-----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, J0+dhzFUwEZkRZ9GQ32Xp5h8nRoE3XvlzTnnjVUOJKEoGeQXe6y6Qb5Zlsal7/H3 rbB9YzI7WAoKluEVRwvnCw== 0001078275-99-000003.txt : 19990222 0001078275-99-000003.hdr.sgml : 19990222 ACCESSION NUMBER: 0001078275-99-000003 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 12 FILED AS OF DATE: 19990219 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: MENDOCINO BREWING CO INC CENTRAL INDEX KEY: 0000919134 STANDARD INDUSTRIAL CLASSIFICATION: MALT BEVERAGES [2082] IRS NUMBER: 680318293 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: SEC FILE NUMBER: 005-46539 FILM NUMBER: 99545524 BUSINESS ADDRESS: STREET 1: 13351 S HWY 101 CITY: HOPLAND STATE: CA ZIP: 95449 BUSINESS PHONE: 7077441015 MAIL ADDRESS: STREET 1: 13351 S HWY 101 CITY: HOPLAND STATE: CA ZIP: 95449 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: MARRON-REID LLP CENTRAL INDEX KEY: 0001078275 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 942602680 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: 601 CALIFORNIA STREET STREET 2: SUITE 1200 CITY: SAN FRANCISCO STATE: CA ZIP: 94108-2896 BUSINESS PHONE: 4154340800 MAIL ADDRESS: STREET 1: 601 CALIFORNIA STREET STREET 2: SUITE 1200 CITY: SAN FRANCISCO STATE: CA ZIP: 94108-2896 SC 13D/A 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 13D (RULE 13d-101) INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT TO 13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO 13d-2(a) (AMENDMENT NO. 4)/1/ MENDOCINO BREWING COMPANY, INC. ------------------------------------ (NAME OF ISSUER) Common Stock ------------------------------------ (TITLE OF CLASS OF SECURITIES) 586579 10 4 (CUSIP NUMBER) ------------------------------------ Paul J. Tauber, Esq. Marron - Reid LLP 601 California Street Suite 1200 San Francisco, CA 94108 (415) 434-0800 (NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS) February 18, 1999 ---------------------------------------- (DATE OF EVENT WHICH REQUIRES FILING OF THIS STATEMENT) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(b)(3) or (4), check the following box [_]. Note: Six copies of this statement, including all exhibits, should be filed with the Commission. See Rule 13d-1(a) for other parties to whom copies are to be sent. (Continued on following pages) (PAGE 1 OF 6 PAGES) - ------------------- /1/ The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). - ------------------------------------------------------------------------------ CUSIP NO. 586579 10 4 13D PAGE 2 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ 1. NAME OF REPORTING PERSON United Breweries of America, Inc. ("UBA") S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON 68-0393017 - ------------------------------------------------------------------------------ 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (A) [_] (B) [X] - ------------------------------------------------------------------------------ 3. SEC USE ONLY - ------------------------------------------------------------------------------ 4 SOURCE OF FUNDS WC, OO - ------------------------------------------------------------------------------ 5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS [_] IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e) N/A - ------------------------------------------------------------------------------ 6. CITIZENSHIP OR PLACE OF ORGANIZATION Delaware - ------------------------------------------------------------------------------ 7. SOLE VOTING POWER NUMBER OF 2,812,330 shares, except that Vijay Mallya ("Mallya"), SHARES the beneficial owner of UBA, may be deemed to have BENEFICIALLY shared power to vote these shares. The 2,812,330 OWNED BY shares include 662,683 shares that are issuable upon EACH the conversion of all of the convertible notes of the REPORTING issuer in favor of UBA. PERSON ----------------------------------------------------------- WITH 8. SHARED VOTING POWER See response to Row 7. ----------------------------------------------------------- 9. SOLE DISPOSITIVE POWER 2,812,330 shares, except that Mallya, the beneficial owner of UBA, may be deemed to dispose of these shares. The 2,812,330 shares include 662,683 shares that are issuable upon the conversion of all of the convertible notes of the issuer in favor of UBA. ----------------------------------------------------------- 10. SHARED DISPOSITIVE POWER See response to Row 9. - ------------------------------------------------------------------------------ 11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 2,812,330 shares. The 2,812,330 shares include 662,683 shares that are issuable upon the conversion of all of the convertible notes of the issuer in favor of UBA. - ------------------------------------------------------------------------------ 12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES N/A [_] - ------------------------------------------------------------------------------ 13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 54.5% - ------------------------------------------------------------------------------ 14. TYPE OF REPORTING PERSON CO - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ CUSIP NO. 586579 10 4 13D PAGE 3 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ 1. NAME OF REPORTING PERSON Vijay Mallya ("Mallya") S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON N/A - ------------------------------------------------------------------------------ 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (A) [_] (B) [X] - ------------------------------------------------------------------------------ 3. SEC USE ONLY - ------------------------------------------------------------------------------ 4. SOURCE OF FUNDS WC, OO - ------------------------------------------------------------------------------ 5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS [_] REQUIRED PURSUANT TO ITEM 2(d) OR 2(e) N/A - ------------------------------------------------------------------------------ 6. CITIZENSHIP OR PLACE OF ORGANIZATION India - ------------------------------------------------------------------------------ 7. SOLE VOTING POWER NUMBER OF 0 SHARES ----------------------------------------------------------- BENEFICIALLY 8. SHARED VOTING POWER OWNED BY 2,812,330 shares, all of which are directly owned by EACH UBA. Mallya is the beneficial owner of UBA and may be REPORTING deemed to have shared power to vote these shares. The PERSON 2,812,330 shares include 662,683 shares that are WITH issuable upon the conversion of all the convertible notes of the issuer in favor of UBA. ----------------------------------------------------------- 9. SOLE DISPOSITIVE POWER 0 ----------------------------------------------------------- 10. SHARED DISPOSITIVE POWER 2,812,330 shares, all of which are directly owned by UBA. Mallya is the beneficial owner of UBA and may be deemed to have shared power to dispose of 662,683 shares. The 2,812,330 shares include the shares that are issuable upon the conversion of all of the convertible notes of the issuer in favor of UBA. - ------------------------------------------------------------------------------ 11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 2,812,330 shares. The 2,812,330 shares include 662,683 shares that are issuable upon the conversion of all of the convertible notes of the issuer in favor of UBA. - ------------------------------------------------------------------------------ 12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES N/A [_] - ------------------------------------------------------------------------------ 13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 54.5% - ------------------------------------------------------------------------------ 14. TYPE OF REPORTING PERSON IN - ------------------------------------------------------------------------------ Page 4 United Breweries of America, Inc., a Delaware corporation (the "Reporting Person"), and Vijay Mallya ("Mallya"), hereby amend the single joint statement on Schedule 13D as amended by Amendments Nos. 1, 2 and 3 (the "Schedule 13D"), filed with the Securities and Exchange Commission, with respect to the shares of Common Stock, no par value (the "Common Stock"), of Mendocino Brewing Company, Inc., a California corporation (the "Issuer"), as follows: ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION ------------------------------------------------- A new second paragraph is added to Item 3 to read as follows: Pursuant to Section 6.28 of the Investment Agreement, the Reporting Person agreed to provide, or arrange for the provision of, funding for the working capital requirements of Releta. The Reporting Person has made available a credit facility in the maximum amount of $2,000,000 at an interest rate of 1.5% per annum above the prime rate offered by the Bank of America in San Francisco, California. Each draw on the credit facility shall be evidenced by a convertible note in the amount of the draw. As of December 31, 1998, the Issuer has made 11 draws on the credit facility, each of which is evidenced by a convertible note which are attached hereto as Exhibits 1 through 11. As of February 17, 1999, the aggregate amount drawn on the line of credit, together with interest accrued thereon, is equal to $994,023.90, which corresponds to the right to acquire up to 662,683 shares of Common Stock of the Issuer at a conversion price of $1.50 per share. ITEM 4. PURPOSE OF TRANSACTION ---------------------- A new final paragraph is added to Item 4 to read as follows: In connection with Section 6.28 of the Investment Agreement, the Reporting Person agreed to provide, or arrange for the provision of, funding for the working capital requirements of Releta. In making available the credit facility to the Issuer, the Reporting Person has fulfilled its commitment pursuant to the Investment Agreement. Page 5 ITEM 5. INTEREST IN SECURITIES OF ISSUER -------------------------------- The first paragraph of subsection (a) of Item 5 is hereby amended in its entirety to read as follows: (a) As of February 18, 1999, Mallya is the beneficial owner of 2,812,330 shares of Common Stock of the Issuer through an approximately 91.5% interest in the Reporting Person. The 2,812,330 shares constitutes approximately 54.5% of the Common Stock outstanding. If the issuer draws on the entire amount of the credit facility, assuming no additional accruals of interest, the Reporting Person would be the beneficial owner of 3,482,980 shares of Common Stock, constituting approximately 59.8% of the Common Stock outstanding. The first paragraph of subsection (d) of Item 5 is hereby amended in its entirety to read as follows: (d) Neil McGlynn and Balaram Dayaram Datwani, directors of the Reporting Person, own an aggregate of approximately 8.5% of the outstanding stock of the Reporting Person and, hence, may be deemed to have the right to receive or the power to direct the receipt of dividends from or the proceeds from the sale of the shares of Common Stock beneficially owned by the Reporting Person. Except as set forth in Item 2 and in this paragraph, no other person is known to have the right to receive or the power to direct the receipt of dividends from or the proceeds from the sale of such shares of Common Stock beneficially owned by the Reporting Person or Mallya. ITEM 7. MATERIAL TO BE FILED AS EXHIBITS -------------------------------- 1. Convertible Note dated March 1, 1998 in the principal amount of $80,209.06. 2. Convertible Note dated March 11, 1998 in the principal amount of $175,000.00. 3. Convertible Note dated March 16, 1998 in the principal amount of $130,000.00. 4. Convertible Note dated March 31, 1998 in the principal amount of $51,787.73. 5. Convertible Note dated April 21, 1998 in the principal amount of $65,000.00. 6. Convertible Note dated May 4, 1998 in the principal amount of $30,000.00. 7. Convertible Note dated May 6, 1998 in the principal amount of $100,000.00. 8. Convertible Note dated June 26, 1998 in the principal amount of $300,000.00. 9. Convertible Note dated June 30, 1998 in the principal amount of $29,858.75. 10. Convertible Note dated December 31, 1998 in the principal amount of $17,482.77. 11. Convertible Note dated December 31, 1998 in the principal amount of $14,685.59. Page 6 After reasonable inquiry and to the best of the undersigned's knowledge and belief, the undersigned hereby certify that the information set forth in this statement is true, complete and correct. Dated: February 18, 1999 UNITED BREWERIES OF AMERICA, INC. By: /s/ VIJAY MALLYA --------------------------------------- Name: Vijay Mallya Title: Chairman and Chief Executive Officer VIJAY MALLYA By: /s/ VIJAY MALLYA --------------------------------------- Vijay Mallya Page 7 EXHIBIT INDEX ------------- 1. Convertible Note dated March 1, 1998 in the principal amount of $80,209.06. 2. Convertible Note dated March 11, 1998 in the principal amount of $175,000.00. 3. Convertible Note dated March 16, 1998 in the principal amount of $130,000.00. 4. Convertible Note dated March 31, 1998 in the principal amount of $51,787.73. 5. Convertible Note dated April 21, 1998 in the principal amount of $65,000.00. 6. Convertible Note dated May 4, 1998 in the principal amount of $30,000.00. 7. Convertible Note dated May 6, 1998 in the principal amount of $100,000.00. 8. Convertible Note dated June 26, 1998 in the principal amount of $300,000.00. 9. Convertible Note dated June 30, 1998 in the principal amount of $29,858.75. 10. Convertible Note dated December 31, 1998 in the principal amount of $17,482.77. 11. Convertible Note dated December 31, 1998 in the principal amount of $14,685.59. EX-1 2 CONVERTIBLE NOTE, 3/1/98, $80,209.06 Exhibit 1 CONVERTIBLE NOTE MENDOCINO BREWING COMPANY, INC. - -------------------------------------------------------------------------------- Name of Issuer: Mendocino Brewing Company, Inc. Dated: March 1, 1998 Maturity Date: August 31, 1999 - -------------------------------------------------------------------------------- 1. Promise. Mendocino Brewing Company, Inc., a California corporation having its principal office at 1601 Airport Road, Ukiah, California 95482 and any successor (the "Company"), for value received, promises to pay to United Breweries of America Inc., a Delaware corporation or to its registered successors or assigns (the "Holder") the principal sum of Eighty Thousand Two Hundred Nine and 06/100 Dollars ($80,209.06) on presentation and surrender of this Convertible Note ("Note") on August 31, 1999 (the "Maturity Date"), and to pay interest on that principal sum at a rate equal to one and one-half percent (1.50%) per annum above the prime rate offered from time to time by the Bank of America in San Francisco, California. Interest payments shall be paid quarterly on the first day of the months of April, July, October, and January of each year. 2. Form of Payment. All payments under this Note shall be made in lawful money of the United States of America. The Company waives diligence, presentment, protest, demand and notice of protest, dishonor, and nonpayment of this Note. 3. Conversion/Redemption/Renewal. (a) The Holder has the right, at the holder's option, at any time on or after the Maturity Date, to convert all or any portion of this Note into fully paid and nonassessable shares of common stock ("Common Stock") of the Company at the rate of one share of such Common Stock for each One Dollar and 50/100 ($1.50) (the "Conversion Rate") principal amount of this Note and any accrued but unpaid interest. The Holder agrees that all shares of Common Stock of the Company, issued by the Company upon the conversion of all or any part of this Note shall be restricted securities within the meaning of Rule 144(a) of the Securities Act of 1933. The Holder further agrees that any shares of Common Stock acquired by means of any conversion as set forth herein shall be further restricted by the terms and conditions set forth in that certain Shareholders' Agreement, dated October 24, 1997, by and among the Company, Holder, and the Original Partners (as such term is defined in the Shareholders' Agreement). (b) The conversion right set forth in this Section 3 is subject to any adjustment of the Conversion Rate set forth in Section 5 and Section 6, and is only exercisable upon the surrender of this Note for conversion at the office or agency to be maintained by the Company accompanied by instruments of transfer, in form satisfactory to the Company, duly executed by the registered holder. No fractional shares are issuable on any conversion, but in lieu of issuing fractional shares the Company shall pay for such fractional shares in cash. (c) At any time prior to seventeen (17) months from the date of this Note, the Holder may provide written notice to the Company requiring the Company to repay all or any part of the outstanding principal balance of this Note, together with any accrued but unpaid interest thereon, to Holder on the Maturity Date. (d) If Holder does not convert or redeem any or all of the principal amount of the Note into Common Stock on the Maturity Date, Holder has the right to extend the term of this Note for a period of time mutually agreed upon between Holder and the Company. At any time during such extension period, Holder shall have the right to convert all or any part of the outstanding principal amount of the Note plus accrued and unpaid interest into Common Stock as set forth in this Section 3. Moreover, at any time during such extension period, Holder shall have the right to require the Company to repay all or any part of the outstanding principal balance of this Note, together with any accrued but unpaid interest thereon, to Holder within sixty (60) days. IV. Company Redemption. Prior to the Maturity Date, this Note may be redeemed by the Company, in whole or in part, at any time after sixty (60) days written notice ("Redemption Notice") to Holder. During such sixty (60) day period, Holder shall have the right to convert all or any part of the outstanding principal amount of the Note plus accrued and unpaid interest into Common Stock, as set forth in Section 3. If Holder does not convert all outstanding amounts into Common Stock, the Company may redeem any remaining amounts at any time during a thirty (30) day period commencing with the date of expiration of the sixty (60) day period provided for in the Redemption Notice. Thereafter, Company shall be required to provide Holder with a new Redemption Notice, and Holder shall have a new sixty (60) day period within which to convert all or any part of the outstanding principal amounts plus accrued and unpaid interest into Common Stock, as set forth in Section 3. 5. Anti-Dilution. (a) If at any time there is a capital reorganization of the Company's Common Stock, including any combination, reclassification, exchange, or subdivision of shares, a merger or consolidation of the Company with or into another corporation, or the sale of all or substantially all the Company's properties and assets as, or substantially as, an entirety to another person, then, as a part of such reorganization, merger, consolidation, or sale, lawful provision shall be made so that Holder shall thereafter be entitled to receive on conversion of this Note, during the period specified in this Note, the number of shares of Common Stock of the Company, or of the successor corporation resulting from such merger or consolidation, to which a holder of the Common Stock deliverable on conversion of this Note would have been entitled on that event if this Note had been converted immediately before that event. In any such case, appropriate adjustment (as determined by the Company's board of directors) shall be made in applying this Note to the rights and the percentage interests of Holder after the reorganization, merger, consolidation, or sale to the end that this Note (including adjustment of the Conversion Rate) shall be applicable after that event, as near as reasonably may be, in relation to the shares of Common Stock deliverable after that event on conversion of this Note. The Company shall, not later than thirty (30) days prior to making such adjustment, give written notice ("Notice") by courier to Holder at the address of Holder shown on the Company's books. (b) Any Notice that is sent pursuant to Section 5(a) shall set forth, in reasonable detail, the event requiring the adjustment and the method by which the adjustment was calculated and shall specify the Conversion Rate then in effect after the adjustment and the increased or decreased number of shares of Common Stock to be received upon conversion of this Note. When appropriate, advance notice may be given and included as part of the notice required under other provisions of this Note. 6. Conversion Rate Protection. (a) If at any time, or from time to time, the Company issues or sells shares of Common Stock without consideration or for a consideration per share less than the Conversion Rate in effect immediately before that issue or sale, then and in each such case: 1. the Conversion Rate then in effect and the Conversion Rate applicable for any subsequent period shall be adjusted to a price (calculated to the nearest cent) determined by dividing: (y) the sum of (aa) the number of shares of Common Stock outstanding immediately before that issue or sale multiplied by the Conversion Rate in effect immediately before that issue or sale, plus (bb) the consideration, if any, received by the Company on that issue or sale, by (z) the number of shares of the Company's Common Stock outstanding immediately after that issue or sale; and 2. Holder shall after that issue or sale, on conversion of this Note, be entitled to receive the number of shares of Common Stock equal to the number of shares that would otherwise, but for the adjustment provided for in Section 6(a)(i), be issuable on such conversion multiplied by a fraction, the numerator of which is the Conversion Rate then in effect and the denominator of which is the Conversion Rate in effect immediately after the adjustment provided for in Section 6(a)(i) on the date of conversion. No such adjustment shall be made in an amount less than Five Cents ($0.05), but any such amount shall be carried forward and given effect in the next adjustment, if any. (b) If the Company (i) grants any rights or options to subscribe for, purchase, or otherwise acquire shares of Common Stock, or (ii) issues or sells any security, other than this Note, which is convertible into shares of Common Stock, then the price per share of Common Stock issuable on the exercise of the rights or options or the conversion of the securities shall be calculated by dividing: (y) the total amount, if any, received or receivable by the Company as consideration for the granting of the rights or options or the issue or sale of the convertible securities, plus the minimum aggregate amount of additional consideration payable to the Company on exercise of the convertible securities, by (z) the maximum number of shares of Common Stock issuable on the exercise or conversion. 1. If the price per share so calculated is less than the Conversion Rate of this Note in effect immediately before the rights or options are granted or the convertible securities are issued or sold, the granting or issue or sale shall be considered to be an issue or sale for cash of the maximum number of shares of Common Stock so issuable on exercise or conversion at the price per share determined under this provision, and the Conversion Rate of this Note shall be adjusted as provided above to reflect (on the basis of that determination) the issue or sale. No further adjustment of the Conversion Rate shall be made as a result of the actual issuance of shares of Common Stock on the exercise of any such rights or options or the conversion of any such convertible securities. 2. If such rights or options or convertible securities by their terms provide, with the passage of time or otherwise, for any increase in the amount of additional consideration payable to the Company or any decrease in the number of shares of Common Stock issuable on such exercise or exchange (by change of rate or otherwise), the Conversion Rate shall, when each such increase or decrease becomes effective, be readjusted to reflect the increase or decrease as far as it affects rights of exercise or conversion that have not expired before that time. 3. If, on the expiration of such rights or options or the rights of conversion of such convertible securities, any of them shall not have been exercised, the Conversion Rate shall be readjusted and will then be the same as it would have been had it originally been adjusted (or had the original adjustment not been required, as the case may be), on the basis that (y) the only shares of Common Stock so issued were the shares of Common Stock, if any, actually issued or sold on the exercise of such rights or options or rights of conversion of such convertible securities, and (z) such shares of Common Stock, if any, were issued or sold for the consideration actually received by the Company on such exercise plus the consideration, if any, actually received by the Company for granting all such rights or options or for issuing or selling all such convertible securities. 4. No adjustment of the Conversion Rate as provided in this Section 6(b) shall occur upon the granting of stock options or warrants to employees of the Company in the aggregate amount of less than three hundred thousand (300,000) shares of Common Stock. 7. Subordination. (a) Upon the written agreement of Holder, this Note may be subordinated to any or all debt owed by the Company to banks and other financial institutions, other than to the extent debt to any such bank or financial institution involves the issuance of shares of the Company's stock or notes, warrants, options or any other security convertible into such stock. (b) The payment of the indebtedness evidenced by this instrument is subordinated to the payment of the "Senior Debt" defined and described in the Subordination Agreement, dated as of September 24, 1998, between United Breweries of America Inc. and the CIT Group/Credit Finance, Inc., and reference is made to such Agreement for a full statement of the terms and conditions of such subordination. (c) The payment of the indebtedness evidenced by this instrument is subordinated to the payment of the "Senior Debt" defined and described in the Subordination Agreement, dated on or about November 15, 1998, between United Breweries of America Inc. and the Savings Bank of Mendocino, Inc., and reference is made to such Agreement for a full statement of the terms and conditions of such subordination. 8. Enforcement. The Company agrees to reimburse Holder for all costs of collection or enforcement of this Note, whether or not suit is filed (including, but not limited to, reasonable attorney fees), incurred by Holder. 9. Governing Law. This Note shall be governed by and construed in accordance with the laws, without regard to the laws as to choice or conflict of laws, of the State of California. 10. Default. If Company fails to pay any installment of principal or interest when due, then, or at any time during such default, the entire amount of the unpaid principal and interest shall, at the election of Holder, become immediately due and payable. 11. Waiver. No previous waiver and no failure or delay by Holder in acting with respect to the terms of this Note shall constitute a waiver of any subsequent breach, default or failure of condition under this Note. A waiver of any term of this Note must be in writing and shall be limited to the express written terms of such waiver. No delay or omission on the part of Holder in exercising any right under this Note shall operate as a waiver of such right or of any other right. 