise in
the Articles, vacancies in the Board, including vacancies resulting from an
increase in the number of directors, may be filled by a majority vote of the
remaining members of the Board though less than a quorum, or by a sole remaining
director, and each person so selected shall be a director to serve for the
balance of the unexpired term, and until a successor has been selected and
qualified or until his or her earlier death, resignation or removal.
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(b) Action By Resigned Directors. Except as provided
otherwise in the Articles, when one or more directors resign from the Board
effective at a future date, the directors then in office, including those who
have so resigned, shall have power by the applicable vote to fill the vacancies,
the vote thereon to take effect when the resignations become effective.
Section 4.05. REMOVAL OF DIRECTORS.
(a) Removal by the Shareholders. The entire Board,
or any class of the Board, or any individual director may be removed from office
without assigning any cause by the vote of shareholders, or of the holders of a
class or series of shares, entitled to elect directors, or the class of
directors, as the case may be. In case the Board or a class of the Board or any
one or more directors are so removed, new directors may be elected at the same
meeting. The Board may be elected at the same meeting. The Board may be removed
at any time with or without cause by the unanimous vote or consent of
shareholders entitled to vote thereon.
(b) Removal by the Board. The Board may declare
vacant the office of a director who has been judicially declared of unsound mind
or who has been convicted of an offense punishable by imprisonment for a term of
more than one year or if, within 60 days after notice of his selection, the
director does not accept the office either in writing or by attending a meeting
of the Board.
Section 4.06. PLACE OF MEETINGS. Meetings of the Board may be
held at such place within or without Pennsylvania as the Board may from time to
time appoint or as may be designated in the notice of the meeting.
Section 4.07. ORGANIZATION OF MEETINGS. At every meeting of
the Board, the Chairman of the Board, if there be one, or, in the case of a
vacancy in the office or absence of the Chairman of the Board, one of the
following officers present in the order stated: the Vice Chairman of the Board,
if there be one, the President, the Vice Presidents in their order of rank and
seniority, or a person chosen by a majority of the directors present, shall act
as chairman of the meeting. The Secretary or, in the absence of the Secretary,
an Assistant Secretary, or, in the absence of the Secretary and the Assistant
Secretaries, any person appointed by the chairman of the meeting, shall act as
secretary.
Section 4.08. REGULAR MEETINGS. Regular meetings of the Board
shall be held at such time and place as shall be designated from time to time by
resolution of the Board.
Section 4.09. SPECIAL MEETINGS. Special meetings of the Board
shall be held whenever called by the Chairman or by two or more of the directors
or as otherwise provided in the Articles.
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Section 4.10. QUORUM OF AND ACTION BY DIRECTORS.
(a) General Rule. A majority of the directors shall
be necessary to constitute a quorum for the transaction of business and the acts
of a majority of the directors present and voting at a meeting at which a quorum
is present shall be the acts of the Board.
(b) Action By Written Consent. Any action required
or permitted to be taken at a meeting of the directors may be taken without a
meeting if, prior or subsequent to the action, a consent or consents thereto by
all of the directors is filed with the Secretary of the corporation.
Section 4.11. EXECUTIVE AND OTHER COMMITTEES.
(a) Establishment and Powers. The Board may, by
resolution adopted by a majority of the directors in office, establish one or
more committees to consist of one or more directors of the corporation, provided
that the director elected by the holders of Series B Preferred Stock shall be
appointed to all such committees. Any committee, to the extent provided in the
resolution of the Board, shall have and may exercise all of the powers and
authority of the Board except that a committee shall not have any power or
authority as to the following:
(1) The submission to shareholders of any action
requiring approval of shareholders under the PBCL.
(2) The creation or filing or vacancies in the Board;
(3) The adoption, amendment or repeal of these
bylaws;
(4) The amendment or repeal of any resolution of the
Board that by its terms is amendable or repealable only by the Board;
(5) Action on matters committed by a resolution of
the Board to another committee of the Board.
(b) Alternate Committee Members. The Board may
designate one or more directors as alternate members of any committee who may
replace any absent or disqualified member at any meeting of the committee or for
the purposes of any written action by the committee. In the absence or
disqualification of a member and alternate member or members of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not constituting a quorum, may
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unanimously appoint another director to act at the meeting in the place of the
absent or disqualified member.
(c) Term. Each committee of the Board shall serve at
the pleasure of the board.
(d) Committee Procedures. The term "board of
directors" or "board," when used in any provision of these bylaws relating to
the organization or procedures of or the manner of taking action by the Board,
shall be construed to include and refer to any executive or other committee of
the Board.
Section 4.12. COMPENSATION. The Board shall have the
authority to fix compensation of directors for their services as directors and a
director may be a salaried officer of the corporation.
ARTICLE V
OFFICERS
Section 5.01. OFFICERS GENERALLY.
(a) Number, Qualification and Designation. The
officers of the corporation shall be a president, a secretary, a treasurer, and
such other officers as may be elected in accordance with the provisions of
Section 5.03. Officers may but need not be directors or shareholders of the
corporation. The president and secretary shall be natural persons of full age.
The treasurer may be a corporation, but if a natural person shall be of full
age. The Board may elect from among the members of the Board a chairman of the
Board and a vice chairman of the Board who shall be officers of the corporation.
Any number of offices may be held by the same person.
(b) Resignations. Any officer may resign at any time
upon written notice to the corporation. The resignation shall be effective upon
receipt thereof by the corporation or at such subsequent time as may be
specified in the notice of resignation.
(c) Bonding. The corporation may secure the fidelity
of any or all of its officers by bond or otherwise.
(d) Standard of Care. Except as otherwise provided
in the Articles, an officer shall perform his duties as an officer in good
faith, in a manner he reasonably believes to be in the best interests of the
corporation and with such care, including reasonable inquiry, skill and
diligence, as a person of ordinary prudence would use under similar
circumstances. A person who so performs his duties shall not be liable by reason
of having an office of the corporation.
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Section 5.02. ELECTION AND TERM OF OFFICE. The officers of the
corporation, except those elected by delegated authority pursuant to Section
5.03, shall be elected annually by the Board, and each such officer shall hold
office for a term of one year and until a successor has been selected and
qualified or until his earlier death, resignation or removal.
Section 5.03. SUBORDINATE OFFICERS, COMMITTEES AND AGENTS. The
Board may from time to time elect such other officers and appoint such
committees, employees or other agents as the business of the corporation may
require, including one or more assistant secretaries, and one or more assistant
treasurers, each of whom shall hold office for such period, have such authority,
and perform such duties as are provided in these bylaws or as the board of
directors may from time to time determine. The Board may delegate to any officer
or committee the power to elect subordinate officers and to retain or appoint
employees or other agents, or committees thereof and to prescribe the authority
and duties of such subordinate officers, committees, employees or other agents.
Section 5.04. REMOVAL OF OFFICERS AND AGENTS. Any officer or
agent of the corporation may be removed by the Board with or without cause. The
removal shall be without prejudice to the contract rights, if any, of any person
so removed. Election or appointment of an officer or agent shall not of itself
create contract rights.
Section 5.05. VACANCIES. A vacancy in any office because of
death, resignation, removal, disqualification, or any other cause, shall be
filled by the Board or by the officer of the committee to which the power to
fill such office has been delegated pursuant to Section 5.03, as the case may
be, and if the office is one for which these bylaws prescribe a term, shall be
filled for the unexpired portion of the term.
Section 5.06. AUTHORITY. All officers of the corporation, as
between themselves and the corporation, shall have such authority and perform
such duties in the management of the corporation as may be provided by or
pursuant to resolution or orders of the Board or in the absence of controlling
provisions in the resolutions or orders of the Board as may be determined by or
pursuant to these bylaws.
Section 5.07. THE CHAIRMAN OF THE BOARD. The Chairman of the
Board if there be one, or in the absence of the chairman, the Vice Chairman of
the Board, shall preside at all meetings of the shareholders and of the Board
and shall perform such other duties as may from time to time be requested by the
Board.
Section 5.08. THE PRESIDENT. The President shall be the Chief
Executive Officer of the corporation and shall have general supervision over the
business and operations of the corporation, subject however, to the control of
the board of directors. The President shall sign, execute, and acknowledge, in
the name of the corporation, deeds,
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mortgages, contracts or other instruments authorized by the Board, except in
cases where the signing and execution thereof shall be expressly delegated by
the Board, or by these bylaws, to some other officer or agent of the
corporation; and, in general, shall perform all duties incident to the office of
president and such other duties as from time to time may be assigned by the
Board.
Section 5.09. THE SECRETARY. The Secretary or an Assistant
Secretary shall attend all meetings of the shareholders and of the Board and
shall record all votes of the shareholders and of the directors and the minutes
of the meetings of the shareholders and of the Board and of committees of the
Board in a book or books to be kept for that purpose; shall see that notices are
given and records and reports properly kept and filed by the corporation as
required by law; shall be the custodian of the seal of the corporation and see
that it is affixed to all documents to be executed on behalf of the corporation
under its seal; and, in general, shall perform all duties incident to the office
of Secretary, and such other duties as may from time to time be assigned by the
Board or the President.
Section 5.10. THE TREASURER. The Treasurer or an Assistant
Treasurer shall have or provide for the custody of the funds or other property
of the corporation; shall collect and receive or provide for the collection and
receipt of monies earned by or in any manner due to or received by the
corporation; shall deposit all funds in his custody as treasurer in such banks
or other places of deposit as the board of directors may from time to time
designate; shall, whenever so required by the board of directors, render an
account showing all transactions as treasurer and the financial condition of the
corporation; and, in general, shall discharge such other duties as may from time
to time be assigned by the Board or the President.
Section 5.11. SALARIES. The salaries of the officers elected
by the Board shall be fixed from time to time by the Board or by such officer as
may be designated by resolution of the Board. The salaries or other compensation
of any other officers, employees and other agents shall be fixed from time to
time by the officer or committee to which the power to elect such officers or to
retain or appoint such employees or other agents has been delegated pursuant to
Section 5.03. No officer shall be prevented from receiving such salary or other
compensation by reason of the fact that the officer is also a director of the
corporation.
Section 5.12. DISALLOWED COMPENSATION. Any payments
made to an officer or employee of the corporation such as a salary, commission,
bonus, interest, rent, travel or entertainment expense incurred by him, which
shall be disallowed in whole or in part as a deductible expense by the Internal
Revenue Service, shall be reimbursed by such officer or employee to the
corporation to the full extent of such disallowance. It shall be the duty of the
directors, as a Board, to enforce payment of such amount disallowed. In lieu of
payment by the officer or employee, subject to the determination of the
directors,
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proportionate amounts may be withheld from future compensation payments until
the amount owed to the corporation has been recovered.
ARTICLE VI
CERTIFICATES OF STOCK, TRANSFER, ETC.
Section 6.01. SHARE CERTIFICATES. Certificates for shares of
the corporation shall be in such form as approved by the Board, and shall state
that the corporation is incorporated under the laws of Pennsylvania, the name of
the person to whom issued, and the number and class of shares and the
designation of the series (if any) that the certificate represents. The share
register or transfer books and blank share certificates shall be kept by the
secretary or by any transfer agent or registrar designated by the board of
directors for that purpose.
Section 6.02. ISSUANCE. The share certificates of the
corporation shall be numbered and registered in the share register or transfer
books of the corporation as they are issued. They shall be signed by the
President or a Vice President and by the Secretary or an Assistant Secretary or
the Treasurer or an Assistant Treasurer, and shall bear the corporate seal,
which may be a facsimile, engraved or printed; but where such certificate is
signed by a transfer agent or a registrar the signature of any corporate officer
upon such certificate may be a facsimile, engraved or printed. In case any
officer who has signed, or whose facsimile signature has been placed upon, any
share certificate shall have ceased to be such officer because of death,
resignation or otherwise, before the certificate is issued, it may be issued
with the same effect as if the officer had not ceased to be such at the date of
its issue. The provisions of this Section 6.02 shall be subject to any
inconsistent or contrary agreement at the time between the corporation and any
transfer agent or registrar.
Section 6.03. TRANSFER. Transfers of shares shall be made on
the share registrar or transfer books of the corporation upon surrender of the
certificate therefor, endorsed by the person named in the certificate or by an
attorney lawfully constituted in writing. No transfer shall be made inconsistent
with the provisions of the Uniform Commercial Code, 13 Pa.C.S. ss. 8101, et
seq., and its amendments and supplements.
Section 6.04. RECORD HOLDER OF SHARES. The corporation
shall be entitled to treat the person in whose name any share or shares of the
corporation stand on the books of the corporation as the absolute owner thereof,
and shall not be bound to recognize any equitable or other claim to, or interest
in, such share or shares on the part of any other person.
Section 6.05. LOST, DESTROYED OR MUTILATED CERTIFICATES. The
holder of any shares of the corporation shall immediately notify
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the corporation of any loss, destruction or mutilation of the certificate
therefor, and the Board may, in its discretion, cause a new certificate or
certificates to be issued to such holder, in case of mutilation of the
certificate, upon the surrender of the mutilated certificate or, in case of loss
or destruction of the certificate, upon satisfactory proof of such loss or
destruction and, if the Board shall so determine, the deposit of a bond in such
form and in such sum, and with such surety or sureties, as it may direct.
ARTICLE VII
INDEMNIFICATION OF DIRECTORS, OFFICER AND
OTHER AUTHORIZED REPRESENTATIVES
Section 7.01. SCOPE OF INDEMNIFICATION.
(a) General Rule. The corporation shall indemnify an
indemnified representative against any liability incurred in connection with any
proceeding in which the indemnified representative may be involved as a party or
otherwise by reason of the fact that such person is or was serving in an
indemnified capacity, including, without limitation, liabilities resulting from
any actual or alleged breach or neglect of duty, error, misstatement or
misleading statement, negligence, gross negligence or act giving rise to strict
or products liability, except:
(1) where such indemnification is expressly
prohibited by applicable law;
(2) where the conduct of the indemnified
representative has been finally determined pursuant to Section 7.06 or
otherwise:
(i) to constitute willful misconduct or recklessness
within the meaning of 15 Pa.C.S. ss. 513(b) and 1746(b) and 42 Pa.C.S.
ss. 8365(b) or any superseding provision of law sufficient in the circumstances
to bar indemnification against liabilities arising from the conduct; or
(ii) to be based upon or attributable to the receipt
by the indemnified representative from the corporation of a personal benefit to
which the indemnified representative is not legally entitled; or
(3) to the extent such indemnification has been
finally determined in a final adjudication pursuant to Section 7.06 to be
otherwise unlawful.
(b) Partial Payment. If an indemnified
representative is entitled to indemnification in respect of a portion, but not
all, of any liabilities to which such
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person may be subject, the corporation shall indemnify such indemnified
representative to the maximum extent for such portion of the liabilities.
(c) Presumption. The termination of a proceeding by
judgment, order, settlement or conviction or upon a plea of nolo contendere or
its equivalent shall not of itself create a presumption that the indemnified
representative is not entitled to indemnification.
(d) Definitions. For purposes of this Article:
(1) "indemnified capacity" means any and all past,
present and future service by an indemnified representative in one or more
capacities as a director, officer, employee or agent of the corporation, or, at
the request of the corporation, as a director, officer, employee, agent,
fiduciary or trustee of another corporation, partnership, joint venture, trust,
employee benefit plan or other entity or enterprise;
(2) "indemnified representative" means any and all
directors and officers of the corporation and any other person designated as an
indemnified representative by the Board (which may, but need not, include any
person serving at the request of the corporation, as a director, officer,
employee, agent, fiduciary or trustee of another corporation, partnership, joint
venture, trust, employee benefit plan or other entity or enterprise):
(3) "liability" means any damage, judgment, amount
paid in settlement, fine, penalty, punitive damages, excise tax assessed with
respect to an employee benefit plan, or cost or expense, of any nature
(including, without limitation, attorneys fees and disbursements); and
(4) "proceeding" means any threatened, pending or
completed action, suit, appeal or other proceeding of any nature, whether civil,
criminal, administrative or investigative, whether formal or informal, and
whether brought by or in the right of the corporation, a class of its security
holders or otherwise.
Section 7.02. PROCEEDINGS INITIATED BY INDEMNIFIED
REPRESENTATIVES. Notwithstanding any other provision of this Article, the
corporation shall not indemnify under this Article an indemnified representative
for any liability incurred in a proceeding initiated (which shall not be deemed
to include counterclaims or affirmative defenses) or participated in as an
intervenor or amicus curiae by the person seeking indemnification unless such
initiation of or participation in the proceeding is authorized, either before or
after its commencement, by the affirmative vote of a majority of the directors
in office. This section does not apply to a reimbursement of expenses incurred
in successfully prosecuting or defending an arbitration under Section 7.06 or
otherwise
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successfully prosecuting or defending the rights of an indemnified
representative granted by or pursuant to this Article.
Section 7.03. ADVANCING EXPENSES. The corporation shall pay
the expenses (including attorneys' fees and disbursements) incurred in good
faith by an indemnified representative in advance of the final disposition of a
proceeding described in Section 7.01 or the initiation of or participation in
which is authorized pursuant to Section 7.02 upon receipt of an undertaking by
or on behalf of the indemnified representative to repay the amount if it is
ultimately determined pursuant to Section 7.06 that such person is not entitled
to be indemnified by the corporation pursuant to this Article. The financial
ability of an indemnified representative to repay an advance shall not be a
prerequisite to the making of such advance.
Section 7.04. SECURING OF INDEMNIFICATION OBLIGATIONS. To
further effect, satisfy or secure the indemnification obligations provided
herein or otherwise, the corporation may maintain insurance, obtain a letter of
credit, act as self-insurer, create a reserve, trust, escrow, cash collateral
or other fund or account, enter into indemnification agreements, pledge or grant
a security interest in any assets or properties of the corporation, or use any
other mechanism or arrangement whatsoever in such amounts, at such costs, and
upon such other terms and conditions as the Board shall deem appropriate. Absent
fraud, the determination of the Board with respect to such amounts, costs, terms
and conditions shall be conclusive against all security holders, officers and
directors and shall not be subject to voidability.
Section 7.05. PAYMENT OF INDEMNIFICATION. An indemnified
representative shall be entitled to indemnification within 30 days after a
written request for indemnification has been delivered to the Secretary.
Section 7.06. ARBITRATION.
(a) General Rule. Any dispute related to the right
to indemnification, contribution or advancement of expenses as provided under
this Article, except with respect to indemnification for liabilities arising
under the Securities Act of 1933 that the corporation has undertaken to submit
to a court for adjudication, shall be decided only by arbitration in the
metropolitan area in which the principal executive offices of the corporation
are located at the time, in accordance with the commercial arbitration rules
then in effect of the American Arbitration Association, before a panel of three
arbitrators, one of whom shall be selected by the corporation, the second of
whom shall be selected by the indemnified representative and third of whom shall
be selected by the other two arbitrators. In the absence of the American
Arbitration Association, or if for any reason arbitration under the arbitration
rules of the American Arbitration Association cannot be initiated, or if one of
the parties fails or refuses to select an arbitrator or if the arbitrators
selected by the corporation and the indemnified representative cannot agree on
the selection of the third
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arbitrator within 30 days after such time as the corporation and the
indemnified representative have each been notified of the selection of the
other's arbitrator, the necessary arbitrator or arbitrators shall be selected by
the presiding judge of the court of general jurisdiction in such metropolitan
area.
(b) Burden of Proof. The party or parties
challenging the right of an indemnified representative to the benefits of this
Article shall have the burden of proof.
(c) Expenses. The corporation shall reimburse an
indemnified representative for the expenses (including attorneys' fees and
disbursements) incurred in successfully prosecuting or defending such
arbitration.
(d) Effect. Any award entered by the arbitrators
shall be final, binding and nonappealable and judgment may be entered thereon by
any party in accordance with applicable law in any court of competent
jurisdiction, except that the corporation shall be entitled to interpose as a
defense in any such judicial enforcement proceeding any prior final judicial
determination adverse to the indemnified representative under Section 7.01(a)(2)
in a proceeding not directly involving indemnification under this Article. This
arbitration provision shall be specifically enforceable.
Section 7.07. CONTRIBUTION. If the indemnification provided
for in this Article or otherwise is unavailable for any reason in respect of any
liability or portion thereof, the corporation shall contribute to the
liabilities to which the indemnified representative may be subject in such
proportion as is appropriate to reflect the intent of this Article or otherwise.
Section 7.08. MANDATORY INDEMNIFICATION OF DIRECTORS,
OFFICERS, ETC. To the extent that an authorized representative of the
corporation has been successful on the merits or otherwise in defense of any
action or proceeding referred to in 15 Pa.C.S. ss. 1741 or 1742 or in defense of
any claim, issue or matter therein, such person shall be indemnified against
expenses (including attorneys' fees and disbursements) actually and reasonably
incurred by such person in connection therewith.
Section 7.09. CONTRACT RIGHTS; AMENDMENT OR REPEAL. All rights
under this Article shall be deemed a contract between the corporation and the
indemnified representative pursuant to which the corporation and each
indemnified representative intend to be legally bound. Any repeal, amendment or
modification hereof shall be prospective only and shall not affect any rights or
obligations then existing.
Section 7.10. SCOPE OF ARTICLE. The rights granted by this
Article shall not be deemed exclusive of any other rights to which those seeking
indemnification,
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contribution or advancement of expenses may be entitled under any statute,
agreement, vote of shareholders or disinterested directors or otherwise both as
to action in an indemnified capacity and as to action in any other capacity. The
indemnification, contribution and advancement of expenses provided by or granted
pursuant to this Article shall continue as to a person who has ceased to be an
indemnified representative in respect of matters arising prior to such time, and
shall inure to the benefit of the heirs, executors, administrators and personal
representatives of such a person.
Section 7.11. RELIANCE OF PROVISIONS. Each person who shall
act as an indemnified representative of the corporation shall be deemed to be
doing so in reliance upon the rights provided in this Article.
Section 7.12. INTERPRETATION. The provisions of this Article
are intended to constitute bylaws authorized by 15 Pa.C.S. ss. 513 and 1746 and
42 Pa.C.S. ss. 8365.
ARTICLE VIII
MISCELLANEOUS
Section 8.01. CORPORATE SEAL. The corporation seal shall have
inscribed thereon the name of the corporation, the year of its organization and
the words "Corporate Seal, Pennsylvania".
Section 8.02. CHECKS. All checks, notes, bills of exchange or
other orders in writing shall be signed by such person or persons as the Board
or any person authorized by resolution of the Board may from time to time
designate.
Section 8.03. CONTRACTS.
(a) General Rule. Except as otherwise provided in the PBCL in
the case of transactions that require action by the shareholders, the Board may
authorize any officer or agent to enter into any contract or to execute or
deliver any instrument on behalf of the corporation, and such authority may be
general or confined to specific instances.
(b) Statutory Form of Execution of Instruments. Any note,
mortgage, evidence of indebtedness, contract or other document, or any
assignment or endorsement thereof, executed or entered into between the
corporation and any other person, when signed by one or more officers or agents
having actual or apparent authority to sign it, or by the President or Vice
President and Secretary or Assistant Secretary or Treasurer or Assistant
Treasurer of the corporation, shall be held to have been properly executed for
and in behalf of the corporation, without prejudice to the rights of the
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corporation against any person who shall have executed the instrument in excess
of his or her actual authority.
Section 8.04. INTERESTED DIRECTORS OR OFFICERS; QUORUM.
(a) General Rule. A contract or transaction between
the corporation and one or more of its directors or officers or between the
corporation and another corporation, partnership, joint venture, trust or other
enterprise in which one or more of its directors or officers are directors or
officers or have a financial or other interest, shall not be void or voidable
solely for that reason, or solely because the director or officer is present at
or participates in the meeting of the Board that authorizes the contract or
transaction, or solely because his, her or their votes are counted for that
purpose, if:
(1) the material facts as to the relationship or
interest and as to the contract or transaction are disclosed or are known to the
Board and the Board authorizes the contract or transaction by the affirmative
votes of a majority of the disinterested directors even though the disinterested
directors are less than a quorum;
(2) the material facts as to his or her relationship
or interest and as to the contract or transaction are disclosed or are known to
the shareholders entitled to vote thereon and the contract or transaction is
specifically approved in good faith by vote of those shareholders; or
(3) the contract or transaction is fair as to the
corporation as of the time it is authorized, approved or ratified by the Board
or the shareholders.
(b) Quorum. Common or interested directors may be
counted in determining the presence of a quorum at a meeting of the Board which
authorizes a contract or transaction specified in subsection (a).
Section 8.05. DEPOSITS. All funds of the corporation shall be
deposited from time to time to the credit of the corporation in such banks,
trust companies or other depositories as the Board may approve or designate, and
all such funds shall be withdrawn only upon checks signed by such one or more
officers or employees as the board of directors shall from time to time
determine.
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Section 8.06. CORPORATE RECORDS.
(a) Required Records. The corporation shall keep
complete and accurate books and records of account, minutes of the proceedings
of the incorporators, shareholders and directors and a share register giving the
names and addresses of all shareholders and the number and class of shares held
by each. The share register shall be kept at either the registered office of the
corporation in Pennsylvania or at its principal place of business wherever
situated or at the office of its registrar or transfer agent. Any books, minutes
or other records may be in written form or any other form capable of being
converted into written form within a reasonable time.
(b) Right of Inspection. Every shareholder shall,
upon written verified demand stating the purpose thereof, have a right to
examine, in person or by agent or attorney, during the usual hours for business
for any proper purpose, the share register, books and records of account, and
records of the proceedings of the incorporators, shareholders and directors and
to make copies or extracts therefrom. A proper purpose shall mean a purpose
reasonably related to the interest of the person as a shareholder. In every
instance where an attorney or other agent is the person who seeks the right of
inspection, the demand shall be accompanied by a verified power of attorney or
other writing that authorizes the attorney or other agent to so act on behalf of
the shareholder. The demand shall be directed to the corporation at its
registered office in Pennsylvania or at its principal place of business wherever
situated.
Section 8.07. FINANCIAL MATTERS. Unless otherwise agreed
between the corporation and a shareholder, the corporation shall furnish to its
shareholders annual financial statements, including at least a balance sheet as
of the end of each fiscal year and a statement of income and expenses for the
fiscal year. The financial statements shall be prepared on the basis of
generally accepted accounting principles, if the corporation prepares financial
statements for the fiscal year on that basis for any purpose, and may be
consolidated statements of the corporation and one or more of its subsidiaries.
The financial statements shall be mailed by the corporation to each of its
shareholders entitled thereto within 120 days after the close of each fiscal
year and, after the mailing and upon written request, shall be mailed by the
corporation to any shareholder or beneficial owner entitled thereto to whom a
copy of the most recent annual financial statements has not previously been
mailed. Statements that are audited or reviewed by a public accountant shall be
accompanied by the report of the accountant; in other cases, each copy shall be
accompanied by a statement of the person in charge of the financial records of
the corporation:
(1) Stating his reasonable belief as to whether or
not the financial statements were prepared in accordance with generally accepted
accounting principles and, if not, describing the basis of presentation.
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<PAGE>
(2) Describing any material respects in which the
financial statements were not prepared on a basis consistent with those prepared
for the previous year.
Section 8.08. AMENDMENT OF BYLAWS. Subject to the provisions
set forth in that certain Securities Purchase Agreement between the corporation
and certain security holders of the corporation of approximate even date
herewith, these bylaws may be amended or repealed, or new bylaws may be adopted,
either (i) by vote of the shareholders at any duly organized annual or special
meeting of shareholders, or (ii) with respect to those matters that are not by
statute committed expressly to the shareholders and regardless of whether the
shareholders have previously adopted or approved the bylaw being amended or
repealed, by vote of a majority of the board in office at any regular or special
meeting of directors. Any change in these bylaws shall take effect when adopted
unless otherwise provided in the resolution effecting the change. See Section
2.03(b) (relating to notice of action by shareholders on bylaws).
EXHIBIT 4.3
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- -------------------------------------------------------------------------------
INDEPENDENCE BREWING COMPANY
AND
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
----------------
WARRANT AGREEMENT
Dated as of ______________, 1996
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- -------------------------------------------------------------------------------
<PAGE>
WARRANT AGREEMENT, dated this ___ day of ________ 1996 [the effective
date of the Registration Statement], by and between INDEPENDENCE BREWING
COMPANY, a Pennsylvania corporation (the "Company"), and CONTINENTAL STOCK
TRANSFER & TRUST COMPANY, a New York corporation.
W I T N E S S E T H:
WHEREAS, in connection with (i) the offering to the public of up to
900,000 shares (the "Shares") of the Company's common stock, no par value, and
up to 4,000,000 redeemable warrants (the "Warrants"), each Warrant entitling the
holder thereof to purchase one additional Share, (ii) the over-allotment option
granted to A.S. Goldmen & Co., Inc., the underwriter (the "Underwriter") in the
public offering referred to above, to purchase up to an additional 135,000
Shares and/or an additional 600,000 Warrants (the "Over-Allotment Option"), and
(iii) the sale to the Underwriter or its designees of warrants (the
"Underwriter's Warrants") to purchase up to 90,000 Shares and/or 400,000
Warrants, the Company will issue up to 5,000,000 Warrants (subject to increase
as provided herein and in the Underwriter's Warrant Agreement (as such term is
defined in Section 1(t) hereof));
WHEREAS, the Company desires to provide for the issuance of
certificates representing the Warrants; and
WHEREAS, the Company desires the Warrant Agent (as defined in Section
1(x) hereof) to act on behalf of the Company, and the Warrant Agent is willing
to so act, in connection with the issuance, registration, transfer and exchange
of certificates representing the Warrants and the exercise of the Warrants.
<PAGE>
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth and for the purpose of defining the terms and
provisions of the Warrants and the certificates representing the Warrants and
the respective rights and obligations thereunder of the Company, the
Underwriter, the holders of certificates representing the Warrants and the
Warrant Agent, the parties hereto agree as follows:
SECTION 1. Definitions. As used herein, the following terms shall
have the following meanings, unless the context shall otherwise require:
(a) "Act" shall mean the Securities Act of 1933, as amended.
(b) "Change of Shares" shall have the meaning assigned to such
term in Section 8(a)(i) of this Agreement.
(c) "Commission" shall mean the Securities and Exchange
Commission.
(d) "Common Stock" shall mean stock of the Company of any
class, whether now or hereafter authorized, which has the right to participate
in the voting and in the distribution of earnings and assets of the Company
without limit as to amount or percentage.
(e) "Company" shall have the meaning assigned to such term in
the first (1st) paragraph of this Agreement.
(f) "Corporate Office" shall mean the office of the Warrant
Agent at which at any particular time its principal business in New York, New
York, shall be administered, which office is located on the date hereof at 2
Broadway, New York, New York 10004.
(g) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(h) "Exercise Date" shall mean, subject to the provisions of
Section 5(b) hereof, as to any Warrant, the date on which the Warrant Agent
shall have received both (i) the
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<PAGE>
Warrant Certificate representing such Warrant, with the exercise form thereon
duly executed by the Registered Holder (as defined in Section 1(o) hereof)
thereof or his attorney duly authorized in writing, and (ii) payment in cash or
by check made payable to the Warrant Agent for the account of the Company of an
amount in lawful money of the United States of America equal to the applicable
Purchase Price (as defined in Section 1(l) hereof).
(i) "Initial Warrant Exercise Date" shall mean __________,
1996 [the effective date of the Registration Statement].
(j) "Initial Warrant Redemption Date" shall mean __________,
1997 [the date twelve months after the effective date of the Registration
Statement].
(k) "NASD" shall mean the National Association of Securities
Dealers, Inc.
(l) "Purchase Price" shall mean, subject to modification and
adjustment as provided in Section 8 hereof, six dollars ($6.00) per Share.
(m) "Over-Allotment Option" shall have the meaning assigned to
such term in the first (1st) WHEREAS clause of this Agreement.
(n) "Redemption Date" shall mean the date (which may not occur
before the Initial Warrant Redemption Date) fixed for the redemption of the
Warrants in accordance with the terms hereof.
(o) "Registered Holder" shall mean the person in whose name
any certificate representing the Warrants shall be registered on the books
maintained by the Warrant Agent pursuant to Section 6(b) hereof.
(p) "Shares" shall have the meaning assigned to such term in
the first (1st) WHEREAS clause of this Agreement,
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<PAGE>
(q) "Subsidiary" or "Subsidiaries" shall mean any corporation
or corporations, as the case may be, of which stock having ordinary power to
elect a majority of the board of directors of such corporation or corporations
(regardless of whether or not at the time the stock of any other class or
classes of such corporation shall have or may have voting power by reason of the
happening of any contingency) is at the time directly or indirectly owned by the
Company or by one or more Subsidiaries, or by the Company and one or more
Subsidiaries.
(r) "Transfer Agent" shall mean Continental Stock Transfer &
Trust Company, New York, New York, or its authorized successor.
(s) "Underwriter" shall have the meaning assigned to such term
in the first (1st) WHEREAS clause of this Agreement.
(t) "Underwriter's Warrant Agreement" shall mean the agreement
dated as of _______________, 1996 [the effective date of the Registration
Statement] between the Company and the Underwriter relating to and governing the
terms and provisions of the Underwriter's Warrants.
(u) "Underwriter's Warrants" shall have the meaning assigned
to such term in the first (1st) WHEREAS clause of this Agreement.
(v) "Underwriting Agreement" shall mean the underwriting
agreement dated _______________, 1996 [the effective date of the Registration
Statement] between the Company and the Underwriter relating to the purchase for
resale to the public of 900,000 Shares and 4,000,000 Warrants (without giving
effect to the Over-Allotment Option).
(w) "Warrant Agent" shall mean Continental Stock Transfer &
Trust Company, New York, New York or its authorized successor.
4
<PAGE>
(x) "Warrant Certificate" shall mean a certificate
representing each of the Warrants substantially in the form annexed hereto as
Exhibit A.
(y) "Warrant Expiration Date" shall mean, unless the Warrants
are redeemed as provided in Section 9 hereof prior to such date, 5:00 p.m. (New
York time) on __________, 2001 [the day before the 5th anniversary of the
effective date of the Registration Statement], or, if such date shall in the
State of New York be a holiday or a day on which banks are authorized to close,
then 5:00 p.m. (New York time) on the next following day which in the State of
New York is not a holiday or a day on which banks are authorized to close,
subject to the Company's right, prior to the Warrant Expiration Date, with the
consent of the Underwriter, to extend such Warrant Expiration Date on five (5)
business days prior written notice to the Registered Holders.
(z) "Warrants" shall have the meaning assigned to such term in
the first (1st) WHEREAS clause of this Agreement.
SECTION 2. Warrants and Issuance of Warrant Certificates.
(a) Each Warrant shall initially entitle the Registered Holder
of the Warrant Certificate representing such Warrant to purchase at the Purchase
Price therefor from the Initial Warrant Exercise Date until the Warrant
Expiration Date one (1) share of Common Stock upon the exercise thereof, subject
to modification and adjustment as provided in Section 8 hereof.
(b) Upon execution of this Agreement, Warrant Certificates
representing 4,000,000 Warrants to purchase up to an aggregate of 4,000,000
shares of Common Stock (subject to modification and adjustment as provided in
Section 8 hereof), shall be executed by the Company and delivered to the Warrant
Agent.
(c) Upon exercise of the Over-Allotment Option, in whole or in
part, Warrant Certificates representing up to 600,000 Warrants to purchase up to
an aggregate of
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<PAGE>
600,000 shares of Common Stock (subject to modification and adjustment as
provided in Section 8 hereof) shall be executed by the Company and
delivered to the Warrant Agent.
(d) Upon exercise of the Underwriter's Warrants, Warrant
Certificates representing up to 400,000 Warrants to purchase up to an aggregate
of 400,000 shares of Common Stock (subject to modification and adjustment as
provided in Section 8 hereof and in the Underwriter's Warrant Agreement), shall
be countersigned, issued and delivered by the Warrant Agent upon written order
of the Company signed by its Chairman of the Board, President or a Vice
President and by its Treasurer or an Assistant Treasurer or its Secretary or an
Assistant Secretary.
(e) From time to time, up to the Warrant Expiration Date, the
Warrant Agent shall countersign and deliver Warrant Certificates in required
denominations of one or whole number multiples thereof to the person entitled
thereto in connection with any transfer or exchange permitted under this
Agreement. No Warrant Certificates shall be issued except (i) Warrant
Certificates initially issued hereunder, (ii) Warrant Certificates issued upon
any transfer or exchange of Warrants, (iii) Warrant Certificates issued in
replacement of lost, stolen, destroyed or mutilated Warrant Certificates
pursuant to Section 7 hereof, (iv) Warrant Certificates issued pursuant to the
Underwriter's Warrant Agreement (including Warrants in excess of the 400,000
Warrants issued as a result of the antidilution provisions contained in the
Underwriter's Warrant Agreement), and (v) at the option of the Company, Warrant
Certificates in such form as may be approved by its Board of Directors, to
reflect any adjustment or change in the Purchase Price, the number of shares of
Common Stock purchasable upon the exercise of a Warrant or the redemption price
therefor.
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<PAGE>
SECTION 3. Form and Execution of Warrant Certificates.
(a) The Warrant Certificates shall be substantially in the
form annexed hereto as Exhibit A (the provisions of which are hereby
incorporated herein) and may have such letters, numbers or other marks of
identification or designation and such legends, summaries or endorsements
printed, lithographed or engraved thereon as the Company may deem appropriate
and as are not inconsistent with the provisions of this Agreement, or as may be
required to comply with any law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange on which the
Warrants may be listed, or to conform to usage. The Warrant Certificates shall
be dated the date of issuance thereof (whether upon initial issuance, transfer,
exchange or in lieu of mutilated, lost, stolen or destroyed Warrant
Certificates).
(b) Warrant Certificates shall be executed on behalf of the
Company by its Chairman of the Board, President or any Vice President and by its
Treasurer or an Assistant Treasurer or its Secretary or an Assistant Secretary,
by manual signatures or by facsimile signatures printed thereon, and shall have
imprinted thereon a facsimile of the Company's seal. Warrant Certificates shall
be manually countersigned by the Warrant Agent and shall not be valid for any
purpose unless so countersigned. In case any officer of the Company who shall
have signed any of the Warrant Certificates shall cease to be such officer of
the Company before the date of issuance of the Warrant Certificates or before
countersignature by the Warrant Agent and issue and delivery thereof, such
Warrant Certificates, nevertheless, may be countersigned by the Warrant Agent
and issued and delivered with the same force and effect as though the officer of
the Company who signed such Warrant Certificates had not ceased to hold
such office.
7
<PAGE>
SECTION 4. Exercise.
(a) Warrants in denominations of one or whole number multiples
thereof may be exercised commencing at any time on or after the Initial Warrant
Exercise Date, but not after the Warrant Expiration Date, upon the terms and
subject to the conditions set forth herein (including the provisions set forth
in Sections 5 and 9 hereof) and in the applicable Warrant Certificate. A Warrant
shall be deemed to have been exercised immediately prior to the close of
business on the Exercise Date, provided that the Warrant Certificate
representing such Warrant, with the exercise form thereon duly executed by the
Registered Holder thereof or his attorney duly authorized in writing, together
with payment in cash or by check made payable to the Warrant Agent for the
account of the Company of an amount in lawful money of the United States of
America equal to the applicable Purchase Price, have been received by the
Warrant Agent. The person entitled to receive the securities deliverable upon
such exercise shall be treated for all purposes as the holder of such securities
as of the close of business on the Exercise Date. As soon as practicable on or
after the Exercise Date and in any event within five (5) business days after
such date, the Warrant Agent, on behalf of the Company, shall cause to be issued
to the person or persons entitled to receive the same a Common Stock certificate
or certificates for the shares of Common Stock deliverable upon such exercise,
and the Warrant Agent shall deliver the same to the person or persons entitled
thereto. Upon the exercise of any Warrants, the Warrant Agent shall promptly
notify the Company in writing of such fact and of the number of securities
delivered upon such exercise and, subject to Section 4(b) hereof, shall cause
all payments in cash or by check made payable to the order of the Company in
respect of the Purchase Price to be deposited promptly in the Company's bank
account or delivered to the Company.
8
<PAGE>
(b) At any time upon the exercise of any Warrants after
__________, 1997 [the 1st anniversary of the effective date of the Registration
Statement], the Warrant Agent shall, on a daily basis, within two (2) business
days after any such exercise, notify the Underwriter or its successors or
assigns of the exercise of any such Warrants and shall, on a weekly basis
(subject to collection of funds constituting the tendered Purchase Price, but in
no event later than five (5) business days after the last day of the calendar
week in which such funds were tendered), remit to the Underwriter or its
successors or assigns an amount equal to four percent (4%) of the Purchase Price
of such Warrants being then exercised unless the Underwriter or its successors
or assigns shall have notified the Warrant Agent that the payment of such amount
with respect to any such Warrant is violative of the rules and regulations
promulgated under the Exchange Act, the rules and regulations of the NASD or
applicable state securities or "blue sky" laws, or the Warrants are those
underlying the Underwriter's Warrants, in any of which events the Warrant Agent
shall have to pay such amount to the Company; provided, however, that the
Warrant Agent shall not be obligated to pay any amounts pursuant to this Section
4(b) during any week that such amounts payable are less than one thousand
dollars ($1,000) and the Warrant Agent's obligation to make such payments shall
be suspended until the amount payable aggregates one thousand dollars ($1,000),
and provided further, that, in any event, any such payment (regardless of
amount) shall be made not less frequently than monthly.
(c) The Company shall not be obligated to issue any fractional
share interests or fractional warrant interests upon the exercise of any Warrant
or Warrants, nor shall it be obligated to issue scrip or pay cash in lieu of
fractional interests. Any fraction equal to or greater than one-half (1/2) shall
be rounded up to the next full share or Warrant, as the case may be. Any
fraction less than one-half shall be eliminated.
9
<PAGE>
SECTION 5. Reservation of Shares, Listing, Payment of Taxes, etc.
(a) The Company covenants that it will at all times reserve
and keep available out of its authorized Common Stock, solely for the purpose of
issuance upon the exercise of Warrants, such number of shares of Common Stock as
shall then be issuable upon the exercise of all outstanding Warrants. The
Company covenants that, upon exercise of the Warrants and payment of the
Purchase Price for the shares of Common Stock underlying the Warrants, all
shares of Common Stock which shall be issuable upon such exercise shall be duly
and validly issued, fully paid, non-assessable, free from all preemptive or
similar rights, and free from all taxes, liens and charges with respect to the
issuance thereof, and that upon issuance such shares shall be listed or quoted
on each securities exchange, if any, on which the other shares of outstanding
Common Stock are then listed or quoted, or if not then so listed or quoted on
each place (whether the Nasdaq Stock Market, Inc., the NASD Over-the-Counter
Bulletin Board, the National Quotation Bulletin Board "Pink Sheets" or
otherwise) on which the other shares of outstanding Common Stock are listed
or quoted.
(b) The Company covenants that if any securities reserved for
the purpose of exercise of Warrants hereunder require registration with, or
approval of, any governmental authority under any federal securities law before
such securities may be validly issued or delivered upon such exercise, then the
Company will file a registration statement under the federal securities laws or
a post-effective amendment to a registration statement, use its best efforts to
cause the same to become effective, keep such registration statement current
while any of the Warrants are outstanding and deliver a prospectus which
complies with Section 10(a)(3) of the Act, to the Registered Holder exercising
the Warrant (except, if in the opinion of counsel to the Company, such
registration is not required under the federal securities law or if the
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<PAGE>
Company receives a letter from the staff of the Commission stating that it would
not take any enforcement action if such registration is not effected). The
Company will use its best efforts to obtain appropriate approvals or
registrations under the state "blue sky" securities laws of all states in which
Registered Holders reside. Warrants may not be exercised by, nor may shares of
Common Stock be issued to, any Registered Holder in any state in which such
exercise would be unlawful.
(c) The Company shall pay all documentary, stamp or similar
taxes and other governmental charges that may be imposed with respect to the
issuance of Warrants, or the issuance or delivery of any shares of Common Stock
upon exercise of the Warrants; provided, however, that if shares of Common Stock
are to be delivered in a name other than the name of the Registered Holder of
the Warrant Certificate representing any Warrant being exercised, then no such
delivery shall be made unless the person requesting the same has paid to the
Warrant Agent the amount of transfer taxes or charges incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized as the
Transfer Agent to requisition from time to time certificates representing shares
of Common Stock or other securities required upon exercise of the Warrants, and
the Company will comply with all such requisitions.
SECTION 6. Exchange and Registration of Transfer.
(a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants or may be
transferred in whole or in part. Warrant Certificates to be so exchanged shall
be surrendered to the Warrant Agent at its Corporate Office, and the Company
shall execute and the Warrant's Agent shall countersign,
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<PAGE>
issue and deliver in exchange therefor the Warrant Certificate or Certificates
which the Registered Holder making the exchange shall be entitled to receive.
(b) The Warrant Agent shall keep, at such office, books in
which, subject to such reasonable regulations as it may prescribe, it shall
register Warrant Certificates and the transfer thereof. Upon due presentment for
registration of transfer of any Warrant Certificate at such office, the Company
shall execute and the Warrant Agent shall issue and deliver to the transferee or
transferees a new Warrant Certificate or Certificates representing an equal
aggregate number of Warrants.
(c) With respect to any Warrant Certificates presented for
registration of transfer, or for exchange or exercise, the subscription or
assignment form, as the case may be, on the reverse thereof shall be duly
endorsed or be accompanied by a written instrument or instruments of
subscription or assignment, in form satisfactory to the Company and the Warrant
Agent, duly executed by the Registered Holder thereof or his attorney duly
authorized in writing.
(d) No service charge shall be made for any exchange or
registration of transfer of Warrant Certificates. However, the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection therewith.
(e) All Warrant Certificates surrendered for exercise or for
exchange shall be promptly cancelled by the Warrant Agent.
(f) Prior to due presentment for registration or transfer
thereof, the Company and the Warrant Agent may deem and treat the Registered
Holder of any Warrant Certificate as the absolute owner thereof of each Warrant
represented thereby (notwithstanding any notations
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<PAGE>
of ownership or writing thereon made by anyone other than the Company or the
Warrant Agent) for all purposes and shall not be affected by any notice to the
contrary.
SECTION 7. Loss or Mutilation. Upon receipt by the Company and the
Warrant Agent of evidence satisfactory to them of the ownership of and the loss,
theft, destruction or mutilation of any Warrant Certificate and (in the case of
loss, theft or destruction) of indemnity satisfactory to them, and (in case of
mutilation) upon surrender and cancellation thereof, the Company shall execute
and the Warrant Agent shall countersign and deliver in lieu thereof a new
Warrant Certificate representing an equal number of Warrants. Applicants for a
substitute Warrant Certificate shall also comply with such other reasonable
regulations and pay such other reasonable charges as the Warrant Agent may
prescribe.
SECTION 8. Adjustment of Purchase Price and Number of Shares of Common
Stock Deliverable.
(a) (i) Except as hereinafter provided, in the event the
Company shall, at any time or from time to time after the date hereof, sell any
shares of Common Stock for a consideration per share less than the Purchase
Price or issue any shares of Common Stock as a stock dividend to the holders of
Common Stock, or subdivide or combine the outstanding shares of Common Stock
into a greater or lesser number of shares (any such sale, issuance, subdivision
or combination being herein called a "Change of Shares"), then, and thereafter
upon each further Change of Shares, the Purchase Price for the Warrants (whether
or not the same shall be issued and outstanding) in effect immediately prior to
such Change of Shares shall be changed to a price (including any applicable
fraction of a cent to the nearest cent) determined by dividing (A) the sum of
(x) the total number of shares of Common Stock outstanding immediately prior to
such Change of Shares, multiplied by the Purchase Price in effect immediately
prior to such Change of Shares, and (y) the consideration, if any, received by
the Company upon such sale, issuance, subdivision or combination by (B) the
total number of shares of Common Stock outstanding immediately after such Change
of Shares; provided, however, that in no event shall the Purchase Price be
adjusted pursuant to this computation to an amount in excess of the Purchase
Price in effect
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<PAGE>
immediately prior to such Change of Shares, and (y) the consideration, if any,
received by the Company upon such sale, issuance, subdivision or combination by
(B) the total number of shares of Common Stock outstanding immediately after
such Change of Shares; provided, however, that in no event shall the Purchase
Price be adjusted pursuant to this computation to an amount in excess of the
Purchase Price in effect immediately prior to such computation, except in the
case of a combination of outstanding shares of Common Stock.
For the purposes of any adjustment to be made in accordance
with this Section 8(a)(i) the following provisions shall be applicable:
(A) In case of the issuance or sale of shares of
Common Stock (or of other securities deemed hereunder to involve the issuance or
sale of shares of Common Stock) for a consideration part or all of which shall
be cash, the amount of the cash portion of the consideration therefor deemed to
have been received by the Company shall be (i) the subscription price, if shares
of Common Stock are offered by the Company for subscription, or (ii) the public
offering price (before deducting therefrom any compensation paid or discount
allowed in the sale, underwriting or purchase thereof by underwriters or dealers
or others performing similar services, or any expenses incurred in connection
therewith), if such securities are sold to underwriters or dealers for public
offering without a subscription offering, or (iii) the gross amount of cash
actually received by the Company for such securities, in any other case.
(B) In case of the issuance or sale (otherwise than
as a dividend or other distribution on any stock of the Company, and otherwise
than on the exercise of options, rights or warrants or the conversion or
exchange of convertible or exchangeable securities) of shares of Common Stock
(or of other securities deemed hereunder to involve the issuance or sale
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<PAGE>
of shares of Common Stock) for a consideration part or all of which shall be
other than cash, the amount of the consideration therefor other than cash deemed
to have been received by the Company shall be the value of such consideration as
determined in good faith by the Board of Directors of the Company on the basis
of a record of values of similar property or services.
(C) Shares of Common Stock issuable by way of
dividend or other distribution on any stock of the Company shall be deemed to
have been issued immediately after the opening of business on the day following
the record date for the determination of shareholders entitled to receive such
dividend or other distribution and shall be deemed to have been issued without
consideration.
(D) The reclassification of securities of the Company
other than shares of Common Stock into securities including shares of Common
Stock shall be deemed to involve the issuance of such shares of Common Stock for
a consideration other than cash immediately prior to the close of business on
the date fixed for the determination of security holders entitled to receive
such shares, and the value of the consideration allocable to such shares of
Common Stock shall be determined as provided in subsection (B) of this Section
8(a)(i).
(E) The number of shares of Common Stock at any one
time outstanding shall be deemed to include the aggregate maximum number of
shares issuable (subject to readjustment upon the actual issuance thereof) upon
the exercise of options, rights or warrants and upon the conversion or exchange
of convertible or exchangeable securities.
(ii) Upon each adjustment of the Purchase Price pursuant
to this Section 8, the number of shares of Common Stock purchasable upon the
exercise of each Warrant shall be the number derived by multiplying the number
of shares of Common Stock purchasable
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<PAGE>
immediately prior to such adjustment by the Purchase Price in effect prior to
such adjustment and dividing the product so obtained by the applicable adjusted
Purchase Price.
(b) In case the Company shall at any time after the date
hereof issue options, rights or warrants to subscribe for shares of Common
Stock, or issue any securities convertible into or exchangeable for shares of
Common Stock, for a consideration per share (determined as provided in Section
8(a)(i) hereof and as provided below) less than the Purchase Price in effect
immediately prior to the issuance of such options, rights or warrants, or such
convertible or exchangeable securities, or without consideration (including the
issuance of any such securities by way of dividend or other distribution), the
Purchase Price for the Warrants (whether or not the same shall be issued and
outstanding) in effect immediately prior to the issuance of such options, rights
or warrants, or such convertible or exchangeable securities, as the case may be,
shall be reduced to a price determined by making the computation in accordance
with the provisions of Section 8(a)(i) hereof, provided that:
(A) The aggregate maximum number of shares of Common
Stock, as the case may be, issuable or that may become issuable under such
options, rights or warrants (assuming exercise in full even if not then
currently exercisable or currently exercisable in full) shall be deemed to be
issued and outstanding at the time such options, rights or warrants were issued,
for a consideration equal to the minimum purchase price per share provided for
in such options, rights or warrants at the time of issuance, plus the
consideration, if any, received by the Company for such options, rights or
warrants; provided, however, that upon the expiration or other termination of
such options, rights or warrants, if any thereof shall not have been exercised,
the number of shares of Common Stock deemed to be issued and outstanding
pursuant to this subsection (A) (and for the purposes of subsection (E) of
Section 8(a)(i) hereof) shall be
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<PAGE>
reduced by the number of shares as to which options, warrants and/or rights
shall have expired, and such number of shares shall no longer be deemed to be
issued and outstanding, and the Purchase Price then in effect shall forthwith be
readjusted and thereafter be the price that it would have been had adjustment
been made on the basis of the issuance only of the shares actually issued plus
the shares remaining issuable upon the exercise of those options, rights or
warrants as to which the exercise rights shall not have expired or terminated
unexercised.
(B) The aggregate maximum number of shares of Common
Stock issuable or that may become issuable upon conversion or exchange of any
convertible or exchangeable securities (assuming conversion or exchange in full
even if not then currently convertible or exchangeable in full) shall be deemed
to be issued and outstanding at the time of issuance of such securities, for a
consideration equal to the consideration received by the Company for such
securities, plus the minimum consideration, if any, receivable by the Company
upon the conversion or exchange thereof; provided, however, that upon the
termination of the right to convert or exchange such convertible or exchangeable
securities (whether by reason of redemption or otherwise), the number of shares
of Common Stock deemed to be issued and outstanding pursuant to this subsection
(B) (and for the purposes of subsection (E) of Section 8(a)(i) hereof) shall be
reduced by the number of shares as to which the conversion or exchange rights
shall have expired or terminated unexercised, and such number of shares shall no
longer be deemed to be issued and outstanding, and the Purchase Price then in
effect shall forthwith be readjusted and thereafter be the price that it would
have been had adjustment been made on the basis of the issuance only of the
shares actually issued plus the shares remaining issuable upon conversion or
exchange of those convertible or exchangeable
17
<PAGE>
securities as to which the conversion or exchange rights shall not have expired
or terminated unexercised.
(C) If any change shall occur in the price per share
provided for in any of the options, rights or warrants referred to in subsection
(A) of this Section 8(b), or in the price per share or ratio at which the
securities referred to in subsection (B) of this Section 8(b) are convertible or
exchangeable, such options, rights or warrants or conversion or exchange rights,
as the case may be, to the extent not theretofore exercised, shall be deemed to
have expired or terminated on the date when such price change became effective
in respect of shares not theretofore issued pursuant to the exercise or
conversion or exchange thereof, and the Company shall be deemed to have issued
upon such date new options, rights or warrants or convertible or exchangeable
securities.
(c) In case of any reclassification or change of outstanding
shares of Common Stock issuable upon exercise of the Warrants (other than a
change in par value, or from par value to no par value, or from no par value to
par value or as a result of a subdivision or combination), or in case of any
consolidation or merger of the Company with or into another corporation (other
than a merger with a Subsidiary in which merger the Company is the continuing
corporation and which does not result in any reclassification or change of the
then outstanding shares of Common Stock or other capital stock issuable upon
exercise of the Warrants), or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as an
entirety, then, as a condition of such reclassification, change, consolidation,
merger, sale or conveyance, the Company, or such successor or purchasing
corporation, as the case may be, shall make lawful and adequate provision
whereby the Registered Holder of each Warrant then outstanding shall have the
right
18
<PAGE>
thereafter to receive on exercise of such Warrant the kind and amount of
securities and property receivable upon such reclassification, change,
consolidation, merger, sale or conveyance by a holder of the number of
securities issuable upon exercise of such Warrant immediately prior to such
reclassification, change, consolidation, merger, sale or conveyance and shall
forthwith file at the Corporate Office of the Warrant Agent a statement signed
by its Chairman of the Board, President or a Vice President and by its Treasurer
or an Assistant Treasurer or its Secretary or an Assistant Secretary evidencing
such provision. Such provisions shall include provision for adjustments which
shall be as nearly equivalent as may be practicable to the adjustments provided
for in Sections 8(a) and 8(b) hereof. The above provisions of this Section 8(c)
shall similarly apply to successive reclassifications and changes of shares of
Common Stock and to successive consolidations, mergers, sales or conveyances.
(d) Irrespective of any adjustments or changes in the Purchase
Price or the number of shares of Common Stock purchasable upon exercise of the
Warrants, the Warrant Certificates theretofore and thereafter issued shall,
unless the Company shall exercise its option to issue new Warrant Certificates
pursuant to Section 2(e) hereof, continue to express the Purchase Price per
share and the number of shares purchasable thereunder as the Purchase Price per
share and the number of shares purchasable thereunder were expressed in the
Warrant Certificates when the same were originally issued.
(e) After each adjustment of the Purchase Price pursuant to
this Section 8, the Company will promptly prepare a certificate signed by the
Chairman of the Board, President, or a Vice President and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary of the Company
setting forth: (i) the Purchase Price as so adjusted, (ii) the number of shares
of Common Stock purchasable upon exercise of each Warrant, after such
19
<PAGE>
adjustment, and (iii) a brief statement of the facts accounting for such
adjustment. The Company will promptly file such certificate with the Warrant
Agent and cause a brief summary thereof to be sent by ordinary first class mail
to each Registered Holder at his last address as it shall appear on the registry
books of the Warrant Agent. No failure to mail such notice nor any defect
therein or in the mailing thereof shall affect the validity thereof except as to
the holder to whom the Company failed to mail such notice, or except as to the
holder whose notice was defective. The affidavit of an officer of the Warrant
Agent or the Secretary or an Assistant Secretary of the Company that such notice
has been mailed shall, in the absence of fraud, be prima facie evidence of the
facts stated therein.
(f) No adjustment of the Purchase Price shall be made as a
result of or in connection with (A) the issuance or sale of shares of Common
Stock pursuant to options, warrants, stock purchase agreements and convertible
or exchangeable securities outstanding or in effect on the date hereof, (B) the
issuance or sale of shares of Common Stock upon the exercise of any "incentive
stock options" (as such term is defined in the Internal Revenue Code of 1986, as
amended), whether or not such options were outstanding on the date hereof, or
(C) the issuance or sale of shares of Common Stock if the amount of said
adjustment shall be less than ten cents ($.10); provided, however, that in such
case, any adjustment that would otherwise be required then to be made shall be
carried forward and shall be made at the time of and together with the next
subsequent adjustment that shall amount, together with any adjustment so carried
forward, to at least ten cents ($.10). In addition, Registered Holders shall not
be entitled to cash dividends paid by the Company prior to the exercise of any
Warrant or Warrants held by them.
20
<PAGE>
SECTION 9. Redemption.
(a) Commencing on the Initial Warrant Redemption Date, the
Company may (but only with the prior written consent of the Underwriter), on
thirty (30) days' prior written notice, redeem all of the Warrants at a
redemption price of ten cents ($.10) per Warrant; provided, however, that before
any such call for redemption of Warrants can take place, the (i) closing bid
price for the Common Stock, as reported by the National Association of
Securities Dealers Automated Quotation System, or (ii) if not so quoted, as
reported by any other recognized quotation system on which the Common Stock is
quoted, shall have for any twenty (20) trading days within a period of thirty
(30) consecutive trading days ending on the fifth (5th) trading day prior to the
date on which the notice contemplated by Sections 9(b) and 9(c) hereof is
given, equalled or exceeded eight dollars ($8.00) per share of Common Stock
(subject to adjustment in the event of any stock splits or other similar events
as provided in Section 8 hereof).
(b) In case the Company shall exercise its right to redeem all
of the Warrants, it shall give or cause to be given notice to the Registered
Holders of the Warrants, by mailing to such Registered Holders a notice of
redemption, first class, postage prepaid, at their last address as shall appear
on the records of the Warrant Agent. Any notice mailed in the manner provided
herein shall be conclusively presumed to have been duly given whether or not the
Registered Holder receives such notice. Not less than five (5) business days
prior to the mailing to the Registered Holders of the Warrants of the notice of
redemption, the Company shall deliver or cause to be delivered to the
Underwriter or its successors or assigns a similar notice telephonically and
confirmed in writing, together with a list of the Registered Holders
21
<PAGE>
(including their respective addresses and number of Warrants beneficially owned
by them) to whom such notice of redemption has been or will be given.
(c) The notice of redemption shall specify (i) the redemption
price, (ii) the date fixed for redemption, which shall in no event be less than
thirty (30) days after the date of mailing of such notice, (iii) the place where
the Warrant Certificates shall be delivered and the redemption price shall be
paid, (iv) that the Underwriter or its successors or assigns is the Company's
exclusive warrant solicitation agent and shall receive the commission
contemplated by Section 4(b) hereof, and (v) that the right to exercise the
Warrant shall terminate at 5:00 p.m. (New York time) on the business day
immediately preceding the date fixed for redemption. The date fixed for the
redemption of the Warrants shall be the "Redemption Date" for purposes of this
Agreement. No failure to mail such notice nor any defect therein or in the
mailing thereof shall affect the validity of the proceedings for such redemption
except as to a holder (A) to whom notice was not mailed or (B) whose notice was
defective. An affidavit of the Warrant Agent or the Secretary or Assistant
Secretary of the Company that notice of redemption has been mailed shall, in the
absence of fraud, be prima facie evidence of the facts stated therein.
(d) Any right to exercise a Warrant shall terminate at 5:00
p.m. (New York time) on the business day immediately preceding the Redemption
Date. The redemption price payable to the Registered Holders shall be mailed to
such persons at their addresses of record.
(e) The Company shall indemnify the Underwriter and each
person, if any, who controls the Underwriter within the meaning of Section 15 of
the Act or Section 20(a) of the Exchange Act against all loss, claim, damage,
expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which any
of them may become subject under the Act, the Exchange Act or otherwise arising
22
<PAGE>
out of the registration statement or prospectus referred to in Section 5(b)
hereof to the same extent and with the same effect (including the provisions
regarding contribution) as the provisions pursuant to which the Company has
agreed to indemnify the Underwriter contained in Section 7 of the Underwriting
Agreement.
(f) Five (5) business days prior to the Redemption Date, the
Company shall furnish to the Underwriter (i) an opinion of counsel to the
Company, dated such date and addressed to the Underwriter, and (ii) a "cold
comfort" letter dated such date addressed to the Underwriter, signed by the
independent public accountants who have issued a report on the Company's
financial statements included in the registration statement referred to in
Section 5(b) hereof, in each case covering substantially the same matters with
respect to such registration statement (and the prospectus included therein)
and, in the case of such accountants' letter, with respect to events subsequent
to the date of such financial statements, as are customarily covered in opinions
of issuer's counsel and in accountants' letters delivered to underwriters in
underwritten public offerings of securities, including, without limitation,
those matters covered in Sections 6(d) and (i) of the Underwriting Agreement.
(g) The Company shall as soon as practicable after the
Redemption Date, and in any event within fifteen (15) months thereafter, make
"generally available to its security holders" (within the meaning of Rule 158
under the Act) an earnings statement (which need not be audited) complying with
Section 11(a) of the Act and covering a period of at least twelve (12)
consecutive months beginning after the Redemption Date.
(h) The Company shall deliver within five (5) business days
prior to the Redemption Date copies of all correspondence between the Commission
and the Company, its counsel or auditors and all memoranda relating to
discussions with the Commission or its staff
23
<PAGE>
with respect to the registration statement referred to in Section 5(b) hereof
and permit the Underwriter to do such investigation, upon reasonable advance
notice, with respect to information contained in or omitted from the
registration statement as it deems reasonably necessary to comply with
applicable securities laws or the rules of the NASD. Such investigation shall
include access to books, records and properties and opportunities to discuss the
business of the Company with its officers and independent auditors, all to such
reasonable extent and at such reasonable times and as often as the Underwriter
shall reasonably request.
SECTION 10. Concerning the Warrant Agent.
(a) The Warrant Agent acts hereunder as agent and in a
ministerial capacity for the Company and the Underwriter, and its duties shall
be determined solely by the provisions hereof. The Warrant Agent shall not, by
issuing and delivering Warrant Certificates or by any other act hereunder, be
deemed to make any representations as to the validity or value or authorization
of the Warrant Certificates or the Warrants represented thereby or of any
securities or other property delivered upon exercise of any Warrant or whether
any stock issued upon exercise of any Warrant is fully paid and non-assessable.
(b) The Warrant Agent shall not at any time be under any duty
or responsibility to any holder of Warrant Certificates to make or cause to be
made any adjustment of the Purchase Price provided in this Agreement, or to
determine whether any fact exists which may require any such adjustment, or with
respect to the nature or extent of any such adjustment, when made, or with
respect to the method employed in making the same. It shall not (i) be liable
for any recital or statement of fact contained herein or for any action taken,
suffered or omitted by it in reliance on any Warrant Certificate or other
document or instrument believed by it in good faith to be genuine and to have
been signed or presented by the proper party or
24
<PAGE>
parties, (ii) be responsible for any failure on the part of the Company to
comply with any of its covenants and obligations contained in this Agreement or
in any Warrant Certificate, or (iii) be liable for any act or omission in
connection with this Agreement except for its own gross negligence or willful
misconduct.
(c) The Warrant Agent may at any time consult with counsel
satisfactory to it (who may be counsel for the Company or the Underwriter) and
shall incur no liability or responsibility for any action taken, suffered or
omitted by it in good faith in accordance with the opinion or advice of such
counsel.
(d) Any notice, statement, instruction, request, direction,
order or demand of the Company shall be sufficiently evidenced by an instrument
signed by the Chairman of the Board of Directors, President or any Vice
President (unless other evidence in respect thereof is herein specifically
prescribed). The Warrant Agent shall not be liable for any action taken,
suffered or omitted by it in accordance with such notice, statement,
instruction, request, direction, order or demand.
