-----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, Ub+z//wkU+autqQyqZFT826qLRlIGRuE8bGdWxHHh3jTpTLVfgZX+yPsGUkcbzhH lcOSeHdaJC+kVaKFUQJc3w== 0000929624-97-001330.txt : 19971104 0000929624-97-001330.hdr.sgml : 19971104 ACCESSION NUMBER: 0000929624-97-001330 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19971103 SROS: PSE 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 SEC ACT: SEC FILE NUMBER: 005-46539 FILM NUMBER: 97706741 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: [] STATE OF INCORPORATION: DE FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: THREE HARBOR DRIVR, SUITE 115 CITY: SAUSALITO STATE: CA ZIP: 94965 BUSINESS PHONE: 4152891400 SC 13D 1 SCHEDULE 13-D UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 13D (Rule 13d-101) INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT TO 13d- 1(a) AND AMENDMENTS THERETO FILED PURSUANT TO 13d-2(a) (Amendment No. ________)/1/ MENDOCINO BREWING COMPANY, INC. ------------------------------------------------------- (Name of Issuer) Common Stock ------------------------------------------------------- (Title of Class of Securities) 586579 10 4 ------------------------------------------------------- (CUSIP Number) Alan Talkington, Esq. Orrick, Herrington & Sutcliffe LLP 400 Sansome Street San Francisco, CA 94111 (415) 773-5762 (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) October 24, 1997 ------------------------------------------------------- (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 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 sent. (Continued on following pages) (EXHIBIT INDEX APPEARS ON SEQUENTIALLY NUMBERED PAGE 9) /1/ 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 (the "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). - ----------------------- --------------------- CUSIP NO. 586579 10 4 13D PAGE 2 - ----------------------- --------------------- - ------------------------------------------------------------------------------ 1. NAME OF REPORTING PERSON United Breweries of America, Inc. S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON - ------------------------------------------------------------------------------ 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (A) [_] (B) [X] - ------------------------------------------------------------------------------ 3. SEC USE ONLY - ------------------------------------------------------------------------------ 4. SOURCE OF FUNDS OO,AF - ------------------------------------------------------------------------------ 5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS [_] REQUIRED PURSUANT TO ITEM 2(d) or 2(e) - ------------------------------------------------------------------------------ 6. CITIZENSHIP OR PLACE OF ORGANIZATION Delaware - ------------------------------------------------------------------------------ 7. SOLE VOTING POWER 2,119,647* NUMBER OF SHARES ----------------------------------------------------------- BENEFICIALLY 8. SHARED VOTING POWER 0 OWNED BY EACH ----------------------------------------------------------- REPORTING 9. SOLE DISPOSITIVE POWER 2,119,647* PERSON WITH ----------------------------------------------------------- 10. SHARED DISPOSITIVE POWER 0 - ------------------------------------------------------------------------------ 11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 2,119,647* - ------------------------------------------------------------------------------ 12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [_] - ------------------------------------------------------------------------------ 13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 44.5% - ------------------------------------------------------------------------------ 14. TYPE OF REPORTING PERSON CO - ------------------------------------------------------------------------------ - ---------------- * Includes 517,647 shares issuable to the Reporting Person pursuant to the Investment Agreement. See Item 4. - ----------------------- --------------------- CUSIP NO. 586579 10 4 13D PAGE 3 - ----------------------- --------------------- - ------------------------------------------------------------------------------ 1. NAME OF REPORTING PERSON Vijay Millya S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON - ------------------------------------------------------------------------------ 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (A) [_] (B) [X] - ------------------------------------------------------------------------------ 3. SEC USE ONLY - ------------------------------------------------------------------------------ 4. SOURCE OF FUNDS AF - ------------------------------------------------------------------------------ 5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS [_] REQUIRED PURSUANT TO ITEM 2(d) or 2(e) - ------------------------------------------------------------------------------ 6. CITIZENSHIP OR PLACE OF ORGANIZATION India - ------------------------------------------------------------------------------ 7. SOLE VOTING POWER 0 NUMBER OF SHARES ----------------------------------------------------------- BENEFICIALLY 8. SHARED VOTING POWER 2,119,647* OWNED BY EACH ----------------------------------------------------------- REPORTING 9. SOLE DISPOSITIVE POWER 0 PERSON WITH ----------------------------------------------------------- 10. SHARED DISPOSITIVE POWER 2,119,647* - ------------------------------------------------------------------------------ 11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 2,119,647* - ------------------------------------------------------------------------------ 12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [_] - ------------------------------------------------------------------------------ 13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 44.5% - ------------------------------------------------------------------------------ 14. TYPE OF REPORTING PERSON IN - ------------------------------------------------------------------------------ - ---------------- * Includes 517,647 shares issuable to the Reporting Person pursuant to the Investment Agreement. See Item 4. Page 4 With respect to each contract, agreement or other document referred to herein and filed with the Securities and Exchange Commission as an exhibit to this report, reference is made to the exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference. Item 1. Security and Issuer ------------------- This Statement relates to the Common Stock, no par value (the "Common Stock"), of Mendocino Brewing Company, Inc., a California corporation (the "Issuer"), whose principal executive offices are located at P.O. Box 400, 13551 South Highway 101, Hopland, California 95449. Item 2. Identity and Background ----------------------- (a, b, c and f) This Statement is being filed by (i) United Breweries of America, Inc., a Delaware corporation (the "Reporting Person"), and (ii) Vijay Mallya ("Mallya"). The Reporting Person is owned by a foreign corporation, the shares of which are controlled by fiduciaries who may exercise discretion in Mallya's favor amongst others. The principal office of the Reporting Person is Three Harbor Drive, Suite 115, Sausalito, California 94965. The principal business of the Reporting Person is to make investments in and participate in the craft brewing industry in the United States. Schedule I hereto sets forth the name, principal business, address and citizenship of Mallya and each of the executive officers and directors of the Reporting Person and is incorporated herein by reference. (d) Neither the Reporting Person, nor Mallya, nor to the best knowledge of either the Reporting Person or Mallya, any person with respect to which information is provided in response to this Item 2 has, during the last five years, been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors). (e) Neither the Reporting Person, nor Mallya, nor to the best knowledge of either the Reporting Person or Mallya, any person with respect to which information is provided in response to this Item 2 was, during the last five years, a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities law or finding any violation with respect to such laws. Item 3. Source and Amount of Funds or Other Consideration The Issuer and the Reporting Person entered into an Investment Agreement dated as of October 24, 1997 (the "Investment Agreement") pursuant to which the Issuer agreed to sell and the Reporting Person agreed to purchase (i) 941,176 shares of Issuer's Common Stock at a purchase price of $4.25 per share, for $4,000,000 in cash, (ii) 2,000 shares of Issuer's Common Stock in consideration for The UB Group, an affiliate of the Reporting Person, making a $250,000 refundable deposit in May 1997, and (iii) 1,176,471 shares of Issuer's Common Stock, at a valuation of $4.25 per share, in exchange for the Reporting Person's contribution of 100% of the equity interest in Releta Brewing Company LLC ("Releta"), a Delaware limited liability company whose assets consisted of a brewery in Saratoga Springs, New York. The Investment Agreement is attached hereto as Exhibit 2 and is hereby incorporated by reference. Pursuant to the Investment Agreement, on October 24, 1997, the Issuer issued 1,602,000 shares of Common Stock to the Reporting Person in consideration for $1,800,000 that the Reporting Person had paid to Issuer prior to or on that date, the deposit made in May 1997 and the contribution of the equity interest in Releta by the Reporting Person. Pursuant to the Investment Agreement, the Issuer agreed to issue 211,765 shares of Common Stock to the Reporting Person on November 15, 1997 in exchange for $900,000 and agreed to issue 305,882 shares of Common Stock to the Reporting Person on November 30, 1997 in exchange for $1,300,000. Page 5 The Reporting Person advanced $1,753,000 to the Issuer prior to the date of the Investment Agreement pursuant to the terms and conditions of a Refundable Deposit Agreement dated as of May 2, 1997 between an affiliate of the Reporting Person, The UB Group, and the Issuer (the "Refundable Deposit Agreement"). The Refundable Deposit Agreement is attached hereto as Exhibit 3 and is hereby incorporated by reference. The funds advanced pursuant to the Refundable Deposit Agreement and paid to the Issuer as of the date of the Investment Agreement were provided by the Reporting Person from capital contributions it received from its affiliates. The Reporting Person currently anticipates that the funds that will be used to acquire the shares on November 15, 1997 and November 30, 1997 as described above will be provided by the Reporting Person from additional capital contributions it receives from its affiliates. Item 4. Purpose of Transaction The Reporting Person has acquired shares of Common Stock for the purpose of investment. Matters Arising From the Investment Agreement - --------------------------------------------- Purchase of Shares. As set forth in the Investment Agreement and as ------------------ described in Item 3, the Issuer has agreed, pursuant to the Investment Agreement, to issue 211,765 and 305,882 shares of Common Stock on November 15, 1997 and November 30, 1997, respectively, in exchange for the delivery of checks in the amounts of $900,000 and $1,300,000, respectively, by the Reporting Person. Right of First Offer. In connection with the Investment Agreement, the -------------------- Issuer has granted the Reporting Person, as long as it continues to own at least 10% of the outstanding voting securities of the Issuer and subject to the terms and conditions set forth in the Investment Agreement, the right to participate in future sales by the Issuer of its equity securities. After receiving notice of the Issuer's intention to offer equity securities, the Reporting Person has the right to purchase on the same terms and conditions set forth in the notice that number of equity securities that when added to the number of shares of Common Stock held by the Reporting Person will give the Reporting Person 45% of the Common Stock of the Issuer on a fully diluted basis. Covenants. In connection with the Investment Agreement, the Issuer has --------- entered into certain covenants whereby the Issuer has agreed not to, without the written consent of the Reporting Person, among other things: (i) as long as the Reporting Person continues to own at least 10% of the outstanding voting securities of the Issuer, issue securities to any party which would enable such party to exceed the percentage ownership of the voting securities owned by the Issuer, (ii) issue any securities senior to the securities issued to the Reporting Person, (iii) make any acquisitions or investments which exceed 50% of the book value of the Issuer, (iv) sell or otherwise dispose of its assets if the assets if an aggregate book value exceeding 50% of the aggregate book value of the Issuer's assets, (v) loan employees money in amounts greater than $25,000 in the aggregate, (vi) change its capital structure, (vii) sell equity securities to any person or entity engaged in the business of brewing, producing or distributing malt or any alcoholic beverages in North America or India, (viii) give any person or entity the right to name or designate more than three members of the Board of Directors, (ix) enter into related party transactions except if on terms no less favorable to the Issuer than could be obtained in arms-length transaction (this provision does not apply to transactions with the Reporting Person or its affiliates), and (x) merge or consolidate unless the Issuer is the surviving Issuer and the shareholders of Issuer immediately prior to the merger or consolidation will own more than 50% of voting power and economic rights of the shares in the surviving Issuer. Board of Directors. Pursuant to the Investment Agreement, the Board of ------------------ Directors now has seven members consisting of four nominees of the Reporting Person, including Mallya, who is now Chairman of the Board, Michael Laybourn, the former Chairman of the Board of Directors and two independent existing board members. In connection with the Investment Agreement, the two independent members of the Board of Directors have agreed to resign effective as of 12/31/97 and will be replaced by two new independent directors acceptable to the Reporting Person. Page 6 Ancillary Agreements. In connection with the Investment Agreement, -------------------- certain stockholders of the Issuer (the "Original Partners"), the Issuer and the Reporting Person have entered into the Shareholders' Agreement dated as of October 24, 1997 (the "Shareholders' Agreement"), and the Registration Rights Agreement dated as of October 24, 1997 (the "Registration Rights Agreement"). The Shareholders' Agreement and the Registration Rights Agreement are attached hereto as Exhibits 4 and 5, respectively, and are incorporated herein by reference in their entirety. Pursuant to the terms of the Shareholders' Agreement, each of the Original Partners has granted the Reporting Person a right of first refusal with respect to any shares held by such Original Partner that he seeks to sell. The Reporting Person, after receiving notice of a proposed sale, may purchase on the same terms and conditions set forth in the notice, all of the shares to be sold by such Original Partner. In addition, the Shareholders' Agreement provides that the Reporting Person and the Original Partners shall use their best efforts as shareholders of the Issuer to elect seven directors to the Board of Directors of the Issuer consisting of: (i) four nominees of the Reporting Person, (ii) two independent directors acceptable to the Reporting Person and (iii) one nominee selected by Michael Laybourn, one of the Original Partners and President of the Issuer; provided, however, that if Michael Laybourn fails to make such a nomination then the Original Partners by a majority vote shall nominate such director. The Shareholders' Agreement terminates on December 31, 2004. Pursuant to the terms of the Registration Rights Agreement, the Issuer has granted the Reporting Person and the Original Partners certain registration rights with regard to shares of Common Stock held by them. Subject to certain specified exceptions and limitations, the Reporting Person is entitled to (i) have the Issuer file a shelf registration statement under the Securities Act of 1933, as amended (the "Securities Act") with respect to the Reporting Person's shares of Common Stock, (ii) demand the Issuer file up to three registration statements under the Securities Act with respect the Reporting Person's shares of Common Stock and (iii) participate in sales of Common Stock by the Issuer or other shareholders pursuant to a registration statement under the Securities Act. The Original Partners have, subject to certain specified exceptions and limitations, the right to participate in sales of Common Stock by the Issuer or other shareholders pursuant to a registration statement under the Securities Act. Other than as discussed herein, the Reporting Person does not have any present plans or proposals which relate to or would result in (i) the acquisition of additional securities of the Issuer or the disposition of securities of the Issuer; (ii) an extraordinary corporate transaction, such as a merger, reorganization or liquidation involving the Issuer or any of its subsidiaries; (iii) a sale or transfer of a material amount of assets of the Issuer or any of its subsidiaries; (iv) any change in the present board of directors or management of the Issuer, including any plans or proposals to change the number or term of directors or to fill any existing vacancies on the board; (v) any material change in the present capitalization or dividend policy of the Issuer; (vi) any other material change in the Issuer's business or corporate structure; (vii) changes in the Issuer's charter, bylaws or instruments corresponding thereto or other actions which may impede the acquisition of control of the Issuer by any person; (viii) causing a class of the Issuer's securities to be delisted from a national securities exchange or to cease to be authorized to be quoted in an inter-dealer quotation system of a registered national securities association; (ix) a class of the Issuer's equity securities becoming eligible for termination of registration pursuant to Section 12(g)(4) of the Securities and Exchange Act of 1934; or (x) any action similar to any of those enumerated above. Item 5. Interest in Securities of Issuer -------------------------------- As of October 24, 1997, the Reporting Person is the beneficial owner of 2,119,647 shares of Common Stock of the Issuer, constituting approximately 44.5% of the shares of Common Stock outstanding. This number includes 517,647 shares of Issuer's Common Stock issuable to the Reporting Person in November 1997 as more fully described in Items 3 and 4. Page 7 Mallya does not own any shares of the Issuer directly, but may be deemed to share beneficial ownership of all of the shares of Common Stock owned by the Reporting Person by virtue of the relationship described in Item 2. To the knowledge of the Reporting Person and Mallya none of the persons described on Schedule 1 owns any shares of the Issuer's Common Stock. (b) Subject to the issuance of the additional shares as described in Item 4, the Reporting Person has the sole power to vote and dispose of the 2,119,647 shares of Common Stock owned directly by it. Although the Reporting Person has sole voting rights and dispositive power with regard to such shares, Mallya may be deemed to share voting and dispositive power with regard to such shares by virtue of the relationship described in Item 2. (c) None in addition to the transactions described in Item 3. (d) Except as described in Item 2, no other person is known to have the right to receive or the power to direct the receipt of dividends from or the proceeds from the sale of such shares of Common Stock beneficially owned by the Reporting Person or Mallya. (e) Not applicable. Item 6. Contracts, Arrangements, Understandings or Relationships with Respect to Securities of the Issuer ------------------------------------------------------ The Reporting Person is a party to the Investment Agreement, the Shareholders' Agreement and the Registration Rights Agreement, which are attached as exhibits hereto and which are incorporated by reference in their entirety herein. The descriptions of such agreements with respect to the Common Stock and the Issuer set forth in Items 3 and 4 are hereby incorporated by reference in their entirety in response to this Item 6. Except as described in Items 3 and 4, there are no contracts, arrangements, understandings or relationships (legal or otherwise) among the persons named in Item 2 and between such persons and any person with respect to any securities of the Issuer. Item 7. Material to be Filed as Exhibits -------------------------------- 1. Agreement of Joint Filing 2. Investment Agreement, dated as of October 24, 1997 by and between Mendocino Brewing Company, Inc. and United Breweries of America, Inc. 3. Refundable Deposit Agreement, dated as of May 2, 1997, by and between The UB Group and Mendocino Brewing Company, Inc. (incorporated by reference to Exhibit 19.3 of Issuer's Form 10-QSB for the quarter ended March 31, 1997). 4. Shareholders' Agreement, dated as of October 24, 1997, by and among Mendocino Brewing Company, Inc., H. Michael Laybourn, Norman H. Franks, Michael F. Lovett, John Scahill, Don Barkley and United Breweries of America, Inc. 5. Registration Rights Agreement, dated as of October 24, 1997, by and among Mendocino Brewing Company, Inc., United Breweries of America, Inc., H. Michael Laybourn, Norman H. Franks, Michael F. Lovett, John Scahill, and Don Barkley. Page 8 After reasonable inquiry and to the best of the undersigned's knowledge and belief, the undersigned hereby certify that the information set forth in this statement is true, complete and correct. Dated: October 31, 1997 UNITED BREWERIES OF AMERICA, INC. By: /s/ VIJAY MALLYA -------------------- Name: Vijay Mallya Title: Chairman and Chief Executive Officer VIJAY MALLYA By: /s/ VIJAY MALLYA -------------------- Vijay Mallya Page 9 EXHIBIT INDEX ------------- Exhibit Sequentially Numbered Page ------------- 1. Agreement of Joint Filing 2. Investment Agreement, dated as of October 24, 1997 by and between Mendocino Brewing Company, Inc. and United Breweries of America, Inc. 3. Refundable Deposit Agreement, dated as of May 2, 1997, by and between The UB Group and Mendocino Brewing Company, Inc. (incorporated by reference to Exhibit 19.3 of Issuer's Form 10-QSB for the quarter ended March 312, 1997) 4. Shareholders' Agreement, dated as of October 24, 1997, by and among Mendocino Brewing Company, Inc., H. Michael Laybourn, Norman H. Franks, Michael F. Lovett, John Scahill, Don Barkley and United Breweries of America, Inc. 5. Registration Rights Agreement, dated as of October 24, 1997, by and among Mendocino Brewing Company, Inc., United Breweries of America, Inc., H. Michael Laybourn, Norman H. Franks, Michael F. Lovett, John Scahill, and Don Barkley. Page 10 SCHEDULE 1 The following table sets forth the name, residence or business address, citizenship, present principal occupation or employment, and the name, principal business and address of any corporation in which such employment is conducted, of each officer and director of United Breweries of America, Inc. (including Vijay Mallya). Unless otherwise indicated, the address of each officer and director is the address of his employer.
