<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
(Rule 13d-101)
Under the Securities Exchange Act of 1934
(Amendment No. 5)*
Mendocino Brewing Company, Inc.
________________________________________________________________________________
(Name of Issuer)
Common Stock
________________________________________________________________________________
(Title of Class of Securities)
586579 10 4
________________________________________________________________________________
(CUSIP Number)
Paul J. Tauber, Esq.
Coblentz, Patch, Duffy & Bass, LLP
222 Kearny Street, 7th Floor
San Francisco, California 94108-4510
(415) 391-4800
________________________________________________________________________________
(Name, Address and Telephone Number of Person Authorized to Receive Notices and
Communications)
August 30, 1999
________________________________________________________________________________
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box [_].
Check the following box if a fee is being paid with the statement [X]. (A fee is
not required only if the reporting person: (1) has a previous statement on file
reporting beneficial ownership of more than five percent of the class of
securities described in Item 1; and (2) has filed no amendment subsequent
thereto reporting beneficial ownership of five percent or less of such class.)
(See Rule 13d-7.)
Note: Six copies of this statement, including all exhibits, should be filed
with the Commission. See Rule 13d-1(a) for other parties to whom copies are to
be sent.
* The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
<PAGE>
SCHEDULE 13D
- ----------------------- ---------------------
CUSIP NO. 586579 10 4 PAGE 1 OF 25 PAGES
- ----------------------- ---------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
United Breweries of America, Inc. ("UBA")
Tax Identification Number: 68-0393017
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [_]
(b) [X]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
OO
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) or 2(e) [_]
5
Not Applicable
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
Delaware
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
3,274,528 shares of common stock, except that Dr.
Vijay Mallya ("Mallya") may be deemed to have shared
power to vote these shares because UBA is owned by a
foreign corporation, the shares of which are
controlled by fiduciaries who may exercise discretion
in favor of Mallya amongst others. The 3,274,528
shares include 186,710 shares that are issuable upon
the conversion of the convertible note of the issuer
in favor of UBA. Additional convertible notes may be
issued in favor of UBA which, if issued, would be
NUMBER OF convertible for up to an additional 346,623 shares of
common stock.
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
See response to Row 7.
OWNED BY -----------------------------------------------------------
SOLE DISPOSITIVE POWER
EACH 9
3,274,528 shares of common stock, except that Mallya
REPORTING may be deemed to have shared power to dispose of these
shares because the shares of UBA are owned by a
PERSON foreign corporation, the shares of which are
controlled by fiduciaries who may exercise discretion
WITH in favor of Mallya amongst others. The 3,274,528
shares include 186,710 shares that are issuable upon
the conversion of the convertible note of the issuer
in favor of UBA. Additional convertible notes may be
issued in favor of UBA which, if issued, would be
convertible for up to an additional 346,623 shares of
common stock.
-----------------------------------------------------------
SHARED DISPOSITIVE POWER
10
See response to Row 9.
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
3,274,528 shares of common stock. The 3,274,528 shares include 186,710
shares that are issuable upon the conversion of the convertible note of
the issuer in favor of UBA. Additional convertible notes may be issued in
favor of UBA which, if issued, would be convertible for up to an
additional 346,623 shares of common stock.
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
12
Not Applicable
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
58.3%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
CO
- ------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
<PAGE>
SCHEDULE 13D
- ----------------------- ---------------------
CUSIP NO. 586579 10 4 PAGE 2 OF 25 PAGES
- ----------------------- ---------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Dr. Vijay Mallya ("Mallya")
Social Security Number: Not Applicable
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [_]
(b) [X]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
OO
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) or 2(e) [_]
5
Not Applicable
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
India
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
0
-----------------------------------------------------------
SHARED VOTING POWER
8
3,274,528 shares of common stock, all of which are
directly owned by UBA. Mallya may be deemed to have a
Shared Power to vote the shares because UBA is owned
by a foreign corporation, the shares of which are
controlled by fiduciaries who may exercise discretion
NUMBER OF in favor of Mallya amongst others. The 3,274,528
shares include 186,710 shares that are issuable upon
SHARES the conversion of the convertible note of the issuer
in favor of UBA. Additional convertible notes may be
BENEFICIALLY issued in favor of UBA which, if issued, would be
convertible for up to 346,623 shares of common stock.
OWNED BY -----------------------------------------------------------
SOLE DISPOSITIVE POWER
EACH 9
0
REPORTING -----------------------------------------------------------
SHARED DISPOSITIVE POWER
PERSON 10
3,274,528 shares of common stock, all of which are
WITH directly owned by UBA. Mallya may be deemed to have a
Shared Power to dispose of the shares because UBA is
owned by a foreign corporation, the shares of which
are controlled by fiduciaries who may exercise
discretion in favor of Mallya amongst others. The
3,274,528 shares include 186,710 shares that are
issuable upon the conversion of the convertible note
of the issuer in favor of UBA. Additional convertible
notes may be issued in favor of UBA which, if issued,
would be convertible for up to 346,623 shares of
common stock.
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
3,274,528 shares of common stock. The 3,274,528 shares include 186,710
shares that are issuable upon the conversion of the convertible note of
the issuer in favor of UBA. Additional convertible notes may be issued in
favor of UBA which, if issued, would be convertible for up to 346,623
shares of common stock.
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
12
[_] N.A.
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
58.3%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
IN
- ------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
<PAGE>
United Breweries of America, Inc., a Delaware corporation (the "Reporting
Person") and Dr. Vijay Mallya ("Mallya"), hereby amend the single joint
statement on Schedule 13D as amended by Amendments No. 1, No. 2, No. 3, and No.
4 (collectively, the "Schedule 13D"), filed with the Securities and Exchange
Commission, with respect to the shares of Common Stock, no par value (the
"Common Stock"), of Mendocino Brewing Company, Inc., a California corporation
(the "Issuer"), as follows:
Item 3. Source and Amount of Funds or other Consideration
-------------------------------------------------
A new third paragraph is added to Item 3 to read as follows:
On August 30, 1999, the Reporting Person agreed to convert the entire
principal balance of the convertible notes, together with all accrued
but unpaid interest thereon, into Common Stock. Pursuant to their
terms, the convertible notes were convertible into Common Stock at a
conversion price of one share of Common Stock for each $1.50 of
principal and accrued but unpaid interest. However, in order to induce
the Reporting Person to convert all of the convertible notes, at a
meeting of the board of directors of the Issuer, all of the non-
interested directors voted to offer to reduce the conversion price to
$1.125 per share, the then-current market price of the Common Stock as
traded on the Pacific Stock Exchange. The offer was accepted by the
Reporting Person and, accordingly, 938,171 shares of Common Stock were
issued to the Reporting Person.
