As filed with the Securities and Exchange Commission on September __, 1997
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
Under
The Securities Act of 1933
FREDERICK BREWING CO.
(Name of registrant as specified in its charter)
Maryland 52-1769647
(State or Jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
4607 Wedgewood Boulevard Kevin E. Brannon
Frederick, Maryland 21703 4607 Wedgewood Boulevard
(301) 694-7899 Frederick, Maryland 21703
Facsimile (301) 694-2971 (301) 694-7899
(Address, including zip code, and telephone number, including area code (Name,
address, including zip code, and of Registrant's principal executive offices)
telephone number, including area code, of agent for service)
COPY TO:
Jehu Hand, Esq.
Hand & Hand
24901 Dana Point Harbor Drive, Suite 200
Dana Point, California 92629
(714) 489-2400
Facsimile (714) 489-0034
Approximate date of commencement of proposed sale of the securities to
the public: As soon as practicable after the effective date of this registration
statement.
If the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant
to Rule 415 under the Securities Act of 1933 other than securities offered only
in connection with dividend or
interest reinvestment plan, please check the following box: [X]
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:
[ ]
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<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
Proposed Maximum Proposed Maximum
Title of Each Class of Amount to Offering Price Aggregate Amount of
Securities to be Registered Be Registered Per Share(1) Offering Price Registration Fee
Common Stock issuable upon
conversion of Series C
<S> <C> <C> <C> <C> <C>
convertible Preferred Stock(2)....... 1,234,561 $2.00 $ 2,469,122 $ 748.22
Common Stock offered by
selling shareholder(3)............... 30,000 $2.00 $ 60,000 $ 18.18
Total(4)............................... 1,264,561 $ 2,529,122 $ 766.40
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee.
(2) Includes 1,234,561 shares issuable upon conversion of 2,000 shares
($2,000,000 aggregate principal amount) of Series C Convertible Preferred
Stock at the lower of $1.62 or 70% of the closing bid price of the Common
Stock averaged over the five trading days prior to the date of
conversion. The maximum offering price per share is based upon the
closing price of the Common Stock on September 10, 1997, or $2.00 since
it is higher than the estimated conversion price per share of the Series
C Convertible Preferred Stock (in accordance with Rule 457(g)).
(3) Includes 30,000 shares issued in connection with the placement of the
Series C Convertible Preferred Stock.
(4) Includes in each case reoffers of the Common Stock offered hereby and
shares issuable pursuant to antidilution provisions pursuant to
Rule 416.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION
PROSPECTUS
FREDERICK BREWING CO.
1,264,561 Shares of Common Stock
($.00004 par value)
The estimated 1,264,561 shares (the "Shares") of Common Stock, par value
$.00004 per share (the "Common Stock") of Frederick Brewing Co., a Maryland
corporation (the "Company") are being offered by the selling stockholders (the
"Selling Stockholders") and include an estimated 1,234,560 shares issuable upon
conversion of $2,000,000 in principal amount of Series C Convertible Preferred
Stock (the "Series C Preferred"), and 30,000 shares already outstanding. The
Company will not receive any proceeds from the sale of Common Stock by the
Selling Stockholders. See "Selling Stockholders." The expenses of the offering,
estimated at $20,000, will be paid by the Company.
The Common Stock currently trades on NASDAQ under the symbol "BLUE" On
September 10, 1997, the last sale price of the Common Stock as reported on
NASDAQ was $2.00 per share.
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 ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PURCHASE OF THESE SECURITIES INVOLVES RISKS. See Risk Factors.
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.
The date of this Prospectus is ___________, 1997
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No person has been authorized in connection with this offering to give any
information or to make any representation other than as 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. This Prospectus does not
constitute an offer to sell or the solicitation of an offer to buy any
securities covered by this Prospectus in any state or other jurisdiction to any
person to whom it is unlawful to make such offer or solicitation in such state
or jurisdiction. Neither the delivery of this Prospectus nor any sales made
hereunder shall, under any circumstances, create an implication that there has
been no change in the affairs of the Company since the date hereof.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, as well as proxy statements and
other information filed by the Company with the Commission, can be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at its Regional
Offices located at 7 World Trade Center, New York, New York 10048, and at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material can be obtained at prescribed rates from the Public
Reference Section of the Commission, Washington, D.C. 20549, during regular
business hours. The Commission maintains a Web site that contains reports, proxy
and information statements and other information regarding issuers such as the
Company that file electronically with the Commission at http://www.sec.gov.
This Prospectus incorporates by reference the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1996, its Quarterly Reports on Form
10-QSB for the quarters ended March 31, 1997 and June 30, 1997, its Current
Reports on Form 8-K dated February 27, 1997 and April 15, 1997, the description
of securities included in the Company's Registration Statement on Form 8-A, File
No. 0-27800, and all other documents subsequently filed by the Company pursuant
to Section 13(a), 13(c) or 14 of the Exchange Act prior to the termination of
the offering made hereby. Statements contained in this Prospectus as to the
contents of any contract or other document are not necessarily complete, and in
each instance reference is made to the copy of such contract or document filed
as an exhibit to the Registration Statement, each such statement being qualified
in its entirety by such reference. The Company will provide, without charge upon
oral or written request of any person, a copy of any information incorporated by
reference herein. Such request should be directed to the Company at 4607
Wedgewood Boulevard, Frederick, Maryland 21703, telephone (301) 694-7899.
INDEMNIFICATION
Pursuant to the Company's Articles of Incorporation, as amended, the
Company may indemnify each of its directors and officers with respect to all
liability and loss suffered and reasonable expense incurred by such person in
any action, suit or proceeding in which such person was or is made or threatened
to be made a party or is otherwise involved by reason of the fact that such
person is or was a director of the Company. In addition, the Company may pay the
reasonable expenses of indemnified directors and officers incurred in defending
such proceedings if the indemnified party agrees to repay all amounts advanced
should it be ultimately determined that such person is not entitled to
indemnification.
In addition, as permitted by the Maryland General Corporation Law, the
Company's Articles of Incorporation provides that the Company's directors will
not be held personally liable to the Company or its stockholders for monetary
damages for a breach of fiduciary duty as a director except to the extent such
exemption from liability or limitation thereof is not permitted under the
Maryland General Corporation Law. This provision does not eliminate the duty of
care, and injunctive or other forms of non-monetary equitable relief will remain
available under Maryland law. In addition, each director continues to be liable
for monetary damages for (i) misappropriation of any corporate opportunity in
violation of the director's duties, (ii) acts or omissions in bad faith or
involving intentional dishonesty, (iii) knowing violations of law, and (iv) any
transaction from which a director derives an improper personal benefit. The
provision does not affect a director's responsibilities under any other law,
such as the federal securities laws of state or federal environmental laws.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the information
appearing elsewhere in this Prospectus. Each prospective investor is urged to
read this Prospectus in its entirety.
The Company
The Company's principal executive offices are located at 4607 Wedgewood
Boulevard, Frederick, Maryland 21703. Its telephone number is (301) 694-7899 and
its fax number is (301) 694-2971.
The Offering
Securities Offered:......................................
An estimated 1,264,561 shares of Common Stock,
$.00004 par value per share, including an estimated
1,234,561 shares issuable upon conversion of 2,000
shares of Series C Preferred Stock at a conversion price
per share of Preferred Stock equal to the lower of
$1,000 divided by 70% of the average closing bid price
of the Common Stock on the five trading days prior to
conversion or $1.62, and 30,000 shares currently
outstanding.
Common Stock Outstanding(1) Before Offering:............. 2,984,961(1) shares
Common Stock Outstanding After Offering:................. 4,219,521(1) shares
NASDAQ symbol............................................ BLUE
(1) Based on shares outstanding as of August 31, 1997.
Risk Factors
Investment in the Shares offered hereby involves a high degree of risk,
including the limited operating history of the Company and competition.
Investors should carefully consider the various risk factors before investing in
the Shares. This Prospectus contains forward looking statements which may
involve risks and uncertainties. The Company's actual results may differ
significantly from the results discussed in the forward looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed in "Risk Factors." See "Risk Factors."
RISK FACTORS
The shares of Common Stock offered hereby are highly speculative and
involve a high degree of risk. The following risk factors should be considered
carefully in addition to the other information in this Prospectus before
purchasing the shares of Common Stock offered hereby. The discussion in this
Prospectus contains certain forward-looking statements that involve risks and
uncertainties, such as statements of the Company's plans, objectives,
expectations and intentions. The cautionary statements made in this Prospectus
should be read as being applicable to all related forward-looking statements
wherever they appear in this Prospectus. The Company's actual results could
differ materially from those discussed here. Factors that could cause or
contribute to such differences include those discussed below, as well as those
discussed elsewhere herein.
Limited Operating History; Past and Possible Future Operating Losses.
The Company was founded in
March 1992 and has operated at a loss for each year since such date. As of
June 30, 1997 the cumulative loss since
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inception was $4,640,851. The Company's limited operating history makes the
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. Due to the expenses involved in the expansion of the
Company's operations in connection with the completion of the new brewery
(including increased overhead, depreciation, marketing and salaries and its plan
to increase production to 50,000 barrels per year), the Company does not expect
to operate profitably for approximately 12 to 24 months after the closing of its
initial public offering of Common Stock which occurred in March 1996.
Lack of Liquidity; Inadequate Working Capital; Default in Financial
Covenants. The Company has, in the last eighteen months spent a significant
amount of working capital on machinery and equipment and on salaries and
benefits and advertising, all in connection with the completion of the Company's
new brewery, the expansion of its brewing capacity and its attempts to increase
demand for its products. In addition, growth in sales has not been sufficient to
fund such expenditures. As a consequence thereof, the Company has been required
to obtain, by the sale of its securities, additional working capital for the
hiring and training of administrative and sales personnel and the payment of
certain promotional, marketing and advertising expenses in connection with the
commencement of full production at the new brewery which occurred in March 1997.
In connection with the construction of the new brewery and the purchase
of brewing and other equipment, the Maryland Economic Development Corporation
issued $4.5 million in taxable economic development bonds on July 19, 1996,
including $1.5 million borrowed by the Company to purchase brewery equipment for
the new brewery (the "FBC Facility") and $3.0 million loaned to a partnership
controlled by affiliates of the Company to construct the brewery (the "Blue II
Facility"), and the Company borrowed an additional $976,000 from Signet Bank in
a Bridge Loan (which it expects to refinance with an SBA loan in April 1997). On
January 22, 1997, Signet declared the Bridge Loan in default and on February 3,
1997 advised the Company that it was in default with respect to the FBC
Facility. The primary causes of these alleged defaults were (a) cost overruns of
$340,000, in the construction of the new brewery; and (b) a $250,000 deficiency
between the amount of the FBC Facility and the cost of the new equipment. On
February 27, 1997 the Company entered into two Forbearance Agreements with
Signet. The terms of the Forbearance Agreement with respect to the Blue II
Facility were complied with (including the issuance of 630 shares of Series A
Preferred to the general contractor of the brewery building) and all defaults
were cured by March 27, 1997; the Forbearance Agreement with respect to the FBC
facility required that the Company maintain Eligible Accounts Receivable (as
defined) of not less than $100,000 until March 31, 1997 and $200,000 thereafter,
tested twice monthly; and required the personal guaranty of the Chief Executive
Officer and the President. Furthermore, the FBC Facility and the Blue II
Facility imposed additional restrictive covenants which the Company did not
comply with as of December 31, 1996 (for which it obtained a waiver from Signet)
but were complied with as of June 30, 1997. There can be no assurance that the
Company will not incur additional defaults under the Bridge Loan, the Blue II
Facility, or the FBC Facility. If such defaults occur and are not waived by
Signet, it would have a material adverse effect upon the Company. On April 24,
1997, the Company closed a $1.0 million loan with the United States Small
Business Administration ("SBA"). The proceeds of this loan were used to pay the
principal balance of the Company's bridge loan with Signet Bank which was
incurred for the purchase of brewing and packaging equipment for the Company's
new facility. The loan has a twenty year term and a fixed interest rate of
7.368%. See the Company's Pre-effective Amendment No. 5 to the Form SB-2 filed
with the SEC on March 5, 1996, attached hereto by reference.
