Sub-distribution Agreement

AGREEMENT, made as of the 15th day of September, 2005, by and between Capital Beverage Corporation, a Delaware corporation with offices located at 700 Columbia Street, Erie Basin, Building # 302, Brooklyn, New York 11231 ("Capital", "Seller" and/or "Distributor") and Oak Beverages, Inc., a New York corporation with offices located at One Flower Lane, Blauvelt, New York 10913 ("Oak", "Purchaser", and/or "Subdistributor").


W I T N E S S E T H:


WHEREAS, Distributor is engaged in the business of distributing beverage products including distributing Pabst Products (the "Products") pursuant to the current "Pabst Brewing Company Distributor Agreement" ("Distribution Agreement") between the Pabst Brewing Company ("Pabst" and/or "Supplier") and the Distributor. The Products are the Products described in Section 1.0 of the Distribution Agreement and listed on Exhibit "A" to the Distribution Agreement. The exclusive territory (the "Territory") is the Territory described in Section 3.0 of the Distribution Agreement and further described in Exhibit "B" to the Distribution Agreement. (A copy of the Distribution Agreement is annexed hereto as Schedule "A").


WHEREAS, the Distribution Agreement requires the prior written consent of Supplier to Capital in order to enter into a Subdistribution Agreement;


WHEREAS, Distributor and Oak have entered into a certain asset purchase agreement dated the date hereof (the "Asset Purchase Agreement") concerning the potential acquisition of the exclusive right to purchase the Products from Supplier and market, sell and distribute same at wholesale on an exclusive basis in the Territory (the "Exclusive Distribution Rights");


WHEREAS, the purpose of this Subdistribution Agreement is to allow Oak to make a financial accommodation to Distributor in order to assist Distributor to maintain its relationship with Supplier and for Oak to distribute the Products in the Territory solely during the period from the filing of the Information Statement with the Securities and Exchange Commission ("SEC") as set forth in the Asset Purchase Agreement to the end of the limited term of this Agreement.


WHEREAS, Oak entered into the Letter of Intent with Capital dated April 15, 2005 ("Letter of Intent") and the negotiations for entering into a Asset Purchase Agreement based upon Oak's belief that Distributor would continue to market, sell and distribute the Products in the Territory and otherwise continue to operate its business in the ordinary course;


WHEREAS, Distributor has, at its own will, scaled back its business and operations, including the marketing, selling and distribution of the Products in the Territory;


WHEREAS, in order to induce Oak to market, sell and distribute the Products in the Territory, Distributor has agreed to waive any and all rights and claims it may have against Oak and its affiliates arising from (i) Distributor's agreement to enter into this Subdistribution Agreement or otherwise reduce or modify the operation of its business and (ii) the hiring of any of Distributor's employees by Oak or its affiliates (collectively, the "Waived Actions");


WHEREAS, Oak is willing to market, sell and distribute the Products in the Territory on the terms and conditions stated herein provided that Distributor provides waivers to Oak and its affiliates (the "Waivers") which effectively


waive any and all rights and claims Distributor may have against Oak and/or its affiliates arising from or in connection with the Waived Actions;


NOW THEREFORE, in consideration of the mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:


1. Subdistribution Arrangement. (a) The purpose of this Agreement is to allow Oak to make a financial accommodation to Distributor in order to assist Distributor to maintain its relationship with Supplier and for Oak to purchase the Products and distribute the same within the Territory as a subdistributor to the Distributor. However, it is hereby acknowledged and agreed that Oak has not assumed nor shall Oak be liable for any obligations or liabilities arising out of or relating to the Distribution Agreement. In distributing the Products, Oak will comply with Pabst's established distribution procedures such as those stated in the Distribution Agreement. The Distributor will provide Oak with Pabst's prior express written authorization allowing Oak to act as a subdistributor to the Distributor for the limited time period stated in this Subdistribution Agreement.


(b) Oak may market, sell and otherwise distribute Products to any Person located and taking delivery within the Territory in any reasonable commercial manner not inconsistent with this Subdistribution Agreement.


(i) The parties agree that nothing contained in this Subdistribution Agreement shall be deemed to constitute an agreement between a brewer and a beer wholesaler or an agent for a beer wholesaler or a course of dealing granting the right to purchase, offer for sale, resale, warehouse or physically deliver beer sold by a brewer for a continuing period of time. Oak hereby waives any right to claim pursuant to 55 (c) of the Alcoholic Beverage Control Law that it has any continuing right to distribute the Products in the Territory after termination of this Subdistribution Agreement or any right to be paid compensation for the termination of this Subdistribution Agreement. Said waiver shall run to the benefit of both the Distributor and the Supplier. In the event that either Oak is to institute any litigation or proceeding against the Supplier or against the Distributor pursuant to Section 55 (c) of the Alcoholic Beverage Control Law concerning its alleged rights arising from the course of dealing under this Subdistribution Agreement. Oak will be liable to the Supplier and/or the Distributor for all costs, expenses and legal fees incurred by the Supplier and/or the Distributor in defending such action or proceeding.