Employment Information ---------------------- Name and Address Name Citizenship Occupation of Employer Business of Employer - ---- ----------- ---------- ----------------- -------------------- Vijay Mallya India Chairman, The UB Group and Chairman Three Harbor Drive, Beer and spirits and Chief Executive Officer of United Suite 115, manufacturer and seller. Breweries of America, Inc. Sausalito, California 94965 O'Neil Nalavadi India Senior Vice President, Three Harbor Drive, Beer and spirits The UB Group and Director, Suite 115, manufacturer and seller. United Breweries of America, Inc. Sausalito, California 94965 Harmohan S. Bedi India Vice President, The UB Group and Three Harbor Drive, Beer and spirits Director, United Breweries Suite 115, manufacturer and seller. of America, Inc. Sausalito, California 94965 Sushil Malhotra India Private Business Owner and c/o United Breweries Restaurant Director, United Breweries of America, Inc. of America, Inc. Three Harbor Drive, Suite 115,Sausalito, California 94965 Anil Pisharody India Vice President, UB Information and Three Harbor Drive, Information Technology Consultancy Services and Director, Suite 115, Consulting United Breweries of America, Inc. Sausalito, California 94965
EX-1 2 AGREEMENT OF JOINT FILING Exhibit 1 AGREEMENT OF JOINT FILING ------------------------- In accordance with Rule 13d-1(f) under the Securities Exchange Act of 1934, as amended, the undersigned, United Breweries of America, Inc. and Vijay Mallya, hereby agree to the joint filing on behalf of each of them of the Schedule 13D to which this Agreement is an exhibit (and any further amendment filed by them) with respect to the shares of Common Stock, no par value, of Mendocino Brewing Company, Inc. This agreement may be executed simultaneously in any number of counterparts, all of which together shall constitute one and the same instrument. Dated: October 30, 1997 UNITED BREWERIES OF AMERICA, INC. By /s/ VIJAY MALLYA -------------------- Name: Vijay Mallya Title: Chairman and Chief Executive Officer VIJAY MALLYA By /s/ VIJAY MALLYA -------------------- Vijay Mallya EX-2 3 INVESTMENT AGREEMENT Exhibit 2 - -------------------------------------------------------------------------------- INVESTMENT AGREEMENT DATED OCTOBER 24, 1997 BETWEEN MENDOCINO BREWING COMPANY, INC. AND UNITED BREWERIES OF AMERICA, INC. - -------------------------------------------------------------------------------- I. DEFINITIONS....................................................... 1 II. THE PURCHASE AND SALE OF EQUITY SECURITIES........................ 7 2.1 Cash Investment; Contribution of Releta...................... 7 2.2 Closing...................................................... 7 2.3 Legends...................................................... 8 2.4 Additional Agreements........................................ 8 III. REPRESENTATIONS AND WARRANTIES OF MENDOCINO....................... 9 3.1 Authorized and Outstanding Shares of Capital Stock........... 9 3.2 Authorization and Issuance of Equity Securities.............. 10 3.3 Securities Laws.............................................. 10 3.4 Corporate Existence; Compliance with Law..................... 10 3.5 Subsidiaries................................................. 10 3.6 Corporate Power; Authorization; Enforceable Obligations...... 10 3.7 Financial Statements......................................... 11 3.8 No Changes................................................... 12 3.9 Ownership of Property........................................ 13 3.10 Material Contracts........................................... 14 3.11 Environmental Protection..................................... 15 3.12 Labor Matters................................................ 15 3.13 Other Ventures............................................... 16 3.14 Taxes........................................................ 16 3.15 No Litigation................................................ 16 3.16 Brokers...................................................... 16 3.17 Employment and Labor Agreements.............................. 17 3.18 Patents, Trademarks, Copyrights and Licenses................. 17 3.19 ERISA........................................................ 17 3.20 Registration Rights.......................................... 18 3.21 Liquor Consents and Permits.................................. 19 3.22 SEC Documents................................................ 19 3.23 Acquisitions; Capital Expenditures........................... 19 3.24 Accounts Receivable.......................................... 19 3.25 Insurance.................................................... 20 3.26 Related Party Transactions................................... 20
i 3.27 No Stockholder Approval...................................... 20 IV. PURCHASER'S REPRESENTATIONS AND WARRANTIES........................ 20 4.1 Corporate Existence.......................................... 20 4.2 Investment Intention......................................... 20 4.3 Investment Experience........................................ 20 4.4 Access to Information........................................ 20 4.5 Corporate Power; Authorization; Enforceable Obligations...... 21 4.6 Liquidity.................................................... 21 4.7 Acceptability to Regulators.................................. 21 4.8 Brokers...................................................... 21 4.9 Outstanding Units of Releta.................................. 21 4.10 Authorization and Transfer of Equity Interest by Purchaser... 22 4.11 Securities Laws.............................................. 22 4.12 Releta Existence; Compliance with Law........................ 22 4.13 Subsidiaries................................................. 22 4.14 Ownership of Property........................................ 22 4.15 Material Contracts; Liabilities; Equipment................... 23 4.16 Environmental Protection..................................... 24 4.17 Other Ventures............................................... 25 4.18 Taxes........................................................ 25 4.19 No Litigation................................................ 25 4.20 Employment and Labor Agreements.............................. 25 4.21 Patents, Trademarks, Copyrights and Licenses................. 25 4.22 ERISA........................................................ 26 4.23 Registration Rights.......................................... 26 4.24 Liquor Consents and Permits.................................. 26 4.25 Insurance.................................................... 26 4.26 Costs of Releta.............................................. 26 V. DOCUMENTS DELIVERED AT CLOSING.................................... 26 5.1 Documents Delivered to Purchaser at the Closing.............. 26 5.2 Documents Delivered to Mendocino at Closing.................. 28 VI. COVENANTS......................................................... 29 6.1 Right of First Offer......................................... 29
ii 6.2 Percentage Ownership......................................... 29 6.3 No Securities Senior to Common Stock......................... 30 6.4 Permitted Acquisitions or Investments........................ 30 6.5 Sales of Assets.............................................. 30 6.6 Books and Records............................................ 30 6.7 Financial and Other Information.............................. 31 6.8 Communication with Accountants............................... 32 6.9 Tax Compliance............................................... 32 6.10 Insurance.................................................... 32 6.11 Agreements................................................... 32 6.12 Employee Loans............................................... 32 6.13 Capital Structure............................................ 32 6.14 Transactions with Affiliates................................. 33 6.15 Guaranteed Indebtedness...................................... 33 6.16 Restricted Payments.......................................... 33 6.17 Employee Plans............................................... 33 6.18 Environmental Matters........................................ 34 6.19 Maintenance of Existence and Conduct of Business............. 34 6.20 Mergers...................................................... 35 6.21 Liquidation.................................................. 35 6.22 Hostile Acquisition.......................................... 35 6.23 Access to Books and Records.................................. 35 6.24 Auditors..................................................... 36 6.25 Employees.................................................... 36 6.26 BDM Construction Company..................................... 36 6.27 Termination of Certain Covenants............................. 36 6.28 Cash Flow Requirements of Releta............................. 36 6.29 Financial Statements of Releta............................... 36 6.30 Form BE-13................................................... 37 VII. INDEMNIFICATION................................................... 37 7.1 Indemnification............................................. 37 VIII. MISCELLANEOUS..................................................... 38
iii 8.1 Notices...................................................... 38 8.2 Binding Effect; Benefits..................................... 39 8.3 Amendment.................................................... 39 8.4 Assignment................................................... 39 8.5 Remedies..................................................... 39 8.6 Applicable Law............................................... 40 8.7 Section and Other Headings................................... 40 8.8 Severability................................................. 40 8.9 Counterparts................................................. 40 8.10 Nondisclosure of Confidential Information.................... 40 8.11 Publicity.................................................... 40 8.12 Entire Agreement............................................. 41 8.13 Fees and Expenses............................................ 41 8.14 Exhibits and Schedules....................................... 41 8.15 Construction................................................. 41
iv SCHEDULES
Schedule - -------- 3.1(a) - Capitalization of Mendocino 3.1(b) - Outstanding Options and Other Rights to Purchase Mendocino Stock 3.1(c) - List of 5% Stockholders of Mendocino 3.2 - Calculation of Purchaser's Ownership Percentage in Mendocino 3.4 - Mendocino's Compliance with Law 3.6 - Mendocino's Third Party Consents; Enforceability 3.7(a) - Financial Statements of Mendocino 3.7(b) - Off-Balance Sheet Liabilities 3.8 - Changes After June 30, 1997 3.9(a) - Mendocino's Real Property 3.9(b) - Mendocino's Leases 3.9(e) - Mendocino's Real Estate Consents Required 3.10 - Mendocino's Material Contracts 3.14 - Mendocino's Taxes 3.15 - Mendocino's Litigation 3.17 - Mendocino's Employment Agreements 3.18 - Mendocino's Intellectual Property 3.19 - Mendocino's Benefit Plans 3.20 - Mendocino's Registration Rights 3.21 - Mendocino's List of Licenses 3.23 - Mendocino's Acquisitions and Capital Expenditures 3.24 - Mendocino's Accounts Receivable 3.25 - Mendocino's Insurance Policies 3.26 - Mendocino's Related Party Transactions 4.5 - Purchaser's Governmental Approvals 4.12 - Releta's Material Licenses and Permits 4.14(a) - Releta's Real Property 4.14(b) - Releta's Leases 4.14(e) - Releta's Consents Required 4.15(a) - Releta's Material Contracts 4.15(b) - Releta's Liabilities 4.15(c) - Equipment Used at Relata's Facility 4.21 - Releta's Intellectual Property 4.24 - Releta's Governmental Approvals 4.25 - Releta's Insurance Policies 4.26 - Releta's Costs 6.26 - BDM Construction Payment Schedule
v EXHIBITS
Exhibit - ------- 2.4(a)(i) Laybourn Employment Agreement 2.4(a)(ii) Franks Employment Agreement 2.4(a)(iii) Lovett Employment Agreement 2.4(a)(iv) Scahill Employment Agreement 2.4(a)(v) Barkley Employment Agreement 2.4(a)(vi) Shareholders' Agreement 2.4(a)(vii) Registration Rights Agreement 5.1(a) Form of opinion of counsel for Mendocino 5.2(a) Form of opinion of counsel for Purchaser
vi INVESTMENT AGREEMENT -------------------- INVESTMENT AGREEMENT (the "Agreement"), dated as of October 24, 1997 by and among Mendocino Brewing Company, Inc. ("Mendocino") and United Breweries of America, Inc. (the "Purchaser"). W I T N E S S E T H: WHEREAS, Purchaser desires, upon the terms and conditions hereinafter provided, to purchase from Mendocino shares of its equity securities. NOW, THEREFORE, in consideration of the promises and the covenants hereinafter contained and intending to be legally bound hereby, it is agreed as follows: I. DEFINITIONS. ------------ "Affiliate" shall mean, with respect to any Person, (i) each Person that, directly or indirectly, owns or controls, whether beneficially, or as a trustee, guardian or other fiduciary, 5% or more of the Stock having ordinary voting power in the election of directors of such Person or (ii) each Person that controls, is controlled by or is under common control with such Person or any Affiliate of such Person. For the purpose of this definition, "control" of a Person shall mean the possession, directly or indirectly, of the power to direct or cause the direction of its management or policies, whether through the ownership of voting securities, by contract or otherwise. The term "Affiliated" shall have meanings correlative to the foregoing. "Ancillary Agreements" shall mean the Laybourn Employment Agreement, the Franks Employment Agreement, the Lovett Employment Agreement, the Scahill Employment Agreement and the Barkley Employment Agreement, the Registration Rights Agreement, the Shareholders' Agreement and any other document or instrument delivered at the Closing in connection therewith. "Barkley Employment Agreement" shall have the meaning set forth in Section 2.4(a)(vi). "Business Day" shall mean a day of the year on which banks are not required or authorized to close in San Francisco. "Capital Expenditures" shall mean all payments for any fixed assets or improvements, or for replacements, substitutions or additions thereto, that have a useful life of more than one year and which are required to be capitalized under GAAP. "Capital Lease" shall mean, with respect to any Person, any lease of any property (whether real, personal or mixed, by such Person as lessee that, in accordance with GAAP, either would be required to be classified and accounted for as a capital lease on a balance sheet of such Person or otherwise be disclosed as a capital lease in a note to such balance sheet, other than any such lease under which Mendocino is the lessor. "Capital Lease Obligation" shall mean, with respect to any Capital Lease, the amount of the obligation of the lessee thereunder that, in accordance with GAAP, would appear on a 1 balance sheet of such lessee in respect of such Capital Lease or otherwise be disclosed in a note to such balance sheet. "Capital Shares" shall have the meaning set forth in Section 6.1(b). "Cash Shares" shall have the meaning set forth in Section 2.1. "Charges" shall mean all federal, state, county, city, municipal, local, foreign or other governmental (including, without limitation, PBGC) taxes at the time due and payable, levies, assessments, charges, liens, claims or encumbrances upon or relating to (i) Mendocino's employees, payroll, income or gross receipts, (ii) Mendocino's ownership or use of any of its assets, or (iii) any other aspect of Mendocino's business. "Closing" shall have the meaning set forth in Section 2.2. "Closing Date" shall have the meaning set forth in Section 2.2. "Common Stock" shall initially mean the common stock, no par value per share, of Mendocino and shall thereafter mean any shares of any class or classes of capital stock resulting from any reclassification or reclassifications thereof or otherwise issued, which have no preference in respect of dividends or of amounts payable in the event of voluntary or involuntary liquidation, dissolution or winding up of Mendocino and which are not subject to redemption by Mendocino. "Confidential Information" shall have the meaning set forth in Section 8.10. "Deposit Shares" shall have the meaning set forth in Section 2.1. "Environmental Laws" shall mean all federal, state and local laws, statutes, ordinances and regulations, now or hereafter in effect, and in each case as amended or supplemented from time to time, and any judicial or administrative interpretation thereof, including any applicable judicial or administrative order, consent decree or judgment, relative to the applicable property, relating to the regulation and protection of human health, safety, the environment and natural resources (including, without limitation, ambient air, surface water, groundwater, wetlands, land surface or subsurface strata, wildlife, aquatic species and vegetation). Environmental Laws include but are not limited to the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (42 U.S.C. (S) 9601 et seq.) ("CERCLA"); the Hazardous Material Transportation Act, as amended (49 U.S.C. (S) 1801 et seq.); the Federal Insecticide, Fungicide, and Rodenticide Act, as amended (7 U.S.C. (S) 136 et seq.); the Resource Conservation and Recovery Act, as amended (42 U.S.C. (S) 6901 et seq.) ("RCRA"); the Toxic Substance Control Act, as amended (15 U.S.C. (S) 2601 et seq.); the Clean Air Act, as amended (42 U.S.C. (S) 649 et seq.); the Federal Water Pollution Control Act, as amended (33 U.S.C. (S) 1251 et seq.); the Occupational Safety and Health Act, as amended (29 U.S.C. (S) 651 et seq.) ("OSHA"); and the Safe Drinking Water Act, as amended (42 U.S.C. (S) 3001 et seq.), and all analogous state and local counterparts or equivalents and any transfer of ownership, notification or approval statutes. "Environmental Liabilities and Costs" shall mean all liabilities, obligations, responsibilities, remedial actions, losses, damages, punitive damages, consequential damages, 2 treble damages, costs and expenses (including, without limitation, all fees, disbursements and expenses of counsel, experts and consultants and costs of investigation and feasibility studies), fines, penalties, sanctions and interest incurred as a result of any claim, suit, action or demand by any person or entity, whether based in contract, tort, implied or express warranty, strict liability, criminal or civil statute or common law (including, without limitation, any thereof arising under any Environmental Law, permit, order or agreement with any Governmental Authority) and which relate to any health or safety condition regulated under any Environmental Law or in connection with any other environmental matter or release or disposal of any Hazardous Substance or the presence of a hazardous substance or threatened release or disposal of any Hazardous Substance. "ERISA" shall mean the Employee Retirement Income Security Act of 1974 (or any successor legislation thereto), as amended from time to time and any regulations promulgated thereunder. "ERISA Affiliate" shall mean, with respect to Mendocino, any trade or business (whether or not incorporated) under common control with Mendocino and which, together with Mendocino, are treated as a single employer within the meaning of Section 414(b), (c), (m) or (o) of the IRC. "Financials" shall mean the financial statements referred to in Section 3.7 hereof. "Fiscal Year" shall mean the calendar year. Subsequent changes of the fiscal year of Mendocino shall not change the term "Fiscal Year," unless the Purchaser shall consent in writing to such changes. "Franks Employment Agreement" shall have the meaning set forth in Section 2.4(a)(iii). "Fully Diluted Basis" shall mean that, for purposes of calculating ownership of the Common Stock, all outstanding options, warrants or other rights to acquire Common Stock or securities convertible or exchangeable into Common Stock shall be assumed to be exercised, converted and exchanged into the shares of Common Stock into which they, pursuant to their terms, may then or thereafter upon the passage of time be exercised, converted or exchanged. In addition, the shares of Common Stock held by BDM Construction shall be deemed outstanding for purposes of calculating ownership of the Common Stock, until such shares have been cancelled or repurchased by Mendocino. "GAAP" shall mean generally accepted accounting principles in the United States of America as in effect from time to time. "Group" shall mean any Group as defined by Sections 13(d)(3) and 14(d)(2) of the Securities Exchange Act. "Guaranteed Indebtedness" shall mean, as to any Person, any obligation of such Person guaranteeing any indebtedness, lease, dividend, or other obligation ("primary obligations") of any other Person (the "primary obligor") in any manner including, without limitation, any obligation or arrangement of such Person (a) to purchase or repurchase any such primary 3 obligation, (b) to advance or supply funds (i) for the purchase or payment of any such primary obligation or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency or any balance sheet condition of the primary obligor, (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation, or (d) to indemnify the owner of such primary obligation against loss in respect thereof. "Hazardous Material" shall mean any substance, chemical, compound, product, solid, gas, liquid, waste, byproduct, pollutant, contaminant or material which is hazardous or toxic, and includes, without limitation, (a) asbestos, polychlorinated biphenyls and petroleum (including crude oil or any fraction thereof) and (b) any such material classified or regulated as "hazardous" or "toxic" pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1966, 42 U.S.C. (S)(S) 8591 et seq., Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976 and Hazardous and Solid Waste Amendments of 1984, 42 U.S.C. (S)(S) 6901 et seq., Federal Water Pollution Control Act, as amended by the Clean Water Act of 1977, 33 U.S.C. (S)(S) 1251 et seq., Clean Air Act of 1966, as amended, 42 U.S.C. (S)(S) 6491 et seq., Toxic Substances Control Act of 1976, 15 U.S.C. (S)(S) 2601 et seq., or Hazardous Materials Transportation Act, 49 U.S.C. App. (S)(S) 1801 et seq. "Indebtedness" of any Person shall mean (i) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services (including, without limitation, reimbursement and all other obligations with respect to surety bonds, letters of credit and bankers' acceptances, whether or not matured, but not including obligations to trade creditors incurred in the ordinary course of business), (ii) all indebtedness created or arising under any conditional sale or other title retention agreements with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (iv) all Capital Lease Obligations, (v) all Guaranteed Indebtedness, (vi) all Indebtedness referred to in clause (i), (ii), (iii), (iv) or (v) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or in property (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness and (vii) all liabilities under Title IV of ERISA. "IRC" shall mean the Internal Revenue Code of 1986, as amended, and any successor thereto. "IRS" shall mean the Internal Revenue Service, or any successor thereto. "Laybourn Employment Agreement" shall have the meaning set forth in Section 2.4(a)(ii). "Lien" shall mean any mortgage or deed of trust, pledge, hypothecation, assignment, deposit arrangement, lien, charge, claim, security interest, easement or encumbrance, or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any lease or title retention agreement, any financing 4 lease having substantially the same economic effect as any of the foregoing, and the filing of, or agreement to give, any financing statement perfecting a security interest under the Uniform Commercial Code or comparable law of any jurisdiction). "Lovett Employment Agreement" shall have the meaning set forth in Section 2.4(a)(iv). "Material Adverse Effect" shall mean a material adverse effect on the business, assets, operations, prospects or financial or other condition of Mendocino. "Material Contracts" shall mean (i) all of Mendocino's contracts, agreements, leases or other instruments to which it is a party or by which it or its properties are bound, which involves payments by or to Mendocino of more than $25,000 or which extends for a term of more than a year from the date hereof, (ii) all of Mendocino's loan agreements, bank lines of credit agreements, indentures, mortgages, deeds of trust, pledge and security agreements, factoring agreements, conditional sales contracts, letters of credit or other debt instruments, (iii) all operating or capital leases for equipment to Mendocino is a party which involves payments by or to Mendocino of more than $25,000, (iv) all noncompetition and similar agreements to which Mendocino is a party, (v) all guarantees by Mendocino, (vi) all contracts and agreements between Mendocino and the wholesalers of its products and (vii) all other contracts, oral or written, that Mendocino considers to be material to its business, assets, operations, prospects or financial or other condition. "Multiemployer Plan" shall mean a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA, and to which Mendocino or any ERISA Affiliate is making, is obligated to make, has made or been obligated to make, contributions on behalf of participants who are or were employed by any of them. "Notice" shall have the meaning set forth in Section 6.1(b)(i). "Partially Diluted Basis" shall mean that, for purposes of calculating ownership of the Common Stock, all outstanding options, warrants or other rights to acquire Common Stock or securities convertible or exchangeable into Common Stock shall be valued using the "treasury stock approach" as set forth in the SEC's Staff Accounting Bulletin No. 83. In addition, the shares of Common Stock held by BDM Construction shall be deemed outstanding for purposes of calculating ownership of the Common Stock, until such shares have been cancelled or repurchased by Mendocino. "PBGC" shall mean the Pension Benefit Guaranty Corporation or any successor thereto. "Pension Plan" shall mean an employee pension benefit plan, as defined in Section (3)(2) of ERISA (other than a Multiemployer Plan), which is not an individual account plan, as defined in Section 3(34) of ERISA, and which Mendocino, or, if a Title IV Plan, any ERISA Affiliate maintains, contributes to or has an obligation to contribute to on behalf of participants who are or were employed by any of them. "Person" shall mean any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, institution, public benefit corporation, 5 entity or government (whether federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof). "Plan" shall mean, with respect to Mendocino or any ERISA Affiliate, at any time, an employee benefit plan, as defined in Section 3(3) of ERISA, which Mendocino maintains, contributes to or has an obligation to contribute to on behalf of participants who are or were employed by any of them. "Pledge Agreements" shall have the meaning set forth in Section 2.4(a)(xi) hereof. "Projections" shall mean the projections referred to in Section 3.9 hereof. "Qualified Plan" shall mean an employee pension benefit plan, as defined in Section 3(2) of ERISA, which is intended to be tax-qualified under Section 401(a) of the IRC, and which Mendocino or any ERISA Affiliate maintains, contributes to or has an obligation to contribute to on behalf of participants who are or were employed by any of them. "Registration Rights Agreement" shall have the meaning set forth in Section 2.4(c). "Releta" shall mean Releta Brewing Company LLC, a Delaware limited liability company. "Representatives" shall have the meaning set forth in Section 8.10. "Restricted Payment" shall mean (i) the declaration or payment of any dividend or the occurrence of any liability to make any other payment or distribution of cash or other property or assets in respect of Mendocino's Stock or (ii) any payment on account of the purchase, redemption or other retirement of Mendocino's Stock or any other payment or distribution made in respect of any Stock of Mendocino, either directly or indirectly. "Retiree Welfare Plan" shall refer to any Welfare Plan providing for continuing coverage or benefits for any participant or any beneficiary of a participant after such participant's termination of employment, other than continuation coverage provided pursuant to Section 4980B of the IRC and at the sole expense of the participant or the beneficiary of the participant. "Scahill Employment Agreement" shall have the meaning set forth in Section 2.4(a)(v). "SEC" shall mean the Securities and Exchange Commission. "SEC Documents" shall mean all of the documents (other than preliminary material) that Mendocino has been required to file with the SEC since January 1, 1995, pursuant to the Securities Act and the Securities Exchange Act. "Securities Act" shall mean the Securities Act of 1933, as amended. "Securities Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. "Shareholders' Agreement" shall have the meaning set forth in Section 2.4(a)(vii). 