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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): April 27, 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
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ITEM 5. OTHER EVENTS.
DELISTING FROM THE NASDAQ STOCK MARKET. As of the close of business on
April 26, 1999, Morrow Snowboards, Inc. (Morrow) was delisted from The Nasdaq
Stock Market. Because Morrow is currently delinquent in its filings under the
Securities Exchange Act of 1934, trading in the Company's securities will be
reported in the pink sheets until the Company has filed its Annual Report on
Form 10-K for the fiscal year ended December 26, 1999 and the requisite number
of market makers have applied for listing on the OTC Bulletin Board on Morrow's
behalf. Morrow anticipates it will file such Form 10-K by May 10, 1999 and be
listed on the OTC Bulletin Board shortly thereafter.
TENTATIVE SETTLEMENT OF INVOLUNTARY PETITION. On March 30, 1999,
certain of Morrow's trade creditors filed an involuntary petition for relief
under Chapter 7 of the United States Bankruptcy Code in the United States
Bankruptcy Court for the District of Oregon (Case No. 699-61663-fra7). Morrow
has reached a tentative settlement with such creditors pursuant to which Morrow
and the creditors will file a joint motion to dismiss the involuntary petition.
In general, under the terms of the proposed settlement, creditors holding
undisputed, non-contingent, liquidated claims against Morrow (approximately
$2.5 million in the aggregate) will receive payments from Morrow as follows:
$250,000 within 60 days after an order dismissing the involuntary petition
becomes final; $200,000 each calendar quarter after the first payment is made;
and the remaining unpaid balance of such claims, without interest, all due and
payable in one year. Such payments will be secured by a lien against Morrow's
improved real property located in Salem, Oregon, subject to a senior lien to
secure financing for Morrow up to a maximum amount of $500,000, which may be
increased to $750,000 if the $250,000 initial payment is made to such
creditors. Alternatively, at Morrow's option, such creditors will receive
payments of 85 percent of the amount of their claims, in full satisfaction,
within 60 days after an order dismissing the involuntary petition (Dismissal)
becomes final. Morrow's agreement to make such payments and to grant such a
lien is conditioned upon at least 90 percent in dollar value of creditors
holding claims in excess of $10,000 agreeing to settle their claims on these
terms.
In order to allow Morrow and the petitioning creditors time to document the
foregoing settlement and file and serve a joint motion to dismiss, as well as
to provide creditors other than the petitioning creditors an opportunity to
review and agree to the settlement terms, on April 28, 1999, Morrow and the
petitioning creditors filed a Stipulation for Order Extending Time to Respond
to Involuntary Petition with the United States Bankruptcy Court for the
District of Oregon. Pursuant to that Stipulation, the time for Morrow to
respond to the involuntary petition has been extended to July 2, 1999.
PROPOSED FINANCING BY CAPITOL BAY MANAGEMENT, INC. On April 27, 1999,
Morrow's Board of Directors authorized Morrow to enter into a binding
Memorandum of Understanding with Capitol Bay Management, Inc. (Capitol Bay)
whereby Capitol Bay will provide Morrow with additional financing to be used as
working capital (the Financing). A copy of this Memorandum is attached as an
exhibit to this Form 8-K. The Financing has been structured to accommodate the
notice and appeal period related to the Dismissal. Pursuant to the Memorandum,
Capitol Bay will negotiate with Morrow's current lender, Foothill Capital
Corporation (Foothill) to purchase Foothill's secured lender position and, if
accomplished, make certain funds available to Morrow under that credit line.
Capitol Bay also intends to obtain and fund a loan to be secured by Morrow's
real estate; provided that no more than $500,000 of such loan may be secured by
such real estate without further creditor approval, as described above under
"Tentative Settlement of Involuntary Petition." If such loan is not provided
by April 30, 1999, Morrow may seek additional financing. Upon the Dismissal
and for a period of 12 months thereafter, Capitol Bay may elect to convert
$500,000 of the Foothill loan into 2,000,000 shares of Morrow Common Stock (as
presently constituted), contingent upon Capitol Bay performing its agreements
under the Memorandum. Until the consummation of the Financing, or, if earlier,
the termination of the Memorandum, Morrow has agreed not to issue or agree to
issue any securities without prior written consent of Capitol Bay. Morrow
further agrees, until the Dismissal, to refrain from filing a petition under
the bankruptcy laws provided the agreement with creditors is reached and
approved.