Possible Need for Additional Financing. The Company intends to continue
to expend funds to increase its market share in the states where its products
are currently being sold and, possibly, in other states in the future. Such
additional marketing costs may require additional funds not currently available
to the Company. Accordingly, the Company may require additional debt or equity
financing for these or other general corporate purposes. There can be no
assurance that the Company will be able to obtain additional debt or equity
financing on terms favorable to the Company, or at all, or if obtained, there
can be no assurance that such debt or equity financing will be sufficient for
the financing needs of the Company.
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Heavy Dependence on Wholesale Distributors. The Company distributes its
products only through independent wholesale distributors for resale to retailers
such as liquor and wine and beer stores, restaurants, taverns, pubs, bars and
sporting arenas. Accordingly, the Company is dependent upon these wholesale
distributors to sell the Company's beers and to assist the Company in creating
demand for, and promoting market acceptance of, the Company's products and
providing adequate service to its retail customers. There can be no assurance
that the Company's wholesale distributors will devote the resources necessary to
provide effective sales and promotion support to the Company.
Dependence on Major Customers. Sales to The Kronheim Co., Inc.,
Baltimore, Maryland ("Kronheim"), the Company's largest wholesale distributor,
represented 50.6%, 35.7% and 56.5% of the Company's revenues in 1996, 1995 and
1994, respectively and 50.1% of the Company's revenues in the six months ended
June 30, 1997. Sales to all other wholesale distributors represented 49.4%,
64.3% and 43.5% of the Company's revenues in 1996, 1995 and 1994, respectively.
(The 1994 percentages for sales to other wholesale distributors include beer
sold directly to retailers by the Company.) The Company expects sales to its
largest wholesale distributor to continue to represent a significant portion of
its sales in the near term. The Company believes that its future growth and
success will continue to depend in large part upon the significant wholesale
distributor, but such dependence should decrease as the Company expands its
market area.
No Assurance of Continued Wholesale Distributor Support. If Kronheim or
any other significant wholesale distributor were to discontinue selling, or
decrease the level of orders for, the Company's products, the Company's business
would be adversely affected in the areas serviced by such wholesale distributors
until the Company retained replacements. There can be no assurance however that
the Company would be able to replace a significant wholesale distributor in a
timely manner or at all in the event it were to discontinue selling the
Company's products. In addition, there is always a risk that the Company's
wholesale distributors will give higher priority to the products of other
beverage companies, including products directly competitive to the Company's
beers, thus reducing their efforts to sell the Company's products. The risk is
exacerbated by the fact that many of the Company's wholesale distributors (not
including Kronheim) are reliant on the beers of one of the major domestic beer
producers for a large percentage of their revenues and, therefore, may be
influenced by such producer. The Company's distributors are not contractually
committed to make future purchases and therefore could discontinue carrying the
Company's products in favor of a competitor's product or another beverage at any
time or for any reason.
If any of the Company's significant wholesale distributors were to
experience financial difficulties, or otherwise become unable or unwilling to
promote or sell the Company's products, the Company's results of operations
would be adversely affected. Many of the Company's distribution agreements
(other than its agreement with Kronheim which does not specify such a date)
permit their termination upon 90 days' prior notice. The Company's ability to
terminate poorly performing distributors may be hindered by laws that restrict
the Company's right to terminate the services of its wholesale distributors.
There can be no assurance that the Company will be able to attract reliable,
effective new distributors in markets it will enter as a result of its planned
geographic expansion or that the Company's business will not be adversely
affected by the loss or declining performance of any of its current or future
wholesale distributors.
Intense and Increasing Competition. The Company competes in the
specialty or craft beer segment of the domestic beer market. The principal
competitive factors affecting the market for the Company's beers include product
quality and taste, distribution capabilities, brand recognition, packaging and
price. There can be no assurance that the Company will be able to compete
successfully against current and future competitors based on these and other
factors. The Company competes with a variety of domestic and international
brewers, many of whom have substantially greater financial, production,
distribution and marketing resources and have achieved a higher level of brand
recognition than the Company.
The Company anticipates increased competition in the specialty beer
segment from the major domestic
brewers such as Anheuser-Busch Companies, Inc. ("Anheuser-Busch"), Miller
Brewing Co. ("Miller") and Adolph
Coors Co. ("Coors"), each of whom has introduced and is marketing fuller
flavored beers designed to compete
directly in the specialty beer segment. These large domestic brewers dominate
the overall domestic beer market and
the Company expects that certain of these companies, with their superior
financial resources and established
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distribution networks, will continue to seek further participation in the
specialty beer segment through the acquisition of equity positions in, or the
formation of distribution alliances with, smaller craft brewers (such as
Anheuser-Busch's equity position in, and distribution agreement with, Redhook
Ale Brewery, Incorporated).
The Company also faces and will face increasing competition from import
specialty beer companies such as Heineken N.V., Bass PLC and Guinness PLC and
existing domestic specialty and contract brewers such as The Boston Beer
Company, Inc., Pete's Brewing Co., Redhook Ale Brewery, Incorporated, Sierra
Nevada Brewing Co. and Anchor Brewing Co., as well as the regional specialty
brewers and local microbreweries in the markets where the Company distributes
its beers. Recent growth in the sales of specialty beers is expected to result
in increased competition in the segment, including a continuing proliferation of
microbrewers and efforts by micro and regional brewers to expand their
production capacity, marketing expenditures and geographical distribution areas.
Increased competition could result in price reductions, reduced profit margins
and loss of market share, all of which would have a material adverse effect on
the Company's financial condition and results of operations.
The Company's products also compete generally with other alcoholic
beverages, including products offered in other segments of the beer industry and
low-or-no-alcohol products. 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
wholesale distributors and their customers, all of which also distribute and
sell other beers and alcoholic beverage products. Finally, there can be no
assurance that the recent growth in consumer demand for craft beers will
continue, or even if such growth continues, that consumers will choose the
Company's beers.
Potential Fluctuations in Quarterly Results. The Company's quarterly
operating results have in the past and may in the future vary significantly
depending on factors such as fixed and semi-variable operating costs during
periods when the Company's brewery is producing below maximum designed
production capacity, professional fees and expenses relating to the Company's
planned expansion, increased competition, fluctuations in the price of
ingredients or packaging materials, seasonality of sales of the Company's beers,
general economic factors, trends in consumer preferences, regulatory
developments, including changes in excise and other tax rates, changes in the
sales mix between kegs and bottles, changes in average selling prices or market
acceptance of the Company's beers, increases in packaging and marketing costs
associated with initial production of new products and variations in shipping
and transportation costs.
The Company's operating results may be significantly impacted in the
future by, among other things, the timing of the construction of the new brewery
and the costs attendant to the commencement of production there, the timing of
new product announcements by the Company or its competitors, the impact of
increasing average federal and state excise tax as sales volume increases, the
timing of new advertising and promotional campaigns by the Company and other
expansion activities engaged in by the Company. The Company's expense levels are
based, in part, on its expectations of future sales levels. If sales levels are
below expectations, operating results are likely to be materially adversely
affected, In particular, because the Company operates its own production
facility, a significant portion of its overhead is fixed and cannot be reduced
for short-term adjustments such as sales below management's expectations, and an
excess of production capacity could therefore have a significant negative impact
on the Company's operating results. However, the Company has historically
operated with little or no backlog. The absence of backlog increases the
difficulty of predicting sales and operating results. In addition, the Company's
decision to undertake a media advertising campaign in 1997 could substantially
increase the Company's expenses in a particular quarter, while any increase in
sales from such advertising may be realized in subsequent periods.
Based upon the risks of potential fluctuations in quarterly results
discussed above and seasonality and the unpredictability of demand, discussed
below, the Company believes that quarterly sales and operating results are
likely to vary significantly in the future and that period-to-period comparisons
of its results of operations are not necessarily meaningful and should not be
relied upon as indications of future performance. Further, it is possible that
in some future quarter the Company's revenues or operating results will be below
the expectations of public market analysts and investors. In such event, the
price of the Company's Common Stock could be materially adversely affected.
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Sales Fluctuations Due to Seasonality. The Company's wholesale
distributors have historically experienced higher sales in the second and fourth
quarters of the calendar year due to increased consumption of the Company's
beers during periods of warmer weather and from Halloween through New Year's
Day. Although the Company has not yet experienced sales fluctuations due to
seasonality because the Company has continued to expand its wholesale
distribution network over the past three years, fluctuations in the Company's
sales due to seasonality may become evident in the future as the Company's sales
increase.
No Assurance of Geographic Expansion. While Frederick Brewing has
recently expanded in distribution network in Virginia, Pennsylvania, New Jersey
and Delaware, sales in Maryland accounted for over 62.8% of the Company's sales
in 1996 and 60.5% in the six months ended June 30, 1997. The Company has only
recently identified and appointed distributors and established distribution in
Virginia, Pennsylvania, New Jersey, Delaware, Florida and Washington. The
Company's continued growth depends upon its ability to expand sales in these and
other new regions. There can be no assurance that the Company's efforts to
expand sales in new regions will be successful or that such expansion can be
accomplished on a profitable basis. The Company's timely and successful
expansion of sales will depend on a number of factors, including competition,
the continued promotion and sale of the Company's products by suitable local
wholesale distributors, the retention of skilled sales and other personnel, the
ability to adapt management and other operational systems to accommodate
increased volume, the success of advertising and promotion campaigns, and other
factors, some of which are beyond the control of the Company. Furthermore,
consumer tastes vary by region and there can be no assurance that consumers
located in new geographic regions will be receptive to the Company's beers. The
Company believes that consumer demand for its products is greater in certain
areas than others due to demographic, economic and other factors. The Company's
efforts to increase sales by further penetrating market areas may be limited by
such factors. The inability of the Company to expand sales in a timely manner
would have a material adverse effect on the Company's operating results and
financial condition.
Limited Product Line. The sale of a limited number of styles of beers
has accounted for substantially all of the Company's revenues since inception.
The Company currently offers five styles of beer year-around and usually one
seasonal brew during any part of the year. 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. Therefore, the Company's future operating
results, particularly in the near term, are significantly dependent upon the
continued market acceptance of these products. There can be no assurance that
the Company's beers will continue to achieve market acceptance. A decline in the
demand for any of the Company's beers as a result of competition, changes in
consumer tastes and preferences, government regulation or other factors would
have a material adverse effect on the Company's operating results and financial
condition. In addition, there can be no assurance that the Company will be
successful in developing, introducing and marketing additional new beers that
will sustain sales growth in the future.
