How to Raise Equity. An Easy Guide to Private Placements

Transcription

1 How to Raise Equity An Easy Guide to Private Placements

2 Why You Need Capital Opening a brewery Expanding a brewery

3 Funding options Debt Benefits: Maintains your ownership Creates leverage effect Can be inexpensive capital if you grow rapidly Drawbacks: Raises your overhead, increases risk Negative covenants

4 Funding options (continued) Equity Angel investors Usually a bad deal for you Public offering Expensive, tons of filing requirements. Not an option. Private offering Family & Friends easy access, but limited number Customers & Community

5 What Saint Arnold did At capacity in 2007 Got $5.1 million in debt financing $2.3 million 3.17% SBA debenture $2.8 million 6.28% bank note Raised $1.5 million in equity Goal was $500,000 Raised the $1.5 million in about 2 weeks Raised an addition $1 million in subsequent offerings Built $8 million newery with 120 bbl brewhouse

6 Why Private Offering is Doable Beer & breweries have a unique appeal Craft beer segment is growing You have a loyal following (existing breweries) Strong equity investment increases your appeal to banks Boston Beer Company stock price $20 two years ago, $90 today [check]

7 What You Need Valuation Financial Model Selling Memo List of Potential Investors

8 Valuation Definitions Market Value (MV) Value of the total stock Total Enterprise Value (TEV) Value of entire company Stock Value + Debt Excess Cash

9 Public Market Comparables Method One good comparable: Boston Beer Company BBC Valuation Multiples: TEV / Revenues: 2.6x TEV / EBIT: 16x TEV / EBDIT: 13x MV / Net Income: 27x (Price / Earnings)

10 How to Value Brewery X Brewery X Financial Result BBC Valuation Multiple Total Enterprise Value Minus Debt Market Value Revenues $2,500, x $6,500,000 $1,200,000 $5,300,000 EBIT $400,000 16x $6,400,000 $1,200,000 $5,200,000 Net Income $150,000 27x - $4,050,000

11 How to Value Brewery X (cont d) Revenue Multiple Value $5,300,000 EBIT Multiple Value $5,200,000 Net Income Multiple Value $4,050,000 Average Valuation $4,850,000 Less Liquidity Discount (25%) $1,200,000 Value of Brewery X $3,650,000

12 Financial Model Historical Results Projections Show assumptions Income Statement Balance Sheet Cash Flow Statement See model handout or download at

13 Three Statements Tie Together Balance Sheet Net Income Increases Equity Change in Cash Equals Change in Cash Income Statement Net Income is the Top Line Cash Flow Statement Make Sure Balance Sheet Balances!

14 Give Realistic but Aggressive Projections Don t negotiate against yourself. Make sure you can back up and explain your assumptions. Small tweaks in assumptions can have large changes in projected profits.

15 Selling Memo Legal document Make people excited to invest Gives valuation

16 Selling Memo Chapters Summary of Offering Executive Summary Risk Factors Market Overview Company Description Financials

17 Summary of Offering Issuer Shares Offered by the Company: Offering Price: Use of Proceeds: Brewery X Up to 50,000 Shares of Common Stock, par value $0.01 $20.00 per Share Desired Subscription Amount: 1,250 shares, or $25,000 Minimum Subscription Amount: 500 shares, or $10,000 Expected Closing Date: March 31, 2011 To acquire and improve a new building for the brewery, to acquire new brewing equipment, to move existing brewing equipment and for general corporate purposes.

18 Executive Summary Some people will read only this Make sure to answer the questions Why invest in this industry? Why invest in Brewery X? Why invest now? Why invest in the people running Brewery X? Show summary financials & valuation

19 Risk Factors Don t hold back! Put everything in. Look at Boston Beer Company 10K. Risk factors protect you and rarely discourage investment.

20 Market Overview Brewers Association is an excellent data source. Show growth of market. Show growth of comparable breweries. Show your position in the market (if it s strong). Show where your market position can be.

