<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 23, 1999
REGISTRATION NO. 333-77551
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- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
OREGON BAKING COMPANY
(dba MARSEE BAKING)
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
<TABLE>
<S> <C> <C>
OREGON 5812 93-1091480
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
2287 NW PETTYGROVE STREET, PORTLAND, OREGON 97210
(503) 295-4000
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE
OFFICES AND PRINCIPAL PLACE OF BUSINESS)
RAYMOND W. LINDSTROM
PRESIDENT AND CHIEF EXECUTIVE OFFICER
MARSEE BAKING
2287 NW PETTYGROVE, PORTLAND, OREGON 97210
(503) 295-4000
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
THOMAS P. PALMER, ESQ. BERT L. GUSRAE, ESQ.
BRENDAN R. MCDONNELL, ESQ. DAVID A. CARTER, P.A.
TONKON TORP LLP SUITE 210, WEST TOWER
888 SW FIFTH AVENUE, SUITE 1600 2300 GLADES ROAD
PORTLAND, OREGON 97204 BOCA RATON, FLORIDA 33431
(503) 221-1440 (561) 750-6999
FAX (503) 274-8779 FAX (561) 367-0960
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable following the date on which this Registration Statement
becomes effective.
- - If any of the securities being offered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
- - If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
-----------------
- - If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
-----------------
- - If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
-----------------
- - If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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<PAGE> 2
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED(1) PER SECURITY(2) PRICE(2) REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock(3)........................... 2,012,500 $5.00 $10,062,500.00 $2,797.38
- -----------------------------------------------------------------------------------------------------------------
Common Stock Purchase Warrants ("Purchase
Warrant")(4).............................. 2,012,500 0.125 251,562.50 69.93
- -----------------------------------------------------------------------------------------------------------------
Common Stock underlying Purchase
Warrant................................... 2,012,500 5.00 10,062,500.00 2,797.38
- -----------------------------------------------------------------------------------------------------------------
Common Stock Purchase Warrants to be
issued to the common stock underwriter
("Common Stock Underwriter Warrants")..... 175,000 0.001 175.00 0.05
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Common stock underlying Common Stock
Underwriter Warrants...................... 175,000 8.25 1,443,750.00 401.36
- -----------------------------------------------------------------------------------------------------------------
Warrant Purchase Warrants to be issued to
the warrants underwriter ("Warrants
Underwriter Warrants").................... 175,000 0.001 175.00 0.05
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Common Stock Purchase Warrants underlying
Warrants Underwriter Warrants............. 175,000 0.20625 36,093.75 10.03
- -----------------------------------------------------------------------------------------------------------------
Common Stock underlying Common Stock
Purchase Warrants underlying Warrants
Underwriter Warrants...................... 175,000 8.25 1,443,750.00 401.36
- -----------------------------------------------------------------------------------------------------------------
Total..................................... $23,300,506.25 $6,477.54
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</TABLE>
(1) Pursuant to Rule 416, there are also registered hereby such additional
indeterminate number of shares of common stock as may become issuable by
reason of stock splits, stock dividends and other adjustments pursuant to
anti-dilution provisions of the warrants registered hereby.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) under the Securities Act of 1933, as amended.
(3) Includes 262,500 shares that the underwriter has the option to purchase to
cover over-allotments, if any.
(4) Includes 262,500 purchase warrants that the underwriter has the option to
purchase to cover over-allotment, if any.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 3
The information in this preliminary prospectus is not complete and may be
changed. These securities may not be sold until the registration statement filed
with the Securities and Exchange Commission is effective. This preliminary
prospectus is not an offer to sell nor does it seek an offer to buy these
securities in any state where the offer or sale is not permitted.
PRELIMINARY PROSPECTUS, DATED JULY 23, 1999
SUBJECT TO COMPLETION
INITIAL PUBLIC OFFERING
PROSPECTUS
MARSEE BAKING LOGO
1,750,000 SHARES OF COMMON STOCK
$5.00 PER SHARE
1,750,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
$0.125 PER WARRANT
-------------------------
<TABLE>
<CAPTION>
UNDERWRITING
INITIAL PUBLIC DISCOUNT PROCEEDS TO MARSEE
OFFERING PRICE AND COMMISSIONS BAKING BEFORE EXPENSES
-------------- --------------- ----------------------
<S> <C> <C> <C>
Per Share............................ $ 5.00 $ 0.50 $7,875,000
Per Purchase Warrant................. $ 0.125 $ 0.0125 $ 196,875
Total...................... $8,968,750 $896,875 $8,071,875
</TABLE>
-------------------------
The underwriter is offering the common stock and purchase warrants on a
firm commitment basis. We have granted the underwriter a 45-day option to
purchase up to an additional 262,500 shares of common stock and up to an
additional 262,500 purchase warrants to cover over-allotments.
-------------------------
INVESTING IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
-------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Barron Chase Securities Logo
The date of this prospectus is , 1999.
<PAGE> 4
[PHOTOS AND CAPTIONS]
[INSIDE FRONT COVER
The company's logo will appear on the top left of the page with a caption
that will read as follows: "Marsee Baking offers over 100 different varieties of
premium quality, artisan-crafted bakery products made fresh daily in central
bakeries."
Below the logo, there will appear six pictures in two rows, three in each
row. Beginning from the top row and moving left to right, the first picture will
be of an interior of a bakery-cafe showing some of Marsee Baking's design
elements, such as the hammered tin ceilings, slate floors, marble bars, mahogany
trimmed, custom cabinets and glass display cases. The next picture will show a
display case with three rows of Marsee Baking's specialty cakes. The third
picture will be a shot of the dining area of the interior of a bakery-cafe. In
the next row, the three pictures will illustrate the company's production and
distribution process. The first picture will show pastries being prepared by
hand in the central production facility, the next picture will show baking trays
stacked in a cart ready for the oven, and the last picture will show the
company's delivery trucks. Below these pictures will be text stating the
following: "Our customers dine on an affordable indulgence in a unique
neighborhood bakery-cafe setting."
Across the right side of the page, there will be displayed a map of the
Pacific Northwest with two spoke-like symbols in and around the greater Seattle
and Portland metropolitan areas to indicate the markets in which the company
currently operates. A picture of various breads, bagels, pastries and other
baked-goods offered by Marsee Baking will be displayed across the bottom of the
page.
INSIDE BACK COVER
The inside back cover of the prospectus will have four pictures, appearing
in two rows. The top left picture will contain a basket of bagels surrounded by
coffee products and plates with prepared bagels. The top right picture will
contain a variety of cookies, and fruit and cream covered cakes. The bottom left
picture will depict various pastries and the bottom right will display a sample
of Marsee's lunch offerings -- soup, salad, sandwiches and focaccia pizza.
Below the pictures will be a caption with the following text: "Our key
product categories include bakery goods made fresh daily using only the freshest
natural ingredients, made-to-order sandwiches, soups and cafe beverages."]
2
<PAGE> 5
OREGON BAKING COMPANY
DOING BUSINESS AS MARSEE BAKING
------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary.......................................... 5
Risk Factors................................................ 7
Use of Proceeds............................................. 10
Dividend Policy............................................. 10
Capitalization.............................................. 11
Dilution.................................................... 12
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 13
Business.................................................... 21
Management.................................................. 30
Certain Transactions........................................ 36
Principal Shareholders...................................... 37
Description of Securities................................... 38
Shares Eligible for Future Sale............................. 44
Underwriting................................................ 47
Legal Matters............................................... 49
Experts..................................................... 49
Where You Can Find More Information......................... 50
Index to Financial Statements............................... F-1
</TABLE>
3
<PAGE> 6
We are an Oregon corporation. Our principal executive offices are located
at 2287 NW Pettygrove Street, Portland, Oregon, 97210, and our telephone number
is (503) 295-4000. In this prospectus, the "company," "Marsee Baking," "we,"
"us" and "our" refer to Oregon Baking Company, doing business as Marsee Baking
(but not to the underwriter listed in this prospectus), including the businesses
acquired by us, unless the context otherwise requires. In addition, "common
stock" refers to our common stock with no par value; "purchase warrants" refers
to the redeemable common stock purchase warrants sold in this offering. See
"Description of Securities." The underwriter for this offering is Barron Chase
Securities, Inc.
------------------------
You should not rely on forward-looking statements in this prospectus. This
prospectus contains forward-looking statements that involve risks and
uncertainties. We use words such as "may," "will," "should," "expects," "plans,"
"anticipates," "believes," "estimates," "predicts," "potential" and "continue"
and similar expressions to identify such forward-looking statements. You should
not place undue reliance on these forward-looking statements, which apply only
as of the date of this prospectus. Our actual results could differ materially
form those anticipated in these forward-looking statements for many reasons,
including the risks faced by us described above and elsewhere in this
prospectus. We do not intend to update or revise any forward-looking statements.
------------------------
ATTENTION CALIFORNIA RESIDENTS
Offers and sales of our common stock and purchase warrants made to
California residents pursuant to this prospectus are restricted to individuals
who meet suitability standards of not less than $250,000 of liquid net worth
(net worth exclusive of home, home furnishings and automobiles) plus $65,000
annual gross income, or $500,000 of liquid net worth (net worth exclusive of
home, home furnishings and automobiles).
------------------------
Marsee Baking(R) and BagelMax(R) are trademarks, registered trademarks,
service marks or registered service marks of Marsee Baking. This prospectus also
includes product names, trade names, trademarks and service marks of other
companies.
4
<PAGE> 7
PROSPECTUS SUMMARY
The following summary may not contain all the information that may be
important to you. Before making an investment decision, you should read this
entire prospectus. Upon the completion of this offering, the only class of our
capital stock outstanding will be our common stock. Except where otherwise
indicated, all information in this prospectus assumes (1) the automatic
conversion of Series A, B, C and D Preferred Stock into common stock upon the
closing of this offering, and (2) the underwriter's over-allotment options will
not be exercised.
THE COMPANY
Marsee Baking owns and operates 18 bakery-cafes in the Pacific Northwest
that offer more than 100 artisan bakery products, as well as made-to-order
sandwiches, soups and salads, in a friendly, neighborhood atmosphere. Each
bakery-cafe operates as a premium bakery, providing a relaxing cafe experience
that addresses the morning, lunch and late-afternoon day-parts. For 1998, the
six bakery-cafes operating in the company's format for more than a year had
average revenues of approximately $790,000 per store. Marsee Baking also
distributes its products and builds brand awareness through its wholesale
operations, providing specialty retailers and other institutions with a complete
line of Marsee Baking products.
THE OFFERING
Common stock offered.......... 1,750,000 shares of common stock
Warrants offered.............. 1,750,000 purchase warrants
Common stock to be outstanding
after this offering........... 5,366,867 shares
Warrants to be outstanding
after this offering........... 2,147,668 warrants
Use of proceeds............... Retirement of bridge financing, new store
expansion, reduction of trade payables, payment
of accrued dividends, and working capital and
general corporate purposes.
Proposed Nasdaq SmallCap
Symbols:
Common stock................ MSEE
Purchase warrants........... MSEEW
Proposed Boston Stock Exchange
Symbols:
Common stock................ [MRB]
Purchase warrants........... [MRBW]
5
<PAGE> 8
SUMMARY FINANCIAL INFORMATION
The summary historical financial information as of and for the years ended
December 31, 1997 and 1998 are derived from our financial statements.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- ----------------
1996 1997 1998 1998 1999
----------- ------- ------- ------ -------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Bakery-cafes............................... $3,662 $ 4,140 $ 9,761 $2,081 $ 2,328
Wholesale.................................. 399 808 2,895 651 610
Total revenues........................ 4,061 4,948 12,656 2,732 2,938
Cost of goods sold.............................. 2,112 2,887 7,579 1,554 1,721
Store operating expenses........................ 1,248 1,621 5,281 1,312 1,238
Wholesale operating expenses.................... 164 328 599 139 70
Depreciation and amortization................... 84 213 817 119 330
General and administrative expenses............. 563 965 1,959 499 400
Store closure expense........................... -- -- 253 -- --
------ ------- ------- ------ -------
Loss from operations............................ (110) (1,066) (3,832) (891) (821)
Interest expense................................ (118) (129) (472) 67 256
------ ------- ------- ------ -------
Net loss........................................ (228) (1,195) (4,304) (958) (1,077)
Cumulative dividends on preferred stock series D
and A......................................... (32) (32) (100) (25) (25)
------ ------- ------- ------ -------
Net loss attributed to common shares............ $ (260) $(1,227) $(4,404) $ (983) $(1,102)
====== ======= ======= ====== =======
Net loss per common share -- basic and
diluted....................................... $(0.30) $ (1.41) $ (5.07) $(1.13) $ (0.97)
Shares used in computing net loss per common
share -- basic and diluted.................... 868 869 869 869 1,136
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------- MARCH 31, MARCH 31,
1996 1997 1998 1999 1999
----------- ------- ------- ----------- -------------
(UNAUDITED) (UNAUDITED) (AS ADJUSTED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash (including restricted cash)........... $ 687 $ 91 $ 129 $ 129 $ 7,179
Working capital (deficit).................. (27) (1,487) (4,148) (5,213) 1,837
Total assets..................... 2,059 3,007 8,674 8,977 16,027
Long-term obligations...................... 388 1,423 2,921 2,731 2,731
Total shareholders' equity
(deficit)...................... 900 (158) 820 5 7,055
</TABLE>
6
<PAGE> 9
RISK FACTORS
An investment in our common stock and purchase warrants involves a high
degree of risk. You should carefully consider the risks described below before
making an investment decision. The risks and uncertainties described below are
not the only ones facing our company. Additional risks and uncertainties not
presently known to us or that we currently deem immaterial may also impair our
business operations. These factors, among others, may cause actual results,
events or performance to differ materially from those expressed in any
forward-looking statements made in this prospectus.
If any of the following risks actually occurs, our business, financial
condition or operating results could be materially and adversely affected. In
such case, the value of your investment may decline and you may lose all or part
of your investment.
RISKS RELATED TO THE COMPANY
WE HAVE A LIMITED
OPERATING HISTORY UPON
WHICH YOU MAY EVALUATE
US We began operations in 1993. As a result, your
evaluation of us and our prospects will be based on a
limited operating history. In addition, we have recently
recruited a new Chief Executive Officer and a new Chief
Financial Officer, and our operating model and business
strategy are being revised. Consequently, our historical
results of operations may not give you an accurate
indication of our future results of operation or
prospects.
WE HAVE AN ACCUMULATED
DEFICIT, AND ANTICIPATE
FUTURE LOSSES We have incurred substantial losses since inception,
and we anticipate that we will continue to incur
substantial losses. As of March 31, 1999, we had an
accumulated deficit of approximately $7.6 million. We have
experienced significant losses in connection with our
expansion into the greater Seattle market and with the
opening of in-fill stores in the greater Portland market.
We expect our losses to continue until we can reduce
expenses and can operate the Seattle commissary at
capacity. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity
and Capital Resources."
WE MAY CEASE DOING
BUSINESS WITHOUT THE
PROCEEDS OF THE
OFFERING Our audited financial statements have been prepared
assuming that we will continue as a going concern. We have
suffered recurring losses from operations that raise
substantial doubt about our ability to continue as a going
concern. Without the proceeds of the offering, we may not
be able to continue to operate our business.
WE DO NOT GENERATE
ENOUGH CASH FROM
OPERATIONS TO FUND OUR
GROWTH PLAN OR OUR
CONTINUED OPERATIONS At our current level of development, we do not
generate net cash from operations. For the years ended
December 31, 1997 and 1998, we incurred net losses of $1.2
million and $4.3 million, respectively. We incurred a net
loss of $1.1 million for the three months ended March 31,
1999. To fund our operations, we require either additional
financing or a substantial increase in the number of
bakery-cafes to generate additional operating revenue. We
have developed a specific liquidity plan to meet the
ongoing liquidity needs of our operations. See
"Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and
Capital Resources." There can be no assurance, however,
that our liquidity goals will be reached in the immediate
future, if ever.
WE HAVE SIGNIFICANT
FUTURE CAPITAL NEEDS
WHICH ARE SUBJECT TO
THE
UNCERTAINTY OF
ADDITIONAL
FINANCING We may need to raise significant additional funds
beginning in 2000 to expand our concept. According to our
current expansion plan, we expect to open at least five
new stores in the greater Portland and Seattle
metropolitan markets by the end of 1999. To fund this
expansion, we will need to raise approximately $500,000 in
the form of capitalized leases and other landlord-related
debt financing, or approximately 25% of the total
acquisition cost for
7
<PAGE> 10
each new store opening. The historical cost of opening a
new bakery-cafe, net of landlord contributions, has
averaged approximately $350,000 to $375,000, with
additional average pre-opening costs per bakery-cafe of
approximately $25,000. If adequate funds are not
available, on acceptable terms or at all, we may be unable
to complete our expansion program, which would have a
material adverse effect on our business, results of
operations and financial condition. If additional funds
are raised through the issuance of equity securities, your
percentage ownership in the company's equity will be
reduced, you may experience additional dilution in net
book value per share, and the equity securities may have
rights, preferences or privileges senior to those of
yours.
WE HAVE A LIMITED BASE
OF OPERATIONS AND A
HIGH
GEOGRAPHIC
CONCENTRATION We presently operate 18 retail bakery-cafes, two
central production facilities and a wholesale division,
all serving the greater Portland and Seattle metropolitan
areas. Because of our small existing retail base, many
events, including a decline in the profitability of even
one or two stores, the opening of an unsuccessful new
store or delays in the planned opening of new stores,
could materially and adversely affect the profitability of
the entire company. Moreover, the concentration of our
retail bakery-cafes in limited geographic markets exposes
the company to a greater risk from certain events or
conditions, such as a regional economic downturn, than
would be the case if our stores were not geographically
concentrated.
WE RELY ON OPENING NEW
STORES FOR GROWTH WHICH
SUBJECTS US TO RISKS Our continued growth depends on our ability to open,
acquire or convert new retail bakery-cafes, to operate
these stores profitably, and to increase same-store sales.
This growth is likely to place a significant strain on our
resources and systems.
Our inability to
manage growth could
hurt our business To manage our growth, we must implement systems, and
train and manage our employees. We may not be able to
implement these action items in a timely manner or at all.
Our inability to manage growth effectively could have a
material adverse effect on our business, operating results
and financial condition. There can be no assurance that we
will achieve our planned expansion goals, convert acquired
stores to the Marsee Baking format, manage our growth
effectively, or operate our existing and new stores
profitably.
New stores may
compete with our
existing stores The opening of additional stores in current markets
could have the effect of competing with certain of our
existing stores. The effect of opening new in-fill stores
may be to divert sales from existing stores, resulting in
a decrease in same-store sales for the previously existing
units.
WE MAY EXPERIENCE PRICE
VOLATILITY IN RAW
INGREDIENTS We rely on food wholesalers for the bulk of our raw
ingredients. Our primary raw ingredients include commodity
items such as butter, flour, sugar and chocolate. The
prices of these commodities are subject to volatility.
Further, some raw ingredients such as chocolate are
imported, and are subject to potential exchange rate and
supply volatility. We do not engage in hedging activities
and, with the exception of certain volume purchase
discounts, cannot control the price of our raw materials.
We may experience decreased profit margins if we are
unable to pass any increased cost of new ingredients on to
our customers.
8
<PAGE> 11
RISKS RELATED TO THE OFFERING
THE OFFERING PRICES ARE
ARBITRARY The offering prices of the common stock and purchase
warrants were arbitrarily determined and may not bear a
direct relationship to Marsee Baking's assets, earnings,
book value, results of operation or any other objective
standard.
WE MUST COMPLY WITH
THE FEDERAL
REGISTRATION
AND STATE BLUE SKY
REQUIREMENTS TO PERMIT
EXERCISE OF YOUR
PURCHASE WARRANTS We will be able to issue the shares of common stock
upon the exercise of the purchase warrants only if there
is a current prospectus relating to the common stock under
an effective registration statement filed with the
Securities and Exchange Commission. In addition, the
common stock must be qualified for sale or exempt under
applicable state securities laws of the jurisdictions in
which the various holders of purchase warrants reside.
Non-registration in
your state of the
common stock
underlying the
purchase warrants at
the time of exercise
may prevent you from
exercising your
purchase warrants There can be no assurance that we will be successful
in maintaining a current registration statement. The
company intends to qualify the sale of the purchase
warrants in a limited number of states, although certain
exemptions under certain state securities laws may permit
the purchase warrants to be transferred to purchasers in
states other than those in which the purchase warrants
were initially qualified. We can make no assurances that
we will be able to qualify our securities in any state. If
we have not qualified the issuance of the common stock in
the states in which the ultimate purchasers of the
purchase warrants reside and no exemption from the
qualification is available, the purchase warrants of those
purchasers will expire and have no value if the purchase
warrants cannot be exercised or sold. Accordingly, the
market for the purchase warrants may be limited because of
the company's inability to fulfill these requirements. See
"Description of Securities" and "Underwriting."
A MARKET FOR THE
SECURITIES DID NOT
EXIST
BEFORE AND MAY NOT
EXIST
IN THE FUTURE Before this offering, there has been no public market
for our common stock or purchase warrants. We cannot
predict the extent to which investor interest in Marsee
Baking will lead to the development of a trading market or
how liquid that trading market might become. If a trading
market does not develop or is not sustained, it may be
difficult for you to sell your shares of common stock or
purchase warrants at a price that is attractive to you.
LOW-PRICED STOCKS WILL
IMPOSE ADDITIONAL
"PENNY STOCK" TRADING
REQUIREMENTS If our common stock or purchase warrants are delisted
from Nasdaq, and no other exclusion from the definition of
a "penny stock" under applicable SEC regulations were
available, such securities would be subject to the penny
stock rules, which impose additional sales practice
requirements on broker-dealers who sell such securities to
persons other than established customers and accredited
investors. Consequently, delisting from Nasdaq could
affect the ability of broker-dealers to sell our
securities and your ability to sell your securities in the
secondary market.
9
<PAGE> 12
USE OF PROCEEDS
Marsee Baking will receive estimated net proceeds of $7,050,000 from the
sale of 1,750,000 shares of common stock and 1,750,000 purchase warrants at an
assumed initial public offering price of $5.00 per share and $0.125 per purchase
warrant, after deducting underwriting discounts and commissions of $897,000 and
estimated expenses of $1,021,000. If the underwriter's over-allotment options
are exercised in full, we will receive an additional $1,170,000 from the sale of
262,500 shares of common stock and 262,500 purchase warrants, after deducting
underwriting discounts and commissions.
The following table describes the expected allocation of the net proceeds
of the offering, assuming that the underwriter does not exercise its
over-allotment options:
<TABLE>
<CAPTION>
APPLICATION PERCENTAGE OF
OF NET PROCEEDS NET PROCEEDS
--------------- -------------
<S> <C> <C>
Retirement of bridge financing........................... $2,585,000 36.7%
New store expansion...................................... 2,000,000 28.4
Reduction of trade payables.............................. 1,000,000 14.2
Payment of series A preferred dividends.................. 107,000 1.5
Working capital and general corporate purposes........... 1,358,000 19.2
---------- -----
Total............................................... $7,050,000 100.0%
========== =====
</TABLE>
In a bridge financing completed before this offering, we issued certain
demand notes and sold privately to investors certain units, each unit consisting
of one share of common stock and a promissory note in the principal amount of
$5.00, bearing interest at the rate of 8% per year. The principal and accrued
interest are due and payable nine months after the date of the promissory notes
or the closing of this offering, whichever is earlier. We intend to use
$2,585,000 of the proceeds of this offering to repay the principal and interest
owing under the promissory notes. See "Description of Securities."
We intend to use a portion of the proceeds for general corporate purposes,
including working capital and the following:
- Reducing our operating line of credit;
- Funding anticipated operating losses; and
- Funding capital expenditures related to growth.
We may use an unspecified portion of the net proceeds to acquire, when and
if the opportunity arises, suitable businesses, assets or retail outlets
consistent with our expansion plan. We have no present understandings,
commitments or agreements with respect to any such acquisitions. Pending use of
the net proceeds for the above purposes, we intend to invest the net proceeds of
the offering in investment grade, interest-bearing securities.
DIVIDEND POLICY
Other than cumulative cash dividends to holders of Series A Preferred Stock
and cumulative stock dividends to holders of Series D Preferred Stock, Marsee
Baking has never declared or paid any dividends on shares of its preferred or
common stock. See "Description of Securities" for a description of the dividends
payable on certain series of preferred stock. We intend to retain any future
earnings for future growth and do not anticipate paying any other cash dividends
in the foreseeable future. In addition, the company's loan agreement with its
bank prohibits the payment or declaration of dividends other than the Series A
dividends and stock dividends.
10
<PAGE> 13
CAPITALIZATION
The table below sets forth the capitalization of the company as follows:
- Actual as of March 31, 1999, giving effect to the increase in the number
of authorized shares of common stock to 15,000,000 and preferred stock to
4,000,000, which was approved by the shareholders in February 1999, and
the issuance of 426,800 shares of common stock and promissory notes in a
bridge financing involving 502,800 shares of common stock and promissory
notes during January through April, 1999;
- Pro forma, giving effect to the issuance of 76,000 shares of common stock
and promissory notes in the bridge financing which closed on April 27,
1999 (426,800 shares were issued prior to April 1, 1999), and the
issuance of 150,000 shares of common stock in connection with an
agreement to provide a personal guarantee of a line of credit on April
29, 1999; and
- As adjusted, giving effect to the sale of the 1,750,000 shares of common
stock and 1,750,000 purchase warrants sold in this offering, net of
offering expenses; the conversion of Series A, B, C and D Preferred Stock
into 2,077,421 shares of common stock; and the payment of accrued Series
D Preferred Stock dividends by the issuance of 17,684 shares of common
stock.
<TABLE>
<CAPTION>
ACTUAL AS OF MARCH
31, 1999 PRO FORMA AS ADJUSTED
------------------ --------- -----------
<S> <C> <C> <C>
Long-term liabilities, net of current portion....... $ 2,731 $ 2,731 $ 2,538
Shareholders' equity
Preferred stock, no par value -- 4,000,000 shares
authorized, actual, pro forma and as adjusted:
Cumulative Preferred Stock Series D -- 22,507
shares authorized; 16,667 shares outstanding,
actual and pro forma; no shares outstanding,
as adjusted.................................. 1,000 1,000 --
Cumulative Preferred Stock Series A -- 100,000
shares authorized; 52,667 shares outstanding,
actual and pro forma; no shares outstanding
as adjusted.................................. 281 281 --
Preferred Stock Series B -- 510,575 shares
authorized; 510,575 shares outstanding,
actual and pro forma; no shares outstanding,
as adjusted.................................. 1,143 1,143 --
Preferred Stock Series C -- 168,000 shares
authorized; 129,121 shares outstanding,
actual and pro forma; no shares outstanding,
as adjusted.................................. 4,117 4,117 --
Common stock, no par value -- 15,000,000 shares
authorized, actual, pro forma and as adjusted;
1,295,761 shares outstanding, actual; 1,521,761
shares outstanding, pro forma; 5,366,867 shares
outstanding, as adjusted....................... 828 939 14,444
Warrants............................................ 241 241 431
Retained deficit.................................... (7,605) (7,680) (7,680)
------- ------- -------
Total shareholders' equity..................... 5 41 7,195
------- ------- -------
Total capitalization...................... $ 2,736 $ 2,772 $ 9,733
======= ======= =======
</TABLE>
The outstanding securities information excludes the following:
- The underwriter's warrants to purchase up to 175,000 shares of common
stock and up to 175,000 purchase warrants;
- Currently outstanding warrants to purchase 387,668 shares of common stock
at a per share weighted average exercise price of $1.08; and
- Currently outstanding stock options to purchase 1,341,845 shares of
common stock at a per share weighted average exercise price of $3.82.
11
<PAGE> 14
DILUTION
When you purchase a share of common stock, you will suffer immediate per
share "dilution" in respect of the share in an amount equal to the difference
between the price you paid per share (less the underwriting discount) and the
net tangible book value per share after the offering. Net tangible book value
per share represents the amount of the company's tangible assets less the amount
of its liabilities divided by the number of shares of common stock outstanding.
As of March 31, 1999, the net tangible book value of Marsee Baking was
approximately $(33,000) or $(0.01) per share of common stock, giving effect to
the following: (1) the issuance of approximately 17,684 shares of common stock
to holders of Series D Preferred Stock as accrued dividend; and (2) the
conversion of the outstanding Series A, B, C and D Preferred Stock into
2,077,421 shares of common stock.
Giving effect to the issuance of 76,000 shares in the recent private sale
of 502,800 shares of common stock during January through April 1999 and the
issuance of 150,000 shares of common stock in connection with an agreement to
provide a personal guarantee of a line of credit on April 29, 1999, the net
tangible book value on a pro forma basis, as of March 31, 1999, would have been
approximately $0.00 per share.
Giving effect to the issuance of 1,750,000 shares of common stock offered
by the company at an assumed initial public offering price of $5.00 per share
(after the deduction of estimated underwriting discounts and offering expenses
payable by the company), the net tangible book value of Marsee Baking on a pro
forma basis, as of March 31, 1999, would have been approximately $1.28 per
share. This represents an immediate increase in net tangible book value of $1.28
per share to existing shareholders and an immediate dilution of $3.72 per share
to purchasers of the shares of common stock in this offering.
The following table illustrates this per-share dilution of your equity as
of the closing of this offering in an adjusted pro forma net tangible book value
per share of common stock, and assuming no exercise of the warrants, the
underwriter's over-allotment options or the underwriter's options to purchase
shares of common stock and warrants:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $5.00
Net tangible book value per share as of March 31, 1999.... $(0.01)
Increase per share attributable to bridge financing and
line of credit guarantee............................... 0.01
Increase per share attributable to new investors.......... 1.28
------
Adjusted net tangible book value per share after this
offering.................................................. 1.28
-----
Dilution per share to new investors in this offering........ $3.72(1)
</TABLE>
- ---------------
(1) Assuming the exercise of all currently exercisable options and warrants, the
dilution per share to new investors would be $3.25.
The following table shows the number of shares of common stock to be owned
following the offering by existing shareholders and the new investors (assuming
the maximum number of shares of common stock sold in this offering is
purchased):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing Shareholders............. 3,616,867(1) 67% $ 7,858,000 47% $2.17
New Investors..................... 1,750,000 33 8,750,000 53 5.00
----------- --- ----------- ---
Total................... 5,366,867 100% $16,608,000 100%
=========== === =========== ===
</TABLE>
- ---------------
(1) Assuming the exercise of all currently exercisable options and warrants, the
number of shares of common stock held by existing shareholders will increase
to 5,356,380 shares or approximately 75% of the total number of shares of
common stock outstanding after this offering, and the percentage held by new
investors will decrease to approximately 25% of the total number of shares
of common stock outstanding immediately after this offering. See
"Management -- Employee Benefit Plans."
12
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Since opening its first bakery-cafe in 1993, Marsee Baking has expanded to
become the owner and operator of 18 bakery-cafes and two central commissaries in
the Pacific Northwest. Twelve bakery-cafes are located in Oregon and six in
Washington. In 1998, revenue grew 156% to $12,656,000 as we expanded the number
of retail stores over the prior year from six to eighteen bakery-cafes,
primarily due to the acquisition discussed below. We currently derive
approximately 79% of our revenue from these retail outlets, while the remaining
revenue is derived from wholesale operations. Most baking operations are
conducted at the commissaries, and fresh product is delivered to the retail
stores daily.
Since inception, Marsee Baking has incurred losses in each fiscal year and
had an accumulated deficit of $7,605,000 as of March 31, 1999. The majority of
these losses occurred in the last two years, with losses of $1,195,000 in 1997
and $4,304,000 in 1998. The loss for the first quarter of 1999 was $1,077,000.
The losses are attributable primarily to relatively high costs of goods sold and
store labor expenses, exacerbated in 1998 by the operation of ten newly-acquired
stores compared to the operation of only six mature stores during 1997. We have
not generated sufficient cash from operations to fund continued operations or
our growth plan, and will require significant additional future financing.
Since November 1998, we have focused on revising our operating model to
emphasize revenue improvements through better merchandising, significant cost
and expense reductions and the addition of new wholesale customers. We have not
yet had sufficient experience with this operating model to provide any assurance
that it will generate increased revenue or profits in future periods.
Accordingly, it is not yet clear that we have developed an operating strategy
that will accomplish the goal of reducing and eliminating our losses. If we
cannot develop a profitable strategy and losses continue, we will further
deplete our financial resources and shareholders' equity.
