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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 6)*
-
Mendocino Brewing Company, Inc.
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(Name of Issuer)
Common Stock
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(Title of Class of Securities)
586579104
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(CUSIP Number)
Paul J. Tauber
Coblentz, Patch, Duffy & Bass, LLP
222 Kearny Street, 7th Floor
San Francisco, California 94108
415/391-4800
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(Name, Address and Telephone Number of Person Authorized to Receive Notices
and Communications)
April 30, 2000
--------------------------------------------------------
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box [_].
Check the following box if a fee is being paid with the statement [_]. (A fee is
not required only if the reporting person: (1) has a previous statement on file
reporting beneficial ownership of more than five percent of the class of
securities described in Item 1; and (2) has filed no amendment subsequent
thereto reporting beneficial ownership of five percent or less of such class.)
(See Rule 13d-7.)
Note: Six copies of this statement, including all exhibits, should be filed with
the Commission. See Rule 13d-1(a) for other parties to whom copies are to be
sent.
* The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
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1
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NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
United Breweries of America, Inc. ("UBA")
68-0393017
- --------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [_]
(b) [X]
- --------------------------------------------------------------------------------
SEC USE ONLY
3
- --------------------------------------------------------------------------------
SOURCE OF FUNDS*
4 OO
- --------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(E)
5 N.A. [_]
- --------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6 Delaware
- --------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF 3,672,670 shares of common stock, except that Dr. Vijay
Mallya ("Mallya") may be deemed to have shared power to
vote these shares because UBA is owned by a foreign
corporation, the shares of which are controlled by
SHARES fiduciaries who may exercise discretion in favor of
Mallya amongst others. The 3,672,670 shares include
601,486 shares that are issuable upon the conversion of
the principal amount, together with accrued but unpaid
interest, of the convertibles notes issued to UBA.
BENEFICIALLY Additional convertible notes may be issued in favor of
UBA which, if issued, would be convertible into up to
an additional 222,370 shares of common stock.
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SHARED VOTING POWER
OWNED BY 8
See response to Row 7.
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SOLE DISPOSITIVE POWER
9
EACH 3,672,670 shares of common stock, except that Mallya
may be deemed to have shared power to dispose of these
shares because UBA is owned by a foreign corporation,
the shares of which are controlled by fiduciaries who
may exercise discretion in favor of Mallya amongst
REPORTING others. The 3,672,670 shares include 601,486 shares
that are issuable upon the conversion of the principal
amount, together with accrued but unpaid interest, of
the convertibles notes issued to UBA. Additional
PERSON convertible notes may be issued in favor of UBA which,
if issued, would be convertible into up to an
additional 222,370 shares of common stock.
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WITH SHARED DISPOSITIVE POWER
10
See response to row 9.
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AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11 3,672,670 shares
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CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
12 N.A. [_]
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PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13 59.9%
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TYPE OF REPORTING PERSON*
14 CO
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2
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NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Dr. Vijay Mallya ("Mallya")
N.A.
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CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [_]
(b) [X]
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SEC USE ONLY
3
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SOURCE OF FUNDS*
4 OO
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CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(E)
5 N.A. [_]
- --------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6 India
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SOLE VOTING POWER
NUMBER OF 7
0
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SHARED VOTING POWER
SHARES 8
3,672,670 shares of common stock, all of which are
directly owned by UBA. Mallya may be deemed to be a
beneficial owner of UBA because UBA is owned by a
foreign corporation, the shares of which are controlled
BENEFICIALLY by fiduciaries who may exercise discretion in favor of
Mallya amongst others. Accordingly, Mallya may be
deemed to have shared power to vote these shares The
3,672,670 shares include 601,486 shares that are
issuable upon the conversion of the principal amount,
OWNED BY together with accrued but unpaid interest, of the
convertibles notes issued to UBA. Additional
convertible notes may be issued in favor of UBA which,
if issued, would be convertible into up to an
additional 222,370 shares of common stock.
EACH
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SOLE DISPOSITIVE POWER
9
0
REPORTING -----------------------------------------------------------------
SHARED DISPOSITIVE POWER
10
3,672,670 shares of common stock, all of which are
PERSON directly owned by UBA. Mallya may be deemed to be a
beneficial owner of UBA because UBA is owned by a
foreign corporation, the shares of which are controlled
by fiduciaries who may exercise discretion in favor of
WITH Mallya amongst others. Accordingly, Mallya may be
deemed to have shared power to dispose of these shares
The 3,672,670 shares include 601,486 shares that are
issuable upon the conversion of the principal amount,
together with accrued but unpaid interest, of the
convertibles notes issued to UBA. Additional
convertible notes may be issued in favor of UBA which,
if issued, would be convertible into up to an
additional 222,370 shares of common stock.
- --------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
12 3,672,670 shares
- --------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
12 N.A. [_]
- --------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13 59.9%
- --------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14 CO
- --------------------------------------------------------------------------------
3
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United Breweries of America, Inc., a Delaware corporation (the "Reporting
Person") and Dr. Vijay Mallya ("Mallya") hereby amend the single joint statement
on Schedule 13D as amended by Amendments No. 1, No. 2, No. 3, No. 4, and No. 5
(collectively, the "Schedule 13d"), filed with the Securities and Exchange
Commission with respect to certain shares of common stock ("Common Stock"), no
par value, and certain convertible notes of Mendocino Brewing Company, Inc. (the
"Issuer"), as follows:
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
A new fifth paragraph is added to Item 3 to read, in its entirety, as
follows:
At a regularly scheduled meeting of the Board of Directors of the Issuer,
the Reporting Person agreed to increase the maximum amount of the existing
credit facility from $800,000 to $1,200,000. All of the other terms and
conditions of the credit facility shall remain the same, and a copy of the First
Amendment to Master Loan Agreement is attached hereto. On September 7, 1999,
October 21, 1999, November 12, 1999, December 17, 1999, December 31, 1999,
February 15, 2000, February 16, 2000 and April 28, 2000 the Issuer made draws of
the credit facility in the amounts of $280.064.88, $25,000, $100,000, $150,000,
$10,062, $100,000, $50,000 and $151,317.59, respectively. Accrued but unpaid
interest on such draws totals $35,784.58 as of April 30, 2000. Accordingly, the
aggregate amount drawn on the credit facility, together with accrued interest
thereon, is equal to $902,229.05, which corresponds to the right to acquire up
to 601,486 shares of Common Stock at a conversion price of $1.50 per share. Any
accrued but unpaid interest is also convertible into Common Stock at the
conversion price of $1.50 per share.
ITEM 4. PURPOSE OF TRANSACTION
A new final paragraph is added to Item 4 to read as follows:
On March 29, 2000, the Issuer announced that it intends to enter into a
transaction with an entity affiliated with Mallya. Pursuant to the terms of the
transaction, the Issuer will acquire UBSN Ltd., a United Kingdom corporation 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 Issuer has offered to issue approximately
5,500,000 shares of 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 Issuer. The closing of the transaction is expected to occur
in late June 2000, or as soon thereafter as the various conditions to closing
have been satisfied or waived. 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 Mallya, amongst others.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER
The first paragraph of Item 5(a) is hereby amended, in its entirety, to
read as follows:
(a) See responses to Rows 7, 8, 9, and 10 for each of the Reporting Person
and Mallya. As of April 30, 2000, Mallya may be deed to be the
beneficial owner of 3,672,670 shares of Common Stock because
approximately 91.5% of the Reporting Person is owned by a foreign
corporation, the shares of which are controlled by fiduciaries who may
exercise discretion in favor of Mallya amongst others. The 3,672,670
shares constitutes approximately 59.9% of the outstanding Common
Stock. If the Issuer draws on the entire amount of the credit
facility, assuming no additional accruals or interest, the Reporting
Person would be the beneficial owner of an additional 222,370 shares
of Common Stock, constituting, in aggregate, of approximately 61.3% of
the outstanding Common Stock. Mallya may be deemed to have a shared
power to vote and dispose of all of these shares.
(c) See response to Item 3.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS
1. First Amendment to Master Loan Agreement dated as of April 28, 2000.
2. Convertible Note dated September 7, 1999 in the principal amount of
$280,064.88
3. Convertible Note dated October 21, 1999 in the principal amount of
$25,000
4. Convertible Note dated November 12, 1999 in the principal amount of
$100,000
5. Convertible Note dated December 17, 1999 in the principal amount of
$150,000
6. Convertible Note dated December 31, 1999 in the principal amount of
$10,062
7. Convertible Note dated February 15, 2000 in the principal amount of
$100,000
8. Convertible Note dated February 16, 2000 in the principal amount of
$50,000
9. Convertible Note dated April 28, 2000 in the principal amount of
$151,317.59
4
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After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
April 30, 2000 UNITED BREWERIES OF AMERICA, INC.
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By: /s/ Vijay Mallya
---------------------------------------
Name: Dr. Vijay Mallya
Title: Chairman and Chief Executive Officer
DR. VIJAY MALLYA
/s/ Vijay Mallya
-----------------------------------
Dr. Vijay Mallya
ATTENTION: INTENTIONAL MISSTATEMENTS OR OMISSIONS OF FACT CONSTITUTE FEDERAL
CRIMINAL VIOLATIONS (SEE 18 U.S.C. 1001)
5
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<TABLE>
<CAPTION>
Found on
Sequentially
Exhibit No. Numbered Pages
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<S> <C> <C>
Exhibit 1. First Amendment to Master Loan Agreement dated as of April 28, 2000. 7
Exhibit 2. Convertible Note dated September 7, 1999 in the principal amount of $280,064.88 8
Exhibit 3. Convertible Note dated October 21, 1999 in the principal amount of $25,000 12
Exhibit 4. Convertible Note dated November 12, 1999 in the principal amount of $100,000. 16
Exhibit 5. Convertible Note dated December 17, 1999 in the principal amount of $150,000. 20
Exhibit 6. Convertible Note dated December 31, 1999 in the principal amount of $10,062. 24
Exhibit 7. Convertible Note dated February 15, 2000 in the principal amount of $100,000. 28
Exhibit 8. Convertible Note dated February 16, 2000 in the principal amount of $50,000 32
Exhibit 9. Convertible Note dated April 28, 2000 in the principal amount of $151,317.59 36
</TABLE>
6
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EXHIBIT 1
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FIRST AMENDMENT TO MASTER LINE OF CREDIT AGREEMENT
MENDOCINO BREWING COMPANY, INC.
This First Amendment to Master Line of Credit Agreement (this "Amendment") is
made and entered into as of April 28, 2000, by and between United Breweries of
America, Inc., a Delaware corporation ("UBA"), and Mendocino Brewing Company,
Inc., a California corporation ("MBC").
Recitals
A. UBA and MBC have entered into a Master Line of Credit Agreement (the
"Agreement"), dated as of August 31, 1999, with respect to a credit facility in
the amount of $800,000 made available to MBC by UBA.
B. UBA and MBC wish to amend the Agreement to increase the amount of the
credit facility to $1,200,000.
NOW, THEREFORE, the parties agree as follows:
Agreement
1. General Purpose and Amount. Section 1 of the Agreement is hereby amended,
--------------------------
in its entirety, to provide as follows:
"1. General Purpose, Amount. Lender agrees to make and Borrower agrees to
-----------------------
accept a credit facility in the principal sum of One Million Two Hundred
Thousand Dollars ($1,200,000.00) or so much thereof as may be from time to
time disbursed hereunder (the "Credit Facility") for the purpose of
providing funds for the operations of Borrower, including paying amounts
owed by Borrower to Lender. Each draw on the Credit Facility shall be
evidenced by a convertible promissory note (each a "Note") of Borrower,
payable to the order of Lender and shall be substantially in the form set
forth in Exhibit A."
2. Governing Law. This Amendment shall be governed by and construed in
-------------
accordance with the laws, without regard to the laws as to choice or conflict of
laws, of the State of California.
3. Ratification of Agreement; Amendments. Except as specifically amended by
-------------------------------------
this Amendment, all provisions of the Agreement are ratified and affirmed. The
Agreement and this Amendment may only be amended by a written instrument
executed by both UBA and MBC.
4. Counterparts. This Amendment may be executed in two or more counterparts,
------------
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed as of
the date first above written.
MENDOCINO BREWING COMPANY, INC.,
a California corporation
By: /s/ Yashpal Singh
-------------------------------------
Yashpal Singh, President
By: /s/ P.A. Murali
-------------------------------------
P.A. Murali, Chief Financial Officer
UNITED BREWERIES OF AMERICA, INC.
By: /s/ Anil Pisharody
---------------------------------------
Anil Pisharody, Secretary and Treasurer
7
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EXHIBIT 2
---------
CONVERTIBLE PROMISSORY NOTE
MENDOCINO BREWING COMPANY, INC.
________________________________________________________________________________
Name of Issuer: Mendocino Brewing Company, Inc. Dated: September 7, 1999
Maturity Date: March 6, 2001
________________________________________________________________________________
1. Promise. Mendocino Brewing Company, Inc., a California corporation
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having its principal office at 1601 Airport Road, Ukiah, California 95482 and
any successor (the "Company"), for value received, promises to pay to United
Breweries of America Inc., a Delaware corporation or to its registered
successors or assigns (the "Holder") the principal sum of Two Hundred Eighty
Thousand Sixty Four and 88/100 Dollars ($280,064.88) on presentation and
surrender of this Convertible Note ("Note") on March 6, 2001 (the "Maturity
Date"), and to pay interest on that principal sum at a rate equal to the lesser
of (i) one and one-half percent (1.50%) per annum above the prime rate offered
from time to time by the Bank of America in San Francisco, California, or (ii)
ten percent (10%). Interest payments shall be paid quarterly on the first day of
the months of April, July, October, and January of each year. Company may use
any of the funds borrowed from Holder for any corporate purposes of Company,
including paying obligations owed by Company to Holder.
2. Form of Payment. All payments under this Note shall be made in lawful
---------------
money of the United States of America. The Company waives diligence,
presentment, protest, demand and notice of protest, dishonor, and nonpayment of
this Note.
3. Conversion/Redemption/Renewal.
-----------------------------
(a) The Holder has the right, at the holder's option, at any time on
or after the Maturity Date, to convert all or any portion of this Note into
fully paid and nonassessable shares of common stock ("Common Stock") of the
Company at the rate of one share of such Common Stock for each One Dollar and
50/100 ($1.50) (the "Conversion Rate") principal amount of this Note and any
accrued but unpaid interest. The Holder agrees that all shares of Common Stock
of the Company, issued by the Company upon the conversion of all or any part of
this Note shall be restricted securities within the meaning of Rule 144(a) of
the Securities Act of 1933. The Holder further agrees that any shares of Common
Stock acquired by means of any conversion as set forth herein shall be further
restricted by the terms and conditions set forth in that certain Shareholders'
Agreement, dated October 24, 1997, by and among the Company, Holder, and the
Original Partners (as such term is defined in the Shareholders' Agreement).
(b) The conversion right set forth in this Section 3 is subject to any
adjustment of the Conversion Rate set forth in Section 5 and Section 6, and is
only exercisable upon the surrender of this Note for conversion at the office or
agency to be maintained by the Company accompanied by instruments of transfer,
in form satisfactory to the Company, duly executed by the registered holder. No
fractional shares are issuable on any conversion, but in lieu of issuing
fractional shares the Company shall pay for such fractional shares in cash.
(c) At any time prior to seventeen (17) months from the date of this
Note, the Holder may provide written notice to the Company requiring the Company
to commence repay of the outstanding principal balance of this Note, together
with any accrued but unpaid interest thereon, to Holder. In such case,
commencing on the Maturity Date, Company shall pay Holder equal monthly
installments of principal, together with any unpaid interest, over a period of
five (5) years until all amounts due hereunder shall be repaid in full.
(d) If Holder does not convert or redeem any or all of the principal
amount of the Note into Common Stock on the Maturity Date, Holder has the right
to extend the term of this Note for a period of time mutually agreed upon
between Holder and the Company. At any time during such extension period, Holder
shall have the right to convert all or any part of the outstanding principal
amount of the Note plus accrued and unpaid interest into Common Stock as set
forth in this Section 3. Moreover, at any time during such extension period,
Holder shall have the right to require the Company to repay all or any part of
the outstanding principal balance of this Note, together with any accrued but
unpaid interest thereon, to Holder within sixty (60) days.
