================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1999.
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ________________________ to _____________________
Commission File Number: 0-27800
Frederick Brewing Co.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Maryland 52-1769647
- --------------------------------------------- -------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
4607 Wedgewood Boulevard, Frederick, Maryland 21703
- --------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(301) 694-7899
------------------------------------------------
(Issuer's telephone number, including area code)
Not Applicable
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [ X ] Yes [ ] No
Common Stock, $0.0004 Par Value 1,802,005
------------------------------- -----------------------------
(Title of Each Class) (Number of Shares Outstanding
as of March 31, 1999)
Transitional Small Business Disclosure Format (Check one):
Yes [ ] No [X]
================================================================================
<PAGE>
FREDERICK BREWING COMPANY
INDEX TO FORM 10-QSB
March 31, 1999
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets (unaudited) at March 31,1999 2
Consolidated Statements of Operations (unaudited) 3
Three months ended March 31, 1999 and 1998
Consolidated Statements of Cash Flows (unaudited) 4
Three months ended March 31, 1999 and 1998
Notes to Consolidated Financial Statements (unaudited) 5
Item 2. Management's Discussion and Analysis 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults On Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Exhibits and Reports 17
PART III. SIGNATURES 19
<PAGE>
Frederick Brewing Company
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, 1999
--------------
(Unaudited)
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,862
Cash - restricted $ 12,475
Trade receivables, net of allowance for doubtful accounts of $27,618 350,558
Inventories, net of reserve for obsolescence of $48,208 811,058
Prepaid expenses, and other current assets 159,108
------------
Total current assets 1,341,061
Property and equipment, net 7,831,152
Intangibles, net of accumulated amortization of $146,619 395,731
Goodwill, net of accumulated amortization of $318,980 2,415,134
Other assets 72,396
------------
Total assets $ 12,055,474
============
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities
Current maturities of long-term debt $ 1,201,296
Capital lease obligations, current portion 44,717
Accounts payable 1,474,948
Accrued liabilities 129,643
------------
Total current liabilities 2,850,604
Long-term debt 928,134
Capital lease obligations 2,641,004
------------
Total liabilities 6,419,742
------------
Stockholders' equity:
Preferred stock - $.01 par value, 1,000,000 shares authorized:
Cumulative, convertible Series A, 1,543 shares issued and outstanding 581,687
Convertible Series F, 776 shares issued and outstanding 750,780
Convertible Series G, 303 shares issued and outstanding 390,616
Common stock - $0.0004 par value, 19,000,000 shares authorized,
1,802,005 shares issued and outstanding 722
Additional paid-in capital 20,925,130
Accumulated deficit (17,013,203)
------------
Total stockholders equity 5,635,732
------------
Total liabilities and stockholders equity $ 12,055,474
============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
2
<PAGE>
Frederick Brewing Company
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1999 1998
---- ----
(Unaudited)
<S> <C> <C>
Gross sales $ 990,958 $ 1,014,837
Less: Returns and allowances, and excise taxes 66,856 48,194
----------- -----------
Net sales 924,102 966,643
Cost of sales 861,977 816,773
----------- -----------
Gross profit 62,125 149,870
Selling, general and administrative expenses 753,195 714,234
Amortization of deferred public relations costs - 68,062
----------- -----------
Operating loss (691,070) (632,426)
Loss on sale of equipment - (2,660)
Interest expense, net 154,024 106,238
----------- -----------
Net Loss (845,094) (736,004)
Preferred stock deemed dividend requirements - (28,627)
----------- -----------
Net loss attributable to common shareholders $ (845,094) $ (764,631)
=========== ===========
Basic and diluted loss per common share:
Net loss before preferred stock dividend requirements $ (0.51) $ (1.22)
Preferred stock dividend requirements - (0.05)
----------- -----------
Net loss per common share (0.51) (1.27)
=========== ===========
Weighted average common shares (basic and diluted) 1,673,009 604,845
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
3
<PAGE>
Frederick Brewing Company
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1999 1998
---- ----
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (845,094) $ (736,004)
Adjustments to reconcile net loss to net cash
for operating activities:
Depreciation and amortization 283,660 236,277
Loss on writeoff of equity in minority interest 1,584 -
Amortization of deferred public relations costs - 68,062
Gain on sale of equipment - (2,660)
Change in operating assets and liabilities:
Trade receivables 60,425 (64,391)
Inventories (12,272) (200,270)
Prepaid expenses and other current assets (1,202) (185,507)
Other assets - (31,678)
Accounts payable 259,720 45,226
Accrued liabilities (48,008) (570,325)
----------- -----------
Net cash used in operating activities (301,187) (1,441,270)
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (6,109) (288,066)
Purchase of intangibles (1,708) -
Proceeds from sale of equipment - 16,800
----------- -----------
Net cash used in investing activities (7,817) (271,266)
----------- -----------
Cash flows from financing activities:
Payments on debt obligations (67,364) (73,094)
Payments on capital leases (10,708) (14,192)
Proceeds from issuance of common stock, net 301,939 -
Restricted cash - (12,475)
----------- -----------
Net cash provided by/(used in) financing activities 223,867 (99,761)
----------- -----------
Net decrease in cash and cash equivalents (85,137) (1,812,297)
Cash and cash equivalents, beginning of period 92,999 2,612,880
----------- -----------
Cash and cash equivalents, end of period $ 7,862 $ 800,583
=========== ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
4
<PAGE>
FREDERICK BREWING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999
(Unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements for Frederick
Brewing Company (the "Company") have been prepared in accordance with generally
accepted accounting principles for interim financial reporting, with
instructions from Form 10-QSB and Regulation S-B. As such, they do not include
all information and footnotes required by generally accepted accounting
principles for complete year-end financial reporting. In the opinion of Company
management, all normal recurring accruals and other adjustments considered
necessary for a fair presentation of an interim consolidated financial position
and the interim consolidated results of operations have been included.
Operating results for the three months ended March 31, 1999 are not necessarily
indicative of the results that may be expected for other interim periods within
1999 or for the year ending December 31, 1999. Information relating to the
financial position, results of operations, and cash flows of the Company as of
and for the year ended December 31, 1998 may be found in the financial
statements included in the Company's Annual Report filed on Form 10-KSB for the
year ended December 31, 1998.
Future Prospects
The Company's ability to meet its obligations is dependent on generating
positive cash flow and ultimately operating profitably. Such an improvement
requires the Company to eliminate or substantially reduce its excess brewing
capacity and to obtain additional financing from third parties.
On November 4, 1998, the Company retained Westfinance Corporation to advise and
assist Company in the following: 1) refinancing First Union National Bank bond
2) raising additional working capital, and 3) Seeking either candidates for
acquisition by the Company, merger with the Company or acquisition of the
Company. The Company has made numerous contacts and engaged in preliminary, but
unsuccessful, discussions with numerous parties toward each of these objectives.
In April and June of 1999, the Company raised approximately $550,000 by way of a
short-term loan from a consortium of investors, collateralized by the Company's
rights in the Wild Goose brands, trademarks, copyrights and other intellectual
property.
On June 30, 1999, the Company's Board of Directors agreed to grant to SIBG, an
unrelated third party, the exclusive right, through July 25, 1999, to negotiate
and perform due diligence with a view toward consummating a transaction pursuant
to which SIBG would acquire majority control of the Company's voting stock for
cash.
If the transaction closes as discussed to date, management believes that SIBG
will simultaneously acquire and may ultimately exercise the Company's option to
purchase the land and building in Frederick County, Maryland which contain the
Company's brewery; enter into contract brewing agreements whereby the Company
would commit to producing 5,000 - 35,000 barrels per year of various brands
controlled by SIBG and its affiliates; and arrange to refinance the Company's
debt to First Union National Bank.
The Company has been in discussions with SIBG, its principals and affiliates at
various times since late 1998. The negotiations concerning the stock purchase,
contract brewing, real estate purchase and First Union National Bank re-finance
transactions are at an advanced stage and if SIBG proceeds substantially as
contemplated, the terms of those transactions will prove acceptable to the
Company's Board
5
<PAGE>
of Directors. However, the exclusivity letter agreement specifically states in
part "there has been no meeting of the minds as to the material terms of any
proposal."
Furthermore, no definitive agreements have been executed and there can be no
assurance either that such agreements will be executed or that, even if
executed, will be closed. Neither SIBG nor the Company is yet obligated to
execute agreements or close on any transaction. Numerous conditions must be
satisfied before any transaction between the Company and SIBG can be completed,
many of which are beyond the control of the Company and management. Some of
these include: (1) one or more of SIBG's members must agree to contribute the
cash necessary to allow SIBG to purchase the Company's common stock; (2) SIBG,
its counsel, accountants and other advisors must complete, and be satisfied with
the results of, its due diligence review of the Company, its condition and
business prospects; (3) the Company and SIBG must agree to terms and negotiate
mutually acceptable agreements between themselves and with third parties
including: (a) a purchase or pay-off of the First Union National Bank bond; (b)
the approval of the United States Small Business Administration which is a
secured creditor of the Company; (c) the negotiation of a mutually acceptable
agreement for the purchase by SIBG of the real estate now owned by Blue II, LLC;
(d) the agreement of the Company's numerous unsecured creditors, equipment
lessors and other creditors to payment terms acceptable to SIBG; (4) the
termination or modification of the Company's employment contracts with senior
management; and (5) numerous others, many of which may not be foreseen by the
Company.
No assurance can be given that these conditions can or will be met in a timely
manner or on terms acceptable or favorable to the Company. The exclusivity
agreement generally prohibits the Company from soliciting, encouraging,
discussing or considering other proposals or providing, non-public information
to any other parties who may be interested in providing the Company with
financing until July 25, 1999. This creates the risk that the Company will be
unable to raise adequate funds to sustain its operations if the transactions
with SIBG do not close or if the transactions are not closed in a timely manner.
The exclusivity agreement does, however, provide that the Company may consider
other bonafide proposals, if the board of directors, on advice of outside
counsel, "determines that it is required to do so in order to discharge properly
its fiduciary duties."
Presently, the Company is in default under the payment terms of an equipment
loan to a local bank. In June 1999, the Company agreed to pay the bank a $50,000
fee (in two installments) and in return the bank agreed not to demand repayment
of the loan until June 30, 1999. The Company failed to make the second
installment payment and is attempting to negotiate an extension of the Bank's
forbearance and to refinance the loan. There can be no assurance either that the
bank will agree to forbear or that the loan can be refinanced.
The Company is also in default of numerous other payment obligations, including
rental payments due to Blue II, LLC, payments due on several equipment leases,
and payments due to vendors and professionals. There can be no assurance that
these creditors, individually or in concert, will not take legal action against
the Company or attempt to place the Company into involuntary bankruptcy.
The Company received a letter dated September 15, 1998 (the "Notice letter")
from Nasdaq Stock Market Inc. ("Nasdaq") stating the common stock may be
delisted from the Nasdaq SmallCap Market for failure to maintain a minimum bid
of $1.00 per share. In summary, the notice letter stated that if the Company
failed to demonstrate compliance through achieving a closing bid price of $1.00
per share for ten consecutive trading days during the 90 calendar day period
ending December 14, 1998, the common stock would be subject to delisting. The
Company requested, and Nasdaq approved, an extension of time to allow
shareholder approval of a reverse stock split in an effort to boost the stock
price. In March 1999, the Company affected a 1 for 10 reverse stock split but
the stock price did not remain above the $1.00 minimum closing bid for ten
consecutive days as required by Nasdaq. In April 1999, Nasdaq informed the
Company that it had delisted its common stock from the Nasdaq SmallCap Market.
If the Company is unsuccessful in completing a transaction with SIBG, it will
seek to obtain short-term financing form third parties who have previously
purchased equity or loaned funds to finance operations. The Company may also
explore merging with or selling assets to, another craftbrewer or other industry
6
<PAGE>
participant that has greater financial resources to help ensure that it meets
its obligations. Also, the Company could seek protection under Chapter 11 of the
bankruptcy code to allow additional time to explore other alternatives to
eliminate or reduce its excess capacity. The Company has not yet decided on a
definite course of action and is barred from pursuing such by the exclusivity
agreement with SIBG.
2. Principles of Consolidation
The consolidated financial statements for the three months ended March 31, 1999
include the accounts of the Company and its wholly owned subsidiaries Wild Goose
Brewery, Inc. ("Wild Goose") and Brimstone Brewing Company ("Brimstone"). The
consolidated statements for the three months ended March 31, 1998 include the
accounts of the Company, as well as those of Wild Goose and Brimstone since
their acquisitions on January 28, 1998 and January 15, 1998 respectively.
3. Cash and Cash Equivalents
Cash and cash equivalents are stated at cost, which approximates fair value, and
consists of amounts on hand in an operating account and in a highly liquid
short-term investment account with a major bank. All cash equivalents have
original maturities of three months or less. A short-term investment of $12,
475, is shown as restricted cash, and represents pledged collateral to ensure
the Company's performance of site improvement work required by the local
Frederick County government.
4. Trade Receivables
Trade receivable result primarily from product sales to wholesale distributors.
The Company periodically reviews the financial strength of its distributors, and
provides allowances for anticipated losses as necessary. At March 31, 1999 there
was $27,618 in allowance for doubtful accounts.
5. Inventories
Inventories consist of raw ingredients, work in process, packaging materials,
and finished goods, and are valued at the lower of cost or market. Cost is
determined by the first-in, first-out (FIFO) method. The Company periodically
reviews the age and marketability of its inventory, and provides obsolescence
reserves as necessary. Net Inventories at March 31, 1999 are as follows:
Raw ingredients $ 90,088
Work in process 76,311
Packaging materials 197,407
Finished goods 495,460
Inventory, gross $859,266
--------
Less reserve for obsolescence (48,208)
--------
Inventories, net $811,058
--------
6. Property and Equipment
Property and equipment are recorded at cost and depreciated over the estimated
useful lives of the individual asset groups. Straight-line depreciation is used
for financial reporting, and accelerated methods are used for tax reporting. The
estimated useful lives used for financial reporting are as follows: brewing
equipment, 7 to 20 years; automobiles and trucks, 5 years; furniture and
fixtures, 3 to 7 years. Leasehold improvements are recorded at cost and
amortized over the terms of the related lease, or over the estimated useful life
of the improvement, whichever is shorter. On retirement or disposition of
property and equipment, its cost and accumulated depreciation are removed from
the accounts and any resulting gain or loss is
7
<PAGE>
reflected in operations. Repair and maintenance costs to property and equipment
is expensed in the year incurred. Property and equipment at March 31, 1999 are
as follows:
Brewing equipment $ 4,346,593
Brewery building 3,000,000
Leasehold improvements 1,479,930
Automobiles and trucks 184,204
Furniture and fixtures 138,158
Property and equipment, gross $ 9,148,885
Less accumulated depreciation (1,317,733)
-----------
Property and equipment, net $ 7,831,152
-----------
7. Intangible Assets
Intangible assets consist of trademarks, copyrights, and loan origination costs
related to existing debt obligations. Trademarks and copyrights are amortized
over 5 years on the straight-line basis. Loan origination costs are amortized
over the term of their related loan. Intangible asset amortization expense was
$22,602 for the three months ended March 31, 1999.
8. Goodwill
Goodwill represents the excess of the purchase price paid for Wild Goose over
the value of the net assets acquired from Wild Goose, and is being amortized
over 10 years (120 months) from the date of acquisition. Goodwill amortization
expense was $68,353 for the three months ended March 31, 1999.
9. Long-Term Debt
Long-term debt and the current maturity portion of long-term debt are $2,129,430
at March 31, 1999, itemized as follows: (1) a note payable of $1,155,422 to a
major bank, collateralize by the Company's brewing equipment; (2) $953,852
payable to the United States Small Business Administration, secured by a
secondary lien on the Company's brewery equipment; (3) $17,001 payable to a
major bank, collateralized by the Company's automobiles and trucks; and (4)
several shareholder loans payable totaling $3,155.
10. Capital Leases
The Company leases the land and building housing the brewery which qualify for
capital lease treatment. The Capital lease and the current portion of the
capital lease is 2,685,721 at March 31, 1999. The Company has the option to
purchase the building after March 1, 2023 for $3,000,000.
11. Stockholders Equity
During the three months ended March 31, 1999 the Company issued 2,976,741 shares
of common stock on the conversion of 210 shares of Series E preferred stock, 224
shares of Series F preferred stock, and 197 shares of Series G preferred stock.
In addition, 38,565 shares of common stock were issued to shareholders of the
previous Wild Goose Brewery, Inc. as final settlement in the acquisition.
Another 671,402 shares of common stock were issued to raise working capital.
Given the effects of the one for ten reverse stock split approved at the
Company's March 23, 1999 Special Meeting of Stockholders, the above issuance
accounted for 368,671 weighted average common shares. Weighted average common
shares in total as of March 31, 1999 were 1,673,009.
8
<PAGE>
12. Revenue Recognition
Revenue is recognized upon shipment of product to wholesale distributors. The
Company has established 180 days as an acceptable shelf life for its products,
and will reimburse distributors for 50% of all out of date product destroyed in
the first year of each new distribution agreement. Amounts reimbursed for out of
date product have historically been minimal.
13. Income Taxes
The Company accounts for income taxes under the asset and liability method.
Deferred income taxes are recognized for their tax consequences in future years
by the differences between the tax basis of assets and liabilities and their
financial reporting values at each year-end. They are based on enacted tax laws
and statutory rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established as
necessary to reduce deferred tax assets to the amount they may realize. Income
tax expense represents the current tax provision for the period plus the change
during the period in deferred tax assets and liabilities. Since net operating
losses have been incurred in the three months ended March 31, 1999 and 1998 the
Company has not recorded a provision for income taxes.
14. Basic and Diluted Earnings/(Loss) per Common Share
Statement of Financial Accounting Standards No. 128, "Earnings Per Share",
requires the presentation of basic earnings/(loss) per share and diluted
earnings/(loss) per share. Basic earnings/(loss) per share is based on weighted
average number of outstanding common shares for the period. Diluted
earnings/(loss) per share adjusts weighted average shares for any potential
dilution that could occur if stock options, warrants, or other convertible
securities were exercised or converted into common shares.
9
<PAGE>
FREDERICK BREWING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 and 1198
Overview of Significant Activities and Expenses
A net loss of ($845,694), or ($.51) per common share, was recorded in the first
quarter of 1999, compared to a net loss of ($736,004), or ($1.22) per common
share during the first quarter of 1998 before any preferred stock deemed
dividends.
In the first quarter of 1999 there was 1,673,009 weighted average common shares
outstanding. This followed a March 23, 1999 Special Meeting of Stockholders at
which an amendment was approved to effect a reverse stock split in which one new
share of common stock of the Company (par value $0.0004) was exchanged for ten
old shares of the Company (par value $0.00004). During the first quarter of 1998
there were 6,048,454 weighted average common shares outstanding. If the same
reverse stock split amendment had been in effect during 1998, there would have
been 604,845 average common shares outstanding and the net loss would have been
($1.22) per share.
The Company's gross sales decreased slightly during the first quarter of 1999 to
$990,958 from $1,014,837 in the first quarter of 1998. The decrease resulted
from a fall-off in demand for the Hempen Ale and Hempen Gold products as
marketing and promotional efforts in remote markets were curtailed. This decline
was partially offset by increased sales of Wild Goose products, and a full
quarter of sales of the new one-sixth size kegs now available in all product
lines.
Review of Operations
The following table sets forth items derived from the Company's Consolidated
Statements of Operations, expressed as a percentage of net sales, for the three
months ended March 31, 1999 and 1998.
Percentage of Sales
Three Months Ended
March 31,
------------------
1999 1998
---- ----
Gross sales 107.2 % $ 105.0 %
Less returns, allowances, excise tax 7.2 5.0
----- --------
Net sales 100.0
100.0
Cost of sales 93.3
84.5
Gross (loss)/profit (6.7) 15.5
Selling, general, and admin expenses 81.5 73.9
Amortization of public relations costs 0.0 7.0
----- --------
Loss from operations (74.8) (65.4)
Loss on sale of equipment 0.0 (0.2)
Interest expense, net 16.7 11.0
----- --------
Net loss (91.5)% (76.6)%
----- --------
10
<PAGE>
The following table lists revenues and costs on a per barrel basis for the first
three months of 1999 and 1998.
Revenues and Costs
Three Months Ended
March 31,
------------------
1999 1998
---- ----
Gross sales $177.08 $177.85
Less: returns and excise taxes 11.95 8.45
Cost of sales:
Direct materials 58.98 62.56
Direct labor 16.64 14.13
Fixed production overhead 44.19 38.49
Variable production overhead 34.22 27.97
Total cost of sales 154.03 143.15
Gross profit 11.10 26.25
Gross Sales
Gross sales for the first quarters of 1999 and 1998 were $990,958 and $1,014,337
respectively, a quarter-to-quarter decrease of $23,379 or 2.3%. Sales of Wild
Goose and Brimstone brands which were acquired by the Company in January of
1998, accounted for $467,226 and $41,415 respectively in 1999, and $271,097 and
$47,362 respectively in 1998. Hempen products declined to $90,815 in 1999 from
$279,662 in 1998.
Shipping volumes were 5,596 barrels in the first quarter of 1999 versus 5,706
barrels in 1998, a decrease of 110 barrels or 1.9%. Gross revenues per barrel in
1999 and 1998 were $177.08 and $177.85 respectively, a decrease of $0.77 per
barrel. Per barrel revenue decrease reflects a change in the sales mix of the
Company's products.
Returns and Allowances, and Excise Taxes
Returns and allowances increased $8,790 to $15,889 in 1999 from $7,099 in 1998,
reflecting efforts to expand sales by granting additional wholesaler allowances.
Excise taxes increased $9,872 to $50,967 in 1999 from $41,095 in 1998, and
reflects a geographic sales mix between the first quarter of 1999 and 1998. Some
jurisdictions, including Maryland and Pennsylvania, require the brewer to pay
the excise tax. Other states, such as the District of Columbia and Virginia,
require the distributor who receives the beer to pay the excise tax.
State excise tax rates vary from state to state as well.
Cost of Sales
First quarter cost of sales was $861,977 in 1999 versus $816,773 in 1998, an
increase of 5.5%. Average costs per barrel were $154.03 in 1999 and $143.15 in
1998.
Direct variable costs (raw ingredients, packaging materials, and direct
production labor) were $521,249 or $75.62 a barrel in 1999, versus $437,633 or
$76.69 a barrel in 1998. Previous labor productivity gains made possible by
larger more frequent batch processing were reversed when smaller less frequent
batches were run in 1999.
11
<PAGE>
Fixed production overhead expenses associated with owning and operating the
brewery increased to $305,800 in 1999 from $272,800 in 1998, and are primarily
related to increased depreciation charges on the building and on new equipment
purchased in 1998. Indirect production overhead expenses increased to $134,028
in 1999 from $106,340 in 1998 principally due to increased equipment rentals.
Selling, General and Administrative Expenses
Selling, general, and administrative ("SG&A") expense was $753,195 in the first
quarter 1999, and $714,234 in the first quarter 1998, an increase of $38,961 or
5.5%.
The Company's first quarter 1999 SG&A expenses increased over the comparable
period in 1998 primarily due to an increase of $99,300 in legal fees and
financial relations costs (primarily the costs associated with the Special
Meeting of Shareholders held on March 23, 1999) and an increase of $46,000 in
depletion allowance expenses, partially offset by decreased payroll and payroll
related costs of $78,600, decreased travel expenses of $17,900, and decreased
miscellaneous costs of $9839.
Gain on Sale of Equipment
There was a $2,660 gain on the sale of old brewery equipment in the first
quarter of 1998. There were no equipment sales in the first quarter of 1999.
Interest Expense, (net)
Net interest expense was $154,024 in the first quarter of 1999 compared to
$106,238 in 1998. Interest expense during 1998 was offset by interest income on
excess funds invested until required for operating expenses and capital
investment purposes. There was no such investment income in the first quarter of
1999. A substantial portion of interest expense incurred relates to the debt
obligations the Company has with a major bank for the building and equipment
financing, and with the United States Small Business Administration for
additional equipment financing.
Provision For Income Taxes
The Company has incurred net operating losses during both 1999 and 1998 and no
provisions for income taxes have been provided for on the Consolidated
Statements of Operations. The Company has recorded a full valuation allowance
against the net deferred tax asset.
Liquidity and Capital Resources
Due to losses from operations since 1993, the Company has funded its operations
primarily from private and public placements of common and preferred stock. As
of March 31,1999 the Company had a working capital deficit of $520,789. As of
March 31, 1998, the Company had working capital of $743,764 primarily resulting
from the sale of preferred stock.
Net cash used in investing activities was $7,817 during the three months ended
March 31, 1999, and was used to purchase capital equipment. In the three months
ended March 31,1998, net cash used in investing was $271,266 which was used to
purchase capital equipment.
Net cash provided by financing activities for the three months ended March 31,
1999 was $223,867 and was provided by the placement of debt partially offset by
the transaction costs. In addition, $78,072 was used to pay down long-term debt
and capital leases. In the three months ended March 31, 1998 $99,761 was used
primarily to pay down long-term debt and capital leases.
See the Recent Events and Future Prospects Section for a further discussion of
the Company's liquidity problems and proposed solutions.
12
<PAGE>
Impact of Inflation
The Company has not attempted to calculate the effect of inflation on
operations. However management does nor believe inflation has had a material
impact in past years of the Company's existence. Future material increases in
the costs of raw ingredients, packaging materials, labor costs, payroll related
costs, and general operating expenses could have a significant impact on the
Company's results of operations only to the extent that the effect of such
increases can not be transferred to its distributors.
Impact of Year 2000 Issue
The Company has determined that it will be required to modify or
replace portions of its information technology software so that they will
properly recognize and utilize dates beyond December 31, 1999 ( the "Year 2000
issue"). As a result, the Company has developed a plan to review and, as
appropriate, modify or replace the software in its computer systems. The Company
presently believes that with modifications to existing software and, conversions
to new software, the Year 2000 issue will be satisfactorily resolved in its own
systems. The Company has established an internal auditing process to track and
verify the results of its plan and tests. Management believes the Company is
currently on schedule to substantially complete the renovation, validation and
implementation phases of its plan with respect to its mission-critical systems
by September 1999. The Company is also working with key external parties with
whom it has important financial and operational relationships, including banks,
utilities and other vendors and third party payers, to assess the remediation
efforts made by these parties with respect to their own systems and to determine
the extent to which such systems are vulnerable to the Year 2000 issue. The
Company has not yet received sufficient information from these parties about
their remediation plans to predict the outcome of their efforts. The Company is
also developing a contingency plan that is expected to address financial and
operational problems that might arise on and around January 1, 2000. This
contingency plan would include identifying back-up processes that do not rely on
computer whenever possible. The Company has incurred and expects to continue to
incur expenses allocable to internal staff, as well as costs for software
remediation and replacement in order to achieve Year 2000 compliance. The
Company expect conversion of its primary software programs to be completed in
August 1999 with testing to follow in September 1999. The Company currently
estimates that these costs will total approximately $15,000 the majority of with
will have been incurred by July, 1999. The costs of the Year 2000 program and
the date on which the Company plans to complete year 2000 modifications are
based on current estimates, which reflect numerous assumptions about future
events, including the continued availability of certain resources, the timing
and effectiveness of third party remediation plans and other factors. The
Company can give no assurance that these estimates will be achieved, and actual
results could differ materially from the Company's plans. Specific factors that
might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct relevant computer source codes and embedded technology, the results
of internal and external testing and the timeliness and effectiveness of
remediation efforts of third parties.
If the modifications and conversions referred to above are not made or
are not completed on a timely basis, the Year 200 issue could have a material
adverse effect on the Company's business, financial condition and results of
operations. Moreover, even if these changes are successful, failure of third
parties to which the Company is financially or operationally linked to address
their own system problems could have a material adverse effect on the Company.
Forward-Looking Information
The Private Securities Litigation Reform Act of 1995 provides a "safe Harbor"
for certain forward-looking statements made by the Company in its disclosures to
the public. There is certain information contained herein, in the company's
press releases, and in oral statements made by authorized officers of the
Company which are forward-looking statements as defined by such Act. When used
herein, in the Company's press releases, and in oral statements the words
"estimate", "project", "anticipate", "expect", "intend", "believe", "plans", and
similar expressions are intended to identify forward-looking statements. Because
such forward-looking statements involve risk and
13
<PAGE>
uncertainty there are important factors that could cause actual results to
differ materially form those expressed or implied by such forward-looking
statements.
Recent Events and Future Prospects
Basis of Presentation
As explained below, the company has sustained recurring operating losses and
cash flow deficits. Also, the company has significant cash commitments to
creditors. These factors raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
described below. The financial statements do not contain any adjustments that
might result from the outcome of these uncertainties.
Future Prospects
The Company's ability to meet its obligations is dependent on generating
positive cash flow and ultimately operating profitably. Such an improvement
requires the Company to eliminate or substantially reduce its excess brewing
capacity and to obtain additional financing from third parties.
On November 4, 1998, the Company retained Westfinance Corporation to advise and
assist Company in the following: 1) refinancing First Union National Bank bond
2) raising additional working capital, and 3) Seeking either candidates for
acquisition by the Company, merger with the Company or acquisition of the
Company. The Company has made numerous contacts and engaged in preliminary, but
unsuccessful, discussions with numerous parties toward each of these objectives.
In April and June of 1999, the Company raised approximately $550,000 by way of a
short-term loan from a consortium of investors, collateralized by the Company's
rights in the Wild Goose brands, trademarks, copyrights and other intellectual
property.
On June 30, 1999, the Company's Board of Directors agreed to grant to SIBG, an
unrelated third party, the exclusive right, through July 25, 1999, to negotiate
and perform due diligence with a view toward consummating a transaction pursuant
to which SIBG would acquire majority control of the Company's voting stock for
cash.
If the transaction closes as discussed to date, management believes that SIBG
will simultaneously acquire and may ultimately exercise the Company's option to
purchase the land and building in Frederick County, Maryland which contain the
Company's brewery; enter into contract brewing agreements whereby the Company
would commit to producing 5,000 - 35,000 barrels per year of various brands
controlled by SIBG and its affiliates; and arrange to refinance the Company's
debt to First Union National Bank.
The Company has been in discussions with SIBG, its principals and affiliates at
various times since late 1998. While the negotiations concerning the stock
purchase, contract brewing, real estate purchase and First Union National Bank
re-finance transactions are at an advanced stage and that, if SIBG proceeds
substantially as contemplated, the terms of those transactions will prove
acceptable to the Company's Board of Directors. However, the exclusivity letter
agreement specifically states in part "there has been no meeting of the minds as
to the material terms of any proposal."
Furthermore, no definitive agreements have been executed and there can be no
assurance either that such agreements will be executed or that, even if
executed, will be closed. Neither SIBG nor the Company is yet obligated to
execute agreements or close on any transaction. Numerous conditions must be
satisfied before any transaction between the Company and SIBG can be completed,
many of which are beyond the control of the Company and management. Some of
these include: (1) one or more of SIBG's members must agree to contribute the
cash necessary to allow SIBG to purchase the Company's common stock; (2) SIBG,
its counsel, accountants and other advisors must complete, and be satisfied with
the results of, its due diligence review of the Company, its condition and
business prospects; (3) the Company and SIBG must agree to terms and negotiate
mutually acceptable agreements between themselves and with third parties
including:
14
<PAGE>
(a) a purchase or pay-off of the First Union National Bank bond; (b) the
approval of the United States Small Business Administration which is a secured
creditor of the Company; (c) the negotiation of a mutually acceptable agreement
for the purchase by SIBG of the real estate now owned by Blue II, LLC; (d) the
agreement of the Company's numerous unsecured creditors, equipment lessors and
other creditors to payment terms acceptable to SIBG; (4) the termination or
modification of the Company's employment contracts with senior management; and
(5) numerous others, many of which may not be foreseen by the Company.
No assurance can be given that these conditions can or will be met in a timely
manner or on terms acceptable or favorable to the Company. The exclusivity
agreement generally prohibits the Company from soliciting, encouraging,
discussing or considering other proposals or providing, non-public information
to any other parties who may be interested in providing the Company with
financing until July 25, 1999. This creates the risk that the Company will be
unable to raise adequate funds to sustain its operations if the transactions
with SIBG do not close or if the transactions are not closed in a timely manner.
The exclusivity agreement does, however, provide that the Company may consider
other bonafide proposals, if the board of directors, on advice of outside
counsel, "determines that it is required to do so in order to discharge properly
its fiduciary duties."
Presently, the Company is in default under the payment terms of an equipment
loan to a local bank. In June 1999, the Company agreed to pay the bank a $50,000
fee (in two installments) and in return the bank agreed not to demand repayment
of the loan until June 30, 1999. The Company failed to make the second
installment payment and is attempting to negotiate an extension of the Bank's
forbearance and to refinance the loan. There can be no assurance either that the
bank will agree to forbear or that the loan can be refinanced.
The Company is also in default of numerous other payment obligations, including
rental payments due to Blue II, LLC, payments due on several equipment leases,
and payments due to vendors and professionals. There can be no assurance that
these creditors, individually or in concert, will not take legal action against
the Company or attempt to place the Company into involuntary bankruptcy.
The Company received a letter dated September 15, 1998 (the "Notice letter")
from Nasdaq Stock Market Inc. ("Nasdaq") stating the common stock may be
delisted from the Nasdaq SmallCap Market for failure to maintain a minimum bid
of $1.00 per share. In summary, the notice letter stated that if the Company
failed to demonstrate compliance through achieving a closing bid price of $1.00
per share for ten consecutive trading days during the 90 calendar day period
ending December 14, 1998, the common stock would be subject to delisting. The
Company requested, and Nasdaq approved, an extension of time to allow
shareholder approval of a reverse stock split in an effort to boost the stock
price. In March 1999, the Company affected a 1 for 10 reverse stock split but
the stock price did not remain above the $1.00 minimum closing bid for ten
consecutive days as required by Nasdaq. In April 1999, Nasdaq informed the
Company that it had delisted its common stock from the Nasdaq SmallCap Market.
If the Company is unsuccessful in completing a transaction with SIBG, it will
seek to obtain short-term financing form third parties who have previously
purchased equity or loaned funds to finance operations. The Company may also
explore merging with or selling assets to, another craftbrewer or other industry
participant that has greater financial resources to help ensure that it meets
its obligations. Also, the Company could seek protection under Chapter 11 of the
bankruptcy code to allow additional time to explore other alternatives to
eliminate or reduce its excess capacity. The Company has not yet decided on a
definite course of action and is barred from pursuing such by the exclusivity
agreement with SIBG.
15
<PAGE>
PART II.
OTHER INFORMATION
For the Three Months Ended March 31, 1999 and 1998
FREDERICK BREWING CO.
Item 1. Legal Proceedings
The Company has been informed of legal actions that have been initiated by
certain of its trade creditors. Should the actions result in financial awards to
the complainants, it is the Company's opinion based upon the dollar amounts at
issue, that such amounts are not material.
Item 2. Changes in Securities
During the three months ended March 31, 1999, the Company issued 2,884,061
(288,407 post-split) shares of the Company's common stock upon the conversion of
88 shares of Series A, 210 shares of Series E, 224 shares of Series F and 197
shares of Series G Preferred Stock.
The Company's stockholders approved a 1 for 10 reverse stock split at the
Special Meeting of Shareholders on March 23, 1999.
Item 3. Defaults Upon Senior Securities
Due to the fact that certain long-term debt and capital lease obligations have
been reclassified as current liabilities, the Company is in violation of
modified covenants which require the Company to maintain a current ratio of not
less that 1:1. For the three months ended March 31,1999 the lender waived this
violation given current efforts by the Company to refinance this debt.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
16
<PAGE>
Item 5. Exhibits and Reports on Form 8-K
- --------------------------------------------------------------------------------
(a) Exhibits Filed:
Index to Exhibits
- --------------------------------------------------------------------------------
10.1 Extension of Financing Agent Agreement with Westfinance Corp. dated May
4, 1999.
10.2 Extension of Merger & Acquisition Transaction Fee Agreement with West-
finance Corp. dated May 4, 1999.
10.3 Forbearance Agreement by and among First Union National Bank, the
Maryland Economic, Development Corporation, the Maryland Industrial
Development Financing Authority, and Frederick Brewing Co. dated May
12, 1999.
10.4 Second Forbearance Agreement by and among First Union National Bank,
the Maryland Economic, Development Corporation, the Maryland Industrial
Development Financing Authority, and Frederick Brewing Co. dated June
4, 1999.
10.5 Convertible Note by and between Frederick Brewing Co. and Austost
Anstalt Schaan dated June 2, 1999.
10.6 Convertible Note by and between Frederick Brewing Co. and World Capital
Funding dated June 2, 1999.
10.7 Convertible Note by and between Frederick Brewing Co. and Fred Lenz
dated June 2, 1999.
10.8 Convertible Note by and between Frederick Brewing Co. and Dean Dowda
dated June 2, 1999.
10.9 Convertible Note by and between Frederick Brewing Co. and Ron Williams
Sr. dated June 2, 1999.
10.10 Convertible Note by and between Frederick Brewing Co. and Ron Williams
Jr. dated June 2, 1999.
10.11 Convertible Note by and between Frederick Brewing Co. and Balmore Funds
S.A. dated June 2, 1999.
10.12 Common Stock Purchase Warrant by and between Frederick Brewing Co. and
Austost Anstalt Schaan dated June 7, 1999.
10.13 Common Stock Purchase Warrant by and between Frederick Brewing Co. and
World Capital Funding dated June 7, 1999.
10.14 Common Stock Purchase Warrant by and between Frederick Brewing Co. and
Fred Lenz dated June 7, 1999.
10.15 Common Stock Purchase Warrant by and between Frederick Brewing Co. and
Dean Dowda dated June 7, 1999.
10.16 Common Stock Purchase Warrant by and between Frederick Brewing Co. and
Ron Williams Sr. dated June 7, 1999.
10.17 Common Stock Purchase Warrant by and between Frederick Brewing Co. and
Ron Williams Jr. dated June 7, 1999.
10.18 Common Stock Purchase Warrant by and between Frederick Brewing Co. and
Balmore Funds S.A. dated June 7, 1999.
10.19 Exclusivity Agreement by and between Snyder International Brewing
Group, LLC and Frederick Brewing Co. dated June 30, 1999.
27.1 Financial Data Schedule
99.1 Safe Harbor Under the Private Securities Litigation Reform Act of 1995
99.2 Press Release, January 27, 1999
99.3 Press Release, January 28, 1999
99.4 Press Release, February 11, 1999
99.5 Press Release, April 9, 1999
99.6 Press Release, April 28, 1999
99.7 Press Release, April 23, 1999
99.8 Press Release, June 30, 1999
17
<PAGE>
(b) Reports on Form 8-K
As filed on April 15, 1999.
As filed on April 23, 1999.
18
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
Frederick Brewing Co.
Date: July 2, 1999 /s/ Kevin E. Brannon
------------------ -----------------------------------
Kevin E. Brannon
Chairman of the Board and
Chief Executive Officer
Date: July 2, 1999 /s/ Leslie P. Harper
------------------ -----------------------------------
Leslie P. Harper
Chief Financial Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant an in the capacities and on the
dates indicated.
/s/ Kevin E. Brannon Date: July 2, 1999
- ----------------------------------
Kevin E. Brannon
Chairman
/s/ Marjorie A. McGinnis Date: July 2, 1999
- ----------------------------------
Marjorie A. McGinnis
/s/ Nicholas P. Foris, M.D. Date: July 2, 1999
- ----------------------------------
Nicholas P. Foris, M.D.
/s/ Carl R. Hildebrand Date: July 2, 1999
- ----------------------------------
Carl R. Hildebrand
/s/ Jerome M. Pool Date: July 2, 1999
- ----------------------------------
Jerome M. Pool
/s/ Maribeth Visco Date: July 2, 1999
- ----------------------------------
Maribeth Visco
19
Exhibit 10.1
WESTFINANCE CORPORATION
3201 NEW MEXICO AVENUE, N.W.
SUITE 350
WASHINGTON. D.C. 20016
----------
(202) 895-1390
Mr. Kevin Brannon 4 May 1999
Chairman
Frederick Brewing Company
4607 Wedgewood Blvd.
Frederick, MD 21703
RE: Extension of Financing Agent Agreement with Westfinance Corporation
dated November 4, 1998, and amended and extended February 3, 1999
Dear Mr. Brannon:
Execution of this letter by you will extend and amend the following agreement
with Westfinance Corporation:
The Retention of Westfinance Corporation as Financing Agent
The above referenced Agreement is hereby extended for ninety (90) days,
effective May 4, 1999, with the following changes:
The cash fee set forth in Paragraph 2.a of the original agreement is
increased from 1% to 3%
Paragraph 2.b is amended as follows: Westfinance's additional
compensation in the form of warrants on Frederick Brewing Company's
common stock shall equal 3% of the Company's presently outstanding
shares regardless of the amount of equity capital raised by Westfinance
for Frederick Brewing Company.
All other terms and conditions of the agreement remain unchanged, and
any prior extension is superseded by this extension.
This letter also recognizes Westfinance Corporation as a finder of asset-based
financing and entitled to a fee of 3% of the amount of the debt commitment with
respect to any such financing which it obtains for Frederick Brewing Company.
Such fee, if earned, will be paid as such financing is received or drawn upon,
and at the time of actual receipt.
Sincerely,
/s/ C. Stevens Avery, II
------------------------
C. Stevens Avery II
President
- --------------------------------------------------------------------------------
AGREED AND ACCEPTED:
Date: May 12, 1999
-----------------------
By: /s/ Kevin Brannon
-------------------------
Kevin Brannon, Chairman
Frederick Brewing Company
Exhibit 10.2
WESTFINANCE CORPORATION
3201 NEW MEXICO AVENUE, N.W.
SUITE 350
WASHINGTON, D.C. 20016
----------
(202) 895-1390
4 May 1999
Mr. Kevin Brannon
Chairman
Frederick Brewing Company
4607 Wedgewood Blvd.
Frederick, MD 21703
RE: Extension of Merger & Acquisition Transaction Fee Agreement with
Westfinance Corporation dated November 4, 1998
Dear Mr. Brannon:
Execution of this letter by you will extend the following agreement with
Westfinance Corporation:
The Merger & Acquisition Transaction Fee Agreement
The above referenced Agreement is hereby extended for ninety (90) days,
effective May 4, 1999.
Sincerely,
/s/ C. Stevens Avery, II
------------------------
C. Stevens Avery II
President
- --------------------------------------------------------------------------------
AGREED AND ACCEPTED:
Date: May 12, 1999
------------------------
By: /s/ Kevin Brannon
-------------------------
Kevin Brannon, Chairman
Frederick Brewing Company
Exhibit 10.3
FORBEARANCE AGREEMENT
THIS FORBEARANCE AGREEMENT ("Agreement") is made and entered into as of
the 12th day of May __, 1999, by and among FIRST UNION NATIONAL BANK, successor
by merger to Signet Bank (the "Bank"), the MARYLAND ECONOMIC DEVELOPMENT
CORPORATION ("MEDCO"), the MARYLAND INDUSTRIAL DEVELOPMENT FINANCING AUTHORITY
("MIDFA") and FREDERICK BREWING CO. (the "Borrower").
R E C I T A L S
R-1. Pursuant to and in accordance with Article 83A, Title 5, Subtitle
2 of the Annotated Code of Maryland, MEDCO issued and sold to the Bank its
Taxable Economic Development Revenue Bond (Frederick Brewing Co. Facility), 1996
Issue, dated July 19, 1996 in the original principal amount of $1,500,000 (as
amended, modified, supplemented, extended, renewed or restated from time to
time, the "Bond").
R-2. The proceeds of the sale of the Bond were loaned to the Borrower
in accordance with the terms and conditions of a Loan and Financing Agreement
dated July 19, 1996 by and among the Bank, the Borrower and MEDCO (as amended,
modified, supplemented, extended, renewed or restated from time to time, the
"Loan Agreement").
R-3. The loan by MEDCO to the Borrower of the proceeds of the sale of
the Bond is evidenced by a Promissory Note dated July 19, 1996 in the original
principal amount of $1,500,000.00 executed by the Borrower in favor of MEDCO and
assigned by MEDCO to the Bank (as amended, modified, supplemented, extended,
renewed or restated from time to time, the "Note").
R-4. The Borrower's obligations under the Note and the Loan Agreement
are secured by, inter alia, a blanket security interest in the assets of the
Borrower, including, without limitation, the Borrower's present and future
accounts, contract rights, receivables, inventory, equipment, fixtures,
instruments and general intangibles (collectively, the "Collateral").
R-5. MIDFA insures a portion of the Obligations (as hereafter defined)
pursuant to the terms of an Insurance Agreement dated July 19, 1996 (the
"Insurance Agreement").
