SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. _____)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] Confidential, For Use of the
[_] Definitive Proxy Statement Commission Only (as permitted
[_] Definitive Additional Materials by Rule 14a-6(e)(2))
[_] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
Frederick Brewing Co.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
________________________________________________________________________________
1) Title of each class of securities to which transaction applies:
________________________________________________________________________________
2) Aggregate number of securities to which transaction applies:
________________________________________________________________________________
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
________________________________________________________________________________
4) Proposed maximum aggregate value of transaction:
________________________________________________________________________________
5) Total fee paid:
[_] Fee paid previously with preliminary materials:
________________________________________________________________________________
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
1) Amount previously paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
[FREDERICK BREWING CO. LETTERHEAD]
Dear Stockholder:
The directors and officers of Frederick Brewing Co. join me in
extending to you a cordial invitation to attend a Special Meeting of
Stockholders. This meeting will be on March 23, 1999, at10:00 a.m., Eastern
Standard Time, at the principal office of the Company, 4607 Wedgewood Blvd.,
Frederick, Maryland. The matters to be considered by stockholders at the Special
Meeting are described in the accompanying materials.
It is very important that your shares be voted at the Special Meeting
regardless of the number you own or whether you are able to attend the meeting
in person. Failure to vote for the proposals described in the accompanying
materials will have the same effect as votes against such proposals. We urge you
to mark, sign, and date your proxy card today and return it in the envelope
provided, even if you plan to attend the Special Meeting. This will not prevent
you from voting in person, but will ensure that your vote is counted if you are
unable to attend.
Your continued support of, and interest in, Frederick Brewing Co. is
sincerely appreciated.
Very truly yours,
Kevin E. Brannon
Chairman of the Board and
Chief Executive Officer
<PAGE>
FREDERICK BREWING CO.
4607 Wedgewood Blvd.
Frederick, Maryland 21703
-------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held March 23, 1999
-------------------------
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders ("Special
Meeting") of Frederick Brewing Co. (the "Company") will be held at the Company's
principal office located at 4607 Wedgewood Blvd., Frederick, Maryland on
Tuesday, March 23, 1999 at 10:00 a.m., Eastern Standard Time, for the following
purposes, all of which are more completely set forth in the accompanying Proxy
Statement:
(1) To consider and act upon a proposal to authorize an amendment
to Article V of the Company's Amended and Restated Articles of
Incorporation to effect a reverse stock split in which one new
share of common stock of the Company, par value $0.0004 per
share, will be exchanged for every ten shares, par value
$0.00004 per share, presently issued and outstanding, and to
approve the number of authorized shares of common stock and
the aggregate par value of all the shares of all classes of
the capital stock which the Company has the authority to issue
(the "Reverse Stock Split Proposal");
(2) To vote on a proposal to approve an adjournment of the Special
Meeting to another date and/or place for the purpose of
soliciting additional proxies if there are not sufficient
votes at the time of the Special Meeting to approve the
foregoing proposal; and
(3) To transact such other business as may properly come before
the meeting or any adjournment thereof. Management is not
aware of any other such business.
The Board of Directors has fixed February 16, 1999 as the voting record
date for the determination of stockholders entitled to notice of and to vote at
the Special Meeting and at any adjournment or postponement thereof. Only those
stockholders of record as of the close of business on that date will be entitled
to vote at the Special Meeting or at any such adjournment.
By Order of the Board of Directors
Maribeth Visco
Corporate Secretary
Frederick, Maryland
February 18, 1999
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YOU ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING. IT IS IMPORTANT THAT
YOUR SHARES BE REPRESENTED REGARDLESS OF THE NUMBER YOU OWN. EVEN IF YOU PLAN TO
BE PRESENT, YOU ARE URGED TO COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY
PROMPTLY IN THE ENVELOPE PROVIDED. IF YOU ATTEND THE MEETING, YOU MAY VOTE
EITHER IN PERSON OR BY PROXY. ANY PROXY GIVEN MAY BE REVOKED BY YOU IN WRITING
OR IN PERSON AT ANY TIME PRIOR TO THE EXERCISE THEREOF.
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<PAGE>
FREDERICK BREWING CO.
4607 Wedgewood Blvd.
Frederick, Maryland 21703
-------------------------
PROXY STATEMENT
-------------------------
SPECIAL MEETING OF STOCKHOLDERS
March 23, 1999
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors (the "Board of Directors" or the "Board") of Frederick
Brewing Co., a Maryland corporation (the "Company"), of proxies from the holders
(the "Stockholders") of the Company's issued and outstanding shares of Common
Stock, par value $0.00004 per share (the "Common Stock"), to be exercised at a
Special Meeting of Stockholders to be held on Tuesday, March 23, 1999, at the
principal office of the Company, 4607 Wedgewood Blvd., Frederick, Maryland, at
10:00 a.m. local time, and at any adjournment(s) or postponement(s) of such
meeting (the "Special Meeting"), for the purposes set forth below. This Proxy
Statement and the enclosed proxy card are being mailed to the Stockholders on or
about February 18, 1999.
