-----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, DVytjTW7Qn4WB44aSnbEpjNJLHLTxTnXP8jAh+1jnQ9A+jFx3YCaH5wRP39FiHUU Ect0z0tzYALstUE1E/CVxA== 0000950005-98-000683.txt : 19980814 0000950005-98-000683.hdr.sgml : 19980814 ACCESSION NUMBER: 0000950005-98-000683 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980813 SROS: PCX FILER: COMPANY DATA: COMPANY CONFORMED NAME: MENDOCINO BREWING CO INC CENTRAL INDEX KEY: 0000919134 STANDARD INDUSTRIAL CLASSIFICATION: MALT BEVERAGES [2082] IRS NUMBER: 680318293 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 001-13636 FILM NUMBER: 98685767 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 10QSB 1 FORM 10-QSB UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1998 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from __________ to __________ Commission file number 1-13636 Mendocino Brewing Company, Inc. (Exact name of small business issuer as specified in its charter) California 68-0318293 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 13351 South Highway 101, Hopland, California 95449 (Address of principal executive offices) (707) 744-1015 (Issuer's telephone number) Not Applicable (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] APPLICABLE ONLY TO CORPORATE ISSUERS The number of shares of the issuer's common stock outstanding as of June 30, 1998 is 4,496,719. PART I Item 1. Financial Statements. MENDOCINO BREWING COMPANY, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEET June 30, 1998 (Unaudited)
ASSETS ------ CURRENT ASSETS Cash and cash equivalents $ 80,600 Accounts receivable 688,400 Other receivables 29,300 Inventories 689,500 Prepaid expenses 265,200 Refundable income taxes 106,300 Deferred income taxes 400,000 ------------ Total Current Assets: 2,259,300 ------------ PROPERTY AND EQUIPMENT 15,477,800 ------------ OTHER ASSETS Deferred income taxes 753,400 Other assets 47,700 ------------ Total Other Assets: 801,100 ------------ Total Assets: $ 18,538,200 ============ LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES Line of credit $ 600,000 Accounts payable 1,060,400 Accrued wages and related expense 225,100 Accrued construction costs 600 Other accruals 424,700 Current maturities of obligations under capital lease 173,100 Current maturities of long-term debt 25,100 ------------ Total Current Liabilities: 2,509,000 LONG TERM DEBT, less current maturities 3,745,100 OBLIGATION UNDER CAPITAL LEASES, less current maturities 1,492,100 ------------ Total Liabilities: 7,746,200 ------------ STOCKHOLDERS' EQUITY Common stock, no par value: 20,000,000 shares authorized, 4,496,719 shares issued and outstanding 12,367,200 Preferred stock, Series A, no par value, with aggregate liquidation preference of $227,600: 227,600 shares authorized, issued and outstanding 227,600 Accumulated deficit (1,802,800) ------------ Total Stockholders' Equity 10,792,000 ------------ Total Liabilities and Stockholders' Equity: $ 18,538,200 ============ The accompanying notes are an integral part of these financial statements.
1 MENDOCINO BREWING COMPANY, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
-------------------------------------------------------------------- THREE MONTHS ENDED SIX MONTHS ENDED June 30, June 30, -------------------------------------------------------------------- 1998 1997 1998 1997 ---- ---- ---- ---- SALES $ 1,690,200 $ 1,273,000 $ 3,000,300 $ 2,324,500 LESS EXCISE TAXES 100,900 72,500 169,400 119,400 ----------- ----------- ----------- ----------- NET SALES 1,589,300 1,200,500 2,830,900 2,205,100 COST OF GOODS SOLD 1,235,300 764,600 2,357,800 1,340,800 ----------- ----------- ----------- ----------- GROSS PROFIT 354,000 435,900 473,100 864,300 ----------- ----------- ----------- ----------- OPERATING EXPENSES Retail operating 120,500 168,800 232,400 334,100 Marketing 320,400 227,600 488,500 430,900 General and administrative 476,200 200,200 905,000 389,600 ----------- ----------- ----------- ----------- 917,100 596,600 1,625,900 1,154,600 ----------- ----------- ----------- ----------- LOSS FROM OPERATIONS (563,100) (160,700) (1,152,800) (290,300) ----------- ----------- ----------- ----------- OTHER INCOME (EXPENSE) Interest income -- 1,000 1,800 3,000 Other income (expense) (400) 1,200 (4,200) 6,400 Write off of deferred offering costs -- (141,000) -- (141,000) Interest expense (129,800) (29,500) (251,600) (29,600) ----------- ----------- ----------- ----------- (130,200) (168,300) (254,000) (161,200) ----------- ----------- ----------- ----------- LOSS BEFORE INCOME TAXES (693,300) (329,000) (1,406,800) (451,500) BENEFIT FROM INCOME TAXES (255,300) (113,600) (540,500) (112,800) ----------- ----------- ----------- ----------- NET LOSS $ (438,000) $ (215,400) $ (866,300) $ (338,700) =========== =========== =========== =========== LOSS PER SHARE $ (0.10) $ (0.09) $ (0.19) $ (0.15) =========== =========== =========== =========== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 4,496,719 2,341,548 4,496,719 2,335,665 =========== =========== =========== =========== The accompanying notes are an integral part of these financial statements.
2 MENDOCINO BREWING COMPANY, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
----------------------------------------------------------------- THREE MONTHS ENDED SIX MONTHS ENDED June 30, June 30, ----------------------------------------------------------------- 1998 1997 1998 1997 ---- ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES Net Loss $ (438,000) $ (215,400) $ (866,300) $ (338,700) Adjustments to reconcile net loss to net cash provided (used) by operating activities: Depreciation and amortization 166,800 95,200 332,200 110,700 Deferred income taxes (255,300) (23,600) (540,500) (23,600) Changes in: Accounts receivable (225,300) (31,000) (358,700) (100,400) Inventories (167,700) (41,600) (145,400) 77,400 Prepaid expenses and taxes (94,400) (47,300) (259,000) (9,100) Refundable income tax -- (90,000) -- (90,000) Accounts payable 318,100 143,700 332,100 304, 200 Accrued wages and related expenses 91,400 11,200 55,400 19,200 Accrued liabilities 41,400 22,100 96,200 35,800 ----------- ----------- ----------- ----------- Net cash used by operating activities: (563,000) (176,700) (1,354,000) (14,500) ----------- ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property, equipment, and leasehold improvements (88,400) (430,400) (166,100) (1,661,200) Other assets -- (100) -- 13,900 ----------- ----------- ----------- ----------- Net cash used by investing activities: (88,400) (430,500) (166,100) (1,647,300) ----------- ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Net proceeds from short-term borrowing -- 237,600 -- 799,000 Principal payments on long-term debt (5,900) -- (5,900) -- Borrowings on long-term debt 677,400 -- 983,100 -- Payments on obligation under capital lease (41,500) (15,000) (82,800) (51,200) Refundable deposit -- 500,000 -- 500,000 Accrued construction costs -- (254,300) -- 50,100 Proceeds from sale of common stock -- 28,300 -- 164,300 Deferred stock offering costs -- 135,700 -- 37,700 Deferred private placement costs -- (64,600) -- (81,800) ----------- ----------- ----------- ----------- Net cash provided by financing activities: 630,000 567,700 894,400 1,418,100 ----------- ----------- ----------- ----------- DECREASE IN CASH AND CASH EQUIVALENTS (21,400) (39,500) (625,700) (243,700) CASH AND CASH EQUIVALENTS, beginning of period 102,000 290,500 706,300 494,700 ----------- ----------- ----------- ----------- CASH AND CASH EQUIVALENTS, end of period $ 80,600 $ 251,000 $ 80,600 $ 251,000 =========== =========== =========== =========== Supplemental cash flow information includes the following: Cash paid during the period for: Interest $ 129,700 $ 114,600 $ 251,600 $ 247,800 ----------- ----------- ----------- ----------- Taxes $ -- $ -- $ 2,500 $ 800 =========== =========== =========== =========== The accompanying notes are an integral part of these financial statements.
3 MENDOCINO BREWING COMPANY, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1 -- Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-KSB for the year ended December 31, 1997. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 1998, are not necessarily indicative of the results that may be expected for the year ending December 31, 1998. Note 2 -- Short-Term Borrowing The Company has available a $600,000 term line of credit with variable interest at the bank's index rate plus 1.5%, maturing July 31, 1998. The note is secured by the Company's accounts receivable and inventory. Note 3 -- Long Term Debt In March 1998, the Company refinanced its short-term construction note that matured on January 1, 1998, to a $2,700,000 note, with interest at Treasury Constant Maturity Index for five year treasuries plus 4.17%, currently 9.86%. The note requires monthly payments of principal and interest of $24,400. The note matures in December 2012 with a balloon payment of $1,940,000 and is secured by real property located in Ukiah, California. The Company's largest shareholder, United Breweries of America, Inc. ("UBA"), has agreed in principle, to provide the Company with a credit facility of up to $2,000,000. This arrangement has not yet been formalized. The advances are to be secured by real property located in Saratoga Springs, New York. The advances will bear interest at the prime rate, plus 1.5%, and is due 18 months from the date of the note, or in September 1999. As of June 30, 1998, UBA has advanced $961,900 under the credit facility. The Company has a note payable outstanding to an individual in the amount of $93,700, with interest accruing at 9%, due December 31, 1998, secured by real property and subordinated to bank debt. Note 4 -- Income Taxes As of June 30, 1998, the Company had available net operating loss carryovers of approximately $2,908,000 and $1,982,000 of federal and California net operating losses, respectively. The federal and California operating losses expire through 2013 and 2003, respectively. The benefit from these loss carryforwards has been recorded, resulting in a deferred tax asset. A valuation allowance is not provided since the Company believes it is more likely than not that the loss carryforwards will be fully utilized. 4 Item 2. Management's Discussion and Analysis. The following discussion and analysis should be read in conjunction with the financial statements and the Notes thereto included as Item 1 of this Report. The discussion of results and trends does not necessarily imply that these results and trends will continue. Forward-Looking Information The Management's Discussion and Analysis of Financial Condition and Results of Operations and other sections of this Form 10-QSB contain forward-looking information. The forward-looking information involves risks and uncertainties that are based on current expectations, estimates and projections about the Company's business, management's beliefs and assumptions made by management. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," and variations of such words and similar expressions are intended to identify such forward-looking information. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking information due to numerous factors, including, but not limited to, availability of financing for operations, successful performance of internal operations, impact of competition, changes in distributor relationships or performance and other risks detailed below as well as those discussed elsewhere in this Form 10-QSB and from time to time in the Company's Securities and Exchange Commission filings and reports. In addition, such statements could be affected by general industry and market conditions and growth rates, and general domestic economic conditions. Overview The second quarter was highlighted by the Ten Springs Brewing Co. located in Saratoga Springs, New York being placed in operation, and the launching of the Red Tail Ale brand out of that facility. Other Brands namely, White Face Pale Ale, Fat Bear Stout and Saratoga Classic Pilsner were also launched out of the Saratoga Springs facility. The facility located in Ukiah, California, commenced production of the newly acquired Carmel Brands, namely Carmel Amber and Carmel Wheat. The increase in net sales results for the six-month period were achieved primarily due to increased marketing efforts. Sales (measured in barrels) increased from 8,923 bbl. in the first six months of 1997 to 15,210 bbl. during the first six months of 1998 representing an increase of 70% over the corresponding period of last year. Of the total sales of 15,210 bbl., the sales out of the Ukiah facility amounted to 12,222 bbl. and the sales out of the Saratoga Springs facility was 2,988 bbl. The high costs associated with the new brewery at Ukiah, the fixed costs of the Ten Springs Brewery, and the interest expenses contributed to a net loss of $ 866,300 for the first six months of 1998. Loss from operations increased to 40.71% of net sales for the first six months of 1998, as compared to the 13.17% loss from operations for the corresponding period of 1997. UBA has agreed in principle to provide the Company with a credit facility of up to $2,000,000 for working capital purposes. Advances will be secured by a lien against the Ten Springs Brewery, and will bear interest at prime plus 1.5% and will be due and payable 18 months after the date of the advance. UBA has advanced $961,900 to the Company under such credit facility 5 as of August 1, 1998. Failure of UBA to fund this credit facility could have a material adverse effect on the Company's business, financial condition and results of operation. Results of Operations Six Months Ending June 30, 1998 Compared to Six Months Ending June 30, 1997. The following discussion sets forth information for the six-month periods ending June 30, 1998 and 1997. This information has been derived from unaudited interim financial statements of the Company contained elsewhere herein and reflects, in Management's opinion, all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results of operations for these periods. Results of operations for any interim period are not necessarily indicative of results to be expected for the full fiscal year. The following table sets forth, as a percentage of sales, certain items included in the Company's Statements of Operations, as set forth above under "Financial Statements," for the periods indicated: ----------------------------------- Six Months Ended June 30 ----------------------------------- 1998 1997 Statements of Income Data: Sales 105.98% 105.42% Excise taxes 5.98 5.42 ------ ------ Net Sales 100.00 100.00 Costs of Sales 83.29 60.81 ------ ------ Gross Profit 16.71 39.19 Retail Operating Expense 8.20 15.15 Marketing Expense 17.25 19.54 General and Administrative Expenses 31.97 17.67 ------ ------ Total Operating Expenses 57.42 52.36 ------ ------ Loss from Operations (40.71) (13.17) Other Income (expense) (0.08) (5.96) Interest income (expense) (8.90) (1.35) ------ ------ Loss before income taxes (49.69) (20.48) Benefit from income taxes 19.09 5.12 ------ ------ Net Loss (30.60) (15.36) ====== ====== 6 ---------------------------------- Six Months Ended June 30 ---------------------------------- 1998 1997 Balance Sheet Data: Cash and Cash Equivalents $80,600 $251,000 Working Capital (249,700) (5,456,000) Property and Equipment 15,477,800 10,985,100 Deposits and Other Assets (801,100) 115,800 Total Assets 18,538,200 12,325,500 Long-term Debt 5,237,200 1,665,200 Total Liabilities 7,746,200 8,364,000 Shareholder's equity 10,792,000 3,961,600 Net Sales. Net sales for the first six months of 1998 were $2,830,900 compared to $2,205,100 for the first six months of 1997, representing an increase of 28.40%. The sales volume increased to 15,210 barrels during the first six months of 1998 from 8,923 barrels during the first six months of 1997, representing an increase of 70%. Of the total sales of 15,210 bbl., the sales out of the Ukiah facility amounted to 12,222 bbl. and the sales measured in barrels from the Saratoga Springs facility was 2,988 bbl. Management attributes the growth in sales from the Ukiah facility to new marketing strategies including new point of sale materials. The growth in sales out of the Saratoga Springs facility is due primarily to contract brewing arrangements and the launch of new brands on the East Coast. The increase in overall net sales during the first six months of 1998 was achieved solely by higher wholesale shipments during the six-month period. The wholesale beer sales registered an increase of $753,900 during the first six months of 1998 when compared to the corresponding period of 1997. In view of the management's focus on wholesale beer sales, retail sales for the first six months of 1998 decreased by $128,500 when compared to that of the corresponding period of 1997. Cost of Goods Sold. Cost of goods sold as a percentage of net sales during the six-month period was 83.29% when compared to 60.81% for the corresponding period of 1997, representing an increase of 22.48%. During the six-month period, labor costs increased by $153,500, depreciation increased by $215,500, utilities increased by $93,900, insurance increased by $51,000, rentals increased by $54,000, property taxes increased by $70,600, waste water treatment costs increased by $18,500, and contract service charges increased by $24,700. Management attributes the increase to higher fixed and production costs and to the under utilization of the brewing facilities in Ukiah, California, and Saratoga Springs, New York. Gross Profit. As a result of the high cost of sales as explained above, the gross profit for the first six months of 1998 decreased to $473,100 from $864,300 for the same period in 1997, representing a decrease of 45.26%. As a percentage of net sales, the gross profit during the first six months of 1998 decreased to 16.71% from 39.19% for the corresponding period of 1997. Operating Expenses. Operating expenses for the first six months of 1998 were $1,625,800 as compared to $1,154,600 for the first six months of 1997, representing an increase of 40.81%. 