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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended: December 31, 1996
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________to __________
COMMISSION FILE NUMBER: 0 - 25836
PORTLAND BREWING COMPANY
(Name of small business issuer in its charter)
OREGON 93-0865997
State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2730 NW 31ST AVENUE, PORTLAND, OREGON 97210
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (503)226-7623
SECURITIES REGISTERED UNDER SECTION 12(B) OF THE EXCHANGE ACT: NONE
SECURITIES REGISTERED UNDER SECTION 12(G) OF THE EXCHANGE ACT:
COMMON STOCK, NO PAR VALUE
(Title of Class)
_______________
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past
90 days: Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB, or any amendment to this Form 10-KSB. [X]
Revenues for the year ended December 31, 1996: $12,866,563
State the aggregate market value of the voting stock held by
non-affiliates: Not Applicable, the Registrant's stock has no established
trading market.
The number of shares outstanding of the Registrant's Common Stock as of
February 28, 1997 was 2,074,943 shares.
The index to exhibits appears on page 19 of this document.
Transitional Small Business Disclosure Format (check one): Yes X No
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PORTLAND BREWING COMPANY
1996 FORM 10-KSB ANNUAL REPORT
TABLE OF CONTENTS
PART I
Page
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Item 6. Description of Business 2
Item 7. Description of Property 7
Item 8. Directors, Executive Officers and Significant Employees 8
Item 9. Remuneration of Directors and Officers 10
Item 10. Security Ownership of Management and Certain
Security-Holders 12
Item 11. Interest of Management and Others in Certain Transactions 15
PART II
Item 1. Market Price of and Dividends on the Registrant's Common
Equity and Other Shareholder Matters 17
Item 2. Legal Proceedings 17
Item 3. Changes in and Disagreements with Accountants 17
Item 4. Submission of Matters to a Vote of Security-Holders 17
Item 5. Compliance with Section 16(a) of the Exchange Act 17
Item 6. Reports on Form 8-K 17
PART F/S
Index to Financial Statements 18
PART III
Item 1. Index to Exhibits 19
Item 2. Description of Exhibits 19
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PART I
ITEM 6. DESCRIPTION OF BUSINESS
GENERAL
The Company was incorporated in Oregon on November 14, 1983. The Company
was formed to brew and sell specialty beer (i.e., beer which is made in
relatively small batches and which now generally sells at retail prices in
excess of $6.00 per six-pack). The Company's award-winning product line
includes the following primary or core brands: MacTarnahan's Amber Ale,
Oregon Honey Beer, Wheat Berry Brew, Haystack Black Porter, Bavarian Style
Weizen and Zig Zag River Lager; seasonal beers including Icicle Creek Winter
Ale, Malarkey's Wild Irish Ale; Portland Summer Pale Ale; Uncle Otto's
Harvest Oktoberfest and specialty products including Oatmeal Stout and
Highlander Ale. The Company uses distributors to sell principally to the
packaged/bottle market through authorized retail outlets and the on-premise
draft market through establishments licensed to serve alcoholic beverages.
The Company primarily serves its home market of Oregon, the western United
States and the midwestern United States.
The Company opened its first brewery in January 1986 at 1339 NW Flanders
Street in Portland, Oregon. In March 1986 a pub was added which allows
customers to view various stages of the brewing process. In July 1996 the
Company completed an expansion of the Flanders Street Brewpub which
significantly increased the restaurant area of the pub. The Company opened a
second brewery in June 1993 located at 2730 NW 31st Avenue in Portland, which
initially more than doubled its annual production capacity to approximately
26,000 barrels. Subsequent equipment additions and expansion have increased
capacity to approximately 135,000 barrels per year. In July 1994, a
restaurant, The BrewHouse Taproom & Grill, was constructed at the main
brewery and opened to the public.
INDUSTRY OVERVIEW
NATIONAL BEER INDUSTRY. Between 1934 and 1990 beer consumption in the US
climbed steadily. Since 1990 the market has remained virtually stagnant.
(SEE FOOTNOTE 1) Throughout this period of little or no growth in
consumption, the number of specialty beer breweries has grown from 200 to
1,080 (SEE FOOTNOTE 3). Breweries, large and small, face heightened
competition with one another for market share.
The large national breweries (Anheuser-Busch, Miller Brewing Co., Adolph
Coors Brewing Co. and The Stroh Brewery Company) continue to dominate the
U.S. market with approximately an 89% market share. Import sales occupy
approximately 7% (SEE FOOTNOTE 2) of the U.S. market. The specialty beer
industry comprises approximately 3% (SEE FOOTNOTE 3) of the U.S. market. All
other breweries make up the remainder of the U.S. market. Total domestic beer
sales (including sales of imports) increased an estimated 1.0% in 1996 and
decreased 1.1% in 1995. (SEE FOOTNOTE 3) The larger breweries have increased
efforts to compete with smaller regional breweries.
SPECIALTY BEER INDUSTRY--NATIONAL The Institute for Brewing Studies defines
the specialty brewing industry as microbreweries, brew pubs, contract brewing
companies and regional breweries that began as microbreweries. A large
brewery sells more than 500,000 barrels per year. A regional brewery sells
between 15,000 and 500,000 barrels per year. Portland Brewing Company is a
regional specialty brewer. Microbreweries are defined as selling less than
15,000 barrels per year. Brewpubs sell a minimum of 50% of their beer on
premise with the beer being brewed on location. Contract brewers brew beer
using their own recipe and ingredients at another brewery's facilities. The
specialty segment of the beer industry continues to grow. The number of
microbreweries, brewpubs and regional specialty brewers had grown to 1,080 at
the end of 1996, from 803 at the beginning of 1995. (SEE FOOTNOTE 3).
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The compound annual growth rate in the specialty beer industry is
estimated to be approximately 15% from 1996 to 2001. In 1996, the specialty
beer market's share of the total beer market was near 3%. In 2001, the
specialty beer market share is expected to reach approximately 6%. (SEE
FOOTNOTE 3)
The Company believes the slowed growth rate is due to intense competition
created by the proliferation of new brands. As smaller breweries open up
across the country, the larger regional breweries are finding it harder to
enter new markets where consumers are inclined to purchase locally produced
beer.
SPECIALTY BEER INDUSTRY--PACIFIC NORTHWEST. Since 1985, Oregon has been at
the center of the national specialty beer resurgence. Sales of specialty
beers in Oregon increased by 13% and 31% in 1996 and 1995, respectively.
Sales of specialty beer in Oregon accounted for nearly a 10% market share in
1996 and a 9% market share in 1995. (SEE FOOTNOTE 4) Oregon and Washington
are considered mature markets in the U.S. specialty beer segment.
Consequently, growth in this segment will be much more difficult in these two
states.
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Footnotes:
(1) Barron's BREWING STORM, October 28, 1996.
(2) The Maxwell Consumer Report, January 17, 1997.
(3) Beverage Marketing, U.S. Specialty Beer and Microbrewery Markets, 1996
Edition, December 1996.
(4) Oregon Liquor Control Commission's December 31, 1996 figures for beer
sales in Oregon.
The information referenced in footnotes (1) through (4) above has not been
independently verified by the Company.
_____________
PRODUCTS
The Company offers a wide variety of specialty beers. The complete product
line includes core or primary brands, which are available year-round; a
rotating selection of seasonal brands, and specialty products which are
available only on draft. Draft product (kegs) accounted for approximately 45%
and 42% of the Company's beer shipments in 1996 and 1995, respectively.
The Company's core brands include:
MACTARNAHAN'S AMBER ALE. MacTarnahan's Amber Ale is a complex,
copper-colored Scottish style ale of great character made with pale and
caramel malts and Cascade hops, and is available in draft, 12 oz. and 22 oz.
packages.
OREGON HONEY BEER. Oregon Honey Beer is a pale light-bodied ale made with
two-row barley malt, Oregon clover honey, and Nugget and Willamette hops, and
is available in draft, 12 oz. and 22 oz. packages.
WHEAT BERRY BREW. To the traditional malted barley, hops, and yeast is
added a judicious amount of malted wheat and the natural essence of
marionberries. This combination creates Wheat Berry Brew, which is available
in draft, 12 oz. and 22 oz. packages.
HAYSTACK BLACK PORTER. Haystack Black contains a balance of domestic
pale, caramel and black malts, enhanced with imported English chocolate malt,
and is available in draft, 12 oz. and 22 oz. packages.
ZIG ZAG RIVER LAGER. Zig Zag River Lager is a full bodied, bottom
fermented lager with a slight malty sweetness and subtle hop presence,
available in draft and 12 oz. packages.
BAVARIAN STYLE WEIZEN. Bavarian Style Weizen is a true Bavarian weizen
using the distinctive weizen yeast which provides a light golden spicy beer,
available in draft and 12 oz. packages
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The Company's seasonal brands (all available in draft and 12 oz. packages)
include:
ICICLE CREEK WINTER ALE. The color of old Mahogany, this seasonal ale is
the result of a blend of pale and dark specialty malts well balanced with
Galena and aromatic Saaz hops, and is offered from November through January.
MALARKEY'S WILD IRISH ALE. This dark brown ale is made with a blend of
Munich, Crystal and peated malts, balanced with Northern Brewer and Mt. Hood
hops, and is offered in February and March.
PORTLAND SUMMER PALE ALE. A modified recipe of the founders' original is a
clean medium-bodied pale ale, brewed with two-row barley malt and a blend of
Nugget and Cascade hops, and is offered from April through August.
UNCLE OTTO'S HARVEST OKTOBERFEST. This beer is created using a blend of
pale and select specialty malts, spiced with Northern Brewer and Bohemian
Saaz hops, and is offered in September and October.
The Company's current specialty products include the Flanders Street
Originals Line:
OATMEAL STOUT. The Company's heartiest brew blends the flavor of pale,
crystal and black malts, balanced with the subtle aroma of Styrian Golding
hops and a small addition of oatmeal, and is available in draft only.
HIGHLANDER ALE. Highlander Ale is full bodied and hoppy, with caramel
malts, and is available in draft only.
RESTAURANTS
The Company operates two restaurants in Portland, The Brewhouse Taproom and
Grill and The Flanders Street Brewpub. The Brewhouse Taproom and Grill has an
atmosphere of a tasting room and restaurant and is upscale in comparison to
other brewpubs in the region. The Flanders Street Brewpub is located at the
site of the Company's original brewery and has been in continuous operation
for more than ten years. In the summer of 1996, adjacent space was acquired
and the pub was enlarged by more than twofold in order to add a full service
kitchen and dining room.
MARKETING AND SALES
The Company primarily uses licensed beer distributors to sell to and
service on- and off-premise accounts in specific geographic territories.
These distributors maintain broad distribution in the Company's home market
of Oregon and the Western states, and as capacity allows, may expand
distribution into selected high-potential markets outside the West. The
expansion of the Company's production capacity has permitted the addition of
new distributors. The Company presently uses approximately 159 distributors
throughout the western and midwestern United States. The Company continues to
increase its staff of sales representatives to promote its products and
augment its distributors' efforts. The Company presently employs 12 sales
representatives based in the following areas; five in Oregon, four in
California, one in Washington, one in Illinois, and one in Minnesota.
The Company's marketing plan for 1997 is focused on increasing sales,
volume and profitability in an increasingly competitive environment, and
capitalizing on its expanded capacity at its main brewery. The Company has
developed and is introducing new products targeted to both wholesalers and
consumers. They include "Flanders Street Originals", a line of specialty
draft-only products, named after the Company's original brewery, which appeal
to the sophisticated specialty beer consumer. The Company also plans to
continue its seasonal line of products such as Malarkey's Wild Irish Ale,
Portland Summer Pale Ale, Uncle Otto's Harvest Oktoberfest and Icicle Creek
Winter Ale. The Company intends to increase its consumer marketing efforts
through advertising focused on breaking through the beer marketing clutter.
The Company plans to emphasize
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brands that are strong in each of its specific regions, including new sales
regions such as the midwestern U.S., and to increase the Portland Brewing
Company identity as well as individual brand names. Additionally, the Company
plans to continue to participate in selected sports, music, charitable and
community activities which offer opportunities for introduction of the
Company and sampling of its products.
TRADEMARKS
The Company has initiated a program to obtain United States trademark
registrations for its key bottled brands. The Company owns federal trademark
registrations for the OREGON HONEY BEER label design and the MACTARNAHAN'S
label design. In addition, it owns a federal Supplemental Register
registration for the brand name MACTARNAHAN'S. The Company has pending
applications for federal registration of the brand names OREGON HONEY BEER
and HAYSTACK BLACK, and for the mark PORTLAND BREWING. To the best of the
Company's knowledge, it has the right to use these marks on a nationwide
basis in connection with malt beverages.
The Company has long maintained a practice of registering its brand names
as trademarks in the State of Oregon. It owns Oregon registrations for
numerous marks, including the brand names HAYSTACK BLACK, BAVARIAN STYLE
WEIZEN, WHEAT BERRY BREW, UNCLE OTTO'S OKTOBERFEST, PORTLAND ALE and
MALARKEY'S WILD IRISH ALE. In addition, the Company owns state registrations
in California, Washington and Colorado for key brand names. To the best of
the Company's knowledge, it has the right to use the brand name of each of
its current products in the areas where those products are currently
distributed.
COMPETITION
The specialty brewing industry experienced significant change in 1996.
Growth rates slowed, distribution opportunities became limited and more
players entered the specialty brewing category of the U.S. beer market.
IMPACT OF LARGE DOMESTIC BREWERS. The largest domestic brewers are
competing with the specialty brewing industry. The large domestic brewers
have made equity investments in specialty brewers, have created new brands
meant to compete with specialty breweries, and have attempted to restrict
distribution of competing products through incentives with their
distributors. These competitive actions have had a significant impact on the
specialty brewing industry.