A new fourth paragraph is added to Item 3 to read as follows:
Pursuant to a Loan Agreement, dated August 31, 1999 entered into by
and between the Issuer and the Reporting Person, the Reporting Person
agreed to provide a new credit facility to the Issuer in the maximum
amount of $800,000 at an interest rate of 1.5% per annum above the
prime rate offered by the Bank of America in San Francisco,
California. A copy of the Loan Agreement is attached hereto as
Exhibit 1. Each draw on the credit facility shall be evidenced by a
convertible note in the amount of the draw. As of September 13, 1999,
the Issuer has made a single draw on the credit facility, which is
evidenced by a convertible note which is attached hereto as Exhibit 2.
As of September 13, 1999, the aggregate amount drawn on the credit
facility, together with interest accrued thereon, is equal to
$280,064.88, which corresponds to the right to acquire up to 186,710
shares of Common Stock at a conversion price of $1.50 per share.
Item 4. Purpose of Transaction
----------------------
A new paragraph is added to Item 4 to read as follows:
The conversion of the promissory notes issued by the Issuer in favor
of the Reporting Person, together with all accrued and unpaid interest
thereon, was made pursuant to an inducement offered by the non-
interested directors of the
3
<PAGE>
board of directors of the Issuer. The inducement was offered by the
board of directors after considering, among other factors, the current
and average market price of the Common Stock as traded on the Pacific
Stock Exchange, the current financial condition of the Issuer, the
inability of the Issuer to make payments of interest on the notes, the
inability of the Issuer to repay the notes as they became due, and the
effect on the balance sheet of the Issuer of immediately eliminating
$1,055,442.33 of debt.
As a result of the conversion, the Reporting Person will own more than
fifty percent (50%) of the Issuer. Accordingly, the Issuer has become
a subsidiary of the Reporting Person.
A new final paragraph is added to Item 4 to read as follows:
Pursuant to the Loan Agreement, the Reporting Person agreed to provide
a credit facility in the maximum amount of $800,000 to fund the
working capital requirements of the Issuer. The Reporting Person
further agreed to make the credit facility available to the Issuer in
quarterly tranches. As of September 13, 1999, the Issuer has drawn
$280,064.88 from the credit facility. If the Issuer draws the
remaining amount of the credit facility, the Reporting Person will
receive additional convertible notes which would be convertible for
an additional 346,623 shares of Common Stock. To the extent that the
Issuer does not make the required interest payments under the
convertible notes, the Reporting Person would have the right to
convert any such amounts into additional shares of Common Stock.
Item 5. Interest in Securities of Issuer
--------------------------------
The first paragraph of subsection (a) of Item 5 is hereby amended in
its entirety to read as follows:
(a) As of September 13, 1999, Mallya may be deemed to be a
beneficial owner of 3,274,528 shares of Common Stock because
approximately 91.5% of the Reporting Person is owned by a
foreign corporation, the shares of which are controlled by
fiduciaries who may exercise discretion in favor of Mallya
amongst others. The 3,274,528 shares constitutes
approximately 58.3% of the outstanding Common Stock. If the
Issuer draws on the entire amount of the credit facility,
assuming no additional accruals of interest, the Reporting
Person would be the beneficial owner of 346,623 shares of
Common Stock, constituting approximately 60.7% of the
outstanding Common Stock. Mallya may be deemed to have a
shared power to vote and dispose of all of these shares.
The first paragraph of subsection (d) of Item 5 is hereby amended in
its entirety to read as follows:
4
<PAGE>
(d) Neil McGlynn and Balaram Dayaram Datwani, directors of the
Reporting Person, own an aggregate of slightly less than
8.5% of the outstanding stock of the Reporting Person and,
hence, may be deemed to have the right to receive or the
power to direct the receipt of dividends from or the
proceeds from the sale of the shares of Common Stock
beneficially owned by the Reporting Person. Except as set
forth in Item 2 and in this paragraph, no other person is
known to have the right to receive or the power to direct
the receipt of dividends from or the proceeds from the sale
of such shares of Common Stock beneficially owned by the
Reporting Person or Mallya.
Item 7. Materials to be Filed as Exhibits
---------------------------------
1. Loan Agreement dated August 31, 1999.
2. Convertible Note dated September 7, 1999 in the principal amount of
$280,064.88.
After reasonable inquiry and to the best of our knowledge and belief, we certify
that the information set forth in this statement is true, complete and correct.
September 14, 1999
UNITED BREWERIES OF AMERICA, INC.
By: /s/ Dr. Vijay Mallya
---------------------------
Name: Dr. Vijay Mallya
Title: Chairman and Chief Executive Officer
DR. VIJAY MALLYA
By: /s/ Dr. Vijay Mallya
---------------------------
Dr. Vijay Mallya
5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Found on Sequentially
---------------------
Exhibit Numbered Page
- ------- -------------
<S> <C> <C>
Exhibit 1. Loan Agreement dated August 31, 1999 7
Exhibit 2. Convertible Note dated September 7, 1999 in the principal amount of $280,064.88 18
</TABLE>
6
<PAGE>
Exhibit 1
---------
MASTER LINE OF CREDIT AGREEMENT
MENDOCINO BREWING COMPANY, INC.
THIS MASTER LINE OF CREDIT AGREEMENT (this "Agreement") is made and entered into
as of this 31st day of August, 1999 between Mendocino Brewing Company, Inc., a
California corporation ("Borrower") and United Breweries of America, Inc., a
Delaware corporation ("Lender").
Recitals:
A. Borrower desires to have Lender to establish a line of credit upon
which Borrower may draw upon based upon the needs of Borrow.
B. Lender is willing to establish such line of credit and permit Borrower
to draw upon such line of credit based on the terms and conditions set forth
herein.
NOW, THEREFORE, the parties hereto agree as follows:
Agreement
1. General Purpose, Amount. Lender agrees to make and Borrower agrees to
-----------------------
accept a credit facility in the principal sum of Eight Hundred Thousand Dollars
($800,000.00) or so much thereof as may be from time to time disbursed hereunder
(the "Credit Facility") for the purpose of providing funds for the operations of
Borrower, including paying amounts owed by Borrower to Lender. Each draw on the
Credit Facility shall be evidenced by a convertible promissory note (each a
"Note") of Borrower, payable to the order of Lender and shall be substantially
in the form set forth in Exhibit A.
