SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
/X/ Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended September 30, 1998
------------------
/ / Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from __________ to __________
Commission file number 0 - 25836
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PORTLAND BREWING COMPANY
- - --------------------------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
Oregon 93-0865997
- - ------------------------------------- ------------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2730 N.W. 31st Avenue, Portland, Oregon 97210
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(Address of Principal Executive Offices)
(503)226-7623
- - --------------------------------------------------------------------------------
(Issuer's Telephone Number)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
----- -----
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 3,365,267
--------- shares of common
stock as of November 10, 1998
-----------------.
Transitional Small Business Disclosure Format (check one):
Yes X No
----- -----
<PAGE>
PORTLAND BREWING COMPANY
FORM 10-QSB
INDEX
PART 1 - FINANCIAL INFORMATION PAGE
- - ------------------------------ ----
Item 1. Financial Statements
Balance Sheets - September 30, 1998
and December 31, 1997 3
Statements of Operations - Three Months and Nine Months
Ended September 30, 1998 and 1997 5
Statements of Cash Flows - Nine Months
Ended September 30, 1998 and 1997 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis or Plan of Operation 9
PART 11 - OTHER INFORMATION
- - ---------------------------
Item 2. Changes in Securities and Use of Proceeds 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 13
2
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PORTLAND BREWING COMPANY
Balance Sheet
<TABLE>
<CAPTION>
ASSETS
September 30, December 31,
1998 1997
------------- ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 25,069 $ 52,719
Accounts receivable, net of allowance of $0 and $15,852 873,651 652,530
Inventories 650,001 683,733
Prepaid assets 253,728 201,541
------------ -------------
Total current assets 1,802,449 1,590,523
Property and equipment, net of accumulated depreciation
of $3,231,062 and $3,047,618 7,689,158 8,694,106
Other assets, net 151,029 241,515
------------ -------------
Total assets $ 9,642,636 $ 10,526,144
============ =============
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
PORTLAND BREWING COMPANY
Balance Sheet
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 934,971 $ 1,094,201
Customer deposits held 162,072 165,203
Accrued payroll 186,012 109,979
Other accrued liabilities 78,188 51,867
Line of credit (Note 6) 225,000 203,000
Current portion of long term debt (Note 4) 26,178 381,947
------------ ------------
Total current liabilities 1,612,421 2,006,197
Long-term debt, less current portion (Note 4) 119,374 2,575,777
Stockholder's loans, long-term (Note 4) 2,100,000 400,000
STOCKHOLDERS' EQUITY:
Preferred stock, no par value, 100,000 shares
authorized, no shares issued _ _
Common stock, no par value, 5,000,000 shares
authorized, 3,365,267 shares issued and
outstanding at September 30, 1998;
2,074,943 shares issued and outstanding
at December 31, 1997 7,115,423 6,715,423
Accumulated deficit (1,304,582) (1,171,253)
------------ ------------
Total stockholders' equity 5,810,841 5,544,170
------------ ------------
Total liabilities and stockholders' equity $ 9,642,636 $ 10,526,144
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
PORTLAND BREWING COMPANY
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
----------------------------- ------------------------------
1998 1997 1998 1997
-------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
SALES $2,723,774 $2,684,067 $7,688,593 $8,756,413
EXCISE TAX 123,080 113,845 344,544 380,944
-------------- ------------- -------------- -------------
Net Sales 2,600,694 2,570,222 7,344,049 8,375,469
COST OF SALES 1,829,945 1,735,269 5,390,920 5,774,541
-------------- ------------- -------------- -------------
GROSS PROFIT 770,749 834,953 1,953,129 2,600,928
GENERAL AND ADMINISTRATIVE EXPENSES 309,900 343,400 945,772 1,088,114
SALES AND MARKETING EXPENSES 557,628 676,403 1,539,990 1,857,532
ESTIMATED LOSS ON DISPOSITION OF ASSETS (Note 3) 384,268 - 384,268 -
-------------- ------------- -------------- -------------
OPERATING LOSS (481,047) (184,850) (916,901) (344,718)
Interest expense (62,829) (76,029) (232,818) (217,691)
Other income (expense), net 75,250 (4,942) (182,418) (62,553)
-------------- ------------- -------------- -------------
Total other income (expense), net 12,421 (80,971) (415,236) (280,244)
Net loss before income taxes (468,626) (265,821) (1,332,137) (624,962)
PROVISION FOR INCOME TAXES - 76,332 - 76,332
-------------- ------------- -------------- -------------
Net loss before extraordinary item (468,626) (342,153) (1,332,137) (701,294)
EXTRAORDINARY ITEM - GAIN ON DEBT RESTRUCTURING (Note 4) 1,198,808 - 1,198,808 -
-------------- ------------- -------------- -------------
Net income (loss) $730,182 ($342,153) ($133,329) ($701,294)
============== ============= ============== =============
BASIC EARNINGS (LOSS) PER SHARE $0.29 ($0.16) ($0.06) ($0.34)
============== ============= ============== =============
Shares used in per share calculations 2,505,051 2,074,943 2,218,312 2,074,943
============== ============= ============== =============
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
PORTLAND BREWING COMPANY
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, September 30,
1998 1997
--------------------- ----------------------
<S> <C> <C>
CASH FLOW RELATING TO OPERATING ACTIVITIES:
Net loss ($133,329) ($701,294)
Adjustments to reconcile net loss to net cash
provided by operating activities
Depreciation 745,269 789,261
Amortization 146,979 116,625
Change in net deferred income taxes - 89,411
Estimated loss on disposition of assets (Note 3) 384,268 -
Loss on disposition of assets 10,788 33,466
Extraordinary item (Note 4) (1,198,808) -
(Increase) decrease in:
Accounts receivable (221,121) 98,179
Inventories (639) (84,051)
Prepaid assets (52,187) 42,760
Income tax receivable - 79,970
(Decrease) increase in:
Accounts payable 26,733 100, 314
Customer deposits held (3,131) (34,892)
Accrued payroll and other accrued liabilities 102,354 32,776
----------- ----------
Net cash provided by (used in) operating activities (192,824) 562,525
CASH FLOWS RELATING TO INVESTING ACTIVITIES:
Purchase of property and equipment (153,935) (453,822)
Proceeds from sale of plant and equipment 18,533 227,250
Changes in other assets (22,122) (110,853)
----------- ----------
Net cash used in investing activities (157,524) (337,425)
----------- ----------
CASH FLOWS RELATING TO FINANCING ACTIVITIES:
Borrowings under credit line, current 225,000 160,000
Issuance of notes payable to Distributors 97,698 -
Repayments of long-term debt - (312,513)
Changes in stock notes receivable - 2,149
----------- ----------
Net cash provided by (used in) financing activities 322,698 (150,364)
----------- ----------
NET INCREASE (DECREASE) IN CASH (27,650) 74,736
CASH, beginning of period 52,719 49,054
----------- ----------
CASH, end of period $25,069 $123,790
=========== ==========
NONCASH TRANSACTIONS
Conversion of shareholder loans to common stock $400,000 -
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest 160,546 141,662
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
PORTLAND BREWING COMPANY
Notes to Financial Statements
(Unaudited)
1. Basis of Presentation
The accompanying interim financial data is unaudited; however, in the opinion of
management, the interim data includes all adjustments, consisting only of normal
recurring adjustments, necessary for a fair statement of the results for the
interim periods presented. The financial statements included herein have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures included herein
are adequate to make the information presented not misleading.
The organization and business of the Company, accounting policies followed by
the Company and other information are contained in the notes to the Company's
financial statements filed as part of the Company's Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1997. This quarterly report should be
read in conjunction with such Annual Report.
Operating results for the nine months ended September 30, 1998 are not
necessarily indicative of the results that may be expected for the entire fiscal
year ending December 31, 1998, or any portion thereof.
2. Impact of Recently Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS
128") and Statement of Financial Accounting Standards No. 129, Disclosure of
Information About Capital Structure" ("SFAS 129"), which are effective for
fiscal years ending after December 15, 1997. The Company believes the
implementation of these statements will not have a material effect on its
results of operations or financial statement disclosures.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" (SFAS 130), which establishes requirements
for disclosure of comprehensive income. SFAS 130 is effective for fiscal years
beginning after December 15, 1997. Reclassification of earlier financial
statements for comprehensive purposes is required. The Company believes the
implementation of this statement will not have a material effect on its results
of operations or financial disclosures.
In June 1997, the FASB issued SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"). This statement will change the
way public companies report information about segments of their business in
their annual financial statements and requires them to report selected segment
information in their quarterly reports issued to shareholders. It also requires
entity-wide disclosures about the products and services an entity provides, the
material countries in which it holds assets and earns revenues and its major
customers. This statement is effective for fiscal years beginning after December
15, 1997, but is not required to be presented in interim financial information
in the year of adoption. The Company believes the implementation of this
statement will have no impact on the result of its operations, but will require
revised disclosures.
3. Estimated Loss on Disposition of Assets
Results of operations for the third quarter of 1998 include a charge of $384,268
associated with a plan designed to reduce costs and improve operational
efficiencies. Under the plan, the Company sold its Flander's Brewpub in November
1998. The Company plans to focus on its core business of manufacturing and
distributing beer to wholesalers. The primary cost of the estimated loss was the
writedown of machinery and equipment used in the Flander's Brewpub to fair
market value.
4. Extraordinary Item
In the quarter ended September 30, 1998, the Company recorded an extraordinary
gain of $1,199,000 for the forgiveness of debt, accrued interest and accounts
payable, net of related expenses. The Company negotiated a troubled debt
restructuring and was relieved of $1,079,000 of debt and accrued interest
originated by Bank of America, NT & SA, $210,000 to trade creditors and incurred
$90,000 in professional fees related to the negotiations. The Company expects to
record additional income from the relief of trade debt in the quarter ending
December 31, 1998.
In connection with the troubled debt restructuring, the MacTarnahan Limited
Partnership (an entity controlled by shareholders Robert M. MacTarnahan and R.
Scott MacTarnahan) purchased approximately $3.1 million of secured Company debt
held by Bank of America, NT & SA. The Company and MacTarnahan Limited
Partnership entered into a new agreement which replaced the Bank of America, NT
& SA loan agreement and reduced the outstanding amount of the loan to $2,100,000
("Shareholder Loan"). The Shareholder Loan is due January 31, 2000, and is
secured by receivables, inventory and equipment of the Company. The Shareholder
Loan bears interest at a per annum rate equal to the prime lending rate of the
Bank of the Northwest plus 1%. At September 30, 1998, the prime lending rate was
8.5%.
5. 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) the Charles A. Adams Family Trust
("Trust"), an entity controlled by Charles A. Adams. On August 25, 1998, each of
Harmer and the Trust agreed to cancel the Notes in exchange for 645,162 shares
of the Company's Common Stock, resulting in the issuance of a total of 1,290,324
shares.
