-----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, VwYBX6PNQJCewXOAW4egWYXqy2RWtJpz5Vqlb59tHWDUYJMm6Ox/RGUXEmv8FB6o io4Hy8VaEkOnWfPcC0zfAQ== 0000929624-00-000662.txt : 20000515 0000929624-00-000662.hdr.sgml : 20000515 ACCESSION NUMBER: 0000929624-00-000662 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 10 FILED AS OF DATE: 20000512 GROUP MEMBERS: UNITED BREWERIES OF AMERICA INC GROUP MEMBERS: VIJAY MALLYA SUBJECT COMPANY: 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: SC 13D/A SEC ACT: SEC FILE NUMBER: 005-46539 FILM NUMBER: 627155 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 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: UNITED BREWERIES OF AMERICA INC CENTRAL INDEX KEY: 0001048728 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 680393017 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: THREE HARBOR DRIVE, SUITE 115 CITY: SAUSALITO STATE: CA ZIP: 94965 BUSINESS PHONE: 4152891400 MAIL ADDRESS: STREET 1: THREE HARBOR DRIVE STREET 2: SUITE 115 CITY: SAUSALITO STATE: CA ZIP: 94965 SC 13D/A 1 AMENDMENT NO. 6 TO SCHEDULE 13D ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 13D UNDER THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. 6)* - Mendocino Brewing Company, Inc. ----------------------------------------------------------- (Name of Issuer) Common Stock -------------------------------------------------- (Title of Class of Securities) 586579104 -------------------------------------------------- (CUSIP Number) Paul J. Tauber Coblentz, Patch, Duffy & Bass, LLP 222 Kearny Street, 7th Floor San Francisco, California 94108 415/391-4800 ----------------------------------------------------------------------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) April 30, 2000 -------------------------------------------------------- (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(b)(3) or (4), check the following box [_]. Check the following box if a fee is being paid with the statement [_]. (A fee is not required only if the reporting person: (1) has a previous statement on file reporting beneficial ownership of more than five percent of the class of securities described in Item 1; and (2) has filed no amendment subsequent thereto reporting beneficial ownership of five percent or less of such class.) (See Rule 13d-7.) Note: Six copies of this statement, including all exhibits, should be filed with the Commission. See Rule 13d-1(a) for other parties to whom copies are to be sent. * The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). ================================================================================ 1 NAME OF REPORTING PERSON 1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON United Breweries of America, Inc. ("UBA") 68-0393017 - -------------------------------------------------------------------------------- CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* 2 (a) [_] (b) [X] - -------------------------------------------------------------------------------- SEC USE ONLY 3 - -------------------------------------------------------------------------------- SOURCE OF FUNDS* 4 OO - -------------------------------------------------------------------------------- CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(E) 5 N.A. [_] - -------------------------------------------------------------------------------- CITIZENSHIP OR PLACE OF ORGANIZATION 6 Delaware - -------------------------------------------------------------------------------- SOLE VOTING POWER 7 NUMBER OF 3,672,670 shares of common stock, except that Dr. Vijay Mallya ("Mallya") may be deemed to have shared power to vote these shares because UBA is owned by a foreign corporation, the shares of which are controlled by SHARES fiduciaries who may exercise discretion in favor of Mallya amongst others. The 3,672,670 shares include 601,486 shares that are issuable upon the conversion of the principal amount, together with accrued but unpaid interest, of the convertibles notes issued to UBA. BENEFICIALLY Additional convertible notes may be issued in favor of UBA which, if issued, would be convertible into up to an additional 222,370 shares of common stock. ----------------------------------------------------------------- SHARED VOTING POWER OWNED BY 8 See response to Row 7. ----------------------------------------------------------------- SOLE DISPOSITIVE POWER 9 EACH 3,672,670 shares of common stock, except that Mallya may be deemed to have shared power to dispose of these shares because UBA is owned by a foreign corporation, the shares of which are controlled by fiduciaries who may exercise discretion in favor of Mallya amongst REPORTING others. The 3,672,670 shares include 601,486 shares that are issuable upon the conversion of the principal amount, together with accrued but unpaid interest, of the convertibles notes issued to UBA. Additional PERSON convertible notes may be issued in favor of UBA which, if issued, would be convertible into up to an additional 222,370 shares of common stock. ----------------------------------------------------------------- WITH SHARED DISPOSITIVE POWER 10 See response to row 9. - -------------------------------------------------------------------------------- AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 11 3,672,670 shares - -------------------------------------------------------------------------------- CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* 12 N.A. [_] - -------------------------------------------------------------------------------- PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 13 59.9% - -------------------------------------------------------------------------------- TYPE OF REPORTING PERSON* 14 CO - -------------------------------------------------------------------------------- 2 NAME OF REPORTING PERSON 1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON Dr. Vijay Mallya ("Mallya") N.A. - -------------------------------------------------------------------------------- CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* 2 (a) [_] (b) [X] - -------------------------------------------------------------------------------- SEC USE ONLY 3 - -------------------------------------------------------------------------------- SOURCE OF FUNDS* 4 OO - -------------------------------------------------------------------------------- CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(E) 5 N.A. [_] - -------------------------------------------------------------------------------- CITIZENSHIP OR PLACE OF ORGANIZATION 6 India - -------------------------------------------------------------------------------- SOLE VOTING POWER NUMBER OF 7 0 ----------------------------------------------------------------- SHARED VOTING POWER SHARES 8 3,672,670 shares of common stock, all of which are directly owned by UBA. Mallya may be deemed to be a beneficial owner of UBA because UBA is owned by a foreign corporation, the shares of which are controlled BENEFICIALLY by fiduciaries who may exercise discretion in favor of Mallya amongst others. Accordingly, Mallya may be deemed to have shared power to vote these shares The 3,672,670 shares include 601,486 shares that are issuable upon the conversion of the principal amount, OWNED BY together with accrued but unpaid interest, of the convertibles notes issued to UBA. Additional convertible notes may be issued in favor of UBA which, if issued, would be convertible into up to an additional 222,370 shares of common stock. EACH ----------------------------------------------------------------- SOLE DISPOSITIVE POWER 9 0 REPORTING ----------------------------------------------------------------- SHARED DISPOSITIVE POWER 10 3,672,670 shares of common stock, all of which are PERSON directly owned by UBA. Mallya may be deemed to be a beneficial owner of UBA because UBA is owned by a foreign corporation, the shares of which are controlled by fiduciaries who may exercise discretion in favor of WITH Mallya amongst others. Accordingly, Mallya may be deemed to have shared power to dispose of these shares The 3,672,670 shares include 601,486 shares that are issuable upon the conversion of the principal amount, together with accrued but unpaid interest, of the convertibles notes issued to UBA. Additional convertible notes may be issued in favor of UBA which, if issued, would be convertible into up to an additional 222,370 shares of common stock. - -------------------------------------------------------------------------------- AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 12 3,672,670 shares - -------------------------------------------------------------------------------- CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* 12 N.A. [_] - -------------------------------------------------------------------------------- PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 13 59.9% - -------------------------------------------------------------------------------- TYPE OF REPORTING PERSON* 14 CO - -------------------------------------------------------------------------------- 3 United Breweries of America, Inc., a Delaware corporation (the "Reporting Person") and Dr. Vijay Mallya ("Mallya") hereby amend the single joint statement on Schedule 13D as amended by Amendments No. 1, No. 2, No. 3, No. 4, and No. 5 (collectively, the "Schedule 13d"), filed with the Securities and Exchange Commission with respect to certain shares of common stock ("Common Stock"), no par value, and certain convertible notes of Mendocino Brewing Company, Inc. (the "Issuer"), as follows: ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION A new fifth paragraph is added to Item 3 to read, in its entirety, as follows: At a regularly scheduled meeting of the Board of Directors of the Issuer, the Reporting Person agreed to increase the maximum amount of the existing credit facility from $800,000 to $1,200,000. All of the other terms and conditions of the credit facility shall remain the same, and a copy of the First Amendment to Master Loan Agreement is attached hereto. On September 7, 1999, October 21, 1999, November 12, 1999, December 17, 1999, December 31, 1999, February 15, 2000, February 16, 2000 and April 28, 2000 the Issuer made draws of the credit facility in the amounts of $280.064.88, $25,000, $100,000, $150,000, $10,062, $100,000, $50,000 and $151,317.59, respectively. Accrued but unpaid interest on such draws totals $35,784.58 as of April 30, 2000. Accordingly, the aggregate amount drawn on the credit facility, together with accrued interest thereon, is equal to $902,229.05, which corresponds to the right to acquire up to 601,486 shares of Common Stock at a conversion price of $1.50 per share. Any accrued but unpaid interest is also convertible into Common Stock at the conversion price of $1.50 per share. ITEM 4. PURPOSE OF TRANSACTION A new final paragraph is added to Item 4 to read as follows: On March 29, 2000, the Issuer announced that it intends to enter into a transaction with an entity affiliated with Mallya. Pursuant to the terms of the transaction, the Issuer will acquire UBSN Ltd., a United Kingdom corporation by acquiring all of the issued and outstanding shares of United Breweries International UK, Ltd. ("UBI UK, Ltd."), which is the parent company of UBSN Ltd. In the transaction, the Issuer has offered to issue approximately 5,500,000 shares of common stock in exchange for the shares of UBI UK, Ltd. Upon the closing of the transaction, UBI UK Ltd. will become a wholly-owned subsidiary of the Issuer. The closing of the transaction is expected to occur in late June 2000, or as soon thereafter as the various conditions to closing have been satisfied or waived. The transaction described above is a related party transaction because the corporation that owns all of the shares of UBI UK, Ltd. is held by a trust, which is controlled by fiduciaries who may exercise discretion in favor of Mallya, amongst others. ITEM 5. INTEREST IN SECURITIES OF THE ISSUER The first paragraph of Item 5(a) is hereby amended, in its entirety, to read as follows: (a) See responses to Rows 7, 8, 9, and 10 for each of the Reporting Person and Mallya. As of April 30, 2000, Mallya may be deed to be the beneficial owner of 3,672,670 shares of Common Stock because approximately 91.5% of the Reporting Person is owned by a foreign corporation, the shares of which are controlled by fiduciaries who may exercise discretion in favor of Mallya amongst others. The 3,672,670 shares constitutes approximately 59.9% of the outstanding Common Stock. If the Issuer draws on the entire amount of the credit facility, assuming no additional accruals or interest, the Reporting Person would be the beneficial owner of an additional 222,370 shares of Common Stock, constituting, in aggregate, of approximately 61.3% of the outstanding Common Stock. Mallya may be deemed to have a shared power to vote and dispose of all of these shares. (c) See response to Item 3. ITEM 7. MATERIAL TO BE FILED AS EXHIBITS 1. First Amendment to Master Loan Agreement dated as of April 28, 2000. 2. Convertible Note dated September 7, 1999 in the principal amount of $280,064.88 3. Convertible Note dated October 21, 1999 in the principal amount of $25,000 4. Convertible Note dated November 12, 1999 in the principal amount of $100,000 5. Convertible Note dated December 17, 1999 in the principal amount of $150,000 6. Convertible Note dated December 31, 1999 in the principal amount of $10,062 7. Convertible Note dated February 15, 2000 in the principal amount of $100,000 8. Convertible Note dated February 16, 2000 in the principal amount of $50,000 9. Convertible Note dated April 28, 2000 in the principal amount of $151,317.59 4 After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. April 30, 2000 UNITED BREWERIES OF AMERICA, INC. - ----------------------- By: /s/ Vijay Mallya --------------------------------------- Name: Dr. Vijay Mallya Title: Chairman and Chief Executive Officer DR. VIJAY MALLYA /s/ Vijay Mallya ----------------------------------- Dr. Vijay Mallya ATTENTION: INTENTIONAL MISSTATEMENTS OR OMISSIONS OF FACT CONSTITUTE FEDERAL CRIMINAL VIOLATIONS (SEE 18 U.S.C. 1001) 5
Found on Sequentially Exhibit No. Numbered Pages - ----------- -------------- Exhibit 1. First Amendment to Master Loan Agreement dated as of April 28, 2000. 7 Exhibit 2. Convertible Note dated September 7, 1999 in the principal amount of $280,064.88 8 Exhibit 3. Convertible Note dated October 21, 1999 in the principal amount of $25,000 12 Exhibit 4. Convertible Note dated November 12, 1999 in the principal amount of $100,000. 16 Exhibit 5. Convertible Note dated December 17, 1999 in the principal amount of $150,000. 20 Exhibit 6. Convertible Note dated December 31, 1999 in the principal amount of $10,062. 24 Exhibit 7. Convertible Note dated February 15, 2000 in the principal amount of $100,000. 28 Exhibit 8. Convertible Note dated February 16, 2000 in the principal amount of $50,000 32 Exhibit 9. Convertible Note dated April 28, 2000 in the principal amount of $151,317.59 36
6 EX-1 2 FIRST AMEND. TO MASTER LOAN AGRMT. -- 4/28/2000 EXHIBIT 1 --------- FIRST AMENDMENT TO MASTER LINE OF CREDIT AGREEMENT MENDOCINO BREWING COMPANY, INC. This First Amendment to Master Line of Credit Agreement (this "Amendment") is made and entered into as of April 28, 2000, by and between United Breweries of America, Inc., a Delaware corporation ("UBA"), and Mendocino Brewing Company, Inc., a California corporation ("MBC"). Recitals A. UBA and MBC have entered into a Master Line of Credit Agreement (the "Agreement"), dated as of August 31, 1999, with respect to a credit facility in the amount of $800,000 made available to MBC by UBA. B. UBA and MBC wish to amend the Agreement to increase the amount of the credit facility to $1,200,000. NOW, THEREFORE, the parties agree as follows: Agreement 1. General Purpose and Amount. Section 1 of the Agreement is hereby amended, -------------------------- in its entirety, to provide as follows: "1. General Purpose, Amount. Lender agrees to make and Borrower agrees to ----------------------- accept a credit facility in the principal sum of One Million Two Hundred Thousand Dollars ($1,200,000.00) or so much thereof as may be from time to time disbursed hereunder (the "Credit Facility") for the purpose of providing funds for the operations of Borrower, including paying amounts owed by Borrower to Lender. Each draw on the Credit Facility shall be evidenced by a convertible promissory note (each a "Note") of Borrower, payable to the order of Lender and shall be substantially in the form set forth in Exhibit A." 2. Governing Law. This Amendment shall be governed by and construed in ------------- accordance with the laws, without regard to the laws as to choice or conflict of laws, of the State of California. 3. Ratification of Agreement; Amendments. Except as specifically amended by ------------------------------------- this Amendment, all provisions of the Agreement are ratified and affirmed. The Agreement and this Amendment may only be amended by a written instrument executed by both UBA and MBC. 4. Counterparts. This Amendment may be executed in two or more counterparts, ------------ each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have caused this Amendment to be executed as of the date first above written. MENDOCINO BREWING COMPANY, INC., a California corporation By: /s/ Yashpal Singh ------------------------------------- Yashpal Singh, President By: /s/ P.A. Murali ------------------------------------- P.A. Murali, Chief Financial Officer UNITED BREWERIES OF AMERICA, INC. By: /s/ Anil Pisharody --------------------------------------- Anil Pisharody, Secretary and Treasurer 7 EX-2 3 CONVERTIBLE NOTE DATED SEPTEMBER 7, 1999 EXHIBIT 2 --------- CONVERTIBLE PROMISSORY NOTE MENDOCINO BREWING COMPANY, INC. ________________________________________________________________________________ Name of Issuer: Mendocino Brewing Company, Inc. Dated: September 7, 1999 Maturity Date: March 6, 2001 ________________________________________________________________________________ 1. Promise. Mendocino Brewing Company, Inc., a California corporation ------- having its principal office at 1601 Airport Road, Ukiah, California 95482 and any successor (the "Company"), for value received, promises to pay to United Breweries of America Inc., a Delaware corporation or to its registered successors or assigns (the "Holder") the principal sum of Two Hundred Eighty Thousand Sixty Four and 88/100 Dollars ($280,064.88) on presentation and surrender of this Convertible Note ("Note") on March 6, 2001 (the "Maturity Date"), and to pay interest on that principal sum at a rate equal to the lesser of (i) one and one-half percent (1.50%) per annum above the prime rate offered from time to time by the Bank of America in San Francisco, California, or (ii) ten percent (10%). Interest payments shall be paid quarterly on the first day of the months of April, July, October, and January of each year. Company may use any of the funds borrowed from Holder for any corporate purposes of Company, including paying obligations owed by Company to Holder. 