The purpose of the Special Meeting is as follows:
(1) To consider and approve a proposal to authorize an amendment to
Article V of the Company's Amended and Restated Articles of Incorporation (the
"Charter") to effect a reverse stock split (the "Reverse Stock Split") in which
one new share of common stock, par value $0.0004 per share ("New Common Stock"),
would be exchanged for every ten shares of common stock, par value $0.00004 per
share ("Outstanding Common Stock"), presently issued and outstanding, and to
approve the number of authorized shares of common stock of the Company and the
aggregate par value of all the shares of all classes of the capital stock which
the Company has the authority to issue (the "Reverse Stock Split Proposal"); and
(2) To vote on a proposal to approve an adjournment of the Special
Meeting to another date or place for the purpose of soliciting additional
proxies if there are not sufficient votes at the time of the Special Meeting to
approve the foregoing proposal; and
(3) To transact such other business as may be properly brought before
the Special Meeting and any postponements or adjournments thereof.
Shares Outstanding and Record Date. Only the holders of record of the
shares of Common Stock at the close of business on February 16, 1999, (the
"Record Date") are entitled to notice of and to vote at the Special Meeting and
at any adjournment or postponement thereof. At the close of business on the
Record Date, 16,664,393 shares of Common Stock were outstanding, each of which
is entitled to cast one vote.
Voting Rights and Quorum. The presence at the Special Meeting, in
person or by proxy, of Stockholders entitled to cast a majority of all the votes
entitled to be cast at the Special Meeting will constitute a quorum for the
transaction of business at the Special Meeting. The affirmative vote of the
holders of two-thirds of all the votes entitled to be cast on the matter, in
person or by proxy, at the Special Meeting is required for approval of the
Reverse Stock Split Proposal. The affirmative vote of the holders of a majority
of the total votes cast at the Special Meeting is required for approval of the
proposal to approve any adjournment of the Special Meeting. Abstentions are
considered in determining the presence of a quorum but will have the effect of a
vote against each of the proposals. Under rules applicable to broker-dealers,
each of the proposals are considered a "discretionary" item upon which brokerage
firms may vote in their discretion on behalf of their clients if such clients
have not furnished voting instructions. Thus, there will be no "broker
non-votes" at the Special Meeting.
<PAGE>
Proxies. Shares of Common Stock represented by properly executed
proxies, if such proxies are received in time and not revoked, will be voted in
accordance with the instructions indicated on the proxies. If no instructions
are indicated, such proxies will be voted (i) FOR the amendment of the Charter;
(ii) FOR the approval of any adjournment and (iii) in the discretion of the
proxy holder as to any other matter which may properly come before the Special
Meeting. Any holder of Common Stock who returns a signed proxy but fails to
provide instructions as to the manner in which such shares are to be voted will
be deemed to have voted in favor of the matters set forth in the preceding
sentence.
A stockholder who has given a proxy may revoke it at any time prior to
its exercise at the Special Meeting by (i) giving written notice of revocation
to the Secretary of the Company, (ii) properly submitting to the Company a
duly-executed proxy bearing a later date, or (iii) attending the Special Meeting
and voting in person. All written notices of revocation and other communications
with respect to revocation of proxies should be addressed as follows: Frederick
Brewing Co., 4607 Wedgewood Boulevard, Frederick, Maryland 21703, Attention:
Secretary.
No Appraisal Rights. Under the Maryland General Corporation Law
("MGCL"), Stockholders will not be entitled to appraisal rights with respect to
the Reverse Stock Split Proposal.
Proxy Solicitation. The Company may solicit proxies by mail,
advertisement, telephone, facsimile, telegraph and personal solicitation.
Directors and executive officers of the Company may solicit proxies personally
or by telephone without additional compensation. The Company will reimburse
banks, brokerage firms and other custodians, nominees and fiduciaries for
reasonable expenses incurred by them in sending proxy solicitation materials to
the beneficial owners of the Company's Common Stock.
The Company has retained Kissel-Blake, a Division of Shareholder
Communications Corporation, 110 Wall Street, New York, New York 10005, a
professional proxy solicitation firm, to assist in the solicitation of proxies
and for related services. The Company will pay Kissel-Blake, Inc. a fee of
$2,500 and has agreed to reimburse it for its reasonable out-of-pocket expenses.
Other Matters. At February 16, 1999, directors and executive officers
of the Company and their affiliates beneficially owned 568,163 shares of Common
Stock, or 3.41% of the total shares of Common Stock outstanding on such date. It
is anticipated that all of such shares will be voted in favor of the proposals
of the Board described herein.
Under the MGCL, only the purposes specified in the Notice of Special
Meeting of Stockholders may be considered at the Special Meeting.