In August 1998, the MacTarnahan Limited Partnership purchased approximately $3.1
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.
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. As a result of the events described above Robert M. MacTarnahan and R.
Scott MacTarnahan each have voting control over 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 had voting control over more than 50% of the outstanding
shares of Common Stock.
6. Line of Credit
On September 2, 1998, the Company entered into a $600,000 revolving line of
credit with a bank which provides for a fixed interest rate of 7.99% ("Revolving
Line"). The Revolving Line matures on August 20, 1999. At September 30 1998,
there was $225,000 outstanding under the Revolving Line. The Revolving Line is
guaranteed by Harmer Mill & Logging Supply Co., a related party, and is secured
by a certificate of deposit in the amount of $600,000 for which Harmer will
receive an accommodation fee in an amount equal to 1% per year on the
outstanding principal loan balance on the Revolving Line.
7. Basic Earnings (Loss) Per Share
The Company has adopted Financial Accounting Standards Board Statement of
Financial Accounting Standard No. 128, "Earnings per Share" ("SFAS 128"). Basic
earnings/loss per common share is computed by dividing net income (loss) by the
weighted average number of shares of common stock outstanding for the period.
Diluted net loss per common share for all periods presented is the same as basic
net loss per share since all potential dilutive securities are excluded because
they are antidilutive. Diluted earnings per common share is computed using the
weighted average number of shares of common stock outstanding and potential
dilutive common shares. For the three months ended September 30, 1998, dilutive
earnings per share was the same as basic earnings per share because all stock
options and warrants outstanding were antidilutive and therefore excluded from
the diluted earnings per share calculation.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Certain statements in the Management's Discussion and Analysis of Financial
Condition and Results of Operations are forward-looking statements. These
forward-looking statements are based on current expectations and entail various
risks and uncertainties that could cause actual results to differ materially
from those expressed in such forward-looking statements. Such risks and
uncertainties include general business and economic conditions, competitive
products and pricing, fluctuations in demand and availability of financing.
These forward-looking statements include but are not limited to statements under
"Liquidity and Capital Resources" regarding the Company's ability to meet its
cash requirements.
RESULTS OF OPERATIONS
THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Shipments for the third quarter ended September 30, 1998 totaled 13,461
barrels, an increase of 11 barrels compared to 13,450 barrels for the same
period in 1997. Shipments for nine months ended September 30, 1998 were 37,656
barrels, a decrease of 13% from 43,186 barrels for the same period in 1997. The
decrease in year-to-date shipments is primarily due to continued competitive
pressure caused by product proliferation. Net sales in the third quarter of 1998
were $2,723,774, an increase of 1% compared to $2,684,067 for the same period of
1997. Net sales declined 12% for the first nine months of 1998 to $7,688,593
from $8,756,413 for the first nine months of 1997. Net sales declined at a
lesser rate than barrels shipped due to increased sales in 1998 compared to 1997
in the Company's two restaurants.
Gross profit decreased 8% to $770,749 (30% of net sales) in the third
quarter of 1998 from $834,953 (32% of net sales) for the same period in 1997.
For the nine months ended September 30, 1998 gross profit decreased 25% to
$1,953,129 (27% of net sales) from $2,600,928 (31% of net sales) for the same
period in 1997. The decrease in gross profit was a result of lower fixed
overhead cost recovery due to lower production volumes compared to total
capacity. In addition, restaurant sales, as a percentage of net sales, were
greater in the third quarter and first nine months of 1998 compared to the same
periods in 1997. The Company realizes lower gross profit margins from its
restaurant operations compared to its brewery operations.
General and administrative expenses decreased 10% to $309,900 (12% of net
sales) in the third quarter of 1998 from $343,400 (13% of net sales) for the
same period in 1997. For the nine months ended September 30, 1998 general and
administrative costs decreased 13% to $945,772 (13% of net sales) from
$1,088,114 (13% of net sales) for the nine months ended September 30, 1997. The
decrease is due to the continued effect of downsizing, attrition and cost
containment programs.
Selling and marketing expenses decreased 18% to $557,628 (21% of net sales)
in the third quarter of 1998 from $676,403 (26% of net sales) for the same
period in 1997. Selling and marketing expenses decreased 17% for the nine months
ended September 30, 1998 to $1,539,990 (21% of net sales) from $1,857,532 (22%
of net sales) for the same period in 1997. The decrease is largely due to sales
force reorganization and curbing discretionary spending.
Net interest expense in the third quarter and nine months ended September
30, 1998 decreased to expense of $62,829 and expense of $232,818 respectively
compared to expense of $76,029 and expense of $217,691 for the third quarter and
nine months ended September 30, 1997. Other expense of $182,418 for the nine
months ended September 30, 1998 include settlement charges to transfer
distribution rights in California.
In September 1998 the Company recorded an estimated loss on disposition of
assets of $384,268 to adjust the book value of certain assets that were
available for sale to the market value of those assets. In November 1998, these
assets were sold at market value for cash. In the quarter ended September 30,
1998, the Company recorded income as an extraordinary item for the forgiveness
of debt, accrued interest and accounts payable, net of related expenses, of
$1,199,000; $1,079,000 was debt and accrued interest forgiven by the MacTarnahan
Limited Partnership ("Partnership") from its purchase of the Company's debt with
a bank. The $3.1 million bank debt plus accrued interest and other related
charges was settled by the Partnership which in turn resulted in a net loan
payable from the Company to the Partnership of $2.1 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company requires capital principally to funds its working capital
needs. The Company has met its capital requirements through cash flow from
operations, bank borrowings, loans from shareholders and the private and public
sale of its Common Stock.
The Company has a $2,100,000 term loan from MacTarnahan Limited Partnership
(see Item 5, "Change in Control") due on January 31, 2000 ("Term Loan") which is
secured by receivables, inventory and equipment of the Company. The Term Loan
bears interest at a per annum rate equal to the prime lending rate of the Bank
of the Northwest plus 1%. At September 30, 1998 the prime lending rate was 8.5%.
The Company expects to place the debt permanently with a financial institution
in 1999 or pay off the debt through the raising of additional capital. There can
be no assurance that the Company will be able to obtain permanent financing from
a financial institution or that the Company will be able to raise additional
capital on commercially reasonable terms or at all.
On September 2, 1998, the Company entered into a $600,000 revolving line of
credit with a bank which provides for a fixed interest rate of 7.99% ("Revolving
Line"). The Revolving Line matures on August 20, 1999. At September 30, 1998,
$225,000 was outstanding under the Revolving Line. The Revolving Line is
guaranteed by Harmer Mill & Logging Supply Co. ("Harmer") and is secured by a
certificate of deposit in the amount of $600,000 for which Harmer will receive
an accommodation fee in an amount equal to 1% per year on the outstanding
principal loan balance on the Revolving Line.
The Company also relies on trade creditors for working capital. The Company
has just completed negotiations with some trade creditors and is currently
negotiating with others in which the trade creditors were or will be offered the
option of receiving a discounted amount of cash immediately or the entire amount
owed to them to be paid over a five-year period. As a result of such
negotiations to date, the Company has issued notes in the aggregate principal
amount of $151,147 to trade creditors. The notes mature on September 1, 2003 and
bear interest at 6% per annum.
The Company's working capital requirements over the next year are expected
to be met from cash flow through operations, funds available under the Company's
Revolving Line and, if appropriate, additional equity offerings and/or
borrowings from other lenders.
IMPACT OF YEAR 2000 ISSUE
The Company's approach to the Year 2000 issued is discussed below. In
discussing the Year 2000 issue, the Company necessarily makes certain forward
looking statements. There can be no assurance that actual results will not
differ materially from the projections contained in the forward looking
statements. Factors which may cause actual results to differ materially include,
but are not limited to the failure of Company personnel and outside consultants
to properly assess and address the Company's Year 2000 issues, inaccurate or
incomplete disclosure by third parties regarding the Year 2000 issue, failure to
address Year 2000 issue with all vendors, including utility vendors, and
customers, infrastructure failures, such as disruptions in the supply of
electricity, gas, water or communications services, or major institutions, such
as the government and banking systems, and failure of the Company to accurately
predict the costs to address the Year 2000 issue or the lost revenues related to
interruption in the Company's or its customers' businesses.
State of Readiness. The Company, in conjunction with outside consultants,
has made an assessment of the effect of the Year 2000 issue on its computer
equipment and software (sometimes referred to as "information technology" or
"IT") and devices with embedded technology (sometimes referred to as "non-IT").
The Company has identified certain modifications to its IT systems and non-IT
systems which are necessary to address the Year 2000 issue and has partially
implemented those modifications. The Company plans to identify what, if
anything, still needs to be done and to develop a timeline. Based on this
assessment and implementation of the modifications discussed above, the Company
believes its IT systems and non-IT systems will properly recognize calendar
dates beginning in the year 2000.
The Company has not evaluated the IT systems and non-IT systems of its
outside vendors and customers. The Company plans to contact vendors regarding
the Year 2000 issue by the second quarter of 1999.
Costs to Address Year 2000 Issue. To date, costs directly related Year 2000
remediation efforts are immaterial. Accordingly, the Company expects the costs
to address the Year 2000 issue will not have a material adverse financial impact
on the Company's financial condition or results of operations. However, there
can be no assurance that additional remediation and costs will not be
identified, especially since the Company has not evaluated the year 2000
readiness of its customers or suppliers.
Risks of the Company's Year 2000 Issue. The most reasonably likely worst
case scenario for the Company would involve an extended shutdown in production
and/or a reduction in customer demand. The Company is unable to quantify the
effect such a scenario. However, the Company plans to identify its critical
vendors and customers and evaluate whether or not any of them represent a
significant risk. In addition, the first part of the fiscal year is not a
critical production period or period of customer demand and therefore the
Company believes it would be able to recover from a temporary interruption
without a material adverse effect on the Company's operations.
Company's Contingency Plan. Based on the Company's assessment of the Year
2000 issue, the Company has not developed and does not intend to develop a
contingency plan to address the reasonably likely worst case scenario.
<PAGE>
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
UNREGISTERED SECURITIES
On August 17, 1998, 645,162 shares of the Company's Common Stock were
issued to each of Harmer and the Charles A. Adams Family Trust. See Item 5,
"Change in Control," for a description of the transaction in which the shares
were issued.
The Company relied on the exemption from registration provided by Section
4(2) of the Securities Act of 1933 (the "Act") as both of Harmer Mill & Logging
Supply Co. and the Charles A. Adams Family Trust are "accredited investors"
under the Act and the issuance of the shares did not involve a public offering.
ITEM 5. OTHER INFORMATION
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) the Charles
A. Adams Family Trust ("Trust"), an entity controlled by Charles A. Adams. On
August 25, 1998, each of Harmer and the Trust agreed to cancel the Notes in
exchange for 645,162 shares of the Company's Common Stock, resulting in the
issuance of a total of 1,290,324 shares.
