<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 16, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SURREY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<C> <C> <C>
TEXAS 2844 74-2138564
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
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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<C> <C>
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
</TABLE>
------------------------
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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<CAPTION>
===========================================================================================================================
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 $0.10 71,875 21.78
- ---------------------------------------------------------------------------------------------------------------------------
Common Stock, no par value, issuable upon
exercise of Warrants...................... 718,750 $4.80 $3,450,000 $1,045.45
- ---------------------------------------------------------------------------------------------------------------------------
Total....................................... $2,809.65
===========================================================================================================================
</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.
------------------------
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.
================================================================================
<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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<CAPTION>
FORM SB-2 ITEM NUMBER AND CAPTION HEADING IN PROSPECTUS
--------------------------------- ---------------------
<S> <C> <C>
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 Not Applicable
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 SEPTEMBER 16, 1997
PROSPECTUS
- ---------------------
SURREY LOGO
625,000 UNITS
SURREY, INC.
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 Warrants will be detachable and separately
transferable from the Common Stock commencing 60 days from the date of this
Prospectus or earlier at the sole discretion of Stuart, Coleman & Co., Inc., as
representative (the "Representative") of the several underwriters (the
"Underwriters"). Each Warrant entitles the registered holder to purchase one
share of Common Stock at an exercise price of $4.80, subject to adjustment in
certain circumstances, at any time prior to the fifth anniversary of the date of
the Prospectus. The Warrants are redeemable by Surrey commencing one year after
the date of the Prospectus 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." 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 "SOAPU," "SOAPC"
and "SOAPW." It is currently estimated that the initial public offering price
will be $8.10 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" 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.
<TABLE>
<CAPTION>
===================================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Unit...................................... $ $ $
- -------------------------------------------------------------------------------------------------------------------
Total(3)...................................... $ $ $
===================================================================================================================
</TABLE>
(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 $151,875 (or $174,656 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 71,875 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 $363,000 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]
Home and Bath Products
[Contains photographs of selected soap products manufactured by Surrey, Inc.]
sensibly indulgent
SURREY
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
<TABLE>
<S> <C>
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
for the Common Stock commencing 60 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 71,875 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 or (iv) 215,625 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
<TABLE>
<S> <C>
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. See "Risk
Factors" and "Dilution."
</TABLE>
SUMMARY FINANCIAL DATA
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE INCOME DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------------- ----------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales......................................... $7,479 $7,882 $7,336 $3,148 $3,724
Cost of goods sold................................ 5,692 6,071 5,485 2,455 2,820
Gross profit...................................... 1,787 1,811 1,851 693 904
Total operating expenses.......................... 1,635 1,589 1,512 716 696
Interest expense.................................. 138 222 226 106 102
Other............................................. -- 3 -- -- --
Provision for income taxes........................ 6 1 47 (54) 42
Net income (loss)................................. 8 2 66 (75) 64
Net income (loss) per share(1).................... $ .01 $ -- $ .06 $ (.07) $ .06
Weighted average shares outstanding(1)............ 1,123 1,123 1,123 1,123 1,123
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
DECEMBER 31, ------------------------
1996 ACTUAL AS ADJUSTED(2)
------------ ------ --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.......................................... $1,002 $ 800 $3,766
Total assets............................................. 4,228 4,546 7,422
Current liabilities...................................... 1,718 2,190 2,100
Long-term debt, less current portion..................... 1,470 1,256 1,256
Stockholder's equity..................................... 998 1,062 4,028
</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
prior to January 1, 1994.
(2) Adjusted to reflect the sale of 1,250,000 shares of Common Stock offered
hereby at an assumed initial public offering price of $4.00 per share 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 most of the net proceeds from the offering to
significantly expand its business. 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. 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. See
"Use of Proceeds" and "Business -- Growth Strategy."
CONSTRUCTION RISK
The Company currently intends to use approximately $400,000 of the net
proceeds of this offering to cover part of the cost to enlarge its current
manufacturing facility and anticipates securing a new or extended line of bank
financing for the balance of such cost. It is currently estimating 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. In
addition, the Company has entered into discussions with its current bank lender
to secure financing to cover the balance of the cost of construction not being
paid with proceeds of this offering and has obtained from such lender a letter
of intent to finance, on a secured basis, such balance, 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 subject
to compliance by the Company with the terms of its currently outstanding loans.
There can be no assurance, however, that such conditions can be satisfied by the
Company and that sufficient bank financing will be available to cover the cost
of such construction, or that the proposed expansion can be completed within
management's assumed timeframe. 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 CUSTOMERS
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 six 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 Walgreens
will be the second and third largest customers, respectively, each accounting
for less than 10% of net sales. 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."
CONTROL BY PRINCIPAL SHAREHOLDER
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. 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
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
6
<PAGE> 9
which signed such a confidentiality agreement appears to be using certain trade
secrets of the Company in violation of their agreement. 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."
USE OF PROCEEDS
The Company currently anticipates that it will use approximately 31.8% 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. Approximately 39.8% of
the net proceeds are being allocated to current working capital and general
corporate purposes 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. Management of the
Company has great discretion in how the net proceeds of this offering will be
used. See "Use of Proceeds."
NO PRIOR PUBLIC MARKET; POSSIBLE STOCK PRICE VOLATILITY; NO CASH DIVIDENDS
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. 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. See "Dividend Policy" and
"Underwriting."
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, without the prior written consent of the Representative
for 20 months after the date of this Prospectus. 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."
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 $2.30 per share. See "Dilution."
7
<PAGE> 10
USE OF PROCEEDS
The net proceeds from the sale of the 625,000 Units offered hereby, at an
assumed offering price of $8.10 per Unit, are estimated (after deducting the
Underwriting discount and estimated offering expenses payable by the Company) to
be approximately $4,216,250 (approximately $4,876,906 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)....................................... $ 400,000 9.5%
New product development, sales and marketing(2)............. 800,000 18.9
Repayment of indebtedness(3)................................ 1,340,000 31.8
Working capital and general corporate purposes(4)........... 1,676,250 39.8
---------- ------
Total.................................................. 4,216,250 100.0
========== ======
</TABLE>
- -------------------------
(1) Represents portion of the cost of expanding the current facility not
expected to be financed with bank debt. The Company has entered into
discussions with its current bank lender to secure financing for the balance
of such costs. See "Business -- Growth Strategy" and "Business -- Properties
and Equipment."
(2) Represents funds allocated to the development of new products and increased
marketing and sales efforts, including salaries and commission for new sales
and marketing personnel. See "Business -- Growth Strategy."
(3) Represents repayment to a former officer, director and shareholder of (a)
$1,250,000 principal amount promissory note issued in connection with the
repurchase of shares by the Company and (b) approximately $90,000 principal
amount promissory note for borrowed money. See "Certain Transactions."
(4) 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 currently anticipates that such working capital will allow it
to develop new products and, together with cash generated from sales, 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, which is expected to be paid monthly out of operating revenues;
however, there can be no assurance that the Company will generate sufficient
revenue to cover all such costs. In such event, a portion of the net proceeds of
this offering, if available at the time, may be used to pay such expenses. In
addition, if the Company is not able to meet the conditions required by its
lender to secure adequate bank financing at the time to complete the planned
expansion of its facilities, the Company may be required to fund the entire
construction costs from working capital, including the proceeds of this
offering. See also "Risk Factors," "Business -- Growth Strategy," "Business --
Properties and Equipment."
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.
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
facilitating access to public equity markets for future
8
<PAGE> 11
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."
9
<PAGE> 12
DILUTION
The net tangible book value of the Company's Common Stock at June 30, 1997
was $1,062,000 or $0.47 per share. After giving effect to the 1997 stock split,
and repurchase of shares (as illustrated below), the pro forma net tangible book
value of the Company's Common Stock at June 30, 1997 was $(188,000) or $(0.17)
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 June 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
June 30, 1997 would have been $4,028,000 or $1.70 per share. This represents an
immediate increase in net tangible book value to the existing shareholders of
$1.87 per share and an immediate dilution of $2.30 per share 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
Net tangible book value as of June 30, 1997............. $ 0.47
Pro forma effect of the 1997 repurchase of shares....... $(0.64)
------
Pro forma net tangible book value prior to offering..... $(0.17)
------
Increase attributable to new investors.................. $ 1.87
------
Pro forma net tangible book value adjusted for this
offering................................................ $1.70
-----
Dilution to new investors in this offering................ $2.30
=====
</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."
10
<PAGE> 13
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1997 and as adjusted to reflect the sale by the Company of 625,000 Units, at
an assumed offering price of $8.10 per Unit, the events set forth in the
footnotes below, and the application of the net proceeds therefrom.
<TABLE>
<CAPTION>
JUNE 30, 1997
---------------------
AS
ACTUAL ADJUSTED
------ --------
(IN THOUSANDS)
<S> <C> <C>
DEBT (INCLUDING CURRENT MATURITIES):
Notes payable to shareholder............................. $ 175 $ 85
Long-term debt........................................... 1,295 1,295
Capital lease obligations................................ 142 142
------ ------
Total debt................................................. 1,612 1,522
SHAREHOLDERS' EQUITY:
Common stock, no par value; 10,000,000 authorized;
2,245,464 (actual) and 2,372,727 (as adjusted) issued
and outstanding(1).................................... 393 4,216
Retained earnings (deficit)................................ 669 (188)
------ ------
Total shareholders' equity................................. 1,062 4,028
------ ------
Total capitalization....................................... $2,674 $5,550
====== ======
</TABLE>
- -------------------------
(1) Reflects stock repurchase and stock split undertaken by the Company in
August and September 1997. 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)
215,625 shares of Common Stock which may be purchased upon exercise of the
Representative's Warrant. See "Description of Securities," "Management" and
"Underwriting."
11
<PAGE> 14
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 six 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 SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------------- ----------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales......................................... $7,479 $7,882 $7,336 $3,148 $3,724
Cost of goods sold................................ 5,692 6,071 5,485 2,455 2,820
Gross profit...................................... 1,787 1,811 1,851 693 904
Total operating expenses.......................... 1,635 1,589 1,512 716 696
Interest expense.................................. 138 222 226 106 102
Other............................................. -- 3 -- -- --
Provision for income taxes........................ 6 1 47 (54) 42
Net income (loss)................................. 8 2 66 (75) 64
------ ------ ------ ------ ------
Net income (loss) per share(1).................... $ .01 $ -- $ .06 $ (.07) $ .06
Weighted average shares outstanding(1)............ 1,123 1,123 1,123 1,123 1,123
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
DECEMBER 31, ------------------------
1996 ACTUAL AS ADJUSTED(2)
------------ ------ --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.......................................... $1,002 $ 800 $3,766
Total assets............................................. 4,228 4,546 7,422
Current liabilities...................................... 1,718 2,190 2,100
Long-term debt, less current portion..................... 1,470 1,256 1,256
Stockholder's equity..................................... 998 1,062 4,028
</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
prior to January 1, 1994.
(2) Adjusted to reflect the sale of 1,250,000 shares of Common Stock offered
hereby at an assumed initial public offering price of $4.00 per share and
the application of estimated net proceeds therefrom; does not reflect shares
issuable upon exercise of the Warrants offered hereby.
12
<PAGE> 15
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>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 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 75.7 78.0
Gross Profit......................................... 25.2 23.0 23.9 24.3 22.0
Operating Expenses
Marketing.......................................... 6.9 6.5 9.7 4.2 7.5
General & Administrative........................... 13.7 13.7 12.1 14.5 15.3
Interest Expense (Net)............................. 3.1 2.8 1.9 2.7 3.4
Net Income (Loss).................................... .9 -- .1 1.7 (2.4)
</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
13
<PAGE> 16
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.
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
Net Sales. Net sales increased significantly to $3,724,000 in June 1997
from $3,148,000 in June 1996, an increase of 18.3%. 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. Based on current orders to be shipped during the
second six 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 six months ended June 1997 to
$904,000, from $693,000 for the comparable six-month period in 1996. Gross
profit margin for the same period increased from 24.3% in 1996 to 22.0% in 1997.
This increase was primarily due to the Company's focus on higher product margin
products and accounts, as well as factory efficiencies gained by continued
aggressive cost controls and the successful launch of the new product line.
Operating Expenses. Operating expenses decreased slightly in the first six
months of 1997 by 2.8% to $696,000 (or 18.7% of net sales), as compared to
$716,000 in 1996 (or 22.8% of net sales). Operating expenses remained fairly
flat, even as sales volume increased, due primarily to aggressive Company cost
controls. Marketing expenses decreased to $156,000 in June 1997 from $235,000
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 $540,000 in June 1997 from
$481,000 in June 1996, but decreased as a percentage of net sales to 14.5% in
1997 from 15.3% in 1996. Such decrease is primarily due to the increase in sales
volume while fixed general and administrative expenses have remained constant.
14
<PAGE> 17
Interest Expense. Net interest expense remained constant at $102,000 (2.7%
of net sales) in June 1997 as compared to $106,000 in June 1996 (3.4% of net
sales.)
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 June 30, 1997
was approximately $1,245,000, 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. 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 also limits the salaries of officers to $250,000 annually and the
payment of certain bonuses without consent of the bank. As of June 30, 1997, the
Company was not in compliance with all such restrictions; however, Norwest 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, as lender, has consented to the transactions contemplated hereby;
however, the SBA will not consent to this reduction of the stock collateral
pledged to secure the loan. The Company has received a letter from Norwest
stating that the failure of the SBA to consent to the transactions will not be a
default under the loan.
In addition, in connection with its construction plans, the Company has
entered into discussions with Norwest to secure the balance of such financing
that is not being provided by proceeds of this offering and has obtained from
Norwest a letter of intent to finance, on a secured basis, such balance, 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 $500,000, is due March 31, 1998, and
bears interest at a rate per annum equal to 1.5% over 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 by all accounts
receivable, inventory, furniture, fixtures and equipment, and are guaranteed by
both the current and former CEOs of the Company.
Based on its increased sales activity during the first six-months of 1997,
as well as the volume of orders in July and August, the Company currently
anticipates that it will be required to increase its current working capital
line prior to the closing of this offering in order to finance such production.
The Company is currently discussing with Norwest such extension. Such extension
would be subject to certain conditions including review by Norwest of the
Company's borrowing base of eligible receivables and SBA concurrence if the SBA
is required to subordinate any lien on receivables. While, based on anticipated
receivables, the Company expects such loan will be extended, there can be no
assurance. Any failure to extend such line could have a material adverse effect
on the Company.
The Company leases its manufacturing equipment pursuant to capital leases.
Total minimum payments under such leases aggregated $174,000 at June 30, 1997,
and $204,000 at December 31, 1996, with maturity
15
<PAGE> 18
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.
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.
16
<PAGE> 19
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. 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 was 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.
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 is 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
manufactures and markets a full line of potpourri products and Soap Making Kits
and accessories. The Company estimates its total sales 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
17
<PAGE> 20
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. 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, on a direct marketing
basis, specialty products for a variety of contract manufacturing customers.
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 two quarters of
1997, with orders aggregating approximately $500,000 received for shipment in
the third and fourth quarters. 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 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.
18
<PAGE> 21
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. 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, 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.
Currently, the Company's goal is to use
19
<PAGE> 22
approximately $400,000 of the proceeds of this offering for such expansion and
to refinance and increase its currently outstanding bank loan (or enter into an
additional loan) to cover the balance of the anticipated construction costs. The
Company has entered into discussions with its current bank lender to secure such
financing and has obtained from such lender a letter of intent to finance, on a
secured basis, such cost, 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. These
larger manufacturers may, however, present more competition to the Company for
its liquid soap products.
The Company believes 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.
20
<PAGE> 23
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 June 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.
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.
21
<PAGE> 24
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. 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.
22
<PAGE> 25
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.
23
<PAGE> 26
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 an Audit Committee comprised of Mr. Masucci, Mr.
MacIntosh and Mr. Martin van der Hagen. The Board currently has no other
standing 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 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.
(3) Resigned as CEO and director in August 1997 and entered into a consulting
agreement with the Company. See "Certain Transactions."
24
<PAGE> 27
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.
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.
Stock options for the purchase of 287,500 shares of Common Stock were
granted 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."
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.
25
<PAGE> 28
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 such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
CERTAIN TRANSACTIONS
STOCK PURCHASE AGREEMENT AND CONSULTING AGREEMENT WITH JAMES K. OLSON
In August 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 all of Mr. Olson's shares of
Common Stock, representing fifty percent of the outstanding shares, for
$1,250,000. The purchase price for such shares 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. 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
26
<PAGE> 29
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 certain indebtedness and
leases of the Company Mr. Olson has personally guaranteed. In addition, Mr.
Olson and Mr. John van der Hagen entered into a voting trust agreement whereby
Mr. Olson will be reinstated as a fifty percent shareholder, officer and
director of the Company if the Purchase Note is not paid when due as stated
above.
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. 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.
LOAN FROM OFFICERS
Each of the current and former CEOs of the Company hold promissory notes,
each in the current principal amount outstanding of approximately $90,000. Such
notes 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.
27
<PAGE> 30
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.......................................... -0- -0- -0-
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, 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 James
K. Olson, a former director, officer and shareholder. See "Certain
Transactions."
28
<PAGE> 31
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 Warrants will be detachable and
separately transferable from the Common Stock commencing 60 days from the date
of this Prospectus or earlier at the sole discretion of the Representative.
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
71,875 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 Warrants 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 Warrants will be detachable and separately transferable from the Common
Stock commencing 60 days from the date of this Prospectus or earlier at the sole
discretion of the Representative.
29
<PAGE> 32
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.
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 71,875 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.
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
30
<PAGE> 33
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 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
31
<PAGE> 34
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 $151,875
($174,656 if the Underwriters' over-allotment option is exercised in full),
$50,000 of which has been paid to date.
The Underwriting Agreement also provides that the Representative shall have
a right of first refusal to act as the Company's underwriter or agent for all
future financings, whether private placements, secondary public financings or
other financial transactions of any kind, for a period of five years from the
closing date of this offering.
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
71,875 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 and to other
selling group members or their respective officers and partners, if any. 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 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
32
<PAGE> 35
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.
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 215,625
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."
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.
33
<PAGE> 36
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.
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, Leander, Texas 78641, (512) 267-7172.
