UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
PORTLAND BREWING COMPANY
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed per Exchange Act Rules 14a-6(i)(4) and 0-11.
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
<PAGE>
PRELIMINARY
PORTLAND BREWING COMPANY
2730 NW 31ST AVENUE
PORTLAND, OREGON 97210
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
-------------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders (the "Annual
Meeting") of Portland Brewing Company, an Oregon corporation (the "Company"),
will be held on Saturday, December 12, 1998, at 12:00 p.m., local time, at the
Company's offices, 2730 NW 31st Avenue, Portland, Oregon, 97210, for the
following purposes:
1. To elect five Directors to serve until the next Annual Meeting
of Shareholders and until their successors are duly elected
and qualified (Proposal No. 1);
2. To approve an amendment to the Company's Articles of
Incorporation to increase the number of authorized shares of
Common Stock (Proposal No. 2);
3. To amend the Company's Incentive Stock Option Plan to increase
the number of shares of Common Stock available for issuance
thereunder (Proposal No. 3);
4. To ratify the appointment of Arthur Andersen LLP as
independent accountants for the Company for the fiscal year
ending December 31, 1998 (Proposal No. 4); and
5. To transact such other business as may properly come before
the meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on October 23, 1998 as
the record date for determining shareholders entitled to notice of and to vote
at the meeting or any adjournments thereof. Only shareholders of record at the
close of business on that date are entitled to notice of and to vote at the
Annual Meeting or any adjournments thereof.
By Order of the Board of Directors
Glenmore James
Executive Vice President and Chief Financial Officer
Portland, Oregon
November 12, 1998
YOUR VOTE IS IMPORTANT WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING IN
PERSON. PLEASE COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY PROMPTLY, IN
THE ACCOMPANYING ENVELOPE SO THAT YOUR SHARES WILL BE VOTED. YOUR PROXY MAY BE
REVOKED AT ANY TIME PRIOR TO THE TIME IT IS VOTED. IF YOU DECIDE TO ATTEND THE
MEETING AND WISH TO CHANGE YOUR PROXY VOTE, YOU MAY DO SO AUTOMATICALLY BY
VOTING IN PERSON AT THE MEETING.
<PAGE>
PRELIMINARY
PORTLAND BREWING COMPANY
PROXY STATEMENT FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 12, 1998
---------------
INTRODUCTION
GENERAL
This Proxy Statement, the accompanying 1997 Annual Report on Form 10-KSB, the
Quarterly Report on Form 10-QSB for the quarter ended June 30, 1998, and a
letter to the shareholders of Portland Brewing Company (the "Company") are being
furnished as part of the solicitation of proxies by the Company's Board of
Directors (the "Board of Directors") for use at the Company's Annual Meeting to
be held on Saturday, December 12, 1998, at 12:00 p.m., local time, or at any
adjournments thereof. At the Annual Meeting, shareholders will be asked to elect
five members of the Board of Directors, to approve an amendment to the Company's
Articles of Incorporation to increase the number of authorized shares of Common
Stock, to approve an amendment to increase the number of shares of Common Stock
available for issuance under the Company's Incentive Stock Option Plan, to
ratify the appointment by the Board of Directors of Arthur Andersen LLP as
independent accountants for the Company for the fiscal year ending December 31,
1998, and to transact such other business as may properly come before the
meeting or any adjournments thereof. This Proxy Statement, together with the
enclosed proxy card, the 1997 Annual Report on Form 10-K, the Quarterly Report
on Form 10-Q for the quarter ended June 30, 1998, and a letter from the Company
are first being mailed to shareholders of the Company on or about November 12,
1998.
SOLICITATION, VOTING AND REVOCABILITY OF PROXIES
The Board of Directors has fixed the close of business on October 23, 1998 as
the record date for the determination of the shareholders entitled to notice of
and to vote at the Annual Meeting. Accordingly, only holders of record of shares
of Common Stock at the close of business on such date will be entitled to vote
at the Annual Meeting, with each such share entitling its owner to one vote on
all matters properly presented at the Annual Meeting. On the record date, there
were 3,365,267 shares of Common Stock outstanding. The presence, in person or by
proxy of a majority of the total number of outstanding shares of Common Stock
entitled to vote at the Annual Meeting is necessary to constitute a quorum at
the Annual Meeting.
If the enclosed form of proxy is properly executed and returned in time to be
voted at the Annual Meeting, the shares represented thereby will be voted in
accordance with the instructions marked thereon. EXECUTED BUT UNMARKED PROXIES
WILL BE VOTED FOR THE ELECTION OF THE FIVE NOMINEES FOR ELECTION TO THE BOARD OF
DIRECTORS, FOR THE APPROVAL OF AN AMENDMENT TO THE COMPANY'S ARTICLES OF
INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK, FOR
THE APPROVAL OF AN AMENDMENT TO THE COMPANY'S INCENTIVE STOCK OPTION PLAN TO
INCREASE THE NUMBER OF SHARES OF COMMON STOCK AVAILABLE FOR ISSUANCE THEREUNDER
AND FOR THE RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS THE
COMPANY'S INDEPENDENT ACCOUNTANTS FOR THE YEAR ENDING DECEMBER 31, 1998. The
Board of Directors does not know of any matters other than those described in
the Notice of Annual Meeting that are to come before the Annual Meeting. If any
other matters are properly brought before the Annual Meeting, the persons named
in the proxy will vote the shares represented by such proxy upon such matters as
determined by the persons named in the proxy.
Shareholders who execute proxies retain the right to revoke them at any time
prior to the exercise of the powers conferred thereby by filing a written notice
of revocation with, or by delivering a duly executed proxy bearing a later date
to, Corporate Secretary, Portland Brewing Company, 2730 NW 31st Avenue,
<PAGE>
PRELIMINARY
Portland, Oregon 97210, or by attending the Annual Meeting and voting in person.
All valid, unrevoked proxies will be voted at the Annual Meeting.
ELECTION OF DIRECTORS
(PROPOSAL NO. 1)
In accordance with the Company's Bylaws, as amended, the Board of Directors
shall consist of no less than four and no more than nine Directors, the specific
number to be determined by resolution adopted by the Board of Directors. The
number of directors is currently set at seven, until December 12, 1998, at which
time the number of directors will be set at five. Unless otherwise instructed,
the proxy holders will vote the proxies received by them FOR the nominees named
below. In the event that any nominee of the Company is unable or declines to
serve as a Director at the time of the Annual Meeting, the proxies will be voted
for any nominee who shall be designated by the present Board of Directors to
fill the vacancy. The Company is not aware of any nominee who will be unable or
will decline to serve as a Director.
In the event that additional persons are nominated for election as Directors,
the proxy holders intend to vote all proxies received by them in such a manner
as will assure the election of as many of the nominees listed below as possible,
and, in such event, the specific nominees to be voted for will be determined by
the proxy holders.
NOMINEES FOR DIRECTOR
Information with respect to the persons nominated by the Board of Directors to
be elected as Directors is set forth below. The term of office for each person
elected as a director will continue until the next Annual Meeting of
Shareholders and until a successor has been elected and qualified.
NAME OF NOMINEE AGE
--------------- ---
Charles A. (Tony) Adams 52
Frederick L. Bowman 53
Robert M. MacTarnahan 83
R. Scott MacTarnahan 52
Howard M. Wall, Jr. 52
CHARLES A. (TONY) ADAMS. Mr. Adams has been Chairman of the Board of Directors
and President and Chief Executive Officer 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.
FREDERICK L. BOWMAN. Mr. Bowman is a founder of the Company and has been Vice
President, Sales and Marketing since February 1992. In July 1997 Mr. Bowman was
also elected Treasurer and Secretary, and in September 1998, Mr. Bowman was
appointed to the Board of Directors. 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.
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PRELIMINARY
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 MacTarnahan's Ale is named after him. See "Certain
Relationships And Related 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.
DIRECTORS WHO ARE NOT NOMINEES
EDWIN HUNT. Mr. Hunt, age 75, 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. Mr. Hunt will not stand for re-election as a Director.
SIMON C. OSTLER. Mr. Ostler, age 52, 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. Mr. Ostler will not stand for
re-election as a Director.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Company held a total of three (3) meetings during
1997 and took action pursuant to two (2) unanimous consents. During 1997, each
incumbent Director attended at least 75% of the aggregate number of meetings of
the Board of Directors and of the committees of the Board of Directors on which
he served. The Board of Directors has an Audit Committee, an Executive
Compensation Committee, a Nominating Committee, and an Administrative Committee
of the Company's Incentive Stock Option Plan. The Audit Committee met one time
during 1997, with all members present at that meeting. The Nominating Committee
met one time during 1997, with all members present at that meeting. None of the
other committees met during 1997.