4. Company Redemption. Prior to the Maturity Date, this Note may be
------------------
redeemed by the Company, in whole or in part, at any time after sixty (60) days
written notice ("Redemption Notice") to Holder. During such sixty (60) day
period, Holder shall have the right to convert all or any part of the
outstanding principal amount of the Note plus accrued and unpaid interest into
Common Stock, as set forth in Section 3. If Holder does not convert all
outstanding amounts into Common Stock, the Company may redeem any remaining
amounts at any time during a thirty (30) day period commencing with the date of
expiration of the sixty (60) day period provided for in the Redemption Notice.
Thereafter, Company shall be required to provide Holder with a new Redemption
Notice, and Holder shall have a new sixty (60) day period within which to
convert all
8
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or any part of the outstanding principal amounts plus accrued and unpaid
interest into Common Stock, as set forth in Section 3.
5. Anti-Dilution.
-------------
(a) If at any time there is a capital reorganization of the Company's
Common Stock, including any combination, reclassification, exchange, or
subdivision of shares, a merger or consolidation of the Company with or into
another corporation, or the sale of all or substantially all the Company's
properties and assets as, or substantially as, an entirety to another person,
then, as a part of such reorganization, merger, consolidation, or sale, lawful
provision shall be made so that Holder shall thereafter be entitled to receive
on conversion of this Note, during the period specified in this Note, the number
of shares of Common Stock of the Company, or of the successor corporation
resulting from such merger or consolidation, to which a holder of the Common
Stock deliverable on conversion of this Note would have been entitled on that
event if this Note had been converted immediately before that event. In any such
case, appropriate adjustment (as determined by the Company's board of directors)
shall be made in applying this Note to the rights and the percentage interests
of Holder after the reorganization, merger, consolidation, or sale to the end
that this Note (including adjustment of the Conversion Rate) shall be applicable
after that event, as near as reasonably may be, in relation to the shares of
Common Stock deliverable after that event on conversion of this Note. The
Company shall, not later than thirty (30) days prior to making such adjustment,
give written notice ("Notice") by courier to Holder at the address of Holder
shown on the Company's books.
(b) Any Notice that is sent pursuant to Section 5(a) shall set forth,
in reasonable detail, the event requiring the adjustment and the method by which
the adjustment was calculated and shall specify the Conversion Rate then in
effect after the adjustment and the increased or decreased number of shares of
Common Stock to be received upon conversion of this Note. When appropriate,
advance notice may be given and included as part of the notice required under
other provisions of this Note.
6. Conversion Rate Protection.
--------------------------
(a) If at any time, or from time to time, the Company issues or sells
shares of Common Stock without consideration or for a consideration per share
less than the Conversion Rate in effect immediately before that issue or sale,
then and in each such case:
(i) the Conversion Rate then in effect and the Conversion Rate
applicable for any subsequent period shall be adjusted to a price (calculated to
the nearest cent) determined by dividing: (y) the sum of (aa) the number of
shares of Common Stock outstanding immediately before that issue or sale
multiplied by the Conversion Rate in effect immediately before that issue or
sale, plus (bb) the consideration, if any, received by the Company on that issue
or sale, by (z) the number of shares of the Company's Common Stock outstanding
immediately after that issue or sale; and
(ii) Holder shall after that issue or sale, on conversion of this
Note, be entitled to receive the number of shares of Common Stock equal to the
number of shares that would otherwise, but for the adjustment provided for in
Section 6(a)(i), be issuable on such conversion multiplied by a fraction, the
numerator of which is the Conversion Rate then in effect and the denominator of
which is the Conversion Rate in effect immediately after the adjustment provided
for in Section 6(a)(i) on the date of conversion. No such adjustment shall be
made in an amount less than Five Cents ($0.05), but any such amount shall be
carried forward and given effect in the next adjustment, if any.
(b) If the Company (i) grants any rights or options to subscribe for,
purchase, or otherwise acquire shares of Common Stock, or (ii) issues or sells
any security, other than this Note, which is convertible into shares of Common
Stock, then the price per share of Common Stock issuable on the exercise of the
rights or options or the conversion of the securities shall be calculated by
dividing: (y) the total amount, if any, received or receivable by the Company as
consideration for the granting of the rights or options or the issue or sale of
the convertible securities, plus the minimum aggregate amount of additional
consideration payable to the Company on exercise of the convertible securities,
by (z) the maximum number of shares of Common Stock issuable on the exercise or
conversion.
(i) If the price per share so calculated is less than the
Conversion Rate of this Note in effect immediately before the rights or options
are granted or the convertible securities are issued or sold, the granting or
issue or sale shall be considered to be an issue or sale for cash of the maximum
number of shares of Common Stock so issuable on exercise or conversion at the
price per share determined under this provision, and the Conversion Rate of this
Note shall be adjusted as provided above to reflect (on the basis of that
determination) the issue or sale. No further adjustment of the Conversion Rate
shall be made as a result of the actual issuance of shares of Common Stock on
the exercise of any such rights or options or the conversion of any such
convertible securities.
9
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(ii) If such rights or options or convertible securities by their
terms provide, with the passage of time or otherwise, for any increase in the
amount of additional consideration payable to the Company or any decrease in the
number of shares of Common Stock issuable on such exercise or exchange (by
change of rate or otherwise), the Conversion Rate shall, when each such increase
or decrease becomes effective, be readjusted to reflect the increase or decrease
as far as it affects rights of exercise or conversion that have not expired
before that time.
(iii) If, on the expiration of such rights or options or the
rights of conversion of such convertible securities, any of them shall not have
been exercised, the Conversion Rate shall be readjusted and will then be the
same as it would have been had it originally been adjusted (or had the original
adjustment not been required, as the case may be), on the basis that (y) the
only shares of Common Stock so issued were the shares of Common Stock, if any,
actually issued or sold on the exercise of such rights or options or rights of
conversion of such convertible securities, and (z) such shares of Common Stock,
if any, were issued or sold for the consideration actually received by the
Company on such exercise plus the consideration, if any, actually received by
the Company for granting all such rights or options or for issuing or selling
all such convertible securities.
(iv) No adjustment of the Conversion Rate as provided in this
Section 6(b) shall occur upon the granting or issuance of stock, stock options,
or warrants to employees or directors of the Company in the aggregate amount of
less than six hundred thousand (600,000) shares of Common Stock.
7. Subordination.
-------------
(a) Upon the written agreement of Holder, this Note may be
subordinated to any or all debt owed by the Company to banks and other financial
institutions, other than to the extent debt to any such bank or financial
institution involves the issuance of shares of the Company's stock or notes,
warrants, options or any other security convertible into such stock.
(b) The payment of the indebtedness evidenced by this instrument is
subordinated to the payment of the "Senior Debt" defined and described in the
Subordination Agreement, dated as of September 24, 1998, between United
Breweries of America Inc. and the CIT Group/Credit Finance, Inc., as amended by
that certain Amendment to Subordination Agreement, dated as of June 22, 1999,
and reference is made to such Agreement for a full statement of the terms and
conditions of such subordination.
(c) The payment of the indebtedness evidenced by this instrument is
subordinated to the payment of the "Senior Debt" defined and described in the
Subordination Agreement, dated on or about November 15, 1998, between United
Breweries of America Inc. and the Savings Bank of Mendocino, Inc., and reference
is made to such Agreement for a full statement of the terms and conditions of
such subordination.
8. Enforcement. The Company agrees to reimburse Holder for all costs of
-----------
collection or enforcement of this Note, whether or not suit is filed (including,
but not limited to, reasonable attorney fees), incurred by Holder.
9. Governing Law. This Note shall be governed by and construed in
-------------
accordance with the laws, without regard to the laws as to choice or conflict of
laws, of the State of California.
10. Default. If Company fails to pay any installment of principal or
-------
interest when due, then, or at any time during such default, the entire amount
of the unpaid principal and interest shall, at the election of Holder, become
immediately due and payable.
11. Waiver. No previous waiver and no failure or delay by Holder in
------
acting with respect to the terms of this Note shall constitute a waiver of any
subsequent breach, default or failure of condition under this Note. A waiver of
any term of this Note must be in writing and shall be limited to the express
written terms of such waiver. No delay or omission on the part of Holder in
exercising any right under this Note shall operate as a waiver of such right or
of any other right.
12. Reservation of Stock. The Company covenants that it will at all times
--------------------
reserve and keep available, solely for issuance on conversion of this Note, all
shares of Common Stock from time to time issuable upon exercise of this Note.
13. Replacement. Upon receipt of evidence reasonably satisfactory to the
-----------
Company, of the loss, theft, destruction, or modification of this Note and, in
the event of such occurrence, on delivery of an indemnity agreement or Note
reasonably satisfactory in form and amount to the Company or in the case of
mutilation, on surrender and cancellation of this Note, the Company at its
expense will execute and deliver, in lieu of this Note, a new Note of like
tender.
10
<PAGE>
14. Transfer. NO SALE OR TRANSFER OF THIS NOTE SHALL BE EFFECTIVE UNLESS
--------
AND UNTIL ALL OF THE FOLLOWING STEPS ARE COMPLIED WITH:
(a) The transferor and the transferee shall execute the form of
Transfer Statement attached to this Note (or a similar statement which shall
then be attached to this Note);
(b) This Note and the executed Transfer Statement, together with a
United States Internal Revenue Service Form W-8 "Certificate of Foreign Status"
or a Form W-9 "Request for Taxpayer Identification Number and Certification"
- --
completed and executed by the transferee, shall be delivered to the Company at
the Company's address as provided above; and
(c) If the Company is satisfied that the information contained in the
Transfer Statement is consistent with the information contained in the completed
and executed Form W-8 or W-9, as applicable, the Company shall enter the
transfer on a Note Holder Ledger maintained by the Company for this purpose.
Any purported transfer with respect to which all of the above steps have note
been complied with shall be null and void and of no force or effect.
15. Entire Agreement; Written Modification Only. This Agreement contains
-------------------------------------------
the entire agreement of the parties, and constitutes the complete, final and
exclusive embodiment of their agreement with respect to its subject matter.
This Agreement supersedes any and all prior correspondence, arrangements,
representations and understandings, whether written or oral, express or implied,
with respect to its subject matter. This Agreement may not be modified except
by a written agreement, which specifically sets forth each modification and is
signed by a duly authorized representative of both parties. This Agreement is
executed without reliance upon any promise, warranty or representation by the
parties or any of their representatives, other than such promises, warranties or
representations as are expressly contained in this Agreement.
16. Severability. If any provision of this Agreement is deemed or held
------------
invalid or unenforceable in whole or in part, for any reason, that provision
shall be deemed severed from the remainder of this Agreement, and shall in no
way affect or impair the validity or enforceability of any portion or all of
this Agreement, which otherwise shall remain in full force and effect.
IN WITNESS WHEREOF, the Company has caused this Convertible Note to be executed
in its corporate name by the signature of its president and secretary.
MENDOCINO BREWING COMPANY, INC., a
California corporation
By: /s/ Yashpal Singh
--------------------------------
Yashpal Singh
Its: Chief Operating Officer
By: /s/ P.A. Murali
--------------------------------
P.A. Murali
Its: Chief Financial Officer
11
<PAGE>
EXHIBIT 3
---------
CONVERTIBLE PROMISSORY NOTE
MENDOCINO BREWING COMPANY, INC.
________________________________________________________________________________
Name of Issuer: Mendocino Brewing Company, Inc. Dated: October 21, 1999
Maturity Date: April 20, 2001
________________________________________________________________________________
1. Promise. Mendocino Brewing Company, Inc., a California corporation
-------
having its principal office at 1601 Airport Road, Ukiah, California 95482 and
any successor (the "Company"), for value received, promises to pay to United
Breweries of America Inc., a Delaware corporation or to its registered
successors or assigns (the "Holder") the principal sum of Twenty Five Thousand
Dollars ($25,000) on presentation and surrender of this Convertible Note
("Note") on April 20, 2001 (the "Maturity Date"), and to pay interest on that
principal sum at a rate equal to the lesser of (i) one and one-half percent
(1.50%) per annum above the prime rate offered from time to time by the Bank of
America in San Francisco, California, or (ii) ten percent (10%). Interest
payments shall be paid quarterly on the first day of the months of April, July,
October, and January of each year. Company may use any of the funds borrowed
from Holder for any corporate purposes of Company, including paying obligations
owed by Company to Holder.
2. Form of Payment. All payments under this Note shall be made in lawful
---------------
money of the United States of America. The Company waives diligence,
presentment, protest, demand and notice of protest, dishonor, and nonpayment of
this Note.
3. Conversion/Redemption/Renewal.
-----------------------------
(a) The Holder has the right, at the holder's option, at any time on
or after the Maturity Date, to convert all or any portion of this Note into
fully paid and nonassessable shares of common stock ("Common Stock") of the
Company at the rate of one share of such Common Stock for each One Dollar and
50/100 ($1.50) (the "Conversion Rate") principal amount of this Note and any
accrued but unpaid interest. The Holder agrees that all shares of Common Stock
of the Company, issued by the Company upon the conversion of all or any part of
this Note shall be restricted securities within the meaning of Rule 144(a) of
the Securities Act of 1933. The Holder further agrees that any shares of Common
Stock acquired by means of any conversion as set forth herein shall be further
restricted by the terms and conditions set forth in that certain Shareholders'
Agreement, dated October 24, 1997, by and among the Company, Holder, and the
Original Partners (as such term is defined in the Shareholders' Agreement).
(b) The conversion right set forth in this Section 3 is subject to any
adjustment of the Conversion Rate set forth in Section 5 and Section 6, and is
only exercisable upon the surrender of this Note for conversion at the office or
agency to be maintained by the Company accompanied by instruments of transfer,
in form satisfactory to the Company, duly executed by the registered holder. No
fractional shares are issuable on any conversion, but in lieu of issuing
fractional shares the Company shall pay for such fractional shares in cash.
(c) At any time prior to seventeen (17) months from the date of this
Note, the Holder may provide written notice to the Company requiring the Company
to commence repay of the outstanding principal balance of this Note, together
with any accrued but unpaid interest thereon, to Holder. In such case,
commencing on the Maturity Date, Company shall pay Holder equal monthly
installments of principal, together with any unpaid interest, over a period of
five (5) years until all amounts due hereunder shall be repaid in full.
(d) If Holder does not convert or redeem any or all of the principal
amount of the Note into Common Stock on the Maturity Date, Holder has the right
to extend the term of this Note for a period of time mutually agreed upon
between Holder and the Company. At any time during such extension period, Holder
shall have the right to convert all or any part of the outstanding principal
amount of the Note plus accrued and unpaid interest into Common Stock as set
forth in this Section 3. Moreover, at any time during such extension period,
Holder shall have the right to require the Company to repay all or any part of
the outstanding principal balance of this Note, together with any accrued but
unpaid interest thereon, to Holder within sixty (60) days.
4. Company Redemption. Prior to the Maturity Date, this Note may be
------------------
redeemed by the Company, in whole or in part, at any time after sixty (60) days
written notice ("Redemption Notice") to Holder. During such sixty (60) day
period, Holder shall have the right to convert all or any part of the
outstanding principal amount of the Note plus accrued and unpaid interest into
Common Stock, as set forth in Section 3. If Holder does not convert all
outstanding amounts into Common Stock, the Company may redeem any remaining
amounts at any time during a thirty (30) day period commencing with the date of
expiration of the sixty (60) day period provided for in the Redemption Notice.
Thereafter, Company shall be required to provide Holder with a new Redemption
Notice, and Holder shall have a new sixty (60) day period within which to
convert all
12
<PAGE>
or any part of the outstanding principal amounts plus accrued and unpaid
interest into Common Stock, as set forth in Section 3.
5. Anti-Dilution.
-------------
(a) If at any time there is a capital reorganization of the Company's
Common Stock, including any combination, reclassification, exchange, or
subdivision of shares, a merger or consolidation of the Company with or into
another corporation, or the sale of all or substantially all the Company's
properties and assets as, or substantially as, an entirety to another person,
then, as a part of such reorganization, merger, consolidation, or sale, lawful
provision shall be made so that Holder shall thereafter be entitled to receive
on conversion of this Note, during the period specified in this Note, the number
of shares of Common Stock of the Company, or of the successor corporation
resulting from such merger or consolidation, to which a holder of the Common
Stock deliverable on conversion of this Note would have been entitled on that
event if this Note had been converted immediately before that event. In any such
case, appropriate adjustment (as determined by the Company's board of directors)
shall be made in applying this Note to the rights and the percentage interests
of Holder after the reorganization, merger, consolidation, or sale to the end
that this Note (including adjustment of the Conversion Rate) shall be applicable
after that event, as near as reasonably may be, in relation to the shares of
Common Stock deliverable after that event on conversion of this Note. The
Company shall, not later than thirty (30) days prior to making such adjustment,
give written notice ("Notice") by courier to Holder at the address of Holder
shown on the Company's books.