21 Company Description History of your brewery Beers you make Staff Awards Exciting things you do What makes you exceptional

22 Financials Historical & Projected Project budget Explain assumptions Model results Valuation Ownership summary current & projected

23 Know & Follow Securities Laws In no way am I offering legal advice. Federal securities laws State securities laws Important terms Filings Have an attorney review all offering materials and procedures

24 Federal Securities Laws $1 million limitation if you want to advertise the offering (Rule 504) No limit on number of investors No limit on non-accredited investors $5 million limitation without advertising (Rule 505) No limit on number of investors Limited to 35 non-accredited investors

25 State Securities Laws State laws differ and are in addition to federal laws. Sometimes called Blue Sky rules. Texas laws for a private offering Up to $5 million in 12 month period Limited to 35 non-accredited investors Unlimited number of accredited investors Investors can be in state or out of state If offering to investors in other states, you have to comply with that state s Blue Sky rules too No advertising

26 Filings Federal Filings Form D Form U-2 Uniform Consent to Service of Process State Filings In Texas, a notice of securities exemption must be filed with state securities commissioner Each state where securities are offered or sold may require additional filings

27 Terms Accredited investor $1 million in net worth, or $200,000 in income for individual in each of previous 2 years and expect the same in current year, or $300,000 in income for a couple (same time requirements) Investors must be well informed & with a relationship to the issuer

28 I am not a lawyer I am not offering legal advice.

29 Finding Potential Investors In states that don t allow advertising: DO NOT: Post information about offering on website Send out information on mass

30 Finding Potential Investors (cont d) Things that are probably OK (I m not a lawyer): Anybody who has ever asked about investing in the brewery. Anybody that you know well enough to approach individually. Facebook is a gray area. Ask a lawyer.

31 Offering Paperwork Confidentiality Agreement Subcription Agreement Investor Questionnaire Shareholders Agreement Examples of these (except Shareholders Agreement) can be seen at

32 Confidentiality Agreement This Confidentiality Agreement ("Agreement") is between Brewery X ("BX") and ( Potential Investor ) regarding the confidentiality of the information, including the Private Offering document, furnished by BX to Potential Investor relating to the offering of stock in BX. Potential Investor agrees not to reproduce, distribute or divulge any of the information furnished by BX to Potential Investor. This information may only be viewed by Potential Investor and any advisors necessary to assist Potential Investor in the review of this material. Potential Investor assumes full responsibility for the compliance of any such advisors to the terms of this Agreement. Potential Investor agrees to return all information given to it under this Agreement to BX immediately upon request. Date: By: Potential Investor Printed Name: Mailing Address: Date: By: President Brewery X

33 SIGNATURE PAGE BREWERY X Execution of this Signature Page constitutes execution of (a) the Subscription Agreement, (b) the Prospective Offeree Questionnaire (the "Questionnaire"), (c) the Shareholder Agreement of Brewery X (the "Company") and the Substitute W-9 below. The undersigned hereby certifies that he has read and understands the Subscription Agreement, the undersigned's representations and warranties therein are accurate on the date hereof and the information contained in the Questionnaire is complete and accurate on the date hereof. The undersigned will notify the Company immediately of any inaccuracy in his representations or warranties in the Subscription Agreement and any material change in any of the information provided by him in the Questionnaire which occurs prior to the closing of the Offering and will promptly confirm any such change in writing. $ Subscription Amount (Capital Commitment) Substituted W-9 Under penalties of perjury, I certify that: 1. The number shown on this form is my correct social security number/taxpayer identification number (or I am waiting for a number to be issued to me); 2. I am not subject to backup withholding because (a) I am exempt from backup withholding, or (b) I have not been notified by the Internal Revenue Service ( IRS ) that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding; and 3. I am a U.S. person (includes a U.S. resident alien) and agree to notify the Company within 60 days of the date that I cease to be a U.S. person. Purchaser #1 Name (Please Print) Residence Address (City, State and Zip Code): Social Security/Tax I.D. Number Telephone Number Address Fax Number Purchaser #2 Name (Please Print) Residence Address (City, State and Zip Code): Social Security/Tax I.D. Number Telephone Number Address Fax Number Purchaser #1: Purchaser #2: / / / DATE SIGNATURE / DATE S-1

34 (1) If a partnership, limited liability company, corporation or other qualified association, an authorized representative on behalf of such entity must sign on the signature line above. Please print the name of organization and the state of formation above the signature and print the name and title of such person below the signature line. (2) Second signature required for any joint investment. TYPE OF OWNERSHIP (Check One): ( ) INDIVIDUAL OWNERSHIP (one signature required on prior page) ( ) TENANTS IN COMMON (both or all parties must sign prior page) COMMUNITY PROPERTY ( ) One signature (required if the shares of Common Stock are to be held in the name of one spouse and are to be purchased with funds under the sole management and control of that spouse) ( ) Two Signatures (required if the Shares of Common Stock are to be issued in the joint name of husband and wife or are to be purchased with funds held in the joint name of husband and wife) ( ) JOINT TENANTS WITH RIGHT OF SURVIVORSHIP (both or all parties must sign, which signatures shall acknowledge and represent their agreement to acquire the shares of Common Stock as joint tenants with right of survivorship) ( ) CORPORATION (please attach copies of the corporation's certificate or articles of incorporation, bylaws and authorizing resolutions) ( ) LIMITED LIABILITY COMPANY (attach certificate or articles of organization, regulations or operating agreement and authorizing resolutions) ( ) PARTNERSHIP (attach copy of Partnership Agreement with authorizing signature) ( ) TRUST, AGENT OR OTHER PERSON ACTING IN A REPRESENTATIVE CAPACITY (list the name of the person or entity who will be the record holder and provide (i) copy of Trust Agreement, power of attorney or other instrument granting the power and authority to subscribe, or (ii) an opinion of counsel as to such power and authority) INITIAL AGREED AND ACCEPTED: BREWERY X By: Date:, President, Brewery X S-2

