KEG MANAGEMENT AGREEMENT
This Keg Management Agreement ("Agreement") dated effective as of
February 21, 1997, is between MicroStar Keg Management, L.L.C., a Delaware
Limited Liability Company whose address is P. O. Xxx 0000 Xxxxxxx, Xxxxxxxxxx
00000 ("MicroStar") and Mendocino Brewing Company, Inc., a California
corporation, whose address is 00000 Xxxxx Xxxxxxx 000, Xxxxxxx, Xxxxxxxxxx 00000
(referred to herein and in the Exhibits hereto either as "Brewing Company" or
"Mendocino").
RECITATIONS AND DEFINITIONS
1. MicroStar is engaged in the logistical management of stainless steel kegs,
primarily for the craft beer/micro-brewing industry and has developed
proprietary concepts, arrangements and systems for the ownership, licensing of
the use of, tracking and retrieval of kegs.
2. Brewing Company is engaged in the business of brewing premium and/or special
quality or custom beers and desires to more efficiently service existing markets
while simultaneously expanding its business in both existing and potential new
market areas.
3. Brewing Company desires to utilize the services of MicroStar in order to
avoid the capital outlay and manpower/administrative costs and risks associated
with keg ownership, thereby enabling Brewing Company to direct additional
resources to its brewing business. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
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5. For purposes of this Agreement the term "kegs" shall mean and refer to beer
kegs that are straight-sided with a single opening and an American Xxxxxx-type
neck, having a full U.S. half-barrel (15.5 gallon) capacity, with minimum chime
(skirt) thickness of 2.00 mm and minimum sidewall (body/shell) thickness of 1.32
mm which have not been used to store or transport wine, and which are capable of
being cleaned to Brewing Company's reasonable satisfaction by using the
procedures specified in this Agreement.
In consideration of the premises and of the mutual covenants and
agreements of the parties as hereinbelow set forth, the parties have agreed as
follows:
Section 1. Procurement of Kegs, Delivery, and Acceptance.
1.1. Purchase Agreement.
a. MicroStar will acquire from Brewing Company any kegs which
Brewing Company now or hereafter may own and desire to make subject to this
Agreement, provided that such kegs conform to the definition of "keg" set forth
in this Agreement and are of a condition and quality acceptable to MicroStar.
The purchase price for any and all kegs purchased from Brewing Company shall be
separately agreed upon in writing after verification of condition and quality
and the quantity of kegs shall be subject to acquisition audit verification by
MicroStar. The final acquisition inventory of kegs shall be approved in writing
by authorized representatives of MicroStar and Brewing Company. Payment by
MicroStar for the kegs so purchased from Brewing Company shall be made when
MicroStar has verified that such kegs may be sold and assigned to MicroStar free
of any lien or encumbrance and the subject kegs have been physically marked by
MicroStar with its proprietary markings, which shall be done at Brewing
Company's facilities in lots no smaller than one hundred (100) kegs. Placement
of physical markings shall be performed by MicroStar's field personnel as
expeditiously as possible and shall be initiated no more frequently than once
per month, until all kegs so sold by Brewing Company to MicroStar shall have
been identified. An appropriate Xxxx of Sale identifying the kegs acquired by
MicroStar shall be executed and delivered contemporaneously with the payment by
MicroStar.
b. In the event that Brewing Company does not presently own
kegs (as herein defined) or does not own a sufficient quantity of kegs to
conduct and/or expand its business, or in the event that Brewing Company does
not desire to subject its entire existing inventory of owned kegs to this
Agreement, Brewing Company shall provide MicroStar with a projection of its
anticipated keg requirements during the period April 1, 1997 through June 30,
1997. Contemporaneously, with the furnishing of such ninety (90) day projection,
Brewing Company shall submit its initial request for deliveries of kegs and
MicroStar will thereupon obtain and provide the requisite quantity of kegs in
accordance with the provisions of Section 2.2 hereof.
1.2. Incidents of Ownership and Control
All kegs purchased by MicroStar from Brewing Company and/or
otherwise obtained and provided by MicroStar for purposes of this Agreement
shall be owned and subject to the exclusive right of control and disposition of
MicroStar, subject however to the rights of Brewing Company hereunder as a
licensee of the right to use such kegs for the purposes and in the manner
contemplated by this Agreement. Brewing Company agrees to execute, at the
request of MicroStar, an appropriate statement for filing in the Uniform
Commercial Code records of each state in which MicroStar kegs are utilized
hereunder for the purpose of providing notice of the existence of this Agreement
and of MicroStar's ownership of all kegs licensed for Brewing Company's use
hereunder. MicroStar shall prepare the statements and file them at MicroStar's
sole expense. After termination of this Agreement, MicroStar shall promptly
execute such termination statements as Mendocino may reasonably request and
which Mendocino shall file at Mendocino's sole expense.
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Section 2. License of Keg Use
2.1 Basic Use Fee
Brewing Company shall pay a use fee of XXXXXXXXXXXXXXXXXXXXXXX
X per keg, per filling, which shall be invoiced and payable on net thirty (30)
day terms for each keg delivered to the Brewing Company location(s) designated
by Brewing Company. Except as specifically provided below, MicroStar shall pay
all freight and insurance costs associated with the transporting of empty kegs
to Mendocino and shall bear all risk of loss of the empty kegs during transit.
With respect to kegs so utilized by Brewing Company which are filled by Brewing
Company and delivered to the regional wholesalers identified in Exhibit "A-1"
hereto (whose proximity of location to Brewing Company facilitates MicroStar's
retrieval administration) the use fee shall be adjusted by rebate or credit to
Brewing Company in the amount of XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX per keg. If
applicable, Brewing Company may further specify on Exhibit "A-2" of this
Agreement up to three (3) local wholesalers which currently impose no freight
charge upon Brewing Company for the return of kegs, provided that (i) the
wholesalers so designated agree to extend such free keg return arrangements to
the keg deliveries to be made pursuant to this agreement, (ii) the timing,
quantities and other arrangements relating to such keg returns are and remain
consistent with the specific delivery terms prescribed by MicroStar, and (iii)
Brewing Company agrees to assume and be responsible for any and all cost of
freight for the return of all kegs from such designated local wholesalers. For
each full keg sold by Brewing Company to such designated local wholesalers, the
applicable adjustment by rebate or credit to Brewing Company will be
XXXXXXXXXXXXXXXXXXXX per keg (resulting in an effective use fee to Brewing
Company hereunder of XXXXXXXXXXXXXXXXXXXX per keg). In the event that any one of
the above specified requirements for status as a designated local wholesaler
ceases to be applicable, then effective on the date such requirement is no
longer satisfied, the affected wholesaler shall automatically be regarded as a
regional wholesaler covered by Exhibit "A-1" of this Agreement. With respect to
kegs used by Brewing Company in on-site pub operations or self-distributed by
Brewing Company, the use fee shall be XXXXXXXXXXXXXXXXXXXX per keg, per filling.
