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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
January 29,1998
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(Date of earliest event reported)
Frederick Brewing Co.
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(Exact name of registrant as specified in its charter)
Maryland 0-27800 52-1769647
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(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
4607 Wedgewood Blvd., Frederick, Maryland 21703
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(Address of principal executive offices)
Registrant's telephone number, including area code: (301) 694-7899
Not Applicable
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(Former name, former address and former fiscal year, if changed since
last report)
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<PAGE>
ITEM 2. Acquisition and Disposition of Assets
On January 29, 1998, Frederick Brewing Co. (the "Company"), completed its
acquisition of Wild Goose Brewery, Inc. ("WGB") in a merger of WGB with and into
FBC Acquisition Corporation ("FAC"), a newly created wholly owned subsidiary of
the Company established for that purpose. FAC, which changed its name to Wild
Goose Brewery, Inc. upon completion of the acquisition, will continue as an
operating subsidiary of the Company.
The underlying assets acquired included brewing and packaging equipment,
leasehold improvements, inventories of packaging materials, ingredients and
finished goods, intellectual property, pre-paid expenses, cash and accounts
receivables. The liabilities assumed included accounts payable, accrued
liabilities and a note payable to First Union National Bank. The purchase price
for the acquisition, which was negotiated between the Company and WGB, consists
of the issuance of Company common stock in an amount not greater than $2.5
million, subject to adjustment pursuant to the terms of Article 2.0 of the
acquisition agreement described below, and the retirement of WGB debt in an
amount of approximately $535,000. The Company utilized cash from a recently
completed private placement of 3,000 shares of its Series E Preferred Stock at
$1,000 per share to retire the WGB secured debt. The Company will account for
the acquisition as a purchase and will allocate the purchase price to the assets
acquired based on an estimate of their respective fair values.
The Agreement and Plan of Reorganization, dated December 15, 1997
("acquisition agreement"), by and among the Company, FAC and WGB, pursuant to
which the merger was effected, is attached as an exhibit to this report and is
incorporated herein by reference. The above summary of the acquisition agreement
is qualified in its entirety by reference to such acquisition agreement.
Prior to the date of the acquisition and subsequent thereto, WGB was and is
engaged in the business of craft brewing as a microbrewery, which operations
were conducted out of its facility at Cambridge, Maryland prior to the
acquisition and at the Company's facility in Frederick, Maryland thereafter. The
Company intends to sell the brewing and packaging equipment acquired in the
acquisition to third parties. In addition, the Company currently is negotiating
a termination of WGB's Cambridge, Maryland brewing facility and intends to
abandon the leasehold improvements related thereto.
Prior to the closing of this transaction, there was no material
relationship between the Company and WGB or its affiliates.
The Company also completed an asset purchase from Brimstone Brewing Company
("BBC"), Baltimore, Maryland, on January 15, 1998. The purchase price consisted
solely of Company common stock, and the assets purchased consisted primarily of
BBC's intellectual property and inventory. The asset purchase was not related to
the merger described above and was not considered significant to the Company.
2
<PAGE>
ITEM 7. Financial Statements, Pro Forma Financial Information and Exhibits
Pursuant to the requirements of Item 7(a)(4) and Item 7(b)(2) of Form 8-K,
the Company will file an amendment hereto within sixty (60) days of the date
hereof containing the financial information and exhibits required by Item 7.
Exhibits:
Exhibit Number Description
2 Agreement and Plan of Reorganization,
dated as of December 15, 1997, by and
between the Company, FAC and WGB.
20 Press Release issued by the Company on January
29, 1998 with respect to the closing of the
merger and the asset purchase from Brimstone
Brewing Company.
99 Safe Harbor under the Private
Securities Litigation Reform Act of
1995
3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FREDERICK BREWING CO.
Date: February 12, 1998 By: /s/ Kevin E. Brannon
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Kevin E. Brannon
Chief Executive Officer
4
Exhibit 2
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
FREDERICK BREWING CO.,
FBC ACQUISITION CORPORATION,
AND
WILD GOOSE BREWERY INC.
DATED: December 15, 1997
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
Table of Contents
Page
----
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................... 5
2.6 Dissenting Shares..................................... 5
2.7 Exchange Procedures................................... 6
(a) The Exchange...................................... 6
(b) Non-Surrendered Certificates....................... 6
(c) No Dividends....................................... 6
(d) No Obligation to Issue Shares of Frederick Common
Stock.............................................. 6
2.8 Additional Actions.................................... 7
2.9 Structure of the Transaction.......................... 7
Article 3.0 Representations and Warranties of WGB................. 7
3.1 Capitalization; Status and Qualification.............. 7
(a) Capitalization.................................... 7
(b) Status and Qualification.......................... 8
3.2 Authorization; Approval............................... 8
3.3 Financial Statements.................................. 9
3.4 Undisclosed Liabilities............................... 9
3.5 Absence of Changes.................................... 9
3.6 Title to Assets....................................... 10
(a) Title............................................. 10
(b) Condemnation...................................... 10
3.7 Real Property......................................... 10
3.8 Tangible Personal Property............................ 11
3.9 Intellectual Property................................. 11
3.10 Litigation; Orders.................................... 12
3.11 Compliance............................................ 12
(a) Compliance (Non-Environmental).................... 12
(b) Compliance (Environmental)........................ 12
(c) Definitions....................................... 13
3.12 Status of Contracts................................... 16
(a) Status............................................ 16
(b) Scale............................................. 16
(c) Normality......................................... 16
(d) Affiliated Agreements............................. 16
(e) Power of Attorney................................. 17
(f) Pension Obligation................................ 17
3.13 Assets; Inventory..................................... 17
3.14 Customers and Vendors................................. 17
3.15 Taxes .............................................. 18
3.16 Employees; Benefit Plans.............................. 18
(a) Employees......................................... 18
(b) Benefit Plans..................................... 19
3.17 Insurance............................................. 20
3.18 Subsidiaries; Competing Interests..................... 20
3.19 No Pending Transactions............................... 21
3.20 Broker's or Finder's Fees............................. 21
3.21 Updating of Schedules................................. 21
3.22 Ownership of Frederick Common Stock................... 21
3.23 Transactions With Affiliates.......................... 21
3.24 Bank Accounts........................................ 22
3.25 Correct Information................................... 22
Article 4.0 Representations and Warranties of Frederick........... 22
4.1 Structure; Status..................................... 22
(a) Frederick......................................... 22
(b) FAC .............................................. 23
4.2 Authority; No Conflict................................ 23
4.3 Broker's or Finder's Fees............................. 24
4.4 Litigation; Orders.................................... 24
4.5 Authorized Frederick Common Stock..................... 24
4.6 Accuracy and Completeness of Reports.................. 24
Article 5.0 Covenants............................................. 24
5.1 Covenants of WGB...................................... 24
5.2 No Solicitation....................................... 27
5.3 Stockholder Approval.................................. 27
5.4 Access to Information; Confidentiality................ 28
(a) Access to Information............................. 28
(b) Confidentiality................................... 28
(c) Confidentiality................................... 29