The Audit Committee, which consists of Messrs. Hunt and Wall is responsible for
overseeing actions taken by the Company's independent accountants and reviews
the Company's internal financial controls. The Executive Compensation Committee,
which consists of Messrs. R. Scott MacTarnahan, Wall and Ostler is responsible
for determining the compensation of the officers of the Company. The Nominating
Committee, which consists of Messrs. Adams, R. Scott MacTarnahan, Wall and
Ostler is responsible for recommending to the Board of Directors a slate of
nominees to be proposed for election at the Annual Meeting of Shareholders. The
Company's Nominating Committee will consider recommendations from the Company's
shareholders of nominees for the Board of Directors. Presently, the Nominating
Committee has no formal procedures for the submission of such recommendations.
See "Management - Director Compensation" for certain information regarding
compensation of directors.
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PRELIMINARY
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE
ELECTION OF ITS NOMINEES FOR DIRECTOR. If a quorum is present, the Company's
Bylaws provide that directors are elected by a plurality of the votes cast by
the shares entitled to vote. Abstentions and broker non-votes are counted for
purposes of determining whether a quorum exists at the Annual Meeting, but are
not counted and have no effect on the determination of whether a plurality
exists with respect to a given nominee.
AMENDMENT OF THE COMPANY'S ARTICLES OF INCORPORATION TO
INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
(PROPOSAL NO. 2)
The Company's Articles of Incorporation currently authorize the Company to issue
up to 5,000,000 shares of Common Stock with no par value and 100,000 shares of
preferred stock. As of September 30, 1998, there were 3,365,267 shares of Common
Stock outstanding and approximately 140,548 shares of Common Stock reserved or
designated for future issuance under the Company's Incentive Stock Option Plan,
1994 Non-Qualified Stock Option Plan, and stock purchase warrants. The number of
unissued and unreserved shares of Common Stock was 1,494,185 at September 30,
1998. No preferred shares have been issued or reserved or designated for
issuance.
On September 10, 1998, the Board of Directors of the Company unanimously
determined that it would be advisable and in the best interest of the Company to
increase the number of authorized shares of Common Stock in order to provide the
Company with an adequate supply of authorized but unissued shares of Common
Stock for general corporate needs, including additional financing, payment of
stock dividends, stock splits, acquisitions of other businesses and employee
incentive and benefit plans. While the Company currently has no arrangements,
understandings or commitments with respect to the issuance of any of the
additional shares, it is considered advisable to have sufficient authorized and
unissued shares available to enable the Company, as the need may arise, to move
promptly to take advantage of market conditions and the availability of other
favorable opportunities without the delay and expense involved in calling a
special meeting of shareholders. Unless otherwise required by applicable law or
regulations, the additional shares of Common Stock will be issuable without
further authorization by vote or consent of the shareholders and on such terms
and for such consideration as may be determined by the Company's Board of
Directors. The Company is not subject to the listing standards of any exchange
or inter-dealer quotation system and therefore is not subject to any shareholder
approval requirements for issuance of additional shares of Common Stock.
The amendment increasing the authorized capital of the Company, could, under
certain circumstances, discourage or make more difficult an attempt to gain
control of the Company or the Board of Directors by tender offer or proxy
contest, or to consummate a merger or consolidation with the Company after
acquiring control, and to remove incumbent management, even if such transactions
were favorable to the shareholders of the Company. In certain circumstances, the
issuance of the additional shares may be used to create voting impediments or to
frustrate persons seeking to gain control of the Company, especially if the
shares were issued in a private placement to persons sympathetic to management
and opposed to any attempt to gain control of the Company. Accordingly, this
proposal to amend the Articles of Incorporation may be deemed (under certain
circumstances which may or may not occur) to be an anti-takeover measure.
However, the proposal is not being presented as, nor is it part of, any plan to
adopt a series of anti-takeover measures.
The additional authorized shares of Common Stock would, when issued, have the
same rights as the issued and outstanding shares of Common Stock. There are no
preemptive rights with respect to any shares of Common Stock. Although the Board
would authorize the issuance of additional shares of Common Stock based on its
judgment as in the best interests of the Company and its shareholders, the
issuance of Common Stock could have the effect of diluting the voting power and
book value per share of the outstanding Common Stock.
4
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PRELIMINARY
In the absence of contrary specifications, the shares represented by the proxies
will be voted FOR the following resolution:
RESOLVED, that the shareholders of Portland Brewing Company adopt an
amendment to Paragraph A of Article 3.01 of the Company's Articles of
Incorporation to increase the number of authorized shares of Common
Stock from 5,000,000 to 25,000,000.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THIS PROPOSAL. If a
quorum is present, the Company's Bylaws provide that this proposal will be
approved if the votes cast by the shareholders entitled to vote favoring the
proposal exceeds the votes cast opposing the proposal. Abstentions and broker
non-votes are counted for purposes of determining whether a quorum exists at the
Annual Meeting, but are not counted and have no effect on the determination of
the outcome of this proposal.
AMENDMENT OF THE COMPANY'S INCENTIVE STOCK OPTION PLAN
(PROPOSAL NO. 3)
The Company maintains its Incentive Stock Option Plan (the "ISO Plan") to
provide incentives to the Company's key employees who provide services to the
Company. The Board of Directors believes that the availability of stock
incentives is an important factor in the Company's ability to attract and retain
the best available personnel for positions of substantial responsibility and to
provide an incentive for them to exert their best efforts on behalf of the
Company. A total of 163,500 shares of Common Stock have been reserved for
issuance under the ISO Plan. As of September 30, 1998, only 28,850 shares
remained available for issuance under the ISO Plan. The Board of Directors
believes that additional shares will be needed under the ISO Plan to provide
appropriate incentives to employees. Accordingly, the Board of Directors has
approved, and recommends shareholder adoption of, an amendment to the ISO Plan
that would increase from 163,500 shares to 400,000 shares the number of shares
of Common Stock that are reserved for issuance under the ISO Plan.
SUMMARY OF ISO PLAN
The following discussion is intended only as a summary of the material
provisions of the ISO Plan. Shareholders are encouraged to review the complete
copy of the ISO Plan, which is included herein as Exhibit A.
The ISO Plan, which was approved by the Company's shareholders on October 15,
1992, and amended November 8, 1994, provides for grants of "incentive stock
options" within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"). As of September 30, 1998, approximately 35 persons were
eligible to participate in the ISO Plan. Because the officers and employees of
the Company who may participate in the ISO Plan and the amount of their options
will be determined by the Board of Directors in its discretion, it is not
possible to state the names or positions of, or the number of options that may
be granted to, the Company's directors, officers and employees. However, the
aggregate fair market value at the time of grant of all Incentive Stock Options
granted to any one participant, which are exercisable for the first time by the
participant during any calendar year under all incentive stock plans of the
Company, shall not exceed $100,000.
The administration of the ISO Plan has been delegated to the Board of Directors.
In addition to determining who will be granted options, the Board of Directors
has the authority and discretion to determine when options will be granted and
the number of options to be granted. Only "employees" of the Company as that
term is defined in the Code will be entitled to receive Incentive Stock Options.
See "Federal Income Tax Consequences" below. The Board of Directors also may
determine the time or times when each option becomes exercisable, the duration
of the exercise period for options and the form or forms of the instruments
evidencing options granted under the ISO Plan. The Board of Directors also may
construe the ISO Plan and
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PRELIMINARY
the provisions in the instruments evidencing options granted under the ISO Plan
to participants and is empowered to make all other determinations deemed
necessary or advisable for the administration of the ISO Plan.
The term of each option granted under the ISO Plan will be ten years from the
date of grant, or such shorter period as may be established at the time of the
grant. An option granted under the ISO Plan may be exercised at such times and
under such conditions as determined by the Board of Directors, however, no
option shall vest prior to the date which is one year after the date on which
the Company grants such option. If a person who has been granted an option
ceases to be an employee of the Company, such person may, subject to certain
exceptions, exercise that option during the three month period after the date of
termination, but only to the extent that the option was exercisable on the date
of termination. If a person who has been granted an option ceases to be an
employee as a result of such person's total and permanent disability, such
person may exercise that option at any time within twelve months after the date
of termination, but only to the extent that the option was exercisable on the
date of termination. No option granted under the ISO Plan is transferable other
than at death, and each option is exercisable during the life of the optionee
only by the optionee. In the event of the death of a person who has received an
option, the option generally may be exercised by a person who acquired the
option by bequest or inheritance during the twelve month period after the date
of death to the extent that such option was exercisable at the date of death.