No Assurance of Future Ability to Satisfy Changing Consumer
Preferences. The craft beet market is highly competitive and characterized by
changing consumer preferences and continuous introduction of new products. The
Company intends to introduce new products from time to time to maintain
wholesale distributor and retailer interest and appeal to varying consumer
preferences and to create consumer demand. The Company believes that its future
growth will depend, in part, on its ability to anticipate changes in consumer
preferences or to create consumer demand and develop and introduce, in a timely
manner, new beers that adequately address such changes. There can be no
assurance that the Company will be successful in developing, introducing and
marketing new products on a timely basis. If the Company is unable to introduce
new products or if the Company's new products such as Hempen Ale are not
successful, the Company's sales may be adversely affected as customers seek
competitive products. In addition, the introduction of new products by the
Company could result in reduction of sales of the Company's existing beers,
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 offering by the Company will not cause
wholesale distributors, retailers and 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 operating
results and financial condition.
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No Assurance of Future Consumer Demand for Craft Beer. The craft beer
segment of the domestic beer market has grown dramatically 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 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 quantity and the
price of the Company's products and may therefore affect the Company's operating
results. For example, reduced consumer confidence and spending may result in
reduced demand for the Company's products, limitations on its ability to
increase or maintain prices and increases in required levels of selling,
advertising and promotional expenses.
No Assurance of Future Satisfaction of Demand. The production schedule
for the Company's beers is based on forecasts of the Company's sales in general
and the rate of sales of each of the Company's styles of beer. The Company
currently has the flexibility to modify short-term production schedules and is
currently able, on a short-term basis, to satisfy fully most changes in demand
for its product. The ability of the Company to estimate demand may be less
precise during periods of rapid growth or with respect to new products. The
failure of the Company to accurately forecast its sales could lead to inventory
shortages or surpluses that could adversely affect results of operations and
lead to further fluctuations in quarterly operating results. The Company's
production volume for the six months ended June 30, 1997 was 6,470 barrels, an
increase of 30%, compared to 4,977 barrels in the six months ended June 30,
1996. This increase occurred despite a halt in production in March 1997
necessitated by the Company's move to its new brewery plant. The increased
demand for the Company's product, coupled with a delay in receiving new
packaging equipment and packaging equipment malfunctions in the three months
ended June 30, 1997, resulted in the Company's inability to need demand for its
products in June 1997, when it operated at close to its capacity of 3,300
barrels per month. Although the Company has ordered additional production
equipment which will increase its capacity to 5,800 barrels per month, by
October 1997, there can be no assurance that the Company will be able to meet
demand for its products, that sales will not be adversely affected nor that
demand will continue to increase. A prolonged inability to meet demand for its
products, could lead to a loss of customers, impair the Company's expansion
plans and invite increased competition.
Dependence on Certain Suppliers. The Company purchases from, and is
dependent upon, its suppliers for certain agricultural ingredients 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 and has changed suppliers from time to time with
minimal disruption, if the Company were 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. To date, the Company has not experienced
material difficulties in obtaining timely delivery from its suppliers. 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. In 1996, the Company experienced a
significant increase in the price of its ingredients and packaging materials.
Except for suppliers who provide glass bottles and corrugated cardboard cartons,
the Company does not have long-term purchase contracts with its suppliers. The
loss of a material supplier could materially adversely affect the Company's
results of operations and financial condition if there were a delay in shipments
from the alternative suppliers.
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. To the extent that any of the foregoing affects the
ingredients used to produce the Company's beers, the Company's results of
operations would be materially and adversely affected. In addition, the Company
keeps only approximately a 30 day supply of hops and a seven day supply of malt
on its premises. Moreover, its purchases are limited to pre-packaged quantities,
rather than in bulk. Therefore, the Company is highly dependent upon the ability
of its suppliers to deliver its ingredients in a timely fashion. Such delivery,
which is by truck, is dependent upon certain factors beyond the control of the
Company, including but not limited to weather and labor relations. The Company's
operations are dependent upon its ability to accurately forecast its need for
ingredients. Any failure by the Company to
8
<PAGE>
accurately forecast its requirements of 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 results of operations.
Ability to Manage Growth. The Company has experienced rapid growth that
has resulted in new and increased responsibilities for management personnel
which has challenged and continues to challenge the Company's management,
operating and financial systems and resources. To compete effectively and manage
future growth, if any, the Company will be required to continue to implement and
improve its operational, financial and management information systems,
procedures and controls on a timely basis and to expand, train, motivate and
manage its work force. There can be no assurance that the Company's personnel,
systems, procedures and controls will be adequate to support the Company's
existing and future operations. Any failure to implement and improve the
Company's operational, financial and management systems or to expand, train,
motivate or manage employees could have a material adverse effect on the
Company's operating results and financial condition.
No Assurance of Ability to Protect Intellectual Property Rights. The
Company considers its trademarks and pending trademarks, particularly the "Blue
Ridge" and "Hempen Ale" brand names, proprietary beer recipes and the design of
product packaging, advertising and promotional design and art work (the
"Intellectual Property") to be of considerable value and critical to its
business. The Company relies on a combination of trade secret, copyright and
trademark laws, non-disclosure, non-competition and other arrangements to
protect its proprietary rights. However, the Company has discovered that the
"Blue Ridge" name has been used by other companies, some of whom directly or
indirectly compete with the Company. In January 1995, the Company entered into
an agreement with a contract brewer to stop that contract brewer from using the
Blue Ridge name and to acquire any federal trademark rights that such brewer had
to the name "Blue Ridge Lager" at a cost to the Company of approximately $7,900
(excluding legal fees and expenses). The Company applied for trademark
protection on its "Blue Ridge" brands in 1994, 1995 and 1996 and applied for
trademark protections on its "Hempen Ale" brand in 1997 and there can be no
assurance that trademarks will be issued by the U.S. Patent and Trademark
Office. Failure to obtain trademark protection could have a material adverse
effect upon the Company's results of operations and financial condition. In
addition, 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 be adequate to obtain
the legal protection sought or will prevent misappropriation of such information
and such protection 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.
Risk of Third Party Claims of Patent Infringement. While the Company
believes that its Intellectual Property does not infringe upon the proprietary
rights of third parties, there can be no assurance that the Company will not
receive future communications from third parties asserting that the Company's
Intellectual Property infringes, or may infringe, upon the proprietary rights of
third parties. The potential for such claims will increase as the Company
increases distribution in recently entered and new geographic areas. Any such
claims, with or without merit, could be time-consuming, result in costly
litigation and diversion of management's attention, cause product distribution
delays or require the Company to enter into royalty or licensing agreements.
Such royalty or licensing agreements, if required, may not be available on terms
economical or acceptable to the Company or at all. In the event of a successful
claim of infringement against the Company and failure or inability of the
Company to license the infringed or similar proprietary information, the
Company's operating results and financial condition could be materially
adversely affected.
Dependence on Key Personnel. The Company's success depends to a
significant degree upon the continuing contributions of, and on its ability to
attract and retain, qualified management, sales, production and marketing
personnel, particularly Kevin E. Brannon, Chairman of the Board and Chief
Executive Officer, Marjorie A. McGinnis, President, Steven T. Nordahl, Vice
President - Brewing Operations and Craig J. O'Connor, Vice President - Finance
and Administration. The Company entered into employment agreements with each of
these officers in 1996. Prior to their employment by the Company, none of these
officers had prior experience in the brewing industry or significant business
experience. The competition for qualified personnel is intense and the loss of
any of such persons as well as the failure to recruit additional key personnel
in a timely manner, could adversely affect
9
<PAGE>
the Company. There can be no assurance that the Company will be able to continue
to attract and retain qualified management and sales personnel for the
development of its business. Failure to attract and retain key personnel could
have a material adverse effect on the Company's operating results and financial
condition.
Operating Hazards; No Assurance of Adequate Insurance. The Company's
operations are subject to certain hazards and liability risks faced by all
brewers, such as bottle flaws or potential contamination of ingredients or
products by bacteria or other external agents that may be accidentally or
wrongfully introduced into products or packaging. The Company's products are not
pasteurized and require careful product rotation to prevent spoilage. However,
neither spoiled beer nor the bacteria introduced in the brewing process is known
to be harmful to human health. The Company runs periodic diagnostic tests on all
of its products to assure that they meet Company quality control guidelines and
comply with federal and state regulatory requirements. While the Company has not
experienced a serious contamination problem in its products, the occurrence of
such a problem could result in a costly product recall and serious damage to the
Company's reputation for product quality. The Company's operations are also
subject to certain injury and liability risks normally associated with the
operation and possible malfunction of brewing and packaging equipment. Although
the Company maintains insurance against certain risks under various general
liability and product liability insurance policies, there can be no assurance
that the Company's insurance will be adequate.
Government Regulation. The Company's business is highly regulated by
federal, state and local laws and regulations. The Company must comply with
extensive laws and regulations regarding such matters as state and regulatory
approval and licensing requirements, trade and pricing practices, permitted and
required labeling, advertising, promotion and marketing practices, relationships
with distributors and related matters. For example, federal and state regulators
require warning labels and signage on the Company's products. The Company
believes that it has obtained all regulatory permits and licenses necessary to
operate its business in the states where the Company's products are currently
being distributed. Failure on the part of the Company to comply with federal,
state or local regulations could result in the loss or revocation or suspension
of the Company's licenses, permits or approvals and accordingly could have a
material adverse effect on the Company's business. In addition, changes to
federal and state excise taxes on beer production, federal, state and local
environmental regulations, including laws relating to packaging and waste
discharge, or any other laws or regulations which affect the Company's products
could have a material adverse effect on the Company's results of operations. The
federal government and each of the states levy 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. Any increase in
the excise tax for small brewers could have a material adverse effect on the
Company's operating results and financial condition.
Public Attitudes Toward Alcohol Consumption. In recent years, there has
been an increase in the level of health-consciousness in the United States and
considerable debate has occurred concerning alcohol-related social problems,
such as alcoholism and drunk driving. In addition, a number of anti-alcohol
groups are advocating increased governmental action on a variety of fronts
unfavorable to the beer industry, including the legislation of new labeling or
packaging requirements and restrictions on advertising and promotion that could
adversely affect the sale of the Company's products. Restrictions on the sale
and consumption of beer or increases in the retail cost of beer due to increased
governmental regulations, taxes or otherwise, could materially and adversely
affect the Company's financial condition and results of operations.
Antitakeover Provisions in the Company's Corporate Documents. The
Company's Board of Directors has the authority to issue to up 1,000,000 shares
of preferred stock, $.01 par value per share (the "Preferred Stock"), of the
Company including the 1,848 shares of Series A Preferred Stock, the 3,750 shares
of Series B Preferred and the 2,000 shares of Series C Preferred which have been
issued to date and to determine the price, rights, preferences, privileges and
restrictions thereof, including voting rights, without any further vote or
action by the Company's stockholders. The voting and other rights of the holders
of Common Stock will be subject to, and may be adversely affected by, the rights
of the holders of any Preferred Stock that may be issued in the future. The
Company's Board may similarly issue additional shares of Common Stock without
any further vote or action by stockholders. Such an issuance could occur in the
context of another public or private offering of shares of Common stock or
Preferred
10
<PAGE>
Stock or in a situation where the Common or Preferred Stock is used to acquire
the assets or stock of another company. The issuance of Common or Preferred
Stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of delaying,
deferring or preventing a change in control of the Company. The Company has no
current plans to issue any additional shares of Common or Preferred Stock other
than as described herein. See "Description of Securities."
