UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ X] Definitive Proxy Statement [ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
PORTLAND BREWING COMPANY
(Name of Registrant as Specified in its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed per Exchange Act Rules 14a-6(i)(4) and 0-11.
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
<PAGE>
PORTLAND BREWING COMPANY
2730 NW 31st Avenue
Portland, Oregon 97210
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
-------------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders (the "Annual
Meeting") of Portland Brewing Company, an Oregon corporation (the "Company"),
will be held on Saturday, September 18, 1999, at 10:30 a.m., local time, at the
Company's offices, 2730 NW 31st Avenue, Portland, Oregon, 97210, for the
following purposes:
1. To elect five Directors to serve until the next Annual Meeting
of Shareholders and until their successors are duly elected
and qualified (Proposal No. 1);
2. To ratify the appointment of Arthur Andersen LLP as
independent accountants for the Company for the fiscal year
ending December 31, 1999 (Proposal No. 2); and
3. To transact such other business as may properly come before
the meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on August 9, 1999 as the
record date for determining shareholders entitled to notice of and to vote at
the meeting or any adjournments thereof. Only shareholders of record at the
close of business on that date are entitled to notice of and to vote at the
Annual Meeting or any adjournments thereof.
By Order of the Board of Directors
Glenmore James
Executive Vice President, Chief Financial Officer
and Chief Operating Officer
Portland, Oregon
August 23, 1999
YOUR VOTE IS IMPORTANT WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING IN
PERSON. PLEASE COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY PROMPTLY, IN
THE ACCOMPANYING ENVELOPE SO THAT YOUR SHARES WILL BE VOTED. YOUR PROXY MAY BE
REVOKED AT ANY TIME PRIOR TO THE TIME IT IS VOTED. IF YOU DECIDE TO ATTEND THE
MEETING AND WISH TO CHANGE YOUR PROXY VOTE, YOU MAY DO SO AUTOMATICALLY BY
VOTING IN PERSON AT THE MEETING.
<PAGE>
PORTLAND BREWING COMPANY
PROXY STATEMENT FOR
ANNUAL MEETING OF SHAREHOLDERS
To Be Held on September 18, 1999
---------------
INTRODUCTION
General
This Proxy Statement, the accompanying 1998 Annual Report on Form 10-KSB, the
Quarterly Report on Form 10-QSB for the quarter ended June 30, 1999, and a
letter to the shareholders of Portland Brewing Company (the "Company") are being
furnished as part of the solicitation of proxies by the Company's Board of
Directors (the "Board of Directors") for use at the Company's Annual Meeting of
Shareholders (the "Annual Meeting") to be held on Saturday, September 18, 1999,
at 10:30 a.m., local time, or at any adjournments thereof. At the Annual
Meeting, shareholders will be asked to elect five members of the Board of
Directors, to ratify the appointment by the Board of Directors of Arthur
Andersen LLP as independent accountants for the Company for the fiscal year
ending December 31, 1999, and to transact such other business as may properly
come before the meeting or any adjournments thereof. This Proxy Statement,
together with the enclosed proxy card, the 1998 Annual Report on Form 10-KSB,
the Quarterly Report on Form 10-QSB for the quarter ended June 30, 1999, and a
letter from the Company are first being mailed to shareholders of the Company on
or about August 23, 1999.
Solicitation, Voting and Revocability of Proxies
The Board of Directors has fixed the close of business on August 9, 1999 as the
record date for the determination of the shareholders entitled to notice of and
to vote at the Annual Meeting. Accordingly, only holders of record of shares of
Common Stock at the close of business on such date will be entitled to vote at
the Annual Meeting, with each such share entitling its owner to one vote on all
matters properly presented at the Annual Meeting. On the record date, there were
3,365,267 shares of Common Stock outstanding. The presence, in person or by
proxy of a majority of the total number of outstanding shares of Common Stock
entitled to vote at the Annual Meeting is necessary to constitute a quorum at
the Annual Meeting.
If the enclosed form of proxy is properly executed and returned in time to be
voted at the Annual Meeting, the shares represented thereby will be voted in
accordance with the instructions marked thereon. Executed but unmarked proxies
will be voted FOR the election of the five nominees for election to the Board of
Directors and FOR the ratification of the appointment of Arthur Andersen LLP as
the Company's independent accountants for the year ending December 31, 1999. The
Board of Directors does not know of any matters other than those described in
the Notice of Annual Meeting that are to come before the Annual Meeting. If any
other matters are properly brought before the Annual Meeting, the persons named
in the proxy will vote the shares represented by such proxy upon such matters as
determined by the persons named in the proxy.
Shareholders who execute proxies retain the right to revoke them at any time
prior to the exercise of the powers conferred thereby by filing a written notice
of revocation with, or by delivering a duly executed proxy bearing a later date
to, Corporate Secretary, Portland Brewing Company, 2730 NW 31st Avenue,
Portland, Oregon 97210, or by attending the Annual Meeting and voting in person.
All valid, unrevoked proxies will be voted at the Annual Meeting.
1
<PAGE>
ELECTION OF DIRECTORS
(Proposal No. 1)
In accordance with the Company's Bylaws, as amended, the Board of Directors
shall consist of no less than four and no more than nine Directors, the specific
number to be determined by resolution adopted by the Board of Directors. The
number of directors is currently set at five. Unless otherwise instructed, the
proxy holders will vote the proxies received by them FOR the nominees named
below. In the event that any nominee of the Company is unable or declines to
serve as a Director at the time of the Annual Meeting, the proxies will be voted
for any nominee who shall be designated by the present Board of Directors to
fill the vacancy. The Company is not aware of any nominee who will be unable or
will decline to serve as a Director.
