Restructuring Agreement

Exhibit 10.2


RESTRUCTURING AGREEMENT


This RESTRUCTURING AGREEMENT (this "Agreement") is made as of this 24th day of August, 1999 by and among FREDERICK BREWING CO., a Maryland corporation ("FBC"), SNYDER INTERNATIONAL BREWING GROUP, LLC, an Ohio limited liability company ("SIBG"), AUSTOST ANSTALT SCHAAN, a Lichtenstein corporation ("Austost"), BALMORE FUNDS S.A., a British Virgin Islands corporation ("Balmore"), RON S. WILLIAMS, SR. ("Williams Sr."), RON WILLIAMS, JR. ("Williams Jr."), DEAN DOWDA ("Dowda"), FRED LENZ ("Lenz"), WORLD CAPITAL FUNDING, LLC, a Pennsylvania limited liability company ("World Capital"), THE AUGUSTINE FUND L.P., an Illinois limited partnership ("Augustine"), JIMMY DEAN ("Dean"), CONGREGATION BETH MOREDECHAI, a religious organization with an address at 1074 46th Street, Brooklyn, New York 11219 ("CBM"), and BERTEK, INC., a New York corporation, ("Bertek").


RECITALS
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A. Each of Austost, Balmore, Williams Sr., Williams Jr., Dowda, Lenz and World Capital (each, a "Note Holder" and collectively, the "Note Holders") is a holder of FBC's 10% Convertible Notes, dated June 7, 1999 (the "Convertible Notes") issued by FBC pursuant to that certain Subscription Agreement dated as of June 2, 1999 (the "Note Subscription Agreement").


B. Each of Austost, Balmore, Augustine, Dowda, CBM and Bertek (each, a "Preferred Share Holder" and collectively, the "Preferred Share Holders") is the beneficial and record owner of shares of FBC's Series F Convertible Preferred Stock (the "Series F Stock") and/or Series G Convertible Preferred Stock (the "Series G Stock" and together with the Series F Stock, the "Preferred Shares") issued pursuant to the Subscription Agreements, dated as of September 3, 1998 (the "Series F Subscription Agreements") and the U.S. Subscription Agreements, dated as of November 20, 1998 (the "Series G Subscription Agreements," and together with the Series F Subscription Agreement, the "Preferred Shares Subscription Agreements"), respectively.


C. In order to induce SIBG to make an investment of $2.0 million in FBC, the Note Holders and the Preferred Share Holders (collectively, the "Securities Holders") have agreed, effective as of the closing of such investment (the "Investment Closing"), to consummate the transactions contemplated by this Agreement (collectively, the "Restructuring Transactions").


D. Capitalized terms not otherwise defined herein shall have the meaning given to them in Section 11.10 of this Agreement.


NOW, THEREFORE, in consideration of the foregoing and the mutual representations, warranties, covenants and undertakings contained in this Agreement, and subject to and on the terms and conditions set forth in this Agreement, the parties, intending to be legally bound, hereby agree as follows:


ARTICLE I


PAYMENT OF
THE CONVERTIBLE NOTES
---------------------


1.1 Payment of the Convertible Notes. In full payment of the Convertible Notes, SIBG shall cause FBC to pay (a) an aggregate of $500,000 to the respective Note Holders in the amount set forth opposite their name on Exhibit A attached hereto (the "Note Payments"), (ii) an aggregate of $50,000 to World Capital in respect of advances made by World Capital to FBC in connection with the issuance of the Convertible Notes (the "Advance Payment"), and (iii) an aggregate of $20,000, payable as follows: $10,000 to World Capital, $5,000 to Austost and $5,000 to Balmore, in respect of fees incurred by them in connection with the issuance of the Convertible Notes (the "Fees Payment"). SIBG shall pay the foregoing amounts by wire transfer of immediately available funds to the recipient's account or accounts specified by such recipients in writing prior to the Closing.


