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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE YEAR ENDED DECEMBER 31, 1997.
COMMISSION FILE NUMBER: 000-27800
FREDERICK BREWING CO.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
MARYLAND 52-1769647
(STATE OR OTHER JURISDICTION OF INCORPORATION (I.R.S. EMPLOYER
OR ORGANIZATION) IDENTIFICATION NO.)
4607 WEDGEWOOD BOULEVARD
FREDERICK, MARYLAND 21703
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
(301) 694-7899
(ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)
103 SOUTH CARROLL STREET, FREDERICK, MARYLAND, 21701
(FORMER NAME, FORMER ADDRESS AND
FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT)
Indicate by check mark whether the issuer (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
Check if there is no disclosure of delinquent filers in response to Item
405 of the Regulation S-B is not contained in this Form, and no disclosure will
be contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
Issuer's revenues for the recent fiscal year: $3,286,776
The aggregate market value of voting shares held by non-affiliates as of
March 27, 1997: $6,361,127
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<S> <C>
COMMON STOCK, $0.00004 PAR VALUE 4,540,356
(TITLE OF EACH CLASS) (NUMBER OF SHARES OUTSTANDING
AS OF DECEMBER 31, 1997)
</TABLE>
Transitional Small Business Disclosure Format (Check one):
Yes [ ] No [X]
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FREDERICK BREWING CO.
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INDEX TO FORM 10-KSB
------------------------------
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<S> <C> <C>
PART I.
Item 1. Description of Business..................................... 2
Item 2. Description of Property..................................... 3
Item 3. Legal Proceedings........................................... 3
Item 4. Submission of Matters to a Vote of Security Holders......... 3
PART II.
Item 5. Market for Frederick Brewing Co.'s Common Stock and Related
Shareholder Matters......................................... 4
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 4
Item 7. Financial Statements........................................ 9
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 10
PART III.
Item 9. Directors and Executive Officers of Frederick Brewing Co.;
Compliance with Section 16(a) of the Exchange Act........... 10
Item 10. Executive Compensation...................................... 11
Item 11. Security Ownership of Certain Beneficial Owners and
Management.................................................. 12
Item 12. Certain Relationships and Related Transactions.............. 13
Item 13. Exhibits, Lists, and Reports on Form 8-K.................... 13
SIGNATURES
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FREDERICK BREWING CO.
PART I.
ITEM 1. DESCRIPTION OF BUSINESS
Since entering business in 1993, Frederick Brewing Co. (the "Company"), has
been one of the fastest growing microbreweries in the United States. The Company
brews, kegs and bottles at its brewery in Frederick, Maryland, for wholesale to
its 145 independent distributors, 26 styles of fresh, full flavored beers under
the brand names of "Blue Ridge," "Hempen," and beginning in February of 1998,
"Wild Goose" and "Brimstone". By catering to the segment of the beer drinking
market which is seeking full-bodied, full-flavored beers at prices considerably
higher than those charged for mass-produced American lagers and light lagers,
the Company has been able to capture a significant share of the specialty beer
market in the Mid-Atlantic region of the United States.
The Company's beers have been critically acclaimed and continue to attract
new consumers. Sales have grown from 660 barrels in 1993 to 17,300 barrels in
1997. On December 15, 1997, the Company announced that it had reached definitive
agreements to acquire Wild Goose Brewery, Inc. of Cambridge, Maryland and to
acquire the brands, formulas and trademarks of Brimstone Brewing Company, Inc.
of Baltimore. These two companies together had sales of approximately 17,500
barrels in 1997 and revenues of approximately $2.75 million. Pro-forma sales of
the Company, including the acquired brands, for 1997 were over $6.0 million on
shipments of 34,800 barrels, making the Company the largest craftbrew producer
in the Mid-Atlantic region. The transactions closed in late January, 1998 and
sales of those products by the Company began in mid-February.
In March of 1997 the Company substantially completed construction of its
new brewery and increased the Company's production capacity from 12,600 barrels
to approximately 40,000 barrels per year. Full-scale production was delayed,
however until June of 1997 due to unanticipated problems with certain re-built
packaging equipment purchased from a financially troubled vendor. The Company
was unable to produce enough beer to fully meet demand at times during the first
and second quarters of the year. Additional fermentation tanks were installed
during the second half of the year, bringing total annual production capacity to
approximately 80,000 barrels. As demand warrants, additional fermentation tanks
may be added in existing building space to increase the Company's brewing
capacity to more than 160,000 barrels per year. The brewery is modularly
designed to permit an additional expansion of brewing capacity up to 300,000
barrels per year. The Company has no present intention of expanding brewing
capacity during 1998.
THE MARKET ENVIRONMENT
The Company competes in the domestic specialty category of the U.S. brewing
industry. Management believes that this category currently comprises
approximately 3% of the $50 billion U.S. retail beer market. Domestic specialty
beers are distinguished from mass-market domestic beers in that they typically:
(1) are heavier-bodied and more flavorful; (2) use traditional brewing
techniques and ingredients, rather than the corn, rice and other unmalted grains
and added enzymes used to create the light color and body of mass-market
domestic lagers; and (3) are sold to consumers at prices of $4.79 to $7.99 per
six-pack of 12 ounce bottles. The domestic specialty category has been created
and expanded since the early 1980's by innovative, entrepreneurial companies.
There are now more than 1,300 of these companies in the United States, each
producing several brands or styles of beer.
The domestic specialty brewing category experienced more than 15 years of
extremely rapid growth; however growth in overall sales by domestic specialty
brewers slowed substantially, beginning in late 1996 and continuing through 1997
in part, due to the fact that some large markets, such as the Pacific Northwest,
upper New England, Colorado and Northern California have matured and are
saturated to the point that further rapid growth appears unlikely. Management
also believes that other market forces have affected the growth of the domestic
specialty segment. Primary among those forces is the aggressive marketing of
import beers over the past two years. Many of these beers which share flavor
profiles and competitive price points with domestic specialty beers and appear
to have achieved substantial sales increases, perhaps at the expense of domestic
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specialties. In addition, some wholesale distributors who had aggressively added
many new domestic specialty brands to their portfolios and devoted high levels
of effort to promoting those brands saw declining returns to their investments
in marketing and inventory due to increasing competition and began re-allocating
their resources to higher volume products (sometimes under pressure from the
suppliers of those products). Growth may have been further affected by the fact
that some retailers who had devoted a relatively large share of shelf space and
sales effort to promote a wide variety of domestic specialty beers re-allocated
their resources when some less widely known domestic specialty products, proved
slow to "sell through" to consumers.
Nevertheless, management believes that, in the long run, the domestic
specialty category will continue to grow, along with the remainder of the higher
priced segments of the beer industry, at rates considerably higher than that of
the beer industry as a whole. Within the category, management believes growth
will increasingly accrue to companies whose brands have already developed a
degree of consumer awareness and loyalty, are of consistently high quality and
shelf-stable and are supported with coherent and effective sales and marketing
programs.
STRATEGY
Management's long-term goal is to build the Company into one of the leading
brewers of domestic specialty beers in the United States. During 1998, the
Company intends to increase its production and sales by (1) increasing the
market share of its brands in the Company's core markets in the Mid-Atlantic
states; and (2) expanding the distribution of certain product lines into other
selected target markets on the East Coast and in certain areas of the Midwest,
Southwest and West Coast. Management is also seeking additional expansion
opportunities through the formation of strategic alliances, via acquisition,
merger or long-term licensing agreements with owners of established beer brands
with strong sales and distribution bases in markets outside the
Maryland-District of Columbia region, thereby more fully utilizing the Company's
production, sales and marketing assets.
ITEM 2. DESCRIPTION OF PROPERTY
All of the Company's brewing, packaging and office functions have, since
March of 1997, been carried out at its 55,000 square foot facility located on
approximately 5.5 acres in a light industrial park at 4607 Wedgewood Boulevard,
Frederick Maryland. The facility was designed and built according to the
Company's specifications from April 1996 through March of 1997. The Company
leases the land and building from Blue II, LLC a Maryland limited liability
company, under a capital lease that expires on March 1, 2017. The Company has
the option to purchase these real estate assets at any time after March 1, 2003
at a price of $3.0 million. Prior to moving into the new brewery, all Company
operations were conducted in approximately 7,700 feet of leased space. The
Company's obligations under that lease terminated in September 1997.
ITEM 3. LEGAL PROCEEDINGS
In June of 1997, the Company filed a complaint in the Circuit Court of
Frederick County Maryland against Intertrade Packaging Machinery Corp. ("IPMC")
of Cincinnati, OH and its two principal officers, alleging, among other things,
breach of contract, breach of warranty and fraud in connection with IPMC's sale
of certain re-built packaging and conveyor equipment to the Company.
The case was transferred to the U.S. District Court for the District of
Maryland upon motion of the Defendants. The matter was settled before trial and
the case was dismissed with prejudice in December of 1997, when the defendants
paid the Company $190,000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting is scheduled for 11 a.m. on May 14, 1998 in
the Tap Room of the brewery at 4607 Wedgewood Blvd., Frederick, Maryland, 21703.
Matters to be voted on will be included in the Company's proxy statement to be
filed with the Securities and Exchange Commission and distributed to
stockholders prior to the meeting.
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PART II.
ITEM 5. MARKET FOR FREDERICK BREWING CO.'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS
The Company's common stock, par value $.00004 per share ("Common Stock")
trades on the Nasdaq Small Cap Stock Market under the symbol "BLUE". The number
of record shareholders at December 31, 1997 was approximately 5,000. The
following table shows the range of high and low closing prices and year end
closing prices for the Common Stock for the most recent fiscal year, on a
quarterly basis. The Company's Series A, C, D and E Convertible Preferred Stock
(the "Preferred Stock") are not traded publicly.
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<CAPTION>
1997
----------
HIGH LOW
---- ---
<S> <C> <C>
First Quarter............................................... $4 5/8 $4 1/8
Second Quarter.............................................. 5 5/8 2 1/2
Third Quarter............................................... 2 3/4 1 31/32
Fourth Quarter.............................................. 2 5/8 1 1/2
Year End Close.............................................. $1 7/8
</TABLE>
The Company paid no dividends in 1997.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following selected financial data and Management's Discussion and
Analysis of Financial Conditions and Results of Operations should be read in
conjunction with the Company's 1997 financial statements and the notes thereto,
included elsewhere in this Form 10-KSB. (See Item 7).
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- -------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Sales.................................... $ 3,287 $ 1,872 $ 1,832 $ 1,186 $ 106
Less excise taxes, returns, allowances... 209 152 87 59 4
--------- --------- --------- --------- -------
Net sales........................... 3,078 1,720 1,745 1,127 102
Cost of sales............................ 2,838 1,743 1,253 847 89
--------- --------- --------- --------- -------
Gross Profit............................. 240 (23) 492 280 13
Selling, general, and administrative
expenses............................... 4,622 1,990 831 485 259
Loss on assets to be disposed............ 0 641 0 0 0
--------- --------- --------- --------- -------
Loss from operations..................... (4,382) 2,654 (339) (205) (246)
Interest (income) expense, net........... 140 (29) 79 52 11
Other (income) expense................... 159 -- (42) (5) 1
--------- --------- --------- --------- -------
Loss before income taxes................. (4,363) (2,625) (376) (253) (258)
(Benefit) provision for income taxes..... -- -- (17) 17 --
--------- --------- --------- --------- -------
Basic net loss........................... (4,363) (2,625) (359) (269) (258)
Preferred stock deemed dividend
requirements........................... (3,612) -- -- -- --
--------- --------- --------- --------- -------
Net loss attributable to common
shareholders........................... $ (7,975) $ (2,625) $ (359) $ (269) $ (258)
========= ========= ========= ========= =======
Net loss per common share................ (1.59) (1.45) (0.30) (0.24) (0.29)
===== ===== ===== ===== =====
Weighted average common shares........... 2,741,583 1,804,503 1,204,719 1,122,437 886,908
========= ========= ========= ========= =======
</TABLE>
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OVERVIEW OF SIGNIFICANT ACTIVITIES AND EXPENSES
The Company was incorporated in Maryland on March 4, 1992, began selling
draft beer brewed under contract in April of 1993 and began selling bottled and
draft beer produced at its original brewery in downtown Frederick, Maryland in
November of 1993. More than 95% of the company's sales are derived from the sale
of beer it produces under its own brands to independent wholesale distributors.
The Company also produces and sells small amounts of beer (approximately 400
barrels in 1997) under contract for the owners of other brands, who then sell
the beer through their own distributor network. The Company also derives small
amounts of revenue from the retail sale of apparel, glassware and other
promotional items bearing the Company's designs and trademarks to the public and
sales of such items at, or below, cost to its wholesale distributors. Sales
volumes for the Company's beers are affected by numerous factors, including
changing levels of consumer demand in current markets, new product introductions
by the Company and by competitors, geographic expansion of the Company's market
territory, the relative effort exerted on behalf of the Company's brands by its
third-party wholesale distributors and competitive factors such as changes in
the number of other domestic specialty beers available in the Company's markets
as well as the promotional efforts, spending and pricing of brewers, marketers
and importers of competitive products. Seasonality also appears to affect
consumer demand for the Company's products, with higher demand during the second
and fourth quarters and lower demand in the first and third quarters. From 1993
through May of 1997, when the new brewery became fully operational, the
Company's sales were periodically depressed by its lack of brewing capacity.
Between November, 1993 and December of 1995, the Company expanded its original
brewery in three phases to increase annual capacity from approximately 2,500
barrels to 12,000 barrels. The new brewery was opened with an annual capacity of
approximately 40,000 barrels. In August and September of 1997, additional
fermentation tanks were installed to increase capacity to approximately 80,000
barrels per year. Since June of 1997 the Company has been fully able to meet
demand for its products. The new brewery is designed to allow rapid expansion,
by the addition of fermentation tanks, to an annual capacity of approximately
160,000.
The Company had a large negative operating margin in 1997. Management
believes the Company's operating margin will improve in the future for several
reasons, including: (1) gross profit should improve as previously underutilized
brewing capacity is put to productive use, reducing per barrel fixed costs (such
as depreciation, plant maintenance, production management compensation and
general utilities), particularly after the first quarter of 1998 when the
production and sale of the Wild Goose and Brimstone brands begins; (2)
extraordinary administrative costs (including brokerage and finders fees;
investor relations expenses; legal, accounting and filing fees) associated with
raising necessary equity capital to complete and expand the new brewery, finance
the acquisition of Wild Goose Brewery, Inc. and to provide working capital
should be reduced or eliminated; and (3) the reduction of expenditures on
relatively costly mass-market advertising in favor of less costly trade
advertising, on-premise promotion and point of sale merchandising. These factors
could, however, be off-set, in whole or in part, by other developments, such as:
(1) competitive reductions in selling prices; (2) declining consumer demand for
some or all of the Company's brands; (3) increased salary and amortization
expenses for the goodwill acquired in connection with the Wild Goose and
Brimstone brands; (4) increases in the costs of packaging materials and raw
ingredients; and (5) changes in the Company's sales mix.
The Company sells its beers packaged in both bottles and kegs. Bottled beer
sales produce higher per barrel revenues and contribution margins (revenues net
of direct labor, materials and ingredients costs) than do keg sales but keg
sales produce higher gross margin percentages. In 1996 and 1997 keg sales made
up approximately 18% and 14% of beer sales revenues, respectively. Management
believes the percentage of volume shipped in kegs may increase during 1998
because both the Wild Goose Brewery, Inc. and Brimstone Brewing Company, Inc.
historically sold a larger percentage of their beer in kegs than did the Company
before acquiring those brands.
In 1997, the Company privately placed five series of convertible preferred
stock, raising a total of $9,103,000, net of finder's fees and other offering
expenses, which were approximately $1,406,000 in the aggregate. In order to
provide liquidity to these private investors and all Company shareholders, the
Company retained Corporate Relations Group, Inc., Orlando, Florida ("CRG"), as
its investor relations advisor
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pursuant to a pre-paid five-year contract at a total fee of $650,000. The
Company also issued CRG warrants to purchase 500,000 Shares of common stock.
These warrants had an estimated aggregate fair value of $670,000 on the date of
grant. These amounts are being amortized over the five year term of the
contract. In addition, the Company paid CRG and its affiliates $1,304,560 over
the course of the year for producing and distributing printed materials to
investment professionals, stockbrokers, investment advisors and individual
investors which were expensed as incurred. Management expects that expenditures
for investor relations services will be greatly reduced in future periods.
As of March 24, 1998, the Company had approximately 9,000,000 shares of
common stock outstanding or reserved for later issuance, an increase of
7,045,124 over the 1,954,876 common shares outstanding as of December 31, 1996.
The Company has issued virtually all of the 9,000,0000 common shares it is
currently authorized to issue. The increase in common shares outstanding or
reserved is the result of 2754 shares issued upon the conversion of Series A
Preferred Stock, 2,474,286 shares issued upon the conversion of Series B
Preferred Stock and 2,671,089 shares issued upon the conversion of Series C and
D Preferred Stock, 1,180,000 shares reserved for issuance to the former
shareholders of Wild Goose Brewery Inc. and Brimstone Brewing Company, Inc. in
consideration of the acquisition of their equity securities and brands,
respectively. In addition, there are approximately 829 shares of Series C and
218 shares of Series D Convertible Preferred Stock outstanding. The holders of
657 shares have given notice of their intent to convert these preferred shares
into approximately 1,138,412 common shares as soon as the Company is legally
authorized to issue more common shares. Also outstanding are 1828 shares of
Series A Convertible Preferred Stock which are immediately convertible into
245,461 shares of common stock and 3000 shares of Series E Convertible Preferred
Stock ("Series E"). The Series E shares are convertible into common stock at a
25% discount to the average closing bid price as of the date of conversion. The
Series E shares can be redeemed by the Company at a 33% premium to purchase
price and management is seeking the financing necessary to carry out the
redemptions but no assurance can be given that the redemptions will be carried
out. If not redeemed, the Series E shares will likely be converted in the near
term, causing substantial additional dilution of current shareholder interests.
The Company is not in compliance with one of the covenants contained in its
loan agreements with its senior debt holders. This covenant requires that the
ratio of the Company's quarterly cash flows over the four most recent quarters
to 12 months' debt service payments exceed 1.5:1. See Note 6 to financial
statements.
SALES
Sales are affected by market distribution, seasonal product introductions,
advertising and promotional campaigns and competition. For 1997 and 1996 gross
sales were $3,286,776 and $1,871,593 respectively, an increase of $1,415,183, or
75.6%. Production volumes in 1997 and 1996 were 17,300 barrels and 10,910
barrels, respectively, an increase of 6,390 barrels, or 58.6%. The increases in
production and sales were due to several factors, including: the completion of
the new brewery in the second quarter which removed capacity constraints that
had effectively put a cap on sales; the successful introduction of Hempen Ale in
May, 1997 and Hempen Gold in September, 1997; and the opening of new markets in
the Company's distribution territory, primarily for the Hempen product line.
Revenues per barrel for the year of 1997 and 1996 were $190 and $172 per barrel,
respectively, an increase of $18 per barrel, or 10.5% This increase in revenue
per barrel reflects the sales during 1996 of distressed product at a lower
overall selling price, the introduction of the Hempen Ale and Hempen Gold brands
at higher pricing during 1997 and an increase in case sales from 82% of beer
revenues in 1996 to 86% in 1997.
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EXCISE TAXES
Federal and state excise taxes were $169,236 and $100,697 during 1997 and
1996, respectively, representing 5.5% and 5.9% of net sales, respectively. The
decrease in excise taxes in 1997, as a percentage of net sales, is due primarily
to the increase in the Company's gross revenue per barrel. The Federal
government and all state governments impose excise taxes on all beer sold. These
taxes are levied on volume, regardless of the price or revenue generated from
those sales. Each state in which the Company distributes its product has
different excise tax rates and regulations. Some states require the distributor
to pay such taxes instead of the producer. In states where the producer pays the
excise tax, the Company attempts to mark up the sales prices to its distributors
to at least partially cover the tax., while maintaining competitive pricing at
the retail level.
RETURNS AND ALLOWANCES
Returns and Allowances of $39,859 and $50,463 for 1997 and 1996 represents
1.3% and 2.7% of net sales respectively. This year to year decrease reflects the
sales during 1996 of distresed products.
COST OF GOODS SOLD
Cost of goods sold for 1997 and 1996 was $2,837,229 and $1,743,896
respectively an increase of $1,093,332 or 62.6%. As a percentage of gross sales,
the cost of goods sold declined from 93.2% to 86.3%. The Company's cost of goods
sold in 1997 included the following increases in production overhead expenses
over 1996: (1) an increase in depreciation of $251,764, reflecting that the new
brewery was put into service in March of 1997; (2) an increase in production
management, quality assurance, transportation and plant maintenance compensation
expenses of $90,645, reflecting the additional personnel, effort and expertise
necessary to operate and maintain the much larger and more complex new brewery
and an increase in utilities expense of $212,714, reflecting the additional cost
of heating, cooling and lighting of the larger facility.
In addition, production costs were inflated during the first six months of
1997 due, in part, to approximately $42,088 in temporary labor expenses and
overtime pay made necessary by the fact that several critical components of the
Company's automated bottling line initially did not function as expected and
were not made fully operational until August of 1997. During the last two
quarters of the year, direct labor, material and ingredient costs fell to $96
per barrel and 48.6% of gross sales from $99 per barrel and 56.3% of gross sales
during the first two quarters of 1997.
For the full year 1997, however, direct labor, materials and ingredients
costs fell from $124 per barrel and 72.4% of gross sales in 1996 to $97 per
barrel and 51.2% of gross sales in 1997. This was the result of cost savings
resulting from the new brewery's capability of handling bulk-packed and
bulk-delivered malted grains, glass bottles, six packs and case cartons, as well
as the labor efficiencies provided with larger batch sizes in brewing and
fermentation and high speed bottling equipment, relative to the old brewery's
much more labor intensive equipment. Management anticipates that the cost of
goods sold per barrel and as a percentage of gross sales will diminish further
in 1998 compared to 1997 because the labor efficiencies realized during the
second half of 1997 should be reflected for the entire year and the higher
levels of production expected due to the Wild Goose and Brimstone brand
acquisitions should substantially reduce per unit production overhead costs.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling, general, and administrative ("S,G&A") expenses were $4,622,029 and
$1,990,323 in 1997 and 1996, respectively. S,G&A expense increases from 1996 to
1997 resulted primarily from the following: $1,304,560 in investor relations
fees; an increase of $370,048 in compensation and other expenses for the
Company's sales force, which grew from 9 members to 14 members during 1997; an
increase of $366,346 in expenditures for advertising and promotions; an increase
of $164,769 in legal and accounting fees, largely in connection with negotiating
a forebearance agreement with the Company's senior lender during the first
quarter and litigating the Company's claim against a packaging machinery vendor,
an increase of $48,997 in additional salaries and expenses to new personnel in
the marketing, finance and accounting areas. Management believes that it can
significantly reduce its reliance and spending on outside legal, accounting,
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advertising, financial and investor relations professionals in future periods
without substantially increasing the Company's employee base above current
levels. No increase in the sales force is currently planned, even with the
substantial increase in the Company's historic sales base due to the Wild Goose
and Brimstone brand acquisitions because management believes the current sales
force is adequate to cover the brands' common sales territories.
OTHER INCOME
During 1997, the Company recorded a gain of $158,167 on the sale of
equipment which had previously been used at the old brewery. The equipment had
been written down in 1996 to reflect management's initial estimate of its fair
market value. The gain represents the amount by which the actual sale proceeds
exceeded that estimate.
INTEREST (INCOME) EXPENSE, NET
Interest (income) expense, net during 1997 was $140,030 compared to
$(29,427) in 1996. The Company had net interest income in 1996 because it paid
off nearly all of its prior debt with the proceeds of its initial public
offering in March of 1996 and had interest income from the short term investment
of the some of the balance of those proceeds. The net interest expense primarily
reflects interest paid on increasing long term collaterated loan balances from
January through June of 1997 as the long term collaterated loan proceeds were
disbursed on a schedule tied to the completion of the new brewery building and
equipment installation and commissioning.
INCOME TAX PROVISION
The Company has incurred net operating losses for years ending from 1996
through 1997 and, accordingly, no provisions for income taxes have been provided
in the Statements of Operations.
LIQUIDITY AND CAPITAL RESOURCES
Due to losses experienced during the start-up and expansion of the Company,
operations to date have been funded primarily from private and public placements
of common and preferred stock, and loans from stockholders and financial
institutions. As of December 31, 1997 the Company had working capital of
approximately $2,373,000. This balance was principally the result of the receipt
in December of 1997 of $2,400,000 in net cash proceeds from the private
placement of 3,000 shares of Series E Preferred stock at $1,000 per share and
$190,000 cash received in settlement of the Company's lawsuit against a vendor
of automated packaging equipment. Net cash used in operating activities was
approximately $4,900,000 in 1997.
Net cash used in investing activities during 1997 was approximately
$2,498,000, which primarily represented payments to the general contractor for
construction of the new brewery building and payments made to vendors for the
fabrication and installation of new brewery equipment and other purchases of
capital assets. In addition, various expenses incurred for trademarks and
copyrights were capitalized as intangible assets. The Company generated proceeds
of approximately $300,000 from the sale of certain brewing equipment that had
been housed in the old facility.
Net cash provided by financing activities during 1997 was approximately $10
million, consisting primarily of private placement proceeds of $10.5 million and
$1.6 million in proceeds from debt incurred to finance the equipment, building
and other capital improvements for the new facility (see Note 6 of the Financial
Statements), offset by repayments on short-term and long-term debt of $2.1
million. As of April 24, 1997, the Company's senior secured lender has advanced
the Company $969,000 under a bridge loan facility that was retired on that date
with the proceeds of a $1,000,000 Small Business Administration direct loan made
through and administered by Mid-Atlantic Business Finance Company of Baltimore,
Maryland. That loan is secured by a second position security interest in the
Company's brewing and packaging equipment and the personal guarantees of the
Company's President and Chief Executive Officer.
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The Company does not currently have a working capital line of credit or any
other revolving credit facility. Management does not anticipate obtaining this
or any other additional credit facility unless and until the Company's operating
cash flows improve substantially.
The Company and its senior secured creditor have negotiated a modification
of the terms of the long term loan collateralized by most of the Company's
brewing and packaging equipment and current assets, as well as the commercial
mortgage on the land and building comprising the new brewery, which is owned by
Blue II, LLC and occupied by the Company under a capital lease. See Note 6 to
financial statements.
The Company is currently negotiating with two alternate lenders with a view
toward refinancing all of the senior secured debt during the second quarter of
1998. Management believes this can be accomplished with an increase in the
interest rate payable and additional personal guarantees of the Company's Chief
Executive Officer and President, as well as other terms and conditions
acceptable to the Company's board of directors. No assurances can be given as to
the likelihood of such refinancing.
The Company had cash balances of approximately $2,625,000 at December 31,
1997. In addition, at December 31, 1997, approximately $12,475 of cash
equivalents (short-term securities with original maturities of less than 90
days), were pledged as collateral to guarantee the Company's letter of credit in
favor of Frederick County to secure the company's performance of certain site
improvement work required by the County government as a condition of the
Company's building permits and was recorded as restricted cash.
In connection with the acquisition and merger with Wild Goose Brewery, Inc.
the Company agreed to pay off Wild Goose's secured debt and revolving credit
line in full and to assume all of the its payment obligations under its trade
accounts payable. Management currently estimates that approximately $1,100,000
in cash will be required to discharge these payment obligations during the first
and second quarters of 1998. The cash outlay will be partially off-set as the
Company collects Wild Goose's trade accounts receivable, which management
estimates will result in cash collections of approximately $246,000 during the
first two quarters of 1998 and by the net proceeds of the scheduled auction sale
of most of Wild Goose's brewing and packaging equipment, which management
believes will result in approximately $225,000 in cash collections during the
second quarter of 1998.
Management believes that this level of liquidity will be sufficient to fund
the Company's operations and until such time as the Company can generate
positive cash flows from operations, assuming that revenues increase and costs
are controlled as management intends. No assurance can be given that positive
cash flows will occur at such time.
IMPACT OF INFLATION
Although the Company has not attempted to calculate the effect of
inflation, management does not believe inflation has had a material effect on
its results of operations. Material increases in costs and expenses,
particularly packaging, raw material and labor costs, in the future, could have
a significant impact on the Company's operating results to the extent that the
effect of such increases cannot be transferred to its customers.
IMPACT OF YEAR 2000 ISSUE
The Company is in the process of assessing its computer applications to
insure their functionality with respect to the "Year 2000" millennium change. At
present, the Company does not anticipate that material incremental costs will be
incurred in any single future year.
9
<PAGE> 11
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130 "Comprehensive Income." SFAS No.
130 requires the reporting and display of comprehensive income and its
components in the financial statements. Comprehensive income is the change in
equity during the period from transactions with non-owner sources. Comprehensive
income includes net income and other comprehensive income including foreign
currency translation adjustments and gains and losses on certain marketable
securities. SFAS No. 130 does not require a specific format for the financial
statement in which comprehensive income is reported, but does require that an
amount representing total comprehensive income be reported in the statement. The
Company will implement SFAS No. 130 during the first quarter of 1998.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." SFAS No.
131 will change the way public companies report information about segments of
their business in annual financial statements and requires them to report
selected segment information in their quarterly reports issued to stockholders.
It also requires entity-wide disclosures about the products and services an
entity provides, the countries in which the entity holds material assets and
reports material revenues, and major customers. The Company will implement SFAS
No. 131 during the fourth quarter of 1998.
FORWARD-LOOKING INFORMATION
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for certain forward-looking statements made by the Company in its
disclosures to the public. There is certain information contained herein, in the
Company's press releases and in oral statements made by authorized officers of
the Company which are forward-looking statements, as defined by such Act. When
used herein, in the Company's press releases and in such oral statements, the
words "estimate," "project," "anticipate," "expect," "intend," "believe,"
"plans," and similar expressions are intended to identify forward-looking
statements. See Exhibit 99 for a discussion of the risks and uncertainties which
could cause actual results to differ materially from the forward-looking
information.
ITEM 7. FINANCIAL STATEMENTS
See page F-1 for Index to Financial Statements
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
10
<PAGE> 12
PART III.
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF FREDERICK BREWING CO.
<TABLE>
<CAPTION>
NAME AGE POSITION SINCE
---- --- -------- -----
<S> <C> <C> <C>
Kevin E. Brannon....................... 43 Chairman & Chief Executive Officer 1992
Marjorie A. McGinnis................... 36 President & Chief Operating 1992
Officer
Steven T. Nordahl...................... 28 VP-Brewing Operations & Brewmaster 1994
Leslie P. Harper....................... 49 Chief Financial Officer 1997
Patrick N. Helsel...................... 34 VP-Sales 1997
Cameron E. Barry....................... 41 VP-Marketing 1997
Dr. Nicholas P. Foris.................. 72 Director 1994
Carl R. Hildebrand..................... 46 Director & Treasurer 1995
Jerome M. Pool......................... 62 Director 1993
Maribeth Visco......................... 40 Director & Secretary 1993
James W. Lutz.......................... 40 Director 1998
</TABLE>
Mr. Brannon, prior to starting the Company in 1992, was an attorney with
the law firm of Preston, Gates, & Ellis, in Portland, Oregon.
Ms. McGinnis, prior to starting the Company in 1992, was a partner of B&G
Partnership and Butler Brothers Farm and Orchard in Martinsburg, West Virginia.
Mr. Harper was appointed as the Company's Chief Financial Officer in
November, 1997. Prior to joining the Company, he served as Chief Financial
Officer of Racal Guarllada Inc., a subsidiary of Racal Electronics, PLC, from
1987 to 1995. He served as an independent financial consultant from 1995 to
1997.
Mr. Nordahl, prior to joining the Company in 1993, graduated from the
Master Brewer's program at the University of California at Davis, in Davis,
California.
Mr. Helsel joined the Company as Sales Manager in March of 1996 and was
promoted to his current office in September of 1997. Prior to joining the
Company, he served as a regional sales representative for Mass Bay Brewing Co.,
Boston, Massachussetts from 1994 to 1996 and as regional sales manager for
Warsteiner Imports Agency, Denver, Colorado from 1992 through 1994.
Ms. Barry worked as an independent contractor for the Company from August,
1997 until she was named an officer of the Company in January, 1998. Prior to
working with the Company, she served as Senior Vice President and Director of
Public Relations for Gray Kirk Van Sant, an advertising, public relations and
marketing agency in Baltimore, Maryland from 1996 to 1997. From 1990 to 1996,
Ms. Barry was the President of Cameron & Barry Marketing Communications, Inc. in
Baltimore.
Dr. Foris is a general and thoracic cardiovascular surgeon who practices in
Frederick, Maryland. He is a member of the Compensation Committee of the Board.
Mr. Hildebrand has a certified public accounting practice, Hildebrand,
Limparis, and Hevey, in Rockville and Frederick, Maryland. Prior to August 1995,
he was a partner with the accounting firm of McLean, Koehler, Sparks and
Hammond, Frederick, Maryland. He serves as the Company's Treasurer and serves on
the Audit and Compensation Committees of the Board.
Mr. Pool is retired and has been a business consultant since December 1991.
Prior thereto, he was the Chairman of the Board and President of Jantzen, Inc.
He is also a director of Pacific Metal Company, Portland, Oregon. He is a member
of the Audit and Compensation Committees of the Board.
Ms. Visco is a partner in the commercial leasing firm of Kline, Scott,
Visco, Frederick, Maryland. She serves as the Company's Secretary and is a
member of the Compensation Committee of the Board.
11
<PAGE> 13
Mr. Lutz is the President of Wild Goose Brewery, Inc., a wholly-owned
subsidiary of the Company which markets the Company's Wild Goose brands of beer.
Prior to joining the Company in January, 1998, he served, since 1992 as
President of Wild Goose Brewery, Inc. of Cambridge, Maryland, which was acquired
by the Company in January, 1998.
Section 16(a) of the Exchange Act requires the Company's officers,
directors and persons who own more than 10% of the Company's Common Stock to
file reports of ownership and changes in ownership with the Securities and
Exchange Commission and the National Association of Securities Dealers, Inc.
Officers, directors and greater than 10% stockholders are required by regulation
to furnish the Company with copies of all forms they file pursuant to Section
16(a) of the Exchange Act. The Company knows of no person who owns 10% or more
of the Company's Common Stock.
Based solely on review of copies of such forms furnished to the Company, or
written representations from its officers and directors, the Company believes
that except for the failure of Messrs. Pool and Hildebrand, Dr. Foris and Ms.
Visco to report the granting options under the Company's Non-employee Director
Stock Option Plan on Form 5, the Company's officers and directors complied in
all aspects with the reporting requirements promulgated under Section 16(a) of
the 1934 Act during and with respect to fiscal 1997.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by, or
paid for services rendered to the Company in all capacities during the fiscal
year ended December 31, 1997, by the Company's named executive officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------- -------------------
NAME SALARY BONUS OTHER OPTIONS ALL OTHER
---- ------- ----- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
Kevin E. Brannon............................... $80,000 $0 $10,000(1) 0 $0
Marjorie A. McGinnis........................... 80,000 0 10,000(1) 0 0
Steven T. Nordahl(2)........................... 55,000 0 10,000(1) 0 0
Leslie P. Harper(3)(4)......................... 6,462 0 0 3,334 0
Patrick N. Helsel.............................. 46,963 0 0 0 0
Cameron E. Barry(5)............................ 4,343 0 0 0 0
</TABLE>
- ---------------
(1) In lieu of $10,000 in unpaid salaries, each of these officers received stock
grants of 1,334 shares.
(2) At December 31, 1996, Mr. Nordahl had options to acquire 16,779 shares of
Common Stock at an exercise price of $0.184 per share: all such options were
immediately exercisable and the value of such in-the-money options at
December 31,1997 was $28,373.
(3) As consideration for his initial employment by the Company, Mr. Harper was
granted options to purchase 3,334 shares of common stock at $2.563 per
share, the market price as of the date his employment began. Assuming Mr.
Harper remains employed by the Company, he is entitled to receive additional
3,333 options each year on the anniversary date of the first option grant in
1998 and 1999. These option grants are cumulative and in addition to any
option grants Mr. Harper may earn pursuant to the Company's Incentive Stock
Option Plan.
(4) Mr. Harper's salary compensation reflects that his employment began in
November, 1997.
(5) Ms. Barry served as a consultant to the Company from August 6, 1997 through
December 31, 1997.
12
<PAGE> 14
DIRECTOR COMPENSATION
For a description of the compensation of the directors of the Company,
reference is made to page 69 of the Company's final Prospectus dated March 5,
1996, which is incorporated herein by reference from the Form SB-2.
EMPLOYMENT AGREEMENTS
For a description of the employment agreements for the named executive
officers of the Company, reference is made to page 67 of the Company's final
Prospectus dated March 5, 1996, which is incorporated herein by reference from
Form SB-2.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of March 27, 1998, by: (i) each
person known by the Company to be the beneficial owner of more than 5.0% of the
Company's Common Stock, (ii) each of the Company's directors, (iii) each of the
Company's Executive Officers named in the Summary Compensation Table (See Item
10 hereof), and (iv) all executive officers and directors as a group. Except as
otherwise noted, the named beneficial owner has sole voting and investment
power.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
AS OF MARCH 27, 1998(1)
DIRECTORS, NAMED EXECUTIVE --------------------------
OFFICERS AND 5% STOCKHOLDERS NUMBER PERCENT
---------------------------- ------ -------
<S> <C> <C>
Kevin E. Brannon(2)......................................... 145,797 1.85
Marjorie A. McGinnis(2)..................................... 145,797 1.85
Nicholas P. Foris, M.D.(3).................................. 116,194 1.47
Carl R. Hildebrand(4)....................................... 3,000 .04
Jerome M. Pool(5)........................................... 22,344 .28
Maribeth Visco(6)........................................... 26,680 .34
James W. Lutz(10)........................................... 99,450 1.26
Steven T. Nordahl(7)(10).................................... 57,406 .73
Leslie P. Harper (8)(10).................................... 3,334 .04
Patrick N. Helsel(10)....................................... 552 .01
Cameron E. Barry............................................ 0 0
All directors and executive(10) officers as a group (nine
persons).................................................. 620,554 7.87
</TABLE>
- ---------------
(1) Based upon information furnished by respective individuals. The information
is not necessarily indicative of beneficial ownership for any other purpose.
Under regulations promulgated pursuant to the Securities Exchange Act of
1934, as amended (the "Exchange Act"), shares are deemed to be beneficially
owned by a person if he or she directly or indirectly has or shares; (i)
voting power, which includes the power to vote or to direct voting of the
shares, or (ii) investment power, which includes the power to dispose or to
direct the disposition of the shares.
(2) The number of shares shown in the table excludes the number of shares
beneficially owned by the other. The business address for such persons is
4607 Wedgewood Blvd., Frederick, Maryland 21703.
(3) Includes immediately exercisable options to purchase 6,000 shares of Common
Stock. Does not include 210 shares of Series A Convertible Preferred Stock,
which are immediately convertible into common stock at the price of $3.8388
per share.
(4) Includes immediately exercisable options to purchase 5,000 shares of Common
Stock.
(5) Includes immediately exercisable options to purchase 7,000 shares of Common
Stock.
(6) With respect to Ms. Visco's shares, see Item 12, and Certain Relationships
and Related Transactions, below, includes immediately exercisable options to
purchase 7,000 shares of Common Stock.
(7) Includes immediately exercisable options to purchase 16,779 shares of Common
Stock.
13
<PAGE> 15
(8) Includes immediately exercisable options to purchase 3,334 shares of Common
Stock.
(9) Under the Exchange Act, a person is deemed to have beneficial ownership of
any shares of Common Stock which may be acquired within 60 days of March 27,
1998 pursuant to the exercise of outstanding stock options. Shares of Common
Stock which are subject to stock options are deemed to be outstanding for
the purpose of computing the percentage of outstanding Common Stock owned by
such person or group but not deemed outstanding for the purpose of computing
the percentage of Common Stock owed by any other person or group. The
amounts set forth in the table include 16,779 shares which may be received
upon the exercise of stock options by Mr. Nordahl, 522 shares which may be
received upon the exercise of options by Mr. Helsel, 3334 shares which may
be received upon exercise of options by Mr. Harper and 25,000 shares which
may be received upon the exercise of stock options by the non-employee
directors. For all the directors and executive officers as a group, the
number of shares includes 45,665 shares of Common Stock subject to
outstanding stock options.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information provided on pages 72 and 73 of the Company's Prospectus
dated March 5, 1996 entitled "Certain Transactions" is incorporated herein by
reference from the Pre-effective Amendment No. 5 to the Form SB-2 filed with the
Securities and Exchange Commission on March 5, 1996.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Report.
(1) The following documents are filed as part of this report and this list
includes the Index to the Financial Statements:
Report of Independent Accountants
Financial Statements:
Balance Sheets as of December 31, 1997 and 1996.
Statements of Operations for the Years Ended December 31, 1997 and
1996.
Statements of Changes in Stockholders' Equity of the Years Ended
December 31, 1997 and 1996.
Statements of Cash Flows for the Years Ended December 31,1997 and
1996.
Notes to Financial Statements
(2) All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are omitted because they
are not applicable or the required information is included in the Financial
Statements or notes thereto.
14
<PAGE> 16
(3)(a) The following exhibits are filed as part of this Form 10-KSB, and
this list includes the Exhibit Index.
<TABLE>
<CAPTION>
NO. DESCRIPTION
- --- -----------
<S> <C> <C>
3.1 Amended and Restated Articles of Incorporation(1)
(i) Articles Supplementary with respect to Series A Convertible
Preferred Stock;(2)
(ii) Articles Supplementary with respect to Series B Convertible
Preferred Stock;(2)
(iii) Articles Supplementary with respect to Series C Convertible
Preferred Stock;(3)
(iv) Articles Supplementary with respect to Series D Convertible
Preferred Stock;(4)
(v) Articles Supplementary with respect to Series E Convertible
Preferred Stock.
3.2 Amended and Restated Bylaws(5)
4 Stock Certificate(5)
10 Material Contracts:
(i) Stock Option Agreement dated April 15, 1993 between the
Company, Edward D. Scott, Kevin E. Brannon, and Marjorie
McGinnis;(5)
(ii) Form of Shareholder Agreement;(5)
(iii) Form of Termination of Shareholder Agreement;(5)
(iv) Employment Agreement dated December 9, 1995 between the
Company and Kevin E. Brannon;(5)
(v) Employment Agreement dated December 9, 1995 between the
Company and Marjorie A. McGinnis;(5)
(vi) Employment Agreement dated December 9, 1995 between the
Company and Steven T. Nordahl;(5)
(vii) Employment Agreement dated December 9, 1995 between the
Company and Craig J. O'Connor;(5)
(viii) Employment Agreement dated February 20, 1993 between the
Company and Steven Tluszcz;(5)
(ix) Lease Agreement dated February 15, 1994 between the Company
and Carroll Creek LLC;(5)
(x) Lease Agreement dated March 25, 1994 between the Company and
Carroll Creek LLC;(2)
(xi) Addendum to the Agreement of Lease dated March 30, 1995
between the Company and Carroll Creek LLC;(5)
(xii) Agreement of Lease dated January 21, 1993 between the
Company, Kevin E. Brannon, and South Carroll Street
Partnership;(5)
(xiii) Letter lease dated January 18, 1995 between the Company and
Frederick Produce Company, Inc;(5)
(xiv) Form of Distribution Agreement;(5)
(xv) Letter from the Company dated October 30, 1993 to the
Kronheim Company, Inc.;(5)
(xvi) Non-employee Directors Stock Option Plan;(5)
(xvii) 1995 Stock Option Plan;(5)
(xviii) Form of Promissory Note dated various dates from the Company
to certain stockholders;(5)
(xix) Promissory Note dated June 18, 1994 between the Company and
Dr. Nicholas Foris;(5)
(xx) Promissory Note dated March 18, 1994 between the Company and
Dr. Nicholas Foris;(5)
(xxi) Contract Brewing Agreement dated December 12, 1995 by the
Johnson Beer Company and the Company;(5)
(xxii) Promissory Note by the Company to FCNB Bank dated November
24, 1995 with a guarantee by Dr. Nicholas Foris;(5)
(xxiii) Agreement of Sale by and between the Company and SOPM
Limited Partnership dated November 7, 1995;(5)
(xxiv) Assignment and Extension of Agreement of Sale by and between
the Company and Blue II, LLC dated December 19, 1995;(5)
(xxv) Letter of Intent for Build-to-Suit Light Industrial Space by
and between the Company and Blue II, LLC dated December 21,
1995;(5)
</TABLE>
15
<PAGE> 17
<TABLE>
<CAPTION>
NO. DESCRIPTION
- --- -----------
<S> <C> <C>
(xxvi) Resolutions adopted by the Maryland Industrial Development
Financing Authority;(5)
(xxvii) Letter dated January 30, 1996 from the Maryland Economic
Development Corp.;(5)
(xxviii) Letter dated January 30, 1996 from Ryan, Lee & Company,
Inc.;(5)
(xxix) Letter dated January 24, 1996 from the Mid-Atlantic Business
Finance Co.;(5)
(xxx) Letter from Signet Bank/Maryland dated January 16, 1996;(5)
(xxxi) Loan and financing agreement between Blue II, MEDCO, Signet
and the Company;(6)
(xxxii) Promissory note;(6)
(xxxiii) $3,000,000 Economic Development Revenue Bond;(6)
(xxxiv) Construction contract between Blue II, Morgan Keller, Inc,
and the Company;(6)
(xxxv) Lease Agreement between Blue II, LLC and the Company;(6)
(xxxvi) Loan and financing agreement between MEDCO, Signet and the
Company;(6)
(xxxvii) Promissory note;(6)
(xxxviii) $1,500,000 Economic Development Revenue Bond;(6)
(xxxix) Loan and security agreement -- $969,000 Bridge loan;(6)
(xxxx) Promissory note -- bridge loan;(6)
(xxxxi) Filler/capper equipment;(6)
(xxxxii) Bottling line;(6)
(xxxxiii) Mechanical and electrical work;(6)
(xxxxiv) Phase I Industrial wastewater treatment;(6)
(xxxxv) Bottle supply;(6)
(xxxxvi) Interior fit out of new brewery office space;(6)
(xxxxvii) Blue II Forbearance Agreement;(7)
(xxxxviii) FBC Forbearance Agreement;(7)
(xxxxix) Agreement and Plan of Reorganization by and among Frederick
Brewing Co., FBC Acquisition Corporation and Wild Goose
Brewery, Inc. dated December 15, 1997;
(l) Asset Purchase Agreement by and between Brimstone Brewing
Company and Frederick Brewing Co. dated December 15, 1997;
(li) Mutual and Reciprocal Final Release of all claims dated
December 19, 1997;
(lii) Loan Modification Agreement by and among First Union
National Bank, Blue II, LLC, Robert Schuerholz, Nicholas P.