In the event that additional persons are nominated for election as Directors,
the proxy holders intend to vote all proxies received by them in such a manner
as will assure the election of as many of the nominees listed below as possible,
and, in such event, the specific nominees to be voted for will be determined by
the proxy holders.
Nominees for Director
Information with respect to the persons nominated by the Board of Directors to
be elected as Directors is set forth below. The term of office for each person
elected as a director will continue until the next Annual Meeting of
Shareholders and until a successor has been elected and qualified.
Name of Nominee Age
Charles A. (Tony) Adams 53
Frederick L. Bowman 54
Robert M. MacTarnahan 84
R. Scott MacTarnahan 53
Howard M. Wall, Jr. 53
Charles A. (Tony) Adams. Mr. Adams has been Chairman of the Board of Directors
and President and Chief Executive Officer of the Company since February 1992. He
has been a Director of the Company since October 1988. Mr. Adams is president of
Electra Partners, Inc., a private investment holding company. Mr. Adams was
active in the real estate business beginning in 1973, including owning and
operating his own real estate company until 1983, when he became a sales
associate at CB Commercial Real Estate Group, Inc., where he was employed until
1992. He holds a B.A. in Geology from the University of Virginia and has studied
graduate level economics and business administration at the University of San
Francisco, Portland State University and Stanford University.
Frederick L. Bowman. Mr. Bowman is a founder of the Company and has been Vice
President, Sales and Marketing since February 1992. In July 1997 Mr. Bowman was
also elected Treasurer and Secretary, and in September 1998, Mr. Bowman was
appointed to the Board of Directors. Mr. Bowman serves as corporate liaison to
the beer industry and assists in marketing efforts including public relations
and the Company's distributor support program. He designed the Company's
original products and brewery. Previous to founding Portland Brewing Company,
Mr. Bowman was involved in the wholesale automotive industry as both a
technician and a district service manager. Mr. Bowman has attended Portland
State University, University of Oregon and Oregon State University. In addition,
Mr. Bowman attended the Brewing Microbiology and Microscopy course at the Siebel
Institute in 1988.
Robert M. MacTarnahan. Mr. MacTarnahan has been a Director since July 1985. Mr.
MacTarnahan has been a partner in Harmer Company and Black Lake Investments for
more than five years. Mr. MacTarnahan has been the president of Honeyman
Aluminum Products Company, a manufacturer of hand trucks for the beverage
industry, for more than 10 years. He is also active in the promotion of the
Company and the Company's MacTarnahan's Ale is named after him. See "Certain
Relationships And Related Transactions." Mr. R. Scott MacTarnahan is his son.
2
<PAGE>
R. Scott MacTarnahan. Mr. MacTarnahan has been a Director since July 1985. He
has been vice president and general manager of Honeyman Aluminum Products
Company and Harmer Company for more than 10 years. Mr. MacTarnahan received a
B.S. in Business Administration from Portland State University in 1968. Mr.
Robert M. MacTarnahan is his father.
Howard M. Wall, Jr. Mr. Wall has been a Director of the Company since October
1992. Since 1984 he has been the president and chief executive officer of Portco
Corporation, a Vancouver, Washington manufacturer of paper and plastic flexible
packaging for the produce, fish, and roofing industries. He has had a long
association with the Northwest hop industry as Portco developed the world's only
biodegradable paper hop string. Mr. Wall received a B.A. in English from the
University of Oregon in 1973.
Meetings and Committees of the Board of Directors
The Board of Directors of the Company held a total of five (5) meetings during
1998 and took action pursuant to three (3) unanimous consents. During 1998, each
incumbent Director attended at least 75% of the aggregate number of meetings of
the Board of Directors and of the committees of the Board of Directors on which
he served.
The Board of Directors has an Audit Committee, an Executive Compensation
Committee and a Nominating Committee. The Audit Committee, which consisted of
Messrs. Hunt, Ostler and Wall is responsible for overseeing actions taken by the
Company's independent accountants and reviews the Company's internal financial
controls. The Executive Compensation Committee, which consisted of Messrs. R.
Scott MacTarnahan, Ostler and Wall is responsible for determining the
compensation of the officers of the Company. The Nominating Committee, which
consisted of Messrs. Adams, R. Scott MacTarnahan, and Robert M. MacTarnahan
(except for during August, September and October 1998, when the entire Board of
Directors served as the Nominating Committee) is responsible for recommending to
the Board of Directors a slate of nominees to be proposed for election at the
Annual Meeting of Shareholders. The Company's Nominating Committee will consider
recommendations from the Company's shareholders of nominees for the Board of
Directors. Presently, the Nominating Committee has no formal procedures for the
submission of such recommendations. See "Management - Director Compensation" for
certain information regarding compensation of directors. The Executive
Compensation Committee met one (1) time during 1998, with all members present at
that meeting. None of the other committees met during 1998.
The Board of Directors unanimously recommends that shareholders vote FOR the
election of its nominees for director. If a quorum is present, the Company's
Bylaws provide that directors are elected by a plurality of the votes cast by
the shares entitled to vote. Abstentions and broker non-votes are counted for
purposes of determining whether a quorum exists at the Annual Meeting, but are
not counted and have no effect on the determination of whether a plurality
exists with respect to a given nominee.
3
<PAGE>
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
(Proposal No. 2)
The Board of Directors has selected Arthur Andersen LLP, independent
accountants, to audit the financial statements of the Company for the year
ending December 31, 1999, subject to ratification by the shareholders.