NEW ENTRANTS INTO THE SPECIALTY BEER CATEGORY. Despite the increased
activities of large domestic brewers and disappointing financial performance
by the largest specialty brewers, the rate of entry into the specialty beer
segment did not slacken in 1996. An estimated 277 new micro breweries and
brew pubs opened in 1996 (SEE FOOTNOTE A). The Company believes that this
category saturation will make growth more difficult for existing regional
specialty brewers in the next year or two. The Company believes that
competition affecting its growth will likely come from national breweries,
national specialty breweries, larger regional specialty breweries with
aggressive mass marketing capabilities, and small micro breweries and brew
pubs which have strong local appeal.
DECREASED GROWTH RATES. The specialty beer segment grew at an estimated
28% in 1996 compared to the 50% growth rate of the past two years (SEE
FOOTNOTE B). As a result of the increased competition from large domestic
breweries and the niche marketing of new entrants into the specialty beer
segment, existing specialty breweries saw growth rates in 1996 that were well
below expectations. Competition among specialty brewers is intensifying. The
Company believes that in order to meet financial obligations and shareholder
expectations, publicly held specialty brewers are likely to undertake
aggressive sales and marketing strategies to increase sales and gain market
share.
INDUSTRY CONSOLIDATION. The Company believes that the recent specialty
beer market developments mentioned above are potential indicators of industry
consolidation, and that survival in the short term may mean price
discounting, solidifying distribution and increasing sales and marketing
efforts. Further, the Company believes
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that survival in the long term may mean consolidation to overcome
distribution challenges and deteriorating economics.
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Footnotes:
(A) Beverage Marketing Corp., New York, February 6, 1997.
(B) Beverage Marketing, U.S. Specialty Beer and Microbrewery Markets, 1996
Edition, December 1996.
The information referenced in footnotes (A) and (B) above has not been
independently verified by the Company.
_____________
GOVERNMENTAL REGULATION
The production and sale of alcoholic beverages is subject to extensive
regulation by the Federal Bureau of Alcohol, Tobacco and Firearms and
individual states' alcoholic beverage regulatory agencies.
LICENSE DESCRIPTION. The Company operates with two Brewpub licenses which
allow sales off-premise as well as through up to four retail outlets. The
Company operates two restaurants; one at each of its breweries.
TAXES. The Company pays a federal excise tax (FET) of $7.00 per barrel on
all production. This tax increases to $18.00 per barrel on production above
60,000 barrels per year. In addition, the Company pays an Oregon excise tax
of $2.60 per barrel and a Washington excise tax of $4.78 per barrel on beer
sold in those states. In other states, similar excise taxes are levied on
the distributor. Increases in either the Federal or State excise taxes would
inevitably raise the price of beer, which may adversely affect sales.
DRAM SHOP LIABILITY. The Oregon Supreme Court has held that the serving
of alcoholic beverages to a person known to be intoxicated may, under certain
circumstances, result in the server being held liable to third parties for
injuries caused by the intoxicated customer. The Company serves beer and
wine to its customers at its pub and restaurant. If an intoxicated customer
is served wine or beer and subsequently commits a tort such as causing an
automobile accident, the Company may be held liable for damages to the
injured person or persons. The Company has obtained host liquor liability
insurance coverage and will continue such coverage if available at a
reasonable cost. However, future increases in insurance premiums may make it
prohibitive for the Company to maintain adequate insurance coverage. A large
damage award against the Company, not adequately covered by insurance, would
adversely affect the Company's financial position.
RESEARCH AND DEVELOPMENT
The Company had minimal research and development expenditures in 1996 and
1995, and had no customer sponsored research and development activities
during such periods. However, the Company does, from time to time, develop
new products at its original brewery. Such products are sold to retail
customers and, accordingly, associated development costs are expensed as cost
of goods sold.
EMPLOYEES
As of December 31, 1996, the Company had 124 employees (106 full time),
including 32 in brewing, bottling and shipping operations, 63 in retail
operations, 13 in administration and 16 in sales and marketing. None of the
employees are covered by collective bargaining agreements. The Company
provides its full-time employees with health, dental and life insurance,
short and long term disability, and a 401(k) plan. Employees are also
eligible for bonuses from the Company's Restated Cash Incentive Plan whereby
up to 10% of the Company's annual net operating income before taxes is
allocated among employees in accordance with the provisions of the plan as
administered by the Company's board of directors. No bonuses were awarded in
1996. The Company believes its employee relations are good.
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CONCENTRATIONS OF RISK
GEOGRAPHICAL AND DISTRIBUTOR CONCENTRATION. In 1996, wholesale
distributors accounted for 94% of total shipments, of which 35% were to
Oregon distributors. The Company's largest distributor, Columbia Distributing
Company of Portland, Oregon, distributes the Company's products in Oregon and
accounted for approximately 16% of 1996 revenues. The next largest
distributor accounted for approximately 3% of the Company's total revenues
for the same period. Distribution agreements generally grant exclusive
territories to distributors. Distribution agreements and applicable state
laws generally limit the ability of the Company to terminate such agreements.
The Company's distributors also market and distribute competing brands. While
the Company believes it has strong relationships with most of its
distributors, the Company can give no assurance that each of its distributors
will continue to effectively market and distribute the Company's beer.
Because state liquor laws and/or standard contractual provisions generally
limit the Company's ability to terminate a distribution agreement, the
Company can give no assurance that a distributor for any given geographic
area could be replaced without cost or replaced immediately, either
temporarily or permanently, in the event the distributor was performing
poorly in its efforts to distribute the Company's products or was otherwise
unable to perform (e.g. as a result of an employee strike or damage caused by
fire or natural disaster). The Company's inability to replace a
non-performing or poorly performing distributor in a timely fashion and/or
with minimal cost could have a significant adverse effect on the Company's
results of operations, particularly if the distributor were Columbia
Distributing Company, the Company's largest distributor.
INCREASED COMPETITION AND SATURATION IN THE SPECIALTY BEER INDUSTRY. SEE
"COMPETITION" ABOVE. Increased competition and the proliferation of brands in
the specialty beer industry has had and may continue to have an adverse
effect on the Company's business, financial condition and results of
operations. There can be no assurance that the specialty beer industry will
experience growth, will not experience a downturn or that any downturn will
not be severe. The Company's future success will depend upon its ability to
continue to build brand awareness and increase sales and profits.
OPERATING HAZARDS. The Company's operations, and the brewing industry in
general, are subject to certain hazards such as contamination of brews by
micro-organisms and risk of equipment failure. The Company's products are not
heat pasteurized, irradiated or chemically treated. The Company has product
liability insurance that it believes is adequate to cover risks of
contamination to third-parties. There can be no assurance that such insurance
will continue to be available at a price or on other terms satisfactory to
the Company. The Company carries business interruption insurance to cover
against insured losses to equipment from direct physical damage.
ITEM 7. DESCRIPTION OF PROPERTY
The Company's original brewery is located at 1339 NW Flanders Street in
Portland, Oregon and is leased by the Company. It has approximately 2,500
square feet of manufacturing, shipping and warehouse space and 4,600 feet of
restaurant space, which the Company expanded in 1996. The Company's original
brewery produces lower volume specialty brews and serves as a pilot brewery
for new product development. The original brewery lease expires in 1999, with
three consecutive three-year renewal options. The current monthly rent is
$4,950 plus property taxes, insurance and maintenance, with adjustments for
inflation or changes in fair market rental.
The Company's main brewery, located at 2730 NW 31st Avenue in Portland,
showcases the copper brewing vessels and equipment acquired in 1991 from the
Sixenbrau brewery in Nordlingen, Germany. When it opened in June, 1993, the
new brewery initially more than doubled the Company's annual production
capacity to 26,000 barrels and has a present capacity of approximately
135,000 barrels. The new brewery has 27,000 square feet of manufacturing,
shipping and warehouse space with a 1,000 square foot, three-story brewhouse
(to display the copper brewing vessels), and 3,000 square feet of offices.
Also included is a 3,000 square foot restaurant, The Brewhouse Taproom &
Grill, complete with an outdoor seating area. The new brewery lease is for a
15 year term which commenced June 15, 1993. The current monthly rent is
$22,060 plus property taxes, insurance and maintenance, with adjustments for
inflation or changes in fair market rental value at the beginning of the
sixth and eleventh years. SEE ITEM 11 BELOW.
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By sublease dated January 26, 1995, the Company commenced subleasing
approximately 10,025 square feet of expansion space at a building adjoining
the new brewery located at 2750 NW 31st Avenue in Portland, Oregon. The
initial term expires March 31, 1999, with one five year renewal option. Base
rent is $3,307 per month, plus a share of taxes and operating expenses. An
option agreement has been entered into with the owner of the building, L & L
Land Co. (L & L), which entitles the Company to an option to purchase the
building for $1,100,000 plus an amount, for improvements to the building
consisting of the construction of a shipping dock. In 1996, the Company and L
& L paid approximately $400,000, split equally, for the construction of a
shipping dock. The purchase option expires on December 31, 1998. SEE ITEM
11 BELOW.
Commencing April 15, 1995, the Company began leasing, from an unrelated
third party, approximately 2,700 square feet of additional office space, at a
monthly rent of $1,760. The current lease expires April 30, 1997, and has
been renewed for an additional year, through April 30, 1998. This office
space is used for accounting and other administrative functions.
ITEM 8. DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
DIRECTORS. The following lists the persons currently serving as directors
and nominated by the Board of Directors to be elected as directors, along
with certain information. The term of office for each person elected as a
director continues until the next Annual Meeting of Shareholders and until a
successor has been elected and qualified.
NAME OF NOMINEE AGE
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Charles A. (Tony) Adams 50
Edwin Hunt 74
Robert M. MacTarnahan 81
Simon C. Ostler 50
R. Scott MacTarnahan 50
Howard M. Wall, Jr. 51
CHARLES A. (TONY) ADAMS. Mr. Adams has been Chairman of the Board of
Directors and President of the Company since February 1992. He has been a
Director of the Company since October 1988. Mr. Adams is president of Electra
Partners, Inc., a private investment holding company. Mr. Adams was active
in the real estate business beginning in 1973, including owning and operating
his own real estate company until 1983, when he became a sales associate at
CB Commercial Real Estate Group, Inc., where he was employed until 1992. He
holds a B.A. in Geology from the University of Virginia and has studied
graduate level economics and business administration at the University of San
Francisco, Portland State University and Stanford University.
EDWIN HUNT. Mr. Hunt has been a Director since November 1993. Mr. Hunt is
the Chairman of Huntair, Inc., a company which manufactures air moving and
environmental systems for clean rooms. In September 1992, Mr. Hunt retired as
president of Brod & McClung-Pace Co., a manufacturer of high quality heating
and ventilating equipment as well as heat transfer equipment, where he had
been employed for 46 years.
SIMON C. OSTLER. Mr. Ostler has been a Director since October 1988. He
has been president of Systems Manufacturing Company, Inc., a manufacturer of
industrial finishing systems for more than five years. Mr. Ostler received a
C.O.P. from Greenmore College in England, in 1964.
ROBERT M. MACTARNAHAN. Mr. MacTarnahan has been a Director since July
1985. Mr. MacTarnahan has been a partner in Harmer Company and Black Lake
Investments for more than five years. Mr. MacTarnahan has been the president
of Honeyman Aluminum Products Company, a manufacturer of hand trucks for the
beverage industry, for more than 10 years. He is also active in the promotion
of the Company and the Company's
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MacTarnahan's Amber Ale is named after him. (See "Interest of Management and
Others in Certain Transactions") Mr. R. Scott MacTarnahan is his son.
R. SCOTT MACTARNAHAN. Mr. MacTarnahan has been a Director since July
1985. He has been vice president and general manager of Honeyman Aluminum
Products Company and Harmer Company for more than 10 years. Mr. MacTarnahan
received a B.S. in Business Administration from Portland State University in
1968. Mr. Robert M. MacTarnahan is his father.
HOWARD M. WALL, JR. Mr. Wall has been a Director of the Company since
October 1992. Since 1984 he has been the president and chief executive
officer of Portco Corporation, a Vancouver, Washington manufacturer of paper
and plastic flexible packaging for the produce, fish, and roofing industries.
He has had a long association with the Northwest hop industry, as Portco
developed the world's only biodegradable paper hop string. Mr. Wall received
a B.A. in English from the University of Oregon in 1973.
EXECUTIVE OFFICERS. The following lists the names, ages and positions of
the Company's executive officers, at December 31, 1996, along with certain
other information. The Company's officers are elected by the Board of
Directors at its annual meeting, and hold office until the next annual
meeting of the Board of Directors and until their successors are elected and
qualified.
NAME AGE POSITION(S) WITH COMPANY
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Charles A. (Tony) Adams 50 Chairman of the Board, President
Frederick L. Bowman 52 Vice President
Glenmore James 42 Vice President , Chief Financial Officer,
Treasurer and Secretary
G. Eugene Clark 51 Vice President, Sales and Marketing
For information on the business background of Mr. Adams, see "Directors"
above.
FREDERICK L. BOWMAN. Mr. Bowman is a founder of the Company and has been
Vice President since February 1992. Mr. Bowman serves as corporate liaison
to the beer industry and assists in marketing efforts including public
relations and the Company's distributor support program. He designed the
Company's original products and brewery. Previous to founding Portland
Brewing Company, Mr. Bowman was involved in the wholesale automotive industry
as both a technician and a district service manager. Mr. Bowman has attended
Portland State University, University of Oregon and Oregon State University.
In addition, Mr. Bowman attended the Brewing Microbiology and Microscopy
course at the Siebel Institute in 1988.
GLENMORE JAMES. Mr. James has been Vice President, Chief Financial
Officer and Treasurer since June 1994 and Secretary since September 1996. He
joined the Company full-time in April 1994. Prior to that, Mr. James acted as
a consultant to the Company. Mr. James is responsible for the financial and
operations departments of the Company. Mr. James has worked for fifteen years
in the Portland area business community, initially in financial accounting
management positions in various manufacturing and distribution companies and
more recently as an independent business consultant. Mr. James received his
ICSA certification in 1976 from Mid-Essex Technical College, England.