Moreover, the Restated and Amended Articles of Incorporation
("Articles") and Restated and Amended Bylaws ("Bylaws") of the Company contain
certain provisions which, among other things, maintain a "staggered" Board of
Directors, limit the personal liability of, and provide indemnification for, the
directors of the Company, require that stockholders comply with certain
requirements before they can nominate someone for director or submit a proposal
before a meeting of stockholders, prohibit the ability of stockholders to call
special meetings of stockholders, limit the ability of stockholders to act by
written consent and require a supermajority vote of stockholders in the event
that a "related person" (as defined) attempts to engage in a business
combination with the Company.
Potential Volatility of Stock Price. Stock prices of many growing
consumer-product companies fluctuate widely, often for reasons that are
unrelated to their actual operating performance. Announcement of new facilities
or products by the Company or its competitors, regulatory developments, and
economic or other external factors, as well as period-to-period fluctuations in
financial results, may have a significant impact on the market price and
marketability of the Common Stock. In the past, following periods of volatility
in the market price of a company's securities, securities class action
litigation has often been initiated against such company. Such litigation could
result in substantial costs and a diversion of management's attention and
resources, which could have a material adverse effect upon the Company's
operating results and financial condition.
Certain Related-Party Transactions. The Company has borrowed money from
time to time to provide cash for operations and for other corporate purposes
from its directors, stockholders and persons having business relationships with
its directors. In addition, the Company leases its brewery from a company which
is owned, in part, by one of the Company's directors and by other affiliated
persons.
Limitations on Liability of Management. The Company has adopted
provisions in its Articles that eliminate to the fullest extent permissible
under Maryland law the liability of its directors for monetary damages except to
the extent that it is proved that the director actually received an improper
benefit or profit in money, property or services or the director's action or
failure to act was the result of active and deliberate dishonesty and was
material to the cause of action adjudicated in the proceeding. While it may
limit stockholder actions against the directors of the Company for various acts
of misfeasance, the provision is designed to ensure that the ability of the
Company's directors to exercise their best business judgment in managing the
Company's affairs, subject to their continuing fiduciary duties to the Company
and its stockholders, is not unreasonably impeded by exposure to potentially
high personal costs or other uncertainties of litigation.
Indemnification of Management. The Company's Articles, consistent with
Maryland law, provide that the Company will indemnify and advance expenses to
any director, officer, employee or agent of the Company who is, or is threatened
to be made, a party to any action, suit or proceeding. Such indemnification
would cover the cost of attorney's fees as well as any judgment, fine or amounts
paid in settlement of such action provided that the indemnified party meets
certain standards of conduct necessary for indemnification under applicable law.
Such indemnity may or may not be covered by officer and director liability
insurance and could result in an expense to the Company even if such person is
not successful in the action. This provision is designed to protect such persons
against the costs of litigation which may result from his or her actions on
behalf of the Company.
11
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA
The following selected financial and operating data should be read in
conjunction with the Company's financial statements and the notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in the Company's Annual Report on Form 10-KSB (the "Annual
Report") and its Quarterly Report on Form 10-QSB for the Quarter Ended June 30,
1997, (the "June 1997 10-QSB"), incorporated by reference herein. The balance
sheet data and statement of operations data as of and for the years ended
December 31, 1996 and 1995, incorporated by reference herein are derived from
financial statements of the Company that have been audited by Coopers & Lybrand
L.L.P., independent accountants. The balance sheet data and statement of
operations data as of and for the years ended December 31, 1994, 1993 and 1992
are derived from financial statements of the Company that are not included in
the Annual Report. The balance sheet data as of June 30, 1997 and the statement
of operations data for the six months ended June 30, 1997 and 1996 are derived
from unaudited financial statements included in the June 1997 10-QSB. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Annual Report and the June 1997 10-QSB.
<TABLE>
<CAPTION>
Six Months Ended Year Ended December 31,
1997 1996 1996 1995 1994 1993 1992(1)
(In thousands, except per share and barrel data)
Statement of Operations Data:
<S> <C> <C> <C> <C> <C> <C> <C>
Sales $ 1,106 $ 839 $ 1,872 $ 1,832 $ 1,186 $ 106 $ --
Excise taxes 60 41 101 87 59 4 --
Cost of sales 1,128 764 1,743 1,253 847 89 --
Gross profit (82) 34 27 492 280 13 --
Selling, general and
administrative expenses 1,498 688 2,682 831 485 259 22
Loss from operations 1,580 654 (2,655) (339) (206) (246) (22)
Interest (expense), net 108 (12) (29) (79) (52) (11) --
Other income (expense) (136) -- 42 5 (1) --
(Loss) before income taxes 1,553 642 2,625 (376) (253) (258) (22)
Provision for income taxes (17) (17) -- --
Net (loss) $ 1,553 $ 642 $ 2,625 $ (359) $ (270) $ (258) $ (22)
Net loss per share $ (.78) $ (.39) $ (1.45) $ (.30) $ (.24) $ (.29) $ (.04)
Shares used in per share
calculation(2) 1,991 1,652 1,805 1,205 1,122 887 596
Operating Data (In Barrels)(3):
Barrels sold $ 6,470 $ 4,977 10,910 10,031 6,436 660 --
Net sales per barrel sold $ 180 $ 175 $ 162.32 $ 173.96 $ 175.11 $ 154.55 $ --
Gross profit per barrel sold (12.67) 6.83 2.47 49.05 43.51 19.70 --
</TABLE>
<TABLE>
<CAPTION>
As of
June 30, As of December 31,
1997 1996 1995 1994 1993 1992
Balance Sheet Data:
<S> <C> <C> <C> <C> <C> <C>
Working Capital (deficit) $ 327 $ 2 $ (199) $ (53) $ 5 $ 2
Total assets 11,065 4,766 1,659 1,316 723 32
Long-term debt, net of
current portion 6,699 1,723 303 481 315 --
Stockholders' equity 4,366 1,823 581 394 323 26
</TABLE>
(1) The Company was incorporated on March 4, 1992.
(2) See Note 2 of the Notes to the Financial Statements in the Annual
Report for an explanation of shares used in computing net loss per share.
(3) A barrel is equivalent to 31 gallons, two domestic kegs or 13.8 cases
of twenty-four 12 ounce bottles of beer. All barrels sold data is as of the
end of period.
12
<PAGE>
MARKET PRICE OF COMMON STOCK
The Company's Common Stock has been listed on the Automated Quotation
System of the National Association of Securities Dealers, Inc. (NASDAQ)
Small-Cap Market under the symbol "BLUE" since March 11, 1996. As of September
10, 1997 the last sale price as reported on NASDAQ was $2.00.
The following table sets forth the high and low bid prices for the
Common Stock as reported on NASDAQ for each quarter since March 11, 1996, the
closing date of the Company's initial public offering, for the periods
indicated. Such information reflects inter dealer prices without retail mark-up,
mark down or commissions and may not represent actual transactions.
Quarter Ended High Low
------------- ---- ---
March 31, 1996 7-1/4 5-1/4
June 30, 1996 5-3/4 4-7/8
September 30, 1996 5-1/4 4-1/4
December 31, 1996 5-1/8 3-7/8
March 31, 1997 4-5/8 4-1/8
June 30, 1997 4-5/8 2-3/4
September 30, 1997 2-11/16 2-3/32
(through August 29, 1997)
The Company has not paid any dividends on its Common Stock.
The Company currently intends to retain any earnings for use in its business,
and therefore does not anticipate paying cash dividends in the foreseeable
future.
As of September 1, 1997, there were approximately 1,300 record
holders of Company Common
Stock.
13
<PAGE>
SELLING STOCKHOLDERS
The shares of Common Stock of the Company offered by the Selling
Stockholders (the "Shares") will be offered at market prices, as reflected on
NASDAQ. The shares include 30,000 shares currently outstanding as well as shares
being offered by the holders upon conversion of the Series C Preferred. The
aggregate number of shares offered for resale upon conversion of the Series C
Preferred will be based on the conversion rate in effect at the time of
conversion. It is anticipated that registered broker-dealers will be allowed the
commissions which are usual and customary in open market transactions.
The number of shares of Common Stock issuable upon conversion of each
of the 2,000 shares of Series C Preferred, and the consequent number of shares
of Common Stock available for resale under this Prospectus, is based upon a
conversion ratio which is the lower of (a) $1,000 divided by 70% of the closing
bid price of the Common Stock on NASDAQ averaged over the five trading days
immediately prior to the date of conversion, or (b) $1.62. The number of shares
in the table below is based upon a rate of $1.62, or approximately 617.28 shares
of Common Stock per share of Series C Preferred. The Selling Stockholders do not
own any Common Stock except as registered hereby and will own no shares after
the completion of the offering. The relationship, if any, between the Company
and any Selling Stockholder is set forth below.
<TABLE>
<CAPTION>
Percent of
Number of Common Stock
Series C Number of Before
Name Preferred Shares Common Shares Offering
<S> <C> <C> <C>
Arcadia Mutual Fund, Inc. 550 339,504 10.5%
Barry Seidman 750 462,960 13.8%
Olympus Capital, Inc.(1) 75 46,296 1.6%
Lee & Rick's Oyster Bar #2 115 70,987 2.4%
Karen R. Haber 10 6,173 *
Steven H. Kerr 5 3,086 *
Bruce R. Knox 35 21,605 *
James Lumberry 10 6,173 *
Mary Park Properties 100 61,728 2.1%
Indenture of Trust of James F. Cool 150 92,592 3.1%
Fondo de Adquisiciones E Inversiones
Internacionales XL S.A. 100 61.728 2.1%
Dominick C. Vicari 10 6,173 *
Frederick A. Lenz 60 37,037 1.3%
Fred K. Zaytoun 10 6,173 *
Michael M. Louis, Jr. 10 6,173 *
David Lain and Delane Frazier 10 6,173 *
World Capital Funding, Inc. 30,000 1.0%
TOTALS 2,000 1,264,561 30.4%
</TABLE>
*less than 1%
(1) James W. Spratt III is the controlling shareholder of Olympus Capital,
Inc.
14
<PAGE>
DESCRIPTION OF SECURITIES
Common Stock
The Company's Articles of Incorporation authorizes the issuance of
9,000,000 shares of Common Stock, $.00004 par value per share, of which
2,984,960 shares were outstanding as of August 31, 1997. Holders of shares of
Common Stock are entitled to one vote for each share on all matters to be voted
on by the shareholders. Holders of Common Stock have no cumulative voting
rights. Holders of shares of Common Stock are entitled to share ratably in
dividends, if any, as may be declared, from time to time by the Board of
Directors in its discretion, from funds legally available therefor. In the event
of a liquidation, dissolution or winding up of the Company, the holders of
shares of Common Stock are entitled to share pro rata all assets remaining after
payment in full of all liabilities. Holders of Common Stock have no preemptive
rights to purchase the Company's Common Stock. There are no conversion rights or
redemption or sinking fund provisions with respect to the Common Stock. All of
the outstanding shares of Common Stock are validly issued, fully paid and
non-assessable.
The transfer agent for the Common Stock is Registrar & Transfer
Company, 10 Commerce Drive, Cranford, New Jersey 07016.
Preferred Stock
The Company's Articles of Incorporation authorize the issuance of
1,000,000 shares of preferred stock, $.01 par value, of which 1,828 shares of
Series A Preferred, 2,051 shares of Series B Preferred and 2,000 shares of
Series C Preferred are outstanding. The Series A and Series B Preferred Stock is
convertible into shares of common stock (see "Selling Stockholders"). The
holders of Series A Preferred are senior to the Common Stock with respect to
dividend rights and are entitled to a liquidation preference of $500 per share.