Unless otherwise indicated, properly executed proxies will be voted in favor of
ratifying the appointment of Arthur Andersen LLP to audit the books and accounts
of the Company for the year ending December 31, 1999. No determination has been
made as to what action the Board of Directors would take if the shareholders do
not ratify the appointment.
A representative of Arthur Andersen LLP is expected to be present at the Annual
Meeting. The representative will be given the opportunity to make a statement on
behalf of his firm if such representative so desires, and will be available to
respond to any appropriate questions of any shareholder. Arthur Andersen LLP was
the Company's independent accountants for the year ended December 31, 1998.
The Board of Directors unanimously recommends a vote FOR this proposal. If a
quorum is present the Company's Bylaws provide that ratification of this
proposal will be approved if the votes cast by the shareholders entitled to vote
favoring the ratification exceeds the votes cast opposing the ratification.
Abstentions and broker non-votes are counted for purposes of determining whether
a quorum exists at the Annual Meeting, but are not counted and have no effect on
the determination of the outcome of this proposal.
4
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of voting equity securities of the Company as of July 30, 1999 as to
(i) each person who is known by the Company to own beneficially 10% or more of
the outstanding shares of such class of voting equity securities of the Company,
(ii) each of the three most highly compensated officers and (iii) all Directors
and officers as a group. Except as otherwise noted, the Company believes the
persons listed below have sole investment and voting power with respect to the
voting equity securities owned by them.
<TABLE>
Series A
Common Stock Preferred Stock (10)
---------------------------- --------------------------
Shares Percent of Shares Percent of
Name of Beneficial Owner or Beneficially Shares Beneficially Shares
Number of Persons in Group Owned (1) Outstanding Owned (1) Outstanding
-------------------------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Shareholder Group (9) 1,864,234.5 53.4 % 5,770 100 %
Robert M. MacTarnahan (3) (9) 1,864,234.5 53.4 5,770 100
11416 SW Lynnridge
Portland, Oregon 97225
R. Scott MacTarnahan (4) (9) 1,864,234.5 53.4 5,770 100
11416 SW Lynnridge
Portland, Oregon 97225
Charles A. (Tony) Adams (2) (5) (9) 1,864,234.5 53.4 5,770 100
Frederick L. Bowman (2) (6) 72,445 2.1 - -
Glenmore James (2) (7) 79,500 2.3 - -
All Officers and Directors as a group,
(six persons) (8) (9) 2,026,829.5 56.3 % 5,770 100 %
</TABLE>
(1) Beneficial ownership includes voting power and investment power with respect
to shares and includes shares issuable upon the exercise of outstanding
stock options and warrants.
(2) The business address for these individuals is 2730 NW 31st Avenue, Portland,
Oregon 97210.
(3) Includes 22,860 shares owned individually by Mr. Robert M. MacTarnahan,
73,335 shares held by Black Lake Investments, 765,162 shares held by Harmer
Mill & Logging Supply Co. (dba Harmer Company), and 30,000 shares held by
Harco Products, Inc., each of which is controlled by Mr. and Mrs. Robert M.
MacTarnahan and Mr. R. Scott MacTarnahan, 43,848.75 shares which may be
purchased for $3.3333 per share upon exercise of a warrant held by
MacTarnahan Limited Partnership, whose general partner is Harmer Mill &
Logging Supply Co. and whose limited partners are Mr. Robert M. MacTarnahan
and Mrs. Ruth MacTarnahan and 6,000 shares which may be purchased for
$5.3333 per share upon exercise of a non-qualified stock option held by Mr.
Robert M. MacTarnahan. See note 9.
(4) Includes 73,335 shares held by Black Lake Investments, 765,162 shares held
by Harmer Mill & Logging Supply Co., and 30,000 shares held by Harco
Products, Inc., each of which is controlled by Mr. Robert M. MacTarnahan and
Mr. R. Scott MacTarnahan, 600 shares held by Mr. R. Scott MacTarnahan's
spouse, 43,848.75 shares which may be purchased for $3.3333 per share upon
exercise of a warrant held by MacTarnahan Limited Partnership, whose general
partner is Harmer Mill & Logging Supply Co. and whose limited partners are
Mr. Robert M. MacTarnahan and Mrs. Ruth MacTarnahan and 6,000 shares which
may be purchased for $5.3333 per share upon exercise of a non-qualified
stock option held by Mr. R. Scott MacTarnahan. See note 9.
5
<PAGE>
(5) Includes 180,300 shares held by Electra Partners, Inc., an entity controlled
by Mr. Adams, 666,192 shares held by Mr. Adams as Trustee of the Charles A.
Adams Family Trust, 525 shares held by Mr. Adams' daughter and 525 shares
held by Mr. Adams' son, 32,886.75 shares which may be purchased for $3.3333
upon exercise of a warrant held by Electra Partners, Inc. and 36,000 shares
which may be purchased for $0.594 per share upon exercise of incentive stock
options held by Mr. Adams. See note 9.
(6) Includes 44,445 shares owned individually by Mr. Bowman, and 28,000 shares
which may be purchased for $0.54 per share upon exercise of incentive stock
options held by Mr. Bowman.
(7) Includes 78,000 shares which may be purchased for $0.54 per share upon
exercise of incentive stock options held by Mr. James.