G. EUGENE CLARK. As of January 1, 1997, Mr. Clark was no longer employed
by the Company. Mr. Clark had been Vice President, Sales and Marketing since
July 1993.
9
<PAGE>
SIGNIFICANT EMPLOYEES. The names, ages and positions of the Company's
significant employees are as follows:
NAME AGE CURRENT POSITION WITH COMPANY
- ---- --- -----------------------------
Alan Kornhauser 46 Brewmaster
ALAN KORNHAUSER. Mr. Kornhauser joined the Company in December 1995 as
Brewmaster. He is responsible for the entire brewing process, from raw
materials to the finished product. Prior to joining the Company, Mr.
Kornhauser was Brewmaster for G. Heileman Brewing Company of Milwaukee,
Wisconsin and he also spent 18 years with Anchor Brewing Company in San
Francisco, California. Mr. Kornhauser has a B.A. degree from Beloit College
and has done post graduate work in Chemistry at the University of Rhode
Island.
ITEM 9. REMUNERATION OF DIRECTORS AND OFFICERS
a. Director and Officer Remuneration
Directors receive no cash compensation for serving on the Board of
Directors. Each Director, with the exception of Mr. Adams, has been granted
options under the Company's Non-Qualified Stock Option Plan ("NQSOP"). To
date, options to purchase 21,000 shares of the Company's Common Stock at
$5.3333 per share have been granted to Directors under the NQSOP. No options
were granted under the NQSOP in 1996.
In March 1996, the Company entered into a Memorandum of Agreement with one
of its Directors, Simon Ostler, under which Mr. Ostler provided consulting
services in connection with the expansion of the Company's Flanders Street
Pub, in Portland, Oregon. Mr. Ostler operates a separate consulting business,
is the owner of a restaurant in a different geographic market and has
substantial experience in the restaurant industry. Mr. Ostler's services
included consulting as to the scope of the project, design, menu, layout,
interior design and theme, in return for which Mr. Ostler was paid $13,300.
The Company believes that the terms and conditions of the Memorandum of
Agreement with Mr. Ostler were fair and reasonable and are no less favorable
to the Company than could be obtained from unaffiliated parties.
The following table and notes set forth information regarding all cash
compensation paid by the Company during the year ended December 31, 1996, to
each of the three most highly compensated officers and all officers as a
group.
CAPACITIES IN WHICH AGGREGATE
NAME REMUNERATION WAS RECEIVED REMUNERATION
---- ------------------------- ------------
Charles A. (Tony) Adams Chairman of the Board, President $ 86,204
Glenmore James Vice President, Chief Financial
Officer, Treasurer and Secretary $ 86,535
G. Eugene Clark Vice President, Sales and Marketing $ 98,562
All officers as a
group (4 persons) $323,267
Included in 1996 aggregate compensation amounts are matching amounts
contributed to the Company's 401k Plan of $1,912, $2,010 and $1,460, for
Messrs. Adams, Clark and James respectively. As of January 1, 1997, Mr. Clark
was no longer employed by the Company.
10
<PAGE>
b. Remuneration Plans
INCENTIVE STOCK OPTION PLAN. In October 1992, the shareholders of the
Company approved the Company's 1992 Incentive Stock Option Plan ("ISOP"). The
ISOP is administered by the Company's Board of Directors and provides for
grants to officers and employees of options to acquire up to 163,500 shares
of the Company's Common Stock, subject to the limitations set forth in the
ISOP. Pursuant to the ISOP, the granting of options is at the discretion of
the Board of Directors, and it has the authority to set the terms and
conditions of the options granted, including the option exercise price which
must be a price equal to at least 100% of the fair market value of the
subject shares of Common Stock at the time the option is granted. As of
December 31, 1996, options covering 141,500 shares of the Company's Common
Stock were outstanding under the ISOP.
RESTATED CASH INCENTIVE PLAN. The Company may award its officers and
employees, under its Restated Cash Incentive Plan ("CIP"), bonuses in an
amount up to 10 percent (10%) of net operating profits before taxes. Awards
under the plan will be allocated among the officers and employees in
accordance with the provisions of the plan at the discretion of the Board of
Directors. No amounts were awarded in 1996 under the Restated Cash Incentive
Plan.
NON-QUALIFIED STOCK OPTION PLAN. In August 1994, the Board of Directors
adopted the 1994 Non-Qualified Stock Option Plan ("NQSOP"). The NQSOP is
administered by the Board of Directors and provides for grants to officers,
employees, directors and consultants of options to acquire up to 45,000
shares of the Company's Common Stock at an exercise price of at least 85% of
the fair market value of the subject shares of Common Stock at the time the
option is granted. The granting of options is at the discretion of the Board
of Directors. As of December 31, 1996, options covering 21,000 shares of the
Company's Common Stock were outstanding under the NQSOP.
11
<PAGE>
ITEM 10. SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITY-HOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock of the Company as of February 28, 1997 as to (i)
each person who is known by the Company to own beneficially 10% or more of
the outstanding shares of the Company's Common Stock, (ii) each of the three
most highly compensated officers and (iii) all Directors and officers as a
group. Except as otherwise noted, the Company believes the persons listed
below have sole investment and voting power with respect to the Common Stock
owned by them.
NAME OF BENEFICIAL OWNER OR SHARES BENEFICIALLY OWNED (1)
NUMBER OF PERSONS IN GROUP -----------------------------
--------------------------- SHARES PERCENT
------ -------
Robert M. MacTarnahan (3) 296,043.75 13.9%
4670 SW Pacific Avenue
Beaverton, Oregon 97005
R. Scott MacTarnahan (4) 273,783.75 12.9%
4670 SW Pacific Avenue
Beaverton, Oregon 97005
Charles A. (Tony) Adams (2)(5) 282,228.75 13.1%
Glenmore James (2)(6) 19,500 *
G. Eugene Clark (8) -- --
All Officers and Directors,
as a group, (8 persons) (7) 700,467.50 31.2%
* Less than 1%
(1) Beneficial ownership includes voting power and investment power with
respect to shares and includes shares issuable upon the exercise of
outstanding stock options and warrants.
(2) The business address for these individuals is 2730 NW 31st Avenue,
Portland, Oregon 97210.
(3) Includes 22,860 shares owned individually by Mr. Robert M. MacTarnahan,
73,335 shares held by Black Lake Investments, 120,000 shares held by Harmer
Mill & Logging Supply Co., and 30,000 shares held by Harco Products, Inc.,
each of which is controlled by Mr. and Mrs. Robert M. MacTarnahan and Mr. R.
Scott MacTarnahan, 43,848.75 shares which may be purchased for $3.3333 per
share upon exercise of a warrant held by MacTarnahan Limited Partnership,
whose general partner is Harmer Mill & Logging Supply Co. and whose limited
partners are Mr. Robert M. MacTarnahan and Mrs. Ruth MacTarnahan, and 6,000
shares which may be purchased for $5.3333 per share upon exercise of a
non-qualified stock option held by Mr. Robert M. MacTarnahan. The
non-qualified options are immediately exercisable but are subject to
repurchase at the underlying exercise price by the Company if the optionee
ceases to provide service (as defined in the Company's 1994 Nonqualified
Stock Option Plan) to the Company during a three-year period following the
date of grant. The repurchase right expires as to one-third of the
nonqualified options shares on each anniversary of the date of grant. As of
February 28, 1997, options to purchase 2,000 shares of the Company's Common
Stock are subject to repurchase. The repurchase rights expire in August 1997.
12
<PAGE>
(4) Includes 73,335 shares held by Black Lake Investments, 120,000 shares
held by Harmer Mill & Logging Supply, Co., and 30,000 shares held by Harco
Products, Inc., each of which is controlled by Mr. Robert M. MacTarnahan and
Mr. R. Scott MacTarnahan, 600 shares held by Mr. R. Scott MacTarnahan's
spouse, 43,848.75 shares which may be purchased for $3.3333 per share upon
exercise of a warrant held by MacTarnahan Limited Partnership, whose general
partner is Harmer Mill & Logging Supply Co. and whose limited partners are
Mr. Robert M. MacTarnahan and Mrs. Ruth MacTarnahan and, 6,000 shares which
may be purchased for $5.3333 per share upon exercise of a non-qualified stock
option held by Mr. R. Scott MacTarnahan. The non-qualified options are
immediately exercisable but are subject to repurchase at the underlying
exercise price by the Company if the optionee ceases to provide service (as
defined in the Company's 1994 Nonqualified Stock Option Plan) to the Company
during a three-year period following the date of grant. The repurchase right
expires as to one-third of the nonqualified options shares on each
anniversary of the date of grant. As of February 28, 1997, options to
purchase 2,000 shares of the Company's Common Stock are subject to
repurchase. The repurchase rights expire in August 1997.
(5) Includes 60,000 shares owned individually by Mr. Adams, 180,300 shares
held by Electra Partners, Inc., an entity controlled by Mr. Adams, 21,030
shares held by Mr. Adams as Trustee of the Charles A. Adams Family Trust, 525
shares held by Mr. Adams' daughter and 525 shares held by Mr. Adams' son,
43,848.75 shares which may be purchased for $3.3333 upon exercise of a
warrant held by Electra Partners, Inc. and 36,000 shares which may be
purchased for $5.8666 per share upon exercise of an incentive stock option
held by Mr. Adams.
(6) Includes 12,000 and 6,000 shares which may be purchased for $5.3333 and
$7.00 per share, respectively, upon exercise of incentive stock options held
by Mr. James.
(7) Includes 83,000 shares which may be purchased for prices ranging from
$3.333 to $7.00 per share, upon exercise of stock options held by all
Directors and officers, as a group. Includes 43,848.75 shares which may be
purchased for $3.3333 per share upon exercise of a warrant held by
MacTarnahan Limited Partnership and 43,848.75 shares which may be purchased
for $3.3333 upon exercise of a warrant held by Electra Partners, Inc.
(8) As of January 1, 1997, Mr. Clark was no longer employed by the Company.
Mr. Clark owns 1,500 shares of Common Stock of the Company and may exercise
options to purchase 18,150 shares of Common Stock through April 1, 1997.
13
<PAGE>
The following table sets forth certain information regarding outstanding
options and warrants to purchase shares of Common Stock of the Company as of
February 28, 1997 as to (i) each person who is known by the Company to own
beneficially 10% or more of the outstanding shares of the Company's Common
Stock, (ii) each of the three most highly compensated officers and (iii) all
Directors and officers as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF COMMON
STOCK CALLED FOR BY DATE OF
NAME OF HOLDER OPTIONS AND WARRANTS EXERCISE PRICE EXERCISE
- -------------- -------------------------- -------------- --------
<S> <C> <C> <C>
MacTarnahan Limited
Partnership (1) 43,848.75 $3.333 (2)
Electra Partners, Inc. (1) 43,848.75 $3.333 (2)
Robert M. MacTarnahan 6,000 $5.333 (2)(7)
R. Scott MacTarnahan 6,000 $5.333 (2)(7)
Charles A. (Tony) Adams 36,000 $5.866 (3)
G. Eugene Clark -- -- (4)
Glenmore James 18,000 $5.333-$7.00 (5)
All Officers and Directors
as a Group, (8 persons) 214,197.5 $3.333-$7.00 (6)(7)
</TABLE>
(1) MacTarnahan Limited Partnership is an entity whose general
partner is Harmer Mill & Logging Supply Co. and whose limited
partners are Robert M. MacTarnahan and Ruth MacTarnahan. Electra
Partners, Inc. is an entity controlled by Mr. Adams.
(2) Options and Warrants are currently exercisable.
(3) As of February 28, 1997, options to purchase 20,250 shares of
Common Stock were exercisable. Options to purchase the remaining
15,750 shares of Common Stock become exercisable quarterly, and
will be fully exercisable in November 1998.
(4) As of January 1, 1997, Mr. Clark was no longer employed by the
Company. Mr. Clark may exercise options to purchase 18,150 shares
of Common Stock through April 1, 1997.
(5) As of February 28, 1997, options to purchase 6,600 shares of Common
Stock were exercisable. Options to purchase the remaining 11,400
shares of Common Stock become exercisable quarterly, and will be
fully exercisable as follows: 6,600 shares in November 1999, and
4,800 shares in January 2001.
(6) As of February 28, 1997, options to purchase 49,450 shares of
Common Stock were exercisable. Options to purchase the remaining
33,550 shares of Common Stock become exercisable quarterly, and
will be fully exercisable at various dates from July 1998 through
January 2001. As of February 28, 1997, warrants to purchase
87,697.5 shares of Common Stock were exercisable.
(7) Options to purchase shares of Common Stock granted under the
Company's NQSOP are immediately exercisable but are subject to
repurchase at the underlying exercise price by the Company if the
optionee ceases to provide service (as defined in the Company's
1994 Nonqualified Stock Option Plan) to the Company during a
three-year period following the date of grant. The repurchase
right expires as to one-third of the nonqualified option shares
on each anniversary of the date of grant. As of February 28, 1997
options to purchase 7,000 shares of the Company's Common Stock
are subject to repurchase. The repurchase rights expire in August
1997.