(e) The Company agrees to pay the Warrant Agent reasonable
compensation for its services hereunder and to reimburse it for its reasonable
expenses hereunder; the Company further agrees to indemnify the Warrant Agent
and hold it harmless against any and all losses, expenses and liabilities,
including judgments, costs and counsel fees, for anything done or omitted by the
Warrant Agent in the execution of its duties and powers hereunder except losses,
expenses and liabilities arising as a result of the Warrant Agent's gross
negligence or willful misconduct.
(f) The Warrant Agent may resign its duties and be discharged
from all further duties and liabilities hereunder (except liabilities arising as
a result of the Warrant
25
<PAGE>
Agent's own gross negligence or willful misconduct), after giving thirty (30)
days' prior written notice to the Company. At least fifteen (15) days prior to
the date such resignation is to become effective, the Warrant Agent shall cause
a copy of such notice of resignation to be mailed to the Registered Holder of
each Warrant Certificate at the Company's expense. Upon such resignation the
Company shall appoint in writing a new warrant agent. If the Company shall fail
to make such appointment within a period of thirty (30) days after it has been
notified in writing of such resignation by the resigning Warrant Agent, then the
Registered Holder of any Warrant Certificate may apply to any court of competent
jurisdiction for the appointment of a new warrant agent. Any new warrant agent,
whether appointed by the Company or by such a court, shall be a bank or trust
company having a capital and surplus, as shown by its last published report to
its stockholders, of not less than ten million dollars ($10,000,000) or a stock
transfer company doing business in New York, New York. After acceptance in
writing of such appointment by the new warrant agent is received by the Company,
such new warrant agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named herein as the warrant agent,
without any further assurance, conveyance, act or deed; but if for any reason it
shall be necessary or expedient to execute and deliver any further assurance,
conveyance, act or deed, the same shall be done at the expense of the Company
and shall be legally and validly executed and delivered by the resigning Warrant
Agent. Not later than the effective date of any such appointment, the Company
shall file notice thereof with the resigning Warrant Agent and shall forthwith
cause a copy of such notice to be mailed to the Registered Holder of each
Warrant Certificate.
(g) Any corporation into which the Warrant Agent or any new
warrant agent may be converted or merged, any corporation resulting from any
consolidation to which the
26
<PAGE>
Warrant Agent or any new warrant agent shall be a party, or any corporation
succeeding to the corporate trust business of the Warrant Agent or any new
warrant agent shall be a successor warrant agent under this Agreement without
any further act, provided that such corporation is eligible for appointment as
successor to the Warrant Agent under the provisions of the preceding paragraph.
Any such successor warrant agent shall promptly cause notice of its succession
as warrant agent to be mailed to the Company and to the Registered Holders of
each Warrant Certificate.
(h) The Warrant Agent, its subsidiaries and affiliates, and
any of its or their officers or directors, may buy and hold or sell Warrants or
other securities of the Company and otherwise deal with the Company in the same
manner and to the same extent and with like effect as though it were not Warrant
Agent. Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company or for any other legal entity.
(i) The Warrant Agent shall retain for a period of two (2)
years from the date of exercise any Warrant Certificate received by it upon such
exercise.
SECTION 11. Modification of Agreement. The Warrant Agent and the
Company may by supplemental agreement make any changes or corrections in this
Agreement (a) that they shall deem appropriate to cure any ambiguity or to
correct any defective or inconsistent provision or manifest mistake or error
herein contained, or (b) that they may deem necessary or desirable and which
shall not adversely affect the interests of the holders of Warrant Certificates;
provided, however, that this Agreement shall not otherwise be modified,
supplemented or altered in any respect except with the consent in writing of the
Registered Holders holding not less than sixty-six and two-thirds percent
(66-2/3%) of the Warrants then outstanding; provided, further, that no change in
the number or nature of the securities purchasable upon the exercise of any
27
<PAGE>
Warrant, and no change that increases the Purchase Price of any Warrant, other
than such changes as are specifically set forth in this Agreement as originally
executed, shall be made without the consent in writing of each Registered
Holders affected by such change. In addition, this Agreement may not be
modified, amended or supplemented without the prior written consent of the
Underwriter or its successors or assigns, other than to cure any ambiguity or to
correct any defective or inconsistent provision or manifest mistake or error
herein contained or to make any such change that the Warrant Agent and the
Company deem necessary or desirable and which shall not adversely affect the
interests of the Underwriter or its successors or assigns.
SECTION 12. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
made when delivered or mailed first-class postage prepaid or delivered to a
telegraph office for transmission, if to the Registered Holder of a Warrant
Certificate, at the address of such holder as shown on the registry books
maintained by the Warrant Agent; if to the Company at Independence Brewing
Company, 1000 East Comly Street, Philadelphia, Pennsylvania 19149, Attention:
Robert W. Connor, Jr., President, or at such other address as may have been
furnished to the Warrant Agent in writing by the Company; and if to the Warrant
Agent, at its Corporate Office. Copies of any notice delivered pursuant to this
Agreement shall be delivered to A.S. Goldmen & Co., Inc., 99 Wood Avenue South,
Iselin, New Jersey 08830, Attention: Stuart Winkler, Vice President, or at such
other address as may have been furnished to the Company and the Warrant Agent in
writing.
SECTION 13. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without giving
effect to conflicts of laws rules or principals.
28
<PAGE>
SECTION 14. Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the Company, the Warrant Agent and their respective
successors and assigns and the holders from time to time of Warrant Certificates
or any of them. Except as hereinafter stated, nothing in this Agreement is
intended or shall be construed to confer upon any other person any right, remedy
or claim or to impose upon any other person any duty, liability or obligation.
The Underwriter is, and shall at all times irrevocably be deemed to be, a
third-party beneficiary of this Agreement, with full power, authority and
standing to enforce the rights granted to it hereunder.
SECTION 15. Counterparts. This Agreement may be executed in several
counterparts, which taken together shall constitute a single document.
29
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
INDEPENDENCE BREWING COMPANY CONTINENTAL STOCK TRANSFER &
TRUST COMPANY,
As Warrant Agent
By:_____________________________ By:___________________________
Name: Robert W. Connor, Jr. Title:
Title: President
<PAGE>
EXHIBIT A
No. W ___________ VOID AFTER ____________________, 2001
_________ WARRANTS
REDEEMABLE WARRANT CERTIFICATE TO
PURCHASE SHARES OF COMMON STOCK
INDEPENDENCE BREWING COMPANY
CUSIP __________
THIS CERTIFIES THAT, FOR VALUE RECEIVED
or registered assigns (the "Registered Holder") is the owner of the number of
Redeemable Warrants (the "Warrants") specified above. Each Warrant initially
entitles the Registered Holder to purchase, subject to the terms and conditions
set forth in this Certificate and the Warrant Agreement (as hereinafter
defined), one fully paid and non-assessable share of Common Stock, no par value,
of Independence Brewing Company, a Pennsylvania corporation (the "Company"), at
any time from _____________, 1996 [the effective date of the Registration
Statement] and prior to the Expiration Date (as hereinafter defined) upon the
presentation and surrender of this Warrant Certificate with the Subscription
Form on the reverse hereof duly executed, at the corporate office of Continental
Stock Transfer & Trust Company, 2 Broadway, New York, New York 10004, as Warrant
Agent, or its successor (the "Warrant Agent"), accompanied by payment of $6.00,
subject to adjustment (the "Purchase Price"), in lawful money of the United
States of America in cash or by check made payable to the Warrant Agent for the
account of the Company.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement (the "Warrant Agreement"), dated __________, 1996
[the effective date of the Registration Statement], by and between the Company
and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price and the number of shares of Common Stock subject
to purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional interests will be issued. In the case of
the exercise of less than all the Warrants represented hereby, the Company shall
cancel this Warrant Certificate upon the surrender hereof and shall execute and
deliver a new Warrant Certificate or Warrant Certificates of like tenor, which
the Warrant Agent shall countersign, for the balance of such Warrants.
<PAGE>
The term "Expiration Date" shall mean 5:00 p.m. (New York time) on
__________, 2001 [the day before the 5th anniversary of the effective date of
the Registration Statement]. If such date shall in the State of New York be a
holiday or a day on which banks are authorized to close, then the Expiration
Date shall mean 5:00 p.m. (New York time) the next following day which in the
State of New York is not a holiday or a day on which banks are authorized to
close.
The Company shall not be obligated to deliver any securities pursuant to
the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended (the "Act"), with respect to such securities
is effective or an exemption thereunder is available. The Company has covenanted
and agreed that it will file a registration statement under the Federal
securities laws, use its best efforts to cause the same to become effective, to
keep such registration statement current, if required under the Act, while any
of the Warrants are outstanding, and deliver a prospectus which complies with
Section 10(a)(3) of the Act to the Registered Holder exercising this Warrant.
This Warrant shall not be exercisable by a Registered Holder in any state where
such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by the
Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment and payment of any tax or other
charge imposed in connection therewith or incident thereto, for registration of
transfer of this Warrant Certificate at such office, a new Warrant Certificate
or Warrant Certificates representing an equal aggregate number of Warrants will
be issued to the transferee in exchange therefor, subject to the limitations
provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided in the Warrant Agreement.
Subject to the provisions of the Warrant Agreement, this Warrant may be
redeemed at the option of the Company, at a redemption price of $.10 per
Warrant, at any time commencing __________, 1997 [twelve months from the
effective date of the Registration Statement], provided that the closing bid
price for the Company's Common Stock, as reported by the National Association of
Securities Dealers Automated Quotation System (or, if not so quoted, as reported
by any other recognized quotation system on which the price of the Common Stock
is quoted), shall have, for any twenty (20) trading days within a period of
thirty (30) consecutive trading days ending on the fifth (5th) trading day prior
to the date on which the Notice of Redemption (as defined below) is given,
equalled or exceeded $8.00 per share (subject to adjustment in the event of any
stock splits or other similar events). Notice of redemption (the "Notice of
Redemption") shall be given not later than the thirtieth (30th) day before the
date fixed for redemption, all as provided in the Warrant Agreement. On and
A-2
<PAGE>
after the date fixed for redemption, the Registered Holder shall have no rights
with respect to this Warrant except to receive the $.10 per Warrant upon
surrender of this Certificate.
Under certain circumstances, A.S. Goldmen & Co., Inc. shall be entitled to
receive an aggregate of four percent of the Purchase Price of the Warrants
represented hereby.
Prior to due presentment for registration of transfer hereof, the Company
and the Warrant Agent may deem and treat the Registered Holder as the absolute
owner hereof and of each Warrant represented hereby (notwithstanding any
notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary, except as provided in the
Warrant Agreement.
This Warrant Certificate shall be governed by and construed in accordance
with the laws of the State of New York without giving effect to conflicts of
laws.
This Warrant Certificate is not valid unless countersigned by the Warrant
Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
Dated: ___________, 1996
INDEPENDENCE BREWING COMPANY
[SEAL]
By:________________________________
Name: Robert W. Connor, Jr.
Title: President
By:________________________________
Name: William Moore
Title: Secretary
COUNTERSIGNED:
CONTINENTAL STOCK TRANSFER &
TRUST COMPANY, as Warrant Agent
By:______________________________
Authorized Officer
A-3
<PAGE>
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrant
The undersigned Registered Holder hereby irrevocably elects to exercise
_____ Warrants represented by this Warrant Certificate, and to purchase the
securities issuable upon the exercise of such Warrants, and requests that
certificates for such securities shall be issued in name of
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
---------------------------------------
---------------------------------------
---------------------------------------
---------------------------------------
(please print or type name and address)
and be delivered to
---------------------------------------
---------------------------------------
---------------------------------------
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
IMPORTANT: PLEASE COMPLETE THE FOLLOWING:
1. The exercise of this Warrant was
solicited by A.S. Goldmen & Co., Inc.
unless the following box is
checked |_|
2. The exercise of this Warrant was
solicited by
--------------------------- |-|
3. If the exercise of this Warrant was
not solicited, please check the
A-4
<PAGE>
following box |_|
Dated: ______________________ X_________________________________
_________________________________
_________________________________
Address
_________________________________
Social Security or Taxpayer
Identification Number
_________________________________
Signature Guaranteed
ASSIGNMENT____________________________
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, __________________________, hereby sells, assigns and
transfers unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER
_______________________________________
_______________________________________
_______________________________________
(please print or type name and address)
_______________________________ of the Warrants represented by this Warrant
Certificate, and hereby irrevocably constitutes and appoints
____________________ Attorney to transfer this Warrant Certificate on the books
of the Company, with full power of substitution in the premises.
Dated: _______________________ X_________________________________
_________________________________
Signature Guaranteed
A-5
<PAGE>
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER AND MUST BE
GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE
AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE,
MIDWEST STOCK EXCHANGE OR BOSTON STOCK EXCHANGE.
A-6
EXHIBIT 4.4
- -------------------------------------------------------------------------------
INDEPENDENCE BREWING COMPANY
AND
A.S. GOLDMEN & CO., INC.
-----------------
UNDERWRITER'S
WARRANT AGREEMENT
Dated as of ____________, 1996
- -------------------------------------------------------------------------------
<PAGE>
UNDERWRITER'S WARRANT AGREEMENT, dated as of ___________, 1996
[the effective date of the Registration Statement], by and between INDEPENDENCE
BREWING COMPANY, a Pennsylvania corporation (the "Company"), and A.S. GOLDMEN &
CO., INC. (the "Underwriter").
W I T N E S S T H:
WHEREAS, the Company proposes to issue to the Underwriter
and/or its designees (the "Holder(s)") warrants (the "Warrants") to purchase up
to an aggregate 90,000 shares of common stock, no par value, of the Company (the
"Common Stock") and/or up to an aggregate 400,000 redeemable warrants, each
entitling the holder thereof to purchase one share of Common Stock (the
"Redeemable Warrants;" the shares of Common Stock and the Redeemable Warrants
purchasable pursuant to this Agreement are hereinafter collectively referred to
as the "Securities");
WHEREAS, the Underwriter has agreed pursuant to the
underwriting agreement (the "Underwriting Agreement"), of even date herewith,
between the Underwriter and the Company, to act as the underwriter in connection
with the Company's proposed initial public offering of up to 900,000 shares of
Common Stock and up to 4,000,000 Redeemable Warrants at an initial public
offering price of $5.00 per share of Common Stock and $.50 per Redeemable
Warrant (the "Initial Public Offering"); and
WHEREAS, the Warrants to be issued pursuant to this Agreement
will be issued on the Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to the Underwriter and/or its designees in
consideration for, and as part of the Underwriter's compensation in connection
with, the Underwriter acting as the underwriter pursuant to the Underwriting
Agreement;
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NOW, THEREFORE, in consideration of the premises, the payment
by the Underwriter to the Company of twenty dollars ($20.00), the agreements
herein set forth and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Grant. The Holder(s) is hereby granted the right to
purchase, at any time from ______________, 1997 [the 1st anniversary of the
effective date of the Registration Statement] until 5:30 p.m., New York time, on
______________, 2001 [the day before the 5th anniversary of the effective date
of the Registration Statement], up to an aggregate 90,000 shares of Common Stock
and/or up to an aggregate 400,000 Redeemable Warrants at an initial exercise
price (subject to adjustment as provided in Section 8 hereof) of $____ per share
of Common Stock [120% of the initial public offering price per share of Common
Stock] and $____ per Redeemable Warrant [120% of the initial public offering
price per Redeemable Warrant], subject to the terms and conditions of this
Agreement. Each Redeemable Warrant is initially exercisable to purchase one
additional share of Common Stock at an initial exercise price of $6.00 per share
from the date hereof until 5:30 p.m., New York time, on ___________, 2001 [the
day before the 5th anniversary of the effective date of the Registration
Statement], at which time the Redeemable Warrants, unless the exercise period
of the then outstanding Redeemable Warrants has been extended, shall expire.
Except as set forth in Section 1 and Section 6.1 hereof, the Redeemable Warrants
issuable upon exercise of the Warrants are in all respects identical to the
Redeemable Warrants being purchased by the Underwriter for resale to the public
pursuant to the terms and provisions of the Underwriting Agreement.
2. Warrant Certificates. The warrant certificates (the
"Warrant Certificates") representing the right to purchase Warrants delivered
and to be delivered pursuant to this
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Agreement shall be in the form set forth in Exhibit A attached hereto and made a
part hereof, with such appropriate insertions, omissions, substitutions and
other variations as required or permitted by this Agreement.
3. Exercise of Warrant.
SECTION 3.1 Method of Exercise. The Warrants initially are
exercisable at an initial exercise price per share of Common Stock and per
Redeemable Warrant set forth in Section 6 hereof, payable by certified or
official bank check in New York Clearing House funds, subject to adjustment as
provided in Section 8 hereof. Upon surrender of a Warrant Certificate with the
annexed Form of Election to Purchase duly executed, together with payment of the
Exercise Price (as defined in Section 6.2 hereof) for the shares of Common Stock
and/or Redeemable Warrants purchased at the Company's principal offices
(presently located at 1000 East Comly Street, Philadelphia, Pennsylvania 19149)
the registered Holder of a Warrant Certificate shall be entitled to receive a
certificate or certificates for the shares of Common Stock so purchased and/or a
certificate or certificates for the Redeemable Warrants so purchased. The
purchase rights represented by each Warrant Certificate are exercisable at the
option of the Holder(s) thereof, in whole or in part (but not as to fractional
shares of the Common Stock and the Redeemable Warrants underlying the warrants).
Warrants may be exercised to purchase all or a part of the shares of Common
Stock represented by a Warrant Certificate, all or a part of the Redeemable
Warrants represented by a Warrant Certificate, or all or a part of the shares of
Common Stock, together with an equal or unequal number of the Redeemable
Warrants, represented by a Warrant Certificate. In the case of the purchase of
less than all the Securities purchasable under any Warrant Certificate, the
Company shall cancel said Warrant Certificate
4
<PAGE>
upon the surrender thereof and shall execute and deliver a new Warrant
Certificate of like tenor for the balance of the Securities purchasable
thereunder.
SECTION 3.2 Exercise by Surrender of Warrant. In addition to
the method of payment set forth in Section 3.1 and in lieu of any cash payment
required thereunder, the Holder(s) of the Warrants shall have the right at any
time and from time to time to exercise the Warrants in full or in part by
surrendering the Warrant Certificate in the manner specified in Section 3.1
hereof. The number of shares of Common Stock to be issued pursuant to this
Section 3.2 shall be equal to the difference between (a) the number of shares of
Common Stock in respect of which the Warrants are exercised and (b) a fraction,
the numerator of which shall be the number of shares of Common Stock in respect
of which the Warrants are exercised multiplied by the Exercise Price and the
denominator of which shall be the Market Price (as defined in Section 3.3
hereof) of the Common Stock. The number of Redeemable Warrants to be issued
pursuant to this Section 3.2 shall be equal to the difference between (a) the
number of Redeemable Warrants in respect of which the Warrants are exercised and
(b) a fraction, the numerator of which shall be the number of Redeemable
Warrants in respect of which the Warrants are exercised multiplied by the
Exercise Price and the denominator of which shall be the Market Price (as
defined in Section 3.3 hereof) of the Redeemable Warrants. Solely for the
purposes of this paragraph, Market Price shall be calculated either (i) on the
date which the form of election attached hereto is deemed to have been sent to
the Company pursuant to Section 14 hereof ("Notice Date") or (ii) as the average
of the Market Prices for each of the five trading days preceding the Notice
Date, whichever of (i) or (ii) is greater.
SECTION 3.3 Definition of Market Price. As used herein, the
phrase "Market Price" at any date shall be deemed to be (i) when referring to
the Common Stock, the last reported sale
5
<PAGE>
price, or, in case no such reported sale takes place on such day, the average of
the last reported sale prices for the last three (3) trading days, in either
case as officially reported by the principal securities exchange on which the
Common Stock is listed or admitted to trading or by the Nasdaq Small Cap Market
("Nasdaq Small Cap"), or, if the Common Stock is not listed or admitted to
trading on any securities exchange or quoted by Nasdaq Small Cap, the closing
bid price as furnished by the National Association of Securities Dealers, Inc.
(the "NASD") through Nasdaq or a similar organization if Nasdaq is no longer
reporting such information, or if the Common Stock is not quoted on Nasdaq or a
similar organization, as determined in good faith by a resolution of the Board
of Directors of the Company, based on the best information available to it, or
(ii) when referring to a Redeemable Warrant, the last reported sale price, or,
in case no such reported sale takes place on such day, the average of the last
reported sale prices for the last three (3) trading days, in either case as
officially reported by the principal securities exchange on which the Redeemable
Warrants are listed or admitted to trading or by Nasdaq Small Cap, or, if the
Redeemable Warrants are not listed or admitted to trading on any national
securities exchange or quoted by Nasdaq Small Cap, the closing bid price as
furnished by the NASD through Nasdaq or a similar organization if Nasdaq is no
longer reporting such information, or if the Redeemable Warrants are not quoted
on Nasdaq or a similar organization, or if the Redeemable Warrants held by the
public are no longer outstanding, the Market Price of a Redeemable Warrant shall
equal the difference between the Market Price of the Common Stock and the
Exercise Price of a Redeemable Warrant.
4. Issuance of Certificates. Upon the exercise of the Warrants
and payment of the Exercise Price therefor, the issuance of certificates for
shares of Common Stock and/or Redeemable Warrants or other securities underlying
such Warrants, and upon the exercise of the
6
<PAGE>
Redeemable Warrants, the issuance of certificates for shares of Common Stock or
other securities underlying such Redeemable Warrants shall be made forthwith
(and in any event such issuance shall be made within five (5) business days
thereafter), without any other charge to the Holder(s) thereof including,
without limitation, any tax which may be payable in respect of the issuance
thereof, and such certificates shall (subject to the provisions of Sections 5
and 7 hereof) be issued in the name of, or in such names as may be directed by,
the Holder(s) thereof; provided, however, that the Company shall not be required
to pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any such certificates in a name other than that of the
Holder requesting such a transfer and the Company shall not be required to issue
or deliver such certificates unless or until the person or persons requesting
such a transfer shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
The Warrant Certificates and the certificates representing the
shares of Common Stock, the Redeemable Warrants and the other securities for
which such Warrant Certificates are exercisable, and the shares of Common Stock
or other securities underlying the Redeemable Warrants, shall be executed on
behalf of the Company by the manual or facsimile signature of the then Chairman
or Vice Chairman of the Board of Directors or the Chief Executive Officer,
President or Vice President of the Company, under its corporate seal, and
attested to by the manual or facsimile signature of the then Secretary or
Assistant Secretary of the Company. Warrant Certificates shall be dated the date
of execution by the Company upon initial issuance, division, exchange,
substitution or transfer.
5. Restriction on Transfer of Warrants. Each Holder of a
Warrant Certificate, by his, her or its acceptance thereof, covenants and agrees
that the Warrants are being acquired
7
<PAGE>
as an investment and not with a view to the distribution thereof and that the
Warrants may not be sold, transferred, assigned, pledged or hypothecated for a
period of one (1) year from the date hereof, except to officers of the
Underwriter.
6. Exercise Price.
SECTION 6.1 Initial and Adjusted Exercise Price. Except as
otherwise provided in Section 8 hereof, the initial exercise price of each
Warrant shall be $__________ per share of Common Stock [120% of the initial
public offering price per share of Common Stock] and $ ____ per Redeemable
Warrant [120% of the initial public offering price per Redeemable Warrant]. The
adjusted exercise price shall be the price which shall result from time to time
from any and all adjustments of the initial exercise price in accordance with
the provisions of Section 8 hereof.
SECTION 6.2 Exercise Price. The term "Exercise Price" herein
shall mean the initial exercise price or the adjusted exercise price, depending
upon the context.
7. Registration Rights.
SECTION 7.1 Registration Under the Securities Act of 1933.
(a) The Warrants, the shares of Common Stock and Redeemable Warrants or other
securities issuable upon exercise of the Warrants and the shares of Common Stock
or other securities issuable upon exercise of the Redeemable Warrants have not
been registered under the Securities Act of 1933, as amended (the "Act"). The
Warrants, and, upon exercise in part or in whole of the Warrants, certificates
representing the shares of Common Stock and the Redeemable Warrants or other
securities underlying the Warrants, and, upon exercise in whole or in part of
the Redeemable Warrants, certificates representing the shares of Common Stock or
other securities underlying the
8
<PAGE>
Redeemable Warrants (all of the foregoing hereinafter collectively referred to
as the "Warrant Securities") shall bear a legend substantially similar to the
following:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Act"), and may not be offered or sold except pursuant to
(i) an effective registration statement under the Act, (ii) to
the extent applicable, Rule 144 under the Act (or any similar
rule under the Act relating to the disposition of securities),
or (iii) an opinion of counsel, if such opinion shall be
reasonably satisfactory to counsel to the issuer, that an
exemption from registration under the Act is available.
SECTION 7.2 Piggyback Registration. If, at any time commencing
after the date hereof and expiring on _____________, 2003 [the 7th anniversary
of the effective date of the Registration Statement], the Company proposes to
register any of its securities under the Act (other than in connection with a
merger or pursuant to Form S-8, S-4 or comparable registration statement) it
will give written notice by registered mail, at least thirty (30) business days
prior to the filing of each such registration statement, to the Underwriter and
to all Holder(s) of the Warrants and/or the Warrant Securities of its intention
to do so. If the Underwriter or other Holder(s) of the Warrants and/or the
Warrant Securities notify the Company within twenty (20) business days after
receipt of any such notice of its or their desire to include any of such
securities in such proposed registration statement, the Company shall afford the
Underwriter and such Holder(s) of the Warrants and/or Warrant Securities the
opportunity to have any such Warrants and/or Warrant Securities registered under
such registration statement (sometimes referred to herein as the "Piggyback
Registration").
Notwithstanding the provisions of this Section 7.2, the
Company shall have the right at any time after it shall have given written
notice pursuant to this Section 7.2 (irrespective of whether a written request
for inclusion of any securities shall have been made) to elect not
9
<PAGE>
to file any such proposed registration statement, or to withdraw the same after
the filing but prior to the effective date thereof.
If a Piggyback Registration is an underwritten primary
registration on behalf of the Company, and the managing underwriters advise the
Company in writing that in their reasonable opinion based upon market conditions
the number of securities requested to be included in such registration exceeds
the number which can be sold in such offering the Company will include in such
registration (i) first, the securities the Company proposes to sell,
(ii) second, the Warrant Securities, and (iii) third, other securities to be
included in such registration.
If a Piggyback Registration is an underwritten secondary
registration on behalf of holders of the Company's Common Stock, and the
managing underwriters advise the Company in writing that in their reasonable
opinion based upon market conditions the number of securities requested to be
included in such registration exceeds the number which can be sold in such
offering, the Company will include in such registration, (i) first, the
securities requested to be included therein by the holders requesting such
registration pursuant to a demand registration right, (ii) second, the Warrant
Securities requested to be included by Holders under Piggyback Registration
rights hereunder on a pro rata basis based upon the number of Warrant Securities
of such Holders requested to be included and (iii) third, other securities
requested to be included in such registration.
SECTION 7.3 Demand Registration.
(a) At any time commencing after the date hereof and expiring
__________, 2001 [the 5th anniversary of the effective date of the Registration
Statement], the Holder(s) of the Warrants and/or any Warrant Securities
representing a "Majority" (calculated in accordance with
10
<PAGE>
Section 7.4(m) hereof) of such securities shall have the right (which right is
in addition to the registration rights under Section 7.2 hereof), exercisable by
written notice to the Company, to have the Company prepare and file with the
Securities and Exchange Commission (the "Commission"), on one occasion, a
registration statement and such other documents, including a prospectus, as may
be necessary in the opinion of both counsel for the Company and counsel for the
Underwriter and Holder(s), in order to comply with the provisions of the Act, so
as to permit a public offering and sale of their respective Warrants and Warrant
Securities for nine (9) consecutive months by such Holder(s) and any other
Holder(s) of the Warrants and/or Warrant Securities who notify the Company
within ten (10) days after receiving notice from the Company of such request.
(b) The Company covenants and agrees to give written notice of
any registration request under this Section 7.3 (whether such request is made
pursuant to Section 7.3(a) or Section 7.3(c) hereof) by any Holder(s) to all
other registered Holder(s) of the Warrants and the Warrant Securities within ten
(10) days from the date of the receipt of any such registration request.
(c) In addition to the registration rights under Section 7.2
and Section 7.3(a), at any time commencing after the date hereof and expiring
____________, 2001 [the 5th anniversary of the effective date of the
Registration Statement], any Holder(s) of Warrants and/or Warrant Securities
shall have the right, exercisable by written request to the Company, to have the
Company prepare and file with the Commission, on one occasion, a registration
statement so as to permit a public offering and sale for nine (9) consecutive
months by any such Holder(s) of its or their Warrants and/or Warrant Securities;
provided, however, that the
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<PAGE>
provisions of Section 7.4(b) hereof shall not apply to any such registration
request and all costs incident thereto shall be at the expense of the Holder(s)
making such request.
(d) Notwithstanding anything to the contrary contained herein,
if the Company shall not have filed a registration statement for the Warrants
and the Warrant Securities within the time period specified in Section 7.4(a)
hereof pursuant to the written notice specified in Section 7.3(a) hereof of the
Holder(s) of a Majority of the Warrants and/or the Warrant Securities, the
Company, at its option (and with written notice of the election to such effect
of all Holder(s) of the Warrants and/or the Warrant Securities), may repurchase
(i) any and all Securities at the higher of the Market Price per share of Common
Stock and per Redeemable Warrant, determined as of (x) the date of the notice
sent pursuant to Section 7.3(a) hereof or (y) the expiration of the period
specified in Section 7.4(a) hereof and (ii) the other securities, if any,
issuable upon exercise of the Warrants and the Redeemable Warrants at a price
agreed upon by the Company and a Majority of the Holder(s) of the Warrants and
all such other securities. If the Company elects the repurchase option, the
repurchase shall be in immediately available funds and shall close within two
(2) days after the later of (i) the expiration of the period specified in
Section 7.4(a) hereof or (ii) the delivery of the written notice of election
specified in this Section 7.3(d).
SECTION 7.4 Covenants of the Company With Respect to
Registration. In connection with any registration under Section 7.2 or Section
7.3 hereof, the Company covenants and agrees as follows:
(a) The Company shall use its best efforts to file a
registration statement within thirty (30) days of receipt of any demand there
or, shall use its best efforts to have any registration statements declared
effective at the earliest possible time, and shall furnish each
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Holder(s) desiring to sell Warrants and/or Warrant Securities such number of
prospectuses as shall reasonably be requested.
(b) The Company shall pay all costs (excluding fees and
expenses of Holder(s)' counsel and any underwriting or selling commissions or
other charges of any broker-dealer acting on behalf of Holder(s)), fees and
expenses in connection with all registration statements filed pursuant to
Sections 7.2 and 7.3(a) hereof including, without limitation, the Company's
legal and accounting fees, printing expenses, blue sky fees and expenses. If the
Company shall fail to comply with the provisions of Section 7.4(a), the Company
shall, in addition to any other equitable or other relief available to the
Holder(s), be liable for any and all incidental or special damages sustained by
the Holder(s) requesting registration of its or their Warrants and/or Warrant
Securities.
(c) The Company will take all necessary action which may be
required in qualifying or registering the Warrants and the Warrant Securities
included in a registration statement for offering and sale under the securities
or blue sky laws of such states as reasonably are requested by the Holder(s),
provided that the Company shall not be obligated to qualify as a foreign
corporation to do business under the laws of any such jurisdiction.
(d) The Company shall indemnify the Holder(s) of the Warrants
and the Warrant Securities to be sold pursuant to any registration statement and
each person, if any, who controls such Holder(s) within the meaning of Section
15 of the Act or Section 20(a) of the Securities Exchange Act of 1934, as
amended ("Exchange Act"), against all loss, claim, damage, expense or liability
(including all expenses reasonably incurred in investigating, preparing or
defending against any claim whatsoever) to which any of them may become subject
under the Act, the Exchange Act or otherwise arising from such registration
statement but only to the same extent
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and with the same effect as the provisions contained in Section 7 of the
Underwriting Agreement pursuant to which the Company has agreed to indemnify the
Underwriter.
(e) The Holder(s) of the Warrants and Warrant Securities to be
sold pursuant to a registration statement, and their successors and assigns,
shall severally, and not jointly, indemnify the Company, its officers and
directors and each person, if any, who controls the Company within the meaning
of Section 15 of the Act or Section 20(a) of the Exchange Act against all loss,
claim, damage or expense or liability (including all expenses reasonably
incurred in investigating, preparing or defending against any claim whatsoever)
to which any of them may become subject under the Act, the Exchange Act or
otherwise arising from information furnished by or on behalf of such Holder(s),
or their successors or assigns, for specific inclusion in such registration
statement to the same extent and with the same effect as the provisions
contained in Section 7 of the Underwriting Agreement pursuant to which the
Underwriter has agreed to indemnify the Company.
(f) Nothing contained in this Agreement shall be construed as
requiring the Holder(s) to exercise its or their Warrants or Redeemable Warrants
prior to the initial filing of any registration statement or the effectiveness
thereof.
(g) The Company shall not permit the inclusion of any
securities other than the Warrants and the Warrant Securities to be included in
any registration statement filed pursuant to Section 7.3 hereof, or permit any
other registration statement to be or remain effective during the effectiveness
of a registration statement filed pursuant to Section 7.3 hereof, without the
prior written consent of the Holder(s) of the Warrants and the Warrant
Securities representing a Majority of such securities.
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(h) The Company shall furnish to each Holder participating in
the offering and to each underwriter, if any, a signed counterpart, addressed to
such Holder(s) and underwriter(s), of (i) an opinion of counsel to the Company,
dated the effective date of such registration statement (and, if such
registration includes an underwritten public offering, an opinion dated the date
of the closing under the underwriting agreement), and (ii) a "cold comfort"
letter dated the effective date of such registration statement (and, if such
registration includes an underwritten public offering, a letter dated the date
of the closing under the underwriting agreement) signed by the independent
public accountants who have issued a report on the Company's financial
statements included in such registration statement, in each case covering
substantially the same matters with respect to such registration statement (and
the prospectus included therein) and, in the case of such accountants' letter,
with respect to events subsequent to the date of such financial statements, as
are customarily covered in opinions of issuer's counsel and in accountants'
letters delivered to underwriters in underwritten public offerings of
securities.
(i) The Company shall as soon as practicable after the
effective date of the registration statement, and in any event within fifteen
(15) months thereafter, make "generally available to its security holders"
(within the meaning of Rule 158 under the Act) an earnings statement (which need
not be audited) complying with Section 11(a) of the Act and covering a period of
at least twelve (12) consecutive months beginning after the effective date of
the registration statement.
(j) The Company shall deliver promptly to each Holder
participating in the offering requesting the correspondence and memoranda
described below and the managing underwriters copies of all correspondence
between the Commission and the Company, its counsel
15
<PAGE>
or auditors and all memoranda relating to discussions with the Commission with
respect to the registration statement and permit each Holder and underwriter to
do such investigation, upon reasonable advance notice, with respect to
information contained in or omitted from the registration statement as it deems
reasonably necessary to comply with applicable securities laws or the rules of
the NASD. Such investigation shall include access to books, records and
properties and opportunities to discuss the business of the Company with its
officers and independent auditors, all to such reasonable extent and at such
reasonable times and as often as any such Holder(s) shall reasonably request.
(k) The Company shall enter into an underwriting agreement
with the managing underwriters selected for such underwriting by Holder(s) of a
Majority of the Warrants and the Warrant Securities requested to be included in
such underwriting. Such agreement shall be satisfactory in form and substance to
the Company, a Majority of such Holder(s) and such managing underwriters, and
shall contain such representations, warranties and covenants by the Company and
such other terms as are customarily contained in agreements of that type used by
the managing underwriters. The Holder(s) shall be parties to any underwriting
agreement relating to an underwritten sale of their Warrants and/or Warrant
Securities and may, at their option, require that any or all the
representations, warranties and covenants of the Company to or for the benefit
of such underwriters shall also be made to and for the benefit of such
Holder(s). Such Holder(s) shall not be required to make any representations or
warranties to or agreements with the Company or the underwriters except as they
may relate to such Holder(s) and their intended methods of distribution.
(l) In addition to the Warrants and the Warrant Securities,
upon the written request therefor by Holder(s) of the Warrants and the Warrant
Securities representing a Majority
16
<PAGE>
of such securities, the Company shall include in the registration statement any
other securities of the Company held by such Holder(s) as of the date of filing
of such registration statement, including, without limitation, restricted shares
of Common Stock, options, warrants or any other securities convertible into
shares of Common Stock.
(m) For purposes of this Agreement, the term "Majority" in
reference to the Holder(s) of Warrants or Warrant Securities shall mean in
excess of fifty percent (50%) of the then outstanding Warrants or Warrant
Securities (assuming the exercise of all the Warrants) that (i) are not held by
the Company, an affiliate, officer, creditor, employee or agent thereof or any
of their respective affiliates, members of their family or persons acting as
nominees or in conjunction therewith or (ii) have not been resold to the public
pursuant to a registration statement filed with the Commission under the Act.
8. Adjustments to Exercise Price and Number of Shares.
SECTION 8.1 Subdivision and Combination. In case the Company
shall at any time subdivide or combine the outstanding shares of Common Stock,
the Exercise Price for the Common Stock shall forthwith be proportionately
decreased in the case of subdivision or increased in the case of combination.
The provisions of this Section 8.1 shall be applicable to successive
subdivisions and combinations.
SECTION 8.2 Stock Dividends and Distributions. In case the
Company shall pay a dividend in, or make a contribution of, shares of Common
Stock or of any capital stock of the Company convertible into Common Stock, the
Exercise Price for the Common Stock shall forthwith be proportionately
decreased. An adjustment made pursuant to this Section 8.2 shall be made as of
the record date for the subject stock dividend or distribution.
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<PAGE>
SECTION 8.3 Adjustment in Number of Shares. Upon each
adjustment of the Exercise Price for the Common Stock pursuant to the provisions
of Section 8.1 or Section 8.2 hereof, the number of shares of Common Stock
issuable upon the exercise of the Warrants at the adjusted exercise price for
the Common Stock shall be adjusted to the nearest full amount by multiplying a
number equal to the Exercise Price in effect immediately prior to such
adjustment by the number of shares of Common Stock issuable upon exercise of the
Warrants immediately prior to such adjustment and dividing the product so
obtained by the adjusted Exercise Price.
SECTION 8.4 Definition of Common Stock. For the purpose of
this Agreement, the term "Common Stock" shall mean (a) the class of stock
designated as Common Stock in the charter of the Company, as in effect on the
date hereof, or (b) any other class of stock resulting from any change or
reclassification of such Common Stock consisting solely of a change or changes
in par value, or from par value to no par value, or from no par value to
par value.
SECTION 8.5 Merger or Consolidation. In case of any
consolidation of the Company with, or merger of the Company with, or merger of
the Company into, another corporation other than a consolidation or merger which
does not result in any reclassification or change of the outstanding shares of
Common Stock or other securities issuable upon exercise of the Warrants), or in
the case of any sale or conveyance to another person or entity of the property
of the Company as an entirety or substantially as an entirety, then, as a
condition of such consolidation, merger, sale or conveyance, the Company, or
such successor or purchasing entity, as the case may be, shall execute and
deliver to the Holder(s) a supplemental warrant agreement providing that the
Holder of each Warrant then outstanding or to be outstanding shall have the
right thereafter (until the expiration of such Warrant) to receive, upon
exercise of such Warrant, the kind and amount of shares of stock and other
securities and property receivable upon such
18
<PAGE>
consolidation or merger by a holder of the number of shares of Common Stock of
the Company for which such Warrant might have been exercised immediately prior
to such consolidation, merger, sale or conveyance. Such supplemental warrant
agreement shall provide for adjustments which shall be identical to the
adjustments provided in this Section 8. The above provision of this Section 8.5
shall similarly apply to successive consolidations, mergers, sales or
conveyances.
SECTION 8.6 No Adjustment of Exercise Price in Certain Cases.
No adjustment of the Exercise Price shall be made if the amount of said
adjustment shall be less than two cents ($.02) per share of Common Stock;
provided, however, that in such case any adjustment that would otherwise be
required then to be made shall be carried forward and shall be made at the time
of and together with the next subsequent adjustment which, together with any
adjustment so carried forward, shall amount to at least two cents ($.02) per
share of Common Stock.
9. Exchange and Replacement of Warrant Certificates. Each
Warrant Certificate is exchangeable without expense, upon the surrender thereof
by the registered Holder(s) at the principal executive office of the Company,
for a new Warrant Certificate of like tenor and date representing in the
aggregate the right to purchase the same number of Securities in such
denominations as shall be designated by the Holder(s) thereof at the time of
such surrender.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any Warrant
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it, and reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
19
<PAGE>
the Warrants, if mutilated, the Company will make and deliver a new Warrant
Certificate of like tenor, in lieu thereof.
10. Elimination of Fractional Interests. The Company shall not
be required to issue certificates representing fractions of shares of Common
Stock, Redeemable Warrants or other securities underlying the Warrants upon the
exercise of the Warrants, nor shall it be required to issue scrip or pay cash in
lieu of fractional interests, it being the intent of the parties that all
fractional interests shall be eliminated by rounding any fraction up to the
nearest whole number of shares of Common Stock, Redeemable Warrants or other
securities underlying the Warrants.
11. Reservation and Listing of Securities. The Company shall
at all times reserve and keep available out of its authorized shares of Common
Stock, solely for the purpose of issuance upon the exercise of the Warrants and
the Redeemable Warrants, such number of shares of Common Stock as shall be
issuable upon the exercise thereof. The Company shall at all times reserve and
keep available, solely for the purpose of issuance Upon the exercise of the
Warrants and the Redeemable Warrants, any other securities underlying the
Warrants and the Redeemable Warrants. The Company covenants and agrees that,
upon exercise of the Warrants and payment of the Exercise Price for the shares
of Common Stock or other securities underlying the Warrants, all shares of
Common Stock and other securities issuable upon such exercise shall be duly and
validly issued, fully paid, non-assessable, not subject to the preemptive or
similar rights of any shareholder and free from all taxes, liens and charges
with respect to the issuance thereof. The Company further covenants and agrees
that, upon exercise of the Redeemable Warrants underlying the Warrants and
payment of the exercise price for the shares of Common Stock or other securities
underlying the Redeemable Warrants, all shares of
20
<PAGE>
Common Stock and other securities issuable upon such exercise shall be duly and
validly issued, fully paid, non-assessable, not subject to the preemptive or
similar rights of any shareholder and free from all taxes, liens and charges
with respect to the issuance thereof. As long as the Warrants shall be
outstanding, the Company shall use its best efforts to cause all shares of
Common Stock issuable upon the exercise of the Warrants and the Redeemable
Warrants and all Redeemable Warrants underlying the Warrants to be listed
(subject to official notice of issuance) on all securities exchanges on which
the Common Stock or the Redeemable Warrants issued in the Initial Public
Offering may then be listed and/or quoted on the Nasdaq Stock Market.
12. Notices to Warrant Holder(s). Nothing contained in this
Agreement shall be construed as conferring upon the Holder(s) the right to vote
or to consent or to receive notice as a shareholder in respect of any meetings
of shareholders for the election of Directors or any other matter, or as having
any rights whatsoever as a shareholder of the Company. If, however, at any time
prior to the expiration of the Warrants and their exercise, any of the following
events shall occur:
(a) the Company shall take a record of the holders of
its shares of Common Stock for the purpose of entitling them
to receive a dividend or distribution payable otherwise than
in cash, or a cash dividend or distribution payable otherwise
than out of current or retained earnings, as indicated by the
accounting treatment of such dividend or distribution on the
books of the Company; or
(b) the Company shall offer to all the holders of its
Common Stock any additional shares of capital stock of the
Company or securities convertible into or
21
<PAGE>
exchangeable for shares of capital stock of the Company, or
any option, right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the
Company (other than in connection with a consolidation or
merger) or a sale of all or substantially all of its property,
assets and business as an entirety shall be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event to the Holder(s) at least fifteen (15) days prior to the date
fixed as a record date or the date of closing the transfer books for the
determination of the shareholders entitled to receive such dividend,
distribution, additional shares, convertible or exchangeable securities,
options, rights, warrants or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notice shall specify
such record date or the date of closing the transfer books, as the case may be.
Failure to give such notice or any defect therein shall not affect the validity
of any action taken in connection with the declaration or payment of any such
dividend, or the issuance of any additional shares or any convertible or
exchangeable securities, options, rights, warrants or subscription rights, or
any proposed dissolution, liquidation, winding up or sale.
13. Redeemable Warrants. The form of the certificate
representing Redeemable Warrants (and the form of election to purchase shares of
Common Stock upon the exercise of Redeemable Warrants and the form of assignment
printed on the reverse thereof) shall be as set forth in Exhibit A to that
certain Warrant Agreement, of even date herewith, between the Company and
Continental Stock Transfer & Trust Company, as warrant agent (the "Redeemable
Warrant Agreement"). Each Redeemable Warrant issuable upon exercise of the
Warrants shall evidence the right to initially purchase one fully paid and
non-assessable share of Common Stock
22
<PAGE>
at an initial purchase price of $6.00 per share from the date of issuance of
such Redeemable Warrant until 5:30 p.m. New York time on ______________ __, 2001
[the day before the 5th anniversary of the effective date of the Registration
Statement], at which time the Redeemable Warrants, unless the exercise period
has been extended, shall expire. The exercise price of the Redeemable Warrants
and the number of shares of Common Stock issuable upon the exercise of the
Redeemable Warrants are subject to adjustment, whether or not the Warrants have
been exercised and the Redeemable Warrants have been issued, in the manner and
upon the occurrence of the events set forth in Section 8 of the Redeemable
Warrant Agreement, which is hereby incorporated herein by reference and made a
part hereof as if set forth in its entirety herein. Subject to the provisions of
this Agreement and upon issuance of the Redeemable Warrants underlying the
Warrants, each registered holder of a Redeemable Warrant shall have the right to
purchase from the Company (and the Company shall issue to such registered
holders) up to the number of fully paid and non-assessable shares of Common
Stock underlying a Redeemable Warrant (subject to adjustment as provided herein
and in the Redeemable Warrant Agreement), free and clear of all preemptive
rights of shareholders, provided that such registered holder complies with the
terms governing the exercise of the Redeemable Warrants, as set forth in the
Redeemable Warrant Agreement, and pays the applicable exercise price, determined
in accordance with the terms of the Redeemable Warrant Agreement. Upon exercise
of the Redeemable Warrants, the Company shall forthwith issue to the registered
holder of any such Redeemable Warrant, in his name or in such name as may be
directed by him, certificates for the number of shares of Common Stock so
purchased. Except as otherwise provided in Section 1 and Section 6.1 hereof, the
Redeemable Warrants underlying the Warrants shall be governed in all respects by
the terms of the Redeemable Warrant Agreement. The Redeemable Warrants
23
<PAGE>
shall be transferable in the manner provided in the Redeemable Warrant
Agreement, and upon any such transfer, a new Redeemable Warrant Certificate
shall be issued promptly to the transferee. The Company covenants to, and agrees
with, the Underwriter and the Holder(s) that, without the prior written consent
of the Underwriter and the Holder(s) of a Majority of the Warrants and the
Warrant Securities, the Redeemable Warrant Agreement will not be modified
amended, cancelled, altered or superseded, and that the Company will send to the
Underwriter and each Holder(s), irrespective of whether or not the Warrants have
been exercised, any and all notices required by the Redeemable Warrant Agreement
to be sent to holders of the Redeemable Warrants.
14. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
duly made when delivered, or mailed by registered or certified mail, return
receipt requested:
(a) If to the registered Holder(s) of the Warrants,
to the address of such Holder(s) as shown on the books of the
Company; or
(b) If to the Company, to the address set forth in
Section 3.1 hereof or to such other address as the Company may
designate by notice to the Holder(s).
15. Supplements and Amendments. The Company and the
Underwriter may from time to time supplement or amend this Agreement without the
approval of any Holder of a Warrant Certificate (other than the Underwriter) in
order to cure any ambiguity, to correct or supplement any provision contained
herein which may be defective or inconsistent with any provisions herein, or to
make any other provisions in regard to matters or questions arising hereunder
which the Company and the Underwriter may deem necessary or desirable and which
24
<PAGE>
the Company and the Underwriter deem shall not adversely affect the interests of
the Holder(s) of Warrant Certificates.
16. Successors. All the covenants and provisions of this
Agreement shall be binding upon and inure to the benefit of the Company, the
Holder(s) and their respective successors, assigns and representatives.
17. Termination. This Agreement shall terminate at the close
of business on ____________, 2003 [the day before the 7th anniversary hereof].
Notwithstanding the foregoing, the indemnification provisions of Section 7 shall
survive such termination until the close of business on _______________, 2009
[the day before the 13th anniversary hereof].
18. Governing Law; Submission to Jurisdiction. This Agreement
and each Warrant Certificate issued hereunder shall be deemed to be a contract
made under the laws of the State of New York and for all purposes shall be
construed in accordance with the laws of the State of New York without giving
effect to the rules of such State governing the conflicts of laws.
The Company, the Underwriter and the Holder(s) hereby agree
that any action, proceeding or claim arising out of, or relating in any way to,
this Agreement shall be brought and enforced in the courts of the State of New
York or of the United States of America for the Southern District of New York,
and irrevocably submit to such jurisdiction, which jurisdiction shall be
exclusive. The Company, the Underwriter and the Holder(s) hereby irrevocably
waive any objection to such exclusive jurisdiction or inconvenient forum. Any
process or summons to be served upon any of the Company, the Underwriter and the
Holder(s) (at the option of the party bringing such action, proceeding or claim)
may be served by transmitting a copy thereof, by registered or certified mail,
return receipt requested, postage prepaid, addressed to the
25
<PAGE>
address set forth in Section 14 hereof. Such mailing shall be deemed personal
service and shall be legal and binding upon the party so served in any action,
proceeding or claim. The Company, the Underwriter and the Holder(s) agree that
the prevailing party(ies) in any such action or proceeding shall be entitled to
recover from the other party(ies) all of its/their reasonable legal costs and
expenses relating to such action or proceeding and/or incurred in connection
with the preparation therefor.
19. Entire Agreement; Modification. This Agreement (including
the Underwriting Agreement to the extent portions thereof are referred to
herein) and the Redeemable Warrant Agreement contain the entire understanding
between the parties hereto with respect to the subject matter hereof and may not
be modified or amended except by a writing duly signed by the party against whom
enforcement of the modification or amendment is sought.
20. Severability. If any provision of this Agreement shall be
held to be invalid or unenforceable, such invalidity or unenforceability shall
not affect any other provision of this Agreement.
21. Captions. The caption headings of the Sections of this
Agreement are for convenience of reference only and are not intended to be, nor
should they be construed as, a part of this Agreement and shall be given no
substantive effect.
22. Benefits of this Agreement. Nothing in this Agreement
shall be construed to give to any person or entity other than the Company and
the Underwriter and any other registered Holder(s) of the Warrant Certificates
or Warrant Securities any legal or equitable right, remedy or claim under this
Agreement. This Agreement shall be for the sole and exclusive benefit of the
Company and the Underwriter and any other Holder(s) of the Warrant Certificates
or Warrant Securities.
26
<PAGE>
23. Counterparts. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and such counterparts shall together constitute but one and
the same instrument.
27
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first above written.
[SEAL] INDEPENDENCE BREWING COMPANY
By:________________________________
Name: Robert W. Connor, Jr.
Title: President
Attest:
_____________________________
William Moore, Secretary
A.S. GOLDMEN & CO., INC.
By:________________________________
Name: Stuart Winkler
Title: Vice President
<PAGE>
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON THE EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO
(i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (ii) TO THE EXTENT
APPLICABLE, RULE 144 UNDER THE ACT (OR ANY SIMILAR RULE UNDER THE ACT RELATING
TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF SUCH
OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL TO THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER THE ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M., NEW YORK TIME, __________________, 2001
No. W-__
WARRANT CERTIFICATE
This Warrant Certificate certifies that ______________, or
registered assigns, is the registered holder of Warrants to purchase initially,
at any time from ______________, 1997 [the 1st anniversary of the effective date
of the Registration Statement] until 5:30 p.m. New York time on
_________________, 2001 [the day before the 5th anniversary of the effective
date of the Registration Statement] ("Expiration Date"), up to ___________
fully-paid and non-assessable shares of common stock, no par value (the "Common
Stock"), of INDEPENDENCE BREWING COMPANY, a Pennsylvania corporation (the
"Company"), and/or redeemable warrants (the "Redeemable Warrants;" the shares of
Common Stock and the Redeemable Warrants are referred to herein individually as
a "Security" and collectively as the "Securities") (one Redeemable Warrant
initially entitling the holder thereof to purchase one fully-paid and
non-assessable share of Common Stock), at the initial exercise price, subject to
adjustment in certain events (the "Exercise Price"), of $____ per share of
Common Stock [120% of the initial public offering price per share of Common
Stock] and $____ per Redeemable Warrant [120% of the initial public offering
price per Redeemable Warrant], upon surrender of this Warrant Certificate and
payment of the Exercise Price at an office or agency of the Company, or by
surrender of this Warrant Certificate in lieu of cash payment, but subject to
the conditions set forth herein and in the warrant agreement dated as of
_____________, 1996 [the effective date of the Registration Statement], by and
between the Company and A.S. Goldmen & Co., Inc. (the "Warrant Agreement").
Payment of the
A-1
<PAGE>
Exercise Price shall be made by certified or official bank check in New York
Clearing House Funds payable to the order of the Company.
No Warrant may be exercised after 5:30 p.m., New York time, on
the Expiration Date, at which time all Warrants evidenced hereby, unless
exercised prior thereto, hereby shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of
a duly authorized issue of Warrants issued pursuant to the Warrant Agreement,
which Warrant Agreement is hereby incorporated by reference in and made a part
of this instrument and is hereby referred to for a description of the rights,
limitation of rights, obligations, duties and immunities thereunder of the
Company and the holders (the words "holders" or "holder" meaning the registered
holders or registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of
certain events the Exercise Price and the type and/or number of the Company's
securities issuable thereupon shall, subject to certain conditions, be adjusted.
In such event, the Company will, at the request of the holder, issue a new
Warrant Certificate evidencing the adjustment in the Exercise Price and the
number and/or type of securities issuable upon the exercise of the Warrants;
provided, however, that the failure of the Company to issue such new Warrant
Certificates shall not in any way change, alter, or otherwise impair, the rights
of the holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this
warrant certificate at an office or agency of the Company, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate the right to purchase a like number of Securities shall be issued to
the transferee(s) in exchange for this Warrant Certificate, subject to the
limitations provided herein and in the Warrant Agreement, without any charge
except for any tax or other governmental charge imposed in connection with such
transfer.
Upon the purchase of less than all of the Securities
purchasable pursuant to this Warrant Certificate, the Company shall forthwith
issue to the holder hereof a new Warrant Certificate representing the right to
purchase the remaining Securities.
The Company may deem and treat the registered holder(s) hereof
as the absolute owner(s) of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone), for the purpose
of any exercise hereof, and of any distribution to the holder(s) hereof, and for
all other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined
in the Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
A-2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed under its corporate seal.
Dated as of _______________________, 1996
INDEPENDENCE BREWING COMPANY
[SEAL] By:__________________________________
Name: Robert W. Connor, Jr.
Title: President
Attest:
_______________________________
William Moore, Secretary
A-3
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1]
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to purchase:
/_/ ------------------------------ shares of Common Stock;
/_/ ------------------------------ Redeemable Warrants;
/_/ ------------------------------ shares of Common Stock together
with an equal number of Redeemable
Warrants; or
/_/ ------------------------------ shares of Common Stock together
with Redeemable Warrants.
CHECK APPROPRIATE BOX
_____________ and herewith tenders in payment for such
Securities a certified or official bank check payable in New York Clearing House
Funds to the order of Independence Brewing Company in the amount of $_____, all
in accordance with the terms hereof. The undersigned requests that certificates
for such securities be registered in the name of
- -------------------------------------------------------------------------------
whose address is
- -------------------------------------------------------------------------------
and that such certificates be delivered to
- -------------------------------------------------------------------------------
whose address is
- -------------------------------------------------------------------------------
Dated: Signature
-----------------------------------
(Signature must conform in all
respects to name of holder as
specified on the face of the Warrant
Certificate.)
-----------------------------------
(Insert Social Security or Other
Identifying Number of Holder(s))
A-4
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.2]
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to purchase:
/_/ ------------------------------ shares of Common Stock;
/_/ ------------------------------ Redeemable Warrants;
/_/ ------------------------------ shares of Common Stock together
with an equal number of Redeemable
Warrants; or
/_/ ------------------------------ shares of Common Stock together
with Redeemable Warrants.
CHECK APPROPRIATE BOX
in accordance with the terms of Section 3.2 of the
Underwriter's Warrant Agreement, dated as of _____________, 1996, by and between
Independence Brewing Company and A.S. Goldmen & Co., Inc. The undersigned
requests that certificates for such securities be registered in the name of
- -------------------------------------------------------------------------------
whose address is
- -------------------------------------------------------------------------------
and that such certificates be delivered to
- -------------------------------------------------------------------------------
whose address is
- -------------------------------------------------------------------------------
Dated: Signature
-----------------------------------
(Signature must conform in all
respects to name of holder as
specified on the face of the Warrant
Certificate.)
-----------------------------------
(Insert Social Security or Other
Identifying Number of Holder(s))
A-5
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such
holder desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED ____________ here sells, assigns and
transfers unto
- -------------------------------------------------------------------------------
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _____________ Attorney, to
transfer the within Warrant Certificate on the books of the within-named
Company, with full power of substitution.
Dated: Signature
-----------------------------------
(Signature must conform in all
respects to name of holder as
specified on the face of the Warrant
Certificate.)
-----------------------------------
(Insert Social Security or Other
Identifying Number of Holder(s))
A-6
EXHIBIT 10.2
PROMISSORY NOTE
FOR VALUE RECEIVED, the undersigned, INDEPENDENCE BREWING
COMPANY, a Pennsylvania corporation ("Maker"), does hereby promise to pay to the
order of WINFIELD CAPITAL CORP. ("Payee"), at 237 Mamaroneck Ave., White Plains,
New York 10605, or such other place as Payee may from time to time designate, in
lawful money of the United States of America, the principal amount of One
Hundred Thousand Dollars ($100,000) (the "Principal Amount"), together with
interest thereon as hereinafter provided, all as specified below.
1. Interest. Simple interest shall accrue on the unpaid
Principal Amount hereof until repayment in full of all sums due hereunder at the
rate of twelve and three-quarters percent (12.75%) per annum. All interest
payable under the terms of this Note shall be calculated on the basis of a 360
day year applied to the actual days on which there exists an unpaid principal
balance hereunder.
2. Repayment. This Note, and all amounts of principal,
interest and other charges hereunder (including, but not limited to, the
expenses set forth in paragraph 23 hereof), shall be due and payable in full on
the earlier to occur of (i) June 7, 1996, (ii) the closing of the purchase by
Payee of debentures of Maker in the principal amount of $800,000 (the
"Debentures"), or (iii) the final determination as indicated in a writing
delivered by either party to the other by either Maker or Payee to the effect
that Payee shall not purchase the Debentures; provided that if Payee elects for
any reason not to purchase the Debentures, then, notwithstanding the foregoing,
such repayment shall occur on July 8, 1996.
3. Application of Payments. All payments made hereunder
shall be applied first to late penalties or other similar sums or fees owing
Payee, then to accrued and unpaid interest, and then to principal.
4. Default Interest; Rate. Upon the occurrence of any Event of
Default (as defined in Section 7 hereof) from and after the date that such Event
of Default occurs interest shall accrue on the then remaining principal balance
of this Note, without notice or demand upon Maker, at the annual rate of
eighteen percent (18%) per annum, which interest shall continue to accrue until
such Event of Default has been cured by Maker.
5. Late Payment Penalty. Should any payment of principal
or interest due hereunder be received by Payee more than five (5) days after its
due date, Maker shall pay a late payment penalty equal to five percent (5%) of
such payment.
6. Prepayment. Maker may prepay this Note in whole or in
part at any time or from time to time without penalty, premium or additional
interest, provided that payments are applied as provided in Section 3 hereof.
<PAGE>
7. Events of Default. The following shall constitute events
of default hereunder (each, an "Event of Default") and authorize the exercise of
any rights and remedies provided for under this Note:
(a) The failure of Maker to make any payment due to
Payee under this Note as and when said payment is due;
(b) The commencement of any voluntary or involuntary
case under the federal bankruptcy laws or any state insolvency or similar laws
seeking the liquidation or reorganization of Maker, or of Robert W. Connor, Jr.
(the "Guarantor"), or the appointment or a receiver, liquidator, assignee,
custodian, trustee, or similar official for Maker or Maker's property or for
Guarantor or of the Guarantors' property, or the making by Maker or Guarantor of
an assignment for the benefit of creditors (except that in the case of any
involuntary action of Maker, Maker shall have sixty (60) days to have such case
dismissed), or the failure by Maker or Guarantor to generally pay its or his
respective debts as they mature;
(c) Default by Maker with respect to any indebtedness
for borrowed money, and all liabilities secured by any lien or encumbrance of
any of Maker's property, if the effect of such default is either to accelerate
the maturity of such evidence of indebtedness or liability or to permit the
holder or obligee thereof to cause any indebtedness to become due prior to its
stated maturity;
(d) The failure of Maker to keep, observe, duly
perform or comply with any term, covenant or condition contained in this Note or
of the Guarantor to keep, observe, duly perform or comply with any term,
covenant or condition contained in the Stock Pledge Agreement between Guarantor
and Payee of even date herewith (the "Pledge Agreement") granting to Payee a
lien in all of Guarantor's shares of Common Stock of Maker, as more fully
described therein.
8. Use of Proceeds. The proceeds of the Principal Amount
hereof shall be used by Maker solely to satisfy certain of those existing
liabilities of Maker, as determined by Maker in its sole discretion, as are
specifically set forth on the attached Exhibit A, which exhibit is hereby made a
part of this Note.
9. Remedies. Upon the occurrence of an Event of Default, at
the option of Payee, all amounts payable by Maker to Payee under the terms of
this Note shall immediately become due and payable by Maker to Payee without
notice or demand to Maker or any other person, and Payee shall have all of the
rights, powers and remedies available under the terms of this Note, the Pledge
Agreement, such other agreements between the parties, and under all applicable
laws and at equity.
10. Remedies Cumulative. Each right, power and remedy provided
for in this Note and in the Pledge Agreement or under applicable law or in
equity or otherwise shall be cumulative and concurrent, and shall be in addition
-2-
<PAGE>
to every other right, power or remedy provided for in this Note or in the Pledge
Agreement or now or hereafter existing at law or in equity or otherwise, and the
exercise or beginning of any one or more of such rights, powers or remedies
shall not preclude the simultaneous or later exercise of any or all such other
rights, powers or remedies.
11. No Waiver by Payee. No failure or delay by Payee to insist
upon the strict performance of any term, condition, covenant, or agreement
contained in this Note, or to exercise any right, power or remedy upon the
occurrence of an Event of Default hereunder shall constitute a waiver of any
such term, condition, covenant, or agreement or of any such breach, or preclude
Payee from exercising any such right, power or remedy at any later time or times
in respect to the same or any other Event of Default, and no single or partial
exercise of any right, power or remedy shall preclude other or further exercise
of the same or any other right, power or remedy. By accepting any payment
hereunder after the due date therefor, Payee shall not be deemed to have waived
the right either to require payment when due of all other payments hereunder, or
to declare a default for failure to effect such payment. No course of dealing
between Maker and Payee shall be effective to amend, modify or change any
provision of this Note or the Pledge Agreement, and Payee shall have the right
at all times to enforce such provisions in strict accordance with the terms
hereof and thereof, notwithstanding any conduct or custom on the part of Payee
in refraining from so doing at any time or times. No waiver under this Note
shall be deemed to be made by Payee unless in writing signed by Payee, and each
such waiver if any, shall apply only with respect to the specific instance
involved.
12. Waiver of Jury Trial. Maker hereby waives its right to a
trial by jury in any action or proceeding to which Maker and Payee may be
parties, arising out of or in any way pertaining to this Note. This waiver
constitutes a waiver of Maker's rights to a trial by jury of all claims against
all parties to such actions or proceedings.
13. Confession of Judgment. Upon any Event of Default
hereunder and to the extent permitted by law, Maker authorizes any attorney
admitted to practice before any court of record in the United States on behalf
of Maker to confess judgment against Maker in the full amount due under this
Note, including outstanding principal, accrued and unpaid interest and all other
sums due hereunder, plus attorneys' fees equal to ten percent (10%) of such
aggregate amount. Maker agrees that venue shall be proper in the local court of
any city or county of the State of New York or the State of Pennsylvania, or in
the United States District or Bankruptcy Courts for the Southern District of New
York or the district in Pennsylvania in which the principal office of Maker is
located. Maker waives the benefit of any and every statute, ordinance or rule of
court which may be lawfully waived conferring upon Maker any right or privilege,
stay or execution, or supplementary proceeding or other relief from the
immediate enforcement of a judgment or related proceedings on a judgment. The
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<PAGE>
authority and power to appear for and enter judgment against Maker shall not be
exhausted by one or more exercises thereof or by any imperfect exercise thereof,
and shall not be extinguished by any judgment entered pursuant thereto. Such
authority may be exercised on one or more occasions or from time to time in the
same or different jurisdictions as often as Payee shall deem necessary or
desirable until all sums due under this Note have been paid in full.