Foris, Edward D. Scott, and Vishnampet S. Jayanthimath dated
as of March 30, 1997;
(liii) Loan Modification Agreement by and between First Union
National Bank and Frederick Brewing Co.;
(liv) Loan Agreement between U.S. Small Business Administration
and the Company;(3)
21 Subsidiaries of the Registrant -- None.
23 Consent of Independent Accountants
27 Financial Data Schedule
99 Safe Harbor Under the Private Securities Litigation Reform Act of
1995(4)
</TABLE>
(3)(b) Reports filed on Form 8-K. None
- ---------------
(1) Incorporated by reference from Pre-effective Amendment No. 5 to the Form
SB-2 filed with the SEC on March 5, 1996.
(2) Incorporated by reference to such exhibit as filed with the Company's
Registration Statement on Form S-3, file number 333-25743.
(3) Incorporated by reference to exhibit 10(I) to the Company's Quarterly Report
on Form 10-QSB for the Quarter Ended June 30, 1997.
(4) Incorporated by reference to such exhibit as filed with the Company's
Registration Statement on Form S-3, file number 333-35655.
(5) Incorporated by reference from Form SB-2 filed with the SEC on December 12,
1995.
(6) Incorporated by reference from Form 10-QSB, Quarterly Report, filed with the
SEC on June 30, 1996.
(7) Incorporated by reference from Form 8-K, Current Report, filed with the SEC
on February 27, 1997.
* Management contract or compensatory plan or agreement.
16
<PAGE> 18
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants........................... F-2
Financial Statements:
Balance Sheets......................................... F-3
Statements of Operations............................... F-4
Statements of Changes in Stockholders' Equity.......... F-5
Statements of Cash Flows............................... F-6
Notes to Financial Statements.......................... F-7
</TABLE>
F-1
<PAGE> 19
FREDERICK BREWING CO.
NOTES TO FINANCIAL STATEMENTS
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Frederick Brewing Co.
Frederick, Maryland
We have audited the accompanying balance sheets of Frederick Brewing Co. as
of December 31, 1997 and 1996, and the related statements of operations, changes
in stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Frederick Brewing Co. as of
December 31, 1997 and 1996, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
Coopers & Lybrand L.L.P.
McLean, Virginia
March 30, 1998
F-2
<PAGE> 20
FREDERICK BREWING CO.
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 2,612,880 $ 48,990
Cash -- restricted..................................... 12,475 640,000
Trade receivables, net of allowance for doubtful
accounts of $35,544 and $25,000, respectively......... 333,437 239,413
Inventories, net....................................... 354,224 210,563
Prepaid expenses and other current assets.............. 103,476 82,412
------------ -----------
Total current assets................................ 3,416,492 1,221,378
Property and equipment, net................................. 8,375,645 3,287,696
Intangibles, net............................................ 258,225 186,251
Deferred public relations costs, net........................ 1,131,500 --
Other assets................................................ 219,557 71,000
------------ -----------
Total assets........................................ $ 13,401,419 $ 4,766,325
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt................... $ 273,814 $ 437,600
Capital lease obligations, current portion............. 88,976 27,506
Accounts payable....................................... 274,966 629,216
Accrued liabilities.................................... 406,943 165,538
------------ -----------
Total current liabilities........................... 1,043,699 1,259,950
Long-term debt.............................................. 2,208,736 1,631,411
Capital lease obligations................................... 2,880,536 51,577
------------ -----------
Total liabilities................................... 6,132,971 2,942,938
------------ -----------
Stockholders' equity:
Preferred stock -- $.01 par value, 1,000,000 shares
authorized:
Cumulative, convertible Series A, 1,828 shares issued
and outstanding, liquidation preference of
$914,000............................................ 655,213 --
Convertible Series B, 0 shares issued and
outstanding......................................... -- --
Convertible Series C, 2,100 shares issued and
outstanding, liquidation preference of $2,100,000... 1,762,500 --
Convertible Series D, 1,045 shares issued and
outstanding, liquidation preference of $1,045,000... 810,000 --
Convertible Series E, 2,700 shares issued and
outstanding, liquidation preference of $2,700,000... 2,325,000 --
Common stock -- $0.00004 par value, 9,000,000
shares authorized, 4,540,356 and 1,954,876
shares issued and outstanding...................... 167 72
Additional paid-in capital............................. 12,778,758 4,911,424
Accumulated deficit.................................... (11,063,190) (3,088,109)
------------ -----------
Total stockholders' equity........................ 7,268,448 1,823,387
------------ -----------
Total liabilities and stockholders' equity........ $ 13,401,419 $ 4,766,325
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 21
FREDERICK BREWING CO.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Gross sales................................................. $ 3,286,776 $ 1,871,593
Less: Returns and allowances................................ 39,859 50,463
Less: Excise taxes.......................................... 169,236 100,697
----------- -----------
Net sales.............................................. 3,077,681 1,720,433
Cost of sales.......................................... 2,837,229 1,743,896
----------- -----------
Gross profit (loss).................................... 240,452 (23,463)
Selling, general and administrative expenses................ 4,622,029 1,990,323
Loss on assets to be disposed............................... -- 640,815
----------- -----------
Operating loss......................................... (4,381,577) (2,654,601)
Gain on sale of equipment................................... (158,167) --
Interest (income) expense................................... 140,030 (29,427)
----------- -----------
Loss before income taxes............................... (4,363,440) (2,625,174)
Provision for income taxes.................................. -- --
----------- -----------
Net loss............................................... (4,363,440) (2,625,174)
Preferred stock deemed dividend requirements................ (3,611,641) 0
----------- -----------
Net loss attributable to common shareholders................ $(7,975,081) $(2,625,174)
=========== ===========
Basic and diluted earnings per common share:
Net loss before preferred stock dividend
requirements.......................................... $ (1.59) $ (1.45)
Preferred stock dividend requirements.................. (1.32) --
----------- -----------
Net loss per common share.............................. $ (2.91) $ (1.45)
=========== ===========
Weighted average common shares (basic and diluted).......... 2,741,583 1,804,503
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 22
FREDERICK BREWING CO.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
CUMULATIVE,
CONVERTIBLE CONVERTIBLE CONVERTIBLE CONVERTIBLE
SERIES A PREFERRED SERIES B PREFERRED SERIES C PREFERRED SERIES D PREFERRED
STOCK STOCK STOCK STOCK
------------------ -------------------- ------------------- -------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ --------- ------ ----------- ------ ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995...... -- $ -- -- $ -- -- $ -- -- $ --
Issuance of common stock for
cash, net of issuance costs.... -- -- -- -- -- -- -- --
Exercise of options............. ..... -- -- -- -- -- -- --
Fair value of warrants issued to
non-employees for services..... -- -- -- -- -- -- -- --
Net loss........................ -- -- -- -- -- -- -- --
----- --------- ------ ----------- ----- ---------- ----- --------
Balance, December 31, 1996...... -- -- -- -- -- -- -- --
Issuance of preferred stock for
cash, net of issuance costs.... 1,828 833,840 3,750 3,181,161 2,100 1,057,500 1,045 835,500
Fair value of warrants issued in
connection with issuance of
preferred stock................ -- (150,000) -- (460,000) -- -- -- --
Fair value of common stock in
connection with issuance of
preferred stock................ -- -- -- (232,031) -- (75,000) -- (25,500)
Beneficial conversion feature in
connection with Series A
preferred stock................ -- (114,505) -- -- -- -- -- --
Deemed dividend in connection
with beneficial conversion
feature on preferred stock..... -- 85,878 -- -- -- -- -- --
Pledge of common stock to
management in lieu of salary... -- -- -- -- -- -- -- --
Conversion of Series B preferred
stock to common stock.......... -- -- (3,750) (2,459,130) -- -- -- --
Fair value of warrants issued
for deferred public relations
costs.......................... -- -- -- -- -- -- -- --
Fair value of warrants issued to
bank for services.............. -- -- -- -- -- -- -- --
Net loss........................ -- -- -- -- -- -- -- --
----- --------- ------ ----------- ----- ---------- ----- --------
Balance, December 31, 1997...... 1,828 $ 655,213 -- $ -- 2,100 $1,762,500 1,045 $810,000
===== ========= ====== =========== ===== ========== ===== ========
<CAPTION>
CONVERTIBLE
SERIES E PREFERRED
STOCK COMMON STOCK TOTAL
------------------- ------------------ ADDITIONAL ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT PAID-IN CAPITAL DEFICIT EQUITY
------ ---------- --------- ------ --------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995...... -- $ -- 1,128,444 $ 42 $ 1,043,775 $ (462,935) $ 580,892
Issuance of common stock for
cash, net of issuance costs.... -- -- 771,154 28 3,847,701 -- 3,847,729
Exercise of options............. -- -- 55,278 2 9,948 -- 9,950
Fair value of warrants issued to
non-employees for services..... -- -- -- -- 10,000 -- 10,000
Net loss........................ -- -- -- -- -- (2,625,174) (2,625,174)
----- ---------- --------- ---- ----------- ------------ -----------
Balance, December 31, 1996...... -- -- 1,954,876 72 4,911,424 (3,088,109) 1,823,387
Issuance of preferred stock for
cash, net of issuance costs.... 2,700 2,415,000 -- -- -- -- 9,103,001
Fair value of warrants issued in
connection with issuance of
preferred stock................ -- -- -- -- 610,000 -- --
Fair value of common stock in
connection with issuance of
preferred stock................ -- (90,000) 106,500 4 422,527 -- --
Beneficial conversion feature in
connection with Series A
preferred stock................ -- -- -- -- 114,505 -- --
Deemed dividend in connection
with beneficial conversion
feature on preferred stock..... -- -- -- -- 3,525,763 (3,611,641) --
Pledge of common stock to
management in lieu of salary... -- -- -- -- 17,500 -- 17,500
Conversion of Series B preferred
stock to common stock.......... -- -- 2,473,980 91 2,489,039 -- --
Fair value of warrants issued
for deferred public relations
costs.......................... -- -- -- -- 670,000 -- 670,000
Fair value of warrants issued to
bank for services.............. -- -- -- -- 18,000 -- 18,000
Net loss........................ -- -- -- -- -- (4,363,440) (4,363,440)
----- ---------- --------- ---- ----------- ------------ -----------
Balance, December 31, 1997...... 2,700 $2,325,000 4,540,356 $167 $12,778,258 $(11,063,190) $ 7,268,448
===== ========== ========= ==== =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 23
FREDERICK BREWING CO.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................... $(4,363,440) $(2,625,174)
Adjustments to reconcile net loss to net cash used for
operating activities:
Depreciation and amortization..................... 560,671 151,772
Amortization of deferred public relations costs... 188,500 --
(Gain) loss on sale or disposal of equipment...... (158,167) 640,815
Bad debt expense.................................. 37,090 109,484
Provision for inventory write-down................ -- 48,060
Fair value of stock pledged to management in lieu
of salary....................................... 17,500 --
Fair value of warrants issued to bank for
services........................................ 18,000 --
Changes in operating assets and liabilities:
Trade receivables............................ (131,114) (123,430)
Inventories.................................. (143,661) (48,108)
Prepaid expenses and other current assets.... (21,064) (39,779)
Other assets................................. (148,557) (71,000)
Deferred public relations costs.............. (650,000) --
Accounts payable............................. (354,250) 254,642
Accrued liabilities.......................... 241,405 71,463
----------- -----------
Net cash used for operating activities............ (4,907,087) (1,621,255)
----------- -----------
Cash flows from investing activities
Purchase of property and equipment..................... (2,748,745) (2,833,176)
Purchase of intangibles................................ (52,900) (107,093)
Proceeds from sale of equipment........................ 303,239 --
----------- -----------
Net cash used for investing activities............ (2,498,406) (2,940,269)
----------- -----------
Cash flows from financing activities
Proceeds from issuance of Series A preferred stock..... 914,000 --
Proceeds from issuance of Series B preferred stock..... 3,750,000 --
Proceeds from issuance of Series C preferred stock..... 2,100,000 --
Proceeds from issuance of Series D preferred stock..... 1,045,000 --
Proceeds from issuance of Series E preferred stock..... 2,700,000 --
Offering costs associated with issuance of preferred
stock................................................. (1,405,999) --
Proceeds from debt borrowings.......................... 1,605,485 1,965,114
Payments on debt obligations........................... (1,193,036) (498,895)
Payments on capital leases............................. (109,571) (12,874)
Proceeds from common stock issuance.................... -- 4,636,924
Costs of common stock issuance......................... -- (769,245)
Decrease in restricted cash............................ 627,525 (640,000)
Payment of loan origination fees....................... (64,021) (70,510)
----------- -----------
Net cash provided by financing activities......... 9,969,383 4,610,514
----------- -----------
Net increase in cash and cash equivalents................... 2,563,890 48,990
Cash and cash equivalents, beginning of period.............. 48,990 --
----------- -----------
Cash and cash equivalents, ending of period................. $ 2,612,880 $ 48,990
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 24
FREDERICK BREWING CO.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND FINANCING
BUSINESS
Frederick Brewing Co. ("the Company") engages in the manufacture, bottling,
distribution and sale of beer primarily in the Mid-Atlantic region.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
Cash and cash equivalents, stated at cost which approximates fair value,
consist of amounts on hand in operating bank account and a highly liquid
short-term investment account with a major bank. All cash equivalents have
original maturities of three months or less. The short-term investment, of
$12,475 which is presented as restricted cash, was pledged as collateral to
guarantee the Company's letter of credit to ensure the Company's performance of
site improvement work required by the Frederick County government.
CONCENTRATION OF CREDIT RISK
The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of its cash and cash equivalents and accounts
receivable. The Company maintains cash and cash equivalents in separate accounts
at a major bank. The Company has not experienced any losses on these
investments.
The Company's accounts receivable result primarily from beer sales to
wholesale distributors (see Note 10). The Company periodically assesses the
financial strength of its customers and provides allowances for anticipated
losses when necessary.
INVENTORIES
Inventories, consisting of raw materials, work in process, finished goods,
and packaging and marketing supplies, are valued at lower of cost or market,
with cost based on a moving average method.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and are depreciated using
straight-line and accelerated methods over the estimated useful lives of the
assets as follows:
<TABLE>
<S> <C>
Brewing equipment........................................... 7-20 years
Automobiles and trucks...................................... 5 years
Furniture and fixtures...................................... 3-7 years
</TABLE>
Leasehold improvements are recorded at cost and are depreciated over the
terms of the related lease or the estimated useful life of the related
improvement, whichever is shorter. Upon retirement or disposition of property
and equipment, the cost and accumulated depreciation are removed from the
accounts and any resulting gain or loss is reflected in operations. Repairs and
maintenance are charged to expense as incurred.
The Company leases its production facility under a long-term capital lease.
The lease is included in property and equipment at its estimated fair value. The
production facility is being amortized over the twenty-year lease term.
Depreciation expense includes the amortization of the production facility under
the capital lease.
The Company evaluates the recoverability of the carrying value of
long-lived assets, including property and equipment and intangible assets, in
accordance with the provisions of Statement of Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets to be Disposed Of". The
Company considers historical performance and anticipated future results in its
evaluation of potential impairment. Accordingly,
F-7
<PAGE> 25
FREDERICK BREWING CO.
NOTES TO FINANCIAL STATEMENTS
when indicators of impairment are present, the Company evaluates the carrying
value of these assets in relation to the operating performance of the business
and future and undiscounted cash flows without interest expected to result from
the use of these assets. Impairment losses are recognized when the fair value of
the asset or the present value of expected future cash flows are less than the
assets' carrying value. There were no impairment losses in 1997. The Company
recorded a $640,815 impairment loss in 1996 (see note 5).
INTANGIBLE ASSETS
Intangible assets consist primarily of trademarks, copyrights and loan
origination costs related to existing debt obligations. Trademarks and
copyrights are being amortized over a five-year period on a straight-line basis.
Loan origination costs are amortized over the term of the related loan.
Amortization expense was $44,947 and $17,453 for the years ended December 1997
and 1996, respectively.
DEFERRED PUBLIC RELATIONS COSTS
Deferred public relations costs consist of $650,000 cash paid in advance
and $670,000, representing the estimated fair value of 500,000 warrants issued
to a third party for public and investor relations services to be rendered over
a five-year service period (see Note 8). These amounts are being amortized on a
straight-line basis over the five-year term of the service contract.
Amortization expense was $188,500 for the year ended December 31, 1997. In
addition, the Company paid $1,300,000 to this entity for public and investor
relations services rendered during 1997. The related cash payments were expensed
as incurred.
REVENUE RECOGNITION
Revenue is recognized upon shipment of product to distributors. The Company
has established 180 days as the acceptable inventory shelf life for its
products. The Company will reimburse distributors for 50% of all out-of-date
product destroyed in the first year of each new distribution agreement. Amounts
reimbursed for out-of-date products have historically been minimal.
INCOME TAXES
Deferred income taxes are recognized for the tax consequences in future
years for differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year-end, based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount expected to be realized.
Income tax expense represents the current tax provision for the period plus the
change during the period in deferred tax assets and liabilities.
NET LOSS PER COMMON SHARE
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings Per Share," which requires the
presentation of basic earnings per share and diluted earnings per share for all
years presented. Basic earnings per share is based on the weighted average
number of outstanding common shares for the period. Diluted earnings per share
adjusts the weighted average for the potential dilution that could occur if
stock options, warrants or other convertible securities were exercised or
converted into common stock. Diluted earnings per share equals basic earnings
per share for 1997 and 1996 because the effects of such items were
anti-dilutive. Differences between historical quarterly earnings per share
amounts, reported on a primary earnings per share basis and amounts now reported
as basic earnings per share are not material.
F-8
<PAGE> 26
FREDERICK BREWING CO.
NOTES TO FINANCIAL STATEMENTS
NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income," and Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information," in June 1997, which are both effective for
the year ending December 31, 1998. SFAS No. 130 establishes standards for
reporting comprehensive income in a full set of general purpose financial
statements either in the income statement or in a separate statement. SFAS No.
131 establishes standards for reporting information about operating segments,
including related disclosures about products and services, geographic areas and
major customers. These standards are not expected to have a material impact on
the Company's disclosures.
USE OF ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual amounts could differ from these estimates.
FAIR VALUE INFORMATION
The carrying amounts of current assets and current liabilities approximate
fair value because of their short term maturity. The carrying amount of the
Company's debt approximates its fair value as the debt bears interest at rates
approximating current market rates.
3. ACQUISITIONS
Subsequent to year-end, the Company acquired 100% of the outstanding common
stock of Wild Goose Brewery, Inc. (Wild Goose) and the brands, formulas,
copyrights, trademarks and related intangible assets of Brimstone Brewing
Company, Inc. (Brimstone). The consideration for Wild Goose consisted of the
issuance of approximately 1,100,000 shares of the Company's common stock with an
aggregate value of $2,206,000 and the assumption of approximately $580,000 in
outstanding Wild Goose notes payable. The actual number of shares to be issued
in connection with the Wild Goose acquisition is subject to adjustment based on
a final accounting of its 1997 operating results. The consideration for
Brimstone was 80,000 shares of the Company's common stock with an aggregate
value of approximately $162,000. These acquisitions will be accounted for under
the purchase method of accounting.
The purchase price for each acquisition will be allocated to the assets
acquired and liabilities assumed based on their estimated fair values. Results
of operations for Wild Goose and Brimstone will be included with those of the
Company for periods subsequent to the date of acquisition. The excess of the
purchase price over the net assets acquired will be recorded as goodwill and
amortized over 10 years. The purchase price allocation will be determined during
1998. The final allocation may have a material effect on the unaudited pro forma
information presented below.
The following unaudited pro forma summary presents the consolidated results
of operations as if the acquisitions had been completed at the beginning of the
periods presented and does not purport to be
F-9
<PAGE> 27
FREDERICK BREWING CO.
NOTES TO FINANCIAL STATEMENTS
indicative of what would have occurred had the acquisitions actually been made
as of such date or of results which may occur in the future.
<TABLE>
<CAPTION>
1997 1996
----------- -----------
(UNAUDITED)
<S> <C> <C>
Net sales.......................................... $ 5,769,000 $ 4,347,000
Net loss........................................... $(4,564,000) $(2,869,000)
Net loss per common share.......................... $ (1.16) $ (0.96)
</TABLE>
4. INVENTORIES
Inventories at December 31, consist of the following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Raw materials............................................... $ 64,194 $ 35,957
Work in process............................................. 51,677 17,153
Finished goods.............................................. 100,469 15,749
Packaging and marketing supplies............................ 137,884 189,764
Inventory allowances........................................ -- (48,060)
-------- --------
Total.................................................. $354,224 $210,563
======== ========
</TABLE>
5. PROPERTY AND EQUIPMENT
Property and equipment at December 31, consists of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Brewing equipment........................................... $4,117,219 $ 491,660
Building.................................................... 3,000,000 --
Leasehold improvements...................................... 1,348,254 --
Automobiles and trucks...................................... 201,499 201,499
Furniture and fixtures...................................... 110,806 68,821
Construction in progress.................................... -- 2,830,834
---------- ----------
Total.................................................. 8,777,778 3,592,814
Less accumulated depreciation............................... (402,133) (305,118)
---------- ----------
Property and equipment, net................................. $8,375,645 $3,287,696
========== ==========
</TABLE>
Construction in progress represented costs incurred in connection with the
preparation of purchased brewing equipment for their intended use. As a result
of the Company's move into its new brewery in early 1997, there was a
significant amount of brewing equipment housed in the old facility which was
sold in 1997. A loss of $640,815 was included in the statement of operations for
the year ended December 31, 1996 associated with the write-down of the brewing
equipment to its estimated fair value and the write-off of leasehold
improvements in the old facility. The company sold the related brewing equipment
in 1997 for cash proceeds of $303,329 resulting in a gain of $158,167.
Included in property and equipment as of December 31, 1997 and 1996 was
$3,022,497 and $101,869, respectively in assets held under capital lease.
Accumulated amortization as of December 31, 1997 and 1996 related to these
assets was $118,672 and $29,275, respectively.
F-10
<PAGE> 28
FREDERICK BREWING CO.
NOTES TO FINANCIAL STATEMENTS
6. DEBT OBLIGATIONS
Long-term debt
The long-term debt at December 31 consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
DESCRIPTION MATURITY 1997 1996
----------- ------------ ------------ ------------
<S> <C> <C> <C>
Note payable to bank, interest at LIBOR + 150 basis
points, 108 monthly payments at $13,889, commencing
Aug. 1997, collateralized by brewing equipment (see
below). ............................................ July 2006 $1,366,756 $1,500,000
Note payable to bank, interest at LIBOR + 150 basis
points, interest only payments, collateralized by
brewing equipment (see below). ..................... July 1997 -- 363,515
Note payable to United States Small Business
Administration, interest at 7.68%, monthly principal
and interest payments of $7,967, collateralized by
secondary lien on all equipment. ................... May 2017 984,002 --
Notes payable to bank, monthly payments ranging from
$268 to $808, including interest ranging from 7.9% May 1999 to
to 9.1%, collateralized by vehicles. ............... October 2000 93,676 143,920
Stockholder loans payable, monthly payments ranging
from $425 to $655 including interest ranging from
10% to 11%.......................................... To July 1999 37,116 61,666
---------- ----------
Total.......................................................... 2,481,550 2,069,101
Less current maturities........................................ (272,814) (437,690)
---------- ----------
Total long-term debt........................................... $2,208,736 $1,631,411
========== ==========
</TABLE>
During 1996, the Company entered into agreements to have a new brewery
built by Blue II, LLC, a limited liability company affiliated with certain
directors of the Company ("Blue II"). Blue II constructed the new brewery
building to the Company's specifications and is leasing the building to the
Company. On July 19, 1996, in connection with the purchase of the equipment to
be housed in the new brewery, the Company obtained a $1,500,000 revenue bond
from the Maryland Economic Development Corporation ("MEDCO") and a $969,000
bridge loan from a bank which has been repaid. The $1,500,000 revenue bond was
immediately assigned by MEDCO to a bank. In connection with the $1,500,000
revenue bond, the bank issued a note to the Company from the proceeds of the
revenue bond. There are certain restrictive covenants existing on the $1,500,000
note payable to the bank. Among those covenants is a cash flow to debt service
ratio for which the Company was not in compliance as of December 31, 1997. This
covenant violation represents an event of default on the note and also a cross
default on a $3,000,000 loan obtained by Blue II for the construction of the
brewery for which the Company is a guarantor of the Blue II loan. The Company
and Blue II has obtained a waiver of this covenant violation as of December 31,
1997. Subsequent to year end, for both the $1,500,000 loan and $3,000,000 Blue
II loan the bank has waived compliance with the cash flow to debt service
covenant for the calendar quarters ending March 31, 1998, June 30, 1998 and
September 30, 1998. The bank has also modified this covenant for the calendar
quarter ending December 31, 1998 and for each quarter thereafter whereby the
Company must maintain a cash flow to debt service ratio of 1.0 to 1. In
addition, the bank modified the current ratio covenant whereby the Company must
maintain a ratio of current assets to current liabilities of 1.0 to 1 as of
calendar quarter March 31, 1998 and each calendar quarter thereafter. The
Company anticipates it will be able to comply with these modified covenants. In
exchange for these covenant modifications, the maturity date on the loans was
revised to April 1, 1999, the interest rate increased to the prime rate plus
1.25% for the Company's loan and the prime rate plus 1.5% for the Blue II loan,
was required to pay a loan modification fee of $25,000 payable in two
installments of $10,000 and $15,000 on June 30, 1998 and September 30, 1998,
respectively, be responsible for all fees and
F-11
<PAGE> 29
FREDERICK BREWING CO.
NOTES TO FINANCIAL STATEMENTS
expenses incurred by the bank in connection with preparation of the modification
and use its best efforts to obtain replacement financing.
In February 1997, the bank declared that a material adverse change,
primarily caused by a $340,000 overrun in equipment purchases as compared to the
original budget, had occurred in the Company's business and declared the
Company's notes payable in default. The bank agreed, under a forbearance
agreement, dated February 27, 1997, to waive its rights under the events of
default and to fund the Company with additional advances of $250,000 under the
bridge loan. In connection with this forbearance agreement, the Company
committed to the issuance of certain shares of Series A Preferred Stock (See
Note 7), to maintain specified levels of accounts receivable at specified
measurement dates, and to pay to the bank the proceeds obtained from the sale of
the equipment at the old brewery. Further, in connection with the forbearance
agreement, the bridge loan was personally guaranteed by both the Chief Executive
Officer and the President of the Company. Additionally, the Company issued
warrants to the bank to purchase 5,750 shares of the Company's common stock for
no consideration as a fee for the forbearance agreement. The fair value of these
warrants on the date of grant was estimated to be $18,000 based on the
Black-Scholes valuation model with the following weighted-average assumptions:
dividend yield of 0%, expected volatility of 58%, risk free interest rate of
6.93% and expected term of 10 years. This amount has been reflected in the
Statement of Operations and has been recorded as an increase to additional paid
in capital.
On April 24, 1997, the Company obtained a $1,000,000 term loan with the
United States Small Business Administration (SBA). The proceeds from this loan
were used to repay the outstanding principal balance of the bridge loan. Each of
the existing loans contain restrictive covenants, including certain financial
ratios relating to the Company's liquidity and financial position at certain
dates set forth in the agreements and restrictions on the occurrence of adverse
changes deemed material by the bank with respect to the business, assets,
operations or financial condition of the Company. The note payable to the SBA
has been personally guaranteed by both the Chief Executive Officer and the
President of the Company.
Principal repayments required on all notes payable are due as follows:
<TABLE>
<S> <C>
1998........................................................ $ 272,814
1999........................................................ 239,940
2000........................................................ 197,250
2001........................................................ 196,456
2002........................................................ 198,140
Thereafter.................................................. 1,376,950
----------
Total.................................................. $2,481,550
==========
</TABLE>
During 1996 and in connection with the $3 million revenue bond obtained by
Blue II, the bank claimed that this loan was in default. Blue II obtained a
similar forbearance agreement which ensured the continued funding for the
construction. In connection with the Blue II forbearance agreement, the Company
sold certain shares of its Series A Preferred Stock (See Note 7) to the general
contractor of the brewery in an amount equal to the final net funding
deficiency. The proceeds from such sale were used to satisfy the funding
deficiency.
Capital leases
The Company has entered into leases for the land and building housing the
brewery as well as certain computer equipment which qualify as capital leases.
The Company has the option to purchase the building housing the brewery at any
time after March 1, 2023 at a price of $3,000,000.
F-12
<PAGE> 30
FREDERICK BREWING CO.
NOTES TO FINANCIAL STATEMENTS
Future minimum payments under all capital leases are as follows as of
December 31, 1997:
<TABLE>
<S> <C>
1998........................................................ $ 464,234
1999........................................................ 444,702
2000........................................................ 428,803
2001........................................................ 412,174
2002........................................................ 369,049
Thereafter.................................................. 4,033,177
-----------
Total minimum lease payments................................ 6,152,139
Less amount representing interest........................... (3,182,627)
-----------
Present value of future minimum lease payments.............. 2,969,512
Less current maturities..................................... (88,976)
-----------
Long-term capital lease obligations......................... $ 2,880,536
===========
</TABLE>
7. STOCKHOLDERS' EQUITY
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 non-voting
Cumulative, Convertible Series A Preferred Stock (Series A), 2,100 shares of
Convertible Series C Preferred Stock (Series C), 1,045 shares of Convertible
Series D Preferred Stock (Series D) and 2,700 shares of Convertible Series E
Preferred Stock (Series E) were issued during 1997 and are outstanding as of
December 31, 1997. The Company also issued 3,750 shares of Convertible Series B
Preferred Stock (Series B), which were all converted to Common Stock during
1997.
The Series A shares are convertible at any time after one year from the
date of issuance, based on a conversion price of $3.67 per share, which was a
discount at the date of issuance. The Series B, Series C and Series D shares are
convertible immediately upon issuance at 70% of the average market price of the
common stock for the five trading days immediately prior to the conversion date.
The Series E shares are convertible immediately upon issuance at 75% of the
average market price of the common stock for the five trading days immediately
prior to the conversion date. The Company has recorded a deemed dividend of
$3,611,641 to reflect the beneficial conversion feature related to each of the
preferred stock issuance. The discount amount is recognized over the period from
the date of issuance to the earliest point the shares are convertible. The
beneficial conversion feature of $114,505 related to the Series A shares is
being recognized as a deemed dividend over the one year period from the date of
issuance of March 31, 1997, and the deemed dividends related to the Series B,
Series C, Series D and Series E shares was recognized immediately upon issuance.
The holders of Series A shares 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 Shares is $40 per share per
annum, with cumulative dividends in arrears of $73,120, and the annual dividend
rate for the Series C, Series D and Series E shares is $80 per share, when and
if declared by the Company's Board of Directors. Full dividends must be paid or
set aside on the Series A, Series C, Series D and Series E shares before
dividends may be paid or set aside on the common stock. All dividend payments
will be subordinated to the Company's debt obligations, and will be subject to
the prior approval of the Company's bank. No dividends were declared during
1997. The holders of Series B, Series C, Series D and Series E shares have a
liquidation preference of $1,000 per share over the Common Stock and the Series
A shares. The Company does not expect to declare or pay such dividends in the
foreseeable future.
In connection with the issuance of the Series A shares, the Company issued
69,306 warrants with exercise prices ranging from $3.66 per share to $5 per
share as consideration to the entities responsible for attracting
F-13
<PAGE> 31
FREDERICK BREWING CO.
NOTES TO FINANCIAL STATEMENTS
the investors in the Series A shares. The Company determined the aggregate value
of these warrants on the date of grant to approximate $150,000, based on the
Black-Scholes valuation model, with the following weighted average assumptions:
dividend yield of 0%, expected volatility of 58%, risk free interest rate of
6.38% and expected term of 3 years. This value was recorded as a direct issuance
cost of the Series A offering and deducted from the proceeds. In connection with
the issuance of the Series B shares, the Company issued 200,000 warrants with
exercise prices ranging from $4.38 per share to $4.88 per share to the entity
responsible for attracting the investors. The Company determined the aggregate
value of these warrants on the date of grant to be approximately $460,000, based
on the Black-Scholes valuation model, with the following weighted average
assumptions: dividend yield of 0%, expected volatility of 58%, risk free
interest rate of 6.36% and expected term of 5 years. This value was recorded as
a cost of the Series B offering and deducted from the proceeds.
In connection with the issuance of Series B, Series C and Series D shares,
the Company also issued 56,250, 37,500 and 12,750 shares of common stock,
respectively, to the entity responsible for attracting the investors. In
connection with the issuance of Series E shares, the Company pledged 45,000
shares of common stock to the entity responsible for attracting the investors.
The shares were issued subsequent to December 31, 1997. Based on the market
value of the common stock on the date of issuance, the Company has reflected an
aggregate of $422,531 as a cost of the related preferred stock issuance.
During 1997, the Company pledged an aggregate of 10,000 shares of common
stock to certain members of management in lieu of their salary for past
services. The value of the common stock on the date pledged of $17,500 was
recorded as compensation expense and additional paid in capital.
Subsequent to December 31, 1997, certain holders of Series C preferred
shares converted their shares into 402,663 shares of common stock.
8. STOCK-BASED COMPENSATION
STOCK OPTIONS
The Company has chosen to continue to account for stock-based compensation
using the intrinsic value method prescribed in Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
Interpretations for issuance of stock options to employees. Accordingly,
compensation cost for stock options is measured as the excess, if any, of the
quoted market price at the date of the grant over the amount an employee must
pay to acquire the stock.
Effective November 20, 1995, the Company adopted the 1995 Stock Option Plan
("the Plan") in order to attract and retain qualified personnel in key positions
as well as to compensate members of the Board of Directors. The Company has
reserved approximately 152,000 shares of common stock for issuance under the
Plan. The exercise price of all options under the Plan must be equal to at least
the fair value of the related common stock on the date of grant. Vesting
provisions for the options are to be determined by the Board of Directors. All
options are exercisable for ten years after the vesting date.
F-14
<PAGE> 32
FREDERICK BREWING CO.
NOTES TO FINANCIAL STATEMENTS
A summary of the status of the Company's stock options is presented.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
WEIGHTED-AVERAGE WEIGHTED-AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------ ----------------- ------- -----------------
<S> <C> <C> <C> <C>
Options outstanding at beginning of
period.................................... 39,987 1.60 85,489 0.18
Options exercised........................... -- -- (55,278) (0.18)
Options canceled............................ (355) (5.79) (3,334) (5.00)
Options granted............................. 10,000 1.90 13,110 5.79
------ -------
Options outstanding at end of period........ 49,632 1.63 39,987 1.60
====== =======
Options exercisable at end of period........ 49,632 1.63 39,987 1.60
====== =======
</TABLE>
The weighted average fair value of options granted during the years ended
December 31, 1997 and 1996 was $1.32 per share and $2.38 per share respectively.
As of December 31, 1997, the weighted average remaining contractual life of
the options, which have exercise prices ranging from $0.18 to $6.00, is
approximately 8 years.
As of December 31, 1997 and 1996, the pro forma tax effects under SFAS 109
would not have a material impact to either the deferred tax asset or the
valuation allowance.
Had compensation expense been determined based on fair value at the grant
dates for option awards consistent with the method of SFAS 123, the Company's
net loss attributable to common shareholders and net loss per common share would
have been increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Net loss attributable to common shareholders
As reported........................................... $(7,957,081) $(2,625,174)
Pro forma............................................. (7,961,471) (2,703,915)
Net loss per common share (basic and diluted)
As reported........................................... $ (2.91) $ (1.45)
Pro forma............................................. (2.91) (1.50)
</TABLE>
The fair value of each option is estimated on the date of grant using a
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants during the year ended December 31, 1997 and 1996.
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Annual dividend yield....................................... 0% 0%
Estimated volatility........................................ 58% 33%
Risk free interest rate..................................... 6.8% 6.3%
Expected term............................................... 8 years 8 years
</TABLE>
Subsequent to December 31, 1997, the Board of Directors authorized the
modification of the terms of all stock options previously issued to
non-executive employees of the Company by changing the exercise price to $0.875
per share, representing the market value of the underlying common stock on March
28, 1998. There was no compensation charge associated with this modification,
since the revised exercise price is equal to the market value of the underlying
common stock on the date of re-measurement.
F-15
<PAGE> 33
FREDERICK BREWING CO.
NOTES TO FINANCIAL STATEMENTS
WARRANTS
In April 1997, the Company entered into an agreement with a third party for
public and investor relations services to be rendered over a five-year period.
In consideration for these services, the Company paid $650,000 in cash and
issued the public relations firm 500,000 warrants to purchase common stock of
the Company. These warrants have various exercise prices and terms of
exercisability, and expire at varying dates through March 13, 2002. The Company
determined the estimated aggregate fair value of these warrants on the date of
grant to be approximately $670,000, based on the Black-Scholes valuation model
with the following weighted average assumptions: dividend yield of 0%, expected
volatility of 58%, risk free interest rate of approximately 6.15% and expected
term of approximately 3 years. The Company recorded the total consideration of
$1,320,000 as deferred public relation costs. The component of the total
consideration related to the estimated value of the warrants was recorded as an
increase to additional paid in capital at the value on the date on which a
performance commitment existed. The total consideration is being amortized over
the five-year term of the agreement.
In connection with the initial public offering in 1996, the underwriter was
granted a warrant to purchase up to 38,558 shares of common stock at an exercise
price of $ 7.20 per share. In addition, during 1996, the Company entered into an
agreement with a financial consulting firm, and granted this firm warrants to
purchase $120,000 worth of the Company's common stock at an exercise price equal
to 125% of the average closing price of the shares for the twenty days prior to
the execution of the agreement between the Company and the consulting firm. The
Company recorded an expense of $10,000 and a corresponding increase to paid-
in-capital related to this grant based on the estimated fair value of the
warrants on their date of grant, determined using the Black-Scholes valuation
model.
9. COMMITMENTS AND CONTINGENCIES
LEASES
In February 1997, the Company moved into its new facility which it is
leasing under a twenty-year capital lease expiring March 2017. The monthly
capital lease payments, which began in March 1997, is equal to $20,857. The
Company also leases certain of its equipment under an operating lease with net
aggregate future lease payment as follows (see note 6).
<TABLE>
<S> <C>
1998........................................................ $137,653
1999........................................................ 137,653
2000........................................................ 45,884
--------
Total minimum rental payments............................... $321,190
========
</TABLE>
Rent expense for the year-ended December 31, 1997 and 1996 was
approximately $92,000 and $53,000, respectively.
CONTINGENCIES
In the normal course of business, the Company is involved in various claims
and litigation. Management is of the opinion that any liability or loss
resulting from such claims or litigation will not have a material adverse effect
on the Company's financial condition, results of operations or cash flows.
EMPLOYMENT AGREEMENTS
In December 1995, the Company entered into employment agreements with four
key members of management. Under the terms of the agreements, aggregate base
salaries for 1998 of all the individuals are
F-16
<PAGE> 34
FREDERICK BREWING CO.
NOTES TO FINANCIAL STATEMENTS
$375,000. The employment agreements also include a provision for annual cash
bonuses not to exceed 25% of base salaries. In 1997 and 1996, no such bonuses
were paid or accrued based on a management decision.
10. 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 all retail customers.
If a 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 areas serviced by such wholesale distributors until the
Company retained replacements.
Sales to wholesale distributors representing greater than 10% of total
sales were as follows for the years ended December 31:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Distributor A........................................ $1,236,400 $ 961,000
Distributor B........................................ -- 40,000
Distributor C........................................ 271,600 241,000
---------- ----------
$1,508,000 $1,242,000
========== ==========
</TABLE>
11. INCOME TAXES
The tax effects of the primary temporary differences giving rise to the
Company's deferred tax asset (liability) at December 31, 1997 and 1996 are
summarized as follows:
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Net operating loss carry forward............................ $ 2,710,000 $1,028,000
Other....................................................... 21,000 8,000
Depreciation................................................ (130,000) (100,000)
----------- ----------
Subtotal............................................... 2,601,000 936,000
Valuation allowance......................................... (2,601,000) (936,000)
----------- ----------
Net deferred taxes..................................... $ -- $ --
=========== ==========
</TABLE>
Realization of the net deferred tax asset at the balance sheet date is
dependent on future earnings which are uncertain. Accordingly, a full valuation
allowance was recorded against the asset. During the year ended December 31,
1997 the valuation allowance was increased primarily related to the increase in
the net operating loss carryforwards.
As of December 31, 1997, the Company had net operating loss carry forwards
of approximately $6,800,000 expiring between 2009 and 2012 available to offset
future taxable income for federal income tax purposes, subject to Section 382
limitations.
F-17
<PAGE> 35
FREDERICK BREWING CO.
NOTES TO FINANCIAL STATEMENTS
12. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1997 1996
---------- --------
<S> <C> <C>
Cash paid for interest...................................... $ 140,030 $53,088
Supplemental disclosure of non cash investing
and financing activities:
Capital lease obligations................................... $3,000,000 $ 5,076
Fair value of warrants issued to non-employees for
services.................................................. $ 670,000 $10,000
Fair value of stock pledge to management in lieu of
salary.................................................... $ 17,500 $ --
Fair value of warrants issued to bank for services.......... $ 18,000 $ --
Fair value of warrants issued in connection with preferred
stock issuance............................................ $ 610,000 $ --
Common stock issued in connection with preferred stock
issuance.................................................. $ 422,531 $ --
Deemed dividend in connection with beneficial conversion
feature on preferred stock................................ $3,611,641 $ --
Beneficial conversion feature in connection with Series A
preferred stock........................................... $ 114,505 $ --
</TABLE>
F-18
<PAGE> 36
FREDERICK BREWING CO.
NOTES TO FINANCIAL STATEMENTS
SIGNATURES
In accordance with the requirements of the Securities and Exchange Act of 1934,
the Registrant has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FREDERICK BREWING CO.
Date March, 1997 /s/ Kevin E. Brannon
------------------------------- -------------------------------------
Kevin E. Brannon
Chairman of the Board and
Chief Executive Officer
Date March 1997 /s/ Leslie P. Harper
------------------------------- -------------------------------------
Leslie P. Harper
Chief Financial Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
<TABLE>
<S> <C>
/s/ Kevin E. Brannon Date: March 27, 1997
- ----------------------------------------
Kevin E. Brannon
Chairman
/s/ Marjorie A. McGinnis Date: March 27, 1997
- ----------------------------------------
Marjorie A. McGinnis
/s/ Nicholas P. Foris, M.D. Date: March 27, 1997
- ----------------------------------------
Nicholas P. Foris, M.D.