In August 1998, the MacTarnahan Limited Partnership purchased approximately
$3.1 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.
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. As a result of the events described above Robert M. MacTarnahan and R.
Scott MacTarnahan each have voting control over 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 had voting control over more than 50% of the outstanding
shares of Common Stock.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
Exhibit Number Description
- - -------------- -----------
Exhibit 10.1 Credit and Forbearance Agreement dated August 17, 1998
Exhibit 10.2 Letter Voting Agreement dated August 17, 1998
Exhibit 10.3 Loan Agreement dated September 2, 1998
Exhibit 27 Financial Data Schedule
(b) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed during the quarter ended September 30,
1998.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PORTLAND BREWING COMPANY
-------------------------------------------
(Registrant)
Date November 13, 1998 /s/ CHARLES A. ADAMS
------------------------ -------------------------------------------
(Signature)
Charles A. Adams, Chairman of the Board and
President (Principal Executive Officer)
Date November 13, 1998 /s/ GLENMORE JAMES
------------------------ -------------------------------------------
(Signature)
Glenmore James, Chief Financial Officer
(Principal Financial and Accounting Officer)
CREDIT AND FORBEARANCE AGREEMENT
--------------------------------
THIS CREDIT AND FORBEARANCE AGREEMENT (this "Agreement") is made as of
the 17th day of August, 1998, by and between the MACTARNAHAN LIMITED
PARTNERSHIP, an Oregon limited partnership ("Lender") and PORTLAND BREWING
COMPANY, an Oregon corporation ("Borrower").
Recitals.
- - --------
A. Borrower is obligated to Bank of America NT & SA ("Bank of
America"), under and pursuant to that certain Business Loan Agreement dated as
of December 15, 1995, as amended in six amendments numbered one through five,
and seven (a number six having never been executed), and dated as of July 23,
1996, December 19, 1996, March 27, 1997, April 23, 1997, November 24, 1997, and
May, 1998, respectively (as amended, the "Loan Agreement"). The Loan Agreement
is secured by that certain Security Agreement (Receivables, Inventory and
Equipment) dated as of December 15, 1997 (the "Security Agreement"), and by a
UCC-1 Financing Statement recorded with the Oregon Secretary of State on
December 21, 1995, and a UCC-1A Financing Statement recorded in Multnomah County
on December 27, 1996 (together with the Security Agreement, the "Security
Instruments"). The Loan Agreement and the Security Instruments are herein
together referred to as the "Loan Agreements."
B. Under the Loan Agreement Borrower is indebted to the Bank of America
under three facilities consisting of a revolving line of credit (the "Revolving
Line") and two fixed term loans (the "Term Loans").
C. Borrower is currently in default to the Bank of America under the
Loan Agreements as more particularly set forth in Schedule 1.1 to this
Agreement. Borrower is engaged in negotiations with other financial institutions
to extend credit to Borrower so that Borrower can pay and retire the Revolving
Line. To permit Borrower to conclude such negotiations, Borrower has requested
that Lender (a) purchase and take assignment of the Loan Agreements from the
Bank of America, and (b) advance to Borrower, for Borrower's working capital
requirements, up to $600,000, in addition to the amount outstanding under the
Revolving Line, as set forth in Schedule 1.2, the same to be evidenced by
Borrower's promissory note and to be secured by the Security Agreement. In
addition, Borrower has requested that Lender agree to forebear from exercising
any remedies available to it under the Loan Agreements arising by reason of
Borrower's existing default thereunder.
D. Lender is willing to acquire the Loan Agreements from Bank of
America, to make certain working capital advances to Borrower and to agree to
forebear from exercising remedies under the Loan Agreements on the terms, and
subject to the conditions, set forth in this Agreement.
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Agreement.
- - ---------
NOW THEREFORE, in consideration of the premises and of the mutual
covenants contained herein, the parties agree:
1. Borrower's Representations and Warranties
-----------------------------------------. Borrower acknowledges
that, by an Assignment of Interest under Loan Agreements - Private, of even date
herewith, between Bank of America and Lender, Lender is acquiring all of Bank of
America's right, title and interest in the Loan Agreements and will be
substituted as the "Bank" thereunder. Borrower hereby represents and warrants to
and for the benefit of Lender, and with the knowledge that Lender is relying
hereon in acquiring the Loan Agreements pursuant to the Assignment:
1.1 Agreements in Effect; No Defaults
---------------------------------. Except as set forth in
Schedule 1.1, the Loan Agreements, and each of them, is in full force and effect
and unmodified, there exist no defenses to the enforcement of any such document
against Borrower in accordance with its terms, and there exists thereunder no
default on the part of either Borrower or the Bank, and no event or circumstance
that, with notice, the passage of time, or both, would constitute such a
default.
1.2 Outstanding Obligations
-----------------------. Attached as Schedule 1.2 to this
Agreement is a true and correct summary of the current status of each of the
credit facilities outstanding under the Loan Agreements, including, without
limitation, the outstanding principal balance of each such facility, the rate at
which interest is accruing thereunder, the amount of outstanding interest
accrued thereunder and the amount of any payment past due thereunder.
1.3 Continued Truth of Representations
----------------------------------. Except as set forth in
Schedule 1.3, each of the representations and warranties made by Borrower in the
Loan Agreements, or any of them, is true and accurate in all material respects
as of the date of this Agreement.
2. Acknowledgment
--------------. Borrower acknowledges that Lender has pledged the
Loan Agreements to the Bank as security for Lender's payment to the Bank of the
purchase price for the Loan Agreements, which amount is due and payable by
Lender to the Bank not later than August 31, 1998.
3. Forbearance; Amendment to Loan Agreement
----------------------------------------. Until the earlier of (a)
August 31, 1998, or (b) the date on which Borrower retires the outstanding
principal balance of the Revolving Line and of the New Note (defined at Section
4), Lender shall not exercise any remedy available to it under the Loan
Agreements by reason of any default existing under the Loan Agreements as of the
date of this Agreement; provided, however, that the Loan Agreement is hereby
amended so that:
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(i) From and after the date of this Agreement, Lender shall
have no obligation to make any further advance to Borrower under the Loan
Agreement in respect of the Revolving Line, the outstanding principal balance of
which is fixed as of the date of this Agreement at the amount set forth in
Schedule 1.2;
(ii) Effective September 1, 1998, the interest rate applicable
to the Revolving Line and to the Term Loans shall be the greater of (a) the
interest rate applicable under the New Note, or (b) the interest rate applicable
thereto under the Loan Agreement;
(iii) Effective on and as of the date on which Lender has paid
and discharged in full its obligation to the Bank of America in respect of the
purchase price payable for the Loan Agreements, a default under the New Note
(after giving effect to any notice and cure periods provided therein) shall
constitute a default under the Loan Agreements; and
(iv) Effective on the later of the date on which Lender has
paid and discharged in full its obligation to the Bank of America in respect of
the purchase price payable for the Loan Agreements, or September 1, 1998, the
Term Loans shall be due and payable on demand.
The Lender's agreement to forbear set forth in this Section 3 shall replace and
supersede in their entirety all prior agreements between the Bank of America and
Borrower concerning the Bank's forbearance under the Loan Agreements.
4. Promissory Note
---------------. Contemporaneously with execution and delivery of
this Agreement, Borrower has executed and delivered to Lender, Borrower's
promissory note in the original principal amount of $600,000.00 (the "New
Note"). From and after the date of this Agreement, through and including the
date upon which Lender's agreement to forbear under Section 3 expires (the
"Expiration Date"), Lender shall lend to Borrower under the New Note up to Six
Hundred Thousand and 00/100 Dollars ($600,000.00) in up to six separate
advances, each such advance to be made within two (2) business days following
Borrower's written request therefor; provided, that in no event shall Lender be
obligated to advance sums under the New Note at a time when the outstanding
principal balance of the New Note exceeds the Borrowing Base (as such term is
defined in Exhibit A) or if the advance would cause the outstanding principal
balance of the New Note to exceed the Borrowing Base. From and after the
Expiration Date, Lender may, but shall not be obligated to, make additional
advances to Borrower of amounts that Borrower has previously repaid to Lender
under the New Note.
5. Security Agreement
------------------. Borrower hereby acknowledges that the New Note,
and all amounts advanced, accruing or that might otherwise come due thereunder
or under this Agreement, constitute "Indebtedness" under the Section 2 of the
Security Agreement and payment and performance thereof is therefore secured by
the Security Agreement.
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6. Fees and Expenses
-----------------. Borrower shall pay directly when due, or shall
reimburse to Lender on demand, all of Lender's reasonable out-of-pocket costs
and expenses, to the extent incurred by Lender in connection with the
negotiation, preparation, review, carrying out, amendment, waiver, refinancing,
restructuring, reorganization and enforcement of, and collection pursuant to,
this Agreement, the Loan Agreements, the New Note, any advance or disbursement
under the New Note, any substitution of security under this Agreement or the
Security Agreement, and any amendment of any financing statement made or given
pursuant to this Agreement or the Security Agreement including, without
limitation, Lender's reasonable attorneys' fees; fees of Lender's certified
public accountants and other outside experts; credit reports; appraisal fees;
lien searches; escrow charges; recording or filing fees; insurance premiums;
inspection, due diligence and/or audit fees before execution hereof and
periodically during the term hereof; and any and all other expenses or charges
incurred in connection hereof.
7. General Provisions.
------------------
7.1 Governing Law
-------------. This Agreement shall be enforced and
construed in accordance with the laws of Oregon and Borrower waives the right to
be sued elsewhere.
7.2 Successors and Assigns
----------------------. This Agreement shall be binding
upon Borrower and the successors and legal representatives of Borrower, and
shall inure to the benefit of Lender and its successors, assigns and legal
representatives. All references herein to Lender shall include any subsequent
owner and/or holder of the Loan Agreements, the New Note, or any interest in any
of them.
7.3 Cumulative Remedies
-------------------. Lender's rights, remedies and
recourse under the New Note, the other Loan Agreements, or this Agreement are
separate and cumulative and may be pursued separately, successively or
concurrently, are non-exclusive and the exercise of any one or more of them
shall in no way limit or prejudice any other legal or equitable right, remedy or
recourse to which Lender may be entitled.
7.4 Modifications
-------------. No provision hereof shall be modified or
limited by course of conduct, usage of trade, by the law merchant or in any
other manner except by a written agreement expressly referring hereto and to the
provision so modified or limited and signed by Borrower and Lender.
7.5 Severalty
---------. In case any one or more of the provisions
contained in this Agreement shall for any reason be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision hereof, and this Agreement shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein.
