<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): August 25, 1999
MORROW SNOWBOARDS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
OREGON 0-27002 93-1011046
(STATE OR OTHER JURISDICTION OF (COMMISSION (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) FILE NUMBER) IDENTIFICATION NUMBER)
2600 PRINGLE ROAD, S.E.
SALEM, OR 97302
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(503) 375-9300
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
<PAGE>
ITEM 5. OTHER EVENTS.
BRIDGE LOAN
On August 25, l999, Morrow Snowboards, Inc. (the "Company") closed a bridge loan
in the principal amount of $675,000 (the "Bridge Loan") secured by a first lien
against the Company's real property located in Salem, Oregon. The Company
received net proceeds for working capital purposes of approximately $327,000
after payment of loan costs and fees of approximately $60,000, payment of
certain personal property taxes of approximately $38,000 and payment of $250,000
to creditors under the Payment Agreement outlined in the Company's Form 8-K
dated June 28, l999 and filed on July 13, l999. The Bridge Loan bears interest
at the rate of 12%, requires monthly payments of interest only of $6,750 and is
payable in full on June 28, 2000. The loan is secured by a first lien against
the Company's approximately 106,000 square foot offices and warehouse in Salem,
Oregon and related real estate ("Real Property"). The loan is evidenced by a
Promissory Note and Trust Deed (collectively, the "Loan Documents"). Besides
payment of the amounts owing from time to time under the Promissory Note, the
Loan Documents impose a number of obligations on the Company related to the Real
Property, including without limitation, obligations to maintain and insure the
Real Property, pay property taxes on the Real Property, and keep the Real
Property free of liens. The Loan Documents contain provisions that provide for
acceleration of the loan in the event monthly payments are not made within
certain grace periods or other required actions under the Promissory Note or
Trust Deed are not undertaken. Under Oregon law, the security interest in the
property could be foreclosed judicially or nonjudicially. If the Company were to
default on the bridge loan and the security interest foreclosed, the sales
proceeds from a foreclosure would likely be less than the fair market value
realized upon an orderly liquidation of the real property. The Company is
currently attempting to sell the Real Property. Any sales proceeds would be
applied first to payment of the Bridge Loan and, after such payment, to amounts
owing to creditors under the Payment Agreement. The amounts owing under the
Payment Agreement are secured by a trust deed against the Real Property that is
subordinate to up to $750,000 secured by the Trust Deed signed in connection
with the Bridge Loan.
While the Bridge Loan has provided working capital to the Company, the Company
still needs additional working capital of at least $350,000 to fully implement
on its business plan for the current year. The Company is seeking working
capital from various sources. There is no assurance the Company will be
successful in obtaining any required working capital when needed.
COMMON STOCK SALE.
Capitol Bay Management, Inc. ("CBM") has orally exercised its option to
acquire 1,000,000 shares of the Company's Common Stock for $250,000, $.25 per
share. CBM has paid $110,000 of the purchase price to date with the balance
expected within the next two to three days and the shares to be issued
shortly thereafter. When issued, CBM and its affiliates will hold 16.45% of
the outstanding shares of the Company's Common Stock. CBM also has the right
to convert $500,000 of a current loan to the Company into 2,000,000 shares of
the Company's Common Stock which conversion right has not been exercised to
date. See the Company's Current Report on Form 8-K for June 28, 1999, and
filed with the SEC on July 13, 1999, regarding CBM and its right to acquire
the Company's Common Stock. See also the Schedule 13-D filed July 19, 1999,
and the Form 3 dated July 22, 1999, filed by CBM and its affiliates regarding
their beneficial ownership of the Company's securities.
SAFE HARBOR. This report contains forward-looking statements which are made
pursuant to the Safe Harbor provisions of the Private Securities Litigation
Reform Act of 1995. Investors are cautioned that such forward-looking statements
involve risks and uncertainties, including, without limitation, the continuing
cooperation of Morrow's secured lender, Capitol Bay Management, Inc., the
adequacy of available working capital, and Morrow's ability to continue
operations in designing and distributing Westbeach brand products.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
EXHIBITS. The following exhibits are included with this filing:
1. Promissory Note dated August 25, l999 given by Morrow
Snowboards, Inc. to Dennis and Carol Pekkola.