The exercise price of incentive stock options granted under the ISO Plan may not
be less than the fair market value of a share of Common Stock on the date of
grant of the option. For any option recipient who owns more than 10% of the
Company's Common Stock, at the time of grant, the exercise price must be at
least 110% of fair market value. The consideration to be paid upon exercise of
an option shall consist entirely of cash or with the consent of the Board of
Directors, shares of Common Stock of the Company valued at its then current fair
market value, or by combination of cash and Common Stock. In the event of stock
dividends, splits, and similar capital changes, the ISO Plan provides for
appropriate adjustments in the number of shares available for option and the
number and option prices of shares subject to outstanding options.
Upon dissolution or liquidation of the Company, or upon a reorganization, merger
or consolidation of the Company with one or more corporations as a result of
which the Company goes out of existence or becomes a subsidiary of another
corporation, or upon a sale of substantially all of the Company's property or
more than eighty percent (80%) of its then outstanding capital stock to another
corporation, the ISO Plan will terminate and any options granted under the ISO
Plan will also terminate unless other provisions are made in writing.
The ISO Plan will continue in effect until August 1, 2002, unless earlier
terminated by the Board of Directors, or until all shares available for issuance
have been issued and all restrictions on such shares have lapsed, but such
termination will not affect the terms of any options outstanding at that time.
The Board of Directors may terminate or amend the ISO Plan without the approval
of the Company's shareholders but shareholder approval would be required in
order to amend the ISO Plan to (i) increase the total number of shares, (ii)
materially modify the requirements as to eligibility for participation in the
ISO Plan or to materially increase the benefits accruing to participants under
the ISO Plan, (iii) extend the maximum option period under the ISO Plan or (iv)
make any change in the ISO Plan, the effect of which would be to disqualify
options granted under the ISO Plan from favorable tax treatment as an "incentive
stock option" under the Code.
The issuance of shares of Common Stock upon the exercise of options is subject
to compliance with applicable securities laws.
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PRELIMINARY
FEDERAL INCOME TAX CONSEQUENCES
The federal income tax discussion set forth below is included for general
information only. Optionees are urged to consult their tax advisors to determine
the particular tax consequences applicable to them, including the application
and effect of foreign, state and local income and other tax laws.
Options designated as incentive stock options are intended to fall within the
provisions of Section 422 of the Code. An optionee recognizes no taxable income
as the result of the grant or exercise of such an option. If stock acquired upon
exercise of an option is held at least until (i) two years following the grant
of the option and (ii) one year following exercise, then any gain on subsequent
sale of the stock will be taxed as a long-term capital gain. In that case, the
Company will not be entitled to any deduction for federal income tax purposes.
In general, if an optionee sells shares within two years after the date of grant
or within one year after the date of exercise, the excess of the fair market
value of the shares at the date of exercise over the option exercise price (not
to exceed the gain realized on the sale) will be taxable as ordinary income at
the time of sale. If the optionee sells the stock for less than the option
exercise price, the loss will be a long-term or short-term capital loss and no
income will be recognized. Any ordinary income recognized by the optionee upon
the disposition of stock would be deductible by the Company for federal income
tax purposes.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THIS PROPOSAL. If a
quorum is present, the Company's Bylaws provide that this proposal will be
approved if a majority of the votes cast by the shareholders entitled to vote
favoring the proposal exceeds the votes cast opposing the proposal. Abstentions
and broker non-votes are counted for purposes of determining whether a quorum
exists at the Annual Meeting but are not counted and have no effect on the
determination of the outcome of this proposal.
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
(PROPOSAL NO. 4)
The Board of Directors has selected Arthur Andersen LLP, independent
accountants, to audit the financial statements of the Company for the year
ending December 31, 1998, subject to ratification by the shareholders.
Unless otherwise indicated, properly executed proxies will be voted in favor of
ratifying the appointment of Arthur Andersen LLP to audit the books and accounts
of the Company for the year ending December 31, 1998. No determination has been
made as to what action the Board of Directors would take if the shareholders do
not ratify the appointment.
A representative of Arthur Andersen LLP is expected to be present at the Annual
Meeting. The representative will be given the opportunity to make a statement on
behalf of his firm if such representative so desires, and will be available to
respond to any appropriate questions of any shareholder. Arthur Andersen LLP was
the Company's independent accountants for the year ended December 31, 1997.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THIS PROPOSAL. If a
quorum is present the Company's Bylaws provide that ratification of this
proposal will be approved if the votes cast by the shareholders entitled to vote
favoring the ratification exceeds the votes cast opposing the ratification.
Abstentions and broker non-votes are counted for purposes of determining whether
a quorum exists at the Annual Meeting, but are not counted and have no effect on
the determination of the outcome of this proposal.
7
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PRELIMINARY
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of Common Stock of the Company as of September 30, 1998 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.
<TABLE>
<CAPTION>
SHARES PERCENT OF
NAME OF BENEFICIAL OWNER OR BENEFICIALLY SHARES
NUMBER OF PERSONS IN GROUP OWNED (1) OUTSTANDING
-------------------------- --------- -----------
<S> <C> <C>
Shareholder Group (9) 1,875,196.5 53.6 %
Robert M. MacTarnahan (3) (9) 1,875,196.5 53.6
11416 SW Lynnridge
Portland, Oregon 97225
R. Scott MacTarnahan (4) (9) 1,875,196.5 53.6
11416 SW Lynnridge
Portland, Oregon 97225
Charles A. (Tony) Adams (2) (5) (9) 1,875,196.5 53.6
Frederick L. Bowman (2) (7) 52,445 1.6
Glenmore James (2) (6) 29,500 *
All Officers and Directors as a group,
(eight persons) (8) (9) 2,000,791.5 56.4 %
* Less than 1%
<FN>
<F1> 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.
<F2> The business address for these individuals is 2730 NW 31st Avenue,
Portland, Oregon 97210.
<F3> Includes 22,860 shares owned individually by Mr. Robert M. MacTarnahan,
73,335 shares held by Black Lake Investments, 765,162 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
exercisable.
8
<PAGE>
PRELIMINARY
<F4> Includes 73,335 shares held by Black Lake Investments, 765,162 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 exercisable.
<F5> Includes 180,300 shares held by Electra Partners, Inc., an entity
controlled by Mr. Adams, 666,192 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.
<F6> Includes 12,000, 6,000 and 10,000 shares which may be purchased for
$5.3333, $7.00, and $7.00 per share, respectively, upon exercise of
incentive stock options held by Mr. James.
<F7> Includes 44,445 shares owned individually by Mr. Bowman, and 8,000
shares which may be purchased for $7.00 per share upon exercise of
incentive stock options held by Mr. Bowman.
<F8> Includes 93,000 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.
<F9> Robert M. MacTarnahan, Robert S. MacTarnahan, Harmer Mill & Logging
Supply Co. (dba Harmer Company) (11416 SW Lynnridge, Portland, Oregon
97225), Harco Products, Inc. (11416 SW Lynnridge, Portland, Oregon
97225), Black Lake Investments (11416 SW Lynnridge, Portland, Oregon
97225), MacTarnahan Limited Partnership (11416 SW Lynnridge, Portland,
Oregon 97225), Charles A. Adams, Electra Partners, Inc. (1765
Farmington Road, Aloha, Oregon 97007) and the Charles A. Adams Family
Trust (1539 SW Elizabeth Court, Portland, Oregon 97201) are members of
a "group" as that term is used in Section 13(d)(3) of the Securities
Exchange Act of 1934 ("34 Act"). Pursuant to Rule 13d-5 promulgated
under the 34 Act, the group is deemed to beneficially own all shares of
the Company which are beneficially owned by any member of the group and
therefore the group beneficially owns 1,875,196.5 shares. Because each
member of the group shares investment and voting control of the group
shares, each member of the group is deemed to beneficially own all
shares of the group. Therefore, (a) Robert M. MacTarnahan is deemed to
beneficially own 933,990.75 shares in addition to the shares described
in footnote 3, (b) R. Scott MacTarnahan is deemed to beneficially own
956,250.75 shares in addition to the shares described in footnote 4,
and (c) Charles A. Adams is deemed to beneficially own 947,805.75
shares in addition to the shares described in footnote 5.
</FN>
</TABLE>
9
<PAGE>
PRELIMINARY
CHANGE IN CONTROL
In December 1997, the Company borrowed a total of $400,000 under 10% Amortizing
Subordinated Notes (collectively, the "Notes"). Of the $400,000, $200,000 was
borrowed from each of (i) Harmer Mill & Logging Supply Co. ("Harmer"), an entity
controlled by Robert W. MacTarnahan, and (ii) Charles A. Adams Family Trust (the
"Trust"), an entity controlled by Charles A. Adams. On August 25, 1998, each of
Harmer and the Trust agreed to exchange its Notes for 645,162 shares of the
Company's Common stock.