14
<PAGE>
ITEM 11. INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
LEASE AGREEMENT WITH PORTLAND BREWING BUILDING, L.L.C
In November 1992, the Company executed a triple net, 15 year lease (with
three five-year renewal options) with Portland Brewing Building Partners
("Brewing Partners"), which developed the Company's new brewery at 2730 NW
31st Avenue in Portland. Brewing Partners was an equal 50/50 partnership of
Electra Partners, Inc. ("Electra"), a company controlled by Mr. Adams, and
Harmer Mill & Logging Supply Co. ("Harmer"), a company controlled by Mr. and
Mrs. Robert M. MacTarnahan. In 1994 and 1995, Harmer assigned its partnership
interest to MacTarnahan Limited Partnership ("MLP"), whose general partner is
Harmer and whose limited partners are Robert M. MacTarnahan and Ruth
MacTarnahan. In 1995, Brewing Partners was dissolved and its assets,
including the new brewery, were distributed to Electra and MLP, its two
partners, in equal 50/50 shares. Immediately thereafter, Electra sold 24.8396
percent of the new brewery property to L & L Land Co., a general partnership
consisting of Howard M. Wall, a director of the Company, and his wife,
Patricia Wall; Electra retained its other 25.1604 percent interest in the new
brewery property. Immediately following this conveyance, the three owners of
the property (MLP, Electra and L & L Land Co.) contributed their collective
100 percent interest in the new brewery property to a new limited liability
company called Portland Brewing Building, L.L.C., with each contributor
receiving an interest in Portland Brewing Building, L.L.C. in the same
percentage as its previous ownership of the new brewery property (a 50
percent interest for MLP, a 25.1604 interest for Electra, and a 24.8396
percent interest for L & L Land Co.)
Monthly lease payments, which began June 15, 1993, are currently $22,060
plus property taxes, insurance and maintenance, with lease payments to be
adjusted at the beginning of the sixth and eleventh years to reflect the
greater of changes in the Consumer Price Index or 95% of fair market rental
value. The Company believes that the terms and conditions of its lease, as
amended, are fair and reasonable and are no less favorable to the Company
than could be obtained from unaffiliated parties. In connection with the
original negotiation of the lease in 1992 and as an inducement to provide
lease financing of approximately $900,000 of special purpose tenant
improvements, the Company granted Brewing Partners a warrant to purchase
87,697.5 shares of Common Stock. On December 28, 1995, the warrant was
divided equally between MacTarnahan Limited Partnership and Electra Partners,
Inc. The warrants are exercisable at any time through December 31, 2002, at
an exercise price of $3.333 per share.
LEASE AGREEMENT WITH L & L LAND CO.
In January 1995, the Company entered into a sublease of approximately
10,025 square feet of space (the "sublease") located in the building commonly
known as 2750 N.W. 31st Avenue, Portland, Oregon (the "Adjacent Building").
The Adjacent Building was owned by an unrelated third party and was leased to
Power Transmission Products, Inc., who executed the sublease in favor of the
Company. The Adjacent Building includes a total of approximately 23,000
square feet of improved space. The term of the sublease expires March 31,
1999.
In December 1995, L & L Land Co. (also appearing of record as L & L Land)
acquired the Adjacent Building. L & L Land Co. is a general partnership
between Howard M. Wall, a director of the Company, and his wife, Patricia
Wall. In acquiring the Adjacent Building, L & L Land Co. also became the
landlord under the lease to Power Transmission Products, Inc.
Contemporaneously with the acquisition of the Adjacent Building, L & L
Land Co. executed an agreement with the Company dated December 28, 1995,
entitled Option to Purchase and Agreement and Option to Lease (the "Option
Agreement") pursuant to which (a) L & L Land Co. granted to the Company the
exclusive and irrevocable right and option to acquire the Adjacent Building,
at the election of the Company to be exercised by written notice of election
given no later than December 31, 1998, in which event the Company would
acquire the Adjacent Building from L & L Land Co. for a total purchase price
of $1,100,000 (the amount paid by L & L Land Co. to acquire the Adjacent
Building), plus the amount, up to $200,000, paid by L & L Land Co. for the
improvements described below, (b) L & L Land Co. granted to the Company the
right and option to lease the entirety of the Adjacent Building if the
Company so elects by written notice given no later than the later of the
15
<PAGE>
Company receiving written confirmation that Power Transmission Products, Inc.
has vacated the Adjacent Building and that L & L Land Co. has the legal
ability to lease the entirety of the Adjacent Building to the Company or
September 30, 1998, in which event the Adjacent Building would be leased to
the Company for a 10-year term at a rent of $10,833 per month for the first
five years and at a fair market rental value rate for the remaining five
years, and (c) the Company agrees to lease the entirety of the Adjacent
Building through March 31, 1999 in the event the Power Transmission Products,
Inc. lease is terminated and Power Transmission Products, Inc. vacates the
Adjacent Building prior to March 31, 1999.
As consideration for the Option Agreement, the Company agreed to pay L & L
Land Co. monthly in arrears an amount equal to interest which would accrue at
the annual rate of 10% on the sum expended by L & L Land Co. for the
improvements described below, up to a maximum expenditure of $200,000, with
such amount to commence to accrue upon final completion of the improvements
and to cease upon the earlier of acquisition of the Adjacent Building by the
Company, execution of a direct lease by the Company for the entire Adjacent
Building, the termination of the Option Agreement, or March 31, 1999,
whichever is the earliest of such dates.
L & L Land Co. agreed, in the Option Agreement, to construct certain
improvements (consisting of a shipping dock) to the Adjacent Building. In
1996, the Company and L & L Land Co. paid approximately $400,000, split
equally, for the construction of the shipping dock.
LICENSE AGREEMENT WITH ROBERT M. MACTARNAHAN
In July 1994, the Company entered into a License Agreement ("License
Agreement") with Robert M. MacTarnahan, a director of the Company, and Harmer
Mill & Logging Supply Co., a company controlled by Mr. and Mrs. Robert M.
MacTarnahan. Pursuant to the License Agreement, (i) Mr. MacTarnahan conveys
to the Company the right to use his surname and its variation "MacTarnahan"
as a Company trademark, and (ii) the Company has been granted an exclusive
worldwide license to use Mr. MacTarnahan's likeness, image and other personal
attributes to promote the sale of the Company's products, merchandise, and
related materials. The license expires on December 31, 2093. In
consideration of the license grant, the Company must pay a royalty of $1.00
per barrel of MacTarnahan's Ale sold by the Company for the term of the
license. The Company has the right to terminate the Agreement on 30-days'
written notice. The license shall also terminate (a) if, in any subsequent
year after Dilution (as defined below), the Company or its successors fails
to sell a volume of products equal to or greater than 20% of the average
annual value of sales of products in the prior five (5) years, or (b) if the
Company or its successors fail to make any sales of MacTarnahan's Ale for a
period of twelve months. The term "Dilution" means the occurrence of any of
the following: (i) MacTarnahan, his affiliates, Charles A. (Tony) Adams, Mr.
Adams' affiliates, and Portland Brewing Building Partners, L.L.C.,
collectively, cease to own at least ten percent (10%) of the common stock of
the Company (or any successor), including the shares that could be purchased
by any of the foregoing upon exercise of all outstanding warrants or options
granting rights to purchase Company stock; (ii) the Company sells
substantially all of its assets; or (iii) the Company sells or assigns its
right, title and interest to the brands "MacTarnahan's Ale," "MacTarnahan's
Scottish Ale," any other version of the MacTarnahan name used as a brand name
and/or the License Agreement. In the event the license is terminated or
terminates, the Company must assign its rights to the trademark "MacTarnahan"
and the above variations to Mr. MacTarnahan.
Royalties paid to Harmer under the License Agreement for 1996 and 1995
were $21,974 and $15,809, respectively, based on the sale of 21,974 and
15,809 barrels, respectively, of MacTarnahan's Ale during the same periods.<PAGE>
16
<PAGE>
PART II
ITEM 1. MARKET PRICE AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND OTHER
SHAREHOLDER MATTERS
There is no public trading market for the Company's Common Stock. The
Company had approximately 5,700 shareholders of record as of February 25,
1997. The Company has never declared any cash dividends on its Common Stock,
nor does the Company intend to do so in the near future. Pursuant to a bank
loan agreement, the Company cannot declare or pay dividends on any of its
outstanding stock, except dividends payable in Common Stock of the Company,
without prior written consent of the bank.
ITEM 2. LEGAL PROCEEDINGS
As of the date of this Report on Form 10-KSB, there are no legal
proceedings pending to which the Company is a party or to which any of its
property is subject, and the Company does not know of any such action being
contemplated.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the shareholders in the quarter
ended December 31, 1996.
ITEM 5. COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's executive officers and Directors, and persons who own
more than ten percent of a registered class of the Company's equity
securities to file reports of ownership and changes in ownership with the
Securities and Exchange Commission ("SEC") and the National Association of
Securities Dealers, Inc. Executive officers, Directors and greater than ten
percent stockholders are required by SEC regulation to furnish the Company
with copies of all Section 16(a) forms they file. Based solely on its review
of the copies of such forms received by it, or written representations from
certain reporting persons, the Company believes that, during 1996, all
executive officers, Directors and greater than 10% shareholders complied with
all applicable filing requirements.
ITEM 6. REPORTS ON FORM 8-K
There were no reports on Form 8-K filed during the quarter ended
December 31, 1996.
17
<PAGE>
PART F/S
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Public Accountants F-1
Balance Sheet as of December 31, 1996 F-2
Statements of Operations for the years ended December 31, 1996
and 1995 F-3
Statements of Stockholders' Equity for the years ended
December 31, 1996 and 1995 F-4
Statements of Cash Flows for years ended December 31, 1996 and 1995 F-5
Notes to Financial Statements F-6
Management's Discussion and Analysis of Financial Condition and
Results of Operations F-14
18
<PAGE>
PART III
ITEM 1. AND ITEM 2. INDEX TO EXHIBITS AND DESCRIPTION OF EXHIBITS
Exhibit
Number Description
------- -----------
3.1 Articles of Incorporation, as amended (5)
3.2 Amended and Restated Bylaws
4.1 Specimen of Common Stock Certificate (1)
10.1 Indenture of Lease between the Company and Portland Brewing
Building Partners dated November 4, 1992, as amended (1)
10.2 Sublease between the Company, Power Transmission Products,
Inc., and Pacific Realty Associates, L.P., dated
January 26, 1995 (1)
10.3 Lease Agreement between the Company and Leonard G. Johnson
dated April 27, 1994 (5)
10.4 Warrant issued to Electra Partners, Inc. dated
March 25, 1996 (2)
10.5 Warrant issued to MacTarnahan Limited Partnership dated
March 25, 1996 (2)
10.6 License Agreement between the Company, R. M. MacTarnahan and
Harmer Company dated July 1, 1994 (1)
10.7 The Company's 1992 Incentive Stock Option Plan and Specimen
Form Plan Documents (1)
10.8 The Company's 1994 Nonqualified Stock Option Plan and
Specimen Form Plan Documents (1)
10.9 Resolutions of the Board of Directors reserving 30,000
shares (now 45,000 shares as adjusted for the three-for-two
stock split effected on November 18, 1994) under the Company's
1994 Nonqualified Stock Option Plan (1)
10.10 Business Loan Agreement between the Company and
Bank of America-Oregon, dated December 15, 1995 (2)
10.11 Distribution Agreement between the Company and Columbia
Distributing, dated April 8, 1996 (5)
19
<PAGE>
Exhibit
Number Description
------- -----------
10.12 Restated Cash Incentive Plan, as amended (1)
10.13 The Company's Stock Offering Purchase Plan for Employees and
Specimen Form Plan (1)
10.14 Option to Purchase and Agreement and Option to Lease between
the Company and L&L Land Co., dated December 1995(2)
10.15 Indenture of Lease between the Company and Western Stations
Co. dated May 1, 1995 (3)
10.16 Manufacturing Services Agreement between the Company and The
Stroh Brewery Company dated January 31, 1996 (4)
10.17 Purchase Agreement between the Company and Robert Edwards
doing business as Bogart's dated January 25, 1996 (5)
11.0 Statement re: computation of per share earnings
23.0 Consent of Arthur Andersen LLP
24.1 Power of Attorney of Edwin Hunt
24.2 Power of Attorney of R. Scott. MacTarnahan
24.3 Power of Attorney of Robert M. MacTarnahan
24.4 Power of Attorney of Simon C. Ostler
24.5 Power of Attorney of Howard M. Wall, Jr.
27 Financial Data Schedule
- --------------
(1) Incorporated by reference to the Company's Form SB-1 (Commission
File No. 33-90914-LA) as filed with the Commission on April 4, 1995.
(2) Incorporated by reference to the Company's Form 10-KSB for the
year ended December 31, 1995 as filed with the Commission on
March 28, 1996.
(3) Incorporated by reference to the Company's Form 10-QSB for
the quarter ended March 31, 1996 as filed with the
Commission on May 2, 1996.
(4) Incorporated by reference to the Company's Form 10-QSB/a
No.1 for the quarter ended March 31, 1996 as filed with the
Commission on July 31, 1996.
(5) Incorporate by reference to the Company's Form 10-QSB for
the quarter ended September 30, 1996 as filed with the
Commission on November 12, 1996.
20
<PAGE>
SIGNATURES
In accordance with Section 13 or 15 (d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Date: March 21, 1997
PORTLAND BREWING COMPANY
By: /s/ CHARLES A. ADAMS
---------------------------------------
Charles A. Adams, Chairman of the Board
and President
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ CHARLES A. ADAMS
- --------------------------- Chairman of the Board and President March 21, 1997
Charles A. Adams (Principal Executive Officer)
/s/ GLENMORE JAMES Chief Financial Officer
- --------------------------- (Principal Financial and March 21, 1997
Glenmore James Accounting Officer)
* EDWIN HUNT
- --------------------------- Director March 21, 1997
Edwin Hunt
* ROBERT M. MACTARNAHAN
- ---------------------------- Director March 21, 1997
Robert M. MacTarnahan
* R. SCOTT MACTARNAHAN
- ---------------------------- Director March 21, 1997
R. Scott MacTarnahan
* HOWARD M. WALL, JR.
- ---------------------------- Director March 21, 1997
Howard M. Wall, Jr.