34
<PAGE> 37
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 June 30, 1997
(unaudited)............................................... F-3
Statements of Operations for the years ended December 31,
1995 and 1996 and for the six months ended June 30, 1996
(unaudited) and 1997 (unaudited).......................... F-4
Statements of Shareholders' Equity for the years ended
December 31, 1995 and 1996 and for the six months ended
June 30, 1997 (unaudited)................................. F-5
Statements of Cash Flows for the years ended December 31,
1995 and 1996 and for the six months ended June 30, 1996
(unaudited) and 1997 (unaudited).......................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 38
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> 39
SURREY, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ --------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash........................................................ $ 159 $ 79
Accounts receivable, net of allowance for doubtful accounts
of $30 at December 31, 1996 and $23 at June 30, 1997...... 1,312 1,416
Inventories, net............................................ 1,172 1,430
Prepaid expenses and other current assets................... 31 30
Deferred income taxes....................................... 46 35
------ ------
Total current assets........................................ 2,720 2,990
Property and equipment, net................................. 1,508 1,531
Deferred financing costs.................................... -- 25
------ ------
Total assets................................................ $4,228 $4,546
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable.................................... $ 660 $1,090
Accrued expenses.......................................... 90 93
Notes payable............................................. 729 608
Notes payable to shareholders, current portion............ 28 175
Current maturities of long-term debt...................... 97 102
Current maturities of capital lease obligations........... 106 79
Income taxes payable...................................... 8 43
------ ------
Total current liabilities................................... 1,718 2,190
Notes payable to shareholders, less current maturities...... 154 --
Long-term debt, less current maturities..................... 1,239 1,193
Capital lease obligations, less current maturities.......... 77 63
Deferred income taxes....................................... 42 38
Commitments and contingencies
Shareholders' equity:
Common stock, no par value, 10,000,000 shares authorized,
2,245,454 shares issued and outstanding at December 31,
1996 and at June 30, 1997.............................. 393 393
Retained earnings......................................... 605 669
------ ------
Total shareholders' equity.................................. 998 1,062
------ ------
Total liabilities and shareholders' equity.................. $4,228 $4,546
====== ======
</TABLE>
See accompanying notes.
F-3
<PAGE> 40
SURREY, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------ ----------------------
1995 1996 1996 1997
---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales......................................... $ 7,882 $ 7,336 $ 3,148 $ 3,724
Cost of sales..................................... 6,071 5,485 2,455 2,820
--------- --------- --------- ---------
Gross profit...................................... 1,811 1,851 693 904
Operating expenses:
Sales and marketing............................. 513 507 235 156
General and administrative...................... 1,076 1,005 481 540
--------- --------- --------- ---------
Total operating expenses.......................... 1,589 1,512 716 696
Income (loss) from operations..................... 222 339 (23) 208
Other:
Interest expense, net........................... 222 226 106 102
Other income.................................... 3 -- -- --
--------- --------- --------- ---------
Income (loss) before income taxes................. 3 113 (129) 106
Provision for income taxes........................ 1 47 (54) 42
--------- --------- --------- ---------
Net income (loss)................................. $ 2 $ 66 $ (75) $ 64
========= ========= ========= =========
Net income (loss) per common share................ $ -- $ 0.03 $ (0.03) $ 0.03
========= ========= ========= =========
Weighted average shares outstanding............... 2,245,454 2,245,454 2,245,454 2,245,454
========= ========= ========= =========
</TABLE>
See accompanying notes.
F-4
<PAGE> 41
SURREY, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
-------------------- TOTAL
SHARES RETAINED SHAREHOLDERS'
OUTSTANDING AMOUNT EARNINGS EQUITY
----------- ------ -------- -------------
<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
Net income (unaudited)............................. -- -- 64 64
--------- ---- ---- ------
Balance at June 30, 1997 (unaudited)................. 2,245,454 $393 $669 $1,062
========= ==== ==== ======
</TABLE>
See accompanying notes.
F-5
<PAGE> 42
SURREY, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
---------------- ----------------
1995 1996 1996 1997
---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........................................... $ 2 $ 66 $ (75) $ 64
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization............................. 205 210 106 118
Gain on sale of asset..................................... (3) -- -- --
Changes in operating assets and liabilities:
Accounts receivable.................................... 120 (184) 491 (104)
Inventories............................................ (353) 183 307 (258)
Prepaid expenses and other current assets.............. 10 (19) (4) 1
Deferred income taxes.................................. (15) (3) (54) 7
Trade accounts payable................................. (65) (328) (549) 430
Accrued expenses....................................... 31 (38) (60) 3
Income taxes payable................................... (3) 6 (45) 35
----- ----- ----- -----
Net cash provided by (used in) operating activities......... (71) (107) 117 296
INVESTING ACTIVITIES
Acquisition of property and equipment....................... (159) (105) (54) (110)
Proceeds from sale of property and equipment................ 15 -- -- --
----- ----- ----- -----
Net cash used in investing activities....................... (144) (105) (54) (110)
FINANCING ACTIVITIES
Proceeds from issuance of notes payable..................... 650 500 -- --
Payment of notes payable.................................... (275) (246) (225) (121)
Proceeds from issuance of notes payable to shareholders..... -- 200 200 --
Payment of notes payable to shareholders.................... -- (19) (6) (7)
Proceeds from issuance of long-term debt.................... 21 33 -- --
Payment of long-term debt................................... (55) (82) (38) (41)
Principal payments on capital lease obligations............. (145) (144) (77) (72)
Deferred financing costs.................................... -- -- -- (25)
----- ----- ----- -----
Net cash provided by (used in) financing activities......... 196 242 (146) (266)
Net increase (decrease) in cash............................. $ (19) $ 30 $ (83) $ (80)
Cash, beginning of period................................... 148 129 129 159
----- ----- ----- -----
Cash, end of period......................................... $ 129 $ 159 $ 46 $ 79
===== ===== ===== =====
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 $ 7 $ 31
</TABLE>
Interest paid during the years ended December 31, 1995 and 1996 and the six
months ended June 30, 1996 and 1997 approximates the interest expense for those
periods.
See accompanying notes.
F-6
<PAGE> 43
SURREY, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO JUNE 30, 1997
AND FOR THE SIX MONTHS ENDED JUNE 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 six months ended June 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> 44
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, $38,000 and $17,000 for the years ended December
31, 1995 and 1996, and for the six month periods ended June 30, 1996 and 1997,
respectively.
NET INCOME (LOSS) PER COMMON SHARE
Net income per common share is based on the weighted average number of
common shares outstanding during the period. There are no common stock
equivalents.
In August 1997, the Company repurchased fifty percent (1,122,727 shares) of
the outstanding common stock. Supplemental income (loss) per share for the year
ended December 31, 1995 and 1996, and for the six months ended June 30, 1996 and
1997 are $0.002, $0.06, $(0.07) and $0.06, respectively. Supplemental earnings
per share is presented as if the repurchase occurred prior to January 1, 1995.
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, JUNE 30,
1996 1997
------------ --------
(UNAUDITED)
<S> <C> <C>
Raw materials......................................... $ 976 $ 999
Finished goods........................................ 196 431
------ ------
$1,172 $1,430
====== ======
</TABLE>
F-8
<PAGE> 45
SURREY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ --------
(UNAUDITED)
<S> <C> <C>
Equipment............................................. $1,702 $1,827
Building.............................................. 886 899
Automobiles........................................... 120 122
Furniture and fixtures................................ 33 34
------ ------
2,741 2,882
Accumulated depreciation and amortization............. (1,301) (1,419)
------ ------
1,440 1,463
Land.................................................. 68 68
------ ------
Property and equipment, net........................... $1,508 $1,531
====== ======
</TABLE>
Assets under capital leases totaling $574,000 at December 31, 1996 and
$605,000 at June 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, JUNE 30,
1996 1997
------------ --------
(UNAUDITED)
<S> <C> <C>
Borrowings under a $500,000 revolving line of credit,
bearing interest at the bank's prime rate plus 1.5% (9.75%
at December 31, 1996 and 10% at June 30, 1997), with
interest due monthly and all principal due in March 1998.
The line is collateralized by accounts receivable, inventory
and property and equipment, and is guaranteed by the
Company's shareholders. .................................... $500 $400
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 June
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. .............................................. 229 208
---- ----
$729 $608
==== ====
</TABLE>
F-9
<PAGE> 46
SURREY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 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% June
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 $1,245
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 50
------ ------
1,336 1,295
Less current maturities..................................... (97) (102)
------ ------
Long-term debt, less current maturities..................... $1,239 $1,193
====== ======
</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 and June 30, 1997, the Company was in
violation of certain covenants; however, the Company was able to obtain a waiver
of this violation from the lender.
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
June 30, 1997.
F-10
<PAGE> 47
SURREY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. 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>
DECEMBER 31, JUNE 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 9
Inventory............................................... 36 26
---- ----
Total deferred tax assets................................. 46 35
Valuation allowance for deferred tax assets............... -- --
---- ----
Net deferred tax assets................................... 46 35
---- ----
Net deferred tax assets (liabilities)..................... $ 4 $ (3)
==== ====
</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, JUNE 30,
------------ ------------
1995 1996 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Current:
Federal........................................ $ 4 $47 $ -- $31
State.......................................... 1 4 -- 3
--- --- ---- ---
Total current.................................... 5 51 -- 34
Deferred:
Federal........................................ (3) (3) (50) 7
State.......................................... (1) (1) (4) 1
--- --- ---- ---
Total deferred................................... (4) (4) (54) 8
--- --- ---- ---
$ 1 $47 $(54) $42
=== === ==== ===
</TABLE>
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, JUNE 30,
-------------- --------------
1995 1996 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Tax at federal statutory rate............................... 34% 34% (34)% 34%
State taxes (net of federal deficit)........................ 4 4 (3) 3
Permanent items and other................................... 4 4 (5) 3
-- -- --- --
42% 42% (42) 40%
== == === ==
</TABLE>
F-11
<PAGE> 48
SURREY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. 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 JUNE 30
----------- -------
<S> <C> <C>
1997...................................................... $ 121 $ 63
1998...................................................... 53 60
1999...................................................... 30 40
2000...................................................... -- 6
2001...................................................... -- 4
2002...................................................... -- 1
----- ----
Total minimum lease payments.............................. 204 174
Less amounts representing interest........................ (21) (32)
----- ----
Present value of net minimum lease payments............... 183 142
Less current maturities................................... (106) (79)
----- ----
$ 77 $ 63
===== ====
</TABLE>
11. 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>
12. 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 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.
13. SUBSEQUENT EVENTS
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 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.
Effective August 15, 1997, the 1,122,727 shares purchased by the Company were
retired.
F-12
<PAGE> 49
SURREY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
13. SUBSEQUENT EVENTS (CONTINUED)
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.
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.
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.
F-13
<PAGE> 50
======================================================
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........................ 8
Dilution............................... 10
Dividend Policy........................ 10
Capitalization......................... 11
Selected Financial Data................ 12
Management's Discussion and Analysis of
Financial Condition and Results
of Operations........................ 13
Business............................... 17
Management............................. 23
Certain Transactions................... 26
Principal Shareholders................. 28
Description of Securities.............. 29
Underwriting........................... 31
Shares Eligible For Future Sale........ 33
Legal Matters.......................... 34
Experts................................ 34
Additional Information................. 34
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> 51
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> 52
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........................................ $ 2,809
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.................... 152,000
Accountants' Fees and Expenses.............................. 45,000
Printing Expenses........................................... 40,000
Blue Sky Fees and Expenses.................................. 16,500
Miscellaneous............................................... 6,391
--------
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> 53
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>
</TABLE>
1.1 Form of Underwriting Agreement
1.2 Form of Selected Dealer Agreement
1.3 Form of Representative's Warrant
1.4 Form of 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 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
*10.3(f) Security Agreement of Company
10.4(a) Promissory Note of the Company to Norwest Bank Texas, South
Central ("Norwest") in the principal amount of $500,000, due
March 1998
10.4(b) Commercial Guaranty of John van der Hagen
10.4(c) Commercial Guaranty of James K. Olson
10.4(d) Commercial Security Agreement of Company
10.4(e) 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
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.
II-3
<PAGE> 54
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
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>
- -------------------------
* Documents to be filed by Amendment
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> 55
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
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Leander, State of Texas, on September 15, 1997.
SURREY, INC.
By /s/ JOHN B. VAN DER HAGEN
------------------------------------
John B. van der Hagen
Chairman of the Board and CEO
POWER OF ATTORNEY
In accordance with the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the following persons in
the capacities and on the dates indicated. Each person whose signature to this
Registration Statement appears below hereby constitutes and appoints John B. van
der Hagen and Martin J. van der Hagen, and each of them, as his or her true and
lawful attorney-in-fact and agent, with full power of substitution, to sign on
his or her behalf individually and in the capacity stated below and to perform
any acts necessary to be done in order to file all amendments and post-effective
amendments to this Registration Statement, and any and all instruments or
documents filed as part of or in connection with this Registration Statement or
the amendments thereto, and each of the undersigned does hereby ratify and
confirm all that said attorney-in-fact and agent, or his or her substitutes,
shall do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ JOHN B. VAN DER HAGEN Chairman of the Board and CEO September 15, 1997
- ------------------------------------------ (Principal Executive Officer)
John B. van der Hagen
/s/ MARTIN J. VAN DER HAGEN President and Director September 15, 1997
- ------------------------------------------
Martin J. van der Hagen
/s/ MARY VAN DER HAGEN Director September 15, 1997
- ------------------------------------------
Mary van der Hagen
/s/ BRUCE A. MASUCCI Director September 15, 1997
- ------------------------------------------
Bruce A. Masucci
/s/ G. THOMAS MACINTOSH Director September 15, 1997
- ------------------------------------------
G. Thomas MacIntosh
/s/ MARK J. VAN DER HAGEN Vice President -- Finance and September 15, 1997
- ------------------------------------------ Treasurer (Principal Accounting
Mark J. van der Hagen Officer)
</TABLE>
II-5
<PAGE> 56
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 (Form SB-2) 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
September 16, 1997
II-6
<PAGE> 57
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SURREY, INC.
EXHIBIT TO FORM SB-2
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1 Form of Underwriting Agreement
1.2 Form of Selected Dealer Agreement
1.3 Form of Representative's Warrant
1.4 Form of 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 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
*10.3(f) Security Agreement of Company
10.4(a) Promissory Note of the Company to Norwest Bank Texas, South
Central ("Norwest") in the principal amount of $500,000, due
March 1998
10.4(b) Commercial Guaranty of John van der Hagen
10.4(c) Commercial Guaranty of James K. Olson
10.4(d) Commercial Security Agreement of Company
10.4(e) 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
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.
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>
- -------------------------
*Documents to be filed by Amendment
<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 $8.10. The
Warrant is severable and will be separately traded at the option of the
Representative. 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
71,875 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. ) (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
2
<PAGE> 3
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
3
<PAGE> 4
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
4
<PAGE> 5
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
5
<PAGE> 6
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
6
<PAGE> 7
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.
7
<PAGE> 8
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 $7.29 per Unit. The
several Underwriters will release the Units for resale to the public at the
price of $8.10 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 $7.29 per Unit. Said option may be exercised on 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
71,875 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., (ii) assigned to broker-dealers involved directly in the Selling Group of
the offering or to the officers of such broker-dealers, if any; (iii)
transferred by operation of law as a result of the death of any transferee to
whom the Representative's Warrants may be transferred; and (iv) transferred to
any successor to the business of Stuart, Coleman & Co., Inc.
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 $174,656.25 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.
6.24 Right of First Refusal. The Company shall grant the
Representative the right of first refusal for all future financings, whether
private placements, secondary public financing or other financial transactions
of any kind for a period of five (5) years from 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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<PAGE> 22
(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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<PAGE> 24
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;
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(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
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<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
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<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.
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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
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<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
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION AND SUCH REGISTRATION STATEMENT WAS DECLARED
EFFECTIVE ON , 1993. 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 718,750 units (the
"Units") including the over-allotment option. Each Unit consists of two (2)
common shares, no par value ("Common Share") and one (1) 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 $8.10. The Warrants expire on
, 2002, and are separable sixty (60) days after the
Effective Date or sooner at the option of the Representative. 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. In addition the Company has agreed to
sell to the Representative, for a price of $.0005 per warrant, warrants to
purchase up to 71,875 Units 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 $8.10 per Unit. Such Selected Dealers will,
in turn, receive a commission (5% of offering price) or $.405 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 $
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.
7. A registration statement covering the offering was filed with the
Commission with respect to the Units and such registration statement was
declared effective on , 1993. 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.
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<PAGE> 3
8. 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.
9. 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.
10. 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.
11. You represent that you are a member in good standing with the NASD and
registered as a broker-dealer with the Commission. Your attention is called to
the following: (a) Article III, Sections 1, 8, 24, 25 and 36 of the Rules of
Fair Practice of the NASD and the interpretation of said Sections promulgated
by the Board of Governors of the NASD, including the interpretation with
respect to "Free-Riding" and "Withholding"; (b) Section 10(b) of the 1934 Act
and Rules 10b-6 and 10b-10 of the general rules and regulations promulgated
under said Act; (c) 1933 Act Release #3907; (d) 1933 Act Release #4150; and (e)
1933 Act Release #4968 requiring the distribution of a Prospectus to all
persons reasonably expected to be purchasers of Units from you at least 48
hours prior to the time you expect to mail confirmations. You, as a member of
the Association, by signing this Agreement, acknowledge that you are familiar
with the cited law, rules and releases, and agree that you will not directly
and/or indirectly violate any provision of applicable law in connection with
your participation in the sale and subsequent distribution of Units.
12. 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
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<PAGE> 4
Other Investment, as amended, and as to which such documents or information
have not been so filed in a timely manner.
13. The Company has indemnified the Representative and the several
underwriters, pursuant to the terms of Section 7 of the Underwriting Agreement
dated as of , 1993, and Selected Dealers are hereby
included by the Representative in such indemnification.
14. 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.
15. 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:
-------------------------------
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OFFER TO SELL
The undersigned does hereby offer to sell, on a "firm commitment" basis
(subject to the right to revoke as set forth in paragraph 3) *Units
in accordance with the terms and conditions set forth above.
By:
-------------------------------
Authorized Officer
- ---------------------
* If a number appears here which does not correspond with what you wish to
offer to sell, you may change the number by crossing out the number, inserting
a different number and initialing the change.
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<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
[71,875] 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._____________ (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 $9.70
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 [71,875] 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 (k) 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 [143,750] as
shall be required for issuance or delivery upon exercise of this
Representative's Warrant and an additional [71,875] 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
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<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., (ii) transferred by operation of law
as a result of the death of any transferee, (iii) transferred to any successor
in business of Stuart, Coleman & Co., Inc., and (iv) assigned to any
broker-dealer or officers of any broker-dealer directly involved in the Selling
Group of this public offering for the Company. 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) Anti-Dilution Provisions.