(8) Includes 155,500 shares which may be purchased for prices ranging from $0.54
to $5.33 per share, upon exercise of stock options held by all Directors and
officers, as a group. Includes 43,848.75 shares which may be purchased for
$3.3333 per share upon exercise of a warrant held by MacTarnahan Limited
Partnership and 32,886.75 shares which may be purchased for $3.3333 upon
exercise of a warrant held by Electra Partners, Inc.
(9) Robert M. MacTarnahan, Robert S. MacTarnahan, Harmer Mill & Logging Supply
Co. (dba Harmer Company) (11416 SW Lynnridge, Portland, Oregon 97225), Harco
Products, Inc. (11416 SW Lynnridge, Portland, Oregon 97225), Black Lake
Investments (11416 SW Lynnridge, Portland, Oregon 97225), MacTarnahan
Limited Partnership (11416 SW Lynnridge, Portland, Oregon 97225), Charles A.
Adams, Electra Partners, Inc. (1765 Farmington Road, Aloha, Oregon 97007)
and the Charles A. Adams Family Trust (4047 Shattuck Road, Portland, Oregon
97221) are members of a "group" as that term is used in Section 13(d)(3) of
the Securities Exchange Act of 1934 ("34 Act"). Pursuant to Rule 13d-5
promulgated under the 34 Act, the group is deemed to beneficially own all
shares of the Company which are beneficially owned by any member of the
group and therefore the group beneficially owns 1,864,234.5 shares of Common
Stock. Because each member of the group shares investment and voting control
of the group shares, each member of the group is deemed to beneficially own
all shares of the group. Therefore, (a) Robert M. MacTarnahan is deemed to
beneficially own 923,028.75 shares of Common Stock in addition to the shares
described in note 3, (b) R. Scott MacTarnahan is deemed to beneficially own
945,288.75 shares of Common Stock in addition to the shares described in
note 4, and (c) Charles A. Adams is deemed to beneficially own 947,805.75
shares of Common Stock in addition to the shares described in note 5. See
note 10 regarding Series A Preferred Stock.
(10)On March 1, 1999, Harmer Mill & Logging Supply Co.(dba Harmer Company) and
the Charles A. Adams Family Trust each purchased 2,885 shares of the
Company's Series A Preferred Stock ("Series A") for $52 per share, resulting
in aggregate proceeds to the Company of $300,040. As noted above in note 9,
Harmer Company and the Charles A. Adams Family Trust are members of a
"group" as that term is used in Section 13(d)(3) of the 34 Act. Pursuant to
Rule 13d-5 promulgated under the 34 Act, the group is deemed to beneficially
own all shares of the Company which are beneficially owned by any member of
the group and therefore the group beneficially owns 5,770 shares of Series A
stock. Because each member of the group shares investment and voting control
of the group shares, each member of the group is deemed to beneficially own
all shares of the group.
6
<PAGE>
OPTIONS, WARRANTS AND RIGHTS
The following table sets forth certain information regarding outstanding options
and warrants to purchase shares of Common Stock of the Company as of July 30,
1999 as to (i) each person who is known by the Company to own beneficially 10%
or more of the outstanding shares of the Company's Common Stock, (ii) each of
the three most highly compensated officers and (iii) all Directors and officers
as a group.
<TABLE>
Number of Shares of Common Stock
Called for by Options
Name of Holder and Warrants Exercise Price Date of Exercise
- -------------------------------- ---------------------------- ----------------- -------------------
<S> <C> <C> <C>
MacTarnahan Limited Partnership
(1) 43,848.75 $3.333 (2)
Electra Partners, Inc. (1) 32,886.75 $3.333 (2)
Robert M. MacTarnahan (1) 6,000 $5.333 (2)
R. Scott MacTarnahan (1) 6,000 $5.333 (2)
Charles A. (Tony) Adams (1) 36,000 $0.594 (3)
Frederick L. Bowman 28,000 $0.54 (4)
Glenmore James 78,000 $0.54 (5)
All Directors and officers as a
group, (six persons) 232,235.5 $0.54-$5.33 (6)
</TABLE>
(1) As noted in note 9 on page 6 of this proxy statement, MacTarnahan
Limited Partnership and Charles A. Adams are members of a "group" as
that term is used in Section 13(d)(3) of the 34 Act. Pursuant to Rule
13d-5 promulgated under the 34 Act, the group is deemed to beneficially
own all shares of the Company which are beneficially owned by any
member of the group and therefore the group beneficially owns 124,735.5
shares of Common Stock which may be acquired under outstanding options
and warrants, as noted in the table above. Because each member of the
group shares investment and voting control of the group shares, each
member of the group is deemed to beneficially own all shares of the
group.
(2) Options and warrants are currently exercisable.
(3) Options to purchase 36,000 shares of Common Stock issued to Mr. Adams
in November 1994 at $5.86 per share were repriced in May 1999 to $0.594
per share. These options become exercisable on May 20, 2000. See
"Executive Compensation-Incentive Stock Option Repricing."
(4) Options to purchase 8,000 shares of Common Stock issued to Mr. Bowman
in January 1996 at $7.00 per share were repriced in May 1999 to $0.54
per share. See "Executive Compensation-Incentive Stock Option
Repricing." Additionally, in May 1999, Mr. Bowman was granted options
to purchase 20,000 shares Common Stock at $0.54 per share. All of Mr.
Bowman's outstanding options become exercisable on May 20, 2000.
(5) Options to purchase 28,000 shares of Common Stock issued to Mr. James
at various dates from November 1994 to April 1997 at prices ranging
from $5.33 to $7.00 per share were repriced in May 1999 to $0.54 per
share. See "Executive Compensation-Incentive Stock Option Repricing."
