SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): April 5, 2001
SURREY, INC.
(Exact name of registrant as specified in its charter)
TEXAS 001-23407 74-2138564
(State or other jurisdiction of Commission (I.R.S. Employer
incorporation or organization) File No. Identification No.)
13110 Trails End Road, Leander, Texas 78641
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (512) 267-7172
Item 2. Other Events
On April 5, 2001, Surrey, Inc. (the "Company") entered into an
Agreement for the Purchase and Sale of Assets (the "Asset Agreement"),
dated as of April 2, 2001, with Jean Charles Incorporated, a Utah
corporation with an address at 82449 Avenue 61, Thermal, California
92274. A copy of the Asset Agreement is attached as an exhibit to this
filing. The Asset Agreement provides for the sale by the Company to
Jean Charles Incorporated of all of the Company's tangible personal
property, inventories, intangibles, books and records and prepaid
accounts. The Company is not selling its real property, accounts
receivable, bank accounts, tax deposits and certain of its contracts
not assumed by Jean Charles Incorporated pursuant to the Asset
Agreement nor are the Company's accounts payable being assumed.
The sale of assets pursuant to the Asset Agreement has been
approved by the Company's board of directors and is subject to approval
by the Company's shareholders. The Company will prepare as soon as
possible a notice to its shareholders of a special shareholders'
meeting to consider and vote upon the Asset Agreement. The
circumstances which led to the decision by the Board of Directors to
enter into the Asset Agreement were two-fold. Recently, the Board of
Directors has been advised by management that the current audit of the
Company's financial statements for its year ended December 31, 2000
reveal that the Company has experienced substantial losses for the year
ended December 31, 2000, in the amount of approximately $2,100,000.00.
In addition, the Company has borrowed heavily from The Chase Manhattan
Bank over the past few years and is indebted to The Chase Manhattan
Bank in the amount of approximately $6,000,000.00, including principal,
interest and late fees, all of which debt is cross-collateralized by
the Company's real property, accounts receivable and inventory. By
letter dated January 3, 2001, The Chase Manhattan Bank accelerated the
maturity of a portion of the Company's debt and demanded immediate
payment. The Company unsuccessfully sought to refinance its debt owed
to The Chase Manhattan Bank with another lender. By letter dated March
7, 2001, The Chase Manhattan Bank accelerated the maturity of the
balance of the Company's indebtedness and demanded immediate payment.
The Board of Directors of the Company has considered various
alternatives available to the Company, including bankruptcy,
receivership, assignment for the benefit of creditors and sale of
assets, and has discussed these alternatives with the professional
advisors to the Company. The Company does not have the financial
ability to continue as a going concern, nor does it have the capital
resources to continue its operations under the threat of foreclosure by
The Chase Manhattan Bank. The Board of Directors of the Company has
determined that the Asset Agreement is the preferred alternative for
the creditors and shareholders of the Company.
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In a Letter Agreement dated April 5, 2001 among the Company,
The Chase Manhattan Bank and Jean Charles Incorporated, The Chase
Manhattan Bank has agreed to forebear taking any action to collect the
debt owed to it by the Company for 180 days, subject to the continuing
performance by Jean Charles Incorporated pursuant to the Asset
Agreement. A copy of the Letter Agreement is attached as an exhibit to
this filing.
The sale of assets pursuant to the Asset Agreement will close
on July 31, 2001, unless postponed by the parties, but not later than
September 29, 2001 (the "Closing"). At the Closing the Company will
transfer and deliver title to the assets to be sold pursuant to the
Asset Agreement to Jean Charles Incorporated.