2
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth information as of February 16, 1999,
with respect to directors, executive officers and certain employees of the
Company and each person who is known by the Company to own beneficially more
than 5% of the shares of its Common Stock, and with respect to shares owned
beneficially by all directors and officers of the Company as a group. The
following information does not reflect the proposed Reverse Stock Split. The
address for all directors and executive officers of the Company is 4607
Wedgewood Blvd., Frederick, Maryland 21703.
<TABLE>
<CAPTION>
Amount and
Nature of Percent
Beneficial of Common
Name of Beneficial Owner Position Ownership (1) Stock (2)
------------------------ -------- ------------- ---------
<S> <C> <C> <C>
Kevin E. Brannon (3)(11)(13) Chairman of the Board and Chief
Executive Officer 162,882 0.98%
Marjorie A. McGinnis (3)(11)(13) President and Director 162,882 0.98
Nicholas P. Foris, MD (4) Director 118,194 *
Carl R. Hildebrand (5) Director 5,000 *
Jerome M. Pool (6) Director 24,344 *
Maribeth Visco (7) Director 28,680 *
Steven T. Nordahl (8)(11)(13) Vice President - Brewing Operations 56,739 *
Leslie P. Harper (9)(13) Chief Financial Officer 8,920 *
Patrick L. Helsel (10) Vice President - Sales 522 *
All directors and executive officers
as a group (11 persons)(12) 568,163 3.41%
</TABLE>
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* Represents less than 1% of the shares of Common Stock outstanding.
(1) Beneficial ownership of the Common Stock has been determined for this
purpose in accordance with Rule 13d-3 under the Securities Exchange
Act of 1934 ("Exchange Act"), under which a person is deemed to be the
beneficial owner of securities if he or she has or shares voting power
or investment power in respect to such securities, or has the right to
acquire beneficial ownership within 60 days.
(2) Each beneficial owner's percentage of Common Stock is determined
assuming that options that are held by such person (but not those held
by any other person) and that are exercisable within 60 days have been
exercised. Each beneficial owner's percentage of Common Stock does not
take into account the 11,710,191 shares of Common Stock into which the
Series A, F and G Preferred Stock and Options (other than those
held by such beneficial owner) and Warrants are immediately
convertible.
(3) The number of shares shown in the table for each of Mr. Brannon and
Ms. McGinnis excludes the number of shares beneficially owned by the
other. Mr. Brannon and Ms. McGinnis are married.
(4) Includes 6,000 shares which may be received upon the exercise of
immediately exercisable stock options. Does not include 210 shares of
Series A Preferred Stock, which are immediately convertible into
Common Stock at the price of $3.8388 per share.
(5) Includes 5,000 shares which may be received upon the exercise of
immediately exercisable stock options.
(6) Includes 7,000 shares which may be received upon the exercise of
immediately exercisable stock options.
(7) Includes 7,000shares which may be received upon the exercise of
immediately exercisable stock options.
(8) Includes 16,132 shares which may be received upon the exercise of
immediately exercisable stock options.
(9) Includes 6,667 shares which may be received upon the exercise of
immediately exercisable stock options.
(10) Includes 522 shares which may be received upon the exercise of
immediately exercisable stock options.
(11) Includes the following shares of Common Stock granted in lieu of a
reduction in salary during 1997: Mr. Brannon, 2,667 shares;
Ms. McGinnis, 2,667 shares; and Mr. Nordahl, 2,667 shares.
(12) Includes 52,635 shares which may be acquired by all directors and
officers of the Company as a group upon the exercise of immediately
exercisable stock options.
(13) Includes the following shares of Common Stock granted in lieu of
salary reductions during 1998: Mr. Brannon, 14,418 shares;
Ms. McGinnis, 14,418 shares; Mr. Nordahl, 3,605 shares; and
Mr. Harper, 2,253 shares.
3
<PAGE>
APPROVAL OF REVERSE STOCK SPLIT PROPOSAL
Amendment Of The Charter
The Board of Directors has approved, subject to the Stockholder
approval solicited hereby, the Reverse Stock Split in which one new share of
common stock, par value $0.0004 per share, would be exchanged for every ten
shares of common stock, par value $0.00004 per share, presently issued and
outstanding. In order to effect the Reverse Stock Split, the proposed Articles
of Amendment, attached hereto as Exhibit A, would amend Article V of the Charter
to increase the par value of the Company's common stock. The number of
authorized shares of common stock and preferred stock would remain unchanged at
19,000,000 and 1,000,000, respectively.
Charter Amendment
Under the Reverse Stock Split Proposal, the second sentence and third
sentence of Article V of the Company's Charter, upon approval of the amendment,
will read as follows:
"Pursuant to these Articles of Amendment, the total number
of shares of capital stock which the Corporation has
authority to issue is 20,000,000 shares, of which
19,000,000 shares shall be Common Stock, $0.0004 par value
per share (hereinafter the "Common Stock") and of which
1,000,000 shares shall be Preferred Stock, $0.01 par value
per share (hereinafter the "Preferred Stock"). The
aggregate par value of all the shares of all classes of
the capital stock which the Corporation has the authority
to issue is $17,600."
