SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 8-K/A-1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
February 18, 1999
.............ELMER'S RESTAURANTS, INC...........
(Exact name of registrant as specified in its charter)
........Oregon...................0-14837............93-0836824...
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
.......11802 SE Stark, Portland, Oregon................97216....
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code..
(503) 252-1485.....
...........................Not Applicable....................
(Former name or former address, if changed since last report.)
<PAGE> Page __ of __
This Form 8-K/A amends and restates in its entirety the
Registrant's Current Report on Form 8-K dated February 18, 1999
and filed March 5, 1999 which reported the merger of Elmer's
Restaurants, Inc. with its majority shareholder CBW, Inc. in a
transaction in which Elmer's Restaurants, Inc. was the surviving
corporation. However, this transaction is accounted for as a
reverse acquisition in which CBW, Inc. is deemed to be the
acquirer of Elmer's Restaurants, Inc. for accounting purposes, in
accordance with Accounting Principles Board Opinion No. 16,
Business Combinations. Accordingly this Form 8-K/A is being
filed to report the transaction as an acquisition of Elmer's
Restaurants, Inc. by CBW, Inc. and to include the historical
financial statements of CBW, Inc. (the deemed acquirer) and the
pro forma combined financial statements of CBW, Inc. and Elmer's
Restaurants, Inc. with respect to the merger transaction.
Item 1. Changes in Control of Registrant.
Not applicable.
Item 2. Acquisition or Disposition of Assets.
Effective February 18, 1999, Elmer's Restaurants, Inc. (the
'Company'), merged with its majority shareholder CBW Inc.
('CBW'), a closely held Oregon corporation, in a transaction in
which the Company was the surviving corporation. CBW was the
operator of five restaurants in Eugene, Springfield, and Bend,
Oregon. In consideration for the issuance by the Company of
770,500 new shares of the Company's restricted stock to the CBW
shareholders and the assumption of approximately $4 million in
debt owed by CBW arising from CBW's acquisition of the
controlling block of the Company's restricted common stock on
August 25, 1998 (as previously reported in CBW's Schedule 13D
filing dated September 3, 1998), the Company acquired all the
stock and assets of CBW including CBW's wholly owned subsidiary,
CBW Food Company, LLC (which by operation of merger is now the
Company's wholly-owned subsidiary). The assets include five
Ashley's delis operated by CBW and an option to purchase four
Richards' delis currently operated by Grass Valley Ltd., Inc.
Each CBW shareholder, listed in Table 1 hereunder, received
144.4507 shares of the Company's restricted common stock for
every CBW share owned. The shares of Company stock previously
acquired by CBW, a total of 705,000 shares, were concurrently
transferred to the Company and were canceled upon receipt
thereof. In further consideration for the issuance and to secure
various indemnification obligations of the CBW shareholders under
the merger agreement, the Company and the individual CBW
shareholders executed an escrow agreement pursuant to which
220,000 shares were placed in escrow for a period of one year
from the date of closing of the merger transaction. The Company's
primary source of financing for the acquisition consisted of
$3.08 million from its principal lender bank, Wells Fargo Bank,
N.A., the proceeds of which were applied to pay down $1.75
million of the assumed debt and approximately $1,480,000 in other
outstanding debt of the Company. The debt financing is secured by
a grant of various security interests in the Company's assets as
well as the issuance of continuing guaranties by two subsidiaries
of the Company. The Company also used approximately $1,000,000
to pay down debt assumed in the transaction.
<PAGE> Page __ of __
<TABLE>
<CAPTION>
Table 1
<S> <C> <C>
Name of Shareholder No. of CBW No. of shares issued in
shares held merger (and current
ownership percentage)
Ken N. Boettcher 500 72,225 (4.55%)
Karen Brooks 500 72,225 (4.55%)
Thomas C. Conner 667 96,349 (6.07%)
Bruce N. Davis* 952 137,517 (8.67%)
Cordy Jensen 500 72,225 (4.55%)
____________________________
* President and Director of Elmer's Restaurants, Inc.
<PAGE> Page __ of __
William W. Service+ 952 137,517 (8.67%)
Donald Woolley 667 96,349 (6.07%)
Linda E. Bolton, Trustee 500 72,225 (4.55%)
Under Restated Trust
Agreement Dated 6/8/98
</TABLE>
___________________________
+ Chief Executive Officer and Director of Elmer's Restaurants,
Inc.
Since CBW was controlled by a number of the Company's existing
directors (Messrs. Conner, Davis, Jensen, Service and Woolley),
prior to consummating the merger the Company constituted a
special committee of the Board of Directors consisting of
directors with no ownership interests in CBW. The Company engaged
the services of special counsel to advise the special committee
on this transaction. The special committee reviewed a fairness
opinion prepared by Veber Partners, a private investment bank
based in Portland, Oregon. Veber Partners analyzed the then
proposed transaction, and more particularly, the fairness, from a
financial point of view, to the Company's shareholders of the
consideration paid by the Company in connection with the merger.
Upon a thorough review of the transaction, Veber Partners was of
the opinion, in its letter dated February 17, 1999, that the
consideration paid by the Company in the merger transaction was
fair from a financial point of view to the Company's
shareholders.
<PAGE> Page __ of __
Item 3. Bankruptcy or Receivership
Not applicable.
Item 4. Changes in Registrant's Certifying Accountant
Not applicable.
Item 5. Other Events.
Not applicable.
Item 6. Resignations of Registrant's Directors.
Not applicable.
Item 7. Financial Statements and Exhibits Filed.
This Item 7 amends and restates in its entirety the Item 7 in the
Registrant's Current Report on Form 8-K dated February 18, 1999.
(a) CONSOLIDATED FINANCIAL STATEMENTS OF CBW AND
SUBSIDIARY:
Financial Statements of CBW and Subsidiary and Report
of Independent Accountants thereon:
Consolidated Balance Sheets, March 31, 1997, 1998 and
December 31, 1998 (unaudited).
Consolidated Statements of Operations for the period
from June 16, 1995 (date of inception) through March 31, 1996 and
the years ended March 31, 1997 and 1998 and for the nine months
ended December 31, 1997 and 1998 (unaudited).
Consolidated Statements of Changes in Shareholders
Equity (Deficit) for the period from June 16, 1995 (date of
inception) through March 31, 1996 and the years ended March 31,
1997 and 1998 and for the nine months ended December 31, 1998
(unaudited).
Consolidated Statements of Cash Flows for the period
from June 16, 1995 (date of inception) through March 31, 1996 and
the years ended March 31, 1997 and 1998 and for the nine months
ended December 31, 1997 and 1998 (unaudited).
Notes to Consolidated Financial Statements
(b) UNAUDITED PRO FORMA FINANCIAL INFORMATION:
Unaudited Pro Forma Combined Financial Statements for
Elmer's Restaurants, Inc. and CBW, Inc.
<PAGE> Page __ of __
Unaudited Pro Forma Combined Balance Sheet as of
December 31, 1998.
Notes to Unaudited Pro Forma Combined Balance Sheet.
Unaudited Pro Forma Combined Statement of Operations
for the nine months ended December 31, 1998.
Notes to Unaudited Pro Forma Combined Statement of
Operations for the nine months ended December 31, 1998.
Unaudited Pro Forma Combined Statement of Operations
for the year ended March 31, 1998.
Notes to Unaudited Pro Forma Combined Statement of
Operations (year ended March 31, 1998).
(c) EXHIBITS
EXHIBIT INDEX
<TABLE>
<S> <C> <C>
Exhibit Sequential
No. Description Page No.
</TABLE>
2 (i) Plan of Merger, dated February 18, 1999, between
Elmer's Restaurants, Inc. and CBW Inc. *
3 (i) * Restated Articles of Incorporation of the Company
(Incorporated herein by reference from Exhibit No. 3.1 to the
Company's Annual Report on Form 10-K for the year ended March 31,
1988.)
3 (ii) * By-Laws of the Company, as amended. (Incorporated
herein by reference from Exhibit 3.2 of the Company's Annual
Report on Form 10-K for the year ended March 31, 1990.)
9 (i) Voting Trust Agreement dated February 18, 1999, between
Ken Boettcher, Karen Brooks, Bruce N. Davis, Cordy Jensen,
William W. Service, Gregory W. Wendt, and Linda Bolton (as
Trustee Under a Restated Trust Agreement dated June 8, 1998),
(collectively, certain shareholders of Elmer's Restaurants,
Inc.), and Bruce N. Davis, William W. Service and Cordy Jensen,
(collectively, the Voting Trustees).
<PAGE> Page __ of __
10 (i)(a) Merger Agreement, dated February 18, 1999, between
Elmer's Restaurants, Inc., CBW Inc., and Ken Boettcher, Karen
Brooks, Thomas C. Conner, Bruce N. Davis, Cordy Jensen, William
W. Service, Gregory W. Wendt, Donald Woolley, and Linda Bolton
(as Trustee Under a Restated Trust Agreement dated June 8, 1998),
(collectively, all the shareholders of CBW Inc.). *
10 (i)(b) Stock Escrow Agreement, dated February 18,
1999, between Elmer's Restaurants, Inc., and Ken Boettcher, Karen
Brooks, Thomas C. Conner, Bruce N. Davis, Cordy Jensen, William
W. Service, Gregory W. Wendt, Donald Woolley, and Linda Bolton
(as Trustee Under a Restated Trust Agreement dated June 8, 1998)
(collectively, all the shareholders of CBW Inc.), William W.
Service as the representative of the Escrow Indemnitors, and Ater
Wynne LLP, as escrow agent.
10 (i)(c) Registration Rights Agreement, dated February 18,
1999, between Elmer's Restaurants, Inc., and Ken Boettcher, Karen
Brooks, Thomas C. Conner, Bruce N. Davis, Cordy Jensen, William
W. Service, Gregory W. Wendt, Donald Woolley, and Linda Bolton
(as Trustee Under a Restated Trust Agreement dated June 8, 1998)
(collectively, all the shareholders of CBW Inc.).
99 (i) Fairness Opinion, dated January 13, 1999, issued by
Veber Partners to the Board of Directors of Elmer's Restaurants,
Inc. *
* Previously filed as exhibits to the Registrant's Current Report
on Form 8-K dated February 18, 1999.
<PAGE> Page __ of __
CBW, Inc. and Subsidiary
Consolidated Financial Statements
as of March 31, 1997, 1998 and December 31, 1998
and for the period from inception, June 16, 1995, through March
31, 1996 and the years ended March 31, 1997 and 1998 and for the
nine months ended December 31, 1997 and 1998
<PAGE> Page __ of __
Report of Independent Accountants
To the Board of Directors and Shareholders
CBW, Inc.
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of operations, changes in
shareholders' equity (deficit) and of cash flows present fairly,
in all material respects, the financial position of CBW, Inc. and
Subsidiary (the "Company") at March 31, 1998 and 1997, and the
results of their operations and their cash flows for the period
from inception, June 16, 1995, through March 31, 1996 and the
years ended March 31, 1997 and 1998 in conformity with generally
accepted accounting principles. 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 of these
statements in accordance with generally accepted auditing
standards that 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, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
Portland, Oregon
June 7, 1999
<PAGE> Page __ of __
CBW, Inc. and Subsidiary
Consolidated Balance Sheets
March 31, 1997, 1998 and December 31, 1998 (unaudited)
<TABLE>
<S> <C> <C>
March 31,
-----------------------
- -
1997 1998
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 43,468 $ 42,189
Accounts and notes receivable 1,714 14,736
Inventories 52,119 79,954
Prepaid expenses and other 7,358 4,860
--------- ---------
Total current assets 104,659 141,739
Property, buildings and equipment, net 145,896 103,496
Intangible assets, net - -
Other assets 13,121 14,440
--------- ---------
Total assets $ 263,676 $ 259,675
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable, current portion $ 43,160 $ 10,731
Accounts payable 123,611 130,883
Accrued payroll and related taxes - -
Accrued expenses 51,014 67,348
Accrued income taxes - -
--------- ---------
Total current liabilities 217,785 208,962
Notes payable, net of current portion 245,754 50,000
Deferred income taxes - -
--------- ---------
Total liabilities 463,539 258,962
Minority interest - -
--------- ---------
Commitments and contingencies
Shareholders' equity:
Common stock, no par value; 10,000
shares authorized, 4,000 shares and
5,334 shares outstanding March 31, 1998
and December 31, 1998, respectively 55,020 295,020
Accumulated deficit (254,883) (294,307)
--------- ---------
Total shareholders' equity (deficit) (199,863) 713
--------- ---------
Total liabilities and shareholders'
equity (deficit) $ 263,676 $ 259,675
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial records.
(Continued on next page)
CBW, Inc. and Subsidiary
Consolidated Balance Sheets
March 31, 1997, 1998 and December 31, 1998 (unaudited)
(continued)
<TABLE>
<S> <C>
December 31,
1998
------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 1,619,406
Accounts and notes receivable 323,235
Inventories 313,130
Prepaid expenses and other 198,256
-----------
Total current assets 2,454,027
Property, buildings and equipment, net 6,050,251
Intangible assets, net 2,726,263
Other assets 96,783
-----------
Total assets $11,327,324
===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Note payable, current portion $ 218,625
Accounts payable 751,014
Accrued payroll and related taxes 180,842
Accrued expenses 143,205
Accrued income taxes 55,955
-----------
Total current liabilities 1,349,641
Notes payable, net of current portion 6,913,375
Deferred income taxes 460,000
-----------
Total liabilities 8,723,016
-----------
Minority interest 1,843,651
-----------
Commitments and contingencies
Shareholders' equity:
Common stock, no par value; 10,000
shares authorized, 4,000 shares and
5,334 shares outstanding March 31, 1998
and December 31, 1998, respectively 895,020
Accumulated deficit (134,363)
-----------
Total shareholders' equity (deficit) 760,657
-----------
Total liabilities and shareholders'
equity (deficit) $11,327,324
===========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE> Page __ of __
CBW, Inc. and Subsidiary
Consolidated Statements of Operations
for the period from inception, June 16, 1995, through March 31,
1996 and the years ended March 31, 1997 and 1998 and for the nine
months ended December 31, 1997 and 1998 (unaudited)
<TABLE>
<C> <C> <C> <C>
Periods ended March 31,
------------------------------
- ------
1996 1997 1998
---- ---- ----
Revenues $ 94,852 $ 875,199
$1,591,293
---------- ----------
- ----------
Costs and expenses:
Food, beverage and supplies 33,508 176,324
564,115
Labor and related 124,297 377,263
420,427
Occupancy costs 29,507 130,991
138,058
Depreciation and amortization 11,032 33,674
56,263
General and administrative expenses 107,652
158,910 172,312
---------- ----------
- ----------
305,996 877,162
1,351,175
--------- ---------- -----
- -----
Income (loss) from operations (211,144)
(1,963) 240,118
Other income (expenses):
Interest income 625 38
48
Interest expense (3,393)
(23,411) (34,896)
Gain (loss) on disposal of assets -
(15,635) -
---------- ----------
- ----------
Income (loss) before benefit
(provision) for income taxes (213,912)
(40,971) 205,270
Provision for income taxes - -
- -
Minority interest in earnings of
consolidated subsidiary - -
- -
---------- ----------
- ----------
Net income (loss) $ (213,912) $
(40,971) $ 205,270
=========== ==========
==========
(Unaudited Pro Forma
Information)
Income (loss) before benefit (provision)
for income taxes $ (213,912)
(40,971) 205,270
Benefit (provision) for income taxes 80,000
9,000 (72,000)
Minority interest in earnings of
consolidated subsidiary - -
- -
----------- ----------
- ----------
Pro forma net income (loss) $ (133,912)$ (31,971) $
133,270
=========== ==========
==========
</TABLE>
(Continued on next page)
The accompanying notes are an integral part of the consolidated
financial statements.
CBW, Inc. and Subsidiary
Consolidated Statements of Operations
for the period from inception, June 16, 1995, through March 31,
1996 and the years ended March 31, 1997 and 1998 and for the nine
months ended December 31, 1997 and 1998 (unaudited) (continued)
<TABLE>
<S> <C> <C>
Nine months ended
December 31,
-------------------------
- -
1997 1998
---- ----
(Unaudited)
Revenues $1,139,428 $7,265,695
---------
- ---------
Costs and expenses:
Food, beverage and supplies 352,118 2,110,452
Labor and related 313,971 2,251,048
Occupancy costs 106,458 460,426
Depreciation and amortization 45,713 241,601
General and administrative expenses 125,002
1,531,340
---------- ----------
943,262 6,594,867
---------- ----------
Income (loss) from operations 196,166 670,828
Other income (expenses):
Interest income 48 14,338
Interest expense (32,420) (259,570)
Gain (loss) on disposal of assets - 9,977
---------- ----------
Income (loss) before benefit
(provision) for income taxes 163,794 435,573
Provision for income taxes - (121,735)
Minority interest in earnings of
consolidated subsidiary - (109,824)
---------- ----------
Net income (loss) $ 163,794 $ 204,014
========== ==========
(Unaudited Pro Forma
Information)
Income (loss) before benefit (provision)
for income taxes 163,974
435,573
Benefit (provision) for income taxes (57,500) (144,735)
Minority interest in earnings of
consolidated subsidiary - (109,824)
---------- ----------
Pro forma net income (loss) $ 106,294 $ 181,014
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE> Page __ of __
CBW, Inc. and Subsidiary
Consolidated Statements of Changes in Shareholders' Equity
(Deficit) for the period from inception, June 16, 1995, through
March 31, 1996 and the years ended March 31, 1997 and 1998 and
for the nine months ended December 31, 1998 (unaudited)
<TABLE>
<S> <C> <C> <C>
Common Stock
Accumulated
----------------------
Shares Amount Deficit
------ ------ -------
Initial capital contribution - $ 55,020
$ -
Net loss - -
(213,912)
---------- ----------
- ----------
Balance, March 31, 1996 - 55,020
(213,912)
Net loss - -
(40,971)
---------- ----------
- ----------
Balance, March 31, 1997 - 55,020
(254,883)
Shares issued upon conversion to
S corporation 4,000
- - -
Conversion of debt to equity - 240,000
- -
Dividend distributions - -
(244,694)
Net income - -
205,270
---------- ----------
- ----------
Balance, March 31, 1998 4,000 295,020
(294,307)
Capital contribution (unaudited) 1,334 600,000
- -
Dividend distributions (unaudited) - -
(44,070)
Net income (unaudited) - -
204,014
---------- ----------
- ----------
Balance, December 31, 1998 (unaudited) 5,334 $
895,020 $ (134,363)
========== ==========
==========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE> Page __ of __
CBW, Inc. and Subsidiary
Consolidated Statements of Cash Flows
for the period from inception, June 16, 1995, through March 31,
1996 and the years ended March 31, 1997 and 1998 and for the nine
months ended December 31, 1997 and 1998 (unaudited)
<TABLE>
<S> <C> <C> <C>
Periods ended March 31,
------------------------------
- ----------
1996 1997 1998
---- ---- ----
Cash flows from operating activities:
Net income (loss) $ (213,912) $
(40,971) $ 205,270
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities:
Depreciation and amortization 11,032 33,674
56,263
Gain on disposition of assets - 15,635
- -
Minority interest in earnings of
consolidated subsidiary - -
- -
Changes in assets and liabilities:
Receivables -
(1,714) (13,022)
Inventories (13,181)
(38,938) (27,835)
Prepaid expenses (2,472)
(4,886) 2,498
Other assets (2,115)
(11,245) (1,525)
Accrued expenses 150,784 23,841
23,606
---------- ----------
- ----------
Net cash provided by (used in)
operating activities (69,864)
(24,604) 245,255
--------- ---------- -----
- -----
Cash flows from investing activities:
Additions to property, buildings and
equipment (199,905)
(6,093) (13,657)
Payment for business acquisition, net
of cash acquired - -
- -
---------- ----------
- ----------
Net cash used in investing activities: (199,905)
(6,093) (13,657)
---------- ----------
- ----------
Cash flows from financing activities:
Proceeds from notes payable 275,385 86,144
7,271
Payments on notes payable -
(72,615) (1,214)
Capital contributions 55,020 -
5,760
Dividend distributions - -
(244,694)
---------- ----------
- ----------
Net cash provided by (used in)
financing activities 330,405 13,529
(232,877)
---------- ----------
- ----------
Net increase (decrease) in cash
and cash equivalents 60,636
(17,168) (1,279)
Cash and cash equivalents, beginning
of year -
60,636 43,468
---------- ----------
- ----------
Cash and cash equivalents, end of year $ 60,636 $
43,468 $ 42,189
========== ==========
==========
Supplemental disclosures of cash flow
information:
Conversion of debt to equity $ - $ -
$ 234,240
========== ==========
==========
Cash paid for:
Interest $ 3,393) $ 23,411
$ 34,896
=========== ==========
==========
Taxes $ - $ -
$ -
=========== ==========
==========
</TABLE>
Continued on next page
The accompanying notes are an integral part of the consolidated
financial statements.
CBW, Inc. and Subsidiary
Consolidated Statements of Cash Flows
for the period from inception, June 16, 1995, through March 31,
1996 and the years ended March 31, 1997 and 1998 and for the nine
months ended December 31, 1998 (unaudited) (continued)
<TABLE>
<C> <C> <C>
Nine months ended
December 31,
--------------------------------
- ---
1997 1998
---- ----
(Unaudited)
Cash flows from operating activities:
Net income (loss) $ 163,794 $ 204,014
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities:
Depreciation and amortization 45,713 241,601
Gain on disposition of assets - (9,977)
Minority interest in earnings of
consolidated subsidiary - 109,824
Changes in assets and liabilities:
Receivables (4,629) (3,031)
Inventories (29,646) (9,525)
Prepaid expenses 2,859 (18,762)
Other assets (1,225) (872)
Accrued expenses (67,695) 19,707
----------- -----------
Net cash provided by (used in)
operating activities 109,171 532,979
Cash flows from investing activities:
Additions to property, buildings and
equipment (11,911) (224,454)
Payment for business acquisition, net
of cash acquired - (3,268,245)
----------- -----------
Net cash used in investing activities: (11,911)
(3,492,699)
----------- -----------
Cash flows from financing activities:
Proceeds from notes payable 7,271 4,000,000
Payments on notes payable (1,214) (18,993)
Capital contributions 5,760 600,000
Dividend distributions (167,316) (44,070)
----------- -----------
Net cash provided by (used in)
financing activities (155,499) 4,536,937
Net increase (decrease) in cash
and cash equivalents (58,239) 1,577,217
Cash and cash equivalents, beginning
of year 43,468 42,189
Cash and cash equivalents, end of year $ (14,771)
$ 1,619,406
=========== ===========
Supplemental disclosures of cash flow
information:
Conversion of debt to equity $ 234,240 $ -
=========== ===========
Cash paid for:
Interest $ 32,420 $ 179,727
=========== ===========
Taxes $ - $ 225,182
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE> Page __ of __
CBW, Inc. and Subsidiary
Notes to Consolidated Financial Statements
for the period from inception, June 16, 1995, through March 31,
1996 and the years ended March 31, 1997 and 1998 and for the nine
months ended December 31, 1997 and 1998 (unaudited)
1. The Company and Summary of Significant Accounting Policies:
The Company
CBW, Inc., an Oregon corporation, and Subsidiary (the "Company"),
owns and operates five restaurants in Eugene, Springfield and
Bend, Oregon, which operate under the name of Ashley's Deli. The
Company was incorporated on May 22, 1997. Prior to this date the
Company operated as a limited liability company which was
organized on June 16, 1995.
As further discussed in Note 9, the Company acquired a
controlling interest (705,000 shares representing 53.8%) of the
outstanding stock of Elmer's Restaurants, Inc. ("Elmer's") for
approximately $4,500,000 on August 25, 1998. Elmer's, an Oregon
corporation, owns and operates eleven Elmer's Pancake & Steak
House restaurants and sells franchises that give franchisees the
right to operate under the name Elmer's Pancake & Steak House for
a specific restaurant or region. Franchises and company owned
stores are located throughout the western United States. This
transaction has been accounted for as a purchase of Elmer's by
the Company, and a new basis of accounting was established for
the assets and liabilities of Elmer's to the extent of the change
in ownership.
As further discussed in Note 10, effective February 18, 1999, the
Company merged with Elmer's in a transaction in which Elmer's was
the surviving corporation.
The consolidated financial statements include the operations of
the Company and its wholly-owned subsidiary, CBW Food Company,
LLC, as well as Elmer's from August 31, 1998 (see Note 9).
All material intercompany accounts and transactions have been
eliminated. The minority interest included in the financial
statements represents the 46.2% separate public ownership of
Elmer's.
Unaudited Interim Consolidated Financial Statements
In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments
necessary to present fairly the financial position of the Company
at December 31, 1998 and the consolidated results of operations
and cash flows for the nine month periods ended December 31, 1997
and 1998.