6 "Shares" shall have the meaning set forth in Section 2.1 hereof. "Stock" shall mean all shares, options, warrants, general or limited partnership interests, rights, participations or other equivalents (regardless of how designated) of or in a corporation, partnership or equivalent entity whether voting or nonvoting, including, without limitation, common stock, preferred stock, or any other "equity security" (as such term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the SEC under the Securities Exchange Act). "Subsidiary" shall mean, with respect to any Person, (a) any corporation of which an aggregate of more than 50% of the outstanding Stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether, at the time, Stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time, directly or indirectly, owned legally or beneficially by such Person and/or one or more Subsidiaries of such Person, and (b) any partnership or other entity in which such Person and/or one or more Subsidiaries of such Person shall have an interest (whether in the form of voting or participation in profits or capital contribution) of more than 50%. "Title IV Plan" shall mean a Pension Plan, other than a Multiemployer Plan, which is covered by Title IV of ERISA. "Transactions" shall have the meaning set forth in Section 3.6. "Withdrawal Liability" shall mean, at any time, the aggregate amount of the liabilities, if any, pursuant to Section 4201 of ERISA, and any increase in contributions pursuant to Section 4243 of ERISA with respect to all Multiemployer Plans. II. THE PURCHASE AND SALE OF EQUITY SECURITIES. ------------------------------------------- 2.1. Cash Investment; Contribution of Releta. Subject to the terms and --------------------------------------- conditions set forth in this Agreement, Mendocino will issue and sell to the Purchaser, and the Purchaser will purchase, (i) 941,176 shares of Mendocino's Common Stock (the "Cash Shares"), at a purchase price of $4.25 per share, for $4,000,000, (ii) 2,000 shares of Mendocino's Common Stock (the "Deposit Shares") in consideration for The UB Group making a $250,000 refundable deposit in May, 1997, and (iii) 1,176,471 shares of Mendocino's Common Stock (the "Releta Shares," collectively with the Cash Shares and the Deposit Shares, the "Shares"), at a valuation of $4.25 per share, in exchange for Purchaser's contribution to Mendocino of all of the equity interests in Releta. 2.2. Closing. (a) Immediately upon execution of this Agreement, ------- Mendocino shall instruct its transfer agent to deliver to the Purchaser certificates representing shares of Mendocino common stock, registered in the Purchaser's name as follows: (i) Certificates for 423,529 shares against a credit of $1,753,000 for the refundable deposits that Purchaser's affiliate, The UB Group, paid to Mendocino before the date of this Agreement and a credit of $547,000 that The UB Group on the date hereof simultaneously herewith paid to Mendocino; 7 (ii) A certificate for 2,000 shares of Mendocino common stock in consideration for the UB Group making a $250,000 refundable deposit in May, 1997; and (iii) Certificates for 1,176,471 shares of Mendocino common stock in consideration for Purchaser's contribution of the Releta equity interests. (b) On November 15, 1997, Mendocino shall deliver to the Purchaser a certificate for 211,765 shares against delivery by the Purchaser of a certified or bank check in the name of Mendocino in the amount of $900,000. On November 30, 1997, Mendocino shall deliver to the Purchaser a certificate for 305,882 shares against delivery by the Purchaser or a certified or bank check in the name of Mendocino in the amount of $1,300,000. 2.3. Legends. Each certificate representing the Shares acquired by the ------- Purchaser at the Closing shall bear a legend substantially in the following form: "THESE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933 OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT." The legend described in this Section 2.3 shall be removed promptly, and Mendocino shall issue to the Purchaser a new certificate for any of the shares acquired by the Purchaser at the Closing (or pursuant to Section 8.4), that have been sold in a sale registered under the Securities Act and with respect to which a prospectus meeting the requirements of Section 10 of the Securities Act is available or with respect to which Purchaser has provided to Mendocino an opinion of counsel, satisfactory in the reasonable judgment of Mendocino, that the public sale, transfer or assignment thereof may be made without registration under the Securities Act. 2.4. Additional Agreements. On the date hereof, Mendocino simultaneously --------------------- herewith delivered to the Purchaser the following documents: (i) the Employment Agreement between Mendocino and Michael Laybourn dated the date of this Agreement and duly executed by Mendocino and Michael Laybourn, a copy of which is attached hereto as Exhibit 2.4(a)(i) (the "Laybourn Employment Agreement"); (ii) the Employment Agreement between Mendocino and Norman Franks dated the date of this Agreement and duly executed by Mendocino and Norman Franks, a copy of which is attached hereto as Exhibit 2.4(a)(ii) (the "Franks Employment Agreement"); (iii) the Employment Agreement between Mendocino and Michael Lovett dated the date of this Agreement and duly executed by Mendocino and Michael Lovett, a 8 copy of which is attached hereto as Exhibit 2.4(a)(iii) (the "Lovett Employment Agreement"); (iv) the Employment Agreement between Mendocino and John Scahill dated the date of this Agreement and duly executed by Mendocino and John Scahill, a copy of which is attached hereto as Exhibit 2.4(a)(iv) (the "Scahill Employment Agreement"); (v) the Employment Agreement between Mendocino and Donald Barkley dated the date of this Agreement and duly executed by Mendocino and Donald Barkley, a copy of which is attached hereto as Exhibit 2.4(a)(v) (the "Barkley Employment Agreement"); (vi) the Shareholders' Agreement between Messrs. Laybourn, Franks, Lovett, Scahill and Barkley (collectively, the "Original Partners"), Mendocino and the Purchaser dated the date of this Agreement and duly executed by each of the Original Partners and Mendocino, a copy of which is attached hereto as Exhibit 2.4(a)(vi) (the "Shareholders' Agreement"); and (vii) the Registration Rights Agreement between the Original Partners, the Purchaser and Mendocino dated the date of this Agreement and duly executed by each of the Original Partners and Mendocino, a copy of which is attached hereto as Exhibit 2.4(a)(vii) (the "Registration Rights Agreement"). III. REPRESENTATIONS AND WARRANTIES OF MENDOCINO. -------------------------------------------- Mendocino makes the following representations and warranties to the Purchaser, subject to the exceptions set forth therein, each and all of which shall survive the execution and delivery of this Agreement and the Closing hereunder: 3.1. Authorized and Outstanding Shares of Capital Stock. The authorized -------------------------------------------------- capital stock of Mendocino consists of 20,000,000 shares of Common Stock, no par value per share, and 2,000,000 shares of Preferred Stock, no par value per share, of which 227,600 are designated as Series A Preferred Stock. Schedule 3.1(a) sets forth the number of shares of Common Stock and Preferred Stock of Mendocino authorized and outstanding as of the date hereof. Schedule 3.1(b) sets forth the number of shares of Common Stock and Preferred Stock of Mendocino subject to options and other rights to acquire as of the date hereof. All of the issued and outstanding shares of Mendocino are, and as of the Closing Date will be, validly issued, fully paid and non-assessable. A list of all of the holders known to Mendocino who beneficially own in excess of five percent (5%) of the outstanding shares of Common Stock and Preferred Stock of Mendocino indicating the number of shares of Common Stock and Preferred Stock, respectively, owned by each such holder on the date hereof is set forth on Schedule 3.1(c). Except as set forth on Schedule 3.1(b), (i) there is no existing option, warrant, call, commitment or other agreement to which Mendocino is a party requiring, and there are no convertible securities of Mendocino outstanding which upon conversion would require, the issuance of any additional share of Stock of Mendocino or other securities convertible into shares of equity securities of Mendocino, and (ii) there are no agreements to which Mendocino is a party or, to the best knowledge of 9 Mendocino, to which Mendocino is not a party, in each case, among, between or with any of the stockholders of Mendocino with respect to the voting or transfer of the Stock of Mendocino or with respect to any other aspect of Mendocino's affairs. Schedule 3.1(b) sets forth complete, correct and accurate statements of the option terms, exercise price and identity of the optionee with respect to each outstanding stock option, other stock incentive or other stock acquisition right of Mendocino Common Stock. There are no stockholders' preemptive rights or rights of first refusal or other similar rights with respect to the issuance of Stock by Mendocino, other than pursuant to this Agreement. 3.2. Authorization and Issuance of Equity Securities. Mendocino has taken ----------------------------------------------- all necessary corporate action to duly authorize the issuance of the Shares. Upon delivery to the Purchaser of certificates therefor against payment in accordance with the terms hereof, the Shares issued to the Purchaser hereunder will be validly issued and fully paid and nonassessable, free and clear of all Liens and preemptive rights. The Shares issued and to be issued to the Purchaser by Mendocino hereunder collectively represent approximately 43.74% of the outstanding shares of Common Stock of Mendocino on a Fully Diluted Basis. The calculation of the foregoing percentage is set forth on Schedule 3.2. Except as set forth in Schedule 3.1(b) none of the Original Partners has any options, warrants or other rights to acquire the Common Stock or other Stock of Mendocino. 3.3. Securities Laws. In reliance on the investment representations --------------- contained in Sections 4.2 through 4.4, the offer, issuance, sale and delivery of the Shares, as provided in this Agreement, are exempt from the registration requirements of the Securities Act and all applicable state securities laws, and are otherwise in compliance with such laws. 3.4. Corporate Existence; Compliance with Law. Except as set forth on ---------------------------------------- Schedule 3.4, Mendocino (i) is a corporation duly organized, validly existing and in good standing under the laws of the state of its organization; (ii) is duly qualified as a foreign corporation and in good standing under the laws of each jurisdiction where its ownership or lease of property or the conduct of its business requires such qualification (except for jurisdictions in which such failure to so qualify or to be in good standing would not have a Material Adverse Effect); (iii) has the requisite corporate power and authority and the legal right to own, pledge, mortgage or otherwise encumber and operate its properties, to lease the property it operates under lease, and to conduct its business as now, heretofore and proposed to be conducted; (iv) has all material licenses, permits, consents or approvals from or by, and has made all material filings with, and has given all material notices to, all governmental authorities having jurisdiction or other Persons, to the extent required for such ownership, operation and conduct; (v) is in compliance with its certificate or articles of incorporation and by-laws; and (vi) is in material compliance with all applicable provisions of law. 3.5. Subsidiaries. There exist no subsidiaries of Mendocino. ------------ 3.6. Corporate Power; Authorization; Enforceable Obligations. Except as set ------------------------------------------------------- forth on Schedule 3.6, the execution, delivery and performance by Mendocino of this Agreement, the Ancillary Agreements to which it is a party, and all instruments and documents to be delivered Mendocino, to the extent it is a party thereto, hereunder and thereunder, and the consummation of the other transactions contemplated by any of the foregoing (collectively referred to as the 10 "Transactions"): (i) are within Mendocino's corporate power; (ii) have been duly authorized by all necessary or proper corporate action on the part of Mendocino (except for shareholder approval); (iii) are not in contravention of any provision of Mendocino's articles of incorporation or by-laws; (iv) will not violate any law or regulation, or any order or decree of any court or governmental instrumentality; (v) will not conflict with or result in the breach or termination of, constitute a default under or accelerate any performance required by, any indenture, mortgage, deed of trust, lease, agreement or other instrument to which Mendocino is a party or by which Mendocino or any of its property is bound; (vi) will not result in the creation or imposition of any Lien upon any of the property of Mendocino; and (vii) do not require the consent or approval of, or any filing with, any governmental authority or any other Person. This Agreement has been duly executed and delivered by Mendocino and constitutes a legal, valid and binding obligation of Mendocino, enforceable against it in accordance with its terms. Except as set forth on Schedule 3.6, each of the Ancillary Agreements has been duly executed and delivered by Mendocino, and each constitutes a legal, valid and binding obligation of Mendocino to the extent it is a party thereto, enforceable against it in accordance with its terms. Except as set forth on Schedule 3.6, to the knowledge of Mendocino, each Original Partner has full right, power and authority to enter into this Agreement and the Ancillary Agreements to the extent he is a party thereto and the execution, delivery and performance by each Original Partner of the Transactions (i) will not result in a breach or violation by any of the Original Partners of any of the terms or provisions of, or constitute a default by any Original Partner under, any indenture, mortgage, deed of trust, trust (constructive or other), loan agreement, lease, franchise, license or other agreement or instrument to which any Original Partner is a party or by which any Original Partner or any of the Original Partners' respective properties is bound, any statute, or any judgment, decree, order, rule or regulation of any court or governmental agency or body applicable to any Original Partner or any of the Original Partners' respective properties and (ii) do not require the consent or approval of, or any filing with, any governmental authority or any other Person. 3.7. Financial Statements. -------------------- (a) Except as set forth on Schedule 3.7(a), all of the following balance sheets and statements of income and retained earnings of Mendocino, copies of which are attached hereto as Schedule 3.7, have been, except as noted therein, prepared in conformity with GAAP consistently applied throughout the periods involved and present fairly the financial position of Mendocino in each case as the dates thereof, and the results of operations and cash flows for the periods then ended (and as to the unaudited interim financial statements, subject to normal year-end audit adjustments not material in amount): (i) the unaudited balance sheet of Mendocino as at June 30, 1997, and the related statements of income, retained earnings and cash flows for the three and six months ending on such date; and (ii) the audited balance sheets of Mendocino as at December 31, 1996, as at December 31, 1995 and as at December 31, 1994, and the related statements of income, retained earnings and cash flows for the year then ended, with the opinion thereon of Moss Adams LLP. 11 (b) Except as set forth in Schedule 3.7(b), Mendocino had, as of June 30, 1997, no obligations, contingent or otherwise, including, without limitation, liabilities for charges, long-term leases or unusual forward or long-term commitments which are not reflected in the balance sheets of Mendocino, other than those that are both incurred in the ordinary course of business and are immaterial in amount. 3.8. No Changes. Except as set forth on Schedule 3.8, no event has occurred ---------- since June 30, 1997 which has had, or is reasonably likely to have, a Material Adverse Effect. Except as set forth on Schedule 3.8, since December 31, 1996 or June 30, 1997, except as otherwise contemplated in this Agreement, (i) Mendocino has not sold leased, transferred or assigned any of its assets, tangible or intangible, other than for fair consideration in the ordinary course of business consistent with past practice; (ii) Mendocino has not changed its accounting methods, principles or practices; (iii) Mendocino has not increased the compensation payable or to become payable to its officers or key employees other than in the ordinary course of business consistent with past practice; (iv) Mendocino has not increased any bonus, insurance, pension or other employee benefit plan for or with any such officers or key employees other than in the ordinary course of business consistent with past practice; (v) Mendocino has not entered into any agreement, commitment or transaction (including any borrowing, capital expenditure or capital financing) except in the ordinary course of business consistent with past practice; (vi) Mendocino has not granted or received any license or sublicense or any rights under or with respect to any license, patent, copyright, service mark, trademark, trade name, trade secret or other intellectual property right of Mendocino; (vii) Mendocino has not declared, set aside or paid any dividends or made any distribution with respect to its capital stock (whether in cash or in kind) or redeemed, purchased or otherwise acquired any of its capital stock; (viii) Mendocino has not experienced any material damage, destruction or loss (whether or not covered by insurance) to its property; (ix) Mendocino has not made any capital investment in, any loan to, or any acquisition of the securities or assets of, any other Person; (x) Mendocino has not cancelled, compromised, waived or released any right or claim outside the ordinary course of business consistent with past practice; 12 (xi) Mendocino has not issued, sold or otherwise disposed of any of its capital stock, or granted any options, warrants, or other rights to purchase or obtain (including upon conversion, exchange or exercise) any of its capital stock, other than pursuant to any currently authorized stock option plans; (xii) Mendocino has not delayed or postponed the payment of accounts payable or other labilities outside the ordinary course of business consistent with past practice; (xiii) Mendocino has not incurred or become subject to any material liability, outside the ordinary course of business consistent with past practice; (xiv) Mendocino has not discharged or satisfied any Lien on its properties or assets or, except in the ordinary course of business consistent with past practice, paid any material liability; (xv) Mendocino has not mortgaged, pledged or subjected to any Lien any of its assets or properties except (A) Liens for taxes not delinquent or for taxes being contested in good faith by appropriate proceedings and as to which adequate financial reserves have been established by Mendocino, and (B) Liens (other than any Lien imposed by ERISA), created and maintained in the ordinary course of business that are not material to Mendocino in the aggregate, that would not have a Material Adverse Effect and that would not adversely affect the operation of any Facility and that constitute (aa) pledges or deposits under worker's compensation laws, unemployment insurance laws, or similar legislation, (bb) good faith deposits in connection with bids tenders, contracts or leases to which Mendocino is a party for a purpose other than borrowing money or obtaining credit, (cc) Liens imposed by law, such as those of carriers, warehousemen and mechanics, payment of the obligation secured thereby not yet being due, (dd) Liens securing taxes, assessments or other governmental charges or levies not yet subject to penalties for nonpayment or (ee) pledges or deposits to secure public or statutory obligations of Mendocino or surety, customs or appeal bonds to which Mendocino is a party; and (xvi) Mendocino has not committed to any of the foregoing. 3.9. Ownership of Property. --------------------- (a) Mendocino owns good and marketable fee simple title to all of the real estate described on Schedule 3.9(a) hereto (subject to only those Liens disclosed on such Schedule 3.9(a)) and good, valid and marketable leasehold interests in the leases described in Schedule 3.9(b) hereto, and good and marketable title to, or valid leasehold interests in, all of its other properties and assets. (b) All real property owned, leased, used or occupied by Mendocino is set forth on Schedule 3.9(a) and 3.9(b), respectively. Mendocino does not own any other real property and is not a lessee or lessor under any leases, or a licensee or licensor of real property, other than set forth therein. Each of such leases is valid and enforceable in accordance with its terms and is in full force and effect. Mendocino has delivered to the Purchaser true and complete 13 copies of each of such leases set forth on Schedule 3.9(b) and all documents affecting the rights or obligations of Mendocino, including, without limitation, any non-disturbance and recognition agreements, subordination agreements, attornment agreements and agreements regarding the term or rental of any of the leases. Neither Mendocino nor any other party to any such lease is in default of its obligations thereunder or has delivered or received any notice of default under any such lease, nor has any event occurred which, with the giving of notice, the passage of time or both, would constitute a default under any such lease. (c) Except as disclosed on Schedule 3.9(b), Mendocino is not obligated under or a party to, any option, right of first refusal or any other contractual right to purchase, acquire, sell, assign or dispose of any real property owned or leased by Mendocino. (d) All real estate and improvements owned, leased, used or occupied by Mendocino have adequate connections to all necessary utilities and conform with all applicable zoning, building, subdivision and other requirements of any governmental authority and all restrictive covenants affecting such real estate and improvements except any such failures to confirm that, singly or in the aggregate, would not have a Material Adverse Effect. To the knowledge of Mendocino, there are no presently pending or contemplated special tax assessment, condemnation proceedings or nuisance claims affecting such real estate and improvements. (e) Except as set forth in Schedule 3.9(e), the consummation of the Transactions, including the Closing, do not require the consent of any lessor or licensor of any real property leased, licensed or used by Mendocino. 3.10. Material Contracts. Schedule 3.10 contains a true, correct and ------------------ complete list and description of all Material Contracts, whether oral or written, and any amendments or supplements thereto or extensions thereof, and Mendocino has made available to the Purchaser for its review complete, current and accurate copies of each Material Contract including any amendments or supplements thereto or extensions thereof or has completely, currently and accurately described the terms of any oral agreement, amendment, supplement or extension. Except as set forth on Schedule 3.10, each Material Contract is a valid and binding agreement of Mendocino enforceable against Mendocino in accordance with its terms, and Mendocino does not have any knowledge that any Material Contract is not a valid and binding agreement against the other parties thereto. Except as set forth on Schedule 3.10, Mendocino has fulfilled all obligations required pursuant to each Material Contract to have been performed by Mendocino on its part. Except as set forth on Schedule 3.10, Mendocino is not in default or breach, nor to Mendocino's knowledge is any third party in default or breach, under or with respect to any Material Contract. 14 3.11. Environmental Protection. ------------------------ (a) Mendocino and all real property owned, leased or otherwise operated by Mendocino (each, a "Facility") comply in material respects with any applicable Environmental Law; (b) Mendocino has all permits and authorizations necessary from any government authorities for its operations and the Facilities by any applicable Environmental Law; (c) Mendocino has not, and has no knowledge of any other person who has, caused any release, threatened release or disposal of any Hazardous Material at any Facility in any material quantity, and, to the knowledge of Mendocino, the Facilities are not adversely affected by any release, threatened release or disposal of a Hazardous Material originating or emanating from any other property; (d) Mendocino has generated, treated, stored or disposed of all Hazardous Materials in full compliance with applicable Environmental Laws, except such non-compliances which in the aggregate have no reasonable likelihood of having a Material Adverse Effect; (e) Mendocino has obtained and is in full compliance with and in good standing under all permits required under Environmental Laws, and Mendocino has no knowledge of any proceedings to substantially modify or to revoke any such permit, other than those permits, the failure of which to obtain or have in effect, in the aggregate, would have no reasonable likelihood of having a Material Adverse Effect; (f) There are no investigations; judicial or administrative proceedings, pending litigation or, to Mendocino's knowledge, threatened investigations, proceedings or litigation affecting or relating to Mendocino or the Facilities relating to Environmental Laws or Hazardous Materials. (g) Mendocino have not received any communication or notice (including, without limitation, requests for information) indicating the potential of Environmental Liabilities and Costs against any of Mendocino or the Facilities; and (h) Mendocino has provided to the Purchaser or made available to the Purchaser all environmental records, documents, correspondence, analytical results, manifests, permits or other records concerning the potential of Environmental Liabilities and Costs against Mendocino or the Facilities that Mendocino possesses. 3.12. Labor Matters. There are no strikes or other labor disputes against ------------- Mendocino pending or, to Mendocino's knowledge, threatened. Hours worked by and payments made to employees of Mendocino have not been in violation of the Fair Labor Standards Act or any other applicable law dealing with such matters. All payments due from Mendocino on account of employee health and welfare insurance have been paid or accrued as a liability on the books of Mendocino. Mendocino does not have any obligation under any collective bargaining agreement or similar agreement. There is no organizing activity involving Mendocino pending or, to Mendocino's knowledge, threatened by any labor union or group of employees. There are no 15 representation proceedings pending or threatened with the National Labor Relations Board, and no labor organization or group of employees of Mendocino has made a pending demand for recognition. There are no complaints or charges against Mendocino pending or, to Mendocino's knowledge, threatened to be filed with any federal, state, local or foreign court, governmental agency or arbitrator based on, arising out of, in connection with, or otherwise relating to the employment or termination of employment by Mendocino of any individual. 3.13. Other Ventures. Mendocino is not engaged in any joint venture or -------------- partnership with any other Person. 3.14. Taxes. All federal, state, local and foreign tax returns, reports and ----- statements required to be filed by Mendocino have been filed with the appropriate governmental authority and are complete and accurate. All Charges and other impositions shown thereon to be due and payable or required to be shown thereon have been paid prior to the date on which any fine, penalty, interest, late charge may be added thereto for nonpayment thereof, or any such fine, penalty, interest, late charge or loss has been paid. Proper and accurate amounts have been withheld by Mendocino from its employees for all periods in full and complete compliance with the tax, social security and unemployment withholding provisions of applicable federal, state, local and foreign law and such withholdings have been timely paid to the respective governmental agencies. Mendocino has not executed or filed with the IRS or any other governmental authority any agreement or other document extending, or having the effect of extending, the period for assessment or collection of any Charges. Mendocino has not filed a consent pursuant to IRC Section 341(f) or agreed to have IRC Section 341(f)(2) apply to any dispositions of subsection (f) assets (as such term is defined in IRC Section 341(f)(4)). None of the property owned by Mendocino is property which Mendocino is required to treat as being owned by any other Person pursuant to the provisions of IRC Section 168 (f)(8) of the Internal Revenue Code of 1954, as amended, and in effect immediately prior to the enactment of the Tax Reform Act of 1986 or is "tax-exempt use property" within the meaning of IRC Section 168(h). Mendocino has not agreed or been requested to make any adjustment under IRC Section 481(a) by reason of a change in accounting method or otherwise. Mendocino does not have any obligation under any written tax sharing agreement. There are no Liens for or in respect of taxes upon any assets of Mendocino, other than with respect to taxes not yet due and payable. Except as set forth on Schedule 3.14, Mendocino has not agreed to indemnify any other party with respect to such party's tax liabilities. Mendocino does not now, and has never, filed federal, state, local or foreign income tax returns on a consolidated, unitary or other similar basis with one or more corporations. 3.15. No Litigation. Except as set forth on Schedule 3.15, no action, claim ------------- or proceeding is now pending or, to the knowledge of Mendocino, threatened against Mendocino, at law, in equity or otherwise, before any court, board, commission, agency or instrumentality of any federal, state, or local government or of any agency or subdivision thereof, or before any arbitrator or panel of arbitrators, nor to the knowledge of Mendocino does a state of facts exist which is reasonably likely to give rise to such proceedings. 