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:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S). 240.14a-11(c) or (S). 240.14a-12
SURREY, INC.
(Name of Registrant as Specified in Its Charter)
None
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required.
[_] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Sch. 14A
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) 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):
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[X] 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.
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4) Date Filed:
SURREY, INC.
13110 Trails End Road
Leander, Texas 78641
__________________
NOTICE OF 2001 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 27, 2001
__________________
TO THE SHAREHOLDERS OF SURREY, INC.
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Shareholders of
Surrey, Inc., a Texas corporation, will be held on Thursday, September 27, 2001,
commencing at 10:00 a.m., at the offices of the Company, 13110 Trails End Road,
Leander, Texas 78641 to consider and vote on the following matters described in
this notice and the accompanying Proxy Statement:
1. To elect four (4) directors to the Company's Board of Directors to serve
for the ensuing year or until their earlier resignation or removal.
2. To authorize an Agreement for Purchase and Sale of Assets between the
Company and Jean Charles Incorporated providing for the sale of substantially
all of the Company's assets.
3. To ratify the appointment of Grant Thornton, LLP as the Company's
independent auditors for the fiscal year 2001.
4. To transact such other business as may properly come before the Annual
Meeting or any adjournments or postponements thereof.
The Board of Directors has fixed the close of business on August 14, 2001
as the record date for determination of share owners entitled to vote at the
Annual Meeting or any adjournments thereof, and only record holders of Common
Stock at the close of business on that day will be entitled to vote. At the
record date, 2,472,727 shares of Common Stock were issued and outstanding.
EACH OF YOU IS INVITED AND URGED TO ATTEND THE ANNUAL MEETING IN PERSON IF
POSSIBLE. WHETHER OR NOT YOU ARE ABLE TO ATTEND IN PERSON, YOU ARE REQUESTED TO
DATE, SIGN AND RETURN PROMPTLY THE ENCLOSED PROXY CARD IN THE ENVELOPE ENCLOSED
FOR YOUR CONVENIENCE. ANY SHAREHOLDER ATTENDING THE ANNUAL MEETING MAY VOTE IN
PERSON EVEN IF HE OR SHE PREVIOUSLY RETURNED A PROXY. A PROXY MAY BE REVOKED BY
WRITTEN REVOCATION DELIVERED TO THE COMPANY AT ANY TIME PRIOR TO THE ANNUAL
MEETING.
By Order of the Board of Directors
Martin J. van der Hagen
President
August 14, 2001
Leander, Texas
SURREY, INC.
13110 Trails End Road
Leander, Texas 78641
PROXY STATEMENT
2001 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 27, 2001
SOLICITATION OF PROXIES
GENERAL
The enclosed proxy is solicited by and on behalf of the Board of Directors
of Surrey, Inc. (the "Company") for use at the Annual Meeting of the
Shareholders of Surrey, Inc., a Texas corporation, will be held on Thursday,
September 27, 2001, commencing at 10:00 a.m., at the offices of the Company,
13110 Trails End Road, Leander, Texas 78641, and any adjournment or postponement
thereof. The approximate date on which this Proxy Statement and form of proxy
will first be sent or given to shareholders is August 21, 2001.
RECORD DATE
Only shareholders of record at the close of business on August 14, 2001,
are entitled to notice of and to vote at the Annual Meeting or any adjournments
or postponements thereof. Each share so held entitles the holder to one vote
upon each matter to be voted upon. On August 14, 2001, the Company had
outstanding 2,472,727 shares of common stock. A quorum, consisting of a majority
of the outstanding shares of the common stock entitled to vote at the Annual
Meeting, must be present in person or represented by proxy before action may be
taken at the Annual Meeting.
REVOCABILITY OR PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving the proxy at any time before it is voted. Proxies may be revoked by (a)
giving written notice of such revocation to the secretary of the Company at the
Company's principal executive office located at 13110 Trails End Road, Leander,
Texas 78641, (b) giving another written proxy bearing a later date, or (c)
attending the Annual Meeting and voting in person (although attendance at the
Annual Meeting will not in and of itself constitute a revocation of a proxy).
VOTING AND SOLICITATION
All shares represented by proxies which have been properly executed and
filed with the secretary of the Company prior to or at the meeting will be voted
at the meeting. Where a specification is made by the shareholder as provided in
the form of proxy, the shares will be voted in accordance with such
specification. If no specification is made, the shares will be voted (i) FOR the
election of all of the nominees for director named in this Proxy Statement; (ii)
FOR authorization of the Agreement of Purchase and Sale of Assets; and (iii) FOR
the ratification of the appointment of Grant Thornton, LLP as the Company's
independent auditors for the fiscal year 2001.
Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the Inspectors of Election appointed for the meeting and will also determine if
a quorum is present. If an executed proxy card is returned and the shareholder
has abstained from voting on any matter, the shares represented by such proxy
will be considered present at the meeting for purposes of determining a quorum
and for purposes of calculating the vote, but will not be considered to have
been voted in favor of such matter. If an executed proxy is returned by a broker
holding shares in street name which indicates that the broker does not have
discretionary authority as to certain shares to vote on one or more matters,
such shares will be considered present at the meeting for purposes of
determining a quorum, but will not be considered to be represented at the
meeting for purposes of calculating the vote with respect to such matter.
The expense of the solicitation of proxies for this Annual Meeting,
including the cost of mailing, has been or will be borne by the Company.
Arrangements will be made with brokerage houses and other custodian nominees and
fiduciaries to send proxies and proxy materials to their principals and the
Company will reimburse them for their
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expense in so doing. In addition to solicitation by mail, proxies may be
solicited by telephone, telegraph or personally by certain of the Company's
directors, officers and regular employees, without additional compensation.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
General
The property, affairs and business of the Company are managed under the
direction of the Board of Directors. A board of four (4) directors is to be
elected at the meeting. Unless otherwise instructed, the proxy holders will vote
the proxies received by them for management's four (4) nominees named below, all
of whom are presently directors of the Company. The term of office for each
person elected as a director will continue until the next Annual Meeting of the
Shareholders and until a successor shall have been elected and qualified, or
until such director is removed or resigns. All of the nominees named below are
presently directors of the Company and have served continuously since the year
indicated. All nominees have indicated a willingness to serve if elected.
All shares represented by proxies which have been properly executed and
returned will be voted for the election of all of the nominees named below,
unless other instructions are indicated thereon. In the event any one or more of
such nominees should for any reason be unable to serve as a director, it is
intended that the enclosed proxy will be voted for such person or persons as may
be selected in accordance with the best judgment of the proxy holders named
therein.
Nominees
The names of the nominees, all of whom are currently serving as directors
of the Company, and certain information about them are set forth below:
Nominee Age Position Director Since
------- --- -------- --------------
John B. van der Hagen 68 Chairman of the Board and CEO 1981
Martin J. van der Hagen 38 President and Director 1997
Mary van der Hagen 60 Secretary and Director 1981
Bruce A. Masucci 40 Director 1997
Vote Required
If a quorum is present and voting, directors are elected by a majority of
the votes cast for the election of directors at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE
NOMINEES NAMED ABOVE.
Information Concerning Directors and Nominees
The following discussion sets forth certain information for at least the
last five years with respect to the directors and nominees of the Company. The
Company knows of no arrangements or understandings between a director or nominee
and any other person pursuant to which he has been selected as a director or
nominee. Directors of the Company hold office until the next annual meeting of
shareholders or until their successors have been duly elected and qualified.
John B. Van Der Hagen, 68, is a co-founder of Surrey and has served as a
Director since 1981. He served as President of the Company from 1988 until being
named CEO in August 1997 Chairman of the Board in September 1997. From 1981 to
1988 he served as Vice-President of the Company. As Chief Executive Officer, he
is responsible for overall Company operations. He has been actively involved in
and has had primary responsibility for, marketing and product development since
becoming President of the Company in 1988. Prior to founding Surrey, John van
der Hagen
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was President and founder of Alpine Oil Company. He attended St. Thomas
University in St. Paul, Minnesota. John van der Hagen is the father of Martin
van der Hagen and Mark van der Hagen. Mary van der Hagen is his wife.
Martin J. Van Der Hagen, 38, was elected as a Director and President of
Surrey in September 1997. Prior to that time he served as Executive Vice
President of the Company. He has been responsible for manufacturing operations,
marketing and product development since becoming Vice President in 1988. He
joined the Company in 1985 after attending the University of Texas and receiving
a Bachelor of Arts degree in finance. Martin van der Hagen is the son of John
and Mary van der Hagen. Mark van der Hagen is his brother.
Mary Van Der Hagen, 60, was elected to the Board of Directors of Surrey in
1981. She has served as Secretary of the Company from 1981 to the present. From
1981 to May 1997, Ms. van der Hagen was employed on a part-time basis by the
Company. She resigned from such employment with the Company in May 1997, but
continues to serve as a Director and as Secretary. Mary van der Hagen is the
wife of John van der Hagen and mother of Martin and Mark van der Hagen.
Bruce A. Masucci, 40, was elected to the Board of Directors of Surrey in
September 1997. Mr. Masucci is currently President of Golden Mile Sales
Association, Inc. in Framingham, Massachusetts, a position he has held since
1982. Golden Mile is a manufacturers representative, concentrating in the New
England states, which currently represents Surrey in that geographic area.
Golden Mile has represented the Company for approximately nine years, and
receives compensation from Surrey in the form of sales-based commissions in an
amount customarily received by other manufacturers representatives who do
business with the Company.
Board Actions And Committees of The Board of Directors
In 2000, the Company's Board of Directors met once. Each of the Company's
directors attended all meetings of the Board of Directors. All directors of the
Company old office until the next annual meeting of shareholders and until their
successor shave been elected and qualified.
The Board of Directors has two current standing committees, the Audit
Committee and the Compensation Committee.
Audit Committee. The Audit Committee of the Board of Directors was formed
in September 1997 and is responsible for relations with the Company's
independent auditors, for review of internal auditing functions and controls and
for review of financial reporting policies to assure full disclosure of
financial conditions. The Company's director who is not employed by the Company,
Mr. Masucci, serves on the Audit Committee with Mr. Martin van der Hagen. The
audit committee met once during 2000 to review the results of the 1999 audit by
Grant Thornton, LLP, the Company's independent accountants. The Audit Committee
has not met in 2001 to review the 2000 audit by Grant Thornton, LLP, and has no
audit committee report or audit committee charter to issue at this time.
Compensation Committee. The Compensation Committee of the Board of
Directors was formed in March 1999 and has the power to review, evaluate,
monitor and determine compensation of employees of the Company including without
limitation salaries and bonuses. The members of the Compensation Committee are
Mr. Martin van der Hagen and Mr. Masucci. The Compensation Committee met once
during 2000.
The Board currently has no nominating or other standing committees and has
no current plans to establish additional committees.
Compensation of Directors
Nonemployee directors receive $1,500 for each meeting that they attend and
are entitled to reimbursement for lodging and transportation to and from
meetings of the Board of Directors. Directors who are employees do not receive
any additional cash compensation for their services.
