SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. __)
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
[X] Definitive Proxy Statement Commission Only (as permitted by
[ ] Definitive Additional Materials Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to
Sections. 240.14a-11(c) or . 240.14a-12
Mendocino Brewing Company, Inc.
(Name of Registrant as Specified in Its Charter)
_________________________N/A_________________________________
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transactions applies: Common
Stock
(2) Aggregate number of securities to which transactions applies:
5,500,000 shares of Common Stock
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
Because there is no market value for the securities being acquired, the
filing fee is calculated based on the securities book value as provided
in Exchange Act Rule 0-11(a) (4). The book value of the shares being
acquired as of September 30, 2000 is equal to $978,385. One-50th of one
percent of the book value of the securities to be acquired as of
September 30, 2000 is equal to $195.68.
(4) Proposed maximum aggregate value of transaction:
Calculated based on book value: $978,385
(5) Total fee paid: $195.68
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[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing party:
(4) Date filed:
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MENDOCINO BREWING COMPANY, INC.
Post Office Box 400
13351 South Highway 101
Hopland, California 95449
(707) 744-1015
December 18, 2000
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of shareholders
of Mendocino Brewing Company, Inc. (the "Company") to be held at 2:00 p.m.,
local time, on Wednesday, January 24, 2001, at the Ukiah Valley Conference
Center located at 200 South School Street, Ukiah, California (the "Annual
Meeting").
As described in the accompanying Proxy Statement, at the Annual Meeting
you will be asked to consider a proposal to approve and adopt the Share Purchase
Agreement (the "Share Purchase Agreement"), between the Company and Inversiones
Mirabel, S.A., a Panamanian corporation ("Inversiones"), pursuant to which the
Company would acquire from Inversiones, in a related party transaction, all of
the issued and outstanding capital stock of United Breweries International (UK)
Limited, a company organized under the laws of England and Wales ("UBI"), in
exchange for 5,500,000 shares of the Company's Common Stock. The transaction
would be considered a related party transaction, because Inversiones is wholly
owned by Golden Eagle Trust, an Isle of Man trust which is in turn controlled by
persons who have the ability to act in favor of Dr. Vijay Mallya, the Company's
Chairman of the Board and Chief Executive Officer and, therefore, in which Dr.
Mallya may have a material financial interest. It has therefore been reviewed
and approved for the Company by a special committee of the Board of Directors
consisting only of Directors who are not personally interested in the
transaction. Golden Eagle Trust will also guarantee Inversiones' representations
and warranties under the Share Purchase Agreement.
The terms of the Share Purchase Agreement require the Company to add
another member to its Board of Directors, bringing the total number up to eight.
Since under the Company's Bylaws any increase in the number of Directors
requires shareholder approval, you will be asked to approve an amendment to the
Company's Bylaws increasing the size of the Board.
At the Annual Meeting, the shareholders will also elect Directors of
the Company for the forthcoming year. The following individuals have been
nominated by the Board of Directors for election to the Board: Vijay Mallya, H.
Michael Laybourn, R.H.B. (Bobby) Neame, Kent Price, Sury Rao Palamand, Jerome G.
Merchant, and Yashpal Singh. Assuming that the proposed Bylaw amendment
described above is approved by the shareholders, the Board also intends to
nominate David Townshend to serve as the Company's eighth Director.
Finally, you will be asked to ratify the appointment of Moss Adams
L.L.P. as independent auditors of the Company for the fiscal year 2000. The
Board of Directors does not anticipate that any additional proposals will be
presented for consideration at the Annual Meeting.
Your Board of Directors, which has unanimously approved the Share
Purchase Agreement, believes that the proposed transaction with Inversiones is
in the best interests of the Company and its shareholders. The Board therefore
recommends that you vote FOR approval of the Share Purchase Agreement and the
related amendment to the Company's Bylaws. The Board of Directors also
recommends that you vote FOR the election of its nominees for Director, and FOR
ratification of the
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Shareholders of Mendocino Brewing Company, Inc.
December 18, 2000
appointment of Moss Adams, L.L.P. as the Company's independent auditors. You are
encouraged to read the enclosed Proxy Statement which provides detailed
information concerning all of the Proposals which are expected to come before
the Annual Meeting.
Your vote is important, regardless of the number of shares you own. On
behalf of your Board of Directors, I urge you to complete, date and sign the
accompanying proxy and return it to the Company promptly. Doing so will not
prevent you from attending the Annual Meeting or voting in person, but it will
assure that your vote is counted if you are unable to attend the Annual Meeting.
You may revoke your proxy at any time, by submitting either a written notice of
revocation or a duly executed proxy bearing a later date to the Company's
Secretary at the Company's offices prior to the Annual Meeting, or by attending
the Annual Meeting and voting in person.
I look forward to seeing you at the Annual Meeting.
Sincerely,
Vijay Mallya, Ph.D.
Chief Executive Officer
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MENDOCINO BREWING COMPANY, INC.
Post Office Box 400
13351 South Highway 101
Hopland, California 95449
(707) 744-1015
---------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
to be held on January 24, 2001
---------------------------------
NOTICE IS HEREBY GIVEN that the 2000 Annual Meeting of the Shareholders
of Mendocino Brewing Company, Inc., a California corporation (the "Company"),
will be held on Wednesday, January 24, 2001, at 2:00 p.m., local time, at the
Ukiah Valley Conference Center located at 200 South School Street, Ukiah,
California, for the following purposes:
1. To approve a Share Purchase Agreement dated November 3, 2000,
between the Company, Inversiones Mirabel, S.A., and Golden Eagle
Trust, and the transactions contemplated thereby.
2. To amend the Company's Bylaws to allow for the election of up to
eight Directors.
3. To elect Directors of the Company, each to serve until the next
Annual Meeting of Shareholders and until his successor has been
elected and qualified or until his earlier resignation or removal.
The Board of Directors has nominated the following candidates: Vijay
Mallya, H. Michael Laybourn, R.H.B. (Bobby) Neame, Kent Price, Sury
Rao Palamand, Jerome G. Merchant, and Yashpal Singh, and (if
Proposal No. 2 is approved by the shareholders) David Townshend.
4. To ratify the appointment of Moss Adams L.L.P. as independent
auditors of the Company for the year ended December 31, 2000.
5. To transact such other business as may properly come before the
Annual Meeting or any adjournment or postponement thereof.
Theforegoing items of business are more fully described in the Proxy
Statement accompanying this notice.
The Board of Directors has fixed the close of business on December 11,
2000 as the record date for the determination of shareholders entitled to notice
of and to vote at the Annual Meeting or any adjournment thereof. Only
shareholders of record at the close of business on that date are entitled to
notice of and to vote at the Annual Meeting or any adjournment or postponement
thereof.
YOU ARE URGED TO VOTE IN FAVOR OF MANAGEMENT'S PROPOSALS BY SIGNING AND
RETURNING THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE, WHETHER OR NOT YOU PLAN TO
ATTEND THE MEETING IN PERSON. THE ENCLOSED PROXY IS SOLICITED BY THE COMPANY'S
BOARD OF DIRECTORS. ANY SHAREHOLDER GIVING A PROXY MAY REVOKE IT PRIOR TO THE
TIME IT IS VOTED BY NOTIFYING THE SECRETARY OF THE COMPANY IN WRITING OF SUCH
REVOCATION, BY FILING A DULY-EXECUTED PROXY BEARING A LATER DATE, OR BY
ATTENDING THE ANNUAL MEETING IN PERSON AND VOTING BY BALLOT.
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Notice of Annual Meeting
December 18, 2000
To help us in planning for the Annual Meeting, please mark the
appropriate box on the accompanying proxy if you plan to attend.
By Order of the Board of Directors
/s/ P.A. Murali
------------------------------------
Hopland, California P.A. Murali
December 18, 2000 Corporate Secretary
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MENDOCINO BREWING COMPANY, INC.
Post Office Box 400
13351 South Highway 101
Hopland, California 95449
PROXY STATEMENT FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JANUARY 24, 2001
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors of Mendocino Brewing Company, Inc., a California
corporation (the "Company"), of proxies to be used at the Annual Meeting of the
Shareholders of the Company to be held on Wednesday, January 24, 2001, at 2:00
p.m., local time, at the Ukiah Valley Conference Center located at 200 South
School Street, Ukiah, California, and at any adjournment or adjournments thereof
(the "Meeting"). The approximate date on which this Proxy Statement and the
accompanying Proxy were mailed to stockholders is December 18, 2000. The mailing
address of the principal executive offices of the Company is: Post Office Box
400, 13351 South Highway 101, Hopland, CA 95449, and the Company's telephone
number is (707) 744-1015.
Matters for Consideration at the Annual Meeting
At the Annual Meeting, Shareholders will be asked to consider and to
vote upon the following:
Proposal No. 1: To approve a Share Purchase Agreement, dated November
3, 2000, between the Company, Inversiones Mirabel, S.A., and Golden Eagle Trust,
and the transactions contemplated thereby.
Proposal No. 2: To amend the Company's Bylaws to allow for the election
of up to eight Directors.
Proposal No. 3: To elect Directors of the Company, each to serve until
the next Annual Meeting of Shareholders and until his successor has been elected
and qualified or until his earlier resignation or removal. The Board of
Directors has nominated the following candidates: Vijay Mallya, H. Michael
Laybourn, R.H.B. (Bobby) Neame, Kent Price, Sury Rao Palamand, Jerome G.
Merchant, and Yashpal Singh, and (if Proposal No. 2 is approved by the
shareholders) David Townshend
Proposal No. 4: To ratify the appointment of Moss Adams, L.L.P. to
serve as the Company's independent accountants for the year ending December 31,
2000.
THE BOARD OF DIRECTORS OF THE CORPORATION UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE "FOR" EACH OF THE FOREGOING PROPOSALS.
SUMMARY TERM SHEET
The following summary is a summary of Proposal No.1, and highlights
certain information which is also contained elsewhere in this Proxy Statement,
and is qualified in it entirety by reference to the full text of the Proxy
Statement. Since this Summary does not contain a complete description of the
proposed Acquisition or all of the information about the Acquisition which may
be important to you, you should
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read the rest of this Proxy Statement, and the accompanying material, with care,
including the Share Purchase Agreement attached hereto as Supplement A, the
Fairness Opinion of Sage Capital, LLC attached hereto as Supplement B, and the
documents referred to in "Incorporation of Certain Documents by Reference,"
below. The following discussion of the Agreement is modified in its entirety by
reference to the terms of the Agreement itself. Any conflict between the
following description and the actual terms of the Agreement shall be resolved by
reference to, and in favor of, the actual Agreement.
The Parties to the Acquisition Agreement
o Mendocino Brewing Company, Inc. (the "Company", "we", or "us"),
o Inversiones Mirabel, SA, a Panamanian corporation ("Inversiones"),
which owns all of the stock of United Breweries International (UK)
Limited, an English corporation ("UBI"), and
o Golden Eagle Trust, a trust formed under the laws of the Isle of
Man (part of the United Kingdom) ("Golden Eagle"), which owns all
of the stock of Inversiones.
Relationships Among the Parties
o Golden Eagle is controlled by persons who may act in favor of our
Chairman of the Board and Chief Executive Officer, Dr. Vijay
Mallya, therefore, Dr. Mallya himself may have a material
financial interest in Golden Eagle.
o Inversiones is a wholly-owned subsidiary of Golden Eagle.
o Golden Eagle is also the parent of the controlling (97%)
shareholder of United Breweries of America, Inc., a Delaware
corporation ("UBA") which is the Company's principal (55.6%)
shareholder.
Reasons for the Acquisition
o The principal purpose of the Agreement, from our point of view, is
to acquire all of the outstanding shares of UBI, which in turn
owns 100% of UBSN Ltd., a United Kingdom corporation ("UBSN").
UBSN markets, sells, and distributes Kingfisher Lager, primarily
in the United Kingdom and elsewhere in the European Union. By
acquiring UBI, we will obtain UBSN, a profitable company which is
engaged in the sale and marketing of specialized beer in markets
outside the United States, and holds the U.S. distribution rights
to distribute Kingfisher Lager beer, a niche market beer which has
thus far proved to be successful in its market segment.
o Inversiones and Golden Eagle believe that exchanging their
ownership of UBI and UBSN for a larger stake in the Company will
increase the value of UBI and UBSN, and consequently of the
Company and their existing stake in it. As a result of our
extensive United States distribution network and the leverage of
our other prominent brands, we believe we are in a position to
enhance UBSN's product offerings, especially in the United States.
Additionally, the addition of UBSN, which is a profitable entity,
should improve our cash flow position.
What the Company is Paying for UBI
o In the Acquisition, we will be buying from Inversiones all of the
outstanding shares of UBI. The entire purchase price for UBI will
consist of 5,500,000 shares of our Common Stock. No cash will be
paid for any of the UBI shares being purchased. If the Acquisition
is consummated, the additional shares of Common Stock to be issued
would constitute approximately 49.8% of our outstanding shares
immediately after it takes place.
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Guaranty
o Golden Eagle Trust will guarantee the performance and accuracy of
Inversiones' representations and warranties, and its indemnity
obligations, under the Agreement. Further, Inversiones and Golden
Eagle have agreed to indemnify us against all claims, losses, and
liabilities which UBI may incur arising out of a guarantee
previously given by UBI to an unrelated third party in connection
with a lease of property by a former affiliate of UBI's.
The Effect of the Acquisition on the Company's Shareholders
o We would acquire a profitable company which is engaged in the sale
and marketing of specialized beer in markets outside the United
States, as well as the U.S. and Canadian distribution rights to
Kingfisher Lager beer, an international brand which has proven
success in its respective market segment.
o We would issue to Inversiones 5,500,000 shares of our Common
Stock, as described below. The new Common Stock would, by itself,
amount to approximately 49.8% of all of the outstanding Common
Stock of the Company after the Acquisition takes place. As a
result of this issuance, our current shareholders would experience
immediate and material dilution in the percentage of our Common
Stock that their shares now represent. As an example, 10,000
shares of Common Stock now represents about 1.8% of the Company's
Common Stock today, but it would represent only about 0.9% of the
Company's voting power afterwards.
o After the Acquisition, Inversiones would hold approximately 49.8%
of all of the outstanding Common Stock of the Company. Inversiones
is controlled by the same entity - Golden Eagle Trust - which
controls UBA, our principal shareholder. Together, Inversiones and
UBA would own, after the Acquisition, approximately 77.7% of our
outstanding Common Stock.
Recommendation of the Special Committee
The proposed Acquisition would be a transaction among related
parties, because Golden Eagle, which owns Inversiones, is
controlled by persons with a connection to our Chairman of the
Board and Chief Executive Officer, Dr. Vijay Mallya. The
Acquisition has therefore been reviewed and approved for us by a
special committee of the Board of Directors consisting only of
Directors who are not personally interested in the transaction
(the "Special Committee"), consisting of Kent Price (Chairman),
Sury Palamand, and Michael Laybourn. The Special Committee
requested Mr. Jerome Merchant to coordinate our efforts in
connection with this transaction, and also engaged the law firm of
Baker & McKenzie, as independent Counsel to the Special Committee,
to advise it with respect to the terms and conditions of the Share
Purchase Agreement.
After reviewing the terms of the Share Purchase Agreement, and in
consultation with its counsel, Baker & McKenzie, the Special
Committee has unanimously ratified and approved the proposed
Acquisition and the Share Purchase Agreement. On the basis of that
recommendation, the Board of Directors has unanimously approved
the proposed Acquisition. (Because they have a personal interest
in this transaction, Dr. Mallya and Mr. Neame did not give their
approval until the proposed Acquisition had been approved by all
of the other Directors.)
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Fairness Opinion
We have retained Sage Capital, LLC, an independent investment
banking firm, to evaluate the Acquisition. Sage Capital, LLC has
given its opinion that the proposed transaction is fair, from a
financial point of view, to us and to our shareholders, and that
opinion is attached to this Proxy Statement as Supplement B.
Dissenters' Rights
Any holders of the Company's Common Stock as of the record date
(December 11, 2000) for the Annual Meeting who do not vote in
favor of Proposal No. 1 (either in person or by proxy) will be
entitled, under California law, to exercise certain dissenters'
rights with respect to this transaction such shareholder are
referred to herein as "Dissenting Shareholders." (Holders of
Preferred Stock do not have dissenters' rights with respect to
this Proposal.) We are required to offer to purchase the Common
Stock of any Dissenting Shareholder for cash, at a price of $0.81
per share. If you wish to preserve the right to have us purchase
your dissenting shares, you must either vote against Proposal No.
1, either in person at the Meeting or by proxy, or refrain from
voting in favor of the Proposal, again either personally or by
proxy. See "PROPOSAL NO. 1 - Dissenters' Rights," below, for more
information about dissenters' rights.
GENERAL INFORMATION
Persons Making the Solicitation
This solicitation of Proxies is being made by the Company's Board of
Directors. The expenses of preparing, assembling, printing, and mailing this
Proxy Statement and the materials used in the solicitation of Proxies for the
Annual Meeting will be borne by the Company. It is contemplated that Proxies
will be solicited principally through the use of the mails, but officers,
Directors, and employees of the Company may solicit Proxies personally or by
telephone, without receiving special compensation therefor. The Company will
reimburse banks, brokerage houses, and other custodians, nominees, and
fiduciaries for their reasonable expenses in forwarding these Proxy materials to
shareholders whose stock in the Company is held of record by such entities. In
addition, the Company may use the services of individuals or companies it does
not regularly employ in connection with this solicitation of Proxies if
management determines that to be advisable.
Voting Securities of the Company
All properly executed proxies delivered pursuant to this solicitation
and not revoked will be voted at the Annual Meeting in accordance with the
directions given, and shareholders may of course attend the Annual Meeting and
vote their shares in person. Proxies which are executed and returned to the
Company without contrary instructions will be voted "For" Proposals 1, 2, and 4,
"For" the election of each of the Board's nominees for Director, and otherwise
in the discretion of the proxyholders.
Outstanding Shares; Record Date. There were issued and outstanding
5,552,373 shares of the Company's Common Stock (the "Common Stock") on December
11, 2000, which date has been fixed as the record date for the purpose of
determining shareholders entitled to notice of, and to vote at, the Annual
Meeting (the "Record Date").
Voting Generally. On any matter submitted to the vote of the
shareholders other than the election of Directors, each holder of Common Stock
will be entitled to one vote, in person or by Proxy, for each share of Common
Stock held of record on the Company's books as of the Record Date. With respect
to
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the proposed Share Purchase Agreement (Proposal No. 1), the proposed amendment
to the Company's Bylaws (Proposal No. 2), and the appointment of Moss Adams,
L.L.P. to serve as the Company's independent auditors for the 2000 fiscal year
(Proposal No. 4), shareholders may vote in favor of or against any of these
Proposals, or may abstain from voting, by specifying their choice as indicated
on the enclosed proxy card. Please see below for information concerning the
election of Directors. (Under the headings "Election of Directors" and
"Cumulative Voting.") If no specific instructions are given with respect to any
matter to be voted on, the shares represented by a signed proxy will be voted
FOR the proposed Share Purchase Agreement and the acquisition of UBI, FOR the
proposed amendment to the Company's Bylaws, FOR the election of each of
management's nominees to the Board of Directors, and FOR the appointment of Moss
Adams, L.L.P. as independent auditors. Directors of the Company will be elected
by the votes of a plurality of those cast at the Annual Meeting, as discussed in
the next paragraph. Ratification of the other Proposals, however, will require
only the affirmative vote of the holders of a majority of the shares of Common
Stock of the Company voting in person or by proxy at the Annual Meeting. Thus,
abstentions and broker non-votes, although they will be counted in determining
whether a quorum is present for the vote on all matters to come before the
Annual Meeting, will have no direct effect on the outcome of the votes on those
Proposals.
Election of Directors. With respect to the election of Directors,
shareholders may vote in favor of all nominees, or withhold their votes as to
all nominees, or withhold their votes as to specific nominees, by following the
instructions on the enclosed proxy card. Directors will be elected by a
plurality of the votes cast by the holders of the Company's Common Stock, voting
in person or by proxy at the Annual Meeting.
A shareholder may choose to withhold from the proxyholders the
authority to vote for any of the individual candidates nominated by the Board of
Directors, by marking the appropriate box on the proxy card and striking out the
names of the disfavored candidates as they appear on the proxy card. In that
event the proxyholders will not cast any of the shareholder's votes for
candidates whose names have been crossed out, whether or not cumulative voting
is called for at the Annual Meeting, but they will retain the authority to vote
for the candidates nominated by the Board of Directors whose names have not been
struck out, and for any other candidates who may be properly nominated at the
Annual Meeting. If a shareholder wishes to specify the manner in which his or
her votes are allocated in the event of cumulative voting, he or she must appear
and vote in person at the Annual Meeting. Ballots will be available at the
Annual Meeting for persons desiring to vote in person. All votes will be
tabulated by Boston Equiserve, Inc., the Company's Registrar and Transfer Agent,
which will act as the tabulating agent for the Annual Meeting.
Cumulative Voting. In connection with the election of Directors (only),
shares may be voted cumulatively, but only for persons whose names have been
placed in nomination prior to the voting for election of Directors and only if a
shareholder present at the Annual Meeting gives notice at the Annual Meeting,
prior to the vote, of his or her intention to vote cumulatively. (Notice of
intention to vote cumulatively may not be given by simply marking and returning
a proxy.) If any Company shareholder gives such notice, then all shareholders
eligible to vote will be entitled to cumulate their votes in voting for election
of Directors. Cumulative voting allows a shareholder to cast a number of votes
equal to the number of shares held in his or her name as of the Record Date,
multiplied by the number of Directors to be elected. All of these votes may be
cast for any one nominee, or they may be distributed among as many nominees as
the shareholder sees fit. The nominees receiving the highest number of votes, up
to the number of places to be filled, shall be elected.
If one of the Company's shareholders gives notice of intention to vote
cumulatively, the persons holding the proxies solicited by the Board of
Directors will exercise their cumulative voting rights, at their discretion, to
vote the shares they hold in such a way as to ensure the election of as many of
the
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Board's nominees as they deem possible. This discretion and authority of the
proxyholders may be withheld by checking the box on the proxy card marked
"withhold from all nominees." Such an instruction, however, will also deny the
proxyholders the authority to vote for any or all of the nominees of the Board
of Directors, even if cumulative voting is not called for at the Annual Meeting,
although it will not prevent the proxyholders from voting, at their discretion,
for any other person whose name may be properly placed in nomination at the
Annual Meeting.
Under California law and the Company's Articles of Incorporation,
cumulative voting may not be used in connection with any matter other than the
election of Directors.
Quorum. In the event that a quorum is not present at the time the
Annual Meeting is convened, or if for any other reason the Company believes that
additional time should be allowed for the solicitation of proxies or
consideration of the issues raised at the Annual Meeting, the Company may
adjourn the Annual Meeting. If the Company proposes to adjourn the Annual
Meeting by a vote of the shareholders, the persons named in the enclosed form of
proxy will vote all shares for which they have voting authority in favor of such
adjournment. The holders of the Company's Series A Preferred Stock will not be
entitled to vote on the above-mentioned Proposals, and such shares will not be
counted in determining whether or not a quorum is present for the Annual
Meeting.
Votes Cast at the Annual Meetings. Representatives of Boston Equiserve,
Inc., the Company's Registrar and Transfer Agent, will be in attendance at the
Annual Meeting in order to receive and tabulate any votes cast at that time.
Solicitation of Proxies
The expense of soliciting proxies in the form accompanying this Proxy
Statement will be paid by the Company. Following the original mailing of the
proxies and other soliciting materials, the Company and/or its agents may also
solicit proxies by mail, telephone or facsimile, or in person. The Company will
request that brokers, custodians, nominees, and other record holders of the
Company's Common Stock forward copies of the proxy and other soliciting
materials to persons for whom they hold shares of Common Stock and request
authority for the exercise of proxies. In such cases, the Company, upon the
request of the record holders, will reimburse such holders for their reasonable
expenses. The Company has present plans to specially engage an employee or paid
solicitor to solicit proxies.
Revocability of Proxies
A form of Proxy for voting your shares at the Annual Meeting is
enclosed. Any shareholder who executes and delivers such Proxy has the right to,
and may, revoke it at any time before it is exercised, by filing with the
Secretary of the Company an instrument revoking it or a duly executed Proxy
bearing a later date. In addition, if the person executing a Proxy is present at
the Annual Meeting, and elects to vote in person, the powers of the Proxy
holders will be superseded as to those Proposals on which the shareholder
actually votes at the Annual Meeting.
Market Listing
The Company's Common Stock is listed on the Pacific Stock Exchange and
trades under the symbol "MBR."
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Forward Looking Statements Regarding the Company
Certain information contained in this proxy statement which does not
relate to historical financial information may be deemed to constitute forward
looking statements. The words or phrases "will likely result," "are expected
to," "will continue," "is anticipated," "estimate," "project," "believe,"
"intend," "plan," "budget," or similar expressions identify "forward looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. This proxy statement contains certain forward-looking statements with
respect to the plans, objectives, future performance, and business of the
Company. Because such statements are subject to risks and uncertainties, actual
results may differ materially from historical results and those presently
anticipated or projected. The Company's shareholders are cautioned not to place
undue reliance on such statements, which speak only as of the date of this Proxy
Statement. The Company does not undertake any obligation to release publicly any
revisions to such forward-looking statements to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
Available Information
The Company is subject to the informational reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith periodically files reports, proxy statements, and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements and other information can be inspected and copies made
at the public reference facilities of the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and the Commission's regional offices at
Seven World Trade Center, Suite 1300, New York, New York 10048 and Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such material can also be obtained from the Public Reference Section of the
Commission at its Washington, D.C. address at prescribed rates. Such material
may also be accessed electronically by means of the Commission's Web site at
http://www.sec.gov.
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PROPOSAL NO. 1: -- ACQUISITION OF UNITED BREWERIES INTERNATIONAL (UK) LIMITED
At the Meeting, the Shareholders will have the opportunity to vote to
approve the proposed acquisition of all of the issued and outstanding capital
stock of United Breweries International (UK) Limited, a company organized under
the laws of England and Wales ("UBI"), which is currently wholly-owned by
Inversiones Mirabel, S.A., a Panamanian corporation ("Inversiones"), in exchange
for stock in the Company (the "Acquisition"). As a consequence of the
Acquisition, UBI would become a wholly-owned subsidiary of the Company. The
Company would not be required to pay any cash to acquire UBI. The entire
purchase price would consist of five million five hundred thousand (5,500,000)
newly issued shares of the Company's Common Stock. The principal terms of the
Acquisition will be presented by management at the Meeting, and a copy of the
Share Purchase Agreement is attached to this Proxy Statement as Supplement A
(the "Agreement").
Inversiones is a wholly-owned subsidiary of Golden Eagle Trust, an Isle
of Man trust ("Golden Eagle") which is controlled by a corporation, CAS
Nominees, Ltd. ("CAS"). The Company's Chairman of the Board and Chief Executive
Officer, Dr. Vijay Mallya, may be deemed to be a beneficial owner of, and
therefore have a material financial interest in, Golden Eagle because as
trustees, CAS may exercise discretion in Dr. Mallya's favor. Golden Eagle has
agreed to guaranty the representations and warranties made by Inversiones under
the Share Purchase Agreement.
The principal purpose of the Agreement, from the Company's point of
view, is the acquisition of UBSN Ltd., a United Kingdom corporation ("UBSN")
which is 100% owned by UBI. UBSN markets, sells, and distributes Kingfisher
Lager, primarily in the United Kingdom and elsewhere in the European Union.
Currently, the Kingfisher beer is brewed for UBSN by a third party, Shepherd
Neame Limited, under a contract manufacturing agreement.
Holders of the Company's Common Stock who do not vote in favor of the
proposed Acquisition will be entitled, under California law, to exercise certain
dissenter's rights. See "PROPOSAL NO. 1 -Dissenters' Rights," below, for a more
complete description of the rights and responsibilities of shareholders wishing
to exercise such dissenter's rights.
Description of the Proposed Acquisition
The Parties to the Agreement
The Company. Mendocino Brewing Company, Inc., a California corporation
(the "Company"), has historically brewed four ales and one stout, one seasonal
ale, and one seasonal porter. The Company's brands include Red Tail Ale, Blue
Heron Pale Ale, Eye of the Hawk Select Ale, Black Hawk Stout, Peregrine Golden
Ale, and two seasonals for the domestic craft beer market. The Company operates
two brewing facilities: one in Ukiah, California and another in Saratoga
Springs, New York.
Golden Eagle. Golden Eagle Trust ("Golden Eagle") is a trust formed
under the laws of the Isle of Man (part of the United Kingdom). Among its other
assets, Golden Eagle holds 100% of the outstanding stock of Inversiones. Golden
Eagle will guaranty the performance and accuracy of Inversiones' representations
and warranties, and its indemnity obligations, under the Agreement.
Inversiones. Inversiones Mirabel, S.A. ("Inversiones"), which is 100%
owned by Golden Eagle, is a holding company organized under the laws of Panama.
Its sole function is to hold shares in various companies, including UBI.
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UBI and UBSN. United Breweries International (UK) Limited ("UBI") is
100% owned by Inversiones and owns, in turn, 100% of UBSN Ltd., a United Kingdom
corporation ("UBSN"). Because UBI is a wholly-owned subsidiary of Inversiones,
neither UBI nor UBSN is, or needs to be, a party to the Agreement.
Description of the Transaction
The following summary of the Agreement is modified in its entirety by
reference to the terms of the Agreement itself, a copy of which is attached to
this Proxy Statement at Supplement A. Any conflict between the following
description and the actual terms of the Agreement shall be resolved by reference
to, and in favor of, the actual Agreement.
Acquisition of UBI: Pursuant to the Agreement, the Company has agreed
to buy from Inversiones all of the outstanding shares of UBI (there are 100,000
shares outstanding). The Company would pay for the UBI shares by issuing to
Inversiones 5,500,000 shares of the Company's Common Stock. The shares of Common
Stock proposed to be issued to Inversiones would constitute approximately 49.8%
of the Company's outstanding Common Stock after the Acquisition is consummated.
As a consequence of the Acquisition, UBI would become a wholly-owned subsidiary
of the Company.
Election of Director: The Company has also agreed under the Agreement
to seek shareholder approval for the election or appointment of one Director to
be nominated by Inversiones.
Guaranty: Under the terms of the Agreement, Inversiones has made a
number of representations and warranties with respect to UBI and UBSN. Each of
these representations and warranties, and the performance by Inversiones of its
indemnity obligations with respect thereto, are unconditionally indemnified and
guaranteed by Golden Eagle, which must indemnify and hold the Company harmless
against any and all losses, damages, costs, and expenses suffered or incurred by
the Company as the result of any breach by Inversiones of any of such
representations, warranties, or indemnities.
Further, Inversiones and Golden Eagle have jointly and severally agreed
to indemnify UBI against any and all claims, losses, and liabilities which UBI
may incur arising out of a guarantee previously given by UBI to an unrelated
third party in connection with a lease of certain property by a former affiliate
of UBI's.
Covenants of Inversiones: The Agreement imposes a series of
restrictions on certain activities by Inversiones for a period of two (2) years
following the closing, including the following:
o No competition: Inversiones will not, directly or indirectly,
engage in any business which competes with the business of UBI or
UBSN in any country in which UBI or UBSN has carried on that
business during the year preceding the closing of the Agreement.
o No solicitation of customers: Inversiones will not solicit or
entice away the business of any customer of UBI or UBSN that has
been a customer of UBI or UBSN during the year preceding the
closing of the Agreement
o No solicitation of employees and contractors: Inversiones will not
solicit, engage, or employ any person who has been employed in a
managerial, supervisory, technical, or sales capacity by, or been
engaged as a consultant to, UBI or UBSN as of the closing or
during the six (6) month period immediately preceding the closing
of the Agreement.
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In addition to the foregoing covenants, Inversiones may not (i)
disclose, divulge, or use any of the confidential information of UBI or UBSN; or
(ii) use any name or trademark that is likely to be confused with any name or
trademark (including but not limited to the "Kingfisher" trademark) that is
owned by, or licensed to, UBI or UBSN in connection with a business of brewing
or trading lager beer, or a business which is substantially similar to such
brewing or trading business carried out by UBI or UBSN.
Conditions to Closing: The closing of the Agreement, and the obligation
of the Company to go forward with the acquisition of the shares of UBI, are
subject to the satisfaction or waiver of each of the following conditions:
o A majority of the Company's shareholders must approve the
Acquisition
o All of the representations and warranties given by Inversiones in
the Agreement must be true as of the closing date
o Inversiones must have complied with certain obligations during the
period between the date on which the Agreement was signed and the
closing date
o The Company must have received a "fairness opinion", in a form
satisfactory to the Special Committee and its independent counsel,
Baker & McKenzie, regarding the proposed acquisition transaction
from Sage Capital LLC (the Board of Directors believes that the
opinion which is attached to this Proxy Statement as Supplement B
will satisfy this obligation).
In addition, under the terms of the Agreement if the holders of more
than 123,457 shares of the Company's Common Stock elect to exercise their
dissenters' rights with respect to the Acquisition, by not voting in favor of
Proposal No. 1 and complying with their other responsibilities as described
below under the heading "Dissenters' Rights", then the Company may, in the
discretion of its Board of Directors, elect not to proceed with the Acquisition.
Related Party Transaction
Because CAS Nominees Ltd., the trustee of Golden Eagle, has the ability
to act in favor of Dr. Vijay Mallya, the Company's Chairman of the Board and
Chief Executive Officer, Dr. Mallya may have beneficial ownership of the Golden
Eagle, which would therefore cause him to have a material financial interest in
Golden Eagle. Golden Eagle is the sole (100%) owner of Inversiones, which in
turn owns UBI.
Golden Eagle also holds a controlling interest in United Breweries of
America, Inc., a Delaware corporation ("UBA"), through a subsidiary. UBA is the
Company's principal shareholder, with direct ownership of 3,087,818 shares, or
55.6%, of the Company's currently outstanding voting Common Stock. UBA also has
an agreement with certain of the Company's original founders which grants to UBA
a right of first refusal to purchase an additional 882,547 shares. Dr. Mallya is
the Chairman of the Board and Chief Executive Officer of UBA. Through
Inversiones and UBA, therefore, Golden Eagle owns or controls a majority of the
voting stock of both of the principal parties to the Agreement. In adddition,
Dr. Mallya is a member of the board of directors of UBSN.
Mr. R.H.B. Neame has served as the Chairman and Chief Executive Officer
of Shepherd Neame Ltd. for over twenty-five years. Shepherd Neame Ltd. is a
distributor of Kingfisher Lager and has an agreement with UBSN to provide
distribution and other services to UBSN.
Because the Acquisition would be a related-party transaction, a Special
Committee of the Board Directors was created to review and approve the proposed
Acquisition. The members of the Special Committee are Kent Price (Chairman),
Sury Palamand and Michael Laybourn. The Special Committee also the law firm of
Baker & McKenzie to act as its independent counsel and to advise it with respect
to
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the terms and conditions of the Share Purchase Agreement. The Company also
obtained, from Sage Capital, L.L.C., an independent opinion as to the fairness
of the proposed Acquisition, from a financial point of view, to the Company's
shareholders (including shareholders other than UBA). A copy of that fairness
opinion is attached to this Proxy Statement as Supplement B. For a brief
description of the fairness opinion, please also see "PROPOSAL NO. 1 - Fairness
Opinion," below.
At present, the U.S. distribution agent for Kingfisher Lager beer in
the United States is American United Breweries Int'l., Inc. ("AUBI"), a company
which is affiliated with Inversiones and Golden Eagle, although there is no
formal distribution agreement between UBI and AUBI for this purpose. After the
proposed Acquisition is consummated, UBI anticipates terminating this
relationship (as it relates to the distribution of Kingfisher beer) and entering
into a separate distribution agreement to grant the rights for the United States
and Canada to the Company. AUBI will, however, continue to distribute other
beers in the United States which compete with the Kingfisher brand (in the same
market niche), notably the Flying Horse and Tajmahal brands.
The Company's Principal Reasons for the Acquisition
The Special Committee has unanimously determined that the terms of the
proposed Acquisition are fair to, and in the best interest of, the Company and
its shareholders. On the basis of the recommendation of the Special Committee,
the Company's full Board of Directors has also approved the proposed Acquisition
(Mr. Mallya and Mr. Neame, being interested parties to the transaction,
abstained from that vote).
These decisions were based on several potential benefits of the
transaction that the Special Committee and Board believe will contribute to the
success of the Company, including: (a) adding cash flow and financial strength
to the company; (b) providing impetus to the Company's long-term goal of meeting
the conditions necessary satisfy the requirements to be listed on the NASDAQ
SmallCap Market instead of on the Pacific Stock Exchange; (c) increasing the
attractiveness of the Company to outside investors by combining the business of
UBSN with the Company; (d) adding brand strength due to Kingfisher's reputation
as an established international brand; (e) enabling the Company's stock to
become a more viable "currency" for additional brand acquisitions; (f) providing
additional activity to the Company's current manufacturing facilities through
Kingfisher's proven sales volumes; and (g) utilizing the distribution strength
of UBSN to market the Company's specialty ales in Europe and elsewhere.
The Special Committee reviewed a number of factors in evaluating the
Acquisition, including, but not limited to, the following: (a) historical
information concerning the Company's and UBSN's respective business focus,
financial performance and condition, operations, technology, and management; (b)
management's view of the financial condition, results of operations, and
businesses of the Company and UBSN before and after giving effect to the
Acquisition and the Board's determination of the Acquisition's potential effect
on stockholder values; (c) current financial market conditions and historical
stock market prices, volatility and trading information; (d) the consideration
the Company will exchange in the transactions in light of comparable
transactions; (e) the belief that the terms of the Agreement are reasonable and
fair, from a financial point of view, to all of the Company's shareholders; (f)
the impact of the transactions on customers and employees; (g) results of the
due diligence investigation of UBI and UBSN conducted by the Company's
management, accountants and counsel; (h) the expectation that the transactions
will be accounted for as a purchase; and (i) review of the valuations of
comparable companies.
The Special Committee also identified and considered a number of
potentially negative factors in its deliberations concerning the Acquisition,
including among others the risk that the potential benefits of the transactions
may not be realized and the possibility that the Acquisition may not be
consummated.
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On balance, however, the Special Committee concluded that the potential
benefits of the Acquisition to the Company and its shareholders outweighed the
associated risks. The discussion of the information and factors considered by
the Special Committee is not intended to be exhaustive. In view of the variety
of factors considered in connection with its evaluation of the transactions, the
Special Committee did not find it practicable to quantify or otherwise assign
relative weight to, the specific factors considered in reaching its
determination.
Inversiones' Principal Reasons for the Acquisition
The Board of Directors of Inversiones has also concluded that the
Acquisition would be fair to and in the best interests of Inversiones and its
shareholders.
The decision by Inversiones' Board of Directors to enter into the
Agreement was based on several potential benefits of the Acquisition to
Inversiones, including the belief that the businesses of UBI and UBSN complement
the operations, business, and financial condition of the Company. In addition,
the acquisition of UBI by the Company may help accelerate UBSN's growth rate,
especially with respect to its United States markets.
Inversiones' decision to proceed with the Acquisition resulted from its
consideration of a number of alternatives, including its long-range plans to
continue operating as an entity independent of the Company. Among the factors on
which Inversiones based its decision were the following: (a) finding and
securing the strategic alternative that would provide the greatest value to
Inversiones' shareholders; (b) the current and potential market value of the
Company's Common Stock; (c) the likelihood of completing and effecting the
Acquisition; (d) the risks to UBI and UBSN if the Acquisition is not effected;
(e) the results of reviews conducted by Inversiones' management and advisors
investigating the Company's business, operations, technology and competitive
position, and possible expansion opportunities for UBI and/or UBSN; and (f)
review of the current and prospective future business environment in which UBI
and UBSN operate.
Inversiones' Board of Directors believes that the Acquisition will
provide UBI and UBSN the opportunity to increase their business relationships in
the United States through their connection with the Company, and that through
closer relationships with the Company and potential relationships with other
companies with which the Company does business, UBI and UBSN may be able to
significantly increase their volumes and accelerate and enhance their product
offerings. This would presumably enhance the value of the current investments of
Inversiones and its parent, Golden Eagle Trust, in the Company.
The Board of Directors of Inversiones considered a number of negative
factors in its review of the potential benefits and drawbacks of the
transactions, including among others: (a) the risk that the Acquisition might
not be completed; (b) the possibility of disruption of management in connection
with effecting the Acquisition and integrating the operations of the companies;
(c) the possibility that key personnel might leave UBI and UBSN after the
Acquisition is completed; and (d) the risk that the benefits anticipated in
connection with the Acquisition will not be realized.
Inversiones' Board of Directors concluded, however, that the potential
benefits to Inversiones and its shareholders of the Acquisition outweighed the
risks associated with the Acquisition.
History of the Acquisition
During its March 18, 1998 Meeting, the Board discussed the possibility
of acquiring certain brands and companies in the microbrewery industry. The
Board decided to pursue some specific opportunities, including among others the
acquisition of UBI.
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At the Board Meeting held on May 11, 1998, the Board again discussed
the feasibility of a transaction with UBI, in this case, the acquisition of its
wholly-owned subsidiary UBSN.
The Board again discussed the feasibility of various acquisition
opportunities at its October 6, 1998 Meeting. During that Meeting, the Board
focused on the acquisition of UBSN and the U.S. distribution capabilities of
American United Breweries, Inc ("AUBI"). At this Meeting, the Board formally
appointed a Special Committee of disinterested Directors, consisting of Kent
Price (Chairman), Sury Rao Palamand, and Michael Laybourn, to consider various
aspects of a few of the proposed transactions, including the proposed
acquisition of UBSN and AUBI. The Special Committee was also authorized to
select an independent investment banker to review any potential transaction and
provide the Company with a fairness opinion regarding it and to advise the Board
on how the Company might obtain funding for any proposed transaction, if
necessary.
After reviewing proposals from several financial advisors, the Special
Committee selected Black & Co. as its financial advisor and engaged Baker &
McKenzie as independent Counsel to the Committee, On January 5, 1999, at the
invitation of the Special Committee, Black & Co. made a presentation to the
Board with respect to issues related to a proposed acquisition of UBI. Dr. Vijay
Mallya and Mr. R.H.B. Neame, being interested Directors, did not take part in
the Board's discussions at this Meeting, except to express their views on the
valuation of the proposed transaction. The individuals with whom the Company was
working at Black & Co., subsequently formed Sage Capital, LLC, and the Company
has since engaged Sage Capital, LLC to act as its financial advisor with respect
to the Acquisition.
At the May 1, 1999 Company Board Meeting, Mr. Price informed the Board
that in view of the Company's revised budget, changes taking place at Black &
Co., and the need for further analysis, the proposed transaction with
Inversiones would be delayed. He stated that the financial advisory principals
of Black & Co. left the Company in April, 1999, and formed Sage Capital, LLC and
that Black & Co. on April 9, 1999, had agreed to having Sage Capital satisfy its
commitments and undertakings with respect to the above transaction as they were
most familiar with it. Mr. Price stated that as soon as Sage Capital, LLC
completed its evaluation of UBSN and AUBI, a formal offer to acquire UBSN would
be made to UBSN's Board of Directors. The offer was expected to be made before
June 15, 1999.
On May 25, 1999, the Special Committee made an offer to purchase UBSN
and UBI in exchange for 5,000,000 shares of Company Common Stock. The offer for
UBSN included the distribution rights for Kingfisher Beer in the U.S. outside of
the current U.S. Indian Restaurant distribution. In its offer, the Special
Committee stated that it would not make an offer on AUBI.
At the Meeting of the Board held on August 30, 1999, Mr. Price reported
that the Company was still waiting for a response to its offer to acquire UBI
from Inversiones.
On October 1, 1999, Mr. Price, on behalf of the Board, sent a letter to
the Board of Directors of Inversiones, offering to acquire UBI and UBSN in
exchange for 5,000,000 shares of Company Common Stock, subject to normal due
diligence processes. The Board of Directors of Inversiones accepted this offer
and the offer letter was signed and returned to the Company by the President of
Inversiones on October 10, 1999.
At the Board Meeting held on December 2, 1999, Mr. Price informed the
Board that the Company had received the acceptance of the proposed form of
transaction to acquire UBSN from its parent, Inversiones. The Board decided that
the proposed transaction should be consummated by the end of March, 2000.
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On January 25, 2000 the Special Committee had a meeting with its
Counsel John McKenzie of Baker & McKenzie. At this meeting the Special Committee
discussed structural details of the acquisition of UBI and UBSN. The possibility
of acquiring the exclusive U.S. distribution rights to Kingfisher Lager, and the
economics of entering into an optional Brewing Agreement to brew Kingfisher
Lager at the Saratoga Brewing Facility, were discussed. In addition, the Special
Committee discussed the eventual intent of listing the Company's Common Stock on
the Nasdaq Small Cap market.
On March 29, 2000, the Company announced that it intended to enter into
two concurrent related party transactions -- the acquisition of UBSN and the
U.S. distribution rights for Kingfisher Lager.
On April 15, 2000 the Special Committee had a conference call with Sage
Capital, LLC ("Sage") during which the final transaction between the Company and
UBI was discussed. It was recommended by Sage that the current transaction
involving the acquisition of UBSN and the U.S. distribution rights to Kingfisher
Lager, structured as two concurrent related party transactions, should be
consolidated into a single transaction. In order to consolidate these two
transactions, it was agreed to ask the controlling shareholders of UBI to merge
the exclusive U.S. distribution rights to Kingfisher Lager into UBI, prior to
the transaction.
On April 27, 2000, the parties agreed to increase the number of shares
of Company Common Stock to be issued to Inversiones as the purchase price for
UBI, because, prior to the proposed transaction, UBI would be acquiring the
exclusive right to distribute and brew Kingfisher brand beer in the United
States. The Company agreed to increase the compensation to be paid to
Inversiones by 500,000 shares, bringing the total purchase price up to 5,500,000
shares of the Company's Common Stock.
On May 17, 2000, the Directors of UBI confirmed that the merger of the
exclusive U.S. distribution rights to Kingfisher Lager into UBI, the parent of
UBSN, was complete. Therefore, a single transaction including the acquisition of
UBSN, by acquiring its parent UBI which also includes the exclusive U.S.
distribution rights to Kingfisher Lager, could now take place.
On June 2, 2000, the Company made an offer to Inversiones to amend the
original offer dated October 1, 1999 and accepted October 10, 1999, to reflect
the completed merger of the exclusive U.S. distribution rights to Kingfisher
Lager into UBI. The Company offered an additional 500,000 shares for the U.S.
distribution business, bringing the total purchase price up to 5,500,000 shares
of the Company.
On June 10, 2000 Inversiones accepted the amended offer, confirming the
total compensation of 5,500,000 shares of the Company to Inversiones for all of
the issued and outstanding shares of UBI, the parent company of UBSN.
On October 2, 2000 the Special Committee made its final recommendation
to the Board as to the advisability and potential structure of the proposed
Acquisition. At that Meeting, the Board voted unanimously (Messrs. Mallya and
Neame abstaining) to accept the report and recommendations of the Special
Committee and to pursue the Acquisition on the terms described elsewhere in this
Proxy Statement.
Comparison of Shareholder Rights
The proposed transaction will not change the rights of the Company's
existing shareholders, although they will experience substantial immediate
dilution as a result of it. The Company believes that the Acquisition should be
considered an accretive transaction because after the consummation of the
Acquisition the value of the Company's Stock will also include the value of UBI.
In looking at the two companies' financial results for the year ended December
31, 1999, UBI showed a profit for the year,
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while the Company suffered a loss. If the Acquisition had taken place in 1999,
it would have decreased the net amount of loss, thereby increasing the value of
the shares to the Company's shareholders.
Consequences of Failure to Approve the Acquisition
If the shareholders of the Company fail to approve the purchase of UBI
from Inversiones, the Acquisition will not take place as it is currently
envisioned and the Company will, for the present, continue its business as a
separate entity. It will not have purchased UBI and its wholly-owned subsidiary
UBSN. In addition, it will not have purchased the exclusive rights to market and
distribute the Kingfisher brand in the United States and Canada, and must
continue to rely on its existing brands for revenues. As described in the
Company's Annual Report to Shareholders which was distributed prior to this
Proxy Statement, the Company operated at a loss during 1999, and can offer no
assurance that it will turn a profit in the future. It is possible that
management of the Company will continue to seek out candidates for combination
with the Company, but the Company can offer no assurance that management will
successfully locate a suitable candidate or that it will be able to consummate
any such transaction.
Fairness Opinion Of the Company's Financial Advisor
The Company retained Sage Capital LLC ("Sage") to act as financial
advisor to the Company in connection with the evaluation of certain elements of
the Company's acquisition strategy. Pursuant to this engagement, Sage was asked
to render an opinion to the Company's Board of Directors as to whether the
equity consideration to be paid for UBI pursuant to the Agreement is fair to the
shareholders of the Company from a financial point of view. Sage was not
requested to, and did not, make any recommendation to the Company's Board of
Directors as to the number of shares or the amount of cash consideration from
the Company to be issued to and received by Inversiones pursuant to the
Agreement, which numbers were determined through arm's-length negotiations
between the Company and Inversiones.
As of November 3, 2000, Sage delivered its written opinion to the
Company Board that, as of such date and based upon and subject to certain
assumptions and other matters described in its written opinion, the total
consideration to be paid by the Company pursuant to the Agreement in exchange
for all of the equity of UBI is fair to the shareholders of the Company from a
financial point of view. Sage's opinion is addressed to the Board of Directors
of the Company, is directed only to the financial terms of the Agreement, and
does not address the underlying business decision of the Company and Inversiones
to engage in the Acquisition and does not constitute a recommendation to any
shareholder of the Company as to how such shareholder should vote at the Annual
Meeting.
The complete text of the November 3, 2000 opinion (the "Sage Opinion"),
which sets forth the assumptions made, matters considered, and limitations on
and scope of the review undertaken by Sage, is attached to this Proxy Statement
as Supplement B, and the summary of the Sage Opinion set forth in this Proxy
Statement is qualified in its entirety by reference to the Sage Opinion. The
Company's shareholders are urged to read the Sage Opinion carefully and in its
entirety for a description of the procedures followed, the factors considered,
and the assumptions made by Sage.