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The closing of the Financing is contingent upon a number of material
conditions, including obtaining approval of the Bankruptcy Court and the
creditors to the tentative settlement agreement, Capitol Bay using reasonable
efforts to purchase the secured lender position of Foothill and Capitol Bay's
satisfactory completion of due diligence procedures. There is no assurance
that such conditions will be satisfied or that the Financing will be
consummated.
MARMOT CLAIM. On April 9, 1999, Marmot Mountain Ltd. (MML) filed suit against
Morrow in the United States District Court for the Northern District of
California (Case No. C99-1786). MML is seeking payment of damages in the
amount of $130,000 plus interest at the legal rate on $60,000 of such amount
from January 15, 1998 and on $70,000 of such amount from January 15, 1999. In
its complaint, MML alleges breach of a contract whereby MML agreed to provide
Morrow with design, manufacturing and merchandising services related to
snowboard apparel. In general, all litigation against Morrow is currently
stayed pending resolution of the involuntary bankruptcy petition described
above. Should proceedings commence, Morrow intends to negotiate a settlement
with MML, or if such settlement cannot be reached, defend against the claim, on
the basis that Morrow believes its liability under the contract is limited to a
lesser amount.
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, Foothill, the adequacy of
available working capital, the effect of the bankruptcy filing and Morrow's
ability to continue operations in designing and distributing Westbeach brand
products.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Not applicable.
(b) Not applicable.
(c) Exhibits:
Memorandum of Understanding between Capitol Bay Management, Inc.
and Morrow Snowboards, Inc.
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 April 29, 1999.
MORROW SNOWBOARDS, INC.
By:/S/ P. BLAIR MULLIN
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P. Blair Mullin
PRESIDENT AND CHIEF FINANCIAL OFFICER
(PRINCIPAL EXECUTIVE, FINANCIAL AND
ACCOUNTING OFFICER)
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Document Description
- ----------- --------------------
<S> <C>
99.1 Memorandum of Understanding between Capitol Bay Management, Inc. and
Morrow Snowboards, Inc.
</TABLE>
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April 23, 1999
Mr. Blair Mullin
Chairman and President
Morrow Snowboards, Inc.
P.O. Box 12606
Salem, OR 97309
RE: Financing Proposal for Morrow Snowboards, Inc. (the "Company")
Gentlemen:
This letter is intended as a memorandum of our understanding
("Memorandum") and is a legal and binding agreement.
1. Capitol Bay Management, Inc. ("CBM") will secure an agreement from
the creditors represented by Greene & Markley P.C. to dismiss the
petition filed in the Bankruptcy Court by April 28, 1999; unless
extended by the aforementioned creditors and the Company. In
addition, such agreement will be submitted to the Bankruptcy Court,
as soon as possible, for the approval of and submission to
creditors for approval. If either such agreement or such approval
is not obtained, this Memorandum shall terminate (unless extended
by the parties) and be of no further force and effect. CBM has
been advised by bankruptcy counsel that an approximate date for
approval by the Bankruptcy Court is June 1, 1999.
Such creditor agreement (as to its terms, including number and
composition of creditors and funding of payments) and the approval
(as to number and composition of creditors approving) by creditors
of the creditor agreement must be satisfactory to the Company. If
not satisfactory, this Memorandum shall terminate and be of no
further force or effect.
The Company shall authorize a committee consisting of two directors
(the "Transaction Committee") to make all decisions contemplated
herein.
2. CBM will negotiate with and attempt to secure agreement of Foothill
Capital to sell to CBM its secured position as lender to the
Company. CBM will use reasonable efforts to secure such agreement
and close such purchase by April 30, 1999 or as soon thereafter as
practical. If CBM does not make reasonable efforts to do so, the
Company may elect to terminate this
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Memorandum. It is the intention of CBM upon purchase of the
secured position to release and make available such current assets
as it deems appropriate to the Company as working capital under
that credit line ("Credit Line"). Any proposed modifications to
the Credit Line must be acceptable to the Company.