Additionally, in May 1999, Mr. James was granted options to purchase
50,000 shares Common Stock at $0.54 per share. All of Mr. James'
outstanding options become exercisable on May 20, 2000.
(6) As of July 30, 1999, options to purchase 13,500 shares of Common Stock
were exercisable. Options to purchase the remaining 142,000 shares of
Common Stock become exercisable on May 20, 2000. As of July 30, 1999,
warrants to purchase 76,735.5 shares of Common Stock were exercisable.
7
<PAGE>
MANAGEMENT
Executive Officers
Information with respect to the Company's current executive officers is set
forth below. Officers of the Company are elected by the Board of Directors and
hold office until their successors are elected and qualified.
<TABLE>
Name Age Position(s) with the Company
---- --- ----------------------------
<S> <C> <C>
Charles A. (Tony) Adams 53 Chairman of the Board, President and Chief
Executive Officer
Glenmore James 45 Executive Vice President, Chief Financial
Officer and Chief Operating Officer
Frederick L. Bowman 54 Vice President, Treasurer and Secretary
</TABLE>
For information on the business backgrounds of Mr. Adams and Mr. Bowman, see
"Nominees for Director."
Glenmore James. Mr. James has been Executive Vice President and Chief Financial
Officer since June 1994, served as Executive Vice President and Treasurer from
June 1994 until July 1997, and served as Secretary from September 1996 until
July 1997. In July 1997 Mr. James was elected Chief Operating Officer. He joined
the Company full-time in April 1994. Prior to that, Mr. James acted as a
consultant to the Company. Mr. James is responsible for the financial and
operations departments of the Company. Mr. James has worked for over twenty
years in the Portland area business community, initially in financial accounting
management positions in various manufacturing and distribution companies and
more recently as an independent business consultant. Mr. James received his ICSA
certification in 1976 from Mid-Essex Technical College, England.
EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation
The following table and notes set forth information regarding all cash
compensation paid by the Company during the year ended December 31, 1998, to
each of the three most highly compensated officers and all officers as a group.
<TABLE>
Capacities in Which Aggregate
Name Remuneration Was Received Remuneration
---- ------------------------- ------------
<S> <C> <C>
Charles A. (Tony) Adams Chairman of the Board, President and Chief
Executive Officer $ 60,000
Glenmore James Executive Vice President, Chief Financial
Officer and Chief Operating Officer $ 91,424
Frederick L. Bowman Vice President, Treasurer and Secretary $ 50,748
All officers as a group (3 persons) $ 202,172
</TABLE>
8
<PAGE>
Incentive Stock Option Plan. In October 1992, the shareholders of the Company
approved the Company's Incentive Stock Option Plan (the "ISO Plan"). The ISO
Plan is administered by the Company's Board of Directors and provides for grants
to officers and employees of options to acquire up to 400,000 shares of the
Company's Common Stock, subject to the limitations set forth in the ISO Plan.
Pursuant to the ISO Plan, the granting of options is at the discretion of the
Board of Directors, and it has the authority to set the terms and conditions of
the options granted, including the option exercise price, which must be a price
equal to at least 100% of the fair market value of the subject shares of Common
Stock at the time the option is granted. As of July 30, 1999, options to
purchase 366,800 shares of the Company's Common Stock were outstanding under the
ISO Plan.
Incentive Stock Option Repricing. The Company maintains its ISO Plan to provide
incentives to the Company's key employees to exert their best efforts on behalf
of the Company. The Company noted that there is a significant difference between
the exercise prices of stock options held by its employees and the market value
of the underlying stock which results in options providing little incentive. The
Board of Directors determined that establishing new, shorter term options, based
on pricing which more closely reflects the underlying stock price, was crucial
to obtaining and retaining its personnel. Accordingly, in May 1999, options to
purchase 118,800 shares of Common Stock at prices ranging from $3.33 to $7.00
per share were repriced and regranted on different terms, of which options to
purchase 72,000 shares were held by executive officers of the Company. Repriced
options to purchase 82,800 shares were issued at an exercise price of $0.54 per
share and repriced options granted to Mr. Adams to purchase 36,000 shares were
issued at an exercise price of $0.594 per share.
All of the repriced options become exercisable on May 20, 2000.
Restated Cash Incentive Plan. The Company may award its officers and employees,
under its Restated Cash Incentive Plan ("the Plan"), bonuses in an amount up to
10 percent (10%) of net operating profits before taxes. Awards under the Plan
will be allocated among the officers and employees in accordance with the
provisions of the plan at the discretion of the Board of Directors. No amounts
were awarded in 1998 or 1997 under the Plan.
Non-Qualified Stock Option Plan. In August 1994, the Board of Directors adopted
the 1994 Non-Qualified Stock Option Plan ("NQSOP"). The NQSOP is administered by
the Board of Directors and provides for grants to officers, employees, directors
and consultants of options to acquire up to 45,000 shares of the Company's
Common Stock at an exercise price of at least 85% of the fair market value of
the subject shares of Common Stock at the time the option is granted. The
granting of options is at the discretion of the Board of Directors. As of July
30, 1999, options to purchase 13,500 shares of the Company's Common Stock were
outstanding under the NQSOP.
Director Compensation
Directors receive no cash compensation for serving on the Board of Directors.
Each Director, with the exception of Mr. Adams, has been granted options under
the Company's Non-Qualified Stock Option Plan ("NQSOP"). As of July 30, 1999,
Directors hold options to purchase 13,500 shares of the Company's Common Stock
at $5.3333 per share under the NQSOP. No options were granted under the NQSOP in
1998.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Lease Agreement with Portland Brewing Building, L.L.C.