2. Trust Deed dated August 25, 1999 given by Morrow Snowboards to
Robert Smejkel, as Trustee, with Dennis and Carol Pekkola as beneficiaries.
3. Subordination Agreement dated August 25, l999 among Morrow
Snowboards, Inc., Robert K. Morrow, as Escrow Agent for certain creditors of the
Company and the Pekkolas.
2
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Salem, State of Oregon, on September 2, 1999.
MORROW SNOWBOARDS, INC.
By: /s/ P. BLAIR MULLIN
----------------------------------------------------
P. Blair Mullin
PRESIDENT AND CHIEF FINANCIAL OFFICER
(PRINCIPAL EXECUTIVE, FINANCIAL AND ACCOUNTING OFFICER
<TABLE>
<CAPTION>
EXHIBIT INDEX
EXHIBIT NO. DOCUMENT DESCRIPTION
- ----------- ---------------------
<S> <C>
99.3 Promissory Note dated August 25, l999 given by Morrow
Snowboards, Inc. to Dennis and Carol Pekkola
99.4 Trust Deed dated August 25, 1999 given by Morrow
Snowboards to Robert Smejkel, as Trustee, with Dennis
and Carol Pekkola as beneficiaries
99.5 Subordination Agreement dated August 25, l999 among
Morrow Snowboards, Inc., Robert K. Morrow, as Escrow
Agent for certain creditors of the Company and the
Pekkolas
</TABLE>
3
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EXHIBIT 99.3
PROMISSORY NOTE
AUGUST 25, 1999 $675,000.00
FOR VALUE RECEIVED, MORROW SNOWBOARDS, INC., an Oregon corporation
("Maker"), hereby promises to pay to the order of DENNIS R. PEKKOLA and CAROL L.
PEKKOLA ("Holders") at 1001 SW Disk Drive, Suite 103B, Bend, OR 97702, or at
such other location as the Holders may hereafter designate in writing, the sum
of Six Hundred Seventy Five Thousand and 00/100's Dollars ($675,000.00),
together with interest thereon, payable in the manner and on the terms set forth
in this Promissory Note ("Note"):
1. INTEREST RATE. This Note shall bear interest at the rate of
twelve percent (12%) per annum from the date of this Note until this Note is
fully paid. Interest shall be compounded monthly on the _____ day of each month
hereafter.
2. PAYMENT. This Note shall be paid in monthly installments of
not less than Six Thousand, Seven Hundred Fifty and 00/100's Dollars ($6,750.00)
each. The monthly installments shall be due on or before September 25, 1999,
and continuing on the 25 day of each month thereafter until June 25, 2000.
The entire principal balance of this Note, together with accrued interest, shall
be due and payable in full on June 28, 2000.
3. PREPAYMENT. Maker may prepay all or any portion of the unpaid
balance of this Note without penalty.
4. LATE FEES. In the event any payment, or any portion of any
payment, including payment of the entire balance when due, is made more than
fifteen (15) days after it is due, there shall be a late charge in the amount of
five percent (5%) of the scheduled amount due.
5. DEFAULT. A default shall occur if:
5.1. The Maker fails to pay any payment within five (5)
days of the date that such payment is due; or
5.2. The Maker fails to perform any terms or provisions of
the Trust Deed securing payment of this Note within ten (10) days following
written notice of default from the Holders.
6. RIGHTS OF HOLDERS ON DEFAULT. Upon default, Holders shall be
entitled to exercise one or more of the following remedies:
6.1. To declare this Note immediately due and payable in
full;
PROMISORY NOTE-Page 1
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6.2. To collect the amounts due on this Note with or
without resorting to judicial process;
6.3. To take possession of the property described in the
Trust Deed securing payment of this Note in any manner permitted by law; or
6.4. To exercise all other rights available to Holders
under any other written agreement or applicable law.
Holders' rights are cumulative and may be exercised together, separately, and in
any order.
7. ATTORNEY FEES AND COSTS. Should this Note be placed in the
hands of an attorney for collection, the Maker agrees and promises to pay
Holders' reasonable attorney fees and collection costs, even though no suit or
action is filed hereon; however, if a suit or action is filed, Holders shall be
entitled to recover their reasonable attorney fees at trial and on appeal,
including reasonable attorney fees to be incurred after judgment is obtained in
the collection of that judgment.