R-6. The terms of the Loan Agreement were modified pursuant to the
following (collectively, the "Modification Documents"): (a) Forbearance
Agreement dated February 27, 1997; (b) letter agreement dated January 9, 1998;
and (c) Loan Modification Agreement dated May 27, 1998.
R-7. The Loan (as hereafter defined) matured on April 1, 1999 (the
"Maturity Date"). On the Maturity date, all of the Obligations (as hereafter
defined) became due and payable in full.
<PAGE>
R-8. As of April 28, 1999, the balance due and owing on the Loan (as
hereafter defined) was $1,278,376.76 (consisting of principal in the amount of
$1,183,199.98, accrued interest in the amount of $34,678.05 and late charges in
the amount of $60,498.73), plus attorneys' fees and expenses. In addition,
interest continues to accrue from April 28, 1999 at the per diem rate of
$295.80.
R-9. The Bond and the interest thereon are limited obligations of
MEDCO, the principal of, premium, if any, and interest on which are payable
solely from the security described in Section 2.7 of the Loan Agreement or from
the Property (as defined in the Loan Agreement); provided, however, that under
the Loan Agreement, MEDCO has reserved to itself, and has not pledged or
assigned, the Reserved Rights of the Issuer (as defined in the Loan Agreement).
Neither the Bond nor the interest thereon shall ever constitute an indebtedness
or a charge against the general credit or taxing powers of MEDCO, the State of
Maryland, the Maryland Department of Business and Economic Development, MIDFA,
any other public instrumentality or any public body within the meaning of any
constitutional or charter provision or statutory limitation, and neither shall
ever constitute or give rise to any pecuniary liability of MEDCO, the State of
Maryland, the Maryland Department of Business and Economic Development, MIDFA
(except in regard to the Insurance Agreement), any other public instrumentality
or any public body.
R-10. The Borrower's obligations under the Bond, the Note, the Loan
Agreement and the other Loan Documents (as hereafter defined) are hereafter
collectively referred to as the "Obligations." The Bond, the Note, the Loan
Agreement, this Agreement and all documents previously, now or hereafter
executed and delivered to evidence, secure, guarantee or in connection with the
Obligations, as the same may from time to time be amended, modified,
supplemented, extended, renewed or restated, are hereafter collectively referred
to as the "Loan Documents." The loan evidenced by the Loan Documents is
hereafter referred to as the "Loan."
R-11. The Borrower has requested that the Bank forbear from exercising
its rights and remedies under the Loan Documents. The Bank has agreed to this
request, subject to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. RECITALS.
The recitals to this Agreement are true and correct, and are
incorporated into and made a substantive part of this Agreement.
-2-
BALT1:216060
17907-679
<PAGE>
2. CONFIRMATION AND RATIFICATION OF LOAN DOCUMENTS.
The Borrower agrees that the Loan Documents are in full force and
effect and that each Loan Document shall remain in full force and effect unless
and until modified or amended in writing in accordance with its terms. The
Borrower confirms and ratifies its obligations under the Loan Documents, and
agrees that the execution and delivery of this Agreement shall not in any way
diminish or invalidate any of its obligations under the Loan Documents. All
parties hereto consent to the execution and delivery of this Agreement, and to
all the provisions of this Agreement to the extent that such provisions may
modify the terms and provisions of any of the Loan Documents.
3. ACKNOWLEDGMENT OF DEFAULT.
The Borrower acknowledges and agrees that it has defaulted on its
obligations under the Loan Documents. The Borrower further acknowledges and
agrees that the Bank, in the absence of the specific agreement to forbear set
forth in this Agreement, would have the immediate and unconditional right to
exercise its rights and remedies under the Loan Documents and/or applicable law.
4. FORBEARANCE.
4.1. Forbearance Period. Subject to the terms and conditions of
this Agreement, the Bank agrees to forbear from exercising its nights and
remedies under the Loan Documents until May 31, 1999, or such earlier date upon
which an Event of Default (as hereafter defined) occurs under this Agreement
(the "Forbearance Period"). The Bank shall have no obligation to consider or
grant any extension of the Forbearance Period.
4.2. Events of Default. The occurrence of one or more of the
following events (individually, an "Event of Default" and, collectively, the
"Events of Default") shall constitute defaults under this Agreement:
(a) failure of the Borrower to timely make any payment
required under this Agreement;
(b) failure of the Borrower to duly perform, comply with or
observe, as and when required, any of the other terms, conditions or covenants
in this Agreement or any document executed in connection with this Agreement;
(c) if any representation or warranty made in this Agreement,
or any report, certificate, financial statement or other document provided to
the Bank in connection with this Agreement, should prove to have been materially
false or misleading, as of the date on which it was made;
-3-
BALT1:216060
17907-679
<PAGE>
(d) if the Borrower should make an assignment for the benefit
of creditors, admit in writing inability to pay debts as they mature, be or
become the subject, voluntarily or involuntarily, of any insolvency, adjustment
of debt, reorganization, liquidation, receivership or similar proceeding under
any present or future statute, law or regulation, or suffer the appointment of
any receiver, trustee, liquidator or other custodian;
(e) if any other creditor of the Borrower, including any state
or federal taxing authority, should attach, garnish, levy, seize and/or assert a
lien interest in any property of the Borrower; or
(f) if a default (other than a payment default) should occur
or exist under any of the Loan Documents.
4.3. Remedies Upon Event of Default. Immediately upon the
occurrence of any Event of Default, the Bank, without any requirement of notice
to the Borrower, shall have the right to exercise any and all rights and
remedies available to the Bank under the Loan Documents. All rights and remedies
available to the Bank may be asserted concurrently, cumulatively or
successively, from time to time, as long as the Borrower is indebted to the
Bank.
5. PAYMENT OBLIGATIONS.
During the Forbearance Period, the Borrower shall make payments to
the Bank in accordance with the schedule attached hereto as EXHIBIT A.
6. MINIMUM ACCOUNTS RECEIVABLE.
During the Forbearance Period, the Borrower shall maintain minimum
Eligible Accounts Receivable in accordance with the schedule attached hereto as
EXHIBIT B. For purposes of this Agreement, "Eligible Accounts Receivable" means
any trade account meeting all the following specifications: (a) it is lawfully
owned by the Borrower and subject to no lien, security interest or prior
assignment, and the Borrower has the right of assignment thereof and the power
to grant a security interest therein; (b) it is a valid and enforceable account,
representing the undisputed indebtedness of an account debtor to the Borrower
that is owing less than 90 days past the original invoice date, and the entire
balance of any account of any single account debtor will be ineligible whenever
the portion of the account which has not been paid within ninety (90) days from
the original invoice date is in excess of fifty percent (50%) of the total
amount outstanding on the account; (c) it is not subject to any defense,
set-off, counter-claim, credit, allowance or adjustment; (d) no substantial part
of any goods, the sale of which has given rise to the account, has been
returned, rejected, lost or damaged; (e) if it arises from sale of goods by the
Borrower, such sale was an absolute sale and not on a future sale or advance
basis or on consignment or on approval or on a sale or return basis nor subject
to any other repurchase, return or rebate agreement, and such goods have been
shipped to the account debtor; (f) it arose in the ordinary course of the
Borrower's business; (g) no notice of the bankruptcy, receivership,
reorganization, insolvency or financial embarrassment of the account
-4-
BALT1:216060
17907-679
<PAGE>
debtor has been received; (h) the account debtor is not a subsidiary or
affiliate of the Borrower, does not control the Borrower, and is not under the
control of or under common control with the Borrower; (i) the account debtor is
not an account debtor whose chief executive office or principal place of
business is outside the United States; (j) the account meets such other
specifications and requirements which the Bank may reasonably establish from
time to time; (k) if it arises from sale of goods by the Borrower, such sale is
not a "future" sale, nor a sale based on extended payment terms; (1) it is not a
receivable arising out of the sales of catalogs; and (m) it is not a receivable
arising out of finance charges. The term "account" as used herein shall have the
meaning set forth in the Uniform Commercial Code as adopted in the State of
Maryland.
7. REPLACEMENT FINANCING.
During the Forbearance Period, the Borrower shall use best efforts
to secure debt and/or equity financing in an amount sufficient to pay in full
the Obligations prior to May 31, 1999. The Borrower shall provide written status
reports regarding its efforts to secure financing in accordance with the
schedule attached hereto as EXHIBIT C. The status reports shall include, at a
minimum, the following information: (a) the status of the Borrower's discussions
with prospective lenders; (b) the status of the Borrower's negotiations to
obtain a license relating to Two Dogs malt beverage; (c) copies of documents
(e.g., letters of intent, loan commitments, etc.) relating to the foregoing; and
(d) any other information and documentation relating to the Borrower's efforts
to secure replacement financing.
8. FINANCIAL REPORTING.
During the Forbearance Period, the Borrower shall continue to
provide to the Bank the same financial documents as the Borrower is currently
providing to the Bank and, further, shall provide to the Bank such other
financial documents as the Bank may request from time to time. Without limiting
the generality of the foregoing, during the Forbearance Period, the Borrower
shall provide to the Bank detailed accounts receivable aging and listing reports
as of April 30, 1999 (to be delivered to the Bank on or before May 5, 1999) and
as of May 15, 1999 (to be delivered to the Bank on or before May 20, 1999).
9. FEES AND EXPENSES.
The Borrower shall be responsible for all fees and expenses,
including all attorneys' fees and expenses, incurred by the Bank in connection
with the negotiation and preparation of this Agreement and with the enforcement
of the Bank's rights under the Loan Documents, which fees and expenses shall be
considered part of the Obligations. As of April 28, 1999, the Bank's attorneys'
fees and expenses total $21,534.88.
10. BORROWER'S REPRESENTATIONS AND WARRANTIES.
As inducement to enter into this Agreement, the Borrower hereby
represents and warrants to the Bank as follows:
-5-
BALT1:216060
17907-679
<PAGE>
10.1. Authorization and Validity. The execution and delivery of
this Agreement and any related documents by the Borrower and the performance of
its obligations hereunder have been duly authorized, and this Agreement
constitutes the legal, valid and binding obligation of the Borrower in
accordance with its terms.
10.2. Compliance With Other Instruments. The Borrower is not in
default under any provision of its articles of incorporation, by-laws or other
organizational documents, if applicable, or of any existing judgment, decree,
law, governmental order, rule or regulation applicable to it, or of any
agreement or other instrument to which it is a party or by which its assets are
bound. The execution and delivery by the Borrower of this Agreement and related
documents, the consummation of the transactions herein and therein contemplated,
and the compliance with the terms and provisions hereof and thereof: (a) has not
and will not constitute or result in a breach of the Borrower's articles of
incorporation, by-laws or other organizational documents, if applicable, any
presently existing applicable law, order, writ, injunction or decree of any
court or governmental department, commission, board, bureau, agency or
instrumentality; or (b) conflict or be inconsistent with or result in any breach
of any of the terms, covenants, conditions or provisions thereof, or constitute
a default under any indenture, mortgage, deed of trust, lease, sublease,
instrument, document, agreement or contract of any kind to which the Borrower is
a party or by which the Borrower may be bound or subject.
10.3. Taxes. The Borrower has paid or caused to be paid all
federal, state, local and foreign taxes to the extent that such taxes have
become due and have filed or caused to be filed all federal, state, local and
foreign tax returns which the Borrower is currently required to file.
10.4. Title to Collateral and Existing Liens on Collateral. The
Borrower has good and marketable title to the collateral that secures the
Borrower's liability to the Bank, and the collateral is not subject to any
existing liens or encumbrances except those disclosed to the Bank in writing.
10.5. Litigation. There is no litigation, at law or in equity, nor
any proceeding before any federal, state or other governmental or administrative
agency or any arbitrator pending or threatened against the Borrower, except as
has been disclosed to the Bank in writing.
10.6. Benefit. The Borrower has derived direct or indirect benefit
from this Agreement and the transactions contemplated hereby.
10.7. Truth of Representations. Any and all documents, reports,
certificates and statements provided to the Bank by or on behalf of the Borrower
in connection with the Loan Documents or this Agreement are true, correct and
complete, do not contain any untrue statements of material fact and do not omit
any facts to make information contained therein not misleading.
10.8. No Claims, Defenses or Setoffs. The Borrower does not have
any claims, defenses or setoffs with respect to the Loan Documents, or with
respect to the debt evidenced or
-6-
BALT1:216060
17907-679
<PAGE>
secured thereby or with respect to the collection or enforcement of any of the
same (and to the extent any such claim, setoff or defense exists, they are each
waived and relinquished in their entirety).
10.9. No Representations by Bank. The Bank has made no
representations or commitments, oral or written, or undertaken any obligations
other than as expressly set forth in this Agreement.
10.10. Arm's Length Agreement. The Borrower acknowledges: (a) that
it has had access to independent legal counsel in the negotiation of the terms
of and in the preparation and execution of this Agreement, and that it has had
the opportunity to review, analyze and discuss with counsel this Agreement, and
the underlying factual matters relevant to this Agreement, for a sufficient
period of time before the execution and delivery hereof; (b) that all of the
terms of this Agreement were negotiated at arm's-length; (c) that this Agreement
was prepared and executed without fraud, duress, undue influence, or coercion of
any kind exerted by any of the parties upon the others; and (d) that the
execution and delivery of this Agreement is the free and voluntary act of each
party.
11. RELEASE OF BANK, MEDCO AND MIDFA
The Borrower, for itself and its current or former owners,
directors, officers, partners, members, employees, representatives, insurers,
attorneys, agents, successors and assigns, and any affiliates, subsidiaries and
related entities of the Borrower and their current or former owners, directors,
officers, partners, members, employees, representatives, insurers, attorneys,
agents, successors and assigns (individually and collectively, the "Borrower
Group"), hereby RELEASES and FOREVER WAIVES and RELINQUISHES all claims,
demands, obligations, liabilities and causes of action of whatsoever kind or
nature, whether known or unknown, which it has, may have, or might have or
assert now or in the future against the Bank, MEDCO or MIDFA and/or their
current or former owners, directors, officers, partners, members, employees,
representatives, insurers, attorneys, agents, successors or assigns, or any
affiliates, subsidiaries or related entities of the Bank, MEDCO or MIDFA and/or
their current or former owners, directors, officers, partners, members,
employees, representatives, insurers, attorneys, agents, successors or assigns
(individually and collectively, the "Bank Group"), directly or indirectly,
arising out of, based upon or in any manner connected with any Prior Related
Event. For purposes of this Agreement, "Prior Related Event" means any
transaction, event, circumstance, action, failure to act or occurrence of any
sort or type, whether known or unknown, which occurred, existed, was taken,
permitted or begun prior to the execution of this Agreement arising out of or
related in any way to the Loan, the Obligations, the Bond, the Note, all or any
of the Loan Documents, the Collateral, the Bank, MEDCO, MIDFA, the Insurance
Agreement, the Modification Documents and/or the relationship by and among all
or any members of the Borrower Group and all or any members of the Bank Group.
The execution of this Agreement by the Bank, MEDCO and MIDFA shall not
constitute an acknowledgment or admission by the Bank, MEDCO or MIDFA of any
liability for any matter or precedent upon which any liability may be asserted.
-7-
BALT1:216060
17907-679
<PAGE>
12. GENERAL PROVISIONS.
12.1. Headings. The headings and subheadings in this Agreement are
intended for convenience only and shall not be used or deemed to limit or
diminish any of the provisions hereof.
12.2. Construction. Unless the context requires otherwise, singular
nouns and pronouns used in this Agreement shall be deemed to include the plural,
and pronouns of one gender shall be deemed to include the equivalent pronoun of
the other gender.
12.3. Interpretation. The parties to this Agreement acknowledge
that each of them has participated in the negotiation of this Agreement, and no
provision of this Agreement shall be construed against or interpreted to the
disadvantage of any party hereto by any court or other governmental or judicial
authority by reason of such party having or being deemed to have structured,
dictated or drafted such provision.
12.4. Further Assurances and Corrective Instruments. The parties to
this Agreement shall execute, acknowledge and deliver, or cause to be executed,
acknowledged and delivered, from time to time, such supplements hereto and such
further instruments and documents as may be required to facilitate the carrying
out of the intentions of the parties to this Agreement.
12.5. Survival; Successors and Assigns. Whenever in this Agreement
any of the parties hereto is referred to, such reference shall be deemed to
include the successors and assigns of such party. All covenants, agreements,
representations and warranties made herein, and in any documents executed in
connection with this Agreement, shall survive this Agreement and continue in
fall force and effect.
12.6. Waiver of Jury Trial. The parties to this Agreement agree
that any suit, action or proceeding brought or instituted by any party hereto or
any successor or assign of any party which in any way relates, directly or
indirectly, to Loan, the Obligations, the Bond, the Note, all or any of the Loan
Documents, the Collateral, the Bank, MEDCO, MIDFA, the Insurance Agreement, the
Modification Documents and/or the relationship by and among all or any members
of the Borrower Group and all or any members of the Bank Group shall be tried
only by a court and not a jury. EACH PARTY HEREBY EXPRESSLY WAIVES ANY RIGHT TO
A TRIAL BY JURY IN ANY SUCH SUIT, ACTION OR PROCEEDING. The Borrower represents,
acknowledges and agrees that this provision is a specific and material aspect of
this Agreement, and that the Bank would not agree to the terms of this Agreement
if this waiver of jury trial provision were not a part of this Agreement. The
Borrower further represents, acknowledges and agrees that this waiver is
knowingly, intelligently and voluntarily made, that neither the Bank nor any
person acting on behalf of the Bank has made any representations to induce this
waiver, that the Borrower has been represented (or has had the opportunity to be
represented) in the signing of this Agreement and in the making of this waiver
by independent
-8-
BALT1:216060
17907-679
<PAGE>
legal counsel selected by the Borrower and that the Borrower has had the
opportunity to discuss this waiver with counsel.
12.7. INSERT TO COME?
12.8. Modification. No modification of any provision of this
Agreement, or of any document executed in connection with this Agreement, shall
in any event be effective unless the same is in writing, and then such
modification shall be effective only in the specific instance or for the
purpose for which given.
12.9. Waiver. Neither any failure nor any delay on the part of any
of the parties in exercising any right, power or remedy under this Agreement,
any documents executed in connection with this Agreement or under applicable law
shall operate as a waiver thereof, nor shall a single or partial exercise
thereof preclude any other or further exercises thereof or the exercise of any
other right, power or remedy.
12.10. Severability. If any term, provision or condition, or any
part thereof, of this Agreement, or any of the documents executed in connection
with this Agreement, shall for any reason be found or held to be invalid or
unenforceable by any court or governmental agency
-9-
BALT1:216060
17907-679
<PAGE>
of competent jurisdiction, such invalidity or unenforceability shall not affect
the remainder of such term, provision or condition or any other term, provision
or condition, and this Agreement, and all documents executed in connection with
this Agreement, shall survive and be construed as if such invalid or
unenforceable term, provision or condition had not been contained therein.
12.11. Merger and Integration. This Agreement, and the documents
executed in connection with this Agreement, contain the entire agreement of the
parties hereto with respect to the matters covered and the transactions
contemplated hereby, and no other agreement, statement or promise made by any
party hereto, or any employee, officer, attorney, agent or other representative
of any party hereto, shall be valid or binding.
12.12. No Novation. Nothing contained in this Agreement is intended
to or shall act to nullify, discharge or release any obligation incurred in
connection with the Loan and/or the Loan Documents or to waive or release any
collateral which secures the Loan, nor shall this Agreement be deemed or
considered to operate as a novation of the Loan Documents. Except to the extent
of any express conflict with this Agreement, all of the terms and conditions of
the Loan Documents shall remain in full force and effect. In the event of any
express conflict between the terms and conditions of the Loan Documents and this
Agreement, this Agreement shall be controlling and the terms and conditions of
the Loan Documents shall be deemed to be amended to conform with this Agreement.
12.13. Notices. Any notice required or permitted by or in
connection with this Agreement shall be in writing and shall be made by one of
the following means: (a) hand delivery; (b) overnight delivery service; or (c)
certified mail, unrestricted delivery, return receipt requested. Notice shall be
directed to the appropriate address set forth below or to such other address as
may be hereafter specified by written notice. Notice shall be considered given
as of the date of the hand delivery, one (1) calendar day after delivery to the
overnight delivery service, or three (3) calendar days after the date of
mailing, independent of the date of actual delivery or whether delivery is ever
in fact made, as the case may be, provided the giver of notice can establish
that notice was given as provided herein.
If to the Bank: First Union National Bank
1970 Chain Bridge Road
7th Floor, South Tower
McLean, Virginia 22102
ATTN: Mr. David A. Dix, Vice President
with a copy to: Richard M. Kremen, Esquire
Piper & Marbury L.L.P.
Charles Center South
36 South Charles Street
Baltimore, Maryland 21201
-10-
BALT1:216060
17907-679
<PAGE>
If to MEDCO: Maryland Economic Development Corporation
Suite 1911
36 South Charles Street
Baltimore, Maryland 21201
ATTN: Mr. Hans F. Mayer
Executive Director
with a copy to: John R. Devine, Esquire
Miles & Stockbridge P.C.
10 Light Street
Baltimore, Maryland 21202
If to MIDFA: Maryland Industrial Development Financing
Authority
22nd Floor
217 East Redwood Street
Baltimore, Maryland 21202
ATTN: Mr. Charles E. Kohlerman
Manager, Special Assets Division
with a copy to: James G. Davis, Esquire
Suite 1105
217 East Redwood Street
Baltimore, Maryland 21202
If to the Borrower: Frederick Brewing Co.
4607 Wedgewood Boulevard
Frederick, Maryland 21703
ATTN: Mr. Kevin E. Brannon, Chairman
and Chief Executive Officer
with a copy to: ----------------------------------------------
----------------------------------------------
----------------------------------------------
----------------------------------------------
12.14. Applicable Law. The performance, construction and
enforcement of this Agreement and the documents executed in connection with this
Agreement shall be governed by the laws of the State of Maryland.
12.15. Time of Essence. Time is of the essence.
-11-
BALT1:216060
17907-679
<PAGE>
12.16. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original, but all of which
shall constitute one and the same agreement.
12.17. Binding Effect. This Agreement shall have no effect unless
and until it has been executed by all parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed or caused to
be executed, this Agreement under seal as of the day and year first written
above.
WITNESS/ FIRST UNION NATIONAL BANK,
successor by merger to Signet Bank
/s/ Dolores LePage By: /s/ David A. Dix (SEAL)
- ----------------------------- -------------------------------------
Name: David A. Dix
Title: Vice President
WITNESS/ATTEST: MARYLAND ECONOMIC DEVELOPMENT
CORPORATION
By: (SEAL)
- ----------------------------- -------------------------------------
Name:
Title:
WITNESS/ATTEST: MARYLAND INDUSTRIAL DEVELOPMENT
FINANCING AUTHORITY
By: (SEAL)
- ----------------------------- -------------------------------------
Name:
Title:
WITNESS/ATTEST: FREDERICK BREWING CO.
/s/ [Illegible] By: /s/ Kevin E. Brannon
- ----------------------------- -------------------------------------
Name to Come Name: Kevin E. Brannon
Title: Chairman
-12-
BALT1:216060
17907-679
<PAGE>
EXHIBITS
--------
EXHIBIT A Payments During Forbearance Period
EXHIBIT B Minimum Eligible Accounts Receivable
EXHIBIT C Status Reports
<PAGE>
EXHIBIT A
(SCHEDULE OF PAYMENTS)
----------------------
PAYMENT DATE PAYMENT AMOUNT
- ------------ --------------
May 20, 1999 $25,000
<PAGE>
EXHIBIT B
(MINIMUM ELIGIBLE ACCOUNTS RECEIVABLE)
--------------------------------------
DATE MINIMUM ELIGIBLE A/R
---- --------------------
April 30,1999 $291,430
May 15, 1999 $213,531
<PAGE>
EXHIBIT C
(STATUS REPORTS)
----------------
DUE DATE
--------
May 5, 1999 Attached
May 20, 1999
<PAGE>
Uniform Commercial Code -- FINANCING STATEMENT CHANGE -- Form UCC-3
JULIUS BLUMBERG, INC. N.Y.C. 10013
IMPORTANT -- Read instructions on back before filling out form.
<TABLE>
<CAPTION>
This STATEMENT is presented to a filing officer for No. of additional 3. /_/ The Debtor is a
filling pursuant to the Uniform Commercial Code. Sheets Presented: transmitting utility.
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. Debtor(s) (Last Name First) and Address(es): 2. Secured Party(ies) Name(s) and Address(es): 4. For Filing Officer:
Date, Time, No. Filing Office
FREDERICK BREWING CO. FIRST UNION NATIONAL BANK
4607 WEDGEWOOD BLVD. SUCCESSOR BY MERGER TO SIGNET BANK
FREDERICK MD 21703 SUCCESSOR BY MERGER TO SIGNET
BANK/MARYLAND
1970 CHAIN BRIDGE ROAD,
MCCLEAN, VA 22102
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
5. This statement refers to original Financing Statement No. 161068699 filed (date) 4/15/96 with MD St. Dept. of
----------- --------- ------------------------------
Assessment & Taxation
- ------------------------------------------------------------------------------------------------------------------------------------
6. /_/ A. Continuation The original Financing Statement bearing the above file number is still effective.
/_/ B. Termination The Secured Party of record no longer claims a security interest under the Financing Statement bearing the
above file number.
/X/ C. Release From the Collateral described in the Financing Statement bearing the above file number, the Secured Party
of record releases the following:
Trademarks of Wild Goose Brewery, Nos: 1620283 & 1630255
/_/ D. Assignment The Secured Party of record has assigned the Secured Party's rights in the property described below under
the Financing Statement bearing the above file number to the Assignee whose name and address shown below:
/_/ E. Amendment The Financing Statement bearing the above file number is amended as set forth below: (Signature of Debtors
and Secured Party is Required)
/_/ This statement is to be indexed in the Real Estate Records Section Block Lot
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
FIRST UNION NATIONAL BANK
- ------------------------------------------------------ ------------------------------------------------------
By By /s/ David A. Dix
--------------------------------------------------- ---------------------------------------------------
Signature(s) of Debtor(s) (only on amendment) Signature(s) of Secured Party(ies)
(1) Filing Officer Copy-Numerical
(5/82) STANDARD FORM - FORM UCC-3 -- Approved by the Secretary of State of New York
</TABLE>
<PAGE>
STATUS REPORT AS TO REPLACEMENT FINANCING
AS OF MAY 4,1999
EXHIBIT C
TO FORBEARANCE AGREEMENT
DATED MAY __, 1999
We continue to work diligently with Westfinance Group and others to complete a
transaction which will, among other things, allow us to replace the current
credit facility with First Union National Bank.
Our current plan involves acquiring the U.S. rights to the Two Dogs brand of
clear malt beverage, in order to allow the Company to become profitable and
attract the additional capital we need. A letter of intent is under negotiation
and should be executed within seven days.
We have been told that we should receive this week a debt financing proposal
from Allstate Financial which will provide us with a secured credit facility to
replace that of First Union. That proposal is expected to contain contingencies
which will include, among other things, the requirement that Two Dogs be
acquired and that additional equity be raised.
We anticipate an equity need of approximately $1.5-1.7 million. We are working
with the following potential investors to raise this capital:
Value Partners
LH Financial
Brewer's Equity Fund
Intercontinental Capital Corp.
The owners of a large, privately-held spirits company (identity not yet
disclosed to Company)
We and our advisors feel confident that we will be able to bring these
transactions to successful conclusions by month-end.
Exhibit 10.4
SECOND FORBEARANCE AGREEMENT
THIS SECOND FORBEARANCE AGREEMENT ("Agreement") is made and entered
into as of the 4th day of June, 1999, by and among FIRST UNION NATIONAL BANK,
successor by merger to Signet Bank (the "Bank"), the MARYLAND ECONOMIC
DEVELOPMENT CORPORATION ("MEDCO"), the MARYLAND INDUSTRIAL DEVELOPMENT
FINANCING AUTHORITY ("MIDFA") and FREDERICK BREWING CO. (the "Borrower").
R E C I T A L S
R-1. Pursuant to and in accordance with Article 83A, Title 5, Subtitle
2 of the Annotated Code of Maryland, MEDCO issued and sold to the Bank its
Taxable Economic Development Revenue Bond (Frederick Brewing Co. Facility), 1996
Issue, dated July 19, 1996 in the original principal amount of $1,500,000 (as
amended, modified, supplemented, extended, renewed or restated from time to
time, the "Bond").
R-2. The proceeds of the sale of the Bond were loaned to the Borrower
in accordance with the terms and conditions of a Loan and Financing Agreement
dated July 19, 1996 by and among the Bank, the Borrower and MEDCO (as amended,
modified, supplemented, extended, renewed or restated from time to time, the
"Loan Agreement").
R-3. The loan by MEDCO to the Borrower of the proceeds of the sale of
the Bond is evidenced by a Promissory Note dated July 19, 1996 in the original
principal amount of $1,500,000.00 executed by the Borrower in favor of MEDCO and
assigned by MEDCO to the Bank (as amended, modified, supplemented, extended,
renewed or restated from time to time, the "Note").
R-4. The Borrower's obligations under the Note and the Loan Agreement
are secured by, inter alia, a blanket security interest in the assets of the
Borrower, including, without limitation, the Borrower's present and future
accounts, contract rights, receivables, inventory, equipment, fixtures,
instruments and general intangibles (collectively, the "Collateral").
R-5. MIDFA insures a portion of the Obligations (as hereafter defined)
pursuant to the terms of an Insurance Agreement dated July 19, 1996 (the
"Insurance Agreement").
R-6. The terms of the Loan Agreement were modified pursuant to the
following (collectively, the "Modification Documents"): (a) Forbearance
Agreement dated February 27, 1997; (b) letter agreement dated January 9, 1998;
(c) Loan Modification Agreement dated May 27, 1998; and (d) Forbearance
Agreement dated May 12, 1999.
R-7. The Loan (as hereafter defined) matured on April 1, 1999 (the
"Maturity Date"). On the Maturity date, all of the Obligations (as hereafter
defined) became due and payable in full.
<PAGE>
R-8. As of April 28, 1999, the balance due and owing on the Loan (as
hereafter defined) was $1,278,376.76 (consisting of principal in the amount of
$1,183,199.98, accrued interest in the amount of $34,678.05 and late charges in
the amount of $60,498.73), plus attorneys' fees and expenses. In addition,
interest continues to accrue from April 28, 1999 at the per diem rate of
$295.80.
R-9. The Bond and the interest thereon are limited obligations of
MEDCO, the principal of, premium, if any, and interest on which are payable
solely from the security described in Section 2.7 of the Loan Agreement or from
the Property (as defined in the Loan Agreement); provided, however, that under
the Loan Agreement, MEDCO has reserved to itself, and has not pledged or
assigned, the Reserved Rights of the Issuer (as defined in the Loan Agreement).
Neither the Bond nor the interest thereon shall ever constitute an indebtedness
or a charge against the general credit or taxing powers of MEDCO, the State of
Maryland, the Maryland Department of Business and Economic Development, MIDFA,
any other public instrumentality or any public body within the meaning of any
constitutional or charter provision or statutory limitation, and neither shall
ever constitute or give rise to any pecuniary liability of MEDCO, the State of
Maryland, the Maryland Department of Business and Economic Development, MIDFA
(except in regard to the Insurance Agreement), any other public instrumentality
or any public body.
R-10. The Borrower's obligations under the Bond, the Note, the Loan
Agreement and the other Loan Documents (as hereafter defined) are hereafter
collectively referred to as the "Obligations." The Bond, the Note, the Loan
Agreement, this Agreement and all documents previously, now or hereafter
executed and delivered to evidence, secure, guarantee or in connection with the
Obligations, as the same may from time to time be amended, modified,
supplemented, extended, renewed or restated, are hereafter collectively referred
to as the "Loan Documents." The loan evidenced by the Loan Documents is
hereafter referred to as the "Loan."
R-11. The Borrower has requested that the Bank forbear from exercising
its rights and remedies under the Loan Documents. The Bank has agreed to this
request, subject to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein, and for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. RECITALS.
The recitals to this Agreement are true and correct, and are
incorporated into and made a substantive part of this Agreement.
-2-
<PAGE>
2. CONFIRMATION AND RATIFICATION OF LOAN DOCUMENTS.
The Borrower agrees that the Loan Documents are in full force and
effect and that each Loan Document shall remain in full force and effect unless
and until modified or amended in writing in accordance with its terms. The
Borrower confirms and ratifies its obligations under the Loan Documents, and
agrees that the execution and delivery of this Agreement shall not in any way
diminish or invalidate any of its obligations under the Loan Documents. All
parties hereto consent to the execution and delivery of this Agreement, and to
all the provisions of this Agreement to the extent that such provisions may
modify the terms and provisions of any of the Loan Documents.
3. ACKNOWLEDGMENT OF DEFAULT.
The Borrower acknowledges and agrees that it has defaulted on its
obligations under the Loan Documents. The Borrower further acknowledges and
agrees that the Bank, in the absence of the specific agreement to forbear set
forth in this Agreement, would have the immediate and unconditional right to
exercise its rights and remedies under the Loan Documents and/or applicable law.
4. FORBEARANCE.
4.1. Forbearance Period. Subject to the terms and conditions of
this Agreement, the Bank agrees to forbear from exercising its rights and
remedies under the Loan Documents until June 30, 1999, or such earlier date upon
which an Event of Default (as hereafter defined) occurs under this Agreement
(the "Forbearance Period"). The Bank shall have no obligation to consider or
grant any extension of the Forbearance Period.
4.2. Events of Default. The occurrence of one or more of the
following events (individually, an "Event of Default" and, collectively, the
"Events of Default") shall constitute defaults under this Agreement:
(a) failure of the Borrower to timely make any payment
required under this Agreement;
(b) failure of the Borrower to duly perform, comply with or
observe, as and when required, any of the other terms, conditions or covenants
in this Agreement or any document executed in connection with this Agreement;
(c) if any representation or warranty made in this Agreement,
or any report, certificate, financial statement or other document provided to
the Bank in connection with this Agreement, should prove to have been materially
false or misleading as of the date on which it was made;
-3-
<PAGE>
(d) if the Borrower should make an assignment for the benefit
of creditors, admit in writing inability to pay debts as they mature, be or
become the subject, voluntarily or involuntarily, of any insolvency, adjustment
of debt, reorganization, liquidation, receivership or similar proceeding under
any present or future statute, law or regulation, or suffer the appointment of
any receiver, trustee, liquidator or other custodian;
(e) if any other creditor of the Borrower, including any state
or federal taxing authority, should attach, garnish, levy, seize and/or assert a
lien interest in any property of the Borrower; or
(f) if a default (other than a payment default) should occur
or exist under any of the Loan Documents.
4.3. Remedies Upon Event of Default. Immediately upon the
occurrence of any Event of Default, the Bank, without any requirement of notice
to the Borrower, shall have the right to exercise any and all rights and
remedies available to the Bank under the Loan Documents. All rights and remedies
available to the Bank may be asserted concurrently, cumulatively or
successively, from time to time, as long as the Borrower is indebted to the
Bank.
5. PAYMENT OBLIGATIONS.
During the Forbearance Period, the Borrower shall pay $50,000 to
the Bank as follows: (a) the Borrower shall make an initial payment of $25,000
on the earlier of. (i) the date on which the Borrower closes on the $500,000
financing from LH Financial Services; or (ii) June 11, 1999; and (b) the
Borrower shall make an additional payment of $25,000 on or before June 20, 1999.
6. MINIMUM ACCOUNTS RECEIVABLE.
During the Forbearance Period, the Borrower shall maintain minimum
Eligible Accounts Receivable of $213,500. For purposes of this Agreement,
"Eligible Accounts Receivable" means any trade account meeting all the following
specifications: (a) it is lawfully owned by the Borrower and subject to no lien,
security interest or prior assignment, and the Borrower has the right of
assignment thereof and the power to grant a security interest therein; (b) it is
a valid and enforceable account, representing the undisputed indebtedness of an
account debtor to the Borrower that is owing less than 90 days past the original
invoice date, and the entire balance of any account of any single account debtor
will be ineligible whenever the portion of the account which has not been paid
within ninety (90) days from the original invoice date is in excess of fifty
percent (50%) of the total amount outstanding on the account; (c) it is not
subject to any defense, set-off, counter-claim, credit, allowance or adjustment;
(d) no substantial part of any goods, the sale of which has given rise to the
account, has been returned, rejected, lost or damaged; (e) if it arises from
sale of goods by the Borrower, such sale was an absolute sale and not on a
future sale or advance basis or on consignment or on approval or on a sale or
return basis nor subject to any other repurchase, return or rebate agreement,
and such goods have been
-4-
<PAGE>
shipped to the account debtor; (f) it arose in the ordinary course of the
Borrower's business; (g) no notice of the bankruptcy, receivership,
reorganization, insolvency or financial embarrassment of the account debtor has
been received; (h) the account debtor is not a subsidiary or affiliate of the
Borrower, does not control the Borrower, and is not under the control of or
under common control with the Borrower; (i) the account debtor is not an account
debtor whose chief executive office or principal place of business is outside
the United States; (j) the account meets such other specifications and
requirements which the Bank may reasonably establish from time to time; (k) if
it arises from sale of goods by the Borrower, such sale is not a "future" sale,
nor a sale based on extended payment terms; (1) it is not a receivable arising
out of the sales of catalogs; and (m) it is not a receivable arising out of
finance charges. The term "account" as used herein shall have the meaning set
forth in the Uniform Commercial Code as adopted in the State of Maryland.
7. REPLACEMENT FINANCING.
During the Forbearance Period, the Borrower shall use best efforts
to secure debt and/or equity financing in an amount sufficient to pay in full
the Obligations prior to June 30, 1999.
8. FINANCIAL REPORTING.
During the Forbearance Period, the Borrower shall continue to
provide to the Bank the same financial documents as the Borrower is currently
providing to the Bank and, further, shall provide to the Bank such other
financial documents as the Bank may request from time to time. Without limiting
the generality of the foregoing, during the Forbearance Period, the Borrower
shall provide to the Bank detailed accounts receivable aging and listing reports
as of May 31, 1999 (to be delivered to the Bank on or before June 5, 1999) and
as of June 15, 1999 (to be delivered to the Bank on or before June 20, 1999).
9. FEES AND EXPENSES.
The Borrower shall be responsible for all fees and expenses,
including all attorneys' fees and expenses, incurred by the Bank in connection
with the negotiation and preparation of this Agreement and with the enforcement
of the Bank's rights under the Loan Documents, which fees and expenses shall be
considered part of the Obligations.
10. BORROWER'S REPRESENTATIONS AND WARRANTIES.
As inducement to enter into this Agreement, the Borrower hereby
represents and warrants to the Bank as follows:
10.1. Authorization and Validity. The execution and delivery of
this Agreement and any related documents by the Borrower and the performance of
its obligations hereunder have been duly authorized, and this Agreement
constitutes the legal, valid and binding obligation of the Borrower in
accordance with its terms.
-5-
<PAGE>
10.2. Compliance With Other Instruments. The Borrower is not in
default under any provision of its articles of incorporation, by-laws or other
organizational documents, if applicable, or of any existing judgment, decree,
law, governmental order, rule or regulation applicable to it, or of any
agreement or other instrument to which it is a party or by which its assets are
bound. The execution and delivery by the Borrower of this Agreement and related
documents, the consummation of the transactions herein and therein contemplated,
and the compliance with the terms and provisions hereof and thereof: (a) has not
and will not constitute or result in a breach of the Borrower's articles of
incorporation, by-laws or other organizational documents, if applicable, any
presently existing applicable law, order, writ, injunction or decree of any
court or governmental department, commission, board, bureau, agency or
instrumentality; or (b) conflict or be inconsistent with or result in any breach
of any of the terms, covenants, conditions or provisions thereof, or constitute
a default under any indenture, mortgage, deed of trust, lease, sublease,
instrument, document, agreement or contract of any kind to which the Borrower is
a party or by which the Borrower may be bound or subject.
10.3. Taxes. The Borrower has paid or caused to be paid all
federal, state, local and foreign taxes to the extent that such taxes have
become due and have filed or caused to be filed all federal, state, local and
foreign tax returns which the Borrower is currently required to file.
10.4. Title to Collateral and Existing Liens on Collateral. The
Borrower has good and marketable title to the collateral that secures the
Borrower's liability to the Bank, and the collateral is not subject to any
existing liens or encumbrances except those disclosed to the Bank in writing.
10.5. Litigation. There is no litigation, at law or in equity, nor
any proceeding before any federal, state or other governmental or administrative
agency or any arbitrator pending or threatened against the Borrower, except as
has been disclosed to the Bank in writing.
10.6. Benefit. The Borrower has derived direct or indirect benefit
from this Agreement and the transactions contemplated hereby.
10.7. Truth of Representations. Any and all documents, reports,
certificates and statements provided to the Bank by or on behalf of the Borrower
in connection with the Loan Documents or this Agreement are true, correct and
complete, do not contain any untrue statements of material fact and do not omit
any facts to make information contained therein not misleading.
10.8. No Claims, Defenses or Setoffs. The Borrower does not have
any claims, defenses or setoffs with respect to the Loan Documents, or with
respect to the debt evidenced or secured thereby or with respect to the
collection or enforcement of any of the same (and to the extent any such claim,
setoff or defense exists, they are each waived and relinquished in their
entirety).
-6-
<PAGE>
10.9. No Representations by Bank. The Bank has made no
representations or commitments, oral or written, or undertaken any obligations
other than as expressly set forth in this Agreement.
10.10. Arm's Length Agreement. The Borrower acknowledges: (a) that
it has had access to independent legal counsel in the negotiation of the terms
of and in the preparation and execution of this Agreement, and that it has had
the opportunity to review, analyze and discuss with counsel this Agreement, and
the underlying factual matters relevant to this Agreement, for a sufficient
period of time before the execution and delivery hereof, (b) that all of the
terms of this Agreement were negotiated at arm's-length; (c) that this Agreement
was prepared and executed without fraud, duress, undue influence, or coercion of
any kind exerted by any of the parties upon the others; and (d) that the
execution and delivery of this Agreement is the free and voluntary act of each
party.
11. RELEASE OF BANK, MEDCO AND MIDFA
The Borrower, for itself and its current or former owners,
directors, officers, partners, members, employees, representatives, insurers,
attorneys, agents, successors and assigns, and any affiliates, subsidiaries and
related entities of the Borrower and their current or former owners, directors,
officers, partners, members, employees, representatives, insurers, attorneys,
agents, successors and assigns (individually and collectively, the "Borrower
Group"), hereby RELEASES and FOREVER WAIVES and RELINQUISHES all claims,
demands, obligations, liabilities and causes of action of whatsoever kind or
nature, whether known or unknown, which it has, may have, or might have or
assert now or in the future against the Bank, MEDCO or MEDFA and/or their
current or former owners, directors, officers, partners, members, employees,
representatives, insurers, attorneys, agents, successors or assigns, or any
affiliates, subsidiaries or related entities of the Bank, MEDCO or MIDFA and/or
their current or former owners, directors, officers, partners, members,
employees, representatives, insurers, attorneys, agents, successors or assigns
(individually and collectively, the "Bank Group"), directly or indirectly,
arising out of, based upon or in any manner connected with any Prior Related
Event. For purposes of this Agreement, "Prior Related Event" means any
transaction, event, circumstance, action, failure to act or occurrence of any
sort or type, whether known or unknown, which occurred, existed, was taken,
permitted or begun prior to the execution of this Agreement arising out of or
related in any way to the Loan, the Obligations, the Bond, the Note, all or any
of the Loan Documents, the Collateral, the Bank, MEDCO, MIDFA, the Insurance
Agreement, the Modification Documents and/or the relationship by and among all
or any members of the Borrower Group and all or any members of the Bank Group.
The execution of this Agreement by the Bank, MEDCO and MIDFA shall not
constitute an acknowledgment or admission by the Bank, MEDCO or MIDFA of any
liability for any matter or precedent upon which any liability may be asserted.
-7-
<PAGE>
12. GENERAL PROVISIONS.
12.1. Headings. The headings and subheadings in this Agreement are
intended for convenience only and shall not be used or deemed to limit or
diminish any of the provisions hereof.
12.2. Construction. Unless the context requires otherwise, singular
nouns and pronouns used in this Agreement shall be deemed to include the plural,
and pronouns of one gender shall be deemed to include the equivalent pronoun of
the other gender.
12.3. Interpretation. The parties to this Agreement acknowledge
that each of them has participated in the negotiation of this Agreement, and no
provision of this Agreement shall be construed against or interpreted to the
disadvantage of any party hereto by any court or other governmental or judicial
authority by reason of such party having or being deemed to have structured,
dictated or drafted such provision.