14. Interest Rate After Judgment. If judgment (including
confessed judgment) is entered against Maker with respect to any or all of its
obligations under this Note, the amount of the judgment entered, which may
include principal, interest, default interest, late charges, fees and costs
shall bear interest at the highest rate authorized under this Note as of the
date of the entry of the judgment.
15. Expenses of Collection. If this Note is referred to an
attorney for collection, whether or not judgment has been confessed or suit has
been filed, Maker shall pay all of Payee's reasonable attorney's fees resulting
from such referral.
16. No Set-Off By Maker. Maker's obligations hereunder are
absolute and shall be performed irrespective of any set-off, claim,
counter-claim, defense or other right Maker now has, or hereafter may have,
against Payee.
17. Waiver of Protest, Etc. Maker hereby waives notice,
presentment, notice or dishonor, notice of the acceleration of maturity of this
Note, demand, nonpayment and protest.
18. Extensions of Maturity. Maker and Payee agree that the
maturity of this Note, or any payment due hereunder, may be extended at any time
or from time to time by Payee without releasing, discharging or affecting the
liability of Maker.
19. Choice of Law and Consent to Jurisdiction. This Note shall
be governed, construed and enforced in strict accordance with the laws of the
State of New York, without regard to principles of conflict of laws. Maker
irrevocably submits to the jurisdiction of any state or federal court sitting in
the State of New York or the State of Pennsylvania over any suit, action, or
proceeding arising out of or relating to this Note. Maker irrevocably waives, to
the fullest extent permitted by law, any objection that Maker may now or
hereafter have to the laying the venue of any such suit, action, or proceeding
brought in any such court, and any claim that any such suit, action, or
proceeding brought in any such court has been brought in an inconvenient forum.
20. Severability. If any one or more of the terms or
provisions of this Note shall for any reason be held to be invalid, illegal or
unenforceable, in whole or in part, or in any respect, or in the event that any
one or more of the provisions of this Note operate or would prospectively
operate to invalidate this Note, then and in either of those events, such
provision or provisions only shall be deemed null and void and shall not affect
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<PAGE>
any other provision of this Note and the remaining provisions of this Note shall
remain operative and in full force and effect and shall in no way be affected,
prejudiced or disturbed thereby.
21. Notices. Any notices or deliveries required to be given in
connection with this Note shall be in writing and shall be deemed given when
delivered in person or by registered or certified mail, postage prepaid, return
receipt requested or by other delivery service providing evidence of receipt
made by hand delivery, at the following address or at such other address in the
United States as either party shall hereafter give notice of to the other in
writing:
If to Payee:
Winfield Capital Corp.
c/o Chief Executive Officer
237 Mamaroneck Avenue
White Plains, New York 10605
If to Maker:
Independence Brewing Company
c/o President
1000 East Comly Street
Philadelphia, Pennsylvania 19149
22. Binding Effect; Assignability. This Note shall inure to
the benefit of and be enforceable by Payee, its successors and assigns, and any
other person or entity to whom Payee may grant an interest in the Note, and
shall be binding upon Maker, its successors and assigns.
23. Expenses. Maker shall pay all of Payee's legal fees and
expenses incurred in the preparation and negotiation of this Note, the Guaranty
and the Pledge Agreement, which amount shall be due and payable by Maker on the
date otherwise required for the repayment of this Note pursuant to Section 2
hereof.
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<PAGE>
IN WITNESS WHEREOF, this Note has been executed by Maker under
seal this 9th day of May, 1996.
ATTEST: INDEPENDENCE BREWING
COMPANY
By: /s/ Robert W. Connor, Jr. (SEAL)
- ---------------------------------- --------------------------------
Robert W. Connor, Jr., President
GUARANTY
In order to induce Payee to accept the foregoing Note, the
undersigned, Robert W. Connor, Jr. (the "Guarantor") hereby unconditionally,
irrevocably and directly guarantees the punctual payment (and not just
collection) in full (whether by acceleration, declaration, extension or
otherwise) of the Principal Amount along with the then accrued and unpaid
interest, the payment of all other amounts due by Maker under the foregoing
Note, and the performance of all of the obligations of the Maker under the
foregoing Note, and all costs and expenses, including reasonable attorneys'
fees, incurred by or on behalf of the Payee in endeavoring to collect any of the
Maker's obligations hereunder (collectively, the "Obligations"). The obligations
and liabilities of the Guarantor hereunder shall be direct, immediate and
primary and is one of payment and performance and not just collection or surety.
The liability of the Guarantor hereunder is absolute and unconditional, not
subject to any counterclaim, recoupment, setoff, reduction or defense, without
regard to the liability of any other person, and shall not in any manner be
affected by reason of any action taken or not taken by Payee, nor by the partial
or complete unenforceability or invalidity of the Pledge Agreement.
As a further inducement to Payee to accept the foregoing Note,
Guarantor has agreed to pledge all of his shares of common stock of Maker to
Payee pursuant to the Pledge Agreement.
Payee shall be under no obligation to pursue, enforce or
exhaust its rights, powers and remedies against Maker or any collateral securing
the obligations described in the Note or the Pledge Agreement either before,
concurrently with or after pursuing its rights against the Guarantor.
Guarantor hereby consents to any and all agreements between
Payee and Maker, and any and all amendments and modifications thereof, whether
presently existing or hereafter made. Payee may, without compromising,
impairing, diminishing or in any way releasing the Guarantor from his
obligations hereunder, and without notifying or obtaining the prior approval of
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<PAGE>
the Guarantor, at any time or from time to time: (i) waive or excuse a default
or defaults by Maker, or delay in exercising any or all of Payee's rights or
remedies with respect to such default or defaults, (ii) grant extensions of time
for payment or performance by Maker, (iii) release Maker, or (iv) modify,
change, renew, extend or amend, in any respect, Payee's agreements with Maker.
Guarantor hereby waives (a) any and all notices whatsoever
with respect to the enforceability of this Guaranty or with respect to the
enforceability of the Note, including, but not limited to, (i) the notice and
enforceability of Payee's acceptance hereof or of Payee's intention to act, or
Payee's action in reliance thereon, and (ii) any default by Payee under the
Pledge Agreement or the foregoing Note, and (b) (i) presentment, protest and
demand for payment, notice of protest, notice of dishonor and nonpayment of any
sum due from Maker, (ii) notice of default by Maker, and (iii) demand for
performance by Payee.
The undersigned authorizes any attorney admitted to practice
before any court of record in the United States on behalf of the undersigned to
confess judgment against the undersigned in the full amount due under this
Guaranty including principal, accrued and unpaid interest and all other sums due
hereunder, including attorneys' fees equal to ten percent (10%) of such
aggregate amount. The undersigned agrees that venue shall be proper in the local
court of any city or county of the State of New York or the State of
Pennsylvania or in the United States District Court or Bankruptcy Courts for the
Southern District of New York or the district in Pennsylvania in which the
principal office of the Maker is located. The undersigned waives the benefit of
any and every statute, ordinance or rule of court which may be lawfully waived,
conferring upon the undersigned any right or privilege, of execution, or
supplementary proceeding or other relief from the immediate enforcement of a
judgment or related proceedings on a judgment. The authority and power to appear
for and enter judgment against the undersigned shall not be exhausted by one or
more exercises thereof or by any imperfect exercise thereof and shall not be
extinguished by any judgment entered pursuant thereto. Such authority may be
exercised on one or more occasions or from time to time in the same or different
jurisdictions as often as Payee shall deem necessary or desirable until all sums
due under this Note and this Guaranty have been paid in full and all of the
Obligations have been satisfied.
Guarantor hereby waives his right to a trial by jury in any
action or proceeding to which the Guarantor or Payee may be parties, arising out
of or in any way pertaining to this Guaranty. This waiver constitutes a waiver
of Guarantor's rights to a trial by jury of all claims against all parties to
such actions or proceedings.
This Guaranty shall inure to the benefit of Payee, its
successors and assigns. This Guaranty shall be a continuing one and shall be
binding upon Guarantor, his successors, heirs, personal representatives and
assigns, until the entire amount of the Principal Amount, as such may exist from
time to time, has been paid or satisfied in full.
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<PAGE>
If this Guaranty is referred to an attorney for collection,
whether or not judgment has been confessed or suit has been filed, the Guarantor
shall pay all of Payee's reasonable attorney's fees resulting from such
referral.
This Guaranty shall be governed, construed and enforced in
strict accordance with the laws of the State of New York, without regard to
principles of conflict of laws. Guarantor irrevocably submits to the
jurisdiction of any state or federal court sitting in the State of New York or
the State of Pennsylvania over any suit, action, or proceeding arising out of or
relating to this Note. Guarantor irrevocably waives, to the fullest extent
permitted by law, any objection that Guarantor may now or hereafter have to the
laying the venue of any such suit, action, or proceeding brought in any such
court, and any claim that any such suit, action, or proceeding brought in any
such court has been brought in an inconvenient forum.
If any one or more of the terms or provisions of this Guaranty
shall for any reason be held to be invalid, illegal or unenforceable, in whole
or in part, or in any respect, or in the event that any one or more of the
provisions of this Guaranty operate or would prospectively operate to invalidate
this Guaranty, then and in either of those events, such provision or provisions
only shall be deemed null and void and shall not affect any other provision of
this Guaranty and the remaining provisions of this Guaranty shall remain
operative and in full force and effect and shall in no way be affected,
prejudiced or disturbed thereby. Neither this Guaranty nor any term, condition
or agreement hereof may be changed, waived, discharged or terminated orally, but
only by an instrument in writing signed by Guarantor and Payee.
IN WITNESS WHEREOF this Guaranty has been executed by the
undersigned under seal this 9th day of May, 1996.
WITNESS:
/s/ ROBERT W. CONNOR, JR. (SEAL)
- ---------------------------------- -------------------------------
Robert W. Connor, Jr.
-8-
<PAGE>
INDEPENDENCE BREWING COMPANY
EXHIBIT A TO PROMISSORY NOTE
May 8, 1996
Payables
1. Malt-2 Row 5,127.00
2. Coil Boxes 547.84
3. Security Systems 177.00
4. Phone 363.69
5. Repair Labor 3,934.00
6. CO-2 1,200.00
7. Malt-Speciality 10,826.88
8. Forklift 600.00
9. Chemicals 1,177.28
10. Filters 1,171.65
11. Trade Display 6,389.00
12. Adhesives 1,604.48
13. PECO/Electric 11,000.00
14. PGW/Gas 5,280.00
15. PIDC Loan 4,195.57
16. Shipping 812.05
17. Rent/Ins. 6,600.00
18. Kegs 2,000.00
19. Six-Packs 11,300.00
20. Worker's Comp 3,059.00
21. Excise Taxes 30,000.00
22. Insurance 1,148.00
23. Bottles 15,294.30
24.
25. Wtr, Sewer, RE Tax 31,000.00
26.
Totals 127,807.74
EXHIBIT 10.3
ALLONGE TO PROMISSORY NOTE
DATED MAY 9, 1996
THIS ALLONGE is made and entered into as of this 12th day of
August, 1996 by and among INDEPENDENCE BREWING COMPANY., a Pennsylvania
corporation (the "Company"), WCC CAPITAL CORP., a New York corporation ("WCC")
and ROBERT W. CONNOR, JR., ("Connor").
WHEREAS, the Company issued a Promissory Note (the "Note")
dated May 9, 1996 to WCC in the original principal amount of One Hundred
Thousand Dollars ($100,000); and
WHEREAS, Connor provided a guaranty of the payment and other
obligations of the Company under the Note by executing the Note and an attached
Guaranty dated May 9, 1996 (the "Guaranty"); and
WHEREAS, the Company, Connor, WCC and certain other parties
have entered into a Securities Purchase Agreement of even date herewith (the
"Securities Purchase Agreement") pursuant to which, among other things, the
Company has agreed to sell, and WCC has agreed to purchase, Debentures of the
Company in the principal amount of Four Hundred and Fifty Thousand Dollars
($450,000) (the "Debentures"), and WCC has agreed to act as standby purchaser
with respect to certain additional Debentures to be sold by the Company (the
"Remaining Debentures"); and
WHEREAS, pursuant to the terms of the Note, as heretofore
extended, all amounts due thereunder are due and payable no later than on August
15, 1996; and
WHEREAS, the Company has requested that WCC agree to further
extend the due date for repayment of the amounts due under the Note in order to
accomodate the Company's efforts to sell the Remaining Debentures to other third
parties, and to provide for the conversion of the principal amount of the Note
if WCC is called upon by the Company to purchase the Remaining Debentures, or
any portion thereof, and WCC has agreed to such requests on the terms and
conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants contained herein, and for other good and valuable
consideration, the receipt and sufficiently of which are hereby acknowledged,
the parties hereto hereby agree as follows:
1. Conversion of Portion of Principal Amount of Note; Revision
of Remaining Principal Amount of Note. Upon the closing of the purchase of the
Debentures by WCC, the Company shall be entitled to retain Fifty Thousand
Dollars ($50,000) of the principal amount payable with respect to the Note as a
payment of a
<PAGE>
portion of the purchase price of the Debentures by WCC, and the principal amount
payable with respect to the Note shall, upon the issuance by the Company of the
Debentures to WCC, thereupon, and without any further action on the part of the
parties hereto, be amended and restated for all purposes to be Fifty Thousand
Dollars ($50,000).
2. Repayment of Principal Amount. The principal amount payable
with respect to the Note as hereby amended and restated (as reduced pursuant to
the following provisions of this Section 2 hereof, if applicable) shall be due
and payable in full on September 3, 1996; provided that if WCC has become
obligated as of such date to purchase any portion of the Remaining Debentures,
the Company shall be entitled to retain that portion of the principal amount as
hereby amended and restated in an amount equal to the lesser of (i) the
principal amount of such Remaining Debentures which WCC shall have become
obligated to purchase as of such date, or (ii) the principal amount hereof as
hereby amended and restated. If the Company elects to retain any portion of the
principal amount hereof with respect to the purchase by WCC of such Remaining
Debentures as provided in this Section 2, then upon the issuance by the Company
of such Remaining Debentures to WCC, such principal amount shall thereupon be
deemed to have been repaid by the Company to WCC.
3. Interest. Notwithstanding any other provision of this
Allonge or of the Note to the contrary, all accrued and unpaid interest with
respect to the principal amount and all other charges which have accrued under
the Note shall be due and payable on September 3, 1996.
4. Guaranty; Stock Pledge Agreement. Connor hereby consents
and agrees to the amendment and modification of the Note on the terms and
conditions as contained in this Allonge and further agrees that his obligations
under the terms of the Guaranty, appended to the Note, shall remain in full
force and effect, notwithstanding such amendment and modification, as though
such amendment and modification were originally contained in the Note to WCC. In
addition, Connor hereby consents and agrees that his agreements and obligations
under the terms of that certain Stock Pledge Agreement of Connor and WCC dated
May 9, 1996 shall remain in full force and effect, notwithstanding the amendment
and modification of the Note on the terms and conditions as contained in this
Allonge, as though such amendment and modification were originally contained in
the Note and the Guaranty.
5. Continuing Effect of Note. The obligations of the Company
under and pursuant to the Note shall remain in full force and effect in
accordance with the terms and provisions thereof, except as specifically
modified as provided in Sections 1, 2, 3 and 6 hereof. WCC agrees to affix the
original of this Allonge to the original executed Note to reflect the
modification of the Note by this Allonge. Notwithstanding any failure to so
affix this Allonge to the Note, for all purposes the Note shall be deemed
amended and modified by the terms of this Allonge. After the full execution of
this Allonge, for all purposes the Note, as modified by this Allonge, shall be
deemed to be one instrument and
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<PAGE>
the Note as so modified shall not be deemed to have been novated by this Allonge
or the amendments contained herein.
6. Specific Performance. The parties agree that a breach of
any of the terms, conditions, representations or other obligations under this
Allonge may result in irreparable harm to the non-breaching party. Therefore,
the failure on the part of any party hereto to perform all of the terms,
conditions, representations and obligations established by this Allonge shall
give rise to a right in the non-breaching party to seek enforcement of this
Allonge in a court by a decree of specific performance. This remedy, however,
shall be cumulative and in addition to any other remedy the parties may have.
7. Miscellaneous.
(a) Choice of Law, Consent to Jurisdiction, Etc. This
Allonge shall be governed, construed and enforced in strict accordance with the
laws of the State of New York, without regard to principles of conflict of laws.
Each of the parties hereto hereby submits to the jurisdiction of any state or
federal court sitting in the State of New York over any suit, action or
proceeding arising out of or relating to this Allonge, and each hereby consents
and agrees to the laying of venue with respect to any suit, action or proceeding
arising out or or relating to the Note or this Allonge in any such court. Each
of the parties hereto consents and agrees that service of process with respect
to any action brought hereunder may with respect to the Company or Connor be
made by U.S. mail upon Dominic S. Liberi, 3200 Mellon Bank Center, 1735 Market
Street, Philadelphia, Pennsylvania 19103.
(b) Binding Effect. This Allonge shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
personal representatives, heirs, successors and assigns, as the case may be.
(c) Entire Agreement. This Allonge sets forth the entire
understanding of the parties hereto with respect to the subject matter hereof,
and may not be changed, modified or amended except by a written instrument
signed by each of the parties hereto.
(d) Further Assurances. Each of the parties hereto agrees
to execute and deliver to the other(s) such further documents and instruments as
may be necessary or appropriate to fully effectuate the transactions
contemplated hereby.
(e) Counsel. Each of the parties to this Allonge has been
represented by counsel of his or its own choice. Each of the parties to this
Allonge (i) has read this Allonge and believes that it is fair to all parties,
and (ii) is appropriately sophisticated to understand its terms and provisions.
The fact that one counsel was the primary draftsman of this Allonge shall have
no legal effect with respect to the interpretation of this Allonge.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Allonge
under seal as of the date first above written.
WITNESS/ATTEST: INDEPENDENCE BREWING COMPANY
/s/ CHRISTINA CARE By:/s/ ROBERT W. CONNOR, JR. (SEAL)
- ------------------------ --------------------------------
Assistant Secretary Robert W. Connor, Jr., President
/s/ CHRISTINA CARE /s/ ROBERT W. CONNOR, JR. (SEAL)
- ------------------------ --------------------------------
Robert W. Connor, Jr.
WINFIELD CAPITAL CORP.
[NAME TO COME] By:/s/ PAUL A. PERLIN (SEAL)
- ----------------------- --------------------------------
Paul A. Perlin, Chief Executive Officer
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EXHIBIT 10.4
PROMISSORY NOTE
FOR VALUE RECEIVED, the undersigned, INDEPENDENCE BREWING
COMPANY, a Pennsylvania corporation ("Maker"), does hereby promise to pay to the
order of WINFIELD CAPITAL CORP. ("Payee"), at 237 Mamaroneck Ave., White Plains,
New York 10605, or such other place as Payee may from time to time designate, in
lawful money of the United States of America, the principal amount of One
Hundred Thousand Dollars ($100,000) (the "Principal Amount"), together with
interest thereon as hereinafter provided, all as specified below.
1. Interest. Simple interest shall accrue on the unpaid
Principal Amount hereof until repayment in full of all sums due hereunder at the
rate of twelve and three-quarters percent (12.75%) per annum. All interest
payable under the terms of this Note shall be calculated on the basis of a 360
day year applied to the actual days on which there exists an unpaid principal
balance hereunder.
2. Repayment. This Note, and all amounts of principal,
interest and other charges hereunder (including, but not limited to, the
expenses set forth in paragraph 23 hereof), shall be due and payable in full on
the earlier to occur of (i) July 31, 1996, (ii) the closing of the purchase by
Payee of debentures of Maker in the principal amount of $800,000 (the
"Debentures"), or (iii) the final determination as indicated in a writing
delivered by either party to the other by either Maker or Payee to the effect
that Payee shall not purchase the Debentures; provided that if Payee elects for
any reason not to purchase the Debentures, then, notwithstanding the foregoing,
such repayment shall occur on July 31, 1996.
3. Application of Payments. All payments made hereunder
shall be applied first to late penalties or other similar sums or fees owing
Payee, then to accrued and unpaid interest, and then to principal.
4. Default Interest; Rate. Upon the occurrence of any Event of
Default (as defined in Section 7 hereof) from and after the date that such Event
of Default occurs interest shall accrue on the then remaining principal balance
of this Note, without notice or demand upon Maker, at the annual rate of
eighteen percent (18%) per annum, which interest shall continue to accrue until
such Event of Default has been cured by Maker.
5. Late Payment Penalty. Should any payment of principal or
interest due hereunder be received by Payee more than five (5) days after its
due date, Maker shall pay a late payment penalty equal to five percent (5%) of
such payment.
6. Prepayment. Maker may prepay this Note in whole or in part
at any time or from time to time without penalty, premium or additional
interest, provided that payments are applied as provided in Section 3 hereof.
<PAGE>
7. Events of Default. The following shall constitute events
of default hereunder (each, an "Event of Default") and authorize the exercise of
any rights and remedies provided for under this Note:
(a) The failure of Maker to make any payment due to
Payee under this Note as and when said payment is due;
(b) The commencement of any voluntary or involuntary
case under the federal bankruptcy laws or any state insolvency or
similar laws seeking the liquidation or reorganization of Maker, or of Robert W.
Connor, Jr. (the "Guarantor"), or the appointment or a receiver, liquidator,
assignee, custodian, trustee, or similar official for Maker or Maker's property
or for Guarantor or of the Guarantors' property, or the making by Maker or
Guarantor of an assignment for the benefit of creditors (except that in the case
of any involuntary action of Maker, Maker shall have sixty (60) days to have
such case dismissed), or the failure by Maker or Guarantor to generally pay its
or his respective debts as they mature;
(c) Default by Maker with respect to any indebtedness
for borrowed money, and all liabilities secured by any lien or encumbrance of
any of Maker's property, if the effect of such default is either to accelerate
the maturity of such evidence of indebtedness or liability or to permit the
holder or obligee thereof to cause any indebtedness to become due prior to its
stated maturity;
(d) The failure of Maker to keep, observe, duly
perform or comply with any term, covenant or condition contained in this
Note or of the Guarantor to keep, observe, duly perform or comply with any term,
covenant or condition contained in the Stock Pledge Agreement between Guarantor
and Payee of dated May 9, 1996 (the "Pledge Agreement") granting to Payee a lien
in all of Guarantor's shares of Common Stock of Maker, as more fully described
therein.
8. Use of Proceeds. The proceeds of the Principal Amount
hereof shall be used by Maker solely to satisfy certain of those existing
liabilities of Maker, as determined by Maker in its sole discretion, as are
specifically set forth on the attached Exhibit A, which exhibit is hereby made a
part of this Note.
9. Remedies. Upon the occurrence of an Event of Default, at
the option of Payee, all amounts payable by Maker to Payee under the terms of
this Note shall immediately become due and payable by Maker to Payee without
notice or demand to Maker or any other person, and Payee shall have all of the
rights, powers and remedies available under the terms of this Note, the Pledge
Agreement, such other agreements between the parties, and under all applicable
laws and at equity.
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<PAGE>
10. Remedies Cumulative. Each right, power and remedy provided
for in this Note and in the Pledge Agreement or under applicable law or in
equity or otherwise shall be cumulative and concurrent, and shall be in addition
to every other right, power or remedy provided for in this Note or in the Pledge
Agreement or now or hereafter existing at law or in equity or otherwise, and the
exercise or beginning of any one or more of such rights, powers or remedies
shall not preclude the simultaneous or later exercise of any or all such other
rights, powers or remedies.
11. No Waiver by Payee. No failure or delay by Payee to insist
upon the strict performance of any term, condition, covenant, or agreement
contained in this Note, or to exercise any right, power or remedy upon the
occurrence of an Event of Default hereunder shall constitute a waiver of any
such term, condition, covenant, or agreement or of any such breach, or preclude
Payee from exercising any such right, power or remedy at any later time or times
in respect to the same or any other Event of Default, and no single or partial
exercise of any right, power or remedy shall preclude other or further exercise
of the same or any other right, power or remedy. By accepting any payment
hereunder after the due date therefor, Payee shall not be deemed to have waived
the right either to require payment when due of all other payments hereunder, or
to declare a default for failure to effect such payment. No course of dealing
between Maker and Payee shall be effective to amend, modify or change any
provision of this Note or the Pledge Agreement, and Payee shall have the right
at all times to enforce such provisions in strict accordance with the terms
hereof and thereof, notwithstanding any conduct or custom on the part of Payee
in refraining from so doing at any time or times. No waiver under this Note
shall be deemed to be made by Payee unless in writing signed by Payee, and each
such waiver if any, shall apply only with respect to the specific instance
involved.
12. Waiver of Jury Trial. Maker hereby waives its right to a
trial by jury in any action or proceeding to which Maker and Payee may be
parties, arising out of or in any way pertaining to this Note. This waiver
constitutes a waiver of Maker's rights to a trial by jury of all claims against
all parties to such actions or proceedings.
13. Confession of Judgment. Upon any Event of Default
hereunder and to the extent permitted by law, Maker authorizes any attorney
admitted to practice before any court of record in the United States on behalf
of Maker to confess judgment against Maker in the full amount due under this
Note, including outstanding principal, accrued and unpaid interest and all other
sums due hereunder, plus attorneys' fees equal to ten percent (10%) of such
aggregate amount. Maker agrees that venue shall be proper in the local court of
any city or county of the State of New York or the State of Pennsylvania, or in
the United States District or Bankruptcy Courts for the Southern District of New
York or the district in Pennsylvania in which the principal office of Maker is
located. Maker waives the benefit of any and every statute, ordinance or rule of
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<PAGE>
court which may be lawfully waived conferring upon Maker any right or privilege,
stay or execution, or supplementary proceeding or other relief from the
immediate enforcement of a judgment or related proceedings on a judgment. The
authority and power to appear for and enter judgment against Maker shall not be
exhausted by one or more exercises thereof or by any imperfect exercise thereof,
and shall not be extinguished by any judgment entered pursuant thereto. Such
authority may be exercised on one or more occasions or from time to time in the
same or different jurisdictions as often as Payee shall deem necessary or
desirable until all sums due under this Note have been paid in full.
14. Interest Rate After Judgment. If judgment (including
confessed judgment) is entered against Maker with respect to any or all of its
obligations under this Note, the amount of the judgment entered, which may
include principal, interest, default interest, late charges, fees and costs
shall bear interest at the highest rate authorized under this Note as of the
date of the entry of the judgment.
15. Expenses of Collection. If this Note is referred to an
attorney for collection, whether or not judgment has been confessed or suit has
been filed, Maker shall pay all of Payee's reasonable attorney's fees resulting
from such referral.
16. No Set-Off By Maker. Maker's obligations hereunder are
absolute and shall be performed irrespective of any set-off, claim,
counter-claim, defense or other right Maker now has, or hereafter may have,
against Payee.
17. Waiver of Protest, Etc. Maker hereby waives notice,
presentment, notice or dishonor, notice of the acceleration of maturity of this
Note, demand, nonpayment and protest.
18. Extensions of Maturity. Maker and Payee agree that the
maturity of this Note, or any payment due hereunder, may be extended at any
time or from time to time by Payee without releasing, discharging or affecting
the liability of Maker.
19. Choice of Law and Consent to Jurisdiction. This Note shall
be governed, construed and enforced in strict accordance with the laws of the
State of New York, without regard to principles of conflict of laws. Maker
irrevocably submits to the jurisdiction of any state or federal court sitting in
the State of New York or the State of Pennsylvania over any suit, action, or
proceeding arising out of or relating to this Note. Maker irrevocably waives, to
the fullest extent permitted by law, any objection that Maker may now or
hereafter have to the laying the venue of any such suit, action, or proceeding
brought in any such court, and any claim that any such suit, action, or
proceeding brought in any such court has been brought in an inconvenient forum.
20. Severability. If any one or more of the terms or
provisions of this Note shall for any reason be held to be invalid, illegal or
unenforceable, in whole or in part, or in any respect, or in the event that any
one or more of the provisions of this Note operate or would prospectively
-4-
<PAGE>
operate to invalidate this Note, then and in either of those events, such
provision or provisions only shall be deemed null and void and shall not affect
any other provision of this Note and the remaining provisions of this Note shall
remain operative and in full force and effect and shall in no way be affected,
prejudiced or disturbed thereby.
21. Notices. Any notices or deliveries required to be given in
connection with this Note shall be in writing and shall be deemed given when
delivered in person or by registered or certified mail, postage prepaid, return
receipt requested or by other delivery service providing evidence of receipt
made by hand delivery, at the following address or at such other address in the
United States as either party shall hereafter give notice of to the other in
writing:
If to Payee:
Winfield Capital Corp.
c/o Chief Executive Officer
237 Mamaroneck Avenue
White Plains, New York 10605
If to Maker:
Independence Brewing Company
c/o President
1000 East Comly Street
Philadelphia, Pennsylvania 19149
22. Binding Effect; Assignability. This Note shall inure to
the benefit of and be enforceable by Payee, its successors and assigns, and any
other person or entity to whom Payee may grant an interest in the Note, and
shall be binding upon Maker, its successors and assigns.
23. Expenses. Maker shall pay all of Payee's legal fees and
expenses incurred in the preparation and negotiation of this Note, the Guaranty
and the Pledge Agreement, which amount shall be due and payable by Maker on the
date otherwise required for the repayment of this Note pursuant to Section 2
hereof.
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<PAGE>
IN WITNESS WHEREOF, this Note has been executed by Maker under
seal this 16th day of July, 1996.
ATTEST: INDEPENDENCE BREWING
COMPANY
Tricia Parck By: /s/ Robert W. Connor, Jr., (SEAL)
- ----------------------------------- ----------------------------------
Robert W. Connor, Jr., President
GUARANTY
In order to induce Payee to accept the foregoing Note, the
undersigned, Robert W. Connor, Jr. (the "Guarantor") hereby unconditionally,
irrevocably and directly guarantees the punctual payment (and not just
collection) in full (whether by acceleration, declaration, extension or
otherwise) of the Principal Amount along with the then accrued and unpaid
interest, the payment of all other amounts due by Maker under the foregoing
Note, and the performance of all of the obligations of the Maker under the
foregoing Note, and all costs and expenses, including reasonable attorneys'
fees, incurred by or on behalf of the Payee in endeavoring to collect any of the
Maker's obligations hereunder (collectively, the "New Obligations"). The
obligations and liabilities of the Guarantor hereunder shall be direct,
immediate and primary and is one of payment and performance and not just
collection or surety. The liability of the Guarantor hereunder is absolute and
unconditional, not subject to any counterclaim, recoupment, setoff, reduction or
defense, without regard to the liability of any other person, and shall not in
any manner be affected by reason of any action taken or not taken by Payee, nor
by the partial or complete unenforceability or invalidity of the Pledge
Agreement, as defined below.
Guarantor has previously pledged to Payee all of his shares of
common stock of Maker pursuant to the Pledge Agreement. As a further inducement
to Payee to accept the foregoing Note, Guarantor hereby acknowledges and agrees
that the New Obligations shall constitute additional "Obligations" under the
Pledge Agreement, and that Pledgee shall be entitled to exercise any and all
rights of the Pledgee upon the occurrence of a Default (as defined in the Pledge
Agreement) under the Pledge Agreement with respect to the New Obligations
hereunder as if such New Obligations constituted Obligations under the Pledge
Agreement.
Payee shall be under no obligation to pursue, enforce or
exhaust its rights, powers and remedies against Maker or any collateral securing
the obligations described in the Note or the Pledge Agreement either before,
concurrently with or after pursuing its rights against the Guarantor.
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<PAGE>
Guarantor hereby consents to any and all agreements between
Payee and Maker, and any and all amendments and modifications thereof, whether
presently existing or hereafter made. Payee may, without compromising,
impairing, diminishing or in any way releasing the Guarantor from his
obligations hereunder, and without notifying or obtaining the prior approval of
the Guarantor, at any time or from time to time: (i) waive or excuse a default
or defaults by Maker, or delay in exercising any or all of Payee's rights or
remedies with respect to such default or defaults, (ii) grant extensions of time
for payment or performance by Maker, (iii) release Maker, or (iv) modify,
change, renew, extend or amend, in any respect, Payee's agreements with Maker.
Guarantor hereby waives (a) any and all notices whatsoever
with respect to the enforceability of this Guaranty or with respect to the
enforceability of the Note, including, but not limited to, (i) the notice and
enforceability of Payee's acceptance hereof or of Payee's intention to act, or
Payee's action in reliance thereon, and (ii) any default by Payee under the
Pledge Agreement or the foregoing Note, and (b) (i) presentment, protest and
demand for payment, notice of protest, notice of dishonor and nonpayment of any
sum due from Maker, (ii) notice of default by Maker, and (iii) demand for
performance by Payee.
The undersigned authorizes any attorney admitted to practice
before any court of record in the United States on behalf of the undersigned to
confess judgment against the undersigned in the full amount due under this
Guaranty including principal, accrued and unpaid interest and all other sums due
hereunder, including attorneys' fees equal to ten percent (10%) of such
aggregate amount. The undersigned agrees that venue shall be proper in the local
court of any city or county of the State of New York or the State of
Pennsylvania or in the United States District Court or Bankruptcy Courts for the
Southern District of New York or the district in Pennsylvania in which the
principal office of the Maker is located. The undersigned waives the benefit of
any and every statute, ordinance or rule of court which may be lawfully waived,
conferring upon the undersigned any right or privilege, of execution, or
supplementary proceeding or other relief from the immediate enforcement of a
judgment or related proceedings on a judgment. The authority and power to appear
for and enter judgment against the undersigned shall not be exhausted by one or
more exercises thereof or by any imperfect exercise thereof and shall not be
extinguished by any judgment entered pursuant thereto. Such authority may be
exercised on one or more occasions or from time to time in the same or different
jurisdictions as often as Payee shall deem necessary or desirable until all sums
due under this Note and this Guaranty have been paid in full and all of the
Obligations have been satisfied.
Guarantor hereby waives his right to a trial by jury in any
action or proceeding to which the Guarantor or Payee may be parties, arising out
of or in any way pertaining to this Guaranty. This waiver constitutes a waiver
of Guarantor's rights to a trial by jury of all claims against all parties to
such actions or proceedings.
-7-
<PAGE>
This Guaranty shall inure to the benefit of Payee, its
successors and assigns. This Guaranty shall be a continuing one and shall be
binding upon Guarantor, his successors, heirs, personal representatives and
assigns, until the entire amount of the Principal Amount, as such may exist from
time to time, has been paid or satisfied in full.
If this Guaranty is referred to an attorney for collection,
whether or not judgment has been confessed or suit has been filed, the Guarantor
shall pay all of Payee's reasonable attorney's fees resulting from such
referral.
This Guaranty shall be governed, construed and enforced in
strict accordance with the laws of the State of New York, without regard to
principles of conflict of laws. Guarantor irrevocably submits to the
jurisdiction of any state or federal court sitting in the State of New York or
the State of Pennsylvania over any suit, action, or proceeding arising out of or
relating to this Note. Guarantor irrevocably waives, to the fullest extent
permitted by law, any objection that Guarantor may now or hereafter have to the
laying the venue of any such suit, action, or proceeding brought in any such
court, and any claim that any such suit, action, or proceeding brought in any
such court has been brought in an inconvenient forum.
If any one or more of the terms or provisions of this Guaranty
shall for any reason be held to be invalid, illegal or unenforceable, in whole
or in part, or in any respect, or in the event that any one or more of the
provisions of this Guaranty operate or would prospectively operate to invalidate
this Guaranty, then and in either of those events, such provision or provisions
only shall be deemed null and void and shall not affect any other provision of
this Guaranty and the remaining provisions of this Guaranty shall remain
operative and in full force and effect and shall in no way be affected,
prejudiced or disturbed thereby. Neither this Guaranty nor any term, condition
or agreement hereof may be changed, waived, discharged or terminated orally, but
only by an instrument in writing signed by Guarantor and Payee.
IN WITNESS WHEREOF this Guaranty has been executed by the
undersigned under seal this 16th day of July, 1996.
WITNESS:
/s/ TRICIA PARCK /s/ ROBERT W. CONNOR, Jr. (SEAL)
- ------------------------------- --------------------------------
Robert W. Connor, Jr.
Assuming this agreement is
the same "terms and
conditions" as previous
notes & guaranty.
EXHIBIT 10.5
ALLONGE TO PROMISSORY NOTE
DATED JULY 16, 1996
THIS ALLONGE is made and entered into as of this 12th day of
August, 1996 by and among INDEPENDENCE BREWING COMPANY., a Pennsylvania
corporation (the "Company"), WCC CAPITAL CORP., a New York corporation ("WCC")
and ROBERT W. CONNOR, JR., ("Connor").
WHEREAS, the Company issued a Promissory Note (the "Note")
dated July 16, 1996 to WCC in the original principal amount of One Hundred
Thousand Dollars ($100,000); and
WHEREAS, Connor provided a guaranty of the payment and other
obligations of the Company under the Note by executing the Note and an attached
Guaranty dated July 16, 1996 (the "Guaranty"); and
WHEREAS, the Company, Connor, WCC and certain other parties
have entered into a Securities Purchase Agreement of even date herewith (the
"Securities Purchase Agreement") pursuant to which, among other things, the
Company has agreed to sell, and WCC has agreed to purchase, Debentures of the
Company in the principal amount of Four Hundred and Fifty Thousand Dollars
($450,000) (the "Debentures"), and WCC has agreed to act as standby purchaser
with respect to certain additional Debentures to be sold by the Company (the
"Remaining Debentures"); and
WHEREAS, pursuant to the terms of the Note, as heretofore
extended, all amounts due thereunder are due and payable no later than on August
15, 1996; and
WHEREAS, the Company has requested that WCC agree to further
extend the due date for repayment of the amounts due under the Note in order to
accommodate the Company's efforts to sell the Remaining Debentures to other
third parties, and to provide for the conversion of the principal amount of the
Note if WCC is called upon by the Company to purchase the Remaining Debentures,
or any portion thereof, and WCC has agreed to such requests on the terms and
conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants contained herein, and for other good and valuable
consideration, the receipt and sufficiently of which are hereby acknowledged,
the parties hereto hereby agree as follows:
1. Repayment of Principal Amount. The principal amount payable
with respect to the Note (as such amount may be reduced pursuant to the
following provisions of this Section 1 hereof, if applicable) shall be due and
payable in full on September 3, 1996; provided that if WCC has become obligated
as of such date pursuant
<PAGE>
to the terms of the Securities Purchase Agreement to purchase any portion of the
Remaining Debentures, the Company shall be entitled to retain a portion of the
principal amount hereof, as a payment by WCC of a portion of the purchase price
of the Remaining Debentures, equal to the positive difference of (i) the
principal amount of such Remaining Debentures which WCC shall have become
obligated to purchase as of such date, less (ii) the then principal amount of
that certain promissory note of the Company in favor of WCC dated May 9, 1996 as
amended pursuant to that certain Allonge to Promissory Note Dated May 9, 1996
(collectively, the "May 9th Note") which the Company has elected to apply to the
payment of the principal amount of such Remaining Debentures pursuant to the
terms of the May 9th Note. If the Company elects to retain any portion of the
principal amount hereof with respect to the purchase by WCC of such Remaining
Debentures as provided in this Section 1, then upon the issuance by the Company
of such Remaining Debentures to WCC, such principal amount shall thereupon, and
without any further action on the part of the parties hereto, be deemed to have
been repaid by the Company to WCC.
2. Interest. Notwithstanding any other provision of this
Allonge or of the Note to the contrary, all accrued and unpaid interest with
respect to the principal amount and all other charges which have accrued under
the Note shall be due and payable on September 3, 1996.
3. Guaranty; Stock Pledge Agreement. Connor hereby consents
and agrees to the amendment and modification of the Note on the terms and
conditions as contained in this Allonge and further agrees that his obligations
under the terms of the Guaranty, appended to the Note, shall remain in full
force and effect, notwithstanding such amendment and modification, as though
such amendment and modification were originally contained in the Note to WCC. In
addition, Connor hereby consents and agrees that his agreements and obligations
under the terms of that certain Stock Pledge Agreement of Connor and WCC dated
July 16, 1996 shall remain in full force and effect, notwithstanding the
amendment and modification of the Note on the terms and conditions as contained
in this Allonge, as though such amendment and modification were originally
contained in the Note and the Guaranty.
4. Continuing Effect of Note. The obligations of the Company
under and pursuant to the Note shall remain in full force and effect in
accordance with the terms and provisions thereof, except as specifically
modified as provided in Sections 1, 2, and 5 hereof. WCC agrees to affix the
original of this Allonge to the original executed Note to reflect the
modification of the Note by this Allonge. Notwithstanding any failure to so
affix this Allonge to the Note, for all purposes the Note shall be deemed
amended and modified by the terms of this Allonge. After the full execution of
this Allonge, for all purposes the Note, as modified by this Allonge, shall be
deemed to be one instrument and the Note as so modified shall not be deemed to
have been novated by this Allonge or the amendments contained herein.
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<PAGE>
5. Specific Performance. The parties agree that a breach of
any of the terms, conditions, representations or other obligations under this
Allonge may result in irreparable harm to the non-breaching party. Therefore,
the failure on the part of any party hereto to perform all of the terms,
conditions, representations and obligations established by this Allonge shall
give rise to a right in the non-breaching party to seek enforcement of this
Allonge in a court by a decree of specific performance. This remedy, however,
shall be cumulative and in addition to any other remedy the parties may have.
6. Miscellaneous.
(a) Choice of Law, Consent to Jurisdiction, Etc. This
Allonge shall be governed, construed and enforced in strict accordance with the
laws of the State of New York, without regard to principles of conflict of laws.
Each of the parties hereto hereby submits to the jurisdiction of any state or
federal court sitting in the State of New York over any suit, action or
proceeding arising out of or relating to this Allonge, and each hereby consents
and agrees to the laying of venue with respect to any suit, action or proceeding
arising out or relating to the Note or this Allonge in any such court. Each of
the parties hereto consents and agrees that service of process with respect to
any action brought hereunder may with respect to the Company or Connor be made
by U.S. mail upon Dominic S. Liberi, 3200 Mellon Bank Center, 1735 Market
Street, Philadelphia, Pennsylvania 19103.
(b) Binding Effect. This Allonge shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
personal representatives, heirs, successors and assigns, as the case may be.
(c) Entire Agreement. This Allonge sets forth the entire
understanding of the parties hereto with respect to the subject matter hereof,
and may not be changed, modified or amended except by a written instrument
signed by each of the parties hereto.
(d) Further Assurances. Each of the parties hereto agrees
to execute and deliver to the other(s) such further documents and instruments as
may be necessary or appropriate to fully effectuate the transactions
contemplated hereby.
(e) Counsel. Each of the parties to this Allonge has been
represented by counsel of his or its own choice. Each of the parties to this
Allonge (i) has read this Allonge and believes that it is fair to all parties,
and (ii) is appropriately sophisticated to understand its terms and provisions.
The fact that one counsel was the primary draftsman of this Allonge shall have
no legal effect with respect to the interpretation of this Allonge.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Allonge
under seal as of the date first above written.
WITNESS/ATTEST: INDEPENDENCE BREWING COMPANY
/s/ CHRISTINA CARE By:/s/ ROBERT W. CONNOR, JR. (SEAL)
- ------------------------- ----------------------------------
Assistant Secretary Robert W. Connor, Jr., President
/s/ CHRISTINA CARE /s/ ROBERT W. CONNOR, JR. (SEAL)
- ------------------------- ----------------------------------
Robert W. Connor, Jr.
WINFIELD CAPITAL CORP.
- ------------------------- By: (SEAL)
-----------------------------------
Paul A. Perlin, Chief Executive Officer
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EXHIBIT 10.6
SECURITIES PURCHASE AGREEMENT
By and Among
INDEPENDENCE BREWING COMPANY,
ROBERT W. CONNOR, JR., INDIVIDUALLY
and
WINFIELD CAPITAL CORP.
AND THE ADDITIONAL
INVESTORS WHO EXECUTE
A COUNTERPART TO
THIS AGREEMENT
Dated as of August 12, 1996
<PAGE>
Table of Contents
Page
----
I. DEFINITIONS AND RULES OF CONSTRUCTION
SECTION 1.1. Definitions
SECTION 1.2. Rules of Construction
II. ISSUANCE AND PURCHASE OF DEBENTURES AND WARRANTS
SECTION 2.1. Authorization of Debentures
SECTION 2.2. Issuance and Purchase of the Debentures; Standby
Purchase by WCC
SECTION 2.3. Issuance of Warrants
SECTION 2.4. Payment
SECTION 2.5. Closing Date
III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND CONNOR
SECTION 3.1. Organization, Qualification, and Corporate Power
SECTION 3.2. Authorization of Agreement, Etc.
SECTION 3.3. Issuance of Debentures, Warrants, Etc.
SECTION 3.4. Validity
SECTION 3.5. Capital Stock
SECTION 3.6. Governmental Approvals
SECTION 3.7. Consents
SECTION 3.8. Compliance With Law
SECTION 3.9. No Conflicts
SECTION 3.10. Financial Statements
SECTION 3.11. Payables and Liabilities
SECTION 3.12. No Undisclosed Liabilities
SECTION 3.13. No Changes
SECTION 3.14. Title to and Condition of Assets
SECTION 3.15. Intellectual Property Rights
SECTION 3.16. Litigation
SECTION 3.17. Contracts
SECTION 3.18. Leases
SECTION 3.19. Subsidiaries; Joint Ventures
SECTION 3.20. Taxes
SECTION 3.21. Insurance
SECTION 3.22. Employee Benefits
SECTION 3.23. Licenses and Permits
SECTION 3.24. Interest in Competitors, Suppliers, Customers, Etc.
SECTION 3.25. Employment Matters
SECTION 3.26. Discrimination; Occupational Safety; Labor
<PAGE>
SECTION 3.27. Related Party Transactions
SECTION 3.28. Brokerage Fee
SECTION 3.29. Investment Company Act
SECTION 3.30. Small Business Concern
SECTION 3.31. Officers, Directors
SECTION 3.32. Inventory; Accounts Receivable
SECTION 3.33. Environmental Matters
SECTION 3.34. Disclosure
IV. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
SECTION 4.1. Authorization
SECTION 4.2. Validity
SECTION 4.3. Investment
SECTION 4.4. Accredited Investor
SECTION 4.5 Due Diligence
SECTION 4.6. Disclosure
V. AFFIRMATIVE COVENANTS
SECTION 5.1. Financial Statements
SECTION 5.2. Projections
SECTION 5.3. Books, Records and Inspections
SECTION 5.4. Lawsuits; Defaults
SECTION 5.5. Reports to Stockholders
SECTION 5.6. Invitation to Attend Board Meetings
SECTION 5.7. Insurance
SECTION 5.8. Taxes
SECTION 5.9. Intellectual Property Rights
SECTION 5.10. Right of First Refusal Regarding Additional Issuances
SECTION 5.11. Maintenance of Corporate Existence; Compliance
SECTION 5.12. Full Access
SECTION 5.13. Assets
SECTION 5.14. Contracts and Obligations
SECTION 5.15. Employee Agreements
SECTION 5.16. SBA Documents, Etc.
SECTION 5.17. Termination of Covenants
-ii-
<PAGE>
VI. NEGATIVE COVENANTS
SECTION 6.1. Ordinary Course
SECTION 6.2. Extraordinary Actions
SECTION 6.3. Additional Issuances
SECTION 6.4. Encumbrances
SECTION 6.5. Distributions
SECTION 6.6. Capital Improvements
SECTION 6.7. Transactions with Related Persons
SECTION 6.8. Violation of Agreements
SECTION 6.9. Termination of Covenants
VII. CONDITIONS TO THE OBLIGATIONS OF
THE PURCHASERS AND COMPANY AT THE CLOSING
SECTION 7.1. Purchasers' Conditions to Closing
SECTION 7.2. Company's Conditions to Closing
VIII. ADDITIONAL OBLIGATIONS
SECTION 8.1. Unlocking
SECTION 8.2. Put Rights
SECTION 8.3. Calculation of Consideration
SECTION 8.4. Transfers of Capital Stock by Connor, Etc.
SECTION 8.5. Notice of Sales
SECTION 8.6. Option to Purchase by the Company
SECTION 8.7. Anti-Dilution Rights; Stock Legend
IX. INDEMNIFICATION
X. MISCELLANEOUS
SECTION 10.1. Expenses
SECTION 10.2. Survival of Representations and Warranties
SECTION 10.3. Notices
SECTION 10.4. Amendment, etc.
SECTION 10.5. Binding Effect
SECTION 10.6. Gender, etc.
SECTION 10.7. Headings
SECTION 10.8. Governing Law
SECTION 10.9. Further Assurances
SECTION 10.10. Enforceability
SECTION 10.11. Assignment
SECTION 10.12. Entire Agreement
SECTION 10.13. Counterparts
SECTION 10.14. Schedules and Exhibits
-iii-
<PAGE>
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement"), is made
this 12th day of August, 1996, by and among WINFIELD CAPITAL CORP., a New York
corporation ("WCC"), the additional persons who execute a counterpart to this
Agreement as additional investors (collectively, the "Additional Investors")
(WCC and the Additional Investors collectively being the "Purchasers"),
INDEPENDENCE BREWING COMPANY, a Pennsylvania corporation (the "Company") and
ROBERT W. CONNOR, JR. ("Connor").
WHEREAS, the Purchasers wish to purchase from the Company, and
the Company wishes to sell, the Company's Debentures for the aggregate total
amount of Eight Hundred Thousand Dollars ($800,000), with detachable warrants
upon and subject to the terms and conditions of this Agreement. Each Purchaser
will acquire that portion of the Debentures, for that amount of consideration,
listed herein or on a Subscription Agreement executed by such Purchaser in the
form attached hereto as Exhibit 1.1.65. WCC will acquire that portion of the
Series A Warrants, and all of the Series B Warrants, the Series C Warrants and
the Preferred Warrants of the Company, as set forth herein, and each Additional
Investor will acquire that portion of the Series A Warrants as provided in the
Subscription Agreement executed by such Additional Investor and the Company.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and conditions contained herein, the parties hereby agree as
follows:
I.
DEFINITIONS AND RULES OF CONSTRUCTION
Section 1. Definitions. As used in this Agreement, and unless
the context requires a different meaning, the following terms have the meanings
indicated:
1.1.1. "Act" means the Securities Act of 1933, as
amended, and the rules and regulations of the Securities and Exchange Commission
thereunder.
1.1.2. "Additional Investors" shall have the
meaning set forth in the recitals hereto.
1.1.3. "Additional Investor Closing Date" shall
have the meaning set forth in Section 2.2 hereof.
1.1.4. "Advance" shall have the meaning set forth
in Section 2.4(b) hereof.
<PAGE>
1.1.5. "Agreement" means this Securities Purchase
Agreement and the Exhibits and Schedules hereto, as the same may be amended,
supplemented or modified in accordance with the terms hereof.
1.1.6. "Allonge" and "Allonges" shall have the
meaning set forth in Section 2.4(b) hereof.
1.1.7. "Amended and Restated Articles" means the
Amended and Restated Articles of the Company in substantially the form attached
hereto and made a part hereof as Exhibit 1.1.7.
1.1.8. "Amended and Restated Bylaws" means the
Amended and Restated Bylaws of the Company in substantially the form attached
hereto and made a part hereof as Exhibit 1.1.8.
1.1.9. "Assets" shall mean all of the real,
personal, tangible and intangible property of the Company, and all rights
thereto.
1.1.10. "Board of Directors" means the Board of
Directors of the Company or any duly authorized committee of that Board.
1.1.11. "Budget" shall have the meaning set forth in
Section 6.1 hereof.
1.1.12. "Business" means the business of
manufacturing and producing, for sale at wholesale and at retail, craft brewed
ales, lagers and seasonal beers as well as other beverages for consumption,
including, but not limited to, soft drinks.
1.1.13. "Capital Stock" means, with regard to any
corporation, partnership or other business entity, any and all shares,
interests, participations or other equivalents (however designated), whether
voting or non-voting, representing ownership (whether direct, indirect or
contingent) of such corporation, partnership or other business entity.
1.1.14. "Closing" means the execution and delivery of
this Agreement and all agreements and documents contemplated or required by this
Agreement to be executed or delivered contemporaneously therewith.
1.1.15. "Closing Date" shall have the meaning set
forth in Section 2.5 hereof.
1.1.16. "Code" means the Internal Revenue Code of
1986, as amended.
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1.1.17. "Commission" means the Securities and
Exchange Commission or any similar agency having jurisdiction to enforce the
Act.
1.1.18. "Common Stock" means the common stock of the
Company, no par value.
1.1.19. "Company" means Independence Brewing Company,
a Pennsylvania corporation.
1.1.20. "Connor" means Robert W. Connor, Jr.
1.1.21. "Connor Employment Agreement" shall mean the
form of Employment Agreement entered into between the Company and Connor
attached hereto as Exhibit 1.1.21.
1.1.22. "Contracts" shall have the meaning set forth
in Section 3.17 hereof.
1.1.23. "Debentures" means the debentures of the
Company in the original principal amount of $800,000, in the form attached
hereto as Exhibit 1.1.23, issued to the Purchasers pursuant to the terms of this
Agreement.
1.1.24. "ERISA" shall mean the Employee Retirement
Income Security Act of 1974, as amended.
1.1.25. "Financial Statements" shall have the meaning
set forth in Section 3.10 hereof.
1.1.26. "Grantee" shall have the meaning set forth in
Section 8.4 hereof.
1.1.27. "Holders" shall mean the Purchasers and any
other Person who from time to time is the registered owner of the Debentures,
the Warrants or the shares of Capital Stock of the Company issuable upon
exercise of the Warrants;
1.1.28. "Intellectual Property Rights" shall mean (i)
any Patents, Trademarks, Trade Secrets, copyrights, designs and any pending
applications for any of the foregoing, (ii) any item, design, concept,
technique, invention, discovery or improvement, whether or not subject to a
Patent (or similar protection) and whether or not patentable, copyrightable or
capable of being similarly protected, including all Know How, and (iii) any
other right in intellectual property of any type or description, in each case on
a worldwide basis.
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1.1.29. "Investment Company Act" means the Investment
Company Act of 1940, as amended, and the rules and regulations of the Commission
promulgated thereunder.
1.1.30. "Investor Interest" means, with respect to
any particular Purchaser, the Debentures and Warrants purchased by a Purchaser
and the shares of Common Stock and Series B Preferred Stock issuable upon
exercise of the Series A Warrants, the Series B Warrants and the Series C
Warrants, as the case may be.
1.1.31. "Know-How" shall mean all (i) technical data
or information contained in design drawings, manuals, memoranda, formulations
and methods, (ii) specifications and performance criteria, (iii) operating
instructions and maintenance procedures, (iv) manufacturing and/or production
information, (v) computer-aided design, (vi) all rights under employment,
non-competition or similar agreements, and (vii) information relating to
disclosure and applications for Patents.
1.1.32. "Leases" shall have the meaning set forth in
Section 3.18 hereof.
1.1.33. "Legal Opinion" shall mean the form of legal
opinion of the Company attached hereto and made a part hereof as Exhibit 1.1.33.
1.1.34. "Lien" means (a) with respect to any asset,
any mortgage, pledge, lien, encumbrance, charge or adverse claim affecting title
or resulting in an encumbrance against real or personal property, or a security
interest of any kind (including a conditional sale or other title retention
agreement, any lease in the nature thereof, any option or other agreement to
sell and any filing of or agreement to give any financing statement under the
Uniform Commercial Code or equivalent statutes) of any jurisdiction and (b) in
the case of securities, any purchase option, call or similar right of a third
party with respect to such securities.
1.1.35. "Losses" shall have the meaning set forth in
Section 9.1 hereof.
1.1.36. "Moore Employment Agreement" shall mean the
form of Employment Agreement entered into between the Company and William Moore
("Moore") attached hereto as Exhibit 1.1.36.
1.1.37. "Omnibus Stock Plan" shall mean an incentive
stock plan to be established by the Company for 117,359 shares of Common Stock
as of the date hereof, in the form attached hereto as Exhibit 1.1.37.
1.1.38. "Patent" means any and all (i) patents, (ii)
patent applications, (iii) divisional patents or renewals, reissues, extensions,
continuations or
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continuations-in-part, (iv) inventor's certificates or the like, and (v) design
registrations,irrespective of the name in which such patents, patent
applications, divisional patents or renewals, reissues, extensions,
continuations or continuations-in-part or inventor's certificates or design
registrations are or were pending, granted or registered in any country or
jurisdiction in the world.
1.1.39. "Payables" shall have the meaning set forth
in Section 3.11 hereof.
1.1.40. "Permits" shall have the meaning set forth in
Section 3.23 hereof.
1.1.41. "Person" means any individual, corporation,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or other agency or political
subdivision thereof.
1.1.42. "Preferred Warrants" means warrants to
purchase Seventy Thousand (70,000) shares of Series B Preferred Stock issued to
WCC by the Company in the form attached hereto as Exhibit 1.1.42, as additional
consideration with respect to the purchase by WCC of at least Four Hundred and
Fifty Thousand Dollars ($450,000) of the principal amount of the Debentures in
the aggregate.
1.1.43. "Promissory Note" shall have the meaning set
forth in Section 2.4(b) hereof.
1.1.44. "Public Offering" means any offering of the
Company's Common Stock to the public pursuant to a Registration Statement as the
result of which shares of Common Stock are traded on either the New York Stock
Exchange, the American Stock Exchange or any NASDAQ stock market.
1.1.45. "Purchase Documents" means this Agreement,
the Debentures, the Warrants, the Registration Rights Agreements, the Amended
and Restated Articles, the Amended and Restated Bylaws, the Connor Employment
Agreement (and all amendments thereto), the Moore Employment Agreement, and the
Allonges, all as required pursuant to this Agreement as each may be amended from
time to time, and such other documents and agreements as are contemplated by
this Agreement.
1.1.46. "Purchasers" means WCC and the Additional
Investors, collectively.
1.1.47. "Purchaser's Common Stock" shall mean the sum
of the number of shares of Common Stock issued to a Purchaser upon exercise of
each of the
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First Warrant and the Third Warrant plus the number of shares of
Common Stock issuable to a Purchaser upon exercise of each of the First Warrant
and the Third Warrant.
1.1.48. "Registration Rights Agreements" means the
forms of Registration Rights Agreement to be entered into between the Company
and certain of the Purchasers, respectively, attached hereto as Exhibits
1.1.48(a), 1.1.48(b) and 1.1.48(c).
1.1.49. "Registration Statement" means any
registration statement filed by the Company with the Commission for a public
offering of the Common Stock and the sale of securities of the Company (other
than a registration statement on Form S-4 or S-8, or their successors).
1.1.50. "Remaining Debentures" shall have the meaning
set forth in Section 2.2 hereof.
1.1.51. "Remaining Series A Warrants" shall have the
meaning set forth in Section 2.3 hereof.
1.1.52. "Returns" shall have the meaning set forth in
Section 3.20 hereof.
1.1.53. "SBA" means the Small Business
Administration.
1.1.54. "Second Advance" shall have the meaning set
forth in Section 2.4(b) hereof.
1.1.55. "Second Promissory Note" shall have the
meaning set forth in Section 2.4(b) hereof.
1.1.56. "Second WCC Closing Date" shall have the
meaning set forth in Section 2.2 hereof.
1.1.57. "Secretary of State" means the Secretary of
the Commonwealth of Pennsylvania.
1.1.58. "Securities Exchange Act" means the
Securities Exchange Act of 1934, as amended, and the rules and regulations of
the Commission thereunder.
1.1.59. "Series A Preferred Stock" means the shares
of Series A Preferred Stock of the Company, par value of Ten Dollars ($10.00)
per share, authorized pursuant to the Amended and Restated Articles.
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1.1.60. "Series A Warrants" means the warrants issued
to each of the Purchasers by the Company in the form attached hereto as Exhibit
1.1.60, as additional consideration with respect to the purchase of the
Debentures, to purchase in the aggregate Four Hundred Fifteen Thousand Two
Hundred Seventy-Four (415,274) shares of Common Stock, as adjusted pursuant to
the terms and conditions of the First Warrant.
1.1.61. "Series B Preferred Stock" means the shares
of Series B Preferred Stock of the Company, par value of Ten Dollars ($10.00)
per share, authorized pursuant to the Amended and Restated Articles and issuable
pursuant to the exercise of the Second Warrant.
1.1.62. "Series B Warrants" means the warrants issued
to WCC by the Company in the form attached hereto as Exhibit 1.1.62, as
additional consideration with respect to the purchase of at least Four Hundred
and Fifty Thousand Dollars ($450,000) of the principal amount of the Debentures,
to purchase in the aggregate Three Million Five Hundred Thousand (3,500,000)
shares of Common Stock subject to adjustment pursuant to the terms and
conditions of the Series B Warrant.
1.1.63. "Series C Warrants" means warrants issued to
WCC by the Company in the form attached hereto as Exhibit 1.1.63, as additional
consideration with respect to the purchase of by WCC of at least Four Hundred
and Fifty Thousand Dollars ($450,000) of the principal amount of the Debentures
in the aggregate, entitling WCC to purchase Six Hundred Twenty-Two Thousand Nine
Hundred Twelve (622,912) shares of Common Stock as adjusted pursuant to the
terms and conditions of the Third Warrant.
1.1.64. "State" means each of the states of the
United States, the District of Columbia and the Commonwealth of Puerto Rico.
1.1.65. "Subscription Agreement" means the form of
Subscription Agreement entered into between the Company and the Additional
Investors in the form attached hereto as Exhibit 1.1.65.
1.1.66. "Tangible Personal Property" shall mean all
tangible personal property of all kinds owned, used or held by or on behalf of
any Person, whether or not in current use or production, including, but not
limited to, inventory, supplies, tools, equipment, records and vehicles.
1.1.67. "Trade Secrets" shall mean all information
that (i) derives independent economic value, actual or potentia, from not being
generally known to, and not being readily ascertainable through proper means by,
Persons who could (directly or indirectly) obtain economic value from its
disclosure or use, and (ii) is the subject of efforts by any Person with a
proprietary interest therein that are reasonable under the circumstances to
maintain its secrecy.
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1.1.68. "Trademarks" means any and all state, common
law, United States and foreign trademarks, service marks, trade names, logos,
trade dress, packaging design and similar means of identification of products
and services, including incidental use of any trade name for such purpose, and
applications or registrations for same.
1.1.69. "Warrants" means the Series A Warrants, the
Series B Warrants, the Series C Warrants and the Preferred Warrants,
collectively.
1.1.70. "WCC" means Winfield Capital Corp., a New
York corporation.
Section 1.2. Rules of Construction. Unless the context
otherwise requires:
1.2.1. A term has the meaning assigned to it;
1.2.2. "Or" is not exclusive;
1.2.3. Provisions apply to successive events and
transactions;
1.2.4. "Herein", "hereof " and other words of similar
import refer to this Agreement as a whole and not to any particular Article,
Section or other subdivision unless otherwise so provided.
II.
ISSUANCE AND PURCHASE OF DEBENTURES
AND WARRANTS
Section 2.1 Authorization of Debentures. The Company has, or
before the Closing will have, duly authorized the sale and issuance of Eight
Hundred Thousand Dollars ($800,000) in aggregate principal amount of its
Debentures.
Section 2.2 Issuance and Purchase of the Debentures; Standby
Purchase by WCC. Based upon the representations, warranties and covenants
contained herein, (i) the Company agrees to sell and issue to WCC, and WCC
agrees to purchase, the Debentures in the principal amount of Four Hundred and
Fifty Thousand Dollars ($450,000), and (ii) the Company agrees to sell and issue
to the Additional Investors in the aggregate Debentures in the remaining
principal amount of Three Hundred and Fifty Thousand Dollars ($350,000) (the
"Remaining Debentures"), and each Additional Investor agrees to purchase, that
portion of the Remaining Debentures in the amounts as
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set forth in a Subscription Agreement, provided that such Additional Investor
executes and delivers to the Company a Subscription Agreement, and tenders full
payment of the purchase price for the portion of the Remaining Debentures being
purchased by such Additional Investor, no later than September 3, 1996 (the
"Additional Investor Closing Date"). To the extent that the Additional
Investors, in the aggregate, fail to timely purchase the entire Remaining
Debentures as provided in this Section 2.2, the Company shall, no later than one
(1) business day after the Additional Investor Closing Date, provide WCC with
written notice as to the principal amount of the Remaining Debentures which have
not been purchased by the Additional Investors, WCC shall thereupon, within
three (3) business days thereafter (the "Second WCC Closing Date"), purchase the
entire amount of such Remaining Debentures, and the Company shall, upon WCC
tendering to the Company the purchase price for such Remaining Debentures, sell
such Remaining Debentures to WCC on the terms and conditions otherwise provided
herein. The Company shall use the proceeds received from the sale of the
Debentures solely for working capital purposes pursuant to the provisions of the
Budget (as defined below).
Section 2.3 Issuance of Warrants. Based upon the
representations, warranties and covenants contained herein, as additional
consideration for the purchase of the Debentures, (i) and as additional
consideration for WCC agreeing to act as standby purchaser of the Remaining
Debentures as provided in Section 2.2 hereof, the Company agrees to issue to WCC
the Series A Warrants, the Series B Warrants, the Series C Warrants and the
Preferred Warrants in the amounts set forth opposite WCC's name on Schedule 2.3
hereof, and (ii) the Company agrees to sell and issue to each Additional
Investor that portion of the remaining portion of the Series A Warrants (the
"Remaining Series A Warrants") in the amounts as set forth in a Subscription
Agreement entered into between such Additional Investor and the Company,
provided that such Additional Investor executes and delivers to the Company a
Subscription Agreement, and tenders full payment of the purchase price for the
portion of the Remaining Debentures being purchased by such Additional Investor,
no later than the Additional Investor Closing Date. To the extent that the
Additional Investors, in the aggregate, fail to timely purchase the entire
Remaining Debentures and WCC purchases the entire amount of such Remaining
Debentures, as provided in Section 2.2, the Company shall, on the Second WCC
Closing Date, issue to WCC the remaining portion of the Remaining Series A
Warrants which would have been issued to such Additional Investors if such
Additional Investors had timely purchased the portion of the Remaining
Debentures actually purchased by WCC. The Company agrees that upon the request
of WCC, the Company shall issue any portion of the shares of Series B Preferred
Stock, and the same proportion of the Series C Warrant, to one or more third
parties to the extent that such third parties tender payment to the Company of
the exercise price with respect to such shares of Series B Preferred Stock.
