Savings Bank
OF MENDOCINO COUNTY
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P.O. BOX 3600 . UKIAH, CALIFORNIA 95462
TELEPHONE (707) 462-6613
Exhibit 10.3
October 15, 1997
Mr. Michael Laybourn
Mendocino Brewing Company Inc.
Post Office Box 400
Hopland, CA 95449
Dear Michael:
Following up our earlier telephone conversation, the Savings Bank of Mendocino
County is prepared to convert our $2,700,000.00 construction loan to a permanent
financing loan package on substantially the same terms and conditions specified
in the now-lapsed take-out commitment issued September 13, 1996. With the
exception of the substitution of the expiration date specified below, the only
loan terms which are modified are as follows:
1) Origination Fee--in lieu of the one-half percent origination fee
originally negotiated, you will be required to pay to the Bank a one
and one-half (1-1/2) percent origination fee. As previously expressed,
we have unexpectedly expended considerably more time and expense over
the past year for which we would like to obtain reimbursement.
2) Interest Rate--the original commitment provided for an interest rate
floor of eight and one-half (8-1/2) percent. In lieu of the foregoing,
the interest rate floor will be lowered to seven and one-half (7-1/2)
percent.
Michael, we recognize that the investment agreement reached with United
Breweries of America, Inc. substantially strengthens Mendocino Brewing Company
and understand that it is in everyone's best interest to work together to
facilitate consummation of the contemplated transaction. In spite of the
foregoing, we believe it is premature to lower the interest rate from the level
originally committed until such time as we are satisfied that our risk has been
mitigated by demonstrations of sustained profitability, stable sales growth and
confirmation of ongoing production efficiency. It is my additional understanding
that Mendocino Brewing Company is or will in the near future be negotiating
alliances that could significantly enhance the company's profitability and/or
capital structure. The relationship with Mendocino Brewery is very important to
our
Bank and we want you to know that we are very willing to consider any future
requests to lower the interest rate pricing.
In addition to the conditions specified previously, our commitment is further
conditioned upon:
1) Our being satisfied that there are no outstanding payables owed to the
prime contractor, BDM Construction, or any subcontractor that provided
goods and/or services in association with your construction project.
2) Receipt of a signed copy of the investment agreement between Mendocino
Brewing and United Breweries of America. The agreement must be in form
and substance satisfactory to Bank and its council.
3) Written confirmation that Westamerica Bank has agreed to renew its loan
commitment to Mendocino Brewing and our determination that the
negotiated terms are acceptable to us.
4) Confirmation that your promissory note obligations to BDM Construction
and Cordes Langley et al have been fully satisfied.
5) Confirmation that in addition to the four million dollars in cash
contributions, United Breweries of America has contributed all of their
Sarasota Springs Brewery Inc. assets into Mendocino Brewing Company
Inc. It is my understanding that the value of these assets approximate
seven and one-half (7-1/2) million dollars.
It goes without mention that the requirement stipulated in our original
commitment letter relating to your public offering and the related deposit of
proceeds into a bank account are no longer relevant.
The take-out loan must be completely negotiated, documented and closed by
December 1, 1997 or our commitment will expire. Should any of the foregoing
require any clarification, don't hesitate contacting me at your earliest
convenience.
Sincerely,
/s/ Martin J. Lombardi
Martin J. Lombardi
Vice President