12. Reservation of Stock. The Company covenants that it will at all times reserve and keep available, solely for issuance on conversion of this Note, all shares of Common Stock from time to time issuable upon exercise of this Note. 13. Replacement. Upon receipt of evidence reasonably satisfactory to the Company, of the loss, theft, destruction, or modification of this Note and, in the event of such occurrence, on delivery of an indemnity agreement or Note reasonably satisfactory in form and amount to the Company or in the case of mutilation, on surrender and cancellation of this Note, the Company at its expense will execute and deliver, in lieu of this Note, a new Note of like tender. 14. Transfer. NO SALE OR TRANSFER OF THIS NOTE SHALL BE EFFECTIVE UNLESS AND UNTIL ALL OF THE FOLLOWING STEPS ARE COMPLIED WITH: (a) The transferor and the transferee shall execute the form of Transfer Statement attached to this Note (or a similar statement which shall then be attached to this Note); (b) This Note and the executed Transfer Statement, together with a United States Internal Revenue Service Form W-8 "Certificate of Foreign Status" or a Form W-9 "Request for Taxpayer Identification Number and Certification" completed and executed by the transferee, shall be delivered to the Company at the Company's address as provided above; and (c) If the Company is satisfied that the information contained in the Transfer Statement is consistent with the information contained in the completed and executed Form W-8 or W-9, as applicable, the Company shall enter the transfer on a Note Holder Ledger maintained by the Company for this purpose. Any purported transfer with respect to which all of the above steps have note been complied with shall be null and void and of no force or effect. IN WITNESS WHEREOF, the Company has caused this Convertible Note to be executed in its corporate name by the signature of its president and secretary. MENDOCINO BREWING COMPANY, INC., a California corporation By: /s/ Michael Laybourn ------------------------------------- Michael Laybourn Its: President By: /s/ P.A. Murali ------------------------------------- P.A. Murali Its: Secretary CONVERSION NOTICE Conversion Notice To: MENDOCINO BREWING COMPANY, INC. The undersigned holder of this Note, hereby irrevocably exercises the option to convert this Note or the portion of it designated below into shares of Common Stock of the Company, in accordance with the terms of the Note, and directs that the shares issuable and deliverable on the conversion, together with any check in payment of fractional shares, be issued and delivered to the undersigned unless a different name is specified below. If shares of Common Stock are to be issued in the name of anyone other than the undersigned, the undersigned will pay all transfer taxes payable on this conversion and issuance. Dated: ---------------------------- ------------------------------------- Signature If the shares are to be Portion to be converted (in issued other than to a multiples) of $1,000 if less registered holder, print than all: name, address, city, state and zip code of issuee: $ ------------------------------------ Social Security Number of other identifying number of issuers: ------------------------------------- ------------------------------------- ------------------------------------- ------------------------------------- Notice: The signature of these instructions to convert must correspond with the name as written on the face of this Note in every particular, without alteration, enlargement, or any change whatsoever TRANSFER STATEMENT ------------------ NOTICE TO: MENDOCINO BREWING COMPANY, INC. FOR VALUE RECEIVED, the undersigned, the holder of that certain Convertible Note initially executed on the Effective Date (as defined below) by Mendocino Brewing Company, Inc. (the "Company") to the Initial Holder (as defined below) in the Face Value set forth below (the "Note"), hereby sells, assigns, transfers and conveys all of the rights of the undersigned under the Note, subject to the terms of the Note, unto the Transferee (as described below): NAME OF TRANSFEREE ADDRESS FACE VALUE OF NOTE The following terms have the following meanings: Effective Date: , 1998 -------------------- Initial Holder: ---------------------------- Dated: TRANSFEROR: -------------------------- [Name of Transferor] By: ------------------------------------- Name: ----------------------------------- Its: ------------------------------------ ACKNOWLEDGMENT OF THE COMPANY: MENDOCINO BREWING COMPANY, INC. By: --------------------------------- Name: ------------------------------- Its: -------------------------------- EX-2 3 CONVERTIBLE NOTE, 3/11/98, $175,000.00 Exhibit 2 CONVERTIBLE NOTE MENDOCINO BREWING COMPANY, INC. - -------------------------------------------------------------------------------- Name of Issuer: Mendocino Brewing Company, Inc. Dated: March 11, 1998 Maturity Date: September 10, 1999 - -------------------------------------------------------------------------------- 1. Promise. Mendocino Brewing Company, Inc., a California corporation having its principal office at 1601 Airport Road, Ukiah, California 95482 and any successor (the "Company"), for value received, promises to pay to United Breweries of America Inc., a Delaware corporation or to its registered successors or assigns (the "Holder") the principal sum of One Hundred Seventy Five Thousand and no/100 Dollars ($175,000.00) on presentation and surrender of this Convertible Note ("Note") on September 10, 1999, (the "Maturity Date"), and to pay interest on that principal sum at a rate equal to one and one-half percent (1.50%) per annum above the prime rate offered from time to time by the Bank of America in San Francisco, California. Interest payments shall be paid quarterly on the first day of the months of April, July, October, and January of each year. 2. Form of Payment. All payments under this Note shall be made in lawful money of the United States of America. The Company waives diligence, presentment, protest, demand and notice of protest, dishonor, and nonpayment of this Note. 3. Conversion/Redemption/Renewal. (a) The Holder has the right, at the holder's option, at any time on or after the Maturity Date, to convert all or any portion of this Note into fully paid and nonassessable shares of common stock ("Common Stock") of the Company at the rate of one share of such Common Stock for each One Dollar and 50/100 ($1.50) (the "Conversion Rate") principal amount of this Note and any accrued but unpaid interest. The Holder agrees that all shares of Common Stock of the Company, issued by the Company upon the conversion of all or any part of this Note shall be restricted securities within the meaning of Rule 144(a) of the Securities Act of 1933. The Holder further agrees that any shares of Common Stock acquired by means of any conversion as set forth herein shall be further restricted by the terms and conditions set forth in that certain Shareholders' Agreement, dated October 24, 1997, by and among the Company, Holder, and the Original Partners (as such term is defined in the Shareholders' Agreement). (b) The conversion right set forth in this Section 3 is subject to any adjustment of the Conversion Rate set forth in Section 5 and Section 6, and is only exercisable upon the surrender of this Note for conversion at the office or agency to be maintained by the Company accompanied by instruments of transfer, in form satisfactory to the Company, duly executed by the registered holder. No fractional shares are issuable on any conversion, but in lieu of issuing fractional shares the Company shall pay for such fractional shares in cash. (c) At any time prior to seventeen (17) months from the date of this Note, the Holder may provide written notice to the Company requiring the Company to repay all or any part of the outstanding principal balance of this Note, together with any accrued but unpaid interest thereon, to Holder on the Maturity Date. (d) If Holder does not convert or redeem any or all of the principal amount of the Note into Common Stock on the Maturity Date, Holder has the right to extend the term of this Note for a period of time mutually agreed upon between Holder and the Company. At any time during such extension period, Holder shall have the right to convert all or any part of the outstanding principal amount of the Note plus accrued and unpaid interest into Common Stock as set forth in this Section 3. Moreover, at any time during such extension period, Holder shall have the right to require the Company to repay all or any part of the outstanding principal balance of this Note, together with any accrued but unpaid interest thereon, to Holder within sixty (60) days. 4. Company Redemption. Prior to the Maturity Date, this Note may be redeemed by the Company, in whole or in part, at any time after sixty (60) days written notice ("Redemption Notice") to Holder. During such sixty (60) day period, Holder shall have the right to convert all or any part of the outstanding principal amount of the Note plus accrued and unpaid interest into Common Stock, as set forth in Section 3. If Holder does not convert all outstanding amounts into Common Stock, the Company may redeem any remaining amounts at any time during a thirty (30) day period commencing with the date of expiration of the sixty (60) day period provided for in the Redemption Notice. Thereafter, Company shall be required to provide Holder with a new Redemption Notice, and Holder shall have a new sixty (60) day period within which to convert all or any part of the outstanding principal amounts plus accrued and unpaid interest into Common Stock, as set forth in Section 3. 5. Anti-Dilution. (a) If at any time there is a capital reorganization of the Company's Common Stock, including any combination, reclassification, exchange, or subdivision of shares, a merger or consolidation of the Company with or into another corporation, or the sale of all or substantially all the Company's properties and assets as, or substantially as, an entirety to another person, then, as a part of such reorganization, merger, consolidation, or sale, lawful provision shall be made so that Holder shall thereafter be entitled to receive on conversion of this Note, during the period specified in this Note, the number of shares of Common Stock of the Company, or of the successor corporation resulting from such merger or consolidation, to which a holder of the Common Stock deliverable on conversion of this Note would have been entitled on that event if this Note had been converted immediately before that event. In any such case, appropriate adjustment (as determined by the Company's board of directors) shall be made in applying this Note to the rights and the percentage interests of Holder after the reorganization, merger, consolidation, or sale to the end that this Note (including adjustment of the Conversion Rate) shall be applicable after that event, as near as reasonably may be, in relation to the shares of Common Stock deliverable after that event on conversion of this Note. The Company shall, not later than thirty (30) days prior to making such adjustment, give written notice ("Notice") by courier to Holder at the address of Holder shown on the Company's books. (b) Any Notice that is sent pursuant to Section 5(a) shall set forth, in reasonable detail, the event requiring the adjustment and the method by which the adjustment was calculated and shall specify the Conversion Rate then in effect after the adjustment and the increased or decreased number of shares of Common Stock to be received upon conversion of this Note. When appropriate, advance notice may be given and included as part of the notice required under other provisions of this Note. 6. Conversion Rate Protection. (a) If at any time, or from time to time, the Company issues or sells shares of Common Stock without consideration or for a consideration per share less than the Conversion Rate in effect immediately before that issue or sale, then and in each such case: (i) the Conversion Rate then in effect and the Conversion Rate applicable for any subsequent period shall be adjusted to a price (calculated to the nearest cent) determined by dividing: (y) the sum of (aa) the number of shares of Common Stock outstanding immediately before that issue or sale multiplied by the Conversion Rate in effect immediately before that issue or sale, plus (bb) the consideration, if any, received by the Company on that issue or sale, by (z) the number of shares of the Company's Common Stock outstanding immediately after that issue or sale; and (ii) Holder shall after that issue or sale, on conversion of this Note, be entitled to receive the number of shares of Common Stock equal to the number of shares that would otherwise, but for the adjustment provided for in Section 6(a)(i), be issuable on such conversion multiplied by a fraction, the numerator of which is the Conversion Rate then in effect and the denominator of which is the Conversion Rate in effect immediately after the adjustment provided for in Section 6(a)(i) on the date of conversion. No such adjustment shall be made in an amount less than Five Cents ($0.05), but any such amount shall be carried forward and given effect in the next adjustment, if any. (b) If the Company (i) grants any rights or options to subscribe for, purchase, or otherwise acquire shares of Common Stock, or (ii) issues or sells any security, other than this Note, which is convertible into shares of Common Stock, then the price per share of Common Stock issuable on the exercise of the rights or options or the conversion of the securities shall be calculated by dividing: (y) the total amount, if any, received or receivable by the Company as consideration for the granting of the rights or options or the issue or sale of the convertible securities, plus the minimum aggregate amount of additional consideration payable to the Company on exercise of the convertible securities, by (z) the maximum number of shares of Common Stock issuable on the exercise or conversion. (i) If the price per share so calculated is less than the Conversion Rate of this Note in effect immediately before the rights or options are granted or the convertible securities are issued or sold, the granting or issue or sale shall be considered to be an issue or sale for cash of the maximum number of shares of Common Stock so issuable on exercise or conversion at the price per share determined under this provision, and the Conversion Rate of this Note shall be adjusted as provided above to reflect (on the basis of that determination) the issue or sale. No further adjustment of the Conversion Rate shall be made as a result of the actual issuance of shares of Common Stock on the exercise of any such rights or options or the conversion of any such convertible securities. (ii) If such rights or options or convertible securities by their terms provide, with the passage of time or otherwise, for any increase in the amount of additional consideration payable to the Company or any decrease in the number of shares of Common Stock issuable on such exercise or exchange (by change of rate or otherwise), the Conversion Rate shall, when each such increase or decrease becomes effective, be readjusted to reflect the increase or decrease as far as it affects rights of exercise or conversion that have not expired before that time. (iii) If, on the expiration of such rights or options or the rights of conversion of such convertible securities, any of them shall not have been exercised, the Conversion Rate shall be readjusted and will then be the same as it would have been had it originally been adjusted (or had the original adjustment not been required, as the case may be), on the basis that (y) the only shares of Common Stock so issued were the shares of Common Stock, if any, actually issued or sold on the exercise of such rights or options or rights of conversion of such convertible securities, and (z) such shares of Common Stock, if any, were issued or sold for the consideration actually received by the Company on such exercise plus the consideration, if any, actually received by the Company for granting all such rights or options or for issuing or selling all such convertible securities. (iv) No adjustment of the Conversion Rate as provided in this Section 6(b) shall occur upon the granting of stock options or warrants to employees of the Company in the aggregate amount of less than three hundred thousand (300,000) shares of Common Stock. 7. Subordination. (a) Upon the written agreement of Holder, this Note may be subordinated to any or all debt owed by the Company to banks and other financial institutions, other than to the extent debt to any such bank or financial institution involves the issuance of shares of the Company's stock or notes, warrants, options or any other security convertible into such stock. (b) The payment of the indebtedness evidenced by this instrument is subordinated to the payment of the "Senior Debt" defined and described in the Subordination Agreement, dated as of September 24, 1998, between United Breweries of America Inc. and the CIT Group/Credit Finance, Inc., and reference is made to such Agreement for a full statement of the terms and conditions of such subordination. (c) The payment of the indebtedness evidenced by this instrument is subordinated to the payment of the "Senior Debt" defined and described in the Subordination Agreement, dated on or about November 15, 1998, between United Breweries of America Inc. and the Savings Bank of Mendocino, Inc., and reference is made to such Agreement for a full statement of the terms and conditions of such subordination. 8. Enforcement. The Company agrees to reimburse Holder for all costs of collection or enforcement of this Note, whether or not suit is filed (including, but not limited to, reasonable attorney fees), incurred by Holder. 9. Governing Law. This Note shall be governed by and construed in accordance with the laws, without regard to the laws as to choice or conflict of laws, of the State of California. 10. Default. If Company fails to pay any installment of principal or interest when due, then, or at any time during such default, the entire amount of the unpaid principal and interest shall, at the election of Holder, become immediately due and payable. 11. Waiver. No previous waiver and no failure or delay by Holder in acting with respect to the terms of this Note shall constitute a waiver of any subsequent breach, default or failure of condition under this Note. A waiver of any term of this Note must be in writing and shall be limited to the express written terms of such waiver. No delay or omission on the part of Holder in exercising any right under this Note shall operate as a waiver of such right or of any other right. 12. Reservation of Stock. The Company covenants that it will at all times reserve and keep available, solely for issuance on conversion of this Note, all shares of Common Stock from time to time issuable upon exercise of this Note. 13. Replacement. Upon receipt of evidence reasonably satisfactory to the Company, of the loss, theft, destruction, or modification of this Note and, in the event of such occurrence, on delivery of an indemnity agreement or Note reasonably satisfactory in form and amount to the Company or in the case of mutilation, on surrender and cancellation of this Note, the Company at its expense will execute and deliver, in lieu of this Note, a new Note of like tender. 14. Transfer. NO SALE OR TRANSFER OF THIS NOTE SHALL BE EFFECTIVE UNLESS AND UNTIL ALL OF THE FOLLOWING STEPS ARE COMPLIED WITH: (a) The transferor and the transferee shall execute the form of Transfer Statement attached to this Note (or a similar statement which shall then be attached to this Note); (b) This Note and the executed Transfer Statement, together with a United States Internal Revenue Service Form W-8 "Certificate of Foreign Status" or a Form W-9 "Request for Taxpayer Identification Number and Certification" completed and executed by the transferee, shall be delivered to the Company at the Company's address as provided above; and (c) If the Company is satisfied that the information contained in the Transfer Statement is consistent with the information contained in the completed and executed Form W-8 or W-9, as applicable, the Company shall enter the transfer on a Note Holder Ledger maintained by the Company for this purpose. Any purported transfer with respect to which all of the above steps have note been complied with shall be null and void and of no force or effect. IN WITNESS WHEREOF, the Company has caused this Convertible Note to be executed in its corporate name by the signature of its president and secretary. MENDOCINO BREWING COMPANY, INC., a California corporation By: /s/ Michael Laybourn ------------------------------------- Michael Laybourn Its: President By: /s/ P.A. Murali ------------------------------------- P.A. Murali Its: Secretary CONVERSION NOTICE Conversion Notice To: MENDOCINO BREWING COMPANY, INC. The undersigned holder of this Note, hereby irrevocably exercises the option to convert this Note or the portion of it designated below into shares of Common Stock of the Company, in accordance with the terms of the Note, and directs that the shares issuable and deliverable on the conversion, together with any check in payment of fractional shares, be issued and delivered to the undersigned unless a different name is specified below. If shares of Common Stock are to be issued in the name of anyone other than the undersigned, the undersigned will pay all transfer taxes payable on this conversion and issuance. Dated: ---------------------------- ------------------------------------- Signature If the shares are to be Portion to be converted (in issued other than to a multiples) of $1,000 if less registered holder, print than all: name, address, city, state and zip code of issuee: $ ------------------------------------ Social Security Number of other identifying number of issuers: ------------------------------------- ------------------------------------- ------------------------------------- ------------------------------------- Notice: The signature of these instructions to convert must correspond with the name as written on the face of this Note in every particular, without alteration, enlargement, or any change whatsoever TRANSFER STATEMENT ------------------ NOTICE TO: MENDOCINO BREWING COMPANY, INC. FOR VALUE RECEIVED, the undersigned, the holder of that certain Convertible Note initially executed on the Effective Date (as defined below) by Mendocino Brewing Company, Inc. (the "Company") to the Initial Holder (as defined below) in the Face Value set forth below (the "Note"), hereby sells, assigns, transfers and conveys all of the rights of the undersigned under the Note, subject to the terms of the Note, unto the Transferee (as described below): NAME OF TRANSFEREE ADDRESS FACE VALUE OF NOTE The following terms have the following meanings: Effective Date: , 1998 -------------------- Initial Holder: ---------------------------- Dated: TRANSFEROR: -------------------------- [Name of Transferor] By: ------------------------------------- Name: ----------------------------------- Its: ------------------------------------ ACKNOWLEDGMENT OF THE COMPANY: MENDOCINO BREWING COMPANY, INC. By: --------------------------------- Name: ------------------------------- Its: -------------------------------- EX-3 4 CONVERTIBLE NOTE, 3/16/98, $130,000.00 Exhibit 3 CONVERTIBLE NOTE MENDOCINO BREWING COMPANY, INC. - -------------------------------------------------------------------------------- Name of Issuer: Mendocino Brewing Company, Inc. Dated: March 16, 1998 Maturity Date: September 15, 1999 - -------------------------------------------------------------------------------- 1. Promise. Mendocino Brewing Company, Inc., a California corporation having its principal office at 1601 Airport Road, Ukiah, California 95482 and any successor (the "Company"), for value received, promises to pay to United Breweries of America Inc., a Delaware corporation or to its registered successors or assigns (the "Holder") the principal sum of One Hundred Thirty Thousand and no/100 Dollars ($130,000.00) on presentation and surrender of this Convertible Note ("Note") on September 15, 1999 (the "Maturity Date"), and to pay interest on that principal sum at a rate equal to one and one-half percent (1.50%) per annum above the prime rate offered from time to time by the Bank of America in San Francisco, California. Interest payments shall be paid quarterly on the first day of the months of April, July, October, and January of each year. 2. Form of Payment. All payments under this Note shall be made in lawful money of the United States of America. The Company waives diligence, presentment, protest, demand and notice of protest, dishonor, and nonpayment of this Note. 3. Conversion/Redemption/Renewal. (a) The Holder has the right, at the holder's option, at any time on or after the Maturity Date, to convert all or any portion of this Note into fully paid and nonassessable shares of common stock ("Common Stock") of the Company at the rate of one share of such Common Stock for each One Dollar and 50/100 ($1.50) (the "Conversion Rate") principal amount of this Note and any accrued but unpaid interest. The Holder agrees that all shares of Common Stock of the Company, issued by the Company upon the conversion of all or any part of this Note shall be restricted securities within the meaning of Rule 144(a) of the Securities Act of 1933. The Holder further agrees that any shares of Common Stock acquired by means of any conversion as set forth herein shall be further restricted by the terms and conditions set forth in that certain Shareholders' Agreement, dated October 24, 1997, by and among the Company, Holder, and the Original Partners (as such term is defined in the Shareholders' Agreement). (b) The conversion right set forth in this Section 3 is subject to any adjustment of the Conversion Rate set forth in Section 5 and Section 6, and is only exercisable upon the surrender of this Note for conversion at the office or agency to be maintained by the Company accompanied by instruments of transfer, in form satisfactory to the Company, duly executed by the registered holder. No fractional shares are issuable on any conversion, but in lieu of issuing fractional shares the Company shall pay for such fractional shares in cash. (c) At any time prior to seventeen (17) months from the date of this Note, the Holder may provide written notice to the Company requiring the Company to repay all or any part of the outstanding principal balance of this Note, together with any accrued but unpaid interest thereon, to Holder on the Maturity Date. (d) If Holder does not convert or redeem any or all of the principal amount of the Note into Common Stock on the Maturity Date, Holder has the right to extend the term of this Note for a period of time mutually agreed upon between Holder and the Company. At any time during such extension period, Holder shall have the right to convert all or any part of the outstanding principal amount of the Note plus accrued and unpaid interest into Common Stock as set forth in this Section 3. Moreover, at any time during such extension period, Holder shall have the right to require the Company to repay all or any part of the outstanding principal balance of this Note, together with any accrued but unpaid interest thereon, to Holder within sixty (60) days. 4. Company Redemption. Prior to the Maturity Date, this Note may be redeemed by the Company, in whole or in part, at any time after sixty (60) days written notice ("Redemption Notice") to Holder. During such sixty (60) day period, Holder shall have the right to convert all or any part of the outstanding principal amount of the Note plus accrued and unpaid interest into Common Stock, as set forth in Section 3. If Holder does not convert all outstanding amounts into Common Stock, the Company may redeem any remaining amounts at any time during a thirty (30) day period commencing with the date of expiration of the sixty (60) day period provided for in the Redemption Notice. Thereafter, Company shall be required to provide Holder with a new Redemption Notice, and Holder shall have a new sixty (60) day period within which to convert all or any part of the outstanding principal amounts plus accrued and unpaid interest into Common Stock, as set forth in Section 3. 