5.5 Consents; Efforts to Consummate....................... 29
5.6 Public Announcements.................................. 30
5.7 Existence............................................. 30
5.8 Articles of Merger.................................... 30
Article 6.0 General Matters....................................... 30
6.1 Survival of Representations and Warranties............ 30
6.2 Benefits Plans and Arrangements....................... 30
(a) Plan Participation................................ 30
(b) Employment........................................ 31
(c) Employment Agreement.............................. 31
(d) Retention Bonuses................................. 31
(e) Attendance at Board Meetings...................... 31
6.3 Failure to Fulfill Conditions......................... 32
6.4 Common Stock Restrictions............................. 32
Article 7.0 Conditions to the Obligations of Frederick and FAC
to Consummate......................................... 32
7.1 Representations and Warranties........................ 32
7.2 Performance........................................... 33
7.3 Consents and Approvals................................ 33
7.4 Stockholder Approval.................................. 33
7.5 Dissenting Shares..................................... 33
7.6 Financing............................................. 33
7.7 WGB Private Placements................................ 33
7.8 Delivery of Documents................................. 33
7.9 No Litigation......................................... 34
7.10 No Material Change.................................... 34
Article 8.0 Conditions to Obligations of WGB to Consummate ....... 34
8.1 Representations and Warranties........................ 34
8.2 Performance........................................... 34
8.3 Consents and Approvals................................ 34
8.4 Officers' Certificate................................. 34
8.5 Payment of Frederick Common Shares.................... 34
8.6 No Litigation......................................... 34
8.7 Delivery of Documents................................. 35
Article 9.0 Termination........................................... 35
9.1 Termination........................................... 35
9.2 Procedure and Effect of Termination................... 36
9.3 Payment of Expenses and Termination................... 36
Article 10.0 Miscellaneous......................................... 36
10.1 Further Assurances.................................... 36
10.2 Notices .............................................. 37
10.3 Governing Law......................................... 37
10.4 Severability.......................................... 38
10.5 Entire Agreement; Amendment........................... 38
10.6 Assignment, etc....................................... 38
10.7 Counterparts.......................................... 38
Signatures ........................................................... 39
<PAGE>
Schedules:
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
Exhibits:
Exhibit A............ Form of Employment Agreement between WGB
and James Lutz
Exhibit B............ Form of Opinion of Paul S. Blumenthal, Esq.
<PAGE>
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
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.
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
PAGE 2
(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.
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
PAGE 3
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 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;
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
PAGE 4
(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 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.
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
PAGE 5
(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 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.
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
PAGE 6
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.
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
PAGE 7
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.
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
PAGE 8
(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.
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
PAGE 9
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.
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
PAGE 10
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, 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.
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
PAGE 11
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
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.
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
PAGE 12
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 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 not adversely affected by any Release, threatened Release,
or disposal of a Hazardous Substance originating or emanating from any other
property;
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
PAGE 13
(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.
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
PAGE 14
(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 other record concerning a Hazardous Substance, compliance with an
Environmental Law, and Environmental Claim, or other environmental subject.
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
PAGE 15
(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.
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
PAGE 16
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 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 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.
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AGREEMENT AND PLAN OF REORGANIZATION
PAGE 17
(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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AGREEMENT AND PLAN OF REORGANIZATION
PAGE 18
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 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.
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
PAGE 19
(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 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.
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
PAGE 20
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.
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
PAGE 21
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 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.
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
PAGE 22
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 outstanding warrants, (C)
upon conversion of the Frederick Preferred Stock and (D) by virtue of this
Agreement.
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
PAGE 23
(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 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.
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
PAGE 24
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 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:
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
PAGE 25
(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;
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
PAGE 26
(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 27
(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 necessary approvals by the stockholders of WGB of this Agreement, the
Merger and the transactions contemplated hereby.
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AGREEMENT AND PLAN OF REORGANIZATION
PAGE 28
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 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).
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AGREEMENT AND PLAN OF REORGANIZATION
PAGE 29
(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).
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.
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AGREEMENT AND PLAN OF REORGANIZATION
PAGE 30
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 (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.
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AGREEMENT AND PLAN OF REORGANIZATION
PAGE 31
(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.
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AGREEMENT AND PLAN OF REORGANIZATION
PAGE 32
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 of such
shares the date which is 180 days after the Closing Date, (ii) with respect to
of such shares the date which is 270 days after the Closing Date, and (iii) with
respect to 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, 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:
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.
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AGREEMENT AND PLAN OF REORGANIZATION
PAGE 33
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.
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AGREEMENT AND PLAN OF REORGANIZATION
PAGE 34
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 nullify or render ineffective all or any part of such
transactions if accomplished or alleging damages in connection therewith.