In arriving at its Opinion, Sage, among other things, (i) reviewed the
Agreement; (ii) reviewed certain other documents relating to the Agreement;
(iii) reviewed certain publicly available information concerning the Company;
(iv) held discussions with members of senior management of the Company
concerning the business prospects of the Company, including such management's
views as to the organization of and strategies with respect to the Acquisition;
(v) reviewed certain operating and financial information prepared by the
managements of the Company and UBI; (vi) reviewed the recent reported prices and
trading activity for the common stock of certain other companies engaged in
businesses Sage
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considered comparable to that of the Company and compared certain publicly
available financial data for those comparable companies to similar data for the
Company; (vii) reviewed the financial terms of certain other merger and
acquisition transactions that Sage deemed generally relevant; and (viii)
performed and considered such other studies, analyses, inquiries, and
investigations as Sage deemed appropriate. Sage was not, to the best of its
knowledge, denied access by the Company or UBI to any requested information and
no restrictions were placed on Sage with respect to the procedures followed by
Sage in rendering its opinion.
Sage assumed and relied upon, without independent verification, the
accuracy and completeness of the information it reviewed for the purposes of its
opinion. With respect to the financial information of the Company and UBI, Sage
assumed that such information was complete and accurate in all material respects
and had been reasonably prepared on bases reflecting the best currently
available estimates and judgments of management of such companies, at the time
of preparation, of the operating and financial performance of the Company and
UBI. Sage also assumed that there were no material changes in the Company's or
UBI's assets, financial condition, results of operations, business, or prospects
since the date of their last financial statements made available to Sage and
that all material liabilities (contingent or other, known or unknown) of the
Company and UBI are as set forth in the financial statements. Sage did not
prepare or obtain any independent evaluation or appraisal of the assets or
liabilities of the Company and UBI, nor did Sage conduct a physical inspection
of the properties and facilities of the Company and UBI in connection with its
opinion. The Sage Opinion states that it was based on economic, financial and
other conditions existing as of the date of such opinion. Sage does not have any
obligation to update, revise or reaffirm its opinion. Furthermore, Sage
expressed no opinion as to what the value of the Company's Common Stock will be
when issued pursuant to the Agreement or the prices at which the Company's
Common Stock will trade at any time.
Based upon this information, Sage performed a variety of financial
analyses of the Acquisition. The following paragraphs briefly summarize the
principal financial analyses performed by Sage in arriving at its opinion
delivered to the Company's Board of Directors. Such analyses are based on a
number of assumptions, including among other things, the projected performance
of the Company and UBI and the comparable public companies.
Contribution Analysis. Sage reviewed the pro forma contribution of the
Company and UBI to estimated combined financial results for the twelve (12)
months ending December 31, 1999, the nine (9) months ending September 30, 2000
and the twelve months ending December 31, 2001. Sage reviewed, among other
things, pro forma contributions to total revenues, earnings before interest,
taxes, depreciation and amortization ("EBITDA") and earnings before interest and
taxes ("EBIT"). Based on this analysis, for the nine months ending September 30,
2000, the Company contributed 42.8% of pro forma combined total revenues, 47.9%
of pro forma combined EBITDA, and 29.4% of pro forma EBIT. For the twelve months
ended December 31, 2001, the Company will contribute 50.4% of pro forma combined
total revenues, 40.9% of combined EBITDA, and 20.6% of pro forma EBIT. As of
September 30, 2000, the Company will contribute 81.2% of total assets and 91.1%
of shareholders' equity.
Comparable Company Analysis. Sage compared selected historical and
projected operating and stock market data and operating and financial ratios for
the Company to the corresponding data and ratios of certain publicly traded
companies which it deemed generally comparable to the Company. Such data and
ratios included market value to historical and projected revenue, market value
to historical and projected earnings before taxes ("EBT"), market value to
historical and projected net income and market value to historical book value.
Companies deemed to be generally comparable to the Company included Boston Beer,
Minnesota Brewing, Pyramid Brewing and Redhook Ale Brewery.
16
<PAGE>
For the comparable companies, the multiples of market value to last
twelve months ("LTM") book values ranged from 0.22 to 9.62 with a mean of 3.04;
market value to LTM net income was 12.5 for the only comparable company that
earned a profit in the last twelve months; and market value to LTM sales ranged
from 0.4 to 0.7 with a mean of 0.6. These ratios compared with the following
ratios for the Company, calculated on the $0.94 per share price of the Company
Common Stock at its most recent closing price prior to November 6, 2000: market
value to book value of 0.52, market value to LTM net income is not meaningful
due to the Company's loss for the period, and market value to LTM sales of 0.57.
Comparable Transaction Analysis. Sage also analyzed publicly available
financial information for 73 selected U.S. and international mergers and
acquisitions with aggregate transaction values up to $3.5 billion (the
"Comparable Public Company Transactions") of companies in the malt beverage
industry since 1998. For these transactions, the mean value of market
capitalization to sales was 1.6, the mean value of market capitalization to
EBITDA was 5.7, and the mean value of market capitalization to LTM earnings was
16.9 times.
No company or transaction used in any comparable transaction analysis
as a comparison is identical to the Company or UBI. Accordingly, these analyses
are not simply mathematical; rather, they involve complex considerations and
judgments concerning differences in the financial and operating characteristics
of the comparable companies and other factors that could affect the public
trading value of the comparable companies and the transactions to which they are
being compared.
The preparation of a fairness opinion involves various determinations
as to the most appropriate and relevant quantitative and qualitative methods of
financial analysis and the application of those methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
summary description. Accordingly, Sage believes that its analyses must be
considered as a whole and that considering any portions of such analyses and of
the factors considered, without considering all analyses and factors, could
create a misleading or incomplete view of the evaluation process underlying its
opinion. In performing its analyses, Sage made numerous assumptions with respect
to industry performance, general business and economic conditions and other
matters, many of which are beyond the control of the Company or UBI. Any
estimates contained in these analyses are not necessarily indicative of actual
values or predictive of future results or values, which may be significantly
more or less favorable than as set forth therein. Additionally, analyses
relating to the values of businesses or assets do not purport to be appraisals
or necessarily reflect the prices at which businesses or assets may actually be
sold.
Sage is a regional investment banking firm based in Portland, Oregon.
As part of their investment banking services, the principals of Sage are
regularly engaged in the business of advising the managements and boards of
directors of corporations regarding the issuance of securities, providing
advisory services for mergers and acquisitions, issuing fairness opinions and
providing market valuations. The Company has agreed to pay Sage for its services
in connection with the transaction, including the delivery of its fairness
opinion, a fee of $75,000, of which the balance of $50,000 is due upon delivery
of its fairness opinion. The Company has also agreed to reimburse Sage for
reasonable out-of-pocket expenses and to indemnify Sage against certain
liabilities relating to or arising out of services performed by Sage as
financial advisor to the Company.
Accounting Treatment
The Acquisition will be accounted for by the purchase method of
accounting and accordingly, the operating results of UBI and UBSN will be
included in the Company's consolidated results of operation from the date of the
Acquisition. Any excess of consideration given over the fair value of net assets
17
<PAGE>
acquired will be recorded as goodwill. Representatives of Moss Adams, LLP, the
Company's independent auditors, are expected to be present at the Annual
Meeting, will be invited to make a statement if they so desire, and are expected
to be available to answer appropriate questions from the shareholders.
U.S. Federal Income Tax Consequences
The following discussion summarizes the material federal income tax
consequences relevant to the Company and its stockholders in connection with the
Company's acquisition of all of the outstanding shares of UBI. This discussion
is based on currently existing provisions of the Internal Revenue Code, existing
and proposed Treasury Regulations thereunder, and current administrative rulings
and court decisions, all of which are subject to change. Any such change, which
may or may not be retroactive, could alter the tax consequences to the Company
and its shareholders as described herein. The Company is not requesting and will
not request a ruling from the Internal Revenue Service in connection with this
acquisition. In addition, the Company has not requested an opinion of counsel
regarding the tax consequences of this acquisition.
The acquisition of the shares of UBI should be considered a statutory
reorganization under Internal Revenue Code section 368(a)(1)(B), and therefore
should not create a taxable transaction. As a result, the Company should not
recognize gain or loss with respect to the transaction, and the assets acquired
should maintain a carryover basis. There should be no tax consequences to the
Company's shareholders with respect to this acquisition.
Market Information
On March 28, 2000, the last full day of trading prior to the public
announcement of the proposed transactions, the last reported sale price of the
Company's Common Stock on the Pacific Stock Exchange was $0.8125 per share.
There is no public market for UBI's Common Stock. Inversiones owns 100%
of the issued and outstanding shares of UBI. UBI has never paid a dividend on
its Common Stock and does not anticipate paying dividends in the near future.
More Information about the Company
The following additional material, all of which has been filed by the
Company with the SEC and is publicly available on the SEC's website
(www.sec.gov), is incorporated herein by reference:
o The following sections of the Company's Annual Report on Form
10-KSB for the year ended December 31, 1999, all of which are
contained in the Company's Annual Report to Stockholders
distributed pursuant to Exchange Act Rule 14a-3: "Description of
Business," "Description of Property," "Legal Proceedings," "Market
for Common Equity and Related Stockholder Matters," and
"Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Financial Statements."
o The Company's Quarterly Report on Form 10-QSB for the quarter
ended September 30, 2000.
The information incorporated by reference is deemed to be part of this
Proxy Statement, except for any such information superseded in the Proxy
Statement.
18
<PAGE>
Information about UBI and UBSN
Overview
UBI's primary function is to serve as a holding company for UBSN. UBSN
sells, markets and distributes alcoholic beverages. Its operation is based at
Faversham, Kent, in England, close to the brewery of Shepherd Neame Ltd.,
licensed brewers of Kingfisher Lager in the United Kingdom (the "U.K"). UBSN's
portfolio of products includes Kingfisher Lager (bottled and draught), as well
as Kalyani Export Special Indian Lager and Grover Wines, both of which are
imported from India to be sold in Indian restaurants.
UBSN promotes Kingfisher a premium Indian style Lager brand within the
U.K. and Continental Europe. Kingfisher is an international brand and is
currently distributed in over 30 countries. It is a two time World Champion
Lager, winning at the World Beer Championships at Stockholm, Sweden. Over the
last several years, Kingfisher has consistently been ranked in the top ten
fastest growing beer brands in the United Kingdom. On November 7, 2000, UBSN
sponsored Kingfisher National Curry Day, for the fourth consecutive year. In the
near future, UBSN hopes to sponsor a new event: the Kingfisher Curry Capital of
Britain.
UBSN is the sole distributor of Kingfisher Lager in the U.K., Ireland,
and Continental Europe. In the U.K., UBSN's business is reliant on the niche
Indian Restaurant Sector ("IR Sector") to the extent that total sales volume is
derived from sales to the IR Sector. In the U.K., Kingfisher has a share of
approximately 22% of the IR Sector market through some 6,500 licensed Indian
restaurants. In addition, recently, UBSN has reached an agreement with the J.D.
Witherspoons restaurant chain to carry Kingfisher Lager. J.D. Witherspoons
currently has 434 outlets throughout the U.K., with an additional 100
anticipated to open in the next twelve months. J.D. Witherspoons has recently
promoted Indian fare through a successful promotion on Thursday evenings, J.D.'s
Curry Club Night.
UBSN also distributes Kingfisher Lager in the U.K. and Ireland through
the Cash & Carry and J. Sainsbury chains of supermarket stores. Kingfisher had
major national exposure through J. Sainsbury when the store conducted a
nationwide launch of a promotional campaign in the summer of 2000. The
advertising campaign was centered around a national celebrity and was featured
in all 360 J. Sainsbury stores throughout the U.K. The campaign featured end of
aisle displays featuring recipes and ingredients; Kingfisher Lager was the
recommended beverage to accompany a recipe.
A recent increase in popularity of Indian food in the U.K. has also
extended to the take-home market. Recently, a major soccer event and the Sydney
Olympics brought disruption to the restaurant trade when the population remained
either at home or in pubs to watch the events. In contrast, supermarkets and
off-brand stores saw an increase in take-home sales during those events. UBSN is
pursuing new distribution possibilities in other U.K. chain supermarket stores.
In addition, Kingfisher is exported to 16 European markets and to the U.S. and
Canadian markets.
UBSN does not physically distribute its products to its ultimate trade
customers, relying instead on specialist restaurant trade wholesaler in the U.K.
Shepherd Neame Ltd. acts as UBSN's agent, on a commission basis, in the
supermarket trade.
Company Background
UBI (distributors of Kingfisher Lager) and Shepherd Neame Limited
(licensed brewers of Kingfisher Lager) formed UBSN Limited in August 1989 as a
50-50 joint venture. Key personnel from both companies provided their services
to UBSN in order to develop the Kingfisher brand in the U.K.
19
<PAGE>
and Europe and to distribute the brand to North America. In 1998, UBI purchased
all of Shepherd Neame's stake in UBSN and in consideration, entered into a ten
year brewing agreement with Shepherd Neame.
Premises
UBSN currently has 4 years of a 6 year lease remaining for offices
located in Faversham, Kent, England.
Employees
UBSN has no employees. However, there are fourteen individuals who
provide their services to UBSN. All fourteen are employed either by UBI, or
Shepherd Neame Limited and are assigned by their respective employers to provide
services to UBSN. Of the fourteen individuals who provide services to UBSN, nine
are members of the sales force, three serve in administrative positions, and
individuals also serve in the following roles: Managing Director, Marketing
Director, and Accountant. The latest sales representative to join UBSN began
working for UBSN during the year 2000.
Products & Sizes
UBSN's business presently consists of the selling, marketing and
distribution of three product lines. The first is Kingfisher Lager, the sales of
which accounted for 98.5% of the Company's total gross sales during 1999, up
from 96.7% in 1998. The other products, Kalyani Export Special Indian Lager and
Grover Wines, accounted for 1.5% of the Company's total gross sales during 1999.
UBSN makes available and distributes its Kingfisher Premium Lager Beer
in bottles and kegs. During 2000, UBSN made the decision to shift its emphasis
on selling forty-liter kegs, the old industry standard, to fifty-liter kegs, the
new industry standard. UBSN is also the exclusive European distributor of four
wines from Grover Vineyards Limited. Grover Vineyards is now producing Cabernet
Sauvignon, Shiraz red, Clairette Blanc de Blanc, and Grenache rose wines. All
wines are available in cases.
Until recently, UBSN also distributed Kalyani Export Special Indian
Lager, which is produced and bottled in India, in 350 ml bottles as well as in
650 ml bottles. However, UBSN launched sales of a new 660 ml bottle of
Kingfisher Lager in July of 2000, with the intent of spreading the new size
throughout the United Kingdom prior to a planned trade and restaurant
promotional drive in November of 2000. All key distributors stocked the 660 ml
bottle by the end of September and sales of the new bottle helped drive
Kingfisher volume sales for the nine-month period ending September 30, 2000,
twelve percent (12%) ahead of the corresponding period of 1999. As a result of
the success of the introduction of the 660 ml Kingfisher bottle, it was no
longer necessary to import the Kalyani product of a similar size, therefore
sales of the 650 ml product have been discontinued, and UBSN currently sells the
Kalyani Lager in 350 ml bottles only.
United Kingdom Overview
Economically, the U.K. has remained reasonably steady over the past few
years in terms of growth of economy, interest rates, and inflation. However, the
U.K. Pound Sterling has strengthened against most European currencies, and in
particular, against the Euro. This has encouraged investment in retail
businesses in the U.K., in particular the food and drink retail businesses.
Companies which have historically been involved in beer brewing and distributing
activities in the U.K. have been expanding into other segments, such as food and
drink retail, leisure, and hotel/hospitality.
20
<PAGE>
At the same time, in recent months and since the entry of superstores
such as Wal-Mart, the U.K. has experienced a price discount war, with suppliers
put under extreme pressure to bear the cost of the cuts in retail prices. An
all-party parliamentary committee was recently engaged to analyze the effects of
the economic climate on the large retail food chains, and determined that the
four largest retail food chains were not making excessive profits.
Results of Operations
The following tables set forth, as a percentage of net sales, certain
items included in UBI's Profit and Loss Account. See Financial Statements and
Notes thereto.
-------------------------------------
Year Ended December 31
-------------------------------------
1999 1998
Profit and Loss Account: % %
Net Sales 100.00 100.00
Costs of Sales 65.48 64.37
------ ------
Gross Profit 34.52 35.63
------ ------
Distribution and Selling Expenses 21.19 21.92
------
General and Administrative Expenses 8.83 9.04
------ ------
Total Operating Expenses 30.02 30.96
------ ------
Profit From Operations 4.50 4.67
Litigation Expense 1.70 1.31
Disposal of Fixed Assets 0.30 --
Other Income 0.39 --
Interest Expense 1.00 1.26
------ ------
Profit before income taxes 2.51 2.09
Income taxes on Profit 0.86 0.76
Other Items 0.31 0.13
------ ------
Net Profit 1.97 1.21
====== ======
Net Sales
UBI and UBSN's consolidated net sales for 1999 increased by almost 6%
over 1998 due in part to the Kingfisher brand's growth in the Indian restaurant
niche. UBI ended the year 1999 with a net profit of $234,025. This increase in
sales contributed to the increase in profit from $135,638 in 1998 to $234,025 in
1999. Net sales for 1999 increased by about 5% from $11,249,617 in 1998 to
$11,866,596 in 1999. Sales for the nine month period of 2000 ending September
30, 2000, were $9,383,000.
UBSN's sales in the United Kingdom increased by 7.9%from $9,467, 927 in
1988 to $10,217,665 in 1999. Export sales increased by 13.4%from $1,421,371 to
$1,611,092. Sales volume in the United
21
<PAGE>
Kingdom measured in Brewers Barrels increased by 9.1% from 1998 to 1999. The
export sales volume increased by 15.6% over the same period. Management
attributes the small increase in sales to an extremely competitive situation in
the Indian restaurant market and also the continued strength of the United
Kingdom Pound against other European currencies. On January 1, 2000 UBSN
effected a price increase of 2.5% on Kingfisher products, therefore, sales in
2000 may reflect a corresponding change.
Cost of Goods Sold
Cost of goods sold as a percentage of UBI and UBSN's consolidated net
sales remained relatively constant, increasing in 1999 to 65.48% when compared
to that of 64.37% in 1998.
Gross Profit
As a result of the higher net sales as explained above, UBI and UBSN's
consolidated gross profit increased in 1999 to $4,102,985 from $4,007,860 for
the comparable period of 1998, representing a slight increase of 2.3%. As a
percentage of net sales, the gross profit during 1999 stayed relatively
constant, decreasing to 34.52% from that of 35.63% for the corresponding period
of 1998.
Operating Expenses
Operating expenses were $3,563,270 in 1999, as compared to $3,482,842
for 1998, representing an minor increase of only 2.3%. Operating expenses for
the nine months ended September 30, 2000 were $2,595,900. Operating expenses
consist of selling, marketing, and distribution expenses, and general and
administrative expenses.
Operating expenses have been increasing over the years, generally due
to UBSN's growth in the industry, for example, transportation and commission
costs have risen. This may be attributed generally to the increase in volume of
business to the U.S. over the past few years. Also, because sales to
supermarkets have increased, the commissions to agents which serve this market,
such as Shepherd Neame Ltd., have risen accordingly. In addition, there has been
an increase over the past few years in freight rates and oil prices. There have
also been increases in government duties, for example, there was a minor
increase in the rate of excise duty on beer and wine in April, 2000.
UBSN has also incurred more costs with regard to personnel. An
additional staff member was recruited in 2000 to assist in the sales office, in
addition to the sales personnel which were added to the London and Midlands
markets. Also UBSN implemented an annual raise in compensation for its
personnel. Travel expenses have risen as the directors have been expanding their
focus to the Continent and overseas.
There has been a slight increase in advertising and promotion costs in
recent months. The increase arises out of UBSN's promotional costs incurred in
the launch of the new 660 ml bottle size for Kingfisher Lager.
UBSN has experienced a decrease in some expenses. Although there was in
increase in expenses in 1999 associated with equipping UBSN's new offices, the
majority of those expenses were initial, non-recurring outlays, therefore those
expenses have fallen in 2000. Also, until 2000, UBSN maintained a small central
London office to work on sponsorship, which caused redundancies of many
expenses, including staffing and personnel costs. Closure of this office has cut
expenditures for sponsorship; the sponsorship expenses to date in 2000 have been
entirely made up of costs and expenses related to UBSN's sponsorship of the
Kingfisher National Curry Day on November 7, 2000.
22
<PAGE>
Litigation Expense
The provision for litigation expense for the year 1999 increased by 37%
over the provision for litigation expense in 1998. The increase was due to a
dispute with a major distributor, German Lager Importers, Ltd. over an amount
which is now in creditors' voluntary liquidation. In October of 2000, UBSN
received a settlement for the debt owed by German Lager Importers and will be
reimbursed for the full costs incurred in the litigation. A counter claim of
breach of contract against UBSN has been dismissed. UBSN anticipates that its
litigation expense for the year 2000 will be less than in 1999.
Interest Expense
UBI and UBSN's consolidated interest expense on bank overdrafts and
other credit facilities was $119,105 in 1999, down from $141,681 in 1998.
Interest expense for the nine month period ending September 30, 2000 was
$66,300.
Net Profit
The consolidated net profit for the year 1999 was $234,025 as compared
to $135,638 for the year 1998, and $196,900 for the nine months ending September
30, 200. As a percentage of net sales, the net profit for the year 1999
represented 1.97% when compared to 1.21% in 1998. Consolidated net profit for
the nine months ending September 30, 2000 was $487,700.
Liquidity and Capital Resources
Short Term Debt. Nedcor Bank has provided UBSN with an approximate
$2,015,000 maximum overdraft facility at an agreed rate of 1.5% over LIBOR. This
facility is secured by all the assets of UBSN, and is used to supplement the
cash flows from operations to sustain UBSN's operations. Approximately
$2,008,968 was outstanding as of December 31, 1999, and approximately $888,604
was outstanding as of September 30, 2000. This credit facility is due for
renewal in December 31, 2000, and although UBSN cannot be certain that Nedcor
Bank will renew the facility under the current terms, UBSN has received no
indication that Nedcor Bank will be unwilling to renew the credit facility for
an additional term.
Trade Creditors. Shepherd Neame Ltd., UBSN's former 50% shareholder,
has agreed to provide the Company with trade credit of an unspecified amount.
The terms of the trade credit allow 45 days for payment for purchases of
Kingfisher brand goods. As of December 31, 1999 UBSN owed approximately
$2,013,869, and as of September 30, 2000, approximately $2,299,976, to Shepherd
Neame Ltd. under this arrangement.
Current Ratio. UBI's ratio of current assets to current liabilities on
December 31, 1999 was 0.92 to 1 and its ratio of total assets to total
liabilities was 1.11 to 1. UBI's ratio of current assets to current liabilities
on September 30, 2000 was 1.03 to 1 and its ratio of total assets to total
liabilities was 1.27 to 1.
Independent Accountants
UBI and UBSN continue to use the London offices of J.M Shah and Company
and Ernst and Young, respectively as their independent accountants. There has
been no dispute with J.M. Shah and Company or Ernst and Young with regard to any
information presented in the financial statements presented in the attachments
hereto.
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<PAGE>
DISSENTERS' RIGHTS
Under California law, the Company is required to offer to purchase each
shareholder's dissenting shares (shares which were not voted in favor of the
Acquisition) for cash at their fair market value on the day before the date that
the material terms of the Acquisition were announced. On March 28, 2000, the day
before the proposed Acquisition was first announced, the closing sale price for
the Company's Common Stock on the Pacific Stock Exchange was $0.8125;
accordingly, that is the price which the Company believes is the fair market
value of the Common Stock for purposes of these dissenters' rights. If you
preserve your right to dissent by not voting in favor of Proposal No. 1 and,
nonetheless, the Acquisition is approved, the Company will mail a notice to you
of the approval of the Acquisition within ten days of the approval. The notice
will state the price it deems to be the fair market value of the shares ($0.8125
per share), and will detail the procedure to follow if you desire to have the
Company purchase your dissenting shares for the stated fair market value. You
must follow the procedure given in the notice by making a written demand that
the Company purchase your dissenting shares within 30 days of receiving the
notice of approval of the Merger. If a Shareholder disagrees with the Company's
determination of fair market value, then there is a procedure for an appraiser
appointed by the court to determine such value.
To preserve the right to have the Company purchase dissenting shares,
you must either (1) vote against the transaction (whether in person at the
Meeting or by proxy), or (2) simply refrain from voting in favor of the
transaction in any way (again, whether personally or by proxy). So, if you
attend the Meeting in person and vote in favor of the Acquisition, or appoint a
proxy holder and that proxy holder votes in favor of the Acquisition, you will
lose your dissenter's rights. The fair market value of the shares that a
dissenting Shareholder may receive in cash, through exercise of Dissenters'
Rights, may be more or less than the value of those shares at the time of the
Annual Meeting, or at the time the proposed Acquisition takes place (if it
does). For instance, as of the close of business on September 30, 2000 (the end
of the last fiscal quarter before the mailing of this Proxy Statement), the
closing sale price for the Company's Common Stock on the Pacific Stock Exchange
was approximately $0.94 per share.
If dissenters' rights are properly demanded with respect to more than
123,457 shares of the Company's Common Stock (which would require the Company to
pay out more than $100,000 to dissenting shareholders), the Company will have
the right to call off the proposed Acquisition entirely, and in that case no
shareholder will have the right to exercise dissenters' rights.
For a detailed discussion of dissenters' rights, please refer to
Chapter 13 of the California Corporations Code, sections 1300 through 1304,
inclusive, which are attached to this Proxy Statement as Supplement C. If
Proposal No. 1 is approved by the shareholders, each shareholder who has voted
against the transaction or refrained from voting for the transaction will
receive a notice within ten (10) days of the approval, setting forth a statement
of the Company's determination of the fair market value of any dissenting
shares, a description of the procedure to be followed if the Shareholder desires
to exercise his or her dissenters' rights, and a copy of the relevant sections
of the Chapter 13 of the California Corporations Code.
VOTE REQUIRED FOR APPROVAL
Approval of the Acquisition requires the affirmative vote of the
holders of a majority of the shares of Common Stock present and voting at the
Annual Meeting. For purposes of this vote, abstentions and broker non-votes will
in effect not be counted.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL NO. 1
24
<PAGE>
PROPOSAL NO. 2 -- AMENDMENT OF THE COMPANY'S BYLAWS
The Company's Bylaws currently authorize a number of Directors between
five (5) and seven (7), allowing the Board of Directors to fix the exact number
within that range. At present, the Board consists of seven Directors, so that
all the available spaces on the Board are currently filled. At the Meeting, the
Shareholders are being asked to approve an amendment to Article II, Section 2.2
of the Bylaws to increase the range of authorized Directors to between five (5)
and nine (9), with the exact number within that range to be set by the Board.
The proposed text of the amended Section 2.2 of the Company's Bylaws is
attached to this Proxy Statement as Supplement D, and is hereby incorporated by
reference into this Proxy Statement. If the proposed amendment is approved by
the Shareholders, the Board intends to increase the size of the Board to eight,
making one additional place available for a new Director. On the assumption that
both Proposal No. 1 and this Proposal will be approved, the Board has nominated
David Townshend to fill the place thus created.
The reason for this Proposal is that, under the terms of the Agreement
referred to in Proposal No. 1, above, Inversiones would have the right to
designate one member of the Company's Board of Directors. Thus, if Proposal No.
1 is approved by the Shareholders the Company must either remove one of its
current Directors to make room for the Inversiones nominee or increase the size
of the Board to accommodate the new candidate. The Board believes that it would
be in the Company's best interests to increase the size of the Board, rather
than replace one of the current Directors, in order to provide the Company with
a wider range of opinions in the Board's decision making process.
Inversiones has designated David Townshend, a current Director of UBSN,
for election to the Company's Board. Mr. Townshend is currently a Director of
UBSN and has been the General Manager of UBSN since 1990. In the event that Mr.
Townshend is unable to serve as a Director for any reason, then Inversiones will
have the right to nominate another individual of its choice for Director. (For
more information about Mr. Townshend, please see "PROPOSAL NO. 3 - Election of
Directors - Nominees for Director," below.) If this Proposal and Proposal No. 1
are approved by the shareholders, management intends to vote all proxies it
receives (other than those which are marked "Withhold For All", or on which Mr.
Townshend's name has been stricken out, as described above under "GENERAL
INFORMATION - Voting Securities of the Company - Election of Directors" and on
the Proxy Card enclosed herewith) FOR the election of Mr. Townshend to the Board
of Directors.
VOTE REQUIRED FOR APPROVAL
Approval of the proposed amendment to the Company's Bylaws requires the
affirmative vote of the holders of a majority of the shares of Common Stock
present and voting at the Annual Meeting. For purposes of this vote, abstentions
and broker non-votes will in effect not be counted.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL NO. 2
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<PAGE>
PROPOSAL NO. 3 -- ELECTION OF DIRECTORS
At the Meeting, Shareholders will elect Directors to hold office until
the next Annual Meeting of Shareholders and until their respective successors
have been elected and qualified or until such Directors' earlier resignation or
removal. The size of the Company's Board is currently seven members, but if
Proposal No. 2 above, is approved by the shareholders at the Annual Meeting this
number will be able to be increased to eight. Either seven or eight nominees
will be elected at the Meeting to be the Directors of the Company, depending on
the outcome of the vote on Proposals 1 and 2, above. The Board has nominated its
current seven members to serve as Directors of the Company until the next Annual
Meeting. In the event Proposals No. 1, and 2, above, are both approved, the
Board additionally nominates Mr. David Townshend. The Agreement discussed in
Proposal 1 provides that, as a condition of the sale of UBI to the Company,
Inversiones will have the right to designate one nominee for Director.
Inversiones has identified Mr. Townshend as its nominee.
Shares represented by the accompanying proxy will be voted for the
election of the nominees recommended by the Board unless the proxy is marked in
such a manner as to withhold authority so to vote. If any nominee for any reason
is unable to serve or for good cause will not serve, the proxies may be voted
for such substitute nominee as the proxy holder may determine. The Company is
not aware of any nominee who will be unable to or for good cause will not serve
as a Director.
Nominees for Directors
<TABLE>
The following sets forth the names, ages as of December, 2000, and
certain information regarding the Director nominees:
<CAPTION>
Name of Nominee Age Position Director Since:
--------------- --- -------- --------------
<S> <C> <C> <C>
Vijay Mallya, Ph.D. 44 Chairman and Chief Executive Officer 1997
H. Michael Laybourn 62 Director 1993
R.H.B. (Bobby) Neame 66 Director 1998
Kent D. Price*+ 56 Director 1998
Sury Rao Palamand, Ph.D.*+ 69 Director 1998
Jerome G. Merchant*+ 38 Director 1997
Yashpal Singh 54 President and Director 1997
David R. Townshend++ 53 --------- -----
<FN>
--------------
* Member of the Audit/Finance Committee.
+ Member of the Compensation Committee.
++ Assuming that the shareholders approve the proposed Bylaws
amendment, more fully described in Proposal No. 2, above,
increasing the size of the Board. If Proposal No. 2 is not
approved, the nomination of Mr. Townshend will be withdrawn.
</FN>
</TABLE>
Vijay Mallya, Ph.D., became Chairman of the Board and Chief Executive
Officer of the Company in October 1997. Dr. Mallya has been the Chairman of
several companies since 1983. Dr. Mallya is Chairman of UBICS, Inc., United
Breweries Limited, UB Engineering Limited, Mangalore Chemicals and Fertilizers
Ltd., Herbertsons Limited, McDowell & Co. Ltd., and other affiliated companies
(collectively the "UB Group"). United Breweries Limited and McDowell & Co., Ltd.
are two of Asia's leading beer and spirits companies. The UB Group has annual
sales in excess of (US) $1 Billion. He also sits on boards of several foreign
companies and organizations including companies comprising the UB Group, The
Institute of Economic Studies (India), and the Federation of the Indian Chamber
of Commerce and Industries. Dr. Mallya holds a Bachelor of Commerce degree from
the
26
<PAGE>
University of Calcutta in India and an honorary Doctorate in Business
Administration from the University of California, Irvine.
H. Michael Laybourn, co-founder of the Company, served as the Company's
President from its inception in 1982 through December, 1999, and as its Chief
Executive Officer from inception through October 1997. Mr. Laybourn was elected
a Director in November 1993 when the Company began the process of converting
from a limited partnership to a corporation and served as Chairman of the Board
from June 1994 through October 1997. Mr. Laybourn is a former Vice President of
the California Small Brewers Association and a former Chairman of the Board of
Directors of the Brewers Association of America. Mr. Laybourn holds a Bachelor
of Fine Arts degree from Arizona State University.
R.H.B. (Bobby) Neame became a Director in January 1998. Mr. Neame has
served as the Chairman and Chief Executive Officer of Shepherd Neame Ltd. for
more than twenty-five years. Shepherd Neame Ltd. has operated as a brewery in
England for 300 years, making it England's oldest continuously operating
brewery.
Kent Price became a Director in January 1998. He is currently the
President and CEO of Robert Kent and Company, an investment and consulting
company. Additionally, he is currently the Chairman of Fluid, Inc. and a
Director of Capital Markets Company. From August 1994 until July 1998, he was
employed by IBM Banking, Finance and Securities Industries as General Manager of
Securities and Capital Markets. From 1993 through August 1994, he served as
Chairman and Chief Executive Officer of the Bank of San Francisco. He currently
serves as a Director of The San Francisco Company, which is the holding company
for the Bank of San Francisco. He also sits on the board of the American Bridge
Company. Mr. Price received a Bachelor of Arts in history and politics and a
Master of Arts in Slavic studies from the University of Montana and attended
Oxford University as a Rhodes Scholar.
Sury Rao Palamand, Ph.D., became a Director in January 1998. Dr.
Palamand is the President of Summit Products, Inc., a beverage development firm
serving the beverage industry; President of the Old 66 Brewery & Restaurant, a
brewery-restaurant in St. Louis, Missouri; owner of Southbend Brewery &
Smokehouse, a chain of brewpubs in the States of North and South Carolina; and
Managing Director of Atlantic Beverages Ltd., a product development firm serving
the United Kingdom. From 1966 to 1989, Dr. Palamand served as Director, Beer and
New Product Development for Anheuser-Busch Companies, Inc. Dr. Palamand holds a
Master of Science in Chemistry from the University of Bombay, India, and a
Master of Science and Doctorate in Food and Flavor Technology from Ohio State
University.
Jerome G. Merchant became a Director in October 1997 and was Chief
Financial Officer of the Company from November 1997 to October, 1998. Mr.
Merchant currently serves as the Strategic Planning Consultant to the Chairman's
Office of the Company and has served in such capacity since July 1996. Since
April 1993, Mr. Merchant has served in various capacities for Cal Fed
Investments, a wholly owned subsidiary of Cal Fed Bank. He is currently
responsible for the due diligence and monitoring of all investment products for
Cal Fed Investments. Mr. Merchant received his Bachelor of Science degree in
Managerial Economics-Finance from the University of California, Davis.
Yashpal Singh, President of the Company since January, 2000, became a
Director in October 1997 and Chief Operating Officer in November 1997. Mr. Singh
has served as Executive Vice President of the company since May, 1998. Since
1997, Mr. Singh has served as Executive Vice President - Operations for United
Breweries of America ("UBA"). In this capacity, he is responsible for the U.S.
brewing operations of UBA. Between 1992 and 1997, Mr. Singh served as Senior
Vice President - Operations for United Brewers Ltd., where he was responsible
for the operations of 12 breweries, instituting new projects, and technical and
operational evaluation of potential acquisition opportunities. Mr. Singh has
over 36 years of experience in the brewing industry. Mr. Singh holds degrees in
27
<PAGE>
Chemistry, Botany, and Zoology from Punjab University in India, and has graduate
training in the fields of Brewing, Malting, and Mineral Water Technology. Mr.
Singh is an associate member of the Institute of Brewing, London; a member of
the Master Brewers Association of America; and was a former member of the
Managing Committee of the All India Brewer's Association.
David Townshend is currently a Director of UBSN and has been the
General Manager of UBSN since 1990. Mr. Townshend's responsibilities encompass
all aspects of UBSN's operations. Prior to his promotion to General Manager of
UBSN, Mr. Townshend served as Transport Manager for Shepherd Neame Limited,
where his responsibilities included distribution and customer services.
The Board of Directors recommends that shareholders vote FOR the
election of all eight of the above nominees (including David Townshend). In the
event that the transaction described in Proposal No. 1, above, and the Bylaws
amendment described in Proposal No. 2, above, are not approved, the Board of
Directors will withdraw the nomination of Mr. Townshend. ---
Board of Directors' Meetings and Committees
During the fiscal year ended December 31, 1999, the Board of Directors
held four meetings. Thus far during 2000, the Board of Directors has held two
meetings. No Director attended fewer than 75% of the aggregate of the total
number of meetings of the Board and the total number of meetings held by all
committees of the Board on which he served.
Listed below are the committees of the Board of Directors, along with
Directors who served as members of each committee during 1999 and to date in
2000.
Audit and Finance Committee. The Board has a standing Audit/Finance
Committee and a standing Compensation Committee. The Board does not have a
nominating committee or a committee performing similar functions.
Messrs. Merchant, Price, and Palamand presently serve as the members of
the Audit/Finance Committee. The Audit/Finance Committee met once during 1999,
and has met four times so far during 2000. The Audit/Finance Committee reviews,
acts on, and reports to the Board of Directors with respect to various auditing,
accounting and finance matters, including the selection of the Company's
auditors, the scope of the annual audits, fees to be paid to the auditors, the
performance of the Company's auditors, and the accounting practices of the
Company.
Compensation Committee. Messrs. Merchant, Price, and Palamand presently
serve as the members of the Compensation Committee. Messrs. Laybourn, Mallya,
and Palamand served as the members of the Compensation Committee until April 30,
1999. The Compensation Committee met four times during 1999 and has meet twice
so far during 2000. The Compensation Committee considers all matters of
compensation with respect to the chief executive officer, president, any vice
president, and any other senior executives, and makes recommendations to the
Board regarding the compensation of such persons. The Compensation Committee
also makes determinations with respect to the granting of stock options with
respect to Directors who are also employees of the Company.
Special Committee. The Special Committee, consisting of Directors Kent
Price (as Chairman), Sury Rao Palamand, and Michael Laybourn, was created by the
Board in 1998 for the purpose of advising the Board concerning certain potential
transactions by the Company, including among others the Acquisition described in
Proposal No. 1, above.
The Special Committee met six times during 1999 and has met three times
so far during 2000.
28
<PAGE>
Director Compensation
The Company adopted a policy during the Meeting of its Board of
Directors, dated August 30, 1999, which provides for compensating outside
Directors for their services as Directors. The policy is as follows: each
outside Director receives $3,000 per meeting he attends and $1,000 per committee
meeting he attends. The outside Directors may opt to receive such compensation
in cash, or in shares of the Company's Common Stock which will be valued at its
fair market value as of the date of the meeting of the Board of Directors or of
the meeting of the committee for which the outside Director is being
compensated. To date, all of the outside Directors have elected to receive such
compensation in shares of the Company's Common Stock. In addition, every year
each outside Director is granted options to purchase a number of shares of
Common Stock having a fair market value equal to $25,000, as determined on the
date of the grant, at an option exercise price equal to the closing price of the
Company's Common Stock on the Pacific Stock Exchange.
Mr. Merchant receives a monthly fee of $2,700 in exchange for
consulting services he renders to the Company. In exchange for his consulting
services with regard to the Acquisition and related transactions, Mr. Merchant
will receive 2.5% of the value of the consideration paid by the Company under
the Agreement, payable in the Company's Common Stock. The Common Stock will be
valued at the average trading price of the Common Stock over the six months
prior to the closing of the Agreement.
In recognition of their past services during 1998 and the first half of
1999 as Directors of the Company, the three outside Directors were issued a
one-time grant of shares of the Company's Common Stock in the following amounts:
Mr. Neame 18,500 shares
Mr. Price 31,800 shares
Mr. Palamand 23,100 shares
Significant Employees
Don Barkley, 46, joined the Company in 1983 as Master Brewer and has
served in that capacity continuously since then. In 1993 Mr. Barkley was the
President and representative to the national board of governors of the Master
Brewers Association of the Americas, Northern California District. Mr. Barkley
holds a Bachelor of Science degree in fermentation science from the University
of California, Davis.
P.A. Murali, 42, joined the Company in November 1997 as Controller and
Secretary. Mr. Murali was elected Chief Financial Officer in October, 1998. For
more than five years before joining the Company, Mr. Murali served as General
Manager of Finance and Accounts of the Brewery Division of United Breweries Ltd.
in Bangalore, India. Mr. Murali holds a Bachelor of Commerce degree from the
University of Madras in India and is a Chartered Accountant.
Security Ownership Of Certain Beneficial Owners and Management
<TABLE>
The following table sets forth certain information known to the Company
regarding the beneficial ownership of the Company's Common Stock and Series A
Preferred Stock as of November 6, 2000, for (a) each shareholder known by the
Company to own beneficially 5% or more of the outstanding shares of its Common
Stock or Series A Preferred Stock; (b) each Director and nominee; and (c) all
Directors and executive officers of the Company as a group. Except as noted, the
Company believes that the beneficial owners of the Common Stock and Series A
Preferred Stock listed below, based on information furnished
29
<PAGE>
by such owners, have sole investment and voting power with respect to such
shares, subject to community property laws where applicable.
<CAPTION>
Shares
Beneficially Approximate
Name Owned(1) Percentage
---- -------- ----------
<S> <C> <C>
United Breweries of America, Inc.+ 3,087,818(2) 55.6%
Vijay Mallya, Ph.D.+ 3,087,818(3) 55.6%
H. Michael Laybourn++ 289,067(4) 5.2%
R.H.B. (Bobby) Neame 70,283(5) 1.3%
c/o Shepherd Neame, Ltd.
17 Court Street.
Faversham, Kent ME13 3AX
United Kingdom
Kent Price 107,708(5) 1.9%
c/o Robert Kent and Company
Wood Island #308
60 E. Sir Francis Drake Blvd.
Larkspur, CA 94939
Sury Rao Palamand, Ph.D. 80,013(5) 1.4%
50 Crestwood Executive Center, Suite 207
St. Louis, MO 63126
Jerome G. Merchant+ 42,222(5) 0.8%
Yashpal Singh++
David Townshend++
c/o UBSN Limited
17 Court Street
Faversham, Kent ME13 3AX
United Kingdom
All Directors and executive officers as a group (8 persons) 3,677,111(6) 64.3%
SERIES A PREFERRED STOCK:
H. Michael Laybourn 6,100 2.7%
All Directors and executive officers as a group (8 persons) 6,100 2.7%
<FN>
--------------
+ Three Harbor Drive, Suite 115, Sausalito, CA 94965
++ 1601 Airport Road, Ukiah, CA 95402
</FN>
</TABLE>
30
<PAGE>
(1) Applicable percentages of ownership are based on 5,552,373
shares of Common Stock outstanding. Shares of Common Stock
subject to a contract of purchase or options currently
exercisable or exercisable within 60 days after the date of
this Proxy Statement are deemed outstanding for computing the
percentage ownership of the person obligated to purchase the
shares or holding the options but are not deemed outstanding
for computing the percentage of any other person.
(2) Does not include the 882,547 outstanding shares which are
presently exercisable or will be exercisable within 60 days,
which are held in the aggregate by Messrs. Laybourn, Scahill,
Franks, and Barkley pursuant to a Shareholders' Agreement
which requires the parties thereto to vote for four Directors
designated by UBA and two additional independent Directors who
are acceptable to UBA, and which grants UBA a right of first
refusal with respect to such shares. This also does not
include 840,400 shares issuable upon conversion of certain
convertible notes issued to UBA.
(3) Dr. Mallya may be deemed to be a beneficial owner of UBA
because UBA is controlled by Golden Eagle Trust, which in turn
is controlled by persons who may exercise discretion in Dr.
Mallya's favor among others. Dr. Mallya is also the Chairman
and Chief Executive Officer of UBA.
(4) Includes 12,500 shares subject to options exercisable or will
be exercisable within 60 days. Does not include 3,684,498
outstanding shares held by UBA, Messrs. Scahill, Franks, and
Barkley, all of which are subject to Shareholders' Agreement
which requires the parties thereto to vote for one Director
designated by Mr. Laybourn.
(5) Includes 42,222 shares subject to options which are presently
exercisable or will be exercisable within 60 days.
(6) Does not include 596,680 outstanding shares held by Messrs.
Scahill, Franks, and Barkley pursuant to a Shareholders'
Agreement which requires the parties thereto to vote for four
Directors designated by UBA, one Director designated by Mr.
Laybourn, and two additional independent Directors who are
acceptable to UBA, and which grants UBA a right of first
refusal with respect to such shares. Includes 168,888 shares
subject to options which are presently exercisable or will be
exercisable within 60 days
<TABLE>
Executive Compensation
The following table sets forth the annual compensation, including
salary, bonuses, and certain other compensation, paid by the Company to its
Chief Executive Officer and most highly-compensated executive officers during
each of the fiscal years ended December 31, 1997, 1998, and 1999. None of the
Company's other executive officers received total compensation in excess of
$100,000 in any of those years.
<CAPTION>
31
<PAGE>
Name and Principal Position Annual Compensation
--------------------------- ---------------------------------------------------------------------------
Fiscal All Other
Year Salary Bonus Compensation*
---- ------ ----- -------------
<S> <C> <C> <C> <C>
Vijay Mallya
Chief Executive Officer 1999 $ 120,000 $ 0.00 $ 8,266
1998 $ 120,000 $ 0.00 $ 0.00
1997 $ 0.00 $ 0.00 $ 0.00
H. Michael Laybourn
Former President 1999 $ 120,000 $ 0.00 $ 9,027
1998 $ 120,000 $ 0.00 $ 8,386
1997 $ 90,307 $ 0.00 $ 4,182
Yashpal Singh
President and Chief Operating Officer 1999 $ 100,008 $ 30,000 $ 7,916
1998 $ 87,922 $ 0.00 $ 5127
1997 $0.00 $ 0.00 $ 0.00
<FN>
--------------
* Includes an allowance for health insurance, life insurance, disability
insurance, value of benefit of company car, and participation in the
Company's profit sharing retirement plan (annual discretionary
contributions by the Company of up to 15% of gross compensation).
</FN>
</TABLE>
<TABLE>
Stock Option Grants
The following table sets forth certain information concerning options
held by the named executive officers at December 31, 1999. No stock options were
granted to or exercised by any of the Company's executive officers during the
year ended December 31, 1999 or to date during 2000.
<CAPTION>
Number of Percent of Total
Securities Options/SARs
Underlying Granted To
Options/SARs Employees in Exercise or Base Expiration
Name Granted (#) Fiscal Year Price ($/Share) Date
---- ----------- ----------- --------------- ----
<S> <C> <C> <C>
H. Michael Laybourn 12,500 $8.80 09/18/01
Employment Agreement
</TABLE>
The Company's employment agreement with President Michael Laybourn
which provided for minimum salary of $120,000 expired December 24, 1998. Mr.
Laybourn remained President of the Company until December, 1999.
The Company executed an employment agreement with current President and
Chief Operating Officer, Yashpal Singh, effective on April 1, 1998. The
employment agreement expires March 31, 2001. The text of this Executive
Employment Agreement is attached as Exhibit 10.41 to the Company's Quarterly
Report on Form 10-QSB for the quarterly period ended June 30, 1999, and is
hereby
32
<PAGE>
incorporated by reference into this Proxy Statement. The information
incorporated by reference is deemed to be part of this Proxy Statement, except
for any information superseded by information in the Proxy Statement.
Certain Transactions
The Board of Directors has proposed that the Company purchase all of
the issued and outstanding capital stock of United Breweries International (UK)
Limited, a company organized under the laws of England and Wales ("UBI"), which
is currently wholly-owned by Inversiones Mirabel, S.A., a Panamanian corporation
("Inversiones"), in exchange for five million five hundred thousand (5,500,000)
shares of the Company's Common Stock (see "PROPOSAL NO. 1," above). The
principal terms of this transaction will be presented by management at the
Meeting for the approval of the Company's shareholders, and a copy of the Share
Purchase Agreement among the Company, Inversiones, and Golden Eagle (the
"Agreement") is attached to this Proxy Statement as Supplement A. Under
California law, shareholder approval must be obtained before the Share Purchase
Agreement can be consummated. Proposal No. 1, above describes the proposed
transaction in detail. Also, under the terms of the Agreement Inversiones will
have the right to nominate one Director to serve on the Company's Board. Since
the Company's Bylaws currently limit the total number of Directors to seven, and
there are now seven serving Directors, in order to increase the size of the
Board to accommodate the candidate proposed by Inversiones the Board of
Directors has submitted to the shareholders a Proposal to amend the Bylaws to
increase the size of the Board (please see PROPOSAL NO. 2, above). If the
Acquisition is approved by the Company's shareholders, UBI would become a
wholly-owned subsidiary of the Company. Inversiones is a subsidiary of Golden
Eagle Trust, an Isle of Man trust ("Golden Eagle") which is controlled by
persons related to the Company's Chairman of the Board and Chief Executive
Officer, Dr. Vijay Mallya, and in which Dr. Mallya has a material financial
interest. For a full description of the proposed Acquisition please see PROPOSAL
NO. 1, above.
On October 11, 1996, in recognition of Mr. Laybourn's personal
guarantee of an equipment lease, the Company granted President Michael Laybourn
a 5-year option to purchase 12,500 shares of Common Stock of the Company at an
exercise price of $8.80 per share. Mr. Laybourn's personal guarantee has now
terminated in accordance with its terms. The option was granted in January 1997
and expires in January 2002.
In the past, UBA has agreed to provide the Company with a credit
facility of up to $2 million for the working capital requirements of the Company
at an interest rate of 1.5% per annum above the prime rate offered by the Bank
of America in San Francisco, California (the "1998 Facility"). In mid-1999, the
1998 Facility was terminated, and a new credit facility (the "1999 Facility") in
the maximum amount of $800,000 was offered to the Company on substantially the
same terms as the 1998 Facility. On August 31, 1999, the Company and UBA entered
into a Master Line of Credit Agreement setting forth the terms of the 1999
Facility. Pursuant to the terms of the Master Line of Credit Agreement, advances
on the credit facility bear interest at the prime rate of the Bank of America in
San Francisco plus 1.5%, up to a maximum of 10%, and is due and payable
quarterly. The principal amount of each advance, together with any accrued but
unpaid interest on such advance, is due 18 months after the date of such
advance. Each advance made on the line of credit will be evidenced by a
convertible note. Each convertible note includes a conversion feature whereby
UBA could, at its option, convert the principal and any accrued but unpaid
interest into unregistered shares of the Company's Common Stock on or after the
maturity date, at a rate of one share of Common Stock for each $1.50 of
principal and unpaid interest. The arrangement was approved by the independent
Directors (Robert Neame, Kent Price and Sury Rao Palamand) on August 30, 1999.
The terms of the 1999 Facility were recently amended so that the maximum amount
available to the Company under the 1999 Facility was increased to $1,200,000. As
of September 30, 2000, the Company has made ten draws on the credit facility. As
of September 30, 2000, the aggregate
33
<PAGE>
amount drawn, together with interest accrued, equaled $1,260,600 which
corresponds to the right of UBA to acquire up to 840,400 shares of Common Stock
of the Company at a conversion price of $1.50 per share.