3.16. Brokers. Other than BA Partners, a division of BancAmerica Robertson ------- Stephens, Inc., no broker or finder acting on behalf of Mendocino brought about the consummation of the Transactions contemplated pursuant to this Agreement, and Mendocino 16 does not have an obligation to any Person, in respect of any finder's or brokerage fees in connection with the Transactions contemplated by this Agreement. Mendocino is solely responsible for the payment of all fees and expenses of BA Partners and any other brokers or finders acting on behalf or at the request of Mendocino. 3.17. Employment and Labor Agreements. Except as set forth on Schedule ------------------------------- 3.17, there are no employment, consulting or management agreements covering management of Mendocino and there are no collective bargaining agreements or other labor agreements covering any employees of Mendocino. 3.18. Patents, Trademarks, Copyrights and Licenses. Mendocino owns all -------------------------------------------- licenses, patents, patent applications, copyrights, service marks, trademarks, trademark applications, trade dress, trade secrets, trade names and other intellectual property rights necessary to continue to conduct its business as heretofore conducted by it, now conducted by it and proposed to be conducted by it, including those trademarks listed, together with Patent and Trademark Office application or registration numbers, where applicable, or other similar information with respect to filings made in countries other than the United States, where applicable, on Schedule 3.18 hereto. Except as set forth on Schedule 3.18, Mendocino conducts its businesses without infringement, unfair competition or dilution or claim of infringement, unfair competition or dilution of any license, patent, copyright, service mark, trademark, trade name, trade secret or other intellectual property right of others. Except as set forth on Schedule 3.18, to Mendocino's knowledge, there is no infringement or claim of infringement by others of any material license, patent, copyright, service mark, trademark, trade name, trade dress, trade secret or other intellectual property right of Mendocino. 3.19. ERISA. ----- (a) Mendocino has no ERISA Affiliates other than its Subsidiaries. (b) Set forth on Schedule 3.19 is a complete and accurate list of all plans maintained, contributed to or which there has been or currently is an obligation to contribute to by Mendocino or any of its Subsidiaries. Except as indicated otherwise in Schedule 3.19, none of the Plans is a Pension Plan, Multiemployer Plan, Title IV Plan, Retiree Welfare Plan or is or has been subject to Sections 4063 or 4064 or ERISA; and neither Mendocino nor any Subsidiary has contributed, or been obligated to contribute, to a Multiemployer Plan or Title IV Plan. (c) Each of the Qualified Plans and the trust maintained pursuant thereto are exempt from federal income taxation under Section 501 of the IRC, and nothing has occurred with respect to the operation of such Qualified Plans which could cause the loss of such qualifications or exemptions or the imposition of any liability, penalty or tax under ERISA or the IRC. (d) All contributions (including all employer contributions and employee salary reduction contributions) required to have been made under any of the Plans or by law (without regard to any waivers granted under Section 412 of the IRC), to any funds or trusts established thereunder or in connection therewith have been made by the due date thereof (including any valid extension), and all contributions for any period ending on or before the 17 Closing Date which are not yet due will have been paid or accrued on or prior to the Closing Date. (e) There is no material violation of ERISA with respect to the filing of applicable reports, documents and notices regarding he Plans or any tax-exempt trust related to any of the Plans with the Secretary of Labor and the Secretary of the Treasury or the furnishing of such documents to the participants or beneficiaries of the Plans. (f) True, correct and complete copies of the following documents, with respect to each of the Plans, have been made available or delivered to the Purchaser by Mendocino: (i) current plans and related trust documents, and amendments thereto; (ii) the most recent Forms 5500, Forms 990, if applicable, and any Forms 990T, 5329, 5330 that have been filed and any Forms 5558 that have been filed for reasons other than extensions of time; (iii) the last IRS determination letter; (iv) current summary plan descriptions; (v) written communications to employee relating to the Plans, and (vi) written descriptions of all not-written agreements relating to the Plans. (g) There are no pending actions, claims or lawsuits which have been asserted or instituted against the Plans, the assets of any of the trusts under such Plans or the plan sponsor or the plan administrator, or against any fiduciary of the Plans with respect to the operation of such Plans (other than routine benefits claims), nor does Mendocino or any of its Subsidiaries have knowledge of facts which could form the basis for any such claim or lawsuit. (h) The Plans have been maintained, in all material respects, in accordance with their terms and with all provisions of ERISA and other applicable federal and state laws and regulations, and neither Mendocino nor any of its Subsidiaries or any "party in interest" or "disqualified person" with respect to the Plans has engaged in a "prohibited transaction" within the meaning of Section 4975 of the IRC or Section 406 of ERISA. No fiduciary has any liability for breach of fiduciary duty or any other failure to act or comply in connection with the administration or investment of the assets of any Plan. (i) Mendocino and any of its Subsidiaries which maintains a "group health plan" within the meaning of Section 5000 (b) (1) of the IRC has complied with the notice and continuation requirements of Section 4980B of the IRC, the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, Part 6 of Subtitle B of Title I of ERISA and the regulations thereunder and with the requirements of Section 5000 of the Code. (j) No liability under any Plan has been funded nor has any such obligation been satisfied with the purchase of a contract from an insurance company that is not rated AA by Standard & Poor's Corporation and the equivalent by each other nationally recognized rating agency. (k) Mendocino does not have any contract, plan or commitment, whether legally binding or not, to create any additional Plan or to modify any existing Plan. 3.20. Registration Rights. Mendocino is not under any obligation to ------------------- register under the Securities Act any of its presently outstanding securities or any securities which may hereafter be issued. 18 3.21. Liquor Consents and Permits. Set forth on Schedule 3.21 is a list of --------------------------- all material licenses, permits, consents or approvals from or by , all material filings required to be made with, and all material notices required to be given to, all governmental authorities having jurisdiction, to the extent required for Mendocino to own and operate its properties, to lease the property it operates under lease, and to conduct its business as now, heretofore and proposed to be conducted. 3.22. SEC Documents. Mendocino has furnished the Purchaser with a true and ------------- complete copy of the SEC Documents. As of its filing date (and, with respect to any registration statement, the date on which it or any post-effective amendment was declared effective), each SEC Document was in compliance, in all material respects, with the applicable requirements of the Securities Act and the Securities Exchange Act, contained no untrue statement of a material fact and did not omit any statement of a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements of Mendocino included in the SEC Documents complied, at the time of filing with the SEC (and, with respect to any registration statement, at the time it was declared effective), as to form, in all material respects, with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, were prepared in accordance with generally accepted accounting principles applied on a consistent basis during the periods involved (subject, in the case of the unaudited statements, to the omission of certain footnotes) and fairly present, in all material respects (subject, in the case of the unaudited statements, to normal, recurring year-end audit adjustments) the consolidated financial position of Mendocino, as applicable, as of the dates thereof and the consolidated results of their operations for the periods presented. 3.23. Acquisitions; Capital Expenditures. Except for existing commitments ---------------------------------- which have been set forth on Schedule 3.23, Mendocino does not have any existing commitments or agreements to acquire any assets (including under circumstances where such acquisition would be classified as a capital expenditure under GAAP) or to make any capital expenditure or contribution in any individual transaction or project where the purchase price, capital expenditure or contribution required of Mendocino, directly or indirectly, exceeds $25,000 or in transactions or projects where the aggregate purchase price, capital expenditure or contribution exceeds $25,000. 3.24. Accounts Receivable. All receivables of Mendocino arose in the ------------------- ordinary course of business at the aggregate amounts thereof, are collectible except to the extent of reserves shown on the balance sheet of Mendocino as of June 30, 1997 (and, for accounts arising after June 30, 1997, to an extent consistent with past reserve practices) and are carried at values determined in accordance with GAAP consistently applied on a reasonable basis. None of the receivables of Mendocino is subject to any claim of offset, recoupment, setoff or counter-claim and Mendocino does not know of any facts or circumstances (whether asserted or unasserted) that would give rise to any such claim. No receivables are contingent upon the performance by Mendocino or any obligation or contract. Except as set forth on Schedule 3.24, no person has any lien, charge, pledge, security interest or other encumbrance on any of such receivables and no agreement for deduction or discount has been made with respect to any of such receivables. 19 3.25. Insurance. Set forth on Schedule 3.25 is a list of all insurance --------- policies and fidelity bonds covering the assets, business, equipment, properties, operations, employees, officers and directors of Mendocino. There is no claim by Mendocino pending under any of such policies or bonds as to which coverage has been questioned, denied or disputed by the underwriters of such policies and bonds. All premiums due and payable under all such policies and bonds have been paid and Mendocino is otherwise in full compliance with the terms of such policies and bonds (or other policies and bonds providing substantially similar insurance coverage). Such policies of insurance and bonds are of the type and in amounts customarily carried by persons conducting businesses similar to those of Mendocino. Except as set forth on Schedule 3.25, Mendocino has no knowledge of any threatened termination of, or material premium increase with respect to, any of such policies. 3.26. Related Party Transactions. All of the related party transactions -------------------------- between the Original Partners and Mendocino were made on terms no less favorable to Mendocino than could have been obtained from unaffiliated third parties and were approved by a majority of the independent directors of Mendocino. Schedule 3.26 sets forth a list of all of the related party transactions between the Original Partners and Mendocino since January 1, 1993. 3.27. No Stockholder Approval. Although approval by the stockholders of ----------------------- Mendocino is required under the rules of the Pacific Stock Exchange, Mendocino has obtained a waiver from the Pacific Stock Exchange of such requirement. No approval by the stockholders of Mendocino is otherwise required for the issuance and sale of the Shares by Mendocino pursuant to this Agreement. IV. PURCHASER'S REPRESENTATIONS AND WARRANTIES. ------------------------------------------ Purchaser makes the following representations and warranties to Mendocino, each and all of which shall survive the execution and delivery of this Agreement and the Closing hereunder: 4.1. Corporate Existence. Purchaser is a corporation duly organized, ------------------- validly existing and in good standing under the laws of the State of Delaware. 4.2. Investment Intention. Purchaser is purchasing the shares of Common -------------------- Stock specified in Section 2.1 for its own account, for investment purposes and not with a view to the distribution thereof. 4.3. Investment Experience. Purchaser represents that it is experienced in --------------------- evaluating and investing in securities of craft brewing companies in the growth stage and acknowledges that it is able to fend for itself, can bear the economic risk of its investment and has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of the investment. 4.4. Access to Information. Purchaser acknowledges that it (a) is familiar --------------------- with the craft brewing industry in which Mendocino does business, (b) has received all the information it considers necessary or appropriate for deciding whether to purchase the Shares pursuant to this Agreement, and (c) has had an opportunity to ask questions and has received answers from Mendocino about its business and to obtain additional information necessary to verify the accuracy of the information supplied or to which the Purchaser had access The foregoing, 20 however, does not limit or modify the representations and warranties of Mendocino in Section III of this Agreement. It is understood and agreed that Mendocino has agreed to provide the Purchaser with continuing access to information concerning Mendocino, its business, management and financial affairs under Section 6.7 hereunder. 4.5. Corporate Power; Authorization; Enforceable Obligations. The ------------------------------------------------------- execution, delivery and performance by Purchaser of this Agreement, and the other Transactions to which it is a party and all instruments and documents to be delivered by Purchaser, to the extent that it is a party thereto, hereunder and thereunder: (i) are within Purchaser's corporate power; (ii) have been duly authorized by all necessary corporate action on the part of Purchaser; (iii) are not in contravention of any provision of Purchaser's articles of incorporation or by-laws; (iv) will not violate any law or regulation, or any order or decree of any court or government instrumentality; (v) will not conflict with or result in the breach or termination of, constitute a default under or accelerate any performance required by, any indenture, mortgage, deed of trust, lease, agreement or other instrument to which Purchaser is a party or by which Purchaser or any of its property is bound; (vi) will not result in the creation or imposition of any Lien upon any of the property of Purchaser: and (vii) except for the filings described on Schedule 4.5 hereto, do not require the consent or approval of, or any filing with, any governmental authority or any other Person. This Agreement has been duly executed and delivered by Purchaser and constitutes a legal, valid and binding obligation of Purchaser, enforceable against it in accordance with its terms. Each of the Ancillary Agreements to which Purchaser is a party have been duly executed and delivered by Purchaser and each constitutes a legal, valid and binding obligation of Purchaser, enforceable against it in accordance with its terms. 4.6. Liquidity. The Purchaser has sufficient liquidity and capital --------- resources to purchase the Shares at the times specified in this Agreement. 4.7. Acceptability to Regulators. To the best of Purchaser's knowledge, --------------------------- there is nothing that would cause any federal or state regulator to object to Purchaser as a shareholder of the Company or to Vijay Mallya, O'Neil Nalavadi, Yashpal Singh or Jerome Merchant as a director of the Company. 4.8. Brokers. Other than Jerome Merchant, no broker or finder acting on ------- behalf of Purchaser brought about the Transactions contemplated pursuant to this Agreement, and purchaser does not have any obligation to pay any Person, in respect of any finder's or brokerage fees in connection with the Transactions contemplated by this Agreement. Purchaser is solely responsible for the payment of all fees and expenses of Jerome Merchant and any other brokers or finders acting on behalf or at the request of Purchaser. 4.9. Outstanding Units of Releta. Releta has a total of 100 units (the --------------------------- "Units") outstanding. Purchaser is the sole member of Releta and owns all of the Units of Releta outstanding. All of the issued and outstanding Units of Releta are, and as of the Closing Date will be, validly issued, fully paid and non- assessable. There is no existing option, warrant, call, commitment or other agreement to which Releta is a party requiring, and there are no convertible securities of Releta outstanding which upon conversion would require, the issuance of any additional Units of Releta or other securities convertible into units of Releta, and there are no agreements to which Releta is a party or, to the best knowledge of Releta, to which Releta is not 21 a party, in each case, with the sole member of Releta with respect to the voting or transfer of the Units of Releta or with respect to any other aspect of Releta's affairs. There are no preemptive rights or rights of first refusal or other similar rights with respect to the transfer of the Units by Purchaser. 4.10. Authorization and Transfer of Equity Interest by Purchaser. Purchaser ---------------------------------------------------------- has taken all necessary corporate action to duly authorize the transfer of the equity interest in Releta, represented by the Units, to Mendocino. Upon delivery to Mendocino of the certificate representing the Units therefor against payment in accordance with the terms hereof, the Units transferred to Mendocino hereunder will be validly issued and fully paid and nonassessable, free and clear of all Liens and preemptive rights. The Units transferred to Mendocino by the Purchaser represent 100% of the equity interest in Releta. 4.11. Securities Laws. The offer, issuance, sale and delivery of the Units, --------------- as provided in this Agreement, are exempt from the registration requirements of the Securities Act and all applicable state securities laws, and are otherwise in compliance with such laws. 4.12. Releta Existence; Compliance with Law. Releta (i) is a limited ------------------------------------- liability company duly organized, validly existing and in good standing under the laws of the State of Delaware; (ii) is member managed, (iii) is duly qualified and in good standing under the laws of each jurisdiction where its ownership or lease of property or the conduct of its business requires such qualification (except for jurisdictions in which such failure to so qualify or to be in good standing would not have a Material Adverse Effect); (iv) has the requisite power and authority and the legal right to own, pledge, mortgage or otherwise encumber and operate its properties, to lease the property it operates under lease, and to conduct its business as now, heretofore and proposed to be conducted; (v) except as set forth on Schedule 4.12, has all material licenses, permits, consents or approvals from or by, and has made all material filings with, and has given all material notices to, all governmental authorities having jurisdiction or other Persons, to the extent required for such ownership, operation and conduct; (vi) is in compliance with its certificate of formation and operating agreement; and (vii) is in material compliance with all applicable provisions of law. 4.13. Subsidiaries. There exist no subsidiaries of Releta. ------------ 4.14. Ownership of Property. --------------------- (a) Releta owns good and marketable fee simple title to all of the real estate described on Schedule 4.14(a) hereto (subject to only those Liens disclosed on such Schedule 4.14(a)) and good, valid and marketable leasehold interests in the leases described in Schedule 4.14(b) hereto, and good and marketable title to, or valid leasehold interests in, all of its other properties and assets. (b) All real property owned, leased, used or occupied by Releta is set forth on Schedule 4.14(a) and 4.14(b), respectively. Releta does not own any other real property and is not a lessee or lessor under any leases, or a licensee or licensor of real property, other than set forth therein. Each of such leases is valid and enforceable in accordance with its terms and is in full force and effect. Releta has delivered to the Purchaser true and complete copies of each of 22 such leases set forth on Schedule 4.14(b) and all documents affecting the rights or obligations of Releta, including, without limitation, any non-disturbance and recognition agreements, subordination agreements, attornment agreements and agreements regarding the term or rental of any of the leases. Neither Releta nor any other party to any such lease is in default of its obligations thereunder or has delivered or received any notice of default under any such lease, nor has any event occurred which, with the giving of notice, the passage of time or both, would constitute a default under any such lease. (c) Except as disclosed on Schedule 4.14(b), Releta is not obligated under or a party to, any option, right of first refusal or any other contractual right to purchase, acquire, sell, assign or dispose of any real property owned or leased by Releta. (d) All real estate and improvements owned, leased, used or occupied by Releta have adequate connections to all necessary utilities and conform with all applicable zoning, building, subdivision and other requirements of any governmental authority and all restrictive covenants affecting such real estate and improvements except any such failures to confirm that, singly or in the aggregate, would not have a Material Adverse Effect. To the knowledge of Releta, there are no presently pending or contemplated special tax assessment, condemnation proceedings or nuisance claims affecting such real estate and improvements. (e) Except as set forth in Schedule 4.14(e), the consummation of the Transactions, including the Closing, do not require the consent of any lessor or licensor of any real property leased, licensed or used by Releta. 4.15. Material Contracts; Liabilities; Equipment. (a) Schedule 4.15 ------------------------------------------ contains a true, correct and complete list and description of all Material Contracts, whether oral or written, and any amendments or supplements thereto or extensions thereof, and Releta has made available to the Purchaser for its review complete, current and accurate copies of each Material Contract including any amendments or supplements thereto or extensions thereof or has completely, currently and accurately described the terms of any oral agreement, amendment, supplement or extension. Each Material Contract is a valid and binding agreement of Releta enforceable against Releta in accordance with its terms, and Releta does not have any knowledge that any Material Contract is not a valid and binding agreement against the other parties thereto. Releta has fulfilled all obligations required pursuant to each Material Contract to have been performed by Releta on its part. Releta is not in default or breach, nor to Releta's knowledge is any third party in default or breach, under or with respect to any Material Contract. (b) Except for the lease(s) disclosed on Schedule 4.14(b), the Material Contracts disclosed on Schedule 4.15(a), and as set forth on Schedule 4.15(b), Releta does not have any liabilities, contingent or otherwise. (c) Set forth on Schedule 4.15(c) is a true, correct and complete list of equipment used at the Releta brewing facilities in Saratoga Springs, New York. Except as set forth on Schedule 4.15(b), such equipment is all owned by Releta free and clear of any Lien and constitutes all of the tangible assets of Releta. Except as set forth on Schedule 4.15(c), all such assets are fully operable and in good condition and repair, are free from any defect or condition that would affect their operation or useful life (except for normal wear and tear), and are suitable 23 for the conduct of the business of brewing beer, it being understood that the addition of a laboratory and additional warehouse facilities is required to brew Red Tail Ale and that the addition of a pasteurizer is required to brew Kingfisher. There are no physical or mechanical defects of the facilities at Releta, including without limitation, the plumbing, heating, venitlation, air conditioning and electrical systems, and all such items are in good operating condition and repair and in compliance with all applicable laws. 4.16. Environmental Protection. To the best knowledge of Releta and its ------------------------ officers: (i) Releta and all real property owned, leased or otherwise operated by Releta (each, a "Facility") comply in material respects with any applicable Environmental Law; (ii) Releta has all permits and authorizations necessary from any government authorities for its operations and the Facilities by any applicable Environmental Law; (iii) Releta has not, and has no knowledge of any other person who has, caused any release, threatened release or disposal of any Hazardous Material at any Facility in any material quantity, and, to the knowledge of Releta, the Facilities are not adversely affected by any release, threatened release or disposal of a Hazardous Material originating or emanating from any other property; (iv) Releta has generated, treated, stored or disposed of all Hazardous Materials in full compliance with applicable Environmental Laws, except such non-compliances which in the aggregate have no reasonable likelihood of having a Material Adverse Effect; (v) Releta has obtained and is in full compliance with and in good standing under all permits required under Environmental Laws, and Releta has no knowledge of any proceedings to substantially modify or to revoke any such permit, other than those permits, the failure of which to obtain or have in effect, in the aggregate, would have no reasonable likelihood of having a Material Adverse Effect; (vi) There are no investigations; judicial or administrative proceedings, pending litigation or, to Releta's knowledge, threatened investigations, proceedings or litigation affecting or relating to Releta or the Facilities relating to Environmental Laws or Hazardous Materials; (vii) Releta has not received any communication or notice (including, without limitation, requests for information) indicating the potential of Environmental Liabilities and Costs against any of Releta or the Facilities; and (viii) Releta has provided to the Purchaser or made available to the Purchaser all environmental records, documents, correspondence, analytical results, manifests, permits or other records concerning the potential of Environmental Liabilities and Costs against Releta or the Facilities that Releta possesses. 24 4.17. Other Ventures. Releta is not engaged in any joint venture or -------------- partnership with any other Person. 4.18. Taxes. All federal, state, local and foreign tax returns, reports and ----- statements required to be filed by Releta have been filed with the appropriate governmental authority and are complete and accurate. All Charges and other impositions shown thereon to be due and payable or required to be shown thereon have been paid prior to the date on which any fine, penalty, interest, late charge may be added thereto for nonpayment thereof, or any such fine, penalty, interest, late charge or loss has been paid. Proper and accurate amounts have been withheld by Releta from its employees for all periods in full and complete compliance with the tax, social security and unemployment withholding provisions of applicable federal, state, local and foreign law and such withholdings have been timely paid to the respective governmental agencies. Releta has not executed or filed with the IRS or any other governmental authority any agreement or other document extending, or having the effect of extending, the period for assessment or collection of any Charges. Releta has not filed a consent pursuant to IRC Section 341(f) or agreed to have IRC Section 341(f)(2) apply to any dispositions of subsection (f) assets (as such term is defined in IRC Section 341(f)(4)). None of the property owned by Releta is property which Releta is required to treat as being owned by any other Person pursuant to the provisions of IRC Section 168 (f)(8) of the Internal Revenue Code of 1954, as amended, and in effect immediately prior to the enactment of the Tax Reform Act of 1986 or is "tax-exempt use property" within the meaning of IRC Section 168(h). Releta has not agreed or been requested to make any adjustment under IRC Section 481(a) by reason of a change in accounting method or otherwise. Releta does not have any obligation under any written tax sharing agreement. There are no Liens for or in respect of taxes upon any assets of Releta, other than with respect to taxes not yet due and payable. Releta has not agreed to indemnify any other party with respect to such party's tax liabilities. Releta does not now, and has never, filed federal, state, local or foreign income tax returns on a consolidated, unitary or other similar basis with one or more corporations. 