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AGREEMENT AND PLAN OF REORGANIZATION
PAGE 35
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.
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AGREEMENT AND PLAN OF REORGANIZATION
PAGE 36
(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.
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.
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AGREEMENT AND PLAN OF REORGANIZATION
PAGE 37
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 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.
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AGREEMENT AND PLAN OF REORGANIZATION
PAGE 38
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
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>
AGREEMENT AND PLAN OF REORGANIZATION
PAGE 39
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
Exhibit 20
PRESS RELEASE DATED JANUARY 29, 1998
Frederick Brewing Co. Finalizes Mergers With Wild Goose Brewery and Brimstone
Brewing Co.
January 29, 1998 8:10 AM EST
FREDERICK, Md., Jan. 29--Frederick Brewing Co. (Nasdaq: BLUE), brewers of Blue
Ridge(R) beers, Hempen Ale(TM) and Hempen Gold(TM) announced today that it has
finalized the acquisition of both Wild Goose Brewery of Cambridge, Maryland and
Brimstone Brewing Co. of Baltimore, Maryland. These transactions, which create
the Mid-Atlantic's largest craft brewery, were announced on December 16, 1997.
Under the terms of the agreements, Frederick Brewing Co. (FBC) paid
approximately $3 million for Wild Goose Brewery, consisting of retirement of
debt and the issuance of FBC common stock. FBC also issued 80,000 shares of
common stock for the brands and formulas of Brimstone Brewing Co. Both Wild
Goose Brewery and Brimstone Brewing Co. will be operated as wholly owned
subsidiaries of Frederick Brewing Co., with all brewing operations transferred
to FBC's new state-of-the-art facility in Frederick, Maryland.
Founded in 1989, Wild Goose Brewery produces strictly traditional British ales;
its largest seller is Wild Goose India Pale Ale (IPA). Originally brewed in
England for shipment to the British Empire, IPAs were given an extra dosage of
hops to help preserve the brew during long sea voyages. Other popular year-round
styles include Wild Goose Amber Ale, Porter, Oatmeal Stout and Snow Goose, a
winter seasonal.
Brimstone Brewing Co. was founded in 1993 by Marc Tewey, who grew the company
from his homebrewing days as a student at Loyola College in Maryland. Its
flagship brand, Stone Beer, is produced using the ancient technique of adding
fire-heated rocks to the brewkettle. Brimstone also makes Honey Red Ale, Irish
Wake Stout and Big Strong Ale, a barleywine of more than 12 percent alcohol by
volume.
Founded in 1992, Frederick Brewing Co. completed a successful initial public
offering in 1996. In March 1997, the company moved from a converted warehouse to
a purpose-built, 57,000-square-foot facility, which has an annual capacity of
80,000 barrels and is expandable to 300,000. Frederick Brewing Co.'s beers are
sold in 31 states and the District of Columbia. The three companies estimate
combined sales of approximately 35,000 barrels in 1997.
For more information, please contact B.L. Francis with Corporate Relations
Group, Inc. at 800-444-4980, or Jonathan Gambill with Frederick Brewing Co. at
301-694-7899, extension 122 or visit the company's Web sites at
http://www.fredbrew.com and http://hempenale.com.
Except for historical information, this press release contains forward-looking
statements that involve risks and uncertainties including, but not limited to,
quarterly fluctuations in results, the actual management of growth, competition
and other risks detailed in the company's SEC filings. Actual results may differ
materially from such information set forth herein.
Exhibit 99
SAFE HARBOR UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995
The Private Securities Litigation Reform Act of 1995 (the "Act") provides a
"safe harbor" for forward-looking statements to encourage companies to provide
prospective information about their companies, so long as those statements are
identified as forward-looking and are accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those discussed in the statement. The Company desires to
take advantage of the "safe harbor" provisions of the Act. Certain information,
particularly information regarding future economic performance and finances and
plans and objectives of management, contained, or incorporated by reference, in
the Company's Current Report on Form 8-K dated as of February 12, 1998 ("Form
8-K") is forward-looking. The following factors, in addition to other possible
factors not listed, could affect the Company's actual results and cause such
results to differ materially from those expressed in forward-looking statements.
Limited Operating History; Past and Possible Future Operating Losses. The
Company was founded in 1992 and has operated at a loss for each year since such
date. The Company's limited operating history makes the prediction of future
sales and operating results difficult. Accordingly, although the Company has
experienced sales growth, such growth should not be considered indicative of
future sales growth, if any, or of future operating results. There can be no
assurance that the Company's sales will grow or be sustained in future periods
or that the Company will become or remain profitable in any future period.
Liquidity and Working Capital. The Company has, in the last twenty months,
spent a significant amount of working capital on machinery and equipment and on
salaries and benefits and advertising, all in connection with the completion of
the Company's new brewery, the expansion of its brewing capacity and its
attempts to increase demand for its products. Growth in sales has not been
sufficient to fund such expenditures. To address the lack of working capital,
the Company recently completed a private placement of 3,000 shares of its Series
E Preferred Stock at $1,000 per share less finders, legal and investor relations
services fees. While the Company believes that it has adequate working capital
for fiscal 1998, it does not have and does not anticipate obtaining in the
foreseeable future a working line of credit. As a consequence, there can be no
assurance that the Company will not experience a lack of liquidity or working
capital during fiscal 1998 and beyond.
For the fourth quarter of 1997 ended December 31, 1997, the Company's loan
and financing agreements with First Union National Bank (the "Bank"), as
successor to Signet Bank, for a $1.5 million equipment loan and a $3.0 million
loan to Blue II, LLC for the brewery land and building required that the
Company's ratio of cash flow to debt service for the quarter equal 1.5:1 or
greater. The Company was unable to meet this ratio requirement and as a result
was required to obtain a one-time waiver thereof from the Bank. There is a
significant likelihood that the Company will be unable to demonstrate compliance
with the cash flow to debt ratio requirement and, perhaps, other financial
covenants, during fiscal 1998, which creates the risk that the Company will
enter into technical default of both loan financing arrangements. As a result,
the Company is attempting to renegotiate or refinance the loans. While
management is confident that one of these options will be achievable no
assurances can be made as to such result and a failure to renegotiate or
refinance the senior debt could make the Company unable to continue its
business.