2. Disbursement of Loan Proceeds. Lender agrees to make available the
-----------------------------
funds pursuant to the Credit Facility on a quarterly basis commencing as of
August 2, 1999. All requests to draw on the Credit Facility shall be made in
writing by Borrower to Lender stating the amount to be drawn and the earliest
date on which such draw is expected to occur. Notwithstanding the foregoing,
Lender shall have no obligation to make available any amounts under the Credit
Facility if Borrower is in default in the performance of any of its warranties,
representations, covenants or agreements contained herein, in any Note, or in
any other instrument or document relating to the Credit Facility. In the event
such default is not cured within thirty (30) days following Lender's notice of
such to Borrower, Lender may terminate the Credit Facility.
3. Representations, Warranties, Covenants and Agreements. Borrower
-----------------------------------------------------
represents, warrants, covenants and agrees that (A) this Agreement when executed
and delivered shall be valid and binding upon Borrower and enforceable in
accordance with their terms, (B) as of the date of this Agreement, there is no
litigation, proceeding or dispute pending against Borrower, the adverse
determination of which might affect the ability of Borrower to repay any amounts
7
<PAGE>
drawn on the Credit Facility, and (C) that it will pay, prior to delinquency,
all taxes and assessments.
4. General Provisions.
------------------
A. Waiver. Any waiver by Lender of any term, condition or
------
requirement of this Agreement shall not constitute a waiver of any other term,
condition or requirement hereof or constitute a waiver of the same term,
condition or requirement in any other instance.
B. Representations and Warranties. All representations, warranties,
------------------------------
covenants and agreements herein contained on the part of Borrower shall survive
the making any loan under the Credit Facility and Borrower's execution of the
Note(s), and shall be effective as long as any principal of the Credit Facility
or interest thereon remains unpaid. In accepting each advance on the Credit
Facility, Borrower shall be deemed to have reaffirmed to Lender as of the date
of said acceptance, the truth, completeness, and correctness of each of
Borrower's representations and warranties set forth herein.
C. Attorneys' Fees. In the event of any action at law or suit in
---------------
equity in relation to this Agreement, or any documents executed pursuant hereto,
or any Note issued hereunder, the non-prevailing party shall pay the prevailing
party's reasonable attorneys' fees.
D. Notices. Any notice or demand which shall be required or
-------
permitted by law or any provision of this Agreement shall be in writing and if
the same is to be served upon Lender, may be personally delivered to Lender, or
shall be deposited in the United States mail, certified, return receipt
requested, postage prepaid, addressed to Lender as follows:
United Breweries of America, Inc.
Three Harbor Drive, Suite 115
Sausalito, California 94965
If such notices or demands are to be served upon Borrower, said notices or
demands may be personally delivered to Borrower, or shall be deposited in the
United States mail, certified, return receipt requested, postage prepaid,
addressed to Borrower as follows:
Mendocino Brewing Company, Inc.
1601 Airport Road
Ukiah, California 95482
E. Relationship. Nothing herein contained shall in any manner be
------------
construed as creating any relationship between Borrower and Lender other than
that of debtor and creditor.
F. Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of California.
G. Entire Agreement; Written Modification Only. This Agreement
-------------------------------------------
contains the entire agreement of the parties, and constitutes the complete,
final and exclusive
8
<PAGE>
embodiment of their agreement with respect to its subject matter. This Agreement
supersedes any and all prior correspondence, arrangements, representations and
understandings, whether written or oral, express or implied, with respect to its
subject matter. This Agreement may not be modified except by a written
agreement, which specifically sets forth each modification and is signed by a
duly authorized representative of both parties. This Agreement is executed
without reliance upon any promise, warranty or representation by the parties or
any of their representatives, other than such promises, warranties or
representations as are expressly contained in this Agreement.
H. Successors and Assigns. Neither party shall have the right or
----------------------
ability to assign, transfer, or subcontract this Agreement without the written
consent of the other party. Any attempt to do so shall be void. This Agreement
shall be binding upon and shall inure to the benefit of the parties and their
respective heirs, personal representatives, successors and assigns.
I. Severability. If any provision of this Agreement is deemed or
------------
held invalid or unenforceable in whole or in part, for any reason, that
provision shall be deemed severed from the remainder of this Agreement, and
shall in no way affect or impair the validity or enforceability of any portion
or all of this Agreement, which otherwise shall remain in full force and effect.
J. Counterparts. This Agreement may be executed in duplicate
------------
counterparts, all of which taken together shall constitute one and the same
agreement between the parties.
IN WITNESS WHEREOF, this Master Line of Credit Agreement has been executed the
day and year first above written.
<TABLE>
<CAPTION>
LENDER: BORROWER:
<S> <C>
UNITED BREWERIES OF AMERICA, INC. MENDOCINO BREWING COMPANY, INC.
By: /s/ Anil Pisharody By: /s/ Michael Laybourn
--------------------------------- ----------------------------------
Its: Treasurer Its: President
-------------------------------- ---------------------------------
By: /s/ Harmohan S. Bedi By: /s/ P.A. Murali
--------------------------------- ----------------------------------
Its: Director Its: Chief Financial Officer
-------------------------------- ---------------------------------
</TABLE>
9
<PAGE>
Exhibit A
---------
Convertible Promissory Note
- -------------------------------------------------------------------------------
Name of Issuer: Mendocino Brewing Company, Inc. Dated:
Maturity Date: -------------
-----------------------------
- -------------------------------------------------------------------------------
1. Promise. Mendocino Brewing Company, Inc., a California corporation having
-------
its principal office at 1601 Airport Road, Ukiah, California 95482 and any
successor (the "Company"), for value received, promises to pay to United
Breweries of America Inc., a Delaware corporation or to its registered
successors or assigns (the "Holder") the principal sum of
and no/100 Dollars ($ .00) on
- ----------------------------- ----------
presentation and surrender of this Convertible Note ("Note") on
--------------
(the "Maturity Date"), and to pay interest on that principal sum at a rate equal
to the lesser of (i) one and one-half percent (1.50%) per annum above the prime
rate offered from time to time by the Bank of America in San Francisco,
California, or (ii) ten percent (10%). Interest payments shall be paid
quarterly on the first day of the months of April, July, October, and January of
each year. Company may use any of the funds borrowed from Holder for any
corporate purposes of Company, including paying obligations owed by Company to
Holder.
2. Form of Payment. All payments under this Note shall be made in lawful money
---------------
of the United States of America. The Company waives diligence, presentment,
protest, demand and notice of protest, dishonor, and nonpayment of this Note.