Change in UBA's Beneficial Ownership Interest
United Breweries of America, British Virgin Islands ("UBA-BVI") owns
approximately 97% percent of the total issued and outstanding shares of United
Breweries of America, Inc., a Delaware corporation ("UBA"). In November of 1997,
UBA owned 2,119,647 shares, representing 47.5%, of the then outstanding shares
of Common Stock of the Company. UBA then acquired an additional 30,000 shares in
a private transaction, increasing its percentage of share ownership to 2,149,647
shares, or approximately 48.2% of the Company's then outstanding common shares.
On August 30, 1999, UBA agreed to convert all outstanding convertible
notes (together with all accrued but unpaid interest) issued to UBA under the
1998 Facility. By their terms the convertible notes were convertible at $1.50
per share. However, at the request of the Company's Board, UBA agreed to convert
the notes into Company Common Stock at a price of $1.125, which was the market
price of the Common Stock on the Pacific Stock Exchange as of the date
immediately prior to the date of the exchange. The total amount converted was
approximately $1,055,442, and 938,171 shares of Common Stock were received upon
the conversion. As a result, UBA became the owner of 55.6% of the Company's
outstanding shares of Common Stock, with 3,087,818 shares. Further, as a result
of the conversion, the Company recognized an expense of $248,500 for the induced
conversion. The induced conversion was approved by the Board's independent
Directors (Robert Neame, Kent Price and Sury Rao Palamand).
Upon the termination of the 1998 Facility, UBA agreed to provide the
Company with the 1999 Facility of up to $1,200,000 on substantially the same
terms as the 1998 Facility. As of September 30, 2000, the Company had made ten
draws on the 1999 Facility, and the aggregate amount drawn together with
interest accrued thereon is equal to $1,260,600.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires each of the Company's executive Directors and
officers, and each person who or which is a beneficial owner of more than 10% of
the Company's Common Stock, to file forms with the Securities and Exchange
Commission ("SEC") and the Pacific Stock Exchange Inc. reports of ownership and
changes in ownership of the Company's shares. These persons are required by SEC
regulation to furnish the Company with copies of all such forms they file. Based
solely upon a review of such Forms furnished to the Company during fiscal 1999,
no person who, at any time during fiscal 1999 was a Director, officer, or
beneficial owner of more than 10 percent of the Company's Common Stock failed to
file on a timely basis, as disclosed in the above forms, reports required by
Section 16(a) of the Exchange Act during the most recent fiscal year or prior
fiscal years.
VOTE REQUIRED FOR THE ELECTION OF DIRECTORS
The affirmative vote of the holders of a plurality of the shares of
Common Stock present and voting at the Annual Meeting is required to elect each
of the nominees for Director. Each share of Common Stock which is represented,
in person or by proxy, at the Annual Meeting will be accorded one vote on each
nominee for Director, unless one or more shareholders express an intention to
exercise the right of cumulative voting, in which case all shares will be
accorded the cumulative voting rights. For purposes of this vote, abstentions
and broker non-votes will in effect not be counted. Please see
34
<PAGE>
"GENERAL INFORMATION -- Voting Securities of the Company - Cumulative Voting,"
above, for a brief description of the voting procedures in the event that
cumulative voting is requested at the Meeting in connection with the election of
Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE NOMINEES FOR
DIRECTOR DESCRIBED ABOVE.
PROPOSAL NO. 4 -- RATIFICATION OF INDEPENDENT AUDITORS
The Company has appointed Moss Adams, L.L.P. as its independent
auditors to perform the audit of the Company's financial statements for the year
2000, and the shareholders are being asked to ratify such appointment. Moss
Adams, L.L.P. also audited the Company's 1999 financial statements.
Representatives of Moss Adams, L.L.P. are expected be present at the Meeting,
will have an opportunity to make a statement at the Meeting if they desire to do
so, and are expected to be available to respond to appropriate questions.
Ratification of the appointment of Moss Adams, L.L.P. requires the vote of a
majority of the shares of the Company's Common Stock present in person or
represented by a proxy at the Meeting and entitled to vote. Abstentions have no
effect.
VOTE REQUIRED FOR APPROVAL OF THE APPOINTMENT OF MOSS ADAMS LLP
The affirmative vote of the holders of a majority of the shares of
Common Stock present and voting at the Annual Meeting is required to approve the
appointment of Moss Adams LLP as the Company's independent auditors for the year
2000. Each share of Common Stock which is represented, in person or by proxy, at
the Annual Meeting will be accorded one vote on this Proposal. For purposes of
this vote, abstentions and broker non-votes will in effect not be counted.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF
THE APPOINTMENT OF MOSS ADAMS, L.L.P.
Shareholder Proposals To Be Presented At Next Annual Meeting
Any proposal which a shareholder wishes to have presented at the next
annual meeting and included in the management proxy materials relating to such
meeting must be received at the main office of the Company no later than January
1, 2002. If such proposal is in compliance with all of the requirements of Rule
14a-8 promulgated under the Securities Exchange Act of 1934, it will be included
in the proxy statement and set forth on the form of proxy issued for the next
annual meeting of shareholders.
If a shareholder of the Company wishes to present a proposal before the
Company's next annual meeting but does not wish to have the proposal considered
for inclusion in the Company's proxy statement and proxy card, such shareholders
must give written notice to the Secretary of the Company at its main office. The
Company must receive such notice no later than February 1, 2002.
It is urged that any shareholder proposals be sent by certified mail,
return receipt requested.
Availability Of Form 10-KSB
The Company will provide without charge to any shareholder, upon
written request, a copy of the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1999. Such written requests should be made to the
Company at Mendocino Brewing Company, Inc., Attn: Sarah T.
35
<PAGE>
McDaniel, Shareholder Relations, Post Office Box 400, 13351 South Highway 101,
Hopland, California 95449, Telephone: (800) 733-3871. A copy of Form 10-KSB has
been distributed prior to your receipt of this proxy statement.
Other Matters
The Board of Directors does not presently intend to present matters
other than the foregoing for action by the shareholders at the Meeting, and, so
far as is known to the Board of Directors, no matters are to be brought before
the Meeting except as specified herein. As to any business that may properly
come before the Meeting, however, it is intended that proxies, in the form
accompanying this Proxy Statement, will be voted in accordance with the judgment
of the persons voting such proxies.
Items Incorporated by Reference
The Company hereby incorporates the following documents into this Proxy
Statement by reference:
o The Company's Annual Report on Form 10-KSB for the year ended
December 31, 1999;
o Supplement A, the Share Purchase Agreement;
o Supplement B, the Fairness Opinion provided to the Company by Sage
Capital LLC;
o Supplement C, Dissenters' Rights: Sections 1300 Through 1304 of
the California Corporations Code;
o Supplement D, the proposed amendment to Section 2.2 of the
Company's Bylaws;
o Supplement E, the Company's Quarterly Report on Form 10-QSB for
the quarter ended September 30, 2000; and
o Supplement F, the audited financial statements of UBI and UBSN
prepared separately for the year ended December 31, 1998, and
presented on a consolidated basis for the year ended December 31,
1999. In addition, UBI's reviewed consolidated financial
statements for the nine months ended September 30, 2000, are
included, as well as pro forma information. Conversions from
United Kingdom Pounds to United States Dollars and have been
provided for convenience.
The information incorporated by reference is deemed to be a part of
this Proxy Statement; however the information in the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1999 and the Company's Quarterly
Report on Form 10-QSB for the quarter ended September 30, 2000, which is
incorporated by reference is deemed to be a part of this Proxy Statement except
for any information superseded in the Proxy Statement.
36
<PAGE>
SUPPLEMENT A
(Proposal No. 1)
DATED NOVEMBER 3, 2000
(1) INVERSIONES MIRABEL, S.A.
(2) MENDOCINO BREWING COMPANY
(3) GOLDEN EAGLE TRUST
----------------------------
SHARE PURCHASE AGREEMENT
-----------------------------
Baker & McKenzie
100 New Bridge Street
London EC4V 6JA
Telephone: (020) 7919 1000
Fax: (020) 7919 1999
Ref: BPA/SAR
<PAGE>
CONTENTS
Clauses Pages
------- -----
1. Definitions and Interpretation.....................................3
2. Sale of Sale Shares...............................................10
3. Consideration.....................................................11
4. Conditions........................................................12
5. Completion........................................................13
6. Restriction of Vendor.............................................17
7. Warranties........................................................19
8. Covenant in Respect of Tax........................................23
9. Pensions..........................................................27
10. Restriction on Announcements......................................27
11. Pre-Completion Obligations........................................28
12. Confidentiality of Information Received by the Vendor.............31
13. Guarantee and Indemnity by Guarantor..............................32
14. Costs.............................................................34
15. General...........................................................34
16. Notices...........................................................36
17. Governing Law and Submission to Jurisdiction......................38
SCHEDULE 1
The Vendor........................................................39
SCHEDULE 2
Details of the Company............................................40
SCHEDULE 3
The Subsidiary....................................................42
SCHEDULE 4
The Property......................................................43
SCHEDULE 5
Warranties........................................................44
SCHEDULE 6
[NOT USED]........................................................81
SCHEDULE 7
Software..........................................................82
SCHEDULE 8
Vendor's Protection...............................................83
<PAGE>
DATE: 2000
PARTIES:
(1) INVERSIONES MIRABEL, S.A. a company incorporated in Panama whose
registered office is at Hong Kong Bank Building, 6th Floor, Samuel
Lewis Avenue, P.O. Box 6-4298, El Dorado, Panama City (the "Vendor") as
set out in Schedule 1.
(2) MENDOCINO BREWING COMPANY a company incorporated in the State of
California whose registered office is at 3 Harbor Drive #115,
Sausalito, CA 94965 (the "Purchaser").
(3) GOLDEN EAGLE TRUST a discretionary trust created on 12 October 1982
whose registered office address is c/o CAS Nominess Limited, Celtic
House, Victoria Street, Douglas, Isle of Man (the "Guarantor").
RECITALS:
(A) The Vendor is the registered holder and beneficial owner of all of the
issued shares in the capital of United Breweries International (UK)
Limited ("the Company"). Particulars of the Company are set out in
Schedule 2.
(B) The Vendor wishes to sell and the Purchaser wishes to purchase the said
shares on the terms and conditions set out in this Agreement.
(C) The Guarantor has agreed to guarantee the performance of the obligations of
the Vendor hereunder.
TERMS AGREED:
1. Definitions and Interpretation
1.1 In this Agreement where the context so admits the following words and
expressions shall have the following meanings:
3
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"Accounting Date" 31 December 1999;
"Accounts" the audited financial statements of
the Company and of the Subsidiary for
the accounting reference period which
ended on the Accounting Date (each
such financial statement comprising a
balance sheet, profit and loss
account, cash flow statement, notes
and directors' and auditors' report)
copies of which are annexed to the
Disclosure Letter;
"Beer" all existing brands of beer
distributed by the Company and/or the
Subsidiary as at the Completion Date;
"CAA" the Capital Allowances Act 1990;
"Company" United Breweries International (UK)
Limited details of which are set out
in Schedule 2;
"Companies Acts" the Companies Act 1985 and the
Companies Act 1989 and the former
Companies Acts within the meaning of
Section 735(1)(c) of the Companies
Act 1985;
"Completion" completion of the sale and purchase
of the Sale Shares as specified in
clause 5;
"Completion Date" the fifth business day after the day
upon which the last of the Conditions
is satisfied or waived (or such later
date as the parties may agree);
"Conditions" the conditions specified in clause
4.1;
"Confidential Information" know-how, trade secrets and other
information of a
4
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confidential nature, wherever in the
world protectable;
"Consideration Shares" 5,500,000 shares of common stock in
the capital of the Purchaser;
"Directors" the persons listed as directors of
the Company in Schedule 2;
"Disclosure Letter" the letter of today's date from the
Vendor to the Purchaser in the
approved terms;
"Employment Law" all and any laws, common law,
statutes, directives,
recommendations, regulations,
notices, codes of practice, guidance
notes, judgements, decrees or orders,
whether of the European Community or
the United Kingdom, relating to or
connected with the employment of
employees and their health and safety
at work;
"Environment" all or any of the following media,
namely, the air, water and land; and
the medium of air includes the air
within buildings and the air within
other natural or man-made structures
above or below ground;
"Environmental Law" all and any laws, common law,
statutes, directives, regulations,
notices, standards having force of
law, codes of practice, guidance
notes, by-laws, judgements, decrees
or orders whether of the European
Community or the United Kingdom or
any other relevant jurisdiction,
relating to (1) the pollution,
contamination or protection of the
Environment or (2) the storage,
labelling, handling, release,
treatment, manufacture, processing,
deposit, transportation or disposal
of Hazardous Substances or (3) the
responsibility or duty of care for
waste;
5
<PAGE>
"Environmental Licence" any permit, licence, authorisation,
consent or other approval, that may
be required by any Environmental Law;
"Environmental Registration" any registration that may be required
by any Environmental Law;
"Exchange Act" the United States Securities Exchange
Act of 1934, as amended;
"Former Property" all land and premises previously used
by the Company or the Subsidiary or
under the past ownership, occupation
or control of the Company or the
Subsidiary and shall exclude the
Property;
"Hazardous Substances" all substances of whatever
description which may cause or have a
harmful effect on the Environment or
the health of man or any other living
organism including, without
limitation, all poisonous, toxic,
noxious, dangerous and offensive
substances;
"IHTA" the Inheritance Tax Act 1984;
"Intellectual Property" includes Confidential Information,
patents, registered designs,
copyrights, rights in databases,
design rights, topography rights,
trade marks, business names,
registrations of and applications to
register any of the aforesaid items,
rights in the nature of any of the
aforesaid items in any country,
rights in the nature of unfair
competition rights and rights to sue
for passing off, in each case
wherever in the world enforceable;
6
<PAGE>
"Management Accounts" the financial statements unaudited of
the Company and the Subsidiary for
the period ending on and as at 30
September 2000 (each such financial
statement to include a balance sheet,
a profit and loss account, cash flow
statement and notes);
"participating interest" the meaning defined in section 260
Companies Act 1985;
"Pension Scheme" the United Breweries International
(UK) Limited Pension Plan;
"Planning Acts" the Town and Country Planning Act
1990, the Planning (Listed Buildings
and Conservation Areas) Act 1990, the
Planning (Hazardous Substances) Act
1990, the Planning (Consequential
Provisions) Act 1990 and the Planning
and Compensation Act 1991 and the
Rules, Regulations and Orders made
under them or continued by them as
they apply from time to time;
"Property" the leasehold property short
particulars of which are set out in
Schedule 4;
"Proposed Environmental Laws" any proposed laws, statutes,
directives, regulations, notices,
standards, codes of practice,
guidance notes, by-laws, decrees or
orders whether of the European
Community or the United Kingdom or
any other relevant jurisdiction which
have been published on or before the
date hereof and which relate to (1)
the pollution, contamination or
protection of the Environment or (2)
the storage, labelling, handling,
release, treatment, manufacture,
processing, deposit, transportation
or disposal of Hazardous Substances
or (3) the responsibility or duty of
care for waste;
7
<PAGE>
"Proxy Statement" the statement required by Rule
14a-3(a) issued under the Exchange
Act of 1934;
"Purchaser's Accountants" Moss Adams LP;
"Purchaser's Solicitors" Baker & McKenzie of 100 New Bridge
Street, London EC4V 6JA;
"Retirement Benefits Scheme" a retirement benefits scheme within
the meaning given to that term in
Section 611 of the Taxes Act;
"Sale Shares" the 100,000 ordinary shares of
(pound)1 each in the capital of the
Company, being the entire issued
share capital of the Company;
"SEC" the United States Securities and
Exchange Commission;
"Subsidiary" the subsidiary undertaking of the
Company which is listed in Schedule
3;
"subsidiary undertaking" the meaning given to that term in
section 258 Companies Act 1985;
"Tax" all forms of taxation, withholdings,
duties, imposts, levies, social
security contributions and rates
imposed by any local, municipal,
governmental, state, federal, or
other body in the United Kingdom or
elsewhere and any interest, penalty,
surcharge or fine in connection
therewith;
8
<PAGE>
"Taxes Act" the Income and Corporation Taxes Act
1988;
"TCGA" the Taxation of Chargeable Gains Act
1992;
"Vendor's Solicitors" Butcher Burns of Beaumont House, 47
Mount Pleasant, London WC1X 0AE;
"Warranties" the representations, warranties and
undertakings contained or referred to
in clause 7 and Schedule 5.
1.2 Save where the context otherwise requires words and phrases the
definitions of which are contained or referred to in Part XXVI of the
Companies Act 1985 shall be construed as having the meaning thereby
attributed to them.
1.3 Any references, express or implied, to statutes or statutory provisions
shall be construed as references to those statutes or provisions as
respectively amended or re-enacted or as their application is modified
from time to time by other provisions (whether before or after the date
hereof) and shall include any statutes or provisions of which they are
re-enactments (whether with or without modification) and any orders,
regulations, instruments or other subordinate legislation under the
relevant statute or statutory provision. References to sections of
consolidating legislation shall wherever necessary or appropriate in
the context be construed as including references to the sections of the
previous legislation from which the consolidating legislation has been
prepared.
1.4 References in this Agreement to clauses and schedules are to clauses in
and schedules to this Agreement (unless the context otherwise
requires). The recitals and schedules to this Agreement shall be deemed
to form part of this Agreement.
1.5 Headings are inserted for convenience only and shall not affect the
construction of this Agreement.
9
<PAGE>
1.6 The expression "the Vendor" and the expression "the Purchaser" includes
their respective successors and assigns and the expression "the
Guarantor" includes its successors.
1.7 References to "persons" shall include bodies corporate, unincorporated
associations and partnerships (whether or not having separate legal
personality).
1.8 References to writing shall include any methods of reproducing words in
a legible and non-transitory form.
1.9 The masculine gender shall include the feminine and neuter and the
singular number shall include the plural and vice versa.
1.10 All warranties, representations, indemnities, covenants, agreements and
obligations given or entered into by more than one person are given or
entered into jointly and severally.
1.11 A document expressed to be "in the approved terms" means a document the
terms of which have been approved by or on behalf of the parties to
this Agreement and a copy of which has been signed for the purposes of
identification by or on behalf of those parties.
2. Sale of Sale Shares
2.1 Subject to the terms of this Agreement, the Vendor shall sell with full
title guarantee and the Purchaser shall purchase, free from all liens,
charges and encumbrances and together with all rights now or hereafter
attaching to them, including all rights to any dividend or other
distribution declared, made or paid after the date of this Agreement,
the number of Sale Shares set opposite its name in column 2 of Schedule
1.
2.2 The Vendor hereby waives and agrees to procure the waiver of any
restrictions on transfer (including pre-emption rights) which may exist
in relation to the Sale Shares, whether under the articles of
association of the Company or otherwise.
10
<PAGE>
2.3 The Vendor shall have the right to nominate David Townshend (for the
purposes of this clause 2.3, the "Nominee") for election to the board
of directors of the Purchaser and for this purpose:
2.3.1 the Vendor shall, within 7 days of the date of this Agreement,
provide the Purchaser with written notice of the Nominee's
proposed election to the board of directors of the Purchaser; and
2.3.2 the Purchaser shall, within 7 days of receipt of such notice,
incorporate into the Proxy Statement proposals to:
2.3.2.1 increase the number of directors permitted on the board of
directors of the Purchaser by one (1); and
2.3.2.2 elect the Nominee to the board of directors of the Purchaser.
The parties hereto acknowledge and agree that a failure by the
Purchaser to obtain shareholder approval for the proposals under clause
2.3.2.1 and/or clause 2.3.2.2 above shall not in any way constitute a
breach or default by the Purchaser of this Agreement or a failure of a
condition to the respective rights and obligations of the parties under
this Agreement.
3. Consideration
The total consideration payable for the Sale Shares shall be the issue
and allotment by the Purchaser to the Vendor of the Consideration
Shares credited as fully paid.
Vendor hereby acknowledges that the Consideration Shares to be
delivered to Vendor pursuant to this Agreement will not be registered
under the United States securities laws, and may not be sold or
transferred except in accordance with such United States securities
laws. Each of the certificates evidencing the Consideration Shares
shall bear a restrictive legend to that effect, and a stop order shall
be placed against the sale or transfer of such Consideration Shares.
11
<PAGE>
4. Conditions
4.1 The sale and purchase of the Sale Shares is conditional upon:
4.1.1 the Warranties remaining true and accurate and not misleading at
Completion as if repeated at Completion and at all times between
the date of this Agreement and Completion;
4.1.2 the Vendor having complied fully with the obligations specified
in clauses 11.1, 11.2, 11.3, 11.4 and 11.5;
4.1.3 the Purchaser having obtained:
4.1.3.1 approval by the Board of Directors of the Purchaser of the
Agreement and the transactions contemplated therein;
4.1.3.2 approval by the SEC of the Proxy Statement filed by the
Purchaser with respect to the transactions contemplated in the
Agreement, in accordance with the Exchange Act;
4.1.3.3 approval by the shareholders of the Purchaser of the Agreement
and the transactions contemplated in the Agreement, in
accordance with applicable law, and Purchaser's articles of
incorporation and by-laws;
4.1.3.4 a "fairness opinion" in a form satisfactory to the Special
Committee of the Purchaser's Board of Directors from Sage
Capital LLC; and
4.1.3.5 notices electing to exercise dissenters rights from the
holders of no more than 123,457 shares of the Purchaser's
common stock.
4.2 The Purchaser may waive all or any of the conditions in clauses 4.1.1,
4.1.2 and 4.1.3 at any time by notice in writing to the Vendor's
Solicitors.
12
<PAGE>
4.3 Each party to this agreement shall use its reasonable endeavours to
procure the fulfilment of the Conditions for which that party is
responsible on or before the Completion Date and in particular the
Purchaser shall use its reasonable endeavours to obtain the approval
and opinion referred to in clause 4.1.3 above as soon as reasonably
practical after the date hereof.
4.4 In the event that any of Conditions shall not have been fulfilled (or
waived pursuant to clause 4.2) prior to 31 January 2001 then the
Purchaser shall not be bound to proceed with the purchase of the Sale
Shares and this Agreement shall cease to be of any effect except
clauses 1, 10, 12, 13, 14, 15.1 to 15.5, 16 and 17 which shall remain
in force and save in respect of claims arising out of any antecedent
breach of this Agreement.
5. Completion
5.1 Subject to the provisions of clause 4, Completion shall take place on
the Completion Date at the offices of the Purchaser's Solicitors when
all (but not some only) of the events described in this clause 5 shall
occur.
5.2 At Completion, the Vendor shall:
5.2.1 deliver to the Purchaser:
5.2.1.1 duly executed transfers of all of the Sale Shares in favour of
the Purchaser together with the relevant share certificates;
5.2.1.2 transfers in favour of the Company (or its nominees) of such
shares in the Subsidiary as are registered in the names of
nominee holders, together with the relative share
certificates;
5.2.1.3 such waivers or consents as the Purchaser may require to
enable the Purchaser to be registered as holders of any of the
Sale Shares;
13
<PAGE>
5.2.1.4 all the statutory and other books (duly written up to date) of
the Company and the Subsidiary and their respective
certificates of incorporation, common seals and any other
papers and documents of the Company or the Subsidiary in its
possession;
5.2.1.5 written confirmation that the Vendor or Directors are not
aware of any matter or thing which is a breach of or
inconsistent with any of the Warranties;
5.2.1.6 certified copies of any powers of attorney under which any of
the documents referred to in this clause 5.2 is executed or
evidence satisfactory to the Purchaser of the authority of any
person signing on the Vendor's behalf;
5.2.1.7 the duly executed power of attorney in respect of the Sale
Shares which is referred to in clause 15.8;
5.2.1.8 letters of resignation in the approved terms from each of the
Directors and the secretary of the Company and the directors
and secretary of the Subsidiary, such resignations to take
effect from close of the meeting of the Board referred to in
clause 5.2.4 below;
5.2.1.9 a duly executed release under seal, in the approved terms,
releasing the Company and the Subsidiary from any liability
whatsoever (whether actual or contingent) which may be owing
to the Vendor by the Company or the Subsidiary at Completion;
5.2.1.10 a certified copy of the resolution of the board of CAS
Nominees Limited as trustees of the Guarantor, authorising the
Guarantor to act as guarantor of the obligations of the Vendor
under this Agreement;
14
<PAGE>
5.2.2 pay all monies (if any) then owing by it to the Company or to the
Subsidiary, whether due for payment or not;
5.2.3 assume responsibility for the guarantee given by the Company in
respect of the lease dated 11 July 1990 between Benchmark
Shopfitting Limited, UB (Soyco) Limited and the Company (for the
purposes of this clause 5.2.3 and clause 7.13, the lease and the
guarantee being referred to as the "Guaranteed Lease"). For the
avoidance of doubt, by virtue of this clause 5.2.3 the Vendor
shall assume full responsibility to defend, settle and discharge
any claim or liability, whether by litigation, negotiation or
otherwise arising by virtue of the Guaranteed Lease and the
Purchaser's sole involvement with such claim or liability will be
to tender the handling of such claim or liability to the Vendor;
5.2.4 cause the Directors to hold a meeting of the Board of the Company
at which the Directors shall pass resolutions in the approved
terms (inter alia) to:
5.2.4.1 approve the registration of the Purchaser as members of the
Company subject only to the production of duly stamped and
completed transfers in respect of the Sale Shares;
5.2.4.2 appoint such persons as the Purchaser may nominate as
directors and secretary of the Company;
5.2.4.3 revoke all authorities to the bankers of the Company relating
to bank accounts and to give authority to such persons as the
Purchaser may nominate to operate the same; and
5.3 At Completion, the Purchaser shall:
5.3.1 allot the Consideration Shares to the Vendor, credited as fully
paid, and deliver to the Vendor a duly executed share certificate
in the name of the Vendor in respect of the Consideration Shares;
15
<PAGE>
5.3.2 deliver to the Vendor's Solicitors certified copies of any powers
of attorney under which any of the documents referred to in this
clause 5.3 is executed or other evidence satisfactory to the
Vendor's Solicitors of the authority of the person signing on the
Purchaser's behalf; and
5.3.3 deliver to the Vendor's Solicitors certified copies of the
approvals referred to in clause 4.1.3 above.
5.3.4 deliver to the Vendor a letter confirming that the Vendor will
not be liable for any claim against, or liability incurred by the
Company and/or the Subsidiary, which arises from or is
attributable to an act, omission, event, transaction or
occurrence that takes place after Completion. For the avoidance
of doubt, such letter shall also confirm that the Vendor will be
liable for claims asserted against the Company and/or the
Subsidiary, and for liabilities incurred by the Company and/or
the Subsidiary which are attributable to any breach of the
Warranties, whether such claims are asserted before or after the
Completion Date.
5.4 Without prejudice to any other remedies available to the Purchaser, if
in any respect the provisions of clause 5 are not complied with by the
Vendor on the Completion Date the Purchaser may:
5.4.1 defer Completion to a date not more than 28 days after the
Completion Date (and so that the provisions of this clause 5.4
shall apply to Completion as so deferred); or
5.4.2 proceed to Completion so far as practicable (without prejudice to
its rights under this Agreement); or
5.4.3 rescind this Agreement.
16
<PAGE>
6. Restriction of Vendor
6.1 The Vendor undertakes with the Purchaser (for itself and as
trustee for the Company) that, except with the consent in writing
of the Purchaser and subject to the provisions of clause 6.3:
6.1.1 for the period of two years after Completion it will not
within any country in which the Company or the Subsidiary has
carried on business during the year preceding Completion
either on its own account or in conjunction with or on behalf
of any person, firm or company carry on or be engaged,
concerned or interested, directly or indirectly, whether as
shareholder, director, employee, partner, agent or otherwise
in carrying on any business which competes with the business
carried on by the Company or the Subsidiary at Completion and
in particular (but without limitation) the business of
brewing, marketing, selling and distributing Beer (other than
as a holder of shares in a company carrying on such a business
where the shareholding is for investment purposes only and
does not confer any control over the business in question);
6.1.2 for the period of two years after Completion it will not
either on its own account or in conjunction with or on behalf
of any other person, firm or company solicit or entice away or
attempt to solicit or entice away from the Company or the
Subsidiary the custom of any person, firm, company or
organisation who shall at any time within the year preceding
Completion have been a customer, identified prospective
customer, representative, agent, or correspondent of the
Company or the Subsidiary or in the habit of dealing with the
Company or the Subsidiary or enter into any contract for sale
and purchase or accept business from any such person, firm,
company or organisation in a business area in which the
Company or the Subsidiary competes as at the Completion Date;
6.1.3 for the period of two years after Completion it will not
either on its own account or in conjunction with or on behalf
of any other person, firm or company employ, engage, solicit,
entice away or attempt to employ, engage, solicit or entice
away from the Company or the Subsidiary any person
17
<PAGE>
employed in a managerial, supervisory, technical or sales
capacity by, or engaged as a consultant to the Company or the
Subsidiary at Completion or at any time during the period of
six months immediately preceding Completion (whether or not
such person would commit a breach of contract by reason of
leaving such employment or engagement);
6.1.4 it will not at any time hereafter make use of or disclose or
divulge to any person (other than to officers or employees of
the Company or of the Subsidiary whose province it is to know
the same) any Confidential Information (other than any
information properly available to the public or disclosed or
divulged pursuant to an order of a court of competent
jurisdiction) relating to the Company or the Subsidiary, the
identity of its customers and suppliers, its products,
finance, contractual arrangements, business or methods of
business and shall use its best endeavours to prevent the
publication or disclosure of any such information by any
person, firm or company with which it is connected;
6.1.5 if, in connection with the business or affairs of the Company
or the Subsidiary, it shall have obtained Confidential
Information belonging to any third party under an agreement
purporting to bind the Company or the Subsidiary which
contained restrictions on disclosure it will not without the
previous written consent of the Board of Directors of the
Purchaser at any time infringe such restrictions;
6.1.6 it will not at any time after the Completion Date in relation
to any trade, business or company use a name or trade mark
including the word "Kingfisher" or any word confusingly
similar thereto in connection with a business of brewing or
trading lager beer or a business substantially similar to such
brewing or trading business carried out by the Company and/or
the Subsidiary at Completion in such a way as to be capable of
or likely to be confused with the name or any trade mark owned
by or licensed to the Company or the Subsidiary.
18
<PAGE>
Except that nothing in this clause 6 shall preclude the Vendor either
on its own account or in conjunction with or on behalf of any person,
firm or company from directly or indirectly carrying on business to
supply, manufacture, package, market and distribute Kingfisher lager
beer or other Kingfisher products to importers and customers in
territories outside the European Union, the United States of America
and Canada and any other territories other than those referred to in
the distribution agreement dated 9 October 1998 between UBSN Limited
and the Company.
6.2 The Vendor shall procure that all companies and businesses directly or
indirectly owned or controlled by it shall be bound by and observe the
provisions of this clause 6 as if they were parties covenanting with
the Purchaser in the same terms.
6.3 While the restrictions contained in this clause 6 are considered by the
parties to be reasonable in all the circumstances, it is recognised
that restrictions of the nature in question may fail for technical
reasons and accordingly it is hereby agreed and declared that if any of
such restrictions shall be adjudged to be void as going beyond what is
reasonable in all the circumstances for the protection of the interests
of the Purchaser but would be valid if part of the wording thereof were
deleted or the periods thereof reduced or the range of activities or
area dealt with thereby reduced in scope the said restriction shall
apply with such modifications as may be necessary to make it valid and
effective.
7. Warranties
7.1 The Vendor represents, warrants and undertakes to and with the
Purchaser that each of the statements set out in Schedule 5 is now and
will at Completion be true and accurate.
7.2 The Warranties (other than Warranties 4.1 and 4.2 in respect of which
no qualification is accepted) are given subject to matters fully,
fairly and specifically disclosed in the Disclosure Letter but no other
information relating to the Company or the Subsidiary of which the
Purchaser has knowledge (actual or constructive) and no investigation
by or on behalf of the Purchaser shall prejudice any claim made by the
Purchaser under the Warranties or operate to reduce any amount
recoverable, and liability in respect
19
<PAGE>
thereof shall not be confined to breaches discovered before Completion.
No letter, document or other communication shall be deemed to
constitute a disclosure for the purposes of this Agreement unless the
same is accepted as such by the Purchaser and is expressly referred to
in the Disclosure Letter.
7.3 The Vendor acknowledges that the Purchaser has entered into this
Agreement in reliance upon the Warranties and has been induced by them
to enter into this Agreement.
7.4 Without restricting the rights of the Purchaser or otherwise affecting
the ability of the Purchaser to claim damages on any other basis
available to it, in the event that any of the Warranties is broken or
(as the case may be) proves to be untrue or misleading, the Vendor
shall, on demand, pay (in a full indemnity basis) to the Purchaser or,
at the Purchaser's direction, the Company or the Subsidiary:
7.4.1 the amount necessary to put the Company and the Subsidiary
into the position which would have existed if the Warranties
had not been broken or (as the case may be) had been true and
not misleading; and
7.4.2 all costs and expenses incurred by the Purchaser, the Company
and the Subsidiary as a result of such breach and any costs
(including legal costs on a solicitor and own client basis),
expenses or other liabilities which any of them may incur
either before or after the commencement of any action in
connection with (i) any legal proceedings in which the
Purchaser claims that any of the Warranties has been broken or
is untrue or misleading and in which judgement is given for
the Purchaser or (ii) the enforcement of any settlement of, or
judgement in respect of, such claim.
7.5 Each of the Warranties shall be separate and independent and, save as
expressly provided to the contrary, shall not be limited by reference
to or inference from any other Warranty or any other term of this
Agreement.
7.6 Where any statement in the Warranties is qualified by the expression
"so far as the Vendor is aware" or "to the best of the Vendor's
knowledge and belief" or any similar
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expression, that statement shall be deemed to include an additional
statement that it has been made after due and careful enquiry of David
Townshend in respect of Subsidiary and Gul Lodhi in respect of the
Company.
7.7 The Vendor hereby agrees with the Purchaser (for itself and as trustee
for the Company and the Subsidiary) to waive any rights which it may
have in respect of any misrepresentation or inaccuracy in, or omission
from, any information or advice supplied or given by the Company or the
Subsidiary or its officers, employees or advisers in connection with
the giving of the Warranties and the preparation of the Disclosure
Letter save for any rights of the Vendor in respect of fraud.
7.8 The Vendor shall procure that (save only as may be necessary to give
effect to this Agreement) neither it nor the Company or the Subsidiary
shall do, allow or procure any act or omission before Completion which
would constitute a breach of any of the Warranties if they were given
at Completion or which would make any of the Warranties inaccurate or
misleading if they were so given.
7.9 The Vendor hereby agrees to disclose promptly to the Purchaser in
writing immediately upon becoming aware of the same, any matter, event
or circumstance (including any omission to act) which may arise or
become known to it after the date of this Agreement and before
Completion which:
7.9.1 constitutes a breach of or is inconsistent with any of the
Warranties; or
7.9.2 has, or in the reasonable opinion of the Vendor is likely to
have, an adverse effect on the financial position or prospects
of the Company or the Subsidiary.
7.10 In the event of its becoming apparent on or before Completion that the
Vendor is in breach of any of the Warranties or any other term of this
Agreement the Purchaser may (without any liability on its part) rescind
this Agreement by notice in writing to the Vendor's Solicitors.
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7.11 The Vendor shall give to the Purchaser and its solicitors and
accountants both before and after Completion all such information and
documentation relating to the Company and the Subsidiary as the
Purchaser shall reasonably require to enable it to satisfy itself as to
the accuracy and due of observance of the Warranties.
7.12 The liabilities of the Vendor under the Warranties:
7.12.1 shall save in relation to paragraph 3 of Schedule 5 (the "Tax
Warranties") cease after the second anniversary of the
Completion Date except in respect of matters which have been
the subject of a bona fide written claim made before such date
by the Purchaser or the Purchaser's Solicitors to the Vendor
or the Vendor's Solicitors;
7.12.2 shall in relation to the Tax Warranties and for the avoidance
of doubt clause 8 being the Covenant in respect of Tax cease
after the seventh anniversary of the Completion Date except in
respect of matters which have been the subject of a bona fide
written claim made before such date by the Purchaser or the
Purchaser's Solicitors to the Vendor or the Vendor's
Solicitors;
7.13 The Vendor agrees with the Purchaser (for itself and in trust for each
member of the Purchaser's group, the Company and the Subsidiary) that
it will indemnify and keep indemnified the Purchaser for the benefit of
the Purchaser and in trust for each member of the Purchaser's group,
the Company and the Subsidiary from and against any claims, costs,
expenses, damages, losses of whatsoever nature (whether direct,
indirect, consequential or loss of profit) arising suffered or incurred
by any of them in relation to the Company's guarantee of the Guaranteed
Lease.
7.14 If any sum payable by the Vendor under this clause 7 shall be subject
to Tax (whether by way of deduction or withholding or direct assessment
of the person entitled thereto) such payment shall be increased by such
an amount as shall ensure that after deduction, withholding or payment
of such Tax the recipient shall have received a net amount equal to the
payment otherwise required hereby to be made.
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7.15 The Vendor undertakes to indemnify the Purchaser or, at the Purchasers
direction the Company or the Subsidiary, against any loss suffered by
any or all of them as a result of the failure of the Company and the
Subsidiary to be registered under the Data Protection Act 1998.
7.16 For the avoidance of doubt the terms of Schedule 8 to this Agreement
shall limit the liability of the Vendor hereunder.
8. Covenant in Respect of Tax
8.1 In this clause unless the context otherwise requires:
8.1.1 "event" includes (without limitation) any omission, event,
action or transaction whether or not the Company or the
Subsidiary is a party thereto, the death of any person, a
change in the residence of any person for any Tax purpose, a
failure to make sufficient dividend payments to avoid an
apportionment or deemed distribution of income and the
entering into and completion of this Agreement and references
to the result of events on or before the Completion Date shall
include the combined result of two or more events one or more
of which shall have taken place on or before the Completion
Date;
8.1.2 "relief" includes (without limitation) any relief, allowance,
credit, set off, deduction or exemption for any Tax purpose;
8.1.3 reference to income or profits or gains earned, accrued or
received shall include income or profits or gains deemed to
have been or treated as or regarded as earned, accrued or
received for the purposes of any legislation;
8.1.4 reference to any Tax liability shall include not only any
liability to make actual payments of or in respect of Tax but
shall also include:
8.1.4.1 the loss or reduction in the amount, or the setting
off against income, profits or gains, or against any
Tax liability for which no provision has
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been made in preparing the Accounts, of any relief
which would (were it not for the said loss, reduction
or setting off) have been available to the Company or
the Subsidiary and which has been taken into account
in computing (and so eliminating or reducing) any
provision for deferred Tax which appears (or which
but for such relief would have appeared) in the
Accounts;
8.1.4.2 the loss or reduction in the amount of, or the
setting off against any Tax liability for which no
provision has been made in preparing the Accounts, of
a right to repayment of Tax which has been treated as
an asset of the Company or the Subsidiary in
preparing the Accounts; and
8.1.4.3 the loss or reduction in the amount of, or the
setting off against income, profits or gains earned,
accrued or received on or before Completion, or
against any Tax liability of any relief which is not
available before Completion but which arises in
respect of an event occurring after Completion in
circumstances where, but for such loss, reduction or
setting off, the Company or the Subsidiary would have
had a Tax liability in respect of which the Purchaser
would have been able to make a claim under this
clause 8;
and in such a case the amount of Tax which could otherwise be
saved or relieved, by the relief so lost, reduced or set off
(calculated by reference to the rates of Tax in force at the
date of this Agreement) or the amount of repayment which would
otherwise have been obtained shall be treated as the amount of
a Tax liability which has arisen;
8.1.5 reference to a payment in respect of Tax includes (without
limitation) a payment for the surrender of losses or other
amounts by way of group relief (within the meaning of Section
402 of the Taxes Act) or for the surrender of advance
corporation tax or for the transfer of any other relief, a
repayment of any such payment and a payment by way of
reimbursement, recharge, indemnity or damages.
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8.2 Subject as hereinafter provided, the Vendor hereby covenants with and
undertake to pay to the Purchaser (for itself and as trustee for its
successors in title) a sum equal to the amount of:
8.2.1 any Tax liability of the Company or the Subsidiary resulting
from or by reference to any income, profits or gains earned
accrued or received on or before the Completion Date or any
event on or before the Completion Date whether alone or in
conjunction with other circumstances and whether or not such
Tax is chargeable against or attributable to any other person;
and
8.2.2 any Tax liability of the Company or the Subsidiary that arises
after Completion as a result of an act, omission or
transaction by a person other than the Company or the
Subsidiary and which liability to Tax falls upon the Company
or the Subsidiary as a result of its having been in the same
group for Tax purposes as that person at any time before
Completion; and
8.2.3 all costs and expenses which are incurred by the Purchaser or
the Subsidiary in connection with any of the matters referred
to in this clause 8 or in taking or defending any action under
the covenants contained in this clause 8 (including, without
prejudice to the generality of the foregoing, all legal and
other professional fees and disbursements).
8.3 The covenants contained in clause 8 do not apply to any liability:
8.3.1 to the extent that provision or reserve in respect thereof has
been made in the Accounts or to the extent that payment or
discharge of such liability has been taken into account
therein;
8.3.2 in respect of which provision or reserve has been made in the
Accounts which is insufficient only by reason of any increase
in rates of Tax made after the Completion Date with
retrospective effect.
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8.4 If the Purchaser shall become aware of any assessment, notice, demand
or other document issued or action taken by or on behalf of any person,
authority or body from which it appears that the Company or the
Subsidiary has or may have a liability in respect of which a claim
could be made under this clause, it shall give written notice thereof
to the Vendor and shall (if the Vendor shall indemnify and secure the
Purchaser and the Company and the Subsidiary as applicable to the
Purchaser's reasonable satisfaction against any liabilities, costs,
damages or expenses which may be incurred thereby) take such action and
procure that the Company and/or the Subsidiary shall take such action
as the Vendor may reasonably request to dispute, resist or compromise
the liability; provided that neither the Company nor the Subsidiary nor
the Purchaser shall be required to take any such action unless the
Vendor shall have produced to them the opinion of leading Counsel
practising in the relevant area of law that such action is reasonable
and provided also that neither the Company and/or the Subsidiary nor
the Purchaser shall in any event be required to take any steps which
would require any admission of guilt or liability relating to matters
connected with the claim in question or which would affect the future
conduct of the business of the Purchaser or the Company or the
Subsidiary or any subsidiaries of the Purchaser or affect the rights or
reputations of any of them.
8.5 The due date for the making of payments under this clause 8 shall be:
8.5.1 where the payment relates to a liability of the Company or the
Subsidiary to make an actual payment of or in respect of Tax,
the date which is seven days before the date on which such
actual payment is due to be made to the relevant authority;
8.5.2 where the payment relates to a matter falling within clause
8.1.4.1 or 8.1.4.3, the date falling seven days after the
Vendor has been notified by the Purchaser that the auditors
for the time being of the Company or the Subsidiary have
certified at the request of the Purchaser, the Company or the
Subsidiary that the Vendor has a liability for a determinable
amount under clause 8.2; and
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8.5.3 where the payment relates to a matter falling within clause
8.1.4.2 the date on which the repayment of Tax would otherwise
have been due to be made; and
8.5.4 in the case of costs and expenses within clause 8.2.4 the date
on which such costs and expenses are incurred.
8.6 If any payment due to be made by the Vendor under this clause is not
made on the due date for payment thereof the same shall carry interest
from such due date of payment until actual payment at the rate of 4 per
cent above the Base Rate from time to time of National Westminster Bank
PLC, compounded on the last days of March, June, September and December
in each year.
8.7 If any sum payable by the Vendor under this clause 8 (other than
interest under clause 8.6) shall be subject to Tax (whether by way of
deduction or withholding or direct assessment of the person entitled
thereto) such payment shall be increased by such an amount as shall
ensure that after deduction, withholding or payment of such Tax the
recipient shall have received a net amount equal to the payment
otherwise required hereby to be made.
8.8 The Vendor shall give all such assistance and provide such information
as the Purchaser shall reasonably request from time to time for the
purpose of enabling the Purchaser or the Subsidiary to make returns and
provide information as required to any Tax authority and to negotiate
any liability to Tax.
9. Pensions
The Company operates the Pension Scheme in respect of the Directors and
employees of the Company and the Subsidiary.
10. Restriction on Announcements
Each of the parties to this Agreement undertakes that whether before or after
Completion it will not (save as required by law or by any securities exchange or
any supervisory or regulatory body to whose rules any party to this Agreement is
subject in which case, if
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practicable, the announcements will be circulated to the other party prior to
disclosure) make any announcement in connection with this Agreement unless the
other parties shall have given their respective consents to such announcement
(which consents may not be unreasonably withheld or delayed and may be given
either generally or in a specific case or cases and may be subject to
conditions).
11. Pre-Completion Obligations
11.1 As from the date of this Agreement, the Vendor shall give and shall
procure that the Purchaser and/or any persons authorised by it will be
given such access to the premises and all books, title deeds, records
and accounts of the Company and the Subsidiary as the Purchaser may
reasonably request and be permitted to take copies of any such books,
deeds, records and accounts and that the Directors and employees of the
Company and the Subsidiary shall be instructed to give promptly all
such information and explanations to any such persons as aforesaid as
may be requested by it or them.
11.2 The Vendor shall procure that, from the date of this Agreement until
Completion, the Company shall not other than in the ordinary course of
business, without the prior written consent of the Purchaser:
11.2.1 enter into or vary any contract nor assume any liability which
is outside the ordinary or proper course of its business or
which is long term, unusual or onerous;
11.2.2 enter into any single capital commitment in a sum in excess
of(pound)75,000 (whether by way of purchase, lease, hire
purchase or otherwise);
11.2.3 make any material change in the nature, scope or organisation
of its business nor dispose of the whole of its undertaking or
property or a substantial part thereof;
11.2.4 acquire or form any subsidiary nor acquire any shares in any
company nor acquire the whole or any substantial part of the
undertaking assets or business
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of any other company or any firm or person or enter into any
joint venture or partnership with any other person;
11.2.5 make any loans or grant any credit (other than credit given in
the normal course of trading and advances made to employees
against expenses incurred by them on its behalf);
11.2.6 borrow any money (except borrowings from its bankers not
exceeding (pound)75,000) or make any payments out of or
drawings on its bank accounts (except payments in the ordinary
course of business);
11.2.7 enter into any guarantee, indemnity or surety;
11.2.8 employ or engage, or make any offer of employment or
engagement to, any senior employee or consultant on a salary
or consultancy fee of (pound)35,000 or more a year or make any
changes (whether immediate, conditional or prospective) in the
terms of employment (including, without limitation, in the
amount or basis of the emoluments or benefits) of any of its
employees or in any arrangements with its consultants;
11.2.9 enter into any agreement, arrangement or understanding with
any trade union, works council, staff association or other
employee representative body in respect of any of the
employees or directors of the Company;
11.2.10 acquire or dispose of or grant any option or right of
preemption in respect of any material asset or any interest
nor give nor receive any service otherwise than at market
value;
11.2.11 acquire or dispose of any freehold or leasehold property or
grant any lease or third party right in respect of the
Property;
11.2.12 negotiate or agree any review of rent in respect of any lease
of any of the Property;
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11.2.13 enter into any leasing, hire purchase agreement or any
agreement or arrangements for payment on deferred terms;
11.2.14 grant or enter into any licence, franchise or other agreement
or arrangement concerning any part of its name, trading names
or know-how;
11.2.15 declare, make or pay any dividend or distribution;
11.2.16 incur or pay any management charges;
11.2.17 permit any of its insurances to lapse or do anything which
would make any policy of insurance void or voidable;
11.2.18 make any payments to the Vendor;
11.2.19 apply for, surrender or agree any variations to any
Environmental Licences;
11.2.20 agree, conditionally or otherwise, to do any of the foregoing.
11.3 As soon as reasonably practicable after the date of this Agreement,
Purchaser shall prepare and file with the SEC the Proxy Statement in
accordance with the requirements of the Exchange Act, pursuant to which
the Purchaser solicits the proxies of the Purchaser's shareholders to
approve the execution, delivery and performance of this Agreement and
the transactions contemplated herein. Purchaser shall use its
reasonable efforts to have the Proxy Statement approved by the SEC as
promptly as possible after the filing thereof, and, as soon as
reasonably practicable following receipt of such approval, Purchaser
shall mail a copy of the Proxy Statement to each of its shareholders.
Purchaser shall also use its reasonable efforts to obtain any and all
permits and approvals required under applicable United States state
securities or "blue sky" laws and regulations for the execution,
delivery and performance of this Agreement, and the transactions
contemplated herein, as soon as reasonably practicable after the date
of this Agreement.
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11.4 The Vendor undertakes that it will provide and cause the Company to
provide, such information and any other assistance as the Purchaser may
reasonably require in order to prepare and file the Proxy Statement.
11.5 The Vendor undertakes that none of the information supplied, or to be
supplied, by the Vendor and/or the Company to the Purchaser for
purposes of inclusion or incorporation by reference into the Proxy
Statement, or any amendment or supplement thereto, will (i) at the date
of filing of the Proxy Statement with the SEC; (ii) at the time of
mailing of the Proxy Statement to the Purchaser's shareholders; or
(iii) at the time of any meetings of the Purchaser's shareholders to be
held to consider the transactions contemplated in this Agreement,
contain any untrue statement of material fact, or omit to state any
material fact required to be stated therein or necessary in order to
make the statements contained therein not misleading, in light of the
circumstances under which such statements were made.
If, at any time prior to the Completion Date, any material event should
occur, or Vendor should discover any material facts, relating to the
Vendor, the Company, the Subsidiary, or any officer or director
thereof, which should be set forth in a supplement to the Proxy
Statement, the Vendor shall provide prompt written notice thereof to
the Purchaser, and shall provide the Purchaser with (i) all relevant
information pertaining to such event or facts; and (ii) all assistance
reasonably requested by the Purchaser in connection with the
preparation and filing of such supplement to the Proxy Statement.
12. Confidentiality of Information Received by the Vendor
12.1 The Vendor undertakes with the Purchaser that it shall treat as
strictly confidential all information received or obtained by it or its
employees, agents or advisers as a result of entering into or
performing this Agreement including information relating to the
provisions of this Agreement, the negotiations leading up to this
Agreement, the subject matter of this Agreement and the business or
affairs of the Purchaser or any member of the Purchaser's group and
subject to the provisions of clause 12.3 that it will not at any time
hereafter make use of or disclose or divulge to any person any
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such information and shall use its reasonable endeavours to prevent the
publication or disclosure of any such information.