<PAGE>
Ability to Successfully Integrate Operations of WGB, Assets of BBC and
Other Acquisition Candidates. The integration of WGB and BBC involve a number of
risks, including, but not limited to, diversion of management's attention,
assimilation of the operations and personnel of WGB and BBC. The successful
operation of an acquired business will require communication and cooperation in
product development and marketing among management and other key personnel.
Given the inherent difficulties involved in completing a major business
combination, there can be no assurance that such cooperation will occur or that
integration of the respective businesses will be successful and will not result
in disruption of the Company's business. In addition, there can be no assurance
that the Company will realize any of the anticipated benefits of the acquisition
and asset purchase. To the extent the Company is unsuccessful in integrating WGB
and BBC, or the operations or assets of any future acquisition candidate, the
Company would be materially adversely affected. There are, as of the date of
this Form 8-K, no agreements, arrangements or understandings between the Company
and any party relating to any potential acquisition.
Possible Need for Additional Financing. The Company's planned expansion of
its operations with respect to its current and planned products and those of WGB
and BBC (including increased overhead, depreciation, marketing and salaries)
combined with the Company's lack of liquidity may require that the Company
obtain additional debt or equity financing for these or other general corporate
purposes. There can be no assurance that the Company will be able to obtain
additional debt or equity financing on terms favorable to the Company, or at
all, or if obtained, there can be no assurance that such debt or equity
financing will be sufficient for the financing needs of the Company.
Heavy Dependence on Wholesale Distributors. The Company distributes its
products only through independent wholesale distributors for resale to retailers
such as liquor and wine and beer stores, restaurants, taverns, pubs, bars and
sporting arenas. Accordingly, the Company is dependent upon these wholesale
distributors to sell the Company's beers and to assist the Company in creating
demand for, and promoting market acceptance of, the Company's products and
providing adequate service to its retail customers. There can be no assurance
that the Company's wholesale distributors will devote the resources necessary to
provide effective sales and promotion support to the Company.
Dependence on Major Customer. Sales to The Kronheim Co., Inc., Baltimore,
Maryland ("Kronheim"), the Company's largest wholesale distributor, represented
50.6%, 35.7% and 56.5% of the Company's beer revenues in 1996, 1995 and 1994,
respectively. Sales to all other wholesale distributors represented 49.4%, 64.3%
and 43.5% of the Company's beer revenues in 1996, 1995 and 1994, respectively.
(The 1994 percentages for sales to other wholesale distributors include beer
sold directly to retailers by the Company.) The Company expects sales to its
largest wholesale distributor to continue to represent a significant portion of
its sales in the near term. The Company believes that its future growth and
success will continue to depend in large part upon this significant wholesale
distributor, but such dependence should decrease as the Company expands its
market area.
2
<PAGE>
No Assurance of Continued Wholesale Distributor Support. If Kronheim or any
other significant wholesale distributor were to discontinue selling, or decrease
the level of orders for, the Company's products, the Company's business would be
adversely affected in the areas serviced by such wholesale distributors until
the Company retained replacements. There can be no assurance however that the
Company would be able to replace a significant wholesale distributor in a timely
manner or at all in the event it were to discontinue selling the Company's
products. In addition, there is always a risk that the Company's wholesale
distributors will give higher priority to the products of other beverage
companies, including products directly competitive to the Company's beers, thus
reducing their efforts to sell the Company's products. This risk is exacerbated
by the fact that many of the Company's wholesale distributors are reliant on the
beers of one of the major domestic beer producers for a large percentage of
their revenues and, therefore, may be influenced by such producer. The Company's
distributors are not contractually committed to make future purchases and
therefore could discontinue carrying the Company's products in favor of a
competitor's product or another beverage at any time or for any reason.
If any of the Company's significant wholesale distributors were to
experience financial difficulties, or otherwise become unable or unwilling to
promote or sell the Company's products, the Company's results of operations
would be adversely affected. Many of the Company's distribution agreements
(other than its agreement with Kronheim which does not specify such a date)
permit their termination upon 90 days' prior notice. The Company's ability to
terminate poorly performing distributors may be hindered by laws that restrict
the Company's right to terminate the services of its wholesale distributors.
There can be no assurance that the Company will be able to attract reliable,
effective new distributors in markets it will enter as a result of its planned
geographic expansion or that the Company's business will not be adversely
affected by the loss or declining performance of any of its current or future
wholesale distributors.
Intense and Increasing Competition. The Company competes in the specialty
or craft beer segment of the domestic beer market. The principal competitive
factors affecting the market for the Company's beers include product quality and
taste, advertising, distribution capabilities, brand recognition, packaging and
price. There can be no assurance that the Company will be able to compete
successfully against current and future competitors based on these and other
factors. The Company competes with a variety of domestic and international
brewers, many of whom have substantially greater financial, production,
distribution and marketing resources and have achieved a higher level of brand
recognition than the Company.
3
<PAGE>
The Company anticipates increased competition in the specialty beer segment
from the major domestic brewers such as Anheuser-Busch Companies, Inc.
("Anheuser-Busch"), Miller Brewing Co. ("Miller") and Adolph Coors Co.
("Coors"), each of whom has introduced and is marketing fuller flavored beers
designed to compete directly in the specialty beer segment. These large domestic
brewers dominate the overall domestic beer market and the Company expects that
certain of these companies, with their superior financial resources and
established distribution networks, will continue to seek further participation
in the specialty beer segment through the acquisition of equity positions in, or
the formation of distribution alliances with, smaller craft brewers (such as
Anheuser-Busch's equity position in, and distribution agreement with, Redhook
Ale Brewery, Incorporated).