(b) Any Notice that is sent pursuant to Section 5(a) shall set forth,
in reasonable detail, the event requiring the adjustment and the method by which
the adjustment was calculated and shall specify the Conversion Rate then in
effect after the adjustment and the increased or decreased number of shares of
Common Stock to be received upon conversion of this Note. When appropriate,
advance notice may be given and included as part of the notice required under
other provisions of this Note.
6. Conversion Rate Protection.
--------------------------
(a) If at any time, or from time to time, the Company issues or sells
shares of Common Stock without consideration or for a consideration per share
less than the Conversion Rate in effect immediately before that issue or sale,
then and in each such case:
(i) the Conversion Rate then in effect and the Conversion Rate
applicable for any subsequent period shall be adjusted to a price (calculated to
the nearest cent) determined by dividing: (y) the sum of (aa) the number of
shares of Common Stock outstanding immediately before that issue or sale
multiplied by the Conversion Rate in effect immediately before that issue or
sale, plus (bb) the consideration, if any, received by the Company on that issue
or sale, by (z) the number of shares of the Company's Common Stock outstanding
immediately after that issue or sale; and
(ii) Holder shall after that issue or sale, on conversion of this
Note, be entitled to receive the number of shares of Common Stock equal to the
number of shares that would otherwise, but for the adjustment provided for in
Section 6(a)(i), be issuable on such conversion multiplied by a fraction, the
numerator of which is the Conversion Rate then in effect and the denominator of
which is the Conversion Rate in effect immediately after the adjustment provided
for in Section 6(a)(i) on the date of conversion. No such adjustment shall be
made in an amount less than Five Cents ($0.05), but any such amount shall be
carried forward and given effect in the next adjustment, if any.
(b) If the Company (i) grants any rights or options to subscribe for,
purchase, or otherwise acquire shares of Common Stock, or (ii) issues or sells
any security, other than this Note, which is convertible into shares of Common
Stock, then the price per share of Common Stock issuable on the exercise of the
rights or options or the conversion of the securities shall be calculated by
dividing: (y) the total amount, if any, received or receivable by the Company
as consideration for the granting of the rights or options or the issue or sale
of the convertible securities, plus the minimum aggregate amount of additional
consideration payable to the Company on exercise of the convertible securities,
by (z) the maximum number of shares of Common Stock issuable on the exercise or
conversion.
(i) If the price per share so calculated is less than the
Conversion Rate of this Note in effect immediately before the rights or options
are granted or the convertible securities are issued or sold, the granting or
issue or sale shall be considered to be an issue or sale for cash of the maximum
number of shares of Common Stock so issuable on exercise or conversion at the
price per share determined under this provision, and the Conversion Rate of this
Note shall be adjusted as provided above to reflect (on the basis of that
determination) the issue or sale. No further adjustment of the Conversion Rate
shall be made as a result of the actual issuance of shares of Common Stock on
the exercise of any such rights or options or the conversion of any such
convertible securities.
13
<PAGE>
(ii) If such rights or options or convertible securities by their
terms provide, with the passage of time or otherwise, for any increase in the
amount of additional consideration payable to the Company or any decrease in the
number of shares of Common Stock issuable on such exercise or exchange (by
change of rate or otherwise), the Conversion Rate shall, when each such increase
or decrease becomes effective, be readjusted to reflect the increase or decrease
as far as it affects rights of exercise or conversion that have not expired
before that time.
(iii) If, on the expiration of such rights or options or the
rights of conversion of such convertible securities, any of them shall not have
been exercised, the Conversion Rate shall be readjusted and will then be the
same as it would have been had it originally been adjusted (or had the original
adjustment not been required, as the case may be), on the basis that (y) the
only shares of Common Stock so issued were the shares of Common Stock, if any,
actually issued or sold on the exercise of such rights or options or rights of
conversion of such convertible securities, and (z) such shares of Common Stock,
if any, were issued or sold for the consideration actually received by the
Company on such exercise plus the consideration, if any, actually received by
the Company for granting all such rights or options or for issuing or selling
all such convertible securities.
(iv) No adjustment of the Conversion Rate as provided in this
Section 6(b) shall occur upon the granting or issuance of stock, stock options,
or warrants to employees or directors of the Company in the aggregate amount of
less than six hundred thousand (600,000) shares of Common Stock.
7. Subordination.
-------------
(a) Upon the written agreement of Holder, this Note may be
subordinated to any or all debt owed by the Company to banks and other financial
institutions, other than to the extent debt to any such bank or financial
institution involves the issuance of shares of the Company's stock or notes,
warrants, options or any other security convertible into such stock.
(b) The payment of the indebtedness evidenced by this instrument is
subordinated to the payment of the "Senior Debt" defined and described in the
Subordination Agreement, dated as of September 24, 1998, between United
Breweries of America Inc. and the CIT Group/Credit Finance, Inc., as amended by
that certain Amendment to Subordination Agreement, dated as of June 22, 1999,
and reference is made to such Agreement for a full statement of the terms and
conditions of such subordination.
(c) The payment of the indebtedness evidenced by this instrument is
subordinated to the payment of the "Senior Debt" defined and described in the
Subordination Agreement, dated on or about November 15, 1998, between United
Breweries of America Inc. and the Savings Bank of Mendocino, Inc., and reference
is made to such Agreement for a full statement of the terms and conditions of
such subordination.
8. Enforcement. The Company agrees to reimburse Holder for all costs of
-----------
collection or enforcement of this Note, whether or not suit is filed (including,
but not limited to, reasonable attorney fees), incurred by Holder.
9. Governing Law. This Note shall be governed by and construed in
-------------
accordance with the laws, without regard to the laws as to choice or conflict of
laws, of the State of California.
10. Default. If Company fails to pay any installment of principal or
-------
interest when due, then, or at any time during such default, the entire amount
of the unpaid principal and interest shall, at the election of Holder, become
immediately due and payable.
11. Waiver. No previous waiver and no failure or delay by Holder in
------
acting with respect to the terms of this Note shall constitute a waiver of any
subsequent breach, default or failure of condition under this Note. A waiver of
any term of this Note must be in writing and shall be limited to the express
written terms of such waiver. No delay or omission on the part of Holder in
exercising any right under this Note shall operate as a waiver of such right or
of any other right.
12. Reservation of Stock. The Company covenants that it will at all times
--------------------
reserve and keep available, solely for issuance on conversion of this Note, all
shares of Common Stock from time to time issuable upon exercise of this Note.
13. Replacement. Upon receipt of evidence reasonably satisfactory to the
-----------
Company, of the loss, theft, destruction, or modification of this Note and, in
the event of such occurrence, on delivery of an indemnity agreement or Note
reasonably satisfactory in form and amount to the Company or in the case of
mutilation, on surrender and cancellation of this Note, the Company at its
expense will execute and deliver, in lieu of this Note, a new Note of like
tender.
14
<PAGE>
14. Transfer. NO SALE OR TRANSFER OF THIS NOTE SHALL BE EFFECTIVE UNLESS
--------
AND UNTIL ALL OF THE FOLLOWING STEPS ARE COMPLIED WITH:
(a) The transferor and the transferee shall execute the form of
Transfer Statement attached to this Note (or a similar statement which shall
then be attached to this Note);
(b) This Note and the executed Transfer Statement, together with a
United States Internal Revenue Service Form W-8 "Certificate of Foreign Status"
or a Form W-9 "Request for Taxpayer Identification Number and Certification"
- --
completed and executed by the transferee, shall be delivered to the Company at
the Company's address as provided above; and
(c) If the Company is satisfied that the information contained in the
Transfer Statement is consistent with the information contained in the completed
and executed Form W-8 or W-9, as applicable, the Company shall enter the
transfer on a Note Holder Ledger maintained by the Company for this purpose.
Any purported transfer with respect to which all of the above steps have note
been complied with shall be null and void and of no force or effect.
15. Entire Agreement; Written Modification Only. This Agreement contains
-------------------------------------------
the entire agreement of the parties, and constitutes the complete, final and
exclusive embodiment of their agreement with respect to its subject matter.
This Agreement supersedes any and all prior correspondence, arrangements,
representations and understandings, whether written or oral, express or implied,
with respect to its subject matter. This Agreement may not be modified except
by a written agreement, which specifically sets forth each modification and is
signed by a duly authorized representative of both parties. This Agreement is
executed without reliance upon any promise, warranty or representation by the
parties or any of their representatives, other than such promises, warranties or
representations as are expressly contained in this Agreement.
16. Severability. If any provision of this Agreement is deemed or held
------------
invalid or unenforceable in whole or in part, for any reason, that provision
shall be deemed severed from the remainder of this Agreement, and shall in no
way affect or impair the validity or enforceability of any portion or all of
this Agreement, which otherwise shall remain in full force and effect.
IN WITNESS WHEREOF, the Company has caused this Convertible Note to be executed
in its corporate name by the signature of its president and secretary.
MENDOCINO BREWING COMPANY, INC., a
California corporation
By: /s/ Yashpal Singh
--------------------------------
Yashpal Singh
Its: Chief Operating Officer
By: /s/ P.A. Murali
--------------------------------
P.A. Murali
Its: Chief Financial Officer
15
<PAGE>
EXHIBIT 4
---------
CONVERTIBLE PROMISSORY NOTE
MENDOCINO BREWING COMPANY, INC.
_______________________________________________________________________________
Name of Issuer: Mendocino Brewing Company, Inc. Dated: November 12, 1999
Maturity Date: May 11, 2001
________________________________________________________________________________
1. Promise. Mendocino Brewing Company, Inc., a California
-------
corporation having its principal office at 1601 Airport Road, Ukiah, California
95482 and any successor (the "Company"), for value received, promises to pay to
United Breweries of America Inc., a Delaware corporation or to its registered
successors or assigns (the "Holder") the principal sum of One Hundred Thousand
Dollars ($100,000) on presentation and surrender of this Convertible Note
("Note") on May 11, 2001 (the "Maturity Date"), and to pay interest on that
principal sum at a rate equal to the lesser of (i) one and one-half percent
(1.50%) per annum above the prime rate offered from time to time by the Bank of
America in San Francisco, California, or (ii) ten percent (10%). Interest
payments shall be paid quarterly on the first day of the months of April, July,
October, and January of each year. Company may use any of the funds borrowed
from Holder for any corporate purposes of Company, including paying obligations
owed by Company to Holder.
2. Form of Payment. All payments under this Note shall be made in
---------------
lawful money of the United States of America. The Company waives diligence,
presentment, protest, demand and notice of protest, dishonor, and nonpayment of
this Note.
3. Conversion/Redemption/Renewal.
-----------------------------
(a) The Holder has the right, at the holder's option, at any time
on or after the Maturity Date, to convert all or any portion of this Note into
fully paid and nonassessable shares of common stock ("Common Stock") of the
Company at the rate of one share of such Common Stock for each One Dollar and
50/100 ($1.50) (the "Conversion Rate") principal amount of this Note and any
accrued but unpaid interest. The Holder agrees that all shares of Common Stock
of the Company, issued by the Company upon the conversion of all or any part of
this Note shall be restricted securities within the meaning of Rule 144(a) of
the Securities Act of 1933. The Holder further agrees that any shares of Common
Stock acquired by means of any conversion as set forth herein shall be further
restricted by the terms and conditions set forth in that certain Shareholders'
Agreement, dated October 24, 1997, by and among the Company, Holder, and the
Original Partners (as such term is defined in the Shareholders' Agreement).
(b) The conversion right set forth in this Section 3 is subject
to any adjustment of the Conversion Rate set forth in Section 5 and Section 6,
and is only exercisable upon the surrender of this Note for conversion at the
office or agency to be maintained by the Company accompanied by instruments of
transfer, in form satisfactory to the Company, duly executed by the registered
holder. No fractional shares are issuable on any conversion, but in lieu of
issuing fractional shares the Company shall pay for such fractional shares in
cash.
(c) At any time prior to seventeen (17) months from the date of
this Note, the Holder may provide written notice to the Company requiring the
Company to commence repay of the outstanding principal balance of this Note,
together with any accrued but unpaid interest thereon, to Holder. In such case,
commencing on the Maturity Date, Company shall pay Holder equal monthly
installments of principal, together with any unpaid interest, over a period of
five (5) years until all amounts due hereunder shall be repaid in full.
(e) If Holder does not convert or redeem any or all of the
principal amount of the Note into Common Stock on the Maturity Date, Holder has
the right to extend the term of this Note for a period of time mutually agreed
upon between Holder and the Company. At any time during such extension period,
Holder shall have the right to convert all or any part of the outstanding
principal amount of the Note plus accrued and unpaid interest into Common Stock
as set forth in this Section 3. Moreover, at any time during such extension
period, Holder shall have the right to require the Company to repay all or any
part of the outstanding principal balance of this Note, together with any
accrued but unpaid interest thereon, to Holder within sixty (60) days.
4. Company Redemption. Prior to the Maturity Date, this Note may be
------------------
redeemed by the Company, in whole or in part, at any time after sixty (60) days
written notice ("Redemption Notice") to Holder. During such sixty (60) day
period, Holder shall have the right to convert all or any part of the
outstanding principal amount of the Note plus accrued and unpaid interest into
Common Stock, as set forth in Section 3. If Holder does not convert all
outstanding amounts into Common Stock, the Company may redeem any remaining
amounts at any time during a thirty (30) day period commencing with the date of
expiration of the sixty (60) day period provided for in the Redemption Notice.
Thereafter, Company shall be required to provide Holder with a new Redemption
Notice, and Holder shall have a new sixty (60) day period within which to
convert all
16
<PAGE>
or any part of the outstanding principal amounts plus accrued and unpaid
interest into Common Stock, as set forth in Section 3.
5. Anti-Dilution.
-------------
(a) If at any time there is a capital reorganization of the Company's
Common Stock, including any combination, reclassification, exchange, or
subdivision of shares, a merger or consolidation of the Company with or into
another corporation, or the sale of all or substantially all the Company's
properties and assets as, or substantially as, an entirety to another person,
then, as a part of such reorganization, merger, consolidation, or sale, lawful
provision shall be made so that Holder shall thereafter be entitled to receive
on conversion of this Note, during the period specified in this Note, the number
of shares of Common Stock of the Company, or of the successor corporation
resulting from such merger or consolidation, to which a holder of the Common
Stock deliverable on conversion of this Note would have been entitled on that
event if this Note had been converted immediately before that event. In any
such case, appropriate adjustment (as determined by the Company's board of
directors) shall be made in applying this Note to the rights and the percentage
interests of Holder after the reorganization, merger, consolidation, or sale to
the end that this Note (including adjustment of the Conversion Rate) shall be
applicable after that event, as near as reasonably may be, in relation to the
shares of Common Stock deliverable after that event on conversion of this Note.
The Company shall, not later than thirty (30) days prior to making such
adjustment, give written notice ("Notice") by courier to Holder at the address
of Holder shown on the Company's books.
(b) Any Notice that is sent pursuant to Section 5(a) shall set forth,
in reasonable detail, the event requiring the adjustment and the method by which
the adjustment was calculated and shall specify the Conversion Rate then in
effect after the adjustment and the increased or decreased number of shares of
Common Stock to be received upon conversion of this Note. When appropriate,
advance notice may be given and included as part of the notice required under
other provisions of this Note.
6. Conversion Rate Protection.
--------------------------
(a) If at any time, or from time to time, the Company issues or sells
shares of Common Stock without consideration or for a consideration per share
less than the Conversion Rate in effect immediately before that issue or sale,
then and in each such case:
(i) the Conversion Rate then in effect and the Conversion Rate
applicable for any subsequent period shall be adjusted to a price (calculated to
the nearest cent) determined by dividing: (y) the sum of (aa) the number of
shares of Common Stock outstanding immediately before that issue or sale
multiplied by the Conversion Rate in effect immediately before that issue or
sale, plus (bb) the consideration, if any, received by the Company on that issue
or sale, by (z) the number of shares of the Company's Common Stock outstanding
immediately after that issue or sale; and
(ii) Holder shall after that issue or sale, on conversion of this
Note, be entitled to receive the number of shares of Common Stock equal to the
number of shares that would otherwise, but for the adjustment provided for in
Section 6(a)(i), be issuable on such conversion multiplied by a fraction, the
numerator of which is the Conversion Rate then in effect and the denominator of
which is the Conversion Rate in effect immediately after the adjustment provided
for in Section 6(a)(i) on the date of conversion. No such adjustment shall be
made in an amount less than Five Cents ($0.05), but any such amount shall be
carried forward and given effect in the next adjustment, if any.
