-----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, Sq1Ea6l0nhvNexXY70dvt7NJFFQOJKvgVqGT+cqSRQ3B9MZIQ0j3gEI/OUny/Onl yzmqwIK+kFY2gE8xSZgL0Q== 0000950005-99-000737.txt : 19990813 0000950005-99-000737.hdr.sgml : 19990813 ACCESSION NUMBER: 0000950005-99-000737 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990812 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: 99684717 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 10QSB 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, 1999 [ ] 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 incorporation or organization) (IRS Employer 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, 1999 is 4,497,059. PART I Item 1. Financial Statements. MENDOCINO BREWING COMPANY, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEET June 30, 1999 (Unaudited)
ASSETS CURRENT ASSETS Accounts receivable $1,261,000 Inventories 933,200 Prepaid expenses 70,200 Deferred income taxes 138,300 ----------- Total Current Assets: 2,402,700 ----------- PROPERTY AND EQUIPMENT 15,026,500 ----------- OTHER ASSETS Deferred Taxes 2,016,000 Other Assets 150,700 ----------- Total Other Assets: 2,166,700 ----------- Total Assets: $19,595,900 =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $1,431,500 Accrued liabilities 210,900 Accrued wages and related expense 198,800 Current maturities of notes payable to related party 994,000 Current maturities of obligation under capital lease 256,500 Current maturities of obligation under long-term debt 337,700 ----------- Total Current Liabilities: 3,429,400 LINE OF CREDIT 1,402,400 LONG TERM DEBT, less current maturities 3,739,000 OBLIGATIONS under capital lease - less current maturities 1,485,600 ----------- Total Liabilities: 10,056,400 ----------- STOCKHOLDERS' EQUITY Common stock, no par value: 20,000,000 shares authorized, 4,497,059 shares issued and outstanding 12,413,000 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 (3,101,100) ----------- Total Stockholders' Equity 9,539,500 ----------- Total Liabilities and Stockholders' Equity: $19,595,900 =========== The accompanying notes are an integral part of these financial statements.
MENDOCINO BREWING COMPANY, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
----------------------------- ------------------------------- THREE MONTHS ENDED SIX MONTHS ENDED June 30, 1999 June 30, 1999 ----------------------------- ------------------------------- 1999 1998 1999 1998 ---- ---- ---- ---- SALES $ 2,485,200 $ 1,690,200 $ 4,334,500 $ 3,000,300 LESS EXCISE TAXES 148,100 100,900 258,900 169,400 ----------- ----------- ----------- ----------- NET SALES 2,337,100 1,589,300 4,075,600 2,830,900 COST OF GOODS SOLD 1,504,600 1,235,300 2,909,900 2,357,800 ----------- ----------- ----------- ----------- GROSS PROFIT 832,500 354,000 1,165,700 473,100 ----------- ----------- ----------- ----------- OPERATING EXPENSES Retail operating 104,600 120,500 194,600 232,400 Marketing 392,600 320,400 737,200 488,500 General and administrative 395,800 476,200 746,300 905,000 ----------- ----------- ----------- ----------- 893,000 917,100 1,678,100 1,625,900 ----------- ----------- ----------- ----------- LOSS FROM OPERATIONS (60,500) (563,100) (512,400) (1,152,800) ----------- ----------- ----------- ----------- OTHER INCOME (EXPENSE) Interest income 2,700 (400) 8,600 (2,400) Other income (expense) (78,400) -- (78,400) -- Interest expense (213,800) (129,800) (420,400) (251,600) ----------- ----------- ----------- ----------- (289,500) (130,200) (490,200) (254,000) ----------- ----------- ----------- ----------- LOSS BEFORE INCOME TAXES (350,000) (693,300) (1,002,600) (1,406,800) Benefit From Income Taxes (140,200) (255,300) (400,300) (540,500) ----------- ----------- ----------- ----------- NET LOSS $ (209,800) $ (438,000) $ (602,300) $ (866,300) =========== =========== =========== =========== LOSS PER SHARE $ (0.05) $ (0.10) $ (0.13) $ (0.19) =========== =========== =========== =========== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 4,497,059 4,496,719 4,497,059 4,496,719 =========== =========== =========== =========== 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 ---------------------------- ----------------------------- 1999 1998 1999 1998 ----------- ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net Loss $ (209,800) $ (438,000) $ (602,300) $ (866,300) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization 215,200 166,800 417,700 332,200 Deferred income taxes (140,700) (255,300) (401,800) (540,500) Changes in: Accounts receivable (365,600) (225,300) (581,100) (358,700) Inventories (76,500) (167,700) 44,800 (145,400) Prepaid expenses 45,100 (94,400) (36,700) (259,000) Accounts payable 272,300 318,100 624,800 332,100 Accrued wages and related expenses (26,100) 91,400 (12,000) 55,400 Accrued liabilities 99,500 41,400 119,900 96,200 ----------- ----------- ----------- ----------- Net cash used by operating activities: $ (186,600) $ (563,000) $ (426,700) $(1,354,000) ----------- ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property, equipment, and leasehold (32,000) (88,400) (51,200) (166,100) improvements Deposits and other assets (2,900) -- (5,000) -- ----------- ----------- ----------- ----------- Net cash used by investing activities: (34,900) (88,400) (56,200) (166,100) ----------- ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Net proceeds from line of credit 358,500 -- 664,400 -- Principal payments on long-term debt (84,000) (5,900) (117,100) (5,900) Borrowings on long-term debt -- 677,400 -- 983,100 Payments on obligation under long-term lease (53,000) (41,500) (106,400) (82,800) ----------- ----------- ----------- ----------- Net cash provided by financing activities: 221,500 630,000 440,900 894,400 ----------- ----------- ----------- ----------- DECREASE IN CASH -- (21,400) (42,000) (625,700) ----------- ----------- ----------- ----------- CASH, beginning of period -- 102,000 42,000 706,300 ----------- ----------- ----------- ----------- CASH, end of period $ -- $ 80,600 $ -- $ 80,600 =========== =========== =========== =========== Supplemental cash flow information includes the following: Cash paid during the period for: Interest $ 101,400 $ 129,700 $ 353,300 $ 251,600 ----------- ----------- ----------- ----------- 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, 1998. 