(1) Adjustments of Exercise Price. If the Company
should at any time or from time to time within 60 months from the
date hereof, issue or sell any Units or Common Shares or Warrants
included in the Units (other than as may be reflected in or
contemplated by the Registration Statement filed with the Securities
and Exchange Commission pursuant to the Securities Act of 1933, as
amended (the "Act"), on Form SB-2 File No.__________(and any future
Registration Statement of Statements which may be filed with respect to
the securities initially issued pursuant thereto) and other than any
outstanding options or future options which may be duly granted to
employees of the Company pursuant to the 1997 Long Term Incentive Plan,
or to directors under the 1997 Non-Employee Directors' Stock Option
Plan and any Common Shares which may be issued pursuant thereto or upon
exercise of the Warrants included in the Units), without consideration
or for a consideration per Unit (or Common Shares pursuant thereto or
upon exercise of the Warrants included in the Units) less than the
lower of the Exercise Price in effect immediately prior to the time of
such issue or sale or the then current fair market value, then
forthwith upon such issue or sale, the Exercise Price shall be adjusted
to a price (computed to the nearest cent) determined by dividing (i)
the sum of the number of Common Shares (including the Common Shares and
the Warrants in all Units) outstanding immediately prior to such issue
or sale multiplied by the Exercise Price in effect immediately prior to
such issue or sale, plus the consideration, if any, received by the
Company upon such issue or sale, by (ii) the total number of Common
Shares (including the Common Shares and the Warrants in all Units)
outstanding immediately after such issue or sale. For purposes of this
subsection (f)(1), the following provisions (A) to (E) shall also be
applicable:
(A) Options. In case at any time hereafter
during the term of this Representative's Warrant the Company
shall in any manner grant any right to subscribe for or
to purchase, or any option for the purchase of (other than
as reflected in or contemplated by the aforementioned
Registration Statements, as amended, and other than the Common
Shares and the Warrants included in the Units which may be
purchased under the Representative's Warrants and other than
any outstanding options or future options which may be duly
granted to employees of the Company pursuant to
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<PAGE> 5
the 1997 Long Term Incentive Plan, or to directors under the
1997 Non-Employee Directors' Stock Option Plan, and any Common
Shares which may be issued pursuant thereto) Common Shares or
any stock or other securities convertible into or exchangeable
for Common Shares (such convertible or exchangeable stock
or securities being hereinafter referred to as "Convertible
Securities") other than the Representative's Warrants, without
consideration or if the minimum price per share for which
Common Shares are issuable, pursuant to such rights or options
or upon conversion or exchange of such Convertible Securities
(determined by dividing (i) the total amount, if any, received
or receivable by the Company as consideration for the granting
of such rights or options, plus the minimum aggregate amount of
additional consideration payable to the Company upon the
exercise of such rights or options, plus, in the case of such
Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable upon the conversion
or exchange thereof, by (ii) the total maximum number of Common
Shares issuable pursuant to such rights or options or upon the
conversion or exchange of the total maximum amount of such
Convertible Securities issuable upon the exercise of such
rights or options) shall be less than the proportional per
share Exercise Price in effect immediately prior to the time of
the granting of such rights or options, then the total maximum
number of Common Shares issuable pursuant to such rights or
options or upon conversion or exchange of the total maximum
amount of such Convertible Securities issuable upon the
exercise of such rights or options shall (as of the date of
granting of such rights or options) be deemed for purposes of
subsection (f)(1)(ii) to be outstanding and to have been issued
for said price per share as so determined; provided, that no
further adjustment of the Exercise Price shall be made upon the
actual issue of the Common Shares so deemed to have been
issued; and further provided, that, upon the expiration of such
rights (including rights to convert or exchange) or options,
(a) the number of Common Shares deemed to have been issued and
outstanding by reason of the fact that they were issuable
pursuant to such rights or options (including rights to convert
or exchange) which were not exercised, shall no longer be
deemed to be issued and outstanding, and (b) the Exercise Price
shall forthwith be adjusted to the price which would have
prevailed had all adjustments been made on the basis of the
issue only of the Common Shares actually issued upon the
exercise of such rights or options or upon conversion or
exchange of such Convertible Securities.
(B) Convertible Securities. In case the
Company shall at any time hereafter during the term of the
Representative's Warrants in any manner issue or sell any
Convertible Securities, and the minimum price per Common Share
issuable upon conversion or exchange of such Convertible
Securities (determined by dividing (i) the total amount
received or receivable
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<PAGE> 6
by the Company as consideration for the issue or sale of such
Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon
the conversion or exchange thereof, by (ii) the total
maximum number of Common Shares issuable upon the conversion or
exchange of all such Convertible Securities) shall be less than
the proportional per share Exercise Price in effect immediately
prior to the time of such issue or sale, then the total maximum
number of Common Shares issuable upon conversion or exchange of
such Convertible Securities shall (as of the date of the issue
or sale of such Convertible Securities) be deemed for purposes
of subsection (f)(1)(ii) to be outstanding and to have been
issued for said price per share as so determined; provided,
that no further adjustment of the Exercise Price shall be made
upon the actual issue of Common Shares deemed to have been
issued; and, further provided, that if any such issue or sale
of such Convertible Securities is made upon exercise of any
right to subscribe for or to purchase or any option to purchase
any such Convertible Securities for which an adjustment of the
Exercise Price has been or is to be made pursuant to other
provisions of this subsection (f)(1) no further adjustment of
the Exercise Price shall be made by reason of such issue or
sale; and, further provided, that, upon the termination of the
right to convert or to exchange such Convertible Securities for
Common Shares, (a) the number of Common Shares deemed to have
been issued and outstanding by reason of the fact that they
were issuable upon conversion or exchange of any such
Convertible Securities which were not so converted or
exchanged, shall no longer be deemed to be issued and
outstanding, and (b) the Exercise Price shall forthwith be
adjusted to the price which would have prevailed had all
adjustments been made on the basis of the issue only of the
number of Common Shares actually issued upon conversion or
exchange of such Convertible Securities.
(C) Determination of Issue Price. In case
any Common Shares or Convertible Securities or any rights
or options to purchase any such stock or securities shall be
issued for cash, the consideration received therefor, after
deducting therefrom any commission or other expenses paid or
incurred by the Company for any underwriting of, or otherwise
in connection with, the issuance thereof, shall be deemed to be
the amount received by the Company therefor. In case any
Common Shares or Convertible Securities or any rights or
options to purchase any such stock or securities shall be
issued for a consideration part or all of which shall be other
than cash, then, for the purpose of this subsection (f)(1), the
Board of Directors of the Company shall make a good faith
determination of the fair market value of such consideration,
irrespective of accounting treatment, and such Common Shares,
Convertible Securities, rights or options shall be deemed to
have been issued for an amount of cash equal to the value so
determined by the
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<PAGE> 7
Board of Directors. The reclassification of securities other
than Common Shares into securities including Common Shares
shall be deemed to involve the issuance for a consideration
other than cash of such Common Shares immediately prior to the
close of business on the date fixed for the determination of
security holders entitled to receive such Common Shares. In
case any Common Shares or Convertible Securities or any rights
or options to purchase any such stock or other securities shall
be issued together with other stock or securities or other
assets of the Company for a consideration which includes both,
the Board of Directors of the Company shall determine what part
of the consideration so received is to be deemed to be
consideration for the issue of such Common Shares, Convertible
Securities, rights or options.
(D) Determination of Date of Issue. In
case the Company shall take a record of the holders of
any Common Shares for the purpose of entitling them (i)
to receive a dividend or other distribution payable in Common
Shares or in Convertible Securities, or (ii) to subscribe for
or purchase Common Shares or Convertible Securities, then such
record date shall be deemed to be the date of the issue or sale
of the Common Share deemed to have been issued or sold upon the
declaration of such dividend or the making of such other
distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(E) Treasury Shares. For the purpose of
this subsection (f)(1), Common Shares, including the Common
Shares and the Warrants in all Units, at any relevant time
owned or held by, or for the account of, the Company shall not
be deemed outstanding.
(2) No Adjustment for Small Amounts. Anything in
this Section (f) to the contrary notwithstanding, the Company shall not
be required to give effect to any adjustment in the Exercise Price
unless and until the net effect of one or more adjustments, determined
as above provided, shall have required a change of the Exercise Price
by at least five cents, but when the cumulative net effect of more
than one adjustment so determined shall be to change the actual
Exercise Price by at least five cents, such change in the Exercise
Price shall thereupon be given effect.
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<PAGE> 8
(3) Number of Units Adjusted. Upon any adjustment
of the Exercise Price other than pursuant to subsection (f)(1), the
Holder of this Representative's Warrant shall thereafter (until another
such adjustment) be entitled to purchase, at the new Exercise Price, the
number of Units, calculated to the nearest full Unit, obtained by
multiplying the number Units initially issuable upon exercise of this
Representative's Warrant, by the Exercise Price in effect on the date
hereof and dividing the product so obtained by the new Exercise Price.
(4) Common Shares Defined. Whenever reference is
made in this Section (f) to the issue or sale of Common Shares,
the term "Common Shares" shall mean the Common Shares of the Company of
the class authorized as of the date hereof and any other class of stock
ranking on a parity with such Common Shares. However, subject to
the provisions of Section (i) hereof, shares issuable upon exercise
hereof shall include only shares of the class designated as Common
Shares of the Company as of the date hereof.
(g) Officer's Certificate. Whenever the Exercise Price
shall be adjusted as required by the provisions of Section (f) hereof or the
number of Units underlying the Representative's Warrants increased pursuant to
the provisions of subsection (f)(3), the Company shall forthwith file in the
custody of its Secretary or an Assistant Secretary at its principal office, and
with its Transfer Agent, if any, an officer's certificate showing both the
adjusted number of Units and the adjusted Exercise Price determined as herein
provided and setting forth in reasonable detail the facts requiring such
adjustment. Each such officer's certificate shall be made available at all
reasonable times for inspection by the Holder and the Company shall, forthwith
after each such adjustment, deliver a copy of such certificate to the Holder.
Such certificate shall be conclusive as to the correctness of such adjustment.
(h) Notices to Representative's Warrant Holders. So long
as this Representative's Warrant or any of the series of Representative's
Warrants shall be outstanding and unexercised (i) if the Company shall pay any
dividend or make any distribution upon the Common Shares or (ii) if the Company
shall offer to the holders of Common Shares for subscription or purchase by
them any shares of stock of any class or any other rights or (iii) if any
capital reorganization of the Company, reclassification of the capital stock of
the Company, consolidation or merger of the Company with or into another
corporation, sale, lease or transfer of all or substantially all of the
property and assets of the Company to another corporation, or voluntary or
involuntary dissolution, liquidation or winding up of the Company shall be
effected, then, in any such case, the Company shall cause to be delivered to
the Holder, at least ten days prior to the date notice is given to the
shareholders, a notice containing a brief description of the proposed action
and stating the date on which (i) a record is to be taken for the purpose of
such dividend, distribution or rights, or (ii) such reclassification,
reorganization, consolidation, merger, conveyance, lease, dissolution,
liquidation or winding up is to take place and the date, if any, is to be
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<PAGE> 9
fixed, as of which the holders of Common Shares of record shall be entitled to
exchange their Common Shares for securities or other property deliverable upon
such reclassification, reorganization, consolidation, merger, conveyance,
dissolution, liquidation or winding up.
(i) Reclassification, Reorganization or Merger. In case
of any reclassification, capital reorganization or other change of outstanding
Common Shares of the Company (other than a change in par value, or as a result
of an issuance of Common Shares by way of dividend or other distribution or 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, capital reorganization or other change of
outstanding Common Shares of the class issuable upon exercise of this
Representative's Warrant) or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as
an entirety, the Company shall cause effective provision to be made so that the
Holder shall have the right thereafter, by exercising this Representative's
Warrant, to purchase the kind and amount of shares of stock and other
securities and property receivable upon such reclassification, capital
reorganization or other change, consolidation, merger, sale or conveyance which
such Holder would have owned or have been entitled to receive immediately after
such reclassification, capital reorganization or other change, consolidation,
merger, sale or conveyance had this Representative's Warrant been converted
immediately prior to the effective date of such reclassification, capital
reorganization or other change, consolidation, merger, sale or conveyance. Any
such provision shall include provision for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Representative's Warrant. The foregoing provisions of this Section (i) shall
similarly apply to successive reclassifications, capital reorganizations and
changes of Common Shares and to successive consolidations, mergers, sales or
conveyances. In the event that in any such capital reorganization or
reclassification, consolidation, merger, sale or conveyance, additional Common
Shares shall be issued in exchange, conversion, substitution or payment, in
whole or in part, for or of a security of the Company other than Common Shares,
any such issue shall be treated as an issue of Common Shares covered by the
provisions of subsection (f)(1) hereof with the amount of the consideration
received upon the issue thereof being determined by the Board of Directors of
the Company, such determination to be final and binding on the Holder.
(j) Spin-Offs. In the event the Company spins-off a
subsidiary by distributing to the shareholders of the Company as a dividend or
otherwise the stock of the subsidiary, the Company shall reserve for the life
of the Representative's Warrant shares of the subsidiary to be delivered to the
Holders of the Representative's Warrants upon exercise of such Representative's
Warrant upon exercise of such Representative's Warrant to the same extent as if
such Holders were shareholders of record of the company on the record date for
payment of the shares of the subsidiary.
9
<PAGE> 10
(k) 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
10
<PAGE> 11
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
11
<PAGE> 12
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.
12
<PAGE> 13
(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)
13
<PAGE> 14
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.
(l) 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
14
<PAGE> 15
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.
15
<PAGE> 16
(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.
(m) 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
___________________________
16
<PAGE> 17
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__.
17
<PAGE> 1
EXHIBIT 1.4
________________, 1997
Ms. Helene K. Netter
Managing Director - Corporate Finance
Stuart, Coleman & Co., Inc.
11 West 42nd Street - 15th Floor
New York, NY 10036
Re: COMMON STOCK OF SURREY, INC.
OWNED BY JOHN VAN DER HAGEN
Dear Ms. Netter:
The undersigned hereby agrees not to sell or transfer the 1,122,727
shares of common stock, no par value, of Surrey, Inc. (the "Common Stock") for
a period of twenty (20) months from the closing date of the initial public
offering of Surrey, Inc. without the prior written consent of Stuart, Coleman &
Co., Inc.
Notwithstanding anything to the contrary contained above, I understand
that I may transfer some of the shares of Common Stock to members of my
immediate family, providing each one signs a separate agreement agreeing to be
bound by the twenty (20) month lock-up period.
Very truly yours,
John van der Hagen
<PAGE> 1
EXHIBIT 3.1
THE ARTICLES OF INCORPORATION FILED
IN THE OFFICE OF THE
OF SECRETARY OF STATE OF TEXAS
FEB 10 1981
SURREY, INC. CLERK IG
CORPORATION DIVISION
I, a natural person of the age of twenty-one years or more, a citizen
of the State of Texas, acting as incorporator of a corporation under the Texas
Business Corporation Act, do hereby adopt the following Articles of
Incorporation for such corporation:
ARTICLE I
The name of the corporation is SURREY, INC.
ARTICLE II
The period of its duration is perpetual.
ARTICLE III
The purpose for which the corporation is organized is: The transaction
of any and all lawful business for which corporations may be incorporated under
the Texas Business Corporation Act.
ARTICLE IV
The aggregate number of shares which the corporation shall have
authority to issue is One Million (1,000,000) shares without par value.
<PAGE> 2
ARTICLE V
Pre-emptive rights are denied, and no shareholder of any class of
stock in the Corporation shall have pre-emptive rights.
ARTICLE VI
No shareholder shall have the right of cumulative voting.
ARTICLE VII
The corporation will not commence business until it has received for
the issuance of its shares consideration of the value of One Thousand Dollars
($1,000.00) consisting of money, labor done or property actually received.
ARTICLE VIII
The Post Office address of its initial registered office is 1700
Austin National Bank Tower, Austin, Texas 78701, and the name of its initial
registered agent at such address is Terrence Kendall.
ARTICLE IX
The number of directors constituting the initial board of directors is
five (5), and the names and addresses of the persons who are to serve as
directors until the first annual meeting of the shareholders or until their
successors are elected and qualified are:
James K. Olson 9703 Vista View Drive
Austin, TX 78750
John B. van der Hagen 13603 Briar Hollow Drive
Round Rock, TX 78664
<PAGE> 3
B. R. Harvey, Jr. Route 1
Hamilton, TX 76531
Robert W. Carlson 19 Honeycomb Hollow
Leander, TX 78641
John Trucano Community Investment Ent.
7515 Wayzata Blvd.
Minneapolis, Minnesota 55426
ARTICLE X
The name and address of the incorporator is:
Terrence Kendall 1700 Austin National Bank Tower
Austin, TX 78701
-page 2-
IN WITNESS WHEREOF, the undersigned has executed these Articles of
Incorporation on this 9th day of February, 1981.
/s/ Terrence Kendall
---------------------------------
Terrence Kendall
STATE OF TEXAS )
) ss.
COUNTY OF TRAVIS )
I, the undersigned authority, a notary public, do hereby certify that
on the 9th day of February, 1981, personally appeared before me Terrence
Kendall, who, by me being duly sworn, declared that he is the person who signed
the foregoing document as incorporator and that the statements therein are
true.
/s/ Glenda Yerkes
---------------------------------
Notary Public in and for
Travis County, Texas
GLENDA YERKES
My Commission expires September 28, 1984
-page 3-
<PAGE> 4
ARTICLES OF AMENDMENT OF
THE ARTICLES OF INCORPORATION
OF SURREY, INC.
Pursuant to the provisions of Article 4.04 of the Texas Business
Corporation Act, the undersigned corporation adopts the following Articles of
Amendment to its Articles of Incorporation:
ARTICLE ONE
The name of the corporation is SURREY, INC.
ARTICLE TWO
The following resolutions were adopted by the shareholders of the
corporation on September 3, 1997:
RESOLVED, that Article IV of the Articles of Incorporation of the
Corporation is hereby amended to read in its entirety as follows:
"ARTICLE IV
The total authorized number of shares of the corporation shall
be Ten Million (10,000,000) common shares without par value."
FURTHER RESOLVED, that Article VIII of the Articles of Incorporation
of the Corporation is hereby amended, if and as required by the
Secretary of State of the State of Texas, to read in its entirety as
follows:
"ARTICLE VIII
The address of the registered office of the
corporation shall be 13110 Trails End Road, Leander, Texas
78641. The name of the registered agent of the corporation is
Mark van der Hagen."
FURTHER RESOLVED, that the Sole Shareholder and the Board of Directors
hereby authorize the amendment of the Corporation's Articles of
Incorporation, subject to approval by the filing with the Secretary of
State of the State of Texas, the addition of Article XI to read in its
entirety substantially as follows, with such changes therein as shall
be made, upon consultation with the Secretary of State, by the
President of the corporation signing such certificate of amendment
thereof:
<PAGE> 5
"ARTICLE XI
A director of the corporation shall not be personally
liable to the corporation or its shareholders for monetary
damages for an act or omission in the director's capacity as a
director, except that this article does not authorized the
elimination or limitation of the liability of a director to
the extent the director is found liable for: (1) a breach of
the director's duty of loyalty to the corporation or its
shareholders; (2) an act or mission not is good faith that
constitutes a breach of duty of the director to the
corporation or any act or omission that involves intentional
misconduct or a knowing violation of the law; (3) a
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 (4) an act
or omission for which the liability of a director is expressly
provided by an applicable statue."
ARTICLE THREE
The amount of stated capital of the corporation following the filing
of this amendment shall not be changed.
[Remainder of page intentionally blank]
<PAGE> 6
ARTICLE FOUR
The number of shares of the corporation outstanding at the time of
such adoption was one hundred thousand (100,000) common stock; and the number
of shares entitled to vote there on was one hundred thousand (100,000). The
number of shares that voted for the amendment was 100,000.
ARTICLE FIVE
The holders of all of the shares outstanding and entitled to vote on
said amendment have signed a consent in writing adopting the said amendment.