The annual dividend rate for the Series A Preferred is $40.00 per share per
annum, and the annual dividend rate for the Series C Preferred is $80.00 per
share, when, as and if declared by the Company's Board of Directors. If not
declared, dividends will accumulate and be payable in the future. Full dividends
must be paid or set aside on the Series A and Series C Preferred Stock before
dividends may be paid or set aside on the Company's Common Stock. All dividend
payments will be subordinated to the Company's debt obligations, and will be
subject to the prior approval of Signet and the Company's other future lenders.
Signet has stated that it will not permit dividends to be paid on the Series A
Preferred Stock in 1997. The Company has the option to pay dividends on the
Series C Preferred by the issuance of Common Stock valued at the then effective
conversion rate of the Series C Preferred Stock. The holders of Series B
Preferred and Series C Preferred have a liquidation preference of $1,000 per
share over the Common Stock and the Series A Preferred. Dividends on the Series
B Preferred may be declared and paid if, when and to the extent determined from
time to time by the Company's Board of Directors, provided that such dividends
shall be declared with respect to the Series B Preferred Stock on par with
dividends declared with respect to the Company's Common Stock. The Company does
not expect to declare or pay such dividends in the foreseeable future. The
Company may issue additional preferred stock in the future. The Company's Board
of Directors has authority, without action by the shareholders, to issue all or
any portion of the authorized but unissued preferred stock in one or more series
and to determine the voting rights, preferences as to dividends and liquidation,
conversion rights, and other rights of such series.
The Company considers it desirable to have preferred stock available to
provide increased flexibility in structuring possible future acquisitions and
financings and in meeting corporate needs which may arise. If opportunities
arise that would make desirable the issuance of preferred stock through either
public offering or private placements, the provisions for preferred stock in the
Company's Articles of Incorporation would avoid the possible delay and expense
of a shareholder's meeting, except as may be required by law or regulatory
authorities. Issuance of the preferred stock could result, however, in a series
of securities outstanding that will have certain preferences with respect to
dividends and liquidation over the Common Stock which would result in dilution
of the income per share and net book value of the Common Stock. Issuance of
additional Common Stock pursuant to any conversion right which may be attached
to the terms of any series of preferred stock may also result in dilution of the
net income per share and the net book value of the Common Stock. The specific
terms of any series of preferred stock will depend primarily on market
conditions, terms of a proposed acquisition or financing, and other factors
existing at the time of issuance. Therefore, it is not possible at this time to
determine in what respect a particular series of preferred stock will be
superior to the Company's Common Stock or any other series of preferred stock
which the Company may issue. The Board of Directors may issue additional
preferred stock in future financings.
15
<PAGE>
The issuance of Preferred Stock could have the effect of making it more
difficult for a third party to acquire a majority of the outstanding voting
stock of the Company. Further, certain provisions of Maryland law could delay or
make more difficult a merger, tender offer or proxy contest involving the
Company. While such provisions are intended to enable the Board of Directors to
maximize stockholder value, they may have the effect of discouraging takeovers
which could be in the best interest of certain stockholders. There is no
assurance that such provisions will not have an adverse effect on the market
value of the Company's stock in the future.
LEGAL MATTERS
The legality of the Shares offered hereby will be passed upon for the
Company by Hand & Hand, a law corporation, Dana Point, California.
EXPERTS
The financial statements of the Company as of December 31, 1996 and
1995 and for the years ended December 31, 1996 and 1995, incorporated by
reference in this Prospectus from the Annual Report on Form 10-KSB, have been
incorporated herein in reliance on the report of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of said firm as experts in
accounting and auditing.
16
<PAGE>
No dealer, salesman or other person is authorized to give any
information or to make any representations not contained in this Prospectus in
connection with the offer made hereby, and, if given or made, such information
or representations must not be relied upon as having been authorized by the
Company. This Prospectus does not constitute an offer to sell or a solicitation
to an offer to buy the securities offered hereby to any person in any state or
other jurisdiction in which such offer or solicitation would be unlawful.
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
Additional Information...................... 2
Prospectus Summary.......................... 3
Risk Factors................................ 6
Market Price of Common Stock................ 8
Selling Stockholders........................ 10
Description of Securities................... 10
Legal Matters............................... 11
Experts..................................... 11
FREDERICK BREWING CO.
PART II
Item 14. Other Expenses of Issuance and Distribution.
Filing fee under the Securities Act of 1933 $ 766.40
Blue Sky qualification fees and expenses(1) 1,000.00
Printing and engraving(1) 2,000.00
Legal Fees 10,000.00
Accounting Fees 3,000.00
Miscellaneous(1) 3,233.60
TOTAL $ 20,000.00
==========
(1) Estimates
Item 15. Indemnification of Directors and Officers.
Frederick Brewing is a Maryland corporation. Section 2-405.1(c) of
the Maryland General Corporation Law (the "MGCL") states:
PROSPECTUS
"(c) A person who performs his duties in accordance with the
standard provided in this section shall have the immunity
from liability described under Section 5-248 of the Courts
and Judicial Proceedings Article."
Section 5-348 of the Maryland Courts and Judicial Proceedings
article states:
"A person who performs the duties of that person in
accordance with the standard provided under
Sectionp2-405.1_of the7Corporations and Associations Article
has no liability by reason of being or having been a director
of a corporation."
Section 2-418 of the MGCL states:
"(a) In this section the following words have the meaning
indicated.
(1) "Director" means any person who is or was a director
of a corporation and any person who, while a director of a
corporation, is or was serving at the request of the
corporation as a director, officer, partner, trustee,
employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, other
enterprise, or employee benefit plan.
(2) "Corporation" includes any domestic or foreign
predecessor entity of a corporation in a merger,
consolidation, or other transaction in which the
predecessor's existence ceased upon consummation of the
transaction.
(3) "Expenses" include attorney's fees.
(4) "Official capacity" means the following:
(i) When used with respect to a
director, the office of director in the
corporation; and
(ii) When used with respect to a person other than a
director as contemplated in subsection (j), the elective or
appointive office in the corporation held by the officer, or
the employment or agency relationship undertaken by the
employee or agent in behalf of the corporation.
<PAGE>
(iii) "Official capacity" does not include service
for any other foreign or domestic corporation or any
partnership, joint venture, trust, other enterprise, or
employee benefit plan.
(5) "Party" includes a person who was, is, or is
threatened to be made a named defendant or respondent in a
proceeding.
(6) "Proceeding" means any threatened, pending or
completed action, suit or proceeding, whether the civil,
criminal, administrative, or investigative.
(b)(1) A corporation may indemnify any director made a party
to any proceeding by reason of service in that capacity
unless it is established that:
(i) The act or omission of the
director was material to the matter
giving rise to the proceeding; and
1. Was committed in bad faith; or
2. Was the result of active and deliberate
dishonesty; or
(ii) The director actually received an improper
personal benefit in
money, property, or services; or
(iii) In the case of any criminal proceeding, the
director had reasonable cause to believe that the act or
omission was unlawful.
(2)(i) Indemnification may be against judgments,
penalties, fines, settlements, and reasonable expenses
actually incurred by the director in connection with the
proceeding.
(ii) However, if the proceeding was one by or in the
right of the corporation, indemnification may not be made in
respect of any proceeding in which the director shall have
been adjudged to be liable to the corporation.
(3)(i) The termination of any proceeding by
judgment, order, or settlement does not create a presumption
that the director did not meet the requisite standard of
conduct set forth in this subsection.
(ii) The termination of any proceeding by
conviction, or a plea of nolo contendere or its equivalent,
or an entry of an order of probation prior to judgment,
creates a rebuttable presumption that the director did not
meet that standard of conduct.
(c) A director may not be indemnified under subsection (B) of
this section in respect of any proceeding charging improper
personal benefit to the director, whether or not involving
action in the director's official capacity, in which the
director was adjudged to be liable on the basis that person
benefit was improperly received.
(d) Unless limited by the charter:
(1) A director who has been successful, on the merits or
otherwise, in the defense of any proceeding referred to in
subsection (B) of this section shall be indemnified against
reasonable expenses incurred by the director in connection
with the proceeding.
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<PAGE>
(2) A court of appropriate jurisdiction upon application
of a director and such notice as the court shall require, may
order indemnification in the following circumstances:
(i) If it determines a director is entitled to
reimbursement under paragraph (1) of this subsection, the
court shall order indemnification, in which case the director
shall be entitled to recover the expenses of securing such
reimbursement; or
(ii) If it determines that the director is fairly
and reasonably entitled to indemnification in view of all the
relevant circumstances, whether or not the director has met
the standards of conduct set forth in subsection (b) of this
section or has been adjudged liable under the circumstances
described in subsection (c) of this section, the court may
order such indemnification as the court shall deem proper.
However, indemnification with respect to any proceeding by or
in the right of the corporation or in which liability shall
have been adjudged in the circumstances described in
subsection (c) shall be limited to expenses.
(3) A court of appropriate jurisdiction may be the same
court in which the proceeding involving the director's
liability took place.
(e)(1) Indemnification under subsection (b) of this section
may not be made by the corporation unless authorized for a specific
proceeding after a determination has been made that indemnification
of the director is permissible in the circumstances because the
director has met the standard of conduct set forth in subsection (b)
of this section.
(2) Such determination shall be made:
(i) By the board of directors by a majority vote of a
quorum consisting of directors not, at the time, parties to
the proceeding, or, if such a quorum cannot be obtained, then
by a majority vote of a committee of the board consisting
solely of two or more directors not, at the time, parties to
such proceeding and who were duly designated to act in the
matter by a majority vote of the full board in which the
designated directors who are parties may participate;
(ii) By special legal counsel selected by the board of
directors or a committee of the board by vote as set forth in
subparagraph (i) of this paragraph, or, if the requisite
quorum of the full board cannot be obtained therefor and the
committee cannot be established, by a majority vote of the
full board in which director who are parties may participate;
or
(iii) By the stockholders.
(3) Authorization of indemnification and determination as to
reasonableness of expenses shall be made in the same manner as the
determination that indemnification is permissible. However, if the
determination that indemnification is permissible is made by special
legal counsel, authorization of indemnification and determination as
to reasonableness of expenses shall be made in the manner specified
in subparagraph (ii) of paragraph (2) of this subsection for
selection of such counsel.
(4) Shares held by directors who are parties to the
proceeding may not be voted on the subject matter under this
subsection.
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<PAGE>
(f)(1) Reasonable expenses incurred by a director who is
a party to a proceeding may be paid or reimbursed by the
corporation in advance of the final disposition of the
proceeding upon receipt by the corporation of:
(i) A written affirmation by the director of the
director's good faith belief that the standard of conduct
necessary for indemnification by the corporation as
authorized in this section has been met; and
(ii) A written undertaking by or on behalf of the
director to repay the amount if it shall ultimately be
determined that the standard of conduct has not been met,
(2) The undertaking required by subparagraph (ii) of
paragraph (1) of this subsection shall be an unlimited
general obligation of the director but need not be secured
and may be accepted without reference to financial ability to
make the repayment.
(3) Payments under this subsection shall be made as
provided by the charter, bylaws, or contract or as specified
in subsection (e) of this section.
(g) The indemnification and advancement of expenses provided
or authorized by this section may not be deemed exclusive of any
other rights, by indemnification or otherwise, to which a director
may be entitled under the charter, the bylaws, a resolution of
stockholders or directors, an agreement or otherwise, both as to
action in an official capacity and as to action in another capacity
while holding such office.