12.2 The Purchaser undertakes with the Vendor that it shall treat as
strictly confidential all information received or obtained by it or its
employees, agents or advisers relating to the business or affairs of
the Vendor and the terms of this Agreement and subject to the
provisions of clause 12.3 that it will not at any time hereafter make
use of or disclose or divulge to any person any such information and
shall use its best endeavours to prevent the publication or disclosure
of such information and in the event that this Agreement is rescinded
the Purchaser shall forthwith deliver to the Vendor and procure the
delivery by its advisors of all documents, records and copies thereof
containing Confidential Information in respect of the Company and/or
Subsidiary and/or its business.
12.3 The restrictions contained in clauses 12.1 and 12.2 shall not apply so
as to prevent any party from making any disclosure required by law or
by any securities exchange or supervisory or regulatory or governmental
body pursuant to rules to which such party is subject or from making
any disclosure to any professional adviser for the purposes of
obtaining advice (provided always that the provisions of this clause 12
shall apply to and the relevant party shall procure that they apply to
and are observed in relation to, the use or disclosure by such
professional adviser of the information provided to him) nor shall the
restrictions apply in respect of any information which comes into the
public domain otherwise than by a breach of this clause 12 by any
party.
13. Guarantee and Indemnity by Guarantor
13.1 In consideration of the Purchaser entering into this Agreement the
Guarantor hereby unconditionally and irrevocably guarantees to the
Purchaser the due and punctual performance and observance by the Vendor
of the Warranties and indemnities and covenants under or pursuant to
this Agreement and agrees to indemnify the Purchaser against all
losses, damages, costs and expenses (including legal costs and
expenses) which the Purchaser may suffer through or arising from any
breach by the Vendor of such obligations, commitments, warranties,
undertakings, indemnities or covenants. The liability of the Guarantor
as aforesaid shall not be released or diminished by any
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arrangements or alterations of terms (whether of this Agreement or
otherwise) or any forbearance, neglect or delay in seeking performance
of the obligations hereby imposed or any granting of time for such
performance.
13.2 If and whenever the Vendor defaults for any reason whatsoever in the
performance of any obligation or liability undertaken or expressed to
be undertaken by it under or pursuant to this Agreement, the Guarantor
shall forthwith upon demand unconditionally perform (or procure
performance of) and satisfy (or procure the satisfaction of) the
obligation or liability in regard to which such default has been made
in the manner prescribed by this Agreement (as the case may be) and so
that the same benefits shall be conferred on the Purchaser, the Company
or the Subsidiary as it would have received if such obligation or
liability had been duly performed and satisfied by the Vendor. The
Guarantor hereby waives any rights which it may have to require the
Purchaser to proceed first against or claim payment from the Vendor to
the intent that as between the Purchaser and the Guarantor the latter
shall be liable as principal debtor as if it had entered into all
undertakings, agreements and other obligations jointly and severally
with the Vendor.
13.3 This guarantee and indemnity is to be a continuing security to the
Purchaser for the Warranties, indemnities and covenants on the part of
the Vendor under or pursuant to this Agreement notwithstanding any
settlement of account or other matter or thing whatsoever.
13.4 This guarantee and indemnity is in addition to and without prejudice to
and not in substitution for any rights or security which the Purchaser
may now or hereafter have or hold for the performance and observance of
the obligations, commitments, undertakings, covenants, indemnities and
warranties of the Vendor under or in connection with this Agreement.
13.5 In the event of the Guarantor having taken or taking any security from
the Vendor in connection with this guarantee and indemnity, the
Guarantor hereby undertakes to hold the same in trust for the Purchaser
pending discharge in full of all the Guarantor's obligations under this
Agreement. The Guarantor shall not, after any claim has been made
pursuant to this clause 13, claim from the Vendor any sums which may be
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owing to it from the Vendor or have the benefit of any set-off or
counter-claim or proof against or dividend, composition or payment by
the Vendor until all sums owing to the Purchaser in respect hereof
shall have been paid in full.
13.6 As a separate and independent stipulation, the Guarantor agrees that
any obligation expressed to be undertaken by the Vendor under this
Agreement (including, without limitation, any moneys expressed to be
payable under this Agreement) which may not be enforceable against or
recoverable from the Vendor by reason of any legal limitation,
disability or incapacity of any of them or any other fact or
circumstance shall nevertheless be enforceable against or recoverable
from the Guarantor as though the same had been incurred by the
Guarantor and the Guarantor were sole or principal obligor in respect
thereof and shall be performed or paid by the Guarantor on demand.
14. Costs
14.1 Each party to this Agreement shall pay its own costs of and incidental
to this Agreement and the sale and purchase hereby agreed to be made.
14.2 The Vendor confirms that no expense of whatever nature relating to the
sale of the Sale Shares has been or is to be borne by the Company
and/or the Subsidiary.
15. General
15.1 This Agreement shall be binding upon and enure for the benefit of the
estates, personal representatives or successors of the parties.
15.2 This Agreement (together with any documents referred to herein or
executed contemporaneously by the parties in connection herewith)
constitutes the whole agreement between the parties hereto and
supersedes any previous agreements or arrangements between them
relating to the subject matter hereof; it is expressly declared that no
variations hereof shall be effective unless made in writing signed by
duly authorised representatives of the parties.
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15.3 All of the provisions of this Agreement shall remain in full force and
effect notwithstanding Completion (except insofar as they set out
obligations which have been fully performed at Completion).
15.4 If any provision or part of a provision of this Agreement shall be, or
be found by any authority or court of competent jurisdiction to be,
invalid or unenforceable, such invalidity or unenforceability shall not
affect the other provisions or parts of such provisions of this
Agreement, all of which shall remain in full force and effect.
15.5 Any right of rescission conferred upon the Purchaser hereby shall be in
addition to and without prejudice to all other rights and remedies
available to it (and, without prejudice to the generality of the
foregoing, shall not extinguish any right to damages to which the
Purchaser may be entitled in respect of the breach of this Agreement)
and no exercise or failure to exercise such a right of rescission shall
constitute a waiver by the Purchaser of any such other right or remedy.
The Purchaser shall have no right to rescind this Agreement after
Completion.
15.6 No failure of the Purchaser to exercise, and no delay or forbearance in
exercising, any right or remedy in respect of any provision of this
Agreement shall operate as a waiver of such right or remedy.
15.7 Upon and after Completion the Vendor shall do and execute or procure to
be done and executed all such further acts, deeds, documents and things
as may be necessary to give effect to the terms of this Agreement and
to place control of the Company and the Subsidiary in the hands of the
Purchaser and pending the doing of such acts, deeds, documents and
things the Vendor shall as from Completion hold the legal estate in the
Sale Shares in trust for the Purchaser.
15.8 At the request of the Purchaser, the Vendor shall execute under seal a
power of attorney in favour of the Purchaser or such person as may be
nominated by the Purchaser generally in respect of the Sale Shares and
in particular to enable the Purchaser (or its nominees) to attend and
vote at General Meetings of the Company.
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15.9 This Agreement may be executed in one or more counterparts, and by the
parties on separate counterparts, but shall not be effective until each
party has executed at least one counterpart and each such counterpart
shall constitute an original of this Agreement but all the counterparts
shall together constitute one and the same instrument.
15.10 This Agreement may not be assigned by any party without the prior
written consent of the other parties. Notwithstanding the foregoing,
the Purchaser may, without the consent of the other parties hereto,
assign any or all of its rights and delegate its obligations to the
extent that it has obligations, or any part thereof but the assignee
shall be in no better position than the Purchaser hereunder, to:
15.10.1 a newly formed Delaware Corporation, as part of a liquidation
and reincorporation of the Purchaser in Delaware, in
anticipation of listing of the Purchaser's shares on the
NASDAQ (National Association of Securities Dealers Automated
Quotations) small capitalisation market; and/or
15.10.2 any affiliate of the Purchaser, as part of a corporate
reorganisation undertaken for bona fide business purposes,
such as tax planning restructuring.
16. Notices
16.1 Save as otherwise provided in this Agreement any notice, demand or
other communication to be served under this Agreement shall be in
writing in the English language and shall be served upon any party
hereto only by posting by first class post (if to an address in the
same country) or air mail (if to an address in a different country) or
delivering the same by hand or by courier, to its address given or
referred to in this clause or sending the same by facsimile
transmission to the number given in this clause for the addressee or at
such other address or number as it may from time to time notify in
writing to the other parties hereto.
16.2 A notice, demand or other communication served by first class post
shall be deemed duly served on an address in the same country 48 hours
(disregarding days which are not business days) after posting, a
notice, demand or other communication served by
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air mail shall be deemed duly served on an addressee in a different
country five business days after posting and a notice, demand or other
communication sent by facsimile transmission shall be deemed to have
been served at the time of transmission (save that if the transmission
occurs after 6.00 p.m. the notice, demand or other communication shall
be deemed to have been served at 8.30 a.m. on the next business day
following transmission) and in proving service of the same it will be
sufficient to prove, in the case of a letter, that such letter was left
at or delivered to the correct address of the party to be served as
provided in this Agreement or, in the case of properly stamped or
franked first class post or air mail, addressed to the address of the
party to be served given in this clause and placed in the post and, in
the case of facsimile transmission, that such facsimile was duly
transmitted to the number of the party to be served given in this
clause and an electronic acknowledgement was received.
16.3 All notices, demands or other communications given under this
Agreement, shall be given to the following addresses:
If to the Vendor: Mr. Jay Vallabh
Director
Inversiones Mirabel, S.A.
Hong Kong Bank Building
6th Floor
Samuel Lewis Avenue
P.O. Box 6-4298
El Dorado
Panama City
Administrative Offices
----------------------
Mr. Jay Vallabh
Director
Inversiones Mirabel, S.A.
C/O CAS. S.A.
P.O. Box 567
12-14 Avenue Reverdil
CH-1260 Nyon, Switzerland
Telephone Number: 011 41 22 994 2880
Fax Number: 011 41 22 994 2888
Contact: Tanya Tamone
If to the Purchaser: Mr. Jerome G. Merchant
Director
Mendocino Brewing Company
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3 Harbor Drive #115
Sausalito, CA 94965
Telephone Number: 001 415 289 1400 Extension 109
Fax Number: 001 415 289 1409
Contact: Victoria Shepherd
If to the Guarantor: CAS Nominees Limited
Celtic House
Victoria Street
Douglas
Isle of Man
Telephone Number: 00 41 22 994 28 80
Fax Number: 00 41 22 994 28 88
For the attention of: J. Vallabh
16.4 For the purposes of this clause "business day" means a day (other than
a Saturday or a Sunday) on which banks are generally open for business
in London.
17. Governing Law and Submission to Jurisdiction
This Agreement shall be governed by and construed in accordance with English law
and the parties hereto submit to the non-exclusive jurisdiction of the English
courts for the purpose of enforcing any claim arising hereunder. The Vendor
hereby irrevocably appoints the Vendor's Solicitors to be its agent for service
of process in England.
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SCHEDULE 1
The Vendor
(1) (2)
Name and Address Number of Sale Shares
of Vendor
INVERSIONES MIRABEL, S.A. 100,000
Hong Kong Bank Building
6th Floor
Samuel Lewis Avenue
P.O. Box 6-4298
El Dorado
Panama City
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SCHEDULE 2
Details of the Company
THE COMPANY
UNITED BREWERIES INTERNATIONAL (UK) LIMITED
1. Registered number:
1688201
2. Address of registered office:
75 Westow Hill
Crystal Palace
London SE19 1TX
3. Date and place of incorporation:
21 December 1982 - England and Wales
4. Authorised share capital:
(pound)500,000
5. Issued share capital:
100,000 shares of (pound)1 each
6. Directors:
Villivalam Sampath Kumar
Gul Mohammad Khan Lodhi
Mavila Krishnan Nambiar
7. Secretary:
Gul Mohammad Khan Lodhi
8. Accounting Reference Date:
31 December
40
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9. Auditors:
J.M. Shah and Company
41
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SCHEDULE 3
The Subsidiary
Name of Subsidiary: UBSN LIMITED
Registered Number: 2367133
Date and place of Incorporation: 31 March 1989 - England and Wales
Address of Registered Office: 75 Westow Hill, Crystal Palace, London SE19 1TX
Directors:
Deepak Anand
Brian Keith Colin Dozey
Kalyan Ganguli
Dr. Vijay Mallya
David Royston Townshend
Secretary: Gul Mohammad Khan Lodhi
Auditors: Ernst & Young
Accounting Reference Date: 31 December
Authorised Share Capital:(pound)250,000 divided into 125,000 `A' ordinary shares
of (pound)1 each and 125,000 `B' ordinary shares of(pound)1 each.
Issued Share Capital: 250,000 shares divided into 125,000 `A' ordinary shares
of (pound)1 each and 125,000 `B' ordinary shares of(pound)1 each.
Registered Shareholders & identity of beneficial owners:
United Breweries International (UK) Limited 125,000 `A' ordinary shares and
125,000 `B' ordinary shares.
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SCHEDULE 4
The Property
Description
of Property: Lease of ground floor offices at White Horse West
Street, Faversham Kent
Date and Term
of Lease: 23.11.98, six years from 23.11.98
Landlord: Shephard Neame Limited
Tenant: UBSN Limited
Surety: None
Annual Rental: (pound)7000 p.a
Next Rent Review: 25.6.01
Present Use: Offices
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SCHEDULE 5
Warranties
In this Schedule unless the context otherwise indicates each of the Warranties
shall be deemed to be repeated mutatis mutandis in relation to the Subsidiary.
1. The Accounts
1.1 The Accounts have been prepared in accordance with the requirements of
all relevant statutes and with good and generally accepted accountancy
principles and practice and show a true and fair view of the state of
affairs of the Company and of its results and profits for the financial
period ending on the Accounting Date and:
1.1.1 depreciation of the fixed assets of the Company has been made
at a rate sufficient to write down the value of such assets to
nil not later than the end of their useful working lives;
1.1.2 slow-moving stock has been written down appropriately and
unrecoverable work in progress and redundant and obsolete
stock has been wholly written off and the value attributed to
the remaining stock did not exceed the lower of cost or net
realisable value at the Accounting Date on a going concern
basis;
1.1.3 the Company's stock in trade and work in progress has been
valued on a basis in all material respects consistent with
that adopted for the purpose of the Company's audited accounts
in respect of the beginning and end of each of the last three
preceding accounting periods.
1.2 The Accounts disclose and make full provision or reserve for all actual
liabilities.
1.3 The Accounts disclose and make full provision or reserve for or note
all contingent, unquantified or disputed liabilities, capital or
burdensome commitments and deferred Tax.
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1.4 Full provision or reserve has been made in the Accounts for all Tax in
respect of all accounting periods ended on or before the Accounting
Date for which the Company was then or might at any time thereafter
become or have become liable including (without limitation) Tax:
1.4.1 on or in respect of or by reference to the profits, gains or
income for any period ended on or before the Accounting Date;
or
1.4.2 in respect of any event before the Accounting Date including
distributions made and charges on income on or before such
date.
1.5 The bases and policies of accounting of the Company (including
depreciation) adopted for the purpose of preparing the Accounts are the
same as those adopted for the purpose of preparing the audited accounts
of the Company for each of the last three preceding accounting periods.
1.6 The profits and losses of the Company shown by the Accounts and for the
last three preceding accounting periods have not in any material
respect been affected by any unusual or non-recurring or exceptional
item or by any other matter which has rendered such profits or losses
unusually high or low.
1.7 None of the amounts shown in the Accounts in respect of non-group
debtors is represented by debts which were then or are now more than
three months overdue for payment and none of the same has been released
or settled for an amount less than that shown in the Accounts. All of
the Company's book debts, whether shown in the Accounts or arising
since the Accounting Date, are valid and have realised the nominal
amount thereof.
1.8 The Company has not factored any of its debts or entered into any
financing arrangement of a type which would not require to be shown or
reflected in the Accounts.
1.9 Except as disclosed in the Accounts there are:
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1.9.1 no loans, guarantees, material undertakings, material
commitments on capital account, entered into or incurred by or
on behalf of the Company;
1.9.2 no mortgages, charges, liens or other similar encumbrances on
the assets of the Company or any part thereof; and
1.9.3 no outstanding loan capital or other loans to the Company.
2. Management Accounts
The Management Accounts have been prepared in accordance with the accounting
policies of the Company which are set out in the Disclosure Letter and on a
consistent basis with the monthly management accounts of the Company and show a
fair view of the assets and liabilities and profits and losses of the Company as
at and to 30 September 2000.
3. Tax, Records and Returns
3.1 No event, act, transaction or omission has occurred or shall occur
between the Accounting Date and Completion which could give rise to a
claim under the terms of clause 8 of the Agreement.
3.2 All returns, computations (including, for the avoidance of doubt, those
tax computations attached to the Disclosure Letter), notices and
information made or provided or required to be made or provided by the
Company for any Tax purpose have been made or given within the
requisite periods and on a proper basis and when made were true and
accurate in all material respects and are up to date and none of them
is or is likely to be the subject of any dispute with any Tax
authority.
3.3 The Company has not without the prior consent of H.M. Treasury entered
into any of the transactions specified in Section 765 of the Taxes Act
and the Disclosure Letter contains details of all transactions effected
by the Company in respect of which any consent or clearance from the
Inland Revenue or H.M. Treasury or other governmental authority was
required or was sought.
46
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3.4 The Company has paid all Tax which it has become liable to pay on or
before the date hereof.
3.5 Within the preceding period of seven years the Company has not paid or
become liable to pay any fine, penalty, surcharge or interest in
relation to Tax.
3.6 The Company is and has always been resident in the United Kingdom for
Tax purposes and has never been resident for Tax purposes in any other
jurisdiction.
3.7 The Company is not and has never been a close company within the
meaning of Section 414 of the Taxes Act.
3.7.1 No loan or advance within Sections 419 to 422 of the Taxes Act
has ever been made by the Company nor has the Company released
or written off or agreed to release or write off the whole or
any part of such loan or advance.
3.7.2 No distribution within Section 418 of the Taxes Act has ever
been made by the Company.
3.7.3 The Company is a close investment-holding company.
3.8 The Subsidiary and not the Company carries on activities which are a
trade for the purposes of United Kingdom Tax and has not ceased and
will not as a result of any agreement entered into on or before
Completion cease to carry on such activities.
3.9 The Company has never carried on a trade for Tax purposes other than
the trade which the Company will be carrying on at Completion.
3.10 Other than the group of companies comprising the Vendor, the Company
and the Subsidiary, the Company is not and has never been a member of a
group of companies for Tax purposes.
47
<PAGE>
3.11 Full particulars of all elections made by the Company under Section 247
of the Taxes Act and now in force are set out in the Disclosure Letter
and the Company has not given and does not intend to give any notice
under Sub-section (3) of that Section in relation to any dividend.
3.12 Full particulars of all surrenders made or agreed to be made by or to
the Company under the provisions of Sections 240 and 402 to 412 of the
Taxes Act and of all payments made or agreed to be made by or to the
Company for or in consideration of any such surrenders are set out in
the Disclosure Letter and no such surrenders or payments will be made
on or prior to Completion.
3.13 The Company has not received any payment in respect of any surrender
made or agreed to be made under the provisions of Sections 240 and 402
to 412 of the Taxes Act which whether or not as a result of the entry
into or completion of this Agreement may be liable to be refunded in
whole or in part.
3.14 There are no arrangements in existence which whether or not taken
together with the entry into and completion of this Agreement would
result in the provisions of Section 240(11) or Section 410 of the Taxes
Act applying to the Company and any other company.
3.15 The Company is neither a creditor nor a debtor in respect of a loan
which is not a normal commercial loan as defined in paragraph 1 of
Schedule 18 to the Taxes Act.
3.16 No rents, interest, annual payments, emoluments or other sums of an
income nature paid or payable by the Company or which the Company is
under an obligation to pay in the future are or (under the law as
presently in force) may be wholly or partially disallowable as
deductions or charges in computing profits or against profits for Tax
purposes.
3.17 Full details of all unrelieved Tax losses, management expenses, charges
on income, advance corporation tax or excess franked investment income
available to the Company are set out in the Disclosure Letter.
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<PAGE>
3.18 During the period of three years ending with the Accounting Date and
during the period between the Accounting Date and the Completion Date
there has been and will be no major change in the nature or conduct of
a trade or business of the Company within the meaning of Sections 245,
768 or 768A of the Taxes Act or Schedule 7A to the TCGA nor has the
scale of the activities in such a trade become small or negligible.
3.19 No debt owed by the Company to which Section 94 of the Taxes Act
applied has within the preceding period of six years been released.
3.20 The Company has no assets or liabilities which are qualifying assets or
qualifying liabilities within Section 153 of the Finance Act 1993.
3.21 The Company has not made and is not entitled to make any claim under
Sections 24, 48, 253, 254, 279 or 280 of the TCGA or Sections 584 or
585 of the Taxes Act.
3.22 No act or transaction has been or will, on or before Completion, be
effected by the Company, the Vendor or any other person (including the
sale of the Sale Shares), in consequence of which the Company is or may
be held liable for Tax primarily chargeable against some other person.
3.23 The Company has made all deductions and withholdings which it is
obliged or entitled to make in respect, or on account, of any Tax from
any payments and has duly accounted in full to the appropriate
authority for all amounts so deducted or withheld.
3.24 [Not used]
3.25 [Not used]
3.26 [Not used]
3.27 The Company is not under any obligation to make any payment of interest
or any annual payment for which no relief will be received, whether as
a deduction or charge
49
<PAGE>
on income by reason of Section 125 of the Taxes Act or otherwise, and
no such payments have been made since the Accounting Date.
3.28 The Company has not made any distribution (within the meaning of
Section 209 of the Taxes Act) other than the payment of dividends,
there is outstanding no loan to the Company on which any interest paid
would be such a distribution and the Company is not under an obligation
to make any distribution in the future.
3.29 The Company has not at any time made a repayment of capital within the
meaning of Section 209 of the Taxes Act nor capitalised or agreed to
capitalise in the form of shares, debentures or other securities or in
paying up any amounts unpaid on any shares, debentures or other
securities any profits or reserves of any class or description or
passed or agreed to pass any resolution to do so, nor has it provided
capital to any company on terms that such company has in consideration
issued shares, loan stock or other securities where the terms of the
capitalisation were otherwise than by way of a transaction made at
arm's length or where the shares, loan stock or other securities
acquired are shown in the Accounts at a value in excess of their market
value at the time of acquisition.
3.30 The Company has not been engaged in or been a party to any of the
transactions set out in Sections 213 to 218 of the Taxes Act nor has it
made or received a chargeable payment as defined therein.
3.31 The Company has not entered into or been engaged in or been a party to
any transaction or series of transactions or scheme or arrangement of
which the main purpose or one of the main purposes was the avoidance or
deferral of Tax or a reduction in the liability to Tax of the Company.
3.32 The Company has not done anything which could give rise to an
assessment under Sections 703, 776 or 779 to 786 inclusive of the Taxes
Act.
3.33 The Company has not within the preceding period of six years done or
omitted to do or agreed to do nor permitted to be done any act nor
suffered any occurrence (other than a sale of an asset at a price equal
to its market value) as a result of which any
50
<PAGE>
disposal value has been or may be required to be brought into account
under Section 24 of the CAA.
3.34 The Company has not within the preceding period of six years done nor
has it omitted to do nor agreed to do nor permitted to be done any act
nor has it suffered any occurrence as a result of which any balancing
charge has arisen or may arise under Section 4 of the CAA.
3.35 The Company has not taken a lease nor granted a lease of any assets in
respect of which an election has been made under Sections 53 or 55 of
the CAA.
3.36 The Disclosure Letter with specific reference to this warranty 3.41
sets out full details of any lease of any interest in land or plant or
machinery to which the Company as lessee was or has become a party
where the rent payable by the Company is or may be liable to adjustment
in the event of changes in legislation relating to Tax.
3.37 All plant or machinery held by the Company on lease is and has at all
times been used for a qualifying purpose in the requisite period in
accordance with Chapter II Part V of the CAA and was purchased by the
relevant lessor as principal acting for itself and without the
intervention or agency of the Company or any person acting on its
behalf.
3.38 The Company has elected or has been treated as having elected that all
disposals made by it fall outside Section 35(3) of the TCGA.
3.39 The Company does not own any debt on a security or other debt in
respect of which a chargeable gain may arise on a disposal of the debt.
3.40 The Company is not a creditor in relation to any such loan relationship
as is referred to in Section 92 of the Finance Act 1996 nor is it a
party to any such loan relationship as is referred to in Section 93
thereof.
3.41 The Company does not owe any amount in respect of which the provisions
of paragraph 2 of Schedule 9 to the Finance Act 1996 may be applied.
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3.42 The Company is not a debtor in relation to any loan relationship which
has an "unallowable purpose" within the meaning of paragraph 13 of
Schedule 9 to the Finance Act 1996.
3.43 The Company has not acquired or disposed of any asset in circumstances
where Section 17 of the TCGA applies.
3.44 The Company has not appropriated any trading stock to fixed assets or
vice versa.
3.45 On a disposal of all of its assets by the Company for (in the case of
each asset owned by the Company at the Accounting Date) a consideration
equal to the value attributed to that asset in preparing the Accounts
or (in the case of each asset acquired since the Accounting Date) a
consideration equal to the actual consideration given for the
acquisition then (in the case of each asset so owned) the liability to
Tax (if any) which would be incurred by the Company would not exceed
the amount (if any) taken into account in respect of that asset in
computing the liability of the Company to deferred Tax as provided for
in the Accounts and (in the case of assets so acquired) no Tax
liability would be incurred by the Company in respect of that asset.
3.46 No claim has been made or will before Completion be made under Sections
152, 153, 154 or 175 of the TCGA in respect of any asset owned by the
Company.
3.47 The Company has not been a party to or involved in any share for share
exchange nor any scheme of reconstruction or amalgamation such as are
mentioned in Sections 135, 136 or 139 of the TCGA.
3.48 No scheme has been effected and no arrangements have been made whereby
the value of any asset of the Company has been materially reduced and
on a disposal thereof Section 30 of the TCGA may be applicable and no
loss which might accrue on the disposal of any share in or security of
any company is liable to be reduced by virtue of any depreciatory
transaction within the meaning of Sections 176 or 177 of the TCGA nor
is any expenditure on any share liable to be reduced under Section 125
of the TCGA.
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3.49 The Company does not have and will not on Completion have any
distributable profits which will be chargeable profits as that term is
defined in Section 31 of the TCGA.
3.50 The Company has not at any time transferred in exchange for shares
and/or loan stock part or all of a trade carried on outside the United
Kingdom through a branch or agency to a company not resident in the
United Kingdom.
3.51 The Company has never ceased to be a member of a group of companies for
the purposes of Sections 178 or 179 of the TCGA and the Company will
not be liable to Tax thereunder by virtue of the entering into and
completion of this Agreement.
3.52 The Company has not at any time within the period of six years ending
with the Accounting Date acquired any asset from any company which at
the time of acquisition was a member of the same group (within the
meaning of Section 170 of the TCGA).
3.53 The Company is not liable to be assessed for corporation tax on
chargeable gains.
3.54 The Company has not entered into any transaction or arrangement in
respect of which the provisions of Section 770 or Section 770A of the
Taxes Act have been or could be applied.
3.55 The Company does not hold directly or indirectly any interest in a
company which if it were subject to a lower level of taxation in the
territory in which it is resident would be a controlled foreign company
within Section 747 of the Taxes Act.
3.56 No direction affecting the Company has been made under Section 747 of
the Taxes Act and no circumstances exist which would permit such a
direction to be made to apportion any of the profits of another company
to the Company.
3.57 No chargeable gain may be attributed to the Company under Section 13 of
the TCGA.
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3.58 The Company is not and has not at any time within the preceding period
of six years been liable to Tax in any jurisdiction other than the
United Kingdom.
3.59 There is no unsatisfied liability to inheritance tax attached or
attributable to the Sale Shares or any asset of the Company nor are
they or any of them subject to an Inland Revenue charge as mentioned in
Sections 237 or 238 of IHTA nor is any person liable to inheritance tax
attributable to the value of any of the Sale Shares or any asset of the
Company.
3.60 No person has by virtue of Section 212 of IHTA any power of sale,
mortgage or charge in respect of any shares in or asset of the Company
and there are no circumstances in existence whereby any such power
could be exercised in relation to any of the Sale Shares or any asset
of the Company.
3.61 All documents to which the Company is a party or which form part of the
Company's title to any asset or in the enforcement of which the Company
is or may be interested which are subject to stamp or similar duty have
been duly stamped and adjudicated.
3.62 The Company has not entered into any agreement whereby it is or may
become liable to stamp duty reserve tax.
3.63 The Company is registered for the purposes of value added tax and has
been so registered at all times that it has been required to be
registered and has at no time within the previous 3 years been treated
as a member of a group of Companies for the purposes of Section 43 of
VATA.
3.64 The Company has complied fully with all statutory requirements, orders,
provisions, directions or conditions relating to value added tax
including the terms of any agreement reached with the Commissioners of
Customs & Excise, maintains and has at all times maintained complete
correct and up-to-date records for the purposes of such legislation and
has preserved such records in such form and for such periods as are
required by the relevant legislation relating to value added tax.
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3.65 The Company is not in arrears with any payment or returns in relation
to value added tax.
3.66 The Company has not been required by the Commissioners of Customs &
Excise to give security.
3.67 The Company does not operate any special VAT methods or arrangements.
3.68 The Company is not a party to any contract in respect of which it is
obliged to account for VAT pursuant to the provisions of Section 8 or
Section 10 of VATA.
3.69 The Company has not within the preceding period of six years made
exempt supplies of such amount that as a consequence thereof the
Company has been unable to obtain credit for any input tax paid or
suffered by it.
3.70 The Disclosure Letter contains full particulars of all land in which
the Company has an interest and in relation to which an election has
been made and not revoked by the Company or by any relevant associate
(as defined by paragraph 3(7) of Schedule 10 to VATA) of the Company to
waive exemption from value added tax under paragraph 2 of that Schedule
and of all buildings and civil engineering works owned by the Company
and completed for the purposes of Group 1 of Schedule 9 to VATA within
the last three years.
3.71 The Disclosure Letter contains full particulars of all notifications
received by the Company under paragraph 7 of Schedule 10 to VATA.
3.72 The Company is not a developer as defined in paragraph 5 of Schedule 10
to VATA in relation to any building or work within paragraph 5(2) of
that Schedule or any reconstructions, enlargements or extensions within
paragraph 5(8) of that Schedule either currently being constructed,
reconstructed, enlarged or extended or whose construction,
reconstruction, enlargement or extension was completed within five
years prior to the date of this Agreement.
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3.73 There are set out in the Disclosure Letter particulars of each asset
used by the Company in the course or furtherance of its business being
assets to which Part XV of the Value Added Tax Regulations 1995 applies
and in respect of which the period of adjustment will not have expired
before Completion. Such particulars are sufficient to enable the
Company to comply with its obligations under the said Part XV.
3.74 The Disclosure Letter contains details of all claims made by the
Company to a refund of value added tax under Part XVIII or Part XIX of
the Value Added Tax Regulations 1995.
3.75 The information given by the Company to HM Customs and Excise and all
other authorities (whether of the United Kingdom or otherwise) in
connection with the import or export of any goods was when given true
and accurate and the Company has complied with all legislation,
regulations, orders, directions or conditions (whether of the United
Kingdom or otherwise) relating to the import and export of goods and to
all customs and excise matters.
3.76 The books and records of the Company accurately present and reflect in
accordance with generally accepted accounting principles and standards
within the Company's jurisdiction of incorporation all transactions
entered into by the Company or to which it has been a party.
3.77 The Company has properly operated the PAYE and National Insurance
contribution systems by making such deductions as are required by law
from all payments made or deemed to be or treated as made by it or on
its behalf or for which it is otherwise required to account and by duly
accounting to the Inland Revenue for all sums so deducted and for all
other amounts for which it is required to account under the PAYE and
National Insurance contribution systems.
3.78 The Company has not suffered any PAYE audit by the Inland Revenue
within the preceding period of six years nor has it been notified that
any such audit will be or is expected to be made.
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3.79 The Company does not operate any scheme approved under Section 202 of
the Taxes Act or Chapter III of Part V of the Taxes Act.
3.80 The Company has complied in full with all its reporting obligations to
the Inland Revenue in connection with benefits provided for any
director or employee.
3.81 No payment has been made to the Company to which Section 601 of the
Taxes Act applies.
4. Corporate Matters
4.1 The Company has been duly incorporated and is validly existing and no
order has been made or resolution passed for the winding up of the
Company or for an administration order in respect of the Company and no
distress, execution or other process has been levied on any of its
assets. The Company is not insolvent or unable to pay its debts for the
purposes of Section 123 of the Insolvency Act 1986 and no
administrative receiver or receiver or receiver and manager has been
appointed by any person of its business or assets or any part thereof
and no power to make any such appointment has arisen.
4.2 The Vendor is the beneficial owner of the Sale Shares set opposite its
name in column 2 of Schedule 1, free and clear of any lien, charge,
option, right of pre-emption or other encumbrance or third party right
whatsoever and the Company has not exercised any lien over any of its
issued shares and there is no outstanding call on any of the Sale
Shares and all of the Sale Shares are fully paid.
4.3 The Sale Shares constitute all the issued shares in the capital of the
Company.
4.4 The Company has no subsidiary or shares in any company other than the
Subsidiary and all of the details shown in Schedule 3 relating to the
Subsidiary are accurate and complete, the Company has no subsidiary
undertakings which are not also subsidiaries and no participating
interest in any undertaking (as defined in Section 259 Companies Act
1985) which is not also a subsidiary of the Company.
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4.5 The Company does not have and has never had any place of business or
branch or permanent establishment outside its jurisdiction of
incorporation, nor has it carried on any trading activities outside
such jurisdiction.
4.6 The Company has never reduced, repaid, redeemed or purchased any of its
share capital.
4.7 There are no options or other agreements outstanding which call for the
issue of or accord to any person the right to call for the issue of any
shares in the capital of the Company or the right to require the
creation of any mortgage, charge, pledge, lien or other security or
encumbrance over the Sale Shares.
4.8 The copies of the Memorandum and Articles of Association of the Company
which are attached to the Disclosure Letter are accurate and complete
in all respects and have attached to them copies of all resolutions and
agreements which are required to be so attached. The Company has
complied with its Memorandum and Articles of Association in all
respects and none of the activities, agreements, commitments or rights
of the Company is ultra vires or unauthorised.
4.9 The Register of Members and all other statutory books of the Company
are up to date and contain true full and accurate records of all
matters required to be dealt with therein and the Company has not
received any notice of any application or intended application under
the Companies Acts for rectification of the Company's register and all
annual or other returns required to be filed with the Companies
Registry have been properly filed within any applicable time limit and
all legal requirements relating to the issue of shares and other
securities by the Company have been complied with.
5. Trading and General Commercial Matters
5.1 The Company has good and marketable title to all such assets as are
necessary to enable it properly to conduct its business as such
business has been conducted prior to the date hereof and to all stocks
used in its business. All such assets and stocks are free from any
liens, mortgages, charges, encumbrances or other third party rights and
the stock confirms to statutory, regulatory and voluntary standards and
requirements.
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5.2 The fixed and loose plant, machinery, furniture, fixtures and fittings,
equipment and vehicles and other tangible assets used in connection
with the business of the Company and all other fixed assets referred to
in the Accounts and any additions thereto made since the Accounting
Date are the sole and absolute property of and held by the Company free
from any liens, mortgages, charges, encumbrances, hire or hire purchase
agreements, credit sale agreements or agreements for payment on
deferred terms or bills of sale and the Company has good and marketable
title thereto and all such assets are in the possession or under the
control of the Company.
5.3 In the reasonable opinion of the Vendor the Company is not a party to:
5.3.1 any unusual or onerous contract nor any contract which cannot
be terminated without penalty or other compensation on less
than twelve months' notice;
5.3.2 any contract restricting the Company's freedom of action in
relation to its normal business activities or materially and
adversely affecting its business or assets;
5.3.3 any contract not made in the ordinary course of business;
5.3.4 any contract for the purchase or use by the Company of
materials, supplies or equipment which is in excess of the
requirements of the Company for its normal operating purposes;
5.3.5 any agency, distribution, marketing, purchasing, franchising
or licensing agreement, other than those described in the
Disclosure Letter;
5.3.6 any joint venture, agency, shareholders' or partnership
arrangement or agreement or any agreement which purports to
regulate, control or otherwise affect the voting or
disposition of its shares;
5.3.7 any contract for services (other than normal office services).
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5.4 There are no contracts or obligations, agreements, arrangements or
concerted practices to which the Company is a party or by which the
Company is bound and there are no practices in which the Company is
engaged which are void, illegal, unenforceable, registrable or
notifiable under or which contravene the Restrictive Trade Practices
Act 1976, the Fair Trading Act 1973, the Competition Act 1980, Articles
81 or 82 of the EC Treaty and regulations made thereunder or under EC
Council Regulation 4064/89 as amended and regulations made thereunder,
the Competition Act 1998 or any other antitrust or similar legislation
anywhere in the world (all and any such legislation and regulations
being referred to as "the antitrust rules" in this paragraph 5.5). The
Company has not registered any agreements or arrangements under the
Restrictive Trade Practices Act 1976 or filed any notification for
exemption or application for negative clearance with the Commission of
the European Communities. The Company has received no complaint or
threat to complain under or referring to the antitrust rules from any
person and has not received any request for information or objection
from or received notice of an investigation by any person with power to
enforce the antitrust rules or been the addressee of or party to any
decision, judgement, undertaking or settlement relating to the
antitrust rules or to any proceedings in which the antitrust rules were
pleaded or relied upon.
5.5 No agreement, arrangement or practice carried on by the Company or to
which the Company is a party:
5.5.1 is by virtue of its terms or by virtue of any practice for the
time being carried on in connection therewith a "consumer
trade practice" within the meaning of Section 13 of the Fair
Trading Act 1973 and susceptible to or under reference to the
Consumer Protection Advisory Committee or the subject matter
of a report to the Secretary of State or the subject matter of
an order by the Secretary of State under the provisions of
Part II of that Act;
5.5.2 infringes any other fair trading or consumer protection law or
legislation applicable in any jurisdiction in which the
Company operates.
5.6 So far as the Vendor is aware with respect to each contract,
commitment, arrangement to which the Company is party or by which it is
bound:
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5.6.1 the Company has duly performed and complied in all material
respects with each of its obligations thereunder;
5.6.2 there has been no delay, negligence or other default on the
part of the Company and no event has occurred which, with the
giving of notice or passage of time, may constitute a default
thereunder;
5.6.3 the Company is under no obligation which cannot readily be
fulfilled, performed or discharged by it on time and without
undue or unusual expenditure or effort;
5.6.4 the Company has the technical and other capabilities and the
human and material resources to enable it to fulfil, perform
and discharge all its outstanding obligations in the ordinary
course of business and without realising a loss on completion
of performance;
5.6.5 there are no grounds for rescission, avoidance, repudiation or
termination and the Company has not received any notice of
termination, and
5.6.6 having made no enquiry none of the other parties thereto is in
default thereunder.
5.7 Except in the ordinary course of business no tender, quotation or offer
issued by the Company and still outstanding is or will be capable of
giving rise to a contract merely by an order acceptance or other action
by another party.
5.8 The Disclosure Letter sets out full and accurate details of each bank,
building society or other similar institution, account or safety
deposit box maintained by the Company including the name and address of
each such bank, building society or other institution and the names of
all persons authorised to draw thereon or have access thereto.
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5.9 All amounts received by the Company have been deposited with one or
other of such banks, building societies or other similar institutions
and appear in the appropriate accounting books.
5.10 There are no non-group loans, guarantees, pledges, mortgages, charges,
liens, debentures or encumbrances given, made or incurred by or on
behalf of the Company and no person has given any guarantee of or
security for any overdraft loan or loan facility granted to the
Company, other than the ones described in the Disclosure Letter.
5.11 The execution, delivery and performance of this Agreement will not
result in the breach, cancellation or termination of any of the terms
or conditions of or constitute a default under any agreement,
commitment or other instrument to which the Company is a party or by
which the Company or its property or assets may be bound or affected or
result in the acceleration of any obligation under any loan agreement
or violate any law or any rule or regulation of any administrative
agency or governmental body or any order, writ, injunction or decree of
any court, administrative agency or governmental body affecting the
Company.
5.12 There are no agreements concerning the Company which can be terminated,
or which have been terminated, or under which the rights of any person
are liable to be materially adversely affected, or under which the
consent of the other contracting party is required as a result of a
change in control of the Company or in the composition of the Board of
Directors of the Company.
5.13 The Vendor is not aware of any circumstances whereby, following a
change in the control of the Company or in the composition of the Board
of Directors of the Company, any of the principal customers of or
suppliers to the Company would cease to remain customers or suppliers
to the same extent and of the same nature as prior to the date hereof.
5.14 No goods delivered by the Company have been defective or in any way
failed to comply with the terms of sale thereof or with the
requirements of law and no services provided by the Company have been
provided in a negligent manner or in any other
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manner which would entitle the recipient of such services to claim
damages against the Company.
5.15 The Company has no liabilities except liabilities arising in the
ordinary course of business under contracts for service, purchase
orders, supply contracts or sale contracts, nor does it have any other
liabilities direct or indirect, absolute or contingent, not required by
generally accepted accounting principles to be referred to in the
Accounts and the Company is not owed any moneys other than trade debts
and cash at bank.
5.16 The Company has received no notice that it is the subject of any
official investigation or inquiry and the Vendor is not aware of any
facts which are likely to give rise to any such investigation or
inquiry.
5.17 So far as the Vendor is aware neither the Company, nor any of its
directors, employees or agents in relation to the Company, has
committed any criminal offence or any tort relating to the Company or
the carrying on of its business and without prejudice to the generality
of the foregoing the Company has obtained and at all relevant times
maintained all registrations, licences and consents necessary for the
carrying on of its business, and all such registrations, licences and
consents are valid and subsisting and the Vendor does not know of any
reason why any of them should be suspended, cancelled or revoked
(whether as a result of the sale and purchase of the Sale Shares
pursuant to this Agreement or otherwise).
5.18 The Company has given no powers of attorney which are still outstanding
or effective to any person to enter into any contract or commitment to
do anything on its behalf other than the authority of employees to
enter into contracts in the normal course of their duties.
5.19 The Company does not carry on business under any name other than its
own.
5.20 No person is entitled to receive from the Company any finder's fee,
brokerage's fee, investment banker's fee or commission with respect to,
or in connection with, the
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execution, delivery and performance of this Agreement and the
transactions contemplated herein.
5.21 The Company does not have any of its records, systems, controls, data
or information recorded, stored, maintained, operated or otherwise
wholly or partly dependent on or held by any means (including any
electronic, mechanical or photographic process whether computerised or
not) which (including all means of access thereto and therefrom) are
not under the exclusive ownership and direct control of the Company.
5.22 The Company is duly registered under the Data Protection Act 1998, and
all due and requisite fees in respect of the Company's registration
have been paid. The details contained in such registrations are
correct, proper and suitable for the purposes for which the Company
holds or uses the personal data which is the subject of such
registrations.
5.23 The Company has security procedures in place to prevent unauthorised
access, amendment or damage to the Company's data or the data of third
parties held, recorded, stored, maintained or operated by the Company
or on behalf of the Company by any third party, and no unauthorised
access, amendment or damage to such data has taken place during the six
year period preceding Completion.
5.24 No act or transaction has been effected by or on behalf of the Company
involving the making or authorising of any payment, or the giving of
anything of value, to any government official, political party, party
official or candidate for political office for the purpose of
influencing the recipient in his or its official capacity in order to
obtain business, retain business or direct business to the Company or
any other person or firm.
5.25 The Company has not at any time in the previous six years:
5.25.1 entered into any transaction at an undervalue (within the
meaning of Section 238 or Section 339 or Section 423 of the
Insolvency Act 1986) with any other person; or
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5.25.2 been given any preference (within the meaning of Section 239
or Section 340 of the Insolvency Act 1986) by any other
person; or
5.25.3 entered into any other transaction which is void or voidable
(whether in whole or in part) or received any other benefit
which is or may be liable to be returned or repaid (whether in
whole or in part).
6. The Property
6.1 The Property comprises all the land and premises owned or occupied or
otherwise used by the Company and all the estate, interest, right and
title whatsoever of the Company in, under, over or in respect of any
land or premises and the descriptions set out in Schedule 4 are correct
and not misleading.
6.2 The Company possesses good and marketable title to the Property and is
the legal and beneficial owner thereof.
6.3 The Property is free and clear of all claims, charges, mortgages,
liens, encumbrances, leases, tenancies, licences or other rights of
occupation, options, rights of pre-emption, rights of first refusal and
other agreements affecting the same and the Company has exclusive and
unfettered possession of the Property.
6.4 The title of the Subsidiary to the Property is properly constituted by
and can be deduced from documents of title which are in the possession
and under the control of the Company.
6.5 The Property is not subject to any outgoings other than rent and
service charges.
6.6 There are no covenants, restrictions, burdens, stipulations, wayleaves,
easements, grants, conditions, terms, overriding interests, rights or
licences affecting the Property which is of an unusual or onerous
nature or which adversely affect the use or intended use of the
Property.
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6.7 So far as the Vendor is aware, all covenants, restrictions,
stipulations, conditions and other terms affecting the Property have
been observed and performed and there are no circumstances which would
entitle or require any landlord or other person to exercise any powers
of entry and taking possession or which would otherwise give rise to
restriction or termination of the continued possession or occupation of
the Property.
6.8 [Not used]
6.9 None of the facilities necessary for the enjoyment and use of the
Property or any part of them are enjoyed on terms entitling any person
to terminate or curtail the same.
6.10 So far as the Vendor is aware, the Company has received no notice of
any outstanding disputes, notices or complaints which affect or might
in the future affect the use of the Property for the purposes for which
they are now used.
6.11 The present use of the Property is the permitted use for the purpose of
the Planning Acts.
6.12 None of the Property are adversely affected or likely to be adversely
affected by any planning proposals.
6.13 The use of the Property permitted by the Planning Acts is not a
temporary or personal user or user subject to onerous or unusual
conditions giving rise to expenditure or adversely affecting the
Company's use and enjoyment of the Property.
6.14 No development has been carried out by the Company or the Subsidiary in
relation to the Property which would require any consent under or by
virtue of the Planning Acts or any bye-laws or building regulations or
other relevant legislation without such consent having been properly
obtained and any conditions or restrictions imposed thereon have been
fully observed and performed. No application by the Company for
planning consent has been refused and no application by the Company for
planning consent has been submitted or a decision in relation thereto
appealed against where the decision in relation thereto or the outcome
of the appeal (as appropriate) is still pending.
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6.15 [Not used]
6.16 All schedules for policies of insurance relating to the Property
(including fixtures, fittings and contents) effected by the Company are
attached to the Disclosure Bundle and are current and valid, and are
not subject to any special or unusual terms or restrictions and, in
respect of policies on the Property held on lease where the Company is
responsible for maintaining insurance, the policy conforms in all
respects with the requirements of the lease under which the Property is
held.
6.17 The Company has inspected any current policies of insurance relating to
the Property (including fixtures fittings and contents) which have not
been effected by the Company and they are current and valid cover the
full reinstatement value thereof (including where the relevant property
is let, loss of rent cover for a minimum of three years) and are not
subject to any special or unusual terms or restrictions or to the
payment of any premium in excess of the normal rate for policies of the
same kind where the Property is insured by a landlord under the terms
of a lease the policy conforms in all respects with the requirements of
the relevant lease and the insurer has waived any rights of subrogation
it may have against the Company.
6.18 The Company has not entered into any agreements with any water,
sewerage or other utilities authority for the supply of water, sewerage
or other facilities to or from the Property or mains or other equipment
laying and has not deposited any monies with any such authority as
security therefor.
6.19 [Not used]
6.20 [Not used]
6.21 The Company is not engaged in any negotiation for review of the rent
payable under any lease under which it holds the Property and no
negotiations for such review have been concluded changing the rent from
that set out in Schedule 4 or in the Disclosure Letter.
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6.22 All rent review notices and counternotices and notices, counternotices
and applications to the Court under the Landlord and Tenant Act 1954
have been served within any requisite time limits and there are no
disputes outstanding as to the settlement of the relevant level of rent
under the leases of the Property.
6.23 The Company has not at any time assigned or otherwise disposed of any
property, leasehold or otherwise, in respect of which it has a
continuing liability (contingent or otherwise) for payment of rent
and/or for any other liability.
6.24 The Company is not the guarantor of or surety for any other party's
liability (contingent or otherwise) for any obligations under any lease
or tenancy or under any agreement relating to the assignment of any
lease or tenancy.
7. Environmental Issues
7.1 The Company has received no notice that it is in breach of the
Environmental Laws and has at all times complied with all Environmental
Laws.
7.2 The Company has not engaged in or permitted any operations or
activities upon the Property involving the use, storage, handling,
release, treatment, manufacture, processing, deposit, transportation or
disposal of any Hazardous Substance, or any substance regulated by the
Environmental Laws and the Vendor has no knowledge of any such
activities.
7.3 So far as the Company or the Vendor is aware having made no enquiry of
the landlord, the landlord of the Property has not received notice of
any threatened or pending civil or criminal actions, notices of
violations, investigations, administrative proceedings or written
communications from any regulatory authority under any Environmental
Laws that any of the activities carried out on the Property violates,
or is inconsistent with, any Environmental Laws, and to the best
knowledge of the Vendor, the landlord is in full compliance with all
material Environmental Laws.
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8. Confidential Information and Intellectual Property
8.1 The Company does not use any processes and is not engaged in any
activities which involve the misuse of any Confidential Information
belonging to any third party, nor does the Company otherwise have in
its possession or control any such Confidential Information without the
licence or authority of the relevant owner.
8.2 Copies of all written agreements and arrangements under which
Confidential Information belonging to any third party is made available
to the Company are attached to the Disclosure Letter. All such
agreements and arrangements are in full force and effect. The Company
is not in breach nor has it received notice of any alleged breach of
any such agreement or arrangement and is not aware of the existence of
any circumstances under which its right to use such Confidential
Information may be terminated.
8.3 The Company is not aware of any actual, alleged or threatened misuse by
any person of any of its Confidential Information. The Company has not
disclosed to any person (including, without limitation, employees) any
of its Confidential Information except where such disclosure was
properly made in the normal course of the Company's business and was
made subject to an agreement under which the recipient is obliged to
maintain the confidentiality of such Confidential Information and is
restrained from further disclosing it or using it other than for the
purposes for which it was disclosed by the Company. Copies of all such
agreements are attached to the Disclosure Letter. There is no current
or threatened breach of any such agreement by any of the other
contracting parties thereto.