1.2 Termination of Note Subscription Agreement and Related Agreements. Effective as of the Closing, (i) the Note Subscription Agreement and the Security Agreement, dated as of June 7, 1999, between FBC and Barbara Mittman, as collateral agent (the "Collateral Agent") for the benefit of the persons and entities listed on Exhibit A attached thereto (the "Security Agreement"), shall terminate and be of no further force and effect, (ii) neither FBC nor SIBG nor any of their respective Affiliates shall have any obligations or liabilities to the Note Holders under the Note Subscription Agreement or the Security Agreement or under any other agreements (written or oral) regarding the Convertible Notes, and (iii) the Note Holders hereby release any and all claims under such agreements pursuant to Section 9.2 of this Agreement. The Note Holders shall execute, deliver and file, or cause the execution, delivery and filing of, any and all agreements, instruments or filings required or determined by FBC to be appropriate to terminate any Liens in favor of the Note Holders. The Note Holders hereby authorize the Collateral Agent to execute any and all agreements, instruments and filings necessary or appropriate to effect the foregoing.


1.3 Warrant Amendments. At the Closing, each of the Note Holders who beneficially own common stock purchase warrants issued in connection with the issuance of the Convertible Notes (the "Note Warrants") shall execute an amendment to their respective Note Warrants in the form of Exhibit B attached hereto (each, an "Amended Note Warrant").


ARTICLE II


CONVERSION OF PREFERRED SHARES
------------------------------


2.1 Conversion of Preferred Shares. At the Closing, each of the Preferred Share Holders shall execute and deliver to FBC in accordance with the terms of such Preferred Shares a conversion notice specifying that, effective upon the Investment Closing, all of such Preferred Share Holder's Preferred Shares shall be converted into the number of shares of Common Stock of FBC (the "Conversion Shares") set forth opposite their name on Exhibit C. FBC hereby acknowledges that pursuant to subsection (d)(3)(i) and (ii) of Rule 144 (as defined in Section 9.6(a)), holders of the Preferred Shares can tack the holding period of the Preferred Shares to the Conversion Shares.


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2.2 Termination of Preferred Share Subscription Agreements and Related Agreements. Effective as of the Closing, the Preferred Share Subscription Agreements shall terminate and be of no further force and effect and neither FBC nor SIBG nor any of their respective Affiliates shall have any obligations or liabilities to the holders of the Preferred Shares under the Preferred Share Subscription Agreements or the Certificate of Designation and Articles Supplementary relating to the Preferred Shares or under any other agreement (written or oral) regarding the Preferred Shares.


ARTICLE III


CLOSING
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3.1 Closing. The closing of the Restructuring Transactions (the "Closing") will be held at the offices of Jones, Day, Reavis & Pogue, 901 Lakeside Avenue, Cleveland, Ohio 44114-1190 on August 24, 1999 (the "Closing Date") simultaneously with the execution and delivery of this Agreement.


3.2 Closing Deliveries and Payment.


(a) At the Closing, each of the Note Holders shall deliver or cause to be delivered to FBC and SIBG the following documents:


(i) The original Convertible Note for cancellation;


(ii) An Amended Note Warrant, to the extent
applicable, duly executed by each holder thereof;


(iii) A certified copy of the organizational
documents of World Capital; and


(iv) A certificate of the Secretary of each of
Austost, Balmore and World Capital certifying as to (A) the
good standing of Austost, Balmore and World Capital,
respectively, under the laws of their respective jurisdictions
of incorporation, (B) the board resolutions authorizing the
execution and performance of this Agreement, the execution and
performance of the documents contemplated hereby (the
"Transaction Documents") to which it is a party and the
performance of the Restructuring Transactions, (C) except with
respect to Austost and Balmore, their respective by-laws or
regulations and (D) the incumbency and genuineness of the
signature of each of their respective officers executing this
Agreement and the documents contemplated hereby.


(b) At the Closing, each of the Preferred Share Holders shall deliver or cause to be delivered to FBC and SIBG the following documents:


(i) A Conversion Notice, duly executed by such
Preferred Share Holder;


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(ii) A certified copy of the organizational documents
of Augustine, CBM and Bertek;


(iii) A good standing certificate for Augustine, CBM
and Bertek issued by their respective jurisdictions of
organization; and


(iv) A certificate of the Secretary of each of
Augustine, CBM and Bertek certifying as to (A) the good
standing of Augustine, CBM and Bertek, respectively, under the
laws of their respective jurisdiction of organization, (B) the
board resolutions authorizing the execution and performance of
this Agreement, the execution and performance of the
Transaction Documents to which it is a party and the
performance of the Restructuring Transactions, (C) their
respective by-laws or regulations and (D) the incumbency and
genuineness of the signature of each of their respective
officers executing this Agreement and the documents
contemplated hereby.


