UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-k
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): June 20, 2016
MENDOCINO BREWING COMPANY, INC.
(Exact Name of Registrant as Specified in Charter)
California
(State or Other Jurisdiction of Incorporation)
| 0-22524 | 68-0318293 | |
| (Commission File No.) | (IRS Employer Identification Number) |
1601 Airport Road, Ukiah, California 95482
(Address of Principal Executive Offices) (Zip Code)
(707) 463-2087
(Registrant’s Telephone Number, Including Area Code)
N/A
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 1.01 Entry into a Material Definitive Agreement
Effective June 20, 2016, Mendocino Brewing Company, Inc., a California corporation (the “Company”), Releta Brewing Company LLC, a Delaware limited liability company (“RBC”, together with the Company, the “Borrowers”) and MB Financial Bank, N.A., successor in interest to Cole Taylor Bank (“Lender”) entered into a Third Amendment (the “Third Amendment”) to the Credit and Security Agreement (as amended, the “Agreement”) dated June 23, 2011, as previously amended on March 29, 2013 and January 21, 2015 (the “Second Amendment”).
The Agreement provides the Borrowers a credit facility, secured by the personal property of the Company and RBC, and the Company’s Ukiah, California facility, among other items of the Borrowers’ property. Prior to the Third Amendment, the credit facility was to mature on June 23, 2016 and consisted of a $2,500,000 revolving facility (the “Revolver”), a $1,934,000 machinery and equipment term loan, a $2,947,000 real estate term loan and a $1,000,000 capital expenditure line of credit.
Borrowers have advised the Lender that they are unable to pay the Obligations (as defined in the Agreement) by the current maturity date of June 23, 2016 and requested that the Lender amend the Credit Agreement to extend the current maturity date. The Third Amendment extends the maturity date of the Credit Agreement from June 23, 2016 to July 23, 2016. The Third Amendment also reduced the Revolver from $2,500,000 to $1,250,000. In connection with the Third Amendment, Borrowers paid a $10,000 non-refundable amendment fee to the Lender, which was charged to the Revolver provided by Lender under the Agreement.
The Third Amendment also confirms the continuance of certain events of default under the Agreement. The Borrowers have previously received notices from the Lender regarding the exercise of rights related to events of default on September 18, 2013, April 18, 2014 and August 18, 2014 (the “Default Notices”), as described in current reports on Form 8-K of the Company filed on September 24, 2013, April 24, 2014 and August 22, 2014, respectively. As previously disclosed in the Company’s current reports on Form 8-K filed on May 3, 2013, September 24, 2013, April 24, 2014, August 22, 2014, January 27, 2015, and June 9, 2015, quarterly reports on Form 10-Q filed on August 14, 2013, November 14, 2013, August 14, 2014, November 11, 2014, May 15, 2015, August 14, 2015, November 16, 2015, and May 16, 2016, and annual reports on Form 10-K filed on March 31, 2014, March 31, 2015 and April 14, 2016 (which are incorporated by reference herein to the extent they refer to the Agreement), the Borrowers have been in default under certain provisions of the Agreement.
The covenants made by the Borrowers pursuant to the Agreement include requirements that the Borrowers maintain certain financial metrics. As stated in the Third Amendment, the Borrowers have continued to be in default on the fixed charge coverage ratio as of the period ending April 30, 2016 and the dates set forth in the Second Amendment. The fixed charge coverage ratio is required to be 1.15 to 1.00. As of March 31, 2016, the fixed charge coverage ratio was -0.20 to 1.00.
The Third Amendment also states that the tangible net worth of the Borrowers has continued to fall short of the required amount as measured through April 30, 2016. The Company calculates the required tangible net worth of the Borrowers to be $6,181,400 as of March 31, 2016 and the actual tangible net worth on such date to be $3,576,900. The Company does not anticipate that the Borrowers will be able to regain compliance with the required fixed charge coverage ratio or the minimum tangible net worth in the near future.
The Lender has not waived the events of default described in the Default Notices or the Third Amendment and has reserved the right to all available rights and remedies. The Lender could declare the full amount owed under the Agreement due and payable at any time for any reason or no reason. As stated in the Second Amendment, the Lender continues to charge a default interest rate equal to two percent (2%) per annum in excess of the interest rate otherwise payable under the Agreement. If the Lender exercises additional remedies, such exercise may have a material adverse effect on the Company’s financial condition and the Company’s ability to continue to operate. If it becomes necessary for the Borrowers to seek additional financing, there is no guarantee that the Borrowers will be able to obtain such financing on terms favorable to the Company or on any terms.
The foregoing is not intended to be a complete description of the Third Amendment and is subject to, and qualified in its entirety by, the full text of the Third Amendment which is filed as Exhibit 10.1 to this current report on Form 8-K.
Item 2.04 Triggering Events That Accelerate or Increase a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement.
