SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. __)
Filed by the Registrant |X|
Filed by a party other than the Registrant |_|
Check the appropriate box:
|X| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
|_| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to |_| ss.240.14a-11(c)
or |_| ss.240.14a-12
MORROW SNOWBOARDS, INC.
(Name of Registrant as Specified In Its Charter)
---------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
1) Title of each class of securities to which transaction applies:
___________________________________
2) Aggregate number of securities to which transaction applies:
___________________________________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
___________________________________
4) Proposed maximum aggregate value of transaction: __________________
5) Total fee paid: ______________________________________________________
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid: ________________________________
2) Form, Schedule or Registration Statement No.: ______________
3) Filing Party: __________________________________________
4) Date Filed: ___________________________________________
<PAGE>
MORROW SNOWBOARDS, INC.
599 Menlo Drive, Suite 200
Rocklin, CA 95765
To the Shareholders of Morrow Snowboards, Inc.:
You are cordially invited to attend the Annual Meeting (the "Meeting") of
the Shareholders of Morrow Snowboards, Inc., doing business as Granite Bay
Technologies ("Granite Bay" or the "Company") which will be held on September
28, 2000, at 10:00 a.m. (Pacific Time), at the corporate offices located at 599
Menlo Drive, Suite 200, Rocklin, California 95765. As used in this Proxy
Statement, the terms "we," "us" and "our" also mean Granite Bay.
The accompanying Notice of the Annual Meeting of the Shareholders and Proxy
Statement contain the matters to be considered and acted upon, and you should
read the material carefully.
The Proxy Statement contains important information about (i) the five (5)
nominees for election as Directors, (ii) a proposal to amend the Articles of
Incorporation to change the Company's name to Granite Bay Technologies, Inc.,
(iii) a proposal to change the state of incorporation from Oregon to California
effective through a merger of Morrow Snowboards, Inc. into its wholly-owned
subsidiary, Granite Bay Technologies, Inc., a California corporation ("Granite
Bay-California"), (iv) to approve the Granite Bay 2000 Equity Incentive Plan and
(iv) the selection of Perry-Smith LLP as the Company's independent auditors for
the fiscal year ending December 31, 2000. The Board of Directors strongly
recommends your approval of these proposals.
We hope you will be able to attend the meeting, but, if you cannot do so,
it is important that your shares be represented. Accordingly, we urge you to
mark, sign, date and return the enclosed proxy promptly. You may, of course,
revoke your proxy, if you attend the meeting and choose to vote in person.
Sincerely,
/s/ P. Blair Mullin
P. Blair Mullin
August 29, 2000 President
<PAGE>
MORROW SNOWBOARDS, INC.
599 Menlo Drive, Suite 200
Rocklin, California 95765
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held On September 28, 2000
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Shareholders of
Morrow Snowboards, Inc., doing business as Granite Bay Technologies, an Oregon
corporation ("Granite Bay" or the "Company"), will be held on September 28,
2000, at 10:00 a.m. (Pacific Time), at the corporate offices located at 599
Menlo Drive, Suite 200, Rocklin, California 95765, for the following purposes,
all of which are more completely discussed in the accompanying Proxy Statement:
1. To elect five (5) directors to hold office until the next Annual
Meeting of Shareholders or until their successors are elected and
qualified;
2. To approve an amendment to the Articles of Incorporation to change the
Company's name to Granite Bay Technologies, Inc.;
3. To approve a change to the state of incorporation from Oregon to
California effective through a merger of Granite Bay into its
subsidiary, Granite Bay Technologies, Inc., a California corporation
("Granite Bay-California");
4. To approve the Granite Bay Technologies 2000 Stock Option Plan;
5. To ratify the selection of Perry-Smith LLP as the Company's
independent auditors for the fiscal year ending December 31, 2000; and
6. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Only shareholders of record at the close of business on August 28, 2000,
are entitled to notice of and to vote at the Annual Meeting of the Shareholders.
By Order of the Board of Directors
/s/ P. Blair Mullin
August 29, 2000 P. Blair Mullin
Acting Secretary
YOU ARE CORDIALLY INVITED TO ATTEND MORROW SNOWBOARDS, INC.'S ANNUAL MEETING OF
SHAREHOLDERS. IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED REGARDLESS OF THE
NUMBER YOU OWN. EVEN IF YOU PLAN TO BE PRESENT AT THE ANNUAL MEETING, YOU ARE
URGED TO COMPLETE, SIGN, DATE, AND RETURN THE ENCLOSED PROXY PROMPTLY IN THE
ENVELOPE PROVIDED. IF YOU ATTEND THE MEETING, YOU MAY VOTE EITHER IN PERSON OR
BY PROXY. ANY PROXY GIVEN MAY BE REVOKED BY YOU IN WRITING OR IN PERSON AT ANY
TIME PRIOR TO THE EXERCISE THEREOF.
<PAGE>1
PROXY STATEMENT OF
MORROW SNOWBOARDS, INC.
599 Menlo Drive, Suite 200
Rocklin, California 95765
INFORMATION CONCERNING THE SOLICITATION
This Proxy Statement is furnished to the shareholders of Morrow Snowboards,
Inc., doing business as Granite Bay Technologies ("Granite Bay" or the
"Company") in connection with the solicitation of proxies on behalf of the
Company's Board of Directors for use at the Company's Annual Meeting of the
Shareholders (the "Meeting") to be held on September 28, 2000, at 10:00 a.m.
(Pacific Time), at the corporate offices located at 599 Menlo Drive, Suite 200,
Rocklin, California, California 95765, and at any and all adjournments thereof.
Only shareholders of record on August 28, 2000, will be entitled to notice of
and to vote at the Meeting. As used in this Proxy Statement, the terms "we,"
"us" and "our" also mean Granite Bay.
The proxy solicited hereby, if properly signed and returned to us and not
revoked prior to its use, will be voted at the Meeting in accordance with the
instructions contained therein. If no contrary instructions are given, each
proxy received will be voted "FOR" the nominees for the Board of Directors,
"FOR" the name change to Granite Bay Technologies, "FOR" the approval of the
Reincorporation and Merger Agreement, "FOR" the adoption of the 2000 Equity
Incentive Plan, "FOR" the ratification of Perry-Smith LLP as the Company's
independent auditors, and at the proxy holder's discretion, on such other
matters, if any, which may come before the Meeting (including any proposal to
adjourn the Meeting). Any shareholder giving a proxy has the power to revoke it
at any time before it is exercised by: (i) filing with the Company written
notice of its revocation addressed to: Secretary, Morrow Snowboards, Inc., 599
Menlo Drive, Suite 200, Rocklin, California 95765; (ii) submitting a duly
executed proxy bearing a later date; or (iii) appearing at the Meeting and
giving the Corporate Secretary notice of his or her intention to vote in person.
The Company will bear the entire cost of preparing, assembling, printing,
and mailing proxy materials furnished by the Board of Directors to shareholders.
Copies of proxy materials will be furnished to brokerage houses, fiduciaries and
custodians to be forwarded to beneficial owners of the Common Stock. In addition
to the solicitation of proxies by use of the mail, some of the officers,
directors, employees, and agents of Company, may, without additional
compensation, solicit proxies by telephone or personal interview, the cost of
which the Company will also bear.
This Proxy Statement and form of proxy were first mailed to shareholders on
or about August 29, 2000.
RECORD DATE AND VOTING RIGHTS
The Company is currently authorized to issue up to 40,000,000 shares of
Common Stock, no par value and 10,000,000 shares of Preferred Stock, no par
value. As of August 1, 2000, 18,032,906 shares of Common Stock were issued and
outstanding and no shares of Preferred Stock are outstanding. Each share of
Common Stock shall be entitled to one (1) vote on all matters submitted for
shareholder approval, including the election of directors. The record date for
determination of shareholders entitled to notice of and to vote at the Meeting
is August 28, 2000. The Company's Certificate of Incorporation does not provide
for cumulative voting.
<PAGE>2
The majority of the outstanding shares of Common Stock of the Company
entitled to vote must be represented in person or by proxy at the Meeting to
constitute a quorum for the transaction of business. The directors shall be
elected by a plurality of the voting shares of Common Stock, present in person
or represented by proxy at the Meeting and entitled to vote on the election of
directors. The approval of all other proposals requires the votes for the
proposal to be greater than the number of votes opposing the proposal. Under
Oregon law, abstentions and broker non-votes shall be counted for purposed of
determining quorum. Abstentions and non-votes will not be counted for any
proposal to determine if a proposal is approved.
PROPOSAL ONE
ELECTION OF DIRECTORS
General Information
At the Meeting, shareholders will be asked to elect Messrs. William H.
Hedden, Stephen C. Kircher, Thomas J. Manz, Anthony G. Genovese and P. Blair
Mullin, to serve until the next Meeting and until their successor shall be
elected and qualified.
Nominees for Director
The nominees for director have consented to being named as nominees in this
Proxy Statement and have agreed to serve as director, if elected at the Meeting.
In the event that any nominee is unable to serve, the person named in the proxy
has discretion to vote for other persons if such other persons are designated by
the Board of Directors. The Board of Directors has no reason to believe that any
of the nominees will be unavailable for election. The directors who are elected
shall hold office until the next Meeting or until their successors are elected
and qualified.
The following sets forth the persons nominated by the Board of Directors
for election as a director and certain information with respect to that person.
Nominee Age
William H. Hedden 45
Stephen C. Kircher 46
Thomas J. Manz 50
Anthony G. Genovese 57
P. Blair Mullin 46
Background of Nominees
William H. Hedden has served as President and Chief Executive Officer of
Consolidated Adjusting, Inc. (construction insurance adjusting) since 1992. From
1985 to 1992, Mr. Hedden served as Director of Burlingame Bancorp and its
subsidiary, Burlingame Bank & Trust Co. In 1984, Mr. Hedden served as Chairman
of the Board of Bayhill Service Corporation, a mortgage banking subsidiary of
Delta Federal Savings & Loan. From 1983 to 1987, Mr. Hedden served as Chairman
of the Board and majority shareholder of Delta Federal Savings & Loan. Mr.
Hedden has a Juris Doctor degree from Hastings College of the Law, San Francisco
in 1979 and a BA degree from Stanford University, Palo Alto, California in 1975.
He has been a director of the Company since October 1999.
<PAGE>3
Stephen C. Kircher. Mr. Kircher has served as Chairman of the Board of
Directors of the Company since February 2000 and as a director since October
1999. He has served as a director of International Display Works, Inc. since its
formation in June 1999. Since 1993, he has served as President & Chief Executive
Officer and is majority owner of Capitol Bay Group, Inc. (holding company), and
as President & Chief Executive Officer of Capitol Bay Securities, Inc.
(securities and investment banking) and Capitol Bay Management, Inc. (investment
company). Both Capitol Bay Securities, Inc. and Capitol Bay Management, Inc. are
wholly-owned subsidiaries of Capitol Bay Group, Inc. He was a founding Director
of Burlingame Bancorp and served on its Board from 1984 to 1991. Prior to 1993,
Mr. Kircher formed and managed Spinner Corporation, which engaged in leveraged
buyouts of troubled companies. Mr. Kircher has extensive experience as a
principal in equity private placements, sale and leaseback financing, multiple
forms of debt financing and initial public offerings. Mr. Kircher began his
career with Dean Witter in 1975 before joining Bateman, Eichler, Hill &
Richards, a regional investment banking firm in 1978. Mr. Kircher has a BA
degree from the University of California, San Diego.
Thomas J. Manz has served as a director of the Company since October, 1999.
Mr. Manz has been owner of TJM Enterprises, a real estate development, brokerage
and financial services sole proprietorship since 1993. From 1984 to 1993, Mr.
Manz was responsible for the renovation, expansion and management of Southgate
Shopping Center, a 439,000 square-foot shopping center in Sacramento,
California, as well as several other ventures in the real estate industry
including property management, construction, real estate sales, and commercial
landscaping. Mr. Manz is presently Chairman of the Board of Roseville First
National Bank and has served as a Director of that bank since 1991. Since 1997,
Mr. Manz has served as a Director of Pacific Coast Bankers Bank. Mr. Manz
received a Bachelor of Science degree from Iowa State University in 1971.
Anthony G. Genovese is the President and Chief Executive officer who
founded International Display Works, Inc. in June 1999 to purchase the shares of
Microelectronics Company Ltd. ("MULCD") and Vikay Industrial (Shenzen) Limited
("VKSTD"). IDW operated MULCD and VKSTD under a management contract with Vikay
Industrial (Singapore) Limited ("Vikay"), MULCD's and VKSTD's parent company,
from August 1, 1999. From 1997 to 1999, Mr. Genovese was President, joint member
of the Office of the Chief Executive and member of the Board of Directors of
Vikay. Vikay entered Judicial Management, a form of bankruptcy proceeding in
Singapore, in December 1997. Mr. Genovese was selected for this position by the
Judicial managers of Vikay. Vikay is a public company listed on the SESDAQ
exchange in Singapore. In 1986, Mr. Genovese founded VGI, a joint venture
company with Vikay to market Vikay LCDs and to help Vikay enter the LCD module
business in the United States. He introduced custom products to major companies
such as ADEMCO, GE, Honeywell, Schlumberger, AT&T, Milton Bradley, Lifescan and
White- Rogers. In 1992, VGI became a subsidiary of Vikay, Vikay America, Inc.
Mr. Genovese continued as President and CEO of Vikay America from 1992 to 1997.
Mr. Genovese received a BS in Physics from Manhattan College in 1964, an MS in
Physics & Mathematics from NYU & Courant Institute of Mathematical Sciences in
1966 and attended USC for 18 graduate credits towards a Master Degree in Systems
Management in 1975 and 1976.
P. Blair Mullin has served as a Director of the Company since October 1998
and as a Director of IDW since February 2000. Mr. Mullin has served as Chairman
of the Board of Granite Bay since April 1999. Mr. Mullin has also served as
Granite Bay's President since May 1998 and as Chief Financial Officer since
Granite Bay's acquisition of Westbeach Snowboard Canada Ltd. ("Westbeach") in
November 1997. In addition, he has served as Treasurer and Secretary of Granite
Bay since January 1998. Mr. Mullin was the President and Chief Executive Officer
of Westbeach from July 1995 to November 1997 and the Chief Executive Officer of
Westbeach Canada, ULC, from May 1998 to present. Mr. Mullin was responsible for
<PAGE>4
the sale of the snowboard manufacturing assets and the snowboard apparel
trademarks in 1999. From 1992 to 1995, Mr. Mullin was a private business
consultant, serving companies in distress situations. Mr. Mullin received an MBA
from the University of Western Ontario in 1982 and a Bachelor of Arts degree in
Economics from Wilfrid Laurier University in 1975.
Votes Required
The plurality of the voting shares of Common Stock present in person or
represented by proxy and entitled to vote on the election of directors is
required to elect the nominees.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING FOR THE
NOMINEES FOR THE ELECTION OF DIRECTORS.
PROPOSAL TWO
APPROVAL OF NAME CHANGE
TO
GRANITE BAY TECHNOLOGIES, INC.
The Board of Directors (the "Board") unanimously approved, subject to
Shareholder approval, the change of the name of the Company to Granite Bay
Technologies, Inc. Oregon law requires the change in the Company's name be
approved by the shareholders as an amendment to the Articles of Incorporation.
The Board believes it is in the best interest of the Company to change its name
to Granite Bay Technologies, Inc. to better reflect the current operations of
the Company and to comply with contractual provisions in the sale of the
snowboard business that require the Company to cease using the name Morrow
Snowboards. The Company is currently doing business under the name Granite Bay
Technologies.
Originally the Company was organized to design, manufacture and market
snowboards, boots, bindings, apparel and accessories. In March, 1999, the
Company sold its Morrow(TM) intellectual property, along with all of its
1999/2000 inventories and its snowboard and binding production equipment to K2
Acquisition, Inc. As a part of its contract with K2 Acquisition, the Company
agreed to cease using the name Morrow Snowboards. This name change will further
comply with that provision.
The Board also believes that the name should be changed to Granite Bay
Technologies to reflect the current operations of the Company. The Company
ceased all manufacture and design of snowboards and accessories in 1999 and,
since that time, moved its operations to the Granite Bay region of California
and expanded its operations into liquid crystal display manufacturers, sales and
distributors as the result of its recent acquisitions. The new name also clearly
reflects the Company's strategic direction to provide a broad range of high
technology products and services to its customers.
The Company will not proceed with the name change in Oregon if the
Company's proposal to reincorporate in California in accordance with the terms
stated in Proposal Three is approved since the name will automatically change as
a part of the reincorporation.
<PAGE>5
Vote Required
The affirmative vote of a majority of the Common Stock represented and
voting at the Meeting is necessary to approve the amendment to the Articles of
Incorporation to effect the name change to Granite Bay Technologies, Inc. The
Board of Directors recommends a vote "FOR" the proposal. Proxies solicited by
the Board of Directors will be so voted unless shareholders specify otherwise.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING FOR THE AMENDMENT TO THE
ARTICLES OF INCORPORATION TO CHANGE THE COMPANY'S NAME TO GRANITE BAY
TECHNOLOGIES.
PROPOSAL THREE
APPROVAL OF
REINCORPORATION INTO CALIFORNIA
The Board of Directors (the "Board") has unanimously approved, subject to
shareholder approval, reincorporation in the State of California, by merging
into its wholly-owned subsidiary, Granite Bay Technologies, Inc. Granite Bay
Technologies, Inc. ("Granite Bay-California") was formed for the specific
purpose of effectuating the reincorporation to the State of California. A copy
of the Articles of Incorporation for Granite Bay-California is attached as
Exhibit A.