7 Operating expenses consist of retail operating expenses, marketing and distribution expenses and general and administrative expenses. Retail operating expenses for the first six months of 1998 were $232,400, representing a decrease of $101,700 or 30.43% from the same period in 1997. As a percentage of net sales retail operating expenses decreased to 8.20% as compared to 15.15% for the same period in 1997. The decrease in retail operating expenses reflects a decrease in labor costs of $48,300, marketing and advertising costs of $38,900, supplies of $14,200, and a decrease in net or other expenses of $300. The decrease in operating expenses is attributable to cost cutting and better management of the Hopland Brewery. Marketing and Distribution expenses for the first six months of 1998 were $488,400, representing an increase of $57,500 from the same period in 1997. As a percentage of net sales, marketing and distribution expenses accounted for 17.25% when compared to 19.54% during the first six months of 1997. The increase in marketing and distribution expenses comprised of an increase in marketing labor costs by $120,200, travel and entertainment increased by $29,200, cost of POS materials and sales promotions increased by $31,500, offset by a decrease in freight costs by $48,600, decrease in label and package development costs by $32,100, decrease in warehouse rent by $15,000, decrease on account of non-recurrence of a $30,000 provision in connection with termination of a distributor and net of other expenses increased by $2,500. General and Administrative expenses were $905,000 as compared to $389,600 for the first six months of 1997. As a percentage of net sales, the general and administrative expenses were 31.97% in the first six months of 1998 as compared to 17.67% in the corresponding period of 1997. As compared to the first six months of 1997, labor costs increased by $232,600, travel and entertainment by $93,700, legal and professional expenses by $109,800, auto expenses by $19,400, rent by $8,400, supplies by $11,050, telephone expenses by $13,600, depreciation by $16,200 and net of other expenses by $10,700. The increase is attributable to more employees and an additional brewery located in Saratoga Springs, New York. Other Income (Expense). The other expense for the first six months of 1998 was $253,800 as compared to that of $161,100 during the first six months of 1997. The increase of $92,700 is mainly attributable to an increase in interest expense to the extent of $226,123, offset by non-recurrence of write off of deferred offering costs to the extent of $141,006. Benefit from Income Taxes. The benefit from income taxes for the first six months of 1998 was $540,500 as compared to $112,800 for the corresponding period in 1997. The benefit from income taxes is due to the expected future benefit of carrying forward of net operating losses. Net Loss. Net loss for the first six months of 1998 was $866,300, as compared to net loss of $338,700 during the first six months of 1997. As a percentage of net sales, net loss for the first six months of 1998 increased to 30.60%, as compared to 15.36% for the first six months of 1997. Segment Information The Company's business presently consists of two segments. The first is brewing for wholesale to distributors and other retailers. This segment accounted for 89% of the Company's first six 8 months 1998 gross sales. The second segment consists of brewing beer for sale along with food and merchandise at the Company's brewpub and retail merchandise store located at the Hopland Brewery. This segment accounted for 11% of the Company's gross sales for the first six months of 1998. With expanded wholesale beer production in both Ukiah and Saratoga Springs, Management expects that retail sales, as a percentage of total sales, will decrease proportionally to the expected increase in the Company's wholesale sales. The Company's business segments are brewing operations and a retail establishment known as Hopland Brewery. A summary of each segment is as follows:
Six Months Ended June 30, 1998 ---------------------------------------------------------------------------- Brewing Hopland Brewery Corporate and Operations Other Total ---------------------------------------------------------------------------- Sales 2,674,300 326,000 -- 3,000,300 Operating profit (loss) (1,098,200) (54,500) -- (1,152,700) Identifiable assets 16,005,200 94,500 2,438,500 18,538,200 Depreciation and amortization 304,200 3,600 24,400 332,200 Capital Expenditures 134,800 -- 31,300 166,100 Six Months Ended June 30, 1997 ---------------------------------------------------------------------------- Brewing Hopland Brewery Corporate and Operations Other Total ---------------------------------------------------------------------------- Sales 1,870,300 454,200 -- 2,324,500 Operating profit (loss) (271,000) (19,300) -- (290,300) Identifiable assets 11,048,700 101,200 1,175,600 12,325,500 Depreciation and amortization 102,800 3,400 4,500 110,700 Capital Expenditures 1,782,800 -- 22,200 1,805,000
Seasonality Beer consumption nationwide has historically increased by approximately 20% during the summer months as compared to other months of the year. It is not clear to what extent seasonality will affect the Company as it expands its capacity and its geographic markets. Capital Demands The Company has yet to complete the build-out of its administrative space and the exterior landscaping of the Ukiah facility. The Ukiah brewery is presently operating under a temporary certificate of occupancy from the City of Ukiah. Completion of construction is a condition to the issuance of a final certificate of occupancy. Failure to complete construction and obtain a final certificate of occupancy could have a material adverse effect on the Company's business, financial condition and results of operation. The Ukiah and Saratoga Springs breweries have placed demands upon the Company's assets, liabilities, commitments for capital expenditures and liquidity. Failure to adequately meet those 9 demands may have a material adverse affect on the Company's business, financial condition and results of operations. Liquidity and Capital Resources Long Term Debt. The Company has obtained a $2,700,000 term loan from the Savings Bank of Mendocino County. The loan is payable in monthly installments of $24,400, including interest at the Treasury Constant Maturity Index plus 4.17%, currently 9.86%, maturing December 2012 with a balloon payment in the amount of $1,940,000, secured by substantially all of the assets of the Company (other than the Ten Springs Brewery), including without limitation, a first priority deed of trust on the Ukiah land and improvements. Shareholder Commitment. The Company's largest shareholder, UBA, has agreed in principle to provide the Company with a credit facility of up to $2,000,000, to be funded in installments of up to $300,000 each. The advances are to be secured by a first priority deed of trust on the Ten Springs Brewery. The advances will bear interest at prime plus 1.5% and are due and payable 18 months after the date of the advance. It is anticipated that the advances will have a conversion feature into unregistered shares of the Company's common stock. The final structure of the conversion feature is currently being studied by management to ensure a final structure that will be the most advantageous to the Company. The arrangement was approved by a committee consisting of director Michael Laybourn (the President of the Company) and independent directors Kent Price and Sury Rao Palamond on February 19, 1998. UBA has advanced a total of $961,900 as of August 1, 1998. Equipment Lease. The Company has leased from FINOVA Capital Corporation new brewing equipment at a total cost of approximately $1,780,000 to the Company for a term of 7 years (commencing December 1996) with monthly rental payments of approximately $27,100 each. At expiration of the initial term of the lease, the Company may purchase the equipment at its then current fair market value but not less than 25% nor more than 30% of the original cost of the equipment, or at the Company's option, may extend the term of the lease for an additional year at monthly rental payments of approximately $39,000 with an option to purchase the equipment at the end of the year at then current fair market value. The lease is not pre-payable. Seller Financing of Ukiah Real Estate. The seller of the Ukiah land holds a promissory note, secured by a third priority deed of trust on the Ukiah property, with a remaining principal balance as of June 30, 1998 of $93,700 at 9% annual interest due on December 31, 1998 pursuant to a verbal agreement with the spokesman for the lending group. Revolving Credit Facility. WestAmerica Bank of Santa Rosa, California has provided the Company with a $600,000 maximum revolving line of credit with an advance rate of 80% of the qualified accounts receivable and 25% of the inventory at an interest rate of the bank's index rate plus 1.5% payable monthly, maturing July 31, 1998. To the extent that the loan is not extended or refinanced, the Company will be required to repay the loan. Failure to find a lender to refinance the loan could have a material adverse effect on the Company's business, financial condition and results of operations. 10 Keg Management Arrangement. The Company has entered into a keg management agreement with MicroStar Keg Management LLC. Under this arrangement, MicroStar provides the Company with half-barrel kegs for which the Company pays a filling fee. Distributors return the kegs to MicroStar instead of the Company. MicroStar then supplies the Company with additional kegs. If the agreement terminates, the Company is required to purchase a certain number of kegs from MicroStar. The Company would probably finance the purchase through debt or lease financing, if available. The Company's ratio of current assets to current liabilities on June 30, 1998, was .90 to 1.0 and its ratio of assets to liabilities was 2.39 to 1.0. Impact of Expansion on Cash Flow. The Company must make timely payment of its debt and lease commitments to continue its operations. Increased unused capacity at the Ukiah facility and the Saratoga Springs facility has placed additional demands on the Company's working capital. Working capital for day to day business operations had historically been provided primarily through operations. Beginning approximately with the second quarter of 1997, the time at which the Ukiah brewery commenced operations, proceeds from operations have not been able to provide sufficient working capital for day to day operations. UBA has agreed to provide a loan of up to $2,000,000 for working capital purposes. In addition, UBA has agreed to provide funding for the working capital requirements of the Ten Springs Brewery in an amount not to exceed $1,000,000 until October 24, 1999, or until the brewery's operations are profitable, whichever comes first. PART II Item 5. Other Information. As of July 30, 1998, the Company has completed the acquisition of all brand-related assets of Carmel Brewing Company, Inc., a California corporation ("Carmel Brewing"), in exchange for unregistered shares of the Company's common stock. The Company has commenced brewing and distributing Carmel Brewing brand beers. Item 6. Exhibits and Reports on Form 8-K.
Exhibit Number Description of Document ------ ----------------------- 3.1 (A) Articles of Incorporation, as amended, of the Company. 3.2 (B) Bylaws of the Company 4.1 Articles 5 and 6 of the Articles of Incorporation, as amended, of the Company (Reference is made to Exhibit 3.1). 4.2 Article 10 of the Restated Articles of Incorporation, as amended, of the Company (Reference is made to Exhibit 3.2). 10.1 (A) Mendocino Brewing Company Profit Sharing Plan. 10.2 (A) 1994 Stock Option Plan (previously filed as Exhibit 99.6). 10.3 (M) Employment Agreement with H. Michael Laybourn. 10.4 (A) Wholesale Distribution Agreement between the Company and Bay Area Distributing. 11 Exhibit Number Description of Document ------ ----------------------- 10.5 (A) Wholesale Distribution Agreement between the Company and Golden Gate Distributing. 10.6 (A) Sales Contract between the Company and John I. Hass, Inc. 10.7 (F) Liquid Sediment Removal Services Agreement with Cold Creek Compost, Inc. 10.8 (A) Lease Agreement between the Company and Kohn Properties. 10.9 (C) Commercial Real Estate Purchase Contract and Receipt for Deposit (previously filed as Exhibit 19.2). 10.10 (D) Installment Note between Ukiah Redevelopment Agency and Langley et al. (previously filed as Exhibit 19.5). 10.11 (F) Promissory Note for $76,230 in favor of Langley et al. 10.12 (G) Agreement to modify note and deed of trust dated June 6, 1995 with Langley, et al. 10.13 (G) Agreement to modify note dated June 6, 1995 with Langley, et al. 10.14 (G) Amendment to installment note payable to Langley, et al. 10.15 (N) Commercial Lease between Stewart's Ice Cream Company, Inc. and Releta Brewing Company LLC. 10.16 (M) Agreement between United Breweries of America, Inc. and Releta Brewing Company LLC regarding payment of certain liens. 10.17 (K)+ Keg Management Agreement with MicroStar Keg Management LLC. 10.18 (E) Agreement to Implement Condition of Approval No. 37 of the Site Development Permit 95-19 with the City of Ukiah, California (previously filed as Exhibit 19.6). 10.19 (G) Manufacturing Business Expansion and Relocation Agreement with the City of Ukiah. 10.20 (G) Manufacturing Business Expansion and Relocation Agreement with the Ukiah Redevelopment Agency. 10.21 (O) $2,700,000 Note in favor of the Savings Bank of Mendocino County. 10.22 (O) Hazardous Substances Certificate and Indemnity with the Savings Bank of Mendocino County. 10.23 (O) Business Loan Agreement with WestAmerica Bank. 10.24 (O) $600,000 Note in favor of the WestAmerica Bank. 10.25 (J) Equipment Lease with FINOVA Capital Corporation. 10.26 (J) Tri-Election Rider to Equipment Lease with FINOVA Capital Corporation. 10.27 (J) Master Lease Schedule with FINOVA Capital Corporation. 10.28 (L) Investment Agreement with United Breweries of America, Inc. 10.29 (L) Shareholders' Agreement Among the Company, United Breweries of America, Inc., H. Michael Laybourn, Norman Franks, Michael Lovett, John Scahill, and Don Barkley. 10.30 (L) Registration Rights Agreement Among the Company, United Breweries of America, Inc., H. Michael Laybourn, Norman Franks, Michael Lovett, John Scahill, and Don Barkley. 10.31 Indemnification Agreement with Vijay Mallya. 10.32 Indemnification Agreement with Michael Laybourn. 10.33 Indemnification Agreement with Jerome Merchant. 10.34 Indemnification Agreement with Yashpal Singh. 10.35 Indemnification Agreement with P.A. Murali. 10.36 Indemnification Agreement with Robert Neame. 10.37 Indemnification Agreement with Sury Rao Palamand. 10.38 Indemnification Agreement with Kent Price. 27 Financial Data Schedule. 12 - -------------------- (A) Incorporated by reference from the Company's Registration Statement dated June 15, 1994, as amended, previously filed with the Commission, Registration No. 33-78390-LA. (B) Incorporated by reference from the Company's Report on Form 10-KSB for the annual period ended December 31, 1994, previously filed with the Commission. (C) Incorporated by reference from the Company's Report on Form 10-QSB for the quarterly period ended March 31, 1995, previously filed with the Commission. (D) Incorporated by reference from the Company's Report on Form 10-QSB for the quarterly period ended June 30, 1995, previously filed with the Commission. (E) Incorporated by reference from the Company's Report on Form 10-QSB for the quarterly period ended September 30, 1995, previously filed with the Commission. (F) Incorporated by reference from the Company's Report on Form 10-KSB for the annual period ended December 31, 1995, previously filed with the Commission. (G) Incorporated by reference from the Company's Report on Form 10-QSB for the quarterly period ended June 30, 1996, previously filed with the Commission. (H) Incorporated by reference from the Company's Report on Form 10-QSB/A No. 1 for the quarterly period ended June 30, 1996, previously filed with the Commission. (J) Incorporated by reference from the Company's Registration Statement dated February 6, 1997, as amended, previously filed with the Commission, Registration No. 33-15673. (K) Incorporated by reference from the Company's Report on Form 10-KSB for the annual period ended December 31, 1996, previously filed with the Commission. (L) Incorporated by reference from the Schedule 13D filed with the Commission on November 3, 1997, by United Breweries of America, Inc. and Vijay Mallya. (M) Incorporated by reference from the Company's Report on Form 10-QSB for the quarterly period ended September 30, 1997. (N) Incorporated by reference from the Company's Report on Form 10-QSB/A No. 1 for the quarterly period ended September 30, 1997. (O) Incorporated by reference from the Company's Report on Form 10-KSB for the annual period ended December 31, 1997, previously filed with the Commission. + Portions of this Exhibit were omitted pursuant to an application for an order declaring confidential treatment filed with the Securities and Exchange Commission.
