-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, T4fXuOYF/LrYnMvGC2EBgUep9QFr0p5S9Uq2zhG/b1UrdJq3HId0lFQ1dR8rd67h UIea4UMmWYdrYJz1PVFT1Q== 0000891554-02-001878.txt : 20020415 0000891554-02-001878.hdr.sgml : 20020415 ACCESSION NUMBER: 0000891554-02-001878 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020401 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MENDOCINO BREWING CO INC CENTRAL INDEX KEY: 0000919134 STANDARD INDUSTRIAL CLASSIFICATION: MALT BEVERAGES [2082] IRS NUMBER: 680318293 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 001-13636 FILM NUMBER: 02598602 BUSINESS ADDRESS: STREET 1: 13351 S HWY 101 CITY: HOPLAND STATE: CA ZIP: 95449 BUSINESS PHONE: 7077441015 MAIL ADDRESS: STREET 1: 13351 S HWY 101 CITY: HOPLAND STATE: CA ZIP: 95449 10KSB 1 d50241_10ksb.txt FORM 10-KSB SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB (Mark One) [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2001 [_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________________ to ___________________ Commission file number: 1-13636 Mendocino Brewing Company, Inc. (Name of small business issuer in its charter) California 68-0318293 (State or other jurisdiction (I.R.S. Employee of incorporation or organization) Identification No.) 13351 Highway 101 South 95449 Hopland, CA (Address of principal executive offices) (Zip code) Issuer's telephone number: (707) 744-1015 Securities registered under Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock, without par value The Pacific Stock Exchange Securities registered under Section 12(g) of the Act: None Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ] State issuer's revenues for its most recent fiscal year: $24,638,600 The aggregate market value of the voting stock held by non-affiliates computed by reference to the last reported sale price of such stock as of February 28, 2002 was: $967,117 The number of shares the issuer's Common Stock outstanding as of February 28, 2002 is: 11,188,893 DOCUMENT INCORPORATED BY REFERENCE None Transitional Small Business Disclosure Format Yes [ ] No [X] 1 FORWARD-LOOKING INFORMATION Various portions of this Annual Report on Form 10-KSB, including but not limited to the sections captioned "Description of Business" and "Management's Discussion and Analysis or Plan of Operation," contain forward-looking information. Such information involves risks and uncertainties that are based on current expectations, estimates and projections about the Company's business, Management's beliefs, and assumptions made by Management. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," and variations of those and similar words are intended to identify such forward-looking information. Actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking information due to numerous factors, including, but not limited to, availability of financing for operations, successful performance of internal operations, the impact of competition, changes in distributor relationships or performance, and other risks discussed elsewhere in this Form 10-KSB and from time to time in the Company's Securities and Exchange Commission (the "Commission") filings and reports. In addition, such statements could be affected by general industry and market conditions and growth rates, and in general domestic and European economic and political conditions. Readers are cautioned not to place undue reliance on these forward-looking statements. PART I Item 1. Description of Business. Overview Mendocino Brewing Company, Inc., a California corporation, was founded in 1983. It was one of the first of the modern craft brewers, having opened the first new brewpub in California and the second in the United States since the repeal of Prohibition, and it has been recognized for its innovations in the brewpub concept, its craft brew style, its distinctive labels, and its role in industry associations. (In this Annual Report, the term "the Company" and its variants is generally used to refer to Mendocino Brewing Company, Inc. and its subsidiaries, while the term "MBC" is used to refer to Mendocino Brewing Company, Inc. as an individual entity.) The Company operates in two market and geographic areas, domestic (the United States) and European (including the Austria, Belgium, Denmark, Ireland, Italy, the Netherlands, France, Finland, Germany, Greece, Iceland, Liechtenstein, Luxembourg, Norway, Portugal, Spain, Sweden, Switzerland, and the United Kingdom (the "European Territory"), as well as Canada). The Company's domestic operations consist primarily of brewing and marketing a variety of proprietary craft beers, including among others Red Tail Ale, Blue Heron Pale Ale, Black Hawk Stout, Eye of the Hawk Select Ale, Peregrine Golden Ale, and Carmel Wheat, and a licensed international specialty beer, Kingfisher Lager. The Company brews its brands for domestic distribution in both of its own facilities, which are located in Ukiah, California and Saratoga Springs, New York, and these beers are distributed in 36 states and the District of Columbia. The Company's European operations, which are conducted through its wholly-owned subsidiary United Breweries International (UK) Limited ("UBI") and UBI's own subsidiary UBSN, Ltd. ("UBSN"), consist primarily of the marketing and distribution of Kingfisher Lager in the U.K., Ireland, continental Europe, and Canada, and to a lesser extent the marketing and distribution of Sun Lik Chinese Lager in the U.K., in both cases through ethnic restaurants (Indian for Kingfisher Lager and Chinese for Sun Lik), chain retail grocers, liquor stores, and other retail outlets (such as convenience stores). The Company holds the license to brew and distribute Kingfisher from United Breweries Limited ("UB Limited"), an 2 Indian corporation. The Company's Chairman of the Board, Dr. Vijay Mallya, is also the Chairman of the Board of UB Limited. Shepherd Neame, Ltd. ("Shepherd Neame"), a prominent English brewer, holds the license to brew and distribute Sun Lik (in the U.K. only) from an unrelated entity, the San Miguel Corporation; and in September 2001 Shepherd Neame granted UBSN a sub-license to distribute this beer (also in the U.K. only). One of the Company's Directors, R.H.B. (Bobby) Neame, is the Chairman and Chief Executive Officer of Shepherd Neame. All of the Company's beers sold in the European market and Canada are brewed in England under contract by Shepherd Neame, a related party. Although UBSN is the sole distributor of Kingfisher in the U.K., Ireland, continental Europe, and Canada, and of Sun Lik in the U.K., it does not physically distribute its products to its ultimate trade customers, relying instead on specialist restaurant trade distributors in the U.K. and Shepherd Neame, acting as UBSN's agent, on a commission basis, for the supermarket and liquor and convenience store trade. Company Background MBC was originally formed in March 1983. It first bottled its flagship brand, Red Tail Ale, in December 1983. In February 1995, the Company completed a $3.6 million direct public offering at $6 per share. The Company completed construction of its Company-owned brewery in Ukiah, California in May 1997. This facility, which has a current annual capacity of 60,000 bbl., was designed to enable the Company's production to be expanded to 200,000 bbl. per year with the addition of necessary equipment. The Company's New York subsidiary, Releta Brewing Company, LLC, d/b/a Ten Springs Brewery ("Releta"), which is located in Saratoga Springs, New York, commenced production in its leased facilities in February 1998, with an initial capacity of 60,000 bbl. per year expandable to 150,000 bbl. per year. In July 1998, the Company purchased certain of the assets of Carmel Brewing Company, Inc., a California corporation ("Carmel Brewing"), such as trademarks, trade names, and other brand related assets as well as certain point of sales and brewing ingredient inventory. On August 13, 2001, the Company acquired United Breweries International (UK) Limited, a company organized under the laws of England and Wales ("UBI"), in a related party transaction (the "UBI Acquisition"). The UBI Acquisition was consummated pursuant to a Share Purchase Agreement among MBC, Golden Eagle Trust, a trust formed under the laws of the Isle of Man (part of the United Kingdom) ("Golden Eagle"), and Inversiones Mirabel, S.A., a Panamanian corporation ("Inversiones") which is a wholly-owned subsidiary of Golden Eagle. The sole consideration paid by the Company to acquire UBI was 5,500,000 newly issued shares of MBC's Common Stock, all of which were issued to Inversiones. (For more information about the UBI Acquisition please refer to "Certain Relationships and Related Transactions," below.) All financial information presented in this Annual Report shows the effect of the acquisition of UBI as of the earliest financial period presented. The only material asset of UBI is UBSN, which is its wholly-owned subsidiary. The Company operates UBI and UBSN primarily in the marketing, sale, and distribution of Kingfisher Lager in the United Kingdom, Ireland, elsewhere in continental Europe, and Canada, and in the marketing and distribution of Sun Lik Chinese Lager in the U.K. Kingfisher Lager, and the related trademark and logos, are well known in many parts of the world, as Kingfisher Lager is the flagship brand of UB Limited, a major brewing and distribution company in India. In India (not a Company market), Kingfisher Lager accounts for more than 50% of the lager segment of the total beer market. Kingfisher Lager is brewed by UB Limited in India and Nepal, and including the Company's operations it is marketed and distributed in over 40 nations around the world. It has won numerous international awards for excellence. 3 As a result of the UBI Acquisition, the Company now holds the direct brewing and distribution rights for Kingfisher Lager in the United States. Mendocino Brewing Company brews Kingfisher in-house (currently, in its Saratoga Springs location), for distribution to the United States, while UBI has engaged Shepherd Neame to brew both beers - Kingfisher Lager for distribution in the U.K., Ireland, continental Europe, and Canada, and Sun Lik Chinese Lager for distribution in the U.K. only. Industry Overview Domestic Market The domestic beer market falls into a number of market categories, including among others the following: low-priced, premium, super premium, lite, import, and specialty/craft beers. Domestically, the Company competes in the specialty/craft category, which is estimated to be in the range of 6,000,000 bbl. per year and comprised approximately 3% of total U.S. beer sales in both 2001 and 2000. Craft beers are typically all malt, characterized by their full flavor, and are usually produced along the lines of traditional European brews. European Market The Company's European market consists of Austria, Belgium, Denmark, Ireland, Italy, the Netherlands, France, Finland, Germany, Greece, Iceland, Liechtenstein, Luxembourg, Norway, Portugal, Spain, Sweden, Switzerland, and the United Kingdom (the "European Territory"), as well as Canada, although Company sales during 2001 and 2000 were primarily in the U.K. Through its subsidiaries UBI and UBSN, the Company competes exclusively in the specialty category in the European Territory and Canada. The category in which the Company competes in Europe is primarily the Indian restaurant niche, although the Company does distribute its beers through other licensed premises and through other retail outlets such as supermarkets, liquor stores, and licensed shops and convenience stores. In the U.K., this market niche is estimated to be in the range of 150,000 to 175,000 bbl. per year. Management believes that, for Europe as a whole, this market niche is substantially larger. The Company offers two brands of beer in its European Territory and Canada: Kingfisher Lager (both within and outside the U.K.) and Sun Lik Chinese Lager (in the U.K. only). With approximately 6,500 premises in the U.K., the Indian restaurant niche is substantially larger than the equivalent Chinese restaurant market, which currently includes only about 3,500 premises in the U.K. The Company believes that Kingfisher Lager is the fastest growing ethnic brand in the U.K. Indian restaurant niche. In both the domestic and European markets, the rate at which the sales in the craft and specialty categories grow will have a material affect on the Company's business, financial condition, and results of operations. Actual industry performance will depend on many factors that are outside the control of the Company. Business of the Company Products Beverage sales (wholesale and retail combined) constituted over 98% (by revenue) of the Company's total sales in 2001 and 97% in 2000, with food and merchandise retail sales (at the Hopland Brewery Brewpub) making up the balance in both years. In the domestic segment, beverage sales constituted approximately 95% of total sales for both 2001 and 2000, while in the European market beverage sales constituted virtually all of total sales for both years. 4 Domestically, the Company brews six ales, one wheat beer, two lagers, and one stout on a year-round basis, one seasonal porter, and a root beer, all of which are brewed at the Company's proprietary facilities in Ukiah, California and Saratoga Springs, New York. In the United States, the Company's products are distributed widely in California (the Company's primary domestic market) and in limited quantities at selected locations in thirty-five other states and the District of Columbia. The Company currently distributes only two brands of beer in Europe, Kingfisher Premium Lager and Sun Lik Chinese Lager. Both are brewed for the Company under license by Shepherd Neame, a related party which is one of the U.K.'s leading brewers. These licenses expire in 2013. (See "Certain Relationships and Related Transactions," below.) Through its subsidiary UBI, the Company offers Kingfisher throughout the U.K. and in Ireland, a number of countries in continental Europe, and Canada, while it offers Sun Lik exclusively in the U.K. The Company's products are as follows. o RED TAIL ALE, a full flavored amber ale, is the Company's flagship brand. It is available year-round in 12 oz. six-packs and twelve-packs, half-barrel kegs, and 5 gallon kegs. o BLUE HERON PALE ALE is a golden ale with a full body and a distinctive hop character. It is available year-round in 12 oz. six-packs and twelve-packs, half-barrel kegs, and 5 gallon kegs. o BLACK HAWK STOUT is the fullest in flavor and body of the Company's brews. It is available year-round in 12 oz. six-packs, half-barrel kegs, and 5 gallon kegs. o EYE OF THE HAWK SELECT ALE is a high gravity deep amber summer ale. It is available year round in 12 oz. six-packs, half-barrel kegs, and 5 gallon kegs. o PEREGRINE GOLDEN ALE is a light-bodied ale with a distinctive hop character. It is available year-round in 12 oz. six-packs, half-barrel kegs, and 5 gallon kegs. o YULETIDE PORTER is a deep brown holiday brew with a traditionally rich, creamy flavor. It is only available in November and December on draft at the Hopland Brewery. o FROLIC SHIPWRECK ALE 1850, a Scottish-style ale brewed around July, was introduced in 1994 as a fund-raiser for the Mendocino County Museum to commemorate the wreck of the clipper ship Frolic, with its cargo of Scottish ale, on the Mendocino coast in 1850. Salvage efforts were abandoned when workers, upon sighting the previously unreported big trees of Mendocino County, launched the timber industry which has characterized the area ever since. It is available year-round, but only on draft at the Hopland Brewery. o CARMEL WHEAT BEER is a light-bodied and delicately flavored beer characterized by its cloudy Hefeweizen appearance, refreshing floral aromas and subtle wheat flavor. It is available year-round in 12 oz. six-packs, half-barrel kegs, and 5 gallon kegs. o CARMEL PALE ALE is a full, smooth flavored ale with a malty and spicy character. It is available year-round in 12 oz. six-packs, half-barrel kegs, and 5 gallon kegs. 5 o OLDE SARATOGA ROOT BEER is a creamy premium gourmet root beer crafted with all natural ingredients, including cane sugar. It is available year-round (but only on the East Coast), in quarter-barrel kegs. o KINGFISHER PREMIUM LAGER is a conventionally fermented specialty lager with a smooth crisp taste. In the domestic market, Kingfisher is currently available only in twelve ounce six-packs, although the Company plans to introduce a line of 22 oz. bottles for sales in grocery stores and other retail outlets and on-draft for sales in restaurants. In the European market, it is available year-round, in 330ml and 660ml bottles in the U.K., Ireland, and continental Europe and in 330ml bottles in Canada, as well as in a variety of keg sizes. In the U.K., it is also available "on draft" through Indian restaurants. o SUN LIK CHINESE LAGER is a conventional fermented specialty lager brewed with the addition of rice flakes. In the U.K. market, Sun Lik is marketed primarily "on draft" through Chinese restaurants and other licensed premises, although it is also available in bottles and a variety of keg sizes. Distribution Methods In the United States, the Company's products are sold through distributors to consumers in bottles at supermarkets, warehouse stores, liquor stores, taverns and bars, restaurants, and convenience stores. Most of the Company's brands are also available in draft. The Company's products are delivered to retail outlets by independent distributors whose principal business is the distribution of beer and in some cases other alcoholic beverages, and who typically also distribute one or more national beer brands. Together with its distributors, the Company markets its products to retail outlets and relies on its distributors to provide regular deliveries, to maintain retail shelf space, and to oversee timely rotation of inventory. The Company also offers a variety of ales and lagers directly to consumers at the Hopland Brewery brewpub and merchandise store in Hopland, California. In Europe and Canada, the Company's products are distributed primarily through sales by Indian restaurants. Such sales represent approximately 95% of the Company's total European sales volume, with the remaining sales coming through other ethnic restaurants (primarily Chinese) and in sales by supermarkets, liquor stores, and licensed shops and convenience stores. In the U.K., Kingfisher has a market share of approximately 22% of the Indian restaurant market, through sales by some 6,500 Indian restaurants and other licensed premises. In addition, the Company distributes its products through the J.D. Witherspoons restaurant chain, which has several hundred outlets throughout the U.K. The majority of the Company's sales in these restaurants is through its approximately 3,500 on-tap draft installations. UBI also exports Kingfisher to 16 European markets outside of the U.K. and to Canada, and its growth in those markets typically develops alongside the growth of Indian restaurants in those markets. The Company does not physically distribute its products to its ultimate trade customers in the European Territory, relying instead on specialist restaurant trade distributors in the U.K. and Shepherd Neame, acting as UBSN's agent on a commission basis, for the supermarket and liquor and convenience store trade. 6 Competition In its domestic markets, the Company competes against a variety of brewers in the craft beer segment, including brewpubs, microbrewers, regional craft brewers, and craft beer products of major national breweries. Additionally, the entire craft beer segment competes to some extent with other segments of the U.S. beer market, including major national brands like Budweiser and Miller and imported beers such as Heineken and Becks. The U.K. lager market is dominated by major international brands such as Carling, Budweiser, Becks, and Holsten Pils, both in the restaurant and pub segment and in sales through supermarkets and other retail outlets. The Company's products are marketed both through Indian and other restaurants and through major supermarket chains, smaller chains, and individual stores. In all these sectors, the Company faces competition from other ethnic and international brands, many of which are produced by large international brewers. The Company believes that Kingfisher, which during 2001 had a market share of approximately 22% of the U.K. Indian restaurant market, is also the fastest growing ethnic brand in the grocery multiple sector in terms of volume and distribution. The Company vigorously promotes Kingfisher as the No.1. selling premium Indian Lager brand in the U.K. and continental Europe. The profile of this brand has been raised significantly through the Company's sponsorship of Kingfisher National Curry Day, now in its fourth year, and via a new event, Kingfisher Curry Capital of Britain. Increased competition in either the domestic or European market could hinder distribution of the Company's products, and have a material adverse effect on the Company's business, financial condition, and results of operations. Sources and Availability of Raw Materials Production of the Company's beverages in the United States requires quantities of various agricultural products, including barley for malt, hops, malt, and malted wheat for beer. The Company fulfills its commodities requirements by purchases from various sources, including both contractual arrangements and on the open market. Although the Company believes that adequate supplies of these agricultural products are available at the present time, it cannot predict future availability or prices of such products and materials. The commodity markets have experienced and will continue to experience price fluctuations. The price and supply of raw materials will be determined by, among other factors, the level of crop production, weather conditions, export demand, and government regulations and legislation affecting agriculture. The Company does not use any hedges or unconditional purchase obligations to purchase these products. The Company's major suppliers in the United States are Great Western Malting Co., Yakima, Washington, and Briess Malting, Milwaukee, Wisconsin (malt); Yakima Chief, Inc., Sunnyside, Washington (hops); Gamer Packaging Inc. Minneapolis, Minnesota (bottles); Crown Cork and Seal Company, Inc., Crawfordsville, Indiana (crown corks); Gaylord Container Corporation, Antioch, California (cartons); Sierra Pacific Packaging, Oroville, California (carriers); and Inland Printing Company Inc., Lacrosse, Wisconsin (labels). The Company's major supplier in Europe is Shepherd Neame, which brews on a contract basis all of the Company's products that are sold in Europe. The Company does not directly purchase any material amounts of agricultural commodities or other products in Europe. 7 Dependence on Major Customers Sales to the Company's top five customers totaled $6,316,000, or approximately 26%, of the Company's total sales for 2001, and $ 4,862,900, or 22% of total sales, for 2000. In the Company's domestic market, sales to its principal customer, Golden Gate Distributing, constituted approximately 13% of the Company's domestic sales (approximately 6% of its total sales) in 2001 and 13.5% of its domestic sales (5.6% of total sales) in 2000. In the European market segment, sales to UBI's principal customer, Shepherd Neame, represented approximately 15% of the Company's European sales (or approximately 8% of the Company's total sales), in 2001 and approximately 13.5% of European market sales (or approximately 6.7% of the Company's total sales) in 2001. No other individual customer accounted for more than 5% of the Company's total sales during either 2001 or 2000. Trademarks The Company has U.S. federal trademark registrations on the principal register of the United States Patent and Trademark Office for the following marks: MENDOCINO BREWING COMPANY word mark (Reg. No. 2,441,141), RED TAIL ALE word mark (Reg. No. 2,032,382), RED TAIL DESIGN mark (Reg. No. 2,011,817), BLUE HERON PALE ALE DESIGN mark (Reg. No. 2,011,816), PEREGRINE PALE ALE word mark (Reg. No. 1,667,796), EYE OF THE HAWK SELECT ALE word mark (Reg. No. 1,673,594), EYE OF THE HAWK SELECT ALE DESIGN mark (Reg. No. 2,011,818), EYE OF THE HAWK SPECIAL EDITION ANNIVERSARY ALE DESIGN mark (Reg. No. 2,011,815), YULETIDE PORTER word mark (Reg. No. 1,666,891), BREWSLETTER word mark (Reg. No. 1,768,639), FROLIC SHIPWRECK ALE 1850 and Design composite mark (Reg. No. 2,080,761), PEREGRINE GOLDEN ALE word mark (Reg. No. 2,475,222) and HOPLAND BREWING COMPANY word mark (Reg. No. 2,509,464). The Company uses the BLUE HERON word mark under a concurrent use agreement with Bridgeport Brewing Company which gives the Company the exclusive right to use the BLUE HERON word mark throughout the United States with the exception of Oregon, Idaho, Washington, and Montana. Bridgeport Brewing Company, the other concurrent use party, has the exclusive right to use the BLUE HERON word mark in those states. The Company's use of the BLACK HAWK STOUT word mark is, by agreement with Hiram Walker & Sons, Inc., subject to the restriction that it be used solely to identify and distinguish malt beverage products namely, beer, ale and stout, and only in conjunction with the words "Mendocino Brewing Company." The Company's United States federal trademark registrations for the BLUE HERON word mark (Cancelled Reg. No. 1,820,076) and BLACK HAWK STOUT word mark (Cancelled Reg. No. 1,791,807) were cancelled as a result of alleged technical deficiencies in registration compliance filings. The Company continues to use the BLUE HERON and BLACK HAWK STOUT word marks and claims common law trademark rights in and to such marks. The Company presently has a pending application on file with the United States Patent and Trademark Office for the re-registration of the BLACK HAWK STOUT word mark and a petition on file with the Commissioner of Patents and Trademarks for the reinstatement of the BLUE HERON word mark. The Company claims common law trademark rights in and to the SUN LAGER PREMIUM HANDCRAFTED BREW and Design composite mark and presently has a pending Statement of Use on file with the United States Patent and Trademark Office to perfect its federal registration of this mark (pending Application Serial No. 76/079875). It is anticipated that federal registration for this mark will 8 issue by June 2002. The Company also claims common law trademark rights in and to the BLACK EYE ALE word mark and presently has a pending trademark application (Application Serial No. 76/202158) on file with the United States Patent and Trademark Office for the registration of this mark. The Company has acquired the trademark CARMEL BREWING COMPANY and any other variation of the same as used by Carmel Brewing Company and claims common law trademark rights in and to all such marks. The Company has also acquired the rights to use the RAZOR EDGE word mark through a License Agreement with Beverage Mates, Ltd. However, the Company is currently not using the RAZOR EDGE mark, and it is unclear whether it will use the mark in the future. The RAZOR EDGE License Agreement expires in 2008, but will be automatically renewed unless specifically terminated. License fees are calculated based on sales of the product. The Company did not have any material sales of this brand during 2001. Releta has federal trademark registrations on the principal register of the United States Patent and Trademark Office for the FAT BEAR word mark (Reg. No. 2,267,709), TEN SPRINGS word mark (Reg. No. 2,243,852), and WHITEFACE word mark (Reg. No. 2,322,226). Releta has a federal trademark registration on the supplemental register of the United States Patent and Trademark Office for the SARATOGA CLASSIC PILSNER word mark (Reg. No. 2,396,601). Releta also has a pending intent-to-use application on file with the United States Patent and Trademark Office (Application Serial No. 75/375227) for registration of the NORTH COUNTRY ALES word mark. License and Franchise Agreements In August 2001, the Company acquired UBI and its wholly-owned subsidiary UBSN, which hold the exclusive brewing and distribution rights for Kingfisher Premium Lager in the U.K., Ireland, continental Europe, and Canada through a Licensing Agreement with United Breweries Limited ("UB Limited"); and to Sun Lik Chinese Lager in the U.K. as a sub-licensee of Shepherd Neame, which holds a license to this trademark through a Licensing Agreement with San Miguel Corporation. (See "Certain Relationships and Related Transactions," below.) In July 2001 MBC entered into a Kingfisher Trademark and Trade Name License Agreement with Kingfisher America, Inc., pursuant to which MBC obtained a royalty-free, exclusive license to use the Kingfisher trademark and trade name in connection with the brewing and distribution of beer in the United States. Under its terms, this agreement is currently scheduled to remain in effect until October of 2013. Since 1998, UBI and UBSN have licensed to Shepherd Neame, an affiliated entity, the exclusive right to brew, keg, bottle, can, label, and package all beers and related products sold under the Kingfisher trademark in the U.K., Ireland, and continental Europe. (See "Certain Relationships and Related Transactions - Brewing Agreement Between UBI and Shepherd Neame," below.) Governmental Regulation The Company's United States operations are subject to licensing by both state and Federal governments, as well as to regulation by a variety of state and local governments and agencies. The Company is licensed to manufacture and sell beer by the Departments of Alcoholic Beverage Control in California and New York. A federal permit from the United States Bureau of Alcohol, Tobacco, and Firearms ("BATF") allows the Company to manufacture fermented malt beverages. To keep these licenses and permits in force the Company must pay annual fees and submit timely production reports and excise tax returns. Prompt notice of any changes in the operations, ownership, or company structure 9 must also be made to these regulatory agencies. BATF must also approve all product labels, which must include an alcohol use warning. These agencies require that individuals owning equity securities in aggregate of 10% or more in the Company be investigated as to their suitability. The Company's production operations must also comply with the Occupational Safety and Health Administration's workplace safety and worker health regulations and comparable state laws. Management believes that the Company is presently in compliance with the aforementioned laws and regulations and that it has implemented its own voluntary safety program. The Hopland Brewery's brewpub is regulated by the Mendocino County Health Department, which requires an annual permit and conducts spot inspections to monitor compliance with applicable health codes. In the United States, taxation of alcohol has increased significantly in recent years. Currently, the Federal tax rate is $7.00 per bbl. for up to 60,000 bbl. per year and $18.00 per bbl. for over 60,000 bbl. The California tax rate is $6.20 per bbl. The State of New York presently imposes an excise tax of $4.19 per bbl. on brewers for over 100,000 bbls. per year. The Company's European operations are subject to regulation by U.K. and European laws, as well as by the laws of various individual countries in which UBI distributes its products. The Company does not anticipate any significant increase in its applicable taxes in its European markets during 2002. Compliance with Environmental Laws The Company is subject to various federal, state, and local environmental laws which regulate the use, storage, handling, and disposal of various substances. The Company's waste products consist of water, spent grains, hops, and glass and cardboard. The Company has instituted a recycling program for its office paper, newspapers, magazines, glass, and cardboard at minimal cost to the Company. The Company sells or gives away its spent grain to local cattle ranchers. The Company has not purchased any special equipment and does not incur any identifiable fees in connection with its environmental compliance at its Hopland site. The Company has built its own wastewater treatment plant for the Ukiah facility. As a consequence, the Company is not currently required to incur sewer hook-up fees at that location. If the Company's discharge exceeds 55,000 gallons per day, which Management does not expect to occur until annual capacity exceeds 100,000 bbl., the Company may be required to pay additional fees. The estimated cost of the wastewater treatment facility was $900,000, and the estimated cost of operating the plant is between $6,000 and $10,000 per month. The cost may increase with increased production. The Company is exploring various methods of recycling treated wastewater and could realize some revenue from doing so. The Company has contracted to have the liquid sediment that remains from the treated wastewater trucked to a local composting facility for essentially the cost of transportation. A Mendocino County Air Quality Control Permit will be required to operate the natural gas fired boiler in Ukiah. The Saratoga Springs facility is subject to various federal, state, and local environmental laws which regulate use, storage and disposal of various materials. The Company's solid waste products consist of spent grain, cardboard, glass, and liquid waste. As for solid waste, the Company has instituted at this facility a recycling program for cardboard, office papers and glass at a minimal cost to the Company. The Company sells spent grain to local cattle dairy farms. The Company pays approximately $870 per month towards sewer fees for liquid waste. The sewer discharge from the brewery is monitored and is within the standards set by Saratoga County Sewer Department. The Company follows and operates under rules and regulations of New York Department of Environmental Conservation for Air Pollution Control. 10 Various states in which the Company sells its products in the U.S., including California and New York, have adopted certain restrictive packaging laws and regulations for beverages that require deposits on packages. The Company continues to do business in these states, and such laws have not had a significant effect on the Company's sales. Congress and a number of additional states continue to consider similar legislation, the adoption of which by Congress or a substantial number of states or additional local jurisdictions might require the Company to incur significant capital expenditures to comply. In Europe, various countries require information to be displayed on packaging in the national language. In general, European packaging regulations are covered by specifications provided by the European Union, with which the Company believes itself to be in compliance. Trade with Canada is subject to the regulation of the provincial Liquor Boards. The Company has not received any notice from any governmental agency that it is a potentially responsible person under any environmental law. Employees As of December 31, 2001, MBC employed 64 full-time and 21 part-time individuals in the United States, including eleven in management and administration, 39 in brewing and production operations, 21 in retail and brewpub operations and 14 in sales and marketing positions. In England, UBI and UBSN together employed ten people in sales and marketing and six in managerial and administrative positions. Management believes that the Company's relations with its employees are generally good. The Company is not a party to any labor union contracts. The Hopland Brewery Brewpub and Merchandise Store An important marketing tool for the Company's domestic market has been the Hopland Brewery brewpub and merchandise store. Located on a major tourist route in Hopland, California, 100 miles north of San Francisco, the Hopland Brewery opened in 1983 as the first new brewpub in California and the second in the United States since the repeal of Prohibition. Beverages served at the Hopland Brew Pub include Red Tail Ale, Blue Heron Pale Ale, Black Hawk Stout, Eye of the Hawk Select Ale, Peregrine Golden Ale, and a seasonal brew on tap, along with local wines and soft drinks, as well as hand pumped cask conditioned ales. The adjacent merchandise store sells the Company's brews and merchandise such as hand-screened label T-shirts, posters, engraved glasses and mugs, logo caps and other brewery-related gifts. Item 2. Description of Property. In the United States, the Company owns nine acres of land in Ukiah, California on which its Ukiah brewery is operated. This facility is adequate for Company's current capacity and also has space for future expansion. Savings Bank of Mendocino County currently holds a first deed of trust on this property in connection with a loan advanced to the Company. (See PART II, Item 6, Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") - Liquidity and Capital Resources - Long-Term Debt," below.) The principal amount outstanding on the loan as of December 31, 2001 was $2,586,500. CIT Group holds a second deed of trust on this property, securing a working capital facility granted to the company. The amount owed to CIT Group by the Company under 11 this capital facility was $2,285,600 as of December 31, 2001. (See MD&A - "Liquidity and Capital Resources -- Other Loans and Credit Facilities -- CIT Group/Credit Finance Line of Credit," below.) The Ukiah brewery is presently operating under a temporary certificate of occupancy from the City of Ukiah. The Company has yet to complete the build-out of its administrative space and the exterior landscaping of the Ukiah facility. In the interim, the Company approached the authorities with plans to construct offices in a different part of the building at a much lesser cost to the Company. Those plans were approved by the city and accordingly the offices were completed at the end of 1999 at a cost of approximately $23,000. The remaining work related to Ukiah Brewery building pending completion and the estimated cost thereof are as follows: Covering the parking lot with asphalt, approximately $30,000; Building concrete sidewalk to one of the entrances of the brewery building, approximately $10,000; and if required, creating additional office/record room space for future development, approximately $60,000. Management does not currently anticipate a need for the additional office/record room space. The Company has estimated the life of the building at 40 years and depreciates the cost of the building on a straight-line method over its anticipated life. The Company does not depreciate the cost of the land. The Company's tax basis on the Ukiah facility is $7,107,000. Various other assets incorporated in this facility are being depreciated, on a straight-line basis, at between 10 and 20 years. The Company also currently leases a 15,500 square foot building in Hopland, California, on which the Hopland Brewery is located. The lease on this property expires in August 2004. The Company also leases 3.66 acres in Saratoga Springs, New York, on which Ten Springs Brewery operates under a lease expiring October 2002. The lease can be renewed for three successive terms of five years by the Company if it is not in default at the time each option is exercised. The next date on which the Company must give notice of such renewal is May 2, 2002, and the Company currently intends to exercise its option, on or before that date, to extend the Saratoga Springs lease for an additional five years, until October 30, 2007 Non-renewal of that lease would adversely affect the Company's operations. In the U.K., UBSN currently has three years remaining of a six year lease for offices located at Faversham, Kent, in England. The Company does not own or lease any other material properties in Europe. Additionally, the Company leases certain equipment and vehicles under operating leases which expire over the period from May 2002 through March 2005. The Company leases certain brewing equipment from FINOVA Capital Corporation pursuant to a lease which expires November 11, 2003. The Company also leases equipment under various small leases. The Company considers its land, buildings, improvements, and equipment to be well maintained and in good condition, and adequate to meet the operating demands placed upon them. In the opinion of management, all of these properties are adequately covered by insurance. Item 3. Legal Proceedings. The Company is engaged in ordinary and routine litigation incidental to its business. Management does not anticipate that any amounts which it may be required to pay by reason thereof will have a material effect on the Company's financial position. 12 Item 4. Submission of Matters to a Vote of Security Holders. No matters were submitted to a vote of security holders during the fourth quarter of fiscal 2001. PART II Item 5. Market for Common Equity and Related Stockholder Matters. Market Information The Company's Common Stock is listed on the Pacific Exchange, Inc. (symbol MBR). The high and low closing sales prices for the Common Stock as reported on the Pacific Exchange are set forth below for the quarters indicated:
2001 2000 ----------------------------------------- ----------------------------------------- 1st 2nd 3rd 4th 1st 2nd 3rd 4th Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter High $1.13 $1.24 $1.15 $0.65 $1.38 $1.44 $1.38 $1.13 Low $0.87 $0.62 $0.60 $0.45 $0.63 $0.63 $0.63 $0.63
The Company had approximately 2,361 shareholders of record as of December 31, 2001. The Company has never paid a cash dividend on its Common Stock and management does not expect the Company to pay cash dividends in the foreseeable future. The Company's credit agreements provide that the Company may not declare or pay any dividend or other distribution on its Common Stock (other than a stock dividend), or purchase or redeem any Common Stock, without the lender's prior written consent. Management anticipates that similar restrictions will remain in effect for as long as the Company has significant bank financing. On February 4, 2002, the Company received notice from the Pacific Exchange that the Company's common stock might be subject to delisting from the Exchange, based on the Company's failure to maintain a minimum bid price of $1.00 per share. In response, the Company's Board of Directors has approved a proposal to effect a one-for-three reverse split of the Company's common stock. The reverse stock split would be carried out by means of an amendment to the Company's Articles of Incorporation, which under California law requires shareholder approval. Once the proposed reverse stock split becomes effective, the Company anticipates that the per share bid price of the common stock should increase to above the $1.00 minimum bid price required by the Pacific Exchange. On March 6, 2002, the Pacific Exchange notified the Company that it had been granted an "extended compliance period" in which to come into compliance with the rules of the Exchange, and requested that the Company provide the Exchange with a written progress report by April 17, 2002, updating the Exchange on the Company's efforts to remedy its non-compliance. The Company believes that the proposed reverse stock split will satisfy the minimum pricing requirements of the Exchange. The Company is currently considering a proposal to have is Common Stock quoted on the Nasdaq Over the Counter Bulletin Board. If this proposal is put into effect, the Company expects quotation of its Common Stock on this system to begin during the second quarter of 2002. The holders of the Company's 227,600 outstanding shares of Series A Preferred Stock (which is not listed for trading on any market or to the Company's knowledge quoted on any bulletin board or other public quotation system) are entitled to aggregate cash dividends and liquidation proceeds of $1.00 per share before any dividend may be paid with respect to the Common Stock. The Series A Preferred Shares must be canceled after the holders of these shares have received their $1.00 per share aggregate dividend. Management does not have any present intention to declare or pay a dividend on the Series A Preferred Stock. Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis should be read in conjunction with the Financial Statements and the Notes thereto and other financial information included elsewhere in this Report. The discussion of results and trends does not necessarily imply that these results and trends will continue. With respect to certain forward-looking statements contained in the following discussion, please refer to 13 the paragraph captioned "Forward Looking Statements" set forth immediately prior to Part I of this Annual Report, above. Overview The year 2001 was highlighted by two events which took place in the third quarter: consummation of the acquisition of UBI and UBSN, as discussed more fully below, and the launch of Kingfisher Premium Lager in the United States. During the second quarter of 2001, the Company also launched Black Eye Ale, a blend of two of the Company's popular brands, Black Hawk Stout and Eye of the Hawk Select Ale, in 25 oz. bottles. The Company also introduced a new packaging for an existing product, Blue Heron Pale Ale, which is now available in twelve-packs. In August 2001, Shepherd Neame granted UBSN a license to market and retail Sun Lik Premium Lager Beer ("Sun Lik"). Sun Lik is a brand which is owned by a division of San Miguel Corporation. UBSN currently sells Sun Lik to the Chinese restaurant trade in the U.K. Effective as of August 13, 2001, the Company consummated a transaction by which it purchased all of the issued and outstanding capital stock of United Breweries International (UK) Limited, a United Kingdom corporation ("UBI") in exchange for 5,500,000 shares of the Company's Common Stock. UBI has as its wholly-owned subsidiary UBSN, Ltd., a corporation organized in England ("UBSN"). Subsequently, the Company obtained from UBI and Kingfisher of America, Inc. the rights to brew and distribute Kingfisher Lager, and to use the trade name and trademark associated with the Kingfisher products, in the United States. All information presented shows the effect of the acquisition of UBI as of the earliest financial period presented. (For more information on this acquisition, see "PART III, Item 12, Certain Relationships and Related Transactions".) The Company has also introduced additional equipment during the year. To facilitate production of Kingfisher Lager, the Company made necessary modifications to the layout of the facility at Saratoga Springs, installed a pasteurizer, and upgraded the equipment and laboratory. At the Ukiah facility, the company installed a refurbished Krones labeller in the first quarter and a bottle rinser, 350 bottle per minute H&K filler crowner, bi-directional accumulation table and case erectors in January 2002. These modifications should result in decreased manufacturing costs, improved bottling speed, and better packaging of the products. During September 2000 the Company entered into an agreement with Wolaver's Enterprises, LLC, a Florida limited liability company, to provide brewing, on a contract basis, of their line of organic beers. During 2001 the Company sold 3,762 barrels of these beers, or approximately 6.4% of the Company's total U.S. sales. Management currently anticipates that sales of these beers will constitute approximately the same percentage of the Company's total U.S. sales during 2002. On August 31, 1999, MBC and one of its principal shareholders, United Breweries of America, Inc. ("UBA") entered into a Master Line of Credit Agreement, which was subsequently amended on April 28, 2000, and February 12, 2001 (the "Credit Agreement"). The terms of the Credit Agreement provide the Company with a line of credit in the principal amount of up to $1,600,000. As of December 31, 2001, the aggregate amount drawn under the Credit Agreement, together with interest accrued thereon, was approximately $1,743,000, an increase of $447,000 over the amount the Company had drawn (together with interest due thereon) as of December 31, 2000, which was approximately $1,296,600. The Company and UBA executed an Extension of Term of Notes under Master Line of Credit Agreement on February 14, 2002 (the "Extension Agreement"). The Extension Agreement 14 confirms the Company's and UBA's extension of the terms of the Notes (both the matured Notes and the Notes yet to mature during 2002), as contemplated in Section 3 of each of the Notes. The Extension Agreement extends the terms for a period of time ending on August 15, 2002. The last remaining Note matures on a date following August 15, 2002; therefore its terms were not extended by the Extension Agreement. (For further information about the Credit Agreement please refer to "PART III, Item 12 - Certain Relationships and Related Transactions - Master Line of Credit Agreement," below.) The Company's brewing operation's sales in the United States during the year 2001 increased to 58,683 barrels, an increase of 9,458 barrels, or 19.2%, over the 49,255 barrels sold in the year 2000. Of the total sales of barrels, the sales out of the Ukiah facility during 2001 amounted to 48,095 barrels and the sales out of the Saratoga Springs facility amounted to 10,588 barrels. During the year 2001, UBSN sold 54,229 barrels in the United Kingdom and Europe, compared to 52,937 barrels during the year 2000. This represents an overall increase of 2.4% over the year 2000. Because the U.S. distribution of Kingfisher was shifted to the Company's Saratoga Springs facility, instead of through UBSN, the Company realized an increase in Kingfisher volume attributable to MBC, and a proportionate decrease in volume attributable to UBSN. As a result, during 2001 UBSN experienced a drop in volume of 4,149 barrels during the year 2001 when compared to the year 2000. Sales in the U.K. and continental Europe increased to 47,520 barrels during the year 2001, compared to 42,079 barrels during the year 2000, for a 13% increase. Following the terrorist attacks in the United States on September 11, 2001, the restaurant and lodging industry in both the United States and Europe have experienced a significant decline in business, due to decreased tourism and consumers' lack of confidence in local economies, among other reasons. This decline in the bar and restaurant business has adversely affected the Company's sales in the fourth quarter, and may continue to adversely affect the Company's sales for the short term. It is not yet known what the full effect of the terrorist attacks will be with regard to the Company's business and its distribution markets. The Company ended the year 2001 with a net loss of $2,843,600. As set forth more fully under "Results of Operations," below, increases in cost of goods, selling and marketing expenses, general and administrative expenses, acquisition expenses, and income tax provision contributed to the net loss. Segment Information Historically, the Company's business operations have been divided into two segments, manufacturing and distribution of beer in the United States (the "Domestic Operations") accounting for 98% (by revenue) of gross sales of the Company in the year 2001, and retail operations in the United States (primarily at the Company's Hopland, California, Brewpub facility) accounting for 2% of gross sales in 2001. With the Company's acquisition of UBI and UBSN in August 2001, however, the Company gained a new business segment, distribution of beer outside the United States, primarily in the U.K. and Ireland, continental Europe, and Canada (the "European Operations"). This segment accounted for 52% of the Company's gross sales during 2001. With expanded wholesale distribution of beer, Management expects that retail sales, as a percentage of total sales, will decrease proportionally to the expected increase in the Company's wholesale sales. Results of Operations The following tables set forth, as a percentage of net sales, certain items included in the Company's Statements of Operations. See the accompanying Financial Statements and Notes thereto. 15
----------------------------------------- Year Ended December 31 ----------------------------------------- 2001 2000 Statements of Operations Data: % % ------------- ------------- Sales 102.78 102.58 Less Excise taxes 2.78 2.58 ------------- ------------- Net Sales 100.00 100.00 Costs of Sales 66.36 64.22 ------------- ------------- Gross Profit 33.64 35.78 ------------- ------------- Retail Operating Expenses 1.93 1.89 Marketing Expense 20.72 20.28 General and Administrative Expenses 11.52 10.58 ------------- ------------- Total Operating Expenses 34.17 32.75 ------------- ------------- Profit / (Loss) from Operations (0.53) 3.03 Other (Income) / Expense (0.33) (0.34) Acquisition Expenses 3.41 -- Interest Expense 3.87 4.48 ------------- ------------- Loss before income taxes (7.48) (1.11) Provision for / (Benefit) from income taxes 4.37 (0.58) ------------- ------------- Net Loss (11.85%) (0.53%) ============= ============= Other Comprehensive Loss 0.33 0.00 ============= ============= Comprehensive Loss (12.18%) (0.53%) ============= =============
----------------------------------------- Year Ended December 31 ----------------------------------------- 2001 2000 Balance Sheet Data: $ $ ------------- ------------- Cash and Cash Equivalents 89,800 $ 208,300 Working Capital (4,213,200) (456,700) Property and Equipment 14,640,600 14,862,300 Deposits and Other Assets 87,500 87,400 Total Assets 23,947,400 24,883,000 Long-term Debt 3,775,100 4,165,900 Obligation Under Capital Lease 925,000 1,396,900 Total Liabilities 16,085,800 14,488,900 Accumulated Deficit (6,764,700) (3,859,000) Shareholder's equity 7,861,600 10,394,100