Principal Reasons for Reincorporation
The Board believes it is in the best interest of the Company to change its
domicile to California. The principal reason for reincorporating in California
is that substantially all of the Company's operations and its principal
executive offices are now located in California and it is already subject to
many provisions of California corporate law as a qualified foreign corporation.
Attentiveness and Responsiveness of Government. The Board believes that
being incorporated in the state where its management is headquartered puts it in
position to monitor and participate in legislative and executive branch actions
and other governmental decisions affecting corporations in the state. This can
be important as corporations are substantially affected by changes in the legal
and financial environment in which they operate, and by the variety of
legislative and other governmental actions which may be taken in response to
such changes.
Prominence and Predictability of California Law. The Board believes that
the laws of the State of California are favorable to companies and their
shareholders because of the established and consistent law provided by the
California Corporation's Code and extensive case laws developed over the years.
As the Corporation plans for the future, the Board and management believe
that it is essential to be able to draw upon well established principles of
corporate governance in making legal and business decisions. The prominence and
<PAGE>6
predictability of California corporate law provide a reliable foundation on
which the Corporation's governance decisions can be based. The Corporation
believes that shareholders will benefit from the responsiveness of California
corporate law to their needs. The Company believes that incorporation in the
State of California will make it more attractive in future financing because of
the stable and consistent governing laws.
General
The proposed Reincorporation would be accomplished by merging (the
"Merger") the Company into a newly formed California subsidiary, which is named
Granite Bay Technologies, Inc. ("Granite Bay- California"), pursuant to an
Agreement and Plan of Merger (the "Merger Agreement"), a copy of which is
attached as Exhibit B to this Proxy Statement. Granite Bay-California was
incorporated specifically for purposes of the Reincorporation and has conducted
no business and has no material assets or liabilities. As of the effective date
of the Merger, the Company's name will change to Granite Bay Technologies, Inc.
Granite Bay Technologies, Inc.'s principal executive offices are located at 599
Menlo Drive, Suite 200, Rocklin, California 95765, telephone (916) 315 - 2021.
The reincorporation will not result in any change in the Company's
business, management, directors, capitalization, assets or liabilities and will
not result in any relocation of management or other employees. Further, except
as explained herein, Proposal Three will not result in any substantial
differences between the charter documents of the Company and Granite
Bay-California. However, some differences between the charter documents of the
Company and Granite Bay-California do exist by virtue of differences in state
corporate law. All outstanding options and warrants of the Company will
automatically be assumed and converted into an option or warrant to purchase the
same number of shares of Granite Bay-California capital stock, at the same price
per share and upon the same terms and subject to the same conditions as set
forth in such option or warrant agreement. Granite Bay-California will also
assume the 2000 Equity Income Plan submitted for approval in this proxy
statement.
Upon the effectiveness of the Merger, (i) the legal existence of the
Company as a separate corporation will cease, (ii) Granite Bay-California will
succeed to the assets and assume the liabilities of the Company, and (iii) each
share of the Company's Common Stock, no par value, shall be automatically
converted into one share of Common Stock, no par value of Granite
Bay-California. Each outstanding certificate representing a share or shares of
Granite Bay Common Stock will continue to represent the same number of
respective shares of Granite Bay-California. Thus, it will not be necessary for
shareholders of Granite Bay to exchange their existing stock certificates for
stock certificates of Granite Bay-California.
Possible Disadvantages
The Company believes there are no material disadvantages to Proposal Three,
although, as discussed below, there are differences between Oregon and
California Corporate law.
In accordance with Oregon law, to approve Proposal Three the number of
affirmative votes of the holders of shares of Common Stock of the Company must
exceed the votes cast opposing the proposal. It is anticipated that the Merger
will become effective as soon as practicable following shareholder approval.
However, pursuant to the Merger Agreement, the Merger may be abandoned, even
after shareholder approval has been obtained, if circumstances arise which, in
the opinion of the Board, make it inadvisable to proceed with the Merger,
including the exercise of dissenter's rights, as discussed below.
<PAGE>7
Holders of Common Stock of the Company are entitled to dissenter's rights
as set forth below.
Rights of Dissenting Stockholders
Any Granite Bay stockholder is entitled to be paid the fair value of his or
her shares in accordance with Section 60.554(1)(a) of the Oregon Revised Statues
("ORS") if the stockholder dissents to the Reincorporation. A brief summary of
the provisions of ORS Sections 60.551 to 60.594.
Since the Reincorporation is being submitted for vote at a shareholders'
meeting and the resulting entity will be a California corporation, each holder
of shares of Granite Bay Common Stock who wants to assert dissenters' rights and
who follows the procedures set forth in Section 60.564 of ORS, will be entitled
to have his or her shares of Granite Bay Common Stock purchased by Granite
Bay-California for cash at their fair market value if Granite Bay completes the
Merger. The shareholder must not vote such shares in favor of the proposed
action to be entitled to dissenters' rights. The fair value of shares of Granite
Bay Common Stock is the value of the shares immediately before the date of this
notice, excluding any appreciation or depreciation in anticipation of the
corporate action unless exclusion would be inequitable.
A shareholder who wishes to exercise dissenters' rights should mail or
deliver his or her written intent to demand dissenters' rights to Morrow
Snowboards, Inc., 599 Menlo Drive, Suite 200, Rocklin, California 95765, with a
copy to David Adams, Esq., Bartel Eng Linn & Schroder, 300 Capitol Mall, Suite
1100, Sacramento, California 95814, on or before 10:00 a.m. Pacific Standard
Time on September 28, 2000. Any stockholder who does not follow the foregoing is
not entitled to pursue dissenter's rights to receive payment for his or her
shares under Section 60.554(1)(a) of the ORS, assuming the Merger is
consummated.
If the Merger is approved and the Board determines to proceed with the
Reincorporation despite some shareholders seeking to obtain dissenter's rights,
the Company will send all shareholders, who sent their intent to demand
dissenters' rights by the required date, a Dissenters' Notice within ten (10)
days of the meeting with a form to demand payment and information explaining
where to send the payment demand, where and when certificates for certificated
shares shall be deposited, the payment demand deadline (which will be thirty to
sixty days after the Dissenters Notice is sent) and a full copy of ORS Sections
60.551 to 60.594. A stockholder of Granite Bay wishing to exercise dissenters'
rights must (a) demand payment; (b) certify whether he or she acquired
beneficial ownership of the shares before the meeting on September 28, 2000; and
(c) deposit his or her certificates, if any, in accordance with the terms of the
Dissenter's Notice.
Within 60 days after receipt of a demand for payment, Granite
Bay-California shall pay each dissenter who complied with the requirements set
forth in the Dissenter's Notice the amount it estimates to be the fair value of
the stockholder's shares, plus accrued interest (computed from the effective
date of the action until the date of payment). Payment must be accompanied by
Granite Bay's balance sheet as of the end of a fiscal year ending not more than
16 months before the date of payment, a statement of income for that year, a
statement of changes in the stockholders' equity for that year and the latest
available interim financial statements, if any, along with statement of Granite
Bay's estimate of the fair value of the shares, an explanation how the interest
was calculated, a statement of the dissenter's rights to demand payment under
ORS 60.587 and a copy of ORS Sections 60.551 to 60.594.
Pursuant to ORS Section 60.584, Granite Bay may withhold payment from a
dissenter unless he or she was the beneficial owner of the shares before the
date set in the Dissenter's Notice. If Granite Bay withholds payment, after
taking the proposed action, it shall estimate the fair value of the shares, plus
<PAGE>8
accrued interest, and shall offer to pay this amount to each dissenter who
agrees to accept it in full satisfaction of his or her demand. The offer shall
contain a statement of its estimate of the fair value, an explanation of how the
interest was calculated, and a statement of dissenters' rights pursuant to ORS
Section 60.587.
A dissenter may notify Granite Bay in writing of his or her estimate of the
fair value of the shares and the amount of interest due and demand payment of
his or her estimate, less any payment made pursuant to ORS Section 60.577, or
reject the offer made pursuant to ORS Section 60.584 and demand payment of the
fair value of his or her shares and interest due. A dissenter waives his or her
right to demand payment unless he or she makes his or her demand in writing
within 30 days after Granite Bay has made or offered payment for his or her
shares.
If any demand for payment remains unsettled, Granite Bay shall commence a
proceeding within 60 days of the dissenter's demand with the district court in
the County of Lane, State of Oregon (location of registered office), petitioning
the court to determine the fair value of the shares and accrued interest. All
dissenters whose demands remain unsettled, whether or not residents of Oregon,
shall be made parties to the court action and shall be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law. If Granite Bay does not so petition the court
within this 60-day period, it shall pay all unsettled demands. Each dissenter
who is party to the proceeding is entitled to a judgment (a) for the amount, if
any, by which the court finds the fair value of his or her shares, plus
interest, exceeds the amount paid by the Company or (b) for the fair value, plus
accrued interest, of his or her after-acquired shares for which Granite Bay
elected to withhold payment pursuant to ORS Section 60.584. The court shall
assess costs pursuant to ORS Section 60.594.
Strict Compliance with Provisions Required for Exercise of Dissenter's Rights
The foregoing summary does not purport to provide comprehensive statements
of the procedures to be followed by a dissenting stockholder who seeks payment
of the fair value of his or her shares of Granite Bay Common Stock. ORS
establishes the procedures to be followed and failure to do so may result in the
loss of all dissenters' rights. Accordingly, each stockholder who might desire
to exercise dissenters' rights should carefully consider and comply with the
provisions of these sections and consult his or her legal advisor.
The Company has reserved the right to abandon the reincorporation if it
decides that the number of stockholders exercising dissenters' rights exceeds an
amount it deems acceptable, in its sole and absolute discretion.
Significant Differences Between the Corporation Laws of Oregon and California
The corporation laws of Oregon and California differ in a number of
respects. It is impracticable to summarize all of the differences in this Proxy
Statement, but certain significant aspects of the corporation laws of Oregon and
California that could materially affect the rights of shareholders of Granite
Bay are set forth below.
1. Classification of the Board of Directors. Oregon law permits, but does
not require, the adoption of a classified Board for corporations with six or
more directors. A classified Board allows the Board to be divided into two or
three classes with staggered terms of office, with only one class of directors
coming up for election each year. If the corporation has cumulative voting, each
group must have three members. Such classification may be effected through the
articles of incorporation, initial bylaws or a bylaw adopted by the
<PAGE>9
shareholders. The Articles of Incorporation of Granite Bay do not provide for a
classified Board. California law does not permit the adoption of a classified
Board by companies whose shares are not listed on a national securities
exchange.
2. Cumulative Voting for Directors. Under cumulative voting, each share of
stock entitled to vote in the election of directors has a number of votes equal
to the number of directors to be elected. A shareholder may then cast all of his
or her votes for a single candidate, or may allocate them among as many
candidates as such shareholder may choose. Under Oregon law, shareholders do not
have a right to cumulate their votes for directors unless the articles of
incorporation so provide. The Articles of Incorporation of Granite Bay does not
provide for cumulative voting in the election of directors. Under California
law, a Corporation whose shares are not listed on a national securities exchange
must allow for cumulative voting.
3. Change in Number of Directors. Under Oregon law, the board of directors
may fix the exact number of directors or fix the exact number of directors
within a range provided in the articles of incorporation or bylaws, but any
change in the range must be approved by the shareholders. If no range is
provided, any change in the authorized number of directors must be approved by
the shareholders. The fixing of numbers of directors and changing the numbers
under California law is substantially similar to Oregon law. The number of
directors for Granite Bay is not to be less than five (5) and not more than nine
(9). The number of directors for Granite Bay-California is not to be less than
five (5) and not more than nine (9).
4. Removal of Directors. Under Oregon law, a director may be removed
without cause by shareholder vote, provided that the shares voted against such
removal would not be sufficient to elect the director under cumulative voting
rules. If a director is elected by a voting group of shareholders, only the
shareholders of that voting group may participate in the vote to remove the
director. A director may only be removed at a meeting called for the purpose of
removing the director and the meeting notice must state that the purpose, or one
of the purposes, of the meeting is removal of a director. The removal of
directors under California law is substantially similar to Oregon law, except
removal is not limited to a meeting called and noticed for that specific
purpose.
5. Limitation on Call of Special Meetings of Shareholders. Oregon and
California law both provide that such meetings may be called by the Board of
Directors, the Chairman of the Board of Directors, the President, or by
shareholders entitled to cast not less than 10% of the votes at the meeting.
6. Shareholder Vote for Mergers. Under Oregon Law, shareholder approval is
required for all mergers, except for a surviving corporation if (a) the merger
agreement does not amend the existing certificate of incorporation, (b) the
designations, preferences, limitations and relative rights of each outstanding
share of the surviving corporation before the merger is identical to the
outstanding shares after the merger, and (c) the number of shares to be issued
by the surviving corporation in the merger does not exceed 20% of the shares
outstanding immediately prior to such issuance. California law contains a
similar exception to shareholder voting requirements for reorganizations where
shareholder control is not diluted more than one-sixth (1/6) as a result of the
reorganization, although in California the dilution test applies to both
surviving and nonsurviving corporations involved in the merger or
reorganization.
Also, California has an additional exception from shareholder voting for
mergers between a parent corporation and its 90% owned subsidiary so long as the
shareholders receive shares having the same rights, preferences, privileges or
restrictions. As for their shares, a shareholder vote is required for a merger
<PAGE>10
into a non-California corporation. California law generally requires a class
vote when a vote is required, whereas Oregon law does not require class voting
if the articles of incorporation do not require class voting.
7. Dissenters' Rights. Under both California and Oregon law, a shareholder
of a corporation participating in certain major corporate transactions may,
under varying circumstances, be entitled to receive cash equal to the fair
market value of the shares held by such shareholder (as determined by a court of
competent jurisdiction or by agreement of the shareholder and the corporation),
in lieu of the consideration such shareholder would otherwise receive in the
transaction. The laws of California and Oregon differ with respect to the
circumstances under which dissenters' rights of appraisal are available.
Under Oregon law, dissenters' rights of appraisal are available when a
corporation (a) participates in a merger or share exchange and shareholder
approval is required by law or the articles of incorporation; (b) sells or
exchanges of all or substantially all of the property of the corporation other
than in the usual and regular course of business and shareholder approval is
required by law or the articles of incorporation, but not including a sale
pursuant to court order or a sale for cash pursuant to a plan by which all or
substantially all of the net proceeds of the sale will be distributed to the
shareholders within one year after the date of sale; (c) amends its articles of
incorporation to alters or abolishes a preemptive right of the holder of the
shares to acquire shares or other securities; or reduces the number of shares
owned by the shareholder to a fraction of a share if the fractional share so
created is to be acquired for cash; (d) any corporate action taken pursuant to a
shareholder vote to the extent the articles of incorporation, bylaws or a
resolution of the board of directors provides that voting or nonvoting
shareholders are entitled to dissent and obtain payment for their shares; or (e)
converts into a noncorporate business entity. Oregon does not require
dissenters' rights to (a) to a merger by corporation with shares registered on a
national securities exchange or Nasdaq National Market System or (b) a merger in
which the corporation is the surviving corporation provided that no vote of its
shareholders is required to approve the merger.
The exclusions from dissenters' rights under California law in connection
with mergers are different from those in Oregon. For example, in the case of a
corporation whose shares are listed on a national securities exchange,
dissenters' rights would nevertheless be available in certain transactions for
any shares with respect to which there are certain restrictions on transfer and
for any class with respect to which 5% or more of such class claims dissenters'
rights. Also, under California law, shareholders of a corporation involved in a
reorganization are not entitled to dissenters' rights, if the corporation or its
shareholders immediately before the reorganization, or both, will own more than
five-sixths (5/6) of the voting power of the surviving or acquiring corporation
or its parent entity.
8. Loans to Directors and Officers. Under Oregon law, a corporation may
only make such a loan to, or guarantee for the benefit of, directors, if such
loan or guarantee is approved by the majority of the shareholders, excluding any
shares owned by the director, or the Board determines that the loan or guarantee
benefits the corporation and either approves the specific loan or guarantee or a
general plan authorizing the loans and guarantees. A corporation may make loans
to, guarantee the obligations of, or otherwise assist, its officers or other
employees and those of its subsidiaries when such action, in the judgment of the
Corporation's Board of Directors, may reasonably be expected to benefit the
Corporation. Under California law, a corporation may only make such a loan to,
or guarantee for the benefit of, directors or officers, if such loan or
guarantee is approved by a majority of the corporation's shareholders or, for
corporations with 100 or more shareholders of record, by its board of directors
pursuant to a shareholder-approved bylaw. The Bylaws of Granite Bay-California
do not have such a provision.
<PAGE>11
9. Limitation of Liability and Indemnification. California and Oregon have
similar laws with respect to indemnification by a corporation of its officers,
directors, employees and other agents, but Oregon is slightly more permissive in
its rules. For example, the laws of both states permit corporations to adopt a
provision in their articles eliminating the liability of a director to the
corporation or its shareholders for monetary damages for breach of the
director's fiduciary duty of care. There are nonetheless certain differences
between the laws of the two states respecting indemnification and limitation of
liability.
