<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 12, 1997
REGISTRATION NO. 333-35757
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SURREY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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TEXAS 2844 74-2138564
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
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13110 TRAILS END ROAD
LEANDER, TEXAS 78641
(512) 267-7172
(Address, including zip code, and telephone number including
area code, of registrant's principal executive offices)
------------------------
JOHN VAN DER HAGEN, CEO
SURREY, INC.
13110 TRAILS END ROAD
LEANDER, TEXAS 78641
(512) 267-7172
(Name address, including zip code, and telephone number
including area code, of agent for service)
------------------------
Copies to:
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ELIZABETH H. COBB, ESQ. HELENE K. NETTER, ESQ.
MACKALL, CROUNSE & MOORE, PLC STUART, COLEMAN & CO., INC.
1400 AT&T TOWER 11 WEST 42ND STREET
901 MARQUETTE AVENUE 15TH FLOOR
MINNEAPOLIS, MN 55402 NEW YORK, NY 10036
(612) 305-1400 (212) 789-2400
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------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
------------------------
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SECURITY(2) PRICE(2) REGISTRATION
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
Units.................................... 718,750
Each Unit consisting of:
Two Shares of Common Stock, no par
value............................... 1,437,500 $4.00 $5,750,000 $1,742.42
One Warrant to purchase a share of
Common Stock, no par value.......... 718,750 $0.125 89,843.75 27.23
- ----------------------------------------------------------------------------------------------------------------------------
Common Stock, no par value, issuable upon
exercise of Warrants................... 718,750 $4.80 $3,450,000 $1,045.45
- ----------------------------------------------------------------------------------------------------------------------------
Total.................................... $2,815.10(3)
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</TABLE>
(1) Including 93,750 Units which the Underwriter may purchase to cover
over-allotments, if any.
(2) Estimated solely for the purposes of calculating the registration fee.
(3) $2,809.65 was paid with the initial filing on September 16, 1997.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVENESS UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
SURREY, INC.
FORM SB-2
-------------------------
CROSS-REFERENCE SHEET
SHOWING THE LOCATION IN THE PROSPECTUS OF THE INFORMATION REQUIRED BY PART I OF
FORM SB-2
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FORM SB-2 ITEM NUMBER AND CAPTION HEADING IN PROSPECTUS
--------------------------------- ---------------------
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1. Front of Registration Statement and Outside Outside Front Cover Page
Front Cover of Prospectus
2. Inside Front and Outside Back Cover Pages Inside Front and Outside Back Cover Pages
of Prospectus of Prospectus
3. Summary Information and Risk Factors Prospectus Summary; Risk Factors
4. Use of Proceeds Purpose of the Offering; Use of Proceeds
5. Determination of Offering Price Outside Front Cover Page of Prospectus;
Underwriting
6. Dilution Dilution
7. Selling Security Holders Not Applicable
8. Plan of Distribution Outside Front Cover Page of Prospectus;
Underwriting
9. Legal Proceedings Business
10. Directors, Executive Officers, Promoters Management
and Control Persons
11. Security Ownership of Certain Beneficial Principal Shareholders
Owners and Management
12. Description of Securities Description of Securities
13. Interest of Named Experts and Counsel Legal Matters; Experts
14. Disclosure of Commission Positions on Underwriting
Indemnification for Securities Act
Liabilities
15. Organization Within Last Five Years Not Applicable
16. Description of Business Business
17. Management's Discussion and Analysis or Management's Discussion and Analysis of
Plan of Operation Financial Condition and Results of
Operations
18. Description of Property Business
19. Certain Relationships and Related Certain Transactions
Transactions
20. Market for Common Equity and Related Dividend Policy; Principal Shareholders;
Stockholder Matters Underwriting
21. Executive Compensation Management
22. Financial Statements Financial Statements
23. Changes In and Disagreements With Changes in Company's Certifying Accountant
Accountants on Accounting and Financial
Disclosure
</TABLE>
i
<PAGE> 3
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These
securities may not be sold nor may offers to buy be accepted prior to the
time the registration statement becomes effective. This prospectus shall
not constitute an offer to sell or the solicitation of an offer to buy nor
shall there be any sale of these securities in any State in which such
offer, solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED NOVEMBER 12, 1997
PROSPECTUS
- ---------------------
SURREY LOGO
SURREY, INC.
625,000 UNITS CONSISTING OF
1,250,000 SHARES OF COMMON STOCK AND
625,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
Surrey, Inc. ("Surrey" or the "Company") hereby offers 625,000 Units, each
Unit consisting of two shares of common stock, no par value ("Common Stock"),
and one redeemable Common Stock Purchase Warrant ("Warrant") to purchase one
share of Common Stock. The components of the Units will be separately
transferable commencing December , 1997 or earlier at the discretion of
Stuart, Coleman & Co., Inc., as representative (the "Representative") of the
various underwriters (the "Underwriters"). The Representative may decide to
delist the Units after the thirty day minimum inclusion period. Each Warrant
entitles the registered holder to purchase one share of Common Stock, at any
time prior to November , 2002, at an exercise price of $4.80, subject to
adjustment in certain circumstances. The exercise price will not be adjusted by
less than $.05. No fractional shares will be issued upon exercise. See
"Description of Securities -- Warrants" for a determination of cash
consideration in lieu of fractional shares and restrictions on, and
circumstances permitting, adjustment to the exercise price. The Warrants are
redeemable by Surrey commencing November , 1998, on at least 30 days' prior
written notice, at a price of $.01 per Warrant, at any time that the market
value of the Common Stock exceeds $5.00 per share for a period of 20 consecutive
trading days. See "Description of the Securities." A former officer and director
will receive approximately 32% of the net proceeds of the offering (or 27% if
the overallotment option is exercised). See "Risk Factors -- Use of Proceeds."
Prior to this offering, there has been no public market for the securities of
the Company and there can be no assurance that such a market will develop, or if
developed, that it will be sustained. The Company has applied for quotation of
its securities on the Nasdaq SmallCap Market(SM) upon official notice of
issuance under the symbols "SOAP", "SOAPU" and "SOAPW." The initial public
offering price is $8.125 per Unit. For information regarding factors used to
determine the initial offering price, see "Underwriting."
------------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE
DISCUSSION UNDER THE CAPTIONS "RISK FACTORS" BEGINNING ON PAGE 5, AND
"DILUTION."
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION, NOR ANY STATE SECURITIES COMMISSION, PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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<CAPTION>
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
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Per Unit...................................... $ $ $
- -------------------------------------------------------------------------------------------------------------------
Total(3)...................................... $ $ $
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(1) The Company (a) has agreed to pay to the Representative a nonaccountable
expense allowance equal to 3% of the gross proceeds of the offering of
Units, or $152,344 (or $175,195 if the over-allotment option is exercised in
full), of which $50,000 has been paid to date; (b) has agreed to sell to the
Representative, at a price of $.0005 per warrant, warrants to purchase from
the Company up to 62,500 Units at a price per Unit equal to 120% of the per
Unit offering price (the "Representative's Warrant"); (c) has agreed to
enter into a two-year financial consulting agreement with the Representative
commencing on the closing date, providing for compensation in the amount of
$12,500 per year, all payable in advance at the closing; and (d) has agreed
to indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended (the "Securities
Act"). See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at approximately
$340,000 (approximately $362,851 if the Underwriters' over-allotment option
is exercised in full) including the Representative's nonaccountable expense
allowance referenced in note 1 above.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
93,750 additional Units solely to cover over-allotments. If such option is
exercised in full, the total Price to Public, Underwriting Discount and
Proceeds to Company will be $ , $ , $ and $
respectively. See "Underwriting."
------------------------
The Units are being offered on a "firm commitment" basis, subject to prior
sale, when, as and if delivered to and accepted by the Representative, subject
to certain other conditions, including the right to reject any order in whole or
in part. It is expected that delivery of the Units will be made against payment
therefor on or about , 1997 in New York, New York.
Stuart Coleman Logo
------------------------
The date of this Prospectus is , 1997
<PAGE> 4
[INSIDE FRONT COVER PAGE]
SURREY Home and Bath Products
[Contains photographs of the following products manufactured by Surrey: Chanel
soap for men; soap making kit; Pure Pleasure Glycerine Cleansing Bar; Milk &
Honey Cleansing Bar; Barbie soap; Avon Naturals; shaving soap; various clear
glycerine bars containing flowers and cube soaps; Elizabeth Arden soaps; Ann
Taylor soap; selected Disney soaps (Mickey Mouse, Minnie Mouse, Snow White,
Ariel); Liz Sport soap; Alfred Sung soap, and Hill Country Cameo soap.]
sensibly indulgent
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE UNITS, COMMON
STOCK OR WARRANTS INCLUDING STABILIZING BIDS OR SYNDICATE COVERING TRANSACTIONS.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and the notes thereto appearing elsewhere
in this Prospectus. All information concerning the Company's authorized, issued
and outstanding Common Stock and all financial information presented on a per
share basis reflects the repurchase by the Company in August 1997 of fifty
percent of the outstanding shares of Common Stock and the subsequent
11.22727-for-one stock split in September 1997. Unless otherwise indicated,
information in this Prospectus assumes that the Underwriters' over-allotment
option is not exercised.
THE COMPANY
Surrey, Inc. ("Surrey" or 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. Surrey 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. Surrey also maintains a library of chemical formulations for
producing purer, milder and harder glycerin soap bars. The Company is also
entering the crafts market, with its new soap making kits, and is expanding its
home fragrance products with the introduction of a full line of potpourri
products.
Surrey was incorporated in Texas in 1981, as the successor to a business
begun in 1972. The Company's executive offices are located at 13110 Trails End
Road, Leander, Texas 78641, and its telephone number is (512) 267-7172.
THE OFFERING
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Units(1).................................. 625,000 Units, each consisting of two shares of Common
Stock and one redeemable Warrant. See "Description of
Securities."
Common Stock Outstanding
Before Offering......................... 1,122,727
After Offering(2)....................... 2,372,727
Warrants:
The Offering............................ 625,000 Warrants offered as part of the Units. The
Warrants will be detachable and separately transferable
from the Common Stock commencing 30 days from the date
of this Prospectus or earlier at the discretion of the
Representative.
Exercise Terms.......................... Exercisable to purchase one share of Common Stock, at
$4.80 per share, subject to adjustment in certain
circumstances. See "Description of Securities."
Expiration Date......................... , 2002
Redemption.............................. Redeemable by the Company commencing one year after the
date of this Prospectus upon at least 30 days' notice,
at a price of $.01 per Warrant at any time the market
value of the Common Stock value exceeds $5.00 per share
for twenty consecutive trading days.
</TABLE>
- -------------------------
(1) Does not include up to 93,750 Units issuable to the Underwriters'
over-allotment option or 62,500 Units which may be purchased upon exercise
of the Representative's Warrant. See "Underwriting."
(2) Does not include (i) 187,500 shares included in the Underwriters'
over-allotment option, (ii) 450,000 shares reserved for issuance under the
Company's stock option plans, (iii) 718,750 shares reserved for issuance
under the Warrants being offered hereby (including the over-allotment
option) or (iv) 187,500 shares of Common Stock which may be purchased upon
exercise of the Representative's Warrant. See "Description of Securities,"
"Management" and "Underwriting."
3
<PAGE> 6
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Use of Proceeds........................... Purchase of equipment and other capital expenditures,
expansion of sales and marketing efforts, repayment of
certain indebtedness as described herein, and working
capital and other general corporate needs. See "Use of
Proceeds."
Risk Factors.............................. The securities offered hereby involve a high degree of
risk and immediate and substantial dilution. Potential
risks include, among others: the Company's growth
strategy and management of growth, costs of
construction, dependence on significant customers,
competition, reliance on proprietary rights, possible
price violation of the shares, and no payments of
dividends. See "Risk Factors" and "Dilution."
</TABLE>
SUMMARY FINANCIAL DATA
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------------- ----------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales......................................... $7,479 $7,882 $7,336 $4,878 $6,363
Cost of goods sold................................ 5,692 6,071 5,485 3,562 4,702
Gross profit...................................... 1,787 1,811 1,851 1,316 1,661
Total operating expenses.......................... 1,635 1,589 1,512 1,095 1,158
Interest expense.................................. 138 222 226 162 159
Other income...................................... -- 3 -- -- 4
Provision for income taxes........................ 6 1 47 25 135
Net income ....................................... 8 2 66 34 213
PRO FORMA DATA:
Pro Forma net income per share(1)................. $ .06 $ .19
Weighted average shares outstanding(1)............ 1,123 1,123
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<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
DECEMBER 31, ---------------------------
1996 ACTUAL(2) AS ADJUSTED(3)
------------ --------- --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................................ $1,002 $ (472) $3,758
Total assets........................................... 4,228 5,210 8,100
Current liabilities.................................... 1,718 3,974 2,634
Long-term debt, less current portion................... 1,470 1,237 1,237
Stockholders' equity (deficit)......................... 998 (39) 4,191
</TABLE>
- -------------------------
(1) In August 1997, the Company repurchased fifty percent of the outstanding
shares of Common Stock for $1,250,000 and subsequently authorized a
11.22727-for-one stock split in September 1997. The per share and shares
outstanding data is presented as if the stock split and repurchase occurred
on January 1, 1996.
(2) The balance sheet data as of September 30, 1997 reflects, among other
things, an increase in current liabilities and a decrease in stockholders'
equity of $1.25 million related to the repurchase of shares in August 1997.
See "Certain Transactions" and Financial Statements.
(3) Adjusted to reflect the sale of 625,000 Units offered hereby at an assumed
initial public offering price of $8.125 per Unit and application of the
estimated net proceeds therefrom; does not reflect shares issuable upon
exercise of the Warrants offered hereby.
4
<PAGE> 7
RISK FACTORS
In evaluating the Company's business, prospective investors should
carefully consider the risk factors set forth below as well as the other
information set forth in this Prospectus before purchasing the Common Stock
offered hereby.
GROWTH STRATEGY
The Company intends to use approximately $2,500,000 (or 59%) of the net
proceeds from the offering to significantly expand its facilities, equipment,
and sales and marketing staff. The Company's current strategy includes (1)
doubling its current manufacturing and warehouse facilities, (2) continuing to
diversify its product mix by the development or introduction of new products or
product lines, (3) hiring professional marketing personnel and significantly
increasing its direct marketing efforts in order to support the anticipated new
production capacity, (4) continuing its shift toward higher margin products, and
(5) reducing its reliance on bank borrowings to support product development and
growth. There can be no assurance that the Company's proposed increased
marketing, sales and development efforts will be successful. In such event,
there can be no assurance that full use of the Company's expanded manufacturing
and production facilities will occur, or will occur in the time frame currently
anticipated by the Company. In such event, the Company would not be able to
significantly increase, if at all, production and sales over its current volume,
which would restrict the Company's ability to increase sales and revenue. See
"Use of Proceeds," "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Business -- Growth Strategy," "Business --
Properties and Equipment" and "Management."
MANAGEMENT OF GROWTH
Growth of the Company's business will result in increased costs for
personnel and systems. There can be no assurance that the Company will be able
to secure and maintain the additional management, employees and staffing, or
other resources required to support the intended growth of its business. In such
event, the Company might not be able to increase production to a volume, or on a
schedule, that might otherwise be achieved, or the Company's costs and expenses
might be increased. In either such case, the Company's ability to increase sales
and revenue could be restricted. In addition, in the event marketing growth and
personnel are not properly managed with production growth, the Company could
sell more product than it can timely produce, potentially resulting in lost
sales or lost customers. See "Use of Proceeds" and "Business -- Growth
Strategy."
COSTS OF CONSTRUCTION
The Company currently intends to use approximately $800,000 of the net
proceeds of this offering to enlarge its current manufacturing facility. The
Company has entered into discussion with its current bank lender and may secure
a new or extended line of bank financing for a portion of such cost. Management
believes that such construction would require approximately twelve months. Based
on a preliminary estimate the Company anticipates that the cost of such
construction will be approximately $800,000; however, the Company has not
entered into any agreements with any contractors or architects in connection
with such expansion, and has not received any firm bids for constructions cost.
There can be no assurance that the Company will be able to construct its
intended expansion within its currently estimated project costs and any
increased costs could be material. The Company's ability to receive secured
financing for any portion of the construction costs will be subject to any
conditions which might be imposed by such lender, including a review and
approval of all construction plans and an appraisal of the facility. There can
be no assurance, however, that such conditions can be satisfied by the Company
or that the proposed expansion can be completed within management's assumed time
frame. Inability to secure additional bank financing or increases in the
construction costs could require the Company to complete a smaller structure,
reduce its ability to use net proceeds of the offering for other corporate
purposes, or seek additional means of financing, any of which could have a
material adverse effect on the Company and its plans for expansion. See "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources," "Business -- Growth
Strategy" and "Business -- Properties and Equipment."
5
<PAGE> 8
DEPENDENCE ON SIGNIFICANT CUSTOMERS/LACK OF CONTRACTS
During fiscal years 1996 and 1995, Wal-Mart was the Company's single
largest customer and accounted for approximately 21% and 13%, respectively, of
the Company's net sales. Avon was the Company's second largest customer in 1996,
accounting for approximately 6%. In 1995, Dollar General was the second largest,
accounting for approximately 11% and Walgreens was the third largest, accounting
for approximately 10%. Based on net sales from the first nine months of 1997,
and anticipated sales for the entire year, management currently anticipates that
Wal-Mart will be the Company's single largest customer, and will account for
relatively the same percentage of net sales as 1996, and that Avon and K-Mart
will be the second and third largest customers, respectively, each accounting
for less than 10% of net sales. Customers generally order on a job-by-job basis
through the use of purchase orders as needed. Such orders are generally
cancelable by the customer if not shipped after two weeks. The Company has no
long term contracts or standing orders with any of its customers. The loss of
any of the Company's major accounts, especially Wal-Mart, or a decrease in
orders from any such customers, could have a material adverse effect on the
Company and its business. There can be no assurance that sales to any of these
customers will continue at historic levels, if at all. See "Business -- Customer
Contracts" and "Business -- Significant Customers."
COMPETITION
Although there is extensive competition in the bar soap manufacturing
industry generally, the Company believes that it currently competes directly
with only a small number of manufacturers in the specialty soap market. The
Company also competes generally for market share with many larger manufacturers
and distributors of soap and personal care products, such as Dial,
Colgate-Palmolive, Procter & Gamble and Unilever, companies which have
significantly more resources than the Company. However, the Company currently
believes that the specialty soaps market niche is too small to attract
significant competition from these larger soap producers. In addition, the
Company is aware of several smaller manufacturers of personal care items with
which it must compete for market share. As the Company continues its
diversification into other product lines, it may experience competition from
other sources as well as from foreign manufacturers. See "Business --
Competition," "Business -- Customer Contracts" and "Business -- Proprietary
Processes and Trademarks."
USE OF PROCEEDS
The Company currently anticipates that it will use approximately 32% of the
net proceeds of this offering to repay outstanding indebtedness owed to a former
officer and director of the Company and the balance is intended to be used by
the Company in accomplishing its growth strategy and for working capital.
Approximately 8% of the net proceeds are being allocated to current working
capital and general corporate purposes. Such funds, together with proceeds
allocated to sales, marketing, and new product development, are expected to
allow the Company to have sufficient cash assets to take immediate advantage of
any opportunities presented to it to develop and market new product lines, or to
take advantage of acquisitions of, or investments in, business, products or
technologies that are complementary to the current product lines. Other than
continuation and diversification of current product lines, the Company has no
current new product lines targeted. In addition, no acquisition transactions are
planned or being negotiated as of this date. Any such acquisition would not
require the vote of shareholders. Management of the Company has great discretion
in how the net proceeds of this offering will be used. See "Use of Proceeds" and
"Certain Transactions."
PAYMENT OF PROCEEDS TO AFFILIATED PARTIES
A former officer and director of the Company will receive approximately 32%
of the net proceeds of this offering (or 27% if the overallotment option is
exercised). Such proceeds are being used to repay certain indebtedness owned to
such affiliated party. See "Use of Proceeds" and "Certain Transactions."
6
<PAGE> 9
SEASONALITY
The Company experiences seasonal fluctuations in operating results, with
sales and revenues generally higher during the third and fourth calendar
quarters, reflecting primarily orders for the holiday retail season. Orders
shipped in the third and fourth quarters generally account for approximately 60%
of the Company's total net sales for the year. See "Business -- Seasonality."
CONTROL BY PRINCIPAL SHAREHOLDER/RELATIONSHIP OF OFFICERS AND DIRECTORS
Following the completion of this offering, John van der Hagen, CEO and
Chairman of the Board, will own approximately 47% of the outstanding Common
Stock. As a result, management may have the ability to elect the Company's
entire board of directors and control all affairs of the Company, including all
fundamental corporate transactions such as mergers, consolidations and the sale
of substantially all of the Company's assets. In addition, all of the principal
officers and a majority of the directors of the Company are family members. The
Company has only one standing committee of its Board of Directors, which is
composed of a majority, but not all, independent directors. See "Management" and
"Principal Shareholders."
DEPENDENCE ON KEY PERSONNEL
The Company's success is highly dependent on the efforts of its key
management personnel. The loss of the services of any such personnel could have
a material adverse effect on the Company. The Company currently has employment
agreements with its CEO and President. The Company does not maintain life
insurance policies payable to the Company on any key management personnel, but
has secured a policy, for the benefit of its bank lender, on its former CEO who
has guaranteed the Company's current bank loan. The Company will continue to be
dependent on its ability to attract and retain qualified personnel in the
future. See "Business -- Growth Strategy" and "Management."
RELIANCE ON PROPRIETARY RIGHTS/LACK OF PATENTS
The Company's success and ability to compete depend in large part on the
protection of its proprietary processes and formulas. The Company seeks to
protect such processes through confidentiality agreements with certain
contractors, business partners, and distributors. However, there can be no
assurance that such agreements will provide meaningful protection for the
Company's trade secrets, know-how or other proprietary information in the event
of unauthorized use or disclosure. Any such unauthorized disclosure or use could
have a material adverse effect on the Company. The Company has recently become
aware that a company which signed such a confidentiality agreement appears to be
using certain trade secrets of the Company in violation of their agreement. The
Company is not currently aware of the volume or quality of product, if any,
which may be produced by such company. Because the Company is in a niche market,
any significant volume from a competitor could reduce the Company's sales and
net revenue. The Company does not own any patents on any of its technology. The
Company believes that the trademarks it owns on certain product names have
significant value and are important to the marketing of its products, but does
not consider any individual mark to be material to its operation. There can be
no assurance, however, that the Company's marks are, in fact, of value, that
such marks do not or will not violate the proprietary rights of others, that the
Company's proprietary rights in the marks would be upheld if challenged, or that
the Company would not be prevented from using its marks, any of which could have
an adverse effect on the Company. The Company has been unable to register the
name Surrey as a trademark due to a prior registration; however, such prior
registrant manufactures plastic combs, not soaps. While the Company believes
that its current use of the name is not infringing on the rights of others,
there can be no assurance that its use will not ever be challenged. See
"Business -- Proprietary Processes and Trademarks."
CURRENT PROSPECTUS AND STATE "BLUE SKY" REGISTRATION REQUIRED TO EXERCISE THE
WARRANTS
Holders of the Warrants offered hereby will have the right to exercise them
to purchase shares of the Company's Common Stock only if a current prospectus
relating to such shares is then in effect and only if the shares are qualified
for sale or exempt from qualification under the securities laws of the states in
which the
7
<PAGE> 10
holder of the Warrant resides. Although the Company has undertaken to use its
best efforts to maintain a current prospectus under the Securities Act which
will permit the purchase and sale of the Common Stock underlying such Warrants
during the warrant exercise term, there can be no assurance that the Company
will be able to do so. Although the Company intends to seek to qualify the
shares of Common Stock underlying the Warrants for sale in the states in which
the original holders may reside, no assurance can be given that qualification
will occur or will remain in effect at such time as the Warrants may be
exercised. The Warrants may be deprived of any value if a current prospectus
covering the shares issuable upon exercise thereof is not kept effective or if
such underlying shares are not, or cannot be, qualified in the applicable
states. See "Description of Securities."
EFFECTS OF DELISTING FROM NASDAQ SMALLCAP MARKET(SM)
If the Company fails to maintain the qualification for its Units, Common
Stock and Warrants to trade on the Nasdaq SmallCap Market(SM), its securities
could be delisted from Nasdaq. In such event, trading, if any, in such
securities would thereafter be conducted in the over-the-counter markets in the
so-called "pink sheets" or the National Association of Securities Dealer's
"Electronic Bulletin Board." Consequently, the liquidity of the Company's
securities would likely be impaired, not only in the number of shares which
could be bought and sold, but also through delays in the timing of the
transactions, reduction in security analysts' and the news media's coverage, if
any, of the Company, and lower prices for the Company's securities than might
otherwise prevail.
PENNY STOCK REGULATION
In the event that the Company's securities are delisted from the Nasdaq
SmallCap Market(SM), as above described, the Company's securities could become
subject to the rules and regulations under the Securities Exchange Act of 1934
relating to "penny stocks" (the "Penny Stock Rule"), which impose additional
sales practice requirements on broker-dealers which sell such securities to
persons other than established customers and certain institutional investors.
"Penny stocks" generally are equity securities with a price of less than $5.00
(other than securities registered on certain national securities exchanges or
authorized for quotient on the Nasdaq system, provided that current price and
volume information with respect to transactions in that security is provided by
the exchange or system). For transactions covered by the Penny Stock Rule, a
broker-dealer must, among other things, make a special suitability determination
for the purchaser and have received the purchaser's written consent to the
transaction prior to sale. Consequently, the Penny Stock Rule may reduce the
level of trading activity in the secondary market for the Company's securities,
may adversely effect the ability of broker-dealers to sell the Company's
securities and may adversely affect the ability of purchasers in this offering
to sell any of the securities acquired hereby in the secondary market.
NO PRIOR PUBLIC MARKET; POSSIBLE STOCK PRICE VOLATILITY
Prior to this offering, there has been no public market for the Units,
Common Stock or Warrants. The initial public offering price has been determined
by negotiation between the Company and the Representative with reference to the
general status of the securities market and other relevant factors. Such
offering price may not be indicative of the market price for the Common Stock
after this offering, which may be highly volatile depending upon various
factors, including the general economy, stock market conditions, announcements
by the Company, its vendors or competitors and fluctuation in the Company's
operating results. See "Underwriting."
NO CASH DIVIDENDS
The Company currently intends to retain earnings for use in operations and
expansion of its business and therefore does not anticipate paying any cash
dividends in the foreseeable future. In addition, the Company's current bank
loan restricts the payment of dividends. See "Dividend Policy."
8
<PAGE> 11
SHARES ELIGIBLE FOR FUTURE SALE
Following the completion of this offering, the current shareholder of the
Company will own a total of 1,122,727 shares of Common Stock. The holder has
agreed to refrain from selling his shares of Common Stock, except to members of
his immediate family (who would be required to make a similar representation),
without the prior written consent of the Representative for 20 months after the
date of this Prospectus. In addition, the current shareholder has pledged his
shares to secure his guarantee of the Company's bank loan and is restricted from
transferring such shares without consent of the lender. Sales of a substantial
number of shares of Common Stock in the public market subsequent to this
offering, or the perception that such sales may occur, could adversely affect
the prevailing market price of the Common Stock. See "Shares Eligible for Future
Sale."
RESTRICTIONS AND COVENANTS IN COMPANY LOAN AGREEMENT
The Company's current $1.4 million term loan contains various financial
covenants, as more fully described in "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources." As of September 30, 1997, the Company was in violation of the debt
to net worth ratio, current ratio, debt service coverage ratio, minimum net
worth and capital expenditures limitation; however, the lender has waived all
such defaults. In addition, such loan contains restrictions on the Company's
ability to pay dividends, issue shares and repurchase shares. See also Notes to
Financial Statements.
DILUTION
There will be an immediate and substantial dilution to the public investors
who purchase shares in this offering in that the net tangible book value per
share of the Common Stock after the offering will be substantially less than the
Price to Public of the shares offered hereby. The dilution to new investors
after this offering will be approximately $2.23 per share (or 56%). See
"Dilution."
9
<PAGE> 12
USE OF PROCEEDS
The net proceeds from the sale of the 625,000 Units offered hereby, at an
assumed offering price of $8.125 per Unit, are estimated (after deducting the
Underwriting discount and estimated offering expenses payable by the Company) to
be approximately $4,230,000 (approximately $4,914,000 if the Underwriters'
over-allotment option is exercised in full). The Company intends to use the net
proceeds as follows:
<TABLE>
<CAPTION>
APPROXIMATE
AMOUNT OF
NET PERCENTAGE OF
ANTICIPATED APPLICATION PROCEEDS NET PROCEEDS
- ----------------------- ----------- -------------
<S> <C> <C>
Building expansion(1)....................................... $ 800,000 18.9%
Capital equipment leasing(2)................................ 900,000 21.3
Sales, marketing, and new product development(3)............ 800,000 18.9
Repayment of indebtedness(4)................................ 1,340,000 31.7
Land purchase(5)............................................ 62,500 1.5
Working capital and general corporate purposes(6)........... 327,800 7.7
---------- -----
Total:.................................................... $4,230,300 100.0%
========== =====
</TABLE>
- -------------------------
(1) Represents the currently estimated cost of expanding the Company's facility.
The Company has entered into discussions with its current bank lender to
secure financing for a portion of such costs. In the event that bank
financing is available, a portion of such construction funds may be
available to the Company as working capital. See "Business -- Growth
Strategy" and "Business -- Properties and Equipment."
(2) The Company currently anticipates that such proceeds will allow it to pay
monthly expenses for the leasing of capital equipment to be acquired over
the next three to five years. Such equipment includes additional bulk
storage tanks for raw materials, additional stock soap die shapes and molds,
two additional bar soap line production units and fillers, a high speed
wrapping machine, and packing carton set-up machine. The total leasing costs
of such equipment over the next five years are currently estimated by the
Company at approximately $900,000.
(3) Represents funds allocated to increased marketing and sales efforts,
including salaries and commission for new sales and marketing personnel, and
also for the development of new products. See "Business -- Growth Strategy."
(4) Represents payment to a former officer, director and shareholder of (a)
$1,250,000 note ("Purchase Note") issued in connection with the repurchase
of shares by the Company and (b) approximately $90,000 note ("Promissory
Note") for borrowed money. In August 1997, the Company repurchased all
shares of the Company owned by such officer and issued the Purchase Note as
payment therefore. The Promissory Note represents repayment of a loan made
by the officer to the Company for working capital purposes in 1996. See
"Certain Transactions."
(5) The Company has committed to purchase approximately two acres of land
located next to its corporate headquarters for a purchase price of $62,500.
The purchase is expected to close in January 1998. This parcel of land will
be used primarily for drainage in connection with the planned expansion.
(6) Represents funds to be used for working capital and general corporate
purposes. See discussion below and also "Management's Discussion and
Analysis of Financial Condition and Results of Operation" and "Business --
Growth Strategy."
The Company intends, from time to time, to evaluate possible acquisitions
of or investments in businesses, products or technologies that are complementary
to the current product lines of the Company. The portion of the net proceeds of
the offering which are added to the Company's working capital and general
corporate funds, as well as funds dedicated to new product development, together
with other internally generated funds, may, if appropriate, be used for such
purpose. No such transactions are planned or being negotiated as of the date
hereof.
10
<PAGE> 13
The purposes of the offering are also to increase the Company's financial
resources, provide a public market for the Company's Common Stock, and
facilitate access to public equity markets for future financing. Pending the use
of the net proceeds from the offering, the Company intends to invest the net
proceeds in short-term securities.
The amounts actually expended for new product development, capital
expenditures and plant expansion may vary significantly depending upon a variety
of factors, including: the actual costs of construction of the proposed
expansion, the timing of such expenditures, the ability of the Company to hire
additional qualified marketing personnel and the resources needed to attract and
retain such personnel, new product opportunities that might become available,
and the continued availability of the Company's working capital line of credit.
See also "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
11
<PAGE> 14
DILUTION
The net tangible book value of the Company's Common Stock at September 30,
1997 was $(39,000) or $(0.03) per share. "Net tangible book value" per share
represents the total tangible assets less total liabilities of the Company,
divided by the number of shares of Common Stock outstanding. Without taking into
account any changes in the Company's net tangible book value after September 30,
1997, other than to give effect to the sale of the shares of Common Stock
included in the Units offered hereby at the assumed offering price, the net
tangible book value of the Company at September 30, 1997 would have been
$4,191,000 or $1.77 per share. This represents an immediate increase in net
tangible book value to the existing shareholders of $1.80 per share and an
immediate dilution of $2.23 per share (or 56%) to the investors purchasing the
shares offered hereby at the price to the public. The following table
illustrates this per share dilution in pro forma net tangible book value to new
investors.
<TABLE>
<S> <C> <C>
Assumed initial public offering price..................... $4.00
Pro forma net tangible book value prior to offering..... $(0.03)
------
Increase attributable to new investors.................. $ 1.80
------
Pro forma net tangible book value adjusted for this
offering................................................ $1.77
-----
Dilution to new investors in this offering................ $2.23
=====
</TABLE>
The above chart does not give effect to the exercise of the Warrants
included in the Units offered hereby, the Representative's Warrants or any other
warrants or options of the Company.
DIVIDEND POLICY
The Company currently intends to retain earnings for use in the operation
and expansion of its business and therefore does not anticipate paying any cash
dividends in the foreseeable future. Cash dividends, if any, that may be paid in
the future to holders of Common Stock will be payable when, as and if declared
by the Board of Directors of the Company, based upon the Board's assessment of
the financial condition of the Company, its earnings, need for funds, capital
requirements and other factors. In addition, the Company's bank loan restricts
the payment of any dividends or the purchase of shares of Common Stock without
the prior written consent of the lender. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
12
<PAGE> 15
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1997 and as adjusted to reflect the sale by the Company of 625,000
Units, at an assumed offering price of $8.125 per Unit and the application of
the net proceeds therefrom.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------
AS
ACTUAL ADJUSTED
------ --------
(IN THOUSANDS)
<S> <C> <C>
DEBT (INCLUDING CURRENT MATURITIES):
Note payable to former shareholder........................ $1,250 $ --
Notes payable to shareholder.............................. 175 85
Notes payable and long-term debt.......................... 1,961 1,961
Capital lease obligations................................. 132 132
------ ------
Total debt.................................................. 3,518 2,178
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock, no par value; 10,000,000 authorized;
1,122,727 (actual) and 2,372,727 (as adjusted) issued
and outstanding(1)..................................... -- 4,230
Retained earnings (deficit)................................. (39) (39)
------ ------
Total shareholders' equity (deficit)........................ (39) 4,191
------ ------
Total capitalization........................................ $3,479 $6,369
====== ======
</TABLE>
- -------------------------
(1) Does not include (i) 187,500 shares included in the Underwriters'
over-allotment option, (ii) 450,000 shares reserved for issuance under the
Company's stock option plans, (iii) 718,750 shares reserved for issuance
under the Warrants being offered hereby, or (iv) 187,500 shares of Common
Stock which may be purchased upon exercise of the Representative's Warrant.
See "Description of Securities," "Management" and "Underwriting."
13
<PAGE> 16
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE INCOME DATA)
The statement of operations data for the years ended December 31, 1995 and
1996, and the balance sheet data at December 31, 1996 are derived from audited
financial statements of the Company, which have been audited by Ernst & Young
LLP, independent auditors, and are included elsewhere in this Prospectus. The
statement of operations data for the year ended December 31, 1994 are derived
from audited financial statements not included herein. The nine month financial
data have not been audited, but, in the opinion of management, include all
adjustments, consisting of normal, recurring adjustments and accruals, which the
Company considers necessary for fair presentation of the Company's financial
position and the results of operations for the periods indicated. The following
selected historical financial data should be read in conjunction with and are
qualified in their entirety by the historical Financial Statements and the Notes
thereto included elsewhere in this Prospectus. See also "Management's Discussion
and Analysis of Results of Operations and Financial Condition."
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------------- -------------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales...................................... $7,479 $7,882 $7,336 $4,878 $6,363
Cost of goods sold............................. 5,692 6,071 5,485 3,562 4,702
Gross profit................................... 1,787 1,811 1,851 1,316 1,661
Total operating expenses....................... 1,635 1,589 1,512 1,095 1,158
Interest expense............................... 138 222 226 162 159
Other income................................... -- 3 -- -- 4
Provision for income taxes..................... 6 1 47 25 135
Net income..................................... 8 2 66 34 213
------ ------ ------ ------ ------
PRO FORMA DATA:
Pro forma net income per share(1).............. $ .06 $ -- $ .19
Weighted average shares outstanding(1)......... 1,123 -- 1,123
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
DECEMBER 31, ---------------------------
1996 ACTUAL(2) AS ADJUSTED(3)
------------ --------- --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................................ $1,002 $ (472) $3,758
Total assets........................................... 4,228 5,210 8,100
Current liabilities.................................... 1,718 3,974 2,634
Long-term debt, less current portion................... 1,470 1,237 1,237
Stockholder's equity (deficit)......................... 998 (39) 4,191
</TABLE>
- -------------------------
(1) In August 1997, the Company repurchased fifty percent of the outstanding
shares of Common Stock for $1,250,000 and subsequently authorized a
11.22727-for-one stock split in September 1997. The per share and shares
outstanding data is presented as if the stock split and repurchase occurred
on January 1, 1996.
(2) The balance sheet data as of September 30, 1997 reflects, among other
things, an increase in current liabilities and a decrease in stockholders'
equity of $1.25 million related to the repurchase of shares in August 1997.
See "Certain Transactions" and Financial Statements.
(3) Adjusted to reflect the sale of 625,000 Units offered hereby at an assumed
initial public offering price of $8.125 per Unit and the application of
estimated net proceeds therefrom; does not reflect shares issuable upon
exercise of the Warrants offered hereby.
14
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Financial Statements and Notes thereto appearing elsewhere in this
Prospectus.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain items in
the Company's Statements of Operations expressed as a percentage of net sales
for that period:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------- -------------------
1996 1995 1994 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Sales......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Costs of Goods Sold............................... 74.8 77.0 76.1 73.9 73.0
Gross Profit...................................... 25.2 23.0 23.9 26.1 27.0
Operating Expenses:
Marketing....................................... 6.9 6.5 9.7 4.5 7.5
General & Administrative........................ 13.7 13.7 12.1 13.7 14.9
Interest Expense (Net)............................ 3.1 2.8 1.8 2.5 3.3
Net Income........................................ .9 -- .1 3.3 .7
</TABLE>
YEARS ENDED DECEMBER 31, 1996 AND 1995
Net Sales. Net sales for the Company reflect total sales less cash
discounts and estimated returns. Net sales for the year ended December 31, 1996
were $7,336,000, as compared to $7,882,000 for the year ended December 31, 1995,
a decrease of approximately 6.9%. This decrease in net sales was primarily due
to a shift in the Company's sales strategy to move away from low-end volume
discount accounts to concentrate on higher margin retail accounts and products
and on contract manufacturing. This strategy involved repositioning certain
segments of the Company's retail product line. Consequently, sales volume
dropped temporarily as the Company's marketing focus shifted to more profitable
product lines and accounts.
Gross Profit. Gross profit increased in 1996 to $1,851,000 compared with
$1,811,000 for 1995. Gross profit margin increased to 25.2% in 1996 from 23.0%
in 1995. This increase was primarily due to the beginning of a shift in sales to
higher margin product lines as a result of the Company beginning its new
marketing strategy.
Operating Expenses. Total operating expenses decreased slightly to
$1,512,000 in 1996 from $1,589,000, a decrease of 4.8%, but increased as a
percentage of net sales to 20.6% from 20.2%. This increase was due primarily to
lower sales volume for 1996 as the Company refocused its marketing strategy in
order to pursue more lucrative markets in 1996 and on into 1997. Marketing
expenses were essentially flat in 1996 at $507,000 (6.9% of net sales), compared
to $513,000 (6.5% of net sales) in 1995 with the Company investing these
marketing expenses in support of its new marketing strategy. The marketing of
new products required relatively higher expenses. General and administrative
expenses also decreased 6.6%, to $1,005,000 in 1996 from $1,076,000 in 1995.
Company management was able to hold general and administrative expenses in 1996
to a level comparable to 1995.
Interest Expense. Net interest expense for 1996 was $226,000 (3.1% of net
sales) and remained fairly constant compared to $222,000 (2.8% of net sales) for
1995. The Company's outstanding debt increased by $386,000 in 1996 for
additional working capital purposes.
YEARS ENDED DECEMBER 31, 1995 AND 1994
Net Sales. Net sales for 1995 increased to $7,882,000 from $7,479,000 in
1994, or an increase of approximately 5.4% due to the introduction by the
Company of its Hill Country specialty soap line and the
15
<PAGE> 18
initial shipments of Hill Country products in the fourth quarter of 1994. In
addition, the Company continued the expansion of its liquid potpourri product
line.
Gross Profit. Gross profit increased slightly to $1,811,000 in 1995 from
$1,787,000 in 1994. Gross profit margin decreased to 23.0% in 1995 from 23.9% in
1994 due to a heavy increase in sales focused on high volume and low margin
retail accounts and products. These products were primarily liquid glycerin soap
which has a small profit margin. The higher sales volume offset the decrease in
profit margin resulting in slightly higher gross profit for 1995 as compared to
1994.
Operating Expenses. Operating expenses decreased in 1995 by 2.8% to
$1,589,000 (or 20.2% of net sales) from $1,635,000 in 1994 (or 21.9% of net
sales). Marketing expenses decreased to $513,000 (6.5% of net sales) in 1995
from $726,000 (9.7% of net sales) in 1994. Company advertising and promotion
declined to $141,000 in 1995 from $261,000 in 1994. This decrease was due to
de-emphasized sales programs for the Company's high volume/low margin product
lines. Sales commissions dropped to 4.0% of sales in 1995 from 4.9% of sales in
1994 due primarily to the higher percentage of sales generated by the Company's
direct sales force. Travel and entertainment expenses decreased to $57,000 in
1995 from $76,000 in 1994 due to better cost controls. General and
administrative expenses increased to $1,076,000 (13.7% of net sales) in 1995
from $908,000 (12.1% of net sales) in 1994. This increase was due to a number of
factors. First, payroll tax expense and medical insurance expense increased
$40,000 in 1995 due to the addition of a full-time second shift of plant
employees. Second, general insurance expense increased $41,000 in 1995 due to
increased inventory, equipment, new building addition and increased product
liability insurance due to increased sales volume. Third, officer salaries
increased $54,000 in 1995 due to bonus compensation paid to executive officers.
Fourth, product development increased $38,000 in 1995 due to the additional
costs involved in a major new product line launch, Hill Country specialty soaps.
Interest Expense. Net interest expense increased to $222,000 in 1995 (2.8%
of net sales) from $138,000 (1.8% of net sales) in 1994. The increase was due
primarily to an increase of $341,000 in debt outstanding during 1995 in order to
provide the Company with additional working capital.
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Net Sales. Net sales increased significantly to $6,363,000 for September
1997 from $4,878,000 for September 1996, an increase of 30.4%. Such increase is
attributed primarily to the new marketing strategy begun in 1996 toward higher
margin products and the Company's introduction of its Soap Making Kits.
Substantial sales increases were recognized during the first half of 1997 as new
accounts and product lines were added. The increase in sales from 1996 to 1997
is primarily attributable to an increase in volume of sales during such period.
Based on third quarter results of operations, orders actually shipped in October
1997, and current orders to be shipped during the last two months of 1997, the
Company currently anticipates that net sales for fiscal 1997 will be
approximately $9,000,000; however, such forecasted number is based on
anticipated orders which might not be received, which can be canceled by
customers on 30 days' notice, and which might actually be shipped in first
quarter 1998, all events which are outside the control of the Company.
Gross Profit. Gross profit increased for the nine months ended September
1997 to $1,661,000 from $1,316,000 for the comparable nine-month period in 1996.
Gross profit margin for the same period decreased slightly from 27.0% in 1996 to
26.1% in 1997.
Operating Expenses. Operating expenses increased slightly in the first nine
months of 1997 by 5.8%, but decreased as a percentage of net sales; $1,158,000
(or 18.2% of net sales) in 1997, as compared to $1,095,000 in 1996 (or 22.4% of
net sales) in 1996. Operating expenses decreased as a percentage of net sales
due primarily to aggressive Company cost controls. Marketing expenses decreased
to $288,000 in September 1997 from $366,000 for the same period in 1996. The
decrease was due to a more focused and cost effective sales plan and the
continuation of marketing plans begun in 1996 to achieve higher sales and profit
margins at a lower cost per sales dollar. General and administrative expenses
increased to $870,000 in September 1997 from $729,000 in 1996, but decreased as
a percentage of net sales to 13.7% in 1997 from 14.9% in 1996. Such decrease is
primarily due to the increase in sales volume while fixed general and
administrative expenses have remained constant.
16
<PAGE> 19
Interest Expense. Net interest expense remained fairly constant at $159,000
(2.5% of net sales) in September 1997 as compared to $162,000 in September 1996
(3.3% of net sales.)
RESEARCH AND DEVELOPMENT
During fiscal years 1995, 1996 and the nine months ended September 30,
1997, the Company's principal research and development activities have been
experimentation in the Company's laboratory by its own personnel and ideas
brought to the Company by its customers. The Company has historically spent
significantly less than 5% of its net sales on research and development. While
research and development is important to the Company's ongoing business, and a
significant portion of certain employees' time is committed to this area, the
costs of research and development in the Company's product line is significantly
less costly than for other types of manufacturing companies. While a portion of
the proceeds of this offering will be used for new product development, sales
and marketing, the Company currently anticipates that the bulk of that amount
will be spent on marketing and sales and a smaller portion on research and
development.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity have historically been cash flow
from operations, bank borrowings, loans from related parties, and capital lease
financing. In November of 1994, the Company entered into a loan agreement with
Liberty National Bank of Austin, Texas (which was acquired by Norwest Bank
Texas, South Central ("Norwest"), in the initial principal amount of $1,400,000,
with an interest rate per annum equal to 1.75% over the prime lending rate for
commercial banks, which interest rate is adjusted quarterly each January 1,
April 1, July 1 and October 1. The loan amortizes over a twelve year period and
is due November 2006. The outstanding balance of this loan as of September 30,
1997 was approximately $1,227,000, at an interest rate of 10.25%. The loan is
partially guaranteed by the Small Business Association (the "SBA"). In addition,
the loan is guaranteed by each of the current and former Chief Executive
Officers of the Company (the "CEOs"). The loan is secured by a lien on the
Company's plant, equipment and inventory, as well as accounts receivable, and
the shares owned by John van der Hagen (currently representing all of the stock
of the Company) are pledged to secure his guaranty. Such security interest is
subordinate to the security interest underlying the Company's two additional
working capital loans described below. Among other requirements, the loan
currently contains the following covenants, which are tested quarterly: the
Company must maintain (a) a debt to net worth ratio of less than 3.5:1; (b) a
current ratio greater than 1.25:1; (c) a net worth of $1,000,000; and (d) a
minimum debt service coverage ratio of 1.25:1 on a traditional cash flow basis.
The loan limits the salaries of officers to $250,000 annually and the payment of
certain bonuses without consent of the bank. The loan also limits annual capital
expenditures to $100,000 without written approval of the lender. As of September
30, 1997, the Company was in violation of the debt to net worth ratio, current
ratio, debt service coverage ratio, minimum net worth and capital expenditures
limitation; however, the lender has waived such defaults under the loan. The
loan prohibits the Company from (a) making any dividends or distributions on its
capital stock, or repurchasing or issuing any capital stock, without prior
written consent and (b) from purchasing any fixed asset valued in excess of
$50,000 without prior written consent. Norwest and the SBA have consented to the
transactions contemplated hereby. See also Notes to Financial Statements.
The Company intends to use up to $862,500 of the proceeds of the offering
to purchase additional land and expand its manufacturing facilities. Based on
preliminary estimates, the Company currently anticipates a total construction
cost of $800,000 for the new facility; however, the Company has not yet received
any firm bids and such costs could differ materially. In addition, in connection
with such construction plans, the Company has entered into discussions with
Norwest to provide a portion of such construction costs, if required, subject to
review and approval at the time of such loan by such lender's credit committee
of the fair market narrative appraisal, title commitment and survey, analysis of
construction budget and plans, and underwriting of proposed building contractor,
and the compliance by the Company with the terms of its current loans.
The Company also has outstanding two working capital loans with Norwest.
One such loan, in the principal amount of $800,000, is due April 1998, and bears
interest at a rate per annum equal to 1.5% over
17
<PAGE> 20
Norwest's Index Rate (as defined), which loan interest rate is currently 10.0%.
The second such loan, in the principal amount of approximately $221,000, is due
May 31, 1998 and bears interest at a rate per annum equal to 2% over the Index
Rate, which loan interest rate is currently 10.5%. Both notes are secured,
equally and on a senior basis to the Company's term loan, by all accounts
receivable, inventory, furniture, fixtures and equipment, and are guaranteed by
both the current and former CEOs of the Company.
The Company leases its manufacturing equipment pursuant to capital leases.
Total minimum payments under such leases aggregated $156,000 at September 30,
1997, and $204,000 at December 31, 1996, with maturity dates ranging from 1997
to 2002. Such leases, which are personally guaranteed by the current and former
CEOs of the Company, provide that if no Event of Default exists thereunder the
Company may purchase the equipment subject to the lease at the expiration of the
lease or may renew the lease. See also Notes to Financial Statements.
In connection with its planned expansion, described below under
"Business -- Properties and Equipment," the Company intends to purchase
additional land, to expand its facilities and to acquire additional production
equipment pursuant to capital and equipment leases. Management currently
estimates that such construction will cost approximately $800,000, that such
equipment can be leased for payments of approximately $900,000, and has a land
purchase contract for $62,500, all of which are expected to be paid with
proceeds from this offering. Except for such anticipated expansion, the Company
has no material commitments for capital over the next twelve months.
The Company believes that its current capital resources, including the
proceeds of this offering, will be sufficient to meet its capital requirements
and obligations over the next twelve months. See also "Use of Proceeds" and
"Business -- Properties and Equipment."
FORWARD LOOKING INFORMATION
Information contained in this Prospectus which is not of a historical
nature, including, without limitation, statements above and statements under
"Risk Factors," "Business -- Growth Strategy" and "Business -- Properties and
Equipment," is forward looking and is therefore inherently unreliable and
subject to numerous risks and uncertainties, many of which are described herein
and which may be outside the control of the Company.
18
<PAGE> 21
BUSINESS
GENERAL
Surrey, Inc. ("Surrey" or 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. Surrey 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. Surrey 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 is also entering the crafts market, with its new
soap-making kits, and is expanding its home fragrance products with the
introduction of a full line of potpourri products.
BACKGROUND
Surrey was incorporated in 1981, as a Texas corporation, by its two
founders. The Company was the successor to a venture begun in 1972 by the
current CEO and co-founder, John van der Hagen, to market a brush, mug, and line
of shaving soap for men. Management began working to perfect techniques for
producing a milder bar soap for its shaving kits. In 1979, Surrey began
manufacturing its own soap products and began expanding a new library of soap
formulations. At this time, the Company discovered that specialty soaps were a
lucrative niche market which it believed was too small to attract significant
competition from the larger soap producers, like Dial, Unilever,
Colgate-Palmolive and Procter & Gamble.
During the eighties, management began developing a new generation of soap
formulations and selling its products to drug store chains, supermarket chains,
and discount/mass merchandisers across the country. Surrey found that the
chemistry of most glycerin bar soaps made the soap soft and difficult to
process. Surrey's newly formulated glycerin soaps were firmer, lasted longer,
and could be used to create various unique shapes and formats, such as Surrey's
original "soap suspended in soap" products.
In March 1987, the Company moved its operations to its current site close
to Austin, Texas, occupying an 18,000 square foot manufacturing plant. In 1992
the Company expanded its facilities by 10,000 square feet to meet the demand for
its products. In October 1994 the Company again added 10,000 square feet,
bringing the plant to its current size of 38,000 square feet.
In the early nineties, Surrey entered the contract manufacturing business
and began producing specialty soap products for a variety of premier brand
consumer product companies and prestige accounts, including Elizabeth Arden,
Walt Disney Co., Avon, Ann Taylor, Wal-Mart, and Walgreens. In 1990, the Company
acquired the assets of Simmer Scents, a line of potpourri home fragrances and
began moving into the major craft chains. Other than Wal-Mart, Avon and K-Mart,
none of the Company's retail or contract manufacturing customers, including the
list of customers below under "Products and Distribution," is expected to
account for more than 5% of sales for 1997. See also "Business -- Significant
Customers."