Jean Charles Incorporated has contracted to perform certain
obligations pursuant to the Asset Agreement in consideration for the
assets to be sold, including (i) operation of the Company's business as
agent for the Company until the Closing; (ii) payment of the Company's
general, administrative and operating expenses from the date of the
Asset Agreement until the Closing; (iii) payment of lease payments on
the Company's operating and capital leases from the date of the Asset
Agreement until the Closing; and (iv) payment of certain other expenses
of the Company, subject to prior approval. Effective on the date of the
Asset Agreement, the Company laid-off all of its employees and Jean
Charles Incorporated hired and agreed to pay those employees it
considers necessary to the ongoing business of the Company. Jean
Charles Incorporated also contracted to lease the Company's office and
warehouse facilities on a month-to-month basis at a rental of
$10,000.00 per month for as long as necessary to continue the
operations of the Company.
In addition, Jean Charles Incorporated entered into a Guaranty
Agreement (the "Guaranty Agreement") dated April 5, 2001 with The Chase
Manhattan Bank pursuant to which Jean Charles Incorporated guaranteed
the payment by or on behalf of the Company of $3,000,000.00 to The
Chase Manhattan Bank within 180 days after the date of the Asset
Agreement from collections on the Company's accounts receivable and
sales of product using the Company's inventory. A copy of the Guaranty
Agreement is attached as an exhibit to this filing. The Chase Manhattan
Bank is owed approximately $6,000,000.00, including principal, interest
and late fees, by the Company, all of which is cross-collateralized by
the Company's real property, accounts receivable and inventory.
In addition, Jean Charles Incorporated has agreed, pursuant to
the Asset Agreement, to pay 10% of gross sales revenues, less returns
and allowances, from sales of products acquired from the Company
directly to the Company's trade creditors, until such time as the
Company's trade creditors have been paid in full.
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In addition, Jean Charles Incorporated has agreed, pursuant to
the Asset Agreement, to purchase from the Company all of its
inventories on hand at the Closing, valued at the lesser of cost or
fair market value, less inventory advances by Jean Charles Incorporated
to the Company. In payment for the inventory, Jean Charles Incorporated
will pay 10% of gross sales revenues, less returns and allowances, from
sales of products acquired from the Company directly to the Company,
after the Company's trade creditors have been paid in full, until such
time as the Company has been paid in full for the inventory.
Additionally, the Asset Agreement provides that all shares of
stock of the Company owned directly or indirectly by John van der Hagen
will be canceled by the Company at or prior to the Closing, John van
der Hagen will enter into a long term consulting agreement with Jean
Charles Incorporated, a copy of which is attached as an exhibit to this
filing, and Marty van der Hagen will enter into an employment agreement
with Jean Charles Incorporated, a copy of which is attached as an
exhibit to this filing.
Additionally, Jean Charles Incorporated has covenanted
pursuant to the Asset Agreement that within 18 months after the date of
the Asset Agreement, Jean Charles Incorporated will make a tender offer
to the shareholders of the Company to purchase all of their shares of
stock of the Company for cash consideration of $.80 per share, less
distributions, if any, made to the shareholders after the date of the
Asset Agreement.
Item 7. Financial Statements and Exhibits
(a) Financial Statements
None.
(b) Pro forma financial information
None.
(c) Exhibits. The following exhibits are incorporated herein by this reference:
Exhibit No. Description of Exhibit
10.24 Agreement for the Purchase and Sale of Assets dated as of
April 2, 2001 between Surrey, Inc. and Jean Charles
Incorporated
10.25 Guaranty Agreement dated April 5, 2001 between Jean Charles
Incorporated and The Chase Manhattan Bank
10.26 Letter Agreement dated April 5, 2001 among Surrey, Inc.; Jean
Charles Incorporated and The Chase Manhattan Bank
10.27 Consulting Agreement dated April 2, 2001 between Jean Charles
Incorporated and John van der Hagen.
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10.28 Employment Agreement dated April 2, 2001 between Jean Charles
Incorporated and Marty van der Hagen.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned, hereunto duly authorized.
Dated: April 13, 2001 SURREY, INC.
(Registrant)
By: /s/ Mark van der Hagen
Mark van der Hagen
Chief Financial Officer
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