Oregon law permits eliminating or limiting the personal liability of a
director to the corporation or its shareholders for monetary damages for conduct
as a director, for any act, except (a) breach of the director's duty of loyalty,
(b) acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law; (c) unlawful distribution or (d) any transaction
from which the director derived an improper personal benefit. The Articles of
Incorporation of Granite Bay eliminated liability for directors to the full
extent allowed by Oregon Law.
The Articles of Incorporation of Granite Bay-California eliminates the
liability of directors to the fullest extent permissible under California law.
California law does not permit the elimination of monetary liability where such
liability is based on: (a) intentional misconduct or knowing and culpable
violation of law; (b) acts or omissions that a director believes to be contrary
to the best interests of the corporation or its shareholders, or that involve
the absence of good faith on the part of the director; (c) receipt of an
improper personal benefit; (d) acts or omissions that show reckless disregard of
the director's duty to the corporation or its shareholders, where the director
in the ordinary course of performing a director's duties should be aware of a
risk of serious injury to the corporation or its shareholders; (e) acts or
omissions that constitute an unexcused pattern of inattention that amounts to an
abdication of the director's duty to the corporation and its shareholders; (f)
interested transactions between the corporation and a director in which a
director has a material financial interest; (g) liability for improper
distributions, loans or guarantees; and (h) a complaint against the directors in
connection with a class action alleging a breach of duty directly to the
shareholders.
Under Oregon law, directors may only be indemnified for conduct committed
in (a) good faith, (b) with the reasonable belief that it was in the best
interests of the corporation; and (c) with no reasonable cause to believe the
individual's conduct was unlawful. With respect to an action involving an
employee benefit plan, the director must have reasonably believed the conduct
was in the interests of the participants in and beneficiaries of the plan. Also,
a corporation may not indemnify a director, in connection with a proceeding by
or in the right of the corporation in which the director was adjudged liable to
the corporation or any other proceeding charging improper personal benefit to
the director in which the director was adjudged liable on the basis that
personal benefit was improperly received by the director.
The limitations of liability provisions permissible under both, Oregon and
California law also may not limit a director's liability for violation of, or
otherwise relieve a corporation or its directors from the necessity of complying
with, federal or state securities laws, or affect the availability of
non-monetary remedies such as injunctive relief or rescission.
Oregon law requires indemnification when the individual has successfully
defended the action on the merits or otherwise, whereas California requires
indemnification only, when the individual successfully defends on the merits.
California law permits indemnification of expenses incurred in derivative or
third-party actions, except that with respect to defending a derivative actions
(a) no indemnification may be made without court approval; and for all cases,
and (b) no indemnification may be made without the determination by a majority
vote of a disinterested quorum of the directors, independent legal counsel (if a
<PAGE>12
quorum of independent directors is not obtainable), a majority vote of a quorum
of the shareholders (excluding shares owned by the indemnified party) or the
court handling the action that the agent acted in good faith and in the manner
that he or she believed to be in the best interest of the corporation and its
shareholders.
10. Inspection of Shareholders' List. Oregon law permits any shareholder to
inspect and copy the corporation's shareholders list, during regular business
hours at the corporation's principal office, if the shareholder gives five days
notice prior to inspection. California law provides for an absolute right of
inspection of a shareholders' list only for persons holding 5% or more of the
corporation's voting shares or persons holding 1% or more of such shares and has
initiated a proxy contest.
11. Payments of Dividends. Oregon law permits distributions (including
dividends and repurchases of shares) to shareholder when (a) the corporation
will be able to pay its debts as they become due in the usual course of business
and (b) the total assets would at least equal the sum of its total liabilities
plus, unless the articles of incorporation permit otherwise, the amount that
would be needed if the corporation were to be dissolved at the time of the
distribution, to satisfy the preferential rights upon dissolution of
shareholders whose preferential rights are superior to those receiving the
distribution.
Under California law, any distributions (including dividends and
repurchases of shares) are limited either to retained earnings or to an amount
that would leave the corporation with tangible assets in an amount equal to at
least 125% of its tangible liabilities and with current assets in an amount at
least equal to its current liabilities (or 125% of its current liabilities, if
the average pre-tax and pre-interest earnings for the preceding two fiscal years
were less than the average interest expenses for such years). Such limitations
are applied on a consolidated basis.
12. Stock Splits and Reverse Stock Splits. Under California law,
shareholder approval is not required for a corporation to effect a stock split
by an amendment to its articles of incorporation. However, shareholder approval
is necessary to effect a reverse stock split. Under Oregon law, shareholders'
approval is required to effect a stock split or reverse stock split, but is not
required for a share dividend.
13. Preemptive Rights. Oregon law grants preemptive rights to shareholders,
unless the corporation elects in its articles of incorporation to waive
preemptive rights. The Company's Articles of Incorporation waive preemptive
rights. California law allows corporations to grant preemptive rights to
shareholders to subscribe for additional shares, if such rights are granted in
the articles of Incorporation. The Articles of Incorporation of Granite
Bay-California do not grant preemptive rights.
Federal Income Tax Consequences of the Merger
The following discussion of material federal income tax consequences of the
Reincorporation is based upon the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury Regulations thereunder, judicial decisions, and current
administrative rulings and practices, all as in effect on the date hereof and
all of which could be repealed, overruled, or modified at any time, possibly
with retroactive effect. No ruling from the Internal Revenue Service (the "IRS")
with respect to the matters discussed herein has been requested, and there is no
assurance that the IRS would agree with the conclusions set forth in this
discussion. The Reincorporation is intended to qualify as a reorganization with
the meaning of Section 368(a) of the Code.
This discussion is for general information only and does not address
certain federal income tax consequences that may be relevant to particular
shareholders in light of their personal circumstances or to certain types of
<PAGE>13
shareholders (such as dealers in securities, insurance companies, foreign
individuals and entities, financial institutions and tax-exempt entities) who
may be subject to special treatment under the federal income tax laws. This
discussion also does not address any tax consequences under state, local or
foreign laws. IN VIEW OF THE VARYING NATURE OF SUCH TAX CONSEQUENCES, EACH
SHAREHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE SPECIFIC
TAX CONSEQUENCES OF THE PROPOSED REINCORPORATION, INCLUDING THE APPLICABILITY OF
FEDERAL, STATE, LOCAL OR FOREIGN TAX LAWS.
No gain or loss should be recognized by a shareholder who receives Granite
Bay-California capital stock in exchange for their Granite Bay capital stock as
a result of the Reincorporation. The aggregate tax basis of the Granite
Bay-California capital stock received by each shareholder in the Reincorporation
should be equal to the aggregate tax basis of the Granite Bay capital stock
surrendered in exchange for the Granite Bay-California capital stock. The
holding period of the Granite Bay-California capital stock received by each
shareholder of Granite Bay capital stock should include the period for which
such shareholder held the Granite Bay capital stock surrendered in the exchange
for the Granite Bay-California capital stock, provided that such Granite Bay
capital stock was held by the shareholder as a capital asset at the time of
Reincorporation.
PROPOSAL FOUR
ADOPTION OF THE
GRANITE BAY TECHNOLOGIES CORPORATION
2000 EMPLOYEE EQUITY INCENTIVE PLAN
Effective September 28, 2000, subject to shareholder approval, the Board of
Directors approved the Granite Bay Technologies 2000 Employee Equity Incentive
Plan (herein the "Plan") to serve as a vehicle to attract and retain the
services of key employees, directors, and officers and consultants and to help
such individuals realize a direct proprietary interest in the Company. A copy of
the Plan is attached hereto as Exhibit C. As discussed below, the Plan is a
"dual plan" which provides for the grant of both Non-Qualified Options and
Incentive Stock Options. Also, the plan provides for the issuance of stock
appreciation rights, restricted stock, stock units and other stock grants to key
employees of the Company and its subsidiaries.
Description of the Plan
Adoption of the Plan will not affect options previously granted under prior
plans. The Plan covers 882,800 shares of the Company's Common Stock, which
shares will be reserved upon confirmation of the Plan. The following is a
summary of the provisions of the Plan. The summary is not intended to be a
complete description of all terms and provisions of the Plan.
Eligibility. The Plan provides for the grant of options to employees,
directors, and officers, consultants or other persons (the "Participants") who
the Committee (as defined below) determines are rendering valuable services to
the Company. The Committee determines which Participants are to be granted
options, stock appreciation rights, restricted stock and stock units under the
Plan.
Administration. The Plan will be administered by the Board or the Board may
delegate the administration to the Compensation Committee, consisting of two (2)
or more disinterested Board members (herein the "Committee"). The Board or
Committee, as applicable, will be responsible for the operation of the Plan and,
<PAGE>14
subject to the terms thereof, will make all determinations regarding (i)
participation in the Plan by eligible Participants, and (ii) the nature and
extent of participation. In granting options, stock appreciation rights,
restricted stock, and stock units, the Committee will take into account such
factors as it may deem relevant in order to accomplish the Plan's purposes,
including one or more of the following: the extent to which performance goals
have been met, the duties of the respective employees and their present and
potential contributions to the Company's success. The interpretation and
construction of any provisions of the Plan by the Board or Committee shall be
final. The Board may at any time remove a Committee member and appoint a
successor, provided the successor is a disinterested Board member.
Terms of Options. Each option will be evidenced by a stock option agreement
between the Company and the Participants to whom such options may be granted.
Options granted shall have a term of up to five (5) years, as determined by the
Committee, and shall be subject to the following additional terms and
conditions. In the case of a Participant who owns more than ten percent (10%) of
the Company's Common Stock, the term of any Incentive Stock Option shall not be
more than five (5) years from the date of grant. No option may be exercised for
at least six (6) months after the date of grant. In addition, options generally
vest upon the occurrence of certain events, including certain mergers and
business combinations and, as amended, a sale of substantially all of the
Company's assets and certain changes in control of the Company. A "change in
control" also occurs if (a) 30% or more of the Company's voting stock is
acquired by persons or entities without the approval of a majority of the Board
unrelated to the acquirer or (b) individuals who were members of the Board at
the beginning of a 24-month period cease to make up at least two-thirds of the
Board at any time during that period, unless the election of the new members was
approved by a majority of the Board in office immediately prior to the 24-month
period and of approved new members.
Stock Appreciation Rights. The Plan authorizes the issuance of tandem stock
appreciation rights. Tandem rights allow the holder to elect between the
exercise of the stock appreciation rights for stock, cash or a combination when
exercised. The appreciation right distribution payable by the Company upon the
exercise of a tandem stock appreciation right will be equal in amount to the
excess of (a) the fair market value (on the exercise date) of the shares of
Common Stock underlying the surrendered option minus (b) the aggregate exercise
price payable for those shares. Such appreciation distribution may, at the Plan
Administrator's digression, be made in cash or in shares of Common Stock valued
at the fair market value on the exercise date.
Stock Units. Under the plan, eligible Participants may be granted Stock
Units. Stock Units are a measurement component equal to the Fair Market Value of
one share of Stock on the date for which a determination is made pursuant to the
provisions of this Plan. The Administrator may determine the time and manner of
payment for each Stock Unit and the other terms and conditions applicable to a
grant of Stock Units.
Non-transferability. Options, stock appreciation rights, stock units and
restrictive stock awards are generally nontransferable except by will or the
laws of descent and distribution.
Number of Shares of Common Stock Subject to Option to Any One Participant.
The Committee shall determine the number of shares subject to an option grant.
However, the number of shares of stock underlying options shall not exceed
245,000 shares to any one Participant in any fiscal year.
Exercise of the Option. Options shall become exercisable during a period or
during such periods as the Committee shall determine and may be specifically
conditioned upon achieving specified performance goals. An option may be
exercised by giving written notice of exercise to the Company specifying the
<PAGE>15
number of full shares of Common Stock to be purchased and tendering payment of
the purchase price to the Company. The option price of an Incentive Stock Option
or Non-Qualified Stock Option is payable in full upon exercise, and the purchase
price of stock purchased pursuant to a Purchase Right must be paid in full upon
the acceptance of the Purchase Right. Payment of the option price upon exercise
of a stock option or for shares purchased pursuant to a Purchase Right may be
made in cash, certified funds or by the surrender of the number of shares of
Common Stock owned by the option holder for at least six months (valued at their
fair market value as of the date of the exercise of an option or Purchase
Right). In addition, the option price for options granted under the Plan may be
made by a "same day sale" commitment from the optionee and a broker-dealer that
is a member of the National Association of Securities Dealers, Inc. ("NASD
Dealer") whereby the optionee irrevocably elects to exercise his or her options
and to sell a portion of the shares purchased to pay for the exercise price and
whereby the NASD Dealer irrevocably commits upon receipt of such shares to
forward the Exercise Price directly to the Company, by a "margin" commitment
from the optionee and an NASD Dealer whereby the optionee irrevocably elects to
exercise his or her option and to pledge the shares purchased to the NASD Dealer
in a margin account as security for a loan from the NASD Dealer in the amount of
the exercise price, and whereby the NASD Dealer irrevocably commits upon receipt
of such shares to forward the exercise price directly to the Company, or any
combination of the foregoing methods of payment.
Option Price. The option price of an Incentive Stock Option will be
determined by the Committee and shall be the fair market value of the Company's
Common Stock on the date of grant. In the case of an Incentive Stock Option
granted to a Participant who owns more than ten percent (10%) of the Common
Stock, the exercise price will be one hundred ten percent (110%) of the fair
market value. The option price of Non-Qualified Options cannot be less than
Eighty-Five Percent (85%) of the fair market value of the Common Stock on the
date of grant.
Employment Agreement. The Committee may include in an option, stock
appreciation rights, stock units or restrictive stock awards agreement a
condition that the Participant shall agree to remain in the employ of the
Company for a specified period of time following the date of grant.
Termination of Status as an Employee. In the case of an Incentive Stock
Option, if the Participant ceases to serve as an employee of the Company, other
than for permanent and total disability or death, all or part of the shares that
the optionee was entitled to exercise at the date of such termination may be
exercised within three (3) months after the date employment ceases. After such
three (3) month period, all unexercised options shall terminate. Non-Qualified
Stock Options are not limited to such three (3) month exercise period. The
Administrator may in the option agreement provide for a shorter exercise period.
Notwithstanding the foregoing, in no event may an option be exercised after its
term has expired.
Termination of Status as a Director or Consultant. If an optionee ceases to
serve as a director or consultant of the Company, any Non-Qualified Stock Option
held at the date of such termination may be exercised, in whole or in part, at
any time during the term of the option as set forth in the option agreement and
after such period of time all unexercised options shall terminate.
Notwithstanding the foregoing, in no event may an option be exercised after its
term has expired.
Death or Permanent Disability. If an optionee should die or become
permanently or totally disabled while serving as an employee, officer,
consultant or director of the Company, Incentive Stock Options held by the
Participant may be exercised by the Participant, the Participant's estate, or
descendant at any time within twelve (12) months after the death or permanent
disability and shall terminate thereafter. If a Participant should die within
one (1) month after ceasing to serve as an employee or officer of the Company,
<PAGE>16
the options may be exercised within twelve (12) months after the death to the
extent the option was exercisable on the date of such death. Non-Qualified Stock
Options shall not be limited to such twelve (12) month exercise period, and such
options may be exercised within the time specified in the option agreement.
Notwithstanding the foregoing, in no event may an option be exercised after its
term has expired.
Suspension or Termination of Options. No option shall be exercisable by any
person after its expiration date. If the Committee reasonably believes that a
Participant has committed an act of misconduct, the Committee may suspend the
Participant's right to exercise any option pending a final determination by the
Committee. If the Committee determines a Participant has committed an act of
embezzlement, fraud, dishonesty, nonpayment of an obligation owed to the
Company, breach of fiduciary duty or deliberate disregard of the Company's
rules, or if a Participant makes an unauthorized disclosure of any Company trade
secret or confidential information, engages in any conduct constituting unfair
competition, induces any of the Company's customers or contracting parties to
breach a contract with the Company, or induces any principal for whom the
Company acts as an agent to terminate such agency relationship, neither the
Participant nor his or her estate shall be entitled to exercise any option
whatsoever. In making such determination, the Committee shall act fairly and in
good faith and shall give the Participant an opportunity to appear and present
evidence on the Participant's behalf at a hearing before the Committee. The
determination of the Committee shall be final and conclusive unless overruled by
the Board.
Adjustment Upon Changes in Capitalization. In the event any change, such as
a stock split, is made in the Company's capitalization which results in an
exchange of Common Stock for a greater or lesser number of shares, an
appropriate adjustment shall be made in the option price and in the number of
shares subject to the option. In the event of the proposed dissolution or
liquidation of the Company, all outstanding options shall automatically
terminate, provided that the Participant shall have the right, immediately prior
to the dissolution or liquidation, to exercise his or her options. In the event
of the sale of all or substantially all of the Company's assets or the merger of
the company with or into another corporation, (i) if the Company is the
surviving corporation following a merger or consolidation each option shall,
upon exercise, entitle the holder to the issuance of securities to which a
holder of the number of shares of Common Stock subject to the option would be
entitled after the merger or consolidation, or (ii) if the Company is not the
surviving corporation, all options may, at the Company's option, terminate,
provided that the Participant shall have the right, immediately prior to the
merger, consolidation, dissolution or liquidation to exercise his or her
options, or the Company pays cash equal to the fair market value of the option.
Amendment and Termination. The Board may amend the Plan to materially
increase the benefits accruing to the option holder without shareholder
approval, except to the extent that shareholder approval is required to maintain
the status of the Plan as an Incentive Stock Option Plan. Notwithstanding the
foregoing, no action by the Board or shareholders may alter or impair any
option, stock appreciation rights, awards or units previously granted under the
Plan without the consent of the Participant.