/s/ Carl R. Hildebrand Date: March 27, 1997
- ----------------------------------------
Carl R. Hildebrand
/s/ Jerome M. Pool Date: March 27, 1997
- ----------------------------------------
Jerome M. Pool
/s/ Peter C. Spellar Date: March 27, 1997
- ----------------------------------------
Peter C. Spellar
/s/ Maribeth Visco Date: March 27, 1997
- ----------------------------------------
Maribeth Visco
</TABLE>
F-19
<PAGE> 1
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 December 24, 1997; and that
none of the Series E Convertible Preferred Stock referred to in these Articles
Supplementary has been issued.
1. Creation of Series E Convertible Preferred Stock. There is hereby
created a series of preferred stock consisting of 3,000 shares and designated as
the Series E 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 E Convertible
Preferred Stock shall be entitled to receive, an 4% annual dividend, equal in
value to $40.00 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 E
Convertible Preferred Stock shall rank on a parity with each other share of
Series E Convertible Preferred Stock with respect to dividends.
3. Redemption Provisions. Each outstanding share of the Series A
Convertible Preferred Stock is redeemable on the following manner, at a price of
$1,300.00 per Share (the "Redemption Price"). The Corporation shall have the
right to redeem each share on the 120th day following the Closing Date (as such
term is defined in Section 5(a)(3) (the "Redemption Date"), by giving facsimile
notice (followed within 48 hours by personal delivery) to the registered holder
of the Shares on or before five calendar days prior to the Redemption Date, that
the Company intends to redeem the shares. The Shares may be redeemed in whole or
in part. The Corporation shall deliver the Redemption Price payable by bank
check or wire transfer, to the holder of the Shares redeemed within 3 business
days of the Redemption Date. If the Redemption Date falls on a day on which the
New York Stock Exchange is closed, the Redemption Date shall be fixed at the
next day on which such exchange is open for business.
4. Liquidation Provisions. In the event of any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, the Series E
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 E 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 E 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 E 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 E, 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.
5. Conversion Provisions. The holders of shares of Series E Convertible
Preferred Stock shall have conversion rights as follows (the "Conversion
Rights"):
<PAGE> 1
EXHIBIT
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
FREDERICK BREWING CO.,
FBC ACQUISITION CORPORATION,
AND
WILD GOOSE BREWERY INC.
DATED: DECEMBER 15, 1997
<PAGE> 2
AGREEMENT AND PLAN OF REORGANIZATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Article 1.0 Certain Definitions........................................... 1
1.1 Certain Definitions........................................... 1
Article 2.0 The Merger.................................................... 1
2.1 The Merger.................................................... 1
(a) Organization of FAC....................................... 1
(b) Merger of WGB and FAC..................................... 1
(c) Effect.................................................... 2
(d) Articles of Incorporation................................. 2
(e) Capital Stock............................................. 2
(f) Directors and Officers.................................... 2
2.2 Effective Time; Closing....................................... 2
2.3 Treatment of Capital Stock.................................... 3
2.4 Registration Rights........................................... 4
2.5 Stockholder Rights; Stock Transfers........................... 6
2.6 Dissenting Shares............................................. 6
2.7 Exchange Procedures........................................... 7
(a) The Exchange.............................................. 7
(b) Non-Surrendered Certificates.............................. 7
(c) No Dividends.............................................. 7
(d) No Obligation to Issue Shares of Frederick Common Stock... 7
2.8 Additional Actions............................................ 8
2.9 Structure of the Transaction.................................. 8
Article 3.0 Representations and Warranties of WGB......................... 8
3.1 Capitalization; Status and Qualification...................... 8
(a) Capitalization............................................ 8
(b) Status and Qualification.................................. 9
3.2 Authorization; Approval....................................... 9
3.3 Financial Statements.......................................... 10
3.4 Undisclosed Liabilities....................................... 10
3.5 Absence of Changes............................................ 10
3.6 Title to Assets............................................... 11
(a) Title..................................................... 11
(b) Condemnation.............................................. 11
3.7 Real Property................................................. 11
3.8 Tangible Personal Property.................................... 12
3.9 Intellectual Property......................................... 12
3.10 Litigation; Orders............................................ 13
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
3.11 Compliance.................................................... 14
(a) Compliance (Non-Environmental)............................ 14
(b) Compliance (Environmental)................................ 14
(c) Definitions............................................... 15
3.12 Status of Contracts........................................... 17
(a) Status.................................................... 17
(b) Scale..................................................... 18
(c) Normality................................................. 18
(d) Affiliated Agreements..................................... 18
(e) Power of Attorney......................................... 19
(f) Pension Obligation........................................ 19
3.13 Assets; Inventory............................................. 19
3.14 Customers and Vendors......................................... 19
3.15 Taxes ...................................................... 20
3.16 Employees; Benefit Plans...................................... 20
(a) Employees................................................. 20
(b) Benefit Plans............................................. 21
3.17 Insurance..................................................... 22
3.18 Subsidiaries; Competing Interests............................. 22
3.19 No Pending Transactions....................................... 23
3.20 Broker's or Finder's Fees..................................... 23
3.21 Updating of Schedules......................................... 23
3.22 Ownership of Frederick Common Stock........................... 23
3.23 Transactions With Affiliates.................................. 23
3.24 Bank Accounts................................................. 24
3.25 Correct Information........................................... 24
Article 4.0 Representations and Warranties of Frederick................... 24
4.1 Structure; Status............................................. 24
(a) Frederick................................................. 24
(b) FAC ...................................................... 25
4.2 Authority; No Conflict........................................ 25
4.3 Broker's or Finder's Fees..................................... 26
4.4 Litigation; Orders............................................ 26
4.5 Authorized Frederick Common Stock............................. 26
4.6 Accuracy and Completeness of Reports.......................... 26
Article 5.0 Covenants..................................................... 26
5.1 Covenants of WGB.............................................. 26
5.2 No Solicitation............................................... 29
5.3 Stockholder Approval.......................................... 29
5.4 Access to Information; Confidentiality........................ 30
(a) Access to Information..................................... 30
(b) Confidentiality........................................... 30
(c) Confidentiality........................................... 31
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
5.5 Consents; Efforts to Consummate............................... 32
5.6 Public Announcements.......................................... 32
5.7 Existence..................................................... 32
5.8 Articles of Merger............................................ 32
Article 6.0 General Matters............................................... 32
6.1 Survival of Representations and Warranties.................... 32
6.2 Benefits Plans and Arrangements............................... 32
(a) Plan Participation........................................ 32
(b) Employment................................................ 33
(c) Employment Agreement...................................... 33
(d) Retention Bonuses......................................... 33
(e) Attendance at Board Meetings.............................. 33
6.3 Failure to Fulfill Conditions................................. 34
6.4 Common Stock Restrictions..................................... 34
Article 7.0 Conditions to the Obligations of Frederick and FAC
to Consummate................................................. 34
7.1 Representations and Warranties................................ 35
7.2 Performance................................................... 35
7.3 Consents and Approvals........................................ 35
7.4 Stockholder Approval.......................................... 35
7.5 Dissenting Shares............................................. 35
7.6 Financing..................................................... 35
7.7 WGB Private Placements........................................ 35
7.8 Delivery of Documents......................................... 35
7.9 No Litigation................................................. 36
7.10 No Material Change............................................ 36
Article 8.0 Conditions to Obligations of WGB to Consummate ............... 36
8.1 Representations and Warranties................................ 36
8.2 Performance................................................... 36
8.3 Consents and Approvals........................................ 36
8.4 Officers' Certificate......................................... 36
8.5 Payment of Frederick Common Shares............................ 36
8.6 No Litigation................................................. 36
8.7 Delivery of Documents......................................... 37
Article 9.0 Termination................................................... 37
9.1 Termination................................................... 37
9.2 Procedure and Effect of Termination........................... 37
9.3 Payment of Expenses and Termination........................... 37
Article 10.0 Miscellaneous................................................. 38
10.1 Further Assurances............................................ 38
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
10.2 Notices ...................................................... 38
10.3 Governing Law................................................. 39
10.4 Severability.................................................. 39
10.5 Entire Agreement; Amendment................................... 40
10.6 Assignment, etc............................................... 40
10.7 Counterparts.................................................. 40
Signatures .............................................................. 41
</TABLE>
iv
<PAGE> 6
<TABLE>
<CAPTION>
Schedules:
<S> <C>
Schedule 3.2............ Third Party Consents
Schedule 3.4............ Undisclosed Liabilities
Schedule 3.5............ Absence of Changes
Schedule 3.6............ Title to Assets
Schedule 3.7............ Real Property
Schedule 3.8A........... Significant Tangible Personal Property
Schedule 3.8B........... Leased Personal Property
Schedule 3.8C........... Restricted Personal Property
Schedule 3.9............ Intellectual Property
Schedule 3.10........... Litigation
Schedule 3.11A.......... Non-Compliance
Schedule 3.11B.......... Non-Compliance - Environmental
Schedule 3.12........... Contracts
Schedule 3.15........... Taxes
Schedule 3.16A.......... Employees
Schedule 3.16B.......... Benefit Plans
Schedule 3.17........... Insurance
Schedule 3.18........... Subsidiaries; Competing Interests
Schedule 3.24........... Bank Accounts
Schedule 4.4............ Litigation
Schedule 6.2(d)......... Retention Bonuses
</TABLE>
v
<PAGE> 7
<TABLE>
<CAPTION>
Exhibits:
<S> <C>
Exhibit A............... Form of Employment Agreement between WGB
and James Lutz
Exhibit B............... Form of Opinion of Paul S. Blumenthal, Esq.
</TABLE>
vi
<PAGE> 8
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION ("Agreement")
is entered into as of December 15, 1997 by and among Wild Goose Brewery Inc.,
Cambridge, Maryland, a Maryland corporation ("WGB"), Frederick Brewing Co.,
Frederick, Maryland, a Maryland corporation ("Frederick") and FBC Acquisition
Corporation, a Maryland corporation in organization ("FAC") to be wholly owned
by Frederick as of the Closing Date (as defined in Section 2.2) hereof.
WITNESSETH:
WHEREAS, WGB is in the business of craft brewing beer as a
microbrewery (the "Business"), which operations are conducted out of its
facility located at 20 Washington Street, Cambridge, Maryland (the "Premises");
WHEREAS, the Boards of Directors of WGB and Frederick have
determined that it is in the best interests of their respective companies and
their respective shareholders to consummate the business combination
transactions provided for herein, including the merger of WGB with and into FAC
(the "Merger"), subject to the terms and conditions set forth herein; and
WHEREAS, the parties desire to provide for certain undertakings,
conditions, representations, warranties and covenants in connection with the
transactions contemplated hereby;
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants and agreements contained herein, and
intending to be legally bound hereby, the parties hereto hereby agree as
follows:
ARTICLE 1.0 CERTAIN DEFINITIONS.
1.1 Certain Definitions. For purposes of this Agreement,
certain terms are defined throughout the Agreement and shall have the meanings
given therein.
ARTICLE 2.0 THE MERGER.
2.1 The Merger
(a) Organization of FAC. Immediately prior to the
Closing Date (as defined in Section 2.2 hereof), Frederick shall have
organized, as a wholly owned subsidiary, FAC as a Maryland corporation pursuant
to Section 2-101, et. seq. of the Maryland General Corporation Law (the
"MGCL").
(b) Merger of WGB and FAC. Subject to the terms and
conditions of this Agreement, at the Effective Time (as defined in Section 2.2
hereof), WGB
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Agreement and Plan of Reorganization
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shall be merged with and into FAC in accordance with the provisions of Section
3-101 et. seq. of the MGCL. FAC shall be the surviving corporation
(hereinafter sometimes called the "Surviving Corporation") of the Merger, and
shall continue its corporate existence under the laws of the State of Maryland
as a wholly owned subsidiary of Frederick. The name of the Surviving
Corporation shall be changed to "Wild Goose Brewery Inc." promptly following
the Merger. Upon consummation of the Merger, the separate corporate existence
of WGB shall terminate.
(c) Effect. From and after the Effective Time,
the Merger shall have the effects set forth in Section 3-114 of the MGCL.
(d) Articles of Incorporation. The Articles
of Incorporation and Bylaws of FAC, as in effect immediately prior to the
Effective Time, shall be the Articles of Incorporation and Bylaws of the
Surviving Corporation until altered, amended or repealed in accordance with
their terms and applicable law.
(e) Capital Stock. The authorized capital stock of
the Surviving Corporation shall be as stated in the Articles of Incorporation
of FAC immediately prior to the Effective Time.
(f) Directors and Officers. Except as set forth
herein, the directors and officers of FAC immediately prior to the Effective
Time shall be the directors and officers of the Surviving Corporation, each of
whom shall hold office in accordance with the Articles of Incorporation and
Bylaws of the Surviving Corporation.
2.2 Effective Time; Closing. The Merger shall become
effective upon the occurrence of the filing of Articles of Merger with the
Department of Assessments and Taxation of the State of Maryland (the
"Department") pursuant to the MGCL, unless a later date and time is specified
as the effective time in such Articles of Merger (the "Effective Time"). A
closing of this Agreement (the "Closing") shall take place immediately prior to
the Effective Time at 10:00 a.m., eastern time, on or after the Business Day
following the satisfaction or waiver, to the extent permitted hereunder, of the
conditions to the consummation of the Merger specified in Articles 7 and 8 of
this Agreement (other than the delivery of certificates, opinions and other
instruments and documents to be delivered at the Closing) (the "Closing Date"),
at the offices of Elias, Matz, Tiernan & Herrick L.L.P., 734 15th Street, N.W.,
Washington, D.C. 20005, or at such other place, at such other time, or on such
other date as the parties may mutually agree upon. At the Closing, there shall
be delivered to Frederick, FAC and WGB the opinion, certificates and other
documents, as applicable, required to be delivered under Articles 7 and 8
hereof. Subject to the fulfillment or waiver at or prior to the Closing of the
conditions to its obligations set forth in Articles 7 and 8, at the Closing
each of FAC and WGB shall execute and deliver Articles of Merger for filing
with the Department. For purposes of this Agreement, a "Business Day" shall be
any day that banks in the State of Maryland are open for business.
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Agreement and Plan of Reorganization
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2.3 Treatment of Capital Stock. Subject to the provisions
of this Agreement, at the Effective Time, automatically by virtue of the Merger
and without any action on the part of the holder thereof;
(a) each share of the common stock, no par value per
share, of FAC (the "FAC Common Stock") issued and outstanding immediately prior
to the Effective Time shall be unchanged and shall remain issued and
outstanding and owned beneficially and of record by Frederick;
(b) subject to Sections 2.6 and 2.7 hereof, each share
of the preferred stock, $.01 par value per share of WGB (the "WGB Preferred
Stock") issued and outstanding (not including Dissenting Shares, as defined in
Section 2.6 hereof) immediately prior to the Effective Time shall be converted
into and become the right to receive that number of shares (rounded to the
nearest whole share) of the common stock, $.00004 par value per share of
Frederick (the "Frederick Common Stock") equal to $10.00 divided by the
Frederick Market Value. The Frederick Market Value means the average of the
Frederick Market Prices for the ten (10) consecutive trading days immediately
preceding the Business Day prior to the date of this Agreement. The Frederick
Market Price means, as of any date, the last sale price of a share of Frederick
Common Stock on the Nasdaq Small Cap Market System (as reported in the Wall
Street Journal, or if not reported therein, in another authoritative source);
(c) subject to Sections 2.6 and 2.7 hereof, each
share of the common stock, $0.1 par value per share of WGB (the "WGB Common
Stock") issued and outstanding (not including Dissenting Shares, as defined in
Section 2.6 hereof) immediately prior to the Effective Time shall be converted
into and become the right to receive, that number of shares (rounded to the
nearest whole share) of Frederick Common Stock equal to (i) the quotient of
$2,570,000 (the "WGB Common Purchase Price"), subject to the adjustments set
forth below, divided by the number of issued and outstanding shares of WGB
Common Stock (not including Dissenting Shares, as defined in Section 2.6
hereof), divided by (ii) the Frederick Market Value. The WGB Common Purchase
Price is subject to the following adjustments; (A) the WGB Common Purchase
Price will be reduced by the aggregate amount, as of the Closing, of the
outstanding principal balances and accrued interest thereon (and penalty
amounts, if any) of the Promissory Note from WGB to Signet Bank, dated October
3, 1995, and the Revolving Loan Note, dated October 3, 1995, entered into by
and between Signet Bank and WGB, (B) if the gross revenue of WGB, computed in
accordance with past practice, for the year ending December 31, 1997 (v) is
less than $2.4 million, the WGB Common Purchase Price will be reduced on a
dollar for dollar basis for each dollar WGB's gross revenue is less than $2.4
million, or (v) is greater than $2.4 million, the WGB Common Purchase Price
will be increased on a dollar for dollar basis for each dollar WGB's gross
revenue is greater than $2.4 million, (C) if, as of the Closing, the aggregate
of WGB's cash on hand, accounts receivable (60 days or less) and its salable
finished goods, usable ingredients and usable packaging materials (each valued
at cost) is
<PAGE> 11
Agreement and Plan of Reorganization
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less than WGB's accounts payable, the WGB Common Purchase Price will be reduced
on a dollar for dollar basis for each dollar the aggregate of WGB's cash on
hand, accounts receivable (60 days or less) and its salable finished goods,
usable ingredients and usable packaging materials (each valued at cost) is less
than WGB's accounts payable, (D) to the extent not otherwise specifically
disclosed in WGB's accounts payable, the WGB Common Purchase Price will be
reduced by the amount, as of the Closing, of (w) WGB's aggregate unpaid rent
with respect to its facility located at 20 Washington Street, Cambridge,
Maryland, (x) all product at distributors and unsold for 120 days or greater,
(y) accrued but unpaid employee or director compensation, property, payroll,
excise, income and other taxes and equipment lease payments, and (z) amounts
owed on contracts (whether written or otherwise) to purchase or repair
equipment, parts or any other personal property; and (E) the fair value of
Dissenting Shares as determined pursuant to the MGCL;
(d) Shares of Frederick Common Stock to be issued as
part of the WGB Common Purchase Price as computed pursuant to Section 2.3(c)
above which equal $250,000 of Frederick Market Value will be retained by
Frederick as a holdback (the "Holdback Shares") and will be a further
adjustment to the WGB Common Purchase Price as of the Closing, but only for
purposes of computing the amount of WGB Common Purchase Price to be paid to WGB
stockholders as of the Effective Time and not for purposes of computing the
aggregate amount of the WGB Common Purchase Price. The Holdback Shares will be
retained by Frederick for a period of at least 270 days from the Closing as an
indemnity against any claims, actions, suits, proceedings or investigations
which may be made, brought, or threatened to be brought against Frederick or
FAC for actions taken or not taken by WGB prior to or as of the Closing,
including, but not by way of limitation, credits, allowances and returns
demanded by wholesale customers, litigation or environmentally related claims
of any nature not fully covered by insurance, the fair value of Dissenting
Shares as determined pursuant to the MGCL, and those arising out of or due to
the breach by WGB of any of its representations, warranties or covenants
contained in this Agreement; and
(e) The Frederick Common Stock to be received by the
stockholders of WGB will be subject to restrictions on transferability and
resale as set forth in Section 6.4 of this Agreement.
2.4 Registration Rights. (i) Frederick agrees that
within 120 days of the Effective Time it will file a registration statement
under the Securities Act of 1933, as amended (the "Securities Act") with
respect to the shares of Frederick Common Stock to be issued to the WGB
stockholders pursuant to the terms of this Agreement (the "Registration
Statement").
(ii) Frederick will pay all reasonable
registration expenses in connection with the Registration Statement, including
without limitation, all registration and filing fees, fees with respect to
filings required to be made with the National Association of Securities
Dealers, Inc., fees and expenses of compliance with securities or
<PAGE> 12
Agreement and Plan of Reorganization
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blue sky laws, printing expenses, and fees and expenses of counsel for
Frederick and of all independent public accountants of Frederick (including the
expenses of any "comfort" letters or update thereof required by or incident to
the foregoing) in connection with such registration except that the following
expenses shall not be borne by Frederick:
(A) the cost of any special audit required by the Securities Act
or the rules and regulations of the Securities and Exchange Commission
thereunder as a result of Frederick's obligation to maintain the
Registration Statement current for no more than 15 months, which costs
shall be prorated among the holders of the securities included in the
Registration Statement according to the number of shares of Frederick
Common Stock so covered by the Registration Statement during such
extended period; and
(B) the cost of any legal opinion required by Frederick or its
transfer agent to be provided by the selling stockholder in order to
establish such selling stockholder's compliance with the provisions of
the Securities Act.
(iii) Frederick shall immediately notify
each stockholder at any time when a prospectus relating thereto is required to
be delivered under the Securities Act, of the happening of any event as a
result of which the prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances under which
they were made, and at the request of the stockholder will promptly prepare and
furnish to the stockholder a reasonable number of copies of a supplement to or
an amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such securities, such prospectus shall not
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were made. Each
stockholder agrees (A) that upon receipt of any notice from Frederick of the
happening of any event of the kind described above, such holder will forthwith
discontinue such holder's disposition of the shares of Frederick Common Stock
pursuant to the Registration Statement until such stockholder's receipt of the
copies of the supplemented or amended prospectus contemplated above, and if so
directed by Frederick, will deliver to Frederick (at Frederick's expense) all
copies then in such stockholder's possession of the prospectus relating to such
securities current at the time of receipt of such notice and (B) that it will
immediately notify Frederick, at any time when a prospectus relating to the
registration of such shares is required to be delivered under the Securities
Act, of the happening of any event as a result of which information previously
furnished by such stockholder to Frederick in writing for inclusion in such
prospectus contains an untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances under which
they were made.
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Agreement and Plan of Reorganization
Page 6
(iv) In connection with the registration of the
shares of Frederick Common Stock issued pursuant to this Agreement under the
Securities Act, each stockholder shall furnish to Frederick in writing such
information and affidavits as Frederick reasonably requests for use in
connection with such registration statement and agrees, jointly and severally,
to indemnify and hold harmless Frederick, its directors, officers, each
underwriter, if any, and each controlling person of Frederick, if any, against
any losses, claims, damages or liabilities, joint or several (or actions in
respect thereof), to which Frederick, its directors, officers, such underwriter
or controlling person may be subject under the Securities Act or under any
other statute or at common law, insofar as such losses, claims, damages or
liabilities, joint or several (or actions in respect thereof) arise out of or
are based upon (i) any untrue statement (or alleged untrue statement) of any
material fact contained in the Registration Statement, any selling document or
any amended selling document, or (ii) any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to
make the statements therein (in light of the circumstances in which they were
made with respect to any prospectus) not misleading, and shall reimburse
Frederick, its directors, officers, such underwriter and controlling person for
any legal or other expense reasonably incurred by such person in connection
with investigating of defending any such loss, claim, damage, liability or
action; in each case, to the extent, and only to the extent, that each untrue
statement or omission (or alleged untrue statement or omission) is made in
reliance upon information furnished to Frederick by such stockholder.
(v) Frederick shall maintain the effectiveness
of the Registration Statement for no more than 15 months.
2.5 Stockholder Rights; Stock Transfers. At the Effective
Time, the holders of the WGB Common Stock and the WGB Preferred Stock shall
cease to be and shall have no rights as a stockholder of WGB, other than to
receive the consideration provided under this Article 2.0. After the Effective
Time, there shall be no transfers on the stock transfer books of WGB or the
Surviving Corporation of shares of WGB Common Stock or shares of WGB Preferred
Stock.
2.6 Dissenting Shares. Each outstanding share of WGB
Common Stock and WGB Preferred Stock the holder of which has perfected his
right to dissent under the MGCL and has not effectively withdrawn or lost such
right as of the Effective Time shall not be converted into or represent a right
to receive shares of Frederick Common Stock as provided in Sections 2.3(b) and
(c) hereof, and the holder thereof shall be entitled only to such rights as are
granted by the MGCL. WGB shall give Frederick prompt notice upon receipt by
WGB of any such written demands for payment of the fair value of such shares of
WGB Common Stock or WGB Preferred Stock ("Dissenting Shares") and of
withdrawals of such demands and any other instruments provided pursuant to the
MGCL (any shareholder duly making such demand being hereinafter called a
"Dissenting Shareholder"). If any Dissenting Shareholder shall effectively
withdraw or lose (through
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Agreement and Plan of Reorganization
Page 7
failure to perfect or otherwise) his right to such payment at any time, such
holder's shares of WGB Preferred Stock or WGB Common Stock shall be converted
into the right to receive shares of Frederick Common Stock as provided in
Sections 2.3(b) and (c) hereof, respectively. Any payments made in respect of
Dissenting Shares shall be made by FAC, as the Surviving Corporation of the
Merger.
2.7 Exchange Procedures.
(a) The Exchange. On the Closing Date, Frederick
shall, upon the surrender by the WGB stockholders of their certificates or an
affidavit of loss together with an indemnity and/or bond satisfactory to
Frederick representing 100% of the issued and outstanding shares of WGB Common
Stock and WGB Preferred Stock (except for certificates representing Dissenting
Shares) (the "WGB Certificates") at the Closing Date, issue to the WGB
stockholders the consideration set forth in Sections 2.3(b) or (c), as the case
may be.
(b) Non-Surrendered Certificates. Each outstanding
WGB Certificate which prior to the Effective Time represented WGB Common Stock
or WGB Preferred Stock and which is not surrendered to Frederick in accordance
with the procedures provided for herein shall, except as otherwise herein
provided, until duly surrendered to Frederick be deemed to evidence the right
to receive the consideration set forth in Sections 2.3(b) or (c), as the case
may be.
(c) No Dividends. No holder of a WGB Certificate
shall be 35 entitled to receive any dividends in respect of Frederick Common
Stock into which such shares shall have been converted by virtue of the Merger
until the certificate or an affidavit of loss together with an indemnity and/or
bond satisfactory to Frederick representing such shares is surrendered in
exchange for a certificate or certificates representing whole shares of
Frederick Common Stock. In the event that dividends are declared and paid by
Frederick in respect of Frederick Common Stock after the Effective Time but
prior to the holder's surrender of WGB Certificates, dividends payable to such
holder in respect of whole shares of Frederick Common Stock not then issued
shall accrue (without interest). Any such dividends shall be paid (without
interest) upon surrender of the WGB Certificates.
(d) No Obligation to Issue Shares of Frederick Common
Stock. Frederick shall not be obligated to deliver a certificate or
certificates representing whole shares of Frederick Common Stock to which the
holder of WGB Common Stock or WGB Preferred Stock would otherwise be entitled
as a result of the Merger until such holder surrenders the certificate or
certificates representing such shares for exchange as provided in this Section
2.7, or, in default thereof, an appropriate affidavit of loss and indemnity
agreement and/or a bond in an amount as may be reasonably required in each case
by Frederick.
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Agreement and Plan of Reorganization
Page 8
2.8 Additional Actions. If, at any time after the
Effective Time, the Surviving Corporation shall consider that any further
assignments or assurances in law or any other acts are necessary or desirable
to (i) vest, perfect or confirm, of record or otherwise, in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of WGB acquired or to be acquired by the Surviving
Corporation as a result of, or in connection with, the Merger, or (ii)
otherwise carry out the purposes of this Agreement, WGB and its proper officers
and directors shall be deemed hereby to have granted to the Surviving
Corporation an irrevocable power of attorney to execute and deliver all such
proper deeds, assignments and assurances in law and to do all acts necessary or
proper to vest, perfect or confirm title to and possession of such rights,
properties or assets in the Surviving Corporation and otherwise to carry out
the purposes of this Agreement; and the proper officers and directors of the
Surviving Corporation are fully authorized in the name of WGB or otherwise to
take any and all such action.
2.9 Structure of the Transaction. Frederick reserves the
right to alter the structure of the transactions contemplated by this Agreement
prior to the Closing Date for tax or other business reasons, provided, however,
that the total consideration to be paid to the stockholders of WGB, or the tax
consequences to the stockholders of WGB is not altered, unless such alteration
in the consideration or the tax consequences is approved by WGB and the
stockholders thereof.
Article 3.0 Representations and Warranties of WGB. WGB represents
and warrants to Frederick as follows:
3.1 Capitalization; Status and Qualification.
(a) Capitalization The authorized capital stock of WGB
consists of fifty thousand (50,000) shares of WGB Common Stock and fifty
thousand (50,000) shares of WGB Preferred Stock. As of the date hereof, ten
thousand (10,000) shares of WGB Common Stock are issued and outstanding and are
owned of record by 29 shareholders and fifty thousand (50,000) shares of WGB
Preferred Stock are issued and outstanding and are owned by 27 shareholders.
All outstanding shares of WGB Common Stock and WGB Preferred Stock have been
duly authorized and validly issued and are fully paid and nonassessable, and
none of the outstanding shares of WGB Common Stock or WGB Preferred Stock has
been issued in violation of any law, regulation or policy of any governmental
authority, the WGB Articles of Incorporation, Bylaws, the terms of any
agreement to which WGB is a party or is bound or the preemptive rights of any
person, firm or entity. There are no Rights authorized, issued or outstanding
with respect to the capital stock of WGB. For purposes of this Agreement,
"Rights" shall mean any warrants, options, rights, convertible or exchangeable
securities and other arrangements or commitments which obligate an entity to
issue or dispose of any of its capital stock or ownership interests.
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Agreement and Plan of Reorganization
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(b) Status and Qualification. WGB is a corporation
which is duly organized, validly existing and in good standing under the laws
of the State of Maryland, has the full power and authority to carry on its
business as it is currently being conducted and to own, lease and operate the
property and the assets that it now owns, leases and operates and to execute,
deliver and perform this Agreement and the transactions contemplated hereby.
WGB has qualified as a foreign corporation, is in good standing, has obtained
all licenses, permits or other authorizations and has taken all other actions
required by or under the laws of all jurisdictions and all governmental
regulations where the failure to do so would have a material adverse effect on
the business, condition (financial or otherwise), results of operations, assets
or prospects of WGB ("Material Adverse Effect"). WGB has heretofore delivered
to Frederick true and complete copies of its Articles of Incorporation, Bylaws,
and stock transfer books, each as in effect as of the date hereof.
3.2 Authorization; Approval. The execution, delivery and
performance of this Agreement and the transactions contemplated hereby by WGB
have been duly and effectively authorized by all necessary action, corporate or
otherwise. This Agreement is a valid, legally binding and enforceable
obligation of WGB enforceable in accordance with its terms except to the extent
that enforceability may be limited by bankruptcy, reorganization, insolvency or
other laws affecting the enforcement of creditors' rights generally or the
availability of equitable remedies subject to the discretion of the court. A
certified copy of the resolutions of the Board of Directors of WGB has been
delivered to Frederick, and such copies are complete and correct and such
resolutions are in full force and effect on the date hereof and will be in full
force and effect on the Closing Date. The execution, delivery, and performance
of this Agreement and the consummation of the transactions contemplated hereby
by WGB will not: (i) require notice to or filing with, or approval or consent
of any governmental or regulatory body, except as set forth in Schedule 3.2;
(ii) except for the consent of the stockholders of WGB, and except for consents
to assignment of the contracts described in Schedule 3.12, require the approval
or consent of any other person or entity, except as set forth in Schedule 3.2;
(iii) violate any provision of WGB's Articles of Incorporation or By-Laws; (iv)
violate, conflict with or result in a modification of the effect of, or
otherwise give any other contracting party the right to terminate, or
constitute (or with notice or lapse of time or both, constitute) a default
under, or result in the termination of, or accelerate the performance required
by, or cause the acceleration of the maturity of any liability or obligation
pursuant to, or result in the creation or imposition of any security interest,
lien, charge or other encumbrance upon any property or assets of WGB, under (a)
any statute or law or any judgment, decree, order, award, writ, injunction,
regulation or rule of any court, arbitrator or Governmental Authority (as
defined in Section 3.10(c)(vii)), or (b) any note, bond, mortgage, indenture,
deed of trust, license, lease, instrument, contract, commitment, franchise,
permit, understanding, arrangement, agreement or restriction of any kind or
character which is not satisfied or extinguished at or prior to the Closing;
(v) violate any statute, law or regulation as such statute, law or regulation
relates to WGB or its Business; or (vi) result in the creation of any adverse
claim on WGB or any of its property or assets.
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3.3 Financial Statements. WGB has delivered to Frederick
true, complete, accurate and correct copies of WGB's balance sheets for the
years ended December 31, 1996, 1995 and 1994, and the related statements of
income, retained earnings and cash flows as well as the notes thereto and with
respect thereto the fiscal 1996, 1995 and 1994 statements have been audited by
WGB's independent certified public accountants for the fiscal years then ended
(the "Annual Financial Statements"). WGB has delivered to Frederick a true,
correct, complete and accurate copy of its balance sheet and related statements
of income, retained earnings, and cash flows for the nine months ended
September 30, 1997 (the "Interim Financial Statements"). The Annual Financial
Statements and Interim Financial Statements are collectively referred to herein
as the "Financial Statements." The Financial Statements present fairly the
financial condition, results of operations, retained earnings and changes in
cash flows of WGB at such dates and for such periods in accordance with
generally accepted accounting principles ("GAAP") consistently applied during
the periods indicated. The statements of income included in the Financial
Statements do not contain any items of special or non-recurring income or
expense or any other income not earned or expense not incurred in the ordinary
course of business except as expressly specified therein, and such Financial
Statements include all adjustments (including all normal recurring accruals for
unusual or non-recurring items) considered necessary for a fair presentation,
and no adjustments or restatements are or will be necessary in respect of any
items of an unusual or non-recurring nature, except as expressly specified
herein. Except as described on such Financial Statements there has been no
change by WGB in any method of accounting or keeping of its books of account or
accounting practices. WGB shall continue to provide to Frederick unaudited
balance sheets, statements of income and cash flows within fifteen (15)
calendar days after the end of each month prior to the Closing or termination
of this Agreement.
3.4 Undisclosed Liabilities. Except as set forth on
Schedule 3.4 or as reflected and disclosed on the Financial Statements, WGB has
no indebtedness, liability, claim, loss, damage, deficiency, obligation or
responsibility of any nature, whether fixed or unfixed, due or to become due,
liquidated or unliquidated, secured or unsecured, accrued, absolute, contingent
or otherwise.
3.5 Absence of Changes. Except as set forth on Schedule
3.5, since December 31, 1996, there has not been, other than changes in the
ordinary course of business that in the aggregate have not been adverse, (i)
any material change in the financial position, results of operations, assets,
liabilities, net worth, Business or prospects of WGB, or (ii) any other event
or condition of any character (whether or not covered by insurance) that has
materially adversely affected or will or is likely to so affect the properties,
Business or prospects of WGB or the financial position, results of operations,
or net worth of WGB. Since December 31, 1996, WGB has conducted its business
only in the ordinary course and has not acquired or disposed of any material
assets or engaged in any material transaction.
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Agreement and Plan of Reorganization
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3.6 Title to Assets.
(a) Title. Except as set forth on Schedule 3.6, at
the Closing, WGB will own and have good and marketable title to all of its
properties and assets, free and clear of restrictions on or conditions to
transfer or assignment, mortgages, liens, pledges, charges, options,
encumbrances, claims, easements, security interests, covenants, title defects
or objections or restrictions of any kind, including, without limitation,
leases, chattel mortgages, conditional sales contracts, collateral security
arrangements, and other title or interest retention arrangements or other liens
("Liens"). After the Closing, FAC will own and be the legal, beneficial and
registered owner, or have the right to use under a valid lease, all of the
assets of WGB, free and clear of any Liens other than Permitted Liens.
"Permitted Liens" means (i) liens shown on the balance sheet in the Financial
Statements as securing specified liabilities (with respect to which no default
exists), (ii) liens for current taxes not yet due, and (iii) minor
imperfections of title and encumbrances, if any, which are not substantial in
amount, do not detract from the value of the property subject thereto or impair
the operations of WGB, have arisen only in the ordinary course of business and
consistent with past practice and do not preclude or materially adversely
affect the continued use of the property to which they relate as used in the
operation of the Business of WGB as currently conducted.
(b) Condemnation. WGB has not received any notice
from any Governmental Authority having jurisdiction over the Premises or any
other office or locations of WGB (the Premises and such other office or
locations being collectively referred to herein as the "Extended Premises")
that the Extended Premises are presently the subject of any condemnation,
special assessment or similar charge or proceeding, and no such condemnation,
special assessment or charge is currently threatened or contemplated.
3.7 Real Property. Schedule 3.7 sets forth a list and
summary description of (i) all of the real property which is used in the
Business of WGB, including without limitation, all land, buildings and other
structures and improvements and fixtures located on such land (collectively,
the "Real Property"), and a description of each parcel of such land, and (ii)
all leases, subleases or other agreements which allow the use or occupancy of
the Real Property, or any portion thereof, or which give or grant any rights
therein (collectively, the "Real Property Leases"). All of the Real Property
Leases, true and correct copies of which (including all amendments or
extensions thereto) have been delivered to Frederick, are in effect, and WGB is
not in default under or with respect to any provision thereof and WGB has not
received or sent any notice of any default under or with respect to any
provision thereof, and no other party to any thereof is in default under or
with respect to any provision thereof. Other than the landlord's consent to
assignment required under the Real Property Leases, there are no approvals or
consents of any persons or entities which are required in order to assign any
Real Property Leases. The Real Property, or the use thereof, does not violate
the material provisions of any applicable Environmental Laws (as defined in
Section 3.11(c)(iv), or any trade, criminal, building code,
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Agreement and Plan of Reorganization
Page 12
fire, health or safety or other governmental ordinances, orders or regulations
and WGB is in material compliance with all applicable laws, regulations,
ordinances, orders, rules and restrictions relating to the Real Property. All
structures and improvements located on the Real Property are in workable and
useable condition and repair (excepting ordinary wear and tear) and are
suitable for the uses for which they were intended and are used. The
operations conducted on any of the Real Property, whether now or in the past,
do not violate the rights of any Person (as defined below) with respect to such
property or with respect to any other property. WGB has no knowledge of and
has not received any notice in regard to the foregoing and is not aware of any
state of facts or situation which, with notice or the passage of time or
otherwise, would constitute such a violation.
3.8 Tangible Personal Property. Schedule 3.8A lists each
item of tangible personal property (other than inventory) owned by WGB having
an initial purchase price in excess of $1,000. Schedule 3.8B lists each item
of tangible personal property leased by WGB (other than pursuant to individual
leases having an annual rental of less than $1,000 or which are terminable by
WGB within 90 days of the date hereof without penalty) and each item of
personal property having a value of $1,000 or more used by WGB and owned or
leased by any individual, partnership, proprietorship, corporation, limited
liability company, joint venture, trust, or other similar entity or
governmental agency or court (a "Person") providing services to WGB
(collectively, the "Tangible Personal Property"). The Tangible Personal
Property, together with other tangible personal property owned or used by WGB
and owned by Persons providing services to WGB constitutes substantially all of
the tangible personal property used in the operation of the Business of WGB and
constitutes substantially all tangible personal property necessary to conduct
the Business of WGB as presently conducted by it. Except as set forth on
Schedule 3.8C, (i) the Tangible Personal Property owned by WGB and all other
personal property, whether tangible or intangible, owned by WGB is free and
clear of any and all Liens, and (ii) all the Tangible Personal Property is
located at the Real Property and there is no material tangible personal
property located at the Real Property which is not owned or leased by WGB. The
Tangible Personal Property is in all material respects in good working order,
ordinary wear and tear excepted. All the Tangible Personal Property has been
maintained in all material respects in accordance with the past practice of WGB
and generally accepted industry practice. All leased Tangible Personal
Property of WGB is in all material respects in the condition required of such
property by the terms of the lease applicable thereto during the term of the
lease and upon the expiration thereof.
3.9 Intellectual Property. Schedule 3.9 contains an
accurate and complete list of all (i) registered and unregistered: trademarks,
service marks, trade names, corporate names, company names, fictitious business
names, trade styles, trade dress, logos, and other source or business
identifiers (the "Trademarks"); patents; copyrights; proprietary formulas,
recipes, technology, Business Know-How (as defined below) and other trade
secrets (the "Trade Secrets") used in or necessary to conduct the business of
WGB as currently conducted, and all registrations and recordings thereof, all
applications for
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registration pending therefor, all extensions and renewals thereof, all
goodwill associated therewith, and all proprietary rights therein, in any
jurisdiction in which WGB operates or does business, (ii) licenses,
permissions, software and other agreements used in or necessary to the Business
of WGB, and (iii) licenses, permissions, software and other agreements relating
to technology, Business Know-How or processes used in the Business of WGB,
which WGB is licensed or authorized to use by others ((i) - (iii) above
collectively referred to herein as the "Intellectual Property"). "Business
Know-How" means all books, records, technology, formulas, know-how recorded on
paper or other media in the books and records of WGB, quality control records,
finished product specifications, packaging supplies specifications, product
registrations, records relating to the adoption and use of the Intellectual
Property (as defined above), marketing plans, sales records and histories,
market research data, promotional advertising and marketing materials, radio,
television and Internet commercials, Internet web sites, print advertisements,
customer lists, label and shipping carton dies, designs, films, earthwork,
photography, mechanical art, color separations, prints, plates, and graphic
materials, permits and licenses, and inventory records, used in or necessary to
conduct the Business as currently conducted. In regard to the Intellectual
Property, and except as set forth on Schedule 3.9, (i) the patents, Trademarks
and the copyrights are valid, subsisting and enforceable, and the patents, the
Trademarks and the copyrights are duly recorded in the name of WGB, and can be
recorded in the name of FAC, (ii) WGB has, and after the Closing FAC will have,
the sole and exclusive ownership and right, free from any Liens, to use
Intellectual Property and applications therefor and the full right to use the
trade names, assumed names, fictitious names, technology, know-how and
processes referred to in such lists and all trade secrets used in or necessary
to the conduct of the Business of WGB, and the consummation of the transactions
contemplated hereby will not alter or impair any such rights. Except as set
forth on Schedule 3.9, within the last ten (10) years, no claims have been
asserted by any entity or person with respect to the ownership, validity,
enforceability or use of or challenging or questioning the validity or
effectiveness of any of the Intellectual Property. Furthermore, the use or
other exploitation of such Intellectual Property by WGB does not infringe or
dilute the rights of any other entity or person; and WGB is not able to
identify any entity or person infringing the rights of WGB with respect to such
Intellectual Property.
3.10 Litigation; Orders. Except as set forth on Schedule
3.10, there are no claims, actions, suits, proceedings, grievances,
arbitrations, investigations or inquiries pending or, to the best knowledge of
WGB, threatened, at law or in equity, before or by any federal, state, local,
foreign or other governmental department, commission, board, arbitrator(s),
agency, instrumentality or authority by or against WGB which: (i) restrain or
prohibit or which may restrain or prohibit, or otherwise affect, the
consummation of the transactions contemplated hereby; (ii) affect or which may
affect WGB with respect to the Merger; or (iii) affect or might affect the
Business, operations, condition (financial or otherwise), liabilities, assets,
earnings or prospects of WGB, nor is there any valid basis for any such claim,
action, suit, proceeding, inquiry or investigation. Neither WGB nor any of its
property or assets is subject to any judgment, arbitration award, order or
decree. There
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are no petitions pending by, against or on behalf of WGB under any applicable
bankruptcy or insolvency laws.
3.11 Compliance.
(a) Compliance (Non-Environmental). Except as set
forth in Schedule 3.11A., WGB and its respective officers, directors and
employees have all material licenses, permits, approvals and other
authorizations and have made all material filings and registrations that are
necessary in order to enable WGB to conduct its Business as it is now being
conducted. WGB and its respective officers, directors and employees have
materially complied and are in material compliance with all laws, regulations
and ordinances that are applicable to WGB's Business as now being conducted or
are applicable to any of its assets or properties, including, without
limitation, all laws, regulations and ordinances relating to or regulating the
safe and proper conduct of business, consumer protection, trade practices,
franchises, licensing requirements, wage and hour, antitrust, taxes, currency
exchange, equal opportunity, public accommodation and services, sanitation,
fire, zoning, building, labor, occupational health and safety, pension,
securities, trademark or copyright. WGB has not received notification in the
last five (5) years of any asserted present or past failure to so comply; and
there are no actions threatened or likely to be commenced against WGB alleging
any material violation of or non-compliance with any of such laws, regulations
or ordinances. Attached as Schedule 3.11A. are all reports relating to the
Business or the Premises received within the last three (3) years by WGB from
any Governmental Authority or from any consultants regarding compliance with
the regulations of the Occupational Safety and Health Administration, the Equal
Employment Opportunity Commission or the U.S. Department of Labor or any
equivalent state agency. The terms and conditions and circumstances of the
employment of employees of WGB, including former and inactive employees,
comply, and at all times have complied, to the extent material, with applicable
laws and regulations (including any federal, state or local laws relating to
taxation, employee benefits, wage-hour, health and safety, nondiscrimination
and labor relations).