16 Net Sales Overall net sales for the year 2001 were $23,972,600, an increase of $2,103,400, or 9.6%, compared to $21,869,200 for the year 2000. Volume increases, coupled with price increase in the year 2001 contributed to higher realization. Domestic Operations. Net sales for the year 2001 were $11,229,100 compared to $9,255,900 for the year 2000, representing an increase of 21.32%. The sales volume increased to 58,683 barrels in the year 2001 from 49,255 barrels in the year 2000, representing an increase of 9,428 barrels or increase of 19%. Of the increase, sale of Company's brands increased by 4,953 barrels including Kingfisher volume of 2,920 barrels and contract brands sale increased by 4,475 barrels. Management attributes the increased sales of the Company's own brands to improved marketing strategies, including new point of sale materials and increased sales personnel. The Company's commencement of domestic sales of Kingfisher also contributed to the increase in sales. The Company has achieved an increase in contract brewing operations since the corresponding period of 2000, and has begun brewing the organic beers of Wolaver's Enterprises LLC discussed above. The increase in overall net sales during the year 2001 was achieved mainly by higher wholesale shipments which represented an increase of $2,019,700 over the wholesale shipments during the year 2000. The Company also benefited from a general increase in the price of its products, which was effected in the first quarter of 2001. In view of management's focus on wholesale beer sales, retail sales for the year 2001 showed only a minimal increase of $55,700 over the year 2000. European Operations: Net sales for the year 2001 were $12,775,700 ((pound)8,872,000) compared to $12,643,600 ((pound)8,342,300) during 2000, an increase of 1.04%. During the year 2001, UBSN sold 54,229 barrels compared to 52,937 barrels during the year 2000. UBSN increased its selling prices at the end of the first quarter of the year 2001. Exchange rate fluctuations when measured in United States dollars suppressed growth percentage as compared to last year, however when the net sales results are compared in Pounds Sterling, there is an increase of 6.3%. Sales volume in the United Kingdom and Europe increased over the year, however the increase was offset by the shifting of the United States Kingfisher distribution from the UK, to MBC out of its Releta facility. This resulted in a drop in the volume of sales previously exported to the United States. Cost of Goods Sold Cost of goods sold as a percentage of net sales during the year 2001 was 66.4%, as compared to 64.2% during the year 2000. Higher volume, increases in the cost of materials, and higher energy costs contributed to the increase. The Company has also sold in the United States 8,522 more barrels packaged in bottles in the year 2001 compared to the year 2000, which are more costly than other distribution methods. Prices of bottles and certain type of malts increased during 2001 in the U.S. Domestic Operations: Cost of goods sold as a percentage of net sales in the United States during the year 2001 was 66.8%, as compared to 62.9% during the year 2000, representing an increase of 3.8%. The Company also incurred increased costs in connection with the introduction of new packaging and products. Due to increased production activity and increase in the minimum wages effected at the beginning of 2001, labor costs increased as a percentage of net sales, from 10.2% during 2000 to 11.2% during 2001. Also in 2001, depreciation decreased as a percentage of net sales in the United States, from 7.5% in 2000 to 6.2% in 2001, insurance increased from 1.2% in 2000 to 1.6% in 2001, while other manufacturing expenses decreased from 5.6% in 2000 to 4.9% in 2001, thereby contributing to the overall increase of 3.8% of the cost of goods sold as a percentage of net sales, as compared to 2000. Also, mainly because of energy surcharges, utilities increased as a percentage of net sales, from 3.75% in 2000 to 4.0% in 2001. The Company relies heavily on natural gas to operate its brewing operations, and 17 electricity to operate its bottling and refrigeration units. Any significant increase in the use or charges of these utilities could significantly impact operations. European Operations: Cost of goods sold as a percentage of net sales in the United Kingdom during the year 2001 was 66.0%, as compared to 65.0% during 2000 (in each case as calculated in U.S. dollars, after taking into account the effects of the exchange rate calculation), representing an increase of 1.01% mainly due to exchange rate fluctuations and cost increases not offset by price increases during the first quarter of the year 2001. Gross Profit As a result of the higher net sales described above, gross profit for the year 2001 increased to $8,065,000, from $7,825,900 for the year 2000, representing an increase of 3.1%. As a percentage of net sales, because of the increase in cost of goods sold as discussed above, the gross profit during the year 2001 decreased to 33.6% from that of 35.8% for the year 2000. Operating Expenses. Operating expenses for the year 2001 were $8,192,400, as compared to $7,162,900 for the 2000, representing an increase of 14.4%. Operating expenses consist of retail operating expenses, marketing and distribution expenses, and general and administrative expenses. Retail Operating Expenses: Retail operating expenses for the year 2001 were $462,400, representing an increase of $48,400, or 11.7%, from the year 2000. As a percentage of net sales, retail operating expenses increased to 1.93% as compared to 1. 9% for the year 2000. The increase in retail operating expenses consisted mainly of increases in labor expenses totaling $40,500, due primarily to increase in minimum wages effected during the beginning of the year, and in other expenses of $7,900, which Management generally attribute to the aggregate increase in sales and the increased hours of operation of the tasting room in Saratoga Springs. Marketing and Distribution Expenses: Marketing and distribution expenses for the year 2001 were $4,966,500, representing an increase of $532,200, or 12%, from the year 2001. As a percentage of net sales, marketing and distribution expenses represented 20.7% as compared to 20.3% during the year 2000. Domestic Operations: Expenses for the year 2001 were $2,148,900 compared to $1,627,900 during the year 2000, representing an increase of $521,000. As a percentage of net sales in the United States, the expenses increased to 19.1% during the year 2001, compared to 17.6% during the year 2000. A portion of the increase is due to the increase of $172,400 in marketing and sales labor because of the growth in the Company's sales force. The Company committed to an aggressive product promotion during the year 2001, therefore as compared to the corresponding period of 2001, media and advertising increased by $103,100 and sales promotions expenses increased by $185,100. However such higher spending also resulted in a volume growth of 4,953 barrels in the sale of Company's own brands. Other increases are as follows: telephone expenses increased by $9,000; freight increased by $11,200; travel, entertainment and sampling expenses increased by $42,100; and other expenses decreased by $1,900. European operations: Expenses for the year 2001 were $2,817,600 compared to $2,806,400 during 2000, representing an increase of $11,200. As a percentage of net sales in the United Kingdom, the expenses decreased to 22% during the year 2001 compared to 22.2% during 2000 (in each case as calculated in U.S. dollars, after taking into account the effects of the exchange rate calculation). The reduction is mainly because the Company began distributing Kingfisher out of its Saratoga Springs facility, therefore the following expenses associated with UBSN's sales of Kingfisher in the United States 18 decreased accordingly: reduction in freight amounted to $118,200, sales commissions fell by $73,300, and sales promotion expenses declined by $61,200. The Company increased manpower in the United Kingdom, which necessitated an increase of $115,200 in salary. The costs of repair and replacement of beer dispensing equipment installed in bars by the Company increased by $134,900 and other miscellaneous distribution expenses increased by $13,800. General And Administrative Expenses: General and administrative expenses were $2,763,500, representing an increase of $448,900 from the year 2000. As a percentage of net sales, the general and administrative expenses were 11.5% for the year 2001, as compared to 10.6% for 2000. Domestic Operations: General and administrative expenses were $1,679,200, representing an increase of $237,700 over the year 2000. Mainly because of the Company's overall increase in operations and the acquisition of UBI, accounting and audit fees increased, when compared to the year 2000, by $61,400; legal fees increased by $88,600; salaries increased by $17,500; telephone expenses increased by $15,000; rent increased by $23,700; loan and lease fees increased by $11,400; bank charges increased by $17,100; and net miscellaneous expenses increased by $3,000. European Operations: General and administrative expenses were $1,084,300, representing an increase of $180,800 from the year 2000. The overall increase can be broken down as follows: salaries increased due to increase in manpower by $60,500; Legal and professional expenses increased by $70,800 mainly because of overall increase in operations and UBSN now being a part of the Company resulting in change in its corporate status as a subsidiary of a US corporation; management fees increased by $29,700; telephone expenses increased by $17,300; depreciation expenses decreased by $74,800 because of a write-off due to an out of court settlement of a long pending litigation; bad debts provision increased by $5,100; Exchange rate differences increased by $51,900; The net increase in other expenses was $20,300. Other Expenses. Other expenses for the year 2001 totaled $1,667,600, representing an increase of $762,200 when compared to the year 2000. The other expenses consist of interest expenses, miscellaneous income, and acquisition costs. Interest expenses decreased by $50,900 because of the reduction in the line of credit, long term debts and reduction in interest rates. Miscellaneous income increased by $5,100. The transaction costs of acquiring UBI amounted to $818,200, including legal and accounting fees, fairness opinions, consulting, finders fees, and other components. Income Taxes. The Company has a provision for income taxes of $1,048,600 for 2001, compared to a benefit from income taxes of $127,200 for the year 2000. The provision for taxes consists of $151,800 related to the estimated amount of taxes that will be imposed by taxing authorities in the United Kingdom and $896,800 for the amount of previously recognized deferred tax assets that may expire prior to utilization. Due to the increase in the net loss over the amount for 2000, the Company believes that a portion of their deferred tax assets associated with net operating loss carry forwards may expire prior to utilization. Provision For / Benefit From Income Taxes. As of December 31, 2001, the Company had approximately $9,021,500, $3,165,400, and $1,362,600 of Federal, California and New York net operating losses, respectively, available to carry forward. Of the Federal and New York net operating losses, approximately $2,079,700 will expire in 2012, and the remainder will expire through 2021. The California net operating losses expire beginning in 2001 and will continue to expire through 2011. The Company also has $35,000 of California Manufactures Investment Tax Credits that can be carried forward to offset future taxes until they begin to expire in 2007. Although management believes that based on current projections, the Company could utilize all of the net operating losses, it is possible that 19 a portion of the losses may expire prior to utilization. The Company has recorded a valuation allowance of $1,486,000 on deferred tax assets for net operating loss carryforwards that may expire prior to utilization. Management believes that the Company could still utilize the deferred tax assets in the ordinary course of business, but due to the significant time period that may elapse before utilization, Management has decided that a valuation allowance was necessary. The Company is implementing various strategies to achieve profits sufficient to utilize these assets. The rationale for not recording a larger allowance and strategies for utilization of the assets are as follows: o Approximately $818,000 of transaction costs associated with the acquisition of UBI will be capitalized for tax purposes in the current year, thereby reducing the amount of the loss for income tax purposes. o For California income tax purposes, significant book to tax temporary differences will result in additional taxable income of $300,000 per year for the next three years. o The Company acquired UBI and has begun production and distribution of Kingfisher Lager. UBI had profitable operations in the years 2001, 2000 and 1999, and also generated positive cash flows for those periods. The Company may consider using the excess cash flow from the operations of UBI to reduce the Company's outstanding debt and reduce interest expense. o The company anticipates that due to its acquisition of the rights to brew and distribute Kingfisher, and the continued increase in sales of the Company's own brands, the Company could achieve profitable operations in the future. o The Company installed equipment to upgrade its bottling line in January 2002. The equipment will increase the bottling capacity from 120 bottles per minute to 250 bottles per minute. This will assist the Company in reducing labor costs and cost of goods sold. o The Company has in the past considered undertaking a private placement of securities. The proceeds of a private placement in the near future, if it is decided to attempt one, could be used for working capital and market expansion costs. The Company could also consider refinancing the operations in order to reduce interest rates and debt payments. o The Company has offered to convert approximately $1,743,000 of convertible debt into the Company's equity securities. Such a conversion could reduce interest expenses substantially. (See PART III, Item 12 - Certain Relationships and Related Transactions - Master Line of Credit Agreement," below.) o The Company may include the earnings of UBI in the Company's federal and state income tax returns; this would allow the Company to utilize the net operating loss carry forwards more quickly. The Company will continue to evaluate its deferred tax assets on a quarterly basis, to assess the need for, and amount of, the valuation allowance. 20 Net Loss. The Company's net loss for the year 2001 was $2,843,600, as compared to loss of $115,200 for the year 2000. After providing for foreign currency translation adjustment of $77,800 during the year 2001 ($0 for 2000), the comprehensive loss for the year 2001 was $2,921,400, compared to a loss of $115,200 in 2000. Seasonality Domestic Operations: Beer consumption nationwide has historically increased by approximately 20% during the summer months. It is not clear to what extent seasonality will affect the Company as it expands its capacity and its geographic markets. European Operations: Beer consumption in the U.K., Ireland, and continental Europe has historically increased during the winter months. Although it is not clear to what extent seasonality and the expansion of its geographic markets will affect the Company, it is believed that the seasonality difference between the US and UK-European markets will benefit the Company overall. Capital Demands The Saratoga Springs facility commenced brewing operations in February 1998. Both the Ukiah and Releta facilities have been operating at significantly less than full capacity during 2001. Both breweries have placed demands upon the Company's assets and liquidity. Failure to adequately meet those demands may have a material adverse affect on the Company's business, financial condition, and results of operations. The Ukiah brewery is presently operating under a temporary certificate of occupancy from the City of Ukiah. The Company has yet to complete the build-out of its administrative space and the exterior landscaping of the Ukiah facility. In the interim, the Company approached the authorities with plans to construct offices in a different part of the building at a much lesser cost to the Company. Those plans were approved by the city and accordingly the offices were completed at the end of 1999 at a cost of approximately $23,000. Management believes that if the offices had been built according to the original plan, it would have cost the Company approximately $300,000. Management believes that it is not necessary at this point in time to build the offices according to original plans and has therefore decided to shelve the plan indefinitely. With regard to the exterior landscaping of the Ukiah facility, the Company has been using its own in-house resources to complete the bulk of the work, and has employed outside firms from time to time for limited purposes. The work was completed at a cost of approximately $23,000. The work related to Ukiah Brewery building pending completion and the estimated cost thereof are as follows: 1. Covering the parking lot with asphalt, approximately $30,000 2. Building concrete sidewalk to one of the entrances of the brewery building, approximately $10,000 3. If required, creating additional office/record room space for future development, approximately $60,000 The management expects that the additional office space will no longer be required, and is planning to approach the City authorities for their approval of modifications to the original plan and complete the work on the parking lot and sidewalk. 21 Completion of construction is a condition to the issuance of a final certificate of occupancy. Failure to complete construction and obtain a final certificate of occupancy could have a material adverse effect on the Company's business, financial condition, and results of operations, because of, among other reasons, increased administrative burdens and costs. Liquidity and Capital Resources Long Term Debt. MBC has obtained a $2.7 million long term loan from Savings Bank of Mendocino County ("SBMC"), secured by a first priority deed of trust on the Ukiah land, fixtures, and improvements. The loan is payable in monthly installments of $24,443 including interest at the Treasury Constant Maturity Index plus 4.17%, currently 5.83%, maturing December 2012 with a balloon payment in the amount of $1,872,300. In addition to the Ukiah land and facility, this loan is secured by some of the other assets of the Company (other than the Releta facility), including, without limitation, most of the Company's equipment. Shareholder Commitment. UBA, the Company's second-largest shareholder, has provided the Company with a credit facility during 2001 and 2000. (See discussion above under "Overview." For mote information about this facility please see "ITEM III - Certain Relationships and Related Transactions -- Master Line of Credit," below.) Equipment Lease. FINOVA Capital Corporation leased new brewing equipment with a total cost of approximately $1.78 million to MBC for a term of 7 years (beginning December 1996) with monthly rental payments of approximately $27,100 each. At expiration of the initial term of the lease, the Company may purchase the equipment at its then current fair market value but not less than 25% nor more than 30% of the original cost of the equipment, or at the Company's option, may extend the term of the lease for an additional year at approximately $39,000 per month with an option to purchase the equipment at the end of the year at then current fair market value. The lease is not pre-payable. 22 Other Loans and Credit Facilities. CIT Group/Credit Finance Line of Credit. The CIT Group/Credit Finance, Inc. has provided the Company a $3,000,000 maximum line of credit with an advance rate of 80% of the qualified accounts receivable and 60% of the inventory at an interest rate of the prime rate of Chase Manhattan Bank of New York plus 2.25% payable monthly, maturing September 23, 2002. The line of credit is secured by all accounts, general intangibles, inventory, and equipment of the Company except for the specific equipment and fixtures of the Company leased from FINOVA Capital Corporation, as well as by a second deed of trust on the Company's Ukiah land improvements. $1,484,000 of the line of credit was advanced to the Company as an initial term loan, which is repayable in sixty consecutive monthly installments of principal, each in the amount of $24,700. The Company commenced repayment of the term loan in March 1999 and approximately $964,600 of the term loan was outstanding as of December 31, 2000. On November 20, 2000, the CIT Group had agreed to increase the borrowing limit by $100,000, subject to the condition that the increased limit has to be paid back in monthly installments of $11,111 during the period from April 1 through December 1, 2001. In April of 2001, the CIT Group agreed to defer the commencement of the monthly repayments to September 2001. During October 2001, the CIT Group increased the line of credit by $170,000 to enable the company to acquire and refurbish bottling equipment in order to enhance the Company's capacity of which $85,000 was repaid as of the date of filing this report and the balance will be repaid once the balance of purchase is refinanced through an existing line of credit. Based on the Company's current level of accounts receivable and inventory, the Company has drawn the maximum amount permitted under the line of credit. As of December 31, 2001, the total amount outstanding on the line of credit was approximately $2,246,197 Savings Bank of Mendocino Line of Credit. On June 25, 2001, Savings Bank of Mendocino County ("SBMC") extended a revolving line of credit to the Company, secured by the existing assets of the Company and by a personal guarantee by Dr. Mallya. This credit facility matured on October 12, 2001. The Company has drawn $250,000 in principal on the facility. The rate of interest on the facility was the adjusted base commercial rate of SBMC on the first and fifteenth day of each month, plus one percent, which was 8%. This line of credit was paid down and terminated in November 2001. Necor Bank Limited Option Facility. Necor Bank Limited, a South African registered company, has provided UBSN with a multi-currency option facility of 1,250,000 Pounds Sterling. This overdraft facility is secured by a fixed and floating currency charge over all of the assets of UBSN. The amount outstanding on this line of credit as of December 31, 2001, was approximately $795,900 Shepherd Neame Loan: Shepherd Neame has a brewing contract with UBSN for brewing Kingfisher Lager for the Company's European and Canadian markets. In consideration of extending the brewing contract, Shepherd Neame advanced a loan of GBP 600,000 to UBSN, repayable in monthly installment of (pound)5,000 per month, commencing in June 2003.The loan carries an interest rate of 5%. (For more information about this loan please see "PART III -- Certain Relationships and Related Transactions -- Loan Agreement Between UBSN and Shepherd Neame," below.) Interest. The weighted average interest rates paid on the Company's U.S. debts (including the long term capital lease of equipment by FINOVA Capital Corporation Inc.) was 9.57% for the year 2001 and 10.82% for the year 2000. Keg Management Arrangement. The Company has entered into a keg management agreement with MicroStar Keg Management LLC. Under this arrangement, MicroStar provides the Company with half-barrel kegs for which the Company pays a filling and use fee. Distributors return the kegs to 23 MicroStar instead of the Company. MicroStar then supplies the Company with additional kegs. The agreement expires in September 2002, and Management expects to negotiate an extension of the agreement during 2002. If the agreement is not extended and terminates, the Company is required to purchase a certain number of kegs from MicroStar. The Company would probably finance the purchase through debt or lease financing, if available. However, there can be no assurances that the Company will be able to finance the purchase of kegs and the failure to purchase the necessary kegs from MicroStar is likely to have a material adverse effect on the Company. Current Ratio. The Company's ratio of current assets to current liabilities on December 31, 2001 was 0.63 to 1.0 and its ratio of total assets to total liabilities was 1.49 to 1.0. On December 31, 2000, the Company's ratio of current assets to current liabilities was 0.80 to 1.0 and its ratio of total assets to total liabilities was 1.72 to 1.0. Impact of Expansion on Cash Flow. The Company must make timely payment of its debt and lease commitments to continue its operations. Unused capacity at the Ukiah and Saratoga Springs facilities has placed demands on the Company's working capital. Beginning approximately in the second quarter of 1997, the time at which the Ukiah brewery commenced operations, proceeds from operations have not been able to provide sufficient working capital for day to day operations. To fund its operating deficits, the Company has relied upon lines of credit and other credit facilities. Management had success in negotiating these credit facilities in the past and expects to successfully negotiate these facilities in the future. However, there can be no assurance that the Company will have access to any such sources of funds in the future, and the inability to secure sufficient funds will have a materially adverse effect on the Company. Further, the CIT Group line of credit is due for renewal in September 2002. Failure to renew the facility would have a material adverse impact on the Company. Related Party Transactions During 2001, MBC and its subsidiaries entered into or amended several agreements with affiliated and related entities. Among these were a Brewing Agreement and a Loan Agreement between UBSN and Shepherd Neame; a Market Development Agreement, a Distribution Agreement, and a Brewing License Agreement between MBC and UBSN; a Distribution Agreement between UBI and UBSN; a Trademark Licensing Agreement between MBC and Kingfisher of America, Inc.; and a License Agreement between UBI and UB Limited. (For more information on all of these agreements please see "PART III -- Certain Relationships and Related Transactions," below.) Item 7. Financial Statements. The information required by this item is set forth at Pages F-1 through F-17 to this Annual Report. MENDOCINO BREWING COMPANY, INC. INDEPENDENT AUDITOR'S REPORT AND CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 AND 2000 CONTENTS PAGE INDEPENDENT AUDITOR'S REPORT ............................................... F-1 CONSOLIDATED FINANCIAL STATEMENTS Balance sheet ......................................................... F-2 Statements of operations and comprehensive loss ....................... F-3 Statements of stockholders' equity .................................... F-4 Statements of cash flows .............................................. F-5 Notes to financial statements ......................................... F-6 INDEPENDENT AUDITOR'S REPORT To the Board of Directors Mendocino Brewing Company, Inc. We have audited the accompanying consolidated balance sheet of Mendocino Brewing Company, Inc., as of December 31, 2001, and the related consolidated statements of operations and comprehensive loss, stockholders' equity, and cash flows for each of the two years ended December 31, 2001. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Mendocino Brewing Company, Inc., as of December 31, 2001, and the results of its operations and its cash flows for the two years ended December 31, 2001, in conformity with accounting principles generally accepted in the United States. /s/ MOSS ADAMS LLP Santa Rosa, California February 1, 2002 MENDOCINO BREWING COMPANY, INC. CONSOLIDATED BALANCE SHEET December 31, 2001
ASSETS CURRENT ASSETS Cash 89,800 Accounts receivable, net of allowance for doubtful accounts of $131,100 5,599,200 Inventories 1,273,700 Prepaid expenses 209,800 ------------ Total current assets 7,172,500 ------------ PROPERTY AND EQUIPMENT 14,640,600 ------------ OTHER ASSETS Deferred income taxes 1,922,600 Deposits and other assets 87,500 Intangibles, net of amortization 124,200 ------------ 2,134,300 ------------ Total assets $ 23,947,400 ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Line of credit $ 2,413,700 Accounts payable 5,319,800 Accrued wages and related expense 171,800 Accrued liabilities 798,800 Income taxes payable 235,300 Notes to related parties 1,742,700 Current maturities of long-term debt 356,800 Current maturities of capital lease obligations 346,800 ------------ Total current liabilities 11,385,700 LONG-TERM DEBT, less current maturities 3,775,100 CAPITAL LEASE OBLIGATIONS, less current maturities 925,000 ------------ Total liabilities 16,085,800 ------------ STOCKHOLDERS' EQUITY Preferred stock, Series A, no par value, with aggregate liquidation preference of $227,600; 10,000,000 shares authorized, 227,600 shares issued and outstanding 227,600 Common stock, no par value; 30,000,000 shares authorized, 11,083,228 shares issued and outstanding 14,476,500 Accumulated comprehensive loss (77,800) Accumulated deficit (6,764,700) ------------ Total stockholders' equity 7,861,600 ------------ Total liabilities and stockholders' equity $ 23,947,400 ============
See accompanying notes. Page F-2 MENDOCINO BREWING COMPANY, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS Years Ended December 31, 2001 and 2000 2001 2000 ------------ ------------ SALES $ 24,638,600 $ 22,432,900 LESS EXCISE TAXES 666,000 563,700 ------------ ------------ NET SALES 23,972,600 21,869,200 COST OF GOODS SOLD 15,907,600 14,043,300 ------------ ------------ GROSS PROFIT 8,065,000 7,825,900 ------------ ------------ OPERATING EXPENSES Retail operating 462,400 414,000 Marketing 4,966,500 4,434,300 General administrative 2,763,500 2,314,600 ------------ ------------ 8,192,400 7,162,900 ------------ ------------ INCOME (LOSS) FROM OPERATIONS (127,400) 663,000 ------------ ------------ OTHER INCOME (EXPENSE) Acquisition expense (818,200) -- Interest income 19,900 1,100 Miscellaneous income 58,700 43,500 Gain on sale of equipment -- 28,900 Interest expense (928,000) (978,900) ------------ ------------ (1,667,600) (905,400) ------------ ------------ LOSS BEFORE INCOME TAXES (1,795,000) (242,400) PROVISION FOR (BENEFIT FROM) INCOME TAXES 1,048,600 (127,200) ------------ ------------ NET LOSS $ (2,843,600) $ (115,200) OTHER COMPREHENSIVE LOSS, net of tax Foreign currency translation adjustment (77,800) -- ------------ ------------ COMPREHENSIVE LOSS $ (2,921,400) $ (115,200) ============ ============ NET LOSS PER COMMON SHARE $ (0.26) $ (0.01) ============ ============ WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 11,080,366 11,038,514 ============ ============ See accompanying notes. Page F-3 MENDOCINO BREWING COMPANY, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Years Ended December 31, 2001 and 2000
Series A Preferred Stock Common Stock Accumulated -------------------- ------------------------ Comprehensive Accumulated Total Shares Amount Shares Amount Loss Deficit Equity ------- ----------- ---------- ------------ -------- ----------- ------------ Balance, December 31, 1999 227,600 $ 227,600 11,030,177 $ 14,136,400 $ -- $(3,805,900) $ 10,858,100 Stock issued as compensation to Board members -- -- 50,321 41,000 -- -- 41,000 Net loss -- -- -- -- -- (115,200) (115,200) ------- ----------- ---------- ------------ -------- ----------- ------------ Balance, December 31, 2000 227,600 227,600 11,080,498 14,477,400 -- (3,921,100) 10,783,900 ------- ----------- ---------- ------------ -------- ----------- ------------ Stock repurchase -- -- (22,270) (18,100) -- -- (18,100) Stock issued to employee -- -- 25,000 17,200 -- -- 17,200 Currency translation adjustment -- -- -- -- (77,800) -- (77,800) Net loss -- -- -- -- -- (2,843,600) (2,843,600) ------- ----------- ---------- ------------ -------- ----------- ------------ Balance, December 31, 2001 227,600 $ 227,600 11,083,228 $ 14,476,500 $(77,800) (6,764,700) $ 7,861,600 ======= =========== ========== ============ ======== =========== ============
See accompanying notes. Page F-4 MENDOCINO BREWING COMPANY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, 2001 and 2000
2001 2000 ----------- ----------- CASH FLOW FROM OPERATING ACTIVITIES Net loss $(2,843,600) $ (115,200) Adjustments to reconcile net loss to net cash from operating activities: Depreciation and amortization 1,083,300 1,169,600 Allowance for doubtful accounts 15,500 15,000 Loss (Gain) on sale of assets 1,400 (32,200) Deferred income taxes 893,500 (332,700) Stock issued for services 17,200 41,000 Changes in: Accounts receivable (355,600) (311,200) Inventories 29,200 (43,700) Prepaid expenses (56,900) (64,000) Deposits and other assets 265,700 (330,300) Accounts payable 1,129,400 416,100 Accrued wages and related expense 7,200 (40,000) Accrued liabilities 234,200 57,700 Income taxes payable (54,500) 100,600 ----------- ----------- Net cash from operating activities 366,000 530,700 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment (699,700) (372,700) Proceeds from sale of fixed assets 6,800 59,500 ----------- ----------- Net cash from investing activities (692,900) (313,200) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Net repayments on line of credit (304,600) (257,200) Proceeds from long-term debt -- 100,000 Redemption of common stock (18,100) -- Principal payments on long-term debt (434,900) (329,700) Payments on obligations under capital lease (336,000) (282,200) Disbursements in excess of deposits (1,700) (7,900) Proceeds from notes payable to related party 1,311,000 719,300 ----------- ----------- Net cash from financing activities 215,700 (57,700) ----------- ----------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (7,900) (5,600) ----------- ----------- NET CHANGE IN CASH (119,100) 154,200 CASH, beginning of year 208,900 54,700 ----------- ----------- CASH, end of year $ 89,800 $ 208,900 =========== ===========
See accompanying notes Page F-5 MENDOCINO BREWING COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - DESCRIPTION OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of operations - Mendocino Brewing Company and its subsidiary, Releta Brewing Company, operate two breweries that are in the business of producing beer and malt beverages for the specialty "craft" segment of the beer market, as well as own and operate a brewpub and gift store. The breweries are located in Ukiah, California, and Saratoga Springs, New York. The brewpub and gift store are located in Hopland, California. The majority of sales for Mendocino Brewing Company are in California. The Company brews several brands, of which Red Tail Ale is the Flagship brand. In addition, the Company performs contract brewing for several other brands. The Company acquired United Breweries International, Limited (UK) (UBIUK), a holding company for UBSN Limited, in 2001. UBSN is a distributor of alcoholic beverages, mainly Kingfisher Lager, in the United Kingdom and Europe. The distributorship is located in Faversham, Kent, in the United Kingdom. (See Note 16) Principles of consolidation - The consolidated financial statements present the accounts of Mendocino Brewing Company, Inc., and its wholly owned subsidiaries, Releta Brewing Company, LLC, and UBIUK. All material inter-company balances and transactions have been eliminated. Because the acquisition of UBIUK is reported "as-if pooled," prior year financial statements have been restated to show the effect of the acquisition as of the earliest financial statement presented. Inventories - Inventories are stated at the lower-of-average cost or market. Property and equipment - Property and equipment are stated at cost and depreciated or amortized using straight-line and accelerated methods over the assets' estimated useful lives. Leasehold improvements are amortized over the shorter of the life of the related asset or the life of the lease. Costs of maintenance and repairs are charged to expense as incurred; significant renewals and betterments are capitalized. Estimated useful lives are as follows: Building 40 years Machinery and equipment 3 - 40 years Equipment under capital lease 7 years Leasehold improvements 7 - 20 years Vehicles 2 - 5 years Furniture and fixtures 5 - l0 years Intangibles - Intangibles consist of receipts, tradenames, trademarks, and other intangibles. Amounts are amortized using the straight-line method over twenty years, which is the estimated useful life of the intangibles. Concentration of credit risks - Financial instruments that potentially subject the Company to credit risk consist principally of trade receivables, cash deposits in excess of FDIC limits, and assets located in the United Kingdom. The Company's cash deposits are placed with major financial institutions. Wholesale distributors account for substantially all accounts receivable; therefore, this concentration risk is limited due to the number of distributors and laws regulating the financial affairs of distributors of alcoholic beverages. The Company has approximately $63,400 in cash and $4,308,800 of accounts receivable located in the United Kingdom. Income taxes - The provision for income taxes is based on pre-tax earnings reported in the financial statements, adjusted for requirements of current tax law, plus the change in deferred taxes. Deferred tax assets and liabilities are recognized using enacted tax rates and reflect the expected future tax consequences of temporary differences between the recorded amounts of assets and liabilities for financial reporting purposes, tax basis of such assets and liabilities, future benefits from net operating loss carryforwards, and other expenses previously recorded for financial reporting purposes. Shipping costs - Shipping costs included in marketing expense totaled $661,100 and $768,200 for the years ended December 31, 2001 and 2000. Page F-6 MENDOCINO BREWING COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Stock-based compensation - The Company accounts for stock-based employee compensation arrangements in accordance with the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB No. 25) and complies with the disclosure provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SPAS No. 123). Under APB No. 25, compensation expense is the excess, if any, of the fair value of the Company's stock at a measurement date over the amount that must be paid to acquire the stock. SFAS No. 123 requires a fair value method to be used when determining compensation expense for stock options and similar equity instruments. SFAS No. 123 permits a company to continue to use APB No. 25 to account for stock-based compensation to employees, but proforma disclosures of net income and earnings per share must be made as if SFAS No. 123 had been adopted in its entirety. Stock options issued to non-employees are valued under the provisions of SFAS No. 123. Loss per common share - Loss per common share is computed using the weighted average number of common shares outstanding. Since a loss from operations exists, a diluted earnings per share number is not presented because the inclusion of common stock equivalents in the computation would be antidilutive. Common stock equivalents associated with convertible notes and stock options, which are exercisable into 1,350,710 of common stock at December 31, 2001, could potentially dilute earnings per share in future years. Use of estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the Company make estimates and assumptions affecting the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. The amounts estimated could differ from actual results. Advertising - Advertising costs are expensed as incurred. Advertising expenses for the years ended December 31, 2001 and 2000, were $1,197,300 and $1,096,200. Fair value of financial instruments - The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments: Long-term debt: Based on the borrowing rates currently available to the Company for loans with similar terms and average maturities, the fair value of long-term debt approximates cost. New accounting pronouncements - The Financial Accounting Standards Board (FASB) has issued the following accounting pronouncements: Statement of Financial Accounting Standard (SFAS) No. 141, "Business Combinations." This Statement addresses financial accounting and reporting for business combinations and supersedes Accounting Principles Board (APB) Opinion No. 16, "Business Combinations," and SFAS No. 38, "Accounting for Preacquisition Contingencies of Purchased Enterprises." All business combinations are to be accounted for using one method, the purchase method. The provisions of this Statement apply to all business combinations initiated after June 30, 2001. The Company completed a business combination on August 13, 2001, but, due to the related party nature of the business combination, it did not fall under the scope of SFAS No. 141. SFAS No. 142, "Goodwill and Other Intangible Assets." This Statement addresses financial accounting and reporting for acquired goodwill and other intangible assets and supersedes APB Opinion No. 17, "Intangible Assets." It addresses how intangible assets that are acquired individually or with a group of other assets (but not those acquired in a business combination) should be accounted for in financial statements upon their acquisition. This Statement also addresses how goodwill and other intangible assets should be accounted for after they have been initially recognized in the financial statements. The provisions of this Statement are required to be applied starting with fiscal years beginning after December 15, 2001. The adoption of SFAS No. 142 is not expected to have a material effect on the Company's financial statements. SFAS No. 143, "Accounting for Asset Retirement Obligations," addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This Statement applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and (or) the normal operation of a long-lived asset. The provisions of this Statement are required to be applied starting with fiscal years beginning after June 15, 2002. The adoption of SFAS No. 143 is not expected to have a material effect on the Company's financial statements. Page F-7 MENDOCINO BREWING COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," addresses financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS 144 replaces SFAS 121 and amends certain other accounting pronouncements. The provisions of this Statement are effective for financial statements issued for fiscal years beginning after December 15, 2001. The adoption of SFAS No. 144 is not expected to have a material effect on the Company's financial statements. Comprehensive loss - Comprehensive loss is composed of the Company's net loss and changes in equity from non-stockholder sources. The accumulated balances of these non-stockholder sources are reflected as a separate item in the equity section of the balance sheet. NOTE 2 - INVENTORIES 2001 ---------- Raw materials $ 503,800 Work-in-process 163,100 Finished goods 574,800 Merchandise 32,000 ---------- $1,273,700 ========== NOTE 3 - PROPERTY AND EQUIPMENT 2001 ----------- Buildings $ 7,791,900 Machinery and equipment 7,729,700 Equipment under capital lease 2,473,600 Land 810,900 Leasehold improvements 792,200 Equipment in progress 417,600 Vehicles 297,900 Furniture and fixtures 58,000 ----------- 20,371,800 Less accumulated depreciation and amortization 5,731,200 ----------- $14,640,600 =========== The Company has property, plant, and equipment located in the United Kingdom with a net book value of approximately $817,300. NOTE 4 - LINE OF CREDIT The Company has available a $3,000,000 line of credit, with interest at the prime rate plus 2.25%. Approximately $1,484,000 was advanced to the Company in the form of a term loan (see Note 5). The bank's commitment under the line of credit matures September 2002. The agreement is secured by substantially all the assets of the Releta Brewing Company, LLC, accounts receivable, inventory, certain securities pledged by a stockholder, and a second position on the real property of Mendocino Brewing Company. The Company also has available a $1,812,500 line of credit with interest at the bank's base rate plus 1.5% (currently 5.5%). The bank's commitment under the line of credit is available on an on-going basis until further notice. The agreement is secured by substantially all the assets of UBSN Limited. Page F-8 MENDOCINO BREWING COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 5 - LONG TERM DEBT 2001 ----------- Note to a bank; payable in monthly installments of $24,400, including interest at the Treasury Constant Maturity Index, plus 4.17%; maturing December 2012, with a balloon payment; secured by substantially all the assets of Mendocino Brewing Company $2,586,500 Note to a financial institution; payable in monthly installments of $24,700, plus interest at the prime rate plus 2.25%; maturing March 2004; secured by substantially all the assets of the Releta Brewing Company, certain securities pledged by a stockholder, accounts receivable, inventory, and a second position on the remaining assets of Mendocino Brewing Company 667,800 Note payable to Shepard Neame, Ltd., a related party, payable in monthly installments of $7,300 plus interest at 5% beginning June 2003, maturing December 2012, unsecured 877,600 ----------- 4,131,900 Less current maturities 356,800 ----------- $ 3,775,100 =========== Maturities of long-term debt for succeeding years are as follows: Year Ending December 31 ----------------------- 2002 $ 356,800 2003 422,800 2004 179,500 2005 134,600 2006 139,600 Thereafter 2,898,600 ----------- $ 4,131,900 =========== NOTE 6 - CAPITAL LEASE OBLIGATIONS The Company leases brewing and office equipment under various capital lease agreements with various financial institutions. Future minimum lease payments under these capital lease agreements are as follows: Year Ending December 31 ----------------------- 2002 $ 469,700 2003 892,200 2004 78,400 2005 53,100 2006 14,000 --------- 1,507,400 Less amounts representing interest 235,600 --------- Present value of minimum lease payments 1,271,800 Less current maturities 346,800 --------- $ 925,000 ========= Page F-9 MENDOCINO BREWING COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 7 - NOTES PAYABLE TO RELATED PARTY 2001 ---------- Notes payable consist of convertible notes to United Breweries of America, a related party, with interest at the prime rate plus 1.5%, but not to exceed 10% per year; the notes are convertible into common stock at $1.50 per share or may be repaid in 60 monthly installments, upon date of maturity; the notes begin to mature through December 2002, and include $227,300 and $104,200 of accrued interest at December 31, 2001 and 2000; at December 31, 2002, approximately $866,400 is required to be converted into stock or monthly repayment installments are to begin; the notes are unsecured and are subordinated to bank debt, subsequent to year-end, UBA extended the maturity date for matured notes until August 2002 $1,742,700 ========== NOTE 8 - PROFIT-SHARING PLAN The Company has a profit-sharing retirement plan under which it may make employer contributions at the discretion of the Board of Directors, although no such contributions are required. Employer contributions vest over a period of six years. The plan covers substantially all full-time employees meeting certain minimum age and service requirements. There were no contributions made for the years ended December 31, 2001 and 2000. NOTE 9 - COMMITMENTS Operating leases - The Company leases its Hopland, California, facility under a non-cancelable operating lease expiring August 2004. The monthly lease payment is $2,300, to be adjusted annually by increases in the Consumer Price Index, as defined in the lease agreement. The Company leases the land on which the New York brewery operates under a non-cancelable operating lease expiring October 2002. The lease contains options, which management intends to exercise, to extend the lease for three additional five-year periods and contains an option to purchase the property. The monthly lease payment is $8,800, to be adjusted annually by increases in the Consumer Price Index, as defined in the lease agreement. The Company leases a building located in London, England, under a non-cancelable operating lease. The monthly lease payment is $1,000 per month. Additionally, the Company leases certain equipment and vehicles under non-cancelable operating leases that expire through August 2004. Total rent expense was $234,500 and $200,700 for the years ended December 31, 2001 and 2000. Future minimum lease payments are as follows: Year Ending December 31 ----------------------- 2002 $143,700 2003 60,400 2004 46,700 2005 3,200 -------- $254,000 ======== Keg management agreement - In January 1997, the Company entered into a keg management agreement with MicroStar Keg Management LLC. Under this arrangement, MicroStar provides half-barrel kegs for which the Company pays a service fee between $5 and $15, depending on volume. The agreement is effective October 1, 1997, for a five-year period. Mendocino Brewing Company has the option to terminate the agreement with 30 days notice. If terminated, the Company is required to purchase three times the average monthly keg usage for the preceding six-month period from MicroStar at purchase prices ranging from $54 to $84 per keg. Rental expense associated with this agreement was $75,000 and $90,100 for the years ended December 31, 2001 and 2000. Page F-10 MENDOCINO BREWING COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 10 - RELATED PARTY TRANSACTIONS The Company has certain related party transactions with United Breweries of America (UBA), which owns approximately 28% of the common stock of the Company. Additionally, UBSN Limited, has significant related party transaction with Shepard Neame, Ltd., which is related to one of the Company's board members. The Company also has transactions with AUBI, a company affiliated with one of the board members. The following table reflects the value of the transactions for the years ending December 31, 2001 and 2000, and the balances outstanding at December 31, 2001.
2001 2000 ---------- ---------- Sales to Shepard Neame, Ltd. $1,907,100 $1,500,800 Purchases from Shepard Neame, Ltd. 7,283,000 7,996,400 Expense reimbursements to Shepard Neame, Ltd. 566,000 616,000 Commissions paid to AUBI 68,800 252,700 Interest expense associated to UBA convertible notes payable 123,000 93,000 Expense reimbursements to UBA 11,000 25,000 Accounts payable to Shepard Neame, Ltd. 2,951,400 -- Accounts receivable from Shepard Neame, Ltd. 666,100 -- Amounts payable to AUBI 20,000 --
NOTE 11 - MAJOR CUSTOMERS Sales to the top five customers totaled $6,316,000 and $4,862,900 for the years ended December 31, 2001 and 2000, representing 26% and 22% of sales. Two customers, Golden Gate Distributing and Shepard Neame, Ltd, (a related party) had sales of 14% and 13% for the years ending December 31, 2001 and 2000. NOTE 12 - STOCKHOLDERS' EQUITY Common Stock - During the year, the Company stockholders voted to increase the number of shares of common stock authorized from 20,000,000 shares to 30,000,000. On August 13, 2001, the Company issued 5,500,000 shares of common stock to Inversiones Mirabel for all the outstanding stock of United Breweries International (UK) Limited. Both companies, Mendocino Brewing and United Breweries International (UK), were under common control. Accordingly, the business combination was required to be recorded as if it were a pooling of business interest whereby the assets and liabilities were recorded at their historical costs. (See Note 16 for the accounting for the business combination.) As part of this transaction, the Company agreed to issue shares of common stock for various acquisition costs of $69,200. As of December 31, 2001, these shares had not been issued and the amounts are shown as an accrued liability. As part of the transaction, the Company offered stockholders who dissented against the acquisition to repurchase their stock at $0.81 per share. The Company redeemed 22,270 shares for a total of $18,100. The Company has agreed to compensate the independent outside members of the Board of Directors for attending Board of Directors and committee meetings. The Company agreed to compensate these directors with the common stock of the Company. The Company recorded expenses related to this compensation in the amount of $47,000 and $41,000 for the years ending December 31, 2001 and 2000. As of December 31, 2001, the Company had not issued stock for the current year's expense and the amount is shown as an accrued liability. The Company granted 25,000 shares of the Company's common stock to an employee for services performed during the year. The stock was valued at the date of the grant and vested on June 30 and December 31, 2001. Page F-11 MENDOCINO BREWING COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Preferred Stock - The Company has authorized 10,000,000 shares of preferred stock, of which 227,600 have been designated as Series A. Series A shareholders are entitled to receive cash dividends and/or liquidation proceeds equal, in the aggregate, to $1.00 per share before any cash dividends are paid on the Common Shares or any other series of Preferred Shares. When the entire Series A dividend/liquidation proceeds have been paid, the Series A shares shall automatically be canceled and cease to be outstanding. Only a complete corporate dissolution will cause a liquidation preference to be paid. NOTE 13 - STOCK OPTION PLAN Under the 1994 Stock Option Plan, the Company may issue options to purchase up to 1,000,000 shares of the Company's Common Stock. The Plan provides for both incentive stock options, as defined in Section 422 of the Internal Revenue Code, and options that do not qualify as incentive stock options. The Plan shall terminate upon the earlier of (a) the tenth anniversary of its adoption by the Board or (b) the date on which all shares available for issuance under the Plan have been issued. The exercise price of incentive options must be no less than the fair-market value of such stock at the date the option is granted, while the exercise price of non-statutory options will be no less than 85% of the fair-market value per share on the date of grant. With respect to options granted to a person possessing more than 10% of the combined voting power of all classes of the Company's stock, the exercise price will be no less than 110% of the fair-market value of such share at the grant date. During 2000, the Company issued 100,000 non-statutory stock options with a five-year term to the independent members of the Board of Directors at the market price on the date of the grant. All options are exercisable at the date of grant. There were no options issued during the year ended December 31, 2001. Had compensation cost for the Company's options been determined based on the methodology prescribed under SFAS No. 123, the Company's net loss and loss per share would have been as follows: 2001 2000 ------------- ----------- Net loss - as reported $ (2,843,600) $ (115,200) Net loss - pro forma $ (2,843,600) $ (170,600) Loss per share - as reported $ (0.26) $ (0.01) loss per share - pro forma $ (0.26) $ (0.02) The fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions: 2001 2000 ---- ------- Dividends N/A None Expected volatility N/A 151% Risk free interest rate N/A 7.00% Expected life N/A 5 years ---- ------- Page F-12 MENDOCINO BREWING COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table summarizes the number of options granted and exercisable and the weighted average exercise prices and remaining contractual lives of the options. Shares Under Weighted-Average Option Exercise Price ------------------ ------------------ Balance, December 31, 1999 101,388 $ 2.07 Granted 100,000 $ 1.25 Exercised -- $ -- Checked -- $ -- ------------------ Balance, December 31, 2000 201,388 $ 1.66 Granted -- $ -- Exercised -- $ -- Canceled (12,500) $ 8.80 ------------------ Balance, December 31, 2001 188,888 $ 1.19 ================== NOTE 14 - INCOME TAXES 2001 2000 ----------- ----------- Provision for income taxes Federal $ -- $ -- United Kingdom 151,800 202,200 States 3,300 3,300 ----------- ----------- 155,100 205,500 Change in deferred income taxes 893,500 (332,700) ----------- ----------- $ 1,048,600 $ (127,200) =========== =========== The difference between the actual income tax provision and the tax provision computed by applying the statutory federal income tax rate to earnings before taxes is attributable to the following: 2001 2000 ----------- ----------- Income tax benefit at 34% $ (733,900) $ (290,900) State taxes 3,300 3,300 State tax benefit of net operating loss carryforward (60,200) (36,800) United Kingdom tax 151,800 202,200 Recognition of future tax revenues (deductions) 201,600 (5,000) Valuation allowance 1,486,000 -- ----------- ----------- $ 1,048,600 $ (127,000) =========== =========== Page F-13 MENDOCINO BREWING COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Temporary differences and carryforwards which give rise to deferred tax assets and liabilities are as follows: 2001 ----------- Accounts receivables allowance $ 13,100 Inventories 13,700 Accruals 41,400 Other (32,100) Depreciation and amortization (154,700) Benefit of net operating loss carryforward 3,467,500 Investment in United Breweries International (UK) Limited 350,700 Other (291,000) ----------- 3,408,600 Less valuation allowance (1,486,000) ----------- $ 1,922,600 =========== Valuation allowance - beginning of year $ -- Valuation allowance - end of year 1,486,000 ----------- Change in valuation allowance $ 1,486,000 =========== The Company's net operating losses that are available for carryforward will expire as follows: Net Operating Loss ------------------------------------ Date of expiration Federal California New York ---------- ---------- ---------- 2002 $ -- $ 761,200 $ -- 2003 -- 961,200 -- 2004 -- 694,700 -- 2010 -- 276,400 -- 2011 -- 471,900 -- 2012 1,802,300 -- 277,400 2018 2,758,800 -- 424,700 2019 2,153,100 -- 320,300 2020 965,600 -- 134,200 2021 1,341,700 -- 206,100 ---------- ---------- ---------- $9,021,500 $3,165,400 $1,362,600 ========== ========== ========== The Company also has $35,000 of California Manufactures Investment Tax Credits that can be carried forward to reduce future taxes, which expire beginning in 2007. Due to slower than anticipated sales and an increase in the net loss for the year ended December 31, 2001, over the loss for 2000, the Company determined in the third quarter that a portion of the deferred tax assets associated with net operating loss carryforwards and investment tax credits may expire prior to utilization. The Company has recorded a valuation allowance of $1,486,000 for operating losses and credits that may expire prior to utilization. The Company is implementing various strategies to bring the business toward profitability such as reducing debt, improving efficiency, possible debt conversion, and a possible private placement of preferred stock. The Company believes that if the above strategies are effective they will generate sufficient profits in the future to utilize the deferred tax assets. Page F-14 MENDOCINO BREWING COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 15 - SEGMENT INFORMATION The Company's business presently consists of three segments. The first is brewing for wholesale to distributors and other retailers. This segment accounted for 46% and 41% of the Company's gross sales during 2001 and 2000. The second consists of distributing alcoholic beverages to retail establishments and restaurants in the United Kingdom and Europe. This segment accounted for approximately 52% and 56% of the Company's gross sales during 2001 and 2000. The third segment consists of brewing beer for sale along with food and merchandise at the Company's brewpub and retail merchandise store located at the Hopland Brewery. This segment accounted for 2% and 3% of the Company's gross sales during 2001 and 2000. A summary of each segment is as follows:
Year Ending December 31, 2001 -------------------------------------------------------------------------- Brewing Hopland Distributor Corporate Operations Brewery Operations and other Total ------------ ------------ ------------ ------------ ------------ Sales $ 11,269,000 $ 626,100 $ 12,743,500 $ -- $ 24,638,600 Operating income (loss) (535,200) (22,900) 430,700 -- (127,400) Identifiable assets 15,037,100 31,900 5,326,700 3,551,700 23,947,400 Depreciation and amortization 777,900 7,200 283,200 15,000 1,083,300 Capital expenditures 420,400 15,100 264,200 -- 699,700 Year Ending December 31, 2000 -------------------------------------------------------------------------- Brewing Hopland Distributor Corporate Operations Brewery Operations and other Total ------------ ------------ ------------ ------------ ------------ Sales $ 9,270,400 $ 549,200 $ 12,613,300 $ -- $ 22,432,900 Operating income (loss) (7,300) (43,500) 663,000 -- 612,200 Identifiable assets 15,121,800 78,900 5,452,900 4,570,100 25,223,700 Depreciation and amortization 702,300 6,800 361,600 98,900 1,169,600 Capital expenditures 56,740 2.560 336,000 -- 395,300
NOTE 16 - ACQUISITION On August 13, 2001, the Company acquired 100% of the outstanding shares of United Breweries International (UK) Limited (UBIUK) from Inversiones Mirabel for 5,500,000 shares of the Company's common stock. UBIUK is a holding company for its wholly owned subsidiary UBSN Limited. UBSN Limited is a distributor of alcoholic beverages, mainly Kingfisher Lager, in the United Kingdom and Europe. Inversiones Mirabel is wholly owned by the Golden Eagle Trust. Golden Eagle Trust also controls United Breweries of America (UBA), which, prior to the acquisition, owned 57% of Mendocino Brewing Company. Due to the related party nature of the acquisition, the Company accounted for the business combination as if it were a pooling of interest. All assets and liabilities were recorded at their historical cost. UBIUK continues to operate as if it were a separate company. All financial information presented gives effect to the transaction as of the earliest financial statement presented.