Compliance with Securities Laws. It is the intent of the Company that the
Plan will comply with Rule 16b-3 of the Securities Exchange Act of 1934, as
amended.
Other Provisions. The option agreement may contain such other terms,
provisions and conditions not inconsistent with the Plan as may be determined by
the Board or Committee.
<PAGE>17
U.S. Federal Tax Aspects
Options granted under the Plan may be either Incentive Stock Options which
satisfy the requirements of Section 422 of the Internal Revenue Code or
Non-Qualified Options which are not intended to meet such requirements. The
United States federal income tax treatment for the two types of options
generally differs as follows:
Incentive Options. No taxable income is recognized by the optionee at the
time of the option grant, and no taxable income is generally recognized at the
time the option is exercised. The optionee will, however, recognize taxable
income in the year in which the purchased shares are sold or otherwise made the
subject of a taxable disposition. For federal tax purposes, dispositions are
divided into two (2) categories: (i) qualifying; and (ii) disqualifying. A
qualifying disposition occurs if the sale or other disposition is made after the
optionee has held the shares for more than two (2) years after the option grant
date and more than one (1) year after the exercise date. If either of these two
(2) holding periods is not satisfied, then a disqualifying disposition will
result.
Upon a qualifying disposition of the shares, the optionee will recognize
long-term capital gain in an amount equal to the excess of (i) the amount
realized upon the sale or other disposition of the purchased shares over (ii)
the exercise price paid for those shares. If there is a disqualifying
disposition of the shares, then the excess of (i) the fair market value of the
shares on the exercise date over (ii) the exercise price paid for those shares
will be taxable as ordinary income to the optionee. Any additional gain or loss
recognized upon the disposition will be taxable as a capital gain or loss.
If the optionee makes a disqualifying disposition of the purchased shares,
then the Company will be entitled to an income tax deduction for the taxable
year in which such disposition occurs, equal to the excess of (i) the fair
market value of such shares on the option exercise date over (ii) the exercise
price paid for the shares. In no other instance will the Company be allowed a
deduction with respect to the optionee's disposition of the purchased shares.
Non-Qualified Options. No taxable income is recognized by an optionee upon
the grant of a NonQualified Option. The optionee will in general recognize
ordinary income, in the year in which the option is exercised, equal to the
excess of the fair market value of the purchased shares on the exercise date
over the exercise price paid for the shares, and the optionee will be required
to satisfy the tax withholding requirements applicable to such income.
If the shares acquired upon exercise of a Non-Qualified Option are
nontransferable and are subject to a substantial risk of forfeitures (i.e.
repurchase by the Company in the event of the optionee's termination of service
at less than book value) then the optionee will not recognize any taxable income
at the time of exercise but will have to report as ordinary income, as and when
the Company's repurchase right lapses, an amount equal to the excess of (i) the
fair market value of the shares on the date the repurchase right lapses over
(ii) the exercise price paid for the shares. The optionee may, however, elect
under Section 83(b) of the Code to include as ordinary income in the year of
exercise of the option an amount equal to the excess of (i) the fair market
value of the purchased shares on the exercise date over (ii) the exercise price
paid for such shares. If the Section 83(b) election is made, the optionee will
not recognize any additional income as and when the repurchase right lapses.
<PAGE>18
The Company will be entitled to an income tax deduction equal to the amount
of ordinary income recognized by the optionee with respect to the exercised
Non-Qualified Option. The deduction will be allowed for the taxable year of the
Company in which such ordinary income is recognized by the optionee
Grants of Stock. The fair market value of the shares granted under the Plan
will generally be ordinary income to the recipient and the Company will be
entitled to an income tax deduction equal to the amount of ordinary income
recognized by the recipient. If, however, the shares are nontransferable and are
subject to a substantial risk of forfeiture (i.e. repurchase by the Company in
the event of the recipient's termination of service at less than book value)
then the recipient will have to report as ordinary income, as and when the
Company's repurchase right lapses, an amount equal to the fair market value of
the shares on the date the repurchase right lapses. The recipient may, however,
elect under Section 83(b) of the Code to include as ordinary income in the year
of receipt of the shares the fair market value of the shares. If the Section
83(b) election is made, the recipient will not recognize any additional income
as and when the repurchase right lapses.
Stock Appreciation Rights and Stock Units. No taxable income is recognized
upon the receipt of a Stock Appreciation Right or Stock Unit. The holder will
recognize ordinary income, in the year in which the right is exercised, equal to
the excess of the fair market value of the underlying shares of Common Stock on
the exercise date minus the base price in effect for the exercised right. The
holder will be required to satisfy the tax withholding requirements applicable
to such income. The Company will be entitled to an income tax deduction equal to
the amount of ordinary income recognized by the holder in connection with the
exercise of the Stock Appreciation Right or Stock Unit. The deduction will be
allowed for the taxable year of the Company in which such ordinary income is
recognized.
Withholding Taxes. The Company is entitled to take appropriate measures to
withhold or to otherwise obtain from the recipients, sufficient sums in cash,
check or shares of stock as the Administrator deems necessary to satisfy any
applicable federal, state and local withholding taxes, including FICA taxes,
before the delivery of the Common Stock to the recipient. In connection with
Options, the Administrator may, in its discretion, provide one or more holders
of Non-Qualified Options with the right to have the Company withhold a portion
of the shares otherwise issuable to such individuals in satisfaction of the tax
liability incurred by such individuals in connection with the exercise of those
options. Alternatively, the Administrator may allow such individuals to deliver
previously acquired shares of Common Stock in payment of such tax liability.
Accounting Treatment
In general, option grants with an exercise price per share equal to one
hundred percent (100%) of the fair market value of the shares at the time of
grant will not result in any direct charge to the Company's earnings. However,
the fair value of those options must be disclosed in the notes to the Company's
financial statements, in the form of proforma statements, indicating the impact
those options would have upon the Company's reported earnings if the value of
those options, at the time of grant, were treated as compensation expense. In
addition, the number of outstanding options may be a factor in determining the
Company's earnings per share on a diluted basis.
On March 31, 1999, the Financial Accounting Standards Board issued an
Exposure Draft of a proposed interpretation of APB Opinion 25, "Accounting for
Stock Issued to Employees," [as Modified by Interpretation 44.] Under the
proposed interpretation, as modified on August 11, 1999, option grants made to
non-employee consultants (but not non-employee Board members) after December 15,
<PAGE>19
1998, will result in a direct charge to the Company's reported earnings based
upon the fair value of the option measured initially as of the grant date and
then subsequently on the vesting date of each installment of the underlying
option shares (if vesting applies). Such charge will accordingly include the
appreciation in the value of the option shares over the period between the grant
date of the option (or, if later, the effective date of the final amendment) and
the vesting date of each installment of the option shares (if vesting applies).
Should one or more optionees be granted Stock Appreciation Rights or Stock
Units under the Plan that have no conditions upon exercisablity other than a
service or employment requirement, then such rights or units would result in a
compensation expense to be charged against the Company's reported earnings.
Accordingly, at the end of each fiscal quarter, the amount (if any) by which the
fair market value of the shares of Common Stock subject to such outstanding
stock appreciation rights has increased from the prior quarter-end would be
accrued as a compensation expense, to the extent that the fair market value is
in excess of the aggregate exercise price in effect for those rights.
Vote Required
The affirmative vote of a majority of the Common Stock represented and
voting at the Meeting is necessary to approve the adoption of the 2000 Equity
Incentive Plan. The Board of Directors recommends a vote "FOR the adoption of
the 2000 Equity Incentive Plan. Proxies solicited by the Board of Directors will
be so voted unless shareholders specify otherwise.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING FOR THE ADOPTION OF THE
2000 EQUITY INCENTIVE PLAN.
PROPOSAL FIVE
RATIFICATION OF SECTION OF INDEPENDENT PUBLIC
ACCOUNTANTS
The Board of Directors request the shareholders to ratify its selection of
Perry-Smith LLP as the Company's independent auditors. As independent auditors,
Perry-Smith LLP will audit the financial statement for the fiscal year ending
December 31, 2000. A representative of Perry-Smith LLP will be at the Meeting to
respond to appropriate questions. A representative of Perry-Smith LLP will have
the opportunity to make a statement if he or she desires.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING FOR THE RATIFICATION OF
SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
<PAGE>20
EXECUTIVE OFFICERS
The following table lists our current executive officers:
Name Age Position(s) Period
---- --- ----------- ------
Stephen C. Kircher 46 Chairman of the Board February 2000 to Present
P. Blair Mullin 46 President May 1998-Present
Chief Financial Officer November 1997- Present
Treasurer and Secretary January 1998 - Present
Chairman of the Board April 1999 - February 2000
Background of Executive Officers
Stephen C. Kircher (See Background of Nominees above for description).
P. Blair Mullin (See Background of Nominees above for description).
KEY EMPLOYEES OF THE COMPANY'S SUBSIDIARY - INTERNATIONAL DISPLAYWORKS ("IDW")
Anthony G. Genovese (See Background of Nominees above for description).
Alan Lefko, Chief Financial Officer, joined IDW in February 2000. From July
1999 to January 2000, Mr. Lefko was the Chief Financial Officer of The Original
Bungee Company ("Bungee") in Oxnard, California, a manufacturer and distributer
of stretch cord and webbing products. Mr. Lefko was responsible for the
reorganization of Bungee's financing structure, establishment of an asset based
lending program and implementation of cost accounting systems and controls. From
1989 to 1999, Mr. Lefko served as Chief Financial Officer and Controller of
Micrologic, a manufacturer and distributor of Global Positioning Systems and
Vikay America, Inc., a subsidiary of Vikay Industrial (Singapore) Limited, based
in Chatsworth, California. Mr. Lefko has a BA degree in Business Administration
and Accounting from California State University, Northridge, California.
Ben Tang is the Vice President of Far East Operations. Mr. Tang was one of
the founders of the predecessor company to Vikay. Mr. Tang was responsible for
Vikay's original China assembly operation. Mr. Tang joined Mr. Genovese while
Vikay was under judicial management to help operate the PRC companies. From 1997
to 1999, he acted as a consultant to Vikay and the Stoval Company, Singapore, a
manufactured of smart cards (cash cards for phone services) and, during the same
period was involved in consulting and investing in a number of technologies and
technology companies though Ben Tan & Associates, Singapore, a wholly-owned
consulting firm. From 1996 to 1997, Mr. Tang was Acting Managing Director and
later Director of Finance for Printed Circuits International (Singapore) Pte.
Ltd. From 1993 to 1996, he was Business Development Director for Pacific Can
manufacturing, Singapore, a manufacturer of metal cans. Mr. Tang has been
involved with the electronics industry, including the LCD industry, for most of
the past 30 years. Mr. Tang did undergraduate work in Physics and holds a degree
in Accounting.
<PAGE>21
Committees of the Board of Directors
The Audit Committee of the Board of Directors makes recommendations
regarding the retention of independent auditors, reviews the scope of the annual
audit undertaken by our independent auditors and the progress and results of
their work, and reviews our financial statements, internal accounting and
auditing procedures and corporate programs to ensure compliance with applicable
laws. The members of the Audit Committee are Messrs. Hedden and Manz.
The Compensation Committee of the Board of Directors reviews and approves
executive compensation policies and practices, reviews salaries and bonuses for
our officers, administers the Company's Stock Option Plan and other benefit
plans, and considers other matters as may, from time to time, be referred to
them by the Board of Directors. The current members of the Compensation
Committee are Messrs. Kircher, Hedden, and Manz.
The Board of Directors does not have a Nominating Committee.
The Board of Directors met _______ (__) times in 1999, and the Audit
Committee and Compensation Committee each met ______ (__) times in 1999. Each
director attended at least 75% of the meetings of the Board of Directors and of
the committees upon which he served.
Compensation Committee Report on Executive Compensation
The executive compensation policies and programs developed by the Company
are designed to retain and motivate executive officers and to ensure that their
interests are aligned with the interests of the Company's shareholders. The
Company's policy is to offer competitive compensation opportunities for its
employees based on a combination of factors, including Company growth, corporate
performance and the individual's personal contribution to the business.
The Company's compensation programs are implemented by the Compensation
Committee of the Board of Directors and consist of base salary, annual
incentives and long-term incentives. The Company's President recommends to the
Compensation Committee annual salary adjustments and incentive grants for the
Company's executive officers other than himself. All members of the Board of
Directors participate in the deliberations concerning executive compensation.
Executive officers who are also directors do not participate in decisions
affecting their own compensation.
Compensation of the Board of Directors
Board members are currently not compensated for participation in Board
meetings. This policy may change in the future.
<PAGE>22
Executive Compensation
The following table summarizes all compensation earned by or paid to our
President and Chief Financial Officer and the former Chief Executive Officer. No
other executive officer's total annual compensation for services rendered in all
capacities for 1997, 1998 and 1999 exceeded $100,000.
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Salary Long-Term Compensation
------------------------------------ -------------------------------
Securities
Name and Underlying Other
Principal Position Year $ Bonus Options (#) Compensation
------------------ ---- -------- ----- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
David E. Callapp(1) 1999 - -- - -
Chairman of the Board, Chief 1998 $131,651 -- - 1,000
Executive Officer and President 1997 $157,692 -- 50,000(2) -
P. Blair Mullin(4)
Chairman of the Board 1999 $121,774 -- 70,000 117(5)
President, Chief Financial Officer 1998 $118,218 -- 50,000(3) 2,402(6)
and Secretary 1997 - -- - -
</TABLE>
--------------------------
(1) David E. Callapp resigned as an officer and director of the Company
effective May 18, 1998. Mr. Calliope served as the Company's Chief
Executive Officer from August 20, 1996, and as President from November
1996. He also served as Chairman of the Board from January 1998 until his
resignation.
(2) Replaced an option granted August 20, 1996, for 50,000 shares. The option
was cancelled.
(3) 20,000 options granted November 12, 1997, and 25,000 options granted June1,
1998, were cancelled.
(4) P. Blair Mullin was appointed President of the Company effective May 18,
1998. He is also serving as Chief Financial Officer and Secretary/Treasurer
of the Company and served as Chairman of the Board from April 1, 1999 to
February 2000.
(5) Represents medical insurance reimbursement
(6) Represents reimbursement of moving expenses.
Option Grants in 1999
The following table provides information relating to stock options granted
during the year ended December 31, 1999.
Individual Grants
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates
Percent of Total of Stock Price
Number of Securities Options Granted to Exercise Appreciation
Underlying Employees Price Expiration For Option Terms
Name Options Granted (#) In Fiscal Year Per Share Date 5% 10%
--------------- -------------------- ------------------- --------- ---------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
P. Blair Mullin 70,000 100% $ .25 10/12/09 $10,708 $26,986
</TABLE>
<PAGE>23
The exercise price of each option was equal to the fair market value of our
common stock on the date of the grant. Percentages shown under "Percent of Total
Options Granted to Employees in the Last Fiscal Year" are based on an aggregate
of 70,000 options granted to our employees under the 1998 Stock Option Plan and
outside of this plan during the year ended December 31, 1999.
Potential realizable value is based on the assumption that our common stock
appreciates at the annual rate shown, compounded annually, from the date of
grant until the expiration of the five-year term. These numbers are calculated
based on Securities and Exchange Commission requirements and do not reflect our
projection or estimate of future stock price growth. Potential realizable values
are computed by:
o Multiplying the number of shares of common stock subject to a given
option by the exercise price,
o Assuming that the aggregate stock value derived from that calculation
compounds at the annual 5% or 10% rate shown in the table for the
entire five-year term of the option, and
o Subtracting from that result the aggregate option exercise price.
Fiscal Year End Option Values
The following table sets forth for each of the executive officers named in
the Summary Compensation Table the number and value of exercisable and
unexercisable options for the year ended December 1999.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unsecured Value of Unexercised
Shares Options In-The-Money Options
Acquired on Value At January 1, 2000 at January 1, 2000
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
P. Blair Mullin None None 120,000 0 $61,875 N/A
David E. Calliope None None 0 0 N/A N/A
</TABLE>
Amounts shown under the column "Value of Unexercised In-The-Money Options
at December 31, 1999," represent the difference between the fair market value of
the shares of common stock underlying the options at December 31, 1999, $1.00
per share (the closing price on the first day of trading of 2000, as reported by
the Pinksheets) less the corresponding exercise price of such options.
1998 Stock Option Plan
Stock Option Plans
In 1990, the Company adopted a Stock Option Plan (the "Plan") for selected
executives, employees and directors and reserved 490,000 shares of common stock
for issuance under the Plan. In 1995, the Plan was amended to increase the
number of shares of common stock under the Plan to 1,102,500. The Plan was again
amended by the Board of Directors in 1997 to change the name of the Plan, add
certain additional types of equity grants, provide for acceleration of vesting
on certain changes in control or sale of substantially all of the Company's
assets and a number of immaterial changes to update, modernize and reorganize
<PAGE>24
the Plan, which amendment was also approved by the Company's shareholders. The
Plan permits the granting of options for terms not to exceed ten years from the
date of grant. The options generally vest ratably over a four-year period and
are exercisable subject to terms established in the Plan document. The exercise
price of the options granted under the Plan must be equal to or greater than the
fair market value of the shares on the date of grant for incentive stock options
and not less than 85 percent of the fair market value for nonqualified stock
options. The exercise price of the options granted by the Company has generally
been equal to or greater than fair market value at the date of grant. Fair
market value for periods prior to the Company's initial public offering were
determined by the Board of Directors without an independent valuation.