12.4. Further Assurances and Corrective Instruments. The parties to
this Agreement shall execute, acknowledge and deliver, or cause to be executed,
acknowledged and delivered, from time to time, such supplements hereto and such
further instruments and documents as may be required to facilitate the carrying
out of the intentions of the parties to this Agreement.
12.5. Survival; Successors and Assigns. Whenever in this Agreement
any of the parties hereto is referred to, such reference shall be deemed to
include the successors and assigns of such party. All covenants, agreements,
representations and warranties made herein, and in any documents executed in
connection with this Agreement, shall survive this Agreement and continue in
full force and effect.
12.6. Waiver of Jury Trial. The parties to this Agreement agree
that any suit, action or proceeding brought or instituted by any party hereto or
any successor or assign of any party which in any way relates, directly or
indirectly, to Loan, the Obligations, the Bond, the Note, all or any of the Loan
Documents, the Collateral, the Bank, MEDCO, MIDFA, the Insurance Agreement, the
Modification Documents and/or the relationship by and among all or any members
of the Borrower Group and all or any members of the Bank Group shall be tried
only by a court and not a jury. EACH PARTY HEREBY EXPRESSLY WAIVES ANY RIGHT TO
A TRIAL BY JURY IN ANY SUCH SUIT, ACTION OR PROCEEDING. The Borrower represents,
acknowledges and agrees that this provision is a specific and material aspect of
this Agreement, and that the Bank would not agree to the terms of this Agreement
if this waiver of jury trial provision were not a part of this Agreement. The
Borrower further represents, acknowledges and agrees that this waiver is
knowingly, intelligently and voluntarily made, that neither the Bank nor any
person acting on behalf of the Bank has made any representations to induce this
waiver, that the Borrower has been represented (or has had the opportunity to be
represented) in the signing of this Agreement and in the making of this waiver
by independent
-8-
<PAGE>
legal counsel selected by the Borrower and that the Borrower has had the
opportunity to discuss this waiver with counsel.
12.7. Modification. No modification of any provision of this
Agreement, or of any document executed in connection with this Agreement, shall
in any event be effective unless the same is in writing, and then such
modification shall be effective only in the specific instance or for the purpose
for which given.
12.8. Waiver. Neither any failure nor any delay on the part of any
of the parties in exercising any right, power or remedy under this Agreement,
any documents executed in connection with this Agreement or under applicable law
shall operate as a waiver thereof, nor shall a single or partial exercise
thereof preclude any other or further exercises thereof or the exercise of any
other right, power or remedy.
12.9. Severability. If any term, provision or condition, or any
part thereof, of this Agreement, or any of the documents executed in connection
with this Agreement, shall for any reason be found or held to be invalid or
unenforceable by any court or governmental agency of competent jurisdiction,
such invalidity or unenforceability shall not affect the remainder of such term,
provision or condition or any other term, provision or condition, and this
Agreement, and all documents executed in connection with this Agreement, shall
survive and be construed as if such invalid or unenforceable term, provision or
condition had not been contained therein.
12.10. Merger and Integration. This Agreement, and the documents
executed in connection with this Agreement, contain the entire agreement of the
parties hereto with respect to the matters covered and the transactions
contemplated hereby, and no other agreement, statement or promise made by any
party hereto, or any employee, officer, attorney, agent or other representative
of any party hereto, shall be valid or binding.
12.11. No Novation. Nothing contained in this Agreement is intended
to or shall act to nullify, discharge or release any obligation incurred in
connection with the Loan and/or the Loan Documents or to waive or release any
collateral which secures the Loan, nor shall this Agreement be deemed or
considered to operate as a novation of the Loan Documents. Except to the extent
of any express conflict with this Agreement, all of the terms and conditions of
the Loan Documents shall remain in full force and effect. In the event of any
express conflict between the terms and conditions of the Loan Documents and this
Agreement, this Agreement shall be controlling and the terms and conditions of
the Loan Documents shall be deemed to be amended to conform with this Agreement.
12.12. Notices. Any notice required or permitted by or in
connection with this Agreement shall be in writing and shall be made by one of
the following means: (a) hand delivery; (b) overnight delivery service; or (c)
certified mail, unrestricted delivery, return receipt requested. Notice shall be
directed to the appropriate address set forth below or to such other address as
may be hereafter specified by written notice. Notice shall be considered given
as of the date of the hand delivery, one (1) calendar day after delivery to the
overnight delivery
-9-
<PAGE>
service, or three (3) calendar days after the date of mailing, independent of
the date of actual delivery or whether delivery is ever in fact made, as the
case may be, provided the giver of notice can establish that notice was given as
provided herein.
If to the Bank: First Union National Bank
1970 Chain Bridge Road
7th Floor, South Tower
McLean, Virginia 22102
ATTN: Mr. David A. Dix, Vice President
with a copy to: Richard M. Kremen, Esquire
Piper & Marbury L.L.P.
Charles Center South
36 South Charles Street
Baltimore, Maryland 21201
If to MEDCO: Maryland Economic Development Corporation
Suite 1911
36 South Charles Street
Baltimore, Maryland 21201
ATTN: Mr. Hans F. Mayer
Executive Director
with a copy to: John R. Devine, Esquire
Miles & Stockbridge P.C.
10 Light Street
Baltimore, Maryland 21202
If to MIDFA: Maryland Industrial Development Financing
Authority
22nd Floor
217 East Redwood Street
Baltimore, Maryland 21202
ATTN: Mr. Charles E. Kohlerman
Manager, Special Assets Division
with a copy to: James G. Davis, Esquire
Suite 1105
217 East Redwood Street
Baltimore, Maryland 21202
-10-
<PAGE>
If to the Borrower: Frederick Brewing Co.
4607 Wedgewood Boulevard
Frederick, Maryland 21703
ATTN: Mr. Kevin E. Brannon, Chairman
and Chief Executive Officer
with a copy to: ----------------------------------------------
----------------------------------------------
----------------------------------------------
----------------------------------------------
12.13. Applicable Law. The performance, construction and
enforcement of this Agreement and the documents executed in connection with this
Agreement shall be governed by the laws of the State of Maryland.
12.14. Time of Essence. Time is of the essence.
12.15. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original, but all of which
shall constitute one and the same agreement.
12.16. Binding Effect. This Agreement shall have no effect unless
and until it has been executed by all parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed or caused to
be executed, this Agreement under seal as of the day and year first written
above.
WITNESS/: FIRST UNION NATIONAL BANK,
successor by merger to Signet Bank
/s/ Dolores LePage By: /s/ David A. Dix (SEAL)
- ----------------------------- -------------------------------------
Name: David A. Dix
Title: Vice President
WITNESS/ATTEST: MARYLAND ECONOMIC DEVELOPMENT
CORPORATION
By: (SEAL)
- ----------------------------- -------------------------------------
Name:
Title:
-11-
<PAGE>
WITNESS/ATTEST: MARYLAND INDUSTRIAL DEVELOPMENT
FINANCING AUTHORITY
/s/ Charles E. Kohlerman By: /s/ Robert C. Brannon (SEAL)
- ----------------------------- -------------------------------------
Name: Robert C. Brannon
Title: Asst. Secretary Financing
Programs
WITNESS/ATTEST: FREDERICK BREWING CO.
By: (SEAL)
- ----------------------------- -------------------------------------
Name:
Title:
-12-
Exhibit 10.5
THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS
NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THIS NOTE AND THE
COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID
ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO FREDERICK BREWING CO. THAT SUCH
REGISTRATION IS NOT REQUIRED.
CONVERTIBLE NOTE
----------------
FOR VALUE RECEIVED, FREDERICK BREWING CO., a Maryland corporation
(hereinafter called "Borrower"), hereby promises to pay to AUSTOST ANSTALT
SCHAAN, 7440 Fuerstentum, Lichenstein, Landstrasse 163, Fax No.: 011-431-
534532895 (the "Holder") or order, without demand, the sum of $125,000.00, with
simple interest accruing at the annual rate of 10%, on November 16, 1999 (the
"Maturity Date"), as such date may be extended by agreement of the parties
hereto.
The following terms shall apply to this Note:
ARTICLE I
DEFAULT RELATED PROVISIONS
1.1 Payment Grace Period. The Borrower shall have a ten (10) day grace
period to pay any monetary amounts due under this Note, after which grace period
a default interest rate of 16% per annum shall apply to the amounts owed
hereunder.
1.2 Conversion Privileges. The Conversion Privileges set forth in
Article II shall remain in full force and effect immediately from the date
hereof and until the Note is paid in full.
1.3 Interest Rate. At the election of the Holder, on or after the
earlier of each Conversion Date (as hereinafter defined), or on the Maturity
Date, accelerated or otherwise, the Borrower shall pay interest at the annual
rate of 10% per annum.
1
<PAGE>
ARTICLE II
CONVERSION RIGHTS
The Holder shall have the right to convert the principal amount and
interest due under this Note into Shares of the Borrower's Common Stock ($.00004
par value per share) as set forth below.
2.1. Conversion into the Borrower's Common Stock.
(a) The Holder shall have the right from and after the issuance of this
Note and then at any time until this Note is fully paid, to convert any
outstanding and unpaid principal portion of this Note of $10,000 or greater
amount, or any lesser amount representing the full remaining outstanding and
unpaid principal portion and at the Holder's election, the interest accrued on
the Note, (the date of giving of such notice of conversion being a "Conversion
Date") into fully paid and nonassessable shares of Common Stock of Borrower as
such stock exists on the date of issuance of this Note, or any shares of capital
stock of Borrower into which such stock shall hereafter be changed or
reclassified (the "Common Stock") at the conversion price as defined in Section
2.1 (b) hereof (the "Conversion Price"), determined as provided herein. Upon
delivery to the Borrower of the Holder's written request for conversion,
Borrower shall issue and deliver to the Holder within five business days from
the Conversion Date that number of shares of Common Stock for the portion of the
Note converted in accordance with the foregoing. Unless the interest accrued on
the Note is the subject of a Conversion Notice, the Borrower will deliver
accrued but unpaid interest on the Note through the Conversion Date directly to
the Holder on or before the Delivery Date as defined in the subscription
agreement entered into between the Borrower and Holder relating to this Note
("Subscription Agreement"). The number of shares of Common Stock to be issued
upon each conversion of this Note shall be determined by dividing that portion
of the principal and/or interest of the Note to be converted, by the Conversion
Price.
(b) Subject to adjustment as provided in Section 2.1(c) hereof, the
Conversion Price per share shall be the lower of (i) seventy (70%) of the
average of the closing bid price for the Common Stock on the NASD OTC Bulletin
Board, or on any securities exchange or other securities market on which the
Common Stock is then being traded (or if not so listed, then the lowest reported
bid price as quoted on the "pink sheets" published by the National Quotation
Bureau), for the five (5) trading days immediately preceding the Conversion
Date, or (ii) $0.375 ("Maximum Base Price").
2
<PAGE>
(c) The Maximum Base Price described in Section 2.1(b)(ii) above and
number and kind of shares or other securities to be issued upon conversion
determined pursuant to Section 2.1(a) and 2.1(b), shall be subject to adjustment
from time to time upon the happening of certain events while this conversion
right remains outstanding, as follows:
A. Merger, Sale of Assets, etc. If the Borrower at any time shall
consolidate with or merge into or sell or convey all or substantially all its
assets to any other corporation, this Note, as to the unpaid principal portion
thereof and accrued interest thereon, shall thereafter be deemed to evidence the
right to purchase such number and kind of shares or other securities and
property as would have been issuable or distributable on account of such
consolidation, merger, sale or conveyance, upon or with respect to the
securities subject to the conversion or purchase right immediately prior to such
consolidation, merger, sale or conveyance. The foregoing provision shall
similarly apply to successive transactions of a similar nature by any such
successor or purchaser. Without limiting the generality of the foregoing, the
anti-dilution provisions of this Section shall apply to such securities of such
successor or purchaser after any such consolidation, merger, sale or conveyance.
B. Reclassification, etc. If the Borrower at any time shall, by
reclassification or otherwise, change the Common Stock into the same or a
different number of securities of any class or classes, this Note, as to the
unpaid principal portion thereof and accrued interest thereon, shall thereafter
be deemed to evidence the right to purchase such number and kind of securities
as would have been issuable as the result of such change with respect to the
Common Stock immediately prior to such reclassification or other change.
C. Stock Splits, Combinations and Dividends. If the shares of
Common Stock are subdivided or combined into a greater or smaller number of
shares of Common Stock, or if a dividend is paid on the Common Stock in shares
of Common Stock, the Conversion Price shall be proportionately reduced in case
of subdivision of shares or stock dividend or proportionately increased in the
case of combination of shares, in each such case by the ratio which the total
number of shares of Common Stock outstanding immediately after such event bears
to the total number of shares of Common Stock outstanding immediately prior to
such event.
D. Share Issuance. Subject to the provisions of this Section, if
the Borrower at any time shall issue any shares of Common Stock prior to the
conversion of the entire principal amount of the Note (otherwise than as: (i)
provided in Sections 2.1(c)A, 2.1(c)B or 2.1(c)C or this subparagraph D; (ii)
pursuant to options, warrants, or other obligations to issue shares, outstanding
on the date hereof as described in the Reports and
3
<PAGE>
Other Written Information, as such terms are defined in the Subscription
Agreement (which agreement is incorporated herein by this reference); [(i) and
(ii) above, are hereinafter referred to as the "Existing Option Obligations"]
for a consideration less than the Conversion Price that would be in effect at
the time of such issue, then, and thereafter successively upon each such issue,
the Conversion Price shall be reduced as follows: (i) the number of shares of
Common Stock outstanding immediately prior to such issue shall be multiplied by
the Conversion Price in effect at the time of such issue and the product shall
be added to the aggregate consideration, if any, received by the Borrower upon
such issue of additional shares of Common Stock; and (ii) the sum so obtained
shall be divided by the number of shares of Common Stock outstanding immediately
after such issue. The resulting quotient shall be the adjusted conversion price.
Except for the Existing Option Obligations and options that may be issued under
any employee incentive stock option and/or any qualified stock option plan
adopted by the Borrower, for purposes of this adjustment, the issuance of any
security of the Borrower carrying the right to convert such security into shares
of Common Stock or of any warrant, right or option to purchase Common Stock
shall result in an adjustment to the Conversion Price upon the issuance of
shares of Common Stock upon exercise of such conversion or purchase rights.
(d) During the period the conversion right exists, Borrower will
reserve from its authorized and unissued Common Stock a sufficient number of
shares to provide for the issuance of Common Stock upon the full conversion of
this Note. Borrower represents that upon issuance, such shares will be duly and
validly issued, fully paid and non-assessable. Borrower agrees that its issuance
of this Note shall constitute full authority to its officers, agents, and
transfer agents who are charged with the duty of executing and issuing stock
certificates to execute and issue the necessary certificates for shares of
Common Stock upon the conversion of this Note.
2.2 Method of Conversion. This Note may be converted by the Holder in
whole or in part as described in Section 2.1(a) hereof and the Subscription
Agreement. Upon partial conversion of this Note, a new Note containing the same
date and provisions of this Note shall be issued by the Borrower to the Holder
for the principal balance of this Note and interest which shall not have been
converted or paid.
4
<PAGE>
ARTICLE III
EVENT OF DEFAULT
The occurrence of any of the following events of default ("Event of
Default") shall, at the option of the Holder hereof, make all sums of principal
and interest then remaining unpaid hereon and all other amounts payable
hereunder immediately due and payable, all without demand, presentment or
notice, or grace period, all of which hereby are expressly waived, except as set
forth below:
3.1 Failure to Pay Principal or Interest. The Borrower fails to pay any
installment of principal or interest hereon when due and such failure continues
for a period of ten (10) days after written notice to the Borrower from the
Holder.
3.2 Breach of Covenant. The Borrower breaches any material covenant or
other term or condition of this Note or any other agreement to which the
Borrower and Holder are both parties and such breach continues for a period of
seven (7) days after written notice to the Borrower from the Holder.
3.3 Breach of Representations and Warranties. Any representation or
warranty of the Borrower made herein, in the Subscription Agreement entered into
by the Holder and Borrower in connection with this Note, or in any agreement,
statement or certificate given in writing pursuant hereto or in connection
herewith or any other agreement to which the Borrower and Holder are both
parties shall be false or misleading.
3.4 Receiver or Trustee. The Borrower shall make an assignment for the
benefit of creditors, or apply for or consent to the appointment of a receiver
or trustee for it or for a substantial part of its property or business; or such
a receiver or trustee shall otherwise be appointed.
3.5 Judgments. Any money judgment, writ or similar final process shall
already have been filed, be entered or filed against Borrower or any of its
property or other assets for more than $50,000, and shall remain unvacated,
unbonded or unstayed for a period of forty-five (45) days.
3.6 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings or relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Borrower.
5
<PAGE>
3.7 Delisting. Failure to obtain within 15 days of the issue date of
this Note, a listing for the Common Stock on the NASD OTC Bulletin Board, or a
subsequent delisting of the Common Stock from the NASD OTC Bulletin Board or
such other principal exchange on which the Common Stock is listed for trading,
or notification that the Borrower is not in compliance with the conditions for
such continued listing.
3.8 Concession. A concession by the Borrower or a default under any one
or more obligations in an aggregate monetary amount in excess of $50,000.
3.9 Stop Trade. An SEC stop trade order or NASDAQ trading suspension.
3.10 Failure to Deliver Common Stock or Replacement Note. Borrower's
failure to timely deliver Common Stock to the Holder pursuant to and in the form
required by this Note and Section 9 of the Subscription Agreement, or if
required a replacement Note, unless such failure arises from the failure of the
Escrow Agent.
3.11 Registration Default. The occurrence of a Registration Default as
described in Section 10.4 of the Subscription Agreement.
3.12 Reporting Requirements. The Borrower's failure to file with the
Securities and Exchange Commission within 15 days of the issue date of this Note
all reports (including but not limited to the Form 10-K for the year ended
December 31, 1998 and all forms 10-q for subsequent periods) required to be
filed by the Borrower.
3.13 Other Funding. The Borrower's failure to close within 60 days of
the issue date of this Note on a proposed credit facility on substantially the
same terms as described in a proposal from Business Funding of America, Inc.
dated May 6, 1999 and provided to Holder.
ARTICLE IV
MISCELLANEOUS
4.1 Failure or Indulgence Not Waiver. No failure or delay on the part
of Holder hereof in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any other right, power or privilege. All rights and remedies existing
hereunder are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
6
<PAGE>
4.2 Notices. Any notice herein required or permitted to be given shall
be in writing and may be personally served or sent by fax transmission (with
copy sent by regular, certified or registered mail or by overnight courier).
For the purposes hereof, the address and fax number of the Holder is as set
forth on the first page hereof. The address and fax number of the Borrower shall
be Frederick Brewing Co., 4607 Wedgewood Boulevard, Frederick, MD 21703,
telecopier number: (301) 694-2971. Both Holder and Borrower may change the
address and fax number for service by service of notice to the other as herein
provided. Notice of Conversion shall be deemed given when made to the Escrow
Agent pursuant to the Escrow Agreement.
4.3 Amendment Provision. The term "Note" and all reference thereto, as
used throughout this instrument, shall mean this instrument as originally
executed, or if later amended or supplemented, then as so amended or
supplemented.
4.4 Assignability. This Note shall be binding upon the Borrower and its
successors and assigns, and shall inure to the benefit of the Holder and its
successors and assigns, and may be assigned by the Holder.
4.5 Cost of Collection. If default is made in the payment of this Note,
Borrower shall pay the Holder hereof reasonable costs of collection, including
reasonable attorneys' fees.
4.6 Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of New York. Any action brought by either
party against the other concerning the transactions contemplated by this
Agreement shall be brought only in the state courts of New York or in the
federal courts located in the state of New York. Both parties and the individual
signing this Agreement on behalf of the Borrower agree to submit to the
jurisdiction of such courts. The prevailing party shall be entitled to recover
from the other party its reasonable attorney's fees and costs.
4.7 Maximum Payments. Nothing contained herein shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Borrower to the Holder and thus refunded to the
Borrower.
7
<PAGE>
4.8 Prepayment. This Note may not be paid prior to the Maturity Date
without the consent of the Holder.
4.9 Security Interest/ Waiver of Automatic Stay. This Note is secured
by a security interest granted to Holder pursuant to a Security Agreement
delivered by Borrower to Holder. The Borrower acknowledges and agrees that
should a proceeding under any bankruptcy or insolvency law be commenced by or
against the Borrower, or if any of the Collateral (as defined in the Security
Agreement) should become the subject of any bankruptcy or insolvency proceeding,
then the Holder should be entitled to, among other relief to which the Holder
may be entitled under the Note, Security Agreement, Subscription Agreement and
any other agreement to which the Borrower and Holder are parties, (collectively
"Loan Documents") and/or applicable law, an order from the court granting
immediate relief from the automatic stay pursuant to 11 U.S.C. Section 362 to
permit the Holder to exercise all of its rights and remedies pursuant to the
Loan Documents and/or applicable law. THE BORROWER EXPRESSLY WAIVES THE BENEFIT
OF THE AUTOMATIC STAY IMPOSED BY 11 U.S.C. SECTION 362. FURTHERMORE, THE
BORROWER EXPRESSLY ACKNOWLEDGES AND AGREES THAT NEITHER 11 U.S.C. SECTION 362
NOR ANY OTHER SECTION OF THE BANKRUPTCY CODE OR OTHER STATUTE OR RULE
(INCLUDING, WITHOUT LIMITATION, 11 U.S.C. SECTION 105) SHALL STAY, INTERDICT,
CONDITION, REDUCE OR INHIBIT IN ANY WAY THE ABILITY OF THE HOLDER TO ENFORCE ANY
OF ITS RIGHTS AND REMEDIES UNDER THE LOAN DOCUMENTS AND/OR APPLICABLE LAW. The
Borrower hereby consents to any motion for relief from stay which may be filed
by the Holder in any bankruptcy or insolvency proceeding initiated by or against
the Borrower and, further, agrees not to file any opposition to any motion for
relief from stay filed by the Holder. The Borrower represents, acknowledges and
agrees that this provision is a specific and material aspect of this Agreement,
and that the Holder would not agree to the terms of this Agreement if this
waiver were not a part of this Agreement. The Borrower further represents,
acknowledges and agrees that this waiver is knowingly, intelligently and
voluntarily made, that neither the Holder nor any person acting on behalf of the
Holder has made any representations to induce this waiver, that the Borrower has
been represented (or has had the opportunity to be represented) in the signing
of this Agreement and in the making of this waiver by independent legal counsel
selected by the Borrower and that the Borrower has had the opportunity to
discuss this waiver with counsel.
[THIS SPACE INTENTIONALLY LEFT BLANK]
8
<PAGE>
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its
name by its Chief Executive Officer on this 2nd day of June, 1999.
FREDERICK BREWING CO.
By: /s/ Kevin E. Brannon
-------------------------------
Kevin E. Brannon
WITNESS:
/s/ [ILLEGIBLE]
- -----------------------------
9
Exhibit 10.6
THIS NOTE AND THE COM40N SHARES ISSUABLE UPON CONVERSION OF
THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THIS
NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS
NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS NOTE UNDER SAID ACT AND APPLICABLE STATE
SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO FREDERICK BREWING CO. THAT SUCH REGISTRATION
IS NOT REQUIRED
CONVERTIBLE NOTE
FOR VALUE RECEIVED, FREDERICK BREWING CO., a Maryland corporation
(hereinafter called "Borrower"), hereby promises to pay to WORLD CAPITAL
FUNDING, LLC, 1499 Blake Street, #6C, Denver, Colorado 80202, Fax No.:
303-620-9199 (the "Holder") or order, without demand, the sum of $50,000.00,
with simple interest accruing at the annual rate of 10%, on November 16, 1999
(the "Maturity Date"), as such date may be extended by agreement of the parties
hereto.
The following terms shall apply to this Note:
ARTICLE I
DEFAULT RELATED PROVISIONS
1.1 Payment Grace Period. The Borrower shall have a ten (10) day grace
period to pay any monetary amounts due under this Note, after which grace period
a default interest rate of 16% per annum shall apply to the amounts owed
hereunder.
1.2 Conversion Privileges. The Conversion Privileges set forth in
Article II shall remain in full force and effect immediately from the date
hereof and until the Note is paid in full.
1.3 Interest Rate. At the election of the Holder, on or after the
earlier of each Conversion Date (as hereinafter defined), or on the Maturity
Date, accelerated or otherwise, the Borrower shall pay interest at the annual
rate of 10% per annum.
1
<PAGE>
ARTICLE II
CONVERSION RIGHTS
The Holder shall have the right to convert the principal amount and
interest due under this Note into Shares of the Borrower's Common Stock ($.00004
par value per share) as set forth below.
2.1. Conversion into the Borrower's Common Stock.
(a) The Holder shall have the right from and after the issuance of this
Note and then at any time until this Note is fully paid, to convert any
outstanding and unpaid principal portion of this Note of $10,000 or greater
amount, or any lesser amount representing the full remaining outstanding and
unpaid principal portion and at the Holder's election, the interest accrued on
the Note, (the date of giving of such notice of conversion being a "Conversion
Date") into fully paid and nonassessable shares of Common Stock of Borrower as
such stock exists on the date of issuance of this Note, or any shares of capital
stock of Borrower into which such stock shall hereafter be changed or
reclassified (the "Common Stock") at the conversion price as defined in Section
2. 1 (b) hereof (the "Conversion Price"), determined as provided herein. Upon
delivery to the Borrower of the Holder's written request for conversion,
Borrower shall issue and deliver to the Holder within five business days from
the Conversion Date that number of shares of Common Stock for the portion of the
Note converted in accordance with the foregoing. Unless the interest accrued on
the Note is the subject of a Conversion Notice, the Borrower will deliver
accrued but unpaid interest on the Note through the Conversion Date directly to
the Holder on or before the Delivery Date as defined in the subscription
agreement entered into between the Borrower and Holder relating to this Note
("Subscription Agreement"). The number of shares of Common Stock to be issued
upon each conversion of this Note shall be determined by dividing that portion
of the principal and/or interest of the Note to be converted, by the Conversion
Price.
(b) Subject to adjustment as provided in Section 2.1(c) hereof, the
Conversion Price per share shall be the lower of (i) seventy (70%) of the
average of the closing bid price for the Common Stock on the NASD OTC Bulletin
Board, or on any securities exchange or other securities market on which the
Common Stock is then being traded (or if not so listed, then the lowest reported
bid price as quoted on the "pink sheets" published by the National Quotation
Bureau), for the five (5) trading days immediately preceding the Conversion
Date, or (ii) $0.375 ("Maximum Base Price").
2
<PAGE>
(c) The Maximum Base Price described in Section 2.1(b)(ii) above and
number and kind of shares or other securities to be issued upon conversion
determined pursuant to Section 2.1(a) and 2.1(b), shall be subject to adjustment
from time to time upon the happening of certain events while this conversion
right remains outstanding, as follows:
A. Merger, Sale of Assets, etc. If the Borrower at any time shall
consolidate with or merge into or sell or convey all or substantially all its
assets to any other corporation, this Note, as to the unpaid principal portion
thereof and accrued interest thereon, shall thereafter be deemed to evidence the
right to purchase such number and kind of shares or other securities and
property as would have been issuable or distributable on account of such
consolidation, merger, sale or conveyance, upon or with respect to the
securities subject to the conversion or purchase right immediately prior to such
consolidation, merger, sale or conveyance. The foregoing provision shall
similarly apply to successive transactions of a similar nature by any such
successor or purchaser. Without limiting the generality of the foregoing, the
anti-dilution provisions of this Section shall apply to such securities of such
successor or purchaser after any such consolidation, merger, sale or conveyance.
B. Reclassification, etc. If the Borrower at any time shall, by
reclassification or otherwise, change the Common Stock into the same or a
different number of securities of any class or classes, this Note, as to the
unpaid principal portion thereof and accrued interest thereon, shall thereafter
be deemed to evidence the right to purchase such number and kind of securities
as would have been issuable as the result of such change with respect to the
Common Stock immediately prior to such reclassification or other change.
C. Stock Splits, Combinations and Dividends. If the shares of Common
Stock are subdivided or combined into a greater or smaller number of shares of
Common Stock, or if a dividend is paid on the Common Stock in shares of Common
Stock, the Conversion Price shall be proportionately reduced in case of
subdivision of shares or stock dividend or proportionately increased in the case
of combination of shares, in each such case by the ratio which the total number
of shares of Common Stock outstanding immediately after such event bears to the
total number of shares of Common Stock outstanding immediately prior to such
event.
D. Share Issuance. Subject to the provisions of this Section, if the
Borrower at any time shall issue any shares of Common Stock prior to the
conversion of the entire principal amount of the Note (otherwise than as: (i)
provided in Sections 2.1(c)A, 2.1(c)B or 2.1(c)C or this subparagraph D; (ii)
pursuant to options, warrants, or other obligations to issue shares,
3
<PAGE>
outstanding on the date hereof as described in the Reports and Other Written
Information, as such terms are defined in the Subscription Agreement (which
agreement is incorporated herein by this reference); [(i) and (ii) above, are
hereinafter referred to as the "Existing Option Obligations"] for a
consideration less than the Conversion Price that would be in effect at the time
of such issue, then, and thereafter successively upon each such issue, the
Conversion Price shall be reduced as follows: (i) the number of shares of Common
Stock outstanding immediately prior to such issue shall be multiplied by the
Conversion Price in effect at the time of such issue and the product shall be
added to the aggregate consideration, if any, received by the Borrower upon such
issue of additional shares of Common Stock; and (ii) the sum so obtained shall
be divided by the number of shares of Common Stock outstanding immediately after
such issue. The resulting quotient shall be the adjusted conversion price.
Except for the Existing option Obligations and options that may be issued under
any employee incentive stock option and/or any qualified stock option plan
adopted by the Borrower, for purposes of this adjustment, the issuance of any
security of the Borrower carrying the right to convert such security into shares
of Common Stock or of any warrant, right or option to purchase Common Stock
shall result in an adjustment to the Conversion Price upon the issuance of
shares of Common Stock upon exercise of such conversion or purchase rights.
(d) During the period the conversion right exists, Borrower will
reserve from its authorized and unissued Common Stock a sufficient number of
shares to provide for the issuance of Common Stock upon the full conversion of
this Note. Borrower represents that upon issuance, such shares will be duly and
validly issued, fully paid and non-assessable. Borrower agrees that its issuance
of this Note shall constitute full authority to its officers, agents, and
transfer agents who are charged with the duty of executing and issuing stock
certificates to execute and issue the necessary certificates for shares of
Common Stock upon the conversion of this Note.
2.2 Method of Conversion. This Note may be converted by the Holder in
whole or in part as described in Section 2.1(a) hereof and the Subscription
Agreement. Upon partial conversion of this Note, a new Note containing the same
date and provisions of this Note shall be issued by the Borrower to the Holder
for the principal balance of this Note and interest which shall not have been
converted or paid.
4
<PAGE>
ARTICLE III
EVENT OF DEFAULT
The occurrence of any of the following events of default ("Event of
Default") shall, at the option of the Holder hereof, make all sums of principal
and interest then remaining unpaid hereon and all other amounts payable
hereunder immediately due and payable, all without demand, presentment or
notice, or grace period, all of which hereby are expressly waived, except as set
forth below:
3.1 Failure to Pay Principal or Interest. The Borrower fails to pay any
installment of principal or interest hereon when due and such failure continues
for a period of ten (10) days after written notice to the Borrower from the
Holder.
3.2 Breach of Covenant. The Borrower breaches any material covenant or
other term or condition of this Note or any other agreement to which the
Borrower and Holder are both parties and such breach continues for a period of
seven (7) days after written notice to the Borrower from the Holder.
3.3 Breach of Representations and Warranties. Any representation or
warranty of the Borrower made herein, in the Subscription Agreement entered into
by the Holder and Borrower in connection with this Note, or in any agreement,
statement or certificate given in writing pursuant hereto or in connection
herewith or any other agreement to which the Borrower and Holder are both
parties shall be false or misleading.
3.4 Receiver or Trustee. The Borrower shall make an assignment for the
benefit of creditors, or apply for or consent to the appointment of a receiver
or trustee for it or for a substantial part of its property or business; or such
a receiver or trustee shall otherwise be appointed.
3.5 Judgments. Any money judgment, writ or similar final process shall
already have been filed, be entered or filed against Borrower or any of its
property or other assets for more than $50,000, and shall remain unvacated,
unbonded or unstayed for a period of forty-five (45) days.
3.6 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings or relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Borrower.
5
<PAGE>
3.7 Delisting. Failure to obtain within 15 days of the issue date of
this Note, a listing for the Common Stock on the NASD OTC Bulletin Board, or a
subsequent delisting of the Common Stock from the NASD OTC Bulletin Board or
such other principal exchange on which the Common Stock is listed for trading,
or notification that the Borrower is not in compliance with the conditions for
such continued listing.
3.8 Concession. A concession by the Borrower or a default under any one
or more obligations in an aggregate monetary amount in excess of $50,000.
3.9 Stop Trade. An SEC stop trade order or NASDAQ trading suspension.
3.10 Failure to Deliver Common Stock or Replacement Note. Borrower's
failure to timely deliver Common Stock to the Holder pursuant to and in the form
required by this Note and Section 9 of the Subscription Agreement, or if
required a replacement Note, unless such failure arises from the failure of the
Escrow Agent.
3.11 Registration Default. The occurrence of a Registration Default as
described in Section 10.4 of the Subscription Agreement.
3.12 Reporting Requirements. The Borrower's failure to file with the
Securities and Exchange Commission within 15 days of the issue date of this Note
all reports (including but not limited to the Form 10-K for the year ended
December 31, 1998 and all forms 10-q for subsequent periods) required to be
filed by the Borrower.
3.13 Other Funding. The Borrower's failure to close within 60 days of
the issue date of this Note on a proposed credit facility on substantially the
same terms as described in a proposal from Business Funding of America, Inc.
dated May 6, 1999 and provided to Holder.
ARTICLE IV
MISCELLANEOUS
4.1 Failure or Indulgence Not Waiver. No failure or delay on the part
of Holder hereof in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any other right, power or privilege. All rights and remedies existing
hereunder are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
6
<PAGE>
4.2 Notices. Any notice herein required or permitted to be given shall
be in writing and may be personally served or sent by fax transmission (with
copy sent by regular, certified or registered mail or by overnight courier). For
the purposes hereof, the address and fax number of the Holder is as set forth on
the first page hereof. The address and fax number of the Borrower shall be
Frederick Brewing Co., 4607 Wedgewood Boulevard, Frederick, MD 21703, telecopier
number: (301) 694- 2971. Both Holder and Borrower may change the address and fax
number for service by service of notice to the other as herein provided. Notice
of Conversion shall be deemed given when made to the Escrow Agent pursuant to
the Escrow Agreement.
4.3 Amendment Provision. The term "Note" and all reference thereto, as
used throughout this instrument, shall mean this instrument as originally
executed, or if later amended or supplemented, then as so amended or
supplemented.
4.4 Assignability. This Note shall be binding upon the Borrower and its
successors and assigns, and shall inure to the benefit of the Holder and its
successors and assigns, and may be assigned by the Holder.
4.5 Cost of Collection. If default is made in the payment of this Note,
Borrower shall pay the Holder hereof reasonable costs of collection, including
reasonable attorneys' fees.
4.6 Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of New York. Any action brought by either
party against the other concerning the transactions contemplated by this
Agreement shall be brought only in the state courts of New York or in the
federal courts located in the state of New York. Both parties and the individual
signing this Agreement on behalf of the Borrower agree to submit to the
jurisdiction of such courts. The prevailing party shall be entitled to recover
from the other party its reasonable attorney's fees and costs.
4.7 Maximum Payments. Nothing contained herein shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Borrower to the Holder and thus refunded to the
Borrower.
7
<PAGE>
4.8 Prepayment. This Note may not be paid prior to the Maturity Date
without the consent of the Holder.
4.9 SecurityInterest/Waiver of Automatic Stay. This Note is secured by
a security interest granted to Holder pursuant to a Security Agreement delivered
by Borrower to Holder. The Borrower acknowledges and agrees that should a
proceeding under any bankruptcy or insolvency law be commenced by or against the
Borrower, or if any of the Collateral (as defined in the Security Agreement)
should become the subject of any bankruptcy or insolvency proceeding, then the
Holder should be entitled to, among other relief to which the Holder may be
entitled under the Note, Security Agreement, Subscription Agreement and any
other agreement to which the Borrower and Holder are parties, (collectively
"Loan Documents") and/or applicable law, an order from the court granting
immediate relief from the automatic stay pursuant to 11 U.S.C. Section 362 to
permit the Holder to exercise all of its rights and remedies pursuant to the
Loan Documents and/or applicable law. THE BORROWER EXPRESSLY WAIVES THE BENEFIT
OF THE AUTOMATIC STAY IMPOSED BY 11 U.S.C. SECTION 362. FURTHERMORE, THE
BORROWER EXPRESSLY ACKNOWLEDGES AND AGREES THAT NEITHER 11 U.S.C. SECTION 362
NOR ANY OTHER SECTION OF THE BANKRUPTCY CODE OR OTHER STATUTE OR RULE
(INCLUDING, WITHOUT LIMITATION, 11 U.S.C. SECTION 105) SHALL STAY, INTERDICT,
CONDITION, REDUCE OR INHIBIT IN ANY WAY THE ABILITY OF THE HOLDER TO ENFORCE ANY
OF ITS RIGHTS AND REMEDIES UNDER THE LOAN DOCUMENTS AND/OR APPLICABLE LAW.' The
Borrower hereby consents to any motion for relief from stay which may be filed
by the Holder in any bankruptcy or insolvency proceeding initiated by or against
the Borrower and, further, agrees not to file any opposition to any motion for
relief from stay filed by the Holder. The Borrower represents, acknowledges and
agrees that this provision is a specific and material aspect of this Agreement,
and that the Holder would not agree to the terms of this Agreement if this
waiver were not a part of this Agreement. The Borrower further represents,
acknowledges and agrees that this waiver is knowingly, intelligently and
voluntarily made, that neither the Holder nor any person acting on behalf of the
Holder has made any representations to induce this waiver, that the Borrower has
been represented (or has had the opportunity to be represented) in the signing
of this Agreement and in the making of this waiver by independent legal counsel
selected by the Borrower and that the Borrower has had the opportunity to
discuss this waiver with counsel.
[THIS SPACE INTENTIONALLY LEFT BLANK]
8
<PAGE>
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its
name by its Chief Executive Officer on. this 2nd day of June, 1999.
FREDERICK BREWING Co.
By: /s/ Kevin E. Brannon
-------------------------------
Kevin E. Brannon
WITNESS:
/s/ [ILLEGIBLE]
- -----------------------------
9
Exhibit 10.7
THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS
NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THIS NOTE AND
THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT
BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE
UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION
OF COUNSEL RFASONA13LY SATISFACTORY TO FREDERICK BREWING CO. THAT
SUCH REGISTRATION IS NOT REQUIRED.
CONVERTIBLE NOTE
----------------
FOR VALUE RECEIVED, FREDERICK BREWING CO., a Maryland corporation (hereinafter
called "Borrower"), hereby promises to pay to FRED LENZ, 113 Hattaway Drive,
Altamonte Springs, Florida 32701, Fax No.: 407-831-6106 (the "Holder") or order,
without demand, the sum of $100,000.00, with simple interest accruing at the
annual rate of 10%, on November 16, 1999 (the "Maturity Date"), as such date may
be extended by agreement of the parties hereto.
The following terms shall apply to this Note:
ARTICLE I
DEFAULT RELATED PROVISIONS
1.1 Payment Grace Period. The Borrower shall have a ten (10) day grace
period to pay any monetary amounts due under this Note, after which grace period
a default interest rate of 16% per annum shall apply to the amounts owed
hereunder.
1.2 Conversion Privilege. The Conversion Privileges set forth in
Article II shall remain in full force and effect immediately from the date
hereof and until the Note is paid in full.
1.3 Interest Rate. At the election of the Holder, on or after the
earlier of each Conversion Date (as hereinafter defined), or on the Maturity
Date, accelerated or otherwise, the Borrower shall pay interest at the annual
rate of 10% per annum.
1
<PAGE>
ARTICLE II
CONVERSION RIGHTS
The Holder shall have the right to convert the principal amount and
interest due under this Note into Shares of the Borrower's Common Stock ($.00004
par value per share) as set forth below.
2.1. Conversion into the Borrower's Common Stock.
(a) The Holder shall have the right from and after the issuance of this
Note and then at any time until this Note is fully paid, to convert any
outstanding and unpaid principal portion of this Note of $10,000 or greater
amount, or any lesser amount representing the full remaining outstanding and
unpaid principal portion and at the Holder's election, the interest accrued on
the Note, (the date of giving of such notice of conversion being a "Conversion
Date") into fully paid and nonassessable shares of Common Stock of Borrower as
such stock exists on the date of issuance of this Note, or any shares of capital
stock of Borrower into which such stock shall hereafter be changed or
reclassified (the "Common Stock") at the conversion price as defined in Section
2.1(b) hereof (the "Conversion Price"), determined as provided herein. Upon
delivery to the 'Borrower of the Holder's written request for conversion,
Borrower shall issue and deliver to the Holder within five business days from
the Conversion Date that number of shares of Common Stock for the portion of the
Note converted in accordance with the foregoing. Unless the interest accrued on
the Note is the subject of a Conversion Notice, the Borrower will deliver
accrued but unpaid interest on the Note through the Conversion Date directly to
the Holder on or before the Delivery Date as defined in the subscription
agreement entered into between the Borrower and Holder relating to this Note
("Subscription Agreement"). The number of shares of Common Stock to be issued
upon each conversion of this Note shall be determined by dividing that portion
of the principal and/or interest of the Note to be converted, by the Conversion
Price.
(b) Subject to adjustment as provided in Section 2.1(c) hereof, the
Conversion Price per share shall be the lower of (i) seventy (70%) of the
average of the closing bid price for the Common Stock on the NASD OTC Bulletin
Board, or on any securities exchange or other securities market on which the
Common Stock is then being traded (or if not so listed, then the lowest reported
bid price as quoted on the "pink sheets" published by the National Quotation
Bureau), for the five (5) trading days immediately preceding the Conversion
Date, or (ii) $0.375 ("Maximum Base Price").
2
<PAGE>
(c) The Maximum Base Price described in Section 2.1(b)(ii) above and
number and kind of shares or other securities to be issued upon conversion
determined pursuant to Section 2.1(a) and 2.1(b), shall be subject to adjustment
from time to time upon the happening of certain events while this conversion
right remains outstanding, as follows:
A. Merger, Sale of Assets, etc. If the Borrower at any time shall
consolidate with or merge into or sell or convey all or substantially all
its assets to any other corporation, this Note, as to the unpaid principal
portion thereof and accrued interest thereon, shall thereafter be deemed to
evidence the right to purchase such number and kind of shares or other
securities and property as would have been issuable or distributable on
account of such consolidation, merger, sale or conveyance, upon or with
respect to the securities subject to the conversion or purchase right
immediately prior to such consolidation, merger, sale or conveyance. The
foregoing provision shall similarly apply to successive transactions of a
similar nature by any such successor or purchaser. Without limiting the
generality of the foregoing, the anti-dilution provisions of this Section
shall apply to such securities of such successor or purchaser after any
such consolidation, merger, sale or conveyance.
B. Reclassification, etc. If the Borrower at any time shall, by
reclassification or otherwise, change the Common Stock into the same or a
different number of securities of any class or classes, this Note, as to
the unpaid principal portion thereof and accrued interest thereon, shall
thereafter be deemed to evidence the right to purchase such number and kind
of securities as would have been issuable as the result of such change with
respect to the Common Stock immediately prior to such reclassification or
other change.
C. Stock Splits, Combinations and Dividends. If the shares of Common
Stock are subdivided or combined into a greater or smaller number of shares
of Common Stock, or if a dividend is paid on the Common Stock in shares of
Common Stock, the Conversion Price shall be proportionately reduced in case
of subdivision of shares or stock dividend or proportionately increased in
the case of combination of shares, in each such case by the ratio which the
total number of shares of Common Stock outstanding immediately after such
event bears to the total number of shares of Common Stock outstanding
immediately prior to such event.