Through August 13, 2001 2000 ------------------------- Revenues for United Breweries International (UK) Limited $ 5,904,700 $12,613,000 =========== =========== Net income from United Breweries International (UK) Limited $ 136,800 $ 412,000 =========== ===========
Page F-15 MENDOCINO BREWING COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 17 - STATEMENT OF CASH FLOWS Supplemental cash flow information includes the following: 2001 2000 -------- -------- Cash paid during the year for: Interest $804,900 $888,500 Income taxes $207,300 $103,820 Non-cash investing and financing activities: Seller financed equipment $177,300 $ 48,200 Stock issued for services $ 17,200 $ 41,000 Stock issued for acquisition $601,500 $ -- Page F-17 Item 8. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. None. 24 PART III Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act. Section 16(a) Beneficial Ownership Reporting Compliance The Company's Secretary and Chief Financial Officer, N. Mahadevan, failed to timely file with the Commission an Initial Statement of Beneficial Ownership on Form 3, which was due within ten (10) days following the date he first became an officer of the Company, in January, 2001. David Townshend, a member of the Company's Board of Directors, also failed to timely file Form 3, which was due within ten (10) days following the date he became a Director, in June of 2001. Neither Mr. Mahadevan nor Mr. Townshend owned any of the Company's equity securities at the time he became an officer or a Director of the Company. Both Mr. Mahadevan and Mr. Townshend have filed Annual Statements of Changes in Beneficial Ownership on Forms 5 with the Commission to report the foregoing information which should have been reported on Forms 3. Neither Mr. Mahadevan nor Mr. Townshend has been a party to any transactions in the Company's equity securities during 2001. Michael Laybourn failed to report on a timely basis a sale of the Company's common stock that occurred in July, 2001. Mr. Laybourn has filed Form 5 with the Commission to report the transaction which should have been reported on a Statement of Changes in Beneficial Ownership on Form 4 no later than August 10, 2001. Item 10. Executive Compensation. Executive Compensation The following table sets forth the annual compensation, including salary, bonuses, and certain other compensation, paid by the Company to its Chief Executive Officer and most highly-compensated executive officers during each of the fiscal years ended December 31, 1999, 2000, and 2001. None of the Company's other executive officers received total compensation in excess of $100,000 in any of those years. 25
SUMMARY COMPENSATION TABLE Annual Compensation Long-Term Compensation -------------------------------------------------- ----------------------------------------------------------------- Awards Payouts --------------------------------- ------------------------------- Securities Restricted Underlying Name Other Annual Stock Options/ LTIP All Other And Principal Salary Bonus Compensation Award(s) SARs Payouts Compensation Position Year ($) ($) ($) ($) (#) ($) ($) - --------------- -------- ------------ ----------- ------------------- ----------------- --------------- ----------- ---------------- Vijay Mallya 2001 $ 120,000 $ 0.00 $ 0.00 Chief Executive Officer 2000 $ 120,000 $ 0.00 $ 0.00 1999 $ 120,000 $ 0.00 $ 8,266 Yashpal Singh, 2001 $ 115,965 $ 33,212 $ 9,983 President 2000 $ 106,267 $ 30,050 $ 9,027 1999 $ 100,008 $ 30,000 $ 7,916 H. Michael 2001 $ 0.00 $ 0.00 $ 0.00 Laybourn Former President 2000 $ 0.00 $ 0.00 $ 0.00 1999 $ 120,000 $ 0.00 $ 9,027
Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The following table sets forth certain information known to the Company regarding the beneficial ownership of the Company's Common Stock and Series A Preferred Stock as of December 31, 2001, for (a) each shareholder known by the Company to own beneficially 5% or more of the outstanding shares of its Common Stock or Series A Preferred Stock; (b) each Director; and (c) all Directors and executive officers of the Company as a group. Except as noted, the Company believes that the beneficial owners of the Common Stock and Series A Preferred Stock listed below, based on information furnished by such owners, have sole investment and voting power with respect to such shares, subject to community property laws where applicable. 26
Shares Beneficially Approximate Name Owned(1) Percentage ---- -------- ---------- United Breweries of America, Inc.+ 3,087,818(2) 27.6% Inversiones Mirabel S.A 5,500,000 49.2% Hong Kong Bank Building 6th Floor, Samuel Lewis Avenue P O Box 6-4298, El Dorado Panama City Vijay Mallya, Ph.D.+ 8,587,818(3) 76.8% H. Michael Laybourn++ 299,039(4) 2.7% R.H.B. (Bobby) Neame 70,283(5) 0.6% c/o Shepherd Neame, Ltd. 17 Court Street Faversham, Kent ME13 3AX United Kingdom Kent Price 90,313(5) 0.8% c/o Robert Kent and Company Wood Island #308 60 E. Sir Francis Drake Blvd Larkspur, CA 94939 Sury Rao Palamand, Ph.D 80,013(5) 0.7% 50 Crestwood Executive Center, Suite 207 St. Louis, MO 63126 Jerome G. Merchant+ 147,887(5) 1.3% Yashpal Singh++ David Townshend c/o UBSN Limited 17 Court Street Faversham, Kent ME13 3AX United Kingdom All Directors and executive officers as a group (8 persons) 9,275,353(6) 81.5% SERIES A PREFERRED STOCK: H. Michael Laybourn 6,100 2.7% All Directors and executive officers as a group (8 persons) 6,100 2.7%
27 - ---------- + Three Harbor Drive, Suite 115, Sausalito, CA 94965 ++ 1601 Airport Road, Ukiah, CA 95402 (1) Applicable percentages of ownership are based on 11,188,893 shares of Common Stock outstanding. Shares of Common Stock subject to a contract of purchase or options currently exercisable or exercisable within 60 days after the date of this Statement are deemed outstanding for computing the percentage ownership of the person obligated to purchase the shares or holding the options but are not deemed outstanding for computing the percentage of any other person. (2) Does not include (i) 1,161,822 shares issuable upon conversion of certain convertible notes issued to UBA, or an additional 580,911 shares of Common Stock which UBA may be granted if it accepts a currently pending offer from the Company to terminate an existing Master Line of Credit Agreement and convert certain outstanding Notes into shares of Common Stock (see "PART III - Item 12, Certain Relationships and Related Transactions," below), or (ii) 882,547 outstanding shares which are held in the aggregate by Messrs. Laybourn, Scahill, Franks, and Barkley and which, pursuant to a Shareholders' Agreement, are subject to (A) a right of first refusal to purchase, held by the Company, which may become exercisable within 60 days, and (B) the requirement that the owners of record vote such shares for four Directors designated by UBA and two additional independent Directors who are acceptable to UBA. (3) Includes all shares held by UBA and Inversiones. Dr. Mallya may be deemed to be a beneficial owner of UBA and Inversiones because they are both controlled by Golden Eagle Trust, which in turn is controlled by persons who may exercise discretion in Dr. Mallya's favor among others. Dr. Mallya is also the Chairman and Chief Executive Officer of UBA. Does not include (i) 1,161,822 shares issuable upon conversion of certain convertible notes issued to UBA, or (ii) an additional 580,911 shares of Common Stock which UBA may be granted if it accepts a currently pending offer from the Company to terminate an existing Master Line of Credit Agreement and convert certain outstanding Notes into shares of Common Stock. (See "PART III - Item 12, Certain Relationships and Related Transactions," below). (4) Includes 20,000 shares subject to options exercisable or will be exercisable within 60 days. Does not include 3,684,498 currently outstanding shares held by UBA, Messrs. Scahill, Franks, and Barkley, all of which are subject to Shareholders' Agreement which requires the parties thereto to vote for one Director designated by Mr. Laybourn. (5) Includes 42,222 shares subject to options which are presently exercisable or will be exercisable within 60 days. (6) Does not include 596,680 outstanding shares held by Messrs. Scahill, Franks, and Barkley pursuant to a Shareholders' Agreement which requires the parties thereto to vote for four Directors designated by UBA, one Director designated by Mr. Laybourn, and two additional independent Directors who are acceptable to UBA, and which grants UBA a right of first refusal with respect to such shares. Includes 188,888 shares subject to options which are presently exercisable or will be exercisable within 60 days. 28 Item 12. Certain Relationships and Related Transactions. Acquisition of United Breweries International (UK) Limited Effective as of August 13, 2001, the Company consummated a shareholder-approved transaction by which it purchased all of the issued and outstanding capital stock of United Breweries International (UK) Limited, a United Kingdom corporation ("UBI") in exchange for 5,500,000 shares of the Company's Common Stock. UBI has as its wholly-owned subsidiary UBSN Ltd., a corporation organized in England ("UBSN"). At the time of the acquisition, UBI was owned by Inversiones Mirabel, SA, a Panamanian corporation ("Inversiones"), which was in turn owned by Golden Eagle Trust, a trust formed under the laws of the Isle of Man (part of the United Kingdom) ("Golden Eagle"). The Company's Chairman of the Board and Chief Executive Officer, Dr. Vijay Mallya, may be deemed to be a beneficial owner of, and therefore have a material financial interest in, Golden Eagle because the Golden Eagle trustees may exercise discretion in favor of Dr. Mallya or his beneficiaries. Dr. Mallya is also a member of the board of directors of UBSN Ltd. Prior to the Acquisition, Golden Eagle had already held a controlling interest in the Company through its controlling (97%) interest in United Breweries of America, Inc., a Delaware corporation ("UBA"), which owns 3,087,818 shares of MBC Common Stock (representing 55.3% of the Company's Common Stock outstanding prior to the acquisition). As a result of its ownership or control of Inversiones and UBA, Golden Eagle currently controls of record 8,587,818 shares, or 77.5%, of the Company's outstanding shares of Common Stock. As described below, under the heading "Master Line of Credit Agreement," UBA also has the right, under the terms of certain convertible promissory notes issued to it by the Company, to convert the outstanding principal and interest under such notes into additional shares of the Company's common stock (the "Conversion Rights"). If the Conversion Rights were to be exercised in full, UBA could acquire an additional 1,161,822 shares of the Company's Common Stock, representing an additional 9.5% of the Company's outstanding Common shares after such conversion, which would increase its ownership percentage to approximately 35% (and the interest of Golden Eagle to approximately 80%). UBA also has an agreement with certain of the Company's original founders under which it holds rights of first refusal to acquire from them up to an additional 882,547 shares of Common Stock. These shares would represent 7.2% of the Company's currently outstanding shares of Common Stock, increasing UBA's total ownership (including the Conversion Shares) to 5,132,187 shares of Common Stock and its ownership percentage to 42%. The exercise of these rights of first refusal would also increase the number of shares controlled by Golden Eagle to 10,632,187, and its ownership percentage to 86.8%. Master Line of Credit Agreement On August 31, 1999, Mendocino Brewing Company Inc. (the "Company") and United Breweries of America, Inc. ("UBA") entered into a Master Line of Credit Agreement, which was subsequently amended on April 28, 2000, and February 12, 2001 (the "Credit Agreement"). The terms of the Credit Agreement provide the Company with a line of credit in the principal amount of up to $1,600,000. As of the date of this filing, UBA has made thirteen (13) separate advances to the Company under the Credit Agreement, pursuant to a series of individual eighteen (18) month promissory notes issued by the Company to UBA (the "UBA Notes"). As of January 31, 2002, the aggregate outstanding principal amount of the UBA Notes was $1,515,371, and the accrued but unpaid interest thereon was equal to approximately $235,406. The UBA Notes require the Company to make quarterly interest payments to UBA on the first day of April, July, October, and January. To date, UBA has permitted the Company to capitalize all 29 accrued interest. Upon maturity of any UBA Note, unless UBA has given the Company prior instructions to commence repayment of the outstanding principal balance, the outstanding principal and accrued but unpaid interest on such Note may be converted, at the option of UBA, into shares of the Company's common stock. If UBA does not elect to so convert any UBA Note upon maturity, it has the option to extend the term of such UBA Note for any period of time mutually agreed upon by UBA and the Company. During the extended term of any UBA Note, UBA has the right to require the Company to repay the outstanding principal balance, along with the accrued and unpaid interest thereon, to UBA within sixty (60) days. The first eight (8) of the UBA Notes made pursuant to the Credit Agreement matured during 2001 (the "Mature Notes"). As of January 31, 2002, the outstanding principal balance of the Mature Notes was approximately $866,444, and the accrued but unpaid interest thereon was approximately $171,074. Because UBA has neither (i) delivered notice to the Company to commence repayment of the Mature Notes prior to their maturity dates, nor (ii) converted the Mature Notes upon maturity, it now has the right to require the Company to repay the outstanding principal balance of any or all of the Mature Notes, along with accrued interest, at any time, on sixty (60) days notice. The remaining five (5) of the UBA Notes (those which did not mature in 2001) are scheduled to mature during 2002; the first of these Notes matured on March 10, 2002. As of January 31, 2002, the aggregate principal amount outstanding on these UBA Notes was approximately $649,296, and the accrued but unpaid interest thereon was approximately $64,332. As of the date of this filing, UBA has not required that the Company commence quarterly payments of the outstanding interest on these Notes, nor has it required that the Company repay the outstanding principal balance on the Mature Notes, although it would be within its rights under the Agreement to do so. The Company and UBA executed an Extension of Term of Notes under Master Line of Credit Agreement on February 14, 2002 (the "Extension Agreement"). The Extension Agreement confirms the Company's and UBA's extension of the terms of the Mature Notes. The Extension Agreement extends the terms of the Mature Notes, as well as the terms of the next four (4) of the UBA Notes, for a period ending on August 15, 2002. Since the last remaining UBA Note matures after August 15, 2002, it was not extended by the Extension Agreement. The Company and UBA have entered into discussions regarding the repayment and/or conversion of the Notes. On December 28, 2001, the Company and UBA entered into a Confirmation of Waiver which provides a written confirmation that as of August 13, 2001, UBA waived its rights with regard to all conversion rate protection as set forth in the UBA Notes. On January 14, 2002, the Special Committee of the Company's Board of Directors made a formal offer to UBA to terminate the Credit Agreement and convert the principal amount plus accrued interest on all of the UBA Notes outstanding as of December 31, 2001 into shares of the Company's Common Stock, at a conversion rate of $1.00 per share. If UBA decides to accept this proposal, which is still open, the Company would be required to issue a total of 1,742,733 additional shares of Common Stock to UBA in exchange for cancellation of the UBA Notes. As of the date of this filing, UBA has not acted on the Special Committee's proposal. Licenses of Kingfisher Trademark UBI licenses the trademark Kingfisher (the "Mark") from UB Limited, pursuant to a License Agreement dated October 9, 1998 and amended pursuant to a Supplemental Agreement dated October 22, 2001 (together, the "License Agreement"). Under the terms of the License Agreement, UB Limited has granted UBI and UBSN the exclusive right to use the Marks in a number of European countries, including among others the Austria, Belgium, Italy, France, Germany, Ireland, the Netherlands, Spain, Sweden and the U.K. (collectively, the "Licensed Territory"). UB Limited, which owns the Marks, is responsible for maintaining the registration of the Marks in all relevant market areas. The License Agreement, which will expire on October 9, 2013, also provides that neither party may transfer its rights 30 or obligations thereunder to any other person or entity unless the transferee enters into an agreement to be bound by the obligations of the transferor. In July 2001 MBC entered into a Kingfisher Trademark and Trade Name License Agreement with Kingfisher America, Inc., a Delaware corporation affiliated with UB Limited, pursuant to which MBC obtained a royalty-free, exclusive license to use the Kingfisher trademark and trade name in connection with the brewing and distribution of beer in the United States. Because the Company's Chairman of the Board, Dr. Vijay Mallya, is also the Chairman of the Board of UB Limited, this transaction represented by this license agreement may be deemed to be a related party transaction. Under its terms, this agreement will remain in effect for so long as the Distribution Agreement (described below) between UBI and UBSN does - currently, that agreement is scheduled to expire in October 2013. Distribution Agreement UBI entered into a Distribution Agreement with its wholly-owned subsidiary UBSN on October 9, 1998. Under this agreement, which was subsequently amended by a Supplemental Agreement dated as of October 24, 2001 (together, the "Distribution Agreement"), UBI granted UBSN an exclusive sub-license for the distribution of all lager and other beer products brewed or prepared for sale in the U.K., Ireland, and 17 countries in continental Europe (the "European Territory"), and a sub-license to use the Kingfisher trademark and trade name, to manufacture, package, market, distribute, and sell beer and other products using the Kingfisher trademark and logo, and to enter into the Brewing Agreement described below. The Distribution Agreement, which also requires UBSN to pay UBI a royalty fee of 50 British pence for every 100 liters of beer brewed for sale in the territory described above, will expire (unless its term is extended) in October 2013. Brewing Agreement Between UBI and Shepherd Neame On October 9, 1998, UBI and UBSN entered into a Brewing Agreement with Shepherd Neame, and on October 24, 2001, this agreement was amended by a Supplemental Agreement (as so amended, the "Brewing Agreement"). Since R.H.B. (Bobby) Neame, who is the Chairman and Chief Executive Officer of Shepherd Neame, has been a member of the Company's Board since January 1998, the transaction represented by the Brewing Agreement may be deemed to be a related party transaction. The Brewing Agreement, which was entered into (and amended) in conjunction with the Loan Agreement described below, grants Shepherd Neame the exclusive right to brew, keg, bottle, can, label, and package all beers and related products sold under the Kingfisher trademark in the U.K., and with respect to the distribution of such products elsewhere in the European Territory, UBI and UBSN further agreed that they would require any other distributor of such products (subject to applicable laws and regulations) both to obtain such products directly from a company related to UBI or its subsidiaries and to refrain from seeking customers, or establishing a distribution network for such products, in the U.K. In exchange, Shepherd Neame agreed to brew and/or supply Kingfisher Lager and related products to UBSN for destinations within (and, with the consent of Shepherd Neame, outside) the U.K. The price UBSN pays to Shepherd Neame for brewing Kingfisher Lager for distribution in the U.K. is set by a formula which varies according to the applicable duty on Kingfisher Lager and other factors. Loan Agreement Between UBSN and Shepherd Neame Concurrently with the Brewing Agreement described above, UBSN and Shepherd Neame entered into a Loan Agreement, under which on or about October 24, 2001, Shepherd Neame advanced to UBSN 31 (pound)600,000 (the full amount available under the Loan Agreement), at a fixed interest rate of 5%, for general corporate purposes. This loan is payable in ten annual installments of (pound)60,000 each, commencing on June 30, 2003 and continuing on each anniversary thereof until the Loan is fully repaid. Any remaining balance of principal or interest will become due and payable (and the loan will terminate) on June 30, 2013. It will be an event of default under the Loan Agreement, and the lender will have the right, at will, not only to cancel the Loan Agreement and accelerate all sums due under it, but also to terminate the Brewing Agreement, if UBSN terminates or defaults under the Brewing Agreement, or if either the UBI License or the UBSN License is terminated (except in accordance with their terms or in connection with the parties' entry into an equivalent Brewing Agreement). Market Development Agreement Effective October 26, 2001, MBC and UBSN entered into a Market Development, General and Administrative Services Agreement (the "Market Development Agreement"), under the terms of which UBSN engaged MBC to perform a variety of advertising, promotional, and other market development activities in the United States, in connection with Kingfisher beer and related consumer products (the "Products"), provide certain legal and business management support services to UBSN, and provide assistance with the establishment and management of distribution channels for the Products in the United States. In consideration for performing these services, UBSN agreed to make periodic payments of service fees to MBC, amounting in the aggregate to $1,500,000 over a period of three years ($1,000,000 during calendar 2001, $300,000 during 2002, and $200,000 during 2003). The Market Development Agreement will continue in force during the term of the Distribution Agreement described above. Brewing License Agreement Concurrently with the Market Development Agreement described above, MBC entered into a Brewing License Agreement with UBSN, under the terms of which UBSN granted to MBC an exclusive license to brew and distribute Kingfisher Premium Lager in the United States, in exchange for a royalty, payable to UBSN, of eighty cents ($0.80) for each case of Kingfisher Premium Lager brewed by MBC under this agreement. Item 13. Exhibits and Reports on Form 8-K. (a) Exhibits Exhibit Number Description of Document - ------- ----------------------- 3.1 Articles of Incorporation of the Company, as amended 3.2 Bylaws of the Company 10.1 (A) Mendocino Brewing Company Profit Sharing Plan 10.2 Amended 1994 Stock Option Plan 10.3 (A) Wholesale Distribution Agreement between the Company and Bay Area Distributing 10.4 (A) Wholesale Distribution Agreement between the Company and Golden Gate Distributing 10.5 (B) Liquid Sediment Removal Services Agreement with Cold Creek Compost, Inc. 10.6 (A) Lease Agreement between the Company and Kohn Properties 10.7 (C) Commercial Real Estate Purchase Contract and Receipt for Deposit (previously filed as Exhibit 19.2) 10.8 (D) Commercial Lease between Stewart's Ice Cream Company, Inc. and Releta Brewing Company LLC 32 Exhibit Number Description of Document - ------- ----------------------- 10.9 (E) Agreement between United Breweries of America Inc. and Releta Brewing Company LLC regarding payment of certain liens 10.10 (F)+ Keg Management Agreement with MicroStar Keg Management LLC 10.11 (G) Agreement to Implement Condition of Approval No. 37 of the Site Development Permit 95-19 with the City of Ukiah, California (previously filed as Exhibit 19.6) 10.12 (H) Manufacturing Business Expansion and Relocation Agreement with the City of Ukiah 10.13 (H) Manufacturing Business Expansion and Relocation Agreement with the Ukiah Redevelopment Agency 10.14 (I) $2,700,000 Note in favor of the Savings Bank of Mendocino County 10.15 (I) Hazardous Substances Certificate and Indemnity with the Savings Bank of Mendocino County 10.16 (J) Equipment Lease with FINOVA Capital Corporation 10.17 (J) Tri-Election Rider to Equipment Lease with FINOVA Capital Corporation 10.18 (J) Master Lease Schedule with FINOVA Capital Corporation 10.19 (K) Investment Agreement with United Breweries of America, Inc. 10.20 (K) Shareholders' Agreement Among the Company, United Breweries of America, Inc., H. Michael Laybourn, Norman Franks, Michael Lovett, John Scahill, and Don Barkley 10.21 (K) Registration Rights Agreement Among the Company, United Breweries of America, Inc., H. Michael Laybourn, Norman Franks, Michael Lovett, John Scahill, and Don Barkley 10.22 (L) Indemnification Agreement with Vijay Mallya 10.23 (L) Indemnification Agreement with Michael Laybourn 10.24 (L) Indemnification Agreement with Jerome Merchant 10.25 (L) Indemnification Agreement with Yashpal Singh 10.26 (L) Indemnification Agreement with P.A. Murali 10.27 (L) Indemnification Agreement with Robert Neame 10.28 (L) Indemnification Agreement with Sury Rao Palamand 10.29 (L) Indemnification Agreement with Kent Price 10.30 (M) Loan and Security Agreement between the Company, Releta Brewing Company LLC and The CIT Group/Credit Finance, Inc. regarding a $3,000,000 maximum line of credit. 10.31 (M) Patent, Trademark and License Mortgage by the Company in favor of The CIT Group/Credit Finance, Inc. 10.32 (M) Patent, Trademark and License Mortgage by Releta Brewing Company LLC in favor of The CIT Group/Credit Finance, Inc. 10.33 (N) Employment Agreement with Yashpal Singh 10.34 (N) Employment Agreement with P.A. Murali 10.35 (O) Master Loan Agreement between the Company and the United Breweries of America Inc. 10.36 (O) Convertible Note in favor of United Breweries of America Inc. dated Sept. 7, 1999 10.37 (P) Convertible Note in favor of United Breweries of America Inc. dated October 21, 1999 10.38 (P) Convertible Note in favor of United Breweries of America Inc. dated November 12, 1999 10.39 (P) Convertible Note in favor of United Breweries of America Inc. dated December 17, 1999 10.40 (P) Convertible Note in favor of United Breweries of America Inc. dated December 31, 1999 10.41 (P) Convertible Note in favor of United Breweries of America Inc. dated February 16, 2000 33 Exhibit Number Description of Document - ------- ----------------------- 10.42 (P) Convertible Note in favor of United Breweries of America Inc. dated February 17, 2000 10.43 (P) Convertible Note in favor of United Breweries of America Inc. dated April 28, 2000 10.44 (P) First Amendment to Master Loan Agreement between the Company and United Breweries of America, Inc., dated April 28, 2000 10.45 (Q) Convertible Note in favor of United Breweries of America, Inc. dated September 11, 2000 10.46 (Q) Convertible Note in favor of United Breweries of America, Inc. dated September 30, 2000 10.47 (Q) Convertible Note in favor of United Breweries of America, Inc. dated December 31, 2000 10.48 (Q) Convertible Note in favor of United Breweries of America, Inc. dated February 12, 2001 10.49 (R) Convertible Note in favor of United Breweries of America, Inc. dated July 1, 2001 10.50 (S) Confirmation of Waiver Between Mendocino Brewing Company, Inc. and United Breweries of America, Inc., dated as of December 28, 2001 10.51 (S) Extension of Term of Notes Under Master Line of Credit Agreement between Mendocino Brewing Company, Inc. and United Breweries of America, Inc., dated February 14, 2002 10.52 License Agreement between United Breweries Limited and United Breweries International (UK), Limited 10.53 Supplemental Agreement to License Agreement between United Breweries Limited and United Breweries International (UK), Limited 10.54 Distribution Agreement between United Breweries International (UK), Limited. and UBSN, Ltd. 10.55 Supplemental Agreement to Distribution Agreement between United Breweries International (UK), Limited. and UBSN, Ltd. 10.56 Market Development, General and Administrative Services Agreement between Mendocino Brewing Company, Inc. and UBSN, Ltd. 10.57 Contract to Brew and Supply Kingfisher Products among Shepherd Neame, Limited, United Breweries International (UK), Limited. and UBSN, Ltd. 10.58 Supplemental Agreement to Contract to Brew and Supply Kingfisher Products among Shepherd Neame, Limited, United Breweries International (UK), Limited. and UBSN, Ltd. 10.59 Loan Agreement between Shepherd Neame, Limited and UBSN, Ltd. 10.60 Brewing License Agreement between UBSN, Ltd. and Mendocino Brewing Company, Inc. 10.61 Kingfisher Trade Mark and Trade Name License Agreement between Kingfisher of America, Inc. and Mendocino Brewing Company, Inc. - ---------- (A) Incorporated by reference from the Company's Registration Statement dated June 15, 1994, as amended, Registration No. 33-78390-LA. (B) Incorporated by reference from the Company's Annual Report on Form 10-KSB for the period ended December 31, 1995 (C) Incorporated by reference from the Company's Quarterly Report on Form 10-QSB for the period ended March 31, 1995 (D) Incorporated by reference from the Company's Quarterly Report on Form 10-QSB/A No. 1 for the period ended September 30, 1997 (E) Incorporated by reference from the Company's Quarterly Report on Form 10-QSB for the quarterly period ended September 30, 1997 34 Exhibit Number Description of Document - ------- ----------------------- (F) Incorporated by reference from the Company's Annual Report on Form 10-KSB for the period ended December 31, 1996 (G) Incorporated by reference from the Company's Quarterly Report on Form 10-QSB for the period ended September 30, 1995 (H) Incorporated by reference from the Company's Quarterly Report on Form 10-QSB for the period ended June 30, 1996 (I) Incorporated by reference from the Company's Annual Report on Form 10-KSB for the period ended December 31, 1997 (J) Incorporated by reference from the Company's Registration Statement dated February 6, 1997, as amended, Registration No. 33-15673 (K) Incorporated by reference from the Schedule 13D filed November 3, 1997, by United Breweries of America, Inc. and Vijay Mallya (L) Incorporated by reference from the Company's Quarterly Report on Form 10-QSB for the period ended June 30, 1998 (M) Incorporated by reference from the Company's Quarterly Report on Form 10-QSB for the period ended September 30, 1998 (N) Incorporated by reference from the Company's Quarterly Report on Form 10-QSB for the period ended June 30, 1999 (O) Incorporated by reference from Amendment No. 5 to Schedule 13D filed September 15, 1999, by United Breweries of America, Inc. and Vijay Mallya. (P) Incorporated by reference from Amendment No. 6 to Schedule l3D filed May 12, 2000, by United Breweries of America, Inc. and Vijay Mallya. (Q) Incorporated by reference from Amendment No. 7 to Schedule 13D filed February 22, 2001, by United Breweries of America, Inc. and Vijay Mallya. (R) Incorporated by reference from Amendment No. 8 to Schedule 13D filed August 22, 2001, by United Breweries of America, Inc. and Vijay Mallya. (S) Incorporated by reference from the Company's Current Report on Form 8-K filed as of February 19, 2002 + Portions of this Exhibit were omitted pursuant to an application for an order declaring confidential treatment filed with the Securities and Exchange Commission. 35 (b) Current Reports on Form 8-K During the fourth quarter of 2001 the Registrant did not file any Current Reports on Form 8-K, although on October 22, 2001 it did file an Amendment to a Current Report originally filed on August 24, 2001. The amended Report added the following newly available financial data, in the form of Exhibits to the Report, to Items 2 and 7 of the previously filed Report: Exhibit Description Number 4 Mendocino Brewing Company, Inc. and United Breweries International (UK) Limited Condensed Consolidated Pro Forma Balance Sheet and Income Statement for the six months ended June 30, 2000 and 2001 5 United Breweries International (UK) Limited Balance Sheet, Statement of Income and Stockholder's Equity, and Statement of Cash Flows and conversion into United States Dollars for the six months ended June 30, 2000 and 2001 6 United Breweries International (UK) Limited Consolidated Reports and Financial Statements, Period 1st January to 30th June 2001 SIGNATURES Pursuant to the requirements of Section 13 of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereto duly authorized. (Registrant) Mendocino Brewing Company, Inc. By: --------------------------------------- Vijay Mallya, Chairman of the Board and Chief Executive Officer Date: March 31, 2002 Pursuant to the requirements of Section 13 of the Exchange Act, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: --------------------------------------- Vijay Mallya, Chairman of the Board and Chief Executive Officer Date: March 31, 2002 By: --------------------------------------- Yashpal Singh, President and Director Date: March 31, 2002 By: --------------------------------------- Jerome G. Merchant, Director Date: March 31, 2002 By: --------------------------------------- N. Mahadevan, Secretary and Chief Financial Officer Date: March 31, 2002 37 INDEX OF EXHIBITS Exhibit Sequential Number Description Page Number 3.1 Articles of Incorporation of the Company, as amended 3.2 Bylaws of the Company 10.2 Amended 1994 Stock Option Plan 10.52 License Agreement between United Breweries Limited and United Breweries International (UK), Limited 10.53 Supplemental Agreement to License Agreement between United Breweries Limited and United Breweries International (UK), Limited 10.54 Distribution Agreement between United Breweries International (UK), Limited. and UBSN, Ltd. 10.55 Supplemental Agreement to Distribution Agreement between United Breweries International (UK), Limited. and UBSN, Ltd. 10.56 Market Development, General and Administrative Services Agreement between Mendocino Brewing Company, Inc. and UBSN, Ltd. 10.57 Contract to Brew and Supply Kingfisher Products among Shepherd Neame, Limited, United Breweries International (UK), Limited. and UBSN, Ltd. 10.58 Supplemental Agreement to Contract to Brew and Supply Kingfisher Products among Shepherd Neame, Limited, United Breweries International (UK), Limited, and UBSN, Ltd. 10.59 Loan Agreement between Shepherd Neame, Limited and UBSN, Ltd. 10.60 Brewing License Agreement between UBSN, Ltd. and Mendocino Brewing Company, Inc. 10.61 Kingfisher Trade Mark and Trade Name License Agreement between Kingfisher of America, Inc. and Mendocino Brewing Company, Inc. 38 EX-3.1 3 d50241_ex3-1.txt ARTICLES OF INCORPORATION Exhibit 3.1 AMENDED AND RESTATED ARTICLES OF INCORPORATION OF MENDOCINO BREWING COMPANY, INC. ------------------------------------ 1. The undersigned, Yashpal Singh and N. Mahadevan, hereby certify that they are the duly elected and acting President and Secretary, respectively, of Mendocino Brewing Company, Inc., a California corporation (the "Company"), and further certify the following: 2. The Articles of Incorporation of the Company are amended and restated to read in full as follows: ARTICLE 1 NAME The name of the corporation is: Mendocino Brewing Company, Inc. ARTICLE 2 PURPOSE The purpose of the corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California, other than the banking business, the trust company business, or the practice of a profession permitted to be incorporated by the California Corporations Code. ARTICLE 3 AUTHORIZED SHARES Section 3.1 Classes of Stock. The corporation is authorized to issue two classes of shares designated "Common Stock" and "Preferred Stock," respectively. The corporation shall have the authority to issue a total of 30,000,000 shares of Common Stock and 10,000,000 shares of Preferred Stock. The Common Stock is sometimes referred to as "Common Shares" and the Preferred Stock is sometimes referred to as "Preferred Shares." Holders of Common Shares are sometimes referred to as "Common Shareholders" and holders of Preferred Shares are sometimes referred to as "Preferred Shareholders." Section 3.2 Authorized Series of Preferred Stock. Of the total authorized shares of Preferred Stock, 275,000 shares are designated Series A Preferred Stock ("Series A Shares"). Holders of the Series A Shares are sometimes referred to herein as "Series A Shareholders." Section 3.3 Undesignated Series of Preferred Stock. Any remaining undesignated shares of Preferred Stock may be divided into such number of additional Series as the Board of Directors may determine. The Board of Directors is authorized to determine and alter the rights, preferences, privileges, and restrictions granted to and imposed upon any wholly unissued series of Preferred Stock, to fix the number of shares of any series of Preferred Stock, and to set the designation of any series of Preferred Stock. The Board of Directors, within the limits and restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series, may increase or decrease the number of shares of any Series after shares of that series have been issued. The Board of Directors may not, however, reduce any series below the number of shares of such series then outstanding. ARTICLE 4 DIVIDENDS Section 4.1 Dividends on Series A Preferred Stock. The Series A Shareholders shall receive dividends equal in the aggregate to $1.00 per Series A Share before any dividend is paid on the Common Shares or any other series of Preferred Shares (the "Preferred Dividend"). When the entire Preferred Dividend has been paid, the Series A Shares shall automatically be cancelled and shall cease to be outstanding for all purposes, and the Series A Shares shall resume the status of authorized but unissued and undesignated Preferred Stock. Section 4.2 Dividends on Other Series of Preferred Stock. The Board of Directors shall have the authority, consistent with the provisions of Section 3.3, above, to fix the dividends and dividend preferences of any series of Preferred Stock other than the Series A Preferred Stock; provided that so long as any share of Series A Preferred Stock remains outstanding no series of Preferred Stock may be granted dividend rights which are senior to those of the Series A Preferred Stock. Section 4.3 Dividends on Common Shares. The corporation may pay dividends with respect to the Common Shares if and only if the corporation has paid the entire Preferred Dividend on the Series A Shares and the Series A Shares have been cancelled. The corporation may at any time declare and pay a dividend with respect to the Common Shares payable solely in Common Shares. Section 4.4 Conditions to All Dividends. Dividends are payable only at the times and to the extent declared by the Board of Directors. Dividends may be payable quarterly or otherwise as the Board of Directors may determine from time to time. The corporation shall distribute any declared dividend to each shareholder entitled to receive the dividend simultaneously. Dividends are payable only out of assets legally available for that purpose. No right to a dividend shall accrue unless the dividend is declared by the Board of Directors. The Board of Directors may rescind the declaration of a dividend to the extent that the dividend has not been paid if each shareholder is treated ratably in accordance with the shareholder's preferences with respect to the dividend. -2- Section 4.5 Service Shares. "Service Shares" are Common Shares held by an employee, director, or other person who is providing services to the corporation issued pursuant to an agreement that gives the corporation the right to repurchase the shares upon the occurrence of certain events (such as termination of employment). Section 503 of the California Corporations Code does not apply to any repurchase of Service Shares by the corporation. Section 4.6 Restriction on Repurchase of Junior Shares. The corporation may repurchase shares other than the Series A Shares only if (a) the Preferred Dividend on the Series A Shares has been paid in full and the Series A Shares have been cancelled; or (b) the shares to be repurchased are Service Shares. ARTICLE 5 LIQUIDATION Section 5.1 Order of Distribution. Following dissolution of the corporation, the assets of the corporation shall be distributed first to the Series A Shareholders in an amount equal to their aggregate Liquidation Preference (as defined below), then, in the order of seniority, to any holders of any Series of Preferred Shares which may be junior with respect to liquidation rights to the Series A Preferred Stock, and then to the Common Shareholders. Section 5.2 Liquidation Preferences. The Liquidation Preference of the Series A Shareholders is an amount per share equal to the unpaid Preferred Dividend of a Series A Share. Upon dissolution of the corporation, any declared but unpaid Preferred Dividends on the Series A Shares shall automatically be cancelled. When the entire Liquidation Preference of the Series A Shareholders has been paid, the Series A Shares shall automatically be cancelled and shall cease to be authorized or outstanding for all purposes. Section 5.3 Insufficient Assets. If assets of the corporation are not sufficient to distribute the entire Liquidation Preference to the Series A Shareholders, the entire assets of the corporation shall be distributed among the Series A Shareholders in accordance with their Series A Shares. Section 5.4 Service Shares. Section 502 of the California Corporations Code does not apply to any repurchase of Service Shares by the corporation. Section 5.5 Restriction on Repurchase of Junior Shares. The corporation may repurchase shares other than the Series A Shares only if (a) the corporation has sufficient net assets to enable it to pay the Series A Shareholders the full amount of their Liquidation Preference at the time of the repurchase; or (b) the shares to be repurchased are Service Shares. -3- ARTICLE 6 PREFERRED STOCK VOTING RIGHTS Section 6.1 Voting Rights of the Series A Preferred Stock. The holders of Series A Preferred Stock shall have no voting rights, except to the extent required by law. Section 6.2 Voting Rights of Other Classes of Preferred Stock. The Board of Directors shall have the authority, consistent with the provisions of Section 3.3, above, to fix the voting rights of any series of Preferred Stock other than the Series A Preferred Stock. ARTICLE 7 LIABILITY OF DIRECTORS Section 7.1 Limitation of Directors' Liability. The liability of the directors of the corporation for monetary damages shall be eliminated to the fullest extent permissible under California law. Section 7.2 Indemnification of Corporate Agents. The corporation is authorized to provide indemnification of agents (as defined in Section 317 of the Corporations Code) through bylaw provisions, agreements with agents, vote of shareholders or disinterested directors or otherwise, in excess of the indemnification otherwise permitted by Section 317 of the California Corporations Code, subject only to the applicable limits set forth in Section 204 of the California Corporations Code with respect to actions for breach of duty to the corporation and its shareholders. Section 7.3 Repeal or Modification. No repeal or modification of Sections 7.1 or 7.2 shall adversely affect any right of indemnification or limitation of liability of an agent of the corporation relating to acts or omissions that occur before such repeal or modification. -4- 3. The foregoing Amended and Restated Articles of Incorporation have been duly approved by the Board of Directors. 4. The foregoing Amended and Restated Articles of Incorporation have been duly approved by the required vote of shareholders in accordance with Section 902 of the California Corporations Code. The total number of outstanding shares of the Company is 5,808,098, consisting of 5,580,498 shares of Common Stock and 227,600 shares of Preferred Stock, which are entitled to vote with respect to the amendment and restatement. The number of shares voting in favor of the foregoing amendment and restatement equaled or exceeded the vote required. The percentage vote required was more than 50% of (a) the Common Stock and the Preferred Stock, voting together, (b) the Preferred Stock voting separately, and (c) the Common Stock voting separately. I further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of my own knowledge. IN WITNESS WHEREOF, the undersigned has executed this certificate in Ukiah, California, this ______________, 2001. ------------------------------ Yashpal Singh, President ------------------------------ N. Mahadevan, Secretary -5- EX-3.2 4 d50241_ex3-2.txt BY-LAWS Exhibit 3.2 BYLAWS OF MENDOCINO BREWING COMPANY, INC., a California corporation ----------------------------------- (including all amendments adopted through June 28, 2001) 1. OFFICES 1.1. Principal Office. The principal office for the transaction of the business of the corporation shall be located at 13351 Highway 101 South, Hopland, California 95449. The Board of Directors is hereby granted full power and authority to change said principal office to another location within or without the State of California. 1.2. Other Offices. One or more branch or other subordinate offices may at any time be fixed and located by the Board of Directors at such place or places within or without the State of California as it deems appropriate. 2. DIRECTORS 2.1. Exercise of Corporate Powers. Except as otherwise provided by the Articles of Incorporation of the corporation or by the laws of the State of California now or hereafter in force, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board of Directors. The Board may delegate the management of the day-to-day operation of the business of the corporation as permitted by law provided that the business and affairs of the corporation shall be managed and all corporate powers shall be exercised under the ultimate direction of the Board. 2.2. Number. The number of the corporation's directors shall be not less than five (5) and not more than nine (9). The number of directors shall be fixed, within the foregoing limits, by resolution of the board of directors or the shareholders. After issuance of shares, no amendment to this Section 2.2 reducing the number of directors to a number below five (5) shall be enacted if the votes cast against its adoption at a meeting, or the shares not consenting in the case of action by written consent, are equal to more than 16-2/3 percent of the outstanding shares entitled to vote. - ---------- Note: This form of Bylaws reflects amendments to the California General Corporation Law with effective dates on or before January 1, 1994. -1- 2.3. Need Not Be Shareholders. The directors of the corporation need not be shareholders of the corporation. 2.4. Compensation. Directors shall receive such compensation for their services as directors and such reimbursement for their expenses of attendance at meetings as may be determined from time to time by resolution of the Board. Nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity and receiving compensation therefor. 2.5. Election and Term of Office. At each annual meeting of shareholders, directors shall be elected to hold office until the next annual meeting, provided that if for any reason said annual meeting or an adjournment thereof is not held or the directors are not elected thereat, then the directors may be elected at any special meeting of the shareholders called and held for that purpose. The term of office of the directors shall begin immediately after their election and shall continue until the expiration of the term for which elected and until their respective successors have been elected and qualified. 2.6. Nomination. 2.6.1. Nominations by the Board. The Board of Directors may nominate individuals for election to the Board of Directors. The Secretary of the Corporation shall announce the names of the nominees of the Board of Directors at the meeting at which Directors are to be elected. 2.6.2. Nominations by Shareholders. Any shareholder may nominate individuals for election to the Board of Directors by complying with the procedures set forth in subsection 2.6.3 if the shareholder is either (a) entitled to vote for the election of Directors if no record date has been established for a meeting at which Directors will be elected, or (b) a shareholder of record entitled to vote for the election of Directors at a meeting at which Directors will be elected. 2.6.3. Procedure for Shareholder Nominations. A shareholder who desires to nominate an individual for election to the Board of Directors shall give ten (10) days written notice to the Secretary of the corporation stating: (a) the name, age, business address, and residence address of each nominee; (b) the principal occupation or employment of each nominee; (c) the class and number of shares of the corporation the nominee beneficially owns: (d) a description of all arrangements or understandings between the shareholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the shareholder will make the nomination(s); (e) any other information relating to such person that is required to be disclosed in solicitations of proxies for election of Directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including without limitation such person's written consent -2- to being named in any proxy statement as a nominee and to serving as a Director if elected); and (f) whether the shareholder intends to request cumulative voting in the election of Directors at the meeting. 2.6.4. Defective Nominations. Only persons who are nominated in accordance with the procedures set forth in this Section 2.6 shall be eligible for election to the Board of Directors. The chair of the meeting may declare out of order any nomination that does not comply with the procedures set forth in subsection 2.6.3, and may disregard such nomination. 2.7. Vacancies. A vacancy or vacancies in the Board of Directors shall exist when any authorized position of director is not then filled by a duly elected director, whether caused by death, resignation, removal, change in the authorized number of directors (by the Board or the shareholders) or otherwise. The Board of Directors may declare vacant the office of a director who has been declared of unsound mind by an order of court or convicted of a felony. A vacancy created by the removal of a director may be filled only by the approval of the shareholders. Except for a vacancy created by the removal of a director, vacancies on the Board may be filled by a majority of the directors then in office, whether or not less than a quorum, or by a sole remaining director. The shareholders may elect a director at any time to fill any vacancy not filled by the directors, but any such election by written consent other than to fill a vacancy created by removal requires the consent of a majority of the outstanding shares entitled to vote. Any director may resign effective upon giving written notice to the Chairman of the Board, the President, the Secretary, or the Board of Directors of the corporation, unless the notice specifies a later time for the effectiveness of such resignation. If the resignation is effective at a future time, a successor may be elected to take office when the resignation becomes effective. 2.8. Removal. 2.8.1. General Rule. Any and all of the directors may be removed without cause if such removal is approved by the affirmative vote of a majority of the outstanding shares entitled to vote at an election of directors, except as set forth in subsections 2.8.2 and 2.8.3. 2.8.2. Supermajority Vote Required. No director may be removed (unless the entire Board is removed) when the votes cast against removal, or not consenting in writing to such removal, would be sufficient to elect such director if voted cumulatively at an election at which the same total number of votes were cast (or, if such action is taken by written consent, all shares entitled to vote were voted) and the entire number of directors authorized at the time of the director's most recent election were then being elected. 2.8.3. Class Vote. When by the provisions of the Articles the holders of the shares of any class or series, voting as a class or series, are entitled to elect one or more directors, any director so -3- elected may be removed only by the applicable vote of the holders of the shares of that class or series. 2.8.4. Effect of Reduction of Size of Board. Any reduction of the authorized number of directors does not remove any director prior to the expiration of such director's term of office. 2.9. Meetings of Directors. 2.9.1. Place of Meetings. Unless otherwise specified in the notice thereof, meetings (whether regular, special or adjourned) of the Board of Directors of the corporation shall be held at the principal office of the corporation for the transaction of business, as specified in accordance with Section 1.1, which is hereby designated as an office for such purpose in accordance with the laws of the State of California, or at any other place within or without the State which has been designated from time to time by resolution of the Board or by written consent of all members of the Board. 2.9.2. Regular Meetings. Regular meetings of the Board of Directors, of which no notice need be given except as required by the laws of the State of California, shall be held after the adjournment of each annual meeting of the shareholders (which meeting shall be designated the Regular Annual Meeting) and at such other times as may be designated from time to time by resolution of the Board of Directors. Such regular meetings shall be held at the principal office of the corporation for the transaction of business as specified in accordance with Section 1.1 or at any other place within or without the State of California which has been designated from time to time by resolution of the Board or by written consent of all members of the Board, unless notice of the place thereof be given in the same manner as for special meetings. 2.9.3. Special Meetings. Special meetings of the Board of Directors may be called at any time by the Chairman of the Board, the President, any Vice President, the Secretary, or any two or more of the directors. 2.9.4. Notice of Meetings. Except in the case of regular meetings, notice of which has been dispensed with, all meetings of the Board of Directors shall be held upon four (4) days' notice by mail or forty-eight (48) hours' notice delivered personally or by telephone, telegraph, or other electronic or wireless means. If the address of a director is not shown on the records and is not readily ascertainable, notice shall be addressed to him at the city or place in which the meetings of the directors are regularly held. Except as set forth in subsection 2.9.6, notice of the time and place of holding an adjourned meeting need not be given to absent directors if the time and place be fixed at the meeting adjourned. 2.9.5. Quorum. A majority of the authorized number of directors constitutes a quorum of the Board for the transaction of business. Every act or decision done or made by a majority of the -4- directors present at a meeting duly held at which a quorum is present shall be regarded as the act of the Board of Directors except as otherwise provided by law. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for such meeting. 2.9.6. Adjourned Meetings. A majority of the directors present, whether or not a quorum is present, may adjourn any meeting to another time and place. If the meeting is adjourned for more than 24 hours, notice of any adjournment to another time or place shall be given prior to the time of the adjourned meeting to the directors who were not present at the time of the adjournment. 2.9.7. Waiver of Notice and Consent. Notice of a meeting need not be given to any director who signs a waiver of notice or a consent to holding the meeting or an approval of the minutes thereof, whether before or after the meeting, or who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to such director. All such waivers, consents, and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. 2.9.8. Action Without a Meeting. Any action required or permitted to be taken by the Board may be taken without a meeting, if all members of the Board shall individually or collectively consent in writing to such action. Such written consent or consents shall be filed with the minutes of the proceedings of the Board. Such action by written consent shall have the same force and effect as a unanimous vote of such directors. 2.9.9. Conference Telephone Meetings. Members of the Board may participate in a meeting through use of conference telephone or similar communications equipment, so long as all members participating in such meeting can hear one another. Participation in a meeting pursuant to this subsection 2.9.9 constitutes presence in person at such meeting. 2.9.10. Meetings of Committees. The provisions of this Section 2.9 apply also to committees of the Board and action by such committees, with such changes in points of detail as may be necessary. 3. OFFICERS 3.1. Election and Qualifications. The officers of the corporation shall consist of a President, one or more Vice Presidents, a Secretary, and a Chief Financial Officer who shall be chosen by the Board of Directors and such other officers, including a Chairman of the Board, as the Board of Directors shall deem expedient, who shall be chosen in such manner and hold their offices for such terms as the Board of Directors may prescribe. Any two or more of such offices may be held by the same person. The Board of Directors may appoint separate persons to the officers of President and Chief -5- Executive Officer, as provided in Article 5. Any Vice President, Assistant Treasurer, or Assistant Secretary may exercise any of the powers of the President, the Chief Financial Officer, or the Secretary, respectively, as directed by the Board of Directors, and shall perform such other duties as are imposed upon such officer by the Bylaws or the Board of Directors. 3.2. Term of Office and Compensation. The term of office and salary of each of said officers and the manner and time of the payment of such salaries shall be fixed and determined by the Board of Directors and may be altered by said Board from time to time at its pleasure, subject to the rights, if any, of said officers under any contract of employment. 3.3. Removal and Vacancies. Any officer of the corporation may be removed at the pleasure of the Board of Directors at any meeting or at the pleasure of any officer who may be granted such power by a resolution of the Board of Directors. Any officer may resign at any time upon written notice to the corporation without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party. If any vacancy occurs in any office of the corporation, the Board of Directors may elect a successor to fill such vacancy for the remainder of the unexpired term and until a successor is duly chosen and qualified. 4. CHAIRMAN OF THE BOARD The Chairman of the Board of Directors, if there be one, shall have the power to preside at all meetings of the Board of Directors, and to call meetings of the shareholders and of the Board of Directors to be held within the limitations prescribed by law or by these Bylaws, at such times and at such places as the Chairman of the Board shall deem proper. The Chairman of the Board shall have such other powers and shall be subject to such other duties as the Board of Directors may from time to time prescribe. 5. PRESIDENT AND CHIEF EXECUTIVE OFFICER 5.1. Chief Executive Officer. The President shall have the power and duty to act as the chief executive officer of the corporation and, subject to the control of the Board of Directors, to have general supervision, direction, and control of the corporation and its business, affairs, property, officers, agents, and employees. 5.2. Bifurcation of President and Chief Executive Officer. If the Board of Directors creates the office of Chief Executive Officer as a separate office from President, the President shall be the chief operating officer of the corporation and shall be subject to the general supervision, direction, and control of the Chief Executive Officer unless the Board of Directors provides otherwise. -6- 5.3. Preside at Meetings. The President (or Chief Executive Officer if there is one) shall have the power and duty to preside at all meetings of the shareholders and, in the absence of the Chairman of the Board, or if there is none, at all meetings of the Board of Directors. 5.4. Call Meetings. The President (or Chief Executive Officer if there is one) shall have the power and duty to call meetings of the shareholders and also of the Board of Directors to be held, subject to the limitations prescribed by law or by these Bylaws, at such times and at such places as the he or she deems proper. 5.5. President Pro Tem. If none of the Chairman of the Board, the Chief Executive Officer, the President, or any Vice President is present at a meeting of the Board of Directors, the directors present may choose a President pro tem to preside and act at such meeting. If none of the Chief Executive Officer, the President, or any Vice President is present at any meeting of the shareholders, the holders of a majority of the shares present may choose a President pro tem to preside at such meeting. 6. VICE PRESIDENT In case of the absence, disability, or death of the Chief Executive Officer, if there is one, the President shall exercise all the powers and perform all the duties of the Chief Executive Officer. In case of the absence, disability, or death of the Chief Executive Officer and the President, the Vice President, or one of the Vice Presidents, shall exercise all the powers and perform all the duties of the President (or the Chief Executive Officer if that office has been created). If there is more than one Vice President, the order in which the Vice Presidents shall succeed to the powers and duties of the President shall be fixed by the Board of Directors. The Vice President or Vice Presidents shall have such other powers and perform such other duties as may be granted or prescribed by the Board of Directors. 7. SECRETARY 7.1. Minutes. The Secretary shall have the power and the duty to keep a book of minutes at the principal office of the corporation, or such other place as the Board of Directors may order, of all meetings of its directors and shareholders with the time and place of holding, whether regular or special, and, if special, how authorized, the notice thereof given, the names of those present at directors' meetings, the number of shares present or represented at shareholders' meetings, and the proceedings thereof. 7.2. Seal. The Secretary shall have the power and the duty to keep the seal of the corporation and to affix the same to all instruments that may require the seal. -7- 7.3. Stock Records. The Secretary shall have the power and the duty to keep or cause to be kept at the principal office of the corporation, or at the office of the transfer agent or agents, a share register, or duplicate share registers, showing the names of the shareholders and their addresses, the number and classes of shares held by each, the number and date of certificates issued for shares, and the number and date of cancellation of every certificate surrendered for cancellation. 7.4. Share Certificates. The Secretary shall have the power and the duty to keep a supply of certificates for shares of the corporation, to fill in all certificates issued, and to make a proper record of each such issuance; provided, that so long as the corporation shall have one or more duly appointed and acting transfer agent of the shares, or any class or series of shares, of the corporation, such duties with respect to such shares shall be performed by such transfer agent or transfer agents. 7.5. Transfer Agent. The Secretary shall have the power and the duty to transfer upon the share books of the corporation any and all shares of the corporation. Notwithstanding the foregoing, the Board of Directors may appoint one or more transfer agents of the shares, or of any class or series of shares, of the corporation, who shall then have the power and duty to transfer the class or series of shares with respect to which each transfer agent has been appointed. The method of transfer of each certificate shall be subject to the reasonable regulations of the transfer agent to which the certificate is presented for transfer. If the corporation then has one or more duly appointed and acting registrars, the method of transfer of each certificate shall also be subject to the reasonable regulations of the registrar to which the new certificate is presented for registration. No certificate for shares of stock shall be issued or delivered or, if issued or delivered, shall have any validity whatsoever until and unless it has been signed or authenticated in the manner provided in Section 12.2. 7.6. Notices. The Secretary shall have the power and the duty to make service and publication of all notices that may be necessary or proper, without command or direction from anyone. In case of the absence, disability, refusal, or neglect of the Secretary to make service or publication of any notices, then such notices may be served and/or published by the Chief Financial Officer, President, a Vice President, any person thereunto authorized by any of them, the Board of Directors, or the holders of a majority of the outstanding shares of the corporation. 7.7. Other Duties. The Secretary shall have the power and the duty generally to do and perform all such duties as pertain to the office of Secretary and as may be required by the Board of Directors. 8. CHIEF FINANCIAL OFFICER 8.1. Accounts of the Corporation. The Chief Financial Officer shall have the power and duty to supervise and control the keeping and maintaining of adequate and correct accounts of the corporation's properties and business transactions, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, -8- capital, retained earnings, and shares. The books of account shall at all reasonable times be open to inspection by any director. 8.2. Custodian of Funds. The Chief Financial Officer shall have the power and duty to have the custody of all funds, securities, evidences of indebtedness, and other valuable documents of the corporation, and, at the Chief Financial Officer's discretion, to cause any or all thereof to be deposited for the account of the corporation with such depositary as may be designated from time to time by the Board of Directors. 8.3. Receipts. The Chief Financial Officer shall have the power and duty to receive or cause to be received, and to give or cause to be given, receipts and acquittances for moneys paid in for the account of the corporation. 8.4. Disbursements. The Chief Financial Officer shall have the power and duty to disburse, or cause to be disbursed, all funds of the corporation as may be directed by the Board of Directors, taking proper vouchers for such disbursements. 8.5. Reports. The Chief Financial Officer shall have the power and duty to render to the President (or the Chief Executive Officer if there is one) and the Board of Directors, whenever they may require, accounts of all transactions and of the financial condition of the corporation. 8.6. Other Duties. The Chief Financial Officer shall have the power and duty generally to do and perform all such duties as pertain to the office of Chief Financial Officer and as may be required by the Board of Directors. 9. COMMITTEES OF THE BOARD 9.1. Appointment and Procedure. The Board of Directors may, by resolution adopted by a majority of the authorized number of directors, designate one or more committees, each consisting of at least two or more directors, to serve at the pleasure of the Board. The Board may designate one or more directors as alternate members of any committee, who may replace any absent member at any meeting of the committee. The appointment of members or alternate members of a committee requires the vote of a majority of the authorized number of directors. 9.2. Powers. 9.2.1. General Scope. Any committee appointed by the Board of Directors, to the extent provided in the resolution of the Board or in these Bylaws, shall have all the authority of the Board except as set forth in this Section. -9- 9.2.2. Matters Requiring Shareholder Approval. No committee shall have the authority to approve any action that requires the approval or vote of the shareholders. 9.2.3. Filling Vacancies. No committee shall have the authority to fill vacancies on the Board or on any committee of the Board. 9.2.4. Fix Compensation. No committee shall have the authority to fix the compensation of the directors for serving on the Board or on any committee. 9.2.5. Bylaws. No committee shall have the authority to amend or repeal Bylaws or adopt new Bylaws. 9.2.6. Board Resolutions. No committee shall have the authority to amend or repeal any resolution of the Board that by its express terms is not subject to amendment or repeal. 9.2.7. Distributions. No committee shall have the authority to authorize a distribution as defined at Section 166 of the California Corporations Code, except at a rate or in a periodic amount or within a price range set forth in the Articles of Incorporation or determined by the Board. 9.2.8. Other Committees. No committee shall have the authority to appoint other committees of the Board or the members thereof. 9.3. Executive Committee. The Board of Directors may appoint an Executive Committee. The Executive Committee, in all cases in which the Board of Directors has not given specific directions to the contrary, shall have and may exercise, during the intervals between the meetings of the Board of Directors, all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation (except as provided in Section 9.2) in such manner as the Executive Committee may deem best to be in the interests of the corporation. 10. MEETINGS OF SHAREHOLDERS 10.1. Place of Meetings. Meetings (whether regular, special, or adjourned) of shareholders of the corporation shall be held at the principal office for the transaction of business as specified in accordance with Section 1.1, or any place within or without the State which may be designated by written consent of all the shareholders entitled to vote thereat, or which may be designated by the Board of Directors. -10- 10.2. Time of Annual Meetings. The annual meeting of the shareholders shall be held not earlier than March 15 and not later than July 15 of each year on such date and at such time as may be set by the Board of Directors or, if it does not act, by the Chairman of the Board. If, through inadvertence or other reason, no annual meeting is called within fifteen months after the organization of the corporation or the date of the last annual meeting, the Board of Directors or, if it does not act, the Chairman of the Board, may immediately call an annual meeting of the shareholders, to be noticed in accordance with these Bylaws and appropriate state law. 10.3. Special Meetings. Special meetings of the shareholders may be called by the Board of Directors, the Chairman of the Board, the President (or the Chief Executive Officer if there is one), or the holders of shares entitled to cast not less than ten percent (10%) of the votes at the meeting. 