8.4 The Company is the beneficial owner of all the Intellectual Property
used in and material to its business ("the Company's Intellectual
Property").
8.5 None of the Company's Intellectual Property has been wrongfully or
unlawfully acquired by the Company. To the best knowledge of the Vendor
after reasonable enquiry, no claim under any warranty contained in any
documentation under which the Company acquired ownership of any of the
Company's Intellectual Property has
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been made or intimated to the Company nor are there any grounds on
which any such claim could be made.
8.6 The material particulars as to registration of (and applications to
register) the Company's Intellectual Property, including priority and
renewal dates, are set forth in the Disclosure Letter.
8.7 Neither the validity or subsistence of the Company's Intellectual
Property, nor the Company's right, title and interest in the Company's
Intellectual Property, is the subject of any current, pending or
threatened challenge, claim or proceedings, including for opposition,
cancellation, revocation or rectification. The Company's Intellectual
Property has not during the preceding period of six years been the
subject of any such challenge, claim or proceedings, and there are no
facts or matters which might give rise to any such challenge, claim or
proceedings.
8.8 Copies of all agreements, arrangements and understandings under which
the Company's Intellectual Property is made available to third parties,
and any legally enforceable option in this regard, are attached to the
Disclosure Letter. There is no current or threatened breach of any such
agreement, arrangement or understanding by any of the other contracting
parties thereto.
8.9 To the best knowledge of the Vendor, none of the Company's Intellectual
Property is currently being infringed or used without authorisation by
any third party nor has any of the Company's Intellectual Property been
infringed during the preceding period of six years. No such
infringement or unauthorised use has been threatened.
8.10 The carrying on of the Company's business or businesses as presently
constituted does require licences, or the making of royalty or similar
payments to a non-group third party. The Company is not engaged in any
activities which infringe any Intellectual Property belonging to any
third party.
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9. Software
9.1 In this paragraph 9, the expression "the Software" means all of the
computer programs identified and briefly described in Schedule 7.
9.2 The Software in connection with the business of the Company as at the
date hereof is "off the shelf" software. As far as the Vendor is aware
none of this software is counterfeit.
10. Insurance
10.1 All assets of the Company of an insurable nature have at all times been
and are insured in amounts to the full replacement value thereof
against such risks as are in accordance with good commercial practice
normally insured against. The Company has at all times been adequately
covered against accident, third party, public liability, product
liability and other risks normally covered by insurance and nothing has
been done or omitted to be done by or on behalf of the Company which
would make any policy of insurance void or voidable or enable the
insurers to avoid the same and there is no claim outstanding under any
such policy and the Vendor is not aware of any circumstances likely to
give rise to such a claim or result in an increased rate of premium.
10.2 All information furnished in obtaining or renewing the insurance
policies of the Company was correct full and accurate when given and
any change in that information required to be given was correctly
given. The Company is not in default under any of these policies and
the copies of the policies delivered with the Disclosure Letter are
true and complete. None of the Company's insurance policies may be
cancelled without at least 30 days written notice of cancellation.
10.3 The Company has not suffered any uninsured losses nor waived any rights
of material or substantial value or allowed any insurances to lapse.
11. Litigation
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11.1 So far as the Vendor is aware, neither the Company nor any person for
whose acts or defaults the Company may be vicariously liable is engaged
whether as claimant or defendant or otherwise in any civil, criminal or
arbitration proceedings or any proceedings before any tribunal (save
for debt collection by the Company in the ordinary course of business)
and there are no proceedings threatened against the Company including
proceedings in respect whereof the Company is liable to indemnify any
party concerned therein and in particular but without prejudice to the
generality of the foregoing the Company is not liable (other than
contingently) to make any redundancy payment to any person or pay any
other compensation to any of its employees and there are no facts which
are likely to give rise to any such litigation or proceedings. There
are no unfulfilled or unsatisfied judgements or orders against the
Company or any of its assets.
11.2 The Company has neither received any notice (written or oral) nor
advice of counsel with respect to any potential claims within the scope
of paragraph 11.1.
12. Employment and Pension Matters
12.1 There is no existing or threatened or pending industrial or trade
dispute involving the Company and any of its employees and there are no
facts known or which would on reasonable enquiry be known to the Vendor
which might indicate that there may be any such dispute (including,
without limitation, the sale of the Sale Shares pursuant to the terms
of this Agreement). There are no agreements or arrangements (whether
oral or in writing or existing by reason of custom and practice)
between the Company and any trade union or other employees'
representatives or organisation concerning or affecting the Company's
employees and there are no trade unions or other employees'
representatives whom the Company recognises to any extent for
collective bargaining purposes nor, so far as the Vendor is aware, has
the Company done any act which might be construed as recognition. There
has been no request for recognition of any trade union and, so far as
the Vendor is aware, no such request is pending.
12.2 The Company has neither given notice of any redundancies to the
Secretary of State nor started consultations with any independent trade
union or employees' representatives within the preceding period of one
year in relation to any of the
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Company's employees. To the best knowledge of the Vendor, no
circumstances have arisen under which the Company is likely to be
required to pay damages for wrongful dismissal or breach of contract,
to make any contractual or statutory redundancy payment or make or pay
any compensation in respect of unfair dismissal, to make any other
payment under any Employment Law or to reinstate or re-engage any
former employee. No circumstances have arisen or exist under which the
Company may be required to pay damages or compensation, or suffer any
penalty or be required to take corrective action or be subject to any
form of sanction under the Employment Rights Act 1996, the Trade Union
and Labour Relations (Consolidation) Act 1992, the Transfer of
Undertakings (Protection of Employment) Regulations 1981, the Sex
Discrimination Act 1975, the Equal Pay Act 1970, the Treaty of Rome or
any Directive or recommendation made pursuant to it, the Race Relations
Act 1976, the Disability Discrimination Act 1995, the National Minimum
Wage Act 1998, the Data Protection Act 1998, the Public Interest
Disclosure Act 1998, Working Time Regulations 1998 or any other
Employment Law. So far as the Vendor is aware, there are no current,
pending or threatened claims of any type against the Company by any
existing or former employees or directors of the Company or by any
existing or former consultants to the Company.
12.3 There are no existing service or other agreements or contracts between
the Company and any of its directors or executives or employees which
cannot be lawfully terminated by appropriate advance notice and a
statutory redundancy payment, and the Company has complied with all its
obligations under all legislation, regulations and other requirements
having the force of law (including, without limitation, codes, orders
and awards) in connection with its employees, directors and consultants
and any trade unions and employees' representatives and with all
collective agreements with respect to trade unions or to employees of
the Company.
12.5 The Disclosure Letter contains:
(i) the names and dates of birth and commencement of
employment or engagement of all persons who will at
the Completion Date be employees
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or directors of the Company or consultants to the
Company;
(ii) details of all remuneration and emoluments payable
(including any bonus or commission entitlements) and
any other benefits (including, for the avoidance of
doubt, permanent health insurance) provided or which
the Company is bound to provide (whether now or in
the future) to all such persons together with the
terms on which such remuneration emoluments and
benefits are payable; and
(iii) details of any other material terms and conditions of
employment or engagement of such persons,
all of which information is true and complete.
12.6 The Company is not involved in negotiations (whether with employees or
any trade union or other employees' representatives) to vary the terms
and conditions of employment or engagement of any of its employees,
directors or consultants and has not made any representations,
promises, offers or proposals to any of its employees, directors or
consultants or to any trade union or other employees' representatives
concerning or affecting the terms and conditions of employment or
engagement of any of its employees, directors or consultants.
12.7 The Company has discharged its obligations in full in relation to
salary, wages, fees, commission, bonuses, overtime pay, holiday pay,
sick pay and all other benefits and emoluments relating to its
employees, consultants and directors in respect of all prior periods.
12.8 Other than the Pension Scheme there are no pension obligations for any
employees or directors of the Company, and the Vendor and the Company
have no obligation
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(whether legally binding or established by custom) to pay any pension
or make any other payment after retirement or death or otherwise to
provide "relevant benefits" within the meaning of section 612 of the
Taxes Act or to make any payment for the purpose of providing such
"relevant benefits" to or in respect of any person who is now or has
been an officer or employee of the Company and is not a party to any
scheme or arrangement having as its purpose or one of its purposes the
making of such payments or the provision of such benefits.
12.9 The Pension Scheme complies with and has at all times complied with the
provisions of the relevant legislation and the requirements of the
Pension Schemes Office and the Contributions Agency affecting schemes
approved under Chapter I of Part XIV of the Taxes Act. The Pension
Scheme has been funded to the extent recommended by the scheme
actuaries. The Company and the trustees of the Pension Scheme have duly
complied with their respective obligations under the trust deeds and
the rules thereof and under the aforementioned legislation and
requirements. All amounts due to the trustees thereof or to any
insurance company in connection therewith have been paid and all
reports, actuarial or otherwise, relating to any such scheme which have
been received by the Company or the trustees within the three years
immediately preceding the date hereof have been complied with in full.
12.10 Neither the Company nor the trustees of the Pension Scheme is engaged
in any litigation or arbitration proceedings in respect of any
Retirement Benefits Scheme or any benefit provided thereunder in
relation to the employees or former employees of the Company and there
are no current submissions or referrals to the Pensions Ombudsman or to
the Occupational Pensions Advisory Service in respect of the Company or
any pension scheme and that there are no outstanding payments or
penalties payable by the Company or the Pension Scheme in respect of
any litigation or arbitration proceedings or determinations of the
Pensions Ombudsman or the Occupational Pensions Regulatory Authority.
12.11 No Retirement Benefits Scheme in which employees or former employees of
the Company participate or have participated has been or is in the
process of being (or is proposed to be) wound up (in whole or in part)
or closed to new entrants (in whole or in part).
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12.12 No power to increase or augment benefits under any Retirement Benefits
Scheme in which employees or former employees of the Company
participate or have participated has been exercised since 6 September
1983.
13. Arrangements with connected persons etc.
13.1 All amounts outstanding and appearing in the books of the Company as
loan accounts or as due to directors or shareholders wholly represent
money or money's worth paid or transferred to the Company as the case
may be or remuneration accrued due and payable for services rendered.
All amounts outstanding between the Vendor and the Company are
specifically disclosed in the Accounts.
13.2 There is not outstanding any contract or arrangement to which the
Company is a party and in which the Vendor is or has been interested,
whether directly or indirectly, other than arm's length service
contracts and the Company is not a party to, nor have its profits or
financial position at any time been adversely affected by, any contract
or arrangement which is not of an entirely arm's-length nature; save as
aforesaid, there are no agreements or understandings (whether legally
enforceable or not) between the Company and any person who is a
shareholder or the beneficial owner of any interest in the Company or
any other company controlled by any such person relating to the
management of the Company's business or the appointment or the removal
of its directors or the ownership or transfer of ownership or the
letting of any of its assets or the provision of finance, goods,
services or other facilities to or by the Company or otherwise
howsoever relating to the Company or its affairs.
13.3 All costs incurred by the Company have been charged to the Company and
not borne by any other member of the Vendor's group.
14. Matters since the Accounting Date
Since the Accounting Date:
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14.1 there has been no interruption or alteration in the nature, scope or
manner of the Company's business which business has been carried on
lawfully and in the ordinary and usual course of business so as to
maintain it as a going concern;
14.2 as at 30 September 2000 there has been no material adverse change in
the customer relations of the said business or in the financial
condition or the position, assets or liabilities of the said business
or the Company as compared with the position disclosed by the Accounts
and there has been no damage, destruction or loss (whether or not
covered by insurance) affecting the said business or its assets;
14.3 no substantial customer or supplier being a customer or supplier
accounting for contribution to gross trading profits of more than
(pound)10,000 of the Company for the accounting period ending on the
Accounting Date has:
14.3.1 given notice that it is likely to or threatened to cease
trading with or supply to the Company;
14.3.2 given notice that it is likely to or threatened to reduce
substantially its trading with or supplies to the Company;
14.4 the Company has continued to pay its creditors in the ordinary course
of business and no unusual trade discounts have been incorporated into
any contract entered into by the Company;
14.5 the Company has not repaid any loan capital in whole or in part (other
than indebtedness to its bankers) nor has it become bound or liable to
be called upon to repay prematurely any loan capital or borrowed
monies;
14.6 the Company has not, except in the ordinary course of business,
acquired, sold, transferred or otherwise disposed of any assets of
whatsoever nature;
14.7 the Company has not cancelled, waived, released or discontinued any
rights, debts or claims;
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14.8 the Company has not incurred any capital expenditure on any single item
or made any capital commitment on any single item of an amount in
excess of (pound)30,000 or disposed of any fixed asset having a value
of more than (pound)30,000 in aggregate;
14.9 the Company has not hired or dismissed any senior employee earning an
annual rate of remuneration, including fringe benefits, in excess
of(pound)35,000;
14.10 no sum or benefit has been paid, applied or voted to any executive,
director or employee of the Company by way of remuneration, bonus,
incentive or otherwise in excess of the amounts paid or distributed to
them by the Company at the Accounting Date so as to increase their
total remuneration and no new service agreements have been made or
entered into by the Company since the Accounting Date and the Company
is under no contractual or other obligation to change the terms of
service of any director, executive or employee and the Company will not
change the terms of service of any executive, director or employee
prior to Completion;
14.11 no dividends, bonuses or other distributions have been declared, paid
or made in respect of any of the Sale Shares;
14.12 no share or loan capital of the Company has been issued or agreed to be
issued or any option or right thereover granted;
14.13 the Company has not undergone any capital reorganisation or change in
its capital structure;
14.14 no resolutions have been passed by the Company and nothing has been
done in the conduct or management of the affairs of the Company which
would be likely materially to reduce the net asset value of the
Company;
14.15 the Company has not made any purchase or sale or introduced any method
of management or operation in respect of the business, undertaking or
assets of the Company except in a manner consistent with proper
practice;
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14.16 the Company has not incurred or become subject to any liability or
obligation (absolute or contingent) except current liabilities and
obligations, in each case incurred under contracts entered into in the
ordinary course of business and consistent with past practice which do
not materially increase the nature or amount of liabilities or
obligations disclosed in the Accounts;
14.17 as at 30 September 2000 no material changes have occurred in the assets
and liabilities (actual or contingent) shown in the Accounts and the
Company has not discharged or satisfied any lien or encumbrance or any
other obligation or liability (absolute or contingent) other than
liabilities disclosed in the Accounts as at the Accounting Date and
current liabilities incurred since the Accounting Date in the ordinary
course of business;
14.18 the Company has not carried out or entered into any transaction and no
other event has occurred in consequence of which (whether alone or
together with any one or more transactions or events occurring before
on or after the date hereof) any liability to Tax of the Company has
arisen or will or may arise (or would have arisen or would or might
arise but for the availability of any relief, allowance, deduction or
credit) other than corporation tax on actual income (and not chargeable
gains or deemed income) of the Company arising from transactions
entered into in the ordinary course of business; and
14.19 no payment has been made by the Company which will not be deductible
for corporation tax purposes either in computing the profits of the
Company or in computing the corporation tax chargeable on the Company.
15. Accuracy of Information Provided
15.1 All information contained in the Recitals to this Agreement and in the
Schedules to this Agreement is true and accurate in all respects and
not misleading in any respect.
15.2 All written information given to the Purchaser and its professional
advisers by the Vendor, the officers and employees of the Company, the
Vendor's professional
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advisers and the Company's advisers during the negotiations prior to
this Agreement was when given and is at the date hereof true and
accurate.
15.3 All information contained in the Disclosure Letter is true and accurate
in all respects and fairly presented and there is no fact or matter
which has not been disclosed in the Disclosure Letter which renders any
such information untrue or misleading and there is no fact or matter
concerning the Company and its business and affairs which has not on
the basis of the utmost good faith been disclosed in the Disclosure
Letter which would reasonably be expected to influence the decision of
a purchaser to proceed with the purchase of the Sale Shares on the
terms of this Agreement.
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SCHEDULE 6
[NOT USED]
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SCHEDULE 7
Software
The Company has no proprietary software and off the shelf licenced software only
is used by the Company
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SCHEDULE 8
Vendor's Protection
1. General
1.1 The provisions in this Schedule shall operate to establish certain
terms of and procedures for dealings with claims under this Agreement.
1.2 Claims shall mean a claim under this Agreement and Claim shall be
construed accordingly.
2. Amount of Claim
2.1 The Vendor shall have no liability whatsoever in respect of any
individual Claim unless the amount that would otherwise be recoverable
from the Vendor in respect of that Claim exceeds the sum of
(pound)20,000 exclusive of costs and interest and thereafter the Vendor
shall be liable for the whole amount claimed and not merely the excess.
2.2 The aggregate liability of the Vendor under this Agreement to include
but not limited to a claim under the Warranties, clause 8 or clause
5.2.3 shall not exceed a sum equal to $7,000,000 exclusive of costs and
interest.
2.3 If any payment is made by the Vendor under the Warranties it shall be
treated as a reduction in the Consideration payable to the Vendor under
this Agreement.
3. Notice and Conduct of Claims
3.1 If any Claim other than one under clause 8 is made or any matter which
comes to the notice of the Purchaser, the Subsidiary or the Company for
which or as a result of which the Vendor may be liable under the
Warranties the Purchaser, the Subsidiary or the Company shall, as
appropriate:
3.1.1 not make any admission of liability, agreement, settlement or
compromise and otherwise take any action which may be material
in relation thereto without
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the prior written approval of the Vendor (such approval not to
be unreasonably withheld or delayed); and
3.1.2 at all times take such action as may from time to time be
reasonably required by the Vendor to avoid, resist, appeal,
compromise, defend, mitigate or otherwise deal with the Claim
or the liability thereof, subject always to the Purchaser, the
Subsidiary or the Company being provided with reasonable
security for any costs and expenses which it may reasonably
thereby incur and subject always to such action not being
prejudicial to the businesses of the Purchaser, the Company
and the Subsidiary.
4. Third Party Recovery (Rights)
4.1 Where under the provisions of the Tax statutes or otherwise the
Purchaser, the Subsidiary or the Company is entitled to recover from
some other person any sum in respect of any matter giving rise to a
claim under this Agreement the Purchaser, the Subsidiary or the Company
so entitled shall promptly notify the Vendor in writing of such
entitlement and shall at the request and expense of the Vendor:
4.1.1 take all reasonable steps to enforce such recovery;
4.1.2 as soon as reasonably practicable supply all information which
relates to such recovery to the Vendor including reasonable
details of any steps taken to enforce such recovery and copies
of all relevant correspondence and documents relating to the
same.
5. Third Party Recovery (Receipts)
5.1 If payment is made by the Vendor in respect of a Claim and the
Purchaser, the Subsidiary or the Company subsequently recovers an
indemnifiable loss from a third party in respect of the matter in
respect of which the Claim was made the indemnity obligations of the
Vendor with respect to that Claim only will be reduced to the extent of
such recovery provided that:
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5.1.1 such recovery shall not reduce the aggregate liability of the
Vendor under clause 2.3; and
5.1.2 the indemnity obligations of the Vendor will only be reduced
to the extent of such recovery if the Vendor has discharged
the Claim in full.
6. Changes in the Law
6.1 The Vendor shall have no liability whatsoever in respect of any Claim
to the extent that the Claim would not have arisen but for the passing
of or any change in any law, rule, regulation, interpretation of the
law or administrative practice of any government, governmental
department, agency or regulatory body, after the Completion Date.
6.2 No Claim may be made and the Vendor shall not be liable under this
Agreement to the extent that the Claim arises or is increased as a
result of any of the following occurring after the Completion Date: a
retrospective change(s) in tax rates or in any legislation or a
retrospective change or withdrawal of any published practice or
published concession of any revenue, customs, fiscal, government,
state, community, municipal or regional authority, body or person
competent to impose or collect Tax.
7. Mitigation
Nothing in this Schedule shall in any way restrict or limit the general
obligations at law of the Purchaser, the Subsidiary or the Company to
mitigate any loss or damage which it may suffer in consequence of any
event giving rise to any Claim.
8. Conduct of Claims
8.1 If the Purchaser becomes aware of any matter which might give rise to a
Claim (other than a Claim under clause 8 of this Agreement), the
following provisions shall apply:
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8.1.1 the Purchaser shall promptly give notice to the Vendor of the
matter and in any event not later than 90 days after the
Purchaser became aware of the matter shall consult with the
Vendor in respect of the matter;
8.1.2 the Purchaser shall provide to the Vendor and to the Vendor'
professional advisers on reasonable notice reasonable access
to premises and personnel of the Company and/or the Subsidiary
and to any relevant assets, documents and records within their
power, possession or control for the purpose of investigating
the matter and enabling the Vendor to take such action as is
referred to in paragraph 8.1.3 below;
8.1.3 the Vendor (at its own expense) shall be entitled to take
copies of any documents or records (except where the
Purchaser, the Company or the Subsidiary has confidentiality
obligations in respect thereof) and photograph any premises or
assets as referred to in paragraph 8.1.2 above;
8.1.4 the Vendor shall be kept reasonably informed of all matters
pertaining to a Claim and shall be entitled to see copies of
all correspondence and notes or other written records of
telephone conversations or meetings; and
8.1.5 all written communications pertaining to the Claim which are
to be transmitted to any statutory or governmental authority
or body whatsoever shall be copied to the Vendor.
8.2 the Vendor shall, and shall procure that all of its agents (if any)
shall, keep confidential all information which it receives about the
Company and/or the Purchaser or their affairs or businesses as a result
of this clause 8.
8.3 For the avoidance of doubt, the Vendor will remain liable in accordance
with the terms of this Agreement irrespective of any breach of the
provisions of this clause 8 by the Purchaser.
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9. General
The Purchaser undertakes to retain or to procure the retention by the
Company and the Subsidiary of all such books, records, accounts,
correspondence and other papers of the Company and the Subsidiary as
are likely to be material in the context of the liability of the Vendor
under the Warranties during the subsistence of the liability of the
Vendor hereunder.
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IN WITNESS WHEREOF the parties hereto have executed this document as a deed on
the date appearing at the head hereof.
Executed by Claire Rollo ) /s/ Claire Rollo
as Attorney )
for and on behalf of
Inversiones Mirabel, S.A.
Executed by ) /s/ P.A. Murali
for and on behalf of ) (P.A. Murali)
Mendocino Brewing Company
Executed by Claire Rollo ) /s/ Claire Rollo
as Attorney )
for and on behalf of
Golden Eagle Trust
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SUPPLEMENT B
(Proposal No. 1)
FAIRNESS OPINION
November 3, 2000
The Subcommittee of the
Board of Directors
Mendocino Brewing Company
13351 South Highway 101
Hopland, CA 95449
Gentleman:
Mendocino Brewing Company, Inc. ("Mendocino") proposes to enter into a
Stock Purchase Agreement by and among Mendocino; Inversiones Mirabel, SA, a
Panamanian Corporation ("Inversiones"), which owns all of the stock of United
Breweries International (UK) Ltd., an English corporation ("UBI"); and Golden
Eagle Trust, a trust formed under the laws of the Isle of Man (part of the
United Kingdom) ("Golden Eagle"), which owns all of the stock of Inversiones,
dated as of October 30, 2000 (the "Agreement"), and UBI shall be merged with and
into Mendocino, and Mendocino shall continue as the surviving corporation.
Shareholders of Inversiones will receive 5,500,000 (5.5 million) newly issued
shares of Mendocino common stock in exchange for all of the equity of UBI, the
parent company of UBSN, a wholly-owned subsidiary of UBI (the "Acquisition").
The terms and conditions of the Acquisition are set forth more fully in the
Agreement.
At present, UBSN is the only business operation of UBI. Prior to the
Acquisition contemplated in the Agreement, UBI will have acquired, in addition
to its presently constituted assets, the following rights and licenses, all of
which will be freely transferable to Mendocino at the closing of the
Acquisition:
o the exclusive distribution rights to Kingfisher Lager beer
currently held by UB Ltd.;
o an option to brew Kingfisher Lager beer in the United States;
and
o a license from Kingfisher of America, Inc. to use the
"Kingfisher" trademark in connection with UBI's distribution
and/or sale of Kingfisher Lager beer.
These rights and licenses will have 10-year terms, with automatic
10-year renewals, unless terminated for cause.
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Mendocino has retained Sage Capital LLC ("Sage") to act as financial advisor to
Mendocino in connection with Mendocino's consideration of various strategic
alternatives. Sage was asked to render an opinion to the Subcommittee of the
Board of Directors of Mendocino as to whether the equity consideration to be
paid by Mendocino pursuant to the Agreement is fair to the shareholders of
Mendocino from a financial point of view.
As part of its advisory services, Sage is regularly engaged in the business of
advising the management and boards of directors of corporations regarding the
issuance of securities, providing advisory services for mergers and
acquisitions, issuing fairness opinions and providing market valuations.
Pursuant to the terms of the engagement letters dated November 16, 1998 and
February 1, 1999 and the assignment agreement of March 25, 1999, Mendocino has
agreed to pay Sage a fee of $75,000 for services rendered in connection with the
rendering of this opinion. Mendocino has also agreed to reimburse Sage for
reasonable out-of-pocket expenses and to indemnify Sage against certain
liabilities relating to or arising out of services performed by Sage as
financial advisor to Mendocino. In arriving at the opinion set forth below,
Sage, among other things, (i) reviewed the Agreement; (ii) reviewed certain
publicly available information concerning Mendocino; (iii) held discussions with
members of senior management of Mendocino concerning the business prospects of
Mendocino, UBI and the US distribution business for Kingfisher beer including
such managements' views as to the organization of and strategies with respect to
the Acquisition; (iv) reviewed certain operating and financial reports prepared
by the managements of Mendocino and UBI; (v) reviewed the recent reported prices
and trading activity for the common stock of certain other companies engaged in
businesses Sage considered comparable to those of Mendocino and compared certain
publicly available financial data for those comparable companies to similar data
for Mendocino; (vi) reviewed the financial terms of certain other merger and
acquisition transactions that Sage deemed generally relevant; and (vii)
performed and considered such other studies, analyses, inquiries and
investigations as Sage deemed appropriate.
In connection with Sage's review and for purposes of its opinion, Sage did not
independently verify any of the foregoing information and assumed (i) all such
information is complete and accurate in all material respects, (ii) there have
been no material changes in the assets, financial condition, results of
operations, business or prospects of Mendocino and UBI since the respective
dates of the last financial statements made available to Sage and all material
liabilities (contingent or otherwise, known or unknown) of Mendocino and UBI are
as set forth in the respective financial statements, and (iii) no adjustments
will be made to the material terms of the Agreement from those set forth in the
copies of the Agreement delivered to Sage prior to Sage's rendering of the final
version of this opinion. With respect to the financial information of Mendocino
and UBI provided to Sage by the managements of Mendocino and UBI, Sage has
assumed for purposes of the opinion that such information has been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of such management, at the time of preparation, of the operating and
financial performance of Mendocino and UBI. Sage did not prepare or obtain any
independent evaluation or appraisal of any of the assets or liabilities of
Mendocino or UBI, nor did Sage conduct a physical inspection of the properties
and facilities of Mendocino and UBI in connection with its opinion. Sage's
opinion is necessarily based upon market, economic, financial and other
conditions as of the date of the opinion and any subsequent change in such
conditions would require a reevaluation of this opinion. In rendering its
opinion, Sage does not express any opinion or make any determination as to what
specific consideration should be paid by Mendocino in connection with the
Acquisition. The opinion rendered by Sage is limited to the evaluation and
determination of whether the equity consideration to be paid by Mendocino
according to the Agreement is fair, from a financial point of view, to the
shareholders of Mendocino and does not address the underlying business decision
of Mendocino and UBI to engage in the Acquisition. Sage is not expressing any
opinion as to what the value of Mendocino's common stock will be when issued
pursuant to the Agreement or the price at which Mendocino's common stock will
trade at any time. Sage's opinion does not constitute a recommendation to any
shareholder as to how such shareholder should vote on the proposed Agreement.
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This letter and the opinion expressed herein are provided at the request and for
the information of the Subcommittee of the Board of Directors of Mendocino and
may not be quoted or referred to or used for any other purpose without Sage's
prior written consent, except that this letter may be disclosed in connection
with any registration statement on Form S-4 or proxy statement used in
connection with the Agreement so long as this letter is quoted in full in such
registration statement on Form S-4 or proxy statement.
Based upon and subject to the foregoing, it is Sage's opinion that, as of the
date hereof, the equity consideration to be paid by Mendocino according to the
Agreement is fair to the shareholders of Mendocino from a financial point of
view.
Best regards,
SAGE CAPITAL LLC
/s/ Bruce J. Alexander /s/ Laura A. Black
---------------------- ------------------
Bruce J. Alexander Laura A. Black
Managing Partner Managing Partner
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SUPPLEMENT C
(Proposal No. 1)
Dissenters' Rights: Sections 1300 Through 1304
of the California Corporations Code
CHAPTER 13. DISSENTERS' RIGHTS
ss.1300. Reorganization or short-form merger; dissenting shares; corporate
purchase at fair market value; definitions
(a) If the approval of the outstanding shares (Section 152) of a
corporation is required for a reorganization under subdivisions (a) and (b) or
subdivision (e) or (f) of Section 1201, each shareholder of the corporation
entitled to vote on the transaction and each shareholder of a subsidiary
corporation in a short-form merger may, by complying with this chapter, require
the corporation in which the shareholder holds shares to purchase for cash at
their fair market value the shares owned by the shareholder which are dissenting
shares as defined in subdivision (b). The fair market value shall be determined
as of the day before the first announcement of the terms of the proposed
reorganization or short-form merger, excluding any appreciation or depreciation
in consequence of the proposed action, but adjusted for any stock split, reverse
stock split, or share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which
come within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or
short-form merger either (A) listed on any national securities exchange
certified by the Commissioner of Corporations under subdivision (o) of Section
25100 or (B) listed on the National Market System of the NASDAQ Stock Market,
and the notice of meeting of shareholders to act upon the reorganization
summarizes this section and Sections 1301, 1302, 1303 and 1304; provided,
however, that this provision does not apply to any shares with respect to which
there exists any restriction on transfer imposed by the corporation or by any
law or regulation; and provided, further, that this provision does not apply to
any class of shares described in subparagraph (A) or (B) if demands for payment
are filed with respect to 5 percent or more of the outstanding shares of that
class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted in
favor of the reorganization or, (B) if described in subparagraph (A) or (B) of
paragraph (1) (without regard to the provisos in that paragraph), were voted
against the reorganization, or which were held of record on the effective date
of a short-form merger; provided, however, that subparagraph (A) rather than
subparagraph (B) of this paragraph applies in any case where the approval
required by Section 1201 is sought by written consent rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the record
holder of dissenting shares and includes a transferee of record.
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ss.1301. Notice to holders of dissenting shares in reorganizations; demand for
purchase; time; contents
(a) If, in the case of a reorganization, any shareholders of a
corporation have a right under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, to require the corporation to
purchase their shares for cash, such corporation shall mail to each such
shareholder a notice of the approval of the reorganization by its outstanding
shares (Section 152) within 10 days after the date of such approval, accompanied
by a copy of Sections 1300, 1302, 1303, 1304 and this section, a statement of
the price determined by the corporation to represent the fair market value of
the dissenting shares, and a brief description of the procedure to be followed
if the shareholder desires to exercise the shareholder's right under such
sections. The statement of price constitutes an offer by the corporation to
purchase at the price stated any dissenting shares as defined in subdivision (b)
of Section 1300, unless they lose their status as dissenting shares under
Section 1309.
(b) Any shareholder who has a right to require the corporation to
purchase the shareholder's shares for cash under Section 1300, subject to
compliance with paragraphs (3) and (4) of subdivision (b) thereof, and who
desires the corporation to purchase such shares shall make written demand upon
the corporation for the purchase of such shares and payment to the shareholder
in cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of
record by the shareholder which the shareholder demands that the corporation
purchase and shall contain a statement of what such shareholder claims to be the
fair market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price.
ss.1302. Submission of share certificates for endorsement; uncertificated
securities
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder, the shareholder shall submit to the corporation at
its principal office or at the office of any transfer agent thereof, (a) if the
shares are certificated securities, the shareholder's certificates representing
any shares which the shareholder demands that the corporation purchase, to be
stamped or endorsed with a statement that the shares are dissenting shares or to
be exchanged for certificates of appropriate denomination so stamped or endorsed
or (b) if the shares are uncertificated securities, written notice of the number
of shares which the shareholder demands that the corporation purchase. Upon
subsequent transfers of the dissenting shares on the books of the corporation,
the new certificates, initial transaction statement, and other written
statements issued therefor shall bear a like statement, together with the name
of the original dissenting holder of the shares.
ss.1303. Payment of agreed price with interest; agreement fixing fair market
value; filing; time of payment
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the fair
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market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair
market value of dissenting shares shall be made within 30 days after the amount
thereof has been agreed or within 30 days after any statutory or contractual
conditions to the reorganization are satisfied, whichever is later, and in the
case of certificated securities, subject to surrender of the certificates
therefor, unless provided otherwise by agreement.
ss.1304. Action to determine whether shares are dissenting shares or fair market
value; limitation; joinder; consolidation; determination of issues; appointment
of appraisers
(a) If the corporation denies that the shares are dissenting shares, or
the corporation and the shareholder fail to agree upon the fair market value of
the shares, then the shareholder demanding purchase of such shares as dissenting
shares or any interested corporation, within six months after the date on which
notice of the approval by the outstanding shares (Section 152) or notice
pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, but
not thereafter, may file a complaint in the superior court of the proper county
praying the court to determine whether the shares are dissenting shares or the
fair market value of the dissenting shares or both or may intervene in any
action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be
joined as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues.
If the status of the shares as dissenting shares is in issue, the court shall
first determine that issue. If the fair market value of the dissenting shares is
in issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
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SUPPLEMENT D
(Proposal No. 2)
BYLAWS AMENDMENT
2.2 Number.
The number of the corporation's directors shall not be less than five (5) and
not more than nine (9). The number of directors shall be fixed, within the
foregoing limits, by resolution of the board of directors or the shareholders.
After the issuance of shares, no amendment to this Section 2.2 reducing the
number of directors to a number below five (5) shall be enacted if the votes
cast against its adoption at a meeting, or the shares not consenting in the case
of action by written consent, are equal to more than sixteen and two-thirds
percent (16-2/3%) of the outstanding shares entitled to vote.
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SUPPLEMENT E
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT
For the transition period from to______________to_______________
Commission file number 1-13636
Mendocino Brewing Company, Inc.
(Exact name of small business issuer as specified in its charter)
California 68-0318293
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
13351 South Highway 101, Hopland, California 95449
(Address of principal executive offices)
(707) 744-1015
(Issuer's telephone number)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares of the issuer's common stock outstanding as of September
30, 2000 is 5,530,177.
<PAGE>
PART I
Item 1. Financial Statements.
<TABLE>
MENDOCINO BREWING COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
September 30, 2000
(Unaudited)
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS
Cash $ 97,200
Accounts receivable 1,458,700
Inventories 1,071,000
Prepaid expenses 171,900
Deferred income taxes 43,100
-----------
Total Current Assets: 2,841,900
-----------
PROPERTY AND EQUIPMENT 14,148,700
-----------
OTHER ASSETS
Deferred Taxes 2,596,700
Other Assets 397,000
-----------
Total Other Assets: 2,993,700
-----------
Total Assets: $19,984,300
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,695,200
Accrued liabilities 307,200
Accrued wages and related expense 159,700
Current maturities of obligation under capital lease 288,000
Current maturities of obligation under long-term debt 327,400
-----------
Total Current Liabilities: 2,777,500
LINE OF CREDIT 1,482,700
LONG TERM DEBT, less current maturities 4,528,800
OBLIGATIONS under capital lease - less current maturities 1,167,700
-----------
Total Liabilities: 9,956,700
-----------
STOCKHOLDERS' EQUITY
Common stock, no par value: 20,000,000 shares authorized, 5,530,177 shares issued and
outstanding 13,841,900
Preferred stock, Series A, no par value, with aggregate liquidation preference of
$227,600; 227,600 shares authorized, issued and outstanding 227,600
Accumulated deficit (4,041,900)
-----------
Total Stockholders' Equity 10,027,600
-----------
Total Liabilities and Stockholders' Equity: $19,984,300
-----------
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
1
<PAGE>
<TABLE>
MENDOCINO BREWING COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
------------------------------------ -------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
September 30 September 30
------------------------------------ -------------------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
SALES $2,711,000 $2,654,400 $7,441,600 $6,988,900
LESS EXCISE TAXES 157,500 153,900 430,000 412,800
---------- ---------- ---------- ----------
NET SALES 2,553,500 2,500,500 7,011,600 6,576,100
COST OF GOODS SOLD 1,457,400 1,532,800 4,323,100 4,442,700
---------- ---------- ---------- ----------
GROSS PROFIT 1,096,100 967,700 2,688,500 2,133,400
---------- ---------- ---------- ----------
OPERATING EXPENSES
Retail operating 117,200 124,400 309,600 319,600
Marketing 476,600 454,600 1,196,300 1,191,800
General and administrative 294,100 492,800 976,200 1,239,100
---------- ---------- ---------- ----------
887,900 1,071,800 2,482,100 2,749,900
---------- ---------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS 208,200 (104,100) 206,400 (616,500)
---------- ---------- ---------- ----------
OTHER INCOME (EXPENSE)
Interest income (expense) 800 -- 800 --
Other income (expense) 26,900 17,500 69,900 26,100
Acquisition expense -- (25,000) -- (104,400)
Induced debt conversion expense -- (248,000) -- (248,000)
Interest expense (209,700) (224,400) (668,100) (644,800)
---------- ---------- ---------- ----------
(182,000) (480,400) (597,400) (970,600)
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES 26,200 (584,500) (391,000) (1,587,100)
PROVISION FOR (BENEFIT FROM) INCOME TAXES (156,400) (232,400) (154,200) (632,700)
---------- ---------- ---------- ----------
NET INCOME (LOSS) $ 182,600 $ (352,100) $ (236,800) $ (954,400)
========== ========== ========== ==========
BASIC EARNINGS (LOSS) PER SHARE $ 0.03 $ (0.07) $ (0.04) $ (0.21)
========== ========== ========== ==========
DILUTED EARNINGS (LOSS) PER SHARE $ 0.03 $ (0.07) $ (0.04) $ (0.21)
========== ========== ========== ==========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
2
<PAGE>
<TABLE>
MENDOCINO BREWING COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
---------------------------------- ---------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
September 30 September 30
---------------------------------- ---------------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $ 182,600 $(352,100) $(236,800) $(954,400)
Adjustments to reconcile net income (loss) to net
cash from operating activities:
Depreciation and amortization 197,400 196,900 590,700 614,600
Deferred income taxes (156,400) (232,400) (156,400) (634,200)
Stock issued for services 7,000 91,600 7,000 91,600
Gain on disposal of fixed assets (26,000) -- (26,000) --
Debt converted to stock -- 309,900 -- 309,900
Changes in:
Accounts receivable (218,200) 124,000 (418,400) (457,100)
Inventories (78,100) (328,600) 97,700 (283,800)
Prepaid expenses (3,100) (8,800) (114,700) (45,500)
Deposits and other assets (50,000) (2,300) (19,100) (7,300)
Accounts payable (214,900) 153,400 (13,500) 778,200
Accrued wages and related expenses (17,100) 2,500 (44,900) (9,500)
Accrued liabilities (12,100) 11,000 176,900 130,900
-------- ------- --------- ---------
Net cash from operating activities: (388,900) (34,900) (157,500) (466,600)
-------- ------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, equipment, and leasehold (14,800) (22,000) (33,700) (73,200)
improvements
Proceeds of sale of fixed assets 51,600 -- 51,600 --
Increase in intangibles (36,900) -- (228,900) --
-------- ------- --------- ---------
Net cash from investing activities: (100) (22,000) (211,000) (73,200)
-------- ------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from line of credit 214,700 (81,500) 322,900 582,900
Principal payments on long-term debt (76,800) (84,200) (250,900) (201,300)
Borrowings on long-term debt 315,100 286,300 625,100 286,300
Payments on obligation under long-term lease (73,700) (63,700) (221,800) (170,100)
Disbursements in excess of deposits -- -- (9,600) --
-------- ------- --------- ---------
Net cash from financing activities: 379,300 56,900 465,700 497,800
-------- ------- --------- ---------
INCREASE / (DECREASE) IN CASH (9,700) -- 97,200 (42,000)
-------- ------- --------- ---------
CASH, beginning of period -- 42,000
------- --------- ---------
106,900
---------
CASH, end of period $ 97,200 $ -- $ 97,200 $ --
========= ========= ========= =========
Supplemental cash flow information includes the
following:
Cash paid during the period for:
Interest $ 198,000 $ 228,200 $ 583,100 $ 581,500
--------- --------- --------- ---------
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
3
<PAGE>
MENDOCINO BREWING COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's annual report on Form 10-KSB for the year
ended December 31, 1999. In the opinion of management, all adjustments
considered necessary for a fair presentation have been included. Operating
results for the nine months ended September 30, 2000, are not necessarily
indicative of the results that may be expected for the year ending December 31,
2000.
Note 2 - Line of Credit
The Company has available a $3,000,000 line of credit from a financial
institution with interest at the prime rate plus 2.25%. Approximately $1,484,000
was advanced to the Company in the form of a term loan. The term loan is
repayable in monthly installments of $24,700 over sixty months commencing March
1999. The amount of the term loan outstanding as of September 30, 2000 is
$1,014,000. The amount under the working capital line of credit outstanding as
of September 30, 2000 is $1,482,700. The bank's commitment under the line of
credit matures in September 2002. The line of credit is secured by substantially
all of the assets of the Releta Brewing Company, LLC, and all of the accounts
receivable, inventory, general intangibles of the Company, a second position on
the assets of the Company, and certain securities pledged by a stockholder.
Note 3 - Notes Payable
The Company has a $2,700,000 note, with interest at Treasury Constant Maturity
Index for five year treasuries plus 4.17%, currently 10.00%. The note requires
monthly payments of principal and interest of $24,400. The note matures in
December 2012 with a balloon payment and is secured by real property located in
Ukiah, California.
The Company has a notes payable which consists of convertible notes to United
Breweries of America, Inc. in the amount of $1,186,400 as of September 30, 2000.
The notes bear interest at the prime rate plus 1.5%, subject to a maximum of 10%
per annum, and mature 18 months from the date of the advance. The advances are
unsecured and the notes mature through September 2001. The notes are convertible
at the option of United Breweries of America, Inc., to common stock at $1.50 per
share upon maturity. Interest accrued on the above notes as of September 30,
2000 is $74,200.
Note 4 - Net Income Per Common and Common Equivalent Share
Basic earnings per share (EPS) is computed by dividing income available to
common stockholders by the weighted average number of common shares outstanding
during the period.
4
<PAGE>
<TABLE>
Diluted EPS is computed by dividing income available to shareholders by the
weighted average number of common shares and common equivalent shares
outstanding, which include dilutive stock options and notes payable convertible
in common stock. Common equivalent shares associated with stock options and
convertible notes payable have been excluded from periods with a net loss as the
potentially dilutive shares would be antidilutive.
<CAPTION>
Three months ended Nine months ended
------------------------- --------------------------
9/30/00 9/30/00 9/30/00 9/30/00
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Basic net income (loss) per share
Net income (loss) $ 182,600 $ (352,100) $ (236,800) $ (954,400)
=========== =========== =========== ===========
Weighted average common
shares outstanding 5,530,177 4,836,915 5,530,177 4,610,334
=========== =========== =========== ===========
Basic net income (loss) per share $ 0.03 $ (0.07) $ (0.04) $ (0.21)
=========== =========== =========== ===========
Diluted net income (loss) per share
Net income (loss) $ 182,600 $ (352,100) $ (236,800) $ (954,400)
Interest expense on convertible
notes payable 24,000 -- -- --
----------- ----------- ----------- -----------
Income for the purpose of computing
diluted net income per share $ 206,600 $ (352,100) $ (236,800) $ (954,400)
=========== =========== =========== ===========
Weighted average common shares
outstanding 5,530,177 4,836,915 5,530,177 4,610,334
Dilutive stock options 181,388 -- -- --
Assumed conversion of convertible
notes payable 790,933 -- -- --
----------- ----------- ----------- -----------
Weighted average common shares
outstanding for the purpose of
computing diluted net income (loss)
per share 6,502,438 4,836,915 5,530,177 4,610,334
=========== =========== =========== ===========
Diluted net income (loss) per share $ 0.03 $ (0.07) $ (0.04) $ (0.21)
=========== =========== =========== ===========
</TABLE>
Note 5 - Income Taxes
As of September 30, 2000, the Company has available for carryforward
approximately $7,172,000, $2,771,000 and $862,000 of Federal, California and New
York net operating losses. Approximately $940,000 of the Federal and New York
net operating losses will expire in 2012 and the remaining through 2020. The
California net operating losses expire beginning in 2001 through 2005. The
Company also has $28,000 of California Manufactures Investment Tax Credits that
can be carried forward to offset future taxes that begin to expire in 2005.
Note 6 - Related Party Transactions
As of September 30, 2000, the Company has expensed consulting fees to one of its
directors in the amount of $24,300 for consulting services performed for the
Company. Of this amount, the company has paid $21,600 through September 30,
2000.
5
<PAGE>
As of September 30, 2000, the Company has recognized $8,700 in expenses incurred
on its behalf by American United Breweries International Inc. (AUBI). The
outstanding amount payable to AUBI as of September 30, 2000 is $23,800.
On March 29, 2000, the Company announced that it intends to enter into two
concurrent related-party transactions. Subsequently, the transactions were
consolidated into a single transaction.
In the transaction, the Company will acquire UBSN Ltd. by acquiring all of the
issued and outstanding shares of United Breweries International UK, Ltd. ("UBI
UK, Ltd."), which is the parent company of UBSN Ltd. In the transaction, the
Company has offered to issue approximately 5,500,000 shares of the Company's
common stock in exchange for the shares of UBI UK, Ltd. Upon the closing of the
transaction, UBI UK Ltd. will become a wholly-owned subsidiary of the Company.
The closing of the transaction is expected to occur in January 2001, or as soon
thereafter as the various conditions to closing have been satisfied or waived.
The closing of the transaction, the obligation of the Company to proceed with
the acquisition of the shares of UBI UK, Ltd., and the precise number of shares
of common stock to be issued are subject to the satisfaction or waiver of
certain conditions including: (i) the approval of the proposed acquisition by
the Board of Directors of the Company; (ii) the approval of the transaction by
the shareholders of the Company; (iii) the approval by the Securities and
Exchange Commission of the Company's Proxy Statement with respect to the
transaction; and (iv) the receipt by the Company of a "fairness opinion", in a
form satisfactory to the Board of Directors of the Company, regarding the
transaction from Sage Capital LLC.
UBI UK, Ltd. has obtained the distribution rights to the "Kingfisher" brand of
beer in the United States. Under the terms of the distribution agreement, the
Company will also have an option to brew "Kingfisher" brand beer in the United
States, for distribution primarily in the United States, on mutually agreed
terms and conditions. However, in order to commence the brewing and distribution
of the "Kingfisher" beer, the Company will have to obtain a license to use the
"Kingfisher" trademark from Kingfisher of America Inc ("KAI"). The Company will
be solely responsible for obtaining that trademark license, at its sole expense,
and there are no assurances that such license will be obtained.
The transaction described above is a related party transaction because the
corporation that owns all of the shares of UBI UK, Ltd. is held by a trust,
which is controlled by fiduciaries who may exercise discretion in favor of Dr.
Mallya, amongst others. Dr. Vijay Mallya is the Chairman and Chief Executive
Officer of the Company. In addition, Dr. Mallya is a member of the board of
directors of UBSN, Ltd. Further, KAI is owned by a foreign corporation, the
shares of which are controlled by fiduciaries who may exercise discretion in
favor of Dr. Mallya, amongst others.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
6
<PAGE>
The following discussion and analysis should be read in conjunction with the
Financial Statements and the Notes thereto included as Item 1 of this Report.
The discussion of results and trends does not necessarily imply that these
results or trends will continue.
Forward-Looking Information
The Management's Discussion and Analysis of Financial Condition and Results of
Operations and other sections of this Form 10-QSB contain forward-looking
information. The forward-looking information involves risks and uncertainties
that are based on current expectations, estimates and projections about the
Company's business, Management's beliefs and assumptions made by Management.
Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks,"
"estimates," and variations of such words and similar expressions are intended
to identify such forward-looking information. Therefore, actual outcomes and
results may differ materially from what is expressed or forecasted in such
forward-looking information due to numerous factors, including, but not limited
to, availability of financing for operations, successful performance of internal
operations, impact of competition, changes in distributor relationships or
performance and other risks detailed below as well as those discussed elsewhere
in this Form 10-QSB and from time to time in the Company's Securities and
Exchange Commission filings and reports. In addition, such statements could be
affected by general industry and market conditions and growth rates, and general
domestic economic conditions. Readers are cautioned not to place undue reliance
on these forward-looking statements, which are valid as of the date of this
filing.
Overview
The third quarter was highlighted by the Releta Brewing Company, LLC (Ten
Springs Brewery), located in Saratoga Springs, New York launching the new Sun
Lager label. The product was well received in the market.
The increase in net sales during the nine-month period ending September 30, 2000
was achieved in significant part through increased and improved marketing
efforts. Sales (measured in barrels) increased from 36,125 bbl. in the first
nine months of 1999 to 36,707 during the first nine months of 2000, representing
an increase of 1.61% over the corresponding period of last year. Of the total
sales of 36,707 bbls., the sales out of the Ukiah facility were 31,257 bbls.,
and the sales out of the Saratoga Springs facility were 5,450 bbls. The sales
volume out of the Ukiah facility increased by 11.6%.
In Saratoga Springs, the volume decreased to 5,450 bbls in 2000 from 8,110 bbls
in 1999. This was mainly due to management's effort to concentrate on the growth
of the company's own brands and to phase out its reliance on contract brewing.
This resulted in a reduction in contract brewing from 60% of the total sales in
the first nine months of 1999 to 24% for the first nine months of 2000. However,
the volume of the company's own brands increased by 27% during the first nine
months of 2000 when compared to the corresponding period of 1999. This resulted
in the net sales expressed in dollar terms decreasing by only 17% although the
volume decreased by 33% during the first nine months of 2000.
7
<PAGE>
The high costs associated with the new brewery located at Ukiah, the fixed costs
of the Ten Springs Brewery (both of which are still not being utilized to their
full capacity), and interest expenses contributed to a net loss of $236,800 for
the first nine months of 2000. The loss from operations as a percentage of net
sales decreased from 14.51% for the first nine months of 1999 to 3.38% for the
first nine months of 2000.
Results of Operations
The following discussion sets forth information for the nine-month periods
ending September 30, 2000 and 1999. This information has been derived from
unaudited interim financial statements of the Company contained elsewhere herein
and reflects, in Management's opinion, all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the results
of operations for these periods. Results of operations for any interim period
are not necessarily indicative of results to be expected for the full fiscal
year.
