September 18, 1996
Via Facsimile Transmission
Mr. Vijay Mallya
Chairman
The UB Group
One Harbor Drive, Suite 102
Sausalito, California 94965
Re: Letter of Intent
Dear Vijay:
This Letter of Intent sets forth the terms and conditions of
the proposed purchase by The UB Group (the "Purchase") of an
equity interest in Nor'Wester Brewing Company ("Nor'Wester") and
Willamette Valley, Inc. Microbreweries Across America ("WVI")
(together the "Affiliated Companies"). The purchaser will be The
UB Group or a corporation controlled by Mr. Vijay Mallya,
Chairman of The UB Group (the "Purchaser").
A. Securities to be Purchased and Purchase Price.
1. At the Closing as defined in Section B.5 below,
Purchaser will purchase securities in the Consolidated
Corporation as defined in Section G below(the "Securities") which
Securities shall represent, on a fully-diluted and consolidated
basis, a 26% interest in the Consolidated Corporation equal in
amount to the 26% interest, on a fully-diluted and consolidated
basis, which will be held by Bernau in the Consolidated
Corporation. Currently, Bernau owns [910,618] shares of common
stock of Nor'Wester, representing approximately [25.5%] of
Nor'Wester's outstanding shares, and [3,018,444] shares of common
stock of WVI, representing approximately [62.2%] of WVI's
outstanding shares.
2. The purchase price for the Securities will consist of
(i) $9.0 million payable in cash upon Closing of the Purchase,
(ii) the issuance of equity or a warrant to acquire equity
representing a fair market value of $2.0 million in an entity to-
be-formed ("Kingfisher North America") which entity will have the
exclusive right to produce, market and sell in North America
certain beer brands of The UB Group, including the Kingfisher,
Flying Horse and Taj Mahal beer brands ("the Kingfisher Brands"),
(iii) the exclusive right to produce, on reasonable terms to be
negotiated between the parties, all Kingfisher Brand beer
produced outside India for sale in North America, and (iv) the
contribution of consulting time and energy from management
personnel of The UB Group, the amount of time and the persons who
will provide such consulting to be determined by the parties.
B. Bridge Loan, Execution of Investment Agreement and Closing.
1. Upon execution of this Letter of Intent by Bernau, the
Affiliated Companies and Purchaser, and the execution of any
documents necessary to evidence the loan described herein,
Purchaser will loan to Nor'Wester and WVI a total of $500,000
(the "Initial Bridge Loan"). The Initial Bridge Loan shall bear
interest at the prime rate plus 3% and shall be guaranteed by
Bernau and secured by shares of Nor'Wester common stock held by
Bernau representing a fair market value of $700,000 on the date
of such loan.
2. Not later than 30 days from execution of this Letter of
Intent, the parties shall enter into a definitive Investment
Agreement detailing the terms of the Purchase. The date on which
the Investment Agreement is executed is hereinafter referred to
as the "Execution Date".
3. Between the Execution Date and Closing, Purchaser will
loan to Nor'Wester and WVI additional amounts as are reasonably
needed to fund the planned growth and operations of each of
Nor'Wester and WVI's subsidiary breweries (the "Additional Bridge
Loans"). The amount and terms of all Additional Bridge Loans
shall be mutually determined in good faith between the parties.
4. At Closing, the amount of the Initial Bridge Loan and
any and all Additional Bridge Loans shall either be (i) converted
into the Securities of the Consolidated Corporation and the $9.0
million cash purchase price described in Section A.2 above shall
be reduced accordingly, or (ii) repaid to Purchaser in a manner
so as to achieve Purchaser's tax objectives.
5. Closing of the Purchase (the "Closing") will occur as
soon as practicable following (i) completion of the consolidation
of Nor'Wester, WVI and WVI's subsidiary breweries as described in
Section G below, and (ii) the meeting or waiver of any and all
other closing conditions to which the parties may mutually agree.
C. Conditions.
The parties' obligations to consummate the Purchase and
related transactions are subject to the following conditions:
1. The negotiation, preparation and execution of (a) a
definitive Investment Agreement consistent with the requirements
listed in Section D below, together with all other documents,
schedules and instruments necessary to fully issue the Securities
to Purchaser; (b) a Management and Technical Services Agreement
consistent with the terms set forth in Section H below, and (c)
an employment agreement and voting agreement consistent with the
terms set forth in Sections F.1 and 2 below.
2. The obtaining of all required consents and approvals,
if any, from all third parties, including without limitation the
approval of the respective boards of directors of the Affiliated
Companies and Purchaser.
3. The completion of a due diligence review and
investigation by Purchaser, its counsel, accountants and other
advisers, of the assets, liabilities, business and financial
condition of the Affiliated Companies, all of which must be
satisfactory to Purchaser in its sole and unfettered discretion.