In August 1998, the MacTarnahan Limited Partnership purchased approximately $3.5
million of secured Company debt held by Bank of America, NT&SA ("Debt"). In
connection with the purchase of the Debt, Electra Partners Inc. and the Trust
entered into a letter voting agreement on August 26, 1998 with Robert M.
MacTarnahan and R. Scott MacTarnahan pursuant to which Electra Partners, Inc.
and the Trust agreed to vote all of their shares of Common Stock at the
direction of Robert M. MacTarnahan and R. Scott MacTarnahan prior to or at the
1998 Annual Meeting of Shareholders. [ On October __, 1998, Electra Partners,
Inc. and the Trust entered into a [Voting Agreement ] which formalized the
previous voting arrangement and extended the term of the voting arrangement
until all of the Debt is paid to the MacTarnahan Limited Partnership. ]
Pursuant to the above events, a change in control of the Company occurred on
August 26, 1998 when Robert M. MacTarnahan and R. Scott MacTarnahan acquired
voting control over the 846,492 shares held by Electra Partners, Inc. and the
Trust. Robert M. MacTarnahan and R. Scott MacTarnahan each beneficially own
1,875,196.5 shares of Common Stock, or 53.6% of the outstanding shares of Common
Stock. Prior to the change in control, no person beneficially owned more than
50% of the outstanding shares of Common Stock.
See "Certain Relationships and Related Transactions."
OPTIONS, WARRANTS AND RIGHTS
The following table sets forth certain information regarding outstanding options
and warrants to purchase shares of Common Stock of the Company as of September
30, 1998 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 OPTIONS
NAME OF HOLDER AND WARRANTS EXERCISE PRICE DATE OF 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)
R. Scott MacTarnahan 6,000 $5.333 (2)
Charles A. (Tony) Adams 36,000 $5.866 (3)
Frederick L. Bowman 8,000 $7.00 (4)
Glenmore James 28,000 $5.333-$7.00 (5)
All Directors and officers as
a group, (eight persons) 180,697.5 $3.333-$7.00 (6)
<FN>
<F1> 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.
10
<PAGE>
PRELIMINARY
<F2> Options and Warrants are currently exercisable.
<F3> As of September 30, 1998, options to purchase 33,750 shares of Common
Stock were exercisable. Options to purchase the remaining 2,250 shares
of Common Stock become exercisable quarterly, and will be fully
exercisable in November 1998.
<F4> As of September 30, 1998, options to purchase 4,000 shares of Common
Stock were exercisable. Options to purchase the remaining 4,000 shares
of Common Stock become exercisable quarterly, and will be fully
exercisable in January 2001.
<F5> As of September 30, 1998, options to purchase 17,000 shares of Common
Stock were exercisable. Options to purchase the remaining 11,000 shares
of Common Stock become exercisable quarterly, and will be fully
exercisable as follows: 3,000 shares in November 1999, 3,000 shares in
January 2001, and 5,000 in March 1999.
<F6> As of September 30, 1998, options to purchase 75,750 shares of Common
Stock were exercisable. Options to purchase the remaining 17,250 shares
of Common Stock become exercisable quarterly, and will be fully
exercisable at various dates from November 1998 through January 2001.
As of September 30, 1998, warrants to purchase 87,697.5 shares of
Common Stock were exercisable.
</FN>
</TABLE>
MANAGEMENT
EXECUTIVE OFFICERS
Information with respect to the Company's current executive officers is set
forth below. Officers of the Company are elected by the Board of Directors and
hold office until their successors are elected and qualified.
<TABLE>
<CAPTION>
NAME AGE CURRENT POSITION(S) WITH COMPANY
---- --- --------------------------------
<S> <C> <C>
Charles A. (Tony) Adams 52 Chairman of the Board, President and Chief
Executive Officer
Vice President, Sales and Marketing,
Frederick L. Bowman 53 Treasurer and Secretary
Executive Vice President, Chief Financial
Glenmore James 43 Officer
</TABLE>
For information on the business backgrounds of Mr. Adams and Mr. Bowman, see
"Nominees for Director".
GLENMORE JAMES. Mr. James has been Chief Financial Officer since June 1994,
served as Vice President and Treasurer from June 1994 until July 1997, and
served as Secretary from September 1996 until July 1997. In July 1997 Mr. James
was elected Executive Vice President. 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.
11
<PAGE>
PRELIMINARY
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table and notes set forth information regarding all cash
compensation paid by the Company during the year ended December 31, 1997, to
each of the three most highly compensated officers and all officers as a group.
<TABLE>
<CAPTION>
CAPACITIES IN WHICH AGGREGATE
NAME REMUNERATION WAS RECEIVED REMUNERATION
---- ------------------------- ------------
<S> <C> <C>
Charles A. (Tony) Adams Chairman of the Board, President and Chief $ 76,500
Executive Officer
Glenmore James Executive Vice President, Chief Financial $ 89,391
Officer
Frederick L. Bowman Vice President, Sales and Marketing, $ 47,492
Treasurer and Secretary
All officers as a group (3 persons) $ 213,383
</TABLE>
INCENTIVE STOCK OPTION PLAN. In October 1992, the shareholders of the Company
approved the Company's Incentive Stock Option Plan (the "ISO Plan""). The ISO
Plan 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 ISO Plan.
Pursuant to the ISO Plan, 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 September 30, 1998, options
covering 130,150 shares of the Company's Common Stock were outstanding under the
ISO Plan.
RESTATED CASH INCENTIVE PLAN. The Company may award its officers and employees,
under its Restated Cash Incentive Plan ("the Plan"), 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 1997 or 1996 under the 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
September 30, 1998, options covering 21,000 shares of the Company's Common Stock
were outstanding under the NQSOP.
DIRECTOR COMPENSATION
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 1997.
12
<PAGE>
PRELIMINARY
CERTAIN RELATIONSHIPS AND RELATED 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. 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. 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 1995, after a series of transactions, the
property and the lease were contributed to Portland Brewing Building, L.L.C.,
which is owned 50% by MacTarnahan Limited Partnership (whose general partner is
Harmer and whose limited partners are Robert M. MacTarnahan and Ruth
MacTarnahan); 25.1604% by Electra; and 24.8396% by L & L Land Co. (a general
partnership consisting of Howard M. Wall, a director of the Company and his
wife, Patricia Wall). In connection with the negotiation of this lease,
MacTarnahan Limited Partnership and Electra Partners, Inc. each have warrants
for the purchase of 43,848.75 shares of Common Stock, exercisable at any time
through December 31, 2002, at an exercise price of $3.333 per share.
Monthly lease payments, which began June 15, 1993, are $22,060 plus property
taxes, insurance and maintenance. In December 1997, in connection with the
issuance of $400,000 of 10% Amortizing Subordinated Notes to Harmer and the
Charles A. Adams Family Trust, lease payments were reduced by $5,000 for each of
the months of January through July 1998, and by $3,060 for each of the months of
August and September.
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 Option to Purchase and Agreement and Option to Lease (the "Option
Agreement") with the Company dated December 28, 1995, pursuant to which (a) the
Company was granted the exclusive and irrevocable right and option to acquire
the Adjacent Building until December 31, 1998, 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) the Company was granted the right and option to lease the
entirety of the Adjacent Building if a written notice is given by the Company
before the later of September 30, 1998 or thirty (30) days following the 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, 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 agreed to lease the
entirety of the Adjacent Building through March 31, 1999 in the event the Power
Transmission Products, Inc. lease is terminated and vacated prior to March 31,
1999.
13
<PAGE>
PRELIMINARY
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 License
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 1997 and 1996 were
$23,430 and $21,974, respectively, based on the sale of 23,430 and 21,974
barrels, respectively, of MacTarnahan's Ale during the same periods.
10% AMORTIZING SUBORDINATED NOTES (SEE ALSO "CHANGE IN CONTROL")
In December 1997, the Company borrowed $400,000 under 10% Amortizing
Subordinated Notes (the "Notes"). Of the $400,000, $200,000 was borrowed from
each of (i) Harmer and (ii) the Trust, an entity controlled by Charles A. Adams,
the Company's President. Payments under the Notes are due in thirty six equal
monthly principal payments of $11,111 commencing July 1, 1999. Interest is
payable monthly at 10% per annum, commencing on February 1, 1998. Proceeds under
the Notes were applied to the outstanding balance under the Company's line of
credit. The Notes were secured by a second security interest in the Company's
accounts receivable and inventory.
On August 25, 1998, Harmer and the Trust were each issued 645,162 shares of the
Company's Common Stock in exchange for the cancellation of the Notes.