3. Conversion/Redemption/Renewal.
-----------------------------
A. The Holder has the right, at the holder's option, at any time on or
after the Maturity Date, to convert all or any portion of this Note into fully
paid and nonassessable shares of common stock ("Common Stock") of the Company at
the rate of one share of such Common Stock for each One Dollar and 50/100
($1.50) (the "Conversion Rate") principal amount of this Note and any accrued
but unpaid interest. The Holder agrees that all shares of Common Stock of the
Company, issued by the Company upon the conversion of all or any part of this
Note shall be restricted securities within the meaning of Rule 144(a) of the
Securities Act of 1933. The Holder further agrees that any shares of Common
Stock acquired by means of any conversion as set forth herein shall be further
restricted by the terms and conditions set forth in that certain Shareholders'
Agreement, dated October 24, 1997, by and among the Company, Holder, and the
Original Partners (as such term is defined in the Shareholders' Agreement).
B. The conversion right set forth in this Section 3 is subject to any
adjustment of the Conversion Rate set forth in Section 5 and Section 6, and is
only exercisable upon the surrender of this Note for conversion at the office or
agency to be maintained by the Company accompanied by instruments of transfer,
in form satisfactory to the Company, duly executed by the registered holder. No
fractional shares are issuable on any conversion, but in lieu of issuing
fractional shares the Company shall pay for such fractional shares in cash.
10
<PAGE>
C. At any time prior to seventeen (17) months from the date of this Note,
the Holder may provide written notice to the Company requiring the Company to
commence repay of the outstanding principal balance of this Note, together with
any accrued but unpaid interest thereon, to Holder. In such case, commencing on
the Maturity Date, Company shall pay Holder equal monthly installments of
principal, together with any unpaid interest, over a period of five (5) years
until all amounts due hereunder shall be repaid in full.
D. If Holder does not convert or redeem any or all of the principal amount
of the Note into Common Stock on the Maturity Date, Holder has the right to
extend the term of this Note for a period of time mutually agreed upon between
Holder and the Company. At any time during such extension period, Holder shall
have the right to convert all or any part of the outstanding principal amount of
the Note plus accrued and unpaid interest into Common Stock as set forth in this
Section 3. Moreover, at any time during such extension period, Holder shall have
the right to require the Company to repay all or any part of the outstanding
principal balance of this Note, together with any accrued but unpaid interest
thereon, to Holder within sixty (60) days.
4. Company Redemption. Prior to the Maturity Date, this Note may be redeemed
------------------
by the Company, in whole or in part, at any time after sixty (60) days written
notice ("Redemption Notice") to Holder. During such sixty (60) day period,
Holder shall have the right to convert all or any part of the outstanding
principal amount of the Note plus accrued and unpaid interest into Common Stock,
as set forth in Section 3. If Holder does not convert all outstanding amounts
into Common Stock, the Company may redeem any remaining amounts at any time
during a thirty (30) day period commencing with the date of expiration of the
sixty (60) day period provided for in the Redemption Notice. Thereafter,
Company shall be required to provide Holder with a new Redemption Notice, and
Holder shall have a new sixty (60) day period within which to convert all or any
part of the outstanding principal amounts plus accrued and unpaid interest into
Common Stock, as set forth in Section 3.
5. Anti-Dilution.
-------------
A. If at any time there is a capital reorganization of the Company's
Common Stock, including any combination, reclassification, exchange, or
subdivision of shares, a merger or consolidation of the Company with or into
another corporation, or the sale of all or substantially all the Company's
properties and assets as, or substantially as, an entirety to another person,
then, as a part of such reorganization, merger, consolidation, or sale, lawful
provision shall be made so that Holder shall thereafter be entitled to receive
on conversion of this Note, during the period specified in this Note, the number
of shares of Common Stock of the Company, or of the successor corporation
resulting from such merger or consolidation, to which a holder of the Common
Stock deliverable on conversion of this Note would have been entitled on that
event if this Note had been converted immediately before that event. In any
such case, appropriate adjustment (as determined by the Company's board of
directors) shall be made in applying this Note to the rights and the percentage
interests of Holder after the reorganization, merger, consolidation, or sale to
the end that this Note (including adjustment of the Conversion Rate) shall be
applicable after that event, as near as reasonably may be, in relation to the
shares of Common Stock deliverable after that event on conversion of this Note.
The Company shall, not later than thirty (30) days prior to making such
adjustment, give written notice ("Notice") by courier to Holder at the address
of Holder shown on the Company's books.
11
<PAGE>
B. Any Notice that is sent pursuant to Section 5(a) shall set forth, in
reasonable detail, the event requiring the adjustment and the method by which
the adjustment was calculated and shall specify the Conversion Rate then in
effect after the adjustment and the increased or decreased number of shares of
Common Stock to be received upon conversion of this Note. When appropriate,
advance notice may be given and included as part of the notice required under
other provisions of this Note.
6. Conversion Rate Protection.
--------------------------
A. If at any time, or from time to time, the Company issues or sells
shares of Common Stock without consideration or for a consideration per share
less than the Conversion Rate in effect immediately before that issue or sale,
then and in each such case:
i. the Conversion Rate then in effect and the Conversion Rate
applicable for any subsequent period shall be adjusted to a price (calculated to
the nearest cent) determined by dividing: (y) the sum of (aa) the number of
shares of Common Stock outstanding immediately before that issue or sale
multiplied by the Conversion Rate in effect immediately before that issue or
sale, plus (bb) the consideration, if any, received by the Company on that issue
or sale, by (z) the number of shares of the Company's Common Stock outstanding
immediately after that issue or sale; and
ii. Holder shall after that issue or sale, on conversion of this
Note, be entitled to receive the number of shares of Common Stock equal to the
number of shares that would otherwise, but for the adjustment provided for in
Section 6(a)(i), be issuable on such conversion multiplied by a fraction, the
numerator of which is the Conversion Rate then in effect and the denominator of
which is the Conversion Rate in effect immediately after the adjustment provided
for in Section 6(a)(i) on the date of conversion. No such adjustment shall be
made in an amount less than Five Cents ($0.05), but any such amount shall be
carried forward and given effect in the next adjustment, if any.