Surrey is currently in the process of developing new product lines,
including home fragrances and potpourris, and expanding its current liquid soap
lines. In addition, the Company intends, with a portion of the net proceeds of
this offering and in connection with its proposed additional production
capacity, to increase its sales and marketing activities both in the United
States and abroad, principally Asia. See "Use of Proceeds."
PRODUCTS AND DISTRIBUTION
Surrey's principal product line has traditionally been its high quality
glycerin bar soaps, which it markets, both directly and through manufacturers'
representatives, to a large variety of retail establishments, and which it
manufactures, on a contract basis, for a variety of private-label customers. In
addition, the Company now manufactures and markets a full line of potpourri
products and Soap Making Kits and accessories. The
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<PAGE> 22
Company estimates its total sales and revenue mix for 1997 to be equally divided
among: (a) contract manufacturing products, (b) potpourri and craft products and
(c) retail soaps and shaving products.
The Company has a wide variety of private label and contract manufacturing
clients for which it makes specialty glycerin soap bars and other products. Many
of the retail customers, such as Wal-Mart, Walgreens and Target, buy products
designed, created and manufactured exclusively by Surrey's personnel. Contract
manufacturing customers, such as Elizabeth Arden, Avon, Liz Claiborne and Walt
Disney Co., work closely with the Company to create a product unique to that
customer through the use of specialty designs, fragrances, labeling, colors and
shapes. Surrey, through its proprietary processes, has been successful in
creating unique shapes and designs, including its "soap in a soap," tailored
specifically for certain customer requests.
Surrey currently contracts with approximately 60 brokers and manufacturers'
representatives who sell the Company's products on a commission basis to a
variety of retail customers. All such brokers and manufacturers' representatives
sell products for manufacturers other than the Company. Such products include
both the Company's own branded products and private-label products manufactured
for such retailers under their individual labels. The Company also produces
specialty products for a variety of contract manufacturing customers. Those
products are sold through direct marketing efforts by the Company. The Company
does not offer any products through a retail catalog.
Surrey's retail and contract manufacturing account customers include:
<TABLE>
<S> <C>
- -- ANN TAYLOR -- LIZ CLAIBORNE
- -- AVON -- NEIMAN MARCUS
- -- BIG B -- OSCO
- -- CHANEL -- REVLON
- -- CONNIE STEVENS -- STOP AND SHOP
- -- CVS -- TARGET
- -- ELIZABETH ARDEN -- ULTA3
- -- GENOVESE -- WAL-MART
- -- HEWITT SOAP CO. -- WALGREENS
- -- K-MART -- WALT DISNEY
- -- LADY PRIMROSE
</TABLE>
Surrey markets its products under its own four premium in-house brand
names:
- - THE HILL COUNTRY SOAP COMPANY(TM) LINE
- glycerin specialty soap
- glycerin bars incorporating loofah, oil beads, oatmeal and buffs
- cream soap bars
- specialty shape bars: cameos, hearts, roses, seashells
- shower gel, hand and body lotion
- - THE SURREY MEN'S LINE
- shaving mug, brush and soap set
- - THE PURE PLEASURE(R) LINE
- Soap Making Kits
- boxed sets of glycerin soap bars
- antibacterial liquid glycerin soap
- - THE SIMMER SCENTS LINE
- potpourri bags
- potpourri liquids
- oils
- sachets
The Company has recently been expanding its product line, with the
introduction in 1997 of its Soap Making Kits. Initial orders for the kits,
aggregating approximately $1,400,000, were shipped in the first three quarters
of 1997, with orders aggregating approximately $500,000 received for shipment in
the fourth quarter. Currently, the Company expects to receive additional orders
for shipment in the fourth quarter as well as re-stock orders aggregating
approximately $50,000 to $100,000 per month. Such kits are being sold both
through
20
<PAGE> 23
craft stores (such as Michael's) and discount mass merchandisers (such as
Wal-Mart and K-Mart). This product is expected to increase the Company's ability
to market to craft stores, a market in which its Simmer Scents liquid potpourri
line has already been introduced.
In mid-1997 the Company also introduced a full line of potpourris intended
to capitalize on the Company's experience with producing high quality fragrances
and its line of liquid soaps.
GROWTH STRATEGY
The Company currently anticipates that most of the net proceeds from the
offering will be used to significantly expand its business. Surrey currently
intends to:
- double its manufacturing and production capabilities
- hire additional professional marketing personnel
- continue to diversify its product mix by promoting sales of its liquid
soap, potpourri and craft products
- develop new products for its retail market and increase its direct
marketing and sales efforts to attract new contract manufacturing
customers
- continue to shift its marketing emphasis to its higher margin products
In 1996, the Company began a shift in its sales strategy away from low-end
volume discount accounts to concentrate on higher margin retail accounts and
products and on contract manufacturing. The Company began to see the results of
this strategy in the first half of 1997 continuing into the third quarter. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The Company's current goal is to double its production over the next three
to five years through a combination of expanded manufacturing and production
capacity, use of additional professional full-time marketing personnel, and
continued growth in promotion of its higher margin products. There can be no
assurance, however, that the Company will be able to achieve this goal in such
time frame, if at all. See "Risk Factors," "Use of Proceeds," and "Business --
Properties and Equipment."
As part of its growth strategy, the Company hired a new national retail
sales director in July 1997. Upon the closing of this offering, the Company
currently intends to hire a second sales director to concentrate on the craft
and potpourri markets, where the Company's goal is to increase sales in the near
term. In addition, the Company intends to add, by promotion or outside hires,
additional direct sales marketing personnel. See "Management."
PROPERTIES AND EQUIPMENT
The Company owns the property and facilities that comprise its production
plant and corporate headquarters. The property consists of approximately 7.73
acres in Travis County, Texas, approximately twenty-two miles northwest of
Austin. All of the Company's operations are currently centered in one 38,000
square foot single store warehouse building which houses the offices, production
facilities and warehouse and storage. Currently, the Company's corporate offices
and research occupy approximately 3,000 square feet, the production and
manufacturing facilities occupy approximately 7,760 square feet, and the
remaining 27,240 square feet are dedicated to warehousing and storage. The
Company's plant and equipment is pledged to secure its outstanding bank loans.
The Company's production and manufacturing equipment is leased under certain
capital and equipment leases. The principal manufacturing equipment currently in
use consists of three poured bar soap production line units, two liquid fill
lines, and dedicated packaging equipment.
The Company's business is seasonal with its highest volume of orders being
received in late third and early fourth quarters. During such periods, the
Company's production facilities are operated at full capacity, using two shifts.
While the plant does not run at full capacity during the entire year, due to the
seasonal nature of the business, the Company must increase its production
capacity during its high season in order to implement its growth strategy. As
part of this current strategy, the Company intends to construct a 30,000 square
foot addition to its current plant, approximately one-third of which will be
additional corporate offices,
21
<PAGE> 24
approximately one-third will be additional manufacturing and production space,
and approximately one-third will be additional warehouse facilities. This will
more than double its production and manufacturing space.
Based on a preliminary estimate, the Company currently anticipates that
such construction will cost approximately $800,000 and can be constructed in
approximately twelve months. The Company has not yet received any firm bids or
entered into any agreements with any contractors or architects in connection
with such construction; consequently, actual costs could differ materially. In
addition, in connection with such construction plans, the Company has entered
into discussions with its current bank lender to provide a portion of such
construction costs, if required, subject to review and approval at the time of
such loan by such lender's credit committee of the fair market narrative
appraisal, title commitment and survey, analysis of construction budget and
plans, and underwriting of proposed building contractor, and the compliance by
the Company with the terms of its current loans.
In addition, as part of the expanded facilities, the Company intends to
acquire, pursuant to capital and equipment leases, additional equipment,
including additional bulk storage tanks for raw materials, additional stock soap
die shapes and molds, two additional bar soap line production units and fillers,
a high speed wrapping machine, and packing carton set-up machine. Management
currently estimates, based on manufacturer's price lists previously received,
that such required equipment can be leased for monthly payments over three to
five years totalling approximately $900,000. Such expenses are anticipated to be
made monthly out of current revenues. There can be no assurance, however, that
such amounts will be available from operations. In such event, the Company
currently intends to use proceeds of this offering, to the extent still
available, to pay such capital lease payments. See "Risk Factors" and "Use of
Proceeds."
In order to have cash available for expanded product development and
marketing efforts, the Company currently intends to finance the construction of
its new facilities and equipment as described in this section; however, there
can be no assurance such financing, on terms acceptable to the Company, actually
will be available at the time needed by the Company. In such event, the Company
may use its working capital, including proceeds of the offering, to complete
such construction and purchase. See "Risk Factors" and "Use of Proceeds."
The Company currently anticipates that, with the proposed additional
production equipment and the proposed additional manufacturing and warehouse
facilities intended to be built, it will be in a position, once all such new
facilities are completely on line and operational, to increase its average
production by approximately 100% over the next three to five years. This
estimate is, of course, subject to many additional factors, such as the timing
of orders for its product, the success of its marketing efforts, the continued
availability of employees, and other factors, many of which may be outside the
control of the Company.
COMPETITION
While there is extensive competition in the bar soap manufacturing
industry, the Company believes that it currently competes directly with only a
small number of manufacturers in the specialty soap market, notably Neutrogena,
Beiersdorf (Basis), and Johnson & Johnson (Purpose). In addition, many other
companies manufacture and/or market a range of personal care products which
compete with Surrey's soap and other products. These companies include, among
others, Bath & Body Works, Twincraft Soap Company, Original Bradford Soap Works
and Stahl Soap. See "Proprietary Processes and Trademarks."
The larger manufacturers, such as Procter & Gamble, Colgate-Palmolive,
Unilever and Dial, primarily produce a more traditional bar soap, not a glycerin
bar soap. These companies are much larger, have greater market share, and
greater financial resources than the Company. The Company currently believes,
however, that it will experience little competition from these manufacturers in
its niche market due to the small relative size of the market and the larger
relative cost to mass produce a high quality glycerin bar soap product. The
Company's glycerin products are generally more expensive to produce than
traditional bar soaps; therefore, the Company generally does not expect to
experience direct competition from these manufacturers. These larger
manufacturers may, however, present more competition to the Company for its
liquid soap products.
22
<PAGE> 25
The Company believes that currently it experiences the majority of its
competition based on the variety of its product line, and to a lesser extent on
price. The Company believes broadening its product line and its current and
intended diversification into bar and liquid soaps, potpourris and crafts will
be advantageous in its marketing and instrumental in helping it maintain a
competitive position in its targeted markets. However, as the Company continues
its diversification into other product lines, it may experience competition from
other sources, as well as from foreign manufacturers.
SIGNIFICANT CUSTOMERS
In 1996 and 1995, Wal-Mart accounted for approximately 21% and 13%,
respectively, of the Company's net sales. Wal-Mart is expected to account for
approximately the same percentage of net sales in 1997 as it did in 1996. Avon,
which was the Company's second largest single customer, accounted for
approximately 6% of sales in 1996 and is currently expected to be the second
largest customer for 1997, with less than 10% of net sales. No other customer is
currently expected to account for more than 10% of sales in 1997.
BUSINESS -- CUSTOMER CONTRACTS
The Company's large retail customers, such as Wal-Mart and Walgreens,
generally establish their product order plan-a-grams on a twelve-month cycle.
Once such plan is in place it is often not reviewed for a year; however, only
the first order under any such plan is guaranteed. The Company has no standing
orders or long-term contracts with any of its retail customers. Any such
customer can re-order at any time or cancel or replace the Company's product in
its twelve-month plan at any time with no notice to the Company. Most of the
Company's contract manufacturing customers, such as Elizabeth Arden and Avon,
order on a job-by-job basis only. Unless the Company is developing a new product
for a contract manufacturing customer (which development period can take from
months to years depending on the product and the customer), the Company
typically ships products within 60 to 90 days after receiving a purchase order.
Such period may be longer if special packaging or labeling is required by the
customer. Individual contract manufacturing clients generally supply the Company
with soap boxes and labeling; therefore, the Company is not required to carry
such inventory on its balance sheet. In addition, many of the Company's contract
manufacturing customers pay for the development and production of the die stock
and molds and, therefore, own such molds and the formulas for their individual
products.
Because the Company generally does not have any standing orders or
long-term contracts with its customers and orders are generally shipped within
60 to 90 days after receipt of purchase orders, the Company had no significant
backlog as of September 30, 1997 or 1996.
PROPRIETARY PROCESSES AND TRADEMARKS
The Company holds no patents on any of its equipment or processes and
relies substantially on certain formulas and processes that are not patentable.
In addition, much of the Company's proprietary information is the experience and
knowledge of its employees, contractors and business partners. To protect these
rights, the Company requires certain contractors, business partners and
distributors to enter into confidentiality agreements. There can be no assurance
that these agreements will provide meaningful protection for the Company's trade
secrets, know-how or other proprietary information in the event of any
unauthorized use or disclosure; however, the Company intends to defend its
trademark and proprietary information as appropriate. Further, in the absence of
patent protection, the Company may be exposed to competitors who independently
develop substantially equivalent technology or otherwise gain access to the
Company's trade secrets, knowledge or proprietary information. The Company has
recently become aware that a company which signed such a confidentiality
agreement appears to be using certain trade secrets of the Company in violation
of their agreement.
The Company holds a registered trademark to use Floating Bath Pals(R) and
has applied for a trademark on Hill Country Soap Company(TM). Although Surrey
believes its trademarks are important, it does not believe that its marks are
material to its business.
23
<PAGE> 26
SEASONALITY
The Company's business is seasonal, with the bulk of its orders being
received for shipment in the fall. Orders shipped in the third and fourth
quarters generally account for approximately 60% of the Company's total net
sales for the year, due primarily to the holiday retail season. Generally,
customers place holiday purchase orders in early to mid summer for shipment
around September and October. As a consequence, the Company generally begins
increasing its temporary staff in July and August to accommodate such increased
production volume. See also "Properties and Equipment" above.
EMPLOYEES
Surrey currently employs 72 full-time employees and has no part-time
employees. The Company maintains two shifts of production personnel. In
addition, the Company hires temporary full-time employees during its heaviest
production periods. The Company has 3 full-time employees in sales and
marketing, 6 in administration and finance, 1 in research and development, 60 in
production manufacturing, and 2 in shipping and handling. The Company's
employees are not represented by any collective bargaining organization. The
Company believes that its relations with its employees are satisfactory. See
also "Management."
SOURCES AND AVAILABILITY OF RAW MATERIALS
Substantially all of the raw materials (predominantly glycerin and other
chemicals) used by the Company to manufacture its products are of a generic
nature and are available from several suppliers. To the best knowledge of the
Company, none of the raw materials for its products is in short supply, and all
are readily available from a variety of distributors. The Company does not
anticipate any significant difficulties in securing adequate supplies of raw
materials of acceptable quality and at acceptable prices in the foreseeable
future.
LEGAL PROCEEDINGS
The Company is from time to time involved in legal proceedings incidental
to its business. On October 16, 1997, the Company entered into a settlement and
release agreement with a prior advisor to settle a dispute under an arrangement
negotiated in mid-1996 in connection with a proposed restructuring of the
Company. In settlement of disputed claims, the Company agreed to pay $60,000 on
or before December 15, 1997 and such advisor agreed to release the Company from
any and all claims it might have against the Company and its officers and
directors. The Company is currently not a party to any litigation which the
Company believes will have a material adverse effect on its business. See also
"Proprietary Processes and Trademarks" above.
24
<PAGE> 27
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is certain information concerning the directors and
executive officers of the Company:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
John B. van der Hagen..................... 65 Chairman of the Board and CEO
Martin J. van der Hagen................... 35 President and Director
Mary van der Hagen........................ 58 Secretary and Director
Bruce A. Masucci.......................... 37 Director
G. Thomas MacIntosh....................... 59 Director
Mark J. van der Hagen..................... 41 Vice President-Finance and Treasurer
</TABLE>
JOHN B. VAN DER HAGEN 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 Chairman of the Board in September 1997 and CEO in August 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 joining Surrey, John
van der Hagen was President of the Company 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, and Mary van der Hagen is
his wife.
MARTIN J. VAN DER HAGEN 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.
MARY VAN DER HAGEN 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 April 1997, Ms. van der Hagen was employed on a part-time basis by the
Company. She resigned from such employment with the Company in April 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.
MARK J. VAN DER HAGEN 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 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.
BRUCE A. MASUCCI 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.
G. THOMAS MACINTOSH was elected to the Board of Directors of Surrey in
September 1997. Mr. MacIntosh is a member and serves on the Board of Governors
of the Minneapolis law firm of Mackall, Crounse & Moore, PLC ("MCM"). He
practices in general corporate and business law with an emphasis in franchising
and distribution law. Prior to joining MCM in October 1993, Mr. MacIntosh was a
partner in the Minneapolis law firm of O'Connor & Hannan. He is a graduate of
the University of Minnesota law school.
25
<PAGE> 28
Directors of the Company hold office until the next annual meeting of
shareholders or until their successors have been duly elected and qualified.
Directors currently do not receive any cash compensation for their services as
such, but nonemployee Directors are entitled to reimbursement for transportation
to and from meetings of the Board of Directors. The Company may pay cash
compensation to nonemployee directors in the future. All Directors are eligible
to participate in the Company's stock option plans described below. Nonemployee
Directors receive an automatic initial grant of options to purchase 6,000
shares, which vest over a three-year period, and thereafter, an annual automatic
grant of options to purchase 2,000 shares. Executive officers are appointed by
and serve at the discretion of the Board of Directors.
The Board of Directors has only one standing committee, an Audit Committee
comprised of Mr. Masucci, Mr. MacIntosh and Mr. Martin van der Hagen. Only Mr.
Masucci and Mr. MacIntosh are independent directors. The Board currently has no
compensation or other standing committees and no current plans to establish
additional committees.
KEY EMPLOYEES
Joseph L. Busick, 50, joined Surrey in July 1997. As Sales and Marketing
Director, his primary responsibilities are to oversee and direct sales and
marketing to the Company's retail customers. Before joining Surrey, Mr. Busick
held the position of Vice President -- Director of Sales and Marketing at CBI
Laboratories, Inc., a $30 million personal care manufacturer, from June 1994 to
June 1997. Prior to CBI, he was co-owner /President of J. Busick & Col/Cashe'
International Inc., an apparel importer and marketing company selling to the
mass-chain retail stores. Mr. Busick received a B.S. degree in marketing from
the University of North Texas and graduate hours towards an M.B.A. in marketing
from Case Western University.
David L. Wills, 40, has been Plant Manager for the Company since 1985. His
primary responsibility is 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.
Jon M. Hysick, 38, has been Operations Manager for the Company since 1993.
His primary responsibilities are scheduling purchasing of raw materials,
scheduling production and cost control. He served as purchasing supervisor prior
to his promotion to Operations Manager. He was assistant manager of loans and
collections for Commercial Credit Corporation in Austin, Texas from 1988 until
he joined Surrey in 1992. Mr. Hysick attended the University of Texas.
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
for the fiscal year ended December 31, 1996 and the prior two years earned by or
paid to the current Chief Executive Officer and the only other executive officer
who was serving at the end of the most recent fiscal year whose annual salary
and bonus exceeded $100,000 (together with the CEO, the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------------------------
FISCAL OTHER ANNUAL
NAME YEAR SALARY BONUS COMPENSATION(1)
---- ------ ------ ----- ---------------
<S> <C> <C> <C> <C>
John B. van der Hagen........................ 1996 $125,000 -- $17,040
Chairman, CEO(2) 1995 $125,000 $10,000 $17,220
1994 $125,000 -- $16,920
James K. Olson(3)............................ 1996 $125,000 -- $12,780
1995 $125,000 $10,000 $16,800
1994 $125,000 -- $16,500
</TABLE>
- -------------------------
(1) Represents automobile allowance for such years.
(2) Elected CEO in August 1997; served as President of the Company from 1981 to
August 1997.
26
<PAGE> 29
(3) Resigned as CEO and director in August 1997 and entered into a consulting
agreement with the Company. See "Certain Transactions."
EMPLOYMENT AGREEMENTS WITH CEO AND PRESIDENT
The Company will enter into an employment agreement with each of John van
der Hagen, CEO and major shareholder, and Martin van der Hagen, President, upon
the closing of the offering. Each such agreement provides for an increase in
such officer's minimum annual base salary, as follows: (a) for 1998, such base
salary will be increased to $150,000, provided the Company's gross sales for
such year are at least $12 million; and (b) for 1999, such base salary will be
increased to $175,000, provided the Company's gross sales for such year are at
least $15 million. In addition, each such officer is entitled to an annual
automobile allowance, to participate in the Company's stock option and other
benefit plans, and to a bonus in accordance with Company policy in effect from
time to time, if any. 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.
1997 LONG-TERM INCENTIVE PLAN
In September 1997, the Board of Directors and shareholder of the Company
adopted the 1997 Long-Term Incentive Plan (the "Plan") to provide for the
granting of stock options and other incentive awards to key employees and
employee directors of the Company. The Company has reserved 350,000 shares of
its Common Stock for issuance under the Plan.
The 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"). The Plan is currently administered by the entire Board acting as
the Committee. Employees of the Company, including directors who are current
employees, are eligible to 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 Plan.
The Committee has the discretion to select eligible employees 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 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 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 eighty-five percent (85%) of the fair market value of the
underlying Common Stock on the date of grant.
The Company intends to grant stock options for the purchase of 287,500
shares of Common Stock to 17 employees effective as of the date of this
Prospectus (the "Grant Date"). Except as described below, the exercise price of
these options is the assumed initial public offering price of one share of
Common Stock, based on the offering price of a Unit as set forth on the outside
front cover of this Prospectus, and each of these Options becomes exercisable in
five equal installments commencing on the first anniversary of the Grant Date.
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 these Options
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 Grant Date. See also
"Principal Shareholders."
27
<PAGE> 30
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 is administered by the Company's Board of Directors as
a whole. Non-employee directors receive automatic, nondiscretionary awards upon
initial election to the Board of 6,000 options to purchase Common Stock
("Options") pursuant to the Directors' Plan, vesting over a three year period.
In addition, upon election to a fourth and each subsequent term, each
non-employee director receives an automatic annual grant thereafter of options
to purchase 2,000 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 non-employee directors effective as of the date of this
Prospectus (the "Grant Date"), and vest over a three-year period. The exercise
price of the initial options is the assumed initial public offering price of one
share of Common Stock, based on the offering price of a Unit as set forth on the
outside front cover of this Prospectus. 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 Grant Date. See also "Principal Shareholders."
LIMITED LIABILITY AND INDEMNIFICATION OF DIRECTORS
The Articles of Incorporation of the Company, as amended, limit the
liability of directors in their capacity as directors to the Company or its
shareholders to the full extent permitted by Texas law. They provide that a
director shall not be liable to the Company or its shareholders for monetary
damages for an act or omission in the director's capacity as a director, except
(i) for any breach of the director's duty of loyalty to the Company or its
shareholders, (ii) for acts or omissions not in good faith that constitute a
breach of duty of the director to the Company or that involve intentional
misconduct or a knowing violation of the law, (iii) for any transaction from
which the director received an improper benefit, whether or not the benefit
resulted from an action taken within the scope of the director's office, or (iv)
for any act or omission for which the liability of a director is expressly
provided by an applicable statute. These provisions do not affect the
availability of equitable remedies, such as an action to enjoin or rescind a
transaction involving a breach of fiduciary duty, although, as a practical
matter, equitable relief may not be available. The above provisions also do not
limit liability of the directors for violations of, or relieve them from the
necessity of complying with, the federal securities law.
The Bylaws of the Company provide that the Company shall indemnify, to the
extent permitted by Article 2.02-1 of the Texas Business Corporation Act,
directors, officers and controlling persons of a company pursuant to the
foregoing provisions, or otherwise. The Company has been advised that in the
opinion of the Securities and Exchange Commission ("SEC") such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. The Company did not request or receive an opinion from the SEC
with respect to indemnification.
CERTAIN TRANSACTIONS
STOCK PURCHASE AGREEMENT AND CONSULTING AGREEMENT WITH JAMES K. OLSON
On August 15, 1997, the Company entered into a stock purchase agreement
with one of its founders, and former chief executive officer and director, James
K. Olson, pursuant to which the Company repurchased
28
<PAGE> 31
1,122,727 shares of Common Stock from Mr. Olson, representing fifty percent of
the outstanding shares, for $1,250,000 (representing $1.11 per share). The
purchase price for such shares, which was determined by negotiation between the
Company and Mr. Olson and was not based on cash flow or earnings per share, was
paid by the Company with a non-interest bearing promissory note ("Purchase
Note"), payable on the earlier of (i) the closing of this offering, (ii)
December 31, 1997, or (iii) such other date as the parties may agree. The
principal of the Purchase Note will be paid out of the net proceeds of this
offering. All shares purchased from Mr. Olson were canceled by the Company,
becoming authorized and unissued shares. See "Use of Proceeds."
In connection with the purchase of Mr. Olson's shares, both Mr. Olson and
his wife resigned as directors of the Company; Mr. Olson resigned as chief
executive officer; the Company agreed to repay a note ("Promissory Note") due to
Mr. Olson, in the outstanding principal amount of approximately $90,000 plus
interest at 12%, at the time of payment of the Purchase Note; the Company and
John van der Hagen, current CEO of the Company, agreed to indemnify Mr. Olson
and his wife against certain liabilities, including any such liabilities
incurred by Mr. and Mrs. Olson in connection with guaranteeing approximately
$1.6 million of the Company's bank loans and approximately $150,000 of the
capital lease obligations of the Company. In addition, Mr. John van der Hagen
entered into a voting trust agreement pursuant to which Mr. van der Hagen
granted the right to vote his shares during the term of such agreement to a
trustee. The agreement provides that in the event that the Company's public
offering is not closed on or before December 31, 1997, the trustee shall vote
all of Mr. van der Hagen's shares to reinstate Mr. Olson as a fifty percent
shareholder, officer and director of the Company. The voting trust agreement
terminates on the earlier of the payment to Mr. Olson of the Purchase Note and
the Promissory Note or the reinstatement of Mr. Olson as a fifty percent
shareholder.
In addition, Mr. Olson, who had served as chief executive officer and chief
financial officer of the Company since 1981, entered into a consulting agreement
with the Company, pursuant to which Mr. Olson has continued to provide, on an as
needed basis during regular business hours, advice with respect to financial and
administrative affairs of the Company. For such services, the Company pays Mr.
Olson, during the term of the agreement, an annual fee of $125,000 payable
bi-weekly, as well as certain out-of-pocket expenses for business entertaining
and travel, car insurance and maintenance, and dues and subscriptions to
business publications. In addition, Mr. Olson is entitled to participate in
health insurance, automobile allowance, and other benefits provided by the
Company to its officers. The consulting agreement terminates upon the payment in
full of the Purchase Note and the Promissory Note. In the event that this
offering does not close, the Company and Mr. Olson have agreed to rescind all of
the above transactions. In addition, Mr. Olson and Mr. van der Hagen entered
into a voting trust agreement whereby Mr. Olson will be reinstated as a fifty
percent shareholder, officer and director if the Purchase Note is not paid when
due as stated above.
At the time the stock purchase and related transactions were entered into,
the Company had no disinterested independent directors to ratify these
transactions. The Company believes that the terms of the transactions described
above were on terms at least as favorable to the Company as could have been
received from disinterested third parties.
LOAN FROM OFFICERS
Each of John van der Hagen and James Olson, the current and former CEOs of
the Company, hold promissory notes, each in the current principal amount
outstanding of approximately $90,000. Such notes (each in the original principal
amount of $100,000) were issued in March 1996, bear interest at 12% per annum on
the unpaid principal, and require payments of $2,000 per month. The promissory
note held by a former CEO and director is being repaid with a portion of the
proceeds of this offering, as described above. At the time these loans were made
to the Company, the Company had no disinterested independent directors to ratify
this transaction.
The Company believes that the terms of these loans were on terms at least
as favorable to the Company as could have been received from disinterested third
parties. The Company has not made, and does not currently intend to make, loans
to its officers, directors or controlling persons.
29
<PAGE> 32
All future material affiliated transactions and loans will be made or
entered into on terms that are no less favorable to the Company than those that
can be obtained from unaffiliated third parties. All future material affiliated
transactions and loans, and any forgiveness of loans, must be approved by a
majority of the Company's independent directors who do not have an interest in
the transactions and who had access, at the Company's expense, to the Company's
or independent legal counsel.
30
<PAGE> 33
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock as of the date hereof, and as adjusted
to reflect the sale of the shares offered hereby (assuming no exercise of the
Underwriters' over-allotment option and no exercise of the Warrants offered
hereby) (i) by each person who is known by the Company to beneficially own more
than five percent (5%) of the outstanding Common Stock, and (ii) by each of the
Company's Named Executive Officers and Directors. Unless otherwise noted, each
person or group identified has sole voting and investment power with respect to
the shares shown.
<TABLE>
<CAPTION>
PERCENT PERCENT
SHARES BEFORE AFTER
NAME AND ADDRESS(1)(2) OWNED(3) OFFERING(4) OFFERING(4)
- ---------------------- -------- ----------- -----------
<S> <C> <C> <C>
John B. van der Hagen(5).................................... 1,122,727 100% 47%
Martin J. van der Hagen..................................... -0- -0- -0-
Mary van der Hagen(6)....................................... 1,122,727 100% 47%
Bruce A. Masucci............................................ -0- -0- -0-
Golden Mile Sales
Associates, Inc.
225 Worcester Road
Framingham, MA 01701
G. Thomas MacIntosh......................................... -0- -0- -0-
Mackall, Crounse & Moore, PLC
1400 AT&T Tower
901 Marquette Avenue
Minneapolis, MN 55402
All directors and officers as a group (6 persons)........... 1,122,727 100% 47%
</TABLE>
- -------------------------
(1) Unless otherwise noted, the business address of each person listed above is
at the Company, 13110 Trails End Road, Leander, Texas 78641.
(2) One of the Named Executive Officers, James Olson, currently owns no shares
of Common Stock and resigned as an officer and director in August 1997. See
"Certain Transactions."
(3) Options to purchase shares under the Company's stock option plans have been
granted as follows, effective as of the date of this Prospectus: John van
der Hagen, 50,000 options; Martin van der Hagen, 75,000 options; Mary van
der Hagen, 6,000 options; Mr. Masucci, 6,000 options; Mr. MacIntosh 6,000
options; and all officers and directors as a group, 193,000 options. No such
options will be exercisable prior to one year from the effective date of
grant. See "Management."
(4) Assumes no exercise of the Representative's Warrant, no exercise of the
Warrants offered as part of the Units and no exercise of other options.
(5) John van der Hagen's stock is subject to a Voting Trust Agreement with a
trustee for the benefit of James K. Olson, a former director, officer and
shareholder. See "Certain Transactions."
(6) Includes shares owned by John van der Hagen, spouse of Ms. van der Hagen, as
to which Ms. van der Hagen disclaims current beneficial ownership.
31
<PAGE> 34
DESCRIPTION OF SECURITIES
AUTHORIZED STOCK
The authorized capital stock of the Company consists of 10,000,000 shares
of Common Stock, no par value.
UNITS
Each Unit being offered by the Company consists of two shares of the
Company's Common Stock, described below, and one redeemable Warrant, having the
terms and conditions described below. The components of the Units will be
separately transferable commencing December , 1997 or earlier at the
discretion of the Representative. The Representative may decide to delist the
Units after the thirty day minimum inclusion period.
COMMON STOCK
The Company is authorized to issue 10,000,000 shares of Common Stock, no
par value, of which 1,122,727 are currently outstanding and held by one
individual prior to this offering. All outstanding shares of Common Stock are,
and the shares offered by the Company hereby will be, duly authorized, validly
issued, fully paid and nonassessable. Holders of Common Stock are entitled to
receive dividends, when and if declared by the Board of Directors, out of funds
legally available therefor and to share ratably in the net assets of the Company
upon liquidation. Holders of Common Stock do not have preemptive or other rights
to subscribe for additional shares, nor are there any redemption or sinking fund
provisions associated with the Common Stock.
Holders of Common Stock are entitled to one vote per share on all matters
requiring a vote of shareholders. Since the Common Stock does not have
cumulative voting rights in electing directors, the holders of more than a
majority of the outstanding shares of Common Stock voting for the election of
directors can elect all of the directors whose terms expire that year, if they
choose to do so. The officers and directors of the Company will continue to
control a majority of the votes following completion of this offering and,
accordingly, they will be able to elect all of the members of the Company's
Board of Directors.
WARRANTS
The Warrants (herein the "Warrant" or the "Warrants") will be issued in
registered form under, and subject to the terms of, a warrant agreement dated as
of the closing of this offering (the "Warrant Agreement") between the Company
and Norwest Bank Minnesota, N.A., as warrant agent (the "Warrant Agent"). The
following statements are brief summaries of certain provisions of the Warrant
Agreement and are subject to the detailed provisions thereof, to which reference
is made for a complete statement of such provisions. Copies of the Warrant
Agreement may be obtained from the Company or the Warrant Agent and have been
filed with the Securities and Exchange Commission (the "Commission") as an
Exhibit to the Registration Statement of which this Prospectus is a part.
The Company has authorized the issuance of 790,625 Warrants including:
625,000 Warrants being issued as part of the Units, 93,750 Warrants comprising
part of the Units representing the Underwriters' over-allotment option, and
62,500 Warrants comprising part of the Units issuable pursuant to the
Representative's Warrant. As of the date of the Prospectus, no Warrants are
issued and outstanding. The Representative's Warrant will be issued pursuant to
a separate warrant agreement between the Company and the Representative rather
than under the above-described Warrant Agreement. The Representative's Warrant
is not identical to the Warrants in that they will be exercisable during a
four-year period commencing one year from the effective date. The Company has
reserved an equivalent number of shares of Common Stock for issuance upon
exercise of the Warrants issued hereby and the Representative's Warrant.
Each Warrant entitles the registered holder thereof to purchase one share
of Common Stock at a price of $4.80 per share, subject to adjustment under
certain circumstances, at any time after the closing of this offering and until
the close of business on the fifth anniversary of the date of this Prospectus.
The components
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<PAGE> 35
of the Units will be separately transferable commencing December , 1997 or
earlier at the discretion of the Representative. The Representative may decide
to delist the Units after the thirty day minimum inclusion period.
The Company may call the Warrants for redemption in whole, commencing one
year after the date of the Prospectus, at a price of $.01 per Warrant at any
time that the market value of the Common Stock exceeds $5.00 per share for a
period of twenty consecutive trading days, provided that notice of not less than
30 days is given to the Warrantholders. Upon such notice, Warrantholders shall
have the rights to exercise the Warrants until the close of business on the date
fixed for redemption.
The Warrants contain provisions that protect the holders thereof against
dilution. The exercise price and the number of shares of Common Stock or other
securities issuable on exercise of the Warrants are subject to adjustment in
certain circumstances, including stock dividends, splits, reclassification,
recapitalization, reorganizations, mergers or consolidations of the Company.
However, the Warrants are not subject to adjustment for issuances of shares of
Common Stock at a price below the exercise price of the Warrants, including the
issuance of shares pursuant to the Company's stock option plans or otherwise. No
adjustment in the exercise price shall be required unless such adjustment would
require an increase or decrease of at least $.05.
Warrants are generally more speculative than Common Stock which is
purchasable upon the exercise thereof. Historically, the percentage increase or
decrease in the market price of a warrant has tended to be greater than the
percentage increase or decrease in the market price of the underlying common
shares. A Warrant may become valueless, or of reduced value, if the market price
of the Common Stock decreases, or increases only modestly, over the term of the
Warrant.
The Warrants may be exercised during the five year period commencing on the
date of this Prospectus (subject to redemption as described above) upon
surrender of the Warrant certificate on or prior to the expiration date at the
offices of the Warrant Agent, with the exercise form on the reverse side of the
Warrant certificate completed and executed as indicated, accompanied by full
payment of the exercise price (by check payable to the Company) for the number
of Warrants being exercised. The Warrantholders do not have the right or
privileges of holders of Common Stock.
No Warrant will be exercisable unless at the time of exercise there is a
current registration statement under the Securities Act covering the issuance of
the shares underlying the Warrants. The Company has undertaken to use its best
efforts to maintain a current registration statement relating thereto until the
expiration of the Warrants, subject to the terms of the Warrant Agreement. The
Company may suspend exercise of the Warrants during such period as is necessary
to obtain or keep effective any registration, qualification or other
governmental approval required in connection with the issuance of Common Stock
upon exercise of the Warrants.
No fractional shares will be issuable upon exercise of the Warrants.
However, if a Warrantholder exercises all Warrants then owned of record by him,
the Company will pay to such Warrantholder, in lieu of the issuance of any
fractional share which is otherwise issuable, an amount in cash based on the
market value of the Common Shares on the last trading day prior to the exercise
date.
REPRESENTATIVE'S WARRANT
The Company has agreed to sell to the Representative, pursuant to a
separate warrant agreement, warrants to purchase from the Company an aggregate
of 62,500 Units at a price equal to 120% of the public offering price of the
Units offered hereby. See "Underwriting."
TRANSFER AGENT AND WARRANT AGENT
The transfer agent and registrar with respect to the Company's Units and
Common Stock and the warrant agent with respect to the Warrants is Norwest Bank
Minnesota, N.A.
33
<PAGE> 36
TEXAS BUSINESS CORPORATION LAWS
The Texas Business Combination Law (Part 13 of the Texas Business
Corporation Act) provides for a three-year moratorium on certain mergers,
exchanges, sales of assets, shares issuances or reclassifications of securities
(collectively, a "business combination") between an issuing public corporation
and a shareholder who acquires beneficial ownership of 20% or more of such
corporation's voting securities, unless (1) the business combination or the
acquisition of shares by such affiliated holder is approved by the board of
directors of the corporation prior to the affiliated holder's share acquisition
date or (2) such business combination is approved by the affirmative vote of the
holders of two-thirds of the outstanding voting shares of the corporation not
owned by such affiliated holder at a meeting of shareholders not less than six
months after the affiliated holder's share acquisition date.
As provided in such Law, the Board of Directors of Surrey amended the
Bylaws of the Corporation to provide that the Business Combination Law will not
apply to the Company. Therefore, such business combinations may be entered into
without such prior shareholder approval.
The Texas Business Corporation Act provides for a shareholder vote for
certain sale, lease, exchange or other disposition of corporate assets or
certain mergers. In addition, the Act provides shareholders the right to dissent
from certain of such corporate actions and, upon compliance with the required
procedures, to request payment of the fair value of their shares.
UNDERWRITING
The Company has entered into an Underwriting Agreement (the "Underwriting
Agreement") with Stuart, Coleman & Co., Inc., and the firms (the "Underwriters")
listed below with respect to this offering. The Underwriters named below,
represented by Stuart, Coleman & Co., Inc. (the "Representative"), have
severally agreed on a "firm commitment" basis to purchase from the Company the
respective number of Units set forth opposite their names below:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF UNITS
----------- ---------------
<S> <C>
Stuart, Coleman & Co., Inc. ................................
-------
Total.................................................. 625,000
=======
</TABLE>
The Underwriting Agreement provides that the obligation of the Underwriters
to pay for and accept delivery of the Units is subject to certain conditions
precedent and that the Underwriters will be obligated to purchase all of the
Units to be purchased by them pursuant to such Underwriting Agreement if any
Units are purchased.
The Underwriters will purchase the Units (including any Units purchased
upon exercise of the over-allotment option) from the Company at a price per Unit
representing a discount of 10% from the initial public offering price set forth
on the cover of this prospectus.
There has been no previous market for any of the Company's securities. The
major factors considered by the Company and the Representative in determining
the public offering price of the Units, in addition to prevailing market
conditions, were the Company's earnings history, estimates of the business
potential and earnings prospects of the Company, the present state of the
Company's development and an assessment of the
34
<PAGE> 37
Company's management, as well as consideration of the above factors in relation
to market valuations of comparable companies.
The Underwriters propose initially to offer the Units to the public at the
Price to Public set forth on the cover page of this Prospectus and to selected
dealers at such price less a concession not in excess of $0.486 per Unit. The
Underwriter may allow, and such dealers may reallow, a concession not in excess
of $0.10 per Unit to certain other brokers and dealers. After the initial public
offering, the offering price, concessions and discounts to dealers may be
changed by the Underwriters. The Representative has informed the Company that it
does not intend to confirm sales to any account over which it has discretionary
authority.
The Company has granted the Underwriters an option exercisable within 30
days after the date of this Prospectus to purchase up to an additional 93,750
Units at the Price to Public, less the underwriting discount shown on the cover
page of this Prospectus. The Underwriters may exercise such option only for the
purpose of covering any over-allotments in the sale of the Units offered hereby.
The Company has agreed to pay the Representative a nonaccountable expense
allowance equal to 3% of the aggregate offering price of the Units or $152,344
($175,195 if the Underwriters' over-allotment option is exercised in full),
$50,000 of which has been paid to date.
In addition, the Company has agreed to enter into a two-year financial
consulting agreement with the Representative upon the closing of the offering.
The terms of this consulting agreement provide compensation to the
Representative of $12,500 per year or an aggregate of $25,000, all of which is
prepayable at the closing of the offering. The Representative has agreed to
provide, on an as needed basis, advice to the Company with respect to financial
matters.
In connection with this offering, the Company has agreed to sell to the
Representative, for a price of $.0005 per warrant, a warrant to purchase up to
62,500 Units (the "Representative's Warrant"). The Representative's Warrant may
be exercised in whole or in part commencing twelve months after the date of this
Prospectus and for a period of four years thereafter, at an exercise price equal
to 120% of the Price to Public. During the first year, the Representative's
Warrant may not be transferred, sold, assigned or hypothecated except to persons
who are officers, shareholders or principals of the Representative or by
operation of law in the death of any such officer, shareholder or principal. The
Representative's Warrant contains anti-dilution provisions that make appropriate
adjustments upon the occurrence of certain events.
Subject to certain limitations and exclusions, the Company has agreed, at
the request of the holders of a majority of the Representative's Warrant and at
the Company's expense, during the four-year period commencing one year from the
date of this Prospectus, to register the Units, Common Stock and Warrants
underlying the Representative's Warrant under the Securities Act on one occasion
and to also include such underlying securities in any appropriate registration
statement which is filed by the Company during the four-year period commencing
one year after the date of this Prospectus.
Although it has no legal obligation to do so, the Representative has
indicated that from time to time it may become a market maker and otherwise
effect transactions in the Company's securities. The Company has made
application to have the Units, Common Stock and Warrants listed on the Nasdaq
SmallCap Market(SM) upon official notice of issuance.
In connection with the offering, the Representative and certain selling
group members may engage in certain transactions that stabilize, maintain or
otherwise affect the market price of the Units, the Common Stock and the
Warrants. Such transactions may include stabilization transactions effected in
accordance with Rule 104 of Regulation M, pursuant to which such persons may bid
for or purchase the Units, the Common Stock and the Warrants for the purpose of
pegging, fixing or maintaining the market price of such securities. The
Representative may also create a short position in the Units by selling more
Units in connection with the offering than it is committed to purchase from the
Company, and in such case the Representative may reduce all or a portion of that
short position by purchasing the Units, the Common Stock and the Warrants in the
open market. The Representative also may elect to reduce any short position by
exercising all or any portion of the over-allotment option described herein. In
addition, the Representative may impose "penalty bids" whereby selling
commissions allowed to selling group members or other broker-dealers in respect
of the Units
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<PAGE> 38
sold in the offering for their account may be reclaimed by the Representative if
the securities comprising the Units are repurchased by the Representative or any
selling group member in stabilizing or covering transactions. Any of the
transactions described in this paragraph may stabilize or maintain the market
price of the Units, the Common Stock and the Warrants at a level above that
which might otherwise prevail in the open market.
The Underwriting Agreement provides for reciprocal indemnification between
the Company, the Underwriters and their controlling persons against civil
liabilities in connection with the offering, including liabilities under the
Securities Act. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted pursuant to the foregoing provisions, the
Company has been informed that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
Each of the current executive officers and directors of the Company and
holders of more than 10% of the Common Stock, who will beneficially own in the
aggregate 1,227,727 shares of Common Stock after the offering, and the Company
have agreed that they will not, without the prior consent of the Representative,
offer, sell or grant any option to sell any securities of the Company in the
open market (other than pursuant to the over-allotment option) or otherwise for
a period of 20 months from the effective date of this Prospectus.
The foregoing is a brief summary of the provisions of the Underwriting
Agreement, the Representative's Warrant and the financial consulting agreement
and does not purport to be a complete statement of their respective terms and
conditions. The Underwriting Agreement, the Representative's Warrant and the
financial consulting agreement each have been filed as an exhibit to the
Registration Statement of which this Prospectus is a part.
On December 2, 1996, the Representative offered a settlement in
administrative proceeding 3-8781 which was accepted by the Securities and
Exchange Commission ("Commission"). The Commission issued an order making
findings and imposing remedial sanctions. The findings alleged improper
supervision of a branch office for not detecting a hidden scheme to "sell away"
limited partnerships. The Representative neither admitted nor denied the
allegations, agreed to pay a $25,000 fine and received a censure. In addition,
the Representative undertook measures to tighten compliance with regard to
"selling away" by retaining an outside consultant to prepare a procedure for
tighter branch supervision and supervisory education. All aspects of the order
have been complied with and the Commission advised.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 2,372,727 shares of
Common Stock outstanding. In addition, the Company will have 625,000 shares of
Common Stock reserved for issuance under the Warrants, 450,000 reserved for
issuance under the Company's stock option plans (305,500 of which options have
been granted effective as of the date of this Prospectus) and up to 187,500
shares reserved for issuance upon exercise of the Representative's Warrant. Of
the 2,372,727 shares to be outstanding after the offering, the 1,250,000 shares
of Common Stock sold to the public in this offering, and the 625,000 issuable
upon exercise of the Warrants, will be freely tradeable without restriction or
registration under the Securities Act, except that any shares purchased by an
"affiliate" of the Company (as defined in the rules and regulations promulgated
under the Act) will be subject to the resale limitations of Rule 144 under the
Securities Act.
The remaining 1,122,727 shares of Common Stock held by the existing
shareholder upon completion of this offering are "restricted securities" as that
term is defined under Rule 144, all of which are currently eligible for sale
pursuant to Rule 144. All such outstanding restricted shares are currently owned
by the Chief Executive Officer of the Company who has agreed that he will not,
without the prior consent of the Representative, offer, sell or grant any option
to sell any securities of the Company in the open market or otherwise for a
period of 20 months from the closing of this offering other than to members of
his immediate family who will also agree to the terms of such "lock-up." See
"Management." In addition, the Representative has received certain registration
rights under the Securities Act with respect to the securities issuable upon
exercise of the Representative's Warrants. See "Underwriting."
36
<PAGE> 39
In general, under Rule 144, as currently in effect, a person (or persons
whose sales are aggregated) who has beneficially owned restricted shares for at
least a year is entitled to sell within any three-month period a number of
shares that does not exceed the greater of 1% of the then outstanding shares of
the Company's Common Stock or the average weekly trading volume in the Company's
Common Stock during the four calendar weeks preceding such sale. Sales under
Rule 144 are also subject to certain manner-of-sale provisions, notice
requirements and the availability of current public information about the
Company. A person who has not been an affiliate of the Company at any time
during the three months preceding a sale, and who has beneficially owned such
restricted shares for at least two years, is entitled to sell all such shares
under Rule 144 without regard to the requirements described above.
As of the date of this Prospectus, there has been no public market for the
Company's Common Stock. No assurance can be given that any such market will
develop, or if developed, will be maintained. The Company cannot predict the
effect, if any, that sales of restricted securities or the availability of such
securities for sale could have on the market price, if any, prevailing from time
to time. Nevertheless, sales of substantial amounts of the Company's Common
Stock could adversely affect prevailing market prices of the Company's Common
Stock and the Company's ability to raise additional capital by occurring at a
time when it would be beneficial for the Company to sell securities.
LEGAL MATTERS
The validity of the issuance of the Common Stock offered hereby will be
passed upon for the Company by Mackall, Crounse & Moore, PLC, Minneapolis,
Minnesota. G. Thomas MacIntosh, a director of the Company, is a partner with the
law firm of Mackall, Crounse, which has represented the Company in the past and
anticipates representing the Company in the future. Certain legal matters will
be passed upon for the Underwriter by Helene K. Netter, Esq., Managing Director,
Corporate Finance, Stuart, Coleman & Co., Inc., New York, NY.
EXPERTS
The financial statements of Surrey, Inc. at December 31, 1996 and for each
of the years ended December 31, 1995 and 1996, appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein and
are included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
CHANGES IN COMPANY'S CERTIFYING ACCOUNTANT
On December 2, 1996, the Company's Board of Directors approved the
engagement of the independent certified public accounting firm of Ernst & Young
LLP to audit the financial statements of the Company. Accordingly, the
engagement of James M. Betty, Certified Public Accountants as the Company's
independent auditors was discontinued.
The report of James M. Betty, Certified Public Accountants on the Company's
financial statements for the year ended December 31, 1995 did not contain an
adverse opinion or a disclaimer of opinion and was not qualified or modified as
to uncertainty, audit scope or accounting principles. The report is not included
in the Registration Statement as Ernst & Young LLP was engaged to re-audit that
period in connection with this offering.
There were no disagreements between the Company and James M. Betty,
Certified Public Accountants on any matters of accounting principles or
practices, financial statement disclosure, or auditing scope and procedures
which, if not resolved to the satisfaction of James M. Betty, Certified Public
Accountants, would have caused James M. Betty, Certified Public Accountants to
make reference to the matter in their report.
37
<PAGE> 40
ADDITIONAL INFORMATION
Prior to this offering, the Company has not been subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2 ("Registration Statement"),
together with exhibits thereto, relating to the Units offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement and
exhibits thereto. For further information with respect to the Company and the
Units, the Common Stock, and the Warrants, reference is made to such
Registration Statement and exhibits. Statements made in this Prospectus as to
the contents of any contract, agreement or other documents referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made to
the exhibit for a more complete description of the matter involved. The
Registration Statement and exhibits may be inspected without charge and copied
at the principal public reference facilities maintained by the Commission at 450
Fifth Street N.W., Washington, D.C. and at the Commission's regional offices at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661,
and 7 World Trade Center, 13th Floor New York, New York 10048. Copies of such
material may be obtained at prescribed rates from the Commission's Public
Reference Section at 450 Fifth Street N.W., Washington, D.C. 20549. Such
material may also be accessed electronically by means of the Commission's home
page on the Internet at http://www.sec.gov.
The Company has not, to date, filed reports with the Securities and
Exchange Commission, but will be required to do so upon completion of this
offering. The Company intends to furnish annual reports to shareholders
containing financial statements which have been audited and reported upon by
independent certified public accountants and such other periodic reports as it
may determine to be appropriate or as may be required by law. The Company will
also provide without charge to each person who receives this Prospectus, upon
written or oral request, a copy of any of the information that is incorporated
by reference (not including exhibits to the information that is incorporated by
reference unless the exhibits themselves are specifically incorporated by
reference). Such request should be directed to John B. van der Hagen, 13110
Trails End Road, Leander, Texas 78641, (512) 267-7172.
38
<PAGE> 41
SURREY, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young, LLP, Independent Auditors.......... F-2
Balance Sheets as of December 31, 1996 and September 30,
1997 (unaudited).......................................... F-3
Statements of Operations for the years ended December 31,
1995 and 1996 and for the nine months ended September 30,
1996 (unaudited) and 1997 (unaudited)..................... F-4
Statements of Shareholders' Equity (Deficit) for the years
ended December 31, 1995 and 1996 and for the nine months
ended September 30, 1997 (unaudited)...................... F-5
Statements of Cash Flows for the years ended December 31,
1995 and 1996 and for the nine months ended September 30,
1996 (unaudited) and 1997 (unaudited)..................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 42
REPORT OF ERNST & YOUNG, LLP, INDEPENDENT AUDITORS
Board of Directors and Shareholders
Surrey, Inc.
