The battle over Buffalo&#8217s only distributing brewery is coming to a head.

A month after halting beer production in mid-January due to financial troubles, it looked

like Flying Bison Brewing Co. had found a solution to keep its suds flowing. The majority of

its shareholders had voted to approve the transfer of Flying Bison&#8217s assets to Saranac

beer maker Matt Brewing Co., which vowed to ramp up production, invest in the facility, and

keep the brewery in Buffalo open.

Flying Bison announced its retail store would be back up and running, stocked with Flying

Bison beer by April 10. That date came and went as a handful of dissenting shareholders fought

the Matt sale.

Earlier this month, Flying Bison shareholder Phil Internicola filed a lawsuit to invalidate

the 10-year-old company&#8217s board of directors and permanently block the transfer of

assets. State Supreme Court Justice John A. Michalek issued an injunction to stop the sale

until a hearing could be held, then allowed the deal to proceed.

Thanks to Flying Bison&#8217s legion of beer-drinking fans &#8212 the company has 3,827

followers on Facebook &#8212 the battle over the brewery has captivated the attention of many.

The saga of the tiny brewer in the Riverside section, despite being a small operation

employing just four people, has set off a firestorm on local blogs and social networking

sites.

All the while, the 100 taps Flying Bison once occupied in Erie County have remained dry,

and the beer has been absent from the shelves of Wegmans, Tops, Budwey&#8217s, Dash&#8217s,

Premier, On the Run and Wilson Farms stores.

As long as the Matt deal is legally cleared to move forward, those involved say it will.

&#8220Our intention is to maintain a Buffalo presence. We very much want to be involved in

Buffalo, and we have plans even beyond what&#8217s there now. We will fill that brewery and

hopefully build it,&#8221 said Fred Matt, president and chief operating officer of Matt

Brewing Co.

But that doesn&#8217t mean Internicola, the company&#8217s second largest shareholder, is

giving up.

&#8220We will make sure our client has his day in court. This is in very preliminary

stages,&#8221 said Kevin Cross, the attorney with Lippes Mathias Wexler Friedman LLP

representing Internicola.

Cross said the suit would show Flying Bison&#8217s board of directors was invalid according

to a principal shareholder&#8217s agreement between Internicola and majority shareholder Tim

Herzog, and would show Herzog engaged in &#8220self-dealings&#8221 that sold the company short

in order to obtain an employment contract with Matt &#8212 claims Herzog denies.

Herzog is a founder of Flying Bison as well as the brewery&#8217s master brewer, brand

ambassador and all-around manager of day-to-day operations.

If Flying Bison and Matt Brewing manage to complete their deal before that day in court

comes, Cross said, Internicola will sue for monetary damages.

Best chance of survival

At the crux of the lawsuit is Internicola&#8217s assertion that Flying Bison could find an

offer more profitable to shareholders. Wes Froebel, the company&#8217s third-largest

shareholder, agrees with that assessment. Even if the brewery can&#8217t find a better

purchase offer for the company, he said shareholders could do better simply by selling the

brewery&#8217s equipment &#8212 putting its value at $270,000 &#8212 and its brand name for

another $150,000.

Aside from claiming that estimate is unrealistically high, shareholders supportive of the

Matt deal have said selling to the 120-year-old family business in Utica gives Flying Bison

the best chance of survival, even though it probably will not bring shareholders a return on

their investment.

&#8220We probably won&#8217t get our money back, but there&#8217s another kind of value in

being able to go to a restaurant and order a pint of Flying Bison,&#8221 said David Chudy, a

shareholder who voted in favor of the sale.

Froebel said it&#8217s easy to nobly swallow the loss of an investment in favor of letting

the beer live on &#8212 unless you&#8217ve got as much money at stake as he has.

&#8220The majority of shareholders have a minimal investment. It&#8217s easier to write off

$2,000 than $50,000,&#8221 he said.

Most shares were bought at $2,000 apiece. Chudy, the brewery&#8217s first investor, has six

shares. Froebel said he invested $50,000 plus another $10,000 loan. Internicola said he owns

$100,000 in shares, many of which came not from purchase, but in exchange for free labor. Both

Internicola and Herzog worked for free at Flying Bison over a period of several years.

As far as &#8220more lucrative&#8221 offers are concerned, the lawsuit specifically names

one submitted in November by Texas-based capital fund SEAR Capitol. The lawsuit itself is

funded by SEAR managing partner D. Scott Elliott.