(b) If the Company (i) grants any rights or options to subscribe for,
purchase, or otherwise acquire shares of Common Stock, or (ii) issues or sells
any security, other than this Note, which is convertible into shares of Common
Stock, then the price per share of Common Stock issuable on the exercise of the
rights or options or the conversion of the securities shall be calculated by
dividing: (y) the total amount, if any, received or receivable by the Company
as consideration for the granting of the rights or options or the issue or sale
of the convertible securities, plus the minimum aggregate amount of additional
consideration payable to the Company on exercise of the convertible securities,
by (z) the maximum number of shares of Common Stock issuable on the exercise or
conversion.
(c) If the price per share so calculated is less than the Conversion
Rate of this Note in effect immediately before the rights or options are granted
or the convertible securities are issued or sold, the granting or issue or sale
shall be considered to be an issue or sale for cash of the maximum number of
shares of Common Stock so issuable on exercise or conversion at the price per
share determined under this provision, and the Conversion Rate of this Note
shall be adjusted as provided above to reflect (on the basis of that
determination) the issue or sale. No further adjustment of the Conversion Rate
shall be made as a result of the actual issuance of shares of Common Stock on
the exercise of any such rights or options or the conversion of any such
convertible securities.
17
<PAGE>
(d) If such rights or options or convertible securities by their
terms provide, with the passage of time or otherwise, for any increase in the
amount of additional consideration payable to the Company or any decrease in the
number of shares of Common Stock issuable on such exercise or exchange (by
change of rate or otherwise), the Conversion Rate shall, when each such increase
or decrease becomes effective, be readjusted to reflect the increase or decrease
as far as it affects rights of exercise or conversion that have not expired
before that time.
(e) If, on the expiration of such rights or options or the rights of
conversion of such convertible securities, any of them shall not have been
exercised, the Conversion Rate shall be readjusted and will then be the same as
it would have been had it originally been adjusted (or had the original
adjustment not been required, as the case may be), on the basis that (y) the
only shares of Common Stock so issued were the shares of Common Stock, if any,
actually issued or sold on the exercise of such rights or options or rights of
conversion of such convertible securities, and (z) such shares of Common Stock,
if any, were issued or sold for the consideration actually received by the
Company on such exercise plus the consideration, if any, actually received by
the Company for granting all such rights or options or for issuing or selling
all such convertible securities.
(f) No adjustment of the Conversion Rate as provided in this Section
6(b) shall occur upon the granting or issuance of stock, stock options, or
warrants to employees or directors of the Company in the aggregate amount of
less than six hundred thousand (600,000) shares of Common Stock.
7. Subordination.
-------------
(a) Upon the written agreement of Holder, this Note may be
subordinated to any or all debt owed by the Company to banks and other financial
institutions, other than to the extent debt to any such bank or financial
institution involves the issuance of shares of the Company's stock or notes,
warrants, options or any other security convertible into such stock.
(b) The payment of the indebtedness evidenced by this instrument is
subordinated to the payment of the "Senior Debt" defined and described in the
Subordination Agreement, dated as of September 24, 1998, between United
Breweries of America Inc. and the CIT Group/Credit Finance, Inc., as amended by
that certain Amendment to Subordination Agreement, dated as of June 22, 1999,
and reference is made to such Agreement for a full statement of the terms and
conditions of such subordination.
(c) The payment of the indebtedness evidenced by this instrument is
subordinated to the payment of the "Senior Debt" defined and described in the
Subordination Agreement, dated on or about November 15, 1998, between United
Breweries of America Inc. and the Savings Bank of Mendocino, Inc., and reference
is made to such Agreement for a full statement of the terms and conditions of
such subordination.
8. Enforcement. The Company agrees to reimburse Holder for all costs
-----------
of collection or enforcement of this Note, whether or not suit is filed
(including, but not limited to, reasonable attorney fees), incurred by Holder.
9. Governing Law. This Note shall be governed by and construed in
-------------
accordance with the laws, without regard to the laws as to choice or conflict of
laws, of the State of California.
10. Default. If Company fails to pay any installment of principal or
-------
interest when due, then, or at any time during such default, the entire amount
of the unpaid principal and interest shall, at the election of Holder, become
immediately due and payable.
11. Waiver. No previous waiver and no failure or delay by Holder in
------
acting with respect to the terms of this Note shall constitute a waiver of any
subsequent breach, default or failure of condition under this Note. A waiver of
any term of this Note must be in writing and shall be limited to the express
written terms of such waiver. No delay or omission on the part of Holder in
exercising any right under this Note shall operate as a waiver of such right or
of any other right.
12. Reservation of Stock. The Company covenants that it will at all
--------------------
times reserve and keep available, solely for issuance on conversion of this
Note, all shares of Common Stock from time to time issuable upon exercise of
this Note.
13. Replacement. Upon receipt of evidence reasonably satisfactory to
-----------
the Company, of the loss, theft, destruction, or modification of this Note and,
in the event of such occurrence, on delivery of an indemnity agreement or Note
reasonably satisfactory in form and amount to the Company or in the case of
mutilation, on surrender and cancellation of this Note, the Company at its
expense will execute and deliver, in lieu of this Note, a new Note of like
tender.
18
<PAGE>
14. Transfer. NO SALE OR TRANSFER OF THIS NOTE SHALL BE EFFECTIVE UNLESS
--------
AND UNTIL ALL OF THE FOLLOWING STEPS ARE COMPLIED WITH:
(a) The transferor and the transferee shall execute the form of
Transfer Statement attached to this Note (or a similar statement which shall
then be attached to this Note);
(b) This Note and the executed Transfer Statement, together with a
United States Internal Revenue Service Form W-8 "Certificate of Foreign Status"
or a Form W-9 "Request for Taxpayer Identification Number and Certification"
- --
completed and executed by the transferee, shall be delivered to the Company at
the Company's address as provided above; and
(c) If the Company is satisfied that the information contained in the
Transfer Statement is consistent with the information contained in the completed
and executed Form W-8 or W-9, as applicable, the Company shall enter the
transfer on a Note Holder Ledger maintained by the Company for this purpose.
Any purported transfer with respect to which all of the above steps have note
been complied with shall be null and void and of no force or effect.
15. Entire Agreement; Written Modification Only. This Agreement contains
-------------------------------------------
the entire agreement of the parties, and constitutes the complete, final and
exclusive embodiment of their agreement with respect to its subject matter.
This Agreement supersedes any and all prior correspondence, arrangements,
representations and understandings, whether written or oral, express or implied,
with respect to its subject matter. This Agreement may not be modified except
by a written agreement, which specifically sets forth each modification and is
signed by a duly authorized representative of both parties. This Agreement is
executed without reliance upon any promise, warranty or representation by the
parties or any of their representatives, other than such promises, warranties or
representations as are expressly contained in this Agreement.
16. Severability. If any provision of this Agreement is deemed or held
------------
invalid or unenforceable in whole or in part, for any reason, that provision
shall be deemed severed from the remainder of this Agreement, and shall in no
way affect or impair the validity or enforceability of any portion or all of
this Agreement, which otherwise shall remain in full force and effect.
IN WITNESS WHEREOF, the Company has caused this Convertible Note to be executed
in its corporate name by the signature of its president and secretary.
MENDOCINO BREWING COMPANY, INC., a
California corporation
By: /s/ Yashpal Singh
--------------------------------
Yashpal Singh
Its: Chief Operating Officer
By: /s/ P.A. Murali
--------------------------------
P.A. Murali
Its: Chief Financial Officer
19
<PAGE>
EXHIBIT 5
---------
CONVERTIBLE PROMISSORY NOTE
MENDOCINO BREWING COMPANY, INC.
_______________________________________________________________________________
Name of Issuer: Mendocino Brewing Company, Inc. Dated: December 17, 1999
Maturity Date: June 16, 2001
________________________________________________________________________________
1. Promise. Mendocino Brewing Company, Inc., a California
-------
corporation having its principal office at 1601 Airport Road, Ukiah, California
95482 and any successor (the "Company"), for value received, promises to pay to
United Breweries of America Inc., a Delaware corporation or to its registered
successors or assigns (the "Holder") the principal sum of One Hundred Fifty
Thousand Dollars ($150,000) on presentation and surrender of this Convertible
Note ("Note") on June 16, 2001 (the "Maturity Date"), and to pay interest on
that principal sum at a rate equal to the lesser of (i) one and one-half percent
(1.50%) per annum above the prime rate offered from time to time by the Bank of
America in San Francisco, California, or (ii) ten percent (10%). Interest
payments shall be paid quarterly on the first day of the months of April, July,
October, and January of each year. Company may use any of the funds borrowed
from Holder for any corporate purposes of Company, including paying obligations
owed by Company to Holder.
2. Form of Payment. All payments under this Note shall be made in
---------------
lawful money of the United States of America. The Company waives diligence,
presentment, protest, demand and notice of protest, dishonor, and nonpayment of
this Note.
3. Conversion/Redemption/Renewal.
-----------------------------
(a) The Holder has the right, at the holder's option, at any time
on or after the Maturity Date, to convert all or any portion of this Note into
fully paid and nonassessable shares of common stock ("Common Stock") of the
Company at the rate of one share of such Common Stock for each One Dollar and
50/100 ($1.50) (the "Conversion Rate") principal amount of this Note and any
accrued but unpaid interest. The Holder agrees that all shares of Common Stock
of the Company, issued by the Company upon the conversion of all or any part of
this Note shall be restricted securities within the meaning of Rule 144(a) of
the Securities Act of 1933. The Holder further agrees that any shares of Common
Stock acquired by means of any conversion as set forth herein shall be further
restricted by the terms and conditions set forth in that certain Shareholders'
Agreement, dated October 24, 1997, by and among the Company, Holder, and the
Original Partners (as such term is defined in the Shareholders' Agreement).
(b) The conversion right set forth in this Section 3 is subject
to any adjustment of the Conversion Rate set forth in Section 5 and Section 6,
and is only exercisable upon the surrender of this Note for conversion at the
office or agency to be maintained by the Company accompanied by instruments of
transfer, in form satisfactory to the Company, duly executed by the registered
holder. No fractional shares are issuable on any conversion, but in lieu of
issuing fractional shares the Company shall pay for such fractional shares in
cash.
(c) At any time prior to seventeen (17) months from the date of
this Note, the Holder may provide written notice to the Company requiring the
Company to commence repay of the outstanding principal balance of this Note,
together with any accrued but unpaid interest thereon, to Holder. In such case,
commencing on the Maturity Date, Company shall pay Holder equal monthly
installments of principal, together with any unpaid interest, over a period of
five (5) years until all amounts due hereunder shall be repaid in full.
(d) If Holder does not convert or redeem any or all of the
principal amount of the Note into Common Stock on the Maturity Date, Holder has
the right to extend the term of this Note for a period of time mutually agreed
upon between Holder and the Company. At any time during such extension period,
Holder shall have the right to convert all or any part of the outstanding
principal amount of the Note plus accrued and unpaid interest into Common Stock
as set forth in this Section 3. Moreover, at any time during such extension
period, Holder shall have the right to require the Company to repay all or any
part of the outstanding principal balance of this Note, together with any
accrued but unpaid interest thereon, to Holder within sixty (60) days.
4. Company Redemption. Prior to the Maturity Date, this Note may be
------------------
redeemed by the Company, in whole or in part, at any time after sixty (60) days
written notice ("Redemption Notice") to Holder. During such sixty (60) day
period, Holder shall have the right to convert all or any part of the
outstanding principal amount of the Note plus accrued and unpaid interest into
Common Stock, as set forth in Section 3. If Holder does not convert all
outstanding amounts into Common Stock, the Company may redeem any remaining
amounts at any time during a thirty (30) day period commencing with the date of
expiration of the sixty (60) day period provided for in the Redemption Notice.
Thereafter, Company shall be required to provide Holder with a new Redemption
Notice, and Holder shall have a new sixty (60) day period within which to
convert all
20
<PAGE>
or any part of the outstanding principal amounts plus accrued and unpaid
interest into Common Stock, as set forth in Section 3.
5. Anti-Dilution.
-------------
(a) If at any time there is a capital reorganization of the Company's
Common Stock, including any combination, reclassification, exchange, or
subdivision of shares, a merger or consolidation of the Company with or into
another corporation, or the sale of all or substantially all the Company's
properties and assets as, or substantially as, an entirety to another person,
then, as a part of such reorganization, merger, consolidation, or sale, lawful
provision shall be made so that Holder shall thereafter be entitled to receive
on conversion of this Note, during the period specified in this Note, the number
of shares of Common Stock of the Company, or of the successor corporation
resulting from such merger or consolidation, to which a holder of the Common
Stock deliverable on conversion of this Note would have been entitled on that
event if this Note had been converted immediately before that event. In any
such case, appropriate adjustment (as determined by the Company's board of
directors) shall be made in applying this Note to the rights and the percentage
interests of Holder after the reorganization, merger, consolidation, or sale to
the end that this Note (including adjustment of the Conversion Rate) shall be
applicable after that event, as near as reasonably may be, in relation to the
shares of Common Stock deliverable after that event on conversion of this Note.
The Company shall, not later than thirty (30) days prior to making such
adjustment, give written notice ("Notice") by courier to Holder at the address
of Holder shown on the Company's books.
(b) Any Notice that is sent pursuant to Section 5(a) shall set forth,
in reasonable detail, the event requiring the adjustment and the method by which
the adjustment was calculated and shall specify the Conversion Rate then in
effect after the adjustment and the increased or decreased number of shares of
Common Stock to be received upon conversion of this Note. When appropriate,
advance notice may be given and included as part of the notice required under
other provisions of this Note.
6. Conversion Rate Protection.
--------------------------
(a) If at any time, or from time to time, the Company issues or sells
shares of Common Stock without consideration or for a consideration per share
less than the Conversion Rate in effect immediately before that issue or sale,
then and in each such case:
(iii) the Conversion Rate then in effect and the Conversion Rate
applicable for any subsequent period shall be adjusted to a price (calculated to
the nearest cent) determined by dividing: (y) the sum of (aa) the number of
shares of Common Stock outstanding immediately before that issue or sale
multiplied by the Conversion Rate in effect immediately before that issue or
sale, plus (bb) the consideration, if any, received by the Company on that issue
or sale, by (z) the number of shares of the Company's Common Stock outstanding
immediately after that issue or sale; and
(iv) Holder shall after that issue or sale, on conversion of this
Note, be entitled to receive the number of shares of Common Stock equal to the
number of shares that would otherwise, but for the adjustment provided for in
Section 6(a)(i), be issuable on such conversion multiplied by a fraction, the
numerator of which is the Conversion Rate then in effect and the denominator of
which is the Conversion Rate in effect immediately after the adjustment provided
for in Section 6(a)(i) on the date of conversion. No such adjustment shall be
made in an amount less than Five Cents ($0.05), but any such amount shall be
carried forward and given effect in the next adjustment, if any.
(b) If the Company (i) grants any rights or options to subscribe for,
purchase, or otherwise acquire shares of Common Stock, or (ii) issues or sells
any security, other than this Note, which is convertible into shares of Common
Stock, then the price per share of Common Stock issuable on the exercise of the
rights or options or the conversion of the securities shall be calculated by
dividing: (y) the total amount, if any, received or receivable by the Company
as consideration for the granting of the rights or options or the issue or sale
of the convertible securities, plus the minimum aggregate amount of additional
consideration payable to the Company on exercise of the convertible securities,
by (z) the maximum number of shares of Common Stock issuable on the exercise or
conversion.
(i) If the price per share so calculated is less than the
Conversion Rate of this Note in effect immediately before the rights or options
are granted or the convertible securities are issued or sold, the granting or
issue or sale shall be considered to be an issue or sale for cash of the maximum
number of shares of Common Stock so issuable on exercise or conversion at the
price per share determined under this provision, and the Conversion Rate of this
Note shall be adjusted as provided above to reflect (on the basis of that
determination) the issue or sale. No further adjustment of the Conversion Rate
shall be made as a result of the actual issuance of shares of Common Stock on
the exercise of any such rights or options or the conversion of any such
convertible securities.