In November 1992, the Company executed a triple net, 15 year lease (with three
five-year renewal options) with Portland Brewing Building Partners ("Brewing
Partners"), which developed the Company's new brewery at 2730 NW 31st Avenue in
Portland. The Company believes that the terms and conditions of its lease, as
amended, are fair and reasonable and are no less favorable to the Company than
could be obtained from unaffiliated parties. Brewing Partners was an equal 50/50
partnership of Electra Partners, Inc. ("Electra"), a company controlled by Mr.
Adams, and Harmer Mill & Logging Supply Co. ("Harmer"), a company controlled by
Mr. and Mrs. Robert M. MacTarnahan. In 1995, after a series of transactions, the
property and the lease
9
<PAGE>
were contributed to Portland Brewing Building, LLC, which is owned 50% by
MacTarnahan Limited Partnership (whose general partner is Harmer and whose
limited partners are Robert M. MacTarnahan and Ruth MacTarnahan); 25.1604% by
Electra; and 24.8396% by L & L Land Company (a general partnership consisting of
Howard M. Wall, a director of the Company and his wife, Patricia Wall). In
connection with the negotiation of this lease, MacTarnahan Limited Partnership
and Electra Partners, Inc. each were issued warrants for the purchase of
43,848.75 shares of Common Stock, exercisable at any time through December 31,
2002, at an exercise price of $3.333 per share.
The monthly rent is $24,906 plus property taxes, insurance and maintenance, with
an adjustment for inflation or changes in fair market rental value on July 1,
1998 and July 1, 2003. The increased rental adjustment was determined subsequent
to July 1, 1998, resulting in a $19,922 charge which is being paid by the
Company in twelve monthly installments beginning February 1, 1999. In December
1997, in connection with the issuance of $400,000 of 10% Amortizing Subordinated
Notes, the lease payments were reduced by $5,000 for each of the months of
January through July 1998, and by $3,060 for each of the months of August and
September 1998.
Lease Agreement with L & L Land Company
In May 1999, the Company entered into a lease of approximately 23,000 square
feet of space (the "lease") located in the warehouse and office building
commonly known as 2750 N.W. 31st Avenue, Portland, Oregon (the "Adjacent
Building"). The Adjacent Building is owned by L & L Land Company (a general
partnership consisting of Howard M. Wall, a director of the Company, and his
wife, Patricia Wall). The term of the lease is 5 years, with one option to
extend the term until June 14, 2008. Rent under the lease is $12,000 per month.
In addition, the Company agreed to pay the real property taxes for and to insure
the Adjacent Building and to be responsible for certain types of maintenance and
repairs. The lease contains a first opportunity to purchase the Adjacent
Building. The lease is guaranteed by Robert M. MacTarnahan and Charles A. Adams.
As part of the lease transaction, L &L Land Company reimbursed the Company for
$218,000 for its costs in constructing the shipping dock. In connection with the
lease, the Company entered into a sublease with Power Transmission Products,
Inc. of approximately 13,000 square feet of office and warehouse space and a
portion of the parking lot. The term of sublease is one year and rent is $4,974
per month, plus $365 per month for real property taxes, plus payment of
utilities, insurance and interior maintenance. The terms of the lease and
sublease were determined to be fair to the Company and approved by all members
of the Board of Directors, except Mr. Wall.
License Agreement with Robert M. MacTarnahan
In July 1994, the Company entered into a License Agreement ("License Agreement")
with Robert M. MacTarnahan, a director of the Company, and Harmer Mill & Logging
Supply Co., a company controlled by Mr. and Mrs. Robert M. MacTarnahan. Pursuant
to the License Agreement, (i) Mr. MacTarnahan conveyed to the Company the right
to use his surname and its variation "MacTarnahan" as a Company trademark, and
(ii) the Company has been granted an exclusive worldwide license to use Mr.
MacTarnahan's likeness, image and other personal attributes to promote the sale
of the Company's products, merchandise, and related materials. The license
expires on December 31, 2093. In consideration of the license grant, the Company
must pay a royalty of $1.00 per barrel of MacTarnahan's Ale sold by the Company
for the term of the license. The Company has the right to terminate the License
Agreement on 30-days' written notice. The license shall also terminate (a) if,
in any subsequent year after Dilution (as defined below), the Company or its
successors fails to sell a volume of products equal to or greater than 20% of
the average annual value of sales of products in the prior five (5) years, or
(b) if the Company or its successors fail to make any sales of MacTarnahan's Ale
for a period of twelve months. The term "Dilution" means the occurrence of any
of the following: (i) MacTarnahan, his affiliates, Charles A. (Tony) Adams, Mr.
Adams' affiliates, and Portland Brewing Building Partners, L.L.C., collectively,
cease to own at least ten percent (10%) of the common stock of the Company (or
any successor), including the shares that could be purchased by any of the
foregoing upon exercise of all outstanding warrants or options granting rights
to purchase Company stock; (ii) the Company sells substantially all of its
assets; or (iii) the Company sells or assigns its right, title and interest to
the brands "MacTarnahan's Ale," "MacTarnahan's Scottish Ale," any other version
of the MacTarnahan name used as a brand name and/or the License Agreement. In
the event the license is terminated or terminates, the Company must assign its
rights to the trademark "MacTarnahan" and the above variations to Mr.
MacTarnahan.