Operating results for the interim periods are not necessarily
indicative of the results that may be expected for the entire
fiscal year or any other period.
<PAGE> Page __ of __
CBW, Inc. and Subsidiary
Notes to Consolidated Financial Statements,
for the period from inception, June 16, 1995, through March 31,
1996 and the years ended March 31, 1997 and 1998 and for the nine
months ended December 31, 1997 and 1998 (unaudited) (continued)
1. The Company and Summary of Significant Accounting Policies,
Continued:
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.
Disclosure of Fair Value of Financial Instruments
The carrying amounts of financial instruments including cash and
cash equivalents and accounts receivable approximated fair value
as of March 31, 1997 and 1998 and December 31, 1998 because of
the relatively short maturity of these instruments. The carrying
value of notes payable approximated fair value as of March 31,
1997 and 1998 and December 31, 1998, based upon interest rates
and terms available for the same or similar loans.
Cash and Cash Equivalents
The Company considers all short-term, highly-liquid investments
with a maturity of three months or less when purchased to be cash
equivalents.
The Company invests its excess cash in interest bearing deposits
with major banks and in U.S. Treasury securities. These
investments generally mature within 90 days and are therefore
subject to minimal risk. Management routinely reviews these
investments in order to limit the amount of credit exposure to
any one financial institution.
Inventories
Inventories of food, beverages and supplies are stated at the
lower of first-in, first-out cost or market.
Property, Buildings and Equipment
Property, buildings and equipment are stated at cost. Cost of
property, buildings and equipment reflect purchase accounting
adjustments related to the acquisition of 53.8% of the
outstanding common stock of Elmer's by the Company on August 25,
1998. Depreciation is computed using the straight-line method
over the estimated useful lives of the related assets. Lives
used for calculating depreciation and amortization rates for the
principal asset classifications are as follows: buildings - 35
years; automobiles, furniture, fixtures and equipment - 3 to 7
years; leasehold improvements - life of lease or applicable
shorter period. Maintenance and repairs are expensed as
incurred; renewals and improvements are capitalized. Upon
disposal of assets subject to depreciation, the related costs and
accumulated depreciation are removed and resulting gains and
losses are reflected in the consolidated statements of
operations.
<PAGE> Page __ of __
CBW, Inc. and Subsidiary
Notes to Consolidated Financial Statements, Continued
for the period from inception, June 16, 1995, through March 31,
1996 and the years ended March 31, 1997 and 1998 and for the nine
months ended December 31, 1997 and 1998 (unaudited)
Intangible Assets
The cost over fair value of net tangible assets of acquired
companies (goodwill) and trademarks are amortized on a straight-
line basis over 30 years. The cost of intangible assets reflects
purchase accounting adjustments related to the acquisition of
53.8% of the outstanding common stock of Elmer's by the Company
on August 25, 1998. Management of the Company reviews the
carrying value of capitalized tangible and intangible assets on a
regular basis to reach a judgment concerning possible permanent
impairment of value. These reviews consider, among other
factors: (1) the net realizable value of each major
classification of assets, (2) the cash flow associated with the
assets, and (3) significant changes in the extent or manner in
which major assets are used. Management believes the carrying
value of assets is less than the estimated fair value.
Franchise Operations
Initial license fees from individual and area franchise sales are
recognized as revenue when substantially all of the terms and
conditions of the franchise agreement are met. Elmer's has sold
area franchises to several restaurant operators in various
western states. The terms of the agreements entered into with
each franchisee protect the territory for the operator and
provide standard building blueprints, recipes, formulas and
methods of food preparation. The term of the franchise is 25
years. Continuing franchise fees (based on a percentage of
sales) are recognized as income when earned.
<PAGE> Page __ of __
CBW, Inc. and Subsidiary
Notes to Consolidated Financial Statements, Continued
for the period from inception, June 16, 1995, through March 31,
1996 and the years ended March 31, 1997 and 1998 and for the nine
months ended December 31, 1997 and 1998 (unaudited)
1. The Company and Summary of Significant Accounting Policies,
Continued:
Income Taxes
The Company has been treated for federal income tax purposes as
an S corporation under Subchapter S of the Internal Revenue Code
of 1986, as amended, since May 22, 1997 (and was a limited
liability company from inception to that date) and has been
treated as an S corporation for state income tax purposes under
comparable state tax laws. As a result, the Company's earnings
through December 31, 1998 have been taxed directly to the
Company's shareholders, at their individual federal and state
income tax rates, rather than to the Company. The earnings of
Elmer's from August 25, 1998 through December 31, 1998 are taxed
to the corporation.
Impact of Recently Issued Accounting Standards
The Company adopted FASB SFAS No. 130, "Reporting Comprehensive
Income", which establishes requirements for disclosure of
comprehensive income. The objective of SFAS No. 130 is to report
a measure of all changes in equity that result from transactions
and economic events other than transactions with owners.
Comprehensive income is the total of net income and all other non-
owner changes in equity. Comprehensive income did not differ
from reported net income or loss in the periods presented.
Unaudited Pro Forma Financial Information
As more fully described in Note 4, the Company has been taxed for
federal and state income tax purposes as a limited liability
company or as an S corporation from inception. The unaudited pro
forma information reflects benefits (provisions) for income taxes
that would have been recorded had the Company been a taxable
corporation for all periods presented.
<PAGE> Page __ of __
CBW, Inc. and Subsidiary
Notes to Consolidated Financial Statements,
for the period from inception, June 16, 1995, through March 31,
1996 and the years ended March 31, 1997 and 1998 and for the nine
months ended December 31, 1997 and 1998 (unaudited) (continued)
2. Property, Buildings and Equipment:
<TABLE>
<S> <C> <C> <C>
March 31, December 31
1997 1998 1998
(Unaudited)
Land $ - $ - $ 1,787,169
Buildings - - 2,197,611
Furniture, fixtures and equipment 78,511 68,610
4,799,096
Leasehold improvements 98,896 98,896 1,052,456
automobiles - - 12,632
----------- ----------- -----------
177,407 167,506 9,848,964
Less accumulated depreciation
and amortization (31,511) (64,010)
(3,798,713)
----------- ----------- -----------
$ 145,896 $ 103,496 $ 6,050,251
=========== =========== ===========
</TABLE>
3. Intangible Assets:
Intangible assets, net of accumulated amortization of $560,706 at
December 31, 1998 (unaudited) are comprised of:
<TABLE>
<S>
<C>
December 31,
1998
(Unaudited)
Trademark and agreements $ 599,463
Cost over fair value of net tangible assets
of acquired company (goodwill) 2,126,800
----------
$2,726,263
==========
</TABLE>
4. Income Taxes:
The Company has been treated for federal income tax purposes as
an S corporation under Subchapter S of the Internal Revenue Code
of 1986, as amended, since May 22, 1997 (and was a limited
liability company from inception to that date) and has been
treated as an S corporation for state income tax purposes under
comparable state tax laws. As a result, the Company's earnings
through December 31, 1998 have been taxed directly to the
Company's shareholders, at their individual federal and state
income tax rates, rather than to the Company.
<PAGE> Page __ of __
CBW, Inc. and Subsidiary
Notes to Consolidated Financial Statements,
for the period from inception, June 16, 1995, through March 31,
1996 and the years ended March 31, 1997 and 1998 and for the nine
months ended December 31, 1997 and 1998 (unaudited) (continued)
4. Income Taxes, Continued:
The earnings of Elmer's from August 25, 1998 through December 31,
1998 are taxed as a C corporation. Effective with the merger
with Elmer's Restaurants, Inc. (see Note 10), on February 18,
1999 (Termination date) the Company's S corporation status will
terminate and the Company will be subject to federal and state
income taxes on its earnings.
As of the Termination date, under the provisions of Statement of
Financial Accounting Standards No. 109 (SFAS No. 109),
"Accounting for Income Taxes", issued by the Financial Accounting
Standards Board, the Company will be required to provide for
deferred taxes, arising from the cumulative temporary differences
between financial reporting and tax reporting, by recording a
provision for income taxes for such deferred taxes in its
statement of operations in the period in which the Termination
date occurs.
The income tax provision of $121,735 (unaudited) for the nine
months ended December 31, 1998 relates to the results of
operations of Elmer's and is based on the estimated effective
income tax rate for the year ending March 31, 1999.
As of December 31, 1998, the deferred tax liability of $460,000
(unaudited) primarily represents the difference between the book
basis of property, buildings and equipment and the related tax
basis of approximately $1,350,000 (unaudited) primarily as a
result of the purchase accounting adjustments to the cost of
property, buildings and equipment in connection with the
acquisition of 53.8% of the outstanding common stock of Elmer's
by the Company on August 25, 1998.
The unaudited benefit (provision) for income taxes has been
computed in accordance with SFAS No. 109 as if the Company had
been a taxable corporation for all periods presented:
<TABLE>
<S> <C> <C> <C> <C> <C>
Nine months ended
Periods ended March 31, December 31,
---------------------- --------------------
1996 1997 1998 1997 1998
CBW, Inc. and Subsidiary
Notes to Consolidated Financial Statements,
for the period from inception, June 16, 1995, through March 31,
1996 and the years ended March 31, 1997 and 1998 and for the nine
months ended December 31, 1997 and 1998 (unaudited) (continued)
---- ---- ---- ---- ----
(Unaudited Pro Forma Information)
Currently payable:
Federal $ - $ - $ - $ - $(103,735)
State - - - - (26,000)
------ ------ ------ ------ ----------
- - - - (129,735)
Deferred income
taxes 80,000 9,000 (72,000) (57,500) (15,000)
------ ----- -------- -------- ----------
$80,000 $9,000 $(72,000) $(57,500)
$(144,735)
======= ====== ======== ========
==========
</TABLE>
<PAGE> Page __ of __
CBW, Inc. and Subsidiary
Notes to Consolidated Financial Statements,
for the period from inception, June 16, 1995, through March 31,
1996 and the years ended March 31, 1997 and 1998 and for the nine
months ended December 31, 1997 and 1998 (unaudited) (continued)
4. Income Taxes, Continued:
The unaudited pro forma provision for income taxes for the nine
month periods ended December 31, 1997 and 1998 are based on the
estimated effective income tax rates for those years.
A reconciliation of the federal income tax rate benefit
(provision) to the Company's pro forma effective income tax rate
is as follows:
<TABLE>
<CAPTION>
Nine months ended
Periods ended March 31, December 31,
---------------------- -------------------
1996 1997 1998 1997 1998
----- ----- ----- ----- ----
(Unaudited Pro Forma Information)
<S> <C> <C> <C> <C> <C>
Income tax at 34.0% 34.0% (34.0)% (34.0)%
(34.0)%
statutory rate
Federal graduated (1.0) (15.3) 3.5 3.5 5.2
rates
State income taxes, net
of federal income
tax benefit
(provision) 4.4 4.2 (4.4) (4.4) (4.4)
- (0.9) (0.2) (0.2) -
----- ----- ----- ----- -----
Other, net 37.4% 22.0% 35.1% 35.1% 33.2%
===== ===== ===== ===== =====
</TABLE>
Deferred income taxes are the result of provisions in the
tax laws that either require or permit certain items of income or
expense to be reported for income tax purposes in different
periods than they are reported for financial reporting. The
unaudited pro forma nature of those cumulative differences and
their effect on the unaudited pro forma income tax benefit
(provision) are as follows:
CBW, Inc. and Subsidiary
Notes to Consolidated Financial Statements,
for the period from inception, June 16, 1995, through March 31,
1996 and the years ended March 31, 1997 and 1998 and for the nine
months ended December 31, 1997 and 1998 (unaudited) (continued)
<TABLE>
<S> <C> <C> <C> <C> <C>
Nine months ended
Periods ended March 31, December 31,
----------------------- -------------------
1996 1997 1998 1997 1998
----- ----- ----- -----
- -----
(Unaudited Pro Forma Information)
Deferred tax $80,000 $9,000 $(72,000) $57,500
$ -
asset
</TABLE>
<PAGE> Page __ of __
CBW, Inc. and Subsidiary
Notes to Consolidated Financial Statements,
for the period from inception, June 16, 1995, through March 31,
1996 and the years ended March 31, 1997 and 1998 and for the nine
months ended December 31, 1997 and 1998 (unaudited) (continued)
4. Income Taxes, Continued:
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets are as follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
Nine months ended
Periods ended March 31, December 31,
----------------------- --------------------
1996 1997 1998 1997 1998
----- ----- ----- -----
- -----
(Unaudited Pro Forma Information)
Net Operating losses
(generated) utilized $(213,000) $(41,000)$205,000
$163,000 $49,000
</TABLE>
A summary of the unaudited pro forma deferred income tax asset is
as follows:
<TABLE>
<S> <C> <C> <C>
March 31, December 31,
-----------------
1997 1998 1998
----- ----- -----
(Unaudited Pro Forma Information)
Deferred tax asset arising
from net operating loss
carryforward $89,000 $17,000 $ -
======= ====== =========
</TABLE>
<PAGE> Page __ of __
CBW, Inc. and Subsidiary
Notes to Consolidated Financial Statements,
for the period from inception, June 16, 1995, through March 31,
1996 and the years ended March 31, 1997 and 1998 and for the nine
months ended December 31, 1997 and 1998 (unaudited) (continued)
5. Notes Payable:
<TABLE>
<S> <C> <C> <C>
March 31, December 31,
1997 1998 1998
----- ----- ----------
(Unaudited)
Notes payable to shareholders,
collateralized by stock, due at
various dates through 1999, monthly
installments total $2,698 including
interest at 10.75% $238,914 $10,731 $
- -
Note payable to affiliate, interest
at 10.5%, due 2000 50,000 50,000
- -
Notes payable to financial institutions,
collateralized by all assets excluding
real estate, due at various dates
through June 2000, monthly principal
installments total approximately $34,000
plus interest at rates as follows:
Prime rate plus 0.5%-0.75% (prime was
7.75% at December 31, 1998) - - 1,181,458
Notes payable to financial institutions,
collateralized by real estate, due
at various dates through February 2008,
monthly installments total $16,204
including interest at rates as follows:
Average 2 year U.S. Treasury note plus
1.75% and 2%
Fixed rate of 8.18% - - 1,281,400
Fixed rate of 8.25% - - 611,307
Note payable to others, collateralized
by stock of a subsidiary, due August
2001, interest at 10% - - 57,835
Note payable to financing company,
personally guaranteed by shareholders
and collateralized by stock of
subsidiary, interest only payments due
monthly at 12%, principal balance
due June 2000 - - 4,000,000
-------- -------- ----------
288,914 60,731 7,132,000
Less current portion 43,160 10,731
218,625
------- ------ ----------
Net of current portion $245,754 $50,000
$6,913,375
========= ======== ==========
</TABLE>
CBW, Inc. and Subsidiary
Notes to Consolidated Financial Statements, Continued
for the period from inception, June 16, 1995, through March 31,
1996 and the years ended March 31, 1997 and 1998 and for the nine
months ended December 31, 1997 and 1998 (unaudited) (continued)
Future maturities of notes payable for years ending March 31
are as follows as of March 31, 1998:
<TABLE>
<S> <C>
1999 $ 10,731
2000 50,000
---------
$ 60,731
=========
</TABLE>
<PAGE> Page __ of __
CBW, Inc. and Subsidiary
Notes to Consolidated Financial Statements,
for the period from inception, June 16, 1995, through March 31,
1996 and the years ended March 31, 1997 and 1998 and for the nine
months ended December 31, 1997 and 1998 (unaudited) (continued)
5. Notes Payable, Continued:
Future maturities of notes payable for years ending March 31 are
as follows as of December 31, 1998 (unaudited):
<TABLE>
<S> <C>
1999 (three months) $ 111,469
2000 394,122
2001 4,410,189
2002 406,184
2003 336,978
2004 150,062
Thereafter $ 1,322,996
-------------
$ 7,132,000
=============
</TABLE>
All interest costs incurred during the years ended March 31,
1996, 1997 and 1998 and for the nine months ended December 31,
1997 and 1998 (unaudited) have been expensed during the
respective periods.
6. Leases:
Minimum fiscal year rental commitments for the years ending
March 31 under operating leases for buildings with noncancelable
terms of more than one year, are as follows as of March 31, 1998:
<TABLE>
<S> <C>
1999 $ 68,889
2000 70,489
2001 56,106
2002 15,000
</TABLE>
<PAGE> Page __ of __
CBW, Inc. and Subsidiary
Notes to Consolidated Financial Statements,
for the period from inception, June 16, 1995, through March 31,
1996 and the years ended March 31, 1997 and 1998 and for the nine
months ended December 31, 1997 and 1998 (unaudited) (continued)
6. Leases, Continued:
Minimum fiscal year rental commitments, which includes lease
commitments of Elmer's for the years ending March 31 under
operating leases for property, buildings and equipment with
noncancelable terms of more than one year, are approximately as
follows as of December 31, 1998 (unaudited):
<TABLE>
<S> <C>
1999 (three months) $ 155,000
2000 609,000
2001 572,000
2002 523,000
2003 469,000
2004 348,000
Thereafter 836,000
-----------
$ 3,512,000
===========
</TABLE>
The leases generally require the Company to pay certain
other costs of the properties. Rental expense on operating
leases amounted to approximately $29,000, $127,000 and $135,000
for the years ended March 31, 1996, 1997 and 1998 and $104,000
(unaudited) and $343,000 (unaudited) for the nine months ended
December 31, 1997 and 1998.
7. Related Party Transactions:
Amounts outstanding with Jaspers Food Management, Inc.
(JFMI) are approximately as follows:
<TABLE>
<S> <C> <C> <C>
March 31, December 31,
--------------------
1997 1998 1998
---- ---- ----
(Unaudited)
Accounts payable and other liabilities $ 110,000 $ 76,000
$ 124,000
Note payable 50,000 50,000
- -
</TABLE>
CBW, Inc. and Subsidiary
Notes to Consolidated Financial Statements,
for the period from inception, June 16, 1995, through March 31,
1996 and the years ended March 31, 1997 and 1998 and for the nine
months ended December 31, 1997 and 1998 (unaudited) (continued)
Accounts payable and other liabilities due to affiliates are
due on demand and accrue interest at an annual rate of 10.5%
based on the outstanding balance over 28 days.
<PAGE> Page __ of __
CBW, Inc. and Subsidiary
Notes to Consolidated Financial Statements,
for the period from inception, June 16, 1995, through March 31,
1996 and the years ended March 31, 1997 and 1998 and for the nine
months ended December 31, 1997 and 1998 (unaudited) (continued)
7. Related Party Transactions, Continued:
Transactions applicable to JFMI were approximately as
follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
Periods ended Nine months ended
March 31 December 31,
------------------------------ ----------
- -------
1996 1997 1998 1997 1998
---- ---- ---- ---- ----
(Unaudited)
Interest expense $ 3,000 $ 10,000 $ 15,000 $ 11,000
$ 11,000
Labor and related expenses 124,000 377,000 420,000
420,000 576,000
</TABLE>
Under the terms of a management services agreement, JFMI
provides substantially all store management, accounting, human
resources, training and other administrative services related to
the operation of the five Ashley's Deli restaurants as disclosed
in labor and related expenses above.
8. Contingencies:
From time to time, the Company is involved in litigation relating
to claims arising in the normal course of its business. The
Company maintains insurance coverage against potential claims in
amounts which it believes to be adequate. Management believes
that it is not presently a party to any litigation, the outcome
of which would have a material adverse effect on the Company's
business or operations.
9. Acquisition of Elmer's Restaurants, Inc.
On August 25, 1998, the Company acquired a controlling interest
(705,000 shares representing 53.8% of the outstanding stock) in
Elmer's for approximately $4,500,000. The total cost of the
acquisition of $4,612,013, including $112,013 of related
acquisition costs, was provided by approximately $4,000,000 of
debt financing and the balance in the Company's own cash. The
purchase method of accounting has been used to record this
CBW, Inc. and Subsidiary
Notes to Consolidated Financial Statements, Continued
for the period from inception, June 16, 1995, through March 31,
1996 and the years ended March 31, 1997 and 1998 and for the nine
months ended December 31, 1997 and 1998 (unaudited)
9. Acquisition of Elmer's Restaurants, Inc., Continued
transaction. The cost of the acquisition was allocated to the
assets and liabilities of Elmer's based on relative fair market
values, as follows:
<PAGE> Page __ of __
<TABLE>
<S> <C>
Current assets $ 1,222,930
Property, buildings and equipment 3,757,633
Intangible assets, primarily goodwill 2,171,048
Other assets 43,587
Liabilities assumed (2,163,185)
Deferred income taxes (420,000)
------------
$ 4,612,013
============
</TABLE>
The results of operations of Elmer's have been included in the
results of operations of the Company from August 31, 1998 (the
results of operations of Elmer's from August 25, 1998 to August
31, 1998 are not material to the results of operations of the
Company). The minority interest included in the financial
statements represents the 46.2% separate public ownership of
Elmer's.
The following table represents the unaudited pro forma results of
operations for the year ended March 31, 1998 and the nine months
ended December 31, 1998 as if the acquisition of 53.8% of the
outstanding common stock of Elmer's had occurred at the beginning
of the respective periods (including a pro forma income tax
provision as if CBW had been a taxable corporation). These pro
forma results have been prepared for comparison purposes only and
do not purport to be indicative of what would have occurred had
the acquisition been made at the beginning of the respective
periods or of results which may occur in the future.
<TABLE>
<S> <C> <C>
Year Ended Nine Months Ended
March 31, 1998 December 31,
1998
Total revenue $ 18,187,000 $ 14,327,000
Income from operations 1,317,000 1,100,000
Income before provision for income taxes 545,000
595,000
Income before minority interest in consolidated
subsidiary 360,000 393,000
Net income 263,000 241,000
</TABLE>
<PAGE> Page __ of __
CBW, Inc. and Subsidiary
Notes to Consolidated Financial Statements,
for the period from inception, June 16, 1995, through March 31,
1996 and the years ended March 31, 1997 and 1998 and for the nine
months ended December 31, 1997 and 1998 (unaudited) (continued)
10. Subsequent Events:
Merger with Elmer's
Effective February 18, 1999, the Company merged with Elmer's in a
transaction in which Elmer's was the surviving corporation. In
consideration for the issuance by Elmer's of 770,500 new shares
of Elmer's stock to the Company's shareholders, Elmer's acquired
all the stock of the Company. Accordingly, each Company
shareholder received 144.4507 shares of Elmer's stock for every
Company share owned. The shares of Elmer's stock previously
acquired by the Company, a total of 705,000 shares, were
concurrently transferred to Elmer's and were canceled upon
receipt thereof.
Acquisition of Grass Valley Ltd., Inc. (dba Richard's Deli and
Pub)
Effective March 31, 1999, Elmer's executed a stock exchange
agreement with Grass Valley Ltd., Inc. (GVL), a closely held
Oregon corporation, in a transaction in which Elmer's acquired
100% of the outstanding stock of GVL in consideration for the
payment by Elmer's of $110,000 in cash and the issuance of
209,620 restricted shares of Elmer's common stock to the GVL
shareholders. GVL is now a wholly-owned subsidiary of Elmer's.
GVL is the owner and operator of four restaurants in Hillsboro,
Aloha and Tigard, Oregon operating under the name of Richard's
Deli and Pub. The first Richard's Deli and Pub was opened in
August 1994 and all the restaurants are located in leased retail
space. Elmer's plans to continue operations at all four
locations in a substantially similar manner.
<PAGE> Page __ of __
Elmer's Restaurants, Inc. and CBW, Inc.
Pro Forma Combined Financial Statements (Unaudited)
December 31, 1998 and for the nine months ended December 31, 1998
and for the year ended March 31, 1998
<PAGE> Page __ of __
Pro Forma Combined Financial Statements
Elmer's Restaurants, Inc.
Effective February 18, 1999, CBW, Inc. (CBW) merged with Elmer's
Restaurants, Inc. (Elmer's) in a transaction in which Elmer's was
the surviving corporation. CBW had previously acquired 53.8% of
the outstanding stock of Elmer's on August 25, 1998 for
approximately $4,500,000, in a transaction accounted for as a
purchase of Elmer's by CBW and a new basis of accounting was
established for the assets and liabilities of Elmer's to the
extent of the change in ownership at that date. Inasmuch as CBW
owned a controlling interest before and after the merger, the
merger is also accounted for as a purchase transaction as if CBW
acquired the assets and assumed the liabilities of Elmer's for an
amount equal to the fair market value of the 46.2% separate
public ownership of Elmer's.
Presented on the following pages ___ through ___ are the
unaudited pro forma balance sheet as of December 31, 1998 as if
the merger of CBW and Elmer's occurred at that date and the
unaudited pro forma statements of operations for the nine months
ended December 31, 1998 and the year ended March 31, 1998 as if
the merger occurred at the beginning of the respective periods.