21
<PAGE>
(ii) If such rights or options or convertible securities by
their terms provide, with the passage of time or otherwise, for any increase in
the amount of additional consideration payable to the Company or any decrease in
the number of shares of Common Stock issuable on such exercise or exchange (by
change of rate or otherwise), the Conversion Rate shall, when each such increase
or decrease becomes effective, be readjusted to reflect the increase or decrease
as far as it affects rights of exercise or conversion that have not expired
before that time.
(iii) If, on the expiration of such rights or options or the
rights of conversion of such convertible securities, any of them shall not have
been exercised, the Conversion Rate shall be readjusted and will then be the
same as it would have been had it originally been adjusted (or had the original
adjustment not been required, as the case may be), on the basis that (y) the
only shares of Common Stock so issued were the shares of Common Stock, if any,
actually issued or sold on the exercise of such rights or options or rights of
conversion of such convertible securities, and (z) such shares of Common Stock,
if any, were issued or sold for the consideration actually received by the
Company on such exercise plus the consideration, if any, actually received by
the Company for granting all such rights or options or for issuing or selling
all such convertible securities.
(iv) No adjustment of the Conversion Rate as provided in this
Section 6(b) shall occur upon the granting or issuance of stock, stock options,
or warrants to employees or directors of the Company in the aggregate amount of
less than six hundred thousand (600,000) shares of Common Stock.
7. Subordination.
-------------
(a) Upon the written agreement of Holder, this Note may be
subordinated to any or all debt owed by the Company to banks and other financial
institutions, other than to the extent debt to any such bank or financial
institution involves the issuance of shares of the Company's stock or notes,
warrants, options or any other security convertible into such stock.
(b) The payment of the indebtedness evidenced by this instrument is
subordinated to the payment of the "Senior Debt" defined and described in the
Subordination Agreement, dated as of September 24, 1998, between United
Breweries of America Inc. and the CIT Group/Credit Finance, Inc., as amended by
that certain Amendment to Subordination Agreement, dated as of June 22, 1999,
and reference is made to such Agreement for a full statement of the terms and
conditions of such subordination.
(c) The payment of the indebtedness evidenced by this instrument is
subordinated to the payment of the "Senior Debt" defined and described in the
Subordination Agreement, dated on or about November 15, 1998, between United
Breweries of America Inc. and the Savings Bank of Mendocino, Inc., and reference
is made to such Agreement for a full statement of the terms and conditions of
such subordination.
8. Enforcement. The Company agrees to reimburse Holder for all costs of
-----------
collection or enforcement of this Note, whether or not suit is filed (including,
but not limited to, reasonable attorney fees), incurred by Holder.
9. Governing Law. This Note shall be governed by and construed in
-------------
accordance with the laws, without regard to the laws as to choice or conflict of
laws, of the State of California.
10. Default. If Company fails to pay any installment of principal or
-------
interest when due, then, or at any time during such default, the entire amount
of the unpaid principal and interest shall, at the election of Holder, become
immediately due and payable.
11. Waiver. No previous waiver and no failure or delay by Holder in
------
acting with respect to the terms of this Note shall constitute a waiver of any
subsequent breach, default or failure of condition under this Note. A waiver of
any term of this Note must be in writing and shall be limited to the express
written terms of such waiver. No delay or omission on the part of Holder in
exercising any right under this Note shall operate as a waiver of such right or
of any other right.
12. Reservation of Stock. The Company covenants that it will at all
--------------------
times reserve and keep available, solely for issuance on conversion of this
Note, all shares of Common Stock from time to time issuable upon exercise of
this Note.
13. Replacement. Upon receipt of evidence reasonably satisfactory to
-----------
the Company, of the loss, theft, destruction, or modification of this Note and,
in the event of such occurrence, on delivery of an indemnity agreement or Note
reasonably satisfactory in form and amount to the Company or in the case of
mutilation, on surrender and cancellation of this Note, the Company at its
expense will execute and deliver, in lieu of this Note, a new Note of like
tender.
22
<PAGE>
14. Transfer. NO SALE OR TRANSFER OF THIS NOTE SHALL BE EFFECTIVE UNLESS
--------
AND UNTIL ALL OF THE FOLLOWING STEPS ARE COMPLIED WITH:
(a) The transferor and the transferee shall execute the form of
Transfer Statement attached to this Note (or a similar statement which shall
then be attached to this Note);
(b) This Note and the executed Transfer Statement, together with a
United States Internal Revenue Service Form W-8 "Certificate of Foreign Status"
or a Form W-9 "Request for Taxpayer Identification Number and Certification"
- --
completed and executed by the transferee, shall be delivered to the Company at
the Company's address as provided above; and
(c) If the Company is satisfied that the information contained in the
Transfer Statement is consistent with the information contained in the completed
and executed Form W-8 or W-9, as applicable, the Company shall enter the
transfer on a Note Holder Ledger maintained by the Company for this purpose.
Any purported transfer with respect to which all of the above steps have note
been complied with shall be null and void and of no force or effect.
15. Entire Agreement; Written Modification Only. This Agreement contains
-------------------------------------------
the entire agreement of the parties, and constitutes the complete, final and
exclusive embodiment of their agreement with respect to its subject matter.
This Agreement supersedes any and all prior correspondence, arrangements,
representations and understandings, whether written or oral, express or implied,
with respect to its subject matter. This Agreement may not be modified except
by a written agreement, which specifically sets forth each modification and is
signed by a duly authorized representative of both parties. This Agreement is
executed without reliance upon any promise, warranty or representation by the
parties or any of their representatives, other than such promises, warranties or
representations as are expressly contained in this Agreement.
16. Severability. If any provision of this Agreement is deemed or held
------------
invalid or unenforceable in whole or in part, for any reason, that provision
shall be deemed severed from the remainder of this Agreement, and shall in no
way affect or impair the validity or enforceability of any portion or all of
this Agreement, which otherwise shall remain in full force and effect.
IN WITNESS WHEREOF, the Company has caused this Convertible Note to be executed
in its corporate name by the signature of its president and secretary.
MENDOCINO BREWING COMPANY, INC., a
California corporation
By: /s/ Yashpal Singh
--------------------------------
Yashpal Singh
Its: Chief Operating Officer
By: /s/ P.A. Murali
--------------------------------
P.A. Murali
Its: Chief Financial Officer
23
<PAGE>
EXHIBIT 6
---------
CONVERTIBLE PROMISSORY NOTE
MENDOCINO BREWING COMPANY, INC.
_______________________________________________________________________________
Name of Issuer: Mendocino Brewing Company, Inc. Dated: December 31, 1999
Maturity Date: June 30, 2001
_______________________________________________________________________________
1. Promise. Mendocino Brewing Company, Inc., a California
-------
corporation having its principal office at 1601 Airport Road, Ukiah, California
95482 and any successor (the "Company"), for value received, promises to pay to
United Breweries of America Inc., a Delaware corporation or to its registered
successors or assigns (the "Holder") the principal sum of Ten Thousand Sixty Two
Dollars ($10,062) on presentation and surrender of this Convertible Note
("Note") on June 30, 2001 (the "Maturity Date"), and to pay interest on that
principal sum at a rate equal to the lesser of (i) one and one-half percent
(1.50%) per annum above the prime rate offered from time to time by the Bank of
America in San Francisco, California, or (ii) ten percent (10%). Interest
payments shall be paid quarterly on the first day of the months of April, July,
October, and January of each year. Company may use any of the funds borrowed
from Holder for any corporate purposes of Company, including paying obligations
owed by Company to Holder.
2. Form of Payment. All payments under this Note shall be made in
---------------
lawful money of the United States of America. The Company waives diligence,
presentment, protest, demand and notice of protest, dishonor, and nonpayment of
this Note.
3. Conversion/Redemption/Renewal.
-----------------------------
(a) The Holder has the right, at the holder's option, at any time
on or after the Maturity Date, to convert all or any portion of this Note into
fully paid and nonassessable shares of common stock ("Common Stock") of the
Company at the rate of one share of such Common Stock for each One Dollar and
50/100 ($1.50) (the "Conversion Rate") principal amount of this Note and any
accrued but unpaid interest. The Holder agrees that all shares of Common Stock
of the Company, issued by the Company upon the conversion of all or any part of
this Note shall be restricted securities within the meaning of Rule 144(a) of
the Securities Act of 1933. The Holder further agrees that any shares of Common
Stock acquired by means of any conversion as set forth herein shall be further
restricted by the terms and conditions set forth in that certain Shareholders'
Agreement, dated October 24, 1997, by and among the Company, Holder, and the
Original Partners (as such term is defined in the Shareholders' Agreement).
(b) The conversion right set forth in this Section 3 is subject
to any adjustment of the Conversion Rate set forth in Section 5 and Section 6,
and is only exercisable upon the surrender of this Note for conversion at the
office or agency to be maintained by the Company accompanied by instruments of
transfer, in form satisfactory to the Company, duly executed by the registered
holder. No fractional shares are issuable on any conversion, but in lieu of
issuing fractional shares the Company shall pay for such fractional shares in
cash.
(c) At any time prior to seventeen (17) months from the date of
this Note, the Holder may provide written notice to the Company requiring the
Company to commence repay of the outstanding principal balance of this Note,
together with any accrued but unpaid interest thereon, to Holder. In such case,
commencing on the Maturity Date, Company shall pay Holder equal monthly
installments of principal, together with any unpaid interest, over a period of
five (5) years until all amounts due hereunder shall be repaid in full.
(d) If Holder does not convert or redeem any or all of the
principal amount of the Note into Common Stock on the Maturity Date, Holder has
the right to extend the term of this Note for a period of time mutually agreed
upon between Holder and the Company. At any time during such extension period,
Holder shall have the right to convert all or any part of the outstanding
principal amount of the Note plus accrued and unpaid interest into Common Stock
as set forth in this Section 3. Moreover, at any time during such extension
period, Holder shall have the right to require the Company to repay all or any
part of the outstanding principal balance of this Note, together with any
accrued but unpaid interest thereon, to Holder within sixty (60) days.
4. Company Redemption. Prior to the Maturity Date, this Note may be
------------------
redeemed by the Company, in whole or in part, at any time after sixty (60) days
written notice ("Redemption Notice") to Holder. During such sixty (60) day
period, Holder shall have the right to convert all or any part of the
outstanding principal amount of the Note plus accrued and unpaid interest into
Common Stock, as set forth in Section 3. If Holder does not convert all
outstanding amounts into Common Stock, the Company may redeem any remaining
amounts at any time during a thirty (30) day period commencing with the date of
expiration of the sixty (60) day period provided for in the Redemption Notice.
Thereafter, Company shall be required to provide Holder with a new Redemption
Notice, and Holder shall have a new sixty (60) day period within which to
convert all
24
<PAGE>
or any part of the outstanding principal amounts plus accrued and unpaid
interest into Common Stock, as set forth in Section 3.
5. Anti-Dilution.
-------------
(a) If at any time there is a capital reorganization of the Company's
Common Stock, including any combination, reclassification, exchange, or
subdivision of shares, a merger or consolidation of the Company with or into
another corporation, or the sale of all or substantially all the Company's
properties and assets as, or substantially as, an entirety to another person,
then, as a part of such reorganization, merger, consolidation, or sale, lawful
provision shall be made so that Holder shall thereafter be entitled to receive
on conversion of this Note, during the period specified in this Note, the number
of shares of Common Stock of the Company, or of the successor corporation
resulting from such merger or consolidation, to which a holder of the Common
Stock deliverable on conversion of this Note would have been entitled on that
event if this Note had been converted immediately before that event. In any
such case, appropriate adjustment (as determined by the Company's board of
directors) shall be made in applying this Note to the rights and the percentage
interests of Holder after the reorganization, merger, consolidation, or sale to
the end that this Note (including adjustment of the Conversion Rate) shall be
applicable after that event, as near as reasonably may be, in relation to the
shares of Common Stock deliverable after that event on conversion of this Note.
The Company shall, not later than thirty (30) days prior to making such
adjustment, give written notice ("Notice") by courier to Holder at the address
of Holder shown on the Company's books.
(b) Any Notice that is sent pursuant to Section 5(a) shall set forth,
in reasonable detail, the event requiring the adjustment and the method by which
the adjustment was calculated and shall specify the Conversion Rate then in
effect after the adjustment and the increased or decreased number of shares of
Common Stock to be received upon conversion of this Note. When appropriate,
advance notice may be given and included as part of the notice required under
other provisions of this Note.
6. Conversion Rate Protection.
--------------------------
(a) If at any time, or from time to time, the Company issues or sells
shares of Common Stock without consideration or for a consideration per share
less than the Conversion Rate in effect immediately before that issue or sale,
then and in each such case:
(v) the Conversion Rate then in effect and the Conversion Rate
applicable for any subsequent period shall be adjusted to a price (calculated to
the nearest cent) determined by dividing: (y) the sum of (aa) the number of
shares of Common Stock outstanding immediately before that issue or sale
multiplied by the Conversion Rate in effect immediately before that issue or
sale, plus (bb) the consideration, if any, received by the Company on that issue
or sale, by (z) the number of shares of the Company's Common Stock outstanding
immediately after that issue or sale; and
(vi) Holder shall after that issue or sale, on conversion of this
Note, be entitled to receive the number of shares of Common Stock equal to the
number of shares that would otherwise, but for the adjustment provided for in
Section 6(a)(i), be issuable on such conversion multiplied by a fraction, the
numerator of which is the Conversion Rate then in effect and the denominator of
which is the Conversion Rate in effect immediately after the adjustment provided
for in Section 6(a)(i) on the date of conversion. No such adjustment shall be
made in an amount less than Five Cents ($0.05), but any such amount shall be
carried forward and given effect in the next adjustment, if any.
(b) If the Company (i) grants any rights or options to subscribe for,
purchase, or otherwise acquire shares of Common Stock, or (ii) issues or sells
any security, other than this Note, which is convertible into shares of Common
Stock, then the price per share of Common Stock issuable on the exercise of the
rights or options or the conversion of the securities shall be calculated by
dividing: (y) the total amount, if any, received or receivable by the Company
as consideration for the granting of the rights or options or the issue or sale
of the convertible securities, plus the minimum aggregate amount of additional
consideration payable to the Company on exercise of the convertible securities,
by (z) the maximum number of shares of Common Stock issuable on the exercise or
conversion.
(i) If the price per share so calculated is less than the
Conversion Rate of this Note in effect immediately before the rights or options
are granted or the convertible securities are issued or sold, the granting or
issue or sale shall be considered to be an issue or sale for cash of the maximum
number of shares of Common Stock so issuable on exercise or conversion at the
price per share determined under this provision, and the Conversion Rate of this
Note shall be adjusted as provided above to reflect (on the basis of that
determination) the issue or sale. No further adjustment of the Conversion Rate
shall be made as a result of the actual issuance of shares of Common Stock on
the exercise of any such rights or options or the conversion of any such
convertible securities.
25
<PAGE>
(ii) If such rights or options or convertible securities by their
terms provide, with the passage of time or otherwise, for any increase in the
amount of additional consideration payable to the Company or any decrease in the
number of shares of Common Stock issuable on such exercise or exchange (by
change of rate or otherwise), the Conversion Rate shall, when each such increase
or decrease becomes effective, be readjusted to reflect the increase or decrease
as far as it affects rights of exercise or conversion that have not expired
before that time.
(iii) If, on the expiration of such rights or options or the
rights of conversion of such convertible securities, any of them shall not have
been exercised, the Conversion Rate shall be readjusted and will then be the
same as it would have been had it originally been adjusted (or had the original
adjustment not been required, as the case may be), on the basis that (y) the
only shares of Common Stock so issued were the shares of Common Stock, if any,
actually issued or sold on the exercise of such rights or options or rights of
conversion of such convertible securities, and (z) such shares of Common Stock,
if any, were issued or sold for the consideration actually received by the
Company on such exercise plus the consideration, if any, actually received by
the Company for granting all such rights or options or for issuing or selling
all such convertible securities.
(iv) No adjustment of the Conversion Rate as provided in this
Section 6(b) shall occur upon the granting or issuance of stock, stock options,
or warrants to employees or directors of the Company in the aggregate amount of
less than six hundred thousand (600,000) shares of Common Stock.
7. Subordination.
-------------
(a) Upon the written agreement of Holder, this Note may be
subordinated to any or all debt owed by the Company to banks and other financial
institutions, other than to the extent debt to any such bank or financial
institution involves the issuance of shares of the Company's stock or notes,
warrants, options or any other security convertible into such stock.
