Exhibit 2
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INVESTMENT AGREEMENT
DATED OCTOBER 24, 1997
BETWEEN
MENDOCINO BREWING COMPANY, INC.
AND
UNITED BREWERIES OF AMERICA, INC.
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I. DEFINITIONS....................................................... 1
II. THE PURCHASE AND SALE OF EQUITY SECURITIES........................ 7
2.1 Cash Investment; Contribution of Releta...................... 7
2.2 Closing...................................................... 7
2.3 Legends...................................................... 8
2.4 Additional Agreements........................................ 8
III. REPRESENTATIONS AND WARRANTIES OF MENDOCINO....................... 9
3.1 Authorized and Outstanding Shares of Capital Stock........... 9
3.2 Authorization and Issuance of Equity Securities.............. 10
3.3 Securities Laws.............................................. 10
3.4 Corporate Existence; Compliance with Law..................... 10
3.5 Subsidiaries................................................. 10
3.6 Corporate Power; Authorization; Enforceable Obligations...... 10
3.7 Financial Statements......................................... 11
3.8 No Changes................................................... 12
3.9 Ownership of Property........................................ 13
3.10 Material Contracts........................................... 14
3.11 Environmental Protection..................................... 15
3.12 Labor Matters................................................ 15
3.13 Other Ventures............................................... 16
3.14 Taxes........................................................ 16
3.15 No Litigation................................................ 16
3.16 Brokers...................................................... 16
3.17 Employment and Labor Agreements.............................. 17
3.18 Patents, Trademarks, Copyrights and Licenses................. 17
3.19 ERISA........................................................ 17
3.20 Registration Rights.......................................... 18
3.21 Liquor Consents and Permits.................................. 19
3.22 SEC Documents................................................ 19
3.23 Acquisitions; Capital Expenditures........................... 19
3.24 Accounts Receivable.......................................... 19
3.25 Insurance.................................................... 20
3.26 Related Party Transactions................................... 20
i
3.27 No Stockholder Approval...................................... 20
IV. PURCHASER'S REPRESENTATIONS AND WARRANTIES........................ 20
4.1 Corporate Existence.......................................... 20
4.2 Investment Intention......................................... 20
4.3 Investment Experience........................................ 20
4.4 Access to Information........................................ 20
4.5 Corporate Power; Authorization; Enforceable Obligations...... 21
4.6 Liquidity.................................................... 21
4.7 Acceptability to Regulators.................................. 21
4.8 Brokers...................................................... 21
4.9 Outstanding Units of Releta.................................. 21
4.10 Authorization and Transfer of Equity Interest by Purchaser... 22
4.11 Securities Laws.............................................. 22
4.12 Releta Existence; Compliance with Law........................ 22
4.13 Subsidiaries................................................. 22
4.14 Ownership of Property........................................ 22
4.15 Material Contracts; Liabilities; Equipment................... 23
4.16 Environmental Protection..................................... 24
4.17 Other Ventures............................................... 25
4.18 Taxes........................................................ 25
4.19 No Litigation................................................ 25
4.20 Employment and Labor Agreements.............................. 25
4.21 Patents, Trademarks, Copyrights and Licenses................. 25
4.22 ERISA........................................................ 26
4.23 Registration Rights.......................................... 26
4.24 Liquor Consents and Permits.................................. 26
4.25 Insurance.................................................... 26
4.26 Costs of Releta.............................................. 26
V. DOCUMENTS DELIVERED AT CLOSING.................................... 26
5.1 Documents Delivered to Purchaser at the Closing.............. 26
5.2 Documents Delivered to Mendocino at Closing.................. 28
VI. COVENANTS......................................................... 29
6.1 Right of First Offer......................................... 29
ii
6.2 Percentage Ownership......................................... 29
6.3 No Securities Senior to Common Stock......................... 30
6.4 Permitted Acquisitions or Investments........................ 30
6.5 Sales of Assets.............................................. 30
6.6 Books and Records............................................ 30
6.7 Financial and Other Information.............................. 31
6.8 Communication with Accountants............................... 32
6.9 Tax Compliance............................................... 32
6.10 Insurance.................................................... 32
6.11 Agreements................................................... 32
6.12 Employee Loans............................................... 32
6.13 Capital Structure............................................ 32
6.14 Transactions with Affiliates................................. 33
6.15 Guaranteed Indebtedness...................................... 33
6.16 Restricted Payments.......................................... 33
6.17 Employee Plans............................................... 33
6.18 Environmental Matters........................................ 34
6.19 Maintenance of Existence and Conduct of Business............. 34
6.20 Mergers...................................................... 35
6.21 Liquidation.................................................. 35
6.22 Hostile Acquisition.......................................... 35
6.23 Access to Books and Records.................................. 35
6.24 Auditors..................................................... 36
6.25 Employees.................................................... 36
6.26 BDM Construction Company..................................... 36
6.27 Termination of Certain Covenants............................. 36
6.28 Cash Flow Requirements of Releta............................. 36
6.29 Financial Statements of Releta............................... 36
6.30 Form BE-13................................................... 37
VII. INDEMNIFICATION................................................... 37
7.1 Indemnification............................................. 37
VIII. MISCELLANEOUS..................................................... 38
iii
8.1 Notices...................................................... 38
8.2 Binding Effect; Benefits..................................... 39
8.3 Amendment.................................................... 39
8.4 Assignment................................................... 39
8.5 Remedies..................................................... 39
8.6 Applicable Law............................................... 40
8.7 Section and Other Headings................................... 40
8.8 Severability................................................. 40
8.9 Counterparts................................................. 40
8.10 Nondisclosure of Confidential Information.................... 40
8.11 Publicity.................................................... 40
8.12 Entire Agreement............................................. 41
8.13 Fees and Expenses............................................ 41
8.14 Exhibits and Schedules....................................... 41
8.15 Construction................................................. 41
iv
SCHEDULES
Schedule
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3.1(a) - Capitalization of Mendocino
3.1(b) - Outstanding Options and Other Rights to Purchase Mendocino Stock
3.1(c) - List of 5% Stockholders of Mendocino
3.2 - Calculation of Purchaser's Ownership Percentage in Mendocino
3.4 - Mendocino's Compliance with Law
3.6 - Mendocino's Third Party Consents; Enforceability
3.7(a) - Financial Statements of Mendocino
3.7(b) - Off-Balance Sheet Liabilities
3.8 - Changes After June 30, 1997
3.9(a) - Mendocino's Real Property
3.9(b) - Mendocino's Leases
3.9(e) - Mendocino's Real Estate Consents Required
3.10 - Mendocino's Material Contracts
3.14 - Mendocino's Taxes
3.15 - Mendocino's Litigation
3.17 - Mendocino's Employment Agreements
3.18 - Mendocino's Intellectual Property
3.19 - Mendocino's Benefit Plans
3.20 - Mendocino's Registration Rights
3.21 - Mendocino's List of Licenses
3.23 - Mendocino's Acquisitions and Capital Expenditures
3.24 - Mendocino's Accounts Receivable
3.25 - Mendocino's Insurance Policies
3.26 - Mendocino's Related Party Transactions
4.5 - Purchaser's Governmental Approvals
4.12 - Releta's Material Licenses and Permits
4.14(a) - Releta's Real Property
4.14(b) - Releta's Leases
4.14(e) - Releta's Consents Required
4.15(a) - Releta's Material Contracts
4.15(b) - Releta's Liabilities
4.15(c) - Equipment Used at Relata's Facility
4.21 - Releta's Intellectual Property
4.24 - Releta's Governmental Approvals
4.25 - Releta's Insurance Policies
4.26 - Releta's Costs
6.26 - BDM Construction Payment Schedule
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EXHIBITS
Exhibit
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2.4(a)(i) Xxxxxxxx Employment Agreement
2.4(a)(ii) Xxxxxx Employment Agreement
2.4(a)(iii) Xxxxxx Employment Agreement
2.4(a)(iv) Scahill Employment Agreement
2.4(a)(v) Xxxxxxx Employment Agreement
2.4(a)(vi) Shareholders' Agreement
2.4(a)(vii) Registration Rights Agreement
5.1(a) Form of opinion of counsel for Mendocino
5.2(a) Form of opinion of counsel for Purchaser
vi
INVESTMENT AGREEMENT
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INVESTMENT AGREEMENT (the "Agreement"), dated as of October 24, 1997 by and
among Mendocino Brewing Company, Inc. ("Mendocino") and United Breweries of
America, Inc. (the "Purchaser").
W I T N E S S E T H:
WHEREAS, Purchaser desires, upon the terms and conditions hereinafter
provided, to purchase from Mendocino shares of its equity securities.
NOW, THEREFORE, in consideration of the promises and the covenants
hereinafter contained and intending to be legally bound hereby, it is agreed as
follows:
I. DEFINITIONS.
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"Affiliate" shall mean, with respect to any Person, (i) each Person that,
directly or indirectly, owns or controls, whether beneficially, or as a trustee,
guardian or other fiduciary, 5% or more of the Stock having ordinary voting
power in the election of directors of such Person or (ii) each Person that
controls, is controlled by or is under common control with such Person or any
Affiliate of such Person. For the purpose of this definition, "control" of a
Person shall mean the possession, directly or indirectly, of the power to direct
or cause the direction of its management or policies, whether through the
ownership of voting securities, by contract or otherwise. The term "Affiliated"
shall have meanings correlative to the foregoing.
"Ancillary Agreements" shall mean the Xxxxxxxx Employment Agreement, the
Xxxxxx Employment Agreement, the Xxxxxx Employment Agreement, the Scahill
Employment Agreement and the Xxxxxxx Employment Agreement, the Registration
Rights Agreement, the Shareholders' Agreement and any other document or
instrument delivered at the Closing in connection therewith.
"Xxxxxxx Employment Agreement" shall have the meaning set forth in Section
2.4(a)(vi).
"Business Day" shall mean a day of the year on which banks are not required
or authorized to close in San Francisco.
"Capital Expenditures" shall mean all payments for any fixed assets or
improvements, or for replacements, substitutions or additions thereto, that have
a useful life of more than one year and which are required to be capitalized
under GAAP.
"Capital Lease" shall mean, with respect to any Person, any lease of any
property (whether real, personal or mixed, by such Person as lessee that, in
accordance with GAAP, either would be required to be classified and accounted
for as a capital lease on a balance sheet of such Person or otherwise be
disclosed as a capital lease in a note to such balance sheet, other than any
such lease under which Mendocino is the lessor.
"Capital Lease Obligation" shall mean, with respect to any Capital Lease,
the amount of the obligation of the lessee thereunder that, in accordance with
GAAP, would appear on a
1
balance sheet of such lessee in respect of such Capital Lease or otherwise be
disclosed in a note to such balance sheet.
"Capital Shares" shall have the meaning set forth in Section 6.1(b).
"Cash Shares" shall have the meaning set forth in Section 2.1.
"Charges" shall mean all federal, state, county, city, municipal, local,
foreign or other governmental (including, without limitation, PBGC) taxes at the
time due and payable, levies, assessments, charges, liens, claims or
encumbrances upon or relating to (i) Mendocino's employees, payroll, income or
gross receipts, (ii) Mendocino's ownership or use of any of its assets, or (iii)
any other aspect of Mendocino's business.
"Closing" shall have the meaning set forth in Section 2.2.
"Closing Date" shall have the meaning set forth in Section 2.2.
"Common Stock" shall initially mean the common stock, no par value per
share, of Mendocino and shall thereafter mean any shares of any class or classes
of capital stock resulting from any reclassification or reclassifications
thereof or otherwise issued, which have no preference in respect of dividends or
of amounts payable in the event of voluntary or involuntary liquidation,
dissolution or winding up of Mendocino and which are not subject to redemption
by Mendocino.
"Confidential Information" shall have the meaning set forth in Section
8.10.
"Deposit Shares" shall have the meaning set forth in Section 2.1.
"Environmental Laws" shall mean all federal, state and local laws,
statutes, ordinances and regulations, now or hereafter in effect, and in each
case as amended or supplemented from time to time, and any judicial or
administrative interpretation thereof, including any applicable judicial or
administrative order, consent decree or judgment, relative to the applicable
property, relating to the regulation and protection of human health, safety, the
environment and natural resources (including, without limitation, ambient air,
surface water, groundwater, wetlands, land surface or subsurface strata,
wildlife, aquatic species and vegetation). Environmental Laws include but are
not limited to the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended (42 U.S.C. (S) 9601 et seq.) ("CERCLA"); the
Hazardous Material Transportation Act, as amended (49 U.S.C. (S) 1801 et seq.);
the Federal Insecticide, Fungicide, and Rodenticide Act, as amended (7 U.S.C.
(S) 136 et seq.); the Resource Conservation and Recovery Act, as amended (42
U.S.C. (S) 6901 et seq.) ("RCRA"); the Toxic Substance Control Act, as amended
(15 U.S.C. (S) 2601 et seq.); the Clean Air Act, as amended (42 U.S.C. (S) 649
et seq.); the Federal Water Pollution Control Act, as amended (33 U.S.C. (S)
1251 et seq.); the Occupational Safety and Health Act, as amended (29 U.S.C. (S)
651 et seq.) ("OSHA"); and the Safe Drinking Water Act, as amended (42 U.S.C.
(S) 3001 et seq.), and all analogous state and local counterparts or equivalents
and any transfer of ownership, notification or approval statutes.
"Environmental Liabilities and Costs" shall mean all liabilities,
obligations, responsibilities, remedial actions, losses, damages, punitive
damages, consequential damages,
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treble damages, costs and expenses (including, without limitation, all fees,
disbursements and expenses of counsel, experts and consultants and costs of
investigation and feasibility studies), fines, penalties, sanctions and interest
incurred as a result of any claim, suit, action or demand by any person or
entity, whether based in contract, tort, implied or express warranty, strict
liability, criminal or civil statute or common law (including, without
limitation, any thereof arising under any Environmental Law, permit, order or
agreement with any Governmental Authority) and which relate to any health or
safety condition regulated under any Environmental Law or in connection with any
other environmental matter or release or disposal of any Hazardous Substance or
the presence of a hazardous substance or threatened release or disposal of any
Hazardous Substance.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974 (or
any successor legislation thereto), as amended from time to time and any
regulations promulgated thereunder.
"ERISA Affiliate" shall mean, with respect to Mendocino, any trade or
business (whether or not incorporated) under common control with Mendocino and
which, together with Mendocino, are treated as a single employer within the
meaning of Section 414(b), (c), (m) or (o) of the IRC.
"Financials" shall mean the financial statements referred to in Section 3.7
hereof.
"Fiscal Year" shall mean the calendar year. Subsequent changes of the
fiscal year of Mendocino shall not change the term "Fiscal Year," unless the
Purchaser shall consent in writing to such changes.
"Xxxxxx Employment Agreement" shall have the meaning set forth in Section
2.4(a)(iii).
