U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 1O-QSB/A
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number : 0-25836
PORTLAND BREWING COMPANY
------------------------
(Exact name of small business issuer as specified in its charter)
Oregon 93-0865997
- --------------------------------- --------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2730 NW 31st Avenue
Portland, Oregon 97210
----------------------
(Address of principal executive offices and zip code)
(503) 226-7623
--------------
(Issuer's telephone number including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 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 [ ]
-----
The number of shares outstanding of the Registrant's Common Stock as of July 31,
1999 was 3,365,267 shares.
Transitional Small Business Disclosure Format (check one): Yes [X] No [ ]
<PAGE>
PORTLAND BREWING COMPANY
FORM 10-QSB
INDEX
PART I FINANCIAL INFORMATION Page
- ----------------------------- ----
Item 1. Financial Statements
Balance Sheets - June 30, 1999 and December 31, 1998 2
Statements of Operations -Three and Six Months
Ended June 30, 1999 and 1998 3
Statements of Cash Flows - Three and Six Months
Ended June 30, 1999 and 1998 4
Notes to Financial Statements 5
Item 2. Management's Discussion and Analysis or Plan of Operation 7
PART II OTHER INFORMATION
- --------------------------
Item 6. Exhibits and Reports on Form 8-K 10
1
<PAGE>
<TABLE>
PORTLAND BREWING COMPANY
BALANCE SHEETS
June 30, December 31,
1999 1998
---------------- ----------------
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT
ASSETS:
Cash $ 92,727 $ 52,532
Accounts receivable 858,256 765,997
Inventories 633,791 554,864
Prepaid assets 292,083 266,452
------------- -------------
Total current assets 1,876,857 1,639,845
Property and equipment, net 6,978,129 7,249,791
Other assets, net 150,601 113,933
------------- -------------
Total assets $ 9,005,587 $ 9,003,569
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit $ 351,867 $ 323,626
Current portion of long-term debt 26,178 26,178
Stockholder term loan (Note 6) 2,100,000 -
Accounts payable 1,028,687 879,265
Accrued payroll 150,992 134,247
Other accrued liabilities 81,517 70,052
Customer deposits held 132,669 133,464
------------- -------------
Total current liabilities 3,871,910 1,566,832
Long-term debt, less current portion 96,159 113,334
Stockholder term loan (Note 6) - 2,100,000
Series A Redeemable Convertible Preferred Stock, $52 par value,
10,000 shares authorized, shares issued and outstanding: 5,770,
liquidation preference of $300,040 300,040 -
STOCKHOLDERS' EQUITY:
Common stock, no par value, 25,000,000 shares authorized, shares
issued and outstanding: 3,365,267 7,115,798 7,115,798
Stock notes receivable (375) (375)
Accumulated deficit (2,377,945) (1,892,020)
------------- -------------
Total stockholders' equity 4,737,478 5,223,403
------------- -------------
Total liabilities and stockholders' equity $ 9,005,587 $ 9,003,569
============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE>
PORTLAND BREWING COMPANY
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
Three months ended Six months ended
March 31, 31, 31, March 31, 31, 31,
June 30, June 30,
-------------------------------- --------------------------------
1999 1998 1999 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Sales $ 2,738,340 $ 2,720,419 $ 4,995,266 $ 4,964,819
Less-excise tax 132,505 126,322 243,843 221,464
------------- ------------ ------------- -------------
Net sales 2,605,835 2,594,097 4,751,423 4,743,355
Cost of sales 1,815,561 1,873,519 3,410,807 3,560,975
------------- ------------ ------------- -------------
Gross profit 790,274 720,578 1,340,616 1,182,380
General and administrative expenses 300,633 326,494 614,731 635,872
Sales and marketing expenses 581,059 486,245 1,078,875 982,362
------------- ------------ ------------- -------------
Loss from operations (91,418) (92,161) (352,990) (435,854)
Interest expense (60,906) (86,224) (112,246) (169,989)
Other income (expense), net (13,492) (102,817) (20,689) (257,665)
------------- ------------ ------------- -------------
Total other expense, net (74,398) (189,041) (132,935) (427,654)
Net loss $ (165,816) $ (281,202) $ (485,925) $ (863,508)
============= ============ ============= =============
Basic and diluted net loss per share $ (0.05) $ (0.14) $ (0.14) $ (0.42)
============= ============ ============= =============
Shares used in per share
calculations: 3,365,267 2,074,943 3,365,267 2,074,943
============= ============ ============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
PORTLAND BREWING COMPANY
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
Six Months Ended June 30,
-----------------------------------
1999 1998
-------------- ---------------
Cash flows relating to operating activities:
<S> <C> <C>
Net loss $ (485,925) $ (863,508)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 458,404 527,802
Amortization 62,490 78,835
Loss (gain) on sale of assets (6,727) (6,693)
(Increase) decrease in:
Accounts receivable, net (92,259) (157,489)
Inventories (101,841) (49,104)
Prepaid assets (25,631) (89,166)
(Decrease) increase in:
Accounts payable 149,422 417,691
Accrued payroll and other accrued liabilities 28,210 (3,584)
Customer deposits held (795) (13,399)
------------ ------------
Net cash used in operating activities (14,652) (158,615)
------------ ------------
Cash flows relating to investing activities:
Purchase of property and equipment (415,246) (132,275)
Proceeds from sale of property and equipment 235,231 13,933
Changes in other assets (76,244) 34,032
------------ ------------
Net cash used in investing activities (256,259) (84,310)
Cash flows relating to financing activities:
Net borrowings (repayments) under line of credit 28,241 219,158
Issuance of notes payable to distributors - 97,698
Issuance of preferred stock 300,040 --
Repayments of long term debt (17,175) (114,302)
------------ ------------
Net cash provided by financing activities 311,106 202,554
Net increase (decrease) in cash 40,195 (40,371)
Cash, beginning of period 52,532 52,719
============ ============
Cash, end of period $ 92,727 $ 12,348
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 112,246 $ 169,989
</TABLE>
The accompanying notes are an integral part of these statements.
4
<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, 1998. This quarterly report should be
read in conjunction with such Annual Report.
Operating results for the three and six months ended June 30, 1999 are not
necessarily indicative of the results that may be expected for the entire fiscal
year ending December 31, 1999, or any portion thereof.
2. Comprehensive Loss
The Company has adopted Financial Accounting Standards Board ("FASB") Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 130"), which establishes requirements for disclosure of comprehensive
income (loss). Comprehensive loss did not differ from reported net loss in the
periods presented.
3. Net Loss Per Share
Basic net loss per common share is computed by dividing net 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.
The dilutive effect of stock options outstanding for the purchase of 380,300 and
146,275 shares at June 30, 1999 and 1998, respectively, warrants outstanding for
the purchase of 87,697.5 shares at June 30, 1999 and 1998, and 577,000 shares of
common stock into which the outstanding Series A Redeemable Convertible
Preferred Stock are convertible were not included in loss per share
calculations, because to do so would have been antidilutive.