14
<PAGE>
PRELIMINARY
PURCHASE AND RESTRUCTURING OF SECURED DEBT
On August 17, 1998, the MacTarnahan Limited Partnership purchased approximately
$3.5 million of secured Company debt held by Bank of America, NT&SA ("Debt") and
evidenced by a Business Loan Agreement dated as of December 15, 1995, as amended
("Loan Agreement") and a Security Agreement (Receivables, Inventory and
Equipment) dated December 15, 1995 and related UCC financing statements
("Security Agreement"). In addition, on August 17, 1998 the Company entered into
a Credit and Forbearance Agreement with the MacTarnahan Limited Partnership
pursuant to which the MacTarnahan Limited Partnership agreed to forbear from
exercising its remedies with respect to the Debt and agreed to make up to an
additional $600,000 in working capital advances to the Company pursuant to a
Promissory Note dated August 17, 1998 ("$600,000 Note") which is secured by the
Security Agreement. Interest under the $600,000 Note accrues on advances at the
rate the MacTarnahan Limited Partnership pays under its bank line of credit to
fund advances, plus 1%. All principal and interest under the $600,000 Note is
payable on demand on or after September 1, 1998.
On September 2, 1998, the Company entered into a Loan Agreement with the Bank of
the Northwest ("Loan Agreement") which replaced the $600,000 Note and provided
for a revolving $600,000 loan to the Company at an interest rate of 7.99%. The
Loan Agreement is guaranteed by Harmer Mill & Logging Supply Co. ("Harmer") and
the guarantee is secured by a Harmer $600,000 certificate of deposit for which
Harmer will receive an accommodation fee in an amount equal to [1%] per year on
the outstanding principal loan balance, as in effect from time to time, on the
Loan Agreement.
On October ___, 1998, the Company and the MacTarnahan Limited Partnership
entered into a new agreement ("Replacement Agreement") which replaced the Credit
Agreement and the Bank of America Loan Agreement and reduced the outstanding
amount of the loan previously due under the Loan Agreement (which was
subsequently assigned to the MacTarnahan Limited Partnership) to approximately
$2,100,000. The Replacement Agreement is secured by the Security Agreement and
provides for interest at the rate of ___% per annum.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the 34 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"). Executive
officers, Directors and greater than ten percent shareholders 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 1997, all executive officers, Directors and greater than
10% shareholders complied with all applicable filing requirements, except for a
filing on Form 5 for Mr. James reporting the grant of stock options in 1997,
which was filed late.
SHAREHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Shareholder proposals intended to be presented at the Company's 1999 Annual
Meeting of Shareholders must be received by the Company at its principal office
no later than April 26, 1999, in order that they may be considered for inclusion
in the Proxy Statement and form of Proxy relating to that meeting.
The proxies appointed by the Company will have discretionary authority to vote
on any proposal which in presented at the 1999 Annual Meeting of shareholders
and not contained in the Company's proxy materials unless the Company receives
notice of such proposal at its principal office no later than July 10, 1999.
15
<PAGE>
PRELIMINARY
OTHER MATTERS
The Company knows of no other matters to be submitted at the meeting. If any
other matters properly come before the meeting, it is the intention of the
persons named in the enclosed form of Proxy to vote the shares they represent as
the proxy holders determine to be in the best interest of the Company.
COST OF SOLICITATION
The cost of soliciting proxies will be borne by the Company. In addition to use
of the mails, proxies may be solicited personally or by telephone by directors,
officers and employees of the Company, who will not be specially compensated for
such activities. Such solicitations may be made personally, or by mail,
facsimile, telephone, telegraph or messenger. The Company will also request
persons, firms and companies holding shares in their names or in the name of
their nominees, which are beneficially owned by others, to send proxy materials
to and obtain proxies from such beneficial owners. The Company will reimburse
such persons for their reasonable expenses incurred in that connection.
ADDITIONAL INFORMATION
A copy of the Company's Annual Report on Form 10-KSB for the year ended December
31, 1997 accompanies this Proxy Statement. The Company will provide, without
charge on the written request of any beneficial owner of shares of the Company's
Common Stock entitled to vote at the Annual Meeting, an additional copy of the
Company's Annual Report on Form 10-KSB as filed with the Securities and Exchange
Commission for the year ended December 31, 1997. Written requests should be
mailed to the Secretary, Portland Brewing Company, 2730 NW 31st Avenue,
Portland, Oregon, 97210.
By Order of the Board of Directors
Glenmore James
Executive Vice President, Chief Financial Officer
November 12, 1998
16
<PAGE>
EXHIBIT A
INCENTIVE STOCK OPTION PLAN
1
<PAGE>
PORTLAND BREWING COMPANY
INCENTIVE STOCK OPTION PLAN
Prepared by:
SCHWABE, WILLIAMSON & WYATT
1211 S.W. Fifth Avenue
Pacwest Center, Suites 1600-1800
Portland, OR 97204
<PAGE>
TABLE OF CONTENTS
PAGE
----
1. ESTABLISHMENT, PURPOSE AND DEFINITIONS................................... 1
1.1 Purpose.............................................................. 1
1.2 Plan................................................................. 1
2. DEFINITIONS.............................................................. 1
3. ADMINISTRATION OF PLAN................................................... 3
3.1 Administration by Board.............................................. 3
3.2 Rules and Regulations................................................ 3
3.3 Binding Authority.................................................... 3
3.4 Administration by Committee.......................................... 3
4. ELIGIBILITY.............................................................. 4
5. NUMBER OF SHARES AVAILABLE FOR GRANT..................................... 4
5.1 Aggregate Shares Available........................................... 4
5.2 Change in Shares..................................................... 4
6. TERMS AND CONDITIONS OF OPTIONS.......................................... 4
6.1 Written Agreement.................................................... 4
6.2 Period of Grant...................................................... 4
6.3 Period of Exercise................................................... 4
6.4 Limit on Options Issued.............................................. 5
6.5 Exercise Price....................................................... 5
6.6 Assignment........................................................... 5
6.7 Vesting and Conditions............................................... 5
6.8 Options Granted to Directors......................................... 5
7. EXERCISE OF OPTION....................................................... 5
7.1 Written Request for Exercise......................................... 5
7.2 Payment Upon Exercise................................................ 6
7.3 Payment of Option Exercise Price..................................... 6
7.4 Change in Corporate Structure........................................ 6
7.5 Limitations on Exercise.............................................. 7
7.6 Issuance of Shares................................................... 8
7.7 Restrictions on Issuance of Shares................................... 8
8. FAIR MARKET VALUE........................................................ 9
9. USE OF PROCEEDS.......................................................... 9
10. ISSUANCE OF CERTIFICATES................................................. 9
<PAGE>
TABLE OF CONTENTS
PAGE
----
11. SUSPENSION, AMENDMENT OR TERMINATION OF THE PLAN.........................10
11.1 Board Authority; Plan Duration......................................10
11.2 Shareholder Approval................................................10
11.3 Effect of Amendment.................................................10
12. MISCELLANEOUS PROVISIONS.................................................10
12.1 No Contractual Relationship.........................................10
12.2 Substitution of Options.............................................11
12.3 Participant's Rights................................................11
12.4 Availability of Plan................................................11
12.5 Notice..............................................................11
12.6 Titles and Headings.................................................11
12.7 Governing Law.......................................................11
13. CLAIMS PROCEDURE.........................................................12
<PAGE>
PORTLAND BREWING COMPANY
INCENTIVE STOCK OPTION PLAN
1. ESTABLISHMENT, PURPOSE AND DEFINITIONS
1.1 PURPOSE.
The purpose of the Plan is to give key employees of the Company an
opportunity to purchase common stock of the Company pursuant to options which
qualify as "incentive stock options" under Code Section 422. The Plan is adopted
in the belief that providing key employees with a stake in the Company's
successful operation will act as an incentive to them to expand and improve the
profit position of the Company and will materially aid the Company in obtaining
and retaining key employees of outstanding ability.
1.2 PLAN.
This Plan document is intended to implement and govern the Portland
Brewing Company Incentive Stock Option Plan.
2. DEFINITIONS
2.1 "Board" or "Board of Directors" shall mean the board of directors of
the Company.
2.2 "Code" shall mean the Internal Revenue Code of 1986, as amended.
2.3 "Committee" shall mean the committee established pursuant to Section
3.4 to administer the Plan, or if no committee has been designated, the Board of
Directors.
2.4 "Company" shall mean Portland Brewing Company, an Oregon corporation,
and its Subsidiaries, or any successor thereof.
2.5 "Director" shall mean any person serving on the Board of Directors of
the Company.
2.6 "Disinterested Person" shall mean any person defined in Rule 16b-3 of
the Securities and Exchange Commission promulgated under the Exchange Act.
