RED XXXX BREWING COMPANY
SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT is made this 17th day of July, 2001, by and
between CDB FINANCE CORPORATION ("CDB"), and RED XXXX BREWING COMPANY, a
Pennsylvania corporation (the "Company").
Background
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Pursuant to promissory notes dated February 5, 2001, April 23, 2001 and
April 27, 2001 (the "Notes"), CDB loaned the principal amount of $498,200 to the
Company. Pursuant thereto, on August 5, 2001, the Company is obligated to
deliver to CDB the amount of $58,192.30, on August 23, 2001 the Company is
obligated to deliver to CDB the amount of $225,931.38, and on October 1, 2001
the further amount of $241,238.40 (collectively, "Amount Due"). In furtherance
of the satisfaction of the Amount Due the Company is issuing to CDB shares of
Common Stock of the Company (the "Common Stock").
Agreement
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NOW, THEREFORE, intending to be legally bound hereby, the parties
hereto agree as follows:
1. Issuance and Sale of Stock.
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A. Subject to the terms hereof, and in addition to the
100,000 shares to be issued pursuant to subsection B., the Company will issue up
to 400,000 shares of Common Stock (the "Shares") to CDB. The Company will
promptly deliver to CDB or its designated agent a certificate representing
200,000 of the Shares. It is intended by the parties hereto that following the
registration thereof CDB may sell the Shares in the public market in order to
obtain Net Proceeds (as defined below) to be applied towards the Amount Due. If,
following the sale by CDB of these 200,000 Shares, the Amount Due has not been
fully paid, then the Company shall, from time to time at the request of CDB,
expeditiously issue to CDB up to 200,000 additional Shares in an amount to be
agreed upon between CDB and the Company. For purposes hereof, "Net Proceeds"
shall be defined as the actual proceeds from the sale of any Shares in the
public market, less any brokerage commissions incurred by CDB. Upon the receipt
in full of the Amount Due from any source whatsoever, CDB shall return to the
Company for cancellation any Shares previously issued to it under this Agreement
and which have not been sold pursuant to this Agreement.
B. In addition to the 400,000 shares referred to above, the
Company will issue to CDB 100,000 shares of Common Stock (also known herein as
the "Shares") as an inducement for the loan in the principal amount of $218,500
made on April 27, 2001 by CDB to the Company. These shares shall replace the
35,000 shares referred to in the Note relating to the loan. The Company will
promptly deliver to CDB or its designated agent a certificate representing these
100,000 Shares.
C. For the purposes hereof, the term "Shares" shall include
and refer to all of the 500,000 shares of Common Stock referred to above.
2. Registration of Shares. Promptly following the execution of this
Agreement, the Company shall file a registration statement on Form SB-2 (the
"SB-2 Registration Statement") registering the Shares in accordance with the
Registration Rights Agreement attached hereto as Exhibit A (the "Registration
Rights Agreement"). CDB agrees that all sales of the Shares shall be sold
pursuant to the manner of sale requirements set forth under Rule 144(f) of the
Act.
3. Representations and Warranties of the Company. The Company hereby
makes the following representations and warranties to CDB:
A. The issuance of the Shares has been duly authorized by all
necessary corporate action, and when issued, the Shares will be validly issued,
fully paid and non-assessable. Upon transfer and delivery of the Shares, CDB
shall obtain full legal title to all of such Shares, free and clear of any lien,
charge or other encumbrance of any nature.
B. The execution and delivery of this Agreement and the
Registration Rights Agreement, and the consummation of the transactions
contemplated hereby, has been duly authorized by all necessary corporate action
of the Company.
C. The Company has the full right, power and authority to
enter into this Agreement and the Registration Rights Agreement and to
consummate the transaction described herein and therein. This Agreement and the
Registration Rights Agreement have been duly executed and delivered by the
Company and constitute the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with their terms.
D. Upon the registration of the Shares pursuant to this
Agreement and the Registration Rights Agreement, the Shares shall be fully
tradable by CDB, free of any and all restrictions other than the manner of sale
requirements set forth under Rule 144(f) of the Act.
4. Representations and Warranties of CDB. CDB hereby makes the
following representations and warranties to the Company:
A. CDB understands that the Shares are being offered and sold
under an exemption from registration under the Act, and offering exemptions
contained in the securities laws of Pennsylvania; that CDB is purchasing the
Shares without being furnished any offering literature or prospectus of any sort
relating to the Company; and that all documents, records and books pertaining to
this investment and the Company have been made available by the Company to CDB
and CDB's representatives.