(c) At the Closing, SIBG and/or FBC, as the case may be, shall deliver or cause to be delivered to the Note Holders and/or the Preferred Share Holders, as the case may be, the following documents:


(i) The Note Payments;


(ii) The Advance Payment;


(iii) The Fee Payment;


(iv) The Amended Note Warrants with respect to each
holder thereof;


(v) The shares of Common Stock of FBC issuable upon
conversion of the Preferred Shares pursuant to Section 2.1 of
this Agreement;


(vi) An Officer's Certificate certifying as to the
receipt by FBC of SIBG's $2.0 million investment for 51% of
FBC's outstanding common stock after giving effect to the
transactions contemplated hereby;


(vii) A certificate of the Secretary of SIBG
certifying as to (A) the good standing of SIBG under the laws
of its jurisdiction of organization, (B) the board resolutions
authorizing the execution and performance of this Agreement,
the execution and performance of the Transaction Documents to
which it is a party and the performance of the Restructuring
Transactions, (C) its by-laws or regulations and (D) the
incumbency and genuineness of the signature of each of its
officers executing this Agreement and the documents
contemplated hereby;


(viii) A certificate of the Secretary of FBC
certifying as to (A) the good standing of FBC under the laws
of its jurisdiction of organization, (B) the board resolutions
authorizing the execution and performance of this Agreement,
the execution and performance of the Transaction Documents to
which it is a party and the performance of the Restructuring
Transactions, (C) its by-laws or regulations and


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(D) the incumbency and genuineness of the signature of each of
its officers executing this Agreement and the documents
contemplated hereby; and


(ix) A certified copy of the organizational documents
of SIBG and FBC.


ARTICLE IV


REPRESENTATIONS AND WARRANTIES
OF THE NOTE HOLDERS
-------------------


Each Note Holder represents and warrants to SIBG and FBC as of the date of this Agreement as follows:


4.1 Authority. Such Note Holder has all requisite power and authority to enter into and perform its or his obligations under this Agreement and any Transaction Documents to which it or he is a party and to consummate the Restructuring Transactions, and this Agreement and each of the Transaction Documents to which it or he is a party have been duly executed and delivered by such Note Holder pursuant to all necessary authorization and are the legal, valid and binding obligations of such Note Holder, enforceable against such Note Holder in accordance with their terms.


4.2 Title. Such Note Holder (a) is the record and beneficial owner of the Convertible Note set forth opposite his or its name on Exhibit A attached hereto, which constitutes all of the Convertible Notes it or he directly or indirectly owns or controls, (b) has full power, right and authority, and any approval required by law, to make and enter into this Agreement and the Transaction Documents to which it or he is a party, and (c) has valid title to his or its Convertible Note, free and clear of any Liens.


ARTICLE V


REPRESENTATIONS AND WARRANTIES
OF THE PREFERRED SHARE HOLDERS
------------------------------


Each Preferred Share Holder represents and warrants to SIBG and FBC for itself as of the date of this Agreement as follows:


5.1 Authority. Such Preferred Share Holder has all requisite power and authority to enter into and perform its or his obligations under this Agreement and the Transaction Documents to which it or he is a party and to consummate the Restructuring Transactions, and this Agreement and each of the Transaction Documents to which it or he is a party have been duly executed and delivered by such Preferred Share Holder pursuant to all necessary authorization and are the legal, valid and binding obligations of such Preferred Share Holder, enforceable against such Preferred Share Holder in accordance with their terms.


5.2 Title. Such Preferred Share Holder (a) is the record and beneficial owner of the Preferred Shares set forth opposite his or its name on Exhibit C attached hereto, which constitute


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all of the Preferred Shares it or he directly or indirectly owns or controls, (b) has full power, right and authority, and any approval required by law, to make and enter into this Agreement and the Transaction Documents to which it or he is a party and to convert in full his or its Preferred Share, and (c) has valid title to his or its Preferred Shares, free and clear of any Liens.


ARTICLE VI


REPRESENTATIONS AND WARRANTIES
OF THE SECURITIES HOLDERS
-------------------------


Each of the Securities Holders represents and warrants to SIBG and FBC for itself as of the date of this Agreement as follows:


6.1 FBC Securities. Schedule 6.1 sets forth all of the debt and/or equity securities of FBC directly or indirectly owned or controlled by such Securities Holder except for the Amended Note Warrants and the Conversion Shares. Except as set forth on Schedule 6.1 and except for the Amended Note Warrants, such Securities Holder does not own or control any Options relating to the Common Stock of FBC.