B. If the Company (i) grants any rights or options to subscribe for,
purchase, or otherwise acquire shares of Common Stock, or (ii) issues or sells
any security, other than this Note, which is convertible into shares of Common
Stock, then the price per share of Common Stock issuable on the exercise of the
rights or options or the conversion of the securities shall be calculated by
dividing: (y) the total amount, if any, received or receivable by the Company
as consideration for the granting of the rights or options or the issue or sale
of the convertible securities, plus the minimum aggregate amount of additional
consideration payable to the Company on exercise of the convertible securities,
by (z) the maximum number of shares of Common Stock issuable on the exercise or
conversion.
i. If the price per share so calculated is less than the Conversion
Rate of this Note in effect immediately before the rights or options are granted
or the convertible securities are issued or sold, the granting or issue or sale
shall be considered to be an issue or sale for cash of the maximum number of
shares of Common Stock so issuable on exercise or conversion at the price per
share determined under this provision, and the Conversion Rate of this Note
shall be adjusted as provided above to reflect (on the basis of that
determination) the issue or sale. No further adjustment of the Conversion Rate
shall be made as a result of the actual issuance of shares of Common Stock on
the exercise of any such rights or options or the conversion of any such
convertible securities.
ii. If such rights or options or convertible securities by their
terms provide, with
12
<PAGE>
the passage of time or otherwise, for any increase in the amount of additional
consideration payable to the Company or any decrease in the number of shares of
Common Stock issuable on such exercise or exchange (by change of rate or
otherwise), the Conversion Rate shall, when each such increase or decrease
becomes effective, be readjusted to reflect the increase or decrease as far as
it affects rights of exercise or conversion that have not expired before that
time.
iii. If, on the expiration of such rights or options or the rights of
conversion of such convertible securities, any of them shall not have been
exercised, the Conversion Rate shall be readjusted and will then be the same as
it would have been had it originally been adjusted (or had the original
adjustment not been required, as the case may be), on the basis that (y) the
only shares of Common Stock so issued were the shares of Common Stock, if any,
actually issued or sold on the exercise of such rights or options or rights of
conversion of such convertible securities, and (z) such shares of Common Stock,
if any, were issued or sold for the consideration actually received by the
Company on such exercise plus the consideration, if any, actually received by
the Company for granting all such rights or options or for issuing or selling
all such convertible securities.
iv. No adjustment of the Conversion Rate as provided in this Section
6(b) shall occur upon the granting or issuance of stock, stock options, or
warrants to employees or directors of the Company in the aggregate amount of
less than six hundred thousand (600,000) shares of Common Stock.
7. Subordination.
-------------
A. Upon the written agreement of Holder, this Note may be subordinated to
any or all debt owed by the Company to banks and other financial institutions,
other than to the extent debt to any such bank or financial institution involves
the issuance of shares of the Company's stock or notes, warrants, options or any
other security convertible into such stock.
B. The payment of the indebtedness evidenced by this instrument is
subordinated to the payment of the "Senior Debt" defined and described in the
Subordination Agreement, dated as of September 24, 1998, between United
Breweries of America Inc. and the CIT Group/Credit Finance, Inc., as amended by
that certain Amendment to Subordination Agreement, dated as of June 22, 1999,
and reference is made to such Agreement for a full statement of the terms and
conditions of such subordination.
C. The payment of the indebtedness evidenced by this instrument is
subordinated to the payment of the "Senior Debt" defined and described in the
Subordination Agreement, dated on or about November 15, 1998, between United
Breweries of America Inc. and the Savings Bank of Mendocino, Inc., and reference
is made to such Agreement for a full statement of the terms and conditions of
such subordination.
8. Enforcement. The Company agrees to reimburse Holder for all costs of
-----------
collection or enforcement of this Note, whether or not suit is filed (including,
but not limited to, reasonable attorney fees), incurred by Holder.
9. Governing Law. This Note shall be governed by and construed in accordance
-------------
with the laws, without regard to the laws as to choice or conflict of laws, of
the State of California.
10. Default. If Company fails to pay any installment of principal or interest
-------
when due, then, or
13
<PAGE>
at any time during such default, the entire amount of the unpaid principal and
interest shall, at the election of Holder, become immediately due and payable.
11. Waiver. No previous waiver and no failure or delay by Holder in acting
------
with respect to the terms of this Note shall constitute a waiver of any
subsequent breach, default or failure of condition under this Note. A waiver of
any term of this Note must be in writing and shall be limited to the express
written terms of such waiver. No delay or omission on the part of Holder in
exercising any right under this Note shall operate as a waiver of such right or
of any other right.
12. Reservation of Stock. The Company covenants that it will at all times
--------------------
reserve and keep available, solely for issuance on conversion of this Note, all
shares of Common Stock from time to time issuable upon exercise of this Note.
13. Replacement. Upon receipt of evidence reasonably satisfactory to the
-----------
Company, of the loss, theft, destruction, or modification of this Note and, in
the event of such occurrence, on delivery of an indemnity agreement or Note
reasonably satisfactory in form and amount to the Company or in the case of
mutilation, on surrender and cancellation of this Note, the Company at its
expense will execute and deliver, in lieu of this Note, a new Note of like
tender.
14. Transfer. NO SALE OR TRANSFER OF THIS NOTE SHALL BE EFFECTIVE UNLESS AND
--------
UNTIL ALL OF THE FOLLOWING STEPS ARE COMPLIED WITH:
A. The transferor and the transferee shall execute the form of Transfer
Statement attached to this Note (or a similar statement which shall then be
attached to this Note);
B. This Note and the executed Transfer Statement, together with a United
States Internal Revenue Service Form W-8 "Certificate of Foreign Status" or a
Form W-9 "Request for Taxpayer Identification Number and Certification"
completed and executed by the transferee, shall be delivered to the Company at
the Company's address as provided above; and
C. If the Company is satisfied that the information contained in the
Transfer Statement is consistent with the information contained in the completed
and executed Form W-8 or W-9, as applicable, the Company shall enter the
transfer on a Note Holder Ledger maintained by the Company for this purpose.
Any purported transfer with respect to which all of the above steps have note
been complied with shall be null and void and of no force or effect.
15. Entire Agreement; Written Modification Only. This Agreement contains
-------------------------------------------
the entire agreement of the parties, and constitutes the complete, final and
exclusive embodiment of their agreement with respect to its subject matter.
This Agreement supersedes any and all prior correspondence, arrangements,
representations and understandings, whether written or oral, express or implied,
with respect to its subject matter. This Agreement may not be modified except
by a written agreement, which specifically sets forth each modification and is
signed by a duly authorized representative of both parties. This Agreement is
executed without reliance upon any promise, warranty or representation by the
parties or any of their representatives, other than such promises, warranties or
representations as are expressly contained in this Agreement.
16. Severability. If any provision of this Agreement is deemed or held
------------
invalid or
14
<PAGE>
unenforceable in whole or in part, for any reason, that provision shall be
deemed severed from the remainder of this Agreement, and shall in no way affect
or impair the validity or enforceability of any portion or all of this
Agreement, which otherwise shall remain in full force and effect.
IN WITNESS WHEREOF, the Company has caused this Convertible Note to be executed
in its corporate name by the signature of its president and secretary.