Reasons for the Reverse Stock Split Proposal
The primary objective of the Reverse Stock Split is to increase the
market price per share of the Company's Common Stock. The Company's Common Stock
is currently listed on the Nasdaq SmallCap Market under the symbol "BLUE." Under
the Nasdaq's Marketplace Rules governing qualitative and quantitative standards
for listing, a minimum bid price of $1.00 per share is required. On September
17, 1998, the Company received a letter from The Nasdaq Stock Market, Inc.
("Nasdaq"), dated September 15, 1998, in which Nasdaq notified the Company that
the Common Stock had failed to maintain a closing bid price greater than or
equal to $1.00 per share. The Company also was notified that the Common Stock
would be subject to delisting if the Company is unable to meet the minimum bid
price requirement. The Company was given until December 14, 1998 to regain
compliance with the minimum bid requirement--which could have been satisfied if
the shares of Common Stock reported a closing bid price of $1.00 or greater for
ten consecutive trading days.
The Company was and has been unable to comply with the minimum bid
requirement since receiving the September 15, 1998 letter from the Nasdaq and
has requested a hearing on the matter, which temporarily has stayed the
delisting process. The hearing with the Nasdaq is scheduled for February 19,
1999, at which time the Company will seek an extension to meet the minimum bid
price requirement after the Reverse Stock Split becomes effective. There can be
no assurance, however, that the Company will be successful in obtaining any such
extension and the failure to do so may result in the immediate delisting of the
Common Stock. Such delisting will have an adverse impact on the liquidity of the
Common Stock and the Company's other securities, and will result in the
Company's technical default of its obligations under its Series F and Series G
Preferred Stock. The likely outcome of such default would be litigation. Such
delisting could make it more difficult for the Company to raise additional
capital in the manner in which it has done so in the past (e.g., utilizing
convertible preferred stock). The Company is currently having severe cash flow
problems and is seeking to raise additional equity capital in the private equity
markets in the first quarter of 1999. Failure by the Company to raise additional
equity capital in the first quarter of 1999 will have a material adverse effect
on the Company, including the possibility that the Company may have to file a
voluntary petition in bankruptcy under Chapter 11 of the U.S. Bankruptcy Code
(the "Bankruptcy Code").
4
<PAGE>
If the Common Stock is delisted from Nasdaq, trading therein, if any,
may then be conducted on the OTC Bulletin Board or the over-the-counter market.
Because spreads between the "bid" and "asked" prices of the shares of Common
Stock quoted by market makers on the OTC Bulletin Board and the over-the-counter
market will likely be greater than it is at present, Stockholders will likely
experience a greater degree of difficulty in trading of shares of Common Stock.
In addition, there are significant restrictions imposed by most brokerage houses
on the ability of their brokers to solicit orders or recommend the purchase of
stocks that trade on the OTC Bulletin Board. In the majority of cases, the
purchase of stock is limited to unsolicited offers from private investors, who
have to comply with policies and practices involving the completion of
time-consuming forms that make the handling of lower-priced stocks economically
unattractive. Moreover, most brokerage houses do no permit lower-priced stocks
to be used as collateral for margin accounts or to be purchased on margin.
Further, the Board of Directors believes that the current per share price of the
Common Stock may limit the effective marketability of the Common Stock because
of the reluctance of many brokerage firms and institutional investors to
recommend lower-priced stocks to their clients or to hold them in their own
portfolios. The brokerage commission on the purchase or sale of a lower-priced
stock may also represent a higher percentage of the price than the brokerage
commission on a higher-priced issue.
In addition to the above, delisting may subject the Common Stock to
SEC regulations concerning "penny stocks." SEC regulations generally define a
penny stock to be an equity security that is not listed on Nasdaq or a national
securities exchange and that has a market price of less than $5.00 per share,
subject to certain exceptions. The regulations of the SEC would require
broker-dealers to deliver to a purchaser of common stock a disclosure schedule
explaining the penny stock market and the risks associated with it. Various
sales practice requirements are also imposed on broker-dealers who sell penny
stocks to persons other than established customers and accredited investors
(generally institutions). In addition, broker-dealers must provide the customer
with current bid and offer quotations for the penny stock, the compensation of
the broker-dealer and its salesperson in the transaction and monthly account
statements showing the market value of each penny stock held in the customer's
account. If the Common Stock is traded on the OTC Bulletin Board or the
over-the-counter market and becomes subject to the regulations applicable to
penny stocks, investors may find it more difficult to obtain timely and accurate
quotes and execute trades in the Common Stock.
The Company anticipates that the Reverse Stock Split Proposal, if
approved by the stockholders, will have the effect of increasing the minimum bid
price of its Common Stock sufficient to permit it to satisfy the minimum bid
price criteria, provided the Company is successful in obtaining an extension to
meet such criteria. However, there can be no assurance the minimum bid price
will increase, or if it increases, will be maintained for any period of time, or
that the Company will be successful in retaining its NASDAQ listing subsequent
thereto or at any time in the future.