"Fully Diluted Basis" shall mean that, for purposes of calculating
ownership of the Common Stock, all outstanding options, warrants or other rights
to acquire Common Stock or securities convertible or exchangeable into Common
Stock shall be assumed to be exercised, converted and exchanged into the shares
of Common Stock into which they, pursuant to their terms, may then or thereafter
upon the passage of time be exercised, converted or exchanged. In addition, the
shares of Common Stock held by BDM Construction shall be deemed outstanding for
purposes of calculating ownership of the Common Stock, until such shares have
been cancelled or repurchased by Mendocino.
"GAAP" shall mean generally accepted accounting principles in the United
States of America as in effect from time to time.
"Group" shall mean any Group as defined by Sections 13(d)(3) and 14(d)(2)
of the Securities Exchange Act.
"Guaranteed Indebtedness" shall mean, as to any Person, any obligation of
such Person guaranteeing any indebtedness, lease, dividend, or other obligation
("primary obligations") of any other Person (the "primary obligor") in any
manner including, without limitation, any obligation or arrangement of such
Person (a) to purchase or repurchase any such primary
3
obligation, (b) to advance or supply funds (i) for the purchase or payment of
any such primary obligation or (ii) to maintain working capital or equity
capital of the primary obligor or otherwise to maintain the net worth or
solvency or any balance sheet condition of the primary obligor, (c) to purchase
property, securities or services primarily for the purpose of assuring the owner
of any such primary obligation of the ability of the primary obligor to make
payment of such primary obligation, or (d) to indemnify the owner of such
primary obligation against loss in respect thereof.
"Hazardous Material" shall mean any substance, chemical, compound, product,
solid, gas, liquid, waste, byproduct, pollutant, contaminant or material which
is hazardous or toxic, and includes, without limitation, (a) asbestos,
polychlorinated biphenyls and petroleum (including crude oil or any fraction
thereof) and (b) any such material classified or regulated as "hazardous" or
"toxic" pursuant to the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1966, 42 U.S.C. (S)(S) 8591 et seq., Solid Waste Disposal
Act, as amended by the Resource Conservation and Recovery Act of 1976 and
Hazardous and Solid Waste Amendments of 1984, 42 U.S.C. (S)(S) 6901 et seq.,
Federal Water Pollution Control Act, as amended by the Clean Water Act of 1977,
33 U.S.C. (S)(S) 1251 et seq., Clean Air Act of 1966, as amended, 42 U.S.C.
(S)(S) 6491 et seq., Toxic Substances Control Act of 1976, 15 U.S.C. (S)(S) 2601
et seq., or Hazardous Materials Transportation Act, 49 U.S.C. App. (S)(S) 1801
et seq.
"Indebtedness" of any Person shall mean (i) all indebtedness of such Person
for borrowed money or for the deferred purchase price of property or services
(including, without limitation, reimbursement and all other obligations with
respect to surety bonds, letters of credit and bankers' acceptances, whether or
not matured, but not including obligations to trade creditors incurred in the
ordinary course of business), (ii) all indebtedness created or arising under any
conditional sale or other title retention agreements with respect to property
acquired by such Person (even though the rights and remedies of the seller or
lender under such agreement in the event of default are limited to repossession
or sale of such property), (iv) all Capital Lease Obligations, (v) all
Guaranteed Indebtedness, (vi) all Indebtedness referred to in clause (i), (ii),
(iii), (iv) or (v) above secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien upon or in property (including, without limitation, accounts and
contract rights) owned by such Person, even though such Person has not assumed
or become liable for the payment of such Indebtedness and (vii) all liabilities
under Title IV of ERISA.
"IRC" shall mean the Internal Revenue Code of 1986, as amended, and any
successor thereto.
"IRS" shall mean the Internal Revenue Service, or any successor thereto.
"Xxxxxxxx Employment Agreement" shall have the meaning set forth in Section
2.4(a)(ii).
"Lien" shall mean any mortgage or deed of trust, pledge, hypothecation,
assignment, deposit arrangement, lien, charge, claim, security interest,
easement or encumbrance, or preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever (including, without
limitation, any lease or title retention agreement, any financing
4
lease having substantially the same economic effect as any of the foregoing, and
the filing of, or agreement to give, any financing statement perfecting a
security interest under the Uniform Commercial Code or comparable law of any
jurisdiction).
"Xxxxxx Employment Agreement" shall have the meaning set forth in Section
2.4(a)(iv).
"Material Adverse Effect" shall mean a material adverse effect on the
business, assets, operations, prospects or financial or other condition of
Mendocino.
"Material Contracts" shall mean (i) all of Mendocino's contracts,
agreements, leases or other instruments to which it is a party or by which it or
its properties are bound, which involves payments by or to Mendocino of more
than $25,000 or which extends for a term of more than a year from the date
hereof, (ii) all of Mendocino's loan agreements, bank lines of credit
agreements, indentures, mortgages, deeds of trust, pledge and security
agreements, factoring agreements, conditional sales contracts, letters of credit
or other debt instruments, (iii) all operating or capital leases for equipment
to Mendocino is a party which involves payments by or to Mendocino of more than
$25,000, (iv) all noncompetition and similar agreements to which Mendocino is a
party, (v) all guarantees by Mendocino, (vi) all contracts and agreements
between Mendocino and the wholesalers of its products and (vii) all other
contracts, oral or written, that Mendocino considers to be material to its
business, assets, operations, prospects or financial or other condition.
"Multiemployer Plan" shall mean a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA, and to which Mendocino or any ERISA Affiliate is
making, is obligated to make, has made or been obligated to make, contributions
on behalf of participants who are or were employed by any of them.
"Notice" shall have the meaning set forth in Section 6.1(b)(i).
"Partially Diluted Basis" shall mean that, for purposes of calculating
ownership of the Common Stock, all outstanding options, warrants or other rights
to acquire Common Stock or securities convertible or exchangeable into Common
Stock shall be valued using the "treasury stock approach" as set forth in the
SEC's Staff Accounting Bulletin No. 83. In addition, the shares of Common Stock
held by BDM Construction shall be deemed outstanding for purposes of calculating
ownership of the Common Stock, until such shares have been cancelled or
repurchased by Mendocino.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any successor
thereto.
"Pension Plan" shall mean an employee pension benefit plan, as defined in
Section (3)(2) of ERISA (other than a Multiemployer Plan), which is not an
individual account plan, as defined in Section 3(34) of ERISA, and which
Mendocino, or, if a Title IV Plan, any ERISA Affiliate maintains, contributes to
or has an obligation to contribute to on behalf of participants who are or were
employed by any of them.
"Person" shall mean any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation,
institution, public benefit corporation,
5
entity or government (whether federal, state, county, city, municipal or
otherwise, including, without limitation, any instrumentality, division, agency,
body or department thereof).
"Plan" shall mean, with respect to Mendocino or any ERISA Affiliate, at any
time, an employee benefit plan, as defined in Section 3(3) of ERISA, which
Mendocino maintains, contributes to or has an obligation to contribute to on
behalf of participants who are or were employed by any of them.
"Pledge Agreements" shall have the meaning set forth in Section 2.4(a)(xi)
hereof.
"Projections" shall mean the projections referred to in Section 3.9 hereof.
"Qualified Plan" shall mean an employee pension benefit plan, as defined in
Section 3(2) of ERISA, which is intended to be tax-qualified under Section
401(a) of the IRC, and which Mendocino or any ERISA Affiliate maintains,
contributes to or has an obligation to contribute to on behalf of participants
who are or were employed by any of them.
"Registration Rights Agreement" shall have the meaning set forth in Section
2.4(c).
"Releta" shall mean Releta Brewing Company LLC, a Delaware limited
liability company.
"Representatives" shall have the meaning set forth in Section 8.10.
"Restricted Payment" shall mean (i) the declaration or payment of any
dividend or the occurrence of any liability to make any other payment or
distribution of cash or other property or assets in respect of Mendocino's Stock
or (ii) any payment on account of the purchase, redemption or other retirement
of Mendocino's Stock or any other payment or distribution made in respect of any
Stock of Mendocino, either directly or indirectly.
"Retiree Welfare Plan" shall refer to any Welfare Plan providing for
continuing coverage or benefits for any participant or any beneficiary of a
participant after such participant's termination of employment, other than
continuation coverage provided pursuant to Section 4980B of the IRC and at the
sole expense of the participant or the beneficiary of the participant.
"Scahill Employment Agreement" shall have the meaning set forth in Section
2.4(a)(v).
"SEC" shall mean the Securities and Exchange Commission.
"SEC Documents" shall mean all of the documents (other than preliminary
material) that Mendocino has been required to file with the SEC since January 1,
1995, pursuant to the Securities Act and the Securities Exchange Act.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Securities Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
"Shareholders' Agreement" shall have the meaning set forth in Section
2.4(a)(vii).
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"Shares" shall have the meaning set forth in Section 2.1 hereof.
"Stock" shall mean all shares, options, warrants, general or limited
partnership interests, rights, participations or other equivalents (regardless
of how designated) of or in a corporation, partnership or equivalent entity
whether voting or nonvoting, including, without limitation, common stock,
preferred stock, or any other "equity security" (as such term is defined in Rule
3a11-1 of the General Rules and Regulations promulgated by the SEC under the
Securities Exchange Act).
"Subsidiary" shall mean, with respect to any Person, (a) any corporation of
which an aggregate of more than 50% of the outstanding Stock having ordinary
voting power to elect a majority of the board of directors of such corporation
(irrespective of whether, at the time, Stock of any other class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time, directly or indirectly, owned
legally or beneficially by such Person and/or one or more Subsidiaries of such
Person, and (b) any partnership or other entity in which such Person and/or one
or more Subsidiaries of such Person shall have an interest (whether in the form
of voting or participation in profits or capital contribution) of more than 50%.
"Title IV Plan" shall mean a Pension Plan, other than a Multiemployer Plan,
which is covered by Title IV of ERISA.
"Transactions" shall have the meaning set forth in Section 3.6.
"Withdrawal Liability" shall mean, at any time, the aggregate amount of the
liabilities, if any, pursuant to Section 4201 of ERISA, and any increase in
contributions pursuant to Section 4243 of ERISA with respect to all
Multiemployer Plans.
II. THE PURCHASE AND SALE OF EQUITY SECURITIES.
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2.1. Cash Investment; Contribution of Releta. Subject to the terms and
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conditions set forth in this Agreement, Mendocino will issue and sell to the
Purchaser, and the Purchaser will purchase, (i) 941,176 shares of Mendocino's
Common Stock (the "Cash Shares"), at a purchase price of $4.25 per share, for
$4,000,000, (ii) 2,000 shares of Mendocino's Common Stock (the "Deposit Shares")
in consideration for The UB Group making a $250,000 refundable deposit in May,
1997, and (iii) 1,176,471 shares of Mendocino's Common Stock (the "Releta
Shares," collectively with the Cash Shares and the Deposit Shares, the
"Shares"), at a valuation of $4.25 per share, in exchange for Purchaser's
contribution to Mendocino of all of the equity interests in Releta.
2.2. Closing. (a) Immediately upon execution of this Agreement,
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Mendocino shall instruct its transfer agent to deliver to the Purchaser
certificates representing shares of Mendocino common stock, registered in the
Purchaser's name as follows:
(i) Certificates for 423,529 shares against a credit of
$1,753,000 for the refundable deposits that Purchaser's affiliate, The
UB Group, paid to Mendocino before the date of this Agreement and a
credit of $547,000 that The UB Group on the date hereof simultaneously
herewith paid to Mendocino;
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(ii) A certificate for 2,000 shares of Mendocino common stock in
consideration for the UB Group making a $250,000 refundable deposit in
May, 1997; and
(iii) Certificates for 1,176,471 shares of Mendocino common stock
in consideration for Purchaser's contribution of the Releta equity
interests.
(b) On November 15, 1997, Mendocino shall deliver to the Purchaser a
certificate for 211,765 shares against delivery by the Purchaser of a certified
or bank check in the name of Mendocino in the amount of $900,000. On November
30, 1997, Mendocino shall deliver to the Purchaser a certificate for 305,882
shares against delivery by the Purchaser or a certified or bank check in the
name of Mendocino in the amount of $1,300,000.
2.3. Legends. Each certificate representing the Shares acquired by the
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Purchaser at the Closing shall bear a legend substantially in the following
form:
"THESE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933. THESE SECURITIES HAVE
BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED, SOLD,
TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF
1933 OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT."
The legend described in this Section 2.3 shall be removed promptly, and
Mendocino shall issue to the Purchaser a new certificate for any of the shares
acquired by the Purchaser at the Closing (or pursuant to Section 8.4), that have
been sold in a sale registered under the Securities Act and with respect to
which a prospectus meeting the requirements of Section 10 of the Securities Act
is available or with respect to which Purchaser has provided to Mendocino an
opinion of counsel, satisfactory in the reasonable judgment of Mendocino, that
the public sale, transfer or assignment thereof may be made without registration
under the Securities Act.
2.4. Additional Agreements. On the date hereof, Mendocino simultaneously
---------------------
herewith delivered to the Purchaser the following documents:
(i) the Employment Agreement between Mendocino and Xxxxxxx
Xxxxxxxx dated the date of this Agreement and duly executed by
Mendocino and Xxxxxxx Xxxxxxxx, a copy of which is attached hereto as
Exhibit 2.4(a)(i) (the "Xxxxxxxx Employment Agreement");
(ii) the Employment Agreement between Mendocino and Xxxxxx Xxxxxx
dated the date of this Agreement and duly executed by Mendocino and
Xxxxxx Xxxxxx, a copy of which is attached hereto as Exhibit
2.4(a)(ii) (the "Xxxxxx Employment Agreement");
(iii) the Employment Agreement between Mendocino and Xxxxxxx
Xxxxxx dated the date of this Agreement and duly executed by Mendocino
and Xxxxxxx Xxxxxx, a
8
copy of which is attached hereto as Exhibit 2.4(a)(iii) (the "Xxxxxx
Employment Agreement");
(iv) the Employment Agreement between Mendocino and Xxxx Xxxxxxx
dated the date of this Agreement and duly executed by Mendocino and
Xxxx Xxxxxxx, a copy of which is attached hereto as Exhibit 2.4(a)(iv)
(the "Scahill Employment Agreement");
(v) the Employment Agreement between Mendocino and Xxxxxx Xxxxxxx
dated the date of this Agreement and duly executed by Mendocino and
Xxxxxx Xxxxxxx, a copy of which is attached hereto as Exhibit
2.4(a)(v) (the "Xxxxxxx Employment Agreement");
(vi) the Shareholders' Agreement between Messrs. Xxxxxxxx,
Franks, Lovett, Scahill and Xxxxxxx (collectively, the "Original
Partners"), Mendocino and the Purchaser dated the date of this
Agreement and duly executed by each of the Original Partners and
Mendocino, a copy of which is attached hereto as Exhibit 2.4(a)(vi)
(the "Shareholders' Agreement"); and
(vii) the Registration Rights Agreement between the Original
Partners, the Purchaser and Mendocino dated the date of this Agreement
and duly executed by each of the Original Partners and Mendocino, a
copy of which is attached hereto as Exhibit 2.4(a)(vii) (the
"Registration Rights Agreement").