All directors are eligible to participate in the Company's stock option
plans. On December 3, 1997, Nonemployee directors received an automatic initial
grant of options to purchase 6,000 shares at $4.00 per share, which
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vested over a three-year period. In addition, in April 1999, the Board adopted
an Amendment to the Non-Employee Directors' Stock Option Plan, which Amendment
granted to each Nonemployee director an additional grant of options to purchase
9,000 shares at $1.82 per share. Each individual that becomes a Non-employee
director in the future will receive a grant of options to purchase 15,000 shares
which will vest over three years.
In addition to the automatic initial grant, Non-employee directors receive
under the Directors' Plan an annual automatic grant of options to purchase 5,000
shares beginning with their fourth year of service. The annual grants vest
immediately. Employee directors may be granted options under the Long-Term
Incentive Plans described below, at the discretion of the Board of Directors.
Mary van der Hagen, a Non-employee director, is also provided an annual
automobile allowance of approximately $17,000.
Executive Officers and Key Employees Who Are Not Directors
Mark J. Van Der Hagen, 44, was elected Vice President of Finance and
Treasurer in September 1997. Prior to that time he served as Vice President. His
primary responsibility is overseeing Company finances. He also has held
positions in retail sales and marketing since joining the Company in 1991. Prior
to joining Surrey, he was a Manager of Account Services for First Bank Systems
(now U.S. Bank) in St. Paul, Minnesota from 1988 to 1991, and a Senior Financial
Analyst for The Federal Reserve Bank in Minneapolis from 1980 to 1988. Mark van
der Hagen attended the Carlson School of Management at the University of
Minnesota and received a Bachelor of Science in Business. Mark van der Hagen is
the son of John and Mary van der Hagen. Martin van der Hagen is his brother.
David L. Wills, 43, has been Plant Manager for the Company since 1985. His
primary responsibilities include plant operations, including production,
processing and purchasing. He served as a production assistant prior to being
promoted to Plant Manager. Mr. Wills supervised production for a Midwestern
agricultural processing plant before joining Surrey, Inc. in 1981. Mr. Wills
attended Western Washington University.
Executive Compensation - Summary Compensation Table
The following table sets forth certain information regarding compensation
for the fiscal year ended December 31, 2000 and the prior two years earned by or
paid to the current Chief Executive Officer and the only other executive officer
whose annual compensation exceeded $100,000 (the "Named Executive Officers").
Annual Compensation Long-Term Compensation
--------------------------------------- ----------------------------------
Securities
Other Annual Restricted Underlying All Other
Name and Principal Fiscal Compensation Stock Options/ LTIP Compen-
Position Year Salary ($) Bonus ($) ($)(1) Award(s)($) SARs(#) Payouts($) sation($)
- -------------------------------------------------------------------------------------------------------------------------------
John B. van der Hagen, 2000 $175,000 -- $17,000 -- -- --
Chairman and CEO 1999 $175,000(2) $25,000(3) $17,000 -- -- --
1998 $125,000(2) -- $17,000 -- -- --
Martin van der Hagen, 2000 $175,000 -- $ 6,000 -- -- --
President 1999 $175,000(2) $25,000(3) $ 6,000 -- -- --
1998 $125,000(2) -- $ 6,000 -- -- --
(1) Represents automobile allowance for such years.
(2) In addition to the amounts shown in the table for 1998, each officer
received $25,000 in 1998 as an advance on 1999 salary. That amount is included
in the amounts shown in the table for 1999.
(3) A bonus of $25,000 was received by each officer in May 2000, but was
reported with 1999 compensation.
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Employment Agreements
The Company entered into an employment agreement with each of John van der
Hagen, CEO, and Martin van der Hagen, President, in December 1997 in connection
with the Company's initial public offering. Each such agreement provided for a
minimum annual base salary as follows: (a) for the year ended December 31, 1998,
such base salary was $150,000, provided the Company's gross sales for such year
were at least $12 million; and (b) for the year ended December 31, 1999, such
base salary was increased to $175,000, provided the Company's gross sales for
such year were at least $15 million. The Company did not meet its 1998 gross
sales target. As a result, $25,000 paid to each of the CEO and President in 1998
was taken as an advance on their respective 1999 salaries.
In addition, each such officer is also entitled to a bonus in accordance
with Company policy in effect from time to time, if any. In 1999, under the
employment agreements, each such officer was entitled to receive a bonus not to
exceed $20,000, unless the Company's after tax income exceeds $1,300,000, in
which case such officer may receive an additional bonus of $20,000. Each such
officer is also entitled to an annual automobile allowance, to participate in
the Company's stock option and other benefit plans. A $25,000 bonus for was paid
to each officer in March 2000.
The Company has no written employment agreement with either John van der
Hagen or Martin van der Hagen with respect to their 2000 base salary or any
bonus for year 2000. The Company has agreed to pay a base salary of $175,000 to
each such officer in 2000. In addition, in March 2000, the Company paid a bonus
of $25,000 to each of John and Martin van der Hagen. Under the Company's current
bank loan, any bonus paid to an executive officer must received written consent
of the lender. The Company has requested consent from the lender, Chase Bank.
The Company does not have employment agreements with any of its other key
personnel. However, as part of its effort to expand its marketing and sales
force, the Company may enter into employment agreements with employees hired in
the future.
Long-term Incentive Plans
In September 1997, the Board of Directors and shareholder of the Company
adopted the 1997 Long-Term Incentive Plan (the "1997 Plan"), to provide for the
granting of stock options and other incentive awards to key employees and
employee directors of the Company and reserved 350,000 shares of common stock
for issuance under the 1997 Plan. As of April 16, 2001, the Company had granted
options to purchase an aggregate of 317,500 shares under the 1997 Plan, 242,000
of which were outstanding.
In March 2000, the Board of Directors adopted the 2000 Long-Term Incentive
Plan (the "2000 Plan"), to provide for the granting of stock options and other
incentive awards to any employee of the Company or its Affiliates. ("Affiliate"
is defined as a parent or subsidiary of the Company.) In addition, any director
of the Company or any individual who is rendering services to the Company or an
Affiliate at the request of the Board of Directors or the President shall be
eligible to receive a grant of nonqualified awards. The Company reserved
1,000,000 shares of its common stock for issuance under the 2000 Plan. As of
April 16, 2001, the Company had granted options to purchase an aggregate of
426,250 shares under the 2000 Plan, all of which are outstanding.
Either Plan may be administered by a committee of the Board of Directors
which consists of a majority of "Nonemployee directors," as defined under
applicable securities laws, or the full Board acting as a committee
(collectively, "Committee"). Both Plans are currently administered by the entire
Board acting as the Committee. Eligible persons may receive awards of options to
purchase common stock ("Options"), stock appreciation rights ("Stock
Appreciation Rights" or "Rights"), restricted stock of the Company ("Restricted
Stock"), or performance awards ("Performance Awards"), or any combination
thereof, pursuant to the respective Plan. The Committee has the discretion to
select eligible individuals to whom awards will be granted and establish the
type, price, amount, size and terms of awards, subject in all cases to the
provisions of the respective Plan and the applicable provisions of the Internal
Revenue Code of 1986, as amended (the "Code"). Options, Rights, Restricted Stock
and Performance Awards are hereinafter referred to as "Awards."
Options may be incentive stock options qualified under Section 422 of the
Code ("Incentive Stock Options"), options not so qualified ("Nonqualified Stock
Options") or a combination of both. The exercise price of an Incentive
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Stock Option cannot be less than 100% of the fair market value of the common
stock on the date the option is granted; provided, however, that if the optionee
owns 10% or more of the voting rights of all of the Company's stock, the
exercise price of an Incentive Stock Option cannot be less than 110% of the fair
market value of the common stock on the date the option is granted and the term
cannot exceed five years. The Company will not issue any option or warrant with
an exercise price of less than 85% of the fair market value of the underlying
common stock on the date of grant.
The following stock options for the purchase of shares of Common Stock are
granted and outstanding to employees as of April 16, 2001: (i) under the 1997
Plan, options to purchase 242,000 shares of common stock, at $4.00 per share,
had been granted and were outstanding to 12 employees, and (ii) under the 2000
Plan, no options had been granted.
Except as described below, each of the Options currently outstanding
becomes exercisable in five equal installments commencing on the first
anniversary of the date of grant. Options granted to John van der Hagen, as a
holder of greater than 10% of the voting shares, have an exercise price of 110%
of such price, vest over a four year period, and expire at the end of five
years. Each of the Options currently outstanding generally provides for
forfeiture of any nonvested portion upon termination of employment and
expiration of any nonexercised options three months after termination of
employment (or one year after the employee's death or disability), and expires
on the tenth anniversary of the date of grant.
1997 Non-employee Directors' Stock Option Plan
In September 1997, the Board of Directors and shareholder of the Company
adopted the 1997 Non-Employee Directors' Stock Option Plan (the "Directors'
Plan") to provide for the granting of stock options to directors of the Company
who are not employees. These Options do not qualify as incentive stock options
under Section 422 of the Code. The Company has reserved 100,000 shares of its
common stock for issuance under the Directors' Plan.
The Directors' Plan was amended (the "Amendment") by the Board of Directors
in April 1999. The Amendment, a copy of which is attached this to Proxy
Statement as Exhibit B, is being presented to the shareholders at the Annual
Meeting for adoption and approval. (See Proposal Three.)
The Directors' Plan is administered by the Company's Board of Directors as
a whole. The Directors' Plan, as amended, provides that Nonemployee directors
receive, upon initial election to the Board, an automatic, nondiscretionary
grant of 15,000 options to purchase common stock, vesting over a three year
period. In addition, upon election to a fourth and each subsequent term, each
Nonemployee director receives an automatic annual grant of options to purchase
5,000 shares, which are immediately exercisable. Each option specifies the
expiration date, which may not exceed ten years from the date the option is
granted. The exercise price of an option cannot be less than 100% of the fair
market value of the common stock on the date the option is granted. Stock
options for the purchase of 6,000 shares of common stock were granted to each of
three Nonemployee directors effective as of December 3, 1997, to vest over a
three-year period. Currently, options to purchase 4,000 shares of common stock
of each such grant have vested and the remaining 2,000 options vest on December
3, 2000. The exercise price of the initial options is $4.00 per share.
The Amendment granted, in addition to the 1997 grants, to each Nonemployee
director an additional grant of options to purchase 9,000 shares at $1.82 per
share. At the current time, 6,000 options from the April 1999 grant have vested
and the remaining 3,000 options will vest December 3, 2000. As stated above,
each individual that becomes a non-employee director in the future will receive
a grant of options to purchase 15,000 shares which will vest over three years.
Each of the options generally provides for forfeiture of any nonvested
portion if such holder ceases to be a director and expiration of any
nonexercised option three months after an optionee ceases to be a director (or
one year after the director's death), and expires on the tenth anniversary of
the date to grant.
