EXHIBIT 10.35
TO
REGISTRATION STATEMENT ON FORM SB-2
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COMMITMENT LETTER FROM THE SAVINGS BANK OF MENDOCINO COUNTY
Savings Bank OF MENDOCINO COUNTY
P. O. BOX 3600 ~ UKIAH, CALIFORNIA 95482 TELEPHONE (707) 462-6613
September 13, 1996
Mr. Michael Laybourn Mr. Norman Franks Mendocino Brewing Company, Inc. P.O. Box
400 Hopland, CA 95449
Dear Michael & Norman:
Confirming our earlier conversation and concurrent with the final funding of a
$2,700,000.00 construction loan (hereinafter referred to as the "Construction
Loan"), I am pleased to inform you that the Savings Bank of Mendocino County
(hereinafter referred as "Bank") will provide a first trust deed permanent
financing takeout for the 62,000 square foot brewery facility to be completed
with the proceeds of the construction loan. This commitment is subject to the
documentation, terms and conditions stated below:
1. Loan Principal & Term of Loan: Upon maturity of the construction loan, any
outstanding principal loan balance will be rewritten subject to a 25 year
amortized repayment schedule and a 15 year balloon maturity. It is understood
and providing that you are not in default of any term or condition contained in
the Permanent note or under any other obligation to Bank, loan agreement or deed
of trust upon maturity, the Bank will renew any outstanding principal loan
balance on a fully amortized basis for an additional 10 year period, subject to
terms and conditions which will be negotiated at the time of renewal.
2. Interest Rate: The permanent financing package shall be priced at a margin
above the then prevailing 5 Year Treasury Constant Maturity Index so as to
insure that the initial loan rate will be 10%. The permanent financing package
will further provide for an interest rate CAP of 2% above the initial fully
indexed interest rate at the time of the first interest rate adjustment (5 year
anniversary) and 3% above the initial fully indexed interest rate at the time of
the second projected interest rate adjustment (10 year anniversary). The note
will further provide for an interest rate floor of 8.50%.
3. Origination Fee: You will be required to pay to the Bank a 1/2 percent
origination fee on funding.
4. Prepayment Penalty: None.
5. Collateral: The loan shall be collateralized by the following:
a. A first deed of trust encumbering the property and improvements located at
1825 Airport Road, Ukiah, CA consisting of approximately 8 acres of land.
b. A first deed of trust encumbering the real property upon which the waste
water treatment facility is being constructed, which is approximately I acre in
size.
EXHIBIT 10.35
The loan contemplated herein shall be additionally collateralized as specified
in a security agreement, in form and substance satisfactory to Bank and its
counsel, which covers but is not limited to all fixtures and/or improvements
which are located on the to be encumbered parcel of property as well as all
inventory, chattel paper, accounts, equipment, general intangibles etc.
It is our mutual understanding that Mendocino Brewing Company, Inc. is intending
to initiate a public offering and/or a subordinated capital note issue within
the next 365 days. It is further agreed that any monies realized from either
offering or any other source in excess of the $2,100,000.00 required to satisfy
payables due to West America Bank ($600,000.00), BDM Construction ($960,000.00)
and complete the $600,000.00 in deferred construction improvements (for which
the initial such sum will be used), shall be deposited into a savings account
with the Savings Bank of Mendocino County and that said account shall be pledged
as security against the aforementioned $2,700,000.00 permanent financing
package. It is understood that should the corporation meet its sales projection
objectives and decide to proceed with the equipment purchases contemplated in
Phase II of its Business Plan, the Savings Bank of Mendocino County will release
these monies, providing that it is determined that the capital expenditures are
motivated by sales demand and that the profitability projections have in fact
materialized.
6. Out of Pocket Expenses: All fees (title, recording, appraisal
re-certification, etc.) together with any other out of pocket expenses, incurred
by the Bank relating to this transaction are to be paid for by the Borrower. In
the event that we obtain legal assistance associated with the packaging of your
permanent loan, you will be required to reimburse us for any out of pocket legal
counsel fees which we may expend. In no circumstances, however, shall you be
required to reimburse the Bank in excess of $5,000.00 in legally related fees.