III. REPRESENTATIONS AND WARRANTIES OF MENDOCINO.
--------------------------------------------
Mendocino makes the following representations and warranties to the
Purchaser, subject to the exceptions set forth therein, each and all of which
shall survive the execution and delivery of this Agreement and the Closing
hereunder:
3.1. Authorized and Outstanding Shares of Capital Stock. The authorized
--------------------------------------------------
capital stock of Mendocino consists of 20,000,000 shares of Common Stock, no par
value per share, and 2,000,000 shares of Preferred Stock, no par value per
share, of which 227,600 are designated as Series A Preferred Stock. Schedule
3.1(a) sets forth the number of shares of Common Stock and Preferred Stock of
Mendocino authorized and outstanding as of the date hereof. Schedule 3.1(b)
sets forth the number of shares of Common Stock and Preferred Stock of Mendocino
subject to options and other rights to acquire as of the date hereof. All of the
issued and outstanding shares of Mendocino are, and as of the Closing Date will
be, validly issued, fully paid and non-assessable. A list of all of the holders
known to Mendocino who beneficially own in excess of five percent (5%) of the
outstanding shares of Common Stock and Preferred Stock of Mendocino indicating
the number of shares of Common Stock and Preferred Stock, respectively, owned by
each such holder on the date hereof is set forth on Schedule 3.1(c). Except as
set forth on Schedule 3.1(b), (i) there is no existing option, warrant, call,
commitment or other agreement to which Mendocino is a party requiring, and there
are no convertible securities of Mendocino outstanding which upon conversion
would require, the issuance of any additional share of Stock of Mendocino or
other securities convertible into shares of equity securities of Mendocino, and
(ii) there are no agreements to which Mendocino is a party or, to the best
knowledge of
9
Mendocino, to which Mendocino is not a party, in each case, among, between or
with any of the stockholders of Mendocino with respect to the voting or transfer
of the Stock of Mendocino or with respect to any other aspect of Mendocino's
affairs. Schedule 3.1(b) sets forth complete, correct and accurate statements of
the option terms, exercise price and identity of the optionee with respect to
each outstanding stock option, other stock incentive or other stock acquisition
right of Mendocino Common Stock. There are no stockholders' preemptive rights or
rights of first refusal or other similar rights with respect to the issuance of
Stock by Mendocino, other than pursuant to this Agreement.
3.2. Authorization and Issuance of Equity Securities. Mendocino has taken
-----------------------------------------------
all necessary corporate action to duly authorize the issuance of the Shares.
Upon delivery to the Purchaser of certificates therefor against payment in
accordance with the terms hereof, the Shares issued to the Purchaser hereunder
will be validly issued and fully paid and nonassessable, free and clear of all
Liens and preemptive rights. The Shares issued and to be issued to the Purchaser
by Mendocino hereunder collectively represent approximately 43.74% of the
outstanding shares of Common Stock of Mendocino on a Fully Diluted Basis. The
calculation of the foregoing percentage is set forth on Schedule 3.2. Except as
set forth in Schedule 3.1(b) none of the Original Partners has any options,
warrants or other rights to acquire the Common Stock or other Stock of
Mendocino.
3.3. Securities Laws. In reliance on the investment representations
---------------
contained in Sections 4.2 through 4.4, the offer, issuance, sale and delivery of
the Shares, as provided in this Agreement, are exempt from the registration
requirements of the Securities Act and all applicable state securities laws, and
are otherwise in compliance with such laws.
3.4. Corporate Existence; Compliance with Law. Except as set forth on
----------------------------------------
Schedule 3.4, Mendocino (i) is a corporation duly organized, validly existing
and in good standing under the laws of the state of its organization; (ii) is
duly qualified as a foreign corporation and in good standing under the laws of
each jurisdiction where its ownership or lease of property or the conduct of its
business requires such qualification (except for jurisdictions in which such
failure to so qualify or to be in good standing would not have a Material
Adverse Effect); (iii) has the requisite corporate power and authority and the
legal right to own, pledge, mortgage or otherwise encumber and operate its
properties, to lease the property it operates under lease, and to conduct its
business as now, heretofore and proposed to be conducted; (iv) has all material
licenses, permits, consents or approvals from or by, and has made all material
filings with, and has given all material notices to, all governmental
authorities having jurisdiction or other Persons, to the extent required for
such ownership, operation and conduct; (v) is in compliance with its certificate
or articles of incorporation and by-laws; and (vi) is in material compliance
with all applicable provisions of law.
3.5. Subsidiaries. There exist no subsidiaries of Mendocino.
------------
3.6. Corporate Power; Authorization; Enforceable Obligations. Except as set
-------------------------------------------------------
forth on Schedule 3.6, the execution, delivery and performance by Mendocino of
this Agreement, the Ancillary Agreements to which it is a party, and all
instruments and documents to be delivered Mendocino, to the extent it is a party
thereto, hereunder and thereunder, and the consummation of the other
transactions contemplated by any of the foregoing (collectively referred to as
the
10
"Transactions"): (i) are within Mendocino's corporate power; (ii) have been duly
authorized by all necessary or proper corporate action on the part of Mendocino
(except for shareholder approval); (iii) are not in contravention of any
provision of Mendocino's articles of incorporation or by-laws; (iv) will not
violate any law or regulation, or any order or decree of any court or
governmental instrumentality; (v) will not conflict with or result in the breach
or termination of, constitute a default under or accelerate any performance
required by, any indenture, mortgage, deed of trust, lease, agreement or other
instrument to which Mendocino is a party or by which Mendocino or any of its
property is bound; (vi) will not result in the creation or imposition of any
Lien upon any of the property of Mendocino; and (vii) do not require the consent
or approval of, or any filing with, any governmental authority or any other
Person. This Agreement has been duly executed and delivered by Mendocino and
constitutes a legal, valid and binding obligation of Mendocino, enforceable
against it in accordance with its terms. Except as set forth on Schedule 3.6,
each of the Ancillary Agreements has been duly executed and delivered by
Mendocino, and each constitutes a legal, valid and binding obligation of
Mendocino to the extent it is a party thereto, enforceable against it in
accordance with its terms. Except as set forth on Schedule 3.6, to the knowledge
of Mendocino, each Original Partner has full right, power and authority to enter
into this Agreement and the Ancillary Agreements to the extent he is a party
thereto and the execution, delivery and performance by each Original Partner of
the Transactions (i) will not result in a breach or violation by any of the
Original Partners of any of the terms or provisions of, or constitute a default
by any Original Partner under, any indenture, mortgage, deed of trust, trust
(constructive or other), loan agreement, lease, franchise, license or other
agreement or instrument to which any Original Partner is a party or by which any
Original Partner or any of the Original Partners' respective properties is
bound, any statute, or any judgment, decree, order, rule or regulation of any
court or governmental agency or body applicable to any Original Partner or any
of the Original Partners' respective properties and (ii) do not require the
consent or approval of, or any filing with, any governmental authority or any
other Person.
3.7. Financial Statements.
--------------------
(a) Except as set forth on Schedule 3.7(a), all of the following
balance sheets and statements of income and retained earnings of Mendocino,
copies of which are attached hereto as Schedule 3.7, have been, except as noted
therein, prepared in conformity with GAAP consistently applied throughout the
periods involved and present fairly the financial position of Mendocino in each
case as the dates thereof, and the results of operations and cash flows for the
periods then ended (and as to the unaudited interim financial statements,
subject to normal year-end audit adjustments not material in amount):
(i) the unaudited balance sheet of Mendocino as at June 30, 1997,
and the related statements of income, retained earnings and cash flows for the
three and six months ending on such date; and
(ii) the audited balance sheets of Mendocino as at December 31,
1996, as at December 31, 1995 and as at December 31, 1994, and the related
statements of income, retained earnings and cash flows for the year then ended,
with the opinion thereon of Xxxx Xxxxx LLP.
11
(b) Except as set forth in Schedule 3.7(b), Mendocino had, as of June
30, 1997, no obligations, contingent or otherwise, including, without
limitation, liabilities for charges, long-term leases or unusual forward or
long-term commitments which are not reflected in the balance sheets of
Mendocino, other than those that are both incurred in the ordinary course of
business and are immaterial in amount.
3.8. No Changes. Except as set forth on Schedule 3.8, no event has occurred
----------
since June 30, 1997 which has had, or is reasonably likely to have, a Material
Adverse Effect. Except as set forth on Schedule 3.8, since December 31, 1996 or
June 30, 1997, except as otherwise contemplated in this Agreement,
(i) Mendocino has not sold leased, transferred or assigned any of
its assets, tangible or intangible, other than for fair consideration in
the ordinary course of business consistent with past practice;
(ii) Mendocino has not changed its accounting methods, principles
or practices;
(iii) Mendocino has not increased the compensation payable or to
become payable to its officers or key employees other than in the ordinary
course of business consistent with past practice;
(iv) Mendocino has not increased any bonus, insurance, pension or
other employee benefit plan for or with any such officers or key employees
other than in the ordinary course of business consistent with past
practice;
(v) Mendocino has not entered into any agreement, commitment or
transaction (including any borrowing, capital expenditure or capital
financing) except in the ordinary course of business consistent with past
practice;
(vi) Mendocino has not granted or received any license or
sublicense or any rights under or with respect to any license, patent,
copyright, service xxxx, trademark, trade name, trade secret or other
intellectual property right of Mendocino;
(vii) Mendocino has not declared, set aside or paid any dividends
or made any distribution with respect to its capital stock (whether in cash
or in kind) or redeemed, purchased or otherwise acquired any of its capital
stock;
(viii) Mendocino has not experienced any material damage,
destruction or loss (whether or not covered by insurance) to its property;
(ix) Mendocino has not made any capital investment in, any loan
to, or any acquisition of the securities or assets of, any other Person;
(x) Mendocino has not cancelled, compromised, waived or released
any right or claim outside the ordinary course of business consistent with
past practice;
12
(xi) Mendocino has not issued, sold or otherwise disposed of any
of its capital stock, or granted any options, warrants, or other rights to
purchase or obtain (including upon conversion, exchange or exercise) any of
its capital stock, other than pursuant to any currently authorized stock
option plans;
(xii) Mendocino has not delayed or postponed the payment of
accounts payable or other labilities outside the ordinary course of
business consistent with past practice;
(xiii) Mendocino has not incurred or become subject to any
material liability, outside the ordinary course of business consistent
with past practice;
(xiv) Mendocino has not discharged or satisfied any Lien on its
properties or assets or, except in the ordinary course of business
consistent with past practice, paid any material liability;
(xv) Mendocino has not mortgaged, pledged or subjected to any
Lien any of its assets or properties except (A) Liens for taxes not
delinquent or for taxes being contested in good faith by appropriate
proceedings and as to which adequate financial reserves have been
established by Mendocino, and (B) Liens (other than any Lien imposed by
ERISA), created and maintained in the ordinary course of business that are
not material to Mendocino in the aggregate, that would not have a Material
Adverse Effect and that would not adversely affect the operation of any
Facility and that constitute (aa) pledges or deposits under worker's
compensation laws, unemployment insurance laws, or similar legislation,
(bb) good faith deposits in connection with bids tenders, contracts or
leases to which Mendocino is a party for a purpose other than borrowing
money or obtaining credit, (cc) Liens imposed by law, such as those of
carriers, warehousemen and mechanics, payment of the obligation secured
thereby not yet being due, (dd) Liens securing taxes, assessments or other
governmental charges or levies not yet subject to penalties for nonpayment
or (ee) pledges or deposits to secure public or statutory obligations of
Mendocino or surety, customs or appeal bonds to which Mendocino is a
party; and
(xvi) Mendocino has not committed to any of the foregoing.
3.9. Ownership of Property.
---------------------
(a) Mendocino owns good and marketable fee simple title to all of the
real estate described on Schedule 3.9(a) hereto (subject to only those Liens
disclosed on such Schedule 3.9(a)) and good, valid and marketable leasehold
interests in the leases described in Schedule 3.9(b) hereto, and good and
marketable title to, or valid leasehold interests in, all of its other
properties and assets.
(b) All real property owned, leased, used or occupied by Mendocino is
set forth on Schedule 3.9(a) and 3.9(b), respectively. Mendocino does not own
any other real property and is not a lessee or lessor under any leases, or a
licensee or licensor of real property, other than set forth therein. Each of
such leases is valid and enforceable in accordance with its terms and is in full
force and effect. Mendocino has delivered to the Purchaser true and complete
13
copies of each of such leases set forth on Schedule 3.9(b) and all documents
affecting the rights or obligations of Mendocino, including, without limitation,
any non-disturbance and recognition agreements, subordination agreements,
attornment agreements and agreements regarding the term or rental of any of the
leases. Neither Mendocino nor any other party to any such lease is in default of
its obligations thereunder or has delivered or received any notice of default
under any such lease, nor has any event occurred which, with the giving of
notice, the passage of time or both, would constitute a default under any such
lease.
(c) Except as disclosed on Schedule 3.9(b), Mendocino is not obligated
under or a party to, any option, right of first refusal or any other contractual
right to purchase, acquire, sell, assign or dispose of any real property owned
or leased by Mendocino.
(d) All real estate and improvements owned, leased, used or occupied
by Mendocino have adequate connections to all necessary utilities and conform
with all applicable zoning, building, subdivision and other requirements of any
governmental authority and all restrictive covenants affecting such real estate
and improvements except any such failures to confirm that, singly or in the
aggregate, would not have a Material Adverse Effect. To the knowledge of
Mendocino, there are no presently pending or contemplated special tax
assessment, condemnation proceedings or nuisance claims affecting such real
estate and improvements.
(e) Except as set forth in Schedule 3.9(e), the consummation of the
Transactions, including the Closing, do not require the consent of any lessor or
licensor of any real property leased, licensed or used by Mendocino.
3.10. Material Contracts. Schedule 3.10 contains a true, correct and
------------------
complete list and description of all Material Contracts, whether oral or
written, and any amendments or supplements thereto or extensions thereof, and
Mendocino has made available to the Purchaser for its review complete, current
and accurate copies of each Material Contract including any amendments or
supplements thereto or extensions thereof or has completely, currently and
accurately described the terms of any oral agreement, amendment, supplement or
extension. Except as set forth on Schedule 3.10, each Material Contract is a
valid and binding agreement of Mendocino enforceable against Mendocino in
accordance with its terms, and Mendocino does not have any knowledge that any
Material Contract is not a valid and binding agreement against the other parties
thereto. Except as set forth on Schedule 3.10, Mendocino has fulfilled all
obligations required pursuant to each Material Contract to have been performed
by Mendocino on its part. Except as set forth on Schedule 3.10, Mendocino is not
in default or breach, nor to Mendocino's knowledge is any third party in default
or breach, under or with respect to any Material Contract.