10.4. Notice of Meetings. Whenever shareholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given at least 10 (or, if sent by third-class mail, 30) but not more than 60 days before the day of the meeting. The notice of the meeting shall be given to each shareholder entitled to vote at the meeting. The notice shall state the place, date, and hour of the meeting. In the case of a special meeting, the notice shall also state the general nature of the business to be transacted, and no other business may be transacted. In the case of the annual meeting, the notice shall also state those matters which the Board, at the time of the mailing of the notice, intends to present for action by the shareholders. Subject to the provisions of Section 10.9, however, any proper matter may be presented for action at an annual meeting. The notice of any meeting at which directors are to be elected shall include the names of nominees intended at the time of the notice to be presented by the Board of Directors for election. 10.5. Delivery of Notice. Notice of a shareholders' meeting or the furnishing of any report is to be given either personally or by first-class mail, or, if the corporation has outstanding shares held of record by 500 or more persons on the record date for the shareholder's meeting, notice may be sent third-class mail, or other means of written communication, addressed to the shareholder at the address of such shareholder appearing on the books of the corporation or given by the shareholder to the corporation for the purpose of notice. If no such address appears or is given, the notice may be given at the place where the principal executive office of the corporation is located or by publication at least once in a newspaper of general circulation in the county in which the principal executive office is located. The notice or report shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by other means of written communication. A verified statement of mailing of any notice or report in accordance with the provisions of this Section, executed by the Secretary, an Assistant Secretary, or any transfer agent, shall be prima facie evidence of the giving of the notice or report. If any notice or report addressed to the shareholders at the address of such shareholder appearing on the books of the corporation is returned to the corporation by United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice or report to the shareholder at such address, all future notices or reports shall be deemed to have been duly given without further mailing if the same shall be available for the shareholder upon written demand of the shareholder -11- at the principal executive office of the corporation for a period of one year from the date of the giving of the notice to all other shareholders. 10.6. Shareholder Proposals. Any shareholder who desires to submit a proposal to the vote of the shareholders at a meeting shall submit the proposal in writing to the Secretary of the corporation no later than the date specified in the corporation's most recent proxy statement for that meeting, if any. If there is no applicable proxy statement or the proxy statement did not specify a date, the shareholder shall submit the proposal before the Board of Directors has established a record date for the meeting. The written copy of the proposal shall be in legible hard copy of at least 10 pt type with a copy on a computer diskette written in a word processing program that the corporation's word processing software can easily read. The officers of the corporation may refuse to include the proposal in the notice of the meeting for any lawful reason, or, in their discretion if there exists grounds for excluding the proposal, edit the proposal and include it in the notice of the meeting in its edited form. 10.7. Adjourned Meetings. When a shareholders' meeting is adjourned to another time or place, unless these Bylaws otherwise require, notice need not be given of the adjourned meeting if the time and place thereof is announced at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than 45 days or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the meeting. 10.8. Consent to Shareholders' Meeting. The transactions of any meeting of shareholders, however called and noticed, and wherever held, are as valid as though had at a meeting duly held after regular call and notice, if a quorum is present either in person or by proxy, and if, either before or after the meeting, each of the persons entitled to vote not present in person or by proxy signs a written waiver of notice or consent to the holding of the meeting or an approval of the minutes thereof. All such waivers, consents, and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened and except that attendance at a meeting is not a waiver of any right to object to the consideration of matters required by the California General Corporation Law to be included in the notice but not so included in the notice if such objection is expressly made at the meeting. Neither the business to be transacted at nor the purpose of any regular or special meeting of shareholders need be specified in any written notice, consent to the holding of the meeting, or approval of the minutes thereof, unless otherwise provided in the Articles of Incorporation or Bylaws, except as provided in Section 10.9. 10.9. Notice of Business to be Transacted in Certain Cases. Any shareholder approval at a meeting, other than unanimous approval by those entitled to vote, on any of the matters listed below shall be valid only if the general nature of the proposal so approved was stated in the notice of meeting or in any written waiver of notice: -12- (a) a proposal to approve a contract or other transaction between the corporation and one or more of its directors, or between the corporation and any corporation, firm, or association in which one or more directors has a material financial interest; (b) a proposal to amend the Articles of Incorporation; (c) a proposal regarding a reorganization, merger, or consolidation involving the corporation; (d) a proposal to wind up and dissolve the corporation; (e) a proposal to adopt a plan of distribution of the shares, obligations, or securities of any other corporation, domestic or foreign, or assets other than money which is not in accordance with the liquidation rights of any preferred shares as specified in the Articles of Incorporation. 10.10. Quorum; Vote Required. 10.10.1. Quorum Required. The presence in person or by proxy of the persons entitled to vote a majority of the voting shares at any meeting shall constitute a quorum for the transaction of business. If a quorum is present, the affirmative vote of a majority of the shares represented and voting at a duly held meeting (which shares voting affirmatively also constitute at least a majority of the required quorum) shall be the act of the shareholders, unless the vote of a greater number or voting by classes is required by law, the Articles of Incorporation, or these Bylaws, and except as provided in subsection 10.10.2. 10.10.2. Continuation of Business Despite Lack of Quorum. The shareholders present at a duly called or held meeting at which a quorum is present may continue to transact business until adjournment notwithstanding the withdrawal of the number of enough shareholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum. 10.10.3. No Votes Without Quorum. In the absence of a quorum, any meeting of shareholders may be adjourned from time to time by the vote of a majority of the shares represented either in person or by proxy, but no other business may be transacted, except as provided in subsection 10.10.2. 10.11. Actions Without Meeting. 10.11.1. Majority Consent. Any action which may be taken at any annual or special meeting of shareholders may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Subject to the provisions of Section 2.7, however, directors may not be elected by written consent except by unanimous written consent of all shares entitled to vote for the election of directors. -13- 10.11.2. Matters Requiring 10 Days Notice to Unsolicited Shareholders. Unless the consents of all shareholders entitled to vote have been solicited in writing, notice of any shareholder approval on matters described in Section 10.9(a) (interested transactions), Section 10.9(c) (reorganizations), or Section 10.9(e) (certain distributions) or respecting indemnification of agents of the corporation without a meeting by less than unanimous written consent shall be given at least ten (10) days before the consummation of the action authorized by such approval. Section 10.5 applies to such notice. 10.11.3. Matters Requiring Prompt Notice to Unsolicited Shareholders. Unless the consents of all shareholders entitled to vote have been solicited in writing, prompt notice shall be given of the taking of any corporate action (other than those specified in subsection 10.11.2) approved by shareholders without a meeting by less than unanimous written consent. Section 10.5 applies to such notice. 10.12. Revocation of Consent. Any shareholder giving a written consent, or the shareholder's proxy-holders, or a transferee of the shares, or a personal representative of the shareholder or their respective proxy-holders, may revoke the consent by a writing received by the corporation prior to the time that written consents of the number of shares required to authorize the proposed action have been filed with the secretary of the corporation, but may not do so thereafter. Such revocation is effective upon its receipt by the Secretary. 10.13. Voting Rights. Except as provided in Section 10.15, in the Articles of Incorporation, or in any statute relating to the election of directors or to other particular matters, each outstanding share, regardless of class, shall be entitled to one vote on each matter submitted to a vote of shareholders. Any holder of shares entitled to vote on any matter may vote part of the shares in favor of the proposal and refrain from voting the remaining shares or vote them against the proposal, other than elections to office. If a shareholder fails to specify the number of shares the shareholder is voting affirmatively, it shall be conclusively presumed that the shareholder's approving vote is with respect to all shares such shareholder is entitled to vote. 10.14. Determination of Holders of Record. 10.14.1. Record Date. To determine the shareholders entitled to notice of any meeting, to vote, to receive payment of any dividend or other distribution or allotment of any rights, or to exercise any rights in respect of any other lawful action, the Board of Directors may fix a record date in advance. The record date shall be no more than 60 but at least 10 days before the date of any meeting, and not more than 60 days before any other action. 10.14.2. Absence of Determination By Board for Meetings. In the absence of a record date set by the Board of Directors pursuant to subsection 10.14.1, the record date for determining shareholders entitled to notice of or to vote at a meeting shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held. -14- 10.14.3. Absence of Determination By Board for Action Without A Meeting. In the absence of a record date set by the Board of Directors pursuant to subsection 10.14.1, the record date for determining shareholders entitled to give consent to corporate action in writing without a meeting, when no prior action by the Board has been taken, shall be the day on which the first written consent is given. 10.14.4. Absence of Determination By Board for Other Actions. In the absence of a record date set by the Board of Directors pursuant to subsection 10.14.1, the record date for determining shareholders for any other purpose other than voting or giving a consent shall be at the close of business on the day on which the Board adopts the resolution relating thereto, or the 60th day before the date of the action to which the record date pertains, whichever is later. 10.14.5. Adjournments. A determination of shareholders of record entitled to notice of or to a vote at a meeting of shareholders shall apply to any adjournment of the meeting unless the Board fixes a new record date for the adjourned meeting. The Board shall fix a new record date if the meeting is adjourned for more than 45 days from the date set for the original meeting. 10.14.6. Effect of Post Record Date Transfers. Shareholders at the close of business on the record date are entitled to notice and to vote or to receive the dividend, distribution, or allotment of rights or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date, except as otherwise provided in the Articles of Incorporation, these Bylaws, agreement, or applicable law. 10.15. Elections for Directors. 10.15.1. Right to Cumulate. Every shareholder complying with subsection 10.15.3 and normally entitled to vote at any election of directors may cumulate such shareholder's votes and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which the shareholder's shares are entitled, or distribute the shareholder's votes on the same principle among as many candidates as the shareholder thinks fit. 10.15.2. Effect of not Cumulating. If no shareholder elects to cumulate votes, then each shareholder shall have a number of votes equal to the number of directors to be elected multiplied by the number of votes to which the shareholder's shares are entitled, but shall cast no more than the number of votes to which the shareholder's shares are entitled for any one candidate. 10.15.3. Procedure for Cumulating Votes. No shareholder shall be entitled to cumulate votes (i.e., cast for any candidate a number of votes greater than the number of the votes which such shareholder normally is entitled to cast) unless such candidate or candidates' names have been placed in nomination prior to the voting and the shareholder has given written notice to the chairman of the meeting at the meeting prior to the voting of the shareholder's intention to cumulate the -15- shareholder's votes. If any one shareholder has given such notice, all shareholders may cumulate their votes for candidates in nomination. 10.15.4. Directors Elected. In any election of directors, the candidates receiving the highest number of affirmative votes of the shares entitled to be voted for them, up to the number of directors to be elected by such shares, shall be elected. Votes against directors and votes withheld shall have no effect. 10.15.5. Ballot Optional. Elections for directors need not be by ballot unless a shareholder demands election by ballot at the meeting before the voting begins. 10.16. Proxies. 10.16.1. Proxies Authorized. Every person entitled to vote shares may authorize another person or persons to act by proxy with respect to such shares. Any proxy purporting to be executed in accordance with the provisions of the General Corporation Law of the State of California shall be presumptively valid. 10.16.2. Term of Proxy. No proxy shall be valid after the expiration of 11 months from the date thereof unless otherwise provided in the proxy. Every proxy continues in full force and effect until revoked by the person executing it prior to the vote pursuant thereto, except as otherwise provided in this Section. Such revocation may be effected by a writing delivered to the corporation stating that the proxy is revoked or by a subsequent proxy executed by the person executing the prior proxy and presented to the meeting, or as to any meeting by attendance at such meeting and voting in person by the person executing the proxy. The dates contained on the forms of proxy presumptively determine the order of execution, regardless of the postmark dates on the envelopes in which they are mailed. 10.16.3. Death of Proxy Maker. A proxy is revoked by the death or incapacity of the maker if, before the vote is counted, written notice of such death or incapacity is received by the corporation. 10.17. Inspectors of Election. 10.17.1. Appointment. In advance of any meeting of shareholders, the Board may appoint inspectors of election to act at the meeting and any adjournment thereof. If inspectors of election are not so appointed, or if any persons so appointed fail to appear or refuse to act, the chairman of any meeting of shareholders may, and on the request of any shareholder or a shareholder's proxy shall, appoint inspectors of election (or persons to replace those who so fail or refuse) at the meeting. The number of inspectors shall be either one or three. If appointed at a meeting on the request of one or more shareholders or proxies, the majority of shares represented in person or by proxy shall determine whether one or three inspectors are to be appointed. -16- 10.17.2. Duties. The inspectors of election shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, the authenticity, validity, and effect of proxies, receive votes, ballots, or consents, hear and determine all challenges and questions in any way arising in connection with the right to vote, count and tabulate all votes and consents, determine when the polls shall close, determine the result, and do such acts as may be proper to conduct the election or vote with fairness to all shareholders. 10.17.3. Good Faith; Acts. The inspectors of election shall perform their duties impartially, in good faith, to the best of their ability, and as expeditiously as is practical. If there are three inspectors of election, the decision, act, or certificate of a majority is effective in all respects as the decision, act, or certificate of all. Any report or certificate made by the inspectors of election is prima facie evidence of the facts stated therein. 11. INDEMNIFICATION OF DIRECTORS, OFFICERS, AND AGENTS 11.1. Indemnification For Third Party Actions. Except as provided elsewhere in this Article 11, the corporation shall indemnify any officer or director of the corporation, and may indemnify any other person, who was or is a party or is threatened to be made a party to any proceeding (other than an action by or in the right of the corporation to procure a judgment in its favor) by reason of the fact that the person is or was an agent of the corporation, against expenses, judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with the proceeding if that person acted in good faith and in a manner the person reasonably believed to be in the best interests of the corporation and, in the case of a criminal proceeding, had no reasonable cause to believe the conduct of the person was unlawful. The termination of any proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendre or its equivalent shall not, of itself, create a presumption that the person did not act in good faith and in a manner which the person reasonably believed to be in the best interests of the corporation or that the person had reasonable cause to believe that the person's conduct was unlawful. 11.2. Indemnification For Claims By the Corporation. Except as provided elsewhere in this Article 11, the corporation shall indemnify any officer or director of the corporation, and may indemnify any other person, who was or is a party or is threatened to be made a party to any threatened, pending, or completed action by or in the right of the corporation to procure a judgment in its favor by reason of the fact that the person is or was an agent of the corporation, against expenses actually and reasonably incurred by that person in connection with the defense or settlement of the action if the person acted in good faith, in a manner the person believed to be in the best interests of the corporation and its shareholders. 11.3. Prerequisite for Indemnification. Except as provided in Section 11.5, any indemnification under Sections 11.1 and 11.2 shall be made by the corporation only if authorized in the specific case, upon a determination that -17- indemnification of the agent is proper in the circumstances because the agent has met the applicable standard of conduct set forth in Section 11.1 or 11.2, by any of the following: (a) a majority vote of a quorum consisting of directors who are not parties to such proceeding; (b) if such quorum of directors is not obtainable, by independent legal counsel in a written opinion; (c) approval of the shareholders (within the meaning of Section 153 of the California Corporations Code), with the shares owned by the person to be indemnified not being entitled to vote thereon; or (d) the court in which the proceeding is or was pending upon application made by the corporation or the agent or the attorney or other person rendering services in connection with the defense, whether or not the application by the agent, attorney, or other person is opposed by the corporation. 11.4. Additional Indemnification When Permitted By Law. In addition to the indemnification provided in Sections 11.1 and 11.2 and except as provided elsewhere in this Article 11, the corporation shall indemnify any officer or director of the corporation, and may indemnify any other person, who was or is a party or is threatened to be made a party to any proceeding (other than an action by or in the right of the corporation to procure a judgment in its favor) by reason of the fact that such person is or was an agent of the corporation, against expenses, judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with such proceeding, to the fullest extent permitted by law. 11.5. Indemnification For Successful Defense. To the extent that an agent of the corporation is successful on the merits in defense of any proceeding or in defense of any claim, issue, or matter therein, the agent shall be indemnified against expenses actually and reasonably incurred by the agent in connection therewith. 11.6. Advances of Expenses. Expenses incurred by an officer or director of the corporation in defending a proceeding shall be advanced by the corporation, and expenses incurred by a person other than an officer or director of the corporation in defending a proceeding may be advanced by the corporation, before final disposition of the proceeding. As a condition to any such advance, the corporation shall receive an undertaking by or on behalf of the officer, director, or agent to repay that amount if it is determined ultimately that the agent is not entitled to be indemnified. With respect to advances to persons other than officers or directors, the corporation may require such terms and collateral as it deems appropriate as a condition to any such advance. The corporation shall pay expenses of officers and directors required to be paid under this Section 11.6 within 45 days after the corporation receives evidence of the expenses in form sufficient to document them for tax purposes. -18- 11.7. Prohibitions on Indemnification. 11.7.1. Limits on Indemnification That Would Be Inconsistent With Controlling Documents or Court Orders. No indemnification or advance shall be made under this Article 11, except as provided in Sections 11.3(c) or 11.5, in any circumstance where it appears that: (a) it would be inconsistent with a provision of the Articles of Incorporation of the corporation, these Bylaws, a resolution of the shareholders, or an agreement in effect at the time of the accrual of the alleged cause of action asserted in the proceeding in which the expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification; or (b) it would be inconsistent with any condition expressly imposed by a court in approving a settlement. 11.7.2. Limits on Indemnification For Selfish or Reckless Actions. No indemnification or advance shall be made under this Article 11, except as provided in Section 11.5, in any circumstance where it appears that the agent may be liable: (a) for acts or omissions that involve intentional misconduct or a knowing and culpable violation of law; (b) for acts or omissions that the agent believes to be contrary to the best interests of the corporation or its shareholders or that involve the absence of good faith on the part of the agent; (c) for any transaction from which the agent derived an improper personal benefit; (d) for acts or omissions that show a reckless disregard for the agent's duty to the corporation or its shareholders in circumstances in which the agent was aware, or should have been aware, in the ordinary course of performing the agent's duties, of a risk of serious injury to the corporation or its shareholders; (e) for acts or omissions that constitute an unexcused pattern of inattention that amounts to an abdication of the agent's duty to the corporation or its shareholders; or (f) under Section 310 or Section 316 of the California Corporations Code. 11.7.3. Limits on Indemnification for Claims by the Corporation. No indemnification shall be made under Section 11.2, (a) in respect of any claim, issue, or matter as to which the person shall have been adjudged to be liable to the corporation in the performance of that person's duty to the corporation and its shareholders, unless and only to the extent that the court in which the proceeding is or was pending shall determine upon application that, in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for expenses and then only to the extent that the court shall determine; (b) of amounts paid in settling or otherwise disposing of a pending action without court approval; or -19- (c) of expenses incurred in defending a pending action which is settled or otherwise disposed of without court approval. 11.7.4. Limits on Indemnification for Unauthorized Prosecutions, Double Payments, and 16(b) Violations. No indemnification or advance shall be made under this Article 11, except as provided in Section 11.5, in any circumstance where it appears that: (a) the proceedings or claims are initiated or brought voluntarily by the agent and not by way of defense without the approval of the Board of Directors, unless indemnification is approved by the board of directors or the shareholders pursuant to clauses (a) or (c), respectively, of Section 11.3; (b) the indemnifiable expense has been paid by insurance or by any other person on behalf of the corporation; or (c) the claim arises from a purchase and sale of securities determined to be in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar successor statute. 11.7.5. Limits on Indemnification of Claimants Against the Corporation. Notwithstanding anything in this Article 11 to the contrary, the corporation shall not have any obligation to indemnify any agent who has made or is making a substantial claim against the corporation (other than to enforce the provisions of this Article 11), or against whom the corporation is making any substantial separate claim, unless the agent prevails on the separate claim on the merits and indemnification is approved in the manner described in Section 11.3. 11.8. Procedure Regarding Claims By Third Parties. 11.8.1. Notice. An agent whom the corporation is obligated or has agreed to indemnify under Section 11.1 shall give notice to the corporation promptly after the agent has actual knowledge of any claim as to which indemnity may be sought pursuant to this Article 11. Failure to give notice as provided herein shall not relieve the corporation of its obligations under this Article 11 unless and to the extent that the corporation is materially prejudiced thereby. 11.8.2. Conduct of Defense. The agent shall permit the corporation to assume the defense of any claim, at the corporation's option. The agent may approve the counsel the corporation selects to conduct the defense of the claim, and shall not withhold consent unreasonably. The agent may participate in the defense of the claim at the agent's expense. 11.8.3. Settlements. The corporation shall not, in the defense of any claim, consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof a release of the agent by the claimant or plaintiff from all liability in respect to such claim, unless the agent agrees otherwise. -20- 11.8.4. Conflict of Interest. If an agent is advised by its own counsel that there may be one or more legal defenses available to it that are different from or additional to those available to other agents entitled to indemnification, the corporation shall not have the right to assume the defense of the action on behalf of the agent and shall reimburse the agent for the reasonable fees and expenses of counsel retained by the agent. The corporation shall not, in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys for such agent. 11.9. Separate Agreements Authorized; Bylaws Not Exclusive. The corporation may agree with individual agents that it shall indemnify or advance expenses in situations where such indemnification or advance is not mandatory as the Board of Directors deems appropriate. The corporation may also enter into separate indemnification agreements with its officers, directors, and other agents. Such separate agreements may modify, expand, duplicate, or limit any provision of this Article 11. Any such separate agreement shall govern to the extent permitted by law if it conflicts with these Bylaws. The indemnification provided by this Article 11 shall not be deemed exclusive of any additional rights to indemnification for breach of duty to the corporation and its shareholders while acting in the capacity of a director or officer of the corporation to the extent the additional rights to indemnification are authorized in a provision of the Articles of Incorporation of the corporation adopted pursuant to paragraph (11) of subdivision (a) of Section 204 of the California Corporations Code. The indemnification provided by this Article 11 for acts, omissions, or transactions while acting in the capacity of, or while serving as, a director or officer of the corporation but not involving breach of duty to the corporation and its shareholders shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any law, other provisions of these Bylaws, the corporation's Articles of Incorporation, agreement, vote of shareholders or disinterested directors, or otherwise, to the extent the additional rights of indemnification are authorized in the Articles of Incorporation of the corporation. The rights to indemnification under this Article 11 shall continue as to a person who has ceased to be a director, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of such person. Nothing contained in this Article 11 shall affect any right to indemnification to which persons other than the directors and officers may be entitled by contract or otherwise. 11.10. Insurance. The corporation may purchase and maintain insurance on behalf of any agent against any liability asserted against or incurred by the agent in that capacity or arising out of the agent's status as such, whether or not the corporation has the power to indemnify the agent against that liability under this Section. 11.11. Optional Means of Assuring Payment. The corporation may, but is not required to, create a trust fund, grant a security interest, obtain a letter of credit, or use other means to ensure the payment of such sums as may be necessary to indemnify its agents as provided herein. -21- 11.12. Savings Clause. If any portion of this Article 11 is invalid, then the corporation shall nevertheless indemnify each officer and director, and each agent the corporation elects to indemnify, to the full extent permitted by any applicable portion of this Article 11 that is not invalid, or by any applicable agreement or law. Without limiting the foregoing, if any portion of this Article 11 is invalid because it is too broad, the corporation shall be required or entitled, as the case may be, to indemnify its agents to the full extent permitted as if all necessary limitations had been included herein. 11.13. Application of Other Laws. Nothing in this Article 11 shall restrict the power of the corporation to indemnify its agents under any provision of law from time to time applicable to the corporation, nor shall anything in this Article 11 authorize the corporation to indemnify its agents in situations prohibited by law. 11.14. Definitions. For the purpose of this Article 11: (a) "agent" means any person who is or was a director, officer, employee, or other agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust, or other enterprise, or was a director, officer, employee, or agent of a foreign or domestic corporation which was a predecessor corporation of the corporation or of another enterprise at the request of that predecessor corporation; (b) "officer" means the chief executive officer, chief operating officer, chief financial officer, president, treasurer, secretary, and any vice president, assistant treasurer, and assistant secretary of the corporation; (c) "proceeding" means any threatened, pending or completed action or proceeding, whether civil, criminal, administrative or investigative; and (d) "expenses" includes without limitation attorneys' fees and any expenses of enforcing a right to indemnification. 12. SUNDRY PROVISIONS 12.1. Shares Held by the Corporation. Shares in other corporations standing in the name of the corporation may be voted or represented and all rights incident thereto may be exercised on behalf of the corporation by the President or by any other officer of the corporation authorized so to do by resolution of the Board of Directors. 12.2. Certificates of Stock. There shall be issued to each holder of fully paid shares of the capital stock of the corporation a certificate or certificates for such shares. Every holder of shares in the corporation shall be entitled to have a certificate signed in the name of the corporation by the Chairman or Vice Chairman of the Board, the chief Executive Officer, the President, or a Vice President and by the Chief Financial Officer, an Assistant Treasurer, the Secretary, or any Assistant Secretary, -22- certifying the number of shares and the class or series of shares owned by the shareholder. Any or all of the signatures on the certificates may be facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if such person were an officer, transfer agent, or registrar at the date of issue. 12.3. Lost Certificates. The corporation may issue a new share certificate or a new certificate for any other security in the place of any certificate theretofore issued by it, alleged to have been lost, stolen, or destroyed, and the corporation may require the owner of the lost, stolen, or destroyed certificate or the owner's legal representative to give the corporation a bond (or other adequate security) sufficient to indemnify it against any claim that may be made against it (including any expense or liability) on account of the alleged loss, theft, or destruction of any such certificate or the issuance of such new certificate. The Board of Directors may adopt such other provisions and restrictions with reference to lost certificates, not inconsistent with applicable law, as it shall in its discretion deem appropriate. 12.4. Certification and Inspection of Bylaws. The corporation shall keep at its principal executive office in this state, or if its principal executive office is not in this state at its principal business office in this state, the original or a copy of these Bylaws as amended to date, which shall be open to inspection by the shareholders at all reasonable times during office hours. If the principal executive office of the corporation is outside this state and the corporation has no principal business office in this state, it shall upon the written request of any shareholder furnish to such shareholder a copy of the Bylaws as amended to date. 12.5. Notices. Any reference in these Bylaws to the time a notice is given or sent means, unless otherwise expressly provided, the time a written notice by mail is deposited in the United States mails, postage prepaid; or the time any other written notice is personally delivered to the recipient or is delivered to a common carrier for transmission, or actually transmitted by the person giving the notice by electronic means, to the recipient; or the time any oral notice is communicated, in person or by telephone or wireless, to the recipient or to a person at the office of the recipient who the person giving the notice has reason to believe will promptly communicate it to the recipient. 12.6. Reports to Shareholders. Except as may otherwise be required by law, the rendition of an annual report to the shareholders is waived so long as there are less than 100 holders of record of the shares of the corporation (determined as provided in Section 605 of the California General Corporation Law). At such time or times, if any, that the corporation has 100 or more holders of record of its shares, the Board of Directors shall cause an annual report to be sent to the shareholders not later than 120 days after the close of the fiscal year or within such shorter time period as may be required by applicable law, and such annual report shall contain such information and be accompanied by such other documents as may be required by applicable law. -23- 12.7. Loans to Officers. The Board may approve loans of money or property to, and guaranties of the obligations of, officers of the corporation, and may adopt employee benefit plans authorizing such loans and guaranties to officers of the corporation, without the approval of the shareholders of the corporation, provided that: (a) the corporation has outstanding shares held of record by more than 100 persons; (b) the vote of any interested director or directors is not counted; and (c) the Board determines that such loan, guaranty, or plan may reasonably be expected to benefit the corporation. 13. CONSTRUCTION OF BYLAWS WITH REFERENCE TO PROVISIONS OF LAW 13.1. Definitions. Unless defined otherwise in these Bylaws or unless the context otherwise requires, terms used herein shall have the same meaning, if any, ascribed thereto in the California General Corporation Law, as amended from time to time. 13.2. Bylaw Provisions Additional and Supplemental to Provisions of Law. All restrictions, limitations, requirements, and other provisions of these Bylaws shall be construed, insofar as possible, as supplemental and additional to all provisions of law applicable to the subject matter thereof and shall be fully complied with in addition to the said provisions of law unless such compliance shall be illegal. 13.3. Bylaw Provisions Contrary to or Inconsistent with Provisions of Law. Any portion of these Bylaws that, upon being construed in the manner provided in Section 13.2, is contrary to or inconsistent with any applicable law, shall not apply so long as said law remains in effect. Such result shall not, however, affect the validity or application of any other portion of these Bylaws. Each portion of these Bylaws would have been adopted even if any other portion were invalid or unenforceable. 14. ADOPTION, AMENDMENT, OR REPEAL OF BYLAWS 14.1. By Shareholders. Bylaws may be adopted, amended, or repealed by the approval of the affirmative vote of a majority of each class or series of the outstanding shares of the corporation entitled to vote. Only the shareholders may amend Section 2.2. 14.2. By the Board of Directors. Subject to the right of shareholders to adopt, amend, or repeal Bylaws, Bylaws other than a Bylaw or amendment thereof changing the authorized number of directors or any provision of this Article 14 may be adopted, amended, or repealed by the Board of Directors. Subject to the articles of incorporation, a Bylaw adopted by the shareholders may restrict or eliminate the power of the Board of Directors to adopt, amend, or repeal any or all Bylaws. -24- BYLAWS OF MENDOCINO BREWING COMPANY, INC., a California corporation -------------------------------------------------- (including all amendments adopted through June 28, 2001) TABLE OF CONTENTS 1. OFFICES.....................................................................1 1.1. PRINCIPAL OFFICE..........................................................1 1.2. OTHER OFFICES.............................................................1 2. DIRECTORS...................................................................1 2.1. EXERCISE OF CORPORATE POWERS..............................................1 2.2. NUMBER....................................................................1 2.3. NEED NOT BE SHAREHOLDERS..................................................2 2.4. COMPENSATION..............................................................2 2.5. ELECTION AND TERM OF OFFICE...............................................2 2.6. NOMINATION................................................................2 2.6.1. Nominations by the Board..........................................2 2.6.2. Nominations by Shareholders.......................................2 2.6.3. Procedure for Shareholder Nominations.............................2 2.6.4. Defective Nominations.............................................3 2.7. VACANCIES.................................................................3 2.8. REMOVAL...................................................................3 2.8.1. General Rule......................................................3 2.8.2. Supermajority Vote Required.......................................3 2.8.3. Class Vote........................................................4 2.8.4. Effect of Reduction of Size of Board..............................4 2.9. MEETINGS OF DIRECTORS.....................................................4 2.9.1. Place of Meetings.................................................4 2.9.2. Regular Meetings..................................................4 2.9.3. Special Meetings..................................................4 2.9.4. Notice of Meetings................................................4 2.9.5. Quorum............................................................5 2.9.6. Adjourned Meetings................................................5 2.9.7. Waiver of Notice and Consent......................................5 2.9.8. Action Without a Meeting..........................................5 2.9.9. Conference Telephone Meetings.....................................5 2.9.10. Meetings of Committees...........................................5 3. OFFICERS....................................................................5 3.1. ELECTION AND QUALIFICATIONS...............................................5 3.2. TERM OF OFFICE AND COMPENSATION...........................................6 3.3. REMOVAL AND VACANCIES.....................................................6 4. CHAIRMAN OF THE BOARD.......................................................6 BYLAWS OF MENDOCINO BREWING COMPANY, INC., Table of Contents (continued) 5. PRESIDENT AND CHIEF EXECUTIVE OFFICER.......................................6 5.1. CHIEF EXECUTIVE OFFICER...................................................6 5.2. BIFURCATION OF PRESIDENT AND CHIEF EXECUTIVE OFFICER......................6 5.3. PRESIDE AT MEETINGS.......................................................7 5.4. CALL MEETINGS.............................................................7 5.5. PRESIDENT PRO TEM.........................................................7 6. VICE PRESIDENT..............................................................7 7. SECRETARY...................................................................7 7.1. MINUTES...................................................................7 7.2. SEAL......................................................................7 7.3. STOCK RECORDS.............................................................8 7.4. SHARE CERTIFICATES........................................................8 7.5. TRANSFER AGENT............................................................8 7.6. NOTICES...................................................................8 7.7. OTHER DUTIES..............................................................8 8. CHIEF FINANCIAL OFFICER.....................................................8 8.1. ACCOUNTS OF THE CORPORATION...............................................8 8.2. CUSTODIAN OF FUNDS........................................................9 8.3. RECEIPTS..................................................................9 8.4. DISBURSEMENTS.............................................................9 8.5. REPORTS...................................................................9 8.6. OTHER DUTIES..............................................................9 9. COMMITTEES OF THE BOARD.....................................................9 9.1. APPOINTMENT AND PROCEDURE.................................................9 9.2. POWERS....................................................................9 9.2.1. General Scope.....................................................9 9.2.2. Matters Requiring Shareholder Approval...........................10 9.2.3. Filling Vacancies................................................10 9.2.4. Fix Compensation.................................................10 9.2.5. Bylaws...........................................................10 9.2.6. Board Resolutions................................................10 9.2.7. Distributions....................................................10 9.2.8. Other Committees.................................................10 9.3. EXECUTIVE COMMITTEE......................................................10 10. MEETINGS OF SHAREHOLDERS..................................................10 10.1. PLACE OF MEETINGS.......................................................10 10.2. TIME OF ANNUAL MEETINGS.................................................11 10.3. SPECIAL MEETINGS........................................................11 10.4. NOTICE OF MEETINGS......................................................11 10.5. DELIVERY OF NOTICE......................................................11 10.6. SHAREHOLDER PROPOSALS...................................................12 10.7. ADJOURNED MEETINGS......................................................12 10.8. CONSENT TO SHAREHOLDERS' MEETING........................................12 BYLAWS OF MENDOCINO BREWING COMPANY, INC., Table of Contents (continued) 10.9. NOTICE OF BUSINESS TO BE TRANSACTED IN CERTAIN CASES....................12 10.10. QUORUM; VOTE REQUIRED..................................................13 10.10.1. Quorum Required................................................13 10.10.2. Continuation of Business Despite Lack of Quorum................13 10.10.3. No Votes Without Quorum........................................13 10.11. ACTIONS WITHOUT MEETING................................................13 10.11.1. Majority Consent...............................................13 10.11.2. Matters Requiring 10 Days Notice to Unsolicited Shareholders...14 10.11.3. Matters Requiring Prompt Notice to Unsolicited Shareholders....14 10.12. REVOCATION OF CONSENT..................................................14 10.13. VOTING RIGHTS..........................................................14 10.14. DETERMINATION OF HOLDERS OF RECORD.....................................14 10.14.1. Record Date....................................................14 10.14.2. Absence of Determination By Board for Meetings.................14 10.14.3. Absence of Determination By Board for Action Without A Meeting.15 10.14.4. Absence of Determination By Board for Other Actions............15 10.14.5. Adjournments...................................................15 10.14.6. Effect of Post Record Date Transfers...........................15 10.15. ELECTIONS FOR DIRECTORS................................................15 10.15.1. Right to Cumulate..............................................15 10.15.2. Effect of not Cumulating.......................................15 10.15.3. Procedure for Cumulating Votes.................................15 10.15.4. Directors Elected..............................................16 10.15.5. Ballot Optional................................................16 10.16. PROXIES................................................................16 10.16.1. Proxies Authorized.............................................16 10.16.2. Term of Proxy..................................................16 10.16.3. Death of Proxy Maker...........................................16 10.17. INSPECTORS OF ELECTION.................................................16 10.17.1. Appointment....................................................16 10.17.2. Duties.........................................................17 10.17.3. Good Faith; Acts...............................................17 11. INDEMNIFICATION OF DIRECTORS, OFFICERS, AND AGENTS........................17 11.1. INDEMNIFICATION FOR THIRD PARTY ACTIONS.................................17 11.2. INDEMNIFICATION FOR CLAIMS BY THE CORPORATION...........................17 11.3. PREREQUISITE FOR INDEMNIFICATION........................................17 11.4. ADDITIONAL INDEMNIFICATION WHEN PERMITTED BY LAW........................18 11.5. INDEMNIFICATION FOR SUCCESSFUL DEFENSE..................................18 11.6. ADVANCES OF EXPENSES....................................................18 11.7. PROHIBITIONS ON INDEMNIFICATION.........................................19 11.7.1. Limits on Indemnification That Would Be Inconsistent With Controlling Documents or Court Orders......................19 11.7.2. Limits on Indemnification For Selfish or Reckless Actions.......19 11.7.3. Limits on Indemnification for Claims by the Corporation.........19 11.7.4. Limits on Indemnification for Unauthorized Prosecutions, Double Payments, and 16(b) Violations...........................20 11.7.5. Limits on Indemnification of Claimants Against the Corporation..20 11.8. PROCEDURE REGARDING CLAIMS BY THIRD PARTIES.............................20 11.8.1. Notice..........................................................20 11.8.2. Conduct of Defense..............................................20 BYLAWS OF MENDOCINO BREWING COMPANY, INC., Table of Contents (continued) 11.8.3. Settlements.....................................................20 11.8.4. Conflict of Interest............................................21 11.9. SEPARATE AGREEMENTS AUTHORIZED; BYLAWS NOT EXCLUSIVE....................21 11.10. INSURANCE..............................................................21 11.11. OPTIONAL MEANS OF ASSURING PAYMENT.....................................22 11.12. SAVINGS CLAUSE.........................................................22 11.13. APPLICATION OF OTHER LAWS..............................................22 11.14. DEFINITIONS............................................................22 12. SUNDRY PROVISIONS.........................................................22 12.1. SHARES HELD BY THE CORPORATION..........................................22 12.2. CERTIFICATES OF STOCK...................................................23 12.3. LOST CERTIFICATES.......................................................23 12.4. CERTIFICATION AND INSPECTION OF BYLAWS..................................23 12.5. NOTICES.................................................................23 12.6. REPORTS TO SHAREHOLDERS.................................................23 12.7. LOANS TO OFFICERS.......................................................24 13. CONSTRUCTION OF BYLAWS WITH REFERENCE TO PROVISIONS OF LAW................24 13.1. DEFINITIONS.............................................................24 13.2. BYLAW PROVISIONS ADDITIONAL AND SUPPLEMENTAL TO PROVISIONS OF LAW.......24 13.3. BYLAW PROVISIONS CONTRARY TO OR INCONSISTENT WITH PROVISIONS OF LAW.....24 14. ADOPTION, AMENDMENT, OR REPEAL OF BYLAWS..................................24 14.1. BY SHAREHOLDERS.........................................................24 14.2. BY THE BOARD OF DIRECTORS...............................................25 EX-10.2 5 d50241_ex10-2.txt STOCK OPTION PLAN Exhibit 10.2 MENDOCINO BREWING COMPANY, INC. 1994 STOCK OPTION PLAN ------------------------------- (As Amended) 1. DEFINITIONS. As used in this Plan, the underlined terms set forth below have the meanings set forth in this Article 1. "Administrator" means the Board or any of its Committees appointed pursuant to Article 10. "Affiliate" means a parent or subsidiary corporation of the Company, whether now or hereafter existing, as defined in Sections 424(e) and (f) of the Code, respectively. "Board" means the Board of Directors of the Company. "Code" means the Internal Revenue Code of 1986, as amended. "Committee" means the applicable committee appointed by the Board under Article 10. "Common Stock" means the common stock of the Company. "Company" means Mendocino Brewing Company, Inc., a California corporation. "Consultant" means (a) any persons, including an advisor, who is engaged by the Company or any Affiliate to render services, either on a continuous or project-by-project basis, who is compensated for such services, but who is not an Employee; and (b) any director who is not an Employee, regardless of whether the director is compensated for such services. "Control Person" means a person who directly or indirectly controls, is controlled by or is under common control with the Company. "Corporate Transaction" means (a) a merger in which the shares of the Company outstanding immediately before the merger, or in which shares of the surviving entity issued with respect to shares of the Company outstanding immediately before the merger, represent 50% or less of the combined voting power of all of the Company's outstanding stock; (b) the sale, transfer, or other disposition of all or substantially all of the assets of the Company; or 1 (c) any other corporate reorganization or business combination in which the beneficial ownership of 50% or more of the combined voting power of all of the Company's outstanding stock is transferred. "Employee" means any person, including an officer or director, employed by the Company or any Affiliate. The payment of a director's fee by the Company does not by itself constitute employment. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Fair Market Value" means, as of any date: (a) the closing sales price (or the closing bid, if no sales were reported), as quoted on a stock exchange or national market system (including without limitation the Nasdaq National Market System), for the last market trading day most recently in the Wall Street Journal or such other source as the Administrator deems reliable; or (b) if (a) does not apply, the mean between the high and low asked prices for the Common Stock regularly quoted by a recognized securities dealer during the previous 30 days; or (c) if (a) and (b) do not apply, the value determined in good faith by the Administrator. "Incentive Option" means an Option intended to qualify as an incentive stock option within the meaning of Code Section 422. "Nonstatutory Option" means an Option not intended to qualify as an Incentive Option. "Option" means an option to purchase Common Stock granted pursuant to this Plan. "Option Agreement" means a written agreement, signed by the Optionee and a duly authorized representative of the Company, evidencing the grant of an Option. "Optionee" means an Employee or Consultant who receives an Option. "Outside Director" means a member of the Board who is not an Employee or an officer of the Company or any Affiliate. "Plan" means this 1994 Stock Option Plan. "Rule 16b-3" means Rule 16b-3 promulgated under Section 16 of the Securities Exchange Act of 1934, as amended. "Share" means a share of the Common Stock, as adjusted in accordance with Article 9. "Tax Date" means the date on which the amount of any tax to be withheld upon exercise of an Option is to be determined. 2 "Termination of Employment" means the interruption or termination of the employment relationship by the Company or any Affiliate for any reason including resignation, discharge, death, or retirement, but does not include a termination where there is a simultaneous reemployment of the Optionee by the Company or an Affiliate as an Employee or, in the sole discretion of the Administrator, as a Consultant. Employment is not considered to be interrupted by (a) sick leave; (b) military leave; (c) any other leave of absence for 90 days or less approved by the Board, unless reemployment upon the expiration of such leave is guaranteed by contract or statute; or (d) transfers between locations of the Company or between the Company and its Affiliates or successor. For Consultants, "Termination of Employment" means ceasing to render services on at least a periodic basis. The Administrator, in its absolute discretion, shall determine the effect of all matters and questions to Termination of Employment. 2. PURPOSE. The purpose of this Plan is to advance the interests of the Company by giving the Company's Employees and Consultants incentive through ownership of the Company's stock to continue in the service of the Company and thereby to help the Company compete effectively with other enterprises for the services of qualified individuals. Options granted under this Plan may be Incentive Options or Nonstatutory Options, as determined by the Administrator at the time of grant of any Option and subject to the applicable provisions of Code Section 422, the regulations promulgated thereunder, or another relevant provisions of the Code and regulations. 3. STOCK SUBJECT TO THIS PLAN. Subject to the adjustment as provided in Article 9, the Company may issue Options to purchase up to 1,000,000 Shares. Options that terminate for any reason other than exercise may be issued again in the future unless this Plan has been terminated. The Company shall at all times reserve for issuance pursuant to this Plan a number of its authorized but unissued Shares equal to the number of Shares issuable pursuant to this Plan. Exercise of an Option shall decrease the number of Shares available, both under this Plan and under the Option, by the number of Shares as to which the Option is exercised. 4. TERM OF PLAN. This Plan shall become effective upon its adoption by the Board. Within 12 months after the date of such adoption, this Plan shall be approved by the shareholders in the Company in the degree and manner required under applicable state and federal law. No option shall become exercisable unless and until such shareholder approval has been obtained. Unless sooner terminated under Article 9 or 10, this Plan shall terminate upon the earlier of (a) the tenth 3 anniversary of its adoption by the Board or (b) the date on which all Shares available for issuance under this Plan have been issued. Any Option outstanding under this Plan at the time of its termination shall remain in effect in accordance with its terms and conditions and those of this Plan. 5. ELIGIBILITY. The Company may grant Nonstatutory Options to Employees and Consultants, except that Outside Directors who serve as Administrator under Section 10.1 are eligible to receive Option grants only in accordance with Article 8. The Company may grant Incentive Options only to Employees. The Company may grant eligible Optionees additional Options. 6. TERMS OF OPTIONS. 6.1 Written Agreements. Grants of Options shall be evidenced by an Option Agreement, which shall contain the provisions that this Plan requires and may contain additional provisions that do not conflict with this Plan as the Administrator deems appropriate. Option Agreements need not have identical terms. Each Option Agreement shall be subject to this Plan. 6.2 Term of Option. The term of each Option shall be no more than 10 years from the date of grant. The term of an Option granted to person who, at the time the Option is granted, owns (as that term is defined in Code Section 424(d)) stock representing more than 10% of the combined voting power of all classes of stock of the Company or any Affiliate shall be no more than 5 years from the date of grant. 6.3 Exercise Price. The per Share exercise price for the Shares to be issued pursuant to exercise of an Option shall be determined by the Administrator, but in no event shall the per Share exercise price of an Incentive Option be less than the Fair Market Value per Share on the date of grant, and in no event shall the per Share exercise price of a Nonstatutory Option be less than 85% of the Fair Market Value per Share on the date of grant. In the case of an Option granted to an Employee who, at the time of the grant of such Option, owns, as that term is defined in Section 424(d) of the Code, stock representing more than 10% of the voting power of all classes of stock of the Company or any Affiliate, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant. 6.4 Termination of Employment. 6.4.1 General Rule. Unless determined otherwise by the Administrator pursuant to Section 6.6, to the extent not already expired or exercised, and except as provided otherwise by this Section 6.4, every Option shall terminate at the earlier of: (a) the expiration date as set forth in the Option Agreement; or (b) 3 months after Termination of Employment for reasons other than death or disability; An Option shall be exercisable after Termination of Employment only to the extent that it was exercisable on the date of Termination of Employment. Upon the expiration of the period of 4 exercisability after Termination of Employment or (if earlier) upon the expiration of the Option term, the Option shall terminate. 6.4.2 Death or Disability. If Termination of Employment is due to the Optionee's death or disability (as defined in Code Section 22(e)(3)), unless determined otherwise by the Administrator pursuant to Section 6.6, the Option, to the extent not already expired or exercised, shall terminate at the earlier of (a) the expiration date as set forth in the Option Agreement, or (b) one year after the date of the Optionee's disability or death. In the event of the death of the Optionee, the Option shall be exercisable by the Optionee's estate or any person who acquired the right to exercise the Option by bequest or inheritance. 6.4.3 Special Rule for Incentive Options. For purposes of this Section 6.4, the limited period of exercisability of Incentive Options following Termination of Employment shall be measured from the date the Optionee ceased to be Employee. 6.4.4 Change of Status from Employee to Consultant. Unless the Administrator determines otherwise in its sole discretion, following termination of an Optionee's employment with the Company or an Affiliate as an Employee where there is a simultaneous reemployment of the Optionee by the Company or an Affiliate as a Consultant, any Incentive Options held by the Optionee shall, at the time the options would otherwise have terminated pursuant to subsection 6.4.1, instead convert to Nonstatutory Options. 6.5 Extension of Exercise Period. The Administrator may at any time extend the expiration date of an Option following the Optionee's Termination of Employment beyond the periods specified in Section 6.4, but not beyond the expiration date set forth in the Option Agreement. Unless the Optionee agrees to convert an Incentive Option into a Nonstatutory Option or the Option will continue to meet the requirements of an Incentive Option, the Administrator may not: (a) extend the expiration date of an Incentive Option after the Company has granted the Option, or (b) extend the expiration date of an Incentive Option, beyond one year after Termination of Employment by reason of death or disability or 3 months after Termination of Employment for other reasons. 6.6 Non-Transferability of Options. An Option may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution. An Option may be exercised, during the lifetime of the Optionee, only by the Optionee. 6.7 Type of Option. Each Option Agreement shall clearly state whether or not the Option is intended to qualify as an Incentive Option. If only a portion of an Option is intended to so qualify, (a) the Option Agreement shall so state, and (b) the Option Agreement shall not require that the number of Incentive Options exercised reduces the size the Nonstatutory Option portion, or vice-versa. 5 6.8 Limitation on Incentive Options. The aggregate Fair Market Value of the Shares for which one or more Incentive Options granted to a single Employee under this Plan (or any other Incentive Option plan of the Company or any Affiliate) may for the first time become exercisable as Incentive Options under the Code during any one calendar year shall not exceed $100,000 or such other amount as may be permitted under subsequent amendments to Code Section 422. To the extent that any two or more Incentive Options violate this limitation, the excess Options shall be treated as Nonstatutory Options. For purposes of this Section 6.9, Incentive Options shall be taken into account in the order in which they are granted, and the Fair Market Value of the Shares shall be determined as of the time the Options with respect to such Shares are granted. 6.9 Time of Granting Options. The date the Company is deemed to grant an Option shall, for all purposes, be the date on which the Administrator decides to grant the Option, or such other date as the Administrator may designate. The Administrator shall notify each Employee or Consultant to whom an Option is granted within a reasonable time after the date of grant. 6.10 No Employment Agreement. No Option Agreement, nor anything contained in this Plan, shall confer upon any Optionee any right of employment or consulting relationship with the Company or interfere in any way with the right of the Optionee or the Company to terminate such employment or consulting relationship at any time, with or without cause. 6.11 Notice of Disqualifying Disposition of Incentive Options. Optionees shall give the Company written notice of any disposition of any Share acquired pursuant to exercise of an Incentive Option if the disposition occurs within (a) two years of the date the Option was granted or (b) one year of the date the Optionee purchased the Share, whichever occurs later. A disposition includes any sale, exchange, gift, or other transfer or attempted transfer of legal title. The notice shall include the Optionee's name, the number of Shares disposed of, and the dates and prices the Shares were acquired and disposed of. Failure to give such notice may result in the Company's failure to claim income tax deductions with respect to the issuance of the Shares. 6.12 Adjustments to Option Rights. Subject to the general limitations of this Plan, the Administrator may adjust the exercise price, term, or any other provision of an Option (other than Options granted pursuant to Article 8) by canceling and regranting the Option or by amending or substituting the Option. Options that have been so adjusted may have higher or lower exercise prices, have longer or shorter terms, or be subject to different rights and restrictions than prior Options. The Administrator may also adjust the number of Options granted to an Optionee by canceling outstanding Options or granting additional Options. Except for adjustments necessary to ensure compliance with any applicable state or federal law, no such adjustment shall impair an Optionee's rights under any Option Agreement without the consent of the Optionee. 7. EXERCISE OF OPTIONS. 7.1 When Options Become Exercisable. Options shall be exercisable in cumulative annual increments of at least 20% per year over five years from the date the Options are granted, but otherwise at such times and under such conditions as the Administrator may determine. 6 Exercisability may also depend upon satisfaction of performance criteria by the Company and/or the Optionee. Options granted to officers and directors of the Company shall not be exercisable in whole or in part until six months after the date of grant. No Option shall be exercisable until the Company and the Optionee sign an Option Agreement acceptable to the Company. 7.2 No Fractional Shares. An Option may not be exercised for a fraction of a Share. 7.3 Exercise Procedure. An Option is exercised when the person entitled to exercise the Option gives written notice of exercise to the Company in accordance with the terms of the Option the Company receives full payment for the Shares issuable upon such exercise. Full payment may consist of any consideration and method of payment allowable under Section 7.4 of this Plan, subject to the approval of the Administrator. Notwithstanding the exercise of an Option, no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to such Shares until the Company issues a stock certificate evidencing the Shares and the transfer agent makes an appropriate entry on the stock record books of the Company. The Company shall issue a stock certificate promptly upon valid exercise of an Option. 7.4 Payment for Shares. The Administrator shall determine the consideration to be paid and the method of payment for Shares to be issued upon exercise of an Option. Unless the Optionee agrees to convert an Incentive Option into a Nonstatutory Option or the Option will continue to meet the requirements of an Incentive Option, the Administrator shall not change the consideration to be paid or the method of payment after the date of grant. Consideration to be paid for Shares may consist entirely of (a) cash; (b) check; (c) promissory note; (d) other Shares which (i) in the case of Shares acquired upon exercise of an Option either have been owned by the Optionee for more than six months on the date of surrender or were not acquired, directly or indirectly, from the Company, and (ii) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which the Option is exercised; (e) delivery of a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company the amount of sale or loan proceeds required to pay the exercise price; (f) any other lawful consideration; or (g) any combination of the foregoing methods of payment. 7 Unless the Company becomes a Delaware corporation, the Company shall not extend or guarantee credit to any Optionee in connection with an Option exercise in excess of the amount equal to the sum of the total aggregate exercise price of the Options exercised plus any federal and state income and employment tax liability incurred by the Optionee in connection with the Option exercise. If the Company becomes a Delaware corporation, the Company shall not extend or guarantee credit to the Optionee in connection with an Option exercise in excess of the amount equal to the sum of that portion of the total aggregate exercise price of the Options exercised that exceeds the amount determined to be capital under Section 154 of the Delaware General Corporation Law plus any federal and state income and employment tax liability incurred by the Optionee in connection with the Option exercise. 