8. GOVERNING LAW. This Note has been delivered to Holders and
accepted by Holders in the State of Oregon. This Note shall be governed by and
construed in accordance with the laws of the State of Oregon.
9. GENERAL PROVISIONS. Holders may delay or forego enforcing any
of Holders= rights or remedies under this Note without losing them.
MORROW SNOWBOARDS, INC.
By: /S/ BLAIR MULLIN
------------------------
BLAIR MULLIN, President
PROMISSORY NOTE-Page 2
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EXHIBIT 99.4
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DOCUMENT: TRUST DEED
GRANTOR: MORROW SNOWBOARDS, INC., an Oregon corporation
BENEFICIARY: DENNIS R. PEKKOLA and CAROL L. PEKKOLA, husband and wife
1001 SW Disk Drive, Suite 103B, Bend, OR 97702
TRUSTEE: ROBERT A. SMEJKAL, Attorney At Law
AFTER RECORDING, PLEASE RETURN TO:
ROBERT A. SMEJKAL
PO Box 654
Eugene, OR 97440
- -------------------------------------------------------------------------------
TRUST DEED
This Trust Deed is made on AUGUST 25, 1999, between MORROW SNOWBOARDS,
INC., an Oregon corporation, as Grantor, ROBERT A. SMEJKAL, Attorney at Law, as
TRUSTEE, and DENNIS R. PEKKOLA and CAROL L. PEKKOLA, husband and wife, as
Beneficiary.
WITNESSETH:
Grantor irrevocably grants, bargains, sells and conveys to Trustee in
trust, with power of sale, the property in MARION County, Oregon, described as
shown in Exhibit "A," attached hereto and by this reference made a part hereof,
together with all and singular the tenements, hereditaments and appurtenances
and all other rights thereunto belonging or in anywise now or hereafter
appertaining and the rents, issues and profits thereof and all fixtures now or
hereafter attached to or used in connection with said real estate.
This Trust Deed is given as security for the following: (a) the payment
of the Grantor's Promissory Note dated August 25, 1999 ("Promissory Note") in
the principal amount of Six Hundred Seventy Five Thousand and 00/100ths Dollars
($675,000.00) with interest thereon, the balance of which, if not sooner paid,
is due and payable on June 28, 2000; (b) all amendments, renewals, extensions,
and modifications of the Promissory Note; (c) performance of Grantor's
obligations under the Promissory Note and this Trust Deed; and (d) any amounts
expended or advanced by Beneficiary to discharge obligations of Grantor or
expenses incurred by Beneficiary or Trustee to enforce the obligations of
Grantor, as permitted under this Trust Deed, with interest thereon.
In the event the within-described property, or any part thereof, or any
interest therein is sold, agreed to be sold, conveyed, assigned or alienated by
the Grantor without first having obtained the written consent or approval of the
Beneficiary, which consent or approval should not be unreasonably withheld,
then, at the Beneficiary's option, all obligations secured by this instrument,
irrespective of the maturity dates expressed therein, or herein, shall become
immediately due and payable.
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TO PROTECT THE SECURITY OF THIS TRUST DEED, GRANTOR AGREES:
(1) To protect, preserve and maintain said property in good
condition and repair; not to remove or demolish any building or improvement
thereon; not to commit or permit any waste of said property;
(2) To complete or restore promptly and in good and workmanlike
manner any building or improvement which may be constructed, damaged or
destroyed thereon, and pay when due all costs incurred therefor;
(3) To comply with all laws, ordinances, regulations, covenants,
conditions and restrictions affecting said property; if the Beneficiary so
requests, to join in executing such financing statements pursuant to the Uniform
Commercial Code as the Beneficiary may require and to pay for filing same in the
proper public office or offices, as well as the cost of all lien searches made
by filing officers or searching agencies as may be deemed desirable by the
Beneficiary;
(4) To provide and continuously maintain insurance on the
buildings now or hereafter erected on the said premises against loss or damage
by fire and such other hazards as the Beneficiary may from time to time require,
in an amount no less than the full insurable replacement value of said
improvements written in companies acceptable to the Beneficiary, with loss
payable to the latter; all policies of insurance shall be delivered to the
Beneficiary as soon as insured; if the Grantor shall fail for any reason to
procure any such insurance and to deliver said policies to the Beneficiary at
least fifteen days prior to expiration of any policy of insurance now or
hereafter placed on said improvements, the Beneficiary may procure the same at
Grantor's expense. The amount collected under any fire or other insurance policy
may be applied by Beneficiary upon any indebtedness secured hereby and in such
order as Beneficiary may determine, or at the option of the Beneficiary, the
entire amount so collected, or any part thereof, may be released to Grantor.