14
3.11. Environmental Protection.
------------------------
(a) Mendocino and all real property owned, leased or otherwise
operated by Mendocino (each, a "Facility") comply in material respects with any
applicable Environmental Law;
(b) Mendocino has all permits and authorizations necessary from any
government authorities for its operations and the Facilities by any applicable
Environmental Law;
(c) Mendocino has not, and has no knowledge of any other person who
has, caused any release, threatened release or disposal of any Hazardous
Material at any Facility in any material quantity, and, to the knowledge of
Mendocino, the Facilities are not adversely affected by any release, threatened
release or disposal of a Hazardous Material originating or emanating from any
other property;
(d) Mendocino has generated, treated, stored or disposed of all
Hazardous Materials in full compliance with applicable Environmental Laws,
except such non-compliances which in the aggregate have no reasonable likelihood
of having a Material Adverse Effect;
(e) Mendocino has obtained and is in full compliance with and in good
standing under all permits required under Environmental Laws, and Mendocino has
no knowledge of any proceedings to substantially modify or to revoke any such
permit, other than those permits, the failure of which to obtain or have in
effect, in the aggregate, would have no reasonable likelihood of having a
Material Adverse Effect;
(f) There are no investigations; judicial or administrative
proceedings, pending litigation or, to Mendocino's knowledge, threatened
investigations, proceedings or litigation affecting or relating to Mendocino or
the Facilities relating to Environmental Laws or Hazardous Materials.
(g) Mendocino have not received any communication or notice
(including, without limitation, requests for information) indicating the
potential of Environmental Liabilities and Costs against any of Mendocino or the
Facilities; and
(h) Mendocino has provided to the Purchaser or made available to the
Purchaser all environmental records, documents, correspondence, analytical
results, manifests, permits or other records concerning the potential of
Environmental Liabilities and Costs against Mendocino or the Facilities that
Mendocino possesses.
3.12. Labor Matters. There are no strikes or other labor disputes against
-------------
Mendocino pending or, to Mendocino's knowledge, threatened. Hours worked by and
payments made to employees of Mendocino have not been in violation of the Fair
Labor Standards Act or any other applicable law dealing with such matters. All
payments due from Mendocino on account of employee health and welfare insurance
have been paid or accrued as a liability on the books of Mendocino. Mendocino
does not have any obligation under any collective bargaining agreement or
similar agreement. There is no organizing activity involving Mendocino pending
or, to Mendocino's knowledge, threatened by any labor union or group of
employees. There are no
15
representation proceedings pending or threatened with the National Labor
Relations Board, and no labor organization or group of employees of Mendocino
has made a pending demand for recognition. There are no complaints or charges
against Mendocino pending or, to Mendocino's knowledge, threatened to be filed
with any federal, state, local or foreign court, governmental agency or
arbitrator based on, arising out of, in connection with, or otherwise relating
to the employment or termination of employment by Mendocino of any individual.
3.13. Other Ventures. Mendocino is not engaged in any joint venture or
--------------
partnership with any other Person.
3.14. Taxes. All federal, state, local and foreign tax returns, reports and
-----
statements required to be filed by Mendocino have been filed with the
appropriate governmental authority and are complete and accurate. All Charges
and other impositions shown thereon to be due and payable or required to be
shown thereon have been paid prior to the date on which any fine, penalty,
interest, late charge may be added thereto for nonpayment thereof, or any such
fine, penalty, interest, late charge or loss has been paid. Proper and accurate
amounts have been withheld by Mendocino from its employees for all periods in
full and complete compliance with the tax, social security and unemployment
withholding provisions of applicable federal, state, local and foreign law and
such withholdings have been timely paid to the respective governmental agencies.
Mendocino has not executed or filed with the IRS or any other governmental
authority any agreement or other document extending, or having the effect of
extending, the period for assessment or collection of any Charges. Mendocino has
not filed a consent pursuant to IRC Section 341(f) or agreed to have IRC Section
341(f)(2) apply to any dispositions of subsection (f) assets (as such term is
defined in IRC Section 341(f)(4)). None of the property owned by Mendocino is
property which Mendocino is required to treat as being owned by any other Person
pursuant to the provisions of IRC Section 168 (f)(8) of the Internal Revenue
Code of 1954, as amended, and in effect immediately prior to the enactment of
the Tax Reform Act of 1986 or is "tax-exempt use property" within the meaning of
IRC Section 168(h). Mendocino has not agreed or been requested to make any
adjustment under IRC Section 481(a) by reason of a change in accounting method
or otherwise. Mendocino does not have any obligation under any written tax
sharing agreement. There are no Liens for or in respect of taxes upon any assets
of Mendocino, other than with respect to taxes not yet due and payable. Except
as set forth on Schedule 3.14, Mendocino has not agreed to indemnify any other
party with respect to such party's tax liabilities. Mendocino does not now, and
has never, filed federal, state, local or foreign income tax returns on a
consolidated, unitary or other similar basis with one or more corporations.
3.15. No Litigation. Except as set forth on Schedule 3.15, no action, claim
-------------
or proceeding is now pending or, to the knowledge of Mendocino, threatened
against Mendocino, at law, in equity or otherwise, before any court, board,
commission, agency or instrumentality of any federal, state, or local government
or of any agency or subdivision thereof, or before any arbitrator or panel of
arbitrators, nor to the knowledge of Mendocino does a state of facts exist which
is reasonably likely to give rise to such proceedings.
3.16. Brokers. Other than BA Partners, a division of BancAmerica Xxxxxxxxx
-------
Xxxxxxxx, Inc., no broker or finder acting on behalf of Mendocino brought about
the consummation of the Transactions contemplated pursuant to this Agreement,
and Mendocino
16
does not have an obligation to any Person, in respect of any finder's or
brokerage fees in connection with the Transactions contemplated by this
Agreement. Mendocino is solely responsible for the payment of all fees and
expenses of BA Partners and any other brokers or finders acting on behalf or at
the request of Mendocino.
3.17. Employment and Labor Agreements. Except as set forth on Schedule
-------------------------------
3.17, there are no employment, consulting or management agreements covering
management of Mendocino and there are no collective bargaining agreements or
other labor agreements covering any employees of Mendocino.
3.18. Patents, Trademarks, Copyrights and Licenses. Mendocino owns all
--------------------------------------------
licenses, patents, patent applications, copyrights, service marks, trademarks,
trademark applications, trade dress, trade secrets, trade names and other
intellectual property rights necessary to continue to conduct its business as
heretofore conducted by it, now conducted by it and proposed to be conducted by
it, including those trademarks listed, together with Patent and Trademark Office
application or registration numbers, where applicable, or other similar
information with respect to filings made in countries other than the United
States, where applicable, on Schedule 3.18 hereto. Except as set forth on
Schedule 3.18, Mendocino conducts its businesses without infringement, unfair
competition or dilution or claim of infringement, unfair competition or dilution
of any license, patent, copyright, service xxxx, trademark, trade name, trade
secret or other intellectual property right of others. Except as set forth on
Schedule 3.18, to Mendocino's knowledge, there is no infringement or claim of
infringement by others of any material license, patent, copyright, service xxxx,
trademark, trade name, trade dress, trade secret or other intellectual property
right of Mendocino.
3.19. ERISA.
-----
(a) Mendocino has no ERISA Affiliates other than its Subsidiaries.
(b) Set forth on Schedule 3.19 is a complete and accurate list of all
plans maintained, contributed to or which there has been or currently is an
obligation to contribute to by Mendocino or any of its Subsidiaries. Except as
indicated otherwise in Schedule 3.19, none of the Plans is a Pension Plan,
Multiemployer Plan, Title IV Plan, Retiree Welfare Plan or is or has been
subject to Sections 4063 or 4064 or ERISA; and neither Mendocino nor any
Subsidiary has contributed, or been obligated to contribute, to a Multiemployer
Plan or Title IV Plan.
(c) Each of the Qualified Plans and the trust maintained pursuant
thereto are exempt from federal income taxation under Section 501 of the IRC,
and nothing has occurred with respect to the operation of such Qualified Plans
which could cause the loss of such qualifications or exemptions or the
imposition of any liability, penalty or tax under ERISA or the IRC.
(d) All contributions (including all employer contributions and
employee salary reduction contributions) required to have been made under any of
the Plans or by law (without regard to any waivers granted under Section 412 of
the IRC), to any funds or trusts established thereunder or in connection
therewith have been made by the due date thereof (including any valid
extension), and all contributions for any period ending on or before the
17
Closing Date which are not yet due will have been paid or accrued on or prior to
the Closing Date.
(e) There is no material violation of ERISA with respect to the
filing of applicable reports, documents and notices regarding he Plans or any
tax-exempt trust related to any of the Plans with the Secretary of Labor and the
Secretary of the Treasury or the furnishing of such documents to the
participants or beneficiaries of the Plans.
(f) True, correct and complete copies of the following documents,
with respect to each of the Plans, have been made available or delivered to the
Purchaser by Mendocino: (i) current plans and related trust documents, and
amendments thereto; (ii) the most recent Forms 5500, Forms 990, if applicable,
and any Forms 990T, 5329, 5330 that have been filed and any Forms 5558 that have
been filed for reasons other than extensions of time; (iii) the last IRS
determination letter; (iv) current summary plan descriptions; (v) written
communications to employee relating to the Plans, and (vi) written descriptions
of all not-written agreements relating to the Plans.
(g) There are no pending actions, claims or lawsuits which have been
asserted or instituted against the Plans, the assets of any of the trusts under
such Plans or the plan sponsor or the plan administrator, or against any
fiduciary of the Plans with respect to the operation of such Plans (other than
routine benefits claims), nor does Mendocino or any of its Subsidiaries have
knowledge of facts which could form the basis for any such claim or lawsuit.
(h) The Plans have been maintained, in all material respects, in
accordance with their terms and with all provisions of ERISA and other
applicable federal and state laws and regulations, and neither Mendocino nor any
of its Subsidiaries or any "party in interest" or "disqualified person" with
respect to the Plans has engaged in a "prohibited transaction" within the
meaning of Section 4975 of the IRC or Section 406 of ERISA. No fiduciary has any
liability for breach of fiduciary duty or any other failure to act or comply in
connection with the administration or investment of the assets of any Plan.
(i) Mendocino and any of its Subsidiaries which maintains a "group
health plan" within the meaning of Section 5000 (b) (1) of the IRC has complied
with the notice and continuation requirements of Section 4980B of the IRC, the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, Part 6 of
Subtitle B of Title I of ERISA and the regulations thereunder and with the
requirements of Section 5000 of the Code.
(j) No liability under any Plan has been funded nor has any such
obligation been satisfied with the purchase of a contract from an insurance
company that is not rated AA by Standard & Poor's Corporation and the equivalent
by each other nationally recognized rating agency.
(k) Mendocino does not have any contract, plan or commitment, whether
legally binding or not, to create any additional Plan or to modify any existing
Plan.
3.20. Registration Rights. Mendocino is not under any obligation to
-------------------
register under the Securities Act any of its presently outstanding securities or
any securities which may hereafter be issued.
18
3.21. Liquor Consents and Permits. Set forth on Schedule 3.21 is a list of
---------------------------
all material licenses, permits, consents or approvals from or by , all material
filings required to be made with, and all material notices required to be given
to, all governmental authorities having jurisdiction, to the extent required for
Mendocino to own and operate its properties, to lease the property it operates
under lease, and to conduct its business as now, heretofore and proposed to be
conducted.
3.22. SEC Documents. Mendocino has furnished the Purchaser with a true and
-------------
complete copy of the SEC Documents. As of its filing date (and, with respect to
any registration statement, the date on which it or any post-effective amendment
was declared effective), each SEC Document was in compliance, in all material
respects, with the applicable requirements of the Securities Act and the
Securities Exchange Act, contained no untrue statement of a material fact and
did not omit any statement of a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The financial statements of Mendocino
included in the SEC Documents complied, at the time of filing with the SEC (and,
with respect to any registration statement, at the time it was declared
effective), as to form, in all material respects, with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, were prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods involved (subject,
in the case of the unaudited statements, to the omission of certain footnotes)
and fairly present, in all material respects (subject, in the case of the
unaudited statements, to normal, recurring year-end audit adjustments) the
consolidated financial position of Mendocino, as applicable, as of the dates
thereof and the consolidated results of their operations for the periods
presented.
3.23. Acquisitions; Capital Expenditures. Except for existing commitments
----------------------------------
which have been set forth on Schedule 3.23, Mendocino does not have any existing
commitments or agreements to acquire any assets (including under circumstances
where such acquisition would be classified as a capital expenditure under GAAP)
or to make any capital expenditure or contribution in any individual transaction
or project where the purchase price, capital expenditure or contribution
required of Mendocino, directly or indirectly, exceeds $25,000 or in
transactions or projects where the aggregate purchase price, capital expenditure
or contribution exceeds $25,000.
3.24. Accounts Receivable. All receivables of Mendocino arose in the
-------------------
ordinary course of business at the aggregate amounts thereof, are collectible
except to the extent of reserves shown on the balance sheet of Mendocino as of
June 30, 1997 (and, for accounts arising after June 30, 1997, to an extent
consistent with past reserve practices) and are carried at values determined in
accordance with GAAP consistently applied on a reasonable basis. None of the
receivables of Mendocino is subject to any claim of offset, recoupment, setoff
or counter-claim and Mendocino does not know of any facts or circumstances
(whether asserted or unasserted) that would give rise to any such claim. No
receivables are contingent upon the performance by Mendocino or any obligation
or contract. Except as set forth on Schedule 3.24, no person has any lien,
charge, pledge, security interest or other encumbrance on any of such
receivables and no agreement for deduction or discount has been made with
respect to any of such receivables.
19
3.25. Insurance. Set forth on Schedule 3.25 is a list of all insurance
---------
policies and fidelity bonds covering the assets, business, equipment,
properties, operations, employees, officers and directors of Mendocino. There is
no claim by Mendocino pending under any of such policies or bonds as to which
coverage has been questioned, denied or disputed by the underwriters of such
policies and bonds. All premiums due and payable under all such policies and
bonds have been paid and Mendocino is otherwise in full compliance with the
terms of such policies and bonds (or other policies and bonds providing
substantially similar insurance coverage). Such policies of insurance and bonds
are of the type and in amounts customarily carried by persons conducting
businesses similar to those of Mendocino. Except as set forth on Schedule 3.25,
Mendocino has no knowledge of any threatened termination of, or material premium
increase with respect to, any of such policies.
