SUB-DISTRIBUTION AGREEMENT

 

                           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

 

 

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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

 

 

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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:

 

 

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

Asset Purchase Agreement or any material provision hereof and fails to cure same

within thirty (30) days after receiving written notice thereof.

 

          (ii) if any of the following events occur, Oak shall have the right to

terminate   this   Agreement by giving at least ten (10) days prior written notice

thereof to Distributor:

 

               (A)   Distributor   makes a general   assignment   for the benefit of

creditors,   or consents to the appointment of a receiver,   liquidator or similar

official   of   all   or   substantially   all of its   assets,   or if a   receiver   is

appointed   for all or a   substantial   portion of   Distributor's   assets and such

appointment is not discharged for a period of ninety (90) days; or

 

               (B)   Distributor   commences   an   action   or   proceeding   or takes

advantage of or files under any federal or state insolvency   statutes including,

without limitation,   the United States Bankruptcy code, seeking to have an order

of relief entered with respect to it, or seeking   adjudication   as a bankrupt or

insolvent,   or seeking   reorganization,   arrangement,   adjustment,   liquidation,

dissolution or other relief with respect to its debts;

 

               (C) there shall be commenced   against   Distributor   any action or

proceeding of the nature referred to in the immediately preceding   sub-paragraph

which is not stayed or dismissed within ninety (90) days;

 

               (D) in the event of a conviction   or plea of guilty or no contest

to a felony by Distributor or by the Controlling Shareholders of Distributor (as

defined in the Asset Purchase   Agreement),   which in the reasonable   judgment of

Oak may adversely affect the goodwill or interests of Products in the Territory;

or

 

               (E) in the event of the   revocation or suspension   for t