Section 2.4. Payment.
(a) As payment in full for the Debentures and against
delivery thereof, (i) on the Closing Date WCC shall deliver to the Company a
certified check or funds by wire transfer payable to the order of the Company in
the amount of Four Hundred Thousand Dollars ($400,000) plus the amount described
in Section 2.4(b) hereof, and (ii) no later than on the Additional Investor
Closing Date each of the Additional Investors shall deliver to the Company a
certified check or funds by wire transfer payable to the order of the Company in
an amount equal to the amount set forth in the Subscription Agreement entered
into between such Additional Investor and the Company. To the extent that WCC
purchases any portion of the Remaining Debentures as provided in Section 2.2
hereof, WCC shall deliver to the Company a certified check or funds by wire
transfer payable to the order of the Company in the amount of the principal
amount of such Remaining Debentures, subject to the option provided to WCC
pursuant to Section 2.4(c) hereof, no later than on the Second WCC Closing Date,
and on such Second WCC Closing Date the Company shall issue and deliver to WCC
the remaining portion of the Remaining Debentures and the Series A Warrants as
otherwise contemplated herein.
(b) WCC previously advanced the sum of One Hundred
Thousand Dollars ($100,000) (the "Advance") to the Company pursuant to a
Promissory Note dated May 9, 1996 (the "Promissory Note") and an additional sum
of One Hundred Thousand Dollars ($100,000) (the "Second Advance") pursuant to a
Promissory Note dated July 16, 1996 (the "Second Promissory Note"). It is hereby
acknowledged and agreed that on the Closing Date, (i) that portion of the
principal amount of the Advance equal to Fifty Thousand Dollars ($50,000) shall
be deemed to be repaid by the Company to WCC and contemporaneously therewith
shall be deemed to be paid by WCC for the Debentures issued to WCC such that,
upon WCC providing a certified check or wire transfer to the Company in the
amount of Four Hundred Thousand Dollars ($400,000) WCC shall be credited with
having paid the full amount of Four Hundred and Fifty Thousand Dollars
($450,000) as payment for the principal amount of Four Hundred and Fifty
Thousand Dollars ($450,000) of Debentures, (ii) the remaining principal amount
of the Advance and the full amount of the Second Advance shall continue to be
due and outstanding, and the date for repayment thereof shall be extended
pursuant to an allonge to each of the Promissory Note and the Second Promissory
Note in the forms attached hereto as Exhibits 2.4(b)(i) and 2.4(b)(ii) (each, an
"Allonge" and collectively the "Allonges"), (iii) on the Closing Date the
Company shall pay to WCC the sum of all accrued interest through the Closing
Date with respect to each of the Advance and the Second Advance.
(c) To the extent that the Additional Investors fail
to purchase the full amount of the Remaining Debentures and WCC becomes
obligated to purchase such amount, WCC shall be entitled, on the Second WCC
Closing Date, to convert the then remaining principal amounts of each of the
Advance and the Second Advance, or any portion of either, and/or accrued and
unpaid interest thereon, as payment for such remaining amount of the Remaining
Debentures, and the Company shall execute such
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documents as WCC may request to reflect such conversion. In such event, the
converted amounts of principal and/or interest of such Advance and Second
Advance shall be deemed to have been paid by the Company to WCC pursuant to the
Promissory Note and the Second Promissory Note, as the case may be. If such
converted amounts are less than such remaining amount of the Remaining
Debentures, WCC shall make such additional payments to the Company on the Second
WCC Closing Date as contemplated by the provisions of Section 2.4(a) hereof.
Section 2.5. Closing Date. The Closing with respect to WCC's
purchase of at least Four Hundred and Fifty Thousand Dollars ($450,000) of the
principal amount of the Debentures shall take place at the offices of Venable,
Baetjer, and Howard, 1800 Mercantile Bank & Trust Bldg., Baltimore, Maryland
21201 on the Closing Date. The Closing Date with respect to WCC's purchase of
the Debentures in the principal amount of Four Hundred and Fifty Thousand
Dollars ($450,000) is August 12, 1996, and the Closing Date with respect to each
Additional Investor's purchase of a Remaining Debenture shall be such date
thereafter on which the Company actually receives the purchase price therefore.
The Closing Date with respect to WCC's purchase of any Remaining Debentures
shall be deemed to be August 12, 1996.
III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
CONNOR
The Company and Connor hereby jointly and severally represent
and warrant to the Purchasers as of the date of this Agreement and as of the
Closing Date as follows:
Section 3.1. Organization, Qualification and Corporate Power.
(a) The Company is duly incorporated and organized
and validly subsisting under the laws of the Commonwealth of Pennsylvania, and
is duly licensed or qualified as a foreign corporation in each other
jurisdiction, if any, in which the nature of business transacted by it or the
character of the properties owned or leased by it makes such licensing or
qualification necessary. The Company has full power and authority (corporate and
other) to own and hold its properties and to conduct its Business as currently
conducted. The Company has the corporate power and authority to execute, deliver
and perform this Agreement and each other Purchase Document required to be
executed by it pursuant thereto, and to execute, issue and deliver the
Debentures, the Warrants, the Purchaser's Common Stock, the Series A Preferred
Stock and the Series B Preferred Stock. The Company is engaged solely in the
Business.
(b) True, complete and correct copies of (i) the
Company's Articles of Incorporation, and all amendments thereto, as certified by
the Secretary of
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State, and (ii) the Company's By-laws, as amended to date as certified by the
Secretary of the Company, and (iii) resolutions of the Board of Directors of the
Company authorizing the execution and delivery of the Purchase Documents and of
the stockholders of the Company authorizing the filing of the Amended and
Restated Articles are attached as Exhibit 3.1(b) hereof. All minutes of the
Company are contained in the minute books of the Company and have been
previously furnished to the Purchasers. No minutes have been included in such
minute books which have not heretofore been furnished to the Purchasers, and no
corporate action not reflected in such minute books has been taken.
Section 3.2. Authorization of Agreement, Etc. The execution,
delivery and performance by the Company and Connor of this Agreement, and of
each of the other Purchase Documents, has been duly authorized by all requisite
action and corporate action, and will not violate any provision of any law, any
order of any court or other agency of government.
Section 3.3. Issuance of Debentures, Warrants, Etc. The
Debentures and the Warrants, when issued, sold and delivered in accordance with
the terms hereof and for the consideration set forth herein, the shares of
Common Stock to be issued upon exercise of the Series A Warrants, the Series B
Warrants and the Series C Warrants and the shares of Series B Preferred Stock to
be issued upon exercise of the Preferred Warrants, when issued, sold and
delivered in accordance with the terms of the Series A Warrants, the Series B
Warrants, the Series C Warrants and the Preferred Warrants, respectively, will
each be duly and validly issued, fully paid and nonassessable, each will be free
from restrictions other than pursuant to the Registration Rights Agreements, and
each will not be issued in violation of any preemptive rights. The shares of
Common Stock issuable upon exercise of the Series A Warrants, the Series B
Warrants and the Series C Warrants, the shares of Series A Preferred Stock
issuable upon conversion of the Debentures, and the shares of Series B Preferred
Stock issuable upon exercise of the Preferred Warrants, have been, or will be on
or prior to the Closing, duly authorized and reserved for issuance, as the case
may be.
Section 3.4. Validity. This Agreement and each of the other
Purchase Documents have been duly executed and delivered by each of the Company
and Connor, as the case may be, and (assuming the due authorization, execution
and delivery by the Purchasers and Connor on his own behalf only) each
constitutes the legal, valid and binding obligations of the Company,
respectively, enforceable against each of them in accordance with their
respective terms, subject to general equity principles and to applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws from time to
time in effect affecting the enforcement of creditors' rights generally.
Section 3.5. Capital Stock.
(a) The authorized Capital Stock of the Company
immediately prior to the Closing will consist of Twenty Million (20,000,000)
shares of Common
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Stock, no par value, of which One Million One Hundred Seventy-Three
Thousand Five Hundred Eighty-Eight (1,173,588) shares of Common Stock are
validly issued and outstanding, fully paid and nonassessable, Ninety-Five
Thousand Three Hundred Six (95,306) shares of Common Stock are issuable with
respect to the exercise of certain outstanding rights issued by the Company, all
of which rights have been exercised as of the date hereof, Five Hundred Thousand
(500,000) shares of Series A Preferred Stock, par value Ten Dollars ($10.00) per
share, none of which are outstanding, and Five Hundred Thousand (500,000) shares
of Series B Preferred Stock, par value Ten Dollars ($10.00) per share, none of
which are outstanding. None of the issued and outstanding shares of Capital
Stock of the Company were issued in violation of any preemptive rights.
(b) The outstanding shares of Common Stock are owned
by the stockholders and in the numbers specified on Schedule 3.5(b) hereof. The
outstanding rights to receive that number of shares of Common Stock issuable
with respect to such rights are held by the stockholders, and with respect to
the number of such shares, specified on Schedule 3.5(b) hereof.
(c) Except as provided for in Schedule 3.5(c) or
otherwise in this Agreement or in the other Purchase Documents or in connection
with the transactions contemplated hereby, (i) no subscription, warrant, option,
convertible security or other right (contingent or other) to purchase or acquire
any shares of any class of Capital Stock of the Company is authorized or
outstanding, (ii) there is not any commitment of the Company to issue any
shares, warrants, options or other such rights or to distribute to holders of
any class of their Capital Stock any evidences of indebtedness or assets, and
(iii) the Company is not obligated (contingent or other) to purchase, redeem or
otherwise acquire any shares of its Capital Stock or any interest therein or to
pay any dividend or make any other distribution in respect thereof. Except with
respect to the rights granted to the Purchasers as provided in this Agreement or
in the other Purchase Documents or in connection with the transactions
contemplated hereby, no person or entity is entitled to any rights with respect
to the registration of Capital Stock of the Company under the Act. The Company
has reserved for issuance 117,359 shares of its Common Stock pursuant to the
Omnibus Stock Plan. The Company is not a party or subject to any agreement or
understanding, and, to the best of the Company's knowledge, there is no
agreement or understanding between any Persons, or between the Company and any
Persons, that affects or relates to the voting or giving of written consents
with respect to any Capital Stock of the Company or the voting by a director of
the Company.
Section 3.6. Governmental Approvals.
(a) Assuming that each of the Purchasers is an
"accredited investor" as defined in Regulation D promulgated pursuant to the
Act, other than the filing by the Company of a Form D with the Commission and
other filings required to be made with any securities commission of any State,
if applicable, no registration or filing with, or consent or approval of, or
other action by, any federal, state or other
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governmental agency or instrumentality is necessary for the valid execution,
delivery and performance of this Agreement or the issuance, sale and delivery of
the Debentures, the Warrants, the Series A Preferred Stock, the Series B
Preferred Stock or the Purchaser's Common Stock, except for filing of the
Amended and Restated Articles. The Company has not, nor, to the knowledge of the
Company or Connor has any Person or entity authorized or employed by the Company
directly or indirectly as agent, broker, dealer or otherwise in connection with
the offering or sale of the Debentures or the Warrants, offered the Debentures
or the Warrants or any similar security for sale to, or solicited any offers to
buy the Debentures or the Warrants or any similar security of the Company from,
or otherwise approached or negotiated with respect thereto with, any Person or
Persons other than the Purchasers under circumstances that have involved the use
of any form of general advertising or solicitation as such terms are used in
Regulation D under the Act, and the Company has not, nor, to the knowledge of
the Company has any Person acting on its behalf taken any action (including,
without limitation, any offer, issuance or sale of any security of the Company,
whether to a subsequent investor or otherwise, under circumstances which might
require the integration of such security with the offering of the Debentures or
the Warrants under the Act or the rules and regulations of the Commission
thereunder) in a manner which would make the exemptions afforded by the Act
unavailable for the offering, issuance or sale of the Debentures or the
Warrants.
(b) Except as specifically set forth on Schedule 3.6
attached hereto and made a part hereof, all of the filings, consents and
regulatory approvals required by any federal, state or other governmental agency
or instrumentality in connection with the rescission offers of the Company dated
July 11, 1996 and July 17, 1996, respectively have been filed by the Company
with such federal, state or other governmental agency or instrumentality, as the
case may be. The Company has made all rescission offers with respect to any and
all of its issuances of shares of Capital Stock issued as of the date hereof,
and with respect to all rights issued as of the date hereof which are
exercisable for or convertible into shares of Capital Stock of the Company, as
are required under all applicable laws, rules or regulations. Each of the
stockholders of the Company as of the date hereof required to receive a
rescission offer from the Company has either accepted or rejected such offer as
of the date hereof, and such rejections are set forth on Schedule 3.6. Attached
hereto as Exhibit 3.6 copies of all notices given by the Company relating to
such rescission offers.
Section 3.7. Consents. Except as specifically set forth on
Schedule 3.7 attached hereto and made a part hereof, there is no authorization,
consent, order or approval of, or notice to or filing with, any individual or
entity required to be obtained or given in order for the Company to consummate
the transactions contemplated hereby and to fully perform its obligations
hereunder.
Section 3.8. Compliance With Law. The Company is not in
violation of any order, writ, decree, judgment, or order of any court,
arbitrator, or governmental or regulatory body which violation would (i) affect
the legality, validity or enforceability of
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this Agreement or any of the other Purchase Documents; (ii) have a material
adverse effect on the Assets or Business of the Company; or (iii) impair the
Company's obligation to perform fully on a timely basis any material obligations
which it has or will have under this Agreement or under any of the other
Purchase Documents.
Section 3.9. No Conflicts. The execution, delivery and
performance by the Company of this Agreement and of the other Purchase Documents
and compliance by the Company with the terms and provisions hereof and thereof,
do not and will not (i) violate any provision of any law, rule or regulation,
order, writ, judgment, injunction, statute, decree, determination or award
having applicability to the Company or any of its Assets, (ii) conflict with or
result in a breach of or constitute a default under any provision of the charter
or by-laws of the Company, (iii) require any consent, approval or notice under
(except as previously obtained or made), or result in a violation or breach of,
or constitute (with or without due notice or laps of time or both) a default (or
give rise to any right of termination, cancellation or acceleration) under any
of the terms, conditions or provisions of any debenture, bond, mortgage,
indenture or loan or credit agreement, license or any other agreement or
instrument or obligation to which the Company is a party or by which the Company
or any of its Assets may be bound, or (iv) result in, or require the creation or
imposition of, any Lien upon or with respect to any of the Assets.
Section 3.10. Financial Statements. The Company has attached
as Exhibit 3.10 hereof true and complete copies of the audited financial
statements for the Company dated December 31, 1995, including balance sheets as
of such date, statements of income and expense, cash flows, retained earnings
and statement of changes in financial position for the period ending on such
date, together with the independent auditors report thereon (collectively, the
"Audited Financial Statements"), and unaudited financial statements dated as of
March 31, 1996, including balance sheet as of such date, statements of income
and expense, cash flow, retained earnings and statement of changes in financial
position and statement of cash flows, dated as of such date (collectively, the
"Unaudited Financial Statement") (the Audited Financial Statements and the
Unaudited Financial Statement are collectively referred to as the "Financial
Statements"). The Financial Statements (i) have been prepared from and in
accordance with the books and records of the Company in accordance with
generally accepted accounting principles applied on a basis consistent with past
practices, (ii) present fairly and accurately the financial position and
condition of the Company and the related results of operations as at the dates
and for the periods then ended, and (iii) contain no material misstatements or
omissions.
Section 3.11. Payables and Liabilities. The accounts and trade
payables (collectively, the "Payables") of the Company as of the date of the
Financial Statements, and those incurred since the date thereof, all were and
will be incurred in the ordinary course of business and are and will be in
amounts consistent with historical levels of accounts and trade payables of the
Company. Except as set forth on Schedule 3.11 attached hereto and made a part
hereof, the Company is current and is not in default with
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respect to all such Payables and all capital lease and other debt obligations
and liabilities with respect to which there is a current portion due, except
obligations and liabilities being contested in good faith by appropriate
proceedings, which obligations and liabilities for all such contested payables
do not exceed Ten Thousand Dollars ($10,000) in the aggregate.
Section 3.12. No Undisclosed Liabilities. Except as, and to
the extent reserved for in the Financial Statements and the notes thereto, the
Company did not on the respective dates thereof and on the Closing Date have any
liabilities or obligations, whether accrued, absolute or contingent, determined
or undetermined, known or unknown, or whether due or to become due, nor does any
basis exist for such liabilities or obligations.
Section 3.13. No Changes. Since March 31, 1996 there has not
been any (i) material adverse change in the condition (financial or otherwise)
of the Assets, liabilities, earnings, net worth, Business, operations or
prospects of the Company, or any fact or condition which could cause such a
change (ii) additional Liens on any of the Assets, (iii) other than with respect
to the Advance, entry into any transaction, commitment or agreement (including,
without limitation, any borrowing) material to the Company or outside the
ordinary course of business, (iv) damage, destruction or loss to the Assets or
Business (whether or not covered by insurance), (v) change in the accounting
principles, methods or practices followed, (vi) increase in the rate or terms of
compensation payable, or to become payable, by the Company to its officers, or
any change in the terms of any employment agreement or compensatory arrangement,
or any bonus, pension, insurance or other employee benefit plan, or any payment
or benefit made to or for any officer, (vii) sale, transfer or other disposition
of any Asset to any party, except for payment of third-party obligations
incurred in the ordinary course of business in accordance with the Company's
regular payment practices, (viii) termination or waiver of any rights of value
to the Business, (ix) except as specifically set forth on Exhibit 3.11, failure
by the Company to pay its Payables or other obligations in the ordinary course
of business consistent with past practices, (x) capital expenditure for
additions to property or equipment by the Company in excess of $10,000, (xi)
split, combination, exchange or reclassification of shares of Capital Stock of
the Company, (xii) except as set forth on Exhibit 3.13 attached hereto and made
a part hereof, issuance of shares of Capital Stock of the Company or of
securities convertible into or rights to acquire any such shares of Capital
Stock, (xiii) action or inaction which might cause the Company to incur any tax
liability not in the ordinary course of business, or (xiv) agreement, whether in
writing or otherwise, to take any action described in this Section 3.13.
Section 3.14. Title to and Condition of Assets. The Company
has good and marketable title to all of the Assets, including, without
limitation, those reflected on the Financial Statements and those acquired since
the date of the Financial Statements (except as since sold or otherwise disposed
of in the ordinary course of business), free
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and clear of any Lien of any nature whatsoever except for those disclosed on the
Financial Statements. All of the Company's Tangible Personal Property is in good
operating condition and repair, ordinary wear and tear excepted. All of the
Company's inventories are in good and merchantable condition and are of a
quality suitable and usable or salable in the ordinary course of business for
the purposes for which they are intended. The Company does not hold fee title to
any real property.
Section 3.15. Intellectual Property Rights. The Company owns
or has the right to use, and has the right and power to sell and license, the
Intellectual Property Rights necessary for its Business as now conducted and as
proposed to be conducted. Neither such Intellectual Property Rights, nor the use
thereof by the Company, nor any products manufactured, distributed or sold by
the Company, nor the conduct or operation of the Business, to the best knowledge
of the Company and Connor, infringes upon any Intellectual Property Rights of
any individual or entity. Except as set forth on Schedule 3.15 attached hereto
and made a part hereof, no claims have been asserted by any individual or entity
with respect to the Company's Intellectual Property Rights or challenging or
questioning the validity of any Intellectual Property Rights of the Company, and
there is no valid basis for any such claim. The Company is not bound by or a
party to any options, license or agreements of any kind with respect to its
Intellectual Property Rights which would be material to the Business as
conducted and as proposed to be conducted.
Section 3.16. Litigation. Except as set forth on Schedule 3.16
attached hereto and made a part hereof, there are no actions, lawsuits,
proceedings or investigations pending against the Company, its officers or
directors before or by any court, governmental body or regulatory authority
(federal, state, local or foreign), nor, to the best of the knowledge of the
Company and Connor are any being contemplated which, if determined adversely to
the Company, would adversely affect the properties, assets, or Business of the
Company.
Section 3.17. Contracts. Schedule 3.17 is a true and complete
list of all contracts, leases (other than with respect to real property leased
by the Company), instruments and other agreements (whether oral or written) to
which the Company is a party or by which the Company or any of its properties
may be bound (collectively, the "Contracts"). All of the Contracts are in full
force and effect, and there exists no default under any Contract. There are no
written or oral binding "side agreements" with any individual or business
whereby the Company has agreed to do any act or thing beyond the requirements of
formal written contracts executed by the Company.
Section 3.18. Leases. The Company is the sole lessee with
respect to, and is in actual possession of, those real properties described on
Schedule 3.18(a), and the Company has attached as Exhibit 3.18(a) copies of all
leases with respect to said leasehold interests (collectively, the "Leases").
Each person or entity claiming to be the fee simple owner of said leasehold
interests has expressly or by law covenanted to the
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Company that the Company will have quiet enjoyment to all such leasehold
interests covered by the Leases. The Company is the sublessor with respect to
all of those real properties described on Schedule 3.18(b) and the Company has
attached as Exhibit 3.18(b) copies of all subleases with respect to such
interests. All such subleases are in full force and effect and are terminable at
the will of the Company.
The Company has made all payments required to be made
with respect to the Leases, and there is no default, or alleged default, by the
Company under the Leases, nor, to the Company's or Connor's knowledge, has any
event occurred which, with the passage of time or notice, or both, would
constitute a default by the Company under the Leases, nor will the execution and
delivery of the Purchase Documents by the Company, nor the performance of its
obligations thereunder, constitute a default by the Company under the Leases.
Section 3.19. Subsidiaries; Joint Ventures. Except as set
forth on Schedule 3.19 attached hereto and made a part hereof, the Company does
not own any equity interest in, and is not in a control position with respect
to, any entity. The Company is not engaged, directly or indirectly, in any joint
ventures, partnerships or similar arrangements with any third parties.
Section 3.20. Taxes.
(a) The Company has duly and timely filed, or will
duly and timely file, all federal, foreign and applicable state and local
returns, declarations or statements with respect to all federal, state and local
income, property, sales, value added, use, occupancy, employment, payroll,
excise, withholding, customs duties and other taxes of any nature whatsoever
which are required to be filed as of the Closing Date (collectively, the
"Returns"). All taxes (and other charges) shown on such Returns or otherwise
required to be paid, and any deficiency assessments, penalties, interest and
other charges with respect thereto have been paid, and there is otherwise no
current liability for any unpaid taxes (or other charges) due in connection with
such Returns or otherwise. The Returns are true and correct in all material
respects. There are no tax liens (other than for taxes not yet due) on any of
the Assets and no basis exists for the imposition of any such liens.
(b) No federal, state, local, foreign and other
Returns of the Company for tax years that remain open under any applicable
statute of limitations have been examined by the IRS or other tax authorities
and no deficiencies have been asserted or assessments made as a result of
examinations (including all penalties and interest). There are no waivers,
agreements or other arrangements providing for extension of time with respect to
the assessment or collection of any unpaid tax, interest, or penalties relating
to the Company. No issues have been raised by (or are currently pending before)
the IRS or any other taxing authority in connection with any of the Returns
which could reasonably be expected to have a material adverse effect on the
financial condition of the
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Company, if decided adversely to the Company, nor are there any such issues
which have not been so raised but if so raised by the IRS or any other taxing
authority in connection with any of the Returns could, in the aggregate,
reasonably be expected to have such a material adverse effect.
(c) The Company has not made, has not become
obligated to make nor will, as a result of the transactions contemplated by this
Agreement, make or become obligated to make, any "excess parachute payment" as
defined in Code Section 280G. The Company has not elected to be treated as an S
corporation pursuant to Code Section 1362(a).
Section 3.21. Insurance. Schedule 3.21 attached hereto and
made a part hereof is a description of all insurance policies held by the
Company concerning the Business, its operations and the Assets. All of these
policies are in the respective principal amounts set forth on Schedule 3.21 and
such insurance is placed with financially sound, unaffiliated companies and is
adequate and appropriate in accordance with sound business practice. Each of the
policies referred to in Schedule 3.21 is in force and the premiums with respect
thereto are fully paid through the dates indicated thereon.
Section 3.22. Employee Benefits.
(a) The Company has furnished to the Purchasers a
written list of all employee benefit plans relating to employee benefits with
respect to which the Company has incurred or may incur any future or contingent
obligations, including, without limitation, all plans, agreements or
arrangements relating to deferred compensation, pensions, profit sharing,
retirement income or other benefits, stock purchase, stock ownership and stock
option plans, stock appreciation rights, bonuses, severance arrangements, health
and welfare benefits, insurance benefits and all other employee benefits or
fringe benefits (collectively referred to as the "Plans"). The Company has not,
nor has it ever, contributed to any multi-employer plan within the meaning of
ERISA Section 4001(a)(3), nor is the Company affiliated with any entity such
that the Company has, or might have in the future, any multi-employer plan
withdrawal liability under Subtitle E of Part IV of ERISA.
(b) Each Plan has been administered and operated in
all respects in accordance with its terms and applicable law. Where applicable,
each Plan is "qualified" within the meaning of Code Section 401(a) and each
related trust is exempt from tax under Code Section 501(a). No liability under
ERISA or otherwise has been incurred or, based upon existing facts, may be
expected to be incurred with respect to any Plan.
(c) The Company has not engaged in, or assumed any
liability or responsibility for, any transaction in connection with which
either, directly or indirectly, would be subject to either a civil penalty
assessed pursuant to ERISA Section
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502(i) or a tax imposed by Code Section 4975. No liability to the
Pension Benefit Guaranty Corporation ("PBGC") has been or is expected to be
incurred with respect to any Plan. PBGC has not instituted proceedings to
terminate any Plan. No "reportable event," within the meaning of ERISA Section
4043(b), has occurred with respect to any Plan. There exists no condition or set
of circumstances which presents a risk of termination or partial termination of
any Plan and which could result in a liability on the part of the Company
to the PBGC.
(d) Full payment has been made of all amounts which
the Company was required under the terms of any of the Plans to have paid as
contributions to such Plans on or prior to the date hereof, and no "accumulated
funding deficiency" (as defined in ERISA Section 302(a)(2) and Code Section
412(a)) whether or not waived, exists with respect to any such Plan.
(e) Other than for claims in the ordinary course for
benefits under the Plans, there are no actions, suits, claims or proceedings
pending or threatened, nor does there exist any basis therefor, which may result
in any liability with respect to any Plan to the Company or any Plan or trust
thereof.
(f) The present value of accrued benefits under each
Plan which is subject to Title IV of ERISA does not presently exceed the current
value of all the assets of such Plan allocable to such accrued benefits by more
than $5,000. For purposes of the representation in the preceding sentence, the
phrases "present value," "current value" and "accrued benefit" have the meanings
specified in ERISA Sections 3(26), 3(27) and 3(23), respectively.
(g) Except for continuation coverage under ERISA
Sections 601 et seq., no former employee of the Company nor any dependent of any
such former employee is entitled to any medical or dental benefits under any
Plan.
Section 3.23. Licenses and Permits. Schedule 3.23 attached
hereto and made a part hereof is a complete list of all governmental licenses,
franchises and permits and other governmental authorizations and approvals
required for the conduct of the Business as presently conducted (collectively,
the "Permits"). The Company has received all Permits necessary for the conduct
of the Business as presently conducted and there are no Permits which, if not
obtained by the Company, might have a material adverse effect on the operation,
conduct or condition of the Business or the Assets. The Company is not in
default in any material respect under any such Permits.
Section 3.24. Interest in Competitors, Suppliers, Customers,
Etc. No officer or director of the Company has any significant direct ownership
interest in any significant competitor, supplier or customer of the Company or
any property used in the operation of the Business.
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Section 3.25. Employment Matters. Except as set forth on
Schedule 3.25 attached hereto and made a part hereof, there are no oral or
written employment contracts or pension, bonus, profit sharing, stock option,
life, health, retirement welfare, or other agreements or arrangements providing
for employee remuneration or benefits to which the Company is a party or by
which it is bound, and all these contracts and arrangements are in full force
and effect. There have been no claims of defaults and there are no facts or
conditions which if continued, or on notice, will result in a default under any
such contracts or arrangements.
Section 3.26. Discrimination; Occupational Safety; Labor. No
Person (including, but not limited to, governmental agencies of any kind) has
any claim, or basis for any action or proceeding, against the Company arising
out of any statute, ordinance or regulation relating to discrimination in
employment or employment practices or occupational safety and health standards
(including, but without limiting the foregoing, The Fair Labor Standards Act, as
amended; Title VII of the Civil Rights Act of 1964, as amended; 42 U.S.C. 1981
or the Age Discrimination in Employment Act of 1967, as amended), which, if
upheld, would have a material adverse effect on the Business or condition,
financial or otherwise, of the Company. There is no pending or, to the best
knowledge of the Company and Connor, threatened federal or state equal
employment opportunity enforcement action or labor dispute, strike, or work
stoppage affecting the Business. The Company does not have collective bargaining
or similar agreements, nor does it have any obligation to bargain with any labor
organization as the representative of the Company's employees, and there is
neither pending, nor to the Company's or Connor's best knowledge threatened, any
labor dispute, strike or work stoppage which affects or which may affect the
Business or which may interfere with the continued operation of the Company. No
present or former employee of the Company has any claim against the Company for
(i) overtime pay, other than overtime pay for the current payroll period,
(ii) wages or salary (excluding bonuses and amounts accruing under pension and
profit sharing plans) for any period other than the current payroll period,
(iii) except as set forth in the Financial Statements, vacation, time off or pay
in lieu of vacation or time off, other than that earned in respect of the
current fiscal year, or (iv) any violation of any statute, ordinance or
regulation relating to minimum wages or maximum hours of work.
Section 3.27. Related Party Transactions. The Company has not
made or entered into any loan, contract, lease, commitment, arrangement or
understanding with Connor or any officer, director, shareholder or partner of
the Company or with any affiliate or associate of any of the foregoing.
Section 3.28. Brokerage Fee. The Company has not dealt with
any broker, finder, commission agent or other party in connection with the
transactions contemplated by this Agreement, and is not under any obligation to
pay any broker's fee or commission in connection with such transactions to any
Person.
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Section 3.29. Investment Company Act. The Company is not an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act.
Section 3.30. Smaller Business Concern. The Company is a
"smaller business concern" within the meaning of the Small Business Investment
Act of 1958, as amended, and the regulations thereunder.
Section 3.31. Officers, Directors. Schedule 3.31 attached
hereto and made a part hereof is a true and complete list of all current
officers and directors of the Company. During the ten (10) year period ending
with the Closing Date, none of the Company's officers or directors has been
arrested or convicted of any material crime, nor have any of them been
insolvent, the bankrupt in a bankruptcy, receivership or similar proceeding, or
any officer or director of any entity that was the bankrupt in any bankruptcy,
receivership or similar proceeding.
Section 3.32. Inventory; Accounts Receivable. All of the
inventory of the Company consists of merchandise of a quality and quantity
usable and salable in the ordinary course of the Company's Business, without
writedown. All of the inventory is valued at the lower of cost or market in
accordance with generally accepted accounting principles consistently applied.
All of the accounts receivable of the Company as of the date hereof as set forth
on Exhibit 3.32 are bona fide accounts receivable representing obligations for
the total dollar amounts thereof arising from bona fide, arms-length
transactions in the ordinary course of business. None of such accounts
receivable is subject to any defense, counterclaim, credit or offset, each is
collectible in the ordinary course of business without resort to litigation, and
there are no outstanding disputes with respect to any such accounts receivable.
Section 3.33. Environmental Matters. The Company has not
generated, used, transported, stored, treated, released, discharged or disposed
of any Hazardous Materials (as defined below) in violation of any local, State
or Federal statute or regulation on or from its leased premises or otherwise.
The Company has not received notice from any court, governmental agency, board
or regulatory authority or any other person, nor does either the Company or
Connor have any knowledge of, any violation of any local, State or Federal law,
ordinance or regulation relating to the environmental conditions on or about the
Company's leased premises or relating to the conduct of the Business, nor does
either the Company or Connor have knowledge of the existence at
such premises, in material quantities, of any substances or materials which are
Hazardous Materials. For purposes of this Section 3.33, the term "Hazardous
Materials" shall include, but not be limited to, substances defined as
"hazardous substances", "toxic substances", "hazardous materials", or "hazardous
waste" in (i) the Federal Comprehensive Environmental Response Compensation and
Liability Act of 1980, as amended, (ii) the Federal Hazardous Materials
Transportation Act, as amended, (iii) the Federal Resource Conservation and
Recovery Act of 1976, as amended, (iv) the laws of
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the Commonwealth of Pennsylvania, and (v) as such substances are defined in the
regulations adopted in publications promulgated pursuant to such laws. The
Company is in compliance with all applicable environmental laws, permits and
authorizations and has obtained all such applicable permits as listed on
Schedule 3.33 attached hereto and made a part hereof. To the knowledge of the
Company and Connor, there are no actions or circumstances pertaining to the
Business that may give rise to any environmental claims in the future. For
purposes of this Section 3.33, the term "environmental laws" shall include all
Federal, State and local laws and regulations relating to the protection of
human health or the environment, including, but not limited to, laws relating to
any conceivable handling, discharge, spillage or migration of Hazardous
Materials.
Section 3.34. Disclosure. Neither this Agreement nor any
exhibit hereto, nor any other document furnished to any of the Purchasers in
connection with the transactions contemplated by this Agreement contains or will
contain any material misstatement of fact or omits or will omit to state a
material fact necessary to make the statements contained herein or therein not
misleading. Each of the documents provided by the Company to the Purchaser are
materially complete and can be relied upon by each Purchaser as being true and
accurate. Neither the Company nor Connor has any information or knowledge of any
fact which has not been disclosed to the Purchasers and which, if disclosed,
might reasonably be expected to deter a prudent businessman from completing the
transactions contemplated by this Agreement and the other Purchase Documents
upon the price and terms set forth herein and therein.
IV.
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each of the Purchasers severally represents and warrants to
the Company and to each other as follows:
Section 4.1. Authorization. Each Purchaser has full power and
authority to execute and deliver this Agreement in accordance with its terms.
All action on the part of the Purchasers necessary for the authorization,
execution, delivery and performance of all obligations of the Purchasers under
this Agreement has been taken.
Section 4.2. Validity. This Agreement, when executed and
delivered by the Purchasers (assuming the due authorization, execution and
delivery by the Company and Connor) shall constitute a legal, valid and binding
obligation of each Purchaser, enforceable against each of Purchaser in
accordance with its terms, subject to general equity principles and to
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
from time to time in effect affecting the enforcement of creditors rights
generally.
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Section 4.3. Investment. Each Purchaser is acquiring the
Investor Interest for his own account and not with a view toward the
distribution or resale of the Investor Interest or any part thereof in any
transaction which would be in violation of the securities laws of the United
States of America or any State, without prejudice, however, to the Purchasers'
rights as set forth herein at all times to sell or otherwise dispose of all or
any part of the Investor Interest to any Person pursuant to a registration
statement under the Act and any comparable State act or under an exemption from
such registration available under the Act and any comparable State act. Each of
the Purchasers has been advised that the Investor Interest has not been
registered under the Act or the securities laws of any State.
Section 4.4. Accredited Investor. Each of the Purchasers is an
"accredited investor" as defined in Rule 501(a) promulgated by the Commission
pursuant to the Act.
Section 4.5. Due Diligence. EACH OF THE PURCHASERS HAS HAD A
FULL OPPORTUNITY TO CONDUCT SUCH DUE DILIGENCE REVIEW OF THE COMPANY, INCLUDING,
BUT NOT LIMITED TO, ASKING QUESTIONS OF THE OFFICERS OF THE COMPANY, AS SUCH
PURCHASER HAS DEEMED NECESSARY OR APPROPRIATE IN DETERMINING WHETHER TO
UNDERTAKE THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH OF THE
PURCHASERS HAS REVIEWED EACH AND EVERY ONE OF THE SCHEDULES AND EXHIBITS
ATTACHED TO THIS AGREEMENT. NONE OF THE PURCHASERS IS RELYING UPON ANY OF THE
OTHER PURCHASERS IN MAKING HIS DETERMINATION WHETHER TO ENTER INTO THIS
AGREEMENT AND TO CONSUMMATE THE TRANSACTIONS CONTEMPLATED HEREIN. EACH OF THE
ADDITIONAL INVESTORS IS CURRENTLY AN EXISTING STOCKHOLDER OF THE COMPANY AND HAS
HAD A FULL AND COMPLETE OPPORTUNITY TO ASK ANY AND ALL QUESTIONS OF THE
MANAGEMENT OF THE COMPANY WITH RESPECT TO THE OPERATIONS OF THE COMPANY AND ITS
PROSPECTS. EACH OF THE ADDITIONAL INVESTORS ACKNOWLEDGES THAT ANY AND ALL DUE
DILIGENCE CONDUCTED BY WCC WITH RESPECT TO WCC'S DECISION TO ENTER INTO THIS
AGREEMENT AND TO CONSUMMATE THE TRANSACTIONS CONTEMPLATED HEREIN WAS CONDUCTED
BY WCC FOR ITS OWN BEHALF AND NOT FOR OR ON BEHALF OF ANY OF THE ADDITIONAL
INVESTORS, AND NONE OF THE ADDITIONAL INVESTORS IS IN ANY WAY RELYING UPON WCC
IN MAKING SUCH ADDITIONAL INVESTOR'S DECISION TO ENTER INTO THIS AGREEMENT AND
TO CONSUMMATE THE TRANSACTIONS DESCRIBED HEREIN.
Section 4.6. Disclosure. No representation or warranty by any
of the Purchasers, nor any document furnished or to be furnished to the Company
pursuant
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hereto or in connection with the transactions contemplated hereby, contains or
will contain any material misstatement of fact or omits or will omit to state a
material fact necessary to make the statements contained herein or therein not
misleading.
V.
AFFIRMATIVE COVENANTS
The Company covenants and agrees as follows:
Section 5.l. Financial Statements. The Company shall provide
to WCC, (i) within forty-five (45) days after the end of each month year-to-date
unaudited balance sheets as of the end of such month and unaudited statements of
income and of changes in financial condition of the Company for such month and
for the current fiscal year prepared on a basis consistent with past practices
as certified by the president of the Company and a one-page management summary
of operations, (ii) within forty-five (45) days after the end of each fiscal
quarter of the Company, year-to-date unaudited balance sheets as of the end of
each such quarter and unaudited statements of income and of changes in financial
condition of the Company for such quarter and for the current fiscal year, each
prepared in accordance with generally accepted accounting principles
consistently applied and certified by the president of the Company, (iii) within
ninety (90) days after the fiscal year end of the Company, an audited balance
sheet as of the end of such year and audited statements of income and of changes
in financial condition of the Company for such year, certified by independent
certified public accountants selected by the Company and acceptable to WCC,
prepared in accordance with generally accepted accounting principles
consistently applied, and (iv) within thirty (30) days after the end of each
fiscal quarter of the Company, a certificate signed by the president and chief
financial officer of the Company that no default has occurred within the last
fiscal quarter with respect to any loan, contract or obligation under which the
Company is obligated to pay or entitled to receive at least the sum of $10,000
and that no default has occurred under the Purchase Documents, or describing the
nature of any such default.
Section 5.2. Projections. At least thirty (30) days prior to
the end of each fiscal year, the Company shall provide WCC with projected
financial statements of the Company for the following two (2) fiscal years, to
be prepared in accordance with a format mutually acceptable to the Company and
WCC. All such projections shall represent the good faith estimate of management
of the Company as to such future operations, but it is acknowledged that such
projections are not intended and shall not be deemed to guaranty the future
operations of the Company consistent therewith.
Section 5.3. Books, Records, and Inspections. The Company will
at all times (i) maintain complete and accurate books and records, and (ii) upon
reasonable notice at any reasonable time and from time to time, permit any
Person designated by a
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Purchaser to enter, examine, audit, and inspect all properties, books,
operations, and records of the Company wherever such properties, books, and
records are located.
Section 5.4. Lawsuits; Defaults. Within thirty (30) days after
filing or receipt, the Company shall provide WCC with copies of all pleadings
filed in connection with any material suits or proceedings filed by or against
the Company. Within ten (10) days after receipt of any notification, the Company
shall provide WCC with copies of any notifications received by it relating to
any failure of it to pay or perform a material loan, lease, contract or other
material agreement to which the Company is a party after expiration of any
applicable grace or cure period. A loan, lease, contract or other agreement to
which the Company is a party shall be considered "material" for purposes of this
Section 5.4 hereof only if such loan, lease, contract or other agreement
provides for the payment to the Company of at least $10,000 in the aggregate, or
a payment by the Company of at least $10,000 in the aggregate.
Section 5.5. Reports to Stockholders. The Company will furnish
to WCC, within thirty (30) days after the filing or making thereof, at least one
(1) copy of all financial statements, reports, notices, and proxy statements
sent by it to its stockholders, and of all other documents and reports filed by
the Company with any governmental agency, including, but not limited to, the
Commission and the Internal Revenue Service.
Section 5.6. Invitation to Attend Board Meetings. The Company
shall invite two (2) representatives of WCC to attend each meeting of the Board
of Directors of the Company and shall invite all representatives of WCC to
attend each meeting of the stockholders of the Company, and shall provide prior
written notice of each such meeting to WCC concurrent with the provision by the
Company of notice to its directors and stockholders, as the case may be. The
Company, including its existing members of the Board of Directors, shall consult
with WCC prior to selecting any persons to fill vacant or additional seats on
the Board of Directors.
Section 5.7. Insurance. The Company shall maintain in full
force and effect the insurance coverage relating to the Business in amounts not
less than those maintained as of the date of this Agreement as set forth on
Schedule 3.21 hereof, but in all events in such amounts, and on such terms, as
are acceptable to WCC. Each of the Purchasers shall be designated as loss payee
on all such insurance policies in an amount, in the aggregate, not less than the
sum of the stated value of the Debentures held by each such Purchaser plus all
accrued and unpaid interest (plus the stated value of all shares of Series B
Preferred Stock outstanding from time to time plus all accrued and unpaid
dividends thereon). The Company will also maintain key man life insurance on the
life of Connor in the amount of not less than One Million Dollars ($1,000,000)
and each Purchaser will be designated as loss payee on such policy. Within
thirty (30) days after the end of each fiscal year of the Company, the Company
shall provide WCC with a list
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of all insurance then maintained by the Company, setting forth the amount of
coverage thereof and such other terms as WCC may request.
Section 5.8. Taxes. The Company shall duly and timely file
with appropriate federal, state and other governmental agencies all tax returns
and other reports required to be filed by it. The Company shall timely pay in
full and/or make adequate provisions for the payment of all taxes, interest,
penalties, assessments or deficiencies shown to be due on the tax returns or by
any taxing authorities, and not enter into any agreement, waiver or other
arrangement providing any extension of time with respect to the filing of any
tax return or report, or the payment or assessment of tax.
Section 5.9 Intellectual Property Rights. The Company shall in
good faith consult with representatives of WCC from time to time regarding the
protection of the Company's Intellectual Property Rights, and shall thereafter
take all steps that (based upon such consultation and upon diligent inquiry of
management and various legal counsel qualified to render advice in matters
involving the Intellectual Property Rights in various jurisdictions) are
reasonably necessary to protect its Intellectual Property Rights, whether now
existing or hereafter developed or acquired.
Section 5.10. Right of First Refusal Regarding Additional
Issuances. Commencing on the Closing Date, if the Company at any time desires to
issue any shares of its Capital Stock or any securities or other obligations or
rights exercisable for any stock rights, warrants or other securities or
obligations convertible into, or exchangeable for shares of Capital Stock, it
shall first afford WCC, by written notice, the right to purchase such shares of
Capital Stock or other securities within thirty (30) days of such notice, by
providing written notice to the Company within such thirty (30) day period. WCC
shall be entitled to purchase such shares of Capital Stock on terms and
conditions no less favorable than those otherwise made available by the Company
to third parties. The rights of WCC set forth herein shall not apply to any
securities to be issued (i) to the public pursuant to a Public Offering,
(ii) pursuant to the exercise of the Warrants, or (iii) as a result of a stock
split, stock dividend or reclassification of shares of Capital Stock of the
Company that affects all stockholders of the Company equally.
Section 5.11. Maintenance of Corporate Existence; Compliance.
The Company shall take all necessary steps to maintain its corporate existence
and all rights to the Assets, and will engage only in such business activities
as currently constitute the Business. The Company shall keep the Business and
its Assets substantially intact, including its present operations, physical
facilities, working conditions and relationships with lessors, licensees,
suppliers, customers, employees and others having business relationships
with it.
Section 5.12. Full Access. The Company shall permit and
provide the Purchasers to have full and free access at all reasonable times to
all premises, properties, personnel, books, records and documents of the
Company.
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Section 5.13. Assets. The Company shall maintain the Assets
and facilities in a usable and serviceable operating condition, reasonable wear
and tear excepted, on a basis consistent with prior years and with past
practices.
Section 5.14. Contracts and Obligations. The Company shall
(i) maintain in full force and effect, and perform all of its obligations under
all of the Contracts, Permits and approvals necessary for, or related to, the
conduct of the Business, its operations and Assets, and (ii) perform all of its
obligations under all debt and similar instruments.
Section 5.15. Employee Agreements. The Company shall, as soon
as practicable, cause such key employees and independent contractors as may be
identified by WCC from time to time, to enter into employment agreements and
consulting agreements, as the case may be, with the Company, on terms and
conditions acceptable to WCC.
Section 5.16. SBA Documents, Etc. The Company shall execute
and deliver to WCC such forms issued or required by the SBA and any other
regulatory authority, at such times as WCC may require, in order to permit WCC
to timely satisfy any applicable requirements of the SBA or such other
regulatory authority. Such information shall be provided no later than thirty
(30) days after the close of the Company's fiscal year and at such other times
as WCC may request. At WCC's request, the Company shall also provide such
information directly to the SBA and such other regulatory authorities, and shall
provide to WCC, within ten (10) days after any request by WCC, such other
information necessary in the opinion of WCC to enable WCC to prepare any form or
fulfill any requirement imposed by a governmental agency with jurisdiction over
WCC or otherwise.
Section 5.17. Termination of Covenants. The covenants of the
Company contained in this Article V shall terminate, and shall be of no further
force and effect, upon the first to occur of (i) the repayment of all amounts of
principal and interest due with respect to the Debentures, or (ii) a
Registration Statement becoming effective with the Commission; provided that,
upon the exercise of the Second Warrant, such covenants shall be in force (if
earlier terminated, such covenants shall thereupon be reinstated) until the
first to occur of (iii) the repayment of all amounts of principal and interest
due with respect to the Debentures and the redemption of, and full payment of
all amounts due with respect to, the shares of Series B Preferred Stock, or
(iv) a Registration Statement becoming effective with the Commission.
Notwithstanding the foregoing, the covenant set forth in Section 5.10 (Right of
First Refusal) shall continue in full force and effect until a Registration
Statement has become effective with the Commission, and the covenant set forth
in Section 5.16 (SBA Documents, Etc.) shall continue in full force and effect
with respect to WCC until WCC has disposed of its entire Investor Interest.
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VI.
NEGATIVE COVENANTS
The Company covenants and agrees that it shall not undertake
each of the following actions without the prior written consent of the
Purchasers holding a majority of the outstanding principal amounts of the
Debentures:
Section 6.1. Ordinary Course. Without taking any action or
making any expenditure outside of the normal and ordinary course of business,
the Company shall (i) carry on its business in substantially the same manner
consistent with past operations, (ii) not enter into any obligation or lease out
of the ordinary course of business requiring the annual payment in any fiscal
year of the Company in an amount in excess of Ten Thousand Dollars ($10,000) in
the aggregate for each such obligation, except as permitted pursuant to an
annual budget to be agreed upon each fiscal year by the Company and the
Purchasers (the "Budget"), the initial one of which is attached hereto as
Exhibit 6.1, (iii) not incur or increase any indebtedness for borrowed money
other than (A) for working capital purposes in the aggregate amount of not more
than $150,000, provided that if the Company desires to incur such indebtedness
in excess of such amounts the Company may do so with WCC's consent, which
consent shall not be unreasonably withheld, or (B) pursuant to borrowing
facilities in existence as of the date hereof, or refinancings of such borrowing
facilities on terms no less favorable to the Company than are currently
applicable, (iv) except as set forth in the Budget, preserve its present
business organization intact, (v) use its best efforts to keep available the
services of present officers, (vi) except as set forth in the Budget, make no
material increase in levels of officer staffing, (vii) preserve its present
relationships with Persons having business dealings with them, and (viii) not
increase the amount of, or prepay, any payment pursuant to any Contract.
Section 6.2. Extraordinary Actions. The Company shall not, and
shall not attempt to, (i) enter into any merger, consolidation or other
combination with or into, or purchase any other business entity or the assets
constituting a principal portion of another business, or (ii) liquidate or
dissolve, or (iii) amend its charter or bylaws, or alter its corporate
structure, or (iv) purchase an equity interest in any entity, or (v) establish
any partly or wholly owned subsidiaries or joint ventures, or (vi) propose or
enter into, or consummate any agreement with respect to the sale, transfer or
other disposition of any of its Assets outside of the normal and ordinary course
of its business consistent with its past practices, or (vii) change the location
or nature of its Business, or (viii) invest in any endeavor not strictly related
to the Business and the property used in the conduct of the Business.
Section 6.3. Additional Issuances. The Company shall not issue
any shares of its Capital Stock or options, convertible debt or other rights, or
redeem the
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same, except issuances for the purposes of repaying all amounts due under the
Debentures or redeeming the shares of Series A Preferred Stock or Series B
Preferred Stock as permitted under the Amended and Restated Articles, provided
that any such Capital Stock, options, convertible debt or other rights issued
for such purpose shall not have any rights or preferences (whether by way of
liquidation, dividend, voting or otherwise) senior to any securities of the
Company which any Holder will continue to own after such issuance or sale is
consummated. The Company may repay the Debentures as otherwise provided under
the terms and provisions thereof only if such repayment is made pro rata as
among all holders of such Debentures based upon the principal amount of such
Debentures then held by all such holders.
Section 6.4. Encumbrances. The Company shall not pledge, sell,
lease, transfer, dispose or otherwise encumber any of its Assets, or permit the
creation or existence of any Lien on any of its Assets, other than liens for
indebtedness reflected on the Financial Statements, Liens for indebtedness
incurred in accordance with the Budget, or Liens with respect to capital
improvements pursuant to Section 6.6 hereof.
Section 6.5. Distributions. The Company shall not declare or
pay any dividends, or make any distributions in cash, securities, capital stock
or otherwise, on its shares of Capital Stock other than the Series A Preferred
Stock or Series B Preferred Stock, or in any other manner whatsoever advance,
transfer or distribute cash or cash equivalents to the holders of Capital Stock
or the Company's directors or other personnel, or repurchase any outstanding
shares of Capital Stock (other than the shares of Series A Preferred Stock or
Series B Preferred Stock).
Section 6.6 Capital Improvements. The Company shall not expend
in excess of Thirty Thousand Dollars ($30,000) in the aggregate in any fiscal
year for capital improvements or similar corporate purposes other than pursuant
to the Budget.
Section 6.7. Transactions with Related Reasons. The Company
shall not enter into any Contract or other obligation with any Person or
affiliate of any person who directly or indirectly owns any shares of its
Capital Stock, or any officer, director or other management personnel or
employee, or affiliate, on terms and conditions any less favorable than would be
received from any independent third party in the ordinary course of business.
Section 6.8. Violation of Agreements. The Company shall not
violate or fail to observe any of the terms and conditions of any agreements
entered into between the Company and the Purchasers, including, but not limited
to, the Company's obligation pursuant to each of the Purchase Documents.
Section 6.9. Termination of Covenants. The covenants of the
Company contained in this Article VI shall terminate, and shall be of no further
force and effect, until the first to occur of (i) the repayment of all amounts
of principal and interest
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due with respect to the Debentures, or (ii) a Registration Statement becoming
effective with the Commission; provided that, upon the exercise of the Second
Warrant, such covenants shall be in force (if earlier terminated, such covenants
shall thereupon be reinstated) until the first to occur of (iii) the repayment
of all amounts of principal and interest due with respect to the Debentures and
the redemption of, and full payment of all amounts due with respect to, the
shares of Series B Preferred Stock, or (iv) a Registration Statement becoming
effective with the Commission.
VII.
CONDITIONS TO THE OBLIGATIONS OF THE PURCHASERS
AND COMPANY AT THE CLOSING
Section 7.1. Purchasers' Conditions to Closing. The obligation
of each of the Purchasers to purchase and pay for the Debentures issuable to
such Purchaser and to consummate the other transactions contemplated by the
Purchase Documents on the Closing Date is subject to the fulfillment, or the
waiver by such Purchaser, of each of the following conditions. To the extent
that WCC becomes obligated to purchase any portion of the Remaining Debentures,
such conditions shall also be satisfied as of the Second WCC Closing Date. If
WCC exercises the Preferred Warrant, such conditions shall also be satisfied as
of the date WCC tenders payment of the exercise price of the Preferred Warrant.
The provisions set forth in this Section 7.1 shall survive the Closing hereunder
and the Second WCC Closing Date.
(a) Representations and Warranties to be True and
Correct. The representations and warranties of the Company and Connor contained
herein shall be true and correct in all material respects on and as of the
Closing Date (and, if applicable, on the Second WCC Closing Date) with the same
effect as though such representations and warranties had been made on and as of
such date (or dates), and the Purchasers shall have received a certificate in
the form attached hereto as Exhibit 7.1(a) executed by the Company and by Connor
certifying that such representations and warranties are true and correct as of
such date (or dates).
(b) Performance. The Company and Connor shall have
performed and complied in all material respects with all agreements and
conditions contained herein required to be performed or complied with by them
prior to or at the Closing Date (and, if applicable, prior to or at the Second
WCC Closing Date).
(c) All Proceedings to be Satisfactory. All corporate
and other proceedings to be taken by the Company in connection with the
transactions contemplated hereby and all documents incident thereto shall be
reasonably satisfactory in form and substance to the Purchasers, and the
Purchasers shall have received all such counterpart originals or certified or
other copies of such documents as they may reasonably request.
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(d) Consent of Directors and Stockholders. The
Company shall deliver to the Purchasers certified copies of resolutions of the
directors of the Company, substantially in the form attached hereto as Exhibit
7.1(d)(i) hereto, and certified copies of resolutions of the stockholders
substantially in the form attached hereto as Exhibit 7.1(d)(ii) authorizing and
approving all matters in connection with this Agreement and the transactions
contemplated thereby.
(e) Articles of Incorporation and Bylaws. The Company
shall deliver to the Purchasers true and correct copies of the charter and
bylaws of the Company.
(f) Corporate Changes, Etc. The Amended and Restated
Articles shall have been filed with, and approved by, the Secretary of State.
(g) Debentures and Warrants. The Company shall have
issued the Debentures and Warrants to the Purchasers in the amounts set forth
herein or on such Purchaser's Subscription Agreement, as the case may be.
(h) Employment Agreements. The Company and Connor
shall have executed and delivered the Connor Employment Agreement and any
amendments thereto, and the Company and Moore shall have executed and delivered
the Moore Employment Agreement.
(i) No Litigation. No material investigation, suit,
action or other proceeding shall be threatened or pending which, in the
reasonable opinion of any of the Purchasers, is likely to result in a material
restraint or prohibition on, or an award of damages or other relief in
connection with, the Purchase Documents or the consummation of the transactions
contemplated by the Purchase Documents.
(j) Registration Rights Agreements. The Company shall
have executed and delivered the Registration Rights Agreements.
(k) Legal Opinion. The Purchasers shall have received
the Legal Opinion, dated as of the Closing Date, from counsel to the Company.
(l) Consents. The Company shall have received such
third party consents as may be necessary or appropriate to the consummation of
the transactions contemplated hereby.
(m) Fees. The Company shall have paid to WCC a
nonrefundable processing fee equal to one percent (1.0%) of the entire principal
amount of the Debentures plus the full exercise price of the Preferred Warrant,
and a commitment fee equal to three percent (3.0%) of the principal amount of
Eight Hundred Thousand
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Dollars ($800,000) the Debentures. The Company shall have paid all attorney's
fees of WCC incurred with respect to the transactions set forth in the Purchase
Documents up to a maximum amount of $60,000, which amount may be paid by WCC
directly to its counsel at Closing and deemed applied by the Company to the
purchase by WCC of the Debentures to be issued to WCC. On the date on which the
Preferred Warrant is first exercised the Company shall pay to WCC an additional
commitment fee equal to three percent (3%) of the exercise price of the
Preferred Warrant.
(n) Insurance. The Company shall have secured the One
Million Dollar key-man life insurance policy on the life of Connor as described
in Section 5.7 hereof.
(o) Allonges, etc. The Company shall have executed
and delivered to WCC each of the Allonges and payment in full of all accrued
interest through the Closing Date with respect to each of the Promissory Note
and the Second Promissory Note.
Section 7.2. Company's Conditions to Closing. The obligation
of the Company to issue, sell and deliver the Debentures and to consummate the
other transactions contemplated by the Purchase Documents on the Closing Date is
subject to fulfillment, or the waiver thereof, of each of the following
conditions:
(a) Representations and Warranties to be True and
Correct. The representations and warranties of the Purchasers contained herein
shall be true and correct in all material respects on and as of the Closing Date
with the same effect as though such representations and warranties had been made
on and as of such date.
(b) No Litigation. No material investigation, suit,
action or other proceeding shall be threatened or pending before any court or
governmental agency which, in the reasonable opinion of the Company, is likely
to result in a material restraint or prohibition on, or an award of damages or
other relief in connection with, the Purchase Documents or the consummation of
the transactions contemplated by the Purchase Documents.
VIII.
ADDITIONAL OBLIGATIONS
Section 8.1. Unlocking. If, at any time after two (2) years
from the Closing Date and prior to a Public Offering, the Company or any holder
of Common
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Stock of the Company as of the date hereof, as the case may be, receives a bona
fide offer to purchase all or substantially all, of the Company's Assets or to
purchase all or substantially all of the Capital Stock of the Company (whether
such offer is the result of solicitation by or of the Purchasers, Connor, the
officers of the Company or otherwise), the Company and Connor shall provide
written notice to the Purchasers within ten (10) days of its or his receipt of
such offer, setting forth all of the relevant terms and conditions thereof. If
the Purchasers holding at least 51% of the Purchaser's Common Stock desire for
such offer to be accepted, they shall provide written notice to the Company
and/or Connor within thirty (30) days thereafter to that effect, and the Company
and/or Connor, as the case may be, shall thereafter either accept the offer (in
which event each Purchaser shall receive that proportion of the net proceeds
received, or which would be received by the Company's stockholders, from such
sale equal to such net proceeds times a fraction, the numerator of which shall
be the sum of the number of shares of Purchaser's Common Stock held by such
Purchasers, and the denominator of which shall be the sum of the number of the
issued and outstanding shares of Common Stock of the Company plus the number of
shares of Common Stock issuable upon exercise of all of the Series A Warrants
and the Series C Warrants), or, no later than 120 days after receipt of such
notice, acquire all of the shares of Common Stock held by such Purchasers as the
result of the exercise of the First Warrant and the Third Warrant and all of the
shares of Common Stock issuable to such Purchaser pursuant to the terms of the
First Warrant and the Third Warrant on the same terms and conditions as the
proposed offer as of the closing of such sale as a condition of such closing. If
the Company is unable to fully pay for all of such shares of Common Stock in
cash by the end of such thirty (30) day period, the offer must be accepted by
the Company or Connor, as the case may be, and closing with respect thereto
shall occur as soon as possible. If the Purchasers reject such offer, then the
Company or Connor who received such offer, as the case may be, shall reject such
offer. If the Purchasers fail to communicate approval or disapproval within such
thirty (30) day period, such failure shall be deemed to be a rejection
of the offer.
Section 8.2 Put Rights.
(a) At any time after five (5) years after the
Closing Date and continuing until a Public Offering, each Purchaser shall have
the right to sell to the Company, and the Company shall be obligated to
purchase, all of the shares of Common Stock of the Company owned by such
Purchaser as the result of any exercise of the Series A Warrants and the
exercise of the Series C Warrants, as the case may be, and issuable to such
Purchaser pursuant to such Series A Warrants and such Series C Warrants, at a
price, and upon the terms, set forth in this Section 8.2. In addition, if and to
the extent that the Company prepays the Debentures other than as a result of a
Public Offering, each Purchaser shall have the right to sell to the Company, and
the Company shall be obligated to purchase, all of the shares of Common Stock of
the Company owned by such Purchaser as the result of the exercise of the Series
A Warrants and the exercise of the Series C Warrants and issuable to such
Purchaser upon the exercise of the Series A
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Warrants and upon the exercise of the Series C Warrants at a price, and upon the
terms, set forth in this Section 8.2. A Purchaser may exercise such rights by
providing thirty (30) days prior written notice to the Company as to the number
of such shares which such Purchaser desires the Company to purchase.
(b) Purchase Price. The purchase price for each share
of the Purchaser's Common Stock to be purchased under this Section 8.2 shall be
the fair market value per share of Common Stock of the Company, as agreed upon
by the selling Purchaser and the Company.
(i) If the selling Purchaser and the Company are
unable to so agree within fourteen (14) days after the date of the Purchaser's
notice to the Company exercising his rights under Section 8.2(a), then within
fourteen (14) days thereafter an appraiser or appraisers shall be jointly
selected by the Purchaser, on the one hand and the Company, on the other hand,
and such jointly selected appraiser shall determine the fair market value of the
Company as of the date of such notice. The purchase price per share of
Purchaser's Common Stock shall be an amount equal to the fair market value of
the Company as determined by the appraisal divided by the sum of the number of
shares of Common Stock issued and outstanding as of such date, plus the number
of shares of Common Stock issuable as of such date pursuant to the full exercise
of all warrants and other securities exercisable for, or convertible into,
shares of Common Stock of the Company.
(ii) If the selling Purchaser and the Company do
not agree upon the selection of an appraiser as provided in Section 8.2(b)(i)
within the period therein stated then, within seven (7) days after the
expiration of such period the selling Purchaser shall appoint an appraiser and
the Company shall appoint a second appraiser. The two (2) appraisers so
appointed shall appoint a third appraiser within seven (7) days after both shall
have been appointed. If either the selling Purchaser or the Company shall fail
to so appoint an appraiser, the appraiser duly appointed by the other shall
serve as the sole appraiser, and such appraiser shall determine the fair market
value of the Company. In any event the appraisers so appointed shall, within
thirty (30) days after the last appointment of any of them determine the fair
market value of the Company, and such determination shall be binding, final and
conclusive on all of the parties. If more than one appraiser is selected, the
fair market value of the Company shall equal the mathematical average of the
determination of each such appraiser.
(iii) If the selling Purchaser and the Company
agree upon the selection of an appraiser, then all expenses incurred in the
appraisal process shall be paid by the Company. If the selling Purchaser and the
Company do not so agree, then all expenses incurred in the appraisal process
shall be borne and paid equally by the selling Purchaser and the Company.
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(c) Closing. Closing with respect to any purchase
pursuant to Section 8.2 shall occur no later than thirty (30) days after the
determination of the purchase price. At such closing, the purchase price for the
Purchaser's Common Stock being sold shall be paid by the Company in cash to such
selling Purchaser, and such selling Purchaser shall surrender to the Company
certificates evidencing such Purchaser's Common Stock being sold, and such of
the Series A Warrants and the Series C Warrants being sold, each properly
endorsed for transfer.
Section 8.3. Calculation of Consideration. Upon any sale of
substantially all of the Assets of the Company, or any sale by Connor to a third
party of substantially all of his shares of Capital Stock of the Company, any
and all personal gain to Connor for any non-competition agreements or similar
agreements which provide for payments above prevailing industry standards shall
be included to the extent of such excess, and all other emoluments or profits
received by Connor (other than as direct payment for his shares of Capital Stock
or through dividends or return of capital paid in respect thereof) shall be
fully included in calculating the total consideration being paid for the Assets
of the Company or such shares of Capital Stock, as the case may be, and the
Purchasers shall be entitled to receive with respect to any such sale, in
addition to any other amounts they are entitled to receive, in cash an amount
equal to the product of the total consideration so calculated times the quotient
of the number of shares of Purchaser's Common Stock held by such Purchaser
divided by the sum of the number of shares of Common Stock issued and
outstanding as of such date, plus the number of shares of Common Stock issuable
as of such date pursuant to the full exercise of all warrants and other
securities exercisable for, or convertible into, shares of Common Stock of the
Company.
Section 8.4. Transfers of Capital Stock By Connor, Etc.