5
<PAGE>
4. Inventories
Inventories are stated at the lower of average cost, which approximates the
first-in, first-out (FIFO) method, or market and include materials, labor and
manufacturing overhead. Inventories consist of the following:
June 30, Dec. 31,
1999 1998
------------- -------------
Raw materials $ 241,127 $ 176,288
Work-in-process 207,669 164,428
Finished goods 120,287 138,357
Merchandise 61,516 49,685
Kegs, inventory value 3,192 26,106
------------- -------------
$ 633,791 $ 554,864
============= =============
5. Segment Information
The Company is organized into two product-based segments, brewery operations and
restaurant operations. The Company's brewery segment brews specialty beer in its
Portland, Oregon brewery which is sold to distributors and retail customers. The
Company's restaurant segment consisted of two restaurants until November 1998,
when one of the restaurants was sold. Management evaluates segment performance
based on segment gross profit.
All revenues are attributable to, and all long-lived assets are located in the
United States, the Company's country of domicile. The basis of accounting for
transactions between segments is based on the fair market value of the
respective goods or services. In the six months ended June 30, 1999, two
distributors represented 42% percent and 10% respectively, of net sales. In the
six months ended June 30, 1998, one distributor represented 40% percent of net
sales.
<TABLE>
Three months ended June 30, Six months ended June 30,
-------------------------------- ---------------------------------
1999 1998 1999 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net Sales:
Brewery $ 2,245,988 $ 2,037,467 $ 4,113,075 $ 3,689,605
Restaurant(s) 429,972 661,981 771,816 1,244,595
------------- ------------- ------------- -------------
Subtotal 2,675,960 2,699,448 4,884,891 4,934,200
Less: intersegment sales (70,125) (105,351) (133,468) (190,845)
------------- ------------- ------------- -------------
Total net sales $ 2,605,835 $ 2,594,097 $ 4,751,423 $ 4,743,355
============= ============= ============= =============
Gross Profit:
Brewery $ 716,212 $ 652,619 $ 1,245,473 $ 1,073,194
Restaurant(s) 110,317 120,247 165,842 209,542
------------- ------------- ------------- -------------
Subtotal 826,529 772,866 1,411,315 1,282,736
Intersegment loss (36,255) (52,288) (70,699) (100,356)
------------- ------------- ------------- -------------
Total gross profit $ 790,274 $ 720,578 $ 1,340,616 $ 1,182,380
============= ============= ============= =============
</TABLE>
6
<PAGE>
6. Stockholder Term Loan
The Company has $2.1 million outstanding under a term loan from a stockholder of
the Company. The $2.1 million term loan ("Term Loan"), secured by receivables,
inventory and equipment of the Company, bears interest at a per annum rate equal
to the prime lending rate of the Bank of the Northwest plus 1% (8.75% at June
30, 1999). The Term Loan is due on January 31, 2000, and accordingly has been
classified as current in the accompanying balance sheet as of June 30, 1999. 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. If permanent financing is
unavailable during the next 12 months, the MacTarnahan Limited Partnership has
committed to extend the due date of the Term Loan until satisfactory permanent
financing can be obtained, for the period through April 1, 2000. See
"Management's Discussion and Analysis or Plan of Operation - Liquidity and
Capital Resources."
7. Series A Redeemable Convertible Preferred Stock
On March 1, 1999, the Company sold 5,770 shares of its Series A Redeemable
Convertible Preferred Stock ("Series A") for $52 per share, resulting in
aggregate proceeds of $300,040. Because the redemption of the Series A is
outside the control of the Company, the Series A was not classified as
stockholders' equity at June 30, 1999. See "Management's Discussion and Analysis
or Plan of Operation - Liquidity and Capital Resources" for additional
information.
Item 2. Management's Discussion and Analysis or Plan of Operation
Certain statements in the Management's Discussion and Analysis or Plan of
Operation 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. See "Liquidity and Capital Resources"
below for additional risks and uncertainties.
Results of Operations
Second Quarter and Six Months ended June 30, 1999 and 1998
Gross sales in the second quarter of 1999 increased 1% to $2,738,340 from
$2,720,419 in the second quarter of 1998. Shipments in the second quarter of
1999 were 14,229 barrels, an increase of 8% from 13,229 barrels in the second
quarter of 1998. Gross sales in the first six months of 1999 increased 1% to
$4,995,266 from $4,964,819 in the first six months of 1998. Shipments in the
first six months of 1999 were 26,351 barrels, an increase of 9% from 24,195
barrels in the first six months of 1998. The second quarter and first six months
of 1998 included sales at the Company's Flanders Street BrewPub which was closed
in November 1998.
Gross profit increased 10% to $790,274 (30.3% of net sales) in the second
quarter of 1999 from $720,578 (27.8% of net sales) in the second quarter of
1998. Gross profit increased 13% to $1,340,616 (28.2% of net sales) in the first
six months of 1999 from $1,182,380 (24.9% of net sales) in the first six months
of 1998. The increases in gross profit were a result of higher production
volumes in the second quarter and first six months of 1999 and the decrease in
costs associated with the Company's Flanders Street BrewPub which was closed in
November 1998.
General and administrative expenses decreased 8% to $300,633 (11.5% of net
sales) in the second quarter of 1999 from $326,494 (12.6% of net sales) in the
second quarter of 1998. General and administrative expenses decreased 3% to
$614,731(12.9% of net sales) in the first six months of 1999 from $635,872
(13.4% of net
7
<PAGE>
sales) in the first six months of 1998. The decreases were a result of continued
focus on cost control efforts by the Company.
Sales and marketing expenses increased 20% to $581,059 (22.3% of net sales) in
the second quarter of 1999 compared to $486,245 (18.7% of net sales) in the
second quarter of 1998. Sales and marketing expenses increased 10% to $1,078,875
(22.7% of net sales) in the first six months of 1999 compared to $982,362 (20.7%
of net sales) in the first six months of 1998. The increases were primarily a
result of increased sales and marketing expenses incurred to maintain sales
levels in a highly competitive market and to focus on promotion of the Company's
MacTarnahan brand.
Interest expense decreased to $60,906 in the second quarter of 1999 from $86,224
in the second quarter of 1998. Interest expense decreased to $112,246 in the
first six months of 1999 from $169,989 in the first six months of 1998. The
decreases were a result of the debt restructuring which occurred in late 1998.
See "Liquidity and Capital Resources" below.
Liquidity and Capital Resources
The Company requires capital principally to fund 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.
Accounts receivable increased in the first six months of 1999 as a result of an
increase in sales and the timing of shipments. Inventories increased in the
first six months of 1999 as the Company began purchasing certain components such
as bottles, 6-pack containers and cartons in larger quantities in order to
secure better pricing. Accounts payable increased in the first six months of
1999 as a result of the timing of purchases and payments.