We have audited the accompanying balance sheet of Surrey, Inc. as of
December 31, 1996, and the related statements of operations, shareholders'
equity and cash flows for the years ended December 31, 1995 and 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Surrey, Inc. at December 31,
1996, and the results of its operations and its cash flows for the years ended
December 31, 1995 and 1996, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Austin, Texas
September 4, 1997
F-2
<PAGE> 43
SURREY, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash........................................................ $ 159 $ 69
Accounts receivable, net of allowance for doubtful accounts
of $30 at December 31, 1996 and $45 at September 30,
1997...................................................... 1,312 1,977
Inventories, net............................................ 1,172 1,375
Prepaid expenses and other current assets................... 31 28
Deferred income taxes....................................... 46 53
------ ------
Total current assets........................................ 2,720 3,502
Property and equipment, net................................. 1,508 1,512
Deferred financing costs.................................... -- 196
------ ------
Total assets................................................ $4,228 $5,210
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Trade accounts payable.................................... $ 660 $1,308
Accrued expenses.......................................... 90 232
Notes payable............................................. 729 688
Note payable to former shareholder........................ -- 1,250
Notes payable to shareholders, current portion............ 28 175
Current maturities of long-term debt...................... 97 98
Current maturities of capital lease obligations........... 106 70
Income taxes payable...................................... 8 153
------ ------
Total current liabilities................................... 1,718 3,974
Notes payable to shareholders, less current maturities...... 154 --
Long-term debt, less current maturities..................... 1,239 1,175
Capital lease obligations, less current maturities.......... 77 62
Deferred income taxes....................................... 42 38
Commitments and contingencies
Shareholders' equity (deficit):
Common stock, no par value, 10,000,000 shares authorized,
2,245,454 and 1,122,727 shares issued and outstanding
at December 31, 1996 and September 30, 1997,
respectively........................................... 393 --
Retained earnings (deficit)............................... 605 (39)
------ ------
Total shareholders' equity (deficit)........................ 998 (39)
------ ------
Total liabilities and shareholders' equity (deficit)........ $4,228 $5,210
====== ======
</TABLE>
See accompanying notes.
F-3
<PAGE> 44
SURREY, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------ ----------------------
1995 1996 1996 1997
---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales.......................................... $7,882 $ 7,336 $4,878 $ 6,363
Cost of sales...................................... 6,071 5,485 3,562 4,702
------ ---------- ------ ----------
Gross profit....................................... 1,811 1,851 1,316 1,661
Operating expenses:
Sales and marketing.............................. 513 507 366 288
General and administrative....................... 1,076 1,005 729 870
------ ---------- ------ ----------
Total operating expenses........................... 1,589 1,512 1,095 1,158
Income from operations............................. 222 339 221 503
Other:
Interest expense, net............................ 222 226 162 159
Other income..................................... 3 -- -- 4
------ ---------- ------ ----------
Income before income taxes......................... 3 113 59 348
Provision for income taxes......................... 1 47 25 135
------ ---------- ------ ----------
Net income......................................... $ 2 $ 66 $ 34 $ 213
====== ========== ====== ==========
Pro forma net income per common share.............. $ 0.06 $ 0.19
========== ==========
Weighted average shares outstanding................ 1,122,727 1,122,727
========== ==========
</TABLE>
See accompanying notes.
F-4
<PAGE> 45
SURREY, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
-------------------- RETAINED SHAREHOLDERS'
SHARES EARNINGS EQUITY
OUTSTANDING AMOUNT (DEFICIT) (DEFICIT)
----------- ------ --------- -------------
<S> <C> <C> <C> <C>
Balance at January 1, 1995........................... 2,245,454 $ 393 $ 537 $ 930
Net income......................................... -- -- 2 2
---------- ----- ----- -------
Balance at December 31, 1995......................... 2,245,454 393 539 932
Net income......................................... -- -- 66 66
---------- ----- ----- -------
Balance at December 31, 1996......................... 2,245,454 393 605 998
Repurchase of common stock......................... (1,122,727) (393) (857) (1,250)
Net income (unaudited)............................. -- -- 213 213
---------- ----- ----- -------
Balance at September 30, 1997 (unaudited)............ 1,122,727 $ -- $ (39) $ (39)
========== ===== ===== =======
</TABLE>
See accompanying notes.
F-5
<PAGE> 46
SURREY, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
---------------- ----------------
1995 1996 1996 1997
---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 2 $ 66 $ 34 $ 213
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization............................. 205 210 158 172
Gain on sale of asset..................................... (3) -- -- --
Changes in operating assets and liabilities:
Accounts receivable.................................... 120 (184) 56 (665)
Inventories............................................ (353) 183 (110) (203)
Prepaid expenses and other current assets.............. 10 (19) (17) 3
Deferred income taxes.................................. (15) (3) 25 (11)
Trade accounts payable................................. (65) (328) (38) 648
Accrued expenses....................................... 31 (38) 8 142
Income taxes payable................................... (3) 6 (45) 145
----- ----- ----- -----
Net cash provided by (used in) operating activities......... (71) (107) 71 444
INVESTING ACTIVITIES
Acquisition of property and equipment....................... (159) (105) (48) (122)
Proceeds from sale of property and equipment................ 15 -- -- --
----- ----- ----- -----
Net cash used in investing activities....................... (144) (105) (48) (122)
FINANCING ACTIVITIES
Proceeds from issuance of notes payable..................... 650 500 200 513
Payment of notes payable.................................... (275) (246) (231) (554)
Proceeds from issuance of notes payable to shareholders..... -- 200 200 --
Payment of notes payable to shareholders.................... -- (19) (12) (7)
Proceeds from issuance of long-term debt.................... 21 33 -- --
Payment of long-term debt................................... (55) (82) (58) (63)
Principal payments on capital lease obligations............. (145) (144) (132) (105)
Deferred financing costs.................................... -- -- -- (196)
----- ----- ----- -----
Net cash provided by (used in) financing activities......... 196 242 (33) (412)
Net increase (decrease) in cash............................. $ (19) $ 30 $ (10) $ (90)
Cash, beginning of period................................... 148 129 129 159
----- ----- ----- -----
Cash, end of period......................................... $ 129 $ 159 $ 119 $ 69
===== ===== ===== =====
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Income taxes paid........................................... $ 8 $ 45 $ 45 $ 5
Acquisition of property and equipment via issuance of
capital leases............................................ $ 138 $ 22 $ 22 $ 54
</TABLE>
Interest paid during the years ended December 31, 1995 and 1996 and the
nine months ended September 30, 1996 and 1997 approximates the interest expense
for those periods.
See accompanying notes.
F-6
<PAGE> 47
SURREY, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1997
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
1. NATURE OF BUSINESS
Surrey, Inc. manufactures personal and home care products for major drug,
grocery and discount retailers and distributes its products on a nationwide
basis.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
UNAUDITED INTERIM FINANCIAL INFORMATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the information and notes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the nine months ended September 30, 1997 may not
be indicative of the results for the year ended December 31, 1997.
RECOGNITION OF REVENUE
Revenue is recognized at the date of shipment. Provision is made for
estimated product returns.
INVENTORIES
Inventories are stated at the lower of cost or market, with cost being
determined using the first-in, first-out (FIFO) method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Equipment includes amounts
recorded under capital leases. Depreciation is provided using the straight-line
method over estimated useful lives ranging from three to forty years. Assets
recorded under capital leases are amortized using the straight-line method over
the lesser of the estimated useful lives of the assets or the term of the
related leases and such amortization is included in depreciation and
amortization of property and equipment.
Expenditures for major renewals and improvements are capitalized, while
repairs and maintenance are charged to expense when incurred.
LONG-LIVED ASSETS
Effective January 1, 1996 the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of. Impairment losses
are recognized when indicators of impairment are present and the estimated
future undiscounted cash flows are not sufficient to recover the assets'
carrying value or estimated fair value, less costs to sell. The effect of
adopting this Statement was not material to the financial statements. At
December 31, 1996 there were no events or circumstances which indicated that
long-lived assets of the Company might be impaired.
INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. This statement prescribes the use of the liability
method whereby deferred tax asset and liability account balances are determined
based on differences between financial reporting and tax bases of assets and
F-7
<PAGE> 48
SURREY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.
ADVERTISING
The production cost of advertising is expensed as incurred. Advertising
expense was $141,000, $89,000, $56,000 and $47,000 for the years ended December
31, 1995 and 1996, and for the nine month periods ended September 30, 1996 and
1997, respectively.
PRO FORMA NET INCOME PER COMMON SHARE
Pro forma net income per common share is based on the weighted average
number of common shares outstanding during the period. In August 1997, the
Company repurchased fifty percent (1,122,727 shares) of the outstanding common
stock. The pro forma earnings per share is presented as if the repurchase
occurred on January 1, 1996. There are no common stock equivalents.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified for comparative purposes.
RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings Per Share, which is required to be adopted for financial
statements issued for periods ending after December 15, 1997. At that time, the
Company will be required to change the method currently used to compute earnings
per share and to restate all prior periods. Under the new requirements, the
presentation of primary earnings per share is replaced with basic earnings per
share, the calculation of which excludes the dilutive effect of common stock
equivalents. The Company believes that the Statement will not materially impact
previously reported earnings per share.
3. INVENTORIES
The Company's inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(UNAUDITED)
<S> <C> <C>
Raw materials........................................ $ 976 $ 931
Finished goods....................................... 196 444
------ ------
$1,172 $1,375
====== ======
</TABLE>
F-8
<PAGE> 49
SURREY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(UNAUDITED)
<S> <C> <C>
Equipment............................................ $1,702 $1,862
Building............................................. 886 899
Automobiles.......................................... 120 122
Furniture and fixtures............................... 33 34
------ ------
2,741 2,917
Accumulated depreciation and amortization............ (1,301) (1,473)
------ ------
1,440 1,444
Land................................................. 68 68
------ ------
Property and equipment, net.......................... $1,508 $1,512
====== ======
</TABLE>
Assets under capital leases totaling $574,000 at December 31, 1996 and
$628,000 at September 30, 1997 are included in equipment.
5. CONTINGENCIES
The Company is involved in certain claims arising in the normal course of
business. An estimate of the possible loss resulting from these matters cannot
be made, however, the Company believes that the ultimate resolution of these
matters will not have a material adverse effect on its financial position or
results of operations.
6. NOTES PAYABLE
Notes payable consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(UNAUDITED)
<S> <C> <C>
Borrowings under a revolving line of credit ($500,000 at
December 31, 1996 and $800,000 at September 30, 1997),
bearing interest at the bank's prime rate plus 1.5% (9.75%
at December 31, 1996 and 10% at September 30, 1997), with
interest due monthly and all principal due in April 1998.
The line is collateralized by accounts receivable, inventory
and property and equipment, and is guaranteed by the
Company's shareholders. .................................... $500 $500
Note payable to a bank, bearing interest at the bank's prime
rate plus 2% (10.25% at December 31, 1996 and 10.5% at
September 30, 1997), due in monthly installments of $6,000
in principal and interest through May 1998, at which time
all outstanding principal and interest are due. The note is
collateralized by accounts receivable, inventory, and
property and equipment, and is guaranteed by the Company's
shareholders. .............................................. 229 188
---- ----
$729 $688
==== ====
</TABLE>
F-9
<PAGE> 50
SURREY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(UNAUDITED)
<S> <C> <C>
Note payable to a bank, bearing interest at the bank's prime
rate plus 1.75% (10% at December 31, 1996 and 10.25%
September 30, 1997), due in monthly installments of
$16,000 in principal and interest, through November 2006,
at which time all outstanding principal and interest are
due. The note is collateralized by accounts receivable,
inventory, and property and equipment. The note is
guaranteed by the Company's shareholders and by the United
States Small Business Administration. .................... $1,278 $1,227
Notes payable to various banks for automobiles, bearing
interest at rates ranging from 6.9% to 8.75%, due in
monthly installments of principal and interest of
approximately $1,000, maturing at various dates through
November 1999. The notes are collateralized by the
automobiles financed by the notes. ....................... 58 46
------ ------
1,336 1,273
Less current maturities..................................... (97) (98)
------ ------
Long-term debt, less current maturities..................... $1,239 $1,175
====== ======
</TABLE>
The note which is guaranteed by the United States Small Business
Association ("the SBA Loan") contains restrictive covenants which limit the
Company's capital expenditures and require the Company to maintain certain
financial ratios. At December 31, 1996, the Company was in violation of the debt
service coverage ratio, minimum net worth and the capital expenditures
limitation. The Company has obtained a waiver of these violations as of December
31, 1996 from the lender. At September 30, 1997, the Company was in violation of
the debt to net worth ratio, current ratio, debt service coverage ratio, minimum
net worth and capital expenditures limitation. The Company has obtained a waiver
from the lender for the debt service coverage ratio through December 31, 1997.
The remaining violations have been waived by the lender as of September 30,
1997.
Maturities of long-term debt are as follows for the period ending December
31 (in thousands):
<TABLE>
<S> <C>
1997........................................................ $ 97
1998........................................................ 96
1999........................................................ 104
2000........................................................ 96
2001........................................................ 106
2002........................................................ 117
Thereafter.................................................. 720
------
Total..................................................... $1,336
======
</TABLE>
8. NOTES PAYABLE TO SHAREHOLDERS
In March 1996, the Company issued notes payable to shareholders of the
Company totaling $200,000. The notes bear interest at 12% per annum, and are due
in monthly installments of $2,000 in principal and interest through January
2002. The notes are subordinate to the SBA loan. The Company has not made
payment on the notes since March 1997, and thus the noteholders may declare the
notes to be immediately due. Accordingly, the notes are classified as current at
September 30, 1997.
F-10
<PAGE> 51
SURREY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. SHAREHOLDERS' EQUITY
On August 15, 1997, the Company (Purchaser) and a shareholder (Seller)
entered into a Stock Purchase Agreement (Purchase Agreement), to purchase 50% of
the outstanding capital stock of the Company (1,122,727 shares) for $1,250,000.
The purchase price is payable in the form of a non-interest bearing promissory
note. The note is due at the earlier of the closing of the Purchaser's initial
public offering, December 31, 1997 or such other date as the parties may
mutually agree. The shares repurchased by the Company have been canceled.
Effective September 3, 1997 the Shareholders and the Board of Directors
approved a 11.22727-for-1 stock split of the outstanding common stock. All share
amounts presented in these financial statements have been restated to
retroactively reflect the stock split.
10. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred taxes are as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER
DECEMBER 31, 30,
1996 1997
------------ ---------
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation.............................. $(42) $(38)
---- ----
Total deferred tax liabilities............................ (42) (38)
Deferred tax assets:
Allowance for doubtful accounts......................... 10 17
Inventory and other resources........................... 36 36
---- ----
Total deferred tax assets................................. 46 53
Valuation allowance for deferred tax assets............... -- --
---- ----
Net deferred tax assets................................... 46 53
---- ----
Net deferred tax assets (liabilities)..................... $ 4 $ 15
==== ====
</TABLE>
Significant components of the provision for income taxes attributable to
continuing operations for the years-ended are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------ --------------
1995 1996 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Current:
Federal....................................... $ 4 $47 $ 18 $132
State......................................... 1 4 2 14
--- --- ---- ----
Total current................................... 5 51 20 146
Deferred:
Federal....................................... (3) (3) 4 (9)
State......................................... (1) (1) 1 (2)
--- --- ---- ----
Total deferred.................................. (4) (4) 5 (11)
--- --- ---- ----
$ 1 $47 $ 25 $135
=== === ==== ====
</TABLE>
F-11
<PAGE> 52
SURREY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. INCOME TAXES (CONTINUED)
The reconciliation of income tax attributable to continuing operations at
the U.S. federal statutory tax rates to income tax expense is:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
-------------- --------------
1995 1996 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Tax at federal statutory rate............................... 34% 34% 34% 34%
State taxes (net of federal effect)......................... 4 4 4 3
Nondeductible items and other............................... 4 4 4 2
-- -- --- --
42% 42% 42% 39%
== == === ==
</TABLE>
11. CAPITAL LEASE OBLIGATIONS
The Company leases certain equipment under capital leases. A summary of
minimum lease commitments that have initial or remaining lease terms in excess
of one year is as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL LEASES
--------------------------
PERIOD ENDING
DECEMBER 31 SEPTEMBER 30
----------- ------------
<S> <C> <C>
1997.................................................. $ 121 $ 26
1998.................................................. 53 65
1999.................................................. 30 45
2000.................................................. -- 10
2001.................................................. -- 8
2002.................................................. -- 2
----- ----
Total minimum lease payments.......................... 204 156
Less amounts representing interest.................... (21) (24)
----- ----
Present value of net minimum lease payments........... 183 132
Less current maturities............................... (106) (70)
----- ----
$ 77 $ 62
===== ====
</TABLE>
12. SALES TO MAJOR CUSTOMERS
For the year ended December 31, 1995, sales to three customers amounted to
approximately $2,660,000 representing 34% of net sales. For the year ended
December 31, 1996, sales to one customer amounted to approximately $1,615,000
representing 21% of net sales.
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1995 1996
---- ----
<S> <C> <C>
Customer A.................................................. 13% 21%
Customer B.................................................. 11 --
Customer C.................................................. 10 --
--- ---
34% 21%
=== ===
</TABLE>
13. CONCENTRATION OF CREDIT RISK
The Company is principally engaged in the manufacturing and distribution of
personal and home care products within the United States. Consequently, the
Company's ability to collect the amounts due from
F-12
<PAGE> 53
SURREY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
13. CONCENTRATION OF CREDIT RISK (CONTINUED)
customers may be affected by economic fluctuations within the United States and
the major drug, grocery and discount retailer industry. Credit losses relating
to such economic fluctuations have been within management's expectations.
14. LONG-TERM INCENTIVE PLAN
On September 3, 1997 the Shareholders and the Board of Directors adopted
the Surrey, Inc. 1997 Long-Term Incentive Plan (the Incentive Plan) and the
Surrey, Inc. 1997 Non-Employee Directors' Stock Option Plan (the Directors'
Plan). The Incentive Plan provides for the granting of stock options and other
incentive awards to key employees and employee directors of the Company. The
exercise price of incentive stock options may not be less than fair market value
of the common stock on the date of grant (110% of fair market value in the case
of options granted to a person possessing more than 10% of the combined voting
power of the Company). Nonqualified stock options may also be granted under the
Incentive Plan. The Company has reserved 350,000 shares of its common stock for
issuance under the Incentive Plan.
The Director's Plan provides for the granting of automatic,
nondiscretionary awards of stock options to directors of the Company who are not
employees. The Company has reserved 100,000 shares of its common stock for
issuance under the Directors' Plan.
15. COMMITMENTS AND CONTINGENCIES
In August 1997, the Company entered into a Consultant Agreement with a
former shareholder. The Company shall pay the former shareholder $125,000 per
year plus reimbursement of certain out-of-pocket expenses, payable on a
bi-weekly basis. The agreement will terminate on the earlier of the closing of
the Company's initial public offering, December 31, 1997 or such other date as
the parties may mutually agree.
The Company has a commitment to purchase land located next to its corporate
headquarters. The total purchase price is $62,500 and the purchase is expected
to close in January 1998. At September 30, 1997, the Company has put a deposit
of $5,000 on the land.
On October 16, 1997, the Company entered into a settlement and release
agreement with a prior advisor to settle a dispute under an arrangement
negotiated in mid-1996 in connection with a proposed restructuring of the
Company. In settlement of the disputed claims, the Company has agreed to pay the
prior advisor $60,000 on or before December 15, 1997. This liability has been
accrued at September 30, 1997.
16. SUBSEQUENT EVENTS
The Company intends to proceed with an initial public offering of its
common stock. Although the success of such a proposed offering cannot be
certain, management is proceeding with activities relating to the process.
F-13
<PAGE> 54
======================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
INFORMATION OR MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER CONTAINED HEREIN, AND IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE REPRESENTATIVE. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF OR SINCE THE DATE AS OF WHICH INFORMATION IS SET FORTH HEREIN. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 5
Use Of Proceeds........................ 10
Dilution............................... 12
Dividend Policy........................ 12
Capitalization......................... 13
Selected Financial Data................ 14
Management's Discussion and Analysis of
Financial Condition and Results
of Operations........................ 15
Business............................... 19
Management............................. 25
Certain Transactions................... 28
Principal Shareholders................. 31
Description of Securities.............. 32
Underwriting........................... 34
Shares Eligible For Future Sale........ 36
Legal Matters.......................... 37
Experts................................ 37
Changes in Company's Certifying
Accountant........................... 37
Additional Information................. 38
Index to Financial Statements.......... F-1
</TABLE>
------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
======================================================
======================================================
625,000 UNITS
CONSISTING OF
1,250,000 SHARES OF COMMON STOCK
AND
625,000 COMMON STOCK PURCHASE WARRANTS
LOGO
SURREY, INC.
------------------
PROSPECTUS
------------------
LOGO
, 1997
======================================================
<PAGE> 55
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article 2.02-1 of the Texas Business Corporation Act provides that the
Company may indemnify a person who was, is, or is threatened to be made a named
defendant or respondent in a proceeding because the person is or was a director
or officer only if it is determined in accordance with such article that the
person: (1) conducted himself in good faith; (2) reasonably believed: (a) in the
case of conduct in his official capacity, that his conduct was in the
corporation's best interests; and (b) in all other cases, that his conduct was
at least not opposed to the corporation's best interests; and (3) in the case of
any criminal proceeding, has no reasonable cause to believe his conduct was
unlawful.
Except to the extent permitted by such article, a director or officer may
not be indemnified under this article in respect of a proceeding: (1) in which
the person is found liable on the basis that personal benefit was improperly
received by him, whether or not the benefit resulted from an action taken in the
person's official capacity; or (2) in which the person is found liable to the
corporation.
A person may be indemnified under such article against judgments, penalties
(including excise and similar taxes), fines, settlements, and reasonable
expenses actually incurred by the person in connection with the proceeding; but
if the person is found liable to the corporation or is found liable on the basis
that personal benefit was improperly received by the person, the indemnification
(1) is limited to reasonable expenses actually incurred by the person in
connection with the proceeding and (2) shall not be made in respect of any
proceeding in which the person shall have been found liable for willful or
intentional misconduct in the performance of his duty to the corporation.
A determination of indemnification under such article must be made: (1) by
a majority vote of a quorum consisting of directors who at the time of the vote
are not named defendants or respondents in the proceeding; (2) if such a quorum
cannot be obtained, by a majority vote of a committee of the board of directors,
designated to act in the matter by a majority vote of all directors, consisting
solely of two or more directors who at the time of the vote are not named
defendants or respondents in the proceeding; (3) by special legal counsel
selected by the board of directors or a committee of the board by vote as set
forth above in (1) or (2) or, if such a quorum cannot be obtained and such a
committee cannot be established, by a majority vote of all directors; or (4) by
the shareholders in a vote that excludes the shares held by directors who are
named defendants or respondents in the proceeding.
Authorization of indemnification and determination as to reasonableness of
expenses must be made in the same manner as the determination that
indemnification is permissible, except that if the determination that
indemnification is permissible is made by special legal counsel, authorization
of indemnification and determination as to reasonableness of expenses must be
made in the manner specified by Subsection (3) above for the selection of
special legal counsel. A provision contained in the articles of incorporation,
the bylaws, a resolution of shareholders or directors, or an agreement that
makes mandatory the indemnification permitted under this article shall be deemed
to constitute authorization of indemnification in the manner required by this
section even though such provision may not have been adopted or authorized in
the same manner as the determination that indemnification is permissible.
A corporation shall indemnify a director or officer against reasonable
expenses incurred by him in connection with a proceeding in which he is a named
defendant or respondent because he is or was a director or officer if he has
been wholly successful, on the merits or otherwise, in the defense of the
proceeding.
A corporation may purchase and maintain insurance or another arrangement on
behalf of any person who is or was a director, officer, employee, or agent of
the corporation or who is or was serving at the request of the corporation as a
director, officer, partner, venturer, proprietor, trustee, employee, agent, or
similar functionary of another foreign or domestic corporation, partnership,
joint venture, sole proprietorship, trust, employee benefit plan, or other
enterprise, against any liability asserted against him and incurred by him in
such a capacity or arising out of his status as such a person, whether or not
the corporation would have the power to
II-1
<PAGE> 56
indemnify him against that liability under this article. Without limiting the
power of the corporation to procure or maintain any kind of insurance or other
arrangement, a corporation may, for the benefit of persons indemnified by the
corporation, (1) create a trust fund; (2) establish any form of self-insurance;
(3) secure its indemnity obligation by grant of a security interest or other
lien on the assets of the corporation; or (4) establish a letter of credit,
guaranty, or surety arrangement. The insurance or other arrangement may be
procured, maintained, or established within the corporation or with any insurer
or other person deemed appropriate by the board of directors regardless of
whether all or part of the stock or other securities of the insurer or other
person are owned in whole or part by the corporation. In the absence of fraud,
the judgment of the board of directors as to the terms and conditions of the
insurance or other arrangement and the identity of the insurer or other persons
participating in an arrangement shall be conclusive and the insurance or
arrangement shall not be voidable and shall not subject the directors approving
the insurance or arrangement to liability, on any ground, regardless of whether
directors participating in the approval are beneficiaries of the insurance or
arrangement.
The articles of incorporation of a corporation may restrict the
circumstances under which the corporation is required or permitted to indemnify
a person under such article.
Provisions regarding indemnification of officers and directors of the
Company are contained in Article XI of the Company's Articles of Incorporation,
as amended (Exhibit 3.1 to this Registration Statement), and Article VIII of the
Company's Amended and Restated Bylaws (Exhibit 3.2 to this Registration
Statement), each of which are incorporated herein by reference.
Under Section 7 of the Underwriting Agreement, filed as Exhibit 1.1 hereto,
the Underwriters agree to indemnify, under certain conditions, the Company, its
directors, certain of its officers and persons who control the Company within
the meaning of the Securities Act of 1933, as amended, against certain
liabilities.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following expenses will be paid by the Company in connection with the
distribution of the securities registered hereby and do not include the
underwriting discount to be paid to the Underwriters. All of such expenses,
except for the SEC Registration Fee, Nasdaq listing fee, and NASD filing fee,
are estimated.
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 2,815
Nasdaq Small Cap Listing Fee................................ 8,600
NASD Filing Fee............................................. 1,200
Transfer Agent's fees....................................... 2,500
Legal Fees and Expenses..................................... 65,000
Representative's Nonaccountable Expenses.................... 152,344
Accountants' Fees and Expenses.............................. 45,000
Printing Expenses........................................... 40,000
Blue Sky Fees and Expenses.................................. 20,500
Miscellaneous............................................... 2,041
--------
Total.................................................. $340,000
========
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
During the past three years, the Registrant has sold the following
securities pursuant to exemptions from registration under the Securities Act of
1933, as amended (the "Act") pursuant to Section 4(2):
In September 1997, the Registrant effected a 11.22727-for-one stock split
with respect to its common stock.
The holder of the securities described above acquired them for his own
account and not with a view to any distribution thereof to the public in
violation of the securities laws. The certificate evidencing the securities
bears a legend stating that such shares may not be offered, sold or transferred
other than pursuant to
II-2
<PAGE> 57
an effective registration statement under the Act, or an exemption from such
registration requirements. The Registrant has placed stop transfer instructions
with the transfer agent with respect to all such securities. No underwriting
commissions or discounts were paid with respect to the sales of unregistered
securities described above.
ITEM 27. EXHIBITS.
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<C> <S>
1.1 Revised Form of Underwriting Agreement
1.2 Revised Form of Selected Dealer Agreement
1.3 Revised Form of Representative's Warrant
*1.4 Form of Lock-Up Agreement
1.5 Form of Agreement Among Underwriters
1.6 Voting Trust Agreement dated August 28, 1997
1.7 Form of state security lock-up agreement
*3.1 Articles of Incorporation, as amended to date
*3.2 Amended and Restated By-laws
4.1 Specimen of Common Stock
4.2 Revised Form of Warrant Agreement and Warrant Certificate
*5 Opinion of Mackall, Crounse & Moore, PLC
*10.1 1997 Long-Term Incentive Plan
*10.2 1997 Non-Employee Directors' Stock Option Plan
*10.3(a) SBA Authorization and Loan Agreement
*10.3(b) Loan Agreement and Deed of Trust
*10.3(c) SBA Note
*10.3(d) Guaranty of James K. Olson
10.3(e) Guaranty of John van der Hagen
10.4(a) Revised Promissory Note of the Company to Norwest Bank
Texas, South Central ("Norwest") in the principal amount of
$800,000, due April 1998
*10.4(b) Commercial Guaranty of John van der Hagen
*10.4(c) Commercial Guaranty of James K. Olson
10.4(d) Revised Commercial Security Agreement of Company
10.4(e) Revised Line of Credit Loan Agreement (Amendment to Loan)
*10.5(a) Promissory Note of the Company to Norwest in the principal
amount of $221,234.39, due May 1998
*10.5(b) Commercial Guaranty of John van der Hagen
*10.5(c) Commercial Guaranty of James Olson
*10.5(d) Security Agreement
*10.6 Promissory Note payable to John B. van der Hagen, dated
March 11, 1996
*10.7 Promissory Note payable to James K. Olson, dated March 11,
1996
*10.8 Purchase Note payable to James K. Olson, dated August 15,
1997
10.9 Employment Agreement, effective 1997, between Surrey,
Inc. and John van der Hagen
10.10 Employment Agreement, effective 1997, between Surrey,
Inc. and Martin van der Hagen
</TABLE>
II-3
<PAGE> 58
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<C> <S>
*10.11 Consulting Agreement between the Company and James K. Olson,
dated August 15, 1997, Indemnity Agreement, Noncompetition
and Confidentiality Agreement
*10.12 Form of Consulting Agreement between the Company and Stuart,
Coleman & Co., Inc.
16 Letter from prior accountant to Company
*23.1 Consent of Mackall, Crounse & Moore, PLC (included in
Exhibit 5)
23.2 Consent of Ernst & Young LLP, independent auditors (included
at page II-6)
*24 Powers of Attorney (included on Signature Page)
27 Financial Data Schedule
</TABLE>
- -------------------------
* Previously filed
ITEM 28. UNDERTAKINGS.
The Registrant will provide to the underwriters at the closing specified in
the Underwriting Agreement certificates required by the Underwriters to permit
prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
pending) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned registrant further undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-4
<PAGE> 59
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form SB-2 and authorized this
amendment to the registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Leander, State of Texas,
on November 11, 1997.
SURREY, INC.
By /s/ MARTIN J. VAN DER HAGEN
------------------------------------
Martin J. van der Hagen
President
POWER OF ATTORNEY
In accordance with the requirements of the Securities Act of 1933, as
amended, this registration statement has been signed on November 11, 1997 by the
following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<C> <S> <C>
* Chairman of the Board and
- ----------------------------------------------------- CEO (Principal Executive
John B. van der Hagen Officer)
/s/ MARTIN J. VAN DER HAGEN President and Director
- -----------------------------------------------------
Martin J. van der Hagen
* Director
- -----------------------------------------------------
Mary van der Hagen
* Director
- -----------------------------------------------------
Bruce A. Masucci
* Director
- -----------------------------------------------------
G. Thomas MacIntosh
/s/ MARK J. VAN DER HAGEN Vice President -- Finance
- ----------------------------------------------------- and Treasurer (Principal
Mark J. van der Hagen Accounting Officer)
* /s/ MARTIN J. VAN DER HAGEN
- -----------------------------------------------------
Martin J. van der Hagen
Attorney-in-fact
</TABLE>
II-5
<PAGE> 60
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Selected
Financial Data" and "Experts" and to the use of our report dated September 4,
1997, in the Registration Statement (Amendment No. 1 to Form SB-2 No. 333-35757)
and related Prospectus of Surrey, Inc. for the registration of 625,000 units
(each unit consisting of two shares of common stock and one redeemable common
stock purchase warrant to purchase one share of common stock).
/s/ Ernst & Young LLP
Austin, Texas
November 11, 1997
II-6
<PAGE> 61
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SURREY, INC.
EXHIBIT TO FORM SB-2
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1 Revised Form of Underwriting Agreement
1.2 Revised Form of Selected Dealer Agreement
1.3 Revised Form of Representative's Warrant
*1.4 Form of Lock-Up Agreement with underwriter
1.5 Form of Agreement Among Underwriters
1.6 Voting Trust Agreement dated August 28, 1997
1.7 Form of state securities lock-up agreement
*3.1 Articles of Incorporation, as amended to date
*3.2 Amended and Restated By-laws
4.1 Specimen of Common Stock
4.2 Revised Form of Warrant Agreement and Warrant Certificate
*5 Opinion of Mackall, Crounse & Moore, PLC
*10.1 1997 Long-Term Incentive Plan
*10.2 1997 Non-Employee Directors' Stock Option Plan
*10.3(a) SBA Authorization and Loan Agreement
*10.3(b) Loan Agreement and Deed of Trust
*10.3(c) SBA Note
*10.3(d) Guaranty of James K. Olson
10.3(e) Guaranty of John van der Hagen
10.4(a) Revised Promissory Note of the Company to Norwest Bank
Texas, South Central ("Norwest") in the principal amount of
$800,000, due April 1998
*10.4(b) Commercial Guaranty of John van der Hagen
*10.4(c) Commercial Guaranty of James K. Olson
10.4(d) Revised Commercial Security Agreement of Company
10.4(e) Revised Line of Credit Loan Agreement (Amendment to Loan)
*10.5(a) Promissory Note of the Company to Norwest in the principal
amount of $221,234.39, due May 1998
*10.5(b) Commercial Guaranty of John van der Hagen
*10.5(c) Commercial Guaranty of James Olson
*10.5(d) Security Agreement
*10.6 Promissory Note payable to John B. van der Hagen, dated
March 11, 1996
*10.7 Promissory Note payable to James K. Olson, dated March 11,
1996
*10.8 Purchase Note payable to James K. Olson, dated August 15,
1997
10.9 Employment Agreement, effective November , 1997, between
Surrey, Inc. and John van der Hagen
10.10 Employment Agreement, effective November 1997, between
Surrey, Inc. and Martin van der Hagen
*10.11 Consulting Agreement between the Company and James K. Olson,
dated August 15, 1997, Indemnity Agreement, Noncompetition
and Confidentiality Agreement
*10.12 Form of Consulting Agreement between the Company and Stuart,
Coleman & Co., Inc.
16 Letter from prior accountant to Company
*23.1 Consent of Mackall, Crounse & Moore, PLC (included in
Exhibit 5)
23.2 Consent of Ernst & Young LLP, independent auditors (included
at page II-6)
*24 Powers of Attorney (included on Signature Page)
27 Financial Data Schedule
</TABLE>
- -------------------------
*Previously filed
<PAGE> 1
SURREY INC. EXHIBIT 1.1
UNDERWRITING AGREEMENT
As of ________________. 1997
Stuart, Coleman & Co., Inc.
11 West 42nd Street
New York, New York 10036
Gentlemen:
SURREY, INC., a Texas corporation (the "Company"), with
offices at 13110 Trails End Road, Leander, Texas 78641 confirms its agreement
with you the representative of the several underwriters (the "Representative" or
"Stuart, Coleman") as follows:
SECTION 1
Description of Securities
The Company's authorized and outstanding capitalization when
the public offering of the securities contemplated hereby is permitted to
commence and at the Closing Date (hereinafter defined), will be as set forth in
the Registration Statement and all amendments thereto and Prospectus included
therein (hereinafter defined). The Company proposes to issue and sell to the
several underwriters named in Schedule I hereto (the "Underwriters") 625,000
units (the "Units"). Each Unit consists of two (2) shares of the common stock of
the Company, no par value (the "Common Stock"), and one (1) five (5) year
redeemable common stock purchase warrant (the "Warrant") to purchase one (1)
share of Common Stock at a price of $4.80. The price per Unit is $______. The
Warrant is severable and will be separately traded at the option of the
Representative. The Representative may decide to withdraw the Units immediately
after the thirty (30) day minimum inclusion period. The Warrant will be
exercisable at any time during the five (5) year term of the Warrant (the
"Warrant Exercise Period"). The Warrant will be callable by the Company at a
price of $.01 per Warrant, upon thirty (30) days prior written notice,
commencing one (1) year after the Closing Date and terminating at the end of
the Warrant Exercise Period, at any time the Common Stock trades at a price
over $5.00 for twenty (20) consecutive trading days. The Company also proposes
to issue and sell to the Representative, at the sole option of the
Representative, not more than an additional 93,750 Units (the "Over-Allotment
Units"). The Units and the Over-Allotment Units are hereinafter collectively
referred to as the Units.
The Company also proposes to sell to the Representative on the
date the offering closes (the "Closing Date") for $.0005 each, a maximum of
62,500 Warrants to purchase 71,875 Units, as provided in subsection 4.02 hereof
(the "Representative's Warrants").
<PAGE> 2
SECTION 2
Representations and Warranties of the Company
The Company represents and warrants to the Representative as
follows, and acknowledges and confirms that the Representative is relying upon
such representations and warranties in connection with the execution, delivery
and performance of this Agreement notwithstanding any investigation made by the
Representative on its behalf:
2.01. Registration Statement and Prospectus. A Registration
Statement on Form SB-2 (File No. 333-35757) (the "Registration Statement")
with respect to the Units, including a preliminary form of Prospectus, has
been prepared by the Company in conformity with the requirements of the
Securities Act of 1933, as amended (the "Act"), and the rules and regulations
("Rules and Regulations") of the Securities and Exchange Commission (the
"Commission") thereunder, and said Registration Statement has been filed with
the Commission under the Act; one or more amendments to said Registration
Statement, copies of which have heretofore been delivered to the
Representative, has or have heretofore been filed.
As used in this Agreement, the term "Registration Statement"
refers to and means said "Registration Statement" on Form SB-2 and all
amendments thereto, including the Prospectus and all exhibits and financial
statements. The term "Prospectus" refers to and means the Prospectus included in
the Registration Statement when it becomes effective as it may thereafter be
supplemented; and the term "Preliminary Prospectus" refers to and means any
prospectus included in said Registration Statement before it becomes effective.
Unless otherwise stated herein, the terms "Effective Date" and "effective" refer
to the date on which the Commission declared the Registration Statement
effective pursuant to Section 8 of the Act.
2.02. Accuracy of Registration Statement and Prospectus. The
Commission has not issued any order preventing or suspending the use of any
Preliminary Prospectus with respect to the Units, and each Preliminary
Prospectus has conformed in all material respects with the requirements of the
Act and the applicable Rules and Regulations of the Commission thereunder and to
the best of the Company's knowledge has not included at the time of filing any
untrue statement of a material fact or omitted to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. On the Effective Date of the Registration
Statement and on the Closing Date, the Registration Statement and Prospectus and
any further amendments or supplements thereto will contain all statements which
are required to be stated therein in accordance with the Act and the Rules and
Regulations for the purposes of the proposed public offering of the Units, and
all statements of material fact contained in the Registration Statement and
Prospectus will be true and correct, and neither the Registration Statement nor
the Prospectus will include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however, the Company does not make
any representations or warranties as to information contained in or omitted from
the Registration
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Statement or the Preliminary Prospectus or Prospectus in reliance upon written
information furnished on behalf of the Representative specifically for use
therein.
2.03. CUSIP Numbers. The Company has obtained CUSIP numbers
for the Units, the Common Stock and the Warrants and the Company has used its
best efforts to qualify the Units and the underlying Common Stock and Warrants
for offering in every state reasonably designated by the Representative. The
materials previously filed or filed after the date hereof with any state do not
and will not contain any untrue statements of material fact nor are there or
will there be any omissions of material facts required to be stated therein or
that are necessary to make the statements therein not misleading.
2.04. Authorized Capitalization. The Company has an authorized
capitalization of (i) 10,000,000 Common Shares, no par value, of which no more
than 1,122,727 shall be issued and outstanding prior to the Effective Date,
excluding all options, vested or non-vested, granted or to be granted by the
Company prior to the Effective Date. There are no outstanding options, warrants
or other rights to purchase securities of the Company, however characterized,
except as described in the Registration Statement. There are no securities of
the Company, however characterized, held in its treasury except as described in
the Registration Statement. With respect to the offer to sell, sale, offer to
purchase or purchase of any of its securities, the Company has not made any
intentional or reckless violations of the anti-fraud provisions of the federal
securities laws, rules or regulations promulgated thereunder or the laws, rules
or regulations of any jurisdiction wherein such securities transactions or
solicitations occurred.
2.05. No Sale of Securities. During the period of the offering
of the Units and for one year from the Effective Date, the Company will not sell
any securities other than those included in subsection 2.04, securities to be
issued pursuant to the Company's stock option and benefit plans described in the
Registration Statements, and Units issued upon exercise of the Representative's
Warrants without the Representative's prior written consent, which will not be
unreasonably withheld.
2.06. Power and Authority. The Company will have the legal
right and authority to enter into this Underwriting Agreement upon its
execution, to effect the proposed sale of the Units, to execute the
Representative's Warrants and to effect all other transactions contemplated by
this Agreement.
2.07. No Other Sale. The Company and its affiliates are not
currently offering any securities nor has the Company or its affiliates offered
or sold any securities except as required to be described in the Registration
Statement.
2.08. Approval of Amendments. The Company will not file any
amendment or supplement to the Registration Statement, Prospectus, or Exhibits
thereto if the Representative and its counsel have not previously been furnished
a copy, or if the Representative or its counsel have objected orally or in
writing to the filing of the amendment or supplement.
2.09. Availability of Documents. All original documents and
other information relating to the Company's affairs have been and will continue
to be made
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available upon request to the Representative and to its counsel at the
Representative's office or at the office of the Representative's counsel and
copies of any such documents will be furnished upon request to the
Representative and to its counsel. Included within the documents made available
have been at least the articles of incorporation as amended and for the last
three (3) years, all minutes of all of the meetings of the incorporators,
directors and shareholders, all financial statements and copies of all material
contracts, leases, patents, copyrights, licenses or agreements to which the
Company is a party or in which the Company has an interest.
2.10. No Other Representations. The Company has not made any
representation, whether oral or in writing, to anyone, whether an existing
security holder or not, that any of the Units will be reserved for or directed
to them during the proposed public offering except as set forth in the
Registration Statement, Prospectus or Exhibits.
2.11. Rule 144. The Company has informed each shareholder if
any, who acquired unregistered shares prior to the Effective Date that the
shares acquired by him or her may be "restricted securities" as defined in Rule
144.
2.12. No Litigation. Except as disclosed in the Registration
Statement and Prospectus, there is and prior to the close of the offering of the
Units to the public there will be, no action, suit or proceeding before any
court or governmental agency, authority or body pending or to the knowledge of
the Company threatened which might result in judgments against the Company not
adequately covered by insurance or which collectively might result in any
material adverse change in the condition (financial or otherwise), the business
or the prospects of the Company, or would materially affect the properties or
assets of the Company.
2.13. Financial Statements. The financial statements of the
Company, together with related schedules and notes as set forth in the
Registration Statement and Prospectus will present fairly the financial position
of the Company and the results of its operations and the changes in its
financial position at the respective dates and for the respective periods for
which they apply; such financial statements have been prepared in accordance
with generally accepted principles of accounting consistently applied throughout
the periods concerned except as otherwise stated therein.
2.14. Independent Public Accountant. Ernst & Young, LLP has
certified or shall certify certain of the financial statements filed or to be
filed with the Commission as part of the Registration Statement and Prospectus,
and are independent certified public accountants within the meaning of the Act
and the Rules and Regulations.
2.15. No Material Adverse Change. Except as may be reflected
in or contemplated by the Registration Statement or the Prospectus, subsequent
to the dates as of which information is given in the Registration Statement and
Prospectus, and prior to the Closing Date: (i) there shall not be any material
adverse change in the condition, financial or otherwise, of the Company or its
business; (ii) there shall not have been any material transaction entered into
by the Company other than transactions in the ordinary course of business; (iii)
the Company shall not have incurred any material obligations, contingent or
otherwise, which are not disclosed in the Prospectus; (iv) there shall not have
been nor will
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there be any change in the capital stock or long or short term
debt (except current payments) of the Company; and (v) the Company has not paid
or declared or will not pay or declare any dividends or other distributions on
its Common Stock.
2.16. No Defaults. Except as set forth in the Registration
Statement, the Company is not in default in the performance of any material
obligation, agreement or condition contained in any debenture, note or other
evidence of indebtedness or any indenture or loan agreement of the Company. The
execution and delivery of this Agreement and the consummation of the
transactions herein contemplated, and compliance with the terms of this
Agreement will not conflict with or result in a breach or violation of any of
the terms, conditions or provisions of, or constitute a default under, the
articles of incorporation, as amended, or bylaws of the Company, any note,
indenture, mortgage, deed of trust, or other agreement or instrument to which
the Company is a party or by which it or any of its property is bound, or any
existing law, order, rule, regulation, writ, injunction, or decree of any
government, governmental instrumentality, agency or body, arbitration tribunal
or court, domestic or foreign, having jurisdiction over the Company or its
property. The consent, approval, authorization, or order of any court or
governmental instrumentality, agency or body is not required for the
consummation of the transactions herein contemplated except such as may be
required under the Act or under the blue sky or securities laws of any state or
jurisdiction.
2.17. Incorporation and Standing. The Company is and at the
Closing Date will be duly incorporated and validly existing in good standing as
a corporation under the laws of Texas with authorized and outstanding capital
stock as set forth in the Registration Statement and the Prospectus, and with
full force and authority (corporate and other) to own its property and conduct
its business, present and proposed, as described in the Registration Statement
and Prospectus; the Company has full power and authority to enter into this
Agreement; and the Company is duly qualified and in good standing as a foreign
corporation in each jurisdiction in which it owns or leases real property or
transacts business requiring such qualification, if any, and where the failure
to so qualify would have a material adverse effect on the Company.
2.18. Legality of Outstanding Shares. The outstanding Common
Stock of the Company prior to Closing Date has been duly and validly authorized,
issued and fully paid and nonassessable and will conform to all statements with
regard thereto contained in the Registration Statement and Prospectus. No sales
of securities have been made by the Company in violation of the registration
provisions of the Act.
2.19. Legality of the Units and the Representative's Warrants.
The Units have been duly and validly authorized and, when issued and delivered
against payment therefor as provided in this Agreement, will be validly issued,
fully paid and non-assessable. The Common Stock contained in the Units and the
Common Stock issuable upon the exercise of the Warrants will not be subject to
the preemptive rights of any shareholder of the Company. The Representative's
Warrants have been duly and validly authorized and, when sold and delivered,
will constitute valid and binding obligations of the Company enforceable against
the Company in accordance with the terms thereof. A sufficient number of Units,
as well as underlying Common Stock and Warrants, have been reserved for issuance
upon exercise of the Representative's Warrants. The Units or the underlying
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Common Stock and Warrants to be issued upon exercise of the Representative's
Warrants will conform to all statements with regard thereto in the Registration
Statement and Prospectus.
2.20. Prior Sales. No securities of the Company or an
affiliate or of a predecessor of the Company have been sold within one year of
the date hereof, except as described in the Registration Statement.
2.21. Representative's Warrants. Upon delivery of and payment
for the Representative's Warrants to be sold by the Company as set forth in
Section 4.02 of this Agreement, the Representative and/or the Representative's
designees will receive good and marketable title thereto, free and clear of all
liens, encumbrances, charges and claims whatsoever; and the Company will have,
on the Effective Date of the Registration Statement, and at the time of delivery
of the Representative's Warrants, full legal right and power and all
authorization and approval required by law to sell, transfer and deliver the
Representative's Warrants in the manner provided hereunder.
2.22. Exhibits. There are no contracts or other documents
which are required to be filed as exhibits to the Registration Statement by the
Act or by the Rules and Regulations which have not been so filed, except as
otherwise disclosed in the Prospectus. Each material contract to which the
Company is a party and to which reference is made in the Prospectus has been
duly and validly executed, is in full force and effect in all material respects
in accordance with its respective terms, and none of such contracts has been
assigned by the Company. The Company knows of no present situation or condition
or fact which would prevent compliance with the terms of such contracts, as
amended to date. Except for amendments or modifications of such contracts in the
ordinary course of business, the Company has no present intention of exercising
any right which it may have to cancel any of its obligations under any of such
contracts, and has no knowledge that any other party to any of such contracts
has any intention not to render full performance under such contracts.
2.23. Tax Returns. Except as set forth in the Registration
Statement, the Company has filed all federal, state and local tax returns which
are required to be filed by it and has paid all taxes shown on such returns and
on all assessments received by it to the extent such taxes have become due and
all taxes with respect to which the Company is obligated have been paid or
adequate accruals have been set up to cover any such unpaid taxes.
2.24. Property. Except as otherwise set forth in or
contemplated by the Registration Statement and Prospectus, the Company has good
title, free and clear of all liens, encumbrances and defects, except liens of
current taxes not due and payable, to all property and assets which are
described in the Registration Statement and the Prospectus as being owned by the
Company, subject only to such exceptions as are not material and do not
adversely affect the present or prospective business of the Company.
2.25. Key Persons. John van der Hagen, Martin van der Hagen
and Mark van der Hagen will spend substantially all their time on Company
business, and none of them is presently disabled or unable to fully and
faithfully perform all duties, responsibilities
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and acts required to be performed in their present positions with the Company on
the Effective Date.
All of the above representations and warranties shall survive
the performance or termination of this Agreement.
SECTION 3
Representations and Warranties of the Representative
The Representative hereby represents and warrants to and
agrees with the Company as follows:
3.01. Registration. The Representative is registered as a
broker-dealer with the Commission, is in good standing with the New York State
Division of Securities and is registered, to the extent registration is
required, with the appropriate governmental agency in each state in which it
offers or sells the Units and/or the underlying Common Stock and Warrants and is
a member of the National Association of Securities Dealers, Inc. (the "NASD")
and the New York Stock Exchange, Inc. (the "NYSE") and will use its best efforts
to maintain such registrations, qualifications and memberships throughout the
term of the offering.
3.02. No Litigation. To the knowledge of the Representative,
no action or proceeding is pending against the Representative or any of the
several Underwriters or against any of their officers or directors concerning
the Representative's activities as brokers or dealers that would affect the
Company's offering of the Units.
3.03. Blue Sky. The Representative will offer the Units only
in those states and in the quantities that are identified in the Blue Sky
Memorandum from the Company's counsel indicating that the offering of the Units
has been qualified for sale or is exempt from registration under the applicable
state statutes and regulations.
3.04. Best Efforts. The Representative, in connection with the
offer and sale of the Units and in the performance of its duties and obligations
under this Agreement, agrees to use its best efforts to comply with all
applicable federal laws; the laws of the states or other jurisdictions in which
the Units are offered and sold; the Rules and Regulations of the Commission and
the Rules and Regulations of the NASD; and knows of no acts or omissions in
connection therewith which violate said laws or rules and regulations.
3.05. Due Incorporation. The Representative is a corporation
duly organized, validly existing and in good standing under the laws of the
State of New York with all requisite power and authority to enter into this
Agreement and to carry out its obligations hereunder.
3.06. Authority to Enter Agreement. This Agreement has been
duly authorized, executed and delivered by the Representative and is a valid
Agreement on the part of the Representative.
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3.07. No Conflict. Neither the execution of this Agreement nor
the consummation of the transactions contemplated hereby will result in any
breach of any of the terms or conditions of, or constitute a default under, the
articles of incorporation or by-laws of the Representative or any indenture,
agreement or other instrument to which the Representative is a party or violate
any order directed to the Representative of any court or any federal or state
regulatory body or administrative agency having jurisdiction over the
Representative or its affiliates.
3.08. Finder. The Representative knows of no person who
rendered any services in connection with the introduction of the Company to the
Representative. No person acting by, through or under the Representative will be
entitled to receive from the Representative or from the Company any finder's
fees or similar payments.
3.09. Information for Prospectus. The written information
provided by the Representative for inclusion in the Registration Statement and
Prospectus consists of certain information on the front and back Prospectus
cover pages, and that set forth under "Underwriting" in the Prospectus.
3.10. Availability of Information. The Representative will,
reasonably promptly after the Closing Date, supply the Company with all
additional information, if any, the Company may reasonably request to be
supplied to the securities commissions of such states in which the Units and the
underlying Common Stock and Warrants have been qualified for sale.
3.11. Survival. All of the above representations and
warranties shall survive the performance or termination of this Agreement.