(h) This section does not limit the corporation's power to
pay or reimburse expenses incurred by a director in connection with
an appearance as a witness in a proceeding at a time when the
director has not been made a named defendant or respondent in the
proceeding.
(i) For purposes of this section:
(1) The corporation shall be deemed to have requested a
director to serve an employee benefit plan where the
performance of the director's duties to the corporation also
imposes duties on, or otherwise involves services by, the
director to the plan or participants or beneficiaries of the
plan;
(2) Excises taxes assessed on a director with respect to
an employee benefit plan pursuant to applicable law shall be
deemed fines; and
(3) Action taken or omitted by the director with respect
to an employee benefit plan in the performance of the
director's duties for a purpose reasonably believed by the
director to be in the interest of the participants and
beneficiaries of the plan shall be deemed to be for a purpose
which is not opposed to the best interests of the
corporation.
(j) Unless limited by the charter:
(1) An officer of the corporation shall be indemnified
as and to the extent provided in subsection (d) of this
section for a director and shall be entitled, to the same
extent as a director, to seek indemnification pursuant to the
provisions of subsection (d);
(2) A corporation may indemnify and advance expenses to
an officer, employee, or agent of the corporation to the same
extent that it may indemnify directors under this section;
and
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<PAGE>
(3) A corporation, in addition, may indemnify and
advance expenses to an officer, employee, or agent who is not
a director to such further extent, consistent with law, as
may be provided by its charter, bylaws, general or specific
action of its board of directors or contract.
(k)(1) A corporation may purchase and maintain insurance
on behalf of any person who is or was a director, officer,
employee, or agent of the corporation, or who, while a
director, officer, employee, or agent of the corporation, is
or was serving at the request of the corporation as a
director, officer, partner, trustee, employee, or agent of
another foreign or domestic corporation, partnership, joint
venture, trust, other enterprise, or employee benefit plan
against any liability asserted against and incurred by such
person in any such capacity or arising out of such person's
position, whether or not the corporation would have the power
to indemnify against liability under the provisions of this
section.
(2) A corporation may provide similar protection,
including a trust fund, letter of credit, or surety bond, not
inconsistent with this section.
(3) The insurance or similar protection may be provided
by a subsidiary
or an affiliate of the corporation.
(l) Any indemnification of, or advance of expenses to, a
director in accordance with this section, if arising out of a
proceeding by or in the right of the corporation, shall be reported
in writing to the stockholders with the notice of the next
stockholders' meeting or prior to the meeting."
The Amended and Restated Articles of Incorporation ("Articles") of
the Company also limit the liability of, and provide indemnification to,
directors and officers of the Company. Article VIII of the Company's Article
states:
"A. Limitation of Liability. No director who has performed his or
her duties in accordance with the standard set forth in Section 2-405.1 of the
MGCL (or any successor provision thereto) shall be personally liable to the
Corporation or its stockholders for monetary damages for any act or omission by
such director as a director; provided that a director's liability shall not be
limited or eliminated to the extent that: (i) it is proved that the director
actually received an improper benefit or profit in money, property or services
for the amount of the benefit or profit in money, property or services actually
received; or (ii) a judgment or other final adjudication adverse to the director
in entered in a proceeding based on a finding in the proceeding that the
director's action, or failure to act, was the result of active and deliberate
dishonesty and was material to the cause of action adjudicated in the
proceeding. No amendment to or repeal of this Article VIII.A. shall apply to or
have any effect on the liability or alleged liability of any director of the
Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment.
B. Indemnification. The Corporation shall indemnify any person
who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil,
criminal, administrative, arbitrative or investigative, by reason of the fact
that such person is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise or employee
benefit plan, against liability and expenses (including court costs and
attorney's fees), judgments, fines, excise taxes
and amounts paid in satisfaction, settlement or compromise actually and
reasonably incurred by such person in
connection with such action, suit or proceeding to the full extent authorized
by Section 2-418 of the MGCL or any
successor provision thereto.
C. Advancement of Expenses. Reasonable expenses incurred by a
director, officer, employee or agent
of the Corporation in defending a civil or criminal action, suit or proceeding
describe din Article VIII.B. shall be
paid by the Corporation in advance of the final disposition of such action,
suit or proceeding as authorized by the
II-5
<PAGE>
Board of Directors only upon receipt of written affirmation by or on behalf of
such person of his good faith belief that he has met the standard of conduct
necessary for indemnification under relevant law and a written undertaking to
repay such amount if it shall ultimately be determined that the person has not
met that standard.
D. Other Rights and Remedies. The indemnification provided by this
Article VIII shall not be deemed to exclude any other rights to which those
seeking indemnification or advancement of expenses may be entitled under the
Corporation's Articles of Amendment, any insurance or other agreement, trust
fund, letter of credit, surety bond, vote of stockholders or disinterested
directors or otherwise, both as to actions in their official capacity and as to
actions in another capacity while holding such office, and shall continue as to
a person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such person;
provided that no indemnification shall be made to or on behalf of an individual
if a judgment or other final adjudication establishes that his actions, or
omissions to act, were material to the cause of action as adjudicated and (i)
were committed in bad faith; or (ii) were the result of active and deliberate
dishonesty; or (iii) the director actually received an improper personal benefit
in money, property or services; or (iv) in the case of any criminal proceedings,
the director had reasonable cause to believe that the act or omission was
unlawful; provided, however, that a director who has been successful, on the
merits or otherwise, in the defense of proceedings referred to under clauses (i)
through (iv) above, may still be indemnified as to reasonable expenses actually
incurred by such person in connection with the proceeding as to approved by a
disinterested majority of the Board of Directors.
E. Insurance. Upon resolution passed by the Board of Directors,
the Corporation may purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation,
or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation,
partnership, joint venture, trust or another enterprise or employee benefit
plan, against any liability asserted against
him or incurred by him in any such capacity, or arising out of his status,
whether or not the Corporation would have
the power to indemnify him against such liability under the provisions of this
Article or the MGCL.
F. Modification. The duties of the Corporation to indemnify and
to advance expenses to a director,
officer, employee or agent provided in this Article VIII shall be in the nature
of a contract between the Corporation
and each such director, officer, employee or agent and no amendment or repeal
of any provision of this Article VIII
shall alter, to the detriment of such director, officer, employee or agent, the
right of such person to the advance of
expenses or indemnification related to a claim based on an act or failure to act
which took place prior to such
amendment or repeal.
G. Proceedings Initiated by Indemnified Persons. Notwithstanding any
other provision of this Article VIII, the Corporation shall not indemnify a
director, officer, employee or agent for any liability incurred in an action,
suit or proceeding initiated by (which shall not be deemed to include
counter-claims 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 action, suit or proceeding is authorized, either before or
after its commencement, by the affirmative vote of a disinterested majority of
the directors then in office."
Article X of the Company's Bylaws states:
"(a) A director of the Corporation shall not be personally
liable for monetary damages for action taken, or any failure to take action, as
a director, to the extent set forth in the Corporation's Amended and Restated
Articles of Incorporation, which provisions are incorporated herein with the
same affect as if they were set forth herein.
(b) The Corporation shall indemnify any person who is a
director, officer, employee or agent of the Corporation to the extent set forth
in the Corporation's Amended and Restated Articles of Incorporation, which
provisions are incorporated herein with the same affect as if they were set
forth herein."
In addition, the Company intends to obtain a directors and officers
liability insurance policy relating to certain actions or omissions which may be
taken, or omitted to be taken, by the directors and officers of the Company, as
well as a policy which insures against error and omissions in the offering
documents relating to the offer and sale of the Common stock to the public.
II-6
<PAGE>
Item 16. Exhibits
The Exhibits attached hereto are as follows:
(1)(i) Underwriting Agreement(1)
(ii) Underwriter Warrant(1)
(iii) Selected Dealers Agreement(1)
(iv) Escrow Agreement(3)
(v) Amendment to Underwriting Agreement dated January 29, 1996(2)
(vi) Amendment to Underwriting Agreement dated February 12, 1996(3)
(3)(i) Amended and Restated Articles of Incorporation(1)
(ii) Amended and Restated Bylaws(1)
(iii) Articles Supplementary for 8% Cumulative Convertible
Preferred Stock, Series A(5)
(iv) Articles Supplementary for Series B Convertible
Preferred Stock(5)
(v) Articles Supplementary for Series C Convertible Preferred
Stock(7) (4) Form of Stock Certificate(1) (5) Opinion of Hand &
Hand(7)
(10) Material contracts:
(i) Stock Option Agreement dated April 15, 1993 between
the Company, Edward D. Scott,
Kevin E. Brannon and Marjorie A. McGinnis;(1)
(ii) Stock Option Agreement dated April 15, 1993 between
the Company and Chad Kristen
Mortgage & Investment Corporation ("CKMIC");(1)
(iii) Promissory Note dated April 15, 1993 from the Company
to CKMIC;(1)
(iv) Security Agreement dated April, 1993 between the
Company and CKMIC;(1)
(v) Subordination Agreement dated September 17, 1993
between the Company, CKMIC and
Farmers and Mechanics National Bank ("FMNB");(1)
(vi) Modification Agreement dated September 21, 1993
between the Company and CKMIC;(1)
(vii) Form of Shareholder Agreement;(1)
(viii) Form of Termination of Shareholder Agreement;(1)
(ix) Employment Agreement dated December 9, 1995 between
the Company and Kevin E.
Brannon;(1)
(x) Employment Agreement dated December 9, 1995 between
the Company and Marjorie A.
McGinnis;(1)
(xi) Employment Agreement dated December 9, 1995 between
the Company and Craig J.