(b) Compliance (Environmental). Except as set forth
in Schedule 3.11B. (the "Scheduled Conditions"):
(i) WGB and the Extended Premises comply in all
material respects with any applicable Environmental Law;
(ii) WGB has obtained all Governmental Approvals
required for the operation of WGB and the Extended Premises under any
applicable Environmental Law;
(iii) WGB has not, and has no knowledge of any
other person who has, caused any Release, threatened Release, or disposal of
any Hazardous Substance at the Extended Premises in any material quantity; the
Extended Premises are
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not adversely affected by any Release, threatened Release, or disposal of a
Hazardous Substance originating or emanating from any other property;
(iv) the Extended Premises do not contain and
have not contained any: (A) underground storage tank, (B) material amounts of
asbestos-containing building material, (C) landfills or dumps, (D) hazardous
waste management facility as defined pursuant to RCRA or any comparable state
law, or (E) site on or nominated for the National Priority List promulgated
pursuant to CERCLA or any state remedial priority list promulgated or published
pursuant to any comparable state law;
(v) WGB has used no material quantity of any
Hazardous Substance and has conducted no Hazardous Substance Activity on the
Extended Premises;
(vi) WGB has no material liability for
remediation, response or corrective action, natural resource damage, or other
harm pursuant to CERCLA, RCRA, or any comparable state law; WGB is not subject
to, has no notice or knowledge of, and is not required to give any notice of
any Environmental Claim involving WGB or the Extended Premises; there are no
conditions or occurrences at the Extended Premises which could form the basis
for an Environmental Claim against WGB or the Extended Premises;
(vii) the Extended Premises are not subject to
any, and WGB has no knowledge of any imminent, restriction on the ownership,
occupancy, use, or transferability of the Extended Premises in connection with
any (A) Environmental Law or (B) Release, threatened Release, or (C) disposal
of a Hazardous Substance;
(viii) there are no conditions or circumstances
at the Extended Premises which pose a risk to the environment or to the health
and/or safety to or of persons; and
(ix) WGB has provided or otherwise made available
to Frederick any Environmental Record concerning WGB and Extended Premises
which WGB possesses or could reasonably be obtained by WGB.
(c) Definitions. For purposes of this Agreement, the
following terms as used herein shall have the following meanings:
(i) "CERCLA" shall mean the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended by
the Superfund Amendments and Reauthorization Act of 1986, 42 USC 9601 et seq.,
and any future amendments.
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(ii) "Damages" shall mean all damages, and
includes, without limitation, punitive damages, liabilities, costs, losses,
diminutions in value, fines, penalties, demands, claims, cost recovery actions,
lawsuits, administrative proceedings, orders, response action costs, compliance
costs, investigation expenses, arbitration expenses, consultant fees,
attorneys' and paralegals' fees, and litigation expenses.
(iii) "Environmental Claim" shall mean any
investigation, notice, violation, demand, allegation, action, suit, injunction,
judgment, order, consent decree, penalty, fine, lien, proceeding or claim in
connection with the Extended Premises (whether administrative, judicial, or
private in nature) arising (A) pursuant to, or in connection with, an actual or
alleged violation of, any Environmental Law, (B) in connection with any
Hazardous Substance or actual or alleged Hazardous Substance Activity, (C) from
any abatement, removal, remedial, corrective, or other response action in
connection with a Hazardous Substance, Environmental Law or other order of a
Governmental Authority or (D) from any actual or alleged damage, injury,
threat, or harm to health, safety, natural resources, or the environment.
(iv) "Environmental Law" shall mean any past or
current Legal Requirement pertaining to (A) the protection of health, safety,
and the indoor or outdoor environment, (B) the conservation, management, or use
of natural resources and wildlife, (C) the protection or use of surface water
and groundwater, (D) the management, manufacture, possession, presence, use,
generation, transportation, treatment, storage, disposal, Release, threatened
Release, abatement, removal, remediation or handling of, or exposure to, any
Hazardous Substance or (E) pollution (including any Release to air, land,
surface water, and groundwater), and includes, without limitation, CERCLA, the
Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery
Act of 1976 and Hazardous and Solid Waste Amendments of 1984, 42 USC 6901 et
seq., Federal Water Pollution Control Act, as amended by the Clean Water Act of
1977, 33 USC 1251 et seq., Clean Air Act of 1966, as amended, 42 USC 7401 et
seq., Toxic Substances Control Act of 1976, 15 USC 2601 et seq., Hazardous
Materials Transportation Act, 49 USC App. 1801 et seq., Occupational Safety and
Health Act of 1970, as amended 29 USC 651 et seq., Oil Pollution Act of 1990,
33 USC 2701 et seq., Emergency Planning and Community Right-to- Know Act of
1986, 42 USC 11001 et seq., National Environmental Policy Act of 1969, 42 USC
4321 et seq., Safe Drinking Water Act of 1974, as amended, 42 USC 300(f) et
seq., and any similar state law, including but not limited to the Waste
Reduction Policy Act of 1991 (Health and Safety Code 361.501-361.510); the
Hazardous Substances Spill Prevention and Control Act (Water Code 26.264); the
Clean Air Act Amendments of 1990 (Health and Safety Code chap. 382); the Water
Quality Act (Water Code 26.019); and the Hazard Communication Act (Health and
Safety Code 502.002) and any similar, implementing or successor law, and any
amendment, rule, regulation, order, or directive issued thereunder.
(v) "Environmental Record" shall mean any
document, correspondence, pleading, report, assessment, analytical result,
Governmental Approval, or
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other record concerning a Hazardous Substance, compliance with an Environmental
Law, and Environmental Claim, or other environmental subject.
(vi) "Governmental Approval" shall mean any
permit, license, variance, certificate, consent, letter, clearance, closure,
covenant not to sue, release, no further action letter, exemption, decision,
action or approval or non-disapproval of a Governmental Authority.
(vii) "Governmental Authority" shall mean any
federal, state, regional, county, or local person or body having governmental
or quasi-governmental authority or a sub-division thereof.
(viii) "Hazardous Substance" shall mean any
substance, chemical, compound, product, solid, gas, liquid, waste, byproduct,
pollutant, contaminant, or material which is classified or regulated as
hazardous or toxic under any Environmental Law, and includes, without
limitation, asbestos, polychlorinated biphenyls, and petroleum (including crude
oil or any fraction thereof).
(ix) "Hazardous Substance Activity" shall mean
any activity, event, or occurrence involving a Hazardous Substance, including,
without limitation, the manufacture, possession, presence, use, generation,
transportation, treatment, storage, disposal, Release, threatened Release,
abatement, removal, remediation, handling of or corrective or response action
to any Hazardous Substance.
(x) "Legal Requirement" shall mean any treaty,
convention, statute, law, regulation, ordinance, Governmental Approval,
injunction, judgment, order, consent decree, or other requirement of any
Governmental Authority.
(xi) "RCRA" shall mean the Solid Waste Disposal
Act, as amended by the Resource Conservation and Recovery Act of 1976 and
Hazardous and Solid Waste Amendments of 1984, 42 USC 6901 et seq., and any
future amendments.
(xii) "Release" shall mean any releasing,
spilling, leaking, pumping, pouring, emitting, emptying, discharging,
injecting, escaping, leaching, dumping, or disposing into the indoor or outdoor
environment, of any Hazardous Substance, including, without limitation, the
abandonment or discharge of such Hazardous Substances in or from barrels,
drums, containers, tanks, and other receptacles containing or previously
containing any Hazardous Substance.
3.12 Status of Contracts.
(a) Status. Except as listed on Schedule 3.12 and
except for purchase orders made in the ordinary course of business entered into
subsequent to October
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Agreement and Plan of Reorganization
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31, 1997 which are individually or in the aggregate to any one vendor or
distributor not in excess of $10,000, WGB is not party to and is not bound by
any contract which is not terminable by WGB upon thirty (30) days written
notice without penalty, whether or not in the ordinary course of business, and
including, without limiting the generality of the foregoing, bank loans,
leases, mortgages, union contracts, employment agreements, pension, retirement
or welfare agreements (whether oral or written, formal or informal or employee
benefit plans within the meaning of the Employee Retirement and Income Security
Act of 1975, as amended ("ERISA"), agreements for the sale or distribution of
its services or products, vendor contracts, supply contracts, license
agreements, service agreements and other agreements or instruments. Except as
set forth on Schedule 3.12, there have been and are no material defaults under
any contract to which WGB is a party, nor has any event occurred which, after
the giving of notice or, with the passage of time, or both, would constitute a
material default under any such contract. All such contracts are valid and
binding and in full force and effect; WGB has complied with the provisions of
its contracts in all material respects; and no notice of a claimed breach has
been received by WGB. Assuming that WGB obtains the consents described in
Schedule 3.2, the Merger and the consummation by WGB of the transactions herein
contemplated will not conflict with, or result in a breach, violation,
termination or modification of, any of the terms of any contract, agreement or
other instrument to which WGB is a party or by which WGB or any of its
properties is or may be bound, or constitute a default thereunder which would
prevent or interfere with the Merger or the consummation of the transactions
herein contemplated.
(b) Scale. Except as set forth in Schedule 3.12, WGB
is not party to or bound by any contract which is material to its Business,
operations, financial condition or prospects or which involves, or is
reasonably likely to involve, the expenditure or receipt by WGB after December
31, 1996 of more than $5,000. The legal enforceability after the Closing by
WGB of its contracts will not be affected in any material respect by the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby.
(c) Normality. No purchase commitment of WGB, or by
which WGB is bound, is materially in excess of the normal, ordinary and usual
requirements of the Business or is at an excessive price.
(d) Affiliated Agreements. Except as set forth in
Schedule 3.12, WGB is not a party to or bound by (i) any contract with a
stockholder or former shareholders of WGB or any Person known to WGB to be an
Affiliate or Associate of a stockholder or former shareholder of WGB, (ii) any
contract with officers, employees, agents, consultants, advisors, salesmen,
sales representatives, distributors or dealers that are not cancelable by WGB
at will without liability, penalty or premium, (iii) any contract providing for
the payment of any bonus or commission based on sales or earnings, (iv) any
contract that contains any severance or termination or change in control pay
liability or obligation, (v) any contract for the purchase or sale of any
security (other than this
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Agreement and Plan of Reorganization
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Agreement), (vi) any contract for the borrowing of money (or guarantee of
indebtedness), (vii) any contract for leasing personal property which requires
annual payments in excess of $5,000 or the term of any of which exceeds one (1)
year, (viii) any contract relating to express product or service warranties,
(ix) any contract containing a covenant not to compete by WGB, (x) any contract
granting a Lien, security interest or other material encumbrance on any
property or assets of WGB or on its assets, (xi) any contract providing for
exclusive purchases by or from WGB or containing a requirement purchase
obligation, (xii) any contract providing for administration, service,
utilization review, adjustment, claims management or similar functions relating
to insurance, litigation or Plans of WGB, or (xiii) any contract for the sale
of any of the assets, property or rights of WGB outside of the ordinary course
of business, except as contemplated by this Agreement.
(e) Power of Attorney. WGB has not given any power of
attorney (whether revocable or irrevocable) to any Person that is or may
hereafter be in force for any purpose whatsoever.
(f) Pension Obligation. WGB is not paying, nor has it
any obligation to pay, any pension, deferred compensation or retirement
allowance to any Person.
True, complete and correct copies of each of the contracts set forth in
Schedule 3.12 or expressly referred to in the notes to the Financial Statements
have heretofore been provided to Frederick by WGB.
3.13 Assets; Inventory. All of the properties and assets
used in the Business, except for such assets which are immaterial to the
business of WGB, are workable and useable in the ordinary course of business
and are suitable for the uses for which they were intended and are used. The
inventory of WGB has been acquired in the ordinary course of business and has
been and will be reflected on the books of WGB in accordance with the GAAP,
consistently applied. The inventory consists of items of a quality and
quantity useable and saleable at normal prices without discount in the normal
course of business. The level of the inventory as of the Closing Date is
reasonable in light of WGB's business prospects. WGB knows of no material
adverse condition affecting WGB's ability to manufacture or obtain inventory in
the future in the quality and quantity as now being manufactured or obtained.
3.14 Customers and Vendors. WGB has received no notice
that, and WGB has no knowledge or reason to believe that, any vendor or any
customer of WGB does not plan to continue to do business with FAC, or plans to
reduce its sales to or volume of orders from FAC or will not do business on
substantially the same terms and conditions with FAC subsequent to the Closing
Date as such vendor or customer did with WGB before the Closing Date. WGB will
not take any action to influence its customers or vendors to change or reduce
their volume of business activity with FAC after the Closing Date.
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3.15 Taxes. Except for Taxes which are being contested in
good faith by appropriate proceedings and are listed on Schedule 3.15 and
except for Taxes which are accrued on the balance sheets which are part of the
Financial Statements and are listed on Schedule 3.15 and except as otherwise
listed on Schedule 3.15, WGB has paid all Taxes required to be paid by it
through the date hereof. Except as set forth on Schedule 3.15, WGB has timely
filed all returns, reports and other documents and furnished all information
required or requested by any federal, state or local governmental agency with
respect to its Business or properties (except for tax returns not yet due), and
all such returns, reports and other documents and all such information are
true, correct and complete. No audit of any of the foregoing is in progress,
and no extension of time with respect to the date of filing of any of the
foregoing is in force, other than as set forth on Schedule 3.15. No waiver or
agreement by WGB is in force for the extension of time for the assessment or
payment of any of the Taxes. All deficiencies or other additions to any of the
Taxes, including any assessments, interest or penalties thereon, accrued for,
applicable to or arising from any period ending on or prior to the date of this
Agreement have been timely paid when due prior to the date hereof or have been
accrued on the balance sheets which are part of the Financial Statements. For
purposes of this Agreement, "Taxes" means all taxes, charges, fees, levies or
other assessments, including, without limitation, income, gross receipts,
excise, property, sales, withholding, social security, occupation, use,
service, service use, value added, license, payroll, franchise, transfer and
recording taxes, fees and charges, including estimated taxes, imposed by the
United States, the State of Maryland, any other state, or any taxing authority
(domestic or foreign), whether computed on a separate, consolidated, unitary,
combined or any other basis; and such term shall include any interest, fines,
penalties or additional amounts attributable to, or imposed upon, or with
respect to any such taxes, charges, fees, levies or other assessments.
3.16 Employees; Benefit Plans.
(a) Employees. Listed on Schedule 3.16A are the names
of all officers, directors and employees of WGB together with their respective
wage rates and rates of total compensation and a designation of whether such
individual is covered by a collective bargaining agreement. WGB has paid in
full to its employees, agents and contractors all wages, salaries, commissions,
bonuses and other direct compensation due for all services performed by them
and has paid in full its contractual obligations due under any union contract.
Schedule 3.16A sets forth a summary of all grievances, claims, actions, suits,
proceedings, arbitrations, investigations or inquiries instituted or threatened
within the past five (5) years or currently pending by or against WGB. WGB is
not liable for any severance pay or other payments on account of termination of
former employees, nor will any severance payments or other payments (including
unemployment compensation, "golden parachute" or otherwise) become payable as a
consequence of the transactions contemplated herein. WGB has complied with all
applicable federal and state laws relating to the employment of labor,
including the provisions thereof relating to wages, hours, collective
bargaining, discrimination and civil rights and the withholding and payment of
social security
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Agreement and Plan of Reorganization
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and similar taxes and is not liable for any arrears, wages or any such taxes or
penalties for failure to comply with any of the foregoing. There is no labor
strike, dispute, slowdown, stoppage or lockout pending or threatened against or
affecting WGB. No representation question exists respecting the employees or
any strike, work stoppage or other labor difficulty. There are no unfair labor
practice charges, complaints or proceedings pending or threatened against or
involving WGB; there are no claims, complaints or proceedings involving breach
of contract, tortious interference with contract rights, violation of any
State's unfair competition or unfair trade practice or trade secret statute;
there is no organizing activity involving WGB pending or threatened by a labor
union or group of employees; there are no representation proceedings pending
with the National Labor Relations Board and no labor organization or group of
employees has made a pending demand for recognition. Except as set forth in
Schedule 3.16A, WGB has had no layoffs or recalls during the past ten (10)
years. Schedule 3.16A sets forth the name of each employee and his or her
accrued vacation or leave payments due.
(b) Benefit Plans. As of the Closing Date: (i) all
"employee benefit plans," as defined in Section 3(3) of ERISA including any
"multi-employer plan," as defined in Section 4001(a)(3) of ERISA
("Multi-employer Plan,") or any other employee benefit arrangements or payroll
practices (whether or not qualified for Federal income tax purposes, whether or
not funded, whether formal or informal, whether for the benefit of a single
individual or more than one individual and whether for the benefit of current
or former employees or their beneficiaries), including, without limitation,
severance, pension, retirement, profit sharing, deferred compensation, stock
purchase, stock option, restricted stock, stock appreciation rights, incentive,
bonus or other similar plans, hospitalization, medical, vision, dental or other
health plans, sick leave, vacation pay, salary continuation for disability,
consulting or other compensation arrangements (the "Plans") maintained, or
contributed to, by WGB or any trade or business (whether or not incorporated)
which is under common control with WGB, or is treated as a single employer
under Section 414(b), (c), (m) or (o) of the Internal Revenue Code of 1986, as
amended ("Code") ("ERISA Affiliate") are set forth on Schedule 3.16B; (ii) each
Plan is in compliance in all material respects with the applicable provisions
of ERISA and the Code, including the filing of reports thereunder, and with
respect to each Plan all required contributions and benefits have been paid
when due in accordance with the provisions of each such Plan and the applicable
provisions of ERISA; (iii) each of the Plans, including Multi-employer Plans,
is subject to Title IV of ERISA and no Plan has been terminated with any
outstanding liability; and (iv) neither WGB nor any ERISA Affiliate has
incurred or reasonably expects to incur any partial or complete withdrawal
liability (and no event has occurred which, with the giving of notice under
Section 4219 of ERISA, would result in such liability) under Section 4201 of
ERISA as a result of a complete or partial withdrawal from a Multi-employer
Plan. With respect to all Plans which are pension plans, as defined in Section
3(2) of ERISA, other than plans intended to be taxed-qualified under Section
401(a) of the Code, as of the Closing Date, the present value of the
liabilities for participants thereunder using Pension Benefit Guaranty
Corporation interest assumptions does not exceed, as of the
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Closing Date, the assets of the Plans. Except as set forth on Schedule 3.16B,
as of the Closing Date, no Plan which is a "welfare plan," as defined in
Section 3(1) of ERISA, provides for continuing benefits or coverage for any
participant or beneficiary of a participant after such participant's
termination of employment (except as may be required by Section 490B of the
Code and at the sole expense of the participant or the beneficiary of the
participant). With respect to all Plans which are welfare plans, as defined in
Section 3(1) of ERISA, providing retiree benefits, the present value of future
anticipated expenses pursuant to the latest actuarial projections of
liabilities does not exceed $0. WGB and each ERISA Affiliate have complied
with the notice and continuation requirements of Section 4980B of the Code and
the regulations thereunder. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby will result in the
acceleration of the time of payment or vesting of Plan benefits as set forth on
Schedule 3.16B. Schedule 3.16B also sets forth the administrative costs due
and paid for WGB's 401(k) plan as of the Closing Date.
3.17 Insurance. Schedule 3.17 sets forth all policies or
binders of fire, liability, worker's compensation, vehicular, disability,
employee liability, business interruption, product liability, health, or other
insurance (including medical self-insurance) held by WGB relating to, on behalf
of or covering the Business of WGB (specifying the insurer, the policy number
or covering note number with respect to binders, and describing each pending
claim thereunder of more than $5,000). Such policies and binders are in full
force and effect. WGB is not in default with respect to any provision
contained in any such policy or binder and has not failed to give any notice or
present any claim under any such policy or binder in due and timely fashion.
Except for claims set forth on Schedule 3.17, there are no outstanding unpaid
claims under any such policy or binder. WGB has not received a notice of
cancellation or non-renewal of any such policy or binder. WGB has no knowledge
of any inaccuracy in any application for such policies or binders, any failure
to pay premiums when due or any similar state of facts which might form the
basis for termination of any such insurance. Schedule 3.17 also sets forth
WGB's loss experience for the last three (3) years relating to product
liability, worker's compensation and property damage and health and medical
coverage. Schedule 3.17 sets forth any medical insurance, hospitalization or
long-term disability "run-out" as of the Closing Date.
3.18 Subsidiaries; Competing Interests. Except as set forth
in Schedule 3.18, WGB does not directly or indirectly, own any capital stock or
other equity securities of any corporation, limited liability company,
partnership, association, trust, joint venture or other entity or business or
have any direct or indirect equity, partnership or other ownership interest in
any business except for stock of companies publicly traded on the New York or
American Stock Exchange or the Nasdaq Stock Market, not to exceed 5% of the
total outstanding shares of such companies. WGB does not have any interest,
directly or indirectly, in any corporation, partnership, association,
proprietorship, or any other entity or business which is engaged in a similar
business, or is a competitor of, or a vendor to or customer of, WGB.
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Agreement and Plan of Reorganization
Page 23
3.19 No Pending Transactions. Except for the transactions
contemplated by this Agreement, WGB is not a party to or bound by or the
subject of any agreement, undertaking or commitment to: (i) merge or
consolidate with, or acquire all or substantially all of the property and
assets of, any other corporation or Person which would in any way affect the
Business of WGB; or, (ii) sell, lease or exchange all or substantially all of
WGB's property and assets to any other corporation or Person or enter into any
other transaction which would in any way affect the Business of WGB or the
Merger or the transactions contemplated hereby.
3.20 Broker's or Finder's Fees. Neither WGB nor any of its
directors, officers, employees or agents has employed any broker, finder or
financial advisor or incurred any liability for any commission, broker's or
finder's fees to any such persons in connection with the transactions
contemplated hereby.
3.21 Updating of Schedules. WGB shall notify Frederick of
any changes, additions or events which may cause any change in or addition to
any Schedules delivered by it under this Agreement, promptly after the
occurrence of same and no later than the Closing Date by delivery of updates of
all Schedules, including future quarterly and annual Financial Statements. No
notification made pursuant to this Section 3.21 shall be deemed to cure any
breach of any representation or warranty made in this Agreement or any Schedule
unless Frederick shall specifically agree thereto in writing, nor shall any
such notification be considered to constitute or give rise to a waiver by
Frederick of any condition set forth in this Agreement unless specifically
waived in writing by Frederick.
3.22 Ownership of Frederick Common Stock. As of the date
hereof, neither WGB nor any officer, director or 5% or greater stockholder of
WGB, (i) beneficially own, directly or indirectly, or (ii) are parties to any
agreement, arrangement or understanding for the purpose of acquiring, holding,
voting or disposing of, in each case, shares of Frederick Common Stock.
3.23 Transactions With Affiliates. Other than this
Agreement, WGB is not bound by or a party to any contract with, does business
with or has any obligations or liabilities to any stockholder or any Affiliate
or Associate of any stockholder. As used in this Agreement, an "Affiliate" of,
or a Person "Affiliated" with, a specified person, is a Person that directly,
or indirectly through one or more intermediaries, controls, or is controlled
by, or is under common control with, the Person specified. Moreover, as used
in this Agreement, the term "Associate" used to indicate a relationship with
any Person, means: (a) any corporation or organization (other than WGB) of
which such Person is an officer or partner or is, directly or indirectly, the
beneficial owner of 10 percent or more of any class of equity securities, (b)
any trust or other estate in which such Person has a substantial beneficial
interest or as to which such Person serves as trustee or in a similar fiduciary
capacity, and (c) any relative or spouse of such Person, or any relative of
such
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Agreement and Plan of Reorganization
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spouse, who has the same home as such Person or who is a director or officer of
the corporation or organization or any of its parents or subsidiaries.
3.24 Bank Accounts. Schedule 3.24 sets forth the names and
locations of all banks or other financial institutions in which WGB has an
account or safe deposit box and the names of all Persons authorized to draw
thereon or to have access thereto. At the Closing, WGB will deliver to
Frederick copies of all records, including all signature or authorization cards
pertaining to such bank accounts and safe deposit boxes and will assign such
authorization to FAC or Frederick and provide evidence satisfactory to
Frederick that such assignment will be effective immediately subsequent to the
Closing and, at such time, no Person determined by FAC or Frederick to be
unauthorized shall have the authority to access such accounts or safe deposit
boxes or draw on such accounts.
3.25 Correct Information. All representations, warranties,
covenants, schedules, exhibits, documents, certificates, reports or statements
furnished or to be furnished to Frederick by or on behalf of WGB in connection
with this Agreement or the transactions contemplated hereby are true, complete
and accurate in all material respects. Without limiting the specificity of
such representations or warranties made in this Agreement or information
furnished pursuant hereto to Frederick, neither WGB has not failed to disclose
to Frederick any facts material to the Business, operations, condition
(financial or otherwise), liabilities, assets, earnings, working capital or
prospects of WGB.
ARTICLE 4.0 REPRESENTATIONS AND WARRANTIES OF FREDERICK.
Frederick hereby represents and warrants to WGB as follows:
4.1 Structure; Status.
(a) Frederick.
(i) The authorized capital stock of Frederick
consists of 9,000,000 shares of Frederick Common Stock and 1,000,000 shares of
Frederick preferred stock, $.01 value par share ("Frederick Preferred Stock").
As of November 30, 1997, there were 4,428,286 shares of Frederick Common Stock
issued and outstanding, and there were 2,950 shares of Frederick Preferred
Stock issued and outstanding, which are convertible into 1,872,540 shares of
Frederick Common Stock. All outstanding shares of Frederick Common Stock and
Frederick Preferred Stock have been duly authorized and validly issued and are
fully paid and nonassessable, and none of the outstanding shares of Frederick
Common Stock or Frederick Preferred Stock has been issued in violation of the
preemptive rights of any person, firm or entity. As of the date hereof, there
are no Rights authorized, issued or outstanding with respect to the capital
stock of Frederick, except for shares of Frederick Common Stock issuable (A)
pursuant to the Frederick 1995 Stock Option Plan and the Frederick Non-Employee
Directors Stock Option Plan, (B) pursuant to the exercise of
<PAGE> 32
Agreement and Plan of Reorganization
Page 25
outstanding warrants, (C) upon conversion of the Frederick Preferred Stock and
(D) by virtue of this Agreement.
(ii) Frederick is a corporation duly organized,
validly existing and in good standing under the laws of the State of Maryland,
has full power and authority to carry on its businesses as it is now conducted
and to own, lease and operate the property and assets that it now owns, leases
and operates and to execute and deliver this Agreement and to perform the
transactions contemplated hereby.
(b) FAC.
(i) At the Closing Date, the authorized capital
stock of FAC will consist of one thousand (1,000) shares of FAC common stock,
no par value per share ("FAC Common Stock"), all of which shares will be issued
and outstanding and owned beneficially and of record by Frederick. At the
Closing Date, all outstanding shares of FAC Common Stock will have been duly
authorized and validly issued and will be fully paid and non-assessable, and
none of the outstanding shares of FAC Common Stock will have been issued in
violation of the preemptive rights of any person, firm or entity. As of the
Closing Date, there will be no Rights authorized, issued or outstanding with
respect to the capital stock of FAC.
(ii) FAC will, at the Closing Date, be a
corporation duly organized, validly existing and in good standing under the
laws of the State of Maryland, will have the full power and authority to
execute and deliver this Agreement and to enter into the Merger and perform the
transactions contemplated hereby.
4.2 Authority; No Conflict. The execution, delivery and
performance of this Agreement and the transactions contemplated hereby by
Frederick and FAC will, on the Closing Date, have been duly and effectively
authorized by all necessary corporate action of Frederick and FAC and this
Agreement will, on the Closing Date, be a valid and legally binding obligation
of Frederick and FAC enforceable in accordance with its terms except to the
extent that enforceability may be limited by bankruptcy, reorganization,
insolvency or other laws affecting the enforcement of creditors' rights
generally or the availability of equitable remedies subject to the discretion
of the court. A certified copy of the resolutions of the Boards of Directors
of Frederick and FAC will be delivered to WGB, and such copies will be complete
and correct and such resolutions will be in full force and effect on the date
of such delivery. The execution, delivery, and performance of this Agreement
and the consummation of the transactions contemplated hereby by Frederick and
FAC will not: (i) require the approval or consent of any governmental or
regulatory body, except for compliance with applicable federal and state ("blue
sky") securities laws in connection with the issuance of the New Frederick
Shares pursuant to this Agreement and the filing of Articles of Merger with the
Department pursuant to Section 3-107 of the MGCL; (ii) require the approval or
consent of any other person or entity except for (a) the
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Agreement and Plan of Reorganization
Page 26
approval of the Merger by Frederick as the sole stockholder of FAC, (b) the
possible approval of Frederick's stockholders, and (c) the approval of Signet
Bank; (iii) violate any provision of Frederick's or FAC's Articles of
Incorporation or Bylaws; or (iv) violate any statute, law or regulation as such
statute, law or regulation relates to Frederick or FAC.
4.3 Broker's or Finder's Fees. No agent, broker, person or
firm acting on behalf of Frederick or FAC is, or will be, entitled to any
commission or broker's or finder's fees from any of the parties hereto in
connection with any of the transactions contemplated herein.
4.4 Litigation; Orders. Except as set forth on Schedule
4.4, there are no claims, actions, suits, or proceedings, grievances,
arbitrations, investigations or inquiries pending or, to the best knowledge of
Frederick, threatened, at law or in equity or before or by any federal, state,
local, foreign or other governmental department, commission, board,
arbitrator(s), agency, instrumentality or authority by or against Frederick
which restrains or prohibits or which may restrain or prohibit or otherwise
affect, the consummation of the transactions contemplated hereby.
4.5 Authorized Frederick Common Stock. Frederick has
sufficient authorized shares of Frederick Common Stock in order to issue the
required amount of new shares of Frederick Common Stock to WGB's stockholders
at the Closing. The Frederick Common Stock to be issued to WGB's stockholders
pursuant to Sections 2.3(b) and (c) hereof shall, on the Closing Date, be duly
authorized, and, upon their issuance, validly issued, fully paid and
non-assessable and free and clear of all Liens. As of the date hereof and the
Closing Date, the Frederick Common Stock is and will be qualified and listed on
the Nasdaq Small Cap Market System and Frederick knows of no restriction on the
ability of the Frederick Common Stock to trade thereon, except for the
restrictions set forth herein and those resulting from applicable law,
regulation and the rules of the Nasdaq.
4.6 Accuracy and Completeness of Reports. Frederick has
delivered a true, correct and complete copy of the annual report submitted to
its shareholders for its fiscal year ended December 31, 1996 (the "Annual
Report"), the Proxy Statement for the 1997 Annual Meeting of June 5, 1997
("Proxy Statement") and the Form 10-Q for the quarter ended September 30, 1997
("Form 10-Q"). The Annual Report, Proxy Statement and Form 10-Q do not contain
any untrue statement of a material fact, and do not omit to state a material
fact required to be stated therein or necessary to make the statements
contained therein not misleading.
ARTICLE 5.0 COVENANTS.
5.1 Covenants of WGB. During the period from the date of
this Agreement to the Closing Date, WGB will conduct its operations according
to its ordinary and usual course of business consistent with past practice,
will use its best efforts to preserve
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Agreement and Plan of Reorganization
Page 27
intact its business organization, to keep available the services of its
officers and employees and to maintain satisfactory relationships with
licensors, licensees, vendors, employees, contractors, distributors, customers
and others having business relationships with it. Without limiting the
generality of the foregoing and except as otherwise expressly provided in this
Agreement, prior to the Closing Date, WGB will not, without the prior written
consent of Frederick:
(a) pay any dividends or other distributions (cash or
otherwise) on or redeem or repurchase or otherwise acquire its capital stock,
subdivide or reclassify its shares of capital stock, pay any bonus, increase
the wages or salaries of its employees, increase the fees to its directors,
increase compensation to any consultants or other professionals, commit itself
to any new or renewed collective bargaining agreement or to any additional
pension, profit-sharing, bonus, incentive, deferred compensation, stock
purchase, stock option, stock appreciation right, group insurance, severance
pay, retirement or other compensation or benefit plan, agreement or
arrangement, or to any employment or consulting agreement with or for the
benefit of any person, to amend or make any payment or contribution (other than
in the ordinary course of business and consistent with past practice) with
respect to any of such plans or any of such agreements in existence on the date
hereof except as may be required to comply with applicable law, notice of which
shall be provided to Frederick;
(b) except in the ordinary course of business or as
otherwise contemplated hereby purchase, dispose of, or encumber, or agree to
sell, transfer, mortgage or otherwise dispose of or encumber, any of its
properties or assets or make any capital expenditure in excess of $1,000;
(c) enter into any agreements, commitments or
contracts, except agreements, commitments or contracts for the purchase, sale
or lease of goods or services in the ordinary course of business, consistent
with past practice and not in excess of current requirements, or otherwise make
any material change in the conduct of the business or operations of WGB,
provided, however, that WGB shall not enter into any agreements, commitments or
contracts regarding production, shipment of product, ordering of ingredients
and packaging materials and point of sale and marketing materials without
Frederick's prior written consent;
(d) authorize, recommend, propose or announce an
intention to authorize, recommend, propose, or enter into any agreement in
principle or an agreement with respect to any merger, consolidation or business
combination (except for this Agreement), any acquisition of a material amount
of assets or securities, any disposition of a material amount of assets or
securities or any material change in its capitalization, or any entry into a
material contract or any amendment or modification of any material contract or
any release or relinquishment of any material contract rights not in the
ordinary and usual course of business;
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Agreement and Plan of Reorganization
Page 28
(e) incur or guarantee any obligation or liability
(whether absolute, accrued, contingent or otherwise and whether due or to
become due) material to WGB or pay, discharge or satisfy any Lien or liability
(whether absolute, accrued, contingent or otherwise and whether due or to
become due), other than liabilities shown on the balance sheet as of September
30, 1997 in the Financial Statements and immaterial liabilities incurred after
the date thereof in the ordinary course of business in normal amounts, and no
such payment, discharge or satisfaction shall be affected other than in
accordance with the ordinary payment terms relating to the liability paid,
discharged or satisfied;
(f) permit or allow its properties or assets, real,
personal or mixed, tangible or intangible, to be mortgaged, pledged or
subjected to any Lien, except for Permitted Liens;
(g) cancel any debts or claims except in the ordinary
course of business and consistent with past practice, or waive any rights of
material value;
(h) permit an Intellectual Property right to lapse;
(i) issue, grant or sell any shares of its capital
stock or any equity interest or security, or issue, grant or sell any security,
option, warrant, call, subscription or other right of any kind, fixed or
contingent, that directly or indirectly calls for the issuance, sale, pledge or
other disposition of any shares of its capital stock or any equity interest or
security;
(j) make any change in any accounting principles,
practices or methods, including its principles, practices or methods relating
to calculation of reserves for receivables;
(k) pay, loan, or advance any amount to or in respect
of, or sell, transfer or lease any property or assets (real, personal or mixed,
tangible or intangible) to, or enter into any transaction with or for the
benefit of, any stockholder of WGB or any of their respective Affiliates or
Associates;
(l) enter into any lease or sub-lease of Real Property
or material lease of Personal Property;
(m) terminate or amend, or fail to perform any of its
obligations or cause any breach under, any contract set forth in Schedule 3.12.
WGB will exercise its commercially reasonable efforts to renew each of the
contracts set forth on Schedule 3.12 which is scheduled to terminate prior to
the Closing Date;
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Agreement and Plan of Reorganization
Page 29
(n) will not permit the insurance referred to in
Schedule 3.17 to lapse, expire, terminate or be cancelled;
(o) violate in any material respect any laws,
regulations, orders, or agreements applicable to it and its properties,
operations, Business and employees;
(p) amend its Articles of Incorporation or Bylaws; or
(q) agree to do any of the foregoing.
5.2 No Solicitation. WGB shall not and WGB shall use its
best efforts to cause its officers, directors, employees, agents, Affiliates
and representatives (including, without limitation, investment bankers,
attorneys and accountants) not to, directly or indirectly, (i) initiate contact
with, solicit or encourage any inquiries or proposals by, or (ii) except as
required by applicable law as advised in writing by counsel reasonably
acceptable to Frederick, enter into any discussions or negotiations with, or
disclose directly or indirectly any information not customarily disclosed
concerning its Business and properties to, or afford any access to its
properties, books and records to, any Person or other entity or group in
connection with any possible proposal (an "Acquisition Proposal") regarding a
sale of WGB's capital stock or a merger, consolidation, or sale of all or a
substantial portion of the assets of WGB, or any similar transaction. WGB will
notify Frederick immediately if any discussions or negotiations are sought to
be initiated, any inquiry or proposal is made, or any such information is
requested, with respect to an Acquisition Proposal or potential Acquisition
Proposal or if any Acquisition Proposal is received or indicated to be
forthcoming. The foregoing restrictions on disclosures shall not apply to
disclosures required to be made by any law, regulation or order of a court or
governmental agency of competent jurisdiction; provided, however, before any
disclosure is made WGB shall notify Frederick immediately of any such request
for information and shall take all reasonable action to support any request or
motion Frederick may make for confidential treatment or a protective order.
5.3 Stockholder Approval. As soon as practical after the
execution of this Agreement, WGB will take all steps necessary to call a
special meeting of its stockholders for the purpose of adopting and approving
this Agreement, the Merger and the transactions contemplated hereby and for
such other purposes as may be necessary or desirable. WGB shall provide to the
stockholders of WGB certain information regarding this Agreement, the Merger,
the transactions contemplated hereby and the Frederick Common Stock, which
information shall be reasonably satisfactory to Frederick prior to its
dissemination to them. The Board of Directors of WGB has unanimously
determined that this Agreement is advisable and in the best interests of the
stockholders of WGB and will (i) recommend to the stockholders of WGB the
adoption and approval of this Agreement and the transactions contemplated
hereby and (ii) use their best efforts to obtain the
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Agreement and Plan of Reorganization
Page 30
necessary approvals by the stockholders of WGB of this Agreement, the Merger
and the transactions contemplated hereby.
5.4 Access to Information; Confidentiality.
(a) Access to Information. Between the date of this
Agreement and the earlier of the Closing Date or the date of the termination of
this Agreement, WGB shall provide to Frederick and its representatives full
access to its premises, properties, equipment, books and records and shall make
its directors, officers, employees, agents, distributors and other vendors
available to confer with Frederick and its representatives; and during such
period, WGB shall: (i) disclose and make available to Frederick and its
representatives all documents and records relating to the assets, properties,
operations, obligations and liabilities of WGB, including but not limited to,
all books of account (including the general ledger), tax records and returns,
minute books of directors', committees', and stockholders' meetings,
organizational documents, material contracts, distributors' inventories and
bill-backs, customer list and agreements, filings with and communications from
any Governmental Authority, litigation files, accountants' work papers, all
account records, plans or records relating to employees and any other business
activities of WGB as Frederick or its representatives may require; and (ii)
promptly furnish to Frederick all other information concerning WGB's Business,
properties and personnel as Frederick may request. During this period,
Frederick may perform any review, analysis or testing that it, in its sole
discretion, deems appropriate. Frederick will use its best efforts not to
unduly interfere with the business operations of WGB during such review.
Throughout this period, WGB will cause Mr. James Lutz and one or more other
designated representatives to confer with Frederick's representatives on a
regular and frequent basis and to report the general status of WGB's ongoing
condition and operations. In addition, WGB will permit Frederick to
communicate with its agents, customers and creditors. WGB will immediately
notify Frederick of any material change in the ordinary course of its business
or in the operations of its properties or of any governmental complaints,
investigations or hearings (or communications indicating that the same may be
contemplated) or the institution, continuation or the threat of litigation or
other similar proceeding involving WGB or its Affiliates or affiliated persons
and will keep Frederick fully informed of such events.
(b) Confidentiality. Frederick will hold and will
cause its employees, officers, directors, consultants and advisors to hold in
strict confidence, unless compelled to disclose by judicial or administrative
process and then only with written notice prior to disclosure to WGB, all
documents and information concerning WGB furnished to Frederick in connection
with the transactions contemplated by this Agreement (except to the extent that
such information can be shown to have been (i) previously known by Frederick
other than through a breach of a confidentiality agreement by a third party;
(ii) in the public domain through no fault of Frederick; or (iii) later
lawfully acquired by Frederick from other sources) (the "WGB Confidential
Information") and will not release
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Agreement and Plan of Reorganization
Page 31
or disclose the WGB Confidential Information to any other person, except its
auditors, attorneys, financial advisors and other consultants and advisors and
lending institutions (including banks) or lending authorities in connection
with this Agreement (it being understood that such persons shall be informed by
Frederick of the confidential nature of such information and shall be directed
by Frederick to treat such information confidentially). If the transactions
contemplated by this Agreement are not consummated, such confidence shall be
maintained for a period of one year from the date of termination of this
Agreement, except to the extent the WGB Confidential Information comes into the
public domain through no fault of Frederick. If requested by WGB, Frederick
will return to WGB, all physical materials furnished by WGB to Frederick or
their respective agents, representatives or advisors and all copies thereof, in
whatever medium, and all materials prepared by Frederick which evaluate or
reflect the WGB Confidential Information. It is understood that Frederick
shall be deemed to have satisfied its obligation to hold the WGB Confidential
Information confidential if it exercises the same care as it takes to preserve
confidentiality for its own similar information. WGB will be entitled to
equitable relief in the event of a breach by Frederick of the provisions
contained in this Section 5.4(b).
(c) Confidentiality. WGB will hold and will cause its
employees, officers, directors, consultants and advisors to hold in strict
confidence, unless compelled to disclose by judicial or administrative process
and then only with written notice prior to disclosure to Frederick, all
documents and information concerning Frederick furnished to WGB in connection
with the transactions contemplated by this Agreement (except to the extent that
such information can be shown to have been (i) previously known by WGB other
than through a breach of a confidentiality agreement by a third party; (ii) in
the public domain through no fault of WGB; or (iii) later lawfully acquired by
WGB from other sources) (the "Frederick Confidential Information") and will not
release or disclose the Frederick Confidential Information to any other person,
except its auditors, attorneys, financial advisors and other consultants and
advisors and lending institutions (including banks) or lending authorities in
connection with this Agreement (it being understood that such persons shall be
informed by WGB of the confidential nature of such information and shall be
directed by WGB to treat such information confidentially). If the transactions
contemplated by this Agreement are not consummated, such confidence shall be
maintained for a period of one year from the date of termination of this
Agreement, except to the extent the Frederick Confidential Information comes
into the public domain through no fault of WGB. If requested by Frederick, WGB
will return to Frederick, all physical materials furnished by Frederick to WGB
or their respective agents, representatives or advisors and all copies thereof,
in whatever medium, and all materials prepared by WGB which evaluate or reflect
the Frederick Confidential Information. It is understood that WGB shall be
deemed to have satisfied its obligation to hold the Frederick Confidential
Information confidential if it exercises the same care as it takes to preserve
confidentiality for its own similar information. Frederick will be entitled to
equitable relief in the event of a breach by WGB of the provisions contained in
this Section 5.4(c).
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Agreement and Plan of Reorganization
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5.5 Consents; Efforts to Consummate. WGB and Frederick will
each use their respective best efforts to obtain consents of all third parties,
including Signet Bank, and Governmental Authorities necessary to the
consummation of the transactions contemplated by this Agreement. The parties
hereto shall use their respective best efforts to permit the termination (or
renegotiation on terms acceptable to Frederick) of certain agreements of WGB
without obligation or penalty (including, but not limited to, the lease
agreement relating to WGB's facility located at 20 Washington Street,
Cambridge, Maryland), and shall use their respective best efforts to permit the
Merger to be accounted for as a pooling-of-interests under GAAP. Each of WGB
and Frederick agree to use all reasonable efforts to take, or cause to be
taken, all actions, and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations to consummate and
make effective, as soon as practicable after the date of this Agreement, the
transactions contemplated by this Agreement.
5.6 Public Announcements. WGB and Frederick will consult
with each other before issuing any press release or otherwise making any public
statements with respect to the Agreement and shall not issue any such press
release or make any such public statement prior to such consultation, except as
may be required by law or judicial or administrative process.
5.7 Existence. WGB will take such action as may be
necessary to maintain, preserve, renew and keep in full force and effect WGB's
existence (corporate or otherwise), rights and franchises.
5.8 Articles of Merger. WGB and FAC shall, on the Closing
Date, execute and file Articles of Merger with the Department to effectuate the
Merger and will file Articles of Amendment to the Articles of Incorporation of
FAC to change the corporate name of FAC to "Wild Goose Brewery, Inc."