No reports on Form 8-K were filed during the quarter for which this report is filed. 13 SIGNATURE In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. REGISTRANT: MENDOCINO BREWING COMPANY, INC., a California corporation Dated: August 14, 1998 By: /s/ H. Michael Laybourn --------------------------- H. Michael Laybourn President Dated: August 14, 1998 By: /s/ Jerome G. Merchant -------------------------- Jerome G. Merchant Chief Financial Officer 14 EXHIBIT INDEX Exhibit Number ------ 10.31 Indemnification Agreement with Vijay Mallya. 10.32 Indemnification Agreement with Michael Laybourn. 10.33 Indemnification Agreement with Jerome Merchant. 10.34 Indemnification Agreement with Yashpal Singh. 10.35 Indemnification Agreement with P.A. Murali. 10.36 Indemnification Agreement with Robert Neame. 10.37 Indemnification Agreement with Sury Rao Palamand. 10.38 Indemnification Agreement with Kent Price. 27 Financial Data Schedule. EX-10.31 2 INDEMNIFICATION AGREEMENT Exhibit 10.31 INDEMNIFICATION AGREEMENT This INDEMNIFICATION AGREEMENT (the "Agreement") is made as of the ___ day of May ___, 1998, by and between MENDOCINO BREWING COMPANY, INC., a California corporation (the "Company") and VIJAY MALLYA ("Indemnitee"). WITNESSETH: WHEREAS, the Company has been advised that there can be no assurance that directors' and officers' liability insurance will continue to be available to the Company and Indemnitee, and believes that it is possible that the cost of such insurance, if obtainable, may not be acceptable to the Company; and WHEREAS, the Company and the Indemnitee recognize the substantial increase in corporate litigation in general, subjecting officers and directors to expensive litigation risks; and WHEREAS, Indemnitee is unwilling to serve, or continue to serve, the Company or any of its wholly owned subsidiaries as an officer and/or director without assurances that adequate liability insurance, indemnification or a combination thereof is, and will continue to be, provided; and WHEREAS, the Company, in order to induce Indemnitee to serve or to continue to serve the Company or any of its wholly owned subsidiaries, has agreed to provide Indemnitee with the benefits contemplated by this Agreement; and WHEREAS, as a result of the provision of such benefits, Indemnitee has agreed to serve or to continue to serve as an officer and/or director of the Company or any of its wholly owned subsidiaries. NOW, THEREFORE, in consideration of the promises, conditions, representations and warranties set forth herein, the Company and Indemnitee hereby agree as follows: I. Indemnification. A. Third Party Proceedings. The Company shall indemnify Indemnitee if Indemnitee is or was a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, or any subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while an officer or director or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees and costs), judgments, fines and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval Exhibit 10.31 - 1 shall not be unreasonably withheld) actually and reasonably incurred by Indemnitee in connection with such action, suit or proceeding if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe Indemnitee's conduct was unlawful, to the fullest extent permitted by California law and the Company's Articles of Incorporation. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that Indemnitee did not act in good faith and in a manner which Indemnitee reasonably believed to be in the best interests of the Company, or, with respect to any criminal action or proceeding, that Indemnitee had reasonable cause to believe that Indemnitee's conduct was unlawful. B. Proceedings By or in the Right of the Company. The Company shall indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made a party to any threatened, pending or completed action or proceeding by or in the right of the Company or any subsidiary of the Company to procure a judgment in its favor by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, or any subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while an officer or director or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees) judgments, fines and amount paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld), in each case to the extent actually and reasonably incurred by Indemnitee in connection with the defense or settlement of such action or suit if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the best interests of the Company and its shareholders, to the fullest extent permitted by California law and the Company's Articles of Incorporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which Indemnitee shall have been finally adjudicated by court order or judgment to be liable to the Company in the performance of Indemnitee's duty to the Company and its shareholders unless and only to the extent that the court in which such action or proceeding is or was pending shall determine upon application that, in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper. C. Mandatory Payment of Expenses. To the extent that Indemnitee has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 1(a) or Section 1(b) or the defense of any claim, issue or matter therein, Indemnitee shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by Indemnitee in connection therewith. II. No Employment Rights. Nothing contained in this Agreement is intended to create in Indemnitee any right to continued employment. III. Expenses; Indemnification Procedure. A. Advancement of Expenses. The Company shall advance all expenses incurred by Indemnitee in connection with the investigation, defense, settlement or appeal of any Exhibit 10.31 - 2 civil or criminal action, suit or proceeding referred to in Section 1(a) or Section 1(b) of this Agreement (including amounts actually paid in settlement of any such action, suit or proceeding). Indemnitee hereby undertakes to repay such amounts advanced only if, and to the extent that, it shall ultimately be determined that Indemnitee is not entitled to be indemnified by the Company as authorized hereby. B. Notice; Cooperation by Indemnitee. Indemnitee shall, as a condition precedent to his or her right to be indemnified under this Agreement, give the Company notice in writing as soon as practicable of any claim made against Indemnitee for which indemnification will or could be sought under this Agreement. Notice to the Company shall be directed to the Chief Executive Officer of the Company and shall be given in accordance with the provisions of Section 12(d) below. In addition, Indemnitee shall give the Company such information and cooperation as it may reasonably require and all shall be within Indemnitee's power. C. Procedure. Any indemnification and advances provided for in Section 1 and this Section 3 shall be made no later than twenty (20) days after receipt of the written request of Indemnitee. If a claim under this Agreement, under any statute, or under any provision of the Company's Articles of Incorporation or Bylaws providing for indemnification, is not paid in full by the Company within twenty (20) days after a written request for payment thereof has first been received by the Company, Indemnitee may, but need not, at any time thereafter bring an action against the Company to recover the unpaid amount of the claim and, subject to Section 11 of this Agreement, Indemnitee shall also be entitled to be paid for the expenses (including attorneys' fees) of bringing such action. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in connection with any action, suit or proceeding in advance of its final disposition) that Indemnitee has not met the standards of conduct which make it permissible under applicable law for the Company to indemnify Indemnitee for the amount claimed, but the burden of proving such defense shall be on the Company and Indemnitee shall be entitled to receive interim payments of expenses pursuant to Section 3(a) unless and until such defense may be finally adjudicated by court order or judgment from which no further right of appeal exists. It is the parties' intention that if the Company contests Indemnitee's right to indemnification, the question of Indemnitee's right to indemnification shall be for the court to decide, and neither the failure of the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel, or its shareholders) to have made a determination that indemnification of Indemnitee is proper in the circumstances because Indemnitee has met the applicable standard of conduct required by applicable law, nor an actual determination by the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel, or its shareholders) that Indemnitee has not met such applicable standard of conduct, shall create a presumption that Indemnitee has or has not met the applicable standard of conduct. D. Notice to Insurers. If, at the time of the receipt of a notice of a claim pursuant to Section 3(b) hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of Exhibit 10.31 - 3 the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies. E. Selection of Counsel. In the event the Company shall be obligated under Section 3(a) hereof to pay the expenses of any proceeding against Indemnitee, the Company, if appropriate, shall be entitled to assume the defense of such proceeding, with counsel approved by Indemnitee, upon the delivery to Indemnitee of written notice of its election so to do. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same proceeding, provided that (i) Indemnitee shall have the right to employ counsel in any such proceeding at Indemnitee's expense; and (ii) if (A) the employment of counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense, or (C) the Company shall not, in fact, have employed counsel to assume the defense of such proceeding, then the fees and expenses of Indemnitee's counsel shall be at the expense of the Company. IV. Additional Indemnification Rights; Nonexclusivity. A. Scope. Notwithstanding any other provision of this Agreement, the Company hereby agrees to indemnify the Indemnitee to the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Company's Articles of Incorporation, the Company's Bylaws or by statute. In the event of any change, after the date of this Agreement, in any applicable law, statute, or rule which expands the right of a California corporation to indemnify a member of its board of directors or an officer, such changes shall be deemed to be within the purview of Indemnitee's rights and the Company's obligations under this Agreement. In the event of any change in any applicable law, statute or rule which narrows the right of a California corporation to indemnify a member of its board of directors or an officer, such changes, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement shall have no effect on this Agreement or the parties' rights and obligations hereunder. B. Nonexclusivity. The indemnification provided by this Agreement shall not be deemed exclusive of any rights to which Indemnitee may be entitled under the Company's Articles of Incorporation, its Bylaws, any agreement, any vote of shareholders or disinterested members of the Company's Board of Directors, the General Corporation Law of the State of California, or otherwise, both as to action in Indemnitee's official capacity and as to action in another capacity while holding such office. The indemnification provided under this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an indemnified capacity even though he or she may have ceased to serve in any such capacity at the time of any action, suit or other covered proceeding. V. Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the expenses, judgments, fines or penalties actually or reasonably incurred in the investigation, defense, appeal or settlement of any civil or riminal action, suit or proceeding, but not, however, for the total Exhibit 10.31 - 4 amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such expenses, judgments, fines or penalties to which Indemnitee is entitled. VI. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge that in certain instances, federal law or public policy may override applicable state law and prohibit the Company from indemnifying its directors and officers under this Agreement or otherwise. For example, the Company and Indemnitee acknowledge that the Securities and Exchange Commission (the "SEC") has taken the position that indemnification is not permissible for liabilities arising under certain federal securities laws, and federal legislation prohibits indemnification for certain ERISA violations. Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the SEC to submit the question of indemnification to a court in certain circumstances for a determination of the Company's right under public policy to indemnify Indemnitee. VII. Officer and Director Liability Insurance. The Company shall, from time to time, make the good faith determination whether or not it is practicable for the Company to obtain and maintain a policy or policies of insurance with reputable insurance companies providing the officers and directors of the Company with coverage for losses from wrongful acts, or to ensure the Company's performance of its indemnification obligations under this Agreement. Among other considerations, the Company will weigh the costs of obtaining such insurance coverage against the protection afforded by such coverage. In all policies of director and officer liability insurance, Indemnitee shall be named as an insured in such a manner as to provide Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company's directors, if Indemnitee is a director, or of the Company's officers, if Indemnitee is not a director of the Company but is an officer, or of the Company's key employees, if Indemnitee is not an officer or director but is a key employee. Notwithstanding the foregoing, the Company shall have no obligation to obtain or maintain such insurance if the Company determines in good faith that such insurance is not reasonably available, if the premium costs for such insurance are disproportionate to the amount of coverage provided, if the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit, or if Indemnitee is covered by similar insurance maintained by a parent of subsidiary of the Company. VIII. Severability. Nothing in this Agreement is intended to require, or shall be construed as requiring the Company to do or fail to do, any act in violation of applicable law. The Company's inability, pursuant to court order, to perform its obligations under this Agreement shall not constitute a breach of this Agreement. The provisions of this Agreement shall be severable as provided in this Section 8. If this Agreement or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify Indemnitee to the full extent permitted by any applicable portion of this Agreement that shall not have been invalidated, and the balance of this Agreement not so invalidated shall be enforceable in accordance with its terms. IX. Exceptions. Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement: A. Claims Initiated by Indemnitee. To indemnify or advance expenses to Indemnitee with respect to proceedings or claims initiated or brought voluntarily by Indemnitee Exhibit 10.31 - 5 and not by way of defense, except with respect to proceedings brought to establish or enforce a right to indemnification under this Agreement or any other statute or law or otherwise as required under Section 317 of the California General Corporation Law, but such indemnification or advancement of expenses may be provided by the Company in specific cases if the Board of Directors finds it to be appropriate; B. Insured Claims. To indemnify Indemnitee for expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties, and amounts paid in settlement) to the extent such expenses or liabilities have been paid directly to Indemnitee by an insurance carrier under a policy of officers' and directors' liability insurance maintained by the Company; or C. Claims under Section 16(b). To indemnify Indemnitee for expenses or the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar successor statute. X. Construction of Certain Phrases. A. For purposes of this Agreement, references to the "Company" shall include in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that if Indemnitee is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued. B. For purposes of this Agreement, references to "other enterprises" shall include employee benefit plans; references to "taxes" shall include any excise taxes assessed on Indemnitee with respect to an employee benefit plan; and references to "serving at the request of the Company" shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants, or beneficiaries. XI. Attorneys Fees. In the event that any action is instituted by Indemnitee under this Agreement to enforce or interpret any of the terms hereof, Indemnitee shall be entitled to be paid all court costs and expenses including, reasonable attorneys' fees and costs, incurred by Indemnitee with respect to such action, unless as a part of such action, the court of competent jurisdiction determines that each of the material assertions made by Indemnitee as a basis for such action were not made in good faith or were frivolous. In the event of an action instituted by or in the name of the Company under this Agreement or to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be paid all court costs and expenses including attorneys' fees and costs, incurred by Indemnitee in defense of such action (including with respect to Indemnitee's counterclaims and cross-claims made in such action), unless as a part of Exhibit 10.31 - 6 such action the court determines that each of Indemnitee's material defenses to such action were made in bad faith or were frivolous. XII. Miscellaneous. A. Governing Law. This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of California, without giving effect to principles of conflicts of law. B. Entire Agreement; Enforcement of Rights. This Agreement sets forth the entire agreement and understanding of the parties relating to the subject matter herein and merges all prior discussions between them. No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, shall be effective unless in writing signed by the parties to this Agreement. The failure by either party to enforce any rights under this Agreement shall not be construed as a waiver of any rights of such party. C. Construction. This Agreement is the result of negotiations between and has been reviewed by each of the parties hereto and their respective counsel, if any; accordingly, this Agreement shall be deemed to be the product of all of the parties hereto, and no ambiguity shall be construed in favor of or against any one of the parties hereto. D. 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 (3) days after deposit in the U.S. mail, postage prepaid, addressed to Indemnitee and to the Company as follows: Indemnitee: Vijay Mallya 3 Harbor Drive, Suite #115 Sausalito, CA 94965 Tel: 415-289-1400 Fax: 415-289-1409 Company: Mendocino Brewing Company, Inc. 1601 Airport Road Ukiah, California 95482 Attention: Chief Executive Officer Tel: (707) 463-6610 Fax: (707) 463-0140 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. Exhibit 10.31 - 7 E. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. F. Successors and Assigns. This Agreement shall be binding upon the Company and its successors and assigns, and inure to the benefit of Indemnitee and Indemnitee's heirs, legal representatives and assigns. G. Subrogation. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company to effectively bring suit to enforce such rights. IN WITNESS WHEREOF, the Company and Indemnitee have executed this Agreement as of the day and year first above written. COMPANY: MENDOCINO BREWING COMPANY, INC., a California corporation Dated: May 11, 1998 By: /s/ Michael Laybourn ----------------------------- Michael Laybourn President INDEMNITEE: Dated: May 11, 1998 /s/ Vijay Mallya --------------------------------- VIJAY MALLYA Exhibit 10.31 - 8 EX-10.32 3 INDEMNIFICATION AGREEMENT Exhibit 10.32 INDEMNIFICATION AGREEMENT This INDEMNIFICATION AGREEMENT (the "Agreement") is made as of the ___ day of May ___, 1998, by and between MENDOCINO BREWING COMPANY, INC., a California corporation (the "Company") and MICHAEL LAYBOURN ("Indemnitee"). WITNESSETH: WHEREAS, the Company has been advised that there can be no assurance that directors' and officers' liability insurance will continue to be available to the Company and Indemnitee, and believes that it is possible that the cost of such insurance, if obtainable, may not be acceptable to the Company; and WHEREAS, the Company and the Indemnitee recognize the substantial increase in corporate litigation in general, subjecting officers and directors to expensive litigation risks; and WHEREAS, Indemnitee is unwilling to serve, or continue to serve, the Company or any of its wholly owned subsidiaries as an officer and/or director without assurances that adequate liability insurance, indemnification or a combination thereof is, and will continue to be, provided; and WHEREAS, the Company, in order to induce Indemnitee to serve or to continue to serve the Company or any of its wholly owned subsidiaries, has agreed to provide Indemnitee with the benefits contemplated by this Agreement; and WHEREAS, as a result of the provision of such benefits, Indemnitee has agreed to serve or to continue to serve as an officer and/or director of the Company or any of its wholly owned subsidiaries. NOW, THEREFORE, in consideration of the promises, conditions, representations and warranties set forth herein, the Company and Indemnitee hereby agree as follows: I. Indemnification. A. Third Party Proceedings. The Company shall indemnify Indemnitee if Indemnitee is or was a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, or any subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while an officer or director or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees and costs), judgments, fines and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval Exhibit 10.32 - 1 shall not be unreasonably withheld) actually and reasonably incurred by Indemnitee in connection with such action, suit or proceeding if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe Indemnitee's conduct was unlawful, to the fullest extent permitted by California law and the Company's Articles of Incorporation. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that Indemnitee did not act in good faith and in a manner which Indemnitee reasonably believed to be in the best interests of the Company, or, with respect to any criminal action or proceeding, that Indemnitee had reasonable cause to believe that Indemnitee's conduct was unlawful. B. Proceedings By or in the Right of the Company. The Company shall indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made a party to any threatened, pending or completed action or proceeding by or in the right of the Company or any subsidiary of the Company to procure a judgment in its favor by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, or any subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while an officer or director or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees) judgments, fines and amount paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld), in each case to the extent actually and reasonably incurred by Indemnitee in connection with the defense or settlement of such action or suit if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the best interests of the Company and its shareholders, to the fullest extent permitted by California law and the Company's Articles of Incorporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which Indemnitee shall have been finally adjudicated by court order or judgment to be liable to the Company in the performance of Indemnitee's duty to the Company and its shareholders unless and only to the extent that the court in which such action or proceeding is or was pending shall determine upon application that, in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper. C. Mandatory Payment of Expenses. To the extent that Indemnitee has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 1(a) or Section 1(b) or the defense of any claim, issue or matter therein, Indemnitee shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by Indemnitee in connection therewith. II. No Employment Rights. Nothing contained in this Agreement is intended to create in Indemnitee any right to continued employment. III. Expenses; Indemnification Procedure. A. Advancement of Expenses. The Company shall advance all expenses incurred by Indemnitee in connection with the investigation, defense, settlement or appeal of any Exhibit 10.32 - 2 civil or criminal action, suit or proceeding referred to in Section 1(a) or Section 1(b) of this Agreement (including amounts actually paid in settlement of any such action, suit or proceeding). Indemnitee hereby undertakes to repay such amounts advanced only if, and to the extent that, it shall ultimately be determined that Indemnitee is not entitled to be indemnified by the Company as authorized hereby. B. Notice; Cooperation by Indemnitee. Indemnitee shall, as a condition precedent to his or her right to be indemnified under this Agreement, give the Company notice in writing as soon as practicable of any claim made against Indemnitee for which indemnification will or could be sought under this Agreement. Notice to the Company shall be directed to the Chief Executive Officer of the Company and shall be given in accordance with the provisions of Section 12(d) below. In addition, Indemnitee shall give the Company such information and cooperation as it may reasonably require and all shall be within Indemnitee's power. C. Procedure. Any indemnification and advances provided for in Section 1 and this Section 3 shall be made no later than twenty (20) days after receipt of the written request of Indemnitee. If a claim under this Agreement, under any statute, or under any provision of the Company's Articles of Incorporation or Bylaws providing for indemnification, is not paid in full by the Company within twenty (20) days after a written request for payment thereof has first been received by the Company, Indemnitee may, but need not, at any time thereafter bring an action against the Company to recover the unpaid amount of the claim and, subject to Section 11 of this Agreement, Indemnitee shall also be entitled to be paid for the expenses (including attorneys' fees) of bringing such action. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in connection with any action, suit or proceeding in advance of its final disposition) that Indemnitee has not met the standards of conduct which make it permissible under applicable law for the Company to indemnify Indemnitee for the amount claimed, but the burden of proving such defense shall be on the Company and Indemnitee shall be entitled to receive interim payments of expenses pursuant to Section 3(a) unless and until such defense may be finally adjudicated by court order or judgment from which no further right of appeal exists. It is the parties' intention that if the Company contests Indemnitee's right to indemnification, the question of Indemnitee's right to indemnification shall be for the court to decide, and neither the failure of the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel, or its shareholders) to have made a determination that indemnification of Indemnitee is proper in the circumstances because Indemnitee has met the applicable standard of conduct required by applicable law, nor an actual determination by the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel, or its shareholders) that Indemnitee has not met such applicable standard of conduct, shall create a presumption that Indemnitee has or has not met the applicable standard of conduct. D. Notice to Insurers. If, at the time of the receipt of a notice of a claim pursuant to Section 3(b) hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of Exhibit 10.32 - 3 the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies. E. Selection of Counsel. In the event the Company shall be obligated under Section 3(a) hereof to pay the expenses of any proceeding against Indemnitee, the Company, if appropriate, shall be entitled to assume the defense of such proceeding, with counsel approved by Indemnitee, upon the delivery to Indemnitee of written notice of its election so to do. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same proceeding, provided that (i) Indemnitee shall have the right to employ counsel in any such proceeding at Indemnitee's expense; and (ii) if (A) the employment of counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense, or (C) the Company shall not, in fact, have employed counsel to assume the defense of such proceeding, then the fees and expenses of Indemnitee's counsel shall be at the expense of the Company. IV. Additional Indemnification Rights; Nonexclusivity. A. Scope. Notwithstanding any other provision of this Agreement, the Company hereby agrees to indemnify the Indemnitee to the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Company's Articles of Incorporation, the Company's Bylaws or by statute. In the event of any change, after the date of this Agreement, in any applicable law, statute, or rule which expands the right of a California corporation to indemnify a member of its board of directors or an officer, such changes shall be deemed to be within the purview of Indemnitee's rights and the Company's obligations under this Agreement. In the event of any change in any applicable law, statute or rule which narrows the right of a California corporation to indemnify a member of its board of directors or an officer, such changes, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement shall have no effect on this Agreement or the parties' rights and obligations hereunder. B. Nonexclusivity. The indemnification provided by this Agreement shall not be deemed exclusive of any rights to which Indemnitee may be entitled under the Company's Articles of Incorporation, its Bylaws, any agreement, any vote of shareholders or disinterested members of the Company's Board of Directors, the General Corporation Law of the State of California, or otherwise, both as to action in Indemnitee's official capacity and as to action in another capacity while holding such office. The indemnification provided under this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an indemnified capacity even though he or she may have ceased to serve in any such capacity at the time of any action, suit or other covered proceeding. V. Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the expenses, judgments, fines or penalties actually or reasonably incurred in the investigation, defense, appeal or settlement of any civil or criminal action, suit or proceeding, but not, however, for the total Exhibit 10.32 - 4 amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such expenses, judgments, fines or penalties to which Indemnitee is entitled. VI. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge that in certain instances, federal law or public policy may override applicable state law and prohibit the Company from indemnifying its directors and officers under this Agreement or otherwise. For example, the Company and Indemnitee acknowledge that the Securities and Exchange Commission (the "SEC") has taken the position that indemnification is not permissible for liabilities arising under certain federal securities laws, and federal legislation prohibits indemnification for certain ERISA violations. Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the SEC to submit the question of indemnification to a court in certain circumstances for a determination of the Company's right under public policy to indemnify Indemnitee. VII. Officer and Director Liability Insurance. The Company shall, from time to time, make the good faith determination whether or not it is practicable for the Company to obtain and maintain a policy or policies of insurance with reputable insurance companies providing the officers and directors of the Company with coverage for losses from wrongful acts, or to ensure the Company's performance of its indemnification obligations under this Agreement. Among other considerations, the Company will weigh the costs of obtaining such insurance coverage against the protection afforded by such coverage. In all policies of director and officer liability insurance, Indemnitee shall be named as an insured in such a manner as to provide Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company's directors, if Indemnitee is a director, or of the Company's officers, if Indemnitee is not a director of the Company but is an officer, or of the Company's key employees, if Indemnitee is not an officer or director but is a key employee. Notwithstanding the foregoing, the Company shall have no obligation to obtain or maintain such insurance if the Company determines in good faith that such insurance is not reasonably available, if the premium costs for such insurance are disproportionate to the amount of coverage provided, if the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit, or if Indemnitee is covered by similar insurance maintained by a parent of subsidiary of the Company. VIII. Severability. Nothing in this Agreement is intended to require, or shall be construed as requiring the Company to do or fail to do, any act in violation of applicable law. The Company's inability, pursuant to court order, to perform its obligations under this Agreement shall not constitute a breach of this Agreement. The provisions of this Agreement shall be severable as provided in this Section 8. If this Agreement or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify Indemnitee to the full extent permitted by any applicable portion of this Agreement that shall not have been invalidated, and the balance of this Agreement not so invalidated shall be enforceable in accordance with its terms. IX. Exceptions. Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement: A. Claims Initiated by Indemnitee. To indemnify or advance expenses to Indemnitee with respect to proceedings or claims initiated or brought voluntarily by Indemnitee Exhibit 10.32 - 5 and not by way of defense, except with respect to proceedings brought to establish or enforce a right to indemnification under this Agreement or any other statute or law or otherwise as required under Section 317 of the California General Corporation Law, but such indemnification or advancement of expenses may be provided by the Company in specific cases if the Board of Directors finds it to be appropriate; B. Insured Claims. To indemnify Indemnitee for expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties, and amounts paid in settlement) to the extent such expenses or liabilities have been paid directly to Indemnitee by an insurance carrier under a policy of officers' and directors' liability insurance maintained by the Company; or C. Claims under Section 16(b). To indemnify Indemnitee for expenses or the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar successor statute. X. Construction of Certain Phrases. A. For purposes of this Agreement, references to the "Company" shall include in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that if Indemnitee is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued. B. For purposes of this Agreement, references to "other enterprises" shall include employee benefit plans; references to "taxes" shall include any excise taxes assessed on Indemnitee with respect to an employee benefit plan; and references to "serving at the request of the Company" shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants, or beneficiaries. XI. Attorneys Fees. In the event that any action is instituted by Indemnitee under this Agreement to enforce or interpret any of the terms hereof, Indemnitee shall be entitled to be paid all court costs and expenses including, reasonable attorneys' fees and costs, incurred by Indemnitee with respect to such action, unless as a part of such action, the court of competent jurisdiction determines that each of the material assertions made by Indemnitee as a basis for such action were not made in good faith or were frivolous. In the event of an action instituted by or in the name of the Company under this Agreement or to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be paid all court costs and expenses including attorneys' fees and costs, incurred by Indemnitee in defense of such action (including with respect to Indemnitee's counterclaims and cross-claims made in such action), unless as a part of Exhibit 10.32 - 6 such action the court determines that each of Indemnitee's material defenses to such action were made in bad faith or were frivolous. XII. Miscellaneous. A. Governing Law. This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of California, without giving effect to principles of conflicts of law. B. Entire Agreement; Enforcement of Rights. This Agreement sets forth the entire agreement and understanding of the parties relating to the subject matter herein and merges all prior discussions between them. No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, shall be effective unless in writing signed by the parties to this Agreement. The failure by either party to enforce any rights under this Agreement shall not be construed as a waiver of any rights of such party. C. Construction. This Agreement is the result of negotiations between and has been reviewed by each of the parties hereto and their respective counsel, if any; accordingly, this Agreement shall be deemed to be the product of all of the parties hereto, and no ambiguity shall be construed in favor of or against any one of the parties hereto. D. 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 (3) days after deposit in the U.S. mail, postage prepaid, addressed to Indemnitee and to the Company as follows: Indemnitee: Michael Laybourn P.O. Box 509 Hopland, CA 95449 Tel: 707-744-1015 Fax: 707-744-3650 Company: Mendocino Brewing Company, Inc. 1601 Airport Road Ukiah, California 95482 Attention: Chief Executive Officer Tel: (707) 463-6610 Fax: (707) 463-0140 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. Exhibit 10.32 - 7 E. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. F. Successors and Assigns. This Agreement shall be binding upon the Company and its successors and assigns, and inure to the benefit of Indemnitee and Indemnitee's heirs, legal representatives and assigns. G. Subrogation. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company to effectively bring suit to enforce such rights. IN WITNESS WHEREOF, the Company and Indemnitee have executed this Agreement as of the day and year first above written. COMPANY: MENDOCINO BREWING COMPANY, INC., a California corporation Dated: May 11, 1998 By: /s/ Vijay Mallya ----------------------------- Vijay Mallya Chief Executive Officer INDEMNITEE: Dated: May 11, 1998 /s/ Michael Laybourn -------------------------------- MICHAEL LAYBOURN Exhibit 10.32 - 8 EX-10.33 4 INDEMNIFICATION AGREEMENT Exhibit 10.33 INDEMNIFICATION AGREEMENT This INDEMNIFICATION AGREEMENT (the "Agreement") is made as of the ___ day of May ___, 1998, by and between MENDOCINO BREWING COMPANY, INC., a California corporation (the "Company") and JEROME MERCHANT ("Indemnitee"). WITNESSETH: WHEREAS, the Company has been advised that there can be no assurance that directors' and officers' liability insurance will continue to be available to the Company and Indemnitee, and believes that it is possible that the cost of such insurance, if obtainable, may not be acceptable to the Company; and WHEREAS, the Company and the Indemnitee recognize the substantial increase in corporate litigation in general, subjecting officers and directors to expensive litigation risks; and WHEREAS, Indemnitee is unwilling to serve, or continue to serve, the Company or any of its wholly owned subsidiaries as an officer and/or director without assurances that adequate liability insurance, indemnification or a combination thereof is, and will continue to be, provided; and WHEREAS, the Company, in order to induce Indemnitee to serve or to continue to serve the Company or any of its wholly owned subsidiaries, has agreed to provide Indemnitee with the benefits contemplated by this Agreement; and WHEREAS, as a result of the provision of such benefits, Indemnitee has agreed to serve or to continue to serve as an officer and/or director of the Company or any of its wholly owned subsidiaries. NOW, THEREFORE, in consideration of the promises, conditions, representations and warranties set forth herein, the Company and Indemnitee hereby agree as follows: I. Indemnification. A. Third Party Proceedings. The Company shall indemnify Indemnitee if Indemnitee is or was a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, or any subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while an officer or director or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees and costs), judgments, fines and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval Exhibit 10.33 - 1 shall not be unreasonably withheld) actually and reasonably incurred by Indemnitee in connection with such action, suit or proceeding if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe Indemnitee's conduct was unlawful, to the fullest extent permitted by California law and the Company's Articles of Incorporation. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that Indemnitee did not act in good faith and in a manner which Indemnitee reasonably believed to be in the best interests of the Company, or, with respect to any criminal action or proceeding, that Indemnitee had reasonable cause to believe that Indemnitee's conduct was unlawful. B. Proceedings By or in the Right of the Company. The Company shall indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made a party to any threatened, pending or completed action or proceeding by or in the right of the Company or any subsidiary of the Company to procure a judgment in its favor by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, or any subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while an officer or director or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees) judgments, fines and amount paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld), in each case to the extent actually and reasonably incurred by Indemnitee in connection with the defense or settlement of such action or suit if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the best interests of the Company and its shareholders, to the fullest extent permitted by California law and the Company's Articles of Incorporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which Indemnitee shall have been finally adjudicated by court order or judgment to be liable to the Company in the performance of Indemnitee's duty to the Company and its shareholders unless and only to the extent that the court in which such action or proceeding is or was pending shall determine upon application that, in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper. C. Mandatory Payment of Expenses. To the extent that Indemnitee has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 1(a) or Section 1(b) or the defense of any claim, issue or matter therein, Indemnitee shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by Indemnitee in connection therewith. II. No Employment Rights. Nothing contained in this Agreement is intended to create in Indemnitee any right to continued employment. III. Expenses; Indemnification Procedure. A. Advancement of Expenses. The Company shall advance all expenses incurred by Indemnitee in connection with the investigation, defense, settlement or appeal of any Exhibit 10.33 - 2 civil or criminal action, suit or proceeding referred to in Section 1(a) or Section 1(b) of this Agreement (including amounts actually paid in settlement of any such action, suit or proceeding). Indemnitee hereby undertakes to repay such amounts advanced only if, and to the extent that, it shall ultimately be determined that Indemnitee is not entitled to be indemnified by the Company as authorized hereby. B. Notice; Cooperation by Indemnitee. Indemnitee shall, as a condition precedent to his or her right to be indemnified under this Agreement, give the Company notice in writing as soon as practicable of any claim made against Indemnitee for which indemnification will or could be sought under this Agreement. Notice to the Company shall be directed to the Chief Executive Officer of the Company and shall be given in accordance with the provisions of Section 12(d) below. In addition, Indemnitee shall give the Company such information and cooperation as it may reasonably require and all shall be within Indemnitee's power. C. Procedure. Any indemnification and advances provided for in Section 1 and this Section 3 shall be made no later than twenty (20) days after receipt of the written request of Indemnitee. If a claim under this Agreement, under any statute, or under any provision of the Company's Articles of Incorporation or Bylaws providing for indemnification, is not paid in full by the Company within twenty (20) days after a written request for payment thereof has first been received by the Company, Indemnitee may, but need not, at any time thereafter bring an action against the Company to recover the unpaid amount of the claim and, subject to Section 11 of this Agreement, Indemnitee shall also be entitled to be paid for the expenses (including attorneys' fees) of bringing such action. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in connection with any action, suit or proceeding in advance of its final disposition) that Indemnitee has not met the standards of conduct which make it permissible under applicable law for the Company to indemnify Indemnitee for the amount claimed, but the burden of proving such defense shall be on the Company and Indemnitee shall be entitled to receive interim payments of expenses pursuant to Section 3(a) unless and until such defense may be finally adjudicated by court order or judgment from which no further right of appeal exists. It is the parties' intention that if the Company contests Indemnitee's right to indemnification, the question of Indemnitee's right to indemnification shall be for the court to decide, and neither the failure of the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel, or its shareholders) to have made a determination that indemnification of Indemnitee is proper in the circumstances because Indemnitee has met the applicable standard of conduct required by applicable law, nor an actual determination by the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel, or its shareholders) that Indemnitee has not met such applicable standard of conduct, shall create a presumption that Indemnitee has or has not met the applicable standard of conduct. D. Notice to Insurers. If, at the time of the receipt of a notice of a claim pursuant to Section 3(b) hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of Exhibit 10.33 - 3 the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies. E. Selection of Counsel. In the event the Company shall be obligated under Section 3(a) hereof to pay the expenses of any proceeding against Indemnitee, the Company, if appropriate, shall be entitled to assume the defense of such proceeding, with counsel approved by Indemnitee, upon the delivery to Indemnitee of written notice of its election so to do. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same proceeding, provided that (i) Indemnitee shall have the right to employ counsel in any such proceeding at Indemnitee's expense; and (ii) if (A) the employment of counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense, or (C) the Company shall not, in fact, have employed counsel to assume the defense of such proceeding, then the fees and expenses of Indemnitee's counsel shall be at the expense of the Company. IV. Additional Indemnification Rights; Nonexclusivity. A. Scope. Notwithstanding any other provision of this Agreement, the Company hereby agrees to indemnify the Indemnitee to the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Company's Articles of Incorporation, the Company's Bylaws or by statute. In the event of any change, after the date of this Agreement, in any applicable law, statute, or rule which expands the right of a California corporation to indemnify a member of its board of directors or an officer, such changes shall be deemed to be within the purview of Indemnitee's rights and the Company's obligations under this Agreement. In the event of any change in any applicable law, statute or rule which narrows the right of a California corporation to indemnify a member of its board of directors or an officer, such changes, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement shall have no effect on this Agreement or the parties' rights and obligations hereunder. B. Nonexclusivity. The indemnification provided by this Agreement shall not be deemed exclusive of any rights to which Indemnitee may be entitled under the Company's Articles of Incorporation, its Bylaws, any agreement, any vote of shareholders or disinterested members of the Company's Board of Directors, the General Corporation Law of the State of California, or otherwise, both as to action in Indemnitee's official capacity and as to action in another capacity while holding such office. The indemnification provided under this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an indemnified capacity even though he or she may have ceased to serve in any such capacity at the time of any action, suit or other covered proceeding. V. Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the expenses, judgments, fines or penalties actually or reasonably incurred in the investigation, defense, appeal or settlement of any civil or criminal action, suit or proceeding, but not, however, for the total Exhibit 10.33 - 4 amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such expenses, judgments, fines or penalties to which Indemnitee is entitled. VI. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge that in certain instances, federal law or public policy may override applicable state law and prohibit the Company from indemnifying its directors and officers under this Agreement or otherwise. For example, the Company and Indemnitee acknowledge that the Securities and Exchange Commission (the "SEC") has taken the position that indemnification is not permissible for liabilities arising under certain federal securities laws, and federal legislation prohibits indemnification for certain ERISA violations. Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the SEC to submit the question of indemnification to a court in certain circumstances for a determination of the Company's right under public policy to indemnify Indemnitee. VII. Officer and Director Liability Insurance. The Company shall, from time to time, make the good faith determination whether or not it is practicable for the Company to obtain and maintain a policy or policies of insurance with reputable insurance companies providing the officers and directors of the Company with coverage for losses from wrongful acts, or to ensure the Company's performance of its indemnification obligations under this Agreement. Among other considerations, the Company will weigh the costs of obtaining such insurance coverage against the protection afforded by such coverage. In all policies of director and officer liability insurance, Indemnitee shall be named as an insured in such a manner as to provide Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company's directors, if Indemnitee is a director, or of the Company's officers, if Indemnitee is not a director of the Company but is an officer, or of the Company's key employees, if Indemnitee is not an officer or director but is a key employee. Notwithstanding the foregoing, the Company shall have no obligation to obtain or maintain such insurance if the Company determines in good faith that such insurance is not reasonably available, if the premium costs for such insurance are disproportionate to the amount of coverage provided, if the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit, or if Indemnitee is covered by similar insurance maintained by a parent of subsidiary of the Company. VIII. Severability. Nothing in this Agreement is intended to require, or shall be construed as requiring the Company to do or fail to do, any act in violation of applicable law. The Company's inability, pursuant to court order, to perform its obligations under this Agreement shall not constitute a breach of this Agreement. The provisions of this Agreement shall be severable as provided in this Section 8. If this Agreement or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify Indemnitee to the full extent permitted by any applicable portion of this Agreement that shall not have been invalidated, and the balance of this Agreement not so invalidated shall be enforceable in accordance with its terms. IX. Exceptions. Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement: A. Claims Initiated by Indemnitee. To indemnify or advance expenses to Indemnitee with respect to proceedings or claims initiated or brought voluntarily by Indemnitee Exhibit 10.33 - 5 and not by way of defense, except with respect to proceedings brought to establish or enforce a right to indemnification under this Agreement or any other statute or law or otherwise as required under Section 317 of the California General Corporation Law, but such indemnification or advancement of expenses may be provided by the Company in specific cases if the Board of Directors finds it to be appropriate; B. Insured Claims. To indemnify Indemnitee for expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties, and amounts paid in settlement) to the extent such expenses or liabilities have been paid directly to Indemnitee by an insurance carrier under a policy of officers' and directors' liability insurance maintained by the Company; or C. Claims under Section 16(b). To indemnify Indemnitee for expenses or the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar successor statute. X. Construction of Certain Phrases. A. For purposes of this Agreement, references to the "Company" shall include in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that if Indemnitee is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued. B. For purposes of this Agreement, references to "other enterprises" shall include employee benefit plans; references to "taxes" shall include any excise taxes assessed on Indemnitee with respect to an employee benefit plan; and references to "serving at the request of the Company" shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants, or beneficiaries. XI. Attorneys Fees. In the event that any action is instituted by Indemnitee under this Agreement to enforce or interpret any of the terms hereof, Indemnitee shall be entitled to be paid all court costs and expenses including, reasonable attorneys' fees and costs, incurred by Indemnitee with respect to such action, unless as a part of such action, the court of competent jurisdiction determines that each of the material assertions made by Indemnitee as a basis for such action were not made in good faith or were frivolous. In the event of an action instituted by or in the name of the Company under this Agreement or to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be paid all court costs and expenses including attorneys' fees and costs, incurred by Indemnitee in defense of such action (including with respect to Indemnitee's counterclaims and cross-claims made in such action), unless as a part of Exhibit 10.33 - 6 such action the court determines that each of Indemnitee's material defenses to such action were made in bad faith or were frivolous. XII. Miscellaneous. A. Governing Law. This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of California, without giving effect to principles of conflicts of law. B. Entire Agreement; Enforcement of Rights. This Agreement sets forth the entire agreement and understanding of the parties relating to the subject matter herein and merges all prior discussions between them. No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, shall be effective unless in writing signed by the parties to this Agreement. The failure by either party to enforce any rights under this Agreement shall not be construed as a waiver of any rights of such party. C. Construction. This Agreement is the result of negotiations between and has been reviewed by each of the parties hereto and their respective counsel, if any; accordingly, this Agreement shall be deemed to be the product of all of the parties hereto, and no ambiguity shall be construed in favor of or against any one of the parties hereto. D. 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 (3) days after deposit in the U.S. mail, postage prepaid, addressed to Indemnitee and to the Company as follows: Indemnitee: Jerome Merchant 3 Harbor Drive #115 Sausalito, CA 94965 Tel: 415-289-1400 x109 Fax: 415-289-1409 Company: Mendocino Brewing Company, Inc. 1601 Airport Road Ukiah, California 95482 Attention: Chief Executive Officer Tel: (707) 463-6610 Fax: (707) 463-0140 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. Exhibit 10.33 - 7 E. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. F. Successors and Assigns. This Agreement shall be binding upon the Company and its successors and assigns, and inure to the benefit of Indemnitee and Indemnitee's heirs, legal representatives and assigns. G. Subrogation. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company to effectively bring suit to enforce such rights. IN WITNESS WHEREOF, the Company and Indemnitee have executed this Agreement as of the day and year first above written. COMPANY: MENDOCINO BREWING COMPANY, INC., a California corporation Dated: May 11, 1998 By: /s/ Vijay Mallya ------------------------------ Vijay Mallya Chief Executive Officer INDEMNITEE: Dated: May 11, 1998 /s/ Jerome Merchant --------------------------------- JEROME MERCHANT Exhibit 10.33 - 8 EX-10.34 5 INDEMNIFICATION AGREEMENT Exhibit 10.34 INDEMNIFICATION AGREEMENT This INDEMNIFICATION AGREEMENT (the "Agreement") is made as of the ___ day of May ___, 1998, by and between MENDOCINO BREWING COMPANY, INC., a California corporation (the "Company") and YASHPAL SINGH ("Indemnitee"). WITNESSETH: WHEREAS, the Company has been advised that there can be no assurance that directors' and officers' liability insurance will continue to be available to the Company and Indemnitee, and believes that it is possible that the cost of such insurance, if obtainable, may not be acceptable to the Company; and WHEREAS, the Company and the Indemnitee recognize the substantial increase in corporate litigation in general, subjecting officers and directors to expensive litigation risks; and WHEREAS, Indemnitee is unwilling to serve, or continue to serve, the Company or any of its wholly owned subsidiaries as an officer and/or director without assurances that adequate liability insurance, indemnification or a combination thereof is, and will continue to be, provided; and WHEREAS, the Company, in order to induce Indemnitee to serve or to continue to serve the Company or any of its wholly owned subsidiaries, has agreed to provide Indemnitee with the benefits contemplated by this Agreement; and WHEREAS, as a result of the provision of such benefits, Indemnitee has agreed to serve or to continue to serve as an officer and/or director of the Company or any of its wholly owned subsidiaries. NOW, THEREFORE, in consideration of the promises, conditions, representations and warranties set forth herein, the Company and Indemnitee hereby agree as follows: I. Indemnification. A. Third Party Proceedings. The Company shall indemnify Indemnitee if Indemnitee is or was a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, or any subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while an officer or director or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees and costs), judgments, fines and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval Exhibit 10.34 - 1 shall not be unreasonably withheld) actually and reasonably incurred by Indemnitee in connection with such action, suit or proceeding if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe Indemnitee's conduct was unlawful, to the fullest extent permitted by California law and the Company's Articles of Incorporation. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that Indemnitee did not act in good faith and in a manner which Indemnitee reasonably believed to be in the best interests of the Company, or, with respect to any criminal action or proceeding, that Indemnitee had reasonable cause to believe that Indemnitee's conduct was unlawful. B. Proceedings By or in the Right of the Company. The Company shall indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made a party to any threatened, pending or completed action or proceeding by or in the right of the Company or any subsidiary of the Company to procure a judgment in its favor by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, or any subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while an officer or director or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees) judgments, fines and amount paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld), in each case to the extent actually and reasonably incurred by Indemnitee in connection with the defense or settlement of such action or suit if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the best interests of the Company and its shareholders, to the fullest extent permitted by California law and the Company's Articles of Incorporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which Indemnitee shall have been finally adjudicated by court order or judgment to be liable to the Company in the performance of Indemnitee's duty to the Company and its shareholders unless and only to the extent that the court in which such action or proceeding is or was pending shall determine upon application that, in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper. C. Mandatory Payment of Expenses. To the extent that Indemnitee has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 1(a) or Section 1(b) or the defense of any claim, issue or matter therein, Indemnitee shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by Indemnitee in connection therewith. II. No Employment Rights. Nothing contained in this Agreement is intended to create in Indemnitee any right to continued employment. III. Expenses; Indemnification Procedure. A. Advancement of Expenses. The Company shall advance all expenses incurred by Indemnitee in connection with the investigation, defense, settlement or appeal of any Exhibit 10.34 - 2 civil or criminal action, suit or proceeding referred to in Section 1(a) or Section 1(b) of this Agreement (including amounts actually paid in settlement of any such action, suit or proceeding). Indemnitee hereby undertakes to repay such amounts advanced only if, and to the extent that, it shall ultimately be determined that Indemnitee is not entitled to be indemnified by the Company as authorized hereby. B. Notice; Cooperation by Indemnitee. Indemnitee shall, as a condition precedent to his or her right to be indemnified under this Agreement, give the Company notice in writing as soon as practicable of any claim made against Indemnitee for which indemnification will or could be sought under this Agreement. Notice to the Company shall be directed to the Chief Executive Officer of the Company and shall be given in accordance with the provisions of Section 12(d) below. In addition, Indemnitee shall give the Company such information and cooperation as it may reasonably require and all shall be within Indemnitee's power. C. Procedure. Any indemnification and advances provided for in Section 1 and this Section 3 shall be made no later than twenty (20) days after receipt of the written request of Indemnitee. If a claim under this Agreement, under any statute, or under any provision of the Company's Articles of Incorporation or Bylaws providing for indemnification, is not paid in full by the Company within twenty (20) days after a written request for payment thereof has first been received by the Company, Indemnitee may, but need not, at any time thereafter bring an action against the Company to recover the unpaid amount of the claim and, subject to Section 11 of this Agreement, Indemnitee shall also be entitled to be paid for the expenses (including attorneys' fees) of bringing such action. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in connection with any action, suit or proceeding in advance of its final disposition) that Indemnitee has not met the standards of conduct which make it permissible under applicable law for the Company to indemnify Indemnitee for the amount claimed, but the burden of proving such defense shall be on the Company and Indemnitee shall be entitled to receive interim payments of expenses pursuant to Section 3(a) unless and until such defense may be finally adjudicated by court order or judgment from which no further right of appeal exists. It is the parties' intention that if the Company contests Indemnitee's right to indemnification, the question of Indemnitee's right to indemnification shall be for the court to decide, and neither the failure of the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel, or its shareholders) to have made a determination that indemnification of Indemnitee is proper in the circumstances because Indemnitee has met the applicable standard of conduct required by applicable law, nor an actual determination by the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel, or its shareholders) that Indemnitee has not met such applicable standard of conduct, shall create a presumption that Indemnitee has or has not met the applicable standard of conduct. D. Notice to Insurers. If, at the time of the receipt of a notice of a claim pursuant to Section 3(b) hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of Exhibit 10.34 - 3 the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies. E. Selection of Counsel. In the event the Company shall be obligated under Section 3(a) hereof to pay the expenses of any proceeding against Indemnitee, the Company, if appropriate, shall be entitled to assume the defense of such proceeding, with counsel approved by Indemnitee, upon the delivery to Indemnitee of written notice of its election so to do. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same proceeding, provided that (i) Indemnitee shall have the right to employ counsel in any such proceeding at Indemnitee's expense; and (ii) if (A) the employment of counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense, or (C) the Company shall not, in fact, have employed counsel to assume the defense of such proceeding, then the fees and expenses of Indemnitee's counsel shall be at the expense of the Company. IV. Additional Indemnification Rights; Nonexclusivity. A. Scope. Notwithstanding any other provision of this Agreement, the Company hereby agrees to indemnify the Indemnitee to the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Company's Articles of Incorporation, the Company's Bylaws or by statute. In the event of any change, after the date of this Agreement, in any applicable law, statute, or rule which expands the right of a California corporation to indemnify a member of its board of directors or an officer, such changes shall be deemed to be within the purview of Indemnitee's rights and the Company's obligations under this Agreement. In the event of any change in any applicable law, statute or rule which narrows the right of a California corporation to indemnify a member of its board of directors or an officer, such changes, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement shall have no effect on this Agreement or the parties' rights and obligations hereunder. B. Nonexclusivity. The indemnification provided by this Agreement shall not be deemed exclusive of any rights to which Indemnitee may be entitled under the Company's Articles of Incorporation, its Bylaws, any agreement, any vote of shareholders or disinterested members of the Company's Board of Directors, the General Corporation Law of the State of California, or otherwise, both as to action in Indemnitee's official capacity and as to action in another capacity while holding such office. The indemnification provided under this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an indemnified capacity even though he or she may have ceased to serve in any such capacity at the time of any action, suit or other covered proceeding. V. Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the expenses, judgments, fines or penalties actually or reasonably incurred in the investigation, defense, appeal or settlement of any civil or criminal action, suit or proceeding, but not, however, for the total Exhibit 10.34 - 4 amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such expenses, judgments, fines or penalties to which Indemnitee is entitled. VI. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge that in certain instances, federal law or public policy may override applicable state law and prohibit the Company from indemnifying its directors and officers under this Agreement or otherwise. For example, the Company and Indemnitee acknowledge that the Securities and Exchange Commission (the "SEC") has taken the position that indemnification is not permissible for liabilities arising under certain federal securities laws, and federal legislation prohibits indemnification for certain ERISA violations. Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the SEC to submit the question of indemnification to a court in certain circumstances for a determination of the Company's right under public policy to indemnify Indemnitee. VII. Officer and Director Liability Insurance. The Company shall, from time to time, make the good faith determination whether or not it is practicable for the Company to obtain and maintain a policy or policies of insurance with reputable insurance companies providing the officers and directors of the Company with coverage for losses from wrongful acts, or to ensure the Company's performance of its indemnification obligations under this Agreement. Among other considerations, the Company will weigh the costs of obtaining such insurance coverage against the protection afforded by such coverage. In all policies of director and officer liability insurance, Indemnitee shall be named as an insured in such a manner as to provide Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company's directors, if Indemnitee is a director, or of the Company's officers, if Indemnitee is not a director of the Company but is an officer, or of the Company's key employees, if Indemnitee is not an officer or director but is a key employee. Notwithstanding the foregoing, the Company shall have no obligation to obtain or maintain such insurance if the Company determines in good faith that such insurance is not reasonably available, if the premium costs for such insurance are disproportionate to the amount of coverage provided, if the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit, or if Indemnitee is covered by similar insurance maintained by a parent of subsidiary of the Company. VIII. Severability. Nothing in this Agreement is intended to require, or shall be construed as requiring the Company to do or fail to do, any act in violation of applicable law. The Company's inability, pursuant to court order, to perform its obligations under this Agreement shall not constitute a breach of this Agreement. The provisions of this Agreement shall be severable as provided in this Section 8. If this Agreement or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify Indemnitee to the full extent permitted by any applicable portion of this Agreement that shall not have been invalidated, and the balance of this Agreement not so invalidated shall be enforceable in accordance with its terms. IX. Exceptions. Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement: A. Claims Initiated by Indemnitee. To indemnify or advance expenses to Indemnitee with respect to proceedings or claims initiated or brought voluntarily by Indemnitee Exhibit 10.34 - 5 and not by way of defense, except with respect to proceedings brought to establish or enforce a right to indemnification under this Agreement or any other statute or law or otherwise as required under Section 317 of the California General Corporation Law, but such indemnification or advancement of expenses may be provided by the Company in specific cases if the Board of Directors finds it to be appropriate; B. Insured Claims. To indemnify Indemnitee for expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties, and amounts paid in settlement) to the extent such expenses or liabilities have been paid directly to Indemnitee by an insurance carrier under a policy of officers' and directors' liability insurance maintained by the Company; or C. Claims under Section 16(b). To indemnify Indemnitee for expenses or the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar successor statute. X. Construction of Certain Phrases. A. For purposes of this Agreement, references to the "Company" shall include in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that if Indemnitee is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued. B. For purposes of this Agreement, references to "other enterprises" shall include employee benefit plans; references to "taxes" shall include any excise taxes assessed on Indemnitee with respect to an employee benefit plan; and references to "serving at the request of the Company" shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants, or beneficiaries. XI. Attorneys Fees. In the event that any action is instituted by Indemnitee under this Agreement to enforce or interpret any of the terms hereof, Indemnitee shall be entitled to be paid all court costs and expenses including, reasonable attorneys' fees and costs, incurred by Indemnitee with respect to such action, unless as a part of such action, the court of competent jurisdiction determines that each of the material assertions made by Indemnitee as a basis for such action were not made in good faith or were frivolous. In the event of an action instituted by or in the name of the Company under this Agreement or to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be paid all court costs and expenses including attorneys' fees and costs, incurred by Indemnitee in defense of such action (including with respect to Indemnitee's counterclaims and cross-claims made in such action), unless as a part of Exhibit 10.34 - 6 such action the court determines that each of Indemnitee's material defenses to such action were made in bad faith or were frivolous. XII. Miscellaneous. A. Governing Law. This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of California, without giving effect to principles of conflicts of law. B. Entire Agreement; Enforcement of Rights. This Agreement sets forth the entire agreement and understanding of the parties relating to the subject matter herein and merges all prior discussions between them. No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, shall be effective unless in writing signed by the parties to this Agreement. The failure by either party to enforce any rights under this Agreement shall not be construed as a waiver of any rights of such party. C. Construction. This Agreement is the result of negotiations between and has been reviewed by each of the parties hereto and their respective counsel, if any; accordingly, this Agreement shall be deemed to be the product of all of the parties hereto, and no ambiguity shall be construed in favor of or against any one of the parties hereto. D. 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 (3) days after deposit in the U.S. mail, postage prepaid, addressed to Indemnitee and to the Company as follows: Indemnitee: Yashpal Singh ____________________________________ ____________________________________ Tel: 707-463-0214 Fax: 707-463-0140 Company: Mendocino Brewing Company, Inc. 1601 Airport Road Ukiah, California 95482 Attention: Chief Executive Officer Tel: (707) 463-6610 Fax: (707) 463-0140 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. Exhibit 10.34 - 7 E. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. F. Successors and Assigns. This Agreement shall be binding upon the Company and its successors and assigns, and inure to the benefit of Indemnitee and Indemnitee's heirs, legal representatives and assigns. G. Subrogation. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company to effectively bring suit to enforce such rights. IN WITNESS WHEREOF, the Company and Indemnitee have executed this Agreement as of the day and year first above written. COMPANY: MENDOCINO BREWING COMPANY, INC., a California corporation Dated: May 11, 1998 By: /s/ Vijay Mallya ----------------------------- Vijay Mallya Chief Executive Officer INDEMNITEE: Dated: May 11, 1998 /s/ Yashpal Singh -------------------------------- YASHPAL SINGH Exhibit 10.34 - 8 EX-10.35 6 INDEMNIFICATION AGREEMENT Exhibit 10.35 INDEMNIFICATION AGREEMENT This INDEMNIFICATION AGREEMENT (the "Agreement") is made as of the ___ day of May ___, 1998, by and between MENDOCINO BREWING COMPANY, INC., a California corporation (the "Company") and PA MURALI ("Indemnitee"). WITNESSETH: WHEREAS, the Company has been advised that there can be no assurance that directors' and officers' liability insurance will continue to be available to the Company and Indemnitee, and believes that it is possible that the cost of such insurance, if obtainable, may not be acceptable to the Company; and WHEREAS, the Company and the Indemnitee recognize the substantial increase in corporate litigation in general, subjecting officers and directors to expensive litigation risks; and WHEREAS, Indemnitee is unwilling to serve, or continue to serve, the Company or any of its wholly owned subsidiaries as an officer and/or director without assurances that adequate liability insurance, indemnification or a combination thereof is, and will continue to be, provided; and WHEREAS, the Company, in order to induce Indemnitee to serve or to continue to serve the Company or any of its wholly owned subsidiaries, has agreed to provide Indemnitee with the benefits contemplated by this Agreement; and WHEREAS, as a result of the provision of such benefits, Indemnitee has agreed to serve or to continue to serve as an officer and/or director of the Company or any of its wholly owned subsidiaries. NOW, THEREFORE, in consideration of the promises, conditions, representations and warranties set forth herein, the Company and Indemnitee hereby agree as follows: I. Indemnification. A. Third Party Proceedings. The Company shall indemnify Indemnitee if Indemnitee is or was a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, or any subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while an officer or director or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees and costs), judgments, fines and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval Exhibit 10.35 - 1 shall not be unreasonably withheld) actually and reasonably incurred by Indemnitee in connection with such action, suit or proceeding if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe Indemnitee's conduct was unlawful, to the fullest extent permitted by California law and the Company's Articles of Incorporation. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that Indemnitee did not act in good faith and in a manner which Indemnitee reasonably believed to be in the best interests of the Company, or, with respect to any criminal action or proceeding, that Indemnitee had reasonable cause to believe that Indemnitee's conduct was unlawful. B. Proceedings By or in the Right of the Company. The Company shall indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made a party to any threatened, pending or completed action or proceeding by or in the right of the Company or any subsidiary of the Company to procure a judgment in its favor by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, or any subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while an officer or director or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees) judgments, fines and amount paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld), in each case to the extent actually and reasonably incurred by Indemnitee in connection with the defense or settlement of such action or suit if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the best interests of the Company and its shareholders, to the fullest extent permitted by California law and the Company's Articles of Incorporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which Indemnitee shall have been finally adjudicated by court order or judgment to be liable to the Company in the performance of Indemnitee's duty to the Company and its shareholders unless and only to the extent that the court in which such action or proceeding is or was pending shall determine upon application that, in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper. C. Mandatory Payment of Expenses. To the extent that Indemnitee has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 1(a) or Section 1(b) or the defense of any claim, issue or matter therein, Indemnitee shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by Indemnitee in connection therewith. II. No Employment Rights. Nothing contained in this Agreement is intended to create in Indemnitee any right to continued employment. III. Expenses; Indemnification Procedure. A. Advancement of Expenses. The Company shall advance all expenses incurred by Indemnitee in connection with the investigation, defense, settlement or appeal of any Exhibit 10.35 - 2 civil or criminal action, suit or proceeding referred to in Section 1(a) or Section 1(b) of this Agreement (including amounts actually paid in settlement of any such action, suit or proceeding). Indemnitee hereby undertakes to repay such amounts advanced only if, and to the extent that, it shall ultimately be determined that Indemnitee is not entitled to be indemnified by the Company as authorized hereby. B. Notice; Cooperation by Indemnitee. Indemnitee shall, as a condition precedent to his or her right to be indemnified under this Agreement, give the Company notice in writing as soon as practicable of any claim made against Indemnitee for which indemnification will or could be sought under this Agreement. Notice to the Company shall be directed to the Chief Executive Officer of the Company and shall be given in accordance with the provisions of Section 12(d) below. In addition, Indemnitee shall give the Company such information and cooperation as it may reasonably require and all shall be within Indemnitee's power. C. Procedure. Any indemnification and advances provided for in Section 1 and this Section 3 shall be made no later than twenty (20) days after receipt of the written request of Indemnitee. If a claim under this Agreement, under any statute, or under any provision of the Company's Articles of Incorporation or Bylaws providing for indemnification, is not paid in full by the Company within twenty (20) days after a written request for payment thereof has first been received by the Company, Indemnitee may, but need not, at any time thereafter bring an action against the Company to recover the unpaid amount of the claim and, subject to Section 11 of this Agreement, Indemnitee shall also be entitled to be paid for the expenses (including attorneys' fees) of bringing such action. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in connection with any action, suit or proceeding in advance of its final disposition) that Indemnitee has not met the standards of conduct which make it permissible under applicable law for the Company to indemnify Indemnitee for the amount claimed, but the burden of proving such defense shall be on the Company and Indemnitee shall be entitled to receive interim payments of expenses pursuant to Section 3(a) unless and until such defense may be finally adjudicated by court order or judgment from which no further right of appeal exists. It is the parties' intention that if the Company contests Indemnitee's right to indemnification, the question of Indemnitee's right to indemnification shall be for the court to decide, and neither the failure of the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel, or its shareholders) to have made a determination that indemnification of Indemnitee is proper in the circumstances because Indemnitee has met the applicable standard of conduct required by applicable law, nor an actual determination by the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel, or its shareholders) that Indemnitee has not met such applicable standard of conduct, shall create a presumption that Indemnitee has or has not met the applicable standard of conduct. D. Notice to Insurers. If, at the time of the receipt of a notice of a claim pursuant to Section 3(b) hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of Exhibit 10.35 - 3 the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies. E. Selection of Counsel. In the event the Company shall be obligated under Section 3(a) hereof to pay the expenses of any proceeding against Indemnitee, the Company, if appropriate, shall be entitled to assume the defense of such proceeding, with counsel approved by Indemnitee, upon the delivery to Indemnitee of written notice of its election so to do. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same proceeding, provided that (i) Indemnitee shall have the right to employ counsel in any such proceeding at Indemnitee's expense; and (ii) if (A) the employment of counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense, or (C) the Company shall not, in fact, have employed counsel to assume the defense of such proceeding, then the fees and expenses of Indemnitee's counsel shall be at the expense of the Company. IV. Additional Indemnification Rights; Nonexclusivity. A. Scope. Notwithstanding any other provision of this Agreement, the Company hereby agrees to indemnify the Indemnitee to the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Company's Articles of Incorporation, the Company's Bylaws or by statute. In the event of any change, after the date of this Agreement, in any applicable law, statute, or rule which expands the right of a California corporation to indemnify a member of its board of directors or an officer, such changes shall be deemed to be within the purview of Indemnitee's rights and the Company's obligations under this Agreement. In the event of any change in any applicable law, statute or rule which narrows the right of a California corporation to indemnify a member of its board of directors or an officer, such changes, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement shall have no effect on this Agreement or the parties' rights and obligations hereunder. B. Nonexclusivity. The indemnification provided by this Agreement shall not be deemed exclusive of any rights to which Indemnitee may be entitled under the Company's Articles of Incorporation, its Bylaws, any agreement, any vote of shareholders or disinterested members of the Company's Board of Directors, the General Corporation Law of the State of California, or otherwise, both as to action in Indemnitee's official capacity and as to action in another capacity while holding such office. The indemnification provided under this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an indemnified capacity even though he or she may have ceased to serve in any such capacity at the time of any action, suit or other covered proceeding. V. Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the expenses, judgments, fines or penalties actually or reasonably incurred in the investigation, defense, appeal or settlement of any civil or criminal action, suit or proceeding, but not, however, for the total Exhibit 10.35 - 4 amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such expenses, judgments, fines or penalties to which Indemnitee is entitled. VI. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge that in certain instances, federal law or public policy may override applicable state law and prohibit the Company from indemnifying its directors and officers under this Agreement or otherwise. For example, the Company and Indemnitee acknowledge that the Securities and Exchange Commission (the "SEC") has taken the position that indemnification is not permissible for liabilities arising under certain federal securities laws, and federal legislation prohibits indemnification for certain ERISA violations. Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the SEC to submit the question of indemnification to a court in certain circumstances for a determination of the Company's right under public policy to indemnify Indemnitee. VII. Officer and Director Liability Insurance. The Company shall, from time to time, make the good faith determination whether or not it is practicable for the Company to obtain and maintain a policy or policies of insurance with reputable insurance companies providing the officers and directors of the Company with coverage for losses from wrongful acts, or to ensure the Company's performance of its indemnification obligations under this Agreement. Among other considerations, the Company will weigh the costs of obtaining such insurance coverage against the protection afforded by such coverage. In all policies of director and officer liability insurance, Indemnitee shall be named as an insured in such a manner as to provide Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company's directors, if Indemnitee is a director, or of the Company's officers, if Indemnitee is not a director of the Company but is an officer, or of the Company's key employees, if Indemnitee is not an officer or director but is a key employee. Notwithstanding the foregoing, the Company shall have no obligation to obtain or maintain such insurance if the Company determines in good faith that such insurance is not reasonably available, if the premium costs for such insurance are disproportionate to the amount of coverage provided, if the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit, or if Indemnitee is covered by similar insurance maintained by a parent of subsidiary of the Company. VIII. Severability. Nothing in this Agreement is intended to require, or shall be construed as requiring the Company to do or fail to do, any act in violation of applicable law. The Company's inability, pursuant to court order, to perform its obligations under this Agreement shall not constitute a breach of this Agreement. The provisions of this Agreement shall be severable as provided in this Section 8. If this Agreement or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify Indemnitee to the full extent permitted by any applicable portion of this Agreement that shall not have been invalidated, and the balance of this Agreement not so invalidated shall be enforceable in accordance with its terms. IX. Exceptions. Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement: A. Claims Initiated by Indemnitee. To indemnify or advance expenses to Indemnitee with respect to proceedings or claims initiated or brought voluntarily by Indemnitee Exhibit 10.35 - 5 and not by way of defense, except with respect to proceedings brought to establish or enforce a right to indemnification under this Agreement or any other statute or law or otherwise as required under Section 317 of the California General Corporation Law, but such indemnification or advancement of expenses may be provided by the Company in specific cases if the Board of Directors finds it to be appropriate; B. Insured Claims. To indemnify Indemnitee for expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties, and amounts paid in settlement) to the extent such expenses or liabilities have been paid directly to Indemnitee by an insurance carrier under a policy of officers' and directors' liability insurance maintained by the Company; or C. Claims under Section 16(b). To indemnify Indemnitee for expenses or the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar successor statute. X. Construction of Certain Phrases. A. For purposes of this Agreement, references to the "Company" shall include in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that if Indemnitee is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued. B. For purposes of this Agreement, references to "other enterprises" shall include employee benefit plans; references to "taxes" shall include any excise taxes assessed on Indemnitee with respect to an employee benefit plan; and references to "serving at the request of the Company" shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants, or beneficiaries. XI. Attorneys Fees. In the event that any action is instituted by Indemnitee under this Agreement to enforce or interpret any of the terms hereof, Indemnitee shall be entitled to be paid all court costs and expenses including, reasonable attorneys' fees and costs, incurred by Indemnitee with respect to such action, unless as a part of such action, the court of competent jurisdiction determines that each of the material assertions made by Indemnitee as a basis for such action were not made in good faith or were frivolous. In the event of an action instituted by or in the name of the Company under this Agreement or to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be paid all court costs and expenses including attorneys' fees and costs, incurred by Indemnitee in defense of such action (including with respect to Indemnitee's counterclaims and cross-claims made in such action), unless as a part of Exhibit 10.35 - 6 such action the court determines that each of Indemnitee's material defenses to such action were made in bad faith or were frivolous. XII. Miscellaneous. A. Governing Law. This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of California, without giving effect to principles of conflicts of law. B. Entire Agreement; Enforcement of Rights. This Agreement sets forth the entire agreement and understanding of the parties relating to the subject matter herein and merges all prior discussions between them. No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, shall be effective unless in writing signed by the parties to this Agreement. The failure by either party to enforce any rights under this Agreement shall not be construed as a waiver of any rights of such party. C. Construction. This Agreement is the result of negotiations between and has been reviewed by each of the parties hereto and their respective counsel, if any; accordingly, this Agreement shall be deemed to be the product of all of the parties hereto, and no ambiguity shall be construed in favor of or against any one of the parties hereto. D. 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 (3) days after deposit in the U.S. mail, postage prepaid, addressed to Indemnitee and to the Company as follows: Indemnitee: Pa Murali 895 So. Orchard, Apt #1 Ukiah, CA 95482 Tel: 707-467-1447 Fax: 707-463-0140 Company: Mendocino Brewing Company, Inc. 1601 Airport Road Ukiah, California 95482 Attention: Chief Executive Officer Tel: (707) 463-6610 Fax: (707) 463-0140 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. Exhibit 10.35 - 7 E. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. F. Successors and Assigns. This Agreement shall be binding upon the Company and its successors and assigns, and inure to the benefit of Indemnitee and Indemnitee's heirs, legal representatives and assigns. G. Subrogation. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company to effectively bring suit to enforce such rights. IN WITNESS WHEREOF, the Company and Indemnitee have executed this Agreement as of the day and year first above written. COMPANY: MENDOCINO BREWING COMPANY, INC., a California corporation Dated: May 11, 1998 By: /s/ Vijay Mallya ----------------------------- Vijay Mallya Chief Executive Officer INDEMNITEE: Dated: May 11, 1998 /s/ P.A. Murali -------------------------------- PA MURALI Exhibit 10.35 - 8 EX-10.36 7 INDEMNIFICATION AGREEMENT Exhibit 10.36 INDEMNIFICATION AGREEMENT This INDEMNIFICATION AGREEMENT (the "Agreement") is made as of the ___ day of May ___, 1998, by and between MENDOCINO BREWING COMPANY, INC., a California corporation (the "Company") and ROBERT NEAME ("Indemnitee"). WITNESSETH: WHEREAS, the Company has been advised that there can be no assurance that directors' and officers' liability insurance will continue to be available to the Company and Indemnitee, and believes that it is possible that the cost of such insurance, if obtainable, may not be acceptable to the Company; and WHEREAS, the Company and the Indemnitee recognize the substantial increase in corporate litigation in general, subjecting officers and directors to expensive litigation risks; and WHEREAS, Indemnitee is unwilling to serve, or continue to serve, the Company or any of its wholly owned subsidiaries as an officer and/or director without assurances that adequate liability insurance, indemnification or a combination thereof is, and will continue to be, provided; and WHEREAS, the Company, in order to induce Indemnitee to serve or to continue to serve the Company or any of its wholly owned subsidiaries, has agreed to provide Indemnitee with the benefits contemplated by this Agreement; and WHEREAS, as a result of the provision of such benefits, Indemnitee has agreed to serve or to continue to serve as an officer and/or director of the Company or any of its wholly owned subsidiaries. NOW, THEREFORE, in consideration of the promises, conditions, representations and warranties set forth herein, the Company and Indemnitee hereby agree as follows: I. Indemnification. A. Third Party Proceedings. The Company shall indemnify Indemnitee if Indemnitee is or was a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, or any subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while an officer or director or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees and costs), judgments, fines and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval Exhibit 10.36 - 1 shall not be unreasonably withheld) actually and reasonably incurred by Indemnitee in connection with such action, suit or proceeding if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe Indemnitee's conduct was unlawful, to the fullest extent permitted by California law and the Company's Articles of Incorporation. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that Indemnitee did not act in good faith and in a manner which Indemnitee reasonably believed to be in the best interests of the Company, or, with respect to any criminal action or proceeding, that Indemnitee had reasonable cause to believe that Indemnitee's conduct was unlawful. B. Proceedings By or in the Right of the Company. The Company shall indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made a party to any threatened, pending or completed action or proceeding by or in the right of the Company or any subsidiary of the Company to procure a judgment in its favor by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, or any subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while an officer or director or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees) judgments, fines and amount paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld), in each case to the extent actually and reasonably incurred by Indemnitee in connection with the defense or settlement of such action or suit if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the best interests of the Company and its shareholders, to the fullest extent permitted by California law and the Company's Articles of Incorporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which Indemnitee shall have been finally adjudicated by court order or judgment to be liable to the Company in the performance of Indemnitee's duty to the Company and its shareholders unless and only to the extent that the court in which such action or proceeding is or was pending shall determine upon application that, in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper. C. Mandatory Payment of Expenses. To the extent that Indemnitee has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 1(a) or Section 1(b) or the defense of any claim, issue or matter therein, Indemnitee shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by Indemnitee in connection therewith. II. No Employment Rights. Nothing contained in this Agreement is intended to create in Indemnitee any right to continued employment. III. Expenses; Indemnification Procedure. A. Advancement of Expenses. The Company shall advance all expenses incurred by Indemnitee in connection with the investigation, defense, settlement or appeal of any Exhibit 10.36 - 2 civil or criminal action, suit or proceeding referred to in Section 1(a) or Section 1(b) of this Agreement (including amounts actually paid in settlement of any such action, suit or proceeding). Indemnitee hereby undertakes to repay such amounts advanced only if, and to the extent that, it shall ultimately be determined that Indemnitee is not entitled to be indemnified by the Company as authorized hereby. B. Notice; Cooperation by Indemnitee. Indemnitee shall, as a condition precedent to his or her right to be indemnified under this Agreement, give the Company notice in writing as soon as practicable of any claim made against Indemnitee for which indemnification will or could be sought under this Agreement. Notice to the Company shall be directed to the Chief Executive Officer of the Company and shall be given in accordance with the provisions of Section 12(d) below. In addition, Indemnitee shall give the Company such information and cooperation as it may reasonably require and all shall be within Indemnitee's power. C. Procedure. Any indemnification and advances provided for in Section 1 and this Section 3 shall be made no later than twenty (20) days after receipt of the written request of Indemnitee. If a claim under this Agreement, under any statute, or under any provision of the Company's Articles of Incorporation or Bylaws providing for indemnification, is not paid in full by the Company within twenty (20) days after a written request for payment thereof has first been received by the Company, Indemnitee may, but need not, at any time thereafter bring an action against the Company to recover the unpaid amount of the claim and, subject to Section 11 of this Agreement, Indemnitee shall also be entitled to be paid for the expenses (including attorneys' fees) of bringing such action. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in connection with any action, suit or proceeding in advance of its final disposition) that Indemnitee has not met the standards of conduct which make it permissible under applicable law for the Company to indemnify Indemnitee for the amount claimed, but the burden of proving such defense shall be on the Company and Indemnitee shall be entitled to receive interim payments of expenses pursuant to Section 3(a) unless and until such defense may be finally adjudicated by court order or judgment from which no further right of appeal exists. It is the parties' intention that if the Company contests Indemnitee's right to indemnification, the question of Indemnitee's right to indemnification shall be for the court to decide, and neither the failure of the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel, or its shareholders) to have made a determination that indemnification of Indemnitee is proper in the circumstances because Indemnitee has met the applicable standard of conduct required by applicable law, nor an actual determination by the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel, or its shareholders) that Indemnitee has not met such applicable standard of conduct, shall create a presumption that Indemnitee has or has not met the applicable standard of conduct. D. Notice to Insurers. If, at the time of the receipt of a notice of a claim pursuant to Section 3(b) hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of Exhibit 10.36 - 3 the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies. E. Selection of Counsel. In the event the Company shall be obligated under Section 3(a) hereof to pay the expenses of any proceeding against Indemnitee, the Company, if appropriate, shall be entitled to assume the defense of such proceeding, with counsel approved by Indemnitee, upon the delivery to Indemnitee of written notice of its election so to do. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same proceeding, provided that (i) Indemnitee shall have the right to employ counsel in any such proceeding at Indemnitee's expense; and (ii) if (A) the employment of counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense, or (C) the Company shall not, in fact, have employed counsel to assume the defense of such proceeding, then the fees and expenses of Indemnitee's counsel shall be at the expense of the Company. IV. Additional Indemnification Rights; Nonexclusivity. A. Scope. Notwithstanding any other provision of this Agreement, the Company hereby agrees to indemnify the Indemnitee to the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Company's Articles of Incorporation, the Company's Bylaws or by statute. In the event of any change, after the date of this Agreement, in any applicable law, statute, or rule which expands the right of a California corporation to indemnify a member of its board of directors or an officer, such changes shall be deemed to be within the purview of Indemnitee's rights and the Company's obligations under this Agreement. In the event of any change in any applicable law, statute or rule which narrows the right of a California corporation to indemnify a member of its board of directors or an officer, such changes, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement shall have no effect on this Agreement or the parties' rights and obligations hereunder. B. Nonexclusivity. The indemnification provided by this Agreement shall not be deemed exclusive of any rights to which Indemnitee may be entitled under the Company's Articles of Incorporation, its Bylaws, any agreement, any vote of shareholders or disinterested members of the Company's Board of Directors, the General Corporation Law of the State of California, or otherwise, both as to action in Indemnitee's official capacity and as to action in another capacity while holding such office. The indemnification provided under this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an indemnified capacity even though he or she may have ceased to serve in any such capacity at the time of any action, suit or other covered proceeding. V. Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the expenses, judgments, fines or penalties actually or reasonably incurred in the investigation, defense, appeal or settlement of any civil or criminal action, suit or proceeding, but not, however, for the total Exhibit 10.36 - 4 amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such expenses, judgments, fines or penalties to which Indemnitee is entitled. VI. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge that in certain instances, federal law or public policy may override applicable state law and prohibit the Company from indemnifying its directors and officers under this Agreement or otherwise. For example, the Company and Indemnitee acknowledge that the Securities and Exchange Commission (the "SEC") has taken the position that indemnification is not permissible for liabilities arising under certain federal securities laws, and federal legislation prohibits indemnification for certain ERISA violations. Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the SEC to submit the question of indemnification to a court in certain circumstances for a determination of the Company's right under public policy to indemnify Indemnitee. VII. Officer and Director Liability Insurance. The Company shall, from time to time, make the good faith determination whether or not it is practicable for the Company to obtain and maintain a policy or policies of insurance with reputable insurance companies providing the officers and directors of the Company with coverage for losses from wrongful acts, or to ensure the Company's performance of its indemnification obligations under this Agreement. Among other considerations, the Company will weigh the costs of obtaining such insurance coverage against the protection afforded by such coverage. In all policies of director and officer liability insurance, Indemnitee shall be named as an insured in such a manner as to provide Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company's directors, if Indemnitee is a director, or of the Company's officers, if Indemnitee is not a director of the Company but is an officer, or of the Company's key employees, if Indemnitee is not an officer or director but is a key employee. Notwithstanding the foregoing, the Company shall have no obligation to obtain or maintain such insurance if the Company determines in good faith that such insurance is not reasonably available, if the premium costs for such insurance are disproportionate to the amount of coverage provided, if the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit, or if Indemnitee is covered by similar insurance maintained by a parent of subsidiary of the Company. VIII. Severability. Nothing in this Agreement is intended to require, or shall be construed as requiring the Company to do or fail to do, any act in violation of applicable law. The Company's inability, pursuant to court order, to perform its obligations under this Agreement shall not constitute a breach of this Agreement. The provisions of this Agreement shall be severable as provided in this Section 8. If this Agreement or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify Indemnitee to the full extent permitted by any applicable portion of this Agreement that shall not have been invalidated, and the balance of this Agreement not so invalidated shall be enforceable in accordance with its terms. IX. Exceptions. Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement: A. Claims Initiated by Indemnitee. To indemnify or advance expenses to Indemnitee with respect to proceedings or claims initiated or brought voluntarily by Indemnitee Exhibit 10.36 - 5 and not by way of defense, except with respect to proceedings brought to establish or enforce a right to indemnification under this Agreement or any other statute or law or otherwise as required under Section 317 of the California General Corporation Law, but such indemnification or advancement of expenses may be provided by the Company in specific cases if the Board of Directors finds it to be appropriate; B. Insured Claims. To indemnify Indemnitee for expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties, and amounts paid in settlement) to the extent such expenses or liabilities have been paid directly to Indemnitee by an insurance carrier under a policy of officers' and directors' liability insurance maintained by the Company; or C. Claims under Section 16(b). To indemnify Indemnitee for expenses or the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar successor statute. X. Construction of Certain Phrases. A. For purposes of this Agreement, references to the "Company" shall include in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that if Indemnitee is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued. B. For purposes of this Agreement, references to "other enterprises" shall include employee benefit plans; references to "taxes" shall include any excise taxes assessed on Indemnitee with respect to an employee benefit plan; and references to "serving at the request of the Company" shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants, or beneficiaries. XI. Attorneys Fees. In the event that any action is instituted by Indemnitee under this Agreement to enforce or interpret any of the terms hereof, Indemnitee shall be entitled to be paid all court costs and expenses including, reasonable attorneys' fees and costs, incurred by Indemnitee with respect to such action, unless as a part of such action, the court of competent jurisdiction determines that each of the material assertions made by Indemnitee as a basis for such action were not made in good faith or were frivolous. In the event of an action instituted by or in the name of the Company under this Agreement or to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be paid all court costs and expenses including attorneys' fees and costs, incurred by Indemnitee in defense of such action (including with respect to Indemnitee's counterclaims and cross-claims made in such action), unless as a part of Exhibit 10.36 - 6 such action the court determines that each of Indemnitee's material defenses to such action were made in bad faith or were frivolous. XII. Miscellaneous. A. Governing Law. This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of California, without giving effect to principles of conflicts of law. B. Entire Agreement; Enforcement of Rights. This Agreement sets forth the entire agreement and understanding of the parties relating to the subject matter herein and merges all prior discussions between them. No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, shall be effective unless in writing signed by the parties to this Agreement. The failure by either party to enforce any rights under this Agreement shall not be construed as a waiver of any rights of such party. C. Construction. This Agreement is the result of negotiations between and has been reviewed by each of the parties hereto and their respective counsel, if any; accordingly, this Agreement shall be deemed to be the product of all of the parties hereto, and no ambiguity shall be construed in favor of or against any one of the parties hereto. D. 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 (3) days after deposit in the U.S. mail, postage prepaid, addressed to Indemnitee and to the Company as follows: Indemnitee: Robert Neame Shepherd Neame Ltd Faversham, Kent, UK Tel: 01 795 53 2206 Fax: 01 795 53 8907 Company: Mendocino Brewing Company, Inc. 1601 Airport Road Ukiah, California 95482 Attention: Chief Executive Officer Tel: (707) 463-6610 Fax: (707) 463-0140 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. Exhibit 10.36 - 7 E. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. F. Successors and Assigns. This Agreement shall be binding upon the Company and its successors and assigns, and inure to the benefit of Indemnitee and Indemnitee's heirs, legal representatives and assigns. G. Subrogation. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company to effectively bring suit to enforce such rights. IN WITNESS WHEREOF, the Company and Indemnitee have executed this Agreement as of the day and year first above written. COMPANY: MENDOCINO BREWING COMPANY, INC., a California corporation Dated: May 11, 1998 By: /s/ Vijay Mallya ----------------------------- Vijay Mallya Chief Executive Officer INDEMNITEE: Dated: May 11, 1998 /s/ Robert Neame -------------------------------- ROBERT NEAME Exhibit 10.36 - 8 EX-10.37 8 INDEMNIFICATION AGREEMENT Exhibit 10.37 INDEMNIFICATION AGREEMENT This INDEMNIFICATION AGREEMENT (the "Agreement") is made as of the ___ day of May ___, 1998, by and between MENDOCINO BREWING COMPANY, INC., a California corporation (the "Company") and SURY RAO PALAMAND ("Indemnitee"). WITNESSETH: WHEREAS, the Company has been advised that there can be no assurance that directors' and officers' liability insurance will continue to be available to the Company and Indemnitee, and believes that it is possible that the cost of such insurance, if obtainable, may not be acceptable to the Company; and WHEREAS, the Company and the Indemnitee recognize the substantial increase in corporate litigation in general, subjecting officers and directors to expensive litigation risks; and WHEREAS, Indemnitee is unwilling to serve, or continue to serve, the Company or any of its wholly owned subsidiaries as an officer and/or director without assurances that adequate liability insurance, indemnification or a combination thereof is, and will continue to be, provided; and WHEREAS, the Company, in order to induce Indemnitee to serve or to continue to serve the Company or any of its wholly owned subsidiaries, has agreed to provide Indemnitee with the benefits contemplated by this Agreement; and WHEREAS, as a result of the provision of such benefits, Indemnitee has agreed to serve or to continue to serve as an officer and/or director of the Company or any of its wholly owned subsidiaries. NOW, THEREFORE, in consideration of the promises, conditions, representations and warranties set forth herein, the Company and Indemnitee hereby agree as follows: I. Indemnification. A. Third Party Proceedings. The Company shall indemnify Indemnitee if Indemnitee is or was a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, or any subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while an officer or director or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees and costs), judgments, fines and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval Exhibit 10.37 - 1 shall not be unreasonably withheld) actually and reasonably incurred by Indemnitee in connection with such action, suit or proceeding if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe Indemnitee's conduct was unlawful, to the fullest extent permitted by California law and the Company's Articles of Incorporation. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that Indemnitee did not act in good faith and in a manner which Indemnitee reasonably believed to be in the best interests of the Company, or, with respect to any criminal action or proceeding, that Indemnitee had reasonable cause to believe that Indemnitee's conduct was unlawful. B. Proceedings By or in the Right of the Company. The Company shall indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made a party to any threatened, pending or completed action or proceeding by or in the right of the Company or any subsidiary of the Company to procure a judgment in its favor by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, or any subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while an officer or director or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees) judgments, fines and amount paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld), in each case to the extent actually and reasonably incurred by Indemnitee in connection with the defense or settlement of such action or suit if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the best interests of the Company and its shareholders, to the fullest extent permitted by California law and the Company's Articles of Incorporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which Indemnitee shall have been finally adjudicated by court order or judgment to be liable to the Company in the performance of Indemnitee's duty to the Company and its shareholders unless and only to the extent that the court in which such action or proceeding is or was pending shall determine upon application that, in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper. C. Mandatory Payment of Expenses. To the extent that Indemnitee has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 1(a) or Section 1(b) or the defense of any claim, issue or matter therein, Indemnitee shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by Indemnitee in connection therewith. II. No Employment Rights. Nothing contained in this Agreement is intended to create in Indemnitee any right to continued employment. III. Expenses; Indemnification Procedure. A. Advancement of Expenses. The Company shall advance all expenses incurred by Indemnitee in connection with the investigation, defense, settlement or appeal of any Exhibit 10.37 - 2 civil or criminal action, suit or proceeding referred to in Section 1(a) or Section 1(b) of this Agreement (including amounts actually paid in settlement of any such action, suit or proceeding). Indemnitee hereby undertakes to repay such amounts advanced only if, and to the extent that, it shall ultimately be determined that Indemnitee is not entitled to be indemnified by the Company as authorized hereby. B. Notice; Cooperation by Indemnitee. Indemnitee shall, as a condition precedent to his or her right to be indemnified under this Agreement, give the Company notice in writing as soon as practicable of any claim made against Indemnitee for which indemnification will or could be sought under this Agreement. Notice to the Company shall be directed to the Chief Executive Officer of the Company and shall be given in accordance with the provisions of Section 12(d) below. In addition, Indemnitee shall give the Company such information and cooperation as it may reasonably require and all shall be within Indemnitee's power. C. Procedure. Any indemnification and advances provided for in Section 1 and this Section 3 shall be made no later than twenty (20) days after receipt of the written request of Indemnitee. If a claim under this Agreement, under any statute, or under any provision of the Company's Articles of Incorporation or Bylaws providing for indemnification, is not paid in full by the Company within twenty (20) days after a written request for payment thereof has first been received by the Company, Indemnitee may, but need not, at any time thereafter bring an action against the Company to recover the unpaid amount of the claim and, subject to Section 11 of this Agreement, Indemnitee shall also be entitled to be paid for the expenses (including attorneys' fees) of bringing such action. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in connection with any action, suit or proceeding in advance of its final disposition) that Indemnitee has not met the standards of conduct which make it permissible under applicable law for the Company to indemnify Indemnitee for the amount claimed, but the burden of proving such defense shall be on the Company and Indemnitee shall be entitled to receive interim payments of expenses pursuant to Section 3(a) unless and until such defense may be finally adjudicated by court order or judgment from which no further right of appeal exists. It is the parties' intention that if the Company contests Indemnitee's right to indemnification, the question of Indemnitee's right to indemnification shall be for the court to decide, and neither the failure of the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel, or its shareholders) to have made a determination that indemnification of Indemnitee is proper in the circumstances because Indemnitee has met the applicable standard of conduct required by applicable law, nor an actual determination by the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel, or its shareholders) that Indemnitee has not met such applicable standard of conduct, shall create a presumption that Indemnitee has or has not met the applicable standard of conduct. D. Notice to Insurers. If, at the time of the receipt of a notice of a claim pursuant to Section 3(b) hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of Exhibit 10.37 - 3 the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies. E. Selection of Counsel. In the event the Company shall be obligated under Section 3(a) hereof to pay the expenses of any proceeding against Indemnitee, the Company, if appropriate, shall be entitled to assume the defense of such proceeding, with counsel approved by Indemnitee, upon the delivery to Indemnitee of written notice of its election so to do. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same proceeding, provided that (i) Indemnitee shall have the right to employ counsel in any such proceeding at Indemnitee's expense; and (ii) if (A) the employment of counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense, or (C) the Company shall not, in fact, have employed counsel to assume the defense of such proceeding, then the fees and expenses of Indemnitee's counsel shall be at the expense of the Company. IV. Additional Indemnification Rights; Nonexclusivity. A. Scope. Notwithstanding any other provision of this Agreement, the Company hereby agrees to indemnify the Indemnitee to the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Company's Articles of Incorporation, the Company's Bylaws or by statute. In the event of any change, after the date of this Agreement, in any applicable law, statute, or rule which expands the right of a California corporation to indemnify a member of its board of directors or an officer, such changes shall be deemed to be within the purview of Indemnitee's rights and the Company's obligations under this Agreement. In the event of any change in any applicable law, statute or rule which narrows the right of a California corporation to indemnify a member of its board of directors or an officer, such changes, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement shall have no effect on this Agreement or the parties' rights and obligations hereunder. B. Nonexclusivity. The indemnification provided by this Agreement shall not be deemed exclusive of any rights to which Indemnitee may be entitled under the Company's Articles of Incorporation, its Bylaws, any agreement, any vote of shareholders or disinterested members of the Company's Board of Directors, the General Corporation Law of the State of California, or otherwise, both as to action in Indemnitee's official capacity and as to action in another capacity while holding such office. The indemnification provided under this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an indemnified capacity even though he or she may have ceased to serve in any such capacity at the time of any action, suit or other covered proceeding. V. Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the expenses, judgments, fines or penalties actually or reasonably incurred in the investigation, defense, appeal or settlement of any civil or criminal action, suit or proceeding, but not, however, for the total Exhibit 10.37 - 4 amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such expenses, judgments, fines or penalties to which Indemnitee is entitled. VI. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge that in certain instances, federal law or public policy may override applicable state law and prohibit the Company from indemnifying its directors and officers under this Agreement or otherwise. For example, the Company and Indemnitee acknowledge that the Securities and Exchange Commission (the "SEC") has taken the position that indemnification is not permissible for liabilities arising under certain federal securities laws, and federal legislation prohibits indemnification for certain ERISA violations. Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the SEC to submit the question of indemnification to a court in certain circumstances for a determination of the Company's right under public policy to indemnify Indemnitee. VII. Officer and Director Liability Insurance. The Company shall, from time to time, make the good faith determination whether or not it is practicable for the Company to obtain and maintain a policy or policies of insurance with reputable insurance companies providing the officers and directors of the Company with coverage for losses from wrongful acts, or to ensure the Company's performance of its indemnification obligations under this Agreement. Among other considerations, the Company will weigh the costs of obtaining such insurance coverage against the protection afforded by such coverage. In all policies of director and officer liability insurance, Indemnitee shall be named as an insured in such a manner as to provide Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company's directors, if Indemnitee is a director, or of the Company's officers, if Indemnitee is not a director of the Company but is an officer, or of the Company's key employees, if Indemnitee is not an officer or director but is a key employee. Notwithstanding the foregoing, the Company shall have no obligation to obtain or maintain such insurance if the Company determines in good faith that such insurance is not reasonably available, if the premium costs for such insurance are disproportionate to the amount of coverage provided, if the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit, or if Indemnitee is covered by similar insurance maintained by a parent of subsidiary of the Company. VIII. Severability. Nothing in this Agreement is intended to require, or shall be construed as requiring the Company to do or fail to do, any act in violation of applicable law. The Company's inability, pursuant to court order, to perform its obligations under this Agreement shall not constitute a breach of this Agreement. The provisions of this Agreement shall be severable as provided in this Section 8. If this Agreement or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify Indemnitee to the full extent permitted by any applicable portion of this Agreement that shall not have been invalidated, and the balance of this Agreement not so invalidated shall be enforceable in accordance with its terms. IX. Exceptions. Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement: A. Claims Initiated by Indemnitee. To indemnify or advance expenses to Indemnitee with respect to proceedings or claims initiated or brought voluntarily by Indemnitee Exhibit 10.37 - 5 and not by way of defense, except with respect to proceedings brought to establish or enforce a right to indemnification under this Agreement or any other statute or law or otherwise as required under Section 317 of the California General Corporation Law, but such indemnification or advancement of expenses may be provided by the Company in specific cases if the Board of Directors finds it to be appropriate; B. Insured Claims. To indemnify Indemnitee for expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties, and amounts paid in settlement) to the extent such expenses or liabilities have been paid directly to Indemnitee by an insurance carrier under a policy of officers' and directors' liability insurance maintained by the Company; or C. Claims under Section 16(b). To indemnify Indemnitee for expenses or the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar successor statute. X. Construction of Certain Phrases. A. For purposes of this Agreement, references to the "Company" shall include in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that if Indemnitee is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued. B. For purposes of this Agreement, references to "other enterprises" shall include employee benefit plans; references to "taxes" shall include any excise taxes assessed on Indemnitee with respect to an employee benefit plan; and references to "serving at the request of the Company" shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants, or beneficiaries. XI. Attorneys Fees. In the event that any action is instituted by Indemnitee under this Agreement to enforce or interpret any of the terms hereof, Indemnitee shall be entitled to be paid all court costs and expenses including, reasonable attorneys' fees and costs, incurred by Indemnitee with respect to such action, unless as a part of such action, the court of competent jurisdiction determines that each of the material assertions made by Indemnitee as a basis for such action were not made in good faith or were frivolous. In the event of an action instituted by or in the name of the Company under this Agreement or to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be paid all court costs and expenses including attorneys' fees and costs, incurred by Indemnitee in defense of such action (including with respect to Indemnitee's counterclaims and cross-claims made in such action), unless as a part of Exhibit 10.37 - 6 such action the court determines that each of Indemnitee's material defenses to such action were made in bad faith or were frivolous. XII. Miscellaneous. A. Governing Law. This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of California, without giving effect to principles of conflicts of law. B. Entire Agreement; Enforcement of Rights. This Agreement sets forth the entire agreement and understanding of the parties relating to the subject matter herein and merges all prior discussions between them. No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, shall be effective unless in writing signed by the parties to this Agreement. The failure by either party to enforce any rights under this Agreement shall not be construed as a waiver of any rights of such party. C. Construction. This Agreement is the result of negotiations between and has been reviewed by each of the parties hereto and their respective counsel, if any; accordingly, this Agreement shall be deemed to be the product of all of the parties hereto, and no ambiguity shall be construed in favor of or against any one of the parties hereto. D. 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 (3) days after deposit in the U.S. mail, postage prepaid, addressed to Indemnitee and to the Company as follows: Indemnitee: Sury Rao Palamand ____________________________________ ____________________________________ Tel: 314-842-3837 Fax: 314-842-6460 Company: Mendocino Brewing Company, Inc. 1601 Airport Road Ukiah, California 95482 Attention: Chief Executive Officer Tel: (707) 463-6610 Fax: (707) 463-0140 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. Exhibit 10.37 - 7 E. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. F. Successors and Assigns. This Agreement shall be binding upon the Company and its successors and assigns, and inure to the benefit of Indemnitee and Indemnitee's heirs, legal representatives and assigns. G. Subrogation. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company to effectively bring suit to enforce such rights. IN WITNESS WHEREOF, the Company and Indemnitee have executed this Agreement as of the day and year first above written. COMPANY: MENDOCINO BREWING COMPANY, INC., a California corporation Dated: May 11, 1998 By: /s/ Vijay Mallya ----------------------------- Vijay Mallya Chief Executive Officer INDEMNITEE: Dated: May 11, 1998 /s/ Sury Rao Palamand -------------------------------- SURY RAO PALAMAND Exhibit 10.37 - 8 EX-10.38 9 INDEMNIFICATION AGREEMENT Exhibit 10.38 INDEMNIFICATION AGREEMENT This INDEMNIFICATION AGREEMENT (the "Agreement") is made as of the ___ day of May ___, 1998, by and between MENDOCINO BREWING COMPANY, INC., a California corporation (the "Company") and KENT PRICE ("Indemnitee"). WITNESSETH: WHEREAS, the Company has been advised that there can be no assurance that directors' and officers' liability insurance will continue to be available to the Company and Indemnitee, and believes that it is possible that the cost of such insurance, if obtainable, may not be acceptable to the Company; and WHEREAS, the Company and the Indemnitee recognize the substantial increase in corporate litigation in general, subjecting officers and directors to expensive litigation risks; and WHEREAS, Indemnitee is unwilling to serve, or continue to serve, the Company or any of its wholly owned subsidiaries as an officer and/or director without assurances that adequate liability insurance, indemnification or a combination thereof is, and will continue to be, provided; and WHEREAS, the Company, in order to induce Indemnitee to serve or to continue to serve the Company or any of its wholly owned subsidiaries, has agreed to provide Indemnitee with the benefits contemplated by this Agreement; and WHEREAS, as a result of the provision of such benefits, Indemnitee has agreed to serve or to continue to serve as an officer and/or director of the Company or any of its wholly owned subsidiaries. NOW, THEREFORE, in consideration of the promises, conditions, representations and warranties set forth herein, the Company and Indemnitee hereby agree as follows: I. Indemnification. A. Third Party Proceedings. The Company shall indemnify Indemnitee if Indemnitee is or was a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, or any subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while an officer or director or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees and costs), judgments, fines and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval Exhibit 10.38 - 1 shall not be unreasonably withheld) actually and reasonably incurred by Indemnitee in connection with such action, suit or proceeding if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe Indemnitee's conduct was unlawful, to the fullest extent permitted by California law and the Company's Articles of Incorporation. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that Indemnitee did not act in good faith and in a manner which Indemnitee reasonably believed to be in the best interests of the Company, or, with respect to any criminal action or proceeding, that Indemnitee had reasonable cause to believe that Indemnitee's conduct was unlawful. B. Proceedings By or in the Right of the Company. The Company shall indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made a party to any threatened, pending or completed action or proceeding by or in the right of the Company or any subsidiary of the Company to procure a judgment in its favor by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, or any subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while an officer or director or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees) judgments, fines and amount paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld), in each case to the extent actually and reasonably incurred by Indemnitee in connection with the defense or settlement of such action or suit if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the best interests of the Company and its shareholders, to the fullest extent permitted by California law and the Company's Articles of Incorporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which Indemnitee shall have been finally adjudicated by court order or judgment to be liable to the Company in the performance of Indemnitee's duty to the Company and its shareholders unless and only to the extent that the court in which such action or proceeding is or was pending shall determine upon application that, in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper. C. Mandatory Payment of Expenses. To the extent that Indemnitee has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 1(a) or Section 1(b) or the defense of any claim, issue or matter therein, Indemnitee shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by Indemnitee in connection therewith. II. No Employment Rights. Nothing contained in this Agreement is intended to create in Indemnitee any right to continued employment. III. Expenses; Indemnification Procedure. A. Advancement of Expenses. The Company shall advance all expenses incurred by Indemnitee in connection with the investigation, defense, settlement or appeal of any Exhibit 10.38 - 2 civil or criminal action, suit or proceeding referred to in Section 1(a) or Section 1(b) of this Agreement (including amounts actually paid in settlement of any such action, suit or proceeding). Indemnitee hereby undertakes to repay such amounts advanced only if, and to the extent that, it shall ultimately be determined that Indemnitee is not entitled to be indemnified by the Company as authorized hereby. B. Notice; Cooperation by Indemnitee. Indemnitee shall, as a condition precedent to his or her right to be indemnified under this Agreement, give the Company notice in writing as soon as practicable of any claim made against Indemnitee for which indemnification will or could be sought under this Agreement. Notice to the Company shall be directed to the Chief Executive Officer of the Company and shall be given in accordance with the provisions of Section 12(d) below. In addition, Indemnitee shall give the Company such information and cooperation as it may reasonably require and all shall be within Indemnitee's power. C. Procedure. Any indemnification and advances provided for in Section 1 and this Section 3 shall be made no later than twenty (20) days after receipt of the written request of Indemnitee. If a claim under this Agreement, under any statute, or under any provision of the Company's Articles of Incorporation or Bylaws providing for indemnification, is not paid in full by the Company within twenty (20) days after a written request for payment thereof has first been received by the Company, Indemnitee may, but need not, at any time thereafter bring an action against the Company to recover the unpaid amount of the claim and, subject to Section 11 of this Agreement, Indemnitee shall also be entitled to be paid for the expenses (including attorneys' fees) of bringing such action. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in connection with any action, suit or proceeding in advance of its final disposition) that Indemnitee has not met the standards of conduct which make it permissible under applicable law for the Company to indemnify Indemnitee for the amount claimed, but the burden of proving such defense shall be on the Company and Indemnitee shall be entitled to receive interim payments of expenses pursuant to Section 3(a) unless and until such defense may be finally adjudicated by court order or judgment from which no further right of appeal exists. It is the parties' intention that if the Company contests Indemnitee's right to indemnification, the question of Indemnitee's right to indemnification shall be for the court to decide, and neither the failure of the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel, or its shareholders) to have made a determination that indemnification of Indemnitee is proper in the circumstances because Indemnitee has met the applicable standard of conduct required by applicable law, nor an actual determination by the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel, or its shareholders) that Indemnitee has not met such applicable standard of conduct, shall create a presumption that Indemnitee has or has not met the applicable standard of conduct. D. Notice to Insurers. If, at the time of the receipt of a notice of a claim pursuant to Section 3(b) hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of Exhibit 10.38 - 3 the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies. E. Selection of Counsel. In the event the Company shall be obligated under Section 3(a) hereof to pay the expenses of any proceeding against Indemnitee, the Company, if appropriate, shall be entitled to assume the defense of such proceeding, with counsel approved by Indemnitee, upon the delivery to Indemnitee of written notice of its election so to do. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same proceeding, provided that (i) Indemnitee shall have the right to employ counsel in any such proceeding at Indemnitee's expense; and (ii) if (A) the employment of counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense, or (C) the Company shall not, in fact, have employed counsel to assume the defense of such proceeding, then the fees and expenses of Indemnitee's counsel shall be at the expense of the Company. IV. Additional Indemnification Rights; Nonexclusivity. A. Scope. Notwithstanding any other provision of this Agreement, the Company hereby agrees to indemnify the Indemnitee to the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Company's Articles of Incorporation, the Company's Bylaws or by statute. In the event of any change, after the date of this Agreement, in any applicable law, statute, or rule which expands the right of a California corporation to indemnify a member of its board of directors or an officer, such changes shall be deemed to be within the purview of Indemnitee's rights and the Company's obligations under this Agreement. In the event of any change in any applicable law, statute or rule which narrows the right of a California corporation to indemnify a member of its board of directors or an officer, such changes, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement shall have no effect on this Agreement or the parties' rights and obligations hereunder. B. Nonexclusivity. The indemnification provided by this Agreement shall not be deemed exclusive of any rights to which Indemnitee may be entitled under the Company's Articles of Incorporation, its Bylaws, any agreement, any vote of shareholders or disinterested members of the Company's Board of Directors, the General Corporation Law of the State of California, or otherwise, both as to action in Indemnitee's official capacity and as to action in another capacity while holding such office. The indemnification provided under this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an indemnified capacity even though he or she may have ceased to serve in any such capacity at the time of any action, suit or other covered proceeding. V. Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the expenses, judgments, fines or penalties actually or reasonably incurred in the investigation, defense, appeal or settlement of any civil or criminal action, suit or proceeding, but not, however, for the total Exhibit 10.38 - 4 amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such expenses, judgments, fines or penalties to which Indemnitee is entitled. VI. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge that in certain instances, federal law or public policy may override applicable state law and prohibit the Company from indemnifying its directors and officers under this Agreement or otherwise. For example, the Company and Indemnitee acknowledge that the Securities and Exchange Commission (the "SEC") has taken the position that indemnification is not permissible for liabilities arising under certain federal securities laws, and federal legislation prohibits indemnification for certain ERISA violations. Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the SEC to submit the question of indemnification to a court in certain circumstances for a determination of the Company's right under public policy to indemnify Indemnitee. VII. Officer and Director Liability Insurance. The Company shall, from time to time, make the good faith determination whether or not it is practicable for the Company to obtain and maintain a policy or policies of insurance with reputable insurance companies providing the officers and directors of the Company with coverage for losses from wrongful acts, or to ensure the Company's performance of its indemnification obligations under this Agreement. Among other considerations, the Company will weigh the costs of obtaining such insurance coverage against the protection afforded by such coverage. In all policies of director and officer liability insurance, Indemnitee shall be named as an insured in such a manner as to provide Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company's directors, if Indemnitee is a director, or of the Company's officers, if Indemnitee is not a director of the Company but is an officer, or of the Company's key employees, if Indemnitee is not an officer or director but is a key employee. Notwithstanding the foregoing, the Company shall have no obligation to obtain or maintain such insurance if the Company determines in good faith that such insurance is not reasonably available, if the premium costs for such insurance are disproportionate to the amount of coverage provided, if the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit, or if Indemnitee is covered by similar insurance maintained by a parent of subsidiary of the Company. VIII. Severability. Nothing in this Agreement is intended to require, or shall be construed as requiring the Company to do or fail to do, any act in violation of applicable law. The Company's inability, pursuant to court order, to perform its obligations under this Agreement shall not constitute a breach of this Agreement. The provisions of this Agreement shall be severable as provided in this Section 8. If this Agreement or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify Indemnitee to the full extent permitted by any applicable portion of this Agreement that shall not have been invalidated, and the balance of this Agreement not so invalidated shall be enforceable in accordance with its terms. IX. Exceptions. Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement: IX. Exceptions. Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of theis Agreenment: A. Claims Initiated by Indemnitee. To indemnify or advance expenses to Indemnitee with respect to proceedings or claims initiated or brought voluntarily by Indemnitee Exhibit 10.38 - 5 and not by way of defense, except with respect to proceedings brought to establish or enforce a right to indemnification under this Agreement or any other statute or law or otherwise as required under Section 317 of the California General Corporation Law, but such indemnification or advancement of expenses may be provided by the Company in specific cases if the Board of Directors finds it to be appropriate; B. Insured Claims. To indemnify Indemnitee for expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties, and amounts paid in settlement) to the extent such expenses or liabilities have been paid directly to Indemnitee by an insurance carrier under a policy of officers' and directors' liability insurance maintained by the Company; or C. Claims under Section 16(b). To indemnify Indemnitee for expenses or the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar successor statute. X. Construction of Certain Phrases. A. For purposes of this Agreement, references to the "Company" shall include in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that if Indemnitee is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued. B. For purposes of this Agreement, references to "other enterprises" shall include employee benefit plans; references to "taxes" shall include any excise taxes assessed on Indemnitee with respect to an employee benefit plan; and references to "serving at the request of the Company" shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants, or beneficiaries. XI. Attorneys Fees. In the event that any action is instituted by Indemnitee under this Agreement to enforce or interpret any of the terms hereof, Indemnitee shall be entitled to be paid all court costs and expenses including, reasonable attorneys' fees and costs, incurred by Indemnitee with respect to such action, unless as a part of such action, the court of competent jurisdiction determines that each of the material assertions made by Indemnitee as a basis for such action were not made in good faith or were frivolous. In the event of an action instituted by or in the name of the Company under this Agreement or to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be paid all court costs and expenses including attorneys' fees and costs, incurred by Indemnitee in defense of such action (including with respect to Indemnitee's counterclaims and cross-claims made in such action), unless as a part of Exhibit 10.38 - 6 such action the court determines that each of Indemnitee's material defenses to such action were made in bad faith or were frivolous. XII. Miscellaneous. A. Governing Law. This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of California, without giving effect to principles of conflicts of law. B. Entire Agreement; Enforcement of Rights. This Agreement sets forth the entire agreement and understanding of the parties relating to the subject matter herein and merges all prior discussions between them. No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, shall be effective unless in writing signed by the parties to this Agreement. The failure by either party to enforce any rights under this Agreement shall not be construed as a waiver of any rights of such party. C. Construction. This Agreement is the result of negotiations between and has been reviewed by each of the parties hereto and their respective counsel, if any; accordingly, this Agreement shall be deemed to be the product of all of the parties hereto, and no ambiguity shall be construed in favor of or against any one of the parties hereto. D. 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 (3) days after deposit in the U.S. mail, postage prepaid, addressed to Indemnitee and to the Company as follows: Indemnitee: Kent Price 45 Rock Rd Kentfield, CA 94804 Tel: 415-825-1050 Fax: 415-825-1058 Company: Mendocino Brewing Company, Inc. 1601 Airport Road Ukiah, California 95482 Attention: Chief Executive Officer Tel: (707) 463-6610 Fax: (707) 463-0140 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. Exhibit 10.38 - 7 E. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. F. Successors and Assigns. This Agreement shall be binding upon the Company and its successors and assigns, and inure to the benefit of Indemnitee and Indemnitee's heirs, legal representatives and assigns. G. Subrogation. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company to effectively bring suit to enforce such rights. IN WITNESS WHEREOF, the Company and Indemnitee have executed this Agreement as of the day and year first above written. COMPANY: MENDOCINO BREWING COMPANY, INC., a California corporation Dated: May 11, 1998 By: /s/ Vijay Mallya ------------------------------------ Vijay Mallya Chief Executive Officer INDEMNITEE: Dated: May 11, 1998 /s/ Kent Price ------------------------------------ KENT PRICE Exhibit 10.38 - 8 EX-27 10 FINANCIAL DATA SCHEDULE
5 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 80,600 0 688,400 0 689,500 2,259,300 16,690,600 1,212,800 18,538,200 2,509,000 0 0 227,600 12,367,200 (1,802,800) 18,538,200 2,830,900 2,830,900 2,357,800 3,983,600 4,200 0 251,600 (1,406,500) (540,500) (866,300) 0 0 0 (866,300) (0.19) 0
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