6.2 Consents and Approvals. No approval or authorization of, or declaration, filing or registration with, any Governmental Authority is required to be made or obtained by such Securities Holder in connection with the execution, delivery and performance of this Agreement or any Transaction Document to which it or he is a party and the consummation of the Restructuring Transactions.


6.3 No Conflict or Violation. Neither the execution, delivery or performance of this Agreement, any Transaction Document to which it or he is a party nor the consummation of the Restructuring Transactions will result in (a) a violation by such Securities Holder of any Laws or Orders applicable to such Securities Holders, which violation would have a material adverse effect on the ability of such Securities Holders to consummate the Restructuring Transactions or (b) a violation or conflict with any provision of any contract or agreement to which such Securities Holder is a party.


6.4 Litigation. There are no Actions instituted or pending against such Securities Holder that seek to prevent or prohibit the consummation of the Restructuring Transactions. Such Securities Holder is not subject to any Order.


6.5 No Reliance. Such Securities Holder has (a) had access to information regarding FBC, its business and financial condition, (b) had an opportunity to ask questions of, and obtain additional information from, FBC regarding its business, financial condition and prospects, and (c) had the opportunity to seek legal counsel regarding the Restructuring Transactions and this Agreement. Such Securities Holder is not taking any action pursuant to this Agreement in reliance upon any representation made, or information provided by, FBC or SIBG or any of their respective Representatives or Affiliates except for the representations and warranties set forth in this Agreement.


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6.6 Broker's Fees. No person has acted directly or indirectly as a broker, finder or financial advisor for such Securities Holder in connection with the Restructuring Transactions or this Agreement, and no person is entitled to any fee or commission or like payment from such Securities Holder in connection with the Restructuring Transactions or this Agreement.


ARTICLE VII


REPRESENTATIONS AND WARRANTIES OF SIBG
--------------------------------------


SIBG represents and warrants to the Securities Holders as follows:


7.1 Authorization. SIBG has the legal capacity, power and authority to enter into this Agreement and perform its obligations under this Agreement and any Transaction Document to which it is a party, and has taken all actions necessary to consummate the Restructuring Transactions and to perform SIBG's obligations under this Agreement and any Transaction Document to which it is a party. This Agreement and the Transaction Documents to which it is a party have been duly executed and delivered by SIBG and are the legal, valid and binding obligations of SIBG, enforceable against SIBG in accordance with their terms.


7.2 Consents and Approvals. No approval or authorization of, or declaration, filing or registration with, any Governmental Authority is required to be made or obtained by SIBG in connection with the execution, delivery and performance of this Agreement or any Transaction Document to which it is a party and the consummation of the Restructuring Transactions.


7.3 No Conflict or Violation. Neither the execution, delivery or performance of this Agreement, any Transaction Document to which it is a party nor the consummation of the Restructuring Transactions will result in (a) a violation by SIBG of any Laws or Orders applicable to SIBG, which violation would have a material adverse effect on the ability of SIBG to consummate the Restructuring Transactions, or (b) a violation or conflict with any provision of any contract or agreement to which SIBG is a party.


7.4 Litigation. There are no Actions instituted or pending or, to the knowledge of SIBG, threatened against SIBG that seek to prevent or prohibit the consummation of the Restructuring Transactions. SIBG is not subject to any Order.


7.5 Broker's Fees. No person has acted directly or indirectly as a broker, finder or financial advisor for SIBG in connection with the Restructuring Transactions or this Agreement, and no person is entitled to any fee or commission or like payment from SIBG in connection with the Restructuring Transactions or this Agreement.


ARTICLE VIII


REPRESENTATIONS AND WARRANTIES OF FBC
-------------------------------------


FBC represents and warrants to the Securities Holders as follows:


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8.1 Authorization. FBC has the legal capacity, power and authority to enter into this Agreement and perform its obligations under this Agreement and any Transaction Document to which it is a party and has taken all actions necessary to consummate the Restructuring Transactions and to perform FBC's obligations under this Agreement and any Transaction Document to which it is a party. This Agreement and the Transaction Documents to which it is a party have been duly executed and delivered by FBC and are the legal, valid and binding obligations of FBC, enforceable against FBC in accordance with their terms.