Information regarding the Plan is shown below:
<TABLE>
<CAPTION>
Weighted
Number of Average Aggregate
Shares Exercise Price Price
--------------- ---------------- ----------------
<S> <C> <C> <C>
Options outstanding at January 1, 1997 565,724 $5.30 2,999,000
Options granted 83,750 3.90 326,000
Options reissued 90,500 9.20 833,000
Options lapsed/cancelled (183,300) 8.57 (1,570,000)
Options exercised (12,250) 3.27 (40,000)
--------------- ---------------- ----------------
Options outstanding at December 27, 1997 544,424 4.68 2,548,000
Options granted 116,250 1.33 154,600
Options lapsed/canceled (261,676) 4.57 (1,194,600)
--------------- ---------------- ----------------
Options outstanding at December 26, 1998 398,998 3.78 1,508,000
Options granted 280,000 0.25 70,000
Options lapsed/canceled (128,550) 4.41 (566,819)
--------------- ---------------- ----------------
Options outstanding at January 1, 2000 550,448 $1.84 $1,011,181
=============== ================ ================
</TABLE>
In August 1995, certain employees exercised their stock options in exchange
for notes receivable. The notes bore interest at 10 percent per annum and were
due and payable August 1, 1997. However, the Company was unable to satisfy the
notes as they became due. Accordingly, the December 26, 1998, financial
statements reflect a $94,000 forgiveness of such notes as a component of
discontinued operations.
In 1995, the shareholders approved the Stock Option Plan for Non-Employee
Directors (the "Directors Plan"), which plan reserved 122,500 shares of the
Company's common stock for future grants to eligible Directors (as defined in
the Directors Plan). Options granted pursuant to the Directors Plan reduced the
number of underlying shares available under the Plan on a one-to-one basis. The
Directors Plan provided for an annual grant of 2,450 shares of common stock to
each eligible Director immediately following each annual meeting of shareholders
commencing with the 1996 annual meeting. Grants were made at the fair market
value of the common stock on the date of grant and were fully vested after six
months. The Directors Plan was discontinued in October 1999.
In October 1999, the Board of Directors adopted the Morrow Snowboards, Inc.
1999 Stock Option Plan for Non-Employee Directors. This plan provides for the
issuance of up to 300,000 shares of the Company's common stock to existing
directors and, in the case of extra service or duties, to past directors. Unless
otherwise provided in the option grant, the options vest over the year following
the date of grant and expire after the later of (i) five years after the date of
grant or (ii) five years after termination as a director. Fully-vested options
to purchase 210,000 shares of stock at an exercise price of $0.25 per share were
issued during 1999.
<PAGE>25
Reissuance of Stock Options
In February 1997, the Company canceled and reissued certain options granted
to employees during 1996 under the 1990 Stock Option Plan as amended. The
options canceled were to purchase 90,500 shares of common stock at a weighted
average exercise price of $11.41 per share. The option prices for the reissued
options were at or above market value of the stock at the date the options were
issued, therefore no compensation expense has been recognized.
Certain Relationships And Related Transactions
The Company engaged Capitol Bay Securities, Inc. ("CBS") as the placement
agent for a private placement on January 31, 2000. As placement agent, CBS
received sales commissions of $435,000 and an expense allowance of $87,000,
equal to 12% of the proceeds raised, and received warrants to acquire 580,000 of
the Company's Common Stock at an exercise price of $.75 per share. CBS is a
wholly-owned subsidiary of Capitol Bay Group, Inc. ("CBG") and CBG is
wholly-owned by Stephen Kircher, a director of the Company.
During 1999, 1998, and 1997, the Company purchased certain manufacturing
tooling and supplies from Morrow Aircraft Corporation ("MAC"), a company owned
by shareholders of the Company, including a shareholder who is also a Director
of the Company. The Company recorded $0, $72,000 and $105,000 of manufacturing
expenses and capitalized $47,000, $245,000 and $448,000 for tooling related to
these transactions, respectively. All such purchases were related to the
discontinued snowboard operations. Then Company believes that the agreement with
MAC was on terms comparable to those in the market place.
Capitol Bay Management, Inc. ("CBM") purchased 3,000,000 shares of the
Company's common stock at a price of $.25 per share during 1999. Subsequent to
the purchases of the stock, one of the owners of CBM became a director of the
Company. The Company believes that such purchases were made at fair market value
for the common stock.
On August 1, 2000, Mr. Kircher and his wife personally guaranteed the $2.1
million re-finance of the Company's Oregon property.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's executive officers and directors, and persons who own more than
ten percent (10%) of the Company's Common Stock, to file reports of ownership on
Form 3 and changes in ownership on Form 4 or 5 with the Securities and Exchange
Commission (the "SEC"). Such executive officers, directors and ten percent (10%)
shareholders are also required by SEC rules to furnish the Company with copies
of all Section 16(a) forms they file. Based solely upon its review of copies of
such forms received by it, or on written representations from certain reporting
persons that no other filings were required for such persons, the Company
believes that, during the year ended December 31, 1999, its executive officers,
directors and ten percent (10%) shareholders complied with all applicable
Section 16(a) filing requirements.
Principal Shareholders
The following table sets forth certain information as of June 30, 2000,
with respect to the beneficial ownership of our Common Stock for (i) each
director, (ii) all of our directors and officers as a group, and (iii) each
person known to us to own beneficially five percent (5%) or more of the
outstanding shares of our Common Stock.
<PAGE>26
Unless otherwise indicated, the address for each listed shareholder is: c/o
Morrow Snowboards, Inc., DBA Granite Bay Technologies, 599 Menlo Drive, Suite
200, Rocklin, California 95765. To our knowledge, except as indicated in the
footnotes to this table or pursuant to applicable community property laws, the
persons named in the table have sole voting and investment power with respect to
the shares of common stock indicated. Number of Name of Beneficial Owner
Shares(1) Percent(2)
Capitol Bay Securities, Inc. ("CBS") 1,112,892(3) 6.10%
Capitol Bay Group, Inc. ("CBG")
2424 Professional Drive
Roseville, CA 95661
Stephen C. Kircher 4,187,892(4) 22.87%
2424 Professional Drive
Roseville, CA 95661
William H. Hedden 55,000(5) *
Ray E. Morrow, Jr. 135,674(6) *
P. Blair Mullin 149,797(7) 0
Anthony Genovese 1,340,000(8) 7.59%
Tom Manz 177,000(9)
All directors and executive officers as a 6,222,363(10) 34.24%
group (six persons)
-------------------
* Does not exceed 1% of the class.
(1) "Beneficial Ownership" is defined pursuant to Rule 13d-3 of the Exchange
Act, and generally means any person who directly or indirectly has or
shares voting or investment power with respect to a security. A person
shall be deemed to be the beneficial owner of a security if that person has
the right to acquire beneficial ownership of the security within 60 days,
including, but not limited to, any right to acquire the security through
the exercise of any option or warrant or through the conversion of a
security. Any securities not outstanding that are subject to options or
warrants shall be deemed to be outstanding for the purpose of computing the
percentage of outstanding securities of the class owned by that person, but
shall not be deemed to be outstanding for the purpose of computing the
percentage of the class owned by any other person.
(2) Based on 17,656,556 shares of the Company's Common Stock outstanding at
June 30, 2000, plus that number of shares subject to options exercisable
within 60 days of June 30, 2000, owned by each individual or group of
individuals. CBS is a wholly-owned subsidiary of CBG and CBG is
wholly-owned by Mr. Kircher, each of which disclaims any beneficial
ownership of the aggregate 1,112,892 shares and options, except to the
extent of pecuniary interest therein.
(3) This includes 319,992 shares held by CBS in its name, 212,900 shares held
in inventory for client accounts and with respect to which CBS or its
employees may have voting or investment discretion, or both ("Managed
Accounts") and options to purchase 580,000 shares. CBS disclaims beneficial
ownership of the shares held in the Managed Accounts. All options are
exercisable within 60 days after June 30, 2000. CBS is a wholly-owned
subsidiary of CBG which is wholly-owned by Mr. Kircher, each of which
disclaims any beneficial ownership of the aggregate 1,112,892 shares and
options held by CBS, except to the extent of any pecuniary interest
therein. These securities are also reported under the securities held by
Stephen C. Kircher.
(4) Includes 2,000,000 shares held in Mr. Kircher's name, options to purchase
75,000 shares of Common Stock in Mr. Kircher's name, 1,000,000 shares over
which Mr. Kircher has certain voting rights through an irrevocable proxy,
options for 580,000 shares held by CBS, 319,992 shares held by CBS and
212,900 shares of Common Stock held in inventory for client accounts with
respect to which CBS or its employees may have voting or investment
discretion. All options are exercisable within 60 days after June 30, 2000.
<PAGE>27
(5) Includes 55,000 shares subject to options exercisable within 60 days after
June 30, 2000.
(6) Includes 55,000 shares subject to options exercisable within 60 days after
June 30, 1999. Excludes an aggregate 104,149 shares beneficially owned by
Mr. Morrow's wife, Sharon R. Morrow, of which shares Mr. Morrow disclaims
beneficial ownership and 1,430 shares beneficially owned by his grandson,
of which shares Mr. Morrow disclaims beneficial ownership.
(7) Includes 9,797 shares and 140,000 shares subject to options exercisable
within 60 days after June 30, 2000 at $______ per share.
(8) Includes 670,000 shares held in joint tenancy with Mr. Genovese's wife,
Sharon Genovese, and 670,000 shares held by an individual retirement
account for Anthony Genovese by Delaware trust, which 670,000 shares may be
deemed to be beneficially owned by Mr. Genovese.
(9) Includes 55,000 shares subject to options exercisable within 60 days after
March 31, 2000.
(10) Includes 5,085,363 shares and options for 960,000 shares exercisable within
60 days after June 30, 2000.
Performance Measurement Comparison
COMPARISON OF CUMULATIVE TOTAL RETURN ON INVESTMENT*
[GRAPHIC OMITTED]
Other Matters
The Board of Directors knows of no other matters that may or are likely to
be presented at the Meeting. However, in such event, the persons named in the
enclosed form of proxy will vote such proxy in accordance with their best
judgment in such matters pursuant to discretionary authority granted in the
proxy.
<PAGE>28
Additional Information
Copies of the exhibits to our Annual Report on Form 10-K will be provided
to any requesting shareholder, provided that such shareholder agrees to
reimburse us for reasonable fees related to providing such exhibits.
Shareholders should direct their request to: Corporate Secretary, Morrow
Snowboards, Inc., DBA Granite Bay Technologies, 599 Menlo Drive, Suite 200,
Rocklin, California 95765.
Shareholder Proposals
Shareholder proposals to be included in our Proxy Statement and Proxy for
its 2001 annual meeting must meet the requirements of Rule 14a-8 promulgated by
the SEC and must be received by Granite Bay no later than December 3, 2000.
ALL SHAREHOLDERS ARE URGED TO EXECUTE THE ACCOMPANYING PROXY AND TO RETURN IT
PROMPTLY IN THE ACCOMPANYING ENVELOPE. SHAREHOLDERS MAY REVOKE THE PROXY IF THEY
DESIRE AT ANY TIME BEFORE IT IS VOTED.
Morrow Snowboards, Inc., DBA Granite Bay Technologies
By Order of the Board of Directors
/s/ P. Blair Mullin
August 29, 2000 P. Blair Mullin
President
Rocklin, California
<PAGE>29
THIS PROXY IS SOLICITED ON BEHALF
OF THE BOARD OF DIRECTORS
The undersigned hereby appoints P. Blair Mullin and Stephen C. Kircher, and
each of them, as proxies with the power to appoint his or their successor, and
hereby authorizes them to represent and to vote, as designated below, all the
shares of Common Stock of Morrow Snowboards, Inc., Granite Bay Technologies
("Granite Bay"), held of record by the undersigned on August 28, 2000, at the
Annual Meeting of Shareholders, to be held on September 28, 2000, at 10:00 a.m.
(PDT), at the corporate offices located at 599 Menlo Drive, Suite 200, Rocklin,
California 95765, and at any and all adjournments thereof.
1. Election of Directors to serve until the Annual Meeting of Shareholders for
the Year 2001:
FOR William H. Hedden ____ WITHHOLD AUTHORITY ____
FOR Stephen C. Kircher ____ WITHHOLD AUTHORITY ____
FOR Thomas J. Manz ____ WITHHOLD AUTHORITY ____
FOR Anthony G. Genovese ____ WITHHOLD AUTHORITY ____
FOR P. Blair Mullin ____ WITHHOLD AUTHORITY ____
2. For the approval of the name change to Granite Bay Technologies
FOR ____ AGAINST ____ ABSTAIN ____
3. Approval of Reincorporation into California by merging the Company into its
subsidiary.
FOR ____ AGAINST ____ ABSTAIN ____
4. Approval of the Granite Bay technologies 2000 Stock Option Plan.
FOR ____ AGAINST ____ ABSTAIN ____
5. Approval of ratification of Perry-Smith LLP as the Company's independent
public accountant.
FOR ____ AGAINST ____ ABSTAIN ____
6. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Meeting.
This Proxy, when properly executed, will be voted in the manner directed
herein by the undersigned shareholder. If no direction is made, this Proxy will
be voted FOR the nominees and FOR Proposals Two, Three, Four and Five.
<PAGE>30
Please sign exactly as your name appears on your share certificates. When
shares are held by joint tenants, all joint tenants should sign. When signing as
attorney, executor, administrator, trustee or guardian, please give full title
as such. If the signatory is a corporation, please sign the full corporate name
by the president or other authorized officer. If the signatory is a partnership,
please sign in the partnership name by an authorized person.
-----------------------------------------
Name (Print)
-----------------------------------------
Name (Print) (if held jointly)
Dated: ________________ -----------------------------------------
Signature (Print)
-----------------------------------------
Signature (if held jointly)
Address: ________________________________
City, State, Zip: _______________________
I will ____ attend the meeting. Number of persons to attend ____.
I will not ____ attend the meeting.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE.
<PAGE>
EXHIBIT A
ARTICLES OF INCORPORATION
OF
GRANITE BAY TECHNOLOGIES, INC.
FIRST: The name of this corporation is Granite Bay Technologies, Inc.
SECOND: The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
THIRD: This corporation's initial agent for service of process is the
Corporation Service Company which will do business in California as CSC-Lawyers
Incorporating Service.
FOURTH: The Corporation is authorized to issue two classes of stock,
designated Common Stock, no par value ("Common Stock") and Preferred Stock, no
par value. The total number of shares which the Corporation is authorized to
issue is Fifty Million (50,000,000). The total number of shares of Common Stock
is Forty Million (40,000,000) and the total number of shares of Preferred Stock
is Ten Million (10,000,000).
Shares of Preferred Stock may be issued from time to time in one or more
series. The Board of Directors shall determine the designation of each series
and the authorized number of shares of each series. The Board of Directors is
authorized to determine and alter the rights, preferences, privileges and
restrictions granted to or imposed upon any wholly unissued series of shares of
Preferred Stock and to increase or decrease (but not below the number of shares
of such series then outstanding) the number of shares of any such series
subsequent to the issue of shares of that series. If the number of shares of any
series of Preferred Stock shall be so decreased, the shares constituting such
decrease shall resume the status which they had prior to the adoption of the
resolution originally fixing the number of shares of such series.
FIFTH: The liability of the directors of this corporation for monetary
damages shall be eliminated to the fullest extent permissible under California
law. This corporation is also authorized, to the fullest extent permissible
under California law, to indemnify its agents (as defined in Section 317 of the
California Corporations Code), whether by bylaw, agreement or otherwise, for
breach of duty to this corporation and its shareholders in excess of that
expressly permitted by Section 317 and to advance defense expenses to its agents
in connection with such matters as they are incurred, subject to the limits on
such excess indemnification set forth in Section 204 of the California
Corporations Code. If, after the effective date of this Article, California law
is amended in a manner which permits a corporation to limit the monetary or
<PAGE>2
other liability of its directors or to authorize indemnification of, or
advancement of such defense expenses to, its directors or other persons, in any
such case to a greater extent than is permitted on such effective date, the
references in this Article to "California law" shall to that extent be deemed to
refer to California law as so amended.
Executed at Sacramento, California, this ___ th day of __________, 2000.
----------------------------------------
P. Blair Mullin, Incorporator
<PAGE>
EXHIBIT B
AGREEMENT AND PLAN OF MERGER
MERGING
MORROW SNOWBOARDS, INC.
DBA GRANITE BAY TECHNOLOGIES,
an Oregon Corporation
INTO
GRANITE BAY TECHNOLOGIES, INC.,
a California Corporation
This Agreement and Plan of Merger was approved on __________________, 2000
by Morrow Snowboards, Inc. dba Granite Bay Technologies ("Morrow Snowboards or
the Terminating Corporation"), a business corporation of the State of Oregon,
and by resolution adopted by its Board of Directors on said date, and approved
on ____________, 2000 by Granite Bay Technologies, Inc. ("Granite Bay or the
Surviving Corporation"), a business corporation organized under the laws of the
State of California, and by resolution adopted by its Board of Directors on said
date.