The merger was consummated by Elmer's issuance of 770,500 new
shares of Elmer's stock to CBW shareholders. In connection with
the merger, Elmer's assumed approximately $4 million in debt owed
by CBW arising from CBW's acquisition of the controlling block of
stock on August 25, 1998, whereby CBW acquired all the stock and
assets of Elmer's. Elmer's entered into a new financing
agreement whereby it borrowed funds to refinance existing debt
and debt of CBW totaling approximately $1,750,000. Elmer's also
used existing cash to reduce debt by approximately $1,000,000.
Each CBW shareholder received 144.4507 shares of Elmer's
restricted stock for every CBW share owned. The shares of
Elmer's stock previously acquired by CBW, a total of 705,000
shares, were concurrently transferred to Elmer's and were
canceled upon receipt thereof.
In the opinion of management, all adjustments necessary to
present fairly such pro forma financial statements have been made
based on the terms and structure of the transaction. Management
anticipates, however, that changes in the composition of the
assets to be acquired and liabilities to be assumed will occur
due to changes in the ordinary course of business. Management
believes any related change in adjustments will not be material
to the pro forma financial statements.
These unaudited pro forma financial statements are not
necessarily indicative of what actual results would have been had
the transaction occurred at the beginning of the respective
periods nor do they purport to indicate the results of future
operations of Elmer's.
These unaudited pro forma financial statements should be read in
conjunction with the notes and the historical financial
statements and notes thereto of CBW and Elmer's.
<PAGE> Page __ of __
Elmer's Restaurants, Inc. and CBW, Inc.
Pro Forma Combined Balance Sheet (Unaudited) (a)
December 31, 1998
<TABLE>
<S> <C> <C> <C>
Historical Pro Forma
(Unaudited)
Adjustments Pro Forma
---------- ---------
- -- ----------
CBW, Inc.(b)
------------
ASSETS
Current assets:
Cash and cash equivalents $ 1,619,406
$(1,000,000)(c) $ 619,406
Accounts receivables 323,235
323,235
Inventories 313,130
313,130
Prepaid expenses and other 198,256
198,256
----------- ---------
- -- -----------
Total current assets 2,454,027
(1,000,000) 1,454,027
Property, buildings and equipment, net 6,050,251
890,876(e) 6,941,127
Intangible assets, net 2,726,263
468,473(e) 3,194,736
Other assets 96,783
- - 96,783
----------- ---------
- -- -----------
$11,327,324 $
359,349 $11,686,673
===========
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable, current portion $ 218,625 $
- - $ 218,625
Accounts payable 751,014
- - 751,014
Accrued payroll and related taxes 180,842
- - 180,842
Accrued expenses 143,205
50,000(d) 193,205
Income taxes payable 55,955
- - 55,955
----------- ---------
- -- -----------
Total current liabilities 1,349,641
50,000 1,399,641
Notes payable, net of current portion 6,913,375
(1,000,000)(c) 5,913,375
Deferred income taxes 460,000
350,000(d) 810,000
----------- ---------
- -- -----------
8,723,016
(600,000) 8,123,016
----------- ---------
- -- -----------
Minority interest 1,843,651
(1,843,651)(d) -
----------- ---------
- -- -----------
Shareholders' equity:
Preferred stock and pro forma - no par value,
500,000 shares authorized, none issued
Common stock, historical - 10,000 shares
authorized, 5,334 shares outstanding; pro
forma - 10,000,000 shares authorized,
1,376,609 shares outstanding 895,020
2,803,000(d) 3,698,020
Accumulated deficit (134,363)
- - (134,363)
----------- ---------
- -- -----------
760,657
2,803,000 3,563,657
----------- ---------
- -- -----------
$11,327,324 $
359,349 $11,686,673
===========
=========== ===========
The accompanying notes are an integral part of the pro forma
combined financial statements.
</TABLE>
<PAGE> Page __ of __
Elmer's Restaurants, Inc. and CBW, Inc.
Notes to Pro Forma Combined Balance Sheet (Unaudited)
December 31, 1998
(a) See the introductory paragraphs under "Pro Forma Combined
Financial Statements."
(b) The historical consolidated balance sheet of CBW, Inc. as of
December 31, 1998 includes the accounts of Elmer's at that date
and reflects the purchase accounting adjustments related to the
acquisition of 53.8% of the outstanding common stock of Elmer's
by CBW.
(c) To reflect use of cash to reduce existing debt arising from
the acquisition of 53.8% of the outstanding common stock of
Elmer's by CBW.
$(1,000,000)
============
(d) The total estimated fair value of assets acquired in the
merger transaction is comprised of the following:
<TABLE>
<S> <C>
Estimated value of 606,109 shares of
outstanding common stock of Elmer's
(other than CBW ownership) at the
date of the merger $
2,803,000
Assumed liabilities
1,880,153
Accrued expenses related to the transaction
50,000
Deferred income taxes
350,000
-------------
Estimated fair value of assets acquired $
5,083,153
=============
</TABLE>
(e) The estimated purchase price has been allocated to the
assets to be acquired and obligations to be assumed, based on the
estimate of the 46.2% proportionate fair values of the assets and
liabilities, as follows:
<TABLE>
<S> <C> <C> <C>
Historical Estimate
of Cost Basis
the Fair Value
of Assets to of Assets
to
be Acquired Adjustments be
Acquired
------------ ----------- -----
- --------
Cash $ 735,676 $ - $
735,676
Receivables 142,042 -
142,042
Inventories 103,998 -
103,998
Other 81,205 -
81,205
----------- ----------- -----
- --------
Total current assets 1,062,921 -
1,062,921
Property, buildings and
equipment 2,196,292 890,876
3,087,168
Intangible assets
(primarily trademark
and goodwill) 426,708 468,473
895,181
Other assets 37,883 -
37,883
----------- ----------- -----
- --------
$ 3,723,804 $ 1,359,349 $
5,083,153
=========== ===========
=============
</TABLE>
<PAGE> Page __ of __
Elmer's Restaurants, Inc. and CBW, Inc.
Pro Forma Combined Statement of Operations (Unaudited) (a)
for the nine months ended December 31, 1998
<TABLE>
<S> <C> <C> <C>
Elmer's Restaurants, Inc.
----------------------------------------
- ------------
Historical
(Unaudited)
----------------------------------------
- ------------
Elmer's
September 1
to
Elmer's Rest- December
31
CBW, Inc. aurants, Inc. 1998 (b)
----------- ------------- ----------
- --
Revenue $ 7,265,695 $12,765,833
$(5,704,513)
----------- ----------- ----------
- -
Costs and expenses:
Food, beverage and supplies 2,110,452
3,236,108 (1,425,973)
Labor and related 2,251,048 4,204,747
(1,900,939)
Occupancy costs 460,426 771,050
(353,846)
Depreciation and amortization 241,601
528,149 (230,813)
General and administrative expenses 1,531,340
3,206,218 (1,376,021)
----------- ----------- ----------
- -
6,594,867 11,946,272
(5,287,592)
Income from operations 670,828 819,561
(416,921)
Nonoperating income (expense):
Interest income 14,338 44,597
(13,011)
Interest expense (259,570) (206,635)
79,843
Gain on disposition of assets 9,977
35,732 (9,977)
----------- ----------- ----------
- -
Income before provision for
income taxes 435,573 693,255
(360,066)
Provision for income taxes (144,735)(c) (235,750)
121,735
Minority interest in earnings of
consolidated subsidiary (109,824) -
109,824
----------- ----------- ----------
- -
Net income (loss) $ 181,014 $ 457,505 $
(128,507)
=========== ===========
===========
Pro forma net income per share
Weighted-average shares outstanding 4,626
===========
</TABLE>
The accompanying notes are an integral part of the pro forma
combined financial statements. Continued on next page.
<PAGE> Page __ of __
Elmer's Restaurants, Inc. and CBW, Inc.
Pro Forma Combined Statement of Operations (Unaudited) (a)
for the nine months ended December 31, 1998 (continued)
<TABLE>
<C> <C>
Elmer's Restaurants, Inc.
---------------------------------
Pro Forma
Adjustments Pro Forma
----------- -----------
Revenue $ - $14,327,015
Costs and expenses:
Food, beverage and supplies - 3,920,587
Labor and related - 4,554,856
Occupancy costs - 877,630
Depreciation and amortization (84,000)(d)(e)
454,937
General and administrative expenses -
3,361,537
----------- -----------
(84,000) 13,169,547
Income from operations 84,000 1,157,468
Nonoperating income (expense):
Interest income (30,000)(f) 15,924
Interest expense (46,000)(g) (432,362)
Gain on disposition of assets -
35,732
----------- -----------
Income before provision for
income taxes 8,000 776,762
Provision for income taxes (3,000)(h) (261,750)
Minority interest in earnings of
consolidated subsidiary - -
----------- -----------
Net income (loss) $ 5,000 $ 515,012
=========== ===========
Pro forma net income per share $ .37
===========
Weighted-average shares outstanding 1,371,983(i)
1,376,609
=========== ===========
</TABLE>
The accompanying notes are an integral part of the pro forma
combined financial statements.
<PAGE> Page __ of __
Elmer's Restaurants, Inc. and CBW, Inc.
Notes to Pro Forma Combined Statement of Operations (Unaudited)
for the nine months ended December 31, 1998
(a) See the introductory paragraphs under "Pro Forma Combined
Financial Statements."
(b) To eliminate results of operations for Elmer's for the
period September 1, 1998 through December 31, 1998 as such
results have also been included in the consolidated results of
operations of CBW. (The results of operations of Elmer's from
August 25, 1998 - the date of acquisition of 53.8% of Elmer's
outstanding common stock by CBW - to August 31, 1998 are not
material to the combined results of operations.)
(c) Represents unaudited pro forma income tax provision as if
CBW was a taxable corporation for the nine months ended December
31, 1998.
(d) Adjustments to expenses for the period April 1, 1998 to
August 31, 1998 to reflect the effect of purchase accounting
adjustments relating to the acquisition of 53.8% of the
outstanding common stock of Elmer's by CBW:
<TABLE>
<S> <C>
To reflect amortization of $2,300,000 of trademarks and excess
of costs
over fair value of net tangible assets acquired over 30 years
$ 57,000
To record depreciation expense on adjusted buildings and
equipment over
their useful lives (equipment - 3 to 7 years, buildings - 35
years,
leasehold improvements - life of lease or applicable shorter
period) 198,000
Less depreciation and amortization expense previously recorded
(282,000)
----------
$ (27,000)
==========
</TABLE>
(e) Adjustment to expenses for the nine months ended December
31, 1998 to reflect the merger transaction of Elmer's and CBW.
<TABLE>
<C> <C>
To reflect amortization of $900,000 of trademarks and excess of
costs
over fair value of net tangible assets acquired over 30 years
$ 23,000
To record depreciation expense on adjusted buildings and
equipment over
their useful lives (equipment - 3 to 7 years, buildings - 35
years,
leasehold improvements - life of lease or applicable shorter
period) 166,000
Less depreciation and amortization expense previously recorded
(246,000)
----------
$ (57,000)
==========
</TABLE>
(f) Adjustment to interest income due to the use of
approximately $1,000,000 to reduce debt related to the
acquisition of common stock:
<TABLE>
<S> <C>
To reflect decrease in interest income $ 30,000
=========
</TABLE>
<PAGE> Page __ of __
Elmer's Restaurants, Inc. and CBW, Inc.
Notes to Pro Forma Combined Statement of Operations (Unaudited),
for the nine months ended December 31, 1998 (continued)
(g) Adjustment to interest expense due to $3,000,000 of CBW
debt, which is included in the historical financial statements
from September 1, 1998, consists of the following:
<TABLE>
<S> <C>
To reflect interest in interest expense on $1,250,000 at 12%
$ 112,000
To reflect increase in interest expense on $1,750,000 at 7.7%
101,000
Less interest expense previously recorded (167,000)
----------
$ 46,000
==========
</TABLE>
(h) Adjustments to provision for income taxes (at an assumed
effective rate of approximately 34%) consist of the following:
<TABLE>
<S> <C>
To reflect the income tax effect of the pro forma adjustments in
(d) through (g) above $ (3,000)
==========
(i) Adjustments to weighted-average shares outstanding consist
of the following:
</TABLE>
<TABLE>
<S> <C>
To reflect the shares to be outstanding after the merger
transaction $
1,371,983
===========
</TABLE>
<PAGE> Page __ of __
Elmer's Restaurants, Inc. and CBW, Inc.
Pro Forma Combined Statement of Operations (Unaudited) (a)
for the year ended March 31, 1998
<TABLE>
<S> <C> <C> <C> <C>
Historical
-------------------------------
Elmer's Pro Forma
CBW, Inc. Restaurants, Inc.
Adjustments Pro Forma
----------- ------------------
- ----------- ---------
Revenue $1,591,293 $16,596,397 $
- - $18,187,690
---------- ----------- ---------
- - -----------
Costs and expenses:
Food, beverage and supplies 564,115 4,263,703
- - 4,827,818
Labor and related 420,427 5,490,690
- - 5,911,117
Occupancy and costs 138,058 998,782
- - 1,136,840
Depreciation and amortization 56,263 679,455
(86,000)(c)(d) 649,718
Selling, general and administrative
expenses 172,312 4,107,003
- - 4,279,315
---------- ----------- ---------
- -- -----------
1,351,175 15,539,633
(86,000) 16,804,808
---------- ----------- ---------
- -- -----------
Income from operations 240,118 1,056,764
86,000 1,382,882
Nonoperating income (expense):
Interest income 48 66,225
(40,000)(e) 26,273
Interest expense (34,896) (324,578)
(285,000)(f) (644,474)
Gain on disposition of assets - 368
- - 368
----------- ----------- ---------
- -- ------------
Income before income taxes 205,270 798,779
(239,000) 765,049
Provision for income taxes (72,000)(b) (269,000)
81,000(g) (260,000)
----------- ------------ ---------
- -- ------------
Net income $ 133,270 (b) $ 529,779 $
(158,000) $ 505,049
=========== ============
=========== ============
Pro forma net income per share $
.37
============
Weighted-average shares outstanding 4,000
1,372,609(h) 1,376,609
=========== ===========
============
</TABLE>
The accompanying notes are in integral part of the pro forma combined
financial statements.
<PAGE> Page __ of __
Elmer's Restaurants, Inc. and CBW, Inc.
Notes to Pro Forma Combined Statement of Operations (Unaudited)
for the year ended March 31, 1998
(a) See the introductory paragraphs under "Pro Forma Combined
Financial Statements."
(b) Represents unaudited pro forma income tax provision as if
CBW was a taxable corporation for the year ended March 31, 1998.
(c) Adjustments to expenses for the year ended March 31, 1998 to
reflect the effect of purchase accounting adjustments relating to
the acquisition of 53.8% of the outstanding common stock of
Elmer's by CBW:
<TABLE>
<S> <C>
To reflect the amortization of $2,300,000 of trademarks and
excess
of costs over fair value of net tangible assets acquired over
30 years $ 77,000
To record depreciation expense on adjusted buildings and
equipment over
their useful lives (equipment - 3 to 7 years, buildings - 35
years,
leasehold improvements - life of lease or applicable shorter
period) 265,000
Less depreciation and amortization expense previously recorded
(363,000)
----------
$ (21,000)
==========
</TABLE>
(d) Adjustment to expenses for the year ended March 31, 1998 to
reflect the merger transaction of CBW and Elmer's:
<TABLE>
<S> <C>
To reflect amortization of $900,000 of trademarks and excess of
costs
over fair value of net tangible assets acquired over 30 years
$ 30,000
To record depreciation expense on adjusted buildings and
equipment over
their useful lives (equipment - 3 to 7 years, buildings - 35
years,
leasehold improvements - life of lease or applicable shorter
period) 221,000
Less depreciation and amortization expense previously recorded
(316,000)
----------
$ (65,000)
==========
</TABLE>
(e) Adjustment to interest income due to the use of
approximately $1,000,000 to reduce debt related to the
acquisition of common stock:
<TABLE>
<S> <C>
To reflect decrease in interest income $ 40,000
=========
</TABLE>
(f) Adjustment to interest expense due to $3,000,000 of CBW
debt, consists of the following:
<TABLE>
<S> <C>
To reflect increase in interest expense on $1,250,000 at 12%
$ 150,000
To reflect increase in interest expense on $1,750,000 at 7.7%
135,000
---------
$ 285,000
=========
</TABLE>
<PAGE> Page __ of __
Elmer's Restaurants, Inc. and CBW, Inc.
Notes to Pro Forma Combined Statement of Operations (Unaudited),
for the year ended March 31, 1998 (continued)
(g) Adjustments to provision for income taxes (at an assumed
effective rate of approximately 34%) consist of the following:
<TABLE>
<S> <C>
To reflect the income tax effect of the pro forma adjustments in
(c) through (f) above $ 81,000
=========
</TABLE>
(h) Adjustments to weighted-average shares outstanding consist
of the following:
<TABLE>
<S> <C>
To reflect the shares to be outstanding after the merger
transaction $
1,372,609
===========
</TABLE>
<PAGE> Page __ of __
Item 8. Change in Fiscal Year
Not applicable.
Signatures
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned hereunto duly authorized.
.....................................
Elmers Restaurants, Inc.
Date June 14, 1999 ../s/ William Service, C.E.O..............
William W. Service, Chief Executive Officer
<PAGE> Page __ of __
Page 3 -- PLAN OF MERGER
PLAN OF MERGER
PARTIES:
ELMER'S RESTAURANTS, INC., an Oregon corporation (Surviving
Corporation)
CBW INC., an Oregon corporation (Merging Corporation)
RECITALS:
A. The Boards of Directors of the Merging Corporation and
the Surviving Corporation and the Shareholders of the Merging
Corporation have adopted this plan pursuant to which the Merging
Corporation shall be merged into the Surviving Corporation
pursuant to the Oregon Business Corporation Act, and upon the
terms and conditions set forth herein.
B. A subsidiary of the Merging Corporation, CBW Food
Company L.L.C. (the 'Subsidiary'), owns 705,000 shares of the
Surviving Corporation (the 'Subsidiary Shares').
AGREEMENTS:
1. MERGER. The Merging Corporation shall be merged into
the Surviving Corporation, effective as of the filing of Articles
of Merger with the Oregon Secretary of State (Effective Time).
At the Effective Time, the separate existence of the
Merging Corporation shall cease, both the Merging Corporation
and the Surviving Corporation shall be a single corporation,
which shall be the Surviving Corporation, and the Subsidiary
shall become a subsidiary of the Surviving Corporation.
2. MANNER AND BASIS OF CONVERTING SHARES. For each of
their shares of the Merging Corporation, the shareholders
of the Merging Corporation shall each receive 144.4507 shares
of the Surviving Corporation. Upon the Effective Time, the
shareholders of the Merging Corporation shall transfer all of
the shares in the Merging Corporation to the Surviving
Corporation and the Surviving Corporation shall issue to each
shareholder a stock certificate representing the shares of the
Surviving Corporation in accordance with the preceding sentence.
3. CANCELLATION. Upon the Effective Time, all shares of
stock in the Merging Corporation shall be owned and held
by the Surviving Corporation and at that time shall be
cancelled. The Subsidiary Shares shall be outstanding upon the
Effective Time, but immediately thereafter shall be transferred
by the Subsidiary to the Surviving Corporation and thereupon
cancelled.
4. TERMS AND CONDITIONS. The title to all real estate and
other property owned by the Merging Corporation shall
automatically be vested in the Surviving Corporation without
reversion or impairment. The Surviving Corporation assumes all
liabilities and obligations of the Merging Corporation as of the
Effective Time.
<PAGE> Page 1 of 2
5. CONTINUATION OF BUSINESS. After the Effective Time,
the Surviving Corporation shall continue to carry on the
business activities now being carried on by both the Merging
Corporation and the Surviving Corporation.
DATED this 18th day of February, 1999.
ELMER'S RESTAURANTS, INC.
By _/s/_William Service__________
C.E.O.
By _/s/_Juanita Nelson___________
Secretary
CBW INC.
By _/s/_Bruce Davis______________
President
By _/s/_Bruce Davis______________
Secretary
<PAGE> Page 2 of 2
VOTING TRUST AGREEMENT
THIS VOTING TRUST AGREEMENT ("Agreement") is made and
entered into this 18th day of February, 1999, by and between
Bruce N. Davis, William W. Service, Gregory W. Wendt, Linda
Bolton, Cordy Jensen, Ken N. Boettcher and Karen Brooks
("Holders"), shareholders of Elmer's Restaurants, Inc.
("Corporation"), and Bruce N. Davis, William W. Service and Cordy
Jensen ("Voting Trustees").
RECITALS:
WHEREAS, each of the Holders owns capital stock in the
Corporation and deems it to be in the best interest of the
parties to this Agreement and the Corporation that this Agreement
be made;
NOW, THEREFORE, in consideration of the foregoing and the
mutual promises and obligations set forth herein, the parties
agree as follows:
Voting Trust.
Creation of Voting Trust. The Voting Trustees, and
each of them, are hereby appointed voting trustees under the
voting trust created by this Agreement. During the term of this
Agreement, the Voting Trustees shall act as voting trustees in
respect to the tendered shares of stock in the Corporation, and
voting shares subsequently received by the Voting Trustees as a
result of the operation of this Agreement (such tendered shares
and subsequent shares to be collectively referred to as the
"Shares"), with all the powers, rights and privileges and subject
to all the conditions and covenants hereinafter set forth.
Deposit of Shares. Concurrently with the execution and
delivery of this Agreement, each Holder will assign and transfer,
or cause to be assigned and transferred, to the Voting Trustees
all shares of voting stock in the Corporation owned directly or
indirectly or held of record by such Holder. Each Holder will
also assign and transfer, or cause to be assigned and
transferred, to the Voting Trustees all shares of voting stock in
the Corporation acquired during the term of this Agreement and
owned directly or indirectly or held of record by such Holder;
the assignment and transfer will be made immediately after the
acquisition thereof. Each Holder shall deposit with the Voting
Trustees the certificates representing such shares, duly endorsed
in blank or accompanied by stock powers or other instruments of
assignment duly executed in blank, free and clear of any liens,
claims, encumbrances or other rights of third parties.
Delivery of Voting Trust Certificates. Upon receipt by
the Voting Trustees of the certificates for the Shares, the
Voting Trustees shall hold the Shares, in trust, subject to the
terms and conditions of this Agreement and shall deliver or cause
to be delivered to each Holder one or more voting trust
certificates ("Voting Trust Certificates" or "Certificates"), in
the form provided for in Section 2.1, representing in the
aggregate the total number of Shares deposited by each Holder.
Issue of Share Certificates To Voting Trustees. The
certificates representing the Shares shall be surrendered by the
Voting Trustees to the Corporation and canceled, and new
certificates representing the Shares shall be issued by the
Corporation to and in the name of the Voting Trustees, as voting
trustees, and the fact that such certificates are issued pursuant
to this Agreement shall be noted by the Corporation on its stock
transfer records. The Voting Trustees are authorized and
empowered to cause to be made any further transfers of the Shares
which may become necessary through the occurrence of any change
of persons holding the office of Voting Trustee.
Acceptance of Trust. The Voting Trustees accept the
trust created hereby in accordance with all of the terms and
conditions contained in this Agreement. The Shares shall be held
by the Voting Trustees for the purposes of and in accordance with
this Agreement, and none of the Shares, or any interest therein,
shall be sold or otherwise disposed of, pledged or encumbered by
the Voting Trustees, except as provided in this Agreement.
Voting Trust Certificates.
Form. The Voting Trust Certificates to be issued and
delivered by the Voting Trustees under this Agreement in respect
of the Shares shall be substantially in the form of Exhibit A,
with such changes therein consistent with the provisions of this
Agreement as the Voting Trustees and the Holders may from time to
time approve:
Restrictions on Certificate Transfers.
Applicability of Restrictions. The restrictions
on transfer of Voting Trust Certificates are intended to apply
during the term of the voting trust provided for in this
Agreement.
Restriction on Lifetime Disposition. No Holder
shall dispose of (and the terms "dispose of" and "disposition" as
used in this Agreement mean any sale, transfer, assignment,
pledge, mortgage, distribution or other form of disposition or
conveyance, whether voluntary, involuntary, or by operation of
law, or in the case of a non-individual Holder, pursuant to a
merger, consolidation, sale of assets or other reorganization,
and whether testamentary or inter vivos) all or any part of his
interest in a Voting Trust Certificate issued hereunder except
under the conditions set forth in this Agreement. Until the
termination of this Agreement, each Voting Trust Certificate
shall remain subject to this Agreement even though an offer or
offers are made under this Agreement but not accepted. Each
person, personal representative, entity or successor in interest
who acquires an interest in a Voting Trust Certificate issued
hereunder shall hold it subject to the terms of this Agreement.