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7.6 Notices
-------. All notices or other communications required or
permitted hereunder shall be in writing, and shall be personally delivered
(including by means of professional messenger service) or sent by registered or
certified mail, postage prepaid, return receipt requested, or by facsimile
transmission followed by delivery of a "hard" copy, and shall be deemed received
upon the date of receipt thereof, as follows:
If to Lender: MacTarnahan Limited Partnership
11416 SW Lynnridge Ave.
Portland, OR 97225
Telecopy: (503) 646-3782
Attn: Scott MacTarnahan
With a copy to: Parisi & Parisi
1630 S.W. Morrison, Suite 100
Portland, OR 97205
Telecopy: (503) 721-2300
Attn: Robin B. Parisi
If to Borrower: Portland Brewing Company
2730 NW 31st Ave.
Portland, OR 97210
Telecopy: (503) 226-2702
Attn: Tony Adams
With a copy to: Schwabe Williamson & Wyatt PC
1600-1800 PacWest Center
1211 SW 5th Ave
Portland, OR 97204
Telecopy: (503) 796-2900
Attn: John D. Guinasso
Notice of change of address shall be given by written notice in the manner
specified in this Section 7.6.
7.7 Attorneys' Fees
---------------. Should any litigation be commenced
between the parties concerning this Agreement or the transactions contemplated
hereby, the prevailing party in such litigation shall be entitled, in addition
to such other relief as may be granted, to receive from the losing party a
reasonable sum as and for its attorneys' fees, at trial, on appeal, in
connection with any petition for review, or in any proceeding before a U.S.
Bankruptcy Court, said amount to be set by the court before which the matter is
heard.
7.8 No Separate Agreements
----------------------. This Agreement, the New Note and
the Loan Agreements contain all of the agreements of Borrower and Lender
concerning their subject matter and the rights and obligations of Borrower with
respect thereto, and there are no other agreements or understandings concerning
the same between Borrower and Lender.
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<PAGE>
7.9 Entire Agreement
----------------. This Agreement, together with the
exhibits listed below and any other document to be furnished pursuant to the
provisions hereof embody the entire agreement and understanding of the parties
hereto as to the subject matter contained herein. There are no restrictions,
promises, representations, warranties, covenants, or undertakings other than
those expressly set forth or referred to in such documents. This Agreement and
such documents supersede all prior agreements and understandings among the
parties with respect to the subject matter hereof.
Exhibit A - Definition of Borrowing Base
Schedule 1.1 - Existing Defaults
Schedule 1.2 - Status of Each Credit Facility
Schedule 1.3 - Exceptions to Representations and Warranties
In witness whereby, the parties have executed this Agreement by and
through their duly authorized officers as of the date and year first written
above.
MACTARNAHAN LIMITED PARTNERSHIP,
an Oregon limited partnership
By: Harmer Mill and Logging Supply Co.,
dba Harmer Company, its general partner
By: /s/ Robert M. MacTarnahan
-------------------------------------
Name: Robert M. MacTarnahan
-----------------------------------
Title: President
----------------------------------
PORTLAND BREWING COMPANY,
an Oregon corporation
By: /s/ C.A. Adams
-----------------------------------------
Name: C.A. Adams
---------------------------------------
Title: President
--------------------------------------
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<PAGE>
EXHIBIT A
DEFINITION OF BORROWING BASE
----------------------------
As used in this Agreement, the term "Borrowing Base" shall mean the sum of:
(a) 85% of the balance due on Qualifying Receivables; and
(b) 50% of the value of Qualifying Inventory;
where:
(i) Qualifying Receivables shall mean outstanding Trade Receivables
that have aged less than ninety (90) days from invoice date, less any portion
thereof constituting either (A) keg deposits, or (B) contra accounts receivable
in respect of accounts payable to customers, and
(ii) Qualifying Inventory, unless and until the parties otherwise agree
in writing, shall mean "Inventory consisting of finished goods, work in process
and raw materials (not including packaging supplies)," as such phrase appears in
and was applied in application under that certain Amendment No. 3 to Business
Loan Agreement included among the Loan Agreements (including, without
limitation, provisions therein applicable to the valuation of Inventory).
VIA TELEFAX
August 17, 1998
Mr. R. M. MacTarnahan
Mr. R. Scott MacTarnahan
Honeyman Aluminum Products Co.
4670 SW Pacific St.
Beaverton, OR 97006
Dear Mac and Scott:
We all appreciate greatly your efforts and commitment for the company. I want
to assure you we all are on the same page going forward, so I propose that you
accept this letter as my agreement to vote the Portland Brewing Company shares
held by Electra Partners, Inc., and the Adams Family Trust at your direction
prior to or at the annual meeting to ensure that your loan purchase from the
Bank of America results in the level of control you desire. I will also sign
the proxy on behalf of Electra and the Adams Family Trust when it arrives to
confirm this agreement.
If the above is acceptable, please indicate your acceptance by signing below.
Thank you again.
Very truly yours,
/s/ Charles A. Adams
Charles A. Adams
Accepted and Agreed:
/s/ R.M. MacTarnahan
- - ----------------------------
R.M. MacTarnahan Dated: August 26, 1998
/s/ R. Scott MacTarnahan
- - ----------------------------
R. Scott MacTarnahan Dated: August 26, 1998
LOAN AGREEMENT
================================================================================
BORROWER: PORTLAND BREWING COMPANY LENDER: BANK OF THE NORTHWEST
2730 NW 31ST AVENUE MAIN BRANCH
BORROWER: PORTLAND, OR 97210 600 PIONEER TOWER
888 S.W. FIFTH AVENUE
PORTLAND, OR 97204
================================================================================
THIS LOAN AGREEMENT BETWEEN PORTLAND BREWING COMPANY ("BORROWER") AND BANK OF
THE NORTHWEST ("LENDER") IS MADE AND EXECUTED ON THE FOLLOWING TERMS AND
CONDITIONS. BORROWER HAS RECEIVED PRIOR COMMERCIAL LOANS FROM LENDER OR HAS
APPLIED TO LENDER FOR A COMMERCIAL LOAN OR LOANS AND OTHER FINANCIAL
ACCOMMODATIONS, INCLUDING THOSE WHICH MAY BE DESCRIBED ON ANY EXHIBIT OR
SCHEDULE ATTACHED TO THIS AGREEMENT. ALL SUCH LOANS AND FINANCIAL
ACCOMMODATIONS, TOGETHER WITH ALL FUTURE LOANS AND FINANCIAL ACCOMMODATIONS FROM
LENDER TO BORROWER, ARE REFERRED TO IN THIS AGREEMENT INDIVIDUALLY AS THE "LOAN"
AND COLLECTIVELY AS THE "LOANS." BORROWER UNDERSTANDS AND AGREES THAT: (A) IN
GRANTING, RENEWING, OR EXTENDING ANY LOAN, LENDER IS RELYING UPON BORROWER'S
REPRESENTATIONS, WARRANTIES, AND AGREEMENTS, AS SET FORTH IN THIS AGREEMENT; (B)
THE GRANTING, RENEWING, OR EXTENDING OF ANY LOAN BY LENDER AT ALL TIMES SHALL BE
SUBJECT TO LENDER'S SOLE JUDGMENT AND DISCRETION; AND (C) ALL SUCH LOANS SHALL
BE AND SHALL REMAIN SUBJECT TO THE FOLLOWING TERMS AND CONDITIONS OF THIS
AGREEMENT.
TERM. This Agreement shall be effective as of SEPTEMBER 2, 1998, and shall
continue thereafter until all indebtedness of Borrower to Lender has been
performed in full and the parties terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar amounts shall mean amounts in lawful money of the United States of
America.
AGREEMENT. The word "Agreement" means this Loan Agreement, as this Loan
Agreement may be amended or modified from time to time, together with
all exhibits and schedules attached to this Loan Agreement from time to
time.
ACCOUNT. The word "Account" means a trade account, account receivable,
or other right to payment for goods sold or services rendered owing to
Borrower (or to a third party grantor acceptable to Lender).
ACCOUNT DEBTOR. The words "Account Debtor" mean the person or entity
obligated upon an Account.
ADVANCE. The word "Advance" means a disbursement of Loan funds under
this Agreement.
BORROWER. The word "Borrower" means PORTLAND BREWING COMPANY. The
word "Borrower" also includes, as applicable, all subsidiaries and
affiliates of Borrower as provided below in the paragraph titled
"Subsidiaries and Affiliates."
BORROWING BASE. The words "Borrowing Base" mean as determined by Lender
from time to time, the lesser of (a) $600,000.00; or (b) the sum of
$85.000% of the aggregate amount of Eligible Accounts less bad debt
allowance, accounts payable offsets and keg deposits, plus (ii) 50.000%
of Eligible Inventory defined as raw materials, work-in-process and
finished goods.
CERCLA. The word "CERCLA" means the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended.
COLLATERAL. The word "Collateral" means and includes without limitation
all property and assets granted as collateral security for a Loan,
whether real or personal property, whether granted directly or
indirectly, whether granted now or in the future, and whether granted
in the form of a security interest, mortgage, deed of trust,
assignment, pledge, chattel mortgage, chattel trust, factor's lien,
equipment trust, conditional sale, trust receipt, lien, charge, lien or
title retention contract, lease or consignment intended as a security
device, or any other security or lien interest whatsoever, whether
created by law, contract, or otherwise. The word "Collateral" includes
without limitation all collateral described below in the section titled
"COLLATERAL."
ELIGIBLE ACCOUNTS. The words "Eligible Accounts" mean, at any time, all
of Borrower's Accounts which contain selling terms and conditions
acceptable to Lender. The net amount of any Eligible Account against
which Borrower may borrow shall exclude all returns, discounts,
credits, and offsets of any nature. Unless otherwise agreed to by
Lender in writing, Eligible Accounts do not include:
(a) Accounts with respect to which the Account Debtor is an
officer, an employee or agent of Borrower.
(b) Accounts with respect to which the Account Debtor is a
subsidiary of, or affiliated with or related to Borrower or its
shareholders, officers, or directors.
(c) Accounts with respect to which goods are placed on
consignment, guaranteed sale, or other terms by reason of which
the payment by the Account Debtor may be conditional.
(d) Accounts with respect to which the Account Debtor is not a
resident of the United States, except to the extent such Accounts
are supported by insurance, bonds or other assurances
satisfactory to Lender.
(e) Accounts with respect to which Borrower is or may become
liable to the Account Debtor for goods sold or services rendered
by the Account Debtor to Borrower.
(f) Accounts which are subject to dispute, counterclaim, or
setoff.
(g) Accounts with respect to which the goods have not been
shipped or delivered, or the services have not been rendered, to
the Account Debtor.
(h) Accounts with respect to which Lender, in its sole
discretion, deems the creditworthiness or financial condition of
the Account Debtor to be unsatisfactory.
(i) Accounts of any Account Debtor who has filed or has had filed
against it a petition in bankruptcy or an application for relief
under any provision of any state or federal bankruptcy,
insolvency, or debtor-in-relief acts; or who has had appointed a
trustee, custodian, or receiver for the assets of such Account
Debtor; or who has made an assignment for the benefit of
creditors or has become insolvent or fails generally to pay its
debts (including its payrolls) as such debts become due.