Dated: September 3, 1997.
SURREY, INC.
/s/ John van der Hagen
----------------------------
By: John van der Hagen
Its President
<PAGE> 1
AMENDED AND RESTATED BYLAWS EXHIBIT 3.2
BYLAWS
OF
SURREY, INC.
ARTICLE I
Meetings of Shareholders
Section 1, Place. Meetings of the Shareholders of the
Corporation shall be held either within or without the State. In the absence of
any provision to the contrary in the notice or call of the meeting, all
meetings shall be held at the main business office of the company.
Section 2, Annual Meetings. The Board of Directors may cause regular
meetings of the Shareholders to be held on an annual basis for the purpose of
electing directors and for the transaction of such other business as may come
before the meeting. Such annual meetings shall be held on the date and at the
time and place fixed by the Board of Directors.
Section 3, Special Meetings. Special meetings of the Shareholders
may be called by the President, the Board of Directors, the holders of not less
than one-tenth of all shares entitled to vote at the meeting so called, or such
other officers or persons as may be provided by resolution of the Board of
Directors.
Section 4, Notice of Meetings. Written notice stating the place, day
and hour of the meeting and, in case of a special meeting, the purpose or
purposes for which the meeting is called, shall be delivered not less than 10
nor more than 50 days before the day of the meeting, either personally or by
mail, at the direction of the President, the Secretary, or the officer or
person or persons calling the meeting, to each Shareholder of record entitled
to vote at such meeting. If mailed, such notice shall be deemed to be delivered
when deposited in the United States mail addressed to the Shareholder at his
address as it appears on the stock transfer books of the Corporation, with
postage thereon prepaid. Attendance at a meeting shall be deemed to be waiver
of notice, unless the Shareholder attending does so for the purpose of
protesting the legality of the meeting and announces such purpose before
casting a vote on any business before the meeting.
Section 5, Quorum. The holders of a majority of the shares entitled
to vote, represented in person or by proxy, shall constitute a quorum at a
meeting of Shareholders, but in no event shall a quorum consist of the holders
of less than one-third (1/3) of the shares entitled to vote and thus
represented at such meeting of Shareholders, but in no event shall a quorum
consist of the holders of less than present shall be necessary to take action
on any matter coming before the meeting, unless the vote of a greater number is
required by law, by the Articles of Incorporation, or by these Bylaws.
<PAGE> 2
Section 6, Voting of Shares.
(a) Each outstanding share of common stock shall be entitled to one
(1) vote for each matter submitted to a vote at a meeting of Shareholders.
(b) Treasury shares, shares of Corporation stock owned by another
corporation, the majority of the voting stock of which is owned or controlled
by the Corporation, and the shares of the Corporation's own stock held by a
corporation in a fiduciary capacity shall not be voted, directly or indirectly,
at any meeting, and shall not be counted in determining the total number of
outstanding shares at any given time. "Treasury shares" shall mean shares of
the Corporation which have been issued, have been subsequently acquired by and
belong to the Corporation, and have not been cancelled or restored to the
status of authorized but unissued shares. Treasury shares shall be deemed to be
"issued" shares but not "outstanding" shares.
(c) A Shareholder may vote either in person or by proxy executed in
writing by the Shareholder or by the Shareholder's duly authorized
attorney-in-fact. No proxy shall be valid after eleven (11) months from the
date of its execution unless otherwise provided in the proxy. Each proxy shall
be revocable unless expressly provided therein to be irrevocable, and in no
event shall remain irrevocable for a period of more than eleven (11) months.
(d) A Shareholder whose shares are pledged shall be entitled to vote
such shares unless the shares have been transferred into the name of the
pledgee and thereafter the pledgee shall be entitled to vote the shares so
transferred.
(e) For the purpose of determining Shareholders entitled to vote or to
receive notice of any meeting of Shareholders (or any adjournment), or entitled
to receive payments of any dividend, or in order to make a determination of
Shareholders for any other purpose, the stock records as they existed at the
end of the regular business day next preceding the day of such determination
shall be conclusive.
Section 7, Waiver of Unanimous Consent In Writing. Any action required
to be or which may be taken at a meeting of the Shareholders may be taken
without a meeting if a consent in writing, setting forth action so taken, shall
be signed by all of the Shareholders entitled to vote with respect to the
subject matter thereof and then delivered to the Secretary of the Corporation
for inclusion in the minute book of the Corporation.
ARTICLE II
Directors
Section 1, Management. The business and affairs of the Corporation
shall be managed by a Board of Directors.
2
<PAGE> 3
Section 2, Number. The number of Directors of the Corporation shall be
at least two (2) and not more than seven (7). The number of Directors to serve
for any given year within the limits above set out shall be determined by the
Shareholders at the annual meeting or at a special meeting called for that
purpose. No decrease in the number of Directors shall have the effect of
shortening the term of an incumbent Director.
Section 3, Qualification. The Directors need not be residents of the
State nor Shareholders of the Corporation.
Section 4, Term. The members of the first Board shall hold office
until the first annual meeting of Shareholders and until their successors have
been elected and qualified. Thereafter, unless removed for good cause, or
without cause, each Director shall hold office for the term for which elected
and until a successor shall have been elected and qualified.
Section 5, Removal. Any Director may be removed as Director, either
with or without cause, at any special meeting of Shareholders if notice of
intention to act upon the question of removing such Director shall have been
stated as one of the purposes for the calling of the meeting.
Section 6, Filling Vacancy. The Board of Directors may, but shall not
be required to, fill any vacancy occurring in the Board of Directors because of
death, resignation, or removal; provided, however, that the Board of Directors
must fill any such vacancy at the next meeting of such Board following the
occurrence of such vacancy if the effect of such vacancy is to reduce the
number of Directors to two (2) or less. In either event, such vacancy shall be
filled by the affirmative vote of a majority of the remaining Directors though
less than a quorum. If there is only one (1) Director remaining, he or she
shall have the right to appoint such person or persons as the remaining
Director may select to fill such vacancy or vacancies. A Director elected to
fill a vacancy shall be elected for the unexpired term of his or her
predecessor in such Directorship. Any Directorship to be filled by reason of an
increase in the number of Directors shall be filled by election at an annual
meeting or at a special meeting of Shareholders called for that purpose.
Section 7, Quorum. A majority of the number of Directors shall
constitute a quorum for the transaction of business. The act of the majority of
the Directors present at a meeting at which a quorum is present shall be the
act of the Board of Directors unless otherwise specifically required by law or
by these Bylaws.
Section 8, Regular Meetings. A regular meeting of the Board of
Directors shall be held without other notice than this Bylaw immediately after
and at the same place as the annual meeting of Shareholders. The Board of
Directors may provide, by resolution, the time and place, either within or
without the State of Texas, for the holding of additional regular meetings
without other notice than such resolutions.
3
<PAGE> 4
Section 9, Special Meetings. Special meetings of the Board of
Directors may be called by or at the request of the President or any Director.
Notice of the call of a special meeting shall be in writing and delivered for
transmission to each of the Directors not later than during the third day
immediately preceding the day for which such meeting is called. Notice of any
special meeting may be waived in writing signed by the person or persons
entitled to such notice; such waiver may be executed at any time before or
after the time specified in such notice for the holding of such special
meeting. Attendance of a Director at a special meeting shall constitute a
waiver of notice of such special meeting, except where a Director attends a
meeting for the express purpose of objecting to the transaction of any business
or the meeting is not lawfully called or convened.
Section 10, Place of Meeting. Unless otherwise specifically provided
in these Bylaws, all meetings of the Board of Directors shall be held at the
principal place of business of the Corporation; provided, however, this
provision of these Bylaws may be waived as to any particular meeting by written
waiver signed by all of the Directors before the holding of such meeting, and
this provision shall be considered as waived as to any particular meeting by
the attendance of all of the Directors at such meeting without objection by any
of them at the time of convening of such meeting that such meeting is not being
convened and held at the principal place of business of the Corporation.
Section 11, No Statement of Purpose of Meeting Required. Neither the
business proposed to be transacted, nor the purpose of any regular or special
meeting of the Board of Directors need be specified in the notice or waiver of
notice of such meeting.
Section 12, Electronic Conferencing. A conference among Directors by
any means of communication through which the Directors may simultaneously hear
each other during the conference shall constitute a meeting of the Board of
Directors, if the number of Directors participating in the conference would be
sufficient to constitute a quorum at a meeting. Participation in a meeting by
such means shall constitute presence in person at the meeting.
ARTICLE III
Officers
Section 1, Number. The officers of the Corporation shall be a
President and a Secretary. The Board may, in its sole discretion, also elect a
Chief Executive Officer, one or more Vice Presidents (the number thereof to be
determined by the Board of Directors), a Treasurer, an Assistant Secretary
and/or an Assistant Treasurer, with such powers, rights, duties, and
responsibilities as may be determined the Board. Any two (2) or more offices
may be held by the same person.
Section 2, Election and Term of Office. The officers of the
Corporation shall be elected annually by the Board of Directors at the first
meeting of the Board of Directors held after each
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annual meeting of Shareholders or as soon thereafter as convenient. Each
officer shall hold office until his or her successor shall have been duly
elected and shall have qualified, or until death, or until tendering
resignation, or until any of said officers shall have been removed in the
manner herein provided.
Section 3, Removal. Any officer or agent or member of the executive
committee elected or appointed by the Board of Directors may be removed by the
Board of Directors whenever, in its judgment, the best interests of the
Corporation would be served thereby, but such removal shall be without
prejudice to the contract rights, if any, of the person so removed.
Section 4, Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by the Board
of Directors for the unexpired portion of the term.
Section 5, Chief Executive Officer and President. The Board of
Directors, in its sole discretion, may designate either the Chief Executive
Officer or the President as the principal executive officer of the Corporation.
(a) Chief Executive Officer. Unless provided otherwise by a
resolution adopted by the Board of Directors, the Chief Executive
Officer (i) shall supervise the management of the business of the
Corporation; (ii) shall preside at all meetings of the Shareholders;
(iii) shall preside at all meetings of the Board of Directors in the
absence of the Chairman of the Board; (iv) shall be responsible for
implementing all orders and resolutions of the Board; (v) shall have
all powers delegated to the President when, in the opinion of the
Chief Executive Officer, it is necessary to exercise such powers, and
in such event, the directives of the Chief Executive Officer shall
take precedence over those of the President; and (vi) shall perform
such other duties as may from time to time be assigned by the Board.
(b) President. Unless otherwise determined by the Board of
Directors, the President shall be the chief operating officer of the
Corporation. Unless provided otherwise by a resolution adopted by the
Board of Directors, the President shall (i) be responsible for the
day-to-day management of the business of the Corporation; (ii) shall,
in the absence of the Chief Executive Officer, preside at all meetings
of the Shareholders; (iii) shall be responsible, at the directive of
the Chief Executive Officer, for implementing all orders and
resolutions of the Board; (iv) shall sign, with the Secretary or an
assistant secretary, and deliver in the name of the Corporation,
certificates for shares of the Corporation, any deed, mortgage, bond,
contract, or other instrument pertaining to the business of the
Corporation which the Board of Directors has authorized to be
executed, except in cases where the signing and execution thereof
shall be expressly delegated by the Board of Directors to some other
officer or agent of the Corporation, or shall be required by law to be
otherwise signed or
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executed; (v) may maintain records of and certify proceedings of the
Board and Shareholders; and (vi) shall perform such other duties as
may from time to time be assigned by the Board of the Chief Executive
Officer.
Section 6, Vice Presidents. In the absence of the President or in the
event of the President's inability or refusal to act, the Vice President (or in
the event there is more than one Vice President, such Vice President as shall
be designated by the Board of Directors), shall perform all the duties of the
President, and when so acting, shall have all the powers of and be subject to
the restrictions upon the President. The Vice Presidents shall perform such
other duties as from time to time may be assigned to them by the President or
by the Board of Directors.
Section 7, The Secretary. The Secretary shall: (a) keep the minutes
of the Shareholders' and Board of Directors' meetings in one or more books
provided for that purpose; (b) see that all notices are duly given in
accordance with the provisions of these ByLaws or as required by law; (c) be
custodian of the corporate records and see that all appropriate signatures are
affixed to all certificates for shares prior to the issuance thereof and to all
documents, the execution of which, on behalf of the Corporation, is duly
authorized in accordance with the provisions of these Bylaws; (d) keep a
register of the post office address of each Shareholder; (e) sign with the
President certificates for shares of the Corporation, the issuance of which
shall have been authorized by resolution of the Board of Directors; (f) have
general charge of the stock transfer books of the Corporation; and (g) in
general perform all duties incident to the office of Secretary and such other
duties as from time to time may be assigned to him or her by the President or
by the Board of Directors.
Section 8, Treasurer. The Treasurer shall: (a) have custody of funds,
securities, book records and documents of the Corporation; (b) be responsible
for keeping proper books of account for the Corporation and for making all tax
returns and reports required of the Corporation; (c) deposit all moneys and
other valuable effects to the name and to the credit of the Corporation in such
depositories as may be designated by the Board; (d) disburse funds of the
Corporation in such manner as may be ordered by the Board or as may be
necessary in the ordinary operation of the business; (e) render to the Board at
its regular meetings, or whenever it may require an account of all transactions
as Treasurer and of the financial condition of the Corporation; and (f) perform
such other duties as the Board may from time to time prescribe.
Section 9, Chairman of the Board. The Board of Directors may, but is
not required to, elect one of its members as Chairman of the Board. In the
event one Director is so elected, said Chairman shall preside at all meetings
of the Board of Directors and at all meetings of Shareholders.
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ARTICLE IV
Certificates for Shares and Their Transfer
Section 1, Certificates for Shares. Certificates representing shares
of the Corporation shall be in such form as may be determined by the President.
Such certificates shall be signed by the President or a Vice President and by
the Secretary or an assistant secretary. All certificates for shares shall be
consecutively numbered or otherwise identified. The name of the person to whom
the shares represented thereby are issued, with the number of shares and date
of issue, shall be entered on the books of the Corporation. All certificates
surrendered to the Corporation for transfer shall be cancelled and no new
certificate shall be issued until the former certificate for a like number of
shares shall have been surrendered and cancelled, except that in case of a
lost, destroyed or mutilated certificate a new one may be issued therefor upon
such terms and indemnity to the Corporation as the Board of Directors may
prescribe.
Section 2, Transfers of Shares. Transfers of shares of the
Corporation shall be made only on the books of the Corporation by the holder of
record thereof or by Shareholder's legal representative, who shall furnish
proper evidence of authority to transfer, or by Shareholder's attorney
thereunto authorized by power of attorney duly executed and filed with the
Secretary of the Corporation, and on surrender for cancellation of the
certificate for such shares. The person in whose name shares stand on the books
of the Corporation shall be deemed the owner thereof for all purposes, as
regards the Corporation.
ARTICLE V
Section 1, Fiscal Year. The fiscal year of the Corporation shall
commence on January 1 of each year and end on December 31 of the same year.
ARTICLE VI
Dividends
Section 1, Dividends. The Board of Directors may from time to time
declare, and the Corporation may pay, dividends on its outstanding shares in
the manner and upon the terms and conditions provided by law and its Articles
of Incorporation.
ARTICLE VII
Contracts, Loans, Checks and Deposits
Section 1, Contracts. The Board of Directors may authorize any
officer or officers, agent or agents, to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the Corporation, and
such authority may be general or confined to specific instances.
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Section 2, Loans. No loans shall be contracted on behalf of the
Corporation and no evidence of indebtedness shall be issued in its name unless
authorized by a resolution of the Board of Directors. Such authority may be
general or confined to specific instances.
Section 3, Checks, Drafts, Etc. All checks, drafts or other order for
the payment of money, notes or other evidences of indebtedness issued in the
name of the Corporation, shall be signed in such manner as shall from time to
time be determined by resolution of the Board of Directors.
Section 4, Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies, or other depositories as the Board of Directors
may select.
ARTICLE VIII
Indemnification
The Corporation shall indemnify a person who was, is or is threatened
to be made a named defendant or respondent in a proceeding by reasons of the
former or present official capacity of the person with the Corporation in
accordance with, and to the fullest extent provided by the provisions of Texas
law, including Article 2.02-1 of the Texas Business Corporation Act.
ARTICLE IX
Business Combination Act
In accordance with Article 13.04 of the Texas Business Corporation
Act, the Corporation elects not to be governed by Part 13 of the Texas Business
Corporation Act known as the Business Combination Act.
ARTICLE X
Amendment of ByLaws
These Bylaws may be amended or repealed and new Bylaws may be adopted
by the Board of Directors, or by the Shareholders, as provided by and in
accordance with Article 2.23 of the Texas Business Corporation Act.
The foregoing Bylaws have been duly adopted by the Board of Directors
of SURREY, INC.
/s/ John van der Hagen
--------------------------------
John van der Hagen, President
ATTEST:
/s/ Mary van der Hagen
- --------------------------------
Mary van der Hagen, Secretary
ADOPTED: September 9, 1997
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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 SC or its designees of
a Representative's Warrant (the "Representative's Warrant") to purchase up to
71,875 Units, the Company will issue up to 718,750 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
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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
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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 718,750 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
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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 71,875 Units, which include up to 71,875 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
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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.
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(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 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, or disposed of or destroyed at the
direction of the Company.
(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. 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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<PAGE> 11
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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<PAGE> 12
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
12
<PAGE> 13
(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.
13
<PAGE> 14
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
14
<PAGE> 15
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
15
<PAGE> 16
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,
16
<PAGE> 17
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
17
<PAGE> 18
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
18
<PAGE> 19
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
19
<PAGE> 20
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
__________________________________
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE
AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE OR
MIDWEST STOCK EXCHANGE.
<PAGE> 1
[MACKALL CROUNSE & MOORE PLC LETTERHEAD]
September 15, 1997
Board of Directors EXHIBIT 5
Surrey, Inc.
13110 Trails End Road
Leander, TX 78641
Re: Registration Statement on Form SB-2
Ladies and Gentlemen:
We have acted as legal counsel for Surrey, Inc. (the "Company") in
connection with the preparation and filing of a Registration Statement on Form
SB-2 (the "Registration Statement") relating to the registration under the
Securities Act of 1933, as amended, of 718,750 units (the "Units"), each Unit
consisting of two shares of common stock, no par value (the "Common Stock"),
and one Redeemable Common Stock Purchase Warrant (the "Redeemable Warrants").
The number of Units registered includes 93,700 Units which may be sold by the
Company to cover over-allotments, if any.
In connection therewith, we have examined (a) the Articles of
Incorporation and Bylaws of the Company, both as amended to date; (b) the
corporate proceedings of the Company relative to its organization and to the
authorization and issuance of the Units; (c) the Registration Statement and the
Preliminary Prospectus included as a part thereof (the "Prospectus"); and (d)
the form of Warrant Agent and Warrant certificate and form of Underwriting
Agreement filed with the Securities and Exchange Commission as an exhibit to
the Registration Statement (the "Underwriting Agreement"). In addition to such
examination, we have reviewed such other proceedings, documents, and records
and have obtained from the Company or its officers such additional facts as we
deem necessary or appropriate for purposes of this opinion.