See Item 1.01 above.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
| Exhibit | ||
| Number | Description | |
| 10.1 | Third Amendment to Credit and Security Agreement, effective as of June 20, 2016, by and among MB Financial Bank, N.A., successor in interest to Cole Taylor Bank, Mendocino Brewing Company, Inc., a California corporation, and Releta Brewing Company LLC, a Delaware limited liability company. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| MENDOCINO BREWING COMPANY, INC. | |
| (Registrant) | |
| Date: June 24, 2016 | /s/ Mahadevan Narayanan |
| Mahadevan Narayanan | |
| Chief Financial Officer & Corporate Secretary |
THIRD AMENDMENT TO CREDIT AND SECURITY AGREEMENT
This Third Amendment to Credit and Security Agreement (this “Amendment”) is made effective as of June 20, 2016, by and among MB FINANCIAL BANK, N.A., successor in interest to Cole Taylor Bank (“Lender”), MENDOCINO BREWING COMPANY, INC., a California corporation (“MBC”), and RELETA BREWING COMPANY LLC, a Delaware limited liability company (“RBC”; RBC and MBC are collectively referred to as “Borrowers” and, individually, as a “Borrower”).
PRELIMINARY STATEMENTS
A. Borrowers and Lender have entered into that certain Credit and Security Agreement dated as of June 23, 2011 (as amended, restated, or otherwise modified from time to time, the “Credit Agreement”).
B. As of the date hereof, Events of Default under Section 13.01(b) of the Credit Agreement are continuing, including, without limitation, the failure to comply with the Tangible Net Worth covenant contained in Section 12.01 of the Credit Agreement and the failure to comply with the Fixed Charge Coverage covenant contained in Section 12.02 of the Credit Agreement, each as of the period ending April 30, 2016 and the dates set forth in the Second Amendment to Credit and Security Agreement dated as of June 21, 2015 (collectively, the “Existing Defaults”).
C. Borrowers have advised the Lender that Borrowers are unable to pay the Obligations by the current Maturity Date and have requested that Lender amend the Credit Agreement to extend the Maturity Date. Borrowers acknowledge that the failure to pay the Obligations in full by the Maturity Date is an Event of Default. Lender has therefore agreed to amend the Credit Agreement to extend the Maturity Date to no later than July 23, 2016 on the terms and conditions set forth below.
NOW THEREFORE, in consideration of the foregoing and such other consideration as the parties mutually agree, the parties hereto agree as follows:
1. Preliminary Statements. The preliminary statements set forth above are accurate, represent the intent of the parties hereto and are incorporated herein by reference. Unless otherwise defined in this Amendment, capitalized terms used herein will have the same meaning in this Amendment as set forth in the Credit Agreement.
2. Amendments to Credit Agreement.
(a) Definition of “Maturity Date” in Section 1.01 of the Credit Agreement is hereby deleted in its entirety and replaced with the following:
“Maturity Date” means July 23, 2016.
(b) The definition of “Maximum Revolving Loan Limit” in Section 1.01 of the Credit Agreement is hereby deleted in its entirety and replaced with the following:
’“Maximum Revolving Loan Limit’ means $1,250,000.”
3. Reservation of Rights; No Waiver. As a result of the Existing Defaults, Lender is permitted to exercise its default rights and remedies as provided in the Credit Agreement without further notice or demand. All new advances continue to be in the sole discretion of Lender and neither the entering into this Amendment nor the making of additional advances by Lender waives any of the default rights and remedies of Lender under Section 13.02 of the Credit Agreement. All default rights and remedies of Lender are therefore reserved.
4. Conditions Precedent to Effectiveness of this Amendment. The following are conditions precedent to the effectiveness of this Amendment, notwithstanding anything contained herein to the contrary:
(a) Lender shall have received a fully executed copy of this Amendment in form and substance satisfactory to Lender; and
(b) Lender shall have received payment from Borrowers of all amounts due to Lender in connection with this Amendment.
5. Expenses. Immediately upon request, Borrowers shall pay all reasonable expenses and costs of Lender (including, without limitation, the reasonable attorney fees of counsel for Lender and reasonable expenses of counsel for Lender) in connection with the preparation, negotiation, execution and approval of this Amendment and any and all other documents, instruments and things contemplated hereby, whether or not such transactions are consummated, together with all other reasonable expenses and costs incurred by Lender chargeable to Borrowers pursuant to the terms of the Credit Agreement which are unpaid at such time.
6. Amendment Fee. Borrowers agree to pay on the date hereof an amendment fee of $10,000.00, which fee Lender may charge as a Revolving Loan. Such fee shall be fully earned when due and is non refundable.
7. Ratification; Estoppel; Reaffirmation.
(a) Each Borrower reaffirms the Credit Agreement and other Loan Documents, and ratifies the Credit Agreement and the other Loan Documents, as amended, modified, and supplemented.
(b) Each Borrower reaffirms to Lender each of the representations, warranties, covenants and agreements set forth in Sections 9 through 12 of the Credit Agreement and the other Loan Documents with the same forcc and effect as if each were separately stated herein and made as of the date hereof to Lender.
(c) Each Borrower further represents and warrants that, as of the date hereof, there are no counterclaims, defenses or offsets of any nature whatsoever to the Loans or any of the Loan Documents and that, as of the date hereof, no Event of Default (other than the Existing Defaults) has occurred or exists under any of the Loan Documents.