Invoices for such fees will be based upon the monthly report of sales submitted
by Brewing Company to applicable state authorities in relation to its on-site
pub operations or self-distributed sales, a copy of which shall be furnished to
MicroStar at the time such report is filed. The use fee is subject to an
increase of up to XXXXXXXXXXXXXXXXX during any given twelve (12) consecutive
month time period in the event of an increase of XXXXXXXXXXXXXXXXXXXXXXXXX or
more in national or applicable regional trucking charges incurred by MicroStar
in relation to the performance of this Agreement during any such twelve (12)
consecutive month time period. MicroStar shall provide written notice thirty
(30) days in advance of any increase to the use fee.
2.2 Delivery of Kegs per Brewing Company's Requirements
Brewing Company shall notify MicroStar of Brewing Company's
specific keg delivery date requirements by written notice, including facsimile
transmittal or other notification arrangements approved in writing by Brewing
Company and MicroStar, to be received not less than thirty (30) days prior to
Brewing Company's requested delivery dates. Such notice shall include a
specification of all requested keg quantities in lots of two hundred (200) or
more.
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MicroStar will forward a written confirmation of its receipt of Brewing
Company's notice of requirements by facsimile or U.S. Mail prior to the close of
the business day following the date of MicroStar's receipt of such notice.
Brewing company shall use its best efforts to ensure that Brewing Company's
inventory of MicroStar kegs does not exceed Brewing Company's actual thirty (30)
day requirements. In the event that Brewing Company's requirements at any time
or for any reason (e.g. seasonal product demand, business expansion, etc.) will
exceed its most recently specified prior requirements by twenty percent (20%) or
more and/or relate to deliveries to new locations of Brewing Company or
wholesalers, Brewing Company shall be required to provide ninety (90) days
advance written notice to MicroStar of such requirements. MicroStar shall
endeavor to effectuate the delivery of the requested kegs to Brewing Company at
its designated locations within the continental United States in accordance with
Brewing Company's timely notification of keg requirements. All kegs delivered
hereunder shall conform to the keg standard specified herein and shall not have
been utilized to store or transport wine. Delivery shall be deemed to conform to
the requirements of this Agreement if the actual time of delivery is within
seventy-two (72) hours prior or subsequent to the specifically requested
delivery time and the quantities so delivered (not counting any delivered kegs
which are not in good and useable condition as determined by inspection by
Mendocino) are within a ten percent (10%) variance of the specifically requested
quantity of kegs. In the event that MicroStar is unable to meet the foregoing
requirements of a conforming delivery to Brewing Company, MicroStar shall
perform as soon as possible thereafter and shall impose no use fee with respect
to any such non-conforming keg shipment. In the event that any non-conforming
kegs are delivered to Mendocino, Mendocino shall segregate and securely store
such kegs until MicroStar has arranged, at MicroStar's expense, for the pick-up
and transportation of such kegs, which pick-up and transportation arrangements
shall be concluded and implemented within thirty (30) days of the date of any
such non-conforming delivery. The parties acknowledge and agree that
non-conforming delivery(ies) give Brewing Company a right to terminate this
Agreement pursuant to the terms of Section 11.6 of this Agreement.
If Mendocino in its judgment would suffer a significant
impairment by MicroStar's inability to meet the requirements of a conforming keg
shipment, Mendocino may at its option purchase kegs from any source to fulfill
the shortage. If after such an event(s) Mendocino elects not to terminate this
agreement pursuant to Section 11.6, MicroStar must purchase and take ownership
of the kegs from Mendocino for purposes of this agreement at Mendocino's cost
which includes shipping and handling.
Section 3. Arrangements and Agreements with Wholesalers
3.1. Notification and Compliance Obligations of Brewing
Company
a. Brewing Company will join with MicroStar in the issuance
of a notice to all wholesalers to which Brewing Company delivers product in kegs
subject to this Agreement that such kegs shipped by Brewing Company are owned by
MicroStar as of the effective date specified in such notice (being the date on
which keg ownership was acquired by MicroStar hereunder). Such notice will
further evidence the authority of MicroStar to collect and administer the
deposits required to be made by wholesalers in accordance with this Agreement,
to perform audits as contemplated by this Agreement, and to retrieve all kegs
delivered to the wholesaler. The form of notice of terms and conditions
applicable to wholesalers is attached
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hereto as Exhibit "B" and is intended to apprise wholesalers of the rights and
responsibilities of MicroStar pursuant to this agreement and to express and
evidence the agreement of wholesalers to the specified terms and conditions
applicable to wholesalers.
Brewing Company will require in pertinent negotiations and
agreements with its wholesalers that all wholesalers agree to remit to MicroStar
a security deposit based upon the amount of XXXXXXXXXXXXXXXXXXXXXXXX per keg, to
be billed by and paid to MicroStar to cover the loss (based on a charge of
XXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXX per keg) of any keg owned by
MicroStar that cannot be located by such wholesaler. Execution of Exhibit "B" by
Brewing Company and a wholesaler constitutes compliance with the foregoing
sentence. As set forth in the form of notice of terms and conditions attached as
Exhibit "B", wholesalers shall be required to acknowledge that periodic charges
to and withdrawals from the security deposit will be made by MicroStar for kegs
that cannot be located and that credit memos will be issued whenever kegs are
returned and whenever kegs previously classified as lost are located.