MENDOCINO BREWING COMPANY, INC.,
a California corporation
By:
-----------------------------------
Michael Laybourn
Its: President
By:
-----------------------------------
P.A. Murali
Its: Chief Financial Officer
15
<PAGE>
CONVERSION NOTICE
Conversion Notice To: MENDOCINO BREWING COMPANY, INC.
The undersigned holder of this Note, hereby irrevocably exercises the option
to convert this Note or the portion of it designated below into shares of Common
Stock of the Company, in accordance with the terms of the Note, and directs that
the shares issuable and deliverable on the conversion, together with any check
in payment of fractional shares, be issued and delivered to the undersigned
unless a different name is specified below. If shares of Common Stock are to be
issued in the name of anyone other than the undersigned, the undersigned will
pay all transfer taxes payable on this conversion and issuance.
Dated:
---------------------------------- ---------------------------------
Signature
<TABLE>
<S> <C>
If the shares are to be issued other than to Portion to be converted (in multiples) of
a registered holder, print name, address, $1,000 if less than all:
city, state and zip code of issuee: $
-------------------------------------------
- -------------------------------------------- Social Security Number of other identifying
- -------------------------------------------- Number of issuers:
- --------------------------------------------
- -------------------------------------------- -------------------------------------------
</TABLE>
Notice: The signature of these instructions to convert must correspond with the
name as written on the face of this Note in every particular, without
alteration, enlargement, or any change whatsoever
16
<PAGE>
TRANSFER STATEMENT
------------------
NOTICE TO: MENDOCINO BREWING COMPANY, INC.
FOR VALUE RECEIVED, the undersigned, the holder of that certain Convertible
Note initially executed on the Effective Date (as defined below) by Mendocino
Brewing Company, Inc. (the "Company") to the Initial Holder (as defined below)
in the Face Value set forth below (the "Note"), hereby sells, assigns, transfers
and conveys all of the rights of the undersigned under the Note, subject to the
terms of the Note, unto the Transferee (as described below):
Name of Transferee Address Face Value of Note
- ---------------------- ---------------------------- ------------------------
The following terms have the following meanings:
Effective Date: , 1999
--------------------
Initial Holder:
----------------------------
Dated: TRANSFEROR:
---------------------- [Name of Transferor]
By:
--------------------------------
Name:
------------------------------
Its:
-------------------------------
ACKNOWLEDGMENT OF THE COMPANY:
MENDOCINO BREWING COMPANY, INC.
By:
--------------------------------
Name:
------------------------------
Its:
-------------------------------
17
<PAGE>
Exhibit 2
---------
Convertible Note
MENDOCINO BREWING COMPANY, INC.
_______________________________________________________________________________
Name of Issuer: Mendocino Brewing Company, Inc. Dated: September 7, 1999
Maturity Date: February 6, 2001
_______________________________________________________________________________
1. Promise. Mendocino Brewing Company, Inc., a California corporation
-------
having its principal office at 1601 Airport Road, Ukiah, California 95482 and
any successor (the "Company"), for value received, promises to pay to United
Breweries of America Inc., a Delaware corporation or to its registered
successors or assigns (the "Holder") the principal sum of Two Hundred Eighty
Thousand Sixty Four and 88/100 Dollars ($280,064.88) on presentation and
surrender of this Convertible Note ("Note") on February 6, 2001 (the "Maturity
Date"), and to pay interest on that principal sum at a rate equal to the lesser
of (i) one and one-half percent (1.50%) per annum above the prime rate offered
from time to time by the Bank of America in San Francisco, California, or (ii)
ten percent (10%). Interest payments shall be paid quarterly on the first day
of the months of April, July, October, and January of each year. Company may
use any of the funds borrowed from Holder for any corporate purposes of Company,
including paying obligations owed by Company to Holder.
2. Form of Payment. All payments under this Note shall be made in lawful
---------------
money of the United States of America. The Company waives diligence,
presentment, protest, demand and notice of protest, dishonor, and nonpayment of
this Note.
3. Conversion/Redemption/Renewal.
-----------------------------
A. The Holder has the right, at the holder's option, at any time on or
after the Maturity Date, to convert all or any portion of this Note into fully
paid and nonassessable shares of common stock ("Common Stock") of the Company at
the rate of one share of such Common Stock for each One Dollar and 50/100
($1.50) (the "Conversion Rate") principal amount of this Note and any accrued
but unpaid interest. The Holder agrees that all shares of Common Stock of the
Company, issued by the Company upon the conversion of all or any part of this
Note shall be restricted securities within the meaning of Rule 144(a) of the
Securities Act of 1933. The Holder further agrees that any shares of Common
Stock acquired by means of any conversion as set forth herein shall be further
restricted by the terms and conditions set forth in that certain Shareholders'
Agreement, dated October 24, 1997, by and among the Company, Holder, and the
Original Partners (as such term is defined in the Shareholders' Agreement).
B. The conversion right set forth in this Section 3 is subject to any
adjustment of the Conversion Rate set forth in Section 5 and Section 6, and is
only exercisable upon the surrender of this Note for conversion at the office or
agency to be maintained by the Company accompanied by instruments of transfer,
in form satisfactory to the Company, duly executed by the registered holder. No
fractional shares are issuable on any conversion, but in lieu of issuing
fractional shares the Company shall pay for such fractional shares in cash.
18
<PAGE>
C. At any time prior to seventeen (17) months from the date of this
Note, the Holder may provide written notice to the Company requiring the Company
to commence repay of the outstanding principal balance of this Note, together
with any accrued but unpaid interest thereon, to Holder. In such case,
commencing on the Maturity Date, Company shall pay Holder equal monthly
installments of principal, together with any unpaid interest, over a period of
five (5) years until all amounts due hereunder shall be repaid in full.
D. If Holder does not convert or redeem any or all of the principal
amount of the Note into Common Stock on the Maturity Date, Holder has the right
to extend the term of this Note for a period of time mutually agreed upon
between Holder and the Company. At any time during such extension period, Holder
shall have the right to convert all or any part of the outstanding principal
amount of the Note plus accrued and unpaid interest into Common Stock as set
forth in this Section 3. Moreover, at any time during such extension period,
Holder shall have the right to require the Company to repay all or any part of
the outstanding principal balance of this Note, together with any accrued but
unpaid interest thereon, to Holder within sixty (60) days.
4. Company Redemption. Prior to the Maturity Date, this Note may be
------------------
redeemed by the Company, in whole or in part, at any time after sixty (60) days
written notice ("Redemption Notice") to Holder. During such sixty (60) day
period, Holder shall have the right to convert all or any part of the
outstanding principal amount of the Note plus accrued and unpaid interest into
Common Stock, as set forth in Section 3. If Holder does not convert all
outstanding amounts into Common Stock, the Company may redeem any remaining
amounts at any time during a thirty (30) day period commencing with the date of
expiration of the sixty (60) day period provided for in the Redemption Notice.