(d) Each Borrower ratifies, affirms and agrees that the Credit Agreement and other Loan Documents, as amended, modified, and supplemented hereby by this Amendment, represent the valid, enforceable and collectible obligations of Borrower.
8. Release. Each Borrower does hereby release, remise, acquit and forever discharge Lender and Lender’s employees, agents, representatives, consultants, attorneys, fiduciaries, servants, officers, directors, partners, predecessors, successors and assigns, subsidiary corporations, parent coiporation, and related corporate divisions (all of the foregoing hereinafter called the “Released Parties”), from any and all action and causes of action, judgments, executions, suits, debts, claims, demands, liabilities, obligations, damages and expenses of any and eveiy character, known or unknown, direct and/or indirect, at law or in equity, of whatsoever kind or nature, whether heretofore or hereafter arising, for or because of any matter or things done, omitted or suffered to be done by any of the Released Parties prior to and including the date of execution hereof, and in any way directly or indirectly arising out of or in any way connected to this Amendment, the Credit Agreement and the other Loan Documents (all of the foregoing hereinafter called the “Released Matters”). Each Borrower acknowledges that the agreements in this paragraph are intended to be in full satisfaction of all or any alleged injuries or damages arising in connection with the Released Matters. Each Borrower represents and warrants to Lender that it has not purported to transfer, assign or otherwise convey any right, title or interest of such Borrower in any Released Matter to any other Person and that the foregoing constitutes a full and complete release of all Released Matters.
| 2 |
EACH BORROWER INTENDS THE ABOVE RELEASE TO COVER, ENCOMPASS, RELEASE, AND EXTINGUISH, INTER ALIA, ALL CLAIMS, DEMANDS, AND CAUSES OF ACTION THAT MIGHT OTHERWISE BE RESERVED BY THE CALIFORNIA CIVIL CODE SECTION 1542, (OR ITS EQUIVALENT UNDER ILLINOIS LAW) WHICH PROVIDES AS FOLLOWS:
“A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR “
EACH BORROWER ACKNOWLEDGES THAT IT MAY HEREAFTER DISCOVER FACTS DIFFERENT FROM OR IN ADDITION TO THOSE NOW KNOWN OR BELIEVED TO BE TRUE WITH RESPECT TO SUCH CLAIMS, DEMANDS, OR CAUSES OF ACTION, AND AGREES THAT THIS AMENDMENT AND THE ABOVE RELEASE ARE AND WILL REMAIN EFFECTIVE IN ALL RESPECTS NOTWITHSTANDING ANY SUCH DIFFERENCES OR ADDITIONAL FACTS
9. No Cancellation. This Amendment evidences the same indebtedness as evidenced by the Credit Agreement and other Loan Documents (as modified hereby). This Amendment is secured by the Collateral as provided in the Credit Agreement including all amendments and modifications thereto. This Amendment is an extension, modification and amendment of the prior documents and the execution hereof does not evidence a cancellation of the indebtedness evidenced by the prior documents.
10. Miscellaneous.
(a) No inference in favor of, or against, any party will be drawn from the fact that such party has drafted any portion of this Amendment, the Credit Agreement, or any other Loan Document, as each may be amended.
(b) This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which, when so executed and delivered, shall be deemed an original, but all of which counterparts together shall constitute but one agreement. Delivery of an executed counterpart of a signature page of this Amendment by facsimile or in electronic (i.e., “pdf” or “tif”) format shall be effective as delivery of a manually executed counterpart of this Amendment. Any party who chooses to deliver its signature in such manner agrees to provide promptly to the other parties a copy of this Amendment with its inked signature, but the party’s failure to deliver a copy of this Amendment with its inked signature shall not affect the validity, enforceability and binding effect of this Amendment.
(c) This Amendment shall be governed and controlled by the internal laws of the State of Illinois as to interpretation, enforcement, validity, construction, effect, and in all other respects.
(d) This Amendment will be binding upon and will inure to the benefit of the parties hereto and to their respective successors and assigns.
(e) Sections 16.03 and 16.09 of the Credit Agreement are specifically incorporated herein as though set forth in full.
(f) This Amendment is a Loan Document.
[signature page to follow]
| 3 |
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first written above.
LENDER
MB FINANCIAL BANK, N.A.
| By: | /s/ Martha Gaskin | |
| Name: | Martha Gaskin | |
| Titl: | Senior Vice President |
BORROWERS
MENDOCINO BREWING COMPANY, INC.,
a California corporation
| By: | /s/ Mahadevan Narayanan | |
| Name: | Mahadevan Narayanan | |
| Titl: | Chief Financial Officer |
RELET A BREWING COMPANY LLC,
a Delaware limited liability company
| By: | MENDOCINO BREWING COMPANY, | |
| a California corporation, | ||
| its sole member |
| By: | /s/ Mahadevan Narayanan | |
| Name: | Mahadevan Narayanan | |
| Titl: | Chief Financial Officer |
Signature Page to Third Amendment - Mendocino Brewing Company