The following table sets forth, as a percentage of sales, certain items included
in the Company's Statements of Operations, as set forth above under "Financial
Statements," for the periods indicated:
8
<PAGE>
----------------------------------
Nine Months Ended
September 30
----------------------------------
2000 1999
Statements of Income Data:
Sales 106.13% 106.28%
Excise taxes 6.13 6.28
Net Sales 100.00 100.00
Cost of Sales 61.66 67.56
-------------- --------------
Gross Profit 38.34 32.44
Retail Operating Expense 4.42 4.85
Marketing Expense 17.06 18.12
General and Administrative Expenses 13.92 18.84
-------------- --------------
Total Operating Expenses 35.40 41.82
-------------- --------------
Income (Loss) from Operations 2.94 (9.37)
Other Income (Expenses) 0.99 0.40
Acquisition Expense -- (1.57)
Interest income (expense) (9.51) (9.81)
Loss before income taxes (5.58) (24.13)
Benefit from income taxes 2.20 9.62
Net Profit (Loss) (3.38) (14.51)
Balance Sheet Data:
Cash $ 97,200 $ 0
Working Capital 64,400 (1,313,600)
Property and Equipment 14,148,700 14,896,900
Deposits and Other Assets 2,993,700 2,397,900
Total Assets 19,984,300 19,910,900
Long-term Debt 4,528,800 3,940,300
Obligation under Capital Lease 1,167,700 1,458,000
Total Liabilities 9,956,700 9,328,000
Shareholder's equity 10,027,600 10,582,900
Net Sales. Net sales for the first nine months of 2000 were $7,011,600 compared
to $6,576,100 for the first nine months of 1999, representing an increase of
6.62%. The sales volume increased to 36,707 barrels during the first nine months
of 2000, from 36,125 barrels during the first nine months of 1999, representing
an increase of 1.61%. Management attributes the increased sales to
9
<PAGE>
improved marketing strategies, including new point of sale materials. The
increase in overall net sales during the first nine months of 2000 was achieved
solely by higher wholesale shipments which represented an increase of $463,900
over the wholesale shipments during the first nine months of 1999. In view of
management's focus on wholesale beer sale, retail sales for the first nine
months of 2000 were $11,200 less than retail sales during the first nine months
of 1999.
Cost of Goods Sold. Cost of goods sold as a percentage of net sales during the
first nine months of 2000 was 61.66%, as compared to 67.56% during the first
nine months of 1999, representing a decrease of 5.90%. As a percentage of net
sales, during the first nine months of 2000, labor costs decreased from 11.76%
in 1999, to 9.91% in 2000, depreciation decreased from 7.79% in1999 to 7.41% in
2000, utilities decreased from 3.82% in 1999 to 3.66% in 2000, and other
expenses decreased by .30%, thereby contributing to the decrease of 5.90% of the
cost of goods sold as a percentage of net sales, as compared to the first nine
months of 1999. Management attributes the balance of the decrease to higher
sales volumes thereby lowering per barrel production cost at Ukiah and
improvement in process efficiencies at both Ukiah and Saratoga Springs.
Gross Profit. As a result of the higher net sales as explained above, gross
profit for the first nine months of 2000 increased to $2,688,500, from
$2,133,400 for the comparable period of 1999, representing an increase of 26%.
As a percentage of net sales, the gross profit during the first nine months of
2000 increased to 38.34% from that of 32.44% for the corresponding period of
1999.
Operating Expenses. Operating expenses for the first nine months of 2000 were
$2,482,100, as compared to $2,749,900 for the first nine months of 1999,
representing a decrease of 9.74%. Operating expenses consist of retail operating
expenses, marketing and distribution expenses, and general and administrative
expenses.
Retail operating expenses for the first nine months of 2000 were $309,600,
representing a decrease of $9,400, or 2.95%, from the first nine months of 1999.
As a percentage of net sales, retail operating expenses decreased to 4.82% as
compared to 4.85% for the first nine months of 1999. The decrease in retail
operating expenses consisted mainly of a decrease in labor costs.
Marketing and distribution expenses for the first nine months of 2000 were
$1,196,300, representing an increase of $4,500, or 0.38%, from the first nine
months of 1999. Selling expenses increased $71,500 (mainly salaries), overall
marketing and advertising decreased by $28,500, and sales promotions decreased
$38,500. The management decided to focus more on radio advertising which
resulted in an increase of $60,500 in media-related expenses. This increase was
partially offset by a decrease in purchases of point of sale materials, event
sponsorships and incentive/discount programs. The company decided to utilize
existing stocks of point of sale materials so that new designs can be introduced
in a phased manner.
General and administrative expenses were $976,200, representing a decrease of
$262,900 from the first nine months of 1999. As a percentage of net sales, the
general and administrative expenses were 13.92% for the first nine months of
2000, as compared to 18.84% for the first nine months of 1999. As compared to
the first nine months of 1999, professional and legal fees decreased by $50,200,
travel and entertainment decreased by $20,500, labor decreased by $201,600, and
all other expenses increased net by $9,400.
10
<PAGE>
Other Income (Expenses). Other expenses for the first nine months of 2000 were
($597,400), representing a decrease of $373,200 when compared to the first nine
months of 1999. The decrease is due to a nonrecurrence of acquisition costs of
$103,400 and induced debt conversion expenses of $248,500, an increase in other
income of $44,300 owing to a gain on sale of assets, and an increase in interest
expense of $23,000.
Benefit From Income Taxes. The benefit from income taxes for the first nine
months of 2000 was $156,400, as compared to $632,700 for the first nine months
of 1999. The benefit from income taxes is due to the expected future benefit of
carrying forward of net operating losses.
Net Loss. Net loss for the first nine months of 2000 was $236,800, as compared
to a net loss of $954,400 for the first nine months of 1999. As a percentage of
net sales, net loss for the first nine months of 2000 decreased to 3.38%, as
compared to 14.51% for the first nine months of 1999.
Segment Information
Mendocino Brewing Company, Inc.'s business presently consists of two segments.
The first is brewing for wholesale to distributors and other retailers. This
segment accounted for 94% of the Company's gross sales for the first nine months
of 2000. The second segment consists of brewing beer for sale along with food
and merchandise at the Company's brewpub and retail merchandise store located at
the Hopland Brewery. This segment accounted for 6% of the Company's total gross
sales during the first nine months of 2000.
With expanded wholesale beer production in both Ukiah and Saratoga Springs,
management expects that retail sales, as a percentage of total sales, will
decrease proportionally to the expected increase in the Company's wholesale
sales.
<TABLE>
The Company's business segments are brewing operations and a retail
establishment known as the Hopland Brewery. A summary of each segment is as
follows:
<CAPTION>
Nine Months Ended September 30, 2000
------------------------------------------------------------
Brewing Retail Corporate
Operations Operations and Other Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales $ 6,991,800 $ 449,800 $ -- $ 7,441,600
Operating Profit (Loss) 221,800 (15,400) -- 206,400
Identifiable Assets 15,140,200 79,500 4,764,600 19,984,300
Depreciation and amortization 519,900 5,000 65,800 590,700
Capital Expenditures 23,800 5,600 4,300 33,700
</TABLE>
11
<PAGE>
<TABLE>
Nine Months Ended September 30, 1999
------------------------------------------------------------
Brewing Retail Corporate
Operations Operations and Other Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales $ 6,540,700 $ 448,200 $ -- $ 6,988,900
Operating Loss (589,900) (26,600) -- (616,500)
Identifiable Assets 15,932,700 82,900 3,895,300 19,910,900
Depreciation and amortization 564,600 5,100 44,900 614,600
Capital Expenditures 211,500 800 4,100 216,400
</TABLE>
Seasonality
Beer consumption nationwide has historically been approximately 20% higher
during the summer months as compared to the other months of the year. It is not
clear to what extent seasonality will affect the Company as it expands its
capacity and its geographic markets.
Capital Demands
The Company has yet to complete the build-out of its administrative space and
the exterior landscaping of the Ukiah facility. The Ukiah brewery is presently
operating under a temporary certificate of occupancy from the City of Ukiah.
Completion of construction is a condition to the issuance of a final certificate
of occupancy. Failure to complete construction and obtain a final certificate of
occupancy could have a material adverse effect on the Company's business,
financial condition and results of operations.
Liquidity and Capital Resources
Long Term Debt. The Company has in place a $2,700,000 term loan from the Savings
Bank of Mendocino County. The loan is payable in monthly installments of
$24,400, including interest at the Treasury Constant Maturity Index plus 4.17%,
currently 10.00%, maturing on December 1, 2012 with a balloon payment. The loan
is secured by some of the assets of the Company (other than the Ten Springs
brewery), including without limitation, a first priority deed of trust on the
Ukiah land and improvements, fixtures and most of the equipment of the Company.
Credit Facility. The CIT Group/Credit Finance, Inc. ("CIT") has provided the
Company with a $3,000,000 maximum line of credit with an advance rate of 80% of
the qualified accounts receivable and 60% of the inventory at an interest rate
of the prime rate of Chase Manhattan Bank of New York plus 2.25% payable
monthly. The line of credit was originally scheduled to mature on September 23,
2000, however CIT agreed to renew the line of credit through September 23, 2002.
The line of credit is secured by all accounts, general intangibles, inventory,
and equipment of the Company except for the specific equipment and fixtures of
the Company leased from FINOVA Capital Corporation, as well as by a second deed
of trust on the Company's Ukiah land improvements. $1,484,000 of the line of
credit was advanced to the Company as an initial term loan, which is repayable
in sixty consecutive monthly installments of principal, each in the amount of
$24,700. The Company commenced repayment of the term loan in March 1999 and
approximately $1,014,000 of the term loan was outstanding as of September 30,
2000. Based on the Company's current level of accounts receivable and inventory,
the Company has
12
<PAGE>
drawn the maximum amount permitted under the line of credit. As of September 30,
2000, the total amount outstanding on the line of credit was $1,482,700.
Equipment Lease. The Company has leased from FINOVA Capital Corporation
("Finova") brewing equipment at a total cost of approximately $1,780,000 to the
Company for a term of 7 years (commencing December 1996) with monthly rental
payments of approximately $27,100 each. At expiration of the initial term of the
lease, the Company may purchase the equipment at its then current fair market
value but not less than 25% nor more than 30% of the original cost of the
equipment, or at the Company's option, may extend the term of the lease for an
additional year at monthly rental payments of approximately $39,000 with an
option to purchase the equipment at the end of the year at then current fair
market value. The lease is not pre-payable. There can be no assurances that the
Company will be able to finance the purchase of equipment at the end of the term
of the lease and the failure to purchase the necessary equipment from Finova is
likely to have a material adverse effect on the Company.
Shareholder Commitment of Line of Credit. In mid 1999, UBA, the Company's
largest shareholder, agreed to provide the Company with a credit facility of up
$800,000 (the "1999 Facility"). On August 31, 1999, the Company and UBA entered
into a Master Line of Credit Agreement setting forth the terms of the 1999
Facility. Pursuant to the terms of the Master Line of Credit Agreement, advances
on the 1999 Facility bear interest at the prime rate of the Bank of America in
San Francisco plus 1.5%, up to a maximum of 10%, and is due and payable
quarterly. The principal amount of each advance, together with any accrued but
unpaid interest on such advance, is due 18 months after the date of such
advance. Each advance made on the 1999 Facility will be evidenced by a
convertible note. Each convertible note includes a conversion feature whereby
UBA could, at its option, convert the principal and any accrued but unpaid
interest into unregistered shares of the Company's common stock on or after the
maturity date, at a rate of one share of common stock for each $1.50 of
principal and unpaid interest. On April 30, 2000, the Company accepted UBA's
offer to increase the maximum amount of the 1999 Facility from $800,000 to
$1,200,000. Subsequently, the Company and UBA entered into a First Amendment to
the Master Line of Credit Agreement.
As of September 30, 2000, the Company has made eight draws on the 1999 Facility.
The aggregate amount drawn, together with accrued but unpaid interest, equaled
$1,260,600 which corresponds to the right of UBA to acquire up to 840,400 shares
of common stock of the Company at a conversion price of $1.50 per share.
The obligations of the Company pursuant to the line of credit are subordinate to
the obligations of the Company to CIT, Finova, and Savings Bank of Mendocino
County. However, provided that the Company meets certain requirements under the
terms of its existing obligations to CIT, Finova, and Savings Bank of Mendocino
County, the Company is required to make quarterly payments of interest in cash.
Further, if UBA elects not to convert the principal and any unpaid interest into
common stock at maturity and provided that the financial condition of the
Company meets certain requirements under the terms of its existing obligations
with CIT, Finova and Savings Bank of Mendocino County, then the Company shall
repay any such amounts over a period of five years in equal monthly
installments. There can be no assurances that UBA will convert any of the
amounts drawn on the line of credit into common stock.
13
<PAGE>
Keg Management Arrangement. The Company has entered into a keg management
agreement with MicroStar Keg Management LLC. Under this arrangement, MicroStar
provides the Company with half-barrel kegs for which the Company pays a filling
fee. Distributors return the kegs to MicroStar instead of the Company. MicroStar
then supplies the Company with additional kegs. If the agreement terminates, the
Company is required to purchase a certain number of kegs from MicroStar. The
Company would probably finance the purchase through debt or lease financing, if
available. However, there can be no assurances that the Company will be able to
finance the purchase of kegs and the failure to purchase the necessary kegs from
MicroStar is likely to have a material adverse effect on the Company.
The Company's ratio of current assets to current liabilities on September 30,
2000, was 1.02 to 1.0 and its ratio of assets to liabilities was 2.0 to 1.0.
Year 2000 Matters
Year 2000 issues could affect the performance of the Company's business. While
not all Year 2000 date-related disruption scenarios have passed, through the
date of this filing, the Company has experienced no material disruptions or
other significant problems. There is a possibility of disruptions in the future
including errors that could still arise in the Company's internal and network
information systems because of their failure to correctly recognize and process
date information after the calendar change from 1999 to 2000, or their inability
to properly process the date February 29, 2000. The Company also may yet
experience supplier-related Year 2000 problems. If any of these Year 2000
problems occur, the Company's operations could be significantly hampered. The
Company is continuing to monitor and mitigate its exposure as appropriate, but
based on currently available information, the Company continues to believe that
Year 2000-related disruptions or other problems, if any, will not have a
significant adverse impact on the Company's operational results or financial
condition. However, the Company cannot be certain that Year 2000 issues will not
have a material adverse impact.
Impact of Expansion on Cash Flow
The Company must make timely payment of its debt and lease commitments to
continue its operations. Unused capacity at the Ukiah facility and the Saratoga
Springs facility has placed additional demands on the Company's working capital.
Historically, working capital for the day to day business operations was
provided primarily through operations. Beginning approximately with the second
quarter of 1997, the time at which the Ukiah brewery commenced operations,
proceeds from operations have not been able to provide sufficient working
capital for the day to day operations of the Company. To fund its operating
deficits, the Company has relied upon lines of credit and other credit
facilities. However, there can be no assurances that the Company will have
access to any such sources of funds in the future, and the inability to secure
sufficient funds will have a materially adverse effect on the Company.
Merger with UBSN
On March 29, 2000, the Company announced that it intends to enter into two
concurrent related-party transactions. Shortly thereafter, the structure of the
transaction was consolidated into a single transaction.
14
<PAGE>
In the transaction, the Company will acquire UBSN Ltd. by acquiring all of the
issued and outstanding shares of United Breweries International UK, Ltd. ("UBI
UK, Ltd."), which is the parent company of UBSN Ltd. In the transaction, the
Company has offered to issue approximately 5,500,000 shares of the Company's
common stock in exchange for the shares of UBI UK, Ltd. Upon the closing of the
transaction, UBI UK, Ltd. will become a wholly-owned subsidiary of the Company.
The closing of the transaction is expected to occur in January 2001, or as soon
thereafter as the various conditions to closing have been satisfied or waived.
UBI UK, Ltd. has obtained the distribution rights to the "Kingfisher" brand of
beer in the United States. Under the terms of the distribution agreement, the
Company will also have an option to brew "Kingfisher" brand beer in the United
States, for distribution primarily in the United States, on terms and conditions
mutually agreeable with American United Breweries of America, Inc ("AUBI").
However, in order to commence the brewing and distribution of the "Kingfisher"
beer, the Company will have to obtain a license to use the "Kingfisher"
trademark from Kingfisher of America Inc ("KAI"). The Company will be solely
responsible for obtaining that trademark license, at its sole expense, and there
are no assurances that such license will be obtained.
The closing of the transaction, the obligation of the Company to proceed with
the acquisition of the shares of UBI UK, Ltd., and the precise number of shares
of common stock to be issued are subject to the satisfaction or waiver of
certain conditions including: (i) the approval of the proposed acquisition by
the Board of Directors of the Company; (ii) the approval of the transaction by
the shareholders of the Company; (iii) the approval by the Securities and
Exchange Commission of the Company's Proxy Statement with respect to the
transaction; and (iv) the receipt by the Company of a "fairness opinion", in a
form satisfactory to the Board of Directors of the Company, regarding the
transaction from Sage Capital LLC.
The closing of the acquisition was originally scheduled to occur in late June,
2000. However, conforming all of the foreign entities' financial statements
consistent with United States accounting standards and as required by the U.S.
Securities and Exchange Commission, and conducting all of the required audits,
has taken longer than expected.
The transaction described above is a related party transaction because the
corporation that owns all of the shares of UBI UK, Ltd. is held by a trust,
which is controlled by fiduciaries who may exercise discretion in favor of Dr.
Mallya, amongst others. In addition, Dr. Mallya is a member of the board of
directors of UBSN Ltd. Dr. Vijay Mallya is the Chairman and Chief Executive
Officer of the Company. Further, AUBI and KAI are owned by foreign corporations,
the shares of which are controlled by fiduciaries who may exercise discretion in
favor of Dr. Mallya, amongst others.
Additional information is contained in the 2000 Proxy Statement, filed with the
Securities and Exchange Commission on or about November 9, 2000, and such
information is incorporated herein by reference.
15
<PAGE>
Part II
Item 1. Legal Proceedings.
The Company is engaged in ordinary and routine litigation incidental to its
business. Management does not anticipate that any amounts, which it may be
required to pay by reason thereof, will have a material effect on the Company's
financial position.
Item 2. Changes in Securities.
None.
Item 3. Default Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 6. Exhibits and Reports on Form 8-K.
Exhibit
Number Description of Document
------ -----------------------
3.1 (A) Articles of Incorporation, as amended, of the Company.
3.2 (B) Bylaws of the Company
4.1 Articles 5 and 6 of the Articles of Incorporation, as
amended, of the Company (Reference is made to Exhibit
3.1).
4.2 Article 10 of the Restated Articles of Incorporation, as
amended, of the Company (Reference is made to Exhibit
3.2).
10.1 (A) Mendocino Brewing Company Profit Sharing Plan.
10.2 (A) 1994 Stock Option Plan (previously filed as Exhibit
99.6).
10.4 (A) Wholesale Distribution Agreement between the Company and
Bay Area Distributing.
10.5 (A) Wholesale Distribution Agreement between the Company and
Golden Gate Distributing.
10.6 (A) Sales Contract between the Company and John I. Hass,
Inc.
10.7 (F) Liquid Sediment Removal Services Agreement with Cold
Creek Compost, Inc.
10.8 (A) Lease Agreement between the Company and Kohn Properties.
10.9 (C) Commercial Real Estate Purchase Contract and Receipt for
Deposit (previously filed as Exhibit 19.2).
10.15 (N) Commercial Lease between Stewart's Ice Cream Company,
Inc. and Releta Brewing Company, LLC.
10.16 (M) Agreement between United Breweries of America, Inc. and
Releta Brewing Company, LLC regarding payment of certain
liens.
10.17 (K)+ Keg Management Agreement with MicroStar Keg Management
LLC.
10.18 (E) Agreement to Implement Condition of Approval No. 37 of
the Site Development Permit 95-19 with the City of
Ukiah, California (previously filed as Exhibit 19.6).
10.19 (G) Manufacturing Business Expansion and Relocation
Agreement with the City of Ukiah.
10.20 (G) Manufacturing Business Expansion and Relocation
Agreement with the Ukiah Redevelopment Agency.
16
<PAGE>
Exhibit
Number Description of Document
------ -----------------------
10.21 (O) $2,700,000 Note in favor of the Savings Bank of
Mendocino County.
10.22 (O) Hazardous Substances Certificate and Indemnity with the
Savings Bank of Mendocino County.
10.23 (J) Equipment Lease with FINOVA Capital Corporation.
10.24 (J) Tri-Election Rider to Equipment Lease with FINOVA
Capital Corporation.
10.25 (J) Master Lease Schedule with FINOVA Capital Corporation.
10.26 (L) Investment Agreement with United Breweries of America,
Inc.
10.27 (L) Shareholders' Agreement Among the Company, United
Breweries of America, Inc., H. Michael Laybourn, Norman
Franks, Michael Lovett, John Scahill, and Don Barkley.
10.28 (L) Registration Rights Agreement Among the Company, United
Breweries of America, Inc., H. Michael Laybourn, Norman
Franks, Michael Lovett, John Scahill, and Don Barkley.
10.29 (Q) Indemnification Agreement with Vijay Mallya.
10.30 (Q) Indemnification Agreement with Michael Laybourn.
10.31 (Q) Indemnification Agreement with Jerome Merchant.
10.32 (Q) Indemnification Agreement with Yashpal Singh.
10.33 (Q) Indemnification Agreement with P.A. Murali.
10.34 (Q) Indemnification Agreement with Robert Neame.
10.35 (Q) Indemnification Agreement with Sury Rao Palamand.
10.36 (Q) Indemnification Agreement with Kent Price.
10.37 (R) Loan and Security Agreement between the Company, Releta
Brewing Company LLC and The CIT Group/Credit Finance,
Inc. regarding a $3,000,000 maximum line of credit.
10.38 (R) Patent, Trademark and License Mortgage by the Company in
favor of The CIT Group/Credit Finance, Inc.
10.39 (R) Patent, Trademark and License Mortgage by Releta Brewing
Company LLC in favor of The CIT Group/Credit Finance,
Inc.
10.41 (U) Employment Agreement with Yashpal Singh.
10.42 (U) Employment Agreement with P.A. Murali.
10.43 (V) Master Loan Agreement between the Company and the United
Breweries of America, Inc.
10.44 (V) Convertible Note in favor of the United Breweries of
America, Inc
10.45 (W) First Amendment to Master Loan Agreement between the
Company and the United Breweries of America Inc.
27 Financial Data Schedule.
---------------
(A) Incorporated by reference from the Company's
Registration Statement dated June 15, 1994, as amended,
previously filed with the Commission, Registration No.
33-78390-LA.
(C) Incorporated by reference from the Company's Report on
Form 10-QSB for the quarterly period ended March 31,
1995, previously filed with the Commission.
(E) Incorporated by reference from the Company's Report on
Form 10-QSB for the quarterly period ended September 30,
1995, previously filed with the Commission.
(F) Incorporated by reference from the Company's Report on
Form 10-KSB for the annual period ended December 31,
1995, previously filed with the Commission.
(G) Incorporated by reference from the Company's Report on
Form 10-QSB for the quarterly period ended June 30,
1996, previously filed with the Commission.
17
<PAGE>
Exhibit
Number Description of Document
------ -----------------------
(J) Incorporated by reference from the Company's
Registration Statement dated February 6, 1997, as
amended, previously filed with the Commission,
Registration No. 33-15673.
(k) Incorporated by reference from the Company's Report on
Form 10-KSB for the annual period ended December 31,
1996, previously filed with the Commission.
(L) Incorporated by reference from the Schedule 13D filed
with the Commission on November 3, 1997, by United
Breweries of America, Inc. and Vijay Mallya.
(M) Incorporated by reference from the Company's Report on
Form 10-QSB for the quarterly period ended September 30,
1997.
(N) Incorporated by reference from the Company's Report on
Form 10-QSB/A No. 1 for the quarterly period ended
September 30, 1997.
(O) Incorporated by reference from the Company's Report on
Form 10-KSB for the annual period ended December 31,
1997, previously filed with the Commission.
(Q) Incorporated by reference from the Company's Report on
Form 10-QSB for the quarterly period ended June 30,
1998.
(R) Incorporated by reference from the Company's Report on
Form 10-QSB for the quarterly period ended September 30,
1998.
(U) Incorporated by reference from the Company's Report on
Form 10-QSB for the quarterly period ended June 30,
1999.
(V) Incorporated by reference from the Amendment No. 5 to
Schedule 13D filed with the Commission on September 15,
1999, by United Breweries of America, Inc. and Vijay
Mallya.
(W) Incorporated by reference from the Amendment No. 6 to
Schedule 13D filed with the Commission on May 11, 2000,
by United Breweries of America, Inc. and Vijay Mallya.
(X) Incorporated by reference from the Company's Report on
Form 10-KSB for the annual period ended December 31,
1999, previously filed with the Commission.
+ Portions of this Exhibit were omitted pursuant to an
application for an order declaring confidential
treatment filed with the Securities and Exchange
Commission.
No reports on Form 8-K were filed during the quarter for which this report is
filed.
18
<PAGE>
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
REGISTRANT:
MENDOCINO BREWING COMPANY, INC.
Dated: November 13, 2000 By: /s/Yashpal Singh
------------------------------------------
Yashpal Singh
President
Dated: November 13, 2000 By: /s/P.A. Murali
------------------------------------------
P.A. Murali
Chief Financial Officer and Secretary
19
<PAGE>
SUPPLEMENT F
UBI AND UBSN FINANCIAL STATEMENTS, PRO FORMAS, AND AUDITORS' REPORTS
The Pro Forma Condensed Consolidated Balance Sheet of Registrant as of
September 30, 2000 reflects the financial position of Registrant after giving
effect to the acquisition of the stock of United Breweries International, Ltd.
discussed above and assumes the acquisition took place on September 30, 2000.
The Pro Forma Condensed Consolidated Statements of Operations for the fiscal
year ended December 31, 1999 and the nine months ended September 30, 2000 assume
that the acquisition occurred on January 1, 1999, and are based on the
operations of Registrant for the year ended December 31, 1999 and the nine
months ended September 30, 2000. Such pro forma financial statements also
reflect the sale of 5,500,000 shares of common stock referred above for the
purchase of the common stock of United Breweries International, Ltd. at a
purchase price of $ .81 per share (the last reported sale price of common stock
on March 29, the day the purchase was announced.)
The unaudited pro forma condensed consolidated financial statements have been
prepared by Registrant based upon assumptions deemed proper by it. The unaudited
pro forma condensed consolidated financial statements presented herein are shown
for illustrative purposes only and are not necessarily indicative of the future
financial position or future results of operations of Registrant, or of the
financial position or results of operations of Registrant that would have
actually occurred had the transaction been in effect as of the date or for the
periods presented. In addition, it should be noted that Registrant's financial
statements will reflect the purchase only from the closing date, should it
occur.
The unaudited pro forma condensed consolidated financial statements should be
read in conjunction with the historical financial statements and related notes
of Registrant.
<PAGE>
<TABLE>
<CAPTION>
Pro forma Adjustment
----------------------------------------------
Mendocino Brewing United Breweries Pro forma
Co., Inc. International, Ltd. Consolidated
09/30/2000 09/30/2000 (a) Adjustments 09/30/2000
----------------- ------------------ ------------------ -----------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 97,200 $ 158,600 $ - $ 255,800
Accounts receivable 1,458,700 3,426,100 - 4,884,800
Inventories 1,071,000 143,800 - 1,214,800
Prepaid expenses 215,000 - - 215,000
----------------- ------------------ ------------------ -----------------
Total current assets 2,841,900 3,728,500 - 6,570,400
----------------- ------------------ ------------------ -----------------
PROPERTY AND EQUIPMENT 14,148,700 871,700 - 15,020,400
----------------- ------------------ ------------------ -----------------
OTHER ASSETS
Goodwill, net of amortization - - 3,476,600(b) 3,476,600
Deferred taxes and other assets 2,993,700 - - 2,993,700
----------------- ------------------ ------------------ -----------------
2,993,700 - 3,476,600 6,470,300
----------------- ------------------ ------------------ -----------------
Total assets $ 19,984,300 $ 4,600,200 $ 3,476,600 $ 28,061,100
================= ================== ================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,695,200 2,442,600 $ - $ 4,137,800
Accrued liabilities 466,900 290,600 - 757,500
Current maturities of debt 615,400 888,600 - 1,504,000
----------------- ------------------ ------------------ -----------------
Total current liabilities 2,777,500 3,621,800 - 6,399,300
LONG-TERM DEBT AND CAPITAL LEASES,
Less current maturities 5,696,500 - - 5,696,500
LINE OF CREDIT 1,482,700 - - 1,482,700
----------------- ------------------ ------------------ -----------------
Total liabilities 9,956,700 3,621,800 - 13,578,500
----------------- ------------------ ------------------ -----------------
STOCKHOLDERS' EQUITY
Preferred stock 227,600 - 227,600
Common stock 13,841,900 147,900 3,476,600(b) 17,466,400
Accumulated deficit (4,041,900) 830,500 (3,211,400)
----------------- ------------------ ------------------ -----------------
Total stockholders' equity 10,027,600 978,400 3,476,600 14,482,600
----------------- ------------------ ------------------ -----------------
Total liabilities and
stockholders' equity $ 19,984,300 $ 4,600,200 $ 3,476,600 $ 28,061,100
================= ================== ================== =================
<FN>
(a) To include the assets and liabilities of United Breweries International,
Ltd., as of September 30, 2000.
(b) To reflect the goodwill purchased resulting from the fair market value of
5,500,000 shares of the Registrant's stock at $.81 per share over the net
book value of the assets of United Breweries International, Ltd.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Pro forma Adjustment
----------------------------------------------
Mendocino Brewing United Breweries Pro forma
Co., Inc. International, Ltd. Consolidated
09/30/2000 09/30/2000 (a) Adjustments 09/30/2000
----------------- ---------------- ------------------ -----------------
<S> <C> <C> <C> <C>
NET SALES $ 7,011,600 $ 9,383,000 $ - $ 16,394,600
COST OF GOODS SOLD 4,323,100 6,184,100 - 10,507,200
----------------- ---------------- ------------------ -----------------
GROSS PROFIT 2,688,500 3,198,900 - 5,887,500
OPERATING EXPENSES
Selling and marketing 1,505,900 1,874,000 3,380,700
General and administrative 976,200 721,100 65,200(b) 1,762,500
----------------- ---------------- ------------------ -----------------
2,482,100 2,595,900 65,200 5,143,200
----------------- ---------------- ------------------ -----------------
INCOME (LOSS) FROM OPERATIONS 206,400 603,000 (65,200) 744,200
OTHER INCOME (EXPENSE)
Interest expense (668,100) (66,300) - (734,400)
Other income (expense) 70,700 (49,000) - 21,700
----------------- ---------------- ------------------ -----------------
(597,400) (115,300) - (712,700)
----------------- ---------------- ------------------ -----------------
INCOME (LOSS) BEFORE INCOME TAXES (391,000) 487,700 (65,200) 31,500
BENEFIT FROM INCOME TAXES (154,200) - - 31,500
----------------- ---------------- ------------------ -----------------
NET INCOME (LOSS) $ (236,800) $ 487,700 $ (65,200) $ 185,700
================= ================ ================== =================
BASIC INCOME (LOSS) PER COMMON SHARE $ (0.04) $ 0.02
================= ==================
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 5,530,117 5,500,000(c) 11,030,117
================= ================== ==================
<FN>
(a) To include the profits and losses of United Breweries International, Ltd.
(b) To record amortization of goodwill on the purchase amortized over 40 years.
(c) To reflect the shares issued for the purchase of the stock of United
Breweries International, Ltd.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Pro forma Adjustment
----------------------------------------------
Mendocino Brewing United Breweries Pro forma
Co., Inc. International, Ltd. Consolidated
09/30/2000 09/30/2000 (a) Adjustments 09/30/2000
--------------------- ---------------------- ---------------------- ---------------------
<S> <C> <C> <C> <C>
NET SALES $ 8,698,600 $ 11,886,600 $ - $ 20,585,200
COST OF GOODS SOLD 5,767,900 7,783,600 - 13,551,500
--------------------- ---------------------- ---------------------- ---------------------
GROSS PROFIT 2,930,700 4,103,000 - 7,033,700
OPERATING EXPENSES
Selling and marketing 2,108,600 2,513,900 4,622,500
General and administrative 1,652,200 1,049,300 86,900(b) 2,788,400
--------------------- ---------------------- ---------------------- ---------------------
3,760,800 3,563,200 86,900 7,410,900
--------------------- ---------------------- ---------------------- ---------------------
INCOME (LOSS) FROM OPERATIONS (830,100) 539,800 (86,900) (377,200)
OTHER INCOME (EXPENSE)
Interest expense (846,800) (119,100) - (965,900)
Other income (expense) (358,900) (121,800) - (480,700)
--------------------- ---------------------- ---------------------- ---------------------
(1,205,700) (240,900) - (1,446,600)
--------------------- ---------------------- ---------------------- ---------------------
INCOME (LOSS) BEFORE INCOME TAXES (2,035,800) 298,900 (86,900) (1,823,800)
PROVISION (BENEFIT) FOR INCOME TAXES (729,500) 102,000 - (627,500)
--------------------- ---------------------- ---------------------- ---------------------
NET INCOME (LOSS) $ (1,306,300) $ 196,900 $ (86,900) $ (1,196,300)
===================== ====================== ====================== =====================
BASIC INCOME (LOSS) PER COMMON SHARE $ (0.27) $ (0.12)
===================== =====================
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 4,838,151 5,500,000(c) 10,338,151
===================== ====================== =====================
<FN>
(a) To include the profits and loses of United Breweries International, Ltd.
(b) To record amortization of goodwill on the purchase amortized over 40 years.
(c) To reflect the shares issued for the purchase of the stock of United
Breweries International, Ltd.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GBP (pound's) GBP (pound's) GBP (pound's)
Nine months
ended September December 31, December 31,
30, 2000 1999 1998
--------------------- ----------------- -----------------
<S> <C> <C> <C>
Net income (pound)314,774 (pound)121,710 (pound)90,843
Items that would reduce net income
Increase in deferred tax liability - - (9,000)
Items that would increase net income
Reduction in deferred tax liability - 23,000 -
--------------------- ----------------- -----------------
Net income (pound)314,774 (pound)144,710 (pound)81,843
===================== ================= =================
Balance sheet
Deferred tax liability (pound)12,000 (pound)12,000 (pound)35,000
===================== ================= =================
</TABLE>
<PAGE>
<TABLE>
Conversion to United States Dollars
<CAPTION>
GBP US$ GBP US$
1999 Exchange 1999 1998 Exchange 1998
UBIUK Rate Consolidated UBIUK Rate Consolidated
------------ ---------- ---------------- ------------ ---------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Cash 33,845 1.615 $ 54,660 154,381 1.6628 $ 256,705
Accounts Receivable 2,972,235 1.615 4,800,160 2,719,157 1.6628 4,521,414
Allowance for doubtful accounts (250,000) 1.615 (403,750) (250,000) 1.6628 (415,700)
Inventory 63,074 1.615 101,865 111,420 1.6628 185,269
--------- ---------- --------- ----------
Current assets 2,819,154 4,552,934 2,734,958 4,547,688
Fixed assets
Plant & equipment 1,291,990 1.615 2,086,564 1,298,445 1.6628 2,159,054
Motor vehicles 104,445 1.615 168,679 97,804 1.6628 162,628
Accumulated depreciation (803,327) 1.615 (1,297,373) (788,811) 1.6628 (1,311,635)
--------- ---------- --------- ----------
Total assets 3,412,262 5,510,803 3,342,396 5,557,736
========= ========== ========= ==========
Current liabilities
Bank overdraft 1,243,943 1.615 2,008,968 1,062,613 1.6628 1,766,913
Accounts payable 1,414,454 1.615 2,284,343 1,292,923 1.6628 2,149,872
Income tax payable 69,094 1.615 111,587 57,382 1.6628 95,415
Accruals 337,893 1.615 545,697 704,310 1.6628 1,171,127
--------- ---------- --------- ----------
Total liabilities 3,065,384 4,950,595 3,117,228 5,183,327
Equity
Common stock 100,000 1.615 161,500 100,000 1.6628 166,280
Currency translation (268) 500
Prior year retained earnins 125,168 1.615 202,146 34,325 1.6628 57,076
Current years earnings 121,710 1.617 196,829 90,843 1.6573 150,554
--------- ---------- --------- ----------
Total equity and liabilities 3,412,262 $5,510,803 3,342,396 $5,557,736
========= ========== ========= ==========
<PAGE>
Sales 7,350,109 1.617 $11,886,596 6,787,918 1.6573 $11,249,617
Cost of goods sold (4,813,017) 1.617 (7,783,611) (4,369,611) 1.6573 (7,241,756)
--------- ---------- --------- ----------
Gross profit 2,537,092 4,102,985 2,418,307 4,007,860
Selling costs (1,554,503) 1.617 (2,513,942) (1,487,735) 1.6573 (2,465,623)
General and Administrative (648,855) 1.617 (1,049,328) (613,781) 1.6573 (1,017,219)
--------- ---------- --------- ----------
Net income from operations 333,734 539,715 316,791 525,018
Provision for litigation (125,303) 1.617 (202,640) (89,099) 1.6573 (147,664)
Disposal of fixed assets 21,637 1.617 34,991 - 1.6573 -
Other income 28,363 1.617 45,869 - 1.6573 -
Interest expense (73,649) 1.617 (119,105) (85,489) 1.6573 (141,681)
--------- ---------- --------- ----------
Net income before tax 184,782 298,829 142,203 235,673
Provision for income tax (63,072) 1.617 (102,000) (51,360) 1.6573 (85,119)
--------- ---------- --------- ----------
Net income 121,710 196,829 90,843 150,554
========= =========
Items that would reduce net income
Increase in deferred
tax liability - (9,000) 1.6573 (14,916)
Items that would increase net income
Reduction in deferred tax
liability 23,000 1.617 37,196
---------- ----------
Net income $ 234,025 $ 135,638
========== ==========
</TABLE>
<PAGE>
<TABLE>
The following nine pages contain conversions of the consolidated financial
statements of UBI from United Kingdom Pounds Sterling to United States Dollars.
These conversions are not a part of the audited financial statements and are
provided for reference purposes only.
<CAPTION>
United Breweries International, Ltd. (UBI)
Balance Sheet
September 30, 2000
(GBP pound) Exchange (US$)
UBI Rate UBI
---------------- ------------- -----------------
<S> <C> <C> <C>
Cash (pound)107,281 1.4787 $ 158,636
Accounts receivable 2,316,983 1.4787 3,426,123
Inventory 97,221 1.4787 143,761
---------------- -----------------
Current assets 2,521,485 3,728,520
Property, plant and equipment 589,491 1.4787 871,680
---------------- -----------------
Total assets (pound)3,110,976 $ 4,600,200
================ =================
Current liabilities
Bank overdraft (pound)600,936 1.4787 $ 888,604
Accounts payable 1,651,837 1.4787 2,442,571
Income tax payable 29,022 1.4787 42,915
Accruals 167,529 1.4787 247,725
---------------- -----------------
Total liabilities 2,449,324 3,621,815
---------------- -----------------
Stockholder's equity
Common stock 100,000 1.4787 147,870
Currency translation 1.4787 (22,349)
Retained earnings 561,652 - 852,864
---------------- -----------------
661,652 978,385
---------------- -----------------
Total stockholder's equity and liabilities (pound)3,110,976 $ 4,600,200
================ =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
United Breweries International, Ltd. (UBI)
Statement of Income and Stockholder's Equity
September 30, 2000
(GBP pound) Exchange (US$)
UBI Rate UBI
---------------- ------------- -----------------
<S> <C> <C> <C>
Sales (pound)6,054,809 1.5497 $ 9,383,138
Cost of goods sold 3,990,558 1.5497 6,184,168
---------------- -----------------
Gross profit 2,064,251 3,198,970
Selling and distribution 1,209,783 1.5497 1,874,801
General and administrative 465,332 1.5497 721,125
---------------- -----------------
Net income from operations 389,136 603,044
Other income (expense)
Provision for litigation (31,605) 1.5497 (48,978)
Interest expense (42,757) 1.5497 (66,261)
---------------- -----------------
Net income before taxes 314,774 487,805
Provision for income tax - 1.5497 -
---------------- -----------------
Net income 314,774 487,805
Retained earnings, beginning of year 246,878 1.4787 365,058
---------------- -----------------
Retained earnings, end of year (pound)561,652 $ 852,864
================ =================
</TABLE>
<PAGE>
<TABLE>
United Breweries International, Ltd. (UBI)
Statement of Cash Flows
September 30, 2000
<CAPTION>
(GBP pound) Exchange (US$)
UBI Rate UBI
---------------- ------------- -----------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income (pound)314,774 1.5497 $ 487,805
Adjustments to reconcile net income
to net cash from operating activities
Depreciation 181,111 1.5497 280,668
Gain on sale of assets (2,185) 1.5497 (3,386)
Changes in:
Accounts receivable 405,252 1.5497 628,019
Inventory (34,147) 1.5497 (52,918)
Accounts payable and accruals 26,943 1.5497 41,754
---------------- -----------------
Net cash from operating activities 891,748 1,381,942
---------------- -----------------
Cash flows from investing activities
Purchase of property, plant and equipment (179,295) 1.5497 (277,853)
Cash received from sale of assets 3,985 1.5497 6,176
---------------- -----------------
(175,310) (271,678)
---------------- -----------------
Cash flows from financing activities
Decrease in bank overdraft (763,538) 1.5497 (1,183,255)
---------------- -----------------
Translation adjustment - 3,344
---------------- -----------------
Net increase (decrease) in cash (47,100) (69,647)
Cash beginning of year 154,381 1.4787 228,283
---------------- -----------------
Cash end of year (pound)107,281 $ 158,636
================ =================
</TABLE>
<PAGE>
<TABLE>
United Breweries International, Ltd. (UBI)
Balance Sheet
December 31, 1999
<CAPTION>
(GBP pound) Exchange (US$)
UBI Rate UBI
--------------- ------------ ------------------
<S> <C> <C> <C>
Cash (pound)33,845 1.6150 $ 54,660
Accounts receivable 2,722,235 1.6150 4,396,410
Inventory 63,074 1.6150 101,865
---------------- ------------------
Current assets 2,819,154 4,552,934
Property, plant and equipment 593,108 1.6150 957,869
---------------- ------------------
Total assets (pound)3,412,262 $ 5,510,803
================ ==================
Current liabilities
Bank overdraft (pound)1,243,943 1.6150 $ 2,008,968
Accounts payable 1,414,454 1.6150 2,284,343
Income tax payable 69,094 1.6150 111,587
Accruals 337,893 1.6150 545,697
---------------- ------------------
Total liabilities 3,065,384 4,950,595
---------------- ------------------
Stockholder's Equity
Common stock 100,000 1.6150 161,500
Currency translation - (268)
Retained earnings 246,878 - 398,976
---------------- ------------------
346,878 560,208
---------------- ------------------
Total stockholder's equity and liabilities (pound)3,412,262 $ 5,510,803
================ ==================
</TABLE>
<PAGE>
<TABLE>
United Breweries International, Ltd. (UBI)
Statement of Income and Stockholder's Equity
December 31, 1999
<CAPTION>
(GBP pound) Exchange (US$)
UBI Rate UBI
---------------- ------------- ------------------
<S> <C> <C> <C>
Sales (pound)7,350,109 1.6172 $ 11,886,596
Cost of goods sold 4,813,017 1.6172 7,783,611
---------------- ------------------
Gross profit 2,537,092 4,102,985
Selling and distribution 1,554,503 1.6172 2,513,942
General and administrative 648,855 1.6172 1,049,328
---------------- ------------------
Net income from operations 333,734 539,715
Other income (expense)
Provision for litigation (125,303) 1.6172 (202,640)
Disposal of fixed assets 21,637 1.6172 34,991
Other income 28,363 1.6172 45,869
Interest expense (73,649) 1.6172 (119,105)
---------------- ------------------
Net income before taxes 184,782 298,829
Provision for income tax (63,072) 1.6172 (102,000)
---------------- ------------------
Net income (pound)121,710 $ 196,829
Retained earnings, beginning of year 125,168 1.6150 202,146
---------------- ------------------
Retained earnings, end of year (pound)246,878 $ 398,976
================ ==================
</TABLE>
<PAGE>
<TABLE>
United Breweries International, Ltd. (UBI)
Statement of Cash Flows
December 31, 1999
<CAPTION>
(GBP pound) Exchange (US$)
UBI Rate UBI
---------------- ------------ ------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income (pound)121,710 1.6172 $ 196,829
Adjustments to reconcile net income
to net cash from operating activities
Depreciation 235,315 1.6172 380,551
Gain on sale of assets (21,637) 1.6172 (34,991)
Write-off of investment (28,363) 1.6172 (45,869)
Changes in:
Accounts receivable (253,078) 1.6172 (409,278)
Inventory 48,346 1.6172 78,185
Accounts payable and accruals (244,886) 1.6172 (396,030)
---------------- ------------------
Net cash from operating activities (142,593) (230,601)
---------------- ------------------
Cash flows from investing activities
Purchase of property, plant and equipment (238,809) 1.6172 (386,202)
Cash received from sale of assets 22,065 1.6172 35,684
Cash received from sale of investments 50,000 1.6172 80,860
---------------- ------------------
(166,744) (269,658)
---------------- ------------------
Cash flows from financing activities
Increase in bank overdraft 188,801 1.6172 305,329
---------------- ------------------
Translation adjustment - 266
---------------- ------------------
Net increase (decrease) in cash (120,536) (194,665)
Cash beginning of year 154,381 1.6150 249,325
---------------- ------------------
Cash end of year (pound)33,845 $ 54,660
================ ==================
</TABLE>
<PAGE>
<TABLE>
United Breweries International, Ltd. (UBI)
Balance Sheet
December 31, 1998
<CAPTION>
(GBP pound) Exchange (US$)
UBI Rate UBI
---------------- ------------ --------------------
<S> <C> <C> <C>
Cash (pound)154,381 $1.6628 $ 256,705
Accounts receivable 2,469,157 1.6628 4,105,714
Inventory 111,420 1.6628 185,269
---------------- --------------------
Current assets 2,734,958 4,547,688
Property, plant & equipment 607,438 1.6628 1,010,048
---------------- --------------------
Total assets (pound)3,342,396 $ 5,557,736
================ ====================
Current liabilities
Bank overdraft (pound)1,062,613 1.6628 $ 1,766,913
Accounts payable 1,292,923 1.6628 2,149,872
Income tax payable 57,382 1.6628 95,415
Accruals 704,310 1.6628 1,171,127
---------------- --------------------
Total liabilities 3,117,228 5,183,327
---------------- --------------------
Stockholder's Equity
Common stock 100,000 1.6628 166,280
Currency translation adjustment - - 499
Retained earnings 125,168 - 207,630
---------------- --------------------
225,168 374,409
---------------- --------------------
Total stockholder's equity and liabilities (pound)3,342,396 $ 5,557,736
================ ====================
</TABLE>
<PAGE>
<TABLE>
United Breweries International, Ltd. (UBI)
Statement of Income and Stockholder's Equity
December 31, 1998
<CAPTION>
(GBP pound) Exchange (US$)
UBI Rate UBI
--------------- ------------- ---------------------
<S> <C> <C> <C>
Sales (pound)6,787,918 1.6573 $ 11,249,617
Cost of goods sold 4,369,611 1.6573 7,241,756
--------------- ---------------------
Gross profit 2,418,307 4,007,860
Selling and distribution 1,487,735 1.6573 2,465,623
General and a+A121dministrative 613,781 1.6573 1,017,219
--------------- ---------------------
Net income from operations 316,791 525,018
Other income (expense)
Provision for litigation (89,099) 1.6573 (147,664)
Interest expense (85,489) 1.6573 (141,681)
--------------- ---------------------
Net income before taxes 142,203 235,673
Provision for income tax (51,360) 1.6573 (85,119)
--------------- ---------------------
Net income (pound)90,843 150,554
Retained earnings, beginning of year 34,325 1.6628 57,076
--------------- ---------------------
Retained earnings, end of year (pound)125,168 $ 207,630
=============== =====================
</TABLE>
<PAGE>
<TABLE>
United Breweries International, Ltd. (UBI)
Statement of Cash Flows
December 31, 1998
<CAPTION>
(GBP pound) Exchange (US$)
UBI Rate UBI
----------------- ------------- -----------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income (pound)90,843 1.6573 $ 150,554
Adjustments to reconcile net income
to net cash from operating activities
Depreciation 175,173 1.6573 290,314
Litigation costs (89,099) 1.6573 (147,664)
Changes in:
Accounts receivable (580,585) 1.6573 (962,204)
Inventory (67,150) 1.6573 (111,288)
Accounts payable and accruals (211,670) 1.6573 (350,801)
----------------- -----------------
Net cash from operating activities (682,488) (1,131,087)
----------------- -----------------
Cash flows from investing activities
Purchase of property, plant and equipment (264,397) 1.6573 (438,185)
----------------- -----------------
Cash flows from financing activities
Increase in bank overdraft 1,041,932 1.6573 1,726,794
----------------- -----------------
Translation adjustment - - 523
----------------- -----------------
Net increase (decrease) in cash 95,047 158,044
Cash beginning of year 59,334 $1.6628 98,661
----------------- -----------------
Cash end of year (pound)154,381 $ 256,705
================= =================
</TABLE>
<PAGE>
Company Registration No. 1688201 (England and Wales)
UNITED BREWERIES INTERNATIONAL (UK) LIMITED AND SUBSIDIARY
GROUP FINANCIAL STATEMENTS
FOR THE PERIOD ENDED 30TH SEPTEMBER 2000
<PAGE>
UNITED BREWERIES INTERNATIONAL (UK) LIMITED AND SUBSIDIARY
COMPANY INFORMATION
Directors M.K. Nambiar
V.S. Kumar
G.M.K. Lodhi
Secretary G.M.K. Lodhi
Company number 1688201
Registered office 75 Westow Hill
Crystal Palace
London
SE19 1TX
Business address 77 Marlowes
Hemel Hampstead
Herts.