3.26. Related Party Transactions. All of the related party transactions
--------------------------
between the Original Partners and Mendocino were made on terms no less favorable
to Mendocino than could have been obtained from unaffiliated third parties and
were approved by a majority of the independent directors of Mendocino. Schedule
3.26 sets forth a list of all of the related party transactions between the
Original Partners and Mendocino since January 1, 1993.
3.27. No Stockholder Approval. Although approval by the stockholders of
-----------------------
Mendocino is required under the rules of the Pacific Stock Exchange, Mendocino
has obtained a waiver from the Pacific Stock Exchange of such requirement. No
approval by the stockholders of Mendocino is otherwise required for the issuance
and sale of the Shares by Mendocino pursuant to this Agreement.
IV. PURCHASER'S REPRESENTATIONS AND WARRANTIES.
------------------------------------------
Purchaser makes the following representations and warranties to Mendocino,
each and all of which shall survive the execution and delivery of this Agreement
and the Closing hereunder:
4.1. Corporate Existence. Purchaser is a corporation duly organized,
-------------------
validly existing and in good standing under the laws of the State of Delaware.
4.2. Investment Intention. Purchaser is purchasing the shares of Common
--------------------
Stock specified in Section 2.1 for its own account, for investment purposes and
not with a view to the distribution thereof.
4.3. Investment Experience. Purchaser represents that it is experienced in
---------------------
evaluating and investing in securities of craft brewing companies in the growth
stage and acknowledges that it is able to fend for itself, can bear the economic
risk of its investment and has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits and risks of the
investment.
4.4. Access to Information. Purchaser acknowledges that it (a) is familiar
---------------------
with the craft brewing industry in which Mendocino does business, (b) has
received all the information it considers necessary or appropriate for deciding
whether to purchase the Shares pursuant to this Agreement, and (c) has had an
opportunity to ask questions and has received answers from Mendocino about its
business and to obtain additional information necessary to verify the accuracy
of the information supplied or to which the Purchaser had access The foregoing,
20
however, does not limit or modify the representations and warranties of
Mendocino in Section III of this Agreement. It is understood and agreed that
Mendocino has agreed to provide the Purchaser with continuing access to
information concerning Mendocino, its business, management and financial affairs
under Section 6.7 hereunder.
4.5. Corporate Power; Authorization; Enforceable Obligations. The
-------------------------------------------------------
execution, delivery and performance by Purchaser of this Agreement, and the
other Transactions to which it is a party and all instruments and documents to
be delivered by Purchaser, to the extent that it is a party thereto, hereunder
and thereunder: (i) are within Purchaser's corporate power; (ii) have been duly
authorized by all necessary corporate action on the part of Purchaser; (iii) are
not in contravention of any provision of Purchaser's articles of incorporation
or by-laws; (iv) will not violate any law or regulation, or any order or decree
of any court or government instrumentality; (v) will not conflict with or result
in the breach or termination of, constitute a default under or accelerate any
performance required by, any indenture, mortgage, deed of trust, lease,
agreement or other instrument to which Purchaser is a party or by which
Purchaser or any of its property is bound; (vi) will not result in the creation
or imposition of any Lien upon any of the property of Purchaser: and (vii)
except for the filings described on Schedule 4.5 hereto, do not require the
consent or approval of, or any filing with, any governmental authority or any
other Person. This Agreement has been duly executed and delivered by Purchaser
and constitutes a legal, valid and binding obligation of Purchaser, enforceable
against it in accordance with its terms. Each of the Ancillary Agreements to
which Purchaser is a party have been duly executed and delivered by Purchaser
and each constitutes a legal, valid and binding obligation of Purchaser,
enforceable against it in accordance with its terms.
4.6. Liquidity. The Purchaser has sufficient liquidity and capital
---------
resources to purchase the Shares at the times specified in this Agreement.
4.7. Acceptability to Regulators. To the best of Purchaser's knowledge,
---------------------------
there is nothing that would cause any federal or state regulator to object to
Purchaser as a shareholder of the Company or to Xxxxx Xxxxxx, O'Xxxx Xxxxxxxx,
Xxxxxxx Xxxxx or Xxxxxx Xxxxxxxx as a director of the Company.
4.8. Brokers. Other than Xxxxxx Xxxxxxxx, no broker or finder acting on
-------
behalf of Purchaser brought about the Transactions contemplated pursuant to this
Agreement, and purchaser does not have any obligation to pay any Person, in
respect of any finder's or brokerage fees in connection with the Transactions
contemplated by this Agreement. Purchaser is solely responsible for the payment
of all fees and expenses of Xxxxxx Xxxxxxxx and any other brokers or finders
acting on behalf or at the request of Purchaser.
4.9. Outstanding Units of Releta. Releta has a total of 100 units (the
---------------------------
"Units") outstanding. Purchaser is the sole member of Releta and owns all of the
Units of Releta outstanding. All of the issued and outstanding Units of Releta
are, and as of the Closing Date will be, validly issued, fully paid and non-
assessable. There is no existing option, warrant, call, commitment or other
agreement to which Releta is a party requiring, and there are no convertible
securities of Releta outstanding which upon conversion would require, the
issuance of any additional Units of Releta or other securities convertible into
units of Releta, and there are no agreements to which Releta is a party or, to
the best knowledge of Releta, to which Releta is not
21
a party, in each case, with the sole member of Releta with respect to the voting
or transfer of the Units of Releta or with respect to any other aspect of
Releta's affairs. There are no preemptive rights or rights of first refusal or
other similar rights with respect to the transfer of the Units by Purchaser.
4.10. Authorization and Transfer of Equity Interest by Purchaser. Purchaser
----------------------------------------------------------
has taken all necessary corporate action to duly authorize the transfer of the
equity interest in Releta, represented by the Units, to Mendocino. Upon delivery
to Mendocino of the certificate representing the Units therefor against payment
in accordance with the terms hereof, the Units transferred to Mendocino
hereunder will be validly issued and fully paid and nonassessable, free and
clear of all Liens and preemptive rights. The Units transferred to Mendocino by
the Purchaser represent 100% of the equity interest in Releta.
4.11. Securities Laws. The offer, issuance, sale and delivery of the Units,
---------------
as provided in this Agreement, are exempt from the registration requirements of
the Securities Act and all applicable state securities laws, and are otherwise
in compliance with such laws.
4.12. Releta Existence; Compliance with Law. Releta (i) is a limited
-------------------------------------
liability company duly organized, validly existing and in good standing under
the laws of the State of Delaware; (ii) is member managed, (iii) is duly
qualified and in good standing under the laws of each jurisdiction where its
ownership or lease of property or the conduct of its business requires such
qualification (except for jurisdictions in which such failure to so qualify or
to be in good standing would not have a Material Adverse Effect); (iv) has the
requisite power and authority and the legal right to own, pledge, mortgage or
otherwise encumber and operate its properties, to lease the property it operates
under lease, and to conduct its business as now, heretofore and proposed to be
conducted; (v) except as set forth on Schedule 4.12, has all material licenses,
permits, consents or approvals from or by, and has made all material filings
with, and has given all material notices to, all governmental authorities having
jurisdiction or other Persons, to the extent required for such ownership,
operation and conduct; (vi) is in compliance with its certificate of formation
and operating agreement; and (vii) is in material compliance with all applicable
provisions of law.
4.13. Subsidiaries. There exist no subsidiaries of Releta.
------------
4.14. Ownership of Property.
---------------------
(a) Releta owns good and marketable fee simple title to all of the
real estate described on Schedule 4.14(a) hereto (subject to only those Liens
disclosed on such Schedule 4.14(a)) and good, valid and marketable leasehold
interests in the leases described in Schedule 4.14(b) hereto, and good and
marketable title to, or valid leasehold interests in, all of its other
properties and assets.
(b) All real property owned, leased, used or occupied by Releta is set
forth on Schedule 4.14(a) and 4.14(b), respectively. Releta does not own any
other real property and is not a lessee or lessor under any leases, or a
licensee or licensor of real property, other than set forth therein. Each of
such leases is valid and enforceable in accordance with its terms and is in full
force and effect. Releta has delivered to the Purchaser true and complete copies
of each of
22
such leases set forth on Schedule 4.14(b) and all documents affecting the rights
or obligations of Releta, including, without limitation, any non-disturbance and
recognition agreements, subordination agreements, attornment agreements and
agreements regarding the term or rental of any of the leases. Neither Releta nor
any other party to any such lease is in default of its obligations thereunder or
has delivered or received any notice of default under any such lease, nor has
any event occurred which, with the giving of notice, the passage of time or
both, would constitute a default under any such lease.
(c) Except as disclosed on Schedule 4.14(b), Releta is not obligated
under or a party to, any option, right of first refusal or any other contractual
right to purchase, acquire, sell, assign or dispose of any real property owned
or leased by Releta.
(d) All real estate and improvements owned, leased, used or occupied
by Releta have adequate connections to all necessary utilities and conform with
all applicable zoning, building, subdivision and other requirements of any
governmental authority and all restrictive covenants affecting such real estate
and improvements except any such failures to confirm that, singly or in the
aggregate, would not have a Material Adverse Effect. To the knowledge of Releta,
there are no presently pending or contemplated special tax assessment,
condemnation proceedings or nuisance claims affecting such real estate and
improvements.
(e) Except as set forth in Schedule 4.14(e), the consummation of the
Transactions, including the Closing, do not require the consent of any lessor or
licensor of any real property leased, licensed or used by Releta.
4.15. Material Contracts; Liabilities; Equipment. (a) Schedule 4.15
------------------------------------------
contains a true, correct and complete list and description of all Material
Contracts, whether oral or written, and any amendments or supplements thereto or
extensions thereof, and Releta has made available to the Purchaser for its
review complete, current and accurate copies of each Material Contract including
any amendments or supplements thereto or extensions thereof or has completely,
currently and accurately described the terms of any oral agreement, amendment,
supplement or extension. Each Material Contract is a valid and binding agreement
of Releta enforceable against Releta in accordance with its terms, and Releta
does not have any knowledge that any Material Contract is not a valid and
binding agreement against the other parties thereto. Releta has fulfilled all
obligations required pursuant to each Material Contract to have been performed
by Releta on its part. Releta is not in default or breach, nor to Releta's
knowledge is any third party in default or breach, under or with respect to any
Material Contract.
(b) Except for the lease(s) disclosed on Schedule 4.14(b), the
Material Contracts disclosed on Schedule 4.15(a), and as set forth on Schedule
4.15(b), Releta does not have any liabilities, contingent or otherwise.
(c) Set forth on Schedule 4.15(c) is a true, correct and complete
list of equipment used at the Releta brewing facilities in Saratoga Springs, New
York. Except as set forth on Schedule 4.15(b), such equipment is all owned by
Releta free and clear of any Lien and constitutes all of the tangible assets of
Releta. Except as set forth on Schedule 4.15(c), all such assets are fully
operable and in good condition and repair, are free from any defect or condition
that would affect their operation or useful life (except for normal wear and
tear), and are suitable
23
for the conduct of the business of brewing beer, it being understood that the
addition of a laboratory and additional warehouse facilities is required to brew
Red Tail Ale and that the addition of a pasteurizer is required to brew
Kingfisher. There are no physical or mechanical defects of the facilities at
Releta, including without limitation, the plumbing, heating, venitlation, air
conditioning and electrical systems, and all such items are in good operating
condition and repair and in compliance with all applicable laws.
4.16. Environmental Protection. To the best knowledge of Releta and its
------------------------
officers:
(i) Releta and all real property owned, leased or otherwise
operated by Releta (each, a "Facility") comply in material respects with
any applicable Environmental Law;
(ii) Releta has all permits and authorizations necessary from any
government authorities for its operations and the Facilities by any
applicable Environmental Law;
(iii) Releta has not, and has no knowledge of any other person
who has, caused any release, threatened release or disposal of any
Hazardous Material at any Facility in any material quantity, and, to the
knowledge of Releta, the Facilities are not adversely affected by any
release, threatened release or disposal of a Hazardous Material originating
or emanating from any other property;
(iv) Releta has generated, treated, stored or disposed of all
Hazardous Materials in full compliance with applicable Environmental Laws,
except such non-compliances which in the aggregate have no reasonable
likelihood of having a Material Adverse Effect;
(v) Releta has obtained and is in full compliance with and in
good standing under all permits required under Environmental Laws, and
Releta has no knowledge of any proceedings to substantially modify or to
revoke any such permit, other than those permits, the failure of which to
obtain or have in effect, in the aggregate, would have no reasonable
likelihood of having a Material Adverse Effect;
(vi) There are no investigations; judicial or administrative
proceedings, pending litigation or, to Releta's knowledge, threatened
investigations, proceedings or litigation affecting or relating to Releta
or the Facilities relating to Environmental Laws or Hazardous Materials;
(vii) Releta has not received any communication or notice
(including, without limitation, requests for information) indicating the
potential of Environmental Liabilities and Costs against any of Releta or
the Facilities; and
(viii) Releta has provided to the Purchaser or made available to
the Purchaser all environmental records, documents, correspondence, analytical
results, manifests, permits or other records concerning the potential of
Environmental Liabilities and Costs against Releta or the Facilities that Releta
possesses.
24
4.17. Other Ventures. Releta is not engaged in any joint venture or
--------------
partnership with any other Person.
4.18. Taxes. All federal, state, local and foreign tax returns, reports and
-----
statements required to be filed by Releta have been filed with the appropriate
governmental authority and are complete and accurate. All Charges and other
impositions shown thereon to be due and payable or required to be shown thereon
have been paid prior to the date on which any fine, penalty, interest, late
charge may be added thereto for nonpayment thereof, or any such fine, penalty,
interest, late charge or loss has been paid. Proper and accurate amounts have
been withheld by Releta from its employees for all periods in full and complete
compliance with the tax, social security and unemployment withholding provisions
of applicable federal, state, local and foreign law and such withholdings have
been timely paid to the respective governmental agencies. Releta has not
executed or filed with the IRS or any other governmental authority any agreement
or other document extending, or having the effect of extending, the period for
assessment or collection of any Charges. Releta has not filed a consent pursuant
to IRC Section 341(f) or agreed to have IRC Section 341(f)(2) apply to any
dispositions of subsection (f) assets (as such term is defined in IRC Section
341(f)(4)). None of the property owned by Releta is property which Releta is
required to treat as being owned by any other Person pursuant to the provisions
of IRC Section 168 (f)(8) of the Internal Revenue Code of 1954, as amended, and
in effect immediately prior to the enactment of the Tax Reform Act of 1986 or is
"tax-exempt use property" within the meaning of IRC Section 168(h). Releta has
not agreed or been requested to make any adjustment under IRC Section 481(a) by
reason of a change in accounting method or otherwise. Releta does not have any
obligation under any written tax sharing agreement. There are no Liens for or in
respect of taxes upon any assets of Releta, other than with respect to taxes not
yet due and payable. Releta has not agreed to indemnify any other party with
respect to such party's tax liabilities. Releta does not now, and has never,
filed federal, state, local or foreign income tax returns on a consolidated,
unitary or other similar basis with one or more corporations.