The Company also faces and will face increasing competition from import
specialty beer companies such as Heineken N.V., Bass PLC and Guinness PLC and
existing domestic specialty and contract brewers such as The Boston Beer
Company, Inc., Pete's Brewing Co., Redhook Ale Brewery, Incorporated, Sierra
Nevada Brewing Co. and Anchor Brewing Co., as well as the regional specialty
brewers and local microbreweries in the markets where the Company distributes
its beers. Recent growth in the sales of specialty beers is expected to result
in increased competition in the segment, including a continuing proliferation of
microbrewers and efforts by micro and regional brewers to expand their
production capacity, marketing expenditures and geographical distribution areas.
Increased competition could result in price reductions, reduced profit margins
and loss of market share, all of which would have a material adverse effect on
the Company's financial condition and results of operations.
The Company's products also compete generally with other alcoholic
beverages, including products offered in other segments of the beer industry and
low- or no-alcohol products. The Company competes with other beer and beverage
companies not only for consumer acceptance and loyalty but also for shelf and
tap space in retail establishments and for marketing focus by the Company's
wholesale distributors and their customers, all of which also distribute and
sell other beers and alcoholic beverage products. Finally, there can be no
assurance that the recent growth in consumer demand for craft beers will
continue, or even if such growth continues, that consumers will choose the
Company's beers.
Potential Fluctuations in Quarterly Results. The Company's quarterly
operating results have in the past and may in the future vary significantly
depending on factors such as sales for the quarter, fixed and semi-variable
operating costs during periods when the Company's brewery is producing below
maximum designed production capacity, professional fees and expenses relating to
the Company's planned expansion, increased competition, fluctuations in the
price of ingredients or packaging materials, seasonality of sales of the
Company's beers, general economic factors, trends in consumer preferences,
regulatory developments, including changes in excise and other tax rates,
changes in the sales mix between kegs and bottles, changes in average selling
prices or market acceptance of the Company's beers, increases in packaging and
marketing costs associated with initial production of new products and
variations in shipping and transportation costs.
4
<PAGE>
The Company's operating results may be significantly impacted in the future
by, among other things, the timing of new product announcements by the Company
or its competitors, the impact of increasing average federal and state excise
tax as sales volume increases, the timing of new advertising and promotional
campaigns by the Company and other expansion activities engaged in by the
Company. The Company's expense levels are based, in part, on its expectations of
future sales levels. If sales levels are below expectations, operating results
are likely to be materially adversely affected. In particular, because the
Company operates its own production facility, a significant portion of its
overhead is fixed and cannot be reduced for short-term adjustments such as sales
below management's expectations, and an excess of production capacity could
therefore have a significant negative impact on the Company's operating results.
However, the Company has historically operated with little or no backlog. The
absence of backlog increases the difficulty of predicting sales and operating
results. In addition, the Company's decision to undertake a significant media
advertising campaign after the commencement of construction of the new brewery
could substantially increase the Company's expenses in a particular quarter,
while any increase in sales from such advertising may be realized in subsequent
periods.
Based upon the risks of potential fluctuations in quarterly results
discussed above and seasonality and the unpredictability of demand, discussed
below, the Company believes that quarterly sales and operating results are
likely to vary significantly in the future and that period-to-period comparisons
of its results of operations are not necessarily meaningful and should not be
relied upon as indications of future performance. Further, it is possible that
in some future quarter the Company's revenue or operating results will be below
the expectations of public market analysts and investors. In such event, the
price of the Company's Common Stock could be materially adversely affected.
Sales Fluctuations Due to Seasonality. The Company's wholesale distributors
have historically experienced higher sales in the second and fourth quarters of
the calendar year due to increased consumption of the Company's beers during
periods of warmer weather and from Halloween through New Year's Day. Although
the Company has not yet experienced sale fluctuations due to seasonality because
the Company has continued to expand its wholesale distribution network over the
past three years, fluctuations in the Company's sales due to seasonality may
become evident in the future as the Company's sales increase.
No Assurance of Geographic Expansion. While the Company has recently
expanded its distribution network and now sells in approximately 27 states,
sales in Maryland accounted for over 62.8% of the Company's sales in 1996. The
Company's continued growth depends upon its ability to expand sales in these and
other new regions. There can be no assurance that the Company's efforts to
expand sales in new regions will be successful or that such expansion can be
accomplished on a profitable basis. The Company's timely and successful
expansion of sales will depend on a number of factors, including competition,
the continued promotion and sale of the Company's products by suitable local
wholesale distributors, the retention of skilled sales and other personnel, the
ability to adapt management and other operational systems to accommodate
increased volume, the success of advertising and promotion campaigns, and other
factors, some of which are beyond the control of the Company. Furthermore,
consumer tastes vary by region and there can be no assurance that consumers
located in new geographic regions will be receptive to the Company's beers. The
Company believes that consumer demand for its products is greater in certain
areas than others due to demographic, economic and other factors. The Company's
efforts to increase sales by further penetrating market areas may be limited by
such factors. The inability of the Company to expand sales in a timely manner
would have a material adverse effect on the Company's operating results and
financial condition.
5
<PAGE>
Dependence on Recently Introduced Beers. A substantial portion of the
Company's revenues for the 12 months ended December 31, 1997, as well as those
of WGB and BBC, were generated by sales of beer styles marketed for one year or
less. There can be no assurance that such styles of beer will continue to
achieve market acceptance. A decline in the demand for such beer styles as a
result of competition, changes in consumer tastes and preferences, government
regulation or other factors could have a material adverse effect on the
Company's operating results and financial condition. In addition, there can be
no assurance that the Company will be successful in developing, introducing and
marketing additional new beers that will sustain sales growth in the future.