(j) Accounts with respect to which the Account Debtor is the
United States government or any department or agency of the
United States.
ELIGIBLE INVENTORY. The words "Eligible Inventory" mean, at any time,
all of Borrower's Inventory as defined below except:
(a) Inventory which is not owned by Borrower free and clear of
all security interests, liens, encumbrances, and claims of third
parties.
(b) Inventory which Lender, in its sole discretion, deems to be
obsolete, unsalable, damaged, defective, or unfit for further
processing.
ERISA. The word "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended.
EVENT OF DEFAULT. The words "Event of Default" mean and include
without limitation any of the Events of Default set forth below in the
section titled "EVENTS OF DEFAULT."
EXPIRATION DATE. The words "Expiration Date" mean the date of
termination of Lender's commitment to lend under this Agreement.
GRANTOR. The word "Grantor" means and includes without limitation each
and all of the persons or entities granting a Security Interest in any
Collateral for the Indebtedness, including without limitation all
Borrowers granting such a Security Interest.
GUARANTOR. The word "Guarantor" means and includes without limitation
each and all of the guarantors, sureties, and accommodation parties in
connection with any Indebtedness.
INDEBTEDNESS. The word "Indebtedness" means and includes without
limitation all Loans, together with all other obligations, debts and
liabilities of Borrower to Lender, or any one or more of them, as well
as all claims by Lender against Borrower, or any one or more of them;
whether now or hereafter existing, voluntary or involuntary, due or not
due, absolute or contingent, liquidated or unliquidated; whether
Borrower may be liable individually or jointly with others; whether
Borrower may be obligated as a guarantor, surety, or otherwise; whether
recovery upon such Indebtedness may be or hereafter may become barred
by any statute of limitation; and whether such Indebtedness may be or
hereafter may become otherwise unenforceable.
INVENTORY. The word "Inventory" means all of Borrower's raw materials,
work in process, finished goods, merchandise, parts and supplies, of
every kind and description, and goods held for sale or lease or
furnished under contracts of service in which Borrower now has or
hereafter acquires any right, whether held by Borrower or others, and
all documents of title, warehouse receipts, bills of lading, and all
other documents of every type covering all or any part of the
foregoing. Inventory includes inventory temporarily out of Borrower's
custody or possession and all returns on Accounts.
LENDER. The word "Lender" means BANK OF THE NORTHWEST, its successors
and assigns.
LINE OF CREDIT. The words "Line of Credit" mean the credit facility
described in the Section titled "LINE OF CREDIT" below.
<PAGE>
LOAN AGREEMENT Page 2
(CONTINUED)
================================================================================
LOAN. The word "Loan" or "Loans" means and includes without limitation
any and all commercial loans and financial accommodations from Lender
to Borrower, whether now or hereafter existing, and however evidenced,
including without limitation those loans and financial accommodations
described herein or described on any exhibit or schedule attached to
this Agreement from time to time.
NOTE. The word "Note" means and includes without limitation Borrower's
promissory note or notes, if any, evidencing Borrower's Loan
obligations in favor of Lender, as well as any substitute, replacement
or refinancing note or notes therefor.
PERMITTED LIENS. The words "Permitted Liens" mean: (a) liens and
security interests securing Indebtedness owed by Borrower to Lender;
(b) liens for taxes, assessments, or similar charges either not yet due
or being contested in good faith; (c) liens of materialmen, mechanics,
warehousemen, or carriers, or other like liens arising in the ordinary
course of business and securing obligations which are not yet
delinquent; (d) purchase money liens or purchase money security
interests upon or in any property acquired or held by Borrower in the
ordinary course of business to secure indebtedness outstanding on the
date of this Agreement or permitted to be incurred under the paragraph
of this Agreement titled "Indebtedness and Liens"; (e) liens and
security interests which, as of the date of this Agreement, have been
disclosed to and approved by the Lender in writing; and (f) those liens
and security interests which in the aggregate constitute an immaterial
and insignificant monetary amount with respect to the net value of
Borrower's assets.
RELATED DOCUMENTS. The words "Related Documents" mean and include
without limitation all promissory notes, credit agreements, loan
agreements, environmental agreements, guaranties, security agreements,
mortgages, deeds of trust, and all other instruments, agreements and
documents, whether now or hereafter existing, executed in connection
with the Indebtedness.
SECURITY AGREEMENT. The words "Security Agreement" mean and include
without limitation any agreements, promises, covenants, arrangements,
understandings or other agreements, whether created by law, contract,
or otherwise, evidencing, governing, representing, or creating a
Security Interest.
SECURITY INTEREST. The words "Security Interest" mean and include
without limitation any type of collateral security, whether in the form
of a lien, charge, mortgage, deed of trust, assignment, pledge, chattel
mortgage, chattel trust, factor's lien, equipment trust, conditional
sale, trust receipt, lien or title retention contract, lease or
consignment intended as a security device, or any other security or
lien interest whatsoever, whether created by law, contract, or
otherwise.
SARA. The word "SARA" means the Superfund Amendments and
Reauthorization Act of 1986 as now or hereafter amended.
LINE OF CREDIT. Lender agrees to make Advances to Borrower from time to time
from the date of this Agreement to the Expiration Date, provided the aggregate
amount of such Advances outstanding at any time does not exceed the Borrowing
Base. With the foregoing limits, Borrower may borrow, partially or wholly
prepay, and reborrow under this Agreement as follows:
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make any
Advance to or for the account of Borrower under this Agreement is
subject to the following conditions precedent, with all documents,
instruments, opinions, reports, and other items required under this
Agreement to be in form and substance satisfactory to Lender:
(a) Lender shall have received evidence that this Agreement
and all Related Documents have been duly authorized, executed,
and delivered by Borrower to Lender.
(b) Lender shall have received such opinions of counsel,
supplemental opinions, and documents as Lender may request.
(c) The security interests in the Collateral shall have been
duly authorized, created, and perfected with first lien
priority and shall be in full force and effect.
(d) All guaranties required by Lender for the Line of Credit
shall have been executed by each Guarantor, delivered to
Lender, and be in full force and effect.
(e) Lender, at its option and for its sole benefit, shall have
conducted an audit of Borrower's Accounts, Inventory, books,
records, and operations, and Lender shall be satisfied as to
their condition.
(f) Borrower shall have paid to Lender all fees, costs, and
expenses specified in this Agreement and the Related Documents
as are then due and payable.
(g) There shall not exist at the time of any Advance a
condition which would constitute an Event of Default under
this Agreement, and Borrower shall have delivered to Lender
the compliance certificate called for in the paragraph below
titled "Compliance Certificate."
MAKING LOAN ADVANCES. Advances under the Line of Credit may be
requested either orally or in writing by authorized persons. Lender
may, but need not, require that all oral requests be confirmed in
writing. Each Advance shall be conclusively deemed to have been made at
the request of and for the benefit of Borrower (a) when credited to any
deposit account of Borrower maintained with Lender or (b) when advanced
in accordance with the instruction of an authorized person. Lender, at
its option, may set a cutoff time, after which all requests for
Advances will be treated as having been requested on the next
succeeding Business Day.
MANDATORY LOAN REPAYMENTS. If at any time the aggregate principal
amount of the outstanding Advances shall exceed the applicable
Borrowing Base, Borrower, immediately upon written or oral notice from
Lender, shall pay to Lender an amount equal to the difference between
the outstanding principal balance of the Advances and the Borrowing
Base. On the Expiration Date, Borrower shall pay to Lender in full the
aggregate unpaid principal amount of all Advances then outstanding and
all accrued unpaid interest, together with all other applicable fees,
costs and charges, if any, not yet paid.
LOAN ACCOUNT. Lender shall maintain on its books a record of account in
which Lender shall make entries for each Advance and such other debits
and credits as shall be appropriate in connection with the credit
facility. Lender shall provide Borrower with periodic statements of
Borrower's account, which statements shall be considered to be correct
and conclusively binding on Borrower unless Borrower notifies Lender to
the contrary within thirty (30) days after Borrower's receipt of any
such statement which Borrower deems to be incorrect.
COLLATERAL. To secure payment of the Line of Credit and performance of all other
Loans, obligations and duties owed by Borrower to Lender, Borrower (and others,
if required) shall grant to Lender Security Interests in such property and
assets as Lender may require (the "Collateral"), including without limitation
Borrower's present and future Accounts, general intangibles, and Inventory.
Lender's Security Interests in the Collateral shall be continuing liens and
shall include the proceeds and products of the Collateral, including without
limitation the proceeds of any insurance. With respect to the Collateral,
Borrower agrees and represents and warrants to Lender:
PERFECTION OF SECURITY INTERESTS. Borrower agrees to execute such
financing statements and to take whatever other actions are requested
by Lender to perfect and continue Lender's Security Interests in the
Collateral. Upon request of Lender, Borrower will deliver to Lender any
and all of the documents evidencing or constituting the Collateral, and
Borrower will note Lender's interest upon any and all chattel paper if
not delivered to Lender for possession by Lender. Contemporaneous with
the execution of this Agreement, Borrower will execute one or more UCC
financing statements and any similar statements as may be required by
applicable law, and will file such financing statements and all such
similar statements in the appropriate location or locations. Borrower
hereby appoints Lender as its irrevocable attorney-in-fact for the
purpose of executing any documents necessary to perfect or to continue
any Security Interest. Lender may at any time, and without further
authorization from Borrower, file a carbon, photograph, facsimile, or
other reproduction of any financing statement for use as a financing
statement. Borrower will reimburse Lender for all expenses for the
perfection, termination, and the continuation of the perfection of
Lender's security interest in the Collateral. Borrower promptly will
notify Lender of any change in Borrower's name including any change to
the assumed business names of Borrower. Borrower also promptly will
notify Lender of any change in Borrower's Social Security Number or
Employer Identification Number. Borrower further agrees to notify
Lender in writing prior to any change in address or location of
Borrower's principal governance office or should Borrower merge or
consolidate with any other entity.
COLLATERAL RECORDS. Borrower does now, and at all times hereinafter
shall, keep correct and accurate records of the Collateral, all of
which records shall be available to Lender of Lender's representative
upon demand for inspection and copying at any reasonable time. With
respect to the Accounts, Borrower agrees to keep and maintain such
records as Lender may require, including without limitation information
concerning Eligible Accounts and Account balances and agings. With
respect to the inventory, Borrower agrees to keep and maintain such
records as Lender may require, including without limitation information
concerning Eligible Inventory and records itemizing and describing the
kind, type, quality and quantity of Inventory, Borrower's Inventory
costs and selling prices, and the daily withdrawals and additions to
Inventory.