2. Form of Payment. All payments under this Note shall be made in lawful --------------- money of the United States of America. The Company waives diligence, presentment, protest, demand and notice of protest, dishonor, and nonpayment of this Note. 3. Conversion/Redemption/Renewal. ----------------------------- (a) The Holder has the right, at the holder's option, at any time on or after the Maturity Date, to convert all or any portion of this Note into fully paid and nonassessable shares of common stock ("Common Stock") of the Company at the rate of one share of such Common Stock for each One Dollar and 50/100 ($1.50) (the "Conversion Rate") principal amount of this Note and any accrued but unpaid interest. The Holder agrees that all shares of Common Stock of the Company, issued by the Company upon the conversion of all or any part of this Note shall be restricted securities within the meaning of Rule 144(a) of the Securities Act of 1933. The Holder further agrees that any shares of Common Stock acquired by means of any conversion as set forth herein shall be further restricted by the terms and conditions set forth in that certain Shareholders' Agreement, dated October 24, 1997, by and among the Company, Holder, and the Original Partners (as such term is defined in the Shareholders' Agreement). (b) The conversion right set forth in this Section 3 is subject to any adjustment of the Conversion Rate set forth in Section 5 and Section 6, and is only exercisable upon the surrender of this Note for conversion at the office or agency to be maintained by the Company accompanied by instruments of transfer, in form satisfactory to the Company, duly executed by the registered holder. No fractional shares are issuable on any conversion, but in lieu of issuing fractional shares the Company shall pay for such fractional shares in cash. (c) At any time prior to seventeen (17) months from the date of this Note, the Holder may provide written notice to the Company requiring the Company to commence repay of the outstanding principal balance of this Note, together with any accrued but unpaid interest thereon, to Holder. In such case, commencing on the Maturity Date, Company shall pay Holder equal monthly installments of principal, together with any unpaid interest, over a period of five (5) years until all amounts due hereunder shall be repaid in full. (d) If Holder does not convert or redeem any or all of the principal amount of the Note into Common Stock on the Maturity Date, Holder has the right to extend the term of this Note for a period of time mutually agreed upon between Holder and the Company. At any time during such extension period, Holder shall have the right to convert all or any part of the outstanding principal amount of the Note plus accrued and unpaid interest into Common Stock as set forth in this Section 3. Moreover, at any time during such extension period, Holder shall have the right to require the Company to repay all or any part of the outstanding principal balance of this Note, together with any accrued but unpaid interest thereon, to Holder within sixty (60) days. 4. Company Redemption. Prior to the Maturity Date, this Note may be ------------------ redeemed by the Company, in whole or in part, at any time after sixty (60) days written notice ("Redemption Notice") to Holder. During such sixty (60) day period, Holder shall have the right to convert all or any part of the outstanding principal amount of the Note plus accrued and unpaid interest into Common Stock, as set forth in Section 3. If Holder does not convert all outstanding amounts into Common Stock, the Company may redeem any remaining amounts at any time during a thirty (30) day period commencing with the date of expiration of the sixty (60) day period provided for in the Redemption Notice. Thereafter, Company shall be required to provide Holder with a new Redemption Notice, and Holder shall have a new sixty (60) day period within which to convert all 8 or any part of the outstanding principal amounts plus accrued and unpaid interest into Common Stock, as set forth in Section 3. 5. Anti-Dilution. ------------- (a) If at any time there is a capital reorganization of the Company's Common Stock, including any combination, reclassification, exchange, or subdivision of shares, a merger or consolidation of the Company with or into another corporation, or the sale of all or substantially all the Company's properties and assets as, or substantially as, an entirety to another person, then, as a part of such reorganization, merger, consolidation, or sale, lawful provision shall be made so that Holder shall thereafter be entitled to receive on conversion of this Note, during the period specified in this Note, the number of shares of Common Stock of the Company, or of the successor corporation resulting from such merger or consolidation, to which a holder of the Common Stock deliverable on conversion of this Note would have been entitled on that event if this Note had been converted immediately before that event. In any such case, appropriate adjustment (as determined by the Company's board of directors) shall be made in applying this Note to the rights and the percentage interests of Holder after the reorganization, merger, consolidation, or sale to the end that this Note (including adjustment of the Conversion Rate) shall be applicable after that event, as near as reasonably may be, in relation to the shares of Common Stock deliverable after that event on conversion of this Note. The Company shall, not later than thirty (30) days prior to making such adjustment, give written notice ("Notice") by courier to Holder at the address of Holder shown on the Company's books. (b) Any Notice that is sent pursuant to Section 5(a) shall set forth, in reasonable detail, the event requiring the adjustment and the method by which the adjustment was calculated and shall specify the Conversion Rate then in effect after the adjustment and the increased or decreased number of shares of Common Stock to be received upon conversion of this Note. When appropriate, advance notice may be given and included as part of the notice required under other provisions of this Note. 6. Conversion Rate Protection. -------------------------- (a) If at any time, or from time to time, the Company issues or sells shares of Common Stock without consideration or for a consideration per share less than the Conversion Rate in effect immediately before that issue or sale, then and in each such case: (i) the Conversion Rate then in effect and the Conversion Rate applicable for any subsequent period shall be adjusted to a price (calculated to the nearest cent) determined by dividing: (y) the sum of (aa) the number of shares of Common Stock outstanding immediately before that issue or sale multiplied by the Conversion Rate in effect immediately before that issue or sale, plus (bb) the consideration, if any, received by the Company on that issue or sale, by (z) the number of shares of the Company's Common Stock outstanding immediately after that issue or sale; and (ii) Holder shall after that issue or sale, on conversion of this Note, be entitled to receive the number of shares of Common Stock equal to the number of shares that would otherwise, but for the adjustment provided for in Section 6(a)(i), be issuable on such conversion multiplied by a fraction, the numerator of which is the Conversion Rate then in effect and the denominator of which is the Conversion Rate in effect immediately after the adjustment provided for in Section 6(a)(i) on the date of conversion. No such adjustment shall be made in an amount less than Five Cents ($0.05), but any such amount shall be carried forward and given effect in the next adjustment, if any. (b) If the Company (i) grants any rights or options to subscribe for, purchase, or otherwise acquire shares of Common Stock, or (ii) issues or sells any security, other than this Note, which is convertible into shares of Common Stock, then the price per share of Common Stock issuable on the exercise of the rights or options or the conversion of the securities shall be calculated by dividing: (y) the total amount, if any, received or receivable by the Company as consideration for the granting of the rights or options or the issue or sale of the convertible securities, plus the minimum aggregate amount of additional consideration payable to the Company on exercise of the convertible securities, by (z) the maximum number of shares of Common Stock issuable on the exercise or conversion. (i) If the price per share so calculated is less than the Conversion Rate of this Note in effect immediately before the rights or options are granted or the convertible securities are issued or sold, the granting or issue or sale shall be considered to be an issue or sale for cash of the maximum number of shares of Common Stock so issuable on exercise or conversion at the price per share determined under this provision, and the Conversion Rate of this Note shall be adjusted as provided above to reflect (on the basis of that determination) the issue or sale. No further adjustment of the Conversion Rate shall be made as a result of the actual issuance of shares of Common Stock on the exercise of any such rights or options or the conversion of any such convertible securities. 9 (ii) If such rights or options or convertible securities by their terms provide, with the passage of time or otherwise, for any increase in the amount of additional consideration payable to the Company or any decrease in the number of shares of Common Stock issuable on such exercise or exchange (by change of rate or otherwise), the Conversion Rate shall, when each such increase or decrease becomes effective, be readjusted to reflect the increase or decrease as far as it affects rights of exercise or conversion that have not expired before that time. (iii) If, on the expiration of such rights or options or the rights of conversion of such convertible securities, any of them shall not have been exercised, the Conversion Rate shall be readjusted and will then be the same as it would have been had it originally been adjusted (or had the original adjustment not been required, as the case may be), on the basis that (y) the only shares of Common Stock so issued were the shares of Common Stock, if any, actually issued or sold on the exercise of such rights or options or rights of conversion of such convertible securities, and (z) such shares of Common Stock, if any, were issued or sold for the consideration actually received by the Company on such exercise plus the consideration, if any, actually received by the Company for granting all such rights or options or for issuing or selling all such convertible securities. (iv) No adjustment of the Conversion Rate as provided in this Section 6(b) shall occur upon the granting or issuance of stock, stock options, or warrants to employees or directors of the Company in the aggregate amount of less than six hundred thousand (600,000) shares of Common Stock. 7. Subordination. ------------- (a) Upon the written agreement of Holder, this Note may be subordinated to any or all debt owed by the Company to banks and other financial institutions, other than to the extent debt to any such bank or financial institution involves the issuance of shares of the Company's stock or notes, warrants, options or any other security convertible into such stock. (b) The payment of the indebtedness evidenced by this instrument is subordinated to the payment of the "Senior Debt" defined and described in the Subordination Agreement, dated as of September 24, 1998, between United Breweries of America Inc. and the CIT Group/Credit Finance, Inc., as amended by that certain Amendment to Subordination Agreement, dated as of June 22, 1999, and reference is made to such Agreement for a full statement of the terms and conditions of such subordination. (c) The payment of the indebtedness evidenced by this instrument is subordinated to the payment of the "Senior Debt" defined and described in the Subordination Agreement, dated on or about November 15, 1998, between United Breweries of America Inc. and the Savings Bank of Mendocino, Inc., and reference is made to such Agreement for a full statement of the terms and conditions of such subordination. 8. Enforcement. The Company agrees to reimburse Holder for all costs of ----------- collection or enforcement of this Note, whether or not suit is filed (including, but not limited to, reasonable attorney fees), incurred by Holder. 9. Governing Law. This Note shall be governed by and construed in ------------- accordance with the laws, without regard to the laws as to choice or conflict of laws, of the State of California. 10. Default. If Company fails to pay any installment of principal or ------- interest when due, then, or at any time during such default, the entire amount of the unpaid principal and interest shall, at the election of Holder, become immediately due and payable. 11. Waiver. No previous waiver and no failure or delay by Holder in ------ acting with respect to the terms of this Note shall constitute a waiver of any subsequent breach, default or failure of condition under this Note. A waiver of any term of this Note must be in writing and shall be limited to the express written terms of such waiver. No delay or omission on the part of Holder in exercising any right under this Note shall operate as a waiver of such right or of any other right. 12. Reservation of Stock. The Company covenants that it will at all times -------------------- reserve and keep available, solely for issuance on conversion of this Note, all shares of Common Stock from time to time issuable upon exercise of this Note. 13. Replacement. Upon receipt of evidence reasonably satisfactory to the ----------- Company, of the loss, theft, destruction, or modification of this Note and, in the event of such occurrence, on delivery of an indemnity agreement or Note reasonably satisfactory in form and amount to the Company or in the case of mutilation, on surrender and cancellation of this Note, the Company at its expense will execute and deliver, in lieu of this Note, a new Note of like tender. 10 14. Transfer. NO SALE OR TRANSFER OF THIS NOTE SHALL BE EFFECTIVE UNLESS -------- AND UNTIL ALL OF THE FOLLOWING STEPS ARE COMPLIED WITH: (a) The transferor and the transferee shall execute the form of Transfer Statement attached to this Note (or a similar statement which shall then be attached to this Note); (b) This Note and the executed Transfer Statement, together with a United States Internal Revenue Service Form W-8 "Certificate of Foreign Status" or a Form W-9 "Request for Taxpayer Identification Number and Certification" - -- completed and executed by the transferee, shall be delivered to the Company at the Company's address as provided above; and (c) If the Company is satisfied that the information contained in the Transfer Statement is consistent with the information contained in the completed and executed Form W-8 or W-9, as applicable, the Company shall enter the transfer on a Note Holder Ledger maintained by the Company for this purpose. Any purported transfer with respect to which all of the above steps have note been complied with shall be null and void and of no force or effect. 15. Entire Agreement; Written Modification Only. This Agreement contains ------------------------------------------- the entire agreement of the parties, and constitutes the complete, final and exclusive embodiment of their agreement with respect to its subject matter. This Agreement supersedes any and all prior correspondence, arrangements, representations and understandings, whether written or oral, express or implied, with respect to its subject matter. This Agreement may not be modified except by a written agreement, which specifically sets forth each modification and is signed by a duly authorized representative of both parties. This Agreement is executed without reliance upon any promise, warranty or representation by the parties or any of their representatives, other than such promises, warranties or representations as are expressly contained in this Agreement. 16. Severability. If any provision of this Agreement is deemed or held ------------ invalid or unenforceable in whole or in part, for any reason, that provision shall be deemed severed from the remainder of this Agreement, and shall in no way affect or impair the validity or enforceability of any portion or all of this Agreement, which otherwise shall remain in full force and effect. IN WITNESS WHEREOF, the Company has caused this Convertible Note to be executed in its corporate name by the signature of its president and secretary. MENDOCINO BREWING COMPANY, INC., a California corporation By: /s/ Yashpal Singh -------------------------------- Yashpal Singh Its: Chief Operating Officer By: /s/ P.A. Murali -------------------------------- P.A. Murali Its: Chief Financial Officer 11 EX-3 4 CONVERTIBLE NOTE DATED OCTOBER 21, 1999 EXHIBIT 3 --------- CONVERTIBLE PROMISSORY NOTE MENDOCINO BREWING COMPANY, INC. ________________________________________________________________________________ Name of Issuer: Mendocino Brewing Company, Inc. Dated: October 21, 1999 Maturity Date: April 20, 2001 ________________________________________________________________________________ 1. Promise. Mendocino Brewing Company, Inc., a California corporation ------- having its principal office at 1601 Airport Road, Ukiah, California 95482 and any successor (the "Company"), for value received, promises to pay to United Breweries of America Inc., a Delaware corporation or to its registered successors or assigns (the "Holder") the principal sum of Twenty Five Thousand Dollars ($25,000) on presentation and surrender of this Convertible Note ("Note") on April 20, 2001 (the "Maturity Date"), and to pay interest on that principal sum at a rate equal to the lesser of (i) one and one-half percent (1.50%) per annum above the prime rate offered from time to time by the Bank of America in San Francisco, California, or (ii) ten percent (10%). Interest payments shall be paid quarterly on the first day of the months of April, July, October, and January of each year. Company may use any of the funds borrowed from Holder for any corporate purposes of Company, including paying obligations owed by Company to Holder. 2. Form of Payment. All payments under this Note shall be made in lawful --------------- money of the United States of America. The Company waives diligence, presentment, protest, demand and notice of protest, dishonor, and nonpayment of this Note. 3. Conversion/Redemption/Renewal. ----------------------------- (a) The Holder has the right, at the holder's option, at any time on or after the Maturity Date, to convert all or any portion of this Note into fully paid and nonassessable shares of common stock ("Common Stock") of the Company at the rate of one share of such Common Stock for each One Dollar and 50/100 ($1.50) (the "Conversion Rate") principal amount of this Note and any accrued but unpaid interest. The Holder agrees that all shares of Common Stock of the Company, issued by the Company upon the conversion of all or any part of this Note shall be restricted securities within the meaning of Rule 144(a) of the Securities Act of 1933. The Holder further agrees that any shares of Common Stock acquired by means of any conversion as set forth herein shall be further restricted by the terms and conditions set forth in that certain Shareholders' Agreement, dated October 24, 1997, by and among the Company, Holder, and the Original Partners (as such term is defined in the Shareholders' Agreement). (b) The conversion right set forth in this Section 3 is subject to any adjustment of the Conversion Rate set forth in Section 5 and Section 6, and is only exercisable upon the surrender of this Note for conversion at the office or agency to be maintained by the Company accompanied by instruments of transfer, in form satisfactory to the Company, duly executed by the registered holder. No fractional shares are issuable on any conversion, but in lieu of issuing fractional shares the Company shall pay for such fractional shares in cash. (c) At any time prior to seventeen (17) months from the date of this Note, the Holder may provide written notice to the Company requiring the Company to commence repay of the outstanding principal balance of this Note, together with any accrued but unpaid interest thereon, to Holder. In such case, commencing on the Maturity Date, Company shall pay Holder equal monthly installments of principal, together with any unpaid interest, over a period of five (5) years until all amounts due hereunder shall be repaid in full. (d) If Holder does not convert or redeem any or all of the principal amount of the Note into Common Stock on the Maturity Date, Holder has the right to extend the term of this Note for a period of time mutually agreed upon between Holder and the Company. At any time during such extension period, Holder shall have the right to convert all or any part of the outstanding principal amount of the Note plus accrued and unpaid interest into Common Stock as set forth in this Section 3. Moreover, at any time during such extension period, Holder shall have the right to require the Company to repay all or any part of the outstanding principal balance of this Note, together with any accrued but unpaid interest thereon, to Holder within sixty (60) days. 4. Company Redemption. Prior to the Maturity Date, this Note may be ------------------ redeemed by the Company, in whole or in part, at any time after sixty (60) days written notice ("Redemption Notice") to Holder. During such sixty (60) day period, Holder shall have the right to convert all or any part of the outstanding principal amount of the Note plus accrued and unpaid interest into Common Stock, as set forth in Section 3. If Holder does not convert all outstanding amounts into Common Stock, the Company may redeem any remaining amounts at any time during a thirty (30) day period commencing with the date of expiration of the sixty (60) day period provided for in the Redemption Notice. Thereafter, Company shall be required to provide Holder with a new Redemption Notice, and Holder shall have a new sixty (60) day period within which to convert all 12 or any part of the outstanding principal amounts plus accrued and unpaid interest into Common Stock, as set forth in Section 3. 