2. Supply. (a) Oak's rights to sell the Products in the Territory arise pursuant to this Subdistribution Agreement. In this regard, Distributor, on behalf of Oak, will issue purchase orders for Products requested by Oak, representing Oak's specific requirements for Products as specified in writing by Oak to Distributor from time to time (the "Oak Orders").


(i) The Subdistributor, Oak, agrees to pay Pabst for the Oak Orders pursuant to this Subdistribution Agreement. In addition, during the first forty-five (45) days from the effective date of this Subdistribution Agreement (the "45-Day Period"), Oak will pay Capital the following amounts for Products received by Oak in good condition, pursuant to the applicable Oak Orders: (x) fifty ($0.50) cents per case of Products; and (y) two dollars ($2.00) per barrel of Products. Upon the Closing of the transaction contemplated in the Asset Purchase Agreement, the Purchase Price will be reduced by, and Purchaser will receive a credit in, an aggregate amount equal to the sum of: twenty-five cents ($0.25) for each case of Products purchased by Oak and sold by Oak to customers in the Territory, plus fifty cents ($0.50) for each case of Products purchased by Oak but not sold to such customers, plus One Dollar ($1.00) for each barrel of Products purchased by Oak and sold by Oak to customers in the Territory, plus


2


Two Dollars ($2.00) for each barrel of Products purchased by Oak but not sold to such customers, all determined during the 45-Day Period. In the event the Asset Purchase Agreement is terminated by either party for any reason, Capital shall promptly pay to Oak all of the credits described above in this paragraph.


(b) Subdistributor and Distributor each acknowledges that Subdistributor will not be liable for any purchase order or other obligations or liabilities of Distributor to Supplier except for the specific Oak Orders issued pursuant to Oak's written instructions.


(c) During the term of this Agreement, Distributor will continue its limited operations with respect to its business and the distribution of the Products in the Territory, and will maintain a presence at its place of operations and offices at the address designated in the introductory paragraph to this Agreement.


3. Delivery, Risk of Loss and Related Matters. With respect to each purchase order issued by Distributor pursuant to paragraph 2(a) and submitted to Supplier, Distributor shall request that Supplier shall deliver conforming Products directly to Oak on the delivery dates specified therein. Unless otherwise stated in the applicable purchase order, Products ordered pursuant to each Purchase Order shall be tendered by Supplier to Oak FOB Oak's plant plus federal taxes paid.


4. Purchase Price and Payment Terms. (a) The price for Products ordered pursuant to Oak Orders will be the prices currently in effect for Products sold to Distributor for distribution in the Territory, as same may be modified by Pabst from time to time.


(i) Nothing contained herein will prevent Pabst and Oak from mutually agreeing to modifications of payment terms for the Oak Orders.


(b) Capital will invoice Oak for Oak Orders after the underlying Products related to the Oak Orders are delivered to the shipping point and Oak shall pay each invoice directly to Supplier within twenty (20) days from the date of the invoice. In addition, at that time, during the 45-Day Period, Oak will pay Capital the following amounts for Products received by Oak in good condition, pursuant to the applicable Oak Orders: (x) fifty ($0.50) cents per case of Products; and (y) two dollars ($2.00) per barrel of Products. Upon the Closing of the transaction contemplated in the Asset Purchase Agreement, the Purchase Price will be reduced by, and Purchaser will receive a credit in, an aggregate amount equal to the sum of: twenty-five cents ($0.25) for each case of Products purchased by Oak and sold by Oak to customers in the Territory, plus fifty cents ($0.50) for each case of Products purchased by Oak but not sold to such customers, plus One Dollar ($1.00) for each barrel of Products purchased by Oak and sold by Oak to customers in the Territory, plus Two Dollars ($2.00) for each barrel of Products purchased by Oak but not sold to such customers, all determined during the 45-Day Period. In the event the Asset Purchase Agreement is terminated by either party for any reason, Capital shall promptly pay to Oak all of the credits described above in this paragraph.


5. Term. The term of this Agreement shall be for a period commencing on the date of the filing of the Information Statement with the SEC pursuant to the Asset Purchase Agreement and continuing thereafter until the first of the following to occur: (i) the closing of the transactions contemplated by the Asset Purchase Agreement, (ii) the termination of the Asset Purchase Agreement, (iii) Ninety (90) days from the date of this Agreement, or (iv) the earlier termination of this Agreement.


6. Termination. (a) Subject to paragraph 7(a), Oak shall only have the right to terminate this Agreement as follows:


3


(i) in the event Distributor breaches any material provision ...