5. Anti-Dilution. (a) If at any time there is a capital reorganization of the Company's Common Stock, including any combination, reclassification, exchange, or subdivision of shares, a merger or consolidation of the Company with or into another corporation, or the sale of all or substantially all the Company's properties and assets as, or substantially as, an entirety to another person, then, as a part of such reorganization, merger, consolidation, or sale, lawful provision shall be made so that Holder shall thereafter be entitled to receive on conversion of this Note, during the period specified in this Note, the number of shares of Common Stock of the Company, or of the successor corporation resulting from such merger or consolidation, to which a holder of the Common Stock deliverable on conversion of this Note would have been entitled on that event if this Note had been converted immediately before that event. In any such case, appropriate adjustment (as determined by the Company's board of directors) shall be made in applying this Note to the rights and the percentage interests of Holder after the reorganization, merger, consolidation, or sale to the end that this Note (including adjustment of the Conversion Rate) shall be applicable after that event, as near as reasonably may be, in relation to the shares of Common Stock deliverable after that event on conversion of this Note. The Company shall, not later than thirty (30) days prior to making such adjustment, give written notice ("Notice") by courier to Holder at the address of Holder shown on the Company's books. (b) Any Notice that is sent pursuant to Section 5(a) shall set forth, in reasonable detail, the event requiring the adjustment and the method by which the adjustment was calculated and shall specify the Conversion Rate then in effect after the adjustment and the increased or decreased number of shares of Common Stock to be received upon conversion of this Note. When appropriate, advance notice may be given and included as part of the notice required under other provisions of this Note. 6. Conversion Rate Protection. (a) If at any time, or from time to time, the Company issues or sells shares of Common Stock without consideration or for a consideration per share less than the Conversion Rate in effect immediately before that issue or sale, then and in each such case: (i) the Conversion Rate then in effect and the Conversion Rate applicable for any subsequent period shall be adjusted to a price (calculated to the nearest cent) determined by dividing: (y) the sum of (aa) the number of shares of Common Stock outstanding immediately before that issue or sale multiplied by the Conversion Rate in effect immediately before that issue or sale, plus (bb) the consideration, if any, received by the Company on that issue or sale, by (z) the number of shares of the Company's Common Stock outstanding immediately after that issue or sale; and (ii) Holder shall after that issue or sale, on conversion of this Note, be entitled to receive the number of shares of Common Stock equal to the number of shares that would otherwise, but for the adjustment provided for in Section 6(a)(i), be issuable on such conversion multiplied by a fraction, the numerator of which is the Conversion Rate then in effect and the denominator of which is the Conversion Rate in effect immediately after the adjustment provided for in Section 6(a)(i) on the date of conversion. No such adjustment shall be made in an amount less than Five Cents ($0.05), but any such amount shall be carried forward and given effect in the next adjustment, if any. (b) If the Company (i) grants any rights or options to subscribe for, purchase, or otherwise acquire shares of Common Stock, or (ii) issues or sells any security, other than this Note, which is convertible into shares of Common Stock, then the price per share of Common Stock issuable on the exercise of the rights or options or the conversion of the securities shall be calculated by dividing: (y) the total amount, if any, received or receivable by the Company as consideration for the granting of the rights or options or the issue or sale of the convertible securities, plus the minimum aggregate amount of additional consideration payable to the Company on exercise of the convertible securities, by (z) the maximum number of shares of Common Stock issuable on the exercise or conversion. (i) If the price per share so calculated is less than the Conversion Rate of this Note in effect immediately before the rights or options are granted or the convertible securities are issued or sold, the granting or issue or sale shall be considered to be an issue or sale for cash of the maximum number of shares of Common Stock so issuable on exercise or conversion at the price per share determined under this provision, and the Conversion Rate of this Note shall be adjusted as provided above to reflect (on the basis of that determination) the issue or sale. No further adjustment of the Conversion Rate shall be made as a result of the actual issuance of shares of Common Stock on the exercise of any such rights or options or the conversion of any such convertible securities. (ii) If such rights or options or convertible securities by their terms provide, with the passage of time or otherwise, for any increase in the amount of additional consideration payable to the Company or any decrease in the number of shares of Common Stock issuable on such exercise or exchange (by change of rate or otherwise), the Conversion Rate shall, when each such increase or decrease becomes effective, be readjusted to reflect the increase or decrease as far as it affects rights of exercise or conversion that have not expired before that time. (iii) If, on the expiration of such rights or options or the rights of conversion of such convertible securities, any of them shall not have been exercised, the Conversion Rate shall be readjusted and will then be the same as it would have been had it originally been adjusted (or had the original adjustment not been required, as the case may be), on the basis that (y) the only shares of Common Stock so issued were the shares of Common Stock, if any, actually issued or sold on the exercise of such rights or options or rights of conversion of such convertible securities, and (z) such shares of Common Stock, if any, were issued or sold for the consideration actually received by the Company on such exercise plus the consideration, if any, actually received by the Company for granting all such rights or options or for issuing or selling all such convertible securities. (iv) No adjustment of the Conversion Rate as provided in this Section 6(b) shall occur upon the granting of stock options or warrants to employees of the Company in the aggregate amount of less than three hundred thousand (300,000) shares of Common Stock. 7. Subordination. (a) Upon the written agreement of Holder, this Note may be subordinated to any or all debt owed by the Company to banks and other financial institutions, other than to the extent debt to any such bank or financial institution involves the issuance of shares of the Company's stock or notes, warrants, options or any other security convertible into such stock. (b) The payment of the indebtedness evidenced by this instrument is subordinated to the payment of the "Senior Debt" defined and described in the Subordination Agreement, dated as of September 24, 1998, between United Breweries of America Inc. and the CIT Group/Credit Finance, Inc., and reference is made to such Agreement for a full statement of the terms and conditions of such subordination. (c) The payment of the indebtedness evidenced by this instrument is subordinated to the payment of the "Senior Debt" defined and described in the Subordination Agreement, dated on or about November 15, 1998, between United Breweries of America Inc. and the Savings Bank of Mendocino, Inc., and reference is made to such Agreement for a full statement of the terms and conditions of such subordination. 8. Enforcement. The Company agrees to reimburse Holder for all costs of collection or enforcement of this Note, whether or not suit is filed (including, but not limited to, reasonable attorney fees), incurred by Holder. 9. Governing Law. This Note shall be governed by and construed in accordance with the laws, without regard to the laws as to choice or conflict of laws, of the State of California. 10. Default. If Company fails to pay any installment of principal or interest when due, then, or at any time during such default, the entire amount of the unpaid principal and interest shall, at the election of Holder, become immediately due and payable. 11. Waiver. No previous waiver and no failure or delay by Holder in acting with respect to the terms of this Note shall constitute a waiver of any subsequent breach, default or failure of condition under this Note. A waiver of any term of this Note must be in writing and shall be limited to the express written terms of such waiver. No delay or omission on the part of Holder in exercising any right under this Note shall operate as a waiver of such right or of any other right. 12. Reservation of Stock. The Company covenants that it will at all times reserve and keep available, solely for issuance on conversion of this Note, all shares of Common Stock from time to time issuable upon exercise of this Note. 13. Replacement. Upon receipt of evidence reasonably satisfactory to the Company, of the loss, theft, destruction, or modification of this Note and, in the event of such occurrence, on delivery of an indemnity agreement or Note reasonably satisfactory in form and amount to the Company or in the case of mutilation, on surrender and cancellation of this Note, the Company at its expense will execute and deliver, in lieu of this Note, a new Note of like tender. 14. Transfer. NO SALE OR TRANSFER OF THIS NOTE SHALL BE EFFECTIVE UNLESS AND UNTIL ALL OF THE FOLLOWING STEPS ARE COMPLIED WITH: (a) The transferor and the transferee shall execute the form of Transfer Statement attached to this Note (or a similar statement which shall then be attached to this Note); (b) This Note and the executed Transfer Statement, together with a United States Internal Revenue Service Form W-8 "Certificate of Foreign Status" or a Form W-9 "Request for Taxpayer Identification Number and Certification" completed and executed by the transferee, shall be delivered to the Company at the Company's address as provided above; and (c) If the Company is satisfied that the information contained in the Transfer Statement is consistent with the information contained in the completed and executed Form W-8 or W-9, as applicable, the Company shall enter the transfer on a Note Holder Ledger maintained by the Company for this purpose. Any purported transfer with respect to which all of the above steps have note been complied with shall be null and void and of no force or effect. IN WITNESS WHEREOF, the Company has caused this Convertible Note to be executed in its corporate name by the signature of its president and secretary. MENDOCINO BREWING COMPANY, INC., a California corporation By: /s/ Michael Laybourn ------------------------------------- Michael Laybourn Its: President By: /s/ P.A. Murali ------------------------------------- P.A. Murali Its: Secretary CONVERSION NOTICE Conversion Notice To: MENDOCINO BREWING COMPANY, INC. The undersigned holder of this Note, hereby irrevocably exercises the option to convert this Note or the portion of it designated below into shares of Common Stock of the Company, in accordance with the terms of the Note, and directs that the shares issuable and deliverable on the conversion, together with any check in payment of fractional shares, be issued and delivered to the undersigned unless a different name is specified below. If shares of Common Stock are to be issued in the name of anyone other than the undersigned, the undersigned will pay all transfer taxes payable on this conversion and issuance. Dated: ---------------------------- ------------------------------------- Signature If the shares are to be Portion to be converted (in issued other than to a multiples) of $1,000 if less registered holder, print than all: name, address, city, state and zip code of issuee: $ ------------------------------------ Social Security Number of other identifying number of issuers: ------------------------------------- ------------------------------------- ------------------------------------- ------------------------------------- Notice: The signature of these instructions to convert must correspond with the name as written on the face of this Note in every particular, without alteration, enlargement, or any change whatsoever TRANSFER STATEMENT ------------------ NOTICE TO: MENDOCINO BREWING COMPANY, INC. FOR VALUE RECEIVED, the undersigned, the holder of that certain Convertible Note initially executed on the Effective Date (as defined below) by Mendocino Brewing Company, Inc. (the "Company") to the Initial Holder (as defined below) in the Face Value set forth below (the "Note"), hereby sells, assigns, transfers and conveys all of the rights of the undersigned under the Note, subject to the terms of the Note, unto the Transferee (as described below): NAME OF TRANSFEREE ADDRESS FACE VALUE OF NOTE The following terms have the following meanings: Effective Date: , 1998 -------------------- Initial Holder: ---------------------------- Dated: TRANSFEROR: -------------------------- [Name of Transferor] By: ------------------------------------- Name: ----------------------------------- Its: ------------------------------------ ACKNOWLEDGMENT OF THE COMPANY: MENDOCINO BREWING COMPANY, INC. By: --------------------------------- Name: ------------------------------- Its: -------------------------------- EX-4 5 CONVERTIBLE NOTE, 3/31/98, $51,787.73 Exhibit 4 CONVERTIBLE NOTE MENDOCINO BREWING COMPANY, INC. - -------------------------------------------------------------------------------- Name of Issuer: Mendocino Brewing Company, Inc. Dated: March 31, 1998 Maturity Date: September 30, 1999 - -------------------------------------------------------------------------------- 1. Promise. Mendocino Brewing Company, Inc., a California corporation having its principal office at 1601 Airport Road, Ukiah, California 95482 and any successor (the "Company"), for value received, promises to pay to United Breweries of America Inc., a Delaware corporation or to its registered successors or assigns (the "Holder") the principal sum of Fifty One Thousand Seven Hundred Eighty Seven and 73/100 Dollars ($51,787.73) on presentation and surrender of this Convertible Note ("Note") on September 30, 1999 (the "Maturity Date"), and to pay interest on that principal sum at a rate equal to one and one-half percent (1.50%) per annum above the prime rate offered from time to time by the Bank of America in San Francisco, California. Interest payments shall be paid quarterly on the first day of the months of April, July, October, and January of each year. 2. Form of Payment. All payments under this Note shall be made in lawful money of the United States of America. The Company waives diligence, presentment, protest, demand and notice of protest, dishonor, and nonpayment of this Note. 3. Conversion/Redemption/Renewal. (a) The Holder has the right, at the holder's option, at any time on or after the Maturity Date, to convert all or any portion of this Note into fully paid and nonassessable shares of common stock ("Common Stock") of the Company at the rate of one share of such Common Stock for each One Dollar and 50/100 ($1.50) (the "Conversion Rate") principal amount of this Note and any accrued but unpaid interest. The Holder agrees that all shares of Common Stock of the Company, issued by the Company upon the conversion of all or any part of this Note shall be restricted securities within the meaning of Rule 144(a) of the Securities Act of 1933. The Holder further agrees that any shares of Common Stock acquired by means of any conversion as set forth herein shall be further restricted by the terms and conditions set forth in that certain Shareholders' Agreement, dated October 24, 1997, by and among the Company, Holder, and the Original Partners (as such term is defined in the Shareholders' Agreement). (b) The conversion right set forth in this Section 3 is subject to any adjustment of the Conversion Rate set forth in Section 5 and Section 6, and is only exercisable upon the surrender of this Note for conversion at the office or agency to be maintained by the Company accompanied by instruments of transfer, in form satisfactory to the Company, duly executed by the registered holder. No fractional shares are issuable on any conversion, but in lieu of issuing fractional shares the Company shall pay for such fractional shares in cash. (c) At any time prior to seventeen (17) months from the date of this Note, the Holder may provide written notice to the Company requiring the Company to repay all or any part of the outstanding principal balance of this Note, together with any accrued but unpaid interest thereon, to Holder on the Maturity Date. (d) If Holder does not convert or redeem any or all of the principal amount of the Note into Common Stock on the Maturity Date, Holder has the right to extend the term of this Note for a period of time mutually agreed upon between Holder and the Company. At any time during such extension period, Holder shall have the right to convert all or any part of the outstanding principal amount of the Note plus accrued and unpaid interest into Common Stock as set forth in this Section 3. Moreover, at any time during such extension period, Holder shall have the right to require the Company to repay all or any part of the outstanding principal balance of this Note, together with any accrued but unpaid interest thereon, to Holder within sixty (60) days. 4. Company Redemption. Prior to the Maturity Date, this Note may be redeemed by the Company, in whole or in part, at any time after sixty (60) days written notice ("Redemption Notice") to Holder. During such sixty (60) day period, Holder shall have the right to convert all or any part of the outstanding principal amount of the Note plus accrued and unpaid interest into Common Stock, as set forth in Section 3. If Holder does not convert all outstanding amounts into Common Stock, the Company may redeem any remaining amounts at any time during a thirty (30) day period commencing with the date of expiration of the sixty (60) day period provided for in the Redemption Notice. Thereafter, Company shall be required to provide Holder with a new Redemption Notice, and Holder shall have a new sixty (60) day period within which to convert all or any part of the outstanding principal amounts plus accrued and unpaid interest into Common Stock, as set forth in Section 3. 5. Anti-Dilution. (a) If at any time there is a capital reorganization of the Company's Common Stock, including any combination, reclassification, exchange, or subdivision of shares, a merger or consolidation of the Company with or into another corporation, or the sale of all or substantially all the Company's properties and assets as, or substantially as, an entirety to another person, then, as a part of such reorganization, merger, consolidation, or sale, lawful provision shall be made so that Holder shall thereafter be entitled to receive on conversion of this Note, during the period specified in this Note, the number of shares of Common Stock of the Company, or of the successor corporation resulting from such merger or consolidation, to which a holder of the Common Stock deliverable on conversion of this Note would have been entitled on that event if this Note had been converted immediately before that event. In any such case, appropriate adjustment (as determined by the Company's board of directors) shall be made in applying this Note to the rights and the percentage interests of Holder after the reorganization, merger, consolidation, or sale to the end that this Note (including adjustment of the Conversion Rate) shall be applicable after that event, as near as reasonably may be, in relation to the shares of Common Stock deliverable after that event on conversion of this Note. The Company shall, not later than thirty (30) days prior to making such adjustment, give written notice ("Notice") by courier to Holder at the address of Holder shown on the Company's books. (b) Any Notice that is sent pursuant to Section 5(a) shall set forth, in reasonable detail, the event requiring the adjustment and the method by which the adjustment was calculated and shall specify the Conversion Rate then in effect after the adjustment and the increased or decreased number of shares of Common Stock to be received upon conversion of this Note. When appropriate, advance notice may be given and included as part of the notice required under other provisions of this Note. 6. Conversion Rate Protection. (a) If at any time, or from time to time, the Company issues or sells shares of Common Stock without consideration or for a consideration per share less than the Conversion Rate in effect immediately before that issue or sale, then and in each such case: (i) the Conversion Rate then in effect and the Conversion Rate applicable for any subsequent period shall be adjusted to a price (calculated to the nearest cent) determined by dividing: (y) the sum of (aa) the number of shares of Common Stock outstanding immediately before that issue or sale multiplied by the Conversion Rate in effect immediately before that issue or sale, plus (bb) the consideration, if any, received by the Company on that issue or sale, by (z) the number of shares of the Company's Common Stock outstanding immediately after that issue or sale; and (ii) Holder shall after that issue or sale, on conversion of this Note, be entitled to receive the number of shares of Common Stock equal to the number of shares that would otherwise, but for the adjustment provided for in Section 6(a)(i), be issuable on such conversion multiplied by a fraction, the numerator of which is the Conversion Rate then in effect and the denominator of which is the Conversion Rate in effect immediately after the adjustment provided for in Section 6(a)(i) on the date of conversion. No such adjustment shall be made in an amount less than Five Cents ($0.05), but any such amount shall be carried forward and given effect in the next adjustment, if any. (b) If the Company (i) grants any rights or options to subscribe for, purchase, or otherwise acquire shares of Common Stock, or (ii) issues or sells any security, other than this Note, which is convertible into shares of Common Stock, then the price per share of Common Stock issuable on the exercise of the rights or options or the conversion of the securities shall be calculated by dividing: (y) the total amount, if any, received or receivable by the Company as consideration for the granting of the rights or options or the issue or sale of the convertible securities, plus the minimum aggregate amount of additional consideration payable to the Company on exercise of the convertible securities, by (z) the maximum number of shares of Common Stock issuable on the exercise or conversion. (i) If the price per share so calculated is less than the Conversion Rate of this Note in effect immediately before the rights or options are granted or the convertible securities are issued or sold, the granting or issue or sale shall be considered to be an issue or sale for cash of the maximum number of shares of Common Stock so issuable on exercise or conversion at the price per share determined under this provision, and the Conversion Rate of this Note shall be adjusted as provided above to reflect (on the basis of that determination) the issue or sale. No further adjustment of the Conversion Rate shall be made as a result of the actual issuance of shares of Common Stock on the exercise of any such rights or options or the conversion of any such convertible securities. (ii) If such rights or options or convertible securities by their terms provide, with the passage of time or otherwise, for any increase in the amount of additional consideration payable to the Company or any decrease in the number of shares of Common Stock issuable on such exercise or exchange (by change of rate or otherwise), the Conversion Rate shall, when each such increase or decrease becomes effective, be readjusted to reflect the increase or decrease as far as it affects rights of exercise or conversion that have not expired before that time. (iii) If, on the expiration of such rights or options or the rights of conversion of such convertible securities, any of them shall not have been exercised, the Conversion Rate shall be readjusted and will then be the same as it would have been had it originally been adjusted (or had the original adjustment not been required, as the case may be), on the basis that (y) the only shares of Common Stock so issued were the shares of Common Stock, if any, actually issued or sold on the exercise of such rights or options or rights of conversion of such convertible securities, and (z) such shares of Common Stock, if any, were issued or sold for the consideration actually received by the Company on such exercise plus the consideration, if any, actually received by the Company for granting all such rights or options or for issuing or selling all such convertible securities. (iv) No adjustment of the Conversion Rate as provided in this Section 6(b) shall occur upon the granting of stock options or warrants to employees of the Company in the aggregate amount of less than three hundred thousand (300,000) shares of Common Stock. 7. Subordination. (a) Upon the written agreement of Holder, this Note may be subordinated to any or all debt owed by the Company to banks and other financial institutions, other than to the extent debt to any such bank or financial institution involves the issuance of shares of the Company's stock or notes, warrants, options or any other security convertible into such stock. (b) The payment of the indebtedness evidenced by this instrument is subordinated to the payment of the "Senior Debt" defined and described in the Subordination Agreement, dated as of September 24, 1998, between United Breweries of America Inc. and the CIT Group/Credit Finance, Inc., and reference is made to such Agreement for a full statement of the terms and conditions of such subordination. (c) The payment of the indebtedness evidenced by this instrument is subordinated to the payment of the "Senior Debt" defined and described in the Subordination Agreement, dated on or about November 15, 1998, between United Breweries of America Inc. and the Savings Bank of Mendocino, Inc., and reference is made to such Agreement for a full statement of the terms and conditions of such subordination. 