Wholesalers will be invoiced in the amount of XXXXXXX as a "loss" call whenever
any loss is charged to the deposit and will receive a credit memo and refund of
a previously billed lost keg charge whenever such "lost" keg for which a loss
charge was made is located and returned.
b. Pursuant to the notice of terms and conditions to
wholesalers, all wholesalers shall be required to provide a monthly written
report of movement of MicroStar kegs in a form prescribed by MicroStar,
including inventory by xxxxxx (including Brewing Company and any other brewers
contracting with MicroStar who deliver product to the affected wholesaler),
empty kegs on hand and kegs in the retail system. Wholesalers shall also agree
to respond to weekly verbal inquiries by MicroStar representatives concerning
the extent of empty MicroStar kegs in the wholesaler's system. MicroStar shall
be authorized to conduct periodic audits of the wholesaler's inventory of
MicroStar kegs, including kegs in the retail system, which audits will be
performed either quarterly or semi-annually, depending upon the extent of the
wholesaler's inventory and any discrepancies ascertained as a result of prior
audits, etc.
c. In the event that a wholesaler to whom Brewing Company
delivers product fails to remit the security deposit of XXXXXXXXXXXXXXXXXXXXXXXX
per keg to MicroStar within ninety (90) days after MicroStar's date of invoice
for such deposit, then Brewing Company agrees to promptly issue Brewing
Company's own invoice to the affected wholesaler and to use reasonable efforts
to collect the applicable deposit and remit the same to MicroStar. Upon making
such payments, Brewing Company shall then be subrogated to the claims that
MicroStar had against the wholesaler.
d. With respect to any on-site pub sales and/or
self-distributed sales, Brewing Company shall be subject to all of the terms,
obligations, and conditions applicable to wholesalers, including but not limited
to deposits, loss fees, audits, etc., as set forth in this Agreement.
Section 4. Trademark License
Brewing Company hereby licenses to MicroStar, for the limited purposes
of producing mandatory self-adhesive producing xxxxxx/product labels and without
direct monetary
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compensation from MicroStar, Brewing Company's registered trademarks, trade
names, slogans, and trade dress to the extent that any of these are depicted on
the label. Brewing Company will have the ownership of and copyright in any
artwork created for the label(s). MicroStar may not use such copyrighted artwork
for purposes other than the mandatory labels, and MicroStar obtains no other
rights to Brewing Company's registered trademarks, trade names, slogans, and
trade dress or their use. Except as expressly provided, no right, property,
license, permission or interest of any kind in or to the use of any trademark,
trade name, color combination, insignia or device owned or used by Brewing
Company is or is intended to be given or transferred to or acquired by MicroStar
by the execution, performance or nonperformance of this Agreement or any part of
it. MicroStar shall not permit any other xxxxxx or product producer to
distribute its products in any keg bearing Brewing Company's logo, label, or
other identifying xxxx.
Section 5. Confidentiality; SEC Reporting
MicroStar and Brewing Company must hold in strictest confidence and may
not disclose to others or use other than for purposes of this Agreement any
data, reports, writings and communications and any other information provided
to, learned by or made available to them by the other party in the course of
this Agreement (collectively referred to as "Information") except as the other
party expressly authorizes in writing. Mendocino may file a copy of this
Agreement as an exhibit to any filing required of Mendocino under federal or
state securities laws, with dollar amounts and
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXX omitted pursuant to a
confidentiality request to the extent permitted by the agency with which the
report is filed. Both MicroStar and Brewing Company acknowledge that all
Information provided or learned by them in connection with this Agreement
constitutes trade secret data and/or proprietary information of great value.
Both MicroStar and Brewing Company agree not to use such Information in any way
for their own benefit. This obligation of strict confidentiality is also
applicable to each party's employees. It continues for so long as the
information remains confidential. In the event that either party receives notice
of an attempt by anyone to obtain a court order compelling any disclosure of any
Information, they shall immediately notify the other party.
Nothing in this section in any way restricts or impairs either party's
right to use, disclose or otherwise deal with any Information or data which:
1) at the time of disclosure is generally available to the public or
thereafter become available to the public by publication or
otherwise through no act of that party;
2) that party can demonstrate was within its possession prior to the
time of disclosure and was not acquired directly or indirectly
from the other party or any person, firm or corporation acting on
its behalf, or
3) is independently made available as a matter of right to either
party by a third party who is under no confidentiality obligation
to the other party.
Section 6: Indemnity
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Each party must indemnify and hold harmless the other party, the other
party's parents, subsidiaries and affiliated companies, and all of their
respective officers, managers, directors, employees and agents from any and all
liabilities, damages, claims, suits, judgments, costs and expenses (including
reasonable attorney's fees and court costs), directly or indirectly incurred in
relation to third party claims against a party hereto as a result of:
1) the actions, including but not limited to negligence, of that
party relating to this Agreement and the performance of this
Agreement;
2) the breach of any of the provisions of this Agreement by that
party;
3) alleged patent, trademark or copyright infringement or any claims
by third persons based upon or arising out of or in connection
with any statements, illustrations, research data, advertising,
product claims, representations or warranties of that party for
the purposes of this Agreement;
4) any and all claims, demands, actions, and causes of action which
are hereafter made or brought against that party by any person for
the recovery of damage for the injury, illness, or death of any
person which is caused or alleged to have been caused by any
services/products provided by the other party hereto.
These obligations survive the termination of this Agreement.
Section 7. Insurance
MicroStar and Brewing Company each must carry and maintain at their own
expense and in full force and effect at all times during the term of this
Agreement and for one (1) year thereafter Commercial General Liability Insurance
with a limit of liability of no less than XXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX.
The insurance coverage required under this section must:
1) include contractual liability coverage which specifically insures
the hold harmless and indemnification provisions of Section 6 of
this Agreement;
2) be secured and maintained under an occurrence form policy or
coverage form reasonably acceptable to the other party's insurance
department;
3) be placed with an insurer of recognized responsibility;
4) name the other party and affiliated companies as "additional named
insured" and
5) provide for at least thirty (30) days advance written notice to
the other party of any cancellation or any material change in the
coverage;
6) provide transit coverage for shipments authorized by such party
and the xxxx of lading will be so termed.
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Neither party may cancel any insurance policy maintained pursuant to
the requirements of this paragraph without the prior written consent of the
other. Upon written request, a certificate of insurance will be sent to the
requesting party.
Section 8. Term and Exclusivity of Agreement
8.1. Term of Agreement
This Agreement shall be for an initial term of five (5) years.
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XXXXXX In the event that no such election to terminate is made, the five (5)
year term of this Agreement shall commence on October 1, 1997 or on the first
day of the month next following the month in which Mendocino's monthly keg
requirements hereunder first exceed five thousand (5,000) kegs.
8.2. Exclusivity of Arrangements
Except in the instance of Brewing Company's retention of any
pre-existing owned keg inventory for its own local market use, during the
initial and any extended term of this Agreement, Brewing Company shall use
MicroStar as the exclusive source of all beer kegs utilized in its brewing
operation. Without limitation of and subject to the foregoing, Brewing Company
agrees that during the term of this agreement or any extension hereof, Brewing
Company shall not conclude or enter into any agreement or understanding with any
third-party regarding sale of any of its Xxxxxx kegs or regarding the purchase,
lease or licensing of any kegs (whether of the Xxxxxx type or otherwise) for use
in Brewing Company's business, except as provided in the last paragraph of
Section 2.2.
Section 9: Cleaning of Kegs
9.1. Cleaning Responsibilities of Brewing Company
Brewing Company acknowledges the responsibility to clean all
kegs delivered to Brewing Company by MicroStar in accordance with the minimum
washing standards for either a sterilizing sequence (steam) or a sanitizing
sequence (oxine) and to implement the quality control checks prescribed by
MicroStar, as specifically set forth in Exhibit "C" hereto.
Section 10: Information and Records/Accounting Procedures
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10.1. Responsibilities of Brewing Company
During the term of this Agreement, Brewing Company shall
provide MicroStar with copies of all bills of lading from all of its brewery
locations for all draft beer shipments to wholesalers within twenty-four (24)
hours of the time of shipment. Additionally, Brewing Company shall maintain
accurate records reflecting monthly beginning and ending inventories of kegs,
keg locations and verification of deliveries of kegs from MicroStar to Brewing
Company and of all deliveries to wholesalers, and shall provide copies of such
records to MicroStar on a monthly basis. Brewing Company agrees to report all
requisite information on such forms as MicroStar may from time-to-time prescribe
and furnish for such purposes.
Brewing Company shall not knowingly utilize any
MicroStar-owned kegs in its operations which are not specifically subject to
this agreement. Brewing Company shall be charged the sum of
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX per keg for any keg subject to this
agreement which an audit substantiates to have been lost while under Brewing
Company's control.
10.2. Responsibilities of MicroStar
MicroStar shall provide to Brewing Company such information
and records as may be appropriate to substantiate all use fees, and all charges
and credits associated with the deposit arrangements to be established between
Brewing Company and wholesalers in accordance with the provisions of Section
3.1.b. hereof.
10.3. Audit Rights of the Parties
MicroStar and Brewing Company each shall have the right to
review and audit at reasonable intervals the records and information maintained
or acquired by the other party hereto for the purpose of determining, verifying
or analyzing any deliveries, retrievals, charges or credits arising in the
course of performance of this Agreement. Audits shall be conducted during normal
business hours with 24 hours advance notice given during normal business hours.
Any expenses incurred by a party in relation to record keeping or reporting of
information contemplated by this Agreement, shall be borne by the party charged
with maintaining such records and providing such information. Expenses incurred
by a party in relation to audits performed hereunder shall be borne by the party
undertaking such audit.
10.4. Accounting Procedures
The initial accounting procedures formulated by MicroStar are
set forth in Exhibit "D" hereto. MicroStar may only supplement or revise the
procedures as set forth in Exhibit "D" hereto with the express written consent
of Brewing Company. The accounting procedures are not intended to impose any
material obligation on Brewing Company that is not set forth in the body of this
Agreement. In the event of any conflict between the accounting procedures and
this Agreement, this Agreement shall control.
Section 11: Miscellaneous
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11.1. Amendment and Supplementation
This Agreement and the Exhibits hereto may be amended or
supplemented only by a written instrument executed by MicroStar and Brewing
Company.
11.2. Independent Contractor
This Agreement does not constitute or give rise to a
partnership between the parties. All operations by each party under the terms of
this Agreement are carried on by it as independent contractor and not as an
agent for the other.
11.3. Third-Party Beneficiary Status
To the extent necessary to accord MicroStar the full scope of
entitlements, rights and authorities in relation to Brewing Company's agreements
and arrangements with wholesalers as contemplated hereby, MicroStar shall be
recognized as a third-party beneficiary of such agreements and arrangements.
Brewing Company is an intended third-party beneficiary or all provisions of this
Agreement concerning limitations on the use of the kegs by others and
limitations on the use of Brewing Company's trademarks, labels, and logos.
11.4. Force Majeure
Subject to the rights and obligations of the parties under
Section 11.6, in the event that any obligation hereunder, other than the
obligation to remit any payment due hereunder, cannot be timely performed due to
circumstances beyond the reasonable control of a party hereto, the time period
for the performance of such obligation shall be reasonably extended until the
conditions precluding, impairing or delaying performance have been resolved.
Notwithstanding the foregoing, as a general and overarching principle, nothing
in this Agreement precludes Brewing Company from obtaining the use of kegs from
other sources during any period during which MicroStar fails to provide
sufficient quantities of kegs to Brewing Company.
11.5. Producing Xxxxxx/Product Label
MicroStar has designed a pro forma producing xxxxxx/product
label for participants in the MicroStar program. Utilizing the basic MicroStar -
prescribed form, Brewing Company will be responsible for preparing a final label
form and requesting and obtaining a Certificate of Label approval ("COLA") from
the Bureau of Alcohol, Tobacco and Firearms. Additionally, Brewing Company will
be responsible for requesting and obtaining any and all requisite approvals from
the requisite authorities in states where Brewing Company's products are is
distributed in MicroStar kegs. Copies of Certificates or other evidence of
Federal and State label approval, as applicable, shall be furnished to MicroStar
upon request. Brewing Company shall duly affix the MicroStar prescribed
self-adhesive label in a manner which completely covers any prior producer or
xxxxxx label and expressly agrees not to ship its products in any kegs which
reflect the label of a prior producer/xxxxxx utilizing such keg. MicroStar shall
impose an identical obligation on all future users of kegs with whom MicroStar
contracts, and
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shall use MicroStar's reasonable best efforts to obtain similar agreements with
all existing users of MicroStar kegs.
11.6. Changes in Economic Conditions/Right of Termination
In the event that as a result of business or economic
developments occurring after the effective date hereof, including without
limitation any determination by Brewing Company that the economic consequences
of this Agreement are unacceptable, and any decision by Brewing Company to cease
or diminish production of draft beer, the transactions contemplated by this
Agreement cannot be implemented or continued by a party hereto without undue
cost, loss or detriment to such party, the party experiencing such adverse
consequences shall have the right, upon notification to the other party of the
particulars of such developments, to cancel this Agreement effective thirty (30)
days after the giving of such written notice. In the event of any such
termination, Brewing Company shall repurchase kegs from MicroStar in a quantity
equal to three times the average monthly keg deliveries to Brewing Company
effectuated during the immediately preceding six (6) month period (the "Keg
Purchase Quantity") at prices set forth in Exhibit "E" based on the age of the
keg. The kegs to be purchased pursuant to this Section 11.6 shall be such kegs
as are then currently available for disposition by MicroStar and it is
understood by the parties hereto that the age of the kegs which may then be
available cannot presently be ascertained. The requisite quantities of kegs
shall be delivered monthly in prorated portions by MicroStar at its sole cost,
risk and expense to Brewing Company's designated location(s) over an approximate
three (3) month period. After confirmation of delivery of conforming kegs, a
Xxxx of Sale will be delivered assigning title to the kegs to Brewing Company
free and clear of any lien or security interest and Brewing Company shall
contemporaneously remit payment for all kegs so purchased.
If the foregoing right of termination is exercised by
MicroStar, MicroStar shall, upon the request of Brewing Company, allow this
Agreement to remain in effect for sixty (60) days after the otherwise applicable
effective date of termination in order to afford Brewing Company an opportunity
to arrange financing for the purchase of the kegs Brewing Company is obligated
to purchase hereunder. In such event, the quantity of kegs subject to the
purchase obligation shall be delivered monthly in prorated portions to Brewing
Company's designated location(s) over an approximate three (3) month period
commencing at the end of such sixty (60) day extension. In the event of Brewing
Company's exercise of the foregoing right of termination for economic reasons,
Brewing Company agrees not to utilize the services of any company engaged in
performing the same or substantially similar services to those of MicroStar for
a period of three (3) years from the date of such termination.
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11.7. Choice of Law
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This Agreement and the performance hereof shall be construed
in accordance with, and governed by the internal laws of the state of
California.
11.8. Ad Valorem or Use Taxes
Any ad valorem, personal property, use or similar taxes
imposed as a result of Brewing Company's physical custody or use of
MicroStar-owned kegs shall be the responsibility of Brewing Company. MicroStar
shall not seek reimbursement from Brewing Company of any personal property or
similar taxes paid by MicroStar.
11.9. Notices
Notices and communications required or permitted hereunder
shall be in writing and any communication hereunder shall be deemed to be duly
made if actually delivered, transmitted by facsimile, or mailed, prepaid to the
parties as follows:
MicroStar Keg Management, L.L.C. Mendocino Brewing Company, Inc.
0000 000xx Xxx. X.X. 00000 Xxxxx Xxxxxxx 000
Xxxxxxx, Xxxxxxxxxx 00000 Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxx Attention: Xxxxxxx Xxxxxxxx
FAX (000) 000-0000 and Xxxxxx X. Xxxxxx
FAX (000) 000-0000
MicroStar shall send a copy of any notice to Mendocino, at the
same time and in the same or equivalent manner, to:
Enterprise Law Group, Inc.
Menlo Oaks Corporate Center
0000 Xxxxxxxx Xxxxx, Xxxxx 000
Xxxxx Xxxx, Xxxxxxxxxx 00000-0000
Attention: Xxxxxxx X. Xxxxx, Esq./Xxxxxx X. Xxxxxxxx, Esq.
(000) 000-0000 (FAX)
(000) 000-0000 (Voice)
A party may change its address for purposes of this Section 11.9 by giving the
other party written notice of the new address in the manner set forth above.
11.10. Captions
The headings and captions in this Agreement are for
convenience only and shall not be considered a part of or affect the
construction or interpretation of any provision of this Agreement.
11.11. Exhibits
KEG MANAGEMENT AGREEMENT
Page 12
All Exhibits attached to or referred to in this Agreement are
incorporated into and made a part of this Agreement. However, in the event of a
conflict, the terms of this Agreement shall supersede those of an Exhibit
hereto.
THIS AGREEMENT is executed on the date set forth below each party's
respective signature.
MICROSTAR KEG MANAGEMENT, L.L.C.
By: /s/ Xxxxxxx X. Xxxxx
-----------------------------
Name: Xxxxxxx X. Xxxxx
---------------------------
Title: Manager
---------------------------
Date: February 28, 1997
---------------------------
MENDOCINO BREWING COMPANY, INC.
By: /s/ Xxxxxx X. Xxxxxx
-----------------------------
Name: Xxxxxx X. Xxxxxx
---------------------------
Title: Vice President and Chief
---------------------------
Financial Officer
---------------------------
Date:
---------------------------
KEG MANAGEMENT AGREEMENT
Page 13
EXHIBIT "A-1" TO KEG MANAGEMENT AGREEMENT
List of Regional Wholesalers
EXHIBIT "A-2" TO KEG MANAGEMENT AGREEMENT
List of Local Wholesalers
EXHIBIT "B" TO KEG MANAGEMENT AGREEMENT
MICROSTAR KEG MANAGEMENT, L.L.C.
P. O. Xxx 0000
Xxxxxxx, Xxxxxxxxxx 00000
____________________, 1997
TO: ALL WHOLESALERS PURCHASING FROM Mendocino Brewing Company, Inc.,
("MENDOCINO")
RE: KEG MANAGEMENT AGREEMENT CONCLUDED BETWEEN ____________ AND MICROSTAR
KEG MANAGEMENT, L.L.C.; TERMS AND CONDITIONS APPLICABLE TO WHOLESALERS
Mendocino delivers its products in kegs to ____________________ ("Wholesaler").