In addition, the 2000 Plan provides for the discretionary grant of options
to any director of the Company.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of April 16, 2001, certain information
with respect to the beneficial ownership of the common stock (i) by each person
who is known by the Company to beneficially own more than five percent (5%) of
the outstanding common stock, (ii) by each of the Company's Named Executive
Officers and each director and nominee, and (iii) by all current executive
officers, directors and nominees as a group. Unless otherwise noted, each person
or group identified has sole voting and investment power with respect to the
shares shown.
Shares Percent
Beneficially of
Name and Address(1) Owned Class(7)
------------------- ------- ---------
John B. van der Hagen 940,727(2) 37.2%
Martin J. van der Hagen 237,500(3) 9.3%
Mary van der Hagen 940,727(2) 37.2%
Bruce A. Masucci
Golden Mile Sales Associates, Inc.
225 Worcester Road
Framingham, MA 01701 16,000(4) *
Mark J. van der Hagen 50,000(5) 2.0%
All directors and executive officers
as a group (5 persons) 1,244,227(6) 47.3%
* Less than 1%.
________________________
(1) Unless otherwise noted, the business address of each person listed
above is at the Company, 13110 Trails End, Leander, Texas 78641.
(2) Includes 884,727 shares, 1,000 Warrants to purchase Common Stock, and
55,000 options which are currently exercisable and owned as joint tenants by
John and Mary van der Hagen. The 55,000 options consist of 30,000 options
exercisable at $4.40 per share; 10,000 options exercisable at $1.68 per share;
9,000 options exercisable at $1.82 per share; and 6,000 options exercisable at
$4.00 per share. John and Mary van der Hagen also own 60,000 options which are
not currently exercisable, consisting of 20,000 options at $4.40 per share; and
40,000 options at $1.68 per share.
(3) Includes 207,500 shares and 70,000 options which are currently
exercisable, consisting of 45,000 options exercisable at $4.00 per share and
25,000 options exercisable at $1.53 per share. Martin van der Hagen also owns
130,000 options which are not currently exercisable, consisting of 30,000
options at $4.00 per share and 100,000 options at $1.53 per share.
(4) Includes 1,000 shares and 15,000 options which are currently
exercisable, consisting of 6,000 options exercisable at $4.00 per share and
9,000 options exercisable at $1.82 per share.
(5) Included 35,000 shares and 15,000 options which are currently
exercisable at $1.53 per share. Mark van der Hagen also owns 60,000 options
which are not currently exercisable but which may become exercisable at $1.53
per share.
(6) Includes 1,128,227 shares, 1,000 Warrants that are currently
exercisable and 155,000 options that are currently exercisable. Excludes 250,000
options that are not currently exercisable.
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(7) Applicable ownership is based on 2,472,727 shares outstanding as of
April 16, 2001, together with exercisable options and Warrants for such holder.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Guarantee by Officer. John van der Hagen, Chief Executive Officer and a
Director of the Company, has personally guaranteed payments by the Company under
its lease line of credit with Key Corporation Capital Inc. and certain other of
the Company's capital leases, as described in the Company's Annual Report.
Payments under the Key Corporation Capital lease line are approximately $24,000
per month.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company's directors, its executive officers and any persons holding
more than 10% of outstanding common stock are required to file reports
concerning their initial ownership of common stock and any subsequent changes in
that ownership. The Company believes that the filing requirements for the last
fiscal year were satisfied. In making this disclosure, the Company has relied on
the written representations of its directors, executive officers and beneficial
owners of more than 10% of Common Stock and copies of the reports that they have
filed with the Securities and Exchange Commission.
PROPOSAL NO. 2
AGREEMENT FOR PURCHASE AND SALE OF ASSETS
The Company has entered into an Agreement for Purchase and Sale of Assets
(the "Asset Agreement") between the Company and Jean Charles Incorporated
providing for the sale of substantially all of the Company's assets to Jean
Charles Incorporated. The closing of the transaction contemplated by the Asset
Agreement is subject to the approval of the shareholders of the Company. The
proxy holders will vote the proxies received by them for the authorization of
the Asset Agreement.
Vote Required
The affirmative vote of two-thirds of the outstanding Common Stock entitled
to vote at the meeting will be required to authorize the Asset Agreement.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AUTHORIZATION OF THE ASSET
AGREEMENT.
Summary Term Sheet
. The Company will sell its tangible personal property, inventories,
intangibles, books and records and prepaid accounts to Jean Charles
Incorporated.
. The Company will not sell its real property, accounts receivable, bank
accounts, tax deposits and certain of its contracts not assumed by Jean
Charles Incorporated nor does Jean Charles Incorporated assume the
Company's accounts payable.
. Jean Charles Incorporated agrees to do certain things during the period
from the date of the Asset Agreement until the closing of the
transaction, including (i) operation of the Company's business as agent
for the Company; (ii) payment of the Company's general, administrative
and operating expenses from the date of the Asset Agreement; (iii)
payment of lease payments on the Company's operating and capital leases
from the date of the Asset Agreement; and (iv) payment of certain other
expenses of the Company, subject to prior approval.
-8-
. Jean Charles Incorporated guarantees that within 180 days after the date
of the Asset Agreement, The Chase Manhattan Bank will be paid at least
$3,000,000 from colections on the Company's accounts receivable,
proceeds from sales of product using the Company's inventories and/or
funds of Jean Charles Incorporated.
. Jean Charles Incorporated agrees 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.
. Jean Charles Incorporated agrees to enter into a long term consulting
agreemet with John van der Hagen, and to enter into an employment
agreement with Martin van der Hagen.
. Jean Charles Incorporated agrees to 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.
Contact Information
Surrey, Inc.
Attn: Martin J. van der Hagen
13110 Trails End Road
Leander, Texas 78641
512-267-7172
Jean Charles Incorporated
Attn: Stephen P. Yeoman
82449 Avenue 61
Thermal, California 92274
760-399-1124
Business Conducted
The Company specializes in the development and manufacture of high quality
transparent glycerin and specialty soap products, as well as the production of
certain personal care and home fragrance products. The Company has built four
successful retail brands and a strong private label and contract manufacturing
business for high-profile customers. The Company uses a proprietary process for
manufacturing poured bar soaps that allows the Company to produce unique and
affordable original soap products in large quantities with consistent quality.
In addition, the Company manufactures a small amount of traditional bar soap.
The Company also maintains a library of chemical formulations for producing
purer, milder and harder glycerin soap bars primarily through the use of
synthetic moisturizing ingredients rather than the use of tallow (i.e., animal
fat). The Company manufactures and sells home fragrance products and a full line
of potpourri products as part of its crafts market product line. The Company
also manufactures a line of high-end scented candles that complements its line
of home fragrance products.
Jean Charles Incorporated is a major manufacturer of bath and body items
and has manufacturing facilities in Thermal, California and in Mexico. Jean
Charles Incorporated manufactures over 30 million sponges per annum and sells to
major retailers in the United States.
Terms of the Transaction
On April 5, 2001, 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. 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
-9-
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 authorization by the Company's
shareholders. The circumstances which led to the decision by the Board of
Directors to enter into the Asset Agreement were two-fold. The Board of
Directors was advised by management that 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. 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, including principal,
interest and late fees, all of which debt is cross-collateralized by the
Company's real property, accounts receivable and inventories. 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 all 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.
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.
If the shareholders of the Company do not authorize the Asset Agreement,
The Chase Manhattan Bank will most likely proceed with the collection of the
debt owed to it by the Company by foreclosing upon the assets of the Company
which have been pledged as collateral to secure that debt. That action would
effectively put the Company out of business. The Board of Directors of the
Company will then have to reconsider the alternatives of bankruptcy,
receivership, or assignment for the benefit of creditors.
If the shareholders of the Company authorize the Asset Agreement, the sale
of assets pursuant to the Asset Agreement will close by 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 per month for as long as necessary to continue the
operations of the Company.
In addition, Jean Charles Incorporated entered into a 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
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 inventories. The Chase Manhattan Bank is owed
approximately $6,000,000, 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.
-10-
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.
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 inventories.
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, and Martin van
der Hagen will enter into an employment agreement with Jean Charles
Incorporated.
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.
Regulatory Approvals
The Company is not aware of any federal or state regulatory requirements
that must be complied with or any approvals which must be obtained in connection
with this transaction.
Reports, Opinions, Appraisals
The Company has not received any report, opinion or appraisal materially
relating to this transaction from an outside party.
Past Contacts, Transactions or Negotiations
Except as relates to this transaction, there have been no contacts,
transactions or negotiations between the Company and Jean Charles Incorporated
during the past two years.
Surrey, Inc.
Unaudited Pro Forma Condensed Financial Information
The accompanying unaudited pro forma condensed financial information gives
effect to the sale of substantially all operating assets and assumption of
certain liabilities of the Company to Jean Charles Incorporated and reflects the
assumptions and adjustments described in the accompanying notes. The unaudited
pro forma condensed balance sheet presents the financial position of the Company
as of March 31, 2001 assuming the proposed transactions had occurred as of March
31, 2001. The unaudited pro forma condensed balance sheet is based on the
historical March 31, 2001 balance sheet of the Company included in the
Quarterly Report on Form 10-QSB accompanying this proxy statement. The
unaudited pro forma condensed statements of operations for the three months
ended March 31, 2001 and the year ended December 31, 2000 give effect to the
proposed transactions as if they had occurred on January 1, 2000. The unaudited
pro forma condensed statements of operations are based on the historical results
of operations of the Company for the three months ended March 31, 2001, included
in the Quarterly Report on Form 10-QSB, and for the year ended December 31,
2000, included in the Annual Report on Form 10-KSB, copies of which are included
in the Annual Report accompanying this Proxy Statement.
The unaudited pro forma condensed financial information is based upon
available information and assumptions that the Company's management believes are
reasonable. The unaudited pro forma condensed financial information does not
purport to represent the financial position or results of operations which would
have occurred if these
-11-
transactions had been completed on the dates indicated or the Company's
financial position or results of operations for any future date or period. This
unaudited pro forma condensed financial information should be read in
conjunction with the Company's historical financial statements and related notes
included in the Quarterly Report on Form 10-QSB and the Annual Report on Form
10-KSB, copies of which are included in the Annual Report accompanying this
Proxy Statement.
Surrey, Inc.
Unaudited Pro Forma Condensed Balance Sheet
March 31, 2001
(amounts in thousands)
Pro forma
Historical adjustments Pro forma
---------- --------------- ----------
ASSETS
Current assets
Cash and cash equivalents $ 371 $ 371
Accounts receivable 2,046 (2,046)(3) 0
Inventories 2,845 (2,845)(1) 0
Other current assets 104 (104) 0
------ ----------- ------
5,366 (4,995) 371
Property and equipment 4,156 (1,412)(1) 2,744
------ ----------- ------
$9,522 $ (6,407) $3,115
====== =========== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Trade accounts payable $2,203 $ (2,203)(2) $ 0
Accrued expenses 284 284
Current maturities of long-term debt and
capital leases 6,198 (3,189)(2)(3) 3,009
------ ----------- ------
8,685 (5,392) 3,293
Long-term debt and capital leases, less
current maturities 83 (42)(2) 41
Shareholders' equity 754 (973)(1)(2)(3) (219)
------ ----------- ------
$9,522 $ (6,407) $3,115
====== =========== ======
See accompanying notes
-12-
Surrey, Inc.