Based upon the foregoing, we are of the opinion that:
1. The Company has been legally incorporated and is validly
existing under the laws of the State of Texas.
2. All necessary corporate action has been taken by the Company
to authorize the issuance of the Units.
<PAGE> 2
[MARKALL CROUNSE & MOORE PLC LETTERHEAD]
Surrey, Inc.
September 15, 1997
Page 2
3. The shares of Common Stock constituting part of the Units are
validly authorized by the Company's Articles of Incorporation, as amended, and
when issued and paid for in accordance with the Underwriting Agreement, will be
validly issued, fully paid, and non-assessable.
4. The Redeemable Warrants constituting part of the Units have
been validly authorized, and when issued and paid for in accordance with the
Underwriting Agreement, will be binding obligations of the Company.
5. The shares of Common Stock issuable upon exercise of the
Redeemable Warrants are validly authorized by the Company's Articles of
Incorporation, as amended, and upon exercise of the Redeemable Warrants
pursuant to the terms thereof, will be validly issued, fully paid, and
non-assessable.
We are admitted to the bar of the State of Minnesota and our opinions
expressed herein relate only to the laws of such state or the laws of the
United States as stated herein.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption
"Legal Matters" in the Prospectus.
Very truly yours,
MACKALL, CROUNSE & MOORE, PLC
/s/ Mackall, Crounse & Moore, PLC
<PAGE> 1
EXHIBIT 10.1
EFFECTIVE DATE: 9/9/97
SURREY, INC.
1997
LONG-TERM INCENTIVE PLAN
The purpose of the SURREY, INC. 1997 LONG-TERM INCENTIVE PLAN (the "Plan")
is to promote the growth and profitability of SURREY, INC. (the "Company") and
its affiliates by providing its executives and employees with an incentive to
achieve long-term corporate objectives, to attract and retain executives and
employees of outstanding competence, and to provide its executives and
employees with an equity interest in the Company.
1. STOCK SUBJECT TO PLAN.
a. AGGREGATE LIMIT. An aggregate of 350,000 shares (the "Shares") of the
Common Stock, no par value, of the Company ("Company Stock") may be subject to
awards granted under the Plan. Such Shares may be authorized but unissued
Company Stock or authorized and issued Company Stock that has been acquired by
the Company. Except to the extent otherwise provided in paragraph 6.b., Shares
that are forfeited, and Shares that are subject to an award which expires or is
canceled, shall be available for reissuance under the Plan.
b. INDIVIDUAL LIMIT. Not more than 100,000 Shares may be subject to awards
granted to any employee during any calendar year. If an award granted to an
employee is canceled, the canceled award will continue to be counted against
the maximum number of shares for which awards may be granted to that employee.
If, after grant, the exercise price of a stock option is reduced, the reduction
shall be treated as a cancellation of the option and the grant of a new option
for purposes of this paragraph.
2. ADMINISTRATION.
a. COMMITTEE. The Plan shall be administered by a committee (the
"Committee") consisting of the entire Board of Directors of the Company (the
"Board"), or of not less than two members of the Board each of whom is a
"nonemployee director" within the meaning of Rule 16b-3(a)(3) under the
Securities Exchange Act of 1934 (the "Exchange Act"). To the extent feasible,
at any time when the Company is registered under Section 12 of the Exchange
Act, each member of the Committee shall be an "outside director" within the
meaning of Section 162(m)(4)(C)(i) of the Internal Revenue Code of 1986 (the
"Code") and regulations thereunder.
b. POWERS AND DUTIES. The Committee shall have sole discretion and
authority to:
i. adopt rules and regulations governing the administration of the Plan;
ii. select eligible employees to whom awards will be granted;
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iii. determine the type, price, amount, size, and terms of awards;
iv. determine when awards will be granted;
v. determine whether restrictions will be placed on Shares purchased
pursuant to an option or issued pursuant to an award;
and make all other determinations necessary or advisable for the administration
of the Plan. The Committee's determinations need not be uniform, and may be
made by it selectively among persons who are eligible to receive awards,
whether or not such persons are similarly situated. All interpretations,
decisions, or determinations made by the Committee shall be final and
conclusive.
3. ELIGIBILITY. Any employee of the Company or its Affiliates shall be
eligible to receive awards under the Plan; however, no awards shall be made to
a director of the Company who is not an employee of the Company or an
Affiliate. An "Affiliate" is any corporation that is a "parent corporation" or
a "subsidiary corporation" with respect to the Company, as determined under
Sections 424(e) and (f) of the Code.
4. AWARDS. The Committee may make awards in the form of stock options, stock
appreciation rights, restricted stock, performance awards, or any combination
thereof.
5. STOCK OPTIONS. A stock option shall entitle the optionee, upon exercise,
to purchase Shares at a specified price during a specified period. Stock
options may be "Incentive Stock Options" within the meaning of Section 422 of
the Code, options which do not qualify as Incentive Stock Options
("Nonqualified Options"), or a combination of Incentive Stock Options and
Nonqualified Options. Stock options shall be subject to the following
requirements:
a. TYPE OF OPTION. Each option shall be identified as an Incentive
Stock Option or a Nonqualified Option. If a combination of Incentive Stock
Options and Nonqualified Options are granted in a single award, the
agreement evidencing the award shall specify the extent to which the
options are Incentive Stock Options and the extent to which they are
Nonqualified Options.
b. TERM. No option shall be exercisable more than ten years after the
date it is granted.
c. PAYMENT. The purchase price of Shares subject to an option shall
be payable in full when the option is exercised. Payment may be made in
cash, in shares of Common Stock having a fair market value on the date of
exercise which is equal to the option price, by directing the Company to
withhold from the Shares that would otherwise be issued upon exercise a
number of Shares having a fair market value on the date of exercise which
is equal to the exercise price, or by any combination of the foregoing,
subject to such terms and conditions as the Committee deems necessary or
appropriate. The Committee, in its discretion, may also cooperate with an
optionee who participates in a cashless exercise program of a broker or
other agent under which all or
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part of the Shares received upon exercise of an option are sold through the
broker or other agent or under which the broker or other agent makes a loan
to such optionee.
d. INCENTIVE STOCK OPTIONS. An Incentive Stock Option shall be subject to
the following additional requirements:
i. The purchase price of Shares subject to the option
shall not be less than the fair market value of the Shares at the
time the option is granted, as determined in good faith by the
Committee.
ii. The fair market value (determined at the time the
option is granted) of all Shares with respect to which Incentive
Stock Options first become exercisable during any calendar year,
under this Plan or any other plan of the Company or an Affiliate,
shall not exceed $100,000.
iii. If the optionee owns 10% or more of the total
combined voting power of all classes of stock of the Company or
an Affiliate at the time the option is granted, the purchase
price of Shares subject to the option shall not be less than 110%
of their fair market value on the date the option is granted, and
the option may not be exercised more than five years after the
date it is granted. The rules of Section 424(d) of the Code
shall apply in determining the stock ownership of any optionee.
iv. The option shall not be transferable except to the
extent permitted by the agreement evidencing the option. An
option agreement may only permit an Incentive Stock Option to be
transferred by will or the laws of descent and distribution, and
an Incentive Stock Option may not be exercised during the
optionee's lifetime by anyone other than the optionee.
Subject to the foregoing, options may be made exercisable in one or more
installments, upon the happening of certain events, or upon such other terms
and conditions as the Committee shall determine.
6. STOCK APPRECIATION RIGHTS. A stock appreciation right shall entitle the
holder, upon exercise, to receive a payment equal to the amount by which the
fair market value of one Share on the date the right is exercised exceeds the
"base amount" established by the Committee on the date the right is granted.
Stock appreciation rights shall be subject to the following requirements:
a. TYPE OF RIGHT. Stock appreciation rights may be granted in tandem
with an option or as "freestanding" rights.
b. TANDEM RIGHTS. Stock appreciation rights granted in tandem with an
option shall become nonexercisable upon exercise of the option, and an
option granted in tandem with stock appreciation rights shall become
nonexercisable upon the exercise of the rights. Shares subject to an
option which becomes nonexercisable by virtue of
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the exercise of a tandem right shall not be available for subsequent awards
under the Plan.
c. TERM. No stock appreciation right shall be exercisable more than
ten years after the date it is granted.
d. PAYMENT. The amount payable upon the exercise of a stock
appreciation right may be paid in cash, in shares of Company Stock having a
fair market value which is not more than the amount payable on the date of
exercise, or in a combination of cash and such shares, as the Committee shall
determine.
e. RIGHTS NOT TRANSFERABLE. A stock appreciation right shall not be
transferable except to the extent permitted by the agreement evidencing the
right. A stock appreciation right agreement may only permit the right to be
transferred by will or the laws of descent and distribution, and a stock
appreciation right may not be exercised during the holder's lifetime by
anyone other than the holder.
f. RIGHTS IN TANDEM WITH ISOS. Stock appreciation rights granted in
tandem with an Incentive Stock Option shall be subject to the following
additional requirements:
i. The base amount of the rights shall not be less than the
purchase price of the Shares subject to the option.
ii. The rights may be exercised only when the fair market
value of the Shares subject to the rights exceeds the purchase price
of the Shares subject to the option.
iii. The rights may be exercised only when, and to the extent,
the option may be exercised.
iv. The rights may be transferred only when the option may be
transferred.
v. The amount payable upon exercise of the rights shall not
exceed the difference between the fair market value of the Shares
subject to the right and the purchase price of the Shares subject to
the option.
Subject to the foregoing, stock appreciation rights may be made exercisable in
one or more installments, upon the happening of certain events, or upon such
other terms and conditions as the Committee shall determine.
7. RESTRICTED STOCK. Restricted stock awards shall entitle the
holder to receive Shares subject to forfeiture if specified conditions are not
satisfied at the end of a restricted period. Restricted stock awards shall be
subject to the following requirements:
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a. RESTRICTED PERIOD. The Committee shall establish a restricted
period during which the holder will not be permitted to sell, transfer, pledge,
encumber, or assign the Shares subject to the award. Within these limits, the
Committee may provide for the lapse of restrictions in installments, upon the
occurrence of certain events, or upon such other terms and conditions as the
Committee deems appropriate. Any attempt by a holder to dispose of restricted
Shares in a manner contrary to the applicable restrictions shall be void, and
of no force or effect.
b. RIGHTS DURING RESTRICTED PERIOD. Except to the extent otherwise
provided herein or under the terms of a restricted stock agreement, the holder
of restricted Shares shall have all of the rights of a stockholder in the
Company with respect to the restricted Shares, including the right to vote the
Shares and to receive dividends and other distributions. However, all stock
dividends, stock rights, and stock issued upon split-ups or reclassifications
of Shares shall be subject to the same restrictions as the Shares with respect
to which they are issued, and may be held in custody as provided below until
the restrictions have lapsed.
c. FORFEITURES. Except to the extent otherwise provided in a
restricted stock agreement, restricted Shares shall be forfeited to the
Company, and all rights of the holder with respect to such Shares shall
terminate, if the holder shall cease to be an employee of the Company and its
Affiliates or if any condition established by the Committee for the release of
any restriction shall not have occurred prior to the end of the restricted
period.
d. CUSTODY. The Committee may provide that certificates evidencing
restricted Shares shall be held in custody by a bank or other institution, or
by the Company or an Affiliate, until the restrictions have lapsed. The
Committee may also require the holder of restricted Shares to deliver a stock
power to the Company, endorsed in blank, relating to the restricted Shares.
e. CERTIFICATES. A recipient of restricted Shares shall be issued a
certificate or certificates evidencing such Shares. Such certificates shall be
registered in the name of the recipient, and shall bear a legend which shall be
in substantially the following form:
" The transferability of this certificate and the shares represented
hereby are subject to the terms and conditions forfeiture) of the
SURREY, INC. 1997 LONG-TERM INCENTIVE PLAN and a Restricted Stock
Agreement entered into between the registered owner and Surrey, Inc.
Copies of such Plan and Agreement are on file in the offices of
Surrey, Inc., 13110 Trails End Road, Leander, Texas 78641."
8. PERFORMANCE AWARDS. Performance awards shall entitle the recipient
to receive future payments of cash or distributions of Shares upon the
achievement of long-term performance goals. Performance awards shall be subject
to the following requirements:
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a. PERFORMANCE PERIOD. The Committee shall establish a
performance period of not more than five years.
b. AMOUNT OF AWARDS. The Committee shall establish a value
for each performance award, which may be expressed in terms of
specified dollar amounts or a specified number of Shares. Such value
may be fixed or variable in accordance with criteria specified by the
Committee at the time of the award.
c. PERFORMANCE OBJECTIVES. The Committee shall establish
performance objectives to be achieved during the performance period,
determining the extent to which an employee will be entitled to
distributions with respect to the award.
d. PERFORMANCE MEASURES. Performance objectives may relate to
corporate, subsidiary, unit, or individual performance, or any
combination thereof, and may be established in terms of growth in
gross or net earnings, earnings per share, ratio of earnings to equity
or assets, Share value, or such other measures as the Committee shall
determine. Multiple objectives may be used which have the same or
different weighting, and the objectives may relate to absolute
performance or to relative performance measured against other
companies, subsidiaries, units, or individuals.
e. ADJUSTMENTS. Prior to the end of a performance period, the
Committee may adjust previously established performance objectives
to reflect major unforeseen events such as changes in applicable laws,
regulations, or accounting practices; mergers, acquisitions, or
divestitures; or other unusual or non-recurring events.
f. DISTRIBUTIONS WITH RESPECT TO AWARDS. Following the end
of a performance period, the Committee shall determine the extent to
which the performance objectives for such period have been achieved
and the amounts, if any, that are payable with respect to performance
awards for that period. Such amounts may be paid in cash or in Shares
(based on their fair market value at the time of the payment), or in
any combination of cash and Shares, as the Committee shall determine.
Payments may be made in a lump sum or in installments, and shall be
subject to such vesting, deferral, or other terms and conditions as
the Committee may determine.
g. NONTRANSFERABILITY. A performance award shall not be
assignable or transferable except to the extent permitted by the
agreement evidencing the award. A performance award agreement may
only permit an award to be transferred by will or the laws of descent
and distribution, and during the recipient's lifetime, a performance
award may only be paid to the recipient.
9. AGREEMENTS. Each award shall be evidenced by an agreement
setting forth the terms and conditions upon which it is granted. Multiple
awards may be evidenced by a single agreement. Subject to the limitations set
forth in the Plan, the Committee may, with the consent of the person to whom an
award has been granted, amend an agreement to modify the terms or conditions of
any award.
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10. ADJUSTMENTS. If there is a change in the outstanding Shares of Company
Stock by reason of a stock dividend or split, recapitalization,
reclassification, combination, or exchange of Shares, or by reason of a similar
corporate change, the Committee may adjust the number of Shares subject to an
award, the option price or value of an award, the maximum number of Shares
subject to this Plan, or the maximum number of Shares subject to an award, as
may be appropriate to reflect the nature of the change. Any such adjustments
shall be conclusive and binding for all purposes of this Plan.
11. MERGER, CONSOLIDATION, ETC. Subject to the provisions of the agreement
evidencing an award, if the Company becomes a party to a corporate merger,
consolidation, major acquisition of property for stock, spinoff,
reorganization, or liquidation, the Board may make any arrangement it deems
advisable with respect to outstanding awards, in the number of Shares subject
to this Plan, and in the number of Shares subject to awards to any employee.
Such an arrangement may include, but shall not be limited to, the substitution
of new awards for awards then outstanding, the assumption of any award, and the
termination of any award. Any such arrangements shall be conclusive and
binding for all purposes of this Plan.
12. INDEMNIFICATION. Each member of the Committee and the Board shall be
indemnified by the Company against any loss, cost, liability, or expense that
may be imposed upon or reasonably incurred by him as a result of any claim,
action, suit, or proceeding in which he may be involved by reason of any action
taken or omitted under this Plan; provided, such person gives the Company an
opportunity, at its own expense, to handle and defend the same before he
undertakes to handle and defend it on his own behalf. The foregoing right of
indemnification shall not be exclusive of any other rights of indemnification
to which any person may be entitled under the Company's articles of
incorporation or bylaws, as a matter of law, or otherwise.
13. RIGHTS AS STOCKHOLDER. Except to the extent otherwise specifically
provided herein, the recipient of an award shall have no rights as a
stockholder with respect to Shares sold or issued pursuant to the Plan until
certificates for such Shares have been issued to such person.
14. GENERAL RESTRICTIONS. Each award granted pursuant to the Plan shall be
subject to the requirement that if, in the opinion of the Committee:
a. the listing, registration, or qualification of any Shares related
thereto upon any securities exchange or under any state or federal law;
b. the consent or approval of any regulatory body; or
c. an agreement by the recipient with respect to the disposition of any
such Shares;
is necessary or desirable as a condition of the issuance or sale of such
Shares, such award shall not be consummated unless and until such listing,
registration, qualification, consent, approval, or agreement is effected or
obtained in form satisfactory to the Committee.
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15. EMPLOYMENT RIGHTS. Nothing in this Plan, or in any agreement entered
into under the Plan, shall confer upon any employee the right to continue in
the employ of the Company or its Affiliates, or affect the right of the Company
or any Affiliate to terminate an employee's employment at any time, with or
without cause.
16. WITHHOLDING. If the Company proposes or is required to issue Shares
pursuant to the Plan, it may require the recipient to remit to it, or withhold
from such award or from the recipient's other compensation, an amount
sufficient to satisfy any tax withholding requirements prior to the delivery of
certificates for the Shares.
17. AMENDMENTS. The Board may at any time, and from time to time, amend the
Plan in any respect, except that no amendment:
a. increasing the number of Shares available for issuance or
sale pursuant to the Plan (other than as permitted by paragraphs 10
and 11); or
b. changing the classification of employees eligible to
participate in the Plan or the definition of an Affiliate;
shall be made without stockholder approval.
18. CONTINGENT AWARDS. Any award granted under the Plan prior to the date
on which the Plan is approved by the Company's stockholders shall be contingent
upon such approval. If stockholder approval is not received within 12 months
after the date on which this Plan is adopted by the Board, such award shall be
void and of no force or effect.
19. STOCKHOLDER APPROVAL. The approval of the Plan or any amendment by the
Company's stockholders must comply with all applicable provisions of the
Company's charter, bylaws, and applicable state law prescribing the method and
degree of stockholder approval required for granting awards of the type
provided under the Plan. Absent any such prescribed method and degree of
stockholder approval, the Plan or such amendment must be approved by a simple
majority vote of stockholders voting, either in person or by proxy, at a duly
held stockholders' meeting
20. DURATION. No awards shall be granted under the Plan after the earlier
of: (a) the date the Plan is terminated by the Board; or (b) the tenth
anniversary of the date the Plan was first approved by the Board.
21. COMPLIANCE WITH SECTION 16(B). In the case of employees who are subject
to Section 16 of the Exchange Act, the Company intends that the Plan and any
award granted under the Plan satisfy the applicable requirements of Rule 16b-3.