35 BREWERY X SUBSCRIPTION DOCUMENTS (COMMON STOCK) THESE ARE EXAMPLE DOCUMENTS. PLEASE CONSULT AN ATTORNEY BEFORE ISSUING ANY MATERIALS TO ANY POTENTIAL INVESTORS. DATE

36 BREWERY X $500,000 PRIVATE PLACEMENT OFFERING SUBSCRIPTION INSTRUCTIONS One copy of the Subscription Agreement and Prospective Offeree Questionnaire (only required for those who have not previously submitted one), each of which is included in this separate subscription document booklet, must be properly completed and signed. If an investment in the Common Stock is to be made out of funds which are in the joint name of husband and wife, or if the shares of Common Stock are to be issued in the joint name of husband and wife, both spouses must sign all documents. Subscription Agreement: Print or type the Subscriber's name(s). Subscriber(s) sign(s) as "Purchaser." Signatures of both husband and wife are required if the shares of Common Stock are to be issued in the joint name of husband and wife, or are to be purchased from funds held in the joint name of husband and wife. All trustees or partners must sign according to the signature requirements of the trust or partnership. Prospective Offeree Questionnaire: Each subscriber (other than the spouse of a person who has completed a questionnaire) must complete, date and sign a separate questionnaire. Corporations, partnerships, trusts and other business entities must also furnish recent financial statements, and must attach complete and unabridged appropriate authorizing instruments (corporate resolutions, certificate of incorporation and by-laws, employee benefit plan, partnership agreement or trust instrument). Deadline: These documents (i.e., the Subscription Agreement and the Prospective Offeree Questionnaire) must be delivered to Brewery X at [Brewery Address] on or before 5:00 p.m. CDT, April 21, Failure to deliver the documents by the deadline will be deemed an election not to subscribe. Following receipt of the documents, Brewery X will provide notice to the Prospective Offeree that the subscription has been accepted by the Company. Payment: On or before 11:00 a.m. CDT on April 23, 2009, the Prospective Offeree shall remit by check or wire transfer immediately available funds in the amount of the Prospective Offeree's Capital Commitment to: Wire transfer to: ABA number (routing): For credit: Account number: Bank X Brewery X IF YOU HAVE ANY QUESTIONS ABOUT THESE SUBSCRIPTION DOCUMENTS, PLEASE CONTACT [BREWERY X CONTACT] (TELEPHONE: ( ).