2.7 "Effective Date" shall mean August 1, 1992.
2.8 "Employee" shall mean any person employed by the Company, whether paid
on commission or salary, who performs services for the Company during the Plan
Year and is an employee under the withholding tax rules of Code Section 3401(c).
2.9 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
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2.10 "Incentive Stock Option" shall mean any option intended to satisfy the
requirements under Code Section 422(b) as an incentive stock option which
qualifies for special tax treatment under Code Section 421.
2.11 "Option" shall mean an option to acquire Shares granted under the
Plan.
2.12 "Option Period" shall mean the period specified by the Committee
during which the Option may be exercised, which Option Period shall not extend
for more than ten (10) years from the date such option is granted. If at the
time such Option is granted, the Optionee is a Restricted Shareholder, such
Option Period shall not extend for more than five (5) years from the date such
Option is granted.
2.13 "Optionee" shall mean an Employee who has been granted Options.
2.14 "Participant" shall mean an Employee who has received Options in
accordance with this Plan.
2.15 "Plan" shall mean this plan, known as the Portland Brewing Company
Incentive Stock Option Plan.
2.16 "Plan Year" shall mean the twelve (12) month period beginning January
1 and ending December 31.
2.17 "Restricted Shareholder" shall mean an Optionee granted an Incentive
Stock Option who, at the time the Incentive Stock Option is granted, owns stock
possessing more than 10 percent of the total combined voting power of all
classes of stock of the Company, with stock ownership determined in light of the
attribution rules of Code Section 424(d).
2.18 "Shares" shall mean the common stock of Portland Brewing Company.
2.19 "Start Date" shall mean the date the Option becomes effective as
designated by the Committee.
2.20 "Subsidiaries" shall mean any corporation in any unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain owns stock possessing fifty percent
(50%) or more of the total combined voting power of all classes of stock in one
of the other corporations in such chain or such other definition provided in
Code Section 424(f).
2.21 "Termination Date" shall mean August 1, 2002, which date cannot extend
beyond ten (10) years from the date the Plan was originally adopted (or from the
date the Plan is approved by the shareholders of the Company, if earlier).
2.22 "Total Disability" shall mean a total and permanent disability as that
term is defined in Code Section 22(e)(3).
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2.23 "Vest" means the point in time when all or a portion of the
Participant's Options under the Plan become non-forfeitable after certain
conditions imposed by the Committee have been met, unless otherwise forfeited
under the terms of this Plan.
2.24 "Vested Options" means the portion of the Participant's Options under
the Plan that are non-forfeitable unless forfeitable under Sections 7.4 or 7.5
of this Plan.
3. ADMINISTRATION OF PLAN
3.1 ADMINISTRATION BY BOARD.
The Plan shall be administered by the Board. The Board shall have full
and absolute power and authority in its sole discretion to (i) determine which
Employees shall receive Options, (ii) determine the time when Options shall be
granted, (iii) determine the terms and conditions, not inconsistent with the
provisions of the Plan, of any Option granted hereunder, (iv) determine the
number of Shares which may be issued upon exercise of the Options, and (v)
interpret the provisions of the Plan and any Option granted under the Plan.
3.2 RULES AND REGULATIONS.
The Board may adopt such rules and regulations as it deems necessary
or appropriate to carry out the purposes of the Plan and shall have authority to
do everything necessary or appropriate to administer the Plan.
3.3 BINDING AUTHORITY.
All decisions, determinations, interpretations, or other actions by
the Board shall be final, conclusive, and binding on all Employees, Optionees,
and any successors in interests to any such parties.
3.4 ADMINISTRATION BY COMMITTEE.
a. The Board in its sole discretion may from time to time appoint a
Committee to administer the Plan and exercise all of the powers, authority, and
discretion of the Board under the Plan. The Board may from time to time remove
members from, or add members to, the Committee, and vacancies on the Committee
shall be filled by the Board. The Board may abolish the Committee at any time
and revest in the Board the administration of the Plan.
b. In establishing the Committee, the Board may but need not require
each member of the Committee to be a Disinterested Person, and the Board may but
is not required to take such other actions as are deemed necessary or advisable
to conform the Plan to the requirements of Rule 16b-3 promulgated under the
Exchange Act.
c. The Committee shall report to the Board the names of Employees
who are granted Options, the number of Shares covered by each Option, and the
terms and conditions of each such Option.
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4. ELIGIBILITY
The Committee shall designate which Employees shall be granted Options
under the Plan.
5. NUMBER OF SHARES AVAILABLE FOR GRANT
5.1 AGGREGATE SHARES AVAILABLE.
The maximum aggregate number of Shares which may be optioned and sold
under this Plan is 3,400, plus the number of Shares issued upon exercise of
Options which are reacquired by the Company upon the exercise of Incentive Stock
Options. In the event that Options granted under the Plan shall for any reason
terminate, lapse, be forfeited, or expire without being exercised, the Shares
subject to such unexercised Options shall again be available for granting under
this Plan.
5.2 CHANGE IN SHARES.
If there is any change in the Shares through merger, consolidation,
reorganization, recapitalization, reincorporation, stock dividend, stock split,
reverse stock split, or other change in the corporate structure of the Company,
appropriate adjustments shall be made by the Board of Directors to the aggregate
number of shares subject to the Plan and the number of shares and the price per
share subject to the Plan and the number of shares and the price per share
subject to outstanding Options, to preserve, but not to increase, the benefits
of the Optionees.
6. TERMS AND CONDITIONS OF OPTIONS
6.1 WRITTEN AGREEMENT.
Each Option granted pursuant to the Plan shall be evidenced by a
written agreement executed by the Company and the Optionee, which shall be in a
form substantially similar to the Stock Option Agreement attached hereto and
shall be consistent with the terms of the Plan. The attached Stock Option
Agreement, including the terms and conditions attached thereto, are incorporated
herein by reference and made a part hereof.
6.2 PERIOD OF GRANT.
Any Options under the Plan must be granted after the Effective Date
and prior to the Termination Date of the Plan.
6.3 PERIOD OF EXERCISE.
An Option shall be exercisable only during the Option Period, and can
only be exercised by the Optionee during the lifetime of the Optionee.
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6.4 LIMIT ON OPTIONS ISSUED.
The aggregate fair market value (determined pursuant to Article 8 at
the time of grant) of all Incentive Stock Options granted to any one Participant
which are exercisable for the first time by the Participant during any calendar
year under all incentive stock plans of the Company shall not exceed $100,000.
6.5 EXERCISE PRICE.
The exercise price of an Option shall be determined by the Board of
Directors at the time the Options are granted, but shall not be less than the
fair market value of the Shares covered by such Option on the date such Option
is granted. If at the time an Option is granted the Optionee is a Restricted
Shareholder, the exercise price of such Incentive Stock Option shall be not less
than one hundred ten percent (110%) of the fair market value of the Shares
covered by such Option on the date such Option is granted.
6.6 ASSIGNMENT.
Each Option granted under the Plan by its terms shall be nonassignable
and nontransferable by the Optionee, either voluntarily or by operation of law,
except as permitted under the Code and applicable securities laws, or by will or
the laws of descent and distribution of the state or country of the Optionee's
domicile at the time of death, and each Option by its terms shall be exercisable
during the Optionee's lifetime only by the Optionee.
6.7 VESTING AND CONDITIONS.
The Committee may designate when and under what conditions the Option
rights granted shall vest, the period during which the Option may be exercised,
and designate other terms and conditions which must be satisfied before the
Option may be exercised; however no option shall vest prior to the date which is
one year after the date on which the Company issues Option and signs the Stock
Option Agreement for such Shares.
6.8 OPTIONS GRANTED TO DIRECTORS.
Notwithstanding any provision to the contrary herein, Options granted
to directors of the Company may be exercised only after the expiration of one
year from the date such Option is granted.
7. EXERCISE OF OPTION
7.1 WRITTEN REQUEST FOR EXERCISE.
Subject to the limitations stated in Section 6 or the specific terms
of the Stock Option Agreement, during the Option Period the Optionee may
exercise all or any part of the Vested Option Shares, by delivering the
following to the Company:
(a) A written notice in a form acceptable to the Company specifying
the number of whole Option Shares being purchased;
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(b) A check payable to the order of the Company equal to the number
of Option Shares being purchased multiplied by the price per Share, plus any
Shares which the Optionee is using as payment for the Option being exercised if
permitted in accordance with Section 7.3;
(c) A check payable to the order of the Company equal to the amount
of any taxes the Company is required by law to withhold with respect to such
exercise; and
(d) A signed copy of Exhibit "A" if required by the securities laws.