4.19. No Litigation. Except as set forth on Schedule 4.15(b), no action, ------------- claim or proceeding is now pending or, to the knowledge of Releta, threatened against Releta, at law, in equity or otherwise, before any court, board, commission, agency or instrumentality of any federal, state, or local government or of any agency or subdivision thereof, or before any arbitrator or panel of arbitrators, nor to the knowledge of Releta does a state of facts exist which is reasonably likely to give rise to such proceedings. 4.20. Employment and Labor Agreements. There are no employment, consulting ------------------------------- or management agreements covering management of Releta and there are no collective bargaining agreements or other labor agreements covering any employees of Releta. 4.21. Patents, Trademarks, Copyrights and Licenses. Set forth on Schedule -------------------------------------------- 4.21 is a list of all Patent and Trademark Office applications made by Releta with respect to trademarks required by Releta to conduct its business as proposed to be conducted by it. To Releta's knowledge, Releta's business as proposed to be conducted will be without infringement, unfair competition or dilution or claim of infringement, unfair competition or dilution of any license, patent, copyright, service mark, trademark, trade name, trade secret or other intellectual property right of others. 25 4.22. ERISA. Releta has no Plans. ----- 4.23. Registration Rights. Releta is not under any obligation to register ------------------- under the Securities Act any of its presently outstanding securities or any securities which may hereafter be issued. 4.24. Liquor Consents and Permits. Set forth on Schedule 4.24 is a list of --------------------------- all material licenses, permits, consents or approvals from or by, all material filings required to be made with, and all material notices required to be given to, all governmental authorities having jurisdiction, to the extent required for Releta to own and operate its properties, to lease the property it operates under lease, and to conduct its business as now, heretofore and proposed to be conducted. 4.25. Insurance. Set forth on Schedule 4.25 is a list of all insurance --------- policies and fidelity bonds covering the assets, business, equipment, properties, operations, employees, officers and directors of Releta. There is no claim by Releta pending under any of such policies or bonds as to which coverage has been questioned, denied or disputed by the underwriters of such policies and bonds. All premiums due and payable under all such policies and bonds have been paid and Releta is otherwise in full compliance with the terms of such policies and bonds (or other policies and bonds providing substantially similar insurance coverage). Such policies of insurance and bonds are of the type and in amounts customarily carried by persons conducting businesses similar to those of Releta. Releta has no knowledge of any threatened termination of, or material premium increase with respect to, any of such policies. 4.26. Costs of Releta. Purchaser's actual costs of establishing Releta and --------------- taking possession of Releta's assets equals at least $5,000,000, including, without limitation, all costs incurred by Purchaser in connection with the Nor'Wester Brewing Company transaction. Such costs consist only of out-of-pocket expenses incurred by Purchaser in establishing Releta and taking possession of Releta's assets, plus the commitment by Purchaser to assume certain obligations of Releta under the lease set forth on Schedule 4.14(b).. Except as set forth on Schedule 4.26, the costs do not include allocations of Purchaser's overhead, management salaries, office supplies, or other non-out-of pocket expenses. V. DOCUMENTS DELIVERED AT CLOSING. ------------------------------ 5.1. Documents Delivered to Purchaser at the Closing. The following ----------------------------------------------- documents shall have been delivered to the Purchaser at the Closing: (a) A favorable opinion of counsel to Mendocino, substantially in the form attached hereto as Exhibit 5.1(a), and dated the date hereof, it being understood that to the extent that such opinions of counsel shall rely upon any other opinion of counsel, each such other opinion shall be in form and substance reasonably satisfactory to the Purchaser and shall provide that the Purchaser may rely thereon. (b) A certificate dated as of the Closing Date executed by an officer of Mendocino to the effect that all of the representations and warranties of Mendocino contained herein and in the Ancillary Agreements shall be correct as of the Closing Date. 26 (c) Resolutions of the Board of Directors of Mendocino, certified by the Secretary or Assistant Secretary of Mendocino, as of the Closing Date, duly adopted and in full force and effect on such date, authorizing (i) the consummation of each of the Transactions, including but not limited to, the transactions contemplated by this Agreement, (ii) specific officers to execute and deliver this Agreement and each Ancillary Agreement to which it is a party, and (iii) that, effective as of the Closing Date, the Board of Directors will consist of seven persons: Michael Laybourn, Vijay Mallya (who shall be the Chairman of the Board and Chief Executive Officer), O'Neil Nalavadi, Jerome Merchant, Yashpal Singh, Eric Bradley and Daniel R. Moldenhauer.. Purchaser shall also have received copies of the resignations of the other current members of the Board of Directors. Purchaser shall also receive agreements by Eric Bradley and Daniel R. Moldenhauer to resign as of December 31, 1997. (d) Governmental certificates, dated the most recent practicable date prior to the date hereof, with facsimile updates where available, showing that Mendocino is organized and in good standing in the jurisdiction of its organization and is qualified as a foreign corporation and in good standing in all other jurisdictions in which it is qualified to transact business. (e) A copy of the organizational charter and all amendments thereto of Mendocino certified as of a recent date by the Secretary of State in the jurisdiction of its organization, and copies of Mendocino's bylaws, certified by the Secretary or Assistant Secretary of Mendocino as true and correct as of the Closing Date. (f) Certificates of the Secretary or Assistant Secretary of Mendocino, dated the Closing Date, as to the incumbency of the officers of Mendocino executing this Agreement, each Ancillary Agreement to which it is a party, the other documents in connection with the Transactions to which it is a party and any other certificate or other document to be delivered pursuant hereto or thereto. (g) Copies of all licenses, permits, consents or approvals from or by, and all filings with and all notices to, all governmental authorities having jurisdiction, to the extent required for Purchaser to purchase, and Mendocino to sell, the Shares, including from any state liquor commission and the U.S. Bureau of Alcohol, Tobacco & Firearms. (h) Copies of all requisite consents of any third parties to the Transactions contemplated by this Agreement, including those set forth on Schedules 3.9(e) and 3.21, that have been obtained. (i) A copy of the waiver received from the Pacific Stock Exchange with regard to the requirement of stockholder approval for the issuance and sale of the Shares hereunder. (j) Evidence satisfactory to Purchaser that (i) The Savings Bank of Mendocino County and Westamerica Bank have each agreed to extend their loans to Mendocino on terms satisfactory in form and scope to Purchaser, (ii) a commitment letter in form and scope satisfactory to Purchaser to provide permanent financing for the Ukiah land and improvements 27 relating to the new brewery, and (iii) a commitment letter in scope and form satifactory to the Purchaser for a new working capital line of credit. (k) Such additional information and materials as it may reasonably request, all in form and substance satisfactory to Purchaser. 5.2. Documents Delivered to Mendocino at Closing. The following documents ------------------------------------------- shall have been delivered to Mendocino (or in the case of clause (f), to Michael Laybourn and Norman Franks) at the Closing: (a) A favorable opinion of counsel to Purchaser, substantially in the form attached hereto as Exhibit 5.2(a), and dated the date hereof, it being understood that to the extent that such opinions of counsel shall rely upon any other opinion of counsel, each such other opinion shall be in form and substance reasonably satisfactory to Mendocino and shall provide that Mendocino may rely thereon. (b) A certificate dated as of the Closing Date executed by an officer of Purchaser to the effect that all of the representations and warranties of Purchaser contained herein and in the Ancillary Agreements shall be correct as of the Closing Date. (c) Resolutions of the Board of Directors of Purchaser, certified by the Secretary or Assistant Secretary thereof, as of the Closing Date, to be duly adopted and in full force and effect on such date, authorizing (i) the consummation of each of the transactions contemplated by this Agreement, and (ii) specific officers of Purchaser to execute and deliver this Agreement and each Ancillary Agreement to which Purchaser is a party. (d) A copy of the certificate of formation and all amendments thereto of Releta certified as of a recent date by the Delaware Secretary of State and a copy of the limited liability company agreement of Releta, certified by the Secretary or Assistant Secretary of Releta or Purchaser as true and correct as of the Closing Date. (e) Certificates of the Secretary or an Assistant Secretary of the Purchaser, dated the Closing Date, as to the incumbency of the officers of the Purchaser executing this Agreement and each Ancillary Agreement to which it is a party and any certificate or other document to be delivered pursuant hereto or thereto. (f) Copies of all licenses, permits, consents or approvals from or by, and all filings with all notices to, all governmental authorities having jurisdiction, to the extent required for Purchaser to purchase, and Mendocino to sell, the Shares, including from any state liquor commission and the U.S. Bureau of Alcohol, Tobacco & Firearms. (g) The certificates representing 71,500 shares of Common Stock held by Michael Laybourn and Norman Frank which certificates Purchaser held as security for the deposit paid by the Purchaser to Mendocino. (h) Copies of all requisite consents of any third parties to the Transactions contemplated by this Agreement, including those set forth on Schedules 4.5, and 4.14(e) that have been obtained. 28 (i) Copy of Agreement between Purchaser and Releta dated the date hereof regarding Purchaser's agreement to assume certain obligations relating to lien holders at the Saratoga Springs brewing facility. VI. COVENANTS. --------- 6.1. Right of First Offer. -------------------- (a) Subject to the terms and conditions specified in this Section 6.1, Mendocino hereby grants to the Purchaser, as long as it continues to own securities representing at least 10% of the outstanding voting securities of Mendocino, a right to participate in future sales by Mendocino of its Capital Shares (as hereinafter defined). (b) Each time Mendocino proposes to offer any shares of, or securities or other right convertible into or exercisable for any shares of, any class of its capital stock ("Capital Shares"), Mendocino shall first make an offering of a portion of such Capital Shares to the Purchaser in accordance with the following provisions: (i) Mendocino shall deliver a written notice ("Notice") to the Purchaser stating (1) its bona fide intention to offer such Capital Shares, (2) the number of such Capital Shares to be offered, and (3) the price and terms, if any, upon which it proposes to offer such Capital Shares. (ii) Within 45 calendar days after receipt of the Notice, the Purchaser may elect to purchase or obtain, at the price and on the terms specified in the Notice, up to that portion of such Capital Shares which equals the number of Capital Shares that when added to the number of shares of Common Stock held by the Purchaser (including for such calculation any shares issuable upon conversion of any capital stock convertible into Common Stock) will give the Purchaser 45% of the Common Stock of Mendocino on a Fully Diluted Basis after giving effect to the issuance of the Capital Shares. (iii) Beginning upon delivery of the Notice and ending 135 days thereafter, Mendocino may offer any portion of the unsubscribed portion of such Capital Shares to any person or persons at a price not less than, and upon terms no more favorable to the offeree than those specified in the Notice. If Mendocino does not enter into an agreement for the sale of the Capital Shares within 135 days after delivery of the Notice or sell the Capital Shares within 165 days after delivery of the Notice, the right provided hereunder shall be revived and such Capital Shares shall not be offered unless first reoffered to the Purchaser in accordance herewith. (c) The foregoing right of first offer shall not apply to the Merger or any offer of stock to employees, directors, or consultants of Mendocino approved by the Board of Directors, or the Compensation Committee of such Board of Directors, pursuant to any of the existing stock option or award plans in existence as of the date hereof. 6.2. Percentage Ownership. So long as the Purchaser continues to own -------------------- securities representing at least 10% of the then outstanding voting securities of Mendocino, Mendocino shall not issue securities to any party which would enable such party to exceed the percentage 29 ownership of the voting securities owned by the Purchaser. From time to time, the Purchaser shall be permitted to request that Mendocino determine the percentage ownership of the outstanding Common Stock held by the Purchaser or any other Person specified by the Purchaser, as calculated on a Partially Diluted Basis, and Mendocino shall promptly (but in any event no later than five Business Days after such request is made) and accurately provide the Purchaser with a written determination of the percentage ownership of the outstanding Common Stock of the Purchaser or such other Person, as calculated on a Diluted Basis, as of the date such request is made with such verification and detail as reasonably requested by the Purchaser. Such response given by Mendocino shall be binding on Mendocino for purposes of determining the Purchaser's and Mendocino's rights and obligations under this Agreement and the Ancillary Agreements as of the date such request is made. 6.3. No Securities Senior to Common Stock. Mendocino may not, without the ------------------------------------ prior written consent of Purchaser, issue any securities (i) having contractual rights, privileges or preferences which are senior to the securities issued to the Purchaser or (ii) which by the terms of Mendocino's Certificate of Incorporation are senior to the securities issued to the Purchaser. 6.4. Permitted Acquisitions or Investments. Unless waived in writing by the ------------------------------------- Purchaser, Mendocino shall not directly or indirectly in any transaction or related series of transactions, acquire or invest in, whether for cash, debt, Stock, or other property or assets or by guaranty of any obligation, any assets (other than cash or cash equivalents) or business the aggregate purchase price of which in any such transaction or related series of transactions exceeds 50% of the book value of Mendocino's assets on the date of such acquisition or investment immediately before giving effect thereto. 6.5. Sales of Assets. Unless waived in writing by the Purchaser: --------------- (a) Mendocino shall not, and shall not permit any Subsidiary of Mendocino to, sell, lease, transfer, convey or otherwise dispose of assets in any transaction or related series of transactions, which assets have an aggregate book value exceeding 50% of the aggregate book value of Mendocino's assets on the date of such sale, lease, transfer, conveyance or disposition immediately before giving effect thereto; provided, however, that except as -------- ------- otherwise set forth herein, the foregoing shall not prohibit any bona fide sale- leaseback transaction in which all leases entered into by Mendocino of Mendocino in connection with such transaction are Capital Leases. Mendocino shall not terminate any such lease prior to its specified term and shall not amend or supplement any such lease, if such amendment or supplement would cause such lease to be classified or accounted for as other than a Capital Lease. (b) Mendocino shall not sell, transfer, convey, license, pledge or otherwise dispose of any trademark or trade name acquired or owned by any of them after the date hereof if 15% or more of the revenues of Mendocino for the preceding Fiscal Year were attributable to sales of products using such trademark or trade name or any trademark or trade name listed on Schedule 3.19. 6.6. Books and Records. Unless waived in writing by the Purchaser, ----------------- Mendocino shall keep adequate records and books of account with respect to their business activities, in which 30 proper entries, reflecting all of their financial transactions, are made in accordance with GAAP consistently applied. 6.7. Financial and Other Information. Unless waived in writing by the ------------------------------- Purchaser: (a) Monthly Statements. Mendocino will deliver to the Purchaser as ------------------ soon as practicable after the end of each month, but in any event within 30 days thereafter: an unaudited balance sheet of Mendocino as at the end of such month, unaudited statements of income, retained earnings and changes in financial position of Mendocino for such month and for the portion of such year ending with such month and a sales report for such month, which report will show sales by product, by distributor and whether by bottle or draft in each state in which Mendocino sells its products, in each case for such month and for the portion of the Fiscal Year ending with such month and showing a comparison of such year to date sales results with those of the previous year, including growth figures for each product on a state by state basis. (b) SEC Filings. Mendocino will deliver to the Purchaser, promptly ----------- upon their becoming available, one copy of each report, notice or proxy statement sent by Mendocino to its stockholders generally, and of each regular or periodic report (pursuant to the Securities Exchange Act) and any registration statement, prospectus or other writing (other than transmittal letters) (including, without limitation, by electronic means) pursuant to the Securities Act filed by Mendocino with the SEC or the Pacific Stock Exchange or any securities exchange or the Nasdaq Stock Market on which shares of Common Stock of Mendocino are listed or quoted. Prior to filing or making publicly available any such report, notice, proxy statement, registration statement, prospectus or other writing which references or makes any disclosure concerning the Purchaser or its business, Mendocino shall provide the Purchaser a reasonable opportunity to review such report, notice, proxy statement, registration statement, prospectus or other writing and shall not make any such reference or disclosure to the Purchaser or its business to which the Purchaser reasonably objects within 24 hours of receipt of such report, notice, proxy statement, registration statement, prospectus or other writing, unless, in the reasonable opinion of counsel to Mendocino failure to make such reference or disclosure would create a reasonable risk of liability under the securities laws. (c) Projections. Mendocino will deliver to the Purchaser within 60 ----------- days prior to the beginning of each Fiscal Year: (i) a projected balance sheet of Mendocino for each month of such Fiscal Year; (ii) projected cash flow statements of Mendocino including summary details of cash disbursements (including Capital Expenditures), for each month of such Fiscal Year; and (iii) projected income statements of Mendocino for each quarter of such Fiscal Year; together with appropriate supporting details. 31 (d) Other Information. Mendocino will deliver to the Purchaser such ----------------- other information with respect to Mendocino's business, financial condition or prospects as the Purchaser may, from time to time, reasonably request. 6.8. Communication with Accountants. Mendocino authorizes the Purchaser to ------------------------------ communicate directly with its independent certified public accountants and tax advisors and authorizes those accountants to disclose to the Purchaser any and all financial statements and other supporting financial documents and schedules including copies of any management letter with respect to the business, financial condition and other affairs of Mendocino. Mendocino has delivered a letter addressed to such accountants and tax advisors instructing them to comply with the provisions of this Section 6.8, a copy of which letter has been provided to the Purchaser. 6.9. Tax Compliance. Unless waived in writing by the Purchaser, Mendocino -------------- shall pay all transfer, excise or similar taxes (not including income or franchise taxes) in connection with the issuance, sale, delivery or transfer by Mendocino to the Purchaser of the Common Stock and shall indemnify and save the Purchaser therefrom. Mendocino shall not be responsible for any taxes in connection with the transfer by the Purchaser of the Common Stock. The obligations of Mendocino under this Section 6.9 shall survive the payment and the termination of this Agreement. 6.10. Insurance. Unless waived in writing by the Purchaser, Mendocino shall --------- maintain insurance covering, without limitation, fire, theft, burglary, public liability, property damage, key man, product liability, workers' compensation and insurance on all property and assets, all in amounts customary for the industry. Mendocino shall, and shall cause each of its Subsidiaries to, pay all insurance premiums payable by them. 6.11. Agreements. Unless waived in writing by the Purchaser, Mendocino ---------- shall perform, within all required time periods (after giving effect to any applicable grace periods), all of its obligations and enforce all of its rights under its credit agreements. 6.12. Employee Loans. Unless waived in writing by the Purchaser, Mendocino -------------- shall not make or accrue any loans or other advances of money to any employee of Mendocino outside the ordinary course of business consistent with past practice or in excess at any one time of $25,000 in the aggregate for all such loans, other than such loans the principal amounts of which do not exceed in aggregate $25,000 and are required to be repaid on or prior to 30 days after the date such loans are made. 6.13. Capital Structure. Unless waived in writing by the Purchaser: ----------------- (a) Mendocino shall not make any changes in its capital structure by means of an amendment of its articles of incorporation or bylaws (including, without limitation, in the terms of its outstanding Stock) other than any increase in its authorized capital stock. (b) Mendocino shall issue, transfer or sell Common Stock for the purposes of raising capital or in connection with any acquisition of any property or business only, if in the good faith judgment of its board of directors, such issuance, transfer or sale, in the light of the other alternatives available to Mendocino to raise capital or effect such acquisition and the relative costs of such alternatives, the financial and operational flexibility provided to 32 Mendocino as a result thereof, the effect of such alternatives on the prices required to be paid by Mendocino in connection with any such acquisition and the relative effect of the available alternatives on the long-term returns to the shareholders of Mendocino, is in the best interests of Mendocino and its shareholders. (c) Mendocino shall not issue or sell or agree to issue or sell any Stock to any Person engaged in the business of brewing, producing or distributing malt or any alcoholic beverages in North America or India or to any Person known by Mendocino to be an Affiliate of any such Person other than (i) to any Person, the gross revenues of which Person and all Persons known by Mendocino to be an Affiliate of such Person resulting from the business of brewing, producing or distributing malt or any other alcoholic beverages in North America or India for the fiscal year preceding the date of such issuance do not exceed $500,000 (which amount shall be increased on each January 1 beginning with January 1, 1998 by the percentage increase in the Consumer Price Index (All Urban Consumers-U.S. City Average) for the preceding calendar year), (ii) to any Person acquiring Stock in any underwritten public offering of the Stock if Mendocino has not, directly or indirectly directed the sale of Stock to such Person or (iii) to the Purchaser or an Affiliate of the Purchaser. (d) Mendocino shall not, pursuant to any agreement or the terms of any Stock issued by Mendocino, give to any Person or Group the right to name or designate members of the board of directors of Mendocino equal to or greater in number than three. 6.14. Transactions with Affiliates. Unless waived in writing by the ---------------------------- Purchaser, Mendocino shall not enter into or be a party to any transaction with any Affiliate of Mendocino except (A) pursuant to the reasonable demands of Mendocino's business or any transaction reasonably related to a reasonable and legitimate business objective of Mendocino, and, in either case, (x) in the ordinary course of business consistent with past practice or (y) upon fair and reasonable terms that are fully disclosed to the Purchaser and are no less favorable to Mendocino than would be obtained in a comparable arm's-length transaction with a Person not an Affiliate of Mendocino (as determined by the vote of a majority of the independent directors of the board of directors of Mendocino) or (B) as expressly contemplated by the Transactions. The provisions of this Section 6.14 shall not apply to any transaction between Mendocino and the Purchaser or any Subsidiary or Affiliate of the Purchaser. 6.15. Guaranteed Indebtedness. Unless waived in writing by the Purchaser, ----------------------- Mendocino shall not incur any Guaranteed Indebtedness except (i) by endorsement of instruments or items of payment for deposit to the general account of Mendocino, and (ii) for Guaranteed Indebtedness incurred for the benefit of Mendocino if the primary obligation is permitted by this Agreement. 6.16. Restricted Payments. Unless waived in writing by the Purchaser, ------------------- Mendocino shall not make any Restricted Payments with respect to Mendocino's Stock; 6.17. Employee Plans. Unless waived in writing by the Purchaser: -------------- (a) With respect to other than a Multiemployer Plan, for each Qualified Plan hereafter adopted or maintained by Mendocino, Mendocino shall (A) seek and receive determination letters from the IRS to the effect that such Qualified Plan is qualified within the 33 meaning of Section 401(a) of the IRC; and (B) from and after the adoption of any such Qualified Plan, cause such plan to be qualified within the meaning of Section 401(as) of the IRC and to be administered in all material respects in accordance with the requirements of ERISA and Section 401(a) of the IRC. (b) With respect to each Welfare Plan hereafter adopted or maintained by Mendocino, Mendocino shall comply with all requirements of Section 4980B and Section 5000 of the IRC and the regulations thereunder. (c) Mendocino shall not, directly or indirectly, by reason of an amendment or amendments to, or the adoption of, one or more Title IV Plans, permit the present value of all benefit liabilities, as defined in Title IV of ERISA (using the actuarial assumptions utilized by the PBGC upon termination of a plan), for which Mendocino or its Subsidiaries are responsible (A) to increase by more than $50,000 after the date hereof; provided that this limitation shall not be applicable to the extent that the fair market value of assets allocable to such benefits, all determined as of the most recent valuation date for each such Title IV Plan, is in excess of the benefit liabilities; or (B) to increase to the extent security must be provided to any Title IV Plan under Section 401(A)(29) of the IRC. Mendocino shall not establish or become obligated under any new Retiree Welfare Plan, or modify any existing Retiree Welfare Plan, which would reasonably be expected to result in the present value of future liabilities under all such plans to increase by more than $50,000 after the date hereof. Mendocino shall not establish or become obligated to any new unfunded Pension Plan, or modify any existing unfunded Pension Plan, which would reasonably be expected to result in the present value of future liabilities under all such plans to increase by more than $50,000 after the date hereof. Mendocino shall not directly or indirectly, (a) satisfy any liability under any Qualified Plan by purchasing annuities from an insurance company or (b) invest the assets of any Qualified Plan with an insurance company, unless, in each case, such insurance company is rated AA by Standard & Poor's Corporation and the equivalent by each other nationally recognized rating agency at the time of the investment. Except as otherwise expressly provided herein, for purposes of this paragraph present values shall be determined in accordance with accepted financial practices. (d) Mendocino and any ERISA Affiliate shall not contribute or become obligated to contribute to any Multiemployer Plan where a withdrawal by such person from such plan could reasonably be expected to result in a Withdrawal Liability in excess of $50,000 to Mendocino. 