COLLATERAL SCHEDULES. Concurrently with the execution and delivery of
this Agreement, Borrower shall execute and deliver to Lender schedules
of Accounts and Inventory and Eligible Accounts and Eligible Inventory,
in form and substance satisfactory to the Lender. Thereafter and at
such frequency as Lender shall require, Borrower shall execute and
deliver to Lender such supplemental schedules of Eligible Accounts and
Eligible Inventory and such other matters and information relating to
the Accounts and Inventory as Lender may request.
REPRESENTATIONS AND WARRANTIES CONCERNING ACCOUNTS. With respect to
the Accounts, Borrower represents and warrants to Lender: (a) Each
Account represented by Borrower to be an Eligible Account for purposes
of this Agreement conforms to the requirements of the definition of an
Eligible Account; (b) All Account information listed on schedules
delivered to Lender will be true and correct, subject to immaterial
variance; and (c) Lender, its assigns, or agents, shall have the right
at any time and at Borrower's expense to inspect, examine, and audit
Borrower's records and to confirm with Account Debtors the accuracy of
such Accounts.
REPRESENTATIONS AND WARRANTIES CONCERNING INVENTORY. With respect to
the Inventory, Borrower represents and warrants to Lender: (a) All
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Inventory represented by Borrower to be Eligible Inventory for purposes
of this Agreement conforms to the requirements of the definition of
Eligible Inventory; (b) All Inventory values listed on schedules
delivered to Lender will be true and correct, subject to immaterial
variance; (c) The Value of the Inventory will be determined on a
consistent accounting basis; (d) Except as agreed to the contrary by
Lender in writing, all Eligible Inventory is now and at all times
hereafter will be in Borrower's physical possession and shall not be
held by others on consignment, sale on approval, or sale or return; (e)
Except as reflected in the Inventory schedules delivered to Lender, all
Eligible Inventory is now and at all times hereafter will be of good
and merchantable quality, free from defects; (f) Eligible Inventory is
not now and will not at any time hereafter be stored with a bailee,
warehouseman, or similar party without Lender's prior written consent,
and, in such event, Borrower will concurrently at the time of bailment
cause any such bailee, warehouseman, or similar party to issue and
deliver to Lender, in form acceptable to Lender, warehouse receipts in
Lender's name evidencing the storage of Inventory; and (g) Lender, its
assigns, or agents shall have the right at any time and at Borrower's
expense to inspect and examine the Inventory and to check and test the
same as to quality, quantity, value, and condition.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any Indebtedness exists:
ORGANIZATION. Borrower is a corporation which is duly organized,
validly existing, and in good standing under the laws of the State of
Oregon and is validly existing and in good standing in all states in
which Borrower is doing business. Borrower has the full power and
authority to own its properties and to transact the businesses in which
it is presently engaged or presently proposes to engage. Borrower also
is duly qualified as a foreign corporation and is in good standing in
all states in which the failure to so qualify would have a material
adverse effect on its businesses or financial condition.
AUTHORIZATION. The execution, delivery, and performance of this
Agreement and all Related Documents by Borrower, to the extent to be
executed, delivered or performed by Borrower, have been duly authorized
by all necessary action by Borrower; do not require the consent or
approval of any other person, regulatory authority or governmental
body; and do not conflict with, result in a violation of, or constitute
a default under (a) any provision of its articles of incorporation or
organization, or bylaws, or any agreement or other instrument binding
upon Borrower or (b) any law, governmental regulation, court decree, or
order applicable to Borrower.
FINANCIAL INFORMATION. Each financial statement of Borrower supplied
to Lender truly and completely disclosed Borrower's financial condition
as of the date of the statement, and there has been no material adverse
change in Borrower's financial condition subsequent to the date of the
most recent financial statement supplied to Lender. Borrower has no
material contingent obligations except as disclosed in such financial
statements.
LEGAL EFFECT. This Agreement constitutes, and any instrument or
agreement required hereunder to be given by Borrower when delivered
will constitute, legal, valid and binding obligations of Borrower
enforceable against Borrower in accordance with their respective terms.
PROPERTIES. Except for Permitted Liens, Borrower owns and has good
title to all of Borrower's properties free and clear of all Security
Interests, and has not executed any security documents or financing
statements relating to such properties. All of Borrower's properties
are titled in Borrower's legal name, and Borrower has not used, or
filed a financing statement under, any other name for at least the last
five (5) years.
HAZARDOUS SUBSTANCES. The terms "hazardous waste," hazardous
substance," "disposal," "release," and "threatened release," as used in
this Agreement, shall have the same meanings as set forth in the
"CERCLA," "SARA," the Hazardous Materials Transportation Act, 49 U.S.C.
Section 1801, et seq., the Resource Conservation and Recovery Act, 42
U.S.C. Section 6901, et seq., or other applicable state or Federal
laws, rules, or regulations adopted pursuant to any of the foregoing or
intended to protect human health or the environment ("Environmental
Laws"). Except as disclosed to and acknowledged by Lender in writing,
Borrower represents and warrants that: (a) During the period of
Borrower's ownership of the properties, there has been no use,
generation, manufacture, storage, treatment, disposal, release or
threatened release of any hazardous waste or substance by any person
on, under, about or from any of the properties. (b) Borrower has no
knowledge of, or reason to believe that there has been (i) any use,
generation, manufacture, storage, treatment, disposal, release, or
threatened release of any hazardous waste or substance on, under, about
or from the properties by any prior owners or occupants of any of the
properties, or (ii) any actual or threatened litigation or claims of
any kind by any person relating to such matters. (c) Neither Borrower
nor any tenant, contractor, agent or other authorized user of any of
the properties shall use, generate, manufacture, store, treat, dispose
of, or release any hazardous waste or substance on, under, about or
from any of the properties; and any such activity shall be conducted in
compliance with all applicable federal, state, and local laws,
regulations, and ordinances, including without limitation Environmental
Laws. Borrower authorizes Lender and its agents to enter upon the
properties to make such inspections and tests as Lender may deem
appropriate to determine compliance of the properties with this section
of the Agreement. Any inspections or tests made by Lender shall be at
Borrower's expense and for Lender's purposes only and shall not be
construed to create any responsibility or liability on the part of
Lender to Borrower or to any other person. The representations and
warranties contained herein are based on Borrower's due diligence in
investigating the properties for hazardous waste and hazardous
substances. Borrower hereby (a) releases and waives any future claims
against Lender for indemnity or contribution in the event Borrower
becomes liable for cleanup or other costs under any such laws, and (b)
agrees to indemnify and hold harmless Lender against any and all
claims, losses, liabilities, damages, penalties, and expenses which
Lender may directly or indirectly sustain or suffer resulting from a
breach of this section of the Agreement or as a consequence of any use,
generation, manufacture, storage, disposal, release or threatened
release of a hazardous waste or substance on the properties, or as a
result of a violation of any Environmental Laws. The provisions of this
section of the Agreement, including the obligation to indemnify, shall
survive the payment of the Indebtedness and the termination or
expiration of this Agreement and shall not be affected by Lender's
acquisition of any interest in any of the properties, whether by
foreclosure or otherwise.
LITIGATION AND CLAIMS. No litigation, claim, investigation,
administrative proceeding or similar action (including those for unpaid
taxes) against Borrower is pending or threatened, and no other event
has occurred which may materially adversely affect Borrower's financial
condition or properties, other than litigation, claims, or other
events, if any, that have been disclosed to and acknowledged by Lender
in writing.
TAXES. To the best of Borrower's knowledge, all tax returns and reports
of Borrower that are or were required to be filed, have been filed, and
all taxes, assessments and other governmental charges have been paid in
full, except those presently being or to be contested by Borrower in
good faith in the ordinary course of business and for which adequate
reserves have been provided.
LIEN PRIORITY. Unless otherwise previously disclosed to Lender in
writing, Borrower has not entered into or granted any Security
Agreements, or permitted the filing or attachment of any Security
Interests on or affecting any of the Collateral directly or indirectly
securing repayment of Borrower's Loan and Note, that would be prior or
that may in any way be superior to Lender's Security Interests and
rights in and to such Collateral.
BINDING EFFECT. This Agreement, the Note, all Security Agreements
directly or indirectly securing repayment of Borrower's Loan and Note
and all of the Related Documents are binding upon Borrower as well as
upon Borrower's successors, representatives and assigns, and are
legally enforceable in accordance with their respective terms.
COMMERCIAL PURPOSES. Borrower intends to use the Loan proceeds solely
for business or commercial related purposes.
EMPLOYEE BENEFIT PLANS. Each employee benefit plan as to which Borrower
may have any liability complies in all material respects with all
applicable requirements of law and regulations, and (i) no Reportable
Event nor Prohibited Transaction (as defined in ERISA) has occurred
with respect to any such plan, (ii) Borrower has not withdrawn from any
such plan or initiated steps to do so, (iii) no steps have been taken
to terminate any such plan, and (iv) there are no unfunded liabilities
other than those previously disclosed to Lender in writing.
LOCATION OF BORROWER'S OFFICES AND RECORDS. Borrower's place of
business, or Borrower's Chief executive office, if Borrower has more
than one place of business, is located at 2730 NW 31st Avenue,
Portland, OR 97210. Unless Borrower has designated otherwise in writing
this location is also the office or offices where Borrower keeps its
records concerning the Collateral.
YEAR 2000. Borrower warrants and represents that all software utilized
in the conduct of Borrower's business will have appropriate
capabilities and compatibility for operation to handle calendar dates
falling on or after January 1, 2000, and all information pertaining to
such calendar dates, in the same manner and with the same functionality
as the software does respecting calendar dates falling on or before
December 31, 1999. Further, Borrower warrants and represents that the
data-related user interface functions, data-fields, and data-related
program instructions and functions of the software include the
indication of the century.
INFORMATION. All information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purposes of or in connection
with this Agreement or any transaction contemplated hereby is, and all
information hereafter furnished by or on behalf of Borrower to Lender
will be, true and accurate in every material respect on the date as of
which such information is dated or certified; and none of such
information is or will be incomplete by omitting to state any material
fact necessary to make such information not misleading.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Borrower understands and
agrees that Lender, without independent investigation, is relying upon
the above representations and warranties in extending Loan Advances to
Borrower. Borrower further agrees that the foregoing representations
and warranties shall be continuing in nature and shall remain in full
force and effect until such time as Borrower's Indebtedness hall be
paid in full, or until this Agreement shall be terminated in the manner
provided above, whichever is the last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
LITIGATION. Promptly inform Lender in writing of (a) all material
adverse changes in Borrower's financial condition, and (b) all existing
and all threatened litigation, claims, investigations, administrative
proceedings or similar actions affecting Borrower or any Guarantor
which could materially affect the financial condition of Borrower or
the financial condition of any Guarantor.
FINANCIAL RECORDS. Maintain its books and records in accordance with
generally accepted accounting principles, applied on a consistent
basis,
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LOAN AGREEMENT Page 4
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and permit Lender to examine and audit Borrower's books and records at all
reasonable times.