If a provision of the Plan or any award would otherwise conflict with such
intent, that provision, to the extent possible, shall be interpreted so as to
avoid the conflict. To the extent of any remaining irreconcilable conflict
with such intent, the provision shall be deemed void as applied to employees
who are subject to Section 16 of the Exchange Act.
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EXHIBIT 10.2
EFFECTIVE DATE: 9/9/97
SURREY, INC.
1997 NON-EMPLOYEE DIRECTORS'
STOCK OPTION PLAN
The purpose of the Surrey, Inc. 1997 Non-Employee Directors' Stock Option
Plan (the "Plan") is to secure for Surrey, Inc. (the "Company") and its
stockholders the benefits inherent in increased common stock ownership by the
members of the Board of Directors of the Company (the "Board") who are not
employees of the Company ("Non-Employee Directors").
1. STOCK SUBJECT TO PLAN. An aggregate of 100,000 shares (the "Shares")
of the Common Stock, no par value, of the Company ("Common Stock") may be
subject to stock options granted under the Plan. Such Shares may be authorized
but unissued Common Stock or authorized and issued Common Stock that has been
or may be acquired by the Company. Shares that are subject to an option which
expires or is terminated unexercised shall again be available for issuance
under the Plan.
2. ADMINISTRATION. The Plan shall be administered by the Board. The
Board shall have sole discretion and authority to make rules and regulations
governing the administration of the Plan, to grant options in accordance with
the provisions of the Plan, and to prescribe the form of agreement evidencing
options granted under the Plan. All interpretations, decisions, or
determinations made by the Board pursuant to the Plan shall be final and
conclusive.
3. ELIGIBILITY. Subject to the limitations of paragraph 1:
a. INITIAL GRANTS. Each individual who is a Non-Employee Director
on the date on which the Plan is adopted by the Board, and each individual
who first becomes a Non-Employee Director after the date on which the Plan
is adopted by the Board, shall receive a stock option under the Plan.
Each such option shall entitle the optionee, upon exercise, to purchase
6,000 Shares upon the terms and conditions set forth in paragraph 4.
b. ANNUAL GRANTS. Each Non-Employee Director who is re-elected by
the shareholders to a fourth or subsequent term as a director, shall
receive additional options under the Plan upon such re-election. Each
such additional option shall entitle the optionee, upon exercise, to
purchase 2,000 Shares.
Notwithstanding the foregoing, if the number of Shares available for issuance
pursuant to paragraph 1 on any date is less than the aggregate number of Shares
for which options are to be granted on such date, then the number of Shares for
which options are granted to each director on such date shall be reduced, pro
rata, until the aggregate number of Shares for which options are to be granted
equals the number of Shares then available for issuance.
4. TERMS AND CONDITIONS OF OPTIONS. Each stock option granted under the
Plan shall be subject to the following terms and conditions:
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a. GRANT DATES.
(1) INITIAL GRANTS. An option granted under paragraph 3.a. to
an individual who is Non-Employee Director on the date on which the Plan
is adopted by the Board, shall be granted as of the date on which a
Registration Statement on Form SB-2 becomes effective with the Securities
and Exchange Commission with respect to an initial public offering of the
Common Stock of the Company (the "Grant Date"). An option granted under
paragraph 3.a. to an individual who is not a Non-Employee Director on the
date on which the Plan is adopted by the Board, shall be granted as of the
date on which the individual first becomes a Non-Employee Director.
(2) ANNUAL GRANTS. An option granted under paragraph 3.b.
shall be automatically granted upon the re-election of such Non-Employee
Director to the Board by the shareholders of the Company.
b. OPTION PRICE. The purchase price of Shares that are subject to
an option shall be the fair market value of such Shares at the time the
option is granted, as determined in good faith by the Board.
c. EXERCISE PERIODS.
(1) INITIAL AND SUBSEQUENT GRANTS. An option granted pursuant
to paragraph 3.a. shall become exercisable with respect to one-third of
the Shares subject to the option on the first anniversary of the Grant
Date, and with respect to an additional one-third of the Shares subject to
the option on each of the next two anniversaries of the Grant Date.
(2) ANNUAL GRANTS. An option granted pursuant to paragraph
3.b. shall become exercisable with respect to all of the Shares subject
to the option on the Grant Date.
(3) EXPIRATION. Each stock option shall expire and become
nonexercisable on the tenth anniversary of the Grant Date or on any
earlier date specified in paragraph 4.d. Subject to the foregoing, an
option may be exercised from time to time with respect to any number of
whole Shares, up to the aggregate number of Shares subject to the option.
d. CESSATION OF DIRECTORSHIP. If an optionee ceases to be a
director of the Company for any reason, each option granted to such
optionee shall immediately expire and become nonexercisable as to any
Shares with respect to which it has not yet become exercisable, but it
shall remain exercisable as to any remaining Shares until the first to
occur of the following:
(1) the expiration of three months from the date on which the
optionee ceases to be a director of the Company; provided, that if
the optionee dies during
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such three-month period, the option shall remain exercisable for the
period specified in subparagraph (2) below;
(2) the expiration of 12 months following the date of the
optionee's death; or
(3) the tenth anniversary of the Grant Date.
e. PAYMENT. The purchase price for Shares subject to an option
shall be payable in full at the time the option is exercised. Payment may
be made in cash, in shares of Common Stock having a fair market value on
the date of exercise which is equal to the option price, by directing the
Company to withhold from the Shares that would otherwise be issued upon
exercise a number of Shares having a fair market value on the date of
exercise which is equal to the exercise price, or by any combination of
the foregoing, subject to such terms and conditions as the Board deems
necessary or appropriate. The Board, in its discretion, may also
cooperate with an optionee who participates in a cashless exercise program
of a broker or other agent under which all or part of the Shares received
upon exercise of an option are sold through the broker or other agent or
under which the broker or other agent makes a loan to such optionee.
5. AGREEMENTS. Each stock option granted pursuant to the Plan shall be
evidenced by an agreement setting forth the terms and conditions upon which it
is granted.
6. ADJUSTMENTS. If there is a change in the outstanding Shares of
Common Stock by reason of a stock dividend or split, recapitalization,
reclassification, combination, or exchange of Shares, or by reason of a similar
corporate change, the Board may adjust the number of Shares subject to an
option, the option price, or the maximum number of Shares subject to this Plan,
as may be appropriate to reflect the nature of the change. Any such
adjustments shall be conclusive and binding for all purposes of this Plan.
7. MERGER, CONSOLIDATION, ETC. If the Company becomes a party to a
corporate merger, consolidation, major acquisition of property for stock,
spinoff, reorganization, or liquidation, the Board may make any arrangement it
deems advisable with respect to outstanding options and in the number of Shares
subject to this Plan. Such an arrangement may include, but shall not be
limited to, the substitution of new options for options then outstanding, the
assumption of any option, and the termination of any option. Any such
arrangements shall be conclusive and binding for all purposes of this Plan.
8. INDEMNIFICATION. Each member of the Board shall be indemnified by
the Company against any loss, cost, liability, or expense that may be imposed
upon or reasonably incurred by him as a result of any claim, action, suit, or
proceeding in which he may be involved by reason of any action taken or omitted
under this Plan; provided, such person gives the Company an opportunity, at its
own expense, to handle and defend the same before he undertakes to handle and
defend it on his own behalf. The foregoing right of indemnification shall not
be exclusive of any other rights of indemnification to which any person may be
entitled under the Company's articles of incorporation or bylaws, as a matter
of law, or otherwise.
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9. RIGHTS AS STOCKHOLDER. Except to the extent otherwise specifically
provided herein, the recipient of an option shall have no rights as a
stockholder with respect to Shares issued pursuant to the Plan until
certificates for such Shares have been issued to such person.
10. GENERAL RESTRICTIONS. Each option granted pursuant to the Plan shall
be subject to the requirement that if, in the opinion of the Board:
a. the listing, registration, or qualification of any Shares
related thereto upon any securities exchange or under any state or federal
law;
b. the consent or approval of any regulatory body; or
c. an agreement by the recipient with respect to the disposition of
any such Shares;
is necessary or desirable as a condition of the issuance or sale of such
Shares, such option shall not be consummated unless and until such listing,
registration, qualification, consent, approval, or agreement is effected or
obtained in form satisfactory to the Board.
11. RIGHTS AS A DIRECTOR. Nothing in this Plan, or in any agreement
entered into hereunder, shall confer upon any director the right to continue as
a director of the Company.
12. WITHHOLDING. If the Company proposes or is required to issue Shares
pursuant to the Plan, it may require the recipient to remit to it, or withhold
from such Shares or from the recipient's other compensation, an amount
sufficient to satisfy any applicable federal, state, or local tax withholding
requirements prior to the delivery of any certificates for such Shares.
13. AMENDMENTS. The Board may at any time, and from time to time, amend
the Plan in any respect.
14. DURATION. No options or rights shall be granted under the Plan after
the date on which the Plan is terminated by the Board.
15. COMPLIANCE WITH SECTION 16(B). In the case of directors who are or
may be subject to Section 16 of the Securities Exchange Act of 1934 (the
"Act"), it is the intent of the Company that the Plan and any stock option
granted hereunder satisfy and be interpreted in a manner that satisfies the
applicable requirements of Rule 16b-3, so that such persons will be entitled to
the benefits of Rule 16b-3 or other exemptive rules under Section 16 of the Act
and will not be subjected to liability thereunder. If any provision of the
Plan or any stock option would otherwise conflict with the intent expressed
herein, that provision, to the extent possible, shall be interpreted and deemed
so as to avoid such conflict. To the extent of any remaining irreconcilable
conflict with such intent, such provision shall be deemed void as applicable to
directors who are or may be subject to Section 16 of the Act.
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EXHIBIT 10.3(A)
U. S. SMALL BUSINESS ADMINISTRATION
SAN ANTONIO DISTRICT OFFICE
FEDERAL BUILDING
727 EAST DURANGO - ROOM A527
SAN ANTONIO, TEXAS 78206
Loan Number GP-767,982-3006-SA
AUTHORIZATION AND LOAN AGREEMENT
(GUARANTY LOANS)
Liberty National Bank
900 Congress Avenue
Austin, Texas 78701
Your request dated September 16, 1994, for SBA to Guarantee 53.57% of a Loan in
the amount of $1,400,000 to be made by lender to
SURREY, INC. (A TEXAS CORPORATION)
13110 Trails End Road
Leander, Texas 78641
is hereby approved pursuant to Section 7(a) of the Small Business Act as
amended.
1. THE FOLLOWING FORMS ARE HEREWITH ENCLOSED:
a. Three copies of SBA Note, one to be executed by the
Borrower, the other two to be conformed. The original executed
copy must be retained by you and one conformed copy must be
sent to SBA immediately after first disbursement, together
with a guaranty fee of 2% of the amount guaranteed. This fee
shall be paid by Lender within 90 days of the date of this
Authorization and Lender may charge the Borrower for such fee
only after the Lender has paid the fee and an initial
disbursement was made on the loan.
b. Copies of the SBA Settlement Sheet, Form 1050, are to
be completed and executed by Lender and Borrower to reflect
each disbursement. Prompt reporting of disbursements is
necessary. Return the first two copies ("Denver FOD" copy and
"Servicing Office" copy) to SBA.
c. Compensation Agreements, Form 159, shall be executed
by Borrower, each representative and Lender and returned to
SBA if Borrower has employed an attorney, accountant or other
representative, or if Borrower is charged fees for services by
Lender or an associate of Lender. If no such fees have been
charged, please write "None" and return the form, executed by
the Lender and Borrower, to SBA.
SBA Form 529B Page 1
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d. The original of this Authorization (and documents
itemized below if any) shall be executed prior to first
disbursement and retained in loan file by the Lender. A copy
of the Authorization, amendments and itemized documents should
be given to the Borrower.
2. THIS AUTHORIZATION IS SUBJECT TO:
a. Provisions of the Guaranty Agreement between Lender
and SBA, dated January 18, 1991.
b. First disbursement of the Loan being made not later
than three (3) months (January 17, 1995), and no disbursement
bang made later than six (6) months (April 17, 1995), from the
date of this Authorization, unless such time is extended
pursuant to prior written consent by SBA.
c. Receipt by Lender of evidence that there has been no
unremedied adverse change since the date of the Application,
or since any of the preceding disbursements, in the financial
or any other condition of Borrower, which would warrant
withholding or not making any such disbursement or any further
disbursement.
d. The representations made by Borrower in its loan
application, the requirements or conditions set forth in
Lender's application form, including the supporting documents
thereto, the conditions set forth herein and any future
conditions imposed by Lender (with prior SBA approval).
3. TERMS OF LOAN:
a. Repayment term, interest rate(s), and maturity.
Initial interest rate shall be 9.50%;
Interest rate shall vary each quarter and shall not
exceed prime rate plus 1.75%;
Installment amount shall be $16,329 beginning one
(1) month from date of note;
Frequency of installments shall be monthly; Maturity
of loan shall be Twelve (12) years from
date of note; and all other terms and conditions
stated in the SBA Note (SBA Form 147) provided
with this Authorization and Loan Agreement.
b. Use of Proceeds: (Show specific uses for which loan
is authorized.)
(1) Approximately $150,000 to make improvements.
SBA Form 529B Page 2
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(2) Approximately $1,123,000 for debt repayment
as follows:
(a) approximately $42,000 to Liberty
National Bank to refinance existing
equipment term loans.
(b) approximately $18,000 to North Rim
Development (R. Luce) refinance
existing real estate loan.
(c) approximately $388,000 to The Money
Store Investment Corporation/SBA to
refinance existing SBA loan.
(d) approximately $245,000 to Liberty
National Bank/SBA to refinance
existing SBA loan.
(e) approximately $130,000 to Liberty
National Bank/SBA to refinance
existing SBA loan.
(f) approximately $300,000 to Liberty
National Bank to term out an existing
revolving line of credit loan.
(3) Approximately $ 127,000 for working capital
accounts payable.
TOTAL LOAN $1,400,000
(4) Proceeds not expended for purposes indicated
above may be disbursed for operating expenses
provided the amount does not exceed $15,000.
(5) In order to eliminate the need of numerous
joint payee checks for small amounts, Lender is
authorized to make disbursements to borrower of
$10,000 for the purpose of purchasing inventory or
equipment provided that subsequent like disbursements
are withheld until borrower has accounted for the
earlier disbursement by presentation to Lender of
cancelled checks, paid invoices and/or receipts.
(6) Interim loans made by Lender subsequent to
date of this Authorization for the purposes outlined
above may be repaid with SBA loan proceeds (this does
not include renewals of notes existing prior to SBA
loan approval). SBA Form 1050 "Settlement Sheet" must
show the actual use of the interim funds and
correspond to the uses specified above.
SBA Form 529B Page 3
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c. Collateral:
(1) If any of the collateral pledged as security
for this loan is sold in bulk or outside the normal
course of business, the entire debt shall become due
and payable at the option of the lender.
(2) Deed of Trust constituting a first lien on
land and improvements located at 13110 Trails End
Road, Leander, Texas. First lien to include the
existing land an 30,000 sq. ft. of improvements plus
the additional 9,000 sq. ft. and new septic system
to be build with loan proceeds. Legal description is
as being Lots No. 2, 3 and 4 of North Rim, a
subdivision in Travis County, Texas according to the
map or plat of record in Volume 83, pages 161A -164A,
Plat Records of Travis County, Texas. Evidence of
title and priority of lien will be based upon
Mortgagee Title Policy.
(3) First lien evidenced by Security Agreement(s)
and UCC-1 filing(s) on all the following now owned
and hereafter acquired (including proceeds):
(a) equipment
(b) inventory
(c) furniture and fixtures
located at 13110 Trails End Road, Leander, Texas.
(4) Second lien evidenced by Security
Agreement(s) and UCC-1 filing(s) on all the following
now owned and hereafter acquired (including
proceeds):
(a) accounts receivable
located at 13110 Trails End Road, Leander, Texas;
subject only to a prior security interest in favor of
Liberty National Bank of a $250,000 Revolving Line of
Credit with a borrowing base of 70% of accounts
receivable less than 60 days old.
(5) Prior to first disbursement the appropriate
UCC lien searches must be made to determine Lender's
priority of lien.
(6) Written agreement of stockholders that, prior
to payment in full of the above described
indebtedness, they will not transfer or sell any of
their shares of stock in the Borrower without the
prior written consent of the Lender and SBA. Failure
to obtain written consent may be considered
SBA Form 529B Page 4
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a default under the terms of the Note or this
Authorization.
Borrower hereby agrees not to issue
additional stock or reclassify any of its outstanding
shares of stock without the prior written consent of
the Lender and SBA. Failure to obtain written
consent may be considered a default under the terms
of the Note or this Authorization.
(7) Personal guaranty on forms supplied by SBA
(SBA Form 148) executed by James K. Olson and wife,
Louise K. Olson.
(8) Personal guaranty on forms supplied by SBA
(SBA Form 148) executed by John B. van der Hagen and
wife, Mary A. van der Hagen.
4. TO FURTHER INDUCE LENDER TO MAKE AND SBA TO GUARANTY THIS
LOAN, LENDER AND SBA IMPOSE THE FOLLOWING CONDITIONS:
a. Execution of all documents required in Item 1 above.
b. Reimbursable Expenses. Borrower will, on demand,
reimburse Lender for any and all expenses incurred, or which
may be hereafter incurred, by Lender from time to time in
connection with or by reason of Borrower's application for,
and the making and administration of the Loan.
c. Books, Records, and Reports. Borrower will at all
times keep proper books of account in a manner satisfactory to
Lender and/or SBA. Borrower hereby authorizes Lender or SBA to
make or cause to be made, at Borrower's expense and in such
manner and at such times as Lender or SBA may require, (a)
inspections and audits of any books, records and papers in the
custody or control of Borrower or others, relating to
Borrower's financial or business conditions, including the
making of copies thereof and extracts therefrom, and (b)
inspections and appraisals of any of Borrower's assets.
Borrower will furnish to Lender and SBA for the 12 month
period ending on the last day of the borrower's fiscal year
and annually thereafter (no later than 2 months following the
expiration of any such period) and at such other times and in
such form as Lender may prescribe, Borrower's financial and
operating statements. Borrower hereby authorizes all Federal,
State and municipal authorities to furnish reports of
examinations, records, and other information relating to the
conditions and affairs of Borrower and any desired information
from reports, returns, files and records of such authorities
SBA Form 529B Page 5
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upon request therefor by Lender or SBA. Year-end statements to
be prepared by an independent public accountant.
LENDER IMPOSED:
(1) Quarterly financial statement on business,
including balance sheet, profit and loss statement,
aged accounts receivable and accounts payable
listings. These quarterly reports are to be submitted
to Lender with 30 days of the end of each quarter. An
annual Corporate tax return (Form 1120) is due within
30 days of timely filing.