In 1998, the Company recorded an extraordinary gain of $1,200,279 related to a
debt restructuring. The Company was relieved of $1,079,257 of debt and accrued
interest originated by Bank of America, NT & SA and $272,915 of trade accounts
payable. The gain was offset by professional fees related to the restructuring
of $151,893. In connection with the debt restructuring, the MacTarnahan Limited
Partnership (a related party) purchased approximately $3.1 million of secured
Company debt held by Bank of America, NT & SA. The $3.1 million bank debt plus
accrued interest and other related charges was settled by the MacTarnahan
Limited Partnership which in turn resulted in a net loan payable from the
Company to the MacTarnahan Limited Partnership of $2.1 million. The $2.1 million
term loan ("Term Loan"), secured by receivables, inventory and equipment of the
Company, bears interest at a per annum rate equal to the prime lending rate of
the Bank of the Northwest plus 1% (8.75% at June 30, 1999). The Term Loan is due
on January 31, 2000, and accordingly has been classified as current in the
accompanying balance sheet as of June 30, 1999. 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. If permanent financing is unavailable during the
next 12 months, the MacTarnahan Limited Partnership has committed to extend the
due date of the Term Loan until satisfactory permanent financing can be
obtained, for the period through April 1, 2000.
In 1998, the Company conducted negotiations with its trade creditors. As a
result of such negotiations, the Company was relieved of $272,915 of trade
accounts payable and issued notes in the aggregate principal amount of $148,065
to trade creditors, which mature on September 1, 2003 and bear interest at 6%
per annum. At June 30, 1999, $122,337 remains outstanding under these notes.
The Company has a $600,000 revolving line of credit with a bank which provides
for a fixed interest rate of 7.99% ("Revolving Line") which matures on August
20, 1999. At June 30, 1999, $351,867 was outstanding under the Revolving Line.
The Revolving Line is guaranteed by Harmer Mill & Logging Supply Co., (a related
party) ("Harmer") and is secured by a certificate of deposit in the amount of
$600,000 for which
8
<PAGE>
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
intends to renew the Revolving Line on substantially the same terms during the
quarter ending September 30, 1999.
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. Because the redemption of the Series
A is outside the control of the Company, the Series A was not classified as
stockholders' equity at June 30, 1999. 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.
The Company operates in the specialty beer industry. Intense competition and the
proliferation of new brands has had and may continue to have an adverse effect
on the Company's business, financial condition and results of operations. There
can be no assurance that the Company will be able to increase its sales volume
or be able to maintain its selling prices in existing markets or new markets.
The Company experienced significant operating losses during the years ended
December 31, 1998 and 1997, and continues to incur losses in 1999. Operating
results have and may continue to fluctuate as a result of many factors including
lower sales volumes and selling prices, increased depreciation and other fixed
operating costs as a percent of sales during periods when the Company's brewery
is at less than full capacity, changes in product mix, increased selling and
marketing costs incurred as the Company protects its business in existing
markets and increased transportation costs as it develops business in new
geographic markets.
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 and available, additional equity offerings
and/or borrowings from other lenders. There can be no assurance the Company will
be able to raise additional funds through equity offerings or additional
borrowings.
Year 2000 Issue
The Company's approach to the Year 2000 issue 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
9
<PAGE>
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 is currently evaluating the IT systems and non-IT systems of its
outside vendors and customers. The Company has contacted its significant vendors
and customers regarding the Year 2000 issue and to date, no major deficiencies
have been discovered with respect to those contacted. The Company plans to
contact its remaining customers and vendors by the end of the third quarter of
1999.
Costs to Address Year 2000 Issue. To date, costs directly related to 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 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 of
such a scenario. However, the Company is identifying its critical vendors and
customers and evaluating whether or not any of them represent a significant
risk, and plans to complete this effort by the end of the third quarter of 1999.
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.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits included herein:
<TABLE>
Exhibit Exhibit
Number Number
(1-A) (S-B 601) Description
--------------- -------------- -------------------------------------------------------------------
<S> <C> <C> <C>
6.19 10.19 Lease Agreement between the Company and L&L Land
Company, dated May 18, 1999 (certain schedules to the Lease
Agreement have been omitted)
6.20 10.20 Sublease Agreement between the Company and Power Transmission
Products, Inc., dated May 1, 1999
12 27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended June 30, 1999.
</TABLE>
10
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized on the 10th day of August, 1999.
PORTLAND BREWING COMPANY
Signature Title
/s/CHARLES A. ADAMS Chairman of the Board, President and Chief Executive Officer
- ------------------- (Principal Executive Officer)
Charles A. Adams
/s/ GLENMORE JAMES Executive Vice President and Chief Financial Officer
- ------------------- (Principal Financial and Accounting Officer)
Glenmore James
11
EXHIBIT 10.19
LEASE
THIS LEASE (the "Lease") is dated as of the 18th day of May, 1999, by and
between L & L Land Company, an Oregon general partnership (hereinafter referred
to as "Lessor"), and Portland Brewing Company, an Oregon corporation
(hereinafter referred to as "Lessee").
RECITALS:
The parties acknowledge the following facts to exist:
(1) Lessor owns a certain tract of improved property located in
Multnomah County, Oregon and commonly known as 2750 NW 31st Avenue, which
property is more particularly described on Exhibit A attached hereto and
incorporated herein (together with all improvements located thereon, such
property is hereinafter referred to as the "Premises").
(2) Lessee desires to occupy as tenant these Premises, pursuant to the
terms and conditions stated herein.
NOW, THEREFORE, in consideration of the covenants, agreements and stipulations
contained herein, it is agreed between Lessor and Lessee as follows:
AGREEMENT:
1. Demised Premises
----------------
Lessor does hereby lease the Premises to Lessee for the term agreed to all upon
the terms and conditions herein agreed to.
2. Term of Lease
-------------
The term (the "Term") of this Lease shall commence on May 1, 1999, and shall
thereafter exist for a period of five (5) years, unless extended as hereinafter
provided.
3. Rent
----
Lessee agrees to pay to Lessor, by check to be received at the business address
of Lessor designated in Paragraph 11, on or before the first day of each month
during the period of this Lease, the following rent: Twelve Thousand no/100
Dollars ($12,000) per month for the initial Term of the Lease. In the event
Lessee exercises its Option to Renew, the base monthly rent shall be
re-evaluated effective as of the first day of the sixth (6th) year in the manner
provided in Paragraph 6 below.
In the event the commencement date of this Lease shall fall before the first day
of the first full month of this Lease, then the rent shall be prorated on a
calendar date basis for the first partial month of this Lease, thereafter to
continue for the full five (5)-year term of this Lease as provided in Paragraph
2 above.
In the event the rental amounts provided for above, as amended, shall not be
paid by Lessee so as to be received by Lessor on or before the first day of each
month, as provided, there shall accrue automatically a late charge as additional
rent in the sum of One Hundred Fifty Dollars ($150.00), which Lessee shall be
required to pay to Lessor in addition to the base rent paid.