5. Anti-Dilution. ------------- (a) If at any time there is a capital reorganization of the Company's Common Stock, including any combination, reclassification, exchange, or subdivision of shares, a merger or consolidation of the Company with or into another corporation, or the sale of all or substantially all the Company's properties and assets as, or substantially as, an entirety to another person, then, as a part of such reorganization, merger, consolidation, or sale, lawful provision shall be made so that Holder shall thereafter be entitled to receive on conversion of this Note, during the period specified in this Note, the number of shares of Common Stock of the Company, or of the successor corporation resulting from such merger or consolidation, to which a holder of the Common Stock deliverable on conversion of this Note would have been entitled on that event if this Note had been converted immediately before that event. In any such case, appropriate adjustment (as determined by the Company's board of directors) shall be made in applying this Note to the rights and the percentage interests of Holder after the reorganization, merger, consolidation, or sale to the end that this Note (including adjustment of the Conversion Rate) shall be applicable after that event, as near as reasonably may be, in relation to the shares of Common Stock deliverable after that event on conversion of this Note. The Company shall, not later than thirty (30) days prior to making such adjustment, give written notice ("Notice") by courier to Holder at the address of Holder shown on the Company's books. (b) Any Notice that is sent pursuant to Section 5(a) shall set forth, in reasonable detail, the event requiring the adjustment and the method by which the adjustment was calculated and shall specify the Conversion Rate then in effect after the adjustment and the increased or decreased number of shares of Common Stock to be received upon conversion of this Note. When appropriate, advance notice may be given and included as part of the notice required under other provisions of this Note. 6. Conversion Rate Protection. -------------------------- (a) If at any time, or from time to time, the Company issues or sells shares of Common Stock without consideration or for a consideration per share less than the Conversion Rate in effect immediately before that issue or sale, then and in each such case: (i) the Conversion Rate then in effect and the Conversion Rate applicable for any subsequent period shall be adjusted to a price (calculated to the nearest cent) determined by dividing: (y) the sum of (aa) the number of shares of Common Stock outstanding immediately before that issue or sale multiplied by the Conversion Rate in effect immediately before that issue or sale, plus (bb) the consideration, if any, received by the Company on that issue or sale, by (z) the number of shares of the Company's Common Stock outstanding immediately after that issue or sale; and (ii) Holder shall after that issue or sale, on conversion of this Note, be entitled to receive the number of shares of Common Stock equal to the number of shares that would otherwise, but for the adjustment provided for in Section 6(a)(i), be issuable on such conversion multiplied by a fraction, the numerator of which is the Conversion Rate then in effect and the denominator of which is the Conversion Rate in effect immediately after the adjustment provided for in Section 6(a)(i) on the date of conversion. No such adjustment shall be made in an amount less than Five Cents ($0.05), but any such amount shall be carried forward and given effect in the next adjustment, if any. (b) If the Company (i) grants any rights or options to subscribe for, purchase, or otherwise acquire shares of Common Stock, or (ii) issues or sells any security, other than this Note, which is convertible into shares of Common Stock, then the price per share of Common Stock issuable on the exercise of the rights or options or the conversion of the securities shall be calculated by dividing: (y) the total amount, if any, received or receivable by the Company as consideration for the granting of the rights or options or the issue or sale of the convertible securities, plus the minimum aggregate amount of additional consideration payable to the Company on exercise of the convertible securities, by (z) the maximum number of shares of Common Stock issuable on the exercise or conversion. (i) If the price per share so calculated is less than the Conversion Rate of this Note in effect immediately before the rights or options are granted or the convertible securities are issued or sold, the granting or issue or sale shall be considered to be an issue or sale for cash of the maximum number of shares of Common Stock so issuable on exercise or conversion at the price per share determined under this provision, and the Conversion Rate of this Note shall be adjusted as provided above to reflect (on the basis of that determination) the issue or sale. No further adjustment of the Conversion Rate shall be made as a result of the actual issuance of shares of Common Stock on the exercise of any such rights or options or the conversion of any such convertible securities. 13 (ii) If such rights or options or convertible securities by their terms provide, with the passage of time or otherwise, for any increase in the amount of additional consideration payable to the Company or any decrease in the number of shares of Common Stock issuable on such exercise or exchange (by change of rate or otherwise), the Conversion Rate shall, when each such increase or decrease becomes effective, be readjusted to reflect the increase or decrease as far as it affects rights of exercise or conversion that have not expired before that time. (iii) If, on the expiration of such rights or options or the rights of conversion of such convertible securities, any of them shall not have been exercised, the Conversion Rate shall be readjusted and will then be the same as it would have been had it originally been adjusted (or had the original adjustment not been required, as the case may be), on the basis that (y) the only shares of Common Stock so issued were the shares of Common Stock, if any, actually issued or sold on the exercise of such rights or options or rights of conversion of such convertible securities, and (z) such shares of Common Stock, if any, were issued or sold for the consideration actually received by the Company on such exercise plus the consideration, if any, actually received by the Company for granting all such rights or options or for issuing or selling all such convertible securities. (iv) No adjustment of the Conversion Rate as provided in this Section 6(b) shall occur upon the granting or issuance of stock, stock options, or warrants to employees or directors of the Company in the aggregate amount of less than six hundred thousand (600,000) shares of Common Stock. 7. Subordination. ------------- (a) Upon the written agreement of Holder, this Note may be subordinated to any or all debt owed by the Company to banks and other financial institutions, other than to the extent debt to any such bank or financial institution involves the issuance of shares of the Company's stock or notes, warrants, options or any other security convertible into such stock. (b) The payment of the indebtedness evidenced by this instrument is subordinated to the payment of the "Senior Debt" defined and described in the Subordination Agreement, dated as of September 24, 1998, between United Breweries of America Inc. and the CIT Group/Credit Finance, Inc., as amended by that certain Amendment to Subordination Agreement, dated as of June 22, 1999, and reference is made to such Agreement for a full statement of the terms and conditions of such subordination. (c) The payment of the indebtedness evidenced by this instrument is subordinated to the payment of the "Senior Debt" defined and described in the Subordination Agreement, dated on or about November 15, 1998, between United Breweries of America Inc. and the Savings Bank of Mendocino, Inc., and reference is made to such Agreement for a full statement of the terms and conditions of such subordination. 8. Enforcement. The Company agrees to reimburse Holder for all costs of ----------- collection or enforcement of this Note, whether or not suit is filed (including, but not limited to, reasonable attorney fees), incurred by Holder. 9. Governing Law. This Note shall be governed by and construed in ------------- accordance with the laws, without regard to the laws as to choice or conflict of laws, of the State of California. 10. Default. If Company fails to pay any installment of principal or ------- interest when due, then, or at any time during such default, the entire amount of the unpaid principal and interest shall, at the election of Holder, become immediately due and payable. 11. Waiver. No previous waiver and no failure or delay by Holder in ------ acting with respect to the terms of this Note shall constitute a waiver of any subsequent breach, default or failure of condition under this Note. A waiver of any term of this Note must be in writing and shall be limited to the express written terms of such waiver. No delay or omission on the part of Holder in exercising any right under this Note shall operate as a waiver of such right or of any other right. 12. Reservation of Stock. The Company covenants that it will at all times -------------------- reserve and keep available, solely for issuance on conversion of this Note, all shares of Common Stock from time to time issuable upon exercise of this Note. 13. Replacement. Upon receipt of evidence reasonably satisfactory to the ----------- Company, of the loss, theft, destruction, or modification of this Note and, in the event of such occurrence, on delivery of an indemnity agreement or Note reasonably satisfactory in form and amount to the Company or in the case of mutilation, on surrender and cancellation of this Note, the Company at its expense will execute and deliver, in lieu of this Note, a new Note of like tender. 14 14. Transfer. NO SALE OR TRANSFER OF THIS NOTE SHALL BE EFFECTIVE UNLESS -------- AND UNTIL ALL OF THE FOLLOWING STEPS ARE COMPLIED WITH: (a) The transferor and the transferee shall execute the form of Transfer Statement attached to this Note (or a similar statement which shall then be attached to this Note); (b) This Note and the executed Transfer Statement, together with a United States Internal Revenue Service Form W-8 "Certificate of Foreign Status" or a Form W-9 "Request for Taxpayer Identification Number and Certification" - -- completed and executed by the transferee, shall be delivered to the Company at the Company's address as provided above; and (c) If the Company is satisfied that the information contained in the Transfer Statement is consistent with the information contained in the completed and executed Form W-8 or W-9, as applicable, the Company shall enter the transfer on a Note Holder Ledger maintained by the Company for this purpose. Any purported transfer with respect to which all of the above steps have note been complied with shall be null and void and of no force or effect. 15. Entire Agreement; Written Modification Only. This Agreement contains ------------------------------------------- the entire agreement of the parties, and constitutes the complete, final and exclusive embodiment of their agreement with respect to its subject matter. This Agreement supersedes any and all prior correspondence, arrangements, representations and understandings, whether written or oral, express or implied, with respect to its subject matter. This Agreement may not be modified except by a written agreement, which specifically sets forth each modification and is signed by a duly authorized representative of both parties. This Agreement is executed without reliance upon any promise, warranty or representation by the parties or any of their representatives, other than such promises, warranties or representations as are expressly contained in this Agreement. 16. Severability. If any provision of this Agreement is deemed or held ------------ invalid or unenforceable in whole or in part, for any reason, that provision shall be deemed severed from the remainder of this Agreement, and shall in no way affect or impair the validity or enforceability of any portion or all of this Agreement, which otherwise shall remain in full force and effect. IN WITNESS WHEREOF, the Company has caused this Convertible Note to be executed in its corporate name by the signature of its president and secretary. MENDOCINO BREWING COMPANY, INC., a California corporation By: /s/ Yashpal Singh -------------------------------- Yashpal Singh Its: Chief Operating Officer By: /s/ P.A. Murali -------------------------------- P.A. Murali Its: Chief Financial Officer 15 EX-4 5 CONVERTIBLE NOTE DATED NOVEMBER 12, 1999 EXHIBIT 4 --------- CONVERTIBLE PROMISSORY NOTE MENDOCINO BREWING COMPANY, INC. _______________________________________________________________________________ Name of Issuer: Mendocino Brewing Company, Inc. Dated: November 12, 1999 Maturity Date: May 11, 2001 ________________________________________________________________________________ 1. Promise. Mendocino Brewing Company, Inc., a California ------- corporation having its principal office at 1601 Airport Road, Ukiah, California 95482 and any successor (the "Company"), for value received, promises to pay to United Breweries of America Inc., a Delaware corporation or to its registered successors or assigns (the "Holder") the principal sum of One Hundred Thousand Dollars ($100,000) on presentation and surrender of this Convertible Note ("Note") on May 11, 2001 (the "Maturity Date"), and to pay interest on that principal sum at a rate equal to the lesser of (i) one and one-half percent (1.50%) per annum above the prime rate offered from time to time by the Bank of America in San Francisco, California, or (ii) ten percent (10%). Interest payments shall be paid quarterly on the first day of the months of April, July, October, and January of each year. Company may use any of the funds borrowed from Holder for any corporate purposes of Company, including paying obligations owed by Company to Holder. 2. Form of Payment. All payments under this Note shall be made in --------------- lawful money of the United States of America. The Company waives diligence, presentment, protest, demand and notice of protest, dishonor, and nonpayment of this Note. 3. Conversion/Redemption/Renewal. ----------------------------- (a) The Holder has the right, at the holder's option, at any time on or after the Maturity Date, to convert all or any portion of this Note into fully paid and nonassessable shares of common stock ("Common Stock") of the Company at the rate of one share of such Common Stock for each One Dollar and 50/100 ($1.50) (the "Conversion Rate") principal amount of this Note and any accrued but unpaid interest. The Holder agrees that all shares of Common Stock of the Company, issued by the Company upon the conversion of all or any part of this Note shall be restricted securities within the meaning of Rule 144(a) of the Securities Act of 1933. The Holder further agrees that any shares of Common Stock acquired by means of any conversion as set forth herein shall be further restricted by the terms and conditions set forth in that certain Shareholders' Agreement, dated October 24, 1997, by and among the Company, Holder, and the Original Partners (as such term is defined in the Shareholders' Agreement). (b) The conversion right set forth in this Section 3 is subject to any adjustment of the Conversion Rate set forth in Section 5 and Section 6, and is only exercisable upon the surrender of this Note for conversion at the office or agency to be maintained by the Company accompanied by instruments of transfer, in form satisfactory to the Company, duly executed by the registered holder. No fractional shares are issuable on any conversion, but in lieu of issuing fractional shares the Company shall pay for such fractional shares in cash. (c) At any time prior to seventeen (17) months from the date of this Note, the Holder may provide written notice to the Company requiring the Company to commence repay of the outstanding principal balance of this Note, together with any accrued but unpaid interest thereon, to Holder. In such case, commencing on the Maturity Date, Company shall pay Holder equal monthly installments of principal, together with any unpaid interest, over a period of five (5) years until all amounts due hereunder shall be repaid in full. (e) If Holder does not convert or redeem any or all of the principal amount of the Note into Common Stock on the Maturity Date, Holder has the right to extend the term of this Note for a period of time mutually agreed upon between Holder and the Company. At any time during such extension period, Holder shall have the right to convert all or any part of the outstanding principal amount of the Note plus accrued and unpaid interest into Common Stock as set forth in this Section 3. Moreover, at any time during such extension period, Holder shall have the right to require the Company to repay all or any part of the outstanding principal balance of this Note, together with any accrued but unpaid interest thereon, to Holder within sixty (60) days. 4. Company Redemption. Prior to the Maturity Date, this Note may be ------------------ redeemed by the Company, in whole or in part, at any time after sixty (60) days written notice ("Redemption Notice") to Holder. During such sixty (60) day period, Holder shall have the right to convert all or any part of the outstanding principal amount of the Note plus accrued and unpaid interest into Common Stock, as set forth in Section 3. If Holder does not convert all outstanding amounts into Common Stock, the Company may redeem any remaining amounts at any time during a thirty (30) day period commencing with the date of expiration of the sixty (60) day period provided for in the Redemption Notice. Thereafter, Company shall be required to provide Holder with a new Redemption Notice, and Holder shall have a new sixty (60) day period within which to convert all 16 or any part of the outstanding principal amounts plus accrued and unpaid interest into Common Stock, as set forth in Section 3. 5. Anti-Dilution. ------------- (a) If at any time there is a capital reorganization of the Company's Common Stock, including any combination, reclassification, exchange, or subdivision of shares, a merger or consolidation of the Company with or into another corporation, or the sale of all or substantially all the Company's properties and assets as, or substantially as, an entirety to another person, then, as a part of such reorganization, merger, consolidation, or sale, lawful provision shall be made so that Holder shall thereafter be entitled to receive on conversion of this Note, during the period specified in this Note, the number of shares of Common Stock of the Company, or of the successor corporation resulting from such merger or consolidation, to which a holder of the Common Stock deliverable on conversion of this Note would have been entitled on that event if this Note had been converted immediately before that event. In any such case, appropriate adjustment (as determined by the Company's board of directors) shall be made in applying this Note to the rights and the percentage interests of Holder after the reorganization, merger, consolidation, or sale to the end that this Note (including adjustment of the Conversion Rate) shall be applicable after that event, as near as reasonably may be, in relation to the shares of Common Stock deliverable after that event on conversion of this Note. The Company shall, not later than thirty (30) days prior to making such adjustment, give written notice ("Notice") by courier to Holder at the address of Holder shown on the Company's books. (b) Any Notice that is sent pursuant to Section 5(a) shall set forth, in reasonable detail, the event requiring the adjustment and the method by which the adjustment was calculated and shall specify the Conversion Rate then in effect after the adjustment and the increased or decreased number of shares of Common Stock to be received upon conversion of this Note. When appropriate, advance notice may be given and included as part of the notice required under other provisions of this Note. 6. Conversion Rate Protection. -------------------------- (a) If at any time, or from time to time, the Company issues or sells shares of Common Stock without consideration or for a consideration per share less than the Conversion Rate in effect immediately before that issue or sale, then and in each such case: (i) the Conversion Rate then in effect and the Conversion Rate applicable for any subsequent period shall be adjusted to a price (calculated to the nearest cent) determined by dividing: (y) the sum of (aa) the number of shares of Common Stock outstanding immediately before that issue or sale multiplied by the Conversion Rate in effect immediately before that issue or sale, plus (bb) the consideration, if any, received by the Company on that issue or sale, by (z) the number of shares of the Company's Common Stock outstanding immediately after that issue or sale; and (ii) Holder shall after that issue or sale, on conversion of this Note, be entitled to receive the number of shares of Common Stock equal to the number of shares that would otherwise, but for the adjustment provided for in Section 6(a)(i), be issuable on such conversion multiplied by a fraction, the numerator of which is the Conversion Rate then in effect and the denominator of which is the Conversion Rate in effect immediately after the adjustment provided for in Section 6(a)(i) on the date of conversion. No such adjustment shall be made in an amount less than Five Cents ($0.05), but any such amount shall be carried forward and given effect in the next adjustment, if any. (b) If the Company (i) grants any rights or options to subscribe for, purchase, or otherwise acquire shares of Common Stock, or (ii) issues or sells any security, other than this Note, which is convertible into shares of Common Stock, then the price per share of Common Stock issuable on the exercise of the rights or options or the conversion of the securities shall be calculated by dividing: (y) the total amount, if any, received or receivable by the Company as consideration for the granting of the rights or options or the issue or sale of the convertible securities, plus the minimum aggregate amount of additional consideration payable to the Company on exercise of the convertible securities, by (z) the maximum number of shares of Common Stock issuable on the exercise or conversion. (c) If the price per share so calculated is less than the Conversion Rate of this Note in effect immediately before the rights or options are granted or the convertible securities are issued or sold, the granting or issue or sale shall be considered to be an issue or sale for cash of the maximum number of shares of Common Stock so issuable on exercise or conversion at the price per share determined under this provision, and the Conversion Rate of this Note shall be adjusted as provided above to reflect (on the basis of that determination) the issue or sale. No further adjustment of the Conversion Rate shall be made as a result of the actual issuance of shares of Common Stock on the exercise of any such rights or options or the conversion of any such convertible securities. 17 (d) If such rights or options or convertible securities by their terms provide, with the passage of time or otherwise, for any increase in the amount of additional consideration payable to the Company or any decrease in the number of shares of Common Stock issuable on such exercise or exchange (by change of rate or otherwise), the Conversion Rate shall, when each such increase or decrease becomes effective, be readjusted to reflect the increase or decrease as far as it affects rights of exercise or conversion that have not expired before that time. (e) If, on the expiration of such rights or options or the rights of conversion of such convertible securities, any of them shall not have been exercised, the Conversion Rate shall be readjusted and will then be the same as it would have been had it originally been adjusted (or had the original adjustment not been required, as the case may be), on the basis that (y) the only shares of Common Stock so issued were the shares of Common Stock, if any, actually issued or sold on the exercise of such rights or options or rights of conversion of such convertible securities, and (z) such shares of Common Stock, if any, were issued or sold for the consideration actually received by the Company on such exercise plus the consideration, if any, actually received by the Company for granting all such rights or options or for issuing or selling all such convertible securities. (f) No adjustment of the Conversion Rate as provided in this Section 6(b) shall occur upon the granting or issuance of stock, stock options, or warrants to employees or directors of the Company in the aggregate amount of less than six hundred thousand (600,000) shares of Common Stock. 7. Subordination. ------------- (a) Upon the written agreement of Holder, this Note may be subordinated to any or all debt owed by the Company to banks and other financial institutions, other than to the extent debt to any such bank or financial institution involves the issuance of shares of the Company's stock or notes, warrants, options or any other security convertible into such stock. (b) The payment of the indebtedness evidenced by this instrument is subordinated to the payment of the "Senior Debt" defined and described in the Subordination Agreement, dated as of September 24, 1998, between United Breweries of America Inc. and the CIT Group/Credit Finance, Inc., as amended by that certain Amendment to Subordination Agreement, dated as of June 22, 1999, and reference is made to such Agreement for a full statement of the terms and conditions of such subordination. (c) The payment of the indebtedness evidenced by this instrument is subordinated to the payment of the "Senior Debt" defined and described in the Subordination Agreement, dated on or about November 15, 1998, between United Breweries of America Inc. and the Savings Bank of Mendocino, Inc., and reference is made to such Agreement for a full statement of the terms and conditions of such subordination. 8. Enforcement. The Company agrees to reimburse Holder for all costs ----------- of collection or enforcement of this Note, whether or not suit is filed (including, but not limited to, reasonable attorney fees), incurred by Holder. 9. Governing Law. This Note shall be governed by and construed in ------------- accordance with the laws, without regard to the laws as to choice or conflict of laws, of the State of California. 10. Default. If Company fails to pay any installment of principal or ------- interest when due, then, or at any time during such default, the entire amount of the unpaid principal and interest shall, at the election of Holder, become immediately due and payable. 11. Waiver. No previous waiver and no failure or delay by Holder in ------ acting with respect to the terms of this Note shall constitute a waiver of any subsequent breach, default or failure of condition under this Note. A waiver of any term of this Note must be in writing and shall be limited to the express written terms of such waiver. No delay or omission on the part of Holder in exercising any right under this Note shall operate as a waiver of such right or of any other right. 12. Reservation of Stock. The Company covenants that it will at all -------------------- times reserve and keep available, solely for issuance on conversion of this Note, all shares of Common Stock from time to time issuable upon exercise of this Note. 13. Replacement. Upon receipt of evidence reasonably satisfactory to ----------- the Company, of the loss, theft, destruction, or modification of this Note and, in the event of such occurrence, on delivery of an indemnity agreement or Note reasonably satisfactory in form and amount to the Company or in the case of mutilation, on surrender and cancellation of this Note, the Company at its expense will execute and deliver, in lieu of this Note, a new Note of like tender. 18 14. Transfer. NO SALE OR TRANSFER OF THIS NOTE SHALL BE EFFECTIVE UNLESS -------- AND UNTIL ALL OF THE FOLLOWING STEPS ARE COMPLIED WITH: (a) The transferor and the transferee shall execute the form of Transfer Statement attached to this Note (or a similar statement which shall then be attached to this Note); (b) This Note and the executed Transfer Statement, together with a United States Internal Revenue Service Form W-8 "Certificate of Foreign Status" or a Form W-9 "Request for Taxpayer Identification Number and Certification" - -- completed and executed by the transferee, shall be delivered to the Company at the Company's address as provided above; and (c) If the Company is satisfied that the information contained in the Transfer Statement is consistent with the information contained in the completed and executed Form W-8 or W-9, as applicable, the Company shall enter the transfer on a Note Holder Ledger maintained by the Company for this purpose. Any purported transfer with respect to which all of the above steps have note been complied with shall be null and void and of no force or effect. 15. Entire Agreement; Written Modification Only. This Agreement contains ------------------------------------------- the entire agreement of the parties, and constitutes the complete, final and exclusive embodiment of their agreement with respect to its subject matter. This Agreement supersedes any and all prior correspondence, arrangements, representations and understandings, whether written or oral, express or implied, with respect to its subject matter. This Agreement may not be modified except by a written agreement, which specifically sets forth each modification and is signed by a duly authorized representative of both parties. This Agreement is executed without reliance upon any promise, warranty or representation by the parties or any of their representatives, other than such promises, warranties or representations as are expressly contained in this Agreement. 16. Severability. If any provision of this Agreement is deemed or held ------------ invalid or unenforceable in whole or in part, for any reason, that provision shall be deemed severed from the remainder of this Agreement, and shall in no way affect or impair the validity or enforceability of any portion or all of this Agreement, which otherwise shall remain in full force and effect. IN WITNESS WHEREOF, the Company has caused this Convertible Note to be executed in its corporate name by the signature of its president and secretary. MENDOCINO BREWING COMPANY, INC., a California corporation By: /s/ Yashpal Singh -------------------------------- Yashpal Singh Its: Chief Operating Officer By: /s/ P.A. Murali -------------------------------- P.A. Murali Its: Chief Financial Officer 19 EX-5 6 CONVERTIBLE NOTE DATED DECEMBER 17, 1999 EXHIBIT 5 --------- CONVERTIBLE PROMISSORY NOTE MENDOCINO BREWING COMPANY, INC. _______________________________________________________________________________ Name of Issuer: Mendocino Brewing Company, Inc. Dated: December 17, 1999 Maturity Date: June 16, 2001 ________________________________________________________________________________ 1. Promise. Mendocino Brewing Company, Inc., a California ------- corporation having its principal office at 1601 Airport Road, Ukiah, California 95482 and any successor (the "Company"), for value received, promises to pay to United Breweries of America Inc., a Delaware corporation or to its registered successors or assigns (the "Holder") the principal sum of One Hundred Fifty Thousand Dollars ($150,000) on presentation and surrender of this Convertible Note ("Note") on June 16, 2001 (the "Maturity Date"), and to pay interest on that principal sum at a rate equal to the lesser of (i) one and one-half percent (1.50%) per annum above the prime rate offered from time to time by the Bank of America in San Francisco, California, or (ii) ten percent (10%). Interest payments shall be paid quarterly on the first day of the months of April, July, October, and January of each year. Company may use any of the funds borrowed from Holder for any corporate purposes of Company, including paying obligations owed by Company to Holder. 2. Form of Payment. All payments under this Note shall be made in --------------- lawful money of the United States of America. The Company waives diligence, presentment, protest, demand and notice of protest, dishonor, and nonpayment of this Note. 3. Conversion/Redemption/Renewal. ----------------------------- (a) The Holder has the right, at the holder's option, at any time on or after the Maturity Date, to convert all or any portion of this Note into fully paid and nonassessable shares of common stock ("Common Stock") of the Company at the rate of one share of such Common Stock for each One Dollar and 50/100 ($1.50) (the "Conversion Rate") principal amount of this Note and any accrued but unpaid interest. The Holder agrees that all shares of Common Stock of the Company, issued by the Company upon the conversion of all or any part of this Note shall be restricted securities within the meaning of Rule 144(a) of the Securities Act of 1933. The Holder further agrees that any shares of Common Stock acquired by means of any conversion as set forth herein shall be further restricted by the terms and conditions set forth in that certain Shareholders' Agreement, dated October 24, 1997, by and among the Company, Holder, and the Original Partners (as such term is defined in the Shareholders' Agreement). (b) The conversion right set forth in this Section 3 is subject to any adjustment of the Conversion Rate set forth in Section 5 and Section 6, and is only exercisable upon the surrender of this Note for conversion at the office or agency to be maintained by the Company accompanied by instruments of transfer, in form satisfactory to the Company, duly executed by the registered holder. No fractional shares are issuable on any conversion, but in lieu of issuing fractional shares the Company shall pay for such fractional shares in cash. (c) At any time prior to seventeen (17) months from the date of this Note, the Holder may provide written notice to the Company requiring the Company to commence repay of the outstanding principal balance of this Note, together with any accrued but unpaid interest thereon, to Holder. In such case, commencing on the Maturity Date, Company shall pay Holder equal monthly installments of principal, together with any unpaid interest, over a period of five (5) years until all amounts due hereunder shall be repaid in full. (d) If Holder does not convert or redeem any or all of the principal amount of the Note into Common Stock on the Maturity Date, Holder has the right to extend the term of this Note for a period of time mutually agreed upon between Holder and the Company. At any time during such extension period, Holder shall have the right to convert all or any part of the outstanding principal amount of the Note plus accrued and unpaid interest into Common Stock as set forth in this Section 3. Moreover, at any time during such extension period, Holder shall have the right to require the Company to repay all or any part of the outstanding principal balance of this Note, together with any accrued but unpaid interest thereon, to Holder within sixty (60) days. 4. Company Redemption. Prior to the Maturity Date, this Note may be ------------------ redeemed by the Company, in whole or in part, at any time after sixty (60) days written notice ("Redemption Notice") to Holder. During such sixty (60) day period, Holder shall have the right to convert all or any part of the outstanding principal amount of the Note plus accrued and unpaid interest into Common Stock, as set forth in Section 3. If Holder does not convert all outstanding amounts into Common Stock, the Company may redeem any remaining amounts at any time during a thirty (30) day period commencing with the date of expiration of the sixty (60) day period provided for in the Redemption Notice. Thereafter, Company shall be required to provide Holder with a new Redemption Notice, and Holder shall have a new sixty (60) day period within which to convert all 20 or any part of the outstanding principal amounts plus accrued and unpaid interest into Common Stock, as set forth in Section 3. 5. Anti-Dilution. ------------- (a) If at any time there is a capital reorganization of the Company's Common Stock, including any combination, reclassification, exchange, or subdivision of shares, a merger or consolidation of the Company with or into another corporation, or the sale of all or substantially all the Company's properties and assets as, or substantially as, an entirety to another person, then, as a part of such reorganization, merger, consolidation, or sale, lawful provision shall be made so that Holder shall thereafter be entitled to receive on conversion of this Note, during the period specified in this Note, the number of shares of Common Stock of the Company, or of the successor corporation resulting from such merger or consolidation, to which a holder of the Common Stock deliverable on conversion of this Note would have been entitled on that event if this Note had been converted immediately before that event. In any such case, appropriate adjustment (as determined by the Company's board of directors) shall be made in applying this Note to the rights and the percentage interests of Holder after the reorganization, merger, consolidation, or sale to the end that this Note (including adjustment of the Conversion Rate) shall be applicable after that event, as near as reasonably may be, in relation to the shares of Common Stock deliverable after that event on conversion of this Note. The Company shall, not later than thirty (30) days prior to making such adjustment, give written notice ("Notice") by courier to Holder at the address of Holder shown on the Company's books. (b) Any Notice that is sent pursuant to Section 5(a) shall set forth, in reasonable detail, the event requiring the adjustment and the method by which the adjustment was calculated and shall specify the Conversion Rate then in effect after the adjustment and the increased or decreased number of shares of Common Stock to be received upon conversion of this Note. When appropriate, advance notice may be given and included as part of the notice required under other provisions of this Note. 6. Conversion Rate Protection. -------------------------- (a) If at any time, or from time to time, the Company issues or sells shares of Common Stock without consideration or for a consideration per share less than the Conversion Rate in effect immediately before that issue or sale, then and in each such case: (iii) the Conversion Rate then in effect and the Conversion Rate applicable for any subsequent period shall be adjusted to a price (calculated to the nearest cent) determined by dividing: (y) the sum of (aa) the number of shares of Common Stock outstanding immediately before that issue or sale multiplied by the Conversion Rate in effect immediately before that issue or sale, plus (bb) the consideration, if any, received by the Company on that issue or sale, by (z) the number of shares of the Company's Common Stock outstanding immediately after that issue or sale; and (iv) Holder shall after that issue or sale, on conversion of this Note, be entitled to receive the number of shares of Common Stock equal to the number of shares that would otherwise, but for the adjustment provided for in Section 6(a)(i), be issuable on such conversion multiplied by a fraction, the numerator of which is the Conversion Rate then in effect and the denominator of which is the Conversion Rate in effect immediately after the adjustment provided for in Section 6(a)(i) on the date of conversion. No such adjustment shall be made in an amount less than Five Cents ($0.05), but any such amount shall be carried forward and given effect in the next adjustment, if any. (b) If the Company (i) grants any rights or options to subscribe for, purchase, or otherwise acquire shares of Common Stock, or (ii) issues or sells any security, other than this Note, which is convertible into shares of Common Stock, then the price per share of Common Stock issuable on the exercise of the rights or options or the conversion of the securities shall be calculated by dividing: (y) the total amount, if any, received or receivable by the Company as consideration for the granting of the rights or options or the issue or sale of the convertible securities, plus the minimum aggregate amount of additional consideration payable to the Company on exercise of the convertible securities, by (z) the maximum number of shares of Common Stock issuable on the exercise or conversion. (i) If the price per share so calculated is less than the Conversion Rate of this Note in effect immediately before the rights or options are granted or the convertible securities are issued or sold, the granting or issue or sale shall be considered to be an issue or sale for cash of the maximum number of shares of Common Stock so issuable on exercise or conversion at the price per share determined under this provision, and the Conversion Rate of this Note shall be adjusted as provided above to reflect (on the basis of that determination) the issue or sale. No further adjustment of the Conversion Rate shall be made as a result of the actual issuance of shares of Common Stock on the exercise of any such rights or options or the conversion of any such convertible securities. 