Acquisition. During the first quarter of 1998, we completed the acquisition
of the assets of a Seattle-based retailer of bagels in exchange for the issuance
of two new series of preferred stock. The assets acquired included seven retail
store locations and a commissary in Washington and three retail locations in
Oregon. The acquisition of ten new retail locations represented a significant
increase in the scale of retail operations, as we operated only four retail
locations at the end of 1996 and six at the end of 1997, and opened three new
stores in 1998. The additional retail locations increased the requirements
placed on our management personnel and operations and financial control systems,
as well as on our ability to train and manage our retail employees. Throughout
1998, we renovated the retail locations we acquired and reopened them under the
Marsee Baking brand at a cost of $2,303,000 above the acquisition cost. We made
an additional capital investment of approximately $538,000 to convert and equip
the Seattle commissary for baking Marsee products. Due to capital constraints,
we were unable to renovate all the acquired stores as quickly as planned or
provide the necessary marketing support in the Seattle market to launch properly
the Marsee Baking brand. As a consequence, neither revenue nor results of
operations met management expectations for 1998.
1999 Operating Plan. In November 1998, we recruited a director of the
company to serve as our new Chief Executive Officer. He has had significant
experience in operating and expanding multi-store bakery concepts. Actions taken
since assumption of his responsibilities as CEO have focused on increasing
revenue while reducing costs. The 1999 operating plan includes:
- Focusing employee efforts on profitable activities,
- Better merchandising of products in the bakery-cafes,
- Improving the speed and quality of customer service,
- Reducing ingredient costs,
- Improving management of daily bakery-cafe waste,
13
<PAGE> 16
- Expanding the wholesale customer base,
- Implementing better inventory control and management,
- Further developing store operating controls, and
- Improving utilization of existing information systems.
More specifically, the 1999 operating plan targets significant reductions
in ingredient costs and further reductions in commissary labor expenses to
reduce costs of goods sold as a percentage of total revenue to below 45% by
year-end 1999. In addition, the 1999 operating plan establishes a target
store-labor-expense to bakery-cafe-revenue ratio of 27.4% for 1999.
As part of these improvements in operations, we closed one bakery-cafe in
the Seattle area, and terminated the leases and the planned build-out of two new
stores in the Portland area in 1999. In addition, we have reduced expenses
associated with the operation of the Seattle commissary by supplying the Seattle
stores with most products from the Portland commissary until an increased volume
of sales in the Seattle market warrants full-scale operation of the Seattle
commissary.
1999 Liquidity Plan. In view of our accumulated deficit and recurring
losses, our auditors have added an explanatory paragraph to their report on our
financial statements stating that there is substantial doubt about our ability
to continue as a going concern. In this regard, management has adopted a 1999
liquidity plan, the principal features of which include:
- Execution of the 1999 operating plan,
- Reduction of costs and expenses,
- Completion of a bridge financing on April 27, 1999 in the form of a
$2.514 million private placement of units, each unit consisting of one
share of common stock and a $5.00 promissory note bearing interest at 8%
payable upon the earlier of nine months of the date of the promissory
note or the closing of this offering,
- Increase in the working capital line of credit, and
- Completion of this offering of 1,750,000 shares of common stock and
1,750,000 purchase warrants.
Although the bridge financing has been completed, there is no assurance that
this offering will be completed or that we will achieve profitable operations.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty. See "Risk Factors," "Use of Proceeds" and
"-- Liquidity and Capital Resources."
14
<PAGE> 17
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship of certain items
to net revenues included in the company's statements of operations:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTH
DECEMBER 31, ENDED MARCH 31,
-------------- ----------------
1997 1998 1998 1999
----- ----- ------ ------
<S> <C> <C> <C> <C>
Revenue
Bakery-cafe............................................... 83.7% 77.1% 76.2% 79.2%
Wholesale................................................. 16.3 22.9 23.8 20.8
----- ----- ----- -----
100.0 100.0 100.0 100.0
Cost of goods sold.......................................... 58.3 59.9 56.9 58.6
Store operating expenses.................................... 32.8 41.7 48.0 42.1
Wholesale operating expenses................................ 6.6 4.7 5.1 2.4
Depreciation and amortization............................... 4.3 6.5 4.4 11.2
General and administrative expenses......................... 19.5 15.5 18.3 13.6
Store closure expenses...................................... -- 2.0 -- --
Interest expense............................................ 2.6 3.7 2.5 8.7
----- ----- ----- -----
Loss before provision for taxes............................. (24.1) (34.0) (35.1) (36.7)
Provision for income taxes.................................. -- -- -- --
----- ----- ----- -----
Net loss.................................................... (24.1)% (34.0)% (35.1)% (36.7)%
===== ===== ===== =====
</TABLE>
Three Months Ended March 31, 1998 compared to March 31, 1999. Total
revenues increased $206,000, or 8%, from $2,732,000 for the three months ended
March 31, 1998 to $2,938,000 for the three months ended March 31, 1999.
Bakery-cafe revenue increased $247,000, or 12%, from $2,081,000 for the three
months ended March 31, 1998 to $2,328,000 for the three months ended March 31,
1999. The increase in bakery-cafe revenue is attributable primarily to the
stores built or acquired in 1998. Revenue has increased as these stores have
matured and as a result of the timing of conversions to the Marsee brand
throughout 1998.
Wholesale revenue decreased $41,000, or 6%, from $651,000 for the three
months ended March 31, 1998 to $610,000 for the three months ended March 31,
1999. Sales to third party distributors who are responsible for delivery,
invoicing and customer service decreased $137,000, or 30%, from $457,000 for the
three months ended March 31, 1998 to $320,000 for the three months ended March
31, 1999. The decrease in distributor sales results from a shift away from
certain unprofitable distributor business acquired in the Washington
acquisition. Sales to one warehouse retailer, Costco Companies, Inc., began in
late 1997 in certain Portland and Seattle area stores. Revenue from this
customer increased $94,000, or 63%, from $149,000 for the three months ended
March 31, 1998 to $243,000 for the three months ended March 31, 1999.
Cost of goods sold grew $167,000, or 11%, from $1,554,000 for the three
months ended March 31, 1998 to $1,721,000 for the three months ended March 31,
1999. As a percentage of revenue, cost of goods sold was 56.9% of revenue for
the three months ended March 31, 1998 compared to 58.6% for the three months
ended March 31, 1999. The principal components of cost of goods sold are
ingredients, commissary labor and operating expenses. Ingredients, as a
percentage of revenue, were 31.4% of revenue for the three months ended March
31, 1998 compared to 32.1% for the three months ended March 31, 1999. As volume
increased, we were able to experience commissary labor efficiencies. Labor was
18.5% of revenue for the three months ended March 31, 1998 compared to 15.7% for
the three months ended March 31, 1999.
The third component of cost of goods sold is commissary operating expenses.
During 1998, the company expanded into two commissaries and now operates one
facility in Portland and one in the Seattle area, which conducts limited
activities at the present time. As a result of this doubling of capacity,
15
<PAGE> 18
commissary operating expenses increased from $178,000 for the three months ended
March 31, 1998 to $317,000 for the three months ended March 31, 1999. These
costs represented 6.5% of revenue for the three months ended March 31, 1998
compared to 10.8% for the three months ended March 31, 1999. The principal
factors contributing to this increase in commissary operating cost included
depreciation, which increased from $32,000 for the three months ended March 31,
1998 to $62,000 for the three months ended March 31, 1999, and transportation
expenses relating to the movement of products between the two commissaries and
the bakery-cafes, which increased from $14,000 for the three months ended March
31, 1998 to $56,000 for the three months ended March 31, 1999.
Store operating expenses decreased $74,000, or 6%, from $1,312,000 for the
three months ended March 31, 1998 to $1,238,000 for the three months ended March
31, 1999. These expenses were 63.0% of bakery-cafe revenue for the three months
ended March 31, 1998 compared to 53.2% for the three months ended March 31,
1999. The largest component of store operating expenses is labor. Bakery-cafe
labor decreased $33,000, or 5%, from $723,000 for the three months ended March
31, 1998 to $690,000 for the three months ended March 31, 1999. This represents
34.7% of bakery-cafe revenue for the three months ended March 31, 1998 compared
to 29.7% for the three months ended March 31, 1999. Labor cost as a percentage
of bakery-cafe revenue is expected to continue to decline as the stores opened
in 1998 continue to mature.
The next largest component of store operating expenses is occupancy
expenses, consisting primarily of rent and utility expenses. These expenses
increased $44,000, or 9%, from $489,000 for the three months ended March 31,
1998 to $533,000 for the three months ended March 31, 1999. This increase is due
primarily to the new stores.
Depreciation increased $211,000, or 77%, from $119,000 for the three months
ended March 31, 1998 to $330,000 for the three months ended March 31, 1999. This
significant increase relates to depreciation on capital expenditures made to
acquire, renovate and furnish new retail as well as commissary facilities.
General and administrative expenses decreased $99,000, or 20%, from
$499,000 for the three months ended March 31, 1998 to $400,000 for the three
months ended March 31, 1999. The decrease is primarily a result of reductions in
administrative salaries and the recognition of a bad debt loss of nearly $70,000
in the period ended March 31, 1998.
Interest expense increased $189,000, or 282%, from $67,000 for the three
months ended March 31, 1998 to $256,000 for the three months ended March 31,
1999. This significant increase relates to $124,000 of interest expense related
to the 1999 bridge financing, with the remainder related to increased debt
assumed to renovate new stores and the Washington commissary.
Due to losses before the provision for income taxes, there was no provision
for federal and state income taxes for either of the three month periods ended
March 31, 1998 or 1999.
Marsee Baking lost $958,000 for the three months ended March 31, 1998
compared to $1,077,000 for the three months ended March 31, 1999, due primarily
to increased commissary operating expenses and depreciation expense as a result
of the expansion into Washington State, and increased interest expense as a
result of the bridge financing.
Year 1997 compared to 1998. Total revenues increased $7,708,000, or 156%,
from $4,948,000 in 1997 to $12,656,000 in 1998. Bakery-cafe revenue increased
$5,621,000, or 136%, from $4,140,000 in 1997 to $9,761,000 in 1998. The increase
in bakery-cafe revenue is attributable primarily to the increase in the number
of store locations. Stores opened in 1998 totaled thirteen, ten of which were
acquired. Total revenue for the new stores accounted for $5,018,000 of the
increase in bakery-cafe sales. Capital constraints prevented the immediate
renovation of the stores acquired, and six of the ten stores were not renovated
until the third quarter of 1998. As a result of this delay and our inability to
market cost-effectively the Marsee Baking brand in the Seattle market, the seven
bakery-cafes in Washington did not meet management's revenue expectations in
1998. We closed one underperforming store in this market in February 1999.
16
<PAGE> 19
Revenue for the four retail locations open for the entire year during both
1997 and 1998 decreased 3.1% from $3,740,000 in 1997 to $3,624,000 in 1998. We
attribute such decrease primarily to the diversion of sales from existing stores
as a result of opening three new bakery-cafes in the downtown Portland area. The
two stores opened in the second half of 1997 contributed revenue of $400,000 in
1997 and $1,119,000 in 1998.
Wholesale revenue grew $2,087,000, or 258%, from $808,000 in 1997 to
$2,895,000 in 1998. The major reason for the growth was our expansion into
Washington, which contributed $830,000 in wholesale revenue in 1998. Sales to
third party distributors grew $924,000, or 142%, from $652,000 in 1997 to
$1,576,000 in 1998. These distributors, who are responsible for delivery,
invoicing and customer service, contributed 81% of wholesale revenue in 1997
compared to 54% in 1998. The other principal component of wholesale revenue in
1998 was derived from $1,071,000 in sales to one warehouse retailer, Costco
Companies Inc.
Cost of goods sold grew $4,692,000, or 162%, from $2,887,000 in 1997 to
$7,579,000 in 1998. Ingredients, as a percentage of total revenue, were 31.7% in
1997 and 32.4% in 1998. As volume increased, we were able to experience labor
efficiencies. Commissary labor was 20.0% of total revenue in 1997 compared to
18.7% in 1998. As a result of this doubling of capacity, commissary operating
expenses increased from $329,000 in 1997 to $1,104,000 in 1998. These costs
represented 6.6% of total revenue in 1997 and 8.7% in 1998. The principal
factors contributing to this increase in commissary operating expenses in 1998
included depreciation, which increased from $52,000 in 1997 to $224,000 in 1998;
rent, which increased from $47,000 in 1997 to $190,000 in 1998; and
transportation expenses related to the movement of product between the two
commissaries and the bakery-cafes, which increased from $5,000 in 1997 to
$112,000 in 1998.
As a percentage of revenue, cost of goods sold was 58.3% of revenue in 1997
compared to 59.9% in 1998. The percentage increase is due in part to the revenue
mix between retail and wholesale revenue. Wholesale activities increased from
16.3% of revenue in 1997 to 22.9% in 1998, but do not command the higher profit
margin of retail activities.
Store operating expenses increased $3,660,000, or 226%, from $1,621,000 in
1997 to $5,281,000 in 1998. Store operating expenses were 39.1% of bakery-cafe
revenue in 1997, compared to 54.1% in 1998. The largest component of store
operating expenses is labor. Bakery-cafe labor increased $2,046,000, or 210%,
from $971,000 in 1997 to $3,017,000 in 1998. Bakery-cafe labor was 23.4% of
bakery-cafe revenue in 1997 compared to 30.9% in 1998. This significant
percentage increase in store labor expense is due primarily to the opening of 13
new stores in 1998. For the 13 stores opened in 1998, labor was 36.9% of
bakery-cafe revenue, while for established stores it was 24.6%. New stores
require a base level of labor to operate. The sales from the stores acquired in
Washington did not meet expectations as discussed above and, therefore, fixed
labor costs were higher as a percentage of bakery-cafe revenue.
Occupancy expenses increased $947,000, or 356%, from $266,000 in 1997 to
$1,213,000 in 1998. This increase is due to the number of new stores. While we
believe we can manage these expenses in the Washington operations in the future,
we need retail store revenue growth to substantially reduce occupancy expense
ratios to acceptable levels.
Marketing expenses are included in store operating expenses and were
$27,000 in 1997 compared to $184,000 in 1998. The 1998 marketing expenses
primarily related to media advertising for new store openings, a logo redesign
and related paper goods repackaging effort, a holiday catalog and store signage.
The company utilized an outside consultant to coordinate these efforts. The
remainder of store operating expenses grew proportionally in relation to
revenue.
General and administrative expenses increased $994,000, or 103%, from
$965,000 in 1997 to $1,959,000 in 1998, primarily as a result of increases in
general business activity. These expenses represented 19.5% of total revenue in
1997 compared to 15.5% in 1998. General and administrative salaries increased
$568,000, or 105%, from $543,000 in 1997 to $1,111,000 in 1998, as additional
personnel were added to support the growth in wholesale and retail activities.
Employee expenses related to managing two
17
<PAGE> 20
geographic areas grew from $21,000 in 1997 to $100,000 in 1998. Professional
fees and service grew $240,000, from $123,000 in 1997 to $364,000 in 1998.
Interest expense increased from $129,000 in 1997 to $472,000 in 1998,
primarily as a result of loans obtained to renovate new stores and the
Washington commissary.
In the fourth quarter of 1998, we had $253,000 of accelerated-depreciation
expenses related to the closure of one bakery-cafe in Washington and costs
related to the abandoned efforts to open two new stores in the Portland area due
to financial constraints. In addition, in 1998 we recognized additional
compensation expenses related to the issuance of options and warrants of
$199,000, and severance benefits payable to former employees of $130,000.
Due to our losses before the provision for income taxes in each year, there
has been no provision for federal and state income taxes for the years ended
December 31, 1997 and 1998. We have deferred tax assets totaling $575,000 and
$2,218,000 as of December 31, 1997 and 1998, respectively, for which we have
recorded a full valuation allowance.
Marsee Baking lost $1,227,000 in 1997 compared to a loss of $4,404,00 in
1998. The principal reason for the increased operating losses in 1998 was the
addition of 13 new stores which in their initial years of operation have
relatively high costs and expenses compared to mature stores.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity. We had negative working capital of $1,487,000 at December 31,
1997 compared to negative working capital of $4,148,000 at December 31, 1998 and
$5,213,000 at March 31, 1999. Cash used by operating activities totaled $253,000
for the three months ended March 31, 1998 and $1,231,000 for the three months
ended March 31, 1999.
For the three months ended March 31, 1999, cash was principally used to
fund $1,077,000 in losses sustained during the quarter, offset by non-cash
charges from depreciation and amortization of $391,000. We used $374,000 of cash
to reduce trade vendor payables during the first quarter of 1999. Costs related
to the other changes in current accounts since year-end make up the difference
in cash used by operations.
Cash used by operating activities for 1998 totaled $1,412,000. This use of
cash resulted primarily from the $4,304,000 in losses sustained during the year,
offset principally by non-cash charges of $1,295,000 from depreciation and
$1,335,000 from trade vendors due to increases in volume and extended terms. In
1997, cash used by operating activities was $239,000. Other changes in current
accounts between the two years make up the difference in cash used by
operations. Accounts receivable increased from $54,000 at year-end 1997 to
$253,000 at year-end 1998 due to the increase in wholesale sales. Inventories
were $64,000 at December 31, 1997 and $269,000 at December 31, 1998. This
increase was due to inventory requirements to cover increases in baking volume
and bakery-cafe inventory increases due to the number of new stores. Prepaid
expenses also increased from $46,000 at December 31, 1997 to $134,000 at
December 31, 1998 as a result of lease deposits and prepaid rent on new stores.
Accounts payable increased from $915,000 at December 31, 1997 to $2,250,000
at December 31, 1998. This increase is due in part to increased volume as well
as cash flow difficulties in meeting current terms with vendors. Since December
31, 1998, we have continued to obtain additional debt financing, with the
proceeds in part being used to bring trade vendors closer to normal payment
terms. Accrued liabilities increased from $232,000 at December 31, 1997 to
$735,000 at December 31, 1998. This increase results from increases in, and the
timing of, payments for payroll liabilities, primarily as a result of increased
headcount and vacation accruals.
Our independent auditors have included in their audit report an explanatory
paragraph which states that our recurring losses from operations raise
substantial doubt as to our ability to continue as a going concern. Our working
capital requirements for the next twelve months consist primarily of funding
operating losses until break-even is realized. See "Risk Factors."
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Capital resources. Prior to completion of the bridge financing described
below, our primary sources of funds were shareholder loans, private placements
of stock and equipment financing, and to a lesser extent cash provided by
operating activities and a bank line of credit. The increased amount of our
outstanding payables in 1998 also served as an additional source of interim
financing.
Net cash provided by financing activities for the years ended December 31,
1997 and 1998 and the three months ended March 31, 1999 was $1,021,000,
$3,604,000 and $1,597,000, respectively. During 1998, the company paid down debt
obligations of $528,000 while incurring $227,000 of long-term debt and issuing
$3,027,000 in preferred stock.
During November and December 1998, we issued $525,000 in demand notes.
Subsequent to the end of the year, we issued an additional $95,000 in demand
notes, and on April 27, 1999, we completed a bridge financing in the form of a
private placement of units, each unit consisting of one share of common stock
and a $5.00 promissory note bearing interest at 8%, payable upon the earlier of
nine months from the date of the promissory notes or the closing of this
offering. See "Description of Securities." After expenses, the notes have an
effective rate of interest of 22%. The previously issued demand notes were
subsequently combined with the 1999 bridge financing, and at March 31, 1999 the
bridge financing totaled $2,314,000. On April 27, 1999 the bridge financing was
closed at an aggregate offering of $2,514,000.
Our bank line of credit was fully utilized at $250,000 as of December 31,
1997 and 1998, and as of March 31, 1999. On April 29, 1999 we obtained an
expansion of our existing line of credit by an additional $500,000 in connection
with an agreement by a director to provide a personal guarantee to the bank.
We have not generated sufficient cash from operations to fund continued
operations or our growth plan, and will require significant additional future
funding. We believe that our 1999 operating and financing plans will, if carried
out successfully, be sufficient to meet our liquidity needs for the balance of
1999, based on our current expense calculations and our current and anticipated
revenue streams, including the proceeds of this offering. The operating and
financing plans assume certain same-store growth projections can be met, our
costs can be reduced as a percentage of revenue, and our overall cost structure
remains stable, of which there can be no assurance. There also can be no
assurance that our liquidity goals will be reached in the near future, if ever.
In the event that additional capital is required, we may seek to raise that
capital through private or public equity financing. Future financing
transactions may dilute the value of your investment in this offering. There can
be no assurance that such capital will be available on favorable terms, if at
all.
Capital Expenditures. Additions to property and equipment were $1,638,000
in 1997, $6,127,000 in 1998, and $56,000 for the three months ended March 31,
1999. Additions relate directly to the number of new stores opened in each year.
In 1997, most capital expenditures were funded through general financing
activities. In 1998, capital expenditures were funded by $2,139,000 from a
preferred stock financing, $2,066,000 from capital leases and notes payable
assumed, and $1,922,000 from an acquisition paid for primarily by issuance of
preferred stock.
During 1997, we invested in the construction of four new stores, two of
which began operation in 1997 and two of which opened in January of 1998. In
addition, we upgraded our point of purchase systems in all stores.
In addition to opening one new store and adding to its computer systems
capability, the majority of 1998 capital expenditures relate to the purchase and
renovation of properties acquired in the acquisition of the assets of the
Seattle-based bagel retailer. Throughout 1998, the retail locations were
renovated and reopened under the Marsee Baking name at a cost of $2,303,000
above the acquisition cost. Additional capital investments of approximately
$538,000 were made to convert and equip the Seattle commissary for baking Marsee
products.
Although no assurances can be given, we believe that proceeds from this
offering will be sufficient to fund certain planned capital expenditures,
including ongoing maintenance and renovation of existing bakery-cafes, and the
addition of five new bakery-cafes in the greater Portland and Seattle
metropolitan
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area markets. The cost to acquire and renovate a new store is estimated at
approximately $400,000 per location. See "Business -- Unit Economics." There are
presently no material commitments for capital expenditures in 1999.
Other Commitments. In connection with the issuance of the Series A
Preferred Stock in 1995, the company is obligated to pay cumulative dividends
which accrue at the rate of $0.60 per share per year. At December 31, 1998,
these dividends were accrued and aggregated approximately $101,000. The amount
of accrued dividends at June 30, 1999 is estimated to be approximately $115,000
and are to be paid with proceeds from this offering.
We lease retail stores, office and commissary facilities under operating
leases expiring through the year 2007. These leases contain renewal options and
rent escalation clauses. Commitments under these operating leases aggregate
$5,382,000, the current portion of which is $1,009,000.
Subsequent to the end of the year, the company entered into an agreement
with its principal supplier providing for the payment of approximately $250,000
in respect of past due accounts payable on or before September 1, 1999. The
company plans to make such payment from the proceeds of this offering. See "Use
of Proceeds" and "Business -- Suppliers."
YEAR 2000 COMPLIANCE
We depend on our networked computer systems to process point of sale
transactions, collect transaction data, manage inventory and accounts
receivable, and process other financial data on a timely basis. In addition, we
use several desktop personal computers in our headquarters office and
commissaries. The production equipment in our commissaries is generally not
computer or microprocessor controlled.
We are in the process of assessing the Year 2000 readiness of our internal
computer systems. Our retail reporting software is not Year 2000 compliant and
the process of upgrading our system began in June 1999 at an aggregate cost of
approximately $5,000. The required software upgrade is readily available from
the system vendor and is expected to be installed in all stores by August 31,
1999. Our general ledger and inventory control systems have been tested and are
Year 2000 compliant. In addition, we are in the process of completing our
inventory and assessment of our desktop personal computers and will use standard
"off the shelf" vendor-supplied upgrades as required. As a result of these
activities, we presently believe our internal computer systems will be Year 2000
compliant in a timely manner, but undetected errors may remain. In addition, we
cannot be certain that any of the remedial measures adopted will prevent the
occurrence of Year 2000 problems, which could have a material adverse affect on
our business, financial condition or results of operations.
We do not employ an electronic order interface with any of our third-party
suppliers, and we have initiated communications with our other major suppliers
to identify and resolve issues involving Year 2000 compliance. While we expect
we will be able to resolve any significant problems with our suppliers, any
failure of third parties to resolve any difficulties that arise could have a
material adverse effect on our business, financial condition or results of
operations.
No Year 2000 compliance expenses have been incurred to date. All future
compliance expenses will be funded from general working capital. Although there
can be no assurance, we do not expect the cost of these efforts to be material
to our results of operations.
We currently do not have any contingency plans and have not determined our
most reasonably likely worst-case scenario with respect to Year 2000 compliance.
We are determining what contingency plans, if any, will be appropriate
subsequent to the expected upgrading and testing of all internal systems by
August 31, 1999. We are considering contingency plans to address possible
business interruptions, including temporary use of manual point of sale devices.
We expect any necessary contingency plans to be completed by October 1999. If we
are required to implement a contingency plan, such plan could have a material
adverse effect on our business, financial condition or results of operations.
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BUSINESS
Marsee Baking owns and operates 18 bakery-cafes in the Pacific Northwest
that offer more than 100 artisan bakery products, as well as made-to-order
sandwiches, soups and salads, in a friendly, neighborhood atmosphere. Each
bakery-cafe operates as a premium bakery, providing a relaxing cafe experience
that addresses the morning, lunch and late-afternoon day-parts. For 1998, the
six bakery-cafes operating in the company's format for more than a year had
average revenue of approximately $790,000 per store. Marsee Baking also
distributes its products and builds brand awareness through its wholesale
operations, providing specialty retailers and other institutions with a complete
line of Marsee Baking products.
Marsee Baking, which began with one Portland bakery-cafe in 1993, grew to
eight bakery-cafes before acquiring additional stores in the greater Portland
and Seattle metropolitan areas through an acquisition in early 1998. Nine of the
stores acquired were converted to the Marsee Baking concept during 1998 and have
been integrated into Marsee Baking's operations. Marsee Baking operates a
commissary in each of its two markets that serves as a central production and
distribution facility. The commissaries together produce a full line of
artisan-baked goods based on authentic recipes for daily distribution to each of
the bakery-cafes.
Marsee Baking believes that it can expand its presence in its current areas
of operation and replicate the Marsee Baking concept in other metropolitan areas
for the following reasons:
We offer a wide variety
of
premium quality, artisan
bakery products - Marsee Baking differentiates itself in the bakery-cafe
segment of the specialty restaurant industry by
offering over 100 different varieties of premium
quality, artisan-crafted products based on authentic
recipes for eat-in or take-out dining. We strive to
make every item "stand alone" in quality such that any
bakery item by itself might be the product line of a
successful bakery or cafe. Marsee Baking's diverse
product line includes complex products such as
delicate, hand-crafted pastries, slowly fermented
breads and gourmet European tortes to satisfy not only
varying consumer tastes but also to address different
day parts. We believe that a diverse and evolving
product menu engenders customer loyalty and encourages
repeat business. Our broad range of products creates a
competitive advantage over other stores offering a
single product line (such as bagels) and over bakeries
or cafes that focus only on a single day-part.
Our central production
facilities serve
multiple
outlets and promote cost
efficiencies, product
quality
and consistency - Marsee Baking's commissaries, which are strategically
located in each market, serve as central production
facilities to Marsee Baking's bakery-cafes. The use of
central production facilities permits better quality
control, maximum labor efficiency and higher-volume
production of baked goods, using modern processes
while adhering to traditional artisan-style baking
techniques. Marsee Baking's fresh artisan-baked goods,
based on traditional European and American recipes,
are provided daily by Marsee Baking's commissaries to
all of its bakery-cafes for selected on-site baking
(bagels and cookies), for use in a variety of menu
items (soups and sandwiches), and for immediate sale.
Marsee Baking believes that it will be able to
replicate the central commissary concept in other
markets.
We have created a
distinctive destination
that
supports our brand image- We seek to create an authentic neighborhood cafe
atmosphere with upscale decor and uniform interior
designs that are unique to the Marsee Baking concept.
Design elements, which may include hammered tin
ceilings, slate floors, marble bars, mahogany trim,
custom designed cabinetry and display cases, are
selected to evoke the charm and elegance of a grand
cafe. Items consumed on premises are served on china
or glass plates. We believe that our retail
bakery-cafes and wholesale distribution
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work together to reinforce our image as a provider of
high quality, artisan-baked goods. The wholesale
operation provides Marsee Baking's complete line of
baked goods to quality grocery stores, specialty
retailers, hotels and fine restaurants to promote our
local bakery-cafes and to create brand recognition
associated with premium quality baked goods in our
markets.
We have recruited a new,
experienced management
team - We have recently recruited a new Chief Executive
Officer and a new Chief Financial Officer. Mr. Raymond
W. Lindstrom, the company's new Chief Executive
Officer, has over 25 years' experience in the
specialty restaurant industry, beginning with his role
as one of the founders of Restaurants Unlimited, Inc.,
where he oversaw the rapid growth of upscale dinner
house restaurants. Mr. Lindstrom later joined
Cinnabon, a subsidiary of Restaurants Unlimited, Inc.,
where he led the development of the Cinnabon concept
nationwide.
In addition, we have also recently recruited a new
Chief Financial Officer, Mr. Stephen A. Aanderud, who
has experience in the management of rapid-growth
manufacturing companies. Mr. Aanderud was the
President and Chief Executive Officer of ThrustMaster,
Inc., a sophisticated computer toy and accessory
manufacturing company, which he helped take public in
1995.
The core competencies of the new management team are
reinforced by the working knowledge of the founders
who remain active in Marsee Baking's operations.
The Marsee Baking
concept
complements today's
consumer lifestyle and
preference for a
hassle-free,
convenient and
affordable
dining experience - We believe that our concept complements today's
consumer lifestyles and preferences. The bakery-cafe
offers a shopping destination for gourmet breads and
special occasion cakes, a place for a light lunch or a
relaxing spot for an afternoon cappuccino. The
bakery-cafe's atmosphere is intended to be suitable
for takeout or eat-in dining in a variety of meal
occasions. By offering high quality, artisan-made
food, a distinctive atmosphere and superior service,
Marsee Baking is able to provide customers with a more
authentic dining experience than may be available from
other quick-service restaurants in the specialty
restaurant industry, without substantially higher
prices. Our bakery-cafes provide hassle-free
convenience and an affordable indulgence for our
customers.
The Marsee Baking
concept
has significant built-in
barriers to entry - Our broad line of complex products, central baking
facilities and the high "stand-alone" product quality
create barriers to entry to competing bakery-cafe
concepts. Marsee Baking's complex product line is
diverse and difficult to duplicate, in whole or by
individual item. The central baking facility requires
a significant capital investment and a sufficient
critical mass of bakery-cafes to support its
operation. Unlike many specialty restaurants, the
Marsee Baking concept creates and delivers high
quality products on a consistent basis to more stores
than is possible through alternative methods. Marsee
Baking is also able to stay competitive throughout the
day by addressing four sub-businesses: the morning,
lunch and late-afternoon day parts, and the specialty
take-out segment.
UNIT ECONOMICS
We introduced the Marsee Baking concept to the Portland market in 1993 and
then to the greater Seattle market in 1998. The operating model, which is based
on a central production and multiple outlet
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model, is intended to be capable of rapid expansion through proven unit
economics. In the company's experience, the more mature stores typically have
higher unit revenues. For 1998, the six mature Portland-based bakery-cafes had
average revenues of approximately $790,000 per unit, average sales of $458 per
square foot and an average check of $4.19. The four bakery-cafes that have been
in operation for more than 18 months had average revenues of approximately
$906,000 per unit, average sales of $610 per square foot and an average check of
$4.20 in 1998. Company-wide average revenues for all stores open in 1998,
including revenue from the ten newly-acquired stores both before and after
conversion to the Marsee Baking format, were $513,730 per unit, average sales
were $254 per square foot, and the average check was $4.46.
Our approach to opening new bakery-cafes has been to minimize our required
investment by leasing all of our locations. Our bakery-cafes range in size from
360 square feet to 3,600 square feet. Since 1993, our total investment per
bakery-cafe, net of landlord contributions, has averaged approximately $350,000
to $375,000, with additional average pre-opening costs per bakery-cafe of
approximately $25,000. We expect that most of our planned future bakery-cafes
will range in size from 1,500 to 2,200 square feet and that our total investment
and pre-opening costs per bakery-cafe will be similar to these historical
averages.
EXPANSION STRATEGY AND SITE SELECTION
Marsee Baking intends to continue to expand its operations in both existing
and new geographic markets. We have already invested the necessary capital in
the commissaries that serve the greater Portland and Seattle metropolitan areas.