B. CDB understands that the Shares have not, and except as
provided in the Registration Rights Agreement between the parties, will not be
registered under the Act or any state securities laws, and that in order to sell
or transfer the Shares, such Shares must either be registered under such laws or
an appropriate exemption from registration must be available.
C. CDB is a bona fide resident and domiciliary of the
Commonwealth of Pennsylvania and has no present intention of becoming a resident
or domiciliary of any other jurisdiction.
D. CDB is an accredited investor as defined in Rule 501 under
the Act.
E. CDB understands and has fully considered, for purposes of
this investment, that there are substantial restrictions on the transferability
of the Shares and there is currently no established public market for the Shares
and limited liquidity is present in connection with the Shares.
F. CDB has such knowledge and experience in financial and
business matters that CDB is capable of evaluating the merits and risks of an
investment in the Common Stock and of making an informed investment decision.
G. CDB confirms that in making its decision to purchase the
Shares hereby subscribed for, CDB has relied solely upon its own independent
investigation of the Company and the Security Documents, and not on any
representations, warranties or statements made by or on behalf of the Company
(other than those made herein), and that he has been given the opportunity to
ask questions of and to receive answers from the Company concerning the Company,
its financial condition and business, and to obtain any additional information
which the Company possesses or can acquire without unreasonable effort or
expense.
H. The Shares hereby subscribed for is being acquired by CDB
in good faith solely for its own account for investment purposes only and is not
being purchased with a view to or for the resale, distribution, subdivision or
fractionalization thereof (other than following the registration of such Shares
pursuant to Section 6); CDB has no contract, understanding, undertaking,
agreement or arrangement, formal or informal, with any person to sell, transfer
or pledge to any person the Shares for which CDB hereby subscribes for or any
part thereof. CDB understands that the legal consequences of the foregoing
representations and warranties are that CDB must bear the economic risk of an
investment in the Shares for an indefinite period of time because the Shares
have not been registered under the Act or applicable state securities laws and
therefore cannot be sold unless such Shares are subsequently registered under
the Act or applicable state securities laws (which the Company has agreed to do
under the Registration Rights Agreement) or an exemption from such registration
is available.
I. CDB consents to the placement of a legend on the
certificate representing the Shares being purchased by CDB, which legend will be
in substantially the following form (the "Securities Legend"):
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED WITH
THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY OTHER JURISDICTION. THE SALE OR OTHER
DISPOSITION OF THESE SECURITIES IS PROHIBITED UNLESS THE COMPANY RECEIVES AN
OPINION OF COUNSEL SATISFACTORY TO IT AND ITS COUNSEL THAT SUCH SALE OR OTHER
DISPOSITION CAN BE MADE WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933
AND OTHER APPLICABLE STATUTES."
5. Additional Covenants of the Company.
Upon the registration of the Shares pursuant to the Registration Rights
Agreement, the Company shall promptly either remove the Securities Legend or
issue an opinion of counsel to the transfer agent to the effect that sales of
the Shares may be made without restrictions.
6. Survival of Representations, Warranties, Covenants, Agreements and
Remedies. Except as specifically provided otherwise herein, all representations,
warranties, covenants, agreements and remedies of the parties hereto, shall
survive the date hereof.
7. Entire Agreement. This Agreement constitutes the entire
understanding and agreement between the parties hereto with respect to the
transactions contemplated herein, supersedes all prior and contemporaneous
agreements, understandings, negotiations and discussions, whether oral or
written, of the parties, and there have been no warranties, representations or
promises, written or oral, made by any of the parties hereto except as herein
expressly set forth herein.
8. Binding Agreement. This Agreement shall be binding upon and inure to
the benefit of the parties hereto, as well as their respective heirs, personal
representatives, successors and assigns but no party may assign its obligations
hereunder.
9. Governing Law. This Agreement shall be construed in accordance with
and shall be governed by the laws of the Commonwealth of Pennsylvania without
regard to its conflicts of law rules.
10. Counterparts. This Agreement may be executed in counterparts, each
of which shall constitute an original and which together shall constitute a
single agreement.
11. Severability. If any provision of this Agreement shall be invalid
or unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the remainder of this Agreement or
the validity or enforceability of this Agreement in any other jurisdiction.
IN WITNESS WHEREOF, each of the undersigned, intending to be legally
bound hereby, has executed this Subscription Agreement as of the date set forth
above.
CDB FINANCE CORPORATION
By: /s/
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RED XXXX BREWING COMPANY
By: /s/ Xxxxx X. Xxxx
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Xxxxx X. Xxxx, President