Every transferee of a Voting Trust Certificate, by the acceptance
of such Certificate, shall become a party to this Agreement, and
shall assume all rights and obligations which the transferor had
under this Agreement.
Disposition Upon Death. Upon the death of a
Holder of a Voting Trust Certificate, the estate of the deceased
Holder (or the distributee of the estate) shall be deemed to have
succeeded to the decedent's interest in this Agreement, and shall
be deemed to have agreed to assume decedent's obligations under
this Agreement.
Right of First Refusal. The Shares are subject to
a right of first refusal, as set forth in a Share Transfer
Agreement, dated as of May 22, 1997, among CBW Inc., the Holders
and certain other persons, as amended by a First Amendment to
Share Transfer Agreement, dated August 25, 1997 (the "Share
Transfer Agreement"). The Holders agree that transfer of a
Voting Trust Certificate shall be subject to the right of first
refusal set forth in the Share Transfer Agreement in the same
manner as if the Voting Trust Certificate were a share of common
stock in CBW Inc.
2.2.5 Transfer; Registered Holder; Transfer
Books. The Voting Trustees shall keep available for inspection
by Holders at the office of the Voting Trustees set forth in the
Voting Trust Certificate (or at such other office of which the
holders thereof have been notified in writing) correct and
complete books and records of account relating to the voting
trust created by this Agreement and a record of all Holders. The
Voting Trust Certificates shall be transferable only on the books
of the Voting Trustees, upon surrender of such Voting Trust
Certificates (duly endorsed in blank or accompanied by a proper
instrument of assignment duly executed in blank, together with
all requisite transfer tax stamps attached thereto and an amount
sufficient to pay all Federal, State and local taxes or other
governmental charges, if any, then payable in connection with
such transfer) by the registered Holder in person or by such
Holder's duly authorized attorney. Upon the surrender of any
Voting Trust Certificate for transfer, the Voting Trustees shall
cancel such Voting Trust Certificate and issue to the transferee
(and to the registered holder of such Voting Trust Certificate,
in the case of a partial transfer) a new Voting Trust Certificate
or Certificates in the same form and representing in the
aggregate the same number of Common Shares of the Corporation as
the Voting Trust Certificates presented for cancellation. Any
Voting Trust Certificate or Certificates may be exchanged for
another Voting Trust Certificate or other Voting Trust
Certificates for a like aggregate amount, but in different
denominations.
2.3. Record Ownership. The Voting Trustees may treat
the registered Holder of each such Voting Trust Certificates as
the absolute owner thereof for all purposes whatsoever, and
accordingly shall not be required to recognize any legal,
equitable or other claim or interest in such Voting Trust
Certificate on the part of any other person, whether or not the
Voting Trustees shall have express or other notice thereof.
2.4. Replacement of Mutilated or Lost Certificates. In
case any Voting Trust Certificate shall become mutilated or be
destroyed, lost or stolen, the registered Holder thereof shall
immediately notify the Voting Trustees, who, at their discretion
and subject to the following sentence, shall issue and deliver to
such Holder a new Voting Trust Certificate of like tenor and
denomination in exchange for and upon cancellation of the Voting
Trust Certificate so mutilated, or in substitution for the Voting
Trust Certificate so destroyed, lost or stolen. The applicant
for such substituted Voting Trust Certificate shall furnish proof
reasonably satisfactory to the Voting Trustees of such
destruction, loss or theft, and, upon request, shall furnish an
indemnity reasonably satisfactory to the Voting Trustees and
shall comply with such other reasonable requirements as the
Voting Trustees may prescribe.
Dividends and Distributions; Subscriptions.
Dividends or Distributions Payable in Cash or Other
Property. The Voting Trustees shall, from time to time, pay or
cause to be paid to Holders, their pro rata share of any
dividends or distributions payable in cash or property, other
than voting stock of the Corporation, collected by the Voting
Trustees upon the Shares deposited hereunder. For the purpose of
making any such payment, or for any other purpose, the Voting
Trustees may, in their discretion, fix such date as they may
reasonably determine as a record date for the determination of
persons entitled to any payments or other benefits hereunder, or
order their transfer books closed for such period or periods of
time as they shall deem proper.
Share Dividends or Distributions. The Voting Trustees
shall receive and hold, subject to the terms of this Agreement,
any voting stock of the Corporation issued in respect of the
Shares by reason of any recapitalization, share dividend, split,
combination or the like and shall issue and deliver Voting Trust
Certificates therefor to the holders in proportion to their
respective interests therein as shown on the books of the Voting
Trustees.
Subscriptions. In case any voting stock of the
Corporation shall be offered to the stockholders of the
Corporation for subscription, then, upon receiving from any
Holder at least two full business days prior to the time
permitted by the Corporation for subscription and payment, a
request to subscribe on behalf of such Holder for a stated amount
of such stock (which amount shall not exceed the ratable amount
for which the number of Shares represented by such Voting Trust
Certificate may subscribe), together with the funds necessary to
purchase the stock to be subscribed for, the Voting Trustees will
make subscription and payment. If the Voting Trustees shall
receive instructions to do so from any Holder, or in case a
request to subscribe and the required funds as referred to in the
preceding sentence shall not have been received by the Voting
Trustees at least twenty-four hours prior to the expiration of
such subscription rights, the Voting Trustees shall attempt in
good faith to sell such subscription rights on the best terms
reasonably available in the judgment of the Voting Trustees. If
unable to effect such sale, the Voting Trustees may either permit
such subscription rights to lapse or make them available to any
one or more of the other Holders. Any amount received by the
Voting Trustees (other than voting stock) in respect of the sale
of such subscription rights shall be distributed immediately to
the Holder of such Voting Trust Certificate.
Any stock subscribed for in accordance with the provisions
of this Section 3.3 shall be held by the Voting Trustees for the
purposes of and in accordance with this Agreement, and the Voting
Trustees shall deliver or cause to be delivered to such
registered Holder one or more Voting Trust Certificates
representing in the aggregate the total number of shares of stock
so subscribed for. Upon receiving notice of any such offering of
voting stock of the Corporation, the Voting Trustees will mail
copies of such notice to the registered Holders at their last
addresses as they appear on the books of the Voting Trustees.
Matters Relating to Administration of Voting Trust; Voting.
Action by Voting Trustees. The number of Voting
Trustees shall be three. In all matters except as expressly
provided for in this Agreement, the Voting Trustees shall act as
a group. The action of a majority of the entire number of Voting
Trustees as stated above, expressed from time to time at a
meeting, or by a writing without a meeting, shall, except as
otherwise herein stated, constitute the action of the Voting
Trustees and shall have the same effect as if assented to by all.
At any meeting of the Voting Trustees, any Voting Trustee may
vote in person or by written proxy given to any other Voting
Trustee; and any Voting Trustee may give a power of attorney to
any other Voting Trustee to sign for him in case of action of the
Voting Trustees taken in writing without a meeting. The Voting
Trustees may adopt their own rules of procedure.
Rights and Powers of Voting Trustees. The Voting
Trustees shall possess and be entitled, subject to the provisions
hereof, in their discretion, in person or by proxy, to exercise
all the rights and powers of absolute owners of all Shares,
including, but without limitation, the right to receive dividends
on Shares, and the right to vote, consent in writing or otherwise
act with respect to any corporate or shareholders' actions. Such
corporate or shareholders' actions include but are not limited to
the election of directors, any increase or reduction in the
stated capital of the Corporation, any classification or
reclassification of any of the shares as now or hereafter
authorized into preferred or common stock or other classes of
shares with or without par value, any amendment to the Articles
of Incorporation or Bylaws, any merger or consolidation of the
Corporation with other corporations, any sale of all or any part
of its assets, and the creation of any mortgage or security
interest in or lien on any property of the Corporation. It is
expressly stipulated that no voting right shall pass to others by
or under the Voting Trust Certificates, or by or under this
Agreement, or by or under any other express or implied agreement.
Meetings of Holders. In the event that the Voting
Trustees, in their sole discretion, shall desire to ascertain the
views of the Holders with respect to any action or thing done or
proposed to be done by them or by the Corporation, or upon any
other question, the Voting Trustees may for such purpose call a
meeting of such Holders to be held at a place selected by the
Voting Trustees. Notice of this meeting shall set forth the time,
place and purpose of the meeting and shall be mailed, at least
ten days before the date of such meeting, to each Holder of
record of Voting Trust Certificates outstanding hereunder. At
such meeting, every Holder shall have the same number of votes as
the Shares represented by the Voting Trust Certificates standing
in his name and may vote in person or by written proxy. If at
any such meeting the Holders representing a majority in amount of
the Shares held hereunder shall affirmatively concur in any
expression or view with regard to any matter or thing mentioned
in the call of such meeting, such expression may conclusively and
for all purposes be deemed by the Voting Trustees to be that of
all Holders. Each and every Holder agrees for himself, his
successors and assigns to accept and be bound by such
determination of the Holders of Voting Trust Certificates
representing a majority in amount of the securities held
hereunder as herein provided. No action at any such meeting
shall operate to modify the express provisions of this Agreement
or in any way limit the powers and discretion of the Voting
Trustees as defined by this Agreement. Votes by Holders, made
pursuant to this provision, are advisory only, and are not
binding on the Voting Trustees.
Trustee Removal. The Voting Trustees may be
individually removed by the affirmative vote of, or by a written
instrument or instruments signed by, the Holders of Voting Trust
Certificates representing a two thirds majority of the Shares
for, and only for, acts or omissions constituting fraud,
misrepresentation, misappropriation, or other intentionally
tortious misconduct.
Resignation. A Voting Trustee may resign at any time
by delivering his resignation in writing to the Holders, to take
effect sixty days after the date of such delivery, whereupon all
powers, rights and obligations of the resigning Voting Trustee
under this Agreement shall cease and terminate except as provided
in this Agreement. If a successor Voting Trustee shall not have
been appointed within sixty days after the giving of such written
resignation, the Voting Trustees may apply to any court of
competent jurisdiction to appoint a successor Voting Trustee to
act until such time, if any, as a successor shall have been
appointed as provided in Section 4.6.
Vacancies. If any vacancy shall occur in the position
of Voting Trustee by reason of the death, removal, resignation,
inability or refusal to act of a Voting Trustee, or otherwise,
such vacancy shall be filled by the appointment of a successor by
the remaining Voting Trustees. If there is at any time a vacancy
in the office of Voting Trustee, the voting power of the shares
of the Corporation evidenced by the Voting Trust Certificates
shall continue to be exercised by the remaining Voting Trustees.
Any successor Voting Trustee appointed as herein provided shall
indicate his acceptance of such appointment by signing
counterparts of this Agreement and delivering such counterparts
to the Holders, and thereupon such successor shall be vested with
all the rights, powers, duties and immunities herein conferred
upon the Voting Trustees as if such successor had been originally
a party to this Agreement as a Voting Trustee. The term "Voting
Trustees" as used in this Agreement shall apply to and mean the
original Voting Trustee hereunder and any successor.
Expenses, etc. The Holders shall reimburse the Voting
Trustees for all reasonable expenses, including counsel fees,
incurred by them in connection with the exercise of their powers
and the performance of their duties under this Agreement.
The Holders shall reimburse the Voting Trustees for the
cost of all transfer tax stamps required and all Federal, State
and local taxes payable in connection with the deposit of the
Shares in the voting trust pursuant to this Agreement and in
connection with the re-transfer by the Voting Trustees of the
Shares to the Holders upon the surrender of such certificates.
Any such expenses may be charged to the Holders of
Voting Trust Certificates pro rata according to the number of
Shares represented by the Certificates, and may be deducted from
dividends or other distributions to them, or may be made a charge
payable as a condition to the delivery of Shares in exchange for
Voting Trust Certificates as provided herein, and the Voting
Trustees shall be entitled to a lien therefor upon Shares, funds
or other property in their possession.
Indemnification. The Holders shall indemnify and hold
the Voting Trustees harmless from and against any and all
liabilities, losses, costs, and expenses, including reasonable
attorneys' fees, in connection with or arising out of the
administration of the voting trust created by this Agreement or
the exercise of any powers or the performance of any duties by
them as herein provided or contemplated, except such as may arise
from the willful misconduct or gross negligence of the Voting
Trustees.
Reliance on Advice of Counsel. The Voting Trustees may
consult with counsel concerning any question which may arise with
reference to their duties or authority under this Agreement or
any of the provisions hereof or any matter relating hereto, and
the opinion of such counsel shall be a full and complete
authorization and protection in respect of any action taken or
omitted by the Voting Trustees here under in good faith and in
accordance with such opinion of counsel, and the Voting Trustees
shall not be liable for any damages sustained as a result
thereof.
No Duty to Investigate. The Voting Trustees shall not
be bound to make any investigation into the facts or matters
stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order or
other paper or document submitted to the Voting Trustees.
Interest of Voting Trustees. The Voting Trustees
assume no liability as shareholders, their interest hereunder
being that of trustees only. The Voting Trustees will vote the
Shares on all matters in accordance with the provisions of this
Agreement, but they shall have no implied obligations and they
assume no responsibility in respect of any action taken (or not
taken) in pursuance of their votes so cast.
Compensation of Voting Trustees. Each Voting Trustee
shall not be entitled to any compensation for their service as
Voting Trustees hereunder, other than reimbursement of expenses
pursuant to Section 4.7.
4.13 Fiduciary Duties. In exercising the voting
rights granted herein, each Voting Trustee shall exercise his
best judgment to vote for suitable directors of the Corporation,
and to vote upon any resolution, proposed action, or other
matters presented at any stockholders' meeting. In exercising
voting rights, each Voting Trustee shall act in good faith and in
a manner reasonably believed to be in the best interest of the
Corporation. Each Voting Trustee shall not be required to vote in
the manner recommended or advised by the registered holders of
voting trust certificates.
4.14 Exculpation. Each Voting Trustee shall not be
liable to the Holders for honest mistakes of judgment, or for
action or inaction taken in good faith and reasonably believed to
be in the best interest of the Corporation, provided that the
mistake, action, or inaction does not constitute recklessness,
fraud, or willful or wanton misconduct.
4.15 Owner and Voting Agreement. The Holders and
certain other persons are parties to an Owner and Voting
Agreement, dated as of May 22, 1997, as amended by a First
Amendment to Owner and Voting Agreement, dated as of July 9, 1998
(the "Owner and Voting Agreement"). The Holders and the Voting
Trustees agree that the Voting Trustees shall vote the Shares as
if they were "Owners" for purposes of the Owner and Voting
Agreement.
Holders of Voting Trust Certificates Bound.
All Voting Trust Certificates issued under this Agreement
shall be issued, received, and held subject to all of the terms
of this Agreement. Every registered Holder of a Voting Trust
Certificate, and every bearer of a Voting Trust Certificate
properly endorsed in blank or properly assigned, by the
acceptance or holding thereof shall be deemed conclusively for
all purposes to have assented to this Agreement and to all of its
terms, conditions and provisions and shall be bound by this
Agreement with the same force and effect as if such Holder or
bearer had been originally a party to this Agreement.
Dissolution of Corporation.
In the event of the dissolution or total or partial
liquidation of the Corporation, whether voluntary or involuntary,
the Voting Trustees shall receive the moneys, securities, rights
or property to which the Holders of Shares are entitled, and
shall distribute the same among the Holders in proportion to
their interests. Alternatively, the Voting Trustees may in their
discretion deposit such moneys, securities, rights or property
with any bank or trust company doing business in the State of
Oregon, with authority and instructions to distribute the same as
above provided, and upon such deposit all further obligations or
liabilities of the Voting Trustees in respect of such moneys,
securities, rights or property so deposited shall cease.
Reorganization of Corporation.
In case the Corporation is merged into or consolidated with
another corporation, or all or substantially all of the assets of
the Corporation are transferred to another corporation, then in
connection with such transfers the term "Corporation" for all
purposes of this Agreement shall be taken to include such
successor corporation, and the Voting Trustees shall receive and
hold under this Agreement any voting stock of such successor
corporation received on account of the ownership, as Voting
Trustees hereunder, of Shares held hereunder prior to such
merger, consolidation or transfer. Voting Trust Certificates
issued and outstanding under this Agreement at the time of such
merger, consolidation or transfer may remain outstanding, or the
Voting Trustees may, in their discretion, substitute for such
Voting Trust Certificates new voting trust certificates in
appropriate form, and the term "Shares" as used herein shall be
taken to include any shares which may be received by the Voting
Trustees in lieu of all or any part of the shares of the
Corporation.
Termination; Release of Shares.
Termination by Holders of Voting Trust Certificates.
The voting trust created by this Agreement may be terminated at
any time by the Holders representing eighty-five percent of the
votes to which the Shares held by the Voting Trustees hereunder
are entitled. Any such termination shall be effective sixty days
after notice thereof has been delivered to the Voting Trustees,
and all further obligations or duties of the Voting Trustees
under this Agreement or any provision hereof shall cease as of
the close of business on such effective date.
8.2 Events of Termination. The Voting Trust shall
also terminate upon the occurrence of any one of the following
events:
(1) The Corporation makes an assignment for the
benefit of creditors; files a voluntary petition in bankruptcy;
is adjudicated bankrupt or insolvent; files a petition or answer
seeking for itself any reorganization, arrangement, composition,
readjustment, liquidation, dissolution, or similar relief under
any statute, law or regulation; files an answer or other pleading
admitting or failing to contest the material allegations of a
petition filed against it in any proceeding of the foregoing
nature; or seeks, consents to, or acquiesces in the appointment
of a trustee, receiver, or liquidator of itself or of all or any
substantial part of its properties.
Exchange of Shares and Voting Trust Certificates. Upon
termination of this Agreement, the Voting Trustees, in exchange
for and upon surrender of any Voting Trust Certificate then
outstanding, shall, in accordance with the terms thereof and out
of the Shares received and held by them hereunder, cause the
Corporation to deliver to the Holders certificates for Shares
represented by such Voting Trust Certificate. Furthermore, if
any such delivery shall take place (i) after the record date for
establishing holders of Shares entitled to vote at a meeting of
stockholders but (ii) prior to the date of such meeting of
stockholders, the Voting Trustees shall deliver with the
certificates for Shares an irrevocable proxy authorizing the
person in whose name the certificates for Shares are registered
to vote such Shares at such meeting.
New Subscribers.
Any holder of shares of the Corporation may at any time
become a subscriber hereto with respect to any such shares by
subscribing to this Agreement and depositing the certificate
representing his shares, accompanied by duly executed instruments
of transfer. Such subscribers shall then become Holders as if
they were original parties to this Agreement.
Amendments.
This Agreement may be amended or terminated at any time by
an instrument in writing duly executed and acknowledged by the
Holders with Voting Trust Certificates representing eighty-five
percent of the votes to which the Shares held by the Voting
Trustees hereunder are entitled.
Miscellaneous.
Benefits of this Agreement; Survival. The terms of
this Agreement shall be binding upon and inure to the benefit of
and shall be enforceable by the Holders, the Voting Trustees, and
their respective successors and assigns. The rights of the
Voting Trustee under Sections 4.7 and 4.8 and of the Holders of
Voting Trustee Certificates under Section 8.2 shall survive any
termination of this Agreement or any resignation or removal of
any Voting Trustee pursuant to the terms of this Agreement.
Notice. Any notice, request, offer, acceptance or
other communication permitted or required to be given hereunder
to the Holders or the Voting Trustees shall be sent by facsimile,
certified mail or by courier service, return receipt requested,
or hand-delivered to such person at the address set forth below:
Holders:
Bruce N. Davis
William W. Service
140 E. 5th Street, Suite A
Eugene, Oregon 97401
Cordy
Jensen
27 East Fifth
Eugene,
Oregon 97401
Gregory W.
Wendt
2547 Lyon Street
San
Francisco, California 94123
Karen
Brooks
88725 Skyhigh Drive
Springfield, Oregon 97408
Linda
Bolton
1574
Coburg Road, #230
Eugene,
Oregon 97401
Ken N.
Boettcher
292 West Twelfth
Eugene, Oregon 97401
Voting Trustees:
Bruce N. Davis
William W. Service
140 E. 5th Street, Suite A
Eugene, Oregon 97401
Cordy
Jensen
27 East Fifth
Eugene, Oregon 97401
or at such other addresses as may be established by notice
hereunder. Any notice so given shall be deemed effective at the
time of delivery indicated on the duly completed postal service
or courier receipt or when hand-delivered.
Severability. In case any provision of this Agreement
shall be held to be invalid or unenforceable in whole or in part,
neither the validity nor the enforceability of the remainder of
this Agreement shall be in any way affected.
Descriptive Headings; Gender. The headings in this
Agreement are for the convenience of reference only and shall not
limit or otherwise affect the provisions hereof. The use of the
masculine gender shall be deemed to include the feminine and
neuter gender.
Counterparts of this Agreement. This Agreement may be
executed in any number of counterparts, each of which shall be
deemed to be an original and all of which taken together shall
constitute but one and the same instrument.
Governing Law. This Agreement and the rights and
obligations of the parties hereunder shall be governed by and
interpreted in accordance with the laws of the State of Oregon.
Term. This Agreement and the voting trust created
hereby shall expire and be of no further force or effect on the
tenth anniversary of the date of this Agreement, unless extended
by written agreement.
[This space intentionally left blank]
<PAGE> Page 1 of 2
The respective parties have caused this Agreement to be
executed as of the date first above written.
Voting Trustees:
__/s/ Bruce N. Davis_________
Bruce N. Davis
__/s/ Cordy Jensen___________
Cordy Jensen
__/s/ William W. Service_____
William W. Service
Holders:
__/s/ Bruce N. Davis_________
Bruce N. Davis
__/s/ Cordy Jensen___________
Cordy Jensen
__/s/ William W. Service_____
William W. Service
__/s/ Gregory W. Wendt_______
Gregory W. Wendt
__/s/ Karen Brooks___________
Karen Brooks
_/s/ Linda Bolton____________
Linda Bolton
_/s/ Ken N. Boettcher________
Ken N. Boettcher
<PAGE>
MERGER AGREEMENT
This MERGER AGREEMENT (this 'Agreement') is made as of
the 18th day of February, 1999 by and between ELMER'S
RESTAURANTS, INC., an Oregon corporation (the 'Surviving
Corporation'), CBW INC., an Oregon corporation (the 'Merging
Corporation'), and each shareholder of the Merging
Corporation listed on the attached Exhibit A (individually,
a 'shareholder of the Merging Corporation' and collectively,
the 'shareholders of the Merging Corporation').
Recitals:
A. The Merging Corporation, directly or indirectly,
owns 705,000 shares of the common stock of the Surviving
Corporation representing 53.8% of the Surviving
Corporation's issued and outstanding common stock.
B. The Surviving Corporation and the Merging
Corporation desire to consummate a merger on the terms and
conditions contained in this Agreement.
Agreements:
NOW, THEREFORE, in consideration of the foregoing, and
for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties
hereby agree as follows:
1. Merger. The Merging Corporation shall be merged into
the Surviving Corporation, effective as of the filing of
Articles of Merger with the Oregon Secretary of State (the
'Effective Time'). At the Effective Time, the separate
existence of the Merging Corporation shall cease, and both
the Merging Corporation and the Surviving Corporation shall
be a single corporation, which shall be the Surviving
Corporation.
2. Manner and Basis of Converting Shares. For each share
of the Merging Corporation owned by a shareholder of the
Merging Corporation, the shareholder of the Merging
Corporation shall receive 144.4507 shares of the Surviving
Corporation. Upon the Effective Time, the shareholders of
the Merging Corporation shall transfer all of the shares in
the Merging Corporation to the Surviving Corporation, and
the Surviving Corporation shall issue to each such
shareholder a stock certificate representing shares of the
Surviving Corporation in accordance with the preceding
sentence.
3. Closing. The Surviving Corporation shall designate a
date (the 'Closing Date') that is no later than three months
following the date of this Agreement. On the Closing Date,
the following actions shall occur at the offices of the
Surviving Corporation in Portland, Oregon (or at such other
location as the parties may designate):
<PAGE> Page 1 of 12
3.1
The Merging Corporation shall deliver to the
Surviving Corporation resolutions of the Board of Directors
and shareholders of the Merging Corporation approving the
transactions contemplated by this Agreement.
3.2 The Surviving Corporation shall deliver to the
Merging Corporation resolutions of the Board of Directors of the
Surviving Corporation approving the transactions
contemplated by this Agreement.
3.3 The Surviving Corporation and the shareholders of
the Merging Corporation shall each execute and deliver a
certificate confirming to the other that their
representations and warranties contained in this Agreement
are true and correct as if made on and as of the Closing
Date.