37 SUBSCRIPTION AGREEMENT Brewery X Ladies and Gentlemen: The undersigned ("Subscriber") has received and read the $X,XXX,XXX Brewery X Private Offering Memorandum or else is a current shareholder and has reviewed materials sent to existing shareholders ("Offering Materials"). This information contains a description of the offer (the "Offering") by Brewery X, a [STATE] corporation (the "Company"), to sell shares of Common Stock (the "Common Stock") of the Company. Capitalized terms used and not otherwise defined herein have the same meaning as in the Offering Materials. 1. Introduction. The undersigned has been offered the Common Stock in a "private offering" under the Securities Act of 1933, as amended ("Securities Act"), and particularly Section 4(2) thereunder, as implemented by Rule 506 of the Securities and Exchange Commission (such rules are collectively referred to as "Regulation D"). The offer of the Common Stock to the undersigned and any other person, if any, who is executing a counterpart of this Subscription Agreement has been made solely by means of the Offering Materials and any exhibits attached thereto. It is expressly agreed hereby that each subscriber to the Offering must enter into this Subscription Agreement as a condition to the issuance of the Common Stock. This Subscription Agreement is binding with respect to the Common Stock described in the Offering Materials. 2. Subscription. Subject to the terms and conditions of this Subscription Agreement and the provisions of the Offering Materials, the undersigned hereby subscribes for the shares of Common Stock specified on the signature page hereof (the "Subscription"). Simultaneously with the execution of this Subscription Agreement, the undersigned is submitting a completed Prospective Offeree Questionnaire (the Subscription Agreement and the Prospective Offeree Questionnaire, collectively, the "Subscription Documents") or has done so previously. Following receipt of notice to the Prospective Offeree that the subscription has been accepted by the Company, the Prospective Offeree will be notified of its subscription amount and, on or before 11:00 a.m. CDT on April 23, 2009, the Prospective Offeree shall remit by wire transfer immediately available funds in the amount of the Prospective Offeree's Capital Commitment. If this Subscription is not accepted or the Offering is terminated by the Company for reasons set forth in the Offering Materials, all documents will be returned to the Subscriber, along with any Capital Contribution paid by such Subscriber, without interest or deduction. 3. Acceptance of Subscription. The undersigned acknowledges and agrees that the Company has the right to accept or reject this Subscription, and that this Subscription shall be deemed to be accepted on behalf of the Company only when a copy of the Signature Page to these Subscription Documents is executed by the Company and returned to the Subscriber and the payment to be made in accordance with such Subscription has been made to the Company. The undersigned agrees that Subscriptions need not be accepted in the order they are received. Subscriptions can be rejected by the Company for any reason. 4. Representations, Warranties and Covenants of the Undersigned. The undersigned hereby represents and warrants to and covenants with the Company, its agents and employees, as follows: (a) The undersigned has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of purchasing the shares of Common Stock and (i) is an "Accredited Investor," as defined in Rule 501 in Regulation D or (ii) is well-informed with respect to the Company as reflected by subparagraph (e) and (f) below. (b) The undersigned understands that the information in the Subscription Documents is being furnished to determine whether the Company may issue the Common Stock to the undersigned pursuant to Section 4(2) of 1

38 the Securities Act and Regulation D promulgated thereunder, and the requirements of the securities laws of certain states. The undersigned understands that (i) the information contained herein will be relied upon for purposes of such determination and (ii) the Common Stock will not be registered under the Securities Act in reliance upon the exemption from registration afforded by Section 4(2) of the Securities Act and Regulation D. The undersigned represents and warrants that: (i) The information contained in the Subscription Documents is complete and accurate as of the date hereof and may be relied upon by the Company. (ii) The undersigned will notify the Company immediately of any material change in any information contained in the Subscription Documents occurring prior to the closing of the issuance of the Common Stock. (c) The undersigned has evaluated the merits and risks of his proposed acquisition of Common Stock of the Company. The undersigned has adequate means of providing for his current needs and possible personal contingencies, and he has no need, and anticipates no need in the foreseeable future, to sell or transfer the Common Stock for which he hereby subscribes. In deciding to invest in the Common Stock, the undersigned has carefully evaluated his financial resources and investment position and the risks associated with an investment in the Common Stock and is able to bear the economic risks of this investment and, consequently, without limiting the generality of the foregoing, he is able to hold the Common Stock for an indefinite period of time and has a sufficient net worth to sustain a loss of his entire investment in the Common Stock in the event such loss should occur. (d) The undersigned has made other investments of a similar nature and, by reason of his knowledge and experience in financial and business matters or the knowledge and experience of those persons he has retained to advise him with respect to his investment in the Common Stock, he has the capacity to protect his own interest in investments of this nature and is capable of evaluating the merits and risks of such an investment. (e) The undersigned has received and read and is familiar with the Offering Materials, including any exhibits attached thereto and any amendments or supplements thereto, and he confirms that all documents, records, and books pertaining to this proposed investment in the Common Stock have been made available to him. (f) The Company has made available to the undersigned such financial and other information concerning the Company and the Common Stock as the undersigned has deemed necessary in connection with its decision to purchase the Common Stock and the opportunity to ask questions of and obtain additional information from the Company, or any person or persons acting on behalf of the Company, concerning the terms and conditions of this investment and the accuracy of the information contained in the Offering Materials, and all such questions have been answered to the full satisfaction of the undersigned and are sufficient for the undersigned to evaluate the merits and risks of the investment. (g) The Common Stock for which the undersigned hereby subscribes will be acquired for his own account for investment and not with the view toward resale or redistribution in a manner which would require registration under the Securities Act. (h) The undersigned represents that it has been called to his attention, both in the Offering Materials and by those individuals with whom he has dealt in connection with his investment in the Common Stock, that his investment in the Common Stock involves a high degree of risk which may result in the loss of the total amount of his investment. (i) The undersigned has received no representations or warranties (other than any contained in the Offering Materials) from the Company, or its affiliates, or employees or agents, and, in making his investment decisions, he is relying solely on the information contained in the Offering Materials and investigations made by him. (j) The undersigned is now a bona fide resident of the state set forth on the signature page hereto and in the Prospective Offeree Questionnaire, and the address and social security or federal tax identification number set forth therein are his true and correct residence and social security or federal tax identification number. The undersigned 2