4. The receipt of such formal and informal opinions of
counsel as the Affiliated Companies and Purchaser may each
require concerning such matters as may be of concern to them.
5. The Affiliated Companies' performance of their
obligations described in Sections E.1, H, I, J and K below.
D. Investment Agreement.
The Investment Agreement will, among other things, include:
1. Provisions reflecting the sale and purchase of the
Securities, purchase price, payment, indemnification against
liabilities, closing requirements and covenants pursuant to
Sections A through H of this Letter of Intent.
2. Representations and warranties as to such matters as
the parties may require, subject only to those exceptions that
may be disclosed in written schedules acceptable to the parties
and attached to the Investment Agreement.
a. By way of illustration and not limitation, the
Investment Agreement shall include representations and warranties
by the Affiliated Companies as to:
(1) the legal status and authority of the
Affiliated Companies;
(2) the authorization and validity of the
Investment Agreement and all related agreements as to the
Affiliated Companies;
(3) the ownership structure of the Affiliated
Companies and existence and structure of any subsidiaries or
affiliates of the Affiliated Companies;
(4) the status of all consents and approvals
required to be obtained by the Affiliated Companies to consummate
the Purchase;
(5) the Affiliated Companies' compliance with
all laws, and the status of all licenses and permits applied for
or obtained for the operation or contemplated operation of their
respective businesses;
(6) information relating to the Affiliated
Companies' material contracts;
(7) the status of any pending or threatened
litigation or other proceedings involving the Affiliated
Companies or their assets;
(8) the accuracy of the Affiliated Companies'
financial statements, and information relating to the Affiliated
Companies' taxes, debts and other liabilities;
(9) the Affiliated Companies' title to all
material assets used in the operation of their respective
businesses;
(10) such matters that bear on the validity and
scope of the Affiliated Companies' trademarks and trade names as
Purchaser may reasonably require;
(11) information relating to the Affiliated
Companies' employees, compensation and benefit policies and
programs;
(12) information relating to the Affiliated
Companies' actual and prospective customers and suppliers; and
(13) the accuracy and completeness of all
disclosures made to Purchaser.
b. By way of illustration and not limitation, the
Investment Agreement shall include representations and warranties
by Purchaser as to:
(1) Purchaser's legal status and authority;
(2) the authorization and validity of the
Investment Agreement and related documents as to Purchaser; and
(3) the status of any pending or threatened
litigation or other proceeding involving Purchaser.
E. Covenants.
1. From the date on which the parties execute this Letter
of Intent through the date of Closing, the Affiliated
Companies will not issue any shares of their capital stock or
securities convertible into shares of their capital stock without
the prior written consent of Purchaser; provided, however, that
the Affiliated Companies may issue shares of their capital stock
to employees and consultants pursuant to outstanding options
granted to such persons by the respective board of directors of
each Affiliated Company.
2. The Affiliated Companies and The UB Group will fully
cooperate on (i) the development of any microbrewed beverage
products produced and/or sold outside North America or India,
including the export of Nor'Wester beer or any beer brands of
WVI's subsidiaries, (ii) the possible acquisition of other brands
or facilities for the production or sale of microbrewed beverages
outside North America or India, and (iii) any other opportunities
that arise outside North America or India relating to the
production and sale of microbrewed beverage products. So long as
Purchaser continues to hold securities of the Affiliated
Companies and for a period of six (6) months thereafter, The UB
Group shall not compete with the Affiliated Companies in the
production, marketing, sale and distribution of microbrewed
beverage products within the North America market; provided,
however, that this noncompete shall not apply to the production,
marketing, sale and distribution of the Kingfisher Brands in
North America which activities shall be the exclusive right of
Kingfisher North America. Any opportunity which The UB Group
develops or becomes aware of relating to the production,
marketing, sale and distribution of microbrewed beverage products
within North America (except opportunities related to the
Kingfisher Brands) shall be presented to the Affiliated Companies
for pursuit exclusively by such companies, and The UB Group shall
cooperate with the Affiliated Companies in the pursuit of such
opportunities. If the Affiliated Companies are unwilling or
unable to pursue a particular opportunity, then The UB Group will
be free to purse such opportunity.
3. Following the Closing and so long as Purchaser
continues to hold securities representing at least 10% of the
outstanding voting securities of the Consolidated Corporation,
then Purchaser shall have the right to participate in any further
financings by the Consolidated Corporation in an amount or
amounts necessary to enable Purchaser to maintain its percentage
ownership in such corporation, provided, however, that Bernau
shall also have the same rights as conferred by this Section E.3.
If Bernau is unwilling or unable to maintain his percentage
ownership in the Consolidated Corporation, then Purchaser shall
have the right to exercise Bernau's pre-emptive right.