D. Share Issuance. Subject to the provisions of this Section, if the
Borrower at any time shall issue any shares of Common Stock prior to the
conversion of the entire principal amount of the Note (otherwise than as:
(i) provided in Sections 2.1(c)A, 2.1(c)B or 2.1(c)C or this subparagraph
D; (ii) pursuant to options, warrants, or other obligations to issue
shares, outstanding on the date hereof as described in the Reports and
3
<PAGE>
Other Written Information, as such terms are defined in the Subscription
Agreement (which agreement is incorporated herein by this reference); [(i)
and (ii) above, are hereinafter referred to as the "Existing Option
Obligations"] for a consideration less than the Conversion Price that would
be in effect at the time of such issue, then, and thereafter successively
upon each such issue, the Conversion Price shall be reduced as follows: (i)
the number of shares of Common Stock outstanding immediately prior to such
issue shall be multiplied by the Conversion Price in effect at the time of
such issue and the product shall be added to the aggregate consideration,
if any, received by the Borrower upon such issue of additional shares of
Common Stock; and (ii) the sum so obtained shall be divided by the number
of shares of Common Stock outstanding immediately after such issue. The
resulting quotient shall be the adjusted conversion price. Except for the
Existing option Obligations and options that may be issued under any
employee incentive stock option and/or any qualified stock option plan
adopted by the Borrower, for purposes of this adjustment, the issuance of
any security of the Borrower carrying the right to convert such security
into shares of Common Stock or of any warrant, right or option to purchase
Common Stock shall result in an adjustment to the Conversion Price upon the
issuance of shares of Common Stock upon exercise of such conversion or
purchase rights.
(d) During the period the conversion right exists, Borrower will:
reserve from its authorized and unissued Common Stock a sufficient number of
shares to provide for the issuance of Common Stock upon the full conversion of
this Note. Borrower represents that upon issuance, such shares will be duly and
validly issued, fully paid and non-assessable. Borrower agrees that its issuance
of this Note shall constitute full authority to its officers, agents, and
transfer agents who are charged with the duty of executing and issuing stock
certificates to execute and issue the necessary certificates for shares of
Common Stock upon the conversion of this Note.
2.2 Method of Conversion. This Note may be converted by the Holder in
whole or in part as described in Section 2.1(a) hereof and the Subscription
Agreement. Upon partial conversion of this Note, a new Note containing the same
date and provisions of this Note shall be issued by the Borrower to the Holder
for the principal balance of this Note and interest which shall not have been
converted or paid.
4
<PAGE>
ARTICLE III
EVENT OF DEFAULT
The occurrence of any of the following events of default ("Event of
Default") shall, at the option of the Holder hereof, make all sums of principal
and interest then remaining unpaid hereon and all other amounts payable
hereunder immediately due and payable, all without demand, presentment or
notice, or grace period, all of which hereby are expressly waived, except as set
forth below:
3.1 Failure to Pay Principal or Interest. The Borrower fails to pay any
installment of principal or interest hereon when due and such failure continues
for a period of ten (10) days after written notice to the Borrower from the
Holder.
3.2 Breach of Covenant. The Borrower breaches any material covenant or
other term or condition of this Note or any other agreement to which the
Borrower and Holder are both parties and such breach continues for a period of
seven (7) days after written notice to the Borrower from the Holder.
3.3 Breach of Representations and Warranties. Any representation or
warranty of the Borrower made herein, in the Subscription Agreement entered
into by the Holder and Borrower in connection with this Note, or in any
agreement, statement or certificate given in writing pursuant hereto or in
connection herewith or any other agreement to which the Borrower and Holder are
both parties shall be false or misleading.
3.4 Receiver or Trustee. The Borrower shall make an assignment for the
benefit of creditors, or apply for or consent to the appointment of a receiver
or trustee for it or for a substantial part of its property or business; or such
a receiver or trustee shall otherwise be appointed.
3.5 Judgments. Any money judgment, writ or similar final process shall
already have been filed, be entered or filed against Borrower or any of its
property or other assets for more than $50,000, and shall remain unvacated,
unbonded or unstayed for a period of forty-five (45) days.
3.6 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings or relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Borrower.
5
<PAGE>
3.7 Delisting. Failure to obtain within 15 days of the issue date of
this Note, a listing for the Common Stock on the NASD OTC Bulletin Board, or a
subsequent delisting of the Common Stock from the NASD OTC Bulletin Board or
such other principal exchange on which the Common Stock is listed for trading,
or notification that the Borrower is not in compliance with the conditions for
such continued listing.
3.8 Concession. A concession by the Borrower or a default under any one
or more obligations in an aggregate monetary amount in excess of $50,000.
3.9 Stop Trade. An SEC stop trade order or NASDAQ trading suspension.
3.10 Failure to Deliver Common Stock or Replacement Note. Borrower's
failure to timely deliver Common Stock to the Holder pursuant to and in the form
required by this Note and Section 9 of the Subscription Agreement, or if
required a replacement Note, unless such failure arises from the failure of the
Escrow Agent.
3.11 Registration Default. The occurrence of a Registration Default as
described in Section 10.4 of the Subscription Agreement.
3.12 Reporting Requirements. The Borrower's failure to file with the
Securities and Exchange Commission within 15 days of the issue date of this Note
all reports (including but not limited to the Form 10-K for the year ended
December 31, 1998 and all forms 10-q for subsequent periods) required to be
filed by the Borrower.
3.13 Other Funding. The Borrower's failure to close within 60 days of
the issue date of this Note on a proposed credit facility on substantially the
same terms as described in a proposal from Business Funding of America, Inc.
dated May 6, 1999 and provided to Holder.
ARTICLE IV
MISCELLANEOUS
4.1 Failure or Indulgence Not Waiver. No failure or delay on the part
of Holder hereof in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any other right, power or privilege. All rights and remedies existing
hereunder are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
6
<PAGE>
4.2 Notices. Any notice herein required or permitted to be given shall
be in writing and may be personally served or sent by fax transmission (with
copy sent by regular, certified or registered mail or by overnight, courier).
For the purposes hereof, the address and fax number of the Holder is as set
forth on the first page hereof. The address and fax number of the Borrower shall
be Frederick Brewing Co., 4607 Wedgewood Boulevard, Frederick, MD 21703,
telecaster number: (301) 694-2971. Both Holder and Borrower may change the
address and fax number for service by service of notice to the other as herein
provided. Notice of Conversion shall be deemed given when made to the Escrow
Agent pursuant to the Escrow Agreement.
4.3 Amendment Provision. The term "Note" and all reference thereto, as
used throughout this instrument, shall mean this instrument as originally
executed, or if later amended or supplemented, then as so amended or
supplemented.
4.4 Assignability. This Note shall be binding upon the Borrower and its
successors and assigns, and shall inure to the benefit of the Holder and its
successors and assigns, and may be assigned by the Holder.
4.5 Cost of Collection. If default is made in the payment of this Note,
Borrower shall pay the Holder hereof reasonable costs of collection, including
reasonable attorneys' fees.
4.6 Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of New York. Any action brought by either
party against the other concerning the transactions contemplated by this
Agreement shall be brought only in the state courts of New York or in the
federal courts located in the state of New York. Both parties and the individual
signing this Agreement on behalf of the Borrower agree to submit to the
jurisdiction of such courts. The prevailing party shall be entitled to recover
from the other party its reasonable attorney's fees and costs.
4.7 Maximum Payments. Nothing contained herein shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Borrower to the Holder and thus refunded to the
Borrower.
7
<PAGE>
4.8 Prepayment. This Note may not be paid prior to the Maturity Date
without the consent of the Holder.
4.9 Security Interest/ Waiver of Automatic Stay. This Note is secured
by a security interest granted to Holder pursuant to a Security Agreement
delivered by Borrower to Holder. The Borrower acknowledges and agrees that
should a proceeding under any bankruptcy or insolvency law be commenced by or
against the Borrower, or if any of the Collateral (as defined in the Security
Agreement) should become the subject of any bankruptcy or insolvency proceeding,
then the Holder should be entitled to, among other relief to which the Holder
may be entitled under the Note, Security Agreement, Subscription Agreement and
any other agreement to which the Borrower and Holder are parties, (collectively
"Loan Documents") and/or applicable law, an order from the court granting
immediate relief from the automatic stay pursuant to 11 U.S.C. Section 362 to
permit the Holder to exercise all of its rights and remedies pursuant to the
Loan Documents and/or applicable law. THE BORROWER EXPRESSLY WAIVES THE BENEFIT
OF THE AUTOMATIC STAY IMPOSED BY 11 U.S.C. SECTION 362. FURTHERMORE, THE
BORROWER EXPRESSLY ACKNOWLEDGES AND AGREES THAT NEITHER 11 U.S.C. SECTION 362
NOR ANY OTHER SECTION OF THE BANKRUPTCY CODE OR OTHER STATUTE OR RULE
(INCLUDING, WITHOUT LIMITATION, 11 U.S.C. SECTION 105) SHALL STAY, INTERDICT,
CONDITION, REDUCE OR INHIBIT IN ANY WAY THE ABILITY OF THE HOLDER TO ENFORCE ANY
OF ITS RIGHTS AND REMEDIES UNDER THE LOAN DOCUMENTS AND/OR APPLICABLE LAW.' The
Borrower hereby consents to any motion for relief from stay which may be filed
by the Holder in any bankruptcy or insolvency proceeding initiated by or against
the Borrower and, further, agrees not to file any opposition to any motion for
relief from stay filed by the Holder. The Borrower represents, acknowledges and
agrees that this provision is a specific and material aspect of this Agreement,
and that the Holder would not agree to the terms of this Agreement if this
waiver were not a part of this Agreement. The Borrower further represents,
acknowledges and agrees that this waiver is knowingly, intelligently and
voluntarily made, that neither the Holder nor any person acting on behalf of the
Holder has made any representations to induce this waiver, that the Borrower has
been represented (or has had the opportunity to be represented) in the signing
of this Agreement and in the making of this waiver by independent legal counsel
selected by the Borrower and that the Borrower has had the opportunity to
discuss this waiver with counsel.
[THIS SPACE INTENTIONALLY LEFT BLANK]
8
<PAGE>
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its
name by its Chief Executive Officer on this 2nd day of June, 1999.
FREDERICK BREWING CO.
By:
--------------------------
- ----------------------------
WITNESS
9
Exhibit 10.8
THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS
NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THIS NOTE AND
THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT
BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID
ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO FREDERICK BREWING CO. THAT SUCH
REGISTRATION IS NOT REQUIRED.
CONVERTIBLE NOTE
----------------
FOR VALUE RECEIVED, FREDERICK BREWING CO., a Maryland corporation
(hereinafter called "Borrower"), hereby promises to pay to DEAN DOWDA, 1982
Shannon Lane, Apopka, Florida 32703, Fax No.: 407-880-3745 (the "Holder") or
order, without demand, the sum of $50,000.00, with simple interest accruing at
the annual rate of 10%, on November 16, 1999 (the "Maturity Date"), as such date
may be extended by agreement of the parties hereto.
The following terms shall apply to this Note:
ARTICLE I
DEFAULT RELATED PROVISIONS
1.1 Payment Grace Period. The Borrower shall have a ten (10) day grace
period to pay any monetary amounts due under this Note, after which grace period
a default interest rate of 16% per annum shall apply to the amounts owed
hereunder.
1.2 Conversion Privileges. The Conversion Privileges set forth in
Article II shall remain in full force and effect immediately from the date
hereof and until the Note is paid in full.
1.3 Interest Rate. At the election of the Holder, on or after the
earlier of each Conversion Date (as hereinafter defined), or on the Maturity
Date, accelerated or otherwise, the Borrower shall pay interest at the annual
rate of 10% per annum.
1
<PAGE>
ARTICLE II
CONVERSION RIGHTS
The Holder shall have the right to convert the principal amount and
interest due under this Note into Shares of the Borrower's Common Stock ($.00004
par value per share) as set forth below.
2.1. Conversion into the Borrower's Common Stock.
(a) The Holder shall have the right from and after the issuance of this
Note and then at any time until this Note is fully paid, to convert any
outstanding and unpaid principal portion of this Note of $10,000 or greater
amount, or any lesser amount representing the full remaining outstanding and
unpaid principal portion and at the Holder's election, the interest accrued on
the Note, (the date of giving of such notice of conversion being a "Conversion
Date") into fully paid and nonassessable shares of Common Stock of Borrower as
such stock exists on the date of issuance of this Note, or any shares of capital
stock of Borrower into which such stock shall hereafter be changed or
reclassified (the "Common Stock") at the conversion price as defined in Section
2.1(b) hereof (the "Conversion Price"), determined as provided herein. Upon
delivery to the Borrower of the Holder's written request for conversion,
Borrower shall issue and deliver to the Holder within five business days from
the Conversion Date that number of shares of Common Stock for the portion of the
Note converted in accordance with the foregoing. Unless the interest accrued on
the Note is the subject of a Conversion Notice, the Borrower will deliver
accrued but unpaid interest on the Note through the Conversion Date directly to
the Holder on or before the Delivery Date as defined in the subscription
agreement entered into between the Borrower and Holder relating to this Note
("Subscription Agreement"). The number of shares of Common Stock to be issued
upon each conversion of this Note shall be determined by dividing that portion
of the principal and/or interest of the Note to be converted, by the Conversion
Price.
(b) Subject to adjustment as provided in Section 2.1(c) hereof, the
Conversion Price per share shall be the lower of (i) seventy (70%) of the
average of the closing bid price for the Common Stock on the NASD OTC Bulletin
Board, or on any securities exchange or other securities market on which the
Common Stock is then being traded (or if not so listed, then the lowest reported
bid price as quoted on the "pink sheets" published by the National Quotation
Bureau), for the five (5) trading days immediately preceding the Conversion
Date, or (ii) $0.375 ("Maximum Base Price").
2
<PAGE>
(c) The Maximum Base Price described in Section 2.1(b)(ii) above and
number and kind of shares or other securities to be issued upon conversion
determined pursuant to Section 2.1(a)and 2.1(b), shall be subject to adjustment
from time to time upon the happening of certain events while this conversion
right remains outstanding, as follows:
A. Merger, Sale of Assets, etc. If the Borrower at any time shall
consolidate with or merge into or sell or convey all or substantially all its
assets to any other corporation, this Note, as to the unpaid principal portion
thereof and accrued interest thereon, shall thereafter be deemed to evidence the
right to purchase such number and kind of shares or other securities and
property as would have been issuable or distributable on account of such
consolidation, merger, sale or conveyance, upon or with respect to the
securities subject to the conversion or purchase right immediately prior to such
consolidation, merger, sale or conveyance. The foregoing provision shall
similarly apply to successive transactions of a similar nature by any such
successor or purchaser. Without limiting the generality of the foregoing, the
anti-dilution provisions of this Section shall apply to such securities of such
successor or purchaser after any such consolidation, merger, sale or conveyance.
B. Reclassification, etc. If the Borrower at any time shall, by
reclassification or otherwise, change the Common Stock into the same or a
different number of securities of any class or classes, this Note, as to the
unpaid principal portion thereof and accrued interest thereon, shall thereafter
be deemed to evidence the right to purchase such number and kind of securities
as would have been issuable as the result of such change with respect to the
Common Stock immediately prior to such reclassification or other change.
C. Stock Splits, Combinations and Dividends. If the shares of
Common Stock are subdivided or combined into a greater or smaller number of
shares of Common Stock, or if a dividend is paid on the Common Stock in shares
of Common Stock, the Conversion Price shall be proportionately reduced in case
of subdivision of shares or stock dividend or proportionately increased in the
case of combination of shares, in each such case by the ratio which the total
number of shares of Common Stock outstanding immediately after such event bears
to the total number of shares of Common Stock outstanding immediately prior to
such event.
D. Share Issuance. Subject to the provisions of this Section, if
the Borrower at any time shall issue any shares of Common Stock prior to the
conversion of the entire principal amount of the Note (otherwise than as: (i)
provided in Sections 2.1(c)A, 2.1(c)B or 2.1(c)C or this subparagraph D; (ii)
pursuant to options, warrants, or other obligations to issue shares, outstanding
on the date hereof as described in the Reports and
3
<PAGE>
Other Written Information, as such terms are defined in the Subscription
Agreement (which agreement is incorporated herein by this reference); [(i) and
(ii) above, are hereinafter referred to as the "Existing Option Obligations"]
for a consideration less than the Conversion Price that would be in effect at
the time of such issue, then, and thereafter successively upon each such issue,
the Conversion Price shall be reduced as follows: (i) the number of shares of
Common Stock outstanding immediately prior to such issue shall be multiplied by
the Conversion Price in effect at the time of such issue and the product shall
be added to the aggregate consideration, if any, received by the Borrower upon
such issue of additional shares of Common Stock; and (ii) the sum so obtained
shall be divided by the number of shares of Common Stock outstanding immediately
after such issue. The resulting quotient shall be the adjusted conversion price.
Except for the Existing Option Obligations and options that may be issued under
any employee incentive stock option and/or any qualified stock option plan
adopted by the Borrower, for purposes of this adjustment, the issuance of any
security of the Borrower carrying the right to convert such security into shares
of Common Stock or of any warrant, right or option to purchase Common Stock
shall result in an adjustment to the Conversion Price upon the issuance of
shares of Common Stock upon exercise of such conversion or purchase rights.
(d) During the period the conversion right exists, Borrower will
reserve from its authorized and unissued Common Stock a sufficient number of
shares to provide for the issuance of Common Stock upon the full conversion of
this Note. Borrower represents that upon issuance, such shares will be duly and
validly issued, fully paid and non-assessable. Borrower agrees that its issuance
of this Note shall constitute full authority to its officers, agents, and
transfer agents who are charged with the duty of executing and issuing stock
certificates to execute and issue the necessary certificates for shares of
Common Stock upon the conversion of this Note.
2.2 Method of Conversion. This Note may be converted by the Holder in
whole or in part as described in Section 2.1(a) hereof and the Subscription
Agreement. Upon partial conversion of this Note, a new Note containing the same
date and provisions of this Note shall be issued by the Borrower to the Holder
for the principal balance of this Note and interest which shall not have been
converted or paid.
4
<PAGE>
ARTICLE III
EVENT OF DEFAULT
The occurrence of any of the following events of default ("Event of
Default") shall, at the option of the Holder hereof, make all sums of principal
and interest then remaining unpaid hereon and all other amounts payable
hereunder immediately due and payable, all without demand, presentment or
notice, or grace period, all of which hereby are expressly waived, except as set
forth below:
3.1 Failure to Pay Principal or Interest. The Borrower fails to pay any
installment of principal or interest hereon when due and such failure continues
for a period of ten (10) days after written notice to the Borrower from the
Holder.
3.2 Breach of Covenant. The Borrower breaches any material covenant or
other term or condition of this Note or any other agreement to which the
Borrower and Holder are both parties and such breach continues for a period of
seven (7) days after written notice to the Borrower from the Holder.
3.3 Breach of Representations and Warranties. Any representation or
warranty of the Borrower made herein, in the Subscription Agreement entered into
by the Holder and Borrower in connection with this Note, or in any agreement,
statement or certificate given in writing pursuant hereto or in connection
herewith or any other agreement to which the Borrower and Holder are both
parties shall be false or misleading.
3.4 Receiver or Trustee. The Borrower shall make an assignment for the
benefit of creditors, or apply for or consent to the appointment of a receiver
or trustee for it or for a substantial part of its property or business; or such
a receiver or trustee shall otherwise be appointed.
3.5 Judgments. Any money judgment, writ or similar final process shall
already have been filed, be entered or filed against Borrower or any of its
property or other assets for more than $50,000, and shall remain unvacated,
unbonded or unstayed for a period of forty-five (45) days.
3.6 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings or relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Borrower.
5
<PAGE>
3.7 Delisting. Failure to obtain within 15 days of the issue date of
this Note, a listing for the Common Stock on the NASD OTC Bulletin Board, or a
subsequent delisting of the Common Stock from the NASD OTC Bulletin Board or
such other principal exchange on which the Common Stock is listed for trading,
or notification that the Borrower is not in compliance with the conditions for
such continued listing.
3.8 Concession. A concession by the Borrower or a default under any one
or more obligations in an aggregate monetary amount in excess of $50,000.
3.9 Stop Trade. An SEC stop trade order or NASDAQ trading suspension.
3.10 Failure to Deliver Common Stock or Replacement Note. Borrower's
failure to timely deliver Common Stock to the Holder pursuant to and in the form
required by this Note and Section 9 of the Subscription Agreement, or if
required a replacement Note, unless such failure arises from the failure of the
Escrow Agent.
3.11 Registration Default. The occurrence of a Registration Default as
described in Section 10.4 of the Subscription Agreement.
3.12 Reporting Requirements. The Borrower's failure to file with the
Securities and Exchange Commission within 15 days of the issue date of this Note
all reports (including but not limited to the Form 10-K for the year ended
December 31, 1998 and all forms 10-q for subsequent periods) required to be
filed by the Borrower.
3.13 Other Funding. The Borrower's failure to close within 60 days of
the issue date of this Note on a proposed credit facility on substantially the
same terms as described in a proposal from Business Funding of America, Inc.
dated May 6, 1999 and provided to Holder.
ARTICLE IV
MISCELLANEOUS
4.1 Failure or Indulgence Not Waiver. No failure or delay on the part
of Holder hereof in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any other right, power or privilege. All rights and remedies existing
hereunder are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
6
<PAGE>
4.2 Notices. Any notice herein required or permitted to be given shall
be in writing and may be personally served or sent by fax transmission (with
copy sent by regular, certified or registered mail or by overnight courier).
For the purposes hereof, the address and fax number of the Holder is as set
forth on the first page hereof. The address and fax number of the Borrower shall
be Frederick Brewing Co., 4607 Wedgewood Boulevard, Frederick, MD 21703,
telecopier number: (301) 694- 2971. Both Holder and Borrower may change the
address and fax number for service by service of notice to the other as herein
provided. Notice of Conversion shall be deemed given when made to the Escrow
Agent pursuant to the Escrow Agreement.
4.3 Amendment Provision. The term "Note" and all reference thereto, as
used throughout this instrument, shall mean this instrument as originally
executed, or if later amended or supplemented, then as so amended or
supplemented.
4.4 Assignability. This Note shall be binding upon the Borrower and its
successors and assigns, and shall inure to the benefit of the Holder and its
successors and assigns, and may be assigned by the Holder.
4.5 Cost of Collection. If default is made in the payment of this Note,
Borrower shall pay the Holder hereof reasonable costs of collection, including
reasonable attorneys' fees.
4.6 Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of New York. Any action brought by either
party against the other concerning the transactions contemplated by this
Agreement shall be brought only in the state courts of New York or in the
federal courts located in the state of New York. Both parties and the individual
signing this Agreement on behalf of the Borrower agree to submit to the
jurisdiction of such courts. The prevailing party shall be entitled to recover
from the other party its reasonable attorney's fees and costs.
4.7 Maximum Payments. Nothing contained herein shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Borrower to the Holder and thus refunded to the
Borrower.
7
<PAGE>
4.8 Prepayment. This Note may not be paid prior to the Maturity Date
without the consent of the Holder.
4.9 Security Interest/Waiver of Automatic Stay. This Note is secured
by a security interest granted to Holder pursuant to a Security Agreement
delivered by Borrower to Holder. The Borrower acknowledges and agrees that
should a proceeding under any bankruptcy or insolvency law be commenced by or
against the Borrower, or if any of the Collateral (as defined in the Security
Agreement) should become the subject of any bankruptcy or insolvency proceeding,
then the Holder should be entitled to, among other relief to which the Holder
may be entitled under the Note, Security Agreement, Subscription Agreement and
any other agreement to which the Borrower and Holder are parties, (collectively
"Loan Documents") and/or applicable law, an order from the court granting
immediate relief from the automatic stay pursuant to 11 U.S.C. Section 362 to
permit the Holder to exercise all of its rights and remedies pursuant to the
Loan Documents and/or applicable law. THE BORROWER EXPRESSLY WAIVES THE BENEFIT
OF THE AUTOMATIC STAY IMPOSED BY 11 U.S.C. SECTION 362. FURTHERMORE, THE
BORROWER EXPRESSLY ACKNOWLEDGES AND AGREES THAT NEITHER 11 U.S.C. SECTION 362
NOR ANY OTHER SECTION OF THE BANKRUPTCY CODE OR OTHER STATUTE OR RULE
(INCLUDING, WITHOUT LIMITATION, 11 U.S.C. SECTION 105) SHALL STAY, INTERDICT,
CONDITION, REDUCE OR INHIBIT IN ANY WAY THE ABILITY OF THE HOLDER TO ENFORCE ANY
OF ITS RIGHTS AND REMEDIES UNDER THE LOAN DOCUMENTS AND/OR APPLICABLE LAW. The
Borrower hereby consents to any motion for relief from stay which may be filed
by the Holder in any bankruptcy or insolvency proceeding initiated by or against
the Borrower and, further, agrees not to file any opposition to any motion for
relief from stay filed by the Holder. The Borrower represents, acknowledges and
agrees that this provision is a specific and material aspect of this Agreement,
and that the Holder would not agree to the terms of this Agreement if this
waiver were not a part of this Agreement. The Borrower further represents,
acknowledges and agrees that this waiver is knowingly, intelligently and
voluntarily made, that neither the Holder nor any person acting on behalf of the
Holder has made any representations to induce this waiver, that the Borrower has
been represented (or has had the opportunity to be represented) in the signing
of this Agreement and in the making of this waiver by independent legal counsel
selected by the Borrower and that the Borrower has had the opportunity to
discuss this waiver with counsel.
[THIS SPACE INTENTIONALLY LEFT BLANK]
8
<PAGE>
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its
name by its Chief Executive Officer on this 2nd day of June, 1999.
FREDERICK BREWING CO
By: /s/ Kevin E. Brannon
-------------------------------
Kevin E. Brannon
WITNESS:
/s/ [ILLEGIBLE]
- -----------------------------
9
Exhibit 10.9
THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF
THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THIS
NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS
NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS NOTE UNDER SAID ACT AND APPLICABLE STATE
SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO FREDERICK BREWING CO. THAT SUCH REGISTRATION
IS NOT REQUIRED.
CONVERTIBLE NOTE
FOR VALUE RECEIVED, FREDERICK BREWING CO., a Maryland corporation
(hereinafter called "Borrower"), hereby promises to pay to RON WILLIAMS SR.,
1817 Airpark Road, Edgewater, Florida 32132, Fax No.: 904-428-8732 (the
"Holder") or order, without demand, the sum of $30,000.00, with simple interest
accruing at the annual rate of 10%, on November 16, 1999 (the "Maturity Date"),
as such date may be extended by agreement of the parties hereto.
The following terms shall apply to this Note:
ARTICLE I
DEFAULT RELATED PROVISIONS
1.1 Payment Grace Period. The Borrower shall have a ten (10) day grace
period to pay any monetary amounts due under this Note, after which grace period
a default interest rate of 16% per annum shall apply to the amounts owed
hereunder.
1.2 Conversion Privileges. The Conversion Privileges set forth in
Article II shall remain in full force and effect immediately from the date
hereof and until the Note is paid in full.
1.3 Interest Rate. At the election of the Holder, on or after the
earlier of each Conversion Date (as hereinafter defined), or on the Maturity
Date, accelerated or otherwise, the Borrower shall pay interest at the annual
rate of 10% per annum.
1
<PAGE>
ARTICLE II
CONVERSION RIGHTS
The Holder shall have the right to convert the principal amount and
interest due under this Note into Shares of the Borrower's Common Stock ($.00004
par value per share) as set forth below.
2.1. Conversion into the Borrower's Common Stock.
(a) The Holder shall have the right from and after the issuance of this
Note and then at any time until this Note is fully paid, to convert any
outstanding and unpaid principal portion of this Note of $10,000 or greater
amount, or any lesser amount representing the full remaining outstanding and
unpaid principal portion and at the Holder's election, the interest accrued on
the Note, (the date of giving of such notice of conversion being a "Conversion
Date") into fully paid and nonassessable shares of Common Stock of Borrower as
such stock exists on the date of issuance of this Note, or any shares of capital
stock of Borrower into which such stock shall hereafter be changed or
reclassified (the "Common Stock") at the conversion price as defined in Section
2.1(b) hereof (the "Conversion Price"), determined as provided herein. Upon
delivery to the Borrower of the Holder's written request for conversion,
Borrower shall issue and deliver to the Holder within five business days from
the Conversion Date that number of shares of Common Stock for the portion of the
Note converted in accordance with the foregoing. Unless the interest accrued on
the Note is the subject of a Conversion Notice, the Borrower will deliver
accrued but unpaid interest on the Note through the Conversion Date directly to
the Holder on or before the Delivery Date as defined in the subscription
agreement entered into between the Borrower and Holder relating to this Note
("Subscription Agreement"). The number of shares of Common Stock to be issued
upon each conversion of this Note shall be determined by dividing that portion
of the principal and/or interest of the Note to be converted, by the Conversion
Price.
(b) Subject to adjustment as provided in Section 2.1(c) hereof, the
Conversion Price per share shall be the lower of (i) seventy (70%) of the
average of the closing bid price for the Common Stock on the NASD OTC Bulletin
Board, or on any securities exchange or other securities market on which the
Common Stock is then being traded (or if not so listed, then the lowest reported
bid price as quoted on the "pink sheets" published by the National Quotation
Bureau), for the five (5) trading days immediately preceding the Conversion
Date, or (ii) $0.375 ("Maximum Base Price").
2
<PAGE>
(c) The Maximum Base Price described in Section 2.1(b)(ii) above and
number and kind of shares or other securities to be issued upon conversion
determined pursuant to Section 2.1(a) and 2.1(b), shall be subject to adjustment
from time to time upon the happening of certain events while this conversion
right remains outstanding, as follows:
A. Merger, Sale of Assets, etc. If the Borrower at any time shall
consolidate with or merge into or sell or convey all or substantially all its
assets to any other corporation, this Note, as to the unpaid principal portion
thereof and accrued interest thereon, shall thereafter be deemed to evidence the
right to purchase such number and kind of shares or other securities and
property as would have been issuable or distributable on account of such
consolidation, merger, sale or conveyance, upon or with respect to the
securities subject to the conversion or purchase right immediately prior to such
consolidation, merger, sale or conveyance. The foregoing provision shall
similarly apply to successive transactions of a similar nature by any such
successor or purchaser. Without limiting the generality of the foregoing, the
anti-dilution provisions of this Section shall apply to such securities of such
successor or purchaser after any such consolidation, merger, sale or conveyance.
B. Reclassification, etc. If the Borrower at any time shall, by
reclassification or otherwise, change the Common Stock into the same or a
different number of securities of any class or classes, this Note, as to the
unpaid principal portion thereof and accrued interest thereon, shall thereafter
be deemed to evidence the right to purchase such number and kind of securities
as would have been issuable as the result of such change with respect to the
Common Stock immediately prior to such reclassification or other change.
C. Stock Splits, Combinations and Dividends. If the shares of
Common Stock are subdivided or combined into a greater or smaller number of
shares of Common Stock, or if a dividend is paid on the Common Stock in shares
of Common Stock, the Conversion Price shall be proportionately reduced in case
of subdivision of shares or stock dividend or proportionately increased in the
case of combination of shares, in each such case by the ratio which the total
number of shares of Common Stock outstanding immediately after such event bears
to the total number of shares of Common Stock outstanding immediately prior to
such event.
D. Share Issuance. Subject to the provisions of this Section, if
the Borrower at any time shall issue any shares of Common Stock prior to the
conversion of the entire principal amount of the Note (otherwise than as: (i)
provided in Sections 2.1(c)A, 2.1(c)B or 2.1(c)C or this subparagraph D; (ii)
pursuant to options, warrants, or other obligations to issue shares,
3
<PAGE>
outstanding on the date hereof as described in the Reports and Other Written
Information, as such terms are defined in the Subscription Agreement (which
agreement is incorporated herein by this reference); [(i) and (ii) above, are
hereinafter referred to as the "Existing Option Obligations"] for a
consideration less than the Conversion Price that would be in effect at the time
of such issue, then, and thereafter successively upon each such issue, the
Conversion Price shall be reduced as follows: (i) the number of shares of Common
Stock outstanding immediately prior to such issue shall be multiplied by the
Conversion Price in effect at the time of such issue and the product shall be
added to the aggregate consideration, if any, received by the Borrower upon such
issue of additional shares of Common Stock; and (ii) the sum so obtained shall
be divided by the number of shares of Common Stock outstanding immediately after
such issue. The resulting quotient shall be the adjusted conversion price.
Except for the Existing Option Obligations and options that may be issued under
any employee incentive stock option and/or any qualified stock option plan
adopted by the Borrower, for purposes of this adjustment, the issuance of any
security of the Borrower carrying the right to convert such security into shares
of Common Stock or of any warrant, right or option to purchase Common Stock
shall result in an adjustment to the Conversion Price upon the issuance of
shares of Common Stock upon exercise of such conversion or purchase rights.
(d) During the period the conversion right exists, Borrower will
reserve from its authorized and unissued Common Stock a sufficient number of
shares to provide for the issuance of Common Stock upon the full conversion of
this Note. Borrower represents that upon issuance, such shares will be duly and
validly issued, fully paid and non-assessable. Borrower agrees that its issuance
of this Note shall constitute full authority to its officers, agents, and
transfer agents who are charged with the duty of executing and issuing stock
certificates to execute and issue the necessary certificates for shares of
Common Stock upon the conversion of this Note.
2.2 Method of Conversion. This Note may be converted by the Holder in
whole or in part as described in Section 2.1(a) hereof and the Subscription
Agreement. Upon partial conversion of this Note, a new Note containing the same
date and provisions of this Note shall be issued by the Borrower to the Holder
for the principal balance of this Note and interest which shall not have been
converted or paid.
4
<PAGE>
ARTICLE III
EVENT OF DEFAULT
The occurrence of any of the following events of default ("Event of
Default") shall, at the option of the Holder hereof, make all sums of principal
and interest then remaining unpaid hereon and all other amounts payable
hereunder immediately due and payable, all without demand, presentment or
notice, or grace period, all of which hereby are expressly waived, except as set
forth below:
3.1 Failure to Pay Principal or Interest. The Borrower fails to pay any
installment of principal or interest hereon when due and such failure continues
for a period of ten (10) days after written notice to the Borrower from the
Holder.
3.2 Breach of Covenant. The Borrower breaches any material covenant or
other term or condition of this Note or any other agreement to which the
Borrower and Holder are both parties and such breach continues for a period of
seven (7) days after written notice to the Borrower from the Holder.
3.3 Breach of Representations and Warranties. Any representation or
warranty of the Borrower made herein, in the Subscription Agreement entered into
by the Holder and Borrower in connection with this Note, or in any agreement,
statement or certificate given in writing pursuant hereto or in connection
herewith or any other agreement to which the Borrower and Holder are both
parties shall be false or misleading.
3.4 Receiver or Trustee. The Borrower shall make an assignment for the
benefit of creditors, or apply for or consent to the appointment of a receiver
or trustee for it or for a substantial part of its property or business; or such
a receiver or trustee shall otherwise be appointed.
3.5 Judgments. Any money judgment, writ or similar final process shall
already have been filed, be entered or filed against Borrower or any of its
property or other assets for more than $50,000, and shall remain unvacated,
unbonded or unstayed for a period of forty-five (45) days.
3.6 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings or relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Borrower.
5
<PAGE>
3.7 Delisting. Failure to obtain within 15 days of the issue date of
this Note, a listing for the Common Stock on the NASD OTC Bulletin Board, or a
subsequent delisting of the Common Stock from the NASD OTC Bulletin Board or
such other principal exchange on which the Common Stock is listed for trading,
or notification that the Borrower is not in compliance with the conditions for
such continued listing.
3.8 Concession. A concession by the Borrower or a default under any one
or more obligations in an aggregate monetary amount in excess of $50,000.
3.9 Stop Trade. An SEC stop trade order or NASDAQ trading suspension.
3.10 Failure to Deliver Common Stock or Replacement Note. Borrower's
failure to timely deliver Common Stock to the Holder pursuant to and in the form
required by this Note and Section 9 of the Subscription Agreement, or if
required a replacement Note, unless such failure arises from the failure of the
Escrow Agent.
3.11 Registration Default. The occurrence of a Registration Default as
described in Section 10.4 of the Subscription Agreement.
3.12 Reporting Requirements. The Borrower's failure to file with the
Securities and Exchange Commission within 15 days of the issue date of this Note
all reports (including but not limited to the Form 10-K for the year ended
December 31, 1998 and all forms 10-q for subsequent periods) required to be
filed by the Borrower.
3.13 Other Funding. The Borrower's failure to close within 60 days of
the issue date of this Note on a proposed credit facility on substantially the
same terms as described in a proposal from Business Funding of America, Inc.
dated May 6, 1999 and provided to Holder.
ARTICLE IV
MISCELLANEOUS
4.1 Failure or Indulgence Not Waiver. No failure or delay on the part
of Holder hereof in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any other right, power or privilege. All rights and remedies existing
hereunder are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
6
<PAGE>
4.2 Notices. Any notice herein required or permitted to be given shall
be in writing and may be personally served or sent by fax transmission (with
copy sent by regular, certified or registered mail or by overnight courier).
For the purposes hereof, the address and fax number of the Holder is as set
forth on the first page hereof. The address and fax number of the Borrower shall
be Frederick Brewing Co., 4607 Wedgewood Boulevard, Frederick, MD 21703,
telecopier number: (301) 694-2971. Both Holder and Borrower may change the
address and fax number for service by service of notice to the other as herein
provided. Notice of Conversion shall be deemed given when made to the Escrow
Agent pursuant to the Escrow Agreement.
4.3 Amendment Provision. The term "Note" and all reference thereto, as
used throughout this instrument, shall mean this instrument as originally
executed, or if later amended or supplemented, then as so amended or
supplemented.
4.4 Assignability. This Note shall be binding upon the Borrower and its
successors and assigns, and shall inure to the benefit of the Holder and its
successors and assigns, and may be assigned by the Holder.
4.5 Cost of Collection. If default is made in the payment of this Note,
Borrower shall pay the Holder hereof reasonable costs of collection, including
reasonable attorneys' fees.
4.6 Governing Law This Note shall be governed by and construed in
accordance with the laws of the State of New York. Any action brought by either
party against the other concerning the transactions contemplated by this
Agreement shall be brought only in the state courts of New York or in the
federal courts located in the state of New York. Both parties and the individual
signing this Agreement on behalf of the Borrower agree to submit to the
jurisdiction of such courts. The prevailing party shall be entitled to recover
from the other party its reasonable attorney's fees and costs.
4.7 Maximum Payments. Nothing contained herein shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Borrower to the Holder and thus refunded to the
Borrower.
7
<PAGE>
4.8 Prepayment. This Note may not be paid prior to the Maturity Date
without the consent of the Holder.
4.9 Security Interest/ Waiver of Automatic Stay. This Note is secured
by a security interest granted to Holder pursuant to a Security Agreement
delivered by Borrower to Holder. The Borrower acknowledges and agrees that
should a proceeding under any bankruptcy or insolvency law be commenced by or
against the Borrower, or if any of the Collateral (as defined in the Security
Agreement) should become the subject of any bankruptcy or insolvency proceeding,
then the Holder should be entitled to, among other relief to which the Holder
may be entitled under the Note, Security Agreement, Subscription Agreement and
any other agreement to which the Borrower and Holder are parties, (collectively
"Loan Documents") and/or applicable law, an order from the court granting
immediate relief from the automatic stay pursuant to 11 U.S.C. Section 362 to
permit the Holder to exercise all of its rights and remedies pursuant to the
Loan Documents and/or applicable law. THE BORROWER EXPRESSLY WAIVES THE BENEFIT
OF THE AUTOMATIC STAY IMPOSED BY 11 U.S.C. SECTION 362. FURTHERMORE, THE
BORROWER EXPRESSLY ACKNOWLEDGES AND AGREES THAT NEITHER 11 U.S.C. SECTION 362
NOR ANY OTHER SECTION OF THE BANKRUPTCY CODE OR OTHER STATUTE OR RULE
(INCLUDING, WITHOUT LIMITATION, 11 U.S.C. SECTION 105) SHALL STAY, INTERDICT,
CONDITION, REDUCE OR INHIBIT IN ANY WAY THE ABILITY OF THE HOLDER TO ENFORCE ANY
OF ITS RIGHTS AND REMEDIES UNDER THE LOAN DOCUMENTS AND/OR APPLICABLE LAW. The
Borrower hereby consents to any motion for relief from stay which may be filed
by the Holder in any bankruptcy or insolvency proceeding initiated by or against
the Borrower and, further, agrees not to file any opposition to any motion for
relief from stay filed by the Holder. The Borrower represents, acknowledges and
agrees that this provision is a specific and material aspect of this Agreement,
and that the Holder would not agree to the terms of this Agreement if this
waiver were not a part of this Agreement. The Borrower further represents,
acknowledges and agrees that this waiver is knowingly, intelligently and
voluntarily made, that neither the Holder nor any person acting on behalf of the
Holder has made any representations to induce this waiver, that the Borrower has
been represented (or has had the opportunity to be represented) in the signing
of this Agreement and in the making of this waiver by independent legal counsel
selected by the Borrower and that the Borrower has had the opportunity to
discuss this waiver with counsel.
[THIS SPACE INTENTIONALLY LEFT BLANK]
8
<PAGE>
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its
name by its Chief Executive Officer on this 2nd day of June, 1999.
FREDERICK BREWING CO.
By: /s/ Kevin E. Brannon
-------------------------------
Kevin E. Brannon
WITNESS:
/s/ [ILLEGIBLE]
- -----------------------------
9
Exhibit 10.10
THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF
THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THIS
NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS
NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS NOTE UNDER SAID ACT AND APPLICABLE STATE
SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO FREDERICK BREWING CO. THAT SUCH REGISTRATION
IS NOT REQUIRED.
CONVERTIBLE NOTE
FOR VALUE RECEIVED, FREDERICK BREWING CO., a Maryland corporation
(hereinafter called "Borrower"), hereby promises to pay to RON WILLIAMS JR.,
2736 Banyan Drive, Edgewater, Florida 32141, Fax No.: 904-428-8732 (the
"Holder") or order, without demand, the sum of $20,000.00, with simple interest
accruing at the annual rate of 10%, on November 16, 1999 (the "Maturity Date"),
as such date may be extended by agreement of the parties hereto.
The following terms shall apply to this Note:
ARTICLE I
DEFAULT RELATED PROVISIONS
1.1 Payment Grace Period. The Borrower shall have a ten (10) day grace
period to pay any monetary amounts due under this Note, after which grace period
a default interest rate of 16% per annum shall apply to the amounts owed
hereunder.
1.2 Conversion Privileges. The Conversion Privileges set forth in
Article II shall remain in full force and effect immediately from the date
hereof and until the Note is paid in full.
1.3 Interest Rate. At the election of the Holder, on or after the
earlier of each Conversion Date (as hereinafter defined), or on the Maturity
Date, accelerated or otherwise, the Borrower shall pay interest at the annual
rate of 10% per annum.
1
<PAGE>
ARTICLE II
CONVERSION RIGHTS
The Holder shall have the right to convert the principal amount and
interest due under this Note into Shares of the Borrower's Common Stock ($.00004
par value per share) as set forth below.
2.1. Conversion into the Borrower's Common Stock.
(a) The Holder shall have the right from and after the issuance of this
Note and then at any time until this Note is fully paid, to convert any
outstanding and unpaid principal portion of this Note of $10,000 or greater
amount, or any lesser amount representing the full remaining outstanding and
unpaid principal portion and at the Holder's election, the interest accrued on
the Note, (the date of giving of such notice of conversion being a "Conversion
Date") into fully paid and nonassessable shares of Common Stock of Borrower as
such stock exists on the date of issuance of this Note, or any shares of capital
stock of Borrower into which such stock shall hereafter be changed or
reclassified (the "Common Stock") at the conversion price as defined in Section
2.1(b) hereof (the "Conversion Price"), determined as provided herein. Upon
delivery to the Borrower of the Holder's written request for conversion,
Borrower shall issue and deliver to the Holder within five business days from
the Conversion Date that number of shares of Common Stock for the portion of the
Note converted in accordance with the foregoing. Unless the interest accrued on
the Note is the subject of a Conversion Notice, the Borrower will deliver
accrued but unpaid interest on the Note through the Conversion Date directly to
the Holder on or before the Delivery Date as defined in the subscription
agreement entered into between the Borrower and Holder relating to this Note
("Subscription Agreement"). The number of shares of Common Stock to be issued
upon each conversion of this Note shall be determined by dividing that portion
of the principal and/or interest of the Note to be converted, by the Conversion
Price.
(b) Subject to adjustment as provided in Section 2.1(c) hereof, the
Conversion Price per share shall be the lower of (i) seventy (70%) of the
average of the closing bid price for the Common Stock on the NASD OTC Bulletin
Board, or on any securities exchange or other securities market on which the
Common Stock is then being traded (or if not so listed, then the lowest reported
bid price as quoted on the "pink sheets" published by the National Quotation
Bureau), for the five (5) trading days immediately preceding the Conversion
Date, or (ii) $0.375 ("Maximum Base Price").