39 has no present intention of becoming a resident of any other state or jurisdiction. If the undersigned is a corporation, partnership, trust or other form of business organization, it represents and warrants that its principal place of business is within such state, that it was formed under the laws of such state or as otherwise indicated on the signature page and that it was not organized for the purpose of acquiring the Common Stock. (k) The undersigned acknowledges that the shares of Common Stock have not been registered under the Securities Act or under applicable state securities laws and may not be offered or sold except as provided in Section 6 herein. (l) The undersigned understands that neither the Securities and Exchange Commission (the "Commission") nor the securities administrator of any state has made any finding or determination relating to the fairness of the Offering and that neither the Commission nor the securities administrator of any state has or will recommend or endorse any offering of securities. (m) The undersigned is not acquiring the Common Stock for, or on behalf of, and shall not sell or otherwise transfer such Common Stock to, any pension or welfare plan (as defined in Section 3 of the Employee Retiree Income Security Act of 1974 ("ERISA")), except to the extent that an investment in the Common Stock is a permitted investment for such pension or welfare plan under ERISA and the terms of such plan, in light of other investments and commitments of such plan at the time of the proposed investment in the Common Stock. (n) The undersigned agrees that the Company may disclose such information regarding the undersigned and its investment in the Common Stock as may be contained in the books and records of the Company as determined by the Company in the Company's sole discretion. (o) The undersigned acknowledges that the Company and others will rely upon the truth and accuracy of the foregoing acknowledgments, representations, and agreements. If the undersigned is acquiring the Common Stock as a fiduciary or agent for one or more investor accounts, it represents that it has sole investment discretion with respect to each such account and it has full power to make the foregoing acknowledgments, representations, and agreements on behalf of each account. (p) The undersigned further represents and warrants that the representations and warranties set forth herein shall remain true and accurate from the time that the undersigned executes this Subscription Agreement until the issuance of the Common Stock to the undersigned and that he will neither take any action nor permit any action to be taken during such period which would cause such representations and warranties to be no longer true; and that in the event any representation or warranty set forth herein shall be untrue during such period, the undersigned immediately shall deliver to the Company a written statement to that effect and such other information, statements, and grants of power of attorney as may be requested by the Company for the purpose of causing such representation and warranty to be true. 5. Indemnification. The undersigned acknowledges that he understands the meaning and legal consequences of the representations, warranties and covenants in Sections 4, 6 and 7 hereof and that the Company has relied upon such representations, warranties and covenants, and he hereby agrees to indemnify and hold harmless the Company and its respective partners, officers, managers, controlling persons, agents and employees from and against any and all loss, damage or liability due to or arising out of a breach of any such representation, warranty or covenant. Notwithstanding the foregoing, however, no representation, warranty, acknowledgment or agreement made herein by the undersigned shall in any manner be deemed to constitute a waiver of any rights granted to the undersigned under federal or state securities laws. All representations, warranties and covenants contained in this Subscription Agreement and the indemnification contained in this Section 5 shall survive the acceptance of this Subscription and the issuance of the Common Stock to the undersigned. 6. Limitations on Transfer of Common Stock. The undersigned acknowledges that he is aware that there are substantial restrictions on the transferability of the Common Stock. The undersigned agrees that shares of Common Stock shall not be sold unless (a) such sale is pursuant to an effective registration statement under the Securities Act and all relevant state securities laws or (b) such sale is made in accordance with the terms and conditions of the Shareholder Agreement and the Company shall have been advised by its counsel that such registration is not required and 3