HP1 1LF
<PAGE>
UNITED BREWERIES INTERNATIONAL (UK) LIMITED AND SUBSIDIARY
CONTENTS
Page
Consolidated profit and loss account 1
Consolidated balance sheet 2
Consolidated cash flow statement 3
Notes to the consolidated cash flow statement 4
Company balance sheet 5
Notes to the financial statements 6 - 10
Company detailed profit and loss account 11
<PAGE>
UNITED BREWERIES INTERNATIONAL (UK) LIMITED AND SUBSIDIARY
<TABLE>
CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE PERIOD ENDED 30TH SEPTEMBER 2000
<CAPTION>
Note (pound)
<S> <C> <C>
Turnover 2 6,054,809
Cost of sales (3,990,558)
----------
Gross profit 2,064,251
Distribution costs (1,209,783)
Administrative expenses (465,332)
----------
Operating profit 3 389,137
Litigation and other costs (31,605)
----------
Profit on ordinary activities before interest 357,532
Interest payable and similar charges 4 (42,757)
----------
Profit on ordinary activities before taxation 314,774
Tax on profit on ordinary activities 5 --
----------
Profit on ordinary activities after taxation 13 (pound) 314,774
==========
</TABLE>
The profit and loss account has been prepared on the basis that all operations
are continuing operations.
There are no recognised gains and losses other than those passing through the
profit and loss account.
<PAGE>
UNITED BREWERIES INTERNATIONAL (UK) LIMITED AND SUBSIDIARY
<TABLE>
CONSOLIDATED BALANCE SHEET AS AT 30TH SEPTEMBER 2000
<CAPTION>
Note (pound) (pound)
<S> <C> <C> <C>
Fixed assets
Tangible assets 6 589,491
Current assets
Stocks 7 97,221
Debtors 8 2,316,983
Cash at bank and in hand 107,281
----------
2,521,485
Creditors: amounts falling due within one year 9 (2,449,325)
----------
Net current liabilities 72,161
----------
Total assets less current liabilities (pound) 661,652
==========
Capital and reserves
Called up share capital 11 100,000
Profit and loss account 12 561,652
----------
Shareholder's funds - equity interests 13 (pound) 661,652
==========
</TABLE>
<PAGE>
UNITED BREWERIES INTERNATIONAL (UK) LIMITED AND SUBSIDIARY
<TABLE>
CONSOLIDATED CASH FLOW STATEMENT
FOR THE PERIOD ENDED 30TH SEPTEMBER 2000
<CAPTION>
(pound) (pound)
<S> <C>
Net cash inflow/(outflow) from operation activities 934,510
Returns on investments and servicing of finance (42,757)
--------
Net cash outflow for returns on investments and servicing of finance 891,753
Taxation --
Capital expenditure and financial investments
Payments to acquire tangible assets (179,295)
Receipts from sales of tangible assets 3,985
--------
(175,310)
--------
Net cash outflow before management of liquid resources and financing (pound) 716,443
========
Increase in cash in the period (pound) 716,443
========
</TABLE>
<PAGE>
UNITED BREWERIES INTERNATIONAL (UK) LIMITED AND SUBSIDIARY
<TABLE>
NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT
FOR THE PERIOD ENDED 30TH SEPTEMBER 2000
<CAPTION>
(pound) (pound)
<S> <C> <C> <C>
1 Reconciliation of operating profit to net cash outflow from
operating activities
Profit on ordinary activities before interest 357,532
Depreciation of tangible assets 181,111
Profit on disposal of tangible assets (2,185)
(Increase) in stocks (34,147)
Decrease in debtors 405,252
(Decrease) in creditors within one year 26,948
Provision for litigation costs -- 576,979
---------- --------
Net cash outflow from operating activities (pound) 934,510
========
1-Jan-00 Cash flow 30-Sep-00
2 Analysis of net debt
(pound) (pound) (pound)
Cash at bank and in hand 33,845 73,436 107,281
Bank overdraft (1,243,943) 643,007 (600,936)
---------- ------- --------
(pound) (1,210,098) 716,443 (493,655)
========== ======= ========
3 Reconciliation of net cash flow to movement in net debt
Increase/(Decrease) in cash in the period 716,443
Opening net debt (1,210,098)
----------
Closing net debt (pound) (493,655)
==========
</TABLE>
<PAGE>
UNITED BREWERIES INTERNATIONAL (UK) LIMITED AND SUBSIDIARY
<TABLE>
COMPANY BALANCE SHEET AS AT 30TH SEPTEMBER 2000
<CAPTION>
Note (pound) (pound)
<S> <C> <C> <C>
Fixed assets
Investments 6 299,119
Current assets
Debtors 8 13,071
Cash at bank and in hand 10,451
--------
23,522
Creditors: amounts falling due within one year 9 (26,858)
--------
Net current liabilities (3,336)
-----------
Fixed assets over net current assets 295,782
Creditors: amounts falling due after more than one year (162,000)
-----------
Total assets less liabilities (pound) 133,782
===========
Capital and reserves
Called up share capital 100,000
Profit and loss account 33,782
-----------
Shareholders' fund - equity interests (pound) 133,782
===========
</TABLE>
<PAGE>
UNITED BREWERIES INTERNATIONAL (UK) LIMITED AND SUBSIDIARY
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD ENDED 30TH SEPTEMBER 2000
1 Accounting policies
1.1 Accounting convention
The financial statements are prepared under the historical cost
convention.
1.2 Compliance with accounting standards
The financial statements are prepared in accordance with applicable
accounting standards.
1.3 Turnover
Turnover represents amounts receivable for goods sold, services
supplied and commissions receivable and is stated net of value added
tax and trade discounts.
1.4 Tangible fixed assets and depreciation
Tangible fixed assets are stated at cost less depreciation.
Depreciation is provided at rates to calculate the residual value of
each asset over its expected useful life, as follows:
Plant and equipment 6 to 7 years
Motor vehicles 2 to 5 years
1.5 Investments
Fixed asset investments are stated at cost less provision for
diminution in value.
1.6 Stocks
Stock is valued on first-in, first-out basis at the lower of cost and
net realizable value.
1.7 Pensions
The pension costs charged in the financial statements represent the
contributions payable by the company during the period in accordance
with Statements of Standard Accounting Practice 24.
1.8 Deferred Taxation
Transactions denominated in foreign currencies are translated at the
exchange rate on the transaction date. Balances denominated in foreign
currencies are translated at the balance sheet date.
1.9 Foreign currency translation
Monetary assets and liabilities denominated in foreign currencies are
translated into sterling at the rates of exchange ruling at balance
sheet date. Transactions in foreign currencies are recorded at the rate
ruling at the date of the transaction. All differences are taken to
profit and loss account.
2 Turnover
The total turnover of the group for the period has been derived from
its principal activities. Export sales during the period were
(pound)778,787.
<PAGE>
UNITED BREWERIES INTERNATIONAL (UK) LIMITED AND SUBSIDIARY
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD ENDED 30TH SEPTEMBER 2000
(pound)
3 Operating profit
Operating profit is stated after charging:
Depreciation 181,111
Auditors' remuneration --
Profit and loss on disposal of tangible assets (2,185)
==============
4 Interest payable
On bank overdraft and other credit facilities 42,757
==============
5 Taxation
No provision for UK taxation for the period has been made in the
accounts.
6 Tangible fixed assets
<TABLE>
a) Group
<CAPTION>
Plant and Motor
equipment Vehicles Total
Cost (pound) (pound) (pound)
<S> <C> <C> <C>
At 1 January 2000 1,291,990 104,445 1,396,435
Additions 139,418 39,877 179,295
Disposals -- (12,003) (12,003)
------------- ----------- -------------
At 30th September 2000 1,431,408 132,319 1,563,727
============= =========== =============
Depreciation
At 1 January 2000 767,385 35,942 803,327
Charge for the period 149,479 31,632 181,111
Disposals -- (10,202) (10,202)
------------- ----------- -------------
At 30th September 2000 916,864 57,372 974,236
============= =========== =============
Net book value
At 30th September 2000 514,544 74,947 589,491
============= =========== =============
============= =========== =============
At 1st January 2000 524,605 68,503 593,108
============= =========== =============
b) Company
Cost at 1st January 2000 and 30th September 2000 (pound) 299,119
=============
The company holds 100% of the ordinary issued shares capital of UBSN Limited, a
company incorporated in England and Wales.
<PAGE>
UNITED BREWERIES INTERNATIONAL (UK) LIMITED AND SUBSIDIARY
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD ENDED 30TH SEPTEMBER 2000
7 Stocks
Finished goods and promotional material (pound) 97,221
=============
There is no material difference between the current replacement cost
and historical cost of stock.
8 Debtors
Group Company
Trade debtors 2,314,679 13,071
Prepayments and accrued income 2,304
------------ -----------
(pound) 2,316,983 (pound)13,071
============ ===========
Trade debtors include an amount of approximately (pound)250,000 due
from German Lager Importers Limited, which is now in Creditors
Voluntary Liquidation. The debt had been the subject of a legal action
and German Lager Importers Limited had made a counter claim for the
breech of contract. This counter claim was dismissed by the courts and
UBSN Limited, the subsidiary undertaking, obtained judgement for the
debt and full costs. In view of the subsequent voluntary liquidation a
full provision has been made for all the money due from German Lager
Importers Limited. All legal costs associated with these actions have
been provided for in the accounts. UBSN Limited is pursuing an action
to recover the debt through the liquidator of German Lager Importers
Limited.
9 Creditors: amounts falling due within one year.
Group Company
Bank overdrafts (600,936) --
Trade creditors (1,651,837) (4,318)
Corporation tax (29,022) (0)
Other taxes and social security costs -- --
Other creditors (27,078) (22,540)
Accruals and deferred Income (140,451) 0
------------ -----------
(pound)(2,449,325)(pound)(26,858)
============ ===========
The bank overdraft is secured by a fixed charge over the assets of the
group.
10 Pension costs
The group operates a defined contribution pension scheme. The assets of
the scheme are held separately from those of the group in an
independently administered fund.
11 Share Capital
Company
Authorised
500,000 Ordinary shares of(pound)1 each 500,000
===========
Allotted, called up and fully paid
100,000 Ordinary shares of (pound) 1 each 100,000
===========
</TABLE>
<PAGE>
UNITED BREWERIES INTERNATIONAL (UK) LIMITED AND SUBSIDIARY
<TABLE>
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD ENDED 30TH SEPTEMBER 2000
<CAPTION>
12 Statement of movement on profit and loss account Group Profit
and loss a/c:
-------------
<S> <C>
Balance at 1st January 2000 (pound) 246,878
Retained profit for the period 314,774
--------------
Balance at 30th September 2000 (pound) 561,652
==============
13 Reconciliations of movements in Shareholders' fund Group
Profit for the period to 30th September 2000 (pound) 314,774
Opening Shareholders' fund 346,878
--------------
Closing Shareholders' fund (pound) 661,652
==============
14 Contingent liabilities
a) The company acts as a surety for the obligations on leased premises
acquired by UB (Soyco) Limited, (a former subsidiary undertaking) for a
term of twenty years from 24th June 1990 at an annual rental of
(pound)61,500.
b) The company has issued a letter of comfort to the bankers of the
subsidiary undertaking in respect of a facility of (pound)1,500,000.
made available to the subsidiary undertaking. Within the letter of
comfort the company gave an undertaking to ensure the subsidiary would
be able to fulfill all of its undertakings to the bank including
business and financial obligations.
15 Employee
Number of employees
The average monthly number of employees (including directors) during
the period was:
Sales and marketing 11
Administration 7
==============
Wages and salaries (pound) 282,509
(including pension costs) 14,034
--------------
(pound) 296,543
==============
</TABLE>
16 Control
The group's ultimate parent company is Inversion Mirabele S.A., a
company incorporated in Panama.
<PAGE>
UNITED BREWERIES INTERNATIONAL (UK) LIMITED AND SUBSIDIARY
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD ENDED 30TH SEPTEMBER 2000
17 Related party transactions
<TABLE>
During the period to 30th September 2000, the group has had the following
transactions with related parties:
<CAPTION>
Related Party Transactions (pound)
<S> <C>
Shepherd Neame Limited Sales 734,066
Freight costs 244,878
Commissions payable 60,644
Purchases 3,924,716
UBSN Limited Royalties charge payable 7,186
American United Breweries Inc. Commissions/advertising payable 99,034
===========
At the balance sheet date, the following balances remained outstanding
with the related parties:
Shepherd Neame Limited owed by (pound) 241,238
owed to 1,555,404
Accruals --
United Breweries International (UK) Limited owed by 162,000
owed to 5,875
UB Ltd. Royalties payable 4,318
===========
</TABLE>
<PAGE>
UNITED BREWERIES INTERNATIONAL (UK) LIMITED AND SUBSIDIARY
COMPANY DETAILED PROFIT AND LOSS ACCOUNT
FOR THE PERIOD ENDED 30TH SEPTEMBER 2000
(pound) (pound)
Turnover
Sales and commission 7,196
Administration expenses
Wages and national insurance 244,014
Pension scheme contribution --
Sundry expenses 780
Royalties payable 4,612
--------
(249,406)
Other operating income
Costs reimbursed 244,014
--------
Operating profit 1,804
Interest payable
Bank interest paid (111)
--------
Profit before taxation (pound) 1,692
========
<PAGE>
Company Registration No. 1688201 (England and Wales)
UNITED BREWERIES INTERNATIONAL (UK) LIMITED AND
SUBSIDIARIES
DIRECTORS' REPORT AND GROUP FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 1999
<PAGE>
UNITED BREWERIES INTERNATIONAL (UK) LIMITED AND SUBSIDIARIES
COMPANY INFORMATION
Directors M.K. Nambiar
V.S. Kumar
G.M.K. Lodhi
Secretary G.M.K. Lodhi
Company number 1688201
Registered office 75 Westow Hill
Crystal Palace
London
SE19 1TX
Business address 77 Marlowes
Hemel Hampstead
HP1 1LF
<PAGE>
UNITED BREWERIES INTERNATIONAL (UK) LIMITED AND SUBSIDIARIES
CONTENTS
Page
Directors' report 1 - 2
Consolidated profit and loss account 3
Consolidated balance sheet 4
Consolidated cash flow statement 5
Notes to the consolidated cash flow statement 6
Company balance sheet 7
Notes to the financial statements 8 - 15
The following does not form part of the statutory financial
statements:
Company detailed trading and profit and loss account 16
<PAGE>
UNITED BREWERIES INTERNATIONAL (UK) LIMITED AND SUBSIDIARIES
DIRECTORS' REPORT
FOR THE YEAR ENDED 31 DECEMBER 1999
--------------------------------------------------------------------------------
The directors present their report and group financial statements for the year
ended 31 December 1999.
Principal activities and review of the business
The group's principal activities during the year continued to be those of
commission agents for the sale of beverages and marketing and distribution of
beer and wines.
The results for the year and the financial position at the year end were
considered satisfactory by the directors who expect continued growth in the
foreseeable future.
Results and dividends
The results for the year are set out on page 3.
The directors do not recommend payment of any dividends.
Fixed assets
The significant changes in fixed assets during the year are shown in the notes
to the financial statements.
Year 2000
The directors have identified the key risks to the company and has developed a
plan to minimize their impact. They have considered not only the company's own
systems but also those of its major suppliers and customers. Although no
organization can guarantee that no year 2000 problems will arise, they believe
that, having identified and removed the major risks to the company in accordance
with the plan they have developed, it will be possible to quickly resolve any
such problems as may arise without significant additional costs.
Directors' interests
<TABLE>
The directors who served during the year and their beneficial interests in the
shares of the company were as stated below:
<CAPTION>
Ordinary shares of (pound) 1 each
31 December 1999 1 January 1999
<S> <C> <C>
M K Nambiar -- --
V S Kumar -- --
G M K Lodhi -- --
K G James (Resigned 30 June 1999)
</TABLE>
--------------------------------------------------------------------------------
-1-
<PAGE>
UNITED BREWERIES INTERNATIONAL (UK) LIMITED AND SUBSIDIARIES
DIRECTORS' REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 1999
--------------------------------------------------------------------------------
Directors' responsibilities
Company law requires the directors to prepare financial statements for each
financial year which give a true and fair view of the state of affairs of the
company and of the profit or loss of the company for that period. In preparing
those financial statements, the directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and estimates that are reasonable and prudent;
- prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the company will continue in business.
The directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
company and to enable them to ensure that the financial statements comply with
the Companies Act 1985. They are also responsible for safeguarding the assets of
the company and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
On behalf of the board
/s/ Gul Lodhi
---------------------------------------
Director
/s/ M.K. Nambiar
---------------------------------------
--------------------------------------------------------------------------------
-2-
<PAGE>
UNITED BREWERIES INTERNATIONAL (UK) LIMITED AND SUBSIDIARIES
CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
Notes (pound) (pound)
<S> <C> <C> <C>
Turnover 2 7,350,109 6,787,918
Cost of sales (4,813,017) (4,369,611)
---------- ----------
Gross profit 2,537,092 2,418,307
Distribution costs (1,554,503) (1,487,735)
Administrative expenses (648,855) (613,781)
---------- ----------
Operating profit 3 333,734 316,791
Provision for litigation costs (125,303) (89,099)
---------- ----------
Profit on ordinary activities before interest 208,431 227,692-
Profit on sale of fixed asset investment 4 21,637 --
Amounts written off investments 5 28,363 --
Interest payable and similar charges 6 (73,649) (85,489)
---------- ----------
Profit on ordinary activities before taxation 184,782 142,203
Tax on profit on ordinary activities 7 (63,072) (51,360)
---------- ----------
Profit on ordinary activities after taxation 15 121,710 90,843
========== ==========
</TABLE>
The profit and loss account has been prepared on the basis that all operations
are continuing operations.
There are no recognised gains and losses other than those passing through the
profit and loss account.
--------------------------------------------------------------------------------
-3-
<PAGE>
UNITED BREWERIES INTERNATIONAL (UK) LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS AT 31 DECEMBER 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
Notes (pound) (pound) (pound) pound)
<S> <C> <C> <C> <C> <C>
Fixed assets
Tangible assets 8 593,108 607,438
Current assets
Stocks 10 63,074 111,420
Debtors 11 2,722,235 2,469,157
Cash at bank and in hand 33,845 154,381
---------- ----------
2,819,154 2,734,958
Creditors: amounts falling due within
one year 12 (3,065,384) (3,117,228)
---------- ----------
Net current liabilities (246,230) (382,270)
---------- ----------
Total assets less current liabilities 346,878 225,168
========== ==========
Capital and reserves
Called up share capital 14 100,000 100,000
Profit and loss account 15 246,878 125,168
---------- ----------
Shareholders' funds - equity interests 16 346,878 225,168
========== ==========
</TABLE>
--------------------------------------------------------------------------------
-4-
<PAGE>
UNITED BREWERIES INTERNATIONAL (UK) LIMITED AND SUBSIDIARIES
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
(pound) (pound)
<S> <C> <C>
Net cash inflow/(outflow) from operating activities (10,113) (219,425)
Returns on investments and servicing of finance
Interest paid (73,649) (85,489)
-------- --------
Net cash outflow for returns on investments
and servicing of finance (73,649) (85,489)
Taxation (51,360) (77,475)
Capital expenditure and financial investment
Payments to acquire tangible assets (238,809) (264,397)
Payments to acquire investments -- (249,119)
Receipts from sales of tangible assets 22,065 --
Receipts from sales of investments 50,000 --
-------- --------
Net cash outflow for capital expenditure (166,744) (513,516)
-------- --------
Net cash outflow before management of liquid
resources and financing (301,866) (895,905)
-------- --------
Decrease in cash in the year (301,866) (895,905)
======== ========
</TABLE>
--------------------------------------------------------------------------------
-5-
<PAGE>
UNITED BREWERIES INTERNATIONAL (UK) LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1 Reconciliation of operating profit to net cash outflow from operating 1999 1998
activities
(pound) (pound)
<S> <C> <C>
Operating profit 333,734 316,791
Depreciation of tangible assets 235,315 175,173
Profit on disposal of tangible assets (4,241) --
Decrease/(Increase) in stocks 48,346 (67,150)
Increase in debtors (253,078) (546,455)
Decrease in creditors within one year (244,886) (8,685)
Provision for litigation costs (125,303) (89,099)
--------------- ---------------
Net cash outflow from operating activities (10,113) (219,425)
=============== ===============
2 Analysis of net debt 1 January 1999 Cash flow Other 31 December
non-cash 1999
changes
(pound) (pound) (pound) (pound)
Net cash:
Cash at bank and in hand 154,381 (120,536) -- 33,845
Bank overdrafts (1,062,613) (181,330) -- (1,243,943)
--------------- -------------- --------------- ---------------
Net debt (906,232) (301,866) -- (1,210,098)
=============== ============== =============== ===============
3 Reconciliation of net cash flow to movement in net debt 1999 1998
(pound) (pound)
Decrease in cash in the year (301,866) (895,905)
Cash inflow from increase in debt -- --
--------------- ---------------
Movement in net debt in the year (301,866) (895,905)
Opening net debt (908,232) (12,327)
--------------- ---------------
Closing net debt (1,210,098) (908,232)
=============== ===============
</TABLE>
--------------------------------------------------------------------------------
-6-
<PAGE>
UNITED BREWERIES INTERNATIONAL (UK) LIMITED AND SUBSIDIARIES
COMPANY BALANCE SHEET
AS AT 31 DECEMBER 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
Notes (pound) (pound) (pound) (pound)
<S> <C> <C> <C>
Fixed assets
Investments 9 299,119 299,119
Current assets
Debtors 11 14,787 67,298
Cash at bank and in hand 7,681 --
--------------- ---------------
22,468 67,298
Creditors: amounts falling due within
one year 12 (189,496) (296,275)
--------------- ---------------
Net current liabilities (167,028) (228,977)
-------------- ---------------
Total assets less current liabilities 132,091 70,142
============== ===============
Capital and reserves
Called up share capital 14 100,000 100,000
Profit and loss account 32,091 (29,858)
-------------- ---------------
Shareholders' funds - equity interests 132,091 70,142
============== ===============
</TABLE>
--------------------------------------------------------------------------------
-7-
<PAGE>
UNITED BREWERIES INTERNATIONAL (UK) LIMITED AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD ENDED 31 DECEMBER 1999
--------------------------------------------------------------------------------
1 Accounting policies
1.1 Accounting convention
The financial statements are prepared under the historical cost
convention.
1.2 Compliance with accounting standards
The financial statements are prepared in accordance with applicable
accounting standards.
1.3 Turnover
Turnover represents amounts receivable for goods sold, services supplied
and commissions receivable and is stated net of value added tax and trade
discounts.
1.4 Tangible fixed assets and depreciation
Tangible fixed assets are stated at cost less depreciation. Depreciation
is provided at rates calculated to write off the cost less estimated
residual value of each asset over its expected useful life, as follows:
Plant and equipment 6 to 7 years
Motor vehicles 2 to 5 years
1.5 Investments
Fixed asset investments are stated at cost less provision for diminution
in value.
1.6 Stock
Stock is valued on first-in, first-out basis at the lower of cost and net
realizable value.
1.7 Pensions
The pension costs charged in the financial statements represent the
contributions payable by the company during the year in accordance with
Statements of Standard Accounting Practice 24.
1.8 Deferred Taxation
Deferred taxation is provided at appropriate rates on all timing
differences using the liability method only to the extent that, in the
opinion of the directors, there is a reasonable probability that a
liability or asset will crystallise in the foreseeable future.
1.9 Foreign currency translation
Monetary assets and liabilities denominated in foreign currencies are
translated into sterling at the rates of exchange ruling at the balance
sheet date. Transactions in foreign currencies are recorded at the rate
ruling at the date of the transaction. All differences are taken to
profit and loss account.
2 Turnover
The total turnover of the group for the year has been derived from its
principal activities. Export sales during the period were (pound)999,437
(1998 - (pound)881,744).
3 Operating profit Group Group
1999 1998
(pound) (pound)
Operating profit is stated after charging:
Depreciation of tangible assets 235,315 175,173
Auditors' remuneration 19,000 19,407
Profit on disposal of tangible assets (4,241) --
========= ==========
--------------------------------------------------------------------------------
-8-
<PAGE>
UNITED BREWERIES INTERNATIONAL (UK) LIMITED AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 1999
--------------------------------------------------------------------------------
Group Group
4 Investment income 1999 1998
(pound) (pound)
Profit on sale of fixed asset investments 21,637 --
======== ========
Group Group
5 Amounts written off investments 1999 1998
(pound) (pound)
Amounts written off investments in prior years written
back: - fixed assets investment 28,363 --
======== ========
Group Group
6 Interest payable 1999 1998
(pound) (pound)
On bank overdrafts and other credit facilities 73,649 85,489
======== ========
Group Group
7 Taxation 1999 1998
(pound) (pound)
U.K. current year taxation
U.K. corporation tax 63,072 51,360
======== ========
--------------------------------------------------------------------------------
-9-
<PAGE>
UNITED BREWERIES INTERNATIONAL (UK) LIMITED AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 1999
--------------------------------------------------------------------------------
8 Tangible fixed assets
GROUP Plant and Motor Total
equipment vehicles
(pound) (pound) (pound)
Cost
At 1 January 1999 1,298,445 97,804 1,396,249
Additions 186,076 52,733 238,809
Disposals (192,531) (46,092) (238,623)
----------- ----------- ------------
At 31 December 1999 1,291,990 104,445 1,396,435
----------- ----------- ------------
Depreciation
At 1 January 1999 747,203 41,608 788,811
On disposals (192,531) (28,268) (220,799)
Charge for the year 212,713 22,602 235,315
----------- ----------- ------------
At 31 December 1999 767,385 35,942 803,327
----------- ----------- ------------
Net book value
At 31 December 1999 524,605 68,503 593,108
----------- ----------- ------------
At 31 December 1998 551,242 56,196 607,438
=========== =========== ============
--------------------------------------------------------------------------------
-10-
<PAGE>
UNITED BREWERIES INTERNATIONAL (UK) LIMITED AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 1999
--------------------------------------------------------------------------------
9 Fixed asset investments
COMPANY Shares in
subsidiary
undertakings
(pound)
Cost
At 1 January 1999 327,482
Disposals (28,363)
---------------
At 31 December 1999 299,119
---------------
Provisions for diminution in value
At 1 January 1999 28,363
Charge for the year (28,363)
---------------
At 31 December 1999 --
---------------
Net book value
At 31 December 1999 299,119
===============
At 31 December 1998 --
===============
Holding of more than 20%
The company holds more than 20% of the share capital of the following
companies:
Shares held
Company Country of registration Class %
Subsidiary undertakings
UB (Soyco) Limited England and Wales Ordinary 98
UBSN Limited England and Wales Ordinary 100
The results of the subsidiary undertaking, UB (Soyco) Limited, are not
included in the group consolidated financial statements as there will be
disproportionate expenses incurred and delay in getting the information.
On 8 December 1999 the company disposed of its investment in UB (Soyco)
Limited.
10 Stocks
<TABLE>
<CAPTION>
Group Group Company Company
1999 1998 1999 1998
(pound) (pound) (pound) (pound)
<S> <C> <C> <C> <C>
Finished goods and promotional material 63,074 111,420 -- --
=============== ============== =============== ===============
</TABLE>
There is no material difference between the current replacement cost and
historic cost of stock.
--------------------------------------------------------------------------------
-11-
<PAGE>
UNITED BREWERIES INTERNATIONAL (UK) LIMITED AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 1999
--------------------------------------------------------------------------------
11 Debtors
<TABLE>
<CAPTION>
Group Group Company Company
1999 1998 1999 1998
(pound) (pound) (pound) (pound)
<S> <C> <C> <C> <C>
Trade debtors 2,631,095 2,173,221 -- --
Amounts owed by subsidiary undertakings -- -- -- 5,875
Other debtors -- 91,403 -- 55,347
Prepayments and accrued income 91,140 204,533 14,787 6,076
--------------- -------------- --------------- ---------------
2,722,235 2,469,157 14,787 67,298
=============== ============== =============== ===============
</TABLE>
Trade debtors include an amount of approximately (pound)250,000 due from
German Lager Importers Limited which is now in Creditors Voluntary
Liquidation. The debt had been the subject of a legal action and German
Lager Importers Limited had made a counter claim for breech of contract.
This counter claim was dismissed by the courts and UBSN Limited, the
subsidiary undertaking, obtained judgement for the debt and full costs.
In view of the subsequent voluntary liquidation a full provision has been
made for all the money due from German Lager Importers Limited. All legal
costs associated with these actions have been provided for in the
accounts. The directors are pursuing an action to recover the debt
through the liquidator of German Lager Importers Limited.
<TABLE>
12 Creditors: amounts falling due within one year
<CAPTION>
Group Group Company Company
1999 1998 1999 1998
(pound) (pound) (pound) (pound)
<S> <C> <C> <C> <C>
Bank overdrafts 1,243,943 1,062,613 -- 7,633
Trade creditors 1,414,454 1,292,923 -- --
Amounts owed to subsidiary undertakings -- -- 156,125 --
Corporation tax 69,094 57,382 72 1,391
Other taxes and social security costs 35,395 40,910 11,764 11,907
Other creditors 16,035 221,595 16,035 221,595
Accruals and deferred income 286,463 441,805 5,500 53,749
--------------- -------------- --------------- ---------------
3,065,384 3,117,228 189,496 296,275
=============== ============== =============== ===============
</TABLE>
The bank overdrafts are secured by a fixed and floating charge over the
assets of the group.
13 Pension costs
The group operates a defined contribution pension scheme. The assets of
the scheme are held separately from those of the group in an
independently administered fund. The pension cost charge represents
contributions payable by the group to the fund and amounted to
(pound)9,786 (1988 - (pound)11,818).
--------------------------------------------------------------------------------
-12-
<PAGE>
UNITED BREWERIES INTERNATIONAL (UK) LIMITED AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 1999
--------------------------------------------------------------------------------
<TABLE>
14 Share capital
<CAPTION>
Company Company
1999 1998
(pound) (pound)
<S> <C> <C>
Authorised
500,000 Ordinary shares of (pound)1 each 500,000 500,000
=============== ===============
Allotted, called up and fully paid
100,000 Ordinary shares of (pound)1 each 100,000 100,000
=============== ===============
15 Statement of movements on profit and loss account
Group
Profit and
loss account
(pound)
Balance at 1 January 1999 125,168
Retained profit for the year 121,710
---------------
Balance at 31 December 1999 246,878
===============
16 Reconciliation of movements in shareholders' funds Group Group
1999 1998
(pound) (pound)
Profit for the financial year 121,710 90,843
Opening shareholders' funds 225,168 134,325
--------------- ---------------
Closing shareholders' funds 346,878 225,168
=============== ===============
</TABLE>
17 Contingent liabilities
Company
a) The company acts as a surety for the obligations on a lease of
premises acquired by UB (Soyco) Limited (a former subsidiary undertaking)
for a term of twenty years from 24 June 1990 at an annual rental of
(pound)61,500.
b) The company has issued a letter of comfort to the bankers of a
subsidiary undertaking in respect of a facility of (pound)1,500,000 made
available to this subsidiary undertaking. Within the letter of comfort
the company gave an undertaking to ensure the subsidiary would be able to
fulfill all of its undertakings to the bank including business and
financial obligations.
18 Deferred taxation
The full potential liability for 1999 is (pound)12,000 (1998 -
(pound)35,000) in respect of capital allowance carried forward which has
not been provided in the accounts.
--------------------------------------------------------------------------------
-13-
<PAGE>
UNITED BREWERIES INTERNATIONAL (UK) LIMITED AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 1999
--------------------------------------------------------------------------------
19 Employees
Number of employees
The average monthly number of employees (including directors) during the
year was:
1999 1998
Number Number
Sales and marketing 15 15
=============== ===============
Employment costs
(pound) (pound)
Wages and salaries 255,946 257,339
Other pension costs 9,786 11,818
--------------- ---------------
265,732 269,157
=============== ===============
20 Litigation
During 1998 a claim for (pound)500,000 was made jointly against the
subsidiary undertaking, UBSN Limited, and two other defendants relating
to a breech of an alleged sponsorship contract. The action was settled
during the year.
21 Control
The directors consider the group's ultimate parent company to be
Inversion Mirabele S.A., a company incorporated in Panama.
--------------------------------------------------------------------------------
-14-
<PAGE>
UNITED BREWERIES INTERNATIONAL (UK) LIMITED AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 1999
--------------------------------------------------------------------------------
22 Related party transactions
<TABLE>
During the year the group has had the following transactions with its
related parties:
<CAPTION>
1999 1998
Related party Transactions (pound) (pound)
<S> <C> <C>
Shepherd Neame Limited Sales 699,493 636,100
Freight costs 240,590 265,830
Commission payable 63,227 49,092
Purchases 4,625,586 4,076,419
UBSN Limited Management fees received -- 48,000
Royalty income 8,711 6,067
UB International Limited Management charge payable 103,547 66,666
UB Global Corporation Limited Purchases 96,009 296,449
American United Breweries Inc. Commission/Advertising payable 125,492 173,276
---------------- ------------------
At the balance sheet date, the following balances remained outstanding
with the related parties:
1999 1998
(pound) (pound)
Shepherd Neame Limited Owed by 652,672 478,889
Owed to 1,246,978 1,148,494
Accruals 159,212 292,631
UB International Limited Management charge payable 103,547 66,666
American United Breweries Inc. Accruals 38,386 29,739
UB Global Corporation Limited Owed to 64,023 6,944
---------------- ------------------
</TABLE>
--------------------------------------------------------------------------------
-15-
<PAGE>
UNITED BREWERIES INTERNATIONAL (UK) LIMITED
COMPANY DETAILED TRADING AND PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
(pound) (pound) (pound) (pound)
<S> <C> <C>
Turnover
Sales and commissions 20,881 38,848
Administrative expenses
Wages and national insurance 255,946 257,339
Pension scheme contributions 9,786 11,818
Management fees payable -- 75,000
Traveling and hotel accommodation -- 211
Legal and professional fees 150 --
Accountancy fees -- 600
Audit fees 2,500 2,400
Bank charges 116 460
General expenses 15 335
Royalty payable 5,227 3,646
--------------- ---------------
(273,740) (351,809)
Other operating income
Management fees receivable -- 48,000
Costs reimbursed 265,732 269,158
--------------- ---------------
265,732 317,158
-------------- ---------------
Operating profit 12,873 4,197
Profit on sale of fixed asset investments 21,637 --
Amounts written back on investments 28,383
Interest payable
Bank interest paid (852) (908)
-------------- ---------------
Profit before taxation 62,021 3,289
============== ===============
</TABLE>
--------------------------------------------------------------------------------
-16-
<PAGE>
U B S N LIMITED
NO 2367133
REPORT & ACCOUNTS
31 DECEMBER 1999
<PAGE>
UBSN LIMITED
Directors
V Mallya
B Dozey
D Townshend
D Anand
K Ganguly
Secretary
G. Lodhi
Auditors
Ernst & Young
Rolls House
7 Rolls Building
Fetter Lane
London
EC4A 1NH
Main Bankers
Nedcor Bank Ltd
Nedbank House
20 Abchurch Lane
London
EC4N 7AD
Solicitors
Travers Smith Braithwaite
10 Snow Hill
LONDON
EC1A 2AL
Registered Office
75 Westow Hill
Crystal Palace
London
SE19 1TX
2
<PAGE>
UBSN Limited
DIRECTORS' REPORT
The directors have pleasure in presenting their report and accounts for the year
ended 31 December 1999.
RESULTS AND DIVIDENDS
In the year the company made a profit of (pound)59,761 (1998 - (pound)87,547).
The directors do not recommend the payment of a dividend.
PRINCIPAL ACTIVITIES AND REVIEW OF THE BUSINESS
The principal activity of the company is the marketing and distribution of beer
and wines.
With the continued growth in the sales of Kingfisher Lager it is anticipated
results will improve in coming years.
DIRECTORS AND THEIR INTERESTS
The directors of the company during the year from 1 January 1999 to 31 December
1999 were those listed on page 2.
None of the directors held an interest in the company's shares at 31 December
1999, or at any time during the year.
FIXED ASSETS
The changes in fixed assets are disclosed in note 9.
By order of the board.
/s/ G Lodhi
---------------------------
Secretary
G Lodhi
3
<PAGE>
UBSN Limited
STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE ACCOUNTS
Company law requires the directors to prepare accounts for each financial year
which give a true and fair view of the state of affairs of the company and of
the profit or loss of the company for that period. In preparing those accounts,
the directors are required to:
o Select suitable accounting policies and then apply them consistently;
o Make judgements and estimates that are reasonable and prudent; and
o Prepare the accounts on the going concern basis unless it is inappropriate
to presume that the company will continue in business.
The directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
company and to enable them to ensure that the accounts comply with the Companies
Act 1985. They are also responsible for safeguarding the assets of the company
and hence for taking reasonable steps for the prevention and detection of fraud
and other irregularities.
4
<PAGE>
UBSN Limited
REPORT OF THE AUDITORS
To the members of UBSN Limited
We have audited the accounts on pages 6 to 15, which have been prepared under
the historical cost convention and on the basis of accounting policies set out
on page 9.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
As described on page 4 the company's directors are responsible for the
preparation of the accounts in accordance with applicable United Kingdom law
and, accounting standards. It is our responsibility to form an independent
opinion, based on our audit, on those accounts and to report our opinion to you.
Our responsibilities, as independent auditors, are established in the United
Kingdom by Statute, the auditing Practices Board and by our profession's ethical
guidance.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the accounts. It also
includes an assessment of the significant estimates and judgements made by the
directors in the preparation of the accounts, and of whether the accounting
policies are appropriate to the company's circumstances, consistently applied
and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the accounts are free from
material misstatement, whether caused by fraud or other irregularity or error.
In forming our opinion we also evaluated the overall adequacy of the
presentation of information in the accounts.
OPINION
In our opinion the accounts give a true and fair view of the state of affairs of
the company as at 31 December 1999 and of its profit for the year then ended and
have been properly prepared in accordance with the Companies Act 1985.
Ernst & Young
Registered Auditor
London
5
<PAGE>
UBSN Limited
<TABLE>
<CAPTION>
PROFIT AND LOSS ACCOUNT
Year ended 31 December 1999
1999 1998
Notes (pound) (pound)
----- ----------- -----------
<S> <C> <C> <C>
Turnover 3 7,337,939 6,755,146
Cost of sales (4,813,017) (4,369,611)
----------- -----------
Gross profit 2,524,922 2,385,535
Distribution and selling costs (1,554,503) (1,487,735)
Administrative expenses (649,558) (585,213)
----------- -----------
Operating profit 4 320,861 312,587
Costs relating to litigation 13/14 (125,303) (89,099)
Interest payable & similar charges 7 (72,797) (84,581)
----------- -----------
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 122,761 138,907
Tax on profit on ordinary activities 8 (63,000) (51,360)
----------- -----------
RETAINED PROFIT FOR THE YEAR 17 59,761 87,547
=========== ===========
</TABLE>
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
Year ended 31 December 1999
There are no recognised gains or losses other than the profit attributable to
shareholders of the company of (pound)59,761 in the year ended 31 December 1999
and of (pound)87,547 in the year ended 31 December 1998.
6
<PAGE>
UBSN Limited
<TABLE>
<CAPTION>
BALANCE SHEET
31 December 1999
1999 1998
Notes (pound) (pound)
----- ----------- -----------
<S> <C> <C> <C>
FIXED ASSETS 9 593,108 607,438
----------- -----------
CURRENT ASSETS
Stocks 10 63,074 111,420
Debtors 11 2,883,363 2,407,734
Cash at bank and in hand 26,164 154,381
----------- -----------
2,972,601 2,673,535
CREDITORS: amounts falling due within one year 12 (3,051,803) (2,826,828)
----------- -----------
NET CURRENT LIABILITIES (79,202) (153,293)
----------- -----------
NET ASSETS 513,906 454,145
=========== ===========
CAPITAL AND RESERVES
Called up share capital 16 100,000 100,000
Profit and loss account 17 413,906 354,145
----------- -----------
Equity shareholder's funds 513,906 454,145
=========== ===========
</TABLE>
These financial statements were approved by the Board of Directors on 18 April
2000 and were signed on its behalf by:
/s/ D Townshend
-----------------------
D Townshend
Director
/s/ B Dozey
-----------------------
B Dozey
Director
7
<PAGE>
UBSN Limited
Statement of Cash Flow
1999 1998
----------- ---------
Net Cash Inflow/(Outflow) from Operating Activities 23,721 (460,744)
Servicing of Finance (Interest Paid) (72,797) (84,581)
Taxation - Corporation Tax Paid (51,360) (77,475)
Capital Expenditure
Payment to acquire tangible Fixed Assets (238,809) (264,397)
Proceeds from Sale of tangible Fixed Assets 22,065 0
----------- ---------
(Decrease) in Cash in the period (317,180) (887,197)
=========== =========
Reconciliation of Operating Profit to Net Cash
Inflow/Outflow from Operating Activities
1999 1998
Operating Profit 320,861 312,587
Costs relating to Litigation (125,303) (89,099)
Depreciation 235,315 175,173
(Profit) on Sale of Fixed Assets (4,241) 0
Decrease in Debtors (475,629) (580,585)
Decrease/(Increase) in Stocks 48,346 (67,150)
Increase/(Decrease) in Creditors 24,372 (211,670)
----------- ---------
Net Cash Inflow/(Outflow) from Operating Activities 23,721 (460,744)
=========== =========
Analysis of Net Debt
1999 1998
Bank Balance/(Overdraft)
At 1st January (900,599) (13,402)
Net Cash Inflow/(Outflow) (317,180) (887,197)
----------- ---------
At 31st December (1,217,779) (900,599)
=========== =========
8
<PAGE>
UBSN Limited
NOTES TO THE ACCOUNTS
31 December 1999
1. ACCOUNTING POLICIES
Accounting convention
The accounts are prepared under the historical cost convention and
in accordance with applicable accounting standards.
Stocks
Stocks are valued on a first-in, first-out basis at the lower of
cost and net realisable value.
Depreciation
Depreciation is provided on all fixed assets at rates calculated to
write off the cost of each asset evenly over its expected useful
life as follows:
Plant and equipment -- 6 to 7 years
Motor vehicles -- 2 to 5 years
Foreign currency
Transactions denominated in foreign currencies are translated at the
exchange rate on the transaction date. Balances denominated in
foreign currencies are translated at the exchange rate at the
balance sheet date.
Deferred taxation
Provision is made for deferred taxation using the liability method
on timing differences to the extent that it is probable that the
liability will crystallise.
Pensions
The company does not operate a pension scheme.
2. OWNERSHIP
The comnpany is owned by United Breweries International (UK)
Limited.
Under an exclusive licence granted from United Breweries Limited of
India, the company holds the right to brew, market, develop and sell
Kingfisher Lager. The company, in turn, has granted a sub-licence to
Shepherd Neame Limited for the brewing of Kingfisher.
9
<PAGE>
UBSN Limited
NOTES TO TEE ACCOUNTS
31 December 1999
3. TURNOVER
Turnover comprises sales excluding value added tax. Export sales during the year
were (pound)999,437 (1998 - (pound)881,744).
4. OPERATING PROFIT
This is stated after charging:
1999 1998
(pound) (pound)
Depreciation 235,315 175,173
Auditors' remuneration: Audit services 16,500 17,007
Non-audit services 4,740 8,000
Exchange differences (4,652) 2,032
-------- -------
5. DIRECTORS' EMOLUMENTS
1999 1998
(pound) (pound)
Other Emoluments 100,000 88,800
-------- -------
Emoluments excluding pension contributions of the Chairman were nil (1998 --
nil), and of the highest paid Director were (pound)47,800 (1998 - (pound)45,500)
which included pension contributions of (pound)3,180 (1998 - (pound)3,100).
6. STAFF COSTS
The company had no employees during the year ended 31 Decembcr 1999 (1998--
nil).
10
<PAGE>
UBSN Limited
NOTES TO THE ACCOUNTS
31 December 1999
7. INTEREST PAYABLE
1999 1998
(pound) (pound)
Bank overdrafts and other credit facilities 72,797 84,581
======= =======
8. TAX ON PROFIT ON ORDINARY ACTIVITIES
1999 1998
UK Corporation tax 63,000 51,360
======= =======
<TABLE>
The corporation tax charge on the profits for 1998 has been reduced
by tax losses brought forward. The main reason for the tax charge
exceeding the standard rate corporation rate of 30% is that
depreciation charges have exceeded taxation capital allowances.
<CAPTION>
9. FIXED ASSETS
Plant and Motor
Equipment Vehicles Total
---------- -------- ---------
(pound) (pound) (pound)
<S> <C> <C> <C>
Cost:
At 1 January 1999 1,298,445 97,804 1,396,249
Additions 186,076 52,733 238,809
Disposals (192,531) (46,092) (238,623)
---------- ------- ----------
At 31 December 1999 1,291,990 104,445 1,396,435
---------- ------- ----------
Depreciation:
At 1 January 1999 747,203 41,608 788,811
Charge for the year 212,713 22,602 235,315
Disposals (192,531) (28,268) (220,799)
---------- ------- ----------
At 31 December 1999 767,385 35,942 803,327
---------- ------- ----------
Net book value:
At 31 December 1999 524,605 68,503 593,108
---------- ------- ----------
At 1 January 1999 551,242 56,196 607,438
========== ======= ==========
</TABLE>
11
<PAGE>
UBSN Limited
<TABLE>
NOTES TO THE ACCOUNTS
31 December 1999
<CAPTION>
10. STOCKS
1999 1998
(pound) (pound)
Finished goods and promotional materials 63,074 111,420
========= =========
<S> <C> <C>
There is no material difference between the
current replacement cost and historical cost
of stock
11. DEBTORS
1999 1998
(pound) (pound)
Trade debtors:
Amounts owed by Shepherd Neame Limited 583,469 383,979
Other 2,047,626 1,789,242
Other debtors 0 36,056
Prepayments 21,065 0
Prepayments and accrued income in respect of related parties
Amounts owed by Shepherd Neame Limited 69,203 94,910
UB International Ltd 0 103,547
Loans
United Breweries International (UK) Ltd 162,000 0
--------- ---------
2,883,363 2,407,734
========= =========
12. CREDITORS: amounts falling due within one year
1999 1998
(pound) (pound)
Bank overdraft (Secured - see Note 18) 1,243,943 1,054,980
Trade creditors
Amounts owed to Shepherd Neame Limited 1,246,978 1,148,494
UB Global Corporation Limited 64,023 6,994
Others 103,453 137,435
Corporation tax payable 69,022 57,382
VAT Payable 23,631 27,612
Accruals
Amounts owed to Shepherd Neame Limited 159,212 292,631
Amnemican United Breweries Inc 38,386 29,739
United Breweries International (UK) Ltd 19,790 0
Other 83,365 71,561
--------- ---------
3,051,803 2,826,828
</TABLE>
12
<PAGE>
UBSN Limited
NOTES TO THE ACCOUNTS
31 December 1999
13. DISPUTE WITH MAJOR DISTRIBUTOR
Trade debtors include an amount of approximately (pound)250,000 due
from German Lager Importers Ltd which is now in Creditors Voluntary
liquidation. This debt had been the subject of a legal action and
German Lager Importers Ltd had made a counter claim for breach of
contract. This counter claim was dismissed by the courts and UBSN
Ltd obtained judgenment for the debt and full costs. In view of the
subsequent voluntary liquidation a full provision has been made for
all money due from German Lager Importers. All legal costs
associated with these actions have been provided for in the
accounts. The Directors are pursuing an action to recover the debt
through the liquidator of German Lager Importers Ltd.
14. LITIGATION
During 1998 a claim for (pound)500,000 was made jointly against the
company and two other defendants relating to a breach of an alleged
sponsorship contract. The action was settled during the year.
15. DEFERRED TAXATION
The full potential liability for 1999 is (pound)12,000 (1998 -
(pound)35,000) in respect of capital allowance carried forward which
has not been provided in the accounts.
<TABLE>
16. SHARE CAPITAL
<CAPTION>
Authorised Allotted, called up
And issued and partly paid
1999 1998 1999 1998
No No (pound) (pound)
<S> <C> <C> <C> <C>
125,000 "A" shares of (pound)1 each 125,000 125,000 50,000 50,000
125,000 "B" shares of (pound)1 each 125,000 125,000 50,000 50,000
------- ------- ------ ------
250,000 250,000 100,000 100,000
======= ======= ======= =======
</TABLE>
13
<PAGE>
UBSN Limited
NOTES TO THE ACCOUNTS
31 December 1999
17. RECONCILIATION OF SHAREHOLDERS' FUNDS AND MOVEMENTS ON RESERVES
Profit
Share and loss
Capital account Total
(pound) (pound) (pound)
As at 1 January 1998 100,000 266,591 366,591
Profit for the year - 87,554 87,554
------- ------- -------
As at 31 December 1998 100,000 354,145 454,145
Profit for the year - 59,761 59,761
------- ------- -------
As at 31 December 1999 100,000 413,906 513,906
======= ======= =======
18. BANK OVERDRAFT
The bank overdraft is secured by a fixed and floating charge over
the assets of the company.
19. PARENT UNDERTAKING AND CONTROLLING PARTY
The company's immediate parent undertaking is United Breweries
International (UK) Limited and the ultimate parent company is
Inversion Mirabela S.A. incorporated in Panama.
For the period under review Shepherd Neame Limited remains a related
party as envisaged by FRS 8 on the basis of shared business
interests.
14
<PAGE>
UBSN Limited
NOTES TO THE ACCOUNTS
31 December 1999
20. TRANSACTIONS WITH RELATED PARTIES
<TABLE>
During the year the company has had the following transactions with its related parties.
<CAPTION>
1999 1998
(pound) (pound)
<S> <C> <C>
Shepherd Neame Limited.
Sales 699,493 636,100
Freight Costs 240,590 265,830
Commission Payable 63,227 49,092
Purchases 4,625,586 4,076,419
United Breweries International (UK) Limited.
(Parent Company registered in the UK)
Management Charge Payable 0 48,000
Loans made by UBSN Ltd 162,000 0
Royalties Payable 14,970 0
Consultancy Fee Payable 5,000 0
UB International Ltd.
(Company registered in the UK)
Management Charge Payable 103,547 66,666
UB Global Corporation Ltd.