(a) Limitation. In order to induce the Purchasers to
purchase the Debentures, (A) Connor agrees that until the first to occur of
(i) a Public Offering, or (ii) such time as no Purchaser owns any shares, or
rights to purchase shares, of Capital Stock of the Company, Connor will not
sell, convey, transfer or otherwise dispose of any of his shares of Capital
Stock of the Company including shares of Common Stock which may be issued to
Connor pursuant to the Omnibus Stock Plan and/or the Connor Employment Agreement
except upon satisfaction of the conditions set forth in this Section 8.4, and
(B) the Company agrees that, as a condition of granting any options or rights to
purchase shares of Capital Stock under the Omnibus Stock Plan, the Company shall
cause each grantee thereof (a "Grantee") not to sell convey, transfer or
otherwise dispose of any of his respective shares of Capital Stock, or rights to
purchase Capital Stock, of the Company until the first to occur of (iii) a
Public Offering, or (iv) such time as neither Purchaser owns any shares, or
rights to purchase shares.
(b) Permitted Transfers. Notwithstanding any other
provision of this Section 8.4, Connor and any Grantee, respectively, may
Transfer his
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shares of Capital Stock of the Company to his spouse or any lineal
descendant, provided that, in each such instance, each transferee shall execute
an agreement to be bound by all of the terms and provisions of this Section 8.4.
(c) Invalid Transfers. Any purported sale, conveyance
or other disposition of shares of Capital Stock of the Company by Connor or by a
Grantee other than in accordance with the terms of this Agreement shall be null
and void, and the Company shall refuse to recognize any such sale, conveyance or
other disposition and shall not reflect on its records any change in record
ownership of such shares of Capital Stock pursuant to any such purported
transaction.
Section 8.5. Notice of Sales. Each of the Purchasers hereby
agrees to provide the Company with prior notice of any proposed sales of Common
Stock other than with respect to sales of such shares in a Public Offering.
Section 8.6. Option to Purchase by the Company. Upon the
redemption by the Company of all of the issued and outstanding shares of Series
B Preferred Stock (after the exercise of the Preferred Warrant) and full payment
by the Company of all amounts with respect to such shares, pursuant to the
optional redemption provisions set forth in Article Fourth, Section C.3b of the
Amended and Restated Articles, the Company shall be entitled to purchase, at any
time and from time to time, and WCC shall be obligated to sell, all of the
shares of Common Stock issued to WCC upon exercise of the Series B and Series C
Warrants at a price per share equal to the price per share paid by WCC upon the
exercise of the Series B and Series C Warrants allocable to such shares of
Common Stock by providing written notice to WCC of its intent to exercise its
rights under this Section 8.6. Closing with respect to any such purchase and
sale shall occur not later than thirty (30) days after the date of such notice.
Section 8.7. Anti-Dilution Rights; Stock Legends.
(a) Holders of shares of Common Stock issued upon
exercise of the Series A Warrants and the Series C Warrants, respectively, shall
be entitled to the anti-dilution protections set forth in Section 2 of each of
the Series A Warrants and the Series C Warrants, respectively, notwithstanding
the full exercise of the Series A Warrants and the Series C Warrants, until
consummation of a Public Offering. Shares of Common Stock issued upon any
exercise of the Series A Warrants and the Series C Warrants, respectively, shall
bear a legend setting forth the rights described in this Section 8.7 and in the
Series A Warrants and the Series C Warrants, respectively.
(b) The legend on any shares of Common Stock or
Debentures or Warrants issued to any Purchaser who is a resident of the
Commonwealth of Pennsylvania shall include the following: "If the holder is a
resident of Pennsylvania: (i) he understands that, pursuant to Section 207(m) of
the Pennsylvania Securities Act, he has the right to withdraw his subscription
without any liability to the Corporation, or any
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other person within two (2) business days after the latest to occur of the date
on which he executes the Securities Purchase Agreement of the Company dated
August 12, 1996 or the date on which such holder pays for the securities offered
hereby, and (ii) agrees not to sell any of such securities for a period of
twelve (12) months after the date of purchase thereof."
IX.
INDEMNIFICATION
Section 9.1. Company Indemnification. In addition to any
rights or remedies granted hereunder or under the other Purchase Documents, the
Company shall, without limitation as to time, indemnify and hold harmless the
Purchasers and their officers, directors, agents and affiliates, to the fullest
extent lawful, from and against any and all losses, claims, damages,
liabilities, costs (including the costs of preparation and reasonable attorneys'
fees) and expenses (collectively, "Losses") that arise out of (i) any breach of,
or inaccuracy in, any representation or warranty of the Company contained in
this Agreement or the other Purchase Documents or any instrument or other
document delivered pursuant hereto or thereto or in connection herewith or
therewith, and (ii) any breach of any covenant, undertaking or agreement of the
Company contained in this Agreement or the other Purchase Documents, whether or
not any Purchaser is made a party to any proceeding involving said Loss.
Section 9.2. Connor Indemnification. In addition to any rights
or remedies granted hereunder or under the Purchase Documents, Connor (other
than in his capacity as an officer of the Company) shall, without limitation as
to time, indemnify and hold harmless the Purchasers and their officers,
directors, agents and affiliates, to the fullest extent lawful, from and against
any and all Losses that arise out of (i) any breach of, or inaccuracy in, any
representation or warranty of Connor or the Company contained in this Agreement
or the other Purchase Documents or any instrument or other document delivered
pursuant hereto or thereto or in connection herewith or therewith, and (ii) any
breach of any covenant, undertaking or agreement of Connor or the Company
contained in this Agreement or the other Purchase Documents, whether or not
Purchaser is made a party to any proceeding involving said loss.
Section 9.3. Purchasers Indemnification. The Purchasers shall,
without limitation as to time, severally indemnify and hold harmless the Company
and its officers, directors, agents and affiliates, to the fullest extent
lawful, from and against any and all Losses that arise out of any breach of, or
inaccuracy in, any representation or warranty of such Purchaser, respectively,
contained in this Agreement.
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<PAGE>
X.
MISCELLANEOUS
Section 10.1. Expenses. Each party hereto will pay its own
expenses in connection with the transactions contemplated hereby; provided,
however, that the Company shall at the Closing (i) pay the fees and expenses of
WCC's legal counsel incurred in connection with the negotiation and execution of
the Purchase Documents in an amount not in excess of Sixty Thousand Dollars
($60,000) in the aggregate, and all filing, recording, registration and other
similar fees and expenses in connection with the consummation of the
transactions contemplated in this Agreement and (ii) the fees and expenses of
WCC's legal counsel incurred in connection with the negotiation and execution of
the Promissory Note and the Second Promissory Note and all other documents
executed in connection with the Advance and the Second Advance.
Section 10.2. Survival of Representations and Warranties. All
agreements, representations, and warranties made herein shall survive the
execution and delivery of this Agreement and the issuance, sale and delivery of
the Debentures, the Warrants, the shares of Common Stock issuable upon exercise
of the Warrants, the Series A Preferred Stock and the Series B Preferred Stock
pursuant hereto.
Section 10.3. Notices. All notices, requests, consents and
other communications hereunder shall be in writing and shall be delivered
personally or mailed by first class registered or certified mail or by Federal
Express or other reliable courier service, postage prepaid, in either case
addressed as follows:
(a) if to the Company or Connor at 1000 East Comly
Street, Philadelphia, PA. 19149, with a copy to Dominic S. Liberi, Esq., 3200
Mellon Bank Center, 1735 Market Street, Philadelphia, PA. 19103;
(b) if to WCC c/o Chief Executive Officer, 237
Mamaroneck Avenue, White Plains, New York 10605, with a copy to Todd K. Snyder,
Esquire, Venable, Baetjer and Howard, LLP, 2 Hopkins Plaza, Baltimore, Maryland
21201;
(c) if to the Additional Investors, at the address
set forth in their respective Subscription Agreements;
or, in any such case, at such other address or addresses as shall have been
furnished in writing by such party to the others. Any such communication shall
be deemed given when delivered personally against written receipt or if mailed,
upon the earlier to occur of the date of actual receipt or 48-hours after the
date of mailing to the address indicated.
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<PAGE>
Section 10.4. Amendment, Etc. Neither this Agreement nor any
term, condition, representation, warranty, covenant, or agreement contained
herein may be changed, waived, discharged or terminated orally, but only by an
instrument in writing by the party against whom such change, waiver, discharge
or termination is sought.
Section 10.5. Binding Effect. All of the terms, conditions,
stipulations, warranties, representations, covenants and rights of this
Agreement shall apply to and be binding upon, and shall inure to the benefit of,
the parties hereto and each of their respective heirs, personal representatives,
successors, transferees and assigns, as the case may be. The purchaser of all or
any portion of the Investor Interest of a Purchaser shall succeed to all of the
rights afforded to a Purchaser under this Agreement as if such transferee were a
Purchaser hereunder.
Section 10.6. Gender, etc. Whenever used herein, the singular
number shall include the plural, the plural the singular, and the use of the
masculine, feminine, or neuter gender shall include all genders.
Section 10.7. Headings. The section and subsection headings in
this Agreement are for convenience of reference only and shall not limit or
otherwise affect any of the terms hereof.
Section 10.8. Governing Law. This Agreement and all
transactions contemplated hereby shall be deemed to be made under, and shall be
governed by, and construed in accordance with, the laws of the State of New
York, without regard to principles of conflict of laws.
Section 10.9. Further Assurances. The parties hereto agree
that they will, from time to time, execute and deliver, or cause to be executed
and delivered, such supplements hereto and such further instruments as may
reasonably be required for carrying out the intention of the parties to, or
facilitating the performance of, this Agreement.
Section 10.10. Enforceability. The invalidity or
unenforceability of any provision of this Agreement shall not affect or limit
the validity and enforceability of the other provisions hereof.
Section 10.11. Assignment. This Agreement may not be assigned,
in whole or in part, by any of the parties hereto without the prior written
consent of all of the other parties hereto.
Section 10.12. Entire Agreement. This Agreement and the other
Purchase Documents constitute the entire agreement of the parties with respect
to the subject matter hereof and supersedes all prior agreements and
understandings relating thereto, including but not limited to that certain
Confidentiality Agreement dated April 1,
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<PAGE>
1996 and that certain letter agreement between the Company and WCC dated
April 1, 1996, each of which is hereby terminated.
Section 10.13. Counterparts, Etc. This Agreement may be
executed in two or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument. This
Agreement shall be immediately effective and shall become binding with respect
to a particular Purchaser and the Company upon the execution of this Agreement
in one or more counterparts by such Purchaser and the Company, regardless of
whether any other Purchaser exercises this Agreement or a counterpart thereof.
Section 10.14. Schedules and Exhibits. Information and matters
disclosed on a particular Schedule or Exhibit hereto shall be considered to be
disclosed only with respect to that particular Section of this Agreement to
which it is directly referenced.
IN WITNESS WHEREOF, the Company has caused this Agreement to
be executed on its behalf by its duly authorized officers and its corporate seal
to be hereunto affixed, and each of the Purchasers and Connor has executed this
Agreement, or has caused this Agreement to be executed on their behalf by their
duly authorized representatives, as of the day and year first above written.
WITNESS/ATTEST: INDEPENDENCE BREWING
COMPANY
/s/ CHRISTINA CARE By:/s/ ROBERT W. CONNOR, JR.
- --------------------- --------------------------------
Assistant Secretary Robert W. Connor, Jr., President
/s/ CHRISTINA CARE /s/ ROBERT W. CONNOR, JR.
- --------------------- -----------------------------------
Robert W. Connor, Jr., Individually
(signatures continued)
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<PAGE>
WINFIELD CAPITAL CORP.
By:/s/ PAUL A. PERLIN
- ------------------------------ ---------------------------------------
Paul A. Perlin, Chief Executive Officer
ADDITIONAL INVESTORS
/s/ LEO NOLAN
- ------------------------------ --------------------------------------
/s/ JACQUES DESAINT PHALLE
- ------------------------------ --------------------------------------
/s/ ROBERT CONNOR, MD
- ------------------------------ --------------------------------------
/s/ THADDEUS NOWINSKI
- ------------------------------ --------------------------------------
/s/ MATTHEW GUIFRIDA
- ------------------------------ --------------------------------------
/s/ LOUIS SCHWARTZ
- ------------------------------ --------------------------------------
/s/ MICHAEL THOMPSON
- ------------------------------ --------------------------------------
- ------------------------------ --------------------------------------
- ------------------------------ --------------------------------------
- ------------------------------ --------------------------------------
(signatures continued)
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- ------------------------------ --------------------------------------
- ------------------------------ --------------------------------------
- ------------------------------ --------------------------------------
- ------------------------------ --------------------------------------
- ------------------------------ --------------------------------------
-43-
EXHIBIT 10.7
THE SECURITIES REPRESENTED BY THIS DEBENTURE AND THE SECURITIES ISSUABLE UPON
CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE
"SECURITIES ACT") OR THE SECURITIES ACT OF ANY STATE. THESE SECURITIES HAVE BEEN
ISSUED OR SOLD IN RELIANCE ON THE EXEMPTIONS FROM REGISTRATION CONTAINED IN THE
SECURITIES ACT AND IN THE PENNSYLVANIA SECURITIES ACT OF 1972, AS AMENDED, AND
MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO EFFECTIVE REGISTRATION UNDER
SUCH ACTS OR IN A TRANSACTION WHICH IS EXEMPT UNDER SUCH ACTS. IF THE HOLDER IS
A RESIDENT OF PENNSYLVANIA IT AGREES NOT TO SELL ANY OF THESE SECURITIES FOR A
PERIOD OF TWELVE (12) MONTHS AFTER THE DATE OF PURCHASE THEREOF.
INDEPENDENCE BREWING COMPANY
CONVERTIBLE DEBENTURE
DUE AUGUST 12, 2001
Philadelphia, PA August 12, 1996
FOR VALUE RECEIVED, Independence Brewing Company, a
Pennsylvania corporation (the "Company"), promises to pay to the order of
Winfield Capital Corp, a New York corporation (Winfield Capital Corp., together
with any subsequent holder of this Debenture is referred to herein as the
"Holder"), at 237 Mamaroneck Ave., White Plains, New York 10605, or at such
other place as the Holder may from time to time designate, the principal sum of
Four Hundred Fifty Thousand Dollars ($450,000) (the "Principal Amount"),
together with interest on the outstanding principal amount thereof from time to
time at the rate hereinafter provided and any and all other sums which may be
owing to the Holder by the Company, according to the repayment terms set forth
in Section 2 hereof, but in no event later than August 12, 2001 (the "Maturity
Date"), which is the final and absolute due date of this Debenture, or on such
earlier date specified by the Holder if this Debenture is accelerated pursuant
to Section 8 hereof.
This Debenture is one of a series of debentures (the "Series A
Debentures") issued pursuant to the provisions of that certain Securities
Purchase Agreement dated August 12, 1996 by and among, among others, the Company
and the Holder (the "Securities Purchase Agreement").
The following terms shall apply to this Debenture:
<PAGE>
Section 1. Interest Rate. From the date hereof until all sums
due and owing hereunder have been paid in full, and unless adjusted as provided
in this Debenture, interest shall accrue upon the unpaid Principal Amount then
outstanding at the annual rate as set forth in this Section 1. Interest shall be
calculated on the basis of a three hundred sixty (360)-day year applied to the
actual number of days the Principal Amount, or any portion thereof, is
outstanding.
1.1. From the date of this Debenture until the
Maturity Date, subject to the provisions of Section 1.2 hereof, the interest
rate shall be Twelve and Three-Quarters percent (12.75%) per annum.
1.2. Upon the occurrence of (i) any offering of the
Company's shares of common stock ("Common Stock") to the public pursuant to a
registration statement filed by the Company with the Securities and Exchange
Commission (other than a registration statement on Form S-4 or Form S-8) as the
result of which shares of Common Stock are traded on either the New York Stock
Exchange, the American Stock Exchange or any NASDAQ stock market (a "Public
Offering"), or (ii) the closing of a sale of all or substantially all of the
Company's Common Stock or of the Company's real, personal, tangible and
intangible property (collectively, the "Assets"), or a merger, consolidation or
other combination of the Company with or into another business entity, then in
each such case the interest rate on the entire original Principal Amount hereof
shall be fourteen percent (14%) per annum, which rate shall be deemed to have
applied from the date hereof through and including the date of such prepayment.
Section 2. Payments of Interest and Principal.
2.1. Payments throughout the term of this Debenture
of all accrued interest shall be made monthly in arrears, with the first such
payment to be made on the first day of October, 1996. Notwithstanding the
foregoing, interest which would otherwise accrued for the month of August, 1996
shall be due and payable on the date hereof.
2.2. The Principal Amount shall be payable in
thirty-six (36) equal monthly installments of Twelve Thousand Five Hundred
Dollars ($12,500), with the first such payment to be made on September 1, 1998
and continuing on the first day of each such month thereafter until the entire
Principal Amount hereof is paid in full.
2.3. If any amounts due under this Debenture are to
be paid to the Holder on a day which is not a regular business day of the
Company's primary depository bank, then such amounts shall be due on the next
following day which is a regular business day.
Section 3. Application of Payments. All payments made
hereunder shall be applied first to penalties or other sums owing to the Holder
pursuant to this Debenture, next to accrued interest, and then to the unpaid
Principal Amount.
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<PAGE>
Section 4. Prepayment.
4.1. The Company may prepay the unpaid balance of the
Principal Amount hereunder at any time and from time to time, provided that all
accrued and unpaid interest has been paid.
4.2. Upon the closing of either (i) a Public
Offering, or (ii) the sale of all or substantially all of the Company's Common
Stock or Assets, the Company shall pay all amounts of accrued and unpaid
interest and other charges due hereunder plus the Principal Amount hereof then
outstanding.
Section 5. Life Insurance Proceeds. In the event of the death
of Robert W. Connor, Jr. ("Connor") prior to the payment of all obligations
under this Debenture, the proceeds paid pursuant to any key man life insurance
policy on the life of Connor owned by the Company shall be placed in a separate
account by the Company for the benefit of the Holder and all other holders of
Series A Debentures, up to the sum of the outstanding Principal Amount under
this Debenture and all other Series A Debentures, plus all accrued interest
hereon and thereon and other charges due and owing, and shall be paid over to
the Holder hereof and the holders of the other Series A Debentures in proportion
to the Principal Amount hereof and thereof on the Maturity Date hereof and
thereof, at the times otherwise required for the payment of interest and the
Principal Amount hereof and thereof.
Section 6. Manner of Payment. All payments of the unpaid
balance of the Principal Amount and interest thereon, and all other sums due
hereunder, shall be paid in lawful money of the United States of America during
regular business hours at such place as the Holder may at any time or from time
to time designate in writing.
Section 7. Late Payment Penalty. Should any payment of
interest, of the Principal Amount and interest, or of any other sum due
hereunder, be received by the Holder more than five (5) days after its due date,
the Company shall pay a late payment penalty equal to two percent (2%) of the
amount then due for each month or portion of a month until paid.
Section 8. Events of Default; Acceleration. At any time after
the occurrence of an Event of Default, as defined herein, the Holder may, in the
Holder's sole and absolute discretion, declare the entire unpaid balance of the
Principal Amount plus accrued interest and other sums due hereunder to be
immediately due and payable. Each of the following shall constitute an Event of
Default: (i) a breach of any representation, warranty or covenant contained in
the Securities Purchase Agreement, (ii) a failure of the Company to fully pay
when and as due any amount due hereunder within five (5) days after the date
such amount is due and payable, (iii) the commencement by or against the Company
of any case or proceedings under any bankruptcy, reorganization, insolvency or
moratorium law, or any other law for the relief of debtors, or the appointment
of any
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<PAGE>
receiver, trustee or assignee to take possession of any of the Assets, or
the failure or inability of the Company to generally pay its debts as they
become due, or the making of an assignment for the benefit of the Company's
creditors; provided that if such case, proceeding or appointment does not occur
with the consent of the Company, then such Event of Default shall be deemed to
occur only if such case, proceeding or appointment is not dismissed within sixty
(60) days of the commencement thereof, (iv) the termination of Connor's
employment with the Company for any reason, or (v) the occurrence of any default
or event of default after the passage of any applicable notice or cure period
under any contract, note or instrument evidencing, securing or relating to any
obligation of the Company for borrowed money in excess of $100,000 individually,
or $100,000 in the aggregate with respect to all such obligations, or of any
lease or purchase money or other obligation of the Company to any person in
excess of $100,000 individually, or $100,000 in the aggregate with respect to
all such obligations.
Section 9. Default Interest Rate. Upon the occurrence of an
Event of Default and unless and until cured, the rate of interest accruing on
the then unpaid principal balance hereof shall increase by to eighteen percent
(18%) per annum, independent of whether the Holder elects to accelerate the
unpaid principal balance as a result of such Event of Default.
Section 10. Expenses of Collection. Should this Debenture be
referred to an attorney for collection, and whether or not a suit has been
filed, the Company shall pay all of the Holder's actual costs, fees (including
reasonable attorney's fees and bank charges, including, but not limited to,
returned check charges) and expenses resulting from such referral.
Section 11. Waiver of Protest. The Company waives presentment,
notice of dishonor and protest.
Section 12. Conversion of Debenture.
12.1. Right to Convert. Subject to and upon
compliance with the provisions of this Debenture, the Holder of this Debenture
shall have the right (the "Conversion Right"), at such Holder's option, at any
time after the occurrence of an Event of Default, to convert all or any part of
the unpaid Principal Amount of this Debenture into shares of Series A Preferred
Stock of the Company on the basis of one (1) such share of Series A Preferred
Stock for each $10 of indebtedness carried on the books of the Company in the
name of the Holder.
12.2. Exercise of Conversion Rights. In order to
exercise the Conversion Rights in accordance with Section 12.1, the Holder shall
present this Debenture to the Company at the office of the Company during normal
business hours, accompanied by written notice to the Company that the Holder
elects to convert all or a portion of this Debenture. Such notice shall also
state the name or names (with address) in which the certificate or certificates
for shares of Series A Preferred Stock which shall
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<PAGE>
be issuable on such conversion shall be issued. Immediately upon the receipt of
such notice, and the presentation of this Debenture, the Company shall (i) issue
and deliver to the Holder a certificate or certificates for the number of full
shares of Series A Preferred Stock as set forth in such notice issuable upon the
conversion of this Debenture, (ii) if only a part of the principal hereof is
converted, issue, execute and deliver a new debenture in identical form to this
Debenture except for appropriate adjustment of the principal amount (and related
references) to reflect the partial conversion, and (iii) issue a certified or
cashier's check payable to the Holder equal to the amount of accrued and unpaid
interest on the principal amount converted. No fractional shares shall be
issuable upon conversion, but any difference shall be adjusted in cash. Such
conversion shall be deemed to have been effected immediately prior to the close
of business on the date on which such notice shall have been received by the
Company, and the person or persons in whose name or names any certificate or
certificates for shares of Series A Preferred Stock shall be issuable upon such
conversion shall be deemed to have become the registered owners of record of the
shares represented thereby.
12.3. Reservation of Shares. The Company will at all
times reserve and keep available out of its authorized Series A Preferred Stock,
solely for the purpose of issue upon conversion of all or any portion of this
Debenture as herein provided, such number of shares of Series A Preferred Stock
as shall then be issuable upon the conversion of the outstanding Principal
Amount due under this Debenture into Series A Preferred Stock. The Company
covenants that all such Series A Preferred Stock which shall be so issuable
shall, upon the conversion of this Debenture as herein provided, be duly and
validly issued and fully paid and nonassessable by the Company.
12.4. Charges, Taxes and Expenses. The issuance of
certificates for shares of Series A Preferred Stock upon conversion of this
Debenture or any portion thereof shall be made without charge to the Holder of
this Debenture for any issuance tax or any other incidental expenses in respect
of the issuance of such certificates, all of which taxes and expenses shall be
paid by the Company. Certificates will be issued in a name other than that of
the Holder upon the request of the Holder and payment by the Holder of any
applicable transfer taxes and compliance with all applicable securities laws.
Section 13. Waiver. No waiver of any right or remedy hereunder
shall be effective unless in writing. No delay on the part of the Holder in
exercising any right or remedy hereunder shall operate as a waiver thereof, and
no single or partial exercise of any such right or remedy shall preclude other
or future exercise thereof, or the exercise of any other right or remedy. Waiver
by the Holder of any default by the Company or any other party shall not
constitute a waiver of any subsequent defaults, but shall be restricted to the
default so waived. All rights and remedies of the Holder hereunder are
irrevocable and cumulative, and not alternate or exclusive, and shall be in
addition to all rights and remedies given in any other instrument or by any
laws, whether now existing or hereafter enacted.
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<PAGE>
Section 14. Severability. If any provision or part of any
provision of this Debenture shall for any reason be held invalid, illegal, or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions or the remaining part of any effective
provisions of this Debenture, and this Debenture shall be construed as if such
invalid, illegal or unenforceable provision or part thereof had never been
contained herein, but only to the extent of its invalidity, illegality or
unenforceability.
Section 15. Transferability. This Debenture, and the shares of
Series A Preferred Stock issuable upon conversion thereof, may be assigned by
the Holder at any time, in whole or in part, without the approval of the
Company, subject to such limitations under applicable law. Any Holder of this
Debenture is entitled to all of the rights and benefits of a Holder under the
Securities Purchase Agreement.
Section 16. Time of the Essence. Time is of the essence to
this Debenture and to all obligations of the Company hereunder.
Section 17. Governing Law. This Debenture is executed and
delivered in, and shall be governed by, construed and enforced under the laws
of, the State of New York.
Section 18. Remedies. The Company acknowledges and agrees that
the remedies at law of the Holder in the event of any default or threatened
default by the Company in the performance of or compliance with any of the terms
of this Debenture are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
Section 19. Confessed Judgment. At any time after the
occurrence of an Event of Default, the Company hereby authorizes and empowers
any attorney or clerk of any Court of Record within the United States to appear
for the Company in any such Court in one or more proceedings or before any clerk
thereof, and confess judgment against the Company, without prior notice, or
opportunity for prior hearing, in favor of the Holder for the payment of money
in an amount equal to all amounts due hereunder, plus interest due and payable
by the Company as set forth above, all other amounts due and payable by the
Company hereunder, costs of suit and attorneys' fees equal to ten percent (10%)
of all amount due and payable by the Company, hereby waiving and releasing, to
the extent permitted by law, all errors and all rights of exemption, appeal,
stay of execution, inquisition and extension upon any levy on real estate or
personal property to which the Company may otherwise be entitled under the laws
of the United States or of any state or possession of the United States now in
force or which may hereafter be passed. The exercise of any rights or the taking
of any action pursuant to this Section 19 shall in no way preclude the future
exercise of rights or the taking of any future actions pursuant to this Section
19.
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<PAGE>
Section 20. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be delivered personally
or mailed by first class registered or certified mail or by Federal Express or
other reliable courier service, postage prepaid, in either case addressed as
follows:
(a) if to the Company, at 1000 East Comly Street,
Philadelphia, PA. 19149;
(b) if to the Holder, at the address set forth in the
Company's securities records,
or, in any such case, at such other address or addresses as shall have been
furnished in writing by such party to the others. Any such communication shall
be deemed given when delivered personally against written receipt or if mailed,
upon the earlier to occur of the date of actual receipt or 48-hours after the
date of mailing to the address indicated.
Section 21. Loss, Theft, Destruction or Mutilation. Upon
receipt by the Company of evidence reasonably satisfactory to it of the loss,
theft, destruction or mutilation of this Debenture, and in case of loss, theft
or destruction, of indemnity or security reasonably satisfactory to the Company,
and upon reimbursement to the Company of all reasonable expenses incidental
thereto, and upon surrender and cancellation of this Debenture, if mutilated,
the Company will make and deliver a new Debenture of like tenor and dated as of
such cancellation, in lieu of this Debenture.
Section 22. Miscellaneous. This Debenture shall be binding
upon the Company's successors. This Debenture and any term hereof may be
changed, waived, discharged or terminated only by a statement in writing signed
by the party against which enforcement of such change, waiver, discharge or
termination is sought. The headings in this Debenture are for purposes of
reference only, and shall not limit or otherwise affect any of the terms hereof.
IN WITNESS WHEREOF, the Company has caused this Debenture to
be executed in its name, under its seal, by its duly authorized officer on its
behalf, the day and year first above written.
ATTEST INDEPENDENCE BREWING
COMPANY
/s/ CHRISTINA CARE /s/ ROBERT W. CONNOR, JR. (SEAL)
- ----------------------------- ---------------------------------
Assistant Secretary Robert W. Connor, Jr., President
-7-
EXHIBIT 10.8
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT") OR THE SECURITIES ACT OF ANY STATE. THESE SECURITIES HAVE BEEN ISSUED OR
SOLD IN RELIANCE ON THE EXEMPTIONS FROM REGISTRATION CONTAINED IN SECTION 4(2)
OF THE SECURITIES ACT AND IN THE SECURITIES LAWS OF VARIOUS STATES AND MAY NOT
BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO EFFECTIVE REGISTRATION UNDER SUCH ACTS
OR IN A TRANSACTION WHICH IS EXEMPT UNDER SUCH ACTS. IF THE HOLDER IS A RESIDENT
OF PENNSYLVANIA IT AGREES NOT TO SELL ANY OF THESE SECURITIES FOR A PERIOD OF
TWELVE (12) MONTHS AFTER THE DATE OF PURCHASE THEREOF.
INDEPENDENCE BREWING COMPANY
A PENNSYLVANIA CORPORATION
SERIES B PREFERRED STOCK WARRANT
TO PURCHASE SERIES B PREFERRED STOCK OF THE COMPANY
Series B Preferred Stock Warrant No. 1
FOR VALUE RECEIVED, INDEPENDENCE BREWING COMPANY, a
Pennsylvania corporation (the "Company"), grants the following rights to
WINFIELD CAPITAL CORP., a New York corporation, its successors and assigns
(individually and collectively, the "Holder").
Section 1. Grant.
The Holder is hereby granted the right (collectively, the
"Purchase Rights"), in accordance with the terms and conditions of this Warrant,
during the Exercise Period (as defined in Section 3), to purchase from the
Company that number of fully paid and non-assessable shares of Series B
Preferred Stock of the Company, par value Ten Dollars ($10.00) per share, set
forth in Section 2 hereof, at the Exercise Price (as defined in Section 5), upon
delivery of this Warrant to the Company with the subscription form described in
Section 4 hereof, duly executed, and upon tender of the Exercise Price for the
shares of Series B Preferred Stock to be purchased.
<PAGE>
Section 2. Number of Shares of Series B Preferred Stock
Purchasable.
2.1 Subject to the provisions of this Section 2,
this Warrant entitles the Holder to purchase Seventy Thousand (70,000) shares of
Series B Preferred Stock (the "Warrant Shares").
2.2 In case, prior to the expiration of these
Purchase Rights by exercise or by the terms of this Warrant, the Company shall
undertake any reclassification, stock split, reverse stock split, stock dividend
or any similar proportionately-applied change (collectively, a
"Reclassification") of outstanding shares of Series B Preferred Stock (other
than a change in, of, or from par value), the Holder shall thereafter be
entitled, upon exercise of this Warrant, to purchase the kind and amount of
shares of stock and other securities and property receivable upon such
Reclassification by a holder of the number of shares of Series B Preferred Stock
which this Warrant entitles the Holder hereof to purchase immediately prior to
such Reclassification.
2.3 In case, prior to the expiration of these
Purchase Rights by exercise or by the terms of this Warrant, the Company shall
consolidate or merge with, or convey all, or substantially all, of its property
or assets to, any other corporation or corporations, then, as a condition
precedent to such consolidation, merger, or conveyance, lawful and adequate
provision shall be made whereby the Holder shall thereafter have the right to
receive from the Company or the successor corporation, as the case may be, upon
the basis and upon the terms and conditions specified in this Warrant, in lieu
of the shares of Series B Preferred Stock of the Company theretofore purchasable
upon the exercise of the Purchase Rights, such shares of stock, securities, or
assets as may be issued or payable with respect to, or in exchange for, the
number of shares of Series B Preferred Stock of the Company theretofore
purchasable upon the exercise of the Purchase Rights had such consolidation,
merger, or conveyance not taken place; and in any such event the rights of the
Holder to an adjustment of the number of shares of Series B Preferred Stock
purchasable upon the exercise of the Purchase Rights as herein provided, shall
continue and be preserved in respect of any stock or securities which the Holder
becomes entitled to purchase. It shall be a condition of such consolidation,
merger, or conveyance that the Company and/or each successor corporation, as the
case may be, shall assume in manner and form reasonably satisfactory to the
Holder the obligation to deliver to the Holder, upon the exercise of the
Purchase Rights, such shares of Series B Preferred Stock, securities, or assets
as, in accordance with the provisions of this Warrant, shall have been provided
for that purpose.
Section 3. Exercise Period. The Purchase Rights represented
hereby shall be exercisable only in whole at any time beginning on the date
hereof and continuing until 5:00 p.m. eastern United States time on August 12,
1997 (the "Exercise Period").
-2-
<PAGE>
Section 4. Method of Exercise. The Purchase Rights represented
by this Warrant are exercisable upon the terms and conditions set forth herein
at the option of the Holder in whole or in part upon the delivery of a notice to
the Company's principal office, in the form attached hereto and made a part
hereof as Exhibit A, with such notice duly executed and upon payment in cash or
bank cashier's or certified check of the Exercise Price. The Purchase Rights
shall be deemed to have been exercised, and the Holder shall be deemed to have
become a stockholder of record of the Company for the purposes of receiving
dividends and for all other purposes whatsoever with respect to the shares of
Series B Preferred Stock so purchased, as of the date of delivery of such notice
accompanied by tender of the Exercise Price. As soon as practicable on or after
the date of exercise, the Company shall issue a certificate or certificates for
the shares of Common Stock deliverable upon such exercise.
Section 5. Exercise Price. The Exercise Price for each share
of Series B Preferred Stock issuable to the Holder hereunder is Ten Dollars
($10) (the "Exercise Price"), which Exercise Price shall, upon exercise of this
Warrant, be paid by certified or cashier's check by the Holder.
Section 6. Company's Warranties and Covenants as to Series B
Preferred Stock; Reservation of Shares.
6.1 The Company has taken all action necessary and
appropriate to properly authorize and issue those shares of Series B Preferred
Stock issuable to the Holder pursuant to this Warrant including an authorization
of issuance and setting of price. The shares of Series B Preferred Stock
deliverable on the exercise of the Purchase Rights represented hereby shall,
when issued, be duly and validly issued, fully paid and nonassessable.
6.2 The Company will at all times reserve and keep
available out of its authorized shares of Series B Preferred Stock, solely for
the purpose of issue upon exercise of this Warrant and the other Series B
Preferred Stock Warrants as provided herein and therein, such number of shares
of Series B Preferred Stock as shall then be issuable upon the exercise of all
such Series B Preferred Stock Warrants. The Company shall at all times reserve
and hold available sufficient shares of Series B Preferred Stock to satisfy all
dividend, conversion and purchase rights of all outstanding Series B Preferred
Stock Warrants.
Section 7. Transfer. The Purchase Rights shall be registered
on the books of the Company, which shall be kept by it at its principal office
for that purpose. The Purchase Rights shall be transferable on said books, in
whole or in part, by the Holder in person or by duly authorized attorney upon
surrender of this Warrant properly endorsed in the sole discretion of the
Holder, subject only to compliance with all applicable securities laws. The
Company agrees that, while the Purchase Rights remain valid and outstanding, its
stock transfer books shall not be closed for any purpose whatsoever except under
arrangements which shall insure to persons exercising warrants
-3-
<PAGE>
or applying for transfer of stock all rights and privileges which they might
have had or received if the stock transfer books had not been closed and they
had exercised their Purchase Rights at any time during which such transfer book
shall have been closed.
Section 8. Charges, Taxes and Expenses. Issuance of
certificates for shares of Series B Preferred Stock issuable upon the exercise
of this Warrant shall be made without charge to the Holder hereof for any issue
taxes or any other incidental expenses in respect of the issuance of such
certificates to and in the name of the registered Holder of this Warrant, all of
which taxes and expenses shall be paid by the Company, and such certificates
shall be issued in the name of the Holder of this Warrant. Certificates will be
issued in a name other than that of the Holder upon the request of the Holder
and payment by the Holder of any applicable transfer taxes and compliance with
all applicable securities laws.
Section 9. Exchange For Other Denominations. This Warrant is
exchangeable for new certificates of like tenor and date representing in the
aggregate the right to purchase the number of shares purchasable hereunder in
denominations designated by the Holder at the time of surrender. In the event of
the purchase, at any time prior to the expiration of the Exercise Period, of
less than all of the shares of Series B Preferred Stock purchasable hereunder,
the Company will cancel this Warrant upon surrender thereof, and will forthwith
execute and deliver to the Holder hereof a new warrant of like tenor and date
for the balance of the shares purchasable hereunder.
Section 10. Loss, Theft, Destruction or Mutilation. Upon
receipt by the Company of evidence reasonably satisfactory to it of the loss,
theft, destruction or mutilation of this Warrant, and, in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to the Company,
and upon reimbursement to the Company of all reasonable expenses incidental
thereto, and upon surrender and cancellation of this Warrant, if mutilated, the
Company will make and deliver a new warrant of like tenor and date, in lieu of
this Warrant.
Section 11. Remedies. The Company acknowledges and agrees that
the remedies at law of the Holder in the event of any default or threatened
default by the Company in the performance of or compliance with any of the terms
of this Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
Section 12. Miscellaneous. This Warrant shall be binding upon
the Company's successors. This Warrant shall be governed, construed and enforced
in accordance with the laws of the State of New York. In case any provision of
this Warrant shall be invalid, illegal or unenforceable, or partially invalid,
illegal or unenforceable, the provision shall be enforced to the extent, if any,
that it may legally be enforced and the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
This Warrant and any term hereof may be changed, waived,
-4-
<PAGE>
discharged or terminated only by a statement in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought. The headings in this Warrant are for purposes of reference only, and
shall not limit or otherwise affect any of the terms hereof.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
duly executed, under seal and delivered on its behalf this 12th day of August,
1996.
ATTEST: INDEPENDENCE BREWING
COMPANY
/s/ CHRISTINA CARE By:/s/ ROBERT W. CONNOR, JR. (SEAL)
- --------------------------- ------------------------------
Assistant Secretary Robert W. Connor, Jr., President
-5-
<PAGE>
EXHIBIT A
EXERCISE OF OPTION TO PURCHASE PURSUANT TO
ATTACHED STOCK WARRANT
To________________________: __________________
The undersigned, the Holder of record of the attached Warrant
of INDEPENDENCE BREWING COMPANY, hereby exercises the option granted by the
Purchase Rights evidenced by the attached Warrant to purchase upon the terms set
forth in such Warrant _______ shares of Series B Preferred Stock, which
constitutes [all/a portion] of the shares of Series B Preferred Stock issuable
pursuant to the Purchase Rights represented by this Warrant, of INDEPENDENCE
BREWING COMPANY, and hereby tenders payment of the Exercise Price as determined
by the Warrant.
By:_____________________________________
[Title _________________________________]
-6-
EXHIBIT 10.9
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT") OR THE SECURITIES ACT OF ANY STATE. THESE SECURITIES HAVE BEEN ISSUED OR
SOLD IN RELIANCE ON THE EXEMPTIONS FROM REGISTRATION CONTAINED IN SECTION 4(2)
OF THE SECURITIES ACT AND IN THE SECURITIES LAWS OF VARIOUS STATES AND MAY NOT
BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO EFFECTIVE REGISTRATION UNDER SUCH ACTS
OR IN A TRANSACTION WHICH IS EXEMPT UNDER SUCH ACTS. IF THE HOLDER IS A RESIDENT
OF PENNSYLVANIA IT AGREES NOT TO SELL ANY OF THESE SECURITIES FOR A PERIOD OF
TWELVE (12) MONTHS AFTER THE DATE OF PURCHASE THEREOF.
INDEPENDENCE BREWING COMPANY
A PENNSYLVANIA CORPORATION
COMMON STOCK WARRANT
SERIES A WARRANT
TO PURCHASE COMMON STOCK OF THE COMPANY
Common Stock Warrant Series A No. 1
FOR VALUE RECEIVED, INDEPENDENCE BREWING COMPANY, a
Pennsylvania corporation (the "Company"), grants the following rights WINFIELD
CAPITAL CORP., a New York corporation, its successors and assigns (individually
and collectively, the "Holder").
Section 1. Grant.
The Holder is hereby granted the right (collectively, the
"Purchase Rights"), in accordance with the terms and conditions of this Warrant,
during the Exercise Period (as defined in Section 3), to purchase from the
Company that number of fully paid and non-assessable shares of Common Stock of
the Company, no par value, set forth in Section 2 hereof, at the Exercise Price
(as defined in Section 5), upon delivery of this Warrant to the Company with the
subscription form described in Section 4 hereof, duly executed, and upon tender
of the Exercise Price for the shares of Common Stock to be purchased.
<PAGE>
Section 2. Number of Shares of Common Stock Purchasable.
2.1 Subject to the provisions of this Section 2, this
Warrant entitles the Holder to purchase from time to time an aggregate number of
shares of Common Stock (the "Warrant Shares") equal to Ten and One Hundred
Twenty-Five Thousandths percent (10.125%) of the sum of:
(i) the total number of shares of Common Stock
issued and outstanding as of the date hereof, plus,
(ii) Two Hundred Thirty-Three Thousand Five
Hundred Ninety-Two (233,592), plus,
(iii) the total number of shares of Common Stock
issuable pursuant to all other warrants, options, contracts or securities issued
and outstanding as of the date hereof or pursuant to that certain Securities
Purchase Agreement of the Company dated August 12, 1996 (other than that certain
Warrant No. B-1 of the Company representing 3,500,000 warrants dated August 12,
1996) convertible into or evidencing the right to purchase shares of Common
Stock, upon whose exercise or conversion, shares of Common Stock are issuable
(including shares of Common Stock issued and issuable pursuant to the Omnibus
Stock Plan (the "Omnibus Stock Plan") heretofore established by the Company for
up to 117,359 shares of Common Stock), which sum, as of the date hereof, equals
Two Hundred Thirty-Three Thousand Five Hundred Ninety-Two (233,592) shares of
Common Stock, as such number of shares of Common Stock may be increased pursuant
to the provisions hereof, and the Company acknowledges that a greater number of
shares of Common Stock may be issued upon exercise of this Warrant under certain
circumstances described in this Section 2.
2.2 (a) Upon each issuance after the date hereof, and
prior to the consummation of an offering of the Company's shares of Common Stock
or options, warrants, contracts or securities convertible or exchangeable into
or evidencing the right to purchase shares of Common Stock of the Company to the
public pursuant to a registration statement filed by the Company with the
Securities and Exchange Commission (other than a registration statement on Form
S-4 or S-8, or their successors) and as the result of which offering shares of
Common Stock of the Company are traded on either the New York Stock Exchange,
the American Stock Exchange, or any NASDAQ stock market (a "Public Offering"),
of shares of Common Stock, or options, warrants, contracts or securities
convertible or exchangeable into or evidencing the right to purchase shares of
Common Stock of the Company (i) based upon a Company valuation of less than Four
Million Four Hundred Forty-Four Thousand Four Hundred and Forty-Four Dollars
($4,444,444), or (ii) pursuant to the Omnibus Stock Plan, other than issuances
of shares of Common Stock of the Company issuable or issued upon the exercise of
any options, warrants, contracts or securities issued pursuant to the terms and
provisions of that certain Securities Purchase Agreement among the Company,
Winfield Capital Corp. and certain other parties dated August 12, 1996 (each, a
"Dilutive Transaction"), then upon issuance of such securities, if such issuance
occurs prior to the full exercise of this Warrant, the number of shares issuable
upon exercise of this Warrant shall be increased such that the sum of the total
number of shares of Common Stock issued upon
-2-
<PAGE>
all prior partial exercises of this Warrant plus the number of shares of Common
Stock issuable upon full exercise of the unexercised portion of this Warrant
shall be equal to Ten and One Hundred Twenty-Five Thousandths percent (10.125%)
times a fraction, the numerator of which shall equal the number of shares of
Common Stock issued and outstanding following the Dilutive Transaction (other
than shares of Common Stock issued pursuant to this Warrant and all other
warrants, options, contracts or securities issued and outstanding as of the date
hereof convertible into or evidencing the right to purchase shares of Common
Stock), and the denominator of which shall equal 0.55.
(b) Upon each issuance after the date hereof of
shares of Common Stock, or options, warrants, contracts or securities
convertible or exchangeable into or evidencing the right to purchase shares of
Common Stock of the Company pursuant to a Dilutive Transaction, if this Warrant
has been exercised in full as of the date of such issuance, then the Company
shall immediately issue to the Holder that number of additional shares of Common
Stock equal to the positive difference of (i) Ten and One Hundred Twenty-Five
Thousandths percent (10.125%) times a fraction, the numerator of which shall
equal the number of shares of Common Stock issued and outstanding following the
Dilutive Transaction (other than shares of Common Stock issued pursuant to this
Warrant and all other warrants, options, contracts or securities issued and
outstanding as of the date hereof convertible into or evidencing the right to
purchase shares of Common Stock), and the denominator of which shall equal 0.55,
minus (ii) the number of shares of Common Stock theretofore issued pursuant to
exercise of this Warrant. The provisions of this Section 2.2 shall survive the
whole and partial exercise of the Purchase Rights hereunder and shall inure to
the benefit of each such holder of the shares of Common Stock issued pursuant to
the exercise hereof. All stock certificates for shares of Common Stock issued
pursuant to the whole or partial exercise of the Purchase Rights hereunder shall
bear a legend setting forth the rights of the holder hereof as contained in this
Section 2.2(b).
(c) If the Company shall at any time issue or
grant any options or rights to subscribe for or to purchase shares of Common
Stock or its equivalent, all shares of Common Stock or its equivalent which the
holders of such options or rights shall be entitled to subscribe for or to
purchase shall be deemed to be issued as of the date of such issuing or granting
of such options or rights.
(d) If the Company shall at any time issue any
stock or obligations directly or indirectly convertible into or exchangeable for
shares of Common Stock or its equivalent, then such issue shall be deemed to be
an issue (as of the date of issue of such stock or obligations) of the total
maximum number of shares of Common Stock necessary to effect the exchange or
conversion of all such stock or obligations.
(e) The sale or other disposition of any shares
of Common Stock of the Company or other securities held in the treasury of the
Company, or of any securities resulting from any reclassification or
reclassifications of such shares
-3-
<PAGE>
or other securities which were effected while they were held in the treasury of
the Company, shall be deemed an issuance thereof.
(f) If at any time the Company shall adjust the
subscription, exercise, conversion or exchange price of any Common Stock or its
equivalent issued or subject to issuance by the Company based upon a Company
valuation of less than Four Million Four Hundred Forty-Four Thousand Dollars
($4,444,444), such adjustment shall constitute a Dilutive Transaction.
2.3 In case, prior to the expiration of these
Purchase Rights by exercise or by the terms of this Warrant, the Company shall
undertake any reclassification, stock split, reverse stock split, stock dividend
or any similar proportionately-applied change (collectively, a
"Reclassification") of outstanding shares of Common Stock (other than a change
in, of, or from par value), the Holder shall thereafter be entitled, upon
exercise of this Warrant, to purchase the kind and amount of shares of stock and
other securities and property receivable upon such Reclassification by a holder
of the number of shares of Common Stock which this Warrant entitles the Holder
hereof to purchase immediately prior to such Reclassification.
2.4 In case, prior to the expiration of these
Purchase Rights by exercise or by the terms of this Warrant, the Company shall
consolidate or merge with, or convey all, or substantially all, of its property
or assets to, any other corporation or corporations, then, as a condition
precedent to such consolidation, merger, or conveyance, lawful and adequate
provision shall be made whereby the Holder shall thereafter have the right to
receive from the Company or the successor corporation, as the case may be, upon
the basis and upon the terms and conditions specified in this Warrant, in lieu
of the shares of Common Stock of the Company theretofore purchasable upon the
exercise of the Purchase Rights, such shares of stock, securities, or assets as
may be issued or payable with respect to, or in exchange for, the number of
shares of Common Stock of the Company theretofore purchasable upon the exercise
of the Purchase Rights had such consolidation, merger, or conveyance not taken
place; and in any such event the rights of the Holder to an adjustment of the
number of shares of Common Stock purchasable upon the exercise of the Purchase
Rights as herein provided, shall continue and be preserved in respect of any
stock or securities which the Holder becomes entitled to purchase. It shall be a
condition of such consolidation, merger, or conveyance that the Company and/or
each successor corporation, as the case may be, shall assume in manner and form
reasonably satisfactory to the Holder the obligation to deliver to the Holder,
upon the exercise of the Purchase Rights, such shares of Common Stock,
securities, or assets as, in accordance with the provisions of this Warrant,
shall have been provided for that purpose.
Section 3. Exercise Period; Registration Statement Notice.
3.1 The Purchase Rights represented hereby shall be
exercisable in whole or in part from time to time beginning on the date hereof
and continuing until the first to occur of (i) twenty (20) days after the date
on which a
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<PAGE>
registration statement in contemplation of a Public Offering is declared
effective by the Securities and Exchange Commission (the "SEC"), or (ii) six (6)
years from the date on which all amounts payable by the Company pursuant to that
certain Debenture of the Company of even date herewith issued to Winfield
Capital Corp. have been paid in full by the Company to the holder thereof (the
"Exercise Period").
3.2 The Company shall give the Holder written notice,
at the address of the Holder set forth on the Company's books, not less than
thirty (30) days prior to the filing of any registration statement with the SEC
with respect to a Public Offering.
Section 4. Method of Exercise. The Purchase Rights represented
by this Warrant are exercisable upon the terms and conditions set forth herein
at the option of the Holder in whole at any time and in part from time to time
during the Exercise Period, upon the delivery of a notice to the Company's
principal office, in the form attached hereto and made a part hereof as Exhibit
A, with such notice duly executed and upon payment in cash or bank cashier's or
certified check of the Exercise Price. The Purchase Rights shall be deemed to
have been exercised, and the Holder shall be deemed to have become a stockholder
of record of the Company for the purposes of receiving dividends and for all
other purposes whatsoever with respect to the shares of Common Stock so
purchased, as of the date of delivery of such notice accompanied by tender of
the Exercise Price.
Section 5. Exercise Price. The aggregate Exercise Price for
the shares of Common Stock issuable to the Holder hereunder is One Thousand One
Hundred Sixty-Eight Dollars ($1,168.00) (the "Exercise Price"). If the Holder
exercises a portion of the Purchase Rights granted hereunder, the Exercise Price
for the shares of Common Stock issuable upon such exercise shall equal the
product of (i) One Thousand One Hundred Sixty-Eight Dollars ($1,168.00), and
(ii) a fraction, the numerator of which is the number of shares of Common Stock
issuable upon such exercise, and the denominator of which is the total number of
shares of Common Stock issuable hereunder, each taking into account the
occurrence of any Reclassification.
Section 6. Company's Warranties and Covenants as to Common
Stock; Reservation of Shares.
6.1 The Company has taken all action necessary and
appropriate to properly authorize and issue those shares of Common Stock
issuable to the Holder pursuant to this Warrant including an authorization of
issuance and setting of price. The shares of Common Stock deliverable on the
exercise of the Purchase Rights represented hereby shall, when issued, be duly
and validly issued, fully paid and nonassessable.
6.2 The Company will at all times reserve and keep
available out of its authorized shares of Common Stock, solely for the purpose
of issue upon
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<PAGE>
exercise of this Warrant, such number of shares of Common Stock as shall then be
issuable upon the exercise of this Warrant. The Company shall at all times
reserve and hold available sufficient shares of Common Stock to satisfy all
dividend and purchase rights of all outstanding convertible securities and
warrants.
Section 7. Transfer. The Purchase Rights shall be registered
on the books of the Company, which shall be kept by it at its principal office
for that purpose. The Purchase Rights shall be transferable on said books, in
whole or in part, by the Holder in person or by duly authorized attorney upon
surrender of this Warrant properly endorsed in the sole discretion of the
Holder, subject only to compliance with all applicable securities laws. The
Company agrees that, while the Purchase Rights remain valid and outstanding, its
stock transfer books shall not be closed for any purpose whatsoever except under
arrangements which shall insure to persons exercising warrants or applying for
transfer of stock all rights and privileges which they might have had or
received if the stock transfer books had not been closed and they had exercised
their Purchase Rights at any time during which such transfer book shall have
been closed.
Section 8. Charges, Taxes and Expenses. Issuance of
certificates for shares of Common Stock issuable upon the exercise of this
Warrant or any portion thereof shall be made without charge to the Holder hereof
for any issue taxes or any other incidental expenses in respect of the issuance
of such certificates to and in the name of the registered Holder of this
Warrant, all of which taxes and expenses shall be paid by the Company, and such
certificates shall be issued in the name of the Holder of this Warrant.
Certificates will be issued in a name other than that of the Holder upon the
request of a Holder and payment by the Holder of any applicable transfer taxes
and compliance with all applicable securities laws.
Section 9. Exchange For Other Denominations. This Warrant is
exchangeable for new certificates of like tenor and date representing in the
aggregate the right to purchase the number of shares purchasable hereunder in
denominations designated by the Holder at the time of surrender. In the event of
the purchase, at any time prior to the expiration of the Exercise Period, of
less than all of the shares of Common Stock purchasable hereunder, the Company
will cancel this Warrant upon surrender thereof, and will forthwith execute and
deliver to the Holder hereof a new warrant of like tenor and date for the
balance of the shares purchasable hereunder.
Section 10. Loss, Theft, Destruction or Mutilation. Upon
receipt by the Company of evidence reasonably satisfactory to it of the loss,
theft, destruction or mutilation of this Warrant, and, in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to the Company,
and upon reimbursement to the Company of all reasonable expenses incidental
thereto, and upon surrender and cancellation of this Warrant, if mutilated, the
Company will make and deliver a new warrant of like tenor and date, in lieu of
this Warrant.
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<PAGE>
Section 11. Remedies. The Company acknowledges and agrees that
the remedies at law of the Holder in the event of any default or threatened
default by the Company in the performance of or compliance with any of the terms
of this Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
Section 12. Miscellaneous. This Warrant shall be binding upon
the Company's successors. This Warrant shall be governed, construed and enforced
in accordance with the laws of the State of New York. In case any provision of
this Warrant shall be invalid, illegal or unenforceable, or partially invalid,
illegal or unenforceable, the provision shall be enforced to the extent, if any,
that it may legally be enforced and the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
This Warrant and any term hereof may be changed, waived, discharged or
terminated only by a statement in writing signed by the party against which
enforcement of such change, waiver, discharge or termination is sought. The
headings in this Warrant are for purposes of reference only, and shall not limit
or otherwise affect any of the terms hereof.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
duly executed, under seal and delivered on its behalf this 12th day of August,
1996.
ATTEST: INDEPENDENCE BREWING
COMPANY
/s/ CHRISTINA CARE By:/s/ ROBERT W. CONNOR, JR. (SEAL)
- ------------------------------ ---------------------------------
Assistant Secretary Robert W. Connor, Jr., President
-7-
<PAGE>
EXHIBIT A
EXERCISE OF OPTION TO PURCHASE PURSUANT TO
ATTACHED STOCK WARRANT
____________________, ___
To_________________:
The undersigned, the Holder of record of the attached Warrant
of INDEPENDENCE BREWING COMPANY, hereby exercises the option granted by the
Purchase Rights evidenced by the attached Warrant to purchase upon the terms set
forth in such Warrant ___ shares of Common Stock, which constitutes all [or a
portion] of the shares of Common Stock issuable pursuant to the Purchase Rights
represented by this Warrant, of INDEPENDENCE BREWING COMPANY, and hereby tenders
payment of the Exercise Price as determined by the Warrant.
By:_____________________________________
[Title__________________________________]
-8-
<PAGE>
EXHIBIT 10.10
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT") OR THE SECURITIES ACT OF ANY STATE. THESE SECURITIES HAVE BEEN ISSUED OR
SOLD IN RELIANCE ON THE EXEMPTIONS FROM REGISTRATION CONTAINED IN SECTION 4(2)
OF THE SECURITIES ACT AND IN THE SECURITIES LAWS OF VARIOUS STATES AND MAY NOT
BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO EFFECTIVE REGISTRATION UNDER SUCH ACTS
OR IN A TRANSACTION WHICH IS EXEMPT UNDER SUCH ACTS. IF THE HOLDER IS A RESIDENT
OF PENNSYLVANIA HE AGREES NOT TO SELL ANY OF THESE SECURITIES FOR A PERIOD OF
TWELVE (12) MONTHS AFTER THE DATE OF PURCHASE THEREOF.
No. B-1 3,500,000 WARRANTS
INDEPENDENCE BREWING COMPANY
A PENNSYLVANIA CORPORATION
WARRANTS TO PURCHASE
COMMON STOCK OF THE COMPANY
FOR VALUE RECEIVED, INDEPENDENCE BREWING COMPANY, a
Pennsylvania corporation (the "Company"), has granted to WINFIELD CAPITAL CORP.,
a New York corporation its successors and assigns (individually and
collectively, the "Holder"), who has thereupon become the owner of, the number
of warrants (the "Warrants") specified above.
Section 1. Rights. Each Warrant initially entitles the Holder
to purchase (the "Purchase Rights"), subject to the terms and conditions set
forth in this Certificate, one fully paid and non-assessable share of Common
Stock, no par value, of Independence Brewing Company, a Pennsylvania corporation
(the "Company"), during the Exercise Period (as defined in Section 4), at the
Exercise Price (as defined in Section 2), upon delivery of this Warrant to the
Company with the subscription form described in Section 5 hereof, duly executed,
and upon tender of the Exercise Price for the shares of Common Stock to be
purchased.
Section 2. Exercise Price. The Exercise Price for each share
of Common Stock issuable to the Holder hereunder is Six Dollars (the "Exercise
Price"), subject to modification and adjustment as provided in Section 3 hereof.
<PAGE>
Section 3. Adjustment of Purchase Price and Number of Shares
of Common Stock Purchasable.
3.1 Except as otherwise provided herein, upon each
issuance, after the date on which the first offering of the Company's shares of
Common Stock or options, warrants, contracts or securities convertible or
exchangeable into or evidencing the right to purchase shares of Common Stock of
the Company to the public pursuant to a registration statement filed by the
Company with the Securities and Exchange Commission (other than a registration
statement on Form S-4 or S-8, or their successors) and as the result of which
offering shares of Common Stock of the Company are traded on either the New York
Stock Exchange, the American Stock Exchange, or any NASDAQ stock market has been
consummated (a "Public Stock Offering"), of shares of Common Stock for a
consideration per share less than the Exercise Price per share as provided
herein, or issuance of any shares of Common Stock as a stock dividend to the
holders of Common Stock of the Company, or subdivision or combination of the
outstanding shares of Common Stock of the Company into a greater (but not
lesser) number of shares (any such sale, issuance, subdivision or combination
being a "Change of Shares"), then, and thereafter upon each further Change of
Shares, the Exercise Price for the Warrants in effect immediately prior to such
Change of Shares shall be changed to a price (including any applicable fraction
of a cent to the nearest cent) determined by dividing (A) the sum of (x) the
total number of shares of Common Stock outstanding immediately prior to such
Change of Shares, multiplied by the Exercise Price in effect immediately prior
to such Change of Shares, and (y) the consideration, if any, received by the
Company upon such sale, issuance, subdivision or combination, by (B) the total
number of shares of Common Stock outstanding immediately after such Change of
Shares; provided, however, that in no event shall the Exercise Price be adjusted
pursuant to this computation to an amount in excess of the Exercise Price in
effect immediately prior to such computation, except in the case of a
combination of outstanding shares of Common Stock.
3.2 For purposes of any adjustment to be made in
accordance with the provisions of Section 3.1 the following provisions shall be
applicable:
(a) In case of the issuance or sale of shares of
Common Stock (or of other securities deemed hereunder to involve the issuance or
sale of shares of Common Stock) for a consideration part or all of which shall
be cash, the amount of the cash portion of the consideration therefor deemed to
have been received by the Company shall be (i) the subscription price, if shares
of Common Stock are offered by the Company for subscription, or (ii) the public
offering price (before deducting therefrom any compensation paid or discount
allowed in the sale, underwriting or purchase thereof by underwriters or dealers
or others performing similar services, or any expenses incurred in connection
therewith), if such securities are sold to underwriters or dealers for public
offering without a subscription offering, or (iii) the gross amount of cash
actually received by the Company for such securities, in any other case.
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(b) In case of the issuance or sale (other than
as a dividend or other distribution on any stock of the Company or upon the
exercise of options, rights or warrants or the conversion or exchange of
convertible or exchangeable securities) of shares of Common Stock (or of other
securities deemed hereunder to involve the issuance or sale of shares of Common
Stock) for a consideration part or all of which shall be other than cash, the
amount of the consideration therefor other than cash deemed to have been
received by the Company shall be the fair market value of such consideration as
determined in good faith by the Board of Directors of the Company on the basis
of a record of values of similar property or services.
(c) Shares of Common Stock issuable by way of
dividend or other distribution on any stock of the Company shall be deemed to
have been issued immediately after the opening of business on the day following
the record date for the determination of shareholders entitled to receive such
dividend or other distribution and shall be deemed to have been issued without
consideration.
(d) The reclassification of securities of the
Company other than shares of Common Stock into securities including shares of
Common Stock shall be deemed to involve the issuance of such shares of Common
Stock for a consideration other than cash immediately prior to the close of
business on the date fixed for the determination of security holders entitled to
receive such shares, and the value of the consideration allocable to such shares
of Common Stock shall be determined as provided in Section 3.2(b).
(e) The number of shares of Common Stock at any
one time outstanding shall be deemed to include the aggregate maximum number of
shares issuable (subject to readjustment upon the actual issuance thereof) upon
the exercise of options, rights or warrants and upon the conversion or exchange
of convertible or exchangeable securities.
(f) Upon each adjustment of the Exercise Price
pursuant to Section 3.1, the number of shares of Common Stock purchasable upon
the exercise of each Warrant shall be the number derived by multiplying the
number of shares of Common Stock purchasable immediately prior to such
adjustment by the Purchase Price in effect prior to such adjustment and dividing
the product so obtained by the applicable adjusted Exercise Price.
3.3 If the Company shall at any time after the date
of a Public Stock Offering issue options, rights or warrants to subscribe for
shares of Common Stock of the Company, or issue any securities convertible into
or exchangeable for shares of Common Stock, for a consideration per share
(determined as provided in Section 3.1 hereof and as provided below) less than
the Exercise Price in effect immediately prior to the issuance of such options,
rights or warrants, or such convertible or exchangeable securities, or without
consideration (including the issuance of any such securities by way
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of dividend or other distribution), the Exercise Price for the Warrants in
effect immediately prior to the issuance of such options, rights or warrants, or
such convertible or exchangeable securities, as the case may be, shall be
reduced to a price determined by making the computation in accordance with the
provisions of Section 3.1 hereof, provided that:
(a) The aggregate maximum number of shares of
Common Stock, as the case may be, issuable or that may become issuable under
such options, rights or warrants (assuming exercise in full even if not then
currently exercisable or currently exercisable in full) shall be deemed to be
issued and outstanding at the time such options, rights or warrants were issued,
for a consideration equal to the minimum purchase price per share provided for
in such options, rights or warrants at the time of issuance, plus the
consideration, if any, received by the Company for such options, rights or
warrants. However, upon the expiration or other termination of such options,
rights or warrants (if any thereof shall not have been exercised), the number of
shares of Common Stock deemed to be issued and outstanding pursuant to this
subsection (a) (and for the purposes of Section 3.2(e) hereof) shall be reduced
by the number of shares as to which options, warrants and/or rights shall have
expired, such number of shares shall no longer be deemed to be issued and
outstanding, and the Exercise Price then in effect shall forthwith be readjusted
and thereafter be the price that it would have been had adjustment been made on
the basis of the issuance only of the shares actually issued plus the shares
remaining issuable upon the exercise of those options, rights or warrants as to
which the exercise rights shall not have expired or terminated unexercised.
(b) The aggregate maximum number of shares of
Common Stock issuable or that may become issuable upon conversion or exchange of
any convertible or exchangeable securities (assuming conversion or exchange in
full even if not then currently convertible or exchangeable in full) shall be
deemed to be issued and outstanding at the time of issuance of such securities,
for a consideration equal to the consideration received by the Company for such
securities, plus the minimum consideration, if any, receivable by the Company
upon the conversion or exchange thereof; provided, however, that upon the
termination of the right to convert or exchange such convertible or exchangeable
securities (whether by reason of redemption or otherwise), the number of shares
of Common Stock deemed to be issued and outstanding pursuant to this subsection
(b) (and for the purposes of Section 3.2(e) hereof) shall be reduced by the
number of shares as to which the conversion or exchange rights shall have
expired or terminated unexercised, and such number of shares shall no longer be
deemed to be issued and outstanding, and the Purchase Price then in effect shall
forthwith be readjusted and thereafter be the price that it would have been had
adjustment been made on the basis of the issuance only of the shares actually
issued plus the shares remaining issuable upon conversion or exchange of those
convertible or exchangeable securities as to which the conversion or exchange
rights shall not have expired or terminated unexercised.
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(c) If any change shall occur in the price per
share provided for in any of the options, rights or warrants referred to in
Section 3.3(a), or in the price per share or ratio at which the securities
referred to in Section 3.3(b) are convertible or exchangeable, such options,
rights or warrants or conversion or exchange rights, as the case may be, to the
extent not theretofore exercised, shall be deemed to have expired or terminated
on the date when such price change became effective in respect of shares not
theretofore issued pursuant to the exercise or conversion or exchange thereof,
and the Company shall be deemed to have issued upon such date new options,
rights or warrants or convertible or exchangeable securities.
3.4 The sale or other disposition of any shares of
Common Stock of the Company or other securities held in the treasury of the
Company, or of any securities resulting from any reclassification or
reclassifications of such shares or other securities which were effected while
they were held in the treasury of the Company, shall be deemed an issuance
thereof.