(b) The payment of the indebtedness evidenced by this instrument is
subordinated to the payment of the "Senior Debt" defined and described in the
Subordination Agreement, dated as of September 24, 1998, between United
Breweries of America Inc. and the CIT Group/Credit Finance, Inc., as amended by
that certain Amendment to Subordination Agreement, dated as of June 22, 1999,
and reference is made to such Agreement for a full statement of the terms and
conditions of such subordination.
(c) The payment of the indebtedness evidenced by this instrument is
subordinated to the payment of the "Senior Debt" defined and described in the
Subordination Agreement, dated on or about November 15, 1998, between United
Breweries of America Inc. and the Savings Bank of Mendocino, Inc., and reference
is made to such Agreement for a full statement of the terms and conditions of
such subordination.
8. Enforcement. The Company agrees to reimburse Holder for all costs of
-----------
collection or enforcement of this Note, whether or not suit is filed (including,
but not limited to, reasonable attorney fees), incurred by Holder.
9. Governing Law. This Note shall be governed by and construed in
-------------
accordance with the laws, without regard to the laws as to choice or conflict of
laws, of the State of California.
10. Default. If Company fails to pay any installment of principal or
-------
interest when due, then, or at any time during such default, the entire amount
of the unpaid principal and interest shall, at the election of Holder, become
immediately due and payable.
11. Waiver. No previous waiver and no failure or delay by Holder in
------
acting with respect to the terms of this Note shall constitute a waiver of any
subsequent breach, default or failure of condition under this Note. A waiver of
any term of this Note must be in writing and shall be limited to the express
written terms of such waiver. No delay or omission on the part of Holder in
exercising any right under this Note shall operate as a waiver of such right or
of any other right.
12. Reservation of Stock. The Company covenants that it will at all
--------------------
times reserve and keep available, solely for issuance on conversion of this
Note, all shares of Common Stock from time to time issuable upon exercise of
this Note.
13. Replacement. Upon receipt of evidence reasonably satisfactory to
-----------
the Company, of the loss, theft, destruction, or modification of this Note and,
in the event of such occurrence, on delivery of an indemnity agreement or Note
reasonably satisfactory in form and amount to the Company or in the case of
mutilation, on surrender and cancellation of this Note, the Company at its
expense will execute and deliver, in lieu of this Note, a new Note of like
tender.
26
<PAGE>
14. Transfer. NO SALE OR TRANSFER OF THIS NOTE SHALL BE EFFECTIVE UNLESS
--------
AND UNTIL ALL OF THE FOLLOWING STEPS ARE COMPLIED WITH:
(a) The transferor and the transferee shall execute the form of
Transfer Statement attached to this Note (or a similar statement which shall
then be attached to this Note);
(b) This Note and the executed Transfer Statement, together with a
United States Internal Revenue Service Form W-8 "Certificate of Foreign Status"
or a Form W-9 "Request for Taxpayer Identification Number and Certification"
- --
completed and executed by the transferee, shall be delivered to the Company at
the Company's address as provided above; and
(c) If the Company is satisfied that the information contained in the
Transfer Statement is consistent with the information contained in the completed
and executed Form W-8 or W-9, as applicable, the Company shall enter the
transfer on a Note Holder Ledger maintained by the Company for this purpose.
Any purported transfer with respect to which all of the above steps have note
been complied with shall be null and void and of no force or effect.
15. Entire Agreement; Written Modification Only. This Agreement contains
-------------------------------------------
the entire agreement of the parties, and constitutes the complete, final and
exclusive embodiment of their agreement with respect to its subject matter.
This Agreement supersedes any and all prior correspondence, arrangements,
representations and understandings, whether written or oral, express or implied,
with respect to its subject matter. This Agreement may not be modified except
by a written agreement, which specifically sets forth each modification and is
signed by a duly authorized representative of both parties. This Agreement is
executed without reliance upon any promise, warranty or representation by the
parties or any of their representatives, other than such promises, warranties or
representations as are expressly contained in this Agreement.
16. Severability. If any provision of this Agreement is deemed or held
------------
invalid or unenforceable in whole or in part, for any reason, that provision
shall be deemed severed from the remainder of this Agreement, and shall in no
way affect or impair the validity or enforceability of any portion or all of
this Agreement, which otherwise shall remain in full force and effect.
IN WITNESS WHEREOF, the Company has caused this Convertible Note to be executed
in its corporate name by the signature of its president and secretary.
MENDOCINO BREWING COMPANY, INC., a
California corporation
By: /s/ Yashpal Singh
--------------------------------
Yashpal Singh
Its: Chief Operating Officer
By: /s/ P.A. Murali
--------------------------------
P.A. Murali
Its: Chief Financial Officer
27
<PAGE>
EXHIBIT 7
---------
CONVERTIBLE PROMISSORY NOTE
MENDOCINO BREWING COMPANY, INC.
_______________________________________________________________________________
Name of Issuer: Mendocino Brewing Company, Inc. Dated: February 16, 2000
Maturity Date: August 15, 2001
_______________________________________________________________________________
1. Promise. Mendocino Brewing Company, Inc., a California
-------
corporation having its principal office at 1601 Airport Road, Ukiah, California
95482 and any successor (the "Company"), for value received, promises to pay to
United Breweries of America Inc., a Delaware corporation or to its registered
successors or assigns (the "Holder") the principal sum of One Hundred Thousand
Dollars ($100,000) on presentation and surrender of this Convertible Note
("Note") on August 15, 2001 (the "Maturity Date"), and to pay interest on that
principal sum at a rate equal to the lesser of (i) one and one-half percent
(1.50%) per annum above the prime rate offered from time to time by the Bank of
America in San Francisco, California, or (ii) ten percent (10%). Interest
payments shall be paid quarterly on the first day of the months of April, July,
October, and January of each year. Company may use any of the funds borrowed
from Holder for any corporate purposes of Company, including paying obligations
owed by Company to Holder.
2. Form of Payment. All payments under this Note shall be made in
---------------
lawful money of the United States of America. The Company waives diligence,
presentment, protest, demand and notice of protest, dishonor, and nonpayment of
this Note.
3. Conversion/Redemption/Renewal.
-----------------------------
(a) The Holder has the right, at the holder's option, at any time
on or after the Maturity Date, to convert all or any portion of this Note into
fully paid and nonassessable shares of common stock ("Common Stock") of the
Company at the rate of one share of such Common Stock for each One Dollar and
50/100 ($1.50) (the "Conversion Rate") principal amount of this Note and any
accrued but unpaid interest. The Holder agrees that all shares of Common Stock
of the Company, issued by the Company upon the conversion of all or any part of
this Note shall be restricted securities within the meaning of Rule 144(a) of
the Securities Act of 1933. The Holder further agrees that any shares of Common
Stock acquired by means of any conversion as set forth herein shall be further
restricted by the terms and conditions set forth in that certain Shareholders'
Agreement, dated October 24, 1997, by and among the Company, Holder, and the
Original Partners (as such term is defined in the Shareholders' Agreement).
(b) The conversion right set forth in this Section 3 is subject
to any adjustment of the Conversion Rate set forth in Section 5 and Section 6,
and is only exercisable upon the surrender of this Note for conversion at the
office or agency to be maintained by the Company accompanied by instruments of
transfer, in form satisfactory to the Company, duly executed by the registered
holder. No fractional shares are issuable on any conversion, but in lieu of
issuing fractional shares the Company shall pay for such fractional shares in
cash.
(c) At any time prior to seventeen (17) months from the date of
this Note, the Holder may provide written notice to the Company requiring the
Company to commence repay of the outstanding principal balance of this Note,
together with any accrued but unpaid interest thereon, to Holder. In such case,
commencing on the Maturity Date, Company shall pay Holder equal monthly
installments of principal, together with any unpaid interest, over a period of
five (5) years until all amounts due hereunder shall be repaid in full.
(d) If Holder does not convert or redeem any or all of the
principal amount of the Note into Common Stock on the Maturity Date, Holder has
the right to extend the term of this Note for a period of time mutually agreed
upon between Holder and the Company. At any time during such extension period,
Holder shall have the right to convert all or any part of the outstanding
principal amount of the Note plus accrued and unpaid interest into Common Stock
as set forth in this Section 3. Moreover, at any time during such extension
period, Holder shall have the right to require the Company to repay all or any
part of the outstanding principal balance of this Note, together with any
accrued but unpaid interest thereon, to Holder within sixty (60) days.
4. Company Redemption. Prior to the Maturity Date, this Note may be
------------------
redeemed by the Company, in whole or in part, at any time after sixty (60) days
written notice ("Redemption Notice") to Holder. During such sixty (60) day
period, Holder shall have the right to convert all or any part of the
outstanding principal amount of the Note plus accrued and unpaid interest into
Common Stock, as set forth in Section 3. If Holder does not convert all
outstanding amounts into Common Stock, the Company may redeem any remaining
amounts at any time during a thirty (30) day period commencing with the date of
expiration of the sixty (60) day period provided for in the Redemption Notice.
Thereafter, Company shall be required to provide Holder with a new Redemption
Notice, and Holder shall have a new sixty (60) day period within which to
convert all
28
<PAGE>
or any part of the outstanding principal amounts plus accrued and unpaid
interest into Common Stock, as set forth in Section 3.
5. Anti-Dilution.
-------------
(a) If at any time there is a capital reorganization of the Company's
Common Stock, including any combination, reclassification, exchange, or
subdivision of shares, a merger or consolidation of the Company with or into
another corporation, or the sale of all or substantially all the Company's
properties and assets as, or substantially as, an entirety to another person,
then, as a part of such reorganization, merger, consolidation, or sale, lawful
provision shall be made so that Holder shall thereafter be entitled to receive
on conversion of this Note, during the period specified in this Note, the number
of shares of Common Stock of the Company, or of the successor corporation
resulting from such merger or consolidation, to which a holder of the Common
Stock deliverable on conversion of this Note would have been entitled on that
event if this Note had been converted immediately before that event. In any
such case, appropriate adjustment (as determined by the Company's board of
directors) shall be made in applying this Note to the rights and the percentage
interests of Holder after the reorganization, merger, consolidation, or sale to
the end that this Note (including adjustment of the Conversion Rate) shall be
applicable after that event, as near as reasonably may be, in relation to the
shares of Common Stock deliverable after that event on conversion of this Note.
The Company shall, not later than thirty (30) days prior to making such
adjustment, give written notice ("Notice") by courier to Holder at the address
of Holder shown on the Company's books.
(b) Any Notice that is sent pursuant to Section 5(a) shall set forth,
in reasonable detail, the event requiring the adjustment and the method by which
the adjustment was calculated and shall specify the Conversion Rate then in
effect after the adjustment and the increased or decreased number of shares of
Common Stock to be received upon conversion of this Note. When appropriate,
advance notice may be given and included as part of the notice required under
other provisions of this Note.
6. Conversion Rate Protection.
--------------------------
(a) If at any time, or from time to time, the Company issues or sells
shares of Common Stock without consideration or for a consideration per share
less than the Conversion Rate in effect immediately before that issue or sale,
then and in each such case:
(vii) the Conversion Rate then in effect and the Conversion Rate
applicable for any subsequent period shall be adjusted to a price (calculated to
the nearest cent) determined by dividing: (y) the sum of (aa) the number of
shares of Common Stock outstanding immediately before that issue or sale
multiplied by the Conversion Rate in effect immediately before that issue or
sale, plus (bb) the consideration, if any, received by the Company on that issue
or sale, by (z) the number of shares of the Company's Common Stock outstanding
immediately after that issue or sale; and
(viii) Holder shall after that issue or sale, on conversion of
this Note, be entitled to receive the number of shares of Common Stock equal to
the number of shares that would otherwise, but for the adjustment provided for
in Section 6(a)(i), be issuable on such conversion multiplied by a fraction, the
numerator of which is the Conversion Rate then in effect and the denominator of
which is the Conversion Rate in effect immediately after the adjustment provided
for in Section 6(a)(i) on the date of conversion. No such adjustment shall be
made in an amount less than Five Cents ($0.05), but any such amount shall be
carried forward and given effect in the next adjustment, if any.
(b) If the Company (i) grants any rights or options to subscribe for,
purchase, or otherwise acquire shares of Common Stock, or (ii) issues or sells
any security, other than this Note, which is convertible into shares of Common
Stock, then the price per share of Common Stock issuable on the exercise of the
rights or options or the conversion of the securities shall be calculated by
dividing: (y) the total amount, if any, received or receivable by the Company
as consideration for the granting of the rights or options or the issue or sale
of the convertible securities, plus the minimum aggregate amount of additional
consideration payable to the Company on exercise of the convertible securities,
by (z) the maximum number of shares of Common Stock issuable on the exercise or
conversion.
(i) If the price per share so calculated is less than the
Conversion Rate of this Note in effect immediately before the rights or options
are granted or the convertible securities are issued or sold, the granting or
issue or sale shall be considered to be an issue or sale for cash of the maximum
number of shares of Common Stock so issuable on exercise or conversion at the
price per share determined under this provision, and the Conversion Rate of this
Note shall be adjusted as provided above to reflect (on the basis of that
determination) the issue or sale. No further adjustment of the Conversion Rate
shall be made as a result of the actual issuance of shares of Common Stock on
the exercise of any such rights or options or the conversion of any such
convertible securities.
29
<PAGE>
(ii) If such rights or options or convertible securities by their
terms provide, with the passage of time or otherwise, for any increase in the
amount of additional consideration payable to the Company or any decrease in the
number of shares of Common Stock issuable on such exercise or exchange (by
change of rate or otherwise), the Conversion Rate shall, when each such increase
or decrease becomes effective, be readjusted to reflect the increase or decrease
as far as it affects rights of exercise or conversion that have not expired
before that time.
(iii) If, on the expiration of such rights or options or the
rights of conversion of such convertible securities, any of them shall not have
been exercised, the Conversion Rate shall be readjusted and will then be the
same as it would have been had it originally been adjusted (or had the original
adjustment not been required, as the case may be), on the basis that (y) the
only shares of Common Stock so issued were the shares of Common Stock, if any,
actually issued or sold on the exercise of such rights or options or rights of
conversion of such convertible securities, and (z) such shares of Common Stock,
if any, were issued or sold for the consideration actually received by the
Company on such exercise plus the consideration, if any, actually received by
the Company for granting all such rights or options or for issuing or selling
all such convertible securities.
(iv) No adjustment of the Conversion Rate as provided in this
Section 6(b) shall occur upon the granting or issuance of stock, stock options,
or warrants to employees or directors of the Company in the aggregate amount of
less than six hundred thousand (600,000) shares of Common Stock.
7. Subordination.
-------------
(a) Upon the written agreement of Holder, this Note may be
subordinated to any or all debt owed by the Company to banks and other financial
institutions, other than to the extent debt to any such bank or financial
institution involves the issuance of shares of the Company's stock or notes,
warrants, options or any other security convertible into such stock.
(b) The payment of the indebtedness evidenced by this instrument is
subordinated to the payment of the "Senior Debt" defined and described in the
Subordination Agreement, dated as of September 24, 1998, between United
Breweries of America Inc. and the CIT Group/Credit Finance, Inc., as amended by
that certain Amendment to Subordination Agreement, dated as of June 22, 1999,
and reference is made to such Agreement for a full statement of the terms and
conditions of such subordination.
(c) The payment of the indebtedness evidenced by this instrument is
subordinated to the payment of the "Senior Debt" defined and described in the
Subordination Agreement, dated on or about November 15, 1998, between United
Breweries of America Inc. and the Savings Bank of Mendocino, Inc., and reference
is made to such Agreement for a full statement of the terms and conditions of
such subordination.
8. Enforcement. The Company agrees to reimburse Holder for all costs
-----------
of collection or enforcement of this Note, whether or not suit is filed
(including, but not limited to, reasonable attorney fees), incurred by Holder.
9. Governing Law. This Note shall be governed by and construed in
-------------
accordance with the laws, without regard to the laws as to choice or conflict of
laws, of the State of California.
10. Default. If Company fails to pay any installment of principal or
-------
interest when due, then, or at any time during such default, the entire amount
of the unpaid principal and interest shall, at the election of Holder, become
immediately due and payable.
11. Waiver. No previous waiver and no failure or delay by Holder in
------
acting with respect to the terms of this Note shall constitute a waiver of any
subsequent breach, default or failure of condition under this Note. A waiver of
any term of this Note must be in writing and shall be limited to the express
written terms of such waiver. No delay or omission on the part of Holder in
exercising any right under this Note shall operate as a waiver of such right or
of any other right.