8. Enforcement. The Company agrees to reimburse Holder for all costs of collection or enforcement of this Note, whether or not suit is filed (including, but not limited to, reasonable attorney fees), incurred by Holder. 9. Governing Law. This Note shall be governed by and construed in accordance with the laws, without regard to the laws as to choice or conflict of laws, of the State of California. 10. Default. If Company fails to pay any installment of principal or interest when due, then, or at any time during such default, the entire amount of the unpaid principal and interest shall, at the election of Holder, become immediately due and payable. 11. Waiver. No previous waiver and no failure or delay by Holder in acting with respect to the terms of this Note shall constitute a waiver of any subsequent breach, default or failure of condition under this Note. A waiver of any term of this Note must be in writing and shall be limited to the express written terms of such waiver. No delay or omission on the part of Holder in exercising any right under this Note shall operate as a waiver of such right or of any other right. 12. Reservation of Stock. The Company covenants that it will at all times reserve and keep available, solely for issuance on conversion of this Note, all shares of Common Stock from time to time issuable upon exercise of this Note. 13. Replacement. Upon receipt of evidence reasonably satisfactory to the Company, of the loss, theft, destruction, or modification of this Note and, in the event of such occurrence, on delivery of an indemnity agreement or Note reasonably satisfactory in form and amount to the Company or in the case of mutilation, on surrender and cancellation of this Note, the Company at its expense will execute and deliver, in lieu of this Note, a new Note of like tender. 14. Transfer. NO SALE OR TRANSFER OF THIS NOTE SHALL BE EFFECTIVE UNLESS AND UNTIL ALL OF THE FOLLOWING STEPS ARE COMPLIED WITH: (a) The transferor and the transferee shall execute the form of Transfer Statement attached to this Note (or a similar statement which shall then be attached to this Note); (b) This Note and the executed Transfer Statement, together with a United States Internal Revenue Service Form W-8 "Certificate of Foreign Status" or a Form W-9 "Request for Taxpayer Identification Number and Certification" completed and executed by the transferee, shall be delivered to the Company at the Company's address as provided above; and (c) If the Company is satisfied that the information contained in the Transfer Statement is consistent with the information contained in the completed and executed Form W-8 or W-9, as applicable, the Company shall enter the transfer on a Note Holder Ledger maintained by the Company for this purpose. Any purported transfer with respect to which all of the above steps have note been complied with shall be null and void and of no force or effect. IN WITNESS WHEREOF, the Company has caused this Convertible Note to be executed in its corporate name by the signature of its president and secretary. MENDOCINO BREWING COMPANY, INC., a California corporation By: /s/ Michael Laybourn ------------------------------------- Michael Laybourn Its: President By: /s/ P.A. Murali ------------------------------------- P.A. Murali Its: Secretary CONVERSION NOTICE Conversion Notice To: MENDOCINO BREWING COMPANY, INC. The undersigned holder of this Note, hereby irrevocably exercises the option to convert this Note or the portion of it designated below into shares of Common Stock of the Company, in accordance with the terms of the Note, and directs that the shares issuable and deliverable on the conversion, together with any check in payment of fractional shares, be issued and delivered to the undersigned unless a different name is specified below. If shares of Common Stock are to be issued in the name of anyone other than the undersigned, the undersigned will pay all transfer taxes payable on this conversion and issuance. Dated: ---------------------------- ------------------------------------- Signature If the shares are to be Portion to be converted (in issued other than to a multiples) of $1,000 if less registered holder, print than all: name, address, city, state and zip code of issuee: $ ------------------------------------ Social Security Number of other identifying number of issuers: ------------------------------------- ------------------------------------- ------------------------------------- ------------------------------------- Notice: The signature of these instructions to convert must correspond with the name as written on the face of this Note in every particular, without alteration, enlargement, or any change whatsoever TRANSFER STATEMENT ------------------ NOTICE TO: MENDOCINO BREWING COMPANY, INC. FOR VALUE RECEIVED, the undersigned, the holder of that certain Convertible Note initially executed on the Effective Date (as defined below) by Mendocino Brewing Company, Inc. (the "Company") to the Initial Holder (as defined below) in the Face Value set forth below (the "Note"), hereby sells, assigns, transfers and conveys all of the rights of the undersigned under the Note, subject to the terms of the Note, unto the Transferee (as described below): NAME OF TRANSFEREE ADDRESS FACE VALUE OF NOTE The following terms have the following meanings: Effective Date: , 1998 -------------------- Initial Holder: ---------------------------- Dated: TRANSFEROR: -------------------------- [Name of Transferor] By: ------------------------------------- Name: ----------------------------------- Its: ------------------------------------ ACKNOWLEDGMENT OF THE COMPANY: MENDOCINO BREWING COMPANY, INC. By: --------------------------------- Name: ------------------------------- Its: -------------------------------- EX-5 6 CONVERTIBLE NOTE, 4/21/98, $65,000.00 Exhibit 5 CONVERTIBLE NOTE MENDOCINO BREWING COMPANY, INC. - -------------------------------------------------------------------------------- Name of Issuer: Mendocino Brewing Company, Inc. Dated: April 21, 1998 Maturity Date: October 20, 1999 - -------------------------------------------------------------------------------- 1. Promise. Mendocino Brewing Company, Inc., a California corporation having its principal office at 1601 Airport Road, Ukiah, California 95482 and any successor (the "Company"), for value received, promises to pay to United Breweries of America Inc., a Delaware corporation or to its registered successors or assigns (the "Holder") the principal sum of Sixty Five Thousand and no/100 Dollars ($65,000.00) on presentation and surrender of this Convertible Note ("Note") on October 20, 1999 (the "Maturity Date"), and to pay interest on that principal sum at a rate equal to one and one-half percent (1.50%) per annum above the prime rate offered from time to time by the Bank of America in San Francisco, California. Interest payments shall be paid quarterly on the first day of the months of April, July, October, and January of each year. 2. Form of Payment. All payments under this Note shall be made in lawful money of the United States of America. The Company waives diligence, presentment, protest, demand and notice of protest, dishonor, and nonpayment of this Note. 3. Conversion/Redemption/Renewal. (a) The Holder has the right, at the holder's option, at any time on or after the Maturity Date, to convert all or any portion of this Note into fully paid and nonassessable shares of common stock ("Common Stock") of the Company at the rate of one share of such Common Stock for each One Dollar and 50/100 ($1.50) (the "Conversion Rate") principal amount of this Note and any accrued but unpaid interest. The Holder agrees that all shares of Common Stock of the Company, issued by the Company upon the conversion of all or any part of this Note shall be restricted securities within the meaning of Rule 144(a) of the Securities Act of 1933. The Holder further agrees that any shares of Common Stock acquired by means of any conversion as set forth herein shall be further restricted by the terms and conditions set forth in that certain Shareholders' Agreement, dated October 24, 1997, by and among the Company, Holder, and the Original Partners (as such term is defined in the Shareholders' Agreement). (b) The conversion right set forth in this Section 3 is subject to any adjustment of the Conversion Rate set forth in Section 5 and Section 6, and is only exercisable upon the surrender of this Note for conversion at the office or agency to be maintained by the Company accompanied by instruments of transfer, in form satisfactory to the Company, duly executed by the registered holder. No fractional shares are issuable on any conversion, but in lieu of issuing fractional shares the Company shall pay for such fractional shares in cash. (c) At any time prior to seventeen (17) months from the date of this Note, the Holder may provide written notice to the Company requiring the Company to repay all or any part of the outstanding principal balance of this Note, together with any accrued but unpaid interest thereon, to Holder on the Maturity Date. (d) If Holder does not convert or redeem any or all of the principal amount of the Note into Common Stock on the Maturity Date, Holder has the right to extend the term of this Note for a period of time mutually agreed upon between Holder and the Company. At any time during such extension period, Holder shall have the right to convert all or any part of the outstanding principal amount of the Note plus accrued and unpaid interest into Common Stock as set forth in this Section 3. Moreover, at any time during such extension period, Holder shall have the right to require the Company to repay all or any part of the outstanding principal balance of this Note, together with any accrued but unpaid interest thereon, to Holder within sixty (60) days. 4. Company Redemption. Prior to the Maturity Date, this Note may be redeemed by the Company, in whole or in part, at any time after sixty (60) days written notice ("Redemption Notice") to Holder. During such sixty (60) day period, Holder shall have the right to convert all or any part of the outstanding principal amount of the Note plus accrued and unpaid interest into Common Stock, as set forth in Section 3. If Holder does not convert all outstanding amounts into Common Stock, the Company may redeem any remaining amounts at any time during a thirty (30) day period commencing with the date of expiration of the sixty (60) day period provided for in the Redemption Notice. Thereafter, Company shall be required to provide Holder with a new Redemption Notice, and Holder shall have a new sixty (60) day period within which to convert all or any part of the outstanding principal amounts plus accrued and unpaid interest into Common Stock, as set forth in Section 3. 5. Anti-Dilution. (a) If at any time there is a capital reorganization of the Company's Common Stock, including any combination, reclassification, exchange, or subdivision of shares, a merger or consolidation of the Company with or into another corporation, or the sale of all or substantially all the Company's properties and assets as, or substantially as, an entirety to another person, then, as a part of such reorganization, merger, consolidation, or sale, lawful provision shall be made so that Holder shall thereafter be entitled to receive on conversion of this Note, during the period specified in this Note, the number of shares of Common Stock of the Company, or of the successor corporation resulting from such merger or consolidation, to which a holder of the Common Stock deliverable on conversion of this Note would have been entitled on that event if this Note had been converted immediately before that event. In any such case, appropriate adjustment (as determined by the Company's board of directors) shall be made in applying this Note to the rights and the percentage interests of Holder after the reorganization, merger, consolidation, or sale to the end that this Note (including adjustment of the Conversion Rate) shall be applicable after that event, as near as reasonably may be, in relation to the shares of Common Stock deliverable after that event on conversion of this Note. The Company shall, not later than thirty (30) days prior to making such adjustment, give written notice ("Notice") by courier to Holder at the address of Holder shown on the Company's books. (b) Any Notice that is sent pursuant to Section 5(a) shall set forth, in reasonable detail, the event requiring the adjustment and the method by which the adjustment was calculated and shall specify the Conversion Rate then in effect after the adjustment and the increased or decreased number of shares of Common Stock to be received upon conversion of this Note. When appropriate, advance notice may be given and included as part of the notice required under other provisions of this Note. 6. Conversion Rate Protection. (a) If at any time, or from time to time, the Company issues or sells shares of Common Stock without consideration or for a consideration per share less than the Conversion Rate in effect immediately before that issue or sale, then and in each such case: (i) the Conversion Rate then in effect and the Conversion Rate applicable for any subsequent period shall be adjusted to a price (calculated to the nearest cent) determined by dividing: (y) the sum of (aa) the number of shares of Common Stock outstanding immediately before that issue or sale multiplied by the Conversion Rate in effect immediately before that issue or sale, plus (bb) the consideration, if any, received by the Company on that issue or sale, by (z) the number of shares of the Company's Common Stock outstanding immediately after that issue or sale; and (ii) Holder shall after that issue or sale, on conversion of this Note, be entitled to receive the number of shares of Common Stock equal to the number of shares that would otherwise, but for the adjustment provided for in Section 6(a)(i), be issuable on such conversion multiplied by a fraction, the numerator of which is the Conversion Rate then in effect and the denominator of which is the Conversion Rate in effect immediately after the adjustment provided for in Section 6(a)(i) on the date of conversion. No such adjustment shall be made in an amount less than Five Cents ($0.05), but any such amount shall be carried forward and given effect in the next adjustment, if any. (b) If the Company (i) grants any rights or options to subscribe for, purchase, or otherwise acquire shares of Common Stock, or (ii) issues or sells any security, other than this Note, which is convertible into shares of Common Stock, then the price per share of Common Stock issuable on the exercise of the rights or options or the conversion of the securities shall be calculated by dividing: (y) the total amount, if any, received or receivable by the Company as consideration for the granting of the rights or options or the issue or sale of the convertible securities, plus the minimum aggregate amount of additional consideration payable to the Company on exercise of the convertible securities, by (z) the maximum number of shares of Common Stock issuable on the exercise or conversion. (i) If the price per share so calculated is less than the Conversion Rate of this Note in effect immediately before the rights or options are granted or the convertible securities are issued or sold, the granting or issue or sale shall be considered to be an issue or sale for cash of the maximum number of shares of Common Stock so issuable on exercise or conversion at the price per share determined under this provision, and the Conversion Rate of this Note shall be adjusted as provided above to reflect (on the basis of that determination) the issue or sale. No further adjustment of the Conversion Rate shall be made as a result of the actual issuance of shares of Common Stock on the exercise of any such rights or options or the conversion of any such convertible securities. (ii) If such rights or options or convertible securities by their terms provide, with the passage of time or otherwise, for any increase in the amount of additional consideration payable to the Company or any decrease in the number of shares of Common Stock issuable on such exercise or exchange (by change of rate or otherwise), the Conversion Rate shall, when each such increase or decrease becomes effective, be readjusted to reflect the increase or decrease as far as it affects rights of exercise or conversion that have not expired before that time. (iii) If, on the expiration of such rights or options or the rights of conversion of such convertible securities, any of them shall not have been exercised, the Conversion Rate shall be readjusted and will then be the same as it would have been had it originally been adjusted (or had the original adjustment not been required, as the case may be), on the basis that (y) the only shares of Common Stock so issued were the shares of Common Stock, if any, actually issued or sold on the exercise of such rights or options or rights of conversion of such convertible securities, and (z) such shares of Common Stock, if any, were issued or sold for the consideration actually received by the Company on such exercise plus the consideration, if any, actually received by the Company for granting all such rights or options or for issuing or selling all such convertible securities. (iv) No adjustment of the Conversion Rate as provided in this Section 6(b) shall occur upon the granting of stock options or warrants to employees of the Company in the aggregate amount of less than three hundred thousand (300,000) shares of Common Stock. 7. Subordination. (a) Upon the written agreement of Holder, this Note may be subordinated to any or all debt owed by the Company to banks and other financial institutions, other than to the extent debt to any such bank or financial institution involves the issuance of shares of the Company's stock or notes, warrants, options or any other security convertible into such stock. (b) The payment of the indebtedness evidenced by this instrument is subordinated to the payment of the "Senior Debt" defined and described in the Subordination Agreement, dated as of September 24, 1998, between United Breweries of America Inc. and the CIT Group/Credit Finance, Inc., and reference is made to such Agreement for a full statement of the terms and conditions of such subordination. (c) The payment of the indebtedness evidenced by this instrument is subordinated to the payment of the "Senior Debt" defined and described in the Subordination Agreement, dated on or about November 15, 1998, between United Breweries of America Inc. and the Savings Bank of Mendocino, Inc., and reference is made to such Agreement for a full statement of the terms and conditions of such subordination. 8. Enforcement. The Company agrees to reimburse Holder for all costs of collection or enforcement of this Note, whether or not suit is filed (including, but not limited to, reasonable attorney fees), incurred by Holder. 9. Governing Law. This Note shall be governed by and construed in accordance with the laws, without regard to the laws as to choice or conflict of laws, of the State of California. 10. Default. If Company fails to pay any installment of principal or interest when due, then, or at any time during such default, the entire amount of the unpaid principal and interest shall, at the election of Holder, become immediately due and payable. 11. Waiver. No previous waiver and no failure or delay by Holder in acting with respect to the terms of this Note shall constitute a waiver of any subsequent breach, default or failure of condition under this Note. A waiver of any term of this Note must be in writing and shall be limited to the express written terms of such waiver. No delay or omission on the part of Holder in exercising any right under this Note shall operate as a waiver of such right or of any other right. 12. Reservation of Stock. The Company covenants that it will at all times reserve and keep available, solely for issuance on conversion of this Note, all shares of Common Stock from time to time issuable upon exercise of this Note. 13. Replacement. Upon receipt of evidence reasonably satisfactory to the Company, of the loss, theft, destruction, or modification of this Note and, in the event of such occurrence, on delivery of an indemnity agreement or Note reasonably satisfactory in form and amount to the Company or in the case of mutilation, on surrender and cancellation of this Note, the Company at its expense will execute and deliver, in lieu of this Note, a new Note of like tender. 14. Transfer. NO SALE OR TRANSFER OF THIS NOTE SHALL BE EFFECTIVE UNLESS AND UNTIL ALL OF THE FOLLOWING STEPS ARE COMPLIED WITH: (a) The transferor and the transferee shall execute the form of Transfer Statement attached to this Note (or a similar statement which shall then be attached to this Note); (b) This Note and the executed Transfer Statement, together with a United States Internal Revenue Service Form W-8 "Certificate of Foreign Status" or a Form W-9 "Request for Taxpayer Identification Number and Certification" completed and executed by the transferee, shall be delivered to the Company at the Company's address as provided above; and (c) If the Company is satisfied that the information contained in the Transfer Statement is consistent with the information contained in the completed and executed Form W-8 or W-9, as applicable, the Company shall enter the transfer on a Note Holder Ledger maintained by the Company for this purpose. Any purported transfer with respect to which all of the above steps have note been complied with shall be null and void and of no force or effect. IN WITNESS WHEREOF, the Company has caused this Convertible Note to be executed in its corporate name by the signature of its president and secretary. MENDOCINO BREWING COMPANY, INC., a California corporation By: /s/ Michael Laybourn ------------------------------------- Michael Laybourn Its: President By: /s/ P.A. Murali ------------------------------------- P.A. Murali Its: Secretary CONVERSION NOTICE Conversion Notice To: MENDOCINO BREWING COMPANY, INC. The undersigned holder of this Note, hereby irrevocably exercises the option to convert this Note or the portion of it designated below into shares of Common Stock of the Company, in accordance with the terms of the Note, and directs that the shares issuable and deliverable on the conversion, together with any check in payment of fractional shares, be issued and delivered to the undersigned unless a different name is specified below. If shares of Common Stock are to be issued in the name of anyone other than the undersigned, the undersigned will pay all transfer taxes payable on this conversion and issuance. Dated: ---------------------------- ------------------------------------- Signature If the shares are to be Portion to be converted (in issued other than to a multiples) of $1,000 if less registered holder, print than all: name, address, city, state and zip code of issuee: $ ------------------------------------ Social Security Number of other identifying number of issuers: ------------------------------------- ------------------------------------- ------------------------------------- ------------------------------------- Notice: The signature of these instructions to convert must correspond with the name as written on the face of this Note in every particular, without alteration, enlargement, or any change whatsoever TRANSFER STATEMENT ------------------ NOTICE TO: MENDOCINO BREWING COMPANY, INC. FOR VALUE RECEIVED, the undersigned, the holder of that certain Convertible Note initially executed on the Effective Date (as defined below) by Mendocino Brewing Company, Inc. (the "Company") to the Initial Holder (as defined below) in the Face Value set forth below (the "Note"), hereby sells, assigns, transfers and conveys all of the rights of the undersigned under the Note, subject to the terms of the Note, unto the Transferee (as described below): NAME OF TRANSFEREE ADDRESS FACE VALUE OF NOTE The following terms have the following meanings: Effective Date: , 1998 -------------------- Initial Holder: ---------------------------- Dated: TRANSFEROR: -------------------------- [Name of Transferor] By: ------------------------------------- Name: ----------------------------------- Its: ------------------------------------ ACKNOWLEDGMENT OF THE COMPANY: MENDOCINO BREWING COMPANY, INC. By: --------------------------------- Name: ------------------------------- Its: -------------------------------- EX-6 7 CONVERTIBLE NOTE, 5/4/98, $30,000.00 Exhibit 6 CONVERTIBLE NOTE MENDOCINO BREWING COMPANY, INC. - -------------------------------------------------------------------------------- Name of Issuer: Mendocino Brewing Company, Inc. Dated: May 4, 1998 Maturity Date: November 3, 1999 - -------------------------------------------------------------------------------- 1. Promise. Mendocino Brewing Company, Inc., a California corporation having its principal office at 1601 Airport Road, Ukiah, California 95482 and any successor (the "Company"), for value received, promises to pay to United Breweries of America Inc., a Delaware corporation or to its registered successors or assigns (the "Holder") the principal sum of Thirty Thousand and no/100 Dollars ($30,000.00) on presentation and surrender of this Convertible Note ("Note") on November 3, 1999 (the "Maturity Date"), and to pay interest on that principal sum at a rate equal to one and one-half percent (1.50%) per annum above the prime rate offered from time to time by the Bank of America in San Francisco, California. Interest payments shall be paid quarterly on the first day of the months of April, July, October, and January of each year. 2. Form of Payment. All payments under this Note shall be made in lawful money of the United States of America. The Company waives diligence, presentment, protest, demand and notice of protest, dishonor, and nonpayment of this Note. 3. Conversion/Redemption/Renewal. (a) The Holder has the right, at the holder's option, at any time on or after the Maturity Date, to convert all or any portion of this Note into fully paid and nonassessable shares of common stock ("Common Stock") of the Company at the rate of one share of such Common Stock for each One Dollar and 50/100 ($1.50) (the "Conversion Rate") principal amount of this Note and any accrued but unpaid interest. The Holder agrees that all shares of Common Stock of the Company, issued by the Company upon the conversion of all or any part of this Note shall be restricted securities within the meaning of Rule 144(a) of the Securities Act of 1933. The Holder further agrees that any shares of Common Stock acquired by means of any conversion as set forth herein shall be further restricted by the terms and conditions set forth in that certain Shareholders' Agreement, dated October 24, 1997, by and among the Company, Holder, and the Original Partners (as such term is defined in the Shareholders' Agreement). (b) The conversion right set forth in this Section 3 is subject to any adjustment of the Conversion Rate set forth in Section 5 and Section 6, and is only exercisable upon the surrender of this Note for conversion at the office or agency to be maintained by the Company accompanied by instruments of transfer, in form satisfactory to the Company, duly executed by the registered holder. No fractional shares are issuable on any conversion, but in lieu of issuing fractional shares the Company shall pay for such fractional shares in cash. (c) At any time prior to seventeen (17) months from the date of this Note, the Holder may provide written notice to the Company requiring the Company to repay all or any part of the outstanding principal balance of this Note, together with any accrued but unpaid interest thereon, to Holder on the Maturity Date. (d) If Holder does not convert or redeem any or all of the principal amount of the Note into Common Stock on the Maturity Date, Holder has the right to extend the term of this Note for a period of time mutually agreed upon between Holder and the Company. At any time during such extension period, Holder shall have the right to convert all or any part of the outstanding principal amount of the Note plus accrued and unpaid interest into Common Stock as set forth in this Section 3. Moreover, at any time during such extension period, Holder shall have the right to require the Company to repay all or any part of the outstanding principal balance of this Note, together with any accrued but unpaid interest thereon, to Holder within sixty (60) days. 4. Company Redemption. Prior to the Maturity Date, this Note may be redeemed by the Company, in whole or in part, at any time after sixty (60) days written notice ("Redemption Notice") to Holder. During such sixty (60) day period, Holder shall have the right to convert all or any part of the outstanding principal amount of the Note plus accrued and unpaid interest into Common Stock, as set forth in Section 3. If Holder does not convert all outstanding amounts into Common Stock, the Company may redeem any remaining amounts at any time during a thirty (30) day period commencing with the date of expiration of the sixty (60) day period provided for in the Redemption Notice. Thereafter, Company shall be required to provide Holder with a new Redemption Notice, and Holder shall have a new sixty (60) day period within which to convert all or any part of the outstanding principal amounts plus accrued and unpaid interest into Common Stock, as set forth in Section 3. 