In addition thereto, as an integral portion of the rent and as more particularly
set forth as a covenant herein, Lessee agrees that it will pay all insurance
required herein, all taxes which may be assessed upon the property, and the cost
of all maintenance on the Premises with the exception of repairs or maintenance
relating to or caused by pre-existing latent structural defects of or compliance
with laws and codes applicable to the building located upon the Premises, which
it shall be the obligation of Lessor to perform at its cost
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("Lessor's Maintenance Obligations"); provided, if compliance with a law or code
is required because of Lessee's particular use, Lessee shall have the obligation
and responsibility to so comply.
4. Covenants
---------
In consideration of the leasing of said Premises and of the mutual agreements
hereinafter contained, each party hereto does hereby expressly covenant and
agree to and with the other as follows:
4.1 Payments: In addition to the base rental cost stated above, and as
an integral portion of the consideration of this Lease, Lessee shall pay all
insurance premiums required under this Lease, all real property taxes assessed
against said property, and all costs of maintenance of said building, with the
exception of Lessor's Maintenance obligations.
4.2 Use of Premises: Lessee shall use the Premises during the Term of
this Lease for general warehouse and office uses and the retail sales of
beverages. Any other designated use shall be subject to the prior written
approval of Lessor, which approval shall be within the sole discretion of
Lessor.
4.3 Uses Excluded: Lessee will not make any unlawful, improper or
offensive use of Premises, and will not suffer any strip or waste thereof, nor
permit any objectionable noise or odor to escape or to be emitted from the
Premises, or do anything or permit to be done anything upon or about the
Premises in any way tending to create a nuisance; provided, however, that odors
customary in the brewery business shall not be considered to be in violation of
this clause; and provided, further, that in the event of a temporary violation
of noise control or related ordinances or regulations, the same shall not
constitute a default hereunder so long as Lessee indemnifies Lessor for any
expenses, losses and/or fines incurred in connection therewith.
4.4 Repair and Maintenance: Except for Lessor's Maintenance
Obligations, Lessee shall at all times maintain the Premises in a neat
condition, free of trash and debris and in good order and repair.
(a) Structure and Facilities: Except for the Lessor's Maintenance
Obligations, Lessee shall also keep and maintain the Premises, including
interior wiring, plumbing and drain pipes and sewers in good condition at its
own cost and expense, and shall promptly replace all glass which may be broken
or cracked during term of this Lease in the windows now in use. Lessee shall not
allow the Premises to fall into such a state of disorder at any time so as to
increase the fire hazard thereon, nor install any power machinery on the
Premises except under the supervision of and with the written consent of the
Lessor, nor use said Premises in any way for any purpose such that the fire
insurance rating of the building located upon the Premises is thereby increased.
Notwithstanding the foregoing, Lessor has consented to Lessee's scheduled April
installation of a new de-palletizer. Lessor hereby represents to Lessee that the
interior wiring, plumbing, drain pipes, sewers and HVAC system are in good
operating condition as of the date of this Lease.
(b) External Maintenance: At all times, Lessee shall use reasonable
efforts to keep the sidewalks in front of the Premises free and clear of ice,
snow, volcanic ash, rubbish and debris, and will indemnify, defend and hold
harmless Lessor against any injury, whether to Lessor or Lessor's property, or
to any other person or property caused by its failure in that regard.
(c) Heating, Ventilation and Air Conditioning: Lessee acknowledges that
a substantial heating, ventilation and air conditioning system has recently been
installed in the structure located upon the Premises. As an integral portion of
the rent due under this Lease, Lessee agrees that it will obtain a contract for
maintenance of the heating, ventilation and air conditioning system and will pay
all charges due for the same. Lessee will furnish proof of the existence and
currency of such a contract to Lessor.
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(d) Security Deposit: To secure the performance of the obligations
assumed under this Paragraph 4, Lessee shall pay to Lessor upon the commencement
of this Lease, not only the first month's rent then due, but also a separate
sum, to be held as an additional security deposit, in the sum of the last
month's rent, which shall be refunded only upon expiration of the Term of this
Lease (as the same may be extended pursuant to the terms of Paragraph 6) and
completion of Lessee's obligations under this Lease, without interest.
(e) Correction of Maintenance Defaults: As provided in Paragraph 4.9
below, Lessor's agent shall hereafter have access to both the exterior and
interior of the building on the Premises for the purpose of periodic and
reasonable inspections for the performance of maintenance. In the event of any
deficiency in this regard, Lessor shall be entitled to give notice to Lessee to
correct the condition within a period of ten (10) business days as provided by
Paragraph 5.2 herein, and if the condition is thereafter not remedied, then it
may be treated as an incident of default under Paragraph 5, or in the
alternative, may be treated as cause by Lessor to resort to the security deposit
made for the performance of these obligations, in which event such an election
shall be made without waiver of the right to thereafter assert a default as set
forth in Paragraph 5. In the event Lessor determines not to declare a default,
but rather to correct the defects so noted, then the expense of correcting the
defect shall be defrayed by drawing upon the last month's rent deposited as
security for the performance of Lessee's maintenance obligations. Lessee agrees
that it shall, within ten (10) days of written notice from Lessor, replenish the
security deposit by again paying the last month's rent due, in the event this
should become necessary, and Lessee shall be requested in writing to do so by
Lessor.
(f) Common Area Maintenance: Except for the work to be done by Lessor
pursuant to the Paragraph 12 hereto, Lessee shall be responsible for the
maintenance, repair and upkeep of the parking lot and grounds within the
Premises. Lessee' s responsibility shall include, but not be limited to, the
cleaning, patching of asphalt paving, restriping of parking lot parking spaces,
maintenance and landscaping of grounds, maintenance of parking lot lighting, and
maintenance of the general cleanliness of the public portions of the Premises,
being mindful that the purpose of the Premises is a warehouse, office and retail
sales facility. Subject to this objective standard, Lessor shall have the right
to specify the specific maintenance tasks which are required to be performed by
Lessee, and Lessee shall thereafter have the duty to perform to the standards
established by Lessor in writing, subject to the right of Lessor to perform the
necessary work and invoice Lessee for the charges necessarily incurred, plus a
management fee of ten percent (10%) of the total necessary charges of performing
the work.
4.5 Local Law and Regulations: Lessee shall comply at Lessee's own
expense with all laws and regulations of any municipal, county, state, federal
and other public authority respecting the use of the Premises.
4.6 Utilities: Lessee shall pay for all heat, light, water, natural
gas, power, trash collection and other services or utilities utilized on the
Premises during the Term of this Lease.
4.7 Alteration or Improvement: Lessor shall not be required to make any
repairs, alterations, additions or improvements to or upon the Premises during
the term of this Lease, except as provided in the Paragraph 12 of this Lease.