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, 1999, are not necessarily indicative of the results that may be expected for the year ending December 31, 1999. Note 2 - Line of Credit The Company has available a $3,000,000 line of credit from a financial institution with interest at the prime rate plus 2.25%. Approximately $1,484,000 was advanced to the Company in the form a term loan. The term loan is repayable in monthly installments of $24,700 over sixty months commencing March 1999. The amount of the term loan outstanding as of June 30, 1999 is $1,385,100. The bank's commitment under the line of credit matures September 2000. The agreement is secured by substantially all of the assets of the Releta Brewing Company, LLC, and all of the accounts receivable, inventory, general intangibles of the Company, a second position on the assets of the Company, and certain securities pledged by a stockholder. Note 3 - Notes Payable 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 9.84%. The note requires monthly payments of principal and interest of $24,400. The note matures on December 1, 2012 with a balloon payment and is secured by real property located in Ukiah, California. The Company has a notes payable which consists of convertible notes to United Breweries of America, Inc., a related party, in the amount of $994,000 as of June 30, 1999. The notes bear interest at the prime rate plus 1.5%, mature 18 months after the advances, and are unsecured and subordinated to bank and financial institution debt. The convertible notes mature through June 2000 and are convertible at the option of United Breweries of America, Inc., to common stock at $1.50 per share upon maturity. Interest accrued on the above notes for the six months ending June 30, 1999 is $44,900. The company has a note in the amount of $24,600 payable in monthly installments of $1,200, including interest at 5.65%, maturing March 2001, secured by an automobile. 4 Note 4 - Income Taxes As of June 30, 1999, the Company had available net operating loss carryovers of approximately $5,500,000, $2,150,000 and $615,000 of federal, California and New York net operating losses, respectively. The federal and New York operating losses expire through 2019. California operating losses expire through 2004. 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. Note 5 - Payments to Related Parties As of June 30, 1999, the Company had accrued payment obligations to one of its directors, Jerome Merchant, in the amount of $16,200 for consulting services performed for the Company. Of this amount, the Company has paid $10,800 through June 30, 1999. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Management Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis should be read in conjunction with the Financial Statements and the Notes thereto included as Item 1 of this Report. The discussion of results and trends does not necessarily imply that these results or 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. Readers are cautioned not to place undue reliance on these forward-looking statements, which are valid as of the date of this filing. 5 Overview The results of the first six months of 1999 showed a substantial growth in sales volume both out of the facility located in Ukiah, California, and the facility located in Saratoga Springs, New York. Sales (measured in barrels) during the first six months of 1999 increased to 22,999 barrels from 15,210 barrels in the first six months of 1998. This represents an increase of 51% over the first six months of 1998. Of the total sales of 22,999 barrels, the sales out of the Ukiah facility amounted to 17,385 barrels and the sales out of the Saratoga Springs facility amounted to 5,614 barrels. The increases in net sales during the six-month period ending June 30, 1999 were achieved in significant part through increased and improved marketing efforts. The high costs associated with the new brewery located at Ukiah, the fixed costs of the Ten Springs Brewery (neither of which are being used at full capacity) and the interest expenses contributed to a net loss of $602,300 for the first six months of 1999. The loss from operations as a percentage of net sales decreased from 30.60% for the first six months of 1998 to 14.78% for the first six months of 1999. Results of Operations The following discussion sets forth information for the six-month periods ending June 30, 1999 and 1998. 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: 6 ---------------------------- Six Months Ended June 30 ---------------------------- 1999 1998 Statements of Income Data: Sales 106.35% 105.98% Excise taxes 6.35 5.98 Net Sales 100.00 100.00 Cost of Goods Sold 71.40 83.29 Gross Profit 28.60 16.71 Retail Operating Expense 4.77 8.20 Marketing Expense 18.09 17.25 General and Administrative Expenses 18.31 31.97 Total Operating Expenses 41.17 57.42 Loss from Operations (12.57) (40.71) Other Income 0.21 (0.08) Other Expense (1.92) 0.00 Interest income (expense) (10.32) (8.90) Loss before income taxes (24.60) (49.69) Benefit from income taxes 9.82 19.09 Net Profit (Loss) (14.78) (30.60) Balance Sheet Data: Cash $ 0 $ 42,000 Working Capital (1,026,700) (525,100) Property and Equipment 15,026,500 15,259,800 Deposits and Other Assets 2,166,700 177,500 Total Assets 19,595,900 18,923,200 Long-term Debt 5,141,400 4,120,800 Obligation under Capital Lease 1,485,600 1,525,800 Total Liabilities 10,056,400 8,781,400 Shareholder's equity 9,539,500 10,141,800 Net Sales. Net sales for the first six months of 1999 were $4,075,600 compared with $2,830,900 for the first six months of 1998, representing an increase of 43.97%. The sales volume increased to 22,999 barrels during