* BY: /s/ CHARLES A. ADAMS
----------------------
Charles A. Adams
Attorney-in-fact
</TABLE>
21
<PAGE>
Report of Independent Public Accountants
To the Board of Directors and Shareholders of
Portland Brewing Company:
We have audited the accompanying balance sheet of Portland Brewing Company
(an Oregon Corporation) as of December 31, 1996, and the related statements
of operations, stockholders' equity and cash flows for each of the years
ended December 31, 1996 and 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Portland Brewing Company as
of December 31, 1996, and the results of its operations and its cash flows
for each of the years ended December 31, 1996 and 1995 in conformity with
generally accepted accounting principles.
Arthur Andersen LLP
Portland, Oregon,
February 28, 1997
F-1
<PAGE>
PORTLAND BREWING COMPANY
BALANCE SHEET
ASSETS
December 31, 1996
-----------------
CURRENT ASSETS:
Cash $ 49,054
Accounts receivable (net of allowance of $56,155) 787,930
Inventories 675,680
Prepaid assets 331,296
Income tax receivable 79,970
Deferred income taxes 89,411
-----------------
Total current assets 2,013,341
Property and equipment, net 9,548,288
Other assets, net 252,999
-----------------
Total assets $11,814,628
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,008,634
Customer deposits held 210,105
Accrued payroll 100,864
Other accrued liabilities 50,027
Line of credit 300,000
Current portion of long term debt 400,603
-----------------
Total current liabilities 2,070,233
Long term debt, less current portion 2,904,780
STOCKHOLDERS' EQUITY:
Preferred stock, no par value, 100,000 shares
authorized, no shares issued --
Common stock, no par value, 5,000,000 shares authorized
2,074,943 shares issued and outstanding 6,715,798
Stock notes receivable (2,524)
Retained earnings 126,341
-----------------
Total stockholders' equity 6,839,615
-----------------
Total liabilities and stockholders' equity $11,814,628
===========
The accompanying notes are an integral part of this balance sheet.
F-2
<PAGE>
PORTLAND BREWING COMPANY
STATEMENTS OF OPERATIONS
Year Ended December 31,
-----------------------
1996 1995
----------- -----------
Sales $12,866,563 $11,605,670
Less- Excise tax 711,856 604,274
----------- -----------
Net sales 12,154,70 11,001,396
Cost of sales 8,336,674 7,052,966
----------- -----------
Gross profit 3,818,033 3,948,430
General and administrative expenses 1,779,760 1,298,268
Sales and marketing expenses 2,462,418 2,171,699
----------- -----------
(Loss) income from operations (424,145) 478,463
Other expense, net
Interest expense (84,544) (103,402)
Other expense, net (20,769) (17,041)
----------- -----------
Total other expense, net (105,313) (120,443)
----------- -----------
Net (loss) income before income taxes (529,458) 358,020
(Benefit from) provision for income taxes (149,308) 119,171
----------- -----------
Net (loss) income $ (380,150) $ 238,849
=========== ===========
Net (loss) income per share $(0.18) $0.13
=========== ===========
Shares used in per share calculations 2,070,141 1,868,002
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
PORTLAND BREWING COMPANY
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
---------------------------
Stock Notes Retained
Shares Amount Receivable Earnings Total
------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
December 31,1994 1,660,720 $4,317,191 $ (9,975) $ 267,642 $4,574,858
Issuance of common stock, net
of offering costs 414,423 2,410,505 - - 2,410,505
Repurchase of common stock (4,500) (31,500) - - (31,500)
Issuance of stock notes
receivable, (net of repayments) - - (8,285) - (8,285)
Net income - - - 238,849 238,849
------------ ----------- ----------- ----------- -----------
December 31, 1995 2,070,643 $6,696,196 $(18,260) $506,491 $7,184,427
Issuance of common stock, net
of offering costs 4,500 21,002 - - 21,002
Repurchase of common stock (200) (1,400) - - (1,400)
Repayment of stock notes
receivable - - 15,736 - 15,736
Net loss - - - (380,150) (380,150)
------------ ----------- ----------- ----------- -----------
December 31, 1996 2,074,943 $6,715,798 $(2,524) $ 126,341 $6,839,615
========= ========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
PORTLAND BREWING COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1996 1995
------------- ------------
<S> <C> <C>
Cash flows relating to operating activities:
Net (loss) income $ (380,150) $ 238,849
Adjustments to reconcile net (loss) income to net cash
provided by operating activities
Depreciation 843,488 536,271
Amortization 218,728 70,288
Change in net deferred income taxes (111,789) (10,397)
Gain (loss) on sale of asset 1,771 (21,021)
(Increase) decrease in:
Accounts receivable, net (67,668) (190,895)
Inventories 31,465 (224,388)
Prepaid assets (130,875) (138,495)
Income tax receivable (38,789) (25,023)
(Decrease) increase in:
Accounts payable 425,884 (16,938)
Customer deposits held 44,179 30,021
Accrued payroll and other liabilities (33,180) 48,188
-------------- ------------
Net cash provided by operating activities 803,064 296,460
-------------- ------------
Cash flows relating to investing activities:
Purchase of plant and equipment (3,667,413) (3,661,868)
Proceeds from sale of plant and equipment 25,200 36,475
Changes in other assets (309,539) (51,230)
-------------- ------------
Net cash used in investing activities (3,951,752) (3,676,623)
-------------- ------------
Cash flows relating to financing activities:
Draw from credit line, current 300,000 -
Draw from credit facility, long term 3,342,521 3,629,444
Repayments of long term debt (636,583) (3,029,999)
Issuance of common stock, net 19,602 2,379,005
Changes in stock notes receivable 15,736 (8,285)
-------------- ------------
Net cash provided by financing activities 3,041,276 2,970,165
-------------- ------------
Net decrease in cash (107,412) (409,998)
-------------- ------------
Cash, beginning of period 156,466 566,464
-------------- ------------
Cash, end of period $ 49,054 $ 156,466
========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest,
net of amount capitalized $ 84,544 $ 95,116
Cash paid during the period for taxes -- 120,000
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
PORTLAND BREWING COMPANY
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS:
Portland Brewing Company (the Company) is a regional specialty brewer
which opened for business in January 1986. The Company's first facility
consisted of a brewery and a small pub (Flanders Street Pub). The Company
expanded its operations with the opening of a new facility in June 1993,
featuring 140 barrel classic copper brewing vessels, fermentation tanks and
other equipment which enables the Company to produce lager beers as well as
ales. The Company has a potential beer producing capacity of 135,000
barrels per year. Shipments in barrel equivalents were 66,672 and 62,622 for
the years ended December 31, 1996 and 1995, respectively. The Company sells
its products in Oregon, and the western and midwestern United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
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 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.
REVENUE RECOGNITION
Revenue from the sale of products is recognized at the time of shipment to
the customer.
INVENTORIES
Inventories are stated at the lower of average cost, which approximates the
first-in, first-out (FIFO) method, or market and include materials, labor and
manufacturing overhead. Inventories consist of the following at December 31,
1996:
Raw materials $ 180,613
Work-in-process 140,684
Finished goods 123,113
Merchandise 96,546
Kegs, inventory value 134,724
--------------
$ 675,680
==========
F-6
<PAGE>
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Interest costs related to the
construction of certain long-term assets are capitalized and amortized over
the related assets' estimated useful lives. The Company capitalized net
interest costs of approximately $81,000 and $30,000 in 1996 and 1995,
respectively. Property and equipment consists of the following at December
31, 1996:
Brewing plant and equipment $ 7,393,922
Office and laboratory equipment and vehicles 639,652
Kegs 973,517
Construction in progress 279,783
Leasehold improvements 2,257,781
-----------
Total property and equipment 11,544,655
Less- Accumulated depreciation (1,996,367)
-----------
$ 9,548,288
===========
Property and equipment is depreciated using the straight-line method over
estimated useful lives as follows:
Years
Brewing plant and equipment 10-20
Office and laboratory equipment and vehicles 5-10
Leasehold improvements 5-15
Kegs 5
PACKAGE DESIGN
Package design costs, which include costs related to design, plates, and
dyes, are amortized on a straight-line basis over three years. Package design
costs, net of accumulated amortization were $159,718 and $99,431 at December
31, 1996 and 1995, respectively. Amortization expense related to package
design costs, which is included in selling and marketing expense, was $81,822
and $51,821 in 1996 and 1995, respectively.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES. Deferred
taxes are determined based on the estimated future tax effects of differences
between the financial statement and tax basis of assets and liabilities given
the provisions of enacted tax laws and tax rates. Deferred income tax
expenses or credits are based on the changes in the financial statement basis
versus the tax basis in the Company's assets or liabilities from period to
period.
NET (LOSS) INCOME PER SHARE
Net loss per share is based upon the weighted average shares of common stock
outstanding for the period. Net income per share is based upon the weighted
average shares of common stock and stock equivalents outstanding for the
period. The difference between income per share and fully diluted income per
share is not significant.
ADVERTISING COSTS
Advertising costs are expensed as incurred. Total advertising expense was
$249,897 and $204,791 in 1996 and 1995, respectively.
F-7
<PAGE>
FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
All current assets and liabilities are carried at cost, which approximates
fair value because of the short-term nature of those instruments. The
recorded amounts of the Company's long-term debt also approximate fair value,
as estimated using discounted cash flow analysis.
Financial instruments which potentially expose the Company to concentration
of credit risk consist primarily of trade accounts receivable. For the
periods ended December 31, 1996 and 1995, 16 percent and 32 percent,
respectively, of net sales were through a single distributor. At December 31,
1996, 36 percent of total accounts receivable was attributable to a single
distributor.
IMPAIRMENT OF LONG-LIVED ASSETS
In 1995, the FASB issued SFAS No. 121 "Accounting for the Impairment of
Long-lived Assets and for Long-lived Assets to be Disposed Of". Adoption of
SFAS No. 121 on a prospective basis is required for fiscal years beginning
after December 15, 1995. The Company adopted SFAS No.121, with no effect on
its financial position or results of operations, in 1996.
3. LINES OF CREDIT AND LONG-TERM DEBT:
The Company has a $1,000,000 revolving line of credit with a bank. The
interest rate used for this credit line is based on the bank's reference rate
and interest is payable monthly. The reference rate was 8.25 percent at
December 31, 1996. The outstanding principal balance, plus accrued interest,
is due and payable at maturity, May 1, 1997. At December 31, 1996, there was
$300,000 outstanding under this line of credit.
The Company also has a $2,000,000 non-revolving equipment line of credit with
a bank. The line may be used to finance up to 80 percent of the cost of new
equipment and 55 percent of the cost of leasehold improvements, and converts
to a term loan on May 1, 1997, at which time the advances made against the
line shall be repaid in 84 successive equal monthly installments. The line of
credit has two applicable interest rates: a LIBOR rate for $500,000, and the
bank's reference rate plus 1/2 percent for the remainder; these interest
rates were 7.5 percent and 8.75 percent, respectively, as of December 31,
1996. At December 31, 1996, there was $1,999,148 outstanding on this line of
credit.
In January 1996, the balance outstanding under a $1,400,000 non-revolving
line of credit with a bank was converted to a term loan with a fixed rate at
7.55 percent. In July 1996, an additional amount was borrowed under the
non-revolving line of credit and was converted to a term loan, with a fixed
rate of 8.75 percent. Payments of principal and interest are due in equal
monthly installments with the final payment due on both term loans on January
1, 2003. At December 31, 1996, the outstanding balance on these term loans
was $ 1,306,235.
These line of credit agreements and term loan are secured by all assets of
the Company, including receivables, inventory, and property and equipment and
contain restrictions relating to specified financial ratios and restrictions
on dividend payments, as well as the lender's standard covenants and
restrictions. The lender has recently revised the covenant requirements and,
in Management's opinion, the Company will be able to maintain compliance with
these covenants through December 31, 1997.
F-8
<PAGE>
Principal payment requirements on long-term debt are as follows for the years
ending December 31:
1997 $ 400,603
1998 531,698
1999 531,698
2000 531,698
2001 492,178
Thereafter 817,508
-------------
$3,305,383
==========
4. LEASES:
The following is a schedule of minimum future lease payments as of December 31:
1997 $ 393,502
1998 386,462
1999 387,650
2000 341,488
2001 325,902
Thereafter 1,827,212
-------------
Total minimum lease payments $3,662,216
==========
Rental expense incurred on operating leases was $421,614 and $370,520 in 1996
and 1995, respectively.
5. INCOME TAXES:
The components of the (benefit from) provision for income taxes are:
Year Ended December 31,
-----------------------
1996 1995
---------- ----------
Current $ (37,519) $129,568
Deferred (111,789) (10,397)
------------ ----------
$ (149,308) $119,171
=========== ========
F-9
<PAGE>
The components of the net deferred tax assets and liabilities as of December
31, 1996 are as follows:
Deferred tax assets, current-
Basis difference in inventory $ 35,699
Other 53,712
----------
Total current deferred tax assets $ 89,411
==========
Deferred tax assets, long-term-
Net operating loss carryforwards $ 207,775
Tax credits 144,212
----------
Total long-term deferred tax assets 351,987
Deferred tax liabilities-
Basis difference in property, plant
and equipment (334,498)
-----------
Net long-term deferred tax assets $ 17,489
===========
The Company believes that deferred tax assets will be fully realized based
upon future reversals of existing temporary differences, future earnings or
available tax strategies. Accordingly, there was no valuation allowance on
deferred tax assets at December 31, 1996.