ARTICLE 6.0 GENERAL MATTERS.
6.1 Survival of Representations and Warranties. The warranties,
representations and covenants contained in or made pursuant to this Agreement
shall, with respect to the terms of Section 2.3(d) of this Agreement, survive
the Closing.
6.2 Benefit Plans and Arrangements
(a) Plan Participation. As soon as administratively
practicable after the Effective Time, Frederick shall take all reasonable
action so that employees of the Surviving Corporation shall be entitled to
participate in the Frederick employee benefit plans of general applicability,
and until such time the employee plans of WGB shall remain in effect. For
purposes of determining eligibility to participate in and the vesting of
benefits
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Agreement and Plan of Reorganization
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(but not for purposes of benefit accrual) under the Frederick employee plans,
Frederick shall recognize years of service with WGB prior to the Effective
Time.
(b) Employment. All employees of WGB as of the
Effective Time may, at the discretion of the Board of Directors of the
Surviving Corporation, become employees of the Surviving Corporation as of the
Effective Time, provided that, except as set forth in Section 6.2(c), below,
neither Frederick nor the Surviving Corporation shall have any obligation to
continue the employment of any such person and nothing contained in this
Agreement shall give any employee of the Surviving Corporation a right to
continuing employment with the Surviving Corporation after the Effective Time.
(c) Employment Agreement. On the Closing Date, the
Surviving Corporation and Mr. James Lutz shall execute an employment agreement
in the form as set forth as Exhibit A, attached hereto and made a part hereof,
which shall commence upon the Closing Date. Said employment agreement shall be
separate and independent from this Agreement and such employment agreement
shall stand alone and not be connected in its operation or with respect to the
rights and remedies of the parties thereto.
(d) Retention Bonuses. Set forth on Schedule 6.2(d)
are the names, job description, weekly salary and monthly medical insurance
premium payments made by WGB on behalf of each employee of WGB. Each employee
of WGB identified on Schedule 6.2(d) shall be entitled to receive a "retention
bonus" from Frederick or the Surviving Corporation equal to two times such
employees weekly salary as set forth on Schedule 6.2(d) in the event that such
employee remains an employee of WGB until the Effective Time and satisfactorily
fulfills the duties and responsibilities of the position of such employee of
WGB through the Effective Time. Furthermore, WGB and the Surviving Corporation
agree hereby to continue making (or make arrangements which are the equivalent
thereof) the monthly medical insurance premium payments with respect to each
employee and in the amount set forth on Schedule 6.2(d) to and including
February 1998 in the event that such employee remains an employee of WGB until
the Effective Time.
(e) Attendance at Board Meetings. Prior to the
Closing Date, WGB's Board of Directors shall select from among its membership
one person to attend meetings of Frederick's Board of Directors during the
first year following the Closing Date. The person selected to attend meetings
of Frederick's Board of Directors shall not be a member of Frederick's Board of
Directors, will be permitted to attend board meetings for one year only as an
observer and without a vote on any matter and only provided such person
conducts himself in a proper business like manner. The person selected to
attend the Frederick board meetings will be informed that he has an obligation
under federal and state law to maintain all non public information in strict
confidence similar to the obligations of a member of Frederick's Board of
Directors.
<PAGE> 41
Agreement and Plan of Reorganization
Page 34
6.3 Failure to Fulfill Conditions. In the event that
either of the parties hereto determines that a condition to its respective
obligations to consummate the transactions contemplated may not be fulfilled on
or prior to the termination of this Agreement, it will promptly notify the
other party. Each party will promptly inform the other party of any facts
applicable to it that would be likely to prevent or materially delay approval
of the Merger by any Governmental Authority or third party or which would
otherwise prevent or materially delay completion of the Merger.
6.4 Common Stock Restrictions. Except with the prior
written consent of Frederick, the shares of Frederick Common Stock to be
delivered to the stockholders of WGB at the Closing shall not be sold, pledged,
hypothecated, gifted or otherwise transferred or disposed of until (i) with
respect to 1/3 of such shares the date which is 180 days after the Closing
Date, (ii) with respect to 1/3 of such shares the date which is 270 days after
the Closing Date, and (iii) with respect to 1/3 of such shares the date which
is 360 days after the Closing Date and all certificates representing such
shares of Frederick Common Stock shall contain a legend to such effect as set
forth below. Except with the prior written consent of Frederick, 1/3 of the
shares of Frederick Common Stock which will be part of the Holdback Shares, to
the extent Holdback Shares are released to the former shareholders of WGB,
shall not be sold, pledged, hypothecated, gifted or otherwise transferred or
disposed of until the date which is 360 days after the Closing Date and all
certificates representing such shares of Frederick Common Stock shall contain a
legend to such effect as set forth below.
"The shares of Common Stock represented by this certificate have
been issued pursuant to a claim of exemption from the registration
or qualification requirements of federal and state securities laws
and may not be sold or transferred without registration or
qualification or otherwise except pursuant to an applicable
exemption therefrom as evidenced by an opinion of counsel
satisfactory to the issuer hereof."
"Except with the prior written consent of Frederick Brewing Co.,
the shares of Common Stock represented by this certificate may not
be sold, pledged, hypothecated, gifted or otherwise transferred or
disposed of until [THE DATE WHICH IS ___ DAYS AFTER THE CLOSING
DATE.]
ARTICLE 7.0 CONDITIONS TO THE OBLIGATIONS OF FREDERICK AND FAC TO
CONSUMMATE.
The obligations of Frederick and FAC to consummate the
transactions contemplated by this Agreement are subject to the satisfaction or,
unless prohibited by law, the waiver by Frederick and FAC of each of the
following conditions:
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Agreement and Plan of Reorganization
Page 35
7.1 Representations and Warranties. The representations and
warranties of WGB contained herein shall be true, complete, and accurate in all
material respects on the date of this Agreement and on the Closing Date as
though such representations and warranties were made at and on such date.
7.2 Performance. WGB shall have performed and complied
with all agreements, obligations and conditions required by this Agreement to
be so performed or complied with by it at or prior to the Closing.
7.3 Consents and Approvals. All necessary consents and
approvals of any Governmental Authority or any third party, including Signet
Bank, required for consummation of the transactions contemplated by this
Agreement shall have been obtained.
7.4 Stockholder Approval. The stockholders of WGB and, if
deemed necessary by Frederick, the stockholders of Frederick, shall have
approved the Agreement by the vote required by applicable law after full
disclosure of the terms and conditions of this Agreement and the transactions
contemplated hereby.
7.5 Dissenting Shares. No more than 5% of the issued and
outstanding shares of WGB Common Stock and WGB Preferred Stock shall have been
deemed to be Dissenting Shares pursuant to Section 2.6 hereof.
7.6 Financing. Frederick, in its sole discretion, shall
have obtained the financing necessary for it to consummate the transactions
contemplated by this Agreement.
7.7 WGB Private Placements. Frederick shall have satisfied
itself that there are no issues relating to the prior issuance of shares of WGB
Common Stock or WGB Preferred Stock which could adversely effect Frederick, FAC
or the transactions contemplated by this Agreement.
7.8 Delivery of Documents. At or before the Closing, WGB
shall have executed and delivered to Frederick and FAC certain documents,
including, but not limited to: (i) a certificate dated the Closing Date
executed by the President and Secretary of WGB evidencing compliance with the
conditions set forth in this Article 7; (ii) the surrender by the stockholders
of WGB of the certificates representing 100% of the issued and outstanding
shares of WGB Common Stock and WGB Preferred Stock, duly endorsed in blank (or
as required by Frederick) or an affidavit of loss together with an indemnity
and/or bond satisfactory to Frederick; (iii) the Articles of Merger executed by
a duly authorized officer of WGB; (iv) the opinion of Paul S. Blumenthal, Esq.,
counsel to WGB, addressed to the Board of Directors of Frederick substantially
in the form of Exhibit B; and (v) such other documents as Frederick or its
counsel may reasonably require. All such documents shall be in form and
substance satisfactory to Frederick.
<PAGE> 43
Agreement and Plan of Reorganization
Page 36
7.9 No Litigation. None of the parties hereto shall be a
party to, or shall have received notice of, any suit, claim or proceeding or
threatened suit, claim or proceeding to enjoin or restrain any or all of the
transactions contemplated herein or to nullify or render ineffective all or any
part of such transactions if accomplished or alleging damages in connection
therewith.
7.10 No Material Change. No change, event, development or
combination of developments shall have occurred which, individually or in the
aggregate, has resulted in or could reasonably be expected to result in a
material adverse change in the Business, condition (financial or otherwise) or
prospects of WGB.
ARTICLE 8.0 CONDITIONS TO OBLIGATIONS OF WGB TO CONSUMMATE.
The obligation of WGB to consummate the transactions
contemplated by this Agreement is subject to the satisfaction or, unless
prohibited by law, the waiver by WGB of each of the following conditions:
8.1 Representations and Warranties. The representations and
warranties of Frederick contained herein shall be true, complete, and accurate
in all material respects on the date of this Agreement and on the Closing Date
as though such representations and warranties were made at and on such date.
8.2 Performance. Frederick and FAC shall have performed and
complied with all agreements, obligations and conditions required by this
Agreement to be so performed or complied with by them at or prior to the
Closing.
8.3 Consents and Approvals. All necessary consents and
approvals of any Governmental Authority or any third party, including Signet
Bank, required for consummation of the transactions contemplated by this
Agreement shall have been obtained.
8.4 Officers' Certificate. Frederick shall have delivered
to WGB a certificate signed by a duly authorized officer, dated the Closing
Date, certifying the fulfillment of the conditions specified in Sections 8.1
and 8.2 of this Agreement.
8.5 Payment of Frederick Common Stock. In exchange for
certificates representing the issued and outstanding shares of WGB Common Stock
and WGB Preferred Stock, Frederick shall have delivered to the stockholders of
WGB on the Closing Date the shares of Frederick Common Stock as set forth in
Section 2.3(b) and (c) hereof.
8.6 No Litigation. None of the parties hereto shall be a
party to, or shall have received notice of, any suit, claim or proceeding or
threatened suit, claim or proceeding to enjoin or restrain any or all of the
transactions contemplated herein or to
<PAGE> 44
Agreement and Plan of Reorganization
Page 37
nullify or render ineffective all or any part of such transactions if
accomplished or alleging damages in connection therewith.
8.7 Delivery of Documents. At or before the Closing,
Frederick and FAC shall execute and deliver to WGB all other documents
contemplated by this Agreement.
ARTICLE 9.0 TERMINATION.
9.1 Termination. This Agreement may be terminated at any
time prior to the Closing Date, whether before or after approval by the
stockholders of WGB:
(a) by mutual consent of the Boards of Directors of
the Frederick and WGB; or
(b) by either Frederick or WGB if, without fault of
such terminating party, the transactions contemplated by this Agreement shall
not have been consummated on or before February 28, 1998, unless extended by
mutual written consent; or
(c) by Frederick if any condition to its obligations
as set forth in Article 7.0 shall become incapable of fulfillment and shall not
have been waived by Frederick in writing, or by WGB if any of the conditions to
the obligations of WGB set forth in Article 8.0 shall have become incapable of
fulfillment and shall not have been waived by WGB in writing; provided that
neither party may terminate this Agreement hereunder if it is in material
breach of any of its representations, warranties, covenants or agreements in
this Agreement; or
(d) by Frederick, in the event of a material
deterioration of the assets, Business or financial condition of WGB, in
Frederick's sole discretion; or
(e) by WGB, in the event of a material deterioration
of the assets, Business or financial condition of Frederick, in WGB's sole
discretion; or
(f) by Frederick or WGB upon a material breach of a
representation or warranty by the other or the failure to perform any covenant
or agreement contained herein, if such breach or failure to perform shall not
have been cured within fifteen (15) calendar days after receipt by the
breaching party of notice of such breach from the non-breaching party.
(g) by Frederick if the WGB disclosure schedules
contemplated by this Agreement have not been completed in form and substance
satisfactory to Frederick by the close of business on December 23, 1997.
<PAGE> 45
Agreement and Plan of Reorganization
Page 38
9.2 Procedure and Effect of Termination. In the event of
termination and abandonment of this Agreement by Frederick or WGB pursuant to
Section 9.1, written notice thereof shall forthwith be given to the other and
this Agreement shall terminate and the transactions contemplated hereby shall
be abandoned, without further action by any of the parties hereto. If this
Agreement is terminated as provided herein, the obligations stated in this
Section 9.2 and in Sections 5.4(b), 5.6, and 9.3 shall survive any such
termination for the periods therein stated, if any. No termination of this
Agreement under Section 9.1(f) for any reason or in any manner shall release,
or be construed as so releasing, any party hereto from any liability or damage
to the other party hereto arising out of, in connection with, or otherwise
relating to, directly or indirectly, such party's material breach, such party's
material default or such party's failure in performance of any of its material
covenants, agreements, duties or obligations arising hereunder.
9.3 Payment of Expenses and Termination. Other than as
expressly provided elsewhere in this Agreement, whether or not the Agreement
shall be consummated, all costs and expenses incurred in connection with this
Agreement will be paid by the party incurring such expenses.
ARTICLE 10.0 MISCELLANEOUS.
10.1 Further Assurances. From time to time, and without
further consideration, each of the parties hereto agrees to execute and deliver
any and all further agreements, documents or instruments necessary to
effectuate this Agreement, the Merger and the transactions referred to herein
or contemplated hereby and to vest good, valid and marketable title to the
assets transferred in connection herewith or reasonably requested by the other
party to perfect or evidence its rights hereunder. Each party will promptly
notify the other party of any information delivered to or obtained by such
party which would prevent the consummation of the transactions contemplated by
this Agreement, or would indicate a breach of the representations, warranties
or covenants of any of the parties to this Agreement.
10.2 Notices. Any notices hereunder shall be deemed
sufficiently given by one party to another only if in writing and if and when
delivered or tendered either in person or as of one (1) business day after sent
by recognized overnight service for next day delivery, with all costs prepaid,
or as of five (5) business days after deposit in the United States mail,
registered or certified, with postage prepaid, addressed as follows:
<PAGE> 46
Agreement and Plan of Reorganization
Page 39
If to Frederick or FAC:
Frederick Brewing Co.
4607 Wedgewood Blvd.
Frederick, Maryland 21703
Attention: Kevin E. Brannon, Chairman of the Board
and a copy to:
Elias, Matz, Tiernan & Herrick L.L.P
734 15th Street, N.W.
12th Floor
Washington, D.C. 20005
Attention: Daniel P. Weitzel, Esq.
If to WGB:
Wild Goose Brewery Inc.
20 Washington Street
Cambridge, Maryland 21613
Attn: James Lutz, President
and a copy to:
Paul S. Blumenthal, Esq.
26 Lawrence Avenue
Annapolis, Maryland 21403
or to such other address as the party addressed shall have previously
designated by written notice to the serving party, given in accordance with
this Section 10.2; provided, however, that a notice not given as above shall,
if it is in writing, be deemed given if and when actually received by the party
to whom it is required or permitted to be given.
10.3 Governing Law. This Agreement shall be governed by,
and construed and enforced in accordance with the laws of the State of
Maryland. Except as prohibited by applicable law, each party hereby waives any
right it may have to a trial by jury in any litigation directly or indirectly
arising out of, under, or in connection with this Agreement. This waiver is
knowingly, intentionally and voluntarily made by each party, and each party
acknowledges that no representative, agent or attorney of either party has made
any representations of fact to induce this waiver of trial by jury or in any
way to nullify or modify its effect. The parties each hereby agree that this
Agreement constitutes a written consent to waiver of trial by jury.
10.4 Severability. Should any term or provision or portion
of such provision of this Agreement be invalid or unenforceable because of the
scope thereof or the
<PAGE> 47
Agreement and Plan of Reorganization
Page 40
period covered thereby or otherwise, such term, provision or portion of such
provision shall be deemed to be reduced and limited to enable Frederick or WGB
or the Surviving Corporation to enforce it to the maximum extent permissible
under the laws and public policies applied under the jurisdiction in which
enforcement is sought. If any term or provision of this Agreement is held or
deemed to be invalid or unenforceable, in whole or in part, by a court of
competent jurisdiction, such term or provision shall be ineffective to the
extent of such invalidity or unenforceability without rendering invalid or
unenforceable the remaining terms and provisions of this Agreement which shall
be construed to preserve to the maximum permissible extent the intent and
purposes of this Agreement. Any such invalidity or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such terms or
provisions in any other jurisdiction.
10.5 Entire Agreement; Amendment. This Agreement (including
the schedules and exhibits hereto and the lists and documents delivered
pursuant hereto) is intended by the parties to and does constitute the entire
agreement of the parties with respect to the transactions contemplated by this
Agreement and supersedes any and all prior understandings, written or oral,
between the parties. If there is any question of interpretation or if there
are or appear to be inconsistencies between this Agreement and any Schedule or
Exhibit hereto the terms of this Agreement shall govern. This Agreement may
not be amended, modified, waived, discharged or terminated orally, but only by
an instrument in writing signed by an authorized executive officer of the party
against which enforcement of the amendment, modification, waiver, discharge or
termination is sought. No waiver of the breach of any provision or term of
this Agreement shall be deemed or construed to be a waiver of other or
subsequent breaches.
10.6 Assignment, etc. Except for the assignment of certain
rights under this Agreement by Frederick to its wholly-owned subsidiary FAC,
the rights and obligations of any of the parties to this Agreement may not be
assigned without the prior written consent of the other parties to this
Agreement, and any assignment made in violation of the foregoing shall be void
and have no legal effect. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and assigns but
nothing herein, express or implied, is intended to or shall confer any rights,
remedies or benefits upon any person other than the parties hereto. All
section headings used herein are for convenience and ease of reference only and
do not constitute part of this Agreement and shall not be referred to for the
purpose of defining, interpreting, construing or enforcing any of the
provisions of this Agreement. All pronouns and variations thereof shall be
deemed to refer to the masculine, feminine, neuter, singular or plural as the
identity of the party or parties to this Agreement may require.
10.7 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
<PAGE> 48
Agreement and Plan of Reorganization
Page 41
IN WITNESS WHEREOF, Frederick, FAC and WGB have caused this
Agreement to be duly executed and delivered under seal, by their respective
authorized officers, on the date first above written.
FREDERICK BREWING CO.
Witness: By:
--------------------- -----------------------------
Kevin E. Brannon
Chairman of the Board
FBC ACQUISITION CORPORATION
(In Organization)
Witness: By:
--------------------- -----------------------------
Kevin E. Brannon
President
WILD GOOSE BREWERY, INC.
Witness: By:
--------------------- -----------------------------
James Lutz
President
<PAGE> 49
EXHIBIT A
AGREEMENT
AGREEMENT, dated as of this ______ day of ___________ 1998, between Wild
Goose Brewery, Inc. (the "Employer"), a Maryland corporation, and James Lutz
(the "Executive").
WITNESSETH
WHEREAS, in order to induce the Executive to serve as the President of
the Employer, the Employer and the Executive desire to enter into this
Agreement to specify the terms of the Executive's employment,
NOW THEREFORE, in consideration of the premises and the mutual agreements
herein contained, the parties hereby agree as follows:
1. DEFINITIONS. The following words and terms shall have the meanings
set forth below for the purposes of this Agreement:
(a) BASE SALARY. "Base Salary" shall have the meaning set forth in
Section 3(a) hereof.
(b) CAUSE. Termination of the Executive's employment for "Cause" shall
mean a finding by the Board of Directors and approved by a majority thereof,
which establishes that Executive has been terminated as a direct result of his
conviction, plea of nolo contendere or has otherwise been found guilty in a
court of competent jurisdiction of theft, fraud, embezzlement, intentional or
reckless conversion or destruction of Employer funds, property or other assets,
or has been found by the appropriate regulatory authority to have violated the
laws and regulations governing the licensing of manufacturers, distributors or
retailers of alcoholic beverages, where such offense has, as an element, an
intentional or reckless state of mind, incompetence, willful misconduct, breach
of fiduciary duty involving personal profit, intentional failure to perform
stated duties, willful violation of a final cease-and-desist order of any
governmental authority or court of competent jurisdiction, or, any material
breach of any provision of this Agreement.
(c) DATE OF TERMINATION. "Date of Termination" shall mean (i) if the
Executive's employment is terminated for Cause or for Disability, the date
specified in the Notice of Termination, and (ii) if the Executive's employment
is terminated for any other reason, the date on which a Notice of Termination
is given or as specified in such Notice.
(d) DISABILITY. Termination by the Employer of the Executive's
employment based on "Disability" shall mean termination because of any physical
or mental impairment which qualifies the Executive for disability benefits
under the applicable long-term disability plan maintained by the Employer or
Frederick Brewing Co. ("FBC") or, if no such plan applies,
<PAGE> 50
2
which would qualify the Executive for disability benefits under the Federal
Social Security System.
(e) NOTICE OF TERMINATION. Any purported termination of the
Executive's employment by the Employer for any reason, including without
limitation for Cause, Disability or Retirement, or by the Executive for any
reason, shall be communicated by written "Notice of Termination" to the other
party hereto. For purposes of this Agreement, a "Notice of Termination" shall
mean a dated notice which (i) indicates the specific termination provision in
this Agreement relied upon, (ii) sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of Executive's
employment under the provision so indicated, (iii) specifies a Date of
Termination which shall be not less than thirty nor more than ninety days after
such Notice of Termination which is given, except in the case of the Employer's
termination of Executive's employment for Cause, which shall be effective
immediately; and (iv) is given in the manner specified in Section 10 hereof.
(f) RETIREMENT. Termination by the Employer of the Executive's
employment based on "Retirement" shall mean voluntary termination by the
Executive in accordance with the Employer's retirement policies, including
early retirement, generally applicable to the Employer's salaried employees.
2. TERM OF EMPLOYMENT.
(a) The Employer hereby employs the Executive as President, and the
Executive hereby accepts said employment and agrees to render such services to
the Employer on the terms and conditions set forth in this Agreement. In
addition, as of ____________ 1998, Executive shall serve as a member of the FBC
Board of Directors until the next annual meeting of FBC's stockholders, at
which meeting the FBC Board will nominate Executive to the class of directors
whose terms expire in 1999. Executive agrees to resign from FBC's Board of
Directors upon the request of a majority of the Board or simultaneously with
the termination of this Agreement.
(b) The initial term of employment under this Agreement shall be, at
the discretion of the Board of Directors, for one year, commencing on
_____________, 1998. If the Board of Directors notifies the Executive in
writing at least 90 days prior to the expiration of this Agreement of its
intention to renew this Agreement, and Executive provides his written consent
to such renewal, this Agreement shall extend for an additional one year term.
(c) During the term of this Agreement, the Executive shall devote his
full time to the business of the Employer and shall perform such executive
services for the Employer as may be consistent with his title and annually
assigned to him by the Employer's Board of Directors. Executive will be
provided with a "hoteling" work space arrangement at Employer's corporate
headquarters, provided, however, that it is the Executive's understanding that
he will work primarily from his home and, except as provided in this Agreement,
the expense of such home office will be Executive's responsibility.
<PAGE> 51
3
3. COMPENSATION AND BENEFITS.
(a)(i) Subject to the conditions set forth below, the Employer
shall compensate and pay Executive for his services during the term of this
Agreement at a minimum base salary of $85,000 per year ("Base Salary").
(ii) The Base Salary shall be supplemented by a cash bonus
("Cash Bonus") equal to a percentage of Executive's Base Salary not to exceed
20%. [THIS CASH BONUS WILL BE BASED UPON BOTH INDIVIDUAL PERFORMANCE CRITERIA
AND COMPANY PERFORMANCE CRITERIA AND THE CASH BONUS WILL BE RECOMMENDED BY
SENIOR MANAGEMENT OF THE EMPLOYER TYPICALLY ON OR BEFORE JANUARY 15TH OF EACH
YEAR AND THEREAFTER RATIFIED BY THE BOARD'S COMPENSATION COMMITTEE.] [CRITERIA
FOR BONUS TO BE PROVIDED.]
(b) Upon the execution of this Agreement and pursuant to the
terms of the Employer's 1995 Stock Option Plan, Executive shall also receive a
grant of non-transferable options for 10,000 shares of the Employer's common
stock exercisable in three equal annual installments beginning 180 days after
commencement of employment, and if employment is terminated, all unvested and
unexercisable options will be forfeited. The grant of such options shall be
evidenced by a separate written Stock Option Agreement. The options will be
exercisable at $__________ per share (the market price of the Employer's common
stock on the closing date of the Agreement and Plan of Reorganization, dated
_________, 1997, between Frederick Brewing Co., FBC Acquisition Corporation and
Wild Goose Brewery Inc.) and additional options, if any, may be granted to the
Executive within the discretion of the Compensation Committee of Employer's
Board of Directors. Nothing paid to Executive under any plan or arrangement
presently in effect or made available in the future shall be deemed to be in
lieu of the Base Salary payable to Executive pursuant to Section 3(a) hereof.
(c) During the term of this Agreement, Executive shall be
entitled to the following additional benefits:
(i) Health Insurance: The Employer will pay 100% of
the premiums for the Executive and one dependent for all health and
dental insurance plans covering all other Employer employees.
Additional dependents may be covered, at the Executive's option and
at the Executive's expense, on such terms as permitted by the
Employer's insurer. Coverage shall commence 30 days after full-time
employment begins.
(ii) Paid Leave: The Employer will pay for leave for
15 working days, which shall accrue ratably as earned; provided,
however, that no leave time shall be paid during the first 90 days
after employment begins and that any leave time accrued shall be
deemed to have been forfeited if the Executive's employment
terminates for any reason within 90 days after full-
<PAGE> 52
4
time employment begins. As of December 31 of each year, all unused
leave time in excess of eight days shall be deemed waived.
(iii) 401(k) Plan: The Executive will be eligible to
participate in this plan on the same basis as all similarly situated
employees.
(iv) Car Allowance: The Employer will pay for a car
allowance of $600 per month and reimbursement for all cellular phone
expenses.
(v) Business Expenses: The Employer will pay or
reimburse the Executive for all reasonable and documented
business-related expenses including hotel and meals when traveling
on Employer business and the costs of telephone and facsimile
transmission when working from home.
4. TERMINATION.
(a) The Employer shall have the right, at any time upon prior
Notice of Termination, to terminate the Executive's employment hereunder for
any reason, including without limitation termination for Cause, Disability,
Retirement or the Executive's death, and Executive shall have the right, upon
prior Notice of Termination, to terminate his employment hereunder for any
reason.
(b) In the event that (i) Executive's employment is terminated by
the Employer for Cause, Disability, Retirement or the Executive's death or (ii)
Executive terminates his employment hereunder for any reason other than as set
forth in Section 4(c)(ii) below, Executive shall have no right pursuant to this
Agreement to compensation or other benefits for any period after the applicable
Date of Termination.
(c) In the event that (i) Executive's employment is terminated by
the Employer for other than Cause, Disability, Retirement or the Executive's
death or (ii) such employment is terminated by the Executive due to a material
breach of this Agreement by the Employer, which breach has not been cured
within fifteen days after a written notice of non-compliance has been given by
the Executive to the Employer, then the Employer shall pay to the Executive a
cash severance, (A) if the Executive's termination occurs during the initial
term of this Agreement, in six equal monthly installments an amount equal to
one half of the Executive's Base Salary, or (B) if the Executive's termination
occurs during the renewal period of this Agreement, in three equal monthly
installments an amount equal to one quarter of the Executive's Base Salary.
<PAGE> 53
5
5. MITIGATION; EXCLUSIVITY OF BENEFITS.
(a) The Executive shall not be required to mitigate the amount of
any benefits hereunder by seeking other employment or otherwise, nor shall the
amount of any such benefits be reduced by any compensation earned by the
Executive as a result of employment by another employer after the Date of
Termination or otherwise.
(b) The specific arrangements referred to herein are not intended
to exclude any other benefits which may be available to the Executive upon a
termination of employment with the Employer pursuant to employee benefit plans
of the Employer or otherwise.
6. PROPRIETARY INFORMATION.
(a) The Employer and FBC have disclosed to Executive confidential
business plans, marketing strategies, product formulations, packaging design,
advertising copy, funding sources, wholesale and retail customer lists,
equipment designs and sources, financial projections and results and other
information in the course of Executive's duties. This information and similar
information yet to be developed by the Employer and FBC is generally unknown to
the public and gives the Employer and FBC a competitive advantage over those
who do not have access to this information. The Employer and FBC have taken
and will take care to protect this information from becoming generally known.
The Employer and FBC have revealed this information to the Executive on the
condition that he keep it confidential and will require confidentiality from
the Executive and all other persons with access to the information in the
future. The information described above, therefore, constitutes valuable trade
secrets of the Employer and FBC and is referred to below as "Proprietary
Information." In the course of performing his duties under this Agreement, the
Executive will both help develop and be privy to Proprietary Information.
(b) As a condition of his employment with the Employer and as an
inducement to the Employer to enter into this Agreement, Executive agrees to
contribute to the Employer all recipes and formulations for alcoholic and
non-alcoholic beverages and methods and techniques for producing, packaging or
marketing such beverages he now has and which he may later develop, whether or
not they are committed to writing, during the term of this Agreement or any
extension hereof. These recipes, formulations, methods and techniques are now
and, if later developed, shall become Proprietary Information of the Employer.
(c) The Employer has and shall retain all exclusive rights in the
Proprietary Information. During the term of this Agreement and for the later
of five years following the termination hereof or as long as permitted by law,
Executive shall not disclose Proprietary Information to any third party or make
any commercial or academic use of the
<PAGE> 54
6
Proprietary Information without the express written consent of the Employer,
which consent may be withheld for any or no reason in the Employer's sole
discretion.
(d) These restrictions on the use and disclosure of Proprietary
Information shall survive the expiration or termination of this Agreement,
regardless of the grounds or lack of grounds therefor. The parties recognize
and agree that, in the event of a threatened or actual breach of this Section
6, the Employer's remedy at law will be inadequate to fully compensate the
Employer for its losses. Therefore, the Employer may enforce its rights
hereunder by equitable remedies, including without limiting the generality of
the foregoing, injunctive relief and specific performance.
7. COVENANT NOT TO COMPETE.
(a) In consideration of this offer of employment and as an
inducement for the Employer to enter into this Agreement, Executive agrees
that, during the term of this Agreement and for a period of twelve calendar
months after its expiration or termination, Executive shall not engage,
directly or indirectly, in the business of producing, packaging or marketing of
beers or ales or similar grain-based beverages in the states of Maryland,
Virginia, West Virginia or Pennsylvania or the District of Columbia (the
"Restricted Area").
(b) For purposes of this Agreement, to "engage, directly or
indirectly, in the business of producing, packaging or marketing of beers or
ales or similar grain-based beverages" shall mean directly or indirectly,
owning, managing, operating, joining, being employed by, or controlling or
participating in the ownership, management, operation or control of, or being a
director, officer, stockholder, partner or employee of, or an advisor or
consultant to, any practice, business, firm, partnership, venture, corporation
or entity which is conducting any business which in any manner competes with
the business of Employer or its successors, as now conducted or as conducted
hereinafter during the term hereof. The parties hereto recognize that the
business of Employer is highly competitive in the Restricted Area. It is the
well-considered intent of the parties that this covenant not to compete be
given the broadest possible interpretation and scope for the protection of the
business interests and goodwill of the Employer and its successors. It is
further represented by the Executive that he has the skills and background to
obtain employment and provide a livelihood for himself and his family in a
location outside the Restricted Area or in a business other than one in
competition with the Employer in the event of termination hereunder. This
covenant not to compete shall not apply to the holding or acquiring shares of a
corporation whose stock is traded publicly on a recognized stock exchange or on
the NASDAQ.
(c) Executive further covenants and agrees that he will not,
directly or indirectly during the term hereof and for a period of thirty-six
calendar months after the date of termination of this Agreement for any reason
whatsoever: (i) induce or attempt to induce any other employee, agent or
independent contractor to leave the Employer or its
<PAGE> 55
7
successors; (ii) interfere with or disrupt the relationship between Employer
and its successors and any of their employees; or (iii) solicit, entice, take
away or employ any person employed by Employer or its successors at the Date of
Termination.
(d) The covenant set forth in this Section 7 shall survive the
termination or expiration of this Agreement unless and until: (a) the Employer
is in substantial breach of the Agreement at the time of termination or
expiration; or (b) the Employer is acquired by, merged or consolidated with a
similar business having combined facilities which manufacture not less than
500,000 barrels of malt beverages per year; or (c) the Executive is terminated
by the Employer without Cause; or (d) the Employer becomes insolvent or enters,
voluntarily or involuntarily, proceedings in bankruptcy. The parties agree and
acknowledge that, in the event of a threatened or actual breach of this
covenant not to compete, the Employer's remedies at law will be inadequate to
compensate the Employer for its losses. Therefore, this covenant may be
enforced by equitable remedies including, without limiting the generality of
the above, injunctive relief and specific performance.
(e) It is intended by the parties that this covenant not to
compete be given its widest possible effect. If, however, any part of this
covenant is found to be overly broad, unreasonably restrictive or otherwise
unenforceable, this covenant shall remain fully effective and valid to the
greatest extent permitted by law.
(f) The non-competition provisions set forth in Section 7(b)
above do not apply, after the termination of the Executive's employment, to any
work relating to restaurants that make and sell beer (e.g., brewpubs).
8. WITHHOLDING. All payments required to be made by the Employer
hereunder to the Executive shall be subject to the withholding of such amounts,
if any, relating to tax and other payroll deductions as the Employer may
reasonably determine should be withheld pursuant to any applicable law or
regulation.
9. ASSIGNABILITY. The Employer may assign this Agreement and its
rights and obligations hereunder in whole, but not in part, to any corporation
or other entity with or into which the Employer may hereafter merge or
consolidate or to which the Employer may transfer all or substantially all of
its assets, if in any such case said corporation or other entity shall by
operation of law or expressly in writing assume all obligations of the Employer
hereunder as fully as if it had been originally made a party hereto, but may
not otherwise assign this Agreement or its rights and obligations hereunder.
The Executive may not assign or transfer this Agreement or any rights or
obligations hereunder.
10. NOTICE. For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by certified or
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth below:
<PAGE> 56
8
To the Employer: Board of Directors
Wild Goose Brewery, Inc.
4607 Wedgewood Boulevard
Frederick, Maryland 21703
To the Executive: James Lutz
901 Lincolnshire Lane
Arnold, Maryland 21012
11. AMENDMENT; WAIVER. No provisions of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by the Employee and such officer or officers as may
be specifically designated by the Board of Directors of the Employer to sign on
its behalf. No waiver by any party hereto at any time of any breach by any
other party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
12. ENTIRE AGREEMENT. This Agreement contains the entire agreement
between Employer and Employee and supersedes all prior agreements, written or
oral (including the non-binding offer of employment dated _________________,
1997), arrangements and understandings with respect thereto.
13. CHOICE OF LAW, JURISDICTION AND VENUE. The Corporation is a
Maryland corporation whose manufacturing, distribution and office facilities
are currently located in Frederick County, Maryland. Employee by executing
this Agreement agrees to be employed at the Corporation's facilities in
Frederick County, Maryland. Therefore, this Agreement shall be interpreted,
construed and enforced in accordance with Maryland law. The Frederick County
Circuit Court or the U.S. District Court for Maryland shall have the sole
jurisdiction over and shall be the exclusive venue for any actions between the
parties concerning the validity, construction, enforcement or avoidance of this
Agreement.
14. NATURE OF OBLIGATIONS. Nothing contained herein shall create or
require the Employer to create a trust of any kind to fund any benefits which
may be payable hereunder, and to the extent that the Employee acquires a right
to receive benefits from the Employer hereunder, such right shall be no greater
than the right of any unsecured general creditor of the Employer.
15. HEADINGS. The section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
<PAGE> 57
9
16. VALIDITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect.
17. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
IN WITNESS WHEREOF, this Agreement has been executed as of the date first
above written.
Attest: FREDERICK BREWING CO.
By:
- ------------------------ ------------------------------
Maribeth Visco Carl R. Hildebrand, Director,
Secretary Member of Compensation
Committee
By:
------------------------------
Nicholas Foris, Director,
Member of Compensation
Committee
Witness:
- ------------------------ ------------------------------
James Lutz
<PAGE> 58
EXHIBIT B
[LETTERHEAD OF PAUL S. BLUMENTHAL]
___________________, 1998
Board of Directors
Frederick Brewing Co.
4607 Wedgewood Boulevard
Frederick, Maryland 21703
Re: Agreement and Plan of Reorganization dated December __, 1997
Gentlemen:
I have acted as counsel to Wild Goose Brewery Inc., a Maryland
corporation ("WGB"), in connection with the proposed merger of WGB with and
into FBC Acquisition Corporation, a Maryland corporation ("FAC"), which is a
wholly owned subsidiary of Frederick Brewing Co., a Maryland corporation
("Frederick"), pursuant to an Agreement and Plan of Reorganization dated
December __, 1997 (the "Agreement") by and among WGB, FAC and Frederick. I
have been requested to render this opinion pursuant to Section 7.8(iv) of the
Agreement. Capitalized terms used herein shall have the meaning attributed to
them in the Agreement unless otherwise defined herein.
In rendering the opinions set forth below, I have examined the original,
or photostatic or certified copy of such certificates, agreements, documents
and other papers, and have made such inquiries and investigations of law, as I
have deemed relevant and necessary for the opinions hereinafter set forth. In
making such examination, I have assumed the legal capacity of all natural
persons, the genuiness of all signatures, the authenticity of all documents
submitted to us as originals, and the conformity to the originals of all non-
original documents submitted to me as certified, photostatic, facsimile or
conformed copies or reproductions thereof. As to matters of fact material to
the opinions expressed herein, I have performed such investigation as I have
deemed necessary.
For purposes of this opinion, I have assumed with your permission and
without investigation: (a) all documents executed by any person or entity in
connection with the Agreement, other than those delivered by WGB, constitute
the legal, valid and binding obligations of, and are enforceable against all
such persons or entities; (b) the due and proper authorization, execution,
acknowledgement and delivery of the Agreement by the
<PAGE> 59
Board of Directors
Frederick Brewing Co.
Page 2
respective parties thereto, other than WGB; (c) that Frederick and FAC are duly
organized, validly existing and in good standing under the laws of the State of
Maryland; (d) that Frederick and FAC have full power, authority and legal right
under the laws of the State of Maryland to execute and deliver the Agreement
and to consummate the transactions contemplated thereby; and (e) the
authenticity and genuineness of the signatures to all documents.
Each of the opinions hereinafter expressed is subject to the following
further qualifications, whether or not such opinions refer to such
qualifications:
(1) the effect of bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance, fraudulent transfer, conservatorship or other similar
laws now or hereafter in effect relating to or affecting creditors' rights
generally; and,
(2) limitations imposed by general principles of equity and the
discretion of the court (including with respect to specific performance and
other forms of injunctive relief) and the requirement that rights and remedies
be exercised in good faith and in a commercially reasonable manner.
Based upon and subject to the foregoing, it is my opinion that:
(1) WGB is a corporation duly organized, validly existing and in good
standing under the laws of the State of Maryland and has the full corporate
power and authority to carry on its business as it is currently being conducted
and to own, lease and operate the property and the assets that it now owns,
leases and operates and to execute, deliver and perform the Agreement and the
transactions contemplated thereby.
(2) The authorized capital stock of WGB consists of fifty thousand
(50,000) shares of WGB Common Stock and fifty thousand (50,000) shares of WGB
Preferred Stock. As of the date hereof, ten thousand (10,000) shares of WGB
Common Stock are issued and outstanding and are owned of record by 29
stockholders and fifty thousand (50,000) shares of WGB Preferred Stock are
issued and outstanding and are owned of record by 27 stockholders. All of the
outstanding shares of WGB Common Stock and WGB Preferred Stock have been duly
authorized and validly issued and are fully paid and non-assessable, and none
of the outstanding shares of WGB Common Stock or WGB Preferred Stock has been
issued in violation of any law, regulation or policy of any governmental
authority, the WGB Articles of Incorporation, Bylaws, the terms of any
agreement to which WGB is a party or is bound and the shareholders of WGB have
no preemptive rights with respect to any shares of capital stock of WGB. There
are no Rights authorized, issued or outstanding with respect to the WGB Common
Stock or the WGB Preferred Stock.
<PAGE> 60
Board of Directors
Frederick Brewing Co.
Page 3
(3) The execution, delivery and performance of the Agreement and the
transactions contemplated thereby by WGB has been duly and effectively
authorized by all necessary corporate action, and the Agreement is a valid,
legally binding and enforceable obligation of WGB in accordance with its terms.
(4) The execution, delivery and performance of the Agreement and the
consummation of the transactions contemplated thereby by WGB will not: (i)
violate any provision of WGB's Articles of Incorporation or bylaws; (ii)
violate, conflict with or otherwise give WGB or any other contracting party the
right to terminate or constitute (or with notice or lapse of time or both) a
default under, or result in the termination of, or accelerate the performance
required by, or cause the acceleration of the maturity of any liability or
obligation pursuant to, or result in the creation or imposition of any security
interest, lien, charge or other encumbrance upon any of WGB's properties or
assets under (a) any statute or law or (b) any judgment, decree, order, award,
writ, injunction, regulation or rule of any court, arbitrator or Governmental
Authority, or (c) any material note, bond, mortgage, indenture, deed of trust,
license, lease, instrument, contract, commitment, franchise, permit,
understanding, arrangement, agreement or restriction of any kind or character;
or (iii) violate any statute, law or regulation as such statute, law or
regulation relates to WGB; or (iv) result in the creation of any adverse claim
on the properties or assets of WGB thereunder.
(5) There are no claims, actions, suits, proceedings, grievances,
arbitrations, investigations or inquiries pending or threatened, at law or in
equity or before or by any federal, state, local, foreign or other governmental
department, commission, board, arbitrator(s), agency, instrumentality or
authority by or against WGB that: (i) restrains or prohibits or that may
restrain or prohibit, or otherwise affect, the Agreement, the Merger or
consummation of the transactions contemplated thereby; or (ii) affect or might
affect the business, operations, condition (financial or otherwise),
liabilities, assets or earnings of WGB. WGB is not subject to any judgment,
arbitration award, order or decree except as scheduled on the Agreement. There
are no petitions pending by, against or on behalf of WGB under any applicable
bankruptcy or insolvency laws.
(6) WGB in the past has complied, and presently is in compliance, with
all applicable laws (whether statutory or otherwise), rules, regulations,
orders, ordinances, judgments or decrees of all Governmental Authorities
(federal, state, local, or otherwise) (collectively, "Laws"), including, but
not limited to, all Laws relating to the safe conduct of business and
environmental protection and conservation, and any applicable labor, trade,
health, sanitation, fire, safety, labor, zoning and building laws and
ordinances, as well as all criminal laws, and WGB has not received notification
of any asserted present or past failure to so comply.
<PAGE> 61
Board of Directors
Frederick Brewing Co.
Page 4
(7) WGB has in effect all federal, state, local, or other governmental
approvals, authorizations, certifications, filings, franchises, licenses,
notices, permits, registrations, variances and rights ("Permits") necessary for
it to own, lease or operate its properties and assets and to carry on its
business as now conducted, and there has occurred no default under any such
Permit.
(8) As of the date hereof, WGB has obtained all necessary consents or
approvals from the stockholders of WGB, all lessors of WGB and other third
parties, including Signet Bank, and the approval of all Governmental
Authorities in order to permit WGB to consummate the Agreement in accordance
with the terms and conditions thereof. No other consents or approvals are
necessary to permit WGB to consummate the Agreement in accordance with the
terms and conditions thereof.
(9) WGB is not a party or bound by any contract with, does business with
or has any obligations or liabilities to any stockholder of WGB or any of their
affiliates or associates.
The opinions given herein are as of the date hereof. This opinion is
rendered solely for the benefit of the addressees in connection with the
closing of the matters contemplated by the Agreement and may not, without my
prior written consent, be copied, distributed to, relied upon in any manner, or
used by any other person or for any other purpose.
Very truly yours,
-----------------------------------
Paul S. Blumenthal
<PAGE> 1
EXHIBIT
ASSET PURCHASE AGREEMENT
BY AND BETWEEN
BRIMSTONE BREWING COMPANY
AND
FREDERICK BREWING CO.