5. Anti-Dilution. (a) If at any time there is a capital reorganization of the Company's Common Stock, including any combination, reclassification, exchange, or subdivision of shares, a merger or consolidation of the Company with or into another corporation, or the sale of all or substantially all the Company's properties and assets as, or substantially as, an entirety to another person, then, as a part of such reorganization, merger, consolidation, or sale, lawful provision shall be made so that Holder shall thereafter be entitled to receive on conversion of this Note, during the period specified in this Note, the number of shares of Common Stock of the Company, or of the successor corporation resulting from such merger or consolidation, to which a holder of the Common Stock deliverable on conversion of this Note would have been entitled on that event if this Note had been converted immediately before that event. In any such case, appropriate adjustment (as determined by the Company's board of directors) shall be made in applying this Note to the rights and the percentage interests of Holder after the reorganization, merger, consolidation, or sale to the end that this Note (including adjustment of the Conversion Rate) shall be applicable after that event, as near as reasonably may be, in relation to the shares of Common Stock deliverable after that event on conversion of this Note. The Company shall, not later than thirty (30) days prior to making such adjustment, give written notice ("Notice") by courier to Holder at the address of Holder shown on the Company's books. (b) Any Notice that is sent pursuant to Section 5(a) shall set forth, in reasonable detail, the event requiring the adjustment and the method by which the adjustment was calculated and shall specify the Conversion Rate then in effect after the adjustment and the increased or decreased number of shares of Common Stock to be received upon conversion of this Note. When appropriate, advance notice may be given and included as part of the notice required under other provisions of this Note. 6. Conversion Rate Protection. (a) If at any time, or from time to time, the Company issues or sells shares of Common Stock without consideration or for a consideration per share less than the Conversion Rate in effect immediately before that issue or sale, then and in each such case: (i) the Conversion Rate then in effect and the Conversion Rate applicable for any subsequent period shall be adjusted to a price (calculated to the nearest cent) determined by dividing: (y) the sum of (aa) the number of shares of Common Stock outstanding immediately before that issue or sale multiplied by the Conversion Rate in effect immediately before that issue or sale, plus (bb) the consideration, if any, received by the Company on that issue or sale, by (z) the number of shares of the Company's Common Stock outstanding immediately after that issue or sale; and (ii) Holder shall after that issue or sale, on conversion of this Note, be entitled to receive the number of shares of Common Stock equal to the number of shares that would otherwise, but for the adjustment provided for in Section 6(a)(i), be issuable on such conversion multiplied by a fraction, the numerator of which is the Conversion Rate then in effect and the denominator of which is the Conversion Rate in effect immediately after the adjustment provided for in Section 6(a)(i) on the date of conversion. No such adjustment shall be made in an amount less than Five Cents ($0.05), but any such amount shall be carried forward and given effect in the next adjustment, if any. (b) If the Company (i) grants any rights or options to subscribe for, purchase, or otherwise acquire shares of Common Stock, or (ii) issues or sells any security, other than this Note, which is convertible into shares of Common Stock, then the price per share of Common Stock issuable on the exercise of the rights or options or the conversion of the securities shall be calculated by dividing: (y) the total amount, if any, received or receivable by the Company as consideration for the granting of the rights or options or the issue or sale of the convertible securities, plus the minimum aggregate amount of additional consideration payable to the Company on exercise of the convertible securities, by (z) the maximum number of shares of Common Stock issuable on the exercise or conversion. (i) If the price per share so calculated is less than the Conversion Rate of this Note in effect immediately before the rights or options are granted or the convertible securities are issued or sold, the granting or issue or sale shall be considered to be an issue or sale for cash of the maximum number of shares of Common Stock so issuable on exercise or conversion at the price per share determined under this provision, and the Conversion Rate of this Note shall be adjusted as provided above to reflect (on the basis of that determination) the issue or sale. No further adjustment of the Conversion Rate shall be made as a result of the actual issuance of shares of Common Stock on the exercise of any such rights or options or the conversion of any such convertible securities. (ii) If such rights or options or convertible securities by their terms provide, with the passage of time or otherwise, for any increase in the amount of additional consideration payable to the Company or any decrease in the number of shares of Common Stock issuable on such exercise or exchange (by change of rate or otherwise), the Conversion Rate shall, when each such increase or decrease becomes effective, be readjusted to reflect the increase or decrease as far as it affects rights of exercise or conversion that have not expired before that time. (iii) If, on the expiration of such rights or options or the rights of conversion of such convertible securities, any of them shall not have been exercised, the Conversion Rate shall be readjusted and will then be the same as it would have been had it originally been adjusted (or had the original adjustment not been required, as the case may be), on the basis that (y) the only shares of Common Stock so issued were the shares of Common Stock, if any, actually issued or sold on the exercise of such rights or options or rights of conversion of such convertible securities, and (z) such shares of Common Stock, if any, were issued or sold for the consideration actually received by the Company on such exercise plus the consideration, if any, actually received by the Company for granting all such rights or options or for issuing or selling all such convertible securities. (iv) No adjustment of the Conversion Rate as provided in this Section 6(b) shall occur upon the granting of stock options or warrants to employees of the Company in the aggregate amount of less than three hundred thousand (300,000) shares of Common Stock. 7. Subordination. (a) Upon the written agreement of Holder, this Note may be subordinated to any or all debt owed by the Company to banks and other financial institutions, other than to the extent debt to any such bank or financial institution involves the issuance of shares of the Company's stock or notes, warrants, options or any other security convertible into such stock. (b) The payment of the indebtedness evidenced by this instrument is subordinated to the payment of the "Senior Debt" defined and described in the Subordination Agreement, dated as of September 24, 1998, between United Breweries of America Inc. and the CIT Group/Credit Finance, Inc., and reference is made to such Agreement for a full statement of the terms and conditions of such subordination. (c) The payment of the indebtedness evidenced by this instrument is subordinated to the payment of the "Senior Debt" defined and described in the Subordination Agreement, dated on or about November 15, 1998, between United Breweries of America Inc. and the Savings Bank of Mendocino, Inc., and reference is made to such Agreement for a full statement of the terms and conditions of such subordination. 8. Enforcement. The Company agrees to reimburse Holder for all costs of collection or enforcement of this Note, whether or not suit is filed (including, but not limited to, reasonable attorney fees), incurred by Holder. 9. Governing Law. This Note shall be governed by and construed in accordance with the laws, without regard to the laws as to choice or conflict of laws, of the State of California. 10. Default. If Company fails to pay any installment of principal or interest when due, then, or at any time during such default, the entire amount of the unpaid principal and interest shall, at the election of Holder, become immediately due and payable. 11. Waiver. No previous waiver and no failure or delay by Holder in acting with respect to the terms of this Note shall constitute a waiver of any subsequent breach, default or failure of condition under this Note. A waiver of any term of this Note must be in writing and shall be limited to the express written terms of such waiver. No delay or omission on the part of Holder in exercising any right under this Note shall operate as a waiver of such right or of any other right. 12. Reservation of Stock. The Company covenants that it will at all times reserve and keep available, solely for issuance on conversion of this Note, all shares of Common Stock from time to time issuable upon exercise of this Note. 13. Replacement. Upon receipt of evidence reasonably satisfactory to the Company, of the loss, theft, destruction, or modification of this Note and, in the event of such occurrence, on delivery of an indemnity agreement or Note reasonably satisfactory in form and amount to the Company or in the case of mutilation, on surrender and cancellation of this Note, the Company at its expense will execute and deliver, in lieu of this Note, a new Note of like tender. 14. Transfer. NO SALE OR TRANSFER OF THIS NOTE SHALL BE EFFECTIVE UNLESS AND UNTIL ALL OF THE FOLLOWING STEPS ARE COMPLIED WITH: (a) The transferor and the transferee shall execute the form of Transfer Statement attached to this Note (or a similar statement which shall then be attached to this Note); (a) This Note and the executed Transfer Statement, together with a United States Internal Revenue Service Form W-8 "Certificate of Foreign Status" or a Form W-9 "Request for Taxpayer Identification Number and Certification" completed and executed by the transferee, shall be delivered to the Company at the Company's address as provided above; and (c) If the Company is satisfied that the information contained in the Transfer Statement is consistent with the information contained in the completed and executed Form W-8 or W-9, as applicable, the Company shall enter the transfer on a Note Holder Ledger maintained by the Company for this purpose. Any purported transfer with respect to which all of the above steps have note been complied with shall be null and void and of no force or effect. IN WITNESS WHEREOF, the Company has caused this Convertible Note to be executed in its corporate name by the signature of its president and secretary. MENDOCINO BREWING COMPANY, INC., a California corporation By: /s/ Michael Laybourn ------------------------------------- Michael Laybourn Its: President By: /s/ P.A. Murali ------------------------------------- P.A. Murali Its: Secretary CONVERSION NOTICE Conversion Notice To: MENDOCINO BREWING COMPANY, INC. The undersigned holder of this Note, hereby irrevocably exercises the option to convert this Note or the portion of it designated below into shares of Common Stock of the Company, in accordance with the terms of the Note, and directs that the shares issuable and deliverable on the conversion, together with any check in payment of fractional shares, be issued and delivered to the undersigned unless a different name is specified below. If shares of Common Stock are to be issued in the name of anyone other than the undersigned, the undersigned will pay all transfer taxes payable on this conversion and issuance. Dated: ---------------------------- ------------------------------------- Signature If the shares are to be Portion to be converted (in issued other than to a multiples) of $1,000 if less registered holder, print than all: name, address, city, state and zip code of issuee: $ ------------------------------------ Social Security Number of other identifying number of issuers: ------------------------------------- ------------------------------------- ------------------------------------- ------------------------------------- Notice: The signature of these instructions to convert must correspond with the name as written on the face of this Note in every particular, without alteration, enlargement, or any change whatsoever TRANSFER STATEMENT ------------------ NOTICE TO: MENDOCINO BREWING COMPANY, INC. FOR VALUE RECEIVED, the undersigned, the holder of that certain Convertible Note initially executed on the Effective Date (as defined below) by Mendocino Brewing Company, Inc. (the "Company") to the Initial Holder (as defined below) in the Face Value set forth below (the "Note"), hereby sells, assigns, transfers and conveys all of the rights of the undersigned under the Note, subject to the terms of the Note, unto the Transferee (as described below): NAME OF TRANSFEREE ADDRESS FACE VALUE OF NOTE The following terms have the following meanings: Effective Date: , 1998 -------------------- Initial Holder: ---------------------------- Dated: TRANSFEROR: -------------------------- [Name of Transferor] By: ------------------------------------- Name: ----------------------------------- Its: ------------------------------------ ACKNOWLEDGMENT OF THE COMPANY: MENDOCINO BREWING COMPANY, INC. By: --------------------------------- Name: ------------------------------- Its: -------------------------------- EX-7 8 CONVERTIBLE NOTE, 5/6/98, $100,000.00 Exhibit 7 CONVERTIBLE NOTE MENDOCINO BREWING COMPANY, INC. - -------------------------------------------------------------------------------- Name of Issuer: Mendocino Brewing Company, Inc. Dated: May 6, 1998 Maturity Date: November 5, 1999 - -------------------------------------------------------------------------------- 1. Promise. Mendocino Brewing Company, Inc., a California corporation having its principal office at 1601 Airport Road, Ukiah, California 95482 and any successor (the "Company"), for value received, promises to pay to United Breweries of America Inc., a Delaware corporation or to its registered successors or assigns (the "Holder") the principal sum of One Hundred Thousand and no/100 Dollars ($100,000.00) on presentation and surrender of this Convertible Note ("Note") on November 5, 1999 (the "Maturity Date"), and to pay interest on that principal sum at a rate equal to one and one-half percent (1.50%) per annum above the prime rate offered from time to time by the Bank of America in San Francisco, California. Interest payments shall be paid quarterly on the first day of the months of April, July, October, and January of each year. 2. Form of Payment. All payments under this Note shall be made in lawful money of the United States of America. The Company waives diligence, presentment, protest, demand and notice of protest, dishonor, and nonpayment of this Note. 3. Conversion/Redemption/Renewal. (a) The Holder has the right, at the holder's option, at any time on or after the Maturity Date, to convert all or any portion of this Note into fully paid and nonassessable shares of common stock ("Common Stock") of the Company at the rate of one share of such Common Stock for each One Dollar and 50/100 ($1.50) (the "Conversion Rate") principal amount of this Note and any accrued but unpaid interest. The Holder agrees that all shares of Common Stock of the Company, issued by the Company upon the conversion of all or any part of this Note shall be restricted securities within the meaning of Rule 144(a) of the Securities Act of 1933. The Holder further agrees that any shares of Common Stock acquired by means of any conversion as set forth herein shall be further restricted by the terms and conditions set forth in that certain Shareholders' Agreement, dated October 24, 1997, by and among the Company, Holder, and the Original Partners (as such term is defined in the Shareholders' Agreement). (b) The conversion right set forth in this Section 3 is subject to any adjustment of the Conversion Rate set forth in Section 5 and Section 6, and is only exercisable upon the surrender of this Note for conversion at the office or agency to be maintained by the Company accompanied by instruments of transfer, in form satisfactory to the Company, duly executed by the registered holder. No fractional shares are issuable on any conversion, but in lieu of issuing fractional shares the Company shall pay for such fractional shares in cash. (c) At any time prior to seventeen (17) months from the date of this Note, the Holder may provide written notice to the Company requiring the Company to repay all or any part of the outstanding principal balance of this Note, together with any accrued but unpaid interest thereon, to Holder on the Maturity Date. (d) If Holder does not convert or redeem any or all of the principal amount of the Note into Common Stock on the Maturity Date, Holder has the right to extend the term of this Note for a period of time mutually agreed upon between Holder and the Company. At any time during such extension period, Holder shall have the right to convert all or any part of the outstanding principal amount of the Note plus accrued and unpaid interest into Common Stock as set forth in this Section 3. Moreover, at any time during such extension period, Holder shall have the right to require the Company to repay all or any part of the outstanding principal balance of this Note, together with any accrued but unpaid interest thereon, to Holder within sixty (60) days. 4. Company Redemption. Prior to the Maturity Date, this Note may be redeemed by the Company, in whole or in part, at any time after sixty (60) days written notice ("Redemption Notice") to Holder. During such sixty (60) day period, Holder shall have the right to convert all or any part of the outstanding principal amount of the Note plus accrued and unpaid interest into Common Stock, as set forth in Section 3. If Holder does not convert all outstanding amounts into Common Stock, the Company may redeem any remaining amounts at any time during a thirty (30) day period commencing with the date of expiration of the sixty (60) day period provided for in the Redemption Notice. Thereafter, Company shall be required to provide Holder with a new Redemption Notice, and Holder shall have a new sixty (60) day period within which to convert all or any part of the outstanding principal amounts plus accrued and unpaid interest into Common Stock, as set forth in Section 3. 5. Anti-Dilution. (a) If at any time there is a capital reorganization of the Company's Common Stock, including any combination, reclassification, exchange, or subdivision of shares, a merger or consolidation of the Company with or into another corporation, or the sale of all or substantially all the Company's properties and assets as, or substantially as, an entirety to another person, then, as a part of such reorganization, merger, consolidation, or sale, lawful provision shall be made so that Holder shall thereafter be entitled to receive on conversion of this Note, during the period specified in this Note, the number of shares of Common Stock of the Company, or of the successor corporation resulting from such merger or consolidation, to which a holder of the Common Stock deliverable on conversion of this Note would have been entitled on that event if this Note had been converted immediately before that event. In any such case, appropriate adjustment (as determined by the Company's board of directors) shall be made in applying this Note to the rights and the percentage interests of Holder after the reorganization, merger, consolidation, or sale to the end that this Note (including adjustment of the Conversion Rate) shall be applicable after that event, as near as reasonably may be, in relation to the shares of Common Stock deliverable after that event on conversion of this Note. The Company shall, not later than thirty (30) days prior to making such adjustment, give written notice ("Notice") by courier to Holder at the address of Holder shown on the Company's books. (b) Any Notice that is sent pursuant to Section 5(a) shall set forth, in reasonable detail, the event requiring the adjustment and the method by which the adjustment was calculated and shall specify the Conversion Rate then in effect after the adjustment and the increased or decreased number of shares of Common Stock to be received upon conversion of this Note. When appropriate, advance notice may be given and included as part of the notice required under other provisions of this Note. 6. Conversion Rate Protection. (a) If at any time, or from time to time, the Company issues or sells shares of Common Stock without consideration or for a consideration per share less than the Conversion Rate in effect immediately before that issue or sale, then and in each such case: (i) the Conversion Rate then in effect and the Conversion Rate applicable for any subsequent period shall be adjusted to a price (calculated to the nearest cent) determined by dividing: (y) the sum of (aa) the number of shares of Common Stock outstanding immediately before that issue or sale multiplied by the Conversion Rate in effect immediately before that issue or sale, plus (bb) the consideration, if any, received by the Company on that issue or sale, by (z) the number of shares of the Company's Common Stock outstanding immediately after that issue or sale; and (ii) Holder shall after that issue or sale, on conversion of this Note, be entitled to receive the number of shares of Common Stock equal to the number of shares that would otherwise, but for the adjustment provided for in Section 6(a)(i), be issuable on such conversion multiplied by a fraction, the numerator of which is the Conversion Rate then in effect and the denominator of which is the Conversion Rate in effect immediately after the adjustment provided for in Section 6(a)(i) on the date of conversion. No such adjustment shall be made in an amount less than Five Cents ($0.05), but any such amount shall be carried forward and given effect in the next adjustment, if any. (b) If the Company (i) grants any rights or options to subscribe for, purchase, or otherwise acquire shares of Common Stock, or (ii) issues or sells any security, other than this Note, which is convertible into shares of Common Stock, then the price per share of Common Stock issuable on the exercise of the rights or options or the conversion of the securities shall be calculated by dividing: (y) the total amount, if any, received or receivable by the Company as consideration for the granting of the rights or options or the issue or sale of the convertible securities, plus the minimum aggregate amount of additional consideration payable to the Company on exercise of the convertible securities, by (z) the maximum number of shares of Common Stock issuable on the exercise or conversion. (i) If the price per share so calculated is less than the Conversion Rate of this Note in effect immediately before the rights or options are granted or the convertible securities are issued or sold, the granting or issue or sale shall be considered to be an issue or sale for cash of the maximum number of shares of Common Stock so issuable on exercise or conversion at the price per share determined under this provision, and the Conversion Rate of this Note shall be adjusted as provided above to reflect (on the basis of that determination) the issue or sale. No further adjustment of the Conversion Rate shall be made as a result of the actual issuance of shares of Common Stock on the exercise of any such rights or options or the conversion of any such convertible securities. (ii) If such rights or options or convertible securities by their terms provide, with the passage of time or otherwise, for any increase in the amount of additional consideration payable to the Company or any decrease in the number of shares of Common Stock issuable on such exercise or exchange (by change of rate or otherwise), the Conversion Rate shall, when each such increase or decrease becomes effective, be readjusted to reflect the increase or decrease as far as it affects rights of exercise or conversion that have not expired before that time. (iii) If, on the expiration of such rights or options or the rights of conversion of such convertible securities, any of them shall not have been exercised, the Conversion Rate shall be readjusted and will then be the same as it would have been had it originally been adjusted (or had the original adjustment not been required, as the case may be), on the basis that (y) the only shares of Common Stock so issued were the shares of Common Stock, if any, actually issued or sold on the exercise of such rights or options or rights of conversion of such convertible securities, and (z) such shares of Common Stock, if any, were issued or sold for the consideration actually received by the Company on such exercise plus the consideration, if any, actually received by the Company for granting all such rights or options or for issuing or selling all such convertible securities. (iv) No adjustment of the Conversion Rate as provided in this Section 6(b) shall occur upon the granting of stock options or warrants to employees of the Company in the aggregate amount of less than three hundred thousand (300,000) shares of Common Stock. 