Such application or release shall not cure or waive any default or notice of
default hereunder or invalidate any act done pursuant to such notice;
(5) To keep said premises free from construction liens and to pay
all taxes, except for 1998-1999 taxes, assessments and other charges that may be
levied or assessed upon or against said property before any part of such taxes,
assessments and other charges becomes past due or delinquent or in any manner
cause interest or penalties to be charged thereon and promptly deliver receipts
therefor to Beneficiary; failure in performance of the foregoing shall
constitute a default hereunder and under the promissory note secured hereby;
should the Grantor fail to make payment of any taxes, except for 1998-1999
taxes, assessments, insurance premiums, liens or other charges payable by
Grantor, either by direct payment or by providing Beneficiary with funds with
which to make such payment, Beneficiary may, at its option, make payment
thereof, and the amount so paid, with interest at the rate set forth in the note
secured hereby, together with the obligations described in paragraphs six and
seven of this Trust Deed, without waiver or any rights arising from breach of
any of the covenants hereof and for such payments, with interest as aforesaid,
the property hereinbefore described, as well as the Grantor, shall be bound to
the same extent that they are bound for the payment of the obligation herein
described, and all such payments shall be immediately due and payable without
notice, and the nonpayment thereof shall, at the option of the Beneficiary,
render all sums secured by this Trust Deed immediately due and payable and
constitute a breach of this Trust Deed;
(6) To pay and perform any encumbrance superior in priority to
this Trust Deed according to the terms of said superior encumbrance. The
Beneficiary hereunder shall have the right at its option to advance funds to
perform any act necessary to remedy any default with respect to a superior
encumbrance, adding any funds so advanced, together with reasonable costs
incurred as a result of any such default, to the balance due Beneficiary under
the Promissory Note and Trust Deed secured thereby.
(7) To pay all costs, fees and expenses of this trust including
the cost of title search as well as the other costs and expenses of the Trustee
incurred in connection with or in enforcing this obligation and the Trustee's
and attorney's fees actually incurred;
(8) To appear in and defend any action or proceeding purporting to
affect the security rights or powers of Beneficiary or Trustee; and in any suit,
action or proceeding in which the Beneficiary or Trustee may appear, including
any suit for the foreclosure of this Trust Deed, to pay all costs and expenses,
including evidence of title and the Beneficiary's or Trustee's attorney's fees;
the amount of attorney's fees mentioned in this paragraph seven in all cases
shall be fixed by the trial court and in the event of an appeal from any
judgment or decree of the trial court, Grantor further agrees to pay such sum as
the appellate court shall adjudge reasonable as the Beneficiary's or Trustee's
attorney's fees on such appeal.