6.18. Environmental Matters. Unless waived in writing by the Purchaser, --------------------- Mendocino shall comply in all material respects with the Environmental Laws applicable to it and shall not cause, directly or indirectly, or suffer to occur any one or more releases or disposals of any Hazardous Material at any Facility which may result in material Environmental Liabilities and Costs. 6.19. Maintenance of Existence and Conduct of Business. Unless waived in ------------------------------------------------ writing by the Purchaser, Mendocino shall: (i) do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence, and its rights and franchises; (ii) continue to conduct its business in the brewing and distributing of malt beverages substantially as now conducted or as otherwise permitted hereunder and shall not engage in any material respect in 34 any other business; (iii) at all times maintain, preserve and protect any trademark or trade name acquired or owned by Mendocino after the date hereof if 15% or more of the revenues of Mendocino for the preceding Fiscal Year were attributable to sales of products using such trademark or trade name and all of its trademarks and trade names set forth on Schedule 3.19; (iv) preserve all the remainder of its property, in use or useful in the conduct of its business and keep the same in good repair, working order and condition (taking into consideration ordinary wear and tear) and from time to time make, or cause to be made, all necessary and proper repairs, renewals and replacements, betterments and improvements thereto consistent with industry practices, so that the business carried on in connection therewith may be properly and advantageously conducted at all times, except to the extent such property is disposed of as permitted under Section 6.5 of this Agreement or to the extent such property has become obsolete; and (v) comply in all material respects with all applicable laws, rules, regulations and orders of any governmental authority. 6.20. Mergers. Unless waived in writing by the Purchaser, Mendocino shall ------- not, other than Merger, consolidate, merge or engage in a share exchange with or into any other corporation, other than (A) a merger of a subsidiary of Mendocino into Mendocino whereby Mendocino is the surviving corporation or (B) a merger whereby (1) Mendocino will be the surviving corporation in such merger, (2) the holders of Mendocino's outstanding Common Stock and other securities entitled to ordinary voting power immediately preceding such merger will, immediately after such merger, own shares possessing more than 50% of the aggregate voting power and economic rights of the outstanding capital stock of Mendocino, (3) no breach by Mendocino of any covenant contained in this Agreement or in any Ancillary Agreement or right on behalf of the Purchaser to terminate any Ancillary Agreement shall exist immediately prior to or immediately after such merger, (4) there will be no shares of any class or classes of Mendocino's capital stock ranking prior to (either as to dividends or upon voluntary or involuntary liquidation, dissolution or winding up) the Common Stock after the merger, and (5) the only substantial business of the company merging into Mendocino is producing or distributing beverages. 6.21. Liquidation. Unless waived in writing by the Purchaser, Mendocino ----------- shall not liquidate, wind up or dissolve itself. 6.22. Hostile Acquisition. Unless waived in writing by the Purchaser, ------------------- Mendocino shall not engage in any unsolicited transaction for the control of another company which is not approved by the board of directors of such company, whether by open market purchases of the capital stock of such company, by offer for the capital stock of such company or by solicitation of proxies or consents of the shareholders of such company. 6.23. Access to Books and Records. Unless waived in writing by the --------------------------- Purchaser, Mendocino shall permit representatives of the Purchaser to visit and inspect, at no charge to the Purchaser, any of the properties of Mendocino to examine the corporate books and make copies or extracts therefrom and to discuss the affairs, finances and accounts of Mendocino with the principal officers of Mendocino, all at such reasonable times, upon reasonable notice and as often as the Purchaser may reasonably request. 35 6.24. Auditors. Unless waived in writing by the Purchaser, Mendocino shall -------- not change its independent certified public accounting firm except to any nationally recognized independent certified public accounting firm. 6.25. Employees. Mendocino acknowledges that, except as may be explicitly --------- provided otherwise in this Agreement, Mendocino shall have complete responsibility and authority concerning recognition of collective bargaining units within its employees, the determination as to whether to enter into collective bargaining agreements or labor agreements with its employees, and the terms of any such agreement. 6.26. BDM Construction Company. Mendocino shall promptly pay BDM ------------------------ Construction Company such amounts and on the dates set forth on Schedule 6.26 or at such other times as shall be mutually agreeable between BDM Construction Company and Mendocino. Mendocino shall promptly reject in writing any offer from BDM Construction Company to retain the 300,000 shares of Common Stock issued to it in satisfaction of any portion of Mendocino's indebtedness to BDM. 6.27. Termination of Certain Covenants. The obligations of Mendocino set -------------------------------- forth in Sections 6.1 through 6.26 shall terminate on the date on which the Purchaser and all Subsidiaries of Purchaser do not hold, in aggregate 7.5% of the outstanding Common Stock of Mendocino calculated on a Fully Diluted Basis. 6.28. Cash Flow Requirements of Releta. Purchaser shall provide funding for -------------------------------- the working capital requirements of Releta in an amount not to exceed $1 million for a period of two years from the date of this Agreement or until Releta's operations are profitable, whichever comes first. The funding will be provided directly by the Purchaser or the Purchaser will arrange for such financing by a third party. Any amounts funded will be evidenced by a credit agreement in form customary for such financings and will be secured by a first position security interest in the equity interest in and assets of Releta. The terms of the funding contemplated by this section shall be mutually agreeable between Purchaser and Mendocino and shall be approved by a majority of the disinterested members of the Board of Directors. For the foregoing purpose, Vijay Mallya, O'Neil Nalavadi, Jerome Merchant and Yashpal Singh are deemed not disinterested. 6.29. Financial Statements of Releta. Purchaser shall provide Mendocino ------------------------------ with financial statements for Releta in form and substance sufficient to permit Mendocino to timely satisfy the financial statement requirements of Form 8-K ("Form 8-K")under the Securities Exchange Act of 1934, as amended and the rules and regulations thereunder, in connection with Mendocino's acquisition of the equity interests of Releta. Purchaser shall use its best efforts to deliver financial statements of Releta's predecessor, if required by Form 8-K, in form and substance sufficient to permit Mendocino to timely satisfy the financial statement requirements of Form 8-K in connection with Mendocino's acquisition of the equity interests of Releta. The financial statements provided by Purchaser pursuant to this section shall, except as noted therein, be prepared in conformity with GAAP consistently applied throughout the periods involved and shall present fairly the financial position of Releta, and if applicable, its predecessor, as of the dates thereof, and the results of operations and cash flows for the periods then ended (and as to 36 the unaudited interim financial statements, subject to normal year-end audit adjustments not material in amount). 6.30. Form BE-13. Purchaser will timely file a Form BE-13 with the Bureau ---------- of Economic Analysis in connection with Releta's taking possession of certain assets and such filing will be true and complete. VII. INDEMNIFICATION. --------------- 7.1. Indemnification. --------------- (a) Mendocino agrees to indemnify and hold harmless Purchaser, its officers, directors and employees from and against any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses and disbursements of any kind (including Environmental Costs) which may be imposed upon, incurred by or asserted against Purchaser, such officers, directors and employees in any matter relating to or arising out of (i) any untrue representation, breach of warranty or failure to perform any covenants by Mendocino contained herein, the Ancillary Agreements or in the other Transactions to which Mendocino is a party or in any certificate or document delivered pursuant hereto or thereto, (ii) any Environmental Law applicable to Mendocino, or (iii) any liability of Mendocino that is not explicitly assumed by Purchaser hereunder, in the Ancillary Agreements or in the Transactions. (b) Purchaser agrees to indemnify and hold harmless Mendocino and its officers, directors and employees from and against any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, attorneys' fees, expenses and disbursements of any kind which may be imposed upon, incurred by or asserted against Mendocino and such officers, directors and employees in any matter relating to or arising out of any untrue representation, breach of warranty or failure to perform any covenants by the Purchaser contained herein, in the Ancillary Agreements or in the other Transactions to which the Purchaser is a party or in any certificate or document delivered pursuant hereto or thereto. (c) The foregoing indemnification provisions are in addition to, and not in derogation of, any statutory, equitable or common law remedy the Purchaser, Mendocino and their respective officers, directors and employees may have for breach or representation, warranty or covenant. No claim may be brought under this Agreement based upon a breach of a representation or warranty contained herein unless written notice describing in reasonable detail the nature and basis of such claim is given on or prior to the day that is two years from the date of this Agreement. (d) Mendocino shall not be obligated to indemnify the Purchaser unless and until the cumulative amount of all losses incurred, suffered or paid by the Purchaser under this Section 7.1 exceeds $75,000 in the aggregate, whereupon the Purchaser shall be entitled to indemnification hereunder for the full amount of all such losses and shall thereafter be entitled to indemnification of losses as such losses are incurred. (e) The Purchaser shall not be obligated to indemnify Mendocino unless and until the cumulative amount of all losses incurred, suffered or paid by Mendocino under this Section 7.1 exceeds $75,000 in the aggregate, whereupon Mendocino shall be entitled to 37 indemnification hereunder for the full amount of all such losses and shall thereafter be entitled to indemnification of losses as such losses are incurred. VIII. MISCELLANEOUS. ------------- 8.1. Notices. Whenever it is provided herein that any notice, demand, ------- request, consent, approval, declaration or other communication shall or may be given to or served upon any of the parties by another, or whatever any of the parties desires to give or serve upon another any such communication with respect to this Agreement, each such notice, demand, request, consent, approval, declaration or other communication shall be in writing and either shall be delivered in person with receipt acknowledged or by certified mail, return receipt requested, postage prepaid, or by telecopy and confirmed by telecopy answerback addressed as follows: If to Mendocino at: Mendocino Brewing Company, Inc. P.O. Box 400 13351 South Highway 101 Hopland, CA 95449-0400 Attention: H. Michael Laybourn Telephone Number: (707) 744-1015 Telecopy Number: (707) 744-8650 with a copy to: Enterprise Law Group, Inc. 4400 Bohannon Drive, Suite 280 Menlo Park, CA 94025-1041 Attention: Nelson D. Crandall/Wayland M. Brill Telephone Number: (650) 462-4700 Telecopy Number: (650) 462-4747 If to Purchaser at: United Breweries of America, Inc. Three Harbor Drive, Suite 115 Sausalito, CA 94965 Attention: Vijay Mallya Telephone Number: (415) 289-1400 Telecopy Number: (415) 289-1409 with a copy to: Alan Talkington Orrick, Herrington & Sutcliffe LLP Old Federal Reserve Building 400 Sansome Street San Francisco, CA 94111 38 Telephone Number: (415) 773-5672 Telecopy Number: (415) 773-5759 The parties agree to send such notices to such other address as may be substituted by notice given as herein provided. The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Every notice, demand, request, consent, approval, declaration or other communication hereunder shall be deemed to have been duly given or served on the date on which personally delivered, with receipt acknowledged, telecopied and confirmed by telecopy answerback, or three (3) Business Days after the same shall have been deposited, with the United States mail. Copies of notice to counsel shall be given at the same time and by the same method of delivery as notice to the parties. 8.2. Binding Effect; Benefits. Except as otherwise provided herein, this ------------------------ Agreement shall be binding upon and inure to the benefit of the parties to this Agreement and their respective successors and permitted assigns. Nothing is this Agreement, express or implied, is intended or shall be construed to give any person other than the parties to this Agreement or their respective successors or assigns any legal or equitable right, remedy or claim under or in respect of any agreement or any provision contained herein. 8.3. Amendment. Any amendment or waiver of any provision of this Agreement, --------- any Ancillary Agreement or the other Transactions or any consent to any departure therefrom shall not be effective unless the same shall be in writing and signed by Mendocino, and the Purchaser and shall specifically refer to this Agreement or such Ancillary Agreement or such Transaction. Except as provided in the preceding sentence, no action taken pursuant to this Agreement, including, without limitation, any investigation by or on behalf of any party, shall be deemed to constitute a waiver by the party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any preceding or succeeding breach, and no failure by either part to exercise any right or privilege hereunder shall be deemed a waiver of such party's rights or privilege hereunder or shall be deemed a waiver of such party's rights to exercise the same at any subsequent time or times hereunder. 8.4. Assignment. No assignment of this Agreement or any rights hereunder by ---------- Mendocino or the Purchaser shall be given any effect without the prior written consent of the other; provided, however, that the Purchaser may, without the prior written consent of Mendocino, assign all of its rights hereunder to one or more entities, 100% of the interests in which are owned directly or indirectly by the Purchaser or otherwise controlled by Vijay Mallya, provided that, notwithstanding any such assignment, the Purchaser shall remain liable to perform all obligations of the Purchaser hereunder. Subject to the foregoing sentence, this Agreement shall inure to the benefit of, and be binding upon, the parties hereto and their respective successors and assigns. 8.5. Remedies. Purchaser and Mendocino, in addition to being entitled to -------- exercise all rights granted by law, including recovery damages, will be entitled to specific performance of their rights under this Agreement. Mendocino and Purchaser agree that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by them of the provisions of this Agreement and hereby agree to waive the defense in any action for specific performance that a remedy at law would be adequate. Each party hereto shall be paid by the 39 other party hereto for any reasonable costs and expenses incurred by it (including reasonable fees and expenses of counsel and whether incurred as a result of negotiations, legal proceedings or otherwise) in connection with the enforcement of its rights under the Transactions against such other party. 8.6. Applicable Law. This Agreement shall be governed by and construed in -------------- accordance with the law of the State of California, without regard to the principles thereof regarding conflict of laws. Each party to this Agreement hereby consents to service of process in the County of San Francisco, California and hereby agrees that all disputes relating to or arising under this Agreement shall be the jurisdiction of the state and federal courts located in the County of San Francisco, California. 8.7. Section and Other Headings. The section and other headings contained -------------------------- in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement. 8.8. Severability. In the event that any one or more of the provisions ------------ contained in this Agreement shall be determined to be invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision or provisions in every other respect and the remaining provisions of this Agreement shall not be in any way impaired. 8.9. Counterparts. This Agreement may be executed in any number of ------------ counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument. 8.10. Nondisclosure of Confidential Information. Without the prior written ----------------------------------------- consent of Mendocino, any information relating to Mendocino provided to Purchaser in connection with, or as a result of, its acquisition of the Common Stock which is either confidential, proprietary, or otherwise not generally available to the public (but excluding (a) information the Purchaser has obtained independently or from third-party sources without the Purchaser's knowledge that the source has violated any fiduciary duty or other duty not to disclose such information, (b) information that otherwise becomes generally available to the public, or (c) information known to Purchaser prior to its receipt of such information in connection with, or as a result of, its purchase of Common Stock hereunder) (the "Confidential Information") will be kept confidential by Purchaser, using the same standard of care in safeguarding the Confidential Information as Purchaser employs in protecting its own proprietary information which Purchaser desires not to disseminate or publish and Purchaser will instruct its directors, officers, and representatives (collectively, "Representatives") as to keep such Confidential Information confidential. It is understood (i) that such Representatives shall be informed by Purchaser of the confidential nature of the Confidential Information and (ii) that such Representatives shall be bound by the provisions of this Section 8.10 as condition of receiving the Confidential Information. Purchaser shall not use any such Confidential Information to produce a malt beverage whose formula duplicates any formula for a malt beverage disclosed by Mendocino to Purchaser. 8.11. Publicity. Neither Purchaser nor Mendocino shall issue any press --------- release or make any public disclosure regarding this Agreement or any of the transactions contemplated hereby without the prior consent of the other party hereto; provided, however, that nothing in this 40 Section 8.11 shall be deemed to prohibit any party to this Agreement from making any disclosure required by law. 8.12. Entire Agreement. This Agreement, the Ancillary Agreements and the ---------------- other documents contemplated by the Transactions constitute the entire agreement among the parties hereto and supersede any prior understandings, agreements or representations by or among the parties hereto, written or oral, to the extent they are related in any way to the subject matter hereof. 8.13. Fees and Expenses. Each of the parties hereto shall bear its own ----------------- costs and expenses (including legal fees and expenses) incurred in connection with this Agreement and the Transactions contemplated hereby. 8.14. Exhibits and Schedules. The exhibits and schedules identified in this ---------------------- Agreement are incorporated herein by reference and made a part hereof. 8.15. Construction. Any reference to any federal, state, local or foreign ------------ statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise. The word "including" shall mean including without limitation. If either party has breached any representation, warranty or covenant contained herein in any respect, the existence of another representation, warranty or covenant related to the same subject matter (regardless of the relative levels of specificity) that the party has not breached shall not detract from or mitigate the breach of the former representation, warranty or covenant. References of this Agreement shall mean this Investment Agreement, including all amendments, modifications and supplements and any exhibits or schedules to any of the foregoing, and shall refer to the Agreement as the same may be in effect at the time such reference becomes operative. [REST OF PAGE INTENTIONALLY LEFT BLANK] 41 IN WITNESS WHEREOF, Mendocino and the Purchaser have executed this Agreement as of the day and year first above written. MENDOCINO BREWING COMPANY, INC. By: /s/ H. MICHAEL LAYBOURN ----------------------------------- Name: H. Michael Laybourn Title: Chairman and CEO UNITED BREWERIES OF AMERICA, INC. By: /s/ VIJAY MALLYA ----------------------------------- Name: Vijay Mallya Title: Chairman and CEO The UB Group hereby acknowledges and agrees that United Breweries of America, Inc. shall be the Purchaser hereunder. THE UB GROUP By: /s/ VIJAY MALLYA ----------------------------------- Name: Vijay Mallya Title: Chairman 42 EX-4 4 SHAREHOLDER'S AGREEMENT Exhibit 4 SHAREHOLDERS' AGREEMENT ----------------------- This SHAREHOLDERS' AGREEMENT (this "Agreement") is made this 24th day of October, 1997 by and among MENDOCINO BREWING COMPANY, INC., a California corporation (herein called the "Mendocino" or the "Company"), H. Michael Laybourn, Norman H. Franks, Michael F. Lovett, John Scahill and Don Barkley (the "Original Partners"), and United Breweries of America, Inc. (the "Purchaser", together with the Original Partners are referred to herein as the "Shareholders"). W I T N E S S E T H - - - - - - - - - - WHEREAS, the Company and the Purchaser have entered into an Investment Agreement dated October 24, 1997 (the "Investment Agreement") pursuant to which the Purchaser has agreed to purchase from the Company an aggregate of at least 2,002,000 shares of the Company's Common Stock (the "Purchase Shares"); WHEREAS, the Original Partners wish to provide a further inducement to the Purchaser to purchase the Purchase Shares by entering into this Agreement; and WHEREAS, the execution and delivery of this Agreement is a condition precedent to the consummation of the transactions contemplated by the Investment Agreement. NOW, THEREFORE, the parties hereto agree as follows: 1. Definitions. Certain terms used herein are defined as follows: ------------ (a) "Board of Directors" means the Board of Directors of the Company. (b) "Immediate Family" means any spouse or domestic partner of a Shareholder and any child, grandchild, parent, brother, or sister of a Shareholder or of a spouse or domestic partner of a Shareholder. (c) "Shares" means any shares of capital stock of the Company or any securities convertible into or exchangeable for any class of capital stock of the Company and all securities into which such Shares may be converted or reclassified as a result of any merger, consolidation, stock split, stock dividend, or other recapitalization of the Company whether now owned or hereafter acquired. (d) "affiliate" means with respect to any person, (i) each person that, directly or indirectly, owns or controls, whether beneficially, or as trustee, guardian or other fiduciary, five percent (5%) or more of the stock having ordinary voting power in the election of directors of such person or (ii) each person that controls, is controlled by or is under common control with such person or any affiliate of such person. For purposes of this definition, "control" of a person shall mean the possession, directly or indirectly, of the power to direct or cause the direction of its management or policies, whether through the ownership of voting securities, by contract or otherwise. The term "affiliated" shall have meanings correlative to the foregoing. 2. Restriction of Shares. Each Original Partner, severally and not jointly, ---------------------- agrees that during the term of this Agreement all Shares owned by such Original Partner (which Shares shall be referred to as the "Restricted Shares") shall be subject to the terms and conditions of this Agreement. No sale (as defined in Section 13 hereof), whether voluntary or involuntary, of any Restricted Shares shall be valid unless the terms and conditions of this Agreement have been complied with. Each Original Partner, severally and not jointly, represents and warrants that the total number of shares of common stock (the "Common Stock") presently owned by each such Original Partner is set forth under the signature of such Original Partner on the signature page of this Agreement and that such Original Partner is the sole legal and beneficial owner of such shares, except to the extent that such shares may be pledged for security for indebtedness of such Original Partner. If the shares are pledged, the name and address of the pledgee is also set forth on the signature page of this Agreement. 3. Legend. Each certificate representing Restricted Shares shall forthwith ------- be endorsed on the face thereof with the following legend: "THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN SHAREHOLDERS' AGREEMENT BY AND AMONG THE CORPORATION AND THE SHAREHOLDERS THAT ARE SIGNATORIES THERETO, PROVIDING FOR, AMONG OTHER MATTERS, A RIGHT OF FIRST REFUSAL TO PURCHASE THE SECURITIES REPRESENTED BY THIS CERTIFICATE. COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE CORPORATION." Shareholders whose certificates are held by a pledgee will use their best efforts to cause the pledgee to place such legend on the certificates held by them. This Section 3 legend shall be removed upon termination of this Agreement in accordance with the provisions of Section 8 hereof. 4. Sale of Shares. --------------- (a) Notice of Sale. An Original Partner may sell any or all Restricted --------------- Shares provided such sale is made pursuant to the terms and conditions of this Agreement. If an Original Partner desires to sell any Restricted Shares such Original Partner shall deliver a written notice of the intended sale (the "Notice") to the Purchaser and to Enterprise Law Group, Inc., counsel for the Company at least sixty (60) days prior to the date of such intended sale, including, without limitation, the name and address of the prospective purchaser, the purchase price and other terms and conditions of payment, the date on or about which such sale is intended to be made, the number of Restricted Shares to be sold (such shares hereinafter being referred to as the "Offered Shares"), the percentage of all Restricted Shares of such Original Partner which the Offered Shares represent and that the third party purchaser has been informed of the rights of the Purchaser under this Agreement. (b) Right of First Refusal. The Purchaser shall have the right, ----------------------- exercisable upon written notice to such selling Original Partner within thirty (30) days from the date of 2 receipt by the Purchaser of the Notice, to elect to purchase (in substitution for and in place of the intended purchaser thereof) all of the Offered Shares on the same terms and conditions stated in the Notice. (c) In the event that the consideration to be paid to the selling Original Partner shall consist, in whole or in part, of property other than cash, the selling Original Partner shall specify the cash equivalent value of such property in the Notice. In the event such property consists of securities for which a public market exists, the cash equivalent value shall mean the closing price or quotation for such securities in the applicable public market on the day prior to the date of the Notice. Except where determined pursuant to sales in a public market, the Purchaser shall have the right to contest in good faith the cash equivalent value set forth in the Notice, provided the Purchaser so notifies the selling Original Partner in writing within five (5) days of their receipt of the Notice. Upon receipt of such notice of contest the selling Original Partner shall petition the Board of Directors to determine by majority vote of the disinterested directors the appropriate equivalent value, whose decision shall be final and binding on all parties. During the period preceding such decision by the disinterested directors all actions otherwise to be taken hereunder shall be extended for the number of days between the selling Original Partner's petition of the Board of Directors and the Board of Director's announcement to the selling Original Partner and the Purchaser of its decision, but in no case more than sixty (60) days. If no decision is made within the time provided, the value shall be the value specified in the notice to the Board of Directors. For the foregoing purpose, the four individuals selected by the Purchaser pursuant to Section 7(a) hereof and, if the selling Original Partner is the one individual selected by Michael Laybourn or the Original Partners pursuant to Section 7(a) hereof, such selling Original Partner, are deemed not disinterested. (d) To the extent the Purchaser does not elect to purchase as provided in subparagraph (b) of this Section 4, the selling Original Partner may sell the Offered Shares to the buyer at the price and terms specified in the Notice or at a higher price than specified therein. If the the Offered Shares on the same terms within one hundred twenty (120) days after the mailing of the Notice to the Purchaser, the selling Original Partner shall not sell such Offered Shares without again complying with the terms of this Agreement. (e) Any notice given by the Purchaser pursuant to subparagraph (b) above shall, when taken together with the Notice mailed to the Purchaser, constitute a binding legal agreement on the terms and conditions therein set forth, it being understood that any modification, amendment, variance or other change by the Purchaser of the terms and conditions set forth in the Notice mailed to him other than as provided herein shall be of no force and effect unless consented to in writing by the selling Original Partner. The selling Original Partner and the Purchaser shall be entitled to rely conclusively upon any notice received pursuant to subparagraph (b) above with respect to their respective rights and obligations under this Section 4. (f) The Purchase Shares and any other Shares held by the Purchaser shall not be subject to a right of first refusal or other restrictions under this Section 4. 