7. Subordination. (a) Upon the written agreement of Holder, this Note may be subordinated to any or all debt owed by the Company to banks and other financial institutions, other than to the extent debt to any such bank or financial institution involves the issuance of shares of the Company's stock or notes, warrants, options or any other security convertible into such stock. (b) The payment of the indebtedness evidenced by this instrument is subordinated to the payment of the "Senior Debt" defined and described in the Subordination Agreement, dated as of September 24, 1998, between United Breweries of America Inc. and the CIT Group/Credit Finance, Inc., and reference is made to such Agreement for a full statement of the terms and conditions of such subordination. (c) The payment of the indebtedness evidenced by this instrument is subordinated to the payment of the "Senior Debt" defined and described in the Subordination Agreement, dated on or about November 15, 1998, between United Breweries of America Inc. and the Savings Bank of Mendocino, Inc., and reference is made to such Agreement for a full statement of the terms and conditions of such subordination. 8. Enforcement. The Company agrees to reimburse Holder for all costs of collection or enforcement of this Note, whether or not suit is filed (including, but not limited to, reasonable attorney fees), incurred by Holder. 9. Governing Law. This Note shall be governed by and construed in accordance with the laws, without regard to the laws as to choice or conflict of laws, of the State of California. 10. Default. If Company fails to pay any installment of principal or interest when due, then, or at any time during such default, the entire amount of the unpaid principal and interest shall, at the election of Holder, become immediately due and payable. 11. Waiver. No previous waiver and no failure or delay by Holder in acting with respect to the terms of this Note shall constitute a waiver of any subsequent breach, default or failure of condition under this Note. A waiver of any term of this Note must be in writing and shall be limited to the express written terms of such waiver. No delay or omission on the part of Holder in exercising any right under this Note shall operate as a waiver of such right or of any other right. 12. Reservation of Stock. The Company covenants that it will at all times reserve and keep available, solely for issuance on conversion of this Note, all shares of Common Stock from time to time issuable upon exercise of this Note. 13. Replacement. Upon receipt of evidence reasonably satisfactory to the Company, of the loss, theft, destruction, or modification of this Note and, in the event of such occurrence, on delivery of an indemnity agreement or Note reasonably satisfactory in form and amount to the Company or in the case of mutilation, on surrender and cancellation of this Note, the Company at its expense will execute and deliver, in lieu of this Note, a new Note of like tender. 14. Transfer. NO SALE OR TRANSFER OF THIS NOTE SHALL BE EFFECTIVE UNLESS AND UNTIL ALL OF THE FOLLOWING STEPS ARE COMPLIED WITH: (a) The transferor and the transferee shall execute the form of Transfer Statement attached to this Note (or a similar statement which shall then be attached to this Note); (b) This Note and the executed Transfer Statement, together with a United States Internal Revenue Service Form W-8 "Certificate of Foreign Status" or a Form W-9 "Request for Taxpayer Identification Number and Certification" completed and executed by the transferee, shall be delivered to the Company at the Company's address as provided above; and (c) If the Company is satisfied that the information contained in the Transfer Statement is consistent with the information contained in the completed and executed Form W-8 or W-9, as applicable, the Company shall enter the transfer on a Note Holder Ledger maintained by the Company for this purpose. Any purported transfer with respect to which all of the above steps have note been complied with shall be null and void and of no force or effect. IN WITNESS WHEREOF, the Company has caused this Convertible Note to be executed in its corporate name by the signature of its president and secretary. MENDOCINO BREWING COMPANY, INC., a California corporation By: /s/ Michael Laybourn ------------------------------------- Michael Laybourn Its: President By: /s/ P.A. Murali ------------------------------------- P.A. Murali Its: Secretary CONVERSION NOTICE Conversion Notice To: MENDOCINO BREWING COMPANY, INC. The undersigned holder of this Note, hereby irrevocably exercises the option to convert this Note or the portion of it designated below into shares of Common Stock of the Company, in accordance with the terms of the Note, and directs that the shares issuable and deliverable on the conversion, together with any check in payment of fractional shares, be issued and delivered to the undersigned unless a different name is specified below. If shares of Common Stock are to be issued in the name of anyone other than the undersigned, the undersigned will pay all transfer taxes payable on this conversion and issuance. Dated: ---------------------------- ------------------------------------- Signature If the shares are to be Portion to be converted (in issued other than to a multiples) of $1,000 if less registered holder, print than all: name, address, city, state and zip code of issuee: $ ------------------------------------ Social Security Number of other identifying number of issuers: ------------------------------------- ------------------------------------- ------------------------------------- ------------------------------------- Notice: The signature of these instructions to convert must correspond with the name as written on the face of this Note in every particular, without alteration, enlargement, or any change whatsoever TRANSFER STATEMENT ------------------ NOTICE TO: MENDOCINO BREWING COMPANY, INC. FOR VALUE RECEIVED, the undersigned, the holder of that certain Convertible Note initially executed on the Effective Date (as defined below) by Mendocino Brewing Company, Inc. (the "Company") to the Initial Holder (as defined below) in the Face Value set forth below (the "Note"), hereby sells, assigns, transfers and conveys all of the rights of the undersigned under the Note, subject to the terms of the Note, unto the Transferee (as described below): NAME OF TRANSFEREE ADDRESS FACE VALUE OF NOTE The following terms have the following meanings: Effective Date: , 1998 -------------------- Initial Holder: ---------------------------- Dated: TRANSFEROR: -------------------------- [Name of Transferor] By: ------------------------------------- Name: ----------------------------------- Its: ------------------------------------ ACKNOWLEDGMENT OF THE COMPANY: MENDOCINO BREWING COMPANY, INC. By: --------------------------------- Name: ------------------------------- Its: -------------------------------- EX-8 9 CONVERTIBLE NOTE, 6/26/98, $300,000.00 Exhibit 8 CONVERTIBLE NOTE MENDOCINO BREWING COMPANY, INC. - -------------------------------------------------------------------------------- Name of Issuer: Mendocino Brewing Company, Inc. Dated: June 30, 1998 Maturity Date: December 29, 1999 - -------------------------------------------------------------------------------- 1. Promise. Mendocino Brewing Company, Inc., a California corporation having its principal office at 1601 Airport Road, Ukiah, California 95482 and any successor (the "Company"), for value received, promises to pay to United Breweries of America Inc., a Delaware corporation or to its registered successors or assigns (the "Holder") the principal sum of Twenty Nine Thousand Eight Hundred Fifty Eight and 75/100 Dollars ($29,858.75) on presentation and surrender of this Convertible Note ("Note") on December 29, 1999 (the "Maturity Date"), and to pay interest on that principal sum at a rate equal to one and one-half percent (1.50%) per annum above the prime rate offered from time to time by the Bank of America in San Francisco, California. Interest payments shall be paid quarterly on the first day of the months of April, July, October, and January of each year. 2. Form of Payment. All payments under this Note shall be made in lawful money of the United States of America. The Company waives diligence, presentment, protest, demand and notice of protest, dishonor, and nonpayment of this Note. 3. Conversion/Redemption/Renewal. (a) The Holder has the right, at the holder's option, at any time on or after the Maturity Date, to convert all or any portion of this Note into fully paid and nonassessable shares of common stock ("Common Stock") of the Company at the rate of one share of such Common Stock for each One Dollar and 50/100 ($1.50) (the "Conversion Rate") principal amount of this Note and any accrued but unpaid interest. The Holder agrees that all shares of Common Stock of the Company, issued by the Company upon the conversion of all or any part of this Note shall be restricted securities within the meaning of Rule 144(a) of the Securities Act of 1933. The Holder further agrees that any shares of Common Stock acquired by means of any conversion as set forth herein shall be further restricted by the terms and conditions set forth in that certain Shareholders' Agreement, dated October 24, 1997, by and among the Company, Holder, and the Original Partners (as such term is defined in the Shareholders' Agreement). (b) The conversion right set forth in this Section 3 is subject to any adjustment of the Conversion Rate set forth in Section 5 and Section 6, and is only exercisable upon the surrender of this Note for conversion at the office or agency to be maintained by the Company accompanied by instruments of transfer, in form satisfactory to the Company, duly executed by the registered holder. No fractional shares are issuable on any conversion, but in lieu of issuing fractional shares the Company shall pay for such fractional shares in cash. (c) At any time prior to seventeen (17) months from the date of this Note, the Holder may provide written notice to the Company requiring the Company to repay all or any part of the outstanding principal balance of this Note, together with any accrued but unpaid interest thereon, to Holder on the Maturity Date. (d) If Holder does not convert or redeem any or all of the principal amount of the Note into Common Stock on the Maturity Date, Holder has the right to extend the term of this Note for a period of time mutually agreed upon between Holder and the Company. At any time during such extension period, Holder shall have the right to convert all or any part of the outstanding principal amount of the Note plus accrued and unpaid interest into Common Stock as set forth in this Section 3. Moreover, at any time during such extension period, Holder shall have the right to require the Company to repay all or any part of the outstanding principal balance of this Note, together with any accrued but unpaid interest thereon, to Holder within sixty (60) days. 4. Company Redemption. Prior to the Maturity Date, this Note may be redeemed by the Company, in whole or in part, at any time after sixty (60) days written notice ("Redemption Notice") to Holder. During such sixty (60) day period, Holder shall have the right to convert all or any part of the outstanding principal amount of the Note plus accrued and unpaid interest into Common Stock, as set forth in Section 3. If Holder does not convert all outstanding amounts into Common Stock, the Company may redeem any remaining amounts at any time during a thirty (30) day period commencing with the date of expiration of the sixty (60) day period provided for in the Redemption Notice. Thereafter, Company shall be required to provide Holder with a new Redemption Notice, and Holder shall have a new sixty (60) day period within which to convert all or any part of the outstanding principal amounts plus accrued and unpaid interest into Common Stock, as set forth in Section 3. 5. Anti-Dilution. (a) If at any time there is a capital reorganization of the Company's Common Stock, including any combination, reclassification, exchange, or subdivision of shares, a merger or consolidation of the Company with or into another corporation, or the sale of all or substantially all the Company's properties and assets as, or substantially as, an entirety to another person, then, as a part of such reorganization, merger, consolidation, or sale, lawful provision shall be made so that Holder shall thereafter be entitled to receive on conversion of this Note, during the period specified in this Note, the number of shares of Common Stock of the Company, or of the successor corporation resulting from such merger or consolidation, to which a holder of the Common Stock deliverable on conversion of this Note would have been entitled on that event if this Note had been converted immediately before that event. In any such case, appropriate adjustment (as determined by the Company's board of directors) shall be made in applying this Note to the rights and the percentage interests of Holder after the reorganization, merger, consolidation, or sale to the end that this Note (including adjustment of the Conversion Rate) shall be applicable after that event, as near as reasonably may be, in relation to the shares of Common Stock deliverable after that event on conversion of this Note. The Company shall, not later than thirty (30) days prior to making such adjustment, give written notice ("Notice") by courier to Holder at the address of Holder shown on the Company's books. (b) Any Notice that is sent pursuant to Section 5(a) shall set forth, in reasonable detail, the event requiring the adjustment and the method by which the adjustment was calculated and shall specify the Conversion Rate then in effect after the adjustment and the increased or decreased number of shares of Common Stock to be received upon conversion of this Note. When appropriate, advance notice may be given and included as part of the notice required under other provisions of this Note. 6. Conversion Rate Protection. (a) If at any time, or from time to time, the Company issues or sells shares of Common Stock without consideration or for a consideration per share less than the Conversion Rate in effect immediately before that issue or sale, then and in each such case: (i) the Conversion Rate then in effect and the Conversion Rate applicable for any subsequent period shall be adjusted to a price (calculated to the nearest cent) determined by dividing: (y) the sum of (aa) the number of shares of Common Stock outstanding immediately before that issue or sale multiplied by the Conversion Rate in effect immediately before that issue or sale, plus (bb) the consideration, if any, received by the Company on that issue or sale, by (z) the number of shares of the Company's Common Stock outstanding immediately after that issue or sale; and (ii) Holder shall after that issue or sale, on conversion of this Note, be entitled to receive the number of shares of Common Stock equal to the number of shares that would otherwise, but for the adjustment provided for in Section 6(a)(i), be issuable on such conversion multiplied by a fraction, the numerator of which is the Conversion Rate then in effect and the denominator of which is the Conversion Rate in effect immediately after the adjustment provided for in Section 6(a)(i) on the date of conversion. No such adjustment shall be made in an amount less than Five Cents ($0.05), but any such amount shall be carried forward and given effect in the next adjustment, if any. (b) If the Company (i) grants any rights or options to subscribe for, purchase, or otherwise acquire shares of Common Stock, or (ii) issues or sells any security, other than this Note, which is convertible into shares of Common Stock, then the price per share of Common Stock issuable on the exercise of the rights or options or the conversion of the securities shall be calculated by dividing: (y) the total amount, if any, received or receivable by the Company as consideration for the granting of the rights or options or the issue or sale of the convertible securities, plus the minimum aggregate amount of additional consideration payable to the Company on exercise of the convertible securities, by (z) the maximum number of shares of Common Stock issuable on the exercise or conversion. (i) If the price per share so calculated is less than the Conversion Rate of this Note in effect immediately before the rights or options are granted or the convertible securities are issued or sold, the granting or issue or sale shall be considered to be an issue or sale for cash of the maximum number of shares of Common Stock so issuable on exercise or conversion at the price per share determined under this provision, and the Conversion Rate of this Note shall be adjusted as provided above to reflect (on the basis of that determination) the issue or sale. No further adjustment of the Conversion Rate shall be made as a result of the actual issuance of shares of Common Stock on the exercise of any such rights or options or the conversion of any such convertible securities. (ii) If such rights or options or convertible securities by their terms provide, with the passage of time or otherwise, for any increase in the amount of additional consideration payable to the Company or any decrease in the number of shares of Common Stock issuable on such exercise or exchange (by change of rate or otherwise), the Conversion Rate shall, when each such increase or decrease becomes effective, be readjusted to reflect the increase or decrease as far as it affects rights of exercise or conversion that have not expired before that time. (iii) If, on the expiration of such rights or options or the rights of conversion of such convertible securities, any of them shall not have been exercised, the Conversion Rate shall be readjusted and will then be the same as it would have been had it originally been adjusted (or had the original adjustment not been required, as the case may be), on the basis that (y) the only shares of Common Stock so issued were the shares of Common Stock, if any, actually issued or sold on the exercise of such rights or options or rights of conversion of such convertible securities, and (z) such shares of Common Stock, if any, were issued or sold for the consideration actually received by the Company on such exercise plus the consideration, if any, actually received by the Company for granting all such rights or options or for issuing or selling all such convertible securities. (iv) No adjustment of the Conversion Rate as provided in this Section 6(b) shall occur upon the granting of stock options or warrants to employees of the Company in the aggregate amount of less than three hundred thousand (300,000) shares of Common Stock. 7. Subordination. (a) Upon the written agreement of Holder, this Note may be subordinated to any or all debt owed by the Company to banks and other financial institutions, other than to the extent debt to any such bank or financial institution involves the issuance of shares of the Company's stock or notes, warrants, options or any other security convertible into such stock. (b) The payment of the indebtedness evidenced by this instrument is subordinated to the payment of the "Senior Debt" defined and described in the Subordination Agreement, dated as of September 24, 1998, between United Breweries of America Inc. and the CIT Group/Credit Finance, Inc., and reference is made to such Agreement for a full statement of the terms and conditions of such subordination. (c) The payment of the indebtedness evidenced by this instrument is subordinated to the payment of the "Senior Debt" defined and described in the Subordination Agreement, dated on or about November 15, 1998, between United Breweries of America Inc. and the Savings Bank of Mendocino, Inc., and reference is made to such Agreement for a full statement of the terms and conditions of such subordination. 8. Enforcement. The Company agrees to reimburse Holder for all costs of collection or enforcement of this Note, whether or not suit is filed (including, but not limited to, reasonable attorney fees), incurred by Holder. 9. Governing Law. This Note shall be governed by and construed in accordance with the laws, without regard to the laws as to choice or conflict of laws, of the State of California. 10. Default. If Company fails to pay any installment of principal or interest when due, then, or at any time during such default, the entire amount of the unpaid principal and interest shall, at the election of Holder, become immediately due and payable. 11. Waiver. No previous waiver and no failure or delay by Holder in acting with respect to the terms of this Note shall constitute a waiver of any subsequent breach, default or failure of condition under this Note. A waiver of any term of this Note must be in writing and shall be limited to the express written terms of such waiver. No delay or omission on the part of Holder in exercising any right under this Note shall operate as a waiver of such right or of any other right. 12. Reservation of Stock. The Company covenants that it will at all times reserve and keep available, solely for issuance on conversion of this Note, all shares of Common Stock from time to time issuable upon exercise of this Note. 13. Replacement. Upon receipt of evidence reasonably satisfactory to the Company, of the loss, theft, destruction, or modification of this Note and, in the event of such occurrence, on delivery of an indemnity agreement or Note reasonably satisfactory in form and amount to the Company or in the case of mutilation, on surrender and cancellation of this Note, the Company at its expense will execute and deliver, in lieu of this Note, a new Note of like tender. 14. Transfer. NO SALE OR TRANSFER OF THIS NOTE SHALL BE EFFECTIVE UNLESS AND UNTIL ALL OF THE FOLLOWING STEPS ARE COMPLIED WITH: (a) The transferor and the transferee shall execute the form of Transfer Statement attached to this Note (or a similar statement which shall then be attached to this Note); (b) This Note and the executed Transfer Statement, together with a United States Internal Revenue Service Form W-8 "Certificate of Foreign Status" or a Form W-9 "Request for Taxpayer Identification Number and Certification" completed and executed by the transferee, shall be delivered to the Company at the Company's address as provided above; and (c) If the Company is satisfied that the information contained in the Transfer Statement is consistent with the information contained in the completed and executed Form W-8 or W-9, as applicable, the Company shall enter the transfer on a Note Holder Ledger maintained by the Company for this purpose. Any purported transfer with respect to which all of the above steps have note been complied with shall be null and void and of no force or effect. IN WITNESS WHEREOF, the Company has caused this Convertible Note to be executed in its corporate name by the signature of its president and secretary. MENDOCINO BREWING COMPANY, INC., a California corporation By: /s/ Michael Laybourn ------------------------------------- Michael Laybourn Its: President By: /s/ P.A. Murali ------------------------------------- P.A. Murali Its: Secretary CONVERSION NOTICE Conversion Notice To: MENDOCINO BREWING COMPANY, INC. The undersigned holder of this Note, hereby irrevocably exercises the option to convert this Note or the portion of it designated below into shares of Common Stock of the Company, in accordance with the terms of the Note, and directs that the shares issuable and deliverable on the conversion, together with any check in payment of fractional shares, be issued and delivered to the undersigned unless a different name is specified below. If shares of Common Stock are to be issued in the name of anyone other than the undersigned, the undersigned will pay all transfer taxes payable on this conversion and issuance. Dated: ---------------------------- ------------------------------------- Signature If the shares are to be Portion to be converted (in issued other than to a multiples) of $1,000 if less registered holder, print than all: name, address, city, state and zip code of issuee: $ ------------------------------------ Social Security Number of other identifying number of issuers: ------------------------------------- ------------------------------------- ------------------------------------- ------------------------------------- Notice: The signature of these instructions to convert must correspond with the name as written on the face of this Note in every particular, without alteration, enlargement, or any change whatsoever TRANSFER STATEMENT ------------------ NOTICE TO: MENDOCINO BREWING COMPANY, INC. FOR VALUE RECEIVED, the undersigned, the holder of that certain Convertible Note initially executed on the Effective Date (as defined below) by Mendocino Brewing Company, Inc. (the "Company") to the Initial Holder (as defined below) in the Face Value set forth below (the "Note"), hereby sells, assigns, transfers and conveys all of the rights of the undersigned under the Note, subject to the terms of the Note, unto the Transferee (as described below): NAME OF TRANSFEREE ADDRESS FACE VALUE OF NOTE The following terms have the following meanings: Effective Date: , 1998 -------------------- Initial Holder: ---------------------------- Dated: TRANSFEROR: -------------------------- [Name of Transferor] By: ------------------------------------- Name: ----------------------------------- Its: ------------------------------------ ACKNOWLEDGMENT OF THE COMPANY: MENDOCINO BREWING COMPANY, INC. By: --------------------------------- Name: ------------------------------- Its: -------------------------------- EX-9 10 CONVERTIBLE NOTE, 6/30/98, $29,858.75 Exhibit 9 CONVERTIBLE NOTE MENDOCINO BREWING COMPANY, INC. - -------------------------------------------------------------------------------- Name of Issuer: Mendocino Brewing Company, Inc. Dated: June 26, 1998 Maturity Date: December 25, 1999 - -------------------------------------------------------------------------------- 1. Promise. Mendocino Brewing Company, Inc., a California corporation having its principal office at 1601 Airport Road, Ukiah, California 95482 and any successor (the "Company"), for value received, promises to pay to United Breweries of America Inc., a Delaware corporation or to its registered successors or assigns (the "Holder") the principal sum of Three Hundred Thousand and no/100 Dollars ($300,000.00) on presentation and surrender of this Convertible Note ("Note") on December 25, 1999 (the "Maturity Date"), and to pay interest on that principal sum at a rate equal to one and one-half percent (1.50%) per annum above the prime rate offered from time to time by the Bank of America in San Francisco, California. Interest payments shall be paid quarterly on the first day of the months of April, July, October, and January of each year. 2. Form of Payment. All payments under this Note shall be made in lawful money of the United States of America. The Company waives diligence, presentment, protest, demand and notice of protest, dishonor, and nonpayment of this Note. 3. Conversion/Redemption/Renewal. (a) The Holder has the right, at the holder's option, at any time on or after the Maturity Date, to convert all or any portion of this Note into fully paid and nonassessable shares of common stock ("Common Stock") of the Company at the rate of one share of such Common Stock for each One Dollar and 50/100 ($1.50) (the "Conversion Rate") principal amount of this Note and any accrued but unpaid interest. The Holder agrees that all shares of Common Stock of the Company, issued by the Company upon the conversion of all or any part of this Note shall be restricted securities within the meaning of Rule 144(a) of the Securities Act of 1933. The Holder further agrees that any shares of Common Stock acquired by means of any conversion as set forth herein shall be further restricted by the terms and conditions set forth in that certain Shareholders' Agreement, dated October 24, 1997, by and among the Company, Holder, and the Original Partners (as such term is defined in the Shareholders' Agreement). (b) The conversion right set forth in this Section 3 is subject to any adjustment of the Conversion Rate set forth in Section 5 and Section 6, and is only exercisable upon the surrender of this Note for conversion at the office or agency to be maintained by the Company accompanied by instruments of transfer, in form satisfactory to the Company, duly executed by the registered holder. No fractional shares are issuable on any conversion, but in lieu of issuing fractional shares the Company shall pay for such fractional shares in cash. (c) At any time prior to seventeen (17) months from the date of this Note, the Holder may provide written notice to the Company requiring the Company to repay all or any part of the outstanding principal balance of this Note, together with any accrued but unpaid interest thereon, to Holder on the Maturity Date. (d) If Holder does not convert or redeem any or all of the principal amount of the Note into Common Stock on the Maturity Date, Holder has the right to extend the term of this Note for a period of time mutually agreed upon between Holder and the Company. At any time during such extension period, Holder shall have the right to convert all or any part of the outstanding principal amount of the Note plus accrued and unpaid interest into Common Stock as set forth in this Section 3. Moreover, at any time during such extension period, Holder shall have the right to require the Company to repay all or any part of the outstanding principal balance of this Note, together with any accrued but unpaid interest thereon, to Holder within sixty (60) days. 4. Company Redemption. Prior to the Maturity Date, this Note may be redeemed by the Company, in whole or in part, at any time after sixty (60) days written notice ("Redemption Notice") to Holder. During such sixty (60) day period, Holder shall have the right to convert all or any part of the outstanding principal amount of the Note plus accrued and unpaid interest into Common Stock, as set forth in Section 3. If Holder does not convert all outstanding amounts into Common Stock, the Company may redeem any remaining amounts at any time during a thirty (30) day period commencing with the date of expiration of the sixty (60) day period provided for in the Redemption Notice. Thereafter, Company shall be required to provide Holder with a new Redemption Notice, and Holder shall have a new sixty (60) day period within which to convert all or any part of the outstanding principal amounts plus accrued and unpaid interest into Common Stock, as set forth in Section 3. 