No Assurance of Future Ability to Satisfy Changing Consumer Preferences.
The craft beer market is highly competitive and characterized by changing
consumer preferences and continuous introduction of new products. The Company
intends to introduce new products from time to time to maintain wholesale
distributor and retailer interest and appeal to varying consumer preferences and
to create consumer demand. The Company believes that its future growth will
depend, in part, on its ability to anticipate changes in consumer preferences or
to create consumer demand and develop and introduce, in a timely manner, new
beers that adequately address such changes. There can be no assurance that the
Company will be successful in developing, introducing and marketing new products
on a timely basis. If the Company is unable to introduce new products or if the
Company's new products are not successful, the Company's sales may be adversely
affected as customers seek competitive products. In addition, the introduction
of new products by the Company could result in reduction of sales of the
Company's existing beers, requiring the Company to manage carefully product
introductions in order to minimize disruption in sales of existing products.
There can be no assurance that the introduction of new product offerings by the
Company will not cause wholesale distributors, retailers and consumers to reduce
purchases or consumption of existing Company products. Such reduction of
purchases or consumption could have a material adverse effect on the Company's
operating results and financial condition.
6
<PAGE>
No Assurance of Future Consumer Demand for Craft Beer. The craft beer
segment of the domestic beer market has grown dramatically over the past decade.
The Company believes that one factor in such growth has been consumer demand for
more flavorful beers offered in a wider variety of styles. No assurance can be
given, however, that consumer demand for craft beers will continue in the
future. The Company's success also depends upon a number of factors related to
the level of discretionary consumer spending, including the general state of the
economy, federal and state tax laws and consumer confidence in future economic
conditions. Changes in consumer spending can affect both the quantity and the
price of the Company's products and may therefore affect the Company's operating
results. For example, reduced consumer confidence and spending may result in
reduced demand for the Company's products, limitations on its ability to
increase or maintain prices and increases in required levels of selling,
advertising and promotional expenses.
No Assurance of Future Satisfaction of Demand. The production schedule for
the Company's beers is based on forecasts of the Company's sales in general and
the rate of sales of each of the Company's styles of beer. The Company currently
has the flexibility to modify short-term production schedules and is currently
able, on a short-term basis, to satisfy fully most changes in demand for its
product. The ability of the Company to estimate demand may be less precise
during periods of rapid growth or with respect to new products. The failure of
the Company to accurately forecast its sales could lead to inventory shortages
or surpluses that could adversely affect results of operations and lead to
further fluctuations in quarterly operating results.
Dependence on Certain Suppliers. The Company purchases from, and is
dependent upon, its suppliers for certain agricultural ingredients and packaging
materials used in the Company's products. Although to date the Company has been
able to obtain adequate supplies of these ingredients and materials in a timely
manner from existing sources and has changed suppliers from time to time with
minimal disruption, if the Company were unable to obtain sufficient quantities
of ingredients and materials, delays or reductions in product shipments could
occur which would have a material adverse effect on the Company's financial
condition and results of operations. To date, the Company has not experienced
material difficulties in obtaining timely delivery from its suppliers. Although
the Company believes that there are alternative sources available for its raw
materials, there can be no assurance that the Company will be able to acquire
these products from other sources on a timely or cost-effective basis if current
suppliers are unable to supply them. In 1996, the Company experienced a
significant increase in the price of its ingredients and packaging materials.
Except for suppliers who provide glass bottles and corrugated cardboard cartons,
the Company does not have long-term purchase contracts with its suppliers. The
loss of a material supplier could materially adversely affect the Company's
results of operations and financial condition if there were a delay in shipments
from the alternative suppliers.
The Company also is dependent upon an adequate supply of hemp seeds, which
is a key ingredient in the Company's "Hempen Ale" brand. The hemp seeds are
obtained from a supplier located in China and accordingly, the Company's supply
of such seeds also is subject to disruption by economic, international trade and
government instability, as well as civic unrest, in the region. Further,
world-wide demand for hemp seeds is growing. The Company's inability to qualify
an alternative source of hemp seeds may in the future have a significant adverse
impact on the Company if a material disruption of the Company's hemp seed supply
occurs.
7
<PAGE>
As with most agricultural products, the supply and price of raw materials
used to produce the Company's beers can be affected by a number of factors
beyond the control of the Company such as floods, frosts, droughts, other
weather conditions, economic factors affecting growing decisions, various plant
diseases and pests. To the extent that any of the foregoing affects the
ingredients used to produce the Company's beers, the Company's results of
operations would be materially and adversely affected. In addition, the Company
keeps only approximately a 30 day supply of hops and a seven day supply of malt
on its premises. Moreover, its purchases are limited to pre-packaged quantities,
rather than in bulk. Therefore, the Company is highly dependent upon the ability
of its suppliers to deliver its ingredients in a timely fashion. Such delivery,
which is by truck, is dependent upon certain factors beyond the control of the
Company, including but not limited to weather and labor relations. The Company's
operations are dependent upon its ability to accurately forecast its need for
ingredients. Any failure by the Company to accurately forecast its requirements
of raw materials could result in the Company either being unable to meet higher
than anticipated demand for its products or producing excess inventory, either
of which may adversely affect the Company's results of operations.
Ability to Manage Growth. The Company has experienced rapid growth that has
resulted in new and increased responsibilities for management personnel which
has challenged and continues to challenge the Company's management, operating
and financial systems and resources. To compete effectively and manage future
growth, if any, the Company will be required to continue to implement and
improve its operational, financial and management information systems,
procedures and controls on a timely basis and to expand, train, motivate and
manage its work force. There can be no assurance that the Company's personnel,
systems, procedures and controls will be adequate to support the Company's
existing and future operations. Any failure to implement and improve the
Company's operational, financial and management systems or to expand, train,
motivate or manage employees could have a material adverse effect on the
Company's operating results and financial condition.