Mendocino and MicroStar Keg Management, L.L.C. ("MicroStar") hereby notify
Wholesaler that effective ________________, 1997 all shipments from Mendocino
will be made in kegs owned by MicroStar and subject to MicroStar's
administration and retrieval rights and responsibilities under a Keg Management
Agreement between Mendocino and MicroStar dated , 0000 ("xxx Xxx Management
Agreement").
Pursuant to the Keg Management Agreement, Mendocino is required to obtain
Wholesaler's agreement to the terms and conditions applicable to the
MicroStar-owned kegs and to the administrative services being performed by
MicroStar for Mendocino. The pertinent requirements applicable to Wholesaler are
as follows:
1) Deposits. A deposit computed based upon the amount of XXXXXX per keg
("the Deposit") for each MicroStar keg delivered to Wholesaler will be billed to
Wholesaler by MicroStar and shall be payable directly to MicroStar. The Deposit
shall serve as security to MicroStar against the loss of any keg owned by
MicroStar, based on a charge of XXXXXXX per keg, for any keg the location of
which cannot be ascertained. Periodic charges to and withdrawals from the
Deposit will be made for kegs which cannot be located. Similarly, credit memos
will be issued by MicroStar whenever kegs are returned and whenever kegs
previously classified as lost are located. Wholesaler will be invoiced in the
amount of XXXXXXX as a loss call whenever any loss is charged to the Deposit and
will receive a credit memo from MicroStar and refund of the loss call whenever a
previously lost keg for which a loss charge was made is located and returned.
2) Audits. Wholesaler shall be required to provide a monthly written
report of the movement of MicroStar kegs in the form(s) prescribed by MicroStar,
including inventory by xxxxxx (including Mendocino and any other brewers
contracting with MicroStar who deliver product to Wholesaler), empty kegs on
hand and kegs in the retail system. Wholesaler also agrees to respond to weekly
verbal inquiries by MicroStar representatives concerning the extent of empty
MicroStar kegs in Wholesaler's system. MicroStar shall be authorized to conduct
periodic audits of Wholesaler's inventory of MicroStar kegs, including kegs in
the retail system, which audits will be performed either quarterly or
semi-annually, depending upon the extent of Wholesaler's inventory and any
discrepancies ascertained as a result of prior audits, etc.
Wholesaler's acceptance of deliveries of MicroStar kegs from Mendocino will
evidence Wholesaler's agreement to the foregoing terms, conditions and policies.
Please confirm receipt of this notice and Wholesaler's agreement to the
foregoing terms by signing below and returning a copy of this notice and
agreement to MicroStar at the address shown above.
Mendocino Brewing Company, Inc. MICROSTAR KEG MANAGEMENT, L.L.C.
By: By:
----------------------------- -----------------------------
ACKNOWLEDGED AND AGREED TO AS OF THE DATE FIRST ABOVE WRITTEN:
WHOLESALER:
By:
-----------------------------
EXHIBIT "C" TO KEG MANAGEMENT AGREEMENT
MINERAL WASHING/STERILIZING SEQUENCE (STEAM)
WASH HEAD
Purge out ullage beer with air until clear. 3 sec.
Pre-rinse keg with fresh or recovered water. 8 sec.
Purge out ore-rinse water with air. 5 sec.
Hot caustic or acid wash. 12 sec.
Low flow hot caustic or acid wash 12 sec.
Purge out hot caustic or acid to recovery tank with air. 6 sec.
Final rinse keg with hot water. 12 sec.
Low flow hot water rinse. 12 sec.
Purge out hot water rinse with steam. 18 sec.
Pressurize to 20 p.s.i.g. with steam. 1 sec.
Release pressure from process head. 1 sec.
STERILIZE HOLD STATION
Steam 60 sec.
RACKING HEAD
Steam conn. head and keg neck. 5 sec.
Steam pressure release from keg. 5 sec.
Gas purge keg. 8 sec.
Counter pressurize to 20 p.s.i.g. 2 sec.
Product fill. 50 sec.
Spear out. 1 sec.
Water scavenge and/or gas scavenge. 5 sec.
Page 1 of 5
EXHIBIT "C" TO KEG MANAGEMENT AGREEMENT
MINERAL WASHING/SANITIZING SEQUENCE (OXINE)
WASH HEAD
Purge out ullage beer with air until clear. 3 sec.
Pre-rinse keg with Oxine water. 8 sec.
Purge out Oxine water with air. 5 sec.
Hot caustic or acid wash. 12 sec.
Low flow hot caustic or acid wash 12 sec.
Purge out hot caustic or acid to recovery tank with air. 6 sec.
Final rinse keg with Oxine water. 12 sec.
Low flow Oxine water rinse. 12 sec.
Oxine water fill. 18 sec.
Spear out. 1 sec.
Purge head. 1 sec.
SANITIZE HOLD STATION
Oxine sanitize hold. 60 sec.
RACKING HEAD
Gas purge Oxine water from keg. 10 sec.
Gas counter pressurize to 20 p.s.i.g. 2 sec.
Product fill. 50 sec.
Spear out. 1 sec.
Oxine water scavenge and/or gas scavenge 4 sec.
Page 2 of 5
EXHIBIT "C" TO KEG MANAGEMENT AGREEMENT
KEG PLANT
QUALITY CONTROL CHECKS
A. DETERGENT TANK TITRATION
The detergent set, detergent tank(s), Quality Control checks should be made
before starting and at least twice during each eight (8) hour operating shift.
Adjust frequency to meet the Quality Control department "comfort level". The
acid titration level (phosphoric) should be in the range of 0.25% to maximum of
0.4% v/v and alkali titration level (caustic) in the range of 1.5 to 2.0% v/v.
B. KEG WATER CARRY-OVER AND TITRATION CHECKS
1) After the keg has completed the wash head(s) sequence(s), the keg must be
allowed to continue through the sterilizing sequence and then rejected (stopped)
immediately prior to commencing the racking head(s) sequence(s). When the keg is
retrieved at the discharge end of the machine, the keg can be cooled down by
placing a cold water hose over the outer surfaces (if steam is used). A Quality
Control keg coupler or funnel coupler (with the C02 and beer check valves
removed) is then used to tap the keg. The keg must be inverted to remove the
contents via the C02 port of the coupler by allowing the keg to drain or forcing
the contents out with air or C02. The condensate or rinse residuals in a 50
liter or 1/2 half barrel keg normally measures between 40 to 80 ml.. A limit of
100 ml. should be set as a maximum allowable limit. If the levels are in excess
of these amounts then the machine operation must be checked together with that
of the steam quality and relevant steam main condensate traps.