Unaudited Pro Forma Condensed Statement of Operations
Year ended December 31, 2000
(amounts in thousands, except per share data)
Pro forma
Historical adjustments Pro forma
---------- --------------- ---------
Net sales $16,845 $ (16,845)(1) $ 0
Cost of sales 13,753 (13,753)(1) 0
------- ----------- ------
Gross margin 3,092 (3,092) 0
Operating expenses
Research and development 540 (540)(1) 0
Sales and marketing 1,196 (1,196)(1) 0
General and administrative 2,590 (2,485)(1) 105
------- ----------- ------
4,326 (4,221) 105
------- ----------- ------
Operating loss (1,234) 1,129 (105)
Interest expense 619 (318)(1) 301
------- ----------- ------
Loss before income taxes (1,853) 1,447 (406)
Income tax expense 256 0 256
------- ----------- ------
NET LOSS $(2,109) $ 1,447 $ (662)
======= =========== ======
Net loss per share - basic and diluted $ (0.85) $(0.27)
======= ======
Weighted average shares outstanding -
basic and diluted 2,473 2,473
======= ======
See accompanying notes
-13-
Surrey, Inc.
Unaudited Pro Forma Condensed Statement of Operations
Three months ended March 31, 2001
(amounts in thousands, except per share data)
Pro forma
Historical adjustments Pro forma
----------- --------------- ----------
Net sales $3,603 $ (3,603)(1) $ 0
Cost of sales 2,798 (2,798)(1) 0
------ ---------- ------
Gross margin 805 (805) 0
Operating expenses
Sales and marketing 195 195(1) 0
General and administrative 1,023 996(1) 27
------ ---------- ------
1,218 1,191 27
------ ---------- ------
Operating loss (413) (1,996) (27)
Interest expense 173 90(1) 83
------ ---------- ------
NET LOSS $ (586) $ (2,086) $ (110)
====== ========== ======
Net loss per share - basic and diluted $(0.24) $(0.04)
====== ======
Weighted average shares outstanding -
basic and diluted 2,473 2,473
====== =====
See accompanying notes
Surrey, Inc.
Notes to Unaudited Pro Forma Condensed Financial Information
A. The unaudited pro forma condensed financial information give effect to
the 1) the sale of substantially all of its operating assets, including personal
property, inventories and prepaid expenses, to Jean Charles Incorporated, 2) the
payment of the Company's trade accounts payable by Jean Charles Incorporated and
3) the disposition of the Company's trade accounts receivable in exchange for a
$3 million debt paydown guaranteed by Jean Charles Incorporated.
B. The pro forma financial information reflects the following adjustments.
1. to give effect to the sale of substantially all operating assets
of the Company to Jean Charles Incorporated.
2. to give effect to the payment of the Company's trade accounts
payable and assumption of capital lease obligations by Jean Charles
Incorporated.
3. to give effect to the disposition of the Company's trade accounts
receivable in exchange for a $3 million debt paydown guaranteed by Jean
Charles Incorporated.
-14-
PROPOSAL NO. 3
RATIFICATION AND APPOINTMENT OF INDEPENDENT AUDITORS
During 1999, the Board of Directors retained the firm of Grant Thornton,
LLP as independent public auditors to audit the books, records and accounts of
the Company for the fiscal year ended December 31, 1999. The Board has also
appointed such firm to audit the accounts of the Company for the fiscal year
ending December 31, 2001.
Representatives of Grant Thornton, LLP will be present at the Annual
Meeting, will have an opportunity to make a statement if they desire to do so
and will be available to respond to appropriate questions by shareholders.
Vote Required
The affirmative vote of not less than a majority of the common stock
represented either in person or by proxy and entitled to vote at the meeting
will be required to ratify the appointment of the independent auditors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF GRANT THORNTON, LLP AS INDEPENDENT AUDITORS FOR FISCAL YEAR 2001.
FINANCIAL INFORMATION;
ANNUAL REPORT ON FORM 10-KSB
The Company's 2001 Annual Report to Shareholders accompanies this Proxy
Statement. The 2001 Annual Report to Shareholders includes (i) the balance
sheets of the Company as of December 31, 2000 and December 31, 1999 and the
related consolidated statements of operations, shareholders' equity and cash
flows for the two years ended December 31, 2000, and (ii) the balance sheet of
the Company as of March 31, 2001 and the related . A copy of the 2001 Annual
Report to Shareholders may be obtained without charge upon written request. In
addition, the Company will provide without charge to any shareholder solicited
hereby, upon written request of such shareholder, a copy of its Annual Report on
Form 10-KSB for the year ended December 31, 2000 and its Quarterly Report on
Form 10-QSB for the quarter ended March 31, 2001. Requests for information
should be directed to the Chief Financial Officer, Surrey, Inc., 13110 Trails
End Road, Leander, Texas 78641.
PROPOSALS OF SHAREHOLDERS
Pursuant to Rule 14a-8 of the Securities and Exchange Commission ("SEC"),
any shareholder wishing to have a proposal considered for inclusion in the
Company's proxy solicitation material for the 2002 Annual Meeting of
Shareholders must set forth such proposal in writing and file it with the
Secretary of the Company no later than January 15, 2002. Pursuant to SEC Rule
14a-4(c)(1), any shareholder wishing to have a proposal considered at the 2002
Annual Meeting of Shareholders, but not submitted for inclusion in the Company's
proxy solicitation material, must set forth such proposal in writing and file it
with the Secretary of the Company no later than February 14, 2002 and failure to
notify the Company by such date would allow the Company's proxies to use their
discretionary voting authority when the proposal is raised at the Annual meeting
(to vote for or against the proposal) without any discussion of the matter in
the proxy materials.
OTHER MATTERS
At the date of this Proxy Statement, the Board of Directors knows of no
other matters which may come before the Annual Meeting. However, if any other
matters properly come before the meeting, it is the intention of the persons
named in the enclosed proxy form to vote such proxies received by the Company in
accordance with their judgment on such matters.
By Order of the Board of Directors
Martin J. van der Hagen
President
August 14, 2001
-15-
EXHIBIT "A"
AGREEMENT FOR PURCHASE
AND SALE OF ASSETS
BETWEEN
JEAN CHARLES INCORPORATED
A UTAH Corporation
("BUYER")
AND
SURREY, INC.,
A TEXAS Corporation
("SELLER")
April 2, 2001
TABLE OF CONTENTS
-----------------
PAGE
1 TRANSFER OF ASSETS.................................................... -1-
1.1 Equipment................................................. -1-
---------
1.2 Inventories............................................... -2-
-----------
1.3 Intangibles............................................... -2-
-----------
1.4 Books and Records......................................... -2-
-----------------
1.5 Other Assets.............................................. -2-
------------
2 PURCHASE PRICE........................................................ -2-
--------------
3 THE CLOSING........................................................... -2-
-----------
3.1 Seller's Obligations at the Closing....................... -2-
-----------------------------------
3.2 Buyer's Obligations at the Closing........................ -3-
----------------------------------
4 ASSUMPTION OF LIABILITIES............................................. -3-
-------------------------
5 INTERIM PRE-CLOSING AGREEMENT......................................... -3-
-----------------------------
5.1 Operation of Business..................................... -3-
---------------------
5.2 Employees................................................. -4-
---------
5.3 Lease of Real Property.................................... -4-
----------------------
5.4 Payments to Chase Bank.................................... -4-
----------------------
5.5 Payments to Trade Creditors............................... -4-
---------------------------
5.6 Payments for Inventory.................................... -4-
----------------------
5.7 Sale of Real Property..................................... -5-
---------------------
5.8 Insurance................................................. -5-
---------
5.9 Approvals................................................. -5-
---------
6 OPTIONS CONCERNING COMPETING OFFERS................................... -5-
-----------------------------------
7 SELLER'S REPRESENTATIONS, WARRANTIES AND COVENANTS.................... -5-
--------------------------------------------------
7.1 Organization, Good Standing and Qualification............. -5-
---------------------------------------------
7.2 Binding Agreement......................................... -5-
-----------------
7.3 Stock of Corporation...................................... -5-
--------------------
7.4 Financial Statements...................................... -5-
--------------------
7.5 Absence of Specified Changes.............................. -6-
----------------------------
7.6 Tax Returns and Audits.................................... -6-
----------------------
7.7 Real Property............................................. -6-
-------------
7.8 Other Tangible Personal Property.......................... -6-
--------------------------------
7.9 Trade Names, Trademarks and Copyrights.................... -6-
--------------------------------------
7.10 Trade Secrets............................................. -6-
-------------
7.11 Title to Assets........................................... -6-
---------------
7.12 Insurance Policies........................................ -7-
------------------
7.13 Compliance with Laws...................................... -7-
--------------------
7.14 Litigation................................................ -7-
----------
7.15 Hazardous Materials....................................... -7-
-------------------
7.16 Authority and Consents.................................... -7-
----------------------
7.17 Full Disclosure........................................... -7-
---------------
8 BUYER'S REPRESENTATIONS, WARRANTIES AND COVENANTS..................... -7-
-------------------------------------------------
8.1 Organization, Good Standing and Qualification............. -7-
---------------------------------------------
8.2 Binding Agreement......................................... -8-
-----------------
8.3 Chase Bank................................................ -8-
----------
8.4 Real Property............................................. -8-
-------------
8.5 Tender for Shares......................................... -8-
-----------------
-i-
9 SELLER'S OBLIGATIONS BEFORE CLOSING................................... -8-
-----------------------------------
9.1 Buyer's Access to Premises and Information................ -8-
------------------------------------------
9.2 Conduct of Business in Normal Course...................... -8-
------------------------------------
9.3 Preservation of Business and Relationships................ -8-
------------------------------------------
9.4 New Transactions.......................................... -8-
----------------
9.5 Existing Agreements....................................... -8-
-------------------
9.6 Representations and Warranties True at Closing............ -8-
----------------------------------------------
9.7 Sales and Use Tax on Prior Sales.......................... -8-
--------------------------------
10 BUYER'S OBLIGATIONS BEFORE CLOSING.................................... -8-
----------------------------------
10.1 Information to Be Held in Confidence...................... -8-
------------------------------------
10.2 Employment Agreements..................................... -9-
---------------------
11 CONDITIONS PRECEDENT TO SELLER'S PERFORMANCE.......................... -9-
--------------------------------------------
11.1 Accuracy of Buyer's Representations and Warranties........ -9-
--------------------------------------------------
11.2 Buyer's Performance....................................... -9-
-------------------
11.3 Buyer's Corporate Approval................................ -9-
--------------------------
12 CONDITIONS PRECEDENT TO BUYER'S PERFORMANCE........................... -9-
-------------------------------------------
12.1 Accuracy of Seller's Representations and Warranties....... -9-
---------------------------------------------------
12.2 Performance by Seller..................................... -9-
---------------------
12.3 Certification by Seller................................... -9-
-----------------------
12.4 Absence of Litigation..................................... -9-
---------------------
12.5 Consents.................................................. -10-
--------
12.6 Approval of Documentation................................. -10-
-------------------------
12.7 Consulting Agreement...................................... -10-
--------------------
12.8 Employment Agreement...................................... -10-
--------------------
12.9 Cancellation of Shares.................................... -10-
----------------------
13 SELLER'S OBLIGATIONS AFTER THE CLOSING................................ -10-
--------------------------------------
13.1 Seller's Indemnities...................................... -10-
--------------------
13.2 Use of Seller's Name...................................... -10-
--------------------
14 COSTS................................................................. -10-
-----
14.1 Finder's or Broker's Fees................................. -10-
-------------------------
14.2 Expenses.................................................. -10-
--------
15 FORM OF AGREEMENT...................................................... -10-
-----------------
15.1 Effect of Headings........................................ -10-
------------------
15.2 Entire Agreement; Modification; Waiver.................... -10-
--------------------------------------
15.3 Counterparts.............................................. -11-
------------
16 PARTIES............................................................... -11-
-------
16.1 Parties in Interest....................................... -11-
-------------------
16.2 Assignment................................................ -11-
----------
16.3 Legal Counsel............................................. -11-
-------------
17 REMEDIES.............................................................. -11-
--------
17.1 Recovery of Litigation Costs.............................. -11-
----------------------------
17.2 Defaults Permitting Termination........................... -11-
-------------------------------
18 NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES................. -11-
-----------------------------------------------------
19 NOTICES............................................................... -11-
-------
20 GOVERNING LAW......................................................... -12-
-------------
-ii-
AGREEMENT FOR PURCHASE AND SALE OF ASSETS
THIS AGREEMENT FOR PURCHASE AND SALE OF ASSETS (the "Agreement") is made
effective as of April 2, 2001, at Palm Springs, California, by and between JEAN
CHARLES INCORPORATED (the "Buyer"), a Utah corporation with an address at 82449
61st Avenue, Thermal, California 92274, and SURREY, INC. (the "Seller"), a
Texas corporation with an address at 13110 Trails End Road, Leander, Texas
78641, and is made with reference to the following facts:
RECITALS
A. Seller is engaged in the buying in bulk, manufacturing, repackaging,
and sale of products to various wholesale and retail stores. Seller has been
operating at a loss for some time. The financial reports for Seller for the year
ending December 31, 2000, are expected to reflect a loss of approximately
$1,700,000 for the year. As of September 30, 2000, the reported losses had been
$261,000.00. The amount of the loss for the first quarter of year 2001 is not
currently available but a further substantial loss is projected.