O'Connor;(1)
(xii) Employment Agreement dated February 20, 1993 between
the Company and Steven
Tluszcz;(1)
(xiv) Lease Agreement dated February 15, 1994 between the
Company and Carroll Creek
LLC;(1)
(xv) Lease Agreement dated March 25, 1994 between the
Company and Carroll Creek LLC;(1)
(xvi) Addendum to Agreement of Lease dated March 30, 1995
between the Company and
Carroll Creek LLC;(1)
II-7
<PAGE>
(xii) Agreement of Lease dated January 21, 1993 between the
Company, Kevin Brannon and
South Carroll Street Partnership;(1)
(xviii) Letter lease dated January 18, 1995 between the
Company and Frederick Produce
Company, Inc.;(1)
(xix) Form of Distribution Agreement;(1)
(xx) Letter from the Company dated October 30, 1993 to the
Kronheim Company, Inc.(1)
(xxi) Installment Loan Agreement dated October 3, 1994
between the Company and FMNB;(1)
(xxii) Authorization and Loan Agreement dated November 9,
1993 between FMNB (lender) and
the Company (borrower);(1)
(xxiii) Authorization and Loan Agreement dated June 10,
1994 between FMNB (lender) and the
Company (borrower);(1)
(xxiv) Commercial Security Agreement dated December 16,
1993 between FMNB and the
Company;(1)
(xxv) Commercial Security Agreement dated June 28, 1994
between the Company and
FMNB;(1)
(xxvi) Non-employee Directors Stock Option Plan;(1)
(xxvii) 1995 Stock Option Plan;(1)
(xxviii) Form of Promissory Note dated various dates from the
Company to certain
stockholders;(1)
(xxix) Promissory Note dated June 18, 1994 between the
Company and Dr. Nicholas Foris;(1)
(xxx) Promissory Note dated March 18, 1993 between the
Company and Dr. Nicholas Foris;(1)
(xxxi) Contact Brewing Agreement dated December 12, 1995 by
The Johnson Beer Company
and the Company;(2)
(xxxii) Confidential private rescission offer memorandum
regarding rescission offer to Maryland
stockholders; letter to Pennsylvania stockholders;(2)
(xxxiii) Rescission Offer Purchase Agreement dated December
19, 1995 by and between Ryan,
Lee & Company, Incorporated and the Company;(2)
(xxxiv) Promissory Note by the Company to FCNB Bank dated
November 24, 1995 with a
guarantee by Dr. Nicholas Foris;(1)
(xxxv) Letter from the Company to the Selling Stockholders
dated December 5,1 1995;(2)
(xxxvi) Agreement of Sale by and between the Company and
SOPM Limited Partnership dated
November 7, 1995;(2)
(xxxvii) Assignment and Extension of Agreement of Sale by and
between the Company and Blue
II, LLC dated December 19, 1995;(2)
(xxxviii) Letter of Intent for Build-to-Suit Light Industrial
Space by and between the Company and
Blue II, LLC dated December 21, 1995;(2)
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<PAGE>
(xxxix) Resolutions adopted by the Maryland Industrial
Development Financing Authority;(2)
(xxxx) Letter dated January 30, 1996 from the Maryland
Economic Development Corp;(2)
(xxxxi) Letter dated January 30, 1996 from Ryan, Lee &
Company, Incorporated;(2)
(xxxxii) Letter dated January 24, 1996 from the Mid-Atlantic
Business Finance Company;(2)
(xxxxiii) Letter from Signet Bank/Maryland dated January 16,
1996;(2)
(xxxxiv) Loan Agreement between the Company and the U.S. Small
Business Administration(6)
(11)(i) Calculation of Net Loss Per Share;(4)
(ii) Calculation of Pro Forma Net Loss Per Share;(1)
(16) Letter from McLean, Koehler, Sparks & Hammond dated
December 12, 1995 to the
Company regarding change in certifying accountants.(1)
(21) Subsidiaries of Small Business Issuer; None.
(23)(i) Consent of Hand & Hand is contained in the legal
opinion included in Exhibit 5.
(ii) Consent of Coopers & Lybrand L.L.P., independent
accountants.(7)
(24) Power of Attorney is contained in the signature
page to this Registration Statement.(7)
(1) Incorporated by reference to such exhibit as filed with the
Company's Registration Statement on Form SB-2, file number 333-80355
(the "Registration Statement").
(2) Incorporated by reference to such exhibit as filed with Amendment
Number 1 to the Registration
---------
Statement.
(3) Incorporated by reference to such exhibit as filed with Amendment
Number 2 to the Registration
---------
Statement.
(4) Incorporated by reference to such exhibit as filed with the
Company's Annual Report on Form 10-KSB for the year ended December
31, 1996.
(5) Incorporated by reference to such exhibit as filed with the
Company's Registration Statement on Form S-3, file number 333-25743.
(6) Incorporated by reference to exhibit 10(I) to the Company's
Quarterly Report on Form 10-QSB for the
---------
Quarter Ended June 30, 1997.
(7) Filed herewith.
Item 17. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this
registration statement:
(i) To include any prospectus required by section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the
registration statement (or the most recent
post-effective amendment thereof) which
individually or in the aggregate, represent a
fundamental change in the information set forth in
the registration statement;
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<PAGE>
(iii) To include any material information with respect
to the plan of distribution not previously
disclosed in the registration statement or any
material change to such information in the
registration statement;
Provided, however, that paragraphs (a)(1)(i) and
(a)(1)(ii) do not apply if the information
required to be included in a post-effective
amendment by those paragraphs is contained in
periodic reports filed by the registrant pursuant
to section 13 or section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by
reference in the registration statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration
statement relating to the securities offered therein,
and the offering of such securities offered at that time
shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which
remain unsold at the termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes
of determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(h) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of its
counsel that matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(i) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part
of this registration statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
Item 18. Not Applicable.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Frederick,
State of Maryland on September __, 1997.
FREDERICK BREWING CO.
By: /s/ Kevin E. Brannon
Kevin E. Brannon
Chairman and Chief Executive Officer
The undersigned officer and/or director of Frederick Brewing Co., a
Maryland corporation (the "Corporation"), hereby constitutes and appoints Kevin
E. Brannon and Craig J. O'Connor, with full power of substitution and
resubstitution, as attorney to sign for the undersigned in any and all
capacities this Registration Statement and any and all amendments thereto, and
any and all applications or other documents to be filed pertaining to this
Registration Statement with the Securities and Exchange Commission or with any
states or other jurisdictions in which registration is necessary to provide for
notice or sale of all or part of the securities to be registered pursuant to
this Registration Statement and with full power and authority to do and perform
any and all acts and things whatsoever required and necessary to be done in the
premises, as fully to all intents and purposes as the undersigned could do if
personally present. The undersigned hereby ratifies and confirms all that said
attorney-in-fact and agent, or any of his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof and incorporate such changes as
any of the said attorneys-in-fact deems appropriate.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on September __, 1997.
By: /s/ Kevin E. Brannon Chairman, and Chief Executive Officer
Kevin E. Brannon (principal executive officer) and Director
By: /s/ Craig J. O'Connor Vice President - Finance and Administration
Craig J. O'Connor (principal accounting and financial officer)
By: /s/ Marjorie A. McGinnis Director and President
Marjorie A. McGinnis
By: /s/ Nicholas P. Foris, M.D. Director
Nicholas P. Foris, M.D.
By: /s/ Carl R. Hildebrand Director
Carl R. Hildebrand
By: /s/ Jerome M. Pool Director
Jerome M. Pool
By: /s/ Maribeth Visco Secretary and Director
Maribeth Visco
II-11
<PAGE>
ARTICLES SUPPLEMENTARY
Kevin E. Brannon and Marjorie McGinnis certify that they are the
Chairman and Assistant Secretary, respectively, of Frederick Brewing Co., a
Maryland corporation (hereinafter referred to as the "Corporation" or the
"Company"); that, pursuant to the Articles of Incorporation, as amended, and
Section 2-208 of the Maryland General Corporation Law, the Board of Directors of
the Corporation adopted the following resolutions on July 25, 1997; and that
none of the Series C Convertible Preferred Stock referred to in these Articles
Supplementary has been issued.
1. Creation of Series C Convertible Preferred Stock. There is hereby
created a series of preferred stock consisting of 2,000 shares and designated as
the Series C Convertible Preferred Stock, having the voting powers, preferences,
relative, participating, limitations, qualifications optional and other special
rights and the qualifications, limitations and restrictions thereof that are set
forth below.
2. Dividend Provisions. The holders of shares of Series C Convertible
Preferred Stock shall be entitled to receive, an 8% annual dividend, equal in
value to $80.00 per share, payable on each July 1 commencing on July 1, 1998 on
conversion pro rata based on a 360-day year. In the option of the Corporation,
such dividend may be paid in cash or in Common Stock valued at the Conversion
Rate in effect as of such July 1 or the Conversion Date. Each share of Series C
Convertible Preferred Stock shall rank on a parity with each other share of
Series C Convertible Preferred Stock with respect to dividends.
3. Redemption Provisions. The Series C Convertible Preferred
Stock is not redeemable except
with the written consent of the holders thereof.
4. Liquidation Provisions. In the event of any liquidation, dissolution
or winding up of the Corporation, whether voluntary or involuntary, the Series C
Convertible Preferred Stock shall be entitled to receive an amount equal to
$1,300.00 per share. After the full preferential liquidation amount has been
paid to, or determined and set apart for the Series C Convertible Preferred
Stock and all other series of Preferred Stock hereafter authorized and issued,
if any, the remaining assets of the Corporation available for distribution to
shareholders shall be distributed ratably to the holders of the common stock. In
the event the assets of the Corporation available for distribution to its
shareholders are insufficient to pay the full preferential liquidation amount
per share required to be paid the Corporation's Series C Convertible Preferred
Stock, the entire amount of assets of the Corporation available for distribution
to shareholders shall be paid up to their respective full liquidation amounts
first to the Series C Convertible Preferred Stock, then to any other series of
Preferred Stock hereafter authorized and issued, all of which amounts shall be
distributed ratably among holders of each such series of Preferred Stock, and
the common stock shall receive nothing. A reorganization or any other
consolidation or merger of the Corporation with or into any other corporation,
or any other sale of all or substantially all of the assets of the Corporation,
shall not be deemed to be a liquidation, dissolution or winding up of the
Corporation within the meaning of this Section 4, and the Series C Convertible
Preferred Stock shall be entitled only to (i) the right provided in any
agreement or plan governing the reorganization or other consolidation, merger or
sale of assets transaction, (ii) the rights contained in the Maryland General
Corporation Law and (iii) the rights contained in other Sections hereof.
<PAGE>
5. Conversion Provisions. The holders of shares of Series C
Convertible Preferred Stock shall
have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. (1) Each share of Series C Convertible Preferred
Stock (the "Preferred Shares") shall be convertible, at the option of
its holder, at any time, into a number of shares of common stock of the
Company (the "Common Stock") at the initial conversion rate (the
"Conversion Rate") defined below. The initial Conversion Rate, subject
to the adjustments described below, shall be a number of shares of
Common Stock equal to $1,000 divided by the lower of (i) Seventy
Percent (70%) of the average Market Price of the Common Stock for the
five trading days immediately prior to the Conversion Date (defined
below) or (ii) $1.62, increased proportionally for any reverse stock
split and decreased proportionally for any forward stock split or stock
dividend. For purposes of this Section 5(a)(1), Market Price for any
date shall be the closing bid price of the Common Stock on such date,
as reported by the National Association of Securities Dealers Automated
Quotation System ("NASDAQ"), or the closing bid price in the
over-the-counter market if other than Nasdaq.
(2) No fractional shares of Common Stock shall be issued upon
conversion of the Preferred Shares, and in lieu thereof the number of
shares of Common Stock issuable for each Preferred Share converted
shall be rounded to the nearest whole number. Such number of whole
shares of Common Stock issuable upon the conversion of one Preferred
Share shall be multiplied by the number of Preferred Shares submitted
for conversion pursuant to the Notice of Conversion (defined below) to
determine the total number of shares of Common Stock issuable in
connection with any conversion.
(3) In order to convert the Preferred Shares into shares of Common
Stock, the holder of the Preferred Shares shall: (i) complete, execute
and deliver to the Corporation the conversion certificate attached
hereto as Exhibit A (the "Notice of Conversion"); and (ii) surrender
the certificate or certificates representing the Preferred Shares being
converted (the "Converted Certificate") to the Corporation. The Notice
of Conversion shall be effective and in full force and effect if
delivered to the Corporation by facsimile transmission at (301)
694-2971. Provided that a copy of the Notice of Conversion is delivered
to the Corporation on such date by facsimile transmission or otherwise,
and provided that the original Notice of Conversion and the Converted
Certificate are delivered to the Corporation within three (3) business
days thereafter at 4607 Wedgewood Boulevard, Frederick, Maryland 21703,
the date on which notice of conversion is given (the "Conversion Date")
shall be deemed to be the date set forth therefor in the Notice of
Conversion; and the person or persons entitled to receive the shares of
Common stock issuable upon conversion shall be treated for all purposes
as the record holder or holders of such shares of Common Stock as of
the Conversion Date. If the original Notice of Conversion and the
Converted Certificate are not delivered to the Corporation within three
(3) business days following the Conversion Date, the Notice of
Conversion shall become null and void as if it were never given and the
Corporation shall, within two (2) business days thereafter, return to
the holder by overnight courier any Converted Certificate that may have
been submitted in connection with any such conversion. In the event
that any Converted Certificate submitted represents a number of
Preferred Shares that is greater than the number of such shares that is
being converted pursuant to the Notice of Conversion delivered in
connection therewith, the Corporation shall deliver, together with the
certificates for the shares of Common Stock issuable upon such
conversion as provided herein, a certificate representing the remaining
number of
<PAGE>
Preferred Shares not converted.