SECTION 4
Issue, Sale and Delivery of the Units
4.01.(a) Purchase, Sale and Delivery of Units. Subject to the
terms and conditions herein set forth and on the basis of the representations,
warranties and agreements herein contained, the Company agrees to sell to the
several Underwriters and the Representative agrees on behalf of each of the
several Underwriters, severally and not jointly, to purchase from the Company
the number of Units totaling 625,000 Units set forth opposite the name of each
Underwriter in Schedule I hereto, at a purchase price of $____ per Unit. The
several Underwriters will release the Units for resale to the public at the
price of $____ per Unit promptly, in the judgment of the Representative, after
the Effective Date of the Registration Statement upon the terms and conditions
set forth in the Registration Statement.
4.01.(b) The Company hereby grants to the Representative an
option to purchase an over-allotment of up to 93,750 additional Units at a price
of $____ per Unit. Said option may be exercised in whole or in part at any
time on or before the thirtieth (30th) day after the Effective Date of the
Registration Statement upon notice by the Representative to
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the Company setting forth the number of Units of the over-allotment as to
which the Representative is exercising the option.
4.02. (a) Representative's Warrants. The Company will sell and
deliver to the Representative, or the Representative's designees, at an
aggregate purchase price of $.0005 per Representative's Warrant,
Representative's Warrants, dated the Closing Date, substantially in the form
filed as an exhibit to the Registration Statement with such changes therein, if
any, as may be agreed upon by the Company and the Representative or by their
respective counsel, evidencing the Representative's right to purchase up to
62,500 Units, at a price per Unit equal to 120% of the offering price of the
Units and upon the terms and conditions provided in the Representative's
Warrants. The Company shall not be obligated to sell and deliver the
Representative's Warrants, as described above, and the Representative shall not
be obligated to purchase and pay for the Representative's Warrants, except upon
payment for the Units pursuant to subsection 4.03 hereof.
4.02. (b) The Representative's Warrants referred to in
subsection 4.02.(a) above shall be valid for a term not to exceed five (5) years
from the Effective Date. The Representative's Warrants shall be exercisable at
any time and from time to time, in whole or in part, during the said 5 year
period, but shall not be exercisable for a one year period from the Effective
Date (the period during which the Representative's Warrants are exercisable is
hereinafter referred to as the "Representative's Warrant Exercise Term"). The
Warrants may not be sold, hypothecated, transferred or assigned until one (1)
year from the Effective Date, except they may be freely and immediately (i)
assigned in whole or in part to or among the officers of Stuart, Coleman & Co.,
Inc., and (ii) transferred by operation of law as a result of the death of any
transferee to whom the Representative's Warrants may be transferred.
4.02. (c) The Company agrees and undertakes during the
remainder of the Representative's Warrant Exercise Term, at its sole expense,
upon the one-time written request of the Representative, to register all or a
portion of the Representative's Warrants and/or the underlying securities
represented by the Representative's Warrants including the cost of "Blue Sky"
filing fees as set forth in the Representative's Warrant. The Company shall use
its best efforts to file a Registration Statement with the Securities and
Exchange Commission within forty-five (45) business days after receipt of such
request.
4.02. (d) The Company further agrees and undertakes that if
all the Representative's Warrants have not been exercised, and if the Company
seeks to register any offering for its securities, during the Representative's
Warrant Exercise Term, the holders of the Representative's Warrants shall be
entitled to an option of choosing to have included in such proposed
registration, without cost or expense to such holders, any or all of the
Representative's Warrants and/or the underlying securities represented by the
Representative's Warrants as set forth in the Representative's Warrant (the
"Piggy-Back Rights").
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4.03. Payment for the Units. Payment for the Units shall be
made to the Company or its order on the Closing Date by certified or official
bank check or checks, in the amount of the purchase price less the commission of
the Underwriters, at the offices of the Representative set forth above in New
York, New York, upon delivery to the Representative of the Certificates
representing the Units in definitive form and in such numbers and in such names
as the Representative requests in writing at least five full business days prior
to the Closing Date.
4.04. Certificates. Certificates in such form as can be
negotiated by the purchasers thereof (issued in such denominations and in such
names as the Representative may direct the Transfer Agent to issue) for the
Units, shall be made available by the Company to the Representative for review
and inspection at the offices of the Transfer Agent at least two (2) full
business days prior to the Closing Date.
4.05. Closing Date. The time and date of delivery and payment
hereunder are herein called the "Closing Date" and shall take place at the
office of the Representative at the address set forth at the beginning of this
Agreement five (5) full business days after the Effective Date.
4.06. Registration of Certificates. The certificates so
delivered for the Units shall be registered in the names of the participating
dealers for the benefit of their customers for the number of Units purchased by
each, as may be required by the Representative in the notice or in the names of
individuals, if requested.
4.07. Expenses of Representative. The Company shall pay to the
Representative the maximum sum of $175,195.31 representing 3% of the aggregate
offering price (including the over-allotment) for its nonaccountable expenses
(the "Nonaccountable Expenses") to defray the expenses incurred by the
Representative in connection with the offering, including the costs of
Representative's Counsel. The Representative acknowledges receipt of $50,000
from the Company as a portion of the Nonaccountable Expenses, which $50,000 is
refundable only to the extent accountable expenses are not incurred if the
offering is terminated. The balance of the Nonaccountable Expenses, payments for
which are non-refundable when made, is payable only at the Closing Date.
The Representative shall be solely responsible for all
expenses incurred by it in connection with the offering including, but not
limited to, the expenses of its own counsel except as set forth in subsection
6.07 hereof.
4.08. Representations and Warranties. The parties hereto
respectively represent that as of the Closing Date the representations and
warranties herein contained and the statements contained in all the certificates
theretofore or simultaneously delivered by any party to another, pursuant to
this Agreement, shall in all respects be true and correct.
SECTION 5
Registration Statement, Prospectus and Offering of the Units
on Behalf of the Company
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5.01. Delivery of Registration Statements. The Company shall
deliver to the Representative, without charge, three signed copies of the
Registration Statement, including all financial statements and exhibits filed
therewith and any amendments or supplements thereto, and shall deliver without
charge to the Representative twenty-five conformed copies of the Registration
Statement and any amendment or supplement thereto, including such financial
statements and exhibits. The signed copies of the Registration Statement so
furnished to the Representative shall include signed copies of any and all
consents and certificates of the independent public accountant certifying to the
financial statements included in the Registration Statement and Prospectus and
signed copies of any and all consents and certificates of any other persons
whose profession gives authority to statements made by them and who are named in
the Registration Statement or Prospectus as having prepared, certified, or
reviewed any part thereof.
5.02. Delivery of Preliminary Prospectus. The Company shall
deliver to each Underwriter listed on Schedule I without charge, prior to the
Effective Date of the Registration Statement, as many copies of each Preliminary
Prospectus filed with the Commission bearing in red ink the statement required
by the Commission's Rule 430 as may be required by the written request of the
Representative. The Company consents to the use of such documents by the
Representative and by Selected Dealers, if any, as more fully defined in
subsection 5.05 below, prior to the Effective Date of the Registration
Statement.
5.03. Delivery of Prospectus. The Company shall deliver, at
its expense, as many printed copies of the Prospectus as the Representative
may require to the Underwriters for the purposes contemplated by this
Agreement and shall deliver said printed copies of the Prospectus to the
Representative and the Underwriters, within three (3) business days after the
Effective Date.
5.04. Further Amendments and Supplements. If during such
period of time as in the opinion of the Representative or its counsel a
Prospectus relating to this public offering is required to be delivered under
the Act, any event occurs or any event known to the Company relating to or
affecting the Company shall occur as a result of which the Prospectus as then
amended or supplemented would include an untrue statement of a material fact, or
omit to state any material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, or if it
is necessary at any time after the Effective Date of the Registration Statement
to amend or supplement the Prospectus to comply with the Act, the Company shall
forthwith notify the Representative thereof and prepare and file with the
Commission such further amendment to the Registration Statement or supplemental
or amended Prospectus as may be required and furnish and deliver to the
Representative and to others whose names and addresses are designated by the
Representative, all at the cost of the Company, a reasonable number of copies of
the amended or supplemented Prospectus which as so amended or supplemented shall
not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the Prospectus not misleading in the
light of the circumstances when it is delivered to a purchaser or prospective
purchaser, and which shall comply in all respects with the Act; and in the event
the Representative is required to deliver a Prospectus twenty-five (25) days or
more after the date of the public offering, upon request shall
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prepare promptly such Prospectus or Prospectuses as may be necessary to
permit compliance with the requirements of Section 10 of the Act.
5.05. Use of Prospectus. The Company authorizes the
Representative and the Underwriters in connection with the sale of the Units,
and all Selected Dealers, if any, through whom any of the Units may be sold, to
use the Preliminary Prospectus and the Prospectus as from time to time amended
or supplemented in connection with the offering and sale of the Units and in
accordance with the applicable provisions of the Act and the applicable Rules
and Regulations and applicable state "Blue Sky" or securities laws.
5.06. Sale of Units by Selected Dealers. The Representative
may offer to Selected Dealers the opportunity to sell the Units for the account
of the Company, pursuant to a form of Selling Agreement by which the
Representative may allow such concession (out of its underwriting commission) as
it may determine, within the limits set forth in the Registration Statement and
Prospectus. All such sales of Units by Selected Dealers, if any, shall be
determined in the sole discretion of the Representative.
SECTION 6
Covenants of the Company
The Company covenants and agrees with the Representative that:
6.01. Objection of Representative to Amendments or
Supplements. After the date hereof, the Company shall not at any time, whether
before or after the Effective Date, file any amendment or supplement to the
Registration Statement or Prospectus unless and until a copy of such amendment
or supplement has been previously furnished to the Representative within a
reasonable time period prior to the proposed filing thereof, or as to which the
Representative or counsel for the Representative has reasonably objected to
orally or in writing, on the ground that such amendment or supplement is
incomplete, incorrect or not in compliance with the Act or the Rules and
Regulations.
6.02. Company's Best Efforts to Cause Registration Statement
to Become Effective. The Company shall use its best efforts to cause the
Registration Statement and any post-effective amendment subsequently filed to
become effective as promptly as reasonably practicable and shall promptly advise
the Representative, and shall confirm such advice in writing (i) when the
Registration Statement shall have become effective and when any amendment
thereto shall have become effective and when any amendment or supplement to the
Prospectus shall be filed with the Commission, (ii) when the Commission shall
make a request or suggestion for any amendment to the Registration Statement or
the Prospectus or for additional information and the nature and substance
thereof, (iii) of the issuance by the Commission of an order suspending the
effectiveness of the Registration Statement pursuant to Section 8 of the Act or
of the initiation of any proceedings for that purpose, (iv) of the happening of
any event which in the judgment of the Company makes any material statement in
the Registration Statement or Prospectus untrue or which requires the making of
any changes in the Registration Statement or Prospectus in order to make the
statements therein not misleading, and (v) of the refusal to qualify or the
suspension of the qualification of the
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Units for offering or sale in any jurisdiction, or of the institution of any
proceedings for any of such purposes. The Company shall use every reasonable
effort to prevent the issuance of any such order or of any order preventing or
suspending such use, to prevent any such refusal to qualify or any such
suspension, and to obtain as soon as possible a lifting of any such order, the
reversal of any such refusal and the termination of any such suspension.
6.03. Preparation and Filing of Amendments and Supplements.
The Company shall prepare and file promptly with the Commission, upon request of
the Representative, such amendments or supplements to the Registration Statement
or Prospectus, in form satisfactory to counsel of the Company, as in the opinion
of counsel to the Representative and of counsel to the Company may be necessary
in connection with the offering or distribution of the Units and shall use its
best efforts to cause the same to become effective as promptly as possible.
6.04. Blue-Sky Qualification. The Company at its own expense
shall, when and as requested by the Representative, use reasonable efforts to
qualify the Units and the underlying Common Stock and Warrants as the
Representative may determine for sale under the so-called "Blue Sky" laws of the
State of New York, and of so many other states as the Representative and the
Company may reasonably request, and to continue such qualification in effect so
long as required for the purposes of the distribution of the Units and the
underlying Common Stock and Warrants.
6.05. Financial Statements. The Company, at its own expense,
shall prepare and give and shall continue to give such financial statements and
other information to and as may be required by the Commission, or the proper
public bodies of the states in which the Units and the underlying Common Stock
and Warrants may be qualified.
6.06. Reports and Financial Statements to the Representative.
The Company has engaged Ernst & Young, LLP to prepare the Company's audited
financial statements for a period of no less than three (3) years from the
Effective Date. During the period of five years from the Closing Date, the
Company shall deliver to the Representative, copies of each annual report of the
Company, and shall deliver to the Representative: (i) within 90 days after the
close of each fiscal year of the Company (or as soon as filed with the
Commission, if later), a financial report of the Company and its subsidiaries,
if any, on a consolidated basis, and a similar financial report of all
unconsolidated subsidiaries, if any, all such reports to include a balance sheet
as of the end of the preceding fiscal year, an income statement, a statement of
changes in financial condition and an analysis of shareholders' equity covering
such fiscal year, and all to be in reasonable detail and including an audit
report by independent public accountants for the Company; (ii) within 45 days
after the end of each quarterly fiscal period of the Company other than the last
quarterly fiscal period in any fiscal year (or as soon as filed with the
Commission, if later), copies of the unaudited consolidated income statement and
statement of changes in financial condition for that period, and the balance
sheet as of the end of that period of the Company and its subsidiaries, if any,
and the income statement, statement of changes in financial condition and the
balance sheet of each unconsolidated subsidiary, if any, of the Company for that
period, all subject to year-end adjustment, certified by the principal financial
or accounting officer of the Company; (iii) copies of all other statements,
documents, or other information which the Company shall mail or otherwise make
available to its security
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holders, or shall file with the Commission; and (iv) upon request in writing
from the Representative, furnish to the Representative such other information as
may reasonably be requested and which may be properly disclosed to the
Representative with reference to the property, business and affairs of the
Company and its subsidiaries, if any.
6.07. Expenses Paid by the Company. The Company shall pay,
whether or not the transaction contemplated hereunder is consummated or this
Agreement is prevented from becoming effective or is terminated, all of its
costs and expenses incident to the performance of its obligations under this
Agreement, including all expenses incident to the authorization of the Units and
their issue and delivery to the Representative including all fees incurred in
connection with the preparing, printing and delivering the certificates
representing the Units and preparing, printing and delivering the warrant
certificates for the Representative's Warrants, and all original issue taxes in
connection therewith, if any, all transfer taxes, if any, incident to the
initial sale of the Units to the public as well as the exercise of the Warrants,
the fees and expenses of the Company's counsel and accountants, the costs and
expenses incident to the preparation, printing and filing fees under the Act and
with the National Association of Securities Dealers, Inc. of the Registration
Statement, any Preliminary Prospectus and the Prospectus and any amendments or
supplements thereto, the cost of printing, reproducing and filing all exhibits
to the Registration Statement, the underwriting documents and the Selected
Dealers Agreement, the cost of printing and furnishing to the Representative
copies of the Registration Statement and copies of the Prospectus as herein
provided, and the cost of qualifying and maintaining, if necessary, a
registration for the Units and the underlying Common Stock and Warrants under
the state securities or "Blue Sky" laws as provided in subsection 6.04 herein,
including expenses and disbursements of the Representative incurred, if any, in
connection with such qualification, the cost of preparing and delivering to the
Representative and its counsel three bound volumes containing copies of all
correspondence filed with or received from the Securities and Exchange
Commission and the National Association of Securities Dealers, Inc., and all
closing documents, and the full cost of "tombstone" advertisements of at least 5
x 5 inches in publications to be designated by the Representative at a total
cost not to exceed $15,000. Additionally, the Company shall undertake the
listing of the Company's securities in the appropriate recognized securities
manual or manuals published by Standard and Poor Corporation and Moody's
Investment Service and shall maintain such listing for a five (5) year period.
In the event this Agreement is terminated pursuant to the provisions of Section
10 hereof, or the offering is not consummated for any reason, the Company shall
be responsible for reimbursing the Representative only for out-of-pocket
expenses on an accountable basis, and any unexpended portions of the previously
advanced expense allowance not accounted for shall be reimbursed by the
Representative to the Company.
6.08. Reports to Shareholders. During the period of five years
from the Closing Date, the Company shall, as promptly as possible, not to exceed
one hundred and twenty (120) days, after each annual fiscal period, render and
distribute reports to its shareholders which shall include audited statements of
its operations and changes of financial position during such period and its
balance sheet as of the end of such period, as to which statements the Company's
independent certified public accountants shall have rendered an opinion.
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6.09. Section 11(a) Financials. The Company shall make
generally available to its security holders and shall deliver to the
Representative, as soon as practicable, but in no event later than the first day
of the sixteenth full calendar month following the Effective Date of the
Registration Statement, an earnings statement (as to which no opinion need be
rendered but which shall satisfy the provisions of Section 11(a) of the Act)
covering a period of at least 12 months beginning after the Effective date of
the Registration Statement.
6.10. Post-Effective Availability of Prospectus. Within the
time during which the Prospectus is required to be delivered under the Act, the
Company shall comply, at its own expense, with all requirements imposed upon it
by the Act, as now or hereafter amended, by the Rules and Regulations, as from
time to time may be in force, and by any order of the Commission, so far as
necessary to permit the continuance of sales or dealings in the Units.
6.11. Application of Proceeds. The Company shall apply the net
proceeds from the sale of the Units substantially in the manner set forth in the
Registration Statement and Prospectus.
6.12. Delivery of Documents. Before the Closing, the Company
shall deliver to the Representative the following documents including but not
limited to true and correct copies of the articles of incorporation of the
Company and all amendments thereto, all such copies to be certified by the
Secretary of State of the State of Texas; true and correct copies of the by-laws
of the Company and of the minutes of all meetings of the directors and
shareholders of the Company held prior to the Closing Date which in any way
relate to the subject matter of this Agreement; Director's questionnaires; and
true and correct copies of all material contracts to which the Company is a
part, other than contracts for the sale of products or services in the normal
course of business and all other documents requested in connection with the
Representative's due diligence process.
6.13. Cooperation with Representative's Due Diligence. At all
times prior to the Closing Date, the Company shall cooperate with the
Representative in such investigation as the Representative may make or cause to
be made of the business and operations of the Company in connection with the
purchase and public offering of the Units, and the Company shall make available
to the Representative in connection therewith such information in its possession
as the Representative may reasonably request. If, during such investigation,
counsel for the Representative deems it necessary that an amendment to the
Prospectus be filed, the Company shall cause to be filed such amendment, at its
own expense, subject to the approval of both its counsel and the counsel for the
Representative.
6.14. Appointment of Transfer Agent and Warrant Agent. The
Company has appointed NORWEST BANK MINNESOTA, N.A. as Transfer Agent for the
Units and the Common Stock and Warrants (including the Representative's
Warrants). The Company shall not change or terminate such appointment for a
period of one year from the Effective Date without proper cause, and if such
change is made, shall obtain the reasonable approval of the Representative for
the new transfer agent or warrant agent, which consent shall not be unreasonably
withheld. The Transfer Agent shall maintain appropriate stock records until 120
days after the expiration date of the Warrants and shall enter into an agreement
with the Company to issue Units for all the Representative's Warrants when
exercised.
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6.15. Compliance with Conditions Precedent. The Company shall
use all reasonable efforts to comply or cause to be complied with the conditions
precedent to the several obligations of the Representative in Section 9 hereof.
6.16. Application to NASDAQ. The Company shall, upon request
of the Representative, and at its sole expense, and before the Closing Date,
apply for entry of the Units, the Common Stock and the Warrants on the NASDAQ
automated quotation system, if available, and shall in such event use its best
efforts to have same quoted on that system.
6.17. Changes and Amendments. The Company agrees to notify the
Representative between the Effective Date and the Closing Date of any event that
materially affects the Company or its securities and that should be set forth in
an amendment or supplement to the prospectus in order to make the statements
made therein not misleading. Similarly, the Company agrees as soon as possible
thereafter to prepare and furnish to the Representative as many copies as the
Representative may request of an amended Prospectus or a supplement to the
Prospectus in order that the Prospectus as amended or supplemented shall not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or that is necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading.
6.18. Representative's Approval Required. Except with the
Representative's approval or as contemplated in the Registration Statement or
Prospectus, the Company agrees that the Company shall not do the following until
the completion of the offering of the Units:
(i) Permit any public or private offering by the
Company of additional securities;
(ii) Authorize, create, issue, or sell any funded
obligations, notes or other evidences of indebtedness,
except in the ordinary course of business and within 12
months of their creation;
(iii) Consolidate or merge with or into any other
corporation; or
(iv) Create any mortgage or any lien upon any of its
properties or assets except in the ordinary course of its
business.
6.19. Annual Meetings. For so long as the Company's Units,
Common Stock and/or Warrants are registered under the Securities Exchange Act of
1934, as amended, the Company shall hold an annual meeting of shareholders for
the election of directors within one hundred and eighty (180) days after the end
of each of the Company's fiscal years and, within 180 days after the end of each
of the Company's fiscal years, shall provide the Company's securities holders
with the audited financial statements of the Company as of the end of the fiscal
year just completed prior thereto. Such financial statements shall be those
required by Rule 14a-3 under the Securities Exchange Act of 1934, as amended,
and shall be included in an annual report meeting the requirements of the Rule.
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6.20. Information for Securities Manuals. Within thirty (30)
days after the successful completion of the offering of the Units, the Company
agrees to submit updated information about the Company to be included in
Standard & Poor's to facilitate secondary trading in the Units and, if
applicable, the Common Stock and the Warrants.
6.21. Legending of Stock. The Company agrees to cause the
requisite Common Stock certificates of all of the current shareholders of the
Company holding unregistered stock and of any future officers or directors of
the Company to be clearly legended as being restricted against transfer without
compliance with the Act and the contents of the "Lock-Up" letters and to cause
the Company's Transfer Agent to put stop transfer instructions against such
Common Stock certificates.
6.22. Twenty Months Waiting Period. The Company shall not
permit, for a period of twenty (20) months from the Closing Date, the Common
Stock of the Company held by the shareholders, holding in excess of five (5%)
percent of the outstanding shares of the Company prior to the closing date, to
be sold, transferred or assigned without the express written consent of the
Representative; provided, however, that John van der Hagen shall be permitted to
sell, transfer, or assign shares of Common Stock held by him to members of his
immediate family provided that any such transferee shall sign and deliver to the
Representative a "Lock-Up" letter in the form delivered by John van der Hagen to
the Representative at the Closing Date.
6.23. Consulting Agreement. The Company shall enter into a
Financial Consulting Agreement with the Representative at the Closing Date, the
terms of which shall be reasonably acceptable to the Company and shall include
the payment of twelve thousand five hundred ($12,500.00) dollars per year for a
period of two (2) years, payable twenty-five thousand ($25,000.00) dollars in
advance as of the Closing Date.
SECTION 7
Indemnification
7.01. Indemnification by Company. The Company agrees to
indemnify and hold harmless the Representative and any of the several
Underwriters and each person, if any, who controls the Representative and the
several Underwriters within the meaning of Section 15 of the Act against any and
all losses, claims, damages or liabilities to which each may become subject
under the Act or any other statute or at common law and to reimburse persons
indemnified as above for any legal or other expenses (including the cost of any
investigation and preparation) incurred by them in connection with any
litigation or proceeding, whether or not resulting in any liability, but only
insofar as such losses, claims, damages, liabilities, litigation and proceedings
arise out of or are based upon any untrue statement or alleged untrue statement
of a material fact contained in the Registration
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Statement or any amendment thereto or any application or other document filed in
order to qualify the Units and the underlying Common Stock and Warrants and to
maintain such qualification under the "Blue Sky" or securities laws of the
states where filings were made, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statement therein not misleading, all as of the date when the Registration
Statement or such amendment, as the case may be, becomes effective, or any
untrue statement or alleged untrue statement of a material fact contained in the
Prospectus (as amended or supplemented by any amendments thereof or supplements
thereto that the Company shall have filed with the Commission), or the omission
or alleged omission to state therein a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that the indemnity agreement contained
in this subsection 7.01 shall not apply to amounts paid in settlement of any
such litigation or proceeding if such settlements are effected without the
consent of the Company, nor shall it apply to the Representative or any person
controlling the Representative or the several Underwriters or any person
controlling the several Underwriters in respect of any such losses, claims,
damages, liabilities or actions arising out of or based upon any such untrue
statements or alleged untrue statement, or any such omission or alleged
omission, if such statement or omission was made in reliance upon information
furnished in writing to the Company by the Representative or the several
Underwriters specifically for use in connection with the preparation of the
Registration Statement and Prospectus or any such amendment or supplement
thereto. This indemnity agreement is in addition to any other liability which
the Company may otherwise have to the Representative or any of the several
Underwriters. The Representative agrees within ten days after the receipt by it
of written notice of the commencement of any action or proceeding against it or
any of the several Underwriters or against any person controlling it or any of
the several Underwriters as aforesaid, in respect of which indemnity may be
sought from the Company on account of the indemnity agreement contained in this
subsection 7.01 to notify the Company in writing of the commencement thereof.
The failure of the Representative or any of the several Underwriters so to
notify the Company of any such action shall relieve the Company from any
liability which it may have to the Representative or any of the several
Underwriters or any person controlling them as aforesaid on account of the
indemnity agreement contained in this subsection 7.01, but shall not relieve the
Company from any other liability which it may have to the Representative or any
of the several Underwriters or such controlling persons. In case any such action
shall be brought against the Representative or any of the several Underwriters
or any such controlling persons and the Representative shall notify the Company
of the commencement thereof, the Company shall be entitled to participate in
(and, to the extent that it shall wish, to direct) the defense thereof at its
own expense, but such defense shall be conducted by counsel of recognized
standing and reasonably satisfactory to the Representative or such controlling
person or persons, defendant or defendants in such litigation. The Company
agrees to notify the Representative promptly of commencement of any litigation
or proceedings against it or any of its officers or directors or controlling
persons, of which it may be advised, in connection with the issue and sale of
any of its securities and to furnish to the Representative, at its request,
copies of all pleadings therein and permit the Representative to be an observer
therein and appraise the Representative of all developments therein, all at the
Company's expense. Notwithstanding the foregoing, in no event shall the
indemnification agreement contained in this subsection 7.01 inure to the benefit
of the Representative or the several Underwriters (or any persons controlling
such Representative
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or several Underwriters) on account of any losses, claims, damages, liabilities
or actions arising from the sale of the Units upon the public offering to any
person by the Representative or the several Underwriters if such losses, claims,
damages, liabilities or actions arise out of, or are based upon, an untrue
statement or omission or alleged untrue statement or omission in a Preliminary
Prospectus and if the Prospectus shall correct the untrue statement or omission
or the alleged untrue statement or omission which is the basis of the loss,
claim, damage, liability or action for which indemnification is sought and a
copy of the Prospectus had not been sent or given to such person at or prior to
the confirmation of such sale to him in any case where such delivery is required
by the Securities Act, unless such failure to deliver the Prospectus was a
result of non-compliance by the Company with Section 6.03 hereof.
7.02. Indemnification by Representative and Underwriters. The
Representative and the several Underwriters agree, to the extent of and only to
the extent of the gross proceeds received by the Company on the Closing Date, in
the same manner as set forth in subsection 7.01 above, to indemnify and hold
harmless the Company, the directors of the Company and each person, if any, who
controls the Company within the meaning of Section 15 of the Act with respect to
any statement in or omission from the Registration Statement or any amendment
thereto, or the Prospectus (as amended or as supplemented, if amended or
supplemented as aforesaid) or any application or other document filed in any
state or jurisdiction in order to qualify the Units and the underlying Common
Stock and Warrants and to maintain such qualification under the "Blue Sky" or
securities laws thereof, if such statement or omission was made in reliance upon
information furnished in writing to the Company by the Representative or the
several Underwriters on their behalf specifically for use in connection with the
preparation thereof or supplement thereto. The Representative and the several
Underwriters shall not be liable for amounts paid in settlement of any such
litigation if such settlement was effected without the consent of the
Representative. In case of commencement of any action in respect of which
indemnity may be sought from the Representative and the several Underwriters on
account of the indemnity agreement contained in this subsection 7.02, each
person agreed to be indemnified by the Representative and the several
Underwriters shall have the same obligation to notify the Representative as the
Representative has toward the Company in subsection 7.01 above, subject to the
same loss of indemnity in the event such notice is not given, and the
Representative and the several Underwriters shall have the same right to
participate in (and, to the extent that it shall wish, to direct) the defense of
such action at their own expense, but such defense shall be conducted by counsel
of recognized standing and reasonably satisfactory to the Company. The
Representative agrees to notify the Company promptly of the commencement of any
litigation or proceeding against the Representative or any of the several
Underwriters or against any such controlling person, of which it may be advised,
in connection with the issue and sale of any of the securities of the Company,
and to furnish to the Company at its request copies of all pleadings therein and
apprise it of all of the developments therein, all at the expense of the
Representative and the several Underwriters, and permit the Company to be an
observer therein.
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SECTION 8
Effectiveness of Contract
This Contract shall become effective (i) at 10:00 A.M. New
York Time, on the first full business day after the Effective Date of the
Registration Statement or any amendment thereto, or (ii) upon release by the
Representative of the Units for offering after the Effective Date of the
Registration Statement or any amendment thereto, whichever shall first occur.
The time of the release by the Representative of the Units for offering, for the
purposes of this Section 8, shall mean the time of the release by the
Representative for publication of the first newspaper advertisement which is
subsequently published relating to the Units, if any; the receipted hand
delivery of copies of the Prospectus relating to the Units; or the time of the
first mailing of copies of the Prospectus as supplemented relating to the Units
which are subsequently delivered, whichever shall first occur. The
Representative agrees to notify the Company immediately after the Representative
shall have taken any action, by release or otherwise, whereby this Agreement
shall have become effective. This Agreement shall, nevertheless, become
effective at such earlier time than the time specified above, after the
Effective Date of the Registration Statement or any amendment thereto, as the
Representative may determine by notice to the Company.
SECTION 9
Conditions of the Representative's Obligations
The Representative's obligations hereunder to buy the Units
and to offer the Units for sale and to make payment to the Company hereunder on
the Closing Date shall be subject to the accuracy, as of the Closing Date, of
the representations and warranties on the part of the Company herein contained,
to the performance by the Company of all its agreements herein contained, to the
fulfillment of or compliance by the Company with all covenants and conditions
hereof, and to the following additional conditions:
9.01. Effectiveness of Registration Statement. The
Registration Statement and any amendments thereto shall have become effective on
or prior to , New York Time, on or such later date to
which the Representative may agree. On or prior to the Closing Date, no order
suspending the effectiveness of the Registration Statement shall have been
issued and no proceeding for that purpose shall have been initiated or
threatened by the Commission or be pending; any request for additional
information on the part of the Commission (to be included in the Registration
Statement or Prospectus or otherwise) shall have been complied with to the
satisfaction of the Commission; and neither the Registration Statement nor the
Prospectus nor any amendment thereto shall have been filed to which counsel to
the Representative shall have reasonably objected in writing or have not given
its written consent.
9.02. Accuracy of Registration Statement. The Representative
shall not have disclosed in writing to the Company that the Registration
Statement or the Prospectus or any amendment thereof or supplement thereto
contains an untrue statement of a fact which, in the opinion of counsel to the
Representative, is material, or omits to state a fact
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<PAGE> 21
which, in the opinion of such counsel, is material and is required to be stated
therein, or is necessary to make the statements therein not misleading.
9.03. Casualty and Other Calamity. Between the date hereof and
the Closing Date, the Company shall not have sustained any loss on account of
fire, explosion, flood, accident, calamity or any other cause, of such character
as materially adversely affects its business or property considered as an entire
entity, whether or not such loss is covered by insurance.
9.04. Litigation and Other Proceedings. Between the date
hereof and the Closing Date, there shall be no litigation instituted or
threatened against the Company other than that set forth in the Registration
Statement, and there shall be no proceeding instituted or threatened against the
Company before or by any federal or state commission, regulatory body or
administrative agency or other governmental body, domestic or foreign, wherein
an unfavorable ruling, decision or finding would materially adversely affect the
business, franchises, licenses, patents, operations or financial condition or
income of the Company considered as an entity.
9.05. Lack of Material Change. Except as contemplated herein
or as set forth in or contemplated by the Registration Statement and Prospectus,
during the period subsequent to the date of the last audited balance sheet
included in the Registration Statement and prior to the Closing Date, the
Company shall not have incurred any liabilities or obligations (direct or
contingent) or disposed of any of its assets except in the ordinary course of
its business, or entered into any material transaction or suffered or
experienced any substantially adverse change in its condition, financial or
otherwise; and at the Closing Date, the capital stock and surplus accounts of
the Company shall be substantially the same as at the date of the last audited
balance sheet included in the Registration Statement, without considering the
proceeds from the sale of the Units and other than as may be set forth in the
Prospectus.
9.06. Review by Representative's Counsel. The authorization of
the Units, the underlying Common Stock and Warrants, and the Representative's
Warrants and the Registration Statement, the Prospectus and all corporate
proceedings and other legal matters incident thereto and to this Agreement shall
be satisfactory in all respects to counsel to the Representative.
9.07. Opinion of Counsel. The Company (which term shall
include any subsidiaries of the Company) shall have furnished to the
Representative the opinion, dated the Closing Date, addressed to the
Representative, from Mackall, Crounse & Moore, PLC, counsel to the Company, to
the effect that based upon a review by it of the Registration Statement,
Prospectus, the Company's certificate of incorporation, bylaws and relevant
corporate proceedings, and such other investigation by such counsel as it deems
necessary to express such opinion:
(i) The Company has been duly incorporated and is a
validly existing corporation in good standing under the laws of Texas, with full
corporate power and authority to own and operate its properties and to carry on
its business as set forth in the Registration Statement and Prospectus.
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(ii) The Company, if applicable, is duly qualified or
registered as a foreign corporation in such jurisdictions where the Company has
advised such counsel that the transaction of business in which it is engaged or
in which its ownership of property requires such qualification or registration
and where the failure to so qualify would have a material adverse effect on its
operations.
(iii) The Company has authorized and outstanding
Common Stock as set forth in the Registration Statement and Prospectus, and has
authorized the issuance of the Units and the underlying Common Stock and
Warrants contained in the Units as well as the Representative's Warrants. The
Units and the underlying Common Stock and Warrants conform as to legal matters
to the statements concerning them in the Registration Statement and Prospectus;
the outstanding Common Shares of the Company have been duly and validly issued
and are fully paid and nonassessable and to the knowledge of counsel contain no
preemptive rights; the Units and the underlying Common Stock and Warrants have
been and shall be, duly and validly authorized and, upon issuance thereof and
payment therefor in accordance with this Agreement shall be duly and validly
issued, fully paid and nonassessable, and shall not be subject to the preemptive
rights of any shareholder of the Company.
(iv) The Representative's Warrants issued to the
Representative or its designees directly involved in the proposed offering have
been duly and validly authorized and issued and are valid and binding
instruments enforceable in accordance with their terms, except as enforceability
may be limited by the application of bankruptcy, insolvency, moratorium or other
laws of general application affecting the rights of creditors generally and by
judicial limitations on the right of specific performance and other equitable
remedies, and except that no opinion need be expressed as to the validity of the
indemnification provisions insofar as they are or may be held to be violative of
public policy or limited by federal or state securities laws.
(v) A sufficient number of Units has been duly
reserved for issuance upon exercise of the Representative's Warrants.
(vi) No consents, approvals, authorizations or
orders of agencies, officers or other regulatory authorities are known to such
counsel which are necessary for the valid authorization, issue or sale of the
Units, the underlying Common Stock and Warrants and the Representative's
Warrants hereunder, except as required under the Act or "Blue Sky" or state
securities laws.
(vii) The issuance and sale of the Units and the
underlying Common Stock and Warrants and the Representative's Warrants and the
consummation of the transactions herein contemplated and compliance with the
terms of this Agreement shall not conflict with or result in a breach or
violation of any of the terms, conditions or provisions of or constitute a
default under the certificate of incorporation, or bylaws of the Company, or to
the best knowledge of such counsel, except as set forth in the Prospectus or as
previously disclosed to you in writing, any note, indenture, mortgage, deed of
trust, or other material agreement or instrument known to such counsel including
contracts or leases to which the Company is a party or by which the Company or
any of its property is bound or, to the best knowledge of such counsel, any
existing law (provided this paragraph shall not relate to
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<PAGE> 23
federal or state securities laws), order, rule, regulation, writ, injunction or
decree known to such counsel of any government, governmental instrumentality,
agency, body, arbitration tribunal, or court, domestic or foreign, having
jurisdiction over the Company or its property.
(viii) The Registration Statement has become
effective under the Act and, to the best of the knowledge of such counsel, no
order suspending the effectiveness of the Registration Statement has been issued
and no proceedings for that purpose have been instituted or are pending or
contemplated by the Commission under the Act; and the Registration Statement and
Prospectus, and each amendment and supplement thereto, comply as to form in all
material respects with the requirements of the Act and the Rules and Regulations
thereunder. To the best knowledge of such counsel, there are no material legal
or governmental proceedings pending or threatened to which the Company is the
subject and no material contracts of such a character required to be disclosed
in the Registration Statement or the Prospectus which are not disclosed and
properly described therein, or filed, as the case may be.
(ix) This Agreement has been duly authorized and
executed by the Company and constitutes the valid and binding agreement of the
Company except that no opinion need be expressed as to the validity of the
indemnification provisions insofar as they are or may be held to be violative of
public policy (under either state or federal law, or limited by federal or state
securities laws), the availability of specific performance or other equitable
remedies, the effects of bankruptcy, insolvency, moratorium and all other
similar laws and decisions affecting the rights of creditors generally.
(x) To the best knowledge of Counsel, there are no
outstanding options, warrants or other rights to purchase Units or Common Stock
of the Company other than as described in the Registration Statement.
(xi) In addition, such counsel shall also include a
statement to the effect that, although such counsel cannot guarantee the
accuracy, completeness or fairness of any of the statements contained in the
Registration Statement or Prospectus, in connection with such counsel's
representation, investigation and due inquiry of the Company in the preparation
of the Registration Statement, nothing has come to the attention of such counsel
which causes them to believe that the Registration Statement or Prospectus
contains an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances under which made (except that no
opinion need be expressed as to financial statements and financial, statistical
and engineering data contained in the Registration Statement or Prospectus).
(xii) Such counsel shall also be permitted to rely,
for questions of Texas law, upon the opinion of local counsel to the Company,
admitted to practice in the State of Texas.
As to routine factual matters such as the issuance of stock
certificates and receipt of payment therefor, the states in which the Company
transacts business, the adoption of resolutions reflected by the Company's
minute book and the like, such counsel
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may rely on the certificate of an appropriate officer of the Company and as to
factual matters such as the valid incorporation and good standing of the
Company, such counsel may rely on the certificate of an appropriate state
official.
9.08.(a) Accountant's Letter. The Representative shall have
received a letter addressed to it and dated the date of the Agreement and the
Closing Date, respectively, from Ernst & Young, LLP independent public
accountants for the Company, stating that (i) with respect to the Company they
are independent public accountants within the meaning of the Act and the
applicable published Rules and Regulations thereunder and the answer to Item of
the Registration Statement is correct insofar as it relates to them; (ii) in
their opinion, the financial statements examined by them of the Company at all
dates and for all periods referred to in their opinion and included in the
Registration Statement and Prospectus, comply in all material respects with the
applicable accounting requirements of the Act and the published Rules and
Regulations thereunder with respect to registration statements on Form SB-2;
(iii) on the basis of certain indicated procedures (but not an examination in
accordance with generally accepted accounting principles), including
examinations of debt instruments, if any, of the Company set forth under
"Capitalization" in the Prospectus, inquiries of the officers of the Company or
other persons responsible for its financial and accounting matters regarding the
specific items for which representations are requested below and a reading of
the minute books of the Company, nothing has come to their attention which would
cause them to believe that during the period from the last audited balance sheet
included in the Registration Statement to a specified date not more than five
days prior to the date of such letter there has been any change in the capital
stock or other securities of the Company or any payment or declaration of any
dividend or other distribution in respect thereof or exchange therefor from that
shown or contemplated under "Capitalization" in the Registration Statement or
Prospectus other than as set forth in or contemplated by the Registration
Statement or Prospectus.
9.08.(b) Conformed Copies of Accountant's Letter. The
Representative shall be furnished without charge, in addition to the original
signed copies, such number of signed or photostatic or conformed copies of such
letters as the Representative shall reasonably request.
9.09. Officer's Certificate. The Company shall have furnished
to the Representative a certificate by the chief executive officer and chief
financial officer, dated as of the Closing Date, to the effect that:
(i) The representations and warranties of the
Company in this Agreement are true and correct at and as of the Closing Date,
and the Company has complied with all the agreements and has satisfied all the
conditions on its part to be performed or satisfied at or prior to the Closing
Date;
(ii) The Registration Statement has become
effective and no order suspending the effectiveness of the Registration
Statement has been issued and to the best of the knowledge of the respective
signers, no proceeding for that purpose has been initiated or is threatened by
the Commission;
24
<PAGE> 25
(iii) The respective signers have each carefully
examined the Registration Statement and Prospectus and any amendments and
supplements thereto, and to the best of their knowledge the Registration
Statement and the Prospectus and any amendments and supplements thereto contain
all statements required to be stated therein, and all statements contained
therein are true and correct, and neither the Registration Statement nor
Prospectus nor any amendment or supplement thereto includes any untrue statement
of a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading and, since
the effective date of the Registration Statement, there has occurred no event
required to be set forth in an amended or a supplemented Prospectus which has
not been so set forth;
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus and prior to
the date of such certificate, (a) there has not been any materially adverse
change, financial or otherwise, in the affairs or condition of the Company, and
(b) the Company has not incurred any material liabilities, direct or contingent,
or entered into any material transactions, otherwise than in the ordinary course
of business;
(v) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus, no dividends
or distribution whatever have been declared and/or paid on or with respect to
the Common Stock of the Company.
9.10. Tender of Delivery of Units. All the Units being offered
by the Company and the Representative's Warrants being purchased from the
Company by the Representative shall be tendered for delivery in accordance with
the terms and provisions of this Agreement.
9.11. Closing on Sale of the Units. The Company agrees that
the Representative may send notice to the Company of the Closing Date and that
the Closing Date shall take place, pursuant to the terms set forth herein.
9.12. "Blue Sky" Qualification. The Units shall be qualified
in such states as the Representative may reasonably request pursuant to
subsection 6.04 and not subject to any stop order or other proceeding on the
Closing Date.
9.13. Approval of Representative's Counsel. All opinions,
letters, certificates and evidence mentioned above or elsewhere in this
Agreement shall be deemed to be in compliance with the provisions hereof only if
they are in form and substance satisfactory to counsel to the Representative,
whose approval shall not be unreasonably withheld. The suggested form of such
documents shall be provided to the counsel for the Representative at least one
business day before the Closing Date. The Representative's counsel shall provide
a written memorandum stating such closing documents which it deems necessary for
its review. Such memorandum shall be delivered five business days before the
Closing Date to counsel for the Company.
9.14. Officers' Certificate as a Company Representative. Any
certificate signed by an officer of the Company and delivered to the
Representative or to counsel for
25
<PAGE> 26
the Representative shall be deemed a representation and warranty by the Company
to the Representative as to the statements made therein.
9.15. Certificate from Representative. At the Closing the
Representative shall provide the Company with a Certificate signed by an officer
of the Representative and delivered to the Company or to counsel for the Company
setting forth the representations and warranties of the Representative contained
herein as of the Closing Date.
SECTION 10
Termination
10.01. Termination Because of Non-Compliance. This Agreement
may be terminated by the Representative by notice to the Company in the event
that the Company shall have failed or been unable to comply with any of the
material terms, conditions or provisions of this Agreement on the part of the
Company to be performed, complied with or fulfilled (including but not limited
to those specified in Sections 2, 4, 5 and 9 hereof) within the respective times
herein provided for, unless compliance therewith or performance or satisfaction
thereof shall have been expressly waived by the Representative in writing.
10.02. Market Out Termination. This Agreement may be
terminated by the Representative by notice to the Company at any time if, in the
judgment of the Representative, payment for and delivery of the Units is
rendered impracticable or inadvisable because (i) additional material
governmental restrictions not in force and effect on the date hereof shall have
been imposed upon the trading in securities generally, or minimum or maximum
prices shall have been generally established on the over-the-counter market or
trading in securities generally in such market shall have been suspended, or a
general moratorium shall have been established by federal or state authorities,
or (ii) a war or other national calamity shall have occurred, or (iii) a
material, adverse event affecting the Company that materially impairs the
investment quality of the Units shall have occurred.
10.03. Effect of Termination Hereunder. Any termination of
this Agreement pursuant to this Section 10 shall be without liability of any
character (including, but not limited to, loss of anticipated profits or
consequential damages) on the part of any party thereto, except that the Company
shall remain obligated to reimburse the Representative only for its
out-of-pocket expenses on an accountable basis for all expenses provided to be
paid by the Company, as specified in Subsections 4.02 and 6.07 and any costs,
expenses, losses, claims, damages and liabilities as specified in Subsection
7.01. The Representative agrees to reimburse the Company for any unexpended
portion of any previously advanced expense allowance not accounted for. The
Representative and the several Underwriters shall remain liable to pay the costs
and expenses, losses, claims, damages and liabilities in subsection 7.02.
10.04.(a) Company's Right to Terminate. In the event any
action or proceeding pending or threatened against the Representative either in
any court of competent jurisdiction, before the NASD, Securities and Exchange
Commission or any state securities commission covering its activities as a
broker or dealer at any time prior to the Effective
26
<PAGE> 27
Date hereunder, or in the event there shall be filed by or against it in any
court pursuant to any federal, state, local or municipal statute, a petition in
bankruptcy or insolvency or for reorganization or for the appointment of a
receiver or trustee of its assets or if it makes an assignment for the benefit
of creditors, the Company shall have the right on three days' written notice to
the Representative to terminate this Agreement without any liability to the
Representative of any kind except for the payment of all accountable and
expended expenses as provided herein.
10.04.(b) At any time after the Closing Date, if the
Representative should (i) cease to be a broker-dealer registered with the
Commission, (ii) be suspended from such registration for any period of time in
excess of 30 days, (iii) cease to be a member of the NASD or other
self-regulatory organization or (iv) become subject to a proceeding, action or
notification under Section 6 of the Securities Investor Protection Act of 1970,
the obligations of the Company under Sections 6.22 and 6.23 hereof shall cease.
SECTION 11
Notice
Except as otherwise expressly provided in this Agreement:
11.01. Notice to the Company. Whenever notice is required by
the provisions of this Underwriting Agreement to be given to the Company, such
notice shall be sent by certified mail, return receipt requested, and addressed
to the Company as follows:
SURREY, INC.
13110 Trails End Road
Leander, Texas 78641
Attn: John van der Hagen
Chief Executive Officer
copy to: Mackall, Crounse & Moore, PLC
1400 AT&T Tower
901 Marquette Avenue
Minneapolis, MN 55402-1400
Attn: Elizabeth H. Cobb, Esq.
11.02. Notice to the Representative. Whenever notice is
required by the provisions of this Agreement to be given to the Representative,
such notice shall be sent by certified mail, return receipt requested, and
addressed to the Representative at the address set out at the beginning of this
Agreement, with a copy to:
Stuart, Coleman & Co., Inc.
11 West 42nd Street, 15th Floor
New York, New York 10036
Attn: Helene K. Netter, Esq.
27
<PAGE> 28
SECTION 12
Miscellaneous
12.01. Benefit. This Agreement is made solely for the benefit
of the Representative, the several Underwriters, the Company, their respective
officers and directors and any controlling person referred to in Section 15 of
the Act, and their respective successors and assigns, and no other person shall
acquire or have any right under or by virtue of this Agreement. The term
"successor" or the term "successors or assigns" as used in this Agreement shall
not include any purchaser, as such, of the Units.
12.02. Survival. The respective indemnities, agreements,
representations, warranties, covenants and other statements of the Company and
the Representative or their respective officers as set forth in or made pursuant
to this Agreement and the indemnity agreements of the Company and the
Representative contained in Section 7 hereof shall survive and remain in full
force and effect, regardless of (i) any investigation made by or on behalf of
the Company or the Representative or any such officer or director thereof or any
controlling person of the Company or the Representative, (ii) delivery of or
payment for the Units; or (iii) the Closing Date.
12.03. Governing Law. The validity, interpretation and
construction of this Agreement and of each part hereof shall be governed by the
laws of the State of New York.
12.04. Counterparts. This Agreement may be executed in any
number of counterparts, each of which may be deemed an original and all of which
together shall constitute one and the same instrument.
Please confirm that the foregoing correctly sets forth the
Agreement between you and the Company.
Very truly yours,
SURREY, INC.
By:
-----------------------
John van der Hagen
Chief Executive Officer
ATTEST:
- -----------------------
28
<PAGE> 29
WE HEREBY CONFIRM AS OF THE DATE HEREOF THAT THE ABOVE SETS FORTH THE AGREEMENT
BETWEEN THE COMPANY AND US.
STUART, COLEMAN & CO., INC. (for
itself and as Representative of
the various Underwriters)
By:
-------------------------
Stuart J. Voisin,
Chairman of the Board
29
<PAGE> 30
Schedule I
Underwriters
Name of Underwriter Number of Units
30
<PAGE> 1
SURREY, INC. ("SURREY" OR THE "COMPANY") EXHIBIT 1.2
SELECTED DEALERS AGREEMENT
625,000 Units
(Each Unit consists of two shares of Common Stock,
no par value per share, and one Redeemable
Common Stock Purchase Warrant)
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION AND SUCH REGISTRATION STATEMENT WAS DECLARED
EFFECTIVE ON , 1997. THIS COMMUNICATION SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL
THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER,
SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION
UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
Dear Sirs:
1. STUART, COLEMAN & CO., INC. (hereinafter "Stuart, Coleman"), named
as the Representative in the enclosed Prospectus (the "Representative"),
proposes to offer on a "firm commitment" basis, subject to the terms and
conditions and execution of the Underwriting Agreement, a maximum of 625,000
units (the "Units") including the over-allotment option. Each Unit consists of
two (2) common shares, no par value ("Common Share") and one (1) redeemable
Common Share Purchase Warrant (the "Warrant") to purchase one (1) Common Share
at an exercise price of $4.80, at an offering price per Unit of $____. The
Warrants expire on , 2002, and are separable sixty (60) days
after the Effective Date or sooner at the option of the Representative. The
Representative may decide to withdraw the Units immediately after the thirty
(30) day minimum inclusion period. The Warrant is exercisable at any time
during the five (5) year term of the Warrant (the "Warrant Exercise Period").
The Warrants are callable by the Company on thirty (30) days prior written
notice at a price of $.01 per Warrant commencing one (1) year after the Closing
Date and terminating at the end of the Warrant Exercise Period, at any time the
Common Stock trades at a price over $5.00 for twenty (20) consecutive trading
days. The Company has granted Stuart Coleman an option to purchase from the
Company up to an additional 93,750 Units to cover over-allotments. In addition
the Company has agreed to sell to the Representative, for a price of $.0005 per
warrant, warrants to purchase up to 62,500 Units (one (1) Warrant for each ten
(10) Units sold) at a price per Unit equal to one hundred and twenty (120%)
percent of the per Unit offering price ("Representative's Warrants").
2. The Representative is soliciting Selected Dealers who are (1)
registered with the Securities and Exchange Commission (the "Commission") as
broker-dealers under the Securities Exchange Act of 1934, as amended (the "1934
Act"), and (2) members in good standing with the National Association of
Securities Dealers, Inc. (the "NASD") to offer for sale on a "firm commitment"
basis, pursuant to the terms and conditions hereof and, as agent on behalf of
the Company, Units at a price of $8.125 per Unit. Such Selected Dealers will,
in turn, receive a commission (_% of offering price) or $____ per Unit.
<PAGE> 2
3. Your offer to sell the Units on a "firm commitment" basis may be
revoked in whole or in part without obligation or commitment of any kind by you
any time prior to acceptance by us. Subject to the foregoing, upon execution
by you of the offer to sell on a "firm commitment" basis as set forth below and
the return of same to us, you shall be deemed to have offered to sell, on a
"firm commitment" basis, the number of Units set forth in your offer at $8.125
per Unit. Any oral notice by us of acceptance of your offer shall be
immediately followed by written or telegraphic confirmation preceded or
accompanied by a copy of the Prospectus. If a contractual commitment arises
hereunder, all the terms of this Selected Dealers Agreement shall be
applicable.