IT IS MUTUALLY AGREED THAT:
(9) In the event that any portion or all of said property shall be
taken under the right of eminent domain or condemnation, Beneficiary shall have
the right, if it so elects, to require that all or any portion of the monies
payable as compensation for such taking, which are in excess of the amount
required to pay all reasonable costs, expenses and attorney's fees necessarily
paid or incurred by Grantor in such proceedings, shall be paid to Beneficiary
and applied first upon any reasonable costs and expenses and attorneys fees,
both in the trial and appellate courts, necessarily paid or incurred by
Beneficiary in such proceedings, and the balance applied upon the indebtedness
secured hereby; and Grantor agrees, at his own expense, to take such actions and
execute such instruments as shall be necessary in obtaining such compensation,
promptly upon Beneficiary's request;
2
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(10) At any time and from time to time upon written request of
Beneficiary, payment of its fees and presentation of this deed and the note for
endorsement (in the case of reconveyances, for cancellation), without affecting
the liability of any person for the payment of the indebtedness, Trustee may (a)
consent to the making of any map or plat of said property; (b) join in granting
any easement or creating any restriction thereon; (c) join in any subordination
or other agreement affecting this deed or the lien or charge thereof; (d)
reconvey, without warranty, all or any part of the property. The grantee in any
reconveyance may be described as the "person or persons legally entitled
thereto," and the recitals therein of any matters or facts shall be conclusive
proof of the truthfulness thereof. Trustee's fees for any of the services
mentioned in this paragraph shall be not less than five dollars;
(11) Upon any default by Grantor hereunder, Beneficiary may at any
time without notice, either in person, by agent or by a receiver to be appointed
by a court, and without regard to the adequacy of any security for the
indebtedness hereby secured, enter upon and take possession of said property or
any part thereof, in its own name sue or otherwise collect the rents, issues and
profits, including those past due and unpaid, and apply the same, less costs and
expenses of operation and collection, including reasonable attorney's fees upon
any indebtedness secured hereby, and in such order as Beneficiary may determine;
(12) The entering upon and taking possession of said property, the
collection of such rents, issues and profits, or the proceeds of fire and other
insurance policies or compensation or awards for any taking or damage of the
property, and the application or release thereof as aforesaid, shall not cure or
waive any default or notice of default thereunder or invalidate any act done
pursuant to such notice;
(13) Upon default by Grantor in payment of any indebtedness secured
hereby or in his performance of any agreement hereunder, time being of the
essence with respect to such payment and/or performance, the Beneficiary may
declare all sums secured hereby immediately due and payable. In such an event
the Beneficiary at his election may proceed to foreclose this Trust Deed in
equity as a mortgage or direct the Trustee to foreclose this Trust Deed by
advertisement and sale, or may direct the Trustee to pursue any other right or
remedy, either at law or in equity, which the Beneficiary may have. In the event
the Beneficiary elects to foreclose by advertisement and sale, the Beneficiary
or the Trustee shall execute and cause to be recorded his written notice of
default and his election to sell the said described real property to satisfy the
obligation secured hereby whereupon the Trustee shall fix the time and place of
sale, give notice thereof as then required by law and proceed to foreclose this
Trust Deed in the manner provided in ORS 86.735 to 86.795;
(14) After the Trustee has commenced foreclosure by advertisement
and sale, and at any time prior to five days before the date the Trustee
conducts the sale, the Grantor or any other person so privileged by ORS 86.753,
may cure the default or defaults. If the default consists of a failure to pay,
when due, sums secured by the Trust Deed, the default may be cured by paying the
entire amount due at the time of the cure other than such portion as would not
then be due had the default not occurred. Any other default that is capable of
being cured may be cured by tendering the performance required under the
obligation or Trust Deed. In any case, in addition to curing the default or
defaults, the person effecting the cure shall pay to the Beneficiary all costs
and expenses actually incurred in enforcing the obligation of the Trust Deed
together with Trustee's and attorney's fees not exceeding the amounts provided
by law;
(15) Otherwise, the sale shall be held on the date and at the time
and place designated in the notice of sale or the time to which said sale may be
postponed as provided by law. The Trustee may sell said property either in one
parcel or in separate parcels and shall sell the parcel or parcels at auction to
the highest bidder for cash, payable at the time of sale. Trustee shall deliver
to the purchaser its deed in the form as required by law conveying the property
so sold, but without any covenant or warranty, express or implied. The recitals
in the deed of any matters of fact shall be conclusive proof of the truthfulness
thereof. Any person, excluding the Trustee, but including the Grantor and
Beneficiary, may purchase at the sale;
(16) When Trustee sells pursuant to the powers provided herein,
Trustee shall apply the proceeds of sale to payment of (1) the expenses of sale,
including the compensation of the Trustee and a reasonable charge by Trustee's
attorney, (2) to the obligation secured by the Trust Deed, (3) to all persons
having recorded liens subsequent to the interest of the Trustee in the Trust
Deed as their interest may appear in the order of their priority and (4) the
surplus, if any, to the Grantor or to his successor in interest entitled to such
surplus;
(17) Beneficiary may from time to time appoint a successor or
successors to any Trustee name herein or to any successor Trustee appointed
hereunder. Upon such appointment, and without conveyance to the successor
Trustee, the latter shall be vested with all title, powers and duties conferred
upon any trustee herein named or appointed hereunder. Each such appointment and
substitution shall be made by written instrument executed by Beneficiary, which,
when recorded in the mortgage records of the county or counties in which the
property is situated, shall be conclusive proof of proper appointment of the
successor Trustee;
(18) Trustee accepts this Trust Deed when this deed, duly executed
and acknowledged, is made a public record as provided by law. Trustee is not
obligated to notify any party hereto of pending sale under any other deed of
trust or of any action or proceeding in which Grantor, Beneficiary or Trustee
shall be a party unless such action or proceeding is brought by Trustee;
The Grantor warrants that the proceeds of the loan represented by the
above described Promissory Note and this Trust Deed are intended for business or
commercial purposes.