5. Anti-Dilution. (a) If at any time there is a capital reorganization of the Company's Common Stock, including any combination, reclassification, exchange, or subdivision of shares, a merger or consolidation of the Company with or into another corporation, or the sale of all or substantially all the Company's properties and assets as, or substantially as, an entirety to another person, then, as a part of such reorganization, merger, consolidation, or sale, lawful provision shall be made so that Holder shall thereafter be entitled to receive on conversion of this Note, during the period specified in this Note, the number of shares of Common Stock of the Company, or of the successor corporation resulting from such merger or consolidation, to which a holder of the Common Stock deliverable on conversion of this Note would have been entitled on that event if this Note had been converted immediately before that event. In any such case, appropriate adjustment (as determined by the Company's board of directors) shall be made in applying this Note to the rights and the percentage interests of Holder after the reorganization, merger, consolidation, or sale to the end that this Note (including adjustment of the Conversion Rate) shall be applicable after that event, as near as reasonably may be, in relation to the shares of Common Stock deliverable after that event on conversion of this Note. The Company shall, not later than thirty (30) days prior to making such adjustment, give written notice ("Notice") by courier to Holder at the address of Holder shown on the Company's books. (b) Any Notice that is sent pursuant to Section 5(a) shall set forth, in reasonable detail, the event requiring the adjustment and the method by which the adjustment was calculated and shall specify the Conversion Rate then in effect after the adjustment and the increased or decreased number of shares of Common Stock to be received upon conversion of this Note. When appropriate, advance notice may be given and included as part of the notice required under other provisions of this Note. 6. Conversion Rate Protection. (a) If at any time, or from time to time, the Company issues or sells shares of Common Stock without consideration or for a consideration per share less than the Conversion Rate in effect immediately before that issue or sale, then and in each such case: (i) the Conversion Rate then in effect and the Conversion Rate applicable for any subsequent period shall be adjusted to a price (calculated to the nearest cent) determined by dividing: (y) the sum of (aa) the number of shares of Common Stock outstanding immediately before that issue or sale multiplied by the Conversion Rate in effect immediately before that issue or sale, plus (bb) the consideration, if any, received by the Company on that issue or sale, by (z) the number of shares of the Company's Common Stock outstanding immediately after that issue or sale; and (ii) Holder shall after that issue or sale, on conversion of this Note, be entitled to receive the number of shares of Common Stock equal to the number of shares that would otherwise, but for the adjustment provided for in Section 6(a)(i), be issuable on such conversion multiplied by a fraction, the numerator of which is the Conversion Rate then in effect and the denominator of which is the Conversion Rate in effect immediately after the adjustment provided for in Section 6(a)(i) on the date of conversion. No such adjustment shall be made in an amount less than Five Cents ($0.05), but any such amount shall be carried forward and given effect in the next adjustment, if any. (b) If the Company (i) grants any rights or options to subscribe for, purchase, or otherwise acquire shares of Common Stock, or (ii) issues or sells any security, other than this Note, which is convertible into shares of Common Stock, then the price per share of Common Stock issuable on the exercise of the rights or options or the conversion of the securities shall be calculated by dividing: (y) the total amount, if any, received or receivable by the Company as consideration for the granting of the rights or options or the issue or sale of the convertible securities, plus the minimum aggregate amount of additional consideration payable to the Company on exercise of the convertible securities, by (z) the maximum number of shares of Common Stock issuable on the exercise or conversion. (i) If the price per share so calculated is less than the Conversion Rate of this Note in effect immediately before the rights or options are granted or the convertible securities are issued or sold, the granting or issue or sale shall be considered to be an issue or sale for cash of the maximum number of shares of Common Stock so issuable on exercise or conversion at the price per share determined under this provision, and the Conversion Rate of this Note shall be adjusted as provided above to reflect (on the basis of that determination) the issue or sale. No further adjustment of the Conversion Rate shall be made as a result of the actual issuance of shares of Common Stock on the exercise of any such rights or options or the conversion of any such convertible securities. (ii) If such rights or options or convertible securities by their terms provide, with the passage of time or otherwise, for any increase in the amount of additional consideration payable to the Company or any decrease in the number of shares of Common Stock issuable on such exercise or exchange (by change of rate or otherwise), the Conversion Rate shall, when each such increase or decrease becomes effective, be readjusted to reflect the increase or decrease as far as it affects rights of exercise or conversion that have not expired before that time. (iii) If, on the expiration of such rights or options or the rights of conversion of such convertible securities, any of them shall not have been exercised, the Conversion Rate shall be readjusted and will then be the same as it would have been had it originally been adjusted (or had the original adjustment not been required, as the case may be), on the basis that (y) the only shares of Common Stock so issued were the shares of Common Stock, if any, actually issued or sold on the exercise of such rights or options or rights of conversion of such convertible securities, and (z) such shares of Common Stock, if any, were issued or sold for the consideration actually received by the Company on such exercise plus the consideration, if any, actually received by the Company for granting all such rights or options or for issuing or selling all such convertible securities. (iv) No adjustment of the Conversion Rate as provided in this Section 6(b) shall occur upon the granting of stock options or warrants to employees of the Company in the aggregate amount of less than three hundred thousand (300,000) shares of Common Stock. 7. Subordination. (a) Upon the written agreement of Holder, this Note may be subordinated to any or all debt owed by the Company to banks and other financial institutions, other than to the extent debt to any such bank or financial institution involves the issuance of shares of the Company's stock or notes, warrants, options or any other security convertible into such stock. (b) The payment of the indebtedness evidenced by this instrument is subordinated to the payment of the "Senior Debt" defined and described in the Subordination Agreement, dated as of September 24, 1998, between United Breweries of America Inc. and the CIT Group/Credit Finance, Inc., and reference is made to such Agreement for a full statement of the terms and conditions of such subordination. (c) The payment of the indebtedness evidenced by this instrument is subordinated to the payment of the "Senior Debt" defined and described in the Subordination Agreement, dated on or about November 15, 1998, between United Breweries of America Inc. and the Savings Bank of Mendocino, Inc., and reference is made to such Agreement for a full statement of the terms and conditions of such subordination. 8. Enforcement. The Company agrees to reimburse Holder for all costs of collection or enforcement of this Note, whether or not suit is filed (including, but not limited to, reasonable attorney fees), incurred by Holder. 9. Governing Law. This Note shall be governed by and construed in accordance with the laws, without regard to the laws as to choice or conflict of laws, of the State of California. 10. Default. If Company fails to pay any installment of principal or interest when due, then, or at any time during such default, the entire amount of the unpaid principal and interest shall, at the election of Holder, become immediately due and payable. 11. Waiver. No previous waiver and no failure or delay by Holder in acting with respect to the terms of this Note shall constitute a waiver of any subsequent breach, default or failure of condition under this Note. A waiver of any term of this Note must be in writing and shall be limited to the express written terms of such waiver. No delay or omission on the part of Holder in exercising any right under this Note shall operate as a waiver of such right or of any other right. 12. Reservation of Stock. The Company covenants that it will at all times reserve and keep available, solely for issuance on conversion of this Note, all shares of Common Stock from time to time issuable upon exercise of this Note. 13. Replacement. Upon receipt of evidence reasonably satisfactory to the Company, of the loss, theft, destruction, or modification of this Note and, in the event of such occurrence, on delivery of an indemnity agreement or Note reasonably satisfactory in form and amount to the Company or in the case of mutilation, on surrender and cancellation of this Note, the Company at its expense will execute and deliver, in lieu of this Note, a new Note of like tender. 14. Transfer. NO SALE OR TRANSFER OF THIS NOTE SHALL BE EFFECTIVE UNLESS AND UNTIL ALL OF THE FOLLOWING STEPS ARE COMPLIED WITH: (a) The transferor and the transferee shall execute the form of Transfer Statement attached to this Note (or a similar statement which shall then be attached to this Note); (b) This Note and the executed Transfer Statement, together with a United States Internal Revenue Service Form W-8 "Certificate of Foreign Status" or a Form W-9 "Request for Taxpayer Identification Number and Certification" completed and executed by the transferee, shall be delivered to the Company at the Company's address as provided above; and (c) If the Company is satisfied that the information contained in the Transfer Statement is consistent with the information contained in the completed and executed Form W-8 or W-9, as applicable, the Company shall enter the transfer on a Note Holder Ledger maintained by the Company for this purpose. Any purported transfer with respect to which all of the above steps have note been complied with shall be null and void and of no force or effect. IN WITNESS WHEREOF, the Company has caused this Convertible Note to be executed in its corporate name by the signature of its president and secretary. MENDOCINO BREWING COMPANY, INC., a California corporation By: /s/ Michael Laybourn ------------------------------------- Michael Laybourn Its: President By: /s/ P.A. Murali ------------------------------------- P.A. Murali Its: Secretary CONVERSION NOTICE Conversion Notice To: MENDOCINO BREWING COMPANY, INC. The undersigned holder of this Note, hereby irrevocably exercises the option to convert this Note or the portion of it designated below into shares of Common Stock of the Company, in accordance with the terms of the Note, and directs that the shares issuable and deliverable on the conversion, together with any check in payment of fractional shares, be issued and delivered to the undersigned unless a different name is specified below. If shares of Common Stock are to be issued in the name of anyone other than the undersigned, the undersigned will pay all transfer taxes payable on this conversion and issuance. Dated: ---------------------------- ------------------------------------- Signature If the shares are to be Portion to be converted (in issued other than to a multiples) of $1,000 if less registered holder, print than all: name, address, city, state and zip code of issuee: $ ------------------------------------ Social Security Number of other identifying number of issuers: ------------------------------------- ------------------------------------- ------------------------------------- ------------------------------------- Notice: The signature of these instructions to convert must correspond with the name as written on the face of this Note in every particular, without alteration, enlargement, or any change whatsoever TRANSFER STATEMENT ------------------ NOTICE TO: MENDOCINO BREWING COMPANY, INC. FOR VALUE RECEIVED, the undersigned, the holder of that certain Convertible Note initially executed on the Effective Date (as defined below) by Mendocino Brewing Company, Inc. (the "Company") to the Initial Holder (as defined below) in the Face Value set forth below (the "Note"), hereby sells, assigns, transfers and conveys all of the rights of the undersigned under the Note, subject to the terms of the Note, unto the Transferee (as described below): NAME OF TRANSFEREE ADDRESS FACE VALUE OF NOTE The following terms have the following meanings: Effective Date: , 1998 -------------------- Initial Holder: ---------------------------- Dated: TRANSFEROR: -------------------------- [Name of Transferor] By: ------------------------------------- Name: ----------------------------------- Its: ------------------------------------ ACKNOWLEDGMENT OF THE COMPANY: MENDOCINO BREWING COMPANY, INC. By: --------------------------------- Name: ------------------------------- Its: -------------------------------- EX-10 11 CONVERTIBLE NOTE, 12/31/98, $17,482.77 Exhibit 10 CONVERTIBLE NOTE MENDOCINO BREWING COMPANY, INC. - -------------------------------------------------------------------------------- Name of Issuer: Mendocino Brewing Company, Inc. Dated: December 31, 1998 Maturity Date: June 30, 2000 - -------------------------------------------------------------------------------- 1. Promise. Mendocino Brewing Company, Inc., a California corporation having its principal office at 1601 Airport Road, Ukiah, California 95482 and any successor (the "Company"), for value received, promises to pay to United Breweries of America Inc., a Delaware corporation or to its registered successors or assigns (the "Holder") the principal sum of Seventeen Thousand Four Hundred Eighty Two and 77/100 Dollars ($17,482.77) on presentation and surrender of this Convertible Note ("Note") on June 30, 2000 (the "Maturity Date"), and to pay interest on that principal sum at a rate equal to one and one-half percent (1.50%) per annum above the prime rate offered from time to time by the Bank of America in San Francisco, California. Interest payments shall be paid quarterly on the first day of the months of April, July, October, and January of each year. 2. Form of Payment. All payments under this Note shall be made in lawful money of the United States of America. The Company waives diligence, presentment, protest, demand and notice of protest, dishonor, and nonpayment of this Note. 3. Conversion/Redemption/Renewal. (a) The Holder has the right, at the holder's option, at any time on or after the Maturity Date, to convert all or any portion of this Note into fully paid and nonassessable shares of common stock ("Common Stock") of the Company at the rate of one share of such Common Stock for each One Dollar and 50/100 ($1.50) (the "Conversion Rate") principal amount of this Note and any accrued but unpaid interest. The Holder agrees that all shares of Common Stock of the Company, issued by the Company upon the conversion of all or any part of this Note shall be restricted securities within the meaning of Rule 144(a) of the Securities Act of 1933. The Holder further agrees that any shares of Common Stock acquired by means of any conversion as set forth herein shall be further restricted by the terms and conditions set forth in that certain Shareholders' Agreement, dated October 24, 1997, by and among the Company, Holder, and the Original Partners (as such term is defined in the Shareholders' Agreement). (b) The conversion right set forth in this Section 3 is subject to any adjustment of the Conversion Rate set forth in Section 5 and Section 6, and is only exercisable upon the surrender of this Note for conversion at the office or agency to be maintained by the Company accompanied by instruments of transfer, in form satisfactory to the Company, duly executed by the registered holder. No fractional shares are issuable on any conversion, but in lieu of issuing fractional shares the Company shall pay for such fractional shares in cash. (c) At any time prior to seventeen (17) months from the date of this Note, the Holder may provide written notice to the Company requiring the Company to repay all or any part of the outstanding principal balance of this Note, together with any accrued but unpaid interest thereon, to Holder on the Maturity Date. (d) If Holder does not convert or redeem any or all of the principal amount of the Note into Common Stock on the Maturity Date, Holder has the right to extend the term of this Note for a period of time mutually agreed upon between Holder and the Company. At any time during such extension period, Holder shall have the right to convert all or any part of the outstanding principal amount of the Note plus accrued and unpaid interest into Common Stock as set forth in this Section 3. Moreover, at any time during such extension period, Holder shall have the right to require the Company to repay all or any part of the outstanding principal balance of this Note, together with any accrued but unpaid interest thereon, to Holder within sixty (60) days. 4. Company Redemption. Prior to the Maturity Date, this Note may be redeemed by the Company, in whole or in part, at any time after sixty (60) days written notice ("Redemption Notice") to Holder. During such sixty (60) day period, Holder shall have the right to convert all or any part of the outstanding principal amount of the Note plus accrued and unpaid interest into Common Stock, as set forth in Section 3. If Holder does not convert all outstanding amounts into Common Stock, the Company may redeem any remaining amounts at any time during a thirty (30) day period commencing with the date of expiration of the sixty (60) day period provided for in the Redemption Notice. Thereafter, Company shall be required to provide Holder with a new Redemption Notice, and Holder shall have a new sixty (60) day period within which to convert all or any part of the outstanding principal amounts plus accrued and unpaid interest into Common Stock, as set forth in Section 3. 5. Anti-Dilution. (a) If at any time there is a capital reorganization of the Company's Common Stock, including any combination, reclassification, exchange, or subdivision of shares, a merger or consolidation of the Company with or into another corporation, or the sale of all or substantially all the Company's properties and assets as, or substantially as, an entirety to another person, then, as a part of such reorganization, merger, consolidation, or sale, lawful provision shall be made so that Holder shall thereafter be entitled to receive on conversion of this Note, during the period specified in this Note, the number of shares of Common Stock of the Company, or of the successor corporation resulting from such merger or consolidation, to which a holder of the Common Stock deliverable on conversion of this Note would have been entitled on that event if this Note had been converted immediately before that event. In any such case, appropriate adjustment (as determined by the Company's board of directors) shall be made in applying this Note to the rights and the percentage interests of Holder after the reorganization, merger, consolidation, or sale to the end that this Note (including adjustment of the Conversion Rate) shall be applicable after that event, as near as reasonably may be, in relation to the shares of Common Stock deliverable after that event on conversion of this Note. The Company shall, not later than thirty (30) days prior to making such adjustment, give written notice ("Notice") by courier to Holder at the address of Holder shown on the Company's books. (b) Any Notice that is sent pursuant to Section 5(a) shall set forth, in reasonable detail, the event requiring the adjustment and the method by which the adjustment was calculated and shall specify the Conversion Rate then in effect after the adjustment and the increased or decreased number of shares of Common Stock to be received upon conversion of this Note. When appropriate, advance notice may be given and included as part of the notice required under other provisions of this Note. 6. Conversion Rate Protection. (a) If at any time, or from time to time, the Company issues or sells shares of Common Stock without consideration or for a consideration per share less than the Conversion Rate in effect immediately before that issue or sale, then and in each such case: (i) the Conversion Rate then in effect and the Conversion Rate applicable for any subsequent period shall be adjusted to a price (calculated to the nearest cent) determined by dividing: (y) the sum of (aa) the number of shares of Common Stock outstanding immediately before that issue or sale multiplied by the Conversion Rate in effect immediately before that issue or sale, plus (bb) the consideration, if any, received by the Company on that issue or sale, by (z) the number of shares of the Company's Common Stock outstanding immediately after that issue or sale; and (ii) Holder shall after that issue or sale, on conversion of this Note, be entitled to receive the number of shares of Common Stock equal to the number of shares that would otherwise, but for the adjustment provided for in Section 6(a)(i), be issuable on such conversion multiplied by a fraction, the numerator of which is the Conversion Rate then in effect and the denominator of which is the Conversion Rate in effect immediately after the adjustment provided for in Section 6(a)(i) on the date of conversion. No such adjustment shall be made in an amount less than Five Cents ($0.05), but any such amount shall be carried forward and given effect in the next adjustment, if any. (b) If the Company (i) grants any rights or options to subscribe for, purchase, or otherwise acquire shares of Common Stock, or (ii) issues or sells any security, other than this Note, which is convertible into shares of Common Stock, then the price per share of Common Stock issuable on the exercise of the rights or options or the conversion of the securities shall be calculated by dividing: (y) the total amount, if any, received or receivable by the Company as consideration for the granting of the rights or options or the issue or sale of the convertible securities, plus the minimum aggregate amount of additional consideration payable to the Company on exercise of the convertible securities, by (z) the maximum number of shares of Common Stock issuable on the exercise or conversion. (i) If the price per share so calculated is less than the Conversion Rate of this Note in effect immediately before the rights or options are granted or the convertible securities are issued or sold, the granting or issue or sale shall be considered to be an issue or sale for cash of the maximum number of shares of Common Stock so issuable on exercise or conversion at the price per share determined under this provision, and the Conversion Rate of this Note shall be adjusted as provided above to reflect (on the basis of that determination) the issue or sale. No further adjustment of the Conversion Rate shall be made as a result of the actual issuance of shares of Common Stock on the exercise of any such rights or options or the conversion of any such convertible securities. (ii) If such rights or options or convertible securities by their terms provide, with the passage of time or otherwise, for any increase in the amount of additional consideration payable to the Company or any decrease in the number of shares of Common Stock issuable on such exercise or exchange (by change of rate or otherwise), the Conversion Rate shall, when each such increase or decrease becomes effective, be readjusted to reflect the increase or decrease as far as it affects rights of exercise or conversion that have not expired before that time. (iii) If, on the expiration of such rights or options or the rights of conversion of such convertible securities, any of them shall not have been exercised, the Conversion Rate shall be readjusted and will then be the same as it would have been had it originally been adjusted (or had the original adjustment not been required, as the case may be), on the basis that (y) the only shares of Common Stock so issued were the shares of Common Stock, if any, actually issued or sold on the exercise of such rights or options or rights of conversion of such convertible securities, and (z) such shares of Common Stock, if any, were issued or sold for the consideration actually received by the Company on such exercise plus the consideration, if any, actually received by the Company for granting all such rights or options or for issuing or selling all such convertible securities. (iv) No adjustment of the Conversion Rate as provided in this Section 6(b) shall occur upon the granting of stock options or warrants to employees of the Company in the aggregate amount of less than three hundred thousand (300,000) shares of Common Stock. 