4. If your offer to sell the Units is accepted, you agree that in selling
the Units you will make a bona fide public distribution of same. You agree
that, prior to the termination of this Agreement, you will not offer to sell
the Units for less than the public offering price. You will advise the
Representative upon request of the number of Units you are offering which
remain unsold and the Representative shall have the right to offer such Units
for sale upon five (5) days written notice to you.
5. All orders will be strictly subject to confirmation and the
Representative reserves the right in its uncontrolled discretion to reject any
order in whole or in part, to accept or reject orders in the order of their
receipt or otherwise, and to allot. Neither you nor any other person is
authorized by the Company or the Representative to give any information or make
any representations other than those contained in the Prospectus in connection
with the sale of any of the Units. No dealer is authorized to act as agent for
the Representative when offering the Units to the public or otherwise.
6. Payment for Units purchased by you is to be made on or before five
business days after the date of each confirmation by a certified or official
bank check, by wire transfer to the order of Stuart, Coleman, & Co., Inc., 11
West 42nd Street, New York, New York 10036 or by funds cleared through the
Depository Trust Company ("DTC") at the public offering price less the above
commission against delivery of the Units. If such payment is not made at such
time, you agree to pay us interest on such Funds at the prevailing broker's
loan rate.
7. No expenses shall be charged to Selected Dealers. A single transfer
tax, if payable, upon the sale of the Units by us to you will be paid when such
Units are delivered to you. However, you shall pay any transfer tax (other
than the single transfer tax described above) in the event that any such tax
shall from time to time be assessed against you and other Selected Dealers as a
group or otherwise.
8. A registration statement covering the offering was filed with the
Commission with respect to the Units and such registration statement was
declared effective on , 1997. Each Selected Dealer in selling
Units pursuant hereto agrees (which agreement shall also be for the benefit of
the Company) that it will comply with the applicable requirements of the
Securities Act of 1933, as amended (the "1933 Act"), and of the 1934 Act and
any applicable rules and regulations issued under said Acts. No person is
authorized by the Company or by the Representative to give any information or
to make any representations other than those contained in the Prospectus in
connection with the sale of the Units. Nothing contained herein shall render
the Selected Dealers members of an underwriting group or partners with the
Representative or with one another.
2
<PAGE> 3
9. You will be informed by the Representative as to the states in which it
has been advised by Company counsel that the Units have been qualified for sale
or are exempt under the respective securities or "Blue Sky" laws of such
states, but the Representative has not assumed and will not assume any
obligation or responsibility as to the right of any Selected Dealer to sell
Units in any state. Selected Dealer hereby indemnifies and holds
Representative harmless from and against any fines, judgments, lawsuits,
complaints or otherwise, including reasonable attorneys' fees, incurred by
Representative as a result of the selling of any Units contrary to the terms of
the Blue Sky Memorandum provided to Selected Dealer prior to the sale of any
Units.
10. The Representative shall have full authority to take such action as it
may deem advisable in respect of all matters pertaining to the offering or
arising thereunder. The Representative shall not be under any liability to you,
except such as may be incurred under the 1933 Act and the rules and regulations
thereunder, except for lack of good faith and except for obligations assumed by
the Representative in this Agreement, and no obligation on the Representative's
part shall be implied or inferred herefrom.
11. Selected Dealers will be governed by the conditions herein set forth
until this Agreement is terminated. This Agreement will terminate when the
offering is completed. Nothing herein contained shall be deemed a commitment
on our part to offer you Units to sell on a "firm commitment" basis; such
contractual commitment can only be made in accordance with the provisions of
paragraph 3 hereof.
12. You represent that you are (i) a member in good standing with the NASD
and registered as a broker-dealer with the Commission or (ii) a dealer with its
principal place of business located outside the United States, its territories
and its possessions and not registered as a broker or dealer under the 1934 Act
who has agreed not to make any sales within the United States, its territories
and its possessions or to persons who are naturals thereof or residents
therein. As a Selected Dealer you have agreed to comply with the provisions of
Rule 2740 of the NASD Conduct Rules and, if any such dealer is a foreign dealer
and not a member of the NASD, such Selected Dealer also has agreed to comply
with the NASD's interpretation with respect to free-riding and withholding, to
comply, as though it were a member of the NASD, with the provisions of Rules
2730 and 2750 of such Conduct Rules and to comply with Rule 2420 of such
Conduct Rules as that Rule applies to non-member foreign dealers.
13. On becoming a Selected Dealer, and in offering and selling the Units,
you agree to comply with all the applicable requirements of the 1933 Act, as
amended and the 1934 Act. You confirm that you are familiar with Rule 15c2-8
under the 1934 Act relating to the distribution of preliminary and final
prospectuses for securities of an issuer (whether or not the issuer is subject
to the requirements of Section 13 or 15(d) of the 1934 Act and confirm that you
have complied and will comply therewith.
14. You, by your confirmation below, represent that neither you nor any of
your directors, officers, partners or "persons associated with you" (as defined
in the Bylaws of the NASD) nor, to your knowledge, any "related persons' (as
defined by the NASD in its Corporate Financing Rules) have participated or
intend to participate in any transaction or dealings as to which documents or
information are required to be filed with the NASD pursuant to such
Interpretation or its Statement of Policy Concerning Venture Capital and
3
<PAGE> 4
Other Investment, as amended, and as to which such documents or information
have not been so filed in a timely manner.
15. The Company has indemnified the Representative and the several
underwriters, pursuant to the terms of Section 7 of the Underwriting Agreement
dated as of , 1997, and Selected Dealers are hereby
included by the Representative in such indemnification.
16. In addition to compliance with the provisions of paragraph 10 hereof,
you will not, until advised by us in writing or by wire that the entire
offering has been distributed and closed, bid for or purchase Units of the
Company in the open market or otherwise make a market in such Units or
otherwise attempt to induce others to purchase Units in the open market.
Nothing contained in this paragraph 11 shall, however, preclude you from acting
in the execution of unsolicited orders of customers in transactions effectuated
for them through a market maker.
17. All communications from you should be directed to Helene K. Netter,
Esq., Syndicate Department, Stuart, Coleman & Co., Inc., 11 West 42nd Street,
New York, New York 10036. All communications from us to you shall be directed
to the address to which this letter is mailed.
Very truly yours,
STUART, COLEMAN & CO., INC.
By:
-------------------------------
By:
-------------------------------
Authorized Officer
4
<PAGE> 5
Stuart, Coleman & Co., Inc.
11 West 42nd Street
New York, New York 10036
The undersigned hereby subscribes for ____ Units of Surrey, Inc.
("Surrey") as per the terms and conditions of the Selected Dealer's Agreement
and acknowledges receipt of the Prospectus relating to the Surrey Units.
We confirm that we are either (a) a member in good standing of the NASD or
(b) a dealer with its principal place of business located outside the United
States, its territories and its possessions and not registered as a broker or
dealer under the Securities Exchange Act of 1934, as amended, who hereby agrees
not to make any sales within the United States, its territories and its
possessions to persons who are nationals thereof or residents therein. We
agree to comply with the provisions of Rule 2740 of the NASD Conduct Rules,
and, if we are a foreign dealer and not a member of the NASD, we also agree to
comply with the NASD's interpretation with respect to free-riding and
withholding set forth in Rules 2730 and 2750 of such Conduct Rules as if we
were a member of the NASD, and to conduct with Rule 2420 of such Conduct Rules
as that Rule applies to non-member foreign dealers.
---------------------------------------
By:
------------------------------------
Address:
-------------------------------
Dated: ---------------------------------------
- ---------------------
*
5
<PAGE> 1
REPRESENTATIVE'S WARRANT EXHIBIT 1.3
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED FOR SALE,
SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT MADE UNDER THE SECURITIES ACT OF 1933 (THE "ACT"), APPLICABLE STATE
SECURITIES LAWS, OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT
AND SUCH LAWS.
Void after 4:00 P.M. New York Time, on______________2002
REPRESENTATIVE'S WARRANT TO PURCHASE UNITS
62,500 Units (each unit consisting of two common shares,
no par value ("Common Share") and one redeemable common share purchase
warrant ("Warrant") to purchase one Common Share at an
exercise price of $4.80
of
SURREY, INC.
This is to Certify that, for VALUE RECEIVED,
STUART, COLEMAN & CO., INC.
or registered assigned ("Holder") is entitled to purchase, subject to the
provisions of this Representative's Warrant, from Surrey, Inc., a Texas
corporation ("Company"), at any time on or after 10:00 A.M., ___________1998
and not later than 4:00 P.M. New York Time, on 2002, a date which does not
exceed five (5) years from Effective Date of the Registration Statement on Form
SB-2 File No. 333-35757 (the "Warrant Exercise Term"), [71,875] Units at a
purchase price per Unit of $.0005. The exercise price of a Unit in effect at
any time and as such may be adjusted from time to time is hereinafter sometimes
referred to as the "Exercise Price". Prior to the application, if any, of the
anti-dilution provisions contained herein, the Exercise Price relative to one
Unit or to a combination of two (2) shares and one (1) Warrant shall be $9.75
as such amount may be adjusted in accordance herewith. This Representative's
Warrant is one of a series of warrants identical in form issued by the Company
to purchase up to a maximum of 62,500 Units and the term "Representative's
Warrants" as used herein means all such representative's warrants (including
this Representative's Warrant).
<PAGE> 2
The Representative's Warrants referred to herein shall be
delivered to Stuart, Coleman & Co., Inc. in increments of thousand Units
Representative's Warrant certificates.
(a) Exercise of Representative's Warrant. Subject to the
provisions of Section (g) hereof, this Representative's Warrant may be
exercised in whole or in part at any time or from time to time on or
after___________1998 but not later than 4:00 P.M, on ___________2002, or if
2002 is a day on which banking institutions are authorized by law to close,
then on the next succeeding day which shall not be such a day, by presentation
and surrender hereof to the Company or at the office of its Transfer Agent, if
any, with the Purchase Form annexed hereto duly executed and accompanied by
payment of the Exercise Price for the number of Units, or the underlying
securities of the Units, as the case may be, specified in such form. The
Company shall bear the entire cost of all federal and state taxes (other than
any income taxes) as well as all transfer taxes relating to the exercise of the
Representative's Warrants referred to herein. If this Representative's Warrant
should be exercised in part only, the Company shall, upon surrender of this
Representative's Warrant for cancellation, execute and deliver a new
Representative's Warrant evidencing the right of the Holder to purchase the
balance of the Units, or the underlying securities, as the case may be,
purchasable hereunder. Upon receipt by the Company during the Warrant Exercise
Period of this Representative's Warrant at the office or agency of the Company,
in proper form for exercise with the Exercise Price, the Holder shall be deemed
to be the holder of record of the Units, or the underlying securities, as the
case may be, issuable upon such exercise, notwithstanding that the transfer
books of the Company shall then be closed or that certificates representing
such Units, or the underlying securities, as the case may be, shall not then be
actually delivered to the Holder.
(b) Reservation of Units. The Company hereby agrees that
at all times there shall be reserved for issuance and/or delivery upon exercise
of this Representative's Warrant such number of Common Shares [125,000] as
shall be required for issuance or delivery upon exercise of this
Representative's Warrant and an additional [62,500] Common Shares upon the
exercise of the Warrant included in the Units.
(c) Fractional Units. No fractional Units or Common Shares
or scrip representing fractional Units or Common Shares shall be issued
upon the exercise of this Representative's Warrant. With respect to any
fraction of a Unit called for upon any exercise hereof, the Company shall pay
to the Holder an amount in cash equal to such fraction multiplied by the
current market value of such fractional Unit or Common Shares, determined as
follows:
(1) If the Unit or Common Shares are listed on a
national securities exchange or admitted to unlisted trading
privileges on such exchange or listed for trading in the NASDAQ
quotation system, the current value shall be the last reported sale
price of the Unit or Common Shares on such exchange or system on the
last business day prior to the date of exercise of this
Representative's Warrant
2
<PAGE> 3
or if no such sale is made on such day, the average of the closing bid
and asked prices for such day on such exchange or system; or
(2) If the Unit or Common Shares are not listed or
admitted to unlisted trading privileges, the current value shall be
the mean of the last reported bid and asked prices reported by the
National Quotation Bureau, Inc. on the last business day prior to the
date of the exercise of this Representative's Warrant, or
(3) If the Unit or Common Shares are not so listed
or admitted to unlisted trading privileges and bid and asked prices
are not so reported, the current value shall be an amount determined
in such reasonable manner as may be prescribed by the Board of
Directors of the Company, such determination to be final and binding
on the Holder.
(d) Exchange, Assignment or Loss of Representative's
Warrant. This Representative's Warrant is exchangeable, without expense, at
the option of the Holder, upon presentation and surrender hereof to the Company
or at the office of its transfer agent, if any, for other Representative's
Warrants of different denominations entitling the Holder thereof to purchase in
the aggregate the same number of Units, or underlying securities, as the case
may be, purchasable hereunder. The Representative's Warrant may not be sold,
hypothecated, transferred or assigned for one (1) year following the effective
date, except that it may be (i) assigned in whole or in part to or among the
officers of Stuart, Coleman & Co., Inc., and (ii) transferred by operation of
law as a result of the death of any transferee. Any such assignment shall be
made by surrender of this Representative's Warrant to the Company or at the
office of its transfer agent, if any, with the Assignment Form annexed hereto
duly executed. All funds required to pay taxes (other than any income tax or
stock transfer tax) shall be paid by the Company. Thereupon, the Company
shall, without charge, execute and deliver a new Representative's Warrant in
the name of the assignee named in such instrument of assignment and this
Representative's Warrant shall promptly be canceled. This Representative's
Warrant may be divided or combined with other Representative's Warrants which
carry the same rights upon presentation hereof at the office of the Company or
at the office of its transfer agent, if any, together with a written notice
specifying the names and denominations in which new Representative's Warrants
are to be issued and signed by the Holder hereof. The term "Representative's
Warrant" as used herein includes any Representative's Warrants issued in
substitution for or replacement of this Representative's Warrant, or into which
this Representative's Warrant may be divided or exchanged. Upon receipt by the
Company of evidence satisfactory to it of loss, theft, destruction or
mutilation of this Representative's Warrant, and (in the case of loss, theft or
destruction) of indemnity or security reasonably satisfactory to it and
reimbursement to the Company of all reasonable expenses incidental thereto and
upon surrender and cancellation of this Representative's Warrant, if mutilated,
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<PAGE> 4
the Company will execute and deliver a new Representative's Warrant of like
tenor and date in lieu of this Representative's Warrant.
(e) Rights of the Holder. The Holder shall not, by virtue
hereof, be entitled to any rights of a shareholder in the Company, either at
law or equity, and the rights of the Holder are limited to those expressed in
the Representative's Warrant and are not enforceable against the Company except
to the extent set forth herein.
(f) Adjustment of Exercise Price and Number of Shares of
Common Stock and Warrants. After each adjustment of the Purchase Price
pursuant to this subsection (f), the number of shares of Common Stock
purchasable upon the exercise of each Warrant shall be the number of shares
receivable upon exercise thereof prior to such adjustment multiplied by a
fraction the numerator of which shall be the original Purchase Price of $9.75
and the denominator of which shall be such adjusted Purchase Price if any. The
Purchase Price shall be subject to adjustment as set forth below:
(l) In case the Company shall hereafter (i) pay a
dividend or make a distribution on its Common Stock in shares
of its capital stock (whether shares of Common Stock or of
capital stock of any other class), (ii) subdivide its
outstanding shares of Common Stock, (iii) combine its
outstanding shares of Common Stock into a smaller number of
shares, or (iv) issue by reclassification of its shares of
Common Stock any shares of capital stock of the Company, the
Purchase Price in effect immediately prior to such action shall
be adjusted so that the Holder of any Warrant thereafter
exercised shall be entitled to receive the number of shares
of capital stock of the Company which he would have owned
immediately following such action had such Warrant been
exercised immediately prior thereto. An adjustment made
pursuant to this subsection shall become effective immediately
after the record date in the case of a dividend and shall
become effective immediately after the effective date in the
case of a subdivision, combination or reclassification. If, as
a result of an adjustment made pursuant to this subsection, the
Holder of any Warrant thereafter exercised shall become
entitled to receive shares of two or more classes of capital
stock of the Company, the Board of Directors (whose
determination shall be conclusive and shall be described in a
statement filed with the Warrant Agent) shall determine the
allocation of the adjusted Purchase Price between or among
shares of such classes of capital stock.
(A) In any case in which this Subsection (f)(l)
shall require that an adjustment to the Purchase Price
be made immediately following a record date, the
Company may elect to defer (but only until five business
days following the filing by the Company with the
Warrant Agent of the certificate of independent public
accountants described in Subsection (f)(4)(A)) issuing
to the Holder of any Warrants exercised after such
record date the shares of Common
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<PAGE> 5
Stock and other capital stock of the
Company issuable upon such exercise over and
above the shares of Common Stock and other
capital stock of the Company issuable upon such
exercise on the basis of the Purchase Price
prior to adjustment.
(B) No adjustment in the Purchase
Price shall be required to be made unless such
adjustments would require an increase or
decrease of at least $.05; provided however,
that any adjustments which by reason of this
subsection are not required to be made shall be
carried forward and taken into account in any
subsequent adjustment. All calculations under
this subsection (f) shall be made to the
nearest cent or to the nearest one hundredth of
a share as the case may be.
(C) No adjustment of the Purchase
Price shall be made except on the conditions
set forth in this subsection (f). Without
limitation to the foregoing, there shall be no
adjustment pursuant to this subsection (f)
should the Company issue any capital stock for
cash or other consideration on equivalent terms
to the price paid for the Common Stock which
has been approved by the Board of Directors of
the Company.
(2) In case of any reclassification or change
of outstanding shares of Common Stock issuable upon
exercise of the Warrants (other than a change from no
par value to par value or as a result of a subdivision
or combination), or in case of any consolidation or
merger of the Company with or into another corporation
(other than a merger with a Subsidiary in which merger
the Company is the continuing corporation and which
does not result in any reclassification or change of
the then outstanding shares of Common Stock or other
capital stock issuable upon exercise of the Warrants
other than a change from no par value to par value) or
in the case of any sale or conveyance to another
corporation of the property of the Company as an
entirety or substantially as an entirety, then, as a
condition of such reclassification, change,
consolidation, merger, sale or conveyance, the Company,
or such successor or purchasing corporation, as the
case may be, shall make lawful and adequate provision
whereby the Holder of each Warrant then outstanding
shall have the right thereafter to receive on exercise
of such Warrant the kind and amount of shares of stock
and other securities and property receivable upon such
reclassification, change, consolidation, merger, sale,
or conveyance by a holder of the number of shares of
Common Stock issuable upon exercise of such Warrant
immediately prior to such reclassification, change,
consolidation, merger, sale or conveyance and the
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<PAGE> 6
Company or its successors shall forthwith file at the office of
the Warrant Agent a statement setting forth such provisions signed
by (i) its Chairman of the Board or Chief Executive Officer or Vice
Chairman of the Board or President or a Vice President and (ii) by
its Treasurer or an Assistant Treasurer or its Secretary or an
Assistant Secretary evidencing such provisions. Such provisions
shall include provision for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in
subsection (f). The above provisions of this subsection (f) shall
similarly apply to successive reclassifications and changes of
shares of Common Stock and to successive consolidations, mergers,
sales or conveyances.
(3) Before taking any action which would cause an
adjustment reducing the Purchase Price below the then par value of
the shares of Common Stock issuable upon exercise of the Warrants,
the Company will take any corporate action which may, in the opinion
of its counsel, be necessary in order that the Company may validly
and legally issue fully paid and nonassessable shares of the Company
at such adjusted Purchase Price.
(4)(A) Upon any adjustment of the Purchase Price
required to be made pursuant to this subsection (f), the Company
within 30 days thereafter shall (i) cause to be filed with the
Warrant Agent a certificate of a firm of independent accountants
setting forth the Purchase Price after such adjustment and setting
forth in reasonable detail the method of calculation and the facts
upon which such calculation is based, which certificate shall be
conclusive evidence of the correctness of such adjustment, and (ii)
cause to be mailed to each of the Holders of the Warrant
Certificates written notice of such adjustment. Where appropriate,
such notice may be given in advance and included as a part of the
notice required to be mailed under the provisions of subsection
(f)(4)B).
(B) In case at any time:
(i) The Company shall declare any
dividend upon its Common Stock payable otherwise than in cash or in Common
Stock of the Company; or
(ii) The Company shall offer for
subscription to the holders of its Common Stock any additional shares of stock
of any class or any other securities convertible into shares of stock or any
rights to subscribe thereto; or
(iii) There shall be any capital
reorganization or reclassification of the capital stock of the Company, or a
sale of all or substantially all of the assets of the Company, or a
consolidation or merger of the Company with another
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<PAGE> 7
corporation (other than a merger with a Subsidiary in which merger the Company
is the continuing corporation and which does not result in any reclassification
or change of the then outstanding shares of Common Stock or other capital stock
issuable upon exercise of the Warrants other than a change from no par value to
par value); or
(iv) There shall be a voluntary or
involuntary dissolution, liquidation or winding up of the Company; then, in any
one or more of said cases, the Company shall cause to be mailed to each of the
Holders of the Warrant Certificates, at the earliest practicable time (and, in
any event, not less than 20 days before any record date or other date set for
definitive action), written notice of the date on which the books of the
Company shall close or a record shall be taken for such reorganization,
reclassification, sale, consolidation, merger, dissolution, liquidation or
winding up shall take place, as the case may be. Such notice shall also set
forth such facts as shall indicate the effect of such action (to the extent
such effect may be known at the date of such notice) on the Purchase Price and
the kind and amount of the shares of stock and other securities and property
deliverable upon exercise of the Warrants. Such notice shall also specify the
date as of which the holders of the Common Stock of record shall participate in
said dividend, distribution or subscription rights or shall be entitled to
exchange their Common Stock for securities or other property deliverable upon
such reorganization, reclassification, sale, consolidation, merger,
dissolution, liquidation or winding up as the case may be (on which date, in
the event of voluntary or involuntary dissolution, liquidation or winding up of
the Company, the right to exercise the Warrants shall terminate).
(C) Without limiting the obligation of the
Company to provide notice to the Holders of the Warrant
Certificates of corporate actions hereunder, it is
agreed that failure of the Company to give notice shall
not invalidate such corporate action of the Company.
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<PAGE> 8
(g) Registration under the Securities Act of 1933.
(1) In the event the Company files a registration
statement (defined herein to include a Notification under Regulation A
under the Act and the Offering Circular included therein), which
relates to a current offering of securities of the Company (except in
connection with an offering to employees or by a Form S-4 or any
successor forms thereto or such other form as would not allow the
registration of such securities), the Company will use its best efforts
to include in such registration statement and prospectus included
therein, at the written request to the Company by the Holders of
Representative's Warrants or Representative's Warrant Units, or the
underlying securities, as the case may be, as hereinafter defined,
acquired upon exercise of the Representative's Warrants and/or which
may be acquired upon exercise of the Representative's Warrants
(collectively referred to as the "Representative's Warrant Units"), the
securities underlying the Representative's Warrants so as to permit the
public sale thereof in compliance with the Act; provided, however, that
the Company is not required to include such securities in any
underwritten portion of such offering; and further provided, if a
greater number of securities is offered for participation in the
proposed offering than in the reasonable opinion of the managing
underwriter of the proposed offering can be accommodated without
adversely affecting the proposed offering, then the amount of the
securities underlying the Representative's Warrant proposed to be
offered by such Holders for registration, as well as the number of
securities of any other selling holders participating in the
registration, shall be proportionately reduced to a number deemed
satisfactory by the managing underwriter. The Company shall give
written notice by Certified mail to the Holders of its intention to
file a registration statement under the Act relating to a current
offering of the aforesaid securities of the Company, 30 or more days
prior to the filing of such registration statement, and the written
request provided for in the first sentence of this subsection (which
request shall specify the number and interest in the Representative's
Warrant Units intended to be sold or disposed of by such Holder and
describe the nature of any proposed sale or other disposition thereof)
shall be made by the owners 20 or more days prior to the date specified
in the notice as the date on which it is intended to file such
registration statement. Neither the delivery of such notice by the
Company nor of such request by the Holders shall in any way obligate
the Company to file such registration statement and notwithstanding the
filing of such registration statement, the Company may, at any time
prior to the effective date thereof, determine not to offer the
securities to which such registration statement relates, without
liability to the Holders. The foregoing provisions of this
subparagraph (1) shall apply only with respect to registration
statement(s) filed in the period commencing on____________ 1998 and
ending four years thereafter.
(2) In addition, on one occasion, at the sole
expense of the Company, upon the written notice at any time after
____________1998, and on or
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<PAGE> 9
before four years thereafter from the Representative that it
contemplates the transfer of all or any of its Representative's
Warrants and/or the Representative's Warrant Units under such
circumstances that a public offering, within the meaning of the Act, of
the Representative's Warrants and/or the Representative's Warrant Units
will be involved, the Company, as promptly as possible after receipt of
such notice, shall file a new registration statement or, if available,
a Notification under Regulation A under the Act, with respect to the
offering and sale or other disposition of the Representative's Warrants
and/or the Representative's Warrant Units with respect to which it
shall have received such notice. Within ten (10) days after receiving
any such notice, the Company shall give notice to the other Holders of
the Representative's Warrants advising that the Company is proceeding
with such registration statement or Notification and offering to
include therein Representative's Warrants and/or the Representative's
Warrant Units of such Holders. The Company shall not be obligated to
any such other Holder unless such other Holder shall accept such offer
by notice in writing to the Company within ten days thereafter. The
Company shall pay the costs and expenses thereof, for one time only,
which costs and expenses shall include "Blue Sky" filing fees to
qualify the Representative's Warrants and/or the Representative's
Warrant Units in those jurisdictions reasonably requested by the
Representative.
(3) In each instance in which pursuant to
subsections (1) and (2) of this Section, the Company shall take
any action to permit a public offering or sale or other distribution
of the Representative's Warrants and/or the Representative's Warrant
Units, the Company shall:
(A) Supply to Stuart, Coleman & Co., Inc.
as Representative of the Holders intending to make a
public distribution of the securities thereof (the Holder by
its receipt of this Representative's Warrant hereby
acknowledging its appointment of Stuart, Coleman & Co., Inc. as
the representative for purposes of this Representative's
Warrant), two executed copies of each registration statement or
Notification and a reasonable number of copies of the
preliminary, final and other prospectus or offering circular in
conformity with requirements of the Act and the Rules and
Regulations promulgated thereunder and such other documents as
Stuart, Coleman & Co., Inc. shall reasonably request.
(B) Cooperate in taking such action as may
be necessary to register or qualify said securities under such
other securities acts or blue sky laws of such jurisdictions as
the Representative shall reasonably request and to do any and
all other acts and things which may be necessary or advisable
to enable the Holders thereof to consummate such proposed sale
or other disposition of the such securities in any such
jurisdiction; provided, however, that in no event shall the
Company be obligated, in connection therewith, to
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<PAGE> 10
qualify to do business or to file a general consent to service
of process in any jurisdiction where it shall not then be
qualified.
(C) Keep effective for a period of not less
than ninety (90) days after the initial effectiveness thereof
all such registrations or Notifications under the Act and
cooperate in taking such action as may be necessary to keep
effective such other registrations and qualifications, and do
any and all other acts and things for such period - not to
exceed ninety (90) days - as may be necessary to permit the
public sale or other disposition of such securities by such
Holders.
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<PAGE> 11
(D) Indemnify and hold harmless each such
Holder and the Representative, within the meaning of the Act,
who may purchase from or sell for any such Holder, such
securities, from and against any and all losses, claims,
damages and liabilities (including, but not limited to, any and
all expenses whatsoever reasonably incurred in
investigating, preparing, defending or settling any claim)
arising from (i) any untrue statement of a material fact
contained in any registration statement or Notification
furnished pursuant to Clause (A) of this subsection, or any
prospectus or offering circular included therein or (ii) any
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading (unless such untrue statement or omission was based
upon information furnished or required to be furnished in
writing to the Company by such Holder or Representative or
several Underwriters expressly for use therein), which
indemnification shall include each person, if any, who controls
any such Holder or Representative or several Underwriters
within the meaning of the Act; provided, however, that the
Company shall not be so obligated to indemnify any such Holder
or Representative or several Underwriters or controlling person
unless such Holder and Representative or several Underwriters
shall at the same time indemnify the Company, its directors,
each officer signing any registration statement or Notification
or any amendment to any registration statement or Notification
and each person, if any, who controls the Company within the
meaning of the Act, from and against any and all losses,
claims, damages and liabilities (including, but not limited to,
any and all expenses whatsoever reasonably incurred in
investigating, preparing, defending or settling any claim)
arising from (iii) any untrue statement of a material fact or
any amendment to any registration statement or Notification or
prospectus or offering circular furnished pursuant to Clause
(A) of this subsection, or (iv) any omission to state therein a
material fact required to be stated therein or necessary to
make the statements therein not misleading, but the indemnity
of such Holder, Representative or several Underwriters or
controlling person shall be limited to liability based upon
information furnished, or required to be furnished, in writing
to the Company by such Holder or Representative or several
Underwriters or controlling person expressly for use therein.
The indemnity agreement of the Company herein shall not inure
to the benefit of any such Representative or Holder or several
Underwriters (or to the benefit of any person who controls such
Representative or Holder or several Underwriters) on account of
any losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arising from the sale of any of
such securities by such Representative or Holder or several
Underwriters to any person if such Representative or Holder or
several Underwriters failed to send or give a copy of the
prospectus or offering circular furnished pursuant to Clause
(A)
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<PAGE> 12
of this subsection, as the same may then be supplemented or
amended if such supplement or amendment shall have been
furnished to Stuart, Coleman & Co., Inc. pursuant to said
Clause (A)), to such person with or prior to the written
confirmation of the sale involved.
The Company's obligation under this subsection (k)
shall be conditioned as to such public offering, upon a timely receipt
by the Company in writing of:
(A) Information as to the terms of such
public offering furnished by or on behalf of each Holder
intending to make a public distribution of his, her or its
Representative's Warrants or Representative's Warrant Units;
and
(B) Such other information as the Company
may reasonably require from such Holders, or the Representative
or the several Underwriters, for inclusion in such registration
statement or Notification or post effective amendment.
The Company's agreements with respect to the
Representative's Warrants or Representative's Warrant Units in
this Section will continue in effect regardless of the exercise
or surrender of this Representative's Warrant.
(4) Any notices or certificates by the Company to
the Holder and by the Holder to the Company shall be deemed
delivered if in writing and delivered personally or sent by certified
mail: (i) if to the Holder, addressed to him or her in care of Stuart,
Coleman & Co., Inc. or, if the Holder has designated, by notice in
writing to the Company, any other address, to such other address; and,
(ii) if to the Company, addressed to it, Mr. John van der Hagen,
President, Surrey, Inc., 13110 Trails End Road, Leander, Texas 78641.
The Company may change its address by written notice to the
Representative. Notwithstanding the foregoing, the Company shall not be
required to include in any registration statement any securities which
may then be sold, without limitation, by the Holder without
registration pursuant to Rule 144 under the Act or any successor rules
or regulations.
(h) Transfer to Comply with the Securities Act of 1933.
(1) This Representative's Warrant or
Representative's Warrant Units or any other security issued or issuable
upon exercise of this Representative's Warrant may not be offered or
sold or otherwise transferred except in conformity with the Act and
applicable state securities laws (in the opinion of counsel
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<PAGE> 13
satisfactory to the Company), and then only against receipt by the
Company of an agreement of such person to whom such offer of sale or
transfer is made to comply with the provisions of this Section (l) with
respect to any resale or other disposition of such securities.
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<PAGE> 14
(2) The Company may cause the following legend to
be set forth on each Representative's Warrant and certificate
representing Representative's Warrant Units or any other security
issued or issuable upon exercise of this Representative's Warrant not
theretofore distributed to the public or sold to underwriters for
distribution to the public pursuant to Section (k) hereof, unless
counsel for the Company is of the opinion as to any such certificate
that such legend is unnecessary:
The securities represented by this certificate and
certificates may not be offered for sale, sold or otherwise
transferred except pursuant to an effective Registration
Statement made under the Securities Act of 1933 (the "Act")
and applicable state securities laws, or pursuant to an
exemption from registration under the Act, if available, and
such laws.
(i) Applicable Law. This Representative's Warrant shall be
governed by, and construed in accordance with, the laws of the State of New
York.
SURREY, INC.
By:___________________________________
John van der Hagen, President
Date:
Attest
___________________________
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PURCHASE FORM
Dated ______________________, 19__
The undersigned hereby irrevocably elects to exercise the within
Representative's Warrant to the extent of purchasing ________ Units and hereby
makes payment of $____________________ in payment of the actual exercise price
thereof.
_____________
INSTRUCTIONS FOR REGISTRATION OF UNITS
Name _____________________________
Address __________________________
Signature ________________________
_____________
ASSIGNMENT FORM
FOR VALUE RECEIVED, _________________
hereby sells, assigns and transfers unto
Name ____________________________
Address _________________________
the right to purchase Units represented by this Representative's Warrant to the
extent of ______________ Units as to which such right is exercisable and does
hereby irrevocably constitute and appoint ___________________________________,
attorney, to transfer the same on the books of the Company with full power of
substitution in the premises.
Signature _____________________________
Dated _________________________, 19__.
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<PAGE> 1
EXHIBIT 1.5
SURREY, INC.
AGREEMENT AMONG UNDERWRITERS
New York, New York
October __, 1997
Stuart, Coleman & Co., Inc.
As Representative of the Several Underwriters
11 West 42nd Street
New York, New York 10036
Dear Sirs:
1. Underwriting Agreement. We understand that Surrey, Inc. a Texas
corporation (the "Company"), proposes to enter into an underwriting agreement
in the form attached hereto as Exhibit A (the "Underwriting Agreement") with
the underwriters named in Schedule A to the Underwriting Agreement (the
"Underwriters") acting severally and not jointly with respect to the purchase
of an aggregate of 625,000 units of the Company. Each Unit consists of one
share of Common Stock, no par value ("Common Stock"), and one Redeemable Common
Stock Purchase Warrant (the "Warrants"). The Warrants are exercisable between
________________, 1997 and _____________, 2002 at an exercise price of $4.80 to
purchase one share of Common Stock. The Warrants are severable and will be
separately traded at the option of the Representative. The Representative may
decide to withdraw the Units immediately after the thirty (30) day minimum
inclusion period.
Unless the context indicates otherwise, the term "Units" shall also
include an additional 93,750 Units, all or any part of which the
Representative, individually and not as Representative of the Underwriters, is
entitled to purchase from the Company upon exercise of the Representative's
option referred to in Section 4.01(b) of the Underwriting Agreement.
This is to confirm that we agree to purchase, in accordance with
the terms hereof and of the Underwriting Agreement, the number of Units
set forth opposite our name in Schedule A to the Underwriting Agreement, plus
such number of Units, if any, which we may become obligated to purchase
pursuant to Section 4 hereof ("our Units"). The ratio which the number of our
Units bears to the total number of Units purchased pursuant to the Underwriting
Agreement is herein called "our underwriting proportion."
2. Registration Statement and Prospectus. We have heretofore received and
examined a copy of the registration statement, as amended to the date hereof,
and the related prospectus in respect of the Units, as filed with the
Securities and Exchange Commission. The registration statement, as amended at
the time it becomes effective, including financial statements and exhibits, is
hereinafter referred to as the "Registration Statement," and the
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<PAGE> 2
prospectus in the form first filed with the Securities and Exchange
Commission pursuant to Rule 424(b) after the Registration Statement becomes
effective is referred to as the "Prospectus."
We confirm that the information furnished to you by us for use in
the Registration Statement and in the Prospectus is correct and is not
misleading insofar as it relate to us. We consent to being named as an
Underwriter in such Registration Statement and we are willing to accept our
responsibilities under the Securities Act of 1933, as amended ("Securities
Act") as a result thereof. We confirm that we have authorized you to advise
the Company on our behalf (a) as to the statements to be included in any
Preliminary Prospectus and in the Prospectus under the heading "Underwriting"
insofar as they relate to us and (b) that there is no other information about
us required to be stated in the Registration Statement or Prospectus. We
further confirm that, upon request by you, as Representative, we have furnished
a copy of any amended preliminary prospectus to each person to whom we have
furnished a copy of any previous preliminary prospectus, and we confirm that we
have delivered, and we agree that we will deliver, all preliminary and final
prospectuses required for compliance with the provisions of Rule 15c2-8 under
the Securities and Exchange Act of 1934, as amended ("Exchange Act").
3. Authority of the Representative. We authorize you, acting as
Representative, to execute and deliver on our behalf the Underwriting
Agreement, and to agree to any variation of its terms (except as to the
purchase price and the number of our Units) which, in your judgment, is not a
variation which materially and adversely affects our rights and obligations.
We also authorize you, in your discretion and on our behalf, with approval of
counsel for the Underwriters, to approve the Prospectus and to approve of, or
object to, any further amendments to the Registration Statement, or amendments
or supplements to the Prospectus. We further authorize you to exercise all the
authority and discretion vested in the Underwriters and in you by the
provisions of the Underwriting Agreement and to take all such action as you, in
your discretion, may believe desirable to carry out the provisions of the
Underwriting Agreement and of this Agreement, including the extension of any
date specified in the Underwriting Agreement, the exercise of any right of
cancellation or termination, and to determine all matters relating to the
public advertisement of the Units; provided, however, that except with the
consent of Underwriters who shall have agreed to purchase in the aggregate 50%
or more of the Units, no extension of the time by which the Registration
Statement is to become effective, as provided in Section 8 of the Underwriting
Agreement, shall be for a period in excess of two business days. We authorize
you to take such action as in your discretion may be necessary or desirable to
effect the sale and distribution of the Units, including, without limiting the
generality of the foregoing, the right to determine the terms of any proposed
offering, the concession to Selected Dealers (as hereinafter defined) and the
reallowance, if any, to other dealers and the right to make the judgments
provided for in Sections 8, 9, and 10 of the Underwriting Agreement.
4. Authority of Representative as to Defaulting Underwriters. Until the
termination of this Agreement, we authorize you to arrange for the purchase by
other persons, who may include you or any of the other Underwriters, of any
Units not taken up by any defaulting Underwriter. In the event that such
arrangements are made, the respective amounts of the Units to be purchased by
the non-defaulting Underwriters and by such other person or
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<PAGE> 3
persons, if any, shall be taken as the basis for all rights and
obligations hereunder; but this shall not in any way affect the liability of
any defaulting Underwriter to the other Underwriters for damages resulting from
its default, nor shall any such default relieve any other Underwriter of any of
its obligations hereunder or under the Underwriting Agreement except as herein
or therein provided.
In the event of default by one or more Underwriters in respect of
their obligations (a) under the Underwriting Agreement to purchase the
Units agreed to be purchased by them thereunder, or (b) under this Agreement to
take up and pay for any Units purchased, or (c) to deliver any Units sold or
over-allotted by you for the respective accounts of the Underwriters pursuant
to Section 11 hereof, or to bear their respective share of expenses or
liabilities pursuant to Section 13, 15 and 16 hereof, and to the extent that
arrangements shall not have been made by you for any persons to assume the
obligations of such defaulting Underwriter or Underwriters, we agree to assume
our proportionate share of the obligations of each defaulting Underwriter or
Underwriters (subject in the case of clause (a) above to the limitations
contained in Section 5 hereof without relieving any such defaulting Underwriter
or Underwriters of its liability therefor.
5. Substitution of Underwriters. If any Underwriter shall for any
reason not permitted hereunder cancel their obligation to purchase the
Units hereunder, or shall fail to take up and pay for the number of Units set
forth opposite their respective names in Schedule A of the Underwriting
Agreement upon tender of such Units in accordance with the terms hereof, then:
(a) If the aggregate number of Units which such
Underwriter or Underwriters agreed but failed to purchase does not
exceed 10% of the total number of Units, the other Underwriters shall be
obligated severally, in proportion to their respective commitments hereunder,
to purchase the Units which such defaulting Underwriter or Underwriters agreed
but failed to purchase.
(b) If any Underwriter or Underwriters so default and the
agreed number of Units with respect to such default or defaults occurs
in more than 10% of the total number of Units, the remaining Underwriters shall
have the right to take up and pay for (in such proportion as may be agreed upon
among them) the Units which the defaulting Underwriter or Underwriters agreed
but failed to purchase, the time for delivery of the Units shall be extended to
the next business day to allow the several Underwriters the privilege of
substituting within twenty-four hours (including non-business hours) another
underwriter or underwriters satisfactory to the Company.
As used in this Agreement, the term "Underwriter"
includes any person substituted for an Underwriter under this Section.
In the event of termination, there shall be no liability on the part of any
non-defaulting Underwriter to the Company, provided that the provisions of this
Section 5 shall not affect the liability of any defaulting Underwriter to the
Company arising out of such default.
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<PAGE> 4
6. Offering of Units. We understand that you will notify us when
the initial public offering of the Units is to be made and of the
initial public offering price. We hereby authorize you, in your sole
discretion, after the initial public offering, to change the public offering
price, the concession and the reallowance. The offering price at any time in
effect is hereinafter referred to as the "public offering price". We agree
that we will not offer any of the Units for sale at a price other than the
public offering price or allow any discount therefrom except as herein
otherwise specifically provided.
We agree that public advertisement of the offering shall be
made by you on behalf of the Underwriters on such date as you shall
determine. We have not advertised the offering and will not do so until after
such date. We understand that any advertisement we may then make will be our
own responsibility and at our own expense.
We authorize you to reserve and offer for sale to institutions
and other retail purchasers and to dealers (the "Selected Dealers") to
be selected by you (such dealers may include any Underwriter) such of our Units
as you, in your sole discretion, shall determine. Any such offering to
Selected Dealers may be made pursuant to a Selling Agreement, in the form
attached hereto as Exhibit B, or otherwise, as you may determine. The form of
Selling Agreement attached hereto as Exhibit B is satisfactory to us.
We authorize you to make purchases and sales of the Units from
or to any Selected Dealers or Underwriters at the public offering
price, less all or any part of the concession and, with your consent, any
Underwriter may make purchases or sales of the Units from or to any Selected
Dealer or Underwriter at the public offering price, less all or any part of the
concession.
We understand that you will notify each Underwriter promptly
upon the release of the Units for public offering as to the amount of
Units reserved for sale to Selected Dealers and retail purchasers. Units not
so reserved may be sold by each Underwriter for its own account, except that
from time to time you may, in your discretion, add to the Units reserved for
sale to Selected Dealers and retail purchasers any Units retained by an
Underwriter remaining unsold. We agree to notify you, from time to time, upon
request, of the amount of our Units retained by us remaining unsold. If all
of the Units reserved for offering to Selected Dealers and retail purchasers
are not promptly sold by you, any Underwriter may, from time to time, with your
consent, obtain a release of all or any Units of such Underwriter then
remaining unsold, and Units so released shall thereafter be deemed not to have
been reserved. Units of any Underwriter so reserved which remain unsold, or,
if sold, have not been paid for at any time prior to the termination of this
Agreement may, in your discretion or upon the request of such Underwriter, be
delivered to such Underwriter for carrying purposes only, but such Units shall
remain subject to redelivery to you upon demand for disposition by you until
this Agreement is terminated.
We agree that in connection with sales and offers to sell the
Units, if any, made by us outside the United States or its territories
or possessions, (a) we will furnish to each person to whom any such offer or
sale is made such prospectus, advertisement or other offering document
containing information relating to the Units or the Company, as may be required
under
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<PAGE> 5
the laws of the jurisdiction in which such offer or sale is made and
(b) we will furnish to each person to whom any such offer is made a copy of the
then current preliminary prospectus, and to each person to whom any such sale
is made, a copy of the Prospectus referred to in the Underwriting Agreement (as
then amended or supplemented if the Company shall have furnished any amendments
or supplements thereto). Any prospectus, advertisement or other offering
document (other than any such preliminary prospectus or Prospectus) furnished
by us to any person in accordance with the preceding sentence and all such
additional offering material, if any, as we may furnish to any person (i) shall
comply in all respects with the laws of the jurisdiction in which it is so
furnished, (ii) shall be prepared and so furnished at our sole risk and
expense, and (iii) shall not contain information relating to the Units or the
Company which is inconsistent in any respect with information contained in the
then current preliminary prospectus or in the Prospectus (as then amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto), as the case may be.
We recognize the importance of a broad distribution of the
Units among bona fide investors and we agree to use our best efforts to
obtain such broad distribution and, to that end, to the extent we deem
practicable, to give priority to small orders.
We agree that we will not sell to any account over which we
exercise discretionary authority any of the Units which we have agreed
to purchase pursuant to the Underwriting Agreement.
7. Repurchases in the Open Market. We agree that any Units sold
by any Underwriter (other than through you) which, prior to the
termination of this Agreement or such earlier date as you may
determine, shall be contracted for or purchased in the open market by you, on
behalf of the Underwriters, for a price that is at or below the public offering
price and is not greater than the inside bid price at the time of such contract
or purchase, shall be repurchased by such Underwriters on demand at a price
equal to the cost of such purchase (including commissions and taxes paid in
connection with such purchase) plus commissions and taxes on redelivery. Any
Units delivered on such repurchases need not be the identical Units originally
sold by such Underwriter. In lieu of delivery of such Units to such
Underwriter, you may (a) sell such Units in any manner for such Underwriter's
account and charge such Underwriter with the amount of any loss or expense, or
credit such Underwriter with the amount of any profit less any expense,
resulting from such sale, or (b) charge such Underwriter's account with an
amount not in excess of the concession to Selected Dealers on such Units, plus
commissions and taxes paid on delivery of such purchase.
8. Compensation to Representative. We authorize you to charge to
our account, as compensation for your services as Representative in
connection with this offering, including the purchase from the Company of the
Units and the management of the offering, an amount equal to $_______________
per Unit in respect to each of our Units.
9. Payment and Delivery. At or before 9:00 a.m., New York City
time, on the Closing Date as defined in the Underwriting Agreement, we
agree to deliver to you at your office a certified or official bank check
payable in New York Clearing House funds to your
5
<PAGE> 6
order, in an amount equal to the initial public offering price, less
the concession to the Selected Dealers in respect of that portion of our Units
which has been retained by or released to us for direct sales.
In the event that our funds are not received by you when
required, you are authorized, in your discretion, but shall not be
obligated, to make payment for our account pursuant to the Underwriting
Agreement by advancing your own funds. Any such payment by you shall not
relieve us from any of our obligations hereunder or under the Underwriting
Agreement.
We authorize you to hold and deliver against payment any of
our Units which have been sold or reserved for sale to Selected Dealers
or retail purchasers. Any of our Units not sold or reserved by you as
aforesaid will be available for delivery to us at your office as soon as
practicable after such Units have been delivered to you.
Upon the termination of this Agreement, or prior thereto at your
discretion, you will deliver to us any of our Units reserved by you for sale to
Selected Dealers or retail purchasers, but not sold an paid for against payment
by us of an amount equal to the initial public offering price of such Units,
less the concession to the Selected dealers in respect thereof.
10. Authority to Borrow. We authorize you to arrange loans for our
account and to execute and deliver any notes or other instruments in connection
wherewith, and to pledge as security therefor all or any part of our Units, as
you may deem necessary or advisable to carry out the purchase, carrying and
distribution of the Units, and to advance your own funds, charging current
interest rates.
11. Over-allotment; Stabilization. We authorize you, for the
account of each Underwriter, prior to the termination of this
Agreement, and for such longer period as may be necessary to cover any short
position incurred for the accounts of the several Underwriters pursuant to this
Agreement, (a) to over-allot in arranging for sales of Units to Selected
Dealers and others and, if necessary, to purchase Units (whether pursuant to
exercise of the option set forth in Section 4.01(b) of the Underwriting
Agreement or otherwise) at such prices as you may determine for the purpose of
covering such over-allotments, and (b) for the purpose of stabilizing the
market in the Units, to make purchase and sale of Units on the open market or
otherwise, for long or short account, on a when-issued basis or otherwise, at
such prices, in such amounts and in such manner as you may determine; provided,
however, that at no time shall our net commitment, either for long or short
account, under this Section 11 exceed 15% of the amount of our Units. Such
purchases, sales and over-allotments shall be made for the respective accounts
of the several Underwriters as nearly as practicable to their respective
underwriting proportions. We agree to take up on demand at cost any Units so
purchased for our account and deliver on demand any Units so sold or
over-allotted for our account. We authorize you to sell for the account of the
Underwriters any Units purchased pursuant to this Section 11, upon such terms
as you may deem advisable, and any Underwriter, including yourselves, may
purchase such Units. You are authorized to charge the respective accounts of
the Underwriters with broker's commissions or dealer's mark-up on purchase and
sales effected by you.
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<PAGE> 7
If pursuant to the provision of the preceding paragraph and
prior to the termination of this Agreement (or prior to such earlier
date as you may have determined) you purchase or contract to purchase for the
account of any Underwriter in the open market or otherwise any Units which were
retained by, or released to, us for direct sale, or any Units which may have
been issued in exchange for such Units, we authorize you either to charge our
account with an amount equal to the concession of such Units, or to require us
to repurchase such Units at a price equal to the total cost of such purchase,
including transfer taxes and broker's commissions or dealer's mark-up, if any.
In lieu of such action you may, in your discretion, sell for our account the
Units so purchased and debit or credit our account for the loss or profit
resulting from such sale.
You will notify us promptly if and when you engage in any
stabilization transaction pursuant to this Section 11 or otherwise and
will notify us of the date of termination of stabilization. We agree to file
with you any reports required of us including "Not as Manager" reports pursuant
to Rule 17a-2 under the Exchange Act not later than five business days
following the day upon which such stabilization transaction was terminated, and
we authorize you to file on our behalf with the Securities and Exchange
Commission any reports required by such rule.
12. Limitation on Transactions by Underwriters. Except as
permitted by you, we will not, during the term of this Agreement, bid
for, purchase, sell or attempt to induce others to purchase or sell, directly
or indirectly, any Units other than (i) as provided in the Underwriting
Agreement and in this agreement, (ii) purchases from or sales to dealers of the
units at the public offering price, less all or any part of the reallowance to
dealers, or (iii) purchases or sales by us of any Units as broker or
unsolicited orders for the account of others.
We represent that we have not participated in any transaction
prohibited by the preceding paragraph and that we have at all times
complied with the provisions of Regulation M of the Securities and Exchange
Commission applicable to this offering.
We may, with your prior consent, make purchases of the Units
from and sales to other Underwriters at the public offering price, less
all or any part of the concession to dealers.
13. Allocation and Payment of Expenses. We understand that all
expenses of a general nature incurred by you, as Representative, in
connection with the purchase, carrying, marketing and sale of the Units shall
be borne by the Underwriters in accordance with their respective share
of the underwriting obligations. We authorize you to charge our account with
our share, based on our underwriting obligation, of the aforesaid expenses,
including all transfer taxes paid on our behalf on sales or transfers made for
our account.
As promptly as possible after the termination of this Agreement, the
accounts arising pursuant hereto shall be settled and paid. Your ascertainment
of all expenses and the apportionment thereof shall be conclusive.
Notwithstanding any settlement or
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<PAGE> 8
settlements hereunder, we will remain liable for our share of all
expenses and liabilities which may be incurred by or for the accounts of the
Underwriters, including any expenses and liabilities referred to in Sections 15
and 16(b) hereof, which shall be determined as provided in this Section 13.
14. Termination. Unless this Agreement or any provision hereof is
earlier terminated by you, and except for provisions herein that
contemplate obligations surviving the termination hereof as noted in the next
paragraph, this Agreement will terminate at the close of business on the 30th
day after the date hereof, but in your discretion, may be extended by you for a
further period not exceeding 30 days with the consent of the Underwriters who
have agreed to purchase in the aggregate 50% or more of the Units. No
termination or suspension pursuant to this Section shall affect your authority
under Section 11 to cover any short position under this Agreement.
Upon termination of this Agreement, all authorizations, rights
and obligations hereunder shall cease, except (i) the mutual
obligations to settle accounts under Section 13, (ii) our obligation to pay any
transfer taxes which may be assessed and paid on account of any sales hereunder
for our account, (iii) our obligation with respect to purchases which may be
made by you from time to time thereafter to cover any short position incurred
under this Agreement, (iv) the provisions of Sections 15 and 16 hereunder, and
(v) the obligations of any defaulting Underwriter, all of which shall continue
until fully discharged.