7.5 Withholding Tax Obligations. At the time of exercise of an Option, the Optionee shall pay to the Company by bank cashier's check or other form of payment acceptable to the Company, all applicable federal and state withholding and employment taxes as determined by the Company in its sole discretion. If authorized by the Administrator in its sole discretion, and if the Option has been held for six months or more, any Optionee may elect to have the Company withhold from the Shares to be issued upon exercise of the Option a number of Shares having a Fair Market Value as determined on the Tax Date equal to the amount required to be withheld. All such elections shall be in writing in a form acceptable to the Administrator and shall be subject to the following restrictions: (a) the Optionee must make the election on or before the applicable Tax Date; (b) once made, the election shall be irrevocable as to the particular Shares with respect to which the election is made; (c) all elections shall be subject to the consent or disapproval of the Administrator; and (d) if the Optionee is subject to Rule 16b-3, the election must comply with the applicable provisions of Rule 16b-3 and shall be subject to such additional conditions or restrictions as may be required thereunder to qualify for the maximum exemption from Section 16 of the Exchange act with respect to Plan transactions. 8. DISINTERESTED ADMINISTRATORS. Members of the Board who serve as Administrator under Section 10.1 shall not be eligible to receive any additional options under this Plan or any other stock plan of the Company or any Affiliate, except as permitted by Rule 16b-3. 9. ADJUSTMENTS OF AND CHANGES IN STOCK. 9.1 Adjustments. Subject to any required action by the shareholders, the number of Shares covered by each outstanding Option, the number of additional Shares eligible for issuance under this Plan, and the per Share exercise price shall be proportionately adjusted upon any change in the Common Stock by reason of any stock split, reverse stock split, stock dividend, recapitalization, combination or reclassification of Shares, or other change affecting the 8 outstanding Common Stock as a class without receipt of consideration, unless the change results in the termination of all outstanding Options. The Administrator shall make the adjustments. The Administrator's adjustments shall be final, binding, and conclusive. Except as expressly provided in this Plan, no issuance of stock of any class, or of securities convertible into stock of any class, shall affect the number or exercise price of Shares subject to outstanding Options. 9.2 Dissolution. The Board shall notify the Optionees at least fifteen (15) days before any proposed dissolution or liquidation of the Company. The outstanding unexercised Options shall terminate immediately before the dissolution or liquidation of the Company. 9.3 Corporate Transactions. Upon the consummation of a Corporate Transaction, all outstanding Options shall terminate to the extent not previously exercised or assumed by the successor corporation or its parent. Notwithstanding the foregoing, the Company may, in its discretion, at any time within 30 days before any scheduled closing of a Corporate Transaction, cancel all outstanding Options and pay to each Optionee (a) the estimated amount per Share that the Optionee would receive at the closing with respect to any Shares the Optionee would receive upon exercise immediately before the closing of all Options that would be exercisable on the closing date, minus (b) the aggregate exercise price of the exercisable Options. The Company may withhold from such amount any taxes that the Company is required to withhold. 9.4 Other Changes. Upon any other relevant change in the capitalization of the Company, the Administrator may, as it deems appropriate, provide for an equitable adjustment in the number of Shares then subject to this Plan and to any outstanding Options, and to the exercise price of outstanding Options. 9.5 No Fractional Shares. No right to purchase fractional Shares shall result from any adjustment to outstanding Options pursuant to this Article. Upon any such adjustment, the number of Shares subject to outstanding Options of each Optionee shall be rounded down to the nearest whole Share. The Company shall give notice of any adjustment to each holder of Options that have been so adjusted. Such adjustment (whether or not such notice is given) shall be effective and binding for all purposes of this Plan. 10. ADMINISTRATION OF PLAN. 10.1 Administration With Respect to Directors and Officers. With respect to grants of Options to officers or directors of the Company, this Plan shall be administered by (a) the Board if the Board may administer this Plan in compliance with Rule 16b-3, or (b) a Committee of the Board, which shall be constituted in such a manner as to permit this Plan to comply with Rule 16b-3. Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. From time to time the Board may increase the size of such Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members, fill vacancies, however caused, and remove all members of the Committee and thereafter directly administer this Plan, all to the extent permitted by Rule 16b-3. 10.2 Administration With Respect to Consultants and Other Employees. With respect to grants of Options to Employees or Consultants who are neither directors nor officers of the Company, this Plan shall be administered by (a) the Board or (b) a Committee of the Board, 9 which shall be constituted in such a manner as to satisfy the legal requirements relating to the grant of Options and the administration of Incentive Option plans. Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. From time to time the Board may increase the size of such Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members, fill vacancies, however caused, and remove all members of the Committee and thereafter directly administer this Plan, all to the extent permitted by applicable law. 10.3 Multiple Administrative Bodies. If permitted by Rule 16b-3, this Plan may be administered by different bodies with respect to directors, non-director officers, and Employees and Consultants who are neither directors nor officers. 10.4 Powers of the Administrator. Subject to the provisions of this Plan and in the case of a Committee, the specific duties delegated by the Board to the Committee, the Administrator shall have the authority, in its discretion: (a) to determine the Fair market Value of the Common Stock; (b) to select the Employees and Consultants to whom Options may from time to time be granted under this Plan; (c) to determine whether Options are granted; (d) to determine the number of Shares to be covered by each Option; (e) to approve forms of Option Agreement for use under this Plan; (f) to determine the terms and conditions, not inconsistent with the terms of this Plan, of any Option granted under this Plan (including, but not limited to, the exercise price and any restriction or limitation on any Option and/or the Shares relating thereto, based in each case on such factors as the Administrator may determine, in its sole discretion); (g) to determine whether and under what circumstances an Option may be settled in cash instead of Common Stock under Section 10.5; (h) to adopt rules and regulations for implementing this Plan; (i) to interpret this Plan; and (j) to take such other action as is appropriate to the administration of this Plan. 10.5 Buyout Provisions. The Administrator may at any time offer to buy out for a payment in cash or Shares, an Option previously granted, based on such terms and conditions as the Administrator may establish and communicate to the Optionee at the time that the offer is made. 10 10.6 Rule 16b-3. Unless the Board determines otherwise in a specific case, Options granted to persons subject to Section 16(b) of the Exchange Act shall comply with Rule 16b-3 and shall contain such additional conditions or restrictions as may be required to qualify for the maximum exemption from Section 16(b) of the Exchange Act with respect to Plan transactions. In no event shall the Board take any action that would violate Section 10.1 of this Plan. 10.7 Effect of Administrator's Decision. All decisions, determinations, and interpretations of the Administrator shall be final and binding on all Optionees and any other persons having an interest in any Options. 11. AMENDMENT AND TERMINATION OF THE PLAN. 11.1 Amendment and Termination. The Board may at any time amend, suspend, or terminate this Plan. Amendments to this Plan shall be subject to shareholder approval to the extent such approval is necessary to enable this Plan to comply with Rule 16b-3, Code Section 422, or any other applicable law or regulation, including the requirements of the NASD or an established stock exchange if the Company is then subject to such requirements. 11.2 Effect of Amendment or Termination. Except as provided in this Plan or in an Option Agreement, no amendment, suspension, or termination of this Plan shall alter or impair the rights of any Optionee under any Option outstanding at the time without the written consent of the Optionee. 11.3 Amendments Required by Code. Notwithstanding the provisions of Section 11.2, the Board hereby reserves the right to amend or modify this Plan and any Options outstanding to the extent necessary to qualify Options for such favorable federal income tax treatment as may be afforded employee stock options under Code Section 422 and regulations subsequently promulgated thereunder. 12. CONDITIONS UPON ISSUANCE OF SHARES. The Company shall obtain all approvals and permits required by regulatory authorities who have jurisdiction over this Plan, the Options, or the Shares (including, without limitation, any stock exchange or market upon which the Shares may then be listed or traded) before implementing this Plan, granting Options, or issuing Shares. The inability of the Company to obtain any such approvals or permits shall relieve the Company of any liability for failing to grant Options or issue Shares with respect to which such approval or permit has not have been obtained. As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any applicable exemption from registration or qualification under federal or state law. 13. INFORMATION TO OPTIONEES. The Company shall provide each Optionee, during the period for which the Optionee has one or more Options outstanding, copies of all annual reports and other information that the Company provides to its shareholders. This Article 13 shall not be construed to require the 11 Company to provide such information to employees whose duties in connection with the Company assure their access to equivalent information. 14. TAX STATUS. The Company does not hereby, nor by way of any plan, document, Option Agreement, or otherwise, represent or warrant to any person, including the Optionees, that the grant or exercise of an Option or the subsequent disposition of Shares obtained by the exercise of an Option pursuant to this Plan, or any other aspect of this Plan, will have any particular tax effect. Optionees are responsible for understanding the tax effects of the Options on them. 15. PLAN GOVERNS. If there is any inconsistency between this Plan and any documents related to this Plan, including any Option Agreement, this Plan shall govern. Nothing contained in this Plan shall be construed to constitute, or be evidence of, any right in favor of any person to receive Options. 16. APPLICABLE LAW; SEVERABILITY. This Plan shall be governed and construed in all respects in accordance with the laws of the State of California excluding its conflict of laws rules to the extent such rules would apply the law of another jurisdiction. Incentive Options granted under this Plan shall be interpreted and administered in accordance with Code Section 422. If any provision is susceptible of more than one interpretation, it shall be interpreted in a manner consistent with this Plan being an Incentive Option plan. If any provision of this Plan is found by a court of competent jurisdiction to be invalid or unenforceable, the remaining provisions shall continue to be fully effective. 12 EX-10.52 6 d50241ex10-52.txt LICENSE AGREEMENT Exhibit 10.52 THIS AGREEMENT is made on 9 October 1998 BETWEEN 1. UNITED BREWERIES LIMITED, a company in India with number 08/740 whose registered office is at 1/1, Vittal Mallya Road, Bangalore 560 001, India (UB); and 2. UNITED BREWERIES INTERNATIONAL (UK) LIMITED, a company registered in England with number 1688201 whose registered office is at Tingewick Road, Buckingham MK 18 1GD ("UBI (UK)"). WHEREAS: A. UB is the beneficial owner throughout the Territory of all property rights, registered and unregistered marks, names and other rights relating to the Trade Marks. B. UB desires to enter into an exclusive licence agreement with UBI (UK) for the purpose of enabling UBI (UK) to use the Trade Marks in the Territory and UB has agreed to grant to UBI (UK) such rights in accordance with the terms of this Agreement. IT IS AGREED as follows: 1. Definitions 1.1 In this Agreement the following words and phrases shall, unless the context requires otherwise, have the following meanings: Brewing Agreement the brewing agreement dated of even date herewith between UBI (UK), UBSN, and SN; Business Day a day, other than a Saturday or Sunday, on which clearing banks are normally open for business in the City of London; Kingfisher Products lager and other beer products brewed and prepared for sale in bottled, canned and draught form and any other form implemented by SN under clause 4 of the Brewing Agreement and marketed or to be marketed under the Trade Marks or any of them; Original UBSN Licence the licence dated 14th August 1989 and made between UB and UBSN; person includes bodies corporate, individuals, firms, partnerships and any other body of persons whether incorporated or unincorporated; SN Shepherd Neame Limited, a company registered in England with number 138256 whose registered office is at 17 Court Street, Faversham, Kent ME 13 7AX, England; Term the term of this Agreement; Territory the United Kingdom, Belgium, the Netherlands, France, Germany, Italy, Austria, Switzerland, Finland, Sweden, Norway, Denmark, Eire, Luxembourg, Iceland, Greece, Spain, Portugal and Liechtenstein; Trade Marks the UK registered trade mark specified in Schedule 1 and all other registered and unregistered marks, names and rights in or relating to the "Kingfisher" name and the Kingfisher logo (such logo being represented in Schedule 1) owned and/or used by UB and licenced to UBI (UK) for use throughout the Territory; UBSN UBSN Limited, a company registered in England with number 2367133 whose registered office is at Tingewick Road, Buckingham MI 18 1GD; UBSN Licence the licence granted in the distribution agreement dated of even date herewith between UBI (UK) and UBSN; Year each period of 12 calendar months during the term of this Agreement commencing on lst January and ending on 31st December except that the first Year shall be the period from the date of this Agreement to 31st December 1998 and the last Year shall be the period from lst January to the date of expiry of this Agreement. 1.2 The headings in this Agreement are for convenience only and shall not affect its meaning. 1.3 References to a clause or Schedule are (unless otherwise stated) to a clause of and Schedule to this Agreement. 1.4 Words importing the singular include the plural and vice versa and words importing a gender include every gender. 2. Appointment 2.1 UB hereby appoints UBI (UK) as its exclusive licencee of the Trade Marks in the Territory. 2.2 Save in accordance with clause 13.4, UB shall not, during the Term, grant to any other person any rights relating to the Kingfisher Products in the Territory. 2.3 With effect from the date of this Agreement, the Original UBSN Licence shall terminate. 3. Licence of Trade Marks 3.1 UB hereby grants to UBI (UK) an exclusive licence to use the Trade Marks and to do all things necessary to manufacture, package, market, distribute and sell Kingfisher Products in the Territory and specifically including the authorization to sub-licence certain rights of UBI (UK)'s to UBSN pursuant to the UBSN Licence and to SN pursuant to the Brewing Agreement and to licence pursuant to clause 13.4 any other persons deemed necessary by UBI (UK) to the extent such additional sub-licencees do not contravene rights previously granted to other existing licencees. 3.2 UB shall co-operate with UBI (UK) in ensuring that such licence is registered with the UK Trade Marks Registry and in making any necessary adjustments to existing registered user agreements. 3.3 UB shall make and pursue application for registration of those of the Trade Marks which are not registered in the Territory. UB shall co-operate with UBI (UK) to ensure the recordal of UBI (UK)'s licence to use any Trade Marks which become registered in the Territory following the date of this Agreement. 4. Royalty 4.1 UBI (UK) shall pay to UB a royalty for all Kingfisher Products supplied in the Territory at the rate of 30p per hectolitre brewed. 4.2 UBI (UK) shall supply to UB half yearly a statement of the number of hectolitres of Kingfisher Products supplied in the Territory in the 6 months immediately preceding each such statement together with payment of the royalty calculated thereon pursuant to clause 4.1. UBI (UK) shall maintain such records as are necessary for that purpose. 5. Term 5.1 This Agreement shall commence on the date hereof and shall continue for a period of 10 years (the "Initial Term"). 5.2 At any time within the period of two years prior to expiry of the Initial Term, either UB or UBI (UK) may serve notice on the other (an "Extension Notice") requesting an extension of the Term beyond the Initial Term subject to such revisions to this Agreement as may be specified in such notice and mutually agreed upon between the parties. 6. No Termination UB may not, without prejudice to any other rights it may have, terminate this Agreement prior to the expiry of the Term. 7. No assignment Except as otherwise provided in this Agreement, neither party shall without the prior written consent of the other assign, mortgage, charge or otherwise deal with any of its rights or obligations under this Agreement. 8. Force majeure Neither party to this Agreement shall have any liability whatsoever to the other or be deemed to be in default of this Agreement as a result of any delay or failure in performing its obligations under this Agreement to the extent that any such delay or failure arises from causes beyond the control of that party including, but not limited to, acts of god, acts or regulations of any governmental or supranational authority, war or national emergency, fire, civil disobedience, strikes, lock-outs and industrial disputes. 9. Restrictive Trade Practices Act 1976 Where this Agreement is or forms part of an agreement which is subject to registration under the Restrictive Trade Practices Act 1976 ("RTPA"), no restriction accepted or information provision made under that Agreement shall be given effect to or enforced until the day after particulars of the agreement have been furnished to the Director General of Fair Trading under section 24 of the RTPA. If either party shall wish to furnish such particulars, the other party will render such co-operation and undertake such action as may reasonably be required of it for such purposes so that particulars may be furnished as soon as practicable following the signature of this Agreement and each party consents to the disclosure of all information so furnished. In this clause 9, the words and terms "agreement" and "subject to registration" shall have the meanings respectively given to them by the RTPA and the reference to "restrictions accepted" or "information provisions made" under the Agreement shall be to restrictions accepted or information provisions made by virtue of which the Agreement is subject to restriction. 10. Confidentiality UB and UBI (UK) shall both during and after the Term keep strictly confidential all information relating to the other party which is by its nature or is marked as being "confidential" or which relates to the sale of Kingfisher Products provide that the obligations imposed by this clause 10 shall not apply to information which, at the time it is received, is in the public domain or subsequently comes into the public domain through no fault of the recipient. 11. Notices and service of proceedings 11.1 Any notice, request, demand, approval, consent or other communication (a "Notice") to be given in connection with this Agreement shall be in writing signed by or on behalf of the party giving it and shall be irrevocable without the written consent of the party on whom it is served. Any Notice shall be sent or delivered to the party to be served at the address of that party set out in this Agreement . Any alterations in such address shall, to have effect, be notified to the other party in accordance with clause 11.2. 11.2 Service of a Notice must be effected by leaving it at the relevant address or sending it by pre-paid first class post (by air mail if from one country to the other). 11.3 Notices shall be deemed served as follows: 11.3.1 in the case of leaving the Notice at the relevant address, at the time of leaving it there; 11.3.2 in the case of service by post on the third Business Day (or in the case of a Notice sent by air mail the seventh Business Day), following the day on which it was posted and in proving such service it shall be sufficient to prove that the envelope containing the Notice was correctly addressed, postage paid and posted. 11.4 UB hereby irrevocably appoints D. Young & Co. (Mr. Havelock) of 21 New Fetter Lane, London, as its agent for service of proceedings in relation to any matter arising out of this Agreement. 12. Law of Agreement 12.1 This Agreement shall be governed by and construed in accordance with the laws of England. 12.2 The parties irrevocably submit for the exclusive benefit of UBI (UK) to the non-exclusive jurisdiction of the courts of England and Wales in respect of any claim, dispute or difference arising out of or in connection with this Agreement. 13. Goodwill and rights associated with the Trade Marks owned by UB 13.1 UBI (UK) recognizes the great value of the goodwill associated with the Trade Marks and acknowledges that the Trade Marks and all rights therein and the goodwill pertaining thereto belong exclusively to UB. UBI (UK) agrees not to commit any act or omission adverse or injurious to said rights. 13.2 UBI (UK) agrees that every use of the Trade Marks by UBI (UK) shall inure to the benefit of UB, and that, save as otherwise set out in this Agreement, UBI (UK) shall not at any time acquire any rights in the Trade Marks by virtue of any use UBI (UK) may make of the Trade Marks. 13.3 UBI (UK) agrees to cooperate fully and in good faith with UB for the purpose of securing, preserving, and protecting UB's rights in and to the Trade Marks. 13.4 UBI (UK) acknowledges that UB shall have the right, but shall not be under any obligation, to use the Trade Marks in the Territory, however, such use is limited to brand building advertisement or marketing and shall not contravene the rights and obligations provided in clause 2 or, except as such use shall be consistent with the provisions of the Brewing Agreement. 13.5 UBI (UK) acknowledges that its failure to cease the use of the Trade Marks on the expiration of this Agreement will result in immediate and irremediable damage to UB and to the rights of any subsequent licencee. UBI (UK) acknowledges and admits that there is no adequate remedy at law for such failure, and agrees that in the event of such failure, UB shall be entitled to equitable relief by way of temporary and permanent injunctions and such other and further relief including monetary damages as any court with jurisdiction may deem just and proper. 13.6 UBI (UK) shall report to UB in writing any infringement or imitation of the Trade Marks of which UBI (UK) become aware. UB shall have the sole right to determine whether to institute litigation upon such infringements as well as the selection of counsel. UB may commence or prosecute any claims or suits for infringement of the Trade Marks in its own name or the name of UBI (UK) or join UBI (UK) as a party or parties thereto. UB shall be entitled to keep the entire amount of any recovery therefrom. If UB brings an action against any infringer of the Trade Marks, UBI (UK) shall cooperate with UB and lend whatever assistance UBI (UK) can or is necessary in the prosecution of such litigation. If UB decides not to institute such litigation, it may authorize, within its sole discretion, in writing UBI (UK) to institute such litigation, in which event UBI (UK) shall be solely responsible for the costs of such litigation and shall be entitled to keep any recovery therefrom. 13.7 UBI (UK) shall not contest or deny the validity or enforceability of any of the Trade Marks or oppose or seek to cancel any registration thereof by UB, or aid or abet others in doing so, either during the Term or at any time thereafter. 13.8 UBI (UK) acknowledges that any use of the Trade Marks in violation of the provisions of this clause 13 will cause irreparable damage to UB and its licencees constitutes an incurable default of this Agreement, and is grounds for relief provided in clause 13.5. 14. Obligations and rights of parties upon expiration 14.1 On the expiration of this Agreement UBI (UK) shall forthwith discontinue the use of the Trade Marks and shall not thereafter use, in any manner, or for any purpose, directly or indirectly, any of the same, or any Trade Marks or symbols deceptively similar thereto. UBI (UK) shall immediately return to UB any written embodiment relating to the use of the Trade Marks. 14.2 The expiration of this Agreement shall be without prejudice to any other rights or claims of UB against UBI (UK), or any other remedy available to it, or relieve UBI (UK) of any obligations which by their nature survive the expiration of this Agreement. 14.3 Upon or following the expiry of this Agreement UBI (UK) shall cease to licence to either UBSN, SN or any other persons any rights to the Kingfisher Products under the Trade Marks. 14.4 Upon or following the expiry of this Agreement, UBI (UK) shall, upon the request of UB, do all things and execute all documents necessary to cancel the entries, if any, to record UBI (UK) as a registered user of the Trade Marks in the Territory. This Agreement has been duly executed by the parties on the date set out above. SIGNED by )For UNITED BREWERIES LIMITED For and on behalf of ) /s/ T.S. Narayana Rao UNITED BREWERIES LIMITED ) T.S. Narayana Rao in the presence of ) WHOLETIME DIRECTOR SIGNED by K. G. James ) for and on behalf of ) UNITED BREWERIES ) /s/ K. G. James INTERNATIONAL (UK) LIMITED ) in the presence of ) /s/ Thomas Purton T.E. Purton 10 Snow Hill London Ec1A2AL SCHEDULE 1 Trade Mark Class: Schedule 4, Class 32 Registration No: 1,182,204 Date of Registration: 23 September 1982 Mark: Logo EX-10.53 7 d50241ex10-53.txt SUPPLEMENTAL AGREEMENT Exhibit 10.53 [LOGO] DATED ______________ 2001 (1) UNITED BREWERIES LIMITED (2) UNITED BREWERIES INTERNATIONAL (UK) LIMITED ------------------------------------ SUPPLEMENTAL AGREEMENT to a Licence Agreement ------------------------------------ THIS SUPPLEMENTAL AGREEMENT is made on 2001 BETWEEN:- (1) UNITED BREWERIES LIMITED, a company registered in India with number 08/740 whose registered office is at 1/1, Vittal Mallya Road, Bangalore 560 001, India ("UB"); and (2) UNITED BREWERIES INTERNATIONAL (UK) LIMITED, a company registered in England with number 1688201 whose registered office is at 75 Westow Hill, Crystal Palace, London SE19 1TX ("UBI (UK)"). INTRODUCTION (A) UB and UBI (UK) entered into a Licence Agreement on 9 October 1998 (the "Original Agreement"), whereby UB appointed UBI (UK) as its exclusive licensee of the Trade Marks in the Territory. (B) Following discussions between the parties, UB and UBI (UK) now wish to enter into this Supplemental Agreement in order to make certain amendments to the Original Agreement. IT IS AGREED as follows:- 1. DEFINITIONS AND INTERPRETATION Save as expressly set out herein, words and phrases defined in the Original Agreement shall have the same meaning when used in this Supplemental Agreement. 2. COMMENCEMENT This Supplemental Agreement shall commence on the date hereof. 3. AMENDMENTS TO THE ORIGINAL AGREEMENT 3.1 The definitions of "Brewing Agreement", "Territory" and "UBSN Licence" in clause 1.1 of the Original Agreement shall be deleted and replaced by the following definitions:- "Brewing Agreement the brewing agreement dated 9 October 1998 between UBI (UK), UBSN and SN, as the same may be amended, supplemented, varied or replaced from time to time;" and "Territory the United Kingdom, Belgium, the Netherlands, France, Germany, Italy, Austria, Switzerland, Finland, Sweden, Norway, Denmark, Eire, Luxembourg, Iceland, Greece, Spain, Portugal, Liechtenstein and the United States of America;" "UBSN Licence the licence granted in the distribution agreement dated 9 October 1998 between UBI (UK) and UBSN, as the same may be amended, supplemented, varied or replaced from time to time.". 3.2 The following clause shall be inserted as a new clause 3.4:- "3.4 Without prejudice to clause 3.3, UB shall, at its own expense throughout the Term, continue to maintain the registrations of the Trade Marks (including by the payment of renewal fees), shall comply with the reasonable directions of UBI (UK) or any sub-licensee or any sub-sub-licensee of the Trade Marks in relation thereto and shall provide UBI (UK) with copies of such documents as UBI (UK) or any sub-licensee or any sub-sub-licensee of the Trade Marks may reasonably require to evidence the subsistence of the Trade Marks and entries at the relevant trade mark registries, including evidence that renewal and other fees have been duly paid. Without prejudice to the generality of the foregoing, UB shall procure that the registration of the UK registered trade mark specified in Schedule 1 is renewed (and all necessary renewal fees paid) prior to its expiry on 23 September 2003. UB hereby acknowledges and agrees that the provisions of this clause 3.4 are intended to, and shall, benefit any sub-licensees and any sub-sub-licensees of the Trade Marks.". 3.3 Clause 5.1 of the Original Agreement shall be deleted and replaced by the following:- "5.1 This Agreement shall be deemed to have commenced on 9 October 1998 and shall continue for a period of 15 years from such date ("the Initial Term").". 3.4 Clause 7 of the Original Agreement shall be deleted and replaced by the following:- 2 "7.1 Without prejudice to clauses 7.2 and 7.3, neither party shall, without the prior written consent of the other, assign, mortgage, charge or otherwise deal with any of its rights and/or obligations under this Agreement. 7.2 If UB wishes to transfer any of its obligations under this Agreement to any person (each a "Transferee"), it shall ensure that, as a pre-condition of any such transfer, the Transferee simultaneously enters into an agreement agreeing to be bound by the obligations of UB, mutatis mutandis, under this Agreement and shall require that any such Transferee imposes an equivalent obligation on any other transferee of such obligations. 7.3 If UBI (UK) wishes to transfer any of its rights and/or obligations under this Agreement to any person (other than UBSN) (each a "Transferee"), it shall ensure that, as a pre-condition of any such transfer, the Transferee simultaneously enters into an agreement agreeing to be bound by the obligations of UBI (UK), mutatis mutandis, under the UBSN Licence and the Brewing Agreement and shall require that any such Transferee imposes an equivalent obligation on any other transferee of such rights and/or obligations". 4. CONFIRMATION OF THE ORIGINAL AGREEMENT Subject to the terms and conditions of this Supplemental Agreement, the Original Agreement shall remain in full force and effect. 5. LAW OF SUPPLEMENTAL AGREEMENT 5.1 This Supplemental Agreement shall be governed by, and construed in accordance with, the laws of England. 5.2 The parties irrevocably submit for the exclusive benefit of UBI (UK) to the non-exclusive jurisdiction of the courts of England and Wales in respect of any claim, dispute or difference arising out of or in connection with this Supplemental Agreement. THIS SUPPLEMENTAL AGREEMENT has been duly executed and delivered by the parties as a deed on the date stated above. 3 EXECUTED as a DEED by ) UNITED BREWERIES LIMITED ) acting by: ) ...................................... Director ...................................... Director/Secretary EXECUTED as a DEED by ) UNITED BREWERIES INTERNATIONAL ) (UK) LIMITED ) acting by: ) ...................................... Director ...................................... Director/Secretary 4 EX-10.54 8 d50241ex10-54.txt LICENSING AGREEMENT Exhibit 10.54 THIS AGREEMENT is made on 9th October 1998 BETWEEEN 1. UNITED BREWERIES INTERNATIONAL (UK) LIMITED, a company registered in England with number 1688201 whose registered office is at 75 Westow Hill, Crystal Palace, London SE19 1TX ("UBI (UK)"); and 2. UBSN LIMITED, a company registered in England with number 2367133 whose registered office is at 75 Westow Hill, Crystal Place, London SE19 1TX ("UBSN") WHEREAS: A. UB is the beneficial owner throughout the Territory of all property rights, registered and unregistered marks, names and other rights relating to the Trade Marks. B. UB has granted UBI (UK) an exclusive licence for the purpose of enabling UBSN to use the Trade Marks in the Territory. C. Pursuant to the rights granted by UB in the UBI (UK) Licence, UBI (UK) desires to enter into a distribution agreement with UBSN to carry on the business of preparing, brewing, selling, marketing and supplying Kingfisher Products in the Territory and UBI (UK) has agreed to grant to UBSN such rights in accordance with the terms of this Agreement. IT IS AGREED as follows: 1. Definitions 1.1 In this Agreement the following words and phrases shall, unless the context requires otherwise, have the following meanings: Brewing Agreement the brewing agreement dated of even date herewith between UBI (UK), UBSN and SN. Business Day a day, and other than a Saturday or Sunday, on which clearing banks are normally open for business in the City of London; Kingfisher Products lager and other beer products brewed and prepared for sale in bottled, canned and draught form and any other form implemented by SN under clause 4 of the Brewing Agreement and marketed or to be marketed under the Trade Marks or any of them; Original UBSN Licence the licence dated 14th August 1989 and made between UB and UBSN person includes bodies corporate, individuals, firms, partnerships and any other body of persons whether incorporated or unincorporated. SN Shepherd Neame Limited, a company registered in England with number 138256 whose registered office is at 17 Court Street, Faversham, Kent ME 13 7AX England Term the term of this Agreement Territory the United Kingdom, Belgium, the Netherlands, France, Germany, Italy, Austria, Switzerland, Finland, Sweden, Norway, Denmark, Eire, Luxembourg, Iceland, Greece, Spain, Portugal and Liechtenstein; Trade Marks the UK registered trade mark specified in Schedule 1 and all other registered and unregistered marks, names and rights in or relating to the "Kingfisher" name and the Kingfisher logo (such logo being represented in Schedule 1) owned and/or used by UB and licenced to UBSN for use throughout the Territory; UB United Breweries Limited, a company registered in India with number 08/740 whose registered office is at 1/1 Vital Mallya Road, Bangalore 560 001, India; UBI (UK) Licence the licence dated of even date herewith between UB and UBI (UK). Year each period of 12 calendar months during the term of this Agreement commencing on lst January and ending on 31st December except that the first Year shall be the period from the date of this Agreement to 31st December 1998 and the last Year shall be the period from lst January to the date of termination of this Agreement. 1.2 The headings in this Agreement are for convenience only and shall not affect its meaning. 1.3 References to a clause or Schedule are (unless otherwise stated) to a clause of and Schedule to this Agreement. 1.4 Words importing the singular include the plural and vice versa and words importing a gender include every gender. 2. Appointment 2.1 UBI (UK) hereby appoints UBSN as its exclusive distributor of Kingfisher Products in the Territory. 2.2 Save in accordance with clause 13.4 and the provisions of the Brewing Agreement, UBI (UK) shall not, during the Term, grant to any other person any rights relating to the Kingfisher Products in the Territory. 2.3 With effect from the date of this Agreement, the Original UBSN Licence shall terminate. 3. Sub-Licence of Trade Marks 3.1 Pursuant to the UBI (UK) Licence, UBI (UK) hereby grants to UBSN a sub-licence to use the Trade Marks and to do all things necessary to manufacture, package, market, distribute and sell Kingfisher Products in the Territory and specifically including the authorization to enter into the Brewing Agreement. 3.2 UBI (UK) shall co-operate with UBSN in ensuring that such licence is registered with the UK Trade Marks Registry and in making any necessary adjustments to existing registered user agreements. 3.3 UBI (UK) shall make and pursue application for registration of those of the Trade Marks which are not registered in the Territory. UBI (UK) shall co-operate with UBSN to ensure the recordal of UBSN's licence to use any Trade Marks which become registered in the Territory following the date of this Agreement. 4. Royalty 4.1 UBSN shall pay to UBI (UK) a royalty for all Kingfisher Products supplied in the Territory at the rate of 50p per hectolitre brewed. 4.2 UBSN shall supply to UBI (UK) half yearly a statement of the number of hectolitres of Kingfisher Products supplied in the Territory by it in the 6 months immediately preceding each such statement together with payment of the royalty calculated thereon pursuant to clause 4.1 UBSN shall maintain such records as are necessary for the purpose. 5. Term 5.1 This agreement shall commence on the date hereof and shall continue (unless terminated earlier in accordance with its terms) for a period of 10 years (the "Initial Term") 5.2 At any time within the period of two years prior to expiry of the Initial Term, either UBI (UK) or UBSN may serve notice on the other (an "Extension Notice") requesting an extension of the Term beyond the Initial Term subject to such revisions to this Agreement as may be specified in such notice and mutually agreed upon between the parties. 6. Termination 6.1 UBI (UK) may, without prejudice to any other rights it may have, immediately upon giving notice terminate this Agreement in the following event:- 6.1.1 UBSN commits a substantial breach of clause 13 of this Agreement and such breach (if capable of remedy) continues for 30 days after notice from UBI (UK) specifying the breach and requiring the same to be remedied. 6.1.2 a resolution is passed for the winding-up of UBSN (or action of a similar nature is taken in another jurisdiction outside the United Kingdom) (other than a voluntary winding-up for the purposes of a solvent reconstruction or amalgamation) or a petition is presented for a winding-up order to be made against it which is not discharged within two months of presentation. 7. No assignment Except as otherwise provided in this Agreement, neither party shall without the prior written consent of the other assign, mortgage, charge or otherwise deal with any of its rights or obligations under this Agreement. 8. Force majeure Neither party to this Agreement shall have any liability whatsoever to the other or be deemed to be in default of this Agreement as a result of any delay or failure in performing its obligations under this Agreement to the extent that any such delay or failure arises from causes beyond the control of that party including, but not limited to, acts of god, acts or regulations of any governmental or supranational authority, war or national emergency, fire, civil disobedience, strikes, lock-outs and industrial disputes. 9. Restrictive Trade Practices Act 1976 Where this Agreement is or forms part of an agreement which is subject to registration under the Restrictive Trade Practices Act 1976 ("RTPA"), no restriction accepted or information provision made under that Agreement shall be given effect to or enforced until the day after particulars of the agreement have been furnished to the Director General of Fair Trading under section 24 of the RTPA. If either party shall wish to furnish such particulars, the other party will render such co-operation and undertake such action as may reasonably be required of it for such purposes so that particulars may be furnished as soon as practicable following the signature of this Agreement and each party consents to the disclosure of all information so furnished. In this clause 9, the words and terms "agreement" and "subject to registration" shall have the meanings respectively given to them by the RTPA and the reference to "restrictions accepted" or "information provisions made" under the Agreement shall be to restrictions accepted or information provisions made by virtue of which the Agreement is subject to restriction. 10. Confidentiality UBI (UK) and UBSN shall both during and after the Term keep strictly confidential all information relating to the other party which is by is nature or its marked as being "confidential" or which relates to the sale of Kingfisher Products provided that the obligations imposed by this clause 10 shall not apply to information which, at the time it is received, is in the public domain or subsequently comes into the public domain through no fault of the recipient. 11. Notices and service of proceedings 11.1 Any notice, request, demand, approval, consent or other communication (a "Notice") to be given in connection with this Agreement shall be in writing signed by or on behalf of the party giving it and shall be irrevocable without the written consent of the party on whom it is served. Any Notice shall be sent or delivered to the party to be served at the address for that party set out in this Agreement. Any alterations in such address shall, to have effect, be notified to the other party in accordance with clause 11.2. 11.2 Service of a Notice must be effected by leaving it at the relevant address or sending it by pre-paid first class post (by air mail if from one country to the other). 11.3 Notices shall be deemed served as follows: 11.3.1 in the case of leaving the Notice at the relevant address, at the time of leaving it there; 11.3.2 in the case of service by post on the third Business Day (or in the case of a Notice sent by air mail the seventh Business Day), following the day on which it was posted and in proving such service it shall be sufficient to prove that the envelope containing the Notice was correctly addressed, postage paid and posted. 12. Law of Agreement 12.1 This Agreement shall be governed by and construed in accordance with the laws of England. 12.2 The parties irrevocably submit for the exclusive benefit of UBSN to the non-exclusive jurisdiction of the courts of England and Wales in respect of any claim, dispute or difference arising out of or in connection with this Agreement. 13. Goodwill and rights associated with the Trade Marks owned by UB 13.1 UBSN recognizes the great value of the goodwill associated with the Trade Marks and acknowledges that the Trade Marks and all rights therein and the goodwill pertaining thereto belong exclusively to UB. UBSN agrees not to commit any act or omission adverse or injurious to said rights. 13.2 UBSN agrees that every use of the Trade Marks by UBSN shall inure to the benefit of UB, and that save as otherwise set out in this Agreement and the Brewing Agreement, UBSN shall not at any time acquire any rights in the Trade Marks by virtue of any use UBSN may make of the Trade Marks. 13.3 UBSN agrees to cooperate fully and in good faith with UB or UBI (UK) for the purpose of securing, preserving, and protecting UB's rights in and to the Trade Marks. 13.4 UBSN acknowledges that both UB, and pursuant to the UBI (UK) Licence, UBI (UK) shall have the right, but shall not under any obligation, to use the Trade Marks in the Territory, however, such use is limited to brand building, advertisement or marketing and shall not contravene the rights and obligations provided in clause 2 or, except as such use shall be consistent with the provisions of the Brewing Agreement. 13.5 UBSN acknowledges that, pursuant to UBI (UK)'s obligations under the UBI (UK) Licence, its failure to cease the use of the Trade Marks on the termination or expiration of this Agreement will result in immediate and irremediable damage to UBI (UK) and to the rights of any subsequent licencee. UBSN acknowledges and admits that there is no adequate remedy at law for such failure, and agrees that in the event of such failure, UBI (UK) shall be entitled to equitable relief by way of temporary and permanent injunctions and such other and further relief including monetary damages as any court with jurisdiction may deem just and proper. 13.6 UBSN shall report to UBI (UK) in writing any infringement or imitation of the Trade Marks of which UBSN becomes aware. UBI (UK) shall have the sole right to determine whether to institute litigation upon such infringements as well as the selection of counsel. UBI (UK) may commence or prosecute any claims or suits for infringement of the Trade Marks in its own name or the name of UBSN or join UBSN as a party thereto. UBI (UK) shall be entitled to keep the entire amount of any recovery therefrom. If UBI (UK) brings an action against any infringer of the Trade Marks. UBSN shall cooperate with UBI (UK) and lend whatever assistance UBSN can or is necessary in the prosecution of such litigation. If UBI (UK) decides not to institute such litigation, it may authorize within its sole discretion, in writing, UBSN to institute such litigation, in which event UBSN shall be solely responsible for the costs of such litigation and shall be entitled to keep any recovery therefrom. 13.7 USBN shall not contest or deny the validity or enforceability of any of the Trade Marks or oppose or seek to cancel any registration thereof by UBI (UK), or aid or abet others in doing so, either during the Term or any time thereafter. UBSN waives notice of infringement with respect to the Trade Marks or any marks similar thereto. 13.8 UBSN acknowledges that any use of the Trade Marks in violation of the provisions of this clause 13 will cause irreparable damage to UBI (UK) and its licencees constitutes an incurable default of this Agreement, and is grounds for immediate termination, following the 30 day cure period, if remediable, of this Agreement. 13.9 UBI (UK)'s rights and obligations under this clause 13 are governed by and may not contravene UB's rights provided by the terms of the UBI (UK) Licence. 14. Obligations and rights of parties upon termination or expiration 14.1 In the event of expiration or termination of this Agreement, UBSN shall forthwith discontinue the use of the Trade Marks and shall not thereafter use, in any manner, or for any purpose, directly or indirectly, any of the same, or any Trade Marks or symbols deceptively similar thereto. UBSN shall immediately return UBI (UK) any written embodiment relating to the use of the Trade Marks. 14.2 The expiration or termination of this Agreement shall be without prejudice to any other rights or claims of UBI (UK) against UBSN, or any other remedy available to it, or relieve UBSN of any obligations which by their nature survive the expiration or termination of this Agreement 14.3 Upon or following the expiry or termination of this Agreement, UBSN shall cease to licence to SN the right to manufacture Kingfisher Products under the Trade Marks and UBSN shall forthwith purchase any unsold stocks of Kingfisher Products that SN may have in its possession at the then current price for such Products. 14.4 Upon or following the expiry or termination of this Agreement, UBSN shall, upon the request of UBI (UK), do all things and execute all documents necessary to cancel the entries, if any, which record UBSN as a registered user of the Trade Marks in the Territory. This Agreement has been duly executed by the parties on the ate set out above. SIGNED by K. G. James ) for and on behalf of ) /s/ K. G. James UNITED BREWERIES ) INTERNATIONAL (UK) LIMITED in ) the presence of /s/ Thomas Purton T. E. Purton 10 Snow Hill London EC1A2AL SIGNED by David R. Townshend ) For and on behalf of ) /s/ David R. Townshend UBSN LIMTED in the ) Presence of ) /s/ Thomas Purton T. E. Purton 10 Snow Hill London EC1A2AL SCHEDULE 1 Trade Mark Class: Schedule 4, Class 32 Registration No: 1,182,204 Date of Registration: 23 September 1982 "Kingfisher" Trade Mark and Logo: See overleaf [LOGO] KINGFISHER TRAVERS SMITH BRAITHWAITE DATED 9th OCTOBER 1998 (1) UNITED BREWERIES INTERNATIONAL (UK) LIMIED (2) SHEPHERD NEAME LIMTED (3) UBSN LIMITED CONTRACT TO BREW AND SUPPLY KINGFISHER PRODUCTS TO UBSN CONTENTS Clause 1. Definitions 2. Grant of brewing rights 3. Supply of Kingfisher Products UBSN 4. Composition, Quality and Presentation 5. Term 6. Termination 7. No assignment 8. Force majeure 9. Restrictive Trade Practices Act 1976 10. Confidentiality 11. Notices and service of proceedings 12. Law of Agreement 13. Non-competition 14. Records 15. Liability, insurance and indemnification 16. Obligations and rights of parties upon termination or expiry 17. Compliance with laws Schedules 1. Trade Mark and Logo 2. Current Kingfisher Products 3. Part I - Base prices ex-duty for Current Kingfisher Products Part II - Price premium ex-duty for Current Kingfisher Products THIS AGREEMENT is made on 9th October 1998 BETWEEN: (1) UNITED BREWERIES INTERNATIONAL (UK) LIMITED, a company registered in England with number 1688201 whose registered office is at 75 Westow Hill Crystal Palace, London SE19 1TX, England ("UBI"); (2) SHEPHERD NEAME LIMITED, a company registered in England with number 138256 whose registered office is at 17 Court Street, Faversham, Kent ME13 7AX, England ("SN"); and (3) UBSN LIMITED, a company registered in England with number 2367133 whose registered office is at a 75 Westow Hill, Crystal Place, London SE19 1TX ("UBSN"). WHEREAS: (A) UB is the beneficial owner throughout the Territory of all trade marks, service marks, logotypes, commercial symbols, insignias and designs, registered and unregistered, relating to the name "Kingfisher" and to the Kingfisher logo which logo is set out in Schedule 1 (the "Trade Marks"). (B) Pursuant to the UBI Licence, UB has granted UBI an exclusive licence, irrevocable for the term of this Agreement, for the purpose only of enabling UBSN and SN to use the Trade Marks for the purposes set out in this Agreement. (C) Pursuant to the UBSN Licence, UBI, in substitution for the Original UBSN Licence, has granted UBSN the exclusive right to brew, package, develop, market and sell Kingfisher Products in the United Kingdom. (D) SN has substantial experience in the business of brewing, packaging, selling and supplying beer and, pursuant to the Sub-Licence, is currently engaged in brewing and supplying Current Kingfisher Products to UB and UBSN. (E) SN desires to enter into a contract to carry on the business of brewing packaging, selling and supplying Kingfisher Products to UBSN and UBSN has agreed to grant to SN such rights in accordance with the terms of this Agreement. IT IS AGREED as follows: 1. DEFINITIONS 1.1 In this Agreement the following words and phrases shall, unless the context requires otherwise, have the following meaning: Barrel 36 imperial gallons; Brewery SN's brewery at 17 Court Street, Faversham, Kent ME13 7AX and/or any other brewery at which SN brews Kingfisher Products from time to time; Business Day a day, other than a Saturday or Sunday, on which clearing banks are normally open for business in the City of London; Current Kingfisher Products Those Kingfisher Products supplied by SN to UB or UBSN at the date o this Agreement as described in Schedule 2; Distribution Agreement has the meaning set out in clause 2.3; Excess has the meaning set out in clause 3.9; Group Company UB and its subsidiaries for the time being and from time to time and Group Companies shall be construed accordingly; Initial Term has the meaning set out in clause 5.1; Joint Venture Agreement the joint venture agreement dated 14th August 1989 between SN an UBI (as the same may have been amended from time to time); Kingfisher Products lager and other beer products brewed and prepared for sale in bottled, canned, draught or other form and marketed or to be marketed under the Trade Marks or any of them; Letter Agreement the letter agreement dated 14th August 1989 between SN and UBI in relation to the operation and administration of UBSN (as the same may have been amended from time to time); Original UBSN Licence the licence dated 14th August 1989 and made between UB and UBSN; 2 person includes bodies corporate, individuals firms, partnerships and any other body of persons, whether incorporated or unincorporated. Quarter each period of three calendar months ending on 31st March, 30th June, 30th September and 31st December in each Year; Regulation Commission Regulation EC/1983/83; Retail Prices Index the index entitled "General Index of Retail Prices - All items" prepared by the Office for National Statistics or, if such index is not published for the period in question, any replacement or substitute therefor; RPI Percentage in respect of the Retail Prices Index published for any month in any Year, the difference, expressed as a percentage, between the average level of the Retail Prices Index for that month and the eleven preceding months (calculated by adding the twelve monthly indices and dividing by twelve) and the average level of the Retail Prices Index for the same month in the preceding Year and the eleven preceding months (calculated in the same manner); South East Asia India, Pakistan, Thailand, the Union of Myanmar, Nepal, Sri Lanka and Bangladesh; South East Asian Lager any brand of lager: (a) with sales in a country in South East Asia equal to 50% or more of the total worldwide sales for such brand of lager; or (b) which is marketed or sold as originating from a country in South East Asia; Specifications the specifications for the composition, quality and presentation of Kingfisher Products referred to in clause 4; Sub-Licence the sub-licence dated 14th August 1989 and made between UBSN and SN; Term the term of this Agreement; 3 Territory the United Kingdom, Belgium, the Netherlands, France, Germany, Italy, Austria, Switzerland, Finland, Sweden, Norway, Denmark, Eire, Greece, Spain, Portugal, Luxembourg, Iceland and Liechtenstein; UB United Breweries Limited, a company registered in India with number 08/740 whose registered office is at 1/1 Vittal Mallya Road, Bangalore 560 001, India; UBI Licence the licence of even date herewith and made between UB and UBI; USBN Licence the licence of even date herewith and made between UBI and USBN; and Year each period of 12 calendar months commencing on lst January and ending on 31st December during the Term except that the first Year shall be the period from the date of this Agreement to 3lst December 1998 and the last Year shall be the period from lst January to the date of termination of this Agreement. 1.2 The headings in this Agreement are for convenience only and shall not affect its meaning. 1.3 Reference to a clause or Schedule are (unless otherwise stated) to a clause of and Schedule to this Agreement. 1.4 Words importing the singular include the plural and vice versa, words importing a gender include every gender. 1.5 Where used in this Agreement, the term "subsidiary" shall have the meaning ascribed thereto in Section 736 of the Companies Act 1985 (as the same may be amended, re-enacted or consolidated from time to time). 2. GRANT OF BREWING RIGHTS 2.1 Subject to the provisions of this Agreement, UBSN hereby grants to SN the exclusive right to brew, keg, bottle, can, label and package Kingfisher Products in the United Kingdom in accordance with the terms of this Agreement and the Specifications. 4 2.2 Save in accordance with the provisions of this Agreement, each of UBI and UBSN undertakes to SN that throughout the Term, it shall not and shall not authorize or grant any form of licence or right to any other person to, brew, keg, bottle, can, label and/or package products using the Trade Marks in the United Kingdom. 2.3 Each of UBI and UBSN agree, in relation to agreements for the distribution of Kingfisher Products within the Territory (each a "Distribution Agreement") entered into whilst the Regulation remains in force, that they shall ensure and shall procure that all Group Companies shall ensure that each such Distribution Agreement contains provisions obliging the distributor (i) to obtain supplies Kingfisher Products for resale only from a Group Company and/or SN and (ii) to refrain, in relation to the supply of Kingfisher Products for resale, from seeking customers, from establishing any branch and from maintaining any distribution depot in the United Kingdom and shall enforce and procure that all Group Companies shall enforce such provisions. 2.4 In relation to Distribution Agreements entered into after the replacement of the Regulation, UBI and UBSN shall ensure and shall procure that all Group Companies shall ensure that each such Distribution Agreement contains such restrictions on the distributor as shall be permitted under the terms of any replacement of the Regulation and shall enforce and procure that all Group Companies shall enforce such restrictions. 2.5 Each of UBI and UBSN agree, in relation to agreements with persons (including, without limitation, Group Companies) for the brewing of Kingfisher Products within the Territory, that they shall ensure and shall procure that all Group Companies shall ensure that each such agreement contains provisions obliging the brewer to supply Kingfisher Products only to a Group Company or a person appreciated by a Group Company to distribute Kingfisher Products in accordance with this Agreement and shall enforce and procure that all Group Companies shall enforce such provisions. 2.6 UBI undertakes to SN that, save in relation to the amount and/or the payment of royalties thereunder, it will not agree to amend or terminate and/or amend or terminate the UBI Licence. UBI and UBSN each further undertake to SN that, save in relation to the amount and/or the payment of royalties thereunder, it will not agree to amend and/or amend the UBSN Licence. Further, UBI and UBSN undertake to SN that, save in accordance with the termination provisions set out in clause 6 of the UBSN Licence and subject always to clause 2.7, they will not agree to terminate and/or terminate the UBSN Licence. 2.7 Notwithstanding clause 2.6, UBI further undertakes to SN that if at any time during the Terms: 5 2.7.1 UBSN ceases to be a subsidiary of UBI (except as a result of the admission of the whole or any class of the issued share capital of UBSN to the Official List of the London Stock Exchange or to trading on the Alternative Investment Market of the London Stock Exchange or to any other recognized investment exchange (as defined in section 207 of the Financial Services Act 1986); or 2.7.2 the UBSN Licence terminate for any reason, UBI will simultaneously enter into as brewing agreement with SN in identical terms to this Agreement save that the term of such brewing agreement shall be the unexpired Term as the date UBSN ceases to be a subsidiary of UBI or the date upon which the UBSN Licence terminates (as the case may be). 2.8 If, for any reason, UBSM or UBI (as the case may be) fails to comply with the terms of clauses 2.3, 2.4, 2.5, 2.6 or 2.7, SN shall have the right to terminate this Agreement forthwith by notice to UBI and UBSN. 2.9 With effect from the date of this Agreement, the Original UBSN Licence, the Sub-Licence, the Joint Venture Agreement and the Letter Agreement shall terminate. 3. SUPPLY OF KINGFISHER PRODUCTS TO UBSN 3.1 Subject to clause 3.9, SN agrees with UBSN to supply Kingfisher Products brewed by SN for delivery (at UBSN's costs) to UBSN (or such persons as UBSN may direct) to destinations within the United Kingdom in response to orders from UBSN which are accepted by SN in accordance with the order and the terms of this Agreement PROVIDED THAT: 3.1.1 SN shall not be required to brew or supply draught Kingfisher Products for sale or re-sale outside the United Kingdom; and 3.1.2 If SN is asked by UBSN to brew or supply non-draught Kingfisher Products for sale or re-sale outside the United Kingdom, UBSN shall be responsible, and pay SN, inter alia, for any and all additional costs of labeling and packaging such Kingfisher Products. 3.2 UBSN shall provide to SN on a monthly basis a rolling forecast of its requirements of Kingfisher Products for the following three months. Forecasts made in respect of any month may not thereafter be revised by more than 15% in either direction and notice of any revision within such percentage must be received by SN at least 20 Business Days before the commencement of the month in respect of which the forecast has been made. SN shall, provided that UBSN returns a sufficient number of casks to enable it to do so, accept orders for Kingfisher Products from UBSN placed in respect of a month which are 6 within UBSN's forecast of that month and may, but shall not be obliged to, accept any order for Kingfisher Products which is in excess of UBSN's forecast for that month. 3.3 The prices payable by UBSN for Kingfisher Products brewed by SN an delivered to UBSN during the first Year shall be the base prices ex-duty set out in Schedule 3 plus, in respect of each Year (including the First Year), the cost of transportation from the Brewery to the place of delivery, all insurance costs, the applicable price premium set out in Part II of Schedule 3, all applicable sales taxes and all applicable excise and other duties (including without limitation, United Kingdom excise duty) at the applicable rate. 3.4 UBSN shall itself be responsible for paying to the relevant authorities any sales taxes, duties or customers changes in relation to Kingfisher Products destined for export. 3.5 The prices for any other Kingfisher Products shall be as agreed between SN an UBSN. 3.6 In relation to each subsequent Year after the first Year, SN shall be entitled to propose to UBSN an increase, to take effect from the beginning of such Year, in the ex-duty prices set out in Schedule 3 charged by it to UBSN for each Kingfisher Product by an amount which, expressed as a percentage of the price of such Product for the immediately preceding Year, is equal to the percentage increase in SN's material and non-material costs of production per Barrel of the Product in question (including, for the avoidance of doubt, wages, utilities and other production costs attributable to the production of Kingfisher Products). Proposed price increases shall be notified by SN to UBSN not later than lst December 1998 and lst December in each subsequent Year. Proposed price increases once notified to UBSN shall be discussed between UBSN and SN with a view to agreement of the same. If the proposed price increases are agreed by UBSN, the increased prices shall apply with effect from the commencement of the next following Year. If, at the end of any Year, SN discovers that there has been an overall decrease in its material and non-material costs of production per Barrel of any Kingfisher Product in that Year, SN shall notify UBSN within 30 days of becoming aware of such fact and UBSN and SN shall discuss how such decrease should be reflected in the price charged by SN to UBSN for such Kingfisher Product for the next following Year. 3.7 If any price increase proposed by SN under clause 3.6 in relation to any Year (a "Disputed Year") is not agreed by UBSN by the commencement of the Disputed Year, SN shall be entitled with effect from the commencement of such Year to increase the prices charged by it to UBSN for Kingfisher Products by an amount which (expressed as a percentage of the ex-duty price for the Year in question) is equal to the RPI Percentage calculated by reference to the level of the Retail Prices Index for October (or, if not yet published, the most 7 recently published Retail Prices Index) in the Year immediately preceding the Disputed Year. In addition, SN shall have the right to terminate this Agreement by twelve months' notice to UBI and UBSN served within 30 days of the commencement of the Disputed Year. 3.8 SN shall issue invoices to UBSN and UBSN shall pay such invoices in full by the end of the month following the month in which the invoice is issued ('the due date') provided that delivery of the Kingfisher Products which are the subject of the order is properly made by SN in accordance with the terms of the relevant order. The applicable prices for Kingfisher Products shall be those prevailing at the date of delivery. If any invoice issued to UBSN is not paid by the due date, SN may, without prejudice to any other rights or remedies it may have (i) subject to giving UBSN at least 14 days notice of its intention to do so, cancel or suspend any further delivery of Kingfisher Products to UBSN; and (ii) charge interest on all overdue payments, before as well after judgment, at the rate of 2% per annum above the base rate from time to time of National Westminster Bank plc (or its successor) from the due date until the date on which payment in full is made. 3.9 SN shall not be obliged to supply Kingfisher Products to UBSN in excess of 30,000 Barrels in aggregate in any Year. If the volume of Kingfisher Products ordered by UBSN under clause 3.1 increases or is reasonably expected by SN to increase to 30,000 Barrels or more in any Year, SN shall promptly so notify UBSN. In the event of such increased volume or anticipated increased volume, UBI or UBSN shall, subject to clauses 2.3, 2.4, 2.5 and 3.10, have the right to brew itself or to negotiate and contract with other persons for the brewing and the supply of Kingfisher Products in excess of 30,000 Barrels per Year (the "Excess") within the United Kingdom PROVIDED THAT, prior to UBI or UBSN brewing the Excess itself or contracting with another person for the brewing in the United Kingdom of the Excess, SN shall have the option to supply the Excess on terms equal to or better than UBI's, UBSN's or the other person's good faith offer, which option shall be valid for 30 (thirty) days following SN's receipt of such terms in writing. 3.10 Subject to clause 3.11, UBI, SN and UBSN agree that if SN does not exercise its option to brew the Excess under clause 3.9 and UBI or UBSN thereafter brew the Excess itself or contract with another person for the supply of the Excess, the rights granted to SN under this Agreement shall not be affected except to the extent that such rights shall no longer be exclusive PROVIDED THAT, for the avoidance of doubt, and notwithstanding the foregoing. UBI and/or UBSN shall continue to order from SN the first 30,000 Barrels of its requirements for Kingfisher Products for re-sale in the United Kingdom in any Year. 3.11 Without prejudice to clause 3.10, if the aggregate volume of Kingfisher Products ordered by UBSN from SN in any Year falls below 7,500 Barrels:- 8 3.11.1 SN shall be entitled to terminate this Agreement by not less than 12 month notice to UBI and UBSN; and 3.11.2 Clause 13.1 shall cease to apply with effect from the end of the Year in which such shortfall occurs 3.12 If, in any 4 (four) months out of a consecutive 6 (six) month period, SN fails, in response to orders accepted by SN, to supply at least 95% of the Kingfisher Products the subject of the order within the applicable delivery period, SN and UBSN shall negotiate with a view to agreeing what, if any, compensation should be paid to UBSN. Failing such agreement within 30 (thirty) Business Days, UBSN shall be entitled to terminate this Agreement pursuant to clause 6.1.2. 4. COMPOSITION, QUALITY AND PRESENTATION 4.1 In brewing and packaging Kingfisher Products under this Agreement, SN shall: 4.1.1 use only raw materials acceptable to UBSN or, subject to clause 4.2, if such raw materials are not available in the Territory at any time in sufficient quantity (whether home produced or made available through importation) or at a reasonable price, the best reasonable alternative thereto acceptable to UBSN; 4.1.2 use only qualified technical personnel; 4.1.3 brew Kingfisher Products in accordance with the Specifications and in every other material respect to the reasonable satisfaction of UBSN; 4.1.4 package Kingfisher Products in accordance with the specifications; 4.1.5 store Kingfisher Products at the Brewery under commercially acceptable conditions; 4.1.6 keep, for a minimum of 3 months following the date of dispatch of each batch of bottled Kingfisher Products from the Brewery, a sample from each such batch, and promptly notify and discuss with UBSN any complaint about the quality of any such batch which SN may receive. 4.2 Where, under clause 4.1.1, SN proposes to use any alternative raw materials, it shall so notify UBSN and, if within the period of 15 days following such notification, UBSN has not indicated in writing that the proposed alternative(s) are unacceptable, they shall be deemed acceptable for the purposes of clause 4.1.1. 9 4.3 UBSN shall be entitled at any time during normal business hours to call at the premises of SN without appointment for the purpose of inspecting the production of Kingfisher Products with a view to satisfying itself that SN is complying in all respects with any of the matters referred to in clause 4.1. UBSN agrees not to unreasonably withhold any approval or acceptance to be given by it for the purpose of clause 4.1 and 4.2 and further agrees that SN shall have no liability to UBSN or UBI for the consequences of any delay in providing any approval or acceptance. UBSN acknowledges and agrees that the Current Kingfisher Products comply with the provisions of clause 4.1, that the raw material currently being used in the manufacture of such Products are acceptable to UBSN and that the specifications for the current packaging for such Products are approved by UBSN. 4.4 If, at any time, UBSN wishes to alter the composition, quality or presentation of Kingfisher Products or to introduce a new Kingfisher Product, it shall notify SN of its request. SN shall use reasonable endeavours to effect such request and, in particular, SN shall, within 30 days of such notification (or 90 days in the event of material changes to the packaging of Kingfisher Products), indicate to USBN whether it is able to make such alteration or to brew and package such new Kingfisher Product and, if so, the time needed to implement such alteration or introduction and, as the case may be, whether such alteration would require any change in the price of the Kingfisher Product concerned or, in the case of a new Kingfisher Product what price SN proposed to charge for such new Kingfisher Product. If , on receipt of such response, UBSN wishes to implement such alteration or introduces such new Kingfisher Product, it shall so notify SN. SN shall implement such change in the time indicated in SN's response and with effect from the date of completion of such implementation or introduction, the price of the Kingfisher Product concerned shall be the price indicated in SN's response. UBSN and SN agree to act reasonably and in good faith in their dealings with any request for or implementation of any alteration in any Kingfisher Product or introduction of a new Kingfisher Product. 4.5 SN shall use all reasonable endeavours to ensure that Kingfisher Products are not sold or delivered by it to UBSN under this Agreement after the expiry of the period of 4 (four) months from their date of manufacture. 4.6 Subject to clauses 4.2 and 4.3, if any Kingfisher Products brewed by SN and supplied to UBSN fail to meet the quality standards required by UBSN under clause 4.1.4, SN shall at its sole option replace such Kingfisher Products with all reasonable dispatch or grant UBSN a credit equal to the price at which such Kingfisher Products were invoiced. 4.7 SN shall have no liability under clause 4.6:- 10 4.7.1 unless the allegedly defective Kingfisher Products are promptly returned to SN carriage paid and properly have been found after examination by SN not to have complied with the quality standards required under clause 4.1.4; 4.7.2 to the extent that the failure to comply with such quality standards has been caused or materially contributed to by the Kingfisher Products having been transported, stored or used otherwise than in compliance with any specifications laid down by SN. For the avoidance of doubt, any batch of Kingfisher Products shall be deemed to comply with the aforesaid quality standards if the sample taken from such batch of Kingfisher Products under clause 4.1.6 so complies unless UBSN can prove otherwise. 4.8 If, under clause 4.4, SN does not effect the alteration to the composition, quality or presentation of some or all of the Kingfisher Products (together "Relevant Kingfisher Products") as reasonably requested by UBSN: 4.8.1 UBSN shall be entitled within the period of 3 months thereafter, to terminate this Agreement by 12 months' notice to SN: and/or 4.8.2 UBSN shall be entitled within the period of 3 months thereafter to contract and license other persons within the United Kingdom to brew, package, sell, market and distribute such Relevant Kingfisher Products. 4.9 If, under clause 4.4, SN unable or unwilling to produce a new Kingfisher Product as requested by UBSN, then without prejudice to clause 2.1, UBSN shall be entitled to contract and licence other persons within the United Kingdom to brew, package, sell, market and distribute such new Kingfisher Product. 5. TERM 5.1 This Agreement shall commence on the date hereof and shall continue (unless terminated earlier in accordance with its terms) for a period of 10 years (the "Initial Term"). 5.2 At any time within the period of two years prior to the expiry of the Initial Term, either SN or UBSN may serve notice on the other (an "Extension Notice") requesting an extension of the Term beyond the Initial Term subject to such revisions to this Agreement as may be specified in such notice. 11 5.3 Following the service of an Extension Notice, SN and UBSN shall negotiate in good faith with a view to agreeing the requested extension and any revisions to this Agreement but if they are unable to agree the same prior to the expiry of the Initial Term, this Agreement shall terminate on the expiry of the Initial Term. 6. TERMINATION 6.1 UBSN may, without prejudice to any other rights it may have, immediately upon giving notice, terminate this Agreement on the happening of any of the following events: 6.1.1 SN commits a substantial breach of a material term or condition of this Agreement and such breach (if capable of remedy) continues for 30 days after notice from UBSN specifying the breach and requiring the same to be remedied; 6.1.2 SN makes or commits such a breach as is referred to in clause 6.1.1 which is incapable of remedy; 6.1.3 SN ceases to carry on its business or a substantial part of its business or disposes of or transfers the whole or a substantial part of its undertaking, property or assets or stops payment of its debts; 6.1.4 SN makes a proposal for a composition in satisfaction of its debts or a scheme of arrangement of its affairs (or takes action of an equivalent nature in another jurisdiction outside the United Kingdom) or is unable to pay its debts within the meaning of section 123 of the Insolvency Act 1986 (or any equivalent provision outside the United Kingdom); 6.1.5 a petition is presented or resolution is passed for the winding-up of SN (or action of a similar nature is taken in another jurisdiction outside the United Kingdom) (other than a voluntary winding-up for the purposes of reconstruction or amalgamation, the terms of which have previously been approved in writing by UBSN); 6.1.6 a petition presented to administration order to be made in relation to SN, or a receiver or manager or administrative receiver or like person is appointed of the whole or any material part of the property, undertaking or assets of SN (or action of a similar nature to any of the foregoing is taken in another jurisdiction outside the United Kingdom). 12 6.2 SN may, without prejudice to any other rights it may have, immediately upon giving notice terminate this Agreement on the happening of any of the following events: 6.2.1 UBI or UBSN commits a substantial breach of a material term or condition of this Agreement (including, without prejudice to the generality of the foregoing, UBSN failing to pay any amount due to SN in accordance with this Agreement) and such breach (if capable of remedy) continues for 30 days after notice from SN specifying the breach and requiring the same to be remedied; 6.2.2 either UBI or UBSN makes or commits such a breach as is referred to in clause 6.2.1 which is incapable of remedy; 6.2.3 either UBI or UBSN ceases to carry on its business or a substantial part of its business or disposes of or transfers the whole or a substantial part of its undertaking, property or assets or stops payment of its debts; 6.2.4 either UBI or UBSN makes a proposal for a composition in satisfaction of its debts or a scheme of arrangement of its affairs (or takes action of an equivalent nature in another jurisdiction outside the United Kingdom) or is unable to pay its debts within the meaning of section 123 of the Insolvency Act 1986 (or any equivalent provision outside the United Kingdom); 6.2.5 a petition is presented or resolution is passed for the winding-up of either UBI or UBSN (or action of a similar nature is taken in another jurisdiction outside the United Kingdom) (other than a voluntary winding-up for the purposes of reconstruction or amalgamation, the terms of which have previously been approved in writing by SN); 6.2.6 a petition is presented for an administration order to be made in relation to either UBI or UBSN, or a receiver or manager or administrative receiver or like person is appointed of the whole or any material part of the property, undertaking or assets of either UBI or UBSN (or action of a similar nature to any of the foregoing is taken in another jurisdiction outside the United Kingdom). 7. NO ASSIGNMENT Except as otherwise provided in this Agreement, no party shall, without the prior written consent of the other parties, assign, mortgage, charge or otherwise deal with any of its rights or transfer any of its obligations under this Agreement. 13 8. FORCE MAJEURE Neither UBSN nor SN shall have any liability whatsoever to the other parties or be deemed to be in breach of this Agreement as a result of any delay or failure in performing its obligations under this Agreement to the extent that any such delay or failure arises from causes beyond the control of that party including, but not limited to, acts of god, acts or regulations of any governmental or supranational authority, war or national emergency, fire, flood, civil disobedience, strikes, lock-outs and industrial disputes. 9. RESTRICTIVE TRADE PRACTICES ACT 1976 Where this Agreement is or forms part of an agreement which is subject to registration under the Restrictive Trade Practices Act 1976 ("RTPA"), no restriction accepted or information provision made under that agreement shall be given effect to or enforced until the day after particulars of the agreement have been furnished to the Director General of Fair Trading under section 24 of the RTPA. If any party shall wish to furnish such particulars, the other parties will render such co-operation and undertake such action as may reasonably be required of them of such purpose so that particulars may be furnished as soon as practicable following the signature of this Agreement and each of the parties consents to the disclosure of all information so furnished. In this clause 9, the words and terms "agreement" and "subject to registration" shall have the meanings respectively given to them by the RTPA and reference to "restrictions accepted" or "information provisions made" under the Agreement shall be to restrictions accepted or information provisions made by virtue of which the Agreement is subject to registration. 10. CONFIDENTIALITY UBI, UBSN and SN shall each during and after the Term keep strictly confidential all information relating to the other parties which is by its nature or is marked as being "confidential" or which relates to the manufacture, packaging, marketing, distribution or sale of Kingfisher products PROVIDED THAT the obligations imposed by this clause 10 shall not apply to information which: (i) at the time it is received, is in the public domain or subsequently comes into the public domain through no fault of the recipient; or (ii) is required to be disclosed by law or by any regulatory requirement or by any regulatory authority. 11. NOTICES AND SERVICE OF PROCEEDINGS 11.1 Any notice, request, demand, approval, consent or other communication (a "Notice") to be given in connection with this Agreement shall be in writing signed by or on behalf of the party giving it and shall be irrevocable without the written consent of the parties on whom it is served. Any Notice shall be sent or delivered to the party to be served at the address for that party set out in 14 this Agreement. Any alterations in such address shall, to have effect, be notified to the other party in accordance with clause 11.2. 11.2 Service of a Notice must be effected by leaving it at the relevant address or sending it by pre-paid first class post (or by air mail if from one country to the other). 11.3 Notices shall be deemed served as follows: 11.3.1 in the case of leaving the Notice at the relevant address, at the time of leaving it there; 11.3.2 in case of service by post on the third Business Day (or in the case of a Notice sent by air mail the seventh Business Day), following the day on which it was posted and in proving such service it shall be sufficient to prove that the envelope containing the Notice was correctly addressed, postage paid and posted. 12. LAW OF AGREEMENT 12.1 This Agreement shall be governed by and construed in accordance with the laws of England. 12.2 The parties irrevocably submit for the exclusive benefit of SN to the exclusive jurisdiction of the Courts of England and Wales in respect of any claim, dispute or difference arising out of or in connection with this Agreement. 13. NON-COMPETITION 13.1 SN agrees that it will not brew another South East Asian Lager: 13.1.1 during the Term: 13.1.2 if this Agreement at the end of the Initial Term, during the period of one year after such expiry; 13.1.3 if this Agreement terminates following notice from UBSN under clause 6.1.1, during the period of three years after the date of termination; 13.1.4 if this Agreement terminates following notice from SN pursuant to clause 6.2, during the period of one year after the date of termination. 13.2 SN agrees that during the Term it will not brew any lager product with the same Specifications as the Kingfisher Products under any trade mark, trade 15 name or commercial symbol other than the Trade Marks and that no trade mark other than the Trade Marks shall be affixed by SN to any of the Kingfisher Products or to the packaging thereof without UBI's prior written consent and SN acknowledges that this provision shall survive the termination of this Agreement. 14. RECORDS 14.1 SN shall record details of the manufacture of Kingfisher Products by such product categories as may be agreed with UBSN and shall keep and maintain accurate records thereof throughout the Term and for 1 (one) year thereafter. 14.2 UBSN shall have the right upon 5 (five) days notice, to enter SN's premises or other location where the records referred to in clause 14.1 are maintained to inspect, audit and (at UBSN's expense) make copies of such records and upon receipt of such notice, SN shall make such records available for inspection. 15. LIABILITY, INSURANCE AND INDEMNIFICATION 15.1 SN shall purchase and maintain at all times during the Term product liability insurance with minimum coverage for any Year of (pound)5 million (five million pounds). Such insurance shall be in addition to, and not in lieu of, any policy or policies of insurance maintained by UBSN. SN shall provide UBSN with a copy of such insurance policy and evidence that premiums have been paid up to date not later than 30 (thirty) days after the execution of this Agreement and on request from UBSN thereafter. 15.2 SN hereby agrees to defend, indemnify and hold harmless UBSN from and against any and all costs, damages and expenses (including reasonable legal fees) (together "Loss") incurred by UBSN arising out of or in connection with any claim by a third party relating to the manufacture, preparation, packaging or supply of the Kingfisher Products by SN save that SN's liability under this clause 15.2 shall be extinguished or reduced to the extent that any Loss is caused by or contributed to by UBI and/or UBSN, the use by SN of the Trade Marks or any information or requirements provided by or, as the case may be, imposed by UBI and/or UBSN in relation to the same. UBSN shall notify SN of any such claim promptly upon receiving notice or being informed as to the existence thereof. Upon such notice from UBSN, SN shall promptly take such action as may be necessary to protect and defend UBSN against such claim. 15.3 SN's aggregate liability to UBI and UBSN for any damage, loss, cost, claim or expense caused or contributed to by SN arising out of or in connection with any claim relating to the manufacture, preparation, packaging or supply of the Kingfisher Products (including under indemnity in clause 15.2) shall in no circumstances whatsoever exceed the sum of (pound)5 million (five million pounds) per Year whether such liability arises in contract, tort, negligence, 16 misrepresentation, breach of statutory duty or otherwise howsoever, PROVIDED ALWAYS THAT nothing in this clause shall exclude or restrict the liability of SN for fraud or death or personal injury caused by its negligence. 16. OBLIGATIONS AND RIGHTS OF PARTIES UPON TERMINATION OR EXPIRY 16.1 On expiry or termination of this Agreement, SN shall immediately return to UBI any written embodiment of the Specifications. 16.2 The expiry or termination of this Agreement shall be without prejudice to any accrued rights or obligations of the parties towards each other and shall be without prejudice to any obligations which by their nature survive the expiry or termination of this Agreement. 16.3 Upon or following the expiry or termination of this Agreement, SN shall cease to manufacture Kingfisher Products under the Trade Marks and UBI or UBSN shall forthwith purchase any unsold stocks of Kingfisher products that SN may have in its possession at the then current price for such Products. 17. COMPLIANCE WITH LAWS SN shall manufacture, prepare, package and supply Kingfisher Products in all material respects in compliance with all applicable laws, rules and regulations of all Governmental authorities in the United Kingdom including, but not limited to, all applicable food, safety, health and other laws. IN WITNESS WHEREOF this Agreement has been duly executed by the parties on the date set out above. 17 SCHEDULE 1 Trade Mark Class: Schedule 4, Class 32 Registration No: 1,182,204 Date of Registration: 23 September 1982 "Kingfisher: Trade Mark and Logo: See overleaf 18 [LOGO] KINGFISHER 19 SCHEDULE 2 Current Kingfisher Products Kingfisher Premium (available in 500ml and 330ml UK bottles; 355ml and 330ml in export carton and in draught). 20 SCHEDULE 3 Part I Base prices ex-duty For Current Kingfisher Products Prem Keg Prem Keg UK Bottle UK Bottle Export Bottle Export Bottle Export Bottle 9 gallons 30 litre 330ml x 24 500ml x 12 355ml x 6 355ml x 24 330ml x 24 4.8% abv 4.8% abv 4.8% abv 4.8% abv 4.8% abv 4.8% abv 4.8% abv (pound)/Barrel (pound)/Barrel (pound)/Barrel (pound)/Barrel (pound)/Barrel (pound)/Barrel (pound)/Barrel 40.64 40.64 104.71 105.88 126.50 100.38 107.70
These prices shall be rebated by (pound)1 per Barrel in the Year ending 31st December 1998 and by 50p per Barrel in the Year ending 31st December 1999. 21 SCHEDULE 3 Part II Price premium ex-duty for Current Kingfisher Products In the first Year: (pound)7.00 per Barrel for the first 10,000 Barrels; and (pound)3.00 per Barrel for the next 5,000 Barrels and in each subsequent Year a sum per Barrel equal to the price premium for the immediately preceding Year increased by an amount which (expressed as a percentage of this price premium for the immediately preceding Year) is equal to the RPI Percentage calculated by reference to the level of the Retail Prices Index for October (or if not yet published the most recently published Retail Prices Index) in the immediately preceding Year. 22 SIGNED by K. G. James ) for and on behalf of ) /s/ K. G. James UNITED BREWERIES ) INTERNATIONAL (UK) LIMITED in ) the present of /s/ Thomas Purton T. E. Purton 10 Snow Hill London Ec1A 2AL SIGNED by R. U. B. Neame ) For and on behalf of ) /s/ R. U. B. Neame SHEPHERD NEAME LIMITED ) presence of ) /s/ Thomas Purton As above SIGNED by B. K. C. Dozey ) For and on behalf of ) /s/ B. K. C. Dozey USBSN LIMTED in the ) presence of ) /s/ Thomas Purton As above EX-10.55 9 d50241ex10-55.txt SUPPLEMENTAL AGREEMENT Exhibit 10.55 [LOGO] DATED __________ 2001 (1) UNITED BREWERIES INTERNATIONAL (UK) LIMITED (2) UBSN LIMITED ------------------------------------ SUPPLEMENTAL AGREEMENT to a Distribution Agreement ------------------------------------ THIS SUPPLEMENTAL AGREEMENT is made on 2001 BETWEEN:- (1) UNITED BREWERIES INTERNATIONAL (UK) LIMITED, a company registered in England with number 1688201 whose registered office is at 75 Westow Hill, Crystal Palace, London SE19 1TX ("UBI (UK)"); and (2) UBSN LIMITED, a company registered in England with number 2367133 whose registered office is at 75 Westow Hill, Crystal Palace, London SE19 1TX ("UBSN"). INTRODUCTION (A) UBI (UK) and UBSN entered into a Distribution Agreement on 9 October 1998 (the "Original Agreement"), whereby UBI (UK) appointed UBSN, inter alia, as its exclusive distributor of Kingfisher Products in the Territory. (B) Following discussions between the parties, UBI (UK) and UBSN now wish to enter into this Supplemental Agreement in order to make certain amendments to the Original Agreement. IT IS AGREED as follows:- 1. DEFINITIONS AND INTERPRETATION Save as expressly set out herein, words and phrases defined in the Original Agreement shall have the same meaning when used in this Supplemental Agreement. 2. COMMENCEMENT This Supplemental Agreement shall commence on the date hereof. 3. AMENDMENTS TO THE ORIGINAL AGREEMENT 3.1 The definitions of "Brewing Agreement", "Territory" and "UBI (UK) Licence" in clause 1.1 of the Original Agreement shall be deleted and replaced by the following definitions:- "Brewing Agreement the brewing agreement dated 9 October 1998 between UBI (UK), UBSN and SN, as the same may be amended, supplemented, varied or replaced from to time"; "Territory the United Kingdom, Belgium, the Netherlands, France, Germany, Italy, Austria, Switzerland, Finland, Sweden, Norway, Denmark, Eire, Luxembourg, Iceland, Greece, Spain, Portugal, Liechtenstein and the United States of America;" and "UBI (UK) Licence the licence dated 9 October 1998 between UB and UBI (UK), as the same may be amended, supplemented, varied or replaced from time to time;". 3.2 Clause 3.1 of the Original Agreement shall be deleted and replaced by the following:- "3.2 Pursuant to the UBI (UK) Licence, UBI (UK) hereby grants to UBSN an exclusive sub-licence in the United Kingdom and, subject always to clause 2.2, a non-exclusive sub-licence in those parts of the Territory falling outside the United Kingdom to use the Trade Marks and to do all things necessary to manufacture, package, market, distribute and sell Kingfisher Products in the Territory and specifically including the authorisation to enter into the Brewing Agreement.". 3.3 Clause 5.1 of the Original Agreement shall be deleted and replaced by the following:- "5.1 This Agreement shall be deemed to have commenced on 9 October 1998 and shall continue (unless terminated earlier in accordance with its terms) for a period of 15 years from such date (the "Initial Term").". 3.4 Clause 7 of the Original Agreement shall be deleted and replaced by the following:- "7.1 Without prejudice to clause 7.2, neither party shall, without the prior written consent of the other, assign, mortgage, charge or otherwise deal with any of its rights and/or obligations under this Agreement. 7.2 If UBI (UK) and/or UBSN wishes to transfer any of its rights and/or obligations under this Agreement to any person (each a "Transferee"), it shall ensure that, as a 2 pre-condition of any such transfer, the Transferee simultaneously enters into an agreement, agreeing to be bound by the obligations of UBI (UK) and/or UBSN (as appropriate), mutatis mutandis, under this Agreement and, save in circumstances where the Transferee is UBSN, the Brewing Agreement and shall require that any such Transferee imposes an equivalent obligation on any other transferee of such rights and/or obligations." 4. CONFIRMATION OF THE ORIGINAL AGREEMENT Subject to the terms and conditions of this Supplemental Agreement, the Original Agreement shall remain in full force and effect. 5. LAW OF SUPPLEMENTAL AGREEMENT 5.1 This Supplemental Agreement shall be governed by, and construed in accordance with, the laws of England. 5.2 The parties irrevocably submit to the non-exclusive jurisdiction of the courts of England and Wales in respect of any claim, dispute or difference arising out of or in connection with this Supplemental Agreement. THIS SUPPLEMENTAL AGREEMENT has been duly executed and delivered by the parties as a deed on the date stated above. 3 EXECUTED as a DEED by ) UNITED BREWERIES INTERNATIONAL ) (UK) LIMITED ) acting by: ) ...................................... Director ...................................... Director/Secretary EXECUTED as a DEED by ) UBSN LIMITED ) acting by: ) ...................................... Director ...................................... Director/Secretary EX-10.56 10 d50241ex10-56.txt DEVELOPMENT, GENERAL & ADMINISTRATIVE AGREEMENT Exhibit 10.56 MARKET DEVELOPMENT, GENERAL & ADMINISTRATIVE SERVICES AGREEMENT THIS MARKET DEVELOPMENT, GENERAL & ADMINISTRATIVE SERVICES AGREEMENT ("Agreement") is entered into effective as of September 1, 2001 ("Effective Date") by and between: UBSN Limited, an English company, with its registered office located at 75 Weston Hill, Crystal Palace, London SE19 ITX, England ("UBSN"), and Mendocino Brewing Company, Inc., a California corporation, with its principal place of business located at 13351 Highway 101 South, Hopland, California 95499, U.S.A. ("MBC"), in reference to the following facts: A. UBSN is engaged in the business of brewing, marketing, distributing, and selling Kingfisher brand beer and related consumer products (the "Products") and desires to develop a market for the Products in the United States. B. UBSN wishes to engage MBC to perform certain marketing and administrative services that will benefit UBSN in its efforts to market, sell and distribute the Products in the United States. C. MBC is willing and able to perform such services for UBSN on the terms and conditions set forth herein. UBSN and MBC agree as follows: Section 1 - Definitions For purposes of this Agreement, the following terms shall have the meanings described below: 1.1 "Confidential Information" shall mean and include any and all data and information not in the public domain, including know-how and trade secrets, relating to, or contained or embodied in, the Products and/or the business or affairs of UBSN. Confidential Information may be communicated orally, visually, in writing or in any other recorded or tangible form. All data and information shall be considered to be Confidential Information hereunder (a) if UBSN has marked them as such, (b) if UBSN, orally or in writing, has advised MBC of their confidential nature, or (c) if, due to their character or nature, a reasonable person in a like position and under like circumstances would treat them as confidential. 1 1.2 "Intellectual Property Rights" shall mean and include all patents, copyrights, designs, trademarks, service marks, trade names and other proprietary rights or applications and registrations therefor that pertain to the Products. 1.3 "Person" shall mean and include any individual, corporation, trust, estate, partnership, joint venture, company, association, league, governmental bureau or agency, or any other entity regardless of the type or nature thereof. 1.4 "Services" shall mean the promotional, market development, and administrative services performed by MBC (as more particularly described in Section 2.1 below) to benefit UBSN in its efforts to market, sell and distribute the Products in the United States. Section 2 - Engagement of MBC 2.1 Engagement. Subject to the terms and conditions of this Agreement, UBSN hereby engages MBC, and MBC hereby agrees, to perform Services on behalf of UBSN, which may include any or all of the following: (a) undertaking advertising or marketing projects, including developing public relations campaigns, strategies and programs to develop brand name recognition for the Products and to competitively position the Products in the United States marketplace; (b) actively and regularly promoting and advertising the Products in the United States, including assessing and implementing the use of various public relations alternatives, such as direct mail campaigns, general and/or selective public advertising, attendance at trade shows, exhibits, regional fairs, and beer, wine and food festivals, sponsorship of sporting and other events, and radio and television broadcasting; (c) conceiving, creating, drafting, designing and developing sales literature, Product announcements and descriptions, advertising brochures, marketing pamphlets, and other promotional materials; (d) preparing sales forecasts, marketing studies, and surveys of marketing activities of competitors in the beer industry; (e) providing business management systems, procedures and policies for accounting purposes, and budgetary, financial forecasting, general accounting, cost control and other related services; (f) assisting UBSN with establishing and managing the distribution channels for the Products in the United States, including developing policies and procedures with respect to processing deliveries and Product orders; 2 (g) preparing documentation, applications for permits and other authorizations and filings and reports with government agencies required for UBSN to market, sell and distribute the Products in the United States; and (h) providing such other marketing and administrative services for UBSN as UBSN may reasonably request from time to time. 2.2 Limitations on Engagement. MBC agrees that it shall not perform the Services outside of the United States, unless expressly authorized by UBSN. MBC shall have no power or authority to (a) sell any of the Products, (b) enter into any contract or binding agreement with respect to the Products, or (c) accept or fill any orders for the Products. All such transactions shall be entered into directly between UBSN and its customers. 2.3 Relationship Between Parties. MBC shall act as an independent contractor under the terms of this Agreement and not as a legal representative of UBSN for any purpose whatsoever. Nothing in this Agreement shall be construed to (a) give either party the power to direct or control the daily activities of the other party, or (b) constitute the parties as employer and employee, franchisor and franchisee, partners, joint venturers, co-owners or otherwise as participants in a joint undertaking. MBC has no right or authority to enter into any contract or to assume or create any obligation of any kind, express or implied, on behalf of UBSN. Section 3 - Obligations of MBC 3.1 General Conduct. MBC shall use its best efforts to perform the Services hereunder. MBC agrees that it shall at all times adhere to the instructions, requests, and policies of UBSN regarding its performance of the Services hereunder. MBC shall conduct its activities under this Agreement in a lawful manner and in accordance with the highest standards of fair trade, fair competition and business ethics. 3.2 Personnel and Facilities. MBC shall occupy and maintain facilities adequate to perform the Services and perform its other obligations under this Agreement. MBC shall retain and have at its disposal at all times an adequate staff of trained and qualified personnel to perform its obligations under this Agreement. 3.3 Promotional Materials. MBC shall have the right to prepare localized Product descriptions, advertising and promotional materials as it considers appropriate for the promotion of the Products in the United States. MBC shall submit all such advertising and promotional materials to UBSN for written approval prior to commercial release or use by MBC. Any and all advertising and promotional materials for the Products shall comply with all applicable laws and regulations, including without limitation, the laws and regulations of the Bureau of Alcohol, Tobacco and Firearms ("ATF") and the Department of Alcoholic Beverage Control ("ABC") and various state and local departments of ABC. 3.4 Records. At all times during the term of this Agreement, MBC shall maintain at its principal place of business full, complete, and accurate records of its activities under this Agreement. Upon reasonable notice, UBSN shall have the right to review such records at 3 MBC's premises during normal business hours for purposes of verifying the performance of MBC's obligations hereunder. 3.5 Reports. Within thirty (30) calendar days after the end of each quarter in which this Agreement is in effect, MBC shall furnish UBSN with a written report summarizing all Services performed by MBC during such quarter pursuant to this Agreement. 3.6 Indemnification. MBC shall defend, indemnify and hold UBSN harmless against any and all claims, demands, suits, proceedings, losses, liabilities, damages, costs and expenses (including reasonable attorneys' fees) which are attributable to MBC's performance of the Services resulting in UBSN's rights in the Marks and Intellectual Property Rights being prejudiced in any way. MBC's obligations under the preceding sentence are subject to the conditions that (i) UBSN shall promptly have notified MBC in writing of any such claim, and (ii) MBC shall have had sole control of such defense and all negotiations for any settlement or compromise. Section 4 - Obligations of UBSN 4.1 Marketing Materials. UBSN shall, at no cost, provide MBC with a reasonable quantity of marketing and promotional materials to assist MBC in its promotional and marketing activities hereunder, upon written request by MBC. 4.2 Quality Assurances. UBSN represents and warrants that any Products produced by UBSN (a) satisfy national, local, and regional health and safety laws, ordinances and regulations in the United States, (b) are of merchantable quality fit for human consumption, and (c) satisfy the quality control standards and procedures established by UBSN from time to time. UBSN shall provide MBC with all necessary and appropriate documentation and certifications evidencing its compliance with the above. UBSN's representation and warranty under this Section 4.2 shall not apply to any Products produced by MBC pursuant to that certain Brewing License Agreement between the parties dated as of , 2001. 4.3 Indemnification. UBSN shall defend, indemnify and hold MBC harmless against any and all claims, demands, suits, proceedings, losses, liabilities, damages, costs and expenses (including reasonable attorneys' fees) which are attributable to any allegation that MBC's performance of the Services, in accordance with this Agreement, infringes the patent, copyright, design, trademark, trade secret or other proprietary right of a third party; provided, however, that UBSN's indemnification obligation under this Section 4.3 shall not apply to MBC's use of the "Kingfisher" trademark in the United States in connection with any activities of MBC hereunder. UBSN's obligations under the preceding sentence are subject to the conditions that (i) MBC shall promptly have notified UBSN in writing of any such claim, and (ii) UBSN shall have had sole control of such defense and all negotiations for any settlement or compromise. Should any Product become the subject of any infringement claim, UBSN shall have the right to instruct MBC to refrain from marketing the Products or to take such other steps as UBSN may consider appropriate in order to limit its liability exposure. 4 Section 5 - Compensation 5.1 Service Fees. In consideration for the Services performed by MBC hereunder, UBSN shall pay to MBC an annual fee equal to $US1,000,000 in calendar year 2001, $US300,000 in calendar year 2002 and $US200,000 in calendar year 2003 ("Service Fees"). 5.2 Payments. All Service Fees payable by UBSN to MBC under this Section 5 shall be paid within thirty (30) calendar days after the end of each quarter. All Service Fees shall be paid in United States Dollars. Section 6 - Confidential Information 6.1 Nondisclosure Obligation. During the term of this Agreement, UBSN may disclose certain Confidential Information to MBC solely to permit MBC to perform its obligations under this Agreement. MBC shall refrain from using or exploiting any and all Confidential Information for any purposes or activities other than those specifically authorized in this Agreement, and MBC shall not disclose any Confidential Information to any Person, except to its employees, agents, or representatives with a need to know. MBC shall implement effective security procedures in order to avoid disclosure or misappropriation of UBSN's Confidential Information. Each of MBC's employees, agents, or representatives who will have access to any of UBSN's Confidential Information shall execute a nondisclosure agreement, in a form acceptable to UBSN, which prohibits the unauthorized use or disclosure of any of UBSN's Confidential Information. MBC shall immediately notify UBSN of any unauthorized disclosure or use of any Confidential Information that comes to MBC's attention and shall take all action that UBSN reasonably requests to prevent any further unauthorized use or disclosure thereof. 6.2 Ownership of Materials. MBC expressly acknowledges and agrees that all documents and materials that contain or embody any Confidential Information are and shall remain the sole property of UBSN. Such materials shall be promptly returned to UBSN (a) upon UBSN's reasonable request, or (b) in accordance with Section 8.5 hereof, upon termination of this Agreement. 6.3 Exceptions. The provisions of this Section 6 shall not apply to data and information disclosed to MBC by UBSN, if they (a) were already known to MBC prior to disclosure, (b) have come into the public domain without breach of confidence by MBC or any other Person, (c) were received by MBC from a third party without restrictions on their use in favor of UBSN, or (d) are required to be disclosed pursuant to any applicable law, rule, regulation, or government or court order. 5 Section 7 - Intellectual Property Rights 7.1 Ownership. MBC hereby acknowledges that UBSN, or its affiliate, is the owner of all rights, title and interest in and to the Intellectual Property Rights and that MBC shall acquire no rights whatsoever in or to any of the Intellectual Property Rights pursuant to this Agreement. MBC shall not take any action that may adversely affect or impair UBSN's, or its affiliate's, rights, title and interest in or to the Intellectual Property Rights. 7.2 Trademarks and Trade Names. The parties acknowledge that MBC may, during the term of this Agreement, use the trademarks, trade names, domain names or similar marks and designations ("Marks") as authorized by UBSN, or its affiliate, from time to time in connection with the performance of the Services. Such use is expressly limited to marketing displays, trade shows, advertising materials and any other similar activities by MBC necessary for the performance of MBC's obligations under this Agreement. MBC shall not market the Products under any name, sign, logo or designation other than the Marks authorized by UBSN, or its affiliate, from time to time. 7.3 Assistance. MBC shall render to UBSN all reasonable assistance as may be required by UBSN in order to preserve the validity and enforceability of UBSN's, or its affiliate's, rights, title and interest in and to the Intellectual Property Rights. MBC agrees that it shall promptly notify UBSN (a) of any and all infringements, imitations, illegal use, or misuse, by any Person of the Intellectual Property Rights which comes to its attention, and (b) of any claims or objections that MBC's performance of the Services may or will infringe the intellectual property rights of any other Person. UBSN shall be responsible for taking any action or initiating any proceedings which UBSN, in its sole discretion, determines to be necessary or appropriate to prevent any infringement of the Intellectual Property Rights, and MBC shall provide UBSN with such assistance as UBSN may reasonably request in connection with any such action or proceeding. Section 8 - Term and Termination 8.1 Term. This Agreement shall become effective on the Effective Date and shall continue in force until the expiration or termination in accordance with its terms of the Distribution Agreement dated 9 October 1998 (as subsequently amended) between UBSN and United Breweries (UK) Limited. 8.2 Termination for Breach. In the event that a party hereto (the "Breaching Party") shall commit any material breach or default of its obligations under this Agreement, the other party (the "Non-Breaching Party") may give the Breaching Party written notice thereof and demand that such breach or default be cured immediately. If the Breaching Party fails to cure such breach or default within thirty (30) calendar days after the date of the Non-Breaching Party's written notice hereunder, the Non-Breaching Party may terminate this Agreement immediately upon giving written notice of termination hereof to the Breaching Party. 8.3 Termination for Insolvency. To the extent permitted by applicable law, either party may terminate this Agreement immediately upon written notice of termination to the other 6 party if the other party goes into bankruptcy or voluntary or involuntary dissolution, is declared insolvent, fails to pay its debts as they come due, makes an assignment for the benefit of creditors, becomes subject to proceedings under any bankruptcy or insolvency law, or suffers the appointment of a receiver or trustee over all or substantially all of its assets or properties. 8.4 Termination by UBSN. Notwithstanding the provisions of Section 8.2 hereof, UBSN may terminate this Agreement immediately by written notice of termination to MBC if MBC breaches any of its obligations under Sections 6 or 7 hereof. 8.5 Rights and Obligations Upon Termination. Termination of this Agreement for any reason whatsoever shall extinguish all rights and obligations of the parties, except for those rights and obligations accrued prior to termination, as specified under this Section 8. Upon termination of this Agreement for any reason whatsoever, MBC shall (a) immediately cease the performance of all Services hereunder, (b) return to UBSN all promotional materials in its possession which have been provided by UBSN or developed by MBC pursuant to this Agreement, and (c) return to UBSN all documents and other materials which contain or embody any Confidential Information which are in MBC's possession, unless otherwise agreed to between the parties. 8.6 Status of Payments Upon Termination. If termination of this Agreement occurs due to any event other than breach or default by MBC, then MBC shall be entitled to all Service Fees that have accrued prior to the date of termination. Payment of the Service Fees after termination shall be made in accordance with Section 5 hereof. 8.7 Survival. Notwithstanding termination of this Agreement, in the event of termination of this Agreement for any reason whatsoever, Sections 6 and 7 hereof shall survive for as long as necessary to effectuate their purposes, and shall bind the parties and their respective representatives, successors and assigns. 8.8 Waiver of Termination Compensation. To the extent permitted by applicable law, neither party shall be liable to the other party for, and each party hereby expressly waives any right to, any termination compensation of any kind or character whatsoever, to which such party may be entitled solely by virtue of termination of this Agreement. Section 9 - Compliance with Laws Each party shall at all times and at its own expense (a) strictly comply with all applicable laws, rules, regulations and governmental orders, now or hereafter in effect, relating to its performance of this Agreement, (b) pay all fees and other charges required by such laws, rules, regulations and orders, and (c) maintain in full force and effect all licenses, permits, authorizations, registrations and qualifications from all applicable governmental departments and agencies to the extent necessary to perform its obligations hereunder. Without limiting the generality of the preceding sentence, MBC agrees that in performing the Services hereunder it will comply with all laws and regulations of the ATF and the various state [and provincial] departments of ABC. 7 Section 10 - General Provisions 10.1 No Waiver. The failure of either party to assert any of its rights under this Agreement shall not be deemed to constitute a waiver of that party's right thereafter to enforce each and every provision of this Agreement in accordance with its terms. 10.2 Entire Agreement. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements, understandings and communications, whether written or oral, between the parties with respect to the subject matter hereof. No modification or amendment of this Agreement shall be effective unless in writing and executed by a duly authorized representative of each party. 10.3 Assignment. MBC shall not have the right or power to assign any of its rights, or delegate the performance of any of its duties, under this Agreement without the prior written authorization of UBSN, which may be granted or withheld by UBSN, in its sole discretion; provided, however, that no such prior authorization shall be required for MBC to subcontract the performance of the Services. 10.4 Force Majeure. Notwithstanding anything in this Agreement to the contrary, neither party shall be liable to the other party for any failure to perform or delay in the performance of any obligation hereunder, except for payment obligations hereunder, when such failure to perform or delay in performance is caused by an event of force majeure; provided, however, that the party whose performance is prevented or delayed by such event of force majeure shall give prompt notice thereof to the other party. For purposes of this Section 10.4, the term "force majeure" shall include war, rebellion, civil disturbance, earthquake, fire, flood, strike, lockout, labor unrest, acts of governmental authorities, shortage of materials, acts of God, acts of the public enemy and, in general, any other causes or conditions beyond the reasonable control of the parties. If any event of force majeure continues for more than ninety (90) calendar days, either party may terminate this Agreement upon notice to the other party. 10.5 Notices. All notices, reports, invoices and other communications between the parties hereto shall be in writing and sent by facsimile, by registered or certified, first-class airmail, return receipt requested and postage prepaid, or by courier. All such communications shall be sent to the party at the address shown at the beginning of this Agreement or to such other address of which the receiving party has given prior notice to the sending party. 10.6 Subject Headings. The subject headings of this Agreement are included for purposes of convenience only and shall not affect the construction or interpretation of any of its provisions. 10.7 Severability. In the event that any provision hereof is found invalid or unenforceable pursuant to a final judicial decree or decision, the remainder of this Agreement will remain valid and enforceable according to its terms. In the event of such partial invalidity, the parties shall seek in good faith to agree on replacing any such legally invalid provisions with 8 provisions which, in effect, will most nearly and fairly approach the effect of the invalid provisions. 10.8 Counterparts. This Agreement may be executed in two or more counterparts, each of which will be deemed an original, but all of which together constitute one and the same instrument. Section 11 - Enforcement of Agreement 11.1 Choice of Law and Jurisdiction. This Agreement, and any disputes arising out of or in connection with this Agreement, shall be governed by and construed in accordance with the laws of the State of California, U.S.A., excluding its rules governing conflicts of laws. The courts located within the State of California, U.S.A. shall have exclusive jurisdiction to adjudicate any disputes arising out of or in connection with this Agreement. The parties hereby consent to the personal jurisdiction of the courts located in the State of California, U.S.A. for the resolution of disputes hereunder. 11.2 Legal Expenses. The prevailing party in any legal proceeding brought by one party against the other party and arising out of or in connection with this Agreement shall be entitled to recover its legal expenses, including court costs and reasonable attorneys' fees. The parties hereto have caused this Agreement to be executed by their duly authorized representatives, effective as of the day and year first written above. UBSN LIMITED By: ---------------------------------- Name: ---------------------------------- Title: ---------------------------------- MENDOCINO BREWING COMPANY, INC. By: ---------------------------------- Name: ---------------------------------- Title: ---------------------------------- 9 EX-10.57 11 d50241ex10-57.txt CONTRACT TO BREW AND SUPPLY Exhibit 10.57 THIS AGREEMENT is made on 9th October 1998 BETWEEEN 1. UNITED BREWERIES INTERNATIONAL (UK) LIMITED, a company registered in England with number 1688201 whose registered office is at 75 Westow Hill, Crystal Palace, London SE19 1TX ("UBI (UK)"); and 2. UBSN LIMITED, a company registered in England with number 2367133 whose registered office is at 75 Westow Hill, Crystal Place, London SE19 1TX ("UBSN") WHEREAS: A. UB is the beneficial owner throughout the Territory of all property rights, registered and unregistered marks, names and other rights relating to the Trade Marks. B. UB has granted UBI (UK) an exclusive licence for the purpose of enabling UBSN to use the Trade Marks in the Territory. C. Pursuant to the rights granted by UB in the UBI (UK) Licence, UBI (UK) desires to enter into a distribution agreement with UBSN to carry on the business of preparing, brewing, selling, marketing and supplying Kingfisher Products in the Territory and UBI (UK) has agreed to grant to UBSN such rights in accordance with the terms of this Agreement. IT IS AGREED as follows: 1. Definitions 1.1 In this Agreement the following words and phrases shall, unless the context requires otherwise, have the following meanings: Brewing Agreement the brewing agreement dated of even date herewith between UBI (UK), UBSN and SN. Business Day a day, and other than a Saturday or Sunday, on which clearing banks are normally open for business in the City of London; Kingfisher Products lager and other beer products brewed and prepared for sale in bottled, canned and draught form and any other form implemented by SN under clause 4 of the Brewing Agreement and marketed or to be marketed under the Trade Marks or any of them; Original UBSN Licence the licence dated 14th August 1989 and made between UB and UBSN person includes bodies corporate, individuals, firms, partnerships and any other body of persons whether incorporated or unincorporated. SN Shepherd Neame Limited, a company registered in England with number 138256 whose registered office is at 17 Court Street, Faversham, Kent ME 13 7AX England Term the term of this Agreement Territory the United Kingdom, Belgium, the Netherlands, France, Germany, Italy, Austria, Switzerland, Finland, Sweden, Norway, Denmark, Eire, Luxembourg, Iceland, Greece, Spain, Portugal and Liechtenstein; Trade Marks the UK registered trade mark specified in Schedule 1 and all other registered and unregistered marks, names and rights in or relating to the "Kingfisher" name and the Kingfisher logo (such logo being represented in Schedule 1) owned and/or used by UB and licenced to UBSN for use throughout the Territory; UB United Breweries Limited, a company registered in India with number 08/740 whose registered office is at 1/1 Vital Mallya Road, Bangalore 560 001, India; UBI (UK) Licence the licence dated of even date herewith between UB and UBI (UK). Year each period of 12 calendar months during the term of this Agreement commencing on lst January and ending on 31st December except that the first Year shall be the period from the date of this Agreement to 31st December 1998 and the last Year shall be the period from lst January to the date of termination of this Agreement. 1.2 The headings in this Agreement are for convenience only and shall not affect its meaning. 1.3 References to a clause or Schedule are (unless otherwise stated) to a clause of and Schedule to this Agreement. 1.4 Words importing the singular include the plural and vice versa and words importing a gender include every gender. 2. Appointment 2.1 UBI (UK) hereby appoints UBSN as its exclusive distributor of Kingfisher Products in the Territory. 2.2 Save in accordance with clause 13.4 and the provisions of the Brewing Agreement, UBI (UK) shall not, during the Term, grant to any other person any rights relating to the Kingfisher Products in the Territory. 2.3 With effect from the date of this Agreement, the Original UBSN Licence shall terminate. 3. Sub-Licence of Trade Marks 3.1 Pursuant to the UBI (UK) Licence, UBI (UK) hereby grants to UBSN a sub-licence to use the Trade Marks and to do all things necessary to manufacture, package, market, distribute and sell Kingfisher Products in the Territory and specifically including the authorization to enter into the Brewing Agreement. 3.2 UBI (UK) shall co-operate with UBSN in ensuring that such licence is registered with the UK Trade Marks Registry and in making any necessary adjustments to existing registered user agreements. 3.3 UBI (UK) shall make and pursue application for registration of those of the Trade Marks which are not registered in the Territory. UBI (UK) shall co-operate with UBSN to ensure the recordal of UBSN's licence to use any Trade Marks which become registered in the Territory following the date of this Agreement. 4. Royalty 4.1 UBSN shall pay to UBI (UK) a royalty for all Kingfisher Products supplied in the Territory at the rate of 50p per hectolitre brewed. 4.2 UBSN shall supply to UBI (UK) half yearly a statement of the number of hectolitres of Kingfisher Products supplied in the Territory by it in the 6 months immediately preceding each such statement together with payment of the royalty calculated thereon pursuant to clause 4.1 UBSN shall maintain such records as are necessary for the purpose. 5. Term 5.1 This agreement shall commence on the date hereof and shall continue (unless terminated earlier in accordance with its terms) for a period of 10 years (the "Initial Term") 5.2 At any time within the period of two years prior to expiry of the Initial Term, either UBI (UK) or UBSN may serve notice on the other (an "Extension Notice") requesting an extension of the Term beyond the Initial Term subject to such revisions to this Agreement as may be specified in such notice and mutually agreed upon between the parties. 6. Termination 6.1 UBI (UK) may, without prejudice to any other rights it may have, immediately upon giving notice terminate this Agreement in the following event:- 6.1.1 UBSN commits a substantial breach of clause 13 of this Agreement and such breach (if capable of remedy) continues for 30 days after notice from UBI (UK) specifying the breach and requiring the same to be remedied. 6.1.2 a resolution is passed for the winding-up of UBSN (or action of a similar nature is taken in another jurisdiction outside the United Kingdom) (other than a voluntary winding-up for the purposes of a solvent reconstruction or amalgamation) or a petition is presented for a winding-up order to be made against it which is not discharged within two months of presentation. 7. No assignment Except as otherwise provided in this Agreement, neither party shall without the prior written consent of the other assign, mortgage, charge or otherwise deal with any of its rights or obligations under this Agreement. 8. Force majeure Neither party to this Agreement shall have any liability whatsoever to the other or be deemed to be in default of this Agreement as a result of any delay or failure in performing its obligations under this Agreement to the extent that any such delay or failure arises from causes beyond the control of that party including, but not limited to, acts of god, acts or regulations of any governmental or supranational authority, war or national emergency, fire, civil disobedience, strikes, lock-outs and industrial disputes. 9. Restrictive Trade Practices Act 1976 Where this Agreement is or forms part of an agreement which is subject to registration under the Restrictive Trade Practices Act 1976 ("RTPA"), no restriction accepted or information provision made under that Agreement shall be given effect to or enforced until the day after particulars of the agreement have been furnished to the Director General of Fair Trading under section 24 of the RTPA. If either party shall wish to furnish such particulars, the other party will render such co-operation and undertake such action as may reasonably be required of it for such purposes so that particulars may be furnished as soon as practicable following the signature of this Agreement and each party consents to the disclosure of all information so furnished. In this clause 9, the words and terms "agreement" and "subject to registration" shall have the meanings respectively given to them by the RTPA and the reference to "restrictions accepted" or "information provisions made" under the Agreement shall be to restrictions accepted or information provisions made by virtue of which the Agreement is subject to restriction. 10. Confidentiality UBI (UK) and UBSN shall both during and after the Term keep strictly confidential all information relating to the other party which is by is nature or its marked as being "confidential" or which relates to the sale of Kingfisher Products provided that the obligations imposed by this clause 10 shall not apply to information which, at the time it is received, is in the public domain or subsequently comes into the public domain through no fault of the recipient. 11. Notices and service of proceedings 11.1 Any notice, request, demand, approval, consent or other communication (a "Notice") to be given in connection with this Agreement shall be in writing signed by or on behalf of the party giving it and shall be irrevocable without the written consent of the party on whom it is served. Any Notice shall be sent or delivered to the party to be served at the address for that party set out in this Agreement. Any alterations in such address shall, to have effect, be notified to the other party in accordance with clause 11.2. 11.2 Service of a Notice must be effected by leaving it at the relevant address or sending it by pre-paid first class post (by air mail if from one country to the other). 11.3 Notices shall be deemed served as follows: 11.3.1 in the case of leaving the Notice at the relevant address, at the time of leaving it there; 11.3.2 in the case of service by post on the third Business Day (or in the case of a Notice sent by air mail the seventh Business Day), following the day on which it was posted and in proving such service it shall be sufficient to prove that the envelope containing the Notice was correctly addressed, postage paid and posted. 12. Law of Agreement 12.1 This Agreement shall be governed by and construed in accordance with the laws of England. 12.2 The parties irrevocably submit for the exclusive benefit of UBSN to the non-exclusive jurisdiction of the courts of England and Wales in respect of any claim, dispute or difference arising out of or in connection with this Agreement. 13. Goodwill and rights associated with the Trade Marks owned by UB 13.1 UBSN recognizes the great value of the goodwill associated with the Trade Marks and acknowledges that the Trade Marks and all rights therein and the goodwill pertaining thereto belong exclusively to UB. UBSN agrees not to commit any act or omission adverse or injurious to said rights. 13.2 UBSN agrees that every use of the Trade Marks by UBSN shall inure to the benefit of UB, and that save as otherwise set out in this Agreement and the Brewing Agreement, UBSN shall not at any time acquire any rights in the Trade Marks by virtue of any use UBSN may make of the Trade Marks. 13.3 UBSN agrees to cooperate fully and in good faith with UB or UBI (UK) for the purpose of securing, preserving, and protecting UB's rights in and to the Trade Marks. 13.4 UBSN acknowledges that both UB, and pursuant to the UBI (UK) Licence, UBI (UK) shall have the right, but shall not under any obligation, to use the Trade Marks in the Territory, however, such use is limited to brand building, advertisement or marketing and shall not contravene the rights and obligations provided in clause 2 or, except as such use shall be consistent with the provisions of the Brewing Agreement. 13.5 UBSN acknowledges that, pursuant to UBI (UK)'s obligations under the UBI (UK) Licence, its failure to cease the use of the Trade Marks on the termination or expiration of this Agreement will result in immediate and irremediable damage to UBI (UK) and to the rights of any subsequent licencee. UBSN acknowledges and admits that there is no adequate remedy at law for such failure, and agrees that in the event of such failure, UBI (UK) shall be entitled to equitable relief by way of temporary and permanent injunctions and such other and further relief including monetary damages as any court with jurisdiction may deem just and proper. 13.6 UBSN shall report to UBI (UK) in writing any infringement or imitation of the Trade Marks of which UBSN becomes aware. UBI (UK) shall have the sole right to determine whether to institute litigation upon such infringements as well as the selection of counsel. UBI (UK) may commence or prosecute any claims or suits for infringement of the Trade Marks in its own name or the name of UBSN or join UBSN as a party thereto. UBI (UK) shall be entitled to keep the entire amount of any recovery therefrom. If UBI (UK) brings an action against any infringer of the Trade Marks. UBSN shall cooperate with UBI (UK) and lend whatever assistance UBSN can or is necessary in the prosecution of such litigation. If UBI (UK) decides not to institute such litigation, it may authorize within its sole discretion, in writing, UBSN to institute such litigation, in which event UBSN shall be solely responsible for the costs of such litigation and shall be entitled to keep any recovery therefrom. 13.7 USBN shall not contest or deny the validity or enforceability of any of the Trade Marks or oppose or seek to cancel any registration thereof by UBI (UK), or aid or abet others in doing so, either during the Term or any time thereafter. UBSN waives notice of infringement with respect to the Trade Marks or any marks similar thereto. 13.8 UBSN acknowledges that any use of the Trade Marks in violation of the provisions of this clause 13 will cause irreparable damage to UBI (UK) and its licencees constitutes an incurable default of this Agreement, and is grounds for immediate termination, following the 30 day cure period, if remediable, of this Agreement. 13.9 UBI (UK)'s rights and obligations under this clause 13 are governed by and may not contravene UB's rights provided by the terms of the UBI (UK) Licence. 14. Obligations and rights of parties upon termination or expiration 14.1 In the event of expiration or termination of this Agreement, UBSN shall forthwith discontinue the use of the Trade Marks and shall not thereafter use, in any manner, or for any purpose, directly or indirectly, any of the same, or any Trade Marks or symbols deceptively similar thereto. UBSN shall immediately return UBI (UK) any written embodiment relating to the use of the Trade Marks. 14.2 The expiration or termination of this Agreement shall be without prejudice to any other rights or claims of UBI (UK) against UBSN, or any other remedy available to it, or relieve UBSN of any obligations which by their nature survive the expiration or termination of this Agreement 14.3 Upon or following the expiry or termination of this Agreement, UBSN shall cease to licence to SN the right to manufacture Kingfisher Products under the Trade Marks and UBSN shall forthwith purchase any unsold stocks of Kingfisher Products that SN may have in its possession at the then current price for such Products. 14.4 Upon or following the expiry or termination of this Agreement, UBSN shall, upon the request of UBI (UK), do all things and execute all documents necessary to cancel the entries, if any, which record UBSN as a registered user of the Trade Marks in the Territory. This Agreement has been duly executed by the parties on the ate set out above. SIGNED by K. G. James ) for and on behalf of ) /s/ K. G. James UNITED BREWERIES ) INTERNATIONAL (UK) LIMITED in ) the presence of /s/ Thomas Purton T. E. Purton 10 Snow Hill London EC1A2AL SIGNED by David R. Townshend ) For and on behalf of ) /s/ David R. Townshend UBSN LIMTED in the ) Presence of ) /s/ Thomas Purton T. E. Purton 10 Snow Hill London EC1A2AL SCHEDULE 1 Trade Mark Class: Schedule 4, Class 32 Registration No: 1,182,204 Date of Registration: 23 September 1982 "Kingfisher" Trade Mark and Logo: See overleaf [LOGO] KINGFISHER TRAVERS SMITH BRAITHWAITE DATED 9th OCTOBER 1998 (1) UNITED BREWERIES INTERNATIONAL (UK) LIMIED (2) SHEPHERD NEAME LIMTED (3) UBSN LIMITED CONTRACT TO BREW AND SUPPLY KINGFISHER PRODUCTS TO UBSN CONTENTS Clause 1. Definitions 2. Grant of brewing rights 3. Supply of Kingfisher Products UBSN 4. Composition, Quality and Presentation 5. Term 6. Termination 7. No assignment 8. Force majeure 9. Restrictive Trade Practices Act 1976 10. Confidentiality 11. Notices and service of proceedings 12. Law of Agreement 13. Non-competition 14. Records 15. Liability, insurance and indemnification 16. Obligations and rights of parties upon termination or expiry 17. Compliance with laws Schedules 1. Trade Mark and Logo 2. Current Kingfisher Products 3. Part I - Base prices ex-duty for Current Kingfisher Products Part II - Price premium ex-duty for Current Kingfisher Products THIS AGREEMENT is made on 9th October 1998 BETWEEN: (1) UNITED BREWERIES INTERNATIONAL (UK) LIMITED, a company registered in England with number 1688201 whose registered office is at 75 Westow Hill Crystal Palace, London SE19 1TX, England ("UBI"); (2) SHEPHERD NEAME LIMITED, a company registered in England with number 138256 whose registered office is at 17 Court Street, Faversham, Kent ME13 7AX, England ("SN"); and (3) UBSN LIMITED, a company registered in England with number 2367133 whose registered office is at a 75 Westow Hill, Crystal Place, London SE19 1TX ("UBSN"). WHEREAS: (A) UB is the beneficial owner throughout the Territory of all trade marks, service marks, logotypes, commercial symbols, insignias and designs, registered and unregistered, relating to the name "Kingfisher" and to the Kingfisher logo which logo is set out in Schedule 1 (the "Trade Marks"). (B) Pursuant to the UBI Licence, UB has granted UBI an exclusive licence, irrevocable for the term of this Agreement, for the purpose only of enabling UBSN and SN to use the Trade Marks for the purposes set out in this Agreement. (C) Pursuant to the UBSN Licence, UBI, in substitution for the Original UBSN Licence, has granted UBSN the exclusive right to brew, package, develop, market and sell Kingfisher Products in the United Kingdom. (D) SN has substantial experience in the business of brewing, packaging, selling and supplying beer and, pursuant to the Sub-Licence, is currently engaged in brewing and supplying Current Kingfisher Products to UB and UBSN. (E) SN desires to enter into a contract to carry on the business of brewing packaging, selling and supplying Kingfisher Products to UBSN and UBSN has agreed to grant to SN such rights in accordance with the terms of this Agreement. IT IS AGREED as follows: 1. DEFINITIONS 1.1 In this Agreement the following words and phrases shall, unless the context requires otherwise, have the following meaning: Barrel 36 imperial gallons; Brewery SN's brewery at 17 Court Street, Faversham, Kent ME13 7AX and/or any other brewery at which SN brews Kingfisher Products from time to time; Business Day a day, other than a Saturday or Sunday, on which clearing banks are normally open for business in the City of London; Current Kingfisher Products Those Kingfisher Products supplied by SN to UB or UBSN at the date o this Agreement as described in Schedule 2; Distribution Agreement has the meaning set out in clause 2.3; Excess has the meaning set out in clause 3.9; Group Company UB and its subsidiaries for the time being and from time to time and Group Companies shall be construed accordingly; Initial Term has the meaning set out in clause 5.1; Joint Venture Agreement the joint venture agreement dated 14th August 1989 between SN an UBI (as the same may have been amended from time to time); Kingfisher Products lager and other beer products brewed and prepared for sale in bottled, canned, draught or other form and marketed or to be marketed under the Trade Marks or any of them; Letter Agreement the letter agreement dated 14th August 1989 between SN and UBI in relation to the operation and administration of UBSN (as the same may have been amended from time to time); Original UBSN Licence the licence dated 14th August 1989 and made between UB and UBSN; 2 person includes bodies corporate, individuals firms, partnerships and any other body of persons, whether incorporated or unincorporated. Quarter each period of three calendar months ending on 31st March, 30th June, 30th September and 31st December in each Year; Regulation Commission Regulation EC/1983/83; Retail Prices Index the index entitled "General Index of Retail Prices - All items" prepared by the Office for National Statistics or, if such index is not published for the period in question, any replacement or substitute therefor; RPI Percentage in respect of the Retail Prices Index published for any month in any Year, the difference, expressed as a percentage, between the average level of the Retail Prices Index for that month and the eleven preceding months (calculated by adding the twelve monthly indices and dividing by twelve) and the average level of the Retail Prices Index for the same month in the preceding Year and the eleven preceding months (calculated in the same manner); South East Asia India, Pakistan, Thailand, the Union of Myanmar, Nepal, Sri Lanka and Bangladesh; South East Asian Lager any brand of lager: (a) with sales in a country in South East Asia equal to 50% or more of the total worldwide sales for such brand of lager; or (b) which is marketed or sold as originating from a country in South East Asia; Specifications the specifications for the composition, quality and presentation of Kingfisher Products referred to in clause 4; Sub-Licence the sub-licence dated 14th August 1989 and made between UBSN and SN; Term the term of this Agreement; 3 Territory the United Kingdom, Belgium, the Netherlands, France, Germany, Italy, Austria, Switzerland, Finland, Sweden, Norway, Denmark, Eire, Greece, Spain, Portugal, Luxembourg, Iceland and Liechtenstein; UB United Breweries Limited, a company registered in India with number 08/740 whose registered office is at 1/1 Vittal Mallya Road, Bangalore 560 001, India; UBI Licence the licence of even date herewith and made between UB and UBI; USBN Licence the licence of even date herewith and made between UBI and USBN; and Year each period of 12 calendar months commencing on lst January and ending on 31st December during the Term except that the first Year shall be the period from the date of this Agreement to 3lst December 1998 and the last Year shall be the period from lst January to the date of termination of this Agreement. 1.2 The headings in this Agreement are for convenience only and shall not affect its meaning. 1.3 Reference to a clause or Schedule are (unless otherwise stated) to a clause of and Schedule to this Agreement. 1.4 Words importing the singular include the plural and vice versa, words importing a gender include every gender. 1.5 Where used in this Agreement, the term "subsidiary" shall have the meaning ascribed thereto in Section 736 of the Companies Act 1985 (as the same may be amended, re-enacted or consolidated from time to time). 2. GRANT OF BREWING RIGHTS 2.1 Subject to the provisions of this Agreement, UBSN hereby grants to SN the exclusive right to brew, keg, bottle, can, label and package Kingfisher Products in the United Kingdom in accordance with the terms of this Agreement and the Specifications. 4 2.2 Save in accordance with the provisions of this Agreement, each of UBI and UBSN undertakes to SN that throughout the Term, it shall not and shall not authorize or grant any form of licence or right to any other person to, brew, keg, bottle, can, label and/or package products using the Trade Marks in the United Kingdom. 