(2) Annual personal financial statements,
including cash flow statement and contingent
liability statement, with 30 days of the end of each
calendar year. Annual personal tax returns (Form
1040) is due within 30 days of timely filing.
d. Borrower shall not execute any contracts for
management consulting services without prior approval of
Lender and SBA.
e. Distributions, and Compensation. Borrower will not,
without the prior written consent of Lender or SBA (a) if
Borrower is a corporation, declare or pay any dividend or make
any distribution upon its capital stock, or purchase or retire
any of its capital stock, or consolidate, or merge with any
other company, or give any preferential treatment, make any
advance, directly or indirectly, by way of loan, gift, bonus,
or otherwise, to any company directly or indirectly
controlling or affiliated with or controlled by Borrower, or
any other company, or to any officer, director or employee of
Borrower, or of any such company, (b) if Borrower is a
partnership or individual, make any distribution of assets of
the business of Borrower, other than reasonable compensation
for services, or give any preferential treatment, make any
advance directly or indirectly, by way of loan, gift, bonus,
or otherwise, to any partner or any of its employees or to any
company directly or indirectly controlling or affiliated with
or controlled by Borrower, or any other company.
f. Other Provisions:
(1) The borrower agrees, to the extent feasible,
to purchase only American-made equipment and products
with the proceeds of this loan.
SBA Form 529B Page 6
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(2) Prior to first disbursement, the Lender must
be in receipt of evidence of the kind described below
from an independent authoritative source which is
sufficient to indicate to the Lender that the
property is not in a special flood hazard area
(SFHA). Property is defined as the asset(s) financed
as a part of the SBA financial assistance and/or
other collateral deemed necessary by the field
office. If such evidence is not provided to the
Lender, the borrower must obtain, and maintain, a
Standard Flood Insurance Policy (SFIP) or other
appropriate special hazard insurance in amounts and
coverages equal to the lesser of (1) the insurable
value of the property or (2) the maximum amount of
coverage available. Borrower can show that special
flood hazard insurance has been acquired by
submitting a copy of the policy or providing evidence
of premium payment for the appropriate coverage to a
licensed insurance agent. Borrower will not be
eligible for either any future disaster assistance or
SBA business loan assistance if the special flood
hazard insurance is not maintained as stipulated
herein throughout the entire term of this loan.
As evidence that the property is not located
within a special flood hazard area subject to
flooding, mudslides, the Lender may rely on a
determination of special flood hazard area status by
the borrower's property & casualty insurance company,
real estate appraiser, title insurance company, a
local government agency or other authoritative source
acceptable to SBA which would ordinarily have
knowledge of the special flood hazard area status for
the property.
(3) Note (SBA Form 147) and all loan documents to
be executed by corporate officers authorized to incur
the debt in a Resolution of the Board of Directors.
(4) Prior to final disbursement Lender must
obtain the original of the life insurance policy and
an assignment of the policy acknowledged by the
insuring company on the life of James K. Olson in the
initial amount of $500,000, which policy may, at the
option of Borrower, be decreasing term insurance.
Initial disbursements may be made upon receipt of
evidence from insurance company or its agent that the
named insured has applied for insurance in at least
the indicated amount and has
SBA Form 529B Page 7
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paid the first month premium. Liberty National Bank
is to be the Assignee and hold original policy.
(5) Prior to final disbursement, Lender must
obtain the original of the life insurance policy and
an assignment of the policy acknowledged by the
insuring company on the life of John B. van der Hagen
in the initial amount of $500,000, which policy may,
at the option of Borrower, be decreasing term
insurance. Initial disbursements may be made upon
receipt of evidence from insurance company or its
agent that the named insured has applied for
insurance in at least the indicated amount and has
paid the first month premium. Liberty National Bank
is to be the Assignee and hold original policy.
(6) Hazard insurance must be obtained by the
Borrower in an amount sufficient to protect Lender's
interest in collateral, with Lender shown as Loss
Payee.
(7) Borrower agrees that any fixed asset valued
in excess of $50,000 shall not be purchased in any
one fiscal year without the prior written consent of
the Lender.
(8) Prior to first disbursement, Borrower must
furnish to Lender an Employer Identification Number
issued by Internal Revenue Service.
(9) Borrower shall provide Lender with written
notice of intent to prepay part or all of this loan
at least 15 business days prior to the anticipated
prepayment date. A prepayment shall be defined as any
payment made ahead of schedule that exceeds 20% of
the then outstanding balance.
(10) Lender agrees that, in the event of a default
by the Borrower, it will execute any right of off-set
available to it. All funds received are to be placed
against the outstanding loan balance prior to the
Bank requesting that SBA honor its guaranty.
(11) Prior to first disbursement, Lender shall
obtain for Lender by Lender an AS-BUILT APPRAISAL
EQUAL TO CONSTRUCTION COST BY STATE CERTIFIED
APPRAISER INDICATING VALUE OF AT LEAST $650,000 ON
LAND AND BUILDING LOCATED AT 13110 TRAILS END ROAD,
LEANDER, Texas. Lender, not applicant, shall engage
and issue directives to Appraiser.
SBA Form 529B Page 8
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(12) Prior to any disbursement of any funds and
prior to commencement of construction, Lender shall
be in receipt of the following:
(a) Copy of signed construction contract
from contractor acceptable to Lender in the
amount of not more than $150,000.
(b) Evidence satisfactory to Lender that
Builder's Risk and Workman's Compensation
insurance is being carried by the contractor.
(c) Complete plans and specifications
covering the proposed construction.
(d) Agreement signed by Borrower that no
material change in the approved plans and
specifications will be ordered or permitted
without prior written consent of the Lender
and Surety Company issuing any surety bond.
(e) Evidence that proposed construction
conforms with applicable zoning, building,
and sanitary codes.
(f) SBA Form 601 (Applicant's Agreement
of Compliance) executed by Borrower and
Contractor.
(13) In the construction of a new building or an
addition to a building, the construction must conform
with the "National Earthquake Hazards Reduction
Program Recommended Provisions for the Development of
Seismic Regulations for New Buildings." Compliance
with these requirements shall be evidenced by a
certificate issued by a licensed building architect,
construction engineer or similar professional, or a
letter from a state or local government agency
stating that the issuance of an occupancy permit is
required and is subject to conformance with building
codes and that the local building codes include the
Seismic Standards.
(14) Lender shall make interim inspections and
final inspection of the construction as it deems
necessary for the sole internal use of Lender.
(15) Progress payments may be made by Lender at
its sole discretion at intervals determined by the
Lender and based upon Borrower's and Contractor's
certification of amount of work completed and
SBA Form 529B Page 9
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accepted, less 10% retainage to be disbursed upon
final completion of construction and execution by
Borrower and Contractor of an affidavit that
construction is complete and that all bills have been
paid.
(16) Prior to first disbursement, Lender shall
make a field visit to the site for
environmental/general inspection and obtain from
Borrower an executed Environmental Questionnaire and
Disclosure Statement on 13110 Trails End Road,
Leander, Texas. Lender shall review the environmental
statement and field visit results and determine
whether there is reason to believe that hazardous
substances are present on the property which is
hypothecated. If Lender makes such a determination,
it shall advise SBA before any disbursement of loan
proceeds. *At the sole discretion of either SBA or
the Lender, Borrower may be required to obtain a
Phase I Environmental Risk Report Site Assessment on
the hypothecated property satisfactory to Lender and
SBA.
(17) Borrower represents, warrants and
acknowledges that:
(a) at the time the loan application was
submitted, Borrower was and continues to be
in compliance with all Local, State and
Federal laws and regulations pertaining to
hazardous substances;
(b) Borrower has no knowledge of any
contamination from hazardous substances of
any real or personal property pledged as
collateral for this loan, which is in
violation of any such laws and regulations;
(c) Borrower assumes full responsibility
for all costs incurred in any clean-up
involving hazardous substances and agrees to
indemnify Lender and SBA against payment of
any such costs, and further agrees to execute
a separate indemnification agreement if
demanded by Lender or SBA;
(d) Until full repayment of the loan,
Borrower shall promptly notify Lender and SBA
if it knows, suspects or believes there may
be a hazardous substance in or around the
real property securing this loan or if
Borrower and/or such property are subject to
any
SBA Form 529B Page 10
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investigation by any Government Agency
pertaining to any hazardous substance.
This written Loan Agreement represents the final agreement between the parties
and may not be contradicted by evidence of prior, contemporaneous, or
subsequent oral agreements of the parties. There are no unwritten oral
agreements between the parties.
5. PARTIES AFFECTED. This Agreement shall be binding upon
Borrower and Borrower's successors and assigns. No provision stated
herein shall be waived without the prior written consent of SBA. The
Loan shall be administered as provided in the Guaranty Agreement.
Philip Lader
Administrator
/s/Dan L. Cifers Chief Finance Division October 17, 1994
- ------------------------------------------------------------------------
By (Signature) Title Date
Borrower hereby agrees to the conditions imposed herein and further agrees that
the terms and conditions herein are for the benefit of, and may be enforced by,
Lender and SBA. This Authorization and Loan Agreement Lender and amendments
constitute the Loan Agreement between Lender and Borrower and it is agreed by
the undersigned that this instrument is not a contract to loan money.
SURREY, INC. (A TEXAS CORPORATION)
By: /s/John B. van der Hagen 11/17/94
-----------------------------------------------------------------
President Date
John B. van der Hagen
Attest:
/s/Mary A. van der Hagen 11/17/94
- --------------------------------------------------------------------
Secretary Date
Mary A. van der Hagen
NOTE: Corporate applicants must execute Authorization, by duly authorized
officer, and seal must be affixed and duly attested; partnership applicants
must execute in firm name, together with signature of a general partner.
SBA Form 529B Page 11
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EXHBIIT 10.3(b)
LOAN AGREEMENT
THIS LOAN AGREEMENT (the "Agreement") is made as of the date hereof by and
between Surrey, Inc., Texas corporation whose address is 13110 Trails End Road,
Leander, Texas 78641 ("Borrower") and Liberty National Bank, a national banking
association, whose address is 900 Congress Avenue, Austin, Texas 78701
("Lender"). At the request of Borrower, Lender will make available to Borrower
a revolving line of credit loan (the "Loan"), provided that the aggregate
outstanding principal amount of all Advances (hereinafter defined) under the
Loan shall never exceed the lesser of $250,000.00 or the Borrowing Base as
defined below. Advances under the Loan will be available from time to time
during the Commitment Period (hereinafter defined). The Loan will be evidenced
by a promissory note executed by Borrower, dated the date hereof and payable to
the order of Lender in the original principal amount of Two Hundred Fifty
Thousand Dollars ($250,000.00), (such promissory note, and all renewals,
extensions, and other modifications thereof, is herein referred to as the
"Note"). To induce Lender to make the Loan upon and subject to the terms set
forth herein, Borrower hereby agrees with Lender as follows:
DEFINITIONS. When used herein, the following terms shall have the following
meanings:
"Advance" - an advance by Lender to Borrower pursuant to the Note.
"Borrowing Base" - at any particular time, an amount equal to seventy percent
(70%) of Eligible Accounts. Lender shall have the right at any time and from
time to time in its sole discretion to revise the percentages upon the
Borrowing Base is calculated.
"Commitment Period" - the period commencing on the date hereof and ending on
November 17, 1995, unless sooner terminated by Lender upon an Event of
Default.
"Eligible Accounts" - at any time an amount equal to the aggregate net
invoice or ledger amount owing on all trade accounts receivable of Borrower
for goods sold or leased or services rendered, in which Lender has a
perfected, first priority lien or security interest, after deducting (a) the
amount on all such accounts unpaid for sixty (60) days or more after the date
of original invoice, (b) the amount of all discounts, allowances, rebates,
credits and adjustments to such accounts, (c) amount on goods of sale which
have been returned, rejected, repossessed, lost or damaged; (d) all
contra-accounts, setoffs, disputes, defenses or counterclaims asserted by or
available to the Persons obligated on such accounts, (e) all such accounts
owing by officers or employees of Borrower or have an equity interest, (f)
all such accounts
<PAGE> 2
owed by account debts which are insolvent, in any bankruptcy proceeding, in
financial difficulty or otherwise which Lender, in its sole discretion, deems
not acceptable, and (g) all such accounts for which the majority of the
outstanding aggregate balance owed by any account debtor, is unpaid for sixty
(60) days or more after the date of the original invoices, and (h) the amount
owed by any account debtor on such accounts which exceeds twenty-five percent
(25%) of the total of all Eligible Accounts of Borrower, and (i) all accounts
owed by a Person or Persons that is not a citizen of or organized under the
laws of the United States of America or any political subdivision thereof.
Standards of eligibility may be set and may be revised from time to time
solely by Lender in its exclusive judgment.
FINANCIAL REPORTS. Borrower will furnish or cause to be furnished to Lender:
A. Quarterly Reports. As soon as available, and in any event within thirty
(30) days after the close of each quarterly period of each fiscal year of
Borrower a financial report balance sheet as of the end of such period, a
profit and loss statement, a schedule of accounts payable, an accounts
receivable aging schedule, and the consolidated and consolidating balance
sheets of Borrower and its subsidiaries for such quarter (showing income,
expenses, and surplus for such quarter and for the period from the
beginning of the fiscal year to the end of such quarter), all prepared in
such form and detail as Lender may request and in conformity with GAAP and
certified to be true and correct by Borrower's chief financial officer;
B. Borrowing Base Report. With each request for an Advance and, if no
Advance is requested in the first fifteen (15) days of a particular month,
then within those fifteen (15) days, a borrowing base authorization, in
the form of Exhibit "A" attached hereto, showing a calculation of the
Borrowing Base at the end of the prior month.
C. Accounts Receivable. As soon as available, and in any event within
fifteen (15) days after the end of each month, an aging of all of
Borrower's accounts receivable as of the end of such month.
MANDATORY PREPAYMENTS. Borrower hereby agrees to pay Lender on demand, at any
time that the outstanding principal amount of the Loan exceeds the Borrowing
Base, a prepayment on the Loan in such amount as is necessary to reduce the
outstanding principal of the Loan to an amount equal to or less than the
Borrowing Base. Such prepayment shall be without premium or penalty, and shall
be made together with the payment of accrued interest on the amount paid.
2
<PAGE> 3
ENTIRE AGREEMENT; AMENDMENT. THIS AGREEMENT, THE NOTE AND THE OTHER LOAN
DOCUMENTS REFERRED TO HEREIN EMBODY THE FINAL, ENTIRE AGREEMENT AMONG THE
PARTIES HERETO AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS,
REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE
SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE
PARTIES HERETO. THERE ARE NO ORAL AGREEMENTS AMONG THE PARTIES HERETO. The
provisions of this Agreement and the other Loan Documents to which Borrower is
a party may be amended or waived only by an instrument in writing signed by the
parties hereto.
Executed as of the date first written above.
BORROWER: SURREY, INC.
By: /s/James K. Olson
--------------------------------------------
Name: James K. Olson
Title: CEO
-----------------------------------------
LENDER: LIBERTY NATIONAL BANK
By: /s/Deborah C. Bishop
--------------------------------------------
Name: Deborah C. Bishop
Title: SBA Lending Officer
3
<PAGE> 4
DEED OF TRUST
STATE OF TEXAS )
) ss.
COUNTY OF TRAVIS )
KNOW ALL MEN BY THESE PRESENTS:
That SURREY, INC., a Texas corporation (hereinafter called the "Grantors,"
whether one or more), acting by and through its duly authorized officer(s) for
the purpose of securing the indebtedness hereinafter described, and in
consideration of the sum of TEN AND NO/100 DOLLARS ($10.00) to us in hand paid
by the Trustee hereinafter named, the receipt and sufficiency of which is
acknowledged, and for the further consideration of the uses, purposes and
trusts hereinafter set forth, have GRANTED, SOLD and CONVEYED, and by these
presents do GRANT, SELL and CONVEY unto E. Powell Thompson, Trustee (the
"Trustee"), of Travis County, Texas, and his or her substitutes or successors,
all of the following described property situated in Travis County, Texas,
to-wit:
Lots Two (2), Three (3) and Four (4), NORTH RIM SUBDIVISION, a subdivision in
Travis County, Texas, according to the map or plat thereof, recorded in
Volume 83, Pages 161A-164A of the Plat Records of Travis County, Texas.
TO HAVE AND TO HOLD the above-described property, together with any and all
improvements now or hereafter located thereon; all equipment and appliances now
or hereafter attached thereto or used in connection therewith; all heating,
plumbing, refrigeration, lighting fixtures, and articles of personal property
now or hereafter attached to or used in and about the improvements thereon; and
the rights, privileges and appurtenances belonging thereto, including all of
the Grantors' right, title and interest in and to any development or use
rights, applications, permits, approvals, licenses, authorizations, refunds,
credits and offsets granted by or obtainable from governmental authorities and
related to or for the benefit of the above-described property, unto the Trustee
and his or her substitutes or successors forever (said real property,
improvements, privileges, appurtenances and other property described herein
being hereinafter collectively referred to as the "Mortgaged Property"). The
Grantors do hereby bind themselves and their heirs, executors, administrators
and assigns to warrant and forever defend the Mortgaged Property unto the
Trustee and his or her substitutes or successors and assigns forever, against
the claim, or claims, of all persons claiming or to claim the same or any part
thereof.
This conveyance, however, is made in TRUST to secure payment of one (1)
promissory note (the "Note") of even date herewith in the principal sum of ONE
MILLION FOUR HUNDRED THOUSAND AND NO/100 DOLLARS ($1,400,000.00), executed by
the Grantors, payable to the
<PAGE> 5
order of LIBERTY NATIONAL BANK (hereinafter called the "Beneficiary") as
specified therein, bearing interest as therein stipulated, and providing for
acceleration of maturity and for attorneys' fees, as well as to secure any and
all renewals, extensions and rearrangements of the Note and payment of all
interest accrued on the Note and all amounts due under the Deed of Trust or any
security agreements, assignments or other instruments relating to the Note or
to any other indebtedness secured hereby (all such amounts secured by this Deed
of Trust are hereinafter collectively referred to as the "Indebtedness").
This Deed of Trust also secures the Beneficiary in the payment of any and all
indebtedness other than the indebtedness evidenced by the Note now owing or
hereafter to become owing by the Grantors (or any one or more of them, if more
than one) to the Beneficiary (the "Other Indebtedness"), which amounts,
together with all interest thereon, shall be a part of the Indebtedness. Any
default ln the payment of the Other Indebtedness, or any portion thereof, or
under any of the instruments securing the Other Indebtedness, or any portion
thereof, at the option of the Beneficiary, shall constitute a default under
this Deed of Trust; and any default in the payment of any of the Indebtedness
or under this Deed of Trust, at the option of the Beneficiary, shall mature all
of the Other Indebtedness.
Should the Grantors perform and comply with all of the covenants and
agreements herein contained and make prompt payment of the Indebtedness as the
same shall become due and payable, then this conveyance shall become of no
further force and effect, and shall be released, at the expense of the
Grantors, by the Beneficiary.