4.19. No Litigation. Except as set forth on Schedule 4.15(b), no action,
-------------
claim or proceeding is now pending or, to the knowledge of Releta, threatened
against Releta, at law, in equity or otherwise, before any court, board,
commission, agency or instrumentality of any federal, state, or local government
or of any agency or subdivision thereof, or before any arbitrator or panel of
arbitrators, nor to the knowledge of Releta does a state of facts exist which is
reasonably likely to give rise to such proceedings.
4.20. Employment and Labor Agreements. There are no employment, consulting
-------------------------------
or management agreements covering management of Releta and there are no
collective bargaining agreements or other labor agreements covering any
employees of Releta.
4.21. Patents, Trademarks, Copyrights and Licenses. Set forth on Schedule
--------------------------------------------
4.21 is a list of all Patent and Trademark Office applications made by Releta
with respect to trademarks required by Releta to conduct its business as
proposed to be conducted by it. To Releta's knowledge, Releta's business as
proposed to be conducted will be without infringement, unfair competition or
dilution or claim of infringement, unfair competition or dilution of any
license, patent, copyright, service xxxx, trademark, trade name, trade secret or
other intellectual property right of others.
25
4.22. ERISA. Releta has no Plans.
-----
4.23. Registration Rights. Releta is not under any obligation to register
-------------------
under the Securities Act any of its presently outstanding securities or any
securities which may hereafter be issued.
4.24. Liquor Consents and Permits. Set forth on Schedule 4.24 is a list of
---------------------------
all material licenses, permits, consents or approvals from or by, all material
filings required to be made with, and all material notices required to be given
to, all governmental authorities having jurisdiction, to the extent required for
Releta to own and operate its properties, to lease the property it operates
under lease, and to conduct its business as now, heretofore and proposed to be
conducted.
4.25. Insurance. Set forth on Schedule 4.25 is a list of all insurance
---------
policies and fidelity bonds covering the assets, business, equipment,
properties, operations, employees, officers and directors of Releta. There is no
claim by Releta pending under any of such policies or bonds as to which coverage
has been questioned, denied or disputed by the underwriters of such policies and
bonds. All premiums due and payable under all such policies and bonds have been
paid and Releta is otherwise in full compliance with the terms of such policies
and bonds (or other policies and bonds providing substantially similar insurance
coverage). Such policies of insurance and bonds are of the type and in amounts
customarily carried by persons conducting businesses similar to those of Releta.
Releta has no knowledge of any threatened termination of, or material premium
increase with respect to, any of such policies.
4.26. Costs of Releta. Purchaser's actual costs of establishing Releta and
---------------
taking possession of Releta's assets equals at least $5,000,000, including,
without limitation, all costs incurred by Purchaser in connection with the
Nor'Xxxxxx Brewing Company transaction. Such costs consist only of out-of-pocket
expenses incurred by Purchaser in establishing Releta and taking possession of
Releta's assets, plus the commitment by Purchaser to assume certain obligations
of Releta under the lease set forth on Schedule 4.14(b).. Except as set forth on
Schedule 4.26, the costs do not include allocations of Purchaser's overhead,
management salaries, office supplies, or other non-out-of pocket expenses.
V. DOCUMENTS DELIVERED AT CLOSING.
------------------------------
5.1. Documents Delivered to Purchaser at the Closing. The following
-----------------------------------------------
documents shall have been delivered to the Purchaser at the Closing:
(a) A favorable opinion of counsel to Mendocino, substantially in the
form attached hereto as Exhibit 5.1(a), and dated the date hereof, it being
understood that to the extent that such opinions of counsel shall rely upon any
other opinion of counsel, each such other opinion shall be in form and substance
reasonably satisfactory to the Purchaser and shall provide that the Purchaser
may rely thereon.
(b) A certificate dated as of the Closing Date executed by an officer
of Mendocino to the effect that all of the representations and warranties of
Mendocino contained herein and in the Ancillary Agreements shall be correct as
of the Closing Date.
26
(c) Resolutions of the Board of Directors of Mendocino, certified by
the Secretary or Assistant Secretary of Mendocino, as of the Closing Date, duly
adopted and in full force and effect on such date, authorizing (i) the
consummation of each of the Transactions, including but not limited to, the
transactions contemplated by this Agreement, (ii) specific officers to execute
and deliver this Agreement and each Ancillary Agreement to which it is a party,
and (iii) that, effective as of the Closing Date, the Board of Directors will
consist of seven persons: Xxxxxxx Xxxxxxxx, Xxxxx Xxxxxx (who shall be the
Chairman of the Board and Chief Executive Officer), O'Xxxx Xxxxxxxx, Xxxxxx
Xxxxxxxx, Xxxxxxx Xxxxx, Xxxx Xxxxxxx and Xxxxxx X. Xxxxxxxxxxx.. Purchaser
shall also have received copies of the resignations of the other current members
of the Board of Directors. Purchaser shall also receive agreements by Xxxx
Xxxxxxx and Xxxxxx X. Xxxxxxxxxxx to resign as of December 31, 1997.
(d) Governmental certificates, dated the most recent practicable date
prior to the date hereof, with facsimile updates where available, showing that
Mendocino is organized and in good standing in the jurisdiction of its
organization and is qualified as a foreign corporation and in good standing in
all other jurisdictions in which it is qualified to transact business.
(e) A copy of the organizational charter and all amendments thereto of
Mendocino certified as of a recent date by the Secretary of State in the
jurisdiction of its organization, and copies of Mendocino's bylaws, certified by
the Secretary or Assistant Secretary of Mendocino as true and correct as of the
Closing Date.
(f) Certificates of the Secretary or Assistant Secretary of Mendocino,
dated the Closing Date, as to the incumbency of the officers of Mendocino
executing this Agreement, each Ancillary Agreement to which it is a party, the
other documents in connection with the Transactions to which it is a party and
any other certificate or other document to be delivered pursuant hereto or
thereto.
(g) Copies of all licenses, permits, consents or approvals from or by,
and all filings with and all notices to, all governmental authorities having
jurisdiction, to the extent required for Purchaser to purchase, and Mendocino to
sell, the Shares, including from any state liquor commission and the U.S. Bureau
of Alcohol, Tobacco & Firearms.
(h) Copies of all requisite consents of any third parties to the
Transactions contemplated by this Agreement, including those set forth on
Schedules 3.9(e) and 3.21, that have been obtained.
(i) A copy of the waiver received from the Pacific Stock Exchange with
regard to the requirement of stockholder approval for the issuance and sale of
the Shares hereunder.
(j) Evidence satisfactory to Purchaser that (i) The Savings Bank of
Mendocino County and Westamerica Bank have each agreed to extend their loans to
Mendocino on terms satisfactory in form and scope to Purchaser, (ii) a
commitment letter in form and scope satisfactory to Purchaser to provide
permanent financing for the Ukiah land and improvements
27
relating to the new brewery, and (iii) a commitment letter in scope and form
satifactory to the Purchaser for a new working capital line of credit.
(k) Such additional information and materials as it may reasonably
request, all in form and substance satisfactory to Purchaser.
5.2. Documents Delivered to Mendocino at Closing. The following documents
-------------------------------------------
shall have been delivered to Mendocino (or in the case of clause (f), to Xxxxxxx
Xxxxxxxx and Xxxxxx Xxxxxx) at the Closing:
(a) A favorable opinion of counsel to Purchaser, substantially in the
form attached hereto as Exhibit 5.2(a), and dated the date hereof, it being
understood that to the extent that such opinions of counsel shall rely upon any
other opinion of counsel, each such other opinion shall be in form and substance
reasonably satisfactory to Mendocino and shall provide that Mendocino may rely
thereon.
(b) A certificate dated as of the Closing Date executed by an officer
of Purchaser to the effect that all of the representations and warranties of
Purchaser contained herein and in the Ancillary Agreements shall be correct as
of the Closing Date.
(c) Resolutions of the Board of Directors of Purchaser, certified by
the Secretary or Assistant Secretary thereof, as of the Closing Date, to be duly
adopted and in full force and effect on such date, authorizing (i) the
consummation of each of the transactions contemplated by this Agreement, and
(ii) specific officers of Purchaser to execute and deliver this Agreement and
each Ancillary Agreement to which Purchaser is a party.
(d) A copy of the certificate of formation and all amendments thereto
of Releta certified as of a recent date by the Delaware Secretary of State and a
copy of the limited liability company agreement of Releta, certified by the
Secretary or Assistant Secretary of Releta or Purchaser as true and correct as
of the Closing Date.
(e) Certificates of the Secretary or an Assistant Secretary of the
Purchaser, dated the Closing Date, as to the incumbency of the officers of the
Purchaser executing this Agreement and each Ancillary Agreement to which it is a
party and any certificate or other document to be delivered pursuant hereto or
thereto.
(f) Copies of all licenses, permits, consents or approvals from or by,
and all filings with all notices to, all governmental authorities having
jurisdiction, to the extent required for Purchaser to purchase, and Mendocino to
sell, the Shares, including from any state liquor commission and the U.S. Bureau
of Alcohol, Tobacco & Firearms.
(g) The certificates representing 71,500 shares of Common Stock held
by Xxxxxxx Xxxxxxxx and Xxxxxx Xxxxx which certificates Purchaser held as
security for the deposit paid by the Purchaser to Mendocino.
(h) Copies of all requisite consents of any third parties to the
Transactions contemplated by this Agreement, including those set forth on
Schedules 4.5, and 4.14(e) that have been obtained.
28
(i) Copy of Agreement between Purchaser and Releta dated the date
hereof regarding Purchaser's agreement to assume certain obligations relating to
lien holders at the Saratoga Springs brewing facility.
VI. COVENANTS.
---------
6.1. Right of First Offer.
--------------------
(a) Subject to the terms and conditions specified in this Section 6.1,
Mendocino hereby grants to the Purchaser, as long as it continues to own
securities representing at least 10% of the outstanding voting securities of
Mendocino, a right to participate in future sales by Mendocino of its Capital
Shares (as hereinafter defined).
(b) Each time Mendocino proposes to offer any shares of, or securities
or other right convertible into or exercisable for any shares of, any class of
its capital stock ("Capital Shares"), Mendocino shall first make an offering of
a portion of such Capital Shares to the Purchaser in accordance with the
following provisions:
(i) Mendocino shall deliver a written notice ("Notice") to the
Purchaser stating (1) its bona fide intention to offer such Capital Shares,
(2) the number of such Capital Shares to be offered, and (3) the price and
terms, if any, upon which it proposes to offer such Capital Shares.
(ii) Within 45 calendar days after receipt of the Notice, the
Purchaser may elect to purchase or obtain, at the price and on the terms
specified in the Notice, up to that portion of such Capital Shares which
equals the number of Capital Shares that when added to the number of shares
of Common Stock held by the Purchaser (including for such calculation any
shares issuable upon conversion of any capital stock convertible into
Common Stock) will give the Purchaser 45% of the Common Stock of Mendocino
on a Fully Diluted Basis after giving effect to the issuance of the Capital
Shares.
(iii) Beginning upon delivery of the Notice and ending 135 days
thereafter, Mendocino may offer any portion of the unsubscribed portion of
such Capital Shares to any person or persons at a price not less than, and
upon terms no more favorable to the offeree than those specified in the
Notice. If Mendocino does not enter into an agreement for the sale of the
Capital Shares within 135 days after delivery of the Notice or sell the
Capital Shares within 165 days after delivery of the Notice, the right
provided hereunder shall be revived and such Capital Shares shall not be
offered unless first reoffered to the Purchaser in accordance herewith.
(c) The foregoing right of first offer shall not apply to the Merger
or any offer of stock to employees, directors, or consultants of Mendocino
approved by the Board of Directors, or the Compensation Committee of such Board
of Directors, pursuant to any of the existing stock option or award plans in
existence as of the date hereof.
6.2. Percentage Ownership. So long as the Purchaser continues to own
--------------------
securities representing at least 10% of the then outstanding voting securities
of Mendocino, Mendocino shall not issue securities to any party which would
enable such party to exceed the percentage
29
ownership of the voting securities owned by the Purchaser. From time to time,
the Purchaser shall be permitted to request that Mendocino determine the
percentage ownership of the outstanding Common Stock held by the Purchaser or
any other Person specified by the Purchaser, as calculated on a Partially
Diluted Basis, and Mendocino shall promptly (but in any event no later than five
Business Days after such request is made) and accurately provide the Purchaser
with a written determination of the percentage ownership of the outstanding
Common Stock of the Purchaser or such other Person, as calculated on a Diluted
Basis, as of the date such request is made with such verification and detail as
reasonably requested by the Purchaser. Such response given by Mendocino shall be
binding on Mendocino for purposes of determining the Purchaser's and Mendocino's
rights and obligations under this Agreement and the Ancillary Agreements as of
the date such request is made.
6.3. No Securities Senior to Common Stock. Mendocino may not, without the
------------------------------------
prior written consent of Purchaser, issue any securities (i) having contractual
rights, privileges or preferences which are senior to the securities issued to
the Purchaser or (ii) which by the terms of Mendocino's Certificate of
Incorporation are senior to the securities issued to the Purchaser.
6.4. Permitted Acquisitions or Investments. Unless waived in writing by the
-------------------------------------
Purchaser, Mendocino shall not directly or indirectly in any transaction or
related series of transactions, acquire or invest in, whether for cash, debt,
Stock, or other property or assets or by guaranty of any obligation, any assets
(other than cash or cash equivalents) or business the aggregate purchase price
of which in any such transaction or related series of transactions exceeds 50%
of the book value of Mendocino's assets on the date of such acquisition or
investment immediately before giving effect thereto.
6.5. Sales of Assets. Unless waived in writing by the Purchaser:
---------------
(a) Mendocino shall not, and shall not permit any Subsidiary of
Mendocino to, sell, lease, transfer, convey or otherwise dispose of assets in
any transaction or related series of transactions, which assets have an
aggregate book value exceeding 50% of the aggregate book value of Mendocino's
assets on the date of such sale, lease, transfer, conveyance or disposition
immediately before giving effect thereto; provided, however, that except as
-------- -------
otherwise set forth herein, the foregoing shall not prohibit any bona fide sale-
leaseback transaction in which all leases entered into by Mendocino of Mendocino
in connection with such transaction are Capital Leases. Mendocino shall not
terminate any such lease prior to its specified term and shall not amend or
supplement any such lease, if such amendment or supplement would cause such
lease to be classified or accounted for as other than a Capital Lease.
(b) Mendocino shall not sell, transfer, convey, license, pledge or
otherwise dispose of any trademark or trade name acquired or owned by any of
them after the date hereof if 15% or more of the revenues of Mendocino for the
preceding Fiscal Year were attributable to sales of products using such
trademark or trade name or any trademark or trade name listed on Schedule 3.19.