15. Liability of Representative and Underwriters. Neither as
Representative nor individually shall you be under any liability whatsoever to
any other Underwriter, nor shall you be under any liability in respect of any
matters connected herewith or action taken by you pursuant hereto, except for
the obligations expressly assumed by you in this Agreement. You shall be under
no liability for or in respect of the value of the Units or the validity of the
form thereof, the Registration Statement, the Prospectus, or agreements or
other instruments executed by the Company or others; or for or in respect of
the delivery of the Units; or for the performance by the Company or others of
any agreement on its or their part.
Nothing herein contained shall constitute the several
Underwriters an association, or partners with us or with each other,
or, except as herein expressly provided, render any Underwriter liable for the
obligation of any other Underwriter. The rights, obligations and liabilities
of each of the Underwriters are several, in accordance with their respective
obligations, and not joint. Notwithstanding any settlement of accounts under
this Agreement, we agree to pay our underwriting portion of the amount of any
claim, demand or liability which may be asserted against and discharged by the
Underwriters or any of them, based on the claim that the Underwriters
constitute an association, unincorporated business or other entity, and also to
pay our underwriting proportion of expenses approved by you incurred by the
Underwriters, or any of them, in contesting any such claims, demands or
liabilities. If the Underwriters shall be deemed to constitute a partnership
for income tax purposes, it is the intent of each Underwriter to be excluded
from the application of Sub-chapter K, Chapter 1, Subtitle A of the Internal
Revenue Code of 1954, as amended. Each Underwriter elects to be so excluded
and agrees not to take any position inconsistent with such election. Each
Underwriter authorizes
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<PAGE> 9
you, in your discretion, to execute and file on behalf of the
Underwriters such evidence of elections as may be required by the Internal
Revenue Service.
16. Indemnification and Future Claims.
(a) We agree to indemnify and hold harmless you and each other
Underwriter, and each person, if any, who controls you and such other
Underwriter within the meaning of Section 15 of the Securities Act, and to
reimburse their expenses, to the extent and upon the terms that we agree to
indemnify and hold harmless the Company and to reimburse expenses as set forth
in the Underwriting Agreement. Our indemnity agreement set forth in this
Section 16 shall remain in full force and effect regardless of any
investigation made by or on behalf of such other Underwriter or controlling
person and shall survive the delivery of and payment for the Units and the
termination of this Agreement.
(b) In the event that any time any claim or claims shall be
asserted against you, as Representative, or otherwise involving the
Underwriters generally, relating to the Registration Statement or any
preliminary prospectus or the Prospectus, as such may be from time to time
amended or supplemented, the public offering of the Units or any of the
transactions contemplated, by this Agreement, we authorize you to take such
other action as you shall deem necessary or desirable under the circumstances,
including settlement of any such claim or claims if such course of action shall
be recommended by counsel retained by you. We agree to pay to you on request,
our underwriting proportion of all expenses incurred by you (including, but not
limited to, disbursements and fees of counsel so retained) in investigating and
defending against such claim or claims, whether such liability shall be the
result of a judgment or as a result of any such settlement.
17. Title to Securities. The Units purchased, or on behalf of, the
respective Underwriters shall remain the property of such Underwriters until
sold, and title to any such Units shall not in any event pass to the
Representative by virtue of any of the provisions of this Agreement.
18. Blue Sky Matters. It is understood that you assume no
responsibility with respect to the right of any Underwriter or other
person to offer or to sell Units in any jurisdiction, notwithstanding any
information which you may furnish as to the jurisdictions under the securities
laws of which it is believed the Units may be sold.
19. Applicable Law. This Agreement will be governed by and
construed in accordance with the laws of the State of New York.
20. Capital Requirements. We confirm that the incurrence by us of
our obligation under this Agreement and under the Underwriting
Agreement will not place us in violation of the net capital requirements of
Rule 15c3-1 under the Exchange Act or of any applicable rules relating to
capital requirements of any securities exchange to which we are subject.
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<PAGE> 10
21. Miscellaneous. Any notice from you to us shall be deemed to
have been duly give if mailed, telephoned or telegraphed to us at the
address set forth in the Underwriters Questionnaire furnished by us to you.
Any notice from us to you shall be deemed to have been duly given if mailed,
telephoned or telegraphed to you at 11 West 42nd Street, New York, NY 10036,
Attention: Michael Rabinowitz.
We understand that you are a member in good standing of the
NASD. We hereby confirm that we are actually engaged in the investment
banking or securities business and are either (i) a member in good standing of
the NASD or (ii) a dealer with its principal place of business located outside
the United States, its territories and its possessions, and not registered as a
broker or dealer under the Exchange Act, who agrees not to make any sales
within the United States, its territories or its possessions, or to persons who
are nationals thereof or residents therein (except that we may participate in
sales to Selected Dealers and others under Section 5 of this Agreement). We
hereby agree to comply with the provisions of Rule 2740 of the NASD Conduct
Rules and if we are a foreign dealer and not a member of the NASD, we also
hereby agree to comply with the NASD's interpretation with respect to
free-riding and withholding and to comply, as though it were a member of the
NASD, with the provisions of Rule 2730 and 2750 of such Conduct Rules, and to
comply with Rule 2420 of such Conduct Rules as the Rule applies to a non-member
foreign dealer. In connection with sales and offers to sell Units made by us
outside the United States, its territories and possessions (i) we will either
furnish to each person to whom any such sale or offer is made a copy of the
then current Preliminary Prospectus or the Prospectus, as the case may be, or
inform such person that such Preliminary Prospectus or Prospectus will be
available upon request, and (ii) we will furnish to each person to whom any
such sale or offer is made such prospectus, advertisement or other offering
document containing information relating to the Units or the Company as may be
required under the law of the jurisdiction in which such sale or offer is made.
Any prospectus, advertisement or other offering document furnished by us to any
person in accordance with the preceding sentence and any such additional
offering material as we may furnish to any person (x) shall comply in all
respects with the law of the jurisdiction in which it is so furnished, (y)
shall be prepared and so furnished at our sole risk and expense and (z) shall
not contain information relating to the Units or the Company which is
inconsistent in any respect with the information contained in the then current
Preliminary Prospectus or in the Prospectus, as the case may be.
We understand that, in consideration of your services in
connection with the public offering of the Units, the Company has
agreed with you individually and not as Representative of the Underwriters (a)
to sell to you the Representative's Warrants ("Representative's Warrants")
referred to in Section 4.02 of the Underwriting Agreement for the sum of $.0005
per Representative's Warrant, (b) to pay to you a non-accountable expense
allowance referred to in Section 4.07 of the Underwriting Agreement and (c) to
enter into the Consulting Agreement described in Section 6.23 of the
Underwriting Agreement. In addition, you may, at your sole discretion, elect
to exercise the over-allotment opinion individually. We confirm to you that we
shall make no claim to the Representative's Warrants, the Company's securities
underlying the Representative's Warrants, the non-accountable expense allowance
or, to the over-allotment option, to the extent you elect to exercise such
option individually. You confirm to us that we shall have no obligations or
liabilities with respect to the purchase of the
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<PAGE> 11
Representative's Warrants, the exercise thereof, the Company's
securities underlying the Representative's Warrants, the non-accountable
expense allowance or to the over-allotment option, to the extent you elect to
exercise such option individually.
Please confirm that the foregoing correctly states the
understanding between us by signing and returning to us a counterpart
thereof.
Very truly yours,
_________________________________
By:______________________________
(Attorney-in-fact for each of
the several Underwriters named
in Schedule A to the attached
Underwriting Agreement)
Confirmed as of the date first
Above written:
STUART, COLEMAN & CO., INC.
As Representative
By:______________________________
Managing Director-Syndicate
11
<PAGE> 1
EXHIBIT 1.6
VOTING TRUST AGREEMENT
This Agreement is made on the 28th day of August, 1997 at Austin, Travis
County, Texas, by and between John B. van der Hagen ("Shareholder"), the sole
shareholder of the issued and outstanding stock of Surrey, Inc. ("Surrey" or
the "Corporation"), a Texas corporation, and Saeger, Angenend & Augustine
("Trustee"), a Texas Professional Corporation, as Trustee.
WHEREAS, James K. Olson ("Olson") and wife, Louise K. Olson, have sold to
Surrey One Hundred Thousand (100,000) shares of common stock of Surrey,
representing all of the shares of common stock owned of record and beneficially
by Olson, and
WHEREAS, Surrey has issued a Promissory Note ("Note") in the amount of One
Million Two Hundred Fifty Thousand Dollars ($1,250,000) to Olson for payment of
the shares purchased from Olson, and
WHEREAS, all of the shares of stock of Surrey owned of record and
beneficially by Shareholder are encumbered by a lien granted by Shareholder
inuring to the benefit of Norwest Bank Texas, South Central, a Texas state bank
("Bank"), and
WHEREAS, it is contemplated that Surrey will raise money for the purposes
of its business by the sale of stock through an Initial Public Offering
("IPO"), a portion of which will be used to pay, in full, the obligation of the
Note.
IT IS THEREFORE AGREED:
1. Transfer of Shares to Trustee. Shareholder, simultaneously
with the execution of this Agreement, shall assign and deliver all his
share certificates evidencing all of his shares of stock of Surrey to the
Trustee, who shall cause the shares represented thereby to be transferred to
the Trustee, as voting trustee, on the books of Surrey. The Corporation shall
issue new share certificates (the "Reissued Certificates") in the name of the
Trustee, which certificates shall state they are issued pursuant to this
Agreement by a legend in the following form:
THIS CERTIFICATE IS ISSUED PURSUANT TO THE PROVISIONS OF A VOTING TRUST
AGREEMENT, A COPY OF WHICH IS AVAILABLE AT THE CORPORATION'S MAIN OFFICE.
THIS CERTIFICATE IS ENCUMBERED BY A LIEN GRANTED BY JOHN VAN DER HAGEN
INURING TO THE BENEFIT OF NORWEST BANK TEXAS, SOUTH CENTRAL.
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN
AGREEMENT DATED JUNE 27, 1988, A COPY OF WHICH IS ON FILE AT THE
PRINCIPAL OFFICE OF THE CORPORATION AND SAID SHARES MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED, PLEDGED, HYPOTHECATED, OR OTHERWISE DISPOSED OF
EXCEPT IN STRICT ACCORDANCE WITH THE
<PAGE> 2
TERMS OF THIS AGREEMENT. A COPY OF SAID AGREEMENT WILL BE FURNISHED
WITHOUT CHARGE TO THE SHAREHOLDER UPON RECEIPT BY THE CORPORATION AT ITS
PRINCIPAL PLACE OF BUSINESS OR REGISTERED OFFICE OF A WRITTEN REQUEST
FROM THE HOLDER REQUESTING SUCH A COPY.
and the Trustee immediately shall deliver the Reissued Certificates to Bank.
2. Pledge of Shares. Trustee and Shareholder each acknowledge
and agree that all of the shares of stock of Surrey owned of record or
beneficially by Shareholder and all of the shares of stock evidenced by such
new share certificates issued in the name of the Trustee are encumbered and
shall continue to be encumbered by a lien granted by Shareholder inuring to the
benefit of the Bank, and such shares constitute all of the issued and
outstanding stock of Surrey.
3. Voting Trust; Termination. The trust created hereby hives the
Trustee the exclusive right to vote such shares during the term of this
Agreement, subject to the provisions hereof. Except as to the matters
specifically set out below in this Section 3, upon any vote of the shareholders
of the Corporation during the term of this Agreement, the Trustee shall vote
Shareholder's shares as directed by Shareholder or Shareholder's successor or
successors in interest. In addition, in the event that the IPO is not closed
as of 5:00 p.m., Central Standard Time, on December 31, 1997, or such later
date as Shareholder and Olson shall agree in writing delivered to the Trustee,
Shareholder agrees to call a 5:05 p.m., Central Standard Time, December 31,
1997 meeting to vote on those Shareholder Resolutions which are attached hereto
as Exhibit A, hereby waives any notice of such meeting required by Texas law,
and hereby directs Trustee to vote Shareholder's shares to adopt such
Shareholder Resolutions. The Trust shall terminate upon the earlier of the
payment of the Note or immediately after the exercise by the trustee of its
right to vote the shares to approve the Shareholder Resolutions set forth in
Exhibit A.
4. Transfer at Termination. At the termination of the trust hereby
created, the Trustee shall deliver to Surrey and to Bank notification of the
termination of this Agreement.
5. Copies of Agreement. This Agreement may be executed in multiple
counterparts but shall not otherwise by severable or divisible. Upon execution
of this Agreement and the establishment of this trust, Trustee shall cause a
copy of this Agreement to be filed in the registered office of Surrey. This
Agreement shall be open to inspection in the manner provided for inspection
under the laws of the State of Texas.
6. Place of Performance. This Agreement is executed and entered
into at Austin, Travis County, Texas, and it is mutually agreed that
the performance of all parts of this contract shall be at Austin, Travis
County, Texas.
7. Governing Law. This Agreement is intended by the parties to be
governed and construed in accordance with the laws of the State of Texas.
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<PAGE> 3
8. Severability of Provisions. This Agreement shall not be
severable or divisible in any way, but it is specifically agreed that,
if any provision should be invalid, the invalidity shall not effect the
validity of the remainder of the Agreement.
9. Construction by Trustee. The Trustee is authorized and
empowered to construe this Agreement. Trustee's reasonable
construction made in good faith shall be conclusive and binding on Shareholder
and on all parties to this Agreement.
10. Share Adjustment. The number of shares of common stock of
Surrey subject to this Agreement shall be subject to adjustment as a
result of any stock splits, combinations or dividends payable by Surrey in
shares of common stock. All such shares including any increase in the number
of shares, shall at all times, however, remain encumbered by the lien of Bank.
Executed on August 28, 1997.
SHAREHOLDER:
By: /s/ John B. van der Hagen
-------------------------------
John B. van der Hagen,
Shareholder
TRUSTEE:
Saegert, Angenend & Augustine,
A Professional Corporation, Trustee
By: /s/ Paul D. Angenend
----------------------------
Paul D. Angenend, President
Acknowledged and Agreed:
/s/ James K. Olson
- -------------------------
James K. Olson
/s/ Louise K. Olson
- -------------------------
Lousie K. Olson
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<PAGE> 4
EXHIBIT A
WRITTEN CONSENT OF THE SHAREHOLDER
OF SURREY, INC.
IN LIEU OF SPECIAL MEETING OF ____________, 1997
Article 9.10.A of the Texas Business Corporation Act provides that any
action required or permitted to be taken at a meeting of the shareholders of a
corporation may be taken without a meeting if a consent, in writing, setting
forth the action so taken is signed by all of the shareholders entitled to vote
with respect to the subject matter thereof, and such consent shall have the
same force and effect as a unanimous vote of shareholders. Accordingly,
pursuant to such statutory authority, the undersigned, being the voting trustee
for the sole shareholder of Surrey, Inc. (the ""Corporation"", hereby consents
to the adoption of the following resolutions as of the effective date of this
written consent:
ISSUANCE OF STOCK
RESOLVED, that (i) the Corporation shall issue to James K. Olson One
Hundred Thousand (100,000) shares of common stock, no par value, of the
Corporation (such number of shares subject to adjustment as a result of
any stock splits, combinations or dividends payable by the Corporation in
shares of common stock which have been authorized by the Corporation or
its Board of Directors or shareholders since August 1, 1997) and at such
time as James K. Olson executes security agreements (collectively the
"Security Documents") acceptable in form and substance to Norwest Bank
Texas, South Central (the "Bank") in the Bank's reasonable discretion,
granting to the Bank a security interest in, and lien upon, such shares
to secure all indebtedness of the Corporation to the Bank, and (ii)
deliver the Security Documents and the certificate or certificates for
such shares to Bank; such shares shall be issued in exchange for the
Corporation's Promissory Note in the amount of One Million Two Hundred
Fifty Thousand Dollars ($1,250,000) issued to James K. Olson, such number
of shares to represent one-half of the issued and outstanding shares of
the Corporation immediately after such issuance.
<PAGE> 5
ELECTION OF DIRECTORS
RESOLVED, that the following individuals are elected to serve as
directors of the Corporation until their successors are duly qualified
and elected
John B. van der Hagen
Mary A. van der Hagen
James K. Olson
Louise K. Olson
ELECTION OF OFFICERS
RESOLVED, that the following individuals are elected to the offices set
forth opposite their names, to serve until their successors are duly
qualified and elected:
James K. Olson Chief Executive Officer
John B. van der Hagen President
Martin J. van der Hagen Executive Vice President
Mary A. van der Hagen Vice President-Secretary
Louise K. Olson Vice President-Treasurer
Mark J. van der Hagen Vice President
COMPENSATION OF DIRECTORS AND OFFICERS
RESOLVED, that the compensation, including fringe benefits, of the
Directors and officers, be set at the level then effective on August 1,
1997.
AMENDMENT TO BYLAWS
RESOLVED, that the Bylaws of the Corporation be amended by adding a new
Section 3 to Article IV, Certificates for Shares and Their Transfer, as
follows:
Section 3. Certificates for Shares and Their Transfer. No
Shareholder shall sell or transfer any share or shares of stock
in this Corporation without notifying the Corporation in writing
of the name of the proposed purchaser or transferee and the
price at which the proposed sale or transfer is to be made. The
Corporation, acting through its Board of Directors, shall have
sixty (60) days after the receipt of such notification to either
purchase for itself or find a purchaser for such share or shares
at the price for which the Shareholder had received a bona fide
offer and which offer is in effect at the time the Corporation
is notified of the proposed sale. In the event the Corporation
does not purchase the stock or find a purchaser at the said
price within sixty (60) days from said notification, the
Shareholder shall be free to transfer,
2
<PAGE> 6
alienate or otherwise dispose of such share without any
restrictions whatsoever. The Corporation, acting through its
Board of Directors, may consent to such transfer prior to the
expiration of the sixty day (60) day period. It is the intent
that all restrictions hereby imposed upon sale or transfer of
shares shall apply to all shares, whensoever, howsoever or by
whomsoever acquired, the hands of all holders or owners, whether
original Shareholders or subsequent purchasers or transferees
and whether acquired through the voluntary or involuntary act of
the Shareholder or by operation of law, and whether a part of
the first authorized issue or any subsequent or increased
issued.
The following shall be imprinted on the face of each stock
certificate issued by the Corporation:
A Summary of the Bylaw restrictions on transferability of any
share represented by this certificate is on the back of this
certificate.
The following summary of restrictions on transferability
shall be imprinted on the back of each stock certificate
issued by the Corporation:
Summary of Restrictions on Transferability of Shares.
No Shareholder whether original Shareholder or subsequent
purchaser or transferee shall sell or transfer any share of
the Corporation without first giving the Corporation written
notice of such intention, following which the Corporation
will have sixty (60) days in which to purchase or find a
purchaser at the price for which the Shareholder has
received a bona fide offer. If the Corporation does not
purchase or find a purchaser within the sixty-day (60)
period at said price, the Shareholder shall be free to
transfer, alienate or otherwise dispose of such shares
without restriction whatsoever. (See Article IV, Section 3
of the Bylaws.)
3
<PAGE> 7
PAYMENT OF FEES AND EXPENSES
RESOLVED, that the Corporation pay all legal fees and other
expenses incurred by John B. van der Hagen, Mary A. van der Hagen,
James K. Olson, and Louise K. Olson relating to the sale of the
Corporation's stock from James K. Olson and Louise K. Olson to the
Corporation, and the subsequent reissue of such stock by the
Corporation to James K. Olson and Louise K. Olson as authorized
herein.
DATED: Effective _______________, 1997.
SAEGERT, ANGENEND & AUGUSTINE
A PROFESSIONAL CORPORATION, Trustee
By:____________________________________
Paul D. Angenend, President
4
<PAGE> 1
EXHIBIT 1.7
MODEL PROMOTIONAL SHARES LOCK-IN AGREEMENT
I. This Promotional Shares Lock-In Agreement ("Agreement"), which
was entered into on the _____ day of November, 1997, by and between
SURREY, INC. ("Issuer"), whose principal place of business is located in
Leander, Texas, and John B. van der Hagen ("Security Holder") witnesses
that:
A. The Issuer has filed an application with the Securities
Administrator of the States of Arizona, Connecticut, Illinois,
Iowa, Massachusetts, Michigan, Nevada, North Carolina, Oregon,
Pennsylvania, Rhode Island, South Carolina, Texas, Utah, Virginia,
Washington and Wisconsin ("Administrators") to register certain of
its Equity Securities for sale to public investors who are
residents of those states ("Registration");
B. The Security Holder is the owner of the shares of common
stock or similar securities and/or possesses convertible
securities, warrants, options or rights which may be converted
into, or exercised to purchase shares of common stock or similar
securities of Issuer.
C. As a condition to Registration, the Issuer and Security
Holder ("Signatories") agree to be bound by the terms of this
Agreement.
II. THEREFORE, other than as described in the Issuer's Prospectus
with respect to its bank loan, the Security Holder agrees not to sell,
pledge, hypothecate, assign, grant any option for the sale of
(collectively, a "transaction"), or otherwise transfer or dispose of,
whether or not for consideration, directly or indirectly, PROMOTIONAL
SHARES as defined in the North American Securities Administrators
Association ("NASAA") Statement of Policy on Promotional Shares and all
certificates representing stock dividends, stock splits,
recapitalizations, and the like, that are granted to, or received by, the
Security Holder while the PROMOTIONAL SHARES are subject to this
Agreement ("Restricted Securities"):
A number of shares of Common Stock equal to 1,068,076 owned
beneficially by the Security Holder shall not be subject to any of the
above transactions by the Security Holder prior to the first anniversary
of the Effective Date (as defined below). Thereafter, the Security
Holder may effect such transactions, provided that no more than two and
one-half percent (2-1/2%) of such shares (or 26,701) may be subject to
any such transaction per quarter during the second year after the
Effective Date. The lock-in shall terminate on the second anniversary of
the Effective Date.
III. THEREFORE, the Signatories agree and will cause the following:
A. In the event of a dissolution, liquidation, merger, consolidation,
reorganization, sale or exchange of the Issuer's assets or
securities (including by way of tender offer), or any other
transaction or proceeding with a person who is not a Promoter,
which
<PAGE> 2
results in the distribution of the Issuer's assets or
securities ("Distribution"), while this Agreement remains in
effect that:
1. All holders of the Issuer's EQUITY SECURITIES will
initially share on a pro rata, per share basis in the
Distribution, in proportion to the amount of cash or other
consideration that they paid per share for their EQUITY
SECURITIES (provided that the Administrator has accepted the
value of the other consideration), until the shareholders who
purchased the Issuer's EQUITY SECURITIES pursuant to the
public offering ("Public Shareholders") have received, or
have had irrevocably set aside for them, an amount that is
equal to one hundred percent (100%) of the public offering's
price per share times the number of shares of EQUITY
SECURITIES that they purchased pursuant to the public
offering and which they still hold at the time of the
Distribution, adjusted for stock splits, stock dividends
recapitalizations and the like; and
2. All holders of the Issuer's EQUITY SECURITIES shall
thereafter participate on an equal, per share basis times the
number of shares of EQUITY SECURITIES they hold at the time
of the Distribution, adjusted for stock splits, stock
dividends, recapitalizations and the like.
3. The Distribution may proceed on lesser terms and
conditions than the terms and conditions stated in paragraphs
1 and 2 above if a majority of the EQUITY SECURITIES that are
not held by Security Holders, officers, directors, or
Promoters of the Issuer, or their associates or affiliates
vote, or consent by consent procedure, to approve the lesser
terms and conditions.
B. In the event of a dissolution, liquidation, merger,
consolidation, reorganization, sale or exchange of the Issuer's
assets or securities (including by way of tender offer), or any
other transaction or proceeding with a person who is a Promoter,
which results in a Distribution while this Agreement remains in
effect, the Restricted Securities shall remain subject to the terms
of this Agreement.
C. Restricted Securities may be transferred by will, the laws
of descent and distribution, the operation of law, or by order of
any court of competent jurisdiction and proper venue.
D. Restricted Securities of a deceased Security Holder may be
hypothecated to pay the expenses of the deceased Security Holder's
estate. The hypothecated Restricted Securities shall remain subject
to the terms of this Agreement. Restricted Securities may not be
pledged to secure any other debt.
-2-
<PAGE> 3
E. Restricted Securities may be transferred by gift to the Security
Holder's family members, provided that the Restricted Securities shall remain
subject to the terms of this Agreement.
F. With the exception of paragraph A.3 above, the Restricted
Securities shall have the same voting rights as similar EQUITY
SECURITIES not subject to the Agreement.
G. A notice shall be placed on the face of each stock
certificate of the Restricted Securities covered by the terms of the
Agreement stating that the transfer of the stock evidenced by the
certificate is restricted in accordance with the conditions set
forth on the reverse side of the certificate; and
H. A typed legend shall be placed on the reverse side of each
stock certificate of the Restricted Securities representing stock
covered by the Agreement which states that the sale or transfer of
the shares evidenced by the certificate is subject to certain
restrictions until two years after the Effective Date of the
Issuer's initial public offering pursuant to an agreement between
the Security Holder (whether beneficial or of record) and the
Issuer, which agreement is on file with the Issuer and the stock
transfer agent from which a copy is available upon request and
without charge.
I. The term of this Agreement shall begin on the date that
the Registration is declared effective by the Administrators
("Effective Date") and shall terminate:
1. The second anniversary of the Effective Date; or
2. On the date the Registration has been terminated if no
securities were sold pursuant thereto; or
3. If the Registration has been terminated, the date that
checks representing all of the gross proceeds that were derived
therefrom and addressed to the public investors have been
placed in the U.S. Postal Service with first class postage
affixed; or
4. On the date the securities subject to this Agreement become
"Covered Securities," as defined under the National Securities
Markets Improvement Act of 1996.
J. This Agreement to be modified only with the written approval of the
Administrators.
-3-
<PAGE> 4
IV. THEREFORE, the Issuer will cause the following:
A. A manually signed copy of the Agreement signed by the Signatories to
be filed with the Administrators prior to the Effective Date;
B. Copies of the Agreement and a statement of the per share
initial public offering price to be provided to the Issuer's stock
transfer agent;
C. Appropriate stock transfer orders to be placed with the
Issuer's stock transfer agent against the sale or transfer of the
shares covered by the Agreement prior to its expiration, except as may
otherwise be provided in this Agreement;
D. The above stock restriction legends to be placed on the
periodic statement sent to the registered owner if the securities
subject to this Agreement are uncertificated securities.
Pursuant to the requirements of this Agreement, the Signatories have entered
into this Agreement, which may be written in multiple counterparts and each of
which shall be considered an original. The Signatories have signed the
Agreement in the capacities, and on the dates, indicated.
IN WITNESS WHEREOF, the Signatories have executed this Agreement.
SURREY, INC.
By
------------------------------------------
Martin J. van der Hagen, President
- --------------------------------------------
Signature
John B. van der Hagen
- --------------------------------------------
Printed Name of Security Holder
Chief Executive Officer
- --------------------------------------------
Title, if applicable
-4-
<PAGE> 1
SURREY LOGO
SEE REVERSE SIDE
FOR CERTAIN
DEFINITIONS.
INCORPORATED UNDER THE LAWS OF THE STATE OF TEXAS
SEE REVERSE SIDE FOR
RESTRICTIONS ON TRANSFER
<TABLE>
<S> <C> <C>
----------------------------
CUSIP
----------------------------
</TABLE>
SURREY, INC.
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON
STOCK, NO PAR VALUE
--------------------------------------
--------------------------------------
- --------------------------------------------------------------------------
---------------------------------------------------------------
--------------------------------------
--------------------------------------
SURREY, INC.
TRANSFERABLE ONLY ON THE BOOKS OF THE CORPORATION BY THE
HOLDER HEREOF IN PERSON OR BY ATTORNEY UPON SURRENDER OF
THIS
CERTIFICATE PROPERLY ENDORSED. THIS CERTIFICATE IS NOT
VALID UNLESS COUNTERSIGNED BY THE TRANSFER AGENT AND
REGISTRAR.
IN WITNESS WHEREOF, THE SAID CORPORATION HAS CAUSED
THIS CERTIFICATE TO BE SIGNED BY FACSIMILE SIGNATURES OF
ITS DULY AUTHORIZED OFFICER.
DATED:
<TABLE>
<S> <C>
By:
MARY A. VAN DER HAGEN MARTY VAN DER HAGEN
SECRETARY PRESIDENT
SURREY LOGO
</TABLE>
SPECIMEN
<PAGE> 2
Countersigned and Registered:
NORWEST BANK MINNESOTA, N.A.
Transfer Agent and Registrar
By
Authorized Signature
<PAGE> 3
UPON REQUEST TO THE SECRETARY OF THE CORPORATION, THE CORPORATION WILL FURNISH
ANY SHAREHOLDER WITHOUT CHARGE A FULL STATEMENT OF THE DESIGNATIONS,
PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS OF THE SHARES OF EACH CLASS OR
SERIES AUTHORIZED TO BE ISSUED, SO FAR AS THEY HAVE BEEN DETERMINED, AND THE
AUTHORITY OF THE BOARD OF DIRECTORS TO DETERMINE THE RELATIVE RIGHTS AND
PREFERENCES OF SUBSEQUENT CLASSES OR SERIES.
- --------------------------------------------------------------------------------
THE FOLLOWING ABBREVIATIONS, WHEN USED IN THE INSCRIPTION ON THE FACE OF THIS
CERTIFICATE, SHALL BE CONSTRUED AS THOUGH THEY WERE WRITTEN OUT IN FULL
ACCORDING TO APPLICABLE LAWS OR REGULATIONS:
<TABLE>
<S><C>
UTMA - CUSTODIAN
------------ ------------
TEN COM - AS TENANTS IN COMMON (CUST) (MINOR)
UNDER UNIFORM TRANSFER TO MINORS
TEN ENT - AS TENANTS BY ENTIRETIES
ACT
JT TEN - AS JOINT TENANTS WITH RIGHT OF SURVIVORSHIP ----------------------------------
AND NOT AS TENANTS IN COMMON (STATE)
ADDITIONAL ABBREVIATIONS MAY ALSO BE USED THOUGH NOT IN THE ABOVE LIST.
</TABLE>
- --------------------------------------------------------------------------------
FOR VALUE RECEIVED HEREBY SELL, ASSIGN AND TRANSFER UNTO
-------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------- SHARES
OF THE CAPITAL STOCK REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY
IRREVOCABLY CONSTITUTE AND APPOINT
- ----------------------------------------------------------------------- ATTORNEY
TO TRANSFER THE SAID STOCK ON THE BOOKS OF THE WITHIN-NAMED CORPORATION WITH
FULL POWER OF SUBSTITUTION IN THE PREMISES.
DATED
--------------------------------------------------------
--------------------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY
CHANGE WHATEVER.
SIGNATURE GUARANTEED
<PAGE> 1
WARRANT AGREEMENT EXHIBIT 4.2
AGREEMENT, dated as of this day of ,1997, by and among
Surrey, Inc., a Texas corporation ("Company") and Norwest Bank Minnesota, N.A.,
South St. Paul, Minnesota 55075, as Warrant Agent (the "Warrant Agent").
W I T N E S S E T H
WHEREAS, in connection with (i) a public offering of 625,000 units (the
"Units"), each Unit consisting of (A) two (2) shares of the Company's Common
Stock, no par value (the "Common Stock"); and (B) one (1) redeemable Common
Stock Purchase Warrant (the "Warrants"), each Warrant exercisable to purchase
one share of Common Stock, for which Stuart, Coleman & Co., Inc. ("Stu-Co") has
agreed to act as the representative (the "Representative") of the several
Underwriters pursuant to an underwriting agreement (the "Underwriting
Agreement") dated as of ,1997 between the Company and
Stu-Co; (ii) the issuance of an Underwriters' over-allotment option to purchase
up to 93,750 additional Units and (iii) the issuance to Stu-Co or its
designees of a Representative's Warrant (the "Representative's Warrant") to
purchase up to 62,500 Units, the Company will issue up to 725,000 Warrants; and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer, exchange and redemption of the Warrants, the
issuance of certificates representing the Warrants, the exercise of the
Warrants, and the rights of the holders thereof;
THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth for the purpose of defining the terms and provisions of
the Warrants and the certificates representing the Warrants and the respective
rights and obligations thereunder of the Company, the holders of certificates
representing the Warrants and the Warrant Agent, the parties hereto agree as
follows:
SECTION 1. Definitions. As used herein, the following terms shall have the
following meanings, unless the context shall otherwise require:
(a) "Common Stock" shall mean shares of the Company of any class,
whether now or hereafter authorized, which have the right to participate in the
distribution of
1
<PAGE> 2
earnings and assets of the Company without limit as to amount or percentage,
which at the date hereof consists of 10,000,000 authorized shares of Common
Stock, no par value.
(b) "Corporate Office" shall mean the office of the Warrant Agent (or its
successor) at which at any particular time its principal business shall be
administered, which office is located at the date hereof at 161 North Concord
Exchange, South St. Paul, Minnesota 55075.
(c) "Exercise Date" shall mean, as to any Warrant, the date on which the
Warrant Agent shall have received both (a) the Warrant Certificate representing
such Warrant, with the exercise form thereon duly executed by the Registered
Holder thereof or his attorney duly authorized in writing, and (b) payment in
cash, or by official bank or certified check made payable to the Company, of an
amount in lawful money of the United States of America equal to the applicable
Purchase Price.
(d) "Initial Exercise Date" shall mean, with respect to the Warrants,
, 1997, or such earlier date as Stu-Co may designate.
(e) "Purchase Price" shall mean the purchase price per share to be paid
upon exercise of each Warrant in accordance with the terms hereof, which price
shall be $4.80 per Warrant, subject to adjustment from time to time pursuant to
the provisions of Section 9 hereof, and subject to the Company's right to
reduce the Purchase Price (provided subsequent notice is given to all
Registered Holders).
(f) "Redemption Price" shall mean the price at which the Company may, at
its option, redeem the Warrants, in accordance with the terms hereof, which
price shall be $0.01 per Warrant.
(g) "Registered Holder" shall mean as to any Warrant and as of any
particular date, the person in whose name the certificate representing the
Warrant shall be registered on that date on the books maintained by the Warrant
Agent pursuant to Section 6.
(h) "Transfer Agent" shall mean Norwest Bank Minnesota, N.A., Norwest
Shareholder Services, South St. Paul, Minnesota 55075, as the Company's
transfer agent, or its authorized successor, as such.
(i) "Warrant Expiration Date" shall mean 5:00 p.m. (Central time) on
,2002 or the Redemption Date as defined in Section 8, whichever is
earlier; provided that if such date shall in the State of Minnesota be a
holiday or a day on which banks are
2
<PAGE> 3
authorized or required to close, then 5:00 p.m. (Central time) on the next
following day which in the State of Minnesota is not a holiday or a day which
banks are authorized or required to close. The Company shall have the right
to extend the Warrant Expiration Date (provided subsequent notice is given to
all Registered Holders).
SECTION 2. Warrants and Issuance of Warrant Certificates.
(a) Each Warrant shall initially entitle the Registered Holder of the
Warrant certificate representing such Warrant ("Warrant Certificates") to
purchase one (1) share of Common Stock upon the exercise thereof in accordance
with the terms hereof, subject to modification and adjustment as provided in
Section 9.
(b) Upon execution of this Agreement, Warrant Certificates representing
the number of Warrants sold shall be executed by the Company and delivered to
the Warrant Agent. Upon written order of the Company signed by its Chairman,
Chief Executive Officer, President or a Vice President and by its Secretary or
an Assistant Secretary, the Warrant Certificates shall be countersigned, issued
and delivered by the Warrant Agent as part of the Units.
(c) From time to time, up to the Warrant Expiration Date, the Transfer
Agent shall countersign and deliver stock certificates in required whole number
denominations representing up to an aggregate of 725,000 shares of Common
Stock, subject to adjustment as described herein, upon the exercise of Warrants
in accordance with this Agreement.
(d) From time to time, up to the Warrant Expiration Date, the Warrant
Agent shall countersign and deliver Warrant Certificates in required
whole number denominations to the persons entitled thereto in connection with
any transfer or exchange permitted under this Agreement; provided that no
Warrant Certificates shall be issued except (i) those initially issued
hereunder; (ii) those issued upon the exercise of fewer than all Warrants
represented by any Warrant Certificate, to evidence any unexercised Warrants
held by the exercising Registered Holder; (iii) those issued upon any transfer
or exchange pursuant to Section 6; (iv) those issued in replacement of lost,
stolen, destroyed or mutilated Warrant Certificates pursuant to Section 7; and
(v) those issued at the option of the Company, in such form as may be approved
by its Board of Directors, to reflect any adjustment or chance in the Purchase
Price, the number of shares of Common Stock
3
<PAGE> 4
purchasable upon exercise of the Warrants or the Redemption Price therefor
made pursuant to Section 9 hereof.
(e) Pursuant to the terms of the Representative's Warrant, Stu-Co may
purchase up to 62,500 Units, which include up to 62,500 Warrants.
Notwithstanding anything to the contrary contained herein, the Warrants
issuable upon exercise of the Representative's Warrant shall be subject to
redemption by the Company.
SECTION 3. Form and Execution of Warrant Certificates.
(a) The Warrant Certificates shall be substantially in the form annexed
hereto as Exhibit A (the provisions of which are hereby incorporated herein)
and may have such letters, numbers or other marks or identification or
designation and such legends, summaries or endorsements printed, lithographed
or engraved thereon as the Company may deem appropriate and as are not
inconsistent with the provisions of this Agreement, or as may be required to
comply with any law or with any rule or regulation made pursuant thereto or
with any rule or regulation of any stock exchange on which the Warrants may be
listed, or to conform to usage or to the requirements of Section 2 (b). The
Warrant Certificates shall be dated the date of issuance thereof (whether upon
initial issuance, transfer, exchange or in lieu of mutilated, lost, stolen, or
destroyed Warrant Certificates) and issued in registered form. Warrant
Certificates shall be numbered serially with the letters WA.
(b) Warrant Certificates shall be executed on behalf of the Company by its
Chairman of the Board, Chief Executive Officer, President or any Vice
President and by its Secretary or any Assistant Secretary, by manual signatures
or by facsimile signatures printed thereon, and shall have imprinted thereon a
facsimile of the Company's seal. Warrant Certificates shall be manually
countersigned by the Warrant Agent and shall not be valid for any purpose
unless so countersigned. In case any officer of the Company who shall have
signed any of the Warrant Certificates shall cease to be an officer of the
Company or to hold the particular office referenced in the Warrant Certificate
before the date of issuance of the Warrant Certificates or before
countersignature by the Warrant Agent and issue and delivery thereof, such
Warrant Certificates may nevertheless be countersigned by Warrant Agent, issued
and delivered with the same force and effect as though the person who signed
such Warrant Certificates
4
<PAGE> 5
had not ceased to be an officer of the Company or to hold such office.
After countersignature by the Warrant Agent, Warrant Certificates shall be
delivered by the Warrant Agent to the Registered Holder without further action
by the Company, except as otherwise provided by Section 4 hereof.
SECTION 4. Exercise. Each Warrant may be exercised by the Registered
Holder thereof at any time after the Warrant is detached from the Unit
and is separately traded, (the Initial Exercise Date), but not after the
Warrant Expiration Date, upon the terms and subject to the conditions set forth
herein and in the Warrant Certificate. The Warrants shall be exercisable
during such period on each business day that an applicable registration
statement with respect to the Common Stock issuable upon exercise is effective.
A Warrant shall be deemed to have been exercised immediately prior to the close
of business on the Exercise Date and the person entitled to receive the
securities deliverable upon such exercise shall be treated for all purposes as
the holder of those securities upon the exercise of the Warrant as of the close
of business on the Exercise Date. As soon as practicable on or after the
Exercise Date, the Warrant Agent shall deposit the proceeds received from the
exercise of a Warrant and shall notify the Company in writing of the exercise
of the Warrants. Promptly following, and in any event within five days after
the date of such notice from the Warrant Agent, the Warrant Agent, on behalf of
the Company, shall cause to be issued and delivered by the Transfer Agent, to
the person or persons entitled to receive the same, a certificate or
certificates for the securities deliverable upon such exercise (plus a
certificate for any remaining unexercised Warrants of the Registered Holder);
provided, however, that prior to the date of issuance of such certificates the
Warrant Agent shall verify clearance of the checks received in payment of the
Purchase Price pursuant to such Warrants. Upon the exercise of any Warrant and
clearance of the funds received, the Warrant Agent shall promptly remit the
payment received for the Warrant (the "Warrant Proceeds") to the Company or as
the Company may direct in writing. The Company may at any time during business
hours, examine the records of the Warrant Agent, including its ledger of
original Warrant Certificates returned to the Warrant Agent upon exercise of
Warrants.
SECTION 5. Reservation of Shares; Listing; Payment of Taxes; etc.
5
<PAGE> 6
(a) The Company covenants that it will at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of issue
upon exercise of Warrants, such number of shares of Common Stock as shall then
be issuable upon the exercise of all outstanding Warrants. The Company
covenants that all shares of Common Stock which shall be issuable upon exercise
of the Warrant shall, at the time of delivery, be duly and validly issued,
fully paid, nonassessable and free from all taxes other than income taxes
(including, but not limited to, transfer taxes), liens and charges with respect
to the issue thereof (other than those which the Company shall promptly pay or
discharge), except as set forth below, and that upon issuance such shares shall
be listed on each national securities exchange or eligible for inclusion in
each automated quotation system, if any, on or in which the other shares of
outstanding Common Stock of the Company are then listed or eligible for
inclusion.
(b) The Company covenants that if any securities to be reserved for the
purpose of exercise of Warrants hereunder require registration with, or
approval of, any governmental authority under any federal securities law before
such securities may be validly issued or delivered upon such exercise, then the
Company will in good faith and as expeditiously as reasonably possible,
endeavor to secure such registration or approval. The Company will use
reasonable efforts to obtain appropriate approvals or registrations under state
"blue sky" securities laws. With respect to any such securities, however,
Warrants may not be exercised by, or shares of Common Stock issued to, any
Registered Holder in any state in which such exercise would be unlawful.
(c) The Company shall pay all documentary, stamp or similar taxes and
other governmental charges that may be imposed with respect to the
issuance of Warrants, or the issuance, or delivery of any shares upon exercise
of the Warrants; provided, however, that if the shares of Common Stock are to
be delivered in a name other than the name of the Registered Holder of the
Warrant Certificate representing any Warrant being exercised, then no such
delivery shall be made unless the person requesting the same has paid to the
Warrant Agent the amount of transfer taxes or charges incident thereto, if any.
(d) The Warrant Agent is hereby irrevocable authorized to requisition the
Company's Transfer Agent, if different, from time to time for certificates
representing shares of Common Stock issuable upon exercise of the Warrants, and
the Company will
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authorize the Transfer Agent, if different, to comply with all
such proper requisitions. The Company will file with the Warrant Agent a
statement setting forth the name and address of the Transfer Agent, if
different, of the Company for shares of Common Stock issuable upon exercise of
the Warrants.
SECTION 6. Exchange and Registration and Transfer.
(a) Warrant Certificates may be exchanged for other Warrant Certificates
representing an equal aggregate number of Warrants of the same class or may be
transferred in whole or in part. Warrant Certificates to be exchanged shall be
surrendered to the Warrant Agent at its Corporate Office, and upon satisfaction
of the terms and provisions hereof, the Company shall execute and the Warrant
Agent shall countersign, issue and deliver in exchange therefor the Warrant
Certificate or Certificates which the Registered Holder making the exchange
shall be entitled to receive.
(b) The Warrant Agent shall keep at its office books in which, subject to
such reasonable regulations as it may prescribe, it shall register Warrant
Certificates and the transfer thereof in accordance with its regular practice.
Upon due presentment for registration of transfer of any Warrant Certificate at
such office, the Company shall execute and the Warrant Agent shall issue and
deliver to the transferee or transferees a new Warrant Certificate or
Certificates representing an equal aggregate number of Warrants.
(c) With respect to all Warrants Certificates presented for registration
or transfer, or for exchange or exercise, the subscription form on the
reverse thereof shall be duly endorsed, or be accompanied by a written
instrument or instruments of transfer and subscription, in form satisfactory to
the Company and the Warrant Agent, duly executed by the Registered Holder or
his attorney-in-fact duly authorized in writing.
(d) A service charge may be imposed by the Warrant Agent on the Company
for any exchange or registration of transfer of Warrant Certificates. In
addition, the Company may require payment by the Registered Holder of a sum
sufficient to cover any tax or other governmental charge that may be imposed
in connection therewith.
(e) All Warrant Certificates surrendered for exercise or for exchange in
case of mutilated Warrant Certificates shall be promptly cancelled by the
Warrant Agent and
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thereafter retained by the Warrant Agent.
(f) Prior to due presentment for registration of transfer thereof, the
Company and the Warrant Agent may deem and treat the Registered Holder of any
Warrant Certificate as the absolute owner thereof and of each Warrant
represented thereby (notwithstanding any notations of ownership or writing
thereon made by anyone other than a duly authorized officer of the Company or
the Warrant Agent) for all purposes and shall not be affected by any notice to
the contrary. The Warrants, which are being offered in Units with Common Stock
pursuant to the Underwriting Agreement, will be detachable from the Common
Stock and transferable separately therefrom commencing on the Initial Exercise
Date.
SECTION 7. Loss or Mutilation.
Upon receipt by the Company and the Warrant Agent of evidence satisfactory
to them of the ownership of and loss, theft, destruction or mutilation of any
Warrant Certificate and (in case of loss, theft or destruction) of indemnity
satisfactory to them, and (in the case of mutilation) upon surrender and
cancellation thereof, the Company shall execute and the Warrant Agent shall (in
the absence of notice to the Company and/of Warrant Agent that the Warrant
Certificate has been acquired by a bona fide purchaser) countersign and deliver
to the Registered Holder in lieu thereof a new Warrant Certificate of like
tenor representing an equal aggregate number of Warrants. Applicants for a
substitute Warrant Certificate shall comply with such other reasonable
regulations and pay such other reasonable charges as the Warrant Agent may
prescribe.
SECTION 8. Redemption.
(a) The Warrants are redeemable by the Company commencing _____________ ,
1998 on at least thirty (30) days prior written notice, at a price of $.01 per
Warrant, at any time the market value of the Common Stock exceeds $5.00 per
share for twenty (20) consecutive trading days. All Warrants except those
comprising the unexercised Representative's Warrant, must be redeemed if any
are redeemed.
(b) If the conditions set forth in Section 8(a) are met, and the Company
desires to exercise its rights to redeem the Warrants, it shall request the
Warrant Agent to mail a notice of redemption to each of the Registered Holders
of the Warrants to be
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redeemed, first class, postage prepaid, not later than the thirtieth
day before the date fixed for redemption ("Redemption Date"), at their last
address as shall appear on the records maintained pursuant to Section 6(b).
Any notice mailed in the manner provided herein shall be conclusively presumed
to have been duly given whether or not the Registered Holder receives such
notice.
(c) The notice of redemption shall specify (i) the Redemption Price, (ii)
the Redemption Date, (iii) the place where the Warrant Certificates shall be
delivered and the Redemption Price paid, (iv) that the right to exercise the
Warrant shall terminate at 5:00 p.m. (Central Time) on the business day
immediately preceding the Redemption Date. No failure to mail such notice nor
any defect therein or in the mailing thereof shall affect the validity of the
proceedings for such redemption except as to a Registered Holder (a) to whom
notice was not mailed or (b) whose notice was defective. An affidavit of the
Warrant Agent or of the Secretary or an Assistant Secretary of the Company that
notice of reception has been mailed shall, in the absence of fraud, be prime
facie evidence of the facts stated therein.
(d) Any right to exercise a Warrant shall terminate at 5:00 p.m. (Central
Time) on the business day immediately preceding the Redemption Date. On and
after the Redemption Date, Registered Holders of the Warrants shall have no
further rights except to receive, upon surrender of the Warrant, the Redemption
Price.
(e) From and after the Redemption Date, the Company shall, at the place
specified in the notice of redemption, upon presentation and surrender to the
Company by or on behalf of the Registered Holder thereof of one or more Warrant
Certificates evidencing Warrants to be redeemed, deliver or cause to be
delivered to or upon the written order of such holder a sum of cash equal to
the Redemption Price of each such Warrant. From and after the Redemption Date
and upon the deposit or setting aside by the Company of a sum sufficient to
redeem all the Warrants called for redemption, such Warrants shall expire and
become void and all rights hereunder and under the Warrant Certificates, except
the right to receive payment of the Redemption Price, shall cease.
SECTION 9. Adjustment of Exercise Price and Number of Shares of Common
Stock or Warrants.
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After each adjustment of the Purchase Price pursuant to this Section 9,
the number of shares of Common Stock purchasable upon the exercise of each
Warrant shall be the number of shares receivable upon exercise thereof prior to
such adjustment multiplied by a fraction the numerator of which shall be the
original Purchase Price as defined in Section 1(e) above and the denominator of
which shall be such adjusted Purchase Price, if any. The Purchase Price shall
be subject to adjustment as set forth below:
(a) (i) In case the Company shall hereafter (A) pay a dividend or make a
distribution on its Common Stock in shares of its capital stock
(whether shares of Common Stock or of capital stock of any other class), (B)
subdivide its outstanding shares of Common Stock, (C) combine its outstanding
shares of Common Stock into a smaller number of shares, or (D) issue by
reclassification of its shares of Common Stock any shares of capital stock of
the Company, the Purchase Price in effect immediately prior to such action
shall be adjusted so that the Registered Holder of any Warrant thereafter
exercised shall be entitled to receive the number of shares of capital stock of
the Company which he would have owned immediately following such action had
such Warrant been exercised immediately prior thereto. An adjustment made
pursuant to this subsection shall become effective immediately after the record
date in the case of a dividend and shall become effective immediately after the
effective date in the case of a subdivision, combination or reclassification.
If, as a result of an adjustment made pursuant to this subsection, the
Registered Holder of any Warrant thereafter exercised shall become entitled to
receive shares of two or more classes of capital stock of the Company, the
Board of Directors (whose determination shall be conclusive and shall be
described in a statement filed with the Warrant Agent) shall determine the
allocation of the adjusted Purchase Price between or among shares of such
classes of capital stock.
(ii) In any case in which this Section 9 (a) shall require that an
adjustment to the Purchase Price be made immediately following a record date,
the Company may elect to defer (but only until five business days following the
filing by the Company with the Warrant Agent of the certificate of independent
public accountants described in subsection (i) of Section 9(d)) issuing to the
Registered Holder of any Warrants exercised after such record date the shares
of Common Stock and other capital stock of the Company issuable upon such
exercise over and above the shares of Common Stock and
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other capital stock of the Company issuable upon such exercise on the
basis of the Purchase Price prior to adjustment.
(iii) No adjustment in the Purchase Price shall be required to be made
unless such adjustment would require an increase or decrease of at least $.05;
provided, however, that any adjustments which by reason of this subsection are
not required to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this Section 9 shall be made to
the nearest cent or to the nearest one-one hundredth of a share, as the case
may be, but in no event shall the Company be obligated to issue fractional
shares upon the exercise of any Warrant.
(iv) No adjustment of the Purchase Price shall be made except on the
conditions set forth in this Section 9(a). Without limitation to the
foregoing, there shall be no adjustment pursuant to this Section 9(a) should
the Company issue any capital stock for cash or other consideration on
equivalent terms to the price paid for the Common Stock which has been approved
by the Board of Directors of the Company.
(b) In case of any reclassification or change of outstanding shares of
Common Stock issuable upon exercise of the Warrants (other than a
change from no par value to par value or as a result of a subdivision or
combination), or in case of any consolidation or merger of the Company with or
into another corporation (other than a merger with a Subsidiary in which merger
the Company is the continuing corporation and which does not result in any
reclassification or change of the then outstanding shares of Common Stock or
other capital stock issuable upon exercise of the Warrants other than a change
from no par value to par value) or in the case of any sale or conveyance to
another corporation of the property of the Company as an entirety or
substantially as an entirety, then, as a condition of such reclassification,
change, consolidation, merger, sale or conveyance, the Company, or such
successor or purchasing corporation, as the case may be, shall make lawful and
adequate provision whereby the Registered Holder of each Warrant then
outstanding shall have the right thereafter to receive on exercise of such
Warrant the kind and amount of shares of stock and other securities and
property receivable upon such reclassification, change, consolidation, merger,
sale or conveyance by a holder of the number of shares of Common Stock issuable
upon exercise of such Warrant immediately prior to such reclassification,
change, consolidation, merger, sale or
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conveyance and the Company or its successors shall forthwith file at
the Corporate Office of the Warrant Agent a statement setting forth such
provisions signed by (1) its Chairman of the Board or Chief Executive Officer
or Vice Chairman of the Board or President or a Vice President and (2) by its
Treasurer or an Assistant Treasurer or its Secretary or an Assistant Secretary
evidencing such provisions. Such provisions shall include provision for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in Section 9(a). The above provisions of this Section
9(b) shall similarly apply to successive reclassifications and changes of
shares of Common Stock and to successive consolidations, mergers, sales or
conveyances.
(c) Before taking any action which would cause an adjustment reducing the
Purchase Price below the then par value of the shares of Common Stock issuable
upon exercise of the Warrants, the Company will take any corporate action which
may, in the opinion of its counsel, be necessary in order that the Company may
validly and legally issue fully paid and nonassessable shares of the Company at
such adjusted Purchase Price.
(d) (i) Upon any adjustment of the Purchase Price required to be made
pursuant to this Section 9, the Company within 30 days thereafter shall
(A) cause to be filed with the Warrant Agent a certificate of a firm of
independent accountants setting forth the Purchase Price after such adjustment
and setting forth in reasonable detail the method of calculation and the facts
upon which such calculation is based, which certificate shall be conclusive
evidence of the correctness of such adjustment, and (B) cause to be mailed to
each of the Registered Holders of the Warrant Certificates written notice of
such adjustment. Where appropriate, such notice may be given in advance and
included as a part of the notice required to be mailed under the provisions of
subsection 9(d) (ii).
(ii) In case at any time:
(A) The Company shall declare any dividend upon its Common Stock payable
otherwise than in cash or in Common Stock of the Company; or
(B) The Company shall offer for subscription to the holders of its Common
Stock any additional shares of stock of any class or any other securities
convertible into shares of stock or any rights to subscribe thereto; or
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(C) There shall be any capital reorganization or reclassification of the
capital stock of the Company, or a sale of all or substantially all of the
assets of the Company, or a consolidation or merger of the Company with another
corporation (other than a merger with a Subsidiary in which merger the Company
is the continuing corporation and which does not result in any reclassification
or change of the then outstanding shares of Common Stock or other capital stock
issuable upon exercise of the Warrants other than a change from no par value to
par value); or
(D) There shall be a voluntary or involuntary dissolution, liquidation or
winding up of the Company; then, in any one or more of said cases, the
Company shall cause to be mailed to each of the Registered Holders of the
Warrant Certificates, at the earliest practicable time (and, in any event, not
less than 20 days before any record date or other date set for definitive
action), written notice of the date on which the books of the Company shall
close or a record shall be taken for such reorganization, reclassification,
sale, consolidation, merger, dissolution, liquidation or winding up shall take
place, as the case may be. Such notice shall also set forth such facts as
shall indicate the effect of such action (to the extent such effect may be
known at the date of such notice) on the Purchase Price and the kind and amount
of the shares of stock and other securities and property deliverable upon
exercise of the Warrants. Such notice shall also specify the date as of which
the holders of the Common Stock of record shall participate in said dividend,
distribution or subscription rights or shall be entitled to exchange their
Common Stock for securities or other property deliverable upon such
reorganization, reclassification, sale, consolidation, merger, dissolution,
liquication or winding up as the case may be (on which date, in the event of
voluntary or involuntary dissolution, liquidation or winding up of the Company,
the right to exercise the Warrants shall terminate).
(iii) Without limiting the obligation of the Company to provide notice to
the Registered Holders of the Warrant Certificates of corporate actions
hereunder, it is agreed that failure of the Company to give notice shall not
invalidate such corporate action of the Company.
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SECTION 10. Fractional Warrants and Fractional Shares.
(a) If the number of shares of Common Stock purchasable upon the exercise
of each Warrant is adjusted pursuant to Section 9 hereof, the Company
nevertheless shall not be required to issue fractions of shares, upon exercise
of the Warrants or otherwise, or to distribute certificates that evidence
fractional shares. With respect to any fraction of a share called for upon any
exercise hereof, the Company shall pay to the Registered Holder an amount in
cash equal to such fraction multiplied by the current market value of such
fractional share, determined as follows:
(1) If the Common Stock is listed on a national securities exchange
or admitted to unlisted trading privileges on such exchange or listed
for trading in the NASDAQ Quotation System, the current value shall be
the last reported sale price of the Common Stock on such exchange or
system on the last business day prior to the date of exercise of this
Warrant or if no such sale is made on such day, the average of the
closing bid and asked prices for such day on such exchange or system; or
(2) If the Common Stock is not listed or admitted to unlisted
trading privileges, the current value shall be the mean of the last
reported bid and asked prices reported by the National Quotation Bureau,
Inc. on the last business day prior to the date of the exercise of this
Warrant; or
(3) If the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not so reported, the
current value shall be an amount determined in such reasonable manner as
may be prescribed by the Board of Directors of the Company, such
determination to be final and binding on the Registered Holder.
SECTION 11. Warrant Holders Not Deemed Stockholders.
No Registered Holder of Warrants shall, as such, be entitled to vote or to
receive dividends or be deemed the holder of Common Stock that may at any time
be issuable upon exercise of such Warrants for any purpose whatsoever, nor
shall anything contained herein be construed to confer upon the holder of
Warrants, as such, any of the rights of a shareholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
shareholders at any meeting thereof, or to give or withhold consent to
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any corporate action (whether upon any recapitalization, issue or
reclassification of stock, change of par value, consolidation, merger or
conveyance or otherwise), or to receive notice of meetings, or to receive
dividends or subscription rights, until such Registered Holder shall have
exercised such Warrants and been issued shares of Common Stock in accordance
with the provisions hereof.
SECTION 12. Rights of Action.
All rights of action with respect to this Agreement are vested in the
respective Registered Holders of the Warrants, and any Registered Holder of a
Warrant, without consent of the Warrant Agent or of the holder of any other
Warrant, may, in his own behalf and for his own benefit, enforce against the
Company his right to exercise his Warrants for the purchase of Common Stock in
the manner provided in the Warrant Certificate and this Agreement.
SECTION 13. Agreement of Warrant Holders.
Every Registered Holder of a Warrant, by his or her acceptance thereof,
consents and agrees with the Company the Warrant Agent and every other
Registered Holder of a Warrant that:
(a) The Warrants are transferable only on the registry books of the
Warrant Agent by the Registered Holder thereof in person or by his attorney
duly authorized in writing and only if the Warrant Certificates representing
such Warrants are surrendered at the office of the Warrant Agent, duly endorsed
or accompanied by a proper instrument of transfer satisfactory to the Warrant
Agent and the Company in their sole discretion, together with payment of any
applicable transfer taxes; and
(b) The Company and the Warrant Agent may deem and treat the person in
whose name the Warrant Certificate is registered as the holder and as the
absolute, true and lawful owner of the Warrants represented thereby for all
purposes, and neither the Company nor the Warrant Agent shall be affected by
any notice or knowledge to the contrary, except as otherwise expressly provided
in Section 7 hereof.
SECTION 14. Concerning the Warrant Agent. The Warrant Agent acts hereunder
as agent and in a ministerial capacity for the Company, and its duties shall be
determined solely by the provisions hereof. The Warrant Agent shall not, by
issuing and delivering Warrant Certificates or by any other act hereunder, be
deemed to make
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any representations as to the validly, value or authorization of
the Warrant Certificates or the Warrants represented thereby or of any
securities or other property delivered upon exercise of any Warrant or whether
any Common Stock issued upon exercise of any Warrant is fully paid and
nonassessable.
The Warrant Agent shall not at any time be under any duty or
responsibility to any Registered Holder of Warrant Certificates to make or
cause to be made any adjustment of the Purchase Price or the Redemption Price
provided in this Agreement, or to determine whether any facts exist which may
require any such adjustment, or with respect to the nature or extent of any
such adjustment, when made, or with respect to the method employed in making
the same. It shall not (i) be liable for any recital or statement of facts
contained herein or for any action taken, suffered or omitted by it in
reliance on any Warrant Certificate or other document or instrument believed by
it in good faith to be genuine and to have been signed or presented by the
proper party or parties, (ii) be responsible for any failure on the part of the
Company to comply with any of its covenants and obligations contained in this
Agreement or in any Warrant Certificate, or (iii) be liable for any act or
omission in connection with this Agreement except for its own negligence or
willful misconduct.
The Warrant Agent may at any time consult with counsel satisfactory to it
(who may be counsel for the Company) and shall incur no liability or
responsibility for any action taken, suffered or omitted by it in good faith in
accordance with the opinion or advice of such counsel.
Any notice, statement, instruction, request, direction, order or demand of
the Company shall be sufficiently evidenced by an instrument signed by the
Chairman of the Board, President, any Vice President, its Secretary or
Assistant Secretary (unless other evidence in respect thereof is herein
specifically prescribed). The Warrant Agent shall not be liable for any action
taken, suffered or omitted by it in accordance with such notice, statement,
instruction, request, direction, order or demand believed by it to be genuine.
The Company agrees to pay the Warrant Agent reasonable compensation for
its services hereunder and to reimburse it for its reasonable expenses
hereunder; it further agrees to indemnify the Warrant Agent and save it
harmless against any and all losses,
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expenses and liabilities, including judgments, costs and counsel fees,
for anything done or omitted by the Warrant Agent in the execution of its
duties and powers hereunder except losses, expenses and liabilities arising as
a result of the Warrant Agent's negligence or willful misconduct.
The Warrant Agent may resign its duties and be discharged from all further
duties and liabilities hereunder (except liabilities arising as a result of the
Warrant Agent's own negligence or willful misconduct), after giving 30 days'
prior written notice to the Company. At least 15 days prior to the date such
resignation is to become effective, the Warrant Agent shall cause a copy of
such notice of resignation to be mailed to the Registered Holder of each
Warrant Certificate at the Company's expense. Upon such resignation, or any
inability of the Warrant Agent to act as such hereunder, the Company shall
appoint a new warrant agent in writing. If the Company shall fail to make such
appointment within a period of 15 days after it has been notified in writing of
such resignation by the resigning Warrant Agent, then the Registered Holder of
any Warrant Certificate may apply to any court of competent jurisdiction for
the appointment of a new warrant agent. Any new warrant agent, whether
appointed by the Company or by such a court, shall be (a) a bank or trust
company having a capital and surplus, as shown by its last published report to
its shareholders, of not less than $10,000,000 or (b) a stock transfer company.
After acceptance in writing of such appointment by the new warrant agent is
received by the Company, such new warrant agent shall be vested with the same
powers, rights, duties and responsibilities as if it had been originally named
herein as the Warrant Agent, without any further assurance, conveyance, act or
deed, the same shall be done at the expense of the Company and shall be legally
and validly executed and delivered by the resigning Warrant Agent. Not later
than the effective date of any such appointment the Company shall file notice
thereof with the resigning Warrant Agent and shall forthwith cause a copy of
such notice to be mailed to the Registered Holder of each Warrant Certificate.
Any corporation into which the Warrant Agent or any new warrant agent may
be converted or merged or any corporation resulting from any consolidation to
which the Warrant Agent or any new warrant agent shall be a party or any
corporation succeeding to the trust business of the Warrant Agent shall be a
successor warrant agent under this
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Agreement without any further act, provided that such corporation is
eligible for appointment as successor to the Warrant Agent under the provisions
of the preceding paragraph. Any such successor warrant agent shall promptly
cause notice of its succession as warrant agent to be mailed to the Company and
to the Registered Holder of each Warrant Certificate.
The Warrant Agent, its subsidiaries and affiliates, and any of its or
their officers or directors, may buy and hold or sell Warrants or other
securities of the Company and otherwise deal with the Company in the same
manner and to the same extent and with like effects as though it were not a
Warrant Agent. Nothing herein shall preclude the Warrant Agent from acting in
any other capacity for the Company or for any other legal entity.
SECTION 15. Modification of Agreement. The Warrant Agent and the Company
may by supplemental agreement make any changes or corrections in this Agreement
(i) that they shall deem appropriate to cure any ambiguity or to correct any
defective or inconsistent provision or manifest mistake or error herein
contained; or (ii) that they may deem necessary or desirable and which shall
not adversely affect the interests of the Registered Holders of Warrant
Certificates; provided, however, that this Agreement shall not otherwise be
modified, supplemented or altered in any respect except with the consent in
writing of the Registered Holders of Warrants Certificates representing not
less than 50% of the Warrants then outstanding; and provided, further, that no
change in the number or nature of the securities purchasable upon the exercise
of any Warrant, or an increase in the Purchase Price therefor, or the
acceleration of the Warrant Expiration Date, shall be made without the consent
in writing of the Registered Holder of the Warrant Certificate representing
such Warrant, other than such changes as are specifically prescribed by this
Agreement as originally executed or are made in compliance with applicable law,
except that the Company shall have the right at any time (a) to extend the
Warrant Expiration Date for all Warrants, and (b) to decrease the Purchase
Price for all Warrants (provided subsequent notice is given to all Registered
Holders).
SECTION 16. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
made
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when delivered or mailed first class registered or certified mail, postage
prepaid as follows: if to the Registered Holder of a Warrant Certificate, at
the address of such holder as shown on the registry books maintained by the
Warrant Agent; if to the Company, at Surrey Inc., 13110 Trails End Road,
Leander, Texas 78641, Attention: Mr. John van der Hagen, Chief Executive
Officer, or at such other address as may have been furnished to the Warrant
Agent in writing by the Company; if to the Warrant Agent, at its Corporate
Office.
SECTION 17. Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of Minnesota applicable
to agreements made within Minnesota, without reference to principles of
conflicts of laws.
SECTION 18. Binding Effect. This Agreement shall be binding upon and inure
to the benefit of the Company and the Warrant Agent and their respective
successors and assigns, and the holders from time to time of Warrant
Certificates. Nothing in this Agreement is intended or shall be construed to
confer upon any other person any right, remedy or claim, in equity or at law,
or to impose upon any other person any duty, liability or obligation.
SECTION 19. Termination. This Agreement shall terminate at the close of
business on the Warrant Expiration Date of all the Warrants or such earlier
date upon which all Warrants have been exercised, except that the Warrant Agent
shall account to the Company for cash held by it and the provisions of Section
14 hereof shall survive such termination.
SECTION 20. Counterparts. This Agreement may be executed in several
counterparts, which taken together shall constitute a single document.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
Surrey, Inc.
By: ____________________________________________
John van der Hagen, Chief Executive Officer
Norwest Bank Minnesota, N.A.
By: ____________________________________________
Authorized Officer
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EXHIBIT 4.2
[FORM OF FACE OF WARRANT CERTIFICATE] EXHIBIT A
No. WA ________________________ Redeemable Warrants
VOID AFTER ,2002
REDEEMABLE WARRANT CERTIFICATE FOR PURCHASE OF COMMON STOCK
SURREY, INC.
This certifies that FOR VALUE RECEIVED___________________________ or
registered assigns (the "Registered Holder" ) is the owner of the number of
redeemable Common Stock Purchase Warrants ("Warrants") specified above. Each
Warrant initially entitles the Registered Holder to purchase, subject to the
terms and conditions set forth in this Certificate and the Warrant Agreement
(as hereinafter defined), one (1) fully paid and nonassessable share of common
stock, no par value ("Common Stock"), of Surrey, Inc., a Texas corporation (
the "Company"), at any time between , 1997 and the Warrant Expiration
Date (as hereinafter defined), upon the presentation and surrender of this
Warrant Certificate with the Subscription Form on the reverse hereof duly
executed, at the corporate office of Norwest Bank Minnesota N.A. as Warrant
Agent, or its successor (the "Warrant Agent"), accompanied by payment of $4.80
(the "Purchase Price") in lawful money of the United States of America in cash
or by official bank or certified check made payable to Surrey, Inc.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement (the "Warrant Agreement"), dated ,
1997, by and among the Company and the Warrant Agent.In the event of certain
contingencies provided for in the Warrant Agreement, the Purchase Price or the
number of shares of Common Stock subject to purchase upon the exercise of each
Warrant represented hereby are subject to modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all of the Warrants represented hereby,
the Company shall cancel
<PAGE> 21
this Warrant Certificate upon the surrender hereof and shall execute and
deliver a new Warrant Certificate or Warrant Certificates of like tenor, which
the Warrant Agent shall countersign, for the balance of such Warrants.
The term "Warrant Expiration Date" shall mean 5:00 p.m. (Central time) on
,2002, or such earlier date as the Warrants shall be redeemed. If such date
shall in the State of Minnesota be a holiday or a day on which the banks are
authorized or required to close, then the Warrant Expiration Date shall mean
5:00 p.m. (Central Time) the next following day which in the State of Minnesota
is not a holiday or a day on which banks are authorized or required to close.
The Company shall not be obligated to deliver any securities pursuant to
the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended, with respect to such securities is
effective. The Company has covenanted and agreed that it will file a
registration statement and will use its best efforts to cause the same to
become effective and to keep such registration statement current while any of
the Warrants are outstanding. This Warrant shall not be exercisable by a
Registered Holder in any state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by the
Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to
represent such number of Warrants as shall be designated by such Registered
Holder at the time of such surrender. Upon due presentment for registration or
transfer of this Warrant Certificate at such office, a new Warrant Certificate
or Warrant Certificates representing an equal aggregate number of Warrants will
be issued to the transferee in exchange therefor, subject to the limitations
provided in the Warrant Agreement.
This Warrant is redeemable by the Company commencing ____________, 1998 on
at least thirty (30) days prior written notice at a price of $.01 per Warrant
at any time the market value of the Common Stock exceeds five ($5.00) dollars
per share for twenty (20) consecutive trading days.
Prior to due presentment for registration or transfer hereof, the Company
and the Warrant Agent may deem and treat the Registered Holder as the absolute
owner hereof
<PAGE> 22
and of each Warrant represented hereby (notwithstanding any notations of
ownership or writing hereon made by anyone other than a duly authorized officer
of the Company or the Warrant Agent) for all purposes and shall not be affected
by any notice to the contrary.
This Warrant Certificate shall be governed by and construed in accordance
with the laws of the State of Minnesota.
This Warrant Certificate is not valid unless countersigned by the Warrant
Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
Surrey, Inc.
Dated: ___________________________ By: _____________________________
[seal] By: _____________________________
Countersigned:
Norwest Bank Minnesota, N.A.
As Warrant Agent
By: ____________________________
Authorized Officer
<PAGE> 23
[FORM OF REVERSE OF WARRANT CERTIFICATE]
SUBSCRIPTION FORM
To Be Executed by the Registered Holder in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to
exercise _______________________ Warrants represented by this Warrant
Certificates, and to purchase the securities issuable upon the exercise of such
Warrants, and requests that certificates for such securities shall be issued in
the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
____________________________________________
____________________________________________
____________________________________________
[please print or type name and address]
and be delivered to
____________________________________________
____________________________________________
____________________________________________
[please print or type name and address]
and if such number of Warrants shall not be all of the Warrants evidenced by
this Warrant Certificate, that a new Warrant Certificate for the balance of
such Warrants be registered in the name of, and delivered to, the Registered
Holder at the address stated below.
Dated: _____________________________ x__________________________________
__________________________________
__________________________________
Address
__________________________________
Taxpayer Identification Number
__________________________________
Signature Guaranteed
__________________________________
<PAGE> 24
ASSIGNMENT
To Be Executed by the Registered Holder in Order to Assign Warrants
FOR VALUE RECEIVED, __________________________________________ hereby sells,
assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
____________________________________________
____________________________________________
____________________________________________
[please print or type name and address]
________________________________________of the Warrants represented by this
Warrant Certificate, and hereby irrevocably constitutes and appoints
_________________________________ Attorney to transfer this Warrant
Certificate on the books of the Company, with full power of substitution in the
premises.
Dated: ____________________________ x___________________________________
Signature Guaranteed
__________________________________
SIGNATURE(S) GUARANTEED:
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION,
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15.
<PAGE> 1
EXHIBIT 10.3(e)
SBA LOAN NO.
GP-767-982-3006-SA
SMALL BUSINESS ADMINISTRATION (SBA)
GUARANTY
November 17, 1994
In order to induce Liberty National Bank
---------------------------------------------------------,
(SBA or other Lending Institution)
(hereinafter called "Lender") to make a loan or loans, or renewal or renewal or
extension thereof, to Surrey, Inc. (hereinafter called "Debtor"), the
Undersigned hereby unconditionally guarantees to Lender, its successors and
assigns, the due and punctual payment when due, whether by acceleration or
otherwise, in accordance with the terms thereof, of the principal of and
interest on and all other sums payable, or stated to be payable, with respect
to the note of the Debtor, made by the Debtor to Lender, dated 11-17-94 in the
principal amount of $1,400,000.00, with interest at the rate of 9.5 per cent
per annum. Such note, and the interest thereon and all other sums payable with
respect thereto are hereinafter collectively called "Liabilities." As security
for the performance of this guaranty the Undersigned hereby mortgages, pledges,
assigns, transfers and delivers to Lender certain collateral (if any), listed
in the schedule on the reverse side hereof. The term "collateral" as used
herein shall mean any funds, guaranties, agreements or other property or rights
or interests of any nature whatsoever, or the proceeds thereof, which may have
been, are, or hereafter may be, mortgaged, pledged, assigned, transferred or
delivered directly or indirectly by or on behalf of the Debtor or the
Undersigned or any other party to Lender or to the holder of the aforesaid note
of the Debtor, or which may have been, are, or hereafter may be held by any
party as trustee or otherwise, as security, whether immediate or underlying,
for the performance of this guaranty or the payment of the Liabilities or any
of them or any security therefor.
The Undersigned waives any notice of the incurring by the Debtor at any
time of any of the Liabilities, and waives any and all presentment, demand,
protest or notice of dishonor, nonpayment, or other default with respect to any
of the Liabilities and any obligation of any party at any time comprised in the
collateral. The Undersigned hereby grants to Lender full power, in its
uncontrolled discretion and without notice to the undersigned, but subject to
the provisions of any agreement between the Debtor or any other party and
Lender at the time in force, to deal in any manner with the Liabilities and the
collateral, including, but without limiting the generality of the foregoing,
the following powers:
(a) To modify or otherwise change any terms of all or any part of the
Liabilities or the rate of interest thereon (but not to increase the
principal amount of the note of the Debtor to Lender), to grant any
extension or renewal thereof and any other indulgence with respect
thereto, and to effect any release, compromise or settlement with respect
thereto;
(b) To enter into any agreement of forbearance with respect to all or
any part of the Liabilities, or with respect to all or any part of the
collateral, and to change the terms of any such agreement:
(c) To forbear from calling for additional collateral to secure any of the
Liabilities or to secure
<PAGE> 2
any obligation comprised in the collateral;
(d) To consent to the substitution, exchange, or release of all or any
part of the collateral, whether or not the collateral, if any, received by
Lender upon any such substitution, exchange, or release shall be of the
same or of a different character or value than the collateral surrendered
by Lender;
(e) In the event of the nonpayment when due, whether by acceleration or
otherwise, of any of the Liabilities, or in the event of default in the
performance of any obligation comprised in the collateral, to realize on
the collateral or any part thereof, as a whole or in such parcels or
subdivided interests as Lender may elect, at any public or private sale or
sales, for cash or on credit or for future delivery, without demand,
advertisement or notice of the time or place of sale or any adjournment
thereof (the Undersigned hereby waiving any such demand, advertisement and
notice to the extent permitted by law), or by foreclosure or otherwise, or
to forbear from realizing thereon, all as Lender in its uncontrolled
discretion may deem proper, and to purchase all or any part of the
collateral for its own account at any such sale or foreclosure, such
powers to be exercised only to the extent permitted by law.
The obligations of the Undersigned hereunder shall not be released,
discharged or in any way affected, nor shall the Undersigned have any rights or
recourse against Lender, by reason of any action Lender may take or omit to
take under the foregoing powers.
In case the Debtor shall fail to pay all or any part of the Liabilities
when due, whether by acceleration or otherwise, according to the terms of said
note, the Undersigned, immediately upon the written demand of Lender, will pay
to Lender the amount due and unpaid by the Debtor as aforesaid, in like manner
as if such amount constituted the direct and primary obligation of the
Undersigned. Lender shall not be required, prior to any such demand on, or
payment by, the Undersigned, to make any demand upon or pursue or exhaust any
of its rights or remedies against the Debtor or others with respect to the
payment of any of the Liabilities, or to pursue or exhaust any of its rights or
remedies with respect to any part of the collateral. The Undersigned shall have
no right of subrogation whatsoever with respect to the Liabilities or the
collateral unless and until Lender shall have received full payment of all the
Liabilities.
The obligations of the Undersigned hereunder, and the rights of Lender in
the collateral, shall not be released, discharged or in any way affected, nor
shall the Undersigned have any rights against Lender: by reason of the fact
that any of the collateral may be in default at the time of acceptance thereof
by Lender or later; nor by reason of the fact that a valid lien in any of the
collateral may not be conveyed to, or created in favor of, Lender; nor by
reason of the fact that any of the collateral may be subject to equities or
defenses or claims in favor of others or may be invalid or defective in any
way; nor by reason of the fact that any of the Liabilities may be invalid for
any reason whatsoever nor by reason of the fact that the value of any of the
collateral, or the financial condition of the Debtor or of any obligor under or
guarantor of any of the collateral, may not have been correctly estimated or
may have changed or may hereafter change; nor by reason of any deterioration,
waste, or loss by fire, theft, or otherwise of any of the collateral, unless
such deterioration, waste, or loss be caused by the willful act or willful
failure to act of Lender.
The Undersigned agrees to furnish Lender, or the holder of the aforesaid
note of the Debtor, upon demand, but not more often than semiannually, so long
as any part of the indebtedness under such note remains unpaid, a financial
statement setting forth, in reasonable detail, the assets, liabilities, and net
worth of the Undersigned.
<PAGE> 3
The Undersigned acknowledges and understands that if the Small Business
Administration (SBA) enters into, has entered into, or will enter into, a
Guaranty Agreement, with Lender or any other lending institution, guaranteeing
a portion of Debtor's Liabilities, the Undersigned agrees that it is not a
coguarantor with SBA and shall have no right of contribution against SBA. The
Undersigned further agrees that all liability hereunder shall continue
notwithstanding payment by SBA under its Guaranty Agreement to the other
lending institution.
The term "Undersigned" as used in this agreement shall mean the signer or
signers of this agreement, and such signers, if more than one, shall be jointly
and severally liable hereunder. The Undersigned further agrees that all
liability hereunder shall continue notwithstanding the incapacity, lack of
authority, death, or disability of any one or more of the Undersigned, and that
any failure by Lender or its assigns to file or enforce a claim against the
estate of any of the Undersigned shall not operate to release any other of the
Undersigned from liability hereunder. The failure of any other person to sign
this guaranty shall not release or affect the liability of any signer hereof.
/s/ John B. van der Hagen
-----------------------------------
John B. van der Hagen
/s/ Mary van der Hagen
-----------------------------------
Mary van der Hagen
NOTE.--- Corporate guarantors must execute guaranty in corporate name, by duly
authorized officer, and seal must be affixed and duly attested: partnership
guarantors must execute guaranty in firm name, together with signature of a
general partner. Formally executed guaranty is to be delivered at the time of
disbursement of loan.
(LIST COLLATERAL SECURING THE GUARANTY)
<PAGE> 1
PROMISSORY NOTE EXHIBIT 10.4(a)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS
$800,000 09-30-1997 04-30-1998 9007 0839426 714
</TABLE>
REFERENCES IN THE SHADED AREA ARE FOR LENDER'S USE ONLY AND DO NOT LIMIT THE
APPLICABILITY OF THIS DOCUMENT TO ANY PARTICULAR LOAN OR ITEM.
Borrower: SURREY, INC. (TIN: 74-2138564)
13110 TRAILS END RD.
LEANDER, TX 78641-9669
Lender: NORWEST BANK TEXAS, SOUTH CENTRAL
DOWNTOWN OFFICE
900 CONGRESS AVENUE
AUSTIN, TX 78701
Principal Amount: $800,000 Initial Rate: 10.000% Date of Note: September 30,
1997
PROMISE TO PAY. SURREY, INC. ("Borrower") promises to pay to NORWEST BANK
TEXAS, SOUTH CENTRAL ("Lender"), or order, in lawful money of the United States
of America, the principal amount of Eight Hundred Thousand & 00/100 Dollars
($800,000.00) or so much as may be outstanding, together with interest on the
unpaid outstanding principal balance of each advance. Interest shall be
calculated from the date of each advance until repayment of each advance or
maturity, whichever occurs first. The interest rate will not increase above
18.000%.
CHOICE OF USURY CEILING AND INTEREST RATE. The interest rate on this Note has
been implemented under the "Indicated Rate Ceiling" as referred to in Article
5069-1.04 (a)1) V.T.C.S. The terms, including the rate, or index, formula, or
provision of law used to compute the rate on the Note, will be subject to
revision as to current and future balances, from time to time by notice from
Lender in compliance with Article 5069-1.04(i) V.T.C.S.
PAYMENT. Borrower will pay this loan in one payment of all outstanding
principal plus all accrued unpaid interest on April 30, 1998. In addition,
Borrower will pay regular monthly payments of accrued unpaid interest beginning
October 31, 1997, and all subsequent interest payments are due on the same
day of each month after that. Interest on this Note is computed on a 365/365
simple interest basis; that is, by applying the ratio of the annual interest
rate over the number of days in a year, multiplied by the outstanding principal
balance, multiplied by the actual number of days the principal balance is
outstanding. Borrower will pay Lender at Lender's address shown above or at
such other place as Lender may designate in writing. Unless otherwise agreed
or required by applicable law, payments will be applied first to accrued unpaid
interest, then to principal, and any remaining amount to any unpaid collection
costs and late charges. Notwithstanding any other provision of this Note,
Lender will not charge interest on any undisbursed loan proceeds. No scheduled
<PAGE> 2
payment, whether of principal or interest or both, will be due unless
sufficient loan funds have been disbursed by the scheduled payment date to
justify the payment.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change
from time to time based on changes in an index which is the NORWEST BANK TEXAS,
N.A. BASE RATE (the "Index"). The index is not necessarily the lowest rate
charged by Lender on its loans and is set by Lender in its sole discretion. I
the index becomes unavailable during the term of this loan, Lender may
designate a substitute index after notifying Borrower. Lender will tell
Borrower the current index rate upon Borrower's request. Borrower understands
that Lender may make loans based on other rates as well. The interest rate
change will not occur more often than each DAY. The index currently is 8.500%
per annum. The interest rate to be applied prior to maturity to the unpaid
principal balance of this Note will be at a rate of 1.500 percentage points
over the index, adjusted if necessary for the minimum and maximum rate
limitations described below, resulting in an initial rate of 10.000% per annum.
Notwithstanding any other provision of this Note, the variable interest rate or
rates provided for in this Note will be subject to the following minimum and
maximum rates. NOTICE: Under no circumstances will the interest rate on this
Note be less than 6.500% per annum or more than the lesser of 18.000% per annum
or the maximum rate allowed by applicable law. For purposes of this Note, the
"maximum rate allowed by applicable law" means the greater of (a) the maximum
rate of interest permitted under federal or other law applicable to the
indebtedness evidenced by this Note, or (b) the "Indicated Rate Ceiling" as
referred to in Article 5069-1.04(a)(1) V.T.C.S.
PREPAYMENT. Borrower may pay without penalty all or a portion of the amount
owed earlier than it is due. Early payments will not, unless agreed to by
Lender in writing, relieve Borrower of Borrower's obligation to continue to
make payments of accrued unpaid interest. Rather, they will reduce the
principal balance due.
POST MATURITY RATE. The Post Maturity Rate on this Note is the maximum rate
allowed by applicable law. Borrower will pay interest on all sums due after
final maturity, whether by acceleration or otherwise, at that rate, with the
exception of any amounts added to the principal balance of this Note based on
Lender's payment of insurance premiums, which will continue to accrue interest
at the pre-maturity rate.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform
when due any other term, obligation, covenant, or condition contained in this
Note or any agreement related to this Note, or in any other agreement or loan
Borrower has with Lender. (c) Any representation or statement made or
furnished to Lender by Borrower or on Borrower's behalf is false or misleading
in any material respect either now or at the time made or furnished. (d)
Borrower becomes insolvent, a receiver is appointed for any part of Borrower's
property, Borrower makes an assignment for the benefit of creditors, or any
proceeding is commenced either by Borrower or against Borrower under any
bankruptcy or insolvency laws. (e) Any creditor tries to take any of
Borrower's property on or in which Lender has a lien or security interest.
This includes a garnishment of any of Borrower's accounts with Lender. (f) any
<PAGE> 3
guarantor dies or any of the other events described in this default section
occurs with respect to any guarantor of this Note. (g) A material adverse
change occurs in Borrower's financial condition, or Lender believes the
prospect of payment or performance of the indebtedness is impaired. (h) Lender
in good faith deems itself insecure.
LENDER'S RIGHTS. Upon default, Lender may declare the entire indebtedness,
including the unpaid principal balance on this Note, all accrued unpaid
interest, and all other amounts, costs and expenses for which Borrower is
responsible under this Note or any other agreement with Lender pertaining to
this loan, immediately due, without notice, and then Borrower will pay that
amount. Lender may hire an attorney to help collect this Note if Borrower does
not pay, and Borrower will pay Lender's reasonable attorneys' fees. Borrower
also will pay Lender all other amounts actually incurred by Lender as court
costs, lawful fees for filing, recording, or releasing to any public office any
instrument securing this loan; the reasonable cost actually expended for
repossessing, storing, preparing for sale, and selling any security; and fees
for noting a lien on or transferring a certificate of title to any motor
vehicle offered as security for this loan, or premiums or identifiable charges
received in connection with the sale of authorized insurance. This Note has
been delivered to Lender and accepted by Lender in the State of Texas. If
there is a lawsuit, and if the transaction evidenced by this Note occurred in
TRAVIS County, Borrower agrees upon Lender's request to submit to the
jurisdiction of the courts of TRAVIS County, the State of Texas. This Note
shall be governed by and construed in accordance with the laws of the State of
Texas and applicable Federal laws.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, delivers, pledges, and transfers to Lender all
Borrower's right, title and interest in and to, Borrower's accounts with Lender
(whether checking, savings, or some other account), including without
limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh accounts,
and all trust accounts for which the grant of a security interest would be
prohibited by law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on this Note against any and
all such accounts.
COLLATERAL. This Note is secured by ACCOUNTS RECEIVABLE CROSS PLEDGED TO LN
9002 & 9003, INVENTORY, FURNITURE, FIXTURES & EQUIPMENT.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances
under this Note may be requested only in writing by Borrower or by an
authorized person. All communications, instructions, or directions by
telephone or otherwise to Lender are to be directed to Lender's office shown
above. The following party or parties are authorized to request advances under
the line of credit until Lender receives from Borrower at Lender's address
shown above written notice of revocation of their authority: JOHN B. VAN DER
HAGEN, CEO, and Martin J. Van Der Hagen, President. Borrower agrees to be
liable for all sums either: (a) advanced in accordance with the instructions
of an authorized person or (b) credited to any of Borrower's accounts with
Lender. The unpaid principal balance owing on this Note at any time may be
evidenced by endorsements on this Note or by Lender's internal records,
including daily computer print-outs. Lender will have no obligation to advance
funds under
<PAGE> 4
this Note if: (a) Borrower or any guarantor is in default under the terms of
this Note or any agreement that Borrower or any guarantor has with Lender,
including any agreement made in connection with the signing of this Note; (b)
Borrower or any guarantor ceases doing business or is insolvent; (c) any
guarantor seeks, claims or otherwise attempts to limit, modify or revoke such
guarantor's guarantee of this Note or any other loan with Lender; (d) Borrower
has applied funds provided pursuant to this Note for purposes other than those
authorized by Lender; or (e) Lender in good faith deems itself insecure under
this Note or any other agreement between Lender and Borrower. This revolving
line of credit shall not be subject to Chapter 15, Article 5069 V.T.C.S. (the
Texas Credit Code).
RENEWAL AND EXTENSION: This Note is given in renewal and extension and not in
novation of the following described indebtedness: RENEW/INCREASE LN
#0839426-9005.
GENERAL PROVISIONS. If any part of this Note cannot be enforced, this fact
will not affect the rest of the Note. In particular, this section means (among
other things) that Borrower does not agree or intend to pay, and Lender does
not agree or intend to contract for, charge, collect, take, reserve or receive
(collectively referred to herein as "charge or collect"), any amount in the
nature of interest or in the nature of a fee for this loan, which would in any
way or event (including demand, prepayment, or acceleration) cause Lender to
charge or collect more for this loan than the maximum Lender would be permitted
to charge or collect by federal law or the law of the State of Texas (as
applicable). Any such excess interest or unauthorized fee shall, instead of
anything stated to the contrary, be applied first to reduce the principal
balance of this loan, and when the principal has been paid in full, be refunded
to Borrower. The right to accelerate maturity of sums due under this Note does
not include the right to accelerate any interest which has not otherwise
accrued on the date of such acceleration, and Lender does not intend to charge
or collect any unearned interest in the event of acceleration. All sums paid
or agreed to be paid to Lender for the use, forbearance or detention of sums
due hereunder shall, to the extent permitted by applicable law, by amortized,
prorated, allocated and spread throughout the full term of the loan evidenced
by this Note until payment in full so that the rate or amount of interest on
account of the loan evidenced hereby does not exceed the applicable usury
ceiling. Lender may delay or forgo enforcing any of its rights or remedies
under this Note without losing them. Borrower and any other person who signs,
guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, protest, notice of dishonor, notice of intent
to accelerate the maturity of this Note, and notice of acceleration of the
maturity of this Note. Upon any change in the terms of this Note, and unless
otherwise expressly stated in writing, no party who signs this Note, whether as
maker, guarantor, accommodation maker or endorser, shall be released from
liability. All such parties agree that Lender may renew or extend (repeatedly
and for any length of time) this loan, or release of any party or guarantor or
collateral; or impair, fail to realize upon or perfect Lender's security
interest in the collateral without the consent of or notice to anyone. All
such parties also agree that Lender may modify this loan without the consent of
or notice to anyone other than the party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
<PAGE> 5
BORROWER:
SURREY, INC.
By: /s/ John B. van der Hagen By: /s/ Martin J. van der Hagen
--------------------------------- ----------------------------
JOHN B. VAN DER HAGEN, CEO MARTIN J. VAN DER HAGEN
LENDER:
NORWEST BANK TEXAS, SOUTH CENTRAL
By:
----------------------------------
Authorized Officer
<PAGE> 1
EXHIBIT 10.4(D)
COMMERCIAL SECURITY AGREEMENT
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS
$800,000 09-30-1997 04-30-1998 9007 0839426 714
</TABLE>
REFERENCES IN THE SHADED AREA ARE FOR LENDER'S USE ONLY AND DO NOT LIMIT THE
APPLICABILITY OF THIS DOCUMENT TO ANY PARTICULAR LOAN OR ITEM.
Borrower: SURREY, INC. (TIN: 74-2138564)
13110 TRAILS END RD.
LEANDER, TX 78641-9669
Lender: NORWEST BANK TEXAS, SOUTH CENTRAL
DOWNTOWN OFFICE
900 CONGRESS AVENUE
AUSTIN, TX 78701
THIS COMMERCIAL SECURITY AGREEMENT is entered into between SURREY, INC.
(referred to below as "Grantor"); and NORWEST BANK TEXAS, SOUTH CENTRAL
(referred to below as "Lender"). For valuable consideration, Grantor grants to
Lender a security interest in the Collateral to secure the indebtedness and
agrees that Lender shall have the rights stated in this Agreement with respect
to the Collateral, in addition to all other rights which Lender may have by
law.
DEFINITIONS. The following words shall have the following meanings when used
in this Agreement. Terms not otherwise defined in this Agreement shall have
the meanings attributed to such terms in the Uniform Commercial Code. All
references to dollar amounts shall mean amounts in lawful money of the United
States of America.
AGREEMENT. The word "Agreement" means this Commercial Security
Agreement, as this Commercial Security Agreement may be amended or
modified from time to time, together with all exhibits and schedules
attached to this Commercial Security Agreement from time to time.
COLLATERAL. The word "Collateral" means the following described
property of Grantor, whether now owned or hereafter acquired, whether
now existing or hereafter arising, and wherever located:
ACCOUNTS RECEIVABLE, INVENTORY, FURNITURE, FIXTURES & EQUIPMENT.
In addition, the word "Collateral" includes all the following, whether
now owned or hereafter acquired, whether now existing or hereafter
arising, and wherever located:
<PAGE> 2
(a) All attachments, accessions, accessories, tools, parts, supplies,
increases, and additions to and all replacements of and substitutions
for any property described above.
(b) All products and produce of any of the property described in this
Collateral section.
(c) All accounts, general intangibles, instruments, rents, monies,
payments, and all other rights, arising out of a sale, lease, or other
disposition of any of the property described in this Collateral
section.
(d) All proceeds (including insurance proceeds) from the sale,
destruction, loss, or other disposition of any of the property
described in this Collateral section.
(e) All records and data relating to any of the property described in
this Collateral section, whether in the form of a writing, photograph,
microfilm, microfiche, or electronic media, together with all of
Grantor's right, title, and interest in and to all computer software
required to utilize, create, maintain, and process any such records or
data on electronic media.
EVENT OF DEFAULT. The words "Event of Default" mean and include
without limitation any of the Events of Default set forth below in the
section titled "Events of Default."
GRANTOR. The word "Grantor" means SURREY, INC., its successors and
assigns.
GUARANTOR. The word "Guarantor" means and includes without limitation
each and all of the guarantors, sureties, and accommodation parties in
connection with the indebtedness.
INDEBTEDNESS. The word "indebtedness" means the indebtedness
evidenced by the Note, including all principal and earned interest,
together with all other indebtedness and costs and expenses for which
Grantor is responsible under this Agreement or under any of the
Related Documents. In addition, the word "indebtedness" includes all
other obligations, debts and liabilities, plus interest thereon; of
Grantor, or any one or more of the, to Lender, as well as all claims
by Lender against Grantor, or any one or more of them, whether
existing now or later; whether they are voluntary or involuntary, due
or not due, direct or indirect, absolute or contingent, liquidated or
unliquidated; whether Grantor may be liable individually or jointly
with others; whether Grantor may be obligated as guarantor, surety,
accommodation party or otherwise. INITIAL HERE
LENDER. The word "Lender" means NORWEST BANK TEXAS, SOUTH CENTRAL,
its successors and assigns.
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NOTE. The word "Note" means the note or credit agreement dated
September 30, 1997, in the principal amount of $800,000.00 from
SURREY, INC. to Lender, together with all renewals of, extensions of,
modifications of, refinancings of, consolidations of and substitutions
for the note or credit agreement.
RELATED DOCUMENTS. The words "Related Documents" mean and include
without limitation all promissory notes, credit agreements, loan
agreements, environmental agreements, guaranties, security agreements
mortgages, deeds of trust, and all other instruments, agreements and
documents, whether now or hereafter existing, executed in connection
with the Indebtedness.
RIGHT OF SETOFF. Grantor hereby grants Lender a contractual possessory
security interest in and hereby assigns, conveys, delivers, pledges, and
transfers all of Grantor's right, title and interest in and to Grantor's
accounts with Lender (whether checking, savings, or some other account),
including all accounts held jointly with someone else and all accounts Grantor
may open in the future, excluding, however, all IRA and Keogh accounts, and all
trust accounts for which the grant of a security interest would be prohibited
by law. Grantor authorizes Lender, to the extent permitted by applicable law,
to change or setoff all Indebtedness against any and all such accounts.
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows:
ORGANIZATION. Grantor is a corporation which is duly organized,
validly existing, and in good standing under the laws of the state of
Grantor's incorporation.
AUTHORIZATION. The execution, delivery, and performance of this
Agreement by Grantor have been duly authorized by all necessary action
by organization, or bylaws, or any agreement or other instrument
binding upon Grantor or (b) any law, governmental regulation, court
decree, or order applicable to Grantor.
PERFECTION OF SECURITY INTEREST. Grantor agrees to execute such
financing statements and to take whatever other actions are requested
by Lender to perfect and continue Lender's security interest in the
Collateral. Upon request of Lender, Grantor will deliver to Lender
any and all of the documents evidencing or constituting the
Collateral, and Grantor will note Lender's interest upon any and all
chattel paper if not delivered to Lender for possession by Lender.
Grantor hereby appoints Lender as the irrevocable attorney in fact for
the purpose of executing any documents necessary to perfect or to
continue the security interest granted in this Agreement. Lender may
at any time and without further authorization from Grantor, file a
carbon, photographic or other reproduction of any financing statement
or of this Agreement for use as a financing statement. Grantor will
reimburse Lender for all expenses for the perfection and the
continuation of the perfection of Lender's security interest in the
Collateral. Grantor promptly will notify Lender before any change in
Grantor's name including any change in the assumed business names of
Grantor. THIS IS A
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CONTINUING SECURITY AGREEMENT AND WILL CONTINUE IN EFFECT EVEN THOUGH
ALL OR ANY PARTY OF THE INDEBTEDNESS IS PAID IN FULL AND EVEN THOUGH
FOR A PERIOD OF TIME GRANTOR MAY NOT BE INDEBTED TO LENDER.
NO VIOLATION. The execution and delivery of this Agreement will not
violate any law or agreement governing Grantor or to which Grantor is
a party, and its certificate or articles of incorporation and bylaws
do not prohibit any term or condition of this Agreement.
ENFORCEABILITY OF COLLATERAL. To the extent the Collateral consists
of accounts, chattel paper, or general intangibles, the Collateral is
enforceable in accordance with its terms, is genuine, and complies
with applicable laws concerning form, content and manner of
preparation and execution, and all persons appearing to be obligated
on the Collateral have authority and capacity to contract and are in
fact obligated as they appear to be on the Collateral.
LOCATION OF THE COLLATERAL. Grantor, upon request of Lender, will
deliver to Lender in form satisfactory to Lender a schedule of real
properties and Collateral locations relating to Grantor's operations,
including without limitation the following: (a) all real property
owned or being purchased by Grantor; (b) all real property being
rented or leased by Grantor; (c) all storage facilities owned, rented,
leased, or being used by Grantor; and (d) all other properties where
Collateral is or may be located. Except in the ordinary course of its
business, Grantor shall not remove the Collateral from its existing
locations without the prior written consent of Lender.
REMOVAL OF COLLATERAL. Grantor shall keep the Collateral (or to the
extent the Collateral consists of intangible property such as
accounts, the records concerning the Collateral) at Grantor's address
shown above, or at such other locations as are acceptable to Lender.
Except in the ordinary course of its business, including the sales of
inventory, Grantor shall not remove the Collateral from its existing
locations without the prior written consent of Lender. To the extent
that the Collateral consists of vehicles, or other titled property,
Grantor shall not take or permit any action which would require
application for certificates of title for the vehicles outside the
State of Texas, without the prior written consent of Lender.
TRANSACTIONS INVOLVING COLLATERAL. Except for inventory sold or
accounts collected in the ordinary course of Grantor's business,
Grantor shall not sell, offer, to sell, or otherwise transfer or
dispose of the Collateral. While Grantor is not in default under this
Agreement, Grantor may sell inventory, but only in the ordinary course
of its business and only to buyers who qualify as a buyer in the
ordinary course of business. A sale in the ordinary course of
Grantor's business does not include a transfer in partial or total
satisfaction of a debt or any bulk sale. Grantor shall not pledge,
mortgage, encumber or otherwise permit the Collateral to be subject to
any lien, security interest, encumbrance, or charge, other than the
security interest provided for
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in this Agreement, without the prior written consent of Lender. This
includes security interests even if junior in right to the security
interests granted under this Agreement. Unless waived by Lender, all
proceeds from any disposition of the Collateral (for whatever reason)
shall be held in trust for Lender and shall not be commingled with any
other funds; provided however, this requirement shall not constitute
consent by Lender to any sale or other disposition. Upon receipt,
Grantor shall immediately delivery any such proceeds to Lender.
TITLE. Grantor represents and warrants to Lender that it holds goods
and marketable title to the Collateral, free and clear of all liens
and encumbrances except for the lien of this Agreement. No financing
statement covering any of the Collateral is on file in any public
office other than those which reflect the security interest created by
this Agreement or to which Lender has specifically consented. Grantor
shall defend Lender's rights in Collateral against the claims and
demands of all other persons.
COLLATERAL SCHEDULES AND LOCATIONS. Insofar as the Collateral
consists of inventory, Grantor's shall deliver to Lender, as often as
Lender shall require, such lists, descriptions, and designations of
such Collateral as Lender may require to identify the nature, extent,
and location of such Collateral. Such information shall be submitted
for Grantor and each of its subsidiaries or related companies.
MAINTENANCE AND INSPECTION OF COLLATERAL. Grantor shall maintain all
tangible Collateral in good condition and repair. Grantor will not
commit or permit damage to or destruction of the Collateral or any
part of the Collateral. Lender and its designated representatives and
agents shall have the right at all reasonable times to examine,
inspect, and audit the Collateral wherever located. Grantor shall
immediately notify Lender of all cases involving the return,
rejection, repossession, loss or damage of or to any Collateral; of
any request for credit or adjustment or of any other dispute arising
with respect to the Collateral; and generally of all happenings and
events affecting the Collateral or the value or the amount of the
Collateral.
TAXES, ASSESSMENTS AND LIENS. Grantor will pay when due all taxes,
assessments and liens upon the Collateral, its use or operation, upon
this Agreement, upon any promissory note or notes evidencing the
Indebtedness, or upon any of the other Related Documents. Grantor may
withhold any such payment or may elect to contest any lien if Grantor
is in good faith conducting an appropriate proceeding to contest the
obligation to pay and so long as Lender's interest in the Collateral
is not jeopardized in Lender's sole opinion. If the Collateral is
subjected to a lien which is not discharged within fifteen (15) days,
Grantor shall deposit with Lender cash, a sufficient corporate surety
bond or other security satisfactory to Lender in an amount adequate to
provide for the discharge of the lien plus any interest, costs,
attorneys' fees or other charges that could accrue as a result of
foreclosure or sale of the Collateral. In any contest Grantor shall
defend itself and Lender and shall satisfy any
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final adverse judgment before enforcement against the Collateral.
Grantor shall name Lender as an additional obligee under any surety
bond furnished in the contest proceedings.
COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. Grantor shall comply
promptly with all laws, ordinances, rules and regulations of all
governmental authorities, now or hereafter in effect, applicable to
the ownership, production, disposition or use of the Collateral.
Grantor may contest in good faith any such law, ordinance or
regulation and withhold compliance during any proceeding, including
appropriate appeals, so long as Lender's interest in the Collateral,
in Lender's opinion, is not jeopardized.
HAZARDOUS SUBSTANCES. Grantor represents and warrants that the
Collateral never has been, and never will be so long as this Agreement
remains a lien on the Collateral, used for the generation,
manufacture, storage, transportation, treatment, disposal, release or
threatened release of any hazardous waste or substance, as those terms
are defined in the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq.
("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986,
Pub. L. No. 99-499 ("SARA"), the Hazardous Materials Transportation
Act, 49 U.S.C. Section 1801, et seq., the Recourse Conservation and
Recovery Act, 42 U.S.C. Section 6901, et seq., or other applicable
state or Federal laws, rules, regulations adopted pursuant to any of
the foregoing. The terms "hazardous waste" and "hazardous substance"
shall also include, without limitation, petroleum and petroleum
by-products or any fraction thereof and asbestos. The representations
and warranties contained herein are based on Grantor's due diligence
in investigating the Collateral for hazardous wastes and substances.
Grantor hereby (a) releases and waives any future claims against
Lender for indemnity or contribution in the event Grantor becomes
liable for cleanup or other costs under such laws, and (b) agrees to
indemnify and hold harmless Lender against any all claims and losses
resulting from a breach of this provision of this Agreement. This
obligation to indemnify shall survive the payment of the indebtedness
and the satisfaction of this Agreement.