Lessor and Lessee jointly acknowledge that, if Lessee desires to make
alterations to the Premises beyond those described in Paragraph 12, Lessee shall
request Lessor's consent in writing, which consent may not be unreasonably
withheld, conditioned or delayed. Any such alterations shall be made in strict
compliance with all requirements of local law. Under no circumstances shall any
alterations be completed without first obtaining Lessor's approval and all
required governmental approvals and permits. The parties jointly agree that at a
time not less than ninety (90) days from the date of termination of Lease,
Lessor shall notify Lessee in writing (the "Improvements Notice") whether it is
exercising its reversionary interest in the improvements made by Lessee, in
which case Lessee shall return the Premises as then existing, broom clean, but
less movable chattel property of Lessee to the control of Lessor, or
alternatively, requiring Lessee to raze the improvements made by Lessee and
return the Premises
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to the condition it was in at the time this Lease commenced. In no event shall
trade fixtures of Lessee be subject to any ownership or reversionary interest of
Lessor.
The parties acknowledge that Lessee is the tenant of the property (the
"Brewery") adjacent to the Premises, which Brewery is commonly known as 2730 NW
31st Avenue. Prior to the date hereof, Lessee has removed a portion of the wall
of Premises which faces the Brewery and installed a covered, ramped pedestrian
corridor (the "Corridor") between the Premises and the Brewery. Lessor shall
include its election with respect to such Corridor in the Improvements Notice.
If Lessor elects not to retain the Corridor, Lessee shall remove the same prior
to the termination of this Lease and shall restore that area of the Premises to
the condition existing immediately prior to the construction of such Corridor.
4.8 Taxes: Lessee shall pay to Multnomah County Assessor or other
lawful tax authority no later than five (5) business days prior to the due date
all real estate taxes (including special assessments of local improvement
districts, street improvements, storm drains, sewer and water, lighting and
other miscellaneous special assessments in addition to real property taxes
levied upon the property) which may be assessed upon the Premises, provided that
Lessor has given Lessee a copy of the tax bill when received showing the full
amount of all said real estate taxes payable by Lessee hereunder. Such taxes and
special assessments shall be prorated if they are applicable in part to any
period not included in the term of this Lease. Any such taxes may be paid in
installments if permitted by the Multnomah County Assessor or other lawful tax
authority. Any special assessments may be paid on an installment basis, if
permitted by the assessing party, subject to agreements to be reached between
Lessor and Lessee as to an appropriate amortization period and other term,
provided that the Lessee shall be responsible only for those installments which
are applicable to the lease term. Lessee shall have the right to contest any
increase in the valuation of the Premises for real property taxation purposes,
or any special assessment including assessments for local improvement districts;
provided, however, that it shall do all things and make all payments which are
necessary to keep the Premises from becoming delinquent or from passing into
default, or to cause the Lessor any expense by reason of Lessee's failure to
perform its obligations under this subparagraph 4.8. Lessee shall further
provide to Lessor proof of the performance of its obligation under this Lease,
simultaneously with making its payment to the Multnomah County Assessor or other
lawful taxing authority. Lessor and Lessee hereby agree to cooperate with each
other to the extent reasonably necessary to facilitate the timely payment of any
and all taxes payable in connection with the property.
4.9 Lessor's Right of Entry: It shall be lawful for Lessor, its agents
and representatives, at any reasonable time, to enter into or upon the Premises
for the purpose of examining the conditions thereof, or any other lawful purpose
pertinent to the administration of this Lease.
4.10 No Assignment or Sublease: Lessee shall not sublease, assign,
transfer, pledge, hypothecate, surrender or dispose of this Lease, or any
interest herein, or permit any other person or persons whomsoever to occupy the
Premises without the written consent of Lessor first being obtained in writing,
which consent shall not be unreasonably withheld. It is agreed that this Lease
is personal to Lessee, and Lessee's interests, in whole or in part, cannot be
sold, assigned, transferred, seized or taken by operation of law, or under or by
virtue of any execution or legal process, attachment or proceedings instituted
against Lessee, or under or by virtue of any bankruptcy or insolvency
proceedings had in regard to Lessee, or in any other manner, except as mentioned
herein. Notwithstanding the foregoing to the contrary, Lessor hereby consents to
a sublease of a portion of the Premises by Lessee to Power Transmission
Products; provided, however, Lessor shall have the right to approve the terms of
such sublease, which approval shall not be unreasonably withheld, conditioned or
delayed.
4.11 Liens: Lessee will not permit any lien of any kind, type or
description to be placed or imposed upon any portion of the Premises, save those
suffered or permitted by Lessor.
4.12 Use of External Walls: Lessee will not use the outside walls of
the Premises, or allow signs or devices of any kind to be attached thereto or
suspended therefrom, for advertising or displaying the name or business of
Lessee for any purpose whatsoever without the written consent of
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Lessor, which consent shall not be unreasonably withheld. Notwithstanding the
foregoing, Lessor hereby consents to the signs currently in use on the Premises.
4.13 Casualty and Liability Insurance: Lessee agrees to purchase at its
expense:
(a)A casualty (including fire, earthquake, business interruption, and
rent loss insurance) policy in customary form, naming as primary beneficiary the
Lessor in an amount that is equal to the estimated replacement cost of the
Premises, to protect against the risk and hazard to the structure located upon
the Premises; and
(b)A liability insurance policy in an amount not less than One Million
Dollars ($1,000,000) per occurrence, combined single limit, naming as insureds
both Lessor and Lessee as their interests shall appear. Lessee further agrees
that it will hold Lessor harmless from any and all claims, loss, cost or damage
arising out of Lessee's use or occupancy of the Premises during the term of this
Lease and, at its own expense, Lessee shall maintain and keep in effect the
liability insurance policy agreed to in this clause with an insurer satisfactory
to Lessor. Lessee shall regularly provide Lessor with proof of the current
existence and coverage of such liability insurance policy in accordance with
this clause by providing within ten (10) days of Lessor's request an adequate
Certificate of Insurance Coverage.
4.14 Fixtures and Attachments: All partitions, plumbing, electrical
wiring, additions to or improvements upon the Premises, whether installed by
Lessor or Lessee, shall be and become a part of the building as soon as
installed and the property of Lessor, except for Lessee's trade fixtures and
unless otherwise herein provided. The parties expressly agree that any equipment
installed by Lessee and used in the making, brewing, fermenting and packaging of
beer and soft drinks, including without limitation, conveyors and coolers, shall
be deemed "trade fixtures" for purposes of this Section 4.14, including, without
limitation, the items listed on attached Schedule 1. Upon the expiration of this
Lease, Lessee shall, subject to any right of landlord's lien on the part of
Lessor, be entitled to remove its movable trade fixtures, provided that in so
doing Lessee shall promptly and at its own expense repair any injury to the
Premises resulting from the installation of or removal of the same so as to
restore the Premises as nearly as possible to their original condition at the
time of Lessee's occupancy hereunder, subject only to reasonable wear and tear
and damage by casualty.
4.15 Casualty Loss: In the event of the total destruction by fire or
other casualty to the building leased herein, either party hereto may terminate
this Lease as of the date of said fire or other casualty. In the event of damage
to the extent of fifty percent (50%) or more of the sound value of the building
located on the Premises, Lessor may or may not elect to repair said building.