5. Rule 144 Sales. Anything in this Agreement to the contrary --------------- notwithstanding, an Original Partner may sell or otherwise dispose of Restricted Shares owned by such Original 3 Partner in an unsolicited brokers' transaction under Rule 144 if such Original Partner has provided the Purchaser with at least ten (10) days notice of such Original Partner's intent to sell. Purchaser shall have the right to purchase the Offered Shares at market price based on the average closing price of the Company's common stock during the twenty (20) trading days immediately preceding the date the notice is deemed to have been given. If Purchaser does not elect to purchase the Offered Shares within five (5) days from the date the notice is deemed to have been given, such Original Partner may sell the Offered Shares pursuant to an unsolicited brokers' transaction under Rule 144, without the necessity of complying with any of the terms and conditions of Section 4. Notwithstanding Section 4, an Original Partner may transfer Shares: (i) to a member of the Original Partner's Immediate Family or to a trust established for the benefit of a member or members of the Original Partner's Immediate Family, (ii) to an affiliate or equity holder of the Original Partner, or (iii) to the estate of any of the foregoing by gift, will or intestate succession; provided that the Original Partner or his representative notifies the Company of such transfer not less than ten (10) nor more than ninety (90) days prior to the transfer and that the proposed transferee agrees to be bound by the terms and provisions of this Agreement and to become a party to this Agreement immediately upon the receipt of such Shares. 6. Transfers in Violation of Agreement. A transfer in violation of this ----------------------------------- Agreement is null and void and the Company agrees to issue stop transfer instructions to its stock transfer agent, or, so long as it may act as its own transfer agent, to make a stop transfer notation in its appropriate stock record with respect to any such void transfer in its shareholder records. The Company shall continue to treat any Original Partner who made such transfer of Restricted Shares in violation of this Agreement as the holder of such Restricted Shares. 7. Voting Agreement. ---------------- (a) Board of Directors. The Shareholders shall take all actions ------------------ necessary (including, without limitation, voting such number of shares of the voting stock of the Company now owned or hereafter acquired or controlled by them, calling special meetings of shareholders and executing and delivering written consents) and use their best efforts as shareholders of the Company to cause the Board of Directors, at all times from and after the date hereof for the election of directors of Mendocino, to consist of seven (7) directors and to elect the directors nominated as follows: (i) four individuals selected by the Purchaser, (ii) two independent directors acceptable to the Purchaser, and (iii) one individual selected by Michael Laybourn. If Michael Laybourn is unable to select a director, or fails to select a director, a director shall instead be selected by vote of the holders of a majority of the outstanding Restricted Securities present and voting at a meeting of the Original Partners held on at least four (4) days notice. (b) Neither the Board of Directors nor any committee thereof shall take any action without first giving effect to any nomination of directors by a group in accordance with this Section 7, provided, however, that if a group -------- ------- fails to make a nomination within ten (10) business days after receipt of notice from the Company or another party requesting that such group make a nomination, the Board of Directors may fill the vacancy and the Board of Directors or committee thereof may then take action; provided, further, that the director so -------- ------- 4 appointed by the Board of Directors shall be removed if the group entitled to select the director to fill such vacancy subsequently makes a nomination. (c) The provisions of this Section 7 shall terminate when any Shareholder holds more than 50% of the outstanding Shares or when the Original Partners collectively hold less than 10% of the outstanding Shares. 8. Termination. This Agreement shall terminate on December 31, 2004. ----------- 9. Notices. All notices, requests, demands, or other communications which ------- are required or may be given pursuant to the terms of this Agreement shall be in writing and shall be deemed to have been duly given upon receipt, if delivered by hand, by telecopy or telegram, or if by mail, the earlier of receipt or three days after deposit in the U.S. mail, postage prepaid, addressed to Purchaser and to the Company as follows: Purchaser: United Breweries of America, Inc. Three Harbor Drive, Suite 115 Sausalito, CA 94965 Attention.: Vijay Mallya Telephone: (415) 289-1400 Telecopy: (415) 289-1409 Orrick, Herrington & Sutcliffe LLP Old Federal Reserve Bank Building 400 Sansome Street San Francisco, CA 94111 Attention.: Alan Talkington Telephone: (415) 773-5762 Telecopy: (415) 773-5759 Michael Laybourn c/o Mendocino Brewing Company, Inc. Norman Franks P.O. Box 400, 13351 South Highway 101, Michael Lovett Hopland, CA 95449 John Scahill Telephone: (707) 744-1015 Donald Barkley Telecopy: (707) 744-1910 Company: Mendocino Brewing Company, Inc. P.O. Box 400, 13351 South Highway 101 Hopland, CA 95449 Telephone: (707) 744-1015 Telecopy: (707) 744-1910 Copy to: Enterprise Law Group, Inc. Menlo Oaks Corporate Center 4400 Bohannon Drive, Suite 280 Menlo Park, CA 94025-1041 Attention: Nelson D. Crandall/Wayland M. Brill Telephone: (650) 462-4700 Telecopy: (650) 462-4747 5 or to such other address as any party may designate for itself by notice given as provided in this Agreement. Copies of notice to counsel shall be given at the same time and by the same method of delivery as notice to the parties. 10. Successors and Assigns. This Agreement and the rights and obligations ---------------------- of the parties hereunder shall be binding upon and shall inure to the benefit of each Shareholder and such shareholder's respective successors, heirs, executors, administrators, permitted assigns and legal representatives, and to the Company and its successors and assigns; provided, however, that the rights and obligations shall not inure to any person who acquires Shares through sales into the public market. 11. Company Efforts. The Company agrees to use its best efforts to enforce --------------- this Agreement, to inform the Shareholders of any violation of this Agreement and to assist the Shareholders in the exercise of their rights hereunder. 12. Counterparts. This Agreement 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. 13. Certain Definitions. The words "sale," "sell," "transfer" and the like ------------------- shall include any disposition by way of transfer, with or without consideration, to any person for any purpose and shall include but shall not be limited in any way to redemption by the issuer, private or public sale, exchanges of securities on account of merger, consolidation, reorganization or any other transaction affecting the securities of the Company held by the Shareholder; provided, however, that the participation rights of the Shareholders under this Agreement shall not pertain or apply to any pledge of Restricted Shares made by the Shareholder pursuant to a bona fide loan transaction which creates a mere security interest provided that any pledgee or transferee shall furnish the Shareholders with a written agreement to be bound by and comply with all provisions of this Agreement applicable to the Shareholder. 14. Severability. In case any one or more of the provisions or parts of a ------------ provision contained in this Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or part of a provision of this Agreement or with respect to any other jurisdiction, but this Agreement shall be reformed and construed in any such jurisdiction as if such invalid or illegal or unenforceable provision or part of a provision had never been contained herein and such provision or part reformed so that it would be valid, legal and enforceable to the maximum extent permitted in such jurisdiction. 15. Cooperation. Each of the parties hereto agrees to execute all such ----------- further instruments and documents and to take all such further action as the other party may reasonably require in order to effectuate the terms and purposes of this Agreement. 16. Construction. This Agreement and all documents contemplated hereby, and ------------ all remedies in connection therewith and all questions or transactions relating thereto, shall be construed in accordance with and governed by the laws of the state of California. 6 This Agreement shall be interpreted according to its fair meaning and not strictly for or against any party. 17. Attorney's Fees. In the event of any legal action or proceeding to --------------- enforce or interpret the provisions hereof, the prevailing party shall be entitled to reasonable attorneys' fees, whether or not the proceeding results in a final judgment. 18. Injunctions. Irreparable damage would occur in the event that any of ----------- the provisions of this Agreement were not performed in accordance with its specified terms or were otherwise breached. Therefore, the parties hereto shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement and to enforce specifically the terms of provisions hereof in any court having jurisdiction, such remedy being in addition to any other remedy to which they may be entitled at law or in equity. 19. Entire Agreement. This Agreement constitutes the full and entire ---------------- understanding and agreement among or between the parties with regard to the subjects hereof, and supersedes any prior or contemporaneous understandings, representations, warranties or agreements related thereto (oral or written). 20. Governing Law. This Agreement shall be governed by and construed ------------- according to the laws of the State of California without regard to the principles thereof regarding conflict of laws. 20. Amendments. This Agreement may be amended only by the written consent ---------- of (a) the Purchaser, (b) the holders of a majority of the outstanding Restricted Shares present and voting at a meeting of the Original Partners held on at least four (4) days notice, and (c) if the amendment changes the existing rights or obligations or imposes additional obligations on the Company, the Company. IN WITNESS WHEREOF, the parties hereto have hereunto set their hands the day and year first above written. MENDOCINO BREWING COMPANY, INC., a California corporation By: /s/ H. MICHAEL LAYBOURN ------------------------------------------- Name: H. Michael Laybourn Title: Chairman and Chief Executive Officer UNITED BREWERIES OF AMERICA, INC., a Delaware corporation By: /s/ VIJAY MALLYA ------------------------------------------- Name: Vijay Mallya Title: Chairman and Chief Executive Officer 7 AGREED TO by the following Original Partners, each of whom herewith certifies that such shareholder owns, of the outstanding shares of Common Stock of the above corporation, the number following such shareholder's name. /s/ H. MICHAEL LAYBOURN ------------------------------------------- H. MICHAEL LAYBOURN Number of Shares of Common Stock held: 272,367 Number of Shares Pledged: 3,529 Pledgee: The Savings Bank of Mendocino County P.O. Box 3600 200 N. School Street Ukiah, CA 95482-3600 Attn: Mr. Martin J. Lombardi, V.P. /s/ NORMAN FRANKS ------------------------------------------- NORMAN FRANKS Number of Shares of Common Stock held: 244,512 /s/ MICHAEL LOVETT ------------------------------------------- MICHAEL LOVETT Number of Shares of Common Stock held: 93,034 Number of Shares Pledged: 93,034 Pledgee: Heritage Bank of Commerce 150 Almaden Boulevard San Jose, CA 95113 /s/ JOHN SCAHILL ------------------------------------------- JOHN SCAHILL Number of Shares of Common Stock held: 248,809 /s/ DONALD BARKLEY ------------------------------------------- DONALD BARKLEY Number of Shares of Common Stock held: 101,559 8 EX-5 5 REGISTRATION RIGHTS AGREEMENT Exhibit 5 REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is entered into as of October 24, 1997, by and among Mendocino Brewing Company, Inc., a California corporation (the "Company"), United Breweries of America, Inc. ("Purchaser"), and H. Michael Laybourn, Norman Franks, Michael Lovett, John Scahill and Donald Barkley (each an "Original Partner" and collectively the "Original Partners"). WHEREAS, Purchaser and the Company are parties to the Investment Agreement, dated October 24, 1997 (the "Investment Agreement"); WHEREAS, pursuant to the Investment Agreement, the Company desires to issue and sell to Purchaser shares of its Common Stock (the "Purchase Shares"); WHEREAS, Purchaser desires, upon the terms and conditions provided in the Investment Agreement, to purchase the Purchase Shares from the Company; WHEREAS, the Original Partners own certain shares of the Company's Common Stock, as set forth in Schedule A hereto (the "Original Partners Shares"); and WHEREAS, the Investment Agreement requires that certain registration rights be granted to Purchaser with respect to the Shares and the Executive Employment Agreements dated as of the date hereof with each of the Original Partners require that certain registration rights be granted to the Original Partners with respect to the Original Partners Shares. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements set forth herein, the parties hereto hereby agree as follows: 1. Certain Defined Terms. For purposes of this Agreement: --------------------- (a) The terms "register," "registered," and "registration" refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Securities Act, and the declaration or ordering of effectiveness of such registration statement or document; (b) The term "Registrable Securities" means: (i) as to the Purchaser, any Shares issued or transferred on or after the date hereof to Purchaser pursuant to the Investment Agreement, any other shares of the Company's Common Stock held or acquired by Purchaser (or its permitted assigns) on or after the date hereof and any securities issued or issuable to Purchaser (or its permitted assigns) in respect of any Registrable Securities by way of any stock split or stock dividend or in connection with any combination of shares, recapitalization, merger, consolidation, reorganization or otherwise; and (ii) as to each Original Partner, his respective Original Partners Shares, any other shares of the Company's Common Stock held or acquired by the Original Partner on or after the date hereof and any securities issued or issuable to such Original Partner in respect of any Registrable Securities by way of any stock split or stock dividend or in connection with any combination of shares, recapitalization, merger, consolidation, reorganization or otherwise. As to any particular Registrable Securities, such securities shall only be treated as Registrable Securities if and so long as (A) they have not been sold to or through a broker or dealer or underwriter in a public distribution or a public securities transaction, (B) they have not been sold in a transaction exempt from the registration and prospectus delivery requirements of the Securities Act under Section 4(1) thereof so that all transfer restrictions and restrictive legends with respect thereto are removed upon the consummation of such sale and (C) if the holder of the Registrable Securities holds less than one and one-half percent (1 1/2%) of the outstanding Common Stock of the Company, such Registrable Securities are not eligible for resale without restriction (including legending) under Rule 144(k) of the Securities Act; provided, however, that the holder shall be entitled to participate in at least one piggyback registration pursuant to the terms of Section 4.1 whether or not such holder holds less than 1% of the outstanding Common Stock of the Company and the shares included in any such piggyback registration shall be deemed to be Registrable Securities for purposes of this Agreement; (c) The term "Securities Act" means the Securities Act of 1933, as amended, and any successor statute; (d) The term "Exchange Act" means amended, and any successor statute; (e) The term "SEC" means the Securities and Exchange Commission; and (f) The term "Person" means a corporation, an association, a limited liability company, a partnership, an organization, a business, an individual, a government or a subdivision thereof, or a governmental agency or authority. 2. Shelf Registration. Upon receipt of a written request from Purchaser, ------------------ the Company shall file with the SEC a registration statement under the Securities Act on Form S-1 or S-3 or such other form as may be available to the Company with respect to the Registrable Securities. The Company shall use its best efforts to cause such registration statement to become effective at the earliest practicable date following the filing thereof and, subject to the following, to remain continuously effective for a period of two years from and the effective date of such registration statement. During the period that such registration statement is effective, it shall be available for use by Purchaser only for a period of 30 days following a filing by the Company of (i) a quarterly report on Form 10-Q or Form 10-QSB or (ii) an annual report on Form 1 K or Form 10-KSB. Notwithstanding the foregoing, the Company may suspend the effectiveness of such registration statement from time to time at any time upon the good faith determination of the Company's board of directors that such action is desirable in connection with any proposed acquisition, transaction or other matters. If the Company so elects to suspend the effectiveness of any registration statement, the obligation of the Company to maintain the effectiveness of such registration statement shall be reinstated at the conclusion of such suspension and shall be extended such that the period during which the registration statement is actually effective totals not less than two years. 2 3.1 Demand Registration. ------------------- (a) Upon receipt of a written request from Purchaser to register under the Securities Act (whether for otherwise) all or part of the Registrable Securities held by Purchaser, the Company shall as expeditiously as reasonably possible (but in any event not later than sixty (60) days after receipt of such request) prepare and file, and use its best efforts to cause to become effective as soon thereafter as practicable, a registration statement under the Securities Act to effect the offering of such Registrable Securities in the manner specified in such request. (b) Purchaser shall be entitled to select and retain one or more investment bankers or managers reasonably acceptable to the Company in connection with any underwritten offerings made pursuant to this Section 3.1. (c) Subject to the terms and conditions set forth in Section 3.2 below, Purchaser may request the Company to register Registrable Securities under the Securities Act pursuant to this Section 3.1 at any time and from time to time; provided, however, that Purchaser may not request the Company to register Registrable Securities pursuant to this Section 3.1 more than once in any 365-day period. 3.2 Terms and Conditions of Demand Registration. Notwithstanding anything ------------------------------------------- to the contrary contained in this Agreement, the registration rights granted to Purchaser in Section 3.1 above are expressly subject to the following terms and conditions: (a) Purchaser shall only be entitled to three (3) requests to register Registrable Securities under the terms of Section 3.1. For purposes of this provision, a "request" shall be deemed to have occurred only upon completion of a requested registration and the subsequent sale of Registrable Securities under that registration. (b) In no event shall the number of Registrable Securities to be offered under a registration statement prepared and filed pursuant to Section 3.1 constitute less than five percent (5%) of the then outstanding shares of common stock of the Company. (c) The Company shall be entitled to defer for a reasonable period of time, but not in excess of ninety (90) days, the filing of any registration statement otherwise required to be prepared and filed by it under Section 3.1 above if the Company notifies Purchaser within five (5) business days after Purchaser requested the registration that the Company (i) is at such time conducting or about to conduct an underwritten public offering of its securities for its own account (other than a registration statement relating to a Rule 145 transaction, an offering solely to employees or any other registration statement which is not appropriate for the registration of Registrable Securities) and the Board of Directors of the Company determines in good faith that such offering would be materially adversely affected by the registration requested by Purchaser or (ii) would, in the opinion of its counsel, be required to disclose in such registration statement information not otherwise then required by law to be publicly disclosed and, in the good faith judgement of the Board of Directors of the Company, such disclosure might adversely affect any material business transaction or negotiation in which the Company is then engaged. The foregoing notwithstanding, the Company shall not be entitled to defer the 3 filing of any registration statement under this Section 3.2(c) more than once in any twelve (12) month period. If the Company elects to defer the filing of a registration statement pursuant to this Section 3.2(c), Purchaser may withdraw its request, in writing, during the time of such deferral and such request shall not be counted toward the limit on requests set forth in Section 3.2(a). (d) Purchaser shall not exercise its rights pursuant to Section 3.1 during the 60-day period immediately following the effective date of any registration statement filed by the Company under the Securities Act (other than a registration of employee benefit plan) in respect of an offering or sale of securities of the Company for its own account. (e) The Company may include in any such registration a number of shares sufficient to enable it to recover the cost of the registration. 4.1 Piggyback Registration. If at any time or from time to time the Company ---------------------- shall propose to register any of its Common Stock for public sale under the Securities Act, the Company shall, at such time, promptly give Purchaser and each Original Partner written notice of such registration. Upon the written request of Purchaser or such Original Partner given within 20 days after the mailing of such notice by the Company, the Company shall, subject to the provisions of this Agreement (including, without limitation, Section 4.2 below), cause to be registered under the Securities Act any and all Registrable Securities as Purchaser or such Original Partner shall request; provided, however, that the Company may at any time prior to the effectiveness of any such registration statement, in its sole discretion and without the consent of Purchaser or such Original Partner, abandon the proposed offering; and provided, further, that Purchaser and such Original Partner shall be entitled to withdraw any or all Registrable Securities included in a registration statement pursuant to this Section 4.1 at any time prior to the date on which the registration statement with respect to such Registrable Securities is declared effective by the SEC. The Company shall be entitled to select the investment bankers and/or managers, if any, to be retained in connection with any registration referred to in this Section 4.1, provided such investment bankers and/or managers are reasonably acceptable to Purchaser and such Original Partner. 4.2 Underwriting Requirements in Piggyback Registrations. In connection ---------------------------------------------------- with any offering involving an underwriting covered by Section 4.1 hereof: (a) The Company shall not be required to include any of Purchaser's or an Original Partner's Registrable Securities in such underwriting unless Purchaser and such Original Partner, respectively, accept the terms of the underwriting agreement between the Company and the underwriters selected by it (an "Underwriting Agreement"), and then only in such quantity as the underwriters determine will not jeopardize the success of the offering by the Company. If the total amount of securities (including Registrable Securities) requested by Purchaser and the Original Partners to be included in such offering exceeds the amount of securities sold other than by the Company that the underwriters determine is compatible with the success of the offering, then the Company shall be obligated to include in the offering only that number of such securities (including Registrable Securities) which the underwriters determine will not jeopardize the success of the offering (the Registrable Securities so included to be 4 apportioned pro rata among Purchaser and each Original Partner according to the total amount of securities owned by Purchaser and each Original Partner and the number of Registrable Securities requested by Purchaser or each Original Partner pursuant hereto to be sold in such offering shall be reduced prior to any reduction in the number of securities requested to be sold by the Company). (b) The Company shall not any registration by the any merger, acquisition, exchange offer or any other business combination, including any transaction within the scope of Rule 145 promulgated pursuant to the Securities Act, subscription offer, dividend reinvestment plan or stock option or other director or employee incentive or benefit plan. (c) The Company shall use all commercially reasonable efforts to cause the managing underwriter or underwriters of a proposed underwritten offering to permit the Registrable Securities requested to be included in a registration pursuant to Section 4.1 above to be included on the same terms and conditions as any similar securities included therein. (d) No Registrable Securities excluded from the underwriting by reason of this Section 4.2 shall be included in the Registration Statement. (e) In the event that some, but less than all, of Purchaser's or each Original Partner's Registrable Securities are included in an offering contemplated by a registration statement pursuant to Section 4.1 above, Purchaser and each Original Partner shall, at the Company's or underwriters' request, execute a "lockup" letter, in customary form, setting forth the agreement of Purchaser and each Original Partner, respectively, not to offer for sale, sell, grant any option for the sale of, or otherwise dispose of, directly or indirectly, any Registrable Securities not included in the offering for a period of 180 days from the date such offering commences. 5. Favored Status/Conflicting Rights. Except as herein provided, the --------------------------------- Company shall not provide registration rights to any other party that, taken as a whole, are more favorable than those provided to Purchaser hereunder without also offering to Purchaser such more favorable rights. The Company shall give Purchaser notice, within 15 days after the execution of any such agreement, of any agreement between the Company and a third party that triggers a right of Purchaser to invoke the favored status provisions of this Section 5. In the event that any rights of Purchaser under this Agreement conflict with or diminish any rights granted to a third party under another agreement with the Company, Purchaser's rights under this Agreement shall be deemed superior to, and shall take precedence over, the rights of any such third party. The Company covenants and agrees that in the event it grants registration rights to any third party or parties, the instrument or instruments granting such rights shall contain a provision referencing this Agreement and the precedence and superiority of Purchaser's registration rights as against the registration rights of such third party. 6.1 Covenants of the Company. In the case of each registration effected ------------------------ by the Company pursuant to this Agreement, the Company will keep Purchaser advised in writing as to the initiation of each registration and as to the completion thereof. Whenever Purchaser has 5 requested that any Registrable Securities be registered pursuant to this Agreement, the Company will at its expense and as expeditiously as possible: (a) Prepare and file with the Commission such amendments and post- effective amendments to the registration statement as may be necessary to keep the registration statement effective for a period of not less than 120 days, or such shorter period which will terminate when all Registrable Securities covered by such registration statement have been sold or withdrawn at the request of Purchaser (except for any registration statement referred to in Section 2, which shall be kept effective in accordance with the terms thereof); and cause the prospectus to be supplemented by any required prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the Securities Act; (b) Furnish to Purchaser and to each managing underwriter, if any, (i) at least two (2) business days prior to filing with the SEC, any registration statement covering any Registrable Securities, any amendment or supplement thereto, and any prospectus used in connection therewith, which documents will be subject to the reasonable review of Purchaser and such underwriter, and, with respect to a registration statement prepared pursuant to Section 2 or Section 3.1, the Company shall not file any such documents with the SEC to which Purchaser shall reasonably object; and (ii) a copy of any and all transmittal letters or other correspondence with the SEC or any other governmental agency or self-regulatory body or other body having jurisdiction (including any domestic or foreign securities exchange) relating to such offering of Registerable Securities; (c) Furnish to Purchaser, each managing underwriter, if any, and any participating Original Partner, if any, such number of copies of such registration statement, each amendment and supplement thereto (in each case including all exhibits thereto and documents incorporated by reference therein) and the prospectus included in such registration statement (including each preliminary prospectus and prospectus supplement) as Purchaser or such underwriter or such Original Partner may reasonably request in order to facilitate the sale of the Registerable Securities; (d) After the filing of such registration statement, promptly notify Purchaser or any participating Original Partner of any stop order issued or, to the knowledge of the Company, threatened to be issued by the SEC and promptly take all reasonable actions to prevent the entry of such stop order or to obtain its withdrawal if entered; (e) Use its commercially reasonable efforts to qualify such Registerable Securities for offer and sale under the securities, "blue sky" or similar laws of such jurisdictions (including any foreign country or any political subdivision thereof in which shares of the Company's common stock are then listed) as Purchaser or any underwriter shall reasonably request and use its commercially reasonable efforts to obtain all appropriate registrations, permits and consents required in connection therewith, except that the Company shall not for any such purpose be required to qualify generally to do business as a foreign corporation in any jurisdiction wherein it is not so qualified, or to subject itself to taxation or to file a general consent to service of process in any such jurisdiction; 6 (f) Furnish to each managing underwriter, if any, an opinion of counsel for the Company addressed to each of them, dated as of the date of the closing of the offering of Registerable Securities, and a "comfort" letter or letters signed by the Company's independent public accountants, each in reasonable and customary form and covering such matters of the type customarily covered by opinions or comfort letters delivered by such parties in underwritten public offerings, and use its commercially reasonable efforts to have such opinions and comfort letters addressed to and delivered to Purchaser and any participating Original Partner; (g) Furnish unlegended certificates representing ownership of the Registerable Securities being sold in such denominations as shall be requested by Purchaser or the managing underwriter, if any, provided such request is made at least two (2) business days prior to the closing of the sale of such Registerable Securities; (h) Promptly inform Purchaser and any participating Original Partner (i) in the case of any offering of Registerable Securities in respect of which a registration statement is filed under the Securities Act, of the date on which such registration statement or any post-effective amendment thereto becomes effective and, if applicable, of the date of filing a Rule 430A prospectus (and, in the case of an offering abroad of Registerable Securities, of the date when any required filing under the securities and other laws of such foreign jurisdictions shall have been made and when the offering may be commenced in accordance with such laws) and (ii) of any request by the SEC, any securities exchange, government agency, self regulatory body or other body having jurisdiction for any amendment of or supplement to any registration statement or preliminary prospectus or prospectus included therein or any offering memorandum or other offering document relating to such offering; (i) Subject to subparagraph (k) below, until the earlier of (i) such time as all of the Registerable Securities being offered have been disposed of in accordance with the intended method of disposition by Purchaser and any participating Original Partner set forth in the registration statement or other offering document (and the expiration of any prospectus delivery requirements in connection therewith) or (ii) the expiration of nine (9) months after such registration statement or other offering document becomes effective (unless the offering is a continuous offering of securities under Rule 415, in which case until the earliest of the date the offering is completed and the second anniversary of such effective date), keep effective and maintain any registration, qualification or approval obtained in connection with the offering of the Registerable Securities, and amend or supplement the registration statement or prospectus or other offering document used in connection therewith to the extent necessary in order to comply with applicable securities laws; (j) Use its commercially reasonable efforts to have the Registerable Securities listed on any domestic and foreign securities exchanges on which the common stock of the Company is then listed; (k) As promptly as practicable, notify Purchaser and any participating Original Partner at any time when a prospectus relating to the sale of Registerable Securities is required by law to be delivered in connection with sales by an underwriter or dealer, of the occurrence of an event requiring the preparation of a supplement or amendment to such 7 prospectus so that, as thereafter delivered to the purchasers of such shares, such prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and as promptly as practicable make available to Purchaser and any participating Original Partner and to each managing underwriter, if any, any such supplement or amendment; in the event the Company shall give such notice, the Company shall extend the period during which such registration statement shall be maintained effective as provided in Section 6.1(i) above by the number of days during the period from and including the date of the giving of such notice to the date when the Company shall make available to Purchaser and any participating Original Partner such supplemented or amended prospectus; (l) Make available for inspection during the normal business hours of the Company by Purchaser, any participating Original Partner, any underwriter participating in such offering, and any attorney, accountant or other agent retained by Purchaser, or any participating Original Partner, or any such underwriter in connection with the sale of Registerable Securities (an "Inspector"), all relevant financial and other records, pertinent corporate documents and properties of the Company as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause the officers, directors and employees of the Company to supply all information reasonably requested by any such Inspector in connection with such registration statement; provided, however, that (i) in connection with any such inspection, any such Inspector shall cooperate to the extent reasonably practicable to minimize any disruption to the operation of the Company's business and (ii) any records, information or documents shall be kept confidential by such Inspector, unless (1) such records, information or documents are in the public domain or otherwise publicly available or (2) disclosure of such records, information or documents is required by a court or administrative order or by applicable law (including, without limitation, the Securities Act); (m) Enter into usual and customary agreements (including an underwriting agreement in usual and customary form) and take such other actions as are reasonably required in order to expedite or facilitate the sale of the Registerable Securities. (n) Make "generally available to its security holders" (within the meaning of Rule 158 of the Securities Act) an earnings statement satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder no later than 45 days after the end of the 12-month period beginning with the first day of the Company's first fiscal quarter commencing after the effective date of the registration statement, which earnings statement shall cover said 12-month period; (o) If requested by any managing underwriter or underwriters or the Purchaser, promptly incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriter or underwriters or Purchaser, as the case may be, reasonably requests to be included therein, including, without limitation, information with respect to the number of Registerable Securities being sold by Purchaser to any underwriter or underwriters, the purchase price being paid therefor by such underwriter or underwriters and with respect to any other terms of an underwritten offering of the Registerable Securities to be sold in such offering, and promptly make all required filings of such prospectus by supplement or post-effective amendment; 8 (p) As promptly as practicable after the filing with the SEC of any document that is incorporated by reference in a prospectus contained in a registration statement, deliver a copy of such document to Purchaser and any participating Original Partner; and (q) Cause all such Registerable Securities to be listed on each securities exchange on which similar securities issued by the Company are then listed or, if not then listed, cause such Registerable Securities to be included in a national automated quotation system. (r) Provide a transfer agent and registrar for all Registerable Securities and a CUSIP number for all such Registerable Securities, in each case not later than the effective date of such registration. (s) Take all other steps necessary to effect the registration of the Registerable Securities contemplated hereby. 6.2 Covenant of Stockholders. Purchaser and the Original Partners agree ------------------------ and covenant that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 6.1(k) above, Purchaser and the Original Partners will forthwith discontinue disposition of Registerable Securities pursuant to the registration statement covering such Registerable Securities until Purchaser and the Original Partners receive copies of the supplemented or amended prospectus contemplated by Section 6.1(k) above, and, if so directed by the Company, Purchaser and the Original Partners will deliver to the Company all copies, other than permanent file copies, then in Purchaser's and the Original Partners' possession of the most recent prospectus covering such Registerable Securities at the time of receipt of such notice. 7. Rule 144 Reporting. With a view to making available to Purchaser and ------------------ the Original Partners the benefits of certain rules and regulations of the SEC which may permit Purchaser and the Original Partners to sell securities of the Company to the public without registration, the Company agrees to: (a) Make and keep public information available as those terms are understood and defined in Rule 144 under the Securities Act; (b) Use its commercially reasonable best efforts to file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and (c) So long as Purchaser or any Original Partner owns any Registrable Securities, furnish to Purchaser and any such Original Partner forthwith upon request a written statement by the Company as to its compliance with the reporting requirements of Rule 144, the Securities Act and the Exchange Act, a copy of the most recent annual or quarterly report of the Company, and such other reports and documents so filed as Purchaser or any such Original Partner may reasonably request in availing itself of any rule or regulation of the SEC allowing Purchaser or any such Original Partner to sell any such securities without registration. 9 8. Restrictions on Public Sale. The Company agrees: --------------------------- (a) Not to effect any public sale or distribution of any securities during the 90-day period commencing on the effective date of a registration statement filed pursuant to Section 3.1, except in connection with any merger, acquisition, exchange offer, or any other business combination, including any transaction within the scope of Rule 145 promulgated pursuant to the Securities Act, subscription offer, dividend reimbursement plan or stock option or other director or employee incentive or benefit plan; (b) That any agreement entered into after the date hereof pursuant to which the Company grants registration rights with respect to the Company's securities shall contain a provision under which holders of such securities agree, to the extent not inconsistent with applicable laws, not to effect any public sale or distribution of any such securities (excluding any sale in accordance with Rule 144 under the Securities Act) during the period commencing with the effective date of a registration statement pursuant to Section 3.1 through the 90-day period beginning on the date that the registration statement filed pursuant to Section 3.1 becomes effective. 9. Furnish Information. It shall be a condition precedent to the ------------------- obligations of the Company to take any action pursuant to this Agreement with respect to the Registrable Securities that Purchaser and each Original Partner shall furnish to the Company such information regarding themselves, the Registrable Securities held by each of them, and the intended method of disposition of such securities as shall be required to effect the registration of the Registrable Securities. 10. Expenses of Registration. Except as set forth below, the Company ------------------------ shall bear and pay all expenses incurred in connection with any registration, filing, listing and qualification of Registrable Securities effected pursuant to this Agreement, including, without limitation, all registration, filing, listing and qualification fees, printers' and accounting fees relating or apportionable thereto, rating agency fees, costs of appraisals and other reports, the fees and disbursements of counsel for the Company and the reasonable fees and disbursements of counsel for each of Purchaser and the Original Partners (as a group) selected by Purchaser and the Original Partners, respectively, but excluding underwriting discounts and commissions relating to Registrable Securities. 11. Indemnification. In the event any Registrable Securities are included --------------- in a registration statement under this Agreement: (a) To the extent permitted by law, the Company shall indemnify and hold harmless Purchaser, each Original Partner, any underwriter (as defined in the Securities Act) for Purchaser or the Original Partners and each Person, if any, who controls Purchaser or such underwriter within the meaning of the Securities Act or the Exchange Act, against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Securities Act, or the Exchange Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions, or violations (collectively a "Violation"): (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, 10 including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities law; and, subject to the provisions of subsection (c) below, the Company shall pay to Purchaser, each Original Partner, such underwriter or controlling Person, as incurred, any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this subsection (a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability, or action to the extent that it arises out of or is based upon a Violation which occurs (A) in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by Purchaser, such Original Partner or any such underwriter or controlling Person or (B) as a result of the failure of Purchaser, such Original Partner or any underwriter or controlling Person to deliver a prospectus in connection with the offer and sale of Registrable Securities when legally required to do so. (b) To the extent permitted by law, Purchaser shall indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, each Person, if any, who controls the Company within the meaning of the Securities Act, any underwriter, and any controlling Person of any such underwriter, against any losses, claims, damages, or liabilities (joint or several) to which any of the foregoing Persons may become subject under the Securities Act, or the Exchange Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by Purchaser expressly for use in connection with such registration; and, subject to the provisions of subsection (d) below, Purchaser shall pay any legal or other expenses reasonably incurred by any Person intended to be indemnified pursuant to this subsection (b) in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this subsection (b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent of Purchaser, which consent shall not be unreasonably withheld; provided, further, that, in no event shall any indemnity under this subsection (b) exceed the gross proceeds from the offering received by Purchaser. (c) To the extent permitted by law, such Original Partner shall indemnify hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, each Person, if any, who controls the Company within the meaning of the Securities Act, any underwriter, and any controlling Person of any such underwriter, against any losses, claims, damages, or liabilities (joint or several) to which any of the foregoing Persons may become subject under the Securities Act, or the Exchange Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any Violation, in each case to the extent (and only 11 to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Original Partner expressly for use in connection with such registration; and, subject to the provisions of subsection (d) below, such Original Partner shall pay any legal or other expenses reasonably incurred by any Person intended to be indemnified pursuant to this subsection (c) in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this subsection (c) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent of such Original Partner, which consent shall not be unreasonably withheld; provided, further, that, in no event shall any indemnity under this subsection (c) exceed the gross proceeds from the offering received by such Original Partner. (d) Promptly after receipt by an indemnified party under this Section 11 of notice of the commencement of any action (including such indemnified party shall, if a claim in respect thereof is to be made against any indemnifying party under this Section 11, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party (together, in the case of the Purchaser or such Original Partner, with all control Persons who are indemnified parties and, in the case of an underwriter, with all other underwriters and control Persons who are indemnified parties) shall have the right to retain separate counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party or parties by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party or parties and the indemnifying party. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall relieve such indemnifying party of any liability to the indemnified party under this Section 11 to the extent such failure shall be prejudicial to its ability to defend such action, but the omission so to deliver written notice to the indemnifying party shall not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 11. (e) The obligations of the Company, Purchaser and each Original Partners under this Section 11 shall survive the completion of any offering of Registrable Securities in a registration statement under this Agreement, and otherwise. 12.1 Assignment of Rights. Subject to Section 12.2 below, the rights -------------------- Purchaser and each Original Partner under this Agreement with respect to any Registerable Securities may be assigned to any person who acquires Registrable Securities from Purchaser and/or each Original Partner, as the case may be, and thereafter holds Registrable Securities in an amount equal to seven and one-half percent (7 1/2%) of the then outstanding shares of Common Stock of the Company, except that any person who acquires such Registrable Securities (a) pursuant to a public offering registered under the Securities Act, or (b) pursuant to a transfer made in accordance with Rule 144 under the Securities Act (or any similar successor provision) may not be assigned rights hereunder with respect to such Registrable Securities. Notwithstanding the foregoing, rights to cause one or more demand registrations under Section 3.1 may only be assigned if such rights are expressly assigned in writing by Purchaser. Any 12 assignment of registration rights pursuant to this Section 12.1 shall be effective upon receipt by the Company of written notice from Purchaser or such Original Partner, as the case may be, (i) stating the name and address of any assignee, (ii) describing the manner in which the assignee acquired Registrable Securities, (iii) if from the Purchaser, stating the number of "requests," as defined in Section 3.2(a) above, being assigned by Purchaser to any assignee, which, in any event, shall not result in the total number of requests to which Purchaser and any assignee together are entitled being greater than three, and (iv) identifying the Registerable Securities with respect to which the rights under this Agreement are being assigned. 12.2 Scope of Assignment. The rights of an assignee under Section 12.1 ------------------- shall be the same rights granted to the Purchaser or to such Original Partner, as the case may be, under this Agreement, except that in no event shall the Company's obligations hereunder be increased due to any such assignment. In connection with any such assignment, the term "Purchaser" as used herein shall, where appropriate to assign the rights and obligations of Purchaser hereunder to such assignee, be deemed to refer to the assignee. After any such assignment, Purchaser shall retain its rights under this Agreement with respect to all other Registerable Securities owned by Purchaser. 13. Miscellaneous. ------------- 13.1 Notices. All notices, requests, demands, or other communications ------- which are required or may be given pursuant to the terms of this Agreement shall be in writing and shall be deemed to have been duly given upon receipt, if delivered by hand, by telecopy or telegram, or three days after deposit in the U.S. mail, postage prepaid, addressed to Purchaser and to the Company as follows: Purchaser: United Breweries of America, Inc. Three Harbor Drive, Suite 115 Sausalito, California 94965 Attention: Vijay Mallya Telephone Number: (415) 289-1400 Telecopy Number: (415) 289-1409 Copy to: Orrick, Herrington & Sutcliffe LLP 400 Sansome Street San Francisco, California 94111 Attention: Alan Talkington Telephone Number: (415) 773-5762 Telecopy Number: (415) 773-5759 Michael Laybourn c/o Mendocino Brewing Company, Inc. Norman Franks P.O. Box 400, 13351 South Highway 101 Michael Lovett Hopland, California 95449 John Scahill Telephone Number: (707) 744-1015 Donald Barkley Telecopy Number: (707) 744-1910 13 Company: Mendocino Brewing Company, Inc. P.O. Box 400, 13351 South Highway 101 Hopland, California 95449 Telephone Number: (707) 744-1015 Telecopy Number: (707) 744-1910 Copy to: Nelson Crandall Enterprise Law Group, Inc. Menlo Oaks Corporate Center 4400 Bohannon Drive, Suite 280 Menlo Park, California 94025-1041 Telephone Number: (650) 462-4700 Telecopy Number: (650) 462-4747 or to such other address as any party may designate for itself by notice given as provided in this Agreement. Copies of notice to counsel shall be given at the same time and by the same method of delivery as notice to the parties. 13.2 Injunctions. Irreparable damage would occur in the event that any of ----------- the provisions of this Agreement were not performed in accordance with its specified terms or were otherwise breached. Therefore, the parties hereto shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement and to enforce specifically the terms of provisions hereof in any court having jurisdiction, such remedy being in addition to any other remedy to which they may be entitled at law or in equity. 13.3 Severability. If any term or provision of this Agreement is held by ------------ a court of competent jurisdiction to be invalid, void, or unenforceable, the remainder of the terms and provisions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term or provision. 13.4 Further Assurance. Subject to the specific terms of this Agreement, ----------------- Purchaser, each Original Partner and the Company shall make, execute, acknowledge and deliver such other instruments and documents, and take all such other actions, as may be reasonably required in order to effectuate the purposes of this Agreement and to consummate the transactions contemplated hereby. 13.5 Entire Agreement; Modification. This Agreement contains the entire ------------------------------ understanding of the parties with respect to the transactions contemplated hereby and supersedes all agreements and understandings entered into prior to the execution hereof. Any provision of this Agreement may be amended only with the written consent of the Company and Purchaser, except that any modification that would negatively affect the Original Partners must also be approved by Original Partners holding a majority of the Registrable Securities held by the Original Partners and except that any modification that would negatively affect an Original Partner in a manner that does not similarly affect the other Original Partners must also be 14 approved by the affected Original Partner. No breach of any covenant, agreement, warranty or representation shall be deemed waived unless expressly waived in writing by or on behalf of the party who might assert such breach. 13.6 Counterparts. For the convenience of the parties hereto, any number ------------ of counterparts of this Agreement may be executed by the parties hereto, but all such counterparts shall be deemed one and the same instrument. 13.7 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ------------- ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA WITHOUT REGARD TO ANY CHOICE OF LAW PRINCIPLES WHICH MIGHT REQUIRE OR PERMIT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION. 13.8 Successors and Assigns. This Agreement shall be binding upon and ---------------------- shall inure to the benefit of and be enforceable by and against the successors and permitted assigns of the parties hereto. Except as provided herein, the parties may not assign their rights under this Agreement and the Company may not delegate its obligations under this Agreement. Any attempted assignment or delegation prohibited hereby shall be void. 13.9 Parties in Interest. Except as otherwise specifically provided ------------------- herein, nothing in this Agreement expressed or implied is intended or shall be construed to confer any right or benefit upon any person, firm or corporation other than Purchaser, each Original Partner and the Company and their respective successors and permitted assigns. 13.10 Attorneys' Fees. In the event of any legal action or proceeding to --------------- enforce or interpret the provisions hereof, the prevailing party shall be entitled to reasonable attorneys' fees, whether or not the proceeding results in a final judgment. 13.11 Effect of Headings. The section headings herein are for convenience ------------------ only and shall not affect the construction or interpretation of this Agreement. [REST OF PAGE INTENTIONALLY LEFT BLANK] 15 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the day and year first above written. MENDOCINO BREWING COMPANY, INC. By: /s/ H. MICHAEL LAYBOURN ----------------------------------------- Name: H. Michael Laybourn Title: Chairman and Chief Executive Officer UNITED BREWERIES OF AMERICA, INC. By: /s/ VIJAY MALLYA ----------------------------------------- Name: Vijay Mallya Title: Chairman and Chief Executive Officer ORIGINAL PARTNERS: H. MICHAEL LAYBOURN /s/ H. MICHAEL LAYBOURN ------------------------------------ NORMAN FRANKS /s/ NORMAN FRANKS ------------------------------------ MICHAEL LOVETT /s/ MICHAEL LOVETT ------------------------------------ JOHN SCAHILL /s/ JOHN SCAHILL ------------------------------------ DONALD BARKLEY /s/ DONALD BARKLEY ------------------------------------ 16 SCHEDULE A Original Partners Shares Original Partner Number of Shares ---------------- ---------------- H. Michael Laybourn 272,367 Norman Franks 245,512 Michael Lovett 93,034 John Scahill 248,809 Donald Barkley 101,559 17 -----END PRIVACY-ENHANCED MESSAGE-----