B. Pursuant to its business operations, Seller owns real property,
improvements and fixtures located at 13110 Trails End Road, Leander, Texas 78641
(the "Real Property"). Seller has executed one or more deeds of trust on the
Real Property to secure the repayment of its various promissory notes payable to
the Chase Manhattan Bank ("Chase Bank"), P.O. Box 2558, Houston, Texas 77252-
8074. Seller has also granted a security interest to Chase Bank in substantially
all of its personal property, including without limitation receivables and
inventory, to secure the repayment of its various promissory notes payable to
Chase Bank. Recently, Chase Bank sent Seller a demand letter for the entire
approximately $5,700,000.00 principal owed, plus accrued interest. Seller lacks
sufficient revenues to repay the debt and to thereafter continue in business.
C. Buyer has been, and is now, operating a buy/sell business that has
many similarities to that operated by Seller. Buyer believes that some of
Seller's assets would be of value to Buyer's business operations. Buyer is also
interested in retaining the services of Marty van der Hagen and John van der
Hagen (the "van der Hagens") -- who are current shareholders of the Seller --for
employment and/or consulting as Buyer expands its business operations in the
United States and into Mexico. Therefore, Buyer has made to Seller an offer to
purchase certain of the assets of Seller on the terms set forth in full below.
D. The Board of Directors of Seller (the "Board") has conducted an
evaluation of Seller's options with representatives of Chase Bank, bankruptcy
counsel, and securities counsel. Given the circumstances including the options
available to the Seller, the Board believes that this Agreement is in the best
interests of the Seller.
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties contained in this Agreement, the parties agree as
follows:
1 TRANSFER OF ASSETS
Subject to the terms and conditions set forth in this Agreement, Seller
agrees to sell, convey, transfer, assign and deliver to Buyer, and Buyer agrees
to purchase from Seller at the Closing described in Article 3 hereof, all the
assets, properties and business of Seller of every kind, character and
description whether tangible, intangible, real, personal or mixed and wherever
located (but excluding the Real Property and any assets specifically excluded in
the following Sections of this Article 1), all of which are sometimes
collectively referred to in this Agreement as the "Assets," including, but
without limitation to, the following:
1.1 Equipment. All the machinery, tools, dies, appliances, vehicles,
---------
furniture, equipment (including essential replacement parts) and other tangible
personal property of every kind and description that are located upon or within
the Real Property, are owned or leased by Seller, and are utilized in connection
with Seller's operations upon or within the Real Property, a current list of
which is attached hereto as SCHEDULE 1.1 (hereinafter referred to collectively
as the "Equipment");
-1-
1.2 Inventories. All of Seller's finished goods and raw materials
-----------
(whether expensed or not), including work in process, consumable manufacturing
supplies, spare parts and repair materials that are actually on hand as of the
Closing Date, whether on or within the Real Property or en route thereto or
elsewhere, and any rights and claims to refunds and adjustments of any kind with
respect to the inventory, an approximate summary of which items currently on
hand is attached hereto as SCHEDULE 1.2 (hereinafter referred to collectively as
the "Inventories");
1.3 Intangibles. All trade names, trademarks, service marks, copyrights,
-----------
patents, patent rights, trade secrets, technical know-how, goodwill and other
intangibles (including all contracts to be assumed by Buyer pursuant to Article
4) used by Seller in (or owned by Seller and useful in) the operation of the
business located upon or within the Real Property, but excluding accounts
receivable, accounts payable, contracts not assumed by Buyer pursuant to Article
4, bank accounts, and tax deposits;
1.4 Books and Records. All papers and records in Seller's care, custody
-----------------
or control relating to any or all of the above described Assets and the
operation thereof, including but not limited to all personnel and labor
relations records, environmental control records, sales records, accounting and
financial records, maintenance and production records, and plans and designs of
equipment; and
1.5 Other Assets. All prepaid expenses relating to any of the Assets and
------------
the operation of Seller's business.
2 PURCHASE PRICE
--------------
In consideration for the transfer and assignment by Seller of the Assets
and inconsideration of the representations, warranties and covenants of Seller
set forth herein, Buyer on the conditions set forth herein,
2.1 shall have performed all of its obligations to be performed under this
Agreement to and including the Closing Date;
2.2 shall perform all of its obligations to be performed under this
Agreement after the Closing Date;
2.3 shall assume and discharge, and shall indemnify Seller against,
liabilities and obligations of Seller under the leases or other agreements, if
any, specified on SCHEDULE 4 but only to the extent that such liabilities or
obligations accrue on or after the Closing Date.
3 THE CLOSING
-----------
The Closing of the purchase and sale of the Assets by Seller to Buyer (the
"Closing") shall take place at the offices of Seller, 13110 Trails End Road,
Leander, Texas 78641, at 10:00 a.m. local time, on July 31, 2001, with close of
business to be 5:00 p.m. local time on that date, or at such other place and/or
time as the parties may agree in writing (the "Closing Date"). In the event
that the conditions specified in this Agreement have not been fulfilled by such
date, Buyer may extend the Closing for a period or periods not exceeding an
aggregate of 15 days by written notice to Seller. If, on the original or any
postponed Closing Date Seller shall have been unable to obtain all waivers and
consents of shareholders, private parties and governmental agencies required by
this Agreement, then either Buyer or Seller, on written notice, may postpone the
Closing to a time not later than 10:00 a.m. local time, on September 29, 2001.
Buyer and Seller acknowledge and agree that Chase Bank will not be required to
release any of its liens, security interest or assignments against Seller's
Assets or the Real Property, except upon repayment in full of the Chase Bank
debt, except with respect to inventory and accounts receivable as provided in
that certain Consent Letter dated on or about the date hereof executed buy
Buyer, Seller and Chase Bank.
3.1 Seller's Obligations at the Closing. At the Closing, Seller shall
------------------------------------
deliver or cause to be delivered to Buyer:
3.1.1 Instruments of assignment and transfer (including a Bill of
Sale) of all of the Assets of Seller to be transferred hereunder.
-2-
Simultaneously with the consummation of the transfer, Seller, through
its officers, agents and employees, shall put Buyer into full possession
and enjoyment of all of the Assets to be conveyed and transferred by this
Agreement.
Seller, at any time before or after the Closing Date, will execute,
acknowledge, and deliver any further assignments, conveyances, and other
assurances, documents, and instruments of transfer, reasonably requested by
Buyer and will take any other action consistent with the terms of this
Agreement that may reasonably be requested by Buyer for the purpose of
assigning, transferring, granting, conveying, and confirming to Buyer, or
reducing to possession, any or all property and assets to be conveyed and
transferred by this Agreement. If requested by Buyer, Seller further agrees
to prosecute or otherwise enforce in its own name for the benefit of Buyer
any claims, rights, or benefits that are transferred to Buyer by this
Agreement and that require prosecution or enforcement in Seller's name. Any
prosecution or enforcement of claims, rights, or benefits under this
Section shall be solely at Buyer's expense, unless the prosecution or
enforcement is made necessary by a breach of this Agreement by the Seller.
3.1.2 Seller shall pay all sales and use taxes arising out of the
transfer of the Assets and shall pay its portion, prorated as of the
Closing Date, of state and local real and personal property taxes of the
business. Buyer shall not be responsible for any business, occupation,
withholding, or similar tax, or any taxes of any kind related to any period
before the Closing Date.
3.1.3 Seller shall cancel all outstanding shares of its stock owned,
directly or indirectly, by John van der Hagen.
3.2 Buyer's Obligations at the Closing. At the Closing, Buyer shall
-----------------------------------
deliver to Seller the following instruments and documents against delivery of
the items specified in Section 3.1:
3.2.1 Buyer hereby covenants to perform all of its obligations
accruing or to be performed after the Closing Date, as provided in this
Agreement.
4 ASSUMPTION OF LIABILITIES
-------------------------
Buyer is not assuming any debt, liability or obligation of Seller, whether
known or unknown, fixed or contingent, except as herein specifically otherwise
provided. Buyer shall have the benefit of and shall perform all contracts and
commitments, if any, specifically disclosed on SCHEDULE 4, in accordance with
the terms and conditions thereof, except to the extent modifications are
specifically disclosed on such SCHEDULE 4.