the first six months of 1999, from 15,210 barrels during the first six months of 1998, representing an increase of 51.21%. Management attributes the increased sales 7 to improved marketing strategies, including new point of sale materials. The increase in overall net sales during the first six months of 1999 was achieved solely by higher wholesale shipments, which represented an increase of $1,320,900 over the wholesale shipments during the first six months of 1998. In view of management's focus on wholesale beer sales, retail sales for the first six months of 1999 were $76,100 less than retail sales during the first six months of 1998. Cost of Goods Sold. Cost of goods sold as a percentage of net sales during the first six months of 1999 was 71.40%, as compared to 83.29% during the first six months of 1998, representing a decrease of 11.89%. As a percentage of net sales, during the first six months of 1999, labor costs increased from 12.1% in 1998, to 13.61% in 1999, depreciation decreased from 10.72% in 1998 to 8.37% in 1999, utilities decreased from 4.87% in 1998 to 3.64% in 1999, property taxes decreased from 2.49% in 1998 to 1.53% in 1999, insurance costs decreased from 1.80% in 1998 to 1.53% in 1999, wastewater decreased from 0.97% in 1998 to 0.31% in 1999, repair and maintenance decreased from 1.18% in 1998 to 0.83% in 1999. These factors contributed to a decrease of 11.89% in the cost of goods sold as a percentage of net sales, as compared to the first six months of 1998. Management attributes the balance of the decrease to higher sales volumes thereby lowering per barrel production costs at both the Ukiah and Ten Springs breweries. Gross Profit. As a result of the higher net sales as explained above, gross profit for the first six months of 1999 increased to $1,165,700, from $473,100 for the comparable period of 1998, representing an increase of 146%. As a percentage of net sales, the gross profit during the first six months of 1999 increased to 28.6% from 16.71% for the corresponding period of 1998. Operating Expenses. Operating expenses for the first six months of 1999 were $1,678,100, as compared to $1,625,900 for the first six months of 1998, representing an increase of 3.21%. 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 1999 were $194,600, representing a decrease of $37,800, or 16.27%, from the first six months of 1998. As a percentage of net sales, retail operating expenses decreased to 4.77% as compared to 8.2% for the first six months of 1998. The decrease in retail operating expenses consisted of a decrease in labor costs of $38,300 and an increase in other expenses by $500. Marketing and distribution expenses for the first six months of 1999 were $737,200, representing an increase of $248,700, or 51%, from the first six months of 1998. As a percentage of net sales, marketing and distribution expenses represented 18.09% as compared to 17.25% during the first six months of 1998. Compared to the first six months of 1998: marketing and sales labor increased by $122,700; telephone expenses increased by $14,300; sales promotion expenses increased by $67,300; point-of-sale expenses increased by $51,600; trade sampling expenses increased by $15,000; website development and media expenses increased by $7,200; newsletter expenses decreased by $5,100; freight decreased by $13,200; travel and entertainment decreased by $11,300; and all other marketing and distribution expenses increased by $200. General and administrative expenses were $746,300, representing a decrease of $158,700 from the first six months of 1998. As a percentage of net sales, the general and administrative 8 expenses were 18.31% for the first six months of 1999, as compared to 31.97% for the first six months of 1998. As compared to the first six months of 1998, professional and legal fees decreased by $79,500, depreciation increased by $10,000, travel and entertainment decreased by $74,500, telephone expenses decreased by $4,500, automobile expenses decreased by $7,200, and all other general and administrative expenses decreased by $3,000. Other Income (Expense). Other expenses for the first six months of 1999 were $490,200, representing an increase of $236,200 when compared to the first six months of 1998. The increase is due to an increase in interest expenses for the first six months of 1999 of $168,800, and increase of $78,400 in other expenses relative to potential acquisitions that were not consummated and an increase in miscellaneous income of $11,000. Benefit From Income Taxes. The benefit from income taxes for the first six months of 1999 was $400,300, as compared to $540,500 for the first six months of 1998. The benefit from income taxes is due to the expected future benefit of carrying forward net operating losses. Net Loss. The net loss for the first six months of 1999 was $602,300, as compared to a net loss of $866,300 for the first six months of 1998. As a percentage of net sales, net loss for the first six months of 1999 decreased to 14.78%, as compared to 30.6% for the first six months of 1998. Segment Information Mendocino Brewing Company, Inc.'s business presently consists of two segments. The first is brewing for wholesale to distributors and other retailers. This segment accounted for 94% of the Company's gross sales for the first six months of 1999. 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 6% of the Company's total gross sales during the first six months of 1999. 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 the Hopland Brewery. A summary of each segment is as follows:
Six Months Ended June 30, 1999 ---------------------------------------------------------------------------- Brewing Hopland Corporate Operations Brewery and Other Total ---------------------- ----------------- ----------------- ----------------- Sales $ 4,084,600 $ 249,900 $ -- $ 4,334,500 Operating Loss (478,100) (34,300) -- (512,400) Identifiable Assets 14,827,800 52,000 4,716,100 19,595,900 Depreciation and amortization 389,400 3,400 24,900 417,700 Capital Expenditures 121,700 -- 30,900 152,600