8.2 Consents and Approvals. No approval or authorization of, or declaration, filing or registration with, any Governmental Authority is required to be made or obtained by FBC in connection with the execution, delivery and performance of this Agreement or any Transaction Document to which it is a party and the consummation of the Restructuring Transactions.


8.3 No Conflict or Violation. Neither the execution, delivery or performance of this Agreement, any Transaction Document to which it is a party nor the consummation of the Restructuring Transactions will result in (a) a violation by FBC of any Laws or Orders applicable to FBC, which violation would have a material adverse effect on the ability of FBC to consummate the Restructuring Transactions, or (b) a violation or conflict with any provision of any contract or agreement to which FBC is a party.


8.4 Litigation. There are no Actions instituted or pending or, to the knowledge of FBC, threatened against FBC that seek to prevent or prohibit the consummation of the Restructuring Transactions. FBC is not subject to any Order.


8.5 Broker's Fees. No person has acted directly or indirectly as a broker, finder or financial advisor for FBC in connection with the Restructuring Transactions or this Agreement, and no person is entitled to any fee or commission or like payment from FBC in connection with the Restructuring Transactions or this Agreement.


ARTICLE IX


COVENANTS AND AGREEMENTS
------------------------


9.1 Further Assurances. Following the Closing, SIBG and FBC, on the one hand, and the Securities Holders, on the other hand, shall perform such further deeds, acts, things and assurances as are necessary, reasonable, advisable or appropriate to consummate the Restructuring Transactions and otherwise to carry out or facilitate the performance of the terms of this Agreement. If, at any time after the Closing, any further action is necessary or desirable to carry out this Agreement or the Restructuring Transactions, SIBG and FBC, on the one hand, and the Securities Holders, on the other hand, shall take all such necessary action.


9.2 Release of Claims. Each Securities Holder, on behalf of himself or itself and his or its dependents, successors, assigns, heirs, executors, administrators and Representatives (the "Releasors"), hereby releases, remises, acquits and discharges forever, irrevocably and unconditionally, SIBG and FBC and their respective Representatives, Affiliates, successors and assigns (the "Releasees"), from, against and with respect to any and all Claims which any of the Releasors has, ever had or may hereafter have against the Releasees arising on or prior to the date


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of this Agreement or on account of or arising out of any matter, cause or event occurring on or prior to the date of this Agreement; provided, however, that nothing in this Section 9.2 will operate to release any obligation of SIBG or FBC arising under this Agreement. Each Securities Holder, on behalf of himself or itself and the other Releasors, hereby irrevocably covenants to refrain from, directly or indirectly, asserting any Claim, or commencing, instituting or causing to be commenced or instituted, any Action of any kind against any Releasee under this Section 9.2 based on any matter purported to be released under this Section 9.2. The provisions of this Section 9.2 are intended for the benefit of, and will be enforceable by each Releasee.


9.3 Volume Limitations. During the period commencing on the date the volume limitations of Rule 144(e) are no longer applicable to the Conversion Shares through and including the second anniversary of the date hereof (the "Contractual Restriction Period"), the number of Conversion Shares which each Preferred Share Holder or any Affiliate of a Preferred Share Holder who receives or acquires Conversion Shares (the "Conversion Share Holder") shall be entitled to sell during any three-month period shall not exceed the greater of (i) one percent of the shares of FBC Common Stock outstanding as shown by the most recent report or statement published by FBC or (ii) the average weekly reported volume of trading in such securities on all national securities exchanges and/or reported through the automated quotation system of a registered securities association during the four calendar weeks preceding the date of such sale; provided, however, that if, prior to the commencement of the Contractual Restriction Period, a Conversion Share Holder does not sell the maximum number of Conversion Shares permitted during such period by Rule 144(e), then, notwithstanding the restrictions contained in this Section 9.3, such Conversion Share Holder may sell pursuant to Rule 144(k) (to the extent legally available) the number of Conversion Shares equal to the Rule 144(e) Shortfall Amount in addition to the amounts saleable pursuant to (i) and (ii) above. For purposes of this Agreement, the "Rule 144(e) Shortfall Amount" means the excess of the Rule 144(e) Amount over the number of Conversion Shares sold by such Conversion Share Holder pursuant to Rule 144 after the date hereof and prior to the commencement of the Contractual Restriction Period; and "Rule 144(e) Amount" means the maximum ...