(Subsidiary of United Breweries of India,
registered in India)
Purchases 96,009 296,449
American United Breweries Inc
(Registered in the USA)
Commission/Advertising payable 125,492 173,276
As a result of the trading and other activities with related parties,
the following balances remained outstanding as at 31 December 1999
1999 1998
(pound) (pound)
Amount owed by United Breweries International (UK) Ltd 162,000 0
Amounts owed by Shepherd Neame Limited 652,672 478,889
Amounts owed to Shepherd Neame Limited 1,246,978 1,148,494
Amounts owed to UB Global Corportation Ltd 64,023 6,944
Accruals - Shepherd Neame Limited 159,212 292,631
American United Brewers Inc 38,386 29,739
United Breweries International (UK) Ltd 19,790 0
</TABLE>
15
<PAGE>
THE FOLLOWING STATEMENTS DO NOT FORM
PART OF THE AUDITED STATUTORY ACCOUNTS
<PAGE>
UBSN Limited
DETAILED PROFIT AND LOSS ACCOUNT
Year ended 31 December 1999
1999 1998
(pound) (pound)
GROSS PROFIT
Sales 7,337,939 6,755,146
Cost of sales (4,813,017) (4,369,611)
---------- ----------
Gross profit 2,524,922 2,385,535
---------- ----------
DISTRIBUTION AND SELLING EXPENSES
Freight 329,185 352,277
Advertising and promotional expenses 497,093 514,543
Sales commission 141,228 119,592
Dispense equipment repairs 152,073 120,087
Operational expenses 207,385 183,862
Sponsorship 127,049 88,902
Other distribution and selling 100,490 108,472
---------- ----------
1,554,503 1,487,735
---------- ----------
GENERAL AND ADMINISTRATIVE EXPENSES
Management fees 103,547 114,666
Audit and taxation fees 25,047 25,007
Postage and stationery 3,845 2,842
Bad debt provision 47,634 64,400
Depreciation/Profit on asset disposal 231,074 175,173
Exchange differences (4,652) 2,032
Operational expenses 187,497 167,531
Royalties payable/receivable 5,330 6,076
Miscellaneous 50,236 27,486
---------- ----------
649,558 585,213
---------- ----------
FINANCE COSTS
Bank interest and charges 72,797 84,581
---------- ----------
72,797 84,581
---------- ----------
EXCEPTIONAL ITEMS
Litigation costs 125,303 89,099
---------- ----------
Profit on ordinary activities before tax 122,761 138,907
========== ==========
<PAGE>
UNITED BREWERIES INTERNATIONAL (UK) LIMITED
DIRECTORS' REPORT AND FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 1999
<PAGE>
UNITED BREWERIES INTERNATIONAL (UK) LIMITED
COMPANY INFORMATION
--------------------------------------------------------------------------------
Directors M K Nambiar
V S Kumar
G M K Lodhi
Secretary G M K Lodhi
Company number 1688201
Registered office 75 Westow Hill
Crystal Palace
London
SE19 1TX
Auditors J.M. Shah and Company
Chartered Accountants
24 Old Bond Street
London
W1X 4JE
<PAGE>
UNITED BREWERIES INTERNATIONAL (UK) LIMITED
CONTENTS
Page
Directors' report 1 - 2
Auditors' report 3
Profit and loss account 4
Balance sheet 5
Cash flow statement 6
Notes to the cash flow statement 7
Notes to the financial statements 8 - 13
---------------------------------
The following does not form part of the
statutory financial statements:
Detailed trading and profit and loss account 14
<PAGE>
UNITED BREWERIES INTERNATIONAL (UK) LIMITED
DIRECTORS' REPORT
FOR THE YEAR ENDED 31 DECEMBER 1999
--------------------------------------------------------------------------------
The directors present their report and financial statements for the year ended
31 December 1999.
Principal activities and review of the business
The principal activity of the company during the year continued to be that of
commission agents for the sale of beverages.
The results for the year and the financial position at the year end were
considered satisfactory by the directors who expect continued growth in the
foreseeable future.
Results and dividends
The results for the year are set out on page 4.
The directors do not recommend payment of dividends.
Fixed assets
Details relating to fixed assets are shown in the notes to the financial
statements.
Year 2000
The directors have considered whether the company's operations could be
adversely affected by malfunctions in computer or other equipment arising from
errors in processing dates in the year 2000 and beyond.
No part of the company's current operations are critically dependent on computer
or other equipment which could be affected by year 2000 problems.
Directors' interests
The directors who served during the year and their beneficial interests in the
shares of the company were as stated below:
Ordinary shares of (pound) 1 each
31 December 1999 1 January 1999
M K Nambiar -- --
V S Kumar -- --
G M K Lodhi -- --
K G James (Resigned 30 June 1999)
Auditors
The company has by elective resolution dispensed with the obligation to appoint
auditors annually in accordance with section 386(1) of the Companies Act 1985.
Therefore, the auditors, J.M. Shah and Company, will be deemed to be reappointed
for each succeeding financial year.
<PAGE>
UNITED BREWERIES INTERNATIONAL (UK) LIMITED
DIRECTORS' REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 1999
--------------------------------------------------------------------------------
Directors' responsibilities
Company law requires the directors to prepare financial statements for each
financial year which give a true and fair view of the state of affairs of the
company and of the profit or loss of the company for that period. In preparing
those financial statements, the directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and estimates that are reasonable and prudent;
- prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the company will continue in business.
The directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
company and to enable them to ensure that the financial statements comply with
the Companies Act 1985. They are also responsible for safeguarding the assets of
the company and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
This report has been prepared in accordance with the special provisions of Part
VII of the Companies Act 1985 relating to medium-sized companies.
By order of the board
G M K Lodhi
Director
20 April 2000
<PAGE>
UNITED BREWERIES INTERNATIONAL (UK) LIMITED
AUDITORS' REPORT
TO THE SHAREHOLDERS OF UNITED BREWERIES INTERNATIONAL (UK) LIMITED
--------------------------------------------------------------------------------
We have audited the financial statements on pages 4 to 13 which have been
prepared under the historical cost convention and the accounting policies set
out on page 8.
Respective responsibilities of directors and auditors
As described on page 2 the company's directors are responsible for the
preparation of financial statements. It is our responsibility to form an
independent opinion, based on our audit, on those statements and to report our
opinion to you.
Basis of opinion
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the financial statements. It
also includes an assessment of the significant estimates and judgements made by
the directors in the preparation of the financial statements, and of whether the
accounting policies are appropriate to the company's circumstances, consistently
applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
Opinion
In our opinion the financial statements give a true and fair view of the state
of the company's affairs as at 31 December 1999 and of its profit for the year
then ended and have been properly prepared in accordance with the Companies Act
1985.
/s/ J.M. Shah & Co.
-----------------------
J. M. Shah and Company
Chartered Accountants
and Registered Auditors
24 Old Bond Street
London
W1X 4JE 20 April 2000
<PAGE>
UNITED BREWERIES INTERNATIONAL (UK) LIMITED
PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
Notes (pound) (pound)
<S> <C> <C> <C>
Turnover 2 20,881 38,848
Administrative expenses (273,740) (351,809)
Other operating income 265,732 317,158
--------------------- --------------------
Operating profit 3 12,873 4,197
Profit on sale of fixed asset investment 21,637 --
--------------------- --------------------
Profit on ordinary activities before interest 34,510 4,197
Amounts written off investments 4 28,363 --
Interest payable and similar charges 5 (852) (908)
--------------------- --------------------
Profit on ordinary activities before taxation 62,021 3,289
Tax on profit on ordinary activities 6 (72) --
--------------------- --------------------
Profit on ordinary activities after taxation 12 61,949 3,289
===================== ====================
</TABLE>
The profit and loss account has been prepared on the basis that all operations
are continuing operations.
There are no recognised gains and losses other than those passing through the
profit and loss account.
<PAGE>
UNITED BREWERIES INTERNATIONAL (UK) LIMITED
BALANCE SHEET
AS AT 31 DECEMBER 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
Notes (pound) (pound) (pound) (pound)
<S> <C> <C> <C>
Fixed assets
Investments 7 299,119 299,119
Current assets
Debtors 8 14,787 67,298
Cash at bank and in hand 7,681 --
--------------- ---------------
22,468 67,298
Creditors: amounts falling due within
one year 9 (189,496) (296,275)
--------------- ---------------
Net current liabilities (167,028) (228,977)
-------------- ---------------
Total assets less current liabilities 132,091 70,142
============== ===============
Capital and reserves
Called up share capital 11 100,000 100,000
Profit and loss account 12 32,091 (29,858)
-------------- ---------------
Shareholders' funds - equity interests 13 132,091 70,142
============== ===============
</TABLE>
This report has been prepared in accordance with the special provisions of Part
VII of the Companies Act 1985 relating to medium-sized companies.
The financial statements were approved by the Board on 20 April 2000.
M K Nambiar G M K Lodhi
Director Director
<PAGE>
UNITED BREWERIES INTERNATIONAL (UK) LIMITED
CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
(pound) (pound)
<S> <C> <C>
Net cash inflow/(outflow) from operating activities (32,443) 258,488
Returns on investments and servicing of finance
Interest paid (852) (908)
--------------- ---------------
Net cash outflow from returns on investments
and servicing of finance (852) (908)
Taxation (1,391) (17,170)
Acquisitions and disposals
Purchase of subsidiary undertakings -- (249,118)
Sale of subsidiary undertakings 50,000 --
--------------- ---------------
Net cash inflow/(outflow) for acquisitions and
disposals 50,000 (249,118)
-------------- ---------------
Increase/(decrease) in cash in the year 15,314 (8,708)
============== ===============
</TABLE>
<PAGE>
UNITED BREWERIES INTERNATIONAL (UK) LIMITED
NOTES TO THE CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1 Reconciliation of operating profit to net cash (outflow)/inflow from 1999 1998
operating activities
(pound) (pound)
<S> <C> <C>
Operating profit 12,873 4,197
Decrease in debtors 52,511 28,255
(Decrease)/Increase in creditors within one year (97,827) 226,036
--------------- ---------------
Net cash (outflow)/inflow from operating activities (32,443) 258,488
=============== ===============
2 Analysis of net funds/(debt) 1 January 1999 Cash flow Other 31 December
non-cash 1999
changes
(pound) (pound) (pound) (pound)
Net cash:
Cash at bank and in hand -- 7,681 -- 7,681
Bank overdrafts (7,633) 7,633 -- --
--------------- -------------- --------------- ---------------
Net (debt)/funds (7,633) 15,314 -- 7,681
=============== ============== =============== ===============
3 Reconciliation of net cash flow to movement in net funds/(debt) 1999 1998
(pound) (pound)
Increase/(decrease) in cash in the year 15,314 (8,708)
Cash inflow from increase in debt -- --
--------------- ---------------
Movement in net funds/(debt) in the year 15,314 (8,708)
Opening net (debt)/funds (7,633) 1,075
--------------- ---------------
Closing net funds/(debt) 7,681 (7,633)
=============== ===============
</TABLE>
<PAGE>
UNITED BREWERIES INTERNATIONAL (UK) LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD ENDED 31 DECEMBER 1999
--------------------------------------------------------------------------------
1 Accounting policies
1.1 Accounting convention
The financial statements are prepared under the historical cost
convention.
1.2 Turnover
Turnover represents amounts receivable by the company for goods sold,
services supplied and commissions receivable and is stated net of value
added tax.
1.3 Investments
Fixed asset investments are stated at cost less provision for diminution
in value.
1.4 Pensions
The pension costs charged in the financial statements represent the
contributions payable by the company during the year in accordance with
Statement of Standard Accounting Practice 24.
1.5 Deferred Taxation
Deferred taxation is provided at appropriate rates on all timing
differences using the liability method only to the extent that, in the
opinion of the directors, there is a reasonable probability that a
liability or asset will crystallise in the foreseeable future.
1.6 Group accounts
The financial statements present information about the company as an
individual undertaking and not about its group. The company and its
subsidiary undertaking comprise a medium-sized group. The company has
therefore taken advantage of the exemptions provided by section 248 of
the Companies Act 1985 not to prepare group financial statements.
2 Turnover
The total turnover of the company for the year has been derived from its
principal activity wholly undertaken in the United Kingdom.
<TABLE>
3 Operating profit
<CAPTION>
1999 1998
(pound) (pound)
<S> <C> <C>
Operating profit is stated after charging:
Auditors' remuneration 2,500 2,400
=================== ==================
4 Amounts written off investments 1999 1998
(pound) (pound)
Amounts written off investments in prior years written back:
- fixed assets (28,363) --
=================== ==================
<PAGE>
UNITED BREWERIES INTERNATIONAL (UK) LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 1999
--------------------------------------------------------------------------------
5 Interest payable 1999 1998
(pound) (pound)
On bank loans and overdrafts 852 908
======================= ====================
6 Taxation 1999 1998
(pound) (pound)
U.K. current year taxation
U.K. corporation tax at 20% (1998 - 21%) 72 --
======================= ====================
</TABLE>
<PAGE>
UNITED BREWERIES INTERNATIONAL (UK) LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 1999
--------------------------------------------------------------------------------
7 Fixed asset investments
Shares in
group
undertakings
and
participating
interests
(pound)
Cost
At 1 January 1999 327,482
Disposals (28,363)
--------------
At 31 December 1999 299,119
--------------
Provisions for diminution in value
At 1 January 1999 28,363
On disposals (28,363)
--------------
At 31 December 1999 --
--------------
Net book value
At 31 December 1999 299,119
==============
At 31 December 1998 299,119
==============
Holdings of more than 20%
The company holds more than 20% of the share capital of the following
companies:
Shares held
Company Country of registration or Class %
Incorporation
Subsidiary undertakings
UBSN Limited England and Wales Ordinary 100
The aggregate amount of capital and reserves and the results of these
undertakings for the last relevant financial year were as follows:
Capital and Profit for
reserves the year
UBSN Limited 513,906 59,761
=============== ===============
On 8 December 1999 the company disposed of its investment in UB (Soyco)
Limited.
<PAGE>
UNITED BREWERIES INTERNATIONAL (UK) LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
8 Debtors 1999 1998
(pound) (pound)
<S> <C> <C>
Amounts owed by subsidiary undertakings -- 5,875
Other debtors -- 55,347
Prepayments and accrued income 14,787 6,076
--------------- ---------------
14,787 67,298
=============== ===============
9 Creditors: amounts falling due within one year 1999 1998
(pound) (pound)
Bank loans and overdrafts -- 7,633
Amounts owed to subsidiary undertakings 156,125 --
Corporation tax 72 1,391
Other taxes and social security costs 11,764 11,907
Other creditors 16,035 221,595
Accruals and deferred income 5,500 53,749
--------------- ---------------
189,496 296,275
=============== ===============
10 Pension costs
The company operates a defined contribution pension scheme. The assets of
the scheme are held separately from those of the company in an
independently administered fund. The pension cost charge represents
contributions payable by the company to the fund and amounted to
(pound)9,786 (1998 - (pound)11,818).
11 Share capital 1999 1998
(pound) (pound)
Authorised
500,000 Ordinary shares of(pound)1 each 500,000 500,000
=============== ===============
Allotted, called up and fully paid
100,000 Ordinary shares of(pound)1 each 100,000 100,000
=============== ===============
</TABLE>
<PAGE>
UNITED BREWERIES INTERNATIONAL (UK) LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 1999
--------------------------------------------------------------------------------
<TABLE>
12 Statement of movements on profit and loss account
<CAPTION>
Profit and
loss account
(pound)
<S> <C> <C>
Balance at 1 January 1999 (29,858)
Retained profit for the year 61,949
---------------
Balance at 31 December 1999 32,091
===============
13 Reconciliation of movements in shareholders' funds 1999 1998
(pound) (pound)
Profit for the financial year 61,949 3,289
Opening shareholders' funds 70,142 66,853
--------------- ---------------
Closing shareholders' funds 132,091 70,142
=============== ===============
</TABLE>
14 Contingent liabilities
a) The company acts as a surety for the obligations on a lease of
premises acquired by UB (Soyco) Limited (a former subsidiary undertaking)
for a term of twenty years from 24th June 1990 at an annual rental of
(pound)61,500.
b) The company has issued a letter of comfort to the bankers of a
subsidiary undertaking in respect of a facility of (pound)1,500,000 made
available to this subsidiary undertaking. Within the letter of comfort
the company gave an undertaking to ensure the subsidiary would be able to
fulfill all of its undertakings to the bank including business and
financial obligations.
15 Transactions with the directors
During the year, the company was charged management fees of (pound)Nil
(1998 - (pound)75,000) by UB Group (UK) Limited. The directors of United
Breweries International (UK) Limited are also directors of UB Group (UK)
Limited.
<PAGE>
UNITED BREWERIES INTERNATIONAL (UK) LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 1999
--------------------------------------------------------------------------------
16 Employees
Number of employees
<TABLE>
The average monthly number of employees (including directors) during the
year was:
<CAPTION>
1999 1998
Number Number
<S> <C> <C>
Sales and marketing 10 10
=============== ===============
Employment costs
(pound) (pound)
Wages and salaries 255,946 257,339
Other pension costs 9,786 11,818
--------------- ---------------
265,732 269,157
=============== ===============
17 Ultimate parent undertaking and control
The directors consider the company's ultimate parent undertaking to be
Inversion Mirabele S.A., a company incorporated in Panama.
18 Related party transactions
During the year the company received management fees of (pound)Nil (1998
- (pound)48,000) and also received royalty income of (pound)8,711 (1998 -
(pound)6,067) from its subsidiary undertaking UBSN Limited.
At the balance sheet date, the following amounts were owed by/(to)
related parties:
1999 1998
(pound) (pound)
UBSN Limited (subsidiary undertaking) (156,125) 5,875
=============== ===============
</TABLE>
<PAGE>
UNITED BREWERIES INTERNATIONAL (UK) LIMITED
DETAILED TRADING AND PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
(pound) (pound) (pound) (pound)
<S> <C> <C> <C> <C>
Turnover
Sales and commissions 20,881 38,848
Administrative expenses
Wages and national insurance 255,946 257,339
Pension scheme contributions 9,786 11,818
Management fees payable -- 75,000
Traveling and hotel accommodation -- 211
Legal and professional fees 150 --
Accountancy fees -- 600
Audit fees 2,500 2,400
Bank charges 116 460
General expenses 15 335
Royalties payable 5,227 3,646
--------------- ---------------
(273,740) (351,809)
-------------- ---------------
(252,859) (312,961)
Other operating income
Management fees receivable -- 48,000
Costs reimbursed 265,732 269,158
--------------- ---------------
265,732 317,158
-------------- ---------------
Operating profit 12,873 4,197
Profit on sale of fixed asset investments 21,637 --
Amounts written off investments
Amounts written back on investments 28,363 --
Interest payable
Bank interest paid (852) (908)
-------------- ---------------
Profit before taxation 62,021 3,289
============== ===============
</TABLE>
<PAGE>
U B S N LIMITED
NO 2367133
REPORT & ACCOUNTS
31 DECEMBER 1998
<PAGE>
UBSN Limited
Directors
V Mallya
B Dozey
D Townshend
D Anand
K Ganguly
Secretary
G Lodhi
Auditors
Ernst & Young
Becket House
1 Lambeth Palace Road
LONDON
SEl 7EU
Bankers
Nedcor Bank Ltd
Nedbank House
20 Abchurch Lane
London
EC4A 2AL
Solicitors
Travers Smith Braithwaite
10 Snow Hill
LONDON
EClA 2AL
Registered Office
75 Westow Hill
Crystal Palace
London
SE19 1TX
2
<PAGE>
UBSN Limited
DIRECTORS' REPORT
The directors have pleasure in presenting their report and accounts for the year
ended 31 December 1998.
RESULTS AND DIVIDENDS
In the year the company made a profit of (pound)87,547 (1997 - (pound)78,102).
The directors do not recommend the payment of a dividend.
PRINCIPAL ACTIVITIES AND REVIEW OF THE BUSINESS
The principal activity of the company is the marketing, distribution, selling
and wholesaling of beer and wines.
With the continued growth in the sales of Kingfisher Lager and the introduction
of Kalyani Indian Lager it is anticipated results will continue to improve in
coming years.
DIRECTORS AND THEIR INTERESTS
The directors of the company during the year from 1 January 1998 to 31 December
1998 were those listed on page 2.
None of the directors held an interest in the company's shares at 31 December
1998, or at any time during the year.
FIXED ASSETS
The changes in fixed assets are disclosed in note 9.
By order of the board.
Secretary
G Lodhi
3
<PAGE>
UBSN Limited
STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE ACCOUNTS
Company law requires the directors to prepare accounts for each financial year
which give a true and fair view of the state of affairs of the company and of
the profit or loss of the company for that period. In preparing those accounts,
the directors are required to:
o Select suitable accounting policies and then apply them consistently;
o Make judgements and estimates that are reasonable and prudent; and
o Prepare the accounts on the going concern basis unless it is inappropriate
to presume that the company will continue in business.
The directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
company and to enable them to ensure that the accounts comply with the Companies
Act 1985. They are also responsible for safeguarding the assets of the company
and hence for taking reasonable steps for the prevention and detection of fraud
and other irregularities.
4
<PAGE>
UBSN Limited
REPORT OF THE AUDITORS
To the members of UBSN Limited
We have audited the accounts on pages 6 to 14, which have been prepared under
the historical cost convention and on the basis of accounting policies set out
on page 8.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
As described on page 4 the company's directors are responsible for the
preparation of the accounts. It is our responsibility to form an independent
opinion, based on our audit, on those accounts and to report our opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the accounts. It also
includes an assessment of the significant estimates and judgements made by the
directors in the preparation of the accounts, and of whether the accounting
policies are appropriate to the company's circumstances, consistently applied
and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the accounts are free from
material misstatement, whether caused by fraud or other irregularity or error.
In forming our opinion we also evaluated the overall adequacy of the
presentation of information in the accounts.
OPINION
In our opinion the accounts give a true and fair view of the state of affairs of
the company as at 31 December 1998 and of its profit for the year then ended and
have been properly prepared in accordance with the Companies Act 1985.
Ernst & Young
Registered Auditor
London
5
<PAGE>
UBSN Limited
PROFIT AND LOSS ACCOUNT
Year ended 31 December 1998
1998 1997
Notes (pound) (pound)
Turnover 3 6,755,146 5,743,653
Cost of sales 4,369,611 3,563,867
--------- ---------
Gross profit 2,385,535 2,179,786
Distribution and selling costs 1,487,735 1,287,459
Administrative expenses 585,213 676,146
--------- ---------
Operating profit 4 312,587 216,181
Costs relating to litigation 13/14 89,099 64,463
Interest payable & similar charges 7 84,581 43,116
--------- ---------
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 138,907 108,602
Tax on profit on ordinary activities 8 51,360 30,500
--------- ---------
RETAINED PROFIT FOR THE YEAR 17 87,547 78,102
========= =========
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
Year ended 31 December 1998
There are no recognised gains or losses other than the profit attributable to
shareholders of the company of (pound)87,547 in the year ended 31 December 1998
and of (pound)78,102 in the year ended 31 December 1997.
6
<PAGE>
UBSN Limited
BALANCE SHEET
31 December 1998
1998 1997
Notes (pound) (pound)
FIXED ASSETS 9 607,438 518,214
CURRENT ASSETS
Stocks 10 111,420 44,270
Debtors 11 2,407,734 1,827,149
Cash at bank and in hand 154,381 59,334
--------- ---------
2,673,535 1,930,753
CREDITORS:
amounts falling due within one year 12 2,826,828 2,082,376
--------- ---------
NET CURRENT LIABILITIES (153,293) (151,623)
NET ASSETS 454,145 366,591
========= =========
CAPITAL AND RESERVES
Called up share capital 16 100,000 100,000
Profit and loss account 17 354,145 266,591
--------- ---------
454,145 366,591
========= =========
These financial statements were approved by the Board of Directors on___________
and were signed on its behalf by:
D Townshend
D Dozey
Directors
7
<PAGE>
UBSN Limited
Statement of Cash Flow
1998 1997
Net Cash Inflow/(Outflow) from Operating Activities (460,744) 122,465
Servicing of Finance (Interest Paid) (84,581) (43,116)
Taxation - Corporation Tax Paid (77,475) (52,844)
Capital Expenditure
Payment to acquire tangible Fixed Assets (264,397) (152,396)
Proceeds from Sale of tangible Fixed Assets - 3,299
-------- --------
(Decrease)/Increase in Cash in the period (887,197) (122,592)
Reconciliation of Operating Profit to Net Cash Inflow/Outflow from
Operating Activities
1998 1997
Operating Profit 312,587 216,181
Costs relating to Litigation (89,099) (64,463)
Depreciation 175,173 163,773
(Profit)/Loss on Sale of Fixed Assets 0 1,843
(Increase)/Decrease in Debtors (580,585) (189,835)
(Increase)/Decrease in Stocks (67,150) (5,174)
Increase/(Decrease) in Creditors (211,670) 140
-------- --------
Net Cash Inflow/(Outflow) from Operating Activities (460,744) 122,465
Analysis of Net Debt
1998 1997
Bank Balance/(Overdraft)
At 1st January (13,402) 109,190
Net Cash Inflow/(Outflow) (887,197) (122,592)
-------- --------
At 31st December (900,599) (13,402)
8
<PAGE>
UBSN Limited
NOTES TO THE ACCOUNTS
31 December 1998
1. ACCOUNTING POLICIES
Accounting convention
The accounts are prepared under the historical cost convention and
in accordance with applicable accounting standards.
Stocks
Stocks are valued on a first-in, first-out basis at the lower of
cost and net realisable value.
Depreciation
Depreciation is provided on all fixed assets at rates calculated to
write off the cost of each asset evenly over its expected useful
life as follows:
Plant and equipment - 6 to 7 years
Motor vehicles - 2 to 5 years
Foreign currency
Transactions denominated in foreign currencies are translated at
the exchange rate on the transaction date. Balances denominated in
foreign currencies are translated at the exchange rate at the
balance sheet date.
Deferred taxation
Provision is made for deferred taxation using the liability method
on timing differences to the extent that it is probable that the
liability will crystallise.
Pensions
The company does not operate a pension scheme.
2. JOINT VENTURE
The company was jointly owned by United Breweries International
(UK) Limited and Shepherd Neame Limited under a joint venture
agreement whereby both parties held a 50 per cent interest in the
company. At the 1 January 1998 Shepherd Neame Limited agreed to
sell its 50 per cent share in the company to United Breweries
International (UK) Limited. Under an exclusive licence granted from
United Breweries Limited of India, the company holds the right to
brew, market, develop and sell Kingfisher Lager. The company, in
turn, has granted a sub-licence to Shepherd Neame Limited for the
brewing of Kingfisher.
9
<PAGE>
UBSN Limited
NOTES TO THE ACCOUNTS
31 December 1998
3. TURNOVER
Turnover comprises sales excluding value added tax. Export sales
during the year were (pound)881,744 (1997 - (pound)924,826).
4. OPERATING PROFIT
This is stated after charging:
1998 1997
(pound) (pound)
Depreciation 175,173 163,773
Auditors' remuneration: Audit services 17,007 8,532
Non-audit services 8,000 -
Exchange differences 2,032 7,914
======= =======
5. DIRECTORS' EMOLUMENTS 1998 1997
(pound) (pound)
Other Emoluments 88,800 86,900
======= =======
Emoluments excluding pension contributions of the Chairman were nil
(1997 - nil), and of the highest paid Director were (pound)45,500
(1997 - (pound)43,567) which included pension contributions of
(pound)3,100 (1997 - (pound)3,030).
6. STAFF COSTS
The company had no employees during the year ended 31 December
1998 (1997 - nil).
10
<PAGE>
UBSN Limited
NOTES TO THE ACCOUNTS
31 December 1998
7. INTEREST PAYABLE
1998 1997
(pound) (pound)
Bank overdrafts and other credit facilities 84,581 43,116
======= =======
8. TAX ON PROFIT ON ORDINARY ACTIVITIES
1998 1997
UK Corporation tax 51,360 30,500
======= =======
The corporation tax charge on the profits for 1997 has been reduced
by tax losses brought forward.
9. FIXED ASSETS
Plant and Motor
Equipment Vehicles Total
(pound) (pound) (pound)
Cost:
At 1 January 1998 1,034,048 97,804 1,131,852
Additions 264,397 0 264,397
--------- ------ ---------
At 31 December 1998 1,298,445 97,804 1,396,249
--------- ------ ---------
Depreciation:
At 1 January 1998 592,593 21,045 613,638
Charge for the year 154,610 20,563 175,173
--------- ------ ---------
At 31 December 1998 747,203 41,608 788,811
--------- ------ ---------
Net book value:
At 31 December 1998 551,235 56,196 607,438
--------- ------ ---------
At 1 January 1998 441,455 76,759 518,214
========= ====== =========
11
<PAGE>
UBSN Limited
NOTES TO THE ACCOUNTS
31 December 1998
<TABLE>
10. STOCKS
<CAPTION>
1998 1997
(pound) (pound)
<S> <C> <C>
Finished goods and promotional materials 111,420 44,270
======== ========
There is no material difference between the current replacement
cost and historical cost of stock.
11. DEBTORS
1998 1997
(pound) (pound)
Trade debtors:
Amounts owed by Shepherd Neame Limited (note 19) 383,979 253,999
Other 1,789,242 1,475,182
Other debtors 36,056 15,889
Prepayments and accrued income:
Amounts owed by Shepherd Neame Limited (note 19) 94,910 27,780
UB Global Corporation Limited 0 54,299
UB International Ltd 103,547 -
--------- ---------
2,407,734 1,827,149
========= =========
12. CREDITORS: amounts falling due within one year
1998 1997
(pound) (pound)
Bank overdraft 1,054,980 72,736
Trade creditors
Amounts owed to Shepherd Neame Limited (note 19) 1,148,494 1,589,417
UB Global Corporation Limited 6,994 -
Others 137,435 129,168
Corporation tax payable 57,382 83,497
VAT Payable 27,612
Accruals
Amounts owed to Shepherd Neame Limited (note 19) 292,631 114,295
American United Breweries Inc. 29,739 -
Other 71,561 93,263
--------- ---------
2,826,828 2,082,376
========= =========
</TABLE>
12
<PAGE>
UBSN Limited
NOTES TO THE ACCOUNTS
31 December 1998
13. DISPUTE WITH MAJOR DISTRIBUTOR
Trade debtors include an amount of approximately (pound)250,000 due
from German Lager Importers Ltd. which is now in Creditors
Voluntary liquidation. This debt had been the subject of a legal
action and German Lager Importers Ltd. had made a counter claim for
breach of contract. This counter claim was dismissed by the courts
and UBSN Ltd. obtained judgement for the debt and full costs. In
view of the subsequent voluntary liquidation a full provision has
been made for all money due from German Lager Importers. All legal
costs associated with these actions have been provided for in the
accounts. The Directors are considering what further action can be
taken to recover the debt.
14. LITIGATION
During the year a claim for (pound)500,000 was made jointly against
the company and two other defendants relating to a breach of an
alleged sponsorship contract. The directors dispute that the
company has any connection with the alleged sponsorship contract
and having taken legal advice do not believe that there is a valid
claim against the company. Consequently no provision for future
costs or damages has been made. Proceedings have also been started
in India in relation to the same dispute. Indian legal advice has
indicated that no liability other than legal costs is likely to
arise as a consequence of these proceedings. (pound)30,455 of legal
costs incurred in defending the action during 1998 are included in
the Profit & Loss account.
15. DEFERRED TAXATION
The full potential liability for 1998 is (pound) 35,000 (1997 -
(pound)26,000) in respect of capital allowance carried forward
which has not been provided in the accounts.
13
<PAGE>
UBSN Limited
NOTES TO THE ACCOUNTS
31 December 1998
<TABLE>
16. SHARE CAPITAL
<CAPTION>
Authorised Allotted, called up
And issued and partly paid
1998 1997 1998 1997
No No (pound) (pound)
<S> <C> <C> <C> <C>
125,000 'A' shares of(pound)1 each 125,000 125,000 50,000 50,000
125,000 'B' shares of(pound)1 each 125,000 125,000 50,000 50,000
------- ------- ------ ------
250,000 250,000 100,000 100,000
======= ======= ======= =======
</TABLE>
17. RECONCILIATION OF SHAREHOLDERS' FUNDS AND MOVEMENTS ON RESERVES
Profit
Share and loss
Capital account Total
(pound) (pound) (pound)
As at 1 January 1997 100,000 188,489 288,489
Profit for the year - 78,102 78,102
------- ------- -------
At 1 January 1998 100,000 266,591 366,591
Profit for the year - 87,554 87,554
------- ------- -------
As at 31 December 1998 100,000 354,145 454,145
======= ======= =======
18. PARENT UNDERTAKING AND CONTROLLING PARTY
The company's immediate parent undertaking is United Breweries
International (UK) Limited and the ultimate parent company is
Inversion Mirabela S.A. incorporated in Panama.
For the period under review Shepherd Neame Limited remains a related
party as envisaged by FRS 8 on the basis of control and shared
business interests.
14
<PAGE>
UBSN Limited
NOTES TO THE ACCOUNTS
31 December 1998
19 TRANSACTIONS WITH RELATED PARTIES
During the year the company has had the following transactions with
its related parties.
1998 1997
(pound) (pound)
Shepherd Neame Limited.
Sales 636,100 674,000
Freight Costs 265,830 199,423
Commission 49,092 56,489
Purchases 4,076,419 3,458,845
United Breweries International (UK) Limited.
(Parent Company registered in the UK)
Management Charge 114,666 144,000
UB Global Corporation Ltd.
(Subsidiary of United Breweries of India,
registered in India)
Purchases 296,449 112,118
Kinnade Associate Inc.
(Subsidiary of United Breweries Limited of
India, registered in Panama)
Loan balance recoverable 27,000 -
American United Breweries Inc.
(Registered in the USA)
Commission/Advertising 173,276 162,402
As a result of the trading activity with related parties, the following
balances remained outstanding as at 31 December 1998.
1998 1997
(pound) (pound)
Amounts owed by Shepherd Neame Limited 478,889 281,779
Amounts owed to Shepherd Neame Limited 1,148,494 1,589,417
Accruals - Shepherd Neame Limited 292,631 114,295
American United Brewers Inc. 29,739 -
Amounts owed to UB Global Corporation
Limited 6,994 6,994
15
<PAGE>
THE FOLLOWING STATEMENTS DO NOT FORM
PART OF THE AUDITED STATUTORY ACCOUNTS
16
<PAGE>
UBSN Limited
DETAILED PROFIT AND LOSS ACCOUNT
Year ended 31 December 1998
1998 1997
(pound) (pound)
GROSS PROFIT
Sales 6,755,146 5,743,653
Cost of sales (4,369,611) (3,583,867)
---------- ----------
Gross profit 2,385,535 2,179,786
---------- ----------
DISTRIBUTION AND SELLING EXPENSES
Freight 352,277 306,135
Advertising and promotional expenses 514,543 428,472
Sales commission 119,592 138,574
Dispense equipment repairs 120,087 97,715
Operational expenses 183,862 145,048
Benetton sponsorship 88,902 118,626
Other distribution and selling 108,472 52,889
---------- ----------
1,487,735 1,287,459
---------- ----------
GENERAL AND ADMINISTRATIVE EXPENSES
Management fees 114,666 288,000
Audit and taxation fees 25,007 8,535
Postage and stationery 2,842 3,439
Bad debt provision 64,400 24,638
Depreciation/loss on asset disposal 175,173 165,616
Exchange differences 2,032 7,914
Operational expenses 167,531 148,097
Royalties payable/receivable 6,076 (8,826)
Miscellaneous 27,486 38,733
---------- ----------
585,213 676,146
---------- ----------
FINANCE COSTS
Bank interest and charges 84,581 23,116
Other interest - 20,000
---------- ----------
84,581 71,122
---------- ----------
EXCEPTIONAL ITEMS
Bad debt provision
Litigation costs 89,099 64,463
---------- ----------
Profit on ordinary activities before tax 138,907 108,602
========== ==========
17
<PAGE>
Company Registration No. 1688201 (England and Wales)
UNITED BREWERIES INTERNATIONAL (UK) LIMITED
DIRECTORS' REPORT AND FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 1998
<PAGE>
UNITED BREWERIES INTERNATIONAL (UK) LIMITED
COMPANY INFORMATION
--------------------------------------------------------------------------------
Directors M K Nambiar
V S Kumar
G M K Lodhi
Secretary G M K Lodhi
Company number 1688201
Registered office 75 Westow Hill
Crystal Palace
London
SE19 1TX
Auditors J. M. Shah and Company
Chartered Accountants
24 Old Bond Street
London
W1X 4JE
<PAGE>
UNITED BREWERIES INTERNATIONAL (UK) LIMITED
CONTENTS
Page
Directors' report 1 - 2
Auditors' report 3
Profit and loss account 4
Balance sheet 5
Notes to the financial statements 6 - 9
---------------------------------
The following does not form part of the
statutory financial statements:
Detailed trading and profit and loss account 10
<PAGE>
UNITED BREWERIES INTERNATIONAL (UK) LIMITED
DIRECTORS' REPORT
FOR THE YEAR ENDED 31 DECEMBER 1998
--------------------------------------------------------------------------------
The directors present their report and financial statements for the year ended
31 December 1998.
Principal activity
The principal activity of the company during the year continued to be that of
commission agents for the sale of beverages.
Year 2000
The directors have considered whether the company's operations could be
adversely affected by malfunctions in computer or other equipment arising from
errors in processing dates in the year 2000 and beyond.
No part of the company's current operations are critically dependent on computer
or other equipment which could be affected by year 2000 problems.
Directors and their interests
The directors who served during the year and their beneficial interests in the
shares of the company were as stated below:
Ordinary shares of (pound) 1 each
31 December 1998 1 January 1998
V S Kumar -- --
M K Nambiar -- --
K G James
G M K Lodhi -- --
Subsequent to the financial year end, K G James resigned as director on 30 June
1999.
Auditors
The company has by elective resolution dispensed with the obligation to appoint
auditors annually in accordance with section 386(1) of the Companies Act 1985.
Therefore, the auditors, J.M. Shah and Company, will be deemed to be reappointed
for each succeeding financial year.
<PAGE>
UNITED BREWERIES INTERNATIONAL (UK) LIMITED
DIRECTORS' REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 1998
--------------------------------------------------------------------------------
Directors' responsibilities
Company law requires the directors to prepare financial statements for each
financial year which give a true and fair view of the state of affairs of the
company and of the profit or loss of the company for that period. In preparing
those financial statements, the directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and estimates that are reasonable and prudent;
- prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the company will continue in business.
The directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
company and to enable them to ensure that the financial statements comply with
the Companies Act 1985. They are also responsible for safeguarding the assets of
the company and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
This report has been prepared in accordance with the special provisions of Part
VII of the Companies Act 1985 relating to small companies.
By order of the board
M K Nambiar
Director
17 January 2000
--------------------------------------------------------------------------------
-2-
<PAGE>
UNITED BREWERIES INTERNATIONAL (UK) LIMITED
AUDITORS' REPORT
TO THE SHAREHOLDERS OF UNITED BREWERIES INTERNATIONAL (UK) LIMITED
--------------------------------------------------------------------------------
We have audited the financial statements on pages 4 to 9 which have been
prepared under the historical cost convention and the accounting policies set
out on page 6.
Respective responsibilities of directors and auditors
As described on page 2 the company's directors are responsible for the
preparation of financial statements. It is our responsibility to form an
independent opinion, based on our audit, on those statements and to report our
opinion to you.
Basis of opinion
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the financial statements. It
also includes an assessment of the significant estimates and judgements made by
the directors in the preparation of the financial statements, and of whether the
accounting policies are appropriate to the company's circumstances, consistently
applied or adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
Opinion
In our opinion the financial statements give a true and fair view of the state
of the company's affairs as at 31 December 1998 and of its profit for the year
then ended and have been properly prepared in accordance with the Companies Act
1985.
/s/ J. M. Shah and Company
--------------------------
J. M. Shah and Company
Chartered Accountants
and Registered Auditors
24 Old Bond Street
London
W1X 4JE 18 January 2000
--------------------------------------------------------------------------------
-3-
<PAGE>
UNITED BREWERIES INTERNATIONAL (UK) LIMITED
PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
Notes (pound) (pound)
<S> <C> <C>
Turnover 38,848 28,402
Administrative expenses (351,809) (351,915)
Other operating income 317,158 372,006
--------------------- --------------------
Operating profit 2 4,197 48,493
Interest payable and similar charges (908) (960)
--------------------- --------------------
Profit on ordinary activities before taxation 3,289 47,533
Tax on profit on ordinary activities 3 -- --
--------------------- --------------------
Profit on ordinary activities after taxation 9 3,289 47,533
===================== ====================
</TABLE>
The profit and loss account has been prepared on the basis that all operations
are continuing operations.
There are no recognised gains and losses other than those passing through the
profit and loss account.
--------------------------------------------------------------------------------
-4-
<PAGE>
UNITED BREWERIES INTERNATIONAL (UK) LIMITED
BALANCE SHEET
AS AT 31 DECEMBER 1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
Notes (pound) (pound) (pound) (pound)
<S> <C> <C> <C>
Fixed assets
Investments 4 299,119 50,000
Current assets
Debtors 5 67,298 95,553
Cash at bank and in hand -- 1,075
--------------- ---------------
67,298 96,628
Creditors: amounts falling due within
one year 6 (296,275) (79,776)
--------------- ---------------
Net current (liabilities)/assets (228,977) 16,852
-------------- ---------------
Total assets less current liabilities 70,142 66,852
============== ===============
Capital and reserves
Called up share capital 8 100,000 100,000
Profit and loss account 9 (29,858) (33,148)
-------------- ---------------
Shareholders' funds - equity interests 10 70,142 68,852
============== ===============
</TABLE>
These financial statements have been prepared in accordance with the special
provisions of Part VII of the Companies Act 1985 relating to small companies.
The financial statements were approved by the board on 17 January 2000.
M K Nambiar G M K Lodhi
Director Director
--------------------------------------------------------------------------------
-5-
<PAGE>
UNITED BREWERIES INTERNATIONAL (UK) LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 1998
--------------------------------------------------------------------------------
1 Accounting policies
1.1 Accounting convention
The financial statements are prepared under the historical cost
convention.
The company has taken advantage of the exemption in Financial Reporting
Standard No. 1 from the requirement to produce a cashflow statement on
the grounds that it is a small company.
1.2 Turnover
Turnover represents amounts receivable by the company for goods sold,
services supplied and commissions receivable and is stated net of value
added tax.
1.3 Investments
Fixed asset investments are stated at cost less provision for diminution
in value.
1.4 Pensions
The pension costs charged in the financial statements represent the
contributions payable by the company during the year in accordance with
Statement of Standard Accounting Practice 24.
1.5 Deferred Taxation
Deferred taxation is provided at appropriate rates on all timing
differences using the liability method only to the extent that, in the
opinion of the directors, there is a reasonable probability that a
liability or asset will crystallise in the foreseeable future.
1.6 Consolidation
The company and its subsidiary undertakings comprise a small group. The
company is exempt from the requirement to prepare consolidated financial
statements by virtue of section 248 of the Companies act 1985. These
financial statements therefore present information about the company as
an individual undertaking and not about its group.
2 Operating profit
1998 1997
(pound) (pound)
Operating profit is stated after charging:
Auditors' remuneration 2,400 2,000
========== ==========
3 Taxation
No corporation tax charge arises for the year in view of tax losses
available (1997 - (pound)Nil).
--------------------------------------------------------------------------------
-6-
<PAGE>
UNITED BREWERIES INTERNATIONAL (UK) LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 1998
--------------------------------------------------------------------------------
4 Fixed asset investments
Shares in
group
undertakings
and
participating
interests
(pound)
Cost
At 1 January 1998 78,363
Additions 249,119
---------------
At 31 December 1998 327,482
---------------
Provisions for diminution in value
At 1 January 1998 and at 31 December 1998 28,363
---------------
Net book value
At 31 December 1998 299,119
===============
At 31 December 1997 50,000
===============
Holdings of more than 20%
The company holds more than 20% of the share capital of the following
companies:
Shares held
Company Country of registration or Class %
Incorporation
Subsidiary undertakings
UB (Soyco) Limited England and Wales Ordinary 98
UBSN Limited England and Wales Ordinary 100
The aggregate amount of capital and reserves and the results of these
undertakings for the last relevant financial year were as follows:
Capital and Profit for
reserves the year
UB (Soyco) Limited (1,726,271) (18,897)
UBSN Limited 454,145 87,547
=============== ===============
--------------------------------------------------------------------------------
-7-
<PAGE>
UNITED BREWERIES INTERNATIONAL (UK) LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
5 Debtors 1998 1997
(pound) (pound)
<S> <C> <C>
Amounts owed by group undertakings and undertakings in which the
company has a participating interest 5,875 1,551
Other debtors 61,423 94,002
--------------- ---------------
67,298 95,553
=============== ===============
6 Creditors: amounts falling due within one year 1998 1997
(pound) (pound)
Bank loans and overdrafts 7,633 --
Taxation and social security 13,298 18,561
Other creditors 275,344 61,215
--------------- ---------------
296,275 79,776
=============== ===============
7 Pension costs
The company operates a defined contribution pension scheme. The assets of
the scheme are held separately from those of the company in an
independently administered fund. The pension cost charge represents
contributions payable by the company to the fund and amounted to
(pound)11,818 (1997 - (pound)9,969).
8 Share capital 1998 1997
(pound) (pound)
Authorised
500,000 Ordinary shares of(pound)1 each 500,000 500,000
=============== ===============
Allotted, called up and fully paid
100,000 Ordinary shares of(pound)1 each 100,000 100,000
=============== ===============
9 Statement of movements on profit and loss account
Profit and
loss account
(pound)
Balance at 1 January 1998 (33,147)
Retained profit for the year 3,289
---------------
Balance at 31 December 1998 (29,858)
===============
</TABLE>
--------------------------------------------------------------------------------
-8-
<PAGE>
UNITED BREWERIES INTERNATIONAL (UK) LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 1998
--------------------------------------------------------------------------------
10 Reconciliation of movements in shareholders' funds 1998 1997
(pound) (pound)
Profit for the financial year 3,289 47,533
Opening shareholders' funds 66,852 19,319
---------- ---------
Closing shareholders' funds 70,142 66,852
========== =========
11 Contingent liabilities
a) The company acts as a surety for the obligations on a lease of
premises acquired by a subsidiary undertaking for a term of twenty years
from 24th June 1990 at an annual rental of (pound)61,500.
b) During the year the company issued a letter of comfort to the bankers
of a subsidiary undertaking in respect of a facility of (pound)1,500,000
made available to this subsidiary undertaking. Within the letter of
comfort the company gave an undertaking to ensure the subsidiary would be
able to fulfill all of its undertakings to the bank including business
and financial obligations.
12 Transactions with the directors
During the year, the company was charged management fees of (pound)75,000
(1997 - (pound)120,000) by UB Group (UK) Limited. The directors of United
Breweries International (UK) Limited are also directors of UB Group (UK)
Limited.
13 Ultimate parent undertaking and control
The directors consider the company's ultimate parent undertaking to be
Inversion Mirabele S.A., a company incorporated in Panama.
14 Related party transactions
During the year the company received management fees of (pound)48,000
(1997 - (pound)144,000) and also received royalty income of (pound)6,076
(1997 - (pound)Nil) from UBSN Limited, a fully owned subsidiary.
At the balance sheet date, the following amounts were owed by related
parties:
1998 1997
(pound) (pound)
UBSN Limited (subsidiary undertaking) 5,875 1,551
============ ===========
15 Post balance sheet events
Subsequent to the financial year end the company disposed of its
investment in its subsidiary undertaking, UB (Soyco) Limited.
--------------------------------------------------------------------------------
-9-
<PAGE>
UNITED BREWERIES INTERNATIONAL (UK) LIMITED
DETAILED TRADING AND PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
(pound) (pound) (pound) (pound)
<S> <C> <C>
Turnover
Sales and commissions 38,848 28,402
Administrative expenses
Wages and national insurance 257,339 217,382
Pension scheme contributions 11,818 9,969
Management fees payable 75,000 120,000
Traveling and hotel accommodation 211 1,641
Legal and professional fees -- (63)
Accountancy fees 600 500
Audit fees 2,400 2,000
Bank charges 460 243
General expenses 335 --
Subscriptions -- 243
Royalties payable 3,646 --
--------------- ---------------
(351,809) (351,915)
-------------- ---------------
(312,961) 28,402
Other operating income
Management fees receivable 48,000 144,00
Costs reimbursed 269,158 228,006
--------------- ---------------
317,158 372,006
-------------- ---------------
Operating profit 4,197 48,493
Interest payable
Bank interest paid (908) (960)
-------------- ---------------
Profit before taxation 3,289 47,533
============== ===============
</TABLE>
--------------------------------------------------------------------------------
-10-
<PAGE>
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
MENDOCINO BREWING COMPANY, INC.
The undersigned shareholder of MENDOCINO BREWING COMPANY, INC., a
California corporation (the "Company") hereby acknowledges receipt of the Notice
of Annual Meeting of Shareholders and Proxy Statement each dated December 18,
2000 and appoints Dr. Vijay Mallya, Jerome Merchant, and Yashpal Singh, and each
of them, as proxy of the undersigned with power of substitution and revocation,
to represent the undersigned at the Annual Meeting of the Shareholders of the
Company, to be held on January 24, 2001 at 2:00 p.m. at the Ukiah Valley
Conference Center located at 200 South School Street, Ukiah, California, and at
any adjournment thereof, and to vote all shares of Common Stock which the
undersigned would be entitled to vote as if the undersigned were present and
voting the shares.
THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE
UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR
PROPOSALS NO. 1, 2, AND 4 AND FOR THE ELECTION OF THE NOMINEES NAMED IN PROPOSAL
NO. 4 AS DESCRIBED THEREIN. IN THEIR DISCRETION, THE PROXY HOLDERS ARE
AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE
MEETING.
If you wish to vote in accordance with the Board of Directors'
recommendations, just sign on the reverse side. You do not need to mark any
boxes.
[X] Please mark votes as in this example.
The Board of Directors recommends a vote FOR Proposals 1 through 4.
1. To approve a Share Purchase Agreement dated November 3, 2000, between
the Company, Inversiones Mirabel, S.A., and Golden Eagle Trust, and the
transactions contemplated thereby.
[ ] For [ ] Against [ ] Abstain
2. To amend the Company's Bylaws to allow for the election of up to nine
Directors.
[ ] For [ ] Against [ ] Abstain
<PAGE>
3. a. Election of the 7 Directors nominated by the Board (or if any
nominee is not available for election, such substitute(s) as
the Board of Directors may designate). (To WITHHOLD authority
to vote for any individual nominee or nominees strike a line
through that nominee's name in the list below. To WITHHOLD
authority to vote for ALL of the Board's nominees, check the
appropriate box below.)
Nominees: Vijay Mallya, Michael Laybourn, Robert Neame, Kent
Price, Sury Rao Palamand, Jerome Merchant, and Yashpal Singh
[ ] FOR ALL [ ] WITHHOLD FOR ALL
b. If Proposals 1 and 2 are approved, election of nominee David
Townshend as Director (or if he is not available for election,
such substitute as the Board of Directors may designate).
[ ] FOR [ ] WITHHOLD
4. To ratify the appointment of Moss Adams, L.L.P. as independent auditors
of the Company for the current fiscal year.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
MARK HERE [ ] MARK HERE [ ]
FOR ADDRESS IF YOU PLAN
CHANGE AND TO ATTEND
NOTE AT LEFT THE MEETING
Please sign exactly as name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such.
Signature: ________________________________ Date: ______________
Signature: ________________________________ Date: ______________