7. Subordination. (a) Upon the written agreement of Holder, this Note may be subordinated to any or all debt owed by the Company to banks and other financial institutions, other than to the extent debt to any such bank or financial institution involves the issuance of shares of the Company's stock or notes, warrants, options or any other security convertible into such stock. (b) The payment of the indebtedness evidenced by this instrument is subordinated to the payment of the "Senior Debt" defined and described in the Subordination Agreement, dated as of September 24, 1998, between United Breweries of America Inc. and the CIT Group/Credit Finance, Inc., and reference is made to such Agreement for a full statement of the terms and conditions of such subordination. (c) The payment of the indebtedness evidenced by this instrument is subordinated to the payment of the "Senior Debt" defined and described in the Subordination Agreement, dated on or about November 15, 1998, between United Breweries of America Inc. and the Savings Bank of Mendocino, Inc., and reference is made to such Agreement for a full statement of the terms and conditions of such subordination. 8. Enforcement. The Company agrees to reimburse Holder for all costs of collection or enforcement of this Note, whether or not suit is filed (including, but not limited to, reasonable attorney fees), incurred by Holder. 9. Governing Law. This Note shall be governed by and construed in accordance with the laws, without regard to the laws as to choice or conflict of laws, of the State of California. 10. Default. If Company fails to pay any installment of principal or interest when due, then, or at any time during such default, the entire amount of the unpaid principal and interest shall, at the election of Holder, become immediately due and payable. 11. Waiver. No previous waiver and no failure or delay by Holder in acting with respect to the terms of this Note shall constitute a waiver of any subsequent breach, default or failure of condition under this Note. A waiver of any term of this Note must be in writing and shall be limited to the express written terms of such waiver. No delay or omission on the part of Holder in exercising any right under this Note shall operate as a waiver of such right or of any other right. 12. Reservation of Stock. The Company covenants that it will at all times reserve and keep available, solely for issuance on conversion of this Note, all shares of Common Stock from time to time issuable upon exercise of this Note. 13. Replacement. Upon receipt of evidence reasonably satisfactory to the Company, of the loss, theft, destruction, or modification of this Note and, in the event of such occurrence, on delivery of an indemnity agreement or Note reasonably satisfactory in form and amount to the Company or in the case of mutilation, on surrender and cancellation of this Note, the Company at its expense will execute and deliver, in lieu of this Note, a new Note of like tender. 14. Transfer. NO SALE OR TRANSFER OF THIS NOTE SHALL BE EFFECTIVE UNLESS AND UNTIL ALL OF THE FOLLOWING STEPS ARE COMPLIED WITH: (a) The transferor and the transferee shall execute the form of Transfer Statement attached to this Note (or a similar statement which shall then be attached to this Note); (b) This Note and the executed Transfer Statement, together with a United States Internal Revenue Service Form W-8 "Certificate of Foreign Status" or a Form W-9 "Request for Taxpayer Identification Number and Certification" completed and executed by the transferee, shall be delivered to the Company at the Company's address as provided above; and (c) If the Company is satisfied that the information contained in the Transfer Statement is consistent with the information contained in the completed and executed Form W-8 or W-9, as applicable, the Company shall enter the transfer on a Note Holder Ledger maintained by the Company for this purpose. Any purported transfer with respect to which all of the above steps have note been complied with shall be null and void and of no force or effect. IN WITNESS WHEREOF, the Company has caused this Convertible Note to be executed in its corporate name by the signature of its president and secretary. MENDOCINO BREWING COMPANY, INC., a California corporation By: /s/ Michael Laybourn ------------------------------------- Michael Laybourn Its: President By: /s/ P.A. Murali ------------------------------------- P.A. Murali Its: Secretary CONVERSION NOTICE Conversion Notice To: MENDOCINO BREWING COMPANY, INC. The undersigned holder of this Note, hereby irrevocably exercises the option to convert this Note or the portion of it designated below into shares of Common Stock of the Company, in accordance with the terms of the Note, and directs that the shares issuable and deliverable on the conversion, together with any check in payment of fractional shares, be issued and delivered to the undersigned unless a different name is specified below. If shares of Common Stock are to be issued in the name of anyone other than the undersigned, the undersigned will pay all transfer taxes payable on this conversion and issuance. Dated: ---------------------------- ------------------------------------- Signature If the shares are to be Portion to be converted (in issued other than to a multiples) of $1,000 if less registered holder, print than all: name, address, city, state and zip code of issuee: $ ------------------------------------ Social Security Number of other identifying number of issuers: ------------------------------------- ------------------------------------- ------------------------------------- ------------------------------------- Notice: The signature of these instructions to convert must correspond with the name as written on the face of this Note in every particular, without alteration, enlargement, or any change whatsoever TRANSFER STATEMENT ------------------ NOTICE TO: MENDOCINO BREWING COMPANY, INC. FOR VALUE RECEIVED, the undersigned, the holder of that certain Convertible Note initially executed on the Effective Date (as defined below) by Mendocino Brewing Company, Inc. (the "Company") to the Initial Holder (as defined below) in the Face Value set forth below (the "Note"), hereby sells, assigns, transfers and conveys all of the rights of the undersigned under the Note, subject to the terms of the Note, unto the Transferee (as described below): NAME OF TRANSFEREE ADDRESS FACE VALUE OF NOTE The following terms have the following meanings: Effective Date: , 1998 -------------------- Initial Holder: ---------------------------- Dated: TRANSFEROR: -------------------------- [Name of Transferor] By: ------------------------------------- Name: ----------------------------------- Its: ------------------------------------ ACKNOWLEDGMENT OF THE COMPANY: MENDOCINO BREWING COMPANY, INC. By: --------------------------------- Name: ------------------------------- Its: -------------------------------- EX-11 12 CONVERTIBLE NOTE, 12/31/98, $14,685.59 Exhibit 11 CONVERTIBLE NOTE MENDOCINO BREWING COMPANY, INC. - -------------------------------------------------------------------------------- Name of Issuer: Mendocino Brewing Company, Inc. Dated: December 31, 1998 Maturity Date: June 30, 2000 - -------------------------------------------------------------------------------- 1. Promise. Mendocino Brewing Company, Inc., a California corporation having its principal office at 1601 Airport Road, Ukiah, California 95482 and any successor (the "Company"), for value received, promises to pay to United Breweries of America Inc., a Delaware corporation or to its registered successors or assigns (the "Holder") the principal sum of Fourteen Thousand Six Hundred Eighty Five and 59/100 Dollars ($14,685.59) on presentation and surrender of this Convertible Note ("Note") on June 30, 2000 (the "Maturity Date"), and to pay interest on that principal sum at a rate equal to one and one-half percent (1.50%) per annum above the prime rate offered from time to time by the Bank of America in San Francisco, California. Interest payments shall be paid quarterly on the first day of the months of April, July, October, and January of each year. 2. Form of Payment. All payments under this Note shall be made in lawful money of the United States of America. The Company waives diligence, presentment, protest, demand and notice of protest, dishonor, and nonpayment of this Note. 3. Conversion/Redemption/Renewal. (a) The Holder has the right, at the holder's option, at any time on or after the Maturity Date, to convert all or any portion of this Note into fully paid and nonassessable shares of common stock ("Common Stock") of the Company at the rate of one share of such Common Stock for each One Dollar and 50/100 ($1.50) (the "Conversion Rate") principal amount of this Note and any accrued but unpaid interest. The Holder agrees that all shares of Common Stock of the Company, issued by the Company upon the conversion of all or any part of this Note shall be restricted securities within the meaning of Rule 144(a) of the Securities Act of 1933. The Holder further agrees that any shares of Common Stock acquired by means of any conversion as set forth herein shall be further restricted by the terms and conditions set forth in that certain Shareholders' Agreement, dated October 24, 1997, by and among the Company, Holder, and the Original Partners (as such term is defined in the Shareholders' Agreement). (b) The conversion right set forth in this Section 3 is subject to any adjustment of the Conversion Rate set forth in Section 5 and Section 6, and is only exercisable upon the surrender of this Note for conversion at the office or agency to be maintained by the Company accompanied by instruments of transfer, in form satisfactory to the Company, duly executed by the registered holder. No fractional shares are issuable on any conversion, but in lieu of issuing fractional shares the Company shall pay for such fractional shares in cash. (c) At any time prior to seventeen (17) months from the date of this Note, the Holder may provide written notice to the Company requiring the Company to repay all or any part of the outstanding principal balance of this Note, together with any accrued but unpaid interest thereon, to Holder on the Maturity Date. (d) If Holder does not convert or redeem any or all of the principal amount of the Note into Common Stock on the Maturity Date, Holder has the right to extend the term of this Note for a period of time mutually agreed upon between Holder and the Company. At any time during such extension period, Holder shall have the right to convert all or any part of the outstanding principal amount of the Note plus accrued and unpaid interest into Common Stock as set forth in this Section 3. Moreover, at any time during such extension period, Holder shall have the right to require the Company to repay all or any part of the outstanding principal balance of this Note, together with any accrued but unpaid interest thereon, to Holder within sixty (60) days. 4. Company Redemption. Prior to the Maturity Date, this Note may be redeemed by the Company, in whole or in part, at any time after sixty (60) days written notice ("Redemption Notice") to Holder. During such sixty (60) day period, Holder shall have the right to convert all or any part of the outstanding principal amount of the Note plus accrued and unpaid interest into Common Stock, as set forth in Section 3. If Holder does not convert all outstanding amounts into Common Stock, the Company may redeem any remaining amounts at any time during a thirty (30) day period commencing with the date of expiration of the sixty (60) day period provided for in the Redemption Notice. Thereafter, Company shall be required to provide Holder with a new Redemption Notice, and Holder shall have a new sixty (60) day period within which to convert all or any part of the outstanding principal amounts plus accrued and unpaid interest into Common Stock, as set forth in Section 3. 5. Anti-Dilution. (a) If at any time there is a capital reorganization of the Company's Common Stock, including any combination, reclassification, exchange, or subdivision of shares, a merger or consolidation of the Company with or into another corporation, or the sale of all or substantially all the Company's properties and assets as, or substantially as, an entirety to another person, then, as a part of such reorganization, merger, consolidation, or sale, lawful provision shall be made so that Holder shall thereafter be entitled to receive on conversion of this Note, during the period specified in this Note, the number of shares of Common Stock of the Company, or of the successor corporation resulting from such merger or consolidation, to which a holder of the Common Stock deliverable on conversion of this Note would have been entitled on that event if this Note had been converted immediately before that event. In any such case, appropriate adjustment (as determined by the Company's board of directors) shall be made in applying this Note to the rights and the percentage interests of Holder after the reorganization, merger, consolidation, or sale to the end that this Note (including adjustment of the Conversion Rate) shall be applicable after that event, as near as reasonably may be, in relation to the shares of Common Stock deliverable after that event on conversion of this Note. The Company shall, not later than thirty (30) days prior to making such adjustment, give written notice ("Notice") by courier to Holder at the address of Holder shown on the Company's books. (b) Any Notice that is sent pursuant to Section 5(a) shall set forth, in reasonable detail, the event requiring the adjustment and the method by which the adjustment was calculated and shall specify the Conversion Rate then in effect after the adjustment and the increased or decreased number of shares of Common Stock to be received upon conversion of this Note. When appropriate, advance notice may be given and included as part of the notice required under other provisions of this Note. 6. Conversion Rate Protection. (a) If at any time, or from time to time, the Company issues or sells shares of Common Stock without consideration or for a consideration per share less than the Conversion Rate in effect immediately before that issue or sale, then and in each such case: (i) the Conversion Rate then in effect and the Conversion Rate applicable for any subsequent period shall be adjusted to a price (calculated to the nearest cent) determined by dividing: (y) the sum of (aa) the number of shares of Common Stock outstanding immediately before that issue or sale multiplied by the Conversion Rate in effect immediately before that issue or sale, plus (bb) the consideration, if any, received by the Company on that issue or sale, by (z) the number of shares of the Company's Common Stock outstanding immediately after that issue or sale; and (ii) Holder shall after that issue or sale, on conversion of this Note, be entitled to receive the number of shares of Common Stock equal to the number of shares that would otherwise, but for the adjustment provided for in Section 6(a)(i), be issuable on such conversion multiplied by a fraction, the numerator of which is the Conversion Rate then in effect and the denominator of which is the Conversion Rate in effect immediately after the adjustment provided for in Section 6(a)(i) on the date of conversion. No such adjustment shall be made in an amount less than Five Cents ($0.05), but any such amount shall be carried forward and given effect in the next adjustment, if any. (b) If the Company (i) grants any rights or options to subscribe for, purchase, or otherwise acquire shares of Common Stock, or (ii) issues or sells any security, other than this Note, which is convertible into shares of Common Stock, then the price per share of Common Stock issuable on the exercise of the rights or options or the conversion of the securities shall be calculated by dividing: (y) the total amount, if any, received or receivable by the Company as consideration for the granting of the rights or options or the issue or sale of the convertible securities, plus the minimum aggregate amount of additional consideration payable to the Company on exercise of the convertible securities, by (z) the maximum number of shares of Common Stock issuable on the exercise or conversion. (i) If the price per share so calculated is less than the Conversion Rate of this Note in effect immediately before the rights or options are granted or the convertible securities are issued or sold, the granting or issue or sale shall be considered to be an issue or sale for cash of the maximum number of shares of Common Stock so issuable on exercise or conversion at the price per share determined under this provision, and the Conversion Rate of this Note shall be adjusted as provided above to reflect (on the basis of that determination) the issue or sale. No further adjustment of the Conversion Rate shall be made as a result of the actual issuance of shares of Common Stock on the exercise of any such rights or options or the conversion of any such convertible securities. (ii) If such rights or options or convertible securities by their terms provide, with the passage of time or otherwise, for any increase in the amount of additional consideration payable to the Company or any decrease in the number of shares of Common Stock issuable on such exercise or exchange (by change of rate or otherwise), the Conversion Rate shall, when each such increase or decrease becomes effective, be readjusted to reflect the increase or decrease as far as it affects rights of exercise or conversion that have not expired before that time. (iii) If, on the expiration of such rights or options or the rights of conversion of such convertible securities, any of them shall not have been exercised, the Conversion Rate shall be readjusted and will then be the same as it would have been had it originally been adjusted (or had the original adjustment not been required, as the case may be), on the basis that (y) the only shares of Common Stock so issued were the shares of Common Stock, if any, actually issued or sold on the exercise of such rights or options or rights of conversion of such convertible securities, and (z) such shares of Common Stock, if any, were issued or sold for the consideration actually received by the Company on such exercise plus the consideration, if any, actually received by the Company for granting all such rights or options or for issuing or selling all such convertible securities. (iv) No adjustment of the Conversion Rate as provided in this Section 6(b) shall occur upon the granting of stock options or warrants to employees of the Company in the aggregate amount of less than three hundred thousand (300,000) shares of Common Stock. 7. Subordination. (a) Upon the written agreement of Holder, this Note may be subordinated to any or all debt owed by the Company to banks and other financial institutions, other than to the extent debt to any such bank or financial institution involves the issuance of shares of the Company's stock or notes, warrants, options or any other security convertible into such stock. (b) The payment of the indebtedness evidenced by this instrument is subordinated to the payment of the "Senior Debt" defined and described in the Subordination Agreement, dated as of September 24, 1998, between United Breweries of America Inc. and the CIT Group/Credit Finance, Inc., and reference is made to such Agreement for a full statement of the terms and conditions of such subordination. (c) The payment of the indebtedness evidenced by this instrument is subordinated to the payment of the "Senior Debt" defined and described in the Subordination Agreement, dated on or about November 15, 1998, between United Breweries of America Inc. and the Savings Bank of Mendocino, Inc., and reference is made to such Agreement for a full statement of the terms and conditions of such subordination. 8. Enforcement. The Company agrees to reimburse Holder for all costs of collection or enforcement of this Note, whether or not suit is filed (including, but not limited to, reasonable attorney fees), incurred by Holder. 9. Governing Law. This Note shall be governed by and construed in accordance with the laws, without regard to the laws as to choice or conflict of laws, of the State of California. 10. Default. If Company fails to pay any installment of principal or interest when due, then, or at any time during such default, the entire amount of the unpaid principal and interest shall, at the election of Holder, become immediately due and payable. 11. Waiver. No previous waiver and no failure or delay by Holder in acting with respect to the terms of this Note shall constitute a waiver of any subsequent breach, default or failure of condition under this Note. A waiver of any term of this Note must be in writing and shall be limited to the express written terms of such waiver. No delay or omission on the part of Holder in exercising any right under this Note shall operate as a waiver of such right or of any other right. 12. Reservation of Stock. The Company covenants that it will at all times reserve and keep available, solely for issuance on conversion of this Note, all shares of Common Stock from time to time issuable upon exercise of this Note. 13. Replacement. Upon receipt of evidence reasonably satisfactory to the Company, of the loss, theft, destruction, or modification of this Note and, in the event of such occurrence, on delivery of an indemnity agreement or Note reasonably satisfactory in form and amount to the Company or in the case of mutilation, on surrender and cancellation of this Note, the Company at its expense will execute and deliver, in lieu of this Note, a new Note of like tender. 14. Transfer. NO SALE OR TRANSFER OF THIS NOTE SHALL BE EFFECTIVE UNLESS AND UNTIL ALL OF THE FOLLOWING STEPS ARE COMPLIED WITH: (a) The transferor and the transferee shall execute the form of Transfer Statement attached to this Note (or a similar statement which shall then be attached to this Note); (b) This Note and the executed Transfer Statement, together with a United States Internal Revenue Service Form W-8 "Certificate of Foreign Status" or a Form W-9 "Request for Taxpayer Identification Number and Certification" completed and executed by the transferee, shall be delivered to the Company at the Company's address as provided above; and (c) If the Company is satisfied that the information contained in the Transfer Statement is consistent with the information contained in the completed and executed Form W-8 or W-9, as applicable, the Company shall enter the transfer on a Note Holder Ledger maintained by the Company for this purpose. Any purported transfer with respect to which all of the above steps have note been complied with shall be null and void and of no force or effect. IN WITNESS WHEREOF, the Company has caused this Convertible Note to be executed in its corporate name by the signature of its president and secretary. MENDOCINO BREWING COMPANY, INC., a California corporation By: /s/ Michael Laybourn ------------------------------------- Michael Laybourn Its: President By: /s/ P.A. Murali ------------------------------------- P.A. Murali Its: Secretary CONVERSION NOTICE Conversion Notice To: MENDOCINO BREWING COMPANY, INC. The undersigned holder of this Note, hereby irrevocably exercises the option to convert this Note or the portion of it designated below into shares of Common Stock of the Company, in accordance with the terms of the Note, and directs that the shares issuable and deliverable on the conversion, together with any check in payment of fractional shares, be issued and delivered to the undersigned unless a different name is specified below. If shares of Common Stock are to be issued in the name of anyone other than the undersigned, the undersigned will pay all transfer taxes payable on this conversion and issuance. Dated: ---------------------------- ------------------------------------- Signature If the shares are to be Portion to be converted (in issued other than to a multiples) of $1,000 if less registered holder, print than all: name, address, city, state and zip code of issuee: $ ------------------------------------ Social Security Number of other identifying number of issuers: ------------------------------------- ------------------------------------- ------------------------------------- ------------------------------------- Notice: The signature of these instructions to convert must correspond with the name as written on the face of this Note in every particular, without alteration, enlargement, or any change whatsoever TRANSFER STATEMENT ------------------ NOTICE TO: MENDOCINO BREWING COMPANY, INC. FOR VALUE RECEIVED, the undersigned, the holder of that certain Convertible Note initially executed on the Effective Date (as defined below) by Mendocino Brewing Company, Inc. (the "Company") to the Initial Holder (as defined below) in the Face Value set forth below (the "Note"), hereby sells, assigns, transfers and conveys all of the rights of the undersigned under the Note, subject to the terms of the Note, unto the Transferee (as described below): NAME OF TRANSFEREE ADDRESS FACE VALUE OF NOTE The following terms have the following meanings: Effective Date: , 1998 -------------------- Initial Holder: ---------------------------- Dated: TRANSFEROR: -------------------------- [Name of Transferor] By: ------------------------------------- Name: ----------------------------------- Its: ------------------------------------ ACKNOWLEDGMENT OF THE COMPANY: MENDOCINO BREWING COMPANY, INC. By: --------------------------------- Name: ------------------------------- Its: -------------------------------- -----END PRIVACY-ENHANCED MESSAGE-----