9
Six Months Ended June 30, 1998 ----------------------------------------------------------------------------- Brewing Hopland Corporate Operations Brewery and Other Total ---------------------- ------------------ ----------------- ----------------- Sales $ 2,674,300 $ 326,000 $ -- $ 3,000,300 Operating 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
Seasonality Beer consumption nationwide has historically been approximately 20% higher during the summer months as compared to the 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 operations. Liquidity and Capital Resources Long Term Debt. The Company has in place 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 9.84%, maturing on December 1, 2012 with a balloon payment. The loan is secured by some 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, fixtures and most of the equipment of the Company. Credit Facility. The CIT Group/Credit Finance, Inc., located in Chicago, Illinois, has provided the Company with a $3,000,000 maximum line of credit with an advance rate of 80% of the qualified accounts receivable and 60% of the inventory at an interest rate of the prime rate of Chase Manhattan Bank of New York plus 2.25% payable monthly, maturing September 23, 2000. The line of credit is secured by all accounts, general intangibles, inventory, and equipment of the Company except for the specific equipment and fixtures of the Company leased from FINOVA Capital Corporation, as well as by a second deed of trust on the Company's Ukiah land improvements. $1,484,000 of the line of credit was advanced to the Company as an initial term loan, which is repayable in sixty consecutive monthly installments of principal, each in the amount of $24,700. The Company commenced repayment of the term loan in March 1999 and approximately $1,385,000 of the term loan was outstanding as of June 30, 1999. Of the initial term loan, $600,000 was used to repay all amounts outstanding on a loan from WestAmerica Bank. Based on the Company's current level of accounts receivable and inventory, the Company 10 has drawn the maximum amount permitted under the line of credit. As of June 30, 1999, the total amount outstanding on the line of credit was $2,724,700. Equipment Lease. The Company has leased from FINOVA Capital Corporation ("Finova") 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. Shareholder Commitment. In early 1998, the Company's largest shareholder, United Breweries of America, Inc. ("UBA"), agreed to provide the Company with a credit facility of up to $2 million to fund the operations of the Company. The credit facility was to be secured by the assets of Releta Brewing Company, LLC ("RBC"). Advances on the credit facility bear interest at the prime rate of the Bank of America in San Francisco plus 1.5%, up to a maximum of 10%, due and payable quarterly. The principal amount of each advance, together with any accrued but unpaid interest on such advance, is due 18 months after the date of such advance. The advances also include a conversion feature whereby UBA could, at its option, convert the principal and any accrued but unpaid interest into unregistered shares of the Company's common stock on or after the maturity date, at a rate of one share of common stock for each $1.50 of principal and unpaid interest. In the course of facilitating the loan from The CIT Group/Credit Finance, Inc. ("CIT"), UBA and the Company materially amended the terms of the credit facility. Specifically, UBA was obligated to forego its security interest in the assets of RBC and subordinate the payment of any interest or principal on the advances from the credit facility to the obligations owed to CIT and Savings Bank of Mendocino County. In addition, UBA pledged shares of stock of an affiliate of UBA to CIT. UBA has advanced a total of $994,000 as of June 30, 1999; accrued but unpaid interest on the advances totals $44,900 as of June 30, 1999. Subsequently, due to the material amendments to the terms of the credit facility, UBA advised the Company that UBA has terminated the current credit facility. In addition, UBA has offered the Company a new credit facility in the maximum amount of $800,000. The termination of the current credit facility and the establishment of a new credit facility is not expected to affect the status of the advances which UBA has made to date. UBA's new $800,000 credit facility is on similar terms, including the conversion price, as the old credit facility. However, provided that the Company meets certain requirements under the terms of its existing obligations to CIT, Finova, and Savings Bank of Mendocino County, under the new credit facility the Company is required to make quarterly payments of interest in cash. Further, under the new credit facility, if UBA elects not to convert the principal and any unpaid interest into common stock of the Company at maturity, then the Company shall pay any such amounts over a period of five years in equal monthly installments. Under the old credit facility, the Company made interest payments by issuing additional convertible notes to UBA and the full principal amount was due upon maturity. The Company has obtained the agreement of CIT, Finova, and Savings Bank of Mendocino County to permit the Company to make such payments 11 of principal and interest provided that certain conditions are met. As of June 30, 1999, the Company has not borrowed any funds from UBA under the new credit facility. 