2) The condensate obtained from the keg can be titrated to ensure that there is
no acid and/or alkali carry-over from the wash heads.
NOTE 1: For this check the pH. of the condensate should be a known factor if
steam is used for purging.
NOTE 2: This check should be carried out once a day for each machine lane and
then reduced to the Quality Control department "comfort level".
3) Another keg is used to do a similar check after it has been allowed to
complete the sequences through the racker head(s) up to the point of immediately
prior to commencing the beer filling sequence. Reject the keg prior to starting
the beer filling sequence and remove the conveyor after discharging from the
machine. When checking for the quantity of condensate present in the keg, it
should be less than 15 ml.
Page 3 of 5
EXHIBIT "C" TO KEG MANAGEMENT AGREEMENT
NOTE: This check should be carried out once a day for each machine lane and then
reduced to the Quality Control department "comfort level".
C. MICROBIOLOGICAL CHECKS TO THE KEG
Introduce a liter of sterile liquid, (preferably beer), into a keg having
completed the sequence as described in Procedure 3) above, via a sterilized keg
valve and "funnel" coupler. This allows the keg to be checked for microbial
integrity by removing 250 ml. of the sterile liquid into a sterile flask. Split
the sample into two, 100 ml. samples via Millipore type membranes, plate and
incubate the membranes on agar suitable for aerobic and anaerobic organisms.
Methods of doing this vary slightly. The main objective, however, is to ensure
that consistency in sampling is maintained, i.e. having introduced the sterile
liquid into the keg, each keg should be rotated a set number of times to ensure
all surfaces have been covered equally before it is extracted. A known quantity
should always go into the keg and a known quantity should always be extracted,
filtered and plated.
NOTE 1: This procedure should be carried out at least once every two weeks.
NOTE: 2: Funnel couplers can be purchased via IDD to suit your keg valve type.
D. AFTER A C.I.P. SEQUENCE
After the C.I.P. sequence, the process mains, bright beer tank and racker
connection head(s), can be swabbed and checked for visual cleanliness to ensure
that the cleaning operation frequencies are effective and adequate.
NOTE: This should be carried out at least once a week.
E. BEER STABILITY SAMPLING
Samples are taken from the bright beer tank and keg at a frequency laid down by
the brewery Quality Control department. A suitable stability test is to set
aside a keg of beer from the leg line after filling and "forcing" the contents
by leaving the keg in an environment of 70(degree) F. (21(degree)C). Taste, odor
and clarity tests can then be taken after 72 hours and at regular durations
thereafter as desired to suit the Quality Control departments standards.
SUMMARY
It is possible to determine the following about the keg machine function and
cleaning procedures from the aforementioned.
Page 4 of 5
EXHIBIT "C" TO KEG MANAGEMENT AGREEMENT
1) The wash water and detergent is being cleared from the keg by the final C02
or steam purge sequence on the final wash head.
2) The final rinse water on the final wash head is removing the detergent
residual from the keg.
3) The C02 purge is removing the condensate trace from the keg on the racker
head prior to filling with beer.
4) The microbial integrity, via steam sterilizing or Oxine (Cl02) sanitizing
of the keg is being achieved.
5) The separate plant C.I.P. sequence is effective in removing all traces of
beer protein and other residuals from the keg plant connection head(s) and
piping system(s).
6) The cleanliness and microbial integrity is being maintained by the separate
plant C.I.P. regime.
If you have any questions, please contact Xxxx Xxxx at IDD Process & Packaging,
Inc. 0-000-000-0000 or 805-529-9890.
Page 5 of 5
MICROSTAR KEG MANAGEMENT, L.L.C.
ACCOUNTING PROCEDURES
These accounting procedures are subject to the terms and conditions of
the Keg Management Agreement between MicroStar and Brewing Company. In
the event of any conflict between these accounting procedures and the
Keg Management Agreement (for this purpose, not including this Exhibit
as part of such Agreement) the Agreement shall control.
Standard Accounting procedures:
Procedure: The ongoing standard policy is as follows:
1. Brewing Company shall order kegs 30 days prior to any requested delivery
date. Brewing Company will be required to provide ninety (90) days advance
written notice to MicroStar for all orders which are 20% or more in excess
of normal order quantity. All orders will be confirmed by fax or US mail by
close of next business day. All Order(s) shall be deemed incomplete if not
confirmed by MicroStar.
2. Brewing Company will be invoiced XXXXXX per keg upon the receipt of each
delivery of kegs (30 day terms). This invoicing is generated by shipment
date and cross checked with the xxxx of lading returned by Brewing Company
and trucking company invoice. In the event of delinquent payment of any
invoice, MicroStar has the right to suspend deliveries of kegs and/or to
require future payments to be made prior to delivery of kegs.
3. Brewing Company must provide MicroStar with a xxxx of lading for all
shipments from Brewing Company to its wholesaler(s) within 24 hours of
shipment. This xxxx of lading will be required for inventory control and
will generate an invoicing of deposit to wholesaler. Brewing Company is
held responsible for lost/unaccounted for kegs under Brewing Company's
control (subject to XXXX per lost keg fee).