21 (ii) If such rights or options or convertible securities by their terms provide, with the passage of time or otherwise, for any increase in the amount of additional consideration payable to the Company or any decrease in the number of shares of Common Stock issuable on such exercise or exchange (by change of rate or otherwise), the Conversion Rate shall, when each such increase or decrease becomes effective, be readjusted to reflect the increase or decrease as far as it affects rights of exercise or conversion that have not expired before that time. (iii) If, on the expiration of such rights or options or the rights of conversion of such convertible securities, any of them shall not have been exercised, the Conversion Rate shall be readjusted and will then be the same as it would have been had it originally been adjusted (or had the original adjustment not been required, as the case may be), on the basis that (y) the only shares of Common Stock so issued were the shares of Common Stock, if any, actually issued or sold on the exercise of such rights or options or rights of conversion of such convertible securities, and (z) such shares of Common Stock, if any, were issued or sold for the consideration actually received by the Company on such exercise plus the consideration, if any, actually received by the Company for granting all such rights or options or for issuing or selling all such convertible securities. (iv) No adjustment of the Conversion Rate as provided in this Section 6(b) shall occur upon the granting or issuance of stock, stock options, or warrants to employees or directors of the Company in the aggregate amount of less than six hundred thousand (600,000) shares of Common Stock. 7. Subordination. ------------- (a) Upon the written agreement of Holder, this Note may be subordinated to any or all debt owed by the Company to banks and other financial institutions, other than to the extent debt to any such bank or financial institution involves the issuance of shares of the Company's stock or notes, warrants, options or any other security convertible into such stock. (b) The payment of the indebtedness evidenced by this instrument is subordinated to the payment of the "Senior Debt" defined and described in the Subordination Agreement, dated as of September 24, 1998, between United Breweries of America Inc. and the CIT Group/Credit Finance, Inc., as amended by that certain Amendment to Subordination Agreement, dated as of June 22, 1999, and reference is made to such Agreement for a full statement of the terms and conditions of such subordination. (c) The payment of the indebtedness evidenced by this instrument is subordinated to the payment of the "Senior Debt" defined and described in the Subordination Agreement, dated on or about November 15, 1998, between United Breweries of America Inc. and the Savings Bank of Mendocino, Inc., and reference is made to such Agreement for a full statement of the terms and conditions of such subordination. 8. Enforcement. The Company agrees to reimburse Holder for all costs of ----------- collection or enforcement of this Note, whether or not suit is filed (including, but not limited to, reasonable attorney fees), incurred by Holder. 9. Governing Law. This Note shall be governed by and construed in ------------- accordance with the laws, without regard to the laws as to choice or conflict of laws, of the State of California. 10. Default. If Company fails to pay any installment of principal or ------- interest when due, then, or at any time during such default, the entire amount of the unpaid principal and interest shall, at the election of Holder, become immediately due and payable. 11. Waiver. No previous waiver and no failure or delay by Holder in ------ acting with respect to the terms of this Note shall constitute a waiver of any subsequent breach, default or failure of condition under this Note. A waiver of any term of this Note must be in writing and shall be limited to the express written terms of such waiver. No delay or omission on the part of Holder in exercising any right under this Note shall operate as a waiver of such right or of any other right. 12. Reservation of Stock. The Company covenants that it will at all -------------------- times reserve and keep available, solely for issuance on conversion of this Note, all shares of Common Stock from time to time issuable upon exercise of this Note. 13. Replacement. Upon receipt of evidence reasonably satisfactory to ----------- the Company, of the loss, theft, destruction, or modification of this Note and, in the event of such occurrence, on delivery of an indemnity agreement or Note reasonably satisfactory in form and amount to the Company or in the case of mutilation, on surrender and cancellation of this Note, the Company at its expense will execute and deliver, in lieu of this Note, a new Note of like tender. 22 14. Transfer. NO SALE OR TRANSFER OF THIS NOTE SHALL BE EFFECTIVE UNLESS -------- AND UNTIL ALL OF THE FOLLOWING STEPS ARE COMPLIED WITH: (a) The transferor and the transferee shall execute the form of Transfer Statement attached to this Note (or a similar statement which shall then be attached to this Note); (b) This Note and the executed Transfer Statement, together with a United States Internal Revenue Service Form W-8 "Certificate of Foreign Status" or a Form W-9 "Request for Taxpayer Identification Number and Certification" - -- completed and executed by the transferee, shall be delivered to the Company at the Company's address as provided above; and (c) If the Company is satisfied that the information contained in the Transfer Statement is consistent with the information contained in the completed and executed Form W-8 or W-9, as applicable, the Company shall enter the transfer on a Note Holder Ledger maintained by the Company for this purpose. Any purported transfer with respect to which all of the above steps have note been complied with shall be null and void and of no force or effect. 15. Entire Agreement; Written Modification Only. This Agreement contains ------------------------------------------- the entire agreement of the parties, and constitutes the complete, final and exclusive embodiment of their agreement with respect to its subject matter. This Agreement supersedes any and all prior correspondence, arrangements, representations and understandings, whether written or oral, express or implied, with respect to its subject matter. This Agreement may not be modified except by a written agreement, which specifically sets forth each modification and is signed by a duly authorized representative of both parties. This Agreement is executed without reliance upon any promise, warranty or representation by the parties or any of their representatives, other than such promises, warranties or representations as are expressly contained in this Agreement. 16. Severability. If any provision of this Agreement is deemed or held ------------ invalid or unenforceable in whole or in part, for any reason, that provision shall be deemed severed from the remainder of this Agreement, and shall in no way affect or impair the validity or enforceability of any portion or all of this Agreement, which otherwise shall remain in full force and effect. IN WITNESS WHEREOF, the Company has caused this Convertible Note to be executed in its corporate name by the signature of its president and secretary. MENDOCINO BREWING COMPANY, INC., a California corporation By: /s/ Yashpal Singh -------------------------------- Yashpal Singh Its: Chief Operating Officer By: /s/ P.A. Murali -------------------------------- P.A. Murali Its: Chief Financial Officer 23 EX-6 7 CONVERTIBLE NOTE DATED DECEMBER 31, 1999 EXHIBIT 6 --------- CONVERTIBLE PROMISSORY NOTE MENDOCINO BREWING COMPANY, INC. _______________________________________________________________________________ Name of Issuer: Mendocino Brewing Company, Inc. Dated: December 31, 1999 Maturity Date: June 30, 2001 _______________________________________________________________________________ 1. Promise. Mendocino Brewing Company, Inc., a California ------- corporation having its principal office at 1601 Airport Road, Ukiah, California 95482 and any successor (the "Company"), for value received, promises to pay to United Breweries of America Inc., a Delaware corporation or to its registered successors or assigns (the "Holder") the principal sum of Ten Thousand Sixty Two Dollars ($10,062) on presentation and surrender of this Convertible Note ("Note") on June 30, 2001 (the "Maturity Date"), and to pay interest on that principal sum at a rate equal to the lesser of (i) one and one-half percent (1.50%) per annum above the prime rate offered from time to time by the Bank of America in San Francisco, California, or (ii) ten percent (10%). Interest payments shall be paid quarterly on the first day of the months of April, July, October, and January of each year. Company may use any of the funds borrowed from Holder for any corporate purposes of Company, including paying obligations owed by Company to Holder. 2. Form of Payment. All payments under this Note shall be made in --------------- lawful money of the United States of America. The Company waives diligence, presentment, protest, demand and notice of protest, dishonor, and nonpayment of this Note. 3. Conversion/Redemption/Renewal. ----------------------------- (a) The Holder has the right, at the holder's option, at any time on or after the Maturity Date, to convert all or any portion of this Note into fully paid and nonassessable shares of common stock ("Common Stock") of the Company at the rate of one share of such Common Stock for each One Dollar and 50/100 ($1.50) (the "Conversion Rate") principal amount of this Note and any accrued but unpaid interest. The Holder agrees that all shares of Common Stock of the Company, issued by the Company upon the conversion of all or any part of this Note shall be restricted securities within the meaning of Rule 144(a) of the Securities Act of 1933. The Holder further agrees that any shares of Common Stock acquired by means of any conversion as set forth herein shall be further restricted by the terms and conditions set forth in that certain Shareholders' Agreement, dated October 24, 1997, by and among the Company, Holder, and the Original Partners (as such term is defined in the Shareholders' Agreement). (b) The conversion right set forth in this Section 3 is subject to any adjustment of the Conversion Rate set forth in Section 5 and Section 6, and is only exercisable upon the surrender of this Note for conversion at the office or agency to be maintained by the Company accompanied by instruments of transfer, in form satisfactory to the Company, duly executed by the registered holder. No fractional shares are issuable on any conversion, but in lieu of issuing fractional shares the Company shall pay for such fractional shares in cash. (c) At any time prior to seventeen (17) months from the date of this Note, the Holder may provide written notice to the Company requiring the Company to commence repay of the outstanding principal balance of this Note, together with any accrued but unpaid interest thereon, to Holder. In such case, commencing on the Maturity Date, Company shall pay Holder equal monthly installments of principal, together with any unpaid interest, over a period of five (5) years until all amounts due hereunder shall be repaid in full. (d) If Holder does not convert or redeem any or all of the principal amount of the Note into Common Stock on the Maturity Date, Holder has the right to extend the term of this Note for a period of time mutually agreed upon between Holder and the Company. At any time during such extension period, Holder shall have the right to convert all or any part of the outstanding principal amount of the Note plus accrued and unpaid interest into Common Stock as set forth in this Section 3. Moreover, at any time during such extension period, Holder shall have the right to require the Company to repay all or any part of the outstanding principal balance of this Note, together with any accrued but unpaid interest thereon, to Holder within sixty (60) days. 4. Company Redemption. Prior to the Maturity Date, this Note may be ------------------ redeemed by the Company, in whole or in part, at any time after sixty (60) days written notice ("Redemption Notice") to Holder. During such sixty (60) day period, Holder shall have the right to convert all or any part of the outstanding principal amount of the Note plus accrued and unpaid interest into Common Stock, as set forth in Section 3. If Holder does not convert all outstanding amounts into Common Stock, the Company may redeem any remaining amounts at any time during a thirty (30) day period commencing with the date of expiration of the sixty (60) day period provided for in the Redemption Notice. Thereafter, Company shall be required to provide Holder with a new Redemption Notice, and Holder shall have a new sixty (60) day period within which to convert all 24 or any part of the outstanding principal amounts plus accrued and unpaid interest into Common Stock, as set forth in Section 3. 5. Anti-Dilution. ------------- (a) If at any time there is a capital reorganization of the Company's Common Stock, including any combination, reclassification, exchange, or subdivision of shares, a merger or consolidation of the Company with or into another corporation, or the sale of all or substantially all the Company's properties and assets as, or substantially as, an entirety to another person, then, as a part of such reorganization, merger, consolidation, or sale, lawful provision shall be made so that Holder shall thereafter be entitled to receive on conversion of this Note, during the period specified in this Note, the number of shares of Common Stock of the Company, or of the successor corporation resulting from such merger or consolidation, to which a holder of the Common Stock deliverable on conversion of this Note would have been entitled on that event if this Note had been converted immediately before that event. In any such case, appropriate adjustment (as determined by the Company's board of directors) shall be made in applying this Note to the rights and the percentage interests of Holder after the reorganization, merger, consolidation, or sale to the end that this Note (including adjustment of the Conversion Rate) shall be applicable after that event, as near as reasonably may be, in relation to the shares of Common Stock deliverable after that event on conversion of this Note. The Company shall, not later than thirty (30) days prior to making such adjustment, give written notice ("Notice") by courier to Holder at the address of Holder shown on the Company's books. (b) Any Notice that is sent pursuant to Section 5(a) shall set forth, in reasonable detail, the event requiring the adjustment and the method by which the adjustment was calculated and shall specify the Conversion Rate then in effect after the adjustment and the increased or decreased number of shares of Common Stock to be received upon conversion of this Note. When appropriate, advance notice may be given and included as part of the notice required under other provisions of this Note. 6. Conversion Rate Protection. -------------------------- (a) If at any time, or from time to time, the Company issues or sells shares of Common Stock without consideration or for a consideration per share less than the Conversion Rate in effect immediately before that issue or sale, then and in each such case: (v) the Conversion Rate then in effect and the Conversion Rate applicable for any subsequent period shall be adjusted to a price (calculated to the nearest cent) determined by dividing: (y) the sum of (aa) the number of shares of Common Stock outstanding immediately before that issue or sale multiplied by the Conversion Rate in effect immediately before that issue or sale, plus (bb) the consideration, if any, received by the Company on that issue or sale, by (z) the number of shares of the Company's Common Stock outstanding immediately after that issue or sale; and (vi) Holder shall after that issue or sale, on conversion of this Note, be entitled to receive the number of shares of Common Stock equal to the number of shares that would otherwise, but for the adjustment provided for in Section 6(a)(i), be issuable on such conversion multiplied by a fraction, the numerator of which is the Conversion Rate then in effect and the denominator of which is the Conversion Rate in effect immediately after the adjustment provided for in Section 6(a)(i) on the date of conversion. No such adjustment shall be made in an amount less than Five Cents ($0.05), but any such amount shall be carried forward and given effect in the next adjustment, if any. (b) If the Company (i) grants any rights or options to subscribe for, purchase, or otherwise acquire shares of Common Stock, or (ii) issues or sells any security, other than this Note, which is convertible into shares of Common Stock, then the price per share of Common Stock issuable on the exercise of the rights or options or the conversion of the securities shall be calculated by dividing: (y) the total amount, if any, received or receivable by the Company as consideration for the granting of the rights or options or the issue or sale of the convertible securities, plus the minimum aggregate amount of additional consideration payable to the Company on exercise of the convertible securities, by (z) the maximum number of shares of Common Stock issuable on the exercise or conversion. (i) If the price per share so calculated is less than the Conversion Rate of this Note in effect immediately before the rights or options are granted or the convertible securities are issued or sold, the granting or issue or sale shall be considered to be an issue or sale for cash of the maximum number of shares of Common Stock so issuable on exercise or conversion at the price per share determined under this provision, and the Conversion Rate of this Note shall be adjusted as provided above to reflect (on the basis of that determination) the issue or sale. No further adjustment of the Conversion Rate shall be made as a result of the actual issuance of shares of Common Stock on the exercise of any such rights or options or the conversion of any such convertible securities. 25 (ii) If such rights or options or convertible securities by their terms provide, with the passage of time or otherwise, for any increase in the amount of additional consideration payable to the Company or any decrease in the number of shares of Common Stock issuable on such exercise or exchange (by change of rate or otherwise), the Conversion Rate shall, when each such increase or decrease becomes effective, be readjusted to reflect the increase or decrease as far as it affects rights of exercise or conversion that have not expired before that time. (iii) If, on the expiration of such rights or options or the rights of conversion of such convertible securities, any of them shall not have been exercised, the Conversion Rate shall be readjusted and will then be the same as it would have been had it originally been adjusted (or had the original adjustment not been required, as the case may be), on the basis that (y) the only shares of Common Stock so issued were the shares of Common Stock, if any, actually issued or sold on the exercise of such rights or options or rights of conversion of such convertible securities, and (z) such shares of Common Stock, if any, were issued or sold for the consideration actually received by the Company on such exercise plus the consideration, if any, actually received by the Company for granting all such rights or options or for issuing or selling all such convertible securities. (iv) No adjustment of the Conversion Rate as provided in this Section 6(b) shall occur upon the granting or issuance of stock, stock options, or warrants to employees or directors of the Company in the aggregate amount of less than six hundred thousand (600,000) shares of Common Stock. 7. Subordination. ------------- (a) Upon the written agreement of Holder, this Note may be subordinated to any or all debt owed by the Company to banks and other financial institutions, other than to the extent debt to any such bank or financial institution involves the issuance of shares of the Company's stock or notes, warrants, options or any other security convertible into such stock. (b) The payment of the indebtedness evidenced by this instrument is subordinated to the payment of the "Senior Debt" defined and described in the Subordination Agreement, dated as of September 24, 1998, between United Breweries of America Inc. and the CIT Group/Credit Finance, Inc., as amended by that certain Amendment to Subordination Agreement, dated as of June 22, 1999, and reference is made to such Agreement for a full statement of the terms and conditions of such subordination. (c) The payment of the indebtedness evidenced by this instrument is subordinated to the payment of the "Senior Debt" defined and described in the Subordination Agreement, dated on or about November 15, 1998, between United Breweries of America Inc. and the Savings Bank of Mendocino, Inc., and reference is made to such Agreement for a full statement of the terms and conditions of such subordination. 8. Enforcement. The Company agrees to reimburse Holder for all costs of ----------- collection or enforcement of this Note, whether or not suit is filed (including, but not limited to, reasonable attorney fees), incurred by Holder. 9. Governing Law. This Note shall be governed by and construed in ------------- accordance with the laws, without regard to the laws as to choice or conflict of laws, of the State of California. 10. Default. If Company fails to pay any installment of principal or ------- interest when due, then, or at any time during such default, the entire amount of the unpaid principal and interest shall, at the election of Holder, become immediately due and payable. 11. Waiver. No previous waiver and no failure or delay by Holder in ------ acting with respect to the terms of this Note shall constitute a waiver of any subsequent breach, default or failure of condition under this Note. A waiver of any term of this Note must be in writing and shall be limited to the express written terms of such waiver. No delay or omission on the part of Holder in exercising any right under this Note shall operate as a waiver of such right or of any other right. 12. Reservation of Stock. The Company covenants that it will at all -------------------- times reserve and keep available, solely for issuance on conversion of this Note, all shares of Common Stock from time to time issuable upon exercise of this Note. 13. Replacement. Upon receipt of evidence reasonably satisfactory to ----------- the Company, of the loss, theft, destruction, or modification of this Note and, in the event of such occurrence, on delivery of an indemnity agreement or Note reasonably satisfactory in form and amount to the Company or in the case of mutilation, on surrender and cancellation of this Note, the Company at its expense will execute and deliver, in lieu of this Note, a new Note of like tender. 26 14. Transfer. NO SALE OR TRANSFER OF THIS NOTE SHALL BE EFFECTIVE UNLESS -------- AND UNTIL ALL OF THE FOLLOWING STEPS ARE COMPLIED WITH: (a) The transferor and the transferee shall execute the form of Transfer Statement attached to this Note (or a similar statement which shall then be attached to this Note); (b) This Note and the executed Transfer Statement, together with a United States Internal Revenue Service Form W-8 "Certificate of Foreign Status" or a Form W-9 "Request for Taxpayer Identification Number and Certification" - -- completed and executed by the transferee, shall be delivered to the Company at the Company's address as provided above; and (c) If the Company is satisfied that the information contained in the Transfer Statement is consistent with the information contained in the completed and executed Form W-8 or W-9, as applicable, the Company shall enter the transfer on a Note Holder Ledger maintained by the Company for this purpose. Any purported transfer with respect to which all of the above steps have note been complied with shall be null and void and of no force or effect. 15. Entire Agreement; Written Modification Only. This Agreement contains ------------------------------------------- the entire agreement of the parties, and constitutes the complete, final and exclusive embodiment of their agreement with respect to its subject matter. This Agreement supersedes any and all prior correspondence, arrangements, representations and understandings, whether written or oral, express or implied, with respect to its subject matter. This Agreement may not be modified except by a written agreement, which specifically sets forth each modification and is signed by a duly authorized representative of both parties. This Agreement is executed without reliance upon any promise, warranty or representation by the parties or any of their representatives, other than such promises, warranties or representations as are expressly contained in this Agreement. 16. Severability. If any provision of this Agreement is deemed or held ------------ invalid or unenforceable in whole or in part, for any reason, that provision shall be deemed severed from the remainder of this Agreement, and shall in no way affect or impair the validity or enforceability of any portion or all of this Agreement, which otherwise shall remain in full force and effect. IN WITNESS WHEREOF, the Company has caused this Convertible Note to be executed in its corporate name by the signature of its president and secretary. MENDOCINO BREWING COMPANY, INC., a California corporation By: /s/ Yashpal Singh -------------------------------- Yashpal Singh Its: Chief Operating Officer By: /s/ P.A. Murali -------------------------------- P.A. Murali Its: Chief Financial Officer 27 EX-7 8 CONVERTIBLE NOTE DATED FEBRUARY 15, 2000 EXHIBIT 7 --------- CONVERTIBLE PROMISSORY NOTE MENDOCINO BREWING COMPANY, INC. _______________________________________________________________________________ Name of Issuer: Mendocino Brewing Company, Inc. Dated: February 16, 2000 Maturity Date: August 15, 2001 _______________________________________________________________________________ 1. Promise. Mendocino Brewing Company, Inc., a California ------- corporation having its principal office at 1601 Airport Road, Ukiah, California 95482 and any successor (the "Company"), for value received, promises to pay to United Breweries of America Inc., a Delaware corporation or to its registered successors or assigns (the "Holder") the principal sum of One Hundred Thousand Dollars ($100,000) on presentation and surrender of this Convertible Note ("Note") on August 15, 2001 (the "Maturity Date"), and to pay interest on that principal sum at a rate equal to the lesser of (i) one and one-half percent (1.50%) per annum above the prime rate offered from time to time by the Bank of America in San Francisco, California, or (ii) ten percent (10%). Interest payments shall be paid quarterly on the first day of the months of April, July, October, and January of each year. Company may use any of the funds borrowed from Holder for any corporate purposes of Company, including paying obligations owed by Company to Holder. 2. Form of Payment. All payments under this Note shall be made in --------------- lawful money of the United States of America. The Company waives diligence, presentment, protest, demand and notice of protest, dishonor, and nonpayment of this Note. 3. Conversion/Redemption/Renewal. ----------------------------- (a) The Holder has the right, at the holder's option, at any time on or after the Maturity Date, to convert all or any portion of this Note into fully paid and nonassessable shares of common stock ("Common Stock") of the Company at the rate of one share of such Common Stock for each One Dollar and 50/100 ($1.50) (the "Conversion Rate") principal amount of this Note and any accrued but unpaid interest. The Holder agrees that all shares of Common Stock of the Company, issued by the Company upon the conversion of all or any part of this Note shall be restricted securities within the meaning of Rule 144(a) of the Securities Act of 1933. The Holder further agrees that any shares of Common Stock acquired by means of any conversion as set forth herein shall be further restricted by the terms and conditions set forth in that certain Shareholders' Agreement, dated October 24, 1997, by and among the Company, Holder, and the Original Partners (as such term is defined in the Shareholders' Agreement). (b) The conversion right set forth in this Section 3 is subject to any adjustment of the Conversion Rate set forth in Section 5 and Section 6, and is only exercisable upon the surrender of this Note for conversion at the office or agency to be maintained by the Company accompanied by instruments of transfer, in form satisfactory to the Company, duly executed by the registered holder. No fractional shares are issuable on any conversion, but in lieu of issuing fractional shares the Company shall pay for such fractional shares in cash. (c) At any time prior to seventeen (17) months from the date of this Note, the Holder may provide written notice to the Company requiring the Company to commence repay of the outstanding principal balance of this Note, together with any accrued but unpaid interest thereon, to Holder. In such case, commencing on the Maturity Date, Company shall pay Holder equal monthly installments of principal, together with any unpaid interest, over a period of five (5) years until all amounts due hereunder shall be repaid in full. (d) If Holder does not convert or redeem any or all of the principal amount of the Note into Common Stock on the Maturity Date, Holder has the right to extend the term of this Note for a period of time mutually agreed upon between Holder and the Company. At any time during such extension period, Holder shall have the right to convert all or any part of the outstanding principal amount of the Note plus accrued and unpaid interest into Common Stock as set forth in this Section 3. Moreover, at any time during such extension period, Holder shall have the right to require the Company to repay all or any part of the outstanding principal balance of this Note, together with any accrued but unpaid interest thereon, to Holder within sixty (60) days. 4. Company Redemption. Prior to the Maturity Date, this Note may be ------------------ redeemed by the Company, in whole or in part, at any time after sixty (60) days written notice ("Redemption Notice") to Holder. During such sixty (60) day period, Holder shall have the right to convert all or any part of the outstanding principal amount of the Note plus accrued and unpaid interest into Common Stock, as set forth in Section 3. If Holder does not convert all outstanding amounts into Common Stock, the Company may redeem any remaining amounts at any time during a thirty (30) day period commencing with the date of expiration of the sixty (60) day period provided for in the Redemption Notice. Thereafter, Company shall be required to provide Holder with a new Redemption Notice, and Holder shall have a new sixty (60) day period within which to convert all 28 or any part of the outstanding principal amounts plus accrued and unpaid interest into Common Stock, as set forth in Section 3. 5. Anti-Dilution. ------------- (a) If at any time there is a capital reorganization of the Company's Common Stock, including any combination, reclassification, exchange, or subdivision of shares, a merger or consolidation of the Company with or into another corporation, or the sale of all or substantially all the Company's properties and assets as, or substantially as, an entirety to another person, then, as a part of such reorganization, merger, consolidation, or sale, lawful provision shall be made so that Holder shall thereafter be entitled to receive on conversion of this Note, during the period specified in this Note, the number of shares of Common Stock of the Company, or of the successor corporation resulting from such merger or consolidation, to which a holder of the Common Stock deliverable on conversion of this Note would have been entitled on that event if this Note had been converted immediately before that event. In any such case, appropriate adjustment (as determined by the Company's board of directors) shall be made in applying this Note to the rights and the percentage interests of Holder after the reorganization, merger, consolidation, or sale to the end that this Note (including adjustment of the Conversion Rate) shall be applicable after that event, as near as reasonably may be, in relation to the shares of Common Stock deliverable after that event on conversion of this Note. The Company shall, not later than thirty (30) days prior to making such adjustment, give written notice ("Notice") by courier to Holder at the address of Holder shown on the Company's books. (b) Any Notice that is sent pursuant to Section 5(a) shall set forth, in reasonable detail, the event requiring the adjustment and the method by which the adjustment was calculated and shall specify the Conversion Rate then in effect after the adjustment and the increased or decreased number of shares of Common Stock to be received upon conversion of this Note. When appropriate, advance notice may be given and included as part of the notice required under other provisions of this Note. 6. Conversion Rate Protection. -------------------------- (a) If at any time, or from time to time, the Company issues or sells shares of Common Stock without consideration or for a consideration per share less than the Conversion Rate in effect immediately before that issue or sale, then and in each such case: (vii) the Conversion Rate then in effect and the Conversion Rate applicable for any subsequent period shall be adjusted to a price (calculated to the nearest cent) determined by dividing: (y) the sum of (aa) the number of shares of Common Stock outstanding immediately before that issue or sale multiplied by the Conversion Rate in effect immediately before that issue or sale, plus (bb) the consideration, if any, received by the Company on that issue or sale, by (z) the number of shares of the Company's Common Stock outstanding immediately after that issue or sale; and (viii) Holder shall after that issue or sale, on conversion of this Note, be entitled to receive the number of shares of Common Stock equal to the number of shares that would otherwise, but for the adjustment provided for in Section 6(a)(i), be issuable on such conversion multiplied by a fraction, the numerator of which is the Conversion Rate then in effect and the denominator of which is the Conversion Rate in effect immediately after the adjustment provided for in Section 6(a)(i) on the date of conversion. No such adjustment shall be made in an amount less than Five Cents ($0.05), but any such amount shall be carried forward and given effect in the next adjustment, if any. (b) If the Company (i) grants any rights or options to subscribe for, purchase, or otherwise acquire shares of Common Stock, or (ii) issues or sells any security, other than this Note, which is convertible into shares of Common Stock, then the price per share of Common Stock issuable on the exercise of the rights or options or the conversion of the securities shall be calculated by dividing: (y) the total amount, if any, received or receivable by the Company as consideration for the granting of the rights or options or the issue or sale of the convertible securities, plus the minimum aggregate amount of additional consideration payable to the Company on exercise of the convertible securities, by (z) the maximum number of shares of Common Stock issuable on the exercise or conversion. (i) If the price per share so calculated is less than the Conversion Rate of this Note in effect immediately before the rights or options are granted or the convertible securities are issued or sold, the granting or issue or sale shall be considered to be an issue or sale for cash of the maximum number of shares of Common Stock so issuable on exercise or conversion at the price per share determined under this provision, and the Conversion Rate of this Note shall be adjusted as provided above to reflect (on the basis of that determination) the issue or sale. No further adjustment of the Conversion Rate shall be made as a result of the actual issuance of shares of Common Stock on the exercise of any such rights or options or the conversion of any such convertible securities. 29 (ii) If such rights or options or convertible securities by their terms provide, with the passage of time or otherwise, for any increase in the amount of additional consideration payable to the Company or any decrease in the number of shares of Common Stock issuable on such exercise or exchange (by change of rate or otherwise), the Conversion Rate shall, when each such increase or decrease becomes effective, be readjusted to reflect the increase or decrease as far as it affects rights of exercise or conversion that have not expired before that time. (iii) If, on the expiration of such rights or options or the rights of conversion of such convertible securities, any of them shall not have been exercised, the Conversion Rate shall be readjusted and will then be the same as it would have been had it originally been adjusted (or had the original adjustment not been required, as the case may be), on the basis that (y) the only shares of Common Stock so issued were the shares of Common Stock, if any, actually issued or sold on the exercise of such rights or options or rights of conversion of such convertible securities, and (z) such shares of Common Stock, if any, were issued or sold for the consideration actually received by the Company on such exercise plus the consideration, if any, actually received by the Company for granting all such rights or options or for issuing or selling all such convertible securities. (iv) No adjustment of the Conversion Rate as provided in this Section 6(b) shall occur upon the granting or issuance of stock, stock options, or warrants to employees or directors of the Company in the aggregate amount of less than six hundred thousand (600,000) shares of Common Stock. 7. Subordination. ------------- (a) Upon the written agreement of Holder, this Note may be subordinated to any or all debt owed by the Company to banks and other financial institutions, other than to the extent debt to any such bank or financial institution involves the issuance of shares of the Company's stock or notes, warrants, options or any other security convertible into such stock. (b) The payment of the indebtedness evidenced by this instrument is subordinated to the payment of the "Senior Debt" defined and described in the Subordination Agreement, dated as of September 24, 1998, between United Breweries of America Inc. and the CIT Group/Credit Finance, Inc., as amended by that certain Amendment to Subordination Agreement, dated as of June 22, 1999, and reference is made to such Agreement for a full statement of the terms and conditions of such subordination. (c) The payment of the indebtedness evidenced by this instrument is subordinated to the payment of the "Senior Debt" defined and described in the Subordination Agreement, dated on or about November 15, 1998, between United Breweries of America Inc. and the Savings Bank of Mendocino, Inc., and reference is made to such Agreement for a full statement of the terms and conditions of such subordination. 8. Enforcement. The Company agrees to reimburse Holder for all costs ----------- of collection or enforcement of this Note, whether or not suit is filed (including, but not limited to, reasonable attorney fees), incurred by Holder. 