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. However, there can be no assurances that the Company will be able to finance the purchase of kegs and the failure to purchase the necessary kegs from MicroStar is likely to have a material adverse affect on the on the Company. The Company's ratio of current assets to current liabilities on June 30, 1999, was 0.70 to 1.0 and its ratio of assets to liabilities was 1.95 to 1.0. Year 2000 Readiness Many currently-installed computer systems and software products are coded to accept only two digit entries in the date code field. Beginning in the year 2000, these date code fields will need to accept four digit entries in order to distinguish 21st century dates from 20th century dates. On January 1, 2000, many computer, and embedded systems, may recognize the year "00" as the year 1900 rather than the year 2000. Because many computer functions are date-sensitive, this error may cause systems to process data inaccurately or shut down if they do not recognize the date. If not corrected, this could result in a system failure or miscalculations causing disruptions of operations. The Company is taking steps to ensure its operations will not be adversely impacted by potential year 2000 computer failures. The Company is assessing all systems for year 2000 impacts and costs of upgrading or replacing systems that are not year 2000 ready, and testing and monitoring systems for year 2000 readiness. The Company does not expect the year 2000 project costs to have a material effect on its financial position or results of operations. The Company believes that its most significant internal risk posed by the year 2000 problem is the possibility of a failure of equipment involved in its brewing processes. If the brewing processes equipment were to fail, the Company would have to implement manual processes, which may slow production levels that would affect the Company's sales volume. The programmable logic controller connected to the brewing equipment and the processes are not date sensitive. A testing of the brewing house facility computer operations indicated that all of the computer systems are year 2000 compliant. However, there can be no assurance that problems may not arise relevant to year 2000. The third parties whose year 2000 problems could have the greatest effect on the Company are believed by the Company to be the banks that maintain the Company's depository accounts, the 12 company that processes the Company's payroll, and the Company's suppliers and distributors. The Company is in process of confirming the state of year 2000 readiness of these parties. Impact of Expansion on Cash Flow The Company must make timely payment of its debt and lease commitments to continue its operations. Unused capacity at the Ukiah facility and the Saratoga Springs facility has placed additional demands on the Company's working capital. Historically, working capital for the day to day business operations was 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 the day to day operations of the Company. To fund its operating deficits, the Company has relied upon lines of credit and other credit facilities. However, there can be no assurances that the Company will have access to any such sources of funds in the future, and the inability to secure sufficient funds will have a materially adverse effect on the Company. Compensation to Directors The Board of Directors of the Company has formed a committee consisting of Dr. Vijay Mallya, H. Michael Laybourn, and Yashpal Singh to determine the compensation of the independent directors, namely R.H.B. (Bobby) Neame, Sury Rao Palamand, and Kent Price. Currently, the Company does not have in place any arrangements for compensating its directors for their services. It is anticipated that the independent directors will receive shares of common stock of the Company, options to purchase additional shares of common stock as well as monetary compensation. All options to purchase shares of the Company's common stock would be granted pursuant to the terms of the Company's 1994 Stock Option Plan. It is further anticipated that the Company will grant options to purchase common stock to Jerome Merchant, who is both a member of the Board of Directors and a consultant to the Company. By virtue of being appointed to the compensation committee, Dr. Mallya, Mr. Laybourn and Mr. Singh will not be eligible to receive grants of stock or options for their services as directors. It is expected that the amount of compensation to be paid to the directors will be established at the next meeting of the Board of Directors. PART II Item 1. Legal Proceedings. The Company is engaged in ordinary and routine litigation incidental to its business. Management does not anticipate that any amounts, which it may be required to pay by reason thereof, will have a material effect on the Company's financial position. Item 2. Changes in Securities. None. 13 Item 3. Default Upon Senior Securities. None. Item 4. Submission of Matters to a Vote of Security Holders. The Company held its annual meeting of shareholders in Ukiah, California, on April 30, 1999. Votes were cast for the election of directors to serve until their successors are elected at the next annual meeting of the Company as follows: Candidate Votes For Votes Withheld --------- --------- -------------- Vijay Mallya 3,774,799 45,530 H. Michael Laybourn 3,774,285 46,044 R.H.B (Bobby) Neame 3,786,049 34,280 Kent Price 3,786,049 34,280 Sury Rao Palamand, Ph.D. 3,775,399 44,930 Jerome Merchant 3,786,449 33,880 Yashpal Singh 3,784,999 35,330 The shareholders also ratified the appointment of Moss Adams as the Company's independent auditors for 1999 by a vote of 3,808,846 for, 3,201 against, and 8,282 abstain. 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. 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). 10.15 (N) Commercial Lease between Stewart's Ice Cream Company, Inc. and Releta Brewing Company, LLC. 14 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 (J) Equipment Lease with FINOVA Capital Corporation. 10.24 (J) Tri-Election Rider to Equipment Lease with FINOVA Capital Corporation. 10.25 (J) Master Lease Schedule with FINOVA Capital Corporation. 10.26 (L) Investment Agreement with United Breweries of America, Inc. 10.27 (L) Shareholders' Agreement Among the Company, United Breweries of America, Inc., H. Michael Laybourn, Norman Franks, Michael Lovett, John Scahill, and Don Barkley. 