3.5 In case, prior to the expiration of these
Purchase Rights by exercise or by the terms of this Warrant, the Company shall
undertake any reclassification, stock split, reverse stock split (other than a
reverse stock split with an effective date prior to the date of a Public Stock
Offering), stock dividend or any similar proportionately-applied change
(collectively, a "Reclassification") of outstanding shares of Common Stock
(other than a change in, of, or from par value), the Holder shall thereafter be
entitled, upon exercise of this Warrant, to purchase the kind and amount of
shares of stock and other securities and property receivable upon such
Reclassification by a holder of the number of shares of Common Stock which this
Warrant entitles the Holder hereof to purchase immediately prior to such
Reclassification.
3.6 In case, prior to the expiration of these
Purchase Rights by exercise or by the terms of this Warrant, the Company shall
consolidate or merge with, or convey all, or substantially all, of its property
or assets to, any other corporation or corporations, then, as a condition
precedent to such consolidation, merger, or conveyance, lawful and adequate
provision shall be made whereby the Holder shall thereafter have the right to
receive from the Company or the successor corporation, as the case may be, upon
the basis and upon the terms and conditions specified in this Warrant, in lieu
of the shares of Common Stock of the Company theretofore purchasable upon the
exercise of the Purchase Rights, such shares of stock, securities, or assets as
may be issued or payable with respect to, or in exchange for, the number of
shares of Common Stock of the Company theretofore purchasable upon the exercise
of the Purchase Rights had such consolidation, merger, or conveyance not taken
place; and in any such event the rights of the Holder to an adjustment of the
number of shares of Common Stock purchasable upon the exercise of the Purchase
Rights as herein provided, shall continue and be preserved in respect of any
stock or securities which the Holder becomes entitled to purchase. It shall be a
condition of such consolidation, merger, or conveyance that the Company and/or
each successor corporation, as the case may be, shall assume in manner and form
reasonably satisfactory to the Holder the obligation to deliver to the Holder,
upon the
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<PAGE>
exercise of the Purchase Rights, such shares of Common Stock, securities, or
assets as, in accordance with the provisions of this Warrant, shall have been
provided for that purpose.
3.7 After each adjustment of the Exercise Price
pursuant to this Section 3, the Company will promptly prepare a certificate
signed by the Chief Executive Officer, President or any Vice President and by
the Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary of the Company setting forth: (i) the Exercise Price as so adjusted,
(ii) the number of shares of Common Stock purchasable upon exercise of each
Warrant, after such adjustment, and (iii) a brief statement of the facts
accounting for such adjustment. The Company shall send such certificate by
ordinary first class mail to each Holder at its last address as it shall appear
on the stock record books of the Company. No failure to mail such notice nor any
defect therein or in the mailing thereof shall affect the validity thereof
except as to the Holder to whom the Company failed to mail such notice, or
except as to the Holder whose notice was defective.
3.8 No adjustment of the Exercise Price shall be made
as a result of or in connection with than issuances of (i) any shares of Common
Stock of the Company issuable or issued pursuant to the Omnibus Stock Plan of
the Company or any similar plan, or (ii) shares of Common Stock of the Company
issuable or issued upon exercise of all warrants, options, stock purchase
agreements and convertible or exchangeable securities outstanding on the date
hereof.
Section 4. Exercise Period; Registration Statement Notice.
4.1 The Purchase Rights represented hereby shall be
exercisable in whole or in part from time to time beginning on the date hereof
and continuing until the date ending at 5:00 p.m. (New York time) on the five
(5) year anniversary date of the date on which a registration statement has is
declared effective by the Securities and Exchange Commission for a public
offering of any warrants or similar rights of the Company (a "Public Offering").
Notwithstanding the foregoing, upon the payment in full of all amounts due with
respect to an optional redemption by the Company pursuant to Article Fourth,
Section C.3(b) of the Amended and Restated Articles of Incorporation of the
Company of any or all shares of Series B Preferred Stock of the Company, the
Exercise Period with respect to a portion of the Purchase Rights, as hereinafter
described, shall thereupon, and without further action on the part of the
Company, terminate and the Holder shall thereafter not be entitled to exercise
such portion of the Purchase Rights. For this purpose, the portion of the
Purchase Rights which shall thereupon terminate shall be equal to the positive
difference of (A) the product of (I) the percentage of the total shares of
Series B Preferred Stock initially issued by the Company which are the subject
of such Optional Redemption, times (II) the aggregate Purchase Rights initially
granted hereunder, minus (B) the portion of the Purchase Rights previously
exercised by the Holder. Except as otherwise specifically provided in this
Section 4.1, the Warrants are not redeemable.
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<PAGE>
4.2 The Company shall give the Holder written notice,
at the address of the Holder set forth on the Company's books, not less than
thirty (30) days prior to the filing of any registration statement with respect
to a Public Offering.
Section 5. Method of Exercise. The Purchase Rights represented
by this Warrant are exercisable upon the terms and conditions set forth herein
at the option of the Holder in whole at any time and in part from time to time
during the Exercise Period, upon the delivery of a notice to the Company's
principal office, in the form attached hereto and made a part hereof as Exhibit
A, with such notice duly executed and upon payment in cash or bank cashier's or
certified check of the Exercise Price. The Purchase Rights shall be deemed to
have been exercised, and the Holder shall be deemed to have become a stockholder
of record of the Company for the purposes of receiving dividends and for all
other purposes whatsoever with respect to the shares of Common Stock so
purchased, as of the date of delivery of such notice accompanied by tender of
the Exercise Price. As soon as practicable on or after the date of exercise, the
Company shall issue a certificate or certificates for the shares of Common Stock
deliverable upon such exercise.
Section 6. Company's Warranties and Covenants as to Common
Stock.
6.1 The Company has taken all action necessary and
appropriate to properly authorize and issue those shares of Common Stock
issuable to the Holder pursuant to this Warrant including an authorization of
issuance and setting of price. The shares of Common Stock deliverable on the
exercise of the Purchase Rights represented hereby shall, when issued, be duly
and validly issued, fully paid and nonassessable.
6.2 The Company will at all times reserve and keep
available out of its authorized shares of Common Stock, solely for the purpose
of issue upon exercise of this Warrant, such number of shares of Common Stock as
shall then be issuable upon the exercise of this Warrant. The Company shall at
all times reserve and hold available sufficient shares of Common Stock to
satisfy all dividend and purchase rights of all outstanding convertible
securities and warrants.
Section 7. Transfer. The Purchase Rights shall be registered
on the books of the Company, which shall be kept by it at its principal office
for that purpose. The Purchase Rights shall be transferable on said books, in
whole or in part, by the Holder in person or by duly authorized attorney upon
surrender of this Warrant properly endorsed in the sole discretion of the
Holder, subject only to compliance with all applicable securities laws. The
Company agrees that, while the Purchase Rights remain valid and outstanding, its
stock transfer books shall not be closed for any purpose whatsoever except under
arrangements which shall insure to persons exercising warrants or applying for
transfer of stock all rights and privileges which they might have had or
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<PAGE>
received if the stock transfer books had not been closed and they had exercised
their Purchase Rights at any time during which such transfer book shall have
been closed.
Section 8. Charges, Taxes and Expenses. Issuance of
certificates for shares of Common Stock issuable upon the exercise of this
Warrant or any portion thereof shall be made without charge to the Holder hereof
for any issue taxes or any other incidental expenses in respect of the issuance
of such certificates to and in the name of the registered Holder of this
Warrant, all of which taxes and expenses shall be paid by the Company, and such
certificates shall be issued in the name of the Holder of this Warrant.
Certificates will be issued in a name other than that of the Holder upon the
request of a Holder and payment by the Holder of any applicable transfer taxes
and compliance with all applicable securities laws.
Section 9. Exchange; Exchange For Other Denominations. If the
Company shall approve the filing of a registration statement for a Public
Offering, the Holder shall be entitled to exchange this Warrant for new
certificates of like date entitling the Holder to purchase the same number of
shares of Common Stock as this Warrant and at the same Exercise Price and
otherwise not altering the substantive rights granted to the Holder hereof, but
in addition containing the usual and customary provisions for a publicly-traded
warrant as are applicable in the warrant with respect to which the Company has
approved the filing of such registration statement. This Warrant is exchangeable
for new certificates of like tenor and date representing in the aggregate the
right to purchase the number of shares purchasable hereunder in denominations
designated by the Holder at the time of surrender. In the event of the purchase,
at any time prior to the expiration of the Exercise Period, of less than all of
the shares of Common Stock purchasable hereunder, the Company will cancel this
Warrant upon surrender thereof, and will forthwith execute and deliver to the
Holder hereof a new warrant of like tenor and date for the balance of the shares
purchasable hereunder.
Section 10. Loss, Theft, Destruction or Mutilation. Upon
receipt by the Company of evidence reasonably satisfactory to it of the loss,
theft, destruction or mutilation of this Warrant, and, in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to the Company,
and upon reimbursement to the Company of all reasonable expenses incidental
thereto, and upon surrender and cancellation of this Warrant, if mutilated, the
Company will make and deliver a new warrant of like tenor and date, in lieu of
this Warrant.
Section 11. Remedies. The Company acknowledges and agrees that
the remedies at law of the Holder in the event of any default or threatened
default by the Company in the performance of or compliance with any of the terms
of this Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
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Section 12. Miscellaneous. This Warrant shall be binding upon
the Company's successors. This Warrant shall be governed, construed and enforced
in accordance with the laws of the State of New York. In case any provision of
this Warrant shall be invalid, illegal or unenforceable, or partially invalid,
illegal or unenforceable, the provision shall be enforced to the extent, if any,
that it may legally be enforced and the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
This Warrant and any term hereof may be changed, waived, discharged or
terminated only by a statement in writing signed by the party against which
enforcement of such change, waiver, discharge or termination is sought. The
headings in this Warrant are for purposes of reference only, and shall not limit
or otherwise affect any of the terms hereof.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
duly executed, under seal and delivered on its behalf this 12th day of August,
1996.
ATTEST: INDEPENDENCE BREWING
COMPANY
/s/ CHRISTINA CARE By:/s/ ROBERT W. CONNOR, JR. (SEAL)
- ------------------------------ --------------------------------
Assistant Secretary Robert W. Connor, Jr., President
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EXHIBIT A
EXERCISE OF OPTION TO PURCHASE PURSUANT TO
ATTACHED STOCK WARRANT
_________________, ____
To_________________:
The undersigned, the Holder of record of the attached Warrant
of INDEPENDENCE BREWING COMPANY, hereby exercises all [or a portion of] the
option granted by the Purchase Rights evidenced by the attached Warrant to
purchase upon the terms set forth in such Warrant ___ shares of Common Stock,
which constitutes all [or a portion] of the shares of Common Stock issuable
pursuant to the Purchase Rights represented by this Warrant, of INDEPENDENCE
BREWING COMPANY, and hereby tenders payment of the Exercise Price as determined
by the Warrant.
By:__________________________________
[Title_______________________________]
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EXHIBIT 10.11
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT") OR THE SECURITIES ACT OF ANY STATE. THESE SECURITIES HAVE BEEN ISSUED OR
SOLD IN RELIANCE ON THE EXEMPTIONS FROM REGISTRATION CONTAINED IN SECTION 4(2)
OF THE SECURITIES ACT AND IN THE SECURITIES LAWS OF VARIOUS STATES AND MAY NOT
BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO EFFECTIVE REGISTRATION UNDER SUCH ACTS
OR IN A TRANSACTION WHICH IS EXEMPT UNDER SUCH ACTS. IF THE HOLDER IS A RESIDENT
OF PENNSYLVANIA IT AGREES NOT TO SELL ANY OF THESE SECURITIES FOR A PERIOD OF
TWELVE (12) MONTHS AFTER THE DATE OF PURCHASE THEREOF.
INDEPENDENCE BREWING COMPANY
A PENNSYLVANIA CORPORATION
COMMON STOCK WARRANT
SERIES C WARRANT
TO PURCHASE COMMON STOCK OF THE COMPANY
Common Stock Warrant Series C No. 1
FOR VALUE RECEIVED, INDEPENDENCE BREWING COMPANY, a
Pennsylvania corporation (the "Company"), grants the following rights to
WINFIELD CAPITAL CORP., a New York corporation, its successors and assigns
(individually and collectively, the "Holder").
Section 1. Grant.
The Holder is hereby granted the right (collectively, the
"Purchase Rights"), in accordance with the terms and conditions of this Warrant,
during the Exercise Period (as defined in Section 3), to purchase from the
Company that number of fully paid and non-assessable shares of Common Stock of
the Company, no par value, set forth in Section 2 hereof, at the Exercise Price
(as defined in Section 5), upon delivery of this Warrant to the Company with the
subscription form described in Section 4 hereof, duly executed, and upon tender
of the Exercise Price for the shares of Common Stock to be purchased.
<PAGE>
Section 2. Number of Shares of Common Stock Purchasable.
2.1 Subject to the provisions of this Section 2, this
Warrant entitles the Holder to purchase from time to time an aggregate number of
shares of Common Stock (the "Warrant Shares") equal to Twenty-Seven Percent
(27.00%) of the sum of:
(i) the total number of shares of Common Stock
issued and outstanding as of the date hereof, plus,
(ii) Six Hundred Twenty-Two Thousand Nine Hundred
and Twelve (622,912), plus, (iii) the total number of shares of Common Stock
issuable pursuant to all other warrants, options, contracts or securities issued
and outstanding as of the date hereof or pursuant to that certain Securities
Purchase Agreement of the Company dated August 12, 1996 (other than that certain
Warrant No. B-1 of the Company representing 3,500,000 warrants dated August 12,
1996) convertible into or evidencing the right to purchase shares of Common
Stock, upon whose exercise or conversion, shares of Common Stock are issuable
(including shares of Common Stock issued and issuable pursuant to the Omnibus
Stock Plan (the "Omnibus Stock Plan") heretofore established by the Company, for
up to 117,359 shares of Common Stock),
which sum, as of the date hereof, equals Six Hundred Twenty-Two Thousand Nine
Hundred and Twelve (622,912) shares of Common Stock, as such number of shares of
Common Stock may be increased pursuant to the provisions hereof, and the Company
acknowledges that a greater number of shares of Common Stock may be issued upon
exercise of this Warrant under certain circumstances described in this
Section 2.
2.2 (a) Upon each issuance after the date hereof, and
prior to the consummation of an offering of the Company's shares of Common Stock
or options, warrants, contracts or securities convertible or exchangeable into
or evidencing the right to purchase shares of Common Stock of the Company to the
public pursuant to a registration statement filed by the Company with the
Securities and Exchange Commission (other than a registration statement on Form
S-4 or S-8, or their successors) and as the result of which offering shares of
Common Stock of the Company are traded on either the New York Stock Exchange,
the American Stock Exchange, or any NASDAQ stock market (a "Public Offering"),
of shares of Common Stock, or options, warrants, contracts or securities
convertible or exchangeable into or evidencing the right to purchase shares of
Common Stock of the Company (i) based upon a Company valuation of less than Two
Million Five Hundred and Ninety-Two Thousand Two Hundred and Sixty Dollars
($2,592,260), or (ii) pursuant to the Omnibus Stock Plan, other than issuances
of shares of Common Stock of the Company issuable or issued upon exercise of any
options, warrants, contracts or securities issued pursuant to the terms and
provisions of that certain Securities Purchase Agreement among the Company,
Winfield Capital Corp. and certain other parties dated August 12, 1996 (each, a
"Dilutive Transaction"), then upon issuance of such securities, if such issuance
occurs prior to the full exercise of this Warrant, the number of shares issuable
upon exercise of this Warrant shall be increased such that the sum of the total
number of shares of Common Stock issued upon all prior
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partial exercises of this Warrant plus the number of shares of Common Stock
issuable upon full exercise of the unexercised portion of this Warrant shall be
equal to Twenty-Seven percent (27%) times a fraction, the numerator of which
shall equal the number of shares of Common Stock issued and outstanding
following the Dilutive Transaction (other than shares of Common Stock issued
pursuant to this Warrant and all other warrants, options, contracts or
securities issued and outstanding as of the date hereof convertible into or
evidencing the right to purchase shares of Common Stock), and the denominator of
which shall equal 0.55.
(b) Upon each issuance after the date hereof of
shares of Common Stock, or options, warrants, contracts or securities
convertible or exchangeable into or evidencing the right to purchase shares of
Common Stock of the Company pursuant to a Dilutive Transaction, if this Warrant
has been exercised in full as of the date of such issuance, then the Company
shall immediately issue to the Holder that number of additional shares of Common
Stock equal to the positive difference of (i) Twenty-Seven percent (27%) times a
fraction, the numerator of which shall equal the number of shares of Common
Stock issued and outstanding following the Dilutive Transaction (other than
shares of Common Stock issued pursuant to this Warrant and all other
warrants,options, contracts or securities issued and outstanding as of the date
hereof convertible into or evidencing the right to purchase shares of Common
Stock), and the denominator of which shall equal 0.55, minus (ii) the number of
shares of Common Stock theretofore issued pursuant to exercise of this Warrant.
The provisions of this Section 2.2 shall survive the whole and partial exercise
of the Purchase Rights hereunder and shall inure to the benefit of each such
holder of the shares of Common Stock issued pursuant to the exercise hereof. All
stock certificates for shares of Common Stock issued pursuant to the whole or
partial exercise of the Purchase Rights hereunder shall bear a legend setting
forth the rights of the holder hereof as contained in this Section 2.2(b).
(c) If the Company shall at any time issue or
grant any options or rights to subscribe for or to purchase shares of Common
Stock or its equivalent, all shares of Common Stock or its equivalent which the
holders of such options or rights shall be entitled to subscribe for or to
purchase shall be deemed to be issued as of the date of such issuing or granting
of such options or rights.
(d) If the Company shall at any time issue any
stock or obligations directly or indirectly convertible into or exchangeable for
shares of Common Stock or its equivalent, then such issue shall be deemed to be
an issue (as of the date of issue of such stock or obligations) of the total
maximum number of shares of Common Stock necessary to effect the exchange or
conversion of all such stock or obligations.
(e) The sale or other disposition of any shares
of Common Stock of the Company or other securities held in the treasury of the
Company, or of any securities resulting from any reclassification or
reclassifications of such shares
-3-
<PAGE>
or other securities which were effected while they were held in the treasury of
the Company, shall be deemed an issuance thereof.
(f) If at any time the Company shall adjust the
subscription, exercise, conversion or exchange price of any Common Stock or its
equivalent issued or subject to issuance by the Company based upon a Company
valuation of less than Two Million Five Hundred and Ninety-Two Thousand Two
Hundred and Sixty Dollars ($2,592,260), such adjustment shall constitute a
Dilutive Transaction.
2.3 In case, prior to the expiration of these
Purchase Rights by exercise or by the terms of this Warrant, the Company shall
undertake any reclassification, stock split, reverse stock split, stock
dividend or any similar proportionately-applied change (collectively, a
"Reclassification") of outstanding shares of Common Stock (other than a change
in, of, or from par value), the Holder shall thereafter be entitled, upon
exercise of this Warrant, to purchase the kind and amount of shares of stock and
other securities and property receivable upon such Reclassification by a holder
of the number of shares of Common Stock which this Warrant entitles the Holder
hereof to purchase immediately prior to such Reclassification.
2.4 In case, prior to the expiration of these
Purchase Rights by exercise or by the terms of this Warrant, the Company shall
consolidate or merge with, or convey all, or substantially all, of its property
or assets to, any other corporation or corporations, then, as a condition
precedent to such consolidation, merger, or conveyance, lawful and adequate
provision shall be made whereby the Holder shall thereafter have the right to
receive from the Company or the successor corporation, as the case may be, upon
the basis and upon the terms and conditions specified in this Warrant, in lieu
of the shares of Common Stock of the Company theretofore purchasable upon the
exercise of the Purchase Rights, such shares of stock, securities, or assets as
may be issued or payable with respect to, or in exchange for, the number of
shares of Common Stock of the Company theretofore purchasable upon the exercise
of the Purchase Rights had such consolidation, merger, or conveyance not taken
place; and in any such event the rights of the Holder to an adjustment of the
number of shares of Common Stock purchasable upon the exercise of the Purchase
Rights as herein provided, shall continue and be preserved in respect of any
stock or securities which the Holder becomes entitled to purchase. It shall be a
condition of such consolidation, merger, or conveyance that the Company and/or
each successor corporation, as the case may be, shall assume in manner and form
reasonably satisfactory to the Holder the obligation to deliver to the Holder,
upon the exercise of the Purchase Rights, such shares of Common Stock,
securities, or assets as, in accordance with the provisions of this Warrant,
shall have been provided for that purpose.
Section 3. Exercise Period; Registration Statement Notice.
3.1 The Purchase Rights represented hereby shall be
exercisable in whole or in part from time to time beginning on the date of the
payment by
-4-
<PAGE>
the Holder and/or its predecessors of the full exercise price due with respect
to the exercise of that certain Series B Preferred Stock Warrant of the Company
for the purchase of Seventy Thousand (70,000) shares of Series B Preferred Stock
of the Company dated August 12, 1996, and continuing until the first to occur
(the "Exercise Period") of: (i) twenty (20) days after the date on which a
registration statement in contemplation of a Public Offering is declared
effective by the Securities and Exchange Commission, or (ii) six (6) years from
the date on which all shares of Series B Preferred Stock of the Company issued
and outstanding on the date of the exercise of this Warrant have been redeemed
and full payment has been made therefor by the Company and all accrued and
unpaid dividends on such shares of Series B Preferred Stock have been paid in
full by the Company, other than an optional redemption by the Company pursuant
to Article Fourth, Section C.3(b) of the Amended and Restated Articles of
Incorporation of the Company (an "Optional Redemption"). Notwithstanding the
foregoing, upon the payment in full of all amounts due with respect to an
Optional Redemption of any or all shares of Series B Preferred Stock, the
Exercise Period with respect to a portion of the Purchase Rights, as hereinafter
described, shall thereupon, and without further action on the part of the
Company, terminate and the Holder shall thereafter not be entitled to exercise
such portion of the Purchase Rights. For this purpose, the portion of the
Purchase Rights which shall thereupon terminate shall be equal to the positive
difference of (A) the product of (I) the percentage of the total shares of
Series B Preferred Stock initially issued by the Company which are the subject
of such Optional Redemption, times (II) the aggregate Purchase Rights initially
granted hereunder, minus (B) the portion of the Purchase Rights previously
exercised by the Holder.
3.2 The Company shall give the Holder written notice,
at the address of the Holder set forth on the Company's books, not less than
thirty (30) days prior to the filing of any registration statement with respect
to a Public Offering.
Section 4. Method of Exercise. The Purchase Rights represented
by this Warrant are exercisable upon the terms and conditions set forth herein
at the option of the Holder in whole at any time and in part from time to time
during the Exercise Period, upon the delivery of a notice to the Company's
principal office, in the form attached hereto and made a part hereof as Exhibit
A, with such notice duly executed and upon payment in cash or bank cashier's or
certified check of the Exercise Price. The Purchase Rights shall be deemed to
have been exercised, and the Holder shall be deemed to have become a stockholder
of record of the Company for the purposes of receiving dividends and for all
other purposes whatsoever with respect to the shares of Common Stock so
purchased, as of the date of delivery of such notice accompanied by tender of
the Exercise Price.
Section 5. Exercise Price. The aggregate Exercise Price for
the shares of Common Stock issuable to the Holder hereunder is Three Thousand
One Hundred Fifteen Dollars ($3,115.00) (the "Exercise Price"). If the Holder
exercises a portion of the Purchase Rights granted hereunder, the Exercise Price
for the shares of Common Stock issuable upon such exercise shall equal the
product of (i) Three Thousand One Hundred
-5-
<PAGE>
Fifteen Dollars ($3,115.00) and (ii) a fraction, the numerator of which is the
number of shares of Common Stock issuable upon such exercise, and the
denominator of which is the total number of shares of Common Stock issuable
hereunder, each taking into account the occurrence of any Reclassification.
Section 6. Company's Warranties and Covenants as to Common
Stock.
6.1 The Company has taken all action necessary and
appropriate to properly authorize and issue those shares of Common Stock
issuable to the Holder pursuant to this Warrant including an authorization of
issuance and setting of price. The shares of Common Stock deliverable on the
exercise of the Purchase Rights represented hereby shall, when issued, be duly
and validly issued, fully paid and nonassessable.
6.2 The Company will at all times reserve and keep
available out of its authorized shares of Common Stock, solely for the purpose
of issue upon exercise of this Warrant, such number of shares of Common Stock as
shall then be issuable upon the exercise of this Warrant. The Company shall at
all times reserve and hold available sufficient shares of Common Stock to
satisfy all dividend and purchase rights of all outstanding convertible
securities and warrants.
Section 7. Transfer. The Purchase Rights shall be registered
on the books of the Company, which shall be kept by it at its principal office
for that purpose. The Purchase Rights shall be transferable on said books, in
whole or in part, by the Holder in person or by duly authorized attorney upon
surrender of this Warrant properly endorsed in the sole discretion of the
Holder, subject only to compliance with all applicable securities laws. The
Company agrees that, while the Purchase Rights remain valid and outstanding, its
stock transfer books shall not be closed for any purpose whatsoever except under
arrangements which shall insure to persons exercising warrants or applying for
transfer of stock all rights and privileges which they might have had or
received if the stock transfer books had not been closed and they had exercised
their Purchase Rights at any time during which such transfer book shall have
been closed.
Section 8. Charges, Taxes and Expenses. Issuance of
certificates for shares of Common Stock issuable upon the exercise of this
Warrant or any portion thereof shall be made without charge to the Holder hereof
for any issue taxes or any other incidental expenses in respect of the issuance
of such certificates to and in the name of the registered Holder of this
Warrant, all of which taxes and expenses shall be paid by the Company, and such
certificates shall be issued in the name of the Holder of this Warrant.
Certificates will be issued in a name other than that of the Holder upon the
request of a Holder and payment by the Holder of any applicable transfer taxes
and compliance with all applicable securities laws.
-6-
<PAGE>
Section 9. Exchange For Other Denominations. This Warrant is
exchangeable for new certificates of like tenor and date representing in the
aggregate the right to purchase the number of shares purchasable hereunder in
denominations designated by the Holder at the time of surrender. In the event of
the purchase, at any time prior to the expiration of the Exercise Period, of
less than all of the shares of Common Stock purchasable hereunder, the Company
will cancel this Warrant upon surrender thereof, and will forthwith execute and
deliver to the Holder hereof a new warrant of like tenor and date for the
balance of the shares purchasable hereunder.
Section 10. Loss, Theft, Destruction or Mutilation. Upon
receipt by the Company of evidence reasonably satisfactory to it of the loss,
theft, destruction or mutilation of this Warrant, and, in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to the Company,
and upon reimbursement to the Company of all reasonable expenses incidental
thereto, and upon surrender and cancellation of this Warrant, if mutilated, the
Company will make and deliver a new warrant of like tenor and date, in lieu of
this Warrant.
Section 11. Remedies. The Company acknowledges and agrees that
the remedies at law of the Holder in the event of any default or threatened
default by the Company in the performance of or compliance with any of the terms
of this Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
Section 12. Miscellaneous. This Warrant shall be binding upon
the Company's successors. This Warrant shall be governed, construed and enforced
in accordance with the laws of the State of New York. In case any provision of
this Warrant shall be invalid, illegal or unenforceable, or partially invalid,
illegal or unenforceable, the provision shall be enforced to the extent, if any,
that it may legally be enforced and the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
This Warrant and any term hereof may be changed, waived, discharged or
terminated only by a statement in writing signed by the party against which
enforcement of such change, waiver, discharge or termination is sought. The
headings in this Warrant are for purposes of reference only, and shall not limit
or otherwise affect any of the terms hereof.
-7-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be
duly executed, under seal and delivered on its behalf this 12th day of
August, 1996.
ATTEST: INDEPENDENCE BREWING
COMPANY
/s/ CHRISTINA CARE By:/s/ ROBERT W. CONNOR, JR. (SEAL)
- ------------------------------- --------------------------------
Assistant Secretary Robert W. Connor, Jr., President
-8-
<PAGE>
EXHIBIT A
EXERCISE OF OPTION TO PURCHASE PURSUANT TO
ATTACHED STOCK WARRANT
______________________, 19__
To_________________:
The undersigned, the Holder of record of the attached Warrant
of INDEPENDENCE BREWING COMPANY, hereby exercises the option granted by the
Purchase Rights evidenced by the attached Warrant to purchase upon the terms set
forth in such Warrant ___ shares of Common Stock, which constitutes all [or a
portion] of the shares of Common Stock issuable pursuant to the Purchase Rights
represented by this Warrant, of INDEPENDENCE BREWING COMPANY, and hereby tenders
payment of the Exercise Price as determined by the Warrant.
By:________________________________
[Title_____________________________]
-9-
EXHIBIT 10.12
LEASE AGREEMENT
1-
This Agreement, made the 11th day of November, one thousand nine hundred
and ninety-four (1994), by and between ALAN R. SIZMUR and ANGELES SIZMUR,
Husband and Wife, (hereinafter called Lessor) of the one part, and INDEPENDENCE
BREWING COMPANY, a Pennsylvania Corporation, (hereinafter called Lessee), of the
other part.
2-4
WITNESSETH THAT: Lessor does hereby demise and let unto Lessee all that
certain property known as 1000 E. Comly Street and more fully described as
approximately 32,000 square feet located on approximately 3.5 acres in the City
and County of Philadelphia, Commonwealth of Pennsylvania, to be used and
occupied as a Beer Brewery, Restaurant/Bar, or any use permitted in G-2 Zoning,
and for no other purpose for the term of Ten (10) years beginning the first day
of December, one thousand nine hundred and ninety-four (1994), and ending the
last day of November, two thousand and four (2004), for the minimum annual
rental of Sixty-Four Thousand and no/100 Dollars ($64,000.00), lawful money of
the United States of America, payable in monthly installments in advance during
the said term of this lease or any renewal hereof, in sums of Five Thousand
Three Hundred Thirty-Three and 33/100 Dollars ($5,333.33) on the first day of
each month, rent to begin from the first day of December, 1994, the first
installment to be paid at the time of signing this lease, to and including the
30th day of November, 1995, and thereafter as stated in Paragraph "1" of the
attached Rider to this Lease Agreement.
5-
If Lessor is unable to give Lessee possession of the demised premises, as
herein provided, by reason of the holding over of a previous occupant, or by
reason of any cause beyond the control of the Lessor, the Lessor shall not be
liable in damages to the Lessee therefor, and during the period that the Lessor
is unable to give possession, all rights and remedies of both parties hereunder
shall be suspended.
6-
(a) Lessee agrees to pay as rent in addition to the minimum rental herein
reserved any and all sums which may become due by reason of the failure of
Lessee to comply with all the covenants of this lease and pay any and all
damages, costs and expenses which the Lessor may suffer or incur by reason of
any default of the Lessee or failure on his part to comply with the covenants of
this lease, and each of them, and also any and all damages of the demised
premises caused by any act or neglect of the Lessee.
(b) Lessee further agrees to pay as rent in addition to the minimum rental
herein reserved all taxes assessed or imposed upon the demised premises and/or
the building of which the demised premises is a part during the term of this
lease, this lease. The amount due hereunder on account of such taxes shall be
apportioned for that part of the first and last calendar years covered by the
term hereof. The same shall be paid by Lessee to Lessor on or before the first
day of February of each and every year.
(c) Lessee further agrees to pay to Lessor as additional rent fire
insurance premiums upon the demised premises and/or the building of which the
demised premises is a part.
(d) Lessee further agrees to pay as additional rent, if there is a metered
water connection to the said premises, all charges for water consumed upon the
demised premises and all charges for repairs to the said meter or meters on the
premises, whether such repairs are made necessary by ordinary wear and tear,
freezing, hot water, accident or other causes, immediately when the same become
due.
(e) Lessee further agrees to pay as additional rent, if there is a metered
water connection to said premises, all sewer rental or charges for use of
sewers, sewage system, and sewage treatment works servicing the demised premises
in excess of the yearly minimum of such sewer charges, immediately when the same
become due.
7-
All rents shall be payable without prior notice or demand at the office of
Lessor in the office of U.S. Realty Associates, Inc., 232-234 North 22nd Street,
Philadelphia, Pennsylvania, or at such other place as Lessor may from time to
time designate by notice in writing.
8-
Lessee covenants and agrees that he will without demand
(a) Pay the rent and all other charges herein reserved as rent on the days
and times and at the place that the same are made payable, without fail, and if
Lessor shall at any time or times accept said rent or rent charges after the
same shall have become due and payable, such acceptance shall not excuse delay
upon subsequent occasions or constitute or be construed as a waiver of any of
Lessor's rights. Lessee agrees that any charge or payment herein reserved,
included or agreed to be treated or collected as rent and/or any other charges
or taxes, expenses, or costs herein agreed to be paid by the Lessee may be
proceeded for and recovered by the Lessor by distraint or other process in the
same manner as rent due and in arrears.
(b) Keep the demised premises clean and free from all ashes, dirt and other
refuse matter; replace all glass windows, doors, etc., broken; keep all waste
and rain pipes open; repair all damage to plumbing and to the premises in
general; keep the same in good order and repair as they now are, reasonable wear
and tear and damage by accidental fire or other casualty not occurring through
negligence of Lessee or those employed by or acting for Lessee alone excepted.
The Lessee agrees to surrender the demised premises in the same condition in
which Lessee has herein agreed to keep the same during the continuance of this
lease.
(c) Comply with any requirements of any of the constituted public
authorities, and with the terms of any State or Federal statute or local
ordinance or regulation applicable to Lessee or his use of the demised premises,
and save Lessor harmless from penalties, fines, costs or damages resulting from
failure to do so.
(d) Use every reasonable precaution against fire.
(e) Comply with rules and regulations of Lessor promulgated as hereinafter
provided.
(f) Peaceably deliver up and surrender possession of the demised premises
to the Lessor at the expiration or sooner termination of this lease, promptly
delivering to Lessor at his office all keys for the demised premises.
(g) Give to Lessor prompt written notice of any accident, fire, or damage
occurring on or to the demised premises.
(h) Lessee shall be responsible for the condition of the pavement, curb,
cellar doors, awnings and other erections in the pavement during the term of
this lease; shall keep the pavement free from snow and ice; and shall be and
hereby agrees that Lessee is solely liable for any accidents, due or alleged to
be due to their defective condition, or to any accumulations of snow and ice.
9-
Lessee covenants and agrees that he will do none of the following things
without the consent in writing of Lessor first had and obtained:
(a) Occupy the demised premises in any other manner or for any other
purpose than as above set forth.
(b) Assign, mortgage, or pledge this lease or under-let or sub-lese the
demised premises, or any part thereof, or permit any other person, firm, or
corporation to occupy the demised premises, or any part thereof; nor shall any
assignee or sub-lessee assign, mortgage or pledge this lease or such sub-lease,
without an additional written consent by the Lessor, and without such consent no
such assignment, mortgage or pledge shall be valid. If the Lessee becomes
embarrassed or insolvent, or makes an assignment for the benefit of creditors,
or if a petition in bankruptcy is filed by or against the Lessee or a bill in
equity or other proceeding, for the appointment of a receiver for the Lessee is
filed, or if the real or personal property of the Lessee shall be sold or levied
upon by any Sheriff, Marshall or Constable, the same shall be a violation of
this covenant. Notwithstanding the foregoing, Lessee may sub-let or under-let
not more than thirty percent (30%) of the demised premises without Lessor's
consent. Lessor's consent to any assignment, mortgage or pledge shall not be
unreasonably withheld, provided Lessor is satisfied with the character and
credit worthiness of any proposed assignee, mortgage or pledgee. Lessee shall
request Lessor's consent by written notice as required herein.
(c) Fail to remove any sign, projection or device painted, placed or
created; fail to restore the walls Lessee shall remove any sign, projection or
device painted, placed or erected, if permission has been granted and restore
the walls, etc., to their former conditions, at or prior to the expiration of
this lease. In case of the breach of this covenant (in addition to all other
remedies given to Lessor in case of breach of any conditions or covenants of
this lease) Lessor shall have the privilege of removing said stand, booth, sign
or showcase, projection or device, and restoring said walls, etc., to their
former condition, and Lessee, at Lessor's option, shall be liable to Lessor for
any and all expenses so incurred by Lessor.
(d) Until such time as construction drawings, plans and specifications have
been provided to Lessor and approved by Lessor (which shall be deemed approved
unless objections are made by Lessor within ten (10) calendar days thereafter),
make any alteration, improvement or additions to the demised premises. All
alterations, improvements, additions or fixtures, whether installed before or
after the execution of this lease, shall remain upon the premises at the
expiration or sooner determination of this lease and become the property of
Lessor, unless Lessor shall, prior to the determination of this lease, have
given written notice to Lessee to remove the same, in which event Lessee will
remove such alterations, improvement and additions and restore the premises to
the same good order and condition in which they now are. Should Lessee fail to
do so, Lessor may do so, collecting, at Lessor's option, the cost and expense
thereof from Lessee as additional rent.
(e) Use or operate any machinery that, in Lessor's opinion, is harmful to
the building.
(f) Place any weights in any portion of the demised premises beyond the
safe carrying capacity of the structure.
(g) Do or suffer to be done, any act, matter or thing objectionable to the
fire insurance companies whereby the fire insurance or any other insurance now
in force or hereafter to be placed on the demised premises, or any part thereof,
or on the building of which the demised premises may be a part, shall become
void or suspended, or whereby the same shall be rated as a more hazardous risk
than at the date of execution of this lease, or employ any person or persons
objectionable to the fire insurance companies or carry or have any benzine or
explosive mater of any kind in and about the demised premises. In case of a
breach of this covenant (in addition to all other remedies given to Lessor in
case of the breach of any of the conditions or covenants of this lease) Lessee
agrees to pay to Lessor as additional rent any and all increase or increases of
premiums on insurance carried by Lessor on the demised premises, or any part
thereof, or on the building of which the demised premises may be a part, caused
in any way by the occupancy of Lessee.
(h) Remove, attempt to remove or manifest an intention to remove Lessee's
goods or property from or out of the demised premises otherwise than in the
ordinary and usual course of business, without having first paid and satisfied
Lessor for all rent which may become due during the entire term of this lease.
Lessee covenants and agrees that Lessor shall have the right to do the
following things and matters in and about the demised premises:
10-
(a) At all reasonable times by himself or his duly authorized agents to go
upon and inspect the demised premises and every part thereof, and/or at his
option to make repairs, alterations and additions to the demised premises or the
building of which the demised premises is a part.
(b) At any time or times and from time to time to make such rules and
regulations as in his judgement may from time to time be necessary for the
safety, care and cleanliness of the premises, and for the preservation of good
order therein. Such rules and regulations shall, when noticed thereof is given
to Lessee, form a part of this lease.
(c) To display a "For Sale" sign at any time, and also, after notice from
either party of intention to determine this lease, or at any time within three
months prior to the expiration of this lease, a "For Rent" sign, or both "For
Rent" and "For Sale" signs; and all of said signs shall be placed upon such part
of the premises as Lessor may elect and may contain such matter as Lessor shall
require. Prospective purchasers or tenants authorized by Lessor may inspect the
premises at reasonable hours at any time.
(d) The Lessor may discontinue all facilities furnished and services
rendered, or any of them, by Lessor, not expressly convenanted for herein, it
being understood that they constitute no part of the consideration for this
lease.
11-
(a) Lessee agrees to be responsible for and to relieve and hereby relieve
the Lessor from liability by reason of any injury or damage to any person or
property in the demised premises, whether belonging to the Lessee or any other
person, caused by any fire, breakage or leakage in any part or portion of the
demised premises, or any part or portion of the building of which the demised
premises is a part, or from water, rain or snow that may leak into, issue or
flow from any part of the said premises, or of the building of which the demised
premises is a part, or from the drains, pipes, or plumbing work of the same, or
from any place or quarter, whether such breakage, leakage, injury or damage be
caused by or result from the negligence of Lessor or his servants or agents or
any person or persons, whatsoever.
(b) Lessee also agrees to be responsible for and to relieve and hereby
relieves Lessor from liability by reason of any dmage or injury to any person or
thing which may arise from or be due to the use, misuse or abuse of all or any
of the elevators, hatches, openings, stairways, hallways, of any kind
whatsoever, which may exist or hereafter be erected or construced on the said
premises, or from any kind of injury which may arise from any other cause
whatsoever, on the said premises or the building of which the demised premises
is a part, whether such damage, injury, use, misuse or abuse be caused by or
result from the negligence of Lessor, his servants or agents or any other person
or persons whatsoever.
12-
(a) In the event that the demised premises is totally destroyed or so
damaged by fire other casualty not occurring through fault or negligence of the
Lessee or those employed by or acting for him, that the same cannot be repaired
or restored within a reasonable time, this lease shall absolutely cease and
determine, and the rent shall abate for the balance of the term.
(b) If the damage caused as above be only partial and such that the
premises can be restored to their then condition within a reasonable time, the
Lessor may, at his option, restore the same with reasonable promptness,
reserving the right to enter upon the demised premises for that purpose. The
Lessor also reserves the right to enter upon the demised premises whenever
necessary to repair damage caused by fire or other casualty to the building of
which the demised premises is a part, even though the effect of such entry be to
render the demised premises or a part thereof untenantable. In either event the
rent shall be apportioned and suspended during the time the Lessor is in
possession, taking into account the proportion of the demised premises rendered
untenantable and the duration of the Lessor's possession. If a dispute arises as
to the amount of rent due under this clause, Lessee agrees to pay the full
amount claimed by Lessor. Lessee shall, however, have the right to proceed by
law to recover the excess payment, if any.
(c) Lessee may elect to repair and restore the premises at Lessee's option
and at its sole expense, without any right or obligation of Lessor to contribute
to the cost of repair and restoration. Lessor or Lessee, as the case may be,
shall make such election as is provided for in subparagraph(b) above and this
subparagraph by giving notice to the other at the leased premises within thirty
days from the date Lessor or Lessee received notice that the demised premises
had been destroyed or damaged by fire or other casualty.
(d) Lessor shall not be liable for any damage, compensation or claim by
reason of inconvenience or annoyance arising from the necessity of repairing any
portion of the building, the interruption in the use of the premises, or the
termination of this lease by reason of the destruction of the premises.
(e) The Lessor has let the demised premises in their present condition and
without any representations on the part of the Lessor, his officers, employees,
servants and/or agents. It is understood and agreed that Lessor is under no duty
to make repairs or alterations at the time of letting or at any time thereafter.
(f) It is understood and agreed that the Lessor hereof does not warrant or
undertake that the Lessee shall be able to obtain a permit under any Zoning
Ordinance or Regulation for such use as Lessee intends to make of the said
premises. Lessor agrees to reasonably cooperate with Lessee in connection with
any zoning application that does not require rezoning to another classification,
and will not oppose the granting of a Special Exception if applied for.
13-
(a) No contract entered into or that may be subsequently entered into by
Lessor with Lessee, relative to any alterations, additions, improvements or
repairs, nor the failure of Lessor to make such alterations, additions,
improvements or repairs as required by any such contract, nor the making by
lessor or his agents or contractors of such alterations, additions, improvements
or repairs shall in any way affect the payment of the rent or said other charges
at the time specified in this lease.
(b) It is hereby expressly agreed and understood that the said U.S. Realty
Associates, Inc. is acting as agent only and shall not in any event be held
liable to the owner or to the Lessee for the fulfillment or non-fulfillment of
any of the terms or conditions of this lease, or for any action or proceedings
that may be taken by the owner against Lessee, or by Lessee against the owner.
(c) It is hereby covenanted and agreed, any law, usage or custom to the
contrary notwithstanding, that Lessor shall have the right at all times to
enforce the covenants and provisions of this lease in strict accordance with the
terms hereof, notwithstanding any conduct or custom on the part of the Lessor in
refraining from so doing at any time or times; and, further, that the failure of
Lessor at any time or times to enforce his rights under said covenants and
provisions strictly in accordance with the same shall not be construed as having
created a custom in any way or manner contrary to the specific terms, provisions
and covenants of this lease or as having in any way or manner modified the same.
(d) This lease is granted upon the express condition that Lessee and/or the
occupants of the premises herein leased, shall not conduct themselves in a
manner which the Lessor in his reasonable opinion may deem improper or
objectionable, and that if at any time during the term of this lease or any
extension or continuation thereof, Lessee or any occupier of the said premises
shall have conducted himself, herself or themselves in a manner which Lessor in
his option deems improper or objectionable, Lessee shall be taken to have broken
the covenants and conditions of this lease, and Lessor will be entitled to all
of the rights and remedies granted and reserved herein for the Lessee's failure
to observe any of the covenants and conditions of this lease.
(e) In the event of the failure of Lessee promptly to perform the covenants
of Section 8(b) hereof, Lessor may go upon the demised premises and perform such
covenants, the cost thereof, at the sole option of Lessor, to be charged to
Lessee as additional and delinquent rent.
14-
If the Lessee
(a) Does not pay in full when due any and all installments of rent and/or
any other charge or payment herein reserved, included, or agreed to be treated
or collected as rent and/or any other charge, expense, or cost herein agreed to
be paid by the Lessee, or
(b) Violates or fails to perform or otherwise breaks any covenant or
agreement herein contained; or
(c) Vacates the demised premises or removes or attempts to remove or
manifests an intention to remove any goods or property therefrom otherwise than
in the ordinary and usual course of business without having first paid and
satisfied the Lessor in full for all rent and other charges then due or that may
thereafter become due until the expiration of the then current term, above
mentioned; or
(d) Becomes insolvent, or makes an assignment for the benefit of creditors,
or if a petition in bankruptcy is filed by or against the Lessee, or a bill in
equity or other proceeding, for the appointment of a receiver for the Lessee is
filed, or if proceedings for reorganization or for composition with creditors
under any State or Federal law be instituted by or against Lessee, or if the
real or personal property of the Lessee shall be sold or levied upon by any
Sheriff, Marshall or Constable; then and in any or either of said events, there
shall be deemed to be a breach of this lease, and thereupon ipso facto and
without entry or other action by Lessor;
(1) The rent for the entire unexpired balance of the term of this lease, as
well as all other charge, payments, costs and expenses herein agreed to be paid
by the Lessee, or at the option of Lessor any part thereof, and also all costs
and officers commissions including watchmen's wages and further including the
five percent chargeable by Act of Assembly to the Lessor, shall, in addition to
any and all installments of rent already due and payable and in arrears and/or
any other charge or payment herein reserved included or agreed to be treated or
collected as rent, and/or any other charge, expense or cost herein agreed to be
paid by the Lessee which may be due and payable and in arrears, be taken to be
due and payable and in arrears as if by the terms and provisions of this lease,
the whole balance of unpaid rent and other charges, payments, taxes, costs and
expenses were on that date payable in advance; and if this lease or any part
thereof is assigned, or if the premises or any part thereof is sub-let, Lessee
hereby irrevocably constitutes and appoints Lessor Lessee's agent to collect the
rents due by such assignee or sub-lessee and apply the same to the rent due
hereunder without in any way affecting Lessee's obligation to pay any unpaid
balance of rent due hereunder;
(2) This lease and the term hereby created shall determine and become
absolutely void without any right on the part of the Lessee to save the
forfeiture by payment of any sum due or by other performance of any condition,
term or covenant broken; whereupon, Lessor shall be entitled to recover damages
for such breach in an amount equal to the amount of rent reserved for the
balance of the term of this lease, less the fair rental value of the said
demised premises, for the resident of said term.
15-
In the event of any default as above set forth in Section 14, the Lessor,
or anyone acting on Lessor's behalf, at Lessor's option:
(a) may without notice or demand enter the demised premises, breaking open
locked doors if necessary to effect entrance, without liability to actin for
prosecution or damages for such entry or for the manner thereof, for the purpose
of distraining or levying and for any other purposes, and take possession of and
sell all goods and chattels at auction, on three days' notice served in person
on the Lessee or left on the premises, and pay the said Lessor out of the
proceeds, and even if the rent be not due and unpaid, should the Lessee at any
time remove or attempt to remove goods and chattels from the premises without
leaving enough thereon to meet the next periodical payment, Lessee authorizes
the Lessor to follow for a period of ninety days after such removal, take
possession of and sell at auction, upon like notice, sufficient of such goods to
meet the proportion of rent accrued at the time of such removal; and the Lessee
hereby releases and discharges the Lessor, and his agents, from all claims,
actions, suits, damages, and penalties, for or by reason or on account any
entry, distraint, levy, appraisement or sale; and/or
(b) may enter the premises, and without demand proceed by distress and sale
of the goods there found to levy the rent and/or other charges herein payable as
rent, and all costs and officer's commissions, including watchmen's wages and
sums chargeable to Lessor, and further including a sum equal to 5% of the amount
of the levy as commissions to the constable or other person making the levy,
shall be paid by the Lessee, and in such case all costs, officers' commission
and other charges shall immediately attach and become part of the claim of
Lessor for rent, and any tender of rent without said costs, commission and other
charges shall immediately attach and become part of the claim of Lessor for
rent, and any tender of rent without said costs, commission and charges made
after the issue of a warrant of distress shall not e sufficient to satisfy the
claim of the Lessor. Lessee hereby expressly waives in favor of Lessor the
benefit of all laws now made or which may hereafter be made regarding any
limitation as to the goods upon which, or the time within which, distress is to
be made after removal of goods, and further relieves the Lessor of the
obligations of proving or identifying such goods, it being the purpose and
intent of this provision that all goods, and further relieves the Lessor of the
obligations of proving or identifying such goods, it being the purpose and
intent of this provision that all goods of Lessee, whether upon the demised
premises or not, shall be liable to distress for rent. Lessee waives in favor of
Lessor all rights under the Act of Assembly of April 6, 1951, P.L. 69, and all
supplements and amendments thereto that have been or may hereafter be passed,
and authorizes the sale of any goods distrained for rent at any time after five
days from said distraint without any appraisement and/or condemnation thereof.
(c) The Lessee further waives the right to issue a Writ of Replevin under
the Pennsylvania Rules of Civil Procedure, No 1071 &c. and Laws of the
Commonwealth of Pennsylvania or under any other law previously enacted and now
in force, or which may be hereafter enacted, for the recovery of any articles,
household goods, furniture, etc, seized under a distress for rent or levy upon
an execution for rent, damages or otherwise; all waivers hereinbefore mentioned
are hereby extended to apply to any such action; and/or
(d) may lease said premises or any part or parts thereof to such person or
persons as may in Lessor's discretion seem best and the Lessee shall be liable
for any loss of rent for the balance of the then current term.
16-
If the rent and/or any charges hereby reserved as rent shall remain unpaid
on any day when the same ought to be paid, Lessee hereby empowers any
Prothonotary, Clerk of Court or attorney of any Court of Record to appear for
Lessee in any and all actions which may be brought for rent and/or the charges,
payments, costs and expenses reserved as rent, or agreed to be paid by the
Lessee and/or to sign for Lessee an agreement for entering in any competent
Court an amicable action or actions for the recovery of rent or other charges,
payments, costs and expenses, and in said suits or in said amicable action or
actions to confess judgment against Lessee for all or any part of the rent
specified in this lease and then unpaid including, at Lessor's option, the rent
for the entire unexpired balance of the term of this lease, and/or other
charges, payments, costs and expenses reserved as rent or agreed to be paid by
the Lessee, and for interest and costs together with any attorney's commission
of 5%. Such authority shall not be exhausted by one exercise thereof, but
judgment may be confessed as aforesaid from time to time as often as any of said
rent and;or other charges, payments, costs and expenses, reserved as rent shall
fall due or be in arrears, and such powers may be exercised as well after the
expiration of the original term and/or during any extension or renewal of this
lease.
17-
When this lease shall be determined by condition broken, either during the
original term or any renewal or extension thereof, and also when and as soon as
the term hereby created or any extension thereof shall have expired, it shall be
lawful for any attorney as attorney for Lessee to file an agreement for entering
in any competent Court an amicable action and judgment in ejectment against
Lessee and all persons claiming under Lessee for the recovery by Lessor of
possession of the herein demised premises, for which this lease shall be
sufficient warrant, whereupon, if Lessor so desires, a writ of Execution or of
Possession may issue forthwith, without any prior writ or proceedings
whatsoever, and provided that if for any reason after such action shall have
been commenced the same shall be determined and the possession of the premises
hereby demised remain in or be restored to Lessee, Lessor shall have the right
upon any subsequent default or defaults, or upon the termination of this lease
as hereinbefore set forth, to bring one or more amicable action or actions as
hereinbefore set forth to recover possession of the said premises.
18-
In any amicable action of ejectment and/or for rent in arrears, Lessor
shall first cause to be filed in such actin an affidavit made by him or someone
acting for him setting forth the facts necessary to authorize the entry of
judgment, of which facts such affidavit shall be conclusive evidence and if a
true copy of this lease (and of the truth of the copy such affidavit shall be
sufficient evidence) be filed in such actin, it shall not be necessary to file
the original as a warrant of attorney, any rule of Court, custom or practice to
the contrary notwithstanding.
19-
Lessee expresssly agrees that any judgment, order or decree entered against
him by or in any Court or Magistrate by virtue of the powers of attorney
contained in this lease, or otherwise, shall be final, and that he will not take
an appeal, certiorari, writ of error, exception or objection to the same, or
file a motion or rule to strike off or open or to stay execution of the same,
and releases to Lessor and to any and all attorneys who may appear for Lessee
all errors in the said proceedings, or elsewhere from distraint, levy or sale in
any legal proceedings taken by the Lessor to enforce any rights under this
lease. Lessee further waives the right of inquisition on any real estate that
may be levied upon to collect any amount which may become due under the terms
and conditions of this lease, and does hereby voluntarily condemn the same and
authorizes the Prothonotary or Clerk of Court to issue a Writ of Execution or
other process. If proceedings shall be commenced by Lessor to recover possession
under the Acts of Assembly, either at the end of the term or sooner termination
of this lease, or for nonpayment of rent or any other reason Lessee specifically
waives the right to the three months' notice and/or the fifteen or thirty days'
notice required by the Act of April 6, 1951, P.L. 69, and agrees that five days'
notice shall be sufficient in either or any other case.
20-
The right to enter judgment against Lessee and to enforce all of the other
provisions of this lease hereinabove provided for may, at the option of any
assignee of this lease, be exercised by any assignee of the Lessor's right,
title and interest in this lease in his, her or their own name, notwithstanding
the fact that any or all assignments of the aid right, title and interest may
not be executed and/or witnessed in accordance with the Act of Assembly of May
28, 1715, 1 Sm. L. 90, and all supplements and amendments thereto that have been
or may hereafter be passed and Lessee hereby expressly waives the requirements
of said Act of Assembly and any and all laws regulating the manner and/or form
in which such assignements shall be executed and witnessed.
21-
All of the remedies hereinbefore given to Lessor and all rights and
remedies given to him by law and equity shall be cumulative and concurrent. No
determination of this lease or the taking or recovering of the premises shall
deprive Lessor of any of his remedies or actions against the Lessee for rent due
at the time or which, under the terms hereof, would in the future become due as
if there has been no determination, or for any and all sums due at the time or
which under the terms hereof, would in the future become due as if there had
been no determination, nor shall the bringing of any action for rent or breach
of covenant, or the resort to any other remedy herein provided for the recovery
of rent be construed as a waiver of the right to obtain possession of the
premises.
22-
In the event that the premises demised or any part thereof is taken or
condemned for a public or quasi-public use, this lease shall, as to the part so
taken, terminate as of the date tile shall vest in the condemnor and rent shall
abate in proportion to the square feet of leased space taken or condemned or
shall cease if the entire premises be so taken. In either event eh Lessee waives
all claims against the Lessor by reason of the complete or partial taking of the
demised premises, and it is agreed that the Lessee shall not be entitled to any
notice whatsoever of the partial or complete termination of this lease by reason
of the aforesaid.
23-
This Agreement of Lease and all its terms, covenants and provisions are and
each of them is subject and subordinate to any lease or other arrangement or
right to possession, under which the Lessor is in control of the demised
premises, to the rights of the owner or owner's of the demised premises and of
the land or buildings of which the demised premises are a part, to all rights of
the Lessor's landlord and to any and all mortgages and other encumbrances now or
hereafter placed upon the demised premises or upon the land and/or the buildings
containing the same; and Lessee expressly agrees that if Lessor's tenancy,
control, or right to possession shall terminate either by expiration, forfeiture
or otherwise, then this lease shall thereupon immediately terminate and the
Lessee shall, thereupon, give immediate possession; and Lessee hereby waives any
and all claims for damages or otherwise by reason of such termination as
aforesaid.
24-
It is hereby mutually agreed that either party hereto may terminate this
lease at the end of said term by giving to the other party written notice
thereof at least 180 days prior thereto, but in default of such notice, this
lease shall continue upon the same terms and conditions in force immediately
prior to the expiration of the term hereof as are herein contained for a further
period of one (1) year and so on from year to year unless or until terminated by
either party hereto, giving the other 180 days written notice for removal
previous to expiration of the then current term; PROVIDED, however, that should
this lease be continued for a further period under the terms hereinabove
mentioned, any allowances given Lessee on the rent during the original term
shall not extend beyond such original term, and further provided, however, that
if Lessor shall have given such written notice prior to the expiration of any
term hereby created, of this intention to change the terms and conditions of
this lease, and Lessee shall not within five (5) days from such notice notify
Lessor of Lessee's intention to vacate the demised premises at the end of the
then current term, Lessee shall be considered as Lessee under the terms and
conditions mentioned in such notice for a further term as above provided or for
such further term as may be stated in such notice. In the event that Lessee
shall give notice, as stipulated in this lease, of intention to vacate the
demised premises at the end of the present term, or any renewal or extension
thereof, and shall fail or refuse so to vacate the same on the date designated
by such notice, then it is expressly agreed that Lessor shall have the option
either (a) to disregard the notice so given as having no effect, in which case
all the terms and conditions of this lease shall continue thereafter with full
force precisely as if such notice had not been given, or (b) Lessor may, at any
time within thirty days after the present term or any renewal or extension
thereof, as aforesaid, give the said Lessee ten days' written notice of his
intention to terminate the said lease; whereupon the Lessee expressly agrees to
vacate said premises at the expiration of the said period for ten days specified
in said notice. All powers granted to Lessor by this lease may be exercised and
all obligations imposed upon Lessee by this lease shall be performed by Lessee
as well during any extension of the original term itself.
25-
All notices required to be given by Lessor to Lessee shall be sufficiently
given by leaving the same upon the demised premises, but notices given by Lessee
to Lessor must be given by registered mail, and as against Lessor the only
admissible evidence that notice has been given by Lessee shall be a registry
return receipt signed by Lessor or his agent.
26-
It is expressly understood and agreed by and between the parties hereto
that this lease and the riders attached hereto and forming a part hereof set
forth all the promises, agreements, conditions and understandings between Lessor
or his Agents and Lessee relative to the demised premises, and that there are no
promises, agreements, conditions or understandings, either oral or written,
between them other than are herein set forth. It is further understood and
agreed that, except as herein otherwise provided, no subsequent alteration,
amendment, change or addition to this lease shall be binding upon Lessor or
Lessee unless reduced to writing and signed by them.
27-
All rights and liabilities herein given to, or imposed upon, the respective
parties hereto shall extend to and bind the several and respective heirs,
executors, administrators, successors and assigns of said parties; and if there
shall be more than one Lessee, they shall be bound jointly and severally by the
terms, covenants and agreements herein, and the word "Lessee" shall be deemed
and taken to mean each and every person or party mentioned as a Lessee herein,
be the same one or more; and if there shall be more than one Lessee, any notice
required or permitted by the terms of this lease may be given by or to any one
thereof, and shall have the same force and effect as if given by or to all
thereof. The words "his" and "him" wherever stated herein shall be deemed to
refer to the "Lessor" and "Lessee" whether such lessor or Lessee be singular or
plural and irrespective of gender. No rights, however, shall inure to the
benefit of any assignee of Lessee unless the assignment to such assignee has
been approved by Lessor in writing as aforesaid.
28-
Lessee shall, upon execution hereof, deposit with Lessor as security for
the performance of all the terms, covenants, and conditions of this lease, the
sum of Five Thousand Three Hundred Thirty-Three Dollars ($5,333.33), which said
sum shall be held in an interest bearing account by U.S. Realty Associates,
Inc., as agent for Lessor. This deposit is to be retained by Lessor until the
expiration of this lease and shall be returnable to Lessee provided that (1)
premises have been vacated; (2) Lessor shall have inspected the premises after
such vacation; and (3) Lessee shall have complied with all the terms, covenants
and conditions of this lease, in which event the deposit so paid hereunder shall
be returned to Lessee; otherwise; said sum deposited hereunder or any part
thereof may be retained by Lessor at his option, as liquidated damages, or may
be applied by Lessor against any actual loss, damage or injury chargeable to
Lessee hereunder or otherwise, if Lessor determines that such loss, damage or
injury exceeds said sum deposited. Lessor's determination of the amount if any,
to be returned to Lessee shall be final. It is understood that the said deposit
is not to be considered as the last rental due under the lease.
29-
Any headings preceding the text of the several paragraphs and
sub-paragraphs hereof are inserted solely for convenience for reference and
shall not constitute a part of this lease, nor shall they affect its meaning,
construction or effect.
30-
Cure Period Notwithstanding the provisions of this Lease, Lessee is granted
a period of ten (10) days to cure any default prior to entry of judgment by
confession for money or in ejectment for possession. Notice of default shall be
delivered to Lessee or any of its managing agents, or may be given by certified
mail, return receipt requested as provided for in Paragraph No. 10 of the Rider
to this Lease Agreement.
31-
Commencement Date of Lease and Possession Notwithstanding that Lessee is
given possession prior to the commencement date, this lease shall not commence
prior to the first day of December, 1994, provided that Lessee has paid rent for
the first month of the term hereof, in addition to the security deposit.
IN WITNESS WHEREOF, the parties hereto have executed these presents the day
and year first above written, and intend to be legally bound thereby.
SEALED AND DELIVERED IN THE PRESENCE OF:
/s/ JACK M. BERNARD (AGENT)
- ------------------------------------- ---------------------------------------
(SEAL)
- ------------------------------------- ---------------------------------------
Independence Brewing Company
(SEAL)
/s/ ROBERT W. CONNOR, JR (SEAL)
- ------------------------------------- ---------------------------------------
Robert W. Connor, Jr., Lessee
President
(SEAL)
/s/ ALAN R. SIZMUR /s/ [NAME TO COME]
- ------------------------------------- ---------------------------------(SEAL)
Alan R. Sizmur, Lessor ATTEST: Secretary
/s/ ANGELES SIZMUR (SEAL)
- ------------------------------------- ---------------------------------------
Angeles Sizmur, Lessor
EXHIBIT 10.13
ADDENDUM
ADDENDUM to the Lease Agreement by and between Alan Sizmur and Angeles
Sizmur, "Lessor" and Independence Brewing Company, "Lessee", for the premises
known as 1000 E. Comly Street, Philadelphia, PA.
1) Rent Schedule
The rent schedule during the term of this lease is as follows:
Term Rate Annual Monthly
12/01/94-11/30/95* $2.00 $64,000.00* $5,333.33*
12/01/95-11/30/96 2.10 67,200.00 5,600.00
12/01/96-11/30/97 2.15 68,800.00 5,733.33
12/01/97-11/30/98 2.20 70,400.00 5,866.67
12/01/98-11/30/99 2.25 72,000.00 6,000.00
12/01/99-11/30/00 2.35 75,200.00 6,266.67
12/01/00-11/30/01 2.50 80,000.00 6,666.67
12/01/01-11/30/02 3.00 96,000.00 8,000.00
12/01/02-11/30/03 3.25 104,000.00 8,666.67
12/01/03-11/30/04 3.50 112,000.00 9,333.33
2) Net Rental
The minimum rental set forth in the Lease Agreement is to be considered
a net rental with the obligation of the Lessee to pay all real estate taxes,
fire and liability insurance premiums, water and sewer rent, and any other
services that may be a part of the demised premises assessed against the
property including use and occupancy tax to the City of Philadelphia.
3) Prior Possession
Permission is hereby given to Lessee by Lessor to enter into possession
of the demised premises after the execution hereof, and prior to the beginning
of the term herein provided. Such prior possession shall be subject to all
terms, covenants and conditions of this lease, except that Lessee shall not be
liable for the payment of rent during such period of prior possession. Payment
of the monthly rental shall commence December 1, 1994.
4) As-Is Condition
It is agreed and understood that Lessee is accepting the demised
premises in "as-is" condition and Lessor shall deliver the demised premises to
Lessee in broom clean condition, as quickly as humanly possible. It is
specifically agreed that Lessor will dismantle and remove the computerized saw,
and will grant Lessee access to the premises immediately upon the signing of
this Lease.
5) Structural Repairs
It is agreed and understood that all maintenance and repairs shall be
the obligation of the Lessee. Anything herein to the contrary notwithstanding,
it is understood and agreed that the obligation of Lessee to make repairs under
any of the provisions of this lease shall not include structural repairs to the
exterior of the building or repairs
- ------------
* Rent for May 1995 is waived.
<PAGE>
to the roof of the building, provided that same are not caused by the negligence
of the Lessee. Lessor shall also comply with all rules of the constituted public
authorities with respect to the exterior of the demised premises and the streets
adjacent thereto and with respect to major changes in sidewalks and curbs
adjacent thereto provided that the same are not caused by the nature of Lessee's
business or by any negligent acts or omission on the part of Lessee or Lessee's
employees or agents.
6) Mechanical Systems
It is agreed and understood that Lessor shall deliver to Lessee the
demised premises with all mechanical systems in good working order and repair.