2.3 Each of UBI and UBSN agree, in relation to agreements for the distribution of Kingfisher Products within the Territory (each a "Distribution Agreement") entered into whilst the Regulation remains in force, that they shall ensure and shall procure that all Group Companies shall ensure that each such Distribution Agreement contains provisions obliging the distributor (i) to obtain supplies Kingfisher Products for resale only from a Group Company and/or SN and (ii) to refrain, in relation to the supply of Kingfisher Products for resale, from seeking customers, from establishing any branch and from maintaining any distribution depot in the United Kingdom and shall enforce and procure that all Group Companies shall enforce such provisions. 2.4 In relation to Distribution Agreements entered into after the replacement of the Regulation, UBI and UBSN shall ensure and shall procure that all Group Companies shall ensure that each such Distribution Agreement contains such restrictions on the distributor as shall be permitted under the terms of any replacement of the Regulation and shall enforce and procure that all Group Companies shall enforce such restrictions. 2.5 Each of UBI and UBSN agree, in relation to agreements with persons (including, without limitation, Group Companies) for the brewing of Kingfisher Products within the Territory, that they shall ensure and shall procure that all Group Companies shall ensure that each such agreement contains provisions obliging the brewer to supply Kingfisher Products only to a Group Company or a person appreciated by a Group Company to distribute Kingfisher Products in accordance with this Agreement and shall enforce and procure that all Group Companies shall enforce such provisions. 2.6 UBI undertakes to SN that, save in relation to the amount and/or the payment of royalties thereunder, it will not agree to amend or terminate and/or amend or terminate the UBI Licence. UBI and UBSN each further undertake to SN that, save in relation to the amount and/or the payment of royalties thereunder, it will not agree to amend and/or amend the UBSN Licence. Further, UBI and UBSN undertake to SN that, save in accordance with the termination provisions set out in clause 6 of the UBSN Licence and subject always to clause 2.7, they will not agree to terminate and/or terminate the UBSN Licence. 2.7 Notwithstanding clause 2.6, UBI further undertakes to SN that if at any time during the Terms: 5 2.7.1 UBSN ceases to be a subsidiary of UBI (except as a result of the admission of the whole or any class of the issued share capital of UBSN to the Official List of the London Stock Exchange or to trading on the Alternative Investment Market of the London Stock Exchange or to any other recognized investment exchange (as defined in section 207 of the Financial Services Act 1986); or 2.7.2 the UBSN Licence terminate for any reason, UBI will simultaneously enter into as brewing agreement with SN in identical terms to this Agreement save that the term of such brewing agreement shall be the unexpired Term as the date UBSN ceases to be a subsidiary of UBI or the date upon which the UBSN Licence terminates (as the case may be). 2.8 If, for any reason, UBSM or UBI (as the case may be) fails to comply with the terms of clauses 2.3, 2.4, 2.5, 2.6 or 2.7, SN shall have the right to terminate this Agreement forthwith by notice to UBI and UBSN. 2.9 With effect from the date of this Agreement, the Original UBSN Licence, the Sub-Licence, the Joint Venture Agreement and the Letter Agreement shall terminate. 3. SUPPLY OF KINGFISHER PRODUCTS TO UBSN 3.1 Subject to clause 3.9, SN agrees with UBSN to supply Kingfisher Products brewed by SN for delivery (at UBSN's costs) to UBSN (or such persons as UBSN may direct) to destinations within the United Kingdom in response to orders from UBSN which are accepted by SN in accordance with the order and the terms of this Agreement PROVIDED THAT: 3.1.1 SN shall not be required to brew or supply draught Kingfisher Products for sale or re-sale outside the United Kingdom; and 3.1.2 If SN is asked by UBSN to brew or supply non-draught Kingfisher Products for sale or re-sale outside the United Kingdom, UBSN shall be responsible, and pay SN, inter alia, for any and all additional costs of labeling and packaging such Kingfisher Products. 3.2 UBSN shall provide to SN on a monthly basis a rolling forecast of its requirements of Kingfisher Products for the following three months. Forecasts made in respect of any month may not thereafter be revised by more than 15% in either direction and notice of any revision within such percentage must be received by SN at least 20 Business Days before the commencement of the month in respect of which the forecast has been made. SN shall, provided that UBSN returns a sufficient number of casks to enable it to do so, accept orders for Kingfisher Products from UBSN placed in respect of a month which are 6 within UBSN's forecast of that month and may, but shall not be obliged to, accept any order for Kingfisher Products which is in excess of UBSN's forecast for that month. 3.3 The prices payable by UBSN for Kingfisher Products brewed by SN an delivered to UBSN during the first Year shall be the base prices ex-duty set out in Schedule 3 plus, in respect of each Year (including the First Year), the cost of transportation from the Brewery to the place of delivery, all insurance costs, the applicable price premium set out in Part II of Schedule 3, all applicable sales taxes and all applicable excise and other duties (including without limitation, United Kingdom excise duty) at the applicable rate. 3.4 UBSN shall itself be responsible for paying to the relevant authorities any sales taxes, duties or customers changes in relation to Kingfisher Products destined for export. 3.5 The prices for any other Kingfisher Products shall be as agreed between SN an UBSN. 3.6 In relation to each subsequent Year after the first Year, SN shall be entitled to propose to UBSN an increase, to take effect from the beginning of such Year, in the ex-duty prices set out in Schedule 3 charged by it to UBSN for each Kingfisher Product by an amount which, expressed as a percentage of the price of such Product for the immediately preceding Year, is equal to the percentage increase in SN's material and non-material costs of production per Barrel of the Product in question (including, for the avoidance of doubt, wages, utilities and other production costs attributable to the production of Kingfisher Products). Proposed price increases shall be notified by SN to UBSN not later than lst December 1998 and lst December in each subsequent Year. Proposed price increases once notified to UBSN shall be discussed between UBSN and SN with a view to agreement of the same. If the proposed price increases are agreed by UBSN, the increased prices shall apply with effect from the commencement of the next following Year. If, at the end of any Year, SN discovers that there has been an overall decrease in its material and non-material costs of production per Barrel of any Kingfisher Product in that Year, SN shall notify UBSN within 30 days of becoming aware of such fact and UBSN and SN shall discuss how such decrease should be reflected in the price charged by SN to UBSN for such Kingfisher Product for the next following Year. 3.7 If any price increase proposed by SN under clause 3.6 in relation to any Year (a "Disputed Year") is not agreed by UBSN by the commencement of the Disputed Year, SN shall be entitled with effect from the commencement of such Year to increase the prices charged by it to UBSN for Kingfisher Products by an amount which (expressed as a percentage of the ex-duty price for the Year in question) is equal to the RPI Percentage calculated by reference to the level of the Retail Prices Index for October (or, if not yet published, the most 7 recently published Retail Prices Index) in the Year immediately preceding the Disputed Year. In addition, SN shall have the right to terminate this Agreement by twelve months' notice to UBI and UBSN served within 30 days of the commencement of the Disputed Year. 3.8 SN shall issue invoices to UBSN and UBSN shall pay such invoices in full by the end of the month following the month in which the invoice is issued ('the due date') provided that delivery of the Kingfisher Products which are the subject of the order is properly made by SN in accordance with the terms of the relevant order. The applicable prices for Kingfisher Products shall be those prevailing at the date of delivery. If any invoice issued to UBSN is not paid by the due date, SN may, without prejudice to any other rights or remedies it may have (i) subject to giving UBSN at least 14 days notice of its intention to do so, cancel or suspend any further delivery of Kingfisher Products to UBSN; and (ii) charge interest on all overdue payments, before as well after judgment, at the rate of 2% per annum above the base rate from time to time of National Westminster Bank plc (or its successor) from the due date until the date on which payment in full is made. 3.9 SN shall not be obliged to supply Kingfisher Products to UBSN in excess of 30,000 Barrels in aggregate in any Year. If the volume of Kingfisher Products ordered by UBSN under clause 3.1 increases or is reasonably expected by SN to increase to 30,000 Barrels or more in any Year, SN shall promptly so notify UBSN. In the event of such increased volume or anticipated increased volume, UBI or UBSN shall, subject to clauses 2.3, 2.4, 2.5 and 3.10, have the right to brew itself or to negotiate and contract with other persons for the brewing and the supply of Kingfisher Products in excess of 30,000 Barrels per Year (the "Excess") within the United Kingdom PROVIDED THAT, prior to UBI or UBSN brewing the Excess itself or contracting with another person for the brewing in the United Kingdom of the Excess, SN shall have the option to supply the Excess on terms equal to or better than UBI's, UBSN's or the other person's good faith offer, which option shall be valid for 30 (thirty) days following SN's receipt of such terms in writing. 3.10 Subject to clause 3.11, UBI, SN and UBSN agree that if SN does not exercise its option to brew the Excess under clause 3.9 and UBI or UBSN thereafter brew the Excess itself or contract with another person for the supply of the Excess, the rights granted to SN under this Agreement shall not be affected except to the extent that such rights shall no longer be exclusive PROVIDED THAT, for the avoidance of doubt, and notwithstanding the foregoing. UBI and/or UBSN shall continue to order from SN the first 30,000 Barrels of its requirements for Kingfisher Products for re-sale in the United Kingdom in any Year. 3.11 Without prejudice to clause 3.10, if the aggregate volume of Kingfisher Products ordered by UBSN from SN in any Year falls below 7,500 Barrels:- 8 3.11.1 SN shall be entitled to terminate this Agreement by not less than 12 month notice to UBI and UBSN; and 3.11.2 Clause 13.1 shall cease to apply with effect from the end of the Year in which such shortfall occurs 3.12 If, in any 4 (four) months out of a consecutive 6 (six) month period, SN fails, in response to orders accepted by SN, to supply at least 95% of the Kingfisher Products the subject of the order within the applicable delivery period, SN and UBSN shall negotiate with a view to agreeing what, if any, compensation should be paid to UBSN. Failing such agreement within 30 (thirty) Business Days, UBSN shall be entitled to terminate this Agreement pursuant to clause 6.1.2. 4. COMPOSITION, QUALITY AND PRESENTATION 4.1 In brewing and packaging Kingfisher Products under this Agreement, SN shall: 4.1.1 use only raw materials acceptable to UBSN or, subject to clause 4.2, if such raw materials are not available in the Territory at any time in sufficient quantity (whether home produced or made available through importation) or at a reasonable price, the best reasonable alternative thereto acceptable to UBSN; 4.1.2 use only qualified technical personnel; 4.1.3 brew Kingfisher Products in accordance with the Specifications and in every other material respect to the reasonable satisfaction of UBSN; 4.1.4 package Kingfisher Products in accordance with the specifications; 4.1.5 store Kingfisher Products at the Brewery under commercially acceptable conditions; 4.1.6 keep, for a minimum of 3 months following the date of dispatch of each batch of bottled Kingfisher Products from the Brewery, a sample from each such batch, and promptly notify and discuss with UBSN any complaint about the quality of any such batch which SN may receive. 4.2 Where, under clause 4.1.1, SN proposes to use any alternative raw materials, it shall so notify UBSN and, if within the period of 15 days following such notification, UBSN has not indicated in writing that the proposed alternative(s) are unacceptable, they shall be deemed acceptable for the purposes of clause 4.1.1. 9 4.3 UBSN shall be entitled at any time during normal business hours to call at the premises of SN without appointment for the purpose of inspecting the production of Kingfisher Products with a view to satisfying itself that SN is complying in all respects with any of the matters referred to in clause 4.1. UBSN agrees not to unreasonably withhold any approval or acceptance to be given by it for the purpose of clause 4.1 and 4.2 and further agrees that SN shall have no liability to UBSN or UBI for the consequences of any delay in providing any approval or acceptance. UBSN acknowledges and agrees that the Current Kingfisher Products comply with the provisions of clause 4.1, that the raw material currently being used in the manufacture of such Products are acceptable to UBSN and that the specifications for the current packaging for such Products are approved by UBSN. 4.4 If, at any time, UBSN wishes to alter the composition, quality or presentation of Kingfisher Products or to introduce a new Kingfisher Product, it shall notify SN of its request. SN shall use reasonable endeavours to effect such request and, in particular, SN shall, within 30 days of such notification (or 90 days in the event of material changes to the packaging of Kingfisher Products), indicate to USBN whether it is able to make such alteration or to brew and package such new Kingfisher Product and, if so, the time needed to implement such alteration or introduction and, as the case may be, whether such alteration would require any change in the price of the Kingfisher Product concerned or, in the case of a new Kingfisher Product what price SN proposed to charge for such new Kingfisher Product. If , on receipt of such response, UBSN wishes to implement such alteration or introduces such new Kingfisher Product, it shall so notify SN. SN shall implement such change in the time indicated in SN's response and with effect from the date of completion of such implementation or introduction, the price of the Kingfisher Product concerned shall be the price indicated in SN's response. UBSN and SN agree to act reasonably and in good faith in their dealings with any request for or implementation of any alteration in any Kingfisher Product or introduction of a new Kingfisher Product. 4.5 SN shall use all reasonable endeavours to ensure that Kingfisher Products are not sold or delivered by it to UBSN under this Agreement after the expiry of the period of 4 (four) months from their date of manufacture. 4.6 Subject to clauses 4.2 and 4.3, if any Kingfisher Products brewed by SN and supplied to UBSN fail to meet the quality standards required by UBSN under clause 4.1.4, SN shall at its sole option replace such Kingfisher Products with all reasonable dispatch or grant UBSN a credit equal to the price at which such Kingfisher Products were invoiced. 4.7 SN shall have no liability under clause 4.6:- 10 4.7.1 unless the allegedly defective Kingfisher Products are promptly returned to SN carriage paid and properly have been found after examination by SN not to have complied with the quality standards required under clause 4.1.4; 4.7.2 to the extent that the failure to comply with such quality standards has been caused or materially contributed to by the Kingfisher Products having been transported, stored or used otherwise than in compliance with any specifications laid down by SN. For the avoidance of doubt, any batch of Kingfisher Products shall be deemed to comply with the aforesaid quality standards if the sample taken from such batch of Kingfisher Products under clause 4.1.6 so complies unless UBSN can prove otherwise. 4.8 If, under clause 4.4, SN does not effect the alteration to the composition, quality or presentation of some or all of the Kingfisher Products (together "Relevant Kingfisher Products") as reasonably requested by UBSN: 4.8.1 UBSN shall be entitled within the period of 3 months thereafter, to terminate this Agreement by 12 months' notice to SN: and/or 4.8.2 UBSN shall be entitled within the period of 3 months thereafter to contract and license other persons within the United Kingdom to brew, package, sell, market and distribute such Relevant Kingfisher Products. 4.9 If, under clause 4.4, SN unable or unwilling to produce a new Kingfisher Product as requested by UBSN, then without prejudice to clause 2.1, UBSN shall be entitled to contract and licence other persons within the United Kingdom to brew, package, sell, market and distribute such new Kingfisher Product. 5. TERM 5.1 This Agreement shall commence on the date hereof and shall continue (unless terminated earlier in accordance with its terms) for a period of 10 years (the "Initial Term"). 5.2 At any time within the period of two years prior to the expiry of the Initial Term, either SN or UBSN may serve notice on the other (an "Extension Notice") requesting an extension of the Term beyond the Initial Term subject to such revisions to this Agreement as may be specified in such notice. 11 5.3 Following the service of an Extension Notice, SN and UBSN shall negotiate in good faith with a view to agreeing the requested extension and any revisions to this Agreement but if they are unable to agree the same prior to the expiry of the Initial Term, this Agreement shall terminate on the expiry of the Initial Term. 6. TERMINATION 6.1 UBSN may, without prejudice to any other rights it may have, immediately upon giving notice, terminate this Agreement on the happening of any of the following events: 6.1.1 SN commits a substantial breach of a material term or condition of this Agreement and such breach (if capable of remedy) continues for 30 days after notice from UBSN specifying the breach and requiring the same to be remedied; 6.1.2 SN makes or commits such a breach as is referred to in clause 6.1.1 which is incapable of remedy; 6.1.3 SN ceases to carry on its business or a substantial part of its business or disposes of or transfers the whole or a substantial part of its undertaking, property or assets or stops payment of its debts; 6.1.4 SN makes a proposal for a composition in satisfaction of its debts or a scheme of arrangement of its affairs (or takes action of an equivalent nature in another jurisdiction outside the United Kingdom) or is unable to pay its debts within the meaning of section 123 of the Insolvency Act 1986 (or any equivalent provision outside the United Kingdom); 6.1.5 a petition is presented or resolution is passed for the winding-up of SN (or action of a similar nature is taken in another jurisdiction outside the United Kingdom) (other than a voluntary winding-up for the purposes of reconstruction or amalgamation, the terms of which have previously been approved in writing by UBSN); 6.1.6 a petition presented to administration order to be made in relation to SN, or a receiver or manager or administrative receiver or like person is appointed of the whole or any material part of the property, undertaking or assets of SN (or action of a similar nature to any of the foregoing is taken in another jurisdiction outside the United Kingdom). 12 6.2 SN may, without prejudice to any other rights it may have, immediately upon giving notice terminate this Agreement on the happening of any of the following events: 6.2.1 UBI or UBSN commits a substantial breach of a material term or condition of this Agreement (including, without prejudice to the generality of the foregoing, UBSN failing to pay any amount due to SN in accordance with this Agreement) and such breach (if capable of remedy) continues for 30 days after notice from SN specifying the breach and requiring the same to be remedied; 6.2.2 either UBI or UBSN makes or commits such a breach as is referred to in clause 6.2.1 which is incapable of remedy; 6.2.3 either UBI or UBSN ceases to carry on its business or a substantial part of its business or disposes of or transfers the whole or a substantial part of its undertaking, property or assets or stops payment of its debts; 6.2.4 either UBI or UBSN makes a proposal for a composition in satisfaction of its debts or a scheme of arrangement of its affairs (or takes action of an equivalent nature in another jurisdiction outside the United Kingdom) or is unable to pay its debts within the meaning of section 123 of the Insolvency Act 1986 (or any equivalent provision outside the United Kingdom); 6.2.5 a petition is presented or resolution is passed for the winding-up of either UBI or UBSN (or action of a similar nature is taken in another jurisdiction outside the United Kingdom) (other than a voluntary winding-up for the purposes of reconstruction or amalgamation, the terms of which have previously been approved in writing by SN); 6.2.6 a petition is presented for an administration order to be made in relation to either UBI or UBSN, or a receiver or manager or administrative receiver or like person is appointed of the whole or any material part of the property, undertaking or assets of either UBI or UBSN (or action of a similar nature to any of the foregoing is taken in another jurisdiction outside the United Kingdom). 7. NO ASSIGNMENT Except as otherwise provided in this Agreement, no party shall, without the prior written consent of the other parties, assign, mortgage, charge or otherwise deal with any of its rights or transfer any of its obligations under this Agreement. 13 8. FORCE MAJEURE Neither UBSN nor SN shall have any liability whatsoever to the other parties or be deemed to be in breach of this Agreement as a result of any delay or failure in performing its obligations under this Agreement to the extent that any such delay or failure arises from causes beyond the control of that party including, but not limited to, acts of god, acts or regulations of any governmental or supranational authority, war or national emergency, fire, flood, civil disobedience, strikes, lock-outs and industrial disputes. 9. RESTRICTIVE TRADE PRACTICES ACT 1976 Where this Agreement is or forms part of an agreement which is subject to registration under the Restrictive Trade Practices Act 1976 ("RTPA"), no restriction accepted or information provision made under that agreement shall be given effect to or enforced until the day after particulars of the agreement have been furnished to the Director General of Fair Trading under section 24 of the RTPA. If any party shall wish to furnish such particulars, the other parties will render such co-operation and undertake such action as may reasonably be required of them of such purpose so that particulars may be furnished as soon as practicable following the signature of this Agreement and each of the parties consents to the disclosure of all information so furnished. In this clause 9, the words and terms "agreement" and "subject to registration" shall have the meanings respectively given to them by the RTPA and reference to "restrictions accepted" or "information provisions made" under the Agreement shall be to restrictions accepted or information provisions made by virtue of which the Agreement is subject to registration. 10. CONFIDENTIALITY UBI, UBSN and SN shall each during and after the Term keep strictly confidential all information relating to the other parties which is by its nature or is marked as being "confidential" or which relates to the manufacture, packaging, marketing, distribution or sale of Kingfisher products PROVIDED THAT the obligations imposed by this clause 10 shall not apply to information which: (i) at the time it is received, is in the public domain or subsequently comes into the public domain through no fault of the recipient; or (ii) is required to be disclosed by law or by any regulatory requirement or by any regulatory authority. 11. NOTICES AND SERVICE OF PROCEEDINGS 11.1 Any notice, request, demand, approval, consent or other communication (a "Notice") to be given in connection with this Agreement shall be in writing signed by or on behalf of the party giving it and shall be irrevocable without the written consent of the parties on whom it is served. Any Notice shall be sent or delivered to the party to be served at the address for that party set out in 14 this Agreement. Any alterations in such address shall, to have effect, be notified to the other party in accordance with clause 11.2. 11.2 Service of a Notice must be effected by leaving it at the relevant address or sending it by pre-paid first class post (or by air mail if from one country to the other). 11.3 Notices shall be deemed served as follows: 11.3.1 in the case of leaving the Notice at the relevant address, at the time of leaving it there; 11.3.2 in case of service by post on the third Business Day (or in the case of a Notice sent by air mail the seventh Business Day), following the day on which it was posted and in proving such service it shall be sufficient to prove that the envelope containing the Notice was correctly addressed, postage paid and posted. 12. LAW OF AGREEMENT 12.1 This Agreement shall be governed by and construed in accordance with the laws of England. 12.2 The parties irrevocably submit for the exclusive benefit of SN to the exclusive jurisdiction of the Courts of England and Wales in respect of any claim, dispute or difference arising out of or in connection with this Agreement. 13. NON-COMPETITION 13.1 SN agrees that it will not brew another South East Asian Lager: 13.1.1 during the Term: 13.1.2 if this Agreement at the end of the Initial Term, during the period of one year after such expiry; 13.1.3 if this Agreement terminates following notice from UBSN under clause 6.1.1, during the period of three years after the date of termination; 13.1.4 if this Agreement terminates following notice from SN pursuant to clause 6.2, during the period of one year after the date of termination. 13.2 SN agrees that during the Term it will not brew any lager product with the same Specifications as the Kingfisher Products under any trade mark, trade 15 name or commercial symbol other than the Trade Marks and that no trade mark other than the Trade Marks shall be affixed by SN to any of the Kingfisher Products or to the packaging thereof without UBI's prior written consent and SN acknowledges that this provision shall survive the termination of this Agreement. 14. RECORDS 14.1 SN shall record details of the manufacture of Kingfisher Products by such product categories as may be agreed with UBSN and shall keep and maintain accurate records thereof throughout the Term and for 1 (one) year thereafter. 14.2 UBSN shall have the right upon 5 (five) days notice, to enter SN's premises or other location where the records referred to in clause 14.1 are maintained to inspect, audit and (at UBSN's expense) make copies of such records and upon receipt of such notice, SN shall make such records available for inspection. 15. LIABILITY, INSURANCE AND INDEMNIFICATION 15.1 SN shall purchase and maintain at all times during the Term product liability insurance with minimum coverage for any Year of (pound)5 million (five million pounds). Such insurance shall be in addition to, and not in lieu of, any policy or policies of insurance maintained by UBSN. SN shall provide UBSN with a copy of such insurance policy and evidence that premiums have been paid up to date not later than 30 (thirty) days after the execution of this Agreement and on request from UBSN thereafter. 15.2 SN hereby agrees to defend, indemnify and hold harmless UBSN from and against any and all costs, damages and expenses (including reasonable legal fees) (together "Loss") incurred by UBSN arising out of or in connection with any claim by a third party relating to the manufacture, preparation, packaging or supply of the Kingfisher Products by SN save that SN's liability under this clause 15.2 shall be extinguished or reduced to the extent that any Loss is caused by or contributed to by UBI and/or UBSN, the use by SN of the Trade Marks or any information or requirements provided by or, as the case may be, imposed by UBI and/or UBSN in relation to the same. UBSN shall notify SN of any such claim promptly upon receiving notice or being informed as to the existence thereof. Upon such notice from UBSN, SN shall promptly take such action as may be necessary to protect and defend UBSN against such claim. 15.3 SN's aggregate liability to UBI and UBSN for any damage, loss, cost, claim or expense caused or contributed to by SN arising out of or in connection with any claim relating to the manufacture, preparation, packaging or supply of the Kingfisher Products (including under indemnity in clause 15.2) shall in no circumstances whatsoever exceed the sum of (pound)5 million (five million pounds) per Year whether such liability arises in contract, tort, negligence, 16 misrepresentation, breach of statutory duty or otherwise howsoever, PROVIDED ALWAYS THAT nothing in this clause shall exclude or restrict the liability of SN for fraud or death or personal injury caused by its negligence. 16. OBLIGATIONS AND RIGHTS OF PARTIES UPON TERMINATION OR EXPIRY 16.1 On expiry or termination of this Agreement, SN shall immediately return to UBI any written embodiment of the Specifications. 16.2 The expiry or termination of this Agreement shall be without prejudice to any accrued rights or obligations of the parties towards each other and shall be without prejudice to any obligations which by their nature survive the expiry or termination of this Agreement. 16.3 Upon or following the expiry or termination of this Agreement, SN shall cease to manufacture Kingfisher Products under the Trade Marks and UBI or UBSN shall forthwith purchase any unsold stocks of Kingfisher products that SN may have in its possession at the then current price for such Products. 17. COMPLIANCE WITH LAWS SN shall manufacture, prepare, package and supply Kingfisher Products in all material respects in compliance with all applicable laws, rules and regulations of all Governmental authorities in the United Kingdom including, but not limited to, all applicable food, safety, health and other laws. IN WITNESS WHEREOF this Agreement has been duly executed by the parties on the date set out above. 17 SCHEDULE 1 Trade Mark Class: Schedule 4, Class 32 Registration No: 1,182,204 Date of Registration: 23 September 1982 "Kingfisher: Trade Mark and Logo: See overleaf 18 [LOGO] KINGFISHER 19 SCHEDULE 2 Current Kingfisher Products Kingfisher Premium (available in 500ml and 330ml UK bottles; 355ml and 330ml in export carton and in draught). 20 SCHEDULE 3 Part I Base prices ex-duty For Current Kingfisher Products Prem Keg Prem Keg UK Bottle UK Bottle Export Bottle Export Bottle Export Bottle 9 gallons 30 litre 330ml x 24 500ml x 12 355ml x 6 355ml x 24 330ml x 24 4.8% abv 4.8% abv 4.8% abv 4.8% abv 4.8% abv 4.8% abv 4.8% abv (pound)/Barrel (pound)/Barrel (pound)/Barrel (pound)/Barrel (pound)/Barrel (pound)/Barrel (pound)/Barrel 40.64 40.64 104.71 105.88 126.50 100.38 107.70
These prices shall be rebated by (pound)1 per Barrel in the Year ending 31st December 1998 and by 50p per Barrel in the Year ending 31st December 1999. 21 SCHEDULE 3 Part II Price premium ex-duty for Current Kingfisher Products In the first Year: (pound)7.00 per Barrel for the first 10,000 Barrels; and (pound)3.00 per Barrel for the next 5,000 Barrels and in each subsequent Year a sum per Barrel equal to the price premium for the immediately preceding Year increased by an amount which (expressed as a percentage of this price premium for the immediately preceding Year) is equal to the RPI Percentage calculated by reference to the level of the Retail Prices Index for October (or if not yet published the most recently published Retail Prices Index) in the immediately preceding Year. 22 SIGNED by K. G. James ) for and on behalf of ) /s/ K. G. James UNITED BREWERIES ) INTERNATIONAL (UK) LIMITED in ) the present of /s/ Thomas Purton T. E. Purton 10 Snow Hill London Ec1A 2AL SIGNED by R. U. B. Neame ) For and on behalf of ) /s/ R. U. B. Neame SHEPHERD NEAME LIMITED ) presence of ) /s/ Thomas Purton As above SIGNED by B. K. C. Dozey ) For and on behalf of ) /s/ B. K. C. Dozey USBSN LIMTED in the ) presence of ) /s/ Thomas Purton As above EX-10.58 12 d50241ex10-58.txt SUPPLEMENTAL AGREEMENT [LOGO] TRAVERS SMITH BRAITWAITE Exhibit 10.58 DATED _______________ 2001 (1) UNITED BREWERIES INTERNATIONAL (UK) LIMITED (2) SHEPHERD NEAME LIMITED (3) UBSN LIMITED ------------------------------------ SUPPLEMENTAL AGREEMENT to a Brewing Agreement ------------------------------------ THIS SUPPLEMENTAL AGREEMENT is made on 2001 BETWEEN:- (1) UNITED BREWERIES INTERNATIONAL (UK) LIMITED, a company registered in England with number 1688201 whose registered office is at 75 Westow Hill, Crystal Palace, London SE19 1TX, England ("UBI"); (2) SHEPHERD NEAME LIMITED, a company registered in England with number 138256 whose registered office is at 17 Court Street, Faversham, Kent ME13 7AX, England ("SN"); and (3) UBSN LIMITED, a company registered in England with number 2367133 whose registered office is at 75 Westow Hill, Crystal Palace, London SE19 1TX ("UBSN"). INTRODUCTION (A) UBI, SN and UBSN ("the parties") entered into a Brewing Agreement on 9 October 1998 (the "Original Agreement"), whereby SN agreed to brew, package, sell and supply Kingfisher Products to UBSN. (B) Following discussions between the parties and in consideration of the provision of a loan of (pound)600,000 by SN in favour of UBSN, the parties now wish to enter into this Supplemental Agreement in order to make certain amendments to the Original Agreement. IT IS AGREED as follows:- 1. DEFINITIONS AND INTERPRETATION Save as expressly set out herein, words and phrases defined in the Original Agreement shall have the same meaning when used in this Supplemental Agreement. 2. COMMENCEMENT This Supplemental Agreement shall commence on the date hereof, with the exception of clause 3.7 which shall be deemed to have effect from 9 October 1998. 3. AMENDMENTS TO THE ORIGINAL AGREEMENT 3.1 The definitions of "Group Company", "Regulation", "UBI Licence" and "UBSN Licence" in clause 1.1 of the Original Agreement shall be deleted and replaced by the following definitions respectively:- "Group Company UB, its subsidiaries for the time being and from time to time, UBI and UBSN and "Group Companies" shall be construed accordingly;" "Regulation Commission Regulation EC/2790/99;" "UBI Licence the licence dated 9 October 1998 and made between UB and UBI, as the same may be amended, supplemented, varied or replaced from time to time;" and "UBSN Licence the licence dated 9 October 1998 and made between UBI and UBSN, as the same may be amended, supplemented, varied or replaced from time to time;". 3.2 Clause 1.1 of the Original Agreement shall be supplemented with the following definitions:- "Loan Agreement the loan agreement dated on or about 24 October 2001 and made between SN and UBSN;" and "Mendocino Mendocino Brewing Company, a company incorporated in the State of California, whose registered office is at 3 Harbor Drive #115, Sausalito, CA 94965, USA". 3.3 In clause 2.3 of the Original Agreement:- 3.3.1 after the words commencing in the sixth line immediately after (ii) "to refrain, in relation to the supply of Kingfisher Products for resale, from" the words "making active sales, from" shall be inserted; 3.3.2 the words commencing in the eighth line "and from maintaining any 2 distribution depot" shall be deleted and replaced by the words "and/or from maintaining any warehouse or distribution outlet"; and 3.3.3 after the words in the ninth line "in the United Kingdom", the words "PROVIDED THAT the distributor shall not be prohibited from responding to unsolicited requests from individual customers, including requests for delivery of Kingfisher Products to such customers, in the United Kingdom. Nor shall the distributor be prohibited from undertaking general advertising and promotion in media or on the internet that reaches customers in the United Kingdom PROVIDED THAT such advertising is not specifically targeted at customers in the United Kingdom and is a reasonable way to reach customers outside the United Kingdom" shall be inserted. 3.4 In clause 2.4 of the Original Agreement, the words in the fourth line "as shall be permitted" shall be deleted and replaced by the words "which have the same or substantially the same effect as the restrictions contained in clause 2.3 insofar as permitted or not prohibited". 3.5 In clause 2.6 of the Original Agreement, all those words in clause 2.6 following the words "it will not agree to amend or terminate" in the second line shall be deleted and replaced by the words "the UBI Licence and it will not agree to transfer or transfer any of its rights and/or obligations under the UBI Licence without the prior written consent of SN (such consent not to be unreasonably withheld or delayed) and without complying with its obligations under clause 7 thereof. Further, each of UBI and UBSN undertakes to SN that, save in accordance with the termination provisions set out in clause 6 of the UBSN Licence and, subject always to clause 2.7, it will not agree to amend or terminate the UBSN Licence and it will not agree to transfer or transfer any of its rights and/or obligations under the UBSN Licence without the prior written consent of SN (such consent not to be unreasonably withheld or delayed) and without complying with its obligations under clause 7 thereof". 3.6 In clause 2.7 of the Original Agreement:- 3.6.1 after the words in the first line of clause 2.7.1 "UBSN ceases to be a subsidiary of UBI" the words "or of Mendocino" shall be inserted; 3.6.2 after the words in the fifth line of clause 2.7.1 "in Section 207 of the Financial 3 Services Act 1986)" the words "or except by reason of a transfer by UBI of all of its assets and undertaking to UBSN followed by the dissolution of UBI" shall be inserted; 3.6.3 the words immediately below clause 2.7.2 "UBI shall simultaneously enter into a brewing agreement with SN in identical terms to this Agreement save" shall be deleted and replaced by the words "UBI will simultaneously enter into an equivalent brewing agreement to this Agreement mutatis mutandis, with SN PROVIDED"; 3.6.4 after the words "UBSN ceases to be a subsidiary of UBI" the words "or of Mendocino (as appropriate)" shall be inserted; and 3.6.5 after the words "(as the case may be)" the words ", whereupon this Agreement shall terminate." shall be inserted. 3.7 The following proviso shall be inserted at the end of clause 3.3, immediately after the words "at the applicable rate":- "PROVIDED THAT, without prejudice to any of its other rights under the Loan Agreement or under this Agreement:- 3.3.1 if UBSN does not pay a Default Sum (as defined in the Loan Agreement) and SN chooses to exercise its rights under clause 10.1 of the Loan Agreement, it shall be entitled to require UBSN to pay, and UBSN shall pay, such increased prices for the Kingfisher Products brewed by SN (above and beyond any price increases permitted to be made by SN pursuant to any other provisions of this Agreement) (each an "Uplift") for a period of up to one year commencing on the date upon which such Default Sum became due and payable (the "Relevant Year"). The Uplift shall be calculated on the assumption that UBSN will order 30,000 Barrels of Kingfisher Products from SN in the Relevant Year and shall be charged in respect of each Barrel of Kingfisher Product supplied by SN to UBSN in the Relevant Year until such time as such Default Sum has been reduced to zero. Accordingly, the Uplift per Barrel shall be U = DS 30,000 4 where U = the Uplift per Barrel; and DS = the Default Sum; 3.3.2 if such Default Sum has not been repaid in full at the end of the Relevant Year pursuant to clause 3.3.1, then UBSN shall pay to SN the balance of the Default Sum in accordance with clause 10.3 of the Loan Agreement and, for the avoidance of doubt, such Default Sum shall not accrue interest under clause 3.8." 3.8 The words "With effect from 1 January 2002," shall be inserted at the beginning of the fifth and last sentence of clause 3.6 of the Original Agreement. 3.9 Each of the references in clauses 3.9 and 3.10 of the Original Agreement to "30,000 Barrels" shall be replaced by the words "60,000 Barrels". 3.10 Clause 5.1 of the Original Agreement shall be deleted and replaced by the following:- "5.1 This Agreement shall be deemed to have commenced on 9 October 1998 and shall continue (unless terminated earlier in accordance with its terms) for a period of 15 years from such date ("the Initial Term").". 3.11 The words "Subject always to clause 2.6" shall be inserted at the beginning of Clause 7 of the Original Agreement. 4. CONFIRMATION OF THE ORIGINAL AGREEMENT Subject to the terms and conditions of this Supplemental Agreement, the Original Agreement shall remain in full force and effect. 5. LAW OF SUPPLEMENTAL AGREEMENT 5.1 This Supplemental Agreement shall be governed by and construed in accordance with the laws of England. 5.2 The parties irrevocably submit, for the exclusive benefit of SN, to the non-exclusive jurisdiction of the courts of England and Wales in respect of any claim, dispute or difference arising out of or in connection with this Supplemental Agreement. 5 THIS SUPPLEMENTAL AGREEMENT has been duly executed and delivered by the parties as a deed on the date stated above. 6 EXECUTED as a DEED by ) UNITED BREWERIES INTERNATIONAL ) (UK) LIMITED acting by: ) --------------------------------- Director --------------------------------- Director/Secretary EXECUTED as a DEED by ) SHEPHERD NEAME LIMITED ) acting by: ) --------------------------------- Director --------------------------------- Director/Secretary EXECUTED as a DEED by ) UBSN LIMITED ) acting by: ) --------------------------------- Director --------------------------------- Director/Secretary 7 [LOGO] UB UNITED BREWERIES LIMITED To: Shepherd Neame Limited 17 Court Street Faversham Kent ME13 7AX 22nd October, 2001 Attention: The Directors Dear Sirs, Kingfisher lager We refer to our letter to you dated 9 October 1998 (the "Original Letter"), in respect of our procuring the performance of various obligations arising out of the brewing agreement entered into between United Breweries International (UK) Limited ("UBI"), yourselves and UBSN Limited ("UBSN") (as amended, varied, supplemented or replaced from time to time) (the "Brewing Agreement"). Following discussions between the parties and, in consideration of you entering into the proposed amendments to, inter alia, the Brewing Agreement (the adequacy of which is hereby expressly acknowledged), we hereby agree to the following amendments being made to the relevant paragraphs of the Original Letter: 1. The words "clause 2.6", in the first sentence of the second paragraph of the Original Letter, shall be deleted and replaced by the words "clause 2.9". 2. In the third paragraph of the Original Letter commencing with the words "Further, in relation to agreements..." the following amendments shall be made: o The reference to "Commission Regulation EC/1983/83" shall be deleted and replaced by "Commission Regulation EC2709/99"; Regd. Office & Bangalore Brewery P.B. No. 5104, 1/1 Vittal Mallya Road, Bangalore - 560 001 Tel : 2274884, 2274885, 2274886, 2274887, 2272866 Telex : 0845-2259 BEER IN, Fax : (91-080) 2219131, Cable : "Brewery" - 2 - o In sub-paragraph (ii) after the words "to refrain, in relation to the supply of Kingfisher Products for resale, from" the words "making active sales, from" shall be inserted; the words "and from maintaining any distribution depot" shall be deleted and replaced by the words "and/or from maintaining any warehouse or distribution outlet"; and after the words "in the United Kingdom" the words "PROVIDED THAT the distributor shall not be prohibited from responding to unsolicited requests from individual customers, including requests for delivery of Kingfisher Products to such customers, in the United Kingdom. Not shall the distributor be prohibited from undertaking general advertising and promotion in media or on the internet that reaches customers in the United Kingdom PROVIDED THAT such advertising is not specifically targeted at customers in the United Kingdom and is a reasonable way to reach customers outside the United Kingdom" shall be inserted; In the fourth paragraph of the Original Letter commencing with the words "In relation to Distribution Agreements entered into after the replacement of the Regulation", after the words "contains such restrictions on the distributor" the words "as shall be permitted" shall be deleted and replaced by the words "which have the same or substantially the same effect as the restrictions contained in (i) and (ii) of paragraph 3 above insofar as permitted or not prohibited"; and the words "that Regulation" shall be deleted and replaced by the words "the Regulation". 3. The words "clause 2.3", in the second sentence of the sixth paragraph of the Original Letter, shall be deleted and replaced by the words "clause 2.6". 4. The following paragraph shall be inserted into the Original Letter as a penultimate paragraph thereof: "Notwithstanding the immediately preceding paragraph of this letter, we further undertake to you that if at any time during the Term (as defined in the Brewing Agreement): (i) UBI ceases to be a licencee of the Company's Trademark "KINGFISHER" as per Schedule 1 attached to the Brewing Agreement and Distribution Agreement; (ii) there is a change of Control of UBI; - 3 - (iii) the UBI Licence (as amended) terminates for any reason; or (iv) any of the following events (each a "Relevant Event") occurs without your prior knowledge and written consent: (a) UBI transfers or purports to transfer any of its rights and/or obligations under the UBI Licence (as amended) without complying with its obligations under clause 7 thereof; or (b) UBSN ceases, for whatever reason, to be able to grant to you the rights under, inter alia, clause 2 of the Brewing Agreement; then we will notify you forthwith and agree that we will immediately thereafter, at our discretion (but having first consulted with you and having taken into account your own preference), either (aa) enter into an equivalent licence to the UBI Licence (as amended), mutatis mutandis, with UBSN; or (bb) enter into an equivalent brewing agreement to the Brewing Agreement (as amended), mutatis mutandis, with you provided that the term of such brewing agreement shall be the unexpired Term or the unexpired term of any replacement agreement entered into between UBI, UBSN and yourselves (pursuant to clause 2.7 of the Brewing Agreement) (a "Replacement Agreement") (as the case may be) as at the date upon which the relevant event(s) listed in paragraph 4(i) to (iv) occurs, whereupon the Brewing Agreement or any Replacement Agreement shall terminate. If a Replacement Licence terminates for any reason, we will notify you as soon as we become aware of such event and immediately thereafter enter into an equivalent brewing agreement on the terms and conditions set out in paragraph 4(iv)(bb) of this letter". - 4 - 5. The following paragraph shall be inserted into the Original Letter as a final paragraph thereof: "Without prejudice to the provisions of this letter and the UBI Licence (as amended), we further undertake to you that if, at any time during the Term we wish to transfer any of our obligations under the UBI Licence (as amended) to any person (each a "Transferee"), we shall not do so without your prior written consent (such consent not to be unreasonably withheld or delayed) and without complying with our obligations under clause 7 of the UBI Licence (as amended) nor without ensuring that any such Transferee (and any subsequent transferee) agrees to assume, mutatis mutandis, all of our obligations under the Original Letter (as amended by this letter)." Subject to the terms and conditions of this letter, we confirm that the provisions of the Original Letter shall remain in full force and effect. Yours faithfully For and on behalf of United Breweries Limited /s/ P. Subramani P. SUBRAMANI Sr. Vice President - Legal & Company Secretary EX-10.59 13 d50241ex10-59.txt LOAN AGREEMENT Exhibit 10.59 [LOGO] Dated ___________ 2001 (1) UBSN LIMITED as Borrower (2) SHEPHERD NEAME LIMITED as Lender -------------------- (pound)600,000 LOAN AGREEMENT -------------------- CONTENTS Clause 1. Definitions and Interpretation 1 2. The Facility 4 3. Conditions Precedent 4 4. Utilisation of the Facility 5 5. Interest and Interest Periods 6 6. Repayment 6 7. Prepayment 6 8. Representations and Warranties 6 9. Covenants 7 10. Non Payment 8 11. Default 8 12. Default Interest 10 13. Currency of Account 11 14. Payments 11 15. Enforcement Costs and Expenses 12 16. Evidence of Debt 12 17. Assignments 12 18. Waivers and Remedies 13 19. Notices and Service of Proceedings 13 20. Law and Jurisdiction 14 Schedule Drawdown Notice 16 THIS AGREEMENT is made on 2001 BETWEEN:- (1) UBSN LIMITED a company incorporated in England and Wales with registered number 2367133 whose registered office is at 75 Westow Hill, Crystal Palace, London SE19 1TX (the "Borrower"); and (2) SHEPHERD NEAME LIMITED a company incorporated in England and Wales with registered number 138256 whose registered office is at 17 Court Street, Faversham, Kent ME13 7AX (the "Lender"). IT IS HEREBY AGREED as follows:- 1. DEFINITIONS AND INTERPRETATION 1.1 Definitions Save as otherwise provided in this Agreement, the following words and phrases have the meanings set out below:- Advance : the advance made or to be made by the Lender to the Borrower under this Agreement.3333 Brewing Agreement : the contract to brew and supply Kingfisher products to the Borrower dated 9 October 1998 between United Breweries International (UK) Limited (1), the Lender (2) and the Borrower (3), as amended, supplemented, varied or replaced from time to time. Default Sum : has the meaning given to it in Clause 10. Default : an Event of Default or any condition, act or event which (with the giving of notice, lapse of time, making of any determination, fulfilment of any condition or any combination of any of the foregoing) may become an Event of Default. Drawdown Notice : a notice substantially in the form set out in Schedule 1. Event of Default : any of those events specified in Clause 11.1. Facility : the loan facility granted to the Borrower in this Agreement. First Repayment Date : 30 June 2003. Final Drawdown Date: 30 June 2002. Interest Period : any of those periods referred to in Clause 5.1 (by reference to which interest is calculated on an Advance). Loan : the aggregate principal amount for the time being outstanding hereunder. Parent : United Breweries International (UK) Limited, a company registered in England with registered number 1688201 whose registered office is at 75 Westow Hill, Crystal Palace, London SE19 1TX. Repayment Date : the First Repayment Date and thereafter 30 June in each subsequent year up to and including the Termination Date. Termination Date : the earlier of 30 June 2013 and the first business day on which the Loan has been repaid or prepaid. Uplift : means the additional amount payable to the Lender under clause 3.3 of the Brewing Agreement which is calculated by deducting the price payable to the Lender in respect of the Kingfisher Products (as defined in the Brewing Agreement) in accordance with the Brewing Agreement from the price payable in respect of the same following the exercise by the Lender of its rights under the proviso to clause 3.3 thereof. USBN Licence : shall have the meaning given to it in the Brewing Agreement. UBI Licence : shall have the meaning given to it in the Brewing Agreement. VAT : value added tax or any similar tax substituted therefor. 1.2 Interpretation 1.2.1 Any reference in this Agreement to:- (a) the "Lender" shall be construed so as to include its successors and assigns; (b) this "Agreement" or to any other agreement or document shall, unless the context otherwise requires, be construed as a reference to this Agreement or such other agreement or document as the same may from time to time be amended, varied, supplemented, novated or replaced and shall include any document which is supplemental to, is expressed to be collateral with, or is entered into pursuant to or in accordance with, the terms of this Agreement or, as the case may be, such other agreement or document; (c) the "assets" of any person shall be construed as a reference to all or any part of its business, operations, undertaking, property, assets, revenues (including any right to receive revenues) and uncalled capital; 2 (d) a "business day" is a reference to a day (other than a Saturday or Sunday) on which banks generally are open for business in London; (e) an "encumbrance" shall be construed as a reference to a mortgage, charge, assignment by way of security, pledge, lien, hypothecation, right of set-off, reservation of title arrangement, preferential right (save as arising under the general law for the protection of certain classes of creditors) or any trust, flawed asset or other arrangement for the purpose of and having a similar effect to the granting of security, or other security interest of any kind; (f) "indebtedness" shall be construed as a reference to any obligation for the payment or repayment of money, whether as principal or as surety and whether present or future, actual or contingent; (g) a "month" is a reference to a period starting on one day in a calendar month and ending on the numerically corresponding day in the next calendar month save that, where any such period would otherwise end on a day which is not a business day, it shall end on the next business day, unless that day falls in the calendar month succeeding that in which it would otherwise have ended, in which case it shall end on the preceding business day provided that, if a period starts on the last business day in a calendar month or if there is no numerically corresponding day in the month in which that period ends, that period shall end on the last business day in that later month; (h) a "person" shall be construed as a reference to any individual, firm, company, corporation, government, state or agency of a state or any association or partnership (whether or not having separate legal personality) of two or more of the foregoing; (i) a "regulation" shall be construed so as to include any regulation, rule, official directive, requirement, request or guideline (whether or not having the force of law) of any governmental body, agency, department or regulatory, self-regulatory or other authority or organisation; (j) "sterling" and "(pound)" denotes the lawful currency of the United Kingdom; (k) an "unpaid sum" is a reference to an unpaid sum as that term is defined in Clause 11.1; (l) the "winding-up", "dissolution", "administration", "receivership" or "bankruptcy" of a person and references to the "liquidator", "administrator", "receiver", "administrative receiver", "receiver and manager", "manager" or "trustee" of a person shall be construed so as to include any equivalent or analogous proceedings or, as the case may be, insolvency representatives or officers under the law of the jurisdiction in which such person or, as the case may be, insolvency representatives or 3 officers is incorporated or constituted or of any jurisdiction in which such person or, as the case may be, insolvency representatives or officers, carries on business. 1.2.2 In construing this Agreement, general words introduced by the word "other" shall not be given a restrictive meaning by reason of the fact that they are preceded by words indicating a particular class of acts, matters or things and general words shall not be given a restrictive meaning by reason of the fact that they are followed by particular examples intended to be embraced by the general words. 1.2.3 The headings in this Agreement are for convenience only and shall not affect its meaning and references to a Clause, Schedule or paragraph are (unless otherwise stated) to a Clause of, or Schedule to, this Agreement and to a paragraph of the relevant Schedule. 1.2.4 This Agreement may be signed in any number of counterparts, all of which taken together shall constitute one and the same instrument. Any party may enter into this Agreement by signing any such counterpart. 1.2.5 Save where the context otherwise requires, the plural of any term includes the singular and vice versa. 2. THE FACILITY 2.1 Amount The Lender grants to the Borrower, upon the terms and subject to the conditions of this Agreement, a loan facility in an aggregate amount of (pound)600,000. 2.2 Purpose The Facility is intended for general corporate purposes and accordingly the Borrower shall apply all amounts raised by it under this Agreement in or towards satisfaction of its general corporate financing requirements provided that the Lender shall not be obliged to concern itself with the application of amounts raised by the Borrower under this Agreement. 2.3 Continuing Obligations The obligations of the Borrower under or in respect of Clauses 12 and 15 shall continue even after the Loan has been repaid or prepaid. 3. CONDITIONS PRECEDENT Save as the Lender may otherwise agree, the Lender shall be under no obligation to make the Advance under this Agreement unless it has received, in form and substance satisfactory to it, certified copies of the following duly executed documents:- 4 3.1 a supplemental agreement to a licence agreement dated 9 October 1998 between United Breweries Limited and United Breweries International (UK) Limited; 3.2 a supplemental agreement to a distribution agreement dated 9 October 1998 between United Breweries International (UK) Limited and the Borrower; 3.3 a supplemental agreement to the Brewing Agreement; and 3.4 a letter amending the provisions of a letter dated 9 October 1998 from United Breweries Limited to the Lender. 4. UTILISATION OF THE FACILITY 4.1 Conditions of Utilisation Save as otherwise provided in this Agreement, one Advance of (pound)600,000 will be made by the Lender to the Borrower on its request if:- 4.1.1 not more than ten nor less than two business days before the proposed date for the making of the Advance, the Lender has received from the Borrower a Drawdown Notice in respect of the Advance, receipt of which shall oblige the Borrower to borrow the Advance so requested on the date specified in such Drawdown Notice upon the terms and subject to the conditions contained in this Agreement; 4.1.2 the proposed date for the making of the Advance is a business day which is or which precedes the Final Drawdown Date; and 4.1.3 either (i) no Default has occurred or would occur if the Advance was made and the representations set out in Clause 8 to be repeated on that date are true on and as of the proposed date for the making of the Advance or (ii) the Lender has agreed (notwithstanding any such matter) to make the Advance. 4.2 Termination Date If it has not already been repaid or prepaid, the Loan and all sums payable hereunder shall be repaid or paid (as the case may be) at close of business in London on the Termination Date. 5 5. INTEREST AND INTEREST PERIODS 5.1 Duration The period for which the Advance is outstanding shall be divided into successive periods (each an "Interest Period") each of which (other than the first Interest Period which shall begin on the date of the Advance) shall start on the last day of the preceding Interest Period for such Advance. The duration of each Interest Period (other than the first Interest Period which shall end on the 30 June immediately following the date of the Advance) shall be twelve (12) months. 5.2 Date of Payment of Interest On the last day of each Interest Period, the Borrower shall pay accrued interest on the Advance. 5.3 Rate of Interest The rate of interest applicable to the Advance from time to time during each Interest Period relating to the Advance shall be five per centum (5%) per annum. 5.4 Calculation of Interest Interest shall accrue at the rate specified in Clause 5.3 on the amount of the Advance outstanding from day to day and shall be calculated on the basis of a year of 365 days and the actual number of days elapsed. 6. REPAYMENT The Borrower shall repay the Loan in ten (10) equal instalments of (pound)60,000 each, one instalment falling due and payable on each Repayment Date, the first such instalment to be paid on the First Repayment Date. 7. PREPAYMENT 7.1 Prepayment The Borrower may, if it has given to the Lender not less than thirty days' prior notice to that effect, prepay at any time without premium or penalty the whole or any part of the Advance (being an amount or integral multiple of (pound)60,000). 7.2 Effect of Prepayments Any prepayment made pursuant to Clause 7.1 shall be applied in or towards satisfying the Borrower's obligations under Clause 6, and each such prepayment shall be applied in the inverse order of maturity of the Borrower's obligations under Clause 6. 6 7.3 Notices Irrevocable Any notice of prepayment given by the Borrower pursuant to Clause 7.1 shall be irrevocable, shall specify the date upon which prepayment is to be made and the amount of prepayment and shall oblige the Borrower to make such prepayment on such date. 7.4 No Reborrowings The Borrower shall not repay all or any part of the Loan except at the times and in the manner expressly provided for in this Agreement and shall not be entitled to reborrow any amount repaid or prepaid. 8. REPRESENTATIONS AND WARRANTIES 8.1 Representations and Warranties The Borrower represents and warrants that:- 8.1.1 Powers and authority : it has full power and authority to enter into and perform this Agreement and any other document to be entered into by it pursuant to this Agreement and has taken all necessary corporate or other action to authorise the execution, delivery and performance of this Agreement and each such other document; 8.1.2 Non-Violation : the execution by it of this Agreement and the exercise by it of its rights and performance of or compliance with its obligations under this Agreement do not and will not (a) violate (i) any law or regulation to which it or any of its assets is subject or (ii) any agreement (including but not limited to any agreement creating or evidencing the creation of any indebtedness or any encumbrance) to which it is a party or which is binding on it or its assets or (b) conflict with its constitutional documents and in particular will not cause any limit (whether imposed by an agreement which is binding on it or by its constitutional documents or otherwise) on the borrowing or other powers of the Borrower or the exercise of such powers by its board of directors to be exceeded; 8.1.3 Obligations binding : its obligations under this Agreement are legal, valid and binding; and 8.1.4 Winding-up : neither the Borrower nor the Parent has taken any corporate action nor have any other steps been taken or legal proceedings been started or (to the best of the Borrower's knowledge and belief) threatened against the Borrower or the Parent for its winding-up, dissolution or re-organisation or for the appointment or a receiver, administrator, administrative receiver, trustee or similar officer of it or of any or all of its assets. 7 8.2 Repetition Each of the representations and warranties in Clause 8.1 will be correct and complied with on the date on which the Advance is requested or to be made and on the last day of each Interest Period as if repeated then by reference to the then existing circumstances. 9. COVENANTS 9.1 Duration The undertakings in this Clause 9 shall remain in force from and after the date of this Agreement and so long as any amount is outstanding under this Agreement. 9.2 Positive Covenants The Borrower undertakes that:- 9.2.1 Consents : it will obtain, comply with the terms of and do all that is necessary to maintain in full force and effect all authorisations, approvals, licences and consents required by all applicable laws and regulations to enable it lawfully to enter into, perform and comply with its obligations under this Agreement and any document to be entered into pursuant to this Agreement or to ensure the legality, validity, enforceability or admissibility in evidence of this Agreement and each such document in England and Wales; 9.2.2 Notification of Defaults : it will promptly inform the Lender of the occurrence of any Default and, upon receipt of a written request to that effect from the Lender, confirm to the Lender that, save as previously notified to it or as notified in such confirmation, no Default has occurred; and 9.2.3 Pari passu ranking : it will ensure that its obligations under this Agreement do and will at all times rank at least equally and rateably in all respects with all its other unsecured and unsubordinated obligations save for those obligations mandatorily preferred by any applicable law. 10. NON PAYMENT 10.1 If, at any time (and on each occasion), and for any reason (and whether within or beyond the control of any party to this Agreement) the Borrower does not pay any sum (each a "Default Sum") due from it under this Agreement at the time and in the manner specified in this Agreement, then at any time thereafter the Lender may by written notice to the Borrower exercise its rights pursuant to clause 3.3 of the Brewing Agreement in which case such Default Sum shall be deemed to be reduced by the amount of each Uplift actually received by the Lender under clause 3.3 of the Brewing Agreement on the date of receipt of the same by the Lender. 8 10.2 Upon the Lender becoming entitled to exercise its rights to an Uplift as set out in Clause 10.1, the Borrower shall not be liable for default interest under Clause 12.1 on the Default Sum, unless and until such Default Sum becomes due and payable in accordance with Clause 10.3. 10.3 If, on the 30th June immediately following the Lender becoming entitled to exercise its rights under Clause 10.1, a Default Sum has not been reduced to zero, the Borrower shall forthwith pay the balance of such Default Sum to the Lender. 11. DEFAULT 11.1 Events of Default Each of the events set out below is an Event of Default:- 11.1.1 Non-Payment of Default Sum : The Borrower does not pay any monies due from it under Clause 10.3 at the time specified in that Clause and in the manner specified in this Agreement; 11.1.2 Breach of representation or warranty : Any representation or warranty made or deemed to be repeated by the Borrower in this Agreement or in any document delivered pursuant to it is not complied with or is or proves to have been incorrect or misleading when made or deemed to be repeated and (if capable of remedy) is not remedied within 10 days after the Lender has notified the Borrower thereof. 11.1.3 Breach of undertaking : The Borrower fails duly to perform or comply with any obligation expressed to be assumed by it in Clause 2.2 or 9 and (if capable of remedy) is not remedied within 10 days after the Lender has notified the Borrower thereof. 11.1.4 Breach of other obligation : The Borrower fails duly to perform or comply with any other obligation expressed to be assumed by it in this Agreement and such failure (if capable of remedy) is not remedied within 10 days after the Lender has notified the Borrower of default. 11.1.5 Cross-default : The Borrower fails duly to perform or comply with any other obligation expressed to be assumed by it in the Brewing Agreement and such failure (if capable of remedy) is not remedied within 10 days after the Lender has notified the Borrower of default. 11.1.6 Termination of Brewing Agreement : The Brewing Agreement is (i) terminated in accordance with its terms, or (ii) terminated or purported to be terminated by the Borrower and/or the Parent for any reason whatsoever, save in each case in circumstances where the termination of the Brewing 9 Agreement occurs as a result of the entry into of an equivalent brewing agreement in accordance with the terms of the Brewing Agreement. 11.1.7 Termination of the USBN Licence or the UBI Licence: Either the USBN Licence or the UBI Licence is terminated otherwise than in accordance with its terms except with the prior written consent of the Lender. 11.1.8 Insolvency : Either the Borrower or the Parent is unable to pay its debts as they fall due (or, in the reasonable opinion of the Lender, is or could be deemed by law or by a court to be unable to pay its debts), stops, suspends or threatens to stop or suspend payment of all or any part of its indebtedness or commences negotiations with any one or more of its creditors with a view to the general readjustment or re-scheduling of all or any part of its indebtedness or makes a general assignment for the benefit of, or composition with, its creditors or a moratorium is agreed or declared in respect of, or affecting, all or any part of its indebtedness. 11.1.9 Enforcement proceedings : A distress, attachment, execution, diligence or other legal process is levied, enforced or sued out on or against all or any part of the assets of the Borrower and is not discharged or stayed within 10 days. 11.1.10 Winding-up : The Borrower or the Parent takes any corporate action or other steps are taken or legal or other proceedings are started for its winding-up, dissolution or re-organisation other than for the purposes of a bona fide, solvent scheme of reconstruction or amalgamation previously approved in writing by the Lender or for the appointment of a receiver, administrator, administrative receiver, trustee or similar officer of it or of any or all of its assets. 11.1.11 Encumbrance enforceable : Any encumbrance on or over the assets of the Borrower becomes enforceable and any step (including the taking of possession or the appointment of a receiver, manager or similar person) is taken to enforce that encumbrance. 11.1.12 Cessation of business : The Borrower ceases to carry on the business it carries on today or enters into any unrelated business. 11.1.13 Illegality : It is or will become unlawful for the Borrower to perform or comply with any of its obligations under this Agreement, or any such obligation is not or ceases to be legal, valid and binding. 11.1.14 Repudiation : The Borrower repudiates, or does or causes to be done anything evidencing an intention to repudiate this Agreement. 10 11.2 Acceleration If at any time and for any reason (and whether within or beyond the control of any party to this Agreement) any Event of Default has occurred, then at any time thereafter, whether or not any Event of Default is continuing, the Lender may by written notice to the Borrower:- 11.2.1 declare the Facility to be cancelled whereupon it shall be so cancelled and the Commitment shall be reduced to zero; and/or 11.2.2 declare the Loan, all unpaid accrued interest or fees and any other sum then payable under this Agreement to be due and payable on demand or on such date as it may specify in such notice, whereupon it shall become so due and payable on demand or on such date (as the case may be) together with all such accrued interest and any other sums then owed by the Borrower under this Agreement. 