DATED: DECEMBER __, 1997
<PAGE> 2
<TABLE>
<CAPTION>
ASSET PURCHASE AGREEMENT
TABLE OF CONTENTS
Page
----
<S> <C>
Article 1.0 Certain Definitions........................................... 1
1.1 Certain Definitions........................................... 1
Article 2.0 Sale and Transfer of Certain Assets........................... 1
2.1 Assets to be Sold and Acquired................................ 1
2.2 Delivery at Closing........................................... 2
2.3 Excluded Assets............................................... 2
2.4 Liabilities Assumed by the Purchaser.......................... 2
2.5 Purchase Price................................................ 2
(a) Purchase Price............................................ 2
(b) Registration Rights....................................... 3
(c) Proration; Taxes.......................................... 5
2.6 Allocation.................................................... 5
2.7 The Closing; Closing Date..................................... 5
(a) Time and Place............................................ 5
(b) Risk of Loss.............................................. 5
Article 3.0 Representations and Warranties of the Seller.................. 6
3.1 Status and Qualification...................................... 6
3.2 Authorization; Approval....................................... 6
3.3 Financial Statements.......................................... 7
3.4 Undisclosed Liabilities....................................... 8
3.5 Absence of Changes............................................ 8
3.6 Title to Assets; Intellectual Property........................ 8
(a) Title to Assets........................................... 8
(b) Intellectual Property..................................... 9
3.7 Litigation; Orders............................................ 9
3.8 Status of Contracts........................................... 9
(a) Status.................................................... 9
(b) Power of Attorney.........................................10
3.9 Assets; Inventory.............................................10
3.10 Customers and Vendors.........................................10
3.11 Taxes.........................................................11
3.12 Insurance.....................................................11
3.13 Competing Interests...........................................12
3.14 No Pending Transactions.......................................12
3.15 Broker's or Finder's Fees.....................................12
3.16 Representations Regarding the Common Stock....................12
3.17 Updating of Schedules.........................................14
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
3.18 Ownership of FBC Common Stock.................................15
3.19 Correct Information...........................................15
Article 4.0 Representations and Warranties of FBC.........................15
4.1 Structure; Status.............................................15
4.2 Authority; No Conflict........................................16
4.3 Broker's or Finder's Fees.....................................16
4.4 Litigation; Orders............................................16
4.5 Authorized FBC Common Stock...................................16
4.6 Accuracy and Completeness of Reports..........................17
Article 5.0 Covenants.....................................................17
5.1 Covenants of the Seller.......................................17
5.2 No Solicitation...............................................19
5.3 Stockholder Approval..........................................20
5.4 Access to Information; Confidentiality........................20
(a) Access to Information.....................................20
(b) Confidentiality...........................................21
5.5 Consents; Efforts to Consummate...............................22
5.6 Public Announcements..........................................22
5.7 Indemnification...............................................22
(a) Indemnification by the Seller.............................22
(b) Indemnification by FBC....................................23
(c) Limitation................................................23
(d) Notice....................................................23
(e) Defense...................................................24
(f) Non-Exclusive Remedy......................................25
5.8 Existence.....................................................25
Article 6.0 General Matters...............................................25
6.1 Survival of Representations and Warranties and
Related Agreements..........................................25
6.2 Covenant Not to Disclose......................................25
6.3 Non-Interference Agreement....................................26
6.4 Use of the Seller's Name......................................26
6.5 Employment....................................................26
(a) Employment................................................26
(b) Employment Agreement......................................26
6.6 Failure to Fulfill Conditions.................................26
6.7 Common Stock Restrictions.....................................27
Article 7.0 Conditions to the Obligations of FBC to Consummate............27
7.1 Representations and Warranties................................27
7.2 Performance...................................................27
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
7.3 Consents and Approvals........................................27
7.4 Stockholder Approval..........................................27
7.5 Delivery of Documents.........................................27
7.6 No Litigation.................................................28
7.7 Payment of Creditors..........................................28
7.8 No Material Adverse Change....................................28
Article 8.0 Conditions to Obligations of the Seller
to Consummate ..............................................28
8.1 Representations and Warranties................................28
8.2 Performance...................................................28
8.3 Consents and Approvals........................................29
8.4 Officers' Certificate.........................................29
8.5 Payment of FBC Common Stock...................................29
8.6 Employment Agreement..........................................29
8.7 No Litigation.................................................29
8.8 Delivery of Documents.........................................29
Article 9.0 Termination...................................................29
9.1 Termination...................................................29
9.2 Procedure and Effect of Termination...........................30
9.3 Payment of Expenses and Termination...........................30
Article 10.0 Miscellaneous.................................................30
10.1 Further Assurances............................................30
10.2 Notices ......................................................31
10.3 Governing Law.................................................32
10.4 Severability..................................................32
10.5 Entire Agreement; Amendment...................................32
10.6 Assignment, etc...............................................33
10.7 Counterparts..................................................33
Signatures ..............................................................33
</TABLE>
iii
<PAGE> 5
Schedules:
Schedule 2.1............ Assets to be Acquired
Schedule 2.3............ Excluded Assets
Schedule 2.4A........... Liabilities Assumed
Schedule 3.2........... Consents and Approvals
Schedule 3.4............ Undisclosed Liabilities
Schedule 3.5............ Absence of Changes
Schedule 3.6A........... Title to Assets
Schedule 3.6B........... Intellectual Property
Schedule 3.7............ Litigation
Schedule 3.8............ Contracts
Schedule 3.8A........... Third Party Consents
Schedule 3.11........... Taxes
Schedule 3.12........... Insurance
Schedule 4.4............ Litigation
Schedule 7.5............ Renegotiated/Terminated Contracts
iv
<PAGE> 6
Exhibits:
Exhibit A............... Bill of Sale and Assignment of Assets
Exhibit B............... Purchase Price Allocation
Exhibit C............... Unanimous Stockholder Consent
Exhibit D............... Employment Agreement of Mr. Marc Tewey
Exhibit E............... Opinion of Venable, Baetjer & Howard, LLP
v
<PAGE> 7
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT ("Agreement") is entered into as of
December ___, 1997 by and among Brimstone Brewing Company, Baltimore, Maryland,
a Maryland corporation ("BSB" or the "Seller") and Frederick Brewing Co.,
Frederick, Maryland, a Maryland corporation ("FBC" or the "Purchaser"). Each
of the Purchaser and the Seller shall be a "Party" to this Agreement and
together they shall be referred to herein as the "Parties."
WITNESSETH:
WHEREAS, BSB is in the business of manufacturing and selling kegged
and bottled beers (the "Business"), which operations are conducted out of
premises located at 3701 Dillon Street, Baltimore, Maryland 21224-5244 (the
"Premises");
WHEREAS, the parties hereto desire to enter into an agreement
whereby the Seller will sell, transfer and convey to the Purchaser, and the
Purchaser will purchase from the Seller, certain assets currently being
utilized by the Seller in its Business upon terms and conditions hereinafter
set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants and agreements contained herein, and
intending to be legally bound hereby, the Parties hereto hereby agree as
follows:
ARTICLE 1.0 CERTAIN DEFINITIONS.
1.1 Certain Definitions. For purposes of this Agreement,
certain terms are defined throughout the Agreement and shall have the meanings
given therein.
ARTICLE 2.0 SALE AND TRANSFER OF CERTAIN ASSETS.
2.1 Assets to be Sold and Acquired. Except as otherwise
provided in Section 2.3 hereof, at the Closing, the Seller shall sell,
transfer, assign, convey and deliver to the Purchaser, and the Purchaser shall
purchase, acquire and accept all of the assets, properties and rights of the
Seller as specifically set forth on Schedule 2.1 to this Agreement (the
"Assets"), which Assets shall include: (i) certain packaging and shipping
materials and supplies used by the Seller in the production, manufacture, and
sale of its beer (the "Product") at the Premises; (ii) certain raw materials,
work in process, and finished Product owned by the Seller as of the date of the
Closing (the "Inventory"); (iii) all trade secrets, data, knowledge,
information, design, formulations, plans, drawings, vendor sources and
contacts, distributor contacts, arrangements, agreements and understandings,
other customer lists and contracts, manufacturing documentation, quality
control documentation and all other documentation relating to the design,
production, use and sale of the Product; (iv) the books and records of the
Seller used in or relating to the Assets (including but not limited to files,
books, forms, correspondence, any other documents having to do in any way with
<PAGE> 8
Asset Purchase Agreement
Page 2
the Assets on paper, microfiche, computer code or other media; (v) all right,
title and interest in and to the use of the name "Brimstone Brewing Company,"
and all of the brands of beer of the Seller, whether or not filed with or
approved by the U.S. Bureau of Alcohol, Tobacco and Firearms or any similar
state agency and any other corporate or trade name of the Seller and any
derivatives, variants or combinations thereof, letterheads, graphics, logos,
telephone numbers, post office boxes (other than lockboxes for payments of
accounts receivable), trademarks, trademark registrations and applications,
trade names, service marks, copyrights and copyright applications and other
intellectual property; (vi) all registrations, approvals, consents,
acquiescences, licenses and permits used by the Seller relating to the Assets
and/or the Product to the extent assignable or transferable; and (vii) all
other assets of the Seller as set forth in Schedule 2.1.
2.2 Delivery at Closing. In confirmation of the foregoing
sale, transfer, assignment, conveyance and delivery of the Assets, the Seller
shall execute and deliver to the Purchaser at the Closing a Bill of Sale and
Assignment of Assets in the form of Exhibit A to this Agreement.
2.3 Excluded Assets. Purchaser shall not acquire from the
Seller and the Seller shall not sell to the Purchaser any assets of the Seller
except as set forth in Section 2.1 above and in Schedule 2.1. The Assets to be
acquired and sold hereunder shall specifically exclude, among others, accounts
receivable, accounts payable, cash, equipment, machinery, bottling equipment
and beer kegs, and other assets as set forth in Schedule 2.3, which assets
shall be retained by the Seller. The Seller may sell all excluded assets in
any manner it deems desirable and at any time after the Closing Date, provided
that any such sale shall not permit any purchaser thereof to have the ability
at any time thereafter to brew beer at the Premises using such excluded assets.
2.4 Liabilities Assumed by the Purchaser. Except as set
forth in Schedule 2.4.A. hereof, the Purchaser shall not assume and shall have
no obligation, liability or responsibility for and the Seller shall release the
Purchaser from any and all debts, liabilities, obligations (however incurred),
expenses, Taxes, contracts (except contracts assigned to the Purchaser pursuant
to Section 2.1, above) or commitments of the Seller, or any predecessor,
successor or affiliate thereof, of any kind, character or description.
2.5 Purchase Price.
(a) Purchase Price. The purchase price ("Purchase
Price") in full consideration for the sale, transfer, conveyance, assignment
and delivery of the Assets by the Seller shall be equal to eighty thousand
(80,000) unregistered shares of FBC common stock, $.00004 par value per share
(the "FBC Common Stock").
<PAGE> 9
Asset Purchase Agreement
Page 3
(b) Registration Rights. (i) FBC agrees that within
120 days of the Closing Date it will file a registration statement under the
Securities Act of 1933, as amended (the "Securities Act") with respect to the
shares of FBC Common Stock to be issued to BSB pursuant to the terms of this
Agreement (the "Registration Statement").
(ii) FBC will pay all reasonable registration
expenses in connection with the Registration Statement, including without
limitation, all registration, listing and filing fees, fees with respect to
filings required to be made with the National Association of Securities
Dealers, fees and expenses of compliance with securities or blue sky laws,
printing expenses, and fees and expenses of counsel for FBC and of all
independent public accountants of FBC (including the expenses of any "comfort"
letters or updates thereof required by or incident to the foregoing) in
connection with such registration except that all underwriting discounts and
commissions, underwriting expenses and transfer taxes, if any relating to the
FBC Common Stock shall be paid by the Seller.
(iii) FBC shall immediately notify the
Seller and any managing underwriter, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, of the happening
of any event as a result of which the prospectus included in such Registration
Statement, as then in effect, includes an untrue statement of a material fact
or omits to state any material fact required to be stated therein or necessary
to make the statements therein not misleading in the light of the circumstances
under which they were made, and at the request of the Seller promptly will
prepare and furnish to such Seller a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be necessary so that,
as thereafter delivered to the purchasers of such securities, such prospectus
shall not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances under which they were
made. The Seller agrees (A) that upon receipt of any notice from FBC of the
happening of any event of the kind described above, such holder forthwith will
discontinue such holder's disposition of the FBC Common Stock pursuant to the
prospectus relating to such securities until such Seller's receipt of the
copies of the supplemented or amended prospectus contemplated above, and if so
directed by FBC, will deliver to FBC (at FBC's expense) all copies then in such
Seller's possession of the prospectus relating to such securities current at
the time of receipt of such notice and (B) that it immediately will notify FBC,
at any time when a prospectus relating to the registration of such shares is
required to be delivered under the Securities Act, of the happening of any
event as a result of which information previously furnished by such Seller to
FBC in writing for inclusion in such prospectus contains an untrue statement of
a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in the light
of the circumstances under which they were made.
<PAGE> 10
Asset Purchase Agreement
Page 4
(iv) In the event of any registration of any of
FBC Common Stock under the Securities Act, the Seller shall furnish to FBC in
writing such information and affidavits as FBC reasonably requests for use in
connection with such registration statement relating to such Seller and such
Seller's plan of distribution, and the Seller agrees to indemnify and hold
harmless FBC, its directors, officers, each underwriter and each controlling
person of FBC, if any, against any losses, claims, damages or liabilities,
joint or several (or actions in respect thereof), to which FBC, its directors,
officers, such underwriter or controlling person may be subject under the
Securities Act or under any other statute or at common law, insofar as such
losses, claims, damages or liabilities, joint or several (or actions in respect
thereof) arise out of or are based upon (i) any untrue statement (or alleged
untrue statement) of any material fact contained in any registration statement
under which such securities were registered under the Securities Act, any
selling document or any amended selling document, or (ii) any omission (or
alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein (in light of the
circumstances in which they were made with respect to any prospectus) not
misleading, and shall reimburse FBC, its directors, officers, such underwriter
and controlling person for any legal or other expense reasonably incurred by
such person in connection with investigating or defending any such loss, claim,
damage, liability or action; in each case, to the extent, and only to the
extent, that each untrue statement or omission (or alleged untrue statement or
omission) is made in reliance upon information furnished to FBC by such Seller
for use in the registration statement.
(v) FBC agrees to indemnify and hold harmless
the Seller, its directors, officers and each controlling person of the Seller,
if any, against losses, claims, damages or liabilities, joint or several (or
actions in respect thereof), to which the Seller, its directors, officers or
controlling person may be subject under the Securities Act or under any other
statute or at common law, insofar as such losses, claims, damages or
liabilities, joint or several (or actions in respect thereof) arise out of or
are based upon (i) any untrue statement (or alleged untrue statement) of any
material fact contained in any registration statement under which such
securities were registered under the Securities Act, any selling document or
any amended selling document, or (ii) any omission (or alleged omission) to
state therein (in light of the circumstances in which they were made with
respect to any prospectus) not misleading, and shall reimburse the Seller, its
directors, officers and controlling persons for any legal or other expense
reasonably incurred by such person in connection with investigating or
defending any such loss, claim damage, liability or action; in each case, to
the extent, and only to the extent, that each untrue statement or omission (or
alleged untrue statement or omission) is made in reliance upon information
furnished by FBC and FBC shall not be liable hereunder to the extent that such
information was furnished to FBC by the Seller for use in the registration
statement.
<PAGE> 11
Asset Purchase Agreement
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(vi) FBC shall maintain the effectiveness of the
Registration Statement for no more than nine months.
(c) Proration; Taxes. The Seller and the Purchaser
agree that all ad valorem, property or other taxes based on the value of the
Assets shall be divided and prorated between the Seller and the Purchaser based
on the period of ownership or occupancy of the Seller up to and including the
Closing Date and of the Purchaser for any period of time thereafter for which
such charges have been prepaid by the Seller. The Seller and the Purchaser
shall each pay one-half of any transfer and/or sales taxes, tax certificates
and/or fees payable to taxing or assessing authorities of the State of Maryland
or the United States or any other applicable authority as a result of the sale,
transfer, conveyance and assignment of the Assets hereby.
2.6 Allocation. The Purchaser and the Seller hereby agree
that the Purchase Price and all other capitalized costs shall be allocated and
apportioned among the Assets acquired for all purposes (including financial
accounting and tax purposes) as set forth on Exhibit B, which Exhibit shall be
completed by the parties prior to the Closing Date. The parties further agree
to cooperate and be consistent with regard to the filing of Internal Revenue
Service ("IRS") Form 8594, or any similar forms required by any state with
regard to the agreed upon apportionment.
2.7 The Closing; Closing Date.
(a) Time and Place. The closing ("Closing") of the
transactions contemplated herein shall take place at the office of Elias, Matz,
Tiernan & Herrick L.L.P., 734 15th Street, N.W., 12th Floor, Washington, D.C.
20005 at 11:00 a.m., subject to the satisfaction or waiver of all of the
conditions precedent hereto, on a date mutually agreed to by the Parties which
date shall not be later than February 28, 1998; provided, that if the Closing
does not take place on such date it shall take place on such other date, at
such other place, or at such other time as the parties may mutually agree upon.
The date of the Closing determined as provided herein is referred to herein as
the "Closing Date." The Parties agree that time is of the essence with respect
to the Closing. The transactions contemplated by this Agreement shall be
effective as of the close of business on the Closing Date. At the Closing, the
parties hereto will deliver such instruments as are described in Articles 7 and
8 or elsewhere in this Agreement.
(b) Risk of Loss. Title, possession and risk of loss
for destruction or damage to the Assets shall pass to Purchaser as of the
effective time of the Closing; provided, however, that this Section 2.7(b)
shall not diminish, limit or otherwise impair in any manner the Purchaser's or
the Seller's rights under the other provisions of this Agreement that apportion
liability among the Parties with respect to events, occurrences or
<PAGE> 12
Asset Purchase Agreement
Page 6
omissions arising or occurring during specified periods. Notwithstanding
anything to the contrary in any statute or regulation, if any Assets located on
the Premises are materially damaged or destroyed prior to the Closing Date,
this Agreement shall not terminate or otherwise be affected; rather, the Seller
shall have the option to repair or replace such Assets and, if necessary, to
extend the Closing Date to a date agreed upon by the Purchaser as provided in
Section 2.7(a), in which case the Purchase Price shall not be reduced, and
Seller shall have no liability, other than to replace or repair such Assets, to
the Purchaser because of any such damage or destruction. If the Seller elects
not to replace any destroyed Assets or repair any material damage to the
Assets, the Purchaser may terminate this Agreement as provided in Section 9.1
hereof.
ARTICLE 3.0 REPRESENTATIONS AND WARRANTIES OF THE SELLER.
The Seller hereby represents and warrants to the Purchaser as follows:
3.1 Status and Qualification. The Seller is a corporation
that is duly organized, validly existing and in good standing under the laws of
the State of Maryland, has the full power and authority to carry on its
Business as it currently is being conducted and to own, lease and operate the
property and the assets that it now owns, leases and operates and to execute,
deliver and perform this Agreement and the transactions contemplated hereby.
The Seller has qualified as a foreign corporation, is in good standing, has
obtained all licenses, permits or other authorizations and has taken all other
actions required by or under the laws of all jurisdictions and all governmental
regulations where the failure to do so would have a material adverse effect on
the business, condition (financial or otherwise), results of operations, assets
or prospects of the Seller (a "Material Adverse Effect"). The Seller
heretofore has delivered to FBC true and complete copies of its Articles of
Incorporation and Bylaws, as amended, as in effect as of the date hereof.
3.2 Authorization; Approval. The execution, delivery and
performance of this Agreement and the transactions contemplated hereby by the
Seller have been duly and effectively authorized by all necessary action,
corporate or otherwise. This Agreement is a valid, legally binding and
enforceable obligation of the Seller, enforceable in accordance with its terms
except to the extent that enforceability may be limited by bankruptcy,
reorganization, insolvency or other laws affecting the enforcement of
creditors' rights generally or the availability of equitable remedies subject
to the discretion of the court. A certified copy of the resolutions of the
Board of Directors of the Seller approving this Agreement and the transactions
contemplated hereby has been delivered to FBC, and such copy is complete and
correct and such resolutions are in full force and effect on the date hereof
and will be in full force and effect on the Closing Date. Except for the
notice required to be given to creditors of the Seller pursuant to Section
6-105 of the Maryland Uniform Commercial Code (Annotated Code of Maryland,
Commercial Law, Title 6) the execution, delivery, and performance of this
Agreement and the consummation of the
<PAGE> 13
Asset Purchase Agreement
Page 7
transactions contemplated hereby by the Seller will not: (i) require the notice
or filing with, or approval or consent of any governmental or regulatory body
not otherwise contemplated by this Agreement; (ii) except for the consent of
the stockholders of the Seller, and except for consents to assignment of the
Contracts described in Schedule 3.8.A., require the approval or consent of any
other person or entity; (iii) violate any provision of such corporation's
Articles of Incorporation or Bylaws, as amended; (iv) violate, conflict with or
otherwise give any other contracting party the right to terminate, or
constitute (or with notice or lapse of time or both, constitute) a default
under, or result in the termination of, or accelerate the performance required
by, or cause the acceleration of the maturity of any liability or obligation
pursuant to, or result in the creation or imposition of any security interest,
lien, charge or other encumbrance upon any property or assets of the Seller,
under (a) any statute or law or any judgment, decree, order, award, writ,
injunction, regulation or rule of any court, arbitrator or governmental
authority, or (b) any note, bond, mortgage, indenture, deed of trust, license,
lease, instrument, contract, commitment, franchise, permit, understanding,
arrangement, agreement or restriction of any kind or character that is not
satisfied or extinguished at or prior to the Closing; (v) violate any statute,
law or regulation as such statute, law or regulation relates to the Seller or
its Business; or (vi) result in the creation of any adverse claim on the Seller
or any of the Assets.
3.3 Financial Statements. The Seller has delivered to FBC
true, complete, accurate and correct copies of the Seller's compiled balance
sheets for the year ended December 31, 1996, and the related compiled
statements of income, retained earnings and cash flows together with the
unaudited balance sheet and statements of income, retained earnings and cash
flows for the ten months ended October 31, 1997 (the "Financial Statements").
The Financial Statements present fairly the financial condition, results of
operations, retained earnings and changes in cash flows of the Seller at such
dates and for such periods in accordance with the American Institute of
Certified Public Accountants' Statements on Standards for Accounting and Review
Services, consistently applied during the periods indicated. The statements of
income included in the Financial Statements do not contain any items of special
or non-recurring income or expense or any other income not earned or expense
not incurred in the ordinary course of business except as expressly specified
therein, and such Financial Statements include all adjustments (including all
normal recurring accruals for unusual or non-recurring items) considered
necessary for a fair presentation, and no adjustments or restatements are or
will be necessary in respect of any items of an unusual or non-recurring
nature, except as expressly specified herein. Except as described in such
Financial Statements there has been no change by the Seller in any method of
accounting or keeping of its books of account or accounting practices for the
35 month period ended on October 31, 1997. The Seller shall continue to
provide to FBC unaudited balance sheets, statements of income and cash flows
within fifteen (15) calendar days after the end of each month prior to the
Closing or termination of this Agreement.
<PAGE> 14
Asset Purchase Agreement
Page 8
3.4 Undisclosed Liabilities. Except as set forth on
Schedule 3.4 or as incurred in the ordinary course of business since December
31, 1996, the Financial Statements reflect and disclose any and all material
indebtedness, liability, claim, loss, damage, deficiency, obligation or
responsibility of any nature, whether fixed or unfixed, due or to become due,
liquidated or unliquidated, secured or unsecured, accrued, absolute, contingent
or otherwise of the Seller required to be disclosed therein. The Seller does
not know and has no reason to know of any basis for the assertion against the
Seller of any such liability or obligation not fully reflected in the Financial
Statements.
3.5 Absence of Changes. Except as set forth in Schedule
3.5, since December 31, 1996, there has not been, other than changes in the
ordinary course of business that in the aggregate have not been adverse, (i)
any material change in the financial position, results of operations, assets,
liabilities, net worth, Business or prospects of the Seller, or (ii) any other
event or condition of any character (whether or not covered by insurance) that
has materially adversely affected or will or is likely to so affect the
properties, Business or prospects of the Seller or the financial position,
results of operations, or net worth of the Seller, apart from events or
conditions affecting the economy or the microbrewing industry generally. Since
such date, the Seller has conducted its business only in the ordinary course
and has not acquired or disposed of any material assets or engaged in any
material transaction.
3.6 Title to Assets; Intellectual Property
(a) Title to Assets. Except as set forth on Schedule
3.6A, at the Closing, the Seller will own and have good and marketable title to
all of the Assets, free and clear of restrictions on or conditions to transfer
or assignment, mortgages, liens, pledges, charges, encumbrances, claims,
easements, security interests, covenants, title defects or objections or
restrictions of any kind, including, without limitation, leases, chattel
mortgages, options, conditional sales contracts, collateral security
arrangements, and other title or interest retention arrangements or any and all
other encumbrances or restrictions of any nature ("Liens"). After the Closing,
FBC will own and be the legal, beneficial and registered owner, or have the
right to use under a valid lease, all of the Assets of the Seller, free and
clear of any Liens other than Permitted Liens. "Permitted Liens" means (i)
liens shown on the balance sheet in the Financial Statements as securing
specified liabilities (with respect to which no default exists), (ii) liens for
current taxes not yet due, and (iii) minor imperfections of title and
encumbrances, if any, which are not substantial in amount, do not detract from
the value of the property subject thereto or impair the operations of the
Seller, have arisen only in the ordinary course of business and consistent with
past practice and do not preclude or materially adversely affect the continued
use of the property to which they relate as used in the operation of the
Business of the Seller as currently conducted.
<PAGE> 15
Asset Purchase Agreement
Page 9
(b) Intellectual Property. Schedule 3.6B contains an
accurate and complete list of all (i) registered and unregistered: trademarks,
service marks, trade names, corporate names, company names, fictitious business
names, logos, trade dress, artwork, advertising, tap handles, packaging and
other source or business identifiers (the "Trademarks"); copyrights and
tangible trade secrets (the "Trade Secrets") used in or necessary to conduct
the business of BSB as currently conducted, and all registrations and
recordings thereof, all applications for registration pending therefor, all
extensions and renewals thereof, in any jurisdiction in which BSB operates or
does business, and (ii) material licenses, permissions and other agreements
used in or necessary to the Business of BSB ((i) and (ii) above together
referred to herein as the "Intellectual Property"). BSB certifies that, as of
the Closing, BSB has received certificates of label approval ("COLA") from the
Bureau of Alcohol, Tobacco and Firearms, as indicated in Schedule 3.6B, and
such COLAs are current and in good standing. In regard to the Intellectual
Property, (i) the Trademarks and the copyrights are valid, subsisting and
enforceable, and the Trademarks and the copyrights are duly recorded in the
name of BSB, and can be recorded in the name of FBC, (ii) BSB has, and after
the Closing FBC will have, the sole and exclusive ownership and right, free
from any Liens, and FBC will have the right to use the Intellectual Property
and applications therefor set forth on Schedule 3.6B and the full right to use
the trade names, assumed names, fictitious names, technology, know-how and
processes referred to in such lists and all trade secrets used in or necessary
to the conduct of the Business of BSB, and the consummation of the transactions
contemplated hereby will not materially alter or impair any such rights.
3.7 Litigation; Orders. Except as set forth on Schedule
3.7, there are no claims, actions, suits, proceedings, grievances,
arbitrations, investigations or inquiries pending or, to the best knowledge of
the Seller, threatened, at law or in equity or before or by any federal, state,
local, foreign or other governmental department, commission, board,
arbitrator(s), agency, instrumentality or authority by or against the Seller
which: (i) restrain or prohibit or which may restrain or prohibit, or
otherwise affect, the consummation of the transactions contemplated hereby;
(ii) materially and adversely affect or which may affect the Seller with
respect to the sale of its Assets; or (iii) materially or adversely affect or
might affect the Business, operations, condition (financial or otherwise),
liabilities, assets, earnings or prospects of the Seller, nor is there any
valid basis for any such claim, action, suit, proceeding, inquiry or
investigation. Neither the Seller nor any of its property or assets is subject
to any judgment, arbitration award, order or decree. There are no petitions
pending by, against or on behalf of the Seller under any applicable bankruptcy
or insolvency laws.
3.8 Status of Contracts. (a) Status. Schedule 3.8 lists
all contracts to be assigned by the Seller to the Purchaser hereby, including
but not limited to, agreements for the sale or distribution of its Products,
vendor contracts, supply contracts,
<PAGE> 16
Asset Purchase Agreement
Page 10
license agreements, service agreements and other agreements or instruments (the
"Contracts"). There have been and are no material defaults by the Seller under
any Contract to which the Seller is a party, nor has any event occurred which,
after the giving of notice or, with the passage of time, or both, would
constitute a material default under any such Contract. All such Contracts are
valid and binding and in full force and effect; the Seller has complied and
will have complied with the provisions of its Contracts in all material
respects as of the date hereof and as of the Closing Date; and no written
notice of a claimed breach has been received by the Seller. Assuming that the
Seller obtains the consents described in Schedule 3.8.A., the consummation by
the Seller of the transactions herein contemplated will not conflict with, or
result in a breach, violation, termination or modification of, any of the terms
of any Contract to which the Seller is a party or by which the Seller or any of
its properties is or may be bound, or constitute a default thereunder which
would prevent or interfere with the consummation of the transactions herein
contemplated.
(b) Power of Attorney. The Seller has not given any power
of attorney (whether revocable or irrevocable) to any individual, partnership,
proprietorship, corporation, limited liability company, joint venture, trust or
other similar entity or governmental agency or court (a "Person") that is or
hereafter may be in force that shall have any effect on such Seller's
beneficial or legal ownership of the Assets.
True, complete and correct copies of each of the Contracts
set forth in Schedule 3.8 have heretofore been provided to FBC by the Seller.
3.9 Assets; Inventory. The Assets are workable and useable
in the ordinary course of business and are suitable for the uses for which they
were intended and are used. The Inventory portion of the Assets of the Seller
has been acquired in the ordinary course of business and has been and will be
reflected on the books of the Seller in accordance with the GAAP, consistently
applied. The Inventory portion of the Assets consists of items of a quality
and quantity useable and saleable without substantial discount in the normal
course of business. The Seller knows of no material adverse condition
affecting the Inventory portion of the Assets.
3.10 Customers and Vendors. FBC acknowledges that the
Seller's relationships with its customers and vendors are at will relationships
and that a customer or vendor may elect to stop doing business with the Seller
for a variety of reasons, some of which are beyond the Seller's control. The
Seller has received no notice that, and has no knowledge that, any vendor or
any distributor or customer of the Seller does not plan to continue to do
business with FBC, or plans to reduce its sales to or volume of orders from FBC
or will not do business on substantially the same terms and conditions with FBC
subsequent to the Closing Date as such vendor, distributor or customer did with
the Seller
<PAGE> 17
Asset Purchase Agreement
Page 11
before such date. The Seller will not take any action to influence its
customers, distributors or vendors to change or reduce their volume of business
activity with FBC after the Closing Date.
3.11 Taxes. Except for Taxes that are being contested in
good faith by appropriate proceedings and are listed on Schedule 3.11 and
except for Taxes that are accrued on the balance sheets that are part of the
Financial Statements and are listed on Schedule 3.11 and except as otherwise
listed on Schedule 3.11, the Seller has paid all Taxes required to be paid by
it through the date hereof. Except as set forth on Schedule 3.11, the Seller
has timely filed all returns, reports and other documents and furnished all
information required or requested by any federal, state or local governmental
agency with respect to its Business or properties (except for tax returns not
yet due), and all such returns, reports and other documents and all such
information are true, correct and complete in all material respects. No audit
of any of the foregoing is in progress, and no extension of time with respect
to the date of filing of any of the foregoing is in force. No waiver or
agreement by the Seller is in force for the extension of time for the
assessment or payment of any of the Taxes. Except for any being contested in
good faith as set forth on Schedule 3.11, all deficiencies or other additions
to any of the Taxes, including any assessments, interest or penalties thereon,
accrued for, applicable to or arising from any period ending on or prior to the
date of this Agreement have been timely paid when due prior to the date hereof
or have been accrued on the balance sheets which are part of the Financial
Statements. For purposes of this Agreement, "Taxes" means all taxes, charges,
fees, levies or other assessments, including, without limitation, income, gross
receipts, excise, property, sales, withholding, social security, occupation,
use, service, service use, value added, license, payroll, franchise, transfer
and recording taxes, fees and charges, including estimated taxes, imposed by
the United States, the State of Maryland, any other state, or any taxing
authority (domestic or foreign), whether computed on a separate, consolidated,
unitary, combined or any other basis; and such term shall include any interest,
fines, penalties or additional amounts attributable to, or imposed upon, or
with respect to any such taxes, charges, fees, levies or other assessments.
3.12 Insurance. Schedule 3.12 sets forth all policies or
binders of fire, liability, worker's compensation, vehicular, disability,
employee liability, business interruption, product liability, health, or other
insurance (including medical self-insurance) held by the Seller relating to, on
behalf of or covering the Business of the Seller (specifying the insurer, the
policy number or covering note number with respect to binders, and describing
each pending claim thereunder of more than $2,000.00). Such policies and
binders are in full force and effect. The Seller is not in default with
respect to any provision contained in any such policy or binder and has not
failed to give any notice or present any material claim under any such policy
or binder in due and timely fashion. Except for claims set forth in Schedule
3.12, there are no outstanding unpaid claims under any such policy or
<PAGE> 18
Asset Purchase Agreement
Page 12
binder. The Seller has not received a notice of cancellation or non-renewal of
any such policy or binder. The Seller has no knowledge of any inaccuracy in
any application for such policies or binders, any failure to pay premiums when
due or any similar state of facts which might form the basis for termination of
any such insurance. Schedule 3.12 also sets forth the Seller's loss experience
for the last three (3) years relating to product liability, worker's
compensation and property damage and health and medical coverage.
3.13 Competing Interests. Neither the Seller nor, to its
knowledge, any of its directors, officers or stockholders have any interest,
directly or indirectly, in any corporation, partnership, association,
proprietorship, or any other entity or business which is engaged in a similar
business, or is a competitor of, or a vendor to, distributor of or customer of,
the Seller.
3.14 No Pending Transactions. Except for the transactions
contemplated by this Agreement, the Seller is not a party to or bound by or the
subject of any agreement, undertaking or commitment to: (i) merge or
consolidate with, or acquire all or substantially all of the property and
assets of, any other Person that in any way would affect the Assets of the
Seller; or, (ii) sell, lease or exchange all or substantially all of the
Seller's property and assets to any other corporation or Person or enter into
any other transaction that in any way would materially adversely affect the
Assets of the Seller or the transactions contemplated hereby.
3.15 Broker's or Finder's Fees. No agent, broker, Person or
firm acting on behalf of the Seller is, or will be, entitled to any commission
or broker's or finder's fees from any of the Parties hereto in connection with
any of the transactions contemplated herein.
3.16 Representations Regarding the Common Stock. The Seller
represents, certifies and warrants to FBC that:
(a) it is and its stockholders are "accredited
investors" as defined by Regulation D promulgated under the Securities Act;
(b) its stockholders have such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of the FBC Common Stock The Seller has received the FBC 1996
Annual Report to Stockholders, the proxy statement for the 1997 Annual Meeting
of Stockholders, the Form 10-K for the year ended December 31, 1996 and the
Form 10-Q for the nine months ended September 30, 1997. The Seller recognizes
that acquisition of the FBC Common Stock involves certain risks and has taken
full cognizance of and understands such risks. In deciding whether to
<PAGE> 19
Asset Purchase Agreement
Page 13
acquire the FBC Common Stock pursuant to this Agreement, the Seller has weighed
these risks against any perceived benefits of owning the FBC Common Stock;
(c) Seller has had the opportunity to perform such
due diligence regarding FBC as it has deemed necessary and to ask questions of,
and receive answers from, management of FBC and has sought and received such
independent accounting, legal and tax advice as the Seller has considered
necessary to make an informed investment decision with respect to the FBC
Common Stock;
(d) the Seller is aware that no federal or state
agency has made any finding or determination as to the fairness of the FBC
Common Stock, nor has any agency made any recommendation or endorsement of the
FBC Common Stock;
(e) during the last five (5) years, neither the
Seller nor any director, officer or stockholder of the Seller has been:
(i) convicted of nor pleaded nolo contendere to
any felony or misdemeanor in connection with the purchase or sale of any
security or in connection with the making of any false filing with the
Securities and Exchange Commission ("SEC") or any state securities
administrator, or of any felony involving fraud or deceit, including but not
limited to, forgery, embezzlement, obtaining money under false pretenses,
larceny, conspiracy to defraud or theft;
(ii) subject to any order, judgment, or decree
of any court of competent jurisdiction temporarily or preliminary restraining
or enjoining, or are subject to any order, judgment, or decree of any court of
competent jurisdiction, permanently restraining or enjoining that person from
engaging in or continuing any conduct or practice in connection with the
purchase or sale of any security or in connection with the making of any false
filing with the SEC or any state securities administrator;
(iii) subject to a United States Postal
Service false representation order; or
(iv) subject to any state administrative order
entered by a state securities administrator in which fraud or deceit was found;
(f) the Seller is acquiring the FBC Common Stock for
its own account and not with a view to resale or distribution, and, no
agreements, arrangements or understandings exist with respect to the transfer,
sale, voting or disposition of such securities;
<PAGE> 20
Asset Purchase Agreement
Page 14
(g) the Seller understands that stop transfer
instructions relating to the Common Stock will be placed in FBC's stock
register and that the certificates representing the FBC Common Stock will bear
legends that shall read:
"The shares of Common Stock represented by this certificate have
been issued pursuant to a claim of exemption from the registration
or qualification requirements of federal and state securities laws
and may not be sold or transferred without registration or
qualification or otherwise except pursuant to an applicable
exemption therefrom evidenced by an opinion of counsel satisfactory
to the issuer hereof."
"Except with the prior written consent of Frederick Brewing Co.,
the shares of Common Stock represented by this certificate may not
be sold, pledged, hypothecated, gifted or otherwise transferred or
disposed of until [THE DATE WHICH IS 181, 271 OR 366 (AS
APPROPRIATE) DAYS AFTER THE CLOSING DATE.]"
(h) the Seller realizes that (i) the acquisition of
the FBC Common Stock is a long-term investment; (ii) the Seller must bear the
economic risk of such investment until the restrictive holding period expires
and because the FBC Common Stock has not been registered under the Securities
Act of 1933, as amended (the "Securities Act") or any similar state law, it
cannot be sold unless so registered or an exemption from registration is
available; and
(i) the Seller believes that an investment in the FBC
Common Stock is suitable for it based upon its investment objectives and
financial needs and the stockholders of the Seller have adequate means of
providing for their current financial needs and have no need for liquidity of
their investment with respect to the FBC Common Stock.
3.17 Updating of Schedules. The Seller shall notify FBC of
any changes, additions or events which may cause any change in or addition to
any Schedules delivered by it under this Agreement, promptly after the
occurrence of same and no later than the Closing Date by delivery of updates of
all Schedules, including future quarterly and annual Financial Statements. No
notification made pursuant to this Section 3.17 shall be deemed to cure any
breach of any representation or warranty made in this Agreement or any Schedule
unless FBC shall specifically agree thereto in writing, nor shall any such
notification be considered to constitute or give rise to a waiver by FBC of any
condition set forth in this Agreement unless specifically waived in writing by
FBC.
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Asset Purchase Agreement
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3.18 Ownership of FBC Common Stock. As of the date hereof,
neither the Seller nor any stockholder of the Seller, (i) beneficially owns,
directly or indirectly, or (ii) is a party to any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or disposing of, in
each case, shares of FBC common stock.
3.19 Correct Information. All representations, warranties,
covenants, schedules, exhibits, documents, certificates, reports or statements
furnished or to be furnished to FBC by or on behalf of the Seller in connection
with this Agreement or the transactions contemplated hereby are true, complete
and accurate in all material respects. Without limiting the specificity of
such representations or warranties made in this Agreement or information
furnished pursuant hereto to FBC has not failed to disclose to FBC any facts
material to the Business, operations, condition (financial or otherwise),
liabilities, assets, earnings, working capital or prospects of the Seller.
ARTICLE 4.0 REPRESENTATIONS AND WARRANTIES OF FBC.
FBC hereby represents and warrants to the Seller as follows:
4.1 Structure; Status. (i) The authorized capital stock
of FBC consists of nine million (9,000,000) shares of FBC common stock and one
million (1,000,000) shares of FBC preferred stock, no par value par share (the
"FBC Preferred Stock"). As of November 30, 1997, there were ________ shares of
FBC common stock issued and outstanding, and there were ________ shares of FBC
Preferred Stock (Series A, B and C) issued and outstanding. All outstanding
shares of FBC common stock have been duly authorized and validly issued and are
fully paid and nonassessable, and none of the outstanding shares of FBC common
stock has been issued in violation of the preemptive rights of any person, firm
or entity. As of the date hereof, there are no Rights authorized, issued or
outstanding with respect to the capital stock of FBC, except for (A) shares of
FBC Common Stock issuable pursuant to the FBC 1995 Stock Option Plan and the
FBC Non- employee Directors Stock Option Plan and (B) by virtue of this
Agreement and (C) pursuant to certain Rights to convert the FBC Preferred Stock
into FBC common stock. For purposes of this Agreement, "Rights" shall mean any
warrants, options, rights, convertible or exchangeable securities and other
arrangements or commitments that obligate an entity to issue or dispose of any
of its capital stock or ownership interests.
(ii) FBC is a corporation duly organized,
validly existing and in good standing under the laws of the State of Maryland,
has full power and authority to carry on its businesses as it is now conducted
and to own, lease and operate the property and assets that it now owns, leases
and operates and to execute and deliver this Agreement and to perform the
transactions contemplated hereby.
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Asset Purchase Agreement
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4.2 Authority; No Conflict. The execution, delivery and
performance of this Agreement and the transactions contemplated hereby by FBC
will, on the Closing Date, have been duly and effectively authorized by all
necessary corporate action of FBC, and this Agreement will, on the Closing
Date, be a valid and legally binding obligation of FBC, enforceable in
accordance with its terms except to the extent that enforceability may be
limited by bankruptcy, reorganization, insolvency or other laws affecting the
enforcement of creditors' rights generally or the availability of equitable
remedies subject to the discretion of the court. A certified copy of the
resolutions of the Board of Directors of FBC approving this Agreement and the
transactions contemplated hereby will be delivered to the Seller, and such
copies will be complete and correct and such resolutions will be in full force
and effect on the dates of their respective adoption. Except for, if required
by Maryland law or the rules of the Nasdaq Stock Market or the National
Association of Securities Dealers, Inc., the vote of the stockholders of FBC
and the approval of Signet Bank/Maryland ("Signet"), the execution, delivery,
and performance of this Agreement and the consummation of the transactions
contemplated hereby by FBC will not: (i) require the approval or consent of any
governmental or regulatory body not otherwise contemplated by this Agreement,
except for compliance with applicable federal and state ("blue sky") securities
laws in connection with the issuance of the FBC Common Stock pursuant to this
Agreement; (ii) require the approval or consent of any other person or entity;
(iii) violate any provision of FBC's Articles of Incorporation or Bylaws; or
(iv) violate any statute, law or regulation as such statute, law or regulation
relates to FBC.
4.3 Broker's or Finder's Fees. No agent, broker, Person or
firm acting on behalf of FBC is, or will be, entitled to any commission or
broker's or finder's fees from any of the Parties hereto in connection with any
of the transactions contemplated herein.
4.4 Litigation; Orders. Except as set forth on Schedule
4.4, there are no claims, actions, suits, or proceedings, grievances,
arbitrations, investigations or inquiries pending or, to the best knowledge of
FBC, threatened, at law or in equity or before or by any federal, state, local,
foreign or other governmental department, commission, board, arbitrator(s),
agency, instrumentality or authority by or against FBC that restrains or
prohibits or that may restrain or prohibit or otherwise affect, the
consummation of the transactions contemplated hereby.
4.5 Authorized FBC Common Stock. FBC has sufficient
authorized shares of common stock in order to issue the FBC Common Stock to the
Seller at the Closing. The FBC Common Stock to be issued to the Seller
pursuant to Section 2.5(a) hereof shall, on the Closing Date, be duly
authorized, validly issued, fully paid and non- assessable and free and clear
of all Liens of FBC.
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Asset Purchase Agreement
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4.6 Accuracy and Completeness of Reports. FBC has
delivered a true, correct and complete copy of the annual report submitted to
its shareholders for its fiscal year ended December 31, 1996 (the "Annual
Report"), its annual report for such year on Form 10-K (the "Form 10-K"), the
Proxy Statement for the 1997 Annual Meeting of Stockholders ("Proxy Statement")
and the Form 10-Q for the quarter ended September 30, 1997 (the "Form 10-Q")
(the Annual Report, the Form 10-K, the Proxy Statement and the Form 10-Q
collectively are referred to herein as the "SEC Filings"). The SEC Filings do
not contain any untrue statement of a material fact, and do not omit to state a
material fact required to be stated therein or necessary to make the statements
contained therein not misleading.