10
<PAGE>
Royalties paid to Harmer under the License Agreement for 1998 and 1997 were
$24,426 and $23,430 respectively, based on the sale of 24,426 and 23,430
barrels, respectively, of MacTarnahan's Ale during the same periods.
10% Amortizing Subordinated Notes
In December 1997, the Company borrowed $400,000 under 10% Amortizing
Subordinated Notes (the "Notes"). Of the $400,000, $200,000 was borrowed from
each of (i) Harmer Mill & Logging Supply Co. (dba Harmer Company), an entity
controlled by Robert M. MacTarnahan, a Director of the Company; and (ii) Charles
A. Adams Family Trust, an entity controlled by Charles A. Adams, the Company's
President. On August 25, 1998, the two shareholders 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.
Series A Preferred Stock
On March 1, 1999, Harmer and the Charles A. Adams Family Trust each purchased
2,885 shares of the Company's Series A Preferred Stock ("Series A") for $52 per
share, resulting in aggregate proceeds to the Company of $300,040. Each share of
Series A is convertible on February 25, 2004 into fully paid and non-assessable
shares of Common Stock at a rate of 100 shares of Common Stock for each share of
Series A. The conversion ratio, which is currently 100 to 1, is subject to
adjustment in the event of stock splits or stock dividends. Unless converted,
the Company must redeem the Series A shares on February 25, 2004, at $52 per
share plus any declared but unpaid dividends, in cash or in 24 equal monthly
payments bearing interest at 12% per annum. Each shareholder of Series A is
entitled to the number of votes equal to the number of shares of Common Stock
into which the Series A shares can be converted and the Series A shares are
entitled to vote as a separate class. Each shareholder of Series A is entitled
to receive cumulative dividends at the rate of 8% per annum, when and if
declared by the Board of Directors, prior to payment of dividends on Common
Stock. No dividends have been declared to date. In the event of any liquidation
or dissolution of the Company, either voluntary or involuntary, each shareholder
of Series A shall be entitled to receive, prior and in preference to any
distribution of any assets or surplus funds to the holders of Common Stock, an
amount equal to $52 per share for each share of Series A and, in addition, an
amount equal to all declared but unpaid dividends on Series A.
Purchase and Restructuring of Secured Debt
On August 17, 1998, the MacTarnahan Limited Partnership purchased approximately
$3.5 million of secured Company debt held by Bank of America, NT&SA ("Debt") and
evidenced by a Business Loan Agreement dated as of December 15, 1995, as amended
("Bank of America Loan Agreement"), a Security Agreement (receivables, inventory
and equipment) dated December 15, 1995 and related UCC financing statements
("Security Agreement"). In addition, on August 17, 1998 the Company entered into
a Credit and Forbearance Agreement ("Credit and Forbearance Agreement") with the
MacTarnahan Limited Partnership pursuant to which the MacTarnahan Limited
Partnership agreed to forbear from exercising its remedies with respect to the
Debt and agreed to make up to an additional $600,000 in working capital advances
to the Company pursuant to a Promissory Note dated August 17, 1998 ("$600,000
Note") which was secured by the Security Agreement. Interest under the $600,000
Note accrued on advances at the rate the MacTarnahan Limited Partnership paid
under its bank line of credit to fund advances, plus 1%. All principal and
interest under the $600,000 Note was payable on demand on or after September 1,
1998.
In connection with the purchase of the Debt, Electra Partners Inc. (an entity
controlled by Mr. Adams) and the Charles A. Adams Family Trust (the "Trust")
entered into a letter voting agreement on August 26, 1998 with Robert M.
MacTarnahan and R. Scott MacTarnahan pursuant to which Electra Partners, Inc.
and the Trust agreed to vote all of their shares of Common Stock at the
direction of Robert M. MacTarnahan and R. Scott MacTarnahan prior to or at the
1998 Annual Meeting of Shareholders.
On September 2, 1998, the Company entered into a Loan Agreement with the Bank of
the Northwest ("Bank of the Northwest Loan Agreement") which replaced the
$600,000 Note and provided for a revolving
11
<PAGE>
$600,000 loan to the Company at an interest rate of 7.99%. The Bank of the
Northwest Loan Agreement is guaranteed by Harmer Mill & Logging Supply Co.
("Harmer") and the guarantee is secured by a Harmer $600,000 certificate of
deposit for which Harmer will receive an accommodation fee in an amount equal to
1% per year on the outstanding principal loan balance, as in effect from time to
time, on the Bank of the Northwest Loan Agreement. In addition, the Company
agreed to reimburse Harmer for any amounts advanced pursuant to the guarantee.
On November 18, 1998, the Company and the MacTarnahan Limited Partnership
entered into a Loan Restructuring Agreement ("Restructuring Agreement") which
replaced the Bank of America Loan Agreement and the Credit and Forbearance
Agreement and reduced the outstanding amount of the loan previously due under
the Bank of America Loan Agreement (which was subsequently assigned to the
MacTarnahan Limited Partnership) to approximately $2,100,000. The Restructuring
Agreement is secured by the Security Agreement and provides for per annum
interest equal to the prime lending rate of Bank of the Northwest plus 1% per
annum.