The Board of Directors is hopeful that the decrease in the number of
shares of Common Stock outstanding as a consequence of the proposed Reverse
Stock Split, and the resulting anticipated increased price level, will stimulate
additional interest in the Company's Common Stock. There can be no assurance,
however, that there will be any increase in the public market value of the
Common Stock, particularly since the Reverse Stock Split will sharply limit the
number of shares of Common Stock issued and outstanding, possibly resulting in
lesser market liquidity than before the Reverse Stock Split. Such decrease in
liquidity could serve to limit the ability of the Company to raise equity
capital in the manner in which it has done so in the past (e.g., utilizing
convertible preferred stock). Failure by the Company to raise additional equity
capital in the first quarter of 1999 have a material adverse effect on the
Company, including the possibility that the Company may have to file a voluntary
petition bankruptcy under Chapter 11 of the Bankruptcy Code.
Principal Effects of the Reverse Stock Split
If the Reverse Stock Split Proposal is approved, on the date the
Reverse Stock Split becomes effective the total number of shares of Outstanding
Common Stock held by each Stockholder would be converted automatically into a
5
<PAGE>
right to receive an amount of whole shares of New Common Stock equal to the
number of shares owned immediately prior to the Reverse Stock Split divided by
ten. All fractional shares will be disposed of as set forth below.
If the Reverse Stock Split becomes effective, management believes that
the quoted market price of the Company's Common Stock should increase as a
result of decreasing the number of shares outstanding without altering any
Stockholder's aggregate economic interest in the Company represented by such
shares. The Board believes that the increased market price would be a more
appropriate trading price for a company that is traded on the Nasdaq SmallCap
Market. There can be no assurance, however, that the Reverse Stock Split will
achieve these desired results, that any such increase would be in proportion to
the one-for-ten Reverse Stock Split ratio, or that the per share price level of
the Common Stock immediately after the proposed Reverse Stock Split can be
maintained for any period of time.
There were ______ recordholders of the Company's Common Stock as of
February 16, 1999. The Reverse Stock Split Proposal, if adopted, is not expected
to cause a significant change in the number of Stockholders. The Company has no
plans for the cancellation or purchase of its shares from individuals holding a
nominal number of such shares if the Reverse Stock Split Proposal is adopted.
As of the Record Date, there were outstanding options to purchase an
aggregate of 21,354 shares of Common Stock under the Company's 1995 Stock Option
Plan (the "Plan"). In addition, an aggregate of 135,036 shares remain available
for grant under the Plan. The Plan provides for automatic adjustment of the
number and per share price of shares subject to outstanding options and
available for future grant in the event of a change in capitalization, such as a
reverse stock split. In the event the Reverse Stock Split is enacted, the number
of shares of New Common Stock issuable upon exercise of outstanding options will
be reduced to 2,135 and the exercise prices will be ten times the present
exercise prices. The number of shares of New Common Stock available for grant
under the Plan will be reduced to 13,504.
As of the Record Date, the Company had reserved 2,826,251 shares of
Common Stock to cover conversion of the 1,543 shares, 1,000 shares and 500
shares of the Company's Series A Preferred Stock, Series F Preferred Stock and
Series G Preferred Stock, respectively. Due to the decline in the bid price of
the Common Stock in recent weeks, however, the shares reserved for Series F and
G Preferred Stock is presently insufficient and additional shares of Common
Stock will be reserved and may be registered. Subject to certain adjustments,
the shares of Series F Preferred Stock and Series G Preferred Stock are
convertible into shares of Common Stock at ratios that are based on the market
trading price of the Common Stock. As of the Record Date, the Company also had
reserved 300,000 shares of Common Stock to cover the exercise of outstanding
warrants. If the Reverse Stock Split Proposal is approved and effected, the
conversion price of the Preferred Stock and the exercise price of the Warrants
would be adjusted proportionately so that after the Reverse Stock Split a
Preferred Stockholder and a holder of Warrants would receive 10% of the Common
Stock he would have received had he converted or exercised prior to the split.
The Reverse Stock Split, if approved, will have no effect on the aggregate
economic interest in the Company of the holders of Preferred Stock or Warrants.
Approval of the Reverse Stock Split Proposal would not affect any
Stockholder's percentage ownership interest in the Company or proportional
voting power, except for nominal increases due to the rounding up of fractional
shares as described below. The rights and privileges of the holders of Common
Stock would not be affected substantially by adoption of the Reverse Stock Split
Proposal. However, the Reverse Stock Split may result in some Stockholders
owning "odd-lots" of less than 100 shares of New Common Stock. Brokerage
commissions and other costs, of transactions in odd-lots are generally higher
than the cost of transactions in even multiples of 100 shares. However, the
Company believes that potential advantages of continued listing on the Nasdaq
SmallCap Market will outweigh this disadvantage.
Dissenting Stockholders have no appraisal rights under Maryland law or
under the Company's Charter or Amended and Restated Bylaws in connection with
the Reverse Stock Split.
6
<PAGE>
Fractional Shares and Exchange of Stock Certificates
No scrip or fractional shares certificates will be issued in
connection with the Reverse Stock Split. Fractional shares resulting from the
Reverse Stock Split will be rounded upward to the nearest whole share so that no
Shareholder will be deprived of any shares.
As soon as practicable after the Effective Date, the Company will send
a letter of transmittal to each Stockholder of record on the Effective Date for
use in transmitting certificates representing shares of Common Stock ("old
certificates") to Registrar and Transfer Company, which will act as the exchange
agent ("Exchange Agent") for the Company. The letter of transmittal will contain
instructions for the surrender of old certificates to the Exchange Agent in
exchange for certificates representing the number of whole shares of New Common
Stock. No new certificate will be issued to a Stockholder until the Stockholder
has surrendered all old certificates together with a properly completed and
executed letter of transmittal to the Exchange Agent.
Upon proper completion and execution of the letter of transmittal and
return thereof to the Exchange Agent, together with all old certificates, a
Stockholder will receive a new certificate or certificates representing the
number of whole shares of New Common Stock into which their shares of
Outstanding Common Stock have been converted as a result of the Reverse Stock
Split. STOCKHOLDERS SHOULD NOT FORWARD THEIR CERTIFICATES TO THE EXCHANGE AGENT
UNTIL THE LETTER OF TRANSMITTAL IS RECEIVED AND SHOULD SURRENDER THEIR
CERTIFICATES ONLY WITH SUCH LETTER OF TRANSMITTAL. Until surrendered, on and
after the effective date of the Reverse Stock Split, outstanding old
certificates held by a Stockholder will be deemed for all purposes to represent
the number of whole shares of New Common Stock to which the Stockholder is
entitled as a result of the Reverse Stock Split.
Effective Date of Reverse Stock Split
If the Reverse Stock Split Proposal is approved by the Stockholders at
the Special Meeting, an amendment to Article V of the Charter, in the form set
forth above, would be filed with the Maryland State Department of Assessments
and Taxation and the Reverse Stock Split will become effective as of 5:00 p.m.
E.S.T. on the date of such filing ("Effective Date"). It is expected that such
filing would take place on March 23, 1999, or shortly thereafter. Without any
further action on the part of the Company or the Stockholders, the shares of
Common Stock held by Stockholders of record will be converted at 5:00 p.m.
E.S.T. on the Effective Date into the right to receive an amount of whole shares
of New Common Stock equal to the number of their Outstanding Common Stock
divided by ten, with any fractional shares rounded up to the nearest whole
share, as described above.
Certain Federal Income Tax Consequences
The following is a summary of the material anticipated Federal income
tax consequences of the Reverse Stock Split to Stockholders of the Company. This
summary is based on the Federal income tax laws as now in effect and as
currently interpreted; it does not take into account possible changes in such
tax laws or interpretations, including amendments to applicable statutes,
regulations and proposed regulations or changes in judicial or administrative
rulings, some of which may have retroactive effect. This summary does not
purport to address all aspects of the possible Federal income tax consequences
of the Reverse Stock Split and is not intended as tax advice to any person. In
particular, and without limiting the foregoing, this summary does not consider
the Federal income tax consequences to Stockholders of the Company in light of
their individual investment circumstances or to holders subject to special
treatment under the Federal income tax laws (for example, life insurance
companies, financial institutions, tax-exempt organizations, regulated
investment companies and foreign taxpayers). The summary does not address any
consequence of the Reverse Stock Split under any state, local or foreign tax
laws.
No ruling will be obtained from the Internal Revenue Service regarding
the Federal income tax consequences to the Company or to the Stockholders as a
result of the Reverse Stock Split. ACCORDINGLY, EACH STOCKHOLDER IS ENCOURAGED
TO CONSULT HIS OR HER TAX ADVISOR REGARDING THE
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SPECIFIC TAX CONSEQUENCES OF THE PROPOSED TRANSACTION TO SUCH STOCKHOLDER,
INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN INCOME AND
OTHER TAX LAWS.
The Reverse Stock Split effectively would call for Stockholders of the
Company to exchange their Outstanding Common Stock for an amount of whole shares
of New Common Stock equal to the number of shares of Outstanding Common Stock
owned immediately prior to the Reverse Stock Split divided by ten. No fractional
shares of New Common Stock will be issued. Any fraction of a share that any
Stockholder would otherwise be entitled to receive shall be rounded up to the
nearest whole share.
If approved by the Company's Stockholders, the Reverse Stock Split
will qualify as a "recapitalization", as described in Section 368(a)(1)(E) of
the Internal Revenue Code (the "Code"), to the Company and its Stockholders to
the extent that shares of Outstanding Common Stock are exchanged for a reduced
number of shares of New Common Stock. Consequently, no gain or loss will be
recognized by the Company. Except as discussed below, no gain or loss will be
recognized by Stockholders who exchange their shares in connection with the
Reverse Stock Split. With reference to exchanging Stockholders, the aggregate
basis of new shares received will be the same as the aggregate basis of
Outstanding Common Stock surrendered in exchange therefor. Similarly, the
holding period for New Common Stock received as a result of the Reverse Stock
Split will include the holding period of the shares of Outstanding Common Stock
surrendered in exchange thereof.