40 that such sale is exempt from registration under the Securities Act and any applicable state securities laws. The undersigned further acknowledges that the Company is under no obligation to aid him in obtaining any exemption from the registration requirements. The undersigned also acknowledges that he shall be responsible for compliance with all conditions on transfer imposed by any securities administrator of any state and for any expenses incurred by the Company for legal or accounting services in connection with reviewing such a proposed transfer and issuing opinions in connection therewith, and agrees that he will give appropriate notice of these restrictions to each person to whom he transfers such Common Stock. 7. Compliance with Securities Laws. The undersigned understands and agrees that (i) the Common Stock of the Company will be uncertificated, unless otherwise determined by the Board of Directors, and (ii) the following restrictions and limitations are applicable to his purchase and his resales, pledges, hypothecations or other transfers of the Common Stock pursuant to the Securities Act, as amended: (a) The undersigned agrees that shares of Common Stock shall not be sold, pledged, hypothecated or otherwise transferred unless registered under the Securities Act and applicable state securities laws or exempted therefrom. (b) A legend in substantially the following form has been or will be placed on certificates representing shares of Common Stock: (if the Board of Directors elects to have the Common Stock of the Company certificated) or other instruments of the Company: "THE SHARES OF COMMON STOCK REPRESENTED BY THIS DOCUMENT HAVE NOT BEEN REGISTERED UNDER ANY SECURITIES LAWS AND THE TRANSFERABILITY OF SUCH SHARES IS RESTRICTED. SUCH SHARES MAY NOT BE SOLD, ASSIGNED, OR TRANSFERRED, NOR WILL ANY ASSIGNEE, VENDEE, TRANSFEREE, OR ENDORSEE THEREOF BE RECOGNIZED AS HAVING ACQUIRED ANY SUCH SHARES BY THE ISSUER FOR ANY PURPOSES, UNLESS (1) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, WITH RESPECT TO SUCH SHARES SHALL THEN BE IN EFFECT AND SUCH TRANSFER HAS BEEN QUALIFIED UNDER ALL APPLICABLE STATE SECURITIES LAWS, OR (2) THE AVAILABILITY OF AN EXEMPTION FROM SUCH REGISTRATION AND QUALIFICATION SHALL BE ESTABLISHED TO THE SATISFACTION OF COUNSEL TO THE COMPANY. THE SALE, PLEDGE OR OTHER TRANSFER OF THE SHARES IS ALSO SUBJECT TO CONTRACTUAL RESTRICTIONS AND CONDITIONS SET FORTH IN THE SHAREHOLDER AGREEMENT. THE COMPANY WILL FURNISH TO ANY SHAREHOLDER WITHOUT CHARGE A COPY OF THE SHAREHOLDERS AGREEMENT UPON WRITTEN REQUEST TO THE COMPANY AT ITS PRINCIPAL PLACE OF BUSINESS OR REGISTERED OFFICE." (c) The legend described in subparagraph (b) above will be placed on any new document or instrument evidencing ownership of the Common Stock upon presentment by the undersigned of any portion of his Common Stock for transfer. 8. Adoption of Shareholder Agreement. The undersigned hereby adopts, accepts and agrees to be bound by the terms and provisions of the Shareholder Agreement and to perform all obligations therein imposed upon the undersigned. Upon acceptance of the Subscription by the Company, the undersigned shall become a shareholder of the Company. 9. Grant of Power of Attorney. The undersigned hereby irrevocably constitutes and appoints the President, with full power of substitution, the true and lawful agent and attorney-in-fact of the undersigned, with full power and authority in his name, place and stead, to execute and deliver on behalf of the undersigned the Shareholder Agreement and any and all other documents and agreements necessary in connection therewith. The power of attorney granted to the President hereby shall be in addition to the powers of attorney granted to the President in the Shareholder Agreement. 4

41 10. Notices. All notices or other communications given or made hereunder shall be in writing and shall be delivered or mailed by registered or certified mail, return receipt requested, postage prepaid, to the undersigned or the Company at the respective addresses set forth below. 11. Governing Law. This Agreement shall be governed and construed in accordance with the laws of the State of Texas. 12. Signature. THE SIGNATURE PAGE TO THIS SUBSCRIPTION AGREEMENT IS CONTAINED AS PART OF THE SUBSCRIPTION BOOKLET AND ENTITLED "SIGNATURE PAGE." 5