FINANCIAL STATEMENTS. Furnish Lender with, as soon as available, but in
no event later than one hundred twenty (120) days after the end of each
fiscal year, Borrower's balance sheet and income statement for the year
ended, audited by a certified public accountant satisfactory to Lender,
and, as soon as available, but in no event later than twenty (20) days
after the end of each month, Borrower's balance sheet and profit and
loss statement for the period ended, prepared by Borrower's chief
financial officer or other officer or person acceptable to Lender. All
financial reports required to be provided under this Agreement shall be
prepared in accordance with generally accepted accounting principles,
applied on a consistent basis.
ADDITIONAL INFORMATION. Furnish such additional information and
statements, lists of assets and liabilities, agings of receivables and
payables, inventory schedules, budgets, forecasts, tax returns, and
other reports with respect to Borrower's financial condition and
business operations as Lender may request from time to time.
INSURANCE. Maintain fire and other risk insurance, public liability
insurance, and such other insurance as Lender may require with respect
to Borrower's properties and operations, in form, amounts, coverages
and with insurance companies reasonably acceptable to Lender. Borrower,
upon request of Lender, will deliver to Lender from time to time the
policies or certificates of insurance in form satisfactory to Lender,
including stipulations that coverages will not be cancelled or
diminished without at least ten (10) days' prior written notice to
Lender. Each insurance policy also shall include an endorsement
providing that coverage in favor of Lender will not be impaired in any
way by any act, omission or default of Borrower or any other person. In
connection with all policies covering assets in which Lender holds or
is offered a security interest for the Loans, Borrower will provide
Lender with such loss payable or other endorsements as Lender may
require.
INSURANCE REPORTS. Furnish to Lender, upon request of Lender, reports
on each existing insurance policy showing such information as Lender
may reasonably request, including without limitation the following: (a)
the name of the insurer; (b) the risks insured; (c) the amount of the
policy; (d) the properties insured; (e) the then current property
values on the basis of which insurance has been obtained, and the
manner of determining those values; and (f) the expiration date of the
policy. In addition, upon request of Lender (however not more often
than annually), Borrower will have an independent appraiser
satisfactory to Lender determine, as applicable, the actual cash value
or replacement cost of any Collateral. The cost of such appraisal shall
be paid by Borrower.
OTHER AGREEMENTS. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and any
other party and notify Lender immediately in writing of any default in
connection with any other such agreements.
LOAN FEES AND CHARGES. In addition to all other agreed upon fees and
charges, pay the following: BORROWER SHALL PAY TO LENDER, PRIOR TO OR
CONTEMPORANEOUSLY WITH THE INITIAL DISBURSEMENT OF LOAN PROCEEDS, A
NONREFUNDABLE LOAN FEE OF $750.00.
LOAN PROCEEDS. Use all Loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender in
writing.
TAXES, CHARGES AND LIENS. Pay and discharge when due all of its
indebtedness and obligations, including without limitation all
assessments, taxes, governmental charges, levies and liens, of every
kind and nature, imposed upon Borrower or its properties, income, or
profits, prior to the date on which penalties would attach, and all
lawful claims that, if unpaid, might become a lien or charge upon any
of Borrower's properties, income, or profits. Provided however,
Borrower will not be required to pay and discharge any such assessment,
tax, charge, levy, lien or claim so long as (a) the legality of the
same shall be contested in good faith by appropriate proceedings, and
(b) Borrower shall have established on its books adequate reserves with
respect to such contested assessment, tax, charge, levy, lien, or claim
in accordance with generally accepted accounting practices. Borrower,
upon demand of Lender, will furnish to Lender evidence of payment of
the assessments, taxes, charges, levies, liens and claims and will
authorize the appropriate governmental official to deliver to Lender at
any time a written statement of any assessments, taxes, charges,
levies, liens and claims against Borrower's properties, income, or
profits.
PERFORMANCE. Perform and comply with all terms, conditions, and
provisions set forth in this Agreement and in the Related Documents in
a timely manner, and promptly notify Lender if Borrower learns of the
occurrence of any event which constitutes an Event of Default under
this Agreement or under any of the Related Documents.
OPERATIONS. Maintain executive and management personnel with
substantially the same qualifications and experience as the present
executive and management personnel; provide written notice to Lender of
any change in executive and management personnel; conduct its business
affairs in a reasonable and prudent manner and in compliance with all
applicable federal, state and municipal laws, ordinances, rules and
regulations respecting its properties, charters, businesses and
operations, including without limitation, compliance with the Americans
With Disabilities Act and with all minimum funding standards and other
requirements of ERISA and other laws applicable to Borrower's employee
benefit plans.
INSPECTION. Permit employees or agents of Lender at any reasonable time
to inspect any and all Collateral for the Loan or Loans and Borrower's
other properties and to examine or audit Borrower's books, accounts,
and records and to make copies and memoranda of Borrower's books,
accounts, and records. If Borrower now or at any time hereafter
maintains any records (including without limitation computer generated
records and computer software programs for the generation of such
records) in the possession of a third party, Borrower, upon request of
Lender, shall notify such party to permit Lender free access to such
records at all reasonable times and to provide Lender with copies of
any records it may request, all at Borrower's expense.
ENVIRONMENTAL COMPLIANCE AND REPORTS. Borrower shall comply in all
respects with all environmental protection federal, state and local
laws, statutes, regulations and ordinances; not cause or permit to
exist, as a result of an intentional or unintentional action or
omission on its part or on the part of any third party, on property
owned and/or occupied by Borrower, any environmental activity where
damage may result to the environment, unless such environmental
activity is pursuant to and in compliance with the conditions of a
permit issued by the appropriate federal, state or local governmental
authorities; shall furnish to Lender promptly and in any event within
thirty (30) days after receipt thereof a copy of any notice, summons,
lien, citation, directive, letter or other communication from any
governmental agency or instrumentality concerning any intentional or
unintentional action or omission on Borrower's part in connection with
any environmental activity whether or not there is damage to the
environment and/or other natural resources.
ADDITIONAL ASSURANCES. Make, execute and deliver to Lender such
promissory notes, mortgages, deeds of trust, security agreements,
financing statements, instruments, documents and other agreements as
Lender or its attorneys may reasonably request to evidence and secure
the Loans and to perfect all Security Interests.
RECOVERY OF ADDITIONAL COSTS. If the imposition of or any change in any law,
rule, regulation or guideline, or the interpretation or application of any
thereof by any court or administrative or governmental authority (including any
request or policy not having the force of law) shall impose, modify or make
applicable any taxes (except U.S. federal, state or local income or franchise
taxes imposed on Lender), reserve requirements, capital adequacy requirements or
other obligations which would (a) increase the cost to Lender for extending or
maintaining the credit facilities to which this Agreement relates, (b) reduce
the amounts payable to Lender under this Agreement or the Related Documents, or
(c) reduce the rate of return on Lender's capital as a consequence of Lender's
obligations with respect to the credit facilities to which this Agreement
relates, then Borrower agrees to pay Lender such additional amounts as will
compensate Lender therefor, within five (5) days after Lender's written demand
for such payment, which demand shall be accompanied by an explanation of such
imposition or charge and a calculation in reasonable detail of the additional
amounts payable by Borrower, which explanation and calculations shall be
conclusive in the absence of manifest error.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:
INDEBTEDNESS AND LIENS. (a) Except for trade debt incurred in the
normal course of business and indebtedness to Lender contemplated by
this Agreement, create, incur or assume indebtedness for borrowed
money, including capital leases, (b) except as allowed as a Permitted
Lien, sell, transfer, mortgage, assign, pledge, lease, grant a security
interest in, or encumber any of Borrower's assets, or (c) sell with
recourse any of Borrower's accounts, except to Lender.
CONTINUITY OF OPERATIONS. (a) Engage in any business activities
substantially different than those in which Borrower is presently
engaged, (b) cease operations, liquidate, merge, transfer, acquire or
consolidate with any other entity, change ownership, change its name,
dissolve or transfer or sell Collateral out of the ordinary course of
business, (c) pay any dividends on Borrower's stock (other than
dividends payable in its stock), provided, however that notwithstanding
the foregoing, but only so long as no Event of Default has occurred and
is continuing or would result from the payment of dividends, if
Borrower is a "Subchapter S Corporation" (as defined in the Internal
Revenue Code of 1986, as amended), Borrower may pay cash dividends on
its stock to its shareholders from time to time in amounts necessary to
enable the shareholders to pay income taxes and make estimated income
tax payments to satisfy their liabilities under federal and state law
which arise solely from their status as Shareholders of a Subchapter S
Corporation because of their ownership of shares of stock of Borrower,
or (d) purchase or retire any of Borrower's outstanding shares or alter
or amend Borrower's capital structure.
LOANS, ACQUISITIONS AND GUARANTIES. (a) Loan, invest in or advance
money or assets, (b) purchase, create or acquire any interest in any
other enterprise or entity, or (c) incur any obligation as surety or
guarantor other than in the ordinary course of business.
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CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds if:
(a) Borrower or any Guarantor is in default under the terms of this Agreement or
any of the Related Documents or any other agreement that Borrower or any
Guarantor has with Lender; (b) Borrower or any Guarantor becomes insolvent,
files a petition in bankruptcy or similar proceedings, or is adjudged a
bankrupt; (c) there occurs a material adverse change in Borrower's financial
condition, in the financial condition of any Guarantor, or in the value of any
Collateral securing any Loan; (d) any Guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any
other loan with Lender; or (e) Lender in good faith deems itself insecure, even
though no Event of Default shall have occurred.
RIGHT TO CURE. If any default, other than a Default in Indebtedness, is curable
and if Borrower or Grantor, as the case may be, has not been given a notice of a
similar default within the preceding twelve (12) months, it may be cured if
Borrower or Grantor, as the case may be, cures the default within thirty (30)
days.
TIME IS OF THE ESSENCE. Time is of the essence in the performance of this
Business Loan Agreement.
AGING AND LISTING OF ACCOUNTS RECEIVABLE AND PAYABLE. Borrower covenants and
agrees with Lender that, while this Agreement is in effect, Borrower shall
deliver to Lender within twenty (20) days after the end of each month, a
detailed aging of Borrower's accounts and contracts receivable and accounts
payable as of the last day of that month, together with an explanation of any
adjustments made at the end of the month, all in a form acceptable to Lender.
BORROWING BASE CERTIFICATE. Unless waived in writing by Lender, Borrower agrees
to provide Lender with a Borrower's Certificate within twenty (20) days of each
month end. Each "Borrower's Certificate" shall be in form acceptable to Lender,
duly executed by Borrower and detailing the status of the Line of Credit as of
the date thereon.
RIGHT OF SETOFF. Borrower grants to Lender a contractual security interest in,
and hereby assigns, conveys, delivers, pledges, and transfers to Lender all
Borrower's right, title and interest in and to, Borrower's accounts with Lender
(whether checking, savings, or some other account), including without limitation
all accounts held jointly with someone else and all accounts Borrower may open
in the future, excluding however all IRA and Keogh accounts, and all trust
accounts for which the grant of a security interest would be prohibited by law.