3. It is the intention of CBM to secure and fund a loan in the
principal amount of $1,000,000 to be secured by the Company's real
estate, with the net proceeds to be available as working capital
("Real Estate Loan"). CBM will use reasonable efforts to fund such
loan by April 30, 1999; provided that if CBM does not fund the Real
Estate Loan by such date, the Company will be allowed to secure
additional financing, and CBM will cooperate with such efforts,
including allowing a lien to be placed on the Companys real
property including, if requested, placing such loan through the CBM
(formerly Foothill) loan facility. The board of directors of the
Company will execute all necessary approvals for the Real Estate
Loan on behalf of the Company as requested by CBM, provided that
such loan and loan documentation are on terms which are reasonable,
customary and acceptable to the Company, and provided further that
no individual director shall become personally liable for such
encumbrance.
4. CBM shall perform such due diligence procedures as it deems
necessary through the closing of the transaction, all expenses of
which shall be borne by the Company, including all legal,
accounting and other related expenses. Such due diligence expenses
shall be reasonable in amount. CBM's initial due diligence will be
completed by April 28, 1999 with CBM updating such due diligence
weekly. CBM shall promptly notify the Company of any adverse
determination by CBM regarding proceeding under this Memorandum; in
which event this Memorandum shall terminate and be of no further
force and effect, except for the Company's obligations to pay due
diligence costs hereunder. Satisfactory completion of such
procedures is a condition precedent to CBM's obligation hereunder.
5. Upon dismissal of the involuntary bankruptcy petition pursuant to
the action in Section 1 (the "Dismissal") and for a period of 12
months thereafter, CBM may elect to convert $500,000 of its secured
loan into 2,000,000 shares of new issue common stock of the Company
(as presently constituted). Such conversion rights shall be
contingent upon CBM performing the agreements described hereunder
and documented by a contract with customary terms and conditions.
From the date hereof until closing or, if earlier, the termination
of this Memorandum, the Company agrees not to issue or agree to
issue any of its securities without prior written consent of CBM.
6. No press release of this transaction shall take place without prior
written approval of CBM and the Company, provided the Company will
release such information, as it deems appropriate, after notice to
CBM, to the public to meet its SEC disclosure obligations,
corporate, bankruptcy, litigation or other disclosure obligations,
or, if the Company determines such information is being
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disseminated (i.e., via the creditors) to the public. Except as
otherwise contemplated herein, both parties shall treat this
Memorandum as confidential until all transactions described herein
are finalized.
7. Until entry of the Dismissal, the Company shall not file a petition
under the bankruptcy laws; provided, however, such requirement
shall not apply if any of the actions contemplated in item 1 are
not achieved.
8. CBM shall cause the Company to maintain its directors and officers
liability insurance to remain in full force with no lapse in
coverage, and including coverage for current officers and directors
and, if necessary, advance funds for such purposes. The Company
will enter into an agreement with departing directors to maintain
such coverage.
9. The effectiveness of this Memorandum is subject to approval by the
Transaction Committee by April 26, 1999 of this Memorandum and a
Cash Management Plan approving release of funds under the Credit
Line, terms of proposed real estate financing and other cash needed
based on information from CBM regarding the modified terms of such
Credit Line and funds availability, the expected terms of the Real
Estate Loan and any other projected cash needs not currently funded.
10. This Memorandum shall be subject to approval by the Company's board
of directors. Execution hereof by the President of the Company
shall constitute a binding obligation of the Company subject to
such approval, which shall be effective not later than Monday,
April 26, 1999 at 5:00 p.m. PST.
CAPITOL BAY MANAGEMENT, INC. MORROW SNOWBOARDS, INC.
By: /s/ STEPHEN C. KIRCHER By: /s/ BLAIR MULLIN
Name: Stephen C. Kircher By: Blair Mullin
Its: President Its: President