6.6. Books and Records. Unless waived in writing by the Purchaser,
-----------------
Mendocino shall keep adequate records and books of account with respect to their
business activities, in which
30
proper entries, reflecting all of their financial transactions, are made in
accordance with GAAP consistently applied.
6.7. Financial and Other Information. Unless waived in writing by the
-------------------------------
Purchaser:
(a) Monthly Statements. Mendocino will deliver to the Purchaser as
------------------
soon as practicable after the end of each month, but in any event within 30 days
thereafter: an unaudited balance sheet of Mendocino as at the end of such month,
unaudited statements of income, retained earnings and changes in financial
position of Mendocino for such month and for the portion of such year ending
with such month and a sales report for such month, which report will show sales
by product, by distributor and whether by bottle or draft in each state in which
Mendocino sells its products, in each case for such month and for the portion of
the Fiscal Year ending with such month and showing a comparison of such year to
date sales results with those of the previous year, including growth figures for
each product on a state by state basis.
(b) SEC Filings. Mendocino will deliver to the Purchaser, promptly
-----------
upon their becoming available, one copy of each report, notice or proxy
statement sent by Mendocino to its stockholders generally, and of each regular
or periodic report (pursuant to the Securities Exchange Act) and any
registration statement, prospectus or other writing (other than transmittal
letters) (including, without limitation, by electronic means) pursuant to the
Securities Act filed by Mendocino with the SEC or the Pacific Stock Exchange or
any securities exchange or the Nasdaq Stock Market on which shares of Common
Stock of Mendocino are listed or quoted. Prior to filing or making publicly
available any such report, notice, proxy statement, registration statement,
prospectus or other writing which references or makes any disclosure concerning
the Purchaser or its business, Mendocino shall provide the Purchaser a
reasonable opportunity to review such report, notice, proxy statement,
registration statement, prospectus or other writing and shall not make any such
reference or disclosure to the Purchaser or its business to which the Purchaser
reasonably objects within 24 hours of receipt of such report, notice, proxy
statement, registration statement, prospectus or other writing, unless, in the
reasonable opinion of counsel to Mendocino failure to make such reference or
disclosure would create a reasonable risk of liability under the securities
laws.
(c) Projections. Mendocino will deliver to the Purchaser within 60
-----------
days prior to the beginning of each Fiscal Year:
(i) a projected balance sheet of Mendocino for each month of such
Fiscal Year;
(ii) projected cash flow statements of Mendocino including
summary details of cash disbursements (including Capital Expenditures), for
each month of such Fiscal Year; and
(iii) projected income statements of Mendocino for each quarter
of such Fiscal Year;
together with appropriate supporting details.
31
(d) Other Information. Mendocino will deliver to the Purchaser such
-----------------
other information with respect to Mendocino's business, financial condition or
prospects as the Purchaser may, from time to time, reasonably request.
6.8. Communication with Accountants. Mendocino authorizes the Purchaser to
------------------------------
communicate directly with its independent certified public accountants and tax
advisors and authorizes those accountants to disclose to the Purchaser any and
all financial statements and other supporting financial documents and schedules
including copies of any management letter with respect to the business,
financial condition and other affairs of Mendocino. Mendocino has delivered a
letter addressed to such accountants and tax advisors instructing them to comply
with the provisions of this Section 6.8, a copy of which letter has been
provided to the Purchaser.
6.9. Tax Compliance. Unless waived in writing by the Purchaser, Mendocino
--------------
shall pay all transfer, excise or similar taxes (not including income or
franchise taxes) in connection with the issuance, sale, delivery or transfer by
Mendocino to the Purchaser of the Common Stock and shall indemnify and save the
Purchaser therefrom. Mendocino shall not be responsible for any taxes in
connection with the transfer by the Purchaser of the Common Stock. The
obligations of Mendocino under this Section 6.9 shall survive the payment and
the termination of this Agreement.
6.10. Insurance. Unless waived in writing by the Purchaser, Mendocino shall
---------
maintain insurance covering, without limitation, fire, theft, burglary, public
liability, property damage, key man, product liability, workers' compensation
and insurance on all property and assets, all in amounts customary for the
industry. Mendocino shall, and shall cause each of its Subsidiaries to, pay all
insurance premiums payable by them.
6.11. Agreements. Unless waived in writing by the Purchaser, Mendocino
----------
shall perform, within all required time periods (after giving effect to any
applicable grace periods), all of its obligations and enforce all of its rights
under its credit agreements.
6.12. Employee Loans. Unless waived in writing by the Purchaser, Mendocino
--------------
shall not make or accrue any loans or other advances of money to any employee of
Mendocino outside the ordinary course of business consistent with past practice
or in excess at any one time of $25,000 in the aggregate for all such loans,
other than such loans the principal amounts of which do not exceed in aggregate
$25,000 and are required to be repaid on or prior to 30 days after the date such
loans are made.
6.13. Capital Structure. Unless waived in writing by the Purchaser:
-----------------
(a) Mendocino shall not make any changes in its capital structure by
means of an amendment of its articles of incorporation or bylaws (including,
without limitation, in the terms of its outstanding Stock) other than any
increase in its authorized capital stock.
(b) Mendocino shall issue, transfer or sell Common Stock for the
purposes of raising capital or in connection with any acquisition of any
property or business only, if in the good faith judgment of its board of
directors, such issuance, transfer or sale, in the light of the other
alternatives available to Mendocino to raise capital or effect such acquisition
and the relative costs of such alternatives, the financial and operational
flexibility provided to
32
Mendocino as a result thereof, the effect of such alternatives on the prices
required to be paid by Mendocino in connection with any such acquisition and the
relative effect of the available alternatives on the long-term returns to the
shareholders of Mendocino, is in the best interests of Mendocino and its
shareholders.
(c) Mendocino shall not issue or sell or agree to issue or sell any
Stock to any Person engaged in the business of brewing, producing or
distributing malt or any alcoholic beverages in North America or India or to any
Person known by Mendocino to be an Affiliate of any such Person other than (i)
to any Person, the gross revenues of which Person and all Persons known by
Mendocino to be an Affiliate of such Person resulting from the business of
brewing, producing or distributing malt or any other alcoholic beverages in
North America or India for the fiscal year preceding the date of such issuance
do not exceed $500,000 (which amount shall be increased on each January 1
beginning with January 1, 1998 by the percentage increase in the Consumer Price
Index (All Urban Consumers-U.S. City Average) for the preceding calendar year),
(ii) to any Person acquiring Stock in any underwritten public offering of the
Stock if Mendocino has not, directly or indirectly directed the sale of Stock to
such Person or (iii) to the Purchaser or an Affiliate of the Purchaser.
(d) Mendocino shall not, pursuant to any agreement or the terms of
any Stock issued by Mendocino, give to any Person or Group the right to name or
designate members of the board of directors of Mendocino equal to or greater in
number than three.
6.14. Transactions with Affiliates. Unless waived in writing by the
----------------------------
Purchaser, Mendocino shall not enter into or be a party to any transaction with
any Affiliate of Mendocino except (A) pursuant to the reasonable demands of
Mendocino's business or any transaction reasonably related to a reasonable and
legitimate business objective of Mendocino, and, in either case, (x) in the
ordinary course of business consistent with past practice or (y) upon fair and
reasonable terms that are fully disclosed to the Purchaser and are no less
favorable to Mendocino than would be obtained in a comparable arm's-length
transaction with a Person not an Affiliate of Mendocino (as determined by the
vote of a majority of the independent directors of the board of directors of
Mendocino) or (B) as expressly contemplated by the Transactions. The provisions
of this Section 6.14 shall not apply to any transaction between Mendocino and
the Purchaser or any Subsidiary or Affiliate of the Purchaser.
6.15. Guaranteed Indebtedness. Unless waived in writing by the Purchaser,
-----------------------
Mendocino shall not incur any Guaranteed Indebtedness except (i) by endorsement
of instruments or items of payment for deposit to the general account of
Mendocino, and (ii) for Guaranteed Indebtedness incurred for the benefit of
Mendocino if the primary obligation is permitted by this Agreement.
6.16. Restricted Payments. Unless waived in writing by the Purchaser,
-------------------
Mendocino shall not make any Restricted Payments with respect to Mendocino's
Stock;
6.17. Employee Plans. Unless waived in writing by the Purchaser:
--------------
(a) With respect to other than a Multiemployer Plan, for each
Qualified Plan hereafter adopted or maintained by Mendocino, Mendocino shall (A)
seek and receive determination letters from the IRS to the effect that such
Qualified Plan is qualified within the
33
meaning of Section 401(a) of the IRC; and (B) from and after the adoption of any
such Qualified Plan, cause such plan to be qualified within the meaning of
Section 401(as) of the IRC and to be administered in all material respects in
accordance with the requirements of ERISA and Section 401(a) of the IRC.
(b) With respect to each Welfare Plan hereafter adopted or maintained
by Mendocino, Mendocino shall comply with all requirements of Section 4980B and
Section 5000 of the IRC and the regulations thereunder.
(c) Mendocino shall not, directly or indirectly, by reason of an
amendment or amendments to, or the adoption of, one or more Title IV Plans,
permit the present value of all benefit liabilities, as defined in Title IV of
ERISA (using the actuarial assumptions utilized by the PBGC upon termination of
a plan), for which Mendocino or its Subsidiaries are responsible (A) to increase
by more than $50,000 after the date hereof; provided that this limitation shall
not be applicable to the extent that the fair market value of assets allocable
to such benefits, all determined as of the most recent valuation date for each
such Title IV Plan, is in excess of the benefit liabilities; or (B) to increase
to the extent security must be provided to any Title IV Plan under Section
401(A)(29) of the IRC. Mendocino shall not establish or become obligated under
any new Retiree Welfare Plan, or modify any existing Retiree Welfare Plan, which
would reasonably be expected to result in the present value of future
liabilities under all such plans to increase by more than $50,000 after the date
hereof. Mendocino shall not establish or become obligated to any new unfunded
Pension Plan, or modify any existing unfunded Pension Plan, which would
reasonably be expected to result in the present value of future liabilities
under all such plans to increase by more than $50,000 after the date hereof.
Mendocino shall not directly or indirectly, (a) satisfy any liability under any
Qualified Plan by purchasing annuities from an insurance company or (b) invest
the assets of any Qualified Plan with an insurance company, unless, in each
case, such insurance company is rated AA by Standard & Poor's Corporation and
the equivalent by each other nationally recognized rating agency at the time of
the investment. Except as otherwise expressly provided herein, for purposes of
this paragraph present values shall be determined in accordance with accepted
financial practices.
(d) Mendocino and any ERISA Affiliate shall not contribute or become
obligated to contribute to any Multiemployer Plan where a withdrawal by such
person from such plan could reasonably be expected to result in a Withdrawal
Liability in excess of $50,000 to Mendocino.
6.18. Environmental Matters. Unless waived in writing by the Purchaser,
---------------------
Mendocino shall comply in all material respects with the Environmental Laws
applicable to it and shall not cause, directly or indirectly, or suffer to occur
any one or more releases or disposals of any Hazardous Material at any Facility
which may result in material Environmental Liabilities and Costs.
6.19. Maintenance of Existence and Conduct of Business. Unless waived in
------------------------------------------------
writing by the Purchaser, Mendocino shall: (i) do or cause to be done all things
necessary to preserve and keep in full force and effect its corporate existence,
and its rights and franchises; (ii) continue to conduct its business in the
brewing and distributing of malt beverages substantially as now conducted or as
otherwise permitted hereunder and shall not engage in any material respect in
34
any other business; (iii) at all times maintain, preserve and protect any
trademark or trade name acquired or owned by Mendocino after the date hereof if
15% or more of the revenues of Mendocino for the preceding Fiscal Year were
attributable to sales of products using such trademark or trade name and all of
its trademarks and trade names set forth on Schedule 3.19; (iv) preserve all the
remainder of its property, in use or useful in the conduct of its business and
keep the same in good repair, working order and condition (taking into
consideration ordinary wear and tear) and from time to time make, or cause to be
made, all necessary and proper repairs, renewals and replacements, betterments
and improvements thereto consistent with industry practices, so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times, except to the extent such property is disposed of as
permitted under Section 6.5 of this Agreement or to the extent such property has
become obsolete; and (v) comply in all material respects with all applicable
laws, rules, regulations and orders of any governmental authority.
6.20. Mergers. Unless waived in writing by the Purchaser, Mendocino shall
-------
not, other than Merger, consolidate, merge or engage in a share exchange with or
into any other corporation, other than (A) a merger of a subsidiary of Mendocino
into Mendocino whereby Mendocino is the surviving corporation or (B) a merger
whereby (1) Mendocino will be the surviving corporation in such merger, (2) the
holders of Mendocino's outstanding Common Stock and other securities entitled to
ordinary voting power immediately preceding such merger will, immediately after
such merger, own shares possessing more than 50% of the aggregate voting power
and economic rights of the outstanding capital stock of Mendocino, (3) no breach
by Mendocino of any covenant contained in this Agreement or in any Ancillary
Agreement or right on behalf of the Purchaser to terminate any Ancillary
Agreement shall exist immediately prior to or immediately after such merger, (4)
there will be no shares of any class or classes of Mendocino's capital stock
ranking prior to (either as to dividends or upon voluntary or involuntary
liquidation, dissolution or winding up) the Common Stock after the merger, and
(5) the only substantial business of the company merging into Mendocino is
producing or distributing beverages.
6.21. Liquidation. Unless waived in writing by the Purchaser, Mendocino
-----------
shall not liquidate, wind up or dissolve itself.
6.22. Hostile Acquisition. Unless waived in writing by the Purchaser,
-------------------
Mendocino shall not engage in any unsolicited transaction for the control of
another company which is not approved by the board of directors of such company,
whether by open market purchases of the capital stock of such company, by offer
for the capital stock of such company or by solicitation of proxies or consents
of the shareholders of such company.
6.23. Access to Books and Records. Unless waived in writing by the
---------------------------
Purchaser, Mendocino shall permit representatives of the Purchaser to visit and
inspect, at no charge to the Purchaser, any of the properties of Mendocino to
examine the corporate books and make copies or extracts therefrom and to discuss
the affairs, finances and accounts of Mendocino with the principal officers of
Mendocino, all at such reasonable times, upon reasonable notice and as often as
the Purchaser may reasonably request.
35
6.24. Auditors. Unless waived in writing by the Purchaser, Mendocino shall
--------
not change its independent certified public accounting firm except to any
nationally recognized independent certified public accounting firm.
6.25. Employees. Mendocino acknowledges that, except as may be explicitly
---------
provided otherwise in this Agreement, Mendocino shall have complete
responsibility and authority concerning recognition of collective bargaining
units within its employees, the determination as to whether to enter into
collective bargaining agreements or labor agreements with its employees, and the
terms of any such agreement.