4. If Brewing Company effectuates a shipment to agreed upon regional
wholesaler(s) identified in Exhibit "A-1" to the Keg Management Agreement,
a XXXXX credit rebate will be provided to Brewing Company by MicroStar. If
applicable, Brewing Company may further specify on Exhibit "A-2" to the Keg
Management Agreement up to three (3) local wholesalers which currently
impose no freight charge upon Brewing Company for the return of kegs,
provided that (i) the wholesalers so designated agree to extend such free
keg return arrangements to the keg deliveries to be made pursuant to this
agreement, (ii) the timing, quantities and other arrangements relating to
such keg returns are and remain consistent with the specific delivery terms
prescribed by MicroStar, and (iii) Brewing Company agrees to assume and be
responsible for any and all cost of freight for the return of all kegs from
such designated local wholesalers. For each full keg sold by Brewing
Company to such designated local wholesalers, the applicable adjustment by
rebate or credit to Brewing Company will be XXXXXXXXXXXXXXXXXXXX per keg
(resulting in an effective use fee to Brewing Company of
XXXXXXXXXXXXXXXXXXXX per keg). In the event that any one of the above
specified requirements for status as a designated local wholesaler ceases
to be applicable, then effective on the date such
EXHIBIT "D" TO KEG MANAGEMENT AGREEMENT
Page 2
requirement is no longer satisfied, the affected wholesaler shall
automatically be regarded as a regional wholesaler covered by Exhibit "A-1"
to the Keg Management Agreement. This information concerning local
shipments and return of kegs from specific wholesalers shall be cross
checked against the xxxx of lading and/or the signed loading report. Such
credit will be applied to Brewing Company's next invoice for kegs or, if a
net credit is generated, the credit will be refunded during normal
processing within 30 days. With respect to kegs used by Brewing Company in
on-site pub operations or self-distributed sales, the use fee shall be
XXXXXXXXXXXXXXXXXXXX per keg, per filling. Invoices for such fees will be
based upon the monthly report of sales submitted by Brewing Company to
applicable state authorities in relation to its on-site pub operations or
self-distributed sales, a copy of which shall be furnished to MicroStar at
the time such report is filed.
5. MicroStar will invoice wholesaler for a deposit of XXXXXX per keg from the
xxxx of lading or, if no xxxx of lading, a signed loading report as
provided by Brewing Company.
6. MicroStar will credit wholesaler for each empty keg shipped from the
wholesaler by and at the direction of MicroStar. The credit will be
generated by the xxxx of lading on shipment and will be corrected for any
errors for incorrect shipments including wrong kegs being shipped, mistakes
in number of kegs and the damage of kegs at wholesaler level. The
information on shipment errors will be provided by Brewing Company upon
Brewing Company's receipt of such kegs.
7. Brewing Company is required to provide a written monthly keg movement
report including opening inventory, number of kegs received from MicroStar
during the month, shipments out (summarized by wholesaler) and ending
inventory. Brewing Company will also provide MicroStar or its
representative with state and federal tax reports for purpose of cross
checking shipments upon request.
8. Brewing Company shall be subject to inspection and audit of inventory by
MicroStar during Brewing Company's normal business hours with 24 hour
notice (to be given during normal business hours).
9. Brewing Company will be responsible for inventorying kegs received from
MicroStar as to the number of kegs received, verification of MicroStar
ownership of kegs and identification of any damaged kegs.
10. Wholesaler refund credits will be adjusted for wrong kegs shipped to
Brewing Company or damage which occurs at its level.
EXHIBIT "D" TO KEG MANAGEMENT AGREEMENT
Page 2
EXHIBIT "E" TO KEG MANAGEMENT AGREEMENT
Mendocino Brewing Company, Inc.
00000 Xxxxx Xxxxxxx 000,
Xxxxxxx, Xxxxxxxxxx 00000
Attention: Mr. Xxxxxxx Xxxxxx
RE: Keg Purchase Terms Pursuant
to Section 11.6 of Keg
Management Agreement
MicroStar Keg Management, L.L.C. ("MicroStar") and Mendocino Brewing Company,
Inc. ("Mendocino") are parties to a Keg Management Agreement dated effective
_______________, 1997. The following table specifies the prices at which
individual kegs are to be valued for purchase by Mendocino pursuant to Section
11.6 of the Keg Management Agreement:
===================================================================================================
AGE OF KEGS (YEARS) VALUE
---------------------------------------------------------------------------------------------------
XXXXXXXX XXXXXX
---------------------------------------------------------------------------------------------------
XXXXXXXXXX XXXXXX
---------------------------------------------------------------------------------------------------
XXXXXXXXXX XXXXXX
---------------------------------------------------------------------------------------------------
XXXXXXXXXX XXXXXX
---------------------------------------------------------------------------------------------------
XXXXXXXXXX XXXXXX
---------------------------------------------------------------------------------------------------
XXXXXXXXXX XXXXXX
---------------------------------------------------------------------------------------------------
XXXXXXXXXX XXXXXX
---------------------------------------------------------------------------------------------------
XXXXXXXXXX XXXXXX
---------------------------------------------------------------------------------------------------
XXXXXXXXXX XXXXXX
---------------------------------------------------------------------------------------------------
XXXXXXXXXXX XXXXXX
---------------------------------------------------------------------------------------------------
XXXXXXXXXXXX XXXXXX
---------------------------------------------------------------------------------------------------
XXXXXXXXXXXX XXXXXX
---------------------------------------------------------------------------------------------------
XXXXXXXXXXXX XXXXXX
---------------------------------------------------------------------------------------------------
XXXXXXXXXXXX XXXXXX
---------------------------------------------------------------------------------------------------
XXXXXXXXXXXX XXXXXX
---------------------------------------------------------------------------------------------------
XXXXXXXXX XXX
===================================================================================================
The specified values are subject to verification by Mendocino of each
keg's condition at time of purchase as being in good working order in compliance
with all applicable laws and regulations and prevailing industry standards, and
without unusual or excessive wear and/or unusual or excessive body, neck, valve
or chimb damage.
Mendocino Brewing Company, Inc.
Page 2
This joint memorandum is subject to the terms and conditions of the Keg
Management Agreement between MicroStar and Brewing Company. In the event of any
conflict between this joint memorandum and the Keg Management Agreement (for
this purpose, not including this Exhibit as part of such Agreement), the
Agreement shall control.
The kegs to be purchased pursuant to Section 11.6 shall be such kegs as
are then currently available for disposition by MicroStar Keg Management, L.L.C.
and it is understood by the parties hereto that the age of the kegs which may
then be available cannot presently be ascertained. Mendocino may refuse to
purchase any keg that does not conform to the above conditions. The requisite
quantities of kegs shall be delivered monthly in prorated portions by MicroStar
Keg Management, L.L.C. to Mendocino designated location over an approximate
three (3) month period. After confirmation of delivery of conforming kegs, a
Xxxx of Sale will be delivered assigning title to Mendocino free and clear of
any lien or security interest and Mendocino shall contemporaneously remit
payment for all kegs so purchased.
This joint memorandum shall serve to confirm that the foregoing
valuations shall apply in the case of a purchase right/obligation accruing upon
termination.
EXHIBIT "E" TO KEG MANAGEMENT AGREEMENT