As of December 31, 1996 and 1995, the reported provision for income taxes
differs from the amount computed by applying the statutory federal income tax
rate of 34 percent to income before provision for income taxes as follows:
December 31,
--------------
1996 1995
------ ------
Statutory tax rate (34.0)% 34.0%
Effect of graduated federal rate -- (3.0)
State and local taxes, net of federal benefit (6.4) 1.5
Recognition of tax credits -- (1.5)
Effect of nondeductible expenses 3.2 6.2
Limit on benefit of net operating loss carryback 8.5 --
Other 0.5 (3.9)
------- ------
Income tax (benefit) provision (28.2)% 33.3%
======= =====
6. RELATED PARTY TRANSACTIONS:
LEASE AGREEMENT WITH PORTLAND BREWING BUILDING, LLC
The Company leases the property at 2730 NW 31st Avenue in Portland, Oregon from
Portland Brewing Building, L.L.C., which is an entity controlled by an officer
and director and two other directors of the Company. Monthly lease payments are
currently $22,060 plus property taxes, insurance and maintenance, with lease
payments to be adjusted at the beginning of the sixth and eleventh years to
reflect the greater of changes in the Consumer Price Index or 95% of fair market
rental value. The lease expires in August 2008. In connection with the original
negotiation of the lease in 1992, the Company granted the lessors a warrant to
purchase 87,697.5 shares of
F-10
<PAGE>
Common Stock. The warrants are exercisable at any time through December 31,
2002, at an exercise price of $3.333 per share.
LEASE AGREEMENT WITH L & L LAND CO.
In 1995 the Company entered into a sublease for a portion of the building
adjacent to the main brewery with the current lessee, Power Transmission
Products, Inc. An option agreement was entered into with the owner of the
building, L & L Land Co., which entitles the Company to an option to purchase
the building for $1,100,000 plus an amount paid for improvements to the
building consisting of a shipping dock. In 1996, the Company and L & L Land
Co. paid approximately $400,000, split equally, for the construction of the
shipping dock at the adjacent building. The option expires on December 31,
1998.
The Company believes that the terms and conditions of its leases are fair and
reasonable and are no less favorable to the Company than could be obtained
from unaffiliated parties.
LICENSE AGREEMENT
The Company entered into a license agreement with one of its board members to
utilize his name and likeness. The amount of the royalty owed is $1 per
barrel of MacTarnahan's Amber Ale sold. Royalties paid under the license
agreement for 1996 and 1995 were $21,974 and $15,809, respectively, based on
the sale of 21,974 and 15,809 barrels, respectively, of MacTarnahan's Amber
Ale during the same periods.
7. STOCKHOLDERS' EQUITY:
During the year ended December 31, 1995, the Company had a direct common
stock offering to the public. The Company issued 414,423 shares and the
proceeds of the offering were $2,410,505, net of offering costs. Included in
the above issuance were 2,600 shares of stock to certain employees at $7.00
per share. These shares were exchanged for stock notes receivable which are
being paid back to the Company through payroll deductions.
8. STOCK-BASED COMPENSATION PLANS:
INCENTIVE STOCK OPTION PLAN
The Company's 1992 Incentive Stock Option Plan ("ISOP") is administered by
the Board of Directors and provides for grants of options to acquire shares
of the Company's common stock, subject to the limitations set forth in the
ISOP. The number of stock options available for grant under the ISOP is
163,500. Pursuant to the ISOP, the Board of Directors has the authority to
set the terms and conditions of the options granted, but cannot set the
option exercise price at less than 100 percent of the fair market value of
the subject shares of common stock at the time the option is granted.
Options vest quarterly over a 12- to 60-month period, with 45,675 shares
exercisable at December 31, 1996.
F-11
<PAGE>
Activity under the ISOP is summarized as follows:
<TABLE>
<CAPTION>
Shares Available Shares Subject Exercise Price
for Grant to Options Per Share
---------------- -------------- --------------
<S> <C> <C> <C>
Balances, December 31, 1994 30,000 133,500 $3.33-$5.87
Options canceled 16,500 (16,500) $3.33-$5.87
-------- -------- -----------
Balances, December 31, 1995 46,500 117,000 $3.33-$5.87
Options granted (46,750) 46,750 $7.00
Options exercised -- (4,500) $3.33-$5.33
Options canceled 17,750 (17,750) $5.33-$7.00
------- -------- -----------
Balances, December 31, 1996 17,500 141,500 $3.33-$7.00
====== ======= ===========
</TABLE>
NONQUALIFIED STOCK OPTION PLAN
In August 1994, the Board of Directors approved a Nonqualified Stock Option
Plan ("NQSOP"). The NQSOP provides for the issuance of 45,000 stock options
to employees, nonemployee members of the Board of Directors, consultants and
other independent contractors who provide valuable service to the Company, at
a minimum of 85 percent of fair market value and have a term of 10 years. The
options are immediately exercisable but are subject to repurchase at cost by
the Company if the optionee ceases to provide service (as defined by the
NQSOP) to the Company during the three-year period following the date of the
grant. The repurchase right shall lapse as to one-third of the option shares
on each anniversary of the grant, and expires in August 1997. At December 31,
1996 and 1995, 21,000 options had been granted at $5.33. As of December 31,
1996, options to purchase 14,000 shares were exercisable.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123 (SFAS 123)
During 1995, the Financial Accounting Standards Board issued SFAS 123, which
defines a fair value based method of accounting for employee stock options
and similar equity instruments and encourages all entities to adopt that
method of accounting for all employee stock compensation plans. However, it
also allows an entity to continue to measure compensation cost for those
plans using the method of accounting prescribed by APB 25. Entities electing
to remain with the accounting in APB 25 must make pro forma disclosures of
net income and earnings per share, as if the fair value based method of
accounting defined in SFAS 123 had been applied.
The Company has elected to account for its stock-based compensation plans
under APB 25; however, the Company has computed, for pro forma disclosure
purposes, the value of all options granted using the Black-Scholes
option-pricing model as prescribed by SFAS 123 using the following weighted
average assumptions for grants in 1996. No options were granted in 1995.
Risk-free interest rate 5.7%
Expected dividend yield 0 %
Expected lives 6 years
Expected volatility 57 %
F-12
<PAGE>
The total value of options granted during 1996 was computed as approximately
$192,000, which will be amortized on a pro forma basis over the five-year
vesting period of the options. The weighted average fair value of options
granted during 1996 was $4.11 per share. If the Company had accounted for its
stock-based compensation plans in accordance with SFAS 123, the Company's pro
forma net loss and pro forma net loss per share for the year ended December
31, 1996 would have been as follows:
As Reported Pro Forma
------------ ------------
Net loss $ (380,150) $ (418,935)
Net loss per share $ (0.18) $ (0.20)
The effect of applying SFAS 123 in this pro forma disclosure is not
indicative of future results. SFAS 123 does not apply to awards prior to
January 1, 1995. Additional awards are anticipated in future years.
The following table sets forth the exercise price range, number of shares,
weighted average exercise price, and remaining contractual lives by groups of
similar price and grant date:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ------------------------------------------------------ ---------------------------
Weighted
Number Average Weighted Number Weighted
Outstanding at Remaining Average Exercisable at Average
Exercise December 31, Contractual Exercise December 31, Exercise
Price 1996 Life Price 1996 Price
- -------- -------------- ----------- --------- -------------- ---------
<S> <C> <C> <C> <C> <C>
$7.00 36,750 8.92 years $7.00 -- --
$7.00 10,000 9.50 years $7.00 -- --
</TABLE>
CASH INCENTIVE PLAN
Under the Company's Cash Incentive Plan 10 percent of net profits are
available for bonus to all employees. Bonuses are recommended by the
President to the Board of Directors who has the authority to approve or
withhold any or all bonuses. For the years ended December 31, 1996 and 1995,
bonuses totaled $0, and $24,498, respectively.
F13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following table sets forth for the periods indicated the percentage
relationships to sales of certain statement of operations data:
Year Ended December 31,
------------------------
1996 1995
------- -------
Net sales 100.0% 100.0%
Cost of sales 68.6 64.1
------- -------
Gross profit 31.4 35.9
General and administrative expenses 14.6 11.8
Sales and marketing expenses 20.3 19.7
------- -------
Operating (loss) income (3.5) 4.4
Other expense, net (0.8) (1.1)
------- -------
(Loss) income before taxes (4.3) 3.3
(Benefit from) provision for income taxes (1.2) 1.1
------- -------
Net (loss) income (3.1)% 2.2%
Barrels shipped 66,672 62,622
RESULTS OF OPERATIONS
Net sales in 1996 increased 10% to $12.2 million from $11.0 million in
1995. Gross profit decreased to $3.8 million (31.4% of net sales) in 1996
from $3.9 million (35.9% of net sales) in 1995. The decrease in gross profit
was a result of price increases in ingredients and the mix of products sold,
pre-operating costs of approximately $166,000 related to establishing a
brewing contract with a brewer located in the midwestern U.S., and costs of
approximately $117,000 related to the expansion of the Company's Flanders
Street restaurant. Additionally, restaurant sales, as a percentage of total
revenues, were greater in 1996 than in 1995, and cost of sales as a
percentage of net revenues is higher for the Company's restaurant operations
than its brewery operations.
General and administrative expenses increased 37% to $1.8 million (14.6%
of net sales) in 1996 from $1.3 million (11.8% of net sales) in 1995. The
increase primarily resulted from continued infrastructure improvements and
organizational development, additional expenses related to the development of
management systems for the Company's two restaurants, and expenses associated
with reporting as a public company.
Sales and marketing expenses increased 13% to $2.5 million (20.3% of net
sales) in 1996 from $2.2 million (19.7% of net sales) in 1995. The increase
primarily resulted from expansion of the Company's sales organization in the
midwestern U.S.
Interest expense decreased to $85,000 in 1996 from $103,000 in 1995.
Although capital expenditures were approximately the same in 1996 and 1995,
proportionately more of the Company's interest costs on such expenditures
were capitalized in 1996 than in 1995.
F-14
<PAGE>
The Company's effective tax rate in 1995 was approximately 33%. In 1996,
the Company recorded a benefit from income taxes at an effective tax rate of
approximately 28%.
LIQUIDITY AND CAPITAL RESOURCES
The Company requires capital principally to expand its production
capacity, increase the productivity of its manufacturing operations and fund
its working capital needs. To date, the Company has met its capital
requirements through cash flow from operations, bank borrowings, advances
from certain stockholders and the private and public sale of its Common
Stock.
The Company has a $1,000,000 revolving line of credit with a bank,
bearing interest at the bank's reference rate (8.25% at December 31, 1996),
with interest payable monthly, due and payable on May 1, 1997. At December
31, 1996, $300,000 was outstanding under this line of credit. The Company has
a $2,000,000 nonrevolving equipment line of credit with a bank, which is
available to finance up to 80% of the cost of new equipment, and up to 55% of
the invoice cost of leasehold improvements. The nonrevolving equipment line
of credit converts to a term loan on May 1, 1997, at which time advances made
against the line shall be repaid in 84 equal monthly installments. This line
of credit has two applicable interest rates: a LIBOR rate for $500,000, and
the bank's reference rate plus 1/2% for the remainder (7.5% and 8.75%,
respectively as of December 31, 1996). At December 31, 1996, approximately
$2.0 million was outstanding under this equipment line of credit. The Company
also has a term loan outstanding with a bank. At December 31, 1996, $1.3
million was outstanding under this term loan. The term loan bears interest at
a fixed rate of 7.55% for $520,000 of the loan with the remaining $785,000
bearing interest at the bank's reference rate plus 1/2% (8.75% at December
31, 1996). SEE NOTE 3 OF NOTES TO FINANCIAL STATEMENTS.
The Company expended approximately $3.7 million in capital expenditures
in 1996 principally to improve product and process quality, implement
production efficiencies, increase capacity and expand one of its restaurants.
These expenditures were funded primarily through bank debt. The Company
anticipates no significant capital expenditures in 1997.
The Company's working capital requirements over the next year are
expected to be met from cash flow from operations, funds available under the
Company's line of credit facilities and, if appropriate, additional equity
offerings.
F-15
<PAGE>
EXHIBIT 3.2
BYLAWS
OF
PORTLAND BREWING COMPANY
TABLE OF CONTENTS
PAGE
ARTICLE I SHAREHOLDERS' MEETINGS . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 ANNUAL MEETING. . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 SPECIAL MEETINGS. . . . . . . . . . . . . . . . . . . . . . 1
Section 1.3 NOTICE. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.4 WAIVER OF NOTICE. . . . . . . . . . . . . . . . . . . . . . 2
Section 1.5 VOTING. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.6 QUORUM; VOTE REQUIRED . . . . . . . . . . . . . . . . . . . 2
Section 1.7 ACTION WITHOUT MEETING. . . . . . . . . . . . . . . . . . . 3
ARTICLE 2 BOARD OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.1 NUMBER AND ELECTION OF DIRECTORS. . . . . . . . . . . . . . 3
Section 2.2 VACANCIES . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.3 ANNUAL MEETING. . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.4 REGULAR MEETINGS. . . . . . . . . . . . . . . . . . . . . . 4
Section 2.5 SPECIAL MEETINGS. . . . . . . . . . . . . . . . . . . . . . 4
Section 2.6 TELEPHONIC MEETINGS . . . . . . . . . . . . . . . . . . . . 5
Section 2.7 WAIVER OF NOTICE. . . . . . . . . . . . . . . . . . . . . . 5
Section 2.8 QUORUM. . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.9 VOTING. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.10 ACTION WITHOUT MEETING . . . . . . . . . . . . . . . . . . 6
Section 2.11 REMOVAL OF DIRECTORS . . . . . . . . . . . . . . . . . . . 6
Section 2.12 POWERS OF DIRECTORS. . . . . . . . . . . . . . . . . . . . 6
Section 2.13 COMMITTEES . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.14 CHAIRMAN OF THE BOARD. . . . . . . . . . . . . . . . . . . 7
ARTICLE 3 OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.1 COMPOSITION . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.2 PRESIDENT . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.3 VICE PRESIDENT(S) . . . . . . . . . . . . . . . . . . . . . 9
Section 3.4 SECRETARY . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.5 TREASURER . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.6 REMOVAL . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE 4 STOCK AND OTHER SECURITIES . . . . . . . . . . . . . . . . . . 10
Section 4.1 CERTIFICATES. . . . . . . . . . . . . . . . . . . . . . . . 10
Section 4.2 TRANSFER AGENT AND REGISTRAR. . . . . . . . . . . . . . . . 10
Section 4.3 TRANSFER. . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 4.4 NECESSITY FOR REGISTRATION. . . . . . . . . . . . . . . . . 11
Section 4.5 FIXING RECORD DATE. . . . . . . . . . . . . . . . . . . . . 11
Section 4.6 RECORD DATE FOR ADJOURNED MEETING . . . . . . . . . . . . . 11
Section 4.7 LOST CERTIFICATES . . . . . . . . . . . . . . . . . . . . . 12
<PAGE>
ARTICLE 5 NO CORPORATE SEAL. . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE 6 REIMBURSEMENT OF CERTAIN PAYMENTS. . . . . . . . . . . . . . . 12
ARTICLE 7 FISCAL YEAR. . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE 8 AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE 9 CONTROL SHARE ACT. . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE 10 INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE 11 SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE I
SHAREHOLDERS' MEETINGS
SECTION 1.1 ANNUAL MEETING: The annual meeting of the shareholders
shall be held on the last Tuesday in April of every year at the principal
office of the Company (2730 N.W. 31st Avenue, Portland, Oregon 97210) or at
such other time, date or place as may be determined by the Board of
Directors. At such meeting the shareholders entitled to vote shall elect a
Board of Directors and transact such other business as may properly come
before the meeting.