10.28 (L) Registration Rights Agreement Among the Company, United Breweries of America, Inc., H. Michael Laybourn, Norman Franks, Michael Lovett, John Scahill, and Don Barkley. 10.29 (P) Indemnification Agreement with Vijay Mallya. 10.30 (P) Indemnification Agreement with Michael Laybourn. 10.31 (P) Indemnification Agreement with Jerome Merchant. 10.32 (P) Indemnification Agreement with Yashpal Singh. 10.33 (P) Indemnification Agreement with P.A. Murali. 10.34 (P) Indemnification Agreement with Robert Neame. 10.35 (P) Indemnification Agreement with Sury Rao Palamand. 10.36 (P) Indemnification Agreement with Kent Price. 10.37 (R) Loan and Security Agreement between the Company, Releta Brewing Company LLC and The CIT Group/Credit Finance, Inc. regarding a $3,000,000 maximum line of credit. 10.38 (R) Patent, Trademark and License Mortgage by the Company in favor of The CIT Group/Credit Finance, Inc. 10.39 (R) Patent, Trademark and License Mortgage by Releta Brewing Company LLC in favor of The CIT Group/Credit Finance, Inc. 10.40 (S) Promissory Notes in favor of United Breweries of America, Inc. 10.41 Employment Agreement with Yashpal Singh. 10.42 Employment Agreement with P.A. Murali. 27 Financial Data Schedule. - --------------- ------- (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. 15 (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. (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. (Q) Incorporated by reference from the Company's Report on Form 10-QSB for the quarterly period ended June 30, 1998. (R) Incorporated by reference from the Company's Report on Form 10-QSB for the quarterly period ended September 30, 1998. (s) Incorporated by reference from the Amendment No. 4 to Schedule 13D filed with the Commission on February 18, 1999, by United Breweries of America, Inc. and Vijay Mallya. (t) Incorporated by reference from the Company's Report on Form 10-KSB for the annual period ended December 31, 1998, 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. 16 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. Dated: August 12, 1999 By: /s/ H. Michael Laybourn ------------------------------------------ H. Michael Laybourn President Dated: August 12, 1999 By: /s/ P.A. Murali ------------------------------------------ P.A. Murali Chief Financial Officer 17 EXHIBIT INDEX Exhibit Number ------ 10.41 Employment Agreement with Yashpal Singh. 10.42 Employment Agreement with P.A. Murali. 27 Financial Data Schedule. EX-10.41 2 EXECUTIVE EMPLOYMENT AGREEMENT 10.41 Executive Employment Agreement EXECUTIVE EMPLOYMENT AGREEMENT (this "Agreement") is effective as of 1st day of April, 1998, between Mendocino Brewing Company, Inc., 13351 South Highway 101, Hopland, CA, 95449 ("Company") and Mr. Yashpal Singh ("Executive"). WITNESSETH WHEREAS, Executive possesses professional qualifications, experience and detailed knowledge of the company's business; WHEREAS, company recognizes Executive's importance to the growth and success of Company and desires to assure Executives contributions and to compensate him in a manner which it has determined will reinforce and encourage his continued attention and dedication; WHEREAS Executive is desirous of committing himself to serve company on the terms herein provided; NOW, THEREFORE, in consideration of forgoing and of the respective covenants and agreements of the parties herein contained, the parties hereto hereby agree as follows: 1) EMPLOYMENT a) Company hereby employs Executive for the period commencing on April1, 1998 for a period of three years, unless such employment is sooner terminated as provided in this Agreement. b) Executive hereby accepts employment under this Agreement and agrees to devote all his best efforts and his full time and attention exclusively to the business and affairs of Company. During the term of this Agreement, Executive shall report to, and shall perform such duties and responsibilities as may be assigned to him by, the Chief Executive Officer or such other person as the Chief Executive Officer or Chairman may designate. Company shall retain full direction and control of the manner, means and methods by which Executive performs the services for which he is employed hereunder and of the places at which such services shall be rendered. c) Executive shall observe and comply with Company's rules and regulations. 2) DESIGNATION AND COMPENSATION a) Designation and Base Salary The Board of Directors of the company in their meeting held on October 6, 1998 unanimously passed a resolution designating the executive as Executive Vice President & Chief Operating Officer and for his employment hereunder, finalizing the executive's base salary at the annual rate of $100,000 with effect from May 1, 1998.The salary is payable in accordance with the Company's standard payoff practices as in effect from time to time, prorated in any partial year of employment. Executive shall be entitled for an annual salary increase, based on a review of performance and such increases will be determined by the Board of Directors of the company in its sole discretion. b) Reimbursement Executive shall be entitled to reimbursement for reasonable travel and other business expenses incurred in the performance of his duties under this Agreement in accordance with the general policy of Company, as it may change from time to time, provided the Executive provides an itemized account together with supporting receipts for such expenditures in accordance with the requirements set forth in the Internal Revenue Code of 1986, as amended, and related regulations, subject to the right of Company at any time to place reasonable limitations on such expenses thereafter to be incurred or reimbursed. c) Withholding Company shall be entitled to withhold from any compensation paid or payable hereunder such amounts on account of payroll taxes, income taxes and other similar matters as are required to be withheld by applicable law. d) Medical Executive and his immediate dependent family members in USA will be provided full Insurance coverage for medical, dental and