MAINTENANCE OF CASUALTY INSURANCE. Grantor shall procure and maintain
all risks insurance, including without limitation fire, theft and
liability coverage together with such other insurance as Lender may
require with respect to the Collateral, in form, amounts, coverages
and basis reasonably acceptable to Lender. GRANTOR MAY FURNISH THE
REQUIRED INSURANCE WHETHER THROUGH EXISTING POLICIES OWNED OR
CONTROLLED BY GRANTOR OR THROUGH EQUIVALENT INSURANCE FROM ANY
INSURANCE COMPANY AUTHORIZED TO TRANSACT BUSINESS IN THE STATE OF
TEXAS. If Grantor fails to provide any required insurance or fails to
continue such insurance in force, Lender may, but shall not be
required to, do so at Grantor's expense, and the cost of the insurance
will be added to the indebtedness. If any such insurance is
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procured by Lender at a rate or charge not fixed or approved by the
State Board of Insurance, Grantor will be so notified, and Grantor
will have the option for five (5) days of furnishing equivalent
insurance through any insurer authorized to transact business in
Texas. Grantor, upon request of Lender, will deliver to Lender from
time to time the policies or certificates of insurance in form
satisfactory to Lender, including stipulations that coverage will not
be canceled or diminished without at least fifteen (15) days' prior
written notice to Lender and not including any disclaimer of the
insurer's liability for failure to give such a notice. Each insurance
policy also shall include an endorsement providing that coverage in
favor of Lender will not be impaired in any way by any act, omission
or default of Grantor or any other person. In connection with all
policies covering assets in which Lender holds or is offered a
security interest, Grantor will provide Lender with such loss payable
or other endorsements as Lender may require. If Grantor at any time
fails to obtain or maintain any insurance as required under this
Agreement, Lender may (but shall not be obligated to) obtain such
insurance as Lender deems appropriate, including if it so chooses
"single interest insurance," which will cover only Lender's interest
in the Collateral.
APPLICATION OF INSURANCE PROCEEDS. Grantor shall promptly notify
Lender of any loss or damage to the Collateral. Lender may make proof
of loss if Grantor fails to do so within fifteen (15) days of the
casualty. All proceeds of any insurance on the Collateral, including
accrued proceeds thereon, shall be held by Lender as part of the
Collateral. If Lender consents to repair or replacement of the
damaged or destroyed Collateral, Lender shall, upon satisfactory proof
of expenditure, pay or reimburse Grantor from the proceeds for the
reasonable cost of repair or restoration. If Lender does not consent
to repair or replacement of the Collateral, Lender shall retain a
sufficient amount of proceeds to pay all of the indebtedness, and
shall pay the balance to Grantor. Any proceeds which have not been
disbursed within six (6) months after their receipt and which Grantor
has not committed to the repair or restoration of the Collateral shall
be used to prepay the Indebtedness.
INSURANCE RESERVES. Lender may require Grantor to maintain with
Lender reserves for payment of insurance premiums, which reserves
shall be created by monthly payments from grantor of a sum estimated
by Lender to be sufficient to produce, at least fifteen (15) days
before the premium due date, amounts at least equal to the insurance
premiums to be paid. If fifteen (15) days before payment is due, the
reserve funds are insufficient, Grantor shall upon demand pay any
deficiency to Lender. The reserve funds shall be held by Lender as a
general deposit and shall constitute a non-interest-bearing account
which Lender may satisfy by payment of the insurance premiums required
to be paid by Grantor as they become due. Lender does not hold the
reserve funds in trust for Grantor, and Lender is not the agent of
Grantor for payment of the insurance premiums required to be paid by
Grantor. The responsibility for the payment of premiums shall remain
Grantor's sole responsibility.
INSURANCE REPORTS. Grantor, upon request of Lender, shall furnish to
Lender reports on each existing policy of insurance showing such
information as Lender may reasonably request including the following:
(a) the name of the insurer; (b) the risks insured; (c) the amount of
the policy; (d) the property insured; (e) the then current value on
the basis of which insurance has been obtained and the manner of
determining that value; and (f) the expiration date of the policy.
In addition, Grantor shall upon request by Lender (however not more
often than annually) have an independent appraiser satisfactory to
Lender determine, as applicable, the cash value or replacement costs
of the Collateral.
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GRANTOR'S RIGHT TO POSSESSION. Until default, Grantor may have possession of
the tangible personal property and beneficial use of all the Collateral and may
use it in any lawful manner not inconsistent with this Agreement or the Related
Documents, provided that Grantor's right to possession and beneficial use shall
not apply to any Collateral where possession of the Collateral by Lender is
required by law to perfect Lender's security interest in such Collateral. If
Lender at any time has possession of any Collateral, whether before or after an
Event of Default, Lender shall be deemed to have exercised reasonable care in
the custody and preservation of the Collateral, whether before or after an Event
of Default, Lender shall be deemed to have exercised reasonable care in the
custody and preservation of the Collateral if Lender takes such action for that
purpose as Grantor shall request or as Lender, in Lender's sole discretion,
shall deem appropriate under the circumstances, but failure to honor any request
by Grantor shall not itself be deemed to be a failure to exercise reasonable
care. Lender shall not be required to take any steps necessary to preserve any
rights in the Collateral against prior parties, nor to protect, preserve or
maintain any security interest given to secure the Indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without
limitation all taxes, liens, security interests, encumbrances, and other
claims, at any time levied or placed on the Collateral. Lender also may (but
shall not be obligated to) pay all costs for insuring, maintaining and
preserving the Collateral. All such expenditures incurred or paid by Lender
for such purposes will then bear interest at the Note rate from the date
incurred or paid by Lender to the date of repayment by Grantor. All such
expenses shall become a part of the Indebtedness and, at Lender's option, will
(a) be payable on demand, (b) be added to the balance of the Note and be
apportioned among and be payable with any installment payments to become due
during either (i) the term of any applicable insurance policy (ii) the
remaining term of the Note, or (c) be treated as a balloon payment which will
be due and payable at the Note's maturity. This Agreement also will secure
payment of these amounts. Such right shall be in addition to all other rights
and remedies to which Lender may be entitled upon the occurrence of an Event of
Default.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
DEFAULT OF INDEBTEDNESS. Failure of Grantor to make any payment when
due on the Indebtedness.
OTHER DEFAULTS. Failure of Grantor to comply with or to perform any
other term, obligation, covenant or condition contained in this
Agreement or in any of the Related Documents or in any other agreement
between Lender and Grantor.
FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Grantor under this Agreement,
the Note or the Related
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Documents is false or misleading in any material respect, either now
or at the time made or furnished.
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related
Documents ceases to be in full force and effect (including failure of
any collateral documents to create a valid and perfected security
interest or lien) at any time and for any reason.
INSOLVENCY. The dissolution or termination of Grantor's existence as
a going business, the insolvency of Grantor, the appointment of a
receiver for any part of Grantor's property, any assignment for the
benefit of creditors, any type of creditor workout, or the
commencement of any proceeding under any bankruptcy or insolvency laws
by or against Grantor.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Grantor or by any
governmental agency against the Collateral or any other collateral
securing the indebtedness. This includes a garnishment of any of
Grantor's deposit accounts with Lender.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with
respect to any Guarantor of any of the Indebtedness or such Guarantor
dies or becomes incompetent.
ADVERSE CHANGE. A material adverse change occurs in Grantor's
financial condition, or Lender believes the prospect of payment or
performance of the Indebtedness is impaired.
INSECURITY. Lender, in good faith, deems itself insecure.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a
secured party under the Texas Uniform Commercial Code. In addition and without
limitation, Lender may exercise any one or more of the following rights and
remedies.
ACCELERATE INDEBTEDNESS. Lender may declare the entire Indebtedness
immediately due and payable, without notice.
ASSEMBLE COLLATERAL. Lender may require Grantor to deliver to Lender
all or any portion of the Collateral and any all certificates of title
and other documents relating to the Collateral. Lender may require
Grantor to assemble the Collateral and make it available to Lender at
a place to be designated by Lender. Lender also shall have full power
to enter, provided Lender does so without a breach of the peace or a
trespass, upon the property of Grantor to take possession of and
remove the Collateral. If the Collateral contains other goods not
covered by this Agreement at the time of
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repossession, Grantor agrees Lender may take such other goods,
provided that Lender makes reasonable efforts to return them to
Grantor after repossession.
SELL THE COLLATERAL. Lender shall have full power to sell, lease,
transfer, or otherwise deal with the Collateral or proceeds thereof in
its own name or that of Grantor. Lender may sell the Collateral at
public auction or private sale. Unless the Collateral threatens to
decline speedily in value or is of a type of customarily sold on a
recognized market, Lender will give Grantor reasonable notice of the
time after which any private sale or any other intended disposition of
the Collateral is to be made. All expenses relating to the
disposition of the Collateral, including without limitation the (10)
days before the time of the sale or disposition. All expenses
relating to the disposition of the Collateral, including without
limitation the expenses of retaking, holding, insuring, preparing for
sale and selling the Collateral, shall become pare of the indebtedness
secured by this Agreement and shall be payable on demand, with
interest at the Note rate from date of expenditure until repaid.
APPOINT RECEIVER. To the extent permitted by applicable law, Lender
shall have the following rights and remedies regarding the appointment
of a receiver: (a) Lender may have a receiver appointed as a matter
of right, (b) the receiver may be an employee of Lender and may serve
without bond, and (c) all fees of the receiver and his or her attorney
shall become part of the indebtedness secured by this Agreement and
shall be payable on demand, with interest at the Note rate from date
of expenditure until repaid.
COLLECT REVENUES, APPLY ACCOUNTS. Lender, either itself or through a
receiver, may collect the payments, rents, income, and revenues from
the Collateral. Lender may at any time in its discretion transfer any
Collateral into its own name or that of its nominee and receive the
payments, rents, income, and revenues therefrom and hold the same as
security for the indebtedness or apply it to payment of the
Indebtedness in such order of preference as Lender may determine.
Insofar as the Collateral consists of accounts, general intangibles,
insurance policies, instruments, chattel paper, chooses in action, or
similar property, Lender may demand, collect, receipt for, settle,
compromise, adjust, sue for, foreclose, or realize on the Collateral
as Lender may determine, whether or not indebtedness or Collateral is
then due. For these purposes, Lender may, on behalf of and in the
name of Grantor, receive, open and dispose of mail addressed to
Grantor; change any address to which mail and payments are to be sent;
and endorse notes, checks, drafts, money orders, documents of title,
instruments and items pertaining to payment, shipment, or storage of
any Collateral. To facilitate collection, Lender may notify account
debtors and obligors on any Collateral to make payments directly to
Lender.
OBTAIN DEFICIENCY. If Lender chooses to sell any or all of the
Collateral, Lender may obtain a judgment against Grantor for any
deficiency remaining on the indebtedness due to Lender after
application of all amounts received from the exercise
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of the rights provided in this Agreement. Grantor shall be liable for
a deficiency even if the transaction in this subsection is a sale of
accounts or chattel paper.
OTHER RIGHTS AND REMEDIES. Lender shall have all the rights and
remedies of a secured creditor under the provisions of the Uniform
Commercial Code, as may be amended from time to time. In addition,
Lender shall have and may exercise any or all other rights and
remedies it may have available at law, in equity, or otherwise.
CUMULATIVE REMEDIES. All of Lender's rights and remedies, whether
evidenced by this Agreement or the Related Documents or by any other
writing, shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not
exclude pursuit Grantor's failure to perform, shall not affect
Lender's right to declare a default and to exercise its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as
to the matters set forth in this Agreement. No alteration of or
amendment to this Agreement shall be effective unless given in writing
and signed by the party or parties sought to be charged or bound by
the alteration or amendment.
APPLICABLE LAW. This Agreement has been delivered to Lender and
accepted by Lender in the State of Texas. If there is a lawsuit,
Grantor agrees upon Lender's request to submit to the jurisdiction of
the courts of the State of Texas. This Agreement shall be governed by
and construed in accordance with the laws of the State of Texas and
applicable Federal laws.
ATTORNEYS' FEES AND OTHER COSTS. Lender may hire an attorney to help
collect the Note if Grantor does not pay, and Grantor will pay
Lender's reasonable attorneys' fees. Grantor also will pay Lender all
other amounts actually incurred by Lender as court costs, lawful fees
for filing, recording, or releasing to any public office any
instrument securing the Note; the reasonable cost actually expended
for repossession, storing, preparing for sale, and selling any
security; and fees for noting a lien on or transferring a certificate
of title to any motor vehicle offered as security for the Note, or
premiums or identifiable charges received in connection with the sale
of authorized insurance.
CAPTION HEADINGS. Caption headings in this Agreement are for
convenience purposes only and are not to be used to interpret or
define the provisions of this Agreement.
MULTIPLE PARTIES; CORPORATE AUTHORITY. All obligations of Grantor
under this Agreement shall be joint and several, and all references to
Grantor shall mean each
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and every Grantor. This means that each of the persons signing below
is responsible for all obligations in this Agreement.
NOTICES. All notices required to be given under this Agreement shall
be given in writing, may be sent by telefacsimile, and shall be
effective when actually delivered or when deposited with a nationally
recognized overnight courier or deposited in the United States mail,
first class, postage prepaid, addressed to the party to whom the
notice is to be given at the address shown above. Any party may
change its address for notices under this Agreement by giving formal
written notice to the other parties, specifying that the purpose of
the notice is to change the party's address. To the extent permitted
by applicable law, if there is more than one Grantor, notice to any
Grantor will constitute notice to all Grantors. For notice purposes,
Grantor will keep Lender informed at all times of Grantor's current
address(es).
POWER OF ATTORNEY. Grantor hereby appoints Lender as its true and
lawful attorney-in-fact, irrevocably, with full power of substitution
to do the following: (a) to demand, collect, receive, receipt for,
sue and recover all sums of money or other property which may now or
hereafter become due, owing or payable from the Collateral; (b) to
execute, sign and endorse any and all claims, instruments, receipts,
checks, drafts or warrants issued in payment for the Collateral; (c)
to settle or compromise any and all claims arising under the
Collateral, and, in the place and stead of Grantor, to execute an
deliver its release and settlement for the claim; and (d) to file any
claim or claims or to take any action or institute or take part in any
proceedings, either in its own name or in the name of Grantor, or
otherwise, which in the discretion of Lender may seem to be necessary
or advisable. This power is given as security for the Indebtedness,
and the authority hereby conferred is and shall be irrevocable and
shall remain in full force and effect until renounced by Lender.
SEVERABILITY. If a court of competent jurisdiction finds any
provision of this Agreement to be invalid or unenforceable as to any
person or circumstance, such finding shall not render that provision
invalid or unenforceable as to any other persons or circumstances. If
feasible, any such offending provision shall be deemed to be modified
to be within the limits of enforceability or validity; however, if the
offending provision cannot be so modified, it shall be stricken and
all other provisions of this Agreement in all other respects shall
remain valid and enforceable.
SUCCESSOR INTERESTS. Subject to the limitations set forth above on
transfer of the Collateral, this Agreement shall be binding upon and
inure to the benefit of the parties, their successors and assigns.
WAIVER. Lender shall not be deemed to have waived any rights under
this Agreement unless such waiver is given in writing and signed by
Lender. No delay or omission on the part of Lender in exercising any
right shall operate as a waiver of such right or any other right. A
waiver by Lender of a provision of this Agreement shall not
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prejudice or constitute a waiver of Lender's right otherwise to demand
strict compliance with that provision or any other provision of this
Agreement. No prior waiver by Lender, nor any course of dealing
between Lender and Grantor, shall constitute a waiver of any of
Lender's rights or of any of Grantor's obligations as to any future
transactions. Whenever the consent of Lender is required under this
Agreement, the granting of such consent by Lender in any instance
shall not constitute continuing consent to subsequent instances where
such consent is required and in all cases such consent may be granted
or withheld in the sole discretion of Lender.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY
AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED SEPTEMBER
30, 1997.
GRANTOR:
SURREY, INC.
By: /s/John B. van der Hagen By: /s/Martin J. van der Hagen
--------------------------- ------------------------------
JOHN B. VAN DER HAGEN MARTIN J. VAN DER HAGEN
LENDER:
NORWEST BANK TEXAS, SOUTH CENTRAL
By:
----------------------------------
Authorized Officer
13
<PAGE> 1
EXHIBIT 10.4(E)
NORWEST BANKS Norwest Bank Texas, South Central
Post Office Box 2019 Austin, Texas 78768-2019
512/479-0011
September 30, 1997
John Van der Hagen
Surrey, Inc.
13110 Trails End Road
Leander, TX 78641
Re: Line of Credit Loan Agreement
Gentlemen:
Your line of credit in the amount of $800,000.00 has been approved subject to
modification of your existing Loan Agreement. This letter serves to document
your agreement of modification to the SBA Authorization and Loan Agreement
executed by Dan Cifers on October 17, 1994 and your agreement to the Amendment
by my letter dated August 13, 1997.
This modification to the Loan Agreement consists of two covenants. The first
is officers' salaries are limited to $250,000.00 annually and the second is
financial covenants will be monitored quarterly. The financial covenants are
a) debt/worth ratio of less that 3.5:1, b) current ratio greater that 1.25:1,
c) minimum net worth requirement of $1,000M, and d) minimum DSCR of 1.25:1 on a
traditional cash flow basis. Please calculate these ratios and include on your
Borrowing Base Certificate. Availability under the line of $800,000 remains at
70% of eligible receivables less than 60 days old.
We appreciate your business and look forward to our continued association.
Regards,
/s/ Paul J. Holubec
Paul J. Holubec
Vice President
Agreed:
/s/ John van der Hagen /s/ Marty van der Hagen
- ----------------------------- -----------------------------------
John van der Hagen, President Marty van der Hagen, Vice President
<PAGE> 1
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made effective the _______
day of ______________, 1997, by and between Surrey, Inc., a Texas corporation
("the Company"), and John B. van der Hagen, a Texas resident ("Executive").
RECITALS
WHEREAS, the Executive is engaged by the Company in the principal
capacity of Chief Executive Officer and the Company is desirous of continuing
the employment of the Executive upon the terms and conditions contained herein,
and the Executive is desirous of continuing employment with the Company upon
the terms and conditions contained herein;
WHEREAS, the Company specializes in the development and manufacture of
high quality glycerin and specialty soap products, as well as the production of
certain personal care and home fragrance products;
WHEREAS, the compensation to be paid to the Executive by the Company
is at least in part dependent upon gross sales which may accrue to the Company
through its operation of processes and procedures, involving trade secrets and
proprietary information relating to its business;
WHEREAS, the Company is engaged in highly competitive business; and
WHEREAS, the Company must maintain its competitive position by
protecting its trade secrets, know how, and proprietary information.
NOW, THEREFORE, in consideration of the mutual premises and agreements
contained herein and for other good and valuable consideration by each of the
parties, the parties hereby agree as follows:
ARTICLE 1 EMPLOYMENT, DUTIES AND TERM.
1.1 Employment. Upon the terms and conditions set forth in this
Agreement, the Company hereby employs Executive, and Executive accepts such
employment, as Chief Executive Officer of the Company.
1.2 Term. The term of this Agreement shall commence on the
effective date of the Company's initial public offering (the "Commencement
Date") and conclude at 5:00 p.m. on the third anniversary of the Commencement
Date; provided, however, that the term of this Agreement shall be automatically
continued and extended for additional consecutive twelve month periods
commencing upon such termination date, unless, at least thirty (30) days before
the date of termination of the initial term of this Agreement or of any such
extended term the Company shall give the Executive or the Executive shall give
the Company, a notice in writing electing to terminate this Agreement as of
such termination date. Termination of this Agreement, as set forth in Article
3, also shall terminate Executive's employment by the Company and his position
as Chief Executive Officer and an employee.
1.3 Duties. During the term of this Agreement, Executive agrees
to devote his full business time exclusively to the business and affairs of the
Company and, to the extent necessary to discharge the responsibilities assigned
to Executive hereunder, to use his best efforts to perform faithfully and
efficiently such responsibilities. As Chief Executive Officer of the Company,
Executive shall perform
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to the best of his ability any and all duties that may be delegated to
Executive by the Board of Directors.
1.4 Return of proprietary property. Executive agrees that all
property in his possession belonging to the Company including, without
limitation, all documents, reports, manuals, memoranda, computer printouts,
customer lists, credit cards, calling cards, keys, identification, products,
access cards, automobiles and all other property relating in any way to the
business of the Company are the exclusive property of the Company. Executive
shall return to the Company all such documents and property immediately upon
termination of his employment.
ARTICLE 2 COMPENSATION, BENEFITS AND EXPENSES.
2.1 Base Salary and Bonus.
a. During the term of this Agreement and subject to the
provisions of Article 3, the Company shall pay to Executive the
following base annual salary, payable bi-weekly: from the
Commencement Date through December 31, 1997, a base annual salary of
$125,000; for the calendar year ending December 31, 1998, a base
annual salary of $150,000 providing the gross sales of the Company as
of December 31, 1998 reach twelve million dollars ($12,000,000); and
for the calendar year ending December 31, 1999, a base annual salary
of $175,000 providing the gross sales of the Company as of December
31, 1999 reach fifteen million dollars ($15,000.000). Executive's
compensation shall be reviewed on an annual basis thereafter in
accordance with the Company's policies and may be adjusted accordingly
based upon the Executive's and the Company's performance.
b. Executive shall also be entitled to receive an annual
bonus as shall be determined by the Company, in accordance with
Company policies in effect from time to time, in an amount not to
exceed $20,000 for each of 1998 and 1999; provided, however, that if
the Company reaches the following income goals, the Executive may
receive an additional bonus for such calendar year: if the Company's
after tax income exceeds one million dollars ($1,000,000) for calendar
1998, an additional bonus for 1998 of $20,000; and if the Company's
after tax income exceeds one million three hundred thousand dollars
($1,300,000) for calendar 1999, an additional bonus for 1999 of
$20,000.
2.2 Other compensation and benefits. Executive shall be entitled
to paid vacation, personal days, sick days, and other benefits consistent with
those received by other officers and employees of the Company, as shall be as
determined by the Board of Directors pursuant to policies implemented by the
Company from time to time. Executive shall also be entitled to an automobile
allowance, medical, hospital, group life and individual health and disability
insurance coverage as well as such other benefits as may be provided and
modified from time to time by the Company. The Executive shall also be
included in any Directors and Officers' indemnification insurance, if obtained.
In the event that the Executive's employment by the Company is terminated for
any reason, the Executive shall have the right to purchase from the Company any
insurance policies on his life owned by the Company for a price equal to the
cash surrender value of the policies at the date of such termination, plus
prepaid premiums. The right to purchase shall be exercised by the Executive by
written notice to the Company not less than seven (7) days prior to the date of
such termination, and the purchase price of such policies shall be paid by the
Executive to the Company on the date of termination.
2.3 Business expenses. During the term of this Agreement, the
Company shall, in accordance with and to the extent of its uniform policies in
effect from time to time, bear all ordinary and necessary business expenses
incurred by Executive in performing his duties in the service of the Company.
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<PAGE> 3
Executive must account for such expenses to the Company in the manner
reasonably prescribed from time to time by the Company. The Company may
provide Executive with cash advances, Company credit cards and/or telephone
calling cards or other reasonable accommodations for any reasonable expense
incurred by Executive in connection with the performance of his duties as set
forth in this Agreement.
ARTICLE 3 TERMINATION.
3.1 Termination by the Company for Cause. The Company may
terminate this Agreement for Cause. For the purposes of this Agreement,
"Cause" means (a) an act or acts of personal dishonesty undertaken by Executive
and intended to result in substantial personal enrichment of Executive at the
expense of the Company; (b) violations by Executive of his obligations under
paragraph 1.2 which are willful and deliberate on Executive's part and which
are not remedied within a ten-day period after receipt of written notice from
the Board of Directors of the Company; or (c) the willful engaging by Executive
in illegal conduct that is injurious to the Company.
3.2 Termination in the event of death or disability. The term of
Executive's employment under this Agreement shall terminate in the event of his
death or disability. "Disability" means the unwillingness or inability of
Executive to perform his duties under this Agreement because of incapacity due
to physical or mental illness, bodily injury, or disease for a period of twelve
(12) consecutive months.
3.3 Termination by mutual agreement. The parties may terminate
this Agreement at any time by mutual written agreement.
3.4 Termination by Executive. This Agreement may be terminated by
Executive upon not less than thirty (30) days written notice to the Company.
If this Agreement is terminated pursuant to this paragraph, Executive will be
entitled to only the compensation as described in Section 2 through the
effective date of such termination.
3.5 Notice of termination and date of termination. The provisions
of paragraph 3.6 shall apply in connection with any early termination of
Executive's employment under this Agreement pursuant to Article 3.
a. For purposes of this Agreement, a "Notice of
Termination" shall mean a notice which shall indicate the specific
termination provisions in this Agreement relied upon and shall set
forth in reasonable detail the facts and circumstances claimed to
provide the basis for such termination. Any purported termination
pursuant to this Article 3 shall be communicated by written notice of
termination to the other party hereto.
b. For purposes of this Agreement, "Date of Termination"
shall mean:
(1) if Executive's employment is terminated due
to death, the last day of the month in which Executive's death
occurs;
(2) if Executive's employment is terminated for
disability, 10 calendar days after notice of termination is
given;
(3) if Executive's employment is terminated by
the Company for Cause, the date specified in the notice of
termination;
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<PAGE> 4
(4) if Executive's employment is terminated by
mutual agreement of the parties, the date specified in such
agreement; or
(5) if Executive's employment is terminated for
any other reason, the date specified in the notice of
termination.
3.6 Compensation upon termination, death, or during disability.
a. During any period that Executive fails to perform his
duties hereunder as a result of Disability, Executive shall continue
to receive his base salary and benefits under this Agreement until his
date of termination.
b. If Executive's employment under this Agreement is
terminated by the Company for Cause, the Company shall pay Executive
his base salary and benefits through the date of termination.
c. If Executive's employment under this Agreement is
terminated by mutual agreement or the choice of one of the parties,
the Company shall provide Executive with the payments and benefits
specified in such agreement.
ARTICLE 4 NONCOMPETITION; CONFIDENTIAL INFORMATION.
4.1 Noncompetition. Executive agrees that during the term of this
Agreement and for a period of two (2) years following the termination of
employment for any reason he will not directly or indirectly, alone or as a
partner, officer, director, shareholder or employee of any other company or
entity, engage in any competition with the Company's business as conducted by
the Company during the term of this Agreement or contemplated by the Company at
the time of termination of employment or with any part of the Company's
contemplated business with respect to which Executive has confidential
information as governed by Section 4.3 hereof. For the purposes of this
clause, a "shareholder" shall not include beneficial ownership of less than 5
percent of the combined voting power of all issued and outstanding securities
of a publicly held corporation.
4.2 Covenant not to recruit or solicit. Executive recognizes that
the Company's work force constitutes an important and vital aspect of its
business. Executive agrees that for a period of two (2) years following the
termination of this Agreement for any reason whatsoever, he shall not solicit,
or assist anyone else in the solicitation of, any of the Company's then-current
permanent or temporary employees to terminate their employment with the Company
and to become employed by any business enterprise with which Executive may then
be associated, affiliated, or connected, or to solicit or cause to be solicited
any customers of the Company in an attempt to obtain business which pertains to
the business of the Company.
4.3 Prohibitions against use of Confidential Information.
Executive will not, during or subsequent to the termination of his employment
under this Agreement, use or disclose, other than in connection with his
employment with the Company, any Confidential Information to any person not
employed by the Company or not authorized by the Company to receive such
Confidential Information, without prior written consent of the Company.
Executive will use reasonable and prudent care to safeguard and protect and
prevent the unauthorized use and disclosure of Confidential Information. The
obligations contained in this section will survive as long as the Company in
its sole judgment considers the information to be Confidential Information.
"Confidential Information" shall include, but not be limited to, sales, sales
volume or strategy, pricing or pricing strategy, number or location of sales
staff,
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<PAGE> 5
processes, methods or ideas belonging to or relating to the affairs of the
Company, or the names of its customers or contracts.
ARTICLE 5 ENFORCEMENT AND REASONABLENESS OF RESTRICTIONS.
5.1 Enforceability. Executive agrees that it would be difficult
to compensate the Company fully for the damages resulting from any violation of
the provisions of this Agreement, including without limitation the provisions
of Sections 4 of this Agreement. Accordingly, Executive specifically agrees
that the Company shall be entitled to temporary and permanent injunctive relief
to enforce the provisions of this Agreement and that such relief may be granted
without the necessity of proving actual damages. Such remedies shall be
cumulative and shall not preclude the parties from seeking damages resulting
from a breach of this Agreement. In addition, Executive covenants and agrees
that upon a violation of this Agreement, the Company shall be entitled to an
accounting and repayment of all profits, compensation, commissions,
remuneration, and other benefits that Executive directly or indirectly has
realized and/or may realize as a result of, growing out of or in any connection
with any such violation. These remedies shall be in addition to and not in
limitation of any other rights or remedies to which the Company, its affiliates
or related entities have or may be entitled at law, in equity or under this
agreement.
5.2 Reasonableness of Restrictions.
a. Executive has carefully read and considered the
provisions of this Agreement and, having done so, agree that the
restrictions set forth herein, including but not limited to the time
period of the restrictions and the geographical area of such
restrictions are fair and reasonable, and are reasonably required for
the protection of the interests of the Company, its subsidiaries,
affiliates, related entities and employees.
b. In the event that, notwithstanding the foregoing, any
of the provisions of this Agreement shall be held to be invalid or
unenforceable, the remaining provisions thereof shall nevertheless
continue to be valid and enforceable as though the invalid or
unenforceable parts had not been included therein. In the event that
any provision relating to the time period and/or the areas of
restriction shall be declared by a court of competent jurisdiction to
exceed the maximum time period or areas such court deems reasonable
and enforceable, the time period and/or areas of restriction deemed
reasonable and enforceable by said court shall become and thereafter
be the maximum time period and/or areas.
ARTICLE 6 STOCK OPTION AND OTHER INCENTIVE PLANS.
Provided that Executive is employed by the Company at all relevant
times, Executive shall also be eligible to participate in the Company's profit
sharing, pension, stock option and other incentive bonus plans as shall be in
effect from time to time for officers and/or employees of the Company.
ARTICLE 7 ARBITRATION.
Any controversy or dispute, of whatever nature, between or among the
parties involving the meaning of words or provision under this Agreement,
whether or not there has been a breach or default hereof, shall be settled by
arbitration in accordance with the Arbitration Rules of the American
Arbitration Association by a sole Arbitrator and judgment upon the award
rendered by the Arbitrator may be entered in any Court of appropriate
jurisdiction. The decision of the Arbitrator shall be final and conclusive.
With respect to such arbitration:
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<PAGE> 6
a. All questions as to the meaning of the above clause,
or as to the arbitrability of any dispute under said clause, shall be
resolved by the Arbitrator, and the decision thereon shall be binding,
and not subject to judicial review.
b. Each party shall have the right to seek from any
court of appropriate jurisdiction equitable or provisional remedies
(such as temporary restraining orders, temporary injunctions, and the
like) before or during any arbitration.
c. The arbitration proceeding shall be in the
Association's office in Austin, Texas.
d. If the parties hereto are unable to mutually agree
upon a sole Arbitrator, the parties shall select a sole Arbitrator
from the panel provided by the American Arbitration Association.
Further, the Arbitrator shall have the discretion to award attorneys'
fees and costs in favor of any part if, in the opinion of the
Arbitrator, the dispute arose because one of the parties was not
acting in good faith or was in breach or default of the terms and
conditions set forth in this Agreement. If no such finding by the
Arbitrator is made, each of the parties to the arbitration shall bear
equally the fees and costs of the said arbitration proceeding.
e. Any award of the Arbitrator may be entered in any
Court of appropriate jurisdiction under applicable Texas statutes,
which statutes, relating to arbitration, are incorporated herein by
reference.
ARTICLE 8 MISCELLANEOUS PROVISIONS.
8.1 Notice. All notices, requests and demands given to or made
pursuant hereto, shall, except as otherwise specified herein, be in writing and
be personally delivered or mailed postage prepaid, registered or certified U.S.
mail, to any party at the registered office of the Company or at such other
address as such party may, by notice hereunder, designate. Any notice
hereunder shall be deemed effectively given and received: (a) if personally
delivered upon delivery; or (b) if mailed, on the registered date or the date
stamped on the certified mail receipt.
8.2 Withholding. To the extent required by any applicable law,
including, without limitation, any federal or state income tax or excise tax or
laws, the Federal Insurance Contribution Act, the Federal Unemployment Tax Act,
or any comparable federal, state or local laws, the Company retains the right
to withhold such portion of any amount or amounts payable to Executive under
this Agreement as the Company deems necessary.
8.3 Captions. The various headings or captions in this Agreement
are for the convenience of the parties and shall not affect the meaning or
interpretation of this Agreement.
8.4 Governing law. The validity, interpretation, construction,
performance, enforcement and remedies of or relating to this Agreement, and the
rights and obligations of the parties hereunder, shall be governed by the
substantive laws of the State of Texas without reference to the conflicts of
laws provisions thereof.
8.5 Construction. Wherever possible, each provision of this
Agreement shall be interpreted in such a manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be
prohibited by or valid under applicable law, such provision shall be in effect
only to the extent such prohibition or invalidity without invalidating the
remainder of such provision or the remaining provisions of this Agreement.
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<PAGE> 7
8.6 Waiver. Failure on the part of either party to exercise any
right or remedy hereunder shall not operate as a waiver thereof; nor shall any
single or partial exercise of any right or remedy hereunder preclude any other
further exercise thereof, or the exercise of any other right or remedy granted
hereby or by any related document or by law.
8.7 Modification. This Agreement may not be modified or amended
except by written instrument signed by the parties hereto.
8.8 Entire Agreement. This Agreement constitutes the entire
Agreement and understanding between the parties hereto in reference to all
matters here and agreed upon.
8.9 Successors. This Agreement shall inure to the benefit of and
be binding upon the Company, its successors and assigns, and upon the
Executive, his heirs, executors, administrators, legatees and legal
representatives.
8.10 Assignment. This Agreement and all rights hereunder are
personal to the Executive and shall not be assignable, and any purported
assignment in violation thereof shall be null and void. Any person, firm or
corporation succeeding to the business of the Company by merger, consolidation,
purchase of assets or otherwise, shall assume by contract or operation of law
the obligations of the Company hereunder; provided, however, that the Company
shall, notwithstanding such assumption and/or assignment, remain liable and
responsible for the fulfillment of the terms and conditions of the Agreement on
the part of the Company.
8.11 Advice of counsel. The parties hereto have relied on their
respective counsel, and are fully advised of the rights, responsibilities and
benefits described herein.
IN WITNESS WHEREOF, the parties to this Agreement have duly executed
it effective the day and year first above written.
SURREY, INC.
By:__________________________________
Martin van der Hagen
Its: President
EXECUTIVE
_____________________________________
John B. van der Hagen
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EMPLOYMENT AGREEMENT EXHIBIT 10.10
This Employment Agreement ("Agreement") is made effective the ____ day
of ___________, 1997, by and between Surrey, Inc., a Texas corporation ("the
Company"), and Martin J. van der Hagen, a Texas resident ("Executive").
RECITALS
WHEREAS, the Executive is engaged by the Company in the principal
capacity of President and the Company is desirous of continuing the employment
of the Executive upon the terms and conditions contained herein, and the
Executive is desirous of continuing employment with the Company upon the terms
and conditions contained herein;
WHEREAS, the Company specializes in the development and manufacture of
high quality glycerin and specialty soap products, as well as the production of
certain personal care and home fragrance products;
WHEREAS, the compensation to be paid to the Executive by the Company
is at least in part dependent upon gross sales which may accrue to the Company
through its operation of processes and procedures, involving trade secrets and
proprietary information relating to its business;
WHEREAS, the Company is engaged in highly competitive business; and
WHEREAS, the Company must maintain its competitive position by
protecting its trade secrets, know how, and proprietary information.
NOW, THEREFORE, in consideration of the mutual premises and agreements
contained herein and for other good and valuable consideration by each of the
parties, the parties hereby agree as follows:
ARTICLE 1 EMPLOYMENT, DUTIES AND TERM.
1.1 Employment. Upon the terms and conditions set forth in this
Agreement, the Company hereby employs Executive, and Executive accepts such
employment, as President of the Company.
1.2 Term. The term of this Agreement shall commence on the
effective date of the Company's initial public offering (the "Commencement
Date") and conclude at 5:00 p.m. on the third anniversary of the Commencement
Date; provided, however, that the term of this Agreement shall be automatically
continued and extended for additional consecutive twelve month periods
commencing upon such termination date, unless, at least thirty (30) days before
the date of termination of the initial term of this Agreement or of any such
extended term the Company shall give the Executive or the Executive shall give
the Company, a notice in writing electing to terminate this Agreement as of
such termination date. Termination of this Agreement, as set forth in Article
3, also shall terminate Executive's employment by the Company and his position
as President and an employee.
1.3 Duties. During the term of this Agreement, Executive agrees
to devote his full business time exclusively to the business and affairs of the
Company and, to the extent necessary to discharge the responsibilities assigned
to Executive hereunder, to use his best efforts to perform faithfully and
efficiently such responsibilities. As President of the Company, Executive
shall perform to the best of his
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<PAGE> 2
ability any and all duties that may be delegated to Executive by the Board of
Directors or the Chief Executive Officer of the Company.
1.4 Return of proprietary property. Executive agrees that all
property in his possession belonging to the Company including, without
limitation, all documents, reports, manuals, memoranda, computer printouts,
customer lists, credit cards, calling cards, keys, identification, products,
access cards, automobiles and all other property relating in any way to the
business of the Company are the exclusive property of the Company. Executive
shall return to the Company all such documents and property immediately upon
termination of his employment.
ARTICLE 2 COMPENSATION, BENEFITS AND EXPENSES.
2.1 Base Salary and Bonus.
a. During the term of this Agreement and subject to the
provisions of Article 3, the Company shall pay to Executive the
following base annual salary, payable bi-weekly: from the
Commencement Date through December 31, 1997, a base annual salary not
to exceed $95,000; for the calendar year ending December 31, 1998, a
base annual salary of $150,000 providing the gross sales of the
Company as of December 31, 1998 reach twelve million dollars
($12,000,000); and for the calendar year ending December 31, 1999, a
base annual salary of $175,000 providing the gross sales of the
Company as of December 31, 1999 reach fifteen million dollars
($15,000.000). Executive's compensation shall be reviewed on an
annual basis thereafter in accordance with the Company's policies and
may be adjusted accordingly based upon the Executive's and the
Company's performance.
b. Executive shall also be entitled to receive an annual
bonus as shall be determined by the Company, in accordance with
Company policies in effect from time to time, in an amount not to
exceed $20,000 for each of 1998 and 1999; provided, however, that if
the Company reaches the following income goals, the Executive may
receive an additional bonus for such calendar year: if the Company's
after tax income exceeds one million dollars ($1,000,000) for calendar
1998, an additional bonus for 1998 of $20,000; and if the Company's
after tax income exceeds one million three hundred thousand dollars
($1,300,000) for calendar 1999, an additional bonus for 1999 of
$20,000.
2.2 Other compensation and benefits. Executive shall be entitled
to paid vacation, personal days, sick days, and other benefits consistent with
those received by other officers and employees of the Company, as shall be as
determined by the Board of Directors pursuant to policies implemented by the
Company from time to time. Executive shall also be entitled to an automobile
allowance, medical, hospital, group life and individual health and disability
insurance coverage as well as such other benefits as may be provided and
modified from time to time by the Company. The Executive shall also be
included in any Directors and Officers' indemnification insurance, if obtained.
In the event that the Executive's employment by the Company is terminated for
any reason, the Executive shall have the right to purchase from the Company any
insurance policies on his life owned by the Company for a price equal to the
cash surrender value of the policies at the date of such termination, plus
prepaid premiums. The right to purchase shall be exercised by the Executive by
written notice to the Company not less than seven (7) days prior to the date of
such termination, and the purchase price of such policies shall be paid by the
Executive to the Company on the date of termination.
2.3 Business expenses. During the term of this Agreement, the
Company shall, in accordance with and to the extent of its uniform policies in
effect from time to time, bear all ordinary and necessary
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<PAGE> 3
business expenses incurred by Executive in performing his duties in the service
of the Company. Executive must account for such expenses to the Company in the
manner reasonably prescribed from time to time by the Company. The Company may
provide Executive with cash advances, Company credit cards and/or telephone
calling cards or other reasonable accommodations for any reasonable expense
incurred by Executive in connection with the performance of his duties as set
forth in this Agreement.
ARTICLE 3 TERMINATION.
3.1 Termination by the Company for Cause. The Company may
terminate this Agreement for Cause. For the purposes of this Agreement,
"Cause" means (a) an act or acts of personal dishonesty undertaken by Executive
and intended to result in substantial personal enrichment of Executive at the
expense of the Company; (b) violations by Executive of his obligations under
paragraph 1.2 which are willful and deliberate on Executive's part and which
are not remedied within a ten-day period after receipt of written notice from
the Board of Directors of the Company; or (c) the willful engaging by Executive
in illegal conduct that is injurious to the Company.
3.2 Termination in the event of death or disability. The term of
Executive's employment under this Agreement shall terminate in the event of his
death or disability. "Disability" means the unwillingness or inability of
Executive to perform his duties under this Agreement because of incapacity due
to physical or mental illness, bodily injury, or disease for a period of twelve
(12) consecutive months.
3.3 Termination by mutual agreement. The parties may terminate
this Agreement at any time by mutual written agreement.
3.4 Termination by Executive. This Agreement may be terminated by
Executive upon not less than thirty (30) days written notice to the Company.
If this Agreement is terminated pursuant to this paragraph, Executive will be
entitled to only the compensation as described in Section 2 through the
effective date of such termination.
3.5 Notice of termination and date of termination. The provisions
of paragraph 3.6 shall apply in connection with any early termination of
Executive's employment under this Agreement pursuant to Article 3.
a. For purposes of this Agreement, a "Notice of
Termination" shall mean a notice which shall indicate the specific
termination provisions in this Agreement relied upon and shall set
forth in reasonable detail the facts and circumstances claimed to
provide the basis for such termination. Any purported termination
pursuant to this Article 3 shall be communicated by written notice of
termination to the other party hereto.
b. For purposes of this Agreement, "Date of Termination"
shall mean:
(1) if Executive's employment is terminated due
to death, the last day of the month in which Executive's death
occurs;
(2) if Executive's employment is terminated for
disability, 10 calendar days after notice of termination is
given;
(3) if Executive's employment is terminated by
the Company for Cause, the date specified in the notice of
termination;
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(4) if Executive's employment is terminated by
mutual agreement of the parties, the date specified in such
agreement; or
(5) if Executive's employment is terminated for
any other reason, the date specified in the notice of
termination.
3.6 Compensation upon termination, death, or during disability.
a. During any period that Executive fails to perform his
duties hereunder as a result of Disability, Executive shall continue
to receive his base salary and benefits under this Agreement until his
date of termination.
b. If Executive's employment under this Agreement is
terminated by the Company for Cause, the Company shall pay Executive
his base salary and benefits through the date of termination.
c. If Executive's employment under this Agreement is
terminated by mutual agreement or the choice of one of the parties,
the Company shall provide Executive with the payments and benefits
specified in such agreement.
ARTICLE 4 NONCOMPETITION; CONFIDENTIAL INFORMATION.
4.1 Noncompetition. Executive agrees that during the term of this
Agreement and for a period of two (2) years following the termination of
employment for any reason he will not directly or indirectly, alone or as a
partner, officer, director, shareholder or employee of any other company or
entity, engage in any competition with the Company's business as conducted by
the Company during the term of this Agreement or contemplated by the Company at
the time of termination of employment or with any part of the Company's
contemplated business with respect to which Executive has confidential
information as governed by Section 4.3 hereof. For the purposes of this
clause, a "shareholder" shall not include beneficial ownership of less than 5
percent of the combined voting power of all issued and outstanding securities
of a publicly held corporation.
4.2 Covenant not to recruit or solicit. Executive recognizes that
the Company's work force constitutes an important and vital aspect of its
business. Executive agrees that for a period of two (2) years following the
termination of this Agreement for any reason whatsoever, he shall not solicit,
or assist anyone else in the solicitation of, any of the Company's then-current
permanent or temporary employees to terminate their employment with the Company
and to become employed by any business enterprise with which Executive may then
be associated, affiliated, or connected, or to solicit or cause to be solicited
any customers of the Company in an attempt to obtain business which pertains to
the business of the Company.
4.3 Prohibitions against use of Confidential Information.
Executive will not, during or subsequent to the termination of his employment
under this Agreement, use or disclose, other than in connection with his
employment with the Company, any Confidential Information to any person not
employed by the Company or not authorized by the Company to receive such
Confidential Information, without prior written consent of the Company.
Executive will use reasonable and prudent care to safeguard and protect and
prevent the unauthorized use and disclosure of Confidential Information. The
obligations contained in this section will survive as long as the Company in
its sole judgment considers the information to be Confidential Information.
"Confidential Information" shall include, but not be limited to, sales, sales
volume or strategy, pricing or pricing strategy, number or location of sales
staff,
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<PAGE> 5
processes, methods or ideas belonging to or relating to the affairs of the
Company, or the names of its customers or contracts.
ARTICLE 5 ENFORCEMENT AND REASONABLENESS OF RESTRICTIONS.
5.1 Enforceability. Executive agrees that it would be
difficult to compensate the Company fully for the damages
resulting from any violation of the provisions of this
Agreement, including without limitation the provisions of
Sections 4 of this Agreement. Accordingly, Executive
specifically agrees that the Company shall be entitled to
temporary and permanent injunctive relief to enforce the
provisions of this Agreement and that such relief may be
granted without the necessity of proving actual damages. Such
remedies shall be cumulative and shall not preclude the
parties from seeking damages resulting from a breach of this
Agreement. In addition, Executive covenants and agrees that
upon a violation of this Agreement, the Company shall be
entitled to an accounting and repayment of all profits,
compensation, commissions, remuneration, and other benefits
that Executive directly or indirectly has realized and/or may
realize as a result of, growing out of or in any connection
with any such violation. These remedies shall be in addition
to and not in limitation of any other rights or remedies to
which the Company, its affiliates or related entities have or
may be entitled at law, in equity or under this agreement.
5.2 Reasonableness of Restrictions.
a. Executive has carefully read and considered the
provisions of this Agreement and, having done so, agree that the
restrictions set forth herein, including but not limited to the time
period of the restrictions and the geographical area of such
restrictions are fair and reasonable, and are reasonably required for
the protection of the interests of the Company, its subsidiaries,
affiliates, related entities and employees.
b. In the event that, notwithstanding the foregoing, any
of the provisions of this Agreement shall be held to be invalid or
unenforceable, the remaining provisions thereof shall nevertheless
continue to be valid and enforceable as though the invalid or
unenforceable parts had not been included therein. In the event that
any provision relating to the time period and/or the areas of
restriction shall be declared by a court of competent jurisdiction to
exceed the maximum time period or areas such court deems reasonable
and enforceable, the time period and/or areas of restriction deemed
reasonable and enforceable by said court shall become and thereafter
be the maximum time period and/or areas.
ARTICLE 6 STOCK OPTION AND OTHER INCENTIVE PLANS.
Provided that Executive is employed by the Company at all relevant
times, Executive shall also be eligible to participate in the Company's profit
sharing, pension, stock option and other incentive bonus plans as shall be in
effect from time to time for officers and/or employees of the Company.
ARTICLE 7 ARBITRATION.
Any controversy or dispute, of whatever nature, between or among the
parties involving the meaning of words or provision under this Agreement,
whether or not there has been a breach or default hereof, shall be settled by
arbitration in accordance with the Arbitration Rules of the American
Arbitration Association by a sole Arbitrator and judgment upon the award
rendered by the Arbitrator may be entered in any Court of appropriate
jurisdiction. The decision of the Arbitrator shall be final and conclusive.
With respect to such arbitration:
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<PAGE> 6
a. All questions as to the meaning of the above clause,
or as to the arbitrability of any dispute under said clause, shall be
resolved by the Arbitrator, and the decision thereon shall be binding,
and not subject to judicial review.
b. Each party shall have the right to seek from any
court of appropriate jurisdiction equitable or provisional remedies
(such as temporary restraining orders, temporary injunctions, and the
like) before or during any arbitration.
c. The arbitration proceeding shall be in the
Association's office in Austin, Texas.
d. If the parties hereto are unable to mutually agree
upon a sole Arbitrator, the parties shall select a sole Arbitrator
from the panel provided by the American Arbitration Association.
Further, the Arbitrator shall have the discretion to award attorneys'
fees and costs in favor of any part if, in the opinion of the
Arbitrator, the dispute arose because one of the parties was not
acting in good faith or was in breach or default of the terms and
conditions set forth in this Agreement. If no such finding by the
Arbitrator is made, each of the parties to the arbitration shall bear
equally the fees and costs of the said arbitration proceeding.
e. Any award of the Arbitrator may be entered in any
Court of appropriate jurisdiction under applicable Texas statutes,
which statutes, relating to arbitration, are incorporated herein by
reference.
ARTICLE 8 MISCELLANEOUS PROVISIONS.
8.1 Notice. All notices, requests and demands given to or made
pursuant hereto, shall, except as otherwise specified herein, be in writing and
be personally delivered or mailed postage prepaid, registered or certified U.S.
mail, to any party at the registered office of the Company or at such other
address as such party may, by notice hereunder, designate. Any notice
hereunder shall be deemed effectively given and received: (a) if personally
delivered upon delivery; or (b) if mailed, on the registered date or the date
stamped on the certified mail receipt.
8.2 Withholding. To the extent required by any applicable law,
including, without limitation, any federal or state income tax or excise tax or
laws, the Federal Insurance Contribution Act, the Federal Unemployment Tax Act,
or any comparable federal, state or local laws, the Company retains the right
to withhold such portion of any amount or amounts payable to Executive under
this Agreement as the Company deems necessary.
8.3 Captions. The various headings or captions in this Agreement
are for the convenience of the parties and shall not affect the meaning or
interpretation of this Agreement.
8.4 Governing law. The validity, interpretation, construction,
performance, enforcement and remedies of or relating to this Agreement, and the
rights and obligations of the parties hereunder, shall be governed by the
substantive laws of the State of Texas without reference to the conflicts of
laws provisions thereof.
8.5 Construction. Wherever possible, each provision of this
Agreement shall be interpreted in such a manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be
prohibited by or valid under applicable law, such provision shall be in effect
only to the extent such prohibition or invalidity without invalidating the
remainder of such provision or the remaining provisions of this Agreement.
-6-
<PAGE> 7
8.6 Waiver. Failure on the part of either party to exercise any
right or remedy hereunder shall not operate as a waiver thereof; nor shall any
single or partial exercise of any right or remedy hereunder preclude any other
further exercise thereof, or the exercise of any other right or remedy granted
hereby or by any related document or by law.
8.7 Modification. This Agreement may not be modified or amended
except by written instrument signed by the parties hereto.
8.8 Entire Agreement. This Agreement constitutes the entire
Agreement and understanding between the parties hereto in reference to all
matters here and agreed upon.
8.9 Successors. This Agreement shall inure to the benefit of and
be binding upon the Company, its successors and assigns, and upon the
Executive, his heirs, executors, administrators, legatees and legal
representatives.
8.10 Assignment. This Agreement and all rights hereunder are
personal to the Executive and shall not be assignable, and any purported
assignment in violation thereof shall be null and void. Any person, firm or
corporation succeeding to the business of the Company by merger, consolidation,
purchase of assets or otherwise, shall assume by contract or operation of law
the obligations of the Company hereunder; provided, however, that the Company
shall, notwithstanding such assumption and/or assignment, remain liable and
responsible for the fulfillment of the terms and conditions of the Agreement on
the part of the Company.
8.11 Advice of counsel. The parties hereto have relied on their
respective counsel, and are fully advised of the rights, responsibilities and
benefits described herein.
IN WITNESS WHEREOF, the parties to this Agreement have duly executed
it effective the day and year first above written.
SURREY, INC.
By:________________________________________
John B. van der Hagen
Its: Chief Executive Officer
EXECUTIVE
___________________________________________
Martin van der Hagen
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<PAGE> 1
EXHIBIT 16
JAMES M. BETTY
CERTIFIED PUBLIC ACCOUNTANT
5901 BROOKLYN BOULEVARD, MINNEAPOLIS, MINN. 55429 612-535-3001 FAX
612-535-2815
November 12, 1997
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549
Gentlemen:
I have read Item 23 of Form SB-2 dated November 12, 1997, of Surrey, Inc. and
are in agreement with the statements contained under the section "Changes in
Company's Certifying Accountant" included herein.
Very truly yours,
/s/ James M. Betty, CPA
JAMES M. BETTY, CPA
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