3.4 The Surviving Corporation shall cause Articles of
Merger and a Plan of Merger substantially in the form of the
attached Exhibits B and C to be filed with the Secretary of
State for the State of Oregon.
3.5 Certificates evidencing shares of the Merging
Corporation shall be surrendered, and certificates
evidencing shares of the Surviving Corporation shall be
delivered, in accordance with Section 2 above.
3.6 The parties shall execute and deliver a
Registration Rights Agreement in the form of the attached Exhibit
D.
3.7 The parties shall execute and deliver an Escrow
Agreement in the form of the attached Exhibit E (the 'Escrow
Agreement'), and the shareholders of the Merging Corporation
shall deposit in escrow certain of the shares of the
Surviving Corporation received by them pursuant to Section
3.5.
3.8 The parties shall take such other actions and
execute and deliver such other documents as may be reasonably
required in order to close the transactions contemplated by
this Agreement, including, without limitation, execution by
the shareholders of the Merging Corporation of investor
questionnaires or similar instruments relating to the fact
that the shares of the Surviving Corporation to be issued to
the shareholders of the Merging Corporation will not be
registered under applicable securities laws.
4. Actions Prior to Closing Date. During the period prior
to the Closing Date, the Merging Corporation agrees to take
the following actions:
4.1 To own and operate its assets and properties in
the ordinary course of business in accordance with past
practice;
4.2 To maintain all licenses and permits applicable to
its assets and properties in full force and effect and to comply
will all laws, rules, regulations, and ordinances applicable
to its assets and properties;
<PAGE> Page 2 of 12
4.3
To refrain from transferring, encumbering,
pledging, assigning, or otherwise disposing of its assets
and properties (or engaging in negotiations or discussions
regarding the same) or entering into additional contracts or
commitments except in the ordinary course of business in
accordance with past practice (provided that it may dispose
of items of equipment which are replaced with items of
comparable value);
4.4 To provide such financial information relating to
the performance of its assets and properties as the Surviving
Corporation may reasonably request from time to time and to
grant reasonable access to its assets and properties and the
minute book, stock ledger, and corporate books and records
of the Merging Corporation to representatives of the
Surviving Corporation from time to time;
4.5 During the period beginning on the date of this
Agreement and ending on the Closing Date, to refrain,
directly or indirectly, from entering into transactions with
the shareholders of the Merging Corporation or its
affiliates or from paying dividends or distributions to
shareholders of the Merging Corporation or increasing or
enhancing the compensation of directors, officers, or
employees of or consultants to the Merging Corporation,
except in accordance with plans previously disclosed to the
Surviving Corporation; and
4.6 To maintain a net worth of no less than $480,000
and total indebtedness no greater than $4,300,000 and to refrain
from incurring additional indebtedness other than trade
payables incurred in the ordinary course of business. In
the event the Merging Corporation's net worth is less than
$480,000 or total indebtedness is greater than $4,300,000 on
the Closing Date, the Surviving Corporation and the Merging
Corporation agree to act reasonably and in good faith to
adjust the conversion basis set forth in Section 2 above.
5. Representations and Warranties of the Merging
Corporation. As a material inducement to the Surviving
Corporation to enter into this Agreement, each of the
shareholders of the Merging Corporation, severally but not
jointly, hereby represents and warrants to, and covenants
and agrees with, the Surviving Corporation as follows:
5.1 The Merging Corporation is a corporation duly
organized, validly existing, and in good standing under the
laws of the State of Oregon. Other than its wholly-owned
subsidiary, CBW Food Company L.L.C. (the 'Subsidiary'), the
Merging Corporation does not own, directly or indirectly,
any interest or investment (whether equity or debt) in any
corporation, partnership, business, trust, or other entity.
The Subsidiary is a limited liability company duly
organized, validly existing, and in good standing under the
laws of the State of Oregon. The Merging Corporation and
the Subsidiary have full corporate power and authority and
all governmental licenses, authorizations, consents, and
approvals required to carry on the businesses they now
conduct and to own the assets and properties they now own.
Neither the ownership of their properties nor the nature of
their businesses require the Merging Corporation or the
Subsidiary to be qualified in any jurisdiction other than
the state of their incorporation.
5.2 The authorized capital stock of the Merging
Corporation consists of 10,000 shares of common stock, of which
5,334 shares are outstanding. The outstanding shares of the
Merging Corporation (the 'CBW Shares') are duly authorized
and validly issued and are
<PAGE> Page 3 of 12
fully paid, nonassessable, and without par value. The
Merging Corporation has not authorized or issued, or
committed to issue (a) any capital stock or other securities
not set forth in this Section 5.2 or (b) any options,
warrants, or other rights to acquire or convert any
obligations into, any shares of capital stock or other
securities of the Merging Corporation.
5.3 The CBW Shares are pledged and assigned to Eagle's
View Management Company, Inc. This pledge shall terminate on the
Closing Date. On the Closing Date, the shareholders of the
Merging Corporation identified on Exhibit A shall have good
and marketable title to the CBW Shares in the amounts set
forth opposite their names, free and clear of liens, claims,
encumbrances, restrictions, options, and security interests
of any kind (collectively, 'Liens').
5.4 The Merging Corporation and each of the
shareholders of the Merging Corporation has full right, power,
and authority, without the consent or authorization of any third
party (other than those identified on Schedule 5.4), to
execute, deliver, and perform its obligations under this
Agreement, which constitutes its legal, valid and binding
obligation, enforceable in accordance with its terms, except
that (a) such enforcement may be subject to bankruptcy,
insolvency, reorganization, moratorium, or other similar
laws now or hereafter in effect relating to creditors'
rights and (b) injunctive and other forms of equitable
relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding may be
brought. Neither the Merging Corporation nor its agents or
representatives have engaged any broker or finder in
connection with the transactions contemplated by this
Agreement.
5.5 All taxes, licensing fees, and other governmental
fees, assessments, and charges pertaining to the ownership and
operation of the assets and properties of the Merging
Corporation and the Subsidiary have been paid in full. The
assets and properties of the Merging Corporation and the
Subsidiary have been owned and operated in compliance in all
material respects with all applicable laws, rules,
regulations, ordinances, and governmental authorizations and
permits. There is no action, suit, inquiry, proceeding, or
investigation by or before any court or governmental or
other regulatory or administrative agency or commission
pending or, to the best knowledge of the Merging
Corporation, threatened, against or involving or arising in
connection with the Merging Corporation or the Subsidiary or
their assets or properties, other than those that are
reasonably expected by the Merging Corporation or the
Subsidiary to be resolved without a material adverse effect
on the Merging Corporation or the Subsidiary. To the best
knowledge of the Merging Corporation, it is not aware of any
facts which would form the basis for any material claim
against it or the Subsidiary.
5.6 There are no contracts, agreements, leases, or
other commitments relating to the ownership and operation of the
assets and properties of the Merging Corporation or the
Subsidiary other than those identified on Schedule 5.6 (the
'Contracts'). Except to the extent described on
Schedule 5.6, the Contracts that will not be retained by the
Subsidiary are freely assignable to the Surviving
Corporation. The Merging Corporation has previously
provided the Surviving Corporation with true and correct
copies of the Contracts, all of which are unamended and in
full force and effect and none of which is in default by
either party. The execution, delivery, and performance by
the Merging Corporation of this Agreement does not
(a) conflict
<PAGE> Page 4 of 12
with, result in a breach of violation of, or constitute a
default under, the Contracts, (b) constitute a violation of
any judgment, order, or decree applicable to the Merging
Corporation or the Subsidiary or any of their assets or
properties, or (c) result in the creation of any Lien on any
of its assets or properties.
5.7 The Merging Corporation has not received written
notification from any governmental authority stating that
any real property owned or leased by the Merging Corporation
or the Subsidiary (the 'Real Property') or any part thereof
is (a) targeted for clean-up or remediation of Hazardous
Substances (hereinafter defined) or (b) not otherwise in
compliance with applicable Environmental Laws (hereinafter
defined). To the best knowledge of the Merging Corporation,
there are no Hazardous Substances on, in, or under the Real
Property or any part thereof which are in violation of
applicable Environmental Laws, and there are no underground
storage tanks on or under the Real Property. Neither the
Merging Corporation nor the Subsidiary has used the Property
to store or dispose of any Hazardous Substances. The
Merging Corporation and the Subsidiary, and, to the best
knowledge of the Merging Corporation, all previous owners
and operators of the Real Property, have owned and operated
the Real Property in compliance with all applicable
Environmental Laws. The term 'Hazardous Substance' means
any substance or material defined or designated as hazardous
or toxic (or by any similar term) under any Environmental
Law, including petroleum products and friable materials
containing more than one percent (1%) asbestos by weight.
The term 'Environmental Law' means any federal, state, or
local law, ordinance, rule, or regulation relating to
pollution or protection of the environment or actual or
threatened releases, discharges, or emissions, into the
environment, including the so-called Comprehensive
Environmental Response, Compensation, and Liability Act;
Resource Conservation and Recovery Act; the Superfund
Amendments and Reauthorization Act; Federal Water Pollution
Control Act; Clean Air Act; and all comparable state
statutes.
5.8 The statements of December 31, 1998 provided by
the Merging Corporation to the Surviving Corporation for the
period ending December 31, 1998 attached hereto as Schedule
5.8 (the 'Financial Statements') fairly present in all
material respects the financial position of the Merging
Corporation on the dates of the Financial Statements and the
results of its operations for the periods covered thereby
and have been prepared in accordance with generally accepted
accounting principles consistently applied. There are no
attachments, executions, assignments for the benefits of
creditors, or proceedings in bankruptcy, or under any other
debtor relief laws contemplated by or pending or, to the
best knowledge of the Merging Corporation, threatened
against the Merging Corporation or the Subsidiary. Except
as and to the extent reflected or reserved against in the
latest balance sheet for the Merging Corporation included in
the Financial Statements, and except for liabilities arising
in the ordinary course of its business since the date of
such balance sheet, the Merging Corporation does not have
any accrued or contingent liability arising out of any
transaction or state of facts existing prior to the date
hereof (or the Closing Date, as applicable) that, either
alone or in the aggregate, could reasonably be expected to
require the Merging Corporation or the Subsidiary to pay
more than $25,000. Since December 31, 1998, there has not
been any change in the financial condition or operations of
the Merging Corporation or the Subsidiary, except changes in
the ordinary course of business which, individually or in
the aggregate, have not been materially adverse.
<PAGE> Page 5 of 12
5.9
Within the times and in the manner prescribed by
law, the Merging Corporation and the Subsidiary have filed
all federal, state, and local tax returns required by law
and have paid all taxes, assessments, and penalties due and
payable. There are no present disputes about taxes of any
nature payable by the Merging Corporation or the Subsidiary
and no federal or other tax return has been audited.
5.10 The Merging Corporation and the Subsidiary have
good and marketable title to all of their respective assets free
and clear of all liens, charges, and encumbrances, claims,
easements, rights of way, covenants, conditions, or
restrictions, except for (a) those disclosed in the Merging
Corporation's balance sheet as of December 31, 1998 and (b)
possible minor matters that, in the aggregate, do not
materially detract from or interfere with the present or
intended use of any of these assets or materially detract
from or interfere with the Merging Corporation's business
operations. All real property and tangible personal
property of the Merging Corporation and the Subsidiary that
is necessary to the operation of their businesses is in good
operating condition and repair in all material respects,
ordinary wear and tear excepted. No shareholder of the
Merging Corporation; nor any officer, director, or employee
of the Merging Corporation or the Subsidiary; nor any
spouse, child, or other relative of any of these persons,
owns or has any interest, directly or indirectly, in any of
the real or personal property owned or leased to the Merging
Corporation or the Subsidiary.
5.11 Schedule 5.11 is a complete and accurate list of
all
real property owned by or leased to the Merging Corporation
or the Subsidiary. The zoning of each parcel of property
described in Schedule 5.11 permits the presently existing
improvements and the continuation of the business presently
being conducted on such parcel. The Merging Corporation has
not commenced, nor received notice of the commencement of,
any proceeding that would affect the present zoning
classification of any such parcel.
5.12 The books and records of the Merging Corporation
and the Subsidiary contain a materially complete and accurate
description and specify the location of all material items
of equipment, furniture, supplies, and all other tangible
personal property owned or used by the Merging Corporation
or the Subsidiary in connection with their respective
businesses. The tangible personal property reflected in
those books and records constitutes all such tangible
personal property necessary for the conduct by the Merging
Corporation and the Subsidiary of their respective
businesses as now conducted.
5.13 Schedule 5.13 is a schedule of all trade names,
trademarks, and service marks and their registrations, owned
by the Merging Corporation or the Subsidiary or in which
either of them has any rights or licenses, together with a
brief description of each. To the best knowledge of the
Merging Corporation, there is no infringement or alleged
infringement by others of any trade name, trademark, service
mark, or copyright, and the Merging Corporation and the
Subsidiary have not infringed, and are not now infringing,
on any trade name, trademark, service mark, or copyright
belonging to any other person.
5.14 The Merging Corporation and the Subsidiary hold
all necessary licenses or other rights necessary for the
operation of their respective businesses as now conducted by
them,
<PAGE> Page 6 of 12
including, without limitation, licenses from the Oregon
State Lottery Commission and the Oregon Liquor Control
Commission, and that each such license or right is presently
valid and effective and is not in danger of revocation or
non-renewal.
5.15 No representation or warranty made or given by the
shareholders of the Merging Corporation to the Surviving
Corporation in connection with the transactions contemplated
by this Agreement contains any untrue statement of material
fact or omits to state any material fact necessary, in light
of the circumstances under which it was made, in order to
make the statements herein or therein not misleading.
6. Representations and Warranties of the Surviving
Corporation. The Surviving Corporation hereby represents
and warrants to the Merging Corporation and the shareholders
of the Merging Corporation as follows:
6.1 The Surviving Corporation has full right, power,
and
authority, without the consent or authorization of any third
party (other than those identified on Schedule 6.1), to
execute, deliver, and perform its obligations under this
Agreement, which constitutes the legal, valid, and binding
obligation of the Surviving Corporation, enforceable in
accordance with its terms, except that (a) such enforcement
may be subject to bankruptcy, insolvency, reorganization,
moratorium, or other similar laws now or hereafter in effect
relating to creditors' rights and (b) injunctive and other
forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any
proceeding may be brought. The Surviving Corporation is a
corporation duly organized, validly existing, and in good
standing under the laws of the State of Oregon. Neither the
Surviving Corporation nor any of its agents or
representatives has engaged any broker or finder in
connection with the transactions contemplated by this
Agreement, other than Veber Partners, LLC, who was engaged
by the Board of Directors of the Surviving Corporation to
provide an opinion as to the fairness from a financial point
of view to the stockholders of the Surviving Corporation of
the consideration to be paid by the Surviving Corporation in
connection with the proposed transactions contemplated by
this Agreement.
6.2 The execution, delivery, and performance by the
Surviving Corporation of this Agreement does not constitute
a violation of, or constitute a default under, any
agreement, instrument, or commitment to which the Surviving
Corporation is a party or by which the Surviving Corporation
is bound.
6.3 Upon the issuance thereof, the shares to be
delivered to the shareholders of the Merging Corporation pursuant
to Section 2 above shall duly be authorized, validly issued,
and fully paid.
7. Conditions to Obligations of Surviving Corporation.
The obligations of the Surviving Corporation to consummate
the transactions contemplated by this Agreement are subject
to satisfaction of or compliance with each of the following
conditions:
<PAGE> Page 7 of 12
7.1 No suit, action, investigation, inquiry, or other
proceeding by any governmental authority or other person or
entity shall have been instituted which questions or
challenges the validity or legality of the transactions
contemplated by this Agreement.
7.2 All approvals, consents, and authorizations shown
on Schedule 6.1 shall have been obtained.
7.3 Subject to any changes that have been waived in
writing by the Surviving Corporation, (a) the representations and
warranties of the shareholders of the Merging Corporation
set forth in this Agreement shall have been and shall be
true and correct in all material respects on the Closing
Date as though made on and as of the Closing Date and
(b) neither the Merging Corporation nor its shareholders
shall have violated in any material respect any covenant or
agreement by them in this Agreement and shall have performed
in all material respects all obligations to be performed by
them under this Agreement prior to or as of the Closing
Date.
8. Conditions to Obligations of Merging Corporation. The
obligations of the Merging Corporation and its shareholders
to consummate the transactions contemplated by this
Agreement are subject to satisfaction of or compliance with
each of the following conditions:
8.1 No suit, action, investigation, inquiry, or other
proceeding by any governmental authority or other person or
entity shall have been instituted which questions or
challenges the validity or legality of the transactions
contemplated by this Agreement.
8.2 All approvals, consents, and authorizations shown
on Schedule 5.4 shall have been obtained.
8.3 Subject to any changes that have been waived in
writing by the Merging Corporation, (a) the representations and
warranties of the Surviving Corporation set forth in this
Agreement shall have been and shall be true and correct in
all material respects on the Closing Date as though made on
and as of the Closing Date and (b) the Surviving Corporation
shall not have violated in any material respect any covenant
or agreement by it in this Agreement and shall have
performed in all material respects all obligations to be
performed by it under this Agreement prior to or as of the
Closing Date.
9. Right to Termination. This Agreement may be terminated
and the proposed transactions abandoned:
9.1 At any time, by mutual consent of the parties;
9.2 At the option of the Surviving Corporation and by
notice to the Merging Corporation stating the reasons for
such action, (a) in the event the closing of the
transactions contemplated by this Agreement shall not have
occurred on the date designated in Section 3 (or any other
date that the parties may designate by mutual agreement) by
reason of the failure of any of the conditions set forth in
Section 7 or (b) at any time prior to the closing of the
<PAGE> Page 8 of 12
transactions contemplated by this Agreement, in the event of
a material breach of any of the representations, warranties
or covenants of the Merging Corporation or its shareholders;
or
9.3 At the option of the Merging Corporation and by
notice to the Surviving Corporation stating the reasons for such
action, (a) in the event the closing of the transactions
contemplated by this Agreement shall not have occurred on
the date designated in Section 3 (or any other date that the
parties may designate by mutual agreement) by reason of the
failure of any of the conditions set forth in Section 8 or
(b) at any time prior to the closing of the transactions
contemplated by this Agreement, in the event of a material
breach of any of the representations, warranties or
covenants of the Surviving Corporation set forth in this
Agreement.
9.4 Termination by a party pursuant to Section 9.2 or
9.3 shall not adversely affect such party's other available
rights and remedies. The rights and remedies of the party
terminating this Agreement pursuant to Section 9.2 or 9.3,
whether contained in this Agreement or conferred pursuant to
applicable law or in equity, shall be cumulative and
concurrent and may be pursued singly, successively, or
together, at the discretion of the holder thereof.
10. Indemnification. Each of the Surviving Corporation, on
the one hand, and the shareholders of the Merging
Corporation, on the other, shall indemnify the other and the
other's employees, agents, officers, directors, heirs,
personal representatives, administrators, successors,
permitted assigns, and affiliates from and against any and
all costs, damages, expenses, and liabilities (including
reasonable attorneys' fees) incurred or sustained in
connection with or resulting from (a) any breach of the
representations and warranties of such party in this
Agreement or (b) the nonfulfillment or breach of any
covenant made by such party in this Agreement; provided,
however, that the maximum liability of the Surviving
Corporation, on the one hand, and the shareholders of the
Merging Corporation, on the other, under this Section 10
shall not exceed $1,000,000 in the aggregate for the
Surviving Corporation, on the one hand, and the shareholders
of the Merging Corporation, on the other hand; and provided
further, that the remedies of the Surviving Corporation with
respect to any such breach or nonfulfillment by the
shareholders of the Surviving Corporation or any of them
shall be limited to, and only to, recovery of the shares of
the Surviving Corporation held in accordance with the terms
of the Escrow Agreement pursuant to the provisions thereof.
The limitations on maximum liability and on remedies
contained in the preceding sentence shall not apply in the
case of a willful and material breach of a representation or
warranty made by a shareholder of the Merging Corporation
with the intent to defraud the Surviving Corporation; in the
case of such a breach, the Surviving Corporation shall have
all rights and remedies permitted under applicable law or in
equity against, and only against, the shareholder making
such representation or warranty.
11. General Provisions:
11.1 Binding Effect. This Agreement may not be
assigned by
either of the parties without the written consent of the
other party. Subject to the foregoing restrictions, this
Agreement shall be binding upon and inure to the benefit of
the parties and their respective heirs, personal
representatives, administrators, successors, and permitted
assigns.
<PAGE> Page 9 of 12
11.2
Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of
Oregon.
11.3 Entire Agreement. This Agreement, including the
schedules and exhibits hereto (which are incorporated herein
by reference), contains the entire agreement between the
Surviving Corporation and the Merging Corporation with
respect to the transactions contemplated by this Agreement
and supersedes all prior and contemporaneous agreements
between them with respect to such transactions. The parties
agree that the terms of this Agreement are confidential and
will not be disclosed, other than to each party's officers,
directors, shareholders, accountants, attorneys, and
lenders, without the consent of the other, except to the
extent required under applicable law and regulations.
11.4 Amendment. This Agreement may not be modified or
amended except by the written agreement of the party
entitled to the benefit of the provision against whom
enforcement is sought.
11.5 Severability. If any term or provision of this
Agreement shall to any extent be invalid or unenforceable,
the remainder of this Agreement shall not be affected
thereby, and each term or provision of this Agreement shall
be valid and enforceable to the fullest extent permitted by
law.
11.6 Survival. All representations and warranties
herein,
and all covenants herein (the full performance of which is
not required to or at the Closing Date), shall survive the
Closing Date and be fully enforceable thereafter for a
period of one year following the Closing Date.
11.7 Notices. Notices under this Agreement shall be in
writing and shall be effective when actually delivered or
three business days after deposit in the United States
Mails, certified, return receipt requested, directed to the
other party at the address set forth below, or to such other
address and/or person as the party may indicate by written
notice to the other party:
<PAGE> Page 10 of 12
If to the Merging CBW Inc.
Corporation: 140 E. 5th Ave., #A
Eugene, OR 97401
Attn: Mike Chamberlin
If to the Surviving Elmer's Restaurants,
Corporation Inc..
11802 SE Stark St.
Portland, OR 97216
Attn: Juanita Nelson
11.8 Waiver. Failure of any party at any time to
require
performance of any provision of this Agreement shall not
limit such party's right to enforce such provision, nor
shall any waiver of any breach of any provision of this
Agreement constitute a waiver of any succeeding breach of
such provision or a waiver of such provision itself.
11.9 Attorney's Fees. If a suit, action, or other
proceeding of any nature whatsoever (including any
proceeding under the U.S. Bankruptcy Code) is instituted to
enforce or interpret any provision of this Agreement or in
connection with any dispute hereunder, the prevailing party
shall be entitled to recover such amount as the court may
adjudge reasonable as attorney's fees and all other fees,
costs, and expenses of litigation at trial or any appeal or
review, in addition to all other amounts provided by law.
11.10 Remedies. In the event of a default under
this
Agreement, the non-defaulting party shall have all rights
and remedies available under this Agreement, to the fullest
extent of applicable law and equitable principles, subject
to the limitations set forth in Section 10.
11.11 Counterparts. This Agreement may be
executed in
any number of counterparts, all of which together shall
constitute one and the same agreement.
11.12 Further Assurances. From time to time,
upon
request of either party, the other party shall execute,
acknowledge, and deliver such documents and undertake such
actions as may be reasonably requested in order to fulfill
the transactions contemplated by this Agreement.
11.13 Expenses. Each party shall bear all costs
and
expenses incurred by such party in connection with this
transaction, including, without limitation, legal expenses.
11.14 Knowledge of Merging Corporation. All
representations and warranties of the shareholders of the
Merging Corporation in this Agreement that are made 'to the
best knowledge of the Merging Corporation' shall be made
only to the extent of the knowledge, after due inquiry, of
Bruce N. Davis or William W. Service.
<PAGE> Page 11 of 12
IN WITNESS WHEREOF, the parties have entered into this
Merger Agreement as of the date first set forth above.
The Merging Corporation: CBW Inc., an Oregon
corporation
By:___/s/__Bruce Davis___
Title: President
The Surviving Corporation: Elmer's Restaurants,
Inc., an Oregon
corporation
By:__/s/_William Service_
Title: C.E.O.