42 PROSPECTIVE OFFEREE QUESTIONNAIRE Brewery X Gentlemen: The information contained in this Prospective Offeree Questionnaire (this "Questionnaire") is being furnished to you in order for you to determine whether Brewery X, a Texas corporation (the "Company"), may sell to the undersigned (the "Subscriber") shares of Common Stock (the "Common Stock"), under certain exemptions from registration under Section 4(2) of the Federal Securities Act of 1933, as amended (the "Securities Act"), and Regulation D thereunder, and under state securities laws in states where the Common Stock may be offered. The undersigned understands that (a) you will rely on the accuracy and completeness of the information contained herein for purposes of such determination, (b) the Common Stock will not be registered under the Securities Act or state securities law in reliance upon the foregoing exemptions from registration and (c) this Questionnaire by itself is not an offer of securities to the undersigned, which offer can only be made pursuant to the Confidential Offering Materials (the "Offering Materials") relating to the Company. Terms used but not otherwise defined herein shall have the same meaning as in the Offering Materials, the receipt of which is hereby acknowledged by the undersigned. ALL INFORMATION CONTAINED IN THIS QUESTIONNAIRE SHALL BE TREATED CONFIDENTIALLY. However, the undersigned understands that you may present this Questionnaire to such parties as you, in your discretion, deem necessary if called upon to establish that the proposed issuance of the Common Stock is exempt from registration under the Securities Act or meets the requirements for exemption from registration of applicable state securities laws. INDIVIDUALS SHOULD COMPLETE SECTIONS I, II, III AND V. CORPORATIONS, PARTNERSHIPS, TRUSTS AND OTHER ENTITIES SHOULD COMPLETE SECTIONS I, II, VI, AND V. TRUSTEES AND INVESTMENT REPRESENTATIVES WITH INVESTMENT AUTHORITY SHOULD COMPLETE ALL SECTIONS. In accordance with the foregoing, the following representations and information are hereby made and provided: I. GENERAL INFORMATION (to be completed by all subscribers) Name of Investor(s): Name of trustee or investment representative with discretionary investment authority: Residence Address (if other than an individual, principal office address): City: State: Zip Code: Telephone: ( ) Facsimile: ( ) 1 of 6

43 Business Address: City: State: Zip Code: Telephone: ( ) Facsimile ( ) Place and Date of Birth (if other than an individual, place and year of organization or incorporation): Social Security No.: Taxpayer Identification No.: Communications should be sent to (check one): Business Address: Residence Address: II. CERTAIN CERTIFICATIONS - PLEASE INITIAL (to be completed by all subscribers) 1. I am a citizen of the United States or a corporation, partnership, limited liability partnership or trust formed under the laws of a state of the United States, and except as described below, my Subscription for the Common Stock will be solely for my own account and not for the account of any other person. Exceptions: INITIAL 2. I have never filed or been involved in personal or corporate bankruptcy proceedings and there are no suits pending or judgments outstanding against me which, individually or in the aggregate, could impair my ability to fulfill my obligations under the Subscription Agreement. 3. The Subscriber represents that the Subscriber is (check one) [ ] an "Accredited Investor" 1 [ ] not an "Accredited Investor" INITIAL 4. To be completed by "Accredited Investors" only: The Subscriber represents that the Subscriber is (check each category of "Accredited Investor" below, if any, which is applicable to the Subscriber): ( ) (A) a natural person whose individual net worth, or joint net worth with that person's spouse, at the time of his purchase exceeds $1,000,000; ( ) (B) a natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person's spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year. 1 An accredited investor is an investor who meets any one or more of the criteria outlined in Question II(4). 2 of 6

44 ( ) (C) a bank as defined in Section 3(a)(2) of the Securities Act or a savings and loan association or other institution as defined in Section 3(a)(5) (A) of the Securities Act, whether acting in its individual or fiduciary capacity; broker or dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934; an insurance partnership as defined in Section 2(13) of the Securities Act; an investment partnership registered under the Investment Partnership Act of 1940 (the "1940 Act") or business development partnership as defined in Section 2(a) (48) of the 1940 Act; a Small Business Partnership licensed by the U.S. Small Business Administration under Section 301(c) or (d) of the Small Investment Act of 1958; a plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees if such plan has total assets in excess of $5,000,000; or an employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974 ("ERISA"), if the investment decision is made by a plan fiduciary, as defined in Section 3(21) of ERISA, which fiduciary is either a bank, savings and loan association, insurance partnership or registered investment adviser, or if the employee benefit plan has total assets in excess of $5,000,000 or, if a self-directed plan, with investment decisions made solely by persons that are Accredited Investors (as listed in categories (A) - (H)); ( ) (D) a private business development partnership as defined in Section 202(a) (22) of the Investment Advisors Act of 1970; ( ) (E) a corporation, Massachusetts or similar business trust, partnership, or an organization described in Section 501 (c)(3) of the Internal Revenue Code, with total assets in excess of $5,000,000, and which was not formed for the specific purpose of acquiring the Common Stock; ( ) (F) a trust, with total assets in excess of $5,000,000 not formed for the specific purposes of acquiring the Common Stock whose purchase is directed by a person who has such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of an investment in the Common Stock; ( ) (G) any director or executive officer of the Company. ( ) (H) an entity in which all of the equity owners are Accredited Investors (as listed in categories (A) - (G)). INITIAL III. PROSPECTIVE INVESTOR INFORMATION (to be completed only by Individuals, Trustees and Investor Representatives with discretionary investment authority) 1. EDUCATION BACKGROUND School(s) and Degrees: 2. BUSINESS AND EMPLOYMENT INFORMATION Name of Employer or Business: Nature of Business: 3 of 6