12. DEFAULT INTEREST 12.1 Interest on Unpaid Sums Subject to Clause 10.2, if the Borrower does not pay any sum payable by it under this Agreement on its due date in accordance with the provisions of Clause 6 or if any sum due and payable by the Borrower under any judgment of any court in connection with this Agreement is not paid on the date of such judgment, it shall pay interest on the balance for the time being outstanding (both before and after judgment) (such balance being referred to in this Agreement as the "unpaid sum") for the period beginning on such due date or, as the case may be, the date of such judgment, at the rate of two per cent (2%) per annum above the rate of interest specified in Clause 5.3 as the Lender shall (acting reasonably) determine in good faith. 12.2 Payment and Compounding of Default Interest Any interest which shall have accrued due under Clause 12.1 in respect of an unpaid sum shall be due and payable and shall be paid by the Borrower on such date as the Lender may specify by written notice to the Borrower. If not paid on the due date, the interest shall be added to and form part of the unpaid sum on which interest shall accrue and be payable in accordance with the provisions of this Clause 12. 13. CURRENCY OF ACCOUNT Sterling is the currency of account and payment for all sums at any time due from the Borrower under or in connection with this Agreement (including damages). 11 14. PAYMENTS 14.1 No Set-Off or Counterclaim All payments made by the Borrower under this Agreement shall be made free and clear of and without any deduction for or on account of any set-off or counterclaim. 14.2 Euro In the event that:- 14.2.1 any currency in which any of the obligations under this Agreement is denominated from time to time is changed or replaced at any time after the date of this Agreement (whether as a result of the introduction of, changeover to or operation of a single or unified European currency or otherwise); and/or 14.2.2 any price source of the Euro or the national currency of any European Union member state disappears or is replaced; and/or 14.2.3 any market conventions relating to the fixing and/or calculation of interest are changed or replaced, or any provision, arrangement or proposal is made for any such event to occur, then in each such case this Agreement will be amended to the extent the Lender (acting reasonably) considers necessary or desirable to reflect that event, provision, arrangement or proposal and so as to preserve, insofar as possible, the commercial effect of this Agreement prior to that event, provision, arrangement or proposal. Where any such event, provision, arrangement or proposal enables any obligation under this Agreement to be discharged by payment in any one of a number of different currencies, the relevant obligation shall be discharged by payment in the currency (being one of that number) designated by the Lender. 14.3 Tax All payments to be made by the Borrower to the Lender under this Agreement shall be made free and clear of and without deduction for or on account of tax unless the Borrower is required by law to make such a payment subject to the deduction or withholding of tax. If the Borrower makes any payment under this Agreement in respect of which it is required by law to make any deduction or withholding, it shall pay the full amount to be deducted or withheld to the relevant taxation or other authority within the time allowed for such payment under applicable law and shall deliver to the Lender within thirty days after it has made such payment to the applicable authority an original receipt or other appropriate evidence issued by such authority evidencing the payment to such authority of all amounts so required to be deducted or withheld from such payment. 12 15. ENFORCEMENT COSTS AND EXPENSES The Borrower shall, from time to time on demand of the Lender, reimburse the Lender for all costs and expenses (including legal fees) together with VAT thereon incurred in or in connection with the preservation and/or enforcement of any of the rights of the Lender under this Agreement. 16. EVIDENCE OF DEBT A certificate issued by the Lender (acting reasonably) as to any sum payable to it under this Agreement shall, in the absence of manifest error, be conclusive for the purposes of this Agreement and prima facie evidence in any legal action or proceedings arising out of or in connection with this Agreement. 17. ASSIGNMENTS 17.1 Benefit of Agreement This Agreement shall be binding upon and enure to the benefit of each of the Borrower and the Lender and each of their respective successors and assigns. The Borrower shall not be entitled to assign all or any of its rights or obligations under this Agreement but the Lender may at any time with the prior consent of the Borrower (not to be unreasonably withheld or delayed) assign all or any of its rights under this Agreement to any other party. 17.2 Disclosure of Information The parties shall each prior to and after the Termination Date keep strictly confidential the existence and terms of this Agreement until such time as such information comes into the public domain through no fault of the party disclosing it PROVIDED THAT the obligations imposed by this Clause 17.2 shall not prevent either party disclosing such information to:- 17.2.1 any bank or other financial institution which provides, or with which a party is in negotiations for the provision of, banking facilities; 17.2.2 its professional advisers (including without limitation its accountants, lawyers and financial advisers); 17.2.3 its auditors; 17.2.4 any person to whom it is required to disclose such information by any law, regulatory requirement or regulatory authority; and 17.2.5 any other person with the consent of the other party to this Agreement (such consent not to be unreasonably withheld or delayed). 13 18. WAIVERS AND REMEDIES No failure to exercise, nor any delay in exercising, on the part of the Lender, any right or remedy under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right or remedy prevent any further or other exercise of such right or remedy or the exercise of any right or remedy. The rights and remedies provided in this Agreement are cumulative and not exclusive of any rights or remedies provided by law. 19. NOTICES AND SERVICE OF PROCEEDINGS 19.1 General Any demand, notice or other communication or document (a "Notice") to be made or delivered under this Agreement shall be made or delivered by in writing signed by or on behalf of the party giving it and shall be irrevocable without the written consent of the parties on whom it is served. Each Notice to be made on or delivered to any party to this Agreement may (unless that other person has by 15 days' written notice to the other specified another address or fax number) be made or delivered to that other person at its registered office or the address or fax number (if any) set out under its name at the end of this Agreement. 19.2 Mode of Service Service of any Notice to be made or delivered under this Agreement may be made:- 19.2.1 by leaving it at the address for service referred to in Clause 19.1; 19.2.2 by sending it by pre-paid first class letter (or by airmail if to or from an address outside the United Kingdom) through the post to the address for service referred to in Clause 19.1; or 19.2.3 by fax to the fax number of the recipient and so that any fax shall be deemed to be in writing and, if it bears the signature of the server or its authorised representative or agent, to have been signed by or on behalf of the server. 19.3 Deemed Service Any Notice from the Borrower shall be irrevocable and shall not be effective until its actual receipt by the Lender. Any other Notice shall be served or treated as served at the following times:- 19.3.1 in the case of service personally or in accordance with Clause 19.2.1, at the time of such service; 19.3.2 in the case of service by post, at 9.00 a.m. on the business day next following the day on which it was posted or, in the case of service to or from an address 14 outside the United Kingdom, at 9.00 a.m. on the fourth business day following the day on which it was posted; and 19.3.3 in the case of service by fax, if sent before 9.00 a.m. on a business day, at 11.00 a.m. on the same day, if sent between 9.00 a.m. and 5.30 p.m. on the same business day, two hours after the time of such service or, if sent after 5.30 p.m. on a business day or on a day other than a business day, at 9.00 a.m. on the next following business day. 19.4 Proof of Service In proving service of any demand, notice, communication or other document served:- 19.4.1 by post, it shall be sufficient to prove that such demand, notice, communication or other document was correctly addressed, full postage paid and posted; and 19.4.2 by fax, it shall be sufficient to prove that the fax was followed by such machine record as indicates that the entire fax was sent to the relevant number. 20. LAW AND JURISDICTION 20.1 Governing Law This Agreement shall be governed by, and construed in accordance with, English law. 20.2 Jurisdiction The parties irrevocably submit for the exclusive benefit of the Lender to the non-exclusive jurisdiction of the courts of England and Wales in respect of any claim, dispute or difference arising out of or in connection with this Agreement. AS WITNESS the hands of the duly authorised representatives of the parties hereto the day and year first before written. 15 SCHEDULE DRAWDOWN NOTICE From: UBSN Limited 75 Westow Hill Crystal Palace London SE19 1TX England To: Shepherd Neame Limited 17 Court Street Faversham Kent ME13 7AX England o 2001 Dear Sirs, 1. We refer to the agreement (as from time to time amended, varied, supplemented, novated or replaced, the "Loan Agreement") dated [ ] 2001 and made between UBSN Limited as Borrower and Shepherd Neame Limited as Lender. Terms defined in the Loan Agreement have the same meanings in this notice. 2. We hereby give you irrevocable and unconditional notice that, pursuant to the Loan Agreement and on [date of proposed Advance], we wish to borrow an Advance in the amount of (pound)600,000 upon the terms and subject to the conditions contained in the Loan Agreement. 3. We confirm that, as at today's date, the representations and warranties set out in Clause 8 of the Loan Agreement are true and that no Default has occurred or is foreseen. Yours faithfully, .................................. for and on behalf of UBSN Limited 16 THE BORROWER SIGNED for and on behalf of ) UBSN LIMITED ) by:- ) Address: 75 Westow Hill Crystal Palace London SE19 1TX Fax: 01795 538696 Attention: Any Director THE LENDER SIGNED for and on behalf of ) SHEPHERD NEAME LIMITED ) by:- ) Address: 17 Court Street Faversham Kent ME13 7AX Fax: 01795 538907 Attention: The Company Secretary EX-10.60 14 d50241ex10-60.txt BREWING LICENSE AGREEMENT Exhibit 10.60 BREWING LICENSE AGREEMENT THIS BREWING LICENSE AGREEMENT is entered into effective as of October 26, 2001 ("Effective Date") by and between: UBSN Limited, an English company, with its registered office located at 75 Weston Hill, Crystal Palace, London SE19 ITX, England ("Licensor"), and Mendocino Brewing Company, Inc., a California corporation, with its principal place of business located at 13351 Highway 101 South, Hopland, California 95499, U.S.A. ("Licensee"), in reference to the following facts: A. Licensor owns or is the authorized licensee of certain technology, intellectual property rights and confidential information related to brewing/manufacturing, marketing, distributing and selling Kingfisher brand beer. B. Licensee wishes to acquire the right to utilize such technology, intellectual property rights and confidential information to brew/manufacture, market, distribute and sell Kingfisher brand beer in the United States. C. Licensor is willing to grant to Licensee a non-exclusive license to use such technology, intellectual property rights and confidential information solely in accordance with the terms and conditions set forth herein. Licensor and Licensee agree as follows: Section 1 - Definitions For purposes of this Agreement, the following terms shall have the meanings described below: 1.1 "Confidential Information" shall mean and include any and all data and information not in the public domain, and the know-how and trade secrets, relating to, or contained or embodied in, the Brewing Intangibles or to the business, plans, affairs or activities of Licensor. Confidential Information may be disclosed or revealed orally, visually, or in writing or any other tangible form. Any information disclosed or revealed by Licensor shall be deemed to constitute Confidential Information if (a) such information is in written or other tangible form and has been marked "confidential", (b) Licensee has been advised, orally or in writing, of its confidential nature, or (c) due to its nature or character, a reasonable person under similar circumstances would treat such information as confidential. 1.2 "Intellectual Property Rights" shall mean and include any and all of the patents, copyrights, design rights and other proprietary rights, and all applications and registrations thereof, which pertain to the Products. 1.3 "Net Revenue(s)" shall mean total revenues received by Licensee from the sale of all Products brewed/manufactured and sold by Licensee hereunder, less any credits, discounts, allowances, refunds, rebates and returns, and excluding freight and shipping charges, and sales, excise, withholding, local consumption and/or similar taxes. 1.4 "Products" shall mean and include Kingfisher brand beer. 1.5 "Brewing Intangibles" shall mean and include any and all formulae, ingredients, recipes, specifications, processes, manufacturing/brewing requirements, quality control standards and specifications, know-how and other information, in whatever form, tangible or intangible, in existence as of the Effective Date, relating to the brewing/manufacturing, bottling process and related production of any or all of the Products [and any improvements, enhancements, updates, or further developments thereto]. 1.7 "Territory" shall mean the United States. Section 2 - Grant and Scope of License 2.1 Subject to the terms and conditions set forth herein, Licensor hereby grants to Licensee, and Licensee hereby accepts, a limited, exclusive, transferable right and license to utilize the Brewing Intangibles, Intellectual Property Rights and Confidential Information to brew/manufacture, market, distribute and sell the Products in the Territory. 2.2 Licensee hereby acknowledges that the rights and licenses granted by Licensor to Licensee are non-exclusive, and nothing in this Agreement shall limit or restrict Licensor's right to grant similar rights and licenses to one or more additional related or unrelated parties within the Territory, or to exercise such rights itself. Section 3 - Licensor's Responsibilities 3.1 Upon the Effective Date of this Agreement, Licensor shall deliver to Licensee a data package that includes the Brewing Intangibles, and such other documents, instructions and procedures that contain, embody or describe the Intellectual Property Rights and such Confidential Information as Licensor reasonably determines to be necessary or appropriate for Licensee's efficient brewing/manufacture of the Products in accordance with the terms and conditions of this Agreement ("Licensor Deliverables"). All Licensor Deliverables shall remain the sole and exclusive property of Licensor. Licensee shall return all such Licensor Deliverables to Licensor immediately after termination of this Agreement for any reason whatsoever. 2 3.2 Licensor hereby represents and warrants that all of the Brewing Intangibles, Intellectual Property Rights and Confidential Information included in the Licensor Deliverables under Section 3.1 hereof shall be correct and complete, and shall include all of the Brewing Intangibles, Intellectual Property Rights and Confidential Information used by Licensor as of the Effective Date hereof in connection with Licensor's brewing/manufacture, marketing, and sale of the Products which may be useful to Licensee in performing the activities authorized under Section 2 of this Agreement. If any Licensor Deliverable under Section 3.1 hereof fails to conform to Licensor's representation and warranty, as set forth in this Section 3.2, Licensor shall correct and/or complete all such incorrect, defective or incomplete Brewing Intangibles, Intellectual Property Rights and/or Confidential Information promptly after receipt of written notification thereof. 3.3 At Licensee's request, Licensor shall provide or arrange for reasonable training or technical assistance relating to the brewing/manufacture of the Products. 3.4 At Licensee's request, Licensor shall furnish Licensee with a reasonable quantity of Licensor's promotional materials for the Products. Licensee shall have the right to reproduce, modify and/or translate any or all such promotional materials, as Licensee reasonably determines to be necessary or appropriate for the effective marketing and distribution of the Products throughout the Territory; provided, however, that Licensee's rights and obligations with respect to all modifications and translations of the promotional materials furnished by Licensor under this Section 3.4 shall be as provided in Section 4.3 hereof. Section 4 - Licensee's Responsibilities 4.1 From time to time during the continuance of this Agreement, at the request of Licensor, Licensee shall furnish Licensor with samples the Products brewed/manufactured by Licensee hereunder, in order to permit Licensor to confirm that such Products conform to all of the Brewing Intangibles. If, in Licensor's reasonable opinion, any such Products fail to conform to the Brewing Intangibles, Licensee shall promptly correct all such deficiencies in such Products. 4.2 Licensee may prepare such advertising and promotional materials, including modifications and translations of the promotional materials furnished by Licensor to Licensee under Section 3.4 hereof, which in the reasonable opinion of Licensee are necessary or appropriate for the effective marketing and distribution of the Products within the Territory. Any and all advertising and promotional materials for the Products which are commercially released by Licensee shall comply with all applicable laws and regulations, including without limitation, the laws and regulations of the Bureau of Alcohol, Tobacco and Firearms ("ATF") and the Department of Alcoholic Beverage Control ("ABC") and the various state and local departments of ABC. 4.3 Licensee shall ensure that the Products are sold and advertised in the form, and with the labeling or marking, designated by Licensee and in accordance with applicable law, including without limitation, the laws and regulations of the ATF and ABC and the various state and local departments of ABC. 3 4.4 Licensee shall make, obtain, and maintain in force at all times during the term of this Agreement, all filings, registrations, reports, licenses, permits and authorizations (collectively "Approvals") necessary or appropriate for the distribution, sale, and resale of the Products within the Territory, including all Approvals required by the ATF and ABC and the various state and local departments of ABC. Licensee shall provide copies of all such Approvals to Licensor at its request. Licensor shall provide Licensee with such assistance as Licensee may reasonably request in making or obtaining any such Approvals. Upon termination of this Agreement, Licensee shall transfer all such Approvals to Licensor, or to such other third party as Licensor may designate, to the extent permitted under applicable laws. 4.5 Within thirty (30) days after the end of each quarter, Licensee shall submit to Licensor a report of Licensee's activities under this Agreement. Such reports shall include the following information: (a) a statement of the total quantity of Products brewed/manufactured and Products sold by Licensee during the quarter; and (b) a statement of Net Revenues derived from the sale of all Products during the quarter, together with the total amount of royalties payable thereunder to Licensor, as provided in Section 5.1 and Exhibit 5.1 hereof. 4.6 Licensee shall keep accurate books of account and records pertaining to its activities hereunder and its Net Revenues. During the term of this Agreement, Licensor, at its sole expense, shall be entitled to inspect such books of account and records upon reasonable prior written notice to Licensee, and at a reasonable time during normal business hours for the sole purpose of verifying the royalties payable to Licensor pursuant to this Agreement. If the audit reveals an underreporting or underpayment of amounts due to Licensor hereunder, Licensee shall promptly pay Licensor such amounts, including any applicable interest. If the underreporting exceeds five percent (5%) of the amount due for any quarter, Licensee shall bear the costs of the audit. Section 5 - Consideration 5.1 In consideration for the rights and licenses granted to Licensee by Licensor under this Agreement, Licensee shall pay to Licensor royalties equal to the amounts specified in the Royalty Schedule attached hereto as Exhibit 5.1. 5.2 Within thirty (30) days after the end of each quarter, Licensee shall pay to Licensor all royalties due to Licensor for that particular quarter, as specified in Exhibit 5.1 hereto. Royalties shall be due for the quarter in which Licensee receives the Net Revenues. All payments hereunder shall be made in U.S. Dollars. 5.3 The royalties payable by Licensee hereunder exclude all applicable sales, use, local consumption, withholding, excise or similar taxes, and Licensee shall be responsible for 4 payment of all such taxes (except those based on Licensor's net income) and charges, and any related penalties and interest arising from the payment of such amounts. Section 6 - Confidential Information 6.1 Licensee hereby acknowledges that all of the Confidential Information disclosed or revealed to Licensee hereunder is disclosed solely to permit Licensee to exercise its rights and perform its obligations under this Agreement. Licensee shall not use any of the Confidential Information for any other purpose, and shall not disclose or reveal any of the Confidential Information to any third party, without the prior written authorization of Licensor, which Licensor may withhold in its sole discretion; provided, however, that the prior written authorization of Licensor shall not be required for Licensee to disclose the Confidential Information to those of Licensee's employees, agents or representatives that (a) require access to the Confidential Information in order to permit Licensee to exercise its rights and perform its obligations hereunder, and (b) have executed a nondisclosure agreement, in a form satisfactory to Licensor, which effectively prohibits the unauthorized use or disclosure of the Confidential Information. 6.2 Licensee shall implement all security measures, and shall take all actions, including, but not limited to, the initiation and prosecution of legal or administrative actions, to prevent the unauthorized use, appropriation or disclosure of any of the Confidential Information by any of Licensee's employees, agents or representatives. 6.3 Licensee's obligations under Sections 6.1 and 6.2 hereof shall not apply to the extent, but only to the extent, that any of the Confidential Information: (a) passes into the public domain through no fault of Licensee; (b) is disclosed to Licensee by a third party that is under no duty of nondisclosure to Licensor; (c) was known to Licensee prior to disclosure by Licensor, or is independently developed by Licensee without reference to any of the Confidential Information; or (d) is required to be disclosed under any applicable law, regulation or governmental order of any country within the Territory; provided that Licensee shall furnish written notice to Licensor of such disclosure requirement prior to disclosing any of the Confidential Information, so that Licensor can take appropriate action to protect the confidentiality, and prevent the unauthorized use or appropriation of such of the Confidential Information. 6.4 Licensee's obligations under this Section 6 shall survive the termination of this Agreement for any reason whatsoever. 5 Section 7 - Intellectual Property Rights 7.1 Licensee hereby acknowledges that Licensor is the owner, or authorized licensee, of all rights, title and interests in and to all of the Brewing Intangibles and Intellectual Property Rights licensed to Licensee hereunder, and Licensee shall acquire no rights whatsoever in or to any of the Brewing Intangibles or any such Intellectual Property Rights, except as specifically provided in this Agreement. Licensee shall not utilize any of the Brewing Intangibles or any Intellectual Property Rights for any purpose whatsoever, except as authorized herein, and shall not take any action which may, in the reasonable opinion of Licensor, adversely affect or impair Licensor's rights, title and interests in and to the Brewing Intangibles and/or Intellectual Property Rights. 7.2 Licensee shall take such actions, and shall provide Licensor with such assistance, as Licensor shall reasonably request, to protect and perfect Licensor's rights, title and interests in and to the Intellectual Property Rights throughout the Territory. All of the Products brewed/manufactured, marketed, distributed, and sold by Licensee hereunder shall bear such proprietary rights notices as Licensor shall designate. 7.3 Licensee shall provide Licensor with timely written notice of any and all infringements or unauthorized uses by any third party of any of the Intellectual Property Rights within the Territory that come to the attention of Licensee. Licensor shall be solely responsible for taking all actions, in the courts, administrative agencies or otherwise, to prevent or enjoin any and all such infringements and unauthorized uses of the Intellectual Property Rights; provided, however, that Licensee shall furnish Licensor with such assistance as Licensor shall reasonably request in connection with any such action to prevent or enjoin any such infringement or unauthorized use of any of the Intellectual Property Rights. 7.4 Subject to the limitation of liability set forth in Section 8 hereof, Licensor shall defend, indemnify and hold Licensee harmless against any and all claims, suits, actions, proceedings, losses, damages, liabilities, costs and expenses arising from, or attributable to, any allegation that Licensee's use of the Brewing Intangibles or the Intellectual Property Rights in accordance with the terms and conditions of this Agreement infringes any copyright, trademark, trade secret, patent or other proprietary right of any third party existing in the Territory. Licensor's indemnity obligation, as set forth in this Section 7.4, shall be subject to the following conditions: (a) Licensee shall provide Licensor with timely written notice of any and all claims that are within the scope of Licensor's indemnity hereunder; (b) Licensor shall be solely responsible for the defense, settlement and discharge of any and all such claims; and (c) Licensee shall furnish Licensor with such assistance as Licensor shall reasonably request in connection with the defense, settlement and/or discharge of any and all such claims. 7.5 If the use of any of the Brewing Intangibles, Intellectual Property Rights or Confidential Information is, or in Licensor's reasonable opinion is likely to be, prohibited by an order or injunction of a court of competent jurisdiction, Licensor shall provide written notice thereof to Licensee, and Licensee shall immediately cease all use of such of the Brewing Intangibles, Intellectual Property Rights or Confidential Information, as the case may be. 6 Section 8 - Limitation of Liability Neither party to this Agreement shall be liable to the other party hereto for any special, indirect, consequential or incidental damages arising from, or attributable to, this Agreement and/or that party's performance hereunder, whether arising in contract, tort or by operation of law, even if that party has been placed on notice of the possibility of such damages. Section 9 - Term and Termination 9.1 This Agreement shall become effective on the Effective Date and shall continue in force until the expiration or termination of the Distribution Agreement dated 9 October, 1998 and any amendments thereto, between United Breweries International and UBSN ("Distribution Agreement"), a copy of which is attached and incorporated by reference herein. Expiration or termination of the Distribution Agreement shall be in accordance with the provisions of the Distribution Agreement and its amendments, or in accordance with the provisions of this Section 9. 9.2 If a party hereto (the "breaching party") commits a material breach or default of any of its obligations hereunder, the other party hereto (the "non-breaching party") may give the breaching party written notice of such breach or default and demand that such breach or default be cured immediately. If the breaching party fails to cure such breach or default within thirty (30) days after the date of the non-breaching party's written notice hereunder, the non-breaching party may terminate this Agreement, immediately upon giving written notice of termination to the breaching party. Termination of this Agreement in accordance with this Section 9.2 shall not affect or impair the non-breaching party's right to pursue any legal remedy, including the right to recover damages for all harm suffered or incurred as a result of the breaching party's breach or default hereunder. 9.3 To the extent permitted by applicable law, Licensor shall have the right to terminate this Agreement, immediately upon providing written notice of termination to the Licensee, if: (a) Licensee goes into bankruptcy, voluntary or involuntary dissolution, is declared insolvent, makes an assignment for the benefit of creditors, or suffers the appointment of a receiver or trustee over all or substantially all of its assets or properties; (b) Licensee breaches any of its obligations under Section 6 or 7 of this Agreement with respect to the Brewing Intangibles, Intellectual Property Rights or Confidential Information; or (c) Licensee experiences a change of control or ownership any time after the Effective Date of this Agreement. 9.4 Immediately upon termination of this Agreement for any reason whatsoever, Licensee shall cease all use of the Brewing Intangibles, Intellectual Property Rights and 7 Confidential Information, provided that Licensor may, at its sole option, permit Licensee to use such Brewing Intangibles, Intellectual Property Rights and Confidential Information as Licensee reasonably requires to sell or otherwise dispose of Licensee's existing inventory of the Products brewed/manufactured by Licensee hereunder. 9.5 Subject to the provisions of Section 9.4 hereof, immediately after the date of termination hereof, Licensee shall return to Licensor or destroy, at Licensor's option, all copies of all Product promotional materials and documents and other materials that contain or embody any of the Brewing Intangibles, Intellectual Property Rights or Confidential Information that are in the possession of Licensee as of the date of termination. 9.6 Within thirty (30) days after the date of termination of this Agreement, Licensee shall provide Licensor with the report provided for in Section 4.6 hereof for the quarter in which termination of this Agreement occurs, and shall concurrently tender all royalties payable by Licensee with respect to that quarter and all other amounts payable by Licensee to Licensor hereunder which have accrued, but which remain unpaid as of the date of termination. Termination of this Agreement for any reason whatsoever shall not relieve Licensee of its obligations under Section 6, Section 7, or Section 10 of this Agreement. 9.7 Termination of this Agreement for any reason whatsoever shall not relieve Licensor of its obligations under Section 7.3, Section 7.4 and Section 7.5 of this Agreement. Except in the event of termination of this Agreement by Licensee, due to a breach or default by Licensor, upon termination of this Agreement, Licensor shall have no further obligations to Licensee hereunder, except as provided in this Section 9. Section 10 - Compliance with Applicable Laws In the exercise of their respective rights and the performance of their respective obligations hereunder, each party hereto shall comply with all applicable laws, regulations and governmental orders of the Territory. Section 11 - General Provisions 11.1 Independent Contractors. In the exercise of their respective rights, and the performance of their respective obligations under this Agreement, the parties are, and shall remain, independent contractors. Nothing in this Agreement shall be construed (a) to constitute the parties as principal and agent, partners, joint venturers, or otherwise as participants in a joint undertaking, or (b) to authorize either party to enter into any contract or other binding obligation on the part of the other party hereto, and neither party shall represent to any third party that it is authorized to enter into any such contract or other obligation on behalf of the other party hereto. 11.2 Assignment. Neither party hereto shall have the right or the power to assign any of its rights, or delegate the performance of any of its obligations, under this Agreement without the prior written 8 authorization of the other party hereto; provided, however, that the prior written authorization of Licensee shall not be required for Licensor to assign any of its rights and/or delegate the performance of any of its obligations under this Agreement to any existing or newly formed/acquired affiliate of Licensor. 11.3 Notices. All notices, reports and other communications between the parties shall be sent by registered air mail, postage prepaid and return receipt requested, or by facsimile with a confirmation copy sent by registered air mail to the address set forth at the beginning of this Agreement or to such other addresses as the parties may designate by written notice from time to time. Each such notice, report, or other communication shall be effective upon receipt by the sender of confirmation of the delivery, or where no such confirmation is possible, when received. 11.4 Choice of Law and Forum. This Agreement, and any disputes arising out of or in connection with this Agreement, shall be governed by and construed in accordance with the laws of the State of California, U.S.A., excluding its rules governing conflicts of laws. The courts located within the State of California, U.S.A. shall have exclusive jurisdiction to adjudicate any disputes arising out of or in connection with this Agreement. The parties hereby consent to the personal jurisdiction of the courts located in the State of California, U.S.A. for the resolution of disputes hereunder. The prevailing party in any legal proceeding brought by one party against the other party and arising out of or in connection with this Agreement shall be entitled to recover its legal expenses, including court costs and reasonable attorneys' fees. 11.5 Headings. The subject headings of this Agreement are included for purposes of convenience only, and shall not affect the construction or interpretation of any provision of this Agreement. 11.6 Counterparts. This Agreement may be executed in several duplicates, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 11.7 Waivers. The failure by either party to assert any of its rights hereunder, including, but not limited to, the right to terminate this Agreement due to a breach or default by the other party hereto, shall not be deemed to constitute a waiver by that party of its right thereafter to enforce each and every provision of this Agreement in accordance with its terms. 11.8 Entire Agreement and Amendments. This Agreement, together with the Exhibit attached hereto, constitutes the entire agreement between the parties, and supersedes all prior agreements, understandings and communications between the parties with respect to the subject matter hereof. No modification or amendment to this Agreement shall be binding upon the parties unless in writing and executed by the duly authorized representative of each of the parties. 11.9 Severability. In the event that any provision hereof is found invalid or unenforceable pursuant to a final judicial decree or decision, the remainder of this Agreement will remain valid and enforceable according to its terms. In the event of such partial invalidity, the parties shall seek in good faith to agree on replacing any such legally invalid provisions with provisions which, in effect, will most nearly and fairly approach the effect of the invalid provisions. 9 The parties hereto have caused this Agreement to be executed by their duly authorized representatives, effective as of the day and year first written above. UBSN LIMITED By: Signed ---------------------------- Name: David Townshend ------------------- Title: Director -------------------------- MENDOCINO BREWING COMPANY, INC. By: Signed ---------------------------- Name: N. Mahadevan ---------------------- Title: Chief Financial Officer. ---------- 10 EXHIBIT 5.1 Royalty Schedule Pursuant to Section 5.1 of the Agreement, Licensee shall pay Licensor a royalty equal to US $0.80 (Eighty United States Cents) for each case of the Product brewed/manufactured and sold by Licensee hereunder. The Royalty payment shall accrue and payment deferred until the calendar quarter ending, March 31, 2003. 11 EX-10.61 15 d50241ex10-61.txt TRADEMARK AND TRADE NAME AGREEMENT Exhibit 10.61 KINGFISHER TRADEMARK and TRADE NAME LICENSE AGREEMENT THIS LICENSE AGREEMENT is by and between Kingfisher America, Inc., a Delaware Corporation having a place of business at Three Harbor Drive, Suite 115, Sausalito, CA 94965 (hereinafter "Licensor") and Mendocino Brewing Company, a California Corporation having a place of business at 1601 Airport Road, Ukiah, CA 95482 (hereinafter "Licensee"). WHEREAS, Licensor is owner by assignment of the United States rights to the mark KINGFISHER, pending United States Trademark Application, Serial Number 75/927,777, filed February 24, 2000 for fermented alcoholic beverages made with malt, namely assorted beers, in International Class 32 (hereinafter the "Mark"), and the name "Kingfisher Brewing Company" (hereinafter the Name), and the goodwill of the businesses in connection with which the Mark and Name are used. WHEREAS, Licensee would like to license rights to the Mark and Name for use in connection with the brewing and distribution of assorted beers in the United States. NOW, THEREFORE, in consideration of the foregoing and of the mutual promises hereinafter set forth, Licensor and Licensee hereby agree as follows: 1. Grant of Royalty Free, Exclusive License. Licensor hereby grants to Licensee, a royalty free, exclusive license to use the Mark and Name in connection with the brewing and distribution of assorted beers throughout the United States of America, and its territories and possessions. The License granted herein shall take effect upon the date this License Agreement is executed by both Licensor and Licensee, and shall continue in force until the expiration or termination of the Distribution Agreement dated 9 October 1998 by and between United Breweries International (U.K.) Limited and UBSN Limited, a copy of which is attached as Exhibit A, and incorporated by reference herein. Expiration or termination of the Distribution Agreement dated 9 October 1998 shall be in KINGFISHER TRADEMARK and TRADE NAME LICENSE AGREEMENT Page 1 of 5 accordance with the provisions of that Distribution Agreement. Licensee may not assign, transfer, or sublicense this License without the prior written consent of Licensor. 2. Scope of Use and Standard to be Maintained by Licensee. Licensee agrees to use the Mark and Name only for the brewing and distribution of assorted bees throughout the United States, and for promotion and advertising related directly thereto. Licensee agrees that all beers bearing the Mark and Name will be of a high quality satisfactory to Licensor. Licensor shall have the right to determine whether the beers are of satisfactory quality. Licensee agrees to cooperate with Licensor in facilitating Licensor's control of the nature and quality of the assorted beers offered under the Mark and Name, to permit reasonable, periodic inspection of Licensee's operations, at reasonable times and with reasonable notice. Licensor reserves the right to inspect the quality of the beers provided by the Licensee to assure that quality is maintained. Licensor shall also have the right to require from time to time that the Licensee submit samples of advertising and promotional materials to Licensor for inspection and approval, and to review Licensee's beers to assure that quality under the Mark and Name is being maintained. Licensee shall comply with all applicable laws and regulations and obtain all appropriate government approvals pertaining to the importation, distribution, sale and advertising of assorted beers offered under the Mark and Name. 3. Qualified Permission to file "KINGFISHER BREWING COMPANY" as a Fictitious Business Name in Mendocino County, California. Licensee hereby grants licensee permission to file "Kingfisher Brewing Company" as a Fictitious Business Name in Mendocino County, California, and to use the Fictitious Business Name of "Kingfisher Brewing Company" on labels and on advertising and promotional materials for the beers produced under the KINGFISHER mark, with the following qualifications and conditions: (1) License will provide Licensor with a copy of its Fictitious Business Name application as well as a certified copy of the Kingfisher Brewing Company Fictitious Business Name Registration Certificate within 14 days of its registration by Mendocino County. (2) Licensee will use the "Kingfisher Brewing Company" Fictitious Business Name only on labels and advertising and promotional materials for beers brewed and distributed under KINGFISHER TRADEMARK and TRADE NAME LICENSE AGREEMENT Page 2 of 5 the licensed KINGFISHER mark. (3) In the event of the termination or cancellation of this License, within 30 days of the date of cancellation, Licensee will submit written notice of cancellation of the Kingfisher Brewing Company Fictitious Business Name to the proper authorities in Mendocino County. Contemporaneous with the submission, Licensee will provide Licensor with a copy of the cancellation notice submitted to Mendocino County. Licensee will also provide Licensor with confirmation of cancellation of the Fictitious Business Name when received from Mendocino County. (4) Licensee agrees not to file "Kingfisher Brewing Company" as a Fictitious Business Name in any place or county other than Mendocino County, California. (5) Licensee agrees not to adopt "Kingfisher Brewing Company" as its corporate name, or thename of any entity of which it owns any part. (6) Licensee agrees not to register or attempt to register "Kingfisher Brewing Company" as a mark anywhere in the world. 4. Rights and Goodwill in Licensed Mark and in the Name KINGFISHER BREWING COMPANY Inure to Licensor. Licensee recognizes and acknowledges the validity of the Mark "Kingfisher" and the Name "Kingfisher Brewing Company", that all rights therein and goodwill pertaining thereto belong exclusively to Licensor, that all rights resulting from Licensee's use of the Mark and the Name inure solely and completely to the benefit of Licensor. Licensee agrees not to challenge the Licensed Mark "Kingfisher." 5. Indemnification. Licensor will hold Licensee harmless against any and all third party claims that use of the Licensed Mark or Name is liable to cause deception or confusion to the public or is liable to infringe any valid intellectual property right of any third party. Licensee agrees to promptly notify Licensor in writing of any infringement of the licensed Mark, or of any assertion by a third party that use of the Licensed Mark or Name infringes their intellectual property rights. 6. Notice Addresses. Any notice required or permitted to be given under this License shall be by written communications directed by one party to the other at its notice address as follows: KINGFISHER TRADEMARK and TRADE NAME LICENSE AGREEMENT Page 3 of 5 Licensor: Kingfisher America, Inc. Attention, Anil Pisharody, Secretary Three Harbor Drive, Suite 115 Sausalito, CA 94965 Licensee: Mendocino Brewing Company Attention N. Mahadevan 1601 Airport Road Ukiah, CA 95482 Notice addresses may be changed by providing the affected party to this License with a written notice. 7. Effects of and Procedure on Termination or Cancellation. Upon termination or cancellation of this License from Licensor, Licensee agrees to immediately discontinue use of the Name "Kingfisher Brewing Company" and the Mark "Kingfisher" and not to use any name or mark confusingly similar thereto for any purpose, and to destroy all product and printed materials bearing the Name and Mark, unless Licensor has granted to Licensee a period of time certain in which to dispose of product bearing the Name and Mark. 8. Entire Agreement. This License Agreement contains the entire agreement between the parties relating to the subject mater hereof, and all prior proposals, discussions or writings are superseded hereby. 9. Severability. This finding by any court that a provision of this License Agreement is invalid shall not operate or be construed to invalidate the balance of the provisions contained in this License Agreement, which provisions shall continue to remain in force and effect. 10. Construction. This License Agreement shall be governed by the laws of the State of California as they relate to contracts entered into and performed in KINGFISHER TRADEMARK and TRADE NAME LICENSE AGREEMENT Page 4 of 5 Sausalito, County of Marin, California. Licensor agrees to personal and subject matter jurisdiction in a court of competent jurisdiction in Marin County, California. 11. No Oral Changes. This License Agreement may not be changed, modified or amended, except by a written agreement executed by the Licensor and the Licensee. IN WITNESS WHEREOF, the parties hereto execute this License Agreement by their duly authorized representatives on the date set forth below. Licensor, Kingfisher America, Inc. By /s/ Anil Pisharody 07/17/01 - ---------------------------------- -------------------- Anil Pisharody, Secretary/Treasurer Date Licensee, Mendocino Brewing Company By - ---------------------------------- -------------------- Date - ---------------------------------------------------------------- Printed Name and Title of Person Signing for Licensee KINGFISHER TRADEMARK and TRADE NAME LICENSE AGREEMENT Page 5 of 5 EX-99 16 d50241ex99-1050.txt 10.50 Exhibit 10.50 MARKET DEVELOPMENT, GENERAL & ADMINISTRATIVE SERVICES AGREEMENT THIS MARKET DEVELOPMENT, GENERAL & ADMINISTRATIVE SERVICES AGREEMENT ("Agreement") is entered into effective as of September 1, 2001 ("Effective Date") by and between: UBSN Limited, an English company, with its registered office located at 75 Weston Hill, Crystal Palace, London SE19 ITX, England ("UBSN"), and Mendocino Brewing Company, Inc., a California corporation, with its principal place of business located at 13351 Highway 101 South, Hopland, California 95499, U.S.A. ("MBC"), in reference to the following facts: A. UBSN is engaged in the business of brewing, marketing, distributing, and selling Kingfisher brand beer and related consumer products (the "Products") and desires to develop a market for the Products in the United States. B. UBSN wishes to engage MBC to perform certain marketing and administrative services that will benefit UBSN in its efforts to market, sell and distribute the Products in the United States. C. MBC is willing and able to perform such services for UBSN on the terms and conditions set forth herein. UBSN and MBC agree as follows: Section 1 - Definitions For purposes of this Agreement, the following terms shall have the meanings described below: 1.1 "Confidential Information" shall mean and include any and all data and information not in the public domain, including know-how and trade secrets, relating to, or contained or embodied in, the Products and/or the business or affairs of UBSN. Confidential Information may be communicated orally, visually, in writing or in any other recorded or tangible form. All data and information shall be considered to be Confidential Information hereunder (a) if UBSN has marked them as such, (b) if UBSN, orally or in writing, has advised MBC of their confidential nature, or (c) if, due to their character or nature, a reasonable person in a like position and under like circumstances would treat them as confidential. 1 1.2 "Intellectual Property Rights" shall mean and include all patents, copyrights, designs, trademarks, service marks, trade names and other proprietary rights or applications and registrations therefor that pertain to the Products. 1.3 "Person" shall mean and include any individual, corporation, trust, estate, partnership, joint venture, company, association, league, governmental bureau or agency, or any other entity regardless of the type or nature thereof. 1.4 "Services" shall mean the promotional, market development, and administrative services performed by MBC (as more particularly described in Section 2.1 below) to benefit UBSN in its efforts to market, sell and distribute the Products in the United States. Section 2 - Engagement of MBC 2.1 Engagement. Subject to the terms and conditions of this Agreement, UBSN hereby engages MBC, and MBC hereby agrees, to perform Services on behalf of UBSN, which may include any or all of the following: (a) undertaking advertising or marketing projects, including developing public relations campaigns, strategies and programs to develop brand name recognition for the Products and to competitively position the Products in the United States marketplace; (b) actively and regularly promoting and advertising the Products in the United States, including assessing and implementing the use of various public relations alternatives, such as direct mail campaigns, general and/or selective public advertising, attendance at trade shows, exhibits, regional fairs, and beer, wine and food festivals, sponsorship of sporting and other events, and radio and television broadcasting; (c) conceiving, creating, drafting, designing and developing sales literature, Product announcements and descriptions, advertising brochures, marketing pamphlets, and other promotional materials; (d) preparing sales forecasts, marketing studies, and surveys of marketing activities of competitors in the beer industry; (e) providing business management systems, procedures and policies for accounting purposes, and budgetary, financial forecasting, general accounting, cost control and other related services; (f) assisting UBSN with establishing and managing the distribution channels for the Products in the United States, including developing policies and procedures with respect to processing deliveries and Product orders; 2 (g) preparing documentation, applications for permits and other authorizations and filings and reports with government agencies required for UBSN to market, sell and distribute the Products in the United States; and (h) providing such other marketing and administrative services for UBSN as UBSN may reasonably request from time to time. 2.2 Limitations on Engagement. MBC agrees that it shall not perform the Services outside of the United States, unless expressly authorized by UBSN. MBC shall have no power or authority to (a) sell any of the Products, (b) enter into any contract or binding agreement with respect to the Products, or (c) accept or fill any orders for the Products. All such transactions shall be entered into directly between UBSN and its customers. 2.3 Relationship Between Parties. MBC shall act as an independent contractor under the terms of this Agreement and not as a legal representative of UBSN for any purpose whatsoever. Nothing in this Agreement shall be construed to (a) give either party the power to direct or control the daily activities of the other party, or (b) constitute the parties as employer and employee, franchisor and franchisee, partners, joint venturers, co-owners or otherwise as participants in a joint undertaking. MBC has no right or authority to enter into any contract or to assume or create any obligation of any kind, express or implied, on behalf of UBSN. Section 3 - Obligations of MBC 3.1 General Conduct. MBC shall use its best efforts to perform the Services hereunder. MBC agrees that it shall at all times adhere to the instructions, requests, and policies of UBSN regarding its performance of the Services hereunder. MBC shall conduct its activities under this Agreement in a lawful manner and in accordance with the highest standards of fair trade, fair competition and business ethics. 3.2 Personnel and Facilities. MBC shall occupy and maintain facilities adequate to perform the Services and perform its other obligations under this Agreement. MBC shall retain and have at its disposal at all times an adequate staff of trained and qualified personnel to perform its obligations under this Agreement. 3.3 Promotional Materials. MBC shall have the right to prepare localized Product descriptions, advertising and promotional materials as it considers appropriate for the promotion of the Products in the United States. MBC shall submit all such advertising and promotional materials to UBSN for written approval prior to commercial release or use by MBC. Any and all advertising and promotional materials for the Products shall comply with all applicable laws and regulations, including without limitation, the laws and regulations of the Bureau of Alcohol, Tobacco and Firearms ("ATF") and the Department of Alcoholic Beverage Control ("ABC") and various state and local departments of ABC. 3.4 Records. At all times during the term of this Agreement, MBC shall maintain at its principal place of business full, complete, and accurate records of its activities under this Agreement. Upon reasonable notice, UBSN shall have the right to review such records at 3 MBC's premises during normal business hours for purposes of verifying the performance of MBC's obligations hereunder. 3.5 Reports. Within thirty (30) calendar days after the end of each quarter in which this Agreement is in effect, MBC shall furnish UBSN with a written report summarizing all Services performed by MBC during such quarter pursuant to this Agreement. 3.6 Indemnification. MBC shall defend, indemnify and hold UBSN harmless against any and all claims, demands, suits, proceedings, losses, liabilities, damages, costs and expenses (including reasonable attorneys' fees) which are attributable to MBC's performance of the Services resulting in UBSN's rights in the Marks and Intellectual Property Rights being prejudiced in any way. MBC's obligations under the preceding sentence are subject to the conditions that (i) UBSN shall promptly have notified MBC in writing of any such claim, and (ii) MBC shall have had sole control of such defense and all negotiations for any settlement or compromise. Section 4 - Obligations of UBSN 4.1 Marketing Materials. UBSN shall, at no cost, provide MBC with a reasonable quantity of marketing and promotional materials to assist MBC in its promotional and marketing activities hereunder, upon written request by MBC. 4.2 Quality Assurances. UBSN represents and warrants that any Products produced by UBSN (a) satisfy national, local, and regional health and safety laws, ordinances and regulations in the United States, (b) are of merchantable quality fit for human consumption, and (c) satisfy the quality control standards and procedures established by UBSN from time to time. UBSN shall provide MBC with all necessary and appropriate documentation and certifications evidencing its compliance with the above. UBSN's representation and warranty under this Section 4.2 shall not apply to any Products produced by MBC pursuant to that certain Brewing License Agreement between the parties dated as of , 2001. 4.3 Indemnification. UBSN shall defend, indemnify and hold MBC harmless against any and all claims, demands, suits, proceedings, losses, liabilities, damages, costs and expenses (including reasonable attorneys' fees) which are attributable to any allegation that MBC's performance of the Services, in accordance with this Agreement, infringes the patent, copyright, design, trademark, trade secret or other proprietary right of a third party; provided, however, that UBSN's indemnification obligation under this Section 4.3 shall not apply to MBC's use of the "Kingfisher" trademark in the United States in connection with any activities of MBC hereunder. UBSN's obligations under the preceding sentence are subject to the conditions that (i) MBC shall promptly have notified UBSN in writing of any such claim, and (ii) UBSN shall have had sole control of such defense and all negotiations for any settlement or compromise. Should any Product become the subject of any infringement claim, UBSN shall have the right to instruct MBC to refrain from marketing the Products or to take such other steps as UBSN may consider appropriate in order to limit its liability exposure. 4 Section 5 - Compensation 5.1 Service Fees. In consideration for the Services performed by MBC hereunder, UBSN shall pay to MBC an annual fee equal to $US1,000,000 in calendar year 2001, $US300,000 in calendar year 2002 and $US200,000 in calendar year 2003 ("Service Fees"). 5.2 Payments. All Service Fees payable by UBSN to MBC under this Section 5 shall be paid within thirty (30) calendar days after the end of each quarter. All Service Fees shall be paid in United States Dollars. Section 6 - Confidential Information 6.1 Nondisclosure Obligation. During the term of this Agreement, UBSN may disclose certain Confidential Information to MBC solely to permit MBC to perform its obligations under this Agreement. MBC shall refrain from using or exploiting any and all Confidential Information for any purposes or activities other than those specifically authorized in this Agreement, and MBC shall not disclose any Confidential Information to any Person, except to its employees, agents, or representatives with a need to know. MBC shall implement effective security procedures in order to avoid disclosure or misappropriation of UBSN's Confidential Information. Each of MBC's employees, agents, or representatives who will have access to any of UBSN's Confidential Information shall execute a nondisclosure agreement, in a form acceptable to UBSN, which prohibits the unauthorized use or disclosure of any of UBSN's Confidential Information. MBC shall immediately notify UBSN of any unauthorized disclosure or use of any Confidential Information that comes to MBC's attention and shall take all action that UBSN reasonably requests to prevent any further unauthorized use or disclosure thereof. 6.2 Ownership of Materials. MBC expressly acknowledges and agrees that all documents and materials that contain or embody any Confidential Information are and shall remain the sole property of UBSN. Such materials shall be promptly returned to UBSN (a) upon UBSN's reasonable request, or (b) in accordance with Section 8.5 hereof, upon termination of this Agreement. 6.3 Exceptions. The provisions of this Section 6 shall not apply to data and information disclosed to MBC by UBSN, if they (a) were already known to MBC prior to disclosure, (b) have come into the public domain without breach of confidence by MBC or any other Person, (c) were received by MBC from a third party without restrictions on their use in favor of UBSN, or (d) are required to be disclosed pursuant to any applicable law, rule, regulation, or government or court order. 5 Section 7 - Intellectual Property Rights 7.1 Ownership. MBC hereby acknowledges that UBSN, or its affiliate, is the owner of all rights, title and interest in and to the Intellectual Property Rights and that MBC shall acquire no rights whatsoever in or to any of the Intellectual Property Rights pursuant to this Agreement. MBC shall not take any action that may adversely affect or impair UBSN's, or its affiliate's, rights, title and interest in or to the Intellectual Property Rights. 7.2 Trademarks and Trade Names. The parties acknowledge that MBC may, during the term of this Agreement, use the trademarks, trade names, domain names or similar marks and designations ("Marks") as authorized by UBSN, or its affiliate, from time to time in connection with the performance of the Services. Such use is expressly limited to marketing displays, trade shows, advertising materials and any other similar activities by MBC necessary for the performance of MBC's obligations under this Agreement. MBC shall not market the Products under any name, sign, logo or designation other than the Marks authorized by UBSN, or its affiliate, from time to time. 7.3 Assistance. MBC shall render to UBSN all reasonable assistance as may be required by UBSN in order to preserve the validity and enforceability of UBSN's, or its affiliate's, rights, title and interest in and to the Intellectual Property Rights. MBC agrees that it shall promptly notify UBSN (a) of any and all infringements, imitations, illegal use, or misuse, by any Person of the Intellectual Property Rights which comes to its attention, and (b) of any claims or objections that MBC's performance of the Services may or will infringe the intellectual property rights of any other Person. UBSN shall be responsible for taking any action or initiating any proceedings which UBSN, in its sole discretion, determines to be necessary or appropriate to prevent any infringement of the Intellectual Property Rights, and MBC shall provide UBSN with such assistance as UBSN may reasonably request in connection with any such action or proceeding. Section 8 - Term and Termination 8.1 Term. This Agreement shall become effective on the Effective Date and shall continue in force until the expiration or termination in accordance with its terms of the Distribution Agreement dated 9 October 1998 (as subsequently amended) between UBSN and United Breweries (UK) Limited. 8.2 Termination for Breach. In the event that a party hereto (the "Breaching Party") shall commit any material breach or default of its obligations under this Agreement, the other party (the "Non-Breaching Party") may give the Breaching Party written notice thereof and demand that such breach or default be cured immediately. If the Breaching Party fails to cure such breach or default within thirty (30) calendar days after the date of the Non-Breaching Party's written notice hereunder, the Non-Breaching Party may terminate this Agreement immediately upon giving written notice of termination hereof to the Breaching Party. 8.3 Termination for Insolvency. To the extent permitted by applicable law, either party may terminate this Agreement immediately upon written notice of termination to the other 6 party if the other party goes into bankruptcy or voluntary or involuntary dissolution, is declared insolvent, fails to pay its debts as they come due, makes an assignment for the benefit of creditors, becomes subject to proceedings under any bankruptcy or insolvency law, or suffers the appointment of a receiver or trustee over all or substantially all of its assets or properties. 8.4 Termination by UBSN. Notwithstanding the provisions of Section 8.2 hereof, UBSN may terminate this Agreement immediately by written notice of termination to MBC if MBC breaches any of its obligations under Sections 6 or 7 hereof. 8.5 Rights and Obligations Upon Termination. Termination of this Agreement for any reason whatsoever shall extinguish all rights and obligations of the parties, except for those rights and obligations accrued prior to termination, as specified under this Section 8. Upon termination of this Agreement for any reason whatsoever, MBC shall (a) immediately cease the performance of all Services hereunder, (b) return to UBSN all promotional materials in its possession which have been provided by UBSN or developed by MBC pursuant to this Agreement, and (c) return to UBSN all documents and other materials which contain or embody any Confidential Information which are in MBC's possession, unless otherwise agreed to between the parties. 8.6 Status of Payments Upon Termination. If termination of this Agreement occurs due to any event other than breach or default by MBC, then MBC shall be entitled to all Service Fees that have accrued prior to the date of termination. Payment of the Service Fees after termination shall be made in accordance with Section 5 hereof. 8.7 Survival. Notwithstanding termination of this Agreement, in the event of termination of this Agreement for any reason whatsoever, Sections 6 and 7 hereof shall survive for as long as necessary to effectuate their purposes, and shall bind the parties and their respective representatives, successors and assigns. 8.8 Waiver of Termination Compensation. To the extent permitted by applicable law, neither party shall be liable to the other party for, and each party hereby expressly waives any right to, any termination compensation of any kind or character whatsoever, to which such party may be entitled solely by virtue of termination of this Agreement. Section 9 - Compliance with Laws Each party shall at all times and at its own expense (a) strictly comply with all applicable laws, rules, regulations and governmental orders, now or hereafter in effect, relating to its performance of this Agreement, (b) pay all fees and other charges required by such laws, rules, regulations and orders, and (c) maintain in full force and effect all licenses, permits, authorizations, registrations and qualifications from all applicable governmental departments and agencies to the extent necessary to perform its obligations hereunder. Without limiting the generality of the preceding sentence, MBC agrees that in performing the Services hereunder it will comply with all laws and regulations of the ATF and the various state [and provincial] departments of ABC. 7 Section 10 - General Provisions 10.1 No Waiver. The failure of either party to assert any of its rights under this Agreement shall not be deemed to constitute a waiver of that party's right thereafter to enforce each and every provision of this Agreement in accordance with its terms. 10.2 Entire Agreement. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements, understandings and communications, whether written or oral, between the parties with respect to the subject matter hereof. No modification or amendment of this Agreement shall be effective unless in writing and executed by a duly authorized representative of each party. 10.3 Assignment. MBC shall not have the right or power to assign any of its rights, or delegate the performance of any of its duties, under this Agreement without the prior written authorization of UBSN, which may be granted or withheld by UBSN, in its sole discretion; provided, however, that no such prior authorization shall be required for MBC to subcontract the performance of the Services. 10.4 Force Majeure. Notwithstanding anything in this Agreement to the contrary, neither party shall be liable to the other party for any failure to perform or delay in the performance of any obligation hereunder, except for payment obligations hereunder, when such failure to perform or delay in performance is caused by an event of force majeure; provided, however, that the party whose performance is prevented or delayed by such event of force majeure shall give prompt notice thereof to the other party. For purposes of this Section 10.4, the term "force majeure" shall include war, rebellion, civil disturbance, earthquake, fire, flood, strike, lockout, labor unrest, acts of governmental authorities, shortage of materials, acts of God, acts of the public enemy and, in general, any other causes or conditions beyond the reasonable control of the parties. If any event of force majeure continues for more than ninety (90) calendar days, either party may terminate this Agreement upon notice to the other party. 10.5 Notices. All notices, reports, invoices and other communications between the parties hereto shall be in writing and sent by facsimile, by registered or certified, first-class airmail, return receipt requested and postage prepaid, or by courier. All such communications shall be sent to the party at the address shown at the beginning of this Agreement or to such other address of which the receiving party has given prior notice to the sending party. 10.6 Subject Headings. The subject headings of this Agreement are included for purposes of convenience only and shall not affect the construction or interpretation of any of its provisions. 10.7 Severability. In the event that any provision hereof is found invalid or unenforceable pursuant to a final judicial decree or decision, the remainder of this Agreement will remain valid and enforceable according to its terms. In the event of such partial invalidity, the parties shall seek in good faith to agree on replacing any such legally invalid provisions with 8 provisions which, in effect, will most nearly and fairly approach the effect of the invalid provisions. 10.8 Counterparts. This Agreement may be executed in two or more counterparts, each of which will be deemed an original, but all of which together constitute one and the same instrument. Section 11 - Enforcement of Agreement 11.1 Choice of Law and Jurisdiction. This Agreement, and any disputes arising out of or in connection with this Agreement, shall be governed by and construed in accordance with the laws of the State of California, U.S.A., excluding its rules governing conflicts of laws. The courts located within the State of California, U.S.A. shall have exclusive jurisdiction to adjudicate any disputes arising out of or in connection with this Agreement. The parties hereby consent to the personal jurisdiction of the courts located in the State of California, U.S.A. for the resolution of disputes hereunder. 11.2 Legal Expenses. The prevailing party in any legal proceeding brought by one party against the other party and arising out of or in connection with this Agreement shall be entitled to recover its legal expenses, including court costs and reasonable attorneys' fees. The parties hereto have caused this Agreement to be executed by their duly authorized representatives, effective as of the day and year first written above. UBSN LIMITED By: ---------------------------------- Name: ---------------------------------- Title: ---------------------------------- MENDOCINO BREWING COMPANY, INC. By: ---------------------------------- Name: ---------------------------------- Title: ---------------------------------- 9 -----END PRIVACY-ENHANCED MESSAGE-----