The Shareholders of the Merging Corporation:
__/s/__Ken N. Boettcher__
Ken N. Boettcher
__/s/__Linda E. Bolton___
Linda Bolton
__/s/__Karen K. Brooks___
Karen Brooks
__/s/__Thomas C. Connor__
Thomas C. Connor
__/s/__Bruce N. Davis____
Bruce N. Davis
__/s/__Cordy Jensen______
Cordy Jensen
__/s/__William W. Service
William W. Service
__/s/__Gregory Wendt_____
Gregory Wendt
__/s/__Donald Woolley____
Donald Woolley
Schedules Omitted
<PAGE> Page 12 of 12
STOCK ESCROW AGREEMENT
This Stock Escrow Agreement (this "Agreement") is made and
entered into as of February 18, 1999 (the "Effective Date"), by
and among ELMER'S RESTAURANTS, INC., an Oregon corporation
("Elmer's"), the parties listed on Exhibit A attached hereto
(collectively, the "Escrow Indemnitors," and each individually,
an "Escrow Indemnitor"), William W. Service as the representative
of the Escrow Indemnitors (the "Representative"), and ATER WYNNE,
LLP, as escrow agent (the "Escrow Agent").
RECITALS
A. The Escrow Indemnitors are shareholders of CBW Inc., an
Oregon corporation ("CBW"). CBW, Elmer's and certain other
parties have entered into a Merger Agreement dated as of
February 18, 1999, (the "Merger Agreement"), pursuant to which
CBW shall be merged with Elmer's (the "Merger"), with Elmer's to
be the surviving corporation of the Merger. In the Merger, the
outstanding shares of CBW Common Stock ("CBW Stock") will be
converted into shares of Elmer's Common Stock, ("Elmer's Common
Stock").
B. The Merger Agreement provides that an aggregate of
220,000 shares of Elmer's Common Stock issued in respect of the
conversion of outstanding CBW Stock in the Merger will be
withheld from the Escrow Indemnitors and will be placed in an
escrow established in accordance with this Agreement to secure
the indemnification obligations under Section 10 of the Merger
Agreement.
C. The parties desire to enter into this Agreement to
establish the terms and conditions under which the escrow will be
established and maintained.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. CERTAIN DEFINED TERMS.
1.1 Terms Defined in Merger Agreement. Capitalized
terms used in this Agreement and not otherwise defined herein
shall have the same meanings given to such terms in the Merger
Agreement.
<PAGE>
1.2 Escrow. As used herein, the "Escrow" means the
escrow and the Escrow Account (as defined in Section 3.1 below)
established pursuant to this Agreement in which the Escrowed
Property (as defined in Section 1.3 below) will be held to secure
indemnification obligations of the Escrow Indemnitors in
accordance with Section 10 of the Merger Agreement.
1.3 Escrowed Property. As used herein, the "Escrowed
Property" means, collectively: (a) 220,000 shares of Elmer's
Common Stock issued in respect of the conversion of all
outstanding shares of CBW Stock in the Merger (the "Escrow
Shares") and the Stock Powers (as defined in Section 3.1 below)
executed and delivered by the Escrow Indemnitors with respect to
such Escrow Shares; and (b) all other property (not including
dividends but including Distributions and Secondary Distributions
(as defined in Section 3.2 below)) other than dividends issued or
paid with respect to any Escrow Shares that are deposited in the
Escrow Account -- pursuant to this Agreement, all of which items
shall be deemed to be "Escrowed Property" upon deposit in the
Escrow Account. The number of Escrow Shares of each Escrow
Indemnitor that will be placed in the Escrow is shown in
Exhibit A hereto and will be equal to such Escrow Indemnitor's
Pro Rata Share (as defined in Section 2.1) of the Escrowed
Property unless Elmer's shall have received written instructions
requesting a different allocation among the Escrow Indemnitors.
1.4 Termination Date. "Termination Date" means the
one-year anniversary of the Closing Date of the Merger.
2. AGREEMENT.
2.1 Obligations of Escrow Indemnitors. As a material
inducement to Elmer's to enter into the Merger Agreement and
consummate the transactions contemplated thereby, the Escrow
Indemnitors agree to be expressly subject to the terms and
conditions of this Agreement:
(a) to establish the Escrow pursuant to this
Agreement to secure the indemnification obligations
under Section 10 of the Merger Agreement and to assume
such indemnification obligations;
(b) that in the event Elmer's or any of its
employees, agents, officers, directors, permitted
assigns and affiliates (hereinafter, collectively,
"Elmer's") incurs any costs, damages, expenses, and
liabilities (including reasonable attorneys' fees)
incurred or sustained in connection with or resulting
from (i) any breach of the representations and
warranties of CBW or the Escrow Indemnitors in the
Merger Agreement or (ii) the nonfulfillment or breach
of any covenant made by CBW or the Escrow Indemnitors
in the Merger Agreement all as provided in Section 10
of the Merger Agreement (the "Claims and Liabilities"),
the Escrowed Property (or a portion thereof) shall,
subject to the provisions of the Merger Agreement and
this Agreement, be transferred to Elmer's to compensate
Elmer's for such Claims and Liabilities, with the
portion of the Escrowed Property to be so transferred
to be pro rata as to each Claim and Liability among the
Escrow Indemnitors according to each Escrow
Indemnitor's proportionate share of the Escrowed
Property set forth on Exhibit A hereto (the "Pro Rata
Share");
(c) to appoint the Representative as the
Escrow Indemnitors' representative, attorney-in-fact
and agent for purposes of this Agreement to act for and
on behalf of each Escrow Indemnitor as provided herein,
and to the taking by the Representative of any and all
actions and the making of any decisions required or
permitted to be taken or made by the Representative on
the Escrow Indemnitors' behalf under this Agreement;
and
(d) to all of the other terms and conditions
of this Agreement.
3. FORMATION OF ESCROW ACCOUNTS.
3.1 Delivery and Deposit of Escrowed Property. Upon
the execution of this Agreement by all parties hereto:
(a) Elmer's will promptly deliver to the
Escrow Agent (in lieu of delivery to the Escrow
Indemnitors and subsequent delivery to the Escrow
Agent) the Escrow Shares in the form of duly authorized
and executed stock certificates issued in the
respective names of the Escrow Indemnitors,
representing each Escrow Indemnitor's Pro Rata Share of
the Escrow Shares; and
(b) each Escrow Indemnitor will promptly
deliver to the Escrow Agent duly executed Stock Powers
and Assignments Separate From Certificate for such
Escrow Indemnitor's Escrow Shares in the form of
Exhibit B ("Stock Powers"), signed in blank by such
Escrow Indemnitor.
The Escrow Agent agrees to accept delivery of the above-mentioned
Escrowed Property, which shall be clearly designated by Elmer's
as "Escrowed Property," and to hold the same in escrow in an
escrow account (the "Escrow Account"), subject to the terms and
conditions of this Agreement.
<PAGE>
3.2 Distributions, Conversions, Voting and Rights of
Ownership. So long as the Escrow is in effect, distributions
(other than dividends paid in respect of such shares which shall
be distributed to the Escrow Indemnitors) of any kind (including
without limitation shares of Elmer's Common Stock issued in
connection with a subdivision or split of Elmer's Common Stock)
that are paid, issued or made by Elmer's in respect of the Escrow
Shares or that are issuable by Elmer's or a third party upon the
conversion or other exchange of Elmer's Common Stock in a merger,
consolidation or other transaction affecting the Elmer's Common
Stock (the "Distributions"), or in respect of any such
Distributions ("Secondary Distributions"), will be immediately
delivered to the Escrow Agent and will be held in the Escrow on
the same terms and conditions as those applied hereunder to the
Escrow Shares and the Escrow Indemnitors will promptly sign and
deliver to the Escrow Agent new Stock Powers or other applicable
instruments of transfer for such Distributions and/or Secondary
Distributions (duly executed in blank by the Escrow Indemnitors)
to be held in the Escrow as Escrowed Property pursuant to this
Agreement. As used herein, the terms "Escrowed Property"
includes all Distributions and Secondary Distributions on
Escrowed Property and the term "Escrow Shares" includes all
Distributions and Secondary Distributions on Escrowed Property
consisting of stock or other securities. The Escrow Indemnitors
will have the right to exercise any and all rights to vote the
Escrow Shares deposited in the Escrow Account for their account
so long as such Escrow Shares are held in the Escrow and have not
been released to Elmer's as provided herein and Elmer's will take
all steps necessary to allow the exercise of such rights. While
the stock certificates representing, and Stock Powers for, Escrow
Shares remain in the Escrow Agent's possession pursuant to this
Agreement, the Escrow Indemnitors, will (subject to the
provisions of Sections 3.3 and 3.4 below) retain and be able to
exercise all other incidents of ownership of the Escrow Shares
that are not inconsistent with the terms and conditions of this
Agreement. If reasonably requested to do so by Elmer's or the
Escrow Agent, each Escrow Indemnitor shall promptly execute and
deliver to the Escrow Agent (or to Elmer's, as to Escrow Shares
that are released to Elmer's as provided herein) replacement
Stock Powers for any Escrow Shares or other shares of stock or
securities that are or become Escrowed Property. If requested by
Elmer's, due to the failure of any Escrow Indemnitor to promptly
execute and deliver replacement Stock Powers as herein provided,
the Representative, acting as attorney-in-fact for each Escrow
Indemnitor, shall promptly execute on behalf of such Escrow
Indemnitor, and deliver to the Escrow Agent, replacement Stock
Powers for any Escrow Shares or other shares of stock or
securities that are or become Escrowed Property.
3.3 No Transfer or Encumbrance. Except to the extent
expressly permitted by the provisions of this Section 3.3, no
Escrowed Property or any beneficial interest therein may be sold,
assigned, pledged, encumbered or otherwise transferred (including
without limitation by operation of law, other than a conversion
of shares in a merger or consolidation) by any Escrow Indemnitor
or be taken or reached by any legal or equitable process in
satisfaction of any debt or other liability of an Escrow
Indemnitor (other than such Escrow Indemnitor's obligations under
this Agreement) prior to the delivery and release to the Escrow
Indemnitors of the Escrowed Property by the Escrow Agent in
accordance with the provisions of Section 5 hereof. Provided,
however, an Escrow Indemnitor may transfer its share of the
Escrowed Property hereunder so long as such transfer is to
another Escrow Indemnitor or is by gift or upon death or
permanent incapacity to his guardian, conservator, executor,
administrator, trustees or beneficiaries under his will, spouse,
children, stepchildren, grandchildren, parents, siblings or legal
dependents, to a trust of which the beneficiary or beneficiaries
of the corpus and the income shall be such a person and all such
persons agree to be bound by the terms hereof or to partners of
an Escrow Indemnitor that is a partnership, provided that all of
such partners agree to be bound by the terms hereof.
<PAGE>
3.4 Treatment of Escrowed Property. The Escrowed
Property shall be held by the Escrow Agent and shall not be
subject to any lien, attachment, trustee process or any other
judicial process of any creditor of any party hereto.
4. ADMINISTRATION OF ESCROW ACCOUNT. The Escrow Agent
shall administer the Escrow Account as follows:
4.1 Claim Notice. If Elmer's asserts a claim for
indemnification under Section 10 of the Merger Agreement on or
prior to the Termination Date, then Elmer's shall promptly give
written notice of such claim (a "Claim Notice"), including a copy
of such claim and/or process and all legal pleadings in
connection therewith, to the Representative and the Escrow Agent
in accordance with Section 12 hereof. Each Claim Notice shall
state the amount of claimed Claims and Liabilities (the "Claimed
Amount") and the basis for such claim. Elmer's shall assert any
claim for indemnification promptly following its discovery of the
facts giving rise to such claim and in no event more than
sixty (60) days from such discovery so long as such period does
not extend beyond the Termination Date of this Agreement.
4.2 Response Notice. Within thirty (30) days after
delivery of a Claim Notice to the Representative, the
Representative shall give to Elmer's, with a copy to the Escrow
Agent, a written response (the "Response Notice") in which the
Representative shall either:
(a) agree that such portions of the Escrowed
Property having a value (computed in accordance with
Section 4.4 below) equal to the full Claimed Amount may
be released from the Escrow Account and delivered to
Elmer's; or
(b) agree that a portion of the Escrowed
Property having a value (computed in accordance with
Section 4.4 below) equal to a specified part, but not
all, of the Claimed Amount (the "Agreed Amount") may be
released from the Escrow Account to Elmer's; or
(c) contest that any of the Escrowed
Property may be released from the Escrow Account to
Elmer's.
The Representative may contest the release of Escrowed
Property only based upon a good faith belief that all or such
portion of the Claimed Amount does not constitute Claims and
Liabilities (or that there is a valid defense to such claims and
liabilities), or does not constitute the actual amount of Claims
and Liabilities incurred, for which Elmer's is entitled to
indemnification under Section 10 of the Merger Agreement. If no
Response Notice is delivered by the Representative within such
thirty (30) day period, then the Representative shall be deemed
to have agreed that the full Claimed Amount may be released and
delivered from the Escrow Account to Elmer's.
4.3 Release Without Contest.
(a) If in his Response Notice the
Representative agrees (or if the Representative fails
to deliver a Response Notice within the required time
period and as such is deemed to have agreed) that the
Escrowed Property having a value (computed in
accordance with Section 4.4 below) equal to the full
Claimed Amount may be released from the Escrow Account
to Elmer's, then the Escrow Agent shall promptly
thereafter deliver to Elmer's from the Escrow Account
Escrowed Property having a value (computed in
accordance with Section 4.4 below) equal to the Claimed
Amount (or such lesser amount as is then held in the
Escrow Account).
(b) If the Representative in the Response
Notice agrees that Escrowed Property having a value
(computed in accordance with Section 4.4 below) equal
to the Agreed Amount may be released from the Escrow
Account to Elmer's in the respective amounts set forth
in the Response Notice, then the Escrow Agent shall
promptly thereafter deliver to Elmer's such Agreed
Amount or such lesser amount as is then held in the
Escrow Account, and the provisions of Section 5 shall
apply. The amounts of Escrowed Property equal to the
Agreed Amount that are to be released by the Escrow
Agent to Elmer's from the Escrow Account under this
Section shall be in such proportions of Escrow Shares
and other Escrowed Property as may be requested by the
Representative (subject to the availability of such
type(s) of Escrowed Property at such time).
4.4 Value of Escrowed Property. For purposes of
determining the amount of Escrowed Property to be delivered out
of the Escrow to Elmer's as all or part of any Claimed Amount
hereunder and determining the value of any Escrowed Property for
any other purpose hereunder (a) Escrowed Property that is cash
will be deemed to have a value equal to the amount of such cash
in U.S. Dollars; (b) shares of Elmer's Common Stock will be
deemed to have a value per share equal to the average closing
price of the shares as traded on Nasdaq during the ten (10)
trading days prior to the date of delivery of the Escrowed
Property by the Escrow Agent to Elmer's which average closing
price shall be evidenced by a certificate delivered to the Escrow
Agent by Elmer's on the date of delivery and executed by the
Chief Financial Officer of Elmer's; (c) all other Escrowed
Property shall be deemed to have a value that is equal to its
then-current market value (if such value is readily deter
minable), which market value and the basis for determination
shall be evidenced by a certificate delivered to the Escrow Agent
by Elmer's on the date of delivery and executed by the Chief
Financial Officer of Elmer's; and (d) Escrowed Property that has
no readily determinable market value will be deemed to have the
value determined by the mutual agreement of Elmer's and the
Representative, or, in the absence of such an agreement by the
decision of any arbitrator deciding the claim in question under
Section 5.
5. ARBITRATION OF CONTESTED RELEASES.
5.1 Arbitration of Disputes over Escrow Release. If
the Representative gives a Response Notice contesting the release
of Escrowed Property equal to all or any part of the Claimed
Amount set forth in the applicable Claim Notice, as provided in
Section 4.2 above (the "Contested <PAGE> Amount"), then such
dispute shall be settled by mandatory binding arbitration in
Portland, Oregon in accordance with the provisions of this
Section 5 and the Commercial Arbitration Rules of the American
Arbitration Association then in effect (the "AAA Rules"), unless
Elmer's and the Representative settle such dispute in a written
settlement agreement executed by Elmer's and the Representative
on behalf of and binding on each of the Escrow Indemnitors and
Elmer's. The provisions of this Section 5 shall prevail and
govern in the event of any conflict between such provisions and
the AAA Rules.
5.2 Arbitrator. Unless otherwise mutually agreed by
Elmer's and the Representative, the arbitration will be heard and
decided by a single arbitrator who shall be selected as provided
in Section 5.3.
5.3 Selection of Arbitrator. Elmer's and the
Representative will have the authority to select the arbitrator
from a list provided by the American Arbitration Association of
arbitrators who are attorneys-at-law who practice in the area of
business law or commercial litigation; provided that the
arbitrator cannot have represented either Elmer's or any of the
Escrow Indemnitors in any previous matter. If Elmer's and the
Representative cannot agree on the selection of the arbitrator
from the above list of arbitrators, then the arbitrator shall be
chosen by the American Arbitration Association. Elmer's and
Representative will provide notice to the Escrow Agent of the
identity of the arbitrator not more than fifteen (15) days after
the selection of the arbitrator.
<PAGE>
5.4 Time for Arbitration Decision: Effect. The
arbitrator shall decide each dispute to be arbitrated pursuant
hereto within ninety (90) days after the selection of the
arbitrator. The arbitrator's decision shall relate solely to
whether Elmer's is entitled to receive the Contested Amount (or a
portion thereof) pursuant to the applicable terms of the Merger
Agreement and this Agreement. The final decision of the
arbitrator shall provide directions to the Escrow Agent as
provided in Section 5.5 and shall be furnished to Elmer's, the
Representative, and the Escrow Agent in writing and shall
constitute a conclusive determination of all issues in question,
binding upon Elmer's, the Representative, the Escrow Indemnitors
and the Escrow Agent and shall not be contested by any of them.
Upon the conclusion of any arbitration proceedings hereunder, the
arbitrator will render findings of fact and conclusions of law
and a written opinion setting forth the basis and reasons for any
decision reached and instructions (if applicable) to the Escrow
Agent as to the release of Escrowed Property and will deliver
such documents to Elmer's, the Representative and the Escrow
Agent, along with a signed copy of the award and the instructions
(if any) to the Escrow Agent. The arbitrator chosen in
accordance with these provisions will not have the power to
alter, amend or otherwise affect the terms of this Section 5 or
the provisions of this Agreement or the Merger Agreement.
Judgment upon the award rendered by the arbitrator may be entered
in any court having competent jurisdiction over the subject
matter thereof.
5.5 Actions of Escrow Agent Pending Arbitration.
After delivery of a Response Notice in which any or all of the
Claimed Amount is contested by the Representative, the Escrow
Agent shall continue to hold in the Escrow Account Escrowed
Property having a value (computed in accordance with Section 4.4
of this Agreement) sufficient to cover the Contested Amount (but
only to the extent that there is Escrowed Property remaining in
the Escrow after payment to Elmer's of all uncontested Claimed
Amounts), notwithstanding the occurrence of the Termination Date,
until: (a) delivery of a copy of a settlement agreement executed
by Elmer's and the Representative setting forth instructions to
the Escrow Agent as to the release of such Escrowed Property that
shall be made with respect to the Contested Amount; (b) delivery
of a copy of the final decision of the arbitrator setting forth
instructions to the Escrow Agent as to the release of Escrowed
Property that shall be made with respect to the Contested Amount;
or (c) receipt of a court order or judgment directing Escrow
Agent to act with respect to the distribution of any Escrowed
Property. The Escrow Agent shall thereupon release Escrowed
Property from the Escrow Account (to the extent Escrowed Property
is then held in the Escrow Account) in accordance with such
settlement agreement, arbitrator's instructions, court order or
judgment, as applicable. The Escrowed Property released by the
Escrow Agent to Elmer's from the Escrow Account shall be in such
proportions of Escrow Shares and/or other Escrowed Property, as
may be requested by the Representative (subject to the
availability of such type(s) of Escrowed Property at such time).
5.6 No Responsibility of Escrow Agent to Resolve
Dispute. If any controversy arises involving any party to this
Agreement (other than the Escrow Agent) concerning the subject
matter of this Agreement, including a Contested Amount, the
Escrow Agent will not be required to determine the controversy or
to take any action until such dispute has been resolved.
<PAGE>
5.7 Right to Counsel. Elmer's (on behalf of itself
and any of its employees, agents, officers, directors, permitted
assigns and affiliates) and the Representative shall each have
the right to employ its or his own legal counsel to represent
such person in any disputes arising under this Agreement.
5.8 Compensation of Arbitrator. The arbitrator will
be compensated for his or her services at a rate to be determined
by the parties or by the American Arbitration Association, but
based upon reasonable hourly or daily consulting rates for the
arbitrator in the event the parties are not able to agree upon
his or her rate of compensation. Elmer's, on the one hand, and
the Escrow Indemnitors, on the other hand, will each pay 50% of
the initial compensation to be paid to the arbitrator in any such
arbitration and 50% of the costs of transcripts and other normal
and regular expenses of the arbitration proceedings
(collectively, the "Arbitration Expenses"), with the portion of
such Arbitration Expenses required to be borne by the Escrow
Indemnitors to be shared by the Escrow Indemnitors based on the
Escrow Indemnitor's respective Pro Rata Shares.
5.9 Burden of Proof. For any claim submitted to an
arbitration hereunder, the burden of proof will be as it would be
if the claim were litigated in a judicial proceeding.
5.10 Exclusive Remedy. Except to the extent provided
in Section 10 of the Merger Agreement, and except as specifically
otherwise provided in this Agreement, arbitration in accordance
with this Section 5 will be the sole and exclusive remedy of the
parties for any dispute arising over the release of Escrowed
Property from the Escrow hereunder.
6. PAYMENT OF REMAINING ESCROWED PROPERTY TO CBW
SHAREHOLDERS.
6.1 On Termination Date. On the Termination Date, the
Escrow Agent shall deliver to Elmer's and the Representative a
statement of the value (computed in accordance with Section 4.4
hereof) of the remaining balance of the Escrowed Property then
remaining in the Escrow Account, and the total amount of all
claims made pursuant to Section 4 or 5 hereof in connection with
the Escrow Account and not as of then resolved and paid (the
excess, if any, of such remaining balance in such Escrow Account
over the total amount of such claims against such Escrow Account
shall be referred to as the "Final Escrow Balance"). Elmer's and
the Representative each shall review the accuracy of the Final
Escrow Balance and notify the Escrow Agent and each other of any
asserted discrepancy or of the absence of any discrepancy within
ten (10) business days of receipt of the foregoing statement.
Upon the Escrow Agent's notification of no discrepancy by Elmer's
and the Representative within the ten (10) business day period
specified in the preceding sentence, then within twenty (20)
business days after receipt by Elmer's and the Representative of
such statement, the Escrow Agent shall deliver to each of the
Escrow Indemnitors an amount of the Escrowed Property
representing such Escrow Indemnitor's Pro Rata Share of the Final
Escrow Balance constituting Escrowed Property, free and clear of
the Escrow created by this Agreement. If either Elmer's or the
Representative notifies the Escrow Agent of a discrepancy, any
dispute with respect to such discrepancy shall be resolved by
mandatory binding arbitration as provided in Section 5. After
the last claim shall have been resolved pursuant to Sections 4
and 5 hereof and all Escrowed Property deliverable to Elmer's
upon the resolution of all such claims has been delivered to
Elmer's, the remaining balance, if any, of the Escrowed Property
shall be delivered by the Escrow Agent to each Escrow Indemnitor
pro rata, based on the Escrow Indemnitor's Pro Rata Share, free
and clear of the Escrow created by this Agreement.
<PAGE>
6.2 Distribution of the Escrowed Property. All
distributions of Escrowed Property to the Escrow Indemnitors, to
be made by the Escrow Agent under this Section shall be made so
that each Escrow Indemnitor receives his or her Pro Rata Share of
the total amount of each type of property (principally Elmer's
Common Stock) constituting the Escrowed Property held in the
Escrow immediately before such distribution.
6.3 Delivery Methods. Delivery of Escrowed Property
by the Escrow Agent shall be by registered mail or by nationally
recognized overnight courier. The Escrow Agent shall not be
responsible for obtaining insurance in connection with such
delivery.
6.4 Power to Transfer Escrow Shares and Distributions.
The Escrow Agent is hereby granted the power to effect any
transfer of Escrowed Property permitted or required by this
Agreement in accordance with its terms.
7. FEES AND EXPENSES OF ESCROW AGENT AND REPRESENTATIVE.
7.1 Representative. Elmer's shall pay the fees of the
Escrow Agent, based on an hourly rate of $200 per hour, for the
services to be rendered by the Escrow Agent hereunder, provided,
however, that any extraordinary fees and expenses referred to in
Section 7.3 below, including, without limitation, any fees or
expenses incurred by the Escrow Agent in connection with a
dispute over the distribution of Escrowed Property will be paid
fifty percent (50%) by Elmer's and fifty percent (50%) by the
Escrow Indemnitors.