6.26. BDM Construction Company. Mendocino shall promptly pay BDM
------------------------
Construction Company such amounts and on the dates set forth on Schedule 6.26 or
at such other times as shall be mutually agreeable between BDM Construction
Company and Mendocino. Mendocino shall promptly reject in writing any offer from
BDM Construction Company to retain the 300,000 shares of Common Stock issued to
it in satisfaction of any portion of Mendocino's indebtedness to BDM.
6.27. Termination of Certain Covenants. The obligations of Mendocino set
--------------------------------
forth in Sections 6.1 through 6.26 shall terminate on the date on which the
Purchaser and all Subsidiaries of Purchaser do not hold, in aggregate 7.5% of
the outstanding Common Stock of Mendocino calculated on a Fully Diluted Basis.
6.28. Cash Flow Requirements of Releta. Purchaser shall provide funding for
--------------------------------
the working capital requirements of Releta in an amount not to exceed $1 million
for a period of two years from the date of this Agreement or until Releta's
operations are profitable, whichever comes first. The funding will be provided
directly by the Purchaser or the Purchaser will arrange for such financing by a
third party. Any amounts funded will be evidenced by a credit agreement in form
customary for such financings and will be secured by a first position security
interest in the equity interest in and assets of Releta. The terms of the
funding contemplated by this section shall be mutually agreeable between
Purchaser and Mendocino and shall be approved by a majority of the disinterested
members of the Board of Directors. For the foregoing purpose, Xxxxx Xxxxxx,
O'Xxxx Xxxxxxxx, Xxxxxx Xxxxxxxx and Xxxxxxx Xxxxx are deemed not disinterested.
6.29. Financial Statements of Releta. Purchaser shall provide Mendocino
------------------------------
with financial statements for Releta in form and substance sufficient to permit
Mendocino to timely satisfy the financial statement requirements of Form 8-K
("Form 8-K")under the Securities Exchange Act of 1934, as amended and the rules
and regulations thereunder, in connection with Mendocino's acquisition of the
equity interests of Releta. Purchaser shall use its best efforts to deliver
financial statements of Releta's predecessor, if required by Form 8-K, in form
and substance sufficient to permit Mendocino to timely satisfy the financial
statement requirements of Form 8-K in connection with Mendocino's acquisition of
the equity interests of Releta. The financial statements provided by Purchaser
pursuant to this section shall, except as noted therein, be prepared in
conformity with GAAP consistently applied throughout the periods involved and
shall present fairly the financial position of Releta, and if applicable, its
predecessor, as of the dates thereof, and the results of operations and cash
flows for the periods then ended (and as to
36
the unaudited interim financial statements, subject to normal year-end audit
adjustments not material in amount).
6.30. Form BE-13. Purchaser will timely file a Form BE-13 with the Bureau
----------
of Economic Analysis in connection with Releta's taking possession of certain
assets and such filing will be true and complete.
VII. INDEMNIFICATION.
---------------
7.1. Indemnification.
---------------
(a) Mendocino agrees to indemnify and hold harmless Purchaser, its
officers, directors and employees from and against any liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, claims, costs, attorneys'
fees, expenses and disbursements of any kind (including Environmental Costs)
which may be imposed upon, incurred by or asserted against Purchaser, such
officers, directors and employees in any matter relating to or arising out of
(i) any untrue representation, breach of warranty or failure to perform any
covenants by Mendocino contained herein, the Ancillary Agreements or in the
other Transactions to which Mendocino is a party or in any certificate or
document delivered pursuant hereto or thereto, (ii) any Environmental Law
applicable to Mendocino, or (iii) any liability of Mendocino that is not
explicitly assumed by Purchaser hereunder, in the Ancillary Agreements or in the
Transactions.
(b) Purchaser agrees to indemnify and hold harmless Mendocino and its
officers, directors and employees from and against any liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, claims, costs, attorneys'
fees, expenses and disbursements of any kind which may be imposed upon, incurred
by or asserted against Mendocino and such officers, directors and employees in
any matter relating to or arising out of any untrue representation, breach of
warranty or failure to perform any covenants by the Purchaser contained herein,
in the Ancillary Agreements or in the other Transactions to which the Purchaser
is a party or in any certificate or document delivered pursuant hereto or
thereto.
(c) The foregoing indemnification provisions are in addition to, and
not in derogation of, any statutory, equitable or common law remedy the
Purchaser, Mendocino and their respective officers, directors and employees may
have for breach or representation, warranty or covenant. No claim may be brought
under this Agreement based upon a breach of a representation or warranty
contained herein unless written notice describing in reasonable detail the
nature and basis of such claim is given on or prior to the day that is two years
from the date of this Agreement.
(d) Mendocino shall not be obligated to indemnify the Purchaser
unless and until the cumulative amount of all losses incurred, suffered or paid
by the Purchaser under this Section 7.1 exceeds $75,000 in the aggregate,
whereupon the Purchaser shall be entitled to indemnification hereunder for the
full amount of all such losses and shall thereafter be entitled to
indemnification of losses as such losses are incurred.
(e) The Purchaser shall not be obligated to indemnify Mendocino
unless and until the cumulative amount of all losses incurred, suffered or paid
by Mendocino under this Section 7.1 exceeds $75,000 in the aggregate, whereupon
Mendocino shall be entitled to
37
indemnification hereunder for the full amount of all such losses and shall
thereafter be entitled to indemnification of losses as such losses are incurred.
VIII. MISCELLANEOUS.
-------------
8.1. Notices. Whenever it is provided herein that any notice, demand,
-------
request, consent, approval, declaration or other communication shall or may be
given to or served upon any of the parties by another, or whatever any of the
parties desires to give or serve upon another any such communication with
respect to this Agreement, each such notice, demand, request, consent, approval,
declaration or other communication shall be in writing and either shall be
delivered in person with receipt acknowledged or by certified mail, return
receipt requested, postage prepaid, or by telecopy and confirmed by telecopy
answerback addressed as follows:
If to Mendocino at:
Mendocino Brewing Company, Inc.
X.X. Xxx 000
00000 Xxxxx Xxxxxxx 000
Xxxxxxx, XX 00000-0000
Attention: H. Xxxxxxx Xxxxxxxx
Telephone Number: (000) 000-0000
Telecopy Number: (000) 000-0000
with a copy to:
Enterprise Law Group, Inc.
0000 Xxxxxxxx Xxxxx, Xxxxx 000
Xxxxx Xxxx, XX 00000-0000
Attention: Xxxxxx X. Xxxxxxxx/Xxxxxxx X. Xxxxx
Telephone Number: (000) 000-0000
Telecopy Number: (000) 000-0000
If to Purchaser at:
United Breweries of America, Inc.
Xxxxx Xxxxxx Xxxxx, Xxxxx 000
Xxxxxxxxx, XX 00000
Attention: Xxxxx Xxxxxx
Telephone Number: (000) 000-0000
Telecopy Number: (000) 000-0000
with a copy to:
Xxxx Xxxxxxxxxx
Xxxxxx, Xxxxxxxxxx & Xxxxxxxxx LLP
Old Federal Reserve Building
000 Xxxxxxx Xxxxxx
Xxx Xxxxxxxxx, XX 00000
38
Telephone Number: (000) 000-0000
Telecopy Number: (000) 000-0000
The parties agree to send such notices to such other address as may be
substituted by notice given as herein provided. The giving of any notice
required hereunder may be waived in writing by the party entitled to receive
such notice. Every notice, demand, request, consent, approval, declaration or
other communication hereunder shall be deemed to have been duly given or served
on the date on which personally delivered, with receipt acknowledged, telecopied
and confirmed by telecopy answerback, or three (3) Business Days after the same
shall have been deposited, with the United States mail. Copies of notice to
counsel shall be given at the same time and by the same method of delivery as
notice to the parties.
8.2. Binding Effect; Benefits. Except as otherwise provided herein, this
------------------------
Agreement shall be binding upon and inure to the benefit of the parties to this
Agreement and their respective successors and permitted assigns. Nothing is
this Agreement, express or implied, is intended or shall be construed to give
any person other than the parties to this Agreement or their respective
successors or assigns any legal or equitable right, remedy or claim under or in
respect of any agreement or any provision contained herein.
8.3. Amendment. Any amendment or waiver of any provision of this Agreement,
---------
any Ancillary Agreement or the other Transactions or any consent to any
departure therefrom shall not be effective unless the same shall be in writing
and signed by Mendocino, and the Purchaser and shall specifically refer to this
Agreement or such Ancillary Agreement or such Transaction. Except as provided in
the preceding sentence, no action taken pursuant to this Agreement, including,
without limitation, any investigation by or on behalf of any party, shall be
deemed to constitute a waiver by the party hereto of a breach of any provision
of this Agreement shall not operate or be construed as a waiver of any preceding
or succeeding breach, and no failure by either part to exercise any right or
privilege hereunder shall be deemed a waiver of such party's rights or privilege
hereunder or shall be deemed a waiver of such party's rights to exercise the
same at any subsequent time or times hereunder.
8.4. Assignment. No assignment of this Agreement or any rights hereunder by
----------
Mendocino or the Purchaser shall be given any effect without the prior written
consent of the other; provided, however, that the Purchaser may, without the
prior written consent of Mendocino, assign all of its rights hereunder to one or
more entities, 100% of the interests in which are owned directly or indirectly
by the Purchaser or otherwise controlled by Xxxxx Xxxxxx, provided that,
notwithstanding any such assignment, the Purchaser shall remain liable to
perform all obligations of the Purchaser hereunder. Subject to the foregoing
sentence, this Agreement shall inure to the benefit of, and be binding upon, the
parties hereto and their respective successors and assigns.
8.5. Remedies. Purchaser and Mendocino, in addition to being entitled to
--------
exercise all rights granted by law, including recovery damages, will be entitled
to specific performance of their rights under this Agreement. Mendocino and
Purchaser agree that monetary damages would not be adequate compensation for any
loss incurred by reason of a breach by them of the provisions of this Agreement
and hereby agree to waive the defense in any action for specific performance
that a remedy at law would be adequate. Each party hereto shall be paid by the
39
other party hereto for any reasonable costs and expenses incurred by it
(including reasonable fees and expenses of counsel and whether incurred as a
result of negotiations, legal proceedings or otherwise) in connection with the
enforcement of its rights under the Transactions against such other party.
8.6. Applicable Law. This Agreement shall be governed by and construed in
--------------
accordance with the law of the State of California, without regard to the
principles thereof regarding conflict of laws. Each party to this Agreement
hereby consents to service of process in the County of San Francisco, California
and hereby agrees that all disputes relating to or arising under this Agreement
shall be the jurisdiction of the state and federal courts located in the County
of San Francisco, California.
8.7. Section and Other Headings. The section and other headings contained
--------------------------
in this Agreement are for reference purposes only and shall not affect the
meaning or interpretation of this Agreement.
8.8. Severability. In the event that any one or more of the provisions
------------
contained in this Agreement shall be determined to be invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision or provisions in every other respect and
the remaining provisions of this Agreement shall not be in any way impaired.
8.9. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same instrument.
8.10. Nondisclosure of Confidential Information. Without the prior written
-----------------------------------------
consent of Mendocino, any information relating to Mendocino provided to
Purchaser in connection with, or as a result of, its acquisition of the Common
Stock which is either confidential, proprietary, or otherwise not generally
available to the public (but excluding (a) information the Purchaser has
obtained independently or from third-party sources without the Purchaser's
knowledge that the source has violated any fiduciary duty or other duty not to
disclose such information, (b) information that otherwise becomes generally
available to the public, or (c) information known to Purchaser prior to its
receipt of such information in connection with, or as a result of, its purchase
of Common Stock hereunder) (the "Confidential Information") will be kept
confidential by Purchaser, using the same standard of care in safeguarding the
Confidential Information as Purchaser employs in protecting its own proprietary
information which Purchaser desires not to disseminate or publish and Purchaser
will instruct its directors, officers, and representatives (collectively,
"Representatives") as to keep such Confidential Information confidential. It is
understood (i) that such Representatives shall be informed by Purchaser of the
confidential nature of the Confidential Information and (ii) that such
Representatives shall be bound by the provisions of this Section 8.10 as
condition of receiving the Confidential Information. Purchaser shall not use any
such Confidential Information to produce a malt beverage whose formula
duplicates any formula for a malt beverage disclosed by Mendocino to Purchaser.
8.11. Publicity. Neither Purchaser nor Mendocino shall issue any press
---------
release or make any public disclosure regarding this Agreement or any of the
transactions contemplated hereby without the prior consent of the other party
hereto; provided, however, that nothing in this
40
Section 8.11 shall be deemed to prohibit any party to this Agreement from making
any disclosure required by law.
8.12. Entire Agreement. This Agreement, the Ancillary Agreements and the
----------------
other documents contemplated by the Transactions constitute the entire agreement
among the parties hereto and supersede any prior understandings, agreements or
representations by or among the parties hereto, written or oral, to the extent
they are related in any way to the subject matter hereof.
8.13. Fees and Expenses. Each of the parties hereto shall bear its own
-----------------
costs and expenses (including legal fees and expenses) incurred in connection
with this Agreement and the Transactions contemplated hereby.
8.14. Exhibits and Schedules. The exhibits and schedules identified in this
----------------------
Agreement are incorporated herein by reference and made a part hereof.
8.15. Construction. Any reference to any federal, state, local or foreign
------------
statute or law shall be deemed also to refer to all rules and regulations
promulgated thereunder, unless the context requires otherwise. The word
"including" shall mean including without limitation. If either party has
breached any representation, warranty or covenant contained herein in any
respect, the existence of another representation, warranty or covenant related
to the same subject matter (regardless of the relative levels of specificity)
that the party has not breached shall not detract from or mitigate the breach of
the former representation, warranty or covenant.
References of this Agreement shall mean this Investment Agreement,
including all amendments, modifications and supplements and any exhibits or
schedules to any of the foregoing, and shall refer to the Agreement as the same
may be in effect at the time such reference becomes operative.
[REST OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, Mendocino and the Purchaser have executed this
Agreement as of the day and year first above written.
MENDOCINO BREWING COMPANY, INC.
By: /s/ H. XXXXXXX XXXXXXXX
-----------------------------------
Name: H. Xxxxxxx Xxxxxxxx
Title: Chairman and CEO
UNITED BREWERIES OF AMERICA, INC.
By: /s/ XXXXX XXXXXX
-----------------------------------
Name: Xxxxx Xxxxxx
Title: Chairman and CEO
The UB Group hereby acknowledges and agrees
that United Breweries of America, Inc. shall
be the Purchaser hereunder.
THE UB GROUP
By: /s/ XXXXX XXXXXX
-----------------------------------
Name: Xxxxx Xxxxxx
Title: Chairman
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