1. Merger. Morrow Snowboards and Granite Bay shall, pursuant to the
provisions of the Oregon Business Corporation Act and the California Corporation
Code, be merged with and into a single corporation, to wit, Granite Bay, which
shall be the Surviving Corporation at the effective time and date of the merger
and which is sometimes hereinafter referred to as the "Surviving Corporation ,"
and which shall continue to exist as said Surviving Corporation under its
present name, Granite Bay Technologies, Inc., pursuant to the provisions of the
laws of the jurisdiction of its organization. The separate existence of Morrow
Snowboards, which is sometimes hereinafter referred to as the "Terminating
Corporation," shall cease at said effective time and date in accordance with the
provisions of the Oregon Business Corporation Act.
2. Effective Date. This Agreement shall become effective at the close of
business on the day on which this Agreement shall have been filed with both the
Secretary of State of the State of California in accordance with Section 1103 of
the California General Corporation Law and the Secretary of State of the State
of Oregon in accordance with Section 60.011 of the Oregon Revised Statutes (the
"Effective Date").
3. Shares Outstanding. As of the date hereof, the Terminating Corporation
has 40,000,000 shares of Common Stock, no par value, and 10,000,000 shares of
Preferred Stock, no par value, authorized and 18,032,906 shares of Common Stock
and no shares of Preferred Stock outstanding. As of the date hereof, the
Surviving Corporation has 40,000,000 shares of Common Stock, no par value, and
10,000,000 shares of Preferred Stock, no par value, authorized and 100 shares of
Common Stock and no Preferred Stock outstanding.
4. Corporate Documents. The Articles of Incorporation of the Surviving
Corporation as in force and effect at the effective time and date of the merger
in the jurisdiction of its organization shall be the Articles of Incorporation
of said Surviving Corporation and said Articles of Incorporation shall continue
<PAGE>2
in full force and effect until amended and changed in the manner prescribed by
the laws of the jurisdiction of its organization.
5. Bylaws. The bylaws of the Surviving Corporation as in force and effect
at the effective time and date of the merger will be the bylaws of said
Surviving Corporation and will continue in full force and effect until changed,
altered, or amended as therein provided and in the manner prescribed by the
provisions of the laws of the jurisdiction of organization of said Surviving
Corporation.
6. Directors and Officers. The directors and officers in office of the
Terminating Corporation at the effective time and date of the merger shall be
the members of the first Board of Directors and the first officers of the
Surviving Corporation, all of whom shall hold their directorships and offices
until the election and qualification of their respective successors or until
their tenure is otherwise terminated in accordance with the bylaws of the
Surviving Corporation.
7. Shares. Each issued share of the Terminating Corporation immediately
prior to the effective time and date of the merger shall, on the Effective Date
of the merger, be converted into One (1) share of the Surviving Corporation. The
previously outstanding One Hundred (100) shares of Common Stock of the Surviving
Corporation registered in the name of the Terminating Corporation shall not be
converted in any manner and shall be reacquired by the Surviving Corporation and
retired and shall resume the status of authorized and unissued shares of Common
Stock of the Surviving Corporation.
8. Share Certificates. On and after the Effective Date, all of the
outstanding certificates which prior to that time represented shares of the
Terminating Corporation shall be deemed for all purposes to evidence ownership
of and to represent shares of the Surviving Corporation into which the shares of
the Terminating Corporation represented by such certificates have been converted
as herein provided. The registered owner on the books and records of the
Terminating Corporation or its transfer agent of any such outstanding stock
certificate shall have and shall be entitled, until such certificate shall have
been surrendered for transfer or otherwise accounted for to the Surviving
Corporation or its transfer agent, to exercise any voting and other rights with
respect to and to receive any dividend and other distributions upon the shares
of the Surviving Corporation evidenced by such outstanding certificate as above
provided.
9. Other Rights to Stock. Upon the Effective Date the options to purchase
shares of common stock of the Terminating Corporation which have been granted by
the Terminating Corporation pursuant to the Granite Bay 2000 Equity Incentive
Plan, Morrow Snowboards, Inc. Employee Equity Incentive Plan as amended February
23 1997, Morrow Snowboards, Inc. Stock Option Plan for Non-Employee Directors
and Morrow Snowboards, Inc. 1999 Stock Option Plan for Non-Employee Directors
(collectively the "Plans"), shall be deemed to be options granted by the
Surviving Corporation and the obligations of the Terminating Corporation with
respect thereto shall be assumed by the Surviving Corporation with the same
terms and conditions, and each option to acquire one share of common stock of
the Terminating Corporation which is not exercised prior to the Effective Date
<PAGE>3
shall be deemed to be an option to acquire one share of common stock of the
Surviving Corporation. Upon the Effective Date, the Plans shall be adopted and
approved by the Surviving Corporation and the Surviving Corporation shall be
authorized to grant any and all options, restricted stock, stock appreciation
rights, stock units, other stock grants according to the provisions of the
Plans.
10. Shareholder Approval. The Agreement and Plan of Merger herein made and
approved shall be submitted to the shareholders of the Terminating Corporation
for their approval or rejection in the manner prescribed by the provisions of
the Oregon Business Corporation Act and to the shareholders of the Surviving
Corporation for their approval or rejection in the manner prescribed by the laws
of the jurisdiction of its organization.
11. Assets and Rights. Upon the Effective Date, all rights, privileges,
franchises, and property of the Terminating Corporation, and all debts and
liabilities due or to become due to the Terminating Corporation, including
things in action and every interest or asset of conceivable value or benefit,
shall be deemed fully and finally and without any right of reversion transferred
to and vested in the Surviving Corporation without further act or deed, and the
Surviving Corporation shall have and hold the same in its own right as fully as
the same was possessed and held by the Terminating Corporation.
12. Liabilities. Upon the Effective Date, all debts, liabilities, and
obligations due or to become due and all claims or demands for any cause
existing against Terminating Corporation, shall be and become the debts,
liabilities, obligations of, and the claims and demands against, the Surviving
Corporation in the same manner as if the Surviving Corporation had itself
incurred or become liable for them.
13. Creditors' Rights and Liens. Upon the Effective Date, all rights of the
creditors of the Terminating Corporation, and all liens upon the property of the
Terminating Corporation, shall be preserved unimpaired, and limited to the
property affected by the liens immediately prior to the time of the merger.
14. Pending Actions. Upon Effective Date, any action or proceeding pending
by or against the Terminating Corporation shall not be deemed to have been
abated or discontinued, but may be prosecuted to judgment, with the right to
appeal or review as in other cases, as if the merger had not taken place, or the
Surviving Corporation may be substituted for the Terminating Corporation.
15. Abandonment. At any time before the Effective Date, this Agreement and
Plan of Merger may be terminated and the Merger contemplated hereby may be
abandoned by the Board of Directors of either the Surviving or Terminating
Corporation, notwithstanding approval of this Merger Agreement by the
shareholders of the Constituent Corporations.
<PAGE>4
16. Authorization. The Board of Directors and the proper officers of the
Terminating Corporation and of the Surviving Corporation, respectively, are
hereby authorized, empowered, and directed to do any and all acts and things,
and to make, execute, deliver, file, and/or record any and all instruments,
papers, and documents which shall be or become necessary, proper or convenient
to carry out or put into effect any of the provisions of this Agreement and Plan
of Merger or of the merger herein provided for.
17. Further Assurances. Each of the Surviving Corporation and the
Terminating Corporation agree that at any time, or from time to time, as and
when requested by the Surviving Corporation, or by its successors and assigns,
it will execute and deliver, or cause to be executed and delivered in its name
by its last acting officers, or by the corresponding officers of the Surviving
Corporation, all such conveyances, assignments, transfers, deeds, or other
instruments, and will take or cause to be taken such further or other action as
the Surviving Corporation, its successors or assigns may deem necessary or
desirable, in order to evidence the transfer, vesting, or devolution of any
property right, privilege, or franchisor to vest or perfect in or confirm to the
Surviving Corporation, its successors and assigns, title to and possession of
all the property, rights, privileges, powers, immunities, franchises, and
interests referred to in this Section 1 and otherwise to carry out the intent
and purposes hereof.
18. Governing Law. This Agreement is made and entered into in the State of
California, and the laws of said State shall govern the validity and
interpretation hereof.
[THIS SPACE WAS INTENTIONALLY LEFT BLANK]
<PAGE>5
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized officers as of the day and year first above written.
MORROW SNOWBOARDS, INC.
DBA GRANITE BAY TECHNOLOGIES
-----------------------------
P. Blair Mullin,
President and Secretary
GRANITE BAY TECHNOLOGIES, INC.
-----------------------------
P. Blair Mullin,
President and Secretary
<PAGE>
EXHIBIT C
MORROW SNOWBOARDS, INC.
(Granite Bay Technologies, Inc.)
EQUITY INCENTIVE PLAN
ARTICLE I -- INTRODUCTION
1.1 Establishment. Effective September 1, 2000, Morrow Snowboards, Inc., an
Oregon corporation (hereinafter referred to, together with its Affiliated
Corporations (as defined in subsection 2.1(a)) as the "Company" except where the
context otherwise requires), established the Morrow Snowboards, Inc. Equity
Incentive Plan (the "Plan") for certain key employees of the Company. The Plan
permits the grant of stock options, restricted stock awards, stock appreciation
rights, stock units and other stock grants to certain key employees of the
Company. The Plan also permits the grant of stock options, restricted stock
awards, stock appreciation rights, stock units and other stock grants to certain
persons with a relationship with the Company, including agents, consultants,
advisors, independent contractors, sales representatives, distributors and
principals and retail distribution outlets for the Company's products.
1.2 Purposes. The purposes of the Plan are to provide the key employees
selected for participation in the Plan with added incentives to continue in the
service of the Company and to create in such employees a more direct interest in
the future success of the operations of the Company by relating incentive
compensation to the achievement of long-term corporate economic objectives, so
that the income of the key employees is more closely aligned with the income of
the Company's shareholders. The Plan is also designed to attract key employees
and to retain and motivate participating employees by providing an opportunity
for investment in the Company. The Plan is also designed to reward persons with
material relationships with the Company, such as agents, consultants, advisors,
independent contractors, sales representatives, distributors and principals and
retail distribution outlets for the Company's products.
ARTICLE II -- DEFINITIONS
2.1 Definitions. The following terms shall have the meanings set forth
below:
(a) "Affiliated Corporation" means any corporation or other entity
(including, but not limited, to a partnership) that is affiliated with
Morrow Snowboards, Inc. through stock ownership or otherwise and is treated
as a common employer under the provisions of Sections 414(b) and (c) of the
Code (for purposes of non-qualified options, stock grants, and stock
appreciation rights), together with any parent or subsidiary of the Company
as defined in Section 424 of the Code.
(b) "Award" means an Option, a Restricted Stock Award, a Stock
Appreciation Right, a Stock Unit, grants of Stock pursuant to Article XI or
other issuances of Stock hereunder.
<PAGE>2
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
(e) "Committee" means a committee consisting of members of the Board
who are empowered hereunder to take actions in the administration of the
Plan, or by the full Board acting as the Committee. The Committee shall be
so constituted at all times as to permit the Plan to comply with Section
162(m) of the Code and Rule 16b-3 or any successor rule promulgated under
the Securities Exchange Act of 1934 (the "1934 Act"). Members of the
Committee shall be appointed from time to time by the Board, shall serve at
the pleasure of the Board and may resign at any time upon written notice to
the Board.
(f) "Disabled" or "Disability" shall have the meaning given to such
terms in Section 22(e)(3) of the Code.
(g) "Eligible Person" means any non-employee who performs key services
to the Company and upon whose judgment, initiative and efforts the Company
is, or will become, largely dependent for the successful conduct of its
business (provided that such Eligible Person may not receive an award of
Incentive Stock Options).
(h) "Eligible Employees" means those key employees (including, without
limitation, officers and directors who are also employees) of the Company
or any division thereof, upon whose judgment, initiative and efforts the
Company is, or will become, largely dependent for the successful conduct of
its business.
(i) "Fair Market Value" of a share of Stock shall be the last reported
sale price of the Stock on the Nasdaq National Market on the day the
determination is to be made, or if no sale took place on such day, the
average of the closing bid and asked prices of the Stock on the Nasdaq
National Market on such day, or if the market is closed on such day, the
last day prior to the date of determination on which the market was open
for the transaction of business, as reported on Nasdaq. If, however, the
Stock should be listed or admitted for trading on a national securities
exchange, the Fair Market Value of a share of the Stock shall be the last
sales price, or if no sales took place, the average of the closing bid and
asked prices on the day the determination is to be made, or if the market
is closed on such day, the last day prior to the date of determination on
which the market was open for the transaction of business, as reported in
the principal consolidated transaction reporting system for the principal
national securities exchange on which the Stock is listed or admitted for
trading. If the Stock is not listed or traded on NASDAQ or on any national
securities exchange, the Fair Market Value for purposes of the grant of
Options under the Plan shall be determined by the Committee in good faith
in its sole discretion.
<PAGE>3
(j) "Incentive Option" means an Option designated as such and granted
in accordance with Section 422 of the Code. Only Eligible Employees may
receive awards of Incentive Options.
(k) "Non-Qualified Option" means any Option other than an Incentive
Option.
(l) "Option" means a right to purchase stock at a stated or formula
price for a specified period of time. Options granted under the Plan shall
be either Incentive Options or Non-Qualified Options.
(m) "Option Certificate" shall have the meaning given to such term in
Section 7.2 hereof.
(n) "Option Holder" means a Participant who has been granted one or
more Options under the Plan.
(o) "Option Price" means the price at which shares of Stock subject to
an Option may be purchased, determined in accordance with subsection
7.2(b).
(p) "Participant" means an Eligible Employee or an Eligible Person
designated by the Committee from time to time during the term of the Plan
to receive one or more of the Awards provided under the Plan.
(q) "Restricted Stock Award" means an award of Stock granted to a
Participant pursuant to Article VIII that is subject to certain
restrictions imposed in accordance with the provisions of such Section.
(r) "Share" means a share of Stock.
(s) "Stock" means the common stock of the Company.
(t) "Stock Appreciation Right" means the right, granted by the
Committee pursuant to the Plan, to receive a payment equal to the increase
in the Fair Market Value of a Share of Stock subsequent to the grant of
such Award.
(u) "Stock Unit" means a measurement component equal to the Fair
Market Value of one share of Stock on the date for which a determination is
made pursuant to the provisions of this Plan.
2.2 Gender and Number. Except when otherwise indicated by the context, the
masculine gender shall also include the feminine gender, and the definition of
any term herein in the singular shall also include the plural.
<PAGE>4
ARTICLE III -- PLAN ADMINISTRATION
The Plan shall be administered by the Committee. In accordance with the
provisions of the Plan, the Committee shall, in its sole discretion, select the
Participants from among the Eligible Employees and Eligible Persons, determine
the Awards to be made pursuant to the Plan, the number of Stock Units, Stock
Appreciation Rights or shares of Stock to be issued thereunder and the time at
which such Awards are to be made, fix the Option Price, period and manner in
which an Option becomes exercisable, establish the terms and conditions
applicable to stock Units, and establish such other terms and requirements of
the various compensation incentives under the Plan as the Committee may deem
necessary or desirable and consistent with the terms and requirements of the
various compensation incentives under the Plan as the Committee may deem
necessary or desirable and consistent with the terms of the Plan. The Committee
shall determine the form or forms of the agreements with Participants that shall
evidence the particular provisions, terms, conditions, rights and duties of the
Company and the Participants with respect to Awards granted pursuant to the
Plan, which provisions need not be identical except as may be provided herein.
The Committee may from time to time adopt such rules and regulations for
carrying out the purposes of the Plan as it may deem proper and in the best
interests of the Company. The Committee may correct any defect, supply any
omission or reconcile any inconsistency in the Plan or in any agreement entered
into hereunder in the manner and to the extent it shall deem expedient and it
shall be the sole and final judge of such expediency. No member of the Committee
shall be liable for any action or determination made in good faith. The
determinations, interpretations and other actions of the Committee pursuant to
the provisions of the Plan shall be binding and conclusive for all purposes and
on all persons.
ARTICLE IV -- STOCK SUBJECT TO THE PLAN
4.1 Number of Shares. The number of shares of Stock that are authorized for
issuance under the Plan in accordance with the provisions of the Plan and
subject to such restrictions or other provisions as the Committee may from time
to time deem necessary shall not exceed 900,000. This authorization may be
increased from time to time by approval of the Board and by the shareholders of
the Company if, in the opinion of counsel for the Company, shareholder approval
is required. Shares of Stock that may be issued upon exercise of Options, or
Stock Appreciation Rights, that are issued as Restricted Stock Awards, that are
issued with respect to Stock Units, and that are issued as incentive
compensation or other stock grants under the Plan shall be applied to reduce the
maximum number of shares of Stock remaining available for use under the Plan.
The Company shall at all times during the term of the Plan and while any Options
or Stock Units are outstanding retain as authorized and unissued Stock at least
the number of shares from time to time required under the provisions of the
Plan, or otherwise assure itself of its ability to perform its obligations
hereunder.
4.2 Other Shares of Stock. Any shares of Stock that are subject to an
Option that expires, or that is forfeited or for any reason is terminated
unexercised, and any share of stock withheld for the payment of taxes or
received by the Company as payment of the exercise price of an Option under this
Plan shall automatically become available for use under the Plan.
<PAGE>5
4.3 Adjustments for stock Split, Stock Dividend, etc. If the Company shall
at any time increase or decrease the number of its outstanding shares of Stock
or change in any way the rights and privileges of such shares by means of the
payment of a stock dividend or any other distribution upon such shares payable
in Stock, or through a stock split, subdivision, consolidation, combination,
reclassification or recapitalization involving the Stock, then in relation to
the Stock that is affected by one or more of the above events, the numbers,
rights and privileges of the following shall be increased, decreased or changed
in like manner as if they had been issued and outstanding, fully paid and
nonassessable at the time of such occurrence: (i) the shares of Stock as to
which Awards may be granted under the Plan, and (ii) the shares of the Stock
then included in each outstanding Award granted hereunder.