These systems shall include, but not be limited to, overhead doors, heating,
plumbing, electrical, air conditioning and lighting. "Good working order" is
defined to mean that the aforesaid systems will not require any major repairs
for a period of twelve (12) months following the date of full execution of this
Lease agreement.
Should said systems require maintenance or repairs, Lessor shall have
thirty (30) days from the date of full execution hereof to put said systems in
proper working order. Lessor shall be responsible for the cost of any major
repair during the aforesaid 12 month period.
7) Utilities
Lessee shall pay for, in addition to monthly rent, all charges for gas,
electricity, light, power, heat, telephone, and all other utility services used,
rendered or supplied on or in connection with the demised premises, and shall
indemnify Lessor and save it harmless against any liability or charges on
account thereof. In case any such utility charges are not paid by Lessee when
due, Lessor may pay same to the utility company or department furnishing the
same, and any amounts so paid by Lessor shall be paid by Lessee as additional
rent following such payment by Lessor.
8) Liability Insurance
Lessee, at its own expense, shall at all times during the term hereof
keep in effect insurance against loss or liability policies of general public
liability insurance, naming as insured Lessor and Lessee, and with such limits
as to each as may be reasonably required by Lessor from time to time, but not
less than Five Hundred Thousand Dollars ($500,000) for each person and One
Million Dollars ($1,000,000) for each occurrence in respect to bodily injury or
death and Two Hundred Thousand Dollars ($200,000) for each occurrence in respect
to property damage. The policy shall be endorsed to prove that it will not be
cancelled or materially changed without at least ten (10) days written notice to
Lessor. Lessee will deposit a certificate of such insurance prior to occupancy
and a certificate of each renewal thereof with Lessor at least twenty (20) days
prior to such policy expiration date.
-2-
<PAGE>
9) Use and Occupancy Tax
It is agreed and understood that Lessee shall be responsible for payment
of the City of Philadelphia Use and Occupancy Tax. Lessee's City Identification
Number is: _________________.
10) Notices
All notices required to be given to either of the parties hereto by the
other shall be given by Certified Mail, Return Receipt Requested as follows:
To Lessor: Mr. and Mrs. Alan Sizmur
c/o Pinnacle Exhibits, Inc.
120 East Ninth Avenue
Runnemede, NJ 08078
Copies: Jack M. Bernard, Esquire
2121 Land Title Building
100 South Broad Street
Philadelphia, PA 19110
To Lessee: Mr. Robert Connor, Jr.
Independence Brewing Company
1000 E. Comly Street
Philadelphia, PA 19149
Copies To: Mr. Paul Tornetta
424 Righters Mill Road
Gladwyne, PA 19035
The only admissible evidence that notice has been given by either party hereto
to the other, shall be a certified return receipt signed by Lessor or Lessee, as
the case may be, or by their respective agents.
11) Environmental Matters
(a) Lessee shall not cause, allow or permit contamination of the Demised
Premises by toxic or hazardous substances and shall not handle or permit
polychlorinated biphenyls ("PCB'S") or asbestos or substances containing PCB'S
or asbestos on the Premises.
(b) Lessee shall conduct all of its operations at the Premises in
compliance with all federal, state and local statues (including, but not limited
to the Comprehensive Environmental Response, Compensation, and Liability Act, 42
U.S.C. Section 9601 et. seq. as amended by the Superfund Amendments and
Reauthorization Act of 1986, Pub. L. No. 99-499, 100 Stat. 1613 (October 17,
1986) ("CERCLA"); the Resources Conservation and Recovery Act, 42 U.S.C. Section
6901 et. seq. ("RCRA"); the Pennsyivania Solid Waste Management Act, 35 Pa.C.S.
Section 6018.101 et. seq.; the Pennsylvania Clean Streams Law 35 Pa.C.S. Section
691.1 et. seq.; and the Pennsylvania Hazardous Sites Cleanup Act, Act 108 of
1988, 35 Pa.C.S. Section 6020.101 et. seg. ("Pennsylvania Superfund") and
regulations enacted thereunder), ordinances, regulations, orders and
requirements of common law, regarding, but not limited to, (i) discharges
-3-
<PAGE>
to the air, soil, surface or groundwater; and (ii) handling, utilizing, storage,
treatment or disposal of any hazardous substances or toxic substances as defined
therein ("Environmental Statutes"). Lessee shall obtain all permits, licenses or
approvals and shall make all notifications and registrations required by
Environmental Statues and shall submit to Lessor, upon request, for inspecting
and copying all documents, permits, licenses, approvals, manifests and records
required to be submitted and/or maintained by the provisions of the
Environmental Statues. Lessee shall also provide promptly to Lessor copies of
any correspondence, notice of Violation, summons, order, complaint or other
document received by Lessee pertaining to compliance with Environmental
Statues.
(c) Lessee shall not install at the Premises any temporary or permanent
tanks for the storage of any liquid or gas above or below ground except as in
compliance with the other provisions of this section and after obtaining written
permission to do so from Lessor.
(d) Lessee hereby agrees to indemnify Lessor and to hold Lessor harmless
of, from and against any and all expense, loss, cost, fines, penalties, loss of
value or liability suffered by Lessor by reason of Lessee's breach of any of the
provisions of this section.
(e) The provisions of this section shall survive the termination of
Lessee's tenancy or of this Lease.
(f) The parties acknowledge and agree with the Broker that Broker is a
licensed real estate broker, is not an expert in construction, engineering, or
environmental matters, and has not made and shall not make any representations
of warranties with respect to, nor conducted investigations of, the
environmental condition or suitability of the Premises or any adjacent property,
including without limitation any representations, warranties, or investigations
with respect to whether (l) the Premises have been contaminated by any substance
in any manner which could require remediation under any law; (2) the Premises
contain any environmentally sensitive areas development in which could be
precluded or limited under law, including without limitation wetlands or flood
plains; (3) the Premises contain any substances whose removal or disposal is
subject to special regulation under any law, including without limitation any
asbestos or polychlorinated biphenyls; and (4) any activities on the Premises
since Owner's acquisition of the Premises have been conducted in violation of
any laws concerning the handling of any materials by reason of those materials'
hazardous or toxic characteristics, the disposal of any wastes, the discharges
of any materials into the soil, air, surface water, or groundwater, or the
conduct of activities in environmentally sensitive areas.
(g) Lessor represents and warrants that while they have not made an
environmental survey or study of the premises, they have no knowledge of any
hazardous substances
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<PAGE>
as defined above that would violate any existing environmental protection
statutes, law or regulations. In the event Lessee exercises its option to
purchase provided hereinafter, Lessor shall be responsible for delivering title
to the premises in an environmentally clean condition and in compliance with all
environmental protection statues, law or regulations. Notwithstanding, however,
Lessor shall not be responsible for any violations by Lessee of said statues,
laws and regulations.
12) Late Charges
Any provision of this Lease to the contrary notwithstanding, Lessee
shall pay as Additional Rent, a late charge equal to five percent (5%) of the
outstanding delinquent balance on any installment of Rent or Additional Rent not
made within ten (10) days of its due date.
If any check for Rent or Additional Rent is returned from the bank for
insufficient funds or any other reason, Lessee shall pay to U.S. Realty
Associates, Inc., a penalty in the amount of $25.00 per check.
13) Renewal Options
Provided Lessee is not in default hereunder, and upon written notice
from Lessee to Lessor of not less than one hundred eighty (180) days prior to
the expiration of the Term hereof, time being of the essence, Lessee may renew
this Lease for two (2) additional five (5) year terms with the rental to
increase each year in accordance with the increase in the Consumer Price Index.
14) Heat
It is the responsibility of the Lessee to maintain sufficient heat
(minimum of 55 degrees) within the demised premises at all times in order to
prevent the freezing of water lines, i.e. sprinkler/plumbing pipes. In the event
that Lessee fails to maintain sufficient heat to prevent any pipes from
freezing, it shall be the sole responsibility of Lessee to repair the pipes and
any damages caused.
15) Violations
Lessor has received no notice of any kind and has no knowledge of any
violations of local, state or federal laws or ordinances regarding the demised
premises.
16) Additional Consideration
As additional financial consideration, Lessee has agreed to distribute
5000 share of common stock in Independence Brewing Company (current shareholder
value of $13,750) which shall be tendered to the Lessor upon the issuance of all
necessary license and/or approvals by governmental authorities for the
manufacturing of beer products. Said shares are being granted in consideration
of Lessor's approval of this lease agreement. Said shares shall bear a legend on
the face restricting transferability and shall be subject to the terms and
provisions of a shareholder's agreement, which shall be noted on the face
thereof.
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17) Brokerage
PROMARK REALTY GROUP, INC., AND U.S. REALTY ASSOCIATES, INC., jointly is
the procuring cause of this lease, and in consideration of their services,
Lessor agrees to pay to a leasing brokerage commission of SIX (6%) PERCENT of
the said rental for the term of this lease or any renewal, extension, expansion
or re-negotiation thereof.
In the event Lessee purchases the demised premises at any time during
the term of this lease, or any extension or renewal thereof, or within a period
of one (1) year after the expiration of such term, Lessor agrees to pay a SIX
(6%) PERCENT real estate commission on the total purchase price, to be paid at
settlement.
It is agreed and understood that Promark Realty Group, Inc., will share
equallY with U.S. Realty Associates, Inc., in any and all compensation paid by
Lessor.
18) Building Clean Out
Upon full execution of this lease agreement and upon payment of the
first month's rent and security deposit, Lessor shall expeditiously have the
premises cleared of all contents and debris with exception of the following
items, which shall be delivered in good working order:
One Pallet Jack Cleaning Supplies
Truck Leveler Lawn Mower
Telephone Sets Copier Machine
Refrigerator Fax Machine
Ladder 4 kerosene space heaters
If said equipment is not deliverable in good working order, Lessor shall
promptly remove same at Lessee's option.
All furnishings in the silk screen room, licensed paint room and dark room.
All office furniture and fixtures and listed on the attached schedule.
Lessor shall immediately clear the north portion of the premises to allow Lessee
to commence construction of a concrete bed to receive brewing equiment. Lessor
further agrees that the balance of the clearing and clean-up will be completed
on or before December 31, 1994.
19) Option to Purchase
It is understood and agreed that as long as Lessee is not then in
default, Lessee shall have the option to purchase the demised premises
commencing with the expiration of the second year of the initial lease term for
the purchase price as outlined below.
End of the 2nd year for a purchase price of: $700,000
End of the 3rd year for a purchase price of: $715,000
End of the 4th year for a purchase price of: $730,000
End of the 5th year for a purchase price of: $750,000
End of the 6th year for a purchase price of: $775,000
End of the 7th year for a purchase price of: $800,000
Said option to purchase shall expire at the end of the
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<PAGE>
7th year of this lease. Thereafter, provided Lessee is not then in default,
Lessee, shall have the right of first refusal to purchase the demised premises
(see paragraph 20).
20) Right of First Refusal
In the event that Lessor at any time after the final execution of this
lease should receive a bona fide offer to purchase the demised premises, Lessor
shall promptly notify Lessee in writing of the terms and conditions of said
offer. Lessor may, at Lessor's option, decline said offer, but in the event said
offer is acceptable to Lessor, Lessee shall have the right and option within
thirty (30) days after the receipt of notice from Lessor of Lessor's intention
to accept said offer to purchase the demised premises on the same terms and
conditions.
The failure of Lessee to exercise such option shall entitle Lessor to
accept said offer. The sale pursuant thereto shall in no way affect this lease;
except that Lessee's option to purchase as herein provided shall terminate. Said
option shall in no event continue beyond the original term hereof, whether
extended or renewed in writing or otherwise, unless hereafter expressly agreed
upon in writing signed by Lessor.
21) Underground Plumbing
Due to the nature of Lessee's manufacturing process, the Lessee shall be
solely responsible for all maintenance, repairs and/or replacement of the
underground plumbing installed by Lessee. Any existing underground plumbing
shall be in good working order at the time of execution of this lease.
22) Repairs
Upon full execution of this lease agreement, Lessor shall commence the
repair of the following items:
a) front windows facing driveway (3 large, 1 small)
b) warehouse windows (wherever needed)
c) clean out all contents of warehouse and offices except those items
noted in paragraph 18 which shall remain on the premises
d) repair all gutters and down spouts
e) repair all roof leaks and damage
f) all doors and locks to the property are to be operable
23) This Lease and all of Lessee's obligations herein are contingent on
and subject to Lessee obtaining the following by February 28, 1995. If any of
the conditions below are not fulfilled by February 28, l995, Lessee shall have
the option of terminating this lease or accepting the lease in as-in condition.
Should Lessee elect to terminate this lease, the security deposit with accrued
interest thereon shall be returned to Lessee.
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a) Lessee to obtain all approvals from Small Business Administration
(SBA) and Philadelphia Industrial Development Corporation (PIDC) for
the full amount of funds applied for.
b) Lessee to obtain Bureau of Alcohol, Tobacco and Firearms (BATF) and
Pennsylvania Liquor Control Board (LCB) licenses, approvals, and
permits for the brewing and selling of beer and malt products.
24) Lessor shall deliver the premises free of code violations, which
shall include a certificate that there are no violations of BOCA code
regulations, PA Department of Labor and Industry regulations and Philadelphia
Building Code Ordinances.
THE PARTIES HERETO HAVE EXECUTED THIS ADDENDUM AND INTEND TO BE LEGALLY BOUND
THEREBY.
INDEPENDENCE BREWING CO.
/s/ Alan Sizmur /s/ Robert W. Connor, Jr.
- ---------------------------- ------------------------------------
Alan Sizmur LESSOR Robert W. Connor, Jr., LESSEE
President
/s/ Angeles Sizmur
- ----------------------------
Angeles Sizmur LESSOR
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EXHIBIT 10.15
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, dated as of August 12, 1996, is
between INDEPENDENCE BREWING COMPANY, a Pennsylvania corporation (the
"Company"), and WILLIAM MOORE (the "Employee"). In consideration of the mutual
covenants and representations herein contained and the mutual benefits derived
herefrom, the parties, intending to be legally bound, covenant and agree as
follows:
1. Purpose. The Company is engaged in the business of
manufacturing and producing, for sale at wholesale and at retail, craft brewed
ales, lagers and seasonal beers as well as other beverages for consumption,
including, but not limited to, soft drinks (collectively, the "Business"). The
Company currently employs the Employee pursuant to an Employment Agreement dated
July 27, 1994 (the "Prior Agreement"). The Company wishes to continue to employ
the Employee, and the Employee has agreed to continue to be employed by the
Company, on the terms and conditions herein provided.
2. Full-Time Employment of Employee - Duties and Status.
(a) The Company hereby engages the Employee as a
full-time employee to be the Brewmaster for the Company for the period (the
"Employment Period") specified in Section 5(a) hereof, and the Employee accepts
such employment, on the terms and conditions set forth in this Agreement.
Throughout the Employment Period, the Employee shall faithfully exercise such
authority and perform such duties as Brewmaster, including, but not limited to,
brewing, producing, creating and formulating various beverages for the Company,
and such other duties as may otherwise be assigned to him from time to time by
the Board of Directors of the Company (the "Board") or the Officers of the
Company.
(b) Throughout the Employment Period, the Employee
shall devote his full time and efforts to the business of the Company and will
not engage in consulting work or any trade or business for his own account or
for or on behalf of any other person, firm or corporation which competes,
conflicts or interferes with the performance of his duties hereunder in any way.
The Employee shall make such personal appearances on behalf of the Company at
events sponsored by the Company or to which the Company is invited as the
Company shall request from time to time and shall travel to such locations on
behalf of the Company as the Company may reasonably request, provided that the
Employee shall be entitled to reimbursement for all of his reasonable
out-of-pocket expenses incurred as the result thereof.
(c) Throughout the Employment Period, the Employee
shall be entitled to vacation, leave of absence, and leave for illness or
temporary disability in accordance with the policies of the Company in effect
from time to time for its
<PAGE>
employees. The Employee shall be entitled to two (2) weeks paid vacation per
year, provided that vacation leave and leave of absence, if taken by the
Employee, shall be taken at such times as are reasonably acceptable to the
Company. Any leave on account of illness or temporary disability which is short
of Total Disability (as defined in Section 5(d)(ii) hereof) shall not constitute
a breach by the Employee of his agreements hereunder even though leave on
account of a Total Disability may be deemed to result in a termination of the
Employment Period under the applicable provisions of this Agreement.
3. Compensation and General Benefits. As full compensation for
his services to the Company, the Employee shall, during the Employment Period,
be compensated as follows:
(a) The Company shall pay to the Employee a salary
(the "Salary") based upon a per annum rate of Forty-Five Thousand Dollars
($45,000) per year for each year throughout the Employment Period. The Salary
shall be payable in periodic equal installments not less frequently than
monthly, less such sums as may be required to be deducted or withheld under
applicable provisions of federal, state and local law, plus increases in the
Salary, if any, as may be approved from time to time by the Company. The Salary
shall be subject to normal periodic review by the Company at least annually for
increases based on the salary policies of the Company and the Employee's
contributions to the enterprise. The Company shall pay such annual bonus to the
Employee based upon such performance and other standards as the Company shall
from time to time determine.
(b) Throughout the Employment Period, the Employee
shall be entitled to participate in such pension, profit sharing, stock
incentive, bonus or incentive compensation, stock option, stock purchase,
incentive, group and individual disability, group and individual life, survivor
income, sickness, accident, dental, medical and health benefits and other plans
of the Company or additional benefit programs, plans or arrangements of the
Company which may be established by the Company for its employees, as and to the
extent any such benefit programs, plans and arrangements are or may from time to
time be in effect, as determined by the Company and pursuant to the terms hereof
and as and to the extent that the Company is eligible to participate in such
plans under the terms of such plans.
(c) The Company shall reimburse the Employee on a
monthly basis for all reasonable and customary business expenses incurred by him
in the performance of his duties hereunder, provided that the Employee shall
submit vouchers and other supporting data to substantiate the amount of such
expenses in accordance with Company policy from time to time in effect.
4. Non-Competition; Confidential Information; Public
Statements.
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<PAGE>
(a) Non-Competition. The Employee and the Company
recognize that due to the Employee's engagement hereunder and the relationship
of the Employee to the Company, the Employee will have access to and will
acquire, and may assist in developing, confidential and proprietary information
relating to the assets, business and operations of the Company and its
affiliates, including, without limiting the generality of the foregoing, brew
recipes and formulations, and other information with respect to the Company's
present and prospective techniques, systems, customers, accounts, sales and
marketing methods. The Employee acknowledges that such information has been and
will continue to be of central importance to the business of the Company and
that disclosure of it to, or its use by, others could cause substantial loss to
the Company. The Employee and the Company also recognize that an important part
of the Employee's duties may be to develop goodwill for the Company through his
personal contact with customers, agents and others having business relationships
with the Company, that the Company has used and may in the future continue to
use the Employee as a significant element in its marketing of its products, and
that there is a danger that the goodwill thereby created, a proprietary asset of
the Company, may follow the Employee if and when his relationship with the
Company is terminated. The Employee accordingly agrees that, at all times during
the Employment Period and for two (2) years after termination of his employment,
the Employee shall not, in any capacity whatsoever, whether directly or
indirectly, on its own behalf, or on behalf of any other person, firm,
partnership, corporation, limited liability company, association or other entity
(collectively, "Person"):
(i) own, manage, invest, participate, engage or
become employed in any activity which comprises or is similar to the Business
including, but not limited to, any business which constitutes a "microbrewery"
as such term is generally defined within the alcoholic beverage industry,
anywhere in the States of Pennsylvania, New Jersey, Delaware and such other
States in which the Company is conducting business as of the date of such
termination;
(ii) suggest to, induce or persuade any vendor or
customer of the Company to discontinue doing business, with, or to change the
terms or conditions of such relationship with the Company or otherwise
disparage, disrupt or disturb the relationship of the Company with such vendor
or customer;
(iii) suggest to, induce or persuade any vendor
or customer of the Company to do business with any other Person which conducts a
business competitive with the Business;
(iv) suggest to, induce, solicit or persuade any
employee or consultant of the Company to leave the employ or engagement of the
Company, whether or not such inducement involves the Employee directly or
indirectly hiring or engaging or attempting to hire or engage such employee or
consultant of the Company at the time of such solicitation, whether on its own
behalf or on behalf of any other Person, whether or
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<PAGE>
not the Employee has a direct or indirect remunerative or other interest, as a
proprietor, partner, coventurer, creditor, stockholder, director, officer,
employee, agent, representative or otherwise in such Person;
(v) participate in planning for and will not
accept any employment in or associate with any Person which then employs more
than two former employees of the Company who left the Company within the twelve
months next preceding his termination of employment with the Company; and
(vi) without limiting the term of his general
obligation to honor the Confidential Information (as defined below) so long as
it remains protectable, the Employee specifically agrees that he will not plan
for, accept employment from any Person, nor directly or indirectly engage in,
any business wherein the loyal and diligent performance of the duties and
responsibilities of such new employment or business will inherently call upon
him to use, to disclose or to base judgments upon Confidential Information of
the Company or to utilize the goodwill of the Company in making sales for a
competitor of the Company. The foregoing restrictive period is based upon the
Employee's and the Company's good faith belief that:
(A) the Company's investment of time and
money in the Employee, including, but not limited to, through the development of
unique and specially formulated brew recipes by the Employee for the benefit of
the Company, and the nature of the Company's business (which is maintained and
increased through the personal contact of employees such as the Employee with
customers and vendors and potential customers and vendors of the Company) has
rendered and will continue to render the Employee a unique asset to the Company;
(B) the Company would be placed at a
competitive disadvantage for such period, due to the Employee's knowledge of
Confidential Information and other matters arising out of his employment with
the Company; and
(C) the time required to rebuild the contacts
and patronage that the Employee will develop for the Company and to provide the
necessary training, exposure and education to his replacement would, for such a
period, place the Company at a competitive disadvantage.
(b) Confidential Information.
(i) At all times during the Employment Period and
at all times following termination thereof, the Employee shall keep confidential
and not disclose, directly or indirectly, and shall not use for the benefit of
himself or any other Person in connection with and furtherance of the Business
and the affairs of the Company, any Confidential Information relating to any
aspect of the business of the Company which is now known or which may become
known to him. For purposes of
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<PAGE>
this Agreement, "Confidential Information" includes any trade secrets or
confidential or proprietary information whether in written, oral or other form
which is unique, confidential or proprietary to the Company, its affiliates,
customers or other persons who disclose such information to the Company in
confidence, including, but not limited to, all brew recipes and formulations.
(ii) The Company's failure to mark any
Confidential Information as confidential, proprietary or otherwise shall not
affect its status as Confidential Information hereunder.
(iii) The Employee acknowledges that all
Confidential Information is the property of the Company, its affiliates,
customers or other persons who disclose such information to the Company in
confidence, and upon expiration of the Employment Period or earlier termination
of this Agreement or earlier at the request of the Company, the Employee shall
deliver to the Company all records, notes, reference items, sketches, drawings,
memoranda, records, and other documents or materials, and all copies thereof
(including but not limited to such items stored by computer memory or other
media) which relate to or in any way incorporate the Confidential Information
which are in the Employee's possession or under his control.
(iv) The Employee agrees that should third
parties request to submit Confidential Information to them pursuant to subpoena,
summons, search warrant or governmental order, the Employee will notify the
Company immediately upon receipt of such request, and thereafter deliver written
notice of the request to the Company no later than one business day after
receipt. If the Company objects to the release of the Confidential Information,
the Employee will permit counsel chosen by the Company to represent the Employee
in order to resist release of the Confidential Information. The Company will pay
the Employee for any expenses incurred by him in connection with resisting the
release of the Confidential Information.
(c) Ownership of Developed Information.
(i) The Employee covenants and agrees that all
right, title and interest in any Developed Information, as defined below, shall
be and remain the exclusive property of the Company. The Employee agrees to make
prompt and complete disclosure from time to time to the Company of all Developed
Information. The Employee agrees to immediately disclose to the Company all
Developed Information, and to assign to the Company any right, title and
interest which he may have in the Developed Information. The Employee agrees to
execute any instruments and to do all things reasonably requested by the
Company, both during and after the Employment Period, to vest the Company with
all ownership rights in the Developed Information. If any Developed Information
can be protected by copyrights (i) as to that Developed information which falls
within the definition of "work made for hire," as defined in 17 U.S.C. Section
101, the copyright to such Developed Information shall be owned solely,
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<PAGE>
completely and exclusively by the Company, and (ii) as to that Developed
Information which does not constitute "work made for hire," the copyright to
such Developed Information shall be deemed to be irrevocably assigned and
transferred completely and exclusively by the Employee.
(ii) For purposes of this Agreement, "Developed
Information" shall mean all trade secrets, confidential or other proprietary
information conceived, developed, designed, devised or otherwise created,
modified or improved by the Employee or with respect to which he receives or
receives access to, in whole or in part, in connection with the performance of
his services for the Company, its customers or other persons who disclose such
information to the Company in confidence hereunder during the Employment Period
or resulting from the Employee's use of or access to the Company's facilities or
resources, including its Confidential Information. The "Developed Information"
shall also include, without limitation, the following materials and information,
whether or not reduced to writing, whether now or hereafter existing, whether or
not patentable or protectable by copyright:
(A) Marketing techniques and arrangements,
purchasing information, pricing policies, quoting procedures, information
processes, financial information, customer and prospect names and requirements,
employee, customer, supplier and distributor data and other materials or
information relating to the Business and/or the manner in which the Company does
business;
(B) Discoveries, concepts, and ideas,
including without limitation, processes, formulas, techniques, know how,
designs, drawings, and specifications relating to the Business and/or the manner
in which the Company does business;
(C) Formulations for any products of the
Company, including, but not limited to, chemical compounds, recipes, and similar
information;
(D) Any other materials or information
related to the business or activities of the Company which are not generally
known to others engaged in similar businesses or activities; and
(E) All ideas which are derived from or
related to the Employee's access to or knowledge of any of the materials or
information described in this Section 3(b)(ii).
(d) Acknowledgment. The Employee acknowledges that he
has carefully read and reviewed the restrictions set forth in Sections 4(a), (b)
and (c) hereof, and having done so he agrees that those restrictions, including
but not limited to the time period and geographical areas of restriction, are
fair and reasonable and are
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<PAGE>
reasonably required for the protection of the legitimate business interests of
the Company.
(e) Invalidity, Etc. If any covenant, provision, or
agreement contained in any part of Section 4(a), (b) or (c) hereof is found by a
court having jurisdiction to be unreasonable in duration, geographic scope or
character of restrictions, the covenant, provision or agreement shall not be
rendered unenforceable thereby, but rather the duration, geographical scope or
character of restrictions of such covenant, provision or agreement shall be
deemed reduced or modified with retroactive effect to render such covenant or
agreement reasonable and such covenant or agreement shall be enforced as
modified. If the court having jurisdiction will not review the covenant,
provision or agreement, the parties shall mutually agree to a revision having an
effect as close as permitted by law to the provision declared unenforceable. The
Employee agrees that if a court having jurisdiction determines, despite the
express intent of the Employee, that any portion of the restrictive covenants
contained in Section 4(a), (b) or (c) hereof are not enforceable, the remaining
provisions shall be valid and enforceable.
(f) Equitable Relief. The Employee recognizes and
acknowledges that if he breaches the provisions of Section 4(a), (b) or (c)
hereof, damages to the Company may be difficult if not impossible to ascertain,
and because of the immediate and irreparable damage and loss that may be caused
to the Company for which it would have no adequate remedy, it is therefore
agreed that the Company, in addition to and without limiting any other remedy or
right it may have, shall be entitled to have an injunction or other equitable
relief in any court of competent jurisdiction, enjoining any such breach, and
the Employee hereby waives any and all defenses he may have on the grounds of
lack of jurisdiction or competence of a court to grant such an injunction or
other equitable relief. The existence of this right shall not preclude the
applicability or exercise of any other rights and remedies at law or in equity
which the Company may have.
(g) Accounting for Profits. The Employee covenants
and agrees that if he violates any covenants or agreements under this Agreement,
the Company shall be entitled to an accounting and repayment of all profits,
compensations, royalties, commissions, remuneration or benefits which directly
or indirectly shall have been realized or may be realized relating to, growing
out of or in connection with any such violations; such remedy shall be in
addition to and not in limitation of any injunctive relief or other rights or
remedies to which the Company is or may be entitled at law or in equity or
otherwise under this Agreement.
(h) Public Statements. The Employee and the Company
recognize that, due to the relationship of the Employee and the Company and such
relationship's susceptibility to public comment which may be injurious to the
Employee or the Company, or both, it is necessary for the protection of both
parties that neither party make any disparaging public statements with respect
to each other concerning the terms of this Agreement and the arrangements made
pursuant hereto. The Employee and the Company accordingly agree that neither the
Employee nor the Company will make any disparaging public statements with
respect to each other or concerning the terms of this Agreement and the
arrangements made pursuant hereto at any time following the termination of this
Agreement without the prior written approval of the other party.
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<PAGE>
5. Employment Period.
(a) Duration. The Employment Period shall commence on
the date of this Agreement and shall continue until the earlier of (i) the close
of business on December 31, 1999, (the "Expiration Date"), or (ii) termination
of this Agreement by the Company with "cause" (as defined in Section 5(d)(i)
hereof), or (iii) termination of this Agreement by the Company for any reason
other than cause, or (iv) the death or Total Disability of the Employee.
(b) Payments Upon Termination.
(i) If the Employee's employment is terminated by
the Company for any reason other than "cause" (as defined in Section 5(c)(i)
hereof), or due to the "total disability" (as defined in Section 5(c)(ii)
hereof), or death of the Employee, at any time during the Employment Period, the
Company shall pay to, or provide for, as the case may be, the Employee, at the
times otherwise provided in this Agreement as if the Employee had not been
terminated:
(A) his Salary as accrued through the date of
termination and for two (2) years thereafter (the "Severance Period"), which
Salary shall be payable, at the Company's option, as a lump sum or in equal
monthly installments during such period in accordance with existing payroll
policies;
(B) to the extent applicable, the sickness
and health insurance programs to which he would have been entitled under this
Agreement if he had remained in the employ of the Company for the Severance
Period; and
(C) such other benefits to which he is
entitled under applicable laws.
In addition, the Company shall, to the extent
applicable, pay to, or provide for, as the case may be, the employee benefits
(including, but not limited to, coverage under any disability, group life, and
accident insurance programs and split-dollar life insurance arrangements or
programs) to which he would have been entitled under this Agreement if he had
remained in the employ of the Company throughout the Severance Period.
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<PAGE>
The Employee shall use his best efforts to
discharge his legal obligation to mitigate the amount of payments provided for
in this Section 5(b) by actively seeking employment, and the amount of any
payment provided for in this Section 5(b) shall be reduced by any compensation
or remuneration earned as the result of employment by another employer after the
date of termination and during such severance period.
(ii) If the Employee's employment is terminated
(A) by the Company for "cause", or (B) upon the death of the Employee, or (C) by
the Employee for any reason, then the Company shall have no further liability to
the Employee, except for the Salary which has accrued through the date of
termination, which amounts shall be paid by the Company within thirty (30) days
of such termination.
(iii) Notwithstanding any other provision of this
Section 5(b), if the Employee violates any covenant, term or condition of this
Agreement the Company shall be entitled, in addition to any other remedies it
may have hereunder or at law or in equity, to offset the amount of any payment
otherwise due to the Employee pursuant to this Section 5(b) against any loss or
damage incurred by the Company as a result of the Employee's violation of said
covenant, term or condition.
(c) Definitions. When used in this Agreement, the
words "cause" and "total disability" shall have the respective meanings set
forth below:
(i) The term "cause" means: (A) the Employee's
failure to perform his employment duties hereunder after reasonable notice to
the Employee by the Company specifying such failure, (B) the Employee's breach
of the covenants or agreements contained in Sections 4(a), (b) or (c) hereof, or
of any other material agreement or undertaking of the Employee, (C) the
Employee's commission of a felony or any crime involving moral turpitude, fraud
or misrepresentation, whether or not related to the business or property of the
Company, (D) any act of the Employee against the Company intended to enrich the
Employee in derogation of his duties to the Company, (E) any willful or
purposeful act or omission (or any act or omission taken in bad faith) of the
Employee having the effect of injuring the business or business relationships of
the Company, or (F) the Employee's breach of his duty of loyalty to the Company.
(ii) The term "total disability" ("Total
Disability") means total disability as defined in the Company's group and
individual disability plans, if any. If the Company does not have in existence
such plans, then Total Disability shall mean:
(y) The inability to perform the duties required
hereunder for a continuous period of six (6) months during the Employment Period
due to "mental incompetence" or "physical disability" as hereinafter defined.
The Employee shall be considered to be mentally incompetent and/or physically
disabled: (A) if he is under a legal decree of incompetency (the date of such
decree being deemed the date on
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which such mental incompetence occurred for purposes of this Section 5(c)); or
(B) because of a "Medical Determination of Mental and/or Physical Disability." A
Medical Determination of Mental and/or Physical Disability shall mean the
written determination by: (1) the physician regularly attending the Employee,
and (2) a physician selected by the Company, that because of a medically
determinable mental and/or physical disability the Employee is unable to perform
each of the material duties of the Employee, and such mental and/or physical
disability is determined or reasonably expected to last twelve (12) months or
longer after the date of determination, based on medically available
information. If the two physicians do not agree, they shall jointly choose a
third consulting physician and the written opinion of the majority of these
three (3) physicians shall be conclusive as to such mental and/or physical
disability and shall be binding on the parties. The date of any written opinion
which is conclusive as to the mental and/or physical disability shall be deemed
the date on which such mental and/or physical disability commenced for purposes
of this Section 5(c), if the written opinion concludes that the Employee is
mentally and/or physically disabled. In conjunction with determining mental
and/or physical disability for purposes of this Agreement, the Employee consents
to any such examinations which are relevant to a determination of whether he is
mentally and/or physically disabled, and which is required by any two (2) of the
aforesaid physicians, and to furnish such medical information as may be
reasonably requested, and to waive any applicable physician patient privilege
that may arise because of such examination. All physicians selected hereunder
shall be Board-certified in the specialty most closely related to the nature of
the mental and/or physical disability alleged to exist.
(z) For purposes of determining whether the
Employee is mentally incompetent or physically disabled for the continuous six
(6) month period specified in this Section 5(c), such disability shall be deemed
to continue from the date of any legal decree of incompetency, or written
opinion which is conclusive as to the mental and/or physical disability, through
the date the legal decree expires or is otherwise revoked or removed, or the
date on which the mental and/or physical disability has ceased, as the case may
be, as set forth in a written opinion prepared by the physicians described in
this Section 5(c) pursuant to the procedures provided herein.
6. Notices. Any notices, requests, demands and other
communications provided for by this Agreement shall be sufficient if in writing
and if sent by registered or certified mail to the Employee at the last address
he has filed in writing with the Company.
7. Binding Agreement; Assignment. This Agreement shall be
effective as of the date hereof and shall be binding upon and inure to the
benefit of, the parties and their respective heirs, successors, assigns, and
personal representatives, as the case may be. The Employee may not assign any
rights or duties under this Agreement. As used herein, the successors of the
Company shall include, but not be limited to, any
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successor by way of merger, consolidation, sale of all or substantially all of
the assets, or similar reorganization or change in control.
8. Entire Agreement. This Agreement constitutes the entire
understanding of the Employee and the Company with respect to the subject matter
hereof and supersedes any and all prior understandings written or oral,
including, but not limited to, the Prior Agreement, which Prior Agreement is
hereby terminated. This Agreement may not be changed, modified or discharged
orally, but only by an instrument in writing signed by the parties.
9. Enforceability. This Agreement has been duly authorized,
executed and delivered and constitutes the valid and binding obligations of the
parties hereto, enforceable in accordance with its terms. The undertakings
herein shall not be construed as any limitation upon the remedies Company might,
in the absence of this Agreement, have at law or in equity for any wrongs of the
Employee.
10. Governing Law. The validity and construction of this
Agreement or any of its provisions shall be determined under the internal laws
of the Commonwealth of Pennsylvania, without giving effect to its conflicts of
laws provisions, and without regard to its place of execution or its place of
performance. The parties irrevocably consent and agree to the exclusive
jurisdiction of the applicable Federal courts located in Pennsylvania and to
service of process for it and on its behalf by certified mail, for resolution of
all matters involving this Agreement or the transactions contemplated hereby.
Each party waives all rights to a trial by jury in any suit, action or
proceeding hereunder.
11. Severability. Except as provided in Section 4(e) hereof,
if any one or more of the terms or provisions of this Agreement shall for any
reason be held to be invalid, illegal or unenforceable, in whole or in part, or
in any respect or in the event that any one or more of the provisions of this
Agreement operated or would prospectively operate to invalidate this Agreement,
then and in either of those events, such provision or provisions only shall be
deemed null and void and shall not affect any other provision of this Agreement
and the remaining provisions of this Agreement shall remain operative and in
full force and effect and shall in no way be affected, prejudiced or disturbed
thereby.
12. Amendments and Waivers. This Agreement may, to the maximum
extent permitted by applicable law, be amended by the parties, which amendment
shall be set forth in an instrument executed by all of the parties. Any term,
provision or condition of this Agreement (other than as prohibited by applicable
law) may be waived in writing at any time by the party which is entitled to the
benefits thereof.
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IN WITNESS WHEREOF, the parties have executed and delivered
this Agreement as an instrument under seal on the date first above written.
INDEPENDENCE BREWING COMPANY
By:/s/ ROBERT W. CONNOR, JR. (SEAL)
-------------------------
/s/ WILLIAM MOORE (SEAL)
----------------------------
William Moore
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EXHIBIT 10.18
REGISTRATION RIGHTS AGREEMENT
(Series A Warrants)
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made
as of the 12th day of August, 1996, by and between INDEPENDENCE BREWING COMPANY,
a Pennsylvania corporation (the "Company"), and the investors listed on Schedule
A hereto, each of which is referred to herein individually as a "Holder" and
referred to herein collectively as "Holders."
RECITALS
WHEREAS, pursuant to the Securities Purchase Agreement dated
as of August 12, 1996 by and among the Company and each of the Holders (the
"Acquisition Agreement"), the Company has, among other things, issued to the
Holders warrants (the "Warrants") which entitle the Holders to purchase certain
shares of the voting common stock (the "Common Stock") of the Company as more
particularly described in the Warrants (collectively, such shares being the
"Registrable Securities"); and
WHEREAS, in order to induce the Holders to enter into the
Acquisition Agreement, the Company wishes to provide the Holders with certain
registration rights with respect to the Registrable Securities.
NOW, THEREFORE, in consideration of the mutual covenants and
undertakings contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, and subject to and
on the terms and conditions herein set forth, the parties hereto agree as
follows:
1. Registration Under Securities Act.
1.1 Registration on Request. At any time after the effective date of the
first registration statement for a public offering of securities of the
Company (other than a registration statement solely for registration of
securities in connection with (i) an employee benefit or stock or option
plan or dividend reinvestment plan, (ii) a merger or consolidation or
(iii) debt securities which are not convertible into or exchangeable for
Common Stock) (the "Registration Rights Period"), upon delivery to the
Company of a written request ("Request") from any Holder or Holders of
Registrable Securities (the "Initiating Holders") that the Company effect
the registration under the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder (the "Securities Act") of all or any
portion of the shares of Registrable Securities held by such Initiating
Holders, provided that, the aggregate number of shares of Registrable
Securities for which registration has been requested shall be at least
fifty-one percent (51%) of the shares of Registrable Securities then
outstanding, the Company will use its best efforts to effect the
registration under the Securities Act of such Registrable Securities. Within
five (5) days after receipt of any such request from the Initiating Holders,
<PAGE>
the Company shall give written notice of such requested registration to all
other Holders of Registrable Securities and shall include in such
registration (subject to Section 1.7(c) and Section 1.13) all Registrable
Securities with respect to which the Company has received written request
for inclusion therein within 15 days after the receipt of the notice of the
Company.
After the Company has effected two registrations pursuant to this Section
1.1 and such registrations have each been declared or ordered effective,
and, if the method of disposition of Registrable Securities is a firm
commitment underwriting or best efforts public offering, 90% of the
Registrable Securities covered by the registration statement shall have been
sold pursuant thereto, the Company shall not be obligated to effect, or take
any action to effect, any registration pursuant to this Section 1.1.
1.2 Incidental Registration. If the Company (including for this purpose a
registration effected by the Company for shareholders other than the
Holders) proposes to register any shares of its Common Stock under the
Securities Act by registration on Forms S-1, S-2 or S-3 or any successor or
similar form(s) (except registrations on such Forms or similar form(s)
solely for registration of securities in connection with (i) an employee
benefit or stock or option plan or dividend investment plan, (ii) a merger
or consolidation or (iii) debt securities which are not convertible into or
exchangeable for Common Stock), whether or not for sale for its own account,
it will, subject to Section 1.13 hereof, give prompt written notice each
time the Company proposes to so register shares to all Holders of its
intention to do so and of Holders' rights under this Section 1.2, the date
of delivery of such notice being the "Piggyback Notice Date." Each Holder
shall have twenty (20) days after the Piggyback Notice Date (the "Piggyback
Reply Period") to deliver a written notice to the Company requesting
registration of any of the Registrable Securities held by him, her or it (a
"Notice of Participation"). If the Company does not receive from any Holder
a Notice of Participation by the end of the Piggyback Reply Period, such
Holder shall be deemed to have waived his, her or its rights to register
shares as part of the subject registration statement and the Company shall
have no obligation whatsoever to register such Holder's Registrable
Securities as part of the subject registration statement. After the end of
the Piggyback Reply Period, the Company will, subject to Section 1.13
hereof, use its best efforts to effect the registration under the Securities
Act of all Registrable Securities which have been requested to be registered
by the Holders who have properly tendered a Notice of Participation
("Requesting Holders"), provided, however, that if, at any time after giving
written notice of its intention to register any securities and prior to the
effective date of the registration statement filed in connection with such
registration, the Company shall determine for any reason not to register or
to delay registration of such securities, the Company may, at its election,
give written notice of such determination to each Requesting Holder of
Registrable Securities and (i) in the case of a determination not to
register, shall be relieved of its obligation to register any Registrable
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<PAGE>
Securities in connection with such registration (but not from any obligation
of the Company to pay the Registration Expenses, as defined below, in
connection therewith), without prejudice, however, to the rights of any
Holder to request that other registrations be effected under this Agreement
and (ii) in the case of a determination to delay registering, shall be
permitted to delay registering any Registrable Securities, for the same
period as the delay in registering such other securities.
1.3 Registration Procedures. If and whenever the Company is required to use
its best efforts to effect the registration of any Registrable Securities
under the Securities Act as provided in Sections 1.1 and 1.2, the Company
will expeditiously:
(a) prepare (as soon as practicable after the date the Request is
delivered or Piggyback Reply Period expires, as the case may be, and in
any event within sixty (60) days after such date in the case of a
registration on Forms S-1 or S-2 and forty-five (45) days after such
date in the case of a registration on Form S-3) and file with the
Securities and Exchange Commission or any successor entity thereof
("Commission") the requisite registration statement to effect such
registration and thereafter use its best efforts to cause such
registration statement to become effective and to remain effective for
up to 120 days or until the distribution contemplated by the
registration statement has been completed;
(b) prepare and file with the Commission such amendments and supplements
to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement
effective and to comply with the provisions of the Securities Act with
respect to the disposition of all Registrable Securities covered by such
registration statement for such period as shall be required for the
disposition of all of such Registrable Securities, provided, that, such
period shall not exceed one hundred twenty (120) days;
(c) furnish to each Holder who has properly notified the Company of his
or her participation in the registration and who is selling Registrable
Securities covered thereunder (a "Selling Holder"), such number of
conformed copies of such registration statement and of each such
amendment and supplement thereto (in each case including all exhibits),
such number of copies of the prospectus contained in such registration
statement (including each preliminary prospectus and any summary
prospectus) and any other prospectus filed under Rule 424 under the
Securities Act, in conformity with the requirements of the Securities
Act, and such other documents, as such Selling Holder may reasonably
request;
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<PAGE>
(d) use its best efforts (x) to register or qualify all Registrable
Securities covered by such registration statement under such other
securities or blue sky laws of such States of the United States of
America where an exemption is not available and as the Selling Holders
shall reasonably request, (y) to keep such registration or qualification
in effect for so long as such registration statement remains in effect,
and (z) to take any other action which may be reasonably necessary or
advisable to enable the Selling Holders to consummate the disposition in
such jurisdictions of the Registrable Securities to be sold by such
Selling Holders, except that the Company shall not for any such purpose
be required to qualify generally to do business as a foreign corporation
in any jurisdiction wherein it would not but for the requirements of
this subsection (d) be obligated to be so qualified or to consent to
general service of process in any such jurisdiction;
(e) use its best efforts to cause all Registrable Securities covered by
such registration statement to be registered with or approved by such
other federal or state governmental agencies or authorities as may be
reasonably necessary in the opinion of counsel to the Company and
counsel to Selling Holders thereof to consummate the disposition of such
Registrable Securities;
(f) notify each Selling Holder at any time when a prospectus included in
the registration statement relating to the Registrable Securities and
required to be delivered to offerees or purchasers under the Securities
Act, is discovered to, or upon the happening of any event is reasonably
believed to, as then in effect, 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 not misleading, in
the light of the circumstances under which they were made, and at the
request of any such Selling Holder promptly prepare and furnish to it a
reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such securities, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact
required to be stated thereon or necessary to make the statements
therein not misleading in the light of the circumstances under which
they were made;
(g) otherwise use its best efforts to comply with all applicable rules
and regulations of the Commission, and make available to its security
holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve months, but not more than
eighteen months, beginning with the first full calendar month after the
effective date of such registration statement, which earnings statement
shall satisfy the provisions of Section 11(a) of the Securities Act and
Rule 158
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<PAGE>
promulgated thereunder, and promptly furnish to each such Selling Holder
a copy of any amendment or supplement to such registration statement or
prospectus;
(h) provide and cause to be maintained a transfer agent and registrar
(which, in each case, may be the Company) for all Registrable Securities
covered by such registration statement from and after a date not later
than the effective date of such registration; and
(i) use its best efforts to list all Registrable Securities covered by
such registration statement on any national securities exchange on which
Registrable Securities of the same class covered by such registration
statement are then listed.
1.4 Registration Statement Form; Information.
(a) Registration under Section 1.1 and Section 1.2 shall be on such
appropriate form of the Commission as shall be selected by the Company
with advice of its legal counsel.
(b) The Company agrees to include in any such registration statement all
information, which, in the reasonable opinions of counsel to the
involved Selling Holders and counsel to the Company, is required to be
included.
(c) From time to time, the Company may request each Selling Holder to
furnish, and upon such request such Selling Holder shall promptly and
diligently furnish to the Company, such information regarding such
Selling Holder and the distribution of such Selling Holder's Registrable
Securities and other securities of the Company. Any such information so
provided to the Company shall be deemed certified by the Selling Holder
to be correct and complete.
1.5 Expenses.
(a) All expenses incurred by the Company in complying with Section 1.1
or Section 1.2 hereof, including, without limitation, all registration
and filing fees, printing expenses, fees and disbursements of counsel
and independent public accountants for the Company, fees of the National
Association of Securities Dealers, Inc., transfer taxes, fees of
transfer agents and registrars and costs of insurance, but excluding any
Selling Expenses, are herein called "Registration Expenses." All
underwriting discounts and selling commissions applicable to the sale of
Registrable Securities are herein called "Selling Expenses."
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<PAGE>
(b) The Company will pay all Registration Expenses in connection with
any registration statement filed pursuant to Section 1.1 or Section 1.2
hereof. All Selling Expenses in connection with any registration
statement filed pursuant to Section 1.1 or Section 1.2 hereof shall be
borne by the Selling Holders and the Company in proportion to the number
of shares sold by each, or by such persons other than the Company
(except to the extent the Company shall be a seller), as they may agree.
1.6 Effective Registration Statement. A registration requested pursuant to
Section 1.1 or Section 1.2 shall not be deemed to have been effected
(a) unless a registration statement with respect thereto has become
effective, (b) if after it has become effective, such registration is
interfered with by any stop order, injunction or other order or requirement
of the Commission or other governmental agency or court for any reason not
attributable to the Selling Holders and has not thereafter become effective,
or (c) if the conditions to closing specified in the underwriting agreement,
if any, entered into in connection with such registration are not satisfied
or waived, other than by reason of a failure on the part of the Selling
Holders.
1.7 Requested Underwritten Offerings.
(a) Selection of Underwriter(s). In a requested registration under
Section 1.1, the Selling Holders may collectively elect to sell their
Registrable Securities to an underwriter in an underwritten offering (a
"Requested Underwritten Offering"). The underwriter or underwriters of a
Requested Underwritten Offering shall be selected by the Selling Holders
holding at least fifty-one percent (51%) of the Registrable Securities
for which registration is requested. Any selected underwriter must be a
firm reasonably satisfactory to the Company, provided that a firm shall
be conclusively satisfactory to the Company if it has previously
effected a registration of any securities of the Company.
(b) Underwriting Agreement. If requested by the underwriters for any
Requested Underwritten Offering, the Company will enter into an
underwriting agreement with such underwriters for such Offering, such
agreement to be reasonably satisfactory in substance and form to the
Company, each Selling Holder and the underwriters and to contain such
representations and warranties by the Company, each Selling Holder and
the underwriters and such other terms as are generally prevailing in
agreements of that type, including, without limitation, indemnities to
the effect and to the extent provided in Section 1.12. The Selling
Holders will cooperate with the Company and Company legal counsel in the
negotiation of the underwriting agreement and will give due
consideration to the reasonable suggestions of the Company regarding the
form
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<PAGE>
and contents thereof. Such Selling Holders shall be parties to such
underwriting agreement.
(c) Priority in Requested Registration. If the managing underwriter of
any Requested Underwritten Offering shall advise the Company in writing
(with a copy to each Selling Holder) that, in its sole discretion the
number of securities requested to be included in such registration is
too high, the Company and the Selling Holders agree to decrease the
number of shares of Registrable Securities to be included in such
registration to the number of shares of Registrable Securities which the
Company is so advised can be sold in such Offering, with such decrease
to be effected first among such Selling Holders who last purchased the
Warrants which entitled such Selling Holders to purchase such
Registrable Securities and thereafter, to the extent necessary, with
respect to each such other Selling Holder who most recently purchased
such Warrants, the date of each such purchase to conclusively be the
Closing Date of such purchase as defined in, and determined pursuant to,
the Securities Purchase Agreement dated August 12, 1996 entered into
among the Company and the Selling Holders (or the predecessors of the
Selling Holders, as the case may be).
1.8 Incidental Underwritten Offerings.
(a) Selection of Underwriter(s). If the Company proposes to register any
shares of its Common Stock under the Securities Act as contemplated by
Section 1.2 and such shares are to be sold to, and distributed by or
through one or more underwriters, the Company will, subject to Section
1.8(c) hereof and if so requested by any Selling Holder requesting to be
included in such registration under Section 1.2, arrange for such
underwriters to include the Registrable Securities requested to be
offered and sold by such Selling Holder among the securities of the
Company to be distributed by such underwriters (such offering, a
"Piggyback Underwritten Offering"). The selection of such underwriter or
underwriters for a Piggyback Underwritten Offering shall be made by the
Company in its sole discretion.
(b) Underwriting Agreement. The underwriting agreement regarding a
Piggyback Underwritten Offering shall be reasonably satisfactory in
substance and form to the Company, each Selling Holder thereunder and
the underwriters and contain such representations and warranties by the
Company, each Selling Holder thereunder and the underwriters and such
other terms as are generally prevailing in agreements of that type,
including, without limitations, indemnities to the effect and to the
extent provided in Section 1.12. The Selling Holders involved in the
Piggyback Underwritten Offering will cooperate with the Company and
Company legal counsel in the negotiation of the underwriting agreement
and will
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<PAGE>
defer to the reasonable suggestions of the company regarding the form
and contents thereof. Such Selling Holders shall be parties to the
underwriting agreement between the Company and such underwriters.
(c) Priority in Incidental Registrations. If the managing underwriter of
any Piggyback Underwritten Offering shall inform the Company in writing
of its belief that the number of Registrable Securities requested to be
included in such registration would materially and adversely affect such
Offering, then the Company will include in such registration to the
extent of the number which the Company is so advised can be sold in (or
during the time of) such Offering (such number, the "Decreased Offering
Amount"), first, all shares of Common Stock proposed by the Company to
be sold for its own account (the "Company Share Amount") and second, the
number of the Registrable Securities requested to be included in such
registration equal to the Decreased Offering Amount minus the Company
Share Amount, such decrease to be effected first among such Selling
Holders who last purchased the Warrants which entitled such Selling
Holders to purchase such Registrable Securities and thereafter, to the
extent necessary, with respect to each such other Selling Holder who
most recently purchased such Warrants, the date of each such purchase to
conclusively be the Closing Date of such purchase as defined in, and
determined pursuant to, the Securities Purchase Agreement dated August
12, 1996 entered into among the Company and the Selling Holders (or the
predecessors, as the case may be). The Holders acknowledge that the
Company has granted to certain other holders of securities of the
Company rights with respect to a Piggyback Underwritten Offering which
are superior to those granted herein pursuant to certain other
Registration Rights Agreements of the Company dated August 12, 1996 and
that the rights granted to the Holders with resect to such Piggyback
Underwritten Offerings are exercisable subject to such superior rights.
1.9 Holdback Agreements. In connection with any registration under Section
1.1 hereof, the Company will obtain agreements from each holder of five
percent (5%) or more of its Common Stock, or any securities convertible into
or exercisable into or exchangeable for its Common Stock, that such holder
will not sell or otherwise dispose of any such securities (other than those
included in such registration) during a period of 120 days beginning on the
effective date of any such registration, without first obtaining the written
consent of the managing underwriter of such offering.
1.10. Reasonable Investigation. In connection with the preparation and
filing of each registration statement under the Securities Act pursuant to
this Agreement and upon execution and delivery of appropriate and customary
confidentiality agreements, the Company will give the Selling Holders, their
underwriters, if any, and their respective counsel and accountants the
opportunity to participate in the
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preparation of such registration statements, each prospectus included
therein or filed with the Commission, and, to the extent practicable, each
amendment thereof or supplement thereto, and give each of them such access
to its books and records (to the extent customarily given to underwriters of
the company's securities) and such opportunities to discuss the business of
the Company with its officers and the independent public accountants who
have certified its financial statements as shall be necessary, in the
opinion of such Holders' and such underwriters' respective counsel, to
conduct a reasonable investigation within the meaning of the Securities Act.
1.11. Postponement of Registration. The obligations of the Company under
Section 1.1 and Section 1.2 to use its best efforts to cause the Registrable
Securities to be registered under the Securities Act are subject to the
limitation, condition and qualification that the Company shall be entitled
to postpone for a reasonable period of time (but not exceeding 90 days) the
filing of any registration statement otherwise required to be prepared and
filed by it pursuant to Section 1.1 or Section 1.2 if the Company furnishes
to the Selling Holders a certificate signed by the Chief Executive Officer
of the Company stating that in the good faith judgment of the Board of
Directors of the Company, it would be seriously detrimental to the Company
and its shareholders for such registration statement to be filed and it is
therefore essential to defer the filing of such registration statement,
providing a general statement of the reasons for such postponement and an
approximation of the anticipated delay, provided that the Company may not
use this right to postpone registration pursuant to Section 1.1 more than
once in any twelve-month period.
1.12. Indemnification.
(a) Indemnification by the Company. In the event of any registration of
any securities of the Company under the Securities Act, the Company
will, and hereby does, indemnify and hold harmless, in the case of any
registration statement filed pursuant to Section 1.1 or 1.2, each
Selling Holder, his or her agents and affiliates and each other Person
("Person" includes a corporation, an association, a partnership, an
organization, a business, an individual, a governmental or political
subdivision thereof or a governmental agency) who participates as an
underwriter in the offering or sale of such Registrable Securities and
any other Person, if any, who controls such underwriter within the
meaning of the Securities Act against any losses, claims, damages or
liabilities (or actions or proceedings, whether commenced or threatened,
in respect thereof) that arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in
any registration statement under which such Registrable Securities were
registered under the Securities Act pursuant to the terms of this
Agreement, any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or
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<PAGE>
supplement thereto, or any omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein in light of the circumstances in which they were made
not misleading, or any violation or alleged violation by the Company of
any securities law and the Company will reimburse such Selling Holder
and each such agent or affiliate, underwriter and controlling person for
any legal or any other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim,
liability, action or proceeding; provided, that the Company shall not be
liable in any such case to the extent that any such loss, claim, damage,
liability (or action or proceeding in respect thereof) or expense arises
out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in such registration statement, any
such preliminary prospectus, final prospectus, summary prospectus,
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by or on behalf of such Selling
Holder or underwriter by an agent or representative thereof, as the case
may be, and provided, further, that the Company shall not be liable to
any Person who participates as an underwriter in the offering or sale of
Registrable Securities or any other Person, if any, who controls such
underwriter within the meaning of the Securities Act, in any such case
to the extent that any such loss, claim, damage, liability (or action or
proceeding in respect thereof) or expense arises out of such Person's
failure to send or give a copy of the final prospectus, as the same may
be then supplemented or amended, to the Person asserting an untrue
statement or alleged untrue statement or omission or alleged omission at
or prior to the written confirmation of the sale of Registrable
Securities to such Person if such statement or omission was corrected in
such final prospectus so long as such final prospectus, and any
amendments or supplements thereto, have been furnished to such
underwriter. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Selling
Holder or any such agent or affiliate or controlling person and shall
survive the transfer of such securities by such Selling Holder.
(b) Indemnification by the Selling Holders. Each Selling Holder jointly
and severally agrees to indemnify and hold harmless, as a condition to
including any Registrable Securities in any registration statement (in
the same manner and to the same extent as set forth in Section 1.12(a)),
the Company, each officer, director, employee, agent or affiliate of the
Company and each other Person, if any, who controls the Company within
the meaning of the Securities Act with respect to any statement or
alleged statement in or omission or alleged omission from such
registration statement, any preliminary prospectus, final prospectus or
summary prospectus contained therein, or any amendment or supplement
thereto, if such statement or alleged statement or omission or alleged
omission was
-10-
<PAGE>
made in reliance upon and in conformity with written information
furnished to the Company by or on behalf of such Selling Holder or an
agent or representative thereof expressly for use in connection with
such registration. Such indemnity shall remain in full force and effect,
regardless of any investigation made by or on behalf of the Company or
any such director, officer, employee, agent or affiliate or controlling
person and shall survive the transfer of such securities by such Selling
Holder.
(c) Notices of Claims, etc. Promptly after receipt by an indemnified
party of notice of the commencement of any action or proceeding
involving a claim referred to in the preceding subsections of this
Section 1.12, such indemnified party will, if a claim in respect thereof
is to be made against an indemnifying party, give written notice to the
latter of the commencement of such action; provided, however, that the
failure of any indemnified party to give prompt written notice as
provided herein shall not relieve the indemnifying party of its
obligations under the preceding subsections of this Section 1.12, except
to the extent that the indemnifying party is actually prejudiced by such
failure to give notice. In case any such action is brought against a
party (but not if, in such indemnified party's reasonable judgment, a
conflict of interest between such indemnified and indemnifying parties
exists in respect of such claim), the indemnifying party shall be
entitled to participate in and, to assume the defense thereof, jointly
with any other indemnifying party similarly notified to the extent that
it may wish, with counsel reasonably satisfactory to such indemnified
party. After such notice from the indemnifying party to such indemnified
party of its election to assume the defense of such matter, the
indemnifying party shall not be liable to the indemnified party for any
legal or other expenses subsequently incurred by the latter in
connection with the defense thereof other than reasonable costs of
investigation and of liaison (unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties arises or could arise in respect of such claim
after the assumption of the defense thereof). No indemnifying party
shall be liable for any settlement of any action or proceeding effected
without its written consent, which consent shall not be unreasonably
withheld. No indemnifying party shall, without the consent of the
indemnified party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a
release from all liability in respect to such claim or litigation.
(d) Contribution. If the indemnification provided for in this Section
1.12 shall for any reason be held by a court to be unavailable to an
indemnified party under subsection (a) or (b) hereof in respect of any
loss, claim,
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<PAGE>
damage or liability, or any action in respect thereof, then, in lieu of
the amount paid or payable under subsection (a) or (b) hereof, the
indemnified party and the indemnifying party under subsection (a) or (b)
hereof shall contribute to the aggregate losses, claims, damages and
liabilities (including legal or other expenses reasonably incurred in
connection with investigating the same), (i) in such proportion as is
appropriate to reflect the relative fault of the Company and the
prospective sellers of Registrable Securities covered by the
registration statement which resulted in such loss, claims, damage or
liability, or action in respect thereof, with respect to the statements
or omissions which resulted in such loss, claim, damage or liability, or
action in respect thereof, as well as any other relevant equitable
considerations or (ii) if the allocation provided by clause (i) above is
not permitted by applicable law, in such proportion as shall be
appropriate to reflect the relative benefits received by the Company and
such prospective sellers from the offering of the securities covered by
such registration statement. The relative fault of the indemnifying
party and of the indemnified party shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or the omission to state a material fact relates to
information supplied by the indemnifying party or by the indemnified
party and the parties' relative intent, knowledge, access to
information, and opportunity to correct or prevent such statement or
omission. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation. Such Selling Holders' obligations to contribute as
provided in this subsection (d) are several in proportion to the
relative value of their respective Registrable Securities covered by
such registration statement and are not joint. In addition, no Person
shall be obligated to contribute hereunder any amounts in payment for
any settlement of any action or claim effected without such Person's
consent, which consent shall not be unreasonably withheld.
(e) Other Indemnification. Indemnification and contribution similar to
that specified in the preceding subsections of this Section 1.12 (with
appropriate modifications) shall be given by the Company and each
Selling Holder with respect to any required registration or other
qualification of securities under any federal or state law or regulation
of any governmental authority other than the Securities Act.
(f) Indemnification Payments. The indemnification and contribution
required by this Section 1.12 shall be made by periodic payments of the
amount thereof during the course of the investigation or defense, as and
when bills are received or expense, loss, damage or liability is
incurred.
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<PAGE>
1.13. No Obligation to Register if Exemptions Apply. The Company shall not
be required to effect any registration of Registrable Securities pursuant to
Section 1.1 or Section 1.2 hereof if it shall deliver to the Holder or
Holders requesting such registration an opinion of counsel in form
reasonably satisfactory to such Holder to the effect that all such
Registrable Securities held by such Holder may be sold in the public market
at any time without registration under the Securities Act (e.g., pursuant to
Rule 144) or any applicable State securities laws and without any
limitations on subsequent resale by the purchasers of such shares.
1.14. Certain Events. Each Selling Holder agrees that upon receipt of any
notice from the Company of the happening of any event of the kind described
in Section 1.3(f), such Selling Holder will forthwith discontinue such
Selling Holder's disposition of Registrable Securities pursuant to the
registration statement relating to such Registrable Securities until such
Selling Holder's receipt of the copies of the supplemented or amended
prospectus contemplated by Section 1.3(f) and, if so directed by the
Company, will deliver to the Company all copies, other than permanent file
copies, then in such Selling Holder's possession, of the prospectus relating
to such Registrable Securities current at the time of receipt of such
notice.
2. Registrable Securities.
As to any particular Registrable Securities, such securities shall cease to be
Registrable Securities when (a) a registration statement with respect to the
sale of such securities shall have become effective under the Securities Act and
such securities shall have been sold or transferred in accordance with such
registration statement, (b) they shall have been sold as permitted by, and in
compliance with, Rule 144 or Rule 145 (or successor provisions) promulgated
under the Securities Act, (c) they shall have been otherwise transferred, new
certificates for them not bearing a legend restricting further transfer under
the Securities Act shall have been delivered by the Company and subsequent
public distribution of them shall not require registration of them under the
Securities Act, or (d) they shall have ceased to be outstanding.
3. Company Compliance with Rule 144.
The Company shall take all actions reasonably necessary to enable Holders to
sell such securities without registration under the Securities Act within the
limitation of the exemptions provided by (a) Rule 144 under the Securities Act,
as such Rule may be amended from time to time, or (b) any similar rule or
regulation hereafter adopted by the Commission including, without limiting the
generality of the foregoing, filing on a timely basis all reports required to be
filed by the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder (the "Exchange Act").
-13-
<PAGE>
4. Amendments.
This Agreement constitutes the entire agreement of the parties with respect to
the subject matter hereof and may not be modified or amended except in writing.
5. Notices.
All communications (including notices and requests) provided for or required in
this Agreement shall (a) be sent by (i) courier or other overnight delivery
service (such as FedEx), (ii) hand delivery with signed receipt of delivery, or
(iii) facsimile if expressly permitted, followed by delivery pursuant to (i) or
(ii) above, and (b) be addressed as follows:
(x) if to the Holders, addressed to them in the manner set forth in
Schedule A hereto, or at such other address as he, she or it shall
have furnished to the Company in writing;
(y) if to the Company, addressed to it as follows:
Independence Brewing Company, Inc.
1000 East Comly Street
Philadelphia, Pennsylvania 19149
Attention: Robert W. Connor, Jr., President
or at such other address as the Company shall have furnished to each
Holder at such time outstanding.
6. Assignment; Binding Agreement.
This Agreement is not assignable by any Holder except (i) upon death by will or
by laws of descent and distribution or (ii) upon assignment, transfer or sale of
the Registrable Securities by a Holder in compliance with applicable federal and
state securities laws, as evidenced by appropriate and customary documentation
and opinion of legal counsel reasonably satisfactory to the Company. This
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the parties hereto and, with respect to the Company, its respective
successors and, with respect to the Holders, any heirs or permitted assigns of
them.
7. Descriptive Headings.
The descriptive headings of the several sections and paragraphs of this
Agreement are inserted for reference only and shall not limit or otherwise
affect the meaning hereof.
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<PAGE>
8. Governing Law.
This Agreement shall be construed and enforced in accordance with, and the
rights of the parties shall be governed by, the laws of the Commonwealth of
Pennsylvania.
9. Anti-Dilution Adjustments.
In the event that any capital stock or other exchange for, or substitution of,
any Registrable Securities are issued in respect of, in exchange for, or in
substitution of, any Registrable Securities by reason of any reorganization,
recapitalization, reclassification, merger, consolidation, spin-off, partial or
complete liquidation, stock dividend, split-up, sale of assets, distribution to
stockholders or combination of the shares of Registrable Securities or any other
change in the Company's capital structure, appropriate adjustments shall be made
in this Agreement so as to fairly and equitably preserve, as far as practicable
but not in conflict with the Company's Articles of Incorporation (which
establishes the Common Stock), the original rights and obligations of the
parties hereto under this Agreement.
10. Severability.
The invalidity or unenforceability of any provision of this Agreement, as
determined by a court of competent jurisdiction, shall in no way affect the
validity or enforceability of any other provision hereof.
11. Joint Preparation.
This Agreement shall be deemed to have been jointly prepared by the parties
thereto, and no ambiguity herein shall be construed against any party hereto
based upon the identity of the author of this Agreement or any portion hereof.
13. Counterparts.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original, but all such counterparts shall together constitute
one and the same instrument. This Agreement shall be immediately effective and
shall become binding with respect to any given Holder and the Company upon the
execution of this Agreement in one or more counterparts by such Holder and the
Company, regardless of whether any other Holder exercises this Agreement or a
counterpart thereof.
-15-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement personally
or by persons thereunto duly authorized, as of the day and year first above
written.
COMPANY:
INDEPENDENCE BREWING
COMPANY
By:/s/ ROBERT W. CONNOR, JR.
---------------------------------------
Robert W. Connor, Jr., President
HOLDERS:
WINFIELD CAPITAL CORP.
By:/s/ PAUL A. PERLIN
---------------------------------------
Paul A. Perlin, Chief Executive Officer
/s/ JACQUES DESAINT PHALLE
---------------------------------------
Jacques deSaint Phalle
/s/ LEO NOLAN
---------------------------------------
Leo Nolan
/s/ ROBERT W. CONNOR, M.D.
---------------------------------------
Robert W. Connor, M.D.
Donaldson, Lufkin & Jenrette Securities
Corporation (TIN 13-2741729)
Custodian F/B/O Matthew Giuffrida /s/ MATTHEW GIUFFRIDA
Account No. 4cc 713989-1 ---------------------------------------
Matthew Giuffrida
By: /s/ BELINDA FAULKNOR for
------------------------------------
Title: Custodian
---------------------------------
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<PAGE>
/s/ THADDEUS NOWINSKI, M.D.
---------------------------------------
Thaddeus Nowinski, M.D.
/s/ LOUIS SCHWARTZ, M.D.
---------------------------------------
Louis Schwartz, M.D.
/s/ MICHAEL THOMPSON
---------------------------------------
Michael Thompson
---------------------------------------
---------------------------------------
---------------------------------------
---------------------------------------
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<PAGE>
Schedule A
HOLDERS
Winfield Capital Corp.
237 Mamaroneck Avenue
White Plains, New York 10605
Attn: Paul A. Perlin, Chief Executive Officer
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-19-
EXHIBIT 10.19
REGISTRATION RIGHTS AGREEMENT
(Series B Warrants)
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made
as of the 12th day of August, 1996, by and between INDEPENDENCE BREWING COMPANY,
a Pennsylvania corporation (the "Company"), and WINFIELD CAPITAL CORP, a New
York corporation (Winfield and its successors constituting the "Holder" or
"Holders").
RECITALS
WHEREAS, pursuant to the Securities Purchase Agreement dated
as of August 12, 1996 by and among the Company, the Holder and certain other
parties (the "Acquisition Agreement"), the Company has, among other things,
issued to the Holder Series B Warrants (as defined in the Acquisition Agreement)
(the "Warrants") which entitle the Holder to purchase shares of the voting
common stock (the "Common Stock") of the Company (collectively, such warrants
being the "Registrable Securities"); and
WHEREAS, in order to induce the Holder to enter into the
Acquisition Agreement, the Company wishes to provide the Holder with certain
registration rights with respect to the Registrable Securities.
NOW, THEREFORE, in consideration of the mutual covenants and
undertakings contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, and subject to and
on the terms and conditions herein set forth, the parties hereto agree as
follows:
1. Registration Under Securities Act.
1.1 Registration on Request. At any time after the effective date of the
first registration statement for a public offering of securities of the
Company (other than a registration statement solely for registration of
securities in connection with (i) an employee benefit or stock or option
plan or dividend reinvestment plan, (ii) a merger or consolidation or
(iii) debt securities which are not convertible into or exchangeable for
Common Stock) (the "Registration Rights Period"), upon delivery to the
Company of a written request ("Request") from any Holder or Holders of
Registrable Securities (the "Initiating Holders") that the Company effect
the registration under the Securities Act of 1933, as
<PAGE>
amended, and the rules and regulations promulgated thereunder (the
"Securities Act") of all or any portion of the shares of Registrable
Securities held by the Holders, provided that, the aggregate number of
shares of Registrable Securities for which registration has been requested
shall be at least thirty percent 30% of the shares of Registrable Securities
then outstanding, the Company will use its best efforts to effect the
registration under the Securities Act of such Registrable Securities. Within
ten (10) days after receipt of any such request from the Initiating Holders,
the Company shall give written notice of such requested registration to all
other Holders of Registrable Securities and shall include in such
registration (subject to Section 1.7(c) and Section 1.13) all Registrable
Securities with respect to which the Company has received written request
for inclusion therein within fifteen (15) days after the receipt of the
notice of the Company.
After the Company has effected two registrations pursuant to this Section
1.1 and such registrations have each been declared or ordered effective,
and, if the method of disposition of Registrable Securities is a firm
commitment underwriting or best efforts public offering, 90% of the
Registrable Securities covered by the registration statement shall have been
sold pursuant thereto, the Company shall not be obligated to effect, or take
any action to effect, any registration pursuant to this Section 1.1.
1.2 Incidental Registration. If the Company (including for this purpose a
registration effected by the Company for shareholders other than the
Holders) proposes to register any shares of its Common Stock or any warrants
under the Securities Act by registration on Forms S-1, S- 2 or S-3 or any
successor or similar form(s) (except registrations on such Forms or similar
form(s) solely for registration of securities in connection with (i) an
employee benefit or stock or option plan or dividend investment plan, (ii) a
merger or consolidation or (iii) debt securities which are not convertible
into or exchangeable for Common Stock), whether or not for sale for its own
account, it will, subject to Section 1.13 hereof, give prompt written notice
each time the Company proposes to so register shares to the Holders of its
intention to do so and of Holders' rights under this Section 1.2, the date
of delivery of such notice being the "Piggyback Notice Date." Each Holder
shall have twenty (20) days after the Piggyback Notice Date (the "Piggyback
Reply Period") to deliver a written notice to the Company requesting
registration of any of the Registrable Securities held by it (a "Notice of
Participation"). If the Company does not receive from any Holder a Notice of
Participation by the end of the Piggyback Reply Period, such Holder shall be
deemed to have waived its rights to register shares as part of the subject
registration statement and the Company shall have no obligation whatsoever
to register the Holder's Registrable Securities as part of the subject
registration statement. After the end of the Piggyback Reply Period, the
Company will, subject to Section 1.13 hereof, use its best efforts to effect
the registration under the Securities Act of all Registrable Securities
which have been requested to be registered by the Holders who have properly
tendered a Notice of Participation ("Requesting Holders"), provided,
however, that if, at any time after giving written notice of its intention
to register any securities and prior to the effective date of the
registration statement filed in connection with such registration, the
Company shall determine for any reason not to register or to delay
registration of such securities, the Company may, at its election, give
written notice of such
-2-
<PAGE>
determination to each Requesting Holder of Registrable Securities and (i) in
the case of a determination not to register, shall be relieved of its
obligation to register any Registrable Securities in connection with such
registration (but not from any obligation of the Company to pay the
Registration Expenses, as defined below, in connection therewith), without
prejudice, however, to the rights of any Holder to request that other
registrations be effected under this Agreement and (ii) in the case of a
determination to delay registering, shall be permitted to delay registering
any Registrable Securities, for the same period as the delay in registering
such other securities.
1.3 Registration Procedures. If and whenever the Company is required to use
its best efforts to effect the registration of any Registrable Securities
under the Securities Act as provided in Sections 1.1 and 1.2, the Company
will expeditiously:
(a) prepare (as soon as practicable after the date the Request is
delivered or Piggyback Reply Period expires, as the case may be, and in
any event within sixty (60) days after such date in the case of a
registration on Forms S-1 or S-2 and forty-five (45) days after such
date in the case of a registration on Form S-3) and file with the
Securities and Exchange Commission or any successor entity thereof
("Commission") the requisite registration statement to effect such
registration and thereafter use its best efforts to cause such
registration statement to become effective and to remain effective for
up to 120 days or until the distribution contemplated by the
registration statement has been completed;
(b) prepare and file with the Commission such amendments and supplements
to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement
effective and to comply with the provisions of the Securities Act with
respect to the disposition of all Registrable Securities covered by such
registration statement for such period as shall be required for the
disposition of all of such Registrable Securities, provided, that, such
period shall not exceed one hundred twenty (120) days;
(c) furnish to each Holder who has properly notified the Company of its
participation in the registration and is selling Registrable Securities
covered thereunder (a "Selling Holder"), such number of conformed copies
of such registration statement and of each such amendment and supplement
thereto (in each case including all exhibits), such number of copies of
the prospectus contained in such registration statement (including each
preliminary prospectus and any summary prospectus) and any other
prospectus filed under Rule 424 under the Securities Act, in conformity
with the requirements of the Securities Act, and such other documents,
as such Selling Holder may reasonably request;
-3-
<PAGE>
(d) use its best efforts (x) to register or qualify all Registrable
Securities covered by such registration statement under such other
securities or blue sky laws of such States of the United States of
America where an exemption is not available and as the Selling Holder
shall reasonably request, (y) to keep such registration or qualification
in effect for so long as such registration statement remains in effect,
and (z) to take any other action which may be reasonably necessary or
advisable to enable the Selling Holders to consummate the disposition in
such jurisdictions of the Registrable Securities to be sold by the
Selling Holders, except that the Company shall not for any such purpose
be required to qualify generally to do business as a foreign corporation
in any jurisdiction wherein it would not but for the requirements of
this subsection (d) be obligated to be so qualified or to consent to
general service of process in any such jurisdiction;
(e) use its best efforts to cause all Registrable Securities covered by
such registration statement to be registered with or approved by such
other federal or state governmental agencies or authorities as may be
reasonably necessary in the opinion of counsel to the Company and
counsel to Selling Holders thereof to consummate the disposition of such
Registrable Securities;
(f) notify the Selling Holders at any time when a prospectus included in
the registration statement relating to the Registrable Securities and
required to be delivered to offerees or purchasers under the Securities
Act, is discovered to, or upon the happening of any event is reasonably
believed to, as then in effect, 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 not misleading, in
the light of the circumstances under which they were made, and at the
request of the Selling Holders promptly prepare and furnish to it a
reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such securities, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact
required to be stated thereon or necessary to make the statements
therein not misleading in the light of the circumstances under which
they were made;
(g) otherwise use its best efforts to comply with all applicable rules
and regulations of the Commission, and make available to its security
holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve months, but not more than
eighteen months, beginning with the first full calendar month after the
effective date of such registration statement,
-4-
<PAGE>
which earnings statement shall satisfy the provisions of Section 11(a)
of the Securities Act and Rule 158 promulgated thereunder, and promptly
furnish to the Selling Holder a copy of any amendment or supplement to
such registration statement or prospectus;
(h) provide and cause to be maintained a transfer agent and registrar
(which, in each case, may be the Company) for all Registrable Securities
covered by such registration statement from and after a date not later
than the effective date of such registration; and
(i) use its best efforts to list all Registrable Securities covered by
such registration statement on any national securities exchange on which
Registrable Securities of the same class covered by such registration
statement are then listed.
1.4 Registration Statement Form; Information.
(a) Registration under Section 1.1 and Section 1.2 shall be on such
appropriate form of the Commission as shall be selected by the Company
with advice of its legal counsel.
(b) The Company agrees to include in any such registration statement all
information, which, in the reasonable opinions of counsel to the Selling
Holders and counsel to the Company, is required to be included.
(c) From time to time, the Company may request the Selling Holders to
furnish, and upon such request the Selling Holders shall promptly and
diligently furnish to the Company, such information regarding the
Selling Holder and the distribution of the Selling Holders' Registrable
Securities and other securities of the Company. Any such information so
provided to the Company shall be deemed certified by the Selling Holders
to be correct and complete.
1.5 Expenses.
(a) All expenses incurred by the Company in complying with Section 1.1
or Section 1.2 hereof, including, without limitation, all registration
and filing fees, printing expenses, fees and disbursements of counsel
and independent public accountants for the Company, fees of the National
Association of Securities Dealers, Inc., transfer taxes, fees of
transfer agents and registrars and costs of insurance, but excluding any
Selling Expenses, are herein called "Registration Expenses." All
underwriting discounts and selling commissions applicable to the sale of
Registrable Securities are herein called "Selling Expenses."
-5-
<PAGE>
(b) The Company will pay all Registration Expenses in connection with
any registration statement filed pursuant to Section 1.1 or Section 1.2
hereof. All Selling Expenses in connection with any registration
statement filed pursuant to Section 1.1 or Section 1.2 hereof shall be
borne by the Selling Holders and the Company in proportion to the number
of shares sold by each, or by such persons other than the Company
(except to the extent the Company shall be a seller), as they may agree.
1.6 Effective Registration Statement. A registration requested pursuant to
Section 1.1 or Section 1.2 shall not be deemed to have been effected
(a) unless a registration statement with respect thereto has become
effective, (b) if after it has become effective, such registration is
interfered with by any stop order, injunction or other order or requirement
of the Commission or other governmental agency or court for any reason not
attributable to the Selling Holders and has not thereafter become effective,
or (c) if the conditions to closing specified in the underwriting agreement,
if any, entered into in connection with such registration are not satisfied
or waived, other than by reason of a failure on the part of the Selling
Holders.
1.7 Requested Underwritten Offerings.
(a) Selection of Underwriter(s). In a requested registration under
Section 1.1, the Selling Holders may collectively elect to sell their
Registrable Securities to an underwriter in an underwritten offering
(a "Requested Underwritten Offering"). The underwriter or underwriters
of a Requested Underwritten Offering shall be selected by the Selling
Holders holding at least fifty-one percent (51%) of the Registrable
Securities for which registration is requested. Any selected underwriter
must be a firm reasonably satisfactory to the Company, provided that a
firm shall be conclusively satisfactory to the Company if it has
previously effected a registration of any securities of the Company.
(b) Underwriting Agreement. If requested by the underwriters for any
Requested Underwritten Offering, the Company will enter into an
underwriting agreement with such underwriters for such Offering, such
agreement to be reasonably satisfactory in substance and form to the
Company, each Selling Holder and the underwriters and to contain such
representations and warranties by the Company, each Selling Holder and
the underwriters and such other terms as are generally prevailing in
agreements of that type, including, without limitation, indemnities to
the effect and to the extent provided in Section 1.12. The
-6-
<PAGE>
Selling Holders will cooperate with the Company and Company legal
counsel in the negotiation of the underwriting agreement and will give
due consideration to the reasonable suggestions of the Company regarding
the form and contents thereof. Such Selling Holders shall be parties to
such underwriting agreement.
(c) Priority in Requested Registration. If the managing underwriter of
any Requested Underwritten Offering shall advise the Company in writing
(with a copy to each Selling Holder) that, in its sole discretion the
number of securities requested to be included in such registration is
too high, the Company and the Selling Holders agree to decrease the
number of shares of Registrable Securities to be included in such
registration to the number of shares of Registrable Securities which the
Company is so advised can be sold in such Offering, with such decrease
to be effected first among all other holders of securities of the
Company who have received from the Company any rights to participate in
such Requested Underwritten Offering, and only thereafter, to the extent
necessary, with respect to the Selling Holders pro rata among such
Selling Holders on the basis of their comparative ownership of
Registrable Securities which have been requested to be so registered.
1.8 Incidental Underwritten Offerings.
(a) Selection of Underwriter(s). If the Company proposes to register any
shares of its warrants which are similar to the Warrants or any shares
of its Common Stock under the Securities Act as contemplated by Section
1.2 and such shares are to be sold to, and distributed by or through one
or more underwriters, the Company will, subject to Section 1.8(c) hereof
and if so requested by any Selling Holder requesting to be included in
such registration under Section 1.2, arrange for such underwriters to
include the Registrable Securities requested to be offered and sold by
such Selling Holders among the securities of the Company to be
distributed by such underwriters (such offering, a "Piggyback
Underwritten Offering"). The selection of such underwriter or
underwriters for a Piggyback Underwritten Offering shall be made by the
Company in its sole discretion.
(b) Underwriting Agreement. The underwriting agreement regarding a
Piggyback Underwritten Offering shall be reasonably satisfactory in
substance and form to the Company, each Selling Holder thereunder and
the underwriters and contain such representations and warranties by the
Company, each Selling Holder thereunder and the underwriters and such
other terms as are generally prevailing in agreements of that type,
including, without limitations, indemnities to the effect and to the
extent provided in Section 1.12. The Selling Holders involved in the
Piggyback Underwritten Offering will cooperate with the Company and
Company legal counsel in the negotiation of the underwriting agreement
and will defer to the reasonable suggestions of the company regarding
the form and contents thereof. Such Selling Holders shall be parties to
the underwriting agreement between the Company and such underwriters.
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<PAGE>
(c) Priority in Incidental Registrations. If the managing underwriter of
any Piggyback Underwritten Offering shall inform the Company in writing
of its belief that the number of Registrable Securities requested to be
included in such registration would materially and adversely affect such
Offering, then the Company will include in such registration to the
extent of the number which the Company is so advised can be sold in (or
during the time of) such Offering (such number, the "Decreased Offering
Amount"), first, all shares of Common Stock proposed by the Company to
be sold for its own account (the "Company Share Amount") and second, the
number of the Registrable Securities requested to be included in such
registration equal to the Decreased Offering Amount minus the Company
Share Amount, such decrease to be effected first among all other holders
of securities of the Company who have received from the Company any
rights to participate in such Requested Underwritten Offering, and only
thereafter, to the extent necessary, with respect to the Selling Holders
pro rata among such Selling Holders on the basis of their comparative
ownership of Registrable Securities which have been requested to be so
registered.
1.9 Holdback Agreements. In connection with any registration under Section
1.1 hereof, the Company will obtain agreements from each holder of five
percent (5%) or more of its Common Stock, or any securities convertible into
or exercisable into or exchangeable for its Common Stock, that such holder
will not sell or otherwise dispose of any such securities (other than those
included in such registration) during a period of 120 days beginning on the
effective date of any such registration, without first obtaining the written
consent of the managing underwriter of such offering.
1.10. Reasonable Investigation. In connection with the preparation and
filing of each registration statement under the Securities Act pursuant to
this Agreement and upon execution and delivery of appropriate and customary
confidentiality agreements, the Company will give the Selling Holders, their
underwriters, if any, and their respective counsel and accountants the
opportunity to participate in the preparation of such registration
statements, each prospectus included therein or filed with the Commission,
and, to the extent practicable, each amendment thereof or supplement
thereto, and give each of them such access to its books and records (to the
extent customarily given to underwriters of the company's securities) and
such opportunities to discuss the business of the Company with its officers
and the independent public accountants who have certified its financial
statements as shall be necessary, in the opinion of such Holders' and such
underwriters' respective counsel, to conduct a reasonable investigation
within the meaning of the Securities Act.
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<PAGE>
1.11. Postponement of Registration. The obligations of the Company under
Section 1.1 and Section 1.2 to use its best efforts to cause the Registrable
Securities to be registered under the Securities Act are subject to the
limitation, condition and qualification that the Company shall be entitled
to postpone for a reasonable period of time (but not exceeding 90 days) the
filing of any registration statement otherwise required to be prepared and
filed by it pursuant to Section 1.1 or Section 1.2 if the Company furnishes
to the Selling Holders a certificate signed by the Chief Executive Officer
of the Company stating that in the good faith judgment of the Board of
Directors of the Company, it would be seriously detrimental to the Company
and its shareholders for such registration statement to be filed and it is
therefore essential to defer the filing of such registration statement,
providing a general statement of the reasons for such postponement and an
approximation of the anticipated delay, provided that the Company may not
use this right to postpone registration pursuant to Section 1.1 more than
once in any twelve-month period.
1.12. Indemnification.
(a) Indemnification by the Company. In the event of any registration of
any securities of the Company under the Securities Act, the Company
will, and hereby does, indemnify and hold harmless, in the case of any
registration statement filed pursuant to Section 1.1 or 1.2, each
Selling Holder, his or her agents and affiliates and each other Person
("Person" includes a corporation, an association, a partnership, an
organization, a business, an individual, a governmental or political
subdivision thereof or a governmental agency) who participates as an
underwriter in the offering or sale of such Registrable Securities and
any other Person, if any, who controls such underwriter within the
meaning of the Securities Act against any losses, claims, damages or
liabilities (or actions or proceedings, whether commenced or threatened,
in respect thereof) that arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in
any registration statement under which such Registrable Securities were
registered under the Securities Act pursuant to the terms of this
Agreement, any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto, or
any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein in light of the circumstances in which they were made not
misleading, or any violation or alleged violation by the Company of any
securities law and the Company will reimburse such Selling Holder and
each such agent or affiliate, underwriter and controlling person for any
legal or any other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, liability, action
or proceeding; provided, that the Company shall not be liable in any
such case to the extent that any such loss, claim, damage, liability (or
action or proceeding in respect thereof) or expense arises out of or is
based upon an untrue statement or alleged untrue statement or omission
or alleged omission made in such registration statement, any such
preliminary prospectus, final prospectus, summary prospectus, amendment
or supplement in reliance upon and in
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<PAGE>
conformity with written information furnished to the Company by or on
behalf of such Selling Holder or underwriter by an agent or
representative thereof, as the case may be, and provided, further, that
the Company shall not be liable to any Person who participates as an
underwriter in the offering or sale of Registrable Securities or any
other Person, if any, who controls such underwriter within the meaning
of the Securities Act, in any such case to the extent that any such
loss, claim, damage, liability (or action or proceeding in respect
thereof) or expense arises out of such Person's failure to send or give
a copy of the final prospectus, as the same may be then supplemented or
amended, to the Person asserting an untrue statement or alleged untrue
statement or omission or alleged omission at or prior to the written
confirmation of the sale of Registrable Securities to such Person if
such statement or omission was corrected in such final prospectus so
long as such final prospectus, and any amendments or supplements
thereto, have been furnished to such underwriter. Such indemnity shall
remain in full force and effect regardless of any investigation made by
or on behalf of such Selling Holder or any such agent or affiliate or
controlling person and shall survive the transfer of such securities by
such Selling Holder.
(b) Indemnification by the Selling Holders. Each Selling Holder jointly
and severally agrees to indemnify and hold harmless, as a condition to
including any Registrable Securities in any registration statement (in
the same manner and to the same extent as set forth in Section 1.12(a)),
the Company, each officer, director, employee, agent or affiliate of the
Company and each other Person, if any, who controls the Company within
the meaning of the Securities Act with respect to any statement or
alleged statement in or omission or alleged omission from such
registration statement, any preliminary prospectus, final prospectus or
summary prospectus contained therein, or any amendment or supplement
thereto, if such statement or alleged 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 Selling
Holder or an agent or representative thereof expressly for use in
connection with such registration. Such indemnity shall remain in full
force and effect, regardless of any investigation made by or on behalf
of the Company or any such director, officer, employee, agent or
affiliate or controlling person and shall survive the transfer of such
securities by such Selling Holder.
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<PAGE>
(c) Notices of Claims, etc. Promptly after receipt by an indemnified
party of notice of the commencement of any action or proceeding
involving a claim referred to in the preceding subsections of this
Section 1.12, such indemnified party will, if a claim in respect thereof
is to be made against an indemnifying party, give written notice to the
latter of the commencement of such action; provided, however, that the
failure of any indemnified party to give prompt written notice as
provided herein shall not relieve the indemnifying party of its
obligations under the preceding subsections of this Section 1.12, except
to the extent that the indemnifying party is actually prejudiced by such
failure to give notice. In case any such action is brought against a
party (but not if, in such indemnified party's reasonable judgment, a
conflict of interest between such indemnified and indemnifying parties
exists in respect of such claim), the indemnifying party shall be
entitled to participate in and, to assume the defense thereof, jointly
with any other indemnifying party similarly notified to the extent that
it may wish, with counsel reasonably satisfactory to such indemnified
party. After such notice from the indemnifying party to such indemnified
party of its election to assume the defense of such matter, the
indemnifying party shall not be liable to the indemnified party for any
legal or other expenses subsequently incurred by the latter in
connection with the defense thereof other than reasonable costs of
investigation and of liaison (unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties arises or could arise in respect of such claim
after the assumption of the defense thereof). No indemnifying party
shall be liable for any settlement of any action or proceeding effected
without its written consent, which consent shall not be unreasonably
withheld. No indemnifying party shall, without the consent of the
indemnified party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a
release from all liability in respect to such claim or litigation.
(d) Contribution. If the indemnification provided for in this Section
1.12 shall for any reason be held by a court to be unavailable to an
indemnified party under subsection (a) or (b) hereof in respect of any
loss, claim, damage or liability, or any action in respect thereof,
then, in lieu of the amount paid or payable under subsection (a) or
(b) hereof, the indemnified party and the indemnifying party under
subsection (a) or (b) hereof shall contribute to the aggregate losses,
claims, damages and liabilities (including legal or other expenses
reasonably incurred in connection with investigating the same), (i) in
such proportion as is appropriate to reflect the relative fault of the
Company and the prospective sellers of Registrable Securities covered by
the registration statement which resulted in such loss, claims, damage
or liability, or action in respect thereof, with respect
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<PAGE>
to the statements or omissions which resulted in such loss, claim,
damage or liability, or action in respect thereof, as well as any other
relevant equitable considerations or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion
as shall be appropriate to reflect the relative benefits received by the
Company and such prospective sellers from the offering of the securities
covered by such registration statement. The relative fault of the
indemnifying party and of the indemnified party shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact
relates to information supplied by the indemnifying party or by the
indemnified party and the parties' relative intent, knowledge, access to
information, and opportunity to correct or prevent such statement or
omission. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation. Such Selling Holders' obligations to contribute as
provided in this subsection (d) are several in proportion to the
relative value of their respective Registrable Securities covered by
such registration statement and are not joint. In addition, no Person
shall be obligated to contribute hereunder any amounts in payment for
any settlement of any action or claim effected without such Person's
consent, which consent shall not be unreasonably withheld.
(e) Other Indemnification. Indemnification and contribution similar to
that specified in the preceding subsections of this Section 1.12 (with
appropriate modifications) shall be given by the Company and each
Selling Holder with respect to any required registration or other
qualification of securities under any federal or state law or regulation
of any governmental authority other than the Securities Act.
(f) Indemnification Payments. The indemnification and contribution
required by this Section 1.12 shall be made by periodic payments of the
amount thereof during the course of the investigation or defense, as and
when bills are received or expense, loss, damage or liability is
incurred.
1.13. No Obligation to Register if Exemptions Apply. The Company shall not
be required to effect any registration of Registrable Securities pursuant to
Section 1.1 or Section 1.2 hereof if it shall deliver to the Holder or
Holders requesting such registration an opinion of counsel in form
reasonably satisfactory to such Holder to the effect that all such
Registrable Securities held by such Holder may be sold in the public market
at any time without registration under the Securities Act (e.g., pursuant to
Rule 144) or any applicable State securities laws and without any
limitations on subsequent resale by the purchasers of such shares.
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<PAGE>
1.14. Certain Events. Each Selling Holder agrees that upon receipt of any
notice from the Company of the happening of any event of the kind described
in Section 1.3(f), such Selling Holder will forthwith discontinue such
Selling Holder's disposition of Registrable Securities pursuant to the
registration statement relating to such Registrable Securities until such
Selling Holder's receipt of the copies of the supplemented or amended
prospectus contemplated by Section 1.3(f) and, if so directed by the
Company, will deliver to the Company all copies, other than permanent file
copies, then in such Selling Holder's possession, of the prospectus relating
to such Registrable Securities current at the time of receipt of such
notice.
2. Registrable Securities.
As to any particular Registrable Securities, such securities shall cease to be
Registrable Securities when (a) a registration statement with respect to the
sale of such securities shall have become effective under the Securities Act and
such securities shall have been sold or transferred in accordance with such
registration statement, (b) they shall have been sold as permitted by, and in
compliance with, Rule 144 or Rule 145 (or successor provisions) promulgated
under the Securities Act, (c) they shall have been otherwise transferred, new
certificates for them not bearing a legend restricting further transfer under
the Securities Act shall have been delivered by the Company and subsequent
public distribution of them shall not require registration of them under the
Securities Act, or (d) they shall have ceased to be outstanding.
3. Company Compliance with Rule 144.
The Company shall take all actions reasonably necessary to enable Holders to
sell such securities without registration under the Securities Act within the
limitation of the exemptions provided by (a) Rule 144 under the Securities Act,
as such Rule may be amended from time to time, or (b) any similar rule or
regulation hereafter adopted by the Commission including, without limiting the
generality of the foregoing, filing on a timely basis all reports required to be
filed by the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder (the "Exchange Act").
4. Amendments.
This Agreement constitutes the entire agreement of the parties with respect to
the subject matter hereof and may not be modified or amended except in writing.
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<PAGE>
5. Notices.
All communications (including notices and requests) provided for or required in
this Agreement shall (a) be sent by (i) courier or other overnight delivery
service (such as FedEx), (ii) hand delivery with signed receipt of delivery, or
(iii) facsimile if expressly permitted, followed by delivery pursuant to (i) or
(ii) above, and (b) be addressed as follows:
(x) if to the Holder, addressed to it in the manner set forth in
Schedule A hereto, or at such other address as it shall have furnished
to the Company in writing;
(y) if to the Company, addressed to it as follows:
Independence Brewing Company, Inc.
1000 East Comly Street
Philadelphia, Pennsylvania 19149
Attention: Robert W. Connor, Jr., President
or at such other address as the Company shall have furnished to each
Holder at such time outstanding.
6. Assignment; Binding Agreement.
This Agreement is not assignable by any Holder except (i) upon death by will or
by laws of descent and distribution or (ii) upon assignment, transfer or sale of
the Registrable Securities by a Holder in compliance with applicable federal and
state securities laws, as evidenced by appropriate and customary documentation
and opinion of legal counsel reasonably satisfactory to the Company. This
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the parties hereto and, with respect to the Company, its respective
successors and, with respect to the Holders, any heirs or permitted assigns of
them.
7. Descriptive Headings.
The descriptive headings of the several sections and paragraphs of this
Agreement are inserted for reference only and shall not limit or otherwise
affect the meaning hereof.
8. Governing Law.
This Agreement shall be construed and enforced in accordance with, and the
rights of the parties shall be governed by, the laws of the Commonwealth of
Pennsylvania.
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<PAGE>
9. Anti-Dilution Adjustments.
In the event that any capital stock or other exchange for, or substitution of,
any Registrable Securities are issued in respect of, in exchange for, or in
substitution of, any Registrable Securities by reason of any reorganization,
recapitalization, reclassification, merger, consolidation, spin-off, partial or
complete liquidation, stock dividend, split-up, sale of assets, distribution to
stockholders or combination of the shares of Registrable Securities or any other
change in the Company's capital structure, appropriate adjustments shall be made
in this Agreement so as to fairly and equitably preserve, as far as practicable
but not in conflict with the Company's Articles of Incorporation (which
establishes the Common Stock), the original rights and obligations of the
parties hereto under this Agreement.
10. Severability.
The invalidity or unenforceability of any provision of this Agreement, as
determined by a court of competent jurisdiction, shall in no way affect the
validity or enforceability of any other provision hereof.
11. Joint Preparation.
This Agreement shall be deemed to have been jointly prepared by the parties
thereto, and no ambiguity herein shall be construed against any party hereto
based upon the identity of the author of this Agreement or any portion hereof.
13. Counterparts.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original, but all such counterparts shall together constitute
one and the same instrument. This Agreement shall be immediately effective and
shall become binding with respect to any given Holder and the Company upon the
execution of this Agreement in one or more counterparts by such Holder and the
Company, regardless of whether any other Holder exercises this Agreement or a
counterpart thereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement personally
or by persons thereunto duly authorized, as of the day and year first above
written.
COMPANY:
INDEPENDENCE BREWING
COMPANY
By: /s/ ROBERT W. CONNOR, JR.
------------------------------
Robert W. Connor, Jr., President
15
<PAGE>
HOLDERS:
WINFIELD CAPITAL CORP.
By: /s/ PAUL A. PERLIN
---------------------------------
Paul A. Perlin,
Chief Executive Officer
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<PAGE>
Schedule A
HOLDER
Winfield Capital Corp.
237 Mamaroneck Avenue
White Plains, New York 10605
Attn: Paul A. Perlin, Chief Executive Officer
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EXHIBIT 10.20
REGISTRATION RIGHTS AGREEMENT
(Series C Warrants)
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made
as of the 12th day of August, 1996, by and between INDEPENDENCE BREWING COMPANY,
a Pennsylvania corporation (the "Company"), and WINFIELD CAPITAL CORP., a New
York corporation (Winfield and its successors constituting the "Holder").
RECITALS
WHEREAS, pursuant to the Securities Purchase Agreement dated
as of August 12, 1996 by and among the Company and the Holder (the "Acquisition
Agreement"), the Company has, among other things, issued to the Holder Series C
Warrants (as defined in that certain Securities Purchase Agreement among the
Company, the Holder and certain other parties dated as of August 12, 1996) which
entitle the Holder to purchase certain shares of the voting common stock (the
"Common Stock") of the Company as more particularly set forth in the Series C
Warrants (collectively, such shares being the "Registrable Securities"); and
WHEREAS, in order to induce the Holder to enter into the
Acquisition Agreement, the Company wishes to provide the Holder with certain
registration rights with respect to the Registrable Securities.
NOW, THEREFORE, in consideration of the mutual covenants and
undertakings contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, and subject to and
on the terms and conditions herein set forth, the parties hereto agree as
follows:
1. Registration Under Securities Act.
1.1 Registration on Request. At any time after the effective date of the
first registration statement for a public offering of securities of the
Company (other than a registration statement solely for registration of
securities in connection with (i) an employee benefit or stock or option
plan or dividend reinvestment plan, (ii) a merger or consolidation or
(iii) debt securities which are not convertible into or exchangeable for
Common Stock) (the "Registration Rights Period"), upon delivery to the
Company of a written request ("Request") from the Holder that the Company
effect the registration under the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder (the "Securities Act") of
all or any portion of the shares of Registrable Securities held by such
Holder, provided that, the aggregate number of shares of Registrable
Securities for which registration has been requested shall be at least
thirty percent 30% of the shares of Registrable Securities then outstanding,
the Company will use its best efforts to effect the registration under the
Securities Act of such Registrable Securities.
<PAGE>
After the Company has effected two registrations pursuant to this Section
1.1 and such registrations have each been declared or ordered effective,
and, if the method of disposition of Registrable Securities is a firm
commitment underwriting or best efforts public offering, 90% of the
Registrable Securities covered by the registration statement shall have been
sold pursuant thereto, the Company shall not be obligated to effect, or take
any action to effect, any registration pursuant to this Section 1.1.
1.2 Incidental Registration. If the Company (including for this purpose a
registration effected by the Company for shareholders other than the
Holders) proposes to register any shares of its Common Stock under the
Securities Act by registration on Forms S-1, S-2 or S-3 or any successor or
similar form(s) (except registrations on such Forms or similar form(s)
solely for registration of securities in connection with (i) an employee
benefit or stock or option plan or dividend investment plan, (ii) a merger
or consolidation or (iii) debt securities which are not convertible into or
exchangeable for Common Stock), whether or not for sale for its own account,
it will, subject to Section 1.13 hereof, give prompt written notice each
time the Company proposes to so register shares to the Holder of its
intention to do so and of Holder's rights under this Section 1.2, the date
of delivery of such notice being the "Piggyback Notice Date." The Holder
shall have twenty (20) days after the Piggyback Notice Date (the "Piggyback
Reply Period") to deliver a written notice to the Company requesting
registration of any of the Registrable Securities held by it (a "Notice of
Participation"). If the Company does not receive from the Holder a Notice of
Participation by the end of the Piggyback Reply Period, the Holder shall be
deemed to have waived its rights to register shares as part of the subject
registration statement and the Company shall have no obligation whatsoever
to register such Holder's Registrable Securities as part of the subject
registration statement. After the end of the Piggyback Reply Period, the
Company will, subject to Section 1.13 hereof, use its best efforts to effect
the registration under the Securities Act of all Registrable Securities
which have been requested to be registered by the Holder, provided, however,
that if, at any time after giving written notice of its intention to
register any securities and prior to the effective date of the registration
statement filed in connection with such registration, the Company shall
determine for any reason not to register or to delay registration of such
securities, the Company may, at its election, give written notice of such
determination to the Holder and (i) in the case of a determination not to
register, shall be relieved of its obligation to register any Registrable
Securities in connection with such registration (but not from any obligation
of the Company to pay the Registration Expenses, as defined below, in
connection therewith), without prejudice, however, to the rights of the
Holder to request that other registrations be effected under this Agreement
and (ii) in the case of a determination to delay registering, shall be
permitted to delay registering any Registrable Securities, for the same
period as the delay in registering such other securities.
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<PAGE>
1.3 Registration Procedures. If and whenever the Company is required to use
its best efforts to effect the registration of any Registrable Securities
under the Securities Act as provided in Sections 1.1 and 1.2, the Company
will expeditiously:
(a) prepare (as soon as practicable after the date the Request is
delivered or Piggyback Reply Period expires, as the case may be, and in
any event within sixty (60) days after such date in the case of a
registration on Forms S-1 or S-2 and forty-five (45) days after such
date in the case of a registration on Form S-3) and file with the
Securities and Exchange Commission or any successor entity thereof
("Commission") the requisite registration statement to effect such
registration and thereafter use its best efforts to cause such
registration statement to become effective and to remain effective for
up to 120 days or until the distribution contemplated by the
registration statement has been completed;
(b) prepare and file with the Commission such amendments and supplements
to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement
effective and to comply with the provisions of the Securities Act with
respect to the disposition of all Registrable Securities covered by such
registration statement for such period as shall be required for the
disposition of all of such Registrable Securities, provided, that, such
period shall not exceed one hundred twenty (120) days;
(c) furnish to the Holder if the Holder has properly notified the
Company of its participation in the registration and who is selling
Registrable Securities covered thereunder (a "Selling Holder"), such
number of conformed copies of such registration statement and of each
such amendment and supplement thereto (in each case including all
exhibits), such number of copies of the prospectus contained in such
registration statement (including each preliminary prospectus and any
summary prospectus) and any other prospectus filed under Rule 424 under
the Securities Act, in conformity with the requirements of the
Securities Act, and such other documents, as such Selling Holder may
reasonably request;
(d) use its best efforts (x) to register or qualify all Registrable
Securities covered by such registration statement under such other
securities or blue sky laws of such States of the United States of
America where an exemption is not available and as the Selling Holders
shall reasonably request, (y) to keep such registration or qualification
in effect for so long as such registration statement remains in effect,
and (z) to take any other action which may be reasonably necessary or
advisable to enable the Selling Holder to consummate the
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disposition in such jurisdictions of the Registrable Securities to be
sold by the Selling Holder, except that the Company shall not for any
such purpose be required to qualify generally to do business as a
foreign corporation in any jurisdiction wherein it would not but for the
requirements of this subsection (d) be obligated to be so qualified or
to consent to general service of process in any such jurisdiction;
(e) use its best efforts to cause all Registrable Securities covered by
such registration statement to be registered with or approved by such
other federal or state governmental agencies or authorities as may be
reasonably necessary in the opinion of counsel to the Company and
counsel to Selling Holder thereof to consummate the disposition of such
Registrable Securities;
(f) notify the Selling Holder at any time when a prospectus included in
the registration statement relating to the Registrable Securities and
required to be delivered to offerees or purchasers under the Securities
Act, is discovered to, or upon the happening of any event is reasonably
believed to, as then in effect, 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 not misleading, in
the light of the circumstances under which they were made, and at the
request of any such Selling Holder promptly prepare and furnish to it a
reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such securities, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact
required to be stated thereon or necessary to make the statements
therein not misleading in the light of the circumstances under which
they were made;
(g) otherwise use its best efforts to comply with all applicable rules
and regulations of the Commission, and make available to its security
holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve months, but not more than
eighteen months, beginning with the first full calendar month after the
effective date of such registration statement, which earnings statement
shall satisfy the provisions of Section 11(a) of the Securities Act and
Rule 158 promulgated thereunder, and promptly furnish to such Selling
Holder a copy of any amendment or supplement to such registration
statement or prospectus;
(h) provide and cause to be maintained a transfer agent and registrar
(which, in each case, may be the Company) for all Registrable Securities
covered by such registration statement from and after a date not later
than the effective date of such registration; and
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<PAGE>
(i) use its best efforts to list all Registrable Securities covered by
such registration statement on any national securities exchange on which
Registrable Securities of the same class covered by such registration
statement are then listed.
1.4 Registration Statement Form; Information.
(a) Registration under Section 1.1 and Section 1.2 shall be on such
appropriate form of the Commission as shall be selected by the Company
with advice of its legal counsel.
(b) The Company agrees to include in any such registration statement all
information, which, in the reasonable opinions of counsel to the Selling
Holder and counsel to the Company, is required to be included.
(c) From time to time, the Company may request the Selling Holder to
furnish, and upon such request the Selling Holder shall promptly and
diligently furnish to the Company, such information regarding the
Selling Holder and the distribution of the Selling Holder's Registrable
Securities and other securities of the Company. Any such information so
provided to the Company shall be deemed certified by the Selling Holder
to be correct and complete.
1.5 Expenses.
(a) All expenses incurred by the Company in complying with Section 1.1
or Section 1.2 hereof, including, without limitation, all registration
and filing fees, printing expenses, fees and disbursements of counsel
and independent public accountants for the Company, fees of the National
Association of Securities Dealers, Inc., transfer taxes, fees of
transfer agents and registrars and costs of insurance, but excluding any
Selling Expenses, are herein called "Registration Expenses." All
underwriting discounts and selling commissions applicable to the sale of
Registrable Securities are herein called "Selling Expenses."
(b) The Company will pay all Registration Expenses in connection with
any registration statement filed pursuant to Section 1.1 or Section 1.2
hereof. All Selling Expenses in connection with any registration
statement filed pursuant to Section 1.1 or Section 1.2 hereof shall be
borne by the Selling Holder and the Company in proportion to the number
of shares sold by each, or by such persons other than the Company
(except to the extent the Company shall be a seller), as they may agree.
-5-
<PAGE>
1.6 Effective Registration Statement. A registration requested pursuant to
Section 1.1 or Section 1.2 shall not be deemed to have been effected
(a) unless a registration statement with respect thereto has become
effective, (b) if after it has become effective, such registration is
interfered with by any stop order, injunction or other order or requirement
of the Commission or other governmental agency or court for any reason not
attributable to the Selling Holder and has not thereafter become effective,
or (c) if the conditions to closing specified in the underwriting agreement,
if any, entered into in connection with such registration are not satisfied
or waived, other than by reason of a failure on the part of the Selling
Holder.
1.7 Requested Underwritten Offerings.
(a) Selection of Underwriter(s). In a requested registration under
Section 1.1, the Selling Holder may elect to sell its Registrable
Securities to an underwriter in an underwritten offering (a "Requested
Underwritten Offering"). The underwriter or underwriters of a Requested
Underwritten Offering shall be selected by the Selling Holder. Any
selected underwriter must be a firm reasonably satisfactory to the
Company, provided that a firm shall be conclusively satisfactory to the
Company if it has previously effected a registration of any securities
of the Company.
(b) Underwriting Agreement. If requested by the underwriters for any
Requested Underwritten Offering, the Company will enter into an
underwriting agreement with such underwriters for such Offering, such
agreement to be reasonably satisfactory in substance and form to the
Company, the Selling Holder and the underwriters and to contain such
representations and warranties by the Company, the Selling Holder and
the underwriters and such other terms as are generally prevailing in
agreements of that type, including, without limitation, indemnities to
the effect and to the extent provided in Section 1.12. The Selling
Holder will cooperate with the Company and Company legal counsel in the
negotiation of the underwriting agreement and will give due
consideration to the reasonable suggestions of the Company regarding the
form and contents thereof. The Selling Holder shall be a party to such
underwriting agreement.
(c) Priority in Requested Registration. If the managing underwriter of
any Requested Underwritten Offering shall advise the Company in writing
(with a copy to the Selling Holder) that, in its opinion the number of
securities requested to be included in such registration exceeds the
number which can be sold in such Requested Underwritten Offering within
a price range acceptable to the Selling Holder, the Company and the
Selling Holder agree to decrease the number of shares of Registrable
Securities to be included in such registration to the number of shares
of Registrable Securities which the Company is so advised can be sold in
such Offering, with such decrease to be effected first among all other
-6-
<PAGE>
holders of securities of the Company who have received from the Company
any rights to participate in such Requested Underwritten Offering, and
only thereafter, to the extent necessary, with respect to the Selling
Holder.
1.8 Incidental Underwritten Offerings.
(a) Selection of Underwriter(s). If the Company proposes to register any
shares of its Common Stock under the Securities Act as contemplated by
Section 1.2 and such shares are to be sold to, and distributed by or
through one or more underwriters, the Company will, subject to Section
1.8(c) hereof and if so requested by the Selling Holder, arrange for
such underwriters to include the Registrable Securities requested to be
offered and sold by the Selling Holder among the securities of the
Company to be distributed by such underwriters (such offering, a
"Piggyback Underwritten Offering"). The selection of such underwriter or
underwriters for a Piggyback Underwritten Offering shall be made by the
Company in its sole discretion.
(b) Underwriting Agreement. The underwriting agreement regarding a
Piggyback Underwritten Offering shall be reasonably satisfactory in
substance and form to the Company, the Selling Holder thereunder and the
underwriters and contain such representations and warranties by the
Company, the Selling Holder thereunder and the underwriters and such
other terms as are generally prevailing in agreements of that type,
including, without limitations, indemnities to the effect and to the
extent provided in Section 1.12. The Selling Holder involved in the
Piggyback Underwritten Offering will cooperate with the Company and
Company legal counsel in the negotiation of the underwriting agreement
and will defer to the reasonable suggestions of the company regarding
the form and contents thereof. The Selling Holder shall be a party to
the underwriting agreement between the Company and such underwriters.
(c) Priority in Incidental Registrations. If the managing underwriter of
any Piggyback Underwritten Offering shall inform the Company in writing
of its belief that the number of Registrable Securities requested to be
included in such registration would materially and adversely affect such
Offering, then the Company will include in such registration to the
extent of the number which the Company is so advised can be sold in (or
during the time of) such Offering (such number, the "Decreased Offering
Amount"), first, all shares of Common Stock proposed by the Company to
be sold for its own account (the "Company Share Amount") and second, the
number of the Registrable Securities requested to be included in such
registration equal to the Decreased Offering Amount minus the Company
-7-
<PAGE>
Share Amount, such decrease of Registrable Securities to be effected
first among all other holders of securities of the Company who have
received from the Company any rights to participate in such Piggyback
Underwritten Offering, and only thereafter, to the extent necessary,
with respect to the Selling Holder.
1.9 Holdback Agreements. In connection with any registration under Section
1.1 hereof, the Company will obtain agreements from each holder of five
percent (5%) or more of its Common stock, or any securities convertible into
or exercisable into or exchangeable for its Common Stock, that such holder
will not sell or otherwise dispose of any such securities (other than those
included in such registration) during a period of 120 days beginning on the
effective date of any such registration, without first obtaining the written
consent of the managing underwriter of such offering.
1.10. Reasonable Investigation. In connection with the preparation and
filing of each registration statement under the Securities Act pursuant to
this Agreement and upon execution and delivery of appropriate and customary
confidentiality agreements, the Company will give the Selling Holder, its
underwriters, if any, and their respective counsel and accountants the
opportunity to participate in the preparation of such registration
statements, each prospectus included therein or filed with the Commission,
and, to the extent practicable, each amendment thereof or supplement
thereto, and give each of them such access to its books and records (to the
extent customarily given to underwriters of the company's securities) and
such opportunities to discuss the business of the Company with its officers
and the independent public accountants who have certified its financial
statements as shall be necessary, in the opinion of such Holder's and such
underwriters' respective counsel, to conduct a reasonable investigation
within the meaning of the Securities Act.
1.11. Postponement of Registration. The obligations of the Company under
Section 1.1 and Section 1.2 to use its best efforts to cause the Registrable
Securities to be registered under the Securities Act are subject to the
limitation, condition and qualification that the Company shall be entitled
to postpone for a reasonable period of time (but not exceeding 30 days) the
filing of any registration statement otherwise required to be prepared and
filed by it pursuant to Section 1.1 or Section 1.2 if the Company furnishes
to the Selling Holder a certificate signed by the Chief Executive Officer of
the Company stating that in the good faith judgment of the Board of
Directors of the Company, it would be seriously detrimental to the Company
and its shareholders for such registration statement to be filed and it is
therefore essential to defer the filing of such registration statement,
providing a general statement of the reasons for such postponement and an
approximation of the anticipated delay, provided that the Company may not
use this right to postpone registration pursuant to Section 1.1 more than
once in any twelve-month period.
-8-
<PAGE>
1.12. Indemnification.
(a) Indemnification by the Company. In the event of any registration of
any securities of the Company under the Securities Act, the Company
will, and hereby does, indemnify and hold harmless, in the case of any
registration statement filed pursuant to Section 1.1 or 1.2, the Selling
Holder, its agents and affiliates and each other Person ("Person"
includes a corporation, an association, a partnership, an organization,
a business, an individual, a governmental or political subdivision
thereof or a governmental agency) who participates as an underwriter in
the offering or sale of such Registrable Securities and any other
Person, if any, who controls such underwriter within the meaning of the
Securities Act against any losses, claims, damages or liabilities (or
actions or proceedings, whether commenced or threatened, in respect
thereof) that arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in any
registration statement under which such Registrable Securities were
registered under the Securities Act pursuant to the terms of this
Agreement, any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto, or
any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein in light of the circumstances in which they were made not
misleading, or any violation or alleged violation by the Company of any
securities law and the Company will reimburse such Selling Holder and
each such agent or affiliate, underwriter and controlling person for any
legal or any other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, liability, action
or proceeding; provided, that the Company shall not be liable in any
such case to the extent that any such loss, claim, damage, liability (or
action or proceeding in respect thereof) or expense arises out of or is
based upon an untrue statement or alleged untrue statement or omission
or alleged omission made in such registration statement, any such
preliminary prospectus, final prospectus, summary prospectus, amendment
or supplement in reliance upon and in conformity with written
information furnished to the Company by or on behalf of such Selling
Holder or underwriter by an agent or representative thereof, as the case
may be, and provided, further, that the Company shall not be liable to
any Person who participates as an underwriter in the offering or sale of
Registrable Securities or any other Person, if any, who controls such
underwriter within the meaning of the Securities Act, in any such case
to the extent that any such loss, claim, damage, liability (or action or
proceeding in respect thereof) or expense arises out of such Person's
failure to send or give a copy of the final prospectus, as the same may
be then supplemented or amended, to the Person asserting an untrue
statement or alleged untrue statement or omission or alleged omission at
or
-9-
<PAGE>
prior to the written confirmation of the sale of Registrable Securities
to such Person if such statement or omission was corrected in such final
prospectus so long as such final prospectus, and any amendments or
supplements thereto, have been furnished to such underwriter. Such
indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such Selling Holder or any such
agent or affiliate or controlling person and shall survive the transfer
of such securities by such Selling Holder.
(b) Indemnification by the Selling Holder. The Selling Holder agrees to
indemnify and hold harmless, as a condition to including any Registrable
Securities in any registration statement (in the same manner and to the
same extent as set forth in Section 1.12(a)), the Company, each officer,
director, employee, agent or affiliate of the Company and each other
Person, if any, who controls the Company within the meaning of the
Securities Act with respect to any statement or alleged statement in or
omission or alleged omission from such registration statement, any
preliminary prospectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereto, if such statement or
alleged 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 the Selling Holder or an agent or representative
thereof expressly for use in connection with such registration. Such
indemnity shall remain in full force and effect, regardless of any
investigation made by or on behalf of the Company or any such director,
officer, employee, agent or affiliate or controlling person and shall
survive the transfer of such securities by the Selling Holder.
(c) Notices of Claims, etc. Promptly after receipt by an indemnified
party of notice of the commencement of any action or proceeding
involving a claim referred to in the preceding subsections of this
Section 1.12, such indemnified party will, if a claim in respect thereof
is to be made against an indemnifying party, give written notice to the
latter of the commencement of such action; provided, however, that the
failure of any indemnified party to give prompt written notice as
provided herein shall not relieve the indemnifying party of its
obligations under the preceding subsections of this Section 1.12, except
to the extent that the indemnifying party is actually prejudiced by such
failure to give notice. In case any such action is brought against a
party (but not if, in such indemnified party's reasonable judgment, a
conflict of interest between such indemnified and indemnifying parties
exists in respect of such claim), the indemnifying party shall be
entitled to participate in and, to assume the defense thereof, jointly
with any other indemnifying party similarly notified to the extent that
it may wish, with counsel reasonably satisfactory to such
-10-
<PAGE>
indemnified party. After such notice from the indemnifying party to such
indemnified party of its election to assume the defense of such matter,
the indemnifying party shall not be liable to the indemnified party for
any legal or other expenses subsequently incurred by the latter in
connection with the defense thereof other than reasonable costs of
investigation and of liaison (unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties arises or could arise in respect of such claim
after the assumption of the defense thereof). No indemnifying party
shall be liable for any settlement of any action or proceeding effected
without its written consent, which consent shall not be unreasonably
withheld. No indemnifying party shall, without the consent of the
indemnified party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a
release from all liability in respect to such claim or litigation.
(d) Contribution. If the indemnification provided for in this Section
1.12 shall for any reason be held by a court to be unavailable to an
indemnified party under subsection (a) or (b) hereof in respect of any
loss, claim, damage or liability, or any action in respect thereof,
then, in lieu of the amount paid or payable under subsection (a) or
(b) hereof, the indemnified party and the indemnifying party under
subsection (a) or (b) hereof shall contribute to the aggregate losses,
claims, damages and liabilities (including legal or other expenses
reasonably incurred in connection with investigating the same), (i) in
such proportion as is appropriate to reflect the relative fault of the
Company and the prospective sellers of Registrable Securities covered by
the registration statement which resulted in such loss, claims, damage
or liability, or action in respect thereof, with respect to the
statements or omissions which resulted in such loss, claim, damage or
liability, or action in respect thereof, as well as any other relevant
equitable considerations or (ii) if the allocation provided by clause
(i) above is not permitted by applicable law, in such proportion as
shall be appropriate to reflect the relative benefits received by the
Company and such prospective sellers from the offering of the securities
covered by such registration statement. The relative fault of the
indemnifying party and of the indemnified party shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact
relates to information supplied by the indemnifying party or by the
indemnified party and the parties' relative intent, knowledge, access to
information, and opportunity to correct or prevent such statement or
omission. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
-11-
<PAGE>
misrepresentation. In addition, no Person shall be obligated to
contribute hereunder any amounts in payment for any settlement of any
action or claim effected without such Person's consent, which consent
shall not be unreasonably withheld.
(e) Other Indemnification. Indemnification and contribution similar to
that specified in the preceding subsections of this Section 1.12 (with
appropriate modifications) shall be given by the Company and the Selling
Holder with respect to any required registration or other qualification
of securities under any federal or state law or regulation of any
governmental authority other than the Securities Act.
(f) Indemnification Payments. The indemnification and contribution
required by this Section 1.12 shall be made by periodic payments of the
amount thereof during the course of the investigation or defense, as and
when bills are received or expense, loss, damage or liability is
incurred.
1.13. No Obligation to Register if Exemptions Apply. The Company shall not
be required to effect any registration of Registrable Securities pursuant to
Section 1.1 or Section 1.2 hereof if it shall deliver to the Holder an
opinion of counsel in form reasonably satisfactory to the Holder to the
effect that all such Registrable Securities held by the Holder may be sold
in the public market at any time without registration under the Securities
Act (e.g., pursuant to Rule 144) or any applicable State securities laws and
without any limitations on subsequent resale by the purchasers of such
shares.
1.14. Certain Events. The Selling Holder agrees that upon receipt of any
notice from the Company of the happening of any event of the kind described
in Section 1.3(f), the Selling Holder will forthwith discontinue the Selling
Holder's disposition of Registrable Securities pursuant to the registration
statement relating to such Registrable Securities until the Selling Holder's
receipt of the copies of the supplemented or amended prospectus contemplated
by Section 1.3(f) and, if so directed by the Company, will deliver to the
Company all copies, other than permanent file copies, then in the Selling
Holder's possession, of the prospectus relating to such Registrable
Securities current at the time of receipt of such notice.
2. Registrable Securities.
As to any particular Registrable Securities, such securities shall cease to be
Registrable Securities when (a) a registration statement with respect to the
sale of such securities shall have become effective under the Securities Act and
such securities shall have been sold or transferred in accordance with such
registration statement, (b) they shall have been sold as permitted by, and in
compliance with, Rule 144 or Rule 145 (or successor provisions) promulgated
under the Securities Act, (c) they shall have been otherwise transferred, new
certificates for them not bearing a legend restricting further transfer under
the Securities Act shall have been delivered by the Company and subsequent
public distribution of them shall not require registration of them under the
Securities Act, or (d) they shall have ceased to be outstanding.
-12-
<PAGE>
3. Company Compliance with Rule 144.
The Company shall take all actions reasonably necessary to enable the Holder to
sell such securities without registration under the Securities Act within the
limitation of the exemptions provided by (a) Rule 144 under the Securities Act,
as such Rule may be amended from time to time, or (b) any similar rule or
regulation hereafter adopted by the Commission including, without limiting the
generality of the foregoing, filing on a timely basis all reports required to be
filed by the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder (the "Exchange Act").
4. Amendments.
This Agreement constitutes the entire agreement of the parties with respect to
the subject matter hereof and may not be modified or amended except in writing.
5. Notices.
All communications (including notices and requests) provided for or required in
this Agreement shall (a) be sent by (i) courier or other overnight delivery
service (such as FedEx), (ii) hand delivery with signed receipt of delivery, or
(iii) facsimile if expressly permitted, followed by delivery pursuant to (i) or
(ii) above, and (b) be addressed as follows:
(x) if to the Holder, addressed to it in the manner set forth in
Schedule A hereto, or at such other address as it shall have furnished
to the Company in writing;
(y) if to the Company, addressed to it as follows:
Independence Brewing Company, Inc.
1000 East Comly Street
Philadelphia, Pennsylvania 19149
Attention: Robert W. Connor, Jr., President
or at such other address as the Company shall have furnished to each
Holder at such time outstanding.
6. Assignment; Binding Agreement.
This Agreement is not assignable by the Holder except (i) upon death by will or
by laws of descent and distribution or (ii) upon assignment, transfer or sale of
the Registrable Securities by the Holder in compliance with applicable federal
and state securities laws, as evidenced by appropriate and customary
-13-
<PAGE>
documentation and opinion of legal counsel reasonably satisfactory to the
Company. This Agreement shall be binding upon and inure to the benefit of and be
enforceable by the parties hereto and, with respect to the Company, its
respective successors and, with respect to the Holder, or permitted assigns.
7. Descriptive Headings.
The descriptive headings of the several sections and paragraphs of this
Agreement are inserted for reference only and shall not limit or otherwise
affect the meaning hereof.
8. Governing Law.
This Agreement shall be construed and enforced in accordance with, and the
rights of the parties shall be governed by, the laws of the Commonwealth of
Pennsylvania.
9. Anti-Dilution Adjustments.
In the event that any capital stock or other exchange for, or substitution of,
any Registrable Securities are issued in respect of, in exchange for, or in
substitution of, any Registrable Securities by reason of any reorganization,
recapitalization, reclassification, merger, consolidation, spin-off, partial or
complete liquidation, stock dividend, split-up, sale of assets, distribution to
stockholders or combination of the shares of Registrable Securities or any other
change in the Company's capital structure, appropriate adjustments shall be made
in this Agreement so as to fairly and equitably preserve, as far as practicable
but not in conflict with the Company's Articles of Incorporation (which
establishes the Common Stock), the original rights and obligations of the
parties hereto under this Agreement.
10. Severability.
The invalidity or unenforceability of any provision of this Agreement, as
determined by a court of competent jurisdiction, shall in no way affect the
validity or enforceability of any other provision hereof.
11. Joint Preparation.
This Agreement shall be deemed to have been jointly prepared by the parties
thereto, and no ambiguity herein shall be construed against any party hereto
based upon the identity of the author of this Agreement or any portion hereof.
-14-
<PAGE>
13. Counterparts.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original, but all such counterparts shall together constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement personally
or by persons thereunto duly authorized, as of the day and year first above
written.
COMPANY:
INDEPENDENCE BREWING
COMPANY
By: /s/ ROBERT W. CONNOR, JR.
------------------------------
Robert W. Connor, Jr., President
HOLDER:
WINFIELD CAPITAL CORP.
By: /s/ PAUL A. PERLIN
--------------------------------
Paul A. Perlin,
Chief Executive Officer
-15-
<PAGE>
Schedule A
HOLDER
Winfield Capital Corp.
237 Mamaroneck Avenue
White Plains, New York 10605
Attn: Paul A. Perlin, Chief Executive Officer
-16-
EXHIBIT 11.1
COMPUTATION OF LOSS PER COMMON SHARE
<TABLE>
<CAPTION>
Period from Six months ended
May 17, 1994 June 30,
(inception) through Year ended ---------------------------
December 31, 1994 December 31, 1995 1995 1996
------------------- ----------------- ---------- ----------
<S> <C> <C> <C> <C>
Primary Earnings Per Share
- --------------------------
Net loss $ (36,111) $ (648,302) $ (416,667) $ (419,003)
========== ========== ========== ==========
Weighted average number of
common shares outstanding
during year $1,712,656 $2,136,463 $2,008,511 $2,212,133
Add common equivalent shares
(as determined by the
application of the treasury
stock method) representing
shares issuable upon assumed
exercise of stock warrants -- -- -- --
---------- ---------- ---------- ----------
Weighted average number of
common shares used in
calculation of primary
earnings per share 1,712,656 2,136,463 2,008,511 2,212,133
========== ========== ========== ==========
Earnings per common share
assuming no dilution (.02) (.30) (.21) (.19)
========== ========== ========== ==========
Fully Diluted Earnings Per Share
- --------------------------------
Net loss (36,111) (648,302) (416,667) (419,003)
========== ========== ========== ==========
Weighted average number of common
shares outstanding during year 1,712,656 2,136,463 2,008,511 2,212,133
Add common equivalent shares (as
determined by the application
of the treasury stock method)
representing shares issuable
upon assumed exercise of stock
warrants -- -- -- --
---------- ---------- ---------- ----------
Weighted average number of
common shares used in
calculation of fully diluted
earnings per share 1,712,656 2,136,463 2,008,511 2,212,133
========== ========== ========== ==========
Earnings per common share
assuming full dilution (.02) (.30) (.21) (.19)
========== ========== ========== ==========
</TABLE>
47
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 2,782
<SECURITIES> 0
<RECEIVABLES> 15,080
<ALLOWANCES> 0
<INVENTORY> 90,355
<CURRENT-ASSETS> 108,217
<PP&E> 1,016,721
<DEPRECIATION> (60,128)
<TOTAL-ASSETS> 1,104,126
<CURRENT-LIABILITIES> 345,760
<BONDS> 581,151
<COMMON> 230,657
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,104,126
<SALES> 237,644
<TOTAL-REVENUES> 224,306
<CGS> 486,279
<TOTAL-COSTS> 371,604
<OTHER-EXPENSES> 38,450
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 51,229
<INCOME-PRETAX> 646,806
<INCOME-TAX> 1,496
<INCOME-CONTINUING> 648,302
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (648,302)
<EPS-PRIMARY> (.30)
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1995
<CASH> 4,762
<SECURITIES> 0
<RECEIVABLES> 62,001
<ALLOWANCES> 0
<INVENTORY> 86,547
<CURRENT-ASSETS> 153,310
<PP&E> 1,056,864
<DEPRECIATION> (92,692)
<TOTAL-ASSETS> 1,167,192
<CURRENT-LIABILITIES> 849,933
<BONDS> 521,634
<COMMON> 261,188
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,167,192
<SALES> 277,326
<TOTAL-REVENUES> 266,133
<CGS> 388,685
<TOTAL-COSTS> 266,682
<OTHER-EXPENSES> 21,684
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 51,453
<INCOME-PRETAX> 419,003
<INCOME-TAX> 0
<INCOME-CONTINUING> (419,003)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (419,003)
<EPS-PRIMARY> (.19)
<EPS-DILUTED> 0
</TABLE>