4. Following the Closing and so long as Purchaser
continues to hold securities representing at least 10% of the
outstanding voting securities of the Consolidated Corporation,
then the Consolidated Corporation will not issue securities to
any party which would enable such party to exceed the ownership
interest of Purchaser.
5. Following the Closing, the Consolidated Corporation may
not, without the prior written consent of Purchaser, issue any
securities (i) having contractual rights, privileges or
preferences which equal or are senior to the securities issued to
Purchaser or (ii) which by the terms of the Consolidated
Corporation's charter documents are senior to the securities
issued to Purchaser.
6. At Closing, Purchaser shall be granted customary demand
and piggyback registration rights with respect to the Securities
issued to it by the Consolidated Corporation.
7. At Closing, each of Bernau and Purchaser shall enter
into an agreement granting the other a right of first refusal to
purchase the securities which they own in the Consolidated
Corporation.
F. Governance of the Consolidated Corporation Following the
Date Closing.
1. At the Closing, the board of directors of the
Consolidated Corporation shall be composed of seven persons,
consisting of two persons selected by Bernau, two persons
selected by Purchaser (one of whom shall be Vijay Mallya who
shall be Chairman of the Board), and three outside directors each
of whom shall be mutually satisfactory to Bernau and Purchaser.
To the extent possible, Purchaser shall also have representation
on any committees of the board. At the Closing, Bernau and
Purchaser shall enter into a voting agreement to reflect the
parties' continuing obligation to vote their shares for the
election of directors of the Consolidated Corporation consistent
with the above-described board composition.
2. Bernau shall remain as President and CEO of each of
the Affiliated Companies and the Consolidated Corporation, and at
the Closing will execute an employment agreement, which agreement
shall include a noncompete provision, reasonable severance terms
and customary demand and piggyback registration rights by Bernau
to require the Consolidated Corporation to register his shares
for sale if he is terminated as President and CEO. The terms and
conditions of the employment agreement shall be acceptable to
Bernau and Purchaser.
3. Pointing toward growth, the parties acknowledge and
understand that the Consolidated Corporation will need to hire
additional key personnel in the areas of finance/administration,
operations and sales and marketing. The parties agree to
cooperate in identifying and retaining highly qualified
individuals to serve in these areas. Any individuals nominated
by Purchaser will be given strong consideration by the board of
directors of the Consolidated Corporation.
4. Regardless of the level of their respective ownership
interests in the Consolidated Corporation, Bernau and Purchaser
will each use good faith effort to operate the company as equal
partners, meaning they will seek consensus and compromise in all
significant decisions affecting the company.
G. Consolidation of Affiliated Companies.
The parties understand and acknowledge that to reduce
operating costs, strengthen overall management and prepare for
further growth of brewing operations potentially fueled by a
major public financing, it is in their collective best interest
to consolidate the Affiliated Companies and the subsidiary
brewery companies of WVI into or under a single entity (the
"Consolidated Corporation"). Since each of the corporations
involved in such a consolidation is a publicly-held corporation,
the consolidation will be costly and time consuming, will require
registration of the consolidating transaction with the Securities
and Exchange Commission and will require approval by the
shareholders of the corporations involved. The timing and
structural process by which such a consolidation occurs will
require full review by the parties involved. Assuming the
Investment Agreement is executed, then the parties agree to
proceed with such consolidation at the earliest convenience.
H. Management and Technical Services Agreement.
At the Closing, the Consolidated Corporation shall enter
into a Management and Technical Services Agreement (the "Services
Agreement") with The UB Group whereby the Consolidated
Corporation will receive certain management and technical
services to be performed by key personnel of The UB Group
selected by the parties. The term of the Services Agreement
shall be 10 years and as payment for the services provided under
the Services Agreement, The UB Group shall receive a fee in the
amount shown on Schedule A attached hereto. The services
provided under the Services Agreement are in addition to the
services contemplated as part of the purchase price for the
Securities paid by Purchaser as described in Section A.2 above
I. Access, Information, Confidentiality, Announcements.
1. The Affiliated Companies will provide Purchaser,
including Purchaser's counsel, accountants and other advisers,
with access to the Affiliated Companies' employees and agents and
other persons with whom the Affiliated Companies have a business
relationship, and will provide Purchaser on a timely basis with
all documents and other information Purchaser may request, to
enable Purchaser to perform the due diligence review and
investigation described in Section C.3 of this Letter of Intent.
2. Purchaser agrees that if a definitive Investment
Agreement is not entered into, Purchaser will hold in confidence
all documents, material and other information which Purchaser
shall have obtained regarding the Affiliated Companies and their
respective businesses in accordance with the terms of a
Confidentiality Agreement to be executed by Purchaser.