In addition to serving Marsee Baking's wholesale operations, the Portland
commissary is able to serve up to approximately 20 bakery-cafes and the Seattle
commissary is able to serve approximately 35 bakery-cafes. We plan to open
additional bakery-cafes in the greater Portland and Seattle metropolitan areas
to fully utilize the capacities of the central baking facilities. Our expansion
plans for 1999 include the opening of up to five new stores in the greater
Portland and Seattle metropolitan markets, if adequate financing can be
obtained. We expect that new bakery-cafes will be profitable within two months
of their opening based on their earnings before interest, taxes, depreciation
and amortization.
Our expansion strategy is to enter a new market with a significant critical
mass of stores and wholesale business sufficient to support our central
commissary for that market. This expansion strategy presumes that we will
quickly become the dominant operator in our niche in the markets we enter.
Management will evaluate the company's ability to establish a dominant presence
within a particular area to create entry barriers to other bakery-cafe
competitors.
We believe that the location of each bakery-cafe is critical to our
long-term success and devote significant effort to finding appropriate sites.
Our site selection strategy takes into account a variety of local factors,
including anticipated demand and consumer preferences, competition, availability
of suitable locations and personnel, local demographics and household income
levels, as well as specific site characteristics, such as visibility,
accessibility and traffic volume. The "look" of the bakery-cafe is designed to
be suitable for any locality, and to provide the perception of an urban
neighborhood cafe experience, wherever its actual location. Many of the
company's bakery-cafes also feature outdoor cafe seating. The general site
location criteria for a neighborhood bakery-cafe are as follows:
- 1,500-2,200 square feet,
- Adequate configuration for retail bakery and cafe use,
- Location on morning commute side of major street,
- Substantial visibility to vehicular and pedestrian traffic,
- Easy in and out access,
- Neighborhood setting in residential/commercial area,
- Strong weekday lunch business potential (adequate commercial density),
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- Strong weekend business potential,
- Adequate parking,
- 50,000-70,000 population within a three-mile radius with adequate
household incomes, and
- Adequate labor pool.
Our success in implementing our expansion plans will depend, in each case,
on our ability to effectively address a number of risks. There can be no
assurance that we will be able to open all of our new operations on a timely
basis, if at all, or, if opened, that those operations will be operated
profitably. See "Risk Factors."
WHOLESALE OPERATIONS
In addition to our retail operations, we sell a complete line of our
products in baked form through wholesale distributors that service specialty
grocers, restaurants, and institutions. The wholesale distribution arrangement
requires the distributor to provide invoicing, collection, customer service and
marketing, in addition to daily deliveries and inventory management. By
contracting with independent distributors, we have been able to limit wholesale
inventory management, additional investment in secondary distribution equipment,
and a wholesale marketing and managerial structure to oversee the wholesale
accounts, allowing us to focus our managerial and financial resources on growing
our retail operations through the bakery-cafes. In addition, we wholesale bagels
in frozen, boxed form to major regional food distributors under the Marsee
Baking(R) name and logo, and other brand names.
In October 1997, we reached an agreement with a warehouse discount chain
for the introduction of portable Marsee Baking booths in its discount warehouse
stores which are near a Marsee Baking bakery-cafe. These "bread fairs" last four
to seven days and are rotated weekly among six store locations in Portland and
Seattle. The company hopes to increase brand awareness and to promote the nearby
bakery-cafe through the "bread fair" demonstrations. The initial capital
investment per traveling booth was approximately $6,000. Annual sales from the
bread fairs were $1,071,000 in 1998, which sales are included in our wholesale
revenue.
PRODUCTS
The key product groups are fresh baked goods, made-to-order sandwiches,
soups and cafe beverages. Marsee Baking's commissaries supply the bakery-cafes
with approximately 100 varieties of fresh baked goods from a selection of more
than 200 recipes. These products include the following:
DANISH AND PASTRIES:
Merendine Bun - Marsee Baking's signature pastry, a flaky butter bun
infused with high quality Mexican vanilla
Apple Canoe and
Cherry Fazolettis - Flaky butter puff pastries, filled with pastry cream
and fresh Granny Smith apples or tart cherries
Croissants - Traditional slow rising, Parisian-style butter
croissants in plain, almond-or chocolate-filled
flavors
Danish - Breakfast buns and daytime treats based on delicate
danish dough, including orange-glazed blackberry buns,
pecan sticky buns and classic cinnamon twists
ARTISAN-CRAFTED BREADS:
Calabrese - A moist porous Italian white bread with a crunchy
crust, made with slow rising starters
Olive Pugliese - An Italian bread infused with Kalamata olives and
olive oil
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Focaccia - An Italian "pizza bread" infused with extra virgin
olive oil and topped with roasted red peppers, roma
tomatoes, artichoke hearts and other toppings
Whole Wheat Walnut - A sourdough whole wheat bread enhanced with toasted
walnuts and a hint of malt
Struan - A Scottish multigrain bread enhanced with buttermilk,
brown rice, wheat berries, and polenta
Savory Onion Rye bread - A slow fermented rye bread with caramelized onions and
exotic Chernuska seeds
BAGELS: - Varieties of bagels include traditional flavors of
plain, poppy seed, sesame seed and cinnamon raisin, as
well as more exotic flavors of orange cranberry,
pesto, jalepeno, multigrain, chocolate chip and
corn-rye
CAKES AND DESSERTS:
Marjoline Cakes - A French classic made of four layers of
hazelnut-almond meringue cake separated with one layer
of velvety chocolate ganache, a layer of praline
whipped cream, and a final layer of vanilla whipped
cream
Carrot Cakes - An old-fashioned American spice cake full of freshly
grated carrots, fresh pineapple, toasted walnuts,
coconut and currants, iced with a smooth cream cheese
icing and decorated with handmade miniature marzipan
carrots
Gateau Opera - Four layers of French almond biscuit cake soaked in
espresso syrup, layered with coffee buttercream, and
chocolate ganache, then covered with a thin layer of
chocolate glaze, and decorated with chocolate espresso
beans
Dolce Fragole - An Italian strawberry cake with layers of vanilla
genoise filled with berry cream and fresh cut
strawberries, and decorated with toasted almonds and
glazed strawberries
COOKIES: - Classic chocolate chip, Treasure Islands, black and
whites, chocolate-dipped coconut macaroons, lemon bars
and ginger snaps
Daily assortments also include seasonal scones, muffins, seasonal fresh fruit
tarts, petite eclairs and cream puffs. Marsee Baking also has a line of reduced
fat and all-natural, sugar-free products for health-conscious customers.
We also offer light lunch and dinner items, including deli sandwiches,
focaccia, Italian-style pannini sandwiches, green salads, pasta salads, and
homemade-style soups. Generally, the deli sandwiches are prepared by hand at the
bakery-cafe based on the customer's selection, using fresh deli meats and our
bread and bagel products. In certain locations, due to space and time
constraints, the sandwiches are pre-made. The soups and salads are made fresh
from scratch by a gourmet food company and delivered directly to store locations
where they are prepared for sale the same day.
Our bakery-cafes offer most typical espresso drinks, including lattes,
mochas, cappuccinos, and americanos. In addition, Marsee Baking offers fruit
smoothies and a selection of premium teas, premium juices and other soft drinks.
We regularly review and revise our product offerings to respond to changing
customer preferences, seasonal opportunities, and to maintain customer interest
among our target customer groups.
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PRODUCTION AND PRODUCTION FACILITIES
The central commissary is designed to provide efficiencies in production
and distribution, to ensure product quality and consistency, and to be
expandable as the demand for our products grows. The central facilities permit
the company to employ modern processes, which enhance quality and consistency,
while maintaining the Marsee Baking commitment to artisan breads and other
specialty baked goods. Our commissaries operate seven days a week and produce 80
to 120 varieties of baked goods daily based on a recipe book containing more
than 200 regional European and American recipes. Recipes are standardized to
ensure consistency.
Each stage of the production process is managed by a separate team to
increase productivity and protect against the conversion of our proprietary
recipes. These stages include weighing, mixing, shaping and baking. The
production staff consists of a production manager and team leaders. The
production manager carries responsibility for day-to-day results of production.
Each production manager and team leader is required to have significant bakery
experience in his or her respective areas of expertise, in addition to other
general baking and management skills.
Most of the baked goods sold at the bakery-cafes are baked at the
commissary. Some items, such as bagels and cookies, are baked on the store
premises from dough supplied by the commissary. These items are baked in the
bakery-cafes to foster the "fresh-baked" concept and create the atmosphere and
aroma of an authentic neighborhood bakery. We are currently supplying the
Seattle-area stores from the Portland commissary with all products other than
bagels. After opening additional stores in the Seattle area, we plan to operate
the Seattle commissary at full capacity. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
We maintain a small fleet of vehicles for delivery of our products to our
neighborhood bakery-cafes. All products are packed and delivered before store
openings every day to all bakery-cafe locations to provide fresh-baked products
for sale and consumption that day.
SUPPLIES
Marsee Baking seeks to obtain ingredients of high quality at competitive
prices from reliable sources. To ensure freshness and quality, maintain low
inventory levels and facilitate the preparation of individual menu items, we
purchase most of our ingredients in an unprocessed state. To maintain the high
quality of our bakery products, we also maintain strict criteria for our recipe
ingredients, which often requires importing certain specialty ingredients from
distant places, including foreign sources. For example, we import seedless
raspberry preserves from France, natural fruit compounds from Germany, vanilla
from Mexico and gourmet chocolate from Belgium and France. Our purchasing
specialist seeks to obtain the lowest possible prices available to us without
compromising on quality by negotiating bulk purchasing contracts for a number of
the ingredients we use.
We have an agreement with our single largest supplier, Sysco Food Services,
Inc., to purchase at least 80% of all items that we use in our production. The
agreement provides a negotiated margin discount rate for each listed item based
on our actual and anticipated purchase volume. The agreement may be terminated
by either party by 60 days prior written notice to the other party. We believe
that similar products are readily available from alternate suppliers if the
agreement is terminated. There is no assurance, however, that the terms
currently available to us through the Sysco agreement will be made available to
us from alternate suppliers.
MANAGEMENT INFORMATION SYSTEMS
Each bakery-cafe has computerized cash registers to collect point-of-sale
transaction data. Our systems include a MICROS point of sale system and a MAS 90
financial and inventory control system. Our computer-based cash register system
is also designed to assist in labor scheduling and production management, to
provide corporate and retail operations managers with quick access to retail
data and to reduce store managers' administrative time. We use this data to
generate daily consolidated reports regarding sales and other trends, as well as
detailed profit and loss statements for each bakery-cafe.
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Additionally, we monitor the average check, customer count, product mix, unused
inventory and waste. We continue to assess the Year 2000 readiness of our
computer systems. See "Management's Discussion and Analyses of Financial
Condition and Results of Operations -- Year 2000 Compliance."
MARKETING
To date, we have not attempted to create brand awareness through extensive
advertising; rather, we rely on location, word of mouth, customer satisfaction
and promotional sampling programs to encourage trial by new customers and to
make existing customers aware of new menu offerings. We have employed an outside
marketing consultant to develop a brand image for Marsee Baking by creating a
distinctive logo, a characteristic "look" for our bakery-cafes and a uniform
product packaging and labeling system. We have produced from time to time a
colorful "Holiday Order Guide" for special orders for Thanksgiving, Christmas
and Hanukah and for gift baskets and specialty cakes during the holiday season.
We also attempt to increase our per-location sales through menu development,
promotions and by sponsorship of local community, charitable and business
organizations.
COMPETITION
Our bakery-cafes compete with other local bakeries, grocery stores, and
bread-only stores that supply high quality baked goods, and with other
restaurants that seek to use quality baked goods to define breakfast, lunch and
late-afternoon menus. While we believe that our products and bakery-cafes are
distinctive in design and operating concept, other companies may develop
restaurants and bakeries that operate with similar concepts. There are, in
addition, many well-established regional and national competitors with
substantially greater financial, marketing, personnel and other resources than
we do which may provide additional competition for us as we attempt to expand
into other geographic locations. Marsee Baking also competes for leased space in
desirable locations.
Despite the presence of these competitors, we are not aware of any Pacific
Northwest competitor that is similar to Marsee Baking in terms of the overall
concept. We compete primarily with respect to food quality, price-value
relationships, ambiance, service and location. We believe that we compete on the
basis of value-added experience rather than on price, and that we distinguish
ourselves from our other competitors in terms of the quality and variety of
baked goods we provide. Management believes that the company's broad and complex
product line, the high "stand alone" quality of our products, our central
production facilities, and our ability to address multiple day parts create
barriers to entry. However, there can be no assurance that the proliferation of
non-direct competitors will not have a negative effect on our comparable-store
sales growth, product sales mix, or profitability. Competition may have a
material adverse effect on us.
The specialty restaurant business is often affected by changes in consumer
tastes, national, regional or local economic conditions, demographic trends,
consumer confidence in the economy, discretionary spending priorities, the
weather, tourist travel, traffic patterns, and the type, number and location of
competing restaurants. Changes in these factors could also have a material
adverse effect on our business, financial condition and results of operations.
GOVERNMENT REGULATION
Each bakery-cafe is subject to licensing and regulation by state and local
health, sanitation, safety, fire, and other departments. Additionally, the
specialty restaurant industry in general is subject to extensive federal, state
and local government regulations relating to the development and operation of
food service outlets, including laws and regulations relating to building and
seating requirements, the preparation and sale of food, cleanliness, safety in
the work place and accommodations for the disabled. Difficulties in obtaining or
failure to obtain the required licenses or approvals could adversely affect
currently operating bakery-cafes and could delay or prevent the development of a
new bakery-cafe in a particular area or location. Our Portland and Seattle
commissaries are subject to various federal, state and local environmental
regulations, and the operation of our trucks is subject to Department of
Transportation regulations. To date, compliance with applicable environmental
regulations and Department of Transporta-
27
<PAGE> 30
tion regulations has not had any material effect on our capital expenditures,
earnings or competitive position.
We are also subject to state and federal labor laws that govern our
relationship with our employees, such as minimum wage requirements, overtime and
working conditions, citizenship requirements and prohibitions against
discrimination. Significant numbers of our food service and commissary personnel
are paid at rates governed by the state minimum wage laws. Accordingly, further
increases in the minimum wage will increase our labor costs.
The development and construction of additional commissaries and
bakery-cafes will be subject to compliance with applicable zoning, land use and
environmental regulations. There can be no assurance that we will be able to
obtain necessary licenses or other approvals on a cost effective and timely
basis to construct and develop commissaries and bakeries in the future.
TRADEMARKS
The "Marsee Baking" name is of material importance to us, and we have
registered the name and our logo as a trademark with the United States Patent
and Trademark Office. We also own the "BagelMax" trademark. We regard our
trademarks and related rights as having substantial value and as being an
important factor in the marketing of Marsee Baking bakery-cafes and branded
items.
EMPLOYEES
As at May 31, 1999 we had 333 employees, of whom 17 were employed in
general and administrative functions principally at or from our executive
offices in Portland, Oregon; approximately 82 of whom were employed in
production and distribution; and approximately 234 of whom were employed in the
retail and wholesale operations. A significant number of employees at the retail
outlets work part-time. The full-time equivalent number of employees working in
the retail and wholesale operations is 143. None of our employees is represented
by a labor union. We consider our employee relations to be good.
PROPERTIES
All bakery-cafes are located in leased premises with typical lease terms
ranging from five to seven years, with one or two five-year renewal options.
Current leases in force expire between December 31, 1999 and December 31, 2007.
The leases typically have a minimum base occupancy charge, as well as charges
for a proportionate share of building operating expenses and real estate taxes.
We do not anticipate any difficulties renewing existing leases as they expire.
However, there can be no assurance that we will be able to renew any leases on
favorable terms, if at all. Our inability to renew a particular lease or closure
of a facility subject to a long-term non-cancelable lease could have a material
adverse effect on our business, financial condition and results of operations.
In 1995, we established our Portland commissary and headquarters in
Northwest Portland. The executive offices occupy approximately 2,000 square feet
and the commissary occupies approximately 8,800 square feet, including 1,600 of
additional office space. The headquarters lease expires in 2000 and the
commissary lease expires, assuming exercise of renewal options, in 2005. We
assumed a lease for 13,000 square feet for the Seattle commissary. The lease
term expires in January 2002.
28
<PAGE> 31
The following table provides certain information about our bakery-cafe
locations as of May 31, 1999.
<TABLE>
<CAPTION>
SIZE
LOCATION CITY MONTH/YEAR OPENED (SQ. FT.)
-------- ----------- ----------------- ---------
<S> <C> <C> <C>
Oregon
NW 23rd Portland January 1993 2,800
Pioneer Tower Portland January 1994 360
SE Bybee Street Portland November 1994 1,479
Portland International
Airport Portland October 1995 1,300
A Street Lake Oswego July 1997 2,188
SW Alder Street Portland October 1997 2,224
SW Pine Street Portland January 1998 1,543
NE Broadway Portland January 1998 3,600
Tanasbourne Town Center Hillsboro March 1998 2,000
City Hall Portland April 1998 633
Sherwood Market Center Sherwood May 1998* 2,361
Liberty Plaza Salem July 1998* 2,146
Washington
Main Street Market Place Bellevue April 1998* 1,600
NE 10th Bellevue May 1998* 2,482
Crossroads Shopping Center Bellevue August 1998* 2,000
Factoria Plaza Bellevue August 1998* 2,461
Commons at Issaquah Issaquah September 1998* 2,200
Five Corners Shopping Center Burien September 1998* 2,600
------
Total 35,977
======
</TABLE>
- ---------------
* Date converted to Marsee Baking format.
We consider our physical properties to be in good operating condition and
suitable for the purposes for which they are used.
29
<PAGE> 32
MANAGEMENT
The following table sets forth certain information with respect to our
executive officers and directors as of the date of this prospectus.
DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Raymond W. Lindstrom...... Chairman of the Board, President and Chief Executive
56 Officer
Stephen A. Aanderud....... 50 Chief Financial Officer and Assistant Secretary
Howard J. Wasserteil...... 49 Executive Vice President, Secretary, Director and Founder
Joann E. Vazquez.......... 37 Vice President of Product Development and Founder
Karlin M. Conklin......... 41 Vice President of Bakery Operations
Robert E. Schneider,
PhD..................... 51 Director and Founder
Gerald W. Frank........... 75 Director
Joseph F. Tanous.......... 50 Director
Raymond Zimmerman......... 66 Director
</TABLE>
All directors hold office until the next annual meeting of shareholders or
until their successors have been duly elected and qualified. With the exception
of Mr. Lindstrom, Mr. Aanderud, Mr. Wasserteil and Ms. Vazquez, who have
employment agreements with the company, our executive officers are appointed and
serve at the discretion of the Board of Directors. There are no family
relationships among any of our directors, executive officers, or key personnel.
Raymond W. Lindstrom has served as Marsee Baking's Chairman of the Board
and Chief Executive Officer since November 1998 and as President since January
1999. From January 1997 to present, Mr. Lindstrom has served as a member of our
Board of Directors. He served as President of Coachmaster International from
November 1996 to November 1998. From January 1994 to June 1996, Mr. Lindstrom
served as President and Chief Executive Officer of Restaurants Unlimited, Inc.,
which operated the Cinnabon concept.
Stephen A. Aanderud has served as Chief Financial Officer and Assistant
Secretary of the company since April 1, 1999 and previously served as a
financial consultant to the company since January 1999. From 1994 to 1998, he
served as President, Chief Executive Officer and as a director of ThrustMaster,
Inc., a computer toy and accessories manufacturing company. From 1993 to 1994,
he also served as Vice President, Chief Financial Officer and Secretary of
ThrustMaster.
Howard J. Wasserteil is a co-founder of the company and has served as our
Secretary and a director since our founding in June 1992. He has served as
Executive Vice President since February 1997. He has also served as President of
the company from June 1995 to February 1997 and as Vice President from June 1992
to June 1995.
Joann E. Vazquez is a co-founder of the company and has served as our Vice
President of Product Development since January 1995. Before that, she served as
our lead baker and production manager from January 1993 to January 1995. Ms.
Vazquez graduated from San Francisco City College of Hotel and Restaurant
Management and continued her education as a bakery apprentice in Florence,
Italy, at the II Fornaio Bakery. She helped open the first bakeries for that
company in the United States, and was a contributor to its cookbook, The II
Fornaio Baking Book. She served as head pastry chef for several hotels and
specialty bakeries in the San Francisco area before joining Marsee Baking.
Karlin M. Conklin has served as our Vice President of Bakery Operations
since September 1997. Before joining Marsee Baking, Ms. Conklin served as
business improvement manager in the Portland division of Stream/R.R. Donnelley,
overseeing operations and customer service from February 1996 to September 1997.
During 1995, she served as general manager of Nor' Wester Brewing Company. From
1992 to 1994, Ms. Conklin served as director of the University of Oregon
Lundquist Center for Entrepreneurship.
30
<PAGE> 33
Robert E. Schneider, Ph.D. is a co-founder of the company and has served as
a director since our founding in June 1992. From February 1997 to December 1998,
he was our Executive Vice President of Quality Assurance, Product Development
and Retail Merchandise and, from June 1992 to December 1998, he served as our
Chairman of the Board. From June 1995 to February 1997, Dr. Schneider served as
our Chief Executive Officer. From June 1992 to June 1995, he served as our
President. Dr. Schneider is a practicing psychologist.
Gerald W. Frank has served on the company's Board of Directors since
January 1997. He currently serves as chairman of the Oregon Tourism Commission,
a post he has held since 1996, and as a director of The Coast Airways, since
1997. Mr. Frank is also the president of Gerry's Frankly Speaking, Inc., and a
co-owner of Gerry Frank's Konditorei restaurant since 1982. Mr. Frank has
previously served on the board of directors of U.S. Bancorp from 1960 to 1994
and on the board of directors of Standard Insurance Company from 1962 to 1995.
Joseph F. Tanous has been a member of our Board of Directors since February
1999. He has served as chairman of the board of Templex, Inc., a
telecommunications equipment company, since August 1997. He is also a director
of Infinite Pictures, Inc., a position he has served since September 1997, and a
director of Cascade Oncogenics, a position he has held since June 1996. Mr.
Tanous is also a partner in Bison Ventures, a venture capital fund, which he
co-founded in 1993.
Raymond Zimmerman has served on our Board of Directors since May 1998. Mr.
Zimmerman served as Chairman of Service Merchandise Co., Inc., a national
merchandising business, from 1981 to April 1998, and from January 1999 to date.
He was also its Chief Executive Officer from 1984 until April 1997. Mr.
Zimmerman is also currently a director of The Limited, Inc.
BOARD COMMITTEES
Our Board of Directors has established an Audit Committee and a
Compensation Committee. The Audit Committee reviews the internal accounting
procedures of the company and consults with and reviews the services provided by
our independent accountants. The Compensation Committee reviews and recommends
to the Board of Directors the compensation and benefits of all officers of the
company, and will establish and review general policies relating to compensation
and benefits of our employees. The members of the Audit Committee are Mr. Tanous
and Dr. Schneider. The members of the Compensation Committee are Messrs. Tanous,
Frank and Zimmerman.
DIRECTOR COMPENSATION
We reimburse each member of our Board of Directors for out-of-pocket
expenses incurred in connection with attending board meetings. No member of our
Board of Directors currently receives any additional cash compensation.
In consideration for their services as directors, in March 1998, we granted
to each of Messrs. Frank and Lindstrom options to purchase 20,000 shares of
common stock and to each of Dr. Schneider and Messrs. Tanous and Wasserteil
options to purchase 10,000 shares of common stock. These options have an
exercise price of $1.00 per share. The shares underlying these options vest over
a four-year period commencing on the date the director joined the board. In
December 1998, contingent upon their continued service as directors, we granted
to Messrs. Wasserteil and Zimmerman, and Dr. Schneider non-qualified stock
options to purchase the following number of shares of common stock: Wasserteil,
(10,000 shares), Zimmerman, (10,000 shares), and Dr. Schneider (2,500 shares).
These options are fully vested upon grant and have an exercise price of $1.00
per share. Upon joining the Board in February 1999, Mr. Tanous received stock
options to purchase up to 70,000 shares of common stock at an exercise price of
$3 per share. The options vest monthly over a 12 month period. Mr. Lindstrom
received additional stock options under the 1997 and 1998 Plans in connection
with his employment as President and Chief Executive Officer. See "-- Executive
Compensation."
31
<PAGE> 34
LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS
We have adopted provisions in our articles of incorporation and bylaws that
will limit the liability of our directors to the fullest extent permitted by the
Oregon Business Corporation Act. Pursuant to such provisions, no director will
be liable to the company or its shareholders for monetary damages for breaches
of certain fiduciary duties as a director of the company. The limitation of
liability will not affect a director's liability for a breach of the director's
duty of loyalty to the company or its shareholders, an act or omission not in
good faith or that involves intentional misconduct or a knowing violation of the
law, any unlawful distributions, or a transaction from which the director
receives an improper personal benefit. The limitation of liability also will not
affect the availability of equitable remedies such as injunctive relief or
rescission.
Our articles of incorporation will permit and our bylaws will require us to
indemnify officers and directors to the fullest extent permitted by law. We have
also entered into agreements to indemnify our directors and executive officers,
in addition to indemnification provided for in our bylaws. These agreements,
among other things, indemnify our directors and executive officers for certain
expenses, judgments, fines and settlement amounts incurred by them in any action
or proceeding, including any action by or in the right of the company, arising
out of the person's services as a director or executive officer of the company
or any other company or enterprise to which the person provides services at our
request. We believe that these provisions and agreements are necessary to
attract and retain qualified directors and executive officers.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to our directors, officers and controlling persons based on the
foregoing provisions, we have been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy and is,
therefore, unenforceable.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation we
paid during the year ended December 31, 1998 to Mr. Lindstrom, our current
Chairman, President and Chief Executive Officer, and Mr. Barnett, our former
President and Chief Executive Officer (collectively, the "Named Executive
Officers"):
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL AWARDS
COMPENSATION ---------------------
-------------- SECURITIES UNDERLYING
SALARY OPTIONS/SARS ALL OTHER COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) (#) ($)
--------------------------- ---- ------- --------------------- ----------------------
<S> <C> <C> <C> <C>
Raymond W. Lindstrom,..................... 1998 $18,750(1) 540,000 $450(2)
Chairman, President
and Chief Executive Officer
Brad K. Barnett,.......................... 1998 122,243 161,666(3) --
former President and
Chief Executive Officer
</TABLE>
- ---------------
(1) Reflects $150,000 annualized salary of Mr. Lindstrom, whose employment with
the company began on November 15, 1998.
(2) Reflects a monthly car allowance of $300 for 1 1/2 months of service.
(3) Subsequent to year-end, the company and Mr. Barnett agreed to replace
100,000 of these options with new options to purchase 60,000 shares of
common stock at $1.00 per share as part of Mr. Barnett's separation from the
company.
32
<PAGE> 35
The following table sets forth information concerning the individual grants
of stock options made during the year ended December 31, 1998 to the Named
Executive Officers:
<TABLE>
<CAPTION>
PERCENT OF TOTAL
NUMBER OF SECURITIES OPTIONS GRANTED TO
UNDERLYING OPTIONS EMPLOYEES IN FISCAL EXERCISE EXPIRATION
NAME GRANTED(#) YEAR ($/SH) DATE
---- -------------------- ------------------------ -------- ----------
<S> <C> <C> <C> <C>
Raymond W. Lindstrom................... 20,000 1% $1.00 *
140,000 12 1.00 *
200,000 17 7.00 *
200,000 17 11.00 *
</TABLE>
- ---------------
* These options must be exercised within five years of the closing of this
offering.
EMPLOYEE BENEFIT PLANS
1993 Plan. In 1993, we adopted a Non-Qualified Stock Option Plan to grant
non-qualified options to our key employees, directors, officers and consultants
to acquire up to 100,000 shares of our common stock. The 1993 Plan was amended
in 1996 to increase the number of shares available from 100,000 to 150,000
shares of common stock. Options to purchase 96,908 shares of common stock were
granted under the 1993 Plan before its termination on February 4, 1997. The
options outstanding under the 1993 Plan at the time of its termination remain
outstanding and exercisable by the optionees until the expiration of the
specific option term. The Board cannot make new grants under the 1993 Plan.
1997 Plan. On February 4, 1997, our Board of Directors adopted a more
comprehensive plan called the 1997 Stock Option/Issuance Plan. The Board adopted
the 1997 Plan to allow the company to grant incentive stock options as well as
non-qualified stock options. ISOs are entitled to provide a more favorable
treatment under federal and state tax laws. As originally adopted, the 1997 Plan
reserved 400,000 shares of common stock for issuance under it, subject to
shareholder approval. The Board amended the Plan, again subject to shareholder
approval, on November 5, 1997 (the "Plan Amendment") to increase the number of
shares available under the 1997 Plan from 400,000 to 700,000 shares. Our
shareholders approved the 1997 Plan and the Plan Amendment at the annual
shareholders meeting held on January 22, 1998.
The 1997 Plan provides for the issuance of stock options or shares to
eligible participants. Eligible participants include officers, directors, key
employees of or consultants to the company. The 1997 Plan is administered by the
Board of Directors, or in its discretion, by a committee of not less than two
directors. The board established the terms and conditions of options granted
under the 1997 Plan, including the number of shares subject to the options, the
exercise price of the options, and the time at which these options become
exercisable. Options granted under the 1997 Plan are not transferable by the
optionee other than by will or the laws of descent and distribution, and are
exercisable during the lifetime of the optionee only by the optionee. The terms
of options issued under the 1997 Plan may not exceed 10 years and some options,
by agreement, may not exceed five years from the date of the public offering. As
of the date of this prospectus, options to purchase up to 479,187 shares of
common stock have been granted under the 1997 Plan at an exercise price of $1.00
per share. All of the options are immediately exercisable, but the option
shares, once acquired, are subject to repurchase by the company at the exercise
price paid per share. Our repurchase right lapses with respect to a portion of
the option shares according to the optionee's vesting schedule. Most of these
options are subject to three-, four- or five-year vesting provisions.
1998 Plan. In December 1998, we adopted the 1998 Nonqualified Stock Option
Plan. The purpose of the 1998 Plan is to promote the interests of the company by
providing eligible employees, directors, officers, consultants, agents,
advisors, and independent contractors of the company with the opportunity to
participate in its growth and success, through ownership of equity interests in
the company. The Board of Directors has reserved a total of one million shares
of common stock under the 1998 Plan. The 1998 Plan is administered by the Board
of Directors, or in its discretion, by a committee of not less than two
directors. The Board established the terms and conditions of options granted
under the 1998 Plan, including the number of shares subject to the options, the
exercise price of the options, and the time at
33
<PAGE> 36
which the options become exercisable. Options granted under the 1998 Plan are
not transferable by the optionee other than by will or the laws of descent and
distribution, and are exercisable during the lifetime of the optionee only by
the optionee. The terms of options issued under the 1998 Plan may not exceed 10
years and some options, by agreement, may not exceed five years from the date of
the public offering. As of the date of this prospectus, options to purchase up
to 765,750 shares of the company's common stock have been granted under the 1998
Plan at exercise prices of $1.00, $3.00, $6.00, $7.00 and $11.00 per share. All
of the options are immediately exercisable and some are subject to a repurchase
right by the company that lapses with respect to a portion of the option shares
according to the optionee's vesting schedule. Most of these options are subject
to three-, four- or five-year vesting provisions.
Corporate Transactions. In the event of certain corporate transactions,
such as a merger or sale of the company, each option outstanding under the 1993,
1997 and 1998 Plans will terminate upon the consummation of the corporate
transaction and cease to be exercisable, unless assumed by the successor
corporation or parent of the company. In connection with any corporate
transaction, the Board of Directors may, at its discretion, (1) accelerate each
or any outstanding option under the 1993, 1997 and 1998 Plans so that each
option shall become fully exercisable, (2) arrange for each or any outstanding
option to be assumed by the successor corporation or parent of the company, (3)
arrange for the option to be replaced by a comparable cash incentive program of
the successor corporation or (4) take none of the actions described in clauses
(1), (2) or (3) above and allow the option to terminate.
401(k) Plan. Marsee Baking maintains a 401(k) tax-qualified employee
savings and retirement plan covering all employees who satisfy certain
eligibility requirements relating to minimum age and length of service. Based on
the terms of the 401(k) Plan, eligible employees may elect to reduce their
current compensation by up to the lesser of 15% of their annual compensation or
the statutorily prescribed annual limit and have the amount of the reduction
contributed to the 401(k) Plan. The 401(k) Plan is intended to qualify under
Section 401 of the Internal Revenue Code so that contributions to the 401(k)
Plan, and income earned on the 401(k) Plan contributions, are not taxable until
withdrawn. The 401(k) Plan is available to our executive officers on terms not
more favorable than those offered to other employees.
EMPLOYMENT AGREEMENTS
We have entered into an employment agreement, effective as of January 1,
1999, with Raymond W. Lindstrom for a two-year term. The agreement provides for
the continued employment of Mr. Lindstrom as our President and Chief Executive
Officer at a base salary of $150,000 per year. Mr. Lindstrom is also provided
with an automobile expense allowance of $300 per month. Up to 50% of his base
salary may be deferred at Mr. Lindstrom's sole discretion until the earlier of
the company obtaining equity financing of $1,000,000 or more, including this
offering, or October 1, 1999. The base salary will increase to $200,000 per year
on the earlier of (1) two consecutive months during which the company achieves
earnings before interest, taxes, depreciation and amortization of 10% or more of
gross revenues, or (2) October 1, 1999.
As further compensation, the agreement provides Mr. Lindstrom with the
following stock options:
- An incentive stock option to purchase up to 140,000 shares of common
stock at an exercise price equal to the fair market value of the common
stock at the time of grant ("Grant I");
- A nonqualified stock option to purchase up to 200,000 shares of common
stock at an exercise price of $7.00 per share ("Grant II");
- A nonqualified stock option to purchase up to 200,000 shares of common
stock at an exercise price of $11.00 per share ("Grant III"); and
- A nonqualified stock option to purchase up to 100,000 shares of common
stock upon the company achieving EBITDA of 10% of gross revenues or more
for three consecutive months during 1999 or 2000, at an exercise price
equal to the fair market value at the time the option is earned ("Grant
IV").
34
<PAGE> 37
Grants I, II and III will vest over a 48-month period. Grant IV will vest
fully as of the date it is earned. Mr. Lindstrom is also eligible for a cash
incentive bonus equal to 40% of his base salary upon meeting performance goals
to be determined by the Board of Directors. If we terminate Mr. Lindstrom's
employment without cause, the option shares underlying Grants I, II and III will
become vested through the end of the two-year term of his employment agreement.
We have also entered into an employment agreement with Howard Wasserteil
for a three-year term ending July 12, 1999. Under the agreement, Mr. Wasserteil
will continue his full-time employment as our Executive Vice President at an
annual salary of $86,400. In addition to cash compensation, Mr. Wasserteil
received a stock option to purchase up to 10,000 shares of the company's common
stock on each of December 31, 1996 and December 31, 1997 at an exercise price of
$1.00 per share.
Other material terms of the Wasserteil employment agreement include:
- Our agreement to consider paying cash bonuses, granting additional stock
options and increasing the salary payable to Mr. Wasserteil if certain
financial performance goals (to be agreed upon) are met;
- Payment of six months severance to Mr. Wasserteil if he is terminated by
us without "cause" (as defined in the agreement) after the three-year
term;
- In the event of Mr. Wasserteil's death or permanent disability or upon
his termination without cause, the payment of his salary through the end
of the three-year term and an additional six months of severance pay;
- Our right to terminate the employment agreement if Mr. Wasserteil is
terminated for "cause" and to pay only his accrued salary and benefits
through the termination date; and
- Our agreement to carry life and disability insurance policies on Mr.
Wasserteil in sufficient amounts to meet the obligations described above.
We are a party to an Amended Employment and Stock Grant Agreement with
Joann Vazquez, Vice President of Product Development, dated April 9, 1999. In
the agreement, Ms. Vazquez has granted to the company an irrevocable, perpetual
royalty-free license to use her proprietary recipes which she owned prior to her
employment with us. All recipes, processes and techniques developed by Ms.
Vazquez during her employment will become the property of the company. The
agreement prohibits Ms. Vazquez from engaging in the following conduct for a
period of two years following her termination if we terminate her employment for
"cause" (as defined in the agreement):
- Competing with the company, directly or indirectly;
- Making disparaging statements about the company or its products; and
- Soliciting any employee of the company for employment elsewhere.
In addition, Ms. Vazquez is prohibited from engaging in the following
conduct, regardless of time restrictions or whether the termination is with or
without cause:
- Disclosing any of our proprietary and confidential information (as
defined in the agreement); and
- Using our proprietary and confidential information.
Effective December 31, 1998, Mr. Barnett resigned from his position as our
President and Chief Executive Officer. We and Mr. Barnett entered into a
Separation Agreement and Release, dated March 12, 1999, in which, in exchange
for a release of all claims by Mr. Barnett, we agreed to pay his semi-monthly
salary of $5,208 for a period of six months or until he begins employment
elsewhere, whichever is sooner. The Separation Agreement also terminates his
existing stock options to purchase 100,000 shares of common stock and replaces
them with fully vested stock options to purchase 60,000 shares of common stock
under the 1998 Plan at an exercise price of $1.00 per share.
35
<PAGE> 38
CERTAIN TRANSACTIONS
SHAREHOLDER LOANS
As of December 31, 1998, we owed certain directors, officers and their
family members a total of approximately $229,000 for sums advanced to the
company over the past several years. Most of the loans were made to finance new
stores and to provide for general corporate purposes. The following table sets
forth the names of the lenders who have made loans to the company in excess of
$60,000 in the aggregate, the balance owing as of December 31, 1998, the
interest rates and their maturity dates.
<TABLE>
<CAPTION>
BALANCE AS OF MATURITY
LENDER DECEMBER 31, 1998 INTEREST DATE
------ ----------------- -------- -------------
<S> <C> <C> <C>
Howard J. Wasserteil........................ $92,601 20.42% June 30, 1999
36,682 * May 31, 1999
Robert E. Schneider......................... 34,957 17.50 June 30, 1999
38,947 * Demand
</TABLE>
- ---------------
* These promissory notes, which secure the payment of certain credit card debts
incurred by Mr. Wasserteil and Dr. Schneider on behalf of the company, have
varying interest rates based on the agreements with the credit card companies.
We are required to make monthly payments of principal and interest directly to
these credit card companies.
WARRANT GRANTS FOR BANK LINE AND LETTER OF CREDIT GUARANTEES
In October 1997, we arranged for a working capital line of credit of
$250,000 with a domestic bank. To secure the line of credit, John Durbetaki, a
former director, and Joseph Tanous, a current director, guaranteed the line of
credit. As consideration for providing the guarantees, we granted to each of
Messrs. Durbetaki and Tanous a warrant to purchase up to 5,000 shares of common
stock at an exercise price of $1.00 per share. The warrants expire on November
4, 2004. In addition, we entered into a Contribution and Indemnity Agreement
with the guarantors that provides for the sharing of liability between
guarantors if the bank elects to enforce the guarantees. Further, we have agreed
based on the agreement (1) to indemnify the guarantors against any losses,
liability and expenses resulting from the collection on the guarantees by the
bank, and (2) to use our best efforts to remove the guarantees by November 1,
2000. On April 29, 1999, Mr. Tanous agreed to personally guarantee an increase
in the amount of our working capital line of credit by up to $750,000, for which
he has received 150,000 shares of common stock.
In May 1998, we obtained equipment lease financing secured by a letter of
credit. The letter of credit is, in turn, secured by the personal guarantees of
Messrs. Durbetaki and Tanous and by $108,000 in restricted cash provided by a
shareholder. In consideration for the cash, the shareholder received 3,323
shares of Series C Preferred Stock and, in April 1998, he received a warrant to
purchase 5,000 shares of common stock at an exercise price of $3.00 per share.
As consideration for the personal guarantees, in April 1999, Messrs. Durbetaki
and Tanous each received a warrant to purchase 5,000 shares of common stock at
an exercise price of $3.00 per share. The warrants expire on November 1, 2004.
OPTIONS FOR PAST SERVICES
In December 1998, Mr. Tanous received a stock option to purchase up to
30,000 shares of common stock at an exercise price of $1 per share for past
services rendered as a consultant to the company and as an advisor to the Board
of Directors. The option is fully vested.
WARRANT GRANTS FOR LEASE GUARANTEES
Mr. Howard J. Wasserteil and Dr. Robert E. Schneider, and their respective
spouses, have personally guaranteed certain real property leases and corporate
loans to the company. In consideration for these personal guarantees, Mr.
Wasserteil and Dr. Schneider received warrants to purchase 48,235 and 44,230
shares of the company's common stock, respectively, at an exercise price of
$1.00 per share. The warrants expire on November 1, 2004.
36
<PAGE> 39
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of May 31, 1999, the number and
percentage of outstanding shares of common stock beneficially owned by all
persons that own beneficially more than 5% of the company's common stock, by
each director and executive officer of the company individually and by all
directors and executive officers of the company as a group, and as adjusted to
reflect the sale of all of the shares of common stock sold in this offering
(assuming that none of the shares are purchased by these persons).
<TABLE>
<CAPTION>
BEFORE OFFERING AFTER OFFERING
----------------------------- -----------------------------
SHARES % OF SHARES % OF
NAME AND ADDRESS OF BENEFICIAL BENEFICIALLY COMMON STOCK BENEFICIALLY COMMON STOCK
OWNER OR IDENTITY OF GROUP(1) OWNED(2) OUTSTANDING(3) OWNED(2) OUTSTANDING(4)
------------------------------ ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
Raymond W. Lindstrom(5)....................... 461,666 23.3% 461,666 7.9%
Howard J. Wasserteil(6)....................... 426,401 25.9 432,737 7.4
Robert E. Schneider, Ph.D.(7)................. 418,396 25.8 418,396 7.2
Joseph Tanous(8).............................. 285,000 17.4 388,743 6.9
Raymond Zimmerman(9).......................... 10,000 * 348,981 6.5
Gerald W. Frank(10)........................... 24,333 1.6 27,469 *
Gary S. Holmes(11)............................ 10,000 * 348,932 6.5
Roitenberg Investments, Inc.(12).............. 10,000 * 349,004 6.5
All executive officers and directors as a
group (9 persons)........................... 1,901,368 75.3 2,353,564 32.4
</TABLE>
- ---------------
(1) All of the executive officers and directors can be reached at the address
of the company: 2287 NW Pettygrove, Portland, Oregon 97210. The address for
Mr. Holmes is 2575 University Avenue West, St. Paul, Minnesota 55114-1024,
and for Roitenberg Investments is 5500 Wayzata Blvd., #1065, Minneapolis,
Minnesota 55416.
(2) Beneficially owned shares include shares which may be acquired (i.e.,
through exercise of warrants or options) within 60 days of May 31, 1999.
(3) The percentage ownership before the offering is based on 1,521,761 shares
of common stock outstanding.
(4) The percentage of ownership after the offering is calculated based on
5,366,867 shares outstanding, which includes the 1,750,000 shares of common
stock sold in this offering, the conversion of all Series A, B, C and D
Preferred Stock into 2,077,421 shares of common stock, and the payment of
accrued Series D Preferred Stock dividends by the issuance of 17,684 shares
of common stock.
(5) Mr. Lindstrom is the beneficial owner of currently exercisable options to
purchase 461,666 shares of common stock.
(6) Mr. Wasserteil is the beneficial owner of options and warrants to purchase
116,401 shares of common stock.
(7) Dr. Schneider is the beneficial owner of options and warrants to purchase
98,396 shares of common stock.
(8) Upon the closing of the offering, Mr. Tanous will receive approximately
98,743 shares of common stock from the conversion of his Series B and
Series C Preferred Stock. Mr. Tanous is also the beneficial owner of
options and warrants to purchase 120,000 shares of common stock.
(9) Upon the closing of the offering, Mr. Zimmerman will receive approximately
333,828 shares of common stock from the conversion of his Series C and D
Preferred Stock and 5,186 shares of common stock as Series D Preferred
Stock dividend. Mr. Zimmerman is also the beneficial owner of options to
purchase 10,000 shares of common stock.
(10) Mr. Frank is the beneficial owner of options to purchase 24,333 shares of
common stock. Upon the closing of the offering, Mr. Frank will receive
3,163 shares of common stock from the conversion of his Series C Preferred
Stock.
37
<PAGE> 40
(11) Upon the closing of the offering, Mr. Holmes will receive approximately
333,746 shares of common stock from the conversion of his Series C and D
Preferred Stock and 5,186 shares of common stock as Series D Preferred
Stock dividend. Mr. Holmes is also the beneficial owner of options to
purchase 10,000 shares of common stock.
(12) Upon the closing of the offering, Roitenberg Investments, Inc. will receive
approximately 333,818 shares of common stock from the conversion of its
Series C and D Preferred Stock and 5,186 shares of common stock as Series D
Preferred Stock dividend. It is also the beneficial owner of options to
purchase 10,000 shares of common stock.
DESCRIPTION OF SECURITIES
The authorized capital stock of the company is 19,000,000 shares,
consisting of 15,000,000 shares of common stock, no par value, and 4,000,000
shares of preferred stock, no par value. Upon the closing of the offering, all
shares of Series A, B, C and D Preferred Stock currently outstanding will be
converted to common stock, and no shares of preferred stock will be outstanding.
COMMON STOCK
As of May 31, 1998, there were 1,521,761 shares of common stock
outstanding. Following this offering, 5,366,867 shares of common stock will be
issued and outstanding. See "Capitalization." Holders of common stock are
entitled to one vote per share on all matters on which shareholders are entitled
to vote. Because holders of common stock do not have cumulative voting rights or
other preemptive or subscription rights, the holders of a majority of the shares
of common stock can elect all of the members of the Board of Directors. The
common stock is not redeemable by the company. Holders of shares of common stock
are entitled to any dividends as may be declared by the Board of Directors out
of legally available funds. If the company is liquidated, dissolved or wound up,
the holders of the common stock are entitled to receive pro rata of all of the
company's assets available for distribution to its shareholders after payment of
liquidation preferences of any outstanding shares of preferred stock. All of the
outstanding shares of common stock are fully paid and non-assessable.
PREFERRED STOCK
Outstanding Preferred Stock. The rights, designations, preferences,
privileges, qualifications and restrictions of the currently outstanding shares
of Series A, B, C and D Preferred Stock are described in our articles of
incorporation and certificates of designations, as amended, which documents have
been filed as exhibits to the registration statement of which this prospectus is
a part. Effective upon the closing of the offering, all outstanding shares of
Series A, B, C and D Preferred Stock will be automatically converted into the
number of shares of common stock required by their respective conversion ratios
(after giving effect to anti-dilution adjustments) set forth below, and no
shares of preferred stock of any series will be outstanding upon the closing of
the offering.
<TABLE>
<CAPTION>
AUTHORIZED SHARES CONVERSION SHARES OF COMMON STOCK
DESIGNATION SHARES OUTSTANDING RATIO ISSUABLE UPON CONVERSION
- ----------- ---------- ----------- ---------- ------------------------
<S> <C> <C> <C> <C>
Series A.. 100,000 52,667 1:1 52,667
Series B.. 510,575 510,575 1:1.02396 522,808
Series C.. 168,000 129,121 1:10.30227 1,330,239
Series D.. 22,507 16,667 1:10.30227 171,707
</TABLE>
The conversion of the outstanding series of preferred stock into common
stock is mandatory upon the closing of this offering without any further action
by the holders of the preferred stock. The conversion will result in a reduction
of the proportionate interest in the company held by the holders of the
outstanding shares of common stock prior to the offering. See "Dilution."
Blank Check Preferred Stock. Subject to the provisions of the amended and
restated articles of incorporation, which will become effective upon the closing
of the offering, and to the limitations
38
<PAGE> 41
prescribed by law, the Board of Directors will have the authority, without
further action by the shareholders, to issue up to 4,000,000 shares of preferred
stock in one or more series. The Board of Directors will have the power and
authority to fix the rights, designations, preferences, privileges,
qualifications and restrictions of the preferred stock, including the number of
shares, dividend rights, conversion rights, voting rights, terms of redemption,
liquidation preferences and sinking fund terms, any or all of which may be
greater than the rights of the common stock. The company will not issue any
shares of preferred stock unless:
- the issuance of the preferred stock is approved by a majority of the
disinterested and independent directors who will have access, at the
company's expense, to the company's legal counsel or to an independent
legal counsel;
- the preferred stock is offered to promoters on the same terms as those
offered to existing shareholders or to new shareholders; and
- the issuance, if it occurs within three years of this offering, is
approved by the underwriter by prior written consent, which consent will
not be unreasonably withheld.
The company has no present plans to issue any shares of preferred stock.
One of the effects of the existence of undesignated preferred stock is to
enable the Board of Directors to render more difficult or to discourage a third
party's attempt to obtain control of Marsee Baking by means of a tender offer,
proxy contest, merger, or otherwise, which thereby protects the continuity of
our management. The issuance of shares of preferred stock may also discourage a
party from making a bid for the common stock because the issuance may adversely
affect the rights of the holders of common stock. For example, preferred stock
issued by the company may rank prior to the common stock as to dividend rights,
liquidation preference, or both, may have full or limited voting rights and may
be convertible into shares of common stock. Accordingly, the issuance of shares
of preferred stock may discourage or delay bids for the common stock or may
otherwise adversely affect the market price of the common stock.
WARRANTS
Purchase Warrants Sold in This Offering. The following is a brief summary
of certain provisions of the purchase warrants, but the summary does not purport
to be complete and is qualified in all respects by reference to the actual text
of the purchase warrant agreement between the company and ChaseMellon
Shareholder Services, Inc., the warrant agent. A copy of the purchase warrant
agreement has been filed as an exhibit to the registration statement of which
this prospectus is a part. You are urged to read the purchase warrant agreement
in its entirety. See "Where You Can Find More Information."
Exercise Price and Terms. Each purchase warrant entitles its holder to
purchase, at any time from the closing date of this offering through the fifth
anniversary of this offering, one share of common stock of the company at a
price of $5.50 per share, subject to adjustment according to the antidilution
and other provisions referred to below. The purchase warrants will expire on the
fifth anniversary of this offering.
The holder of a purchase warrant may exercise the purchase warrant by
surrendering the certificate representing the purchase warrant to the transfer
agent, with the subscription form on the reverse side of the certificate
properly completed and executed, together with payment of the exercise price.
Subject to prior redemption as described below, the purchase warrants may be
exercised at any time in whole or in part at the applicable exercise price until
expiration of the purchase warrants. No fractional shares will be issued upon
the exercise of the purchase warrants.
If a market for the purchase warrants develops, the holder may sell the
purchase warrants instead of exercising them. There can be no assurance,
however, that a market for the purchase warrants will develop or continue. If
the company is unable to qualify for sale in particular states the common stock
underlying the purchase warrants, holders of the purchase warrants residing in
such states and desiring to exercise the purchase warrants will have no choice
but to sell such purchase warrants or allow them to expire. See "Risk Factors."
39
<PAGE> 42
After the offering, the purchase warrants are subject to redemption by the
company upon 30 days' prior written notice at $0.25 per purchase warrant if the
closing bid price of the common stock, as reported on the Nasdaq SmallCap Market
or as reported on a national or regional securities exchange, for 30 consecutive
trading days ending within ten days of the notice of redemption, averages in
excess of $10.00 per share, subject to adjustment. The company is required to
maintain an effective registration statement with respect to the common stock
underlying the purchase warrants as a condition to redemption of the purchase
warrants. Before the first anniversary of the closing date of the offering, the
purchase warrants will not be redeemable by the company without the written
consent of the underwriter. If the company exercises the right to redeem the
purchase warrants, the purchase warrants will be exercisable until the close of
business on the date for redemption fixed in the notice. In that event, any
purchase warrant holder may either (1) exercise the purchase warrants and pay
the exercise price at a time when it may be less advantageous economically to do
so, or (2) accept the redemption price in consideration for cancellation of the
purchase warrant, which could be substantially less than the market value of the
purchase warrant at the time of redemption.
The exercise price of the purchase warrants bears no relation to any
objective criteria of value and should in no event be regarded as an indication
of any future market price of the securities offered hereby.
The company has authorized and reserved for issuance a sufficient number of
shares of common stock to accommodate the exercise of all purchase warrants to
be issued in this offering. All shares of common stock issued upon exercise of
the purchase warrants, if exercised according to their terms, will be fully paid
and nonassessable.
Adjustments. The exercise price and the number of shares of common stock
purchasable upon exercise of the purchase warrants are subject to adjustment
upon the occurrence of certain events, including stock dividends, stock splits,
combinations or reclassification of the common stock, or sale by the company of
shares of its common stock (or other securities convertible into or exercisable
for common stock) at a price per share or share equivalent below the
then-applicable exercise price of the purchase warrants or the then-current
market price of the common stock, whichever is lower. Additionally, an
adjustment would be made in the case of a reclassification or exchange of common
stock, consolidation or merger of the company with or into another corporation,
or sale of substantially all of the assets of the company, to enable purchase
warrant holders to acquire the kind and number of shares of stock or other
securities or property receivable in that event by a holder of that number of
shares of common stock that would have been issued upon exercise of the purchase
warrant immediately before that event. No adjustments will be made until the
cumulative adjustments in the exercise price per share amount to $0.05 or more.
No adjustments to the exercise price of the purchase warrants will be made for
dividends (other than stock dividends) paid on the common stock or upon exercise
of the purchase warrants, the underwriter's warrant or any other options or
warrants outstanding as of the date of this prospectus.
Warrant Holder Not a Shareholder. The purchase warrants do not confer upon
their holders any dividend, voting, preemption or any other rights as
shareholders of the company.
Outstanding Warrants. As of May 31, 1999, there were outstanding 14
warrants to purchase an aggregate of 382,215 shares of common stock of the
company at exercise prices ranging from $1.00 to $3.00 per share. Each warrant
entitles its holder to purchase shares of common stock in the number and price
as specified in the warrant. The exercise price and number of shares are subject
to adjustment proportionately for any increase or decrease in the number of
issued shares of common stock resulting from a subdivision or consolidation of
shares of common stock or the payment of stock dividends or any other increase
or decrease in the number of issued shares of common stock effected without
receipt of consideration by the company. The company will not be required to
issue fractional shares upon exercise of a warrant. The holder of a warrant does
not possess any rights as a shareholder of the company until the holder
exercises the warrant.
In addition, in connection with an equipment lease financing, the company
has issued to the financing company a warrant to purchase up to 1,500 shares of
Series C Preferred Stock at a price of $32.50 per share. The holder may, at its
option, elect to purchase shares of common stock into which the shares of
40
<PAGE> 43
Series C Preferred Stock are then convertible, at a purchase price as adjusted
according to a specified conversion rate. Upon the closing, the holder will be
entitled to purchase up to 15,453 shares of common stock at an exercise price of
$3.135. If the fair market value of our common stock is greater than the
exercise price then in effect, then the warrant will be deemed automatically
exercised. The number of shares subject to the warrant and the warrant price are
subject to adjustment upon reclassification or merger, subdivision or
combination of shares or the payment of stock dividends to the holders of Series
C Preferred Stock or any other increase or decrease in the number of issued
shares of common stock effected without receipt of consideration by the company.
CASH AND STOCK DIVIDENDS TO CURRENT HOLDERS OF PREFERRED STOCK
Cash Dividends to Holders of Series A Preferred Stock. The holders of
Series A Preferred Stock are entitled to receive dividends at the rate of $0.60
per share per year, which accrue from day-to-day, whether or not earned or
declared. The holders of Series A Preferred Stock will be entitled to receive an
aggregate of approximately $115,000 in accrued dividends, assuming a closing
date of June 30, 1999 for this offering. The company intends to pay the full
amount of the accrued dividends upon the closing of the offering.
Stock Dividends to Holders of Series D Preferred Stock. The holders of
Series D Preferred Stock are entitled to receive dividends at the rate of $4.20
per share per year, which accrue day to day, whether or not earned or declared.
These accrued dividends are payable in shares of Series D Preferred Stock at an
assumed value of $60.00 per share. The stock dividend will become payable in
shares of common stock at the election of the company upon the closing of the
offering. The holders of Series D Preferred Stock are entitled to receive
approximately 17,684 shares of common stock, assuming a closing date of June 30,
1999 for this offering.
BRIDGE FINANCING OF PROMISSORY NOTES AND COMMON STOCK
During January 1998 through April 1999, the company sold 502,800 units of
securities at a price of $5.00 per unit, each unit consisting of one share of
common stock and a promissory note in the principal amount of $5.00 and bearing
interest at a rate of eight percent per year. The principal and accrued interest
on the note are due and payable within nine months of the date of the promissory
note or upon the closing of a public offering of the common stock, whichever is
earlier.
REGISTRATION RIGHTS
After the offering, the current holders of 129,121 shares of Series C
Preferred Stock and 16,667 shares of Series D Preferred Stock may be entitled,
upon expiration of lock-up agreements with the underwriter, to certain rights
with respect to registration under the Securities Act of 1,501,946 shares of
common stock into which the shares of Series C and Series D Preferred Stock will
be converted at the closing of this offering. Under the terms of an investors
rights agreement between the company and the holders of these securities, if the
company proposes to register any of its securities under the Securities Act,
either for its own account or for the account of other security holders
exercising registration rights, the holders are entitled to notice of the
registration and are entitled to include their shares of common stock in the
registration statement. Further, holders may require the company to file
registration statements on Form S-3 at the company's expense when the form
becomes available for use to the company. All registration rights are subject to
certain conditions and limitations, including the right of the underwriter of an
offering to limit the number of shares to be included in the registration.
The holder of the warrant to purchase Series C Preferred Stock is also
entitled to notice of a proposed registration of securities by the company, and
may require the company to include in the registration the holder's securities.
The company will bear all expenses of the registration and reimburse the holder
for its reasonable fees (not exceeding $2,500 for each registration) and
disbursement expenses of one counsel chosen by the holder.
41
<PAGE> 44
The company entered into a consulting agreement dated January 12, 1999 with
two parties to act as consultants and advisors to the company. In connection
with the engagement, the company granted to each party a five-year warrant to
purchase up to 125,000 shares of common stock at an exercise price of $1.00 per
share. The shares underlying these warrants have "piggyback" registration rights
on the same terms and conditions granted to the holders of Series C and Series D
Preferred Stock, as described above.
The underwriter has certain registration rights in connection with the
shares of common stock underlying the underwriter's warrants. See
"Underwriting."
CERTAIN ANTITAKEOVER EFFECTS OF OUR ARTICLES OF INCORPORATION, BYLAWS AND
PROVISIONS OF OREGON LAW
Articles of Incorporation and Bylaws. Our amended and restated articles and
bylaws that will become effective upon the closing of this offering will contain
provisions that may have the effect of delaying, deferring or preventing a
change in control. These provisions include:
- The ability of the Board of Directors, without further shareholder
approval, to issue up to 4 million shares of preferred stock;
- The requirement of a classified board whenever there are six or more
directors, with each class containing as nearly as possible one-third of
the total number of directors and the members of each class serving for
staggered three-year terms;
- The prohibition of cumulative voting for the election of directors; and
- The requirement no less than 60 days' advance notice with respect to
nominations of directors or other matters to be voted on by shareholders
other than by or at the direction of the Board of Directors.
Oregon Control Share and Business Combination Statutes. Oregon law may
restrict the ability of significant shareholders of the company to exercise
voting rights. The law generally applies to a person who acquires voting stock
of an Oregon corporation in a transaction that results in such person holding
more than 20%, 33 1/3% or 50% of the total voting power of the corporation. If
such a transaction occurs, the person cannot vote the shares unless voting
rights are restored to those shares by:
- A majority of the outstanding voting shares, including the acquired
shares, and
- The holders of a majority of the outstanding voting shares, excluding the
acquired shares and shares held by the corporation's officers and inside
directors.
This law is construed broadly and may apply to persons acting as a group.
The restricted shareholder may, but is not required to, submit to the
company a statement setting forth information about itself and its plans with
respect to the company. The statement may request that the company call a
special meeting of shareholders to determine whether voting rights will be
granted to the shares acquired. If a special meeting of shareholders is not
requested, the issue of voting rights of the acquired shares will be considered
at the next annual or special meeting of shareholders. If the acquired shares
are granted voting rights and they represent a majority of all voting power,
shareholders who do not vote in favor of granting such voting rights will have
the right to receive the appraised fair value of their shares. The appraised
fair value will, at a minimum, be equal to the highest price paid per share by
the person for the shares acquired in a transaction subject to this law.
The company is also subject to provisions of Oregon law that govern
business combinations between corporations and interested shareholders. These
provisions generally prohibit a corporation from entering into a business
combination transaction with a person, or affiliate of such person, for a period
of three years from the date such person acquires 15% or more of the voting
stock of the corporation. For the purpose of this law, the prohibition generally
applies to the following:
- A merger or plan of share exchange;
- Any sale, lease, mortgage or other disposition of 10% or more of the
assets of the company; and
- Transactions that result in the issuance of capital stock of the company
to the 15% shareholder.
42
<PAGE> 45
However, the general prohibition does not apply if:
- The 15% shareholder, as a result of the transaction in which such person
acquired 15% of the shares, owns at least 85% of the outstanding voting
stock of the corporation;
- The Board of Directors approves the share acquisition or business
combination before the shareholder acquired 15% or more of the company's
outstanding voting stock; or
- The Board of Directors and the holders of at least two-thirds of the
outstanding voting stock of the company, excluding shares owned by the
15% shareholder, approve the transaction after the shareholder acquires
15% or more of the company's voting stock.
NASDAQ AND EXCHANGE LISTINGS
We have applied to list the common stock and the purchase warrants for
quotation on the Nasdaq SmallCap Market under the trading symbols "MSEE" and
"MSEEW." We have also applied to list the common stock and purchase warrants on
the Boston Stock Exchange under the trading symbols [MRB] and [MRBW].
TRANSFER AGENT AND REGISTRAR
We have appointed ChaseMellon Shareholder Services, Inc. of Seattle,
Washington as the transfer and warrant agent and as registrar for the common
stock and purchase warrants.
43
<PAGE> 46
SHARES ELIGIBLE FOR FUTURE SALE
SHARES ELIGIBLE
Upon completion of the offering, we will have outstanding an aggregate of
5,366,867 shares of common stock, assuming no exercise of the underwriter's
over-allotment option and no exercise of outstanding warrants, including the
purchase warrants, and no exercise of employee stock options. Of these shares,
the 1,750,000 shares sold in the offering will be freely tradable without
restriction or further registration under the Securities Act, except that any
shares held by our "affiliates," as that term is defined in Rule 144 of the
Securities Act, may generally be sold only in compliance with the limitations of
Rule 144 described below. The remaining 3,616,867 shares of common stock are
"restricted securities" as that term is defined in Rule 144. Restricted
securities may be sold in the public market only if registered or if they
qualify for an exemption from registration under the Securities Act, as
described below.
LOCKUP AGREEMENTS
A number of holders of currently outstanding common stock, options and
warrants, and all executive officers and directors of the company, have agreed
that they will not offer, sell or otherwise dispose of any shares of common
stock, options or warrants to acquire shares of common stock or securities
exchangeable for or convertible into common stock, for a period of 6 months, 14
months and, 24 months and 48 months after the date of this prospectus. The
lock-up period and the number of securities subject to the lock-up, stated in
terms of common stock equivalents, are set forth below:
<TABLE>
<CAPTION>
LOCK-UP PERIOD COMMON STOCK OPTIONS WARRANTS
-------------- ------------ --------- --------
<S> <C> <C> <C>
6 months............................................. 310,581 -- --
14 months............................................ 714,772 -- 125,000
24 months............................................ 514,181 314,024 154,750
48 months............................................ 2,055,666 1,021,189 102,465
Not covered by lock-up............................... 21,667 6,232 15,453
</TABLE>
Certain directors, officers and holders of 5% or more of the company's
common stock (together, the "Promoters") are subject to lock-up agreements with
the company for a term of 48 months. These lock-up agreements restrict the sale
of all Promoters' shares of common stock, options and warrants to purchase
common stock and the shares of common stock issuable upon exercise of the
options and warrants, for a period of two years from the closing date of this
offering. Thereafter, two and one half percent of the total number of the
Promoter's shares remaining in the lock-up arrangement will be released each
quarter for the following two years. All remaining securities will be released
on the fourth anniversary from the closing date of this offering. If the
company's aggregate revenues remain above $500,000 per year and the company's
auditors lift the statement regarding the ability of the company to continue as
a going concern in the next audit of the company's financial statements, then
all of the Promoters' securities will be released from the lock-up arrangement
on the second anniversary of the closing date of this offering.
With respect to lock-up agreements with the underwriter, the underwriter,
in its sole discretion, may release these persons from their lock-up agreements
at any time without notice. See "Underwriting."
SALE OF RESTRICTED SECURITIES UNDER RULE 144
In General. The 3,616,867 restricted shares may be sold in the public
market only if registered or if they qualify for an exemption from registration
under the Securities Act. Due to contractual restrictions, the lock-up
agreements described above and the provisions of the Securities Act, additional
shares will be available for sale under Rule 144 in the public market as
follows:
- 21,667 shares of common stock (plus 6,232 shares issuable upon exercise
of stock options and 15,453 shares issuable upon exercise of warrants)
are currently eligible for sale in the public market;
44
<PAGE> 47
- An additional 310,581 shares of common stock that have been held for more
than a year will be eligible for sale upon the expiration of the lock-up
agreements expiring six months after the date of the final prospectus
prepared in this offering;
- An additional 714,772 shares of common stock (plus 125,000 shares
issuable upon exercise of warrants) will be eligible for sale upon the
expiration of the lock-up agreements expiring 14 months after the date of
the final prospectus;
- An additional 514,181 shares of common stock (plus 314,024 shares
issuable upon exercise of stock options and 154,750 shares issuable upon
exercise of warrants) will be eligible for sale upon expiration of the
lock-up agreements expiring 24 months after the date of the final
prospectus; and
- If the company's aggregate revenues remain above $500,000 per year and
the company's auditors lift the statement regarding the ability of the
company to continue as a going concern in the next audit of the company's
financial statements, then an additional 2,055,666 shares of common stock
(plus 1,021,189 shares issuable upon exercise of stock options and
102,465 shares issuable upon exercise of warrants) will be eligible for
sale upon 24 months after the closing date of this offering. Otherwise:
- An additional 43,045 to 51,392 shares of common stock (plus 21,384 to
25,530 shares issuable upon exercise of stock options and 2,146 to
2,562 shares issuable upon exercise of warrants) will be eligible for
sale in each quarter beginning 24 months after the closing date of
this offering for a period of two years; and
- An additional 1,678,763 shares of common stock (plus 833,956 shares
issuable upon exercise of stock options and 83,677 shares issuable
upon exercise of warrants) will be eligible for sale upon expiration
of the lock-up agreements expiring 48 months after the closing date of
this offering.
Sale of Restricted Shares Under Rule 144. In general, under Rule 144, a
person (or persons whose shares are aggregated), including an affiliate, who has
beneficially owned shares for at least one year can sell, within any three-month
period, beginning after the date of the prospectus, a number of shares of common
stock that does not exceed the greater of
(1) 1% of the then-outstanding shares of common stock (about 53,669 shares
immediately after the offering), or
(2) the average weekly trading volume of the common stock during the four
calendar weeks before the notice of the Rule 144 sale is filed.
Sales under Rule 144 are also subject to certain requirements as to the manner
and notice of sale and the availability of public information about the company.
In addition, any person not deemed to have been our affiliate at any time
during the 90 days before a sale and who has beneficially owned the shares
proposed to be sold for at least two years may sell those shares under Rule
144(k) without regard to the volume limitations described above.
Registration of Restricted Shares in the Future. After the closing of the
offering, the holders of approximately 1,767,399 shares of common stock,
including approximately 265,453 shares of common stock issuable upon exercise of
outstanding warrants, will be entitled to certain rights with respect to the
registration of the shares under the Securities Act. See "Description of
Securities -- Registration Rights Agreement." The underwriter also has certain
registration rights in connection with the shares of common stock underlying the
underwriter's warrants. In addition, we may file a registration statement under
the Securities Act to register shares of common stock reserved for issuance
under our stock option plans after 24 months from the date of this prospectus.
As of May 31, 1999, options to purchase approximately 1,341,845 shares of common
stock were outstanding under these stock option plans. The effect of filing
registration statements for these shares is that non-affiliates may resell the
registered shares in the public market without restriction under the Securities
Act.
45
<PAGE> 48
EFFECT OF SALES OF SHARES
Before this offering, there has been no market for the common stock, and no
precise prediction can be made about any effect that market sales of common
stock or the availability for sale of the common stock will have on the market
price of the common stock. Nevertheless, sales of substantial amounts of common
stock in the public market could adversely affect the market price and could
impair our future ability to raise additional capital through the sale of our
equity securities.
46
<PAGE> 49
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, Barron
Chase Securities, Inc., the underwriter, has agreed to purchase from the company
an aggregate of 1,750,000 shares of common stock and 1,750,000 purchase
warrants. These securities are offered by the underwriter subject to prior sale,
when, as and if delivered to and accepted by the underwriter and subject to
approval of certain legal matters by counsel and certain other conditions. The
underwriter is committed to purchase all of the securities offered by this
prospectus, if any are purchased (other than those covered by the over-allotment
option described below). All material terms of the underwriting agreement have
been summarized below.
The company has been advised by the underwriter that the underwriter
proposes to offer the securities to the public at the offering prices set forth
on the cover page of this prospectus. The underwriter has advised the company
that the underwriter proposes to offer the securities through members of the
National Association of securities Dealers, Inc. ("NASD"), and may allow
concessions, in its discretion, to certain selected dealers who are members of
the NASD and who agree to sell the securities in conformity with the NASD's
Conduct Rules. Such concessions will not exceed the amount of the underwriting
discount that the underwriter is to receive.
The company has granted to the underwriter an over-allotment option,
exercisable for 45 days from the date the registration statement becomes
effective, to purchase up to an additional 262,500 shares of common stock and an
additional 262,500 purchase warrants at the respective public offering prices
less the underwriting discounts set forth on the cover page of this prospectus.
Officers and directors of the company may introduce the underwriter to
persons to consider this offering and to purchase securities either through the
underwriter or through participating dealers. In this connection, no securities
have been reserved for those purchases, and officers and directors will not
receive any commissions or any other compensation.
The company has agreed to pay to the underwriter a commission of 10% of the
gross proceeds of this offering as the underwriting discount, including the
gross proceeds from the sale of the over-allotment option, if exercised. In
addition, the company has agreed to pay to the underwriter a non-accountable
expense allowance of three percent of the gross proceeds of this offering,
including proceeds from any securities purchased through the over-allotment
option. The company has paid to the underwriter a $50,000 advance in respect of
the non-accountable expense allowance. The underwriter's expenses in excess of
the non-accountable expense allowance will be paid by the underwriter. If the
expenses of the underwriter are less than the amount of the non-accountable
expense allowance received, then the excess will be deemed to be additional
compensation to the underwriter. The underwriter has informed the company that
it does not expect sales to discretionary accounts to exceed five percent of the
total number of securities offered by the company in this offering.
The company has agreed to engage the underwriter as a financial advisor at
a fee of $108,000, which is payable to the underwriter on the closing date of
this offering. Pursuant to the terms of a financial advisory agreement, the
underwriter has agreed to provide, at the company's request, advice to the
company concerning potential merger and acquisition and financing proposals,
whether by public financing or otherwise. The company has also agreed that if
the company participates in any transaction which the underwriter has introduced
to the company during a period of five years after the closing (including
mergers, acquisitions, joint ventures and any other business transaction for the
company introduced by the underwriter), and which is consummated after the
closing (including an acquisition of assets or stock for which it pays, in whole
or in part, with shares or other securities of the company), or if the company
retains the services of the underwriter in connection with any such transaction,
then the company will pay for the underwriter's services an amount equal to five
percent of up to one million dollars of value paid or received in the
transaction, four percent of the next million of such value, three percent of
the next million of such value, two percent of the next million of such value,
and one percent of the next million dollars of such value and of all such value
above $4 million.
47
<PAGE> 50
Prior to this offering, there has been no public market for the shares of
common stock or the purchase warrants. Consequently, the initial public offering
prices for the securities, and the terms of the purchase warrants (including the
exercise price of the purchase warrants), have been determined by negotiation
between the company and the underwriter. Among the factors considered in
determining the public offering prices were the history of, and the prospects
for, the company's business, an assessment of the company's management, the
company's past and present operations, its development and the general condition
of the securities market at the time of this offering. The initial public
offering prices do not necessarily bear any relationship to the company's
assets, book value, earnings, or other established criteria of value. These
prices are subject to change as a result of market conditions and other factors,
and no assurance can be given that a public market for the common stock or the
purchase warrants will develop after the offering, or if a public market in fact
develops, that such public market will be sustained, or that the common stock or
the purchase warrants can be resold at any time at the offering or any other
price.
At the closing, the company will issue to the underwriter and/or persons
related to the underwriter, for nominal consideration, common stock underwriter
warrants to purchase up to 175,000 shares of common stock and warrant
underwriter warrants to purchase up to 175,000 warrants. The common stock
underwriter warrants and the warrant underwriter warrants are sometimes referred
to in this prospectus as the "underwriter warrants". The underwriter warrants
and the securities underlying the underwriter warrants are registered pursuant
to this registration statement. The underwriter warrants will be exercisable for
a five-year period commencing on the effective date of the registration
statement. The initial exercise price of each common stock underwriter warrant
shall be $8.25 per underlying share (165% of the public offering price). The
initial exercise price of each warrant underwriter warrant shall be $0.20625 per
underlying warrant (165% of the public offering price). The underwriter warrants
will be restricted from sale, transfer, assignment or hypothecation for a period
of twelve months from the effective date by the holder, except (1) to officers
of the underwriter and members of the selling group and officers and partners
thereof; (2) by will; or (3) by operation of law.
The underwriter warrants contain provisions providing for appropriate
adjustment in the event of any merger, consolidation, recapitalization,
reclassification, stock dividend, stock split or similar transaction. The
underwriter warrants contain net issuance provisions permitting the holders
thereof to elect to exercise the underwriter warrants in whole or in part and
instruct the company to withhold from the securities issuable upon exercise, a
number of securities, valued at the current fair market value on the date of
exercise, to pay the exercise price. The net exercise provision has the effect
of requiring the company to issue shares of common stock without a corresponding
increase in capital. A net exercise of the underwriter warrants will have the
same dilutive effect on the interests of the company's shareholders as will a
cash exercise. The underwriter warrants do not entitle the holders of the
underwriter warrants to any rights as shareholders of the company until the
underwriter warrants are exercised and shares of common stock are purchased
thereunder.
The underwriter warrants and the securities issuable thereunder may not be
offered for sale except in compliance with the applicable provisions of the
Securities Act of 1933. The company has agreed that if it causes a
post-effective amendment, a new registration statement, or similar offering
document to be filed with the Securities and Exchange Commission, the holders
will have the right, for seven years from the effective date, to include in the
registration statement or offering statement the underwriter warrants or the
securities issuable upon their exercise at no expense to the holders.
Additionally, the company has agreed that, upon request by the holders of fifty
percent or more of the underwriter warrants during the period commencing one
year from the effective date and expiring four years thereafter, the company
will, under certain circumstances, register the underwriter warrants and/or any
of the securities issuable upon their exercise.
48
<PAGE> 51
In order to facilitate the offering of the common stock and purchase
warrants, the underwriter may engage in transactions that stabilize, maintain or
otherwise affect the price of the common stock and purchase warrants.
Specifically, the underwriter may overallot in connection with the offering,
creating a short position in the common stock and purchase warrants for its own
account. In addition, to cover overallotments or to stabilize the price of the
common stock and purchase warrants, the underwriter may bid for, and purchase,
shares of common stock and purchase warrants in the open market. Finally, the
underwriter may reclaim selling concessions allowed to a dealer for distributing
the common stock and purchase warrant in the offering, if the underwriter
repurchases previously distributed common stock or purchase warrants in
transactions to cover the underwriter's short position, in stabilization
transactions or otherwise. Any of these activities may stabilize or maintain the
market price of the common stock and purchase warrants above independent market
levels. The underwriter is not required to engage in these activities, and may
end any of these activities at any time.
The company has agreed to indemnify the underwriter against any costs or
liabilities incurred by the underwriter by reason of misstatements or omissions
to state material facts in connection with the statements made in the
registration statement and this prospectus filed by the company with the
Securities and Exchange Commission. The underwriter has in turn agreed to
indemnify the company against any costs or liabilities by reason of
misstatements or omissions to state material facts in connection with the
statements made in the registration statement and this prospectus, based on
information relating to the underwriter and furnished in writing by the
underwriter. To the extent that these provisions may purport to provide
exculpation from possible liabilities arising under the federal securities laws,
in the opinion of the SEC, such indemnification is contrary to public policy and
therefore unenforceable.
The discussion above is merely a summary of all material terms of the
agreements, and does not purport to be complete. You should review each of the
referenced documents which have been filed as exhibits to the registration
statement. See "Where You Can Find More Information."
LEGAL MATTERS
The validity of the common stock and purchase warrants offered hereby will
be passed upon for the company by Tonkon Torp LLP, Portland, Oregon. Certain
legal matters will be passed upon for the underwriter by David A. Carter, P.A.,
Boca Raton, Florida.
EXPERTS
The financial statements of Oregon Baking Company dba Marsee Baking as of
December 31, 1997 and 1998, and for the years then ended, have been included
herein and in the registration statement in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing. The report of KPMG Peat Marwick LLP covering the December 31, 1998
financial statements contains an explanatory paragraph that states that the
company's recurring losses from operations raise substantial doubt about the
entity's ability to continue as a going concern. The financial statements do not
include any adjustments that might result from the outcome of the uncertainty as
to the company's ability to continue as a going concern.
49
<PAGE> 52
WHERE YOU CAN FIND MORE INFORMATION
We have filed a Registration Statement on Form SB-2 relating to the common
stock and purchase warrants being offered for sale through this offering with
the Securities and Exchange Commission. As permitted by the rules and
regulations of the SEC, this prospectus does not contain all the information
described in the registration statement. For further information about the
company and its securities, you should read our registration statement,
including the exhibits and schedules. In addition, we will be subject to the
requirements of the Securities Exchange Act of 1934 following this offering and
thus will file annual, quarterly and special reports, proxy statements and other
information with the SEC. These SEC filings and the registration statement are
available to you over the Internet at the SEC's web site at http://www.sec.gov.
You may also read and copy any document we file with the SEC at the SEC's public
reference rooms in Washington, D.C., New York, New York and Chicago, Illinois.
Please call the SEC at 1-800-SEC-0330 for further information about the public
reference rooms. Statements contained in this prospectus as to the contents of
any contract or other document are not necessarily complete and, in each
instance, you should review the contract or document which has been filed as an
exhibit to the registration statement.
We intend to furnish our shareholders with annual reports containing
audited financial statements.
50
<PAGE> 53
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Balance Sheets as of December 31, 1997 and 1998, and March
31, 1999 (unaudited)...................................... F-3
Statements of Operations for the years ended December 31,
1997 and 1998, and the three months ended March 31, 1998
and 1999 (unaudited)...................................... F-4
Statements of Shareholders' (Deficit) Equity for the years
ended December 31, 1997 and 1998, and the three months
ended March 31, 1999 (unaudited).......................... F-5
Statements of Cash Flows for the years ended December 31,
1997 and 1998, and the three months ended March 31, 1998
and 1999 (unaudited)...................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 54
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Oregon Baking Company
dba Marsee Baking:
We have audited the accompanying balance sheets of Oregon Baking Company
dba Marsee Baking (the Company) as of December 31, 1997 and 1998, and the
related statements of operations, shareholders' (deficit) equity and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Oregon Baking Company dba
Marsee Baking as of December 31, 1997 and 1998, and results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 2 to the
financial statements, the Company has suffered recurring losses from operations
that raise substantial doubt about its ability to continue as a going concern.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
/s/ KPMG PEAT MARWICK LLP
Portland, Oregon
February 23, 1999
F-2
<PAGE> 55
OREGON BAKING COMPANY
DBA MARSEE BAKING
BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31,
1997 1998 1999
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash...................................................... $ 91 $ 21 $ 21
Restricted cash........................................... -- 108 108
Accounts receivable....................................... 54 253 235
Inventories............................................... 64 269 207
Prepaid and other assets.................................. 46 134 457
------- ------- -------
Total current assets................................ 255 785 1,028
Property and equipment, net................................. 2,634 7,511 7,180
Other assets, net........................................... 118 378 769
------- ------- -------
Total assets........................................ $ 3,007 $ 8,674 $ 8,977
======= ======= =======
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Line of credit............................................ $ 250 $ 250 $ 250
Accounts payable.......................................... 915 2,250 1,876
Accrued liabilities....................................... 232 735 807
Notes payable............................................. -- 525 2,134
Current portion of capital lease obligations.............. 88 574 589
Current portion of long-term debt......................... 168 370 364
Current portion of long-term debt to related parties...... 89 229 221
------- ------- -------
Total current liabilities........................... 1,742 4,933 6,241
Capital lease obligations, net of current portion........... 221 1,019 866
Long-term debt, net of current portion...................... 1,006 1,544 1,482
Long-term debt to related parties, net of current portion... 128 190 190
Cumulative dividends payable on preferred stock series D and
A......................................................... 68 168 193
------- ------- -------
Total liabilities................................... 3,165 7,854 8,972
------- ------- -------
Commitments and contingencies
Shareholders' (deficit) equity:
Preferred stock, authorized 4,000,000 shares (liquidation
preference of $6,541):
Cumulative preferred stock series D, no par value;
authorized 22,507 shares, -0-, 16,667 and 16,667
issued outstanding at December 31, 1997 and 1998, and
March 31, 1999 (unaudited), respectively.............. -- 1,000 1,000
Cumulative preferred stock series A, no par value;
authorized 100,000 shares; 52,667 issued and
outstanding at December 31, 1997 and 1998, and March
31, 1999 (unaudited), respectively.................... 281 281 281
Preferred stock series B, no par value; authorized
510,575 shares, 510,575 issued and outstanding at
December 31, 1997 and 1998, and March 31, 1999
(unaudited), respectively............................. 1,143 1,143 1,143
Preferred stock series C, no par value; authorized
168,000 shares, -0-, 129,121 and 129,121 issued and
outstanding at December 31, 1997 and 1998, and March
31, 1999 (unaudited), respectively.................... -- 4,117 4,117
Common stock, no par value; authorized 15,000,000 shares,
868,961, 868,961 and 1,295,761 issued and outstanding at
December 31, 1997 and 1998, and March 31, 1999
(unaudited), respectively............................... 476 626 828
Warrants.................................................. 41 156 241
Accumulated deficit....................................... (2,099) (6,503) (7,605)
------- ------- -------
Total shareholders' (deficit) equity................ (158) 820 5
------- ------- -------
Total liabilities and shareholders' (deficit)
equity............................................ $ 3,007 $ 8,674 $ 8,977
======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 56
OREGON BAKING COMPANY
DBA MARSEE BAKING
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
------------------ ----------------------
1997 1998 1998 1999
------- ------- -------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Bakery-Cafes.................................. $ 4,140 $ 9,761 $ 2,081 $ 2,328
Wholesale..................................... 808 2,895 651 610
------- ------- -------- ----------
Total revenues........................ 4,948 12,656 2,732 2,938
------- ------- -------- ----------
Cost of goods sold.............................. 2,887 7,579 1,554 1,721
Store operating expenses........................ 1,621 5,281 1,312 1,238
Wholesale operating expenses.................... 328 599 139 70
Depreciation and amortization................... 213 817 119 330
General and administrative expenses............. 965 1,959 499 400
Store closure expenses.......................... -- 253 -- --
------- ------- -------- ----------
Loss from operations.................. (1,066) (3,832) (891) (821)
Interest expense (interest expense to related
parties of $20, $23, $5, and $42)............. 129 472 67 256
------- ------- -------- ----------
Loss before provision for income
taxes............................... (1,195) (4,304) (958) (1,077)
Provision for income taxes...................... -- -- -- --
------- ------- -------- ----------
Net loss.............................. (1,195) (4,304) (958) (1,077)
Cumulative dividends on preferred stock series D
and A......................................... 32 100 25 25
------- ------- -------- ----------
Net loss attributed to common
shareholders........................ $(1,227) $(4,404) $ (983) $ (1,102)
======= ======= ======== ==========
Net loss per common share -- basic and
diluted....................................... $ (1.41) $ (5.07) $ (1.13) $ (0.97)
Shares used in computing net loss per common
share -- basic and diluted.................... 868,588 868,961 868,961 1,136,348
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 57
OREGON BAKING COMPANY
DBA MARSEE BAKING
STATEMENTS OF SHAREHOLDERS' (DEFICIT) EQUITY
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
CUMULATIVE CUMULATIVE
PREFERRED PREFERRED PREFERRED STOCK PREFERRED STOCK
STOCK SERIES D STOCK SERIES A SERIES B SERIES C
--------------- --------------- ---------------- ----------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996............... -- $ -- 52,667 $281 442,032 $1,020 -- $ --
Issuance of common stock................. -- -- -- -- -- -- -- --
Issuance of preferred stock.............. -- -- -- -- 68,543 123 -- --
Consulting expense on stock option
grants................................. -- -- -- -- -- -- -- --
Warrants issued in connection with
acquisition and loan guarantees........ -- -- -- -- -- -- -- --
Cumulative dividends on preferred stock
series A............................... -- -- -- -- -- -- -- --
Net loss................................. -- -- -- -- -- -- -- --
------ ------ ------ ---- ------- ------ ------- ------
Balance, December 31, 1997............... -- -- 52,667 281 510,575 1,143 -- --
Issuance of preferred stock, net of
offering costs of $79.................. -- -- -- -- -- -- 95,583 3,027
Issuance of preferred stock in connection
with acquisition....................... 16,667 1,000 -- -- -- -- 33,538 1,090
Compensation and consulting expense on
stock option grants.................... -- -- -- -- -- -- -- --
Warrants issued in connection with
acquisition and debt financing......... -- -- -- -- -- -- -- --
Cumulative dividends on preferred stock
series D and A......................... -- -- -- -- -- -- -- --
Net loss................................. -- -- -- -- -- -- -- --
------ ------ ------ ---- ------- ------ ------- ------
Balance, December 31, 1998............... 16,667 1,000 52,667 281 510,575 1,143 129,121 4,117
Issuance of common stock (unaudited)..... -- -- -- -- -- -- -- --
Warrants issued in connection with debt
financing (unaudited).................. -- -- -- -- -- -- -- --
Cumulative dividends on preferred stock
series D and A (unaudited)............. -- -- -- -- -- -- -- --
Net loss (unaudited)..................... -- -- -- -- -- -- -- --
------ ------ ------ ---- ------- ------ ------- ------
Balance, March 31, 1999 (unaudited)...... 16,667 $1,000 52,667 $281 510,575 $1,143 129,121 $4,117
====== ====== ====== ==== ======= ====== ======= ======
<CAPTION>
COMMON STOCK
------------------ ACCUMULATED
SHARES AMOUNT WARRANTS DEFICIT TOTAL
--------- ------ -------- ----------- -------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996............... 867,961 $471 $ -- $ (872) $ 900
Issuance of common stock................. 1,000 2 -- -- 2
Issuance of preferred stock.............. -- -- -- -- 123
Consulting expense on stock option
grants................................. -- 3 -- -- 3
Warrants issued in connection with
acquisition and loan guarantees........ -- -- 41 -- 41
Cumulative dividends on preferred stock
series A............................... -- -- -- (32) (32)
Net loss................................. -- -- -- (1,195) (1,195)
--------- ---- ---- ------- -------
Balance, December 31, 1997............... 868,961 476 41 (2,099) (158)
Issuance of preferred stock, net of
offering costs of $79.................. -- -- -- -- 3,027
Issuance of preferred stock in connection
with acquisition....................... -- -- -- -- 2,090
Compensation and consulting expense on
stock option grants.................... -- 150 -- -- 150
Warrants issued in connection with
acquisition and debt financing......... -- -- 115 -- 115
Cumulative dividends on preferred stock
series D and A......................... -- -- -- (100) (100)
Net loss................................. -- -- -- (4,304) (4,304)
--------- ---- ---- ------- -------
Balance, December 31, 1998............... 868,961 626 156 (6,503) 820
Issuance of common stock (unaudited)..... 426,800 202 -- -- 202
Warrants issued in connection with debt
financing (unaudited).................. -- -- 85 -- 85
Cumulative dividends on preferred stock
series D and A (unaudited)............. -- -- -- (25) (25)
Net loss (unaudited)..................... -- -- -- (1,077) (1,077)
--------- ---- ---- ------- -------
Balance, March 31, 1999 (unaudited)...... 1,295,761 $828 $241 $(7,605) $ 5
========= ==== ==== ======= =======
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 58
OREGON BAKING COMPANY
DBA MARSEE BAKING
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------ -------------------
1997 1998 1998 1999
------- ------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(1,195) $(4,304) $ (958) $(1,077)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization......................... 265 1,295 174 391
Compensation and consulting expense on stock option
grants............................................... 5 113 -- --
Warrants issued in connection with debt financing..... 21 86 -- --
Change in assets and liabilities, excluding
acquisition:
Accounts receivable................................. (33) (199) (185) 18
Inventories......................................... (45) (100) 12 62
Prepaid and other assets............................ (70) (59) (23) (323)
Accounts payable.................................... 743 1,335 412 (374)
Accrued liabilities................................. 70 421 315 72
------- ------- ------ -------
Net cash used in operating activities............. (239) (1,412) (253) (1,231)
------- ------- ------ -------
Cash flows related to investing activities:
Purchases of property and equipment....................... (1,377) (2,139) (852) (56)
Increase in other assets.................................. -- (123) (28) (310)
------- ------- ------ -------
Net cash used in investing activities............... (1,377) (2,262) (880) (366)
------- ------- ------ -------
Cash flows related to financing activities:
Principal payments on long-term debt to related parties... (39) (25) (7) (8)
Proceeds from long-term debt to related parties........... -- 227 7 --
Principal payments on capital lease obligations........... (107) (285) (15) (138)
Principal payments on notes payable and long-term debt.... (62) (218) (37) (68)
Proceeds from notes payable and long-term debt............ 856 986 106 1,609
Borrowing on line of credit, net.......................... 250 -- -- --
Restricted cash........................................... -- (108) -- --
Issuance of common stock, net of offering costs........... -- -- -- 202
Issuance of preferred stock, net of offering costs........ 123 3,027 1,005 --
------- ------- ------ -------
Net cash provided by financing activities......... 1,021 3,604 1,059 1,597
------- ------- ------ -------
Net decrease in cash.............................. (595) (70) (74) --
Cash, beginning of year..................................... 686 91 91 21
------- ------- ------ -------
Cash, end of year........................................... $ 91 $ 21 $ 17 $ 21
======= ======= ====== =======
Supplemental cash flow information:
Cash paid for:
Interest................................................ $ 115 $ 362 $ 52 $ 129
Income taxes............................................ -- -- -- --
Non-cash activities:
Property and equipment acquired under capital lease
obligations............................................ 261 1,569 40 --
Property and equipment acquired by assumption of note
payable................................................ -- 497 -- --
Warrants issued in connection with loan guarantees...... -- 29 -- 85
Other assets acquired by issuance of common stock....... -- 23 -- --
Cumulative dividends payable on preferred stock series D
and A.................................................. 32 100 25 25
Assets acquired and liabilities assumed in connection
with acquisitions:
Property and equipment................................ -- 1,922 1,922 --
Inventories........................................... -- 105 105 --
Goodwill.............................................. 23 159 159 --
Accrued liabilities................................... -- 82 82 --
Equity issued for purchase of goodwill relating to
business acquired.................................... 3 -- -- --
Issuance of preferred stock series C.................. -- 1,090 1,090 --
Issuance of cumulative preferred stock series D....... -- 1,000 1,000 --
Granted options....................................... 20 -- -- --
Warrants issued....................................... -- 14 14 --
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 59
OREGON BAKING COMPANY
DBA MARSEE BAKING
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) DESCRIPTION OF BUSINESS
Oregon Baking Company dba Marsee Baking (Marsee Baking or the Company), an
Oregon corporation, owns and operates 18 bakery-cafe's in the Pacific Northwest.
Marsee Baking also distributes its products through its wholesale operations,
providing specialty retailers and other institutions with a complete line of the
Company's products.
(b) UNAUDITED QUARTERLY INFORMATION
The financial information included herein for the three-month periods ended
March 31, 1998 and 1999 is unaudited; however, such information reflects all
adjustments consisting only of normal recurring adjustments which are, in the
opinion of management, necessary for a fair presentation of the financial
position, results of operations and cash flows for the interim periods. The
interim financial statements should be read in conjunction with the notes
included in the financial statements. The results of operations for the interim
period presented are not necessarily indicative of the results to be expected
for the full year.
(c) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(d) SEGMENT REPORTING
The Company adopted SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information." SFAS 131 requires public companies to
report certain information about their operating segments in a complete set of
financial statements to shareholders. It also requires reporting of certain
enterprise-wide information about the Company's products and services, its
activities in different geographic areas and its reliance on major customers.
The basis for determining the Company's operating segments is the manner in
which management operates the business. The Company operates one segment as
defined by SFAS No. 131.
(e) FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash, accounts receivable,
accounts payable and debt instruments. At December 31, 1997 and 1998, the fair
value of the Company's receivables and debt and capital lease obligations
approximated carry value.
(f) ADVERTISING
Advertising costs are expensed as incurred. For the years ended December
31, 1997 and 1998, advertising costs were approximately $43 and $241,
respectively.
F-7
<PAGE> 60
OREGON BAKING COMPANY
DBA MARSEE BAKING
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(g) ACCOUNTS RECEIVABLE
The accounts receivable balance is made up of trade receivables net of
allowance for doubtful accounts. As of December 31, 1997 and 1998, the allowance
for doubtful accounts was $60 and $10, respectively.
(h) INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or
market, and consists primarily of raw ingredients, deli products and finished
bakery products.
(i) PROPERTY AND EQUIPMENT
Property and equipment is carried at cost less accumulated depreciation and
amortization. Depreciation of property and equipment, which includes
amortization of assets under capital leases, is provided on the straight-line
method over estimated useful lives or the life of the lease, whichever is
shorter, generally ranging from 3 to 12 years.
Leasehold improvements are amortized over the shorter of their estimated
useful lives or the related life of the lease, generally 10 years. The portion
of depreciation expense related to production and distribution facilities is
included in cost of goods sold.
When facts and circumstances indicate that the cost of long-lived assets
may be impaired, an evaluation of recoverability is performed by comparing the
carrying value of the asset to projected future cash flows. Upon indication that
the carrying value of such assets may not be recoverable the Company recognizes
an impairment loss by a charge against current operations. For the years ended
December 31, 1997 and 1998, there were no impairment losses.
Maintenance and repairs are charged to expense as incurred. Major repairs
and improvements are capitalized.
(j) OTHER ASSETS
Other assets consists primarily of goodwill, security deposits and last
months rent required under certain operating lease agreements.
Goodwill as of December 31, 1997 and 1998 was $33 and $192, respectively.
Amortization of goodwill is computed on the straight-line basis over a period of
18 months to 10 years. Accumulated amortization as of December 31, 1997 and 1998
was $2 and $47, respectively.
Management's policy is to review the ongoing value of the goodwill on a
periodic basis by comparing undiscounted future projected earnings to the
carrying value of goodwill. Any difference would be recorded as an impairment
adjustment. Management is of the opinion that there has been no decline in the
value assigned to goodwill.
(k) STORE OPENING COSTS
Costs incurred in connection with start-up and promotion of new store
openings are expensed as incurred.
F-8
<PAGE> 61
OREGON BAKING COMPANY
DBA MARSEE BAKING
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(l) DEFERRED RENT
Certain of the Company's lease agreements provide for scheduled rent
increases during the lease term, or for rental payments commencing at a date
other than the date of initial occupancy. Rent expenses are recognized on a
straight-line basis over the terms of the leases. Deferred rent has been
included in accrued liabilities in the accompanying financial statements.
(m) INCOME TAXES
The Company accounts for income taxes using the asset and liability method.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
financial statements carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. Valuation
allowances are established to reduce deferred tax assets to the amount expected
to be realized.
(n) STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation using Statement of
Financial Accounting Standards No. 123 (SFAS 123), Accounting for Stock-Based
Compensation. This statement permits a company to choose either a fair-value
based method of accounting for its stock-based compensation arrangements or to
comply with the current Accounting Principles Board Opinion 25 (APB Opinion 25)
intrinsic-value-based method adding pro-forma disclosures of net loss computed
as if the fair-value-based method had been applied in the financial statements.
The Company applies SFAS 123 by retaining the APB Opinion 25 method of
accounting for stock-based compensation for employees with annual pro-forma
disclosures of net loss. Stock-based compensation for non-employees is accounted
for using the fair-value-based method.
(o) NET LOSS PER COMMON SHARE
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings Per Share (SFAS 128). SFAS 128 replaced the calculation of primary and
fully diluted earnings (loss) per share with basic and diluted earnings (loss)
per share. Unlike primary and fully diluted earnings (loss) per share,
outstanding nonvested shares are not included in the computations of basic and
diluted earnings (loss) per share until the time-based vesting restriction has
lapsed. Basic earnings (loss) per share also excludes any dilutive effects of
options, warrants and convertible securities. Diluted earnings (loss) per share
is very similar to the previously reported fully diluted earnings (loss) per
share. The Company's common stock equivalents were antidilutive and therefore
were not included in the computation of weighted average shares used in
computing diluted loss per common share.
(p) RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard No. 133 (SFAS 133), Accounting for
Derivative Instruments and Hedging Activities. SFAS 133 establishes accounting
and reporting standards requiring that every derivative instrument be recorded
in the balance sheet as either an asset or liability at its fair value. The
standard also requires that changes in the derivatives' fair value be recognized
currently in the results of operations unless specific
F-9
<PAGE> 62
OREGON BAKING COMPANY
DBA MARSEE BAKING
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
hedge accounting criteria are met. SFAS 133 is effective for fiscal years
beginning after June 15, 1999. The Company does not expect SFAS 133 to have a
material impact on its financial statements.
(2) LIQUIDITY
To meet the cash flow needs of the Company in 1999, the Company will need
to issue additional equity securities, borrow additional funds, or obtain other
financing. The Company has no commitments for additional financing, other than
financing obtained subsequent to year end as described in note 14, and there can
be no assurance that further financing will be available on satisfactory terms,
if at all. The accompanying financial statements have been prepared on the basis
that the Company will be able to meet its cash needs and continue as a going
concern.
(3) ACQUISITIONS
During May 1997, the Company acquired the recipes, trademark, customer
list, and copyrights on advertising and promotional items of a bakery located in
Portland, Oregon. The purchase price of $33 was paid in cash, issuance of common
stock and common stock warrants. The acquisition was accounted for using the
purchase method of accounting. The excess of the total acquisition costs over
the fair value of the net assets acquired is being amortized over eighteen
months using the straight-line method. The results of operations of the acquired
company have been included in the financial statements of the Company since the
date of acquisition.
During the first quarter of 1998, the Company acquired certain assets
consisting of property and equipment for 10 stores (the Acquired Stores) and a
commissary located in Washington (the Commissary). The Company also assumed
certain operating lease obligations. The acquisition was accounted for using the
purchase method of accounting. The results of the operations of the Acquired
Stores and the Commissary have been included in the Company's results of
operations since the acquisition date.
The following is the purchase price allocation:
<TABLE>
<S> <C>
Preferred stock, series C................................... $1,090
Preferred stock, series D................................... 1,000
Granted options............................................. 14
Direct acquisition costs.................................... 82
------
Total purchase price.............................. 2,186
Assets acquired:
Inventories............................................... 105
Property and equipment.................................... 1,922
------
Cost in excess of net assets acquired....................... $ 159
======
</TABLE>
The excess of the total acquisition cost over the fair value of the net
assets acquired is being amortized over 10 years, the average life of the
operating lease obligations acquired, using the straight-line method.
The Company financed the purchase by issuing 33,538 shares of preferred
series C stock and 16,667 shares of cumulative preferred series D stock. The
Company also granted 15,000 stock options for professional services rendered
relating to the acquisition.
F-10
<PAGE> 63
OREGON BAKING COMPANY
DBA MARSEE BAKING
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following pro-forma information is presented to show the results of
operations had the acquisition occurred January 1, 1997:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
(UNAUDITED)
<S> <C>
Total revenues.............................................. $10,051
Loss from operations........................................ (1,704)
Net loss.................................................... (1,942)
Cumulative dividends on preferred series D and A............ (102)
Net loss attributed to common shareholders.................. (2,044)
Net loss per common share -- basic and diluted.............. (2.35)
</TABLE>
The above results of operations are not intended to be indicative of the
results of operations which actually would have been realized had the
acquisition occurred as of January 1, 1997, nor of the future results of
operations of the combined Company.
(4) PROPERTY AND EQUIPMENT
Property and equipment at December 31, consists of the following:
<TABLE>
<CAPTION>
1997 1998
------ -------
<S> <C> <C>
Leasehold improvements.................................... $1,328 $ 4,237
Furniture and equipment................................... 1,159 3,288
Equipment under capital leases............................ 499 1,952
Construction in progress.................................. 364 --
------ -------
3,350 9,477
Less accumulated depreciation and amortization............ (716) (1,966)
------ -------
$2,634 $ 7,511
====== =======
</TABLE>
(5) LINE OF CREDIT
The Company has $250 outstanding at December 31, 1997 and 1998 under an
operating line of credit secured by the assets of the Company. The credit line
bears interest at prime plus 1% (9.50% and 8.75% at December 31, 1997 and 1998,
respectively) and the Company may borrow a maximum of $250. All unpaid principal
and interest is due and payable February 23, 1999. The line of credit is
collateralized by the Company's assets. The line also contains covenants which
the Company was in compliance with at December 31, 1998. (See note 14).
(6) NOTES PAYABLE
At December 31, 1998, the Company was in the process of obtaining bridge
financing through a private offering. The terms of the offering are that for
each $5.00 of financing provided, the investor is entitled to receive one share
of common stock together with a promissory note in the face amount of $5.00
bearing interest at 8% and payment is due the earlier of nine months from
investment or at the time the Company's stock becomes publicly traded. At
December 31, 1998, there were outstanding promissory notes with a face value of
$525,000 related to the bridge financing. At December 31, 1998, the Company
F-11
<PAGE> 64
OREGON BAKING COMPANY
DBA MARSEE BAKING
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
had an obligation to issue 105,000 shares of common stock purchased in
connection with the bridge financing. (See note 14).
(7) LONG-TERM DEBT AND DEBT TO RELATED PARTIES
<TABLE>
<CAPTION>
1997 1998
------ ------
<S> <C> <C>
Note payable to supplier due in monthly installments of $2,
including interest at 12%, maturing 2000, unsecured....... $ 53 $ 36
Construction loans related to leasehold improvements due in
monthly installments of between $4 and $2 including
interest at 11% - 12% maturing by 2000, unsecured......... 126 115
Note payable to bank due in monthly installments of $1
including interest at 10.50% maturing in 2001,
unsecured................................................. -- 24
Note payable to finance company due in monthly installments
of $11, including interest at prime plus 2.75% (10.5% at
December 31, 1998), maturing 2003, secured by lien and
security interest in property............................. -- 462
Construction loan related to leasehold improvements due in
monthly installments of $2 including interest at 6%,
maturing in 2003, unsecured............................... -- 106
Construction loans related to leasehold improvements due in
monthly installments of between $1 and $3 including
interest at 10% - 12.6% maturing by 2004, unsecured....... 95 348
Note payable to finance company due in monthly installments
of $16, including interest at prime plus 2.75% (10.5% at
December 31, 1998), maturing 2004, guaranteed by certain
shareholders.............................................. 900 822
Notes payable to related party shareholders due in quarterly
installments of interest only at 10%, due on demand,
unsecured................................................. 26 26
Notes payable to related party shareholders with no stated
installments, interest varying, unsecured, due on
demand.................................................... 39 39
Notes payable to related party shareholders due in monthly
installments of principal and interest at between 17.5%
and 20.4%, unsecured, maturing June 1999.................. 152 128
Notes payable to related party shareholders with no stated
installments, interest varying, unsecured, maturing May
1999...................................................... -- 37
Notes payable to related party shareholders due in quarterly
installments of interest only at 12%, due by August 2000,
unsecured................................................. -- 190
------ ------
1,391 2,333
Less current portion........................................ (257) (599)
------ ------
$1,134 $1,734
====== ======
</TABLE>
The principal payments on long-term debt are as follows at December 31,
1998:
<TABLE>
<S> <C>
1999........................................................ $ 599
2000........................................................ 549
2001........................................................ 336
2002........................................................ 365
2003........................................................ 306
Thereafter.................................................. 178
------
$2,333
======
</TABLE>
F-12
<PAGE> 65
OREGON BAKING COMPANY
DBA MARSEE BAKING
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(8) LETTER OF CREDIT
At December 31, 1998, the Company had a letter of credit for $325
outstanding. The letter of credit is collateral for the Company's obligations to
a finance company. The letter of credit is collateralized by two shareholders
and by $108 of restricted cash by the Company.
(9) CAPITAL LEASE OBLIGATIONS
The Company has entered into certain capital lease obligations related to
the purchase of equipment. The leases bear interest at rates ranging from 10% to
15% and require monthly payments of principal and interest. The leases are
secured by the equipment and mature during 2001 through 2002.
Future minimum payments on capital lease obligations are as follows at
December 31, 1998:
<TABLE>
<S> <C>
1999........................................................ $ 740
2000........................................................ 707
2001........................................................ 386
2002........................................................ 48
------
1,881
Less-portion representing interest.......................... (288)
------
Present value of net minimum lease payments............... 1,593
Less-current portions....................................... (574)
------
Long-term obligations under capital leases................ $1,019
======
</TABLE>
(10) INCOME TAXES
Due to the Company's losses before provision for income taxes in each
period, there has been no provision for federal and state income taxes for the
years ended December 31, 1997 and 1998.
The reconciliation of the statutory federal income tax rates to the
Company's effective income tax rate for the years ended December 31, are as
follows:
<TABLE>
<CAPTION>
1997 1998
----- -----
<S> <C> <C>
Federal statutory rate...................................... 34.0% 34.0%
State income taxes, net of federal benefit.................. 4.4 4.4
Change in valuation allowance............................... (38.2) (38.3)
Other, net.................................................. (0.2) (0.1)
----- -----
--% --%
===== =====
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax
F-13
<PAGE> 66
OREGON BAKING COMPANY
DBA MARSEE BAKING
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
purposes. The tax effects of significant items comprising the Company's deferred
tax assets as of December 31, are as follows:
<TABLE>
<CAPTION>
1997 1998
----- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........................ $ 482 $ 1,824
Stock option compensation............................... 12 89
Deferred rent........................................... 10 20
Depreciation and amortization........................... 48 281
Bad debt expense........................................ 23 4
----- -------
575 2,218
Valuation allowance....................................... (575) (2,218)
----- -------
Net deferred tax assets......................... $ -- $ --
===== =======
</TABLE>
The valuation allowance for deferred tax assets as of December 31, 1996 was
$118. The net change in the total valuation allowance for years ended December
31, 1997 and 1998, was an increase of $457 and $1,643, respectively.
At December 31, 1998, the Company has net operating loss carryforwards of
approximately $4,755 to offset future federal taxable income and income taxes,
if any, through 2013. As defined in Internal Revenue Code Section 382, the
utilization of a portion of the net operating loss and credit carryforwards may
be limited due to a change in ownership caused by additional investors. A formal
analysis has not been completed, but it appears a change of ownership has
occurred.
(11) COMMITMENTS AND CONTINGENCIES
(a) OPERATING LEASES
The Company leases certain retail store, office and commissary facilities
under operating leases expiring through the year 2007. Most lease agreements
contain renewal options and rent escalation clauses. Certain leases provide for
contingent rentals based upon gross sales.
Rental expense under these lease agreements for the years ended December
31, was as follows:
<TABLE>
<CAPTION>
1997 1998
---- ------
<S> <C> <C>
Minimum rentals............................................. $270 $ 977
Contingent rentals.......................................... 18 172
---- ------
$288 $1,149
==== ======
</TABLE>
F-14
<PAGE> 67
OREGON BAKING COMPANY
DBA MARSEE BAKING
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Minimum future rental payments under non-cancelable operating lease
obligations as of December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999........................................................ $1,009
2000........................................................ 901
2001........................................................ 815
2002........................................................ 691
2003........................................................ 633
Thereafter.................................................. 1,333
------
$5,382
======
</TABLE>
(b) OPTION ISSUANCE
The Board has approved 100,000 options to be issued to the Company's
President and Chief Executive Officer at the current fair market value at the
time the options are earned. The options are earned once the Company shows three
consecutive months of EBITDA (earnings before interest, income taxes,
depreciation and amortization) of 10% or more (percentage of gross revenues).
All shares are fully vested when the options are earned.
(c) SUPPLY AGREEMENT
The Company has an agreement with a supplier to purchase at least 80% of
certain products, as defined, from this supplier. The agreement may be
terminated by either party with 60 days prior written notice to the other party.
Management believes that other suppliers could provide similar products. A
change in suppliers, however, could affect the terms currently received by the
Company. Such a change could have a negative impact on results from operations.
(d) LEGAL PROCEEDINGS
In the normal course of business, the Company has various legal claims and
other contingent matters outstanding. Management believes that any ultimate
liability arising from these actions would not have a material adverse effect on
the Company's results of operations or financial condition as of and for the
year ended December 31, 1998.
(e) GEOGRAPHIC CONCENTRATION
All of the Company's bakery-cafe's are located in the greater Portland and
Seattle metropolitan areas. The concentration of limited geographic markets
exposes the Company to certain risks in the event of a change in the economies
in these markets which could have a material adverse affect on the financial
results of the Company.
(12) SHAREHOLDERS' (DEFICIT) EQUITY
During 1997, to raise funds, the Company sold 68,543 shares of Series B
preferred stock. In addition, 1,000 shares of common stock were issued in
connection with the purchase of assets (see note 3).
During 1998, in connection with an asset purchase (see note 3), the Company
issued 33,538 shares of Series C preferred stock and 16,667 shares of Series D
preferred stock. To raise funds, the Company also
F-15
<PAGE> 68
OREGON BAKING COMPANY
DBA MARSEE BAKING
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
sold 95,583 shares of Series C preferred stock at $32.50 per share during the
year. The Company's proceeds included in the financial statements are net of
offering costs.
(a) COMMON STOCK
The authorized number of shares of common stock, no par value, totals
15,000,000. Each share of common stock has voting rights of one vote per share.
Such voting rights are limited in certain circumstances.
(b) PREFERRED STOCK
The Company has authorized 4,000,000 shares of no par value preferred
stock. The Company has authorized and issued shares of Series A, B, C and D
preferred stock. The terms of each series of preferred stock are summarized
below:
Dividends
The Series D preferred stock is entitled to an annual cumulative cash
dividend, out of legally available funds, at the per annum rate of $4.20
per share. Series D preferred stock dividends shall accrue but not be paid
during 1998 and 1999. On a quarterly basis, Series D preferred stock
dividends from 1998 and 1999 shall be paid during 2000 out of legally
available funds. At the option of the holder of Series D preferred stock or
the Company, the Series D preferred stock's accruing dividends may be paid
in the form of shares of Series D preferred stock valued at $60 per share
(regardless of the fair market value of such shares at the time the
dividend is declared by the Company's Board of Directors); provided,
however, no more than an aggregate of 5,840 shares of the Company's Series
D preferred stock may be issued in lieu of cash to satisfy the accruing
Series D dividends.
The Series A preferred stock is entitled to an annual cumulative cash
dividend, out of legally available funds, at the per annum rate of $0.60
per share. Dividends accrue from the date of purchase and are payable only
when (1) declared by the Company's Board of Directors; (2) upon liquidation
or dissolution of the Company; and (3) upon conversion to common stock.
The Series B and C preferred shareholders are not entitled to cumulative
dividends. Series B and C shareholders are entitled to receive dividends
when and if declared by the Board of Directors. As of December 31, 1998, no
dividends have been declared or paid.
Liquidation Preferences
In the event of any liquidation, dissolution or winding up of the Company,
holders of Series D preferred stock shall be entitled to be paid first out
of the assets of the Company available for distribution to holders of the
Corporation's capital stock of all classes (whether such assets are
capital, surplus or earnings) before any sums shall be paid or any assets
distributed among the holders of Series A, B, or C preferred stock. After
payment of the Series D preferred shareholders of the other preferred
series shall be entitled to be paid out of the assets of the Company
available for distribution to holders of the Company's capital stock before
any sum shall be paid or any assets distributed among the holders of common
stock.
Voting
The Series A, B, and C preferred stock will vote with the common stock of
the Company as a single class and will be entitled to the number of votes
equal to the number of shares of common stock
F-16
<PAGE> 69
OREGON BAKING COMPANY
DBA MARSEE BAKING
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
issuable upon conversion of the Series A, B, and C preferred stock. The
Series D preferred stock has no voting rights.
Conversion
Any shares of the Series C and D preferred stock may, at the option of the
holder, be converted any time or from time to time into fully paid common
stock at a conversion rate of 10:1. The holders of Series C and D preferred
stock also have anti-dilution protection. The anti-dilution protection
provides for a favorable adjustment to the conversion ratio of Series D
preferred stock in the event the Company issues any shares of preferred
stock, common stock, options or warrants at a price below $4.00.
The Series A preferred stock is convertible into common stock at the option
of the holder, at a conversion rate of 1:1. The holders of the Series A may
convert their shares into common stock any time after December 31, 2000.
The Series B preferred stock is convertible into common stock at the option
of the holder, at a conversion rate of 1:1. The holder of the Series B
preferred stock shall have anti-dilution protection. The anti-dilution
provision provides for a favorable adjustment to the conversion rate in the
event the Company issues any shares of preferred stock, common stock,
option or warrants, at a price below $2.50 per share.
All series of preferred stock automatically convert to common stock at the
current conversion ratios upon the successful completion of an underwritten
initial public offering.
As of December 31, 1998, the Company has reserved a total of 2,020,122
shares of its common stock pursuant to the conversion privileges of
outstanding preferred stock.
(c) STOCK WARRANTS
In May 1997, in connection with the acquisition of assets (see note 3), the
Company issued 10,000 common stock purchase warrants. Each warrant represents
the right to purchase one share of the Company's common stock at an exercise
price of $2.50, until May 16, 2003.
In October 1997, in connection with securing debt financing, the Company
issued 10,000 warrants to related party shareholders for personally guaranteeing
loans of the Company. Each warrant represents the right to purchase one share of
the Company's common stock at an exercise price of $1.00, until November 1,
2004.
In August 1998, in connection with securing debt financing, the Company
issued a total of 92,465 warrants to related party shareholders for personally
guaranteeing loans of the Company in prior years. Each warrant represents the
right to purchase one share of the Company's common stock at an exercise price
of $1.00, until November 1, 2004.
In August 1998, in connection with securing debt financing, the Company
issued 4,750 warrants. Each warrant represents the right to purchase one share
of the Company's common stock at an exercise price of $1.00, until November 1,
2004.
In March 1998, in connection with securing debt financing the Company
issued 1,500 warrants. Each warrant represents the right to purchase one share
of the Company's Preferred Series C stock at an exercise price of $32.50, until
November 1, 2004.
F-17
<PAGE> 70
OREGON BAKING COMPANY
DBA MARSEE BAKING
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
All warrants were valued using the Black-Scholes model. As of December 31,
1998, no warrants had been exercised.
(d) STOCK OPTIONS
At December 31, 1998, the Company had three Stock Option Plans: the 1993
Stock Option Plan adopted in September 1993, the 1997 Stock Option Plan adopted
in February 1997, and the 1998 Stock Option Plan adopted in December 1998
(collectively, the Plans). Under the Plans, key employees and consultants may be
granted either incentive stock options or nonqualified stock options. Incentive
stock options must comply with the requirements of the Internal Revenue Code
(the Code), may be granted only to employees. Nonqualified stock options may be
granted to employees and consultants at not less than 85% of the fair market
value of the stock at the date of grant. Canceled options are available for
future grant. The Company has reserved 1,796,908 shares of its common stock for
issuance under the Plans.
As of December 31, 1998, 1,690,440 options had been granted pursuant to the
Plans. The per share weighted-average fair value of stock options granted during
the years ended 1997 and 1998 were $0.92 and $0.86, respectively, on the date of
grant using the Black-Scholes pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Dividend yield.......................................... -- --
Expected volatility..................................... 100% 100%
Risk-free interest rate................................. 6.5% 5.75%
Expected life........................................... 10 years 10 years
</TABLE>
The total value of options granted during the years ended December 31, 1997
and 1998 were approximately $211 and $867, respectively, which will be amortized
on a straight-line basis over the vesting period of the options (typically four
years).
The Company applies Accounting Principle Bulletin Opinion No. 25 in
accounting for stock options issued to employees and directors under the Plans,
accordingly, no compensation cost has been recognized for these stock options in
the financial statements. Had the Company determined compensation cost based on
the fair value at the grant date for its stock options under Statement of
Financial Accounting Standards (SFAS) No. 123, the Company's net loss would have
been increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
As reported:
Net loss............................................... $(1,195) $(4,404)
Net loss per common share.............................. (1.41) (5.07)
Pro forma:
Net loss............................................... (1,254) (4,545)
Net loss per common share.............................. (1.48) (5.23)
</TABLE>
F-18
<PAGE> 71
OREGON BAKING COMPANY
DBA MARSEE BAKING
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following table summarizes the activity for the aforementioned stock
option plans:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE PRICE
SHARES PER SHARE
--------- -------------
<S> <C> <C>
Outstanding at December 31, 1996.................... 96,908 $0.87
Granted............................................. 404,990 1.65
Canceled............................................ (174,995) 2.50
Exercised........................................... -- --
--------- -----
Outstanding at December 31, 1997.................... 326,903 0.96
Granted............................................. 1,153,542 1.00
Canceled............................................ (328,500) 1.00
Exercised........................................... -- --
--------- -----
Outstanding at December 31, 1998.................... 1,151,945 $0.99
========= =====
</TABLE>
At December 31, 1998, the weighted-average exercise price and
weighted-average remaining contractual life of outstanding options were $0.99
and 9 years, respectively.
At December 31, 1998, 424,278 outstanding options were currently
exercisable, and the weighted-average exercise price of these options was $0.97.
At December 31, 1998, the range of exercise prices on outstanding stock
options was $0.50 to $1.00.
(13) RETIREMENT PLAN
Effective January 1, 1998, the Company adopted a tax deferred savings plan
(the 401(k) Plan). All employees age 21 years or over are eligible to
participate in the 401(k) Plan. Enrollment periods are semi-annually, on January
1 and July 1 of each year. Participants who choose to participate may contribute
up to 15% of their pretax compensation to the 401(k) Plan subject to the
statutorily prescribed annual limits. All employee contributions to the 401(k)
Plan are fully vested at all times. Company contributions are made annually. The
Company matches 25% of the first 4% employees contribute through their salary
deferral. Company contributions vest at 20% per year starting the first year.
(14) SUBSEQUENT EVENTS
In February 1999, the Company amended the Company's Articles of
Incorporation and increased the number of authorized shares of common stock to
15,000,000 and preferred stock to 4,000,000. The effect of the revised number of
authorized shares has been retroactively applied to the accompanying financial
statements.
In February 1999, the Company granted warrants to purchase 250,000 shares
of common stock at an exercise price of $1.00 per share in connection with the
Company obtaining additional financing. The warrants will be valued using the
Black-Scholes model.
Since December 31, 1998, the Company has received $1,055 in additional
bridge financing (see note 6), and has issued 316,000 shares of common stock
pursuant to the bridge financing.
The Company's $250 line of credit and the $325 letter of credit were
renewed in March 1999. The line of credit was extended to February 2000. The
letter of credit was extended to March 2000. Rates on the line of credit are
substantially the same as they were prior to the renewal.
F-19
<PAGE> 72
- ------------------------------------------------------
- ------------------------------------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS OR TO WHICH
WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS PROSPECTUS MAY ONLY BE USED WHERE IT IS
LEGAL TO SELL THE SECURITIES BEING OFFERED. THE INFORMATION IN THIS DOCUMENT MAY
ONLY BE ACCURATE ON THE DATE OF THIS DOCUMENT.
-------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 5
Risk Factors.......................... 7
Use of Proceeds....................... 10
Dividend Policy....................... 10
Capitalization........................ 11
Dilution.............................. 12
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 13
Business.............................. 21
Management............................ 30
Certain Transactions.................. 36
Principal Shareholders................ 37
Description of Securities............. 38
Shares Eligible for Future Sale....... 44
Underwriting.......................... 47
Legal Matters......................... 49
Experts............................... 49
Where You Can Find More Information... 50
Index to Financial Statements......... F-1
</TABLE>
-------------------------
UNTIL , 1999 (25 DAYS AFTER COMMENCEMENT OF THE OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN MARSEE BAKING SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS
DELIVERY REQUIREMENT IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
MARSEE BAKING LOGO
1,750,000 SHARES OF
COMMON STOCK
1,750,000 REDEEMABLE WARRANTS
TO PURCHASE COMMON STOCK
-------------------------
PROSPECTUS
-------------------------
BARRON CHASE SECURITIES LOGO
7700 W. CAMINO REAL
BOCA RATON, FLORIDA 33433
(561)347-1200
BEVERLY HILLS, CALIFORNIA
BOSTON, MASSACHUSETTS
BROOKLYN, NEW YORK
BUFFALO, NEW YORK
CHICAGO, ILLINOIS
CLEARWATER, FLORIDA
EDISON, NEW JERSEY
EUREKA SPRINGS, ARKANSAS
FORT LAUDERDALE, FLORIDA
HASBROUK HEIGHTS, NEW JERSEY
LA JOLLA, CALIFORNIA
NEW YORK, NEW YORK
ORLANDO, FLORIDA
SARASOTA, FLORIDA
TAMPA, FLORIDA
WEST BOCA RATON, FLORIDA
, 1999
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 73
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Oregon Business Corporation Act (the "Act") authorizes the
indemnification of an officer or director made party to a proceeding because the
officer or director is or was an officer or director against liability
(including amounts paid in settlement) incurred in the proceeding and against
expenses with respect to the proceeding (including attorney fees) if: (a) the
conduct of the officer or director was in good faith, (b) the officer or
director reasonably believed that his conduct was in the best interests of the
corporation or at least not opposed to its best interests, and (c) in the case
of a criminal proceeding, the officer or director had no reasonable cause to
believe his conduct was unlawful; provided, however, neither a director nor an
officer may be indemnified in connection with (1) a proceeding by or in the
right of the corporation in which the director or officer was adjudged liable or
(2) any other proceeding charging improper personal benefit to the director or
officer in which the director or officer was adjudged liable on the basis that
personal benefit was improperly received by the director or officer. The
Registrant's Amended and Restated Articles of Incorporation (the "Articles")
allow and the company's Amended and Restated Bylaws (the "Bylaws") require the
Registrant to indemnify officers and directors to the fullest extent permissible
by law. The Articles and Bylaws become effective upon the closing of the public
offering.
The Act further provides that the articles of incorporation of a
corporation may provide that no director shall be personally liable to a
corporation or its shareholders for monetary damages for conduct as a director,
except that the provision does not eliminate the liability of a director (a) for
any breach of the director's duty of loyalty to the corporation or its
shareholders, (b) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of the law, (c) for any unlawful
distribution as defined under the Act, or (d) for any transaction from which the
director derived an improper personal benefit. The Registrant's Articles and
Restated Bylaws provide that, to the fullest extent permissible by law, no
director shall be personally liable to the Registrant or its shareholders for
monetary damages.
Reference is also made to Section 6(b) of the Underwriting Agreement filed
as Exhibit 1.1 hereto, indemnifying directors and officers of the Registrant
against certain liabilities, including certain liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act"), in certain
circumstances by the underwriter.
Reference is also made to the form of Indemnification Agreement filed as
Exhibit 10.30 hereto, which the Registrant intends to enter into with its
directors and officers, providing indemnification to the fullest extent provided
by law.
The effect of these provisions is to indemnify the directors and officers
of the Registrant against all costs and expenses of liability incurred by them
in connection with any action, suit or proceeding in which they are involved by
reason of their affiliation with the Registrant, to the fullest extent permitted
by law.
II-1
<PAGE> 74
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than the
underwriting discount, payable by the Registrant in connection with the sale of
common stock and purchase warrants being registered. All amounts are estimates
except the SEC registration fee, the NASD review filing fee, the Nasdaq filing
and membership fees, and Boston Stock Exchange filing and listing fees.
<TABLE>
<CAPTION>
AMOUNT
TO BE PAID
----------
<S> <C>
SEC Registration Fee........................................ $ 6,478
NASD Review Filing Fee...................................... 2,830
Nasdaq Filing and Listing Fee............................... 15,000
Boston Exchange Filing and Listing Fees..................... 15,000
Printing and Engraving Expenses............................. 42,000
Legal Fees and Expenses..................................... 290,000
Accounting Fees and Expenses................................ 90,000
Blue Sky Fees and Expenses.................................. 25,000
Transfer Agent and Registrar Fees........................... 20,000
Nonaccountable Expense Allowance............................ 309,422
Miscellaneous Expenses...................................... 113,022
Total............................................. $928,752
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The following is a summary of transactions by the Registrant since December
31, 1995 involving sales of the Registrant's securities that were not registered
under the Securities Act:
1. During September 1995 through January 1996, the Registrant sold an
aggregate of 52,667 shares of Series A Preferred Stock to 19 individuals or
entities at a price of $6 per share. The Registrant received $316,002 as
total proceeds from the offering. These sales were made in reliance upon
the exemption from registration set forth in Section 4(2) of the Securities
Act and Rule 505 of Regulation D, as transactions by an issuer not
involving a public offering. The recipients of securities in each
transaction represented their intention to acquire the securities in each
transaction not with a view to, or for sale in connection with, any
distribution thereof, and appropriate legends were affixed to share
certificates and instruments issued in the transactions. The purchasers who
were not accredited investors represented that they were "sophisticated
investors" as defined in Rule 506(b)(2)(ii).
2. During December 1996 through February 1997, the Registrant sold an
aggregate of 510,575 shares of Series B Preferred Stock to 24 individuals
and entities, at a price per share of $2.50. Jensen Securities Co. acted as
the placement agent for the offering. The Registrant received total
proceeds of $1,250,000 after deducting $53,305 as commissions and fees paid
to the placement agent. Jensen Securities also received 10,575 shares of
Series B Preferred Stock as consideration for its services. These sales
were made in reliance upon the exemption from registration set forth in
Section 4(2) of the Securities Act and Rule 505 of Regulation D, as
transactions by an issuer not involving a public offering. The recipients
of securities in each transaction represented their intention to acquire
the securities in each transaction not with a view to, or for sale in
connection with, any distribution thereof, and appropriate legends were
affixed to share certificates and instruments issued in the transactions.
All purchasers represented to be accredited investors.
3. During January through April 1998, upon the terms of an asset
purchase agreement, the Registrant issued 33,538 shares of Series C
Preferred Stock and 16,667 shares of Series D Preferred Stock to the
shareholders of Bernie's Bagels, Inc. The issuances were made in reliance
upon the exemption from registration set forth in Section 4(2) of the
Securities Act, relating to sales by an issuer not involving any public
offering. All purchasers represented to be accredited investors.
II-2
<PAGE> 75
4. During January through October 1998, the Registrant sold an
aggregate of 95,583 shares of Series C Preferred Stock to 19 individuals
and entities, at a price per share of $32.50. The Registrant received
proceeds of approximately $3,106,433. These sales were made in reliance
upon the exemption from registration set forth in Section 4(2) of the
Securities Act and Rule 506 of Regulation D, as transactions by an issuer
not involving a public offering. The recipients of securities in each
transaction represented their intention to acquire the securities in each
transaction not with a view to, or for sale in connection with, any
distribution thereof, and appropriate legends were affixed to share
certificates and instruments issued in the transactions. All purchasers
represented to be accredited investors.
5. During January through April 1999, the Registrant sold 502,800
Units, each Unit consisting of one share of common stock and a promissory
note in the principal amount of $5.00 and bearing interest of 8% to 37
purchasers. The principal and accrued interest are due and payable nine
months of the date of the promissory note or upon the closing of a public
offering of the common stock, whichever is earlier. The Registrant received
proceeds of $1,960,920 after deducting $301,680 in commissions and fees to
Barron Chase Securities, Inc., the Registrant's placement agent. These
sales were made in reliance upon the exemption from registration set forth
in Section 4(2) of the Securities Act and Rule 506 of Regulation D, as
transactions by an issuer not involving a public offering. The recipients
of securities in each transaction represented their intention to acquire
the securities in each transaction not with a view to, or for sale in
connection with, any distribution thereof, and appropriate legends were
affixed to share certificates and instruments issued in the transactions.
All purchasers represented to be accredited investors.
6. On April 29, 1999, the Registrant issued to Mr. Joseph Tanous, a
director of the Registrant, 150,000 shares of common stock in consideration
for agreeing to personally guarantee up to $750,000 of the Registrant's
working capital line of credit. The issuance was made in reliance upon the
exemption from registration set forth in Section 4(2) of the Securities
Act, relating to sales by an issuer not involving any public offering.
7. Since 1994, the Registrant has issued 28 warrants to purchase up to
an aggregate of 397,548 shares of common stock at an exercise price ranging
from $1.00 to $6.00 per share. These warrants have been granted to
individuals and entities who have made valuable contributions to the
company in the form of providing loans, personal guarantees, assets and
financial consulting services. One warrant to purchase 500 shares of
commons stock was exercised in February 1996. Two warrants to purchase a
total of 10,000 shares of common stock were canceled and substituted with
replacement warrants to purchase the same number of common stock shares. As
of May 31, 1999, 12 warrants have expired representing warrants to purchase
4,833 shares of common stock and 14 warrants remain outstanding
representing warrants to purchase 382,215 shares of common stock at
exercise prices ranging from $1.00 to $3.00 per share.
The Registrant has also issued a warrant to a equipment lease
financing company to purchase up to 1,500 shares of Series C Preferred
Stock or 15,453 shares of common stock into which the Series C Preferred
stock is currently convertible.
Each of these issuances were deemed to be exempt from registration
under the Securities Act in reliance on Section 4(2) of the Securities Act,
Section 3(a)(9) or Rule 701 promulgated under the Securities Act, as
transactions by an issuer not involving a public offering, transactions
involving an exchange of securities by the issuer with its security holders
where no commission or remuneration is paid or given directly or indirectly
for soliciting the exchange, or transactions pursuant to compensatory
benefit plans and contracts relating to compensation. The recipients of
securities in each transaction represented their intention to acquire the
securities in each transaction not with a view to, or for sale in
connection with, any distribution thereof, and appropriate legends were
affixed to share certificates and instruments issued in the transactions.
8. Since September 1993, the Registrant has granted incentive stock
options and non-qualified stock options to purchase an aggregate of
1,707,745 shares of common stock under individual stock
II-3
<PAGE> 76
option agreements and its 1993, 1997 and 1998 Stock Option Plans to
eligible officers, directors, employees and consultants of the Registrant.
Of those options granted, options to purchase 365,900 shares have expired
or have been terminated by their terms, and there are currently outstanding
options to purchase 1,341,845 shares, as of the filing date. Since
September 1993, the Registrant has not issued any shares of common stock
upon the exercise of options. The issuances were made in reliance upon
Section 4(2) of the Securities Act and upon Rule 701 thereunder, as
transactions by an issuer not involving a public offering or transactions
pursuant to compensatory benefit plans and contracts relating to
compensation. The recipients of securities in each transaction represented
their intention to acquire the securities in each transaction not with a
view to, or for sale in connection with, any distribution thereof, and
appropriate legends were affixed to share certificates and instruments
issued in the transactions.
ITEM 27. EXHIBITS
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.1* Form of Underwriting Agreement
1.2* Form of Selected Dealer Agreement
3.1* Proposed Amended and Restated Articles of Incorporation
3.2* Articles of Incorporation (filed June 26, 1992)
3.3* Amendment to Article II of the Articles of Incorporation
(filed December 13, 1996)
3.4* Certificate of Designation of Series C Convertible Preferred
Stock and Series D Convertible and Redeemable Preferred
Stock (filed January 7, 1998)
3.5* Amendment to Article II of the Articles of Incorporation
(filed March 6, 1998)
3.6* Articles of Correction (filed June 3, 1998)
3.7* Amendment to Certificate of Designation of Series C
Convertible Preferred Stock and Series D Convertible and
Redeemable Preferred Stock (filed October 7, 1998)
3.8* Amendment to Article II of the Articles of Incorporation
(filed March 16, 1999)
3.9* Proposed Amended and Restated Bylaws
3.10* Bylaws
4.1* See Articles II and IV of Exhibit 3.1 and Articles I and V
of Exhibit 3.9
4.2 Form of Common Stock Certificate
4.3 Form of Purchase Warrant Certificate
4.4 Form of Purchase Warrant Agreement with Transfer Agent
5.1 Opinion of Tonkon Torp LLP as to legality of the securities
being registered, including consent
10.1* Registrant's 1993 Non-Qualified Stock Option Plan and
Amendments Nos. 1 and 2
10.2* Form of Stock Option Agreement under the 1993 Non-Qualified
Stock Option Plan
10.3* Registrant's 1997 Stock Option/Stock Issuance Plan
10.4* Form of Notice of Grant under the 1997 Stock Option/Stock
Issuance Plan
10.5* Registrant's 1998 Non-Qualified Stock Option Plan
10.6* Form of Notice of Grant under the 1998 Non-Qualified Stock
Option Plan
10.7*/** SYSCO Master Distribution Agreement dated April 13, 1998
10.8* SYSCO Agreement dated February 19, 1999
10.9* Silicon Valley Bank Loan and Security Agreement dated
October 28, 1997 and Loan Modification Agreements
10.10* Contribution and Indemnity Agreement dated October 28, 1997
with Tanous and Durbetaki
10.11* LINC Capital Inc. Master Lease Agreement dated April 17,
1998 and Schedules 1, 2 and 3
10.12* LINC Capital Inc. Warrant and Warrant Purchase Agreement
dated April 17, 1998
</TABLE>
II-4
<PAGE> 77
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.13* Form of the Registrant's currently outstanding Warrant
Agreement
10.14* Heller First Capital Corp. Promissory Note dated June 20,
1996 [sic]
10.15* Heller First Capital Corp. Authorization and Loan Agreement
dated May 16, 1997
10.16* Heller First Capital Corp. Security Agreement dated June 20,
1997
10.17* Heller Financial Leasing, Inc. Promissory Note dated April
28, 1998
10.18* Heller Financial Leasing, Inc. Security Agreement dated
April 28, 1998
10.19* Heller Financial Leasing, Inc. Letter Agreement dated May 5,
1998
10.20* Heller Financial Leasing, Inc. Promissory Note dated May 19,
1998
10.21* Heller Financial Leasing, Inc. Promissory Note dated August
26, 1998
10.22* Heller Financial Leasing, Inc. Cross-Collateral and
Cross-Default Agreement dated August 26, 1998
10.23* Heller Financial Leasing, Inc. Promissory Note dated
November 6, 1998
10.24* Employment Agreement with Raymond W. Lindstrom dated January
1, 1999
10.25* Employment Agreement with Howard Wasserteil dated July 12,
1996
10.26* Amended Employment and Stock Grant Agreement with Joann
Vazquez dated April 8, 1999
10.27* Real Estate Lease dated May 1995 for Portland Commissary
10.28* Industrial Real Estate Lease dated November 28, 1994 for
Seattle Commissary and Assignment and Consent to Assignment
of Lease dated December 26, 1997
10.29* Investor's Rights Agreement dated January 9, 1998 and
Amendment dated September 11, 1998
10.30* Form of Officers and Directors Indemnification Agreement
10.31* Separation Agreement dated as of March 12, 1999 with Brad K.
Barnett
10.32* Consulting Agreement dated January 12, 1999 with Viking
Group, LLC and Anthony Kamin
10.33* Form of Underwriter's Warrant Agreement and form of Warrant
Certificate
10.34* Form of Financial Advisory Agreement
10.35* Form of Merger and Acquisition Agreement
10.36* Agreement to Provide Guaranty
23.1* Consent of KPMG Peat Marwick LLP dated April 30, 1999
23.1A* Consent of KPMG Peat Marwick LLP dated June 17, 1999
23.1B Consent of KPMG Peat Marwick LLP dated July 23, 1999
23.2 Consent of Tonkon Torp LLP (included in Exhibit 5.1)
24.1* Power of Attorney (see Page II-7 of the Registration
Statement filed April 30, 1999)
27.1* Financial Data Schedule for years end 1997 and 1998
27.2* Financial Data Schedule for first quarters of 1998 and 1999
</TABLE>
- ---------------
* Previously filed.
** Certain portions of this exhibit are omitted pursuant to a request for
confidential treatment.
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the underwriter
at the closing specified in the Underwriting Agreement certificates in the
denominations and registered in the names as required by the underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
the indemnification is against public policy as expressed in the Securities Act
and is, therefore,
II-5
<PAGE> 78
unenforceable. If a claim for indemnification against these liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by the director, officer or controlling
person in connection with the securities being registered hereunder, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether the indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of the issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A under the Securities
Act and contained in a form of prospectus filed by the Registrant pursuant
to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed
to be part of this registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of these securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-6
<PAGE> 79
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this amendment to the
registration statement to be signed on its behalf by the undersigned in the City
of Portland, State of Oregon, on July 23, 1999.
OREGON BAKING COMPANY
By /s/ RAYMOND W. LINDSTROM
------------------------------------
Raymond W. Lindstrom
Chairman of the Board, President
and Chief Executive Officer
By /s/ STEPHEN A. AANDERUD
------------------------------------
Stephen A. Aanderud
Chief Financial Officer and
Assistant Secretary
By /s/ HOWARD J. WASSERTEIL
------------------------------------
Howard J. Wasserteil
Executive Vice President, Secretary
and Director
By /s/ ROBERT E. SCHNEIDER*
------------------------------------
Robert E. Schneider, Ph.D.
Director
By /s/ GERALD W. FRANK*
------------------------------------
Gerald W. Frank
Director
By /s/ JOSEPH F. TANOUS*
------------------------------------
Joseph F. Tanous
Director
By /s/ RAYMOND ZIMMERMAN*
------------------------------------
Raymond Zimmerman
Director
*By /s/ RAYMOND W. LINDSTROM
------------------------------------
Raymond W. Lindstrom
(Attorney-in-fact)
II-7
<PAGE> 1
EXHIBIT 4.2
<TABLE>
[BORDER AROUND CERTIFICATE]
<S> <C> <C>
COMMON STOCK [LOGO] COMMON STOCK
NUMBER SHARES
MB
OREGON BAKING COMPANY
INCORPORATED UNDER THE LAWS (dba Marsee Baking) SEE REVERSE FOR CERTAIN DEFINITIONS
OF THE STATE OF OREGON AND A STATEMENT AS TO THE RIGHTS,
PREFERENCES, PRIVILEGES AND
RESTRICTIONS ON SHARES
CUSIP 685794 10 9
</TABLE>
THIS CERTIFIES THAT
is the record holder of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, WITHOUT PAR VALUE, OF
OREGON BAKING COMPANY
(dba Marsee Baking)
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of the Certificate properly endorsed.
This Certificate is not valid until countersigned by the Transfer Agent and
registered by the Registrar.
WITNESS the facsimile signatures of the duly authorized officers of the
Corporation
Dated:
/s/ Howard Wasserteil /s/ Ray Lindstrom
SECRETARY PRESIDENT
<PAGE> 2
A statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights as established, from time to time, by the Articles of
Incorporation of the Corporation and by any articles of amendment, the number of
shares constituting each class and series, and the designations thereof, may be
obtained by the holder hereof upon request and without charge from the Secretary
of the Corporation at the principal office of the corporation.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT- ...................Custodian...................
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act............................................
in common (State)
COM PROP - as community property UNIF TRF MIN ACT - ...................Custodian (until age........)
(Cust)
..................... under Uniform Transfers
(Minor)
to Minors Act..................................
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, _______________________________ hereby sell, assign
and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[BOX]
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________________Shares
of the Common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
________________________________________________________________________Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated ____________________
X ______________________________________________
X ______________________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE
FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
Signature(s) Guaranteed
By _______________________________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS,
SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS
WITH MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM). PURSUANT TO S.E.C.
RULE 17Ad-15.
<PAGE> 1
EXHIBIT 4.3
VOID AFTER 5:00PM PACIFIC STANDARD TIME ON ____________, 2004
[LOGO]
Warrants
NUMBER SHARES
PW
OREGON BAKING COMPANY
(dba Marsee Baking)
INCORPORATED UNDER THE LAWS OF THE STATE OF OREGON CUSIP 685794 11 7
THIS CERTIFIES THAT
or registered assigns, is the registered holder of the number of Warrants (the
"Warrants") set forth above. Each Warrant entitles the holder thereof to
purchase from Oregon Baking Company, doing business as Marsee Baking (the
"Corporation"), subject to the terms and conditions set forth hereinafter and in
the Warrant Agreement more fully described hereinafter (the Warrant Agreement"),
one fully paid and non-assessable share of Common Stock, no par value, of the
Corporation ("Common Stock") upon presentation and surrender of this Warrant
Certificate with a completed form of subscription to be executed upon exercise
of Warrant (appearing on the reverse), at any time prior to 5:00 pm, Pacific
Time, on _____, 2004 or, if such Warrant is redeemed as provided in the Warrant
Agreement, at any time prior to the effective time of such redemption, at the
stock transfer office in Seattle, Washington of ChaseMellon Shareholder
Services, L.L.C. ("Warrant Agent"), or of its successor warrant agent or, if
there be no successor warrant agent, at the corporate offices of the
Corporation, and upon payment of the Exercise Price (as defined in the Warrant
Agreement) and any applicable taxes paid either in cash, or by certified or
official bank check, payable in lawful currency of the United States of America
to the order of the Corporation. Each Warrant initially entitles the holder to
purchase one share of Common Stock for $5.50. The number and kind of securities
of other property for which the Warrants are exercisable are subject to further
adjustment in certain events, such as mergers, splits, stock dividends,
recapitalizations and the like, to prevent dilution. The Corporation may redeem,
upon 30 days' notice, any or all outstanding unexercised Warrants at any time if
the Daily Price has exceeded $10.00 for 30 consecutive trading days ending
within 10 days of the notice of redemption at a price equal to $0.25 per
Warrant. For the purpose of the foregoing sentence, the term "Daily Price" shall
mean, for any relevant day, the closing bid price of the Corporation's Common
Stock on that day, as reported in the Nasdaq SmallCap Market or as reported on a
national or regional exchange on which the Common Stock is listed. All Warrants
not theretofore exercised or redeemed will expire on _________, 2004. Reference
is hereby made to the additional provisions of this Warrant Certificate set
forth on the reverse hereof and such further provisions shall for all purposes
have the same effect as though fully set forth herein. The Corporation shall not
be required to issue or deliver any certificate for shares of Common Stock or
other securities upon the exercise of warrants evidenced by this Warrant
Certificate until any tax which may be payable in respect thereof by the holder
of this Warrant Certificate pursuant to the Warrant Agreement shall have been
paid, such tax being payable by the holder of this Warrant Certificate at the
time of surrender. This Warrant Certificate shall not be valid or obligatory for
any purpose until it shall have been countersigned by the Warrant Agent. WITNESS
the facsimile signatures of its duly authorized officers of the Corporation.
Dated:
COUNTERSIGNED:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
AS WARRANT AGENT
BY
AUTHORIZED SIGNATURE
OREGON BAKING COMPANY, DBA MARSEE BAKING
By: By:
/s/ Howard Wasserteil /s/ Ray Lindstrom
SECRETARY PRESIDENT
<PAGE> 2
This Warrant Certificate is subject to all of the terms, provisions and
conditions of the Warrant Agreement, dated ___________ ("Warrant Agreement"),
between the Corporation and the Warrant Agent, to all of which terms, provisions
and conditions the registered holder of this Warrant Certificate consents by
acceptance hereof. The Warrant Agreement is incorporated herein by reference and
made a part hereof and reference is made to the Warrant Agreement for a full
description of the rights, limitations of rights, obligations, duties and
immunities of the Warrant Agent, the Corporation and the holders of the Warrant
Certificates. Copies of the Warrant Agreement are available for inspection at
the stock transfer office of the Warrant Agent or may be obtained upon written
request addressed to the Corporation at 2287 NW Pettygrove Street, Portland,
Oregon 97210.
The Corporation shall not be required upon the exercise of the Warrants
evidenced by this Warrant Certificate to issue fractions of Warrants, Common
Stock or other securities, but may make adjustment therefore in cash on the
basis of the current market value of any fractional interest as provided in the
Warrant Agreement.
In certain cases, the sale of securities by the Corporation upon
exercise of Warrants may violate the securities laws of the United States,
certain states thereof or other jurisdictions. The Corporation may cause a
registration statement to continue to be effective during the term of the
Warrants with respect to such sales under the Securities Act of 1933 and take
such action under the laws of various states as may be required to cause the
sale of securities upon exercise to be lawful. However, the Corporation will not
be required to honor the exercise of Warrants if, in the opinion of the
Corporation, upon advice of counsel, the sale of securities upon such exercise
would be unlawful.
This Warrant Certificate, with or without other Certificates, upon
surrender to the Warrant Agent, any successor warrant agent or, in the absence
of any successor warrant agent, at the corporate office of the Corporation, may
be exchanged for another Warrant Certificate or Certificates so surrendered. If
the Warrants evidenced by this Warrant Certificate shall be exercised in part,
the holder hereof shall be entitled to receive upon surrender hereof another
Warrant Certificate or Certificates evidencing the number of Warrants not so
exercised.
No holder of this Warrant Certificate, as such, shall be entitled to
vote, receive dividends or be deemed the holder of Common stock or other
securities of the Corporation which may at any time be issuable on the exercise
hereof for any purpose whatever, nor shall anything contained in the Warrant
Agreement or herein be construed to confer upon the holder of this Warrant
Certificate, as such, any of the rights of a shareholder of the Corporation or
any right to vote for the election of directors or upon any matter submitted to
the shareholders at any meeting thereof or give or withhold consent to any
corporate action (whether upon any matte submitted to shareholders at any
meeting thereof, or give or withhold consent to any merger, recapitalization,
issuance of stock, reclassification of stock, change of par value or change of
stock to no par value, consideration, conveyance or otherwise) or to receive
notice of meetings or other actions affecting shareholders (except as provided
in the Warrant Agreement) or to receive dividends or subscription rights or
otherwise until the Warrants evidenced by this Warrant Certificate shall have
been exercised and the Common Stock purchasable upon the exercise thereof shall
have been delivered as provided in the Warrant Agreement.
If this Warrant Certificate shall be surrendered for exercise within any
period during which the transfer books for the Corporation's Common Stock or
other class of stock purchasable upon the exercise of the Warrants evidenced by
this Warrant Certificate are closed for any purpose, the Corporation shall not
be required to make delivery of certificates for shares purchasable upon such
transfer until the date of the reopening of said transfer books.
Every holder of this Warrant Certificate by accepting the same, consents
and agrees with the Corporation, the Warrant Agent and with every other holder
of a Warrant Certificate that:
(a) This Warrant Certificate is transferable on the transfer
books of the Warrant Agent only upon the terms and conditions set forth in the
Warrant Agreement; and
(b) The Corporation and the Warrant Agent may deem and treat the
person in whose name this Warrant Certificate is registered as the absolute
owner hereof (notwithstanding any notation of ownership or other writing thereon
made by anyone other than the Corporation or the Warrant Agent) for all purposes
whatever, and neither the Corporation nor the Warrant Agent shall be affected by
any notice to the contrary.
SUBSCRIPTION FORM
To Be Executed Upon Exercise of Warrant
c/o ChaseMellon Shareholder Services, L.L.C.
520 Pike Street, Suite 1220
Seattle, Washington 98101
The undersigned holder of the within Warrant hereby (1) irrevocably elects
to exercise the right to purchase represented by the within Warrant for, and to
purchase hereunder, ________ shares of Common Stock which the undersigned is
entitled to purchase thereunder, (2) tenders $_________ as full payment of the
Exercise Price called for by the Warrant Agreement, and (3) directs that the
Certificates for such shares be issued as set forth below.
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
- --------------------------------------------------------------------------------
Name in which shares are to be issued: (if other than to the undersigned)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please print or type name and address)
If the number of shares shall not be all the shares purchasable thereunder, a
new Warrant Certificate for the balance of the shares purchasable under the
within Warrant shall be delivered to the undersigned holder at the address set
forth below:
Dated:
--------------- --------------------------------------------------------
Signature of Holder
--------------------------------------------------------
Social Security or other identifying number
--------------------------------------------------------
Name (please print)
--------------------------------------------------------
Address
--------------------------------------------------------
Signature Guaranteed
NOTICE The signature to the foregoing Subscription must
correspond to the name(s) of the registered holder(s) of
the within Warrant in every particular, without
alteration or any change whatsoever.
ASSIGNMENT
To Be Executed upon Transfer of Warrant
FOR VALUE RECEIVED, __________________________________________________ hereby
sells, assigns and transfers unto ______________________________________________
Social Security or other identifying number
the within Warrant, together with all rights, title and interest herein,
and does hereby irrevocably constitute and appoint _____________________________
attorney to transfer such Warrant on the warrant register of the corporation
with full power of substitution.
Dated:
----------------------------------- -----------------------------------
Signature of Transferor
Address of Transferee:
------------------- -----------------------------------
Signature of Guaranteed
NOTICE The signature to the foregoing Assignment must correspond to the name(s)
as written upon the face of the within Warrant in every particular, without
alteration or any change whatsoever, and should be guaranteed by a commercial
bank or trust Corporation having and office or correspondent in the United
States or by a member firm of a registered national securities exchange to the
National Association of Securities Dealers, Inc.
<PAGE> 1
EXHIBIT 4.4
OREGON BAKING COMPANY,
DBA MARSEE BAKING
AND
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
WARRANT AGREEMENT
DATED __________________, 1999
<PAGE> 2
WARRANT AGREEMENT
WARRANT AGREEMENT, dated as of _____________________, 1999, by
and between OREGON BAKING COMPANY, dba MARSEE BAKING, an Oregon corporation (the
"Company"), and CHASE MELLON SHAREHOLDER SERVICES, L.L.C., a New Jersey limited
liability company, as warrant and transfer agent (hereinafter called the
"Warrant Agent").
WHEREAS, the Company proposes to issue and sell to the public
(the "Public Offering") up to 2,012,500 shares of Common Stock, no par value
(hereinafter referred to as "Common Stock" or "Common Shares"), and up to
2,012,500 Redeemable Common Stock Purchase Warrants to purchase a share of
Common Stock at $5.50 per share (the "Warrant") (including the underwriter's
over-allotment options granted to Barron Chase Securities, Inc., the Company's
underwriter (the "Underwriter")); and
WHEREAS, the Company desires to appoint the Warrant Agent to act
on behalf of the Company in connection with the issuance, registration,
transfer, exchange and exercise of the Warrants, and the Warrant Agent is
willing to accept such appointment;
WHEREAS, the Public Offering has been registered under a
Registration Statement on Form SB-2 (File No. 33-77551) and declared effective
by the Securities and Exchange Commission (the "SEC" or "Commission") on
___________, 1999 (the "Effective Date").
NOW, THEREFORE, in consideration of the premises and mutual
agreements herein set forth, the parties hereto agree as follows:
SECTION 1. APPOINTMENT OF WARRANT AGENT. The Company hereby appoints the Warrant
Agent to act as Agent for the Company in accordance with the terms, conditions
and instructions provided in this Agreement, and the Warrant Agent hereby
accepts such appointment.
SECTION 2. FORM OF WARRANT. The text of the Warrant and of the form of election
to purchase Common Shares, as shall be printed on the reverse side of the
Warrant Certificate, is substantially as set forth respectively in Exhibit A
attached hereto. The per share Exercise Price (as hereinafter defined) and the
number of Common Shares issuable upon exercise of the Warrants are subject to
adjustment upon the occurrence of certain events, all as hereinafter provided.
The Warrants shall be executed on behalf of the Company by the manual or
facsimile signature of the present or any future Chairman, President, Chief
Executive Officer or Executive Vice President of the Company, attested by the
manual or facsimile signature of the present or any future Secretary or
Assistant Secretary of the Company.
Warrant Agreement
Page 1
<PAGE> 3
The Warrants will be dated as of the date of issuance by the Warrant Agent
either upon initial issuance or upon transfer or exchange.
SECTION 3. COUNTERSIGNATURE AND REGISTRATION. The Warrant Agent shall maintain
books for the transfer and registration of Warrants. Upon the initial issuance
of the Warrants and delivery to the Warrant Agent of all necessary information,
the Warrant Agent shall issue and register the Warrants in the names of the
respective holders thereof. The Warrants shall be countersigned manually or by
facsimile by the Warrant Agent (or by any successor to the Warrant Agent then
acting as warrant agent under this Agreement) and shall not be valid for any
purpose unless so countersigned. Warrants may be so countersigned, however, by
the Warrant Agent (or by its successor as warrant agent) and be delivered by the
Warrant Agent, notwithstanding that the persons whose manual or facsimile
signatures appear thereon as proper officers of the Company shall have ceased to
be such officers at the time of such countersignature or delivery.
SECTION 4. TRANSFERS AND EXCHANGES. The Warrant Agent shall transfer, from time
to time, any outstanding Warrants upon the books to be maintained by the Warrant
Agent for that purpose, upon surrender thereof for transfer properly endorsed or
accompanied by appropriate instructions for transfer. Upon any such transfer, a
new Warrant shall be issued to the transferee and the surrendered Warrant shall
be delivered by the Warrant Agent. Warrants so canceled shall be delivered by
the Warrant Agent to the Company from time to time upon request. Warrants may be
exchanged at the option of the holder thereof, when surrendered at the office of
the Warrant Agent, for another Warrant, or other Warrants of different
denominations, of like tenor and representing in the aggregate the right to
purchase a like number of Common Shares.
SECTION 5. RIGHTS OF REDEMPTION BY COMPANY. The Warrants are redeemable by the
Company at a price of $0.25 per Warrant commencing on the "Effective Date", upon
30 days' prior written notice by the Company if the closing bid of the Company's
Common Stock, as reported on the Nasdaq SmallCap Market or as reported on a
national or regional securities exchange for 30 consecutive trading days ending
within 10 days of the notice of redemption, averages in excess of $10.00 per
share, subject to adjustment. Prior to the first anniversary of the Effective
Date, the Warrants will not be redeemable by the Company without the written
consent of the Underwriter. If the Company exercises the right to redeem the
Warrants, the Warrants will be exercisable until the close of business on the
date for redemption fixed in the notice of redemption. In that event, any holder
of a Warrant may either (i) exercise the Warrant and pay the Exercise Price
prior to the redemption date specified in the Notice of Call, or (ii) accept the
redemption price in consideration for cancellation of the Warrant. Any Warrants
not either converted or tendered back to the Company by the end of the date
specified in the Notice of Call, will be entitled only to the redemption price
of such Warrants, if redeemed, and the holder thereof shall have forfeited his
right to so exercise.
SECTION 6. EXERCISE OF WARRANTS. Subject to the provisions of this Agreement,
each registered holder of Warrants shall have the right which may be exercised
through the fifth
Warrant Agreement
Page 2
<PAGE> 4
anniversary of the Effective Date, at the close of business on
_________________, 2004 to purchase from the Company (and the Company shall
issue and sell to such registered holder of Warrants) the number of fully paid
and non-assessable Common Shares specified in such Warrants, upon surrender to
the Company at the office of the Warrant Agent of such Warrants, with the form
of election to purchase duly and properly filled in and signed, and upon payment
to the order of the Company of the Exercise Price, determined in accordance with
Sections 10 and 11 herein, for the number of shares in respect of which such
Warrants are then exercised. Payment of such Exercise Price shall be made in
cash or by certified check or bank draft or postal or express money order
payable, in United States dollars, to the order of the Company. No adjustment
shall be made for any dividends on any Common Shares issuable upon exercise of a
Warrant. Subject to Section 7, upon such surrender of Warrants, and payment of
the Exercise Price as aforesaid, the Company shall issue and cause to be
delivered with all reasonable dispatch to or upon the written order of the
registered holder of such Warrants and in such name or names as such registered
holder may designate, a certificate or certificates for the largest number of
whole Common Shares so purchased upon the exercise of such Warrants. The Company
shall not be required to issue any fraction of a share of Common Stock or make
any cash or other adjustment except as provided in Section 12 herein, in respect
of any fraction of a Common Share otherwise issuable upon such surrender. Such
certificate or certificates shall be deemed to have been issued and any person
so designated to be named therein shall be deemed to have become a holder of
record of such shares as of the date of the surrender of such Warrants and
payment of the Exercise Price as provided herein; provided, however, that if, at
the date of surrender of such Warrants and payment of such Exercise Price, the
transfer books for the Common Shares or other class of stock purchasable upon
the exercise of such Warrants shall be closed, the certificates for the shares
in respect of which such Warrants are then exercised shall be issuable as of the
date on which such books shall be opened and until such date the Company shall
be under no duty to deliver any certificate for such shares; provided, further,
however, that the transfer books aforesaid, unless otherwise required by law or
by applicable rule of any national or regional securities exchange, shall not be
closed at any one time for a period longer than 20 days. The rights of purchase
represented by the Warrants shall be exercisable, at the election of the
registered holders thereof, either as an entirety or from time to time for part
only of the shares specified therein and, in the event that any Warrant is
exercised in respect of less than all of the shares specified therein at any
time prior to the date of expiration of the Warrant, a new Warrant or Warrants
will be issued to such registered holder for the remaining number of shares
specified in the Warrant so surrendered, and the Warrant Agent is hereby
irrevocably authorized to countersign and to deliver the required new Warrants
pursuant to the provisions of this Section during the Warrant exercise period,
and the Company, whenever requested by the Warrant Agent, will supply the
Warrant Agent with Warrants duly executed on behalf of the Company for such
purpose.
SECTION 7. PAYMENT OF TAXES. The Company will pay any documentary stamp taxes
attributable to the initial issuance of Common Shares issuable upon the exercise
of Warrants; provided, however, that the Company shall not be required to pay
any tax or taxes or governmental charges which may be payable in respect of any
transfer involved in the issue or delivery of any certificates for Common Shares
in a name other than that of the registered holder
Warrant Agreement
Page 3
<PAGE> 5
of Warrants in respect of which such shares are issued, and in such case neither
the Company nor the Warrant Agent shall be required to issue or deliver any
certificate for Common Shares or any Warrant until the person requesting the
same has paid to the Company the amount of such tax or charge or has established
to the Company's or Warrant Agent's satisfaction that such tax has been paid.
SECTION 8. MUTILATED OR MISSING WARRANTS. In case any of the Warrants shall be
mutilated, lost, stolen or destroyed, the Company may in its discretion issue
and the Warrant Agent shall countersign and deliver in exchange and substitution
for and upon cancellation of the mutilated Warrant, or in lieu of and
substitution for the Warrant lost, stolen or destroyed, a new Warrant of like
tenor and representing an equivalent right or interest, but only upon receipt of
evidence satisfactory to the Company and the Warrant Agent of such loss, theft
or destruction of such Warrant and indemnity, if requested, also satisfactory to
them. Applicants for such substitute Warrants shall also comply with such other
reasonable regulations and pay such reasonable charges as the Company or the
Warrant Agent may prescribe.
SECTION 9. RESERVATION OF COMMON SHARES. There have been reserved, and the
Company shall at all times keep reserved, out of the authorized and unissued
Common Shares, a number of shares sufficient to provide for the exercise of the
rights of purchase represented by the Warrants, and the Transfer Agent for the
Common Shares and every subsequent transfer agent for any shares of the
Company's capital stock issuable upon the exercise of any of the rights of
purchase aforesaid are hereby irrevocably authorized and directed at all times
to reserve such number of authorized and unissued shares as shall be requisite
for such purpose. The Company agrees that all Common Shares issued upon exercise
of the Warrants shall be, at the time of delivery of the certificates for such
Common Shares, validly issued and outstanding, fully paid and non-assessable and
listed on any national or regional securities exchange or included for
membership in any interdealer quotation system upon which the other Common
Shares are then so listed. The Company will keep a copy of this Agreement on
file with the Transfer Agent for the Common Shares and with every subsequent
transfer agent for any shares of the Company's capital stock issuable upon the
exercise of the rights of purchase represented by the Warrants. The Warrant
Agent is hereby irrevocably authorized to requisition from time to time such
Transfer Agent for stock certificates required to honor outstanding Warrants.
The Company will supply such Transfer Agent with duly executed stock
certificates for such purpose. All Warrants surrendered in the exercise of the
rights thereby evidenced shall be canceled by the Warrant Agent and shall
thereafter be delivered to the Company, and such canceled Warrants shall
constitute sufficient evidence of the number of Common Shares which have been
issued upon the exercise of such Warrants. Promptly after the date of expiration
of the Warrants, the Warrant Agent shall certify to the Company the total
aggregate amount of Warrants then outstanding, and thereafter no Common Shares
shall be subject to reservation in respect to such Warrants which shall have
expired.
SECTION 10. WARRANT PRICE. The Exercise Price at which Common Stock shall be
purchasable shall be $5.50 per whole share. No fractional shares shall be
issued.
Warrant Agreement
Page 4
<PAGE> 6
SECTION 11. ADJUSTMENTS. Subject and pursuant to the provisions of this Section
11, the Exercise Price and number of Common Shares subject to this Warrant shall
be subject to adjustment from time to time as set forth hereinafter.
11.1 Adjustment for Dividends, Subdivisions, Combinations or
Reclassifications; Adjustment for Issuance of Certain Stock.