7. Additional Conditions Present: Prior to the closing date or at the option of
the Bank, there shall have been delivered to Bank, in form and substance
satisfactory to Bank and its counsel:
a. Evidence that all consents, permits and approvals from government authorities
required or advisable in connection with the occupancy of the improvements, have
been obtained by the Borrower.
b. There shall have been issued in form and substance satisfactory to Bank and
its counsel a Certificate of Occupancy or other written confirmation that the
improvements meet all requirements of all public agencies, including compliance
with structural and operating requirements set by all governmental agencies
regulating environmental controls and can be occupied in accordance with the
terms and conditions under which the improvements were appraised and receipt by
Bank of evidence that all utilities are available at the improvements.
c. Receipt by Bank of a Certificate of Completion signed by a licensed architect
or engineer, who will first have been approved by Bank, attesting to the
completion of the improvements in a good and workman like manner.
d. Receipt by Bank of an As Built Survey Report of a licensed engineer,
certified by a registered surveyor, in form and substance also satisfactory to
the title insurance company, showing that all
EXHIBIT 10.35
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improvements are within lot and building lines and showing all easements,
improvements, utilities and rights of way above or below ground as of the date
of certification, and showing the dimensions and total square foot area of the
interior outlines, if any, location of adjoining streets and the distance to and
names of the nearest intersection streets.
e. Evidence that an insurance policy providing fire and extended coverage for
replacement costs of the improvements, with a lenders loss payable endorsement,
for (438BFUNS) or its equivalent, have been obtained.
f. Confirmation that the Mendocino Brewing Company has received $2,100,000.00 in
lease financing. Our responsibility to provide the financial accommodations
overviewed in this correspondence is conditioned upon our approval of the
amount, terms, conditions, agreements, lease documents, etc. which pertain to
the lease financing package. Our responsibility to provide the financial
accommodations contemplated in this correspondence further conditioned on our
having been satisfied that the lease financing package has been fully negotiated
and all monies advanced.
g. Upon completion of the construction project, the Bank shall obtain at your
expense a re-certification of value from Dean Strupp and Associates Appraisals.
h. Confirmation that the Mendocino Brewing Company is not in default of any of
its existing obligations which include but are not limited to obligations owed
to West America Bank, BDM Construction and FINOVA Capital Corporation.
8. Approval of Documentation: All instruments evidencing and securing or
otherwise relating to the loan on the project, must be satisfactory to the Bank
and its counsel.
9. Title Insurance: You will be required to provide ALTA title insurance
coverage together with any other endorsements which the Bank might determine
necessary, for the full amount of the loan, containing no exceptions other than
those approved by the Bank which are usual and customary to such properties.
10. Indemnification: You will be required to indemnify the Bank against any and
all liabilities, obligations, losses/damages, penalties, claim actions, suits,
cost and expenses of whatever kind or nature which may be imposed on, incurred
by or asserted at any time against the Bank in any way relating to or arising in
connection with, construction of the improvements, the offer of sale and/or use,
occupation or operation of any of the property to be encumbered by the
construction deed of trust. Said indemnification shall also cover damages
arising from existing or future hazardous waste and/or substances located on the
property, including the cost to clean-up or detoxify the property. If for any
reason the Bank becomes concerned that there could be related environmental
liability risks associated with our liens on the real estate, we may consult
with an environmental specialist and may require an environmental audit to be
conducted and our commitment is conditioned upon our conclusion based thereon
that risks are acceptable to us. Your cost reimbursement will include such
consulting and audit fees.
EXHIBIT 10.35
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11. Assignment: You will be unable to assign this commitment letter or any of
its rights hereunder, to any other person or legal entity without specific
written approval of the Bank. The Bank may sell participations in the loan to
other banks.
12. Termination: Bank, at its option, may terminate this commitment letter and
its obligations hereunder, if (a) you shall fail to observe or comply with any
of the terms and provisions contained herein, or in any other document under
which you have an obligation to Bank, or (b) Bank shall find unacceptable or
shall not approve any document or agreement, or information or encumbrance
applicable to the project, or (c) you or parties involved in the project become
insolvent, or (d) bankruptcy, insolvency, reorganization, receivership,
dissolution arrangement or other similar proceedings are commenced by or against
you or your assets under any federal or state law, or (e) the take-out loan has
not been consummated by March 15, 1997.
It goes without mention that our commitment is subject to such additional terms,
conditions and requirements as may be provided in our loan documents or by Bank
counsel. Should any of the foregoing require clarification don't hesitate
contacting me at your earliest convenience.
Sincerely,
/s/ Martin J. Lombardi
Martin J. Lombardi
Vice President
ACKNOWLEDGMENT:
/s/ Michael Laybourn Date: 9/19/96
Michael Laybourn
/s/ Norman Franks Date: 9/19/96
Norman Franks