4.4 Other Distributions and Changes in the Stock. If
(a) the Company shall at any time distribute with respect to the Stock
assets or securities of persons other than the Company (excluding cash or
distributions referred to in Section 4.3), or
(b) the Company shall at any time grant to the holders of its Stock
rights to subscribe pro rata for additional shares thereof or for any other
securities of the Company, or
(c) there shall be any other change (except as described in Section
4.3) in the number or kind of outstanding shares of Stock or of any stock
or other securities into which the Stock shall be changed or for which it
shall have been exchanged,
and if the Committee shall in its discretion determine that the event described
in subsection (a), (b), or (c) above equitably requires an adjustment in the
number or kind of shares subject to an Option or other Award, an adjustment in
the Option Price or the taking of any other action by the Committee, including
without limitation, the setting aside of any property for delivery to the
Participant upon the exercise of an Option or the full vesting of an Award, then
such adjustments shall be made, or other action shall be taken, by the Committee
and shall be effective for all purposes of the Plan and on each outstanding
Option or Award that involves the particular type of stock for which a change
was effected. Notwithstanding the foregoing provisions of this Section 4.4,
pursuant to Section 8.3 below, a Participant holding Stock received as a
Restricted Stock Award shall have the right to receive all amounts, including
cash and property of any kind, distributed with respect to the Stock upon the
Participant's becoming a holder of record of the Stock.
4.5 General Adjustment Rules. No adjustment or substitution provided for in
this Article IV shall require the Company to sell a fractional share of Stock
under any Option, or otherwise issue a fractional share of Stock, and the total
substitution or adjustment with respect to each Option and other Award shall be
limited by deleting any fractional share. In the case of any such substitution
or adjustment, the total Option Price for the shares of Stock then subject to an
Option shall remain unchanged but the Option Price per share under each Option
<PAGE>6
shall be equitably adjusted by the Committee to reflect the greater or lesser
number of shares of Stock or other securities into which the Stock subject to
the Option may have been changed, and appropriate adjustments shall be made to
other Awards to reflect any such substitution or adjustment.
4.6 Determination by the Committee, Etc. Adjustments under this Article IV
shall be made by the Committee, whose determinations with regard thereto shall
be final and binding upon all parties thereto.
ARTICLE V -- CORPORATE REORGANIZATION
5.1 Reorganization. Upon the occurrence of any of the following events, if
the notice required by Section 5.2 shall have first been given, the Plan and all
Options then outstanding hereunder shall automatically terminate and be of no
further force and effect whatsoever, and other Awards then outstanding shall be
treated as described in Sections 5.2 and 5.3, without the necessity for any
additional notice or other action by the Board or the Company: (a) the merger or
consolidation of the Company with or into another corporation or other
reorganization (other than a reorganization under the United States Bankruptcy
Code) of the Company (other than a consolidation, merger, or reorganization in
which the Company is the continuing corporation and which does not result in any
reclassification or change of outstanding shares of Stock); or (b) the sale or
conveyance of the property of the Company as an entirety or substantially as an
entirety (other than a sale or conveyance in which the Company continues as
holding company of an entity or entities that conduct the business or business
formerly conducted by the Company); or (c) the dissolution or liquidation of the
Company.
5.2 Required Notice. At least 30 days' prior written notice of any event
described in Section 5.1 shall be given by the Company to each Option Holder and
Participant unless (a) in the case of the events described in clauses (a) or (b)
of Section 5.1, the Company, or the successor or purchaser, as the case may be,
shall make adequate provision for the assumption of the outstanding Options or
the substitution of new options for the outstanding Options on terms comparable
to the outstanding Options except that the Option Holder shall have the right
thereafter to purchase the kind of amount of securities or property or cash
receivable upon such merger, consolidation, or reorganization, sale or
conveyance by a holder of the number of Shares that would have been receivable
upon exercise of the Option immediately prior to such merger, consolidation,
sale or conveyance (assuming such holder of Stock failed to exercise any rights
of election and received per share the kind and amount received per share by a
majority of the non-electing shares), or (b) the Company, or the successor or
purchaser, as the case may be, shall make adequate provision for the adjustment
of outstanding Awards (other than Options) so that such Awards shall entitle the
Participant to receive the kind and amount of securities or property or cash
receivable upon such merger, consolidation, other reorganization, sale or
conveyance by a holder of the number of shares that would have been receivable
with respect to such Award immediately prior to such merger, consolidation,
other reorganization, sale or conveyance (assuming such holder of Stock failed
to exercise any rights of election and received per share the kind and amount
received per share by a majority of the non-electing shares). The provisions of
<PAGE>7
this Article V shall similarly apply to successive mergers, consolidations,
reorganizations, sales or conveyances. Such notice shall be deemed to have been
given when delivered personally to a Participant or when mailed to a Participant
by registered or certified mail, postage prepaid, at such Participant's address
last known to the Company.
5.3 Acceleration of Exercisability. Participants notified in accordance
with Section 5.2 may exercise their Options at any time before the occurrence of
the event requiring the giving of notice (but subject to occurrence of such
event), regardless of whether all conditions of exercise relating to length of
service, attainment of financial performance goals or otherwise have been
satisfied. Upon the giving of notice in accordance with Section 5.2, all
restrictions with respect to Restricted Stock and other Awards shall lapse
immediately, all Stock Units shall become payable immediately and all Stock
Appreciation Rights shall become exercisable. Any Options, Stock Appreciation
Rights or stock Units that are not assumed or substituted under classes (a) or
(b) of Section 5.2 that have not been exercised prior to the event described in
Section 5.1 shall automatically terminate upon the occurrence of such event.
5.4 Limitation on Payments. If the provisions of this Article V would
result in the receipt by any Participant of a payment within the meaning of
Section 280G of the Code and the regulations promulgated thereunder and if the
receipt of such payment by any Participant would, in the opinion of independent
tax counsel of recognized standing selected by the Company, result in the
payment by such Participant of any excise tax provided for in Sections 280G and
4999 of the Code, then the amount of such payment shall be reduced to the extent
required, in the opinion of independent tax counsel, to prevent the imposition
of such excise tax; provided, however, that the Committee, in its sole
discretion, may authorize the payment of all or any portion of the amount of
such reduction to the Participant.
5.5 Limitation on Acceleration of Exercise. Notwithstanding anything
contained in this Plan, if the acceleration of exercise of an option, in the
opinion of the Company's outside accountants would render unavailable "pooling
of interest" accounting treatment for any reorganization, merger or
consolidation of the Company for which pooling of interest accounting treatment
is sought, such acceleration will not occur.
ARTICLE VI -- PARTICIPATION
Participants in the Plan shall be those Eligible Employees and Eligible
Persons who, in the judgment of the Committee, are performing, or during the
term of their incentive arrangement will perform, vital services in the
management, operation and development of the Company or an Affiliated
Corporation, and significantly contribute, or expected to significantly
contribute, to the achievement of long-term corporate economic objectives.
Participants may be granted from time to time one or more Awards; provided,
however, that the grant of each such Award shall be separately approved by the
Committee, and receipt of one such Award shall not result in automatic receipt
of any other Award. Upon determination by the Committee that an Award is to be
granted to a Participant, written notice shall be given to such person,
specifying the terms, conditions, rights and duties related thereto. Each
<PAGE>8
Participant shall, if required by the Committee, enter into an agreement with
the Company, in such form as the Committee shall determine and which is
consistent with the provisions of the Plan, specifying such terms, conditions,
rights and duties. Awards shall be deemed to be granted as of the date specified
in the grant resolution of the Committee, which date shall be the date of any
related agreement with the Participant. In the event of any inconsistency
between the provisions of the Plan and any such agreement entered into
hereunder, the provisions of the Plan shall govern.
ARTICLE VII -- OPTIONS
7.1 Grant of Options. Coincident with or following designation for
participation in the Plan, a Participant may be granted one or more Options. The
Committee in its sole discretion shall designate whether an Option is an
Incentive Option or a Non-Qualified Option, provided that only Eligible
Employees may be awarded Incentive Options. The Committee may grant both an
Incentive Option and a Non-Qualified Option to an Eligible Employee at the same
time or at different times. Incentive Options and Non-Qualified Options, whether
granted at the same time or at different times, shall be deemed to have been
awarded in separate grants and shall be clearly identified, and in no event
shall the exercise of one Option affect the right to exercise any other Option
or affect the number of shares for which any other Option may be exercised,
except as provided in subsection 7.2(j). An Option shall be considered as having
been granted on the date specified in the grant resolution of the Committee.
7.2 Stock Option Certificates. Each Option granted under the Plan shall be
evidenced by a written stock option certificate (an "Option Certificate"). An
Option Certificate shall be issued by the Company in the name of the Participant
to whom the Option is granted (the "Option Holder") and in such form as may be
approved by the Committee. The Option Certificate shall incorporate and conform
to the conditions set forth in this Section 7.2 as well as such other terms and
conditions that are not inconsistent as the Committee may consider appropriate
in each case.
(a) Number of Shares. Each Option Certificate shall state that it
covers a specified number of shares of Stock, as determined by the
Committee. Notwithstanding any other provision of this Plan, the maximum
number of shares of Stock to be granted subject to Options under the Plan
to any one Participant in any one fiscal year of the Company shall not
exceed 245,000 shares.
(b) Price. The price at which each share of Stock covered by an Option
may be purchased shall be determined in each case by the Committee and set
forth in the Option Certificate, but in no event shall the price be less
than 100 percent of the Fair Market Value of the Stock on the date the
Option (both Incentive and Non-Qualified) is granted.
(c) Duration of Options; Restrictions on Exercise. Each Option
Certificate shall state the period of time, determined by the Committee,
within which the Option may be exercised by the Option Holder (the "Option
Period"). The Option Period must end, in all cases, not more than ten
<PAGE>9
years from the date the Option is granted. The Option Certificate shall
also set forth any installment or other restrictions on Option exercise
during such period, if any, as may be determined by the Committee; however,
no Option may be exercised for at least six months after the date of grant.
Each Option shall become exercisable (vest) over such period of time, if
any, or upon such events, as determined by the Committee.
(d) Termination of Employment, Death, Disability, Etc. The Committee
may specify the period, if any, after which an Option may be exercised
following termination of the Option Holder's employment. The effect of this
subsection 7.2(d) shall be limited to determining and nothing in this
subsection 7.2(d) shall restrict or otherwise interfere with the Company's
discretion with respect to the termination of any individual's employment.
If the Committee does not otherwise specify, the following shall apply:
(i) If the employment of the Option Holder terminates for any
reason other than death or Disability within six months after the date
the Option is granted or if the employment of the Option Holder is
terminated within the Option Period for "cause", as determined by the
Company, the Option shall thereafter be void for all purposes. As used
in this subsection 7.2(d), "cause" shall mean a gross violation, as
determined by the Company, of the Company's established policies and
procedures.
(ii) If the Option Holder becomes Disabled, the Option may be
exercised by the Option Holder, or in the case of death by the persons
specified in subsection (iii) of this subsection 7.2(d), within one
year following his or her Disability (provided that such exercise must
occur within the Option Period), but not thereafter. In any such case,
the Option may be exercised only as to the shares as to which the
Option had become exercisable on or before the date of the Option
Holder's termination of employment because of Disability.
(iii) If the Option Holder dies during the Option Period while
still employed or within the one year period referred to in (ii) above
or the three-month period referred to in (iv) below, the Option may be
exercised by those entitled to do so under the Option Holder's will or
by the laws of descent and distribution within one year following the
Option Holder's death, (provided that such exercise must occur within
the Option Period), but not thereafter. In any such case, the Option
may be exercised only s to the shares as to which the Option had
become exercisable on or before the date of the Option Holder's death.
(iv) If the employment of the Option Holder by the Company is
terminated (which for this purpose means that the Option Holder is no
longer employed by the Company or by an Affiliated Corporation) within
the Option Period for any reason other than cause, Disability or the
Option Holder's death, and such termination occurs more than six
months after the Option is granted, the Option may be exercised by the
<PAGE>10
Option Holder within three months following the date of such
termination (provided that such exercise must occur within the Option
Period), but not thereafter. In any case, the Option may be exercised
only to the shares as to which the Option had become exercisable on or
before the date of termination of employment.
(e) Transferability. Each Option shall not be transferable by the
Option Holder except by will or pursuant to the laws of descent and
distribution. Each Option is exercisable during the Option Holder's
lifetime only by him or her, or in the event of disability or incapacity,
by his or her guardian or legal representative.
(f) Consideration for Grant of Option. Each Option Holder agrees to
remain in the employment of the Company, at the pleasure of the Company,
for a continuous period of at least one year after the date the Option is
granted, at the salary rate in effect on the date of such agreement or at
such changed rate as may be fixed, from time to time, by the Company.
Nothing in this paragraph shall limit or impair the Company's right to
terminate the employment of any employee.
(g) Exercise, Payments, Etc.
(i) Manner of Exercise. The method for exercising each Option
granted hereunder shall be by delivery to the Company of written
notice specifying the number of Shares with respect to which such
Option is exercised. The purchase of such Shares shall take place at
the principal offices of the Company within thirty days following
delivery of such notice, at which time the Option Price of the Shares
shall be paid in full by any of the methods set forth below or a
combination thereof. Except as set forth in the next sentence, the
Option shall be exercised when the Option Price for the number of
shares as to which the Option is exercised is paid to the Company in
full. If the Option Price is paid by means of a broker's loan
transaction described in subsection 7.2(g)(ii)(D), in whole or in
part, the closing of the purchase of the Stock under the Option shall
take place (and the Option shall be treated as exercised) on the date
on which, and only if, the sale of Stock upon which the broker's loan
was based has been closed and settled, unless the Option Holder makes
an irrevocable written election, at the time of exercise of the
Option, to have the exercise treated as fully effective for all
purposes upon receipt of the Option Price by the Company regardless of
whether or not the sale of the Stock by the broker is closed and
settled. A properly executed certificate or certificates representing
the Shares shall be delivered to or at the direction of the Option
Holder upon payment therefor. If Option on less than all shares
evidenced by an Option Certificate are exercised, the Company shall
deliver a new Option Certificate evidencing the Option on the
remaining shares upon delivery of the Option Certificate for the
Option being exercised.
<PAGE>11
(ii) The exercise price shall be paid by any of the following
methods or any combination of the following methods at the election of
the Option Holder, or by any other method approved by the Committee
upon the request of the Option Holder:
(A) in cash;
(B) by certified, cashier's check or other check acceptable
to the Company, payable to the order of the Company;
(C) by delivery to the Company of certificates representing
the number of shares then owned by the Option Holder, the Fair
Market Value of which equals the purchase price of the Stock
purchased pursuant to the Option, properly endorsed for transfer
to the Company; provided, however, that no Option may be
exercised by delivery to the Company of certificates representing
Stock, unless such Stock has been held by the Option Holder for
more than six months; for purposes of this Plan, the Fair Market
Value of any shares of Stock delivered in payment of the purchase
price upon exercise of the Option shall be the Fair Market Value
as of the exercise date; the exercise date shall be the day of
delivery of the certificates for the Stock used as payment of the
Option Price; or
(D) by delivery to the Company of a properly executed notice
of exercise together with irrevocable instructions to a broker to
deliver to the Company promptly the amount of the proceeds of the
sale of all or a portion of the Stock or of a loan from the
broker to the Option Holder required to pay the Option Price.
(h) Date of Grant. An Option shall be considered as having been
granted on the date specified in the grant resolution of the Committee.
(i) Withholding.
(i) Non-Qualified Options. Upon exercise of an Option, the Option
Holder shall make appropriate arrangements with the Company to provide
for the amount of additional withholding required by Sections 3102 and
3402 of the Code and applicable state income tax laws, including
payment of such taxes through delivery of shares of Stock or by
withholding Stock to be issued under the Option, as provided in
Article XV.
(ii) Incentive Options. If an Option Holder makes a disposition
(as defined in Section 424(c) of the Code) of any Stock acquired
pursuant to the exercise of an Incentive Option prior to the
expiration of two years from the date on which the Incentive Option
was granted or prior to the expiration of one year from the date on
<PAGE>12
which the Option was exercised, the Option Holder shall send written
notice to the Company at its principal office in Salem, Oregon
(Attention: Corporate Secretary) of the date of such disposition, the
number of shares disposed of, the amount of proceeds received from
such disposition and any other information relating to such
disposition as the Company may reasonably request. The Option Holder
shall, in the event of such a disposition, make appropriate
arrangements with the Company to provide for the amount of additional
withholding, if any, required by Sections 3102 and 3402 of the Code
and applicable state income tax laws.
(j) Issuance of Additional Option. If an Option Holder pays all or any
portion of the exercise price of an Option with Stock, or pays all or any
portion of the applicable withholding taxes with respect to the exercise of
an Option with Stock that has been held by the Option Holder for more than
a period, not shorter than six months, to be determined by the Committee,
the Committee may, in its sole discretion, grant to such Option Holder a
new Option covering the number of shares of Stock used to pay such exercise
price and/or withholding tax. The new Option shall have an Option Price per
share equal to the Fair Market Value of a share of Stock on the date of the
exercise of the Option and shall have the same terms and provisions as the
exercised Option, except as otherwise determined by the Committee in its
sole discretion.
7.3 Restrictions on Incentive Options.
(a) Initial Exercise. The aggregate Fair Market Value of the Shares
with respect to which Incentive Options are exercisable for the first time
by an Option Holder in any calendar year, under the Plan or otherwise,
shall not exceed $100,000. For this purpose, the Fair Market Value of the
Shares shall be determined as of the date of grant of the Option.
(b) Ten Percent Shareholders. Incentive Options granted to an Option
Holder who is the holder of record of 10% or more of the outstanding Stock
of the Company shall have an Option Price equal to 110% of the Fair Market
Value of the Shares on the date of grant of the Option and the Option
Period for any such Option shall not exceed five years.
(c) Eligible Employees. Incentive Options may only be issued to
Eligible Employees.
7.4 Shareholder Privileges. No Option Holder shall have any rights as a
shareholder with respect to any shares of Stock covered by an Option until the
Option Holder becomes the holder of record of such Stock, and no adjustments
shall be made for dividends or other distributions or other rights as to which
there is a record date preceding the date such Option Holder becomes the holder
of record of such Stock, except as provided in Article IV.
<PAGE>13
ARTICLE VIII -- RESTRICTED STOCK AWARDS
8.1 Grant of Restricted Stock Awards. Coincident with or following
designation for participation in the Plan, the Committee may grant a Participant
one or more Restricted Stock Awards consisting of Shares of Stock. The number of
Shares granted as a Restricted Stock Award shall be determined by the Committee.
8.2 Restrictions. A Participant's right to retain a Restricted Stock Award
granted to him under Section 8.1 shall be subject to such restrictions,
including but not limited to his continuous employment by the Company or an
Affiliated Corporation for a restriction period specified by the Committee or
the attainment of specified performance goals and objectives, as may be
established by the Committee with respect to such Award. The Committee may in
its sole discretion require different periods of employment or different
performance goals and objectives with respect to different Participants, to
different Restricted Stock Awards or to separate, designated portions of the
Stock shares constituting a Restricted Stock Award. In the event of the death or
Disability of a Participant, or the retirement of a Participant in accordance
with the Company's established retirement policy, all employment period and
other restrictions applicable to Restricted Stock Awards then held by him shall
lapse with respect to a pro rata part of each such Award based on the ratio
between the number of full months of employment completed at the time of
termination of employment from the grant of each Award to the total number of
months of employment required for such Award to be fully nonforfeitable, and
such portion of each such Award shall become fully nonforfeitable. The remaining
portion of each such Award shall be forfeited and shall be immediately returned
to the Company. In the event of a Participant's termination of employment for
any other reason, any Restricted Stock Awards as to which the employment period
or other restrictions have not been satisfied (or waived or accelerated as
provided herein) shall be forfeited, and all shares of Stock related thereto
shall be immediately returned to the Company.
8.3 Privileges of a Shareholder, Transferability. A Participant shall have
all voting, dividend, liquidation and other rights with respect to Stock in
accordance with its terms received by him as a Restricted Stock Award under this
Article VIII upon his becoming the holder of record of such Stock; provided,
however, that the Participant's right to sell, encumber, or otherwise transfer
such Stock shall be subject to the limitations of Section 13.2.
8.4 Enforcement of Restrictions. The Committee shall cause a legend to be
placed on the Stock certificates issued pursuant to each Restricted Stock Award
referring to the restrictions provided by Section 8.2 and 8.3 and, in addition,
may in its sole discretion require one or more of the following methods of
enforcing the restrictions referred to in Sections 8.2 and 8.3:
(a) Requiring the Participant to keep the Stock certificates, duly
endorsed, in the custody of the Company while the restrictions remain in
effect; or
(b) Requiring that the Stock certificates, duly endorsed, be held in
the custody of a third party while th restrictions remain in effect.
<PAGE>14
ARTICLE IX -- STOCK UNITS
A Participant may be granted a number of Stock Units determined by the
Committee. The number of Stock Units, the goals and objectives to be satisfied
with respect to each grant of Stock Units, the time and manner of payment for
each Stock Unit, and the other terms and conditions applicable to a grant of
Stock Units shall be determined by the Committee.
ARTICLE X -- STOCK APPRECIATION RIGHTS
10.1 Persons Eligible. The Committee, in its sole discretion, may grant
Stock Appreciation Rights to Participants.
10.2 Grant. The Committee shall determine at the time of the grant of a
Stock Appreciation Right the time period during which the Stock Appreciation
Right may be exercised, which period may not commence until six months after the
date of grant.
10.3 Exercise. A Stock Appreciation Right shall entitle a Participant to
receive a number of shares of Stock (without any payment to the Company, except
for applicable withholding taxes), cash, or Stock and cash, as determined by the
committee in accordance with Section 10.4 below. If a Stock Appreciation Right
is issued in tandem with an Option, except as may otherwise be provided by the
Committee, the Stock Appreciation Right shall be exercisable during the period
that its related Option is exercisable. A Participant desiring to exercise a
Stock Appreciation Right shall give written notice of such exercise to the
Company, which notice shall state the proportion of Stock and cash that the
Participant desires to receive pursuant to the Stock Appreciation Right
exercised. Upon receipt of the notice from the Participant, the Company shall
deliver to the person entitled thereto (i) a certificate or certificates for
Stock and/or (ii) a cash payment, in accordance with Section 10.4 below. The
date the Company receives written notice of such exercise hereunder is referred
to in this Article X as the "exercise date." The delivery of Stock or cash
received pursuant to such exercise shall take place at the principal offices of
the Company within 30 days following delivery of such notice.
10.4 Number of Shares or Amount of Cash. Subject to the discretion of the
Committee to substitute cash for Stock, or Stock for cash, the amount of Stock
which may be issued pursuant to the exercise of a Stock Appreciation Right shall
be determined by dividing: (a) the total number of shares of Stock as to which
the Stock Appreciation Right is exercised, multiplied by the amount by which the
Fair Market Value of the Stock on the exercise date exceeds the Fair Market
Value of a share of Stock on the date of grant of the Stock Appreciation Right,
by (b) the Fair Market Value of the Stock on the exercise date; provided,
however, that fractional shares shall not be issued and in lieu thereof, a cash
adjustment shall be paid. In lieu of issuing Stock upon the exercise of a Stock
Appreciation Right, the Committee in its sole discretion may elect to pay the
cash equivalent of the Fair Market Value of the Stock on the exercise date for
any or all of the shares of Stock that would otherwise be issuable upon exercise
of the Stock Appreciation Right.
<PAGE>15
10.5 Effect of Exercise. If a Stock Appreciation Right is issued in tandem
with an Option, the exercise of the Stock Appreciation Right or the related
Option will result in an equal reduction in the number of corresponding Options
or Stock Appreciation Rights which were granted in tandem with such Stock
Appreciation Rights and Options.
10.6 Termination of Employment. Upon the termination of employment or other
services of a Participant, any Stock Appreciation Rights then held by such
Participant shall be exercisable within the time periods, and upon the same
conditions with respect to the reasons for termination of employment or other
services, as are specified in Section 7.2(d) with respect to Options.
ARTICLE XI -- OTHER COMMON STOCK GRANTS
From time to time during the duration of this Plan, the Board may, in its
sole discretion, adopt one or more incentive compensation arrangements for
Participants pursuant to which the Participants may acquire shares of Stock,
whether by purchase, outright grant, or otherwise. Any such arrangements shall
be subject to the general provisions of this Plan and all shares of Stock issued
pursuant to such arrangements shall be issued under this Plan.
ARTICLE XII -- CHANGE IN CONTROL
12.1 In General. Upon a change of control in the Company as defined in
Section 12.2, then (a) all options shall become immediately exercisable in full
during the remaining term thereof, and shall remain so, whether or not the
Participants to whom such Options have been granted remain employees of the
Company or an Affiliated Corporation; (b) all restrictions with respect to
outstanding Restricted Stock Awards shall immediately lapse; (c) all Stock Units
shall become immediately payable; and (d) all other Awards shall immediately
become exercisable or shall vest, as the case may be, without any further action
or passage of time.
12.2 Definition. For purposes of this Plan, a "change in control" shall be
deemed to have occurred if (a) a person (as such term is used in Section 1(d) of
the 1934 Act) becomes the beneficial owner (as defined in Rule 13d-3 under the
1934 Act) of shares of the Company or the Company's successor having 30% or more
of the total number of votes that may be cast for the election of directors of
the Company without the prior approval of at least a majority of the members of
the Company's Board of Directors unaffiliated with such person (unless such
person beneficially owns shares with at least 15% of such votes on the Effective
Date), or (b) individuals who constitute the directors of the Company at the
beginning of a 24-month period cease to constitute at least two-thirds of all
directors at any time during such period, unless the election of any new or
replacement directors was approved by a vote of at least a majority of the
members of the Company's Board of Directors in office immediately prior to such
period and of the new and replacement directors so approved.
<PAGE>16
ARTICLE XIII -- RIGHTS OF EMPLOYEES; PARTICIPANTS
13.1 Employment. Nothing contained in the Plan or in any Award granted
under the Plan shall confer upon any Participant any right with respect to the
continuation of his employment by the Company or any Affiliated Corporation, or
interfere in any way with the right of the Company or any Affiliated
Corporation, subject to the terms of any separate employment agreement to the
contrary, at any time to terminate such employment or to increase or decrease
the compensation of the Participant from the rate in existence at the time of
the grant of an Award. Whether an authorized leave of absence, or absence in
military or government service, shall constitute a termination of employment
shall be determined by the Committee at the time.
13.2 Nontransferability. No right or interest of any Participant in an
Option, a Stock Appreciation Right, a Restricted Stock Award (prior to the
completion of the restriction period applicable thereto), a Stock Unit, or other
Award granted pursuant to the Plan, shall be assignable or transferable during
the lifetime of the Participant, either voluntarily or involuntarily, or
subjected to any lien, directly or indirectly, by operation of law, or
otherwise, including execution, levy, garnishment, attachment, pledge or
bankruptcy. In the event of a Participant's death, a Participant's rights and
interests in Options, Stock Appreciation Rights, Restricted Stock Awards, other
Awards, and Stock Units shall, to the extent provided in Articles VII, VIII, IX,
X and XI, be transferable by will or the laws of descent and distribution, and
payment of any amounts due under the Plan shall be made to, and exercise of any
Options may be made by, the Participant's legal representatives, heirs and
legatees. If in the opinion of the Committee a person entitled to payments or to
exercise rights with respect to the Plan is disabled from caring for his affairs
because of mental condition, physical condition or age, payment due such person
may be made to, and such rights shall be exercised by, such person's guardian,
conservator or other legal personal representative upon furnishing the Committee
with evidence satisfactory to the Committee of such status.
13.3 No Plan Funding. Obligations to Participants under the Plan will not
be funded, trusteed, insured or secured in any manner. The Participants under
the Plan shall have no security interest in any assets of the Company or any
Affiliated Corporation, and shall be only general creditors of the Company.
ARTICLE XIV -- GENERAL RESTRICTIONS
14.1 Investment Representations. The Company may require any person to whom
an Option, Stock Appreciation Right, Restricted Stock Award, Stock Unit, or
Stock is granted, as a condition of exercising such Option or Stock Appreciation
Right, or receiving such Restricted Stock Award, Stock Unit, or Stock, to give
written assurances in substance and form satisfactory to the Company and its
counsel to the effect that such person is acquiring the Stock for his own
account for investment and not with any present intention of selling or
otherwise distributing the same, and to such other effects as the Company deems
necessary or appropriate in order to comply with Federal and applicable state
securities laws.
<PAGE>17
14.2 Compliance with Securities Laws. Each Option, Stock Appreciation
Right, Restricted Stock Award, Stock Unit, and Stock grant shall be subject to
the requirements that, if at any time counsel to the Company shall determine
that the listing, registration or qualification of the shares subject to such
Option, Stock Appreciation Right, Restricted Stock Award, Stock Unit, or Stock
grant upon any securities exchange or under any state or federal law, or the
consent or approval of any governmental or regulatory body, is necessary as a
condition of, or in connection with, the issuance or purchase of shares
thereunder, such Option, Stock Appreciation Right, Restricted Stock Award, Stock
Unit or Stock grant may not be accepted or exercised in whole or in part unless
such listing, registration, qualification, consent or approval shall have been
effected or obtained on conditions acceptable to the Committee. Nothing herein
shall be deemed to require the Company to apply for or to obtain such listing,
registration or qualification.
14.3 Changes in Accounting Rules. Notwithstanding any other provision of
the Plan to the contrary, if, during the term of the Plan, any changes in the
financial or tax accounting rules applicable to Options, Stock Appreciation
Rights, Restricted Stock Awards, Stock Units or other Awards shall occur which,
in the sole judgment of the Committee, may have a material adverse effect on the
reported earnings, assets or liabilities of the Company, the Committee shall
have the right and power to modify as necessary, any then outstanding and
unexercised Options, Stock Appreciation Rights, outstanding Restricted Stock
Awards, outstanding Stock Units and other outstanding Awards as to which the
applicable employment or other restrictions have not been satisfied.
ARTICLE XV -- OTHER EMPLOYEE BENEFITS
The amount of any compensation deemed to be received by a Participant as a
result of the exercise of an Option or Stock Appreciation Right, the sale of
shares received upon such exercise, the vesting of any Restricted Stock Award,
distributions with respect to Stock Units, or the grant of Stock shall not
constitute "earnings" or "compensation" with respect to which any other employee
benefits of such employee are determined, including without limitations benefits
under any pension, profit sharing, life insurance of salary continuation plan.
ARTICLE XVI -- PLAN AMENDMENT, MODIFICATION AND TERMINATION
The Board may at any time terminate, and from time to time may amend or
modify the Plan provided, however, that no amendment or modification by the
shareholders if shareholder approval is required to enable the Plan to satisfy
any applicable statutory or regulatory requirements, or if the Company, on the
advice of counsel, determines that shareholder approval is otherwise necessary
or desirable.
No amendment, modification or termination of the Plan shall in any manner
adversely affect any Options, Stock Appreciation Rights, Restricted Stock
Awards, Stock Units, Stock or other Award theretofore granted under the Plan, or
apply to an incentive stock option outstanding on the date of such amendment or
modification if such amendment or modification constitutes a "modification" to
<PAGE>18
an incentive stock option, without the consent of the Participant holding such
Options, Stock Appreciation Rights, Restricted Stock Awards, Stock Units, Stock
or other Awards.
ARTICLE XVII -- WITHHOLDING
17.1 Withholding Requirement. The Company's obligations to deliver shares
of Stock upon the exercise of any Option, or Stock Appreciation Right, the
vesting of any Restricted Stock Award, payment with respect to Stock Units, or
the grant of Stock shall be subject to the Participant's satisfaction of all
applicable federal, state and local income and other tax withholding
requirements.
17.2 Withholding with Stock. At the time the Committee grants an Option,
Stock Appreciation Right, Restricted Stock Award, Stock Unit, other Award, or
Stock, it may, in its sole discretion, grant the Participant an election to pay
all such amounts of tax withholding, or any part thereof, by electing to
transfer to the Company, or to have the Company withhold from shares otherwise
issuable to the Participant, shares of Stock having a value equal to the amount
required to be withheld or such lesser amount as may be elected by the
Participant. All elections shall be subject to the approval or disapproval of
the Committee. The value of shares of Stock to be withheld shall be based on the
Fair Market Value of the Stock on the date that the amount of tax to be withheld
is to be determined (the "Tax Date"). Any such elections by Participants to have
shares of Stock withheld for this purpose will be subject to the following
restrictions:
(a) All elections must be made prior to the Tax Date.
(b) All elections shall be irrevocable.
(c) If the Participant is an officer or director of the Company within
the meaning of Section 16 of the 1934 Act ("Section 16"), the Participant
must satisfy the requirements of such Section 16 and any applicable Rules
thereunder with respect to the use of Stock to satisfy such tax withholding
obligation.
ARTICLE XVIII -- REQUIREMENTS OF LAW
18.1 Requirements of Law. The issuance of Stock and the payment of cash
pursuant to the Plan shall be subject to all applicable laws, rules and
regulations.
18.2 Federal Securities Law Requirements. If a Participant is an officer or
director of the Company within the meaning of Section 16, Awards granted
hereunder shall be subject to all conditions required under Rule 16b-3, or any
successor rule promulgated under the 1934 Act, to qualify the Award for any
exception from the provisions of Section 16(b) of the 1934 Act available under
that Rule. Such conditions shall be set forth in the agreement with the
Participant which describes the Award or other document evidencing or
accompanying the Award.
<PAGE>19
18.3 Governing Law. The Plan and all agreements hereunder shall be
construed in accordance with and governed by the laws of the State of Oregon.
ARTICLE XIX -- DURATION OF THE PLAN
Unless sooner terminated by the Board of Directors, the Plan shall
terminate on August 31, 2000, and no Option, Stock Appreciation Right,
Restricted Stock Award, Stock Unit, other Award or Stock shall be granted, or
offer to purchase Stock made, after such termination. Options, Stock
Appreciation Rights, Restricted Stock Awards, other Awards, and Stock Units
outstanding at the time of the Plan termination may continue to be exercised, or
become free of restrictions, or paid, in accordance with their terms.
Dated: September 28, 2000
ATTEST: MORROW SNOWBOARDS, INC.
By: ______________________________ By: ______________________________
Secretary P.Blair Mullin, President