SEAR offered to give each shareholder a $75 share in a SEAR Capitol opportunity fund in

exchange for total ownership and control of the company. It also vowed to invest $1.5 million

in the facility, move the brewery to a bigger, 22,000-square-foot location and create 36 jobs.

Unproven claims

Opposing shareholders have said Herzog did not perform due diligence on the SEAR offer,

rejecting it out of hand. Herzog said he was unable to substantiate any claims made by

Elliott, prove SEAR had any money or even that it existed as any kind of business entity.

&#8220When someone says, &#8216I have money and I want to help you,&#8217 you have to take

a look. But at a certain point when you can&#8217t get any information, you&#8217ve got to

stop looking,&#8221 said Herzog.

Herzog said Elliott was unable to provide even the most basic information, such as a

prospectus for SEAR Capitol, a company address or business registration in any state.

Despite that, Elliott took the same business plan promising a $1.5 million investment and

job creation at Flying Bison to Empire State Development and secured an incentive letter

offering a conditional incentive of $200,000. Froebel, who was initially supportive of the

SEAR deal but has since backed away, accompanied Elliott to the meeting.

&#8220The &#8216incentive offer&#8217 is not a contract and there is no commitment on

Empire State Development&#8217s part to give any grant money to a company in advance of

completing the project and creating the jobs,&#8221 said agency spokeswoman Katie Krawczyk.

&#8220In fact, grants are usually awarded once the project is completed in full or once

various benchmarks are reached.&#8221

Still, in e-mails to shareholders and other breweries he approached to buy, Elliott refers

to already having secured $350,000 in grants in New York State.

There were other red flags. In an e-mail sent to shareholders and obtained by The News,

Elliott claimed to have been sent to Flying Bison on behalf of First Niagara Bank, claiming

the brewer was on the verge of bankruptcy and liquidation. The bank denied Elliott&#8217s

claims and any affiliation with him.

Herzog also found out &#8212 and The News substantiated with other sources &#8212 that

Elliott, in attempting to secure deals with other breweries, claimed it had bought Flying

Bison. Other brewery owners, such as Tom Pastorius of the Penn Brewing Co. in Pittsburgh, said

Elliott falsely claimed to have bought their breweries as well.

Elliott claimed to own breweries or brewing contracts in North Carolina and Pennsylvania as

well as one in Michigan he said will be purchased by month&#8217s end. When asked for the

names of the companies, or proof it held any contracts, Elliott failed to provide it, saying

he was operating under nondisclosure agreements and was prohibited from giving details. He

also denied making claims that he owned certain breweries.

&#8220This isn&#8217t about me proving anything, it&#8217s about Tim Herzog running his

business like Romper Room for 10 years,&#8221 said Elliott. &#8220I&#8217m not trying to do

anything other than provide Flying Bison with a better offer . . . move Flying Bison out of

the &#8217hood and put it somewhere respectable.&#8221

In Colorado in April, to much fanfare, Elliott announced a deal that SEAR Capitol was

taking over the shuttered Steamworks Brewing Co. The owner of Steamworks said that deal was

halted when Elliott failed to provide payment or show financial records. Elliott said the deal

is still in the works. Steamworks denied those claims.

The SEAR deal aside, Froebel has asserted that poor management &#8212 not high ingredient

costs &#8212 have caused Flying Bison to fail.

&#8220I personally don&#8217t think that Tim is intentionally [causing harm], but it has

certainly been bad management. There needs to be a full financial accounting,&#8221 said

Froebel.

Froebel said Herzog has been unable to produce up-to-date financial records, still

hasn&#8217t filed the company&#8217s 2009 taxes, and produced annual financial statements late

&#8212 sometimes nine months after the end of the fiscal year. Herzog said all records are up

to date, and that the lawsuit is what has held up the tax filings.

&#8220[Management] is clearly not Tim&#8217s strength. He&#8217s a great brewer and the

face of Flying Bison. But that&#8217s why he brought more MBAs and CPAs in to assist

him,&#8221 said Chudy. &#8220There could have been more efficiencies, but nothing that would

have kept the brewery in business.&#8221

In fact, Chudy said, Flying Bison&#8217s rapid growth and success in the market was both a

blessing and a curse. With no credit, Flying Bison couldn&#8217t keep up with demand. It

depended on the money it made from the sale of its beer to buy more ingredients, but with

30-day pay periods, there were times the brewery had to stop producing beer as it waited for

more money to come in.

That&#8217s exactly what a sale to a large-scale operation like Matt will remedy, Herzog

said.

&#8220We&#8217re just trying to get back open again, keep the brewery here, keep the jobs

here and get back to work,&#8221 said Herzog.