In connection with the Restructuring Agreement, Charles A. Adams, the Trust,
Electra Partners, Inc. and Mr. Adams' children ("Adams Parties") entered into a
Voting Agreement with Robert M. MacTarnahan, R. Scott MacTarnahan and certain
entities controlled by them ("MacTarnahan Parties"). The Voting Agreement
replaces the letter voting agreement entered into on August 26, 1998 and
provides that the Adams Parties will vote all of their voting capital stock in
the Company at the direction of the MacTarnahan Parties. The Voting Agreement
expires upon termination of the Company's reimbursement obligation to Harmer and
the payment of amounts owing under the Restructuring Agreement.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's executive officers and Directors, and persons who own
more than ten percent of a registered class of the Company's equity securities
to file reports of ownership and changes in ownership with the Securities and
Exchange Commission ("SEC"). Executive officers, Directors and greater than ten
percent stockholders are required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms they file. Based solely on its review of the
copies of such forms received by it, or written representations from certain
reporting persons, the Company believes that, during 1998, all executive
officers, Directors and greater than 10% shareholders complied with all
applicable filing requirements, except Charles A. (Tony) Adams who filed a late
report on Form 4 reporting one transaction.
SHAREHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
Shareholder proposals intended to be presented at the Company's 2000 Annual
Meeting of Shareholders must be received by the Company at its principal office
no later than April 25, 2000 in order that they may be considered for inclusion
in the Proxy Statement and form of Proxy relating to that meeting.
The proxies appointed by the Company will have discretionary authority to vote
on any proposal which is presented at the 2000 Annual Meeting of Shareholders
and not contained in the Company's proxy materials unless the Company receives
notice of such proposal at its principal office no later than July 9, 2000.
12
<PAGE>
OTHER MATTERS
The Company knows of no other matters to be submitted at the meeting. If any
other matters properly come before the meeting, it is the intention of the
persons named in the enclosed form of Proxy to vote the shares they represent as
the proxy holders determine to be in the best interest of the Company.
COST OF SOLICITATION
The cost of soliciting proxies will be borne by the Company. In addition to use
of the mails, facsimile, telegraph or messenger, proxies may be solicited
personally or by telephone by directors, officers and employees of the Company,
who will not be specially compensated for such activities. The Company will also
request persons, firms and companies holding shares in their names or in the
name of their nominees, which are beneficially owned by others, to send proxy
materials to and obtain proxies from such beneficial owners. The Company will
reimburse such persons for their reasonable expenses incurred in that
connection.
ADDITIONAL INFORMATION
A copy of the Company's Annual Report on Form 10-KSB for the year ended December
31, 1998 accompanies this Proxy Statement. The Company will provide, without
charge on the written request of any beneficial owner of shares of the Company's
Common Stock entitled to vote at the Annual Meeting, an additional copy of the
Company's Annual Report on Form 10-KSB as filed with the Securities and Exchange
Commission for the year ended December 31, 1998. Written requests should be
mailed to the Secretary, Portland Brewing Company, 2730 NW 31st Avenue,
Portland, Oregon, 97210.
By Order of the Board of Directors
Glenmore James
Executive Vice President, Chief Financial Officer
and Chief Operating Officer
August 23, 1999
13
<PAGE>
PORTLAND BREWING COMPANY
Proxy for Annual Meeting of Shareholders to be Held on September 18, 1999
The undersigned hereby acknowledges receipt of the Notice of Annual
Meeting of Shareholders and Proxy Statement, each dated August 23, 1999 and
hereby names, constitutes and appoints Charles A. Adams and Glenmore James, or
either of them acting in absence of the other, with full power of substitution,
my true and lawful attorneys and Proxies for me and in my place and stead to
attend the Annual Meeting of the Shareholders of Portland Brewing Company (the
"Company") to be held at 10:30 a.m. on Saturday, September 18, 1999, and at any
adjournment thereof, and to vote all the shares of Common Stock held of record
in the name of the undersigned on August 9, 1999, with all the powers that the
undersigned would possess if he or she were personally present.
1. PROPOSAL 1--Election of Directors
|_| FOR all nominees listed below |_| WITHHOLD AUTHORITY
(except as marked to the to vote for all nominees
contrary below) listed below
(Instructions: To withhold authority to vote for any individual nominee,
strike a line through the nominee's name in the list below.)
Charles A. (Tony) Adams Frederick L. Bowman Robert M. MacTarnahan
R. Scott MacTarnahan Howard M. Wall, Jr.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR EACH OF THE
NOMINEES NAMED ABOVE.
2. PROPOSAL 2--To ratify the appointment of Arthur Andersen LLP as the
Company's independent accountants for the fiscal year ending December
31, 1999.
FOR PROPOSAL 2 |_| AGAINST PROPOSAL 2 |_| ABSTAIN ON PROPOSAL2 |_|
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL
OF PROPOSAL 2.
3. Upon such other matters as may properly come before, or incident to the
conduct of the Annual Meeting, the Proxy holders shall vote in such
manner as they determine to be in the best interests of the Company.
The Company is not presently aware of any such matters to be presented
for action at the meeting.
14
<PAGE>
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY. IF NO SPECIFIC
DIRECTION IS GIVEN AS TO ANY OF THE ABOVE ITEMS, THIS PROXY WILL BE VOTED FOR
EACH OF THE NOMINEES NAMED IN PROPOSAL 1 AND FOR PROPOSAL 2.
Dated
--------------------------------------
-------------------------------------------
Shareholder (print name)
-------------------------------------------
Shareholder (sign name)
I do ( )
do not ( )
plan to attend the meeting. (Please check)
The shareholder signed above reserves the right
to revoke this Proxy at any time prior to its
exercise by written notice delivered to the
Company's Secretary at the Company's corporate
offices at 2730 NW 31st Avenue, Portland,
Oregon, 97210, prior to the Annual Meeting. The
power of the Proxy holders shall also be
suspended if the shareholder signed above
appears at the Annual Meeting and elects to
vote in person.
15