SECTION 1.2 SPECIAL MEETINGS: The Company shall hold special
meetings of shareholders at any time on call of the Chief Executive Officer or
the Board of Directors, or on demand in writing by shareholders of record
holding shares with at least 10 percent of the votes entitled to be cast on any
matter proposed to be considered at the special meeting. Only business within
the purpose(s) described in the notice of special meeting may be conducted at
such special meeting.
SECTION 1.3 NOTICE: Written notice stating the place, date and time of
the meeting, and, in case of a special meeting, the purpose or purposes for
which the meeting is called, shall be delivered not less than ten nor more
than sixty days before the date of the meeting, either personally or by mail,
by or at the direction of the Chief Executive Officer or the Secretary, to
each shareholder of record entitled to vote at such meeting. If mailed, the
notice shall be deemed to be delivered when deposited in the United States
mail addressed to the shareholder at the shareholder's address as it appears
on the current shareholder records of the Company, with postage prepaid.
SECTION 1.4 WAIVER OF NOTICE: A shareholder may, at any time, waive
any notice required by these Bylaws, the Articles of Incorporation or the
Oregon Business Corporation Act. The waiver must be in writing, be signed by
the shareholder, and be delivered to the Company for inclusion in the minutes
and filing in the corporate records. A shareholder's attendance at a meeting
waives any objection to (a) lack of notice or defective notice, unless the
shareholder objects at the beginning of the meeting to holding the meeting or
transacting business at the meeting, and (b) consideration of any matter at
the meeting that is not within the purpose or purposes described in the
notice of a special meeting, unless the shareholder objects to considering
the matter when it is presented.
SECTION 1.5 VOTING: Except as otherwise provided in the Articles of
Incorporation, each shareholder shall be entitled to one vote, in person or
by proxy, on each matter voted on at a shareholder's meeting for each share
of stock entitled to vote outstanding in such shareholder's name on the
records of the Company. Shares held by a corporation, a majority of the
shares entitled to vote for directors of which are held by this Company, may
not be voted unless such shares are held as trustee or in another fiduciary
capacity.
SECTION 1.6 QUORUM; VOTE REQUIRED: A majority of the shares entitled
to vote on a matter, represented in person or by proxies, shall constitute a
quorum with respect to that matter at any meeting of the shareholders. If a
quorum is present, action on a matter, other than the election of directors,
is approved if the votes cast in favor of the action exceed the votes cast in
opposition, unless the vote of a greater number is required by the Oregon
Business Corporation Act or the Articles of Incorporation.
<PAGE>
SECTION 1.7 ACTION WITHOUT MEETING: Any action required or permitted
to be taken at a meeting of shareholders may be taken without a meeting if a
written consent, or consents, describing the action taken is signed by all of
the shareholders entitled to vote on the action and delivered to the Company
for inclusion in the minutes and filing with the corporate records. The
action is effective when the last shareholder signs the consent, unless the
consent specifies an earlier or later effective date. A consent signed under
this section has the effect of a meeting vote and may be described as such in
any document. Unless a record date for determining the shareholders entitled
to take action without a meeting is otherwise established, the record date
for that purpose is the date the first shareholder signs the consent. If the
Oregon Business Corporation Act requires that notice of a proposed action be
given to non-voting shareholders and the action is to be taken by unanimous
consent of the shareholders, at least 10 days written notice of the proposed
action shall be given to non-voting shareholders before the action is taken.
ARTICLE 2
BOARD OF DIRECTORS
SECTION 2.1 NUMBER AND ELECTION OF DIRECTORS: The number of directors
of the Company shall be at least five (5) and not more than nine (9). The
number of directors shall be fixed or changed, within the minimum and the
maximum, from time to time, by the Board of Directors or the shareholders
pursuant to a resolution adopted at a meeting of the Board of Directors or
shareholders. The directors shall hold office until the next annual meeting
of shareholders, unless the terms are staggered in accordance with the
Articles of Incorporation, and until their successors shall have been elected
and qualified, until earlier death, resignation, or removal or until there is
a decrease in the number of directors. Directors need not be residents of
the State of Oregon or shareholders of the Company. A decrease in the number
of directors shall not shorten the term of any incumbent director.
SECTION 2.2 VACANCIES: Unless otherwise provided in the Articles of
Incorporation, any vacancy occurring in the Board of Directors, including a
vacancy resulting from an increase in the number of directors, may be filled
by the board of directors or if the remaining directors do not constitute a
quorum, by the affirmative vote of a majority of the remaining directors. A
director elected to fill a vacancy shall be elected for the unexpired term of
the director's predecessor in office, subject to prior death, resignation or
removal.
SECTION 2.3 ANNUAL MEETING: There shall be an annual meeting of the
Board of Directors which may be held without notice immediately after the
adjournment of the annual meeting of the shareholders or at another time
designated by the Board of Directors upon notice in the same manner as
provided in Section 2.5. The annual meeting shall be held at the principal
office of the Company or at such other place as the Board of Directors may
designate.
SECTION 2.4 REGULAR MEETINGS: The Board of Directors may by resolution
provide for regular meetings. Each director then in office shall be provided
written notice of the scheduled date, hour and place of each regular meeting,
personally delivered or mailed by United States mail, first class postage
prepaid, addressed to each director at the director's address appearing on
records of the Company, not less than ten (10) days prior to the date of the
first regular meeting held after the adoption or modification of the
resolution providing for regular meetings.
SECTION 2.5 SPECIAL MEETINGS: Special meetings of the Board of
Directors may be called by the Chief Executive Officer or any member of the
Board of Directors. Each director shall be given notice of each special
meeting which shall be actually delivered, orally or in writing, not less
than two (2) days prior to the meeting or mailed by deposit in the United
States mail, first class postage prepaid, addressed to the director at the
director's address appearing on the records of the Company not less than four
(4) days prior to the meeting. Special meetings of the directors may also be
held at any time when all members of the Board of Directors are present and
consent to a special meeting. Special meetings of the directors shall be
held at the principal office of the Company or at any other place designated
by a majority of the Board of Directors.
SECTION 2.6 TELEPHONIC MEETINGS: The Board of Directors may permit
directors to participate in a meeting by any means of communication by which
all of the persons participating in the meeting can hear each other at the
same time. Participation in such a meeting shall constitute presence in
person at the meeting.
SECTION 2.7 WAIVER OF NOTICE: A director may, at any time, waive any
notice required by these Bylaws, the Articles of Incorporation or the Oregon
Business Corporation Act. Except as otherwise provided in this Section, the
waiver must be in writing, be signed by the director, must specify the
meeting for which notice is waived, and be delivered to the Company for
inclusion in the minutes and filing in the corporate records. A director's
attendance at a meeting waives any required notice, unless the director at
the beginning of the meeting or promptly upon the director's arrival objects
to holding the meeting or transacting business at the meeting and does not
thereafter vote for or assent to any action taken at the meeting.
<PAGE>
SECTION 2.8 QUORUM: A majority of the number of directors that has
been prescribed by Section 2.1 of these Bylaws shall constitute a quorum for
the transaction of business.
SECTION 2.9 VOTING: The act of the majority of the directors present
at a meeting at which a quorum is present shall be the act of the Board of
Directors, unless otherwise provided by the Articles of Incorporation or
these Bylaws.
SECTION 2.10 ACTION WITHOUT MEETING: Unless otherwise provided by the
Articles of Incorporation, any action required or permitted to be taken at a
board of directors' meeting may be taken without a meeting if a written
consent, or consents, describing the action taken is signed by each director
and included in the minutes and filed with the corporate records. The action
is effective when the last director signs the consent, unless the consent
specifies an earlier or later effective date. A consent signed under this
section has the effect of a meeting vote and may be described as such in any
document.
SECTION 2.11 REMOVAL OF DIRECTORS: Unless otherwise provided by the
Articles of Incorporation, the shareholders, at any meeting of the
shareholders called expressly for that purpose, may remove any director from
office, with or without cause.
SECTION 2.12 POWERS OF DIRECTORS: The Board of Directors shall have
sole responsibility for the management of the business of the Company. In
the management and control of the property, business and affairs of the
Company, the Board of Directors is vested with all of the powers possessed by
the Company itself, so far as this delegation of power is not inconsistent
with the Oregon Business Corporation Act, the Articles of Incorporation, or
these Bylaws. The Board of Directors shall have power to determine what
amount constitutes net earnings of the Company, what amount shall be reserved
for working capital and for any other purpose, and what amount shall be
declared as dividends, and such determinations by the Board of Directors
shall be final and conclusive except as otherwise provided by the Oregon
Business Corporation Act and the Articles of Incorporation. The Board of
Directors shall designate one or more officers of the Company who shall have
the power to sign all deeds, leases, contracts, mortgages, deeds of trust and
other instruments and documents executed by and binding upon the Company. In
the absence of a designation of any other officer or officers, the Chief
Executive Officer shall be the officer so designated.
SECTION 2.13 COMMITTEES: Unless the Articles of Incorporation
otherwise provide, a majority of the Board of Directors may designate from
among its members an Executive Committee or other committees of two or more
members each. Each committee shall have such powers and shall perform such
duties as may be delegated and assigned to the committee by the Board of
Directors; however, a committee may not take any action which the Oregon
Business Corporation Act prohibits be taken by a committee. The provisions of
Sections 2.4, 2.5, 2.6, 2.7, 2.8, 2.9, and 2.10 of the Bylaws shall also
apply to all committees. Each committee shall keep written records of its
activities and proceedings. All actions by committees shall be reported to
the Board of Directors at the next meeting following the action and the Board
of Directors may ratify or may revise or alter such action, provided that no
rights or acts of third parties shall be affected by any such revision or
alteration.
SECTION 2.14 CHAIRMAN OF THE BOARD: The Board of Directors may
designate one of its members Chairman of the Board of Directors. In the
absence of a designation of another member of the Board of Directors, the
Chief Executive Officer shall also be the Chairman of the Board of Directors
if the Chief Executive Officer is a member of the Board of Directors. The
Chairman shall advise and consult with the Board of Directors and the
officers of the Company as to the determination of policies of the Company,
shall preside at all meetings of the Board of Directors and of the
shareholders, and shall perform such other functions and responsibilities as
the Board of Directors shall designate from time to time.
<PAGE>
ARTICLE 3
OFFICERS
SECTION 3.1 COMPOSITION: The officers of this Company shall consist
of a President and Chief Executive Officer, one or more Vice Presidents, a
Secretary, and a Treasurer, each of whom shall be elected by the Board of
Directors at the annual meeting of the Board of Directors. Such other officers
and assistant officers and agents as may be deemed necessary may be elected or
appointed by or in the manner directed by the Board of Directors, and any
vacancies occurring in any office of this Company may be filled by election or
appointment by the Board of Directors at any regular meeting or any special
meeting called for that purpose; provided, however, the President and Chief
Executive Officer shall have the powers of appointment and removal set forth
herein. All officers shall hold their office until the next annual meeting of
the Board of Directors and until their successors are elected and qualified,
subject to prior death, resignation or removal. The salaries of all officers
shall be fixed by the Board of Directors or by a committee of the Board of
Directors.
SECTION 3.2 PRESIDENT: The President and Chief Executive Officer
shall preside at meetings of the Board of Directors and of the shareholders.
The President and Chief Executive Officer shall be responsible for implementing
the policies and goals of the Company as stated by the Board of Directors; shall
have general supervision and management over the officers, property, business
and affairs of the Company; shall have authority to hire and fire personnel and
take such other actions as are necessary and appropriate to implement the
policies, goals and directions of the Board of Directors; shall have all
authority customary to such office; and shall perform such other duties as may
be prescribed by the Board of Directors.
SECTION 3.3 VICE PRESIDENT(S): The Vice President(s) shall perform
such duties as may be prescribed by the President and Chief Executive Officer,
and such other duties as may be prescribed by the Board of Directors. The
President and Chief Executive Officer may, from time to time, appoint from among
the Vice Presidents of the Company, an Executive Vice President, who shall hold
both the office of Executive Vice President and Vice President. In the absence
or disability of the President, the Executive Vice President, if one is then
serving, or if one is not then serving, then the Vice Presidents, in the order
of their rank as fixed by the Board of Directors, or if not ranked, the Vice
President designated by the Board of Directors, shall perform the duties and
exercise the powers of the President and Chief Executive Officer.