2
<PAGE>
(c) The Maximum Base Price described in Section 2.1(b)(ii) above and
number and kind of shares or other securities to be issued upon conversion
determined pursuant to Section 2.1(a) and 2.1(b), shall be subject to adjustment
from time to time upon the happening of certain events while this conversion
right remains outstanding, as follows:
A. Merger, Sale of Assets, etc. If the Borrower at any time shall
consolidate with or merge into or sell or convey all or substantially all its
assets to any other corporation, this Note, as to the unpaid principal portion
thereof and accrued interest thereon, shall thereafter be deemed to evidence the
right to purchase such number and kind of shares or other securities and
property as would have been issuable or distributable on account of such
consolidation, merger, sale or conveyance, upon or with respect to the
securities subject to the conversion or purchase right immediately prior to such
consolidation, merger, sale or conveyance. The foregoing provision shall
similarly apply to successive transactions of a similar nature by any such
successor or purchaser. Without limiting the generality of the foregoing, the
anti-dilution provisions of this Section shall apply to such securities of such
successor or purchaser after any such consolidation, merger, sale or conveyance.
B. Reclassification, etc. If the Borrower at any time shall, by
reclassification or otherwise, change the Common Stock into the same or a
different number of securities of any class or classes, this Note, as to the
unpaid principal portion thereof and accrued interest thereon, shall thereafter
be deemed to evidence the right to purchase such number and kind of securities
as would have been issuable as the result of such change with respect to the
Common Stock immediately prior to such reclassification or other change.
C. Stock Splits, Combinations and Dividends. If the shares of
Common Stock are subdivided or combined into a greater or smaller number of
shares of Common Stock, or if a dividend is paid on the Common Stock in shares
of Common Stock, the Conversion Price shall be proportionately reduced in case
of subdivision of shares or stock dividend or proportionately increased in the
case of combination of shares, in each such case by the ratio which the total
number of shares of Common Stock outstanding immediately after such event bears
to the total number of shares of Common Stock outstanding immediately prior to
such event.
D. Share Issuance. Subject to the provisions of this Section, if
the Borrower at any time shall issue any shares of Common Stock prior to the
conversion of the entire principal amount of the Note (otherwise than as: (i)
provided in Sections 2.1(c)A, 2.1(c)B or 2.1(c)C or this subparagraph D; (ii)
pursuant to options, warrants, or other obligations to issue shares,
3
<PAGE>
outstanding on the date hereof as described in the Reports and Other Written
Information, as such terms are defined in the Subscription Agreement (which
agreement is incorporated herein by this reference); [(i) and (ii) above, are
hereinafter referred to as the "Existing Option Obligations"] for a
consideration less than the Conversion Price that would be in effect at the time
of such issue, then, and thereafter successively upon each such issue, the
Conversion Price shall be reduced as follows: (i) the number of shares of Common
Stock outstanding immediately prior to such issue shall be multiplied by the
Conversion Price in effect at the time of such issue and the product shall be
added to the aggregate consideration, if any, received by the Borrower upon such
issue of additional shares of Common Stock; and (ii) the sum so obtained shall
be divided by the number of shares of Common Stock outstanding immediately after
such issue. The resulting quotient shall be the adjusted conversion price.
Except for the Existing Option Obligations and options that may be issued under
any employee incentive stock option and/or any qualified stock option plan
adopted by the Borrower, for purposes of this adjustment, the issuance of any
security of the Borrower carrying the right to convert such security into shares
of Common Stock or of any warrant, right or option to purchase Common Stock
shall result in an adjustment to the Conversion Price upon the issuance of
shares of Common Stock upon exercise of such conversion or purchase rights.
(d) During the period the conversion right exists, Borrower will
reserve from its authorized and unissued Common Stock a sufficient number of
shares to provide for the issuance of Common Stock upon the full conversion of
this Note. Borrower represents that upon issuance, such shares will be duly and
validly issued, fully paid and non-assessable. Borrower agrees that its issuance
of this Note shall constitute full authority to its officers, agents, and
transfer agents who are charged with the duty of executing and issuing stock
certificates to execute and issue the necessary certificates for shares of
Common Stock upon the conversion of this Note.
2.2 Method of Conversion. This Note may be converted by the Holder in
whole or in part as described in Section 2.1(a) hereof and the Subscription
Agreement. Upon partial conversion of this Note, a new Note containing the same
date and provisions of this Note shall be issued by the Borrower to the Holder
for the principal balance of this Note and interest which shall not have been
converted or paid.
4
<PAGE>
ARTICLE III
EVENT OF DEFAULT
The occurrence of any of the following events of default ("Event of
Default") shall, at the option of the Holder hereof, make all sums of principal
and interest then remaining unpaid hereon and all other amounts payable
hereunder immediately due and payable, all without demand, presentment or
notice, or grace period, all of which hereby are expressly waived, except as set
forth below:
3.1 Failure to Pay Principal or Interest. The Borrower fails to pay any
installment of principal or interest hereon when due and such failure continues
for a period of ten (10) days after written notice to the Borrower from the
Holder.
3.2 Breach of Covenant. The Borrower breaches any material covenant or
other term or condition of this Note or any other agreement to which the
Borrower and Holder are both parties and such breach continues for a period of
seven (7) days after written notice to the Borrower from the Holder.
3.3 Breach of Representations and Warranties. Any representation or
warranty of the Borrower made herein, in the Subscription Agreement entered into
by the Holder and Borrower in connection with this Note, or in any agreement,
statement or certificate given in writing pursuant hereto or in connection
herewith or any other agreement to which the Borrower and Holder are both
parties shall be false or misleading.
3.4 Receiver or Trustee. The Borrower shall make an assignment for the
benefit of creditors, or apply for or consent to the appointment of a receiver
or trustee for it or for a substantial part of its property or business; or such
a receiver or trustee shall otherwise be appointed.
3.5 Judgments. Any money judgment, writ or similar final process shall
already have been filed, be entered or filed against Borrower or any of its
property or other assets for more than $50,000, and shall remain unvacated,
unbonded or unstayed for a period of forty-five (45) days.
3.6 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings or relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Borrower.
5
<PAGE>
3.7 Delisting. Failure to obtain within 15 days of the issue date of
this Note, a. listing for the Common Stock on the NASD OTC Bulletin Board, or a
subsequent delisting of the Common Stock from the NASD OTC Bulletin Board or
such other principal exchange on which the Common Stock is listed for trading,
or notification that the Borrower is not in compliance with the conditions for
such continued listing.
3.8 Concession. A concession by the Borrower or a default under any one
or more obligations in an aggregate monetary amount in excess of $50,000.
3.9 Stop Trade. An SEC stop trade order or NASDAQ trading suspension.
3.10 Failure to Deliver Common Stock or Replacement Note. Borrower's
failure to timely deliver Common Stock to the Holder pursuant to and in the form
required by this Note and Section 9 of the Subscription Agreement, or if
required a replacement Note, unless such failure arises from the failure of the
Escrow Agent.
3.11 Registration Default. The occurrence of a Registration Default as
described in Section 10.4 of the Subscription Agreement.
3.12 Reporting Requirements. The Borrower's failure to file with the
Securities and Exchange Commission within 15 days of the issue date of this Note
all reports (including but not limited to the Form 10-K for the year ended
December 31, 1998 and all forms 10-q for subsequent periods) required to be
filed by the Borrower.
3.13 Other Funding. The Borrower's failure to close within 60 days of
the issue date of this Note on a proposed credit facility on substantially the
same terms as described in a proposal from Business Funding of America, Inc.
dated May 6, 1999 and provided to Holder.
ARTICLE IV
MISCELLANEOUS
4.1 Failure or Indulgence Not Waiver. No failure or delay on the part
of Holder hereof in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any other right, power or privilege. All rights and remedies existing
hereunder are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
6
<PAGE>
4.2 Notices. Any notice herein required or permitted to be given shall
be in writing and may be personally served or sent by fax transmission (with
copy sent by regular, certified or registered mail or by overnight courier).
For the purposes hereof, the address and fax number of the Holder is as set
forth on the first page hereof. The address and fax number of the Borrower shall
be Frederick Brewing Co., 4607 Wedgewood Boulevard, Frederick, MD 21703,
telecopier number: (301) 694-2971. Both Holder and Borrower may change the
address and fax number for service by service of notice to the other as herein
provided. Notice of Conversion shall be deemed given when made to the Escrow
Agent pursuant to the Escrow Agreement.
4.3 Amendment Provision. The term "Note" and all reference thereto, as
used throughout this instrument, shall mean this instrument as originally
executed, or if later amended or supplemented, then as so amended or
supplemented.
4.4 Assignability. This Note shall be binding upon the Borrower and its
successors and assigns, and shall inure to the benefit of the Holder and its
successors and assigns, and may be assigned by the Holder.
4.5 Cost of Collection. If default is made in the payment of this Note,
Borrower shall pay the Holder hereof reasonable costs of collection, including
reasonable attorneys' fees.
4.6 Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of New York. Any action brought by either
party against the other concerning the transactions contemplated by this
Agreement shall be brought only in the state courts of New York or in the
federal courts located in the state of New York. Both parties and the individual
signing this Agreement on behalf of the Borrower agree to submit to the
jurisdiction of such courts. The prevailing party shall be entitled to recover
from the other party its reasonable attorney's fees and costs.
4.7 Maximum Payments. Nothing contained herein shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Borrower to the Holder and thus refunded to the
Borrower.
7
<PAGE>
4.8 Prepayment. This Note may not be paid prior to the Maturity Date
without the consent of the Holder.
4.9 Security Interest/ Waiver of Automatic Stay. This Note is secured
by a security interest granted to Holder pursuant to a Security Agreement
delivered by Borrower to Holder. The Borrower acknowledges and agrees that
should a proceeding under any bankruptcy or insolvency law be commenced by or
against the Borrower, or if any of the Collateral (as defined in the Security
Agreement) should become the subject of any bankruptcy or insolvency proceeding,
then the Holder should be entitled to, among other relief to which the Holder
may be entitled under the Note, Security Agreement, Subscription Agreement and
any other agreement to which the Borrower and Holder are parties, (collectively
"Loan Documents") and/or applicable law, an order from the court granting
immediate relief from the automatic stay pursuant to 11 U.S.C. Section 362 to
permit the Holder to exercise all of its rights and remedies pursuant to the
Loan Documents and/or applicable law. THE BORROWER EXPRESSLY WAIVES THE BENEFIT
OF THE AUTOMATIC STAY IMPOSED BY 11 U.S.C. SECTION 362. FURTHERMORE, THE
BORROWER EXPRESSLY ACKNOWLEDGES AND AGREES THAT NEITHER 11 U.S.C. SECTION 362
NOR ANY OTHER SECTION OF THE BANKRUPTCY CODE OR OTHER STATUTE OR RULE
(INCLUDING, WITHOUT LIMITATION, 11 U.S.C. SECTION 105) SHALL STAY, INTERDICT,
CONDITION, REDUCE OR INHIBIT IN ANY WAY THE ABILITY OF THE HOLDER TO ENFORCE ANY
OF ITS RIGHTS AND REMEDIES UNDER THE LOAN DOCUMENTS AND/OR APPLICABLE LAW. The
Borrower hereby consents to any motion for relief from stay which may be filed
by the Holder in any bankruptcy or insolvency proceeding initiated by or against
the Borrower and, further, agrees not to file any opposition to any motion for
relief from stay filed by the Holder. The Borrower represents, acknowledges and
agrees that this provision is a specific and material aspect of this Agreement,
and that the Holder would not agree to the terms of this Agreement if this
waiver were not a part of this Agreement. The Borrower further represents,
acknowledges and agrees that this waiver is knowingly, intelligently and
voluntarily made, that neither the Holder nor any person acting on behalf of the
Holder has made any representations to induce this waiver, that the Borrower has
been represented (or has had the opportunity to be represented) in the signing
of this Agreement and in the making of this waiver by independent legal counsel
selected by the Borrower and that the Borrower has had the opportunity to
discuss this waiver with counsel.
[THIS SPACE INTENTIONALLY LEFT BLANK]
8
<PAGE>
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its
name by its Chief Executive Officer on this 2nd day of June, 1999.
FREDERICK BREWING CO
By: /s/ Kevin E. Brannon
-------------------------------
Kevin E. Brannon
WITNESS:
/s/ [ILLEGIBLE]
- -----------------------------
9
Exhibit 10.11
THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS
NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THIS NOTE AND THE
COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID
ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO FREDERICK BREWING CO. THAT SUCH
REGISTRATION IS NOT REQUIRED.
CONVERTIBLE NOTE
----------------
FOR VALUE RECEIVED, FREDERICK BREWING CO., a Maryland corporation
(hereinafter called "Borrower"), hereby promises to pay to BALMORE FUNDS S.A.,
P.O. Box 4603, Zurich, Switzerland, Fax No.: 011-411-201- 6262 (the "Holder") or
order, without demand, the sum of $125,000.00, with simple interest accruing at
the annual rate of 10%, on November 16, 1999 (the "Maturity Date"), as such date
may be extended by agreement of the parties hereto.
The following terms shall apply to this Note:
ARTICLE I
DEFAULT RELATED PROVISIONS
1.1 Payment Grace Period. The Borrower shall have a ten (10) day grace
period to pay any monetary amounts due under this Note, after which grace period
a default interest rate of 16% per annum shall apply to the amounts owed
hereunder.
1.2 Conversion Privileges. The Conversion Privileges set forth in
Article II shall remain in full force and effect immediately from the date
hereof and until the Note is paid in full.
1.3 Interest Rate. At the election of the Holder, on or after the
earlier of each Conversion Date (as hereinafter defined), or on the Maturity
Date, accelerated or otherwise, the Borrower shall pay interest at the annual
rate of 10% per annum.
1
<PAGE>
ARTICLE II
CONVERSION RIGHTS
The Holder shall have the right to convert the principal amount and
interest due under this Note into Shares of the Borrower's Common Stock ($.00004
par value per share) as set forth below.
2.1. Conversion into the Borrower's Common Stock.
(a) The Holder shall have the right from and after the issuance of this
Note and then at any time until this Note is fully paid, to convert any
outstanding and unpaid principal portion of this Note of $10,000 or greater
amount, or any lesser amount representing the full remaining outstanding and
unpaid principal portion and at the Holder's election, the interest accrued on
the Note, (the date of giving of such notice of conversion being a "Conversion
Date") into fully paid and nonassessable shares of Common Stock of Borrower as
such stock exists on the date of issuance of this Note, or any shares of capital
stock of Borrower into which such stock shall hereafter be changed or
reclassified (the "Common Stock") at the conversion price as defined in Section
2.1(b) hereof (the "Conversion Price"), determined as provided herein. Upon
delivery to the Borrower of the Holder's written request for conversion,
Borrower shall issue and deliver to the Holder within five business days from
the Conversion Date that number of shares of Common Stock for the portion of the
Note converted in accordance with the foregoing. Unless the interest accrued on
the Note is the subject of a Conversion Notice, the Borrower will deliver
accrued but unpaid interest on the Note through the Conversion Date directly to
the Holder on or before the Delivery Date as defined in the subscription
agreement entered into between the Borrower and Holder relating to this Note
("Subscription Agreement"). The number of shares of Common Stock to be issued
upon each conversion of this Note shall be determined by dividing that portion
of the principal and/or interest of the Note to be converted, by the Conversion
Price.
(b) Subject to adjustment as provided in Section 2.1(c) hereof, the
Conversion Price per share shall be the lower of (i) seventy (70%) of the
average of the closing bid price for the Common Stock on the NASD OTC Bulletin
Board, or on any securities exchange or other securities market on which the
Common Stock is then being traded (or if not so listed, then the lowest reported
bid price as quoted on the "pink sheets" published by the National Quotation
Bureau), for the five (5) trading days immediately preceding the Conversion
Date, or (ii) $0.375 ("Maximum Base Price").
2
<PAGE>
(c) The Maximum Base Price described in Section 2.1(b)(ii) above and
number and kind of shares or other securities to be issued upon conversion
determined pursuant to Section 2.1(a) and 2.1(b), shall be subject to adjustment
from time to time upon the happening of certain events while this conversion
right remains outstanding, as follows:
A. Merger, Sale of Assets, etc. If the Borrower at any time shall
consolidate with or merge into or sell or convey all or substantially
all its assets to any other corporation, this Note, as to the unpaid
principal portion thereof and accrued interest thereon, shall
thereafter be deemed to evidence the right to purchase such number and
kind of shares or other securities and property as would have been
issuable or distributable on account of such consolidation, merger,
sale or conveyance, upon or with respect to the securities subject to
the conversion or purchase right immediately prior to such
consolidation, merger, sale or conveyance. The foregoing provision
shall similarly apply to successive transactions of a similar nature
by any such successor or purchaser. Without limiting the generality of
the foregoing, the anti-dilution provisions of this Section shall
apply to such securities of such successor or purchaser after any such
consolidation, merger, sale or conveyance.
B. Reclassification, etc. If the Borrower at any time shall, by
reclassification' or otherwise, change the Common Stock into the same
or a different number of securities of any class or classes, this
Note, as to the unpaid principal portion thereof and accrued interest
thereon, shall thereafter be deemed to evidence the right to purchase
such number and kind of securities as would have been issuable as the
result of such change with respect to the Common Stock immediately
prior to such reclassification or other change.
C. Stock Splits, Combinations and Dividends. If the shares of
Common Stock are subdivided or combined into a greater or smaller
number of shares of Common Stock, or if a dividend is paid on the
Common Stock in shares of Common Stock, the Conversion Price shall be
proportionately reduced in case of subdivision of shares or stock
dividend or proportionately increased in the case of combination of
shares, in each such case by the ratio which the total number of
shares of Common Stock outstanding immediately after such event bears
to the total number of shares of Common Stock outstanding immediately
prior to such event.
D. Share Issuance. Subject to the provisions of this Section, if
the Borrower at any time shall issue any shares of Common Stock prior
to the conversion of the entire principal amount of the Note
(otherwise than as: (i) provided in Sections 2.1(c)A, 2.1(c)B or
2.1(c)C or this subparagraph D; (ii) pursuant to options, warrants, or
other obligations to issue shares, outstanding on the date hereof as
3
<PAGE>
described in the Reports and Other Written Information, as such terms
are defined in the Subscription Agreement (which agreement is
incorporated herein by this reference); (i) and (ii) above, are
hereinafter referred to as the "Existing Option Obligations"] for a
consideration less than the Conversion Price that would be in effect
at the time of such issue, then, and thereafter successively upon each
such issue, the Conversion Price shall be reduced as follows: (i) the
number of shares of Common Stock outstanding immediately prior to such
issue shall be multiplied by the Conversion Price in effect at the
time of such issue and the product shall be added to the aggregate
consideration, if any, received by the Borrower upon such issue of
additional shares of Common Stock; and (ii) the sum so obtained shall
be divided by the number of shares of Common Stock outstanding
immediately after such issue. The resulting quotient shall be the
adjusted conversion price. Except for the Existing option Obligations
and options that may be issued under any employee incentive stock
option and/or any qualified stock option plan adopted by the Borrower,
for purposes of this adjustment, the issuance of any security of the
Borrower carrying the right to convert such security into shares of
Common Stock or of any warrant, right or option to purchase Common
Stock shall result in an adjustment to the Conversion Price upon the
issuance of shares of Common Stock upon exercise of such conversion or
purchase rights.
(d) During the period the conversion right exists, Borrower will
reserve from its authorized and unissued Common Stock a sufficient number of
shares to provide for the issuance of Common Stock upon the full conversion of
this Note. Borrower represents that upon issuance, such shares will be duly and
validly issued, fully paid and non-assessable. Borrower agrees that its issuance
of this Note shall constitute full authority to its officers, agents, and
transfer agents who are charged with the duty of executing and issuing stock
certificates to execute and issue the necessary certificates for shares of
Common Stock upon the conversion of this Note.
2.2 Method of Conversion. This Note may be converted by the Holder in
whole or in part as described in Section 2.1(a) hereof and the Subscription
Agreement. Upon partial conversion of this Note, a new Note containing the same
date and provisions of this Note shall be issued by the Borrower to the Holder
for the principal balance of this Note and interest which shall not have been
converted or paid.
4
<PAGE>
ARTICLE III
EVENT OF DEFAULT
The occurrence of any of the following events of default ("Event of
Default") shall, at the option of the Holder hereof, make all sums of principal
and interest then remaining unpaid hereon and all other amounts payable
hereunder immediately due and payable, all without demand, presentment or
notice, or grace period, all of which hereby are expressly waived, except as set
forth below:
3.1 Failure to Pay Principal or Interest. The Borrower fails to pay any
installment of principal or interest hereon when due and such failure continues
for a period of ten (10) days after written notice to the Borrower from the
Holder.
3.2 Breach of Covenant. The Borrower breaches any material covenant or
other term or condition of this Note or any other agreement to which the
Borrower and Holder are both parties and such breach continues for a period of
seven (7) days after written notice to the Borrower from the Holder.
3.3 Breach of Representations and Warranties. Any representation or
warranty of the Borrower made herein, in the Subscription Agreement entered into
by the Holder and Borrower in connection with this Note, or in any agreement,
statement or certificate given in writing pursuant hereto or in connection
herewith or any other agreement to which the Borrower and Holder are both
parties shall be false or misleading.
3.4 Receiver or Trustee. The Borrower shall make an assignment for the
benefit of creditors, or apply for or consent to the appointment of a receiver
or trustee for it or for a substantial part of its property or business; or such
a receiver or trustee shall otherwise be appointed.
3.5 Judgments. Any money judgment, writ or similar final process shall
already have been filed, be entered or filed against Borrower or any of its
property or other assets for more than $50,000, and shall remain unvacated,
unbonded or unstayed for a period of forty-five (45) days.
3.6 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings or relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Borrower.
5
<PAGE>
3.7 Delisting. Failure to obtain within 15 days of the issue date of
this Note, a listing for the Common Stock on the NASD OTC Bulletin Board, or a
subsequent delisting of the Common Stock from the NASD OTC Bulletin Board or
such other principal exchange on which the Common Stock is listed for trading,
or notification that the Borrower is not in compliance with the conditions for
such continued listing.
3.8 Concession. A concession by the Borrower or a default under any one
or more obligations in an aggregate monetary amount in excess of $50,000.
3.9 Stop Trade. An SEC stop trade order or NASDAQ trading suspension.
3.10 Failure to Deliver Common Stock or Replacement Note. Borrower's
failure to timely deliver Common Stock to the Holder pursuant to and in the form
required by this Note and Section 9 of the Subscription Agreement, or if
required a replacement Note, unless such failure arises from the failure of the
Escrow Agent.
3.11 Registration Default. The occurrence of a Registration Default as
described in Section 10.4 of the Subscription Agreement.
3.12 Reporting Requirements. The Borrower's failure to file with the
Securities and Exchange Commission within 15 days of the issue date of this Note
all reports (including but not limited to the Form 10-K for the year ended
December 31, 1998 and all forms 10-q for subsequent periods) required to be
filed by the Borrower.
3.13 Other Funding. The Borrower's failure to close within 60 days of
the issue date of this Note on a proposed credit facility on substantially the
same terms as described in a proposal from Business Funding of America, Inc.
dated May 6, 1999 and provided to Holder.
ARTICLE IV
MISCELLANEOUS
4.1 failure or Indulgence Not Waiver. No failure or delay on the part
of Holder hereof in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any other right, power or privilege. All rights and remedies existing
hereunder are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
6
<PAGE>
4.2 Notices. Any notice herein required or permitted to be given shall
be in writing and may be personally served or sent by fax transmission (with
copy sent by regular, certified or registered mail or by overnight courier).
For the purposes hereof, the address and fax number of the Holder is as set
forth on the first page hereof. The address and fax number of the Borrower shall
be Frederick Brewing Co., 4607 Wedgewood Boulevard, Frederick, MD 21703,
telecopier number: (301) 694-2971. Both Holder and Borrower may change the
address and fax number for service by service of notice to the other as herein
provided. Notice of Conversion shall be deemed given when made to the Escrow
Agent pursuant to the Escrow Agreement.
4.3 Amendment Provision. The term "Note" and all reference thereto, as
used throughout this instrument, shall mean this instrument as originally
executed, or if later amended or supplemented, then as so amended or
supplemented.
4.4 Assignability. This Note shall be binding upon the Borrower and its
successors and assigns, and shall inure to the benefit of the Holder and its
successors and assigns, and may be assigned by the Holder.
4.5 Cost of Collection. If default is made in the payment of this Note,
Borrower shall pay the Holder hereof reasonable costs of collection, including
reasonable attorneys' fees.
4.6 Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of New York. Any action brought by either
party against the other concerning the transactions contemplated by this
Agreement shall be brought only in the state courts of New York or in the
federal courts located in the state of New York. Both parties and the individual
signing this Agreement on behalf of the Borrower agree to submit to the
jurisdiction of such courts. The prevailing party shall be entitled to recover
from the other party its reasonable attorney's fees and costs.
4.7 Maximum Payments. Nothing contained herein shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Borrower to the Holder and thus refunded to the
Borrower.
7
<PAGE>
4.8 Prepayment. This Note may not be paid prior to the Maturity Date
without the consent of the Holder.
4.9 Security Interest/ Waiver of Automatic Stay. This Note is secured
by a security interest granted to Holder pursuant to a Security Agreement
delivered by Borrower to Holder. The Borrower acknowledges and agrees that
should a proceeding under any bankruptcy or insolvency law be commenced by or
against the Borrower, or if any of the Collateral (as defined in the Security
Agreement) should become the subject of any bankruptcy or insolvency proceeding,
then the Holder should be entitled to, among other relief to which the Holder
may be entitled under the Note, Security Agreement, Subscription Agreement and
any other agreement to which the Borrower and Holder are parties, (collectively
"Loan Documents") and/or applicable law, an order from the court granting
immediate relief from the automatic stay pursuant to 11 U.S.C. Section 362 to
permit the Holder to exercise all of its rights and remedies pursuant to the
Loan Documents and/or applicable law. THE BORROWER EXPRESSLY WAIVES THE BENEFIT
OF THE AUTOMATIC STAY IMPOSED BY 11 U.S.C. SECTION 362. FURTHERMORE, THE
BORROWER EXPRESSLY ACKNOWLEDGES AND AGREES THAT NEITHER 11 U.S.C. SECTION 362
NOR ANY OTHER SECTION OF THE BANKRUPTCY CODE OR OTHER STATUTE OR RULE
(INCLUDING, WITHOUT LIMITATION, 11 U.S.C. SECTION 105) SHALL STAY, INTERDICT,
CONDITION, REDUCE OR INHIBIT IN ANY WAY THE ABILITY OF THE HOLDER TO ENFORCE ANY
OF ITS RIGHTS AND REMEDIES UNDER THE LOAN DOCUMENTS AND/OR APPLICABLE LAW. The
Borrower hereby consents to any motion for relief from stay which may be filed
by the Holder in any bankruptcy or insolvency proceeding initiated by or against
the Borrower and, further, agrees not to file any opposition to any motion for
relief from stay filed by the Holder. The Borrower represents, acknowledges and
agrees that this provision is a specific and material aspect of this Agreement,
and that the Holder would not agree to the terms of this Agreement if this
waiver were not a part of this Agreement. The Borrower further represents,
acknowledges and agrees that this waiver is knowingly, intelligently and
voluntarily made, that neither the Holder nor any person acting on behalf of the
Holder has made any representations to induce this waiver, that the Borrower has
been represented (or has had the opportunity to be represented) in the signing
of this Agreement and in the making of this waiver by independent legal counsel
selected by the Borrower and that the Borrower has had the opportunity to
discuss this waiver with counsel.
[THIS SPACE INTENTIONALLY LEFT BLANK]
8
<PAGE>
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its
name by its Chief Executive officer on this 2nd day of June, 1999.
FREDERICK BREWING CO.
By:
----------------------------
WITNESS
- --------------------
9
Exhibit 10.12
THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE
OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID
ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO FREDERICK BREWING CO. THAT SUCH REGISTRATION IS NOT REQUIRED.
Right to Purchase 125,000 Shares of
Common Stock of Frederick Brewing Co.
(subject to adjustment as provided
herein)
COMMON STOCK PURCHASE WARRANT
No. 1 June 7, 1999
FREDERICK BREWING CO., a corporation organized under the laws of the
State of Maryland (the "Company"), hereby certifies that, for value received,
AUSTOST ANSTALT SCHAAN, or assigns, is entitled, subject to the terms set forth
below, to purchase from the Company after June 7, 1999 at any time or from time
to time before 5:00 p.m., New York time, on June 7, 2002 (the "Expiration
Date"), up to 125,000 fully paid and nonassessable shares of Common Stock (as
hereinafter defined), $.00004 par value per share, of the Company, at a per
share purchase price of the lesser of $0.375 per share or 100% of the average
closing bid price of the Common Stock for the five trading days commencing with
the first day the Common Stock is relisted for reporting on the NASDAQ Bulletin
Board, (such purchase price per share as adjusted from time to time as herein
provided is referred to herein as the "Purchase Price"). The number and
character of such shares of Common Stock and the Purchase Price are subject to
adjustment as provided herein.
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
(a) The term Company shall include Frederick Brewing Co. and any
corporation which shall succeed or assume the obligations of Frederick Brewing
Co. hereunder.
(b) The term "Common Stock" includes (a) the Company's Common Stock,
$.00004 par value per share, as authorized on the date of the Agreement, (b) any
other capital stock of any class or classes (however designated) of the Company,
authorized on or after such date, the holders of which shall have the right,
without limitation as to amount, either to all or to a share of the balance of
current dividends and liquidating dividends after the payment of dividends and
distributions on any shares entitled to preference, and the holders of which
shall ordinarily, in the absence of contingencies,
1
<PAGE>
be entitled to vote for the election of a majority of directors of the Company
(even if the right so to vote has been suspended by the happening of such a
contingency) and (c) any other securities into which or for which any of the
securities described in (a) or (b) may be converted or exchanged pursuant to a
plan of recapitalization, reorganization, merger, sale of assets or otherwise.
(c) The term "Other Securities" refers to any stock (other than Common
Stock) and other securities of the Company or any other person (corporate or
otherwise) which the holder of the Warrant at any time shall be entitled to
receive, or shall have received, on the exercise of the Warrant, in lieu of or
in addition to Common Stock, or which at any time shall be issuable or shall
have been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 4 or otherwise.
1. Exercise of Warrant.
1.1. Number of Shares Issuable upon Exercise. From and after the
date hereof through and including the Expiration Date, the holder hereof shall
be entitled to receive, upon exercise of this Warrant in whole in accordance
with the terms of subsection 1.2 or upon exercise of this Warrant in part in
accordance with subsection 1.3, shares of Common Stock of the Company, subject
to adjustment pursuant to Section 4.
1.2. Full Exercise. This Warrant may be exercised in full by the
holder hereof by surrender of this Warrant, with the form of subscription
attached as Exhibit A hereto (the Subscription Form") duly executed by such
holder, to the Company at its principal office or at the office of its Warrant
agent (as provided in Section 11), accompanied by payment, in cash or by
certified or official bank check payable to the order of the Company, in the
amount obtained by multiplying the number of shares of Common Stock for which
this Warrant is then exercisable by the Purchase Price (as hereinafter defined)
then in effect.
1.3. Partial Exercise. This Warrant may be exercised in part (but
not for a fractional share) by surrender of this Warrant in the manner and at
the place provided in subsection 1.2 except that the amount payable by the
holder on such partial exercise shall be the amount obtained by multiplying (a)
the number of shares of Common Stock designated by the holder in the
Subscription Form by (b) the Purchase Price then in effect. On any such partial
exercise, the Company, at its expense, will forthwith issue and deliver to or
upon the order of the holder hereof a new Warrant of like tenor, in the name of
the holder hereof or as such holder (upon payment by such holder of any
applicable transfer taxes), may request, the number of shares of Common Stock
for which such Warrant may still be exercised.
2
<PAGE>
1.4. Fair Market Value. Fair Market Value of a share of Common Stock as
of a particular date (the "Determination Date") shall mean the Fair Market Value
of a share of the Company's Common Stock. Fair Market Value of a share of Common
Stock as of a Determination Date shall mean:
(a) If the Company's Common Stock is traded on an exchange or is
quoted on the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") National Market System or the NASDAQ SmallCap Market, then
the closing or last sale price, respectively, reported for the last business day
immediately preceding the Determination Date.
(b) If the Company's Common Stock is not traded on an exchange or
on the NASDAQ National Market System or the NASDAQ SmallCap Market but is traded
in the over-the-counter market, then the mean of the closing bid and asked
prices reported for the last business day immediately preceding the
Determination Date.
(c) Except as provided in clause (d) below, if the Company's Common
Stock is not publicly traded, then as the Holder and the Company agree or in the
absence of agreement by arbitration in accordance with the rules then standing
of the American Arbitration Association, before a single arbitrator to be chosen
from a panel of persons qualified by education and training to pass on the
matter to be decided.
(d) If the Determination Date is the date of a liquidation,
dissolution or winding up, or any event deemed to be a liquidation, dissolution
or winding up pursuant to the Company's charter, then all amounts to be payable
per share to holders of the Common Stock pursuant to the charter in the event of
such liquidation, dissolution or winding up, plus all other amounts to be
payable per share in respect of the Common Stock in liquidation under the
charter, assuming for the purposes of this clause (d) that all of the shares of
Common Stock then issuable upon exercise of all of the Warrants are outstanding
at the Determination Date.
1.5. Company Acknowledgment. The Company will, at the time of the
exercise of the Warrant, upon the request of the holder hereof acknowledge in
writing its continuing obligation to afford to such holder any rights to which
such holder shall continue to be entitled after such exercise in accordance with
the provisions of this Warrant. If the holder shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford to such holder any such rights.
1.6. Trustee for Warrant Holders. In the event that a bank or trust
company shall have been appointed as trustee for the holders of the Warrants
pursuant to Subsection 3.2, such bank or trust company shall have all the powers
and duties of a warrant agent appointed pursuant to Section 10 and shall accept,
in its own
3
<PAGE>
name for the account of the Company or such successor person as may be entitled
thereto, all amounts otherwise payable to the Company or such successor, as the
case may be, on exercise of this Warrant pursuant to this Section 1.
2. Delivery of Stock Certificates, etc. on Exercise. The Company agrees
that the shares of Common Stock purchased upon exercise of this Warrant shall be
deemed to be issued to the holder hereof as the record owner of such shares as
of the close of business on the date on which this Warrant shall have been
surrendered and payment made for such shares as aforesaid. As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within 10 days thereafter, the Company at its expense (including the
payment by it of any applicable issue taxes) will cause to be issued in the name
of and delivered to the holder hereof, or as such holder (upon payment by such
holder of any applicable transfer taxes) may direct in compliance with
applicable Securities Laws, a certificate or certificates for the number of duly
and validly issued, fully paid and nonassessable shares of Common Stock (or
Other Securities) to which such holder shall be entitled on such exercise, plus,
in lieu of any fractional share to which such holder would otherwise be
entitled, cash equal to such fraction multiplied by the then Fair Market Value
of one full share, together with any other stock or other securities and
property (including cash, where applicable) to which such holder is entitled
upon such exercise pursuant to Section 1 or otherwise.
3. Adjustment for Reorganization, Consolidation, Merger, etc.
3.1. Reorganization, Consolidation, Merger, etc. In case at any
time or from time to time, the Company shall (a) effect a reorganization (b)
consolidate with or merge into any other person, or (c) transfer all or
substantially all of its properties or assets to any other person under any plan
or arrangement contemplating the dissolution of the Company, then, in each such
case, as a condition to the consummation of such a transaction, proper and
adequate provision shall be made by the Company whereby the holder of this
Warrant, on the exercise hereof as provided in Section 1 at any time after the
consummation of such reorganization, consolidation or merger or the effective
date of such dissolution, as the case may be, shall receive, in lieu of the
Common Stock (or Other Securities) issuable on such exercise prior to such
consummation or such effective date, the stock and other securities and property
(including cash) to which such holder would have been entitled upon such
consummation or in connection with such dissolution, as the case may be, if such
holder had so exercised this Warrant, immediately prior thereto, all subject to
further adjustment thereafter as provided in Section 4.
4
<PAGE>
3.2. Dissolution. In the event of any dissolution of the Company
following the transfer of all or substantially all of its properties or assets,
the Company, prior to such dissolution, shall at its expense deliver or cause to
be delivered the stock and other securities and property (including cash, where
applicable) receivable by the holders of the Warrants after the effective date
of such dissolution pursuant to this Section 3 to a bank or trust company having
its principal office in New York, NY, as trustee for the holder or holders of
the Warrants.
3.3. Continuation of Terms. Upon any reorganization, consolidation,
merger or transfer (and any dissolution following any transfer) referred to in
this Section 3.3, this Warrant shall continue in full force and effect and the
terms hereof shall be applicable to the shares of stock and other securities and
property receivable on the exercise of this Warrant after the consummation of
such reorganization, consolidation or merger or the effective date of
dissolution following any such transfer, as the case may be, and shall be
binding upon the issuer of any such stock or other securities, including, in the
case of any such transfer, the person acquiring all or substantially all of the
properties or assets of the Company, whether or not such person shall have
expressly assumed the terms of this Warrant as provided in Section 4. In the
event this Warrant does continue in full force and effect after the consummation
of the transaction described in this Section 3.3, then only in such event will
the Company's securities and property (including cash, where applicable)
receivable by the holders of the Warrants be delivered to the Trustee as
contemplated by Section 3.2.
4. Extraordinary Events Regarding Common Stock. In the event that the
Company shall (a) issue additional shares of the Common Stock as a dividend or
other distribution on outstanding Common Stock, (b) subdivide its outstanding
shares of Common Stock, or (c) combine its outstanding shares of the Common
Stock into a smaller number of shares of the Common Stock, then, in each such
event, the Purchase Price shall, simultaneously with the happening of such
event, be adjusted by multiplying the then Purchase Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which shall be the number
of shares of Common Stock outstanding immediately after such event, and the
product so obtained shall thereafter be the Purchase Price then in effect. The
Purchase Price, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive event or events described herein in this Section 4.
The number of shares of Common Stock that the holder of this Warrant shall
thereafter, on the exercise hereof as provided in Section 1, be entitled to
receive shall be increased to a number determined by multiplying the number of
shares of Common Stock that would otherwise (but for the provisions of this
Section 4) be issuable on such exercise by a fraction of which (a) the numerator
is the Purchase Price that
5
<PAGE>
would otherwise (but for the provisions of this Section 4) be in effect, and (b)
the denominator is the Purchase Price in effect on the date of such exercise.
5. Certificate as to Adjustments. In each case of any adjustment or
readjustment in the shares of Common Stock (or Other Securities) issuable on the
exercise of the Warrants, the Company at its expense will promptly cause its
Chief Financial Officer or other appropriate designee to compute such adjustment
or readjustment in accordance with the terms of the Warrant and prepare a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based, including a
statement of (a) the consideration received or receivable by the Company for any
additional shares of Common Stock (or Other Securities) issued or sold or deemed
to have been issued or sold, (b) the number of shares of Common Stock (or Other
Securities) outstanding or deemed to be outstanding, and (c) the Purchase Price
and the number of shares of Common Stock to be received upon exercise of this
Warrant, in effect immediately prior to such adjustment or readjustment and as
adjusted or readjusted as provided in this Warrant. The Company will forthwith
mail a copy of each such certificate to the holder of the Warrant and any
Warrant agent of the Company (appointed pursuant to Section 10 hereof).
6. Reservation of Stock, etc. Issuable on Exercise of Warrant;
Financial Statements. The Company will at all times reserve and keep available,
solely for issuance and delivery on the exercise of the warrants, all shares of
Common Stock (or Other Securities) from time to time issuable on the exercise of
the Warrant. This Warrant entitles the holder hereof to receive copies of all
financial and other information distributed or required to be distributed to the
holders of the Company's Common Stock.
7. Assignment; Exchange of Warrant. Subject to compliance with
applicable Securities laws, this Warrant, and the rights evidenced hereby, may
be transferred by any registered holder hereof (a "Transferor") with respect to
any or all of the Shares. On the surrender for exchange of this Warrant, with
the Transferor's endorsement in the form of Exhibit 3 attached hereto (the
Transferor Endorsement Form") and together with evidence reasonably satisfactory
to the Company demonstrating compliance with applicable Securities Laws, the
Company at its expense but with payment by the Transferor of any applicable
transfer taxes) will issue and deliver to or on the order of the Transferor
thereof a new Warrant or Warrants of like tenor, in the name of the Transferor
and/or the transferee(s) specified in such Transferor Endorsement Form (each a
"Transferee"), calling in the aggregate on the face or faces thereof for the
number of shares of Common Stock called for on the face or faces of the Warrant
so surrendered by the Transferor.
6
<PAGE>
8. Replacement of Warrant. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of this Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of like tenor.
9. Registration Rights. The holder of this Warrant has been granted
certain registration rights by the Company. These registration rights are set
forth in a Subscription Agreement entered into by the Company and Subscribers of
the Company's Convertible Notes at or prior to the issue date of this Warrant.
The terms of the Subscription Agreement are incorporated herein by this
reference. Upon the occurrence of a Non-Registration Event as described in the
Subscription Agreement, in the event the Company is unable to issue Common Stock
upon exercise of this Warrant that has been registered in the Registration
Statement described in Section 10.1(iv) of the Subscription Agreement, 150 days
after the issue date of this Warrant which Registration Statement must be
effective throughout the exercise period of this Warrant, then upon receipt by
the Company of notice that the Holder of this Warrant would exercise this
Warrant but for the Company's inability to issue such Common Stock upon exercise
of this Warrant, then the Company will pay to the Holder of this Warrant, in
lieu of delivering Common Stock, a sum equal to the highest ask price of the
Company's Common Stock on NASD OTC Bulletin Board or such other principal
trading market for the Company's Common Stock (or as quoted in the "Pink Sheets"
published by the National Quotation Bureau) on the trading date immediately
preceding the date notice is given by the Holder, less the exercise price of
this Warrant, for each share of Common Stock designated in such notice from the
Holder.
10. Warrant Agent. The Company may, by written notice to the each
holder of the Warrant, appoint an agent for the purpose of issuing Common Stock
(or Other Securities) on the exercise of this Warrant pursuant to Section 1,
exchanging this Warrant pursuant to Section 7, and replacing this Warrant
pursuant to Section 8, or any of the foregoing, and thereafter any such
issuance, exchange or replacement, as the case may be, shall be made at such
office by such agent.
11. Transfer on the Company's Books. Until this Warrant is transferred
on the books of the Company, the Company may treat the registered holder hereof
as the absolute owner hereof for all purposes, notwithstanding any notice to the
contrary.
7
<PAGE>
12. Notices, etc. All notices and other communications from the Company
to the holder of this Warrant shall be mailed by first class registered or
certified mail, postage prepaid, at such address as may have been furnished to
the Company in writing by such holder or, until any such holder furnishes to the
Company an address, then to, and at the address of, the last holder of this
Warrant who has so furnished an address to the Company.
13. Miscellaneous. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant shall be construed and enforced in accordance with and
governed by the laws of New York. Any dispute relating to this Warrant shall be
adjudicated in New York State. The headings in this Warrant are for purposes of
reference only, and shall not limit or otherwise affect any of the terms hereof.
The invalidity or unenforceability of any provision hereof shall in no way
affect the validity or enforceability of any other provision.
IN WITNESS WHEREOF, the Company has executed this Warrant under seal as
of the date first written above.
FREDERICK BREWING CO.
By: /s/ [Illegible]
-------------------------------
Name to Come
Witness:
/s/ [Illegible]
- -----------------------------
Name to Come
8
<PAGE>
Exhibit A
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
TO: Frederick Brewing Co.
The undersigned, the holder of the within Warrant, hereby irrevocably elects to
exercise this Warrant for, and to purchase thereunder, _____________ shares of
Common Stock of Frederick Brewing Co. and herewith makes payment of $__________
therefor, and requests that the certificates for such shares be issued in the
name of, and delivered to _____________________ whose address is ______________
_________________________________.
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable upon exercise of the within Warrant shall
be made pursuant to registration of the Common Stock under the Securities Act of
1933, as amended (the "Securities Act") or pursuant to an exemption from
registration under the Securities Act.