No Assurance of Ability to Protect Intellectual Property Rights. The
Company considers its trademarks and pending trademarks, particularly the "Blue
Ridge" brand names, proprietary beer recipes and the design of product
packaging, advertising and promotional design and art work (the "Intellectual
Property"), as well as the recently acquired Intellectual Property of WGB and
BBC, to be of considerable value and critical to its business. The Company
relies on a combination of trade secret, copyright and trademark laws,
non-disclosure, non-competition and other arrangements to protect its
proprietary rights. In this regard, the Company has obtained trademark
protection for its "Blue Ridge" brands in 1997 from the U.S. Patent and
Trademark Office.
8
<PAGE>
Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy or obtain and use information that the
Company regards as proprietary. There can be no assurance that the steps taken
by the Company to protect its proprietary information will be adequate to obtain
the legal protection sought or will prevent misappropriation of such information
and such protection may not preclude competitors from developing confusingly
similar brand names or promotional materials or developing products with taste
and other qualities similar to the Company's products.
Risk of Third Party Claims of Patent Infringement. While the Company
believes that its Intellectual Property does not infringe upon the proprietary
rights of third parties, there can be no assurance that the Company will not
receive future communications from third parties asserting that the Company's
Intellectual Property infringes, or may infringe, upon the proprietary rights of
third parties. The potential for such claims will increase as the Company
increases distribution in recently entered and new geographic areas. Any such
claims, with or without merit, could be time-consuming, result in costly
litigation and diversion of management's attention, cause product distribution
delays or require the Company to enter into royalty or licensing agreements.
Such royalty or licensing agreements, if required, may not be available on terms
economical or acceptable to the Company or at all. In the event of a successful
claim of infringement against the Company and failure or inability of the
Company to license the infringed or similar proprietary information, the
Company's operating results and financial condition could be materially
adversely affected.
Dependence on Key Personnel. The Company's success depends to a significant
degree upon the continuing contributions of, and on its ability to attract and
retain, qualified management, sales, production and marketing personnel,
particularly Kevin E. Brannon, Chairman of the Board and Chief Executive
Officer, Marjorie A. McGinnis, President, Les Harper, Chief Financial Officer,
Steven T. Nordahl, Vice President - Brewing Operations and Patrick N. Helsel,
Vice President - Sales, (collectively, the "FBC officers") as well as, James
Lutz, President of WGB and Marc Tewey, President of BBC. The Company entered
into employment agreements with each of the FBC officers in 1996, except with
respect to Mr. Harper, and with Messrs. Lutz and Tewey in 1998, and, with the
exception of the employment agreement of Mr. O'Connor, all such agreements
continue to be current and in effect. Prior to their employment by the Company,
none of FBC officers had prior experience in the beer industry or significant
business experience. The competition for qualified personnel is intense and the
loss of any of such persons as well as the failure to recruit additional key
personnel in a timely manner, could adversely affect the Company. There can be
no assurance that the Company will be able to continue to attract and retain
qualified management and sales personnel for the development of its business.
Failure to attract and retain key personnel could have a material adverse effect
on the Company's operating results and financial condition.
9
<PAGE>
Operating Hazards; No Assurance of Adequate Insurance. The Company's
operations are subject to certain hazards and liability risks faced by all
brewers, such as bottle flaws or potential contamination of ingredients or
products by bacteria or other external agents that may be accidentally or
wrongfully introduced into products or packaging. The Company's products are not
pasteurized and require careful product rotation to prevent spoilage. However,
neither spoiled beer nor the bacteria introduced in the brewing process is known
to be harmful to human health. The Company runs periodic diagnostic tests on all
of its products to assure that they meet Company quality control guidelines and
comply with federal and state regulatory requirements. While the Company has not
experienced a serious contamination problem in its products, the occurrence of
such a problem could result in a costly product recall and serious damage to the
Company's reputation for product quality. The Company's operations are also
subject to certain injury and liability risks normally associated with the
operation and possible malfunction of brewing and packaging equipment. Although
the Company maintains insurance against certain risks under various general
liability and product liability insurance policies, there can be no assurance
that the Company's insurance will be adequate.
Government Regulation. The Company's business is highly regulated by
federal, state and local laws and regulations. The Company must comply with
extensive laws and regulations regarding such matters as state and regulatory
approval and licensing requirements, trade and pricing practices, permitted and
required labeling, advertising, promotion and marketing practices, relationships
with distributors and related matters. For example, federal and state regulators
require warning labels and signage on the Company's products. The Company
believes that it has obtained all regulatory permits and licenses necessary to
operate its business in the states where the Company's products are currently
being distributed. Failure on the part of the Company to comply with federal,
state or local regulations could result in the loss or revocation or suspension
of the Company's licenses, permits or approvals and accordingly could have a
material adverse effect on the Company's business. In addition, changes to
federal and state excise taxes on beer production, federal, state and local
environmental regulations, including laws relating to packaging and waste
discharge, or any other laws or regulations which affect the Company's products
could have a material adverse effect on the Company's results of operations. The
federal government and each of the states levy excise taxes on alcoholic
beverages, including beers. The federal government currently imposes an excise
tax of $18.00 per barrel on every barrel of beer produced for consumption in the
United States by each brewing company with annual production of over 2,000,000
barrels. The federal excise tax for brewing companies with annual production
under 2,000,000 barrels is $7.00 per barrel on all barrels up to the first
60,000 barrels produced and $18.00 per barrel for each barrel produced in excess
of 60,000. Any increase in the excise tax for small brewers could have a
material adverse effect on the Company's operating results and financial
condition.
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Public Attitudes Toward Alcohol Consumption. In recent years, there has
been an increase in the level of health-consciousness in the United States and
considerable debate has occurred concerning alcohol-related social problems,
such as alcoholism and drunk driving. In addition, a number of anti-alcohol
groups are advocating increased governmental action on a variety of fronts
unfavorable to the beer industry, including the legislation of new labeling or
packaging requirements and restrictions on advertising and promotion that could
adversely affect the sale of the Company's products. Restrictions on the sale
and consumption of beer or increases in the retail cost of beer due to increased
governmental regulations, taxes or otherwise, could materially and adversely
affect the Company's financial condition and results of operations.