5 INTERIM PRE-CLOSING AGREEMENT
-----------------------------
5.1 Operation of Business. Seller hereby designates and appoints Buyer as
---------------------
Seller's agent and Buyer hereby accepts appointment as Seller's agent for the
administration, management and operation in all respects of Seller's business,
during the period commencing on the date of this Agreement and continuing until
the Closing or earlier termination of this Agreement. During Buyer's operation
of Seller's business:
5.1.1 Buyer shall pay all general, administrative and operating
expenses associated with the operation of Seller's business (including,
without limitation, operating costs and expenses, costs associated with
goods sold and the acquisition of additional raw materials, but excluding
costs of Seller's December 31, 2000 year end audit and costs of filings
with the Securities and Exchange Commission);
5.1.2 Buyer shall pay all amounts payable on Seller's operating and
capital leases for the use of the Assets;
5.1.3 Buyer shall pay all other expenses incurred by Seller, subject
to prior approval of such expense by Buyer;
5.1.4 Buyer shall loan funds and/or inventory items to Seller so that
Inventories will be maintained at a minimum value of not less than
$2,000,000.00 at all times from the date of this Agreement until the
Closing Date or earlier termination of this Agreement.
-3-
During Buyer's operation of Seller's business, Buyer shall be entitled
to all sales revenues, receivables and collections from such revenues and
shall pay to or for the benefit of Seller as provided elsewhere in this
Agreement, for cost of goods sold, 35% of gross sales revenues, less
returns and allowances, (this percentage having been determined by
agreement of the parties because of inconsistencies in the inventory
system).
5.2 Employees. Seller shall lay-off all of its employees effective the
---------
date of this Agreement and shall pay all amounts owed to employees through and
including such date. All contracts and arrangements with employees are in full
force and effect, and neither Seller, nor any other party is in default under
any such contract or arrangement. Seller shall retain an accountant to maintain
the Seller's books of account, to assist the auditors with the completion of the
audit, and to assist with the preparation of filings with governmental agencies.
Buyer may hire such employees as it considers necessary for the operation of the
Seller's business.
5.3 Lease of Real Property. Seller hereby leases to Buyer and Buyer
----------------------
leases from Seller the Real Property on a month-to-month basis commencing on the
date of this Agreement with a monthly rental of $10,000.00 per month, payable
directly to Chase Bank for the benefit of Seller as otherwise provided in this
Agreement, triple net, and Buyer agrees, in addition to the monthly rental, to
pay all taxes, insurance, maintenance and other expenses relating to the Real
Property during the term of the lease.
5.4 Payments to Chase Bank. Buyer guarantees the payment of $3,000,000.00
----------------------
to Chase Bank during the 180 days following the date of this Agreement, such
payment to be made as follows:
5.4.1 All collections of Seller's accounts receivables accruing prior
to the date of this Agreement shall be delivered to Chase Bank within three
business days after their receipt by Seller, until Chase Bank has received
$3,000,000.00 from payments under this Section 5.4. EXHIBIT B to this
Agreement is a complete and accurate schedule of the accounts receivable of
Seller as of April 1, 2001, as reflected in the consolidated balance sheet
as of that date, included in the financial statements, together with an
accurate aging of these accounts;
5.4.2 As described above, commencing on the date of this Agreement,
Buyer shall rent the Real Property from Seller, on a month-to-month basis,
at a rental of $10,000.00 per month and shall pay all rental payments
directly to Chase Bank, unless and until Chase Bank has received payment in
full of all debt of Seller to Chase Bank, in which case rental payments
will be paid directly to Seller;
5.4.3 Commencing on the date of this Agreement, Buyer shall pay
directly to Chase Bank 10% of gross sales revenues, less returns and
allowances, from sales of Seller's products, such payments to be made on or
before the third business day of each week for sales of the preceding week
until such time as Chase has received $3,000,000 pursuant to this Section
5.4; and
5.4.4 On or before the date which is 180 days after the date of this
Agreement, Buyer shall pay to Chase Bank an amount which together with all
other amounts paid to Chase Bank pursuant to this Section 5.4 shall equal
$3,000,000.00.
5.5 Payments to Trade Creditors. Upon the payment of $3,000,000.00 to
---------------------------
Chase Bank pursuant to Section 5.4, Buyer shall pay directly to Seller's trade
creditors 10% of gross sales revenues, less returns and allowances, from sales
of Seller's products, such payments to be made on or before the third business
day of each week for sales of the preceding week until such time as all of
Seller's trade creditors have been paid in full.
5.6 Payments for Inventory. As of the Closing Date, the parties shall
----------------------
jointly determine the value of the Inventories actually on hand as of the
Closing Date, which for purposes of this Agreement shall be the lesser of cost
or fair market value, as determined by a joint physical count and determination
of the parties, plus amounts owed by Buyer to Seller for Inventories sold by
Buyer pursuant to Section 5.1 above, and less amounts owed by Seller to Buyer
for all inventories purchased by Buyer and delivered to Seller and for all funds
advanced by Buyer to Seller to acquire inventories. Upon the payment of trade
creditors pursuant to Section 5.5, Buyer shall pay Seller 10% of gross sales
revenues, less returns and allowances, from sales of Seller's products, such
payments to be made on or before the third business day of each week for sales
of the preceding week until such time as the determined value of Seller's
Inventories has been paid in full.
-4-
5.7 Sale of Real Property. Upon signing this Agreement, Seller shall
---------------------
cause the Real Property to be listed for sale at a price to be determined by the
Seller's Board of Directors. If the Real Property is sold, the proceeds shall be
paid in the following order and priority, to the extent of such proceeds, (i) to
pay in full the debt of Seller owed to Chase Bank, the repayment of which is
secured by the Real Property, (ii) to pay in full Seller's trade creditors,
(iii) to pay in full other creditors and indebtedness of Seller, and (iv) to the
Seller.
5.8 Insurance. Seller will continue to carry its existing insurance,
---------
subject to variations in amounts required by the ordinary operations of its
business. At the request of Buyer and at Buyer's sole expense, the amount of
insurance against fire and other casualties that, at the date of this Agreement,
Seller carries on any of its properties or in respect of its operations shall be
increased by the amount or amounts Buyer shall specify. Seller shall cause Buyer
to be named as an additional insured on each existing insurance policy carried
by Seller.
5.9 Approvals. Messrs. John van der Hagen and Marty van der Hagen have
---------
agreed to vote their stock in favor of the transactions contemplated by this
Agreement and shall use their best efforts to encourage other shareholders to
vote in favor of these transactions.
6 OPTIONS CONCERNING COMPETING OFFERS
-----------------------------------
Seller agrees not to solicit offers from any potential buyers. However, if
Seller receives a bona fide offer prior to the Closing Date to purchase its
assets which Seller desires to accept in lieu of the completion and performance
of this Agreement, Seller shall provide a copy of such offer to Buyer and Buyer
will, within fifteen calendar days after the receipt of such offer, either match
or better the material terms of such offer or cancel this Agreement.
If this Agreement is canceled, Buyer shall be entitled to receive from
Seller compensation equal to the sum of (i) 2% of the net fair market value of
assets of Seller that would have been acquired by Buyer pursuant to this
Agreement, and (ii) Buyer's net out-of-pocket expenses (direct or indirect)
incurred in the negotiation and performance of this Agreement. Payment of such
compensation shall be made upon the closing of the sale under such other offer.
In addition, Seller and the new buyer shall arrange for the unconditional
release of all commitments that Buyer has made pursuant to this Agreement
including, without limitation, commitments made to any banks, leasing companies,
creditors, shareholders, and/or employees.
7 SELLER'S REPRESENTATIONS, WARRANTIES AND COVENANTS
--------------------------------------------------
Seller hereby represents and warrants that:
7.1 Organization, Good Standing and Qualification. Seller is a
---------------------------------------------
corporation duly organized, existing, and in good standing under the laws of
Texas. The execution and delivery of this Agreement and the consummation of this
transaction by Seller have been, or prior to the Closing will have been, duly
authorized, and no further corporate authorization is or will be necessary on
the part of Seller.
7.2 Binding Agreement. At the Closing, this Agreement shall constitute a
-----------------
binding obligation of Seller.
7.3 Stock of Corporation. The authorized capital stock of Seller consists
--------------------
of 10,000,000 shares of common stock, no par value, of which 2,472,727 shares
are issued and outstanding as of the date of this Agreement. All the shares are
validly issued, fully paid, and nonassessable, and such shares have been so
issued in full compliance with all federal and state securities laws. There are
no outstanding subscriptions, options, rights, warrants, convertible securities,
or other agreements or commitments obligating Seller to issue or to transfer
from treasury any additional shares of its capital stock of any class.
7.4 Financial Statements. SCHEDULE 7.4 to this Agreement sets forth a
--------------------
balance sheet of Seller as of December 31, 2000, and the related statement of
income and expense for the year then ended. The financial statements in SCHEDULE
7.4 are referred to as the "Financial Statements." The Financial Statements have
been prepared in accordance with generally accepted accounting principles
consistently followed by Seller throughout the periods indicated, and fairly
present the financial position of Seller as of the date of the Financial
Statements, and the results of its operations for the period indicated.
-5-
7.5 Absence of Specified Changes. Since December 31, 2000 there has not
----------------------------
been any:
7.5.1 Transaction by Seller except in the ordinary course of business
as conducted on that date;
7.5.2 Destruction, damage to, or loss of any assets of Seller
(whether or not covered by insurance) that materially and adversely affects
the financial condition, business, or prospects of Seller's business;
7.5.3 Sale or transfer of any asset of Seller except in the ordinary
course of business;
7.5.4 Amendment or termination of any material contract, agreement,
or license to which Seller is a party, except in the ordinary course of
business;
7.5.5 Waiver or release of any right or claim of Seller, except in
the ordinary course of business;
7.5.6 Other event or condition of any character that has or might
reasonably have a material and adverse effect on the financial condition,
business, assets, or prospects of Seller;
7.6 Tax Returns and Audits. Within the times and in the manner prescribed
----------------------
by law, Seller has filed all federal and state tax returns required by law and
have paid all taxes, assessments, and penalties due and payable. There are no
present disputes as to taxes of any nature payable by Seller.
7.7 Real Property. SCHEDULE 7.7 to this Agreement is a complete and
-------------
accurate legal description of the Real Property owned by Seller. SCHEDULE 7.7
contains a description of the buildings, fixtures, and other improvements
located on the Real Property.
7.8 Other Tangible Personal Property. SCHEDULE 1.1 to this Agreement is a
--------------------------------
complete and accurate schedule describing and specifying the location of, all
machinery, equipment, furniture, supplies, tools, and all other tangible
personal property owned by, in the possession of, or used by Seller in
connection with their business. The property listed in SCHEDULE 1.1 constitutes
all such tangible personal property necessary for the conduct by Seller of its
business as now conducted. Buyer shall have the right to negotiate with
equipment lenders to assume those equipment leases. Such leases are shown on
SCHEDULE 4.
Except as shown herein, no personal property being transferred to Buyer is
held under any lease, security agreement, conditional sales contract, or other
title retention or security arrangement, or is located other than in the
possession of Seller.