vision. e) Key Executive Life Insurance Executive shall be insured for life for $250,000 being the face amount of the Basic policy out of which the beneficiaries shall be the company for $50,000 and the Executive or his nominees for $200,000. f) Vacation Executive shall be entitled to one month paid vacation in each calendar year to visit India, along with his family. Executive shall also be entitled to 5 days each of Sick and Personal leave. Vacation leave is to receive prior formal approval of concerned officers of the company. g) Bonus Executive shall be entitled up to 30% Bonus, paid quarterly based on performance review. h) Benefit Plans Subject to any limitations imposed by applicable law Executive shall be eligible to participate in all Company employee benefit programs in substantially the same manner and to substantially the same extent as other company employees. Executive will be provided with company cars. i) Company Assets All furniture / furnishings, appliances / equipment etc. provided by the Company to help the Executive settle down will be a part of the Assets of the Company at the completion of the term of the Agreement. 3) TERMINATION / EXTENSION OF EMPLOYMENT BY THE COMPANY a) Company may terminate this agreement with or without cause at any time giving six months notice or compensation lieu thereof in lumpsum b) Executive may terminate this Agreement after giving notice of six months. c) Company may extend the term of Agreement with the written consent of the Executive four months prior to expiration of this agreement for a minimum period of one year. d) Company shall provide business class airfare for the Executive and his family to return to India, in addition to transportation of his belongings from the place of his residence in USA to the place of his residence in India in event of completion of term of this Agreement or termination of this agreement on account of Clause 3(a) or 3(b). 4) DEATH OF EXECUTIVE In the event of the death of Executive during the period of his employment herewith, Executive's salary herewith shall be paid up through the end of next month in which the date of death occurs. In such an event, the Company will pay for transportation of Executive's belongings and business class airfare for his family to India. 5) MISCELLANEOUS a) Governing Law This Agreement shall be governed by and constructed according to the laws of the State of California without regard to the principles thereof regarding conflict of laws. b) Amendment This Agreement may be amended only by a writing signed by Executive and by Company's Chairman. c) Construction The headings and captions of this Agreement are provided for convenience only and are intended to have no effect in construing or interpreting this Agreement. The language in all parts of this Agreement shall be in all cases construed according to its fair meaning and strictly for or against Company or Executive. d) Attorneys' Fees Should either party hereto, or any heir, personal representative, successor or assign of either party hereto, resort to litigation or arbitration to enforce this Agreement, the party or parties prevailing in such litigation or arbitration to addition to such other relief as may be granted, to recover its or their reasonable attorneys fees and costs in such litigation from the party or parties against whom enforcement was sought. e) Notices Any notice, request, consent or approval required or permitted to be given under this Agreement or pursuant to law shall be sufficient if in writing, and if and when delivered personally, by facsimile or sent by certified or registered mail, with postage prepaid, to Executive's residence (as noted in Company's records), or to Company's principal executive office, as the case may be. IN WITNESS WHEREOF, the undersigned have executed this Agreement on the Thirteenth Day of May 1999. EXECUTIVE MENDOCINO BREWING CO., INC /s/ Yashpal Singh /s/ Michael Laybourn ----------------- -------------------- (YASHPAL SINGH) (MICHAEL LAYBOURN) PRESIDENT EX-10.42 3 EXECUTIVE EMPLOYMENT AGREEMENT 10.42 Executive Employment Agreement EXECUTIVE EMPLOYMENT AGREEMENT (this "Agreement") is effective as of 1st day of April, 1998, between Mendocino Brewing Company, Inc., 13351 South Highway 101, Hopland, CA, 95449 ("Company") and Mr. P.A. Murali ("Executive"). WITNESSETH WHEREAS, Executive possesses professional qualifications, experience and detailed knowledge of the company's business; WHEREAS, company recognizes Executive's importance to the growth and success of Company and desires to assure Executives contributions and to compensate him in a manner which it has determined will reinforce and encourage his continued attention and dedication; WHEREAS Executive is desirous of committing himself to serve company on the terms herein provided; NOW, THEREFORE, in consideration of forgoing and of the respective covenants and agreements of the parties herein contained, the parties hereto hereby agree as follows: 1) EMPLOYMENT a) Company hereby employs Executive for the period commencing on April 1, 1998 for a period of three years, unless such employment is sooner terminated as provided in this Agreement. b) Executive hereby accepts employment under this Agreement and agrees to devote all his best efforts and his full time and attention exclusively to the business and affairs of Company. During the term of this Agreement, Executive shall report to, and shall perform such duties and responsibilities as may be assigned to him by, the Chief Executive Officer or such other person as the Chief Executive Officer or Chairman may designate. Company shall retain full direction and control of the manner, means and methods by which Executive performs the services for which he is employed hereunder and of the places at which such services shall be rendered. c) Executive shall observe and comply with Company's rules and regulations. 2) DESIGNATION AND COMPENSATION a) Designation and Base Salary The Board of Directors of the company in their meeting held on October 6, 1998 unanimously passed a resolution designating the executive as Chief Financial Officer And Corporate Secretary and for his employment hereunder, finalizing the executive's base salary at the annual rate of $75,000 with effect from October 15, 1998.The salary is payable in accordance with the Company's standard payoff practices as in effect from time to time, prorated in any partial year of employment. Executive shall be entitled for an annual salary increase, based on a review of performance and such increases will be determined by the Board of Directors of the company in its sole discretion. b) Reimbursement Executive shall be entitled to reimbursement for reasonable travel and other business expenses incurred in the performance of his duties under this Agreement in accordance with the general policy of Company, as it may change from time to time, provided the Executive provides an itemized account together with supporting receipts for such expenditures in accordance with the requirements set forth in the Internal Revenue Code of 1986, as amended, and related regulations, subject to the right of Company at any time to place reasonable limitations on such expenses thereafter to be incurred or reimbursed. c) Withholding Company shall be entitled to withhold from any compensation paid or payable hereunder such amounts on account of payroll taxes, income taxes and other similar matters as are required to be withheld by applicable law. d) Medical Executive and his immediate dependent family members in USA will be provided full Insurance coverage for medical, dental and vision. e) Key Executive Life Insurance Executive shall be insured for life for $250,000 being the face amount of the Basic policy out of which the beneficiaries shall be the company for $50,000 and the Executive or his nominees for $200,000. f) Vacation Executive shall be entitled to one month paid vacation in each calendar year to visit India, along with his family. Executive shall also be entitled to 5 days each of Sick and Personal leave. Vacation leave is to receive prior formal approval of concerned officers of the company. g) Bonus Executive shall be entitled up to 30% Bonus, paid quarterly based on performance review. h) Benefit Plans Subject to any limitations imposed by applicable law Executive shall be eligible to participate in all Company employee benefit programs in substantially the same manner and to substantially the same extent as other company employees. Executive will be provided with company cars. i) Company Assets All furniture / furnishings, appliances / equipment etc. provided by the Company to help the Executive settle down will be a part of the Assets of the Company at the completion of the term of the Agreement. 3) TERMINATION / EXTENSION OF EMPLOYMENT BY THE COMPANY a) Company may terminate this agreement with or without cause at any time giving six months notice or compensation lieu thereof in lumpsum b) Executive may terminate this Agreement after giving notice of six months. c) Company may extend the term of Agreement with the written consent of the Executive four months prior to expiration of this agreement for a minimum period of one year. d) Company shall provide business class airfare for the Executive and his family to return to India, in addition to transportation of his belongings from the place of his residence in USA to the place of his residence in India in event of completion of term of this Agreement or termination of this agreement on account of Clause 3(a) or 3(b). 4) DEATH OF EXECUTIVE In the event of the death of Executive during the period of his employment herewith, Executive's salary herewith shall be paid up through the end of next month in which the date of death occurs. In such an event, the Company will pay for transportation of Executive's belongings and business class airfare for his family to India. 5) MISCELLANEOUS a) Governing Law This Agreement shall be governed by and constructed according to the laws of the State of California without regard to the principles thereof regarding conflict of laws. b) Amendment This Agreement may be amended only by a writing signed by Executive and by Company's Chairman. c) Construction The headings and captions of this Agreement are provided for convenience only and are intended to have no effect in construing or interpreting this Agreement. The language in all parts of this Agreement shall be in all cases construed according to its fair meaning and strictly for or against Company or Executive. d) Attorneys' Fees Should either party hereto, or any heir, personal representative, successor or assign of either party hereto, resort to litigation or arbitration to enforce this Agreement, the party or parties prevailing in such litigation or arbitration to addition to such other relief as may be granted, to recover its or their reasonable attorneys fees and costs in such litigation from the party or parties against whom enforcement was sought. e) Notices Any notice, request, consent or approval required or permitted to be given under this Agreement or pursuant to law shall be sufficient if in writing, and if and when delivered personally, by facsimile or sent by certified or registered mail, with postage prepaid, to Executive's residence ( as noted in Company's records ), or to Company's principal executive office, as the case may be. IN WITNESS WHEREOF, the undersigned have executed this Agreement on the Thirteenth Day of May 1999. EXECUTIVE MENDOCINO BREWING CO., INC. /s/ P.A. Murali /s/ Michael Laybourn --------------- -------------------- (P.A. MURALI) (MICHAEL LAYBOURN) PRESIDENT EX-27 4 FINANCIAL DATA SCHEDULE
5 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 0 0 1,261,000 0 933,200 2,402,700 17,066,100 (2,039,600) 19,595,900 3,429,400 0 12,413,000 0 227,600 (3,101,100) 19,595,900 4,075,600 4,075,600 2,909,900 4,588,000 78,400 0 420,400 (1,002,600) 400,300 (602,300) 0 0 0 (602,300) (0.13) 0
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