12. Reservation of Stock. The Company covenants that it will at all
--------------------
times reserve and keep available, solely for issuance on conversion of this
Note, all shares of Common Stock from time to time issuable upon exercise of
this Note.
13. Replacement. Upon receipt of evidence reasonably satisfactory to
-----------
the Company, of the loss, theft, destruction, or modification of this Note and,
in the event of such occurrence, on delivery of an indemnity agreement or Note
reasonably satisfactory in form and amount to the Company or in the case of
mutilation, on surrender and cancellation of this Note, the Company at its
expense will execute and deliver, in lieu of this Note, a new Note of like
tender.
30
<PAGE>
14. Transfer. NO SALE OR TRANSFER OF THIS NOTE SHALL BE EFFECTIVE UNLESS
--------
AND UNTIL ALL OF THE FOLLOWING STEPS ARE COMPLIED WITH:
(a) The transferor and the transferee shall execute the form of
Transfer Statement attached to this Note (or a similar statement which shall
then be attached to this Note);
(b) This Note and the executed Transfer Statement, together with a
United States Internal Revenue Service Form W-8 "Certificate of Foreign Status"
or a Form W-9 "Request for Taxpayer Identification Number and Certification"
- --
completed and executed by the transferee, shall be delivered to the Company at
the Company's address as provided above; and
(c) If the Company is satisfied that the information contained in the
Transfer Statement is consistent with the information contained in the completed
and executed Form W-8 or W-9, as applicable, the Company shall enter the
transfer on a Note Holder Ledger maintained by the Company for this purpose.
Any purported transfer with respect to which all of the above steps have note
been complied with shall be null and void and of no force or effect.
15. Entire Agreement; Written Modification Only. This Agreement contains
-------------------------------------------
the entire agreement of the parties, and constitutes the complete, final and
exclusive embodiment of their agreement with respect to its subject matter.
This Agreement supersedes any and all prior correspondence, arrangements,
representations and understandings, whether written or oral, express or implied,
with respect to its subject matter. This Agreement may not be modified except
by a written agreement, which specifically sets forth each modification and is
signed by a duly authorized representative of both parties. This Agreement is
executed without reliance upon any promise, warranty or representation by the
parties or any of their representatives, other than such promises, warranties or
representations as are expressly contained in this Agreement.
16. Severability. If any provision of this Agreement is deemed or held
------------
invalid or unenforceable in whole or in part, for any reason, that provision
shall be deemed severed from the remainder of this Agreement, and shall in no
way affect or impair the validity or enforceability of any portion or all of
this Agreement, which otherwise shall remain in full force and effect.
IN WITNESS WHEREOF, the Company has caused this Convertible Note to be executed
in its corporate name by the signature of its president and secretary.
MENDOCINO BREWING COMPANY, INC., a
California corporation
By: /s/ Yashpal Singh
--------------------------------
Yashpal Singh
Its: Chief Operating Officer
By: /s/ P.A. Murali
--------------------------------
P.A. Murali
Its: Chief Financial Officer
31
<PAGE>
EXHIBIT 8
---------
CONVERTIBLE PROMISSORY NOTE
MENDOCINO BREWING COMPANY, INC.
_______________________________________________________________________________
Name of Issuer: Mendocino Brewing Company, Inc. Dated: February 17, 2000
Maturity Date: August 16, 2001
________________________________________________________________________________
1. Promise. Mendocino Brewing Company, Inc., a California
-------
corporation having its principal office at 1601 Airport Road, Ukiah, California
95482 and any successor (the "Company"), for value received, promises to pay to
United Breweries of America Inc., a Delaware corporation or to its registered
successors or assigns (the "Holder") the principal sum of Fifty Thousand Dollars
($50,000) on presentation and surrender of this Convertible Note ("Note") on
August 16, 2001 (the "Maturity Date"), and to pay interest on that principal sum
at a rate equal to the lesser of (i) one and one-half percent (1.50%) per annum
above the prime rate offered from time to time by the Bank of America in San
Francisco, California, or (ii) ten percent (10%). Interest payments shall be
paid quarterly on the first day of the months of April, July, October, and
January of each year. Company may use any of the funds borrowed from Holder for
any corporate purposes of Company, including paying obligations owed by Company
to Holder.
2. Form of Payment. All payments under this Note shall be made in
---------------
lawful money of the United States of America. The Company waives diligence,
presentment, protest, demand and notice of protest, dishonor, and nonpayment of
this Note.
3. Conversion/Redemption/Renewal.
-----------------------------
(a) The Holder has the right, at the holder's option, at any time
on or after the Maturity Date, to convert all or any portion of this Note into
fully paid and nonassessable shares of common stock ("Common Stock") of the
Company at the rate of one share of such Common Stock for each One Dollar and
50/100 ($1.50) (the "Conversion Rate") principal amount of this Note and any
accrued but unpaid interest. The Holder agrees that all shares of Common Stock
of the Company, issued by the Company upon the conversion of all or any part of
this Note shall be restricted securities within the meaning of Rule 144(a) of
the Securities Act of 1933. The Holder further agrees that any shares of Common
Stock acquired by means of any conversion as set forth herein shall be further
restricted by the terms and conditions set forth in that certain Shareholders'
Agreement, dated October 24, 1997, by and among the Company, Holder, and the
Original Partners (as such term is defined in the Shareholders' Agreement).
(b) The conversion right set forth in this Section 3 is subject to
any adjustment of the Conversion Rate set forth in Section 5 and Section 6, and
is only exercisable upon the surrender of this Note for conversion at the office
or agency to be maintained by the Company accompanied by instruments of
transfer, in form satisfactory to the Company, duly executed by the registered
holder. No fractional shares are issuable on any conversion, but in lieu of
issuing fractional shares the Company shall pay for such fractional shares in
cash.
(c) At any time prior to seventeen (17) months from the date of
this Note, the Holder may provide written notice to the Company requiring the
Company to commence repay of the outstanding principal balance of this Note,
together with any accrued but unpaid interest thereon, to Holder. In such case,
commencing on the Maturity Date, Company shall pay Holder equal monthly
installments of principal, together with any unpaid interest, over a period of
five (5) years until all amounts due hereunder shall be repaid in full.
(d) If Holder does not convert or redeem any or all of the
principal amount of the Note into Common Stock on the Maturity Date, Holder has
the right to extend the term of this Note for a period of time mutually agreed
upon between Holder and the Company. At any time during such extension period,
Holder shall have the right to convert all or any part of the outstanding
principal amount of the Note plus accrued and unpaid interest into Common Stock
as set forth in this Section 3. Moreover, at any time during such extension
period, Holder shall have the right to require the Company to repay all or any
part of the outstanding principal balance of this Note, together with any
accrued but unpaid interest thereon, to Holder within sixty (60) days.
4. Company Redemption. Prior to the Maturity Date, this Note may be
------------------
redeemed by the Company, in whole or in part, at any time after sixty (60) days
written notice ("Redemption Notice") to Holder. During such sixty (60) day
period, Holder shall have the right to convert all or any part of the
outstanding principal amount of the Note plus accrued and unpaid interest into
Common Stock, as set forth in Section 3. If Holder does not convert all
outstanding amounts into Common Stock, the Company may redeem any remaining
amounts at any time during a thirty (30) day period commencing with the date of
expiration of the sixty (60) day period provided for in the Redemption Notice.
Thereafter, Company shall be required to provide Holder with a new Redemption
Notice, and Holder shall have a new sixty (60) day period within which to
convert all
32
<PAGE>
or any part of the outstanding principal amounts plus accrued and unpaid
interest into Common Stock, as set forth in Section 3.
5. Anti-Dilution.
-------------
(a) If at any time there is a capital reorganization of the Company's
Common Stock, including any combination, reclassification, exchange, or
subdivision of shares, a merger or consolidation of the Company with or into
another corporation, or the sale of all or substantially all the Company's
properties and assets as, or substantially as, an entirety to another person,
then, as a part of such reorganization, merger, consolidation, or sale, lawful
provision shall be made so that Holder shall thereafter be entitled to receive
on conversion of this Note, during the period specified in this Note, the number
of shares of Common Stock of the Company, or of the successor corporation
resulting from such merger or consolidation, to which a holder of the Common
Stock deliverable on conversion of this Note would have been entitled on that
event if this Note had been converted immediately before that event. In any such
case, appropriate adjustment (as determined by the Company's board of directors)
shall be made in applying this Note to the rights and the percentage interests
of Holder after the reorganization, merger, consolidation, or sale to the end
that this Note (including adjustment of the Conversion Rate) shall be applicable
after that event, as near as reasonably may be, in relation to the shares of
Common Stock deliverable after that event on conversion of this Note. The
Company shall, not later than thirty (30) days prior to making such adjustment,
give written notice ("Notice") by courier to Holder at the address of Holder
shown on the Company's books.
(b) Any Notice that is sent pursuant to Section 5(a) shall set forth,
in reasonable detail, the event requiring the adjustment and the method by which
the adjustment was calculated and shall specify the Conversion Rate then in
effect after the adjustment and the increased or decreased number of shares of
Common Stock to be received upon conversion of this Note. When appropriate,
advance notice may be given and included as part of the notice required under
other provisions of this Note.
6. Conversion Rate Protection.
--------------------------
(a) If at any time, or from time to time, the Company issues or sells
shares of Common Stock without consideration or for a consideration per share
less than the Conversion Rate in effect immediately before that issue or sale,
then and in each such case:
(ix) the Conversion Rate then in effect and the Conversion Rate
applicable for any subsequent period shall be adjusted to a price (calculated to
the nearest cent) determined by dividing: (y) the sum of (aa) the number of
shares of Common Stock outstanding immediately before that issue or sale
multiplied by the Conversion Rate in effect immediately before that issue or
sale, plus (bb) the consideration, if any, received by the Company on that issue
or sale, by (z) the number of shares of the Company's Common Stock outstanding
immediately after that issue or sale; and
(x) Holder shall after that issue or sale, on conversion of this
Note, be entitled to receive the number of shares of Common Stock equal to the
number of shares that would otherwise, but for the adjustment provided for in
Section 6(a)(i), be issuable on such conversion multiplied by a fraction, the
numerator of which is the Conversion Rate then in effect and the denominator of
which is the Conversion Rate in effect immediately after the adjustment provided
for in Section 6(a)(i) on the date of conversion. No such adjustment shall be
made in an amount less than Five Cents ($0.05), but any such amount shall be
carried forward and given effect in the next adjustment, if any.
(b) If the Company (i) grants any rights or options to subscribe for,
purchase, or otherwise acquire shares of Common Stock, or (ii) issues or sells
any security, other than this Note, which is convertible into shares of Common
Stock, then the price per share of Common Stock issuable on the exercise of the
rights or options or the conversion of the securities shall be calculated by
dividing: (y) the total amount, if any, received or receivable by the Company as
consideration for the granting of the rights or options or the issue or sale of
the convertible securities, plus the minimum aggregate amount of additional
consideration payable to the Company on exercise of the convertible securities,
by (z) the maximum number of shares of Common Stock issuable on the exercise or
conversion.
(i) If the price per share so calculated is less than the
Conversion Rate of this Note in effect immediately before the rights or options
are granted or the convertible securities are issued or sold, the granting or
issue or sale shall be considered to be an issue or sale for cash of the maximum
number of shares of Common Stock so issuable on exercise or conversion at the
price per share determined under this provision, and the Conversion Rate of this
Note shall be adjusted as provided above to reflect (on the basis of that
determination) the issue or sale. No further adjustment of the Conversion Rate
shall be made as a result of the actual issuance of shares of Common Stock on
the exercise of any such rights or options or the conversion of any such
convertible securities.
33
<PAGE>
(ii) If such rights or options or convertible securities by
their terms provide, with the passage of time or otherwise, for any increase in
the amount of additional consideration payable to the Company or any decrease in
the number of shares of Common Stock issuable on such exercise or exchange (by
change of rate or otherwise), the Conversion Rate shall, when each such increase
or decrease becomes effective, be readjusted to reflect the increase or decrease
as far as it affects rights of exercise or conversion that have not expired
before that time.
(iii) If, on the expiration of such rights or options or the
rights of conversion of such convertible securities, any of them shall not have
been exercised, the Conversion Rate shall be readjusted and will then be the
same as it would have been had it originally been adjusted (or had the original
adjustment not been required, as the case may be), on the basis that (y) the
only shares of Common Stock so issued were the shares of Common Stock, if any,
actually issued or sold on the exercise of such rights or options or rights of
conversion of such convertible securities, and (z) such shares of Common Stock,
if any, were issued or sold for the consideration actually received by the
Company on such exercise plus the consideration, if any, actually received by
the Company for granting all such rights or options or for issuing or selling
all such convertible securities.
(iv) No adjustment of the Conversion Rate as provided in this
Section 6(b) shall occur upon the granting or issuance of stock, stock options,
or warrants to employees or directors of the Company in the aggregate amount of
less than six hundred thousand (600,000) shares of Common Stock.
7. Subordination.
-------------
(a) Upon the written agreement of Holder, this Note may be
subordinated to any or all debt owed by the Company to banks and other financial
institutions, other than to the extent debt to any such bank or financial
institution involves the issuance of shares of the Company's stock or notes,
warrants, options or any other security convertible into such stock.
(b) The payment of the indebtedness evidenced by this instrument
is subordinated to the payment of the "Senior Debt" defined and described in the
Subordination Agreement, dated as of September 24, 1998, between United
Breweries of America Inc. and the CIT Group/Credit Finance, Inc., as amended by
that certain Amendment to Subordination Agreement, dated as of June 22, 1999,
and reference is made to such Agreement for a full statement of the terms and
conditions of such subordination.
(c) The payment of the indebtedness evidenced by this instrument
is subordinated to the payment of the "Senior Debt" defined and described in the
Subordination Agreement, dated on or about November 15, 1998, between United
Breweries of America Inc. and the Savings Bank of Mendocino, Inc., and reference
is made to such Agreement for a full statement of the terms and conditions of
such subordination.
8. Enforcement. The Company agrees to reimburse Holder for all costs
-----------
of collection or enforcement of this Note, whether or not suit is filed
(including, but not limited to, reasonable attorney fees), incurred by Holder.
9. Governing Law. This Note shall be governed by and construed in
-------------
accordance with the laws, without regard to the laws as to choice or conflict of
laws, of the State of California.
10. Default. If Company fails to pay any installment of principal or
-------
interest when due, then, or at any time during such default, the entire amount
of the unpaid principal and interest shall, at the election of Holder, become
immediately due and payable.
11. Waiver. No previous waiver and no failure or delay by Holder in
------
acting with respect to the terms of this Note shall constitute a waiver of any
subsequent breach, default or failure of condition under this Note. A waiver of
any term of this Note must be in writing and shall be limited to the express
written terms of such waiver. No delay or omission on the part of Holder in
exercising any right under this Note shall operate as a waiver of such right or
of any other right.
12. Reservation of Stock. The Company covenants that it will at all
--------------------
times reserve and keep available, solely for issuance on conversion of this
Note, all shares of Common Stock from time to time issuable upon exercise of
this Note.
13. Replacement. Upon receipt of evidence reasonably satisfactory to
-----------
the Company, of the loss, theft, destruction, or modification of this Note and,
in the event of such occurrence, on delivery of an indemnity agreement or Note
reasonably satisfactory in form and amount to the Company or in the case of
mutilation, on surrender and cancellation of this Note, the Company at its
expense will execute and deliver, in lieu of this Note, a new Note of like
tender.
34
<PAGE>
14. Transfer. NO SALE OR TRANSFER OF THIS NOTE SHALL BE EFFECTIVE
--------
UNLESS AND UNTIL ALL OF THE FOLLOWING STEPS ARE COMPLIED WITH:
(a) The transferor and the transferee shall execute the form of
Transfer Statement attached to this Note (or a similar statement which shall
then be attached to this Note);
(b) This Note and the executed Transfer Statement, together with a
United States Internal Revenue Service Form W-8 "Certificate of Foreign Status"
or a Form W-9 "Request for Taxpayer Identification Number and Certification"
- --
completed and executed by the transferee, shall be delivered to the Company at
the Company's address as provided above; and
(c) If the Company is satisfied that the information contained in
the Transfer Statement is consistent with the information contained in the
completed and executed Form W-8 or W-9, as applicable, the Company shall enter
the transfer on a Note Holder Ledger maintained by the Company for this purpose.