7.9 Trade Names, Trademarks and Copyrights. Seller does not use any
--------------------------------------
registered trademark, service mark, trade name, or copyright in its respective
business, and does not own any trademarks, trademark registrations or
applications, trade names, service marks, copyrights, or copyright registrations
or applications. No person owns any trademark, trademark registration or
application, service mark, trade name, copyright, or copyright registration or
application the use of which is necessary or contemplated in connection with the
operation of Seller's business or in connection with the performance of any
contract to which Seller is a party. To the extent Seller has ownership of such
intangibles, they are assigned to Buyer at Closing.
7.10 Trade Secrets. SCHEDULE 7.10 to this Agreement is a true and complete
-------------
list, without extensive or revealing descriptions, of Seller's trade secrets,
including all customer lists. The specific location of each trade secret's
documentation, including its complete description and other material relating to
it, is also set forth with it in such SCHEDULE. Seller believes that it is the
sole owner of each of these trade secrets. To the best of Seller's knowledge,
these trade secrets are not part of the public knowledge nor have they been used
by present employees or other persons or to the detriment of Seller's business.
7.11 Title to Assets. Seller has good and marketable title to all of its
---------------
assets and interests in assets, whether real, personal, mixed, tangible, and
intangible, which constitute all the assets and interests in assets that are
used in the business of Seller. These assets are subject to mortgages, liens,
pledges, charges, encumbrances, equities, claims, easements, rights of way,
covenants, conditions, or restrictions, only to the extent previously described
to Buyer, including security interests perfected through filing, current taxes
not yet due and payable and
-6-
other matters which could be discovered by Buyer through reasonable diligence
and inspection. All tangible personal property of Seller is in good operating
condition and repair, ordinary wear and tear excepted.
7.12 Insurance Policies. SCHEDULE 7.12 to this Agreement is a description
------------------
of all insurance policies held by Seller concerning their business and property.
7.13 Compliance with Laws.
--------------------
7.13.1 To Seller's best knowledge, Seller has complied in all
material respects with, and has not been cited for any violation of
federal, state, or local environmental protection laws and/or regulations,
and no material capital expenditures will be required for compliance with
any federal, state, or local laws or regulations now in force relating to
the protection of the environment.
7.13.2 To Seller's best knowledge, Seller has not at any time
operated, or provided for any of its employees, any pension or profit
sharing or similar retirement plan or any employer welfare or benefit plan
qualified pursuant to the Internal Revenue Code of 1986, as amended, and
subject to the Employee Retirement Income Security Act of 1974.
7.13.3 To Seller's best knowledge, Seller has complied with all
requirements of any Texas Occupational Safety laws and regulations
promulgated under this legislation, the consequences of a violation of
which could have a material adverse effect on their operations, and with
all orders, judgments and decrees of any tribunal pursuant to this
legislation applicable to their business or properties.
7.13.4 To Seller's best knowledge, Seller has complied with, and is
not in violation of, any other applicable material federal, state, or local
statute, law, or regulation affecting their properties or the operation of their
business.
7.14 Litigation. To Seller's best knowledge, there is no suit, action,
----------
arbitration, or legal, administrative, or other proceeding, or governmental
investigation pending or, to the best knowledge of Seller, threatened against or
affecting Seller or its business, assets, or financial condition.
7.15 Hazardous Materials. Seller's best knowledge, there are no
-------------------
underground storage tanks located on the Property in which any Hazardous
Material, as defined below, has been in the past thirty years or is being
stored, nor has there been any spill, disposal, discharge, or release of any
Hazardous Material into, upon, from, or over that Property or into or upon
ground or surface water on that Property. To Seller's best knowledge, there are
no asbestos-containing materials incorporated into the buildings or interior
improvements that are part of that Property, or into other assets of Seller, nor
is there any electrical transformer, fluorescent light fixture with ballasts, or
other equipment containing PCB's on that Property. As used in this Section,
"Hazardous Material" means any hazardous or toxic substance, material, or waste
that is regulated by any federal authority or by any state or local governmental
authority where the substance, material, or waste is located.
7.16 Authority and Consents. Seller has the right, power, legal capacity
----------------------
and authority to enter into, and perform their respective obligations under this
Agreement, and no approvals or consents of any persons other than Seller and its
shareholders are necessary in connection with it.
7.17 Full Disclosure. To Seller's best knowledge, none of the
---------------
representations and warranties made by Seller or made in any certificate or
memorandum furnished or to be furnished by it, or on its behalf, contains or
will contain any untrue statement of a material fact, or omits any material fact
the omission of which would be misleading.
8 BUYER'S REPRESENTATIONS, WARRANTIES AND COVENANTS
--------------------------------------------------
Buyer hereby represents and warrants that:
8.1 Organization, Good Standing and Qualification. Buyer is a corporation
---------------------------------------------
duly organized, existing, and in good standing under the laws of Utah. The
execution and delivery of this Agreement and the consummation of this
transaction by Buyer have been, or prior to the Closing will have been, duly
authorized, and no further corporate authorization is or will be necessary on
the part of Buyer.
-7-
8.2 Binding Agreement. At the Closing, this Agreement shall constitute a
-----------------
legal, valid and binding obligation of Buyer, enforceable in accordance with its
terms.
8.3 Chase Bank. Buyer represents that it has reached an agreement with
----------
Chase Bank with respect to the issues herein described involving Chase Bank.
8.4 Real Property. Buyer hereby covenants that it will hold Seller
-------------
harmless from any liability arising from Buyer's use and occupancy of the Real
Property as provided in this Agreement.
8.5 Tender for Shares. Buyer hereby covenants that prior to the date
-----------------
which is 18 months after the date of this Agreement, Buyer shall make a tender
offer to the shareholders of Seller to purchase all of the shares of the common
stock of Seller that are issued and outstanding on the date of this Agreement
less the shares to be canceled as provided in this Agreement, for a cash
consideration per share of $.80, less distributions, if any, made to
shareholders of Seller after the date of this Agreement. The parties acknowledge
and agree that the consideration for this tender will be adjusted to reflect all
issuances, splits, combinations and any other transaction affecting the capital
stock of Seller. The parties further acknowledge and agree that the shareholders
of Seller are intended beneficiaries of this covenant.
9 SELLER'S OBLIGATIONS BEFORE CLOSING
------------------------------------
Seller covenants that, except as otherwise agreed in writing by Buyer, from
the date of this Agreement until the Closing:
9.1 Buyer's Access to Premises and Information. Buyer and its counsel,
-------------------------------------------
accountants, and other representatives shall have full access during normal
business hours to all properties, books, accounts, records, contracts and
documents of or relating to Seller. Seller shall furnish or cause to be
furnished to Buyer and its representatives all data and information concerning
the business, finances, and properties of Seller that may reasonably be
requested.
9.2 Conduct of Business in Normal Course. Seller will carry on its
------------------------------------
business and activities diligently and in substantially the same manner as they
previously have been carried out.
9.3 Preservation of Business and Relationships. Seller will use its best
------------------------------------------
efforts, without making any commitments on behalf of Buyer, to preserve its
business organization intact, to keep available to Seller its present
relationships with suppliers, customers, and others having business
relationships with it.
9.4 New Transactions. The Seller will not, without Buyer's written
----------------
consent, enter into any contract, commitment, or transaction not in the usual
and ordinary course of its business.
9.5 Existing Agreements. Seller will not modify, amend, cancel, or
-------------------
terminate any of its existing contracts or agreements, or agree to do any of
those acts.
9.6 Representations and Warranties True at Closing. All representations
----------------------------------------------
and warranties of Seller set forth in this Agreement and in any written
statements delivered to Buyer by Seller under this Agreement will also be true
and correct as of the closing date as if made on that date.
9.7 Sales and Use Tax on Prior Sales. Seller agrees to furnish to Buyer a
--------------------------------
clearance certificate from the State of Texas and any related certificates that
Buyer may reasonably request as evidence that all sales and use tax liabilities
of Seller accruing before the closing date have been fully satisfied or provided
for. If such certificate is not available by the closing date, Seller will use
best good faith efforts to obtain it thereafter.
10 BUYER'S OBLIGATIONS BEFORE CLOSING
----------------------------------
10.1 Information to Be Held in Confidence. Prior to the Closing Date (or,
------------------------------------
in the event the Closing does not occur, for a period of two years following the
date of this Agreement) Buyer shall use its best efforts to preserve the
confidentiality of any commercial information which is confidential and which is
disclosed to Buyer or to its representatives by Seller; provided that Buyer at
all times shall not be materially restricted in its investigation
-8-
of the Assets or matters relating thereto. Whether or not the Closing shall take
place, Seller waives any cause of action, right, or claim arising out of the
access of Buyer or its representatives to any trade secrets or other
confidential business information of Seller from the date of this Agreement
until the Closing Date, except for the intentional competitive misuse by Buyer
or its representatives of such trade secrets or other confidential business
information if the Closing does not take place.
10.2 Employment Agreements. Buyer shall negotiate in good faith with John
---------------------
van der Hagen for the purpose of entering into a Consulting Agreement on terms
mutually agreeable to Buyer and John van der Hagen. Buyer shall negotiate in
good faith with Marty van der Hagen for the purpose of entering into an
Employment Agreement on terms mutually agreeable to Buyer and Marty van der
Hagen.
11 CONDITIONS PRECEDENT TO SELLER'S PERFORMANCE
--------------------------------------------
The obligations of Seller to sell and transfer the Assets under this
Agreement are subject to the satisfaction, at or before the Closing, of all of
the following conditions. Seller may waive any or all of these conditions in
whole or in part without prior notice; provided, however, that no such waiver of
a condition shall constitute a waiver by Seller of any of its other rights or
remedies, at law or in equity, if Buyer should be in default of any of its
representations, warranties or covenants under this Agreement.
11.1 Accuracy of Buyer's Representations and Warranties. All
--------------------------------------------------
representations and warranties by Buyer contained in this Agreement or in any
written statement delivered by Buyer under this Agreement shall be true on and
as of the Closing as though such representations and warranties were made on and
as of that date.
11.2 Buyer's Performance. Buyer shall have performed and complied with
-------------------
all covenants and agreements, and satisfied all conditions that it is required
by this Agreement to perform, comply with, or satisfy, before or at the Closing.
11.3 Buyer's Corporate Approval. The Board of Directors of Buyer shall
--------------------------
have duly authorized and approved the execution and delivery of this Agreement
and all corporate action necessary or proper to fulfill the obligations of Buyer
to be performed under this Agreement on or before the Closing Date.
12 CONDITIONS PRECEDENT TO BUYER'S PERFORMANCE
-------------------------------------------
The obligations of Buyer to purchase the Assets under this Agreement are
subject to the satisfaction, at or before the Closing, of all the conditions set
out below in this Section 12. Buyer may waive any or all of these conditions in
whole or in part without prior notice; provided, however, that no such waiver of
a condition shall constitute a waiver by Buyer of any of its other rights or
remedies, at law or in equity, if Seller shall be in default of any of its
representations, warranties, or covenants under this Agreement.