7.2 PAYMENT UPON EXERCISE.
If additional withholding of applicable federal, state and local taxes
is, or becomes required beyond any amount deposited before delivery of the
certificates, the Optionee shall pay such amount to the Company on demand. If
the Optionee fails to pay the amount demanded, the Company may withhold such
amount from other amounts payable by the Company to the Optionee, including
salary, subject to applicable law. With the consent of the Board, an Optionee
may satisfy this obligation, in whole or in part, by having the Company withhold
from the shares to be issued upon the exercise that number of shares that would
satisfy the withholding amount due or by delivering to the Company common stock
to satisfy the withholding amount.
7.3 PAYMENT OF OPTION EXERCISE PRICE.
In the discretion of the Board, an Optionee may elect to pay for all
or some of the Optionee's Shares with Shares previously acquired and owned at
the time of exercise by the Optionee, subject to all restrictions and
limitations of applicable laws, rules, and regulations and subject to the
satisfaction of any conditions the Board may impose, including but not limited
to the making of such representations and warranties and the providing of such
other assurances that the Board may require with respect to the Optionee's title
to the Shares used for payment of the exercise price. Such payment shall be made
by delivering certificates representing Shares, duly endorsed or with a duly
signed stock power attached, and free of restrictions other than securities laws
restrictions. Such Shares shall be valued as provided in Article 8.
7.4 CHANGE IN CORPORATE STRUCTURE.
Upon the dissolution or liquidation of the Company, or upon a
reorganization, merger, or consolidation of the Company with one or more
corporations as a result of which the Company goes out of existence or becomes a
subsidiary of another corporation, or upon a sale of substantially all of the
Company's property or more than 80 percent of its then outstanding capital stock
to another corporation ("Terminating Transaction"), the Plan shall terminate and
any Options granted under this Plan shall terminate unless other provisions are
made in writing. If provisions are made to continue this Plan for the successor
to assume the Options previously granted, or for the substitution for such
Options with new options covering the securities of the successor employer
corporation, or an affiliate thereof, with appropriate adjustments as to the
number and kind of securities and prices, then the Options previously granted
shall continue or be replaced, in the manner and under the terms so provided. If
the Plan and the unexercised Options terminate due to such a change in corporate
structure, all persons holding unexercised Vested Options shall have the right,
immediately prior to the consummation of the Terminating
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Transaction, to exercise their Options to the full extent not previously
exercised. In the event that the Options shall continue or be replaced after the
occurrence of a Terminating Transaction as provided above, such Options shall
become fully vested and become exercisable as to all installments thereof to and
including the Termination Date thereof, in the event the Optionee's employment
with the Company and its Successor terminates for any reason (other than
termination by the Company or such successor for good cause) at any time within
two years after the Terminating Transaction has been completed.
7.5 LIMITATIONS ON EXERCISE.
Notwithstanding any provisions of this Section or any other Section of
this Agreement to the contrary, following the end of the Option Period the
Option shall expire and no longer be exercisable. The exercisability of the
Option during the Option Period shall be further subject to the following
limitations:
(a) If the Optionee ceases to be an Employee within one (l) year of
the Start Date, for any reason, the Option shall terminate as of the date the
Optionee ceases to be an Employee.
(b) If the Optionee ceases to be an Employee, the Option shall
terminate as of the date such Optionee ceases to be an Employee if the Optionee
is determined by the Board of Directors to have committed an act of
embezzlement, fraud, dishonesty or deliberate disregard of the rules of the
Company which resulted in loss, damage or injury to the Company, or if the
Optionee makes any unauthorized disclosure of any of the trade secrets or
confidential information of the Company, engages in any conduct which
constitutes unfair competition with the Company, or induces any customer of the
Company to break any contract with the Company.
(c) If after the first anniversary of the Start Date the Optionee is
no longer an Employee:
(i) For any reason other than as specified in subsection 7.5(b),
disability or death, the Option may be exercised by the Optionee, but only to
the extent that it was exercisable on the date of termination of employment,
until the Option terminates at the end of the three (3) month period which
commences with the date of termination of employment or other connection with
the Company.
(ii) Due to the Optionee's permanent and Total Disability, the
Option may be exercised by the Optionee, but only to the extent that it was
exercisable on the date of termination of employment, until the Option
terminates at the end of the one (1) year period which commences with the date
of such termination.
(iii) Due to the Optionee's death, the Option may be
exercised by the Optionee's executor or administrator, or by the person or
persons to whom the Optionee's rights under the Option pass by will or by the
applicable laws of descent and distribution, but only to the extent that the
Option was exercisable by the Optionee at the time of the Optionee's death,
until the Option terminates at the end of the one (1) year period which
commences with the date of death.
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(d) In the event the Company is not the surviving corporation in any
merger, consolidation or reorganization, the Option shall terminate as of the
effective date of such merger, consolidation or reorganization, unless the
surviving corporation issues a substitute Option or assumes the Option as
provided in Section 7.4.
(e) The Board can further designate a vesting schedule for the
Options granted and may provide for a forfeiture of all or a portion of the
Options granted if the Employee does not meet certain conditions set by the
Board, as well as provide for the period of time during which the Option can be
exercised.
7.6 ISSUANCE OF SHARES.
No Shares shall be issued until full payment has been made and the
Optionee has satisfied such other conditions as may be required by the Plan, as
may be required by applicable law, rules or regulations, or as may be adopted or
imposed by the Board. Until the issuance of stock certificates, no right to vote
or receive dividends or any other rights as a shareholder shall exist with
respect to optioned Shares notwithstanding the exercise of the Option. No
adjustment will be made for a dividend or other rights for which the record date
is prior to the date the stock certificate is issued except as provided in
Section 5.2.
7.7 RESTRICTIONS ON ISSUANCE OF SHARES.
(a) No Shares shall be issued or delivered upon exercise unless and
until there has been compliance with all applicable requirements of the
Securities Act of 1933, all applicable listing requirements of any national
securities exchange on which Shares are then listed, and any other requirements
of law or of any regulatory body having jurisdiction over such issuance and
delivery. The inability of the Company to obtain any required permits,
authorizations, or approvals necessary for the lawful issuance and sale of any
Shares hereunder on terms deemed reasonable by the Board shall relieve the
Company, the Board, and any Committee of any liability in respect of the
nonissuance or sale of such Shares as to which such requisite permits,
authorizations, or approvals have not been obtained.
(b) As a condition to the granting or exercise of any Option, the
Board may require the person receiving or exercising such Option to make any
representation and/or warranty to the Company as may be required under any
applicable law or regulation, including but not limited to a representation that
the Option and/or Shares are being acquired only for investment and without any
present intention to sell or distribute each Option and/or Shares is such a
representation is required under the Securities Act of 1933 or any other
applicable law, rule, or regulation, as detailed in Exhibit A.
(c) The exercise of Options under the Plan is conditioned on approval
of the Plan by the Shareholders, as provided in Section 11.2.
8. FAIR MARKET VALUE
For purpose of this Agreement and the Plan, the fair market value of the
Company's Shares for a given date shall be deemed to be:
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(a) The mean between the lowest and highest reported sale prices
reported on the principal stock exchange on which the Shares are then listed or
admitted to trading on such date or if no sale takes place on such date on such
principal stock exchange, then the closing asked price of the Shares on such
exchange on such date; or
(b) If the Shares are not listed or admitted to trading on a
principal stock exchange but a market for the Shares is then being made, the
mean between the lowest reported bid price and highest reported asked price for
Shares on such date as reported by any publication of general circulation
selected by the Committee which regularly reports the market price of the Shares
in such market; or
(c) If the Shares are not listed or admitted to trading on a
principal stock exchange and no market for the Shares is then being made, the
latest preceding reported sales price for common shares then known to have
resulted from a purchase and sale negotiated in an arm's-length transaction,
adjusted as the Board deems appropriate for events occurring subsequent to such
sale, or if there is no such transaction, then as determined in good faith by
the Board. The basis for determination shall be the book value of a common share
of the Company determined by the Company's independent certified public
accountant as of the end of the calendar year immediately preceding the
applicable date, taking into account all actions which have occurred since that
date which would affect the price of the Company, the goodwill of the Company,
the economic outlook of the brewing industry, prospective earning power, and
other factors relevant to determining the fair market value of the Shares.
9. USE OF PROCEEDS
Proceeds realized from the sale of Shares upon exercise of Options granted
under the Plan shall constitute general funds of the Company.
10. ISSUANCE OF CERTIFICATES
Unless the Shares are registered under the Securities Act of 1933, all
certificates representing any of the Option Shares issued pursuant to this Plan
shall have endorsed thereon the following legend, together with any other
legends required by applicable state law:
The securities represented by this certificate have been
acquired for investment and not with a view to or in
connection with the sale or distribution thereof. No sale
or distribution shall be effected without an effective
registration statement related thereof or an opinion of
counsel satisfactory to the Company that such registration
is not required under the Securities Act of 1933.