Borrower authorizes Lender, to the extent permitted by applicable law, to charge
or setoff all sums owing on the Indebtedness against any and all such accounts,
and, at Lender's option, to administratively freeze all such accounts to allow
Lender to protect Lender's charge and setoff rights provided on this paragraph.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
DEFAULT IN INDEBTEDNESS. Failure of Borrower to make any payment when
due on the Loans.
OTHER DEFAULTS. Failure of Borrower or any Grantor to comply with or to
perform when due any other term, obligation, covenant or condition
contained in this Agreement or in any of the Related Documents, or
failure of Borrower to comply with or to perform any other term,
obligation, covenant or condition contained in any other agreement
between Lender and Borrower.
DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower or any Grantor
default under any loan, extension of credit, security agreement,
purchase or sales agreement, or any other agreement, in favor of any
other creditor or person that may materially affect any of Borrower's
property or Borrower's or any Grantor's ability to repay the Loans or
perform their respective obligations under this Agreement or any of the
Related Documents.
FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Borrower or any Grantor under
this Agreement or the Related Documents is false or misleading in any
material respect at the time made or furnished, or becomes false or
misleading at any time thereafter.
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related
Documents ceases to be in full force and effect (including failure of
any Security Agreement to create a valid and perfected Security
Interest) at any time and for any reason.
INSOLVENCY. The dissolution or termination of Borrower's existence as a
going business, the insolvency of Borrower, the appointment of a
receiver for any part of Borrower's property, any assignment for the
benefit of creditors, any type of creditor workout, or the commencement
of any proceeding under any bankruptcy or insolvency laws by or against
Borrower.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Borrower, any
creditor of any Grantor against any collateral securing the
Indebtedness, or by any governmental agency. This includes a
garnishment, attachment, or levy on or of any of Borrower's deposit
accounts with Lender.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with
respect to any Guarantor of any of the Indebtedness or any Guarantor
dies or becomes incompetent, or revokes or disputes the validity of, or
liability under, any Guaranty of the Indebtedness.
CHANGE IN OWNERSHIP. Any change in ownership of twenty-five percent
(25%) or more of the common stock of Borrower.
ADVERSE CHANGE. A material adverse change occurs in Borrower's
financial condition, or Lender believes the prospect of payment or
performance of the Indebtedness is impaired.
INSECURITY. Lender, in good faith, deems itself insecure.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where
otherwise provided in this Agreement or the Related Documents, all commitments
and obligations of Lender under this Agreement or the Related documents or any
other agreement immediately will terminate (including any obligation to make
Loan Advances or disbursements), and, at Lender's option, all Indebtedness
immediately will become due and payable, all without notice of any kind to
Borrower, except that in the case of an Event of Default of the type described
in the "Insolvency" subsection above, such acceleration shall be automatic and
not optional. In addition, Lender shall have all the rights and remedies
provided in the Related Documents or available at law, in equity, or otherwise.
Except as may be prohibited by applicable law, all of Lender's rights and
remedies shall be cumulative and may be exercised singularly or concurrently.
Election by Lender to pursue any remedy shall not exclude pursuit of any other
remedy, and an election to make expenditures or to take action to perform an
obligation of Borrower or of any Grantor shall not affect Lender's right to
declare a default and to exercise its rights and remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to
the matters set forth in this Agreement. No alteration of or amendment
to this Agreement shall be effective unless given in writing and signed
by the party or parties sought to be charged or bound by the alteration
or amendment.
APPLICABLE LAW. THIS AGREEMENT HAS BEEN DELIVERED TO LENDER AND
ACCEPTED BY LENDER IN THE STATE OF OREGON. IF THERE IS A LAWSUIT,
BORROWER AGREES UPON LENDER'S REQUEST TO SUBMIT TO THE JURISDICTION OF
THE COURTS OF MULTNOMAH COUNTY, THE STATE OF OREGON. LENDER AND
BORROWER HEREBY WAIVE THE RIGHT TO ANY JURY TRIAL IN ANY ACTION,
PROCEEDING, OR COUNTERCLAIM BROUGHT BY EITHER LENDER OR BORROWER
AGAINST THE OTHER. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF OREGON.
CAPTION HEADINGS. Caption headings in this Agreement are for
convenience purposes only and are not to be used to interpret or define
the provisions of this Agreement.
MULTIPLE PARTIES; CORPORATE AUTHORITY. All obligations of Borrower
under this Agreement shall be joint and several, and all references to
Borrower shall mean each and every Borrower. This means that each of
the persons signing below is responsible for all obligations in this
Agreement.
CONSENT TO LOAN PARTICIPATION. Borrower agrees and consents to
Lender's sale or transfer, whether now or later, of one or more
participation interests in the Loans to one or more purchasers, whether
related or unrelated to Lender. Lender may provide, without any
limitation whatsoever, to any one or more purchasers, or potential
purchasers, any information or knowledge Lender may have about Borrower
or about any other matter relating to the Loan, and Borrower hereby
waives any rights to privacy it may have with respect to such matters.
Borrower additionally waives any and all notices of sale of
participation interests, as well as all notices of any repurchase of
such participation interests. Borrower also agrees that the purchasers
of any such participation interests will be considered as the absolute
owners of such interests in the Loans and will have all the rights
granted under the participation agreement or agreements governing the
sale of such participation interests. Borrower further waives all
rights of offset or counterclaim that it may have now or later against
Lender or against any purchaser of such a participation interest and
unconditionally agrees that either Lender or such purchaser may enforce
Borrower's obligation under the Loans irrespective of the failure or
insolvency of any holder of any interest in the Loans. Borrower further
agrees that the purchaser of any such participation interests may
enforce its interests irrespective of any personal claims or defenses
that Borrower may have against Lender.
COSTS AND EXPENSES. Borrower agrees to pay upon demand all of Lender's
expenses incurred in connection with the preparation, execution,
enforcement, modification and collection of this Agreement or in
connection with the Loans made pursuant to this Agreement. Lender may
pay someone else to help collect the Loans and to enforce this
Agreement, and Borrower will pay that amount. This includes, subject to
any limits under applicable law, Lender's legal expenses, whether or
not there is a lawsuit, including expenses for bankruptcy proceedings
(including efforts to modify or vacate any automatic stay or
injunction), appeals, and any anticipated post-judgment collection
services. Borrower also will pay any court costs, in addition to all
other sums provided by law.
NOTICES. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile (unless otherwise
required by law), and shall be effective when actually delivered or
when deposited with a nationally recognized overnight courier or
deposited in the United
<PAGE>
LOAN AGREEMENT Page 6
(CONTINUED)
================================================================================
States mail, first class, postage prepared, addressed to the party to
whom the notice is to be given at the address shown above. Any party
may change its address for notices under this Agreement by giving
formal written notice to the other parties, specifying that the purpose
of the notice is to change the party's address. To the extent permitted
by applicable law, if there is more than one Borrower, notice to any
Borrower will constitute notice to all Borrowers. For notice purposes,
Borrower will keep Lender informed at all times of Borrower's current
address(es).
SEVERABILITY. If a court of competent jurisdiction finds any provision
of this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible,
any such offending provision shall be deemed to be modified to be
within the limits of enforceability or validity; however, if the
offending provision cannot be so modified, it shall be stricken and all
other provisions of this Agreement in all other respects shall remain
valid and enforceable.
SUBSIDIARIES AND AFFILIATES OF BORROWER. To the extent the context of
any provisions of this Agreement makes it appropriate, including
without limitation any representation, warranty or covenant, the word
"Borrower" as used herein shall include all subsidiaries and affiliates
of Borrower. Notwithstanding the foregoing however, under no
circumstances shall this Agreement be construed to require Lender to
make any Loan or other financial accommodation to any subsidiary or
affiliate of Borrower.
SUCCESSORS AND ASSIGNS. All covenants and agreements contained by or on
behalf of Borrower shall bind its successors and assigns and shall
inure to the benefit of Lender, its successors and assigns. Borrower
shall not, however, have the right to assign its rights under this
Agreement or any interest therein, without the prior written consent of
Lender.
SURVIVAL. All warranties, representations, and covenants made by
Borrower in this Agreement or in any certificate or other instrument
delivered by Borrower to Lender under this Agreement shall be
considered to have been relied upon by Lender and will survive the
making of the Loan and delivery to Lender of the Related Documents,
regardless of any investigation made by Lender or on Lender's behalf.
WAIVER. Lender shall not be deemed to have waived any rights under
this Agreement unless such waiver is given in writing and signed by
Lender. No delay or omission on the part of Lender in exercising any
right shall operate as a waiver of such right or any other right. A
waiver by Lender of a provision of this Agreement shall not prejudice
or constitute a waiver of Lender's right otherwise to demand strict
compliance with that provision or any other provision of this
Agreement. No prior waiver by Lender, nor any course of dealing between
Lender and Borrower, or between Lender and any Grantor, shall
constitute a waiver of any of Lender's rights or of any obligations of
Borrower or of any Grantor as to any future transactions. Whenever the
consent of Lender is required under this Agreement, the granting of
such consent by Lender in any instance shall not constitute continuing
consent in subsequent instances where such consent is required, and in
all cases such consent may be granted or withheld in the sole
discretion of Lender.
UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY US (LENDER)
AFTER OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT
FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER'S
RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY US TO BE
ENFORCEABLE.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS LOAN AGREEMENT, AND
BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF SEPTEMBER 2, 1998.
BORROWER:
PORTLAND BREWING COMPANY
X /s/ Glenmore James
-------------------------------
AUTHORIZED OFFICER
LENDER:
BANK OF THE NORTHWEST
BY: /s/ Hadley Robbins
-----------------------------
AUTHORIZED OFFICER
================================================================================
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements found in the Company's Report on Form 10-QSB for the nine
ended September 30, 1998, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000943658
<NAME> PORTLAND BREWING COMPANY
<MULTIPLIER> 1,000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 25
<SECURITIES> 0
<RECEIVABLES> 874
<ALLOWANCES> 0
<INVENTORY> 650
<CURRENT-ASSETS> 1,802
<PP&E> 10,920
<DEPRECIATION> 3,231
<TOTAL-ASSETS> 9,643
<CURRENT-LIABILITIES> 1,612
<BONDS> 0
0
0
<COMMON> 7,116
<OTHER-SE> (1,305)
<TOTAL-LIABILITY-AND-EQUITY> 9,643
<SALES> 7,689
<TOTAL-REVENUES> 7,344
<CGS> 5,391
<TOTAL-COSTS> 5,391
<OTHER-EXPENSES> 2,870
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 233
<INCOME-PRETAX> (1,260)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,260)
<DISCONTINUED> 0
<EXTRAORDINARY> 1,199
<CHANGES> 0
<NET-INCOME> (133)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
