Exhibit 5
CONVERTIBLE NOTE
MENDOCINO BREWING COMPANY, INC.
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Name of Issuer: Mendocino Brewing Company, Inc. Dated: April 21, 1998
Maturity Date: October 20, 1999
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1. Promise. Mendocino Brewing Company, Inc., a California corporation
having its principal office at ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ 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 ▇▇▇▇▇▇.
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/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
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▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Its: President
By: /s/ P.A. Murali
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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:
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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: $
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Social Security Number of
other identifying number of
issuers:
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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
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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
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Initial Holder:
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Dated: TRANSFEROR:
-------------------------- [Name of Transferor]
By:
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Name:
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Its:
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ACKNOWLEDGMENT OF THE COMPANY:
MENDOCINO BREWING COMPANY, INC.
By:
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Name:
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Its:
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