Thereafter, Company shall be required to provide Holder with a new Redemption
Notice, and Holder shall have a new sixty (60) day period within which to
convert all or any part of the outstanding principal amounts plus accrued and
unpaid interest into Common Stock, as set forth in Section 3.
5. Anti-Dilution.
-------------
A. If at any time there is a capital reorganization of the Company's
Common Stock, including any combination, reclassification, exchange, or
subdivision of shares, a merger or consolidation of the Company with or into
another corporation, or the sale of all or substantially all the Company's
properties and assets as, or substantially as, an entirety to another person,
then, as a part of such reorganization, merger, consolidation, or sale, lawful
provision shall be made so that Holder shall thereafter be entitled to receive
on conversion of this Note, during the period specified in this Note, the number
of shares of Common Stock of the Company, or of the successor corporation
resulting from such merger or consolidation, to which a holder of the Common
Stock deliverable on conversion of this Note would have been entitled on that
event if this Note had been converted immediately before that event. In any
such case, appropriate adjustment (as determined by the Company's board of
directors) shall be made in applying this Note to the rights and the percentage
interests of Holder after the reorganization, merger, consolidation, or sale to
the end that this Note (including adjustment of the Conversion Rate) shall be
applicable after that event, as near as reasonably may be, in relation to the
shares of Common Stock deliverable after that event on conversion of this Note.
The Company shall, not later than thirty (30) days prior to making such
adjustment, give written notice ("Notice") by courier to Holder at the address
of Holder shown on the Company's books.
19
<PAGE>
B. Any Notice that is sent pursuant to Section 5(a) shall set forth,
in reasonable detail, the event requiring the adjustment and the method by which
the adjustment was calculated and shall specify the Conversion Rate then in
effect after the adjustment and the increased or decreased number of shares of
Common Stock to be received upon conversion of this Note. When appropriate,
advance notice may be given and included as part of the notice required under
other provisions of this Note.
6. Conversion Rate Protection.
--------------------------
A. If at any time, or from time to time, the Company issues or sells
shares of Common Stock without consideration or for a consideration per share
less than the Conversion Rate in effect immediately before that issue or sale,
then and in each such case:
i. the Conversion Rate then in effect and the Conversion Rate
applicable for any subsequent period shall be adjusted to a price (calculated to
the nearest cent) determined by dividing: (y) the sum of (aa) the number of
shares of Common Stock outstanding immediately before that issue or sale
multiplied by the Conversion Rate in effect immediately before that issue or
sale, plus (bb) the consideration, if any, received by the Company on that issue
or sale, by (z) the number of shares of the Company's Common Stock outstanding
immediately after that issue or sale; and
ii. Holder shall after that issue or sale, on conversion of this
Note, be entitled to receive the number of shares of Common Stock equal to the
number of shares that would otherwise, but for the adjustment provided for in
Section 6(a)(i), be issuable on such conversion multiplied by a fraction, the
numerator of which is the Conversion Rate then in effect and the denominator of
which is the Conversion Rate in effect immediately after the adjustment provided
for in Section 6(a)(i) on the date of conversion. No such adjustment shall be
made in an amount less than Five Cents ($0.05), but any such amount shall be
carried forward and given effect in the next adjustment, if any.
B. If the Company (i) grants any rights or options to subscribe for,
purchase, or otherwise acquire shares of Common Stock, or (ii) issues or sells
any security, other than this Note, which is convertible into shares of Common
Stock, then the price per share of Common Stock issuable on the exercise of the
rights or options or the conversion of the securities shall be calculated by
dividing: (y) the total amount, if any, received or receivable by the Company
as consideration for the granting of the rights or options or the issue or sale
of the convertible securities, plus the minimum aggregate amount of additional
consideration payable to the Company on exercise of the convertible securities,
by (z) the maximum number of shares of Common Stock issuable on the exercise or
conversion.
i. If the price per share so calculated is less than the
Conversion Rate of this Note in effect immediately before the rights or options
are granted or the convertible securities are issued or sold, the granting or
issue or sale shall be considered to be an issue or sale for cash of the maximum
number of shares of Common Stock so issuable on exercise or conversion at the
price per share determined under this provision, and the Conversion Rate of this
Note shall be adjusted as provided above to reflect (on the basis of that
determination) the issue or sale. No further adjustment of the Conversion Rate
shall be made as a result of the actual issuance of shares of Common Stock on
the exercise of any such rights or options or the conversion of any such
convertible securities.
20
<PAGE>
ii. If such rights or options or convertible securities by their
terms provide, with the passage of time or otherwise, for any increase in the
amount of additional consideration payable to the Company or any decrease in the
number of shares of Common Stock issuable on such exercise or exchange (by
change of rate or otherwise), the Conversion Rate shall, when each such increase
or decrease becomes effective, be readjusted to reflect the increase or decrease
as far as it affects rights of exercise or conversion that have not expired
before that time.
iii. If, on the expiration of such rights or options or the
rights of conversion of such convertible securities, any of them shall not have
been exercised, the Conversion Rate shall be readjusted and will then be the
same as it would have been had it originally been adjusted (or had the original
adjustment not been required, as the case may be), on the basis that (y) the
only shares of Common Stock so issued were the shares of Common Stock, if any,
actually issued or sold on the exercise of such rights or options or rights of
conversion of such convertible securities, and (z) such shares of Common Stock,
if any, were issued or sold for the consideration actually received by the
Company on such exercise plus the consideration, if any, actually received by
the Company for granting all such rights or options or for issuing or selling
all such convertible securities.
iv. No adjustment of the Conversion Rate as provided in this
Section 6(b) shall occur upon the granting or issuance of stock, stock options,
or warrants to employees or directors of the Company in the aggregate amount of
less than six hundred thousand (600,000) shares of Common Stock.
7. Subordination.
-------------
A. Upon the written agreement of Holder, this Note may be subordinated
to any or all debt owed by the Company to banks and other financial
institutions, other than to the extent debt to any such bank or financial
institution involves the issuance of shares of the Company's stock or notes,
warrants, options or any other security convertible into such stock.
B. The payment of the indebtedness evidenced by this instrument is
subordinated to the payment of the "Senior Debt" defined and described in the
Subordination Agreement, dated as of September 24, 1998, between United
Breweries of America Inc. and the CIT Group/Credit Finance, Inc., as amended by
that certain Amendment to Subordination Agreement, dated as of June 22, 1999,
and reference is made to such Agreement for a full statement of the terms and
conditions of such subordination.