7.2 Representative. The Representative will not be
entitled to receive any compensation from Elmer's in connection
with this Agreement; however, the Escrow Indemnitors shall
indemnify and promptly reimburse the Representative for all
reasonable expenses actually incurred by the Representative in
connection with the performance of his duties hereunder
(including, but not limited to, all losses, costs and expenses
which the Representative may incur as a result of involvement in
any legal proceedings arising from the performance of his duties
hereunder) pro rata according to the Escrow Indemnitors'
respective Pro Rata Shares. Elmer's shall not have any
obligation to reimburse the Representative for any expenses
whatsoever.
<PAGE>
7.3 Escrow Agent's Extraordinary Fees. Elmer's and
the Representative hereby acknowledge that all fees and usual
charges for services of the Escrow Agent hereunder shall be
considered compensation for ordinary services as contemplated by
this Agreement. In the event that the Escrow Agent renders any
service not provided for in this Agreement, or if the parties
hereto request a substantial modification of the terms of this
Agreement, or if any controversy arises and the Escrow Agent is
made a party to any litigation pertaining to this Agreement or
its subject matter, then the Escrow Agent shall be reasonably
compensated for such extraordinary services and reimbursed for
all reasonable costs, attorney's fees and expenses incurred by
the Escrow Agent in rendering such extraordinary services, which
costs, fees and expenses shall be borne by Elmer's and the Escrow
Indemnitors as provided in Section 7.1 above.
8. LIABILITY AND AUTHORITY OF REPRESENTATIVE;
SUCCESSORS AND ASSIGNEES.
8.1 Limits on Liability. The Representative shall
incur no liability with respect to any action taken or suffered
by him in his capacity as Representative in reliance upon any
note, direction, instruction, consent, statement or other
documents believed by him to be genuinely and duly authorized,
nor for other action or inaction except his own willful
misconduct or gross negligence. The Representative may, in all
questions arising under this Escrow Agreement, rely on the advice
of counsel, and for anything done, omitted or suffered in good
faith by the Representative based on such advice, the
Representative shall not be liable to anyone.
8.2 Successor Representatives. In the event of the
death or permanent disability of the Representative, or the
resignation of Representative as the representative of the Escrow
Indemnitors hereunder, a successor Representative shall be
elected by a majority vote of the Escrow Indemnitors, with each
such Escrow Indemnitor (or his or her successors or assigns) to
be given a weighted vote based on such Escrow Indemnitor's
Pro Rata Share. Each successor Representative shall have all of
the power, authority, rights and privileges conferred by this
Agreement upon the original Representative, and the term
"Representative" as used herein shall be deemed to include each
successor Representative. Unless and until the Escrow Agent
receives written notice from all of the Escrow Indemnitors
identifying a new representative, the Escrow Agent shall at all
times be entitled to assume that the Representative set forth in
this Agreement is the Representative hereunder. Upon receipt of
such written notice, the Escrow Agent shall be fully protected
and not be held liable for any instructions received by the new
representative of the Escrow Indemnitors.
<PAGE>
8.3 Authority of Representative. The Representative
shall have full power and authority to represent the Escrow
Indemnitors and their successors with respect to all matters
arising under this Agreement or related to the subject matter
hereof and all actions taken by the Representative hereunder
shall be binding upon each and all of the Escrow Indemnitors and
their successors, as if expressly confirmed and ratified in
writing by each of them. Without limiting the generality of the
foregoing, the Representative shall have full power and authority
to interpret all of the terms and provisions of this Agreement,
to compromise and settle any claims asserted hereunder and to
authorize payments to be made with respect thereto, on behalf of
the Escrow Indemnitors and their successors. The Escrow
Indemnitors (with respect to the Escrowed Property, in their
capacity as Escrow Indemnitors) have consented to the appointment
of the Representative as representative of the Escrow Indemnitors
(with respect to the Escrowed Property, in their capacity as
Escrow Indemnitors) and as the attorney-in-fact and agent for and
on behalf of each Escrow Indemnitor for the purposes of taking
actions and executing agreements and documents on behalf of any
of the Escrow Indemnitors as provided in this Agreement, and,
subject to the express limitations set forth below, the taking by
the Representative of any and all actions and the making of any
decisions required or permitted to be taken by him under this
Agreement, including, but not limited to, the exercise of the
power to authorize delivery to Elmer's of Escrowed Property and
to take all actions necessary in the judgment of the
Representative for the accomplishment of the foregoing and all of
the other terms, conditions and limitations of this Agreement.
The Representative will have unlimited authority and power to act
on behalf of each Escrow Indemnitor with respect to this
Agreement and the disposition, settlement or other handling of
all claims, rights or obligations arising under this Agreement
with respect to Escrowed Property so long as all Escrow
Indemnitors are treated in the same manner (unless the Escrow
Indemnitors otherwise consent). The Escrow Indemnitors will be
bound by all actions taken by the Representative in connection
with this Agreement, and Elmer's will be entitled to rely on any
action or decision of the Representative.
9. LIMITATION OF ESCROW AGENT'S RESPONSIBILITY AND
LIABILITY.
9.1 Limitation of Responsibility. The Escrow Agent's
duties are limited to those set forth in this Agreement, and the
Escrow Agent, acting as such under this Agreement, is not charged
with knowledge of or any duties or responsibilities under any
other document or agreement, including, without limitation, the
Merger Agreement. The Escrow Agent may execute any of its powers
or responsibilities hereunder and exercise any rights hereunder
either directly or by or through its agents or attorneys.
Nothing in this Escrow Agreement will be deemed to impose upon
the Escrow Agent any duty to qualify to do business or to act as
a fiduciary or otherwise in any jurisdiction. The Escrow Agent
will not be responsible for, and will not be under a duty to
examine into or pass upon, the validity, binding effect,
execution or sufficiency of this Escrow Agreement or of any
agreement mandatory or supplemental hereto.
<PAGE>
9.2 Limitation of Liability. The Escrow Agent will
incur no liability with respect to any action taken, not taken or
suffered by it in reliance upon any notice, direction, instruc
tion, consent, statement or other document believed by it to be
genuine and duly authorized, including, without limitation,
directions from any arbitrator selected in accordance with
Section 5.3, nor for any other action or inaction, except its own
willful misconduct or gross negligence. In all questions arising
under this Agreement, the Escrow Agent may rely on the advice of
counsel, and for anything done, omitted or suffered in good faith
by the Escrow Agent based on such advice, the Escrow Agent will
not be liable to anyone. The Escrow Agent will not be required
to take any action hereunder involving any expense unless the
payment of such expense is made or provided for in a manner
satisfactory to it. The Escrow Agent will not be liable for any
action taken or omitted to be taken by it in good faith unless a
court of competent jurisdiction determines that the Escrow
Agent's willful misconduct or gross negligence was the cause of
any loss to Elmer's, the Representative, any Escrow Indemnitor.
The Escrow Agent makes no representation or warranty with respect
to, and is not responsible for the validity of, the Escrow
Shares. The Escrow Agent is not responsible for the receipt of
any dividend or other distribution on behalf of any Escrow
Indemnitor or for the voting of or exercise of any other rights
with respect to the Escrow Shares. The Escrow Agent will have no
duty to solicit the delivery of any Escrowed Property. The
Escrow Agent will have no obligation with respect to the Escrowed
Property other than either to withhold the release of Escrowed
Property to the Escrow Indemnitors or to release Escrowed
Property to Elmer's, as the case may be, to the extent expressly
provided in this Agreement. The Escrow Agent will have no
obligations with respect to the investment of any cash that
becomes Escrowed Property except as expressly provided in
Section 3. Any dispute which may arise with respect to the
payment or ownership or right of possession of all or any part of
the Escrow or the Escrowed Property, or the duties of the Escrow
Agent hereunder, shall be settled pursuant to the provisions of
Section 5. The Escrow Agent shall be under no duty to institute
or defend any proceeding unless the subject of such proceeding is
part of its duties hereunder. In the event of any dispute
between the parties to this Escrow Agreement, or between any of
them and any other person, resulting in adverse claims or demands
being made upon any of the Escrow Property, or in the event that
Escrow Agent, in good faith, is in doubt as to what action it
should take hereunder, the Escrow Agent may, at its option, file
a suit as interpleader in a court of appropriate jurisdiction, or
refuse to comply with any claims or demands on it, or refuse to
take any other action hereunder, so long as such dispute shall
continue or such doubt shall exist. The Escrow Agent shall be
entitled to continue so to refrain from acting until (i) the
rights of all parties have been fully and finally adjudicated by
a court of appropriate jurisdiction or (ii) all differences and
doubt shall have been resolved by agreement among all of the
interested persons, and the Escrow Agent shall have been notified
thereof in writing signed by all such persons. The rights of the
Escrow Agent under this Section are cumulative of all other
rights which it may have by law or otherwise.
9.3 Indemnity. Elmer's and each of the Escrow
Indemnitors (each an "Indemnifying Party" and together the
"Indemnifying Parties"), each hereby jointly and severally
covenants and agrees to reimburse, indemnify and hold harmless
the Escrow Agent and its employees and agents from and against
any loss, damage or liability suffered, incurred by or asserted
against the Escrow Agent (including amounts paid in settlement of
any action, suit, proceeding, or claim brought or threatened to
be brought and including reasonable expenses of legal counsel)
arising out of, in connection with or based upon any act or
omission by the Escrow Agent relating in any way to this
Agreement or the Escrow Agent's services hereunder; provided,
however, that the liability of any Escrow Indemnitor shall be
limited to such Escrow Indemnitor's pro rata share of the
liability of all of the Escrow Indemnitors hereunder, based on
the number of shares of CBW stock held by such Escrow Indemnitor.
This indemnity will not apply to any such loss, damage or
liability arising from the gross negligence or willful misconduct
on the Escrow Agent's part. Anything in this Agreement to the
contrary notwithstanding, in no event will the Escrow Agent be
liable for special, indirect or consequential damage or loss of
any kind whatsoever (including but not limited to lost profits),
even if the Escrow Agent has been advised of the likelihood of
such loss or damage and regardless of the form of action.
<PAGE>
9.4 Participation in Defense of the Escrow Agent.
Each Indemnifying Party may participate at its own expense in the
defense of any claim or action that may be asserted against the
Escrow Agent, and if the Indemnifying Parties so elect, the
Indemnifying Parties may assume the defense of such claim or
action; provided, however, that if there exists a conflict of
interest that would make it inappropriate for the same counsel to
represent both the Escrow Agent and the Indemnifying Parties, the
Escrow Agent's retention of separate counsel will be reimbursable
as provided in Section 9.3. The Escrow Agent's right to
indemnification hereunder will survive the Escrow Agent's
resignation or removal as escrow agent hereunder and will survive
the termination of this Agreement by lapse of time or otherwise.
9.5 Notice of Claims against Escrow Agent. The Escrow
Agent will notify each Indemnifying Party by letter, or by
telephone or telecopy confirmed by letter sent U.S. first class
mail, registered or certified, of any receipt by the Escrow Agent
of a written assertion of a claim against the Escrow Agent
related to this Agreement, or any action commenced against the
Escrow Agent, within ten (10) business days after the Escrow
Agent's receipt of written notice of such claim. However, the
Escrow Agent's failure to so notify each Indemnifying Party will
not operate in any manner whatsoever to relieve an Indemnifying
Party from any liability that it may have otherwise than on
account of this Section 9. In the event the Escrow Agent fails
to so notify each Indemnifying Party and an Indemnifying Party is
prejudiced thereby, then such Indemnifying Party will not have
liability to Escrow Agent under this Section 9.
10. SUCCESSOR ESCROW AGENT. In the event the Escrow
Agent becomes unavailable or unwilling to continue in its
capacity herewith, the Escrow Agent may resign at any time and be
discharged from its duties or obligations hereunder by giving a
written resignation to the parties to this Escrow Agreement,
specifying not less than thirty (30) days prior written notice of
the date when such resignation shall take effect; provided,
however, that no such resignation shall become effective until
the appointment of a successor Escrow Agent and acceptance of
such appointment by such successor Escrow Agent. Elmer's may
appoint a successor Escrow Agent without the consent of the
Representative so long as such successor is a bank with assets of
at least Fifty Million Dollars ($50,000,000) which has no direct
depository or lending relationship with Elmer's and which is
qualified to do business in the State of Oregon, and may appoint
any other successor Escrow Agent with the consent of the Repre
sentative, which shall not be unreasonably withheld. If, within
such notice period, Elmer's provides to the Escrow Agent written
instructions with respect to the appointment of a successor
Escrow Agent in accordance with this Section 10 and directions
for the transfer of any Escrowed Property then held by the Escrow
Agent to such successor, the Escrow Agent shall act in accordance
with such instructions and promptly transfer such Escrowed
Property to such designated successor. If no successor Escrow
Agent is appointed within sixty (60) days of the date specified
for the Escrow Agent's resignation to take effect, the Escrow
Agent shall have the right to apply to a court of competent
jurisdiction for such appointment at the expense of Elmer's.
Each successor Escrow Agent shall execute and deliver an
instrument accepting such appointment and shall, without further
acts, be vested in all the estates, properties, rights, powers
and duties of the Escrow Agent or any other predecessor Escrow
Agent as if originally named as Escrow Agent hereunder.
<PAGE>
11. TERMINATION. This Agreement shall terminate upon the
earlier of (a) the Termination Date, or (b) the release by the
Escrow Agent of all of the Escrowed Property in accordance with
this Agreement. Notwithstanding any termination of this Escrow
Agreement, the provisions of Sections 7.1, 7.3 and 9.3 hereof
shall survive such termination and remain in full force and
effect.
12. NOTICES. All notices, requests, consents, and other
communications hereunder shall be in writing and shall be deemed
to have been properly given or made on the date personally
delivered or on the date mailed, by first class registered or
certified mail with postage prepaid, by private nationally
recognized courier service or by facsimile and confirmed, if
delivered, mailed, courier or facsimile to the respective parties
hereto at the following addresses:
If the Escrow Agent:
Ater Wynne, LLP
222 S.W. Columbia, Suite 1800
Portland, OR 97210
Attn: Jack W. Schifferdecker, Jr.
Facsimile No. (503) 226-0079
If to Elmer's, to:
Elmer's Restaurants, Inc.
11802 S.E. Stark St.
Portland, OR 97216
Attn: Bruce N. Davis
Facsimile No. (503) 257-7448
If to the Escrow Indemnitors and the Representative,
to:
William W. Service
c/o CBW Inc.
140 E. 5th Avenue, #A
Eugene, OR 97401
Facsimile No. (541) 465-3967
Any party hereto may designate a different address by
providing written notice of such new address to the other parties
hereto.
13. MISCELLANEOUS.
13.1 Governing Law; Assigns. This Agreement will be
governed by and construed in accordance with the internal laws of
the State of Oregon without regard to conflict-of-law principles
and will be binding upon, and inure to the benefit of, the
parties hereto and their respective successors and permitted
assigns.
13.2 Counterparts. This Agreement may be executed in
two or more counterparts, each of which will be deemed an
original, but all of which together will constitute one and the
same instrument.
13.3 Entire Agreement; Severability. Except as
otherwise set forth in the Merger Agreement, this Agreement
constitutes the entire understanding and agreement of the parties
with respect to the subject matter of this Agreement and
supersedes all prior agreements or understandings, written or
oral, between the parties with respect to the subject matter
hereof. If any provision of this Agreement is held to be illegal
or unenforceable by a tribunal of competent jurisdiction, then
such provision shall not be voided, but shall be deemed modified
to the extent necessary to make such provision lawful and
enforceable, and the other provisions of this Agreement shall
remain in full force and effect.
13.4 Waivers. No waiver by any party hereto of any
condition or of any breach of any provision of this Agreement
will be effective unless in writing. No waiver by any party of
any such condition or breach, in any one instance, will be deemed
to be a further or continuing waiver of any such condition or
breach or a waiver of any other condition or breach of any other
provision contained herein.
13.5 Amendment. This Agreement may be amended by the
written agreement of Elmer's, the Escrow Agent and the
Representative, provided that, if the Escrow Agent does not agree
to an amendment agreed upon by Elmer's and the Representative,
the Escrow Agent will resign (which resignation shall be
effective immediately and, in any event, prior to the effective
date of the amendment) and Elmer's will appoint a successor
Escrow Agent in accordance with Section 10 hereof. No such
amendment may treat any one Escrow Indemnitor differently from
the other Escrow Indemnitors unless consented to in writing by
Escrow Indemnitors having beneficial ownership in a majority of
the outstanding Escrowed Property, including the consent of any
Escrow Indemnitor who is to be treated differently.
[Remainder of Page Left Deliberately Blank]
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the day and year first above written.
ELMER'S: ELMER'S RESTAURANTS, INC.,
an Oregon corporation
By:__/s/_BRUCE N.
DAVIS___________________
Its:__PRESIDENT___________________________
ESCROW AGENT: ATER WYNNE LLP
By:___/s/_JACK W.
SCHIFFERDECKER_________
Jack W. Schifferdecker, Jr.,
Partner
REPRESENTATIVE: __/s/_WILLIAM W. SERVICE_________________
William W. Service
ESCROW INDEMNITORS: __/s/_BRUCE N.
DAVIS_____________________
Bruce N. Davis
__/s/_WILLIAM W.
SERVICE_________________
William W. Service
__/s/_GREGORY WENDT
_________________
Gregory Wendt
__/s/_LINDA E.
BOLTON____________________
Linda E. Bolton, Trustee Under
Restated Trust Agreement Dated
6/8/98
[Signatures Continued On Next Page]
<PAGE>
__/s/_CORDY
JENSEN_______________________
Cordy Jensen
__/s/_KEN N.
BOETTCHER___________________
Ken N. Boettcher
__/s/_KAREN
BROOKS_______________________
Karen Brooks
__/s/_THOMAS C.
CONNOR___________________
Thomas C. Connor
__/s/_DONALD
WOOLLEY_____________________
Donald Woolley
[SCHEDULE OMITTED]
4 0189544.01
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement') is
made and entered into this 18th day of February, 1999, by and
between ELMER'S RESTAURANTS, INC., an Oregon corporation (the
"Company"), and Bruce N. Davis, William W. Service, Gregory W.
Wendt, Donald W. Woolley, Thomas C. Connor, Linda Bolton, Cordy
Jensen, Ken N. Boettcher and Karen Brooks, shareholders
(collectively referred to herein as 'Holders') of CBW Inc.
('CBW').
Recitals:
A. The Company, CBW, and Holders are the parties to a
Merger Agreement, of even date herewith (the "Merger Agreement").
B. Pursuant to the Merger Agreement, the Company is
obligated to issue restricted shares ('Shares' or 'Registrable
Securities') of the Company's common stock to the Holders and
therefore desires to grant Holders certain registration rights
pursuant to this Agreement.
Agreements:
NOW, THEREFORE, in consideration of the foregoing and
the covenants of the parties contained in this Agreement, the
parties hereby agree as follows:
SECTION 1
Definitions
The following terms shall have the meanings indicated:
"Common Stock" means the Common Stock of the Company.
'Company' means the issuer and its successors and assigns.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and
regulations of the SEC thereunder, all as the same shall be in
effect from time to time.
"Initial Public Offering" means an initial public offering
of shares of Common Stock by the Company registered under the
Securities Act.
"Losses" means all losses, claims, damages or liabilities
and reasonable expenses related thereto.
<PAGE> Page 1 of 14
'Registrable Securities' shall mean each of the Shares,
until, in the case of any such Share, (i) it is effectively
registered under the Securities Act and disposed of in accordance
with the Registration Statement covering it, (ii) it is saleable
by the holder thereof pursuant to Rule 144(k), or (iii) it is
distributed to the public by the holder thereof pursuant to Rule
144; provided, however, that Registrable Shares shall not include
any Shares that are subject to a lockup agreement during the
period in which disposition of such Shares would violate the
terms of such lockup agreement.
'Registration', 'register' and like words mean compliance
with all of the laws, rules, regulations and provisions of
agreements and corporate documents pertaining to lawful and
unrestricted transfer of securities by way of a public offering
or distribution.
'Registration Statement' shall mean any Registration
Statement of the Company under the Securities Act that covers any
of the Registrable Securities pursuant to the provisions of this
Agreement, including the related Prospectus, all amendments and
supplements to such Registration Statement (including post-
effective amendments), all exhibits and all material incorporated
by reference or deemed to be incorporated by reference in such
Registration Statement.
"SEC" means the Securities and Exchange Commission, or any
other federal agency then administering the Securities Act.
"Securities Act" means the Securities Act of 1933, as
amended, or any similar federal statute, and the rules and
regulations of the SEC thereunder, all as the same shall be in
effect from time to time.
"Shares" means all shares of the Company's Common Stock,
restricted or otherwise, that will be issued to, and held by, the
Holders as a result of the merger.
'Underwritten registration' or 'underwritten offering'
shall
mean a sale of securities of the Company to an underwriter for
reoffering to the public pursuant to a Registration Statement.
SECTION 2
Acknowledgment of Rights
The Company will, upon request of Holders, acknowledge in
writing the Company's obligation in respect of the rights to
which Holders shall be entitled under this Agreement, provided,
that the failure of Holders to make any such request shall not
affect the continuing obligation of the Company to Holders in
respect of such rights.
<PAGE> Page 2 of 14
SECTION 3
Piggyback Registration
3.1 If at any time the Company proposes to register any
offering of shares of its capital stock under the Securities Act,
and if such registration is to be on a form of the SEC that may
include, or is at any time amended or changed to such a form that
may include the Shares (other than a registration solely to
implement an employee benefit plan or a transaction to which Rule
145, as promulgated under the Securities Act, is applicable), the
Company will at any such time give written notice to Holders of
its intention to do so at least thirty (30) days prior to the
filing of such Registration Statement. The Company will include
in any such Registration Statement any of the Registrable
Securities held by any Holder who within 20 days after receipt of
such notice shall request inclusion. Notwithstanding any other
provision of this Section 3, if the offering of shares by the
Company is underwritten and the representative of the
underwriters participating in the sale and distribution of the
Company's securities covered by such Registration Statement
advises the Company in writing that marketing factors require a
limitation on the number of shares to be underwritten, the
representative may exclude all Registrable Securities from, or
(subject to the limitations set forth below) limit the number of
Registrable Securities to be included in, the registration and
underwriting.
3.2 If the offering of shares by the Company is
underwritten and the representative of the underwriters
participating in the sale and distribution of the Company's
securities covered by such Registration Statement agrees that a
number of (but not all) the Registrable Securities (the
"Permissible Secondary Shares") may be included in the offering
covered by the Registration Statement, the Company's notice shall
afford Holders an opportunity to elect to include in such
registration the Permissible Secondary Shares owned by it.
Holders shall have twenty (20) days after receipt of the
Company's notice to notify the Company in writing of the number
of Registrable Securities (the "Elected Shares") which Holders
elect to include in the offering and the Elected Shares shall be
included in the offering. If the aggregate number of Elected
Shares that Holders of Registrable Securities desire to include
in such filing exceeds the number of Permissible Secondary
Shares, then Holders shall be entitled to include that number of
Elected Shares that bears the same ratio to the number of
Permissible Secondary Shares as the number of Elected Shares
Holders desires to include bears to the number of Elected Shares
Holders and all such other Holders desire to include.
3.3 The inclusion in such registration of Elected Shares
shall be upon the condition that Holders sell its Elected Shares
to the underwriters at the same price and on substantially the
same terms and conditions as the Company and any other selling
shareholders.
SECTION 4
Holders Requirements
To include any Registrable Securities in any registration,
Holders shall:
<PAGE> Page 3 of 14
4.1 Cooperate with the Company in preparing each such
registration and execute all such instruments and agreements
(including, without limitation, questionnaires, powers of
attorney, indemnities, and underwriting agreements) as the
underwriter may deem reasonably necessary in favor of such
underwriter;
4.2 Promptly supply the Company with all information,
documents, representations and agreements as the underwriter may
deem reasonably necessary in connection with such registration;
4.3 Agree in writing not to sell or transfer any share of
the capital stock of the Company not included in such
registration for a period of fifteen (15) days prior to and one
hundred eighty (180) days after the effective date of such
registration without the underwriter's consent;
4.4 Not (until further notice) effect sales of Shares after
receipt of written notice from the Company to suspend sales to
permit the Company to correct or update any Registration
Statement or prospectus; and
4.5 At the end of any period during which the Company is
obligated to keep any Registration Statement current and
effective, discontinue sales of Shares pursuant to such
Registration Statement upon receipt of notice from the Company of
its intention to remove from registration Shares covered by such
Registration Statement which remain unsold and shall notify the
Company of the number of Shares registered which remain unsold
promptly after receipt of such notice from the Company.