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This deed applies to, inures to the benefit of and binds all parties
hereto, their heirs, legatees, devisees, administrators, executors, personal
representatives, successors and assigns. The term Beneficiary shall mean the
holder and owner, including pledgee, of the contract secured hereby, whether or
not named as a Beneficiary herein. In construing this deed and whenever the
context so requires, the masculine gender includes the feminine and the neuter,
and the singular number includes the plural.
IN WITNESS WHEREOF, said Grantor has hereunto set its hand the day and
year first hereinabove written.
MORROW SNOWBOARDS, INC.
BY: /s/ BLAIR MULLIN
------------------------------
BLAIR MULLIN, PRESIDENT
STATE OF OREGON )
) ss.
County of Marion )
This instrument was acknowledged before me on August 25, 1999, by
BLAIR MULLIN as President of MORROW SNOWBOARDS, INC., an Oregon corporation.
/s/ DEBRA SUE SMITH
----------------------------------------
Notary Public for Oregon
My Commission Expires: JULY 10, 2002
-----------------
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REQUEST FOR FULL RECONVEYANCE
To Robert A. Smejkal, Trustee:
The undersigned is the legal owner and holder of all indebtedness
secured by the foregoing Trust Deed. All sums secured by said Trust Deed have
been fully paid and satisfied. You are hereby directed, on payment to you of any
sums owing to you under the terms of said Trust Deed pursuant to statute, to
cancel all evidences of indebtedness secured by said Trust Deed, which are
delivered to you herewith together with said Trust Deed, and to reconvey,
without warranty, to the parties designated by the terms of said Trust Deed the
estate now held by you under the same. Mail reconveyance documents to Grantor
__________ at __________________________________ DATED:________________________.
- ------------------------------- -------------------------------
Beneficiary Beneficiary
- -------------------------------------------------------------------------------
EXHIBIT "A"
See Exhibit "A" attached hereto and by this reference incorporated herein.
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EXHIBIT "A"
Lot 11, GARDEN HOME TRACTS, Marion County, Oregon.
ALSO: Beginning at a point on the West line of the right of way of the Southern
Pacific Co. at a point which is 309 feet South and South 89E 23' East 297.5 feet
from the Northwest corner of Lot 9 of the original plat of GARDEN HOME TRACT,
Marion County, Oregon; and running thence North 89E 23' West 297.5 feet to the
West line of said Lot 9 and the center of Pringle Road; thence Southerly along
the West line of said Lot 9 a distance of 227.58 feet, more or less, to the
Southwest corner of said Lot 9; thence South 89E 30' East along the Southerly
boundary of said Lot 9, a distance of 375 feet, more or less, to the Westerly
boundary of said railroad right of way; thence Northwesterly along the Westerly
boundary of said right of way to the place of beginning.
SAVE AND EXCEPT that part of Lot 11 lying within the right of way of the
Southern Pacific Co.
5
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AFTER RECORDING RETURN TO: EXHIBIT 99.5
Robert A. Smejkal
P.O. Box 654
Eugene, OR 97440
- -------------------------------------------------------------------------------
SUBORDINATION AGREEMENT
This Subordination Agreement is made and entered into this
25TH day of AUGUST, 1999, by and among Morrow Snowboards, Inc. ("Morrow"),
Robert K. Morrow, Inc. ("RKMI"), as Collateral Agent for the ratable benefit of
the Participating Creditors of Morrow listed in Exhibit A attached hereto, and
Dennis R. Pekkola and Carol L. Pekkola (collectively, "Pekkola").