C. The payment of the indebtedness evidenced by this instrument is
subordinated to the payment of the "Senior Debt" defined and described in the
Subordination Agreement, dated on or about November 15, 1998, between United
Breweries of America Inc. and the Savings Bank of Mendocino, Inc., and reference
is made to such Agreement for a full statement of the terms and conditions of
such subordination.
8. Enforcement. The Company agrees to reimburse Holder for all costs of
-----------
collection or enforcement of this Note, whether or not suit is filed (including,
but not limited to, reasonable attorney fees), incurred by Holder.
9. Governing Law. This Note shall be governed by and construed in
-------------
accordance with the laws, without regard to the laws as to choice or conflict of
laws, of the State of California.
21
<PAGE>
10. Default. If Company fails to pay any installment of principal or
-------
interest when due, then, or at any time during such default, the entire amount
of the unpaid principal and interest shall, at the election of Holder, become
immediately due and payable.
11. Waiver. No previous waiver and no failure or delay by Holder in
------
acting with respect to the terms of this Note shall constitute a waiver of any
subsequent breach, default or failure of condition under this Note. A waiver of
any term of this Note must be in writing and shall be limited to the express
written terms of such waiver. No delay or omission on the part of Holder in
exercising any right under this Note shall operate as a waiver of such right or
of any other right.
12. Reservation of Stock. The Company covenants that it will at all times
--------------------
reserve and keep available, solely for issuance on conversion of this Note, all
shares of Common Stock from time to time issuable upon exercise of this Note.
13. Replacement. Upon receipt of evidence reasonably satisfactory to the
-----------
Company, of the loss, theft, destruction, or modification of this Note and, in
the event of such occurrence, on delivery of an indemnity agreement or Note
reasonably satisfactory in form and amount to the Company or in the case of
mutilation, on surrender and cancellation of this Note, the Company at its
expense will execute and deliver, in lieu of this Note, a new Note of like
tender.
14. Transfer. NO SALE OR TRANSFER OF THIS NOTE SHALL BE EFFECTIVE UNLESS
--------
AND UNTIL ALL OF THE FOLLOWING STEPS ARE COMPLIED WITH:
A. The transferor and the transferee shall execute the form of
Transfer Statement attached to this Note (or a similar statement which shall
then be attached to this Note);
B. This Note and the executed Transfer Statement, together with a
United States Internal Revenue Service Form W-8 "Certificate of Foreign Status"
or a Form W-9 "Request for Taxpayer Identification Number and Certification"
completed and executed by the transferee, shall be delivered to the Company at
the Company's address as provided above; and
C. If the Company is satisfied that the information contained in the
Transfer Statement is consistent with the information contained in the completed
and executed Form W-8 or W-9, as applicable, the Company shall enter the
transfer on a Note Holder Ledger maintained by the Company for this purpose.
Any purported transfer with respect to which all of the above steps have note
been complied with shall be null and void and of no force or effect.
15. Entire Agreement; Written Modification Only. This Agreement contains
-------------------------------------------
the entire agreement of the parties, and constitutes the complete, final and
exclusive embodiment of their agreement with respect to its subject matter.
This Agreement supersedes any and all prior correspondence, arrangements,
representations and understandings, whether written or oral, express or implied,
with respect to its subject matter. This Agreement may not be modified except
by a written agreement, which specifically sets forth each modification and is
signed by a duly authorized representative of both parties. This Agreement is
executed without reliance upon any promise, warranty or representation by the
parties or any of their representatives, other than such promises, warranties or
representations as are expressly contained in this Agreement.
22
<PAGE>
16. Severability. If any provision of this Agreement is deemed or held
------------
invalid or unenforceable in whole or in part, for any reason, that provision
shall be deemed severed from the remainder of this Agreement, and shall in no
way affect or impair the validity or enforceability of any portion or all of
this Agreement, which otherwise shall remain in full force and effect.
IN WITNESS WHEREOF, the Company has caused this Convertible Note to be executed
in its corporate name by the signature of its president and secretary.
MENDOCINO BREWING COMPANY, INC.,
a California corporation
By: /s/ Michael Laybourn
------------------------------------
Michael Laybourn
Its: President
By: /s/ P.A. Murali
------------------------------------
P.A. Murali
Its: Chief Financial Officer
23
<PAGE>
CONVERSION NOTICE
Conversion Notice To: MENDOCINO BREWING COMPANY, INC.
The undersigned holder of this Note, hereby irrevocably exercises the
option to convert this Note or the portion of it designated below into shares of
Common Stock of the Company, in accordance with the terms of the Note, and
directs that the shares issuable and deliverable on the conversion, together
with any check in payment of fractional shares, be issued and delivered to the
undersigned unless a different name is specified below. If shares of Common
Stock are to be issued in the name of anyone other than the undersigned, the
undersigned will pay all transfer taxes payable on this conversion and issuance.
Dated:
---------------------------------- ---------------------------------
Signature
<TABLE>
<S> <C>
If the shares are to be issued other than to Portion to be converted (in multiples) of
a registered holder, print name, address, $1,000 if less than all:
city, state and zip code of issuee: $
-------------------------------------------
- -------------------------------------------- Social Security Number of other identifying
- -------------------------------------------- number of issuers:
- --------------------------------------------
- -------------------------------------------- ------------------------------------------
</TABLE>
Notice: The signature of these instructions to convert must correspond with the
name as written on the face of this Note in every particular, without
alteration, enlargement, or any change whatsoever
24
<PAGE>
TRANSFER STATEMENT
------------------
NOTICE TO: MENDOCINO BREWING COMPANY, INC.
FOR VALUE RECEIVED, the undersigned, the holder of that certain
Convertible Note initially executed on the Effective Date (as defined below) by
Mendocino Brewing Company, Inc. (the "Company") to the Initial Holder (as
defined below) in the Face Value set forth below (the "Note"), hereby sells,
assigns, transfers and conveys all of the rights of the undersigned under the
Note, subject to the terms of the Note, unto the Transferee (as described
below):
Name of Transferee Address Face Value of Note
- ---------------------- ---------------------------- ------------------------
The following terms have the following meanings:
Effective Date: , 1999
--------------------
Initial Holder:
----------------------------
Dated: TRANSFEROR:
-------------------- [Name of Transferor]
By:
--------------------------------
Name:
------------------------------
Its:
-------------------------------
ACKNOWLEDGMENT OF THE COMPANY:
MENDOCINO BREWING COMPANY, INC.
By:
--------------------------------
Name:
------------------------------
Its:
-------------------------------
25