SECTION 3.4 SECRETARY: The Secretary shall record, keep and be
custodian of the minutes and records of all the meetings of the shareholders and
directors and other official records of the Company. The Secretary shall give
notice of meetings to the shareholders and directors and shall perform such
other duties as may be prescribed by the Board of Directors.
SECTION 3.5 TREASURER: It shall be the duty of the Treasurer to
receive all moneys and funds of the Company and to deposit the same in the name
and to the account of the Company in the bank or banks designated by the Board
of Directors. The Treasurer shall keep accurate books of account and shall make
reports of financial transactions of the Company to the Board of Directors and
shall perform such other duties as may be prescribed by the Board of Directors.
If the Board of Directors elects a Vice-President-Finance, the duties of the
office of Treasurer may rest in that officer and in that event, the Board of
Directors need not appoint a Treasurer. The Treasurer shall perform such other
duties as may be prescribed by the Board of Directors.
SECTION 3.6 REMOVAL: The directors, at any regular meeting or any
special meeting called for that purpose, may remove any officer from office with
or without cause. The President and Chief Executive Officer may remove any
other officer at any time with or without cause. No removal shall impair the
contract rights, if any, of the officer removed or of this Company or of any
other person or entity.
ARTICLE 4
STOCK AND OTHER SECURITIES
SECTION 4.1 CERTIFICATES: All stock and other securities of this
Company shall be represented by certificates which shall be signed by the
Chief Executive Officer and the Secretary or an Assistant Secretary of the
Company.
SECTION 4.2 TRANSFER AGENT AND REGISTRAR: The Board of Directors may
from time to time appoint one or more Transfer Agents and one or more
Registrars for the stock and other securities of the Company. The signatures
of the Chief Executive Officer and the Secretary or an Assistant Secretary
upon a certificate may be facsimiles if the certificate is manually signed by
a Transfer Agent, or registered by a Registrar, and the Transfer Agent or
Registrar is neither the Company itself nor an employee of the Company.
<PAGE>
SECTION 4.3 TRANSFER: Title to a certificate and to the interest in
this Company represented by that certificate can be transferred only (a) by
delivery of the certificate endorsed by the person appearing by the
certificate to be the owner of the interest represented thereby either in
blank or to a specified person, or (b) by delivery of the certificate and a
separate document containing a written assignment of the certificate or a
power of attorney to sell, assign or transfer the same, signed by the person
appearing by the certificate to be the owner of the interest represented
thereby either in blank or to a specified person.
SECTION 4.4 NECESSITY FOR REGISTRATION: Prior to presentment for
registration upon the transfer books of the Company of a transfer of stock or
other securities of this Company, the Company or its agent for purposes of
registering transfers of its securities may treat the registered owner of the
security as the person exclusively entitled to vote; to receive any notices;
to receive payment of any interest on a security, or of any ordinary,
extraordinary, partial liquidating, final liquidating, or other dividend, or
of any other distribution, whether paid in cash or in securities or in any
other form; and otherwise to exercise or enjoy any or all of the rights and
powers of an owner.
SECTION 4.5 FIXING RECORD DATE: The Board of Directors may fix in
advance a date as record date for the purpose of determining the registered
owners of stock or other securities entitled to notice of or to vote at any
meeting of the shareholders or any adjournment thereof; to receive payment of
any interest on a security, or of any ordinary, extraordinary, partial
liquidating, final liquidating, or other dividend, or of any other
distribution, whether paid in cash or in securities or in any other form; to
otherwise exercise or enjoy any or all of the rights and powers of an owner,
or in order to make a determination of registered owners for any other proper
purpose. The record date shall be not more than 70 days and, in case of a
meeting of shareholders, not less than 10 days prior to the date on which the
particular action which requires such determination of registered owners is
to be taken.
SECTION 4.6 RECORD DATE FOR ADJOURNED MEETING: A determination of
shareholders entitled to notice of or to vote at a shareholders' meeting is
effective for any adjournment of the meeting unless the Board of Directors
fixes a new record date. A new record date must be fixed if a shareholders'
meeting is adjourned to a date more than 120 days after the date fixed for
the original meeting.
SECTION 4.7 LOST CERTIFICATES: In case of the loss or destruction of a
certificate of stock or other security of this Company, a duplicate
certificate may be issued in its place upon such conditions as the Board of
Directors shall prescribe.
<PAGE>
ARTICLE 5
NO CORPORATE SEAL
The Company will not have a corporate seal.
ARTICLE 6
REIMBURSEMENT OF CERTAIN PAYMENTS
Any payments made to an officer or director of this Company, including
payments made as salary, commission, bonus, interest, rent or for expenses
incurred for travel or entertainment by that person, which are subsequently
determined by the Board of Directors to have not been necessary to further
the interests of the Company or paid under fraudulent circumstances shall be
reimbursed by such officer or director to this Company. In making any such
determination, the Board of Directors may consider the tax deductibility of
the subject payment. It shall be the duty of the Board of Directors to
enforce collection from the officer or director of each amount disallowed.
If the Board of Directors shall determine it necessary or desirable, amounts
may be withheld from the future compensation payments of an officer or
director sufficient to equal the amount of any of such amounts.
ARTICLE 7
FISCAL YEAR
The Fiscal Year of the Company shall be from January 1 to December 31.
ARTICLE 8
AMENDMENTS
Unless otherwise provided in the Articles of Incorporation, the Bylaws
of this Company may be amended, repealed or replaced by the directors,
subject to amendment, repeal or replacement by action of the shareholders, at
any regular meeting or at any special meeting called for that purpose,
provided notice of the proposed change is given in the notice of the meeting
or notice thereof is waived in writing. Provided, Article 9 of the Bylaws,
related to Control Share Acquisitions, may only be amended by compliance with
the foregoing and also compliance with the statutory procedures regarding
shareholder approval.
ARTICLE 9
CONTROL SHARE ACT
The provisions of ORS 60.801 to 60.816, pertaining to control share
acquisitions, shall not apply to acquisitions of the Company's voting shares.
ARTICLE 10
INDEMNIFICATION
The Company shall indemnify its directors, officers, agents and
employees for liability and related expenses to the full extent permitted by
the Oregon Business Corporation Act, as the same presently exists or is
hereafter amended from time to time. This Article shall not be deemed
exclusive of any other indemnification rights to which directors, officers,
employees or agents may be entitled. It is the intention of this Article to
require indemnification in cases where the Oregon Business Corporation Act,
as presently written or as hereafter amended, authorizes such indemnification
but does not expressly require nor prohibit such indemnification.
ARTICLE 11
SEVERABILITY
If any provision of these Bylaws is found, in any action, suit or
proceeding, to be invalid or ineffective, the validity and the effect of the
remaining provisions shall not be affected.
Adopted February 10, 1996.
BYLAWS
OF
PORTLAND BREWING COMPANY
AS ADOPTED FEBRUARY 10, 1994 AND
INCORPORATING AMENDMENTS ADOPTED:
AUGUST 29, 1994
DECEMBER 13, 1994
JULY 11, 1995
DECEMBER 18, 1995
MARCH 6, 1996
APPROVED BY THE BOARD OF DIRECTORS AUGUST 6, 1996
<PAGE>
EXHIBIT 11
PORTLAND BREWING COMPANY
CALCULATION OF NET (LOSS) INCOME PER SHARE
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995
---------- ----------
Actual weighted average shares outstanding 2,070,141 1,793,162
Dilutive common stock options using the
treasury stock method -- 74,840
---------- ----------
Total shares used in per share calculations 2,070,141 1,868,002
========== ==========
Net (loss) income $ (380,150) $ 238,849
========== ==========
Net (loss) income per share (1) $(0.18) $0.13
========== ==========
(1) Fully diluted earning per share is not materially different from primary
earnings per share in the periods presented.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report dated February 28, 1997, included in this
Form 10-KSB, into the Company's previously filed Registration Statement
File No. 33-93754 on Form S-8.
Portland, Oregon
March 20, 1997
/s/ Arthur Andersen LLP
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned EDWIN HUNT hereby
constitutes and appoints CHARLES A. ADAMS AND GLENMORE JAMES, or either of
them, his true and lawful attorneys-in-fact and agents, each with full power
of substitution and resubstitution for him and in his name, place and stead
in any and all capacities, to sign the Form 10-KSB, Annual Report, of
Portland Brewing Co., an Oregon corporation, for fiscal year ended December
31, 1996, and any amendments thereto, and to file this Power of Attorney and
the Form 10-KSB, with all exhibits thereto, and other documents in connection
therewith with the Securities and Exchange Commission, granting unto each of
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about
the premises, as fully to all interests and purposes as he might or could do
in person, hereby ratifying and confirming all that each of said
attorneys-in-fact and agents, or his substitute or substitutes, may do or
cause to be done by virtue hereof.
Dated this 25th day of February, 1997.
Signature
/S/ EDWIN HUNT, Director
- ---------------
Edwin Hunt
<PAGE>
EXHIBIT 24.2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned R. SCOTT MACTARNAHAN
hereby constitutes and appoints CHARLES A. ADAMS AND GLENMORE JAMES, or
either of them, his true and lawful attorneys-in-fact and agents, each with
full power of substitution and resubstitution for him and in his name, place
and stead in any and all capacities, to sign the Form 10-KSB, Annual Report,
of Portland Brewing Co., an Oregon corporation, for fiscal year ended
December 31, 1996, and any amendments thereto, and to file this Power of
Attorney and the Form 10-KSB, with all exhibits thereto, and other documents
in connection therewith with the Securities and Exchange Commission, granting
unto each of said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all interests and purposes as he might
or could do in person, hereby ratifying and confirming all that each of said
attorneys-in-fact and agents, or his substitute or substitutes, may do or
cause to be done by virtue hereof.
Dated this 25th day of February, 1997.
Signature
/S/ R. SCOTT MACTARNAHAN, Director
- ------------------------
R. Scott MacTarnahan
<PAGE>
EXHIBIT 24.3
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned ROBERT M. MACTARNAHAN
hereby constitutes and appoints CHARLES A. ADAMS AND GLENMORE JAMES, or
either of them, his true and lawful attorneys-in-fact and agents, each with
full power of substitution and resubstitution for him and in his name, place
and stead in any and all capacities, to sign the Form 10-KSB, Annual Report,
of Portland Brewing Co., an Oregon corporation, for fiscal year ended
December 31, 1996, and any amendments thereto, and to file this Power of
Attorney and the Form 10-KSB, with all exhibits thereto, and other documents
in connection therewith with the Securities and Exchange Commission, granting
unto each of said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all interests and purposes as he might
or could do in person, hereby ratifying and confirming all that each of said
attorneys-in-fact and agents, or his substitute or substitutes, may do or
cause to be done by virtue hereof.
Dated this 25th day of February, 1997.
Signature
/S/ ROBERT M. MACTARNAHAN, Director
- -------------------------
Robert M. MacTarnahan
<PAGE>
EXHIBIT 24.4
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned SIMON C. OSTLER hereby
constitutes and appoints CHARLES A. ADAMS AND GLENMORE JAMES, or either of
them, his true and lawful attorneys-in-fact and agents, each with full power
of substitution and resubstitution for him and in his name, place and stead
in any and all capacities, to sign the Form 10-KSB, Annual Report, of
Portland Brewing Co., an Oregon corporation, for fiscal year ended December
31, 1996, and any amendments thereto, and to file this Power of Attorney and
the Form 10-KSB, with all exhibits thereto, and other documents in connection
therewith with the Securities and Exchange Commission, granting unto each of
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about
the premises, as fully to all interests and purposes as he might or could do
in person, hereby ratifying and confirming all that each of said
attorneys-in-fact and agents, or his substitute or substitutes, may do or
cause to be done by virtue hereof.
Dated this 25th day of February, 1997.
Signature
SIMON C. OSTLER, Director
- ---------------
Simon C. Ostler
<PAGE>
EXHIBIT 24.5
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned HOWARD M. WALL, JR.
hereby constitutes and appoints CHARLES A. ADAMS AND GLENMORE JAMES, or
either of them, his true and lawful attorneys-in-fact and agents, each with
full power of substitution and resubstitution for him and in his name, place
and stead in any and all capacities, to sign the Form 10-KSB, Annual Report,
of Portland Brewing Co., an Oregon corporation, for fiscal year ended
December 31, 1996, and any amendments thereto, and to file this Power of
Attorney and the Form 10-KSB, with all exhibits thereto, and other documents
in connection therewith with the Securities and Exchange Commission, granting
unto each of said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all interests and purposes as he might
or could do in person, hereby ratifying and confirming all that each of said
attorneys-in-fact and agents, or his substitute or substitutes, may do or
cause to be done by virtue hereof.
Dated this 25th day of February, 1997.
Signature
HOWARD M. WALL JR., Director
- -------------------
Howard M. Wall, Jr.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOUND IN THE COMPANY'S REPORT ON FORM
10-KSB FOR THE YEAR ENDED DECEMBER 31, 1996, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 49
<SECURITIES> 0
<RECEIVABLES> 844
<ALLOWANCES> 56
<INVENTORY> 676
<CURRENT-ASSETS> 2,013
<PP&E> 11,545
<DEPRECIATION> 1,996
<TOTAL-ASSETS> 11,815
<CURRENT-LIABILITIES> 2,070
<BONDS> 0
0
0
<COMMON> 6,716
<OTHER-SE> 124
<TOTAL-LIABILITY-AND-EQUITY> 11,815
<SALES> 12,867
<TOTAL-REVENUES> 12,155
<CGS> 8,337
<TOTAL-COSTS> 8,337
<OTHER-EXPENSES> 4,242
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 85
<INCOME-PRETAX> (529)
<INCOME-TAX> (149)
<INCOME-CONTINUING> (380)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (380)
<EPS-PRIMARY> (.18)
<EPS-DILUTED> (.18)
</TABLE>