9. Governing Law. This Note shall be governed by and construed in ------------- accordance with the laws, without regard to the laws as to choice or conflict of laws, of the State of California. 10. Default. If Company fails to pay any installment of principal or ------- interest when due, then, or at any time during such default, the entire amount of the unpaid principal and interest shall, at the election of Holder, become immediately due and payable. 11. Waiver. No previous waiver and no failure or delay by Holder in ------ acting with respect to the terms of this Note shall constitute a waiver of any subsequent breach, default or failure of condition under this Note. A waiver of any term of this Note must be in writing and shall be limited to the express written terms of such waiver. No delay or omission on the part of Holder in exercising any right under this Note shall operate as a waiver of such right or of any other right. 12. Reservation of Stock. The Company covenants that it will at all -------------------- times reserve and keep available, solely for issuance on conversion of this Note, all shares of Common Stock from time to time issuable upon exercise of this Note. 13. Replacement. Upon receipt of evidence reasonably satisfactory to ----------- the Company, of the loss, theft, destruction, or modification of this Note and, in the event of such occurrence, on delivery of an indemnity agreement or Note reasonably satisfactory in form and amount to the Company or in the case of mutilation, on surrender and cancellation of this Note, the Company at its expense will execute and deliver, in lieu of this Note, a new Note of like tender. 30 14. Transfer. NO SALE OR TRANSFER OF THIS NOTE SHALL BE EFFECTIVE UNLESS -------- AND UNTIL ALL OF THE FOLLOWING STEPS ARE COMPLIED WITH: (a) The transferor and the transferee shall execute the form of Transfer Statement attached to this Note (or a similar statement which shall then be attached to this Note); (b) This Note and the executed Transfer Statement, together with a United States Internal Revenue Service Form W-8 "Certificate of Foreign Status" or a Form W-9 "Request for Taxpayer Identification Number and Certification" - -- completed and executed by the transferee, shall be delivered to the Company at the Company's address as provided above; and (c) If the Company is satisfied that the information contained in the Transfer Statement is consistent with the information contained in the completed and executed Form W-8 or W-9, as applicable, the Company shall enter the transfer on a Note Holder Ledger maintained by the Company for this purpose. Any purported transfer with respect to which all of the above steps have note been complied with shall be null and void and of no force or effect. 15. Entire Agreement; Written Modification Only. This Agreement contains ------------------------------------------- the entire agreement of the parties, and constitutes the complete, final and exclusive embodiment of their agreement with respect to its subject matter. This Agreement supersedes any and all prior correspondence, arrangements, representations and understandings, whether written or oral, express or implied, with respect to its subject matter. This Agreement may not be modified except by a written agreement, which specifically sets forth each modification and is signed by a duly authorized representative of both parties. This Agreement is executed without reliance upon any promise, warranty or representation by the parties or any of their representatives, other than such promises, warranties or representations as are expressly contained in this Agreement. 16. Severability. If any provision of this Agreement is deemed or held ------------ invalid or unenforceable in whole or in part, for any reason, that provision shall be deemed severed from the remainder of this Agreement, and shall in no way affect or impair the validity or enforceability of any portion or all of this Agreement, which otherwise shall remain in full force and effect. IN WITNESS WHEREOF, the Company has caused this Convertible Note to be executed in its corporate name by the signature of its president and secretary. MENDOCINO BREWING COMPANY, INC., a California corporation By: /s/ Yashpal Singh -------------------------------- Yashpal Singh Its: Chief Operating Officer By: /s/ P.A. Murali -------------------------------- P.A. Murali Its: Chief Financial Officer 31 EX-8 9 CONVERTIBLE NOTE DATED FEBRUARY 16, 2000 EXHIBIT 8 --------- CONVERTIBLE PROMISSORY NOTE MENDOCINO BREWING COMPANY, INC. _______________________________________________________________________________ Name of Issuer: Mendocino Brewing Company, Inc. Dated: February 17, 2000 Maturity Date: August 16, 2001 ________________________________________________________________________________ 1. Promise. Mendocino Brewing Company, Inc., a California ------- corporation having its principal office at 1601 Airport Road, Ukiah, California 95482 and any successor (the "Company"), for value received, promises to pay to United Breweries of America Inc., a Delaware corporation or to its registered successors or assigns (the "Holder") the principal sum of Fifty Thousand Dollars ($50,000) on presentation and surrender of this Convertible Note ("Note") on August 16, 2001 (the "Maturity Date"), and to pay interest on that principal sum at a rate equal to the lesser of (i) one and one-half percent (1.50%) per annum above the prime rate offered from time to time by the Bank of America in San Francisco, California, or (ii) ten percent (10%). Interest payments shall be paid quarterly on the first day of the months of April, July, October, and January of each year. Company may use any of the funds borrowed from Holder for any corporate purposes of Company, including paying obligations owed by Company to Holder. 2. Form of Payment. All payments under this Note shall be made in --------------- lawful money of the United States of America. The Company waives diligence, presentment, protest, demand and notice of protest, dishonor, and nonpayment of this Note. 3. Conversion/Redemption/Renewal. ----------------------------- (a) The Holder has the right, at the holder's option, at any time on or after the Maturity Date, to convert all or any portion of this Note into fully paid and nonassessable shares of common stock ("Common Stock") of the Company at the rate of one share of such Common Stock for each One Dollar and 50/100 ($1.50) (the "Conversion Rate") principal amount of this Note and any accrued but unpaid interest. The Holder agrees that all shares of Common Stock of the Company, issued by the Company upon the conversion of all or any part of this Note shall be restricted securities within the meaning of Rule 144(a) of the Securities Act of 1933. The Holder further agrees that any shares of Common Stock acquired by means of any conversion as set forth herein shall be further restricted by the terms and conditions set forth in that certain Shareholders' Agreement, dated October 24, 1997, by and among the Company, Holder, and the Original Partners (as such term is defined in the Shareholders' Agreement). (b) The conversion right set forth in this Section 3 is subject to any adjustment of the Conversion Rate set forth in Section 5 and Section 6, and is only exercisable upon the surrender of this Note for conversion at the office or agency to be maintained by the Company accompanied by instruments of transfer, in form satisfactory to the Company, duly executed by the registered holder. No fractional shares are issuable on any conversion, but in lieu of issuing fractional shares the Company shall pay for such fractional shares in cash. (c) At any time prior to seventeen (17) months from the date of this Note, the Holder may provide written notice to the Company requiring the Company to commence repay of the outstanding principal balance of this Note, together with any accrued but unpaid interest thereon, to Holder. In such case, commencing on the Maturity Date, Company shall pay Holder equal monthly installments of principal, together with any unpaid interest, over a period of five (5) years until all amounts due hereunder shall be repaid in full. (d) If Holder does not convert or redeem any or all of the principal amount of the Note into Common Stock on the Maturity Date, Holder has the right to extend the term of this Note for a period of time mutually agreed upon between Holder and the Company. At any time during such extension period, Holder shall have the right to convert all or any part of the outstanding principal amount of the Note plus accrued and unpaid interest into Common Stock as set forth in this Section 3. Moreover, at any time during such extension period, Holder shall have the right to require the Company to repay all or any part of the outstanding principal balance of this Note, together with any accrued but unpaid interest thereon, to Holder within sixty (60) days. 4. Company Redemption. Prior to the Maturity Date, this Note may be ------------------ redeemed by the Company, in whole or in part, at any time after sixty (60) days written notice ("Redemption Notice") to Holder. During such sixty (60) day period, Holder shall have the right to convert all or any part of the outstanding principal amount of the Note plus accrued and unpaid interest into Common Stock, as set forth in Section 3. If Holder does not convert all outstanding amounts into Common Stock, the Company may redeem any remaining amounts at any time during a thirty (30) day period commencing with the date of expiration of the sixty (60) day period provided for in the Redemption Notice. Thereafter, Company shall be required to provide Holder with a new Redemption Notice, and Holder shall have a new sixty (60) day period within which to convert all 32 or any part of the outstanding principal amounts plus accrued and unpaid interest into Common Stock, as set forth in Section 3. 5. Anti-Dilution. ------------- (a) If at any time there is a capital reorganization of the Company's Common Stock, including any combination, reclassification, exchange, or subdivision of shares, a merger or consolidation of the Company with or into another corporation, or the sale of all or substantially all the Company's properties and assets as, or substantially as, an entirety to another person, then, as a part of such reorganization, merger, consolidation, or sale, lawful provision shall be made so that Holder shall thereafter be entitled to receive on conversion of this Note, during the period specified in this Note, the number of shares of Common Stock of the Company, or of the successor corporation resulting from such merger or consolidation, to which a holder of the Common Stock deliverable on conversion of this Note would have been entitled on that event if this Note had been converted immediately before that event. In any such case, appropriate adjustment (as determined by the Company's board of directors) shall be made in applying this Note to the rights and the percentage interests of Holder after the reorganization, merger, consolidation, or sale to the end that this Note (including adjustment of the Conversion Rate) shall be applicable after that event, as near as reasonably may be, in relation to the shares of Common Stock deliverable after that event on conversion of this Note. The Company shall, not later than thirty (30) days prior to making such adjustment, give written notice ("Notice") by courier to Holder at the address of Holder shown on the Company's books. (b) Any Notice that is sent pursuant to Section 5(a) shall set forth, in reasonable detail, the event requiring the adjustment and the method by which the adjustment was calculated and shall specify the Conversion Rate then in effect after the adjustment and the increased or decreased number of shares of Common Stock to be received upon conversion of this Note. When appropriate, advance notice may be given and included as part of the notice required under other provisions of this Note. 6. Conversion Rate Protection. -------------------------- (a) If at any time, or from time to time, the Company issues or sells shares of Common Stock without consideration or for a consideration per share less than the Conversion Rate in effect immediately before that issue or sale, then and in each such case: (ix) the Conversion Rate then in effect and the Conversion Rate applicable for any subsequent period shall be adjusted to a price (calculated to the nearest cent) determined by dividing: (y) the sum of (aa) the number of shares of Common Stock outstanding immediately before that issue or sale multiplied by the Conversion Rate in effect immediately before that issue or sale, plus (bb) the consideration, if any, received by the Company on that issue or sale, by (z) the number of shares of the Company's Common Stock outstanding immediately after that issue or sale; and (x) Holder shall after that issue or sale, on conversion of this Note, be entitled to receive the number of shares of Common Stock equal to the number of shares that would otherwise, but for the adjustment provided for in Section 6(a)(i), be issuable on such conversion multiplied by a fraction, the numerator of which is the Conversion Rate then in effect and the denominator of which is the Conversion Rate in effect immediately after the adjustment provided for in Section 6(a)(i) on the date of conversion. No such adjustment shall be made in an amount less than Five Cents ($0.05), but any such amount shall be carried forward and given effect in the next adjustment, if any. (b) If the Company (i) grants any rights or options to subscribe for, purchase, or otherwise acquire shares of Common Stock, or (ii) issues or sells any security, other than this Note, which is convertible into shares of Common Stock, then the price per share of Common Stock issuable on the exercise of the rights or options or the conversion of the securities shall be calculated by dividing: (y) the total amount, if any, received or receivable by the Company as consideration for the granting of the rights or options or the issue or sale of the convertible securities, plus the minimum aggregate amount of additional consideration payable to the Company on exercise of the convertible securities, by (z) the maximum number of shares of Common Stock issuable on the exercise or conversion. (i) If the price per share so calculated is less than the Conversion Rate of this Note in effect immediately before the rights or options are granted or the convertible securities are issued or sold, the granting or issue or sale shall be considered to be an issue or sale for cash of the maximum number of shares of Common Stock so issuable on exercise or conversion at the price per share determined under this provision, and the Conversion Rate of this Note shall be adjusted as provided above to reflect (on the basis of that determination) the issue or sale. No further adjustment of the Conversion Rate shall be made as a result of the actual issuance of shares of Common Stock on the exercise of any such rights or options or the conversion of any such convertible securities. 33 (ii) If such rights or options or convertible securities by their terms provide, with the passage of time or otherwise, for any increase in the amount of additional consideration payable to the Company or any decrease in the number of shares of Common Stock issuable on such exercise or exchange (by change of rate or otherwise), the Conversion Rate shall, when each such increase or decrease becomes effective, be readjusted to reflect the increase or decrease as far as it affects rights of exercise or conversion that have not expired before that time. (iii) If, on the expiration of such rights or options or the rights of conversion of such convertible securities, any of them shall not have been exercised, the Conversion Rate shall be readjusted and will then be the same as it would have been had it originally been adjusted (or had the original adjustment not been required, as the case may be), on the basis that (y) the only shares of Common Stock so issued were the shares of Common Stock, if any, actually issued or sold on the exercise of such rights or options or rights of conversion of such convertible securities, and (z) such shares of Common Stock, if any, were issued or sold for the consideration actually received by the Company on such exercise plus the consideration, if any, actually received by the Company for granting all such rights or options or for issuing or selling all such convertible securities. (iv) No adjustment of the Conversion Rate as provided in this Section 6(b) shall occur upon the granting or issuance of stock, stock options, or warrants to employees or directors of the Company in the aggregate amount of less than six hundred thousand (600,000) shares of Common Stock. 7. Subordination. ------------- (a) Upon the written agreement of Holder, this Note may be subordinated to any or all debt owed by the Company to banks and other financial institutions, other than to the extent debt to any such bank or financial institution involves the issuance of shares of the Company's stock or notes, warrants, options or any other security convertible into such stock. (b) The payment of the indebtedness evidenced by this instrument is subordinated to the payment of the "Senior Debt" defined and described in the Subordination Agreement, dated as of September 24, 1998, between United Breweries of America Inc. and the CIT Group/Credit Finance, Inc., as amended by that certain Amendment to Subordination Agreement, dated as of June 22, 1999, and reference is made to such Agreement for a full statement of the terms and conditions of such subordination. (c) The payment of the indebtedness evidenced by this instrument is subordinated to the payment of the "Senior Debt" defined and described in the Subordination Agreement, dated on or about November 15, 1998, between United Breweries of America Inc. and the Savings Bank of Mendocino, Inc., and reference is made to such Agreement for a full statement of the terms and conditions of such subordination. 8. Enforcement. The Company agrees to reimburse Holder for all costs ----------- of collection or enforcement of this Note, whether or not suit is filed (including, but not limited to, reasonable attorney fees), incurred by Holder. 9. Governing Law. This Note shall be governed by and construed in ------------- accordance with the laws, without regard to the laws as to choice or conflict of laws, of the State of California. 10. Default. If Company fails to pay any installment of principal or ------- interest when due, then, or at any time during such default, the entire amount of the unpaid principal and interest shall, at the election of Holder, become immediately due and payable. 11. Waiver. No previous waiver and no failure or delay by Holder in ------ acting with respect to the terms of this Note shall constitute a waiver of any subsequent breach, default or failure of condition under this Note. A waiver of any term of this Note must be in writing and shall be limited to the express written terms of such waiver. No delay or omission on the part of Holder in exercising any right under this Note shall operate as a waiver of such right or of any other right. 12. Reservation of Stock. The Company covenants that it will at all -------------------- times reserve and keep available, solely for issuance on conversion of this Note, all shares of Common Stock from time to time issuable upon exercise of this Note. 13. Replacement. Upon receipt of evidence reasonably satisfactory to ----------- the Company, of the loss, theft, destruction, or modification of this Note and, in the event of such occurrence, on delivery of an indemnity agreement or Note reasonably satisfactory in form and amount to the Company or in the case of mutilation, on surrender and cancellation of this Note, the Company at its expense will execute and deliver, in lieu of this Note, a new Note of like tender. 34 14. Transfer. NO SALE OR TRANSFER OF THIS NOTE SHALL BE EFFECTIVE -------- UNLESS AND UNTIL ALL OF THE FOLLOWING STEPS ARE COMPLIED WITH: (a) The transferor and the transferee shall execute the form of Transfer Statement attached to this Note (or a similar statement which shall then be attached to this Note); (b) This Note and the executed Transfer Statement, together with a United States Internal Revenue Service Form W-8 "Certificate of Foreign Status" or a Form W-9 "Request for Taxpayer Identification Number and Certification" - -- completed and executed by the transferee, shall be delivered to the Company at the Company's address as provided above; and (c) If the Company is satisfied that the information contained in the Transfer Statement is consistent with the information contained in the completed and executed Form W-8 or W-9, as applicable, the Company shall enter the transfer on a Note Holder Ledger maintained by the Company for this purpose. Any purported transfer with respect to which all of the above steps have note been complied with shall be null and void and of no force or effect. 