Item
1.01. Entry into a Material Definitive Agreement
Extension
of MB Financial Facility
Effective
January 25, 2017, Mendocino Brewing Company, Inc. (the “
Registrant
”), Releta Brewing Company LLC, a Delaware
limited liability company (“
RBC
” and together with the Registrant, the “
Borrowers
”) and
MB Financial Bank, N.A. (“
Lender
”), successor in interest to Cole Taylor Bank entered into an Eighth Amendment
(the “
Eighth Amendment
”) to the Credit and Security Agreement (as amended, the “
Agreement
”)
by and between the Borrowers and Cole Taylor Bank dated June 23, 2011, as previously amended on March 29, 2013, January 21, 2015
(the “
Second Amendment
”), June 20, 2016, July 22, 2016, September 21, 2016, October 18 and December 22, 2016.
The
Agreement provides the Borrowers a credit facility, secured by the personal property of the Registrant and RBC, and the Registrant’s
Ukiah, California facility, among other items of the Borrowers’ property. Prior to the Eighth Amendment, the credit facility
was to mature on January 31, 2017, and consisted of a $1,250,000 revolving facility, a $1,934,000 machinery and equipment term
loan, a $2,947,000 real estate term loan and a $1,000,000 capital expenditure line of credit.
Borrowers
advised the Lender that they were unable to pay the Obligations (as defined in the Agreement) by the current maturity date of
January 31, 2017 and requested that the Lender amend the Credit Agreement to extend the current maturity date. The Eighth Amendment
extends the maturity date of the Credit Agreement from January 31, 2017 to February 28, 2017. The Eighth Amendment increased principal
payment of the machinery & equipment term loan under Section 2.07(b) of the Agreement, effective with the February 1, 2017
payment and for each payment thereafter, to $33,023.81 per month, an increase of $10,000 per month. Lender has absolutely no commitment
and has made no agreement to extend the maturity date beyond February 28, 2017. In connection with the Eighth Amendment, Borrowers
paid a $15,000 amendment fee to the Lender, which was charged to the revolving line of credit provided by Lender under the Agreement.
The
Eighth Amendment also confirms the continuance of certain events of default under the Agreement. The Borrowers have previously
received notices from the Lender regarding the exercise of rights related to events of default on September 18, 2013, April 18,
2014 and August 18, 2014 (the “
Default Notices
”), as described in current reports on Form 8-K of the Registrant
filed on September 24, 2013, April 24, 2014 and August 22, 2014, respectively. As previously disclosed in the Registrant’s
current reports on Form 8-K filed on May 3, 2013, September 24, 2013, April 24, 2014, August 22, 2014, January 27, 2015, and June
9, 2015, quarterly reports on Form 10-Q filed on August 14, 2013, November 14, 2013, August 14, 2014, November 11, 2014, May 15,
2015, August 14, 2015, November 16, 2015, May 16, 2016, August 15, 2016 and November 14, 2016, annual reports on Form 10-K filed
on March 31, 2014, March 31, 2015 and April 14, 2016 (which are incorporated by reference herein to the extent they refer to the
Agreement), the Borrowers have been in default under certain provisions of the Agreement.
Pursuant
to the Agreement, the Borrowers must maintain certain financial metrics. As stated in the Eighth Amendment, the Borrowers have
continued to be in default on the fixed charge coverage ratio as of the period ending November 30, 2016 and the dates set forth
in the Second Amendment. The fixed charge coverage ratio is required to be 1.15 to 1.00. As of November 30, 2016, the fixed charge
coverage ratio was -1.12 to 1.00.
The
Eighth Amendment also states that the tangible net worth of the Borrowers has continued to fall short of the required amount as
of the period ending November 30, 2016 and the dates set forth in the Second Amendment. The Registrant calculates the required
tangible net worth of the Borrowers to be $6,181,400 as of November 30, 2016 and the actual tangible net worth on such date to
be $3,090,800. The Registrant does not anticipate that the Borrowers will be able to regain compliance with the required fixed
charge coverage ratio or the minimum tangible net worth in the near future.
The
Lender has not waived the events of default described in the Default Notices or the Eighth Amendment and has reserved the right
to exercise all available rights and remedies. The Lender could declare the full amount owed under the Agreement due and payable
at any time for any reason or no reason. If the Lender exercises additional remedies, such exercise would have a material adverse
effect on the Registrant’s financial condition and the Registrant’s ability to continue to operate.
As
previously disclosed in the Registrant’s current report on Form 8-K filed on January 14, 2016, the Registrant engaged Gordian
Group, LLC to assist it in evaluating, exploring and, if deemed appropriate by the Registrant, pursuing and implementing certain
strategic and financial options and transactions, including refinancing the credit facility (a “
Financial Transaction
”).
While the Registrant has commenced evaluating its available options, no conclusion as to any specific option or transaction has
been reached, nor has any specific timetable been fixed for this effort, and there can be no assurance that any Financial Transaction
will be presented, implemented or consummated. If the Registrant is unable to complete a Financial Transaction, or to otherwise
refinance the credit facility or further extend the Credit Agreement, such events would have a material adverse effect on the
Borrowers’ financial condition and their ability to continue to operate.
The
foregoing is not intended to be a complete description of the Eighth Amendment and is subject to, and qualified in its entirety
by, the full text of the Eighth Amendment filed as Exhibit 10.1 to this current report on Form 8-K.