3. No announcement, discussion, press release or other
publication of this Letter of Intent, the possibility of the
Purchase or the negotiations and discussions between Purchaser
and the Affiliated Companies may be made or issued by one party
without the written authorization of the other party, except that
each party may seek the advice of its counsel, accountants and
other advisers with respect thereto.
J. Conduct of Business.
Until the Closing, except with the prior written consent
of Purchaser, which shall not be unreasonably withheld:
1. the Affiliated Companies will:
a. maintain their books, accounts and records in
the usual, regular and ordinary manner;
b. pay and discharge when due all taxes,
assessments and governmental charges imposed upon them or any of
their properties, or upon the income or profit therefrom;
c. fully and timely perform their obligations under
all contracts, agreements, instruments and arrangements; and
d. operate in such a manner as to assure that the
representations and warranties of the Affiliated Companies set
forth in the Investment Agreement will be true and correct as of
the Closing.
2. the Affiliated Companies will not:
a. incur any indebtedness for borrowed money (other
than loans provided by one or more financial institutions which
loans may be secured by assets of the Affiliated Companies and
their subsidiaries), make any loans or advances (other than in
the normal course of business consistent with prior practice) to
any individual, firm or unaffiliated corporation or assume,
guarantee or endorse or otherwise become responsible for the
obligation of any other individual, firm or unaffiliated
corporation; or
b. take any other action which would adversely
affect or detract from the value of their assets or their
business.
K. "No Shop" Clause.
The Affiliated Companies acknowledge that, upon execution of
this Letter of Intent, Purchaser will proceed with its due
diligence investigation, will retain counsel, accountants and
other advisers, and will commence preparation of documents to
implement the terms hereof. Accordingly, from the date of this
Letter of Intent through a date not later than 210 days following
the Execution Date, or if the Execution Date does not occur, 60
days following the date of this Letter of Intent, neither Bernau,
nor the Affiliated Companies nor the Affiliated Companies's
employees or agents will directly or indirectly contact, solicit
from, or negotiate with anyone other than Purchaser regarding the
sale or potential sale of the assets, the business or any
ownership interest in the Affiliated Companies.
L. Miscellaneous Provisions.
1. If suit or action is instituted to interpret or
enforce any binding provision of this Letter of Intent, the
prevailing party shall be entitled to recover reasonable attorney
fees from the losing party in the trial and all appellate courts,
in addition to any other recovery and costs. The attorney fee
award shall include a reasonable amount in connection with
enforcement of the judgment.
2. The validity, construction, enforceability and effect
of this Letter of Intent, and the rights and obligations of the
parties, shall be determined in accordance with the laws of the
State of California other than California's laws concerning
conflicts of laws.
3. All disputes relating to this Letter of Intent shall
be litigated only in the state and federal courts located in San
Francisco County, California.
4. This Letter of Intent may be executed in any number
of counterparts, and by different parties hereto on separate
counterparts, and all counterparts shall constitute a single
document. The execution and delivery of any counterpart by any
person shall have the same force and effect as if that person had
executed and delivered all other counterparts. The electronic
facsimile transmission of a copy of this Letter of Intent by any
party shall have the same force and effect as the physical
delivery to the other party of an original counterpart bearing
the first party's signature.
M. Effect of This Letter of Intent.
The parties shall be bound by Sections E.1, I, J, K and L above.
Otherwise, this Letter of Intent is an expression of intent only,
and neither party shall be legally bound to the other in any
respect unless and until a definitive Investment Agreement has
been signed by all parties. Furthermore, this Letter of Intent
shall not give rise to an agreement by estoppel, or be the basis
for a claim based on detrimental reliance or any other theory, it
being understood that the parties have expressed an intent to
proceed but do not intend to be legally bound to one another to
proceed with the proposed issuance and sale of the Securities, or
to become legally bound to one another in any respect, unless and
until a definitive Investment Agreement is signed. Purchaser and
the Affiliated Companies agree to proceed promptly in the
preparation and negotiation of the definitive Investment
Agreement. Regardless of whether a definitive Investment
Agreement is entered into or whether the Purchase is consummated,
Purchaser and the Affiliated Companies will bear their own
expenses for this transaction.
[SIGNATURES TO FOLLOW ON NEXT PAGE]
If the foregoing correctly sets forth our understanding, please
sign and return to me a copy of this Letter of Intent indicating
your agreement.
Very truly yours,
/s/ James W. Bernau
James W. Bernau
ACCEPTED AND AGREED TO:
Purchaser
/s/ Vijay Mallya September 18, 1996
Vijay Mallya, Date
Chairman of the Board of Directors
Nor'Wester Brewing Company, Inc.
/s/ James W. Bernau September 22, 1996
James W. Bernau, Date
Chairman of the Board of Directors
Willamette Valley, Inc. Microbreweries Across America
/s/ James W. Bernau September 22, 1996
James W. Bernau, Date
Chairman of the Board of Directors