ARTICLE 5.0 COVENANTS.
5.1 Covenants of the Seller. Except as contemplated by
this Agreement or as expressly agreed to in writing by FBC, during the period
from the date of this Agreement to the Closing Date, the Seller will conduct
its operations according to its ordinary and usual course of business
consistent with past practice, will use all commercially reasonable efforts to
preserve intact its business organization, to keep available the services of
its officers and employees and maintain satisfactory relationships with
licensors, licensees, vendors, employees, contractors, distributors, customers
and others having business relationships with it. Without limiting the
generality of the foregoing and except as otherwise expressly provided in this
Agreement, prior to the Closing Date, the Seller will not, without the prior
written consent of FBC:
(a) pay any dividends or other distributions (cash or
otherwise);
(b) redeem or repurchase or otherwise acquire its
capital stock, subdivide or reclassify its shares of capital stock, pay any
bonus increase the wages or salaries of its employees, increase the fees to its
directors, increase compensation to any consultants or other professionals,
commit itself to any new or renewed collective bargaining agreement or to any
additional pension, profit-sharing, bonus, incentive, deferred compensation,
stock purchase, stock option, stock appreciation right, group insurance,
severance pay, retirement or other compensation or benefit plan, agreement or
arrangement, or to any employment or consulting agreement with or for the
benefit of any person, to amend or make any payment or contribution (other than
in the ordinary course of business and consistent with past practice) with
respect to any of such plans or any of such agreements in existence on the date
hereof except as may be required to comply with applicable law notice of which
shall be provided to FBC;
<PAGE> 24
Asset Purchase Agreement
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(c) except in the ordinary course of business or as
otherwise contemplated hereby purchase, dispose of, or encumber, or agree to
sell, transfer, mortgage or otherwise dispose of or encumber, any of its
properties or assets or make any capital expenditure in excess of $1,000;
(d) enter into any other agreements, commitments or
contracts that, individually or in the aggregate, are material to the Seller,
except agreements, commitments or contracts for the purchase, sale or lease of
goods or services in the ordinary course of business, consistent with past
practice and not in excess of current requirements, or otherwise make any
material change in the conduct of its Business or operations of the Seller;
(e) authorize, recommend, propose or announce an
intention to authorize, recommend, propose, or enter into any agreement in
principle or an agreement with respect to any merger, consolidation or business
combination (except for this Agreement), any acquisition of a material amount
of assets or securities, any disposition of a material amount of assets or
securities or any material change in its capitalization, or any entry into a
material contract or any amendment or modification of any material contract or
any release or relinquishment of any material contract rights not in the
ordinary and usual course of business;
(f) incur or guarantee any obligation or liability
(whether absolute, accrued, contingent or otherwise and whether due or to
become due) material to the Seller or pay, discharge or satisfy any Lien or
liability (whether absolute, accrued, contingent or otherwise and whether due
or to become due), other than liabilities shown or the balance sheet as of
October 31, 1997 in the Financial Statements and liabilities incurred after the
date thereof in the ordinary course of business in normal amounts, and no such
payment, discharge or satisfaction shall be affected other than in accordance
with the ordinary payment terms relating to the liability paid, discharged or
satisfied;
(g) permit or allow its properties or assets, real,
personal or mixed, tangible or intangible, to be mortgaged, pledged or
subjected to any Lien, except for Permitted Liens;
(h) cancel any debts or claims except in the ordinary
course of business and consistent with past practice, or waive any rights of
material value;
(i) permit any intellectual property right to lapse;
(j) issue, grant or sell any shares of its capital
stock or any equity interest or security, or issue, grant or sell any security,
option, warrant, call,
<PAGE> 25
Asset Purchase Agreement
Page 19
subscription or other right of any kind, fixed or contingent, that directly or
indirectly calls for the issuance, sale, pledge or other disposition of any
shares of its capital stock or any equity interest or security;
(k) make any change in any accounting principles,
practices or methods, including their principles, practices or methods relating
to calculation of reserves for receivables;
(l) pay, loan, or advance any amount to or in respect
of, or sell, transfer or lease any property or assets (real, personal or mixed,
tangible or intangible) to, or enter into any transaction with or for the
benefit of, any director, officer or stockholder or any of their respective
affiliates or associates;
(m) enter into any lease or sub-lease of real
property or material lease of personal property;
(n) terminate or amend, or fail to perform any of its
obligations or cause any breach under, any Contract set forth in Schedule 3.8.
The Seller will exercise its best efforts to renew each of the Contracts set
forth on Schedule 3.8 which is scheduled to terminate prior to the Closing
Date;
(o) use its best efforts not permit the insurance
referred to in Schedule 3.12 to lapse, expire, terminate or be cancelled;
(p) violate in any material respect any laws,
regulations, or orders applicable to it and its properties, operations,
Business and employees;
(q) amend its Articles of Incorporation or Bylaws; or
(r) agree to do any of the foregoing.
5.2 No Solicitation. The Seller shall not, and the Seller
shall use its best efforts to cause its stockholders, officers, directors,
employees, agents, affiliates and representatives (including, without
limitation, investment bankers, attorneys and accountants) not to, directly or
indirectly, (i) initiate contact with, solicit or encourage any inquiries or
proposals by, or (ii) except as required by applicable law as advised in
writing by counsel acceptable to FBC, enter into any discussions or
negotiations with, or disclose directly or indirectly any information not
customarily disclosed concerning its Business and properties to, or afford any
access to its properties, books and records to, any Person or other entity or
group in connection with any possible proposal (an "Acquisition Proposal")
regarding a sale of the Seller's capital stock or a merger, consolidation, or
sale of all or a substantial
<PAGE> 26
Asset Purchase Agreement
Page 20
portion of the assets of the Seller, or any similar transaction. The Seller
will notify FBC immediately if any discussions or negotiations are sought to be
initiated, any inquiry or proposal is made, or any such information is
requested, with respect to an Acquisition Proposal or potential Acquisition
Proposal or if any Acquisition Proposal is received or indicated to be
forthcoming. The foregoing restrictions on disclosures shall not apply to
disclosures required to be made by any law, regulation or order of a court or
governmental agency of competent jurisdiction; provided, however, before any
disclosure is made the Seller shall notify FBC immediately of any such request
for information and shall take all reasonable action to support any request or
motion FBC may make for confidential treatment or a protective order.
5.3 Stockholder Approval. The stockholders of the Seller
shall, by virtue of their execution of the Unanimous Stockholder Consent
attached hereto as Exhibit C be deemed to have provided their written consent
to the sale of the Assets contemplated hereby and to have waived any rights
they may have under Maryland law to dissent therefrom.
5.4 Access to Information; Confidentiality.
(a) Access to Information.
(i) Between the date of this Agreement and the
earlier of the Closing Date or the date of the termination of this Agreement,
the Seller shall provide to FBC and its representatives full access to its
premises, properties, equipment, books and records as are related to the
Business and shall make its directors, officers, employees and agents available
to confer with FBC and its representatives; and during such period, the Seller
shall: (i) disclose and make available to FBC and its representatives all
documents and records relating to the assets, properties, operations,
obligations and liabilities of the Seller, including but not limited to, all
books of account (including the general ledger), tax records and returns,
minute books of directors', committees', and stockholders' meetings,
organizational documents, material contracts, customer list and agreements,
filings with and communications from any governmental authority, litigation
files, accountants' work papers, plans or records relating to employees and any
other business activities of the Seller as FBC or its representatives may
require; and (ii) promptly furnish to FBC all other information concerning the
Seller's Business, properties and personnel as FBC may request. During this
period, FBC may perform any review, analysis or testing that it, in its sole
discretion, deems appropriate. FBC will use its best efforts not to unduly
interfere with the business operations of the Seller during such review.
Throughout this period, the Seller will cause Mr. Marc Tewey and one or more
other designated representatives to confer with FBC's representatives on a
regular and frequent basis and to report the general status of the Seller's
ongoing condition and operations. In
<PAGE> 27
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addition, the Seller will permit FBC to communicate with its agents, customers
and creditors. The Seller will notify FBC immediately of any material change
in the ordinary course of its Business or in the operations of its properties
or of any governmental complaints, investigations or hearings (or
communications indicating that the same may be contemplated) or the
institution, continuation or the threat of litigation involving the Seller or
its affiliates or affiliated persons and will keep FBC fully informed of such
events.
(ii) Between the date of this Agreement and the
earlier of the Closing Date or the date of termination of this Agreement, FBC
shall provide to the Seller such information concerning FBC as the Seller may
reasonably request relating to the business, condition (financial or
otherwise), results of operations and prospects of FBC. The Seller will use
its best efforts not to unduly interfere with the business operations of FBC
during such review. Throughout this period, FBC will cause Mr. Kevin E.
Brannon to confer with the Seller on a regular and frequent basis and to report
the general status of FBC's ongoing condition and operations. The Seller
hereby agrees that, as of the date hereof, it will use its best efforts to
prevent its stockholders, directors and officers from buying or selling any
shares of FBC Common Stock during this period.
(b) Confidentiality. The Parties hereto will hold
and will cause their respective employees, officers, directors, consultants and
advisors to hold in strict confidence, unless compelled to disclose by judicial
or administrative process and then only with written notice prior to disclosure
to the disclosing party, all documents and information concerning the
disclosing party furnished to the receiving party in connection with the
transactions contemplated by this Agreement (except to the extent that such
information can be shown to have been (i) previously known by the receiving
party other than through a breach of a confidentiality agreement by such party
or a third party; (ii) in the public domain through no fault of the receiving
party; or (iii) later lawfully acquired by the receiving party from other
sources) (the "Confidential Information"), will not use such Confidential
Information except to evaluate and consummate this transaction (and, if this
transaction is consummated, in the business of FBC or any affiliate thereof
thereafter) and will not release or disclose the Confidential Information to
any other person, except the receiving party's auditors, attorneys, financial
advisors and other consultants and advisors and lending institutions (including
banks) or lending authorities in connection with this Agreement (it being
understood that such persons shall be informed by the receiving party of the
confidential nature of such information and shall be directed by the receiving
party to treat such information confidentially). If the transactions
contemplated by this Agreement are not consummated, such confidence shall be
maintained for a period of one (1) year from the date of termination of this
Agreement, except to the extent the Confidential Information comes into the
public domain through no fault of the receiving party. If requested by the
disclosing party, the receiving party will return to the disclosing party, all
physical materials furnished by the disclosing party to the receiving party or
their
<PAGE> 28
Asset Purchase Agreement
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respective agents, representatives or advisors and all copies thereof, in
whatever medium, and all materials prepared by the receiving party which
evaluate or reflect the Confidential Information. It is understood that the
receiving party shall be deemed to have satisfied its obligation to hold the
Confidential Information confidential if it exercises the same care as it takes
to preserve confidentiality for its own similar information. The disclosing
party will be entitled to equitable relief in the event of a breach by the
receiving party of the provisions contained in this Section 5.4(b).
5.5 Consents; Efforts to Consummate. The Seller and FBC
will each use their respective best efforts to obtain consents of all third
parties and governmental authorities necessary to the consummation of the
transactions contemplated by this Agreement. Each of the Seller and FBC agree
to use all reasonable efforts to take, or cause to be taken, all actions, and
to do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective, as soon as
practicable after the date of this Agreement and after the Closing Date
thereof, the transactions contemplated by this Agreement, including, without
limitation, using reasonable efforts to lift or rescind any injunction or
restraining order or other order adversely affecting the ability of the Parties
to consummate the transactions contemplated herein.
5.6 Public Announcements. The Seller and FBC will consult
with each other before issuing any press release or otherwise making any public
statements with respect to the Agreement and shall not issue any such press
release or make any such public statement prior to such consultation, except as
may be required by law or judicial or administrative process.
5.7 Indemnification.
(a) Indemnification by the Seller. The Seller agrees
to indemnify and hold FBC, and its respective officers, directors, employees
and agents and their respective heirs, successors and assigns (collectively,
the "FBC Group"), harmless against, and to reimburse FBC Group for any Damage
or Tax imposed on or incurred by any of the FBC Group (an "FBC Loss") because
of or arising out of or related to or in connection with:
(i) any breach of any of the Seller's
representations or warranties or any failure to perform or violation of any
agreement or covenant on the part of the Seller under this Agreement or under
any other agreement referred to herein or contemplated hereby to which the
Seller is a signatory;
(ii) the operation of the Business of the Seller
or the ownership or use of the Assets prior to the Closing Date; and
<PAGE> 29
Asset Purchase Agreement
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(iii) any and all actions, suits,
proceedings, demands, assessments, judgments, out-of-pocket costs and
reasonable attorneys' fees (in preparation, at trial and on appeal) of any
nature incident to the foregoing;
(iv) For purposes of this Agreement, "Damage"
shall mean all damages, and includes, without limitation, consequential
damages, punitive damages, liabilities, costs, losses, diminutions in value,
fines, penalties, demands, claims, cost recovery actions, lawsuits,
administrative proceedings, orders, response action costs, compliance costs,
investigation expenses, arbitration expenses, consultant fees, attorneys' and
paralegals' fees, and litigation expenses.
(b) Indemnification by FBC. FBC agrees to indemnify
and hold the Seller's respective officers, directors, employees and agents and
their respective heirs, successors and assigns (collectively, the "Seller
Group"), harmless against, and to reimburse Seller Group for any Damage or Tax
imposed on or incurred by any of Seller Group (a "Seller Loss") because of or
arising out of or related to or in connection with:
(i) any breach of any of FBC's representations
or warranties or any failure to perform or violation of any agreement or
covenant on the part of FBC under this Agreement or any other agreement
referred to herein or contemplated hereby;
(ii) the ownership or use of the Assets after
the Closing Date; and
(iii) any and all actions, suits, proceedings,
demands, assessments, judgments, out-of-pocket costs and reasonable attorneys'
fees (in preparation, at trial and on appeal) of any nature incident to the
foregoing.
(c) Limitation. For purposes of this Section, the
total amount of indemnification to be provided by the Seller and FBC under
Sections 5.7(a) and 5.7(b), respectively above, shall not exceed the dollar
amount of the Purchase Price based upon the closing price of the FBC Common
Stock on the Closing Date as determined by the Nasdaq Small Cap Market.
(d) Notice. The indemnified party promptly shall
notify the indemnifying party of any claim that is reasonably likely to give
rise to a claim for indemnification under this Agreement (a "Damage Claim")
asserted by such party or by a third party, stating, to the extent known, with
detailed specificity the nature and basis of the Damage Claim. The failure to
give promptly any such notice shall not relieve the indemnifying party from any
liability hereunder with respect to the subject matter of any
<PAGE> 30
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Damage Claim except to the extent that the indemnifying party actually has been
damaged by such failure. If the indemnifying party shall have confirmed in
writing its obligation to indemnify for any liability asserted in any Damage
Claim, then the indemnifying party shall have, at its election, the right to
compromise or defend such Damage Claim involving the assertion of liability by
a third party at the indemnifying party's sole expense, through counsel chosen
by it, provided that, in conducting such defense, settlement and compromise:
(i) the indemnifying party shall not permit to exist any lien, encumbrance or
other adverse charge upon any asset or business of the indemnified party; (ii)
the indemnifying party shall cause its counsel to consult with the indemnified
party and, if applicable, the indemnified party's counsel and keep them fully
advised of the progress of the defense, settlement and compromise; and (iii)
the indemnifying party promptly shall reimburse the indemnified party for the
full amount of any Damages resulting from such Damage Claim except to the
extent otherwise provided in the next sentence. If the indemnifying party is
required hereunder or elects to conduct the defense of such Damage Claim, the
indemnified party shall cooperate with the indemnifying party in connection
therewith and shall be entitled to participate in the defense thereof and to
appoint counsel for that purpose, except that the cost of any such
participating counsel shall be solely for the account of the indemnified party
and the indemnifying party shall have no responsibility therefor unless: (i)
the indemnifying party shall not have notified the indemnified party that it
will assume the defense of such Damage Claim and have designated counsel
reasonably acceptable to the indemnified party within a reasonable time of the
notice of such Damage Claim; or (ii) the named parties to any proceeding with
respect to such Damage Claim (including any impleaded parties) include both the
indemnified party and the indemnifying party and representation of both parties
by the same counsel would be, in the opinion of counsel selected by the
indemnifying party, inappropriate due to actual or potential differing
interests between them. As long as the indemnifying party is contesting any
such Damage Claim in good faith in accordance with the foregoing requirements,
the indemnified party shall not pay or settle any such Damage Claim.
Notwithstanding the foregoing, the indemnified party may pay or settle any such
Damage Claim at any time, provided that the indemnified party waives any right
to indemnity therefor by the indemnifying party.
(e) Defense. In the event that the indemnifying
party fails within thirty (30) days after the receipt of notice of such Damage
Claim to notify the indemnified party and to confirm in writing its obligation
to indemnify for any liability in such Damage Claim, the indemnified party
shall have the right to defend, settle or compromise the Damage Claim in its
discretion; provided, however, that the indemnifying party shall have the right
to participate in the defense of such Damage Claim at its own expense. The
indemnifying party shall promptly reimburse the indemnified party for the full
amount of any Damages resulting from such Damage Claim and any defense,
settlement or compromise thereof and all reasonable related costs incurred by
the indemnified party.
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Asset Purchase Agreement
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(f) Non-Exclusive Remedy. The indemnification
provisions in this Agreement shall not be deemed to preclude the exercise of
any other rights or the pursuit of any other remedies for the breach of this
Agreement or with respect to any misrepresentations or breaches of
representations, warranties or covenants by either the Seller or FBC.
5.8 Existence. The Seller will take such action as may be
necessary to maintain, preserve, renew and keep in full force and effect the
Seller's existence (corporate or otherwise), rights and franchises to the
Closing Date.
ARTICLE 6.0 GENERAL MATTERS.
6.1 Survival of Representations and Warranties and Related
Agreements. All of the terms, conditions, warranties, representations,
covenants, indemnities and agreements contained in or made pursuant to this
Agreement shall survive the Closing and the indemnity provisions of Sections
5.7 shall be valid and effective for a period of one (1) year after the
Effective Time, notwithstanding any investigation made by or knowledge of any
of the Parties to this Agreement or any of their respective successors or
assigns. All covenants of the Parties that are to be performed after Closing
shall continue and expire in accordance with their respective terms. If at the
end of any of such period or term, a claim has been asserted hereunder and
still is pending or unresolved, such period or term shall continue to survive
until the claim finally is terminated or otherwise resolved.
6.2 Covenant Not to Disclose. The Seller hereby covenants
and agrees, that as the owner and operator of the Business of the Seller, it
possesses certain data and knowledge of operations of the Business of the
Seller that are proprietary in nature and confidential. The Seller covenants
and agrees and will use its best efforts to require that the stockholders,
directors and officers of the Seller covenant and agree, that they will not, at
any time after the Closing, reveal, divulge or make known to any person (other
than FBC) or use for their own account or for the account of any person, firm,
corporation or other organization, any confidential or proprietary customer
list, vendor list, sales method, record, data, trade secret, pricing policy,
bid amount, bid strategy, rate structure, personnel policy, method or practice
of soliciting or obtaining or doing business by the Seller or any business
know-how or other confidential or proprietary information whatsoever relating
to the Seller or, whether or not obtained with the knowledge and permission of
FBC (exclusive of any information which at the time of disclosure is generally
available to and known by the public, other than as a result of any
unauthorized disclosure by the Seller, its stockholders, directors or
officers).
<PAGE> 32
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6.3 Non-Interference Agreement. The Seller will not, and
will use its best efforts to prevent its stockholders, directors and officers
from, at any time after the Closing, directly or indirectly, for whatever
reason, whether for their own account or for the account of any other Person or
other organization: (i) engage in any activity that would compete with the
business of FBC in the market areas in which the Seller does business; (ii)
solicit, employ or otherwise interfere with any of the Seller's or FBC's
existing or potential contracts or relationships with any customer, affiliate,
employee, officer, director, supplier, vendor or any independent contractor
whether the person is employed by or associated with the Seller or with FBC on
the Closing Date or at any time thereafter; or (iii) solicit or otherwise
interfere with any existing or proposed contract between the Seller or FBC and
any other party whatsoever, all for a period of the later of one (1) year from
the Closing Date or the date of termination of their respective employment
agreements. The non-competition provisions set forth in this Section 6.3(i)
shall not apply to Mr. Marc Tewey should he become employed other than as set
forth in Section 6.5(b) as a beverage analyst for an investment banking firm.
6.4 Use of the Seller's Name. The Seller hereby agrees
that after the Closing FBC shall have the right to use the Seller's name,
logos, brand identities and all other intellectual property set forth in
Schedule 2.1.
6.5 Employment
(a) Employment. Except as otherwise set forth below,
no employees of the Seller as of the effective time of the Closing shall become
employees of FBC.
(b) Employment Agreement. On the Closing Date, FBC
shall execute an employment agreement with Mr. Marc Tewey in the form as set
forth as Exhibit D, attached hereto and made a part hereof, which shall
commence upon the Closing Date. Said employment agreement shall be separate
and independent from this Agreement and such employment agreement shall stand
alone and not be connected in its operation or with respect to the rights and
remedies of the Parties thereto.
6.6 Failure to Fulfill Conditions. In the event that
either of the Parties hereto determines that a condition to its respective
obligations to consummate the transactions contemplated may not be fulfilled on
or prior to the termination of this Agreement, it promptly will notify the
other party. Each party promptly will inform the other party of any facts
applicable to it that would be likely to prevent or materially delay approval
of the purchase of the Assets by any governmental authority or third party or
that would otherwise prevent or materially delay completion of the purchase of
the Assets.
<PAGE> 33
Asset Purchase Agreement
Page 27
6.7 Common Stock Restrictions. Except with the prior
written consent of FBC, the FBC Common Stock to be delivered to the Seller at
the Closing shall not be sold, pledged, hypothecated, gifted or otherwise
transferred or disposed of until the date which is the 181st, 271st, and 366th
day after the Closing Date (as set forth in Section 2.5(b) hereof), and all
certificates representing such shares of Common Stock shall contain a legend to
such effect, as set forth in Section 3.16(g).
Article 7.0 Conditions to Obligations of FBC to Consummate.
The obligations of FBC to consummate the Agreement are
subject to the satisfaction or, unless prohibited by law, the waiver by FBC of
each of the following conditions:
7.1 Representations and Warranties. The representations
and warranties of the Seller contained herein shall be true, complete, and
accurate in all material respects on the date of this Agreement and on the
Closing Date as though such representations and warranties were made at and on
such date.
7.2 Performance. The Seller shall have performed and
complied with all agreements, obligations and conditions required by this
Agreement to be so performed or complied with by them at or prior to the
Closing.
7.3 Consents and Approvals. All necessary consents and
approvals of any governmental authority or any third party (including but not
limited to Signet Bank/Maryland) required for consummation of the transactions
contemplated by this Agreement shall have been obtained.
7.4 Stockholder Approval. The stockholders of the Seller
and, if deemed necessary by FBC, the stockholders of FBC, shall have approved
the Agreement by the vote required by applicable law after full disclosure of
the terms and conditions of this Agreement and the transactions contemplated
hereby.
7.5 Delivery of Documents. At or before the Closing, the
Seller shall have executed and delivered to FBC certain documents, including,
but not limited to: (i) a certificate dated the Closing Date executed by the
President and Secretary of the Seller evidencing compliance with the conditions
set forth in this Article 7; (ii) the Bill of Sale and Assignment of Assets as
set forth in Exhibit A hereto; (iii) copies of all notices to creditors and
other evidence of compliance with Section 6-105 of the Maryland Commercial
Code, satisfactory in form and substance to FBC; (iv) the receipt from the
Seller for the delivery of the FBC Common Stock; (v) the opinion of Venable,
Baetjer & Howard, LLP, counsel to the Seller, addressed to the Board of
Directors of FBC, substantially in the form of
<PAGE> 34
Asset Purchase Agreement
Page 28
Exhibit E; (vi) evidence of the termination or renegotiation of the Contracts
satisfactory to FBC in form and substance, as set forth in Schedule 7.5; (vii)
the Employment Agreement substantially as set forth in Exhibit D executed and
delivered by Mr. Tewey; (viii) evidence satisfactory to FBC that all Liens on
the Assets have been terminated by the lienholders; and (ix) such other
documents as FBC or its counsel may reasonably require. All such documents
shall be in form and substance satisfactory to FBC. The Seller agrees to use
its best efforts to ensure that the conditions set forth herein are satisfied.
7.6 No Litigation. None of the Parties hereto shall be a
party to, or shall have received notice of, any suit, claim or proceeding or
threatened suit, claim or proceeding to enjoin or restrain any or all of the
transactions contemplated herein or to nullify or render ineffective all or any
part of such transactions if accomplished or alleging Damages in connection
therewith.
7.7 Payment of Creditors. The Seller shall have notified
and paid, or provided for the payment or discharge, in full, of all creditors
of the Seller as of the Closing Date and shall have provided to FBC at the
Closing a list of such creditors, which list shall contain the name, address,
claim and payment status of all such creditors.
7.8 No Material Adverse Change. No change, event,
development or combination of developments shall have occurred that,
individually or in the aggregate, has resulted in or could reasonably be
expected to result in a material adverse change in the Assets of the Seller.
ARTICLE 8.0 CONDITIONS TO OBLIGATIONS OF THE SELLER TO CONSUMMATE.
The obligations of the Seller to consummate this Agreement
are subject to the satisfaction or, unless prohibited by law, the waiver by the
Seller of each of the following conditions:
8.1 Representations and Warranties. The representations
and warranties of FBC contained herein shall be true, complete, and accurate in
all material respects on the date of this Agreement and on the Closing Date as
though such representations and warranties were made at and on such date.
8.2 Performance. FBC shall have performed and complied
with all agreements, obligations and conditions required by this Agreement to
be so performed or complied with by it at or prior to the Closing.
<PAGE> 35
Asset Purchase Agreement
Page 29
8.3 Consents and Approvals. All necessary consents and
approvals of any governmental authority or any third party required for
consummation of the transactions contemplated by this Agreement shall have been
obtained.
8.4 Officers' Certificate. FBC shall have delivered to the
Seller a certificate signed by a duly authorized officer, dated the Closing
Date, certifying the fulfillment of the conditions specified in Sections 8.1
and 8.2 of this Agreement.
8.5 Payment of FBC Common Stock. Against receipt of the
executed Bill of Sale and Assignment of Assets, FBC shall have delivered to the
Seller on the Closing Date the FBC Common Stock as set forth in Section 2.5(a)
hereof.
8.6 Employment Agreement. FBC shall have executed the
Employment Agreement at the Closing in the form of Exhibit D, attached hereto.
8.7 No Litigation. None of the parties hereto shall be a
party to, or shall have received notice of, any suit, claim or proceeding or
threatened suit, claim or proceeding to enjoin or restrain any or all of the
transactions contemplated herein or to nullify or render ineffective all or any
part of such transactions if accomplished or alleging Damages in connection
therewith.
8.8 Delivery of Documents. At or before the Closing, FBC
shall execute and deliver to the Seller all other documents contemplated by
this Agreement.
ARTICLE 9.0 TERMINATION.
9.1 Termination. This Agreement may be terminated at any
time prior to the Closing Date, whether before or after approval by the
stockholders of the Seller and, if required, the stockholders of FBC:
(a) by mutual consent of the Boards of Directors of
the FBC and the Seller; or
(b) by either FBC or the Seller if, without fault of
such terminating party, the Agreement shall not have been consummated on or
before February 28, 1998, unless extended by mutual written consent; or
(c) by FBC if any condition to its obligations as set
forth in Article 7.0 shall become incapable of fulfillment or have not been
fulfilled prior to or on the Closing Date and shall not have been waived by FBC
in writing, or by the Seller if any of the conditions to the obligations of the
Seller set forth in Article 8.0 shall have become
<PAGE> 36
Asset Purchase Agreement
Page 30
incapable of fulfillment or have not been fulfilled prior to or on the Closing
Date and shall not have been waived by the Seller in writing; provided that
neither party may terminate this Agreement hereunder if it is in material
breach of any of its representations, warranties, covenants or agreements in
this Agreement; or
(d) by FBC, in the event of a material deterioration
of the Assets of the Seller, in FBC's sole discretion; or
(e) by FBC or the Seller upon a material breach of a
representation or warranty by the other or the failure to perform any covenant
or agreement contained herein, if such breach or failure to perform shall not
have been cured within fifteen (15) calendar days after receipt by the
breaching party of notice of such breach from the non-breaching party.
9.2 Procedure and Effect of Termination. In the event of
termination and abandonment of the Agreement by FBC or the Seller pursuant to
Section 9.1, written notice thereof shall forthwith be given to the other and
this Agreement shall terminate and the transactions contemplated hereby shall
be abandoned, without further action by any of the parties hereto. If this
Agreement is terminated as provided herein, the obligations stated in this
Section 9.2 and in Sections 5.4(b), 5.6, and 9.3 shall survive any such
termination for the periods therein stated, if any. No termination of this
Agreement under Section 9.1(c) or (e) for any reason or in any manner shall
release, or be construed as so releasing, any Party hereto from any liability
or damage to the other Party hereto arising out of, in connection with, or
otherwise relating to, directly or indirectly, such Party's material breach,
such Party's material default or such Party's failure in performance of any of
its material covenants, agreements, duties or obligations arising hereunder.
9.3 Payment of Expenses and Termination. Other than as
expressly provided elsewhere in this Agreement, whether or not the Agreement
shall be consummated, all costs and expenses, including all Taxes required to
be paid prior to Closing, incurred in connection with this Agreement will be
paid by the Party incurring such expenses.
ARTICLE 10.0 MISCELLANEOUS.
10.1 Further Assurances. From time to time, and without
further consideration, each of the Parties hereto agrees to execute and deliver
any and all further agreements, documents or instruments necessary to
effectuate this Agreement, the Asset sale and the transactions referred to
herein or contemplated hereby and to vest good, valid and marketable title to
the Assets transferred in connection herewith or as reasonably requested by the
other Party to perfect or evidence its rights hereunder. Each Party promptly
will
<PAGE> 37
Asset Purchase Agreement
Page 31
notify the other Party of any information delivered to or obtained by such
Party that would prevent the consummation of the transactions contemplated by
this Agreement, or would indicate a breach of the representations, warranties
or covenants of any of the Parties to this Agreement.
10.2 Notices. Any notices hereunder shall be deemed
sufficiently given by one Party to another only if in writing and if and when
delivered or tendered either in person or as of one (1) Business Day after sent
by recognized overnight service for next day delivery, with all costs prepaid,
or as of five (5) Business Days after deposit in the United States mail,
registered or certified, with postage prepaid, addressed as follows:
If to FBC:
Frederick Brewing Co.
4607 Wedgewood Blvd.
Frederick, Maryland 21703
ATTN: Kevin E. Brannon, Chairman of the Board and
Chief Executive Officer
and a copy to:
Elias, Matz, Tiernan & Herrick L.L.P
734 15th Street, N.W., 12th Floor
Washington, D.C. 20005
ATTN: Jeffrey A. Koeppel, Esq.
If to the Seller:
Brimstone Brewing Company
3701 Dillon Street
Baltimore, Maryland 21224-5244
ATTN: Marc Tewey
President
and a copy to:
Michael J. Baader, Esq.
Venable, Baetjer & Howard, LLP
1800 Mercantile Bank and Trust Building
2 Hopkins Plaza
Baltimore, Maryland 21201
<PAGE> 38
Asset Purchase Agreement
Page 32
or to such other address as the Party addressed shall have previously
designated by written notice to the serving Party, given in accordance with
this Section; provided, however, that a notice not given as above shall, if it
is in writing, be deemed given if and when actually received by the Party to
whom it is required or permitted to be given.
10.3 Governing Law. This Agreement shall be governed by,
and construed and enforced in accordance with the laws of the State of
Maryland. Except as prohibited by applicable law, each Party hereby waives any
right it may have to a trial by jury in any litigation directly or indirectly
arising out of, under, or in connection with this Agreement. This waiver is
knowingly, intentionally and voluntarily made by each Party, and each Party
acknowledges that no representative, agent or attorney of either Party has made
any representations of fact to induce this waiver of trial by jury or in any
way to nullify or modify its effect. The Parties each hereby agree that this
Agreement constitutes a written consent to waiver of trial by jury.
10.4 Severability. Should any term or provision or portion
of such provision of this Agreement be invalid or unenforceable because of the
scope thereof or the period covered thereby or otherwise, such term, provision
or portion of such provision shall be deemed to be reduced and limited to
enable FBC or the Seller to enforce it to the maximum extent permissible under
the laws and public policies applied under the jurisdiction in which
enforcement is sought. If any term or provision of this Agreement is held or
deemed to be invalid or unenforceable, in whole or in part, by a court of
competent jurisdiction, such term or provision shall be ineffective to the
extent of such invalidity or unenforceability without rendering invalid or
unenforceable the remaining terms and provisions of this Agreement which shall
be construed to preserve to the maximum permissible extent the intent and
purposes of this Agreement. Any such invalidity or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such terms or
provisions in any other jurisdiction.
10.5 Entire Agreement; Amendment. This Agreement (including
the exhibits hereto and the lists, schedules and documents delivered pursuant
hereto) is intended by the Parties to and does constitute the entire agreement
of the Parties with respect to the transactions contemplated by this Agreement.
This Agreement supersedes any and all prior understandings, written or oral,
between the Parties, including the non-binding letter of intent by and among
FBC and the Seller dated as of November ___, 1997 and the non- binding
employment offer dated November ___, 1997. If there is any question of
interpretation or if there are or appear to be inconsistencies between this
Agreement and any Schedule or Exhibit hereto the terms of this Agreement shall
govern. This Agreement may not be amended, modified, waived, discharged or
terminated orally, but only by an instrument in writing signed by an authorized
executive officer of the Party against which enforcement of the amendment,
modification, waiver, discharge or termination is sought.
<PAGE> 39
Asset Purchase Agreement
Page 33
No waiver of the breach of any provision or term of this Agreement shall be
deemed or construed to be a waiver of other or subsequent breaches.
10.6 Assignment, etc. Except for the assignment of certain
rights under this Agreement by FBC to any affiliate thereof, the rights and
obligations of any of the Parties to this Agreement may not be assigned without
the prior written consent of the other Parties to this Agreement, and any
assignment made in violation of the foregoing shall be void and have no legal
effect. This Agreement shall inure to the benefit of and be binding upon the
Parties hereto and their respective successors, assigns, heirs, executors and
administrators, but nothing herein, express or implied, is intended to or shall
confer any rights, remedies or benefits upon any person other than the Parties
hereto. All section headings used herein are for convenience and ease of
reference only and do not constitute part of this Agreement and shall not be
referred to for the purpose of defining, interpreting, construing or enforcing
any of the provisions of this Agreement. All pronouns and variations thereof
shall be deemed to refer to the masculine, feminine, neuter, singular or plural
as the identity of the Party or parties to this Agreement may require.
10.7 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
IN WITNESS WHEREOF, FBC and the Seller have caused this Agreement
to be duly executed and delivered under seal, by their respective authorized
officers, on the date first above written.
FREDERICK BREWING CO.
Witness: By:
--------------------- -----------------------------
Marjorie J. McGinnis Kevin E. Brannon
Assistant Secretary Chief Executive Officer
BRIMSTONE BREWING COMPANY
Witness: By:
--------------------- -----------------------------
Marc Tewey
President
STOCKHOLDERS OF BRIMSTONE
BREWING COMPANY
Witness: By:
--------------------- -----------------------------
Marc Tewey
No. of Shares:
----------
<PAGE> 40
Asset Purchase Agreement
Page 34
Witness: By:
--------------------- -----------------------------
Michael Tewey
No. of Shares:
----------
<PAGE> 1
MUTUAL AND RECIPROCAL FINAL RELEASE OF ALL CLAIMS
This Mutual and Reciprocal Final Release of All Claims is made and entered
into by and between Frederick Brewing Company ("Frederick Brewing" or
"Plaintiff "), Intertrade Packaging Machinery Corporation ("IPMC"), Salh F. Khan
("Khan"), and John B. Brannen ("Brannen"). (IPMC, Khan and Brannen are
collectively referred to as "Defendants").
RECITALS
A. Frederick Brewing filed suit against the Defendants in the United States
District Court for the District of Maryland in a case entitled Frederick Brewing
Company v. Intertrade Packaging Machinery Corporation, et al., Case No.
MJG-97-2388.
B. The parties desire to enter into this Mutual and Reciprocal Final
Release of All Claims in order to provide for a lump sum payment in full
settlement and discharge of the claims as between Plaintiff and Defendants,
which are, or might have been, the subject matter of the complaint, upon the
terms and conditions set forth below and contained within the Settlement
Agreement executed by the parties, and to preserve any and all claims which may
exist as between the Defendants, except as provided herein.
C. The parties executed a Settlement Agreement on December 1, 1997, which
is adopted and incorporated by reference herein.
AGREEMENT
The parties agree as follows:
1.0 RELEASE AND DISCHARGE
1.1 In consideration for the payments set forth in Section 2.0,
Plaintiff completely releases and forever discharges the Defendants from
any and all past, present, or future claims, demands, obligations, actions,
causes of action, rights, damages, costs, expenses and compensation of any
nature whatsoever, whether based in tort, contract, or other theory of
recovery, which the Plaintiff now has, or which may hereafter accrue or
otherwise be acquired on account of, or may in any way grow out of, the
actions of the Defendants which are the subject of the Complaint, including
without limitation, any and all known or unknown claims of the Plaintiff
which have allegedly resulted or may result from the alleged or acts or
omissions of the Defendant.
1.2 This release, on the part of the Plaintiff, shall be a fully
binding and complete settlement among the Plaintiff and the Defendants and
their heirs, assigns and successors.
1.3 In consideration of the release by the Plaintiff of their claims
against the Defendants and the dismissal of their claims with prejudice,
the Defendants completely release and forever discharge the Plaintiff from
any and all past, present, or future claims, demands, obligations, actions,
causes of action, rights, damages, costs, expenses, and compensation of any
nature whatsoever, whether based in tort, contract, or other theory of
recovery, which the Defendants now have or which may hereafter accrue or
otherwise be acquired on account of, or may in any way grow out of, the
actions of the plaintiff which are the subject of the Complaint, including
without limitation, any and all known or unknown claims of the Defendants
which have allegedly resulted or may result from the alleged acts or
omissions of the Plaintiff.
1.4 This release, on the part of the Defendants, shall be a fully
binding and complete settlement among the Defendants and the Plaintiff and
their heirs, assigns and successors.
1.5 The Plaintiff and Defendants acknowledge and agree that the
release and discharge set forth above is a general release as between the
Plaintiff and the Defendants. The Plaintiff and Defendants expressly waive
and assume the risk of any and all claims for damages which exist as of
this date, but of which the Plaintiff and Defendants do not know or suspect
to exist, as between Plaintiff and Defendants, whether through ignorance,
oversight, error, negligence or otherwise, and which, if known, would
materially affect the decision of the Plaintiff and Defendants to enter
into this Mutual and Reciprocal
<PAGE> 2
Final Release of All Claims. The Plaintiff and Defendants further agree
that the Plaintiff has accepted payment of the sum specified in the
Settlement Agreement executed by and between the parties as a complete
compromise of matters involving the disputed issues of law or fact.
1.6 IPMC and Khan expressly reserve any and all claims which they may
have as against Brannen as a result of this action or otherwise, and
preserve the right to pursue any and all claims as against Brannen.
1.7 Brannen expressly reserves any and all claims which he may have as
against IPMC and/or Khan as a result of this action or otherwise, and
preserves the right to pursue any and all claims as against them, except as
provided in Paragraph 3.0.
1.8 It is understood and agreed to by the parties that this settlement
is a compromise of doubtful and disputed claims, and the payment is not to
be construed as an admission of liability on the part of any party, by whom
liability is expressly denied.
1.9 The terms of this Release are contractual and are not a mere
recital. There are no agreements, understandings, or representations made
by Plaintiff and/or Defendants, their agents, officers, employees,
servants, representatives, related companies, or successor corporations,
except as expressly stated herein and in the Settlement Agreement executed
by and between the parties.
1.10 Each provision of this Mutual and Reciprocal Final Release of All
Claims is intended to be severable. If any term or provision is held to be
invalid, void, or unenforceable by a court of competent jurisdiction for
any reason whatsoever, such ruling shall not affect the validity of the
remainder of this release.
2.0 LUMP SUM PAYMENT
In consideration of the releases and discharges set forth above, the
Defendants agree to pay the Plaintiff the sum of One Hundred Ninety
Thousand Dollars ($190,000.00) as set forth in the Settlement Agreement
executed by and between the parties. Frederick Brewing acknowledges receipt
of the One Hundred Ninety Thousand Dollars ($190,000.00).
3.0 ATTORNEY'S FEES
Brannen hereby releases and discharges IPMC and Khan from any and all
liability for his attorneys' fees and costs related to this litigation,
including all attorneys' fees and costs arising from the actions of his
counsel in connection with the transfer of this action, answering the
Complaint, the discovery process, the Settlement Agreement, this Mutual and
Reciprocal Final Release of All Claims and the filing of a Dismissal of the
Complaint and all related matters.
4.0 REPRESENTATION OF COMPREHENSION OF SETTLEMENT AGREEMENT AND MUTUAL AND
RECIPROCAL FINAL RELEASE OF ALL CLAIMS
In entering into the Settlement Agreement and this Mutual and
Reciprocal Final Release of All Claims, the Plaintiff and Defendants
represent that they have read the Settlement Agreement and this Mutual and
Reciprocal Final Release of All Claims and that they understand the terms
of the Settlement Agreement and this Mutual and Reciprocal Final Release of
All Claims and that they voluntarily accept these terms.
5.0 ENTIRE AGREEMENT AND SUCCESSORS IN INTEREST
The Settlement Agreement and this Mutual and Reciprocal Final Release
of All Claims contains the entire agreement between the Plaintiff and the
Defendants with regard to matters set forth herein and it shall be binding
upon and inure to the benefit of the executors, administrators, personal
representatives, heirs, and successors and assigns of each.
<PAGE> 3
6.0 COUNTERPARTS
This Mutual and Reciprocal Final Release of All Claims may be executed
in several counterparts and, if so executed, shall constitute one agreement
binding upon all of the parties hereto, notwithstanding that all are not
signatories to the same original document or the same counterpart.
IN WITNESS WHEREOF, the parties have executed this Mutual and Reciprocal
Final Release of All Claims as of this 19th day of December 1997.
<TABLE>
<S> <C>
WITNESS: FREDERICK BREWING COMPANY
/s/ JOYCE HOLLOWAY By: /s/ KEVIN E. BRANNON
- ----------------------------------------------------- -------------------------------------------------
Joyce Holloway Kevin E. Brannon
Chairman and Chief Executive Officer
WITNESS: INTERTRADE PACKAGING MACHINERY CORPORATION
/s/ THOMAS H. WALTERS By: /s/ SALH F. KHAN
- ----------------------------------------------------- -------------------------------------------------
Thomas H. Walters Salh F. Khan
President
ATTEST:
/s/ THOMAS H. WALTERS /s/ SALH F. KHAN
- ----------------------------------------------------- -----------------------------------------------------
Thomas H. Walters Salh F. Khan
ATTEST:
/s/ CATHY M. PREVATTE /s/ JOHN B. BRANNEN
- ----------------------------------------------------- -----------------------------------------------------
Cathy M. Prevatte John B. Brannen
</TABLE>
<PAGE> 1
LOAN MODIFICATION AGREEMENT
THIS LOAN MODIFICATION AGREEMENT ("Agreement") is made and entered into as
of the 30th day of March, 1998 by and among FIRST UNION NATIONAL BANK, successor
by merger to Signet Bank (the "Bank"), BLUE II, LLC (the "Borrower"), Frederick
Brewing Co. ("FBC"), Edward D. Scott ("Scott"), Robert Schuerholz
("Schuerholz"), Nicholas P. Foris ("Foris") and Vishnampet S. Jayanthimath
("Jayanthimath"). Scott, Schuerholz, Foris and Jayanthimath are hereafter
collectively referred to as the "Guarantors." The Borrower, FBC and the
Guarantors are sometimes collectively referred to as the "Obligors."
<PAGE> 2
RECITALS
R-1. The Bank is the owner and holder of a Promissory Note dated July 19,
1996 in the original principal amount of $3,000,000.00 executed by the Borrower
(as amended, modified, supplemented, extended, renewed or restated from time to
time, the "Note").
R-2. The Note was issued in connection with a Loan and Financing Agreement
dated July 19, 1996 by and among the Bank, the Borrower, FBC and Maryland
Economic Development Corporation (as amended, modified, supplemented, extended,
renewed or restated from time to time, the "Loan Agreement").