The results described above should apply to a Stockholder who receives
a portion of his New Common Stock as a result of the rounding up of a fractional
share to a whole share. However, it is possible that the receipt of additional
Common Stock due to such rounding could be wholly or partly taxable. In the
event that such additional Common Stock is deemed to be fully taxable upon
receipt, such tax will be based upon the fair market value of the additional
fractional share as of the date received. Accordingly, any such tax associated
with such fractional share would be de minimis.
Vote Required; Recommendation of the Board of Directors
In order to effect the Reverse Stock Split Proposal, the Company's
Charter must be amended. An amendment to the Company's Charter requires, under
Section 2-604(d) of the MGCL and the Company's Charter, the affirmative vote of
two-thirds of all the votes entitled to be cast on the matter, in person or by
proxy, at the Special Meeting. ACCORDINGLY, FAILURE TO VOTE FOR THE REVERSE
STOCK SPLIT, EVEN BY ABSTAINING OR BY FAILING TO BE REPRESENTED AT THE SPECIAL
MEETING, CONSTITUTES A VOTE AGAINST THE REVERSE STOCK SPLIT PROPOSAL. If
approved, the Reverse Stock Split Articles will become effective upon the filing
thereof with the State Department of Assessments and Taxation of Maryland.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE REVERSE
STOCK SPLIT PROPOSAL (AS ENACTED BY ADOPTION OF THE REVERSE STOCK SPLIT ARTICLES
OF AMENDMENT ATTACHED HERETO AS EXHIBIT A). IN THE ABSENCE OF INSTRUCTIONS TO
THE CONTRARY, PROXIES SOLICITED IN CONNECTION WITH THIS PROXY STATEMENT WILL BE
SO VOTED.
APPROVAL OF ADJOURNMENT
Each proxy solicited hereby by the Company requests authority to vote
for an adjournment of the Special Meeting if an adjournment of such meeting is
deemed to be necessary. The Company may seek an adjournment of the Special
Meeting for not more than 120 days in order to enable it to solicit additional
votes in favor of the Reverse Stock Split in the event that such proposal has
not received the requisite vote of stockholders at the Special Meeting. If the
Company desires to adjourn the Special Meeting with respect to the foregoing
proposal, it will request a motion that the Special Meeting be adjourned for up
to 120 days with respect to such proposal, and no vote will be taken on such
proposal at the originally scheduled meeting. Each proxy solicited hereby, if
properly signed and returned to
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the Company and not revoked prior to its use, will be voted on any such motion
for adjournment in accordance with the instructions contained therein. If no
contrary instructions are given, each proxy received will be voted in favor of
any motion by the Company to adjourn the Special Meeting. Unless revoked prior
to its use, any proxy solicited for the Special Meeting will continue to be
valid for any adjournment of such meeting, and will be voted in accordance with
the instructions contained therein, and if no contrary instructions are given,
for the Reverse Stock Split.
Any adjournment will permit the Company to solicit additional proxies
and will permit a greater expression of the stockholders' views with respect to
such proposal. Such an adjournment would be disadvantageous to stockholders who
are against the Reverse Stock Split, because an adjournment will give the
Company additional time to solicit favorable votes and thus increase the chances
of approving such proposal.
If a quorum is not present at the Special Meeting, no proposal will be
acted upon and the Company will adjourn the Special Meeting to alter date in
order to solicit additional proxies on each of the proposals being submitted to
stockholders.
An adjournment for up to 120 days will not require either the setting
of a new record date or notice of the adjourned meeting as in the case of an
original meeting. The Company does not have any reason to believe that an
adjournment of the Special Meeting will be necessary at this time.
Because the Board of Directors of the Company recommends stockholders
vote FOR the Reverse Stock Split, as discussed above, the Board of Directors of
the Company recommends that stockholders vote FOR the possible adjournment of
the Special Meeting on such proposal.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be included in the proxy
materials and presented at the Annual Meeting of Stockholders to be held in 1999
must have been received by the Secretary of the Company, at 4607 Wedgewood
Blvd., Frederick, Maryland 21703, by November 26, 1998. If such proposal was in
compliance with all of the requirements of Rule 14a-8 promulgated under the
Exchange Act, it will be included in the proxy statement and set forth on the
form of proxy.
Proposals not submitted for inclusion in the proxy statement, and
therefore not included in such, may be properly brought before an Annual Meeting
by a stockholder who has submitted such proposals on a timely basis and in the
form and manner consistent with that specified under the Company's Charter. For
such notice to have been timely for the 1999 Annual Meeting, it must have been
received by the Secretary of the Company, at 4607 Wedgewood Blvd., Frederick,
Maryland 21703, by January 25, 1999.