In case the Company shall (a) pay a dividend or make a distribution in
shares of its capital stock (whether shares of Common Stock or of capital stock
of any other class), (b) subdivide its outstanding shares of Common Stock into a
greater number of shares, (c) combine its outstanding shares of Common Stock
into a smaller number of shares, or (d) issue by reclassification of its shares
of Common Stock any shares of capital stock of the Company; then, and in each
such case, the per share Exercise Price and the number of Warrants in effect
immediately prior to such action shall be adjusted so that the registered
holders of the Warrants shall be entitled to receive the number and kind of
shares of the Company which such holders would have owned immediately following
such action had the Warrants been exercised immediately prior thereto. In case
the Company shall sell shares of Common Stock (or other securities convertible
into or exercisable for Common Stock), at a price per share or share equivalent
below the lesser of the then-applicable exercise price of the Warrant or the
then-current market price of the Common Stock; then the Exercise Price in effect
immediately prior to such action shall be adjusted to equal such price per share
or share equivalent. An adjustment made pursuant to this Section shall become
effective immediately after the record date in the case of a dividend or
distribution and shall become effective immediately after the effective date in
the case of a subdivision, combination, reclassification or the issuance of
shares or share equivalents. If, as a result of an adjustment made pursuant to
this Section, the registered holders of the Warrants shall become entitled to
receive shares of two or more classes of capital stock of the Company, the Board
of Directors of the Company (whose determination shall be conclusive) shall
determine the allocation of the adjusted Exercise Price between or among shares
of such class of capital stock.
Immediately upon any adjustment of the Exercise Price pursuant to this
Section, the Company shall send written notice thereof to the Warrant Agent and
to the shareholders, as provided in Section 13.
11.2 Adjustment For Reorganization, Merger or Consolidation.
In case of any reorganization of the Company or consolidation of the
Company with, or merger of the Company with, or merger of the Company into,
another entity (other than a consolidation or merger which does not result in
any reclassification or change of the outstanding Common Stock), the entity
formed by such consolidation or merger shall execute and deliver to Warrant
Agent a supplemental Warrant Agreement providing that the registered holder of
each Warrant then outstanding or to be outstanding shall have the right
thereafter (until the expiration of such Warrant) to receive, upon exercise of
such warrant, the kind and amount of shares of stock and other securities and
property receivable upon such consolidation or merger, by a holder
Warrant Agreement
Page 5
<PAGE> 7
of the number of shares of Common Stock of the Company for which such warrant
might have been exercised immediately prior to such reorganization,
consolidation, merger, conveyance, sale or transfer. Such supplemental Warrant
Agreement shall provide for adjustments which shall be identical to the
adjustments provided in Section 11. The Company shall not effect any such
consolidation, merger, or similar transaction as contemplated by this paragraph,
unless prior to or simultaneously with the consummation thereof, the successor
entity (if other than the Company) resulting from such consolidation or merger
or the entity purchasing, receiving, or leasing such assets or other
appropriate entity shall assume, by written instrument executed and delivered to
the Warrant Agent, the obligation to deliver to the registered holders, such
shares of stock, securities, or assets as, in accordance with the foregoing
provisions, such holders may be entitled to purchase, and to perform the other
obligations of the Company under this Agreement. The above provision of this
Subsection shall similarly apply to successive consolidations or successively
whenever any event listed above shall occur.
11.3 Adjustment in Number of Securities.
Upon each adjustment of the Exercise Price pursuant to the provisions of
this Section 11, the number of securities issuable upon the exercise of each
Warrant shall be adjusted to the nearest full amount by multiplying a number
equal to the Exercise Price in effect immediately prior to such adjustment by
the number of securities issuable upon exercise of the Warrants immediately
prior to such adjustment and dividing the product so obtained by the adjusted
Exercise Price.
11.4 No Adjustment of Exercise Price in Certain Cases.
No adjustment of the Exercise Price shall be made if the amount of said
adjustment shall be less than 5 cents ($0.05) per Common Share, provided,
however, that in such case any adjustment that would otherwise be required then
to be made shall be carried forward and shall be made at the time of and
together with the next subsequent adjustment which, together with any adjustment
so carried forward, shall amount to at least 5 cents ($.05) per Common Share.
11.5 Liquidation, Dissolution, or Winding Up
In the event the Company adopts a resolution for the liquidation,
dissolution, or winding up of the Company's business, the Company will give
written notice of such adoption of a resolution to the registered holders of the
Warrants pursuant to Section 13. Thereupon all liquidation and dissolution
rights under the Warrants will terminate at the end of thirty (30) days from the
date of the notice to the extent not exercised within those thirty (30) days.
Warrant Agreement
Page 6
<PAGE> 8
11.6 No Adjustment Related to Non-Stock Dividends and to the Exercise of
Warrants, Underwriter Warrants or other Outstanding Options or Warrants
Anything hereinabove to the contrary notwithstanding, no adjustment of
the Exercise Price or in the number of Common Shares subject to any Warrant
shall be made upon (i) the payment of dividends (other than stock dividends) on
the Common Stock or (ii) the issuance or sale by the Company of any Common
Shares (a) pursuant to the exercise of any warrants which may be issued by the
Company (b) pursuant to any underwriting agreement between the Company and any
underwriter (including the Underwriter), (c) pursuant to the issuance of shares
of Common Stock upon exercise of any of the Warrants, (d) pursuant to any
existing stock option plan or any such plan which may be adopted by the Company,
or (e) otherwise in connection with any issuance of securities by the Company,
except as specifically identified herein.
11.7 Miscellaneous
On the effective date of any new Exercise Price the number of shares as
to which any Warrant may be exercised shall be increased or decreased so that
the total sum payable to the Company on the exercise of such Warrant shall
remain constant.
The form of Warrant need not be changed because of any change pursuant
to this Section, and Warrants issued after such change may state the same
Exercise Price and the same number of shares as is stated in the Warrants
initially issued pursuant to this agreement. However, the Company may at any
time in its sole discretion (which shall be conclusive) make any change in the
form of Warrant that the Company may deem appropriate and that does not affect
the substance thereof; and any Warrant thereafter issued or countersigned,
whether in exchange or substitution for an outstanding Warrant or otherwise, may
be in the form as so changed.
SECTION 12. FRACTIONAL INTEREST. The Company shall not be required to issue
certificates representing fractions of Common Shares upon the exercise of the
Warrants, nor shall it be required to issue script or pay cash in lieu of
fractional interests, it being the intent of the parties that all fractional
interests may be eliminated, at the Company's option, by rounding any fraction
up to the nearest whole number of Common Shares or other securities, properties
or rights, or in lieu thereof paying cash equal to such fractional interest
multiplied by the current value of a share of Common Stock. The Warrant Agent
shall have no duty or obligation with respect to this Section 12 unless and
until it has received specific instructions (and sufficient cash, if required)
from the Company with respect to its duties and obligations under such Section.
SECTION 13. NOTICES TO WARRANT HOLDERS.
13.1 Notice to Warrant Agent Upon Adjustment
Upon any adjustment of the Exercise Price and the number of shares
issuable on exercise of a Warrant, then and in each such case the Company shall
give written notice thereof to the
Warrant Agreement
Page 7
<PAGE> 9
Warrant Agent, which notice shall state the Exercise Price resulting from such
adjustment and the increase or decrease, if any, in the number of shares
purchasable at such price upon the exercise of a Warrant, setting forth in
reasonable detail the method of calculation and the facts upon which such
calculation is based. The Warrant Agent shall be fully protected in relying on
any such notice and on any adjustment therein contained and shall have no duty
with respect to and shall not be deemed to have knowledge of any adjustment
unless and until it shall have received such notice.
13.2 Additional Information
The Company shall cause to be sent by first-class mail, postage prepaid,
to each registered holder of Warrants at his or her address appearing on the
Warrant register as of the record date: (i) all written notices of any
adjustment of the Exercise Price and (ii) copies of all financial statements and
reports, proxy statements and other documents as it shall send to its
shareholders.
SECTION 14. DISPOSITION OF PROCEEDS ON EXERCISE OF WARRANTS.
14.1 The Warrant Agent shall forward promptly to the Company, with
respect to Warrants exercised, the funds which will be deposited in a special
account in a bank designated by the Company for the benefit of the Company, for
the purchase of Common Shares through the exercise of such Warrants.
14.2 The Warrant Agent shall keep copies of this Agreement available for
inspection by holders of Warrants during normal business hours.
SECTION 15. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF WARRANT AGENT. Any
corporation or company which may succeed to the business of the Warrant Agent by
any merger or consolidation or otherwise to which the Warrant Agent shall be a
party, shall be the successor Warrant Agent hereunder without the execution or
filing of any paper or any further act on the part of any of the parties hereto;
provided that such corporation or company would be eligible for appointment as a
successor Warrant Agent under the provisions of Section 17 of this Agreement. In
case at the time such successor to the Warrant Agent shall succeed to the agency
created by this Agreement, any of the Warrants shall have been countersigned but
not delivered, any such successor to the Warrant Agent may adopt the
countersignature of the original Warrant Agent and deliver such Warrants so
countersigned; and in case at that time any of the Warrants shall not have been
countersigned, any successor to the Warrant Agent may countersign such Warrants
either in the name of the predecessor Warrant Agent or in the name of the
successor Warrant Agent; and in all such cases such Warrants shall have the full
force provided in the Warrants and in this Agreement.
In case at any time the name of the Warrant Agent shall be
changed and at such time any of the Warrants shall have been countersigned but
not delivered, the Warrant Agent may adopt the countersignature under its prior
name and deliver Warrants so countersigned; and
Warrant Agreement
Page 8
<PAGE> 10
in case at that time any of the Warrants shall not have been countersigned, the
Warrant Agent may countersign such Warrants either in its prior name or in its
changed name; and in all such cases such Warrants shall have the full force
provided in the Warrants and in this Agreement.
SECTION 16. DUTIES OF WARRANT AGENT. The Warrant Agent undertakes the duties and
obligations imposed by this Agreement upon the following terms and conditions,
by all of which the Company and the holders of Warrants, by their acceptance
thereof, shall be bound:
(a) The statements of fact and recitals contained herein and
in the Warrants shall be taken as statements of the
Company, and the Warrant Agent assumes no responsibility
for the correctness of any of the same except such as
describe the Warrant Agent or action taken or to be
taken by it. The Warrant Agent assumes no responsibility
with respect to the distribution of the Warrants except
as herein expressly provided.
(b) The Warrant Agent shall not be responsible for any
failure of the Company to comply with any of the
covenants contained in this Agreement or in the Warrants
to be complied with by the Company.
(c) The Warrant Agent may consult at any time with counsel
satisfactory to it (who may be counsel for the Company)
and the Warrant Agent shall incur no liability or
responsibility to the Company or to any holder of any
Warrant in respect of any action taken, suffered or
omitted by it hereunder in good faith and in accordance
with the opinion or advice of such counsel.
(d) The Warrant Agent shall incur no liability or
responsibility to the Company or to any holder of any
Warrant for any action taken in reliance on any notice,
resolution, waiver, consent, order, certificate, or
other paper, document or instrument reasonably believed
by it to be genuine and to have been signed, sent or
presented by the proper party or parties.
(e) The Company agrees (i) to pay to the Warrant Agent
reasonable compensation for all services rendered by the
Warrant Agent hereunder, (ii) to reimburse the Warrant
Agent for all expenses, disbursements, taxes and
governmental charges and other charges of any kind and
nature incurred by the Warrant Agent in the
preparation, execution, delivery, amendment and
administration of this Agreement and (iii) to indemnify
the Warrant Agent and save it harmless against any and
all expenses and liabilities, including, but not limited
to damages, fines, penalties, claims, demands,
settlements, judgments, costs and reasonable counsel
fees, for any action taken, suffered or omitted by the
Warrant Agent in connection with the acceptance and
administration of this Agreement except as a result of
the Warrant Agent's gross negligence or bad faith (as
finally determined by a court of competent
Warrant Agreement
Page 9
<PAGE> 11
jurisdiction). The indemnity provided herein shall
survive the termination of this Agreement and the
termination and the expiration of the Warrants. The
costs and expenses incurred in enforcing this right of
indemnification shall be paid by the Company.
(f) The Warrant Agent shall be under no obligation to
institute any action, suit or legal proceeding or to
take any other action likely to involve expense unless
the Company or one or more registered holders of
Warrants shall furnish the Warrant Agent with security
and indemnity for any costs and expenses which may be
incurred, but this provision shall not affect the power
of the Warrant Agent to take such action as the Warrant
Agent may consider proper, whether with or without any
such security or indemnity. All rights of action under
this Agreement or under any of the Warrants may be
enforced by the Warrant Agent without the possession of
any of the Warrants or the production thereof at any
trial or other proceeding relative thereto, and any such
action, suit or proceeding instituted by the Warrant
Agent shall be brought in its name as Warrant Agent, and
any recovery of judgment shall be for the ratable
benefit of the registered holders of the Warrants, as
their respective rights or interests may appear.
(g) The Warrant Agent and any shareholder, director,
affiliate, officer, partner or employee of the Warrant
Agent may buy, sell or deal in any of the Warrants or
other securities of the Company or become pecuniarily
interested in any transaction in which the Company may
be interested, or contract with or lend money to
otherwise act as fully and freely as though it were not
Warrant Agent under this Agreement. Nothing herein shall
preclude the Warrant Agent from acting in any other
capacity for the Company or for any other legal entity.
(h) The Warrant Agent's duties shall be determined solely by
the express provisions hereof. The Warrant Agent shall
not be liable for anything which it may do or refrain
from doing in connection with this Agreement except for
its own gross negligence or bad faith, each as finally
determined by a court of competent jurisdiction.
Anything to the contrary notwithstanding, in no event
shall the Warrant Agent be liable for special, punitive,
indirect, consequential or incidental loss or damage of
any kind whatsoever (including but not limited to lost
profits), even if the Warrant Agent has been advised of
the likelihood of such loss or damage. Any liability of
the Warrant Agent under this Agreement will be limited
to the amount of fees paid by the Company to the Warrant
Agent.
(i) The Warrant Agent may execute and exercise any of the
rights or powers hereby vested in it or perform any duty
hereunder either itself or by or through its attorneys
or agents, and the Warrant Agent shall not be
Warrant Agreement
Page 10
<PAGE> 12
answerable or accountable for any act, default, neglect
or misconduct of any such attorneys or agents or for any
loss to the Company resulting from such neglect or
misconduct, absent gross negligence or bad faith in the
selection and continued employment thereof.
(j) Any request, direction, election, or order or demand of
the Company shall be sufficiently evidenced by an
instrument signed in the name of the Company by its
President or an Executive Vice President or its
Secretary or an Assistant Secretary or its Treasurer or
an Assistant Treasurer (unless other evidence in respect
thereof be herein specifically prescribed); and any
resolution of the Board of Directors may be evidenced to
the Warrant Agent by a copy thereof certified by the
Secretary or an Assistant Secretary of the Company.
(k) No provision of this Agreement shall require the Warrant
Agent to expend or risk its own funds or otherwise incur
any financial liability in the performance of any of its
duties hereunder or in the exercise of its rights if it
believes that repayment of such funds or adequate
indemnification against such risk or liability is not
assured to it.
SECTION 17. CHANGE OF WARRANT AGENT. The Warrant Agent may resign and be
discharged from its duties under this Agreement by giving to the Company notice
in writing, and to the holders of the Warrants notice by mailing such notice to
holders at their addresses appearing on the Warrant register, of such
resignation, specifying a date when such resignation shall take effect. The
Warrant Agent may be removed by like notice to the Warrant Agent from the
Company and by like mailing of notice to the holders of the Warrants. If the
Warrant Agent shall resign or be removed or shall otherwise become incapable of
acting, the Company shall appoint a successor to the Warrant Agent. If the
Company shall fail to make such appointment within a period of 30 days after
such removal or after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Warrant Agent or by the registered
holder of a Warrant (who shall, with such notice, submit his Warrant for
inspection by the Company), then the registered holder of any Warrant may apply
to any court of competent jurisdiction for the appointment of a successor to the
Warrant Agent. Any successor warrant agent, whether appointed by the Company or
by such court, shall be a bank, or trust company or active transfer agent, in
good standing, incorporated under the laws of a state of the United States of
America, or the laws of the United States of America. After appointment, the
successor warrant agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Warrant Agent without
further act or deed; but the former Warrant Agent shall deliver and transfer to
the successor warrant agent all canceled Warrants, records and property at the
time held by it hereunder, and execute and deliver any further assurance,
conveyance, act or deed necessary for the purpose. Failure to file or mail any
notice provided by this Section, however, or any defect therein, shall not
affect the legality or validity of the resignation or removal of the Warrant
Agent or the appointment of the successor warrant agent, as the case may be.
Warrant Agreement
Page 11
<PAGE> 13
SECTION 18. IDENTITY OF TRANSFER AGENT. Forthwith upon the appointment of any
Transfer Agent for the Common shares or of any subsequent transfer agent for
Common Shares or other shares of the Company's capital stock issuable upon
exercise of the rights of purchase represented by the Warrants, the Company will
file with the Warrant Agent a statement setting forth the name and address of
such Transfer Agent. The Warrant Agent hereby acknowledges that it is, at the
time of execution hereof, the Transfer Agent, and waives any statement required
herein with respect thereto.
SECTION 19. NOTICES. Any notice pursuant to this Agreement to be given or made
by the Warrant Agent or by the registered holder of any Warrant to or on the
Company shall be sufficiently given or made if sent by first-class mail, postage
prepaid, addressed (until another address is filed in writing by the Company
with the Warrant Agent) as follows:
Oregon Baking Company, dba Marsee Baking
2287 NW Pettygrove
Portland, Oregon 97210
Attn: Chief Financial Officer
with a copy to:
Thomas P. Palmer, Esq.
Tonkon Torp LLP
888 SW Fifth Avenue, Suite 1600
Portland, Oregon 97204
Any notice pursuant to this Agreement to be given or made by the Company or by
the registered holder of any Warrant to or on the Warrant Agent shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed (until another address is filed in writing by the Warrant Agent with
the Company) as follows:
Chase Mellon Shareholders Services, Inc.
520 Pike Street, Suite 1220
Seattle, Washington 98101
Attn: Joe Campbell
with a copy to:
Jeffrey E. Seadschlag, Vice President
Chase Mellon Shareholder Services, Inc.
400 S. Hope Street, 4th Floor
Los Angeles, California 90071
Warrant Agreement
Page 12
<PAGE> 14
SECTION 20. SUPPLEMENTS AND AMENDMENTS. The Company and the Warrant Agent may
from time to time supplement or amend this Agreement without the approval of any
holders of Warrants in order to cure any ambiguity or to correct or supplement
any provision contained herein which may be defective or inconsistent with any
other provision herein, or to make any other provisions in regard to matters or
questions arising hereunder which the Company and the Warrant Agent may deem
necessary or desirable and which shall not be inconsistent with the provisions
of the Warrants and which shall not adversely affect the interests of the
Warrant Agent or the holders of Warrants.
SECTION 21. SUCCESSORS. All the covenants and provisions of this Agreement by or
for the benefit of the Company or the Warrant Agent shall bind and inure to the
benefit of their respective successors and assigns hereunder.
SECTION 22. OREGON CONTRACT. This Agreement shall be deemed to be a contract
made under the laws of the State of Oregon and for all purposes shall be
construed in accordance with laws of said state; provided, however, that all
provisions regarding the rights, duties and obligations of the Warrant Agent
shall be governed by and construed in accordance with the laws of the State of
New York applicable to contracts made and to be performed entirely within such
State.
SECTION 23. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be
construed to give to any person or entity other than the Company, the Warrant
Agent and the registered holders of the Warrant any legal or equitable right,
remedy or claim under this Agreement; this Agreement shall be for the sole and
exclusive benefit of the Company, the Warrant Agent and the registered holders
of the Warrants.
SECTION 24. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and each of such counterparts shall be considered an original.
SECTION 25. EFFECTIVENESS. This Agreement shall be deemed binding, and,
therefore, in effect, as of and subject to the effective date of the
Registration Statement for the Public Offering.
Warrant Agreement
Page 13
<PAGE> 15
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed as of the day and year first above written.
OREGON BAKING COMPANY, dba
MARSEE BAKING
---------------------------------------------------
Raymond W. Lindstrom
Chairman, President and Chief Executive Officer
CHASE MELLON SHAREHOLDER SERVICES, L.L.C.
---------------------------------------------------
By:
------------------------------------------------
Its:
------------------------------------------------
Warrant Agreement
Page 14
<PAGE> 16
EXHIBIT A
FORM OF WARRANT
[Front Side]
This certifies that ________________________________, or registered assigns, is
the registered holder of the number of Warrants (the "Warrants") set forth
above. Each Warrant entitles the holder thereof to purchase from Oregon Baking
Company, doing business as Marsee Baking (the "Corporation"), subject to the
terms and conditions set forth hereinafter and in the Warrant Agreement more
fully described hereinafter (the "Warrant Agreement"), one fully paid and
non-assessable share of Common Stock, no par value, of the Corporation ("Common
Stock") upon presentation and surrender of this Warrant Certificate with a
completed form of subscription to be executed upon exercise of Warrant
(appearing on the reverse), at any time prior to 5:00 pm, Pacific Time, on
____________, 2004 or, if such Warrant is redeemed as provided in the Warrant
Agreement, at any time prior to the effective time of such redemption, at the
stock transfer office in Seattle, Washington of ChaseMellon Shareholder
Services, LLC ("Warrant Agent"), or of its successor warrant agent or, if there
be no successor warrant agent, at the corporate offices of the Corporation, and
upon payment of the Exercise Price (as defined in the Warrant Agreement) and any
applicable taxes paid either in cash, or by certified or official bank check,
payable in lawful currency of the United States of America to the order of the
Corporation. Each Warrant initially entitles the holder to purchase one share of
Common Stock for $5.50. The number and kind of securities of other property for
which the Warrants are exercisable are subject to further adjustment in certain
events, such as mergers, splits, stock dividends, recapitalizations and the
like, to prevent dilution. The Corporation may redeem, upon 30 days' notice, any
or all outstanding and unexercised Warrants at any time if the Daily Price has
exceeded $10.00 for 30 consecutive trading days ending within 10 days of the
notice of redemption at a price equal to $0.25 per Warrant. For the purpose of
the foregoing sentence, the term "Daily Price" shall mean, for any relevant day,
the closing bid price of the Corporation's Common Stock on that day, as reported
in the Nasdaq SmallCap Market or as reported on a national or regional exchange
on which the Common Stock is listed. All Warrants not theretofore exercised or
redeemed will expire on ________________, 2004.
Reference is hereby made to the additional provisions of this Warrant
Certificate set forth on the reverse hereof and such further provisions shall
for all purposes have the same effect as though fully set forth herein.
The Corporation shall not be required to issue or deliver any
certificate for shares of Common Stock or other securities upon the exercise of
Warrants evidenced by this Warrant Certificate until any tax or governmental
charge which may be payable in respect thereof by the holder of this Warrant
Certificate pursuant to the Warrant Agreement shall have been paid, such tax or
charge being payable by the holder of this Warrant Certificate at the time of
surrender.
Exhibit A
Page 1
<PAGE> 17
This Warrant Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Warrant Agent
WITNESS the facsimile signatures of its duly authorized officers of the
Corporation.
Dated:
OREGON BAKING COMPANY, dba MARSEE BAKING
By: By:
--------------------------------------- ---------------------------------
President Secretary
COUNTERSIGNED:
CHASEMELLON SHAREHOLDER SERVICES, LLC
By: , Warrant Agent
-----------------------------------
Authorized Signature
Exhibit A
Page 2
<PAGE> 18
[REVERSE SIDE]
This Warrant Certificate is subject to all of the terms, provisions and
conditions of the Warrant Agreement, dated _______________________ ("Warrant
Agreement"), between the Corporation and the Warrant Agent, to all of which
terms, provisions and conditions the registered holder of this Warrant
Certificate consents by acceptance hereof. The Warrant Agreement is incorporated
herein by reference and made a part hereof and reference is made to the Warrant
Agreement for a full description of the rights, limitations of rights,
obligations, duties and immunities of the Warrant Agent, the Corporation and the
holders of the Warrant Certificates. Copies of the Warrant Agreement are
available for inspection at the stock transfer office of the Warrant Agent or
may be obtained upon written request addressed to the Corporation at 2287 NW
Pettygrove, Portland, Oregon 97210.
The Corporation shall not be required upon the exercise of the Warrants
evidenced by this Warrant Certificate to issue fractions of Warrants, Common
Stock or other securities, but may make adjustment therefore in cash on the
basis of the current market value of any fractional interest as provided in the
Warrant Agreement.
In certain cases, the sale of securities by the Corporation upon
exercise of Warrants may violate the securities laws of the United States,
certain states thereof or other jurisdictions. The Corporation has agreed to use
its best efforts to cause a registration statement to continue to be effective
during the term of the Warrants with respect to such sales under the Securities
Act of 1933, and to take such action under the laws of various states as may be
required to cause the sale of securities upon exercise to be lawful. However,
the Corporation will not be required to honor the exercise of Warrants if, in
the opinion of the Corporation, upon advice of counsel, the sale of securities
upon such exercise would be unlawful.
This Warrant Certificate, with or without other Certificates, upon
surrender to the Warrant Agent, any successor warrant agent or, in the absence
of any successor warrant agent, at the corporate office of the Corporation, may
be exchanged for another Warrant Certificate or Certificates so surrendered. If
the Warrants evidenced by this Warrant Certificate shall be exercised in part,
the holder hereof shall be entitled to receive upon surrender hereof another
Warrant Certificate or Certificates evidencing the number of Warrants not so
exercised.
No holder of this Warrant Certificate, as such, shall be entitled to vote,
receive dividends or be deemed the holder of Common Stock or any other
securities of the Corporation which may at any time be issuable on the exercise
hereof for any purpose whatever, nor shall anything contained in the Warrant
Agreement or herein be construed to confer upon the holder of this Warrant
Certificate, as such, any of the rights of a shareholder of the Corporation or
any right to vote for the election of directors or upon any matter submitted to
shareholders at any meeting thereof or give or withhold consent to any corporate
action (whether upon any matter
Exhibit A
Page 3
<PAGE> 19
submitted to shareholders at any meeting thereof, or give or withhold consent to
any merger, recapitalization, issuance of stock, reclassification of stock,
change of par value or change of stock to no par value, consideration,
conveyance or otherwise) or to receive notice of meetings or other actions
affecting shareholders (except as provided in the Warrant Agreement) or to
receive dividends or subscription rights or otherwise until the Warrants
evidenced by this Warrant Certificate shall have been exercised and the Common
Stock purchasable upon the exercise thereof shall have been delivered as
provided in the Warrant Agreement.
If this Warrant Certificate shall be surrendered for exercise within any
period during which the transfer books for the Corporation's Common Stock or
other class of stock purchasable upon the exercise of the Warrants evidenced by
this Warrant Certificate are closed for any purpose, the Corporation shall not
be required to make delivery of certificates for shares purchasable upon such
transfer until the date of the reopening of said transfer books.
Every holder of this Warrant Certificate, by accepting the same,
consents and agrees with the Corporation, the Warrant Agent, and with every
other holder of a Warrant Certificate that:
(a) this Warrant Certificate is transferable on the transfer books of
the Warrant Agent only upon the terms and conditions set forth in the Warrant
Agreement; and
(b) the Corporation and the Warrant Agent may deem and treat the person
in whose name this Warrant Certificate is registered as the absolute owner
hereof (notwithstanding any notation of ownership or other writing thereon made
by anyone other than the Corporation or the Warrant Agent) for all purposes
whatever, and neither the Corporation nor the Warrant Agent shall be affected by
any notice to the contrary
Exhibit A
Page 4
<PAGE> 20
PURCHASE WARRANT
SUBSCRIPTION FORM
SUBSCRIPTION TO BE EXECUTED UPON EXERCISE OF WARRANT
c/o ChaseMellon Shareholder Services, LLC
520 Pike Street, Suite 1220
Seattle, Washington 98101
The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- _________________ Custodian________________
TEN ENT -- as tenants by the entireties (Cust.) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors Act
survivorship and not as tenants in common ______________________________ (State)
COM PROP -- as community property UNIF TRF MIN ACT -- _________________ Custodian (until age ____)
(Cust.)
_________ under Uniform Gifts to Minors Act
(Minor)
to Minors Act _____________________ (State)
</TABLE>
Additional abbreviations may also be used, thought not in the above list.
The undersigned holder of the within Warrant hereby (1) irrevocably elects to
exercise the right to purchase represented by the within Warrant for, and to
purchase hereunder, shares of Common Stock which the undersigned is entitled to
purchase thereunder, (2) tenders $_____________ as full payment of the Exercise
Price called for by the Warrant Agreement, and (3) directs that the Certificates
for such shares be issued as set forth below.
Name in which shares are to be issued: _____________________________________
(if other than to the undersigned) _____________________________________
Address _____________________________________
If the number of shares shall not be all the shares purchasable thereunder, a
new Warrant Certificate for the balance of the shares purchasable under the
within Warrant shall be delivered to the undersigned holder at the address set
forth below:
<TABLE>
<S> <C>
DATED: Signature of Holder:
------------------------ ---------------------------
Social Security or other identifying Signature Guaranteed:
number:_________________________ Name (please print):
---------------------------
Address:
----------------------------------------
----------------------------------------
</TABLE>
Purchase Warrant Subscription Form
Page 1
<PAGE> 21
ASSIGNMENT
NOTICE
The signature to the foregoing Subscription must correspond to the
name(s) of the registered holder(s) of the within Warrant in every particular,
without alteration or any change whatsoever.
- --------------------------------------------------------------------------------
FORM OF ASSIGNMENT TO BE EXECUTED UPON TRANSFER OF WARRANT
FOR VALUE RECEIVED _________________hereby sells, assigns and transfer to
________________________________Social Security or other identifying number
__________________the within Warrant, together with all rights, title and
interest herein, and does hereby irrevocably constitute and appoint
___________________________________ attorney to transfer such Warrant on the
warrant register of the Corporation with full power of substitution.
Dated: Signature of Transferor:
--------------- ------------------------------
Address of Transferee: Signature Guaranteed:
--------------------------------
- ---------------------
- ---------------------
NOTICE
The signature to the foregoing Assignment must correspond to the name(s) as
written upon the face of the within Warrant in every particular, without
alteration or any change whatsoever, and should be guaranteed by a commercial
bank or trust Corporation having an office or correspondent in the United States
or by a member firm of a registered national securities exchange or the National
Association of Securities Dealers, Inc.
- --------------------------------------------------------------------------------
Assignment
Page 1
<PAGE> 1
EXHIBIT 5.1
July 20, 1999
To the Board of Directors of
Oregon Baking Company, dba
Marsee Baking
2287 NW Pettygrove Street
Portland, Oregon 97210
Registration No. 333-77551
Oregon Baking Company, dba Marsee Baking
Registration Statement on Form SB-2, as Amended
Gentlemen:
We have acted as counsel to Oregon Baking Company, dba Marsee Baking, an Oregon
corporation (the "Company"), in connection with (a) the preparation and filing
with the Securities and Exchange Commission (the "Commission") of a Registration
Statement on Form SB-2 (Registration No. 33-77551), as amended by Amendment No.
1 thereto, pursuant to the Securities Act of 1933, as amended, relating to the
issuance and sale of up to 2,012,500 shares (including the over-allotment
option) (the "Shares") of the Company's common stock, without par value (the
"Common Stock"), and up to 2,012,500 Warrants (including the over-allotment
option) to purchase Common Stock (the "Warrants"), and (b) the sale of the
Shares and Warrants (together, the "Securities") to Barron Chase Securities,
Inc., (the "Underwriter"), pursuant to the Underwriting Agreement by and between
the Company and the Underwriter (the "Underwriting Agreement").
In our capacity as such counsel, we have examined the originals, or certified
copies or documents otherwise identified to our satisfaction as a true and
correct copies, of the Registration Statement and such corporate records,
documents, certificates and other agreements and instruments to enable us to
render the opinions hereinafter expressed.
<PAGE> 2
Marsee Board of Directors
July 20, 1999
Page 2
Based on the foregoing, we are of the opinion that after the Commission has
declared the Registration Statement to be effective (such Registration Statement
as is finally declared effective and the form of Prospectus contained therein
being hereinafter referred to as the "Registration Statement" and the
"Prospectus," respectively) and when the applicable provisions of the "Blue Sky"
or other state securities laws shall have been complied with, the Company's
Securities covered by the Registration Statement, upon receipt of payment
therefor, will constitute legally issued Securities of the Company, fully paid
and non-assessable.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to us under the heading "Legal
Matters" in the related Prospectus.
Very truly yours,
/s/ Tonkon Torp LLP
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<PAGE> 1
EXHIBIT 23.1B
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Oregon Baking Company dba Marsee Baking
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
Our report dated February 23, 1999 contains an explanatory paragraph that
states that the Company has suffered recurring losses from operations which
raise substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of that uncertainty.
KPMG Peat Marwick LLP
Portland, Oregon
July 23, 1999