WITNESSETH:
On or about July 6, 1999, Morrow, being the owner of the
following described property in Marion County, Oregon to-wit:
2600 Pringle Road, S.E., Salem, OR 97302, a legal description
of which is attached hereto in Exhibit B (the "Property")
executed and delivered a certain trust deed (the "RKMI Trust Deed") to secure
(i) Morrow's indebtedness to the Participating Creditors under that certain
Payment Agreement effective June 17, 1999 by and among Morrow, RKMI and certain
of Morrow's creditors (the "Payment Agreement"), and (ii) Morrow's obligations
to RKMI under the Payment Agreement and the RKMI Trust Deed. The RKMI Trust Deed
was recorded on July 7, 1999 in the records of Marion County, Oregon as Control
No. 1614279.
Pekkola is about to loan the sum of $675,000 to Morrow, with
interest thereon at the rate of twelve percent (12%) per annum. This loan is to
be secured by Morrow's trust deed upon the Property (the "Pekkola Trust Deed")
and is to be repaid on or before June 28, 2000.
RKMI has heretofore agreed and consented to subordinate the
RKMI Trust Deed on the terms and conditions and subject to the limitations
described below.
-1-
<PAGE>
NOW, THEREFORE, for value received, and for the purpose of
inducing Pekkola to make the loan described above, RKMI hereby covenants,
consents and agrees that the RKMI Trust Deed shall be subject and subordinate to
the Pekkola Trust Deed, and that the Pekkola Trust Deed shall be prior and
superior to the RKMI Trust Deed, but only to the extent that the obligations
secured by the Pekkola Trust Deed do not exceed, at any one time in the
aggregate, (i) $500,000 or, (ii) in the event that Morrow makes the $250,000
initial payment required by Paragraph 2(a)(i) of the Payment Agreement on or
before August 27, 1999, $750,000; PROVIDED, HOWEVER, that in the event the
Pekkola Trust Deed is not duly recorded within thirty (30) days after the date
hereof, this Subordination Agreement shall be null and void and of no further
force or effect.
It is expressly understood and agreed that nothing herein
contained shall be construed to change, alter or impair the liens arising from
the RKMI Trust Deed, except as hereinabove expressly set forth.
IN WITNESS WHEREOF, the undersigned have executed this
Agreement, and Morrow and RKMI have caused their names to be signed by an
officer or other person duly authorized to do so by order by their boards of
directors.
MORROW SNOWBOARDS, INC.
By: /s/ BLAIR MULLIN
---------------------------
Blair Mullin, President
STATE OF OREGON )
) ss.
County of Marion )
This instrument was acknowledged before me on AUGUST 24, 1999, by
Blair Mullin as President of Morrow Snowboards, Inc.
/s/ DEBRA SUE SMITH
------------------------------------
Notary Public for Oregon
My Commission Expires: JULY 10, 2002
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ROBERT K. MORROW, INC.
By: /s/ ROBERT K. MORROW
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Robert K. Morrow, President
STATE OF OREGON )
) ss.
County of Multnomah )
This instrument was acknowledged before me on AUGUST 19, 1999,
by Robert K. Morrow as President of Robert K. Morrow, Inc.
/s/ NANCY READ
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Notary Public for Oregon
My Commission Expires: 9/13/99
/s/ DENNIS R. PEKKOLA
- ----------------------------------
Dennis R. Pekkola
STATE OF OREGON )
) ss.
County of DESCHUTES )
This instrument was acknowledged before me on AUGUST 23, 1999,
by Dennis R. Pekkola.
/s/ TODD OWEN
---------------------------------------
Notary Public for Oregon
My Commission Expires: 3/15/02
/s/ CAROL L. PEKKOLA
- ---------------------------------
Carol L. Pekkola
STATE OF OREGON )
) ss.
County of DESCHUTES )
This instrument was acknowledged before me on AUGUST 23, 1999,
by Carol L. Pekkola.
/s/ TODD OWEN
-----------------------------------
Notary Public for Oregon
My Commission Expires: 3/15/02
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