OTHER MATTERS
Management is not aware of any business to come before the Special Meeting
other than those matters described in this Proxy Statement. However, if any
other matters should properly come before the Special Meeting, it is intended
that the proxies solicited hereby will be voted with respect to those other
matters in accordance with the judgment of the persons voting the proxies.
BY ORDER OF THE BOARD OF DIRECTORS
/s/
------------------------------------
Kevin E. Brannon
Chairman of the Board
February 18, 1999
Frederick, Maryland
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Exhibit A
ARTICLES OF AMENDMENT
TO THE
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
FREDERICK BREWING CO.
THIS IS TO CERTIFY THAT:
FIRST: The Amended and Restated Articles of Incorporation (the "Charter")
of Frederick Brewing Co., a Maryland corporation (the "Corporation"), is hereby
amended by deleting the full text of the second sentence and third sentence of
Article V in their entirety and replacing it with the following:
"Pursuant to these Articles of Amendment, the total number of shares of
capital stock which the Corporation has authority to issue is 20,000,000 shares,
of which 19,000,000 shares shall be Common Stock, $0.0004 par value per share
(hereinafter the "Common Stock") and of which 1,000,000 shall be Preferred
Stock, $0.01 par value per share (hereinafter the "Preferred Stock"). The
aggregate par value of all the shares of all classes of the capital stock which
the Corporation has the authority to issue is $17,600."
SECOND: The amendment to the Charter of the Corporation as set forth above
has been duly advised by the Board of Directors and approved by the Stockholders
of the Corporation as required by Section 2-604 of the Maryland General
Corporation Law.
THIRD: The undersigned President acknowledges these Articles of Amendment
to be the corporate act of the Corporation and as to all matters or facts
required to be verified under oath, the undersigned President acknowledges that
to the best of his knowledge, information and belief, these matters and facts
are true in all material respects and that this statement is made under the
penalties for perjury.
IN WITNESS WHEREOF, the Corporation has caused these Articles to be signed
in its name and on its behalf by its President and attested to by its Secretary
on this ______ day of ___________________, 1999.
ATTEST:
FREDERICK BREWING CO.,
By:
--------------------------------
Its President (seal)
By:
--------------------------------
Its President (seal)
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FREDERICK BREWING CO.
------------------------
REVOCABLE PROXY
--------------
This Proxy is Solicited on Behalf of the Board of Directors of Frederick
Brewing Co. for Use at the Special Meeting of Stockholders to be Held On March
23, 1999 and at Any Adjournment or Postponement Thereof.
The undersigned stockholder of Frederick Brewing Co., a Maryland
corporation (the "Company"), hereby appoints Kevin E. Brannon or Marjorie A.
McGinnis, and each of them, as proxies for the undersigned, with full power of
substitution in each of them, to attend the Special Meeting of Stockholders of
the Company to be held on March 23, 1999 at 10:00 a.m., Eastern Standard Time at
the principal office of the Company, 4607 Wedgewood Blvd., Frederick, Maryland,
and at any adjournment(s) or postponement(s) thereof, to cast on behalf of the
undersigned all votes that the undersigned is entitled to cast at such meeting
and otherwise to represent the undersigned at the meeting, with the same effect
as if the undersigned were present. The undersigned hereby revokes any proxy
previously given with respect to such shares.
1. Proposal to approve the Amendment to Article V of the Company's Amended
and Restated Articles of Incorporation so as to effect a reverse stock
split in which one new share of the Company's common stock, par value
$0.0004 per share, would be exchanged for every ten shares, par value
$0.00004 per share, presently issued and outstanding. The number of
authorized shares of common stock and preferred stock will remain
unchanged at 19,000,000 and 1,000,000, respectively. The aggregate par
value of all the shares of all classes of the capital stock which the
Company has the authority to issue is $17,600.
FOR [_] AGAINST [_] ABSTAIN [_]
2. Proposal to adjourn the Special Meeting to another date or place for the
purpose of soliciting additional proxies in favor of the Reverse Stock
Split.
FOR [_] AGAINST [_] ABSTAIN [_]
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS. THE SHARES OF THE
COMPANY'S COMMON STOCK WILL BE VOTED AS SPECIFIED. IF NOT OTHERWISE SPECIFIED,
THIS PROXY WILL BE VOTED FOR PROPOSALS 1 AND 2 AND OTHERWISE AT THE DISCRETION
OF THE PROXIES. YOU MAY REVOKE THIS PROXY AT ANY TIME PRIOR TO THE TIME IT IS
VOTED AT THE SPECIAL MEETING.
The undersigned acknowledges receipt of the Notice of Special Meeting of
Stockholders and the accompanying Proxy Statement.
Please sign exactly as name appears hereon and date. If the
shares are held jointly, each holder should sign. When signing as
an attorney, executor, administrator, trustee, guardian or as an
officer signing for a corporation, please give full title under
signature.
Dated ____________________, 1999
Signature: ____________________________________________________
Signature, if held jointly______________________________________
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PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
- --------------------------------------------------------------------------------
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