Concentration of Ownership of Management. As of December 31, 1997, the
executive officers and directors of the Company on that date beneficially owned
approximately 13.07% of the Common Stock. Although the percentage of such
beneficial ownership will decrease as a result of the BBC asset purchase and the
acquisition of WGB, these stockholders will be able to significantly influence
all matters requiring stockholder approval, including the election of directors
and approval of significant corporate transactions. Such concentration of
ownership may have the effect of delaying or preventing a change in control of
the Company.
Antitakeover Provisions in the Company's Corporate Documents. The Company's
Board of Directors has the authority to issue up to 1,000,000 shares of
preferred stock, $.01 par value per share, of the Company and to determine the
price, rights, preferences, privileges and restrictions thereof, including
voting rights, without any further vote or action by the Company's stockholders.
The voting and other rights of the holders of Common Stock will be subject to,
and may be adversely affected by, the rights of the holders of any preferred
stock that may be issued in the future. The Company's Board may similarly issue
additional shares of Common Stock without any further vote or action by
stockholders. Such an issuance could occur in the context of another public or
private offering of shares of Common Stock or preferred stock or in a situation
where the Common or preferred stock is used to acquire the assets or stock of
another company. The issuance of Common or preferred stock, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of delaying, deferring or preventing a
change in control of the Company. The Company has no current plans to issue any
shares of Common or preferred stock other than as described herein.
Moreover, the Restated and Amended Articles of Incorporation ("Articles")
and Restated and Amended Bylaws ("Bylaws") of the Company contain certain
provisions which, among other things, maintain a "staggered" Board of Directors,
limit the personal liability of, and provide indemnification for, the directors
of the Company, require that stockholders comply with certain requirements
before they can nominate someone for director or submit a proposal before a
meeting of stockholders, prohibit the ability of stockholders to call special
meetings of stockholders, limit the ability of stockholders to act by written
consent and require a supermajority vote of stockholders in the event that a
"related person" (as defined) attempts to engage in a business combination with
the Company.
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Potential Volatility of Stock Price. Stock prices of many growing
consumer-product companies fluctuate widely, often for reasons that are
unrelated to their actual operating performance. Announcement of new facilities
or products by the Company or its competitors, regulatory developments, and
economic or other external factors, as well as period-to-period fluctuations in
financial results, may have a significant impact on the market price and
marketability of the Common Stock. In the past, following periods of volatility
in the market price of a company's securities, securities class action
litigation has often been initiated against such company. Such litigation could
result in substantial costs and a diversion of management's attention and
resources, which could have a material adverse effect upon the Company's
operating results and financial condition.
Common Stock Equivalents. The Company has outstanding a number of shares of
Preferred Stock which may be converted into approximately 4,165,060 shares
of Common Stock (assuming that the average closing price of the Company's Common
Stock for the prior thirty trading days is $2.00 per share). An increase in
the number of shares of Common Stock (or Common Stock equivalents) outstanding
will have a negative effect on the Company's per share ratios, including
earnings per share, which could negatively impact the market for the Company's
Common Stock and the price of the Common Stock in the market.
Dividends. The Company has never paid a dividend on its Common Stock and
currently expects to retain its future earnings, if any, for use in the
operation and expansion of its business and does not anticipate paying any such
cash dividends on its Common Stock in the foreseeable future. In addition,
certain of the Company's outstanding Preferred Stock has priority on funds
available for dividends and dividends on such Preferred Stock must be paid in
full before dividends may be paid on the Common Stock. Dividends to be paid on
the Preferred Stock must be approved by the Bank prior to payment and in
management's opinion, it is doubtful that the Bank will approve such dividends
in the foreseeable future. Any dividend not approved shall accumulate but will
not be paid by the Company until approval of such dividend is obtained from the
Bank. Future loan agreements may similarly restrict or limit the payment of
dividends on the Preferred Stock.
Certain Related-Party Transactions. The Company has borrowed money from
time to time to provide cash for operations and for other corporate purposes
from its directors, stockholders and persons having business relationships with
its directors. In addition, the Company has agreed to lease the new brewery
premises from a company which is owned, in part, by one of the Company's
directors and by other affiliated persons.
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Limitations on Liability of Management. The Company has adopted provisions
in its Articles that eliminate to the fullest extent permissible under Maryland
law the liability of its directors for monetary damages except to the extent
that it is proved that the director actually received an improper benefit or
profit in money, property or services or the director's action or failure to act
was the result of active and deliberate dishonesty and was material to the cause
of action adjudicated in the proceeding. While it may limit stockholder actions
against the directors of the Company for various acts of misfeasance, the
provision is designed to ensure that the ability of the Company's directors to
exercise their best business judgment in managing the Company's affairs, subject
to their continuing fiduciary duties to the Company and its stockholders, is not
unreasonably impeded by exposure to potentially high personal costs or other
uncertainties of litigation.
Indemnification of Management. The Company's Articles consistent with
Maryland law, provide that the Company will indemnify and advance expenses to
any director, officer, employee or agent of the Company who is, or is threatened
to be made, a party to any action, suit or proceeding. Such indemnification
would cover the cost of attorneys' fees as well as any judgment, fine or amounts
paid in settlement of such action provided that the indemnified party meets
certain standards of conduct necessary for indemnification under applicable law.
Such indemnity may or may not be covered by officer and director liability
insurance and could result in an expense to the Company even if such person is
not successful in the action. This provision is designed to protect such persons
against the costs of litigation which may result from his or her actions on
behalf of the Company. In addition, the Company has purchased insurance to cover
its directors and officers under certain circumstances.
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