11. SUSPENSION, AMENDMENT OR TERMINATION OF THE PLAN
11.1 BOARD AUTHORITY; PLAN DURATION.
Except as provided in Section 11.2, the Board may suspend, terminate
or amend the Plan except with respect to Options then outstanding under the
Plan, whether or not the outstanding Options are vested. Termination of the Plan
shall not effect any outstanding
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Options. No Option may be granted under the Plan during any suspension or after
the termination of the Plan. The Plan shall continue in effect until the
Termination Date or, if earlier, until all Shares available for issuance under
the Plan have been issued and all restriction on such Shares have lapsed.
11.2 SHAREHOLDER APPROVAL.
No action of the Board to amend the Plan in any of the following
respects shall be effective unless authorized by the vote of the holders of a
majority of all outstanding shares entitled to vote thereon at a meeting of
shareholders at which a quorum representing a majority of all outstanding voting
stock is, either in person or by proxy, present and voting on the plan.
(a) To increase the maximum number of shares which may be issued
under the Plan or to materially modify the requirements as to eligibility for
participation in the Plan or to materially increase the benefits accruing to
Participants under the Plan; or
(b) To extend the maximum Option Period on the terms of the Plan.
(c) To make any change in the Plan, the effect of which would be to
disqualify Options granted under the Plan from favorable tax treatment as
"incentive stock options" under the Code.
11.3 EFFECT OF AMENDMENT.
No amendment, suspension or termination of the Plan shall, without the
Optionee's consent, alter or impair any rights or obligations under any Option
previously granted under the Plan.
12. MISCELLANEOUS PROVISIONS
12.1 NO CONTRACTUAL RELATIONSHIP.
The establishment of this Plan shall not be construed as creating any
contract of employment between the Company and any Employee. Nothing herein
contained shall give any Participant or Employee the right to inspect the books
of the Company or to interfere with the right of the Company to discharge any
person at any time; nor shall it give the Company the right to require any
person to remain in its employ; nor shall it interfere with any person's right
to terminate his or her employment at any time.
12.2 SUBSTITUTION OF OPTIONS.
The Committee, in its discretion, may, with a Participant's consent,
substitute Incentive Stock Options for outstanding nonstatutory stock options,
subject to the terms of this Plan for granting new options.
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12.3 PARTICIPANT'S RIGHTS.
No individual shall have any rights or interests in Shares except as
expressly set forth herein.
12.4 AVAILABILITY OF PLAN.
A copy of the Plan shall be delivered to the Secretary of the Company
and shall be shown by the Secretary to any Employee making reasonable inquiry
concerning the Plan.
12.5 NOTICE.
Any notice or other communication required or permitted to be given
pursuant to the Plan or under any Option Agreement must be in writing and may be
given by registered or certified mail, and if given by registered or certified
mail, shall be determined to have been given and received when a registered or
certified letter containing such notice, properly addressed with postage
prepaid, is deposited in the United States mails; and, if given otherwise than
by registered or certified mail, it shall be deemed to have been given when
delivered to and received by the party to whom addressed. Notice shall be given
to Employees at their most recent addresses shown in the Company's records.
Notice to the Company shall be addressed to the Company at the address of the
Company's principal executive offices, to the attention of the Secretary of the
Company.
12.6 TITLES AND HEADINGS.
Titles and headings of sections of the Plan are for convenience of
reference only and shall not affect the construction of any provision of the
Plan.
12.7 GOVERNING LAW.
The Plan shall be governed by, interpreted under, and construed and
enforced in accordance with the internal laws, and not the laws pertaining to
conflicts or choice of laws, of the State of Oregon applicable to agreements
made and to be performed wholly with the State of Oregon.
13. CLAIMS PROCEDURE
13.1 If an Employee or other person entitled to exercise an Option under
the terms of this Plan is denied all or a portion of an expected benefit under
the terms of this Plan for any reason, the Company shall notify the claimant
within sixty (6) days of his or her submission of claim, in writing, of
allowance or denial of the claim. The notice shall be in writing, sent by mail
to the claimant's last known address and must contain the following information:
(a) The specific reasons for the denial;
(b) Specific reference to pertinent provisions of this Plan on which
the denial is based; and
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(c) If applicable, a description of any additional information or
material necessary to perfect the claim, an explanation of why such information
or material is necessary and an explanation of the claims review procedure.
13.2 Within sixty (60) days of receipt of the claimant's request for
review, the Company shall allow or deny the claim. The decision shall be made in
writing to the claimant. The decision shall recite the facts and reasons for
denial, with specific reference to the pertinent provisions of this Plan.
13.3 A claimant is entitled to request a review of any denial of his or her
claim by the Company. The request for review must be submitted in writing within
sixty (60) days of the claimant's receipt of the notice of the denial. Absent a
request for review within the 60-day period, the claim will be deemed to be
conclusively denied. The claimant or his or her representative shall be entitled
to review all pertinent documents and to submit issues and comments in writing.
PORTLAND BREWING COMPANY
By: /s/ Charles A. Adams
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Charles A. Adams, President
By: /s/ Arthur Larrance
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Arthur Larrance, Secretary
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[Proxy Card]
PRELIMINARY
PORTLAND BREWING COMPANY
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON DECEMBER 12, 1998
The undersigned hereby acknowledges receipt of the Notice of Annual
Meeting of Shareholders and Proxy Statement, each dated November 12, 1998 and
hereby names, constitutes and appoints Charles A. Adams and Glenmore James, or
either of them acting in absence of the other, with full power of substitution,
my true and lawful attorneys and Proxies for me and in my place and stead to
attend the Annual Meeting of the Shareholders of Portland Brewing Company (the
"Company") to be held at 12:00 p.m. on Saturday, December 12, 1998, and at any
adjournment thereof, and to vote all the shares of Common Stock held of record
in the name of the undersigned on December 12, 1998, with all the powers that
the undersigned would possess if he or she were personally present.
1. PROPOSAL 1-Election of Directors / / FOR all nominees listed below
(except as marked to the contrary below)
/ / WITHHOLD AUTHORITY
(to vote for all nominees listed below)
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE
A LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.)
CHARLES A. (TONY) ADAMS FREDERICK L. BOWMAN ROBERT M. MACTARNAHAN
R. SCOTT MACTARNAHAN HOWARD M. WALL, JR.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR EACH OF THE NOMINEES
NAMED ABOVE.
2. PROPOSAL 2-To approve an amendment to the Company's Articles of Incorporation
to increase the number of authorized shares of Common Stock.
FOR PROPOSAL 2 / / AGAINST PROPOSAL 2 / / ABSTAIN ON PROPOSAL 2 / /
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL OF
PROPOSAL 2.
3. PROPOSAL 3-To approve an amendment to the Company's Incentive Stock Option
Plan to increase the number of shares of Common Stock available for issuance
thereunder.
FOR PROPOSAL 3 / / AGAINST PROPOSAL 3 / / ABSTAIN ON PROPOSAL 3 / /
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL OF
PROPOSAL 3.
4. PROPOSAL 4-To ratify the appointment of Arthur Andersen LLP as the Company's
independent accountants for the fiscal year ending December 31, 1998.
FOR PROPOSAL 4 / / AGAINST PROPOSAL 4 / / ABSTAIN ON PROPOSAL 4 / /
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL OF
PROPOSAL 4.
5. Upon such other matters as may properly come before, or incident to the
conduct of the Annual Meeting, the Proxy holders shall vote in such manner as
they determine to be in the best interests of the Company. The Company is not
presently aware of any such matters to be presented for action at the
meeting.
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[Reverse Side Of Proxy Card]
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY. IF NO SPECIFIC
DIRECTION IS GIVEN AS TO ANY OF THE ABOVE ITEMS, THIS PROXY WILL BE VOTED FOR
EACH OF THE NOMINEES NAMED IN PROPOSAL 1 AND FOR PROPOSALS 2, 3 AND 4.
Dated_____________________________________________
__________________________________________________
Shareholder (print name)
__________________________________________________
Shareholder (sign name)
I do ( ) do not ( ) plan to attend the meeting.
(Please check)
The shareholder signed above reserves the right to
revoke this Proxy at any time prior to its
exercise by written notice delivered to the
Company's Secretary at the Company's corporate
offices at 2730 NW 31st Avenue, Portland, Oregon,
97210, prior to the Annual Meeting. The power of
the Proxy holders shall also be suspended if the
shareholder signed above appears at the Annual
Meeting and elects to vote in person.