Dated:
----------------------
-----------------------------------
(Signature must conform to name of
holder as specified on the face of
the Warrant)
-----------------------------------
(Address)
9
<PAGE>
Exhibit B
FORM OF TRANSFEROR ENDORSEMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and
transfers unto the person(s) named below under the heading "Transferees" the
right represented by the within Warrant to purchase the percentage and number of
shares of Common Stock of Frederick Brewing Co. to which the within Warrant
relates specified under the headings "Percentage Transferred" and "Number
Transferred," respectively, opposite the name(s) of such person(s) and appoints
each such person Attorney to transfer its respective right on the books of
Frederick Brewing Co. with full power of substitution in the premises.
- --------------------------------------------------------------------------------
Transferees Percentage Number
----------- Transferred Transferred
----------- -----------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Dated: ___________, 19__ ------------------------------------
(Signature must conform to name
of holder as specified on the
face of the warrant)
Signed in the presence of:
- ----------------------------- ------------------------------------
(Name) (address)
------------------------------------
ACCEPTED AND AGREED: (address)
[TRANSFEREE]
- -----------------------------
(Name)
10
Exhibit 10.13
THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE
OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID
ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO FREDERICK BREWING CO. THAT SUCH REGISTRATION IS NOT REQUIRED.
Right to Purchase 50,000 Shares of Common
Stock of Frederick Brewing Co. (subject
to adjustment as provided herein)
COMMON STOCK PURCHASE WARRANT
No. 7 June 7, 1999
FREDERICK BREWING CO., a corporation organized under the laws of the
State of Maryland (the "Company"), hereby certifies that, for value received,
WORLD CAPITAL FUNDING, LLC., or assigns, is entitled, subject to the terms set
forth below, to purchase from the Company after June 7, 1999 at any time or from
time to time before 5:00 p.m., New York time, on June 7, 2002 (the "Expiration
Date"), up to 50,000 fully paid and nonassessable shares of Common Stock (as
hereinafter defined), $.00004 par value per share, of the Company, at a per
share purchase price of the lesser of $0.375 per share or 100% of the average
closing bid price of the Common Stock for the five trading days commencing with
the first day the Common Stock is relisted for reporting on the NASDAQ Bulletin
Board, (such purchase price per share as adjusted from time to time as herein
provided is referred to herein as the "Purchase Price"). The number and
character of such shares of Common Stock and the Purchase Price are subject to
adjustment as provided herein.
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
(a) The term Company shall include Frederick Brewing Co. and any
corporation which shall succeed or assume the obligations of Frederick Brewing
Co. hereunder.
(b) The term "Common Stock" includes (a) the Company's Common Stock,
$.00004 par value per share, as authorized on the date of the Agreement, (b) any
other capital stock of any class or classes (however designated) of the Company,
authorized on or after such date, the holders of which shall have the right,
without limitation as to amount, either to all or to a share of the balance of
current dividends and liquidating dividends after the payment of dividends and
distributions on any shares entitled to preference, and the holders of which
shall ordinarily, in the absence of contingencies, be entitled to vote for the
election of a majority of directors of
1
<PAGE>
the Company (even if the right so to vote has been suspended by the happening of
such a contingency) and (c) any other securities into which or for which any of
the securities described in (a) or (b) may be converted or exchanged pursuant to
a plan of recapitalization, reorganization, merger, sale of assets or otherwise.
(c) The term "Other Securities" refers to any stock (other than Common
Stock) and other securities of the Company or any other person (corporate or
otherwise) which the holder of the Warrant at any time shall be entitled to
receive, or shall have received, on the exercise of the warrant, in lieu of or
in addition to Common Stock, or which at any time shall be issuable or shall
have been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 4 or otherwise.
1. Exercise of Warrant.
1.1. Number of Shares Issuable upon Exercise. From and after the
date hereof through and including the Expiration Date, the holder hereof shall
be entitled to receive, upon exercise of this Warrant in whole in accordance
with the terms of subsection 1.2 or upon exercise of this Warrant in part in
accordance with subsection 1.3, shares of Common Stock of the Company, subject
to adjustment pursuant to Section 4.
1.2. Full Exercise. This Warrant may be exercised in full by the
holder hereof by surrender of this Warrant, with the form of subscription
attached as Exhibit A hereto (the Subscription Form") duly executed by such
holder, to the Company at its principal office or at the office of its Warrant
agent (as provided in Section 11), accompanied by payment, in cash or by
certified or official bank check payable to the order of the Company, in the
amount obtained by multiplying the number of shares of Common Stock for which
this Warrant is then exercisable by the Purchase Price (as hereinafter defined)
then in effect.
1.3. Partial Exercise. This Warrant may be exercised in part (but
not for a fractional share) by surrender of this Warrant in the manner and at
the place provided in subsection 1.2 except that the amount payable by the
holder on such partial exercise shall be the amount obtained by multiplying (a)
the number of shares of Common Stock designated by the holder in the
Subscription Form by (b) the Purchase Price then in effect. On any such partial
exercise, the Company, at its expense, will forthwith issue and deliver to or
upon the order of the holder hereof a new Warrant of like tenor, in the name of
the holder hereof or as such holder (upon payment by such holder of any
applicable transfer taxes), may request, the number of shares of Common Stock
for which such Warrant may still be exercised.
2
<PAGE>
1.4. Fair Market Value. Fair Market Value of a share of Common
Stock as of a particular date (the "Determination Date") shall mean the Fair
Market Value of a share of the Company's Common Stock. Fair Market Value of a
share of Common Stock as of a Determination Date shall mean:
(a) If the Company's Common Stock is traded on an exchange or
is quoted on the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") National Market System or the NASDAQ SmallCap Market, then
the closing or last sale price, respectively, reported for the last business day
immediately preceding the Determination Date.
(b) If the Company's Common Stock is not traded on an exchange
or on the NASDAQ National Market System or the NASDAQ SmallCap Market but is
traded in the over-the-counter market, then the mean of the closing bid and
asked prices reported for the last business day immediately preceding the
Determination Date.
(c) Except as provided in clause (d) below, if the Company's
Common Stock is not publicly traded, then as the Holder and the Company agree or
in the absence of agreement by arbitration in accordance with the rules then
standing of the American Arbitration Association, before a single arbitrator to
be chosen from a panel of persons qualified by education and training to pass on
the matter to be decided.
(d) If the Determination Date is the date of a liquidation,
dissolution or winding up, or any event deemed to be a liquidation, dissolution
or winding up pursuant to the Company's charter, then all amounts to be payable
per share to holders of the Common Stock pursuant to the charter in the event of
such liquidation, dissolution or winding up, plus all other amounts to be
payable per share in respect of the Common Stock in liquidation under the
charter, assuming for the purposes of this clause (d) that all of the shares of
Common Stock then issuable upon exercise of all of the Warrants are outstanding
at the Determination Date.
1.5. Company Acknowledgment. The Company will, at the time of the
exercise of the Warrant, upon the request of the holder hereof acknowledge in
writing its continuing obligation to afford to such holder any rights to which
such holder shall continue to be entitled after such exercise in accordance with
the provisions of this Warrant. If the holder shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford to such holder any such rights.
1.6. Trustee for Warrant Holders. In the event that a bank or trust
company shall have been appointed as trustee for the holders of the Warrants
pursuant to Subsection 3.2, such bank or trust company shall have all the powers
and duties of a warrant agent appointed pursuant to Section 10 and shall accept,
in its own
3
<PAGE>
name for the account of the Company or such successor person as may be entitled
thereto, all amounts otherwise payable to the Company or such successor, as the
case may be, on exercise of this Warrant pursuant to this Section 1.
2. Delivery of Stock Certificates, etc. on Exercise. The Company agrees
that the shares of Common Stock purchased upon exercise of this Warrant shall be
deemed to be issued to the holder hereof as the record owner of such shares as
of the close of business on the date on which this Warrant shall have been
surrendered and payment made for such shares as aforesaid. As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within 10 days thereafter, the Company at its expense (including the
payment by it of any applicable issue taxes) will cause to be issued in the name
of and delivered to the holder hereof, or as such holder (upon payment by such
holder of any applicable transfer taxes) may direct in compliance with
applicable Securities Laws, a certificate or certificates for the number of duly
and validly issued, fully paid and nonassessable shares of Common Stock (or
Other Securities) to which such holder shall be entitled on such exercise, plus,
in lieu of any fractional share to which such holder would otherwise be
entitled, cash equal to such fraction multiplied by the then Fair Market Value
of one full share, together with any other stock or other securities and
property (including cash, where applicable) to which such holder is entitled
upon such exercise pursuant to Section 1 or otherwise.
3. Adjustment for Reorganization, Consolidation, Merger, etc.
3.1. Reorganization, Consolidation, Merger, etc. In case at any
time or from time to time, the Company shall (a) effect a reorganization, (b)
consolidate with or merge into any other person, or (c) transfer all or
substantially all of its properties or assets to any other person under any plan
or arrangement contemplating the dissolution of the Company, then, in each such
case, as a condition to the consummation of such a transaction, proper and
adequate provision shall be made by the Company whereby the holder of this
Warrant, on the exercise hereof as provided in Section 1 at any time after the
consummation of such reorganization, consolidation or merger or the effective
date of such dissolution, as the case may be, shall receive, in lieu of the
Common Stock (or Other Securities) issuable on such exercise prior to such
consummation or such effective date, the stock and other securities and property
(including cash) to which such holder would have been entitled upon such
consummation or in connection with such dissolution, as the case may be, if such
holder had so exercised this warrant, immediately prior thereto, all subject to
further adjustment thereafter as provided in Section 4.
4
<PAGE>
3.2. Dissolution. In the event of any dissolution of the Company
following the transfer of all or substantially all of its properties or assets,
the Company, prior to such dissolution, shall at its expense deliver or cause to
be delivered the stock and other securities and property (including cash, where
applicable) receivable by the holders of the Warrants after the effective date
of such dissolution pursuant to this Section 3 to a bank or trust company having
its principal office in New York, NY, as trustee for the holder or holders of
the Warrants.
3.3. Continuation of Terms. Upon any reorganization, consolidation,
merger or transfer (and any dissolution following any transfer) referred to in
this Section 3.3, this Warrant shall continue in full force and effect and the
terms hereof shall be applicable to the shares of stock and other securities and
property receivable on the exercise of this Warrant after the consummation of
such reorganization, consolidation or merger or the effective date of
dissolution following any such transfer, as the case may be, and shall be
binding upon the issuer of any such stock or other securities, including, in the
case of any such transfer, the person acquiring all or substantially all of the
properties or assets of the Company, whether or not such person shall have
expressly assumed the terms of this Warrant as provided in Section 4. In the
event this Warrant does continue in full force and effect after the consummation
of the transaction described in this Section 3.3, then only in such event will
the Company's securities and property (including cash, where applicable)
receivable by the holders of the Warrants be delivered to the Trustee as
contemplated by Section 3.2.
4. Extraordinary Events Regarding Common Stock. In the event that the
Company shall (a) issue additional shares of the Common Stock as a dividend or
other distribution on outstanding Common Stock, (b) subdivide its outstanding
shares of Common Stock, or (c) combine its outstanding shares of the Common
Stock into a smaller number of shares of the Common Stock, then, in each such
event, the Purchase Price shall, simultaneously with the happening of such
event, be adjusted by multiplying the then Purchase Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which shall be the number
of shares of Common Stock outstanding immediately after such event, and the
product so obtained shall thereafter be the Purchase Price then in effect. The
Purchase Price, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive event or events described herein in this Section 4.
The number of shares of Common Stock that the holder of this Warrant shall
thereafter, on the exercise hereof as provided in Section 1, be entitled to
receive shall be increased to a number determined by multiplying the number of
shares of Common Stock that would otherwise (but for the provisions of this
Section 4) be issuable on such exercise by a fraction of which (a) the numerator
is the Purchase Price that
5
<PAGE>
would otherwise (but for the provisions of this Section 4) be in effect, and (b)
the denominator is the Purchase Price in effect on the date of such exercise.
5. Certificate as to Adjustments. In each case of any adjustment or
readjustment in the shares of Common Stock (or Other Securities) issuable on the
exercise of the Warrants, the Company at its expense will promptly cause its
Chief Financial Officer or other appropriate designee to compute such adjustment
or readjustment in accordance with the terms of the Warrant and prepare a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based, including a
statement of (a) the consideration received or receivable by the Company for any
additional shares of Common Stock (or Other Securities) issued or sold or deemed
to have been issued or sold, (b) the number of shares of Common Stock (or Other
Securities) outstanding or deemed to be outstanding, and (c) the Purchase Price
and the number of shares of Common Stock to be received upon exercise of this
Warrant, in effect immediately prior to such adjustment or readjustment and as
adjusted or readjusted as provided in this Warrant. The Company will forthwith
mail a copy of each such certificate to the holder of the Warrant and any
Warrant agent of the Company (appointed pursuant to Section 10 hereof).
6. Reservation of Stock, etc. Issuable on Exercise of Warrant;
Financial Statements. The Company will at all times reserve and keep available,
solely for issuance and delivery on the exercise of the Warrants, all shares of
Common Stock (or Other Securities) from time to time issuable on the exercise of
the Warrant. This Warrant entitles the holder hereof to receive copies of all
financial and other information distributed or required to be distributed to the
holders of the Company's Common Stock.
7. Assignment; Exchange of Warrant. Subject to compliance with
applicable Securities laws, this Warrant, and the rights evidenced hereby, may
be transferred by any registered holder hereof (a "Transferor") with respect to
any or all of the Shares. On the surrender for exchange of this Warrant, with
the Transferor's endorsement in the form of Exhibit B attached hereto (the
Transferor Endorsement Form") and together with evidence reasonably satisfactory
to the Company demonstrating compliance with applicable Securities Laws, the
Company at its expense but with payment by the Transferor of any applicable
transfer taxes) will issue and deliver to or on the order of the Transferor
thereof a new Warrant or Warrants of like tenor, in the name of the Transferor
and/or the transferee(s) specified in such Transferor Endorsement Form (each a
"Transferee"), calling in the aggregate on the face or faces thereof for the
number of shares of Common Stock called for on the face or faces of the Warrant
so surrendered by the Transferor.
6
<PAGE>
8. Replacement of Warrant. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of this Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of like tenor.
9. Registration Rights. The holder of this Warrant has been granted
certain registration rights by the Company. These registration rights are set
forth in a Subscription Agreement entered into by the Company and Subscribers of
the Company's Convertible Notes at or prior to the issue date of this Warrant.
The terms of the Subscription Agreement are incorporated herein by this
reference. Upon the occurrence of a Non-Registration Event as described in the
Subscription Agreement, in the event the Company is unable to issue Common Stock
upon exercise of this Warrant that has been registered in the Registration
Statement described in Section 10.1(iv) of the Subscription Agreement, 150 days
after the issue date of this Warrant which Registration Statement must be
effective throughout the exercise period of this Warrant, then upon receipt by
the Company of notice that the Holder of this Warrant would exercise this
Warrant but for the Company's inability to issue such Common Stock upon exercise
of this Warrant, then the Company will pay to the Holder of this Warrant, in
lieu of delivering Common Stock, a sum equal to the highest ask price of the
Company's Common Stock on NASD OTC Bulletin Board or such other principal
trading market for the Company's Common Stock (or as quoted in the "Pink Sheets"
published by the National Quotation Bureau) on the trading date immediately
preceding the date notice is given by the Holder, less the exercise price of
this Warrant, for each share of Common Stock designated in such notice from the
Holder.
10. Warrant Agent. The Company may, by written notice to the each
holder of the Warrant, appoint an agent for the purpose of issuing Common Stock
(or Other Securities) on the exercise of this Warrant pursuant to Section 1,
exchanging this Warrant pursuant to Section 7, and replacing this Warrant
pursuant to Section 8, or any of the foregoing, and thereafter any such
issuance, exchange or replacement, as the case may be, shall be made at such
office by such agent.
11. Transfer on the Company's Books. Until this Warrant is transferred
on the books of the Company, the Company may treat the registered holder hereof
as the absolute owner hereof for all purposes, notwithstanding any notice to the
contrary.
7
<PAGE>
12. Notices, etc. All notices and other communications from the Company
to the holder of this Warrant shall he mailed by first class registered or
certified mail, postage prepaid, at such address as may have been furnished to
the Company in writing by such holder or, until any such holder furnishes to the
Company an address, then to, and at the address of, the last holder of this
Warrant who has so furnished an address to the Company.
13. Miscellaneous. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant shall be construed and enforced in accordance with and
governed by the laws of New York. Any dispute relating to this Warrant shall be
adjudicated in New York State. The headings in this Warrant are for purposes of
reference only, and shall not limit or otherwise affect any of the terms hereof.
The invalidity or unenforceability of any provision hereof shall in no way
affect the validity or enforceability of any other provision.
IN WITNESS WHEREOF, the Company has executed this warrant under seal as
of the date first written above.
FREDERICK BREWING CO.
By: /s/ [Illegible]
-------------------------------
Name to Come
Witness:
/s/ [Illegible]
- -----------------------------
Name to Come
8
<PAGE>
Exhibit A
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
TO: Frederick Brewing Co.
The undersigned, the holder of the within Warrant, hereby irrevocably elects to
exercise this Warrant for, and to purchase thereunder, _______________ shares of
Common Stock of Frederick Brewing Co. and herewith makes payment of $___________
therefor, and requests that the certificates for such shares be issued in the
name of, and delivered to ___________________ whose address is _________________
_________________________.
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable upon exercise of the within Warrant shall
be made pursuant to registration of the Common Stock under the Securities Act of
1933, as amended (the "Securities Act") or pursuant to an exemption from
registration under the Securities Act.
Dated:
----------------------
-----------------------------------
(Signature must conform to name of
holder as specified on the face of
the Warrant)
-----------------------------------
(Address)
9
<PAGE>
Exhibit B
FORM OF TRANSFEROR ENDORSEMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and
transfers unto the person(s) named below under the heading "Transferees" the
right represented by the within Warrant to purchase the percentage and number of
shares of Common Stock of Frederick Brewing Co. to which the within Warrant
relates specified under the headings "Percentage Transferred" and "Number
Transferred," respectively, opposite the name(s) of such person(s) and appoints
each such person Attorney to transfer its respective right on the books of
Frederick Brewing Co. with full power of substitution in the premises.
- --------------------------------------------------------------------------------
Transferees Percentage Number
----------- Transferred Transferred
----------- -----------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Dated: ___________, 19__ ------------------------------------
(Signature must conform to name
of holder as specified on the
face of the warrant)
Signed in the presence of:
- ----------------------------- ------------------------------------
(Name) (address)
------------------------------------
ACCEPTED AND AGREED: (address)
[TRANSFEREE]
- -----------------------------
(Name)
10
Exhibit 10.14
THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THIS WARRANT AND THE
COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT AND APPLICABLE
STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY
TO FREDERICK BREWING CO. THAT SUCH REGISTRATION IS NOT REQUIRED.
Right to Purchase 100,000 Shares of
Common Stock of Frederick Brewing Co.
(subject to adjustment as provided
herein)
COMMON STOCK PURCHASE WARRANT
No. 6 June 7, 1999
FREDERICK BREWING CO., a corporation organized under the laws of the
State of Maryland (the "Company"), hereby certifies that, for value received,
FRED LENZ, or assigns, is entitled, subject to the terms set forth below, to
purchase from the Company after June 7, 1999 at any time or from time to time
before 5:00 p.m., New York time, on June 7, 2002 (the "Expiration Date") up to
100,000 fully paid and nonassessable shares of Common Stock (as hereinafter
defined), $.00004 par value per share, of the Company, at a per share purchase
price of the lesser of $0.375 per share or 100% of the average closing bid price
of the Common Stock for the five trading days commencing with the first day the
Common Stock is relisted for reporting on the NASDAQ Bulletin Board, (such
purchase price per share as adjusted from time to time as herein provided is
referred to herein as the "Purchase Price"). The number and character of such
shares of Common Stock and the Purchase Price are subject to adjustment as
provided herein.
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
(a) The term Company shall include Frederick Brewing Co. and any
corporation which shall succeed or assume the obligations of Frederick Brewing
Co. hereunder.
(b) The term "Common Stock" includes (a) the Company's Common Stock,
$.00004 par value per share, as authorized on the date of the Agreement, (b) any
other capital stock of any class or classes (however designated) of the Company,
authorized on or after such date, the holders of which shall have the right,
without limitation as to amount, either to all or to a share of the balance of
current dividends and liquidating dividends after the payment of dividends and
distributions on any shares entitled to preference, and the holders of which
shall ordinarily, in the absence of contingencies,
1
<PAGE>
be entitled to vote for the election of a majority of directors of the Company
(even if the right so to vote has been suspended by the happening of such a
contingency) and (c) any other securities into which or for which any of the
securities described in (a) or (b) may be converted or exchanged pursuant to a
plan of recapitalization, reorganization, merger, sale of assets or otherwise.
(c) The term "Other Securities" refers to any stock (other than Common
Stock) and other securities of the Company or any other person (corporate or
otherwise) which the holder of the Warrant at any time shall be entitled to
receive, or shall have received, on the exercise of the Warrant, in lieu of or
in addition to Common Stock, or which at any time shall be issuable or shall
have been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 4 or otherwise.
1. Exercise of Warrant.
1.1. Number of Shares Issuable upon Exercise. From and after the
date hereof through and including the Expiration Date, the holder hereof shall
be entitled to receive, upon exercise of this Warrant in whole in accordance
with the terms of subsection 1.2 or upon exercise of this warrant in part in
accordance with subsection 1.3, shares of Common Stock of the Company, subject
to adjustment pursuant to Section 4.
1.2. Full Exercise. This Warrant may be exercised in full by the
holder hereof by surrender of this Warrant, with the form of subscription
attached as Exhibit A hereto (the Subscription Form") duly executed by such
holder, to the Company at its principal office or at the office of its Warrant
agent (as provided in Section 11), accompanied by payment, in cash or by
certified or official bank check payable to the order of the Company, in the
amount obtained by multiplying the number of shares of Common Stock for which
this Warrant is then exercisable by the Purchase Price (as hereinafter defined)
then in effect.
1.3. Partial Exercise. This Warrant may be exercised in part (but
not for a fractional share) by surrender of this Warrant in the manner and at
the place provided in subsection 1.2 except that the amount payable by the
holder on such partial exercise shall be the amount obtained by multiplying (a)
the number of shares of Common Stock designated by the holder in the
Subscription Form by (b) the Purchase Price then in effect. On any such partial
exercise, the Company, at its expense, will forthwith issue and deliver to or
upon the order of the holder hereof a new Warrant of like tenor, in the name of
the holder hereof or as such holder (upon payment by such holder of any
applicable transfer taxes), may request, the number of shares of Common Stock
for which such Warrant may still be exercised.
2
<PAGE>
1.4. Fair Market Value. Fair Market Value of a share of Common
Stock as of a particular date (the "Determination Date") shall mean the Fair
Market Value of a share of the Company's Common Stock. Fair Market Value of a
share of Common Stock as of a Determination Date shall mean:
(a) If the Company's Common Stock is traded on an exchange or
is quoted on the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") National Market System or the NASDAQ SmallCap Market, then
the closing or last sale price, respectively, reported for the last business day
immediately preceding the Determination Date.
(b) If the Company's Common Stock is not traded on an exchange
or on the NASDAQ National Market System or the NASDAQ SmallCap Market but is
traded in the over-the-counter market, then the mean of the closing bid and
asked prices reported for the last business day immediately preceding the
Determination Date.
(c) Except as provided in clause (d) below, if the Company's
Common Stock is not publicly traded, then as the Holder and the Company agree or
in the absence of agreement by arbitration in accordance with the rules then
standing of the American Arbitration Association, before a single arbitrator to
be chosen from a panel of persons qualified by education and training to pass on
the matter to be decided.
(d) If the Determination Date is the date of a liquidation,
dissolution or winding up, or any event deemed to be a liquidation, dissolution
or winding up pursuant to the Company's charter, then all amounts to be payable
per share to holders of the Common Stock pursuant to the charter in the event of
such liquidation, dissolution or winding up, plus all other amounts to be
payable per share in respect of the Common Stock in liquidation under the
charter, assuming for the purposes of this clause (d) that all of the shares of
Common Stock then issuable upon exercise of all of the Warrants are outstanding
at the Determination Date.
1.5. Company Acknowledgment. The Company will, at the time of the
exercise of the Warrant, upon the request of the holder hereof acknowledge in
writing its continuing obligation to afford to such holder any rights to which
such holder shall continue to be entitled after such exercise in accordance with
the provisions of this Warrant. If the holder shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford to such holder any such rights.
1.6. Trustee for Warrant Holders. In the event that a bank or trust
company shall have been appointed as trustee for the holders of the Warrants
pursuant to Subsection 3.2, such bank or trust company shall have all the powers
and duties of a warrant agent appointed pursuant to Section 10 and shall accept,
in its own
3
<PAGE>
name for the account of the Company or such successor person as may be entitled
thereto, all amounts otherwise payable to the Company or such successor, as the
case may be, on exercise of this Warrant pursuant to this Section 1.
2. Delivery of Stock Certificates, etc. on Exercise. The Company agrees
that the shares of Common Stock purchased upon exercise of this Warrant shall be
deemed to be issued to the holder hereof as the record owner of such shares as
of the close of business on the date on which this Warrant shall have been
surrendered and payment made for such shares as aforesaid. As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within 10 days thereafter, the Company at its expense (including the
payment by it of any applicable issue taxes) will cause to be issued in the name
of and delivered to the holder hereof, or as such holder (upon payment by such
holder of any applicable transfer taxes) may direct in compliance with
applicable Securities Laws, a certificate or certificates for the number of duly
and validly issued, fully paid and nonassessable shares of Common Stock (or
Other Securities) to which such holder shall be entitled on such exercise, plus,
in lieu of any fractional share to which such holder would otherwise be
entitled, cash equal to such fraction multiplied by the then Fair Market Value
of one full share, together with any other stock or other securities and
property (including cash, where applicable) to which such holder is entitled
upon such exercise pursuant to Section 1 or otherwise.
3. Adjustment for Reorganization, Consolidation, Merger, etc.
3.1. Reorganization, Consolidation, Merger, etc. In case at any
time or from time to time, the Company shall (a) effect a reorganization, (b)
consolidate with or merge into any other person, or (c) transfer all or
substantially all of its properties or assets to any other person under any plan
or arrangement contemplating the dissolution of the Company, then, in each such
case, as a condition to the consummation of such a transaction, proper and
adequate provision shall be made by the Company whereby the holder of this
Warrant, on the exercise hereof as provided in Section 1 at any time after the
consummation of such reorganization, consolidation or merger or the effective
date of such dissolution, as the case may be, shall receive, in lieu of the
Common Stock (or Other Securities) issuable on such exercise prior to such
consummation or such effective date, the stock and other securities and property
(including cash) to which such holder would have been entitled upon such
consummation or in connection with such dissolution, as the case may be, if such
holder had so exercised this Warrant, immediately prior thereto, all subject to
further adjustment thereafter as provided in Section 4.
4
<PAGE>
3.2. Dissolution. In the event of any dissolution of the Company
following the transfer of all or substantially all of its properties or assets,
the Company, prior to such dissolution, shall at its expense deliver or cause to
be delivered the stock and other securities and property (including cash, where
applicable) receivable by the holders of the Warrants after the effective date
of such dissolution pursuant to this Section 3 to a bank or trust company having
its principal office in New York, NY, as trustee for the holder or holders of
the Warrants.
3.3. Continuation of Terms. Upon any reorganization, consolidation,
merger or transfer (and any dissolution following any transfer) referred to in
this Section 3.3, this Warrant shall continue in full force and effect and the
terms hereof shall be applicable to the shares of stock and other securities and
property receivable on the exercise of this Warrant after the consummation of
such reorganization, consolidation or merger or the effective date of
dissolution following any such transfer, as the case may be, and shall be
binding upon the issuer of any such stock or other securities, including, in the
case of any such transfer, the person acquiring all or substantially all of the
properties or assets of the Company, whether or not such person shall have
expressly assumed the terms of this Warrant as provided in Section 4. In the
event this Warrant does continue in full force and effect after the consummation
of the transaction described in, this Section 3.3, then only in such event will
the Company's securities and property (including cash, where applicable)
receivable by the holders of the Warrants be delivered to the Trustee as
contemplated by Section 3.2.
4. Extraordinary Events Regarding Common Stock. In the event that the
Company shall (a) issue additional shares of the Common Stock as a dividend or
other distribution on outstanding Common Stock, (b) subdivide its outstanding
shares of Common Stock, or (c) combine its outstanding shares of the Common
Stock into a smaller number of shares of the Common Stock, then, in each such
event, the Purchase Price shall, simultaneously with the happening of such
event, be adjusted by multiplying the then Purchase Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which shall be the number
of shares of Common Stock outstanding immediately after such event, and the
product so obtained shall thereafter be the Purchase Price then in effect. The
Purchase Price, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive event or events described herein in this Section 4.
The number of shares of Common Stock that the holder of this Warrant shall
thereafter, on the exercise hereof as provided in Section 1, be entitled to
receive shall be increased to a number determined by multiplying the number of
shares of Common Stock that would otherwise (but for the provisions of this
Section 4) be issuable on such exercise by a fraction of which (a) the numerator
is the Purchase Price that
5
<PAGE>
would otherwise (but for the provisions of this Section 4) be in effect, and (b)
the denominator is the Purchase Price in effect on the date of such exercise.
5. Certificate as to Adjustments. In each case of any adjustment or
readjustment in the shares of Common Stock (or Other Securities) issuable on the
exercise of the Warrants, the Company at its expense will promptly cause its
Chief Financial Officer or other appropriate designee to compute such adjustment
or readjustment in accordance with the terms of the Warrant and prepare a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based, including a
statement of (a) the consideration received or receivable by the Company for any
additional shares of Common Stock (or Other Securities) issued or sold or deemed
to have been issued or sold, (b) the number of shares of Common Stock (or Other
Securities) outstanding or deemed to be outstanding, and (c) the Purchase Price
and the number of shares of Common Stock to be received upon exercise of this
Warrant, in effect immediately prior to such adjustment or readjustment and as
adjusted or readjusted as provided in this Warrant. The Company will forthwith
mail a copy of each such certificate to the holder of the Warrant and any
Warrant agent of the Company (appointed pursuant to Section 10 hereof).
6. Reservation of Stock, etc. Issuable on Exercise of Warrant;
Financial Statements. The Company will at all times reserve and keep available,
solely for issuance and delivery on the exercise of the Warrants, all shares of
Common Stock (or Other Securities) from time to time issuable on the exercise of
the Warrant. This Warrant entitles the holder hereof to receive copies of all
financial and other information distributed or required to be distributed to the
holders of the Company's Common Stock.
7. Assignment; Exchange of Warrant. Subject to compliance with
applicable Securities laws, this Warrant, and the rights evidenced hereby, may
be transferred by any registered holder hereof (a "Transferor") with respect to
any or all of the Shares. On the surrender for exchange of this Warrant, with
the Transferor's endorsement in the form of Exhibit B attached hereto (the
Transferor Endorsement Form") and together with evidence reasonably satisfactory
to the Company demonstrating compliance with applicable Securities Laws, the
Company at its expense but with payment by the Transferor of any applicable
transfer taxes) will issue and deliver to or on the order of the Transferor
thereof a new Warrant or Warrants of like tenor, in the name of the Transferor
and/or the transferee(s) specified in such Transferor Endorsement Form (each a
"Transferee"), calling in the aggregate on the face or faces thereof for the
number of shares of Common Stock called for on the face or faces of the Warrant
so surrendered by the Transferor.
6
<PAGE>
8. Replacement of Warrant. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of this Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of like tenor.
9. Registration Rights. The holder of this Warrant has been granted
certain registration rights by the Company. These registration rights are set
forth in a Subscription Agreement entered into by the Company and Subscribers of
the Company's Convertible Notes at or prior to the issue date of this Warrant.
The terms of the Subscription Agreement are incorporated herein by this
reference. Upon the occurrence of a Non-Registration Event as described in the
Subscription Agreement, in the event the Company is unable to issue Common Stock
upon exercise of this Warrant that has been registered in the Registration
Statement described in Section 10.1(iv) of the Subscription Agreement, 150
days after the issue date of this Warrant which Registration Statement must be
effective throughout the exercise period of this Warrant, then upon receipt by
the Company of notice that the Holder of this Warrant would exercise this
Warrant but for the Company's inability to issue such Common Stock upon exercise
of this Warrant, then the Company will pay to the Holder of this Warrant, in
lieu of delivering Common Stock, a sum equal to the highest ask price of the
Company's Common Stock on NASD OTC Bulletin Board or such other principal
trading market for the Company's Common Stock (or as quoted in the "Pink Sheets"
published by the National Quotation Bureau) on the trading date immediately
preceding the date notice is given by the Holder, less the exercise price of
this Warrant, for each share of Common Stock designated in such notice from the
Holder.
10. Warrant Agent. The Company may, by written notice to the each
holder of the Warrant, appoint an agent for the purpose of issuing Common Stock
(or Other Securities) on the exercise of this Warrant pursuant to Section 1,
exchanging this Warrant pursuant to Section 7, and replacing this Warrant
pursuant to Section 8, or any of the foregoing, and thereafter any such
issuance, exchange or replacement, as the case may be, shall be made at such
office by such agent.
11. Transfer on the Company's Books. Until this Warrant is transferred
on the books of the Company, the Company may treat the registered holder hereof
as the absolute owner hereof for all purposes, notwithstanding any notice to the
contrary.
7
<PAGE>
12. Notices, etc. All notices and other communications from the Company
to the holder of this Warrant shall be mailed by first class registered or
certified mail, postage prepaid, at such address as may have been furnished to
the Company in writing by such holder or, until any such holder furnishes to the
Company an address, then to, and at the address of, the last holder of this
Warrant who has so furnished an address to the Company.
13. Miscellaneous. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant shall be construed and enforced in accordance with and
governed by the laws of New York. Any dispute relating to this Warrant shall be
adjudicated in New York State. The headings in this Warrant are for purposes of
reference only, and shall not limit or otherwise affect any of the terms hereof.
The invalidity or unenforceability of any provision hereof shall in no way
affect the validity or enforceability of any other provision.
IN WITNESS WHEREOF, the Company has executed this Warrant under seal as
of the date first written above.
FREDERICK BREWING CO.
By: /s/ [Illegible]
--------------------------------
Name to Come
Witness:
/s/ [Illegible]
- -----------------------------
Name to Come
8
<PAGE>
Exhibit A
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
TO: Frederick Brewing Co.
The undersigned, the holder of the within Warrant, hereby irrevocably elects to
exercise this Warrant for, and to purchase thereunder, _______________ shares of
Common Stock of Frederick Brewing Co. and herewith makes payment of $___________
therefor, and requests that the certificates for such shares be issued in the
name of, and delivered to ___________________ whose address is _________________
_________________________.
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable upon exercise of the within Warrant shall
be made pursuant to registration of the Common Stock under the Securities Act of
1933, as amended (the "Securities Act") or pursuant to an exemption from
registration under the Securities Act.
Dated:
----------------------
-----------------------------------
(Signature must conform to name of
holder as specified on the face of
the Warrant)
-----------------------------------
(Address)
9
<PAGE>
Exhibit B
FORM OF TRANSFEROR ENDORSEMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and
transfers unto the person(s) named below under the heading "Transferees" the
right represented by the within Warrant to purchase the percentage and number of
shares of Common Stock of Frederick Brewing Co. to which the within Warrant
relates specified under the headings "Percentage Transferred" and "Number
Transferred," respectively, opposite the name(s) of such person(s) and
appoints each such person Attorney to transfer its respective right on the books
of Frederick Brewing Co. with full power of substitution in the premises.
- --------------------------------------------------------------------------------
Transferees Percentage Number
----------- Transferred Transferred
----------- -----------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Dated: ___________, 19__ ------------------------------------
(Signature must conform to name of
holder as specified on the face of
the warrant)
Signed in the presence of:
- ----------------------------- ------------------------------------
(Name) (address)
------------------------------------
ACCEPTED AND AGREED: (address)
[TRANSFEREE]
- -----------------------------
(Name)
10
Exhibit 10.15
THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE
OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID
ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO FREDERICK BREWING CO. THAT SUCH REGISTRATION IS NOT REQUIRED.
Right to Purchase 50,000 Shares of Common
Stock of Frederick Brewing Co. (subject
to adjustment as provided herein)
COMMON STOCK PURCHASE WARRANT
No. 5 June 7, 1999
FREDERICK BREWING CO., a corporation organized under the laws of the
State of Maryland (the "Company"), hereby certifies that, for value received,
DEAN DOWDA, or assigns, is entitled, subject to the terms set forth below, to
purchase from the Company after June 7, 1999 at any time or from time to time
before 5:00 p.m., New York time, on June 7, 2002 (the "Expiration Date"), up to
50,000 fully paid and nonassessable shares of Common Stock (as hereinafter
defined), $.00004 par value, per share, of the Company, at a per share purchase
price of the lesser of $0.375 per share or 100% of the average closing bid price
of the Common Stock for the five trading days commencing with the first day the
Common Stock is relisted for reporting on the NASDAQ Bulletin Board, (such
purchase price per share as adjusted from time to time as herein provided is
referred to herein as the "Purchase Price"). The number and character of such
shares of Common Stock and the Purchase Price are subject to adjustment as
provided herein.
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
(a) The term Company shall include Frederick Brewing Co. and any
corporation which shall succeed or assume the obligations of Frederick Brewing
Co. hereunder.
(b) The term "Common Stock" includes (a) the Company's Common Stock,
$.00004 par value per share, as authorized on the date of the Agreement, (b) any
other capital stock of any class or classes (however designated) of the Company,
authorized on or after such date, the holders of which shall have the right,
without limitation as to amount, either to all or to a share of the balance of
current dividends and liquidating dividends after the payment of dividends and
distributions on any shares entitled to preference, and the holders of which
shall ordinarily, in the absence of contingencies, be entitled to vote for the
election of a majority of directors of
1
<PAGE>
the Company (even if the right so to vote has been suspended by the happening of
such a contingency) and (c) any other securities into which or for which any of
the securities described in (a) or (b) may be converted or exchanged pursuant to
a plan of recapitalization, reorganization, merger, sale of assets or otherwise.
(c) The term "Other Securities" refers to any stock (other than Common
Stock) and other securities of the Company or any other person (corporate or
otherwise) which the holder of the Warrant at any time shall be entitled to
receive, or shall have received, on the exercise of the Warrant, in lieu of or
in addition to Common Stock, or which at any time shall be issuable or shall
have been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 4 or otherwise.
1. Exercise of Warrant.
1.1. Number of Shares Issuable upon Exercise. From and after the
date hereof through and including the Expiration Date, the holder hereof shall
be entitled to receive, upon exercise of this Warrant in whole in accordance
with the terms of subsection 1.2 or upon exercise of this Warrant in part in
accordance with subsection 1.3, shares of Common Stock of the Company, subject
to adjustment pursuant to Section 4.
1.2. Full Exercise. This Warrant may be exercised in full by the
holder hereof by surrender of this Warrant, with the form of subscription
attached as Exhibit A hereto (the Subscription Form") duly executed by such
holder, to the Company at its principal office or at the office of its Warrant
agent (as provided in Section 11), accompanied by payment, in cash or by
certified or official bank check payable to the order of the Company, in the
amount obtained by multiplying the number of shares of Common Stock for which
this Warrant is then exercisable by the Purchase Price (as hereinafter defined)
then in effect.
1.3. Partial Exercise. This Warrant may be exercised in part (but
not for a fractional share) by surrender of this Warrant in the manner and at
the place provided in subsection 1.2 except that the amount payable by the
holder on such partial exercise shall be the amount obtained by multiplying (a)
the number of shares of Common Stock designated by the holder in the
Subscription Form by (b) the Purchase Price then in effect. On any such partial
exercise, the Company, at its expense, will forthwith issue and deliver to or
upon the order of the holder hereof a new Warrant of like tenor, in the name of
the holder hereof or as such holder (upon payment by such holder of any
applicable transfer taxes), may request, the number of shares of Common Stock
for which such Warrant may still be exercised.
2
<PAGE>
1.4. Fair Market Value. Fair Market Value of a share of Common Stock as
of a particular date (the "Determination Date") shall mean the Fair Market Value
of a share of the Company's Common Stock. Fair Market Value of a share of Common
Stock as of a Determination Date shall mean:
(a) If the Company's Common Stock is traded on an exchange or is
quoted on the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") National Market System or the NASDAQ SmallCap Market, then
the closing or last sale price, respectively, reported for the last business day
immediately preceding the Determination Date.
(b) If the Company's Common Stock is not traded on an exchange or
on the NASDAQ National Market System or the NASDAQ SmallCap Market but is traded
in the over-the-counter market, then the mean of the closing bid and asked
prices reported for the last business day immediately preceding the
Determination Date.
(c) Except as provided in clause (d) below, if the Company's Common
Stock is not publicly traded, then as the Holder and the Company agree or in the
absence of agreement by arbitration in accordance with the rules then standing
of the American Arbitration Association, before a single arbitrator to be chosen
from a panel of persons qualified by education and training to pass on the
matter to be decided,
(d) If the Determination Date is the date of a liquidation,
dissolution or winding up, or any event deemed to be a liquidation, dissolution
or winding up pursuant to the Company's charter, then all amounts to be payable
per share to holders of the Common Stock pursuant to the charter in the event of
such liquidation, dissolution or winding up, plus all other amounts to be
payable per share in respect of the Common Stock in liquidation under the
charter, assuming for the purposes of this clause (d) that all of the shares of
Common Stock then issuable upon exercise of all of the Warrants are outstanding
at the Determination Date.
1.5. Company Acknowledgment. The Company will, at the time of the
exercise of the Warrant, upon the request of the holder hereof acknowledge in
writing its continuing obligation to afford to such holder any rights to which
such holder shall continue to be entitled after such exercise in accordance with
the provisions of this Warrant. If the holder shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford to such holder any such rights.
1.6. Trustee for Warrant Holders. In the event that a bank or trust
company shall have been appointed as trustee for the holders of the Warrants
pursuant to Subsection 3.2, such bank or trust company shall have all the powers
and duties of a warrant agent appointed pursuant to Section 10 and shall accept,
in its own
3
<PAGE>
name for the account of the Company or such successor person as may be entitled
thereto, all amounts otherwise payable to the Company or such successor, as the
case may be, on exercise of this Warrant pursuant to this Section 1.
2. Delivery of Stock Certificates, etc. on Exercise. The Company agrees
that the shares of Common Stock purchased upon exercise of this Warrant shall be
deemed to be issued to the holder hereof as the record owner of such shares as
of the close of business on the date on which this Warrant shall have been
surrendered and payment made for such shares as aforesaid. As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within 10 days thereafter, the Company at its expense (including the
payment by it of any applicable issue taxes) will cause to be issued in the name
of and delivered to the holder hereof, or as such holder (upon payment by such
holder of any applicable transfer taxes) may direct in compliance with
applicable Securities Laws, a certificate or certificates for the number of duly
and validly issued, fully paid and nonassessable shares of Common Stock (or
Other Securities) to which such holder shall be entitled on such exercise, plus,
in lieu of any fractional share to which such holder would otherwise be
entitled, cash equal to such fraction multiplied by the then Fair Market Value
of one full share, together with any other stock or other securities and
property (including cash, where applicable) to which such holder is entitled
upon such exercise pursuant to Section 1 or otherwise.
3. Adjustment for Reorganization, Consolidation, Merger, etc.
3.1. Reorganization, Consolidation, Merger, etc. In case at any
time or from time to time, the Company shall (a) effect a reorganization, (b)
consolidate with or merge into any other person, or (c) transfer all or
substantially all of its properties or assets to any other person under any plan
or arrangement contemplating the dissolution of the Company, then, in each such
case, as a condition to the consummation of such a transaction, proper and
adequate provision shall be made by the Company whereby the holder of this
Warrant, on the exercise hereof as provided in Section 1 at any time after the
consummation of such reorganization, consolidation or merger or the effective
date of such dissolution, as the case may be, shall receive, in lieu of the
Common Stock (or Other Securities) issuable on such exercise prior to such
consummation or such effective date, the stock and other securities and property
(including cash) to which such holder would have been entitled upon such
consummation or in connection with such dissolution, as the case may be, if such
holder had so exercised this Warrant, immediately prior thereto, all subject to
further adjustment thereafter as provided in Section 4.
4
<PAGE>
3.2. Dissolution. In the event of any dissolution of the Company
following the transfer of all or substantially all of its properties or assets,
the Company, prior to such dissolution, shall at its expense deliver or cause to
be delivered the stock and other securities and property (including cash, where
applicable) receivable by the holders of the Warrants after the effective date
of such dissolution pursuant to this Section 3 to a bank or trust company having
its principal office in New York, NY, as trustee for the holder or holders of
the Warrants.