(4) Upon receipt of a Notice of Conversion, the Corporation shall
absolutely and unconditionally be obligated to cause a certificate of
certificates representing the number of shares of Common Stock to which
a converting holder of Preferred Shares shall be entitled as provided
herein, which shares shall constitute fully paid and nonassessable
shares of Common Stock that are freely transferable on the books and
records of the Corporation and its transfer agents, to be issued to,
delivered by overnight courier to, and received by such holder by the
fifth (5th) calendar day following the Conversion Date. Such delivery
shall be made at such address as such holder may designate therefor in
its Notice of Conversion or in its written instructions submitted
together therewith.
(5) No less than 25 shares of Series C Convertible Preferred Stock may
be converted at any one time, unless the holder then holds less than 25
shares and converts all shares at that time.
(b) Adjustments to Conversion Rate. (1) Reclassification,
Exchange and Substitution. If
the Common Stock issuable on conversion of the Series C Convertible
Preferred Stock shall be
changed into the same or a different number of shares of any other
class or classes of stock,
whether by capital reorganization, reclassification, reverse stock
split or forward stock split or
stock dividend or otherwise (other than a subdivision or combination
of shares provided for
above), the holders of the Series C Convertible Preferred Stock shall,
upon its conversion, be
entitled to receive, in lieu of the Common Stock which the holders
would have become entitled
to receive but for such change, a number of shares of such other class
or classes of stock that
would have been subject to receipt by the holders if they had exercised
their rights of conversion
of the Series C Convertible Preferred Stock immediately before that
change.
(2) Reorganizations, Mergers, Consolidations or Sale of Assets. If at
any time there shall be a capital reorganization of the Corporation's
common stock (other than a subdivision, combination, reclassification
or exchange of shares provided for elsewhere in this Section (5) or
merger of the Corporation into another corporation, or the sale of the
Corporation's properties and assets as, or substantially as, an
entirety to any other person, then, as a part of such reorganization,
merger or sale, lawful provision shall be made so that the holders of
the Series C Convertible Preferred Stock shall thereafter be entitled
to receive upon conversion of the Series C Convertible Preferred Stock,
the number of shares of stock or other securities or property of the
Corporation, or of the successor corporation resulting from such
merger, to which holders of the Common Stock deliverable upon
conversion of the Series C Convertible Preferred Stock would have been
entitled on such capital reorganization, merger or sale if the Series C
Convertible Preferred Stock had been converted immediately before that
capital reorganization, merger or sale to the end that the provisions
of this paragraph (b)(2) (including adjustment of the Conversion Rate
then in effect and number of shares purchasable upon conversion of the
Series C Convertible Preferred Stock) shall be applicable after that
event as nearly equivalently as may be practicable.
(3) Additional Shares In the event (a) the Company does not file a
registration statement under the Securities Act of 1933 covering the
Common Stock issuable upon conversion of the Series A Convertible
Preferred Stock within 30 days of August 8, 1997 (the "Closing Date"),
(b) the registration statement is not declared effective within 120
days of the Closing Date or (c) the
<PAGE>
Company does not issue the Common Shares within the time limits set
forth in the penultimate sentence of Section 5(a)(1), the Conversion
Rate shall be adjusted to increase the number of shares of common stock
assessable by 5%. The foregoing adjustments are cumulative and not
exclusive of each other, with the intent that the adjustments under
this section 3(b)(3) may be a total of 5%, 10% or 15%.
(c) No Impairment. The Corporation will not, by amendment of its
Articles of Incorporation or through any reorganization,
recapitalization, transfer of assets, merger, dissolution, or any other
voluntary action, avoid or seek to avoid the observance or performance
of any of the terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in the carrying
out of all the provision of this Section 5 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of the Series C Convertible Preferred
Stock against impairment.
(d) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Rate for any shares of
Series C Convertible Preferred Stock, the Corporation at its expense
shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and prepare and furnish to each holder of Series
C Convertible Preferred Stock effected thereby a certificate setting
forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. The Corporation
shall, upon the written request at any time of any holder of Series C
Convertible Preferred Stock, furnish or cause to be furnished to such
holder a like certificate setting forth (i) such adjustments and
readjustments, (ii) the Conversion Rate at the time in effect, and
(iii) the number of shares of Common Stock and the amount, if any, of
other property which at the time would be received upon the conversion
of such holder's shares of Series C Convertible Preferred Stock.
(e) Notices of Record Date. In the event of the establishment by the
Corporation of a record of the holders of any class of securities for
the purpose of determining the holders thereof who are entitled to
receive any dividend (other than a cash dividend) or other
distribution, the Corporation shall mail to each holder of Series C
Preferred Stock at least twenty (20) days prior to the date specified
therein, a notice specifying the date on which any such record is to be
taken for the purpose of such dividend or distribution and the amount
and character of such dividend or distribution.
(f) Reservation of Stock Issuable Upon Conversion. The Corporation
shall at all times reserve and keep available out of its authorized but
unissued shares of Common Stock solely for the purpose of effecting the
conversion of the shares of the Series C Convertible Preferred Stock
such number of its shares of Common Stock as shall from time to time be
sufficient, based on the Conversion Rate then in effect, to effect the
conversion of all then outstanding shares of the Series C Preferred
Stock. If at any time the number of authorized but unissued shares of
Common Stock shall not be sufficient to effect the conversion of all
then outstanding shares of the Preferred Stock, then, in addition to
all rights, claims and damages to which the holders of the Series C
Convertible Preferred Stock shall be entitled to receive at law or in
equity as a result of such failure by the Corporation to fulfill its
obligations to the holders hereunder, the Corporation will take any and
all corporate or other action as may, in the opinion of its counsel, be
helpful, appropriate or necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be
sufficient for such purpose.
<PAGE>
(g) Notices. Any notices required by the provisions hereof to be given
to the holders of shares of Series C Convertible Preferred Stock shall
be deemed given if deposited in the United States mail, postage prepaid
and return receipt requested, and addressed to each holder of record at
its address appearing on the books of the Corporation or to such other
address of such holder or its representative as such holder may direct.
6. Voting Provisions. Except as otherwise expressly provided or
required by law, the Series
C Convertible Preferred Stock shall have no voting rights.
IN WITNESS WHEREOF, the Company has caused this Articles Supplementary
of Series C Convertible Preferred Stock to be duly executed by its Chairman and
attested to by its Assistant Secretary this 25th day of July, 1997 who, by
signing their names hereto, acknowledge that these Articles Supplementary are
the act of the Company and state to the best of their knowledge information and
belief, under the penalties of perjury, that the above matters and facts are
true in all material respects.
FREDERICK BREWING CO.
Kevin E. Brannon, Chairman
Marjorie McGinnis
<PAGE>
EXHIBIT A
CONVERSION CERTIFICATE
FREDERICK BREWING CO.
Series C Convertible Preferred Stock
The undersigned holder ( the "Holder") is surrendering to Frederick
Brewing Co., a Maryland corporation (the "Company"), one or more certificates
representing shares of Series C Convertible Preferred Stock of the Company (the
"Preferred Stock") in connection with the conversion of all or a portion of the
Preferred Stock into shares of Common Stock, $.00004 par value per share, of the
Company (the "Common Stock") as set forth below.
1. The Holder understands that the Preferred Stock were issued by the
Company pursuant to the exemption from registration under the United States
Securities Act of 1933, as amended (the "Securities Act"), provided by
Regulation D promulgated thereunder.
2. The Holder represents and warrants that all offers and sales of the
Common Stock issued to the Holder upon such conversion of the Preferred Stock
shall be made (a) pursuant to an effective registration statement under the
Securities Act, (in which case the Holder represents that a prospectus has been
delivered) (b) in compliance with Rule 144, or (c) pursuant to some other
exemption from registration.
Number of Shares of Preferred Stock being converted:
Applicable Conversion Price:
Number of Shares of Common Stock Issuable:
Number of Dividend Shares:
Conversion Date:
Delivery Instructions for certificates of Common Stock and for new
certificates representing any remaining shares of Preferred Stock:
NAME OF HOLDER:
(Signature of Holder)
<PAGE>
September 12, 1997
Frederick Brewing Co.
4607 Wedgewood Boulevard
Frederick, MD 21703
Re: Registration Statement on
Form S-3 File ("Registration Statement")
Gentlemen:
You have requested our opinion as to the legality of the issuance by
you (the "Corporation") of an estimated 1,264,561 shares of common stock, par
value $.00004 ("Shares") including 70,000 Shares currently outstanding; and an
estimated 1,234,561 Shares issuable upon conversion of the Series C Convertible
Preferred Stock ("Series C Stock"), all as further described in the Registration
Statement in the form to be filed with the U.S. Securities and Exchange
Commission.
As your counsel, we have reviewed and examined:
1. The Articles of Incorporation of the Corporation;
2. The Bylaws of the Corporation;
3. A copy of certain resolutions of the corporation;
4. The Registration Statement;
5. The Articles Supplementary filed with the Maryland Secretary
of State describing
the terms of the Series C Stock;
6. Such other matters as we have deemed relevant in forming our
opinion.
In giving our opinion, we have assumed without investigation the
authenticity of any document or instrument submitted us as an original, the
conformity to the original of any document or instrument submitted to us as a
copy, and the genuineness of all signatures on such
<PAGE>
Frederick Brewing Co.
September 12, 1997
Page -2- originals or copies.
Based upon the foregoing, we are of the opinion that the Shares to be
offered pursuant to the Registration Statement, if sold as described in the
Registration Statement (and as to shares issuable upon warrants as options if
the warrants or options are exercised in accordance with their terms), will be
legally issued, fully paid and nonassessable, provided that no less than par
value is paid for any Shares.
No opinion is expressed herein as to the application of state securities
or Blue Sky laws.
This opinion is furnished by us as counsel to you and is solely for your
benefit. Neither this opinion nor copies hereof may be relied upon by, delivered
to, or quoted in whole or in part to any governmental agency or other person
without our prior written consent.
Notwithstanding the above, we consent to the reference to our firm name
in the Prospectus filed as a part of the Registration Statement and the use of
our opinion in the Registration Statement. In giving these consents, we do not
admit that we come within the category of persons whose consent is required
under Section 7 of the Securities and Exchange Commission promulgated
thereunder.
Very truly yours,
HAND & HAND
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement on
Form S-3 of our report dated February 26, 1997, except as to Note 11 for which
the date is March 31, 1997, on our audits of the financial statements of
Frederick Brewing Co. as of December 31, 1996 and 1995, and for the years then
ended, which report in included in the Frederick Brewing Co. Annual Report on
Form 10-KSB. We also consent to the references to our firm under the captions
"Experts" and "Selected Financial and Operating Data".
COOPERS & LYBRAND LLP
Rockville, Maryland
September 15, 1997