R-3. The Borrower's obligations under the Note and the Loan Agreement are
secured by, inter alia, the following (collectively, the "Collateral"): (a) Deed
of Trust dated July 19, 1996 (the "Deed of Trust") recorded among the land
records of Frederick County, Maryland at liber 2207, folio 0857 encumbering
certain real estate and improvements described therein (the "Property"); and (b)
Assignment of Leases and Rents dated July 19, 1996 (the "Assignment of Rents")
recorded among the land records of Frederick County, Maryland at liber 2207,
folio 0903.
R-4. The Borrower's obligations under the Note and the Loan Agreement are
guaranteed by the Guarantors pursuant to the terms of a Guaranty (Deficiency)
dated July 19, 1996 (the "Guaranty"). The Guaranty is secured by, inter alia, an
Irrevocable Standby Letter of Credit issued on July 19, 1996 by FCNB Bank (the
"Letter of Credit").
R-5. The Maryland Industrial Development Financing Authority ("MIDFA")
insures a portion of the Obligations (as hereafter defined) pursuant to the
terms of an Insurance Agreement dated July 19, 1996 (the "Insurance Agreement").
R-6. The terms of the Loan Agreement were modified pursuant to the terms
of a Forbearance Agreement dated February 27, 1997 and a letter agreement dated
January 9, 1998 (collectively, the "Modification Documents").
R-7. The Loan (as hereafter defined) matures on July 1, 2006 (the
"Maturity Date").
R-8. As of March 27, 1998, there was due and owing under the Note a total
of $2,872,412.97 (consisting of principal in the amount of $2,857,142.88 and
accrued interest in the amount of $15,270.09), plus attorneys' fees and
expenses. In addition, interest continues to accrue from March 27, 1998 at the
per diem rate of $589.97.
R-9. The Obligors' obligations under the Note, the Loan Agreement, the
Guaranty and the other Loan Documents (as hereafter defined) are hereafter
collectively referred to as the "Obligations." The Note, the Loan Agreement, the
Guaranty, this Agreement and all documents previously, now or hereafter executed
and delivered to evidence, secure, guarantee or in connection with the
Obligations, as the same may from time to time be amended, modified,
supplemented, extended, renewed or restated, are hereafter collectively referred
to as the "Loan Documents." The loan evidenced by the Loan Documents is
hereafter referred to as the "Loan."
R-9. The Obligors have requested that certain of the terms of the Loan
Documents be modified in accordance with the terms and conditions of this
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. RECITALS.
The recitals to this Agreement are true and correct, and are
incorporated into and made a substantive part of this Agreement.
<PAGE> 3
2. CONFIRMATION AND RATIFICATION OF LOAN DOCUMENTS
The Obligors, individually and collectively, agree that the Loan
Documents are in full force and effect and that each Loan Document shall
remain in full force and effect unless and until modified or amended in
writing in accordance with its terms. The Obligors confirm and ratify their
obligations under the Loan Documents, and agree that the execution and
delivery of this Agreement shall not in any way diminish or invalidate any
of their obligations under the Loan Documents. All parties hereto consent
to the execution and delivery of this Agreement, and to all the provisions
of this Agreement to the extent that such provisions may modify the terms
and provisions of any of the Loan Documents.
3. CONFIRMATION AND RATIFICATION OF GUARANTY.
The Guarantors, individually and collectively, for good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, hereby consent to and join in this Agreement and hereby
declare to and agree with that the Guaranty is and shall continue in full
force and effect for the benefit of the Bank, that there are no offsets,
claims or defenses of the Guarantors with respect to the Guaranty nor, to
the Guarantors' knowledge, with respect to the Obligations, that the
Guaranty is not released, diminished or impaired in any way by this
Agreement or the transactions contemplated hereby, and that the Guaranty is
hereby confirmed and ratified in all respects. The Guarantors hereby
reaffirm all of the representations and warranties set forth in the
Guaranty. The Guarantors acknowledge that, without this consent and
reaffirmation, the Bank would not execute this Agreement or otherwise
consent to its terms.
4. MODIFICATION OF MATURITY DATE.
The Loan shall mature on April 1, 1999 (the "Amended Maturity Date").
On the Amended Maturity Date, all of the Obligations, including all
outstanding principal, accrued interest, outstanding late charges,
outstanding fees and all other amounts due under the Loan Documents, shall
be due and payable in full. The Bank shall have no obligation to consider
or grant any extension of the Amended Maturity Date.
5. MODIFICATION OF INTEREST RATE.
Effective as of April 30, 1998, the Obligations shall bear interest at
a variable rate equal to the Bank's Prime Rate (as hereafter defined), plus
one and one-half percent (1 1/2%) per annum. As used herein, "Prime Rate"
means the rate of interest established by the Bank from time to time as its
"prime rate." Such rate is set by the Bank as a general reference rate of
interest, taking into account such factors as it may deem appropriate, and
the Borrower understands that it is not necessarily the lowest or best rate
actually charged to any customer, that it may not correspond with future
increases or decreases in interest rates charged by other lenders or market
rates in general, and that the Bank may make various commercial or other
loans at rates of interest having no relationship to the Prime Rate.
Without notice to the Borrower or anyone else, the Prime Rate shall
automatically fluctuate upward and downward as and in the amount by which
the Bank's prime rate fluctuates.
6. MODIFICATION OF FINANCIAL COVENANTS.
6.1 Current Ratio (Loan Agreement Section 5.4(b)). FBC shall
maintain a ratio of current assets to current liabilities of not less
than 1.0 to 1 as the calendar quarter ending March 31, 1998 and each
calendar quarter thereafter.
6.2 Cash Flow to Debt Service Ratio (Loan Agreement Section
5.4(e)). The Bank shall waive any default arising from FBC's failure to
comply with the cash flow to debt service ratio for the calendar
quarters ending March 31, 1998, June 30, 1998 and September 30, 1998.
This waiver is a one-time waiver and is expressly limited to any default
arising from FBC's failure to comply with the cash flow to debt service
ratio for the calendar quarters ending March 31, 1998, June 30, 1998 and
September 30, 1998. Notwithstanding anything to the contrary herein,
this waiver shall not constitute a waiver of any other default or event
of default under any of the Loan Documents
<PAGE> 4
(whether declared, undeclared or known or unknown), including, without
limitation, any default or event of default based on FBC's failure to
comply with any other financial covenant set forth in the Loan
Documents. FBC shall maintain a cash flow to debt service ratio of not
less than 1.0 to 1 as of the calendar quarter ending December 31, 1998
and each calendar quarter thereafter. For purposes of calculating the
cash flow to debt service ratio: (a) "cash flow" shall mean the net
income plus depreciation and amortization expense of the Borrower, and
shall be measured based on the last ninety (90) days of the calendar
quarter annualized by a factor of four (4); and (b) "debt service" shall
mean, for each period during which cash flow is measured, the current
maturities of long term debt of the Borrower (including, without
limitation, the current portion of capital lease obligations) due and/or
paid during such period.
7. FEES AND EXPENSES.
The Obligors shall be responsible for all fees and expenses, including
all attorneys' fees and expenses, incurred by the Bank in connection with
the negotiation and preparation of this Agreement and with the enforcement
of the Bank's rights under the Loan Documents, which fees and expenses
shall be considered part of the Obligations.
8. REPLACEMENT FINANCING.
The Borrower shall use best efforts to secure debt and/or equity
financing in an amount sufficient to pay in full the Obligations prior to
the Amended Maturity Date. The Borrower shall provide to the Bank such
written reports as the Bank may from time to time request regarding the
status of the Borrower's efforts to secure replacement financing.
9. OBLIGORS' REPRESENTATIONS AND WARRANTIES.
As inducement to enter into this Agreement, the Obligors hereby
represent and warrant to the Bank as follows:
9.1. Authorization and Validity. The execution and delivery of
this Agreement and any related documents by the Obligors and the
performance of their obligations hereunder have been duly authorized,
and this Agreement constitutes the legal, valid and binding obligation
of the Obligors in accordance with its terms.
9.2. Compliance With Other Instruments. The Obligors are not in
default under any provision of their articles of incorporation, by-laws
or other organizational documents, if applicable, or of any existing
judgment, decree, law, governmental order, rule or regulation applicable
to them, or of any agreement or other instrument to which they are a
party or by which their assets are bound. The execution and delivery by
the Obligors of this Agreement and related documents, the consummation
of the transactions herein and therein contemplated, and the compliance
with the terms and provisions hereof and thereof, (a) has not and will
not constitute or result in a breach of their articles of incorporation,
by-laws or other organizational documents, if applicable, any presently
existing applicable law, order, writ, injunction or decree of any court
or governmental department, commission, board, bureau, agency or
instrumentality, or (b) conflict or be inconsistent with or result in
any breach of any of the terms, covenants, conditions or provisions
thereof, or constitute a default under any indenture, mortgage, deed of
trust, lease, sublease, instrument, document, agreement or contract of
any kind to which the Obligors are a party or by which the Obligors may
be bound or subject.
9.3. Benefit. The Obligors have each derived direct or indirect
benefit from this Agreement and the transactions contemplated hereby.
9.4. Engagement of Counsel. The Obligors have each engaged (or
have had the opportunity to engage) independent legal counsel of their
choice to review this Agreement and any related documents. The Obligors
each acknowledge that they are executing and delivering this Agreement
<PAGE> 5
and any related documents voluntarily, without coercion or duress of any
kind, and with full understanding of its content and meaning.
9.5. Truth of Representations. Any and all documents, reports,
certificates and statements provided to the Bank by or on behalf of any
or all of the Obligors in connection with the transactions contemplated
hereby are true, correct and complete, do not contain any untrue
statements of material fact and do not omit any facts to make
information contained therein not misleading.
9.6. Litigation. There is no litigation, at law or in equity, nor
any proceeding before any federal, state or other governmental or
administrative agency or any arbitrator pending or to the knowledge of
the Obligors threatened against the Obligors, except as has been
disclosed to the Bank in writing.
10. RELEASE OF BANK.
The Obligors, individually and collectively, hereby RELEASE and
FOREVER WAIVE and RELINQUISH all claims, demands, obligations, liabilities
and causes of action of whatsoever kind or nature, whether known or
unknown, which all or any of them has, may have, or might have or assert
now or in the future against the Bank and/or its current or former
directors, officers, employees, representatives, insurers, attorneys,
agents, successors or assigns, or any affiliates, subsidiaries or related
entities of the Bank and/or their directors, officers, employees,
representatives, insurers, attorneys, agents, successors or assigns
(collectively, the "Bank Group"), directly or indirectly, arising out of,
based upon or in any manner connected with any Prior Related Event. As used
herein, the term "Prior Related Event" means any transaction, event,
circumstance, action, failure to act or occurrence of any sort or type,
whether known or unknown, arising out of or related in any way to the Loan,
the Obligations, all or any of the Loan Documents, the Collateral, the
Property, the Deed of Trust, the Assignment of Rents, the Guaranty, the
Letter of Credit, MIDFA, the Insurance Agreement, the Modification
Documents and/or the relationship among all or any of the Obligors and the
Bank Group which occurred, existed, was taken, permitted or begun prior to
the execution of this Agreement. The execution of this Agreement by the
Bank shall not constitute an acknowledgement or admission by the Bank of
any liability for any matter or precedent upon which any liability may be
asserted.
11. GENERAL PROVISIONS.
11.1. Headings. The headings and subheadings in this Agreement are
intended for convenience only and shall not be used or deemed to limit or
diminish any of the provisions hereof.
11.2. Construction. Unless the context requires otherwise, singular
nouns and pronouns used in this Agreement shall be deemed to include the
plural, and pronouns of one gender shall be deemed to include the
equivalent pronoun of the other gender.
11.3. Further Assurances and Corrective Instruments. The parties to
this Agreement shall execute, acknowledge and deliver, or cause to be
executed, acknowledged and delivered, from time to time, such supplements
hereto and such further instruments and documents as may be required to
facilitate the carrying out of the intentions of the parties to this
Agreement.
11.4. Survival: Successors and Assigns. All covenants, agreements,
representations and warranties made herein, and in the documents executed
in connection with this Agreement, shall continue in full force and effect.
Whenever in this Agreement any of the parties hereto is referred to, such
reference shall be deemed to include the successors and assigns of such
party.
11.5. Waiver of Jury Trial. All parties to this Agreement agree that
any suit, action or proceeding brought or instituted by any party hereto or
any successor or assign of any party which in any way relates, directly or
indirectly, to the Loan, the Obligations, all or any of the Loan Documents,
the Collateral, the Property, the Deed of Trust, the Assignment of Rents,
the Guaranty, the Letter of Credit, MIDFA, the Insurance Agreement, the
Modification Documents and/or the relationship among all or any of the
Obligors and the Bank Group shall be tried only by a court and not a jury.
EACH PARTY HEREBY
<PAGE> 6
EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT, ACTION OR
PROCEEDING. The Obligors represent, acknowledge and agree that this
provision is a specific and material aspect of this Agreement between the
parties and that the Bank would not agree to the terms of this Agreement if
this waiver of jury trial provision were not a part of this Agreement. The
Obligors represent, acknowledge and agree that this waiver is knowingly,
intelligently and voluntarily made, that neither the Bank nor any person
acting on behalf of the Bank has made any representations to induce this
waiver of trial by jury, that the Obligors have each been represented (or
have had the opportunity to be represented) in the signing of this
Agreement and in the making of this waiver by independent legal counsel
selected by the Obligors and that the Obligors have had the opportunity to
discuss this waiver with counsel.
11.6. Modification. No modification of any provision of this
Agreement, or of any document executed in connection with this Agreement,
shall in any event be effective unless the same is in writing, and then
such modification shall be effective only in the specific instance or for
the purpose for which given.
11.7. Waiver. Neither any failure nor any delay on the part of any of
the parties in exercising any right, power or remedy under this Agreement,
any documents executed in connection with this Agreement or under
applicable law shall operate as a waiver thereof, nor shall a single or
partial exercise thereof preclude any other or further exercises thereof or
the exercise of any other right, power or remedy.
11.8. Severability. If any term, provision or condition, or any part
thereof, of this Agreement, or any of the documents executed in connection
with this Agreement, shall for any reason be found or held to be invalid or
unenforceable by any court or governmental agency of competent
jurisdiction, such invalidity or unenforceability shall not affect the
remainder of such term, provision or condition or any other term, provision
or condition, and this Agreement, and all documents executed in connection
with this Agreement, shall survive and be construed as if such invalid or
unenforceable term, provision or condition had not been contained therein.
11.9. Merger and Integration. This Agreement, and the documents
executed in connection with this Agreement, contain the entire agreement of
the parties hereto with respect to the matters covered and the transactions
contemplated hereby, and no other agreement, statement or promise made by
any party hereto, or any employee, officer, agent or attorney of any party
hereto, shall be valid or binding.
11.10. No Release or Discharge. Except as expressly provided herein,
nothing contained in this Agreement is intended to or shall act to nullify,
discharge or release any obligations or to release any collateral. Except
to the extent of any express conflict with this Agreement, each and every
of the terms and conditions of the Loan Documents shall remain in full
force and effect.
11.11. Notices. Any notices required or permitted by this Agreement
shall be in writing and shall be deemed delivered if delivered by hand, by
overnight mail or by certified mail, return receipt requested, as follows,
unless such address is changed by written notice hereunder:
<TABLE>
<S> <C>
If to the Bank: First Union National Bank
1970 Chain Bridge Road
7th Floor, South Tower
McLean, Virginia 22120
ATTN: Mr. David A. Dix, Vice President
with a copy to: Richard M. Kremen, Esquire
Piper & Marbury L.L.P.
Charles Center South
36 South Charles Street
Baltimore, Maryland 21201
</TABLE>
<PAGE> 7
If to the Borrower: Blue II, LLC
--------------------------------------------
--------------------------------------------
--------------------------------------------
with a copy to:
--------------------------------------------
--------------------------------------------
--------------------------------------------
If to FBC: Frederick Brewing Co.
4607 Wedgewood Boulevard
Frederick, Maryland 21703
ATTN: Mr. Kevin E. Brannon, Chairman
and Chief Executive Officer
with a copy to:
--------------------------------------------
--------------------------------------------
--------------------------------------------
If to Scott: Edward D. Scott
--------------------------------------------
--------------------------------------------
--------------------------------------------
with a copy to:
--------------------------------------------
--------------------------------------------
--------------------------------------------
If to Schuerholz: Robert Schuerholz
--------------------------------------------
--------------------------------------------
--------------------------------------------
with a copy to:
--------------------------------------------
--------------------------------------------
--------------------------------------------
If to Foris: Nicholas P. Foris
--------------------------------------------
--------------------------------------------
--------------------------------------------
with a copy to:
--------------------------------------------
--------------------------------------------
--------------------------------------------
If to Jayanthimath: Vishnampet S. Jayanthimath
--------------------------------------------
--------------------------------------------
--------------------------------------------
<PAGE> 8
with a copy to:
--------------------------------------------
--------------------------------------------
--------------------------------------------
11.12. Applicable Law. The performance, construction and enforcement
of this Agreement and the documents executed in connection with this
Agreement shall be governed by the laws of the State of Maryland.
11.13. Time of Essence. Time is of the essence.
11.14. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed original, but all of which
shall constitute one and the same agreement.
11.15. Binding Effect. This Agreement shall have no effect unless and
until it has been executed by all parties.
IN WITNESS WHEREOF, the parties hereto have executed or caused to be
executed, this Agreement under seal as of the day and year first written above.
WITNESS/ATTEST:
- --------------------------------------------
FIRST UNION NATIONAL BANK,
successor by merger to Signet Bank
By: (SEAL)
-----------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
<PAGE> 9
WITNESS/ATTEST: BLUE II, LLC
- ------------------------------- By: (SEAL)
----------------------------
Name:
--------------------------------
Title:
-------------------------------
WITNESS/ATTEST: FREDERICK BREWING CO.
- ------------------------------- By: (SEAL)
----------------------------
Name:
--------------------------------
Title:
-------------------------------
WITNESS/ATTEST: EDWARD D. SCOTT
(SEAL)
- ------------------------------- -------------------------------
WITNESS/ATTEST: ROBERT SCHUERHOLZ
(SEAL)
- ------------------------------- -------------------------------
WITNESS/ATTEST: NICHOLAS P. FORIS
(SEAL)
- ------------------------------- -------------------------------
WITNESS/ATTEST: VISHNAMPET S. JAYANTHIMATH
(SEAL)
- ------------------------------- -------------------------------
<PAGE> 10
STATE OF __________________________________)
) ss:
CITY/COUNTY OF ___________________________)
I HEREBY CERTIFY that on this day of March, 1998, before me, the
subscriber, a notary public of the above state and city/county, personally
appeared , known to me or satisfactorily proven to
be the person whose name is subscribed to the foregoing Loan Modification
Agreement, who acknowledged himself/herself to be the
of First Union National Bank, and that he/she being authorized to do so,
executed the foregoing Loan Modification Agreement for the purposes therein
contained.
--------------------------------------
Notary Public
My commission expires: ________________
STATE OF __________________________________)
) ss:
CITY/COUNTY OF ___________________________)
I HEREBY CERTIFY that on this day of March, 1998, before me, the
subscriber, a notary public of the above state and city/county, personally
appeared , known to me or satisfactorily proven to
be the person whose name is subscribed to the foregoing Loan Modification
Agreement, who acknowledged himself/herself to be the
of Blue II, LLC, and that he/she being authorized to do so, executed the
foregoing Loan Modification Agreement for the purposes therein contained.
--------------------------------------
Notary Public
My commission expires: ________________
<PAGE> 11
STATE OF __________________________________)
) ss:
CITY/COUNTY OF ___________________________)
I HEREBY CERTIFY that on this day of March, 1998, before me, the
subscriber, a notary public of the above state and city/county, personally
appeared , known to me or satisfactorily proven to
be the person whose name is subscribed to the foregoing Loan Modification
Agreement, who acknowledged himself/herself to be the
of Frederick Brewing Co., and that he/she being authorized to do so, executed
the foregoing Loan Modification Agreement for the purposes therein contained.
--------------------------------------
Notary Public
My commission expires: ________________
STATE OF __________________________________)
) ss:
CITY/COUNTY OF ___________________________)
I HEREBY CERTIFY that on this day of March, 1998, before me, the
subscriber, a notary public of the above state and city/county, personally
appeared Edward D. Scott, known to me or satisfactorily proven to be the person
whose name is subscribed to the foregoing Loan Modification Agreement, who
executed the foregoing Loan Modification Agreement for the purposes therein
contained.
--------------------------------------
Notary Public
My commission expires: ________________
<PAGE> 12
STATE OF __________________________________)
) ss:
CITY/COUNTY OF ___________________________)
I HEREBY CERTIFY that on this day of March, 1998, before me, the
subscriber, a notary public of the above state and city/county, personally
appeared Robert Schuerholz, known to me or satisfactorily proven to be the
person whose name is subscribed to the foregoing Loan Modification Agreement,
who executed the foregoing Loan Modification Agreement for the purposes therein
contained.
--------------------------------------
Notary Public
My commission expires: ________________
STATE OF __________________________________)
) ss:
CITY/COUNTY OF_____________________________)
I HEREBY CERTIFY that on this day of March, 1998, before me, the
subscriber, a notary public of the above state and city/county, personally
appeared Nicholas P. Foris, known to me or satisfactorily proven to be the
person whose name is subscribed to the foregoing Loan Modification Agreement,
who executed the foregoing Loan Modification Agreement for the purposes therein
contained.
--------------------------------------
Notary Public
My commission expires: ________________
<PAGE> 13
STATE OF __________________________________)
) ss:
CITY/COUNTY OF ___________________________)
I HEREBY CERTIFY that on this day of March, 1998, before me, the
subscriber, a notary public of the above state and city/county, personally
appeared Vishnampet S. Jayanthimath, known to me or satisfactorily proven to be
the person whose name is subscribed to the foregoing Loan Modification
Agreement, who executed the foregoing Loan Modification Agreement for the
purposes therein contained.
--------------------------------------
Notary Public
My commission expires: ________________
<PAGE> 14
CONSENT OF MARYLAND INDUSTRIAL
DEVELOPMENT FINANCING AUTHORITY
The Maryland Industrial Development Financing Authority ("MIDFA") hereby
acknowledges and consents to the foregoing Loan Modification Agreement by and
among First Union National Bank, successor by merger to Signet Bank (the
"Bank"), Blue II, LLC (the "Borrower"), Frederick Brewing Co., Edward D. Scott,
Robert Schuerholz, Nicholas P. Foris, Vishnampet S. Jayanthimath.
MIDFA reaffirms to the Bank MIDFA's obligations under the Insurance
Agreement dated July 19, 1996 between MIDFA and the Bank relating to the
$3,000,000.00 loan to the Borrower.
WITNESS/ATTEST: MARYLAND INDUSTRIAL DEVELOPMENT
FINANCING AUTHORITY
By: (SEAL)
- ------------------------- -----------------------------
Name:
---------------------------
Title:
--------------------------
STATE OF __________________________________ )
) ss:
CITY/COUNTY OF ___________________________ )
I HEREBY CERTIFY that on this day of March, 1998, before me, the
subscriber, a notary public of the above state and city/county, personally
appeared , known to me or satisfactorily proven to
be the person whose name is subscribed to the foregoing Loan Modification
Agreement, who acknowledged himself/herself to be the
of Maryland Industrial Development Financing Authority, and that he/she being
authorized to do so, executed the foregoing Loan Modification Agreement for the
purposes therein contained.
--------------------------------------
Notary Public
My commission expires: ________________
<PAGE> 1
LOAN MODIFICATION AGREEMENT
THIS LOAN MODIFICATION AGREEMENT ("Agreement") is made and entered into as
of the 30th day of March, 1998 by and between FIRST UNION NATIONAL BANK,
successor by merger to Signet Bank (the "Bank"), and FREDERICK BREWING CO. (the
"Borrower").
RECITALS
R-1. The Bank is the owner and holder of a Promissory Note dated July 19,
1996 in the original principal amount of $1,500,000.00 executed by the Borrower
(as amended, modified, supplemented, extended, renewed or restated from time to
time, the "Note").
R-2. The Note was issued in connection with a Loan and Financing Agreement
dated July 19, 1996 by and among the Bank, the Borrower and Maryland Economic
Development Corporation (as amended, modified, supplemented, extended, renewed
or restated from time to time, the "Loan Agreement").
R-3. The Borrower's obligations under the Note and the Loan Agreement are
secured by, inter alia, a blanket security interest in the assets of the
Borrower, including, without limitation, the Borrower's present and future
accounts, contract rights, receivables, inventory, equipment, fixtures,
instruments and general intangibles (collectively, the "Collateral").
R-4. The Maryland Industrial Development Financing Authority ("MIDFA")
insures a portion of the Obligations (as hereafter defined) pursuant to the
terms of an Insurance Agreement dated July 19, 1996 (the "Insurance Agreement").
R-5. The terms of the Loan Agreement were modified pursuant to the terms of
a Forbearance Agreement dated February 27, 1997 and a letter agreement dated
January 9, 1998 (collectively, the "Modification Documents").
R-6. The Loan (as hereafter defined) matures on July 1, 2006 (the "Maturity
Date").
R-7. As of March 27, 1998, there was due and owing under the Note a total
of $1,331,927.57 (consisting of principal in the amount of $1,325,088.88 and
accrued interest in the amount of $6,838.69), plus attorneys' fees and expenses.
In addition, interest continues to accrue from March 27, 1998 at the per diem
rate of $264.41.
R-8. The Borrower's obligations under the Note, the Loan Agreement and the
other Loan Documents (as hereafter defined) are hereafter collectively referred
to as the "Obligations." The Note, the Loan Agreement, this Agreement and all
documents previously, now or hereafter executed and delivered to evidence,
secure, guarantee or in connection with the Obligations, as the same may from
time to time be amended, modified, supplemented, extended, renewed or restated,
are hereafter collectively referred to as the "Loan Documents." The loan
evidenced by the Loan Documents is hereafter referred to as the "Loan."
R-9. The Borrower has requested that certain of the terms of the Loan
Documents be modified in accordance with the terms and conditions of this
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. RECITALS.
The recitals to this Agreement are true and correct, and are
incorporated into and made a substantive part of this Agreement.
<PAGE> 2
2. CONFIRMATION AND RATIFICATION OF LOAN DOCUMENTS.
The Borrower agrees that the Loan Documents are in full force and
effect and that each Loan Document shall remain in full force and effect
unless and until modified or amended in writing in accordance with its
terms. The Borrower confirms and ratifies its obligations under the Loan
Documents, and agrees that the execution and delivery of this Agreement
shall not in any way diminish or invalidate any of its obligations under
the Loan Documents. All parties hereto consent to the execution and
delivery of this Agreement, and to all the provisions of this Agreement to
the extent that such provisions may modify the terms and provisions of any
of the Loan Documents.
3. MODIFICATION OF MATURITY DATE.
The Loan shall mature on April 1, 1999 (the "Amended Maturity Date").
On the Amended Maturity Date, all of the Obligations, including all
outstanding principal, accrued interest, outstanding late charges,
outstanding fees and all other amounts due under the Loan Documents, shall
be due and payable in full. the Bank shall have no obligation to consider
or grant any extension of the Amended Maturity Date.
4. MODIFICATION OF INTEREST RATE.
Effective as of April 30, 1998, the Obligations shall bear interest at
a variable rate equal to the Bank's Prime Rate (as hereafter defined), plus
one and one-quarter percent (1 1/4%) per annum. As used herein, "Prime
Rate" means the rate of interest established by the Bank from time to time
as its "prime rate." Such rate is set by the Bank as a general reference
rate of interest, taking into account such factors as it may deem
appropriate, and the Borrower understands that it is not necessarily the
lowest or best rate actually charged to any customer, that it may not
correspond with future increases or decreases in interest rates charged by
other lenders or market rates in general, and that the Bank may make
various commercial or other loans at rates of interest having no
relationship to the Prime Rate. Without notice to the Borrower or anyone
else, the Prime Rate shall automatically fluctuate upward and downward as
and in the amount by which the Bank's prime rate fluctuates.
5. MODIFICATION OF FINANCIAL COVENANTS.
5.1 Current Ratio (Loan Agreement Section 5.2(b)). The Borrower
shall maintain a ratio of current assets to current liabilities of not
less than 1.0 to 1 as of the calendar quarter ending March 31, 1998 and
each calendar quarter thereafter.
5.2 Cash Flow to Debt Service Ratio (Loan Agreement Section
5.2(e)). The Bank shall waive any default arising from the Borrower's
failure to comply with the cash flow to debt service ratio for the
calendar quarters ending March 31, 1998, June 30, 1998 and September 30,
1998. This waiver is a one-time waiver and is expressly limited to any
default arising from the Borrower's failure to comply with the cash flow
to debt service ratio for the calendar quarters ending March 31, 1998,
June 30, 1998 and September 30, 1998. Notwithstanding anything to the
contrary herein, this waiver shall not constitute a waiver of any other
default or event of default under any of the Loan Documents (whether
declared, undeclared or known or unknown), including, without
limitation, any default or event of default based on the Borrower's
failure to comply with any other financial covenant set forth in the
Loan Documents. The Borrower shall maintain a cash flow to debt service
ratio of not less than 1.0 to 1 as of the calendar quarter ending
December 31, 1998 and each calendar quarter thereafter. For purposes of
calculating the cash flow to debt service ratio: (a) "cash flow" shall
mean the net income plus depreciation and amortization expense of the
Borrower, and shall be measured based on the last ninety (90) days of
the calendar quarter annualized by a factor of (4); and (b) "debt
service" shall mean, for each period during which cash flow is measured,
the current maturities of long term debt of the Borrower (including,
without limitation, the current portion of capital lease obligations)
due and/or paid during such period.
<PAGE> 3
6. LOAN MODIFICATION FEE.
The Borrower shall pay to the Bank, in addition to the other
Obligations, a loan modification fee in the amount of $25,000.00 in two
installments. The first installment, in the amount of $10,000.00, shall be
due and payable on June 30, 1998. The second installment, in the amount of
$15,000.00, shall be due and payable on September 30, 1998.
7. FEES AND EXPENSES.
The Borrower shall be responsible for all fees and expenses, including
all attorneys' fees and expenses, incurred by the Bank in connection with
the negotiation and preparation of this Agreement and with the enforcement
of the Bank's rights under the Loan Documents, which fees and expenses
shall be considered part of the Obligations.
8. REPLACEMENT FINANCING.
The Borrower shall use best efforts to secure debt and/or equity
financing in an amount sufficient to pay in full the Obligations prior to
the Amended Maturity Date. The Borrower shall provide to the Bank such
written reports as the Bank may from time to time request regarding the
status of the Borrower's efforts to secure replacement financing.
9. BORROWER'S REPRESENTATIONS AND WARRANTIES.
As inducement to enter into this Agreement, the Borrower hereby
represents and warrants to the Bank as follows:
9.1. Authorization and Validity. The execution and delivery of
this Agreement and any related documents by the Borrower and the
performance of its obligations hereunder have been duly authorized, and
this Agreement constitutes the legal, valid and binding obligation of
the Borrower in accordance with its terms.
9.2. Compliance With Other Instruments. The Borrower is not in
default under any provision of its articles of incorporation, by-laws or
other organizational documents, if applicable, or of any existing
judgment, decree, law, governmental order, rule or regulation applicable
to the Borrower, or of any agreement or other instrument to which the
Borrower is a party or by which its assets are bound. The execution and
delivery by the Borrower of this Agreement and related documents, the
consummation of the transactions herein and therein contemplated, and
the compliance with the terms and provisions hereof and thereof, (a) has
not and will not constitute or result in a breach of the Borrower's
articles of incorporation, by-laws or other organizational documents, if
applicable, any presently existing applicable law, order, writ,
injunction or decree of any court or governmental department,
commission, board, bureau, agency or instrumentality, or (b) conflict or
be inconsistent with or result in any breach of any of the terms,
covenants, conditions or provisions thereof, or constitute a default
under any indenture, mortgage, deed of trust, lease, sublease,
instrument, document, agreement or contract of any kind to which the
Borrower is a party or by which the Borrower may be bound or subject.
9.3. Benefit. The Borrower has derived direct or indirect benefit
from this Agreement and the transactions contemplated hereby.
9.4. Engagement of Counsel. The Borrower has engaged (or has had
the opportunity to engage) independent legal counsel of its choice to
review this Agreement and any related documents. The Borrower
acknowledges that it is executing and delivering this Agreement and any
related documents voluntarily, without coercion or duress of any kind,
and with full understanding of its content and meaning.
9.5. Truth of Representations. Any and all documents, reports,
certificates and statements provided to the Bank by or on behalf of the
Borrower in connection with the transactions
<PAGE> 4
contemplated hereby are true, correct and complete, do not contain any
untrue statements of material fact and do not omit any facts to make
information contained therein not misleading.
9.6. Litigation. There is no litigation, at law or in equity, nor
any proceeding before any federal, state or other governmental or
administrative agency or any arbitrator pending or to the knowledge of
the Borrower threatened against the Borrower, except as has been
disclosed to the Bank in writing.
10. RELEASE OF BANK.
The Borrower hereby RELEASES and FOREVER WAIVES and RELINQUISHES all
claims, demands, obligations, liabilities and causes of action of
whatsoever kind or nature, whether known or unknown, which it has, may
have, or might have or assert now or in the future against the Bank and/or
its current or former directors, officers, employees, representatives,
insurers, attorneys, agents, successors or assigns, or any affiliates,
subsidiaries or related entities of the Bank and/or its current or former
directors, officers, employees, representatives, insurers, attorneys,
agents, successors or assigns, or any affiliates, subsidiaries or related
entities of the Bank and/or their directors, officers, employees,
representatives, insurers, attorneys, agents, successors or assigns
(collectively, the "Bank Group"), directly or indirectly, arising out of,
based upon or in any manner connected with any Prior Related Event. As used
herein, the term "Prior Related Event" means any transaction, event,
circumstance, action, failure to act or occurrence of any sort or type,
whether known or unknown, arising out of or related in any way to the Loan,
the Obligations, all or any of the Loan Documents, the Collateral, MIDFA,
the Insurance Agreement, the Modification Documents and/or the relationship
among the Borrower and the Bank Group which occurred, existed, was taken,
permitted or begun prior to the execution of this Agreement. The execution
of this Agreement by the Bank shall not constitute an acknowledgement or
admission by the Bank of any liability for any matter or precedent upon
which any liability may be asserted.
11. GENERAL PROVISIONS.
11.1 Headings. The headings and subheadings in this Agreement are
intended for convenience only and shall not be used or deemed to limit
or diminish any of the provisions hereof.
11.2 Construction. Unless the context requires otherwise, singular
nouns and pronouns used in this Agreement shall be deemed to include the
plural, and pronouns of one gender shall be deemed to include the
equivalent pronoun of the other gender.
11.3 Further Assurances and Corrective Instruments. The parties to
this Agreement shall execute, acknowledge and deliver, or cause to be
executed, acknowledged and delivered, from time to time, such
supplements hereto and such further instruments and documents as may be
required to facilitate the carrying out of the intentions of the parties
to this Agreement.
11.4. Survival; Successors and Assigns. All covenants, agreements,
representations and warranties made herein, and in the documents
executed in connection with this Agreement, shall continue in full force
and effect. Whenever in this Agreement any of the parties hereto is
referred to, such reference shall be deemed to include the successors
and assigns of such party.
11.5. Waiver of Jury Trial. All parties to this Agreement agree
that any suit, action or proceeding brought or instituted by any party
hereto or any successor or assign of any party which in any way relates,
directly or indirectly, to the Loan, the Obligations, all or any of the
Loan documents, the Collateral, MIDFA, the Insurance Agreement, the
Modification Documents and/or the relationship among the Borrower and
the Bank Group shall be tried only by a court and not a jury. EACH PARTY
HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT,
ACTION OR PROCEEDING. The Borrower represents, acknowledges and agrees
that this provision is a specific and material aspect of this Agreement
between the parties and that the Bank would not agree to the terms of
this Agreement if this waiver of jury trial provision were not a part of
this Agreement. The Borrower represents, acknowledges and agrees that
this
<PAGE> 5
waiver is knowingly, intelligently and voluntarily made, that neither
the Bank nor any person acting on behalf of the Bank has made any
representations to induce this waiver of trial by jury, that the
Borrower has been represented (or has had the opportunity to be
represented) in the signing of this Agreement and in the making of this
waiver by independent legal counsel selected by the Borrower and that
the Borrower has had the opportunity to discuss this waiver with
counsel.
11.6. Modification. No modification of any provision of this
Agreement, or of any document executed in connection with this
Agreement, shall in any event be effective unless the same is in
writing, and then such modification shall be effective only in the
specific instance or for the purpose for which given.
11.7. Waiver. Neither any failure nor any delay on the part of any
of the parties in exercising any right, power or remedy under this
Agreement, any documents executed in connection with this Agreement or
under applicable law shall operate as a waiver thereof, nor shall a
single or partial exercise thereof preclude any other or further
exercises thereof or the exercise of any other right, power or remedy.
11.8. Severability. It any term, provision or condition, or any
part hereof, of this Agreement, or any of the documents executed in
connection with this Agreement, shall for any reason be found or held to
be invalid or unenforceable by any court or governmental agency of
competent jurisdiction, such invalidity or unenforceability shall not
affect the remainder of such term, provision or condition or any other
term, provision or condition, and this Agreement, and all documents
executed in connection with this Agreement, shall survive and be
construed as if such invalid or unenforceable term, provision or
condition had not been contained therein.
11.9. Merger and Integration. This Agreement, and the documents
executed in connection with this Agreement, contain the entire agreement
of the parties hereto with respect to the matters covered and the
transactions contemplated hereby, and no other agreement, statement or
promise made by any party hereto, or any employee, officer, agent or
attorney of any party hereto, shall be valid or binding.
11.10. No Release or Discharge. Except as expressly provided
herein, nothing contained in this Agreement is intended to or shall act
to nullify, discharge or release any obligations or to release any
collateral. Except to the extent of any express conflict with this
Agreement, each and every of the terms and conditions of the Loan
Documents shall remain in full force and effect.
<PAGE> 6
11.11. Notices. Any notices required or permitted by this
Agreement shall be in writing and shall be deemed delivered if delivered
by hand, by overnight mail or by certified mail, return receipt
requested, as follows, unless such address is changed by written notice
hereunder:
<TABLE>
<S> <C>
If to the Bank: First Union National Bank
1970 Chain Bridge Road
7th Floor, South Tower
McLean, Virginia 22102
ATTN: Mr. David A. Dix, Vice President
with a copy to: Richard M. Kremen, Esquire
Piper & Marbury L.L.P.
Charles Center South
36 South Charles Street
Baltimore, Maryland 21201
If to the Borrower: Frederick Brewing Co.
4607 Wedgewood Boulevard
Frederick, Maryland 21703
ATTN: Mr. Kevin E. Brannon, Chairman
and Chief Executive Officer
with a copy to:
-----------------------------
-----------------------------
-----------------------------
-----------------------------
</TABLE>
11.12. Applicable Law. The performance, construction and
enforcement of this Agreement and the documents executed in connection
with this Agreement shall be governed by the laws of the State of
Maryland.
11.13. Time of Essence. Time is of the essence.
11.14. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same agreement.
11.15. Binding Effect. This Agreement shall have no effect unless
and until it has been executed by all parties.
IN WITNESS WHEREOF, the parties hereto have executed or caused to be
executed, this Agreement under seal as of the day and year first written above.
WITNESS/ATTEST: FIRST UNION NATIONAL BANK,
successor by merger to Signet Bank
By: (SEAL)
- ------------------------ -----------------------
Name:
---------------------
Title:
--------------------
WITNESS/ATTEST:
<PAGE> 7
FREDERICK BREWING CO.
By: (SEAL)
- ---------------------- -------------------------
Name:
-----------------------
Title:
----------------------
<PAGE> 8
STATE OF ____________________________________)
) ss:
CITY/COUNTY OF ___________________________ )
I HEREBY CERTIFY that on this day of March, 1998, before me, the
subscriber, a notary public of the above state and city/county, personally
appeared , known to me or satisfactorily proven to
be the person whose name is subscribed to the foregoing Loan Modification
Agreement, who acknowledged himself/herself to be the
of First Union National Bank, and that he/she being authorized to do so,
executed the foregoing Loan Modification Agreement for the purposes therein
contained.
--------------------------------------
Notary Public
My commission expires: ________________
STATE OF ____________________________________)
) ss:
CITY/COUNTY OF ___________________________ )
I HEREBY CERTIFY that on this day of March, 1998, before me, the
subscriber, a notary public of the above state and city/county, personally
appeared , known to me or satisfactorily proven to be the
person whose name is subscribed to the foregoing Loan Modification Agreement,
who acknowledged himself/herself to be the of Frederick Brewing
Co., and that he/she being authorized to do so, executed the foregoing Loan
Modification Agreement for the purposes therein contained.
--------------------------------------
Notary Public
My commission expires: ________________
<PAGE> 9
CONSENT OF MARYLAND INDUSTRIAL
DEVELOPMENT FINANCING AUTHORITY
The Maryland Industrial Development Financing Authority ("MIDFA") hereby
acknowledges and consents to the foregoing Loan Modification Agreement by and
between First Union National Bank, successor by merger to Signet Bank (the
"Bank"), and Frederick Brewing Co. (the "Borrower").
MIDFA reaffirms to the Bank MIDFA's obligations under the Insurance
Agreement dated July 19, 1996 between MIDFA and the Bank relating to the
$1,500,000.00 loan to the Borrower.
WITNESS/ATTEST: MARYLAND INDUSTRIAL DEVELOPMENT
FINANCING AUTHORITY
By: (SEAL)
----------------------
Name:
--------------------
Title:
-------------------
STATE OF __________________________________ )
) ss:
CITY/COUNTY OF ___________________________ )
I HEREBY CERTIFY that on this day of March, 1998, before me, the
subscriber, a notary public of the above state and city/county, personally
appeared , known to me or satisfactorily proven to
be the person whose name is subscribed to the foregoing Loan Modification
Agreement, who acknowledged himself/herself to be the
of the Maryland Industrial Development Financing Authority, and that he/she
being authorized to do so, executed the foregoing Loan Modification Agreement
for the purposes therein contained.
--------------------------------------
Notary Public
My commission expires: ________________
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Frederick Brewing Company on Form S-3 (File No. 333-25743 and File No.
333-35655) of our report dated March 30, 1998, on our audits of the financial
statements of Frederick Brewing Company as of December 31, 1997 and 1996 and for
the years then ended, which report is included in this Annual Report on
Form 10-K.
Coopers & Lybrand L.L.P.
McLean, Virginia
March 31, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-KSB
FOR THE YEAR ENDED DECEMBER 31, 1997, SPECIFICALLY BALANCE SHEET, AND STATEMENT
OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-KSB
- - DECEMBER 31, 1997.
</LEGEND>
<CIK> 0000926978
<NAME> FREDERICK BREWING CO.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,625,355
<SECURITIES> 0
<RECEIVABLES> 333,437
<ALLOWANCES> 0
<INVENTORY> 354,224
<CURRENT-ASSETS> 3,416,492
<PP&E> 8,777,778
<DEPRECIATION> 402,133
<TOTAL-ASSETS> 13,401,419
<CURRENT-LIABILITIES> 1,043,699
<BONDS> 0
5,552,713
0
<COMMON> 167
<OTHER-SE> (9,784,432)
<TOTAL-LIABILITY-AND-EQUITY> 13,401,419
<SALES> 3,077,681
<TOTAL-REVENUES> 3,077,681
<CGS> 2,837,229
<TOTAL-COSTS> 7,459,258
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 140,030
<INCOME-PRETAX> (4,363,440)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,363,440)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,363,440)
<EPS-PRIMARY> (1.59)
<EPS-DILUTED> (2.91)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FRO BALANCE
SHEET, AND STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FORM 10-KSB FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 688,990
<SECURITIES> 0
<RECEIVABLES> 239,413
<ALLOWANCES> 0
<INVENTORY> 210,563
<CURRENT-ASSETS> 1,221,378
<PP&E> 3,592,814
<DEPRECIATION> 305,118
<TOTAL-ASSETS> 4,766,325
<CURRENT-LIABILITIES> 1,259,950
<BONDS> 0
0
0
<COMMON> 72
<OTHER-SE> 1,823,315
<TOTAL-LIABILITY-AND-EQUITY> 4,766,325
<SALES> 1,720,433
<TOTAL-REVENUES> 1,720,433
<CGS> 1,743,896
<TOTAL-COSTS> 3,734,219
<OTHER-EXPENSES> 640,815
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (29,427)
<INCOME-PRETAX> (2,625,174)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,625,174)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,625,174)
<EPS-PRIMARY> (1.45)
<EPS-DILUTED> (1.45)
</TABLE>