Any purported transfer with respect to which all of the above steps have note
been complied with shall be null and void and of no force or effect.
15. Entire Agreement; Written Modification Only. This Agreement
-------------------------------------------
contains the entire agreement of the parties, and constitutes the complete,
final and exclusive embodiment of their agreement with respect to its subject
matter. This Agreement supersedes any and all prior correspondence,
arrangements, representations and understandings, whether written or oral,
express or implied, with respect to its subject matter. This Agreement may not
be modified except by a written agreement, which specifically sets forth each
modification and is signed by a duly authorized representative of both parties.
This Agreement is executed without reliance upon any promise, warranty or
representation by the parties or any of their representatives, other than such
promises, warranties or representations as are expressly contained in this
Agreement.
16. Severability. If any provision of this Agreement is deemed or held
------------
invalid or unenforceable in whole or in part, for any reason, that provision
shall be deemed severed from the remainder of this Agreement, and shall in no
way affect or impair the validity or enforceability of any portion or all of
this Agreement, which otherwise shall remain in full force and effect.
IN WITNESS WHEREOF, the Company has caused this Convertible Note to be executed
in its corporate name by the signature of its president and secretary.
MENDOCINO BREWING COMPANY, INC., a
California corporation
By: /s/ Yashpal Singh
--------------------------
Yashpal Singh
Its: Chief Operating Officer
By: /s/ P.A. Murali
--------------------------
P.A. Murali
Its: Chief Financial Officer
35
<PAGE>
EXHIBIT 9
---------
CONVERTIBLE PROMISSORY NOTE
MENDOCINO BREWING COMPANY, INC.
_______________________________________________________________________________
Name of Issuer: Mendocino Brewing Company, Inc. Dated: April 28, 2000
Maturity Date: October 27, 2001
________________________________________________________________________________
1. Promise. Mendocino Brewing Company, Inc., a California
-------
corporation having its principal office at 1601 Airport Road, Ukiah, California
95482 and any successor (the "Company"), for value received, promises to pay to
United Breweries of America Inc., a Delaware corporation or to its registered
successors or assigns (the "Holder") the principal sum of One Fifty One Thousand
Three Hundred Seventeen and 59/100 Dollars ($151,317.59) on presentation and
surrender of this Convertible Note ("Note") on August 16, 2001 (the "Maturity
Date"), and to pay interest on that principal sum at a rate equal to the lesser
of (i) one and one-half percent (1.50%) per annum above the prime rate offered
from time to time by the Bank of America in San Francisco, California, or (ii)
ten percent (10%). Interest payments shall be paid quarterly on the first day of
the months of April, July, October, and January of each year. Company may use
any of the funds borrowed from Holder for any corporate purposes of Company,
including paying obligations owed by Company to Holder.
2. Form of Payment. All payments under this Note shall be made in
---------------
lawful money of the United States of America. The Company waives diligence,
presentment, protest, demand and notice of protest, dishonor, and nonpayment of
this Note.
3. Conversion/Redemption/Renewal.
-----------------------------
(a) The Holder has the right, at the holder's option, at any time
on or after the Maturity Date, to convert all or any portion of this Note into
fully paid and nonassessable shares of common stock ("Common Stock") of the
Company at the rate of one share of such Common Stock for each One Dollar and
50/100 ($1.50) (the "Conversion Rate") principal amount of this Note and any
accrued but unpaid interest. The Holder agrees that all shares of Common Stock
of the Company, issued by the Company upon the conversion of all or any part of
this Note shall be restricted securities within the meaning of Rule 144(a) of
the Securities Act of 1933. The Holder further agrees that any shares of Common
Stock acquired by means of any conversion as set forth herein shall be further
restricted by the terms and conditions set forth in that certain Shareholders'
Agreement, dated October 24, 1997, by and among the Company, Holder, and the
Original Partners (as such term is defined in the Shareholders' Agreement).
(b) The conversion right set forth in this Section 3 is subject to
any adjustment of the Conversion Rate set forth in Section 5 and Section 6, and
is only exercisable upon the surrender of this Note for conversion at the office
or agency to be maintained by the Company accompanied by instruments of
transfer, in form satisfactory to the Company, duly executed by the registered
holder. No fractional shares are issuable on any conversion, but in lieu of
issuing fractional shares the Company shall pay for such fractional shares in
cash.
(c) At any time prior to seventeen (17) months from the date of
this Note, the Holder may provide written notice to the Company requiring the
Company to commence repay of the outstanding principal balance of this Note,
together with any accrued but unpaid interest thereon, to Holder. In such case,
commencing on the Maturity Date, Company shall pay Holder equal monthly
installments of principal, together with any unpaid interest, over a period of
five (5) years until all amounts due hereunder shall be repaid in full.
(d) If Holder does not convert or redeem any or all of the
principal amount of the Note into Common Stock on the Maturity Date, Holder has
the right to extend the term of this Note for a period of time mutually agreed
upon between Holder and the Company. At any time during such extension period,
Holder shall have the right to convert all or any part of the outstanding
principal amount of the Note plus accrued and unpaid interest into Common Stock
as set forth in this Section 3. Moreover, at any time during such extension
period, Holder shall have the right to require the Company to repay all or any
part of the outstanding principal balance of this Note, together with any
accrued but unpaid interest thereon, to Holder within sixty (60) days.
4. Company Redemption. Prior to the Maturity Date, this Note may be
------------------
redeemed by the Company, in whole or in part, at any time after sixty (60) days
written notice ("Redemption Notice") to Holder. During such sixty (60) day
period, Holder shall have the right to convert all or any part of the
outstanding principal amount of the Note plus accrued and unpaid interest into
Common Stock, as set forth in Section 3. If Holder does not convert all
outstanding amounts into Common Stock, the Company may redeem any remaining
amounts at any time during a thirty (30) day period commencing with the date of
expiration of the sixty (60) day period provided for in the Redemption Notice.
Thereafter, Company shall be required to provide Holder with a new Redemption
Notice, and Holder shall have a new sixty (60) day period within which to
convert all
36
<PAGE>
or any part of the outstanding principal amounts plus accrued and unpaid
interest into Common Stock, as set forth in Section 3.
5. Anti-Dilution.
-------------
(a) If at any time there is a capital reorganization of the Company's
Common Stock, including any combination, reclassification, exchange, or
subdivision of shares, a merger or consolidation of the Company with or into
another corporation, or the sale of all or substantially all the Company's
properties and assets as, or substantially as, an entirety to another person,
then, as a part of such reorganization, merger, consolidation, or sale, lawful
provision shall be made so that Holder shall thereafter be entitled to receive
on conversion of this Note, during the period specified in this Note, the number
of shares of Common Stock of the Company, or of the successor corporation
resulting from such merger or consolidation, to which a holder of the Common
Stock deliverable on conversion of this Note would have been entitled on that
event if this Note had been converted immediately before that event. In any such
case, appropriate adjustment (as determined by the Company's board of directors)
shall be made in applying this Note to the rights and the percentage interests
of Holder after the reorganization, merger, consolidation, or sale to the end
that this Note (including adjustment of the Conversion Rate) shall be applicable
after that event, as near as reasonably may be, in relation to the shares of
Common Stock deliverable after that event on conversion of this Note. The
Company shall, not later than thirty (30) days prior to making such adjustment,
give written notice ("Notice") by courier to Holder at the address of Holder
shown on the Company's books.
(b) Any Notice that is sent pursuant to Section 5(a) shall set forth,
in reasonable detail, the event requiring the adjustment and the method by which
the adjustment was calculated and shall specify the Conversion Rate then in
effect after the adjustment and the increased or decreased number of shares of
Common Stock to be received upon conversion of this Note. When appropriate,
advance notice may be given and included as part of the notice required under
other provisions of this Note.
6. Conversion Rate Protection.
--------------------------
(a) If at any time, or from time to time, the Company issues or sells
shares of Common Stock without consideration or for a consideration per share
less than the Conversion Rate in effect immediately before that issue or sale,
then and in each such case:
(ix) the Conversion Rate then in effect and the Conversion Rate
applicable for any subsequent period shall be adjusted to a price (calculated to
the nearest cent) determined by dividing: (y) the sum of (aa) the number of
shares of Common Stock outstanding immediately before that issue or sale
multiplied by the Conversion Rate in effect immediately before that issue or
sale, plus (bb) the consideration, if any, received by the Company on that issue
or sale, by (z) the number of shares of the Company's Common Stock outstanding
immediately after that issue or sale; and
(x) Holder shall after that issue or sale, on conversion of this
Note, be entitled to receive the number of shares of Common Stock equal to the
number of shares that would otherwise, but for the adjustment provided for in
Section 6(a)(i), be issuable on such conversion multiplied by a fraction, the
numerator of which is the Conversion Rate then in effect and the denominator of
which is the Conversion Rate in effect immediately after the adjustment provided
for in Section 6(a)(i) on the date of conversion. No such adjustment shall be
made in an amount less than Five Cents ($0.05), but any such amount shall be
carried forward and given effect in the next adjustment, if any.
(b) If the Company (i) grants any rights or options to subscribe for,
purchase, or otherwise acquire shares of Common Stock, or (ii) issues or sells
any security, other than this Note, which is convertible into shares of Common
Stock, then the price per share of Common Stock issuable on the exercise of the
rights or options or the conversion of the securities shall be calculated by
dividing: (y) the total amount, if any, received or receivable by the Company as
consideration for the granting of the rights or options or the issue or sale of
the convertible securities, plus the minimum aggregate amount of additional
consideration payable to the Company on exercise of the convertible securities,
by (z) the maximum number of shares of Common Stock issuable on the exercise or
conversion.
(i) If the price per share so calculated is less than the
Conversion Rate of this Note in effect immediately before the rights or options
are granted or the convertible securities are issued or sold, the granting or
issue or sale shall be considered to be an issue or sale for cash of the maximum
number of shares of Common Stock so issuable on exercise or conversion at the
price per share determined under this provision, and the Conversion Rate of this
Note shall be adjusted as provided above to reflect (on the basis of that
determination) the issue or sale. No further adjustment of the Conversion Rate
shall be made as a result of the actual issuance of shares of Common Stock on
the exercise of any such rights or options or the conversion of any such
convertible securities.
37
<PAGE>
(ii) If such rights or options or convertible securities by
their terms provide, with the passage of time or otherwise, for any increase in
the amount of additional consideration payable to the Company or any decrease in
the number of shares of Common Stock issuable on such exercise or exchange (by
change of rate or otherwise), the Conversion Rate shall, when each such increase
or decrease becomes effective, be readjusted to reflect the increase or decrease
as far as it affects rights of exercise or conversion that have not expired
before that time.
(iii) If, on the expiration of such rights or options or the
rights of conversion of such convertible securities, any of them shall not have
been exercised, the Conversion Rate shall be readjusted and will then be the
same as it would have been had it originally been adjusted (or had the original
adjustment not been required, as the case may be), on the basis that (y) the
only shares of Common Stock so issued were the shares of Common Stock, if any,
actually issued or sold on the exercise of such rights or options or rights of
conversion of such convertible securities, and (z) such shares of Common Stock,
if any, were issued or sold for the consideration actually received by the
Company on such exercise plus the consideration, if any, actually received by
the Company for granting all such rights or options or for issuing or selling
all such convertible securities.
(iv) No adjustment of the Conversion Rate as provided in this
Section 6(b) shall occur upon the granting or issuance of stock, stock options,
or warrants to employees or directors of the Company in the aggregate amount of
less than six hundred thousand (600,000) shares of Common Stock.
7. Subordination.
-------------
(a) Upon the written agreement of Holder, this Note may be
subordinated to any or all debt owed by the Company to banks and other financial
institutions, other than to the extent debt to any such bank or financial
institution involves the issuance of shares of the Company's stock or notes,
warrants, options or any other security convertible into such stock.
(b) The payment of the indebtedness evidenced by this instrument
is subordinated to the payment of the "Senior Debt" defined and described in the
Subordination Agreement, dated as of September 24, 1998, between United
Breweries of America Inc. and the CIT Group/Credit Finance, Inc., as amended by
that certain Amendment to Subordination Agreement, dated as of June 22, 1999,
and reference is made to such Agreement for a full statement of the terms and
conditions of such subordination.
(c) The payment of the indebtedness evidenced by this instrument
is subordinated to the payment of the "Senior Debt" defined and described in the
Subordination Agreement, dated on or about November 15, 1998, between United
Breweries of America Inc. and the Savings Bank of Mendocino, Inc., and reference
is made to such Agreement for a full statement of the terms and conditions of
such subordination.
8. Enforcement. The Company agrees to reimburse Holder for all costs
-----------
of collection or enforcement of this Note, whether or not suit is filed
(including, but not limited to, reasonable attorney fees), incurred by Holder.
9. Governing Law. This Note shall be governed by and construed in
-------------
accordance with the laws, without regard to the laws as to choice or conflict of
laws, of the State of California.
10. Default. If Company fails to pay any installment of principal or
-------
interest when due, then, or at any time during such default, the entire amount
of the unpaid principal and interest shall, at the election of Holder, become
immediately due and payable.
11. Waiver. No previous waiver and no failure or delay by Holder in
------
acting with respect to the terms of this Note shall constitute a waiver of any
subsequent breach, default or failure of condition under this Note. A waiver of
any term of this Note must be in writing and shall be limited to the express
written terms of such waiver. No delay or omission on the part of Holder in
exercising any right under this Note shall operate as a waiver of such right or
of any other right.
12. Reservation of Stock. The Company covenants that it will at all
--------------------
times reserve and keep available, solely for issuance on conversion of this
Note, all shares of Common Stock from time to time issuable upon exercise of
this Note.
13. Replacement. Upon receipt of evidence reasonably satisfactory to
-----------
the Company, of the loss, theft, destruction, or modification of this Note and,
in the event of such occurrence, on delivery of an indemnity agreement or Note
reasonably satisfactory in form and amount to the Company or in the case of
mutilation, on surrender and cancellation of this Note, the Company at its
expense will execute and deliver, in lieu of this Note, a new Note of like
tender.
38
<PAGE>
14. Transfer. NO SALE OR TRANSFER OF THIS NOTE SHALL BE EFFECTIVE
--------
UNLESS AND UNTIL ALL OF THE FOLLOWING STEPS ARE COMPLIED WITH:
(a) The transferor and the transferee shall execute the form of
Transfer Statement attached to this Note (or a similar statement which shall
then be attached to this Note);
(b) This Note and the executed Transfer Statement, together with a
United States Internal Revenue Service Form W-8 "Certificate of Foreign Status"
or a Form W-9 "Request for Taxpayer Identification Number and Certification"
- --
completed and executed by the transferee, shall be delivered to the Company at
the Company's address as provided above; and
(c) If the Company is satisfied that the information contained in
the Transfer Statement is consistent with the information contained in the
completed and executed Form W-8 or W-9, as applicable, the Company shall enter
the transfer on a Note Holder Ledger maintained by the Company for this purpose.
Any purported transfer with respect to which all of the above steps have note
been complied with shall be null and void and of no force or effect.
15. Entire Agreement; Written Modification Only. This Agreement
-------------------------------------------
contains the entire agreement of the parties, and constitutes the complete,
final and exclusive embodiment of their agreement with respect to its subject
matter. This Agreement supersedes any and all prior correspondence,
arrangements, representations and understandings, whether written or oral,
express or implied, with respect to its subject matter. This Agreement may not
be modified except by a written agreement, which specifically sets forth each
modification and is signed by a duly authorized representative of both parties.
This Agreement is executed without reliance upon any promise, warranty or
representation by the parties or any of their representatives, other than such
promises, warranties or representations as are expressly contained in this
Agreement.
16. Severability. If any provision of this Agreement is deemed or held
------------
invalid or unenforceable in whole or in part, for any reason, that provision
shall be deemed severed from the remainder of this Agreement, and shall in no
way affect or impair the validity or enforceability of any portion or all of
this Agreement, which otherwise shall remain in full force and effect.
IN WITNESS WHEREOF, the Company has caused this Convertible Note to be executed
in its corporate name by the signature of its president and secretary.
MENDOCINO BREWING COMPANY, INC., a
California corporation
By: /s/ Yashpal Singh
--------------------------
Yashpal Singh
Its: Chief Operating Officer
By: /s/ P.A. Murali
--------------------------
P.A. Murali
Its: Chief Financial Officer
39