3.3. Continuation of Terms. Upon any reorganization, consolidation,
merger or transfer (and any dissolution following any transfer) referred to in
this Section 3.3, this Warrant shall continue in full force and effect and the
terms hereof shall be applicable to the shares of stock and other securities and
property receivable on the exercise of this Warrant after the consummation of
such reorganization, consolidation or merger or the effective date of
dissolution following any such transfer, as the case may be, and shall be
binding upon the issuer of any such stock or other securities, including, in the
case of any such transfer, the person acquiring all or substantially all of the
properties or assets of the Company, whether or not such person shall have
expressly assumed the terms of this Warrant as provided in Section 4. In the
event this Warrant does continue in full force and effect after the consummation
of the transaction described in this Section 3.3, then only in such event will
the Company's securities and property (including cash, where applicable)
receivable by the holders of the Warrants be delivered to the Trustee as
contemplated by Section 3.2.
4. Extraordinary Events Regarding Common Stock. In the event that the
Company shall (a) issue additional shares of the Common Stock as a dividend or
other distribution on outstanding Common Stock, (b) subdivide its outstanding
shares of Common Stock, or (c) combine its outstanding shares of the Common
Stock into a smaller number of shares of the Common Stock, then, in each such
event, the Purchase Price shall, simultaneously with the happening of such
event, be adjusted by multiplying the then Purchase Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which shall be the number
of shares of Common Stock outstanding immediately after such event, and the
product so obtained shall thereafter be the Purchase Price then in effect. The
Purchase Price, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive event or events described herein in this Section 4.
The number of shares of Common Stock that the holder of this Warrant shall
thereafter, on the exercise hereof as provided in Section 1, be entitled to
receive shall be increased to a number determined by multiplying the number of
shares of Common Stock that would otherwise (but for the provisions of this
Section 4) be issuable on such exercise by a fraction of which (a) the numerator
is the Purchase Price that
5
<PAGE>
would otherwise (but for the provisions of this Section 4) be in effect, and (b)
the denominator is the Purchase Price in effect on the date of such exercise.
5. Certificate as to Adjustments. In each case of any adjustment or
readjustment in the shares of Common Stock (or Other Securities) issuable on the
exercise of the Warrants, the Company at its expense will promptly cause its
Chief Financial Officer or other appropriate designee to compute such adjustment
or readjustment in accordance with the terms of the Warrant and prepare a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based, including a
statement of (a) the consideration received or receivable by the Company for any
additional shares of Common Stock (or Other Securities) issued or sold or deemed
to have been issued or sold, (b) the number of shares of Common Stock (or Other
Securities) outstanding or deemed to be outstanding, and (c) the Purchase Price
and the number of shares of Common Stock to be received upon exercise of this
Warrant, in effect immediately prior to such adjustment or readjustment and as
adjusted or readjusted as provided in this Warrant. The Company will forthwith
mail a copy of each such certificate to the holder of the Warrant and any
Warrant agent of the Company (appointed pursuant to Section 10 hereof).
6. Reservation of Stock, etc. Issuable on Exercise of Warrant;
Financial Statements. The Company will at all times reserve and keep available,
solely for issuance and delivery on the exercise of the Warrants, all shares of
Common Stock (or Other Securities) from time to time issuable on the exercise of
the Warrant. This Warrant entitles the holder hereof to receive copies of all
financial and other information distributed or required to be distributed to the
holders of the Company's Common Stock.
7. Assignment; Exchange of Warrant. Subject to compliance with
applicable Securities laws, this Warrant, and the rights evidenced hereby, may
be transferred by any registered holder hereof (a "Transferor") with respect to
any or all of the Shares. On the surrender for exchange of this Warrant, with
the Transferor's endorsement in the form of Exhibit B attached hereto (the
Transferor Endorsement Form") and together with evidence reasonably satisfactory
to the Company demonstrating compliance with applicable Securities Laws, the
Company at its expense but with payment by the Transferor of any applicable
transfer taxes) will issue and deliver to or on the order of the Transferor
thereof a new Warrant or Warrants of like tenor, in the name of the Transferor
and/or the transferee(s) specified in such Transferor Endorsement Form (each a
"Transferee"), calling in the aggregate on the face or faces thereof for the
number of shares of Common Stock called for on the face or faces of the Warrant
so surrendered by the Transferor.
6
<PAGE>
8. Replacement of Warrant. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of this Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of like tenor.
9. Registration Rights. The holder of this Warrant has been granted
certain registration rights by the Company. These registration rights are set
forth in a Subscription Agreement entered into by the Company and Subscribers of
the Company's Convertible Notes at or prior to the issue date of this Warrant.
The terms of the Subscription Agreement are incorporated herein by this
reference. Upon the occurrence of a Non-Registration Event as described in the
Subscription Agreement, in the event the Company is unable to issue Common Stock
upon exercise of this Warrant that has been registered in the Registration
Statement described in Section 10.1(iv) of the Subscription Agreement, 150 days
after the issue date of this Warrant which Registration Statement must be
effective throughout the exercise period of this Warrant, then upon receipt by
the Company of notice that the Holder of this Warrant would exercise this
Warrant but for the Company's inability to issue such Common Stock upon exercise
of this Warrant, then the Company will pay to the Holder of this Warrant, in
lieu of delivering Common Stock, a sum equal to the highest ask price of the
Company's Common Stock on NASD OTC Bulletin Board or such other principal
trading market for the Company's Common Stock (or as quoted in the "Pink Sheets"
published by the National Quotation Bureau) on the trading date immediately
preceding the date notice is given by the Holder, less the exercise price of
this Warrant, for each share of Common Stock designated in such notice from the
Holder.
10. Warrant Agent. The Company may, by written notice to the each
holder of the Warrant, appoint an agent for the purpose of issuing Common Stock
(or other Securities) on the exercise of this Warrant pursuant to Section 1,
exchanging this Warrant pursuant to Section 7, and replacing this Warrant
pursuant to Section 8, or any of the foregoing, and thereafter any such
issuance, exchange or replacement, as the case may be, shall be made at such
office by such agent.
11. Transfer on the Company's Books. Until this Warrant is transferred
on the books of the Company, the Company may treat the registered holder hereof
as the absolute owner hereof for all purposes, notwithstanding any notice to the
contrary.
7
<PAGE>
12. Notices, etc. All notices and other communications from the Company
to the holder of this Warrant shall be mailed by first class registered or
certified mail, postage prepaid, at such address as may have been furnished to
the Company in writing by such holder or, until any such holder furnishes to the
Company an address, then to, and at the address of, the last holder of this
Warrant who has so furnished an address to the Company.
13. Miscellaneous. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant shall be construed and enforced in accordance with and
governed by the laws of New York. Any dispute relating to this Warrant shall be
adjudicated in New York State. The headings in this Warrant are for purposes of
reference only, and shall not limit or otherwise affect any of the terms hereof.
The invalidity or unenforceability of any provision hereof shall in no way
affect the validity or enforceability of any other provision.
IN WITNESS WHEREOF, the Company has executed this Warrant under seal as
of the date first written above.
FREDERICK BREWING CO.
By: /s/ [Illegible]
-------------------------------
Name to Come
Witness:
/s/ [Illegible]
- -----------------------------
Name to Come
8
<PAGE>
Exhibit A
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
TO: Frederick Brewing Co.
The undersigned, the holder of the within Warrant, hereby irrevocably elects to
exercise this Warrant for, and to purchase thereunder, __________________ shares
of Common Stock of Frederick Brewing Co. and herewith makes payment of
$ _____________________ therefor, and requests that the certificates for such
shares be issued in the name of, and delivered to ____________________ whose
address is ______________________________________________________.
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable upon exercise of the within Warrant shall
be made pursuant to registration of the Common Stock under the Securities Act of
1933, as amended (the "Securities Act") or pursuant to an exemption from
registration under the Securities Act.
Dated:
----------------------
-----------------------------------
(Signature must conform to name of
holder as specified on the face of
the Warrant)
-----------------------------------
(Address)
9
<PAGE>
Exhibit B
FORM OF TRANSFEROR ENDORSEMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and
transfers unto the person(s) named below under the heading "Transferees" the
right represented by the within Warrant to purchase the percentage and number of
shares of Common Stock of Frederick Brewing Co. to which the within Warrant
relates specified under the headings "Percentage Transferred" and "Number
Transferred," respectively, opposite the name(s) of such person(s) and appoints
each such person Attorney to transfer its respective right on the books of
Frederick Brewing Co. with full power of substitution in the premises.
- --------------------------------------------------------------------------------
Transferees Percentage Number
----------- Transferred Transferred
----------- -----------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Dated: ___________, 19__ ------------------------------------
(Signature must conform to name
of holder as specified on the
face of the warrant)
Signed in the presence of:
- ----------------------------- ------------------------------------
(Name) (address)
------------------------------------
ACCEPTED AND AGREED: (address)
[TRANSFEREE]
- -----------------------------
(Name)
10
Exhibit 10.16
THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE
OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID
ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO FREDERICK BREWING CO. THAT SUCH REGISTRATION IS NOT REQUIRED.
Right to Purchase 30,000 Shares of
Common Stock of Frederick Brewing Co.
(subject to adjustment as provided
herein)
COMMON STOCK PURCHASE WARRANT
No. 3 June 7, 1999
FREDERICK BREWING CO., a corporation organized under the laws of the
State of Maryland (the "Company"), hereby certifies that, for value received,
RON WILLIAMS SR., or assigns, is entitled, subject to the terms set forth
below, to purchase from the Company after June 7, 1999 at any time or from time
to time before 5:00 p.m., New York time, on June 7, 2002 (the "Expiration
Date"), up to 30,000 fully paid and nonassessable shares of Common Stock (as
hereinafter defined), $.00004 par value per share, of the Company, at a per
share purchase price of the lesser of $0.375 per share or 100% of the average
closing bid price of the Common Stock for the five trading days commencing with
the first day the Common Stock is relisted for reporting on the NASDAQ Bulletin
Board, (such purchase price per share as adjusted from time to time as herein
provided is referred to herein as the "Purchase Price"). The number and
character of such shares of Common Stock and the Purchase Price are subject to
adjustment as provided herein.
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
(a) The term Company shall include Frederick Brewing Co. and any
corporation which shall succeed or assume the obligations of Frederick Brewing
Co. hereunder.
(b) The term "Common Stock" includes (a) the Company's Common Stock,
$.00004 par value per share, as authorized on the date of the Agreement, (b) any
other capital stock of any class or classes (however designated) of the Company,
authorized on or after such date, the holders of which shall have the right,
without limitation as to amount, either to all or to a share of the balance of
current dividends and liquidating dividends after the payment of dividends and
distributions on any shares entitled to preference, and the holders of which
shall ordinarily, in the absence of contingencies, be entitled to vote for the
election of a majority of directors of
1
<PAGE>
the Company (even if the right so to vote has been suspended by the happening of
such a contingency) and (c) any other securities into which or for which any of
the securities described in (a) or (b) may be converted or exchanged pursuant to
a plan of recapitalization, reorganization, merger, sale of assets or otherwise.
(c) The term "Other Securities" refers to any stock (other than Common
Stock) and other securities of the Company or any other person (corporate or
otherwise) which the holder of the Warrant at any time shall be entitled to
receive, or shall have received, on the exercise of the Warrant, in lieu of or
in addition to Common Stock, or which at any time shall be issuable or shall
have been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 4 or otherwise.
1. Exercise of Warrant.
1.1. Number of Shares Issuable upon Exercise. From and after the
date hereof through and including the Expiration Date, the holder hereof shall
be entitled to receive, upon exercise of this Warrant in whole in accordance
with the terms of subsection 1.2 or upon exercise of this Warrant in part in
accordance with subsection 1.3, shares of Common Stock of the Company, subject
to adjustment pursuant to Section 4.
1.2. Full Exercise. This Warrant may be exercised in full by the
holder hereof by surrender of this Warrant, with the form of subscription
attached as Exhibit A hereto (the Subscription Form") duly executed by such
holder, to the Company at its principal office or at the office of its Warrant
agent (as provided in Section 11), accompanied by payment, in cash or by
certified or official bank check payable to the order of the Company, in the
amount obtained by multiplying the number of shares of Common Stock for which
this Warrant is then exercisable by the Purchase Price (as hereinafter defined)
then in effect.
1.3. Partial Exercise. This Warrant may be exercised in part (but
not for a fractional share) by surrender of this Warrant in the manner and at
the place provided in subsection 1.2 except that the amount payable by the
holder on such partial exercise shall be the amount obtained by multiplying (a)
the number of shares of Common Stock designated by the holder in the
Subscription Form by (b) the Purchase Price then in effect. On any such partial
exercise, the Company, at its expense, will forthwith issue and deliver to or
upon the order of the holder hereof a new Warrant of like tenor, in the name of
the holder hereof or as such holder (upon payment by such holder of any
applicable transfer taxes), may request, the number of shares of Common Stock
for which such Warrant may still be exercised.
2
<PAGE>
1.4. Fair Market Value. Fair Market Value of a share of Common
Stock as of a particular date (the "Determination Date") shall mean the Fair
Market Value of a share of the Company's Common Stock. Fair Market Value of a
share of Common Stock as of a Determination Date shall mean:
(a) If the Company's Common Stock is traded on an exchange or
is quoted on the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") National Market System or the NASDAQ SmallCap Market, then
the closing or last sale price, respectively, reported for the last business day
immediately preceding the Determination Date.
(b) If the Company's Common Stock is not traded on an exchange
or on the NASDAQ National Market System or the NASDAQ SmallCap Market but is
traded in the over-the-counter market, then the mean of the closing bid and
asked prices reported for the last business day immediately preceding the
Determination Date.
(c) Except as provided in clause (d) below, if the Company's
Common Stock is not publicly traded, then as the Holder and the Company agree or
in the absence of agreement by arbitration in accordance with the rules then
standing of the American Arbitration Association, before a single arbitrator to
be chosen from a panel of persons qualified by education and training to pass on
the matter to be decided.
(d) If the Determination Date is the date of a liquidation,
dissolution or winding up, or any event deemed to be a liquidation, dissolution
or winding up pursuant to the Company's charter, then all amounts to be payable
per share to holders of the Common Stock pursuant to the charter in the event of
such liquidation, dissolution or winding up, plus all other amounts to be
payable per share in respect of the Common Stock in liquidation under the
charter, assuming for the purposes of this clause (d) that all of the shares of
Common Stock then issuable upon exercise of all of the Warrants are outstanding
at the Determination Date.
1.5. Company Acknowledgment. The Company will, at the time of the
exercise of the Warrant, upon the request of the holder hereof acknowledge in
writing its continuing obligation to afford to such holder any rights to which
such holder shall continue to be entitled after such exercise in accordance with
the provisions of this Warrant. If the holder shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford to such holder any such rights.
1.6. Trustee for Warrant Holders. In the event that a bank or trust
company shall have been appointed as trustee for the holders of the Warrants
pursuant to Subsection 3.2, such bank or trust company shall have all the powers
and duties of a warrant agent appointed pursuant to Section 10 and shall accept,
in its own
3
<PAGE>
name for the account of the Company or such successor person as may be
entitled thereto, all amounts otherwise payable to the Company or such
successor, as the case may be, on exercise of this Warrant pursuant to this
Section 1.
2. Delivery of Stock Certificates, etc. on Exercise. The Company agrees
that the shares of Common Stock purchased upon exercise of this Warrant shall be
deemed to be issued to the holder hereof as the record owner of such shares as
of the close of business on the date on which this Warrant shall have been
surrendered and payment made for such shares as aforesaid. As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within 10 days thereafter, the Company at its expense (including the
payment by it of any applicable issue taxes) will cause to be issued in the name
of and delivered to the holder hereof, or as such holder (upon payment by such
holder of any applicable transfer taxes) may direct in compliance with
applicable Securities Laws, a certificate or certificates for the number of duly
and validly issued, fully paid and nonassessable shares of Common Stock (or
Other Securities) to which such holder shall be entitled on such exercise, plus,
in lieu of any fractional share to which such holder would otherwise be
entitled, cash equal to such fraction multiplied by the then Fair Market Value
of one full share, together with any other stock or other securities and
property (including cash, where applicable) to which such holder is entitled
upon such exercise pursuant to Section 1 or otherwise.
3. Adjustment for Reorganization, Consolidation, Merger, etc.
3.1. Reorganization, Consolidation, Merger, etc. In case at any
time or from time to time, the Company shall (a) effect a reorganization, (b)
consolidate with or merge into any other person, or (c) transfer all or
substantially all of its properties or assets to any other person under any plan
or arrangement contemplating the dissolution of the Company, then, in each such
case, as a condition to the consummation of such a transaction, proper and
adequate provision shall be made by the Company whereby the holder of this
Warrant, on the exercise hereof as provided in Section 1 at any time after the
consummation of such reorganization, consolidation or merger or the effective
date of such dissolution, as the case may be, shall receive, in lieu of the
Common Stock (or Other Securities) issuable on such exercise prior to such
consummation or such effective date, the stock and other securities and property
(including cash) to which such holder would have been entitled upon such
consummation or in connection with such dissolution, as the case may be, if such
holder had so exercised this Warrant, immediately prior thereto, all subject to
further adjustment thereafter as provided in Section 4.
4
<PAGE>
3.2. Dissolution. In the event of any dissolution of the Company
following the transfer of all or substantially all of its properties or assets,
the Company, prior to such dissolution, shall at its expense deliver or cause to
be delivered the stock and other securities and property (including cash, where
applicable) receivable by the holders of the Warrants after the effective date
of such dissolution pursuant to this Section 3 to a bank or trust company having
its principal office in New York, NY, as trustee for the holder or holders of
the Warrants.
3.3. Continuation of Terms. Upon any reorganization, consolidation,
merger or transfer (and any dissolution following any transfer) referred to in
this Section 3.3, this Warrant shall continue in full force and effect and the
terms hereof shall be applicable to the shares of stock and other securities and
property receivable on the exercise of this Warrant after the consummation of
such reorganization, consolidation or merger or the effective date of
dissolution following any such transfer, as the case may be, and shall be
binding upon the issuer of any such stock or other securities, including, in the
case of any such transfer, the person acquiring all or substantially all of the
properties or assets of the Company, whether or not such person shall have
expressly assumed the terms of this Warrant as provided in Section 4. In the
event this Warrant does continue in full force and effect after the consummation
of the transaction described in this Section 3.3, then only in such event will
the Company's securities and property (including cash, where applicable)
receivable by the holders of the Warrants be delivered to the Trustee as
contemplated by Section 3.2.
4. Extraordinary Events Regarding Common Stock. In the event that the
Company shall (a) issue additional shares of the Common Stock as a dividend or
other distribution on outstanding Common Stock, (b) subdivide its outstanding
shares of Common Stock, or (c) combine its outstanding shares of the Common
Stock into a smaller number of shares of the Common Stock, then, in each such
event, the Purchase Price shall, simultaneously with the happening of such
event, be adjusted by multiplying the then Purchase Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which shall be the number
of shares of Common Stock outstanding immediately after such event, and the
product so obtained shall thereafter be the Purchase Price then in effect. The
Purchase Price, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive event or events described herein in this Section 4.
The number of shares of Common Stock that the holder of this Warrant shall
thereafter, on the exercise hereof as provided in Section 1, be entitled to
receive shall be increased to a number determined by multiplying the number of
shares of Common Stock that would otherwise (but for the provisions of this
Section 4) be issuable on such exercise by a fraction of which (a) the numerator
is the Purchase Price that
5
<PAGE>
would otherwise (but for the provisions of this Section 4) be in effect, and (b)
the denominator is the Purchase Price in effect on the date of such exercise.
5. Certificate as to Adjustments. In each case of any adjustment or
readjustment in the shares of Common Stock (or Other Securities) issuable on the
exercise of the Warrants, the Company at its expense will promptly cause its
Chief Financial Officer or other appropriate designee to compute such adjustment
or readjustment in accordance with the terms of the Warrant and prepare a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based, including a
statement of (a) the consideration received or receivable by the Company for any
additional shares of Common Stock (or Other Securities) issued or sold or deemed
to have been issued or sold, (b) the number of shares of Common Stock (or Other
Securities) outstanding or deemed to be outstanding, and (c) the Purchase Price
and the number of shares of Common Stock to be received upon exercise of this
Warrant, in effect immediately prior to such adjustment or readjustment and as
adjusted or readjusted as provided in this Warrant. The Company will forthwith
mail a copy of each such certificate to the holder of the Warrant and any
Warrant agent of the Company (appointed pursuant to Section 10 hereof).
6. Reservation of Stock, etc. Issuable on Exercise of Warrant; Financial
Statements. The Company will at all times reserve and keep available, solely for
issuance and delivery on the exercise of the Warrants, all shares of Common
Stock (or Other Securities) from time to time issuable on the exercise of the
Warrant. This Warrant entitles the holder hereof to receive copies of all
financial and other information distributed or required to be distributed to the
holders of the Company's Common Stock.
7. Assignment; Exchange of Warrant. Subject to compliance with
applicable Securities laws, this Warrant, and the rights evidenced hereby, may
be transferred by any registered holder hereof (a "Transferor") with respect to
any or all of the Shares. On the surrender for exchange of this Warrant, with
the Transferor's endorsement in the form of Exhibit B attached hereto (the
Transferor Endorsement Form") and together with evidence reasonably satisfactory
to the Company demonstrating compliance with applicable Securities Laws, the
Company at its expense but with payment by the Transferor of any applicable
transfer taxes) will issue and deliver to or on the order of the Transferor
thereof a new Warrant or Warrants of like tenor, in the name of the Transferor
and/or the transferee(s) specified in such Transferor Endorsement Form (each a
"Transferee"), calling in the aggregate on the face or faces thereof for the
number of shares of Common Stock called for on the face or faces of the Warrant
so surrendered by the Transferor.
6
<PAGE>
8. Replacement of Warrant. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of this Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of like tenor.
9. Registration Rights. The holder of this Warrant has been granted
certain registration rights by the Company. These registration rights are set
forth in a Subscription Agreement entered into by the Company and Subscribers of
the Company's Convertible Notes at or prior to the issue date of this Warrant.
The terms of the Subscription Agreement are incorporated herein by this
reference. Upon the occurrence of a Non-Registration Event as described in the
Subscription Agreement, in the event the Company is unable to issue Common Stock
upon exercise of this Warrant that has been registered in the Registration
Statement described in Section 10. 1 (iv) of the Subscription Agreement, 150
days after the issue date of this Warrant which Registration Statement must be
effective throughout the exercise period of this Warrant, then upon receipt by
the Company of notice that the Holder of this Warrant would exercise this
Warrant but for the Company's inability to issue such Common Stock upon exercise
of this Warrant, then the Company will pay to the Holder of this Warrant, in
lieu of delivering Common Stock, a sum equal to the highest ask price of the
Company's Common Stock on NASD OTC Bulletin Board or such other principal
trading market for the Company's Common Stock (or as quoted in the "Pink Sheets"
published by the National Quotation Bureau) on the trading date immediately
preceding the date notice is given by the Holder, less the exercise price of
this Warrant, for each share of Common Stock designated in such notice from the
Holder.
10. Warrant Agent. The Company may, by written notice to the each holder
of the Warrant, appoint an agent for the purpose of issuing Common Stock (or
Other Securities) on the exercise of this Warrant pursuant to Section 1,
exchanging this Warrant pursuant to Section 7, and replacing this Warrant
pursuant to Section 8, or any of the foregoing, and thereafter any such
issuance, exchange or replacement, as the case may be, shall be made at such
office by such agent.
11. Transfer on the Company's Books. Until this Warrant is
transferred on the books of the Company, the Company may treat the
registered holder hereof as the absolute owner hereof for all
purposes, notwithstanding any notice to the contrary.
7
<PAGE>
12. Notices, etc. All notices and other communications from the Company
to the holder of this Warrant shall be mailed by first class registered or
certified mail, postage prepaid, at such address as may have been furnished to
the Company in writing by such holder or, until any such holder furnishes to the
Company an address, then to, and at the address of, the last holder of this
Warrant who has so furnished an address to the Company.
13. Miscellaneous. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant shall be construed and enforced in accordance with and
governed by the laws of New York. Any dispute relating to this Warrant shall be
adjudicated in New York State. The headings in this Warrant are for purposes of
reference only, and shall not limit or otherwise affect any of the terms hereof.
The invalidity or unenforceability of any provision hereof shall in no way
affect the validity or enforceability of any other provision.
IN WITNESS WHEREOF, the Company has executed this Warrant under seal as
of the date first written above.
FREDERICK BREWING CO.
By: /s/ [Illegible]
-------------------------------
Name to Come
Witness:
/s/ [Illegible]
- -----------------------------
Name to Come
Witness:
8
<PAGE>
Exhibit A
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
TO: Frederick Brewing Co.
The undersigned, the holder of the within Warrant, hereby irrevocably elects to
exercise this Warrant for, and to purchase thereunder,__________________________
shares of Common Stock of Frederick Brewing Co. and herewith makes payment of
$____________ therefor, and requests that the certificates for such shares be
issued in the name of, and delivered to ___________________ whose address is
_____________________________________________________.
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable upon exercise of the within Warrant shall
be made pursuant to registration of the Common Stock under the Securities Act of
1933, as amended (the "Securities Act") or pursuant to an exemption from
registration under the Securities Act.
Dated:
----------------------
-----------------------------------
(Signature must conform to name of
holder as specified on the face of
the Warrant)
-----------------------------------
(Address)
9
<PAGE>
Exhibit B
FORM OF TRANSFEROR ENDORSEMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and transfers
unto the person(s) named below under the heading "Transferees" the right
represented by the within Warrant to purchase the percentage and number of
shares of Common Stock of Frederick Brewing Co. to which the within Warrant
relates specified under the headings "Percentage Transferred" and "Number
Transferred," respectively, opposite the name(s) of such person(s) and appoints
each such person Attorney to transfer its respective right on the books of
Frederick Brewing Co. with full power of substitution in the premises.
- --------------------------------------------------------------------------------
Transferees Percentage Number
----------- Transferred Transferred
----------- -----------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Dated: ___________, 19__ ------------------------------------
(Signature must conform to name
of holder as specified on the
face of the warrant)
Signed in the presence of:
- ----------------------------- ------------------------------------
(Name) (address)
------------------------------------
ACCEPTED AND AGREED: (address)
[TRANSFEREE]
- -----------------------------
(Name)
10
Exhibit 10.17
THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE
OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID
ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO FREDERICK BREWING CO. THAT SUCH REGISTRATION IS NOT REQUIRED.
Right to Purchase 20,000 Shares of Common
Stock of Frederick Brewing Co. (subject
to adjustment as provided herein)
COMMON STOCK PURCHASE WARRANT
No. 4 June 7, 1999
FREDERICK BREWING CO., a corporation organized under the laws of the
State of Maryland (the "Company"), hereby certifies that, for value received,
RON WILLIAMS JR., or assigns, is entitled, subject to the terms set forth below,
to purchase from the Company after June 7, 1999 at any time or from time to time
before 5:00 p.m., New York time, on June 7, 2002 (the "Expiration Date"), up to
20,000 fully paid and nonassessable shares of Common Stock (as hereinafter
defined), $.00004 par value per share, of the Company, at a per share purchase
price of the lesser of $0.375 per share or 100% of the average closing bid price
of the Common Stock for the five trading days commencing with the first day the
Common Stock is relisted for reporting on the NASDAQ Bulletin Board, (such
purchase price per share as adjusted from time to time as herein provided is
referred to herein as the "Purchase Price"). The number and character of such
shares of Common Stock and the Purchase Price are subject to adjustment as
provided herein.
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
(a) The term Company shall include Frederick Brewing Co. and any
corporation which shall succeed or assume the obligations of Frederick Brewing
Co. hereunder.
(b) The term "Common Stock" includes (a) the Company's Common Stock,
$.00004 par value per share, as authorized on the date of the Agreement, (b) any
other capital stock of any class or classes (however designated) of the Company,
authorized on or after such date, the holders of which shall have the right,
without limitation as to amount, either to all or to a share of the balance of
current dividends and liquidating dividends after the payment of dividends and
distributions on any shares entitled to preference, and the holders of which
shall ordinarily, in the absence of contingencies, be entitled to vote for the
election of a majority of directors of
1
<PAGE>
the Company (even if the right so to vote has been suspended by the happening of
such a contingency) and (c) any other securities into which or for which any of
the securities described in (a) or (b) may be converted or exchanged pursuant to
a plan of recapitalization, reorganization, merger, sale of assets or otherwise.
(c) The term "Other Securities" refers to any stock (other than Common
Stock) and other securities of the Company or any other person (corporate or
otherwise) which the holder of the Warrant at any time shall be entitled to
receive, or shall have received, on the exercise of the Warrant, in lieu of or
in addition to Common Stock, or which at any time shall be issuable or shall
have been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 4 or otherwise.
1. Exercise of Warrant.
1.1. Number of Shares Issuable upon Exercise. From and after the
date hereof through and including the Expiration Date, the holder hereof shall
be entitled to receive, upon exercise of this Warrant in whole in accordance
with the terms of subsection 1.2 or upon exercise of this Warrant in part in
accordance with subsection 1.3, shares of Common Stock of the Company, subject
to adjustment pursuant to Section 4.
1.2. Full Exercise. This Warrant may be exercised in full by the
holder hereof by surrender of this Warrant, with the form of subscription
attached as Exhibit A hereto (the Subscription Form") duly executed by such
holder, to the Company at its principal office or at the office of its Warrant
agent (as provided in Section 11), accompanied by payment, in cash or by
certified or official bank check payable to the order of the Company, in the
amount obtained by multiplying the number of shares of Common Stock for which
this Warrant is then exercisable by the Purchase Price (as hereinafter defined)
then in effect.
1.3. Partial Exercise. This Warrant may be exercised in part (but
not for a fractional share) by surrender of this Warrant in the manner and at
the place provided in subsection 1.2 except that the amount payable by the
holder on such partial exercise shall be the amount obtained by multiplying (a)
the number of shares of Common Stock designated by the holder in the
Subscription Form by (b) the Purchase Price then in effect. On any such partial
exercise, the Company, at its expense, will forthwith issue and deliver to or
upon the order of the holder hereof a new Warrant of like tenor, in the name of
the holder hereof or as such holder (upon payment by such holder of any
applicable transfer taxes), may request, the number of shares of Common Stock
for which such Warrant may still be exercised.
2
<PAGE>
1.4. Fair Market Value. Fair Market Value of a share of Common
Stock as of a particular date (the "Determination Date") shall mean the Fair
Market Value of a share of the Company's Common Stock. Fair Market Value of a
share of Common Stock as of a Determination Date shall mean:
(a) If the Company's Common Stock is traded on an exchange or
is quoted on the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") National Market System or the NASDAQ SmallCap Market, then
the closing or last sale price, respectively, reported for the last business day
immediately preceding the Determination Date.
(b) If the Company's Common Stock is not traded on an exchange
or on the NASDAQ National Market System or the NASDAQ SmallCap market but is
traded in the over-the-counter market, then the mean of the closing bid and
asked prices reported for the last business day immediately preceding the
Determination Date.
(c) Except as provided in clause (d) below, if the Company's
Common Stock is not publicly traded, then as the Holder and the Company agree or
in the absence of agreement by arbitration in accordance with the rules then
standing of the American Arbitration Association, before a single arbitrator to
be chosen from a panel of persons qualified by education and training to pass on
the matter to be decided,
(d) If the Determination Date is the date of a liquidation,
dissolution or winding up, or any event deemed to be a liquidation, dissolution
or winding up pursuant to the Company's charter, then all amounts to be payable
per share to holders of the Common Stock pursuant to the charter in the event of
such liquidation, dissolution or winding up, plus all other amounts to be
payable per share in respect of the Common Stock in liquidation under the
charter, assuming for the purposes of this clause (d) that all of the shares of
Common Stock then issuable upon exercise of all of the Warrants are outstanding
at the Determination Date.
1.5. Company Acknowledgment. The Company will, at the time of the
exercise of the Warrant, upon the request of the holder hereof acknowledge in
writing its continuing obligation to afford to such holder any rights to which
such holder shall continue to be entitled after such exercise in accordance with
the provisions of this Warrant. If the holder shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford to such holder any such rights.
1.6. Trustee for Warrant Holders. In the event that a bank or trust
company shall have been appointed as trustee for the holders of the Warrants
pursuant to Subsection 3.2, such bank or trust company shall have all the powers
and duties of a warrant agent appointed pursuant to Section 10 and shall accept,
in its own
3
<PAGE>
name for the account of the Company or such successor person as may be entitled
thereto, all amounts otherwise payable to the Company or such successor, as the
case may be, on exercise of this Warrant pursuant to this Section 1.
2. Delivery of Stock Certificates, etc. on Exercise. The Company agrees
that the shares of Common Stock purchased upon exercise of this Warrant shall be
deemed to be issued to the holder hereof as the record owner of such shares as
of the close of business on the date on which this Warrant shall have been
surrendered and payment made for such shares as aforesaid. As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within 10 days thereafter, the Company at its expense (including the
payment by it of any applicable issue taxes) will cause to be issued in the name
of and delivered to the holder hereof, or as such holder (upon payment by such
holder of any applicable transfer taxes) may direct in compliance with
applicable Securities Laws, a certificate or certificates for the number of duly
and validly issued, fully paid and nonassessable shares of Common Stock (or
Other Securities) to which such holder shall be entitled on such exercise, plus,
in lieu of any fractional share to which such holder would otherwise be
entitled, cash equal to such fraction multiplied by the then Fair Market Value
of one full share, together with any other stock or other securities and
property (including cash, where applicable) to which such holder is entitled
upon such exercise pursuant to Section 1 or otherwise.
3. Adjustment for Reorganization, Consolidation, Merger, etc.
3.1. Reorganization, Consolidation, Merger, etc. In case at any
time or from time to time, the Company shall (a) effect a reorganization (b)
consolidate with or merge into any other person, or (c) transfer all or
substantially all of its properties or assets to any other person under any plan
or arrangement contemplating the dissolution of the Company, then, in each such
case, as a condition to the consummation of such a transaction, proper and
adequate provision shall be made by the Company whereby the holder of this
Warrant, on the exercise hereof as provided in Section 1 at any time after the
consummation of such reorganization, consolidation or merger or the effective
date of such dissolution, as the case may be, shall receive, in lieu of the
Common Stock (or Other Securities) issuable on such exercise prior to such
consummation or such effective date, the stock and other securities and property
(including cash) to which such holder would have been entitled upon such
consummation or in connection with such dissolution, as the case may be, if such
holder had so exercised this Warrant, immediately prior thereto, all subject to
further adjustment thereafter as provided in Section 4.
4
<PAGE>
3.2. Dissolution. In the event of any dissolution of the Company
following the transfer of all or substantially all of its properties or assets,
the Company, prior to such dissolution, shall at its expense deliver or cause to
be delivered the stock and other securities and property (including cash, where
applicable) receivable by the holders of the Warrants after the effective date
of such dissolution pursuant to this Section 3 to a bank or trust company having
its principal office in New York, NY, as trustee for the holder or holders of
the Warrants.
3.3. Continuation of Terms. Upon any reorganization, consolidation,
merger or transfer (and any dissolution following any transfer) referred to in
this Section 3.3, this Warrant shall continue in full force and effect and the
terms hereof shall be applicable to the shares of stock and other securities and
property receivable on the exercise of this Warrant after the consummation of
such reorganization, consolidation or merger or the effective date of
dissolution following any such transfer, as the case may be, and shall be
binding upon the issuer of any such stock or other securities, including, in the
case of any such transfer, the person acquiring all or substantially all of the
properties or assets of the Company, whether or not such person shall have
expressly assumed the terms of this Warrant as provided in Section 4. In the
event this Warrant does continue in full force and effect after the consummation
of the transaction described in this Section 3.3, then only in such event will
the Company's securities and property (including cash, where applicable)
receivable by the holders of the Warrants be delivered to the Trustee as
contemplated by Section 3.2.
4. Extraordinary Events Regarding Common Stock. In the event that the
Company shall (a) issue additional shares of the Common Stock as a dividend or
other distribution on outstanding Common Stock, (b) subdivide its outstanding
shares of Common Stock, or (c) combine its outstanding shares of the Common
Stock into a smaller number of shares of the Common Stock, then, in each such
event, the Purchase Price shall, simultaneously with the happening of such
event, be adjusted by multiplying the then Purchase Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which shall be the number
of shares of Common Stock outstanding immediately after such event, and the
product so obtained shall thereafter be the Purchase Price then in effect. The
Purchase Price, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive event or events described herein in this Section 4.
The number of shares of Common Stock that the holder of this Warrant shall
thereafter, on the exercise hereof as provided in Section 1, be entitled to
receive shall be increased to a number determined by multiplying the number of
shares of Common Stock that would otherwise (but for the provisions of this
Section 4) be issuable on such exercise by a fraction of which (a) the numerator
is the Purchase Price that
5
<PAGE>
would otherwise (but for the provisions of this Section 4) be in effect, and (b)
the denominator is the Purchase Price in effect on the date of such exercise.
5. Certificate as to Adjustments. In each case of any adjustment or
readjustment in the shares of Common Stock (or Other Securities) issuable on the
exercise of the Warrants, the Company at its expense will promptly cause its
Chief Financial Officer or other appropriate designee to compute such adjustment
or readjustment in accordance with the terms of the Warrant and prepare a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based, including a
statement of (a) the consideration received or receivable by the Company for any
additional shares of Common Stock (or Other Securities) issued or sold or deemed
to have been issued or sold, (b) the number of shares of Common Stock (or Other
Securities) outstanding or deemed to be outstanding, and (c) the Purchase Price
and the number of shares of Common Stock to be received upon exercise of this
Warrant, in effect immediately prior to such adjustment or readjustment and as
adjusted or readjusted as provided in this Warrant. The Company will forthwith
mail a copy of each such certificate to the holder of the Warrant and any
Warrant agent of the Company (appointed pursuant to Section 10 hereof).
6. Reservation of Stock, etc. Issuable on Exercise of Warrant;
Financial Statements. The Company will at all times reserve and keep available,
solely for issuance and delivery on the exercise of the Warrants, all shares of
Common Stock (or Other Securities) from time to time issuable on the exercise of
the Warrant. This Warrant entitles the holder hereof to receive copies of all
financial and other information distributed or required to be distributed to the
holders of the Company's Common Stock.
7. Assignment; Exchange of Warrant. Subject to compliance with
applicable Securities laws, this Warrant, and the rights evidenced hereby, may
be transferred by any registered holder hereof (a "Transferor") with respect to
any or all of the Shares. On the surrender for exchange of this Warrant, with
the Transferor's endorsement in the form of Exhibit B attached hereto (the
Transferor Endorsement Form") and together with evidence reasonably satisfactory
to the Company demonstrating compliance with applicable Securities Laws, the
Company at its expense but with payment by the Transferor of any applicable
transfer taxes) will issue and deliver to or on the order of the Transferor
thereof a new Warrant or Warrants of like tenor, in the name of the Transferor
and/or the transferee(s) specified in such Transferor Endorsement Form (each a
"Transferee"), calling in the aggregate on the face or faces thereof for the
number of shares of Common Stock called for on the face or faces of the Warrant
so surrendered by the Transferor.
6
<PAGE>
8. Replacement of Warrant. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of this Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of like tenor.
9. Registration Rights. The holder of this Warrant has been granted
certain registration rights by the Company. These registration rights are set
forth in a Subscription Agreement entered into by the Company and Subscribers of
the Company's Convertible Notes at or prior to the issue date of this Warrant.
The terms of the Subscription Agreement are incorporated herein by this
reference. Upon the occurrence of a Non-Registration Event as described in the
Subscription Agreement, in the event the Company is unable to issue Common Stock
upon exercise of this Warrant that has been registered in the Registration
Statement described in Section 10.1(iv) of the Subscription Agreement, 150 days
after the issue date of this Warrant which Registration Statement must be
effective throughout the exercise period of this Warrant, then upon receipt by
the Company of notice that the Holder of this Warrant would exercise this
Warrant but for the Company's inability to issue such Common Stock upon exercise
of this Warrant, then the Company will pay to the Holder of this Warrant, in
lieu of delivering Common Stock, a sum equal to the highest ask price of the
Company's Common Stock on NASD OTC Bulletin Board or such other principal
trading market for the Company's Common Stock (or as quoted in the "Pink Sheets"
published by the National Quotation Bureau) on the trading date immediately
preceding the date notice is given by the Holder, less the exercise price of
this Warrant, for each share of Common Stock designated in such notice from the
Holder.
10. Warrant Agent. The Company may, by written notice to the each
holder of the Warrant, appoint an agent for the purpose of issuing Common Stock
(or Other Securities) on the exercise of this Warrant pursuant to Section 1,
exchanging this Warrant pursuant to Section 7, and replacing this Warrant
pursuant to Section 8, or any of the foregoing, and thereafter any such
issuance, exchange or replacement, as the case may be, shall be made at such
office by such agent.
11. Transfer on the Company's Books. Until this Warrant is transferred
on the books of the Company, the Company may treat the registered holder hereof
as the absolute owner hereof for all purposes, notwithstanding any notice to the
contrary.
7
<PAGE>
12. Notices, etc. All notices and other communications from the Company
to the holder of this Warrant shall be mailed by first class registered or
certified mail, postage prepaid, at such address as may have been furnished to
the Company in writing by such holder or, until any such holder furnishes to the
Company an address, then to, and at the address of, the last holder of this
Warrant who has so furnished an address to the Company.
13. Miscellaneous. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant shall be construed and enforced in accordance with and
governed by the laws of New York. Any dispute relating to this Warrant shall be
adjudicated in New York State. The headings in this Warrant are for purposes of
reference only, and shall not limit or otherwise affect any of the terms hereof.
The invalidity or unenforceability of any provision hereof shall in no way
affect the validity or enforceability of any other provision.
IN WITNESS WHEREOF, the Company has executed this Warrant under seal as
of the date first written above.
FREDERICK BREWING CO.
By: /s/ [Illegible]
-------------------------------
Name to Come
Witness:
/s/ [Illegible]
- -----------------------------
Name to Come
8
<PAGE>
Exhibit A
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
TO: Frederick Brewing Co.
The undersigned, the holder of the within Warrant, hereby irrevocably elects to
exercise this Warrant for, and to purchase thereunder, __________________ shares
of Common Stock of Frederick Brewing Co. and herewith makes payment of
$ ____________ therefor, and requests that the certificates for such shares be
issued in the name of, and delivered to ___________________ whose address is
_______________________________________________________________________________.
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable upon exercise of the within Warrant shall
be made pursuant to registration of the Common Stock under the Securities Act of
1933, as amended (the "Securities Act") or pursuant to an exemption from
registration under the Securities Act.
Dated:
----------------------
-----------------------------------
(Signature must conform to name of
holder as specified on the face of
the Warrant)
-----------------------------------
(Address)
9
<PAGE>
Exhibit B
FORM OF TRANSFEROR ENDORSEMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and
transfers unto the person(s) named below under the heading "Transferees" the
right represented by the within Warrant to purchase the percentage and number of
shares of Common Stock of Frederick Brewing Co. to which the within Warrant
relates specified under the headings "Percentage Transferred" and "Number
Transferred," respectively, opposite the name(s) of such person(s) and appoints
each such person Attorney to transfer its respective right on the books of
Frederick Brewing Co. with full power of substitution in the premises.
- --------------------------------------------------------------------------------
Transferees Percentage Number
----------- Transferred Transferred
----------- -----------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Dated: ___________, 19__ ------------------------------------
(Signature must conform to name
of holder as specified on the
face of the warrant)
Signed in the presence of:
- ----------------------------- ------------------------------------
(Name) (address)
------------------------------------
ACCEPTED AND AGREED: (address)
[TRANSFEREE]
- -----------------------------
(Name)
10
Exhibit 10.18
THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE
OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID
ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO FREDERICK BREWING CO. THAT SUCH REGISTRATION IS NOT REQUIRED.
Right to Purchase 125,000 Shares of Common
Stock of Frederick Brewing Co. (subject
to adjustment as provided herein)
COMMON STOCK PURCHASE WARRANT
No. 2 June 7, 1999
FREDERICK BREWING CO., a corporation organized under the laws of the
State of Maryland (the "Company"), hereby certifies that, for value received,
BALMORE FUNDS S.A., or assigns, is entitled, subject to the terms set forth
below, to purchase from the Company after June 7, 1999 at any time or from time
to time before 5:00 p.m., New York time, on June 7, 2002 (the "Expiration
Date"), up to 125,000 fully paid and nonassessable shares of Common Stock (as
hereinafter defined), $.00004 par value per share, of the Company, at a per
share purchase price of the lesser of $0.375 per share or 100% of the average
closing bid price of the Common Stock for the five trading days commencing with
the first day the Common Stock is relisted for reporting on the NASDAQ Bulletin
Board, (such purchase price per share as adjusted from time to time as herein
provided is referred to herein as the "Purchase Price"). The number and
character of such shares of Common Stock and the Purchase Price are subject to
adjustment as provided herein.