15. Entire Agreement; Written Modification Only. This Agreement ------------------------------------------- contains the entire agreement of the parties, and constitutes the complete, final and exclusive embodiment of their agreement with respect to its subject matter. This Agreement supersedes any and all prior correspondence, arrangements, representations and understandings, whether written or oral, express or implied, with respect to its subject matter. This Agreement may not be modified except by a written agreement, which specifically sets forth each modification and is signed by a duly authorized representative of both parties. This Agreement is executed without reliance upon any promise, warranty or representation by the parties or any of their representatives, other than such promises, warranties or representations as are expressly contained in this Agreement. 16. Severability. If any provision of this Agreement is deemed or held ------------ invalid or unenforceable in whole or in part, for any reason, that provision shall be deemed severed from the remainder of this Agreement, and shall in no way affect or impair the validity or enforceability of any portion or all of this Agreement, which otherwise shall remain in full force and effect. IN WITNESS WHEREOF, the Company has caused this Convertible Note to be executed in its corporate name by the signature of its president and secretary. MENDOCINO BREWING COMPANY, INC., a California corporation By: /s/ Yashpal Singh -------------------------- Yashpal Singh Its: Chief Operating Officer By: /s/ P.A. Murali -------------------------- P.A. Murali Its: Chief Financial Officer 35 EX-9 10 CONVERTIBLE NOTE DATED APRIL 28, 2000 EXHIBIT 9 --------- CONVERTIBLE PROMISSORY NOTE MENDOCINO BREWING COMPANY, INC. _______________________________________________________________________________ Name of Issuer: Mendocino Brewing Company, Inc. Dated: April 28, 2000 Maturity Date: October 27, 2001 ________________________________________________________________________________ 1. Promise. Mendocino Brewing Company, Inc., a California ------- corporation having its principal office at 1601 Airport Road, Ukiah, California 95482 and any successor (the "Company"), for value received, promises to pay to United Breweries of America Inc., a Delaware corporation or to its registered successors or assigns (the "Holder") the principal sum of One Fifty One Thousand Three Hundred Seventeen and 59/100 Dollars ($151,317.59) on presentation and surrender of this Convertible Note ("Note") on August 16, 2001 (the "Maturity Date"), and to pay interest on that principal sum at a rate equal to the lesser of (i) one and one-half percent (1.50%) per annum above the prime rate offered from time to time by the Bank of America in San Francisco, California, or (ii) ten percent (10%). Interest payments shall be paid quarterly on the first day of the months of April, July, October, and January of each year. Company may use any of the funds borrowed from Holder for any corporate purposes of Company, including paying obligations owed by Company to Holder. 2. Form of Payment. All payments under this Note shall be made in --------------- lawful money of the United States of America. The Company waives diligence, presentment, protest, demand and notice of protest, dishonor, and nonpayment of this Note. 3. Conversion/Redemption/Renewal. ----------------------------- (a) The Holder has the right, at the holder's option, at any time on or after the Maturity Date, to convert all or any portion of this Note into fully paid and nonassessable shares of common stock ("Common Stock") of the Company at the rate of one share of such Common Stock for each One Dollar and 50/100 ($1.50) (the "Conversion Rate") principal amount of this Note and any accrued but unpaid interest. The Holder agrees that all shares of Common Stock of the Company, issued by the Company upon the conversion of all or any part of this Note shall be restricted securities within the meaning of Rule 144(a) of the Securities Act of 1933. The Holder further agrees that any shares of Common Stock acquired by means of any conversion as set forth herein shall be further restricted by the terms and conditions set forth in that certain Shareholders' Agreement, dated October 24, 1997, by and among the Company, Holder, and the Original Partners (as such term is defined in the Shareholders' Agreement). (b) The conversion right set forth in this Section 3 is subject to any adjustment of the Conversion Rate set forth in Section 5 and Section 6, and is only exercisable upon the surrender of this Note for conversion at the office or agency to be maintained by the Company accompanied by instruments of transfer, in form satisfactory to the Company, duly executed by the registered holder. No fractional shares are issuable on any conversion, but in lieu of issuing fractional shares the Company shall pay for such fractional shares in cash. (c) At any time prior to seventeen (17) months from the date of this Note, the Holder may provide written notice to the Company requiring the Company to commence repay of the outstanding principal balance of this Note, together with any accrued but unpaid interest thereon, to Holder. In such case, commencing on the Maturity Date, Company shall pay Holder equal monthly installments of principal, together with any unpaid interest, over a period of five (5) years until all amounts due hereunder shall be repaid in full. (d) If Holder does not convert or redeem any or all of the principal amount of the Note into Common Stock on the Maturity Date, Holder has the right to extend the term of this Note for a period of time mutually agreed upon between Holder and the Company. At any time during such extension period, Holder shall have the right to convert all or any part of the outstanding principal amount of the Note plus accrued and unpaid interest into Common Stock as set forth in this Section 3. Moreover, at any time during such extension period, Holder shall have the right to require the Company to repay all or any part of the outstanding principal balance of this Note, together with any accrued but unpaid interest thereon, to Holder within sixty (60) days. 4. Company Redemption. Prior to the Maturity Date, this Note may be ------------------ redeemed by the Company, in whole or in part, at any time after sixty (60) days written notice ("Redemption Notice") to Holder. During such sixty (60) day period, Holder shall have the right to convert all or any part of the outstanding principal amount of the Note plus accrued and unpaid interest into Common Stock, as set forth in Section 3. If Holder does not convert all outstanding amounts into Common Stock, the Company may redeem any remaining amounts at any time during a thirty (30) day period commencing with the date of expiration of the sixty (60) day period provided for in the Redemption Notice. Thereafter, Company shall be required to provide Holder with a new Redemption Notice, and Holder shall have a new sixty (60) day period within which to convert all 36 or any part of the outstanding principal amounts plus accrued and unpaid interest into Common Stock, as set forth in Section 3. 5. Anti-Dilution. ------------- (a) If at any time there is a capital reorganization of the Company's Common Stock, including any combination, reclassification, exchange, or subdivision of shares, a merger or consolidation of the Company with or into another corporation, or the sale of all or substantially all the Company's properties and assets as, or substantially as, an entirety to another person, then, as a part of such reorganization, merger, consolidation, or sale, lawful provision shall be made so that Holder shall thereafter be entitled to receive on conversion of this Note, during the period specified in this Note, the number of shares of Common Stock of the Company, or of the successor corporation resulting from such merger or consolidation, to which a holder of the Common Stock deliverable on conversion of this Note would have been entitled on that event if this Note had been converted immediately before that event. In any such case, appropriate adjustment (as determined by the Company's board of directors) shall be made in applying this Note to the rights and the percentage interests of Holder after the reorganization, merger, consolidation, or sale to the end that this Note (including adjustment of the Conversion Rate) shall be applicable after that event, as near as reasonably may be, in relation to the shares of Common Stock deliverable after that event on conversion of this Note. The Company shall, not later than thirty (30) days prior to making such adjustment, give written notice ("Notice") by courier to Holder at the address of Holder shown on the Company's books. (b) Any Notice that is sent pursuant to Section 5(a) shall set forth, in reasonable detail, the event requiring the adjustment and the method by which the adjustment was calculated and shall specify the Conversion Rate then in effect after the adjustment and the increased or decreased number of shares of Common Stock to be received upon conversion of this Note. When appropriate, advance notice may be given and included as part of the notice required under other provisions of this Note. 6. Conversion Rate Protection. -------------------------- (a) If at any time, or from time to time, the Company issues or sells shares of Common Stock without consideration or for a consideration per share less than the Conversion Rate in effect immediately before that issue or sale, then and in each such case: (ix) the Conversion Rate then in effect and the Conversion Rate applicable for any subsequent period shall be adjusted to a price (calculated to the nearest cent) determined by dividing: (y) the sum of (aa) the number of shares of Common Stock outstanding immediately before that issue or sale multiplied by the Conversion Rate in effect immediately before that issue or sale, plus (bb) the consideration, if any, received by the Company on that issue or sale, by (z) the number of shares of the Company's Common Stock outstanding immediately after that issue or sale; and (x) Holder shall after that issue or sale, on conversion of this Note, be entitled to receive the number of shares of Common Stock equal to the number of shares that would otherwise, but for the adjustment provided for in Section 6(a)(i), be issuable on such conversion multiplied by a fraction, the numerator of which is the Conversion Rate then in effect and the denominator of which is the Conversion Rate in effect immediately after the adjustment provided for in Section 6(a)(i) on the date of conversion. No such adjustment shall be made in an amount less than Five Cents ($0.05), but any such amount shall be carried forward and given effect in the next adjustment, if any. (b) If the Company (i) grants any rights or options to subscribe for, purchase, or otherwise acquire shares of Common Stock, or (ii) issues or sells any security, other than this Note, which is convertible into shares of Common Stock, then the price per share of Common Stock issuable on the exercise of the rights or options or the conversion of the securities shall be calculated by dividing: (y) the total amount, if any, received or receivable by the Company as consideration for the granting of the rights or options or the issue or sale of the convertible securities, plus the minimum aggregate amount of additional consideration payable to the Company on exercise of the convertible securities, by (z) the maximum number of shares of Common Stock issuable on the exercise or conversion. (i) If the price per share so calculated is less than the Conversion Rate of this Note in effect immediately before the rights or options are granted or the convertible securities are issued or sold, the granting or issue or sale shall be considered to be an issue or sale for cash of the maximum number of shares of Common Stock so issuable on exercise or conversion at the price per share determined under this provision, and the Conversion Rate of this Note shall be adjusted as provided above to reflect (on the basis of that determination) the issue or sale. No further adjustment of the Conversion Rate shall be made as a result of the actual issuance of shares of Common Stock on the exercise of any such rights or options or the conversion of any such convertible securities. 37 (ii) If such rights or options or convertible securities by their terms provide, with the passage of time or otherwise, for any increase in the amount of additional consideration payable to the Company or any decrease in the number of shares of Common Stock issuable on such exercise or exchange (by change of rate or otherwise), the Conversion Rate shall, when each such increase or decrease becomes effective, be readjusted to reflect the increase or decrease as far as it affects rights of exercise or conversion that have not expired before that time. (iii) If, on the expiration of such rights or options or the rights of conversion of such convertible securities, any of them shall not have been exercised, the Conversion Rate shall be readjusted and will then be the same as it would have been had it originally been adjusted (or had the original adjustment not been required, as the case may be), on the basis that (y) the only shares of Common Stock so issued were the shares of Common Stock, if any, actually issued or sold on the exercise of such rights or options or rights of conversion of such convertible securities, and (z) such shares of Common Stock, if any, were issued or sold for the consideration actually received by the Company on such exercise plus the consideration, if any, actually received by the Company for granting all such rights or options or for issuing or selling all such convertible securities. (iv) No adjustment of the Conversion Rate as provided in this Section 6(b) shall occur upon the granting or issuance of stock, stock options, or warrants to employees or directors of the Company in the aggregate amount of less than six hundred thousand (600,000) shares of Common Stock. 7. Subordination. ------------- (a) Upon the written agreement of Holder, this Note may be subordinated to any or all debt owed by the Company to banks and other financial institutions, other than to the extent debt to any such bank or financial institution involves the issuance of shares of the Company's stock or notes, warrants, options or any other security convertible into such stock. (b) The payment of the indebtedness evidenced by this instrument is subordinated to the payment of the "Senior Debt" defined and described in the Subordination Agreement, dated as of September 24, 1998, between United Breweries of America Inc. and the CIT Group/Credit Finance, Inc., as amended by that certain Amendment to Subordination Agreement, dated as of June 22, 1999, and reference is made to such Agreement for a full statement of the terms and conditions of such subordination. (c) The payment of the indebtedness evidenced by this instrument is subordinated to the payment of the "Senior Debt" defined and described in the Subordination Agreement, dated on or about November 15, 1998, between United Breweries of America Inc. and the Savings Bank of Mendocino, Inc., and reference is made to such Agreement for a full statement of the terms and conditions of such subordination. 8. Enforcement. The Company agrees to reimburse Holder for all costs ----------- of collection or enforcement of this Note, whether or not suit is filed (including, but not limited to, reasonable attorney fees), incurred by Holder. 9. Governing Law. This Note shall be governed by and construed in ------------- accordance with the laws, without regard to the laws as to choice or conflict of laws, of the State of California. 10. Default. If Company fails to pay any installment of principal or ------- interest when due, then, or at any time during such default, the entire amount of the unpaid principal and interest shall, at the election of Holder, become immediately due and payable. 11. Waiver. No previous waiver and no failure or delay by Holder in ------ acting with respect to the terms of this Note shall constitute a waiver of any subsequent breach, default or failure of condition under this Note. A waiver of any term of this Note must be in writing and shall be limited to the express written terms of such waiver. No delay or omission on the part of Holder in exercising any right under this Note shall operate as a waiver of such right or of any other right. 12. Reservation of Stock. The Company covenants that it will at all -------------------- times reserve and keep available, solely for issuance on conversion of this Note, all shares of Common Stock from time to time issuable upon exercise of this Note. 13. Replacement. Upon receipt of evidence reasonably satisfactory to ----------- the Company, of the loss, theft, destruction, or modification of this Note and, in the event of such occurrence, on delivery of an indemnity agreement or Note reasonably satisfactory in form and amount to the Company or in the case of mutilation, on surrender and cancellation of this Note, the Company at its expense will execute and deliver, in lieu of this Note, a new Note of like tender. 38 14. Transfer. NO SALE OR TRANSFER OF THIS NOTE SHALL BE EFFECTIVE -------- UNLESS AND UNTIL ALL OF THE FOLLOWING STEPS ARE COMPLIED WITH: (a) The transferor and the transferee shall execute the form of Transfer Statement attached to this Note (or a similar statement which shall then be attached to this Note); (b) This Note and the executed Transfer Statement, together with a United States Internal Revenue Service Form W-8 "Certificate of Foreign Status" or a Form W-9 "Request for Taxpayer Identification Number and Certification" - -- completed and executed by the transferee, shall be delivered to the Company at the Company's address as provided above; and (c) If the Company is satisfied that the information contained in the Transfer Statement is consistent with the information contained in the completed and executed Form W-8 or W-9, as applicable, the Company shall enter the transfer on a Note Holder Ledger maintained by the Company for this purpose. Any purported transfer with respect to which all of the above steps have note been complied with shall be null and void and of no force or effect. 15. Entire Agreement; Written Modification Only. This Agreement ------------------------------------------- contains the entire agreement of the parties, and constitutes the complete, final and exclusive embodiment of their agreement with respect to its subject matter. This Agreement supersedes any and all prior correspondence, arrangements, representations and understandings, whether written or oral, express or implied, with respect to its subject matter. This Agreement may not be modified except by a written agreement, which specifically sets forth each modification and is signed by a duly authorized representative of both parties. This Agreement is executed without reliance upon any promise, warranty or representation by the parties or any of their representatives, other than such promises, warranties or representations as are expressly contained in this Agreement. 16. Severability. If any provision of this Agreement is deemed or held ------------ invalid or unenforceable in whole or in part, for any reason, that provision shall be deemed severed from the remainder of this Agreement, and shall in no way affect or impair the validity or enforceability of any portion or all of this Agreement, which otherwise shall remain in full force and effect. IN WITNESS WHEREOF, the Company has caused this Convertible Note to be executed in its corporate name by the signature of its president and secretary. MENDOCINO BREWING COMPANY, INC., a California corporation By: /s/ Yashpal Singh -------------------------- Yashpal Singh Its: Chief Operating Officer By: /s/ P.A. Murali -------------------------- P.A. Murali Its: Chief Financial Officer 39 -----END PRIVACY-ENHANCED MESSAGE-----