SECTION 5
Other Registration Rights
The Company will not grant to any persons the right to
request the Company to register any equity securities of the
Company, or any securities convertible or exchangeable into or
exercisable for such securities, unless such rights of other
persons are pari passu with the rights of Holders hereunder, or
subordinate and subsequent to such rights, without the written
consent of Holders.
SECTION 6
Registration Procedures
If and whenever the Company is obligated by the provisions
of this Agreement to effect the registration of any offering of
Registrable Securities under the Securities Act, as expeditiously
as reasonably possible the Company will, or will use its best
efforts to, as the case may be:
<PAGE> Page 4 of 14
6.1 Prepare and file with the SEC a Registration Statement
with respect to such Registrable Securities and, if the Board of
Directors of the Company shall so direct, cause such Registration
Statement to become effective; provided, however, that the
Company may, in exercising reasonable discretion, discontinue any
registration of its securities which is being effected pursuant
hereto at any time prior to the effective date of the
Registration Statement relating thereto.
6.2 Prepare and file with the SEC such amendments and
supplements to such Registration Statement and the prospectus
used in connection therewith as may be necessary to keep such
Registration Statement effective until the earlier of the sale of
all shares of Common Stock covered thereby and the expiration of
a period of two hundred seventy (270) days after its effective
date, and comply with the provisions of the Securities Act with
respect to the disposition of all shares of Common Stock covered
by such Registration Statement; provided, however, that if
maintaining the effectiveness of the Registration Statement would
require the filing of a post-effective amendment including new
financial statements (other than financial statements which the
Company would be required to include in a current report on Form
10-Q under Section 13 or 15(d) of the Exchange Act), the Company
shall be obligated hereunder to use its best efforts to maintain
the effectiveness of the Registration Statement for only six (6)
months in the case of the first registration filed hereunder, and
ninety (90) days in the case of any other registration filed
hereunder. In the event that any shares of Common Stock included
in a Registration Statement subject to, or required by, this
Agreement remain unsold at the end of the period during which the
Company is obligated to use its best efforts to maintain the
effectiveness of such Registration Statement, the Company, if and
when a further amendment or supplement would be required to
comply with Section 10 of the Securities Act, may file a post-
effective amendment to the Registration Statement for the purpose
of removing such shares from registered status.
6.3 Furnish to Holders so many copies of a prospectus,
including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents, as
Holders may reasonably request.
6.4 Register or qualify the securities covered by such
Registration Statement under such other securities or blue sky
laws of such jurisdictions as Holders may reasonably request, and
do any and all other acts and things that may be reasonably
necessary or advisable to enable Holders to consummate the
disposition in such jurisdictions of such Shares; provided,
however, that the Company shall not be obligated, by reason
thereof, to qualify as a foreign corporation or file any general
consent to service of process under the laws of any such
jurisdiction or subject itself to taxation as doing business in
any such jurisdiction.
6.5 Furnish to Holders, at the time of disposition, an
opinion of counsel for the Company to the effect that a
Registration Statement covering the offering of its Shares has
been filed with the SEC under the Securities Act and has been
made effective by order of the SEC, that a prospectus complying
as to form with the requirements of the Securities Act is
available for delivery, that no stop order has been issued by the
SEC suspending the effectiveness of such Registration Statement
and that, to the best of such counsel's knowledge,
<PAGE> Page 5 of 14
no proceedings for the issuance of such a stop order are
threatened or contemplated, and that the securities included in
the offering covered by such Registration Statement have been
registered or qualified, or exempted from such registration or
qualification, under the securities or blue sky laws of each
state in which the Company has been required to register or
qualify such shares as contemplated in this Section 6. In giving
such opinion, counsel for the Company shall be entitled to rely
upon the opinion of counsel for the underwriters.
6.6 Notify Holders and its counsel promptly after the
Company shall receive notice that any Registration Statement,
supplement or amendment has become effective, any Registration
Statement is required to be amended or supplemented, or any stop
order with respect thereto has been issued.
6.7 Enter into such agreements (including an underwriting
agreement in form, scope and substance as is customary in
underwritten offerings) and take all such other actions in
connection therewith (including those reasonably requested by the
representative of the underwriters or the Holders of a majority
of the Registrable Securities subject to the Registration
Statement) in order reasonably to expedite or facilitate the
disposition of the Registrable Securities.
SECTION 7
Registration Expenses
The costs and expenses (other than underwriting discounts or
commissions, stock transfer taxes and such fees for counsel,
printing, registration and other fees as state securities
officials may require that the Holders of Registrable Securities
pay) of all registrations and qualifications under the Securities
Act contemplated by this Agreement, and of all other actions that
the Company is required to take or effect pursuant to this
Agreement, shall be paid by the Company (including, without
limitation, all registration and filing fees, printing expenses,
costs of special audits incident to or required by any such
registration, fees and disbursements of counsel for the Company
and reasonable fees and disbursements of one special counsel
acting for the Holders of Registrable Securities being included
in any registration), except that all such expenses in connection
with any amendment or supplement to the Registration Statement or
the prospectus used in connection therewith required to be filed
more than two hundred seventy (270) days after the date on which
such Registration Statement becomes effective under the
Securities Act because any Holders has not effected the
disposition of Registrable Securities covered by such
Registration Statement shall be borne pro rata by such Holders.
SECTION 8
Indemnification by Company
In the event of any registration under the Securities Act of
any offering of Registrable Securities, the Company hereby agrees
to indemnify and hold harmless Holders, its officers
<PAGE> Page 6 of 14
and directors, if any, and each other person, if any, who
controls Holders (within the meaning of 'control person' as
defined in the Securities Act) and each other person (including
each underwriter, and each other person, if any, who controls
such underwriter) who participates in the offering of such
Registrable Securities against any Losses, joint or several, to
which Holders or such controlling person or participating person
may become subject under the Securities Act or otherwise, insofar
as such Losses (or proceedings in respect thereof) arise out of
or are based upon any untrue statement or alleged untrue
statement of any material fact contained, on the effective date
thereof, in any Registration Statement under which Registrable
Securities were registered under the Securities Act, in any
preliminary prospectus or final prospectus contained therein, or
in any amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse Holders
and each such controlling person or participating person for any
legal or other expenses reasonably incurred by Holders or such
controlling person or participating person in connection with
investigating or defending any such Loss; provided, that the
Company will not be liable in any such case to the extent that
any such Loss arises out of or is based upon an untrue statement
or alleged untrue statement or omission or alleged omission made
in such Registration Statement, such preliminary or final
prospectus or such amendment or supplement in reliance upon and
in conformity with written information furnished by Holders or
such controlling or participating person, as the case may be,
specifically for use in the preparation thereof. The Company
shall also indemnify underwriters, selling brokers, dealer
managers and similar securities industry professionals
participating in the distribution, their officers, directors,
agents and employees and each person who controls such persons
(within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act) to the same extent as provided
above with respect to the indemnification of Holders.
SECTION 9
Indemnification by Holders of Registrable Securities
In the event of any registration under the Securities Act of
any offering of Registrable Securities, Holders hereby agree to
indemnify and hold harmless the Company, each other Holders of
Registrable Securities and each other person, if any, who
controls the Company within the meaning of the Securities Act and
each other person (including each underwriter, and each other
person, if any, who controls such underwriter) who participates
in the offering of such Registrable Securities against any
Losses, joint or several, to which the Company, such Holders or
controlling person or
<PAGE> Page 7 of 14
participating person may become subject under the Securities Act
or otherwise, insofar as such Losses (or proceedings in respect
thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained, on the
effective date thereof, in any Registration Statement under which
an offering of such Registrable Securities was registered under
the Securities Act, in any preliminary prospectus or final
prospectus contained therein, or in any amendment or supplement
thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, and will reimburse the Company, such other Holders
and each such controlling person or participating person for any
legal or other expenses reasonably incurred by the Company, such
other Holders or such controlling person or participating person
in connection with investigating or defending any such Loss or
proceeding; provided, that Holders will be liable in any such
case to the extent, and only to the extent, that any such Loss
arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in such
Registration Statement, such preliminary or final prospectus or
such amendment or supplement in reliance upon and in conformity
with written information furnished by Holders specifically for
use in the preparation thereof. The Company shall be entitled to
receive indemnities from underwriters, selling brokers, dealer
managers and similar securities industry professionals
participating in the distribution to the same extent as provided
above with respect to information so furnished in writing by such
persons specifically for inclusion in any Registration Statement
or prospectus.
SECTION 10
Conduct of Indemnification Proceedings
If any action or proceeding (including any governmental
investigation or inquiry) shall be brought or any claim shall be
asserted against any person entitled to indemnity hereunder (an
"indemnified party"), such indemnified party shall promptly
notify the party from which such indemnity is sought (the
"indemnifying party") in writing, and the indemnifying party
shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to the indemnified party and the
payment of all fees and expenses reasonably incurred in
connection with the defense thereof. Any such fees and expenses
borne by the indemnified party (including any fees and expenses
reasonably incurred in connection with investigating or preparing
to defend such action or proceeding) shall be paid to the
indemnified party, as incurred, within fifteen (15) days of
written notice thereof to the indemnifying party (regardless of
whether it is ultimately determined that an indemnified party is
not entitled to indemnification hereunder). Any such indemnified
party shall have the right to employ separate counsel in any such
action, claim or proceeding and to participate in the defense
thereof, but the fees and expenses of such counsel shall be the
expenses of such indemnified party unless (i) the indemnifying
party has agreed to pay such fees and expenses or (ii) the
indemnifying party shall have failed to promptly assume the
defense of such action, claim or proceeding or (iii) the named
parties to any such action, claim or proceeding (including any
impleaded parties) include both such indemnified party and the
indemnifying party, and such indemnified party shall have been
advised by counsel in writing that there may be one or more legal
defenses available to it which are different from or in addition
to those available to the indemnifying party and that the
assertion of such defenses would create a conflict of interest
such that counsel employed by the indemnifying party could not
faithfully represent the indemnified party (in which case, if
such indemnified party notifies the indemnifying party in writing
that it elects to employ separate counsel at the expense of the
indemnifying party, the indemnifying party shall not have the
right to assume the defense of such action, claim or proceeding
on behalf of such indemnified party, it being understood,
however, that the indemnifying party shall not, in connection
with any one such action, claim or proceeding or separate but
substantially similar or related actions, claims or proceedings
in the same
<PAGE> Page 8 of 14
jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of
more than one separate firm of attorneys (together with
appropriate local counsel) at any time for all such indemnified
parties, unless such indemnified party shall have been advised by
counsel in writing that a conflict of interest may exist between
such indemnified party and any other of such indemnified parties
with respect to such action, claim or proceeding, in which event
the indemnifying party shall be obligated to pay the fees and
expenses of such additional counsel or counsels). The
indemnifying party shall not be liable for any settlement of any
such action or proceeding effected without its written consent.
SECTION 11
Contribution
If the indemnification provided for in this Agreement is
unavailable to an indemnified party under Section 8 or 9 hereof
(other than by reason of exceptions provided in those Sections)
in respect of any Losses, then each applicable indemnifying party
in lieu of indemnifying such indemnified party shall contribute
to the amount paid or payable by such indemnified party as a
result of such Losses, in such proportion as is appropriate to
reflect the relative fault of the indemnifying party and
indemnified parties in connection with the actions, statements or
omissions which resulted in such Losses as well as any other
relevant equitable considerations. The relative fault of such
indemnifying party and the indemnified party shall be determined
by reference to, among other things, whether any action in
question, including any untrue statement or alleged untrue
statement of a material fact or omission or alleged omission of a
material fact, has been taken or made by, or relates to
information supplied by, such indemnifying party or indemnified
party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action,
statement or omission. The amount paid or payable by a party as
a result of any Losses shall be deemed to include, subject to the
limitations set forth in Section 10, any legal or other fees or
expenses reasonably incurred by such party in connection with any
action, suit, claim, investigation or proceeding.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 11 were
determined by pro rata allocation or by any other method of
allocation which does not take into account the equitable
considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section 11, an
indemnifying party which is a selling Holders of Registrable
Securities shall not be required to contribute any amount in
excess of the amount by which the total price at which the
Registrable Securities sold by such indemnifying party and
distributed to the public were offered to the public exceeds the
amount of any damages which such indemnifying party has otherwise
been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f)
of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
<PAGE> Page 9 of 14
SECTION 12
General Provisions
12.1 With a view to making available to each Holder where
applicable the benefit of Rule 144 promulgated under the Act
(which term as used herein includes the present Rule 144 and any
other, additional, substitute, supplemental, or analogous rule or
regulation of the SEC which may at any time permit a Holder to
sell securities to the public exempt from registration), the
Company agrees (i) if the Company's securities have been
registered under Section 12 or Section 15 of the Securities
Exchange Act of 1934, as amended, and such registration is not
then withdrawn or suspended, to file with the SEC in a timely
manner all reports and other documents required to be filed by an
issuer of securities registered under the Securities Exchange Act
of 1934, as amended, so as to maintain the availability of
Rule 144 to the Holders; (ii) at its expense, forthwith upon any
Holder's request, to deliver to any Holder a certificate, signed
by one of the Company's principal officers, stating (A) the
Company's name, address and telephone number (including area
code), (B) the Company's Internal Revenue Service identification
number, (C) the Company's Securities and Exchange Commission file
number, (D) the number of shares of Common Stock outstanding as
shown by the most recent report or statement published by the
Company, (E) whether the Company has filed the reports required
to be filed under the Securities Exchange Act of 1934, as
amended, for a period of at least 90 days prior to the date of
such certificate and in addition has filed the most recent annual
report required to be filed thereunder and (F) such other or
additional information as shall be necessary to make available to
the Holder the ability to offer and sell the maximum number of
shares under Rule 144; and (iii) when Rule 144 is being complied
with or the holding period for unaffiliated security holders
shall have expired, to deliver securities not bearing any legend
restricting transfer of such securities (to the extent then
permitted by rules or interpretations of the staff of the SEC),
as may be requested from time to time by any Holder.
<PAGE> Page 10 of 14
12.2 The Shares shall not be transferred, and the Company
shall not be required to register any transfer of the Shares on
the books of the Company, unless the Company shall have been
provided with an opinion of counsel satisfactory to it prior to
such transfer that registration under the Securities Act and
applicable state securities laws is not required in connection
with the transaction resulting in such transfer; provided,
however, that no such opinion of counsel shall be required in
order to effectuate a transfer pursuant to an effective
registration of the Shares. Each certificate issued upon any
transfer of the Shares transferred as above provided shall bear
an appropriate investment legend, except that such certificate
shall not bear such restrictive legend if the opinion of counsel
referred to above is to the further effect that such legend is
not required in order to establish compliance with the provisions
of the Securities Act or if such transfer is made in accordance
with the provisions of Rule 144 promulgated under the Securities
Act. The registration rights described in this Agreement shall
immediately terminate as to those Shares which are transferred by
the Holder except for transfers (i) to immediate family members,
which shall mean lineal descendants of the Holder, (ii) to other
Holders or their permitted transferees, or (iii) of more than
50,000 Shares to any transferee.
12.3 Except to the extent expressly provided in this
Agreement, notices under this Agreement shall be in writing and
shall be effective when actually delivered or three business days
after being deposited in the United States Mails, certified,
return receipt requested, directed to the other party at the
address set forth below, or to such other address as either party
may indicate by written notice to the other party:
If to the Company:
Elmer's Restaurants, Inc.
11802 SE Stark St.
Portland, OR 97216
Attention: Juanita Nelson
[This space intentionally left blank]
<PAGE> Page 11 of 14
If to Holders:
Bruce N. Davis
William W. Service
140 E. 5th Street, Suite A
Eugene, Oregon 97401
Cordy Jensen
27 East Fifth
Eugene, Oregon 97401
Gregory W. Wendt
2547 Lyon Street
San Francisco, California 94123
Karen Brooks
88725 Skyhigh Drive
Springfield, Oregon 97408
Linda Bolton
1754 Coburg Road, #230
Eugene Oregon 97401
Ken N. Boettcher
292 West Twelfth
Eugene, Oregon 97401
Donald W. Woolley
1275 Barber Drive
Eugene, Oregon 97405
Thomas C. Connor
4040 Sunridge
Eugene, Oregon 97405
12.4 This Agreement constitutes the entire agreement between
the parties pertaining to the subject matter hereof, supersedes
any and all prior or contemporaneous agreements or undertakings
of the parties pertaining to the subject matter hereof. Neither
this Agreement, nor any term hereof, may be amended, waived,
discharged, or terminated, except by written instrument signed by
the Company and the Holders of at least 50 percent (50%) of the
Registrable Securities and any such amendment, waiver, discharge,
or termination shall be binding on all the Holders, but in no
event shall the obligation of any Holder hereunder by materially
increased, except upon the written consent of such Holder.
12.5 If any term or provision of this Agreement or the
application thereof to any party or circumstance shall to any
extent be invalid or unenforceable, the remainder of this
Agreement and the application of such term or provision to such
parties or circumstances other than those as to which it is held
invalid or unenforceable shall not be affected thereby, and
<PAGE> Page 12 of 14
each term or provision of this Agreement shall be valid and
enforceable to the fullest extent permitted by law.
12.6 Failure of either party at any time to require
performance of any provision of this Agreement shall not limit
such party's right to enforce such provision, nor shall any
waiver of any breach of any provision of this Agreement
constitute a waiver of such provision itself. Any waiver of any
provision of this Agreement shall be effective only if set forth
in writing and signed by the party to be bound.
12.7 The headings in this Agreement are for convenience of
reference only and shall have no effect whatsoever on the
construction or interpretation of any provision of this
Agreement. All provisions of this Agreement have been negotiated
at arms length and this Agreement shall not be construed for or
against any party by reason of the authorship or alleged
authorship of any provision hereof.
12.8 This Agreement may be executed in counterparts, all of
which shall constitute one and the same agreement.
12.9 This Agreement shall be governed by and construed in
accordance with the laws of the State of Oregon.
IN WITNESS WHEREOF, the parties hereto have executed this
Registration Rights Agreement as of the day and year first above
written.
The Company: ELMER'S RESTAURANTS, INC., an
Oregon corporation
By:_/s/__Bruce N. Davis_____
Bruce N. Davis
President
Holders:
_/s/__Bruce N. Davis______________
Bruce N. Davis
_/s/_Cordy Jensen_________________
Cordy Jensen
_/s/_William W. Service___________
William W. Service
<PAGE> Page 13 of 14
_/s/_Gregory W. Wendt_____________
Gregory W. Wendt
_/s/_Karen K. Brooks______________
Karen Brooks
_/s/_Donald W. Woolley____________
Donald W. Woolley
_/s/_Thomas C. Connor_____________
Thomas C. Connor
_/s/_Linda E. Bolton______________
Linda Bolton
_/s/_Ken N. Boettcher_____________
Ken N. Boettcher
<PAGE> Page 14 of 14
[LETTERHEAD]
VEBER PARTNERS
Confidential
January 13, 1999
The Board of Directors
Elmer's Restaurants, Inc.
11802 SE Stark St.
Portland, OR 97216-0595
Gentlemen:
You have requested our opinion as to the fairness from a
financial point of view to the stockholders of Elmer's
Restaurants, Inc., ("Elmer's" or the "Company") of the
consideration to be paid by the Company in connection with the
proposed merger of Elmer's with and into CBW, Inc., ("CBW") (the
"Proposed Transaction". Upon consummation of the Proposed
Transaction, Elmer's will issue to the stockholders of CBW
825,000 shares of Elmer's common stock for 100% of the shares of
CBW common stock.
Veber Partners LLC ("Veber"), as part of its investment banking
services, is regularly engaged in the valuation of businesses and
their securities in connection with mergers and acquisitions,
strategic transactions, corporate restructurings, private
placements and valuations for corporate and other purposes.
In the past, we have provided financial advisory services to CBW
and have received fees for rendering these services. Veber may
in the future provide investment banking or other financial
advisory services to Elmer's.
In connection with our review of the Proposed Transaction, and in
arriving at our opinion, we have, among other things:
(i) reviewed the publicly available financial statements of
Elmer's for recent years and interim periods to date
and certain other relevant financial and operating data
of Elmer's made available to us from published sources;
(ii) discussed the business, financial condition and
prospects of Elmer's with certain of its officers;
(iii) reviewed historical financial statements of CBW for
recent periods with recasting adjustments made to this
data by CBW management and certain other relevant
financial and operating data of CBW made available to
us, including financial forecasts prepared by CBW
management;
(iv) discussed the business, financial condition and
prospects of CBW with certain management, including
Bruce Davis, Bill Service, and Mike Chamberlain;
<PAGE> Page 1 of 3
(v) visited certain of the CBW stores located the Eugene,
OR area.
(vi) reviewed historical share price and trading activity of
Elmer's common stock and analyzed the pro forma impact
of the Proposed Transaction on earnings per share,
consolidated capital and other financial ratios of
Elmer's;
(vii) reviewed and discussed with management of Elmer's and
CBW, the strategic benefits accruing to Elmer's from
the Proposed Transaction;
(viii) reviewed the financial information presented by CBW
management and compared such information with similar
information for certain other companies engaged in
businesses we consider comparable;
(ix) reviewed the financial terms, to the extent publicly
available, of comparable merger and acquisition
transactions;
(x) considered the value of the option held by CBW to
purchase Grass Valley Limited, Inc., (Grass Valley"),
and therefore performed a review of Grass Valley as
outlined below;
a. reviewed historical financial statements of Grass
Valley for recent periods and certain other
relevant financial and operating data of Grass
Valley made available to us, including financial
forecasts prepared by CBW management;
b. discussed the business, financial condition and
prospects of Grass Valley with certain management
including Bruce Davis, Bill Service, Richard
Buckley, and Gary Weeks;
c. reviewed the financial information presented by
CBW management on Grass Valley and compared such
information with similar information for certain
other companies engaged in businesses we consider
comparable;
d. reviewed the financial terms, to the extent
publicly available, of certain comparable merger
and acquisition transactions;
e. visited certain of the Grass Valley stores located
in the Portland, OR area.
(xi) reviewed the draft merger agreement contained in the
package dated as of December 23, 1998, among CBW and
Elmer's and the related exhibits and schedules;
(xii) discussed the tax and accounting treatment of the
Proposed Transaction with Elmer's and Elmer's public
accountants; and
(xiii) performed such other analyses and examinations
(including discounted cash flow analyses) and
considered such other information, financial studies,
analyses and investigations and financial, economic and
market data as we deemed relevant.
In rendering our opinion, we have assumed and relied upon the
accuracy and completeness of all of the information provided to
us concerning Elmer's, CBW, and Grass Valley considered in
connection with our review of the Proposed Transaction, and we
have not assumed any responsibility for
<PAGE> Page 2 of 3
independent verification of such information or any independent
valuation or appraisal of any of the assets or liabilities of
Elmer's, CBW, or Grass Valley nor have we conducted a
comprehensive physical inspection of the properties and
facilities of any of these companies. For purposes of this
Opinion, we have assumed that neither Elmer's nor CBW is a party
to any pending transactions, including material merger
discussions, other than the Proposed Transaction and those
activities undertaken in the ordinary course of conducting their
respective businesses. Our opinion is necessarily based upon
market, economic, financial and other conditions as they exist
and can be evaluated as of the date of this letter and any change
in such conditions would require a reevaluation of this opinion.
In connection with the preparation of this opinion, we have not
been authorized by the Company or its Board of Directors to
solicit, nor have we solicited, third party indications of value
for the acquisition of all or any part of CBW. We were retained
by the Board of Directors of the Company and our opinion as
expressed herein is limited to the fairness, from a financial
point of view, to the Company's stockholders, of the Proposed
Transaction and does not address the Company's underlying
business decision to proceed with the Proposed Transaction. This
letter does not constitute a recommendation to any Board of
Directors member or stockholder of the Company as to how such
Board of Directors member or stockholder should vote on the
Proposed Transaction.
We express no opinion as to the price at which the shares of
Elmer's will trade after the announcement or consummation of the
Proposed Transaction.
It is understood that this letter is for the information of the
Board of Directors of the Company and may not be summarized or
publicly referred to without our prior written consent, provided,
however, that this letter may be reproduced, discussed or
summarized in any SEC filing made by Elmer's with respect to the
transaction contemplated by the Agreement.
Our professional fees for the advisory services that have been
provided to the Board of Directors of Elmer's are not contingent
upon the opinion expressed herein, and neither Veber nor any of
its employees has a present or intended financial interest in the
Company, CBW, or Grass Valley.
Based upon and subject to the foregoing and after considering
such other matters as we deem relevant, we are of the opinion
that as of the date hereof the consideration to be paid by
Elmer's in the Proposed Transaction is fair, from a financial
point of view, to the holders of the Company's stock.
Very truly yours,
VEBER PARTNERS LLC
/s/ Gayle L. Veber
Gayle L. Veber, Managing Partner
<PAGE> Page 3 of 3