Written notice of Lessor's election shall be given to Lessee within fifteen (15)
days after the occurrence of said damage. If said notice is not so given, Lessor
conclusively shall be deemed to have elected not to repair the Premises.
In the event of such election, whether by actual notice or by operation of this
clause, this Lease shall terminate as of the date of said damage, but if the
building in the Premises are located is but partially destroyed and the damage
so occasioned does not amount to the extent indicated above, or if greater than
said extent and Lessor elects to repair the building, Lessor shall do so as
rapidly as possible, and shall order its repair work in such a manner as to
allow Lessee to resume production and shipping a product at the soonest
available time, even if that ordering of the work is not the most economic or
convenient method for the Lessor, and have the right to take possession of and
occupy said building, to the exclusion of Lessee, including any portion thereof
which may be necessary in order to make the required repairs. In such an event,
Lessee accordingly agrees to vacate upon request, all or any part of said
building which Lessor may require for the purpose of making necessary repairs.
For such period of time between the day of such damage and until such repairs
have been substantially completed, rent shall be abated in proportion to the
part of the Premises which is unusable for Lessee's business as a result of the
casualty.
However, if the Premises are partially damaged in a manner that does not cause a
material interference with Lessee's use and occupation, then there shall be no
abatement of rent, and Lessor shall commence repairs
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within forty-five (45) days of the earlier of: (i) the day on which Lessor gains
actual knowledge of such damage or (ii) the day on which Lessor receives written
notice of such damage from Lessee. In the event that Lessor fails to commence
such repairs within such 45-day period, Lessee shall have the right to make such
repairs at Lessor's expense. In such event, Lessor shall reimburse Lessee for
the reasonable cost of such repairs within thirty (30) days of receipt of
invoices evidencing such repairs. If Lessor fails to reimburse Lessee within
such 30-day period, Lessee shall have the right to deduct such reasonable costs
from the next payment of rent due hereunder.
4.16 Condemnation: In case of the condemnation or appropriation of all
or any substantial part of the Premises by any public or private corporation
under the laws of eminent domain, this Lease may be terminated at the option of
either party hereto on twenty (20) days' written notice to the other, and in
that case, Lessee shall not be liable for any rent after the date of Lessee's
removal from the Premises. The condemnation or appropriation of a relatively
small area at the front or side of the Premises for street purposes shall not be
deemed as a taking of a substantial part of the Premises.
4.17 Rental Advertisement Prior to Termination: Subject to Paragraph 6.
below, during the period of one hundred eighty (180) days prior to the date of
expiration of the Term, Lessor may post on the Premises, or in the windows
thereof, signs of moderate size notifying the public that the Premises are "for
sale," "for rent" or "for lease."
4.18 Delivery on Termination: At the expiration of the Term or upon any
sooner termination hereof, Lessee will quit and deliver up the Premises and all
future erections and additions to or upon the same, broom clean, to Lessor,
peaceably, quietly and in such good order and condition, reasonable use and wear
thereof, damage by fire and the elements alone excepted, as the same are now in
or thereafter may be put by Lessor.
5. Default
-------
It is further agreed between Lessor and Lessee that:
5.1 If Lessee shall be in arrears in payment of the rent for a period
of ten (10) days after the same is due and at least two (2) days have passed
since Lessor sent a written notice letter addressed to Lessee's address of
record appearing at Paragraph 11 of this Lease (which shall be conclusive of
compliance with this clause unless the address of record shall be changed by
mutual agreement) and Lessee shall not have cured its delinquency by paying all
rent then due, and in addition a late charge of One Hundred Fifty Dollars
($150.00) as provided in Paragraph 3 above; or
5.2 If Lessee shall fail or neglect to keep, perform or observe any of
the covenants and agreements stated herein to be performed, done, kept or
observed on Lessee's part and said default shall continue for ten (10) business
days or more after written notice of such failure or neglect shall be given to
Lessee; or
5.3 If Lessee shall be declared bankrupt or insolvent according to the
law; or
5.4 If any assignment of Lessee's property shall be made for the
benefit of creditors; or
5.5 If on the expiration of this Lease, Lessee shall fail to surrender
possession of the Premises;
Then, and in any of the above cases or events, Lessor shall, at its
option, immediately or at any time thereafter without demand or notice, have the
right to enter into or upon the Premises and every portion thereof, and
repossess the same as the Lessor's former estate, and expel Lessee and those
claiming
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through it at the expense of Lessee, forcibly if necessary, and to store the
goods and property of Lessee located upon the Premises, all without being deemed
guilty of trespass and without prejudice to any remedy which might otherwise be
used for arrears of rent or preceding breach of covenant under the laws of the
State of Oregon.
6. Option to Renew
---------------
Lessee shall have one (1) option (the "Option") to extend the Term of this Lease
until June 14, 2008 upon the terms and conditions stated herein, except as to
rental. To exercise such Option, Lessee shall provide written notice of such
intent to Lessor no earlier than nine (9) months and not later than six (6)
months prior to the expiration of the initial Term of the Lease. Such notice
shall be sent, if at all, via certified mail, return receipt requested, to
Lessor at the address at Paragraph 11 of this Lease.
The right of Lessee to renew this Lease pursuant to the Option shall be
contingent upon Lessee's substantial compliance with the terms of this Lease, in
their entirety, and the compliance by Lessee with the procedures set forth in
this section. Rental for the Option term shall be determined as follows: the
parties shall mutually select an MAI appraiser who shall set the fair market
rental value. The cost of such appraiser shall be shared equally by the parties.
In no event shall the provisions of this paragraph operate to decrease the
monthly rental for the Premises below the base monthly rental for the initial
Term. The base rental shall be increased for the Option period as of the first
day of the first month of such extended Term.
In the event Lessor and Lessee are not able to agree on an appraiser, their
differences shall be resolved by arbitration in accordance with the provisions
of Paragraph 7. If for any reason the base rental is not determined prior to the
first day of the Option Term, Lessee shall continue to make the same rental
payment as applied to the initial Term until the new base rental is determined,
at which time, Lessee shall pay Lessor the difference between the two base
rental amounts plus nine percent (9%) interest thereon. As used herein, the fair
market rental value of the Premises is defined as the amount of base monthly
rental (payable on an equal monthly payment basis) which a willing and fully
informed tenant would pay and which a willing and fully informed landlord would
accept for rental of the Premises for the Option period as of the first day of
the Option term.
The Option to renew granted under this Lease is personal to Lessee and may not,
under any circumstances, be assigned to any other party.
7. Arbitration
-----------
In the event this Lease shall not previously have been terminated by the mutual
agreement of the parties, or by operation of law, and in the event that a
substantial dispute between the parties shall arise which they cannot amicably
resolve by applying this Lease, then such dispute shall be submitted to
arbitration in accordance with the rules of the American Arbitration
Association. In such an event, Lessor and Lessee shall each select an
arbitrator, and the two so chosen shall select a third arbitrator. The award in
writing of a majority of the arbitrators so chosen shall be determinative of the
dispute then pending between the parties, provided that the decision of the
arbitrators shall, in any event, be made within sixty (60) days from the date of
selection of the arbitrator named by the party who first requested arbitration.