45 Position and Duties: Prior occupations during past five years: 3. INVESTMENT INFORMATION a. I have personally invested in excess of $ over the past five years, including investments during such period in excess of $ in investments not registered for sale to the public under applicable federal and state securities laws. b. I consider myself to be an experienced and sophisticated investor and I have such knowledge and experience in financial and business matters that I am capable of evaluating the merits and risks of an investment in the Common Stock offered by the Company: [ ] Yes [ ] No c. Set forth below are the types of private investments I have made in the past five years, with particular attention to investments in nonmarketable investment participations: 4. CONFIDENTIAL FINANCIAL INFORMATION (to be completed by Individuals only) a. My personal net worth (including homes, home furnishings and personal automobiles, together with my spouse) is estimated to be in excess of (check one): [ ] more than $1,000,000 [ ] less than $1,000,000 b. My individual income for 2006 and 2007 (or joint income with my spouse in each of those years) and my anticipated income for 2008 are as set forth below (check one for each year): 2006 [ ] more than $200,000 or more than $300,000 jointly with my spouse [ ] less than $200,000 and less than $300,000 jointly with my spouse 2007 [ ] more than $200,000 or more than $300,000 jointly with my spouse [ ] less than $200,000 and less than $300,000 jointly with my spouse 2008 [ ] more than $200,000 or more than $300,000 jointly with my spouse (anticipated) [ ] less than $200,000 and less than $300,000 jointly with my spouse (anticipated) 5. ADDITIONAL INFORMATION a. My Bank is: Address: Phone: 4 of 6

46 Officer familiar with my account: b. To your knowledge, will you have any family or business relationship with any other investor in the Offering? [ ] Yes [ ] No If yes, please describe: c. Do you have any family or pre-existing business relationship with the officers or directors of the Company or their affiliates? [ ] Yes [ ] No If yes, please describe: IV. PROSPECTIVE INVESTOR INFORMATION (to be completed by corporations, partnerships, trusts investor representatives with discretionary investment authority and other entities only) 1. The total assets of the entity are estimated to be (check one): [ ] more than $5,000,000 [ ] less than $5,000, Do you have any family or pre-existing business relationship with the officers or directors of the Company or their affiliates? [ ] Yes [ ] No If yes, please describe: 3. To be completed by trustees only: I consider myself to be an experienced and sophisticated investor and I have such knowledge and experience in financial and business matters that I am capable of evaluating the merits and risks of an investment in the Common Stock offered by the Company: [ ] Yes [ ] No V. INFORMATION CONCERNING THE OFFERING (to be completed by all subscribers) 1. Do you understand the full nature and risk of investment in the Common Stock offered by the Company, and feel you (or the corporation, trust or other entity) can afford the complete loss of the investment: [ ] Yes [ ] No 2. Have you been afforded an opportunity to investigate the Company and review relevant factors and documents pertaining to the officers, directors and the Company and its business and to ask questions of a qualified representative of the Company regarding this investment and the properties, operations and methods of doing business of the Company. [ ] Yes [ ] No 5 of 6

47 3. Do you understand that there is no guarantee of any financial return on this investment and that you (or the corporation, trust or other entity) incur the risk of losing the entire investment? 4. Do you understand that this investment is not liquid? [ ] Yes [ ] No [ ] Yes [ ] No 5. Are you aware of the Company's business affairs and financial condition, and have you acquired all such information about the Company as you deem necessary and appropriate to reach an informed and knowledgeable decision to acquire Common Stock? [ ] Yes [ ] No The undersigned represents to you that (a) the information contained in the Questionnaire is complete and accurate on the date hereof and may be relied upon, and (b) the undersigned will notify you immediately of any material changes in any of such information occurring prior to the closing of the Offer and will promptly confirm any such change in writing. The undersigned hereby certifies that he has read and understands the Subscription Agreement, and the undersigned's representations and warranties therein are accurate on the date hereof. SIGNATURE: THE SIGNATURE PAGE TO THIS PROSPECTIVE OFFEREE QUESTIONNAIRE IS CONTAINED AS PART OF THE SUBSCRIPTION BOOKLET AND ENTITLED "SIGNATURE PAGE." 6 of 6