12.1 Accuracy of Seller's Representations and Warranties. Except as
---------------------------------------------------
otherwise permitted by this Agreement, all material representations and
warranties by the Seller in this Agreement or in any written statement that
shall be delivered to Buyer by any of them under this Agreement shall be true on
and as of the closing date as though made at that time.
12.2 Performance by Seller. Seller shall have performed, satisfied, and
---------------------
complied with all covenants, agreements, and conditions required by this
Agreement to be performed or complied with by them it on or before the Closing
Date.
12.3 Certification by Seller. Buyer shall have received a certificate,
-----------------------
dated the Closing Date, signed and verified by Seller's president, certifying,
in such detail as Buyer and its counsel may reasonably request, that the
conditions specified in Sections 12.1 and 12.2 have been fulfilled.
12.4 Absence of Litigation. No action, suit, or proceeding before any
---------------------
court or any governmental body or authority, pertaining to the transaction
contemplated by this Agreement or to its consummation, shall have been
instituted or threatened on or before the Closing Date.
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12.5 Consents. All necessary agreements and consents of any parties to
--------
the consummation of the transaction contemplated by this Agreement, or otherwise
pertaining to the matters covered by it, shall have been obtained by Seller and
delivered to Buyer.
12.6 Approval of Documentation. The form and substance of all
-------------------------
certificates, instruments, and other documents delivered to Buyer under this
Agreement shall be satisfactory in all reasonable respects to Buyer and its
counsel.
12.7 Consulting Agreement. Buyer shall have received a signed Consulting
--------------------
Agreement, in form satisfactory to Buyer, between Buyer and John van der Hagen.
12.8 Employment Agreement. Buyer shall have received a signed Employment
--------------------
Agreement, in form satisfactory to Buyer, between Buyer and Marty van der Hagen.
12.9 Cancellation of Shares. John van der Hagen shall have delivered
----------------------
certificates, duly endorsed for transfer, representing all of their shares of
stock of the Seller to the Seller and such certificates and such shares are duly
canceled at or prior to the Closing.
13 SELLER'S OBLIGATIONS AFTER THE CLOSING
--------------------------------------
13.1 Seller's Indemnities. Seller shall indemnify, defend, and hold
--------------------
harmless Buyer against and in respect of any and all claims, demands, losses,
costs, expenses, obligations, liabilities, damages, recoveries and deficiencies,
including interest, penalties, and reasonable attorneys' fees, that Buyer shall
incur or suffer, which arise, result from, or relate to any breach of, or
failure by Seller to perform any of its representations, warranties, covenants
or agreements in this Agreement or in any schedule, certificate, exhibit, or
other instrument furnished or to be furnished by Seller under this Agreement.
Notwithstanding the foregoing, Seller's liability under this Section shall not
in any event exceed the aggregate amount of $100,000.00. Notwithstanding any
other provision of this Agreement, Seller shall not be liable to Buyer on any
warranty, representation, or covenant made by Seller in this Agreement, or under
any of its indemnities in this Agreement, regarding any single claim, loss,
expense, obligation, or other liability that does not exceed $2,500.00.
13.2 Use of Seller's Name. Seller agrees that after the Closing Date it
--------------------
shall not use or employ in connection with any business or product, directly or
indirectly, the name "SURREY, INC." Notwithstanding the foregoing, Seller shall
not be required to change its corporate name.
14 COSTS
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14.1 Finder's or Broker's Fees. Each of the parties represents and
-------------------------
warrants that it has dealt with no broker or finder in connection with any of
the transactions contemplated by this Agreement, and, insofar as it knows, no
broker or other person is entitled to any commission or finder's fee in
connection with any of these transactions.
14.2 Expenses. Each of the parties shall pay all costs and expenses
--------
incurred or to be incurred by it in negotiating and preparing this Agreement and
in closing and carrying out the transactions contemplated by this Agreement.
15 FORM OF AGREEMENT
-----------------
15.1 Effect of Headings. The subject headings of the Articles, Sections
------------------
and subsections of this Agreement are included for purposes of convenience only,
and shall not affect the construction or interpretation of any of its
provisions.
15.2 Entire Agreement; Modification; Waiver. This Agreement constitutes
--------------------------------------
the entire agreement between the parties pertaining to the subject matter
contained in it and supersedes all prior and contemporaneous agreements,
representations, and understandings of the parties. No supplement, modification,
or amendment of this Agreement shall be binding unless executed in writing by
all the parties. No waiver of any of the provisions of this Agreement shall be
deemed, or shall constitute, a waiver of any other provisions, whether or not
similar, nor shall
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any waiver constitute a continuing waiver. No waiver shall be binding unless
executed in writing by the party making the waiver.
15.3 Counterparts. This Agreement may be executed simultaneously in one
------------
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
16 PARTIES
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16.1 Parties in Interest. Nothing in this Agreement, whether express or
-------------------
implied, is intended to confer any rights or remedies under or by reason of this
Agreement on any persons other than the parties to it and their respective
successors and assigns, nor is anything in this Agreement intended to relieve or
discharge the obligation or liability of any third persons to any party to this
Agreement, nor shall any provision give any third persons any right of
subrogation or action over against any party to this Agreement.
16.2 Assignment. This Agreement shall be binding on and shall inure to
----------
the benefit of the parties to it and their respective heirs, legal
representatives, successors, and assigns; provided, however, Buyer may assign
any of its rights under it to a wholly owned subsidiary corporation of Buyer. No
such assignment by Buyer to its wholly owned subsidiary shall relieve Buyer of
any of its obligations or duties under this Agreement.
16.3 Legal Counsel. Legal counsel for Buyer has prepared this Agreement.
-------------
Seller has retained separate counsel to assist it in the evaluation of this
Agreement, assist in determining whether the provisions contained in this
Agreement are in its best interests and consistent with its economic objectives,
and advise it regarding its position with respect to this Agreement from an
economic and tax standpoint.
17 REMEDIES
--------
17.1 Recovery of Litigation Costs. If any legal action or any arbitration
----------------------------
or other proceeding is brought for the enforcement of this Agreement, or because
of an alleged dispute, breach, default, or misrepresentation in connection with
any of the provisions of this Agreement, the successful or prevailing party or
parties shall be entitled to recover reasonable attorneys' fees and other costs
incurred in that action or proceeding, in addition to any other relief to which
it or they may be entitled.
17.2 Defaults Permitting Termination. If either Buyer or Seller
-------------------------------
materially default in the due and timely performance of any of its warranties,
covenants, or agreements under this Agreement, the non-defaulting party may on
the Closing Date give notice of termination of this Agreement, in the manner
provided in Section 19. The notice shall specify with particularity the default
or defaults on which the notice is based. The termination shall be effective ten
days after the closing date, unless the specified default or defaults have been
cured on or before this effective date for termination.
18 NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES
-----------------------------------------------------
All representations, warranties, covenants, and agreements of the parties
contained in this Agreement, or in any instrument, certificate, opinion, or
other writing provided for in it, shall survive the Closing.
19 NOTICES
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All notices, requests, demands, and other communications under this
Agreement shall be in writing and shall be deemed to have been duly given on the
date of service if served personally on the party to whom notice is to be given,
or on the fifth day after mailing if mailed to the party to whom notice is to be
given, by first class mail, registered or certified, postage prepaid, and
properly addressed as follows:
To Seller at: SURREY, INC.
Attn: President
13110 Trails End Road
Leander, Texas 78641
Facsimile (512) 267-4864
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To Buyer at: JEAN CHARLES INCORPORATED
Attn: President
82449 61st Avenue
Thermal, California 92274
Facsimile (760) 399-1187
Any party may change its address for purposes of this Section by giving the
other parties written notice of the new address in the manner set forth above.
20 GOVERNING LAW
-------------
This Agreement shall be construed in accordance with, and governed by, the
laws of the State of Texas.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their duly authorized representatives as of the day and year
first above written.
"SELLER" "BUYER"
------ -----
SURREY, INC. JEAN CHARLES INCORPORATED
By /s/ By /s/
------------------------------- ------------------------------
MARTY VAN DER HAGEN, STEVE YEOMAN,
President & CEO President
By /s/ By /s/
------------------------------- ------------------------------
MARY VAN DER HAGEN, SUZANNE K. BORCHERDS,
Secretary Secretary
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SURREY, INC.
PROXY SOLICITED BY BOARD OF DIRECTORS
For Annual Meeting of Shareholders
September 27, 2001
The undersigned shareholder(s) of Surrey, Inc., a Texas corporation (the
"Company"), revoking all previous proxies, hereby appoints John B. van der Hagen
and Martin J. van der Hagen, or either of them, as Proxy or Proxies, with full
power of substitution and revocation, to vote all shares of stock of Surrey,
Inc. standing of record in the name of the undersigned at the close of business
on August 14, 2001 at the Annual Meeting of Shareholders to be held on September
27, 2001, or at any adjournment or postponement thereof, upon the following
matters:
1. Election of the following four (4) nominees as directors: John B. van
der Hagen, Martin J. van der Hagen, Mary van der Hagen and Bruce A.
Masucci.
[ ] FOR ALL NOMINEES
[ ] WITHHOLD ALL NOMINEES
[ ] WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE. (WRITE THE
NAME(S) OF THE NOMINEE(S) WITHHELD IN THE SPACE PROVIDED BELOW.)
---------------------------------------------------------------
2. Authorization of the Agreement for Purchase and Sale of Assets between
the Company and Jean Charles Incorporated providing for the sale of
substantially all of the Company's assets.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Ratification of the appointment of Grant Thornton, LLP as independent
auditors of the Company for the fiscal year 2001.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Note: In their discretion the Proxies are authorized to vote upon such other
matters as may properly come before the meeting or any adjournment thereof.
(Please sign and date on reverse side)
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(continued from other side)
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 ELECTION OF ALL DIRECTORS AND FOR PROPOSALS 2 AND 3. The Board of
Directors recommends a vote FOR Proposals 1, 2 and 3. This Proxy also delegates
discretionary authority to the proxy to vote with respect to any other business
which may properly come before the Annual Meeting of Stockholders and any and
all adjournments or postponements thereof to the extent allowed by Rule 14a-4(c)
as promulgated by the U.S. Securities and Exchange Commission.
The undersigned hereby acknowledges receipt of the Notice of the Annual Meeting
of Shareholders of Surrey, Inc. and the proxy statement furnished therewith
dated July 10, 2001.
Dated: __________, 2001.
- ------------------------------------ ------------------------------------
Name of Stockholder Name of Stockholder
- ------------------------------------ ------------------------------------
Signature of Stockholder Signature of Stockholder
NOTE: Please date and sign this Proxy exactly as the names appear hereon. When
signing as attorney-in-fact, executor, administrator, trustee or guardian,
please add your title as such. Proxies executed in the name of a corporation
should be signed on behalf of the corporation by a duly authorized officer.
Where shares are owned in the name of two or more persons, all such persons
should sign.
PLEASE RETURN YOUR COMPLETED PROXY IN THE ENCLOSED ENVELOPE.
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