In the event that the dispute of the parties is principally over payment of
expenses, the arbitrators chosen by the parties shall be certified public
accountants. In the event said dispute shall center principally on rent, the
arbitrators chosen shall be either licensed commercial real estate brokers, or
licensed and qualified real estate appraisers specializing in commercial
appraisal. Pending completion of arbitration, it is agreed that judicial
proceedings shall not be commenced, except where necessary to preserve rights of
the parties which might otherwise expire under the applicable statute of
limitations, in which case legal action may be commenced but shall be suspended
pending completion of arbitration. It is further expressly agreed that the
invocation of arbitration shall, under no circumstances, be an excuse for
nonpayment of rent and shall further not prevent Lessor from declaration of
default in the event of a substantial breach of any of the covenants, conditions
or terms of this Lease.
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8. Hold Over
---------
In the event Lessee for any reason shall hold over after the expiration of this
Lease, such holding over shall not be deemed to operate as a renewal or
extension of this Lease, but shall only create a tenancy from month to month
which may be terminated by Lessor upon thirty (30) days' written notice.
9. Attorneys' Fees
---------------
In the event of suit or action hereon, the prevailing party shall be entitled to
recover such sums as a trial court may adjudge reasonable as attorneys' fees
herein, and in the event any appeal is taken from any judgment or decree in such
suit or action, the prevailing party shall be entitled to recover such further
sum as the appellate court shall adjudge reasonable as attorneys' fees on such
appeal. This right shall apply to any legal proceeding, including any proceeding
under the U.S. Bankruptcy Code and any arbitration proceeding as provided under
Paragraph 7. of this Lease, except for arbitrations of "fair market rental
value," in which the subject matter of the arbitration is the interpretation or
enforcement of any provision of this Agreement, or the resolution of a dispute
regarding this Agreement, including any action in which a declaration of rights
is sought or an action for rescission. The term "attorneys' fees" shall be
construed to include the reasonable fees of attorneys, paralegals, expert
witnesses including accountants, appraisers and brokers, and all other fees,
costs, and expenses actually incurred, and reasonably necessary, in connection
with the conclusion of those proceedings, to be determined and awarded by the
judge or arbitrator actually resolving the issues pending between the parties.
10. Waiver
------
Any waiver by Lessor of any breach of any covenant herein contained to be kept
and performed by Lessee shall not be deemed or considered as a continuing
waiver, and shall not operate to bar or prevent Lessor from declaring a
forfeiture for any succeeding breach, either of the same condition, covenant or
otherwise.
11. Notices
-------
Any notices, demands, or other communications to be given under this Lease shall
be in writing and personally delivered or sent by certified mail, return receipt
requested, postage prepaid, addressed to the parties at the addresses listed
below, or at such other addresses as the parties may from time to time designate
in writing. All notices shall be deemed received on the date delivered, if
personally delivered, or the date delivery is officially recorded on the return
receipt, if sent by certified mail.
To Lessor: L & L Land Company
Attn: Howard M. Wall, Jr.
4200 Columbia Way
Vancouver, Washington 98661
To Lessee: Portland Brewing Company
Attn: Charles A. Adams
2730 NW 31st Avenue
Portland, Oregon 97210
12. Lessor Financing/Improvements
-----------------------------
As of the date of this Lease, Lessor is negotiating with a lender for the
refinance of the Premises. Lessor expects, but cannot guarantee that such
refinance shall close by May 1, 1999. Landlord agrees that upon the completion
of such refinance, Landlord shall install a new roof on the building and shall
repair and resurface
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the parking lot in front of the shipping dock. Landlord shall complete such work
no later than six (6) months after the date on which the refinancing closes.
Lessee agrees to cooperate with Lessor in obtaining such refinancing and shall
execute such documents as may be reasonably requested by the lender. Lessor
shall use its best efforts to obtain a nondisturbance agreement from such lender
in favor of Lessee.
13. Rights of Successors
--------------------
All rights, remedies and liabilities herein given to or imposed upon either of
the parties hereto shall extend to, inure to the benefit of and bind, as the
circumstances may require, the heirs, executors, administrators, successors and,
so far as this Lease is assignable by the terms hereof, to the assigns of such
parties. Subject to Lessee's rights as provided in Paragraph 14, Lessor shall
have the right at any time to sell or transfer its interest in the Premises. In
the event of such transfer, Lessor shall assign its rights and interest in this
Lease to such successor-in-interest and shall have no further liability to
Lessee pursuant to this Lease. Lessee agrees that it shall, upon request,
execute a reasonable attornment agreement in favor of such successor-in-interest
to Lessor.
14. Right of First Opportunity
--------------------------
Lessor hereby grants to Lessee a right of first opportunity with respect to the
sale of the Premises (provided that this right shall only apply to the sale of
the Premises to an unrelated third party and not to a sale or conveyance to an
affiliate of Lessor). Pursuant to such right, Lessor shall send Lessee a notice
(the "First Offer Notice") pursuant to which Lessor shall offer Lessee the
opportunity to purchase the Premises for the price and on the terms Lessor
intends to market the Premises. Lessee shall have thirty (30) days after receipt
of the First Offer Notice to elect whether to purchase the Premises. If Lessee
does not elect to purchase the Premises, Lessor may sell the Premises to any
other person or entity, free and clear of Lessee's right of first opportunity.
Lessor shall not be responsible for any brokerage commissions or fees in
connection with a sale of the Premises pursuant to the right of first
opportunity.
Notwithstanding the foregoing, in the event that Lessee declines to purchase
pursuant to the First Offer Notice and Lessor subsequently decides to market or
sell the Premises to a third party for an amount that is less than ninety
percent (90%) of the price contained in the First Offer Notice, Lessor shall
first provide a new First Offer Notice to Lessee, giving Lessee the opportunity
to purchase the Premises for the new price and on the terms Lessor intends to
market the Premises.
15. Miscellaneous
-------------
15.1 This Lease constitutes the entire agreement between the parties
pertaining to its subject matter and its supersedes all prior and
contemporaneous agreements, representations, and understandings of the parties
in connection with the Premises, including, without limitation, any prior
leases, subleases and options. No supplement, modification, or amendment of the
Lease shall be binding unless executed in writing by both parties. The captions
and headings of the Lease are for convenience only and shall not define, limit
or describe the applicability, scope, meaning or intent of any provision of the
Lease. The lease shall be governed by the laws of the State of Oregon.
15.2 The covenants and representations of the parties hereto,
specifically including, but not limited to, the covenants regarding
indemnification and attorneys' fees, shall survive the termination or expiration
of the Lease.
15.3 Each of the parties hereto has been represented by legal counsel
of its choice in connection with the negotiation and execution of this Lessee.
The parties hereto confirm that they have mutually negotiated the Lease and that
none of the terms or provisions of the Lease shall be construed by presumption
against either party.
9
<PAGE>
15.4 Whenever a time period set forth in the Lease would otherwise
expire on a Saturday, Sunday or banking or federally recognized holiday, such
time periods shall be deemed extended until the next day which is not one of the
foregoing.
15.5 Each individual who executes this Lease on behalf of a party
warrants his or her authority to do so.
15.6 This Lease may be executed in counterparts, each of which shall be
an original and all of which, when taken together, shall be deemed one and the
same.
IN WITNESS WHEREOF the respective parties have executed this instrument, and the
Exhibits attached hereto and this reference incorporated herein, in duplicate
the day and year first above written.
LANDLORD: L & L LAND COMPANY,
an Oregon general partnership
By: /s/ Howard M. Wall, Jr.
-----------------------
Its: Partnership Representative
--------------------------
TENANT: PORTLAND BREWING COMPANY, an Oregon
corporation
By: /s/ Charles A. Adams
--------------------
Its: President
---------
10
EXHIBIT 10.20
SUBLEASE
This sublease is made and entered into as of May 1, 1999, between Portland
Brewing Company, ("PBC") as lessee and sublessor, and Power Transmission
Products, Inc., ("PTP") as sublessee.
Recitals
A. PBC has entered into a lease with L & L Land Company, a partnership
("Landlord") dated May 1, 1999, of the warehouse and office building located at
2750 NW 31st Avenue, Portland, Oregon (the "Lease") and the approximately 1.5
acres of land upon which it is situated, known as Tax Lot 114 of Section 29,
Township 1 North, Range 1 East, of the Willamette Meridan, as is more
particularly described in the Lease.
B. PTP was the lessee of the premises from May 1991 through April 30,
1999, and currently occupies and has been and is utilizing about five thousand
square feet of office space and eight thousand square feet of warehouse space in
the building and the southerly portion of the parking lot and from January 1995
until the end of April 1999 has been subleasing the balance of the premises to
PBC. PTP desires to continue its occupancy of the same portion of the premises
and PBC is willing to sublease such portion to PTP on the terms herein provided.
C. Landlord has consented to this Sublease.
Agreement
For and in consideration of the mutual covenants herein the parties agree as
follows:
1. Sublease. PBC hereby subleases to PTP the portion of the premises
described above currently occupied by PTP for a term of twelve months,
commencing May 1, 1999, and PTP agrees to pay a rental of $4,974 per month with
the payment for the first and last months due upon execution of this sublease
and subsequent payments due monthly commencing June 1, 1999. PTP agrees to pay
as additional rental $365 per month for real property taxes assessed against the
premises.
2. Incorporation of Lease. This sublease is expressly made subject to all
of the terms, conditions and limitations contained in the Lease, a copy of which
is attached hereto this sublease.
3. Compliance with Lease. PTP agrees to be bound by each and every
covenant and condition contained in the lese to be performed by PBC except for
the payment of rent, which shall be paid by PTP to PBC.
<PAGE>
PBC agrees to pay to the Landlord, as and when due, all rents and all
other sums required to be paid by the terms of the Lease, and to comply with all
of the other terms and provisions of the Lease.
4. Utilities and Maintenance. PTP shall pay for its own use of
electricity and natural gas which is separately metered, as well as janitorial
and garbage collection services. PTP shall be responsible for interior
maintenance of the premises occupied by it. PBC shall be responsible for outside
maintenance and maintenance of the heating, ventilating and air conditioning
system.
5. Insurance. PTP shall maintain general liability insurance with
combined single limits of not less than $1 million, with PBC and lessor named as
additional insureds, evidenced by a certificate which also provides that
coverage will not be canceled without at least 30 days prior written notice to
PBC. PBC shall maintain fire insurance on the premises, but PTP shall be
responsible for insuring its own personal property and fixtures.
6. Holding Over. In the event PTP desires to continue its occupancy
beyond the term of this sublease, PTP shall notify PBC of such desire on or
before February 28, 2000, and if PBC consents to such holding over, and it
agrees to consent to not less than six months, PTP shall pay $4,974 as rent on
April 1, 2000, and the last month's rent under this sublease shall be retained
by PBC as a security deposit. PTP's tenancy during such holdover period shall be
subject to termination on six months notice by either party, and the property
tax portion of the rent shall be adjusted to reflect any change in the amount of
tax assessed for each subsequent year.
7. Surrender upon Termination. At the end of the sublease terms, or any
extension thereof, PTP shall quit and surrender the premises in the condition
now existing, reasonable wear and tear and casualty damage excepted, with repair
of any damage occasioned by the removal of any fixtures or subtenant
improvements.
8. Sublessor's Indemnity PBC shall protect, defend and hold PTP harmless
from and against any loss liability or claim, cost or expense (including
attorney's fees) relating to or arising out of PBC's breach of any material
provision of the Lease.
9. All notices pursuant to this sublease shall be in writing, and shall
be deemed effective when delivered personally or mailed, registered or certified
mail, return receipt requested, to the other party at the address below:
If to PBC: Portland Brewing Company
2730 NW 31st Avenue
Portland, OR 97210
Attn: Charles A. Adams
2
<PAGE>
If to PTP: Power Transmission Products, Inc.
2750 NW 31st Avenue
Portland, OR 97210
Attn: Timothy C. Anderson
Either party may, by written notice to the other, change its address for
purposes of this sublease.
10. Successor Interest. All of the terms and provisions of this sublease
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, provided that neither party shall assign any
of its rights, title or interests in the subleased premises or the sublease
without the prior written consent of the other party, which consent will not be
unreasonably withheld.
In witness whereof, each of the parties has caused this sublease to be executed
by its duly authorized officers to be effective as of May 1, 1999.
Power Transmission Products, Inc.
by: /s/ Ronald M Karls
---------------------------------------
title: Vice President
--------------------------
Portland Brewing Company
by: /s/ CA Adams
---------------------------------------
title: Pres.
--------------------------
3
<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 six months ended June 30 ,1999, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 92,727
<SECURITIES> 0
<RECEIVABLES> 858,256
<ALLOWANCES> 0
<INVENTORY> 633,791
<CURRENT-ASSETS> 1,876,857
<PP&E> 10,820,153
<DEPRECIATION> 3,842,024
<TOTAL-ASSETS> 9,005,587
<CURRENT-LIABILITIES> 3,871,910
<BONDS> 0
300,040
0
<COMMON> 7,115,798
<OTHER-SE> (2,378,320)
<TOTAL-LIABILITY-AND-EQUITY> 9,005,587
<SALES> 4,995,266
<TOTAL-REVENUES> 4,751,423
<CGS> 3,410,807
<TOTAL-COSTS> 3,410,807
<OTHER-EXPENSES> 1,693,606
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 112,246
<INCOME-PRETAX> (132,935)
<INCOME-TAX> 0
<INCOME-CONTINUING> (132,935)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (132,935)
<EPS-BASIC> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