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
(a) The term Company shall include Frederick Brewing Co. and any
corporation which shall succeed or assume the obligations of Frederick Brewing
Co. hereunder.
(b) The term "Common Stock" includes (a) the Company's Common Stock,
$.00004 par value per share, as authorized on the date of the Agreement, (b) any
other capital stock of any class or classes (however designated) of the Company,
authorized on or after such date, the holders of which shall have the right,
without limitation as to amount, either to all or to a share of the balance of
current dividends and liquidating dividends after the payment of dividends and
distributions on any shares entitled to preference, and the holders of which
shall ordinarily, in the absence of contingencies,
1
<PAGE>
be entitled to vote for the election of a majority of directors of the Company
(even if the right so to vote has been suspended by the happening of such a
contingency) and (c) any other securities into which or for which any of the
securities described in (a) or (b) may be converted or exchanged pursuant to a
plan of recapitalization, reorganization, merger, sale of assets or otherwise.
(c) The term "Other Securities" refers to any stock (other than Common
Stock) and other securities of the Company or any other person (corporate or
otherwise) which the holder of the Warrant at any time shall be entitled to
receive, or shall have received, on the exercise of the Warrant, in lieu of or
in addition to Common Stock, or which at any time shall be issuable or shall
have been issued in exchange for or in replacement of Common Stock or other
Securities pursuant to Section 4 or otherwise.
1. Exercise of Warrant.
1.1. Number of Shares Issuable upon Exercise. From and after the
date hereof through and including the Expiration Date, the holder hereof shall
be entitled to receive, upon exercise of this Warrant in whole in accordance
with the terms of subsection 1.2 or upon exercise of this Warrant in part in
accordance with subsection 1.3, shares of Common Stock of the Company, subject
to adjustment pursuant to Section 4.
1.2. Full Exercise. This Warrant may be exercised in full by the
holder hereof by surrender of this Warrant, with the form of subscription
attached as Exhibit A hereto (the Subscription Form") duly executed by such
holder, to the Company at its principal office or at the office of its Warrant
agent (as provided in Section 11), accompanied by payment, in cash or by
certified or official bank check payable to the order of the Company, in the
amount obtained by multiplying the number of shares of Common Stock for which
this Warrant is then exercisable by the Purchase Price (as hereinafter defined)
then in effect.
1.3. Partial Exercise. This Warrant may be exercised in part (but
not for a fractional share) by surrender of this Warrant in the manner and at
the place provided in subsection 1.2 except that the amount payable by the
holder on such partial exercise shall be the amount obtained by multiplying (a)
the number of shares of Common Stock designated by the holder in the
Subscription Form by (b) the Purchase Price then in effect. On any such partial
exercise, the Company, at its expense, will forthwith issue and deliver to or
upon the order of the holder hereof a new Warrant of like tenor, in the name of
the holder hereof or as such holder (upon payment by such holder of any
applicable transfer taxes), may request, the number of shares of Common Stock
for which such Warrant may still be exercised.
2
<PAGE>
1.4. Fair Market Value. Fair Market Value of a share of Common
Stock as of a particular date (the "Determination Date") shall mean the Fair
Market Value of a share of the Company's Common Stock. Fair Market Value of a
share of Common Stock as of a Determination Date shall mean:
(a) If the Company's Common Stock is traded on an exchange or
is quoted on the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") National Market System or the NASDAQ SmallCap Market, then
the closing or last sale price, respectively, reported for the last business day
immediately preceding the Determination Date.
(b) If the Company's Common Stock is not traded on an exchange
or on the NASDAQ National Market System or the NASDAQ SmallCap Market but is
traded in the over-the-counter market, then the mean of the closing bid and
asked prices reported for the last business day immediately preceding the
Determination Date.
(c) Except as provided in clause (d) below, if the Company's
Common Stock is not publicly traded, then as the Holder and the Company agree or
in the absence of agreement by arbitration in accordance with the rules then
standing of the American Arbitration Association, before a single arbitrator to
be chosen from a panel of persons qualified by education and training to pass on
the matter to be decided,
(d) If the Determination Date is the date of a liquidation,
dissolution or winding up, or any event deemed to be a liquidation, dissolution
or winding up pursuant to the Company's charter, then all amounts to be payable
per share to holders of the Common Stock pursuant to the charter in the event of
such liquidation, dissolution or winding up, plus all other amounts to be
payable per share in respect of the Common Stock in liquidation under the
charter, assuming for the purposes of this clause (d) that all of the shares of
Common Stock then issuable upon exercise of all of the Warrants are outstanding
at the Determination Date.
1.5. Company Acknowledgment. The Company will, at the time of the
exercise of the Warrant, upon the request of the holder hereof acknowledge in
writing its continuing obligation to afford to such holder any rights to which
such holder shall continue to be entitled after such exercise in accordance with
the provisions of this Warrant. If the holder shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford to such holder any such rights.
1.6. Trustee for Warrant Holders. In the event that a bank or trust
company shall have been appointed as trustee for the holders of the Warrants
pursuant to Subsection 3.2, such bank or trust company shall have all the powers
and duties of a warrant agent appointed pursuant to Section 10 and shall accept,
in its own
3
<PAGE>
name for the account of the Company or such successor person as may be entitled
thereto, all amounts otherwise payable to the Company or such successor, as the
case may be, on exercise of this Warrant pursuant to this Section 1.
2. Delivery of Stock Certificates, etc. on Exercise. The Company agrees
that the shares of Common Stock purchased upon exercise of this Warrant shall be
deemed to be issued to the holder hereof as the record owner of such shares as
of the close of business on the date on which this Warrant shall have been
surrendered and payment made for such shares as aforesaid. As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within 10 days thereafter, the Company at its expense (including the
payment by it of any applicable issue taxes) will cause to be issued in the name
of and delivered to the holder hereof, or as such holder (upon payment by such
holder of any applicable transfer taxes) may direct in compliance with
applicable Securities Laws, a certificate or certificates for the number of duly
and validly issued, fully paid and nonassessable shares of Common Stock (or
Other Securities) to which such holder shall be entitled on such exercise, plus,
in lieu of any fractional share to which such holder would otherwise be
entitled, cash equal to such fraction multiplied by the then Fair Market Value
of one full share, together with any other stock or other securities and
property (including cash, where applicable) to which such holder is entitled
upon such exercise pursuant to Section 1 or otherwise.
3. Adjustment for Reorganization, Consolidation, Merger, etc.
3.1. Reorganization, Consolidation, Merger, etc. In case at any
time or from time to time, the Company shall (a) effect a reorganization, (b)
consolidate with or merge into any other person, or (c) transfer all or
substantially all of its properties or assets to any other person under any plan
or arrangement contemplating the dissolution of the Company, then, in each such
case, as a condition to the consummation of such a transaction, proper and
adequate provision shall be made by the Company whereby the holder of this
Warrant, on the exercise hereof as provided in Section 1 at any time after the
consummation of such reorganization, consolidation or merger or the effective
date of such dissolution, as the case may be, shall receive, in lieu of the
Common Stock (or Other Securities) issuable on such exercise prior to such
consummation or such effective date, the stock and other securities and property
(including cash) to which such holder would have been entitled upon such
consummation or in connection with such dissolution, as the case may be, if such
holder had so exercised this Warrant, immediately prior thereto, all subject to
further adjustment thereafter as provided in Section 4.
4
<PAGE>
3.2. Dissolution. In the event of any dissolution of the Company
following the transfer of all or substantially all of its properties or assets,
the Company, prior to such dissolution, shall at its expense deliver or cause to
be delivered the stock and other securities and property (including cash, where
applicable) receivable by the holders of the Warrants after the effective date
of such dissolution pursuant to this Section 3 to a bank or trust company having
its principal office in New York, NY, as trustee for the holder or holders of
the Warrants.
3.3. Continuation of Terms. Upon any reorganization, consolidation,
merger or transfer (and any dissolution following any transfer) referred to in
this Section 3.3, this Warrant shall continue in full force and effect and the
terms hereof shall be applicable to the shares of stock and other securities and
property receivable on the exercise of this Warrant after the consummation of
such reorganization, consolidation or merger or the effective date of
dissolution following any such transfer, as the case may be, and shall be
binding upon the issuer of any such stock or other securities, including, in the
case of any such transfer, the person acquiring all or substantially all of the
properties or assets of the Company, whether or not such person shall have
expressly assumed the terms of this Warrant as provided in Section 4. In the
event this Warrant does continue in full force and effect after the consummation
of the transaction described in this Section 3.3, then only in such event will
the Company's securities and property (including cash, where applicable)
receivable by the holders of the Warrants be delivered to the Trustee as
contemplated by Section 3.2.
4. Extraordinary Events Regarding Common Stock. In the event that the
Company shall (a) issue additional shares of the Common Stock as a dividend or
other distribution on outstanding Common Stock, (b) subdivide its outstanding
shares of Common Stock, or (c) combine its outstanding shares of the Common
Stock into a smaller number of shares of the Common Stock, then, in each such
event, the Purchase Price shall, simultaneously with the happening of such
event, be adjusted by multiplying the then Purchase Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which shall be the number
of shares of Common Stock outstanding immediately after such event, and the
product so obtained shall thereafter be the Purchase Price then in effect. The
Purchase Price, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive event or events described herein in this Section 4.
The number of shares of Common Stock that the holder of this Warrant shall
thereafter, on the exercise hereof as provided in Section 1, be entitled to
receive shall be increased to a number determined by multiplying the number of
shares of Common Stock that would otherwise (but for the provisions of this
Section 4) be issuable on such exercise by a fraction of which (a) the numerator
is the Purchase Price that
5
<PAGE>
would otherwise (but for the provisions of this Section 4) be in effect, and (b)
the denominator is the Purchase Price in effect on the date of such exercise.
5. Certificate as to Adjustments. In each case of any adjustment or
readjustment in the shares of Common Stock (or Other Securities) issuable on the
exercise of the Warrants, the Company at its expense will promptly cause its
Chief Financial Officer or other appropriate designee to compute such adjustment
or readjustment in accordance with the terms of the Warrant and prepare a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based, including a
statement of (a) the consideration received or receivable by the Company for any
additional shares of Common Stock (or Other Securities) issued or sold or deemed
to have been issued or sold, (b) the number of shares of Common Stock (or Other
Securities) outstanding or deemed to be outstanding, and (c) the Purchase Price
and the number of shares of Common Stock to be received upon exercise of this
Warrant, in effect immediately prior to such adjustment or readjustment and as
adjusted or readjusted as provided in this Warrant. The Company will forthwith
mail a copy of each such certificate to the holder of the Warrant and any
Warrant agent of the Company (appointed pursuant to Section 10 hereof).
6. Reservation of Stock, etc. Issuable on Exercise of Warrant;
Financial Statements. The Company will at all times reserve and keep available,
solely for issuance and delivery on the exercise of the Warrants, all shares of
Common Stock (or Other Securities) from time to time issuable on the exercise of
the Warrant. This Warrant entitles the holder hereof to receive copies of all
financial and other information distributed or required to be distributed to the
holders of the Company's Common Stock.
7. Assignment; Exchange of Warrant. Subject to compliance with
applicable Securities laws, this Warrant, and the rights evidenced hereby, may
be transferred by any registered holder hereof (a "Transferor") with respect to
any or all of the Shares. On the surrender for exchange of this Warrant, with
the Transferor's endorsement in the form of Exhibit B attached hereto (the
Transferor Endorsement Form") and together with evidence reasonably satisfactory
to the Company demonstrating compliance with applicable Securities Laws, the
Company at its expense but with payment by the Transferor of any applicable
transfer taxes) will issue and deliver to or on the order of the Transferor
thereof a new Warrant or Warrants of like tenor, in the name of the Transferor
and/or the transferee(s) specified in such Transferor Endorsement Form (each a
"Transferee"), calling in the aggregate on the face or faces thereof for the
number of shares of Common Stock called for on the face or faces of the Warrant
so surrendered by the Transferor.
6
<PAGE>
8. Replacement of Warrant. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of this Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of like tenor.
9. Registration Rights. The holder of this Warrant has been granted
certain registration rights by the Company. These registration rights are set
forth in a Subscription Agreement entered into by the Company and Subscribers of
the Company's Convertible Notes at or prior to the issue date of this Warrant.
The terms of the Subscription Agreement are incorporated herein by this
reference. Upon the occurrence of a Non-Registration Event as described in the
Subscription Agreement, in the event the Company is unable to issue Common Stock
upon exercise of this Warrant that has been registered in the Registration
Statement described in Section 10.1 (iv) of the Subscription Agreement, 150
days after the issue date of this Warrant which Registration Statement must be
effective throughout the exercise period of this Warrant, then upon receipt by
the Company of notice that the Holder of this Warrant would exercise this
Warrant but for the Company's inability to issue such Common Stock upon exercise
of this Warrant, then the Company will pay to the Holder of this Warrant, in
lieu of delivering Common Stock, a sum equal to the highest ask price of the
Company's Common Stock on NASD OTC Bulletin Board or such other principal
trading market for the Company's Common Stock (or as quoted in the "Pink Sheets"
published by the National Quotation Bureau) on the trading date immediately
preceding the date notice is given by the Holder, less the exercise price of
this Warrant, for each share of Common Stock designated in such notice from the
Holder.
10. Warrant Agent. The Company may, by written notice to the each
holder of the Warrant, appoint an agent for the purpose of issuing Common Stock
(or Other Securities) on the exercise of this Warrant pursuant to Section 1,
exchanging this Warrant pursuant to Section 7, and replacing this Warrant
pursuant to Section 8, or any of the foregoing, and thereafter any such
issuance, exchange or replacement, as the case may be, shall be made at such
office by such agent.
11. Transfer on the Company's Books. Until this Warrant is transferred
on the books of the Company, the Company may treat the registered holder hereof
as the absolute owner hereof for all purposes, notwithstanding any notice to the
contrary.
7
<PAGE>
12. Notices, etc. All notices and other communications from the Company
to the holder of this Warrant shall he mailed by first class registered or
certified mail, postage prepaid, at such address as may have been furnished to
the Company in writing by such holder or, until any such holder furnishes to the
Company an address, then to, and at the address of, the last holder of this
Warrant who has so furnished an address to the Company.
13. Miscellaneous. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant shall be construed and enforced in accordance with and
governed by the laws of New York. Any dispute relating to this Warrant shall be
adjudicated in New York State. The headings in this Warrant are for purposes of
reference only, and shall not limit or otherwise affect any of the terms hereof.
The invalidity or unenforceability of any provision hereof shall in no way
affect the validity or enforceability of any other provision.
IN WITNESS WHEREOF, the Company has executed this Warrant under seal as
of the date first written above.
FREDERICK BREWING CO.
By: /s/ [Illegible]
-------------------------------
Name to Come
Witness:
/s/ [Illegible]
- -----------------------------
Name to Come
8
<PAGE>
Exhibit A
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
TO: Frederick Brewing Co.
The undersigned, the holder of the within Warrant, hereby irrevocably elects to
exercise this Warrant for, and to purchase thereunder, _______________ shares of
Common Stock of Frederick Brewing Co. and herewith makes payment of
$______________________ therefor, and requests that the certificates for such
shares be issued in the name of, and delivered to ____________________ whose
address is _________________________________________
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable upon exercise of the within Warrant shall
be made pursuant to registration of the Common Stock under the Securities Act of
1933, as amended (the "Securities Act") or pursuant to an exemption from
registration under the Securities Act.
Dated:
----------------------
-----------------------------------
(Signature must conform to name of
holder as specified on the face of
the Warrant)
-----------------------------------
(Address)
9
<PAGE>
Exhibit B
FORM OF TRANSFEROR ENDORSEMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and
transfers unto the person(s) named below under the heading "Transferees" the
right represented by the within Warrant to purchase the percentage and number of
shares of Common Stock of Frederick Brewing Co. to which the within Warrant
relates specified under the headings "Percentage Transferred" and "Number
Transferred," respectively, opposite the name(s) of such person(s) and appoints
each such person Attorney to transfer its respective right on the books of
Frederick Brewing Co. with full power of substitution in the premises.
- --------------------------------------------------------------------------------
Transferees Percentage Number
----------- Transferred Transferred
----------- -----------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Dated: ___________, 19__ ------------------------------------
(Signature must conform to name
of holder as specified on the
face of the warrant)
Signed in the presence of:
- ----------------------------- ------------------------------------
(Name) (address)
------------------------------------
ACCEPTED AND AGREED: (address)
[TRANSFEREE]
- -----------------------------
(Name)
10
Exhibit 10.19
[Graphic Omitted]
June 30, 1999
CONFIDENTIAL
Snyder International Brewing Group, LLC
C/O Crooked River Brewing Company, LLC
1101 Center Street
Cleveland, Ohio 44114
Gentleman:
We understand that, in connection with a proposed investment by you or
your affiliate in Frederick Brewing Co. (the "Company"), you wish to update and
complete your due diligence review of the Company and its business, financial,
environmental and legal affairs. In consideration of the time and resources that
you will devote to such diligence review as well as the preparation and
negotiation of definitive agreements relating to such investment, we hereby
agree that from the date hereof through and including July 25, 1999 (the
"Exclusive Period"), the Company will not, and will cause its affiliates and
representatives not to, take any action to solicit, initiate or encourage any
Acquisition Proposal (as hereinafter defined) or engage in negotiations with, or
disclose any non-public information relating to, the Company to any person or
entity that may be considering making an Acquisition Proposal with respect to
the Company. During the Exclusive Period, you agree that nothing contained in
this letter shall prevent the Board of Directors of the Company from
considering, negotiating, discussing, approving and recommending to the
stockholders of the Company a bona fide Acquisition Proposal not solicited in
violation of this letter, provided the Board of Directors of the Company
determines in good faith (upon advice of outside counsel) that it is required to
do so in order to discharge properly its fiduciary duties. If the Company takes
any action during the Exclusive Period based on the immediately preceding
sentence, the Company shall reimburse you for your reasonable out-of-pocket
expenses (including legal, accounting and other professional fees, travel
expenses, etc.) incurred on and after June 24, 1999 in connection with the
transactions referred to herein. As used herein, "Acquisition Proposal" means an
offer or proposal for, or any indication of interest in, (i)a merger or other
business combination involving the Company or any subsidiary thereof, or (ii)
the acquisition in any manner of any equity interest in, or a portion of the
assets of, the Company or any subsidiary thereof, in each case other than the
transactions contemplated hereby. During the Exclusive period, the Company shall
promptly notify you of any Acquisition Proposal or any request for non-public
information by any person or entity that informs the Company that it is
considering making or has made an Acquisition Proposal.
<PAGE>
Other than as expressly set forth herein and in the Confidentiality
Agreement, dated June 22, 1999, between the company and you, neither you nor the
Company undertakes any binding obligation with respect to a possible transaction
or investment. Such binding commitments will be made only upon the execution and
delivery of a definitive agreement setting forth the obligations of the parties.
Until such a definitive agreement is executed and delivered, you and we agree
that there has been no meeting of the minds as to the material terms of any
proposal.
Very truly yours,
FREDERICK BREWING CO.
/s/ Kevin E. Brannon
- --------------------------
By: Kevin E. Brannon
Chairman and CEO
The foregoing is hereby agreed to and accepted:
Snyder International
Brewing Group, LLC
- ---------------------------
By: C. David Snyder
Chairman
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000926978
<NAME> Frederick Brewing Co.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 20,337
<SECURITIES> 0
<RECEIVABLES> 378,176
<ALLOWANCES> 27,618
<INVENTORY> 811,058
<CURRENT-ASSETS> 1,341,061
<PP&E> 9,148,885
<DEPRECIATION> 1,317,730
<TOTAL-ASSETS> 12,055,474
<CURRENT-LIABILITIES> 2,850,604
<BONDS> 0
0
1,723,083
<COMMON> 722
<OTHER-SE> 3,911,927
<TOTAL-LIABILITY-AND-EQUITY> 5,635,732
<SALES> 924,102
<TOTAL-REVENUES> 924,102
<CGS> 861,977
<TOTAL-COSTS> 861,977
<OTHER-EXPENSES> 753,195
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 154,024
<INCOME-PRETAX> 845,094
<INCOME-TAX> 0
<INCOME-CONTINUING> 845,094
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 845,094
<EPS-BASIC> .51
<EPS-DILUTED> .51
</TABLE>
Exhibit 99.2
FOR IMMEDIATE RELEASE: January 27, 1999
CONTACT: Christine Farrell
Frederick Brewing Co.
301-694-7899, x122
Steeple Stout(TM) Back in Time
For St. Patrick's Day
Blue Ridge(R) Steeple Stout(TM) Available February 1999
FREDERICK-- Frederick Brewing Co. announced today the return of the popular Blue
Ridge(R) beer, Steeple Stout(TM). Steeple Stout(TM), inspired by the spires over
Historic Frederick, was first introduced for St. Patrick's Day in 1995. This
award-winning stout has gone on to win Brickskeller's 1997 People's Choice
Award, membership in Beer Connoisseur magazine's prestigious list of America's
1997 Top 10 beers, Cheers magazine's 1997 One World Beer Festival Silver Medal,
and a silver medal at The Association of Brewers' 1996 World Beer Cup. This
heavy, rich, full-bodied stout is sure to warm the soul in the chilly months.
Blue Ridge(R) Steeple Stout(TM) Specifications:
Malts: 2 Row Pale Malt, Munich Malt, Flake Rye, Chocolate Malt,
Roasted Barley, Black Malt, Caramel Malt, Carapils Malt
Hops: Chinook
Bitterness: High, 50.0 IBU
Color: Black, 71 SRM
Gravity: 16.5 Plato
Alcohol: 5.6% by Vol.
CO2: 2.5 Vol.
-more-
<PAGE>
Founded in 1993 with the Blue Ridge(R) brand of beers, Frederick
Brewing Co. (FBC) completed an initial public offering (IPO) in 1996.
In March 1997, the company moved from a converted warehouse to a
purpose-built, 57,000 square foot facility. In December 1997, FBC
acquired two microbreweries, Wild Goose Brewery, Inc. and Brimstone
Brewing Co., creating the largest craft brewery in the Mid-Atlantic
region. Today, Frederick Brewing Co.'s award-winning beers are sold in
33 states and the District of Columbia. FBC shares are traded under the
NASDAQ symbol: "BLUE."
Frederick Brewing Co. tours are available every Saturday and Sunday at
1:30p.m. Call 888-258-7434 for directions.
###
Exhibit 99.3
FOR IMMEDIATE RELEASE: January 28, 1999
CONTACT: Christine Farrell
Frederick Brewing Co.
(888) 258-7434, ext. 122
THE SUBLIMINATOR(R) DOPPLEBOCK--
SIMPLY SUBLIME
Blue Ridge(R) Subliminator(R) Dopplebock Returns in March
FREDERICK, MD -- Frederick Brewing Co. announced the return of its award-winning
seasonal, Blue Ridge(R) Subliminator(R) Dopplebock. This dark, ruby-red beer,
popular for its rich taste, is brewed in limited quantities. It will be released
in March after almost three months of fermentation and maturation.
This strong lager was first introduced in the spring of 1995. Later that year,
it was awarded a silver medal in the bock category at the Annual Great American
Beer Festival. Since its early success and popularity, this beer has gone on to
win its second silver medal at the 17th Annual Great American Beer Festival.
Monks, as a form of liquid bread during Lent, originally consumed this type of
strong, full-bodied lager, known as bock beer. Though not twice as strong, extra
strong bocks are known as dopple ("double") bocks.
Blue Ridge(R) Subliminator(R) Dopplebock Specifications
Malts: 2-Row Pale, Munich Malt, Caramel Malt
Hops: US Hallertauer, Mt. Hood, Tettnang
Hop Aroma: Med/Spice
Color: Copper Brown
Gravity: 21(degree) Plato
Alcohol: 6.8% by volume
CO2: 2.6 Vol.
<PAGE>
Founded in 1993 with the Blue Ridge(R) brand of beers, Frederick Brewing Co.
completed an initial public offering (IPO) in 1996. In March 1997, the company
moved from a converted warehouse to a purpose-built, 57,000 square foot
facility. In December 1997, FBC acquired two other microbreweries; Wild Goose
Brewery, Inc. and Brimstone Brewing Co., creating the largest craft brewery in
the Mid-Atlantic region. Today, Frederick Brewing Co.'s award-winning beers are
sold in 33 states, the District of Columbia and several international markets.
FBC shares are traded under the NASDAQ symbol: BLUE.
Free public tours and tastings are held at Frederick Brewing Co.'s brewery every
Saturday and Sunday at 1:30 p.m. Reservations are not required. Directions are
available by calling the brewery at (888) 258-7434, visiting the Frederick
Brewing Co. website at http://www.fredbrew.com, or referring to the map on the
bottom of a 6-pack. Downloadable label artwork and brewery photographs are
available at http://www.fredbrew.com-prphotos.
###
Exhibit 99.4
For Immediate Release - February 11, 1999
For More Information, contact: Kevin Brannon (301) 694-7899
FREDERICK BREWING REPORTS SHIPMENTS
UP 81% IN 1998
Company to Benefit from Refinancing of Real Estate Loan
Frederick, MD - Frederick Brewing Co. (NASDAQ:BLUE), the Mid-Atlantic's largest
brewer of specialty or craft beers, today announced that its sales volumes for
1998 increased by 81% to 31,464 barrels and that its gross revenues for the year
were up 68% to $5,521,558 over $3,286,771 in 1997. For the fourth quarter,
October 1 through December 31, volume shipped was 7,664 barrels, an increase of
53% over 5,023 barrels in the fourth quarter of 1997, while gross revenues
increased by 22% to $1,309,000 versus $1,073,000 in the same period of 1997.
Revenue per barrel fell during the quarter and for the year due to a near
doubling of the percentage of the company's beer that is sold in kegs, rather
than bottles, during 1998.
The Company attributed the growth primarily to sales of the Wild Goose brand,
which was acquired in early 1998, in local markets. Sales of newly-acquired
brands, also including Brimstone, off-set declines in sales of other brands,
particularly Hempen Ale and Hempen Gold, in more remote markets where the
company has reduced its sales and marketing support in a drive to cut costs.
According to Marjorie McGinnis, FBC's president and COO, "While we are somewhat
disappointed that sales did not grow at a faster pace, I believe our financial
results will show that our on-going effort to reduce costs and focus our efforts
on the markets in our backyard have resulted in lower sales, marketing and
shipping costs, all of which should have a positive impact on our bottom line."
The Company plans to release its financial report in about two weeks. McGinnis
also confirmed that FBC had terminated a letter of intent to produce beer under
contract for export to Harbin, China after evaluating the condition of the beer
market there. She also said that a planned expansion of distribution in Canada
had been put on hold in light of disappointing fourth quarter results in
Ontario.
In other news, FBC announced that the $2,600,000 mortgage loan on the brewery
land and building had successfully been refinanced with FCNB Bank of Frederick,
Maryland. CEO Kevin Brannon noted that the terms of the new loan eliminate
certain restrictive financial covenants that had caused the Company to fall into
<PAGE>
technical default in the past and lowered the interest rate by 1.25% per year
from the rate most recently paid to the previous lender. The brewery land and
building is owned by Blue II, LLC, an entity controlled by two of FBC's outside
directors or their affiliates, and is leaded by FBC. FBC effectively services
the mortgage debt through its lease payments and its lease payments will decline
due to the more favorable terms of the new mortgage loan.
Brannon also stated that FBC was evaluating proposals to refinance the Company's
remaining $1.2 million in senior secured debt and to provide a revolving line of
credit for use as working capital. The proposals under review require that the
Company obtain additional injections of equity capital, Brannon said. The
existing loan matures on April 1,1999 and must be refinanced by that date.
FBC also announced that it had filed preliminary proxy materials with the SEC
concerning its proposed reverse stock split. The Company is seeking to reverse
the stock on the basis of 10:1, rather than the 5:1 announced in December. The
shareholder vote on the reverse split is tentatively scheduled for March 23rd.
Brokers and shareholders of record as of February 16th should receive the proxy
materials during the week of February 22nd.
Brannon also confirmed that FBC had retained Westfinance Corporation of
Washington DC as its financial advisor. Westfinance has been hired to assist the
Company in refinancing its debt, raising additional equity capital and
identifying and evaluating strategic options, including potential mergers and
acquisitions, and the possible sale or merger of the Company. Brannon said, "Our
two major goals are to raise sufficient cash to meet our current working capital
deficit and future working capital needs and meet the requirements of our
prospective new lenders and to acquire additional production and sales volume to
improve our brewery capacity utilization. We have had discussions with several
parties, some of which are on-going, but no concrete proposals have been
presented to us. Rumors of a transaction involving an investment or purchase by
a large brewer are inaccurate. No large brewer, foreign or domestic, has
expressed any interest in such a transaction, to my knowledge."
Exhibit 99.5
FOR IMMEDIATE RELEASE: CONTACT: Christine Farrell
April 9, 1999 Frederick Brewing Co.
301.694.7899
WHEAT BEER BACK FOR SUMMER
Blue Ridge(R) Wheat Beer(TM) Available May 11,1999
FREDERICK, MD-Frederick Brewing Co. (FBC) announced today the return of a
longtime favorite, Blue Ridge(R) Wheat Beer(TM). Available in limited
quantities, this light-bodied, fruity beer is sure to quench your thirst on hot
sunny days. First brewed in 1994, it was one of the first beers to come out of
the Frederick based brewery. It was discontinued last year but is back by
popular demand in time to celebrate summer.
It is made with all-American ingredients and is pale yellow in color. As always,
it contains no additives, no preservatives and no pasteurization. For a uniquely
refreshing taste, roll the bottle to rouse the yeast and add a slice of lemon.
Blue Ridge(R) Wheat Beer(TM) Specifications:
MALTS: 2-Row Pale, Wheat, Carapils
HOPS: Mt Hood
HOP AROMA: None
BITTERNESS: 9.0
COLOR: Pale yellow
GRAVITY: 10.0 Plato
CO2 (VOL.): 2.8 Vol.
-more-
<PAGE>
Blue Ridge(R) Wheat Beer(TM) Back For Summer
Page 2 of 2
Founded in 1993 with the Blue Ridge line of beers, Frederick Brewing Co.
completed a successful initial public offering (IPO) in 1996. In March 1997, the
Company moved from a converted warehouse to a purpose-built, 57,000 square foot
faculty. In December 1997, Frederick Brewing Co. merged with two other Maryland
microbreweries, Wild Goose Brewery, Inc. of Cambridge, MD and Brimestone Brewing
Company of Baltimore, MD, creating the largest craft brewery in the Mid-Atlantic
region. Today, Frederick Brewing Co.'s award-winning beers are sold in 33
states, District of Columbia and several international markets.
###
Exhibit 99.6
[GRAPHIC OMITTED]
FOR IMMEDIATE RELEASE: April 23, 1999 CONTACT: Kym Cheseldine
Frederick Brewing Co.
301-694-7899, x113
Kevin Brannon
Frederick Brewing Co.
301-694-7899, x100
FREDERICK BREWING REPORTS IMPROVED
RESULTS; DESCRIBES RESTRUCTURING PLAN
FREDERICK, MD--Frederick Brewing Co. (OTCBB: BLUE), the Mid-Atlantic region's
largest craftbrewer, today released its financial results for the year and
fourth quarter ended December 31, 1998. The Company, which will file its Annual
Report with the Securities Exchange Commission on May 5, 1999, announced that
its net loss for the fourth quarter of 1998 was $1,277,211 (90 cents per share
on 1.4 million weighted average shares outstanding) a reduction of 25% compared
to the loss of $1,599,105 ($3.60 per share on 441,000 shares in the same quarter
of 1997). The per share figures for both years are based on the 1:10 reverse
stock split affected on March 23, 1999. The 1998 results reflect a $191,146 gain
from the refinancing of its landlord's mortgage loan and a $123,000 charge for
the write down of certain inventories acquired in the acquisition of Wild Goose
Brewery, Inc. Including the deemed dividends to preferred shareholders, which is
a calculation of the discount at issuance of convertible preferred stock, the
net loss attributable to common shareholders was $1,421,792 in the fourth
quarter of 1998 versus $2,927,666 in same period of 1997.
For the full year, the Company's net loss was $4,684,711 in 1998 versus
$4,363,440 in 1997 ($4.40 per share on 10,544,244 weighted average shares versus
$15.90 per share on 2,741,583 shares in 1997). The 1998 loss included one-time
charges of $1,200,000 for the termination of a contract and $100,000 loss on the
sale of certain equipment after the acquisition of Wild Goose. Without these
charges, the net loss narrowed by about $978,000 (22%) to $3,384,711 in 1998.
Gross revenues in the fourth quarter rose by $236,000 (22%) over the previous
period from $1,072,585 to $1,308,499. For the full year, revenues rose by
$2,234,782 (68%) to $5,521,558 in 1998 versus $3,286,776 in 1997. For 1998,
gross profit rose to $945,878, an increase of $705,426 (293%) over 1997 gross
profit of $240,452. The improvement reflects gains in capacity utilization due
to higher sales volumes and an increase in the operating efficiency of the
Company's brewery, which opened in March of 1997 and did not become fully
operational until later that year.
<PAGE>
Fourth quarter selling, general and administrative ("SG&A") expenses were
reduced by $355,391 (21%) to $1,330,622 in 1998 from $1,686,013 in the same
period of 1997. For the full year, SG&A expenses, excluding the write-off of the
terminated contract, fell by approximately $650,000 (12%) to less than $4
million in 1998 versus more than $4.6 million in 1997. The 1998 expenses also
included new, non-cash, amortization charges of $68,353 for the quarter and
$250,627 for the full year as the result of the acquisition of the Wild Goose
and Brimstone brands in January. The operational improvements were off-set by
higher net interest expenses and the one-time charges recorded during the first
half of 1998.
FBC's Chief Executive Officer, Kevin Brannon summed up 1998 as a "very tough
year. We were forced to recognize that we could not continue to support the
investment necessary to develop our brands in remote markets and support new
products at the level we did in late 1997 and early 1998." Brannon said that the
fourth quarter's reduction in SG&A expenses showed further progress in the
Company's cost-cutting efforts and that additional steps taken recently would
result in further improvements in later periods. "In the twelve months ending
March 31, 1999, we eliminated nearly one-third of the positions we had filled
last year, including an entire layer of management across the board, for a
projected annual savings of nearly $570,000, as against our 1997 budget. Of
these cuts, some eight positions and over $300,000 in compensation expenses have
been eliminated since November of 1998. The savings will be reflected in our
results for the first and second quarters of 1999. While we cannot downsize our
way to profitability, these sometimes painful efforts will go a long way toward
lowering our break-even point and our losses."
Among the positions eliminated was that of Vice President-Brewing Operations,
which was vacated last week by company co-founder Steve Nordahl. Nordahl
resigned in order to re-locate to his native Seattle and pursue interests
outside the brewing industry. Brannon said, "It is personally wrenching for us
to see Steve leave after working so closely with him for the past seven years
but he's a young guy and I understand that he would like a chance to try
something different for a while."
Company president Marjorie McGinnis said, "All of us will miss Steve's energy
and leadership skills but he leaves us with an experienced brewing and packaging
team, led by people who have been with the Company for three to five years. To
his credit, Steve built one of the best-trained and most stable groups of
production people in the craftbrewing industry. There is no question that this
group is ready to step up and carry on the work of making award-winning beers."
She also noted that Nordahl had agreed to consult with the Company on special
projects for at least twelve months.
<PAGE>
FBC Outlines Financial Restructuring and Acquisition Plan
Brannon and McGinnis also laid out the plan the Company and its financial
advisors have developed to deal with its current working capital deficit and to
return the Company to profitability. They said the plan has several elements,
including:
1. The acquisition of a license to produce and market a brand of malt
beverage which is currently being sold in 47 countries around the
world and is expected to sell in excess of 1,000,000 cases (72,500
31-gallon beer barrels) in the U.S. market in 1999, with gross
revenues of approximately $13,000,000. McGinnis noted that Frederick
Brewing sold approximately 31,000 barrels and had gross revenues of
about $5.5 million in 1998, meaning that the acquisition would more
than triple the Company's revenues and would, after necessary
equipment was installed at FBC's brewery, raise FBC's brewery
utilization rate from 20% of design capacity to more than 80%. She
said this would remove the Company's primary obstacle to
profitability: high fixed costs associated with the financing and
ownership of the high-tech brewery, completed in mid-1997.
2. Re-financing senior secured debt of approximately $1.2 million held by
First Union National Bank with a new, larger credit facility (in the
range of $2-3.3 million), secured by the Company's existing equipment,
inventory, accounts receivable and beer brands plus the new accounts
receivable and other assets to be in the brand license transaction.
3. An injection of equity capital for additional investment in marketing
both the new brand to be acquired and the Company's existing Wild
Goose, Blue Ridge, Hempen and Brimstone brands.
According to Brannon, the Company has been negotiating to acquire the new brand
since December and expects to enter into a letter of intent specifying the
essential terms within the next 10 - 14 days. The likely structure of the deal
will involve a relatively small up-front cash payment, periodic payments based
on volumes sold and options to purchase the license outright in future years,
Brannon said. He said FBC hopes to close the transaction by July 1 and to bring
production to Frederick shortly after the beginning of next year. In the
meantime, the new brand would be produced under its current contract brewing
arrangement elsewhere and sold by FBC through the national marketing, sales and
distribution network already set up to market the brand.
<PAGE>
"Operationally, this transaction would transform this company," said McGinnis.
"Besides allowing the brewery to operate far more efficiently, we would have the
ability to market our other products through a successful national network of
salespeople, brokers and wholesalers without incurring the start-up losses we
previously experienced in new, distant markets, because their basic expenses are
already being covered profitably by sales of the new brand." She said the full
advantages from integration of the brand into FBC's operations would probably
not be realized for six months or so after the transaction closed.
Brannon also said that the debt refinancing is under discussion with local
lenders and private parties and that he expects to complete it within 45 days.
The equity portion of the plan has been discussed with numerous parties, any of
whom would be expected to be active in management and long-term investors in
FBC, according to Brannon. He said completion of the various transactions would
remove the financial pressures the Company has faced in recent months and would
allow it to generate profits for the first time since it went public in 1996.
Brannon said the Company had agreed to terms for a $500,000 short term bridge
loan to provide working capital pending the completion of the long-term
financial restructuring.
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 99.7
The Campbell Group Advertising Public Relations
Inner Harbor Center
400 East Pratt Street, Suite 500
Baltimore, MID 21202
Phone 410.547.0600
Fax 410.547.6508
FOR IMMEDIATE RELEASE
MARYLAND FAVORITE NATIONAL PREMIUM BEER IS BACK
Baltimore Waterfront Festival Goers Get a Taste Preview
BALTIMORE, MD (April 28, 1999) - The beer with a past is coming back.
Marylanders attending the Baltimore Waterfront Festival will get a chance to
sample the new National Premium beer -- an old Maryland favorite that is being
reintroduced by Frederick Brewing Company.
"We are confident that people who remember National Premium from days
gone by will enjoy the original recipe for National Premium beer that we are
resurrecting," said Majorie McGinnis, President of Frederick Brewing Company.
National Premium beer was first introduced by the National Brewing
Company just after Prohibition ended in 1934. During its heyday in the 1960s,
over 200,000 cases of National Premium beer were sold with tax revenues
exceeding $40,000 per year. Distribution reached into metropolitan New York,
southern Connecticut and northern New Jersey in addition to Maryland. National
Premium's reputation was watered down - literally - through a series of
corporate mergers and acquisitions in the 1970s and 1980s until production
stopped in 1996. Frederick Brewing Company acquired the licensing rights to
produce, market and sell the original recipe of National Premium beer beginning
in May 1999.
Founded in 1993, Frederick Brewing Company (FBC) is the largest craft
brewery in the Mid-Atlantic region, with National Premium becoming the 23rd beer
on its roster of awardwinning and seasonal beers. Other FBC brands include Blue
Ridge beers, Hempen Ale(TM), the first U.S. craft beer brewed with hemp seeds,
Wild Goose and Brimstone.
(more)
[GRAPHIC OMITTED] Baltimore Now York
<PAGE>
2
Comptroller William Donald Schaefer was the first Marylander to taste
the new National Premium beer at a press conference on April 28. He was joined
by Hannah Byron, Deputy Assistant Secretary for Maryland's Department of
Business and Economic Development. Frederick Brewing Company offered a portion
of the first month's sales of National Premium beer to go to the charity of his
choice. Comptroller Schaefer has chosen to assign the proceeds to a charity in
memory of Jerry Hoffberger, the founder of National Brewing Company, which first
produced National Premium beer.
The Baltimore Waterfront Festival is being held at Baltimore's Inner
Harbor from Thursday, April 29 to Sunday, May 2. Festival-goers will find
Frederick Brewing Company booths in the refreshment areas near the Chesapeake
Kitchen and Bay Cabaret area. The hours of the Baltimore Waterfront Festival 10
a.m. to 7 p.m. on Thursday and Sunday, and 10 a.m. to 8 p.m. on Friday and
Saturday.
# # #
FOR FURTHER INFORMATION, THE MEDIA MAY CONTACT:
Anne Mannix Randi J. Rom Christine Farrell
The Campbell Group R.J. Rom & Associates, Inc. Frederick Brewing Company
410-547-0600, ext. 218 410-367-6525 301-694-7899
Exhibit 99.8
FOR IMMEDIATE RELEASE - JUNE 30, 1999
Contact: Kevin Brannon
Frederick Brewing Co.
(301) 694-7899 x 100
FREDERICK BREWING CO. ANNOUNCES PLAN
FOR STRATEGIC ALLIANCE
FREDERICK, MD--Frederick Brewing Co. (OTC:BLUE), the Mid-Atlantic region's
largest craft brewer, today announced that it has entered into an agreement
giving Snyder International Brewing Group, LLC ("SIBG") the exclusive right,
until July 25th, to negotiate a transaction whereby SIBG would purchase a
majority interest in the Maryland brewer.
According to Frederick's chief executive officer, Kevin Brannon, the terms of
the transaction are still being negotiated and many key terms and conditions
have yet to be addressed and any transaction will be subject to execution of
mutually agreeable definitive documents. "Generally, the structure discussed to
date would call for SIBG to invest a substantial amount of cash in the company
in exchange for newly-issued shares constituting a majority of the stock
outstanding. SIBG would arrange to re-finance our bank debt on more favorable
terms and would purchase the brewery building from its current owners. If the
transaction is completed, we also expect that our brewery will have the
opportunity to contract brew 5,000 to 35,000 barrels per year of SIBG's brands
in our facility, beginning as soon as the brewery can be made ready to do so."
Brannon emphasized, however, that the proposed transaction was complex and that
any number of factors could cause one party or the other to back away before it
can be completed.
Marjorie McGinnis, Frederick's president and chief operating officer, said,
"This deal could move the company forward in a big way. It would boost our
capacity utilization and should reduce our debt service expense. There may also
be opportunities to cross market the various brands in our respective
territories." McGinnis also said that the Company's plans, announced on April
23rd, to acquire the U.S. license to produce and market another malt beverage
brand had been suspended, pending the outcome of discussions with SIBG.
Privately-held SIBG is based in Cleveland, Ohio and, since entering the beer
business in August of 1998, has acquired two Ohio
<PAGE>
breweries and several brands which together are projected to ship as much as
70,000 barrels in 1999. Its brands include Crooked River, Little Kings, Hudy
Delight and Christian Moerlein.
SIBG chairman C. David Snyder said, "The domestic beer industry is in a state of
great flux right now. We see tremendous opportunities to consolidate and
reconfigure promising companies and brands in all segments of the market.
Frederick Brewing fits our strategy very well, thanks to its first-rank brewery
and the strong performance of its core brands." Snyder said overall employment
in Frederick should increase as production levels rise and sales efforts on
behalf of Frederick's existing brands intensify.
Except for historical information, this press release contains forward-looking
statements that involve risks and uncertainties including, but not limited to,
the Company's financial condition and liquidity, the requirement that third
parties, including the Company's creditors, must approve, consent to or
otherwise cooperate as a condition to closing the contemplated transactions, the
lack of audited financial statements for SIBG, SIBG's brief operating history,
the potential difficulties inherent in shifting and coordinating production
among various facilities, probable management changes, the effects of
competition; the failure of the Company and SIBG to enter into definitive
agreements; the inability of the Company or SIBG to satisfy any closing
conditions contained in such agreements or otherwise fail to complete the
transactions contemplated by such agreements; and other risks detailed in the
Company's SEC filings. Actual results may differ materially from the
forward-looking information set out above.