As authorized by Section 12.009 of the Texas Property Code, a Master Form
Deed of Trust (the "Master Form") is recorded by Clark, Thomas, Winters &
Newton in Volume 10944, Pages 807-822, of the Real Property Records of Travis
County, Texas; in Volume 4574, Pages 1709-1724, of the Official Public
Records of Bexar County, Texas; and in Volume 1782, Pages 006-021, of the
official Records of Williamson County, Texas. All Sections numbered 1 - 28
of the Master Form are incorporated by reference and made a part hereof as
though set out verbatim. THE GRANTORS' SIGNATURES ON THIS DEED OF TRUST ARE
CONCLUSIVE EVIDENCE THAT THE GRANTORS HAVE RECEIVED A COPY OF THE MASTER
FORM.
The Grantors expressly represent that this Deed of Trust and the Note are
given for the following purpose, to-wit:
The Note (i) is given in renewal, extension and rearrangement, but not in
extinguishment, of the unpaid balance of the following:
2
<PAGE> 6
a. as to Lot 3 only, a promissory note in the original principal sum of
$385,000.00, dated March 20, 1987, executed by Doug Connolly, Susan
Connolly and Gilford P. Johnson and payable to the order of Windsor
Savings Association, more fully described in and secured by a deed of
trust of even date therewith to John M. Wallace, Trustee, duly recorded in
Volume 10171, Page 733, of the Real Property Records of Travis County,
Texas, which promissory note and deed of trust were transferred to North
Rim Development by instrument duly recorded ln the Real Property Records
of Travis County, Texas, and which promissory note and deed of trust were
subsequently transferred to the Beneficiary by instrument duly recorded ln
the Real Property Records of Travis County, Texas;
b. as to Lot 3 only, a promissory note in the original principal sum of
$450,000.00, dated February 25, 1988, executed by the Grantors and payable
to the order of The Money Store Investment Corporation, more fully
described in and secured by a deed of trust of even date therewith to
Kristi L. Berry, Trustee, duly recorded in Volume 10596, Page 89 and
re-recorded in Volume 10621, Page 79 of the Real Property Records of
Travis County, Texas, which promissory note and deed of trust were
transferred to Marine Midland Bank, N.A. by instrument duly recorded in
Volume 11865, Page 43 of the Real Property Records of Travis County,
Texas, and which promissory note and deed of trust were subsequently
transferred to the Beneficiary by instrument duly recorded in the Real
Property Records of Travis County, Texas;
c. as to Lot 3 only, a promissory note in the original principal sum of
$375,000.00, dated August 21, 1991, executed by the Grantors and payable
to the order of the Beneficiary, more fully described in and secured by a
deed of trust of even date therewith to Edward Z. Safady, Trustee, duly
recorded in Volume 11508, Page 79 of the Real Property Records of Travis
County, Texas; and
d. as to Lots 3 and 4, a promissory note in the original principal sum of
$150,000.00, dated June 26, 1992, executed by the Grantors and payable to
the order of the Beneficiary, more fully described in and secured by a
deed of trust of even date therewith to E. Powell Thompson, Trustee, duly
recorded in Volume 11717, Page 1649 of the Real Property Records of
Travis County, Texas;
upon said portions of the Mortgaged Property, which liens are hereby expressly
acknowledged by the Grantors to be valid and subsisting liens against the
Mortgaged Property, and which liens
3
<PAGE> 7
are renewed, extended and continued in full force and effect to secure the
payment of the Note; (ii) represents additional cash advanced to the Grantors
to refinance other indebtedness owed to the Beneficiary and other creditors and
for general working capital purposes at the Grantors' special instance and
request; and (iii) represents funds advanced and to be advanced to the Grantors
at the Grantors' special instance and request for the purpose of providing
financing for the construction of certain improvements on the Mortgaged
Property, and this conveyance is made in trust to secure the payment of the
Note, including any and all advances now or hereafter made under the Note.
SURREY, INC., a Texas corporation expressly represents and warrants to the
Beneficiary that it is a corporation duly organized and existing in good
standing under the laws oL. the State of Texas; that it possesses full power
and authority to own its property and to conduct its business as now conducted
and as presently proposed to be conducted; that the execution and delivery of
the Note and this Deed of Trust and the performance of its obligations
thereunder and hereunder will not contravene any provisions of its articles of
incorporation or by-laws; and that the officers executing the Note and this
Deed of Trust are the legally elected, qualified, and acting officers of the
corporation and are expressly authorized to execute the Note and this Deed of
Trust by resolution of the board of directors of the corporation.
The Grantors agree and consent to the jurisdiction of the District Court of
Travis County, Texas, and of the United States District Court for the Western
District of Texas (Austin Division) and acknowledge that such courts shall
constitute proper and convenient forums for the resolution of any actions
between the Grantors and the Beneficiary with respect to the subject matter of
this Deed of Trust, and agree that such courts shall be the sole and exclusive
forums for the resolution of any actions between the Grantors and the
Beneficiary with respect to the subject matter of this Deed of Trust unless
another forum is available to either the Grantors or the Beneficiary by
applicable state or federal law and such party's choice of such forum cannot be
waived.
All notices, demands and requests made under any provision of this Deed of
Trust or the Master Form shall be in writing and shall be deemed to have been
properly delivered as of the time of delivery if personally delivered, or as of
the time deposited in the mail system if sent by United States certified mail,
return receipt requested and postage prepaid. All notices, demands and
requests shall be addressed to the Beneficiary at P.O. Box 2019, Austin, Texas
78768 and to the Grantors at 13110 Trails End Road, Leander, Texas 78641, or to
such other addresses that either the Beneficiary or the Grantors may designate
to the other by written notice sent in the manner required hereby.
4
<PAGE> 8
EXECUTED this the 17th day of November, 1994.
SURREY, INC., a Texas corporation
By: /s/John B. van der Hagen
-----------------------------------------
Name: John B. van der Hagen
Title: President
Mailing Address of Trustee:
E. Powell Thompson, Trustee
c/o LIBERTY NATIONAL BANK
P.O. Box 2019
Austin, Texas 78768
THE STATE OF TEXAS )
) ss.
THE COUNTY OF TRAVIS )
This instrument was acknowledged before me on this 17th day of November, 1994
by John B. van der Hagen, the President of SURREY, INC., a Texas corporation,
on behalf of said corporation.
/s/Kimberly Whitley
--------------------------------------
Notary Public, State of Texas
KIMBERLY WHITLEY
My Commission Expires
December 31, 1994
AFTER RECORDING, PLEASE RETURN TO:
LIBERTY NATIONAL BANK
ATTN: Loan Operations
P.O. Box 2019
Austin, Texas 78768
5
<PAGE> 1
EXHIBIT 10.3(c)
U.S. Small Business Administration SBA LOAN NUMBER
GP-767,982-3006-SA
NOTE
Austin, Texas
-------------------
(City and State)
$ 1,400,000. 00
(Date) November 17, 1994
-----------------
For value received, the undersigned promises to pay to the order of
-------------
LIBERTY NATIONAL BANK
- --------------------------------------------------------------------------------
(Payee)
at its office in the city of Austin, State of Texas or at holder's option,
------ -----
at such other place as may be designated from time to time by the holder
------
------------------ONE MILLION FOUR HUNDRED THOUSAND & NO/100-----------------
----------------- -----------------,
(Write out amount)
dollars with interest on unpaid principal computed from the date of each
advance to the undersigned at the rate of 9.50 percent per annum, payment to
----
be made in installments as follows:
Equal installments of $ 16,329.00, including principal and interest,
-----------
payable monthly, beginning one (1) month from date hereof, and the balance of
the principal and interest payable twelve (12) years from date hereof; with
-----------
the further provision each said installment shall be applied first to
interest accrued to the date of receipt of said installment, and the balance,
if any, to principal.
The undersigned further agrees that the rate of interest herein shall
increase or decrease each calendar quarter to a rate equal to the minimum
published prime lending rate at large U.S. money center commercial bank: as
published in the Money Rates section of the Wall Street Journal plus 1.75
----
percent per annum, and the change of the rate of interest in the Note shall
be determined and become effective on the first day of January, April, July
and October of each year.
The holder hereof may at its discretion ad just the amount of the
installments due herein to assure such payments will amortize the Note within
the bounds of the stated maturity
Notwithstanding the foregoing, the interest rate on this Note shall never
exceed the maximum rate permitted by State Usury Laws or pre-empting Federal
Law, if any, applicable to this loan.
If the undersigned shall be in default in payment due on the indebtedness
herein and the
<PAGE> 2
Small Business Administration (SBA) purchases its guaranteed portion of
said indebtedness' the rate of interest herein shall become Fixed at the rate
in effect as of the initial date of default. If the undersigned shall not be
in default in payment when SBA purchases its guaranteed portion, then the
rate of interest herein shall be fixed at the rate in effect as of the date
of purchase by SBA.
If this Note contains a fluctuating interest rate, the notice provision is
not a pre-condition for fluctuation (which shall take place regardless of
police). Payment of any installment of principal or interest owing on this Note
may be made prior to the maturity date thereof without penalty. Borrower shall
provide lender with written notice of intent to prepay part or all of this loan
at least three (3) weeks prior to the anticipated prepayment date. A prepayment
is any payment made ahead of schedule that exceeds twenty (20) percent of the
then outstanding principal balance. If borrower makes a prepayment and fails to
give atleast three weeks advance notice of intent to prepay, then,
notwithstanding any other provision to the contrary in this note or other
document, borrower shall be required to pay lender three weeks interest on the
unpaid principal as of the date preceding such prepayment.
The term "indebtedness" as used herein shall mean the indebtedness evidenced
by this Note, including principal, interest, and expenses, whether contingent,
now due or hereafter to become due and whether heretofore or contemporaneously
herewith or hereafter contracted. The term "Collateral" as used in this Note
shall mean any funds, guaranties, or other property or rights therein of any
nature whatsoever or the proceeds thereof which may have been, are, or
hereafter may be, hypothecated, directly or indirectly by the undersigned or
others, in connection with, or as security for, the indebtedness or any part
thereof. The Collateral, and each part thereof, shall secure the indebtedness
and each part thereof. The covenants and conditions set forth or referred to in
any and all instruments of hypothecation constituting the Collateral are hereby
incorporated in this Note as covenants and conditions of the undersigned with
the same force and effect as though such covenants and conditions were fully
set forth herein.
The Indebtedness shall immediately become due and payable, without notice or
demand, upon the appointment of a receiver or liquidator, whether voluntary or
involuntary, for the undersigned or for any of its property, or upon the filing
of a petition by or against the undersigned under the provisions of any State
insolvency law or under the provisions of the Bankruptcy Reform Act of 1978, as
amended, or upon the making by the undersigned of an assignment for the benefit
of its creditors. Holder is authorized to declare all or any part of the
indebtedness immediately due and payable upon the happening of any of the
following events: (1) Failure to pay any part of the Indebtedness when due; (2)
nonperformance by the undersigned of any agreement with, or any condition
imposed by, Holder or Small Business Administration (hereinafter called "SBA"),
with respect to the Indebtedness; (3) Holder's discovery of the undersigned's
failure in any application of the undersigned to Holder or SBA to disclose any
fact deemed by Holder to be material or of the making therein or in any of the
said agreements, or in any affidavit or other documents submitted in connection
with said application or the Indebtedness, of any misrepresentation by, on
behalf of, or for the benefit the undersigned; (4) the reorganization (other
than a reorganization pursuant to any of the provisions of the Bankruptcy
Reform Act of 1978, as amended) or merger or consolidation of the undersigned
(or the making of any agreement therefor) without the prior written consent of
Holder; (5) the undersigned's failure duly to account, to Holder's
satisfaction, at such time or times as Holder may require, for any of the
Collateral, or proceeds thereof, coming into the control of the undersigned; or
(6) the institution of any suit affecting the undersigned deemed by Holder to
affect adversely its interest hereunder in the Collateral or otherwise.
Holder's failure to exercise its rights under this paragraph shall not
constitute a waiver thereof.
<PAGE> 3
Upon the nonpayment of the Indebtedness, or any part thereof, when due,
whether by acceleration or otherwise, Holder is empowered to sell, assign, and
deliver the whole or any part of the Collateral at public or private sale,
without demand, advertisement or notice of the time or place of sale or of any
adjournment thereof, which are hereby expressly waived. After deducting all
expenses incidental to or arising from such sale or sales, Holder may apply the
residue of the proceeds thereof to the payment of the Indebtedness, as it shall
deem proper, returning the excess, if any, to the undersigned. The undersigned
hereby waives all right of redemption or appraisement whether before or after
sale.
Holder is further empowered to collect or cause to be collected or otherwise
to be converted into money all or any part of the Collateral, by suit or
otherwise, and to surrender, compromise, release, renew, extend, exchange, or
substitute any item of the Collateral in transactions with the undersigned or
any third party, irrespective of any assignment thereof by the undersigned, and
without prior notice to or consent of the undersigned or any assignee. Whenever
any item of the Collateral shall not be paid when due, or otherwise shall be in
default, whether or not the indebtedness, or any part thereof, has become due,
Holder shall have the same rights and powers with respect to such item of the
Collateral as are granted in this paragraph in case of nonpayment of the
Indebtedness, or any part thereof, when due. None of the rights, remedies,
privileges, or powers of Holder expressly provided for herein shall be
exclusive, but each of them shall be cumulative with and in addition to every
other right, remedy, privilege, and power now or hereafter existing in favor of
Holder, whether at law or equity, by statute or otherwise.
The undersigned agrees to take all necessary steps to administer, supervise,
presume, and protect the Collateral; and regardless of any action taken by
Holder, there shall be no duty upon Holder in this respect. The undersigned
shall pay all expenses of any nature, whether incurred in or out of court, and
whether incurred before or after this Note shall become due at its maturity
date or otherwise, including but not limited to reasonable attorney's fees and
costs, which Holder may deem necessary or proper in connection with the
satisfaction of the Indebtedness or the administration, supervision,
preservation, protection of (including, but not limited to, the maintenance of
adequate insurance) or the realization upon the Collateral. Holder is
authorized to pay at any time and from time to time any or all of such
expenses, add the amount of such payment to the amount of the Indebtedness, and
charge interest thereon at the rate specified herein with respect to the
principal amount of this Note.
The security rights of Holder and its assigns hereunder shall not be impaired
by Holder's sale, hypothecation or rehypothecation of any note of the
undersigned or any item of the Collateral, or by any indulgence, including but
not limited to (a) any renewal, extension, or modification which Holder may
grant with respect to the Indebtedness or any part thereof, or (b) any
surrender, compromise, release, renewal, extension, exchange, or substitution
which Holder may grant in respect of the Collateral, or (c) any indulgence
granted in respect of any endorser, guarantor, or surety. The purchaser,
assignee, transferee, or pledgee of this Note, the Collateral, and guaranty,
and any other document (or any of them), sold, assigned, transferred, pledged,
or repledged, shall forthwith become vested with and entitled to exercise all
the powers and rights given by this Note and all applications of the
undersigned to Holder or SBA, as if said purchaser, assignee, transferee, or
pledgee were originally named as Payee in this Note and in said application or
applications.
This promissory note is given to secure a loan which SBA is making or in
which it is participating and, pursuant to Part 101 of the Rules and
Regulations of SBA (13 C.F.R. 101.1(d)), this instrument is to be construed and
(when SBA is the Holder or a party in interest) enforced in accordance with
applicable Federal law.
<PAGE> 4
ATTEST: Surrey, Inc.
----------------------------------
/s/ Mary A. van der Hagen /s/ John B. van der Hagen
- ----------------------------------- ----------------------------------
Mary A. van der Hagen, Secretary John B. van der Hagen, President
- --------------------------------------------------------------------------------
Note.-- Corporate applicants must execute Note, in corporate name, by duly
authorized officer, and seal must be affixed and duly attested: partnership
applicants must execute Note in firm name, together with signature of a
general partner.
<PAGE> 1
EXHIBIT 10.3(d)
SBA LOAN NO.
GP-767-982-3006-SA
SMALL BUSINESS ADMINISTRATION (SBA)
GUARANTY
November 17, 1994
In order to induce Liberty National Bank, (hereinafter called "Lender")
(SBA or other Lending Institution)
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 any obligation comprised in the
collateral;
<PAGE> 2
(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.
The Undersigned acknowledges and understands that if the Small Business
Administration (SBA)
<PAGE> 3
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/ James K. Olson
------------------------------
James K. Olson
/s/ Louise K. Olson
------------------------------
Louise K. Olson
------------------------------
- -------------
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
$500,000 08-11-1997 03-31-1998 9005 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: $500,000 Initial Rate: 10.000% Date of Note: August 11, 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 Five Hundred Thousand & 00/100 Dollars
($500,000.00) 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 March 31, 1998. In addition,
Borrower will pay regular monthly payments of accrued unpaid interest beginning
September 11, 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: JAMES OLSON and
JOHN VAN DER HAGEN. 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).
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/ James Olson By: /s/ John van der Hagen
--------------------------------- -------------------------
JAMES OLSON JOHN VAN DER HAGEN
LENDER:
NORWEST BANK TEXAS, SOUTH CENTRAL
By:
----------------------------------
Authorized Officer
<PAGE> 1
COMMERCIAL GUARANTY EXHIBIT 10.4(B)
<TABLE>
<S><C>
PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS
0839426 714
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.
</TABLE>
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
Guarantor: JOHN VAN DER HAGEN
12901 LOST RIDGE CIRCLE
AUSTIN, TX
- ----------------------------------------------------------------------
AMOUNT OF GUARANTY. The amount of this Guaranty is Unlimited.
CONTINUING UNLIMITED GUARANTY. For good and valuable consideration, JOHN VAN
DER HAGEN ("Guarantor") absolutely and unconditionally guarantees and promises
to pay to NORWEST BANK TEXAS, SOUTH CENTRAL ("Lender") or its order, in legal
tender of the United States of America, the indebtedness (as that term is
defined below) of SURREY, INC. ("Borrower") to Lender on the terms and
conditions set forth in this Guaranty. Under this Guaranty, the liability of
Guarantor is unlimited and the obligations of Guarantor are continuing.
DEFINITIONS. The following words shall have the following meanings when used
in this Guaranty:
Borrower. The word "Borrower" means SURREY, INC.
Guarantor. The word "Guarantor" means JOHN VAN DER HAGEN.
Guaranty. The word "Guaranty" means this Guaranty made by Guarantor
for the benefit of Lender dated August 11, 1997.
Indebtedness. The word "Indebtedness" is used in its most
comprehensive sense and means and includes any and all of Borrower's
liabilities, obligations, debts, and Indebtedness to Lender, now
existing or hereinafter incurred or created, including, without
limitation, all loans, advances, interest, costs, attorneys' fees,
debts, overdraft Indebtedness, credit card Indebtedness, lease
obligations, other obligations, and
<PAGE> 2
liabilities of Borrower, or any of them, and any present or future
judgments against Borrower, or any of them; and whether any such
Indebtedness is voluntarily or involuntarily incurred, due or not due,
absolute or contingent, liquidated or unliquidated, determined or
undetermined; whether Borrower may be liable individually or jointly
with others, or primarily or secondarily, or as guarantor or surety;
whether recovery on the Indebtedness may be or may become or
unenforceable against Borrower for any reason whatsoever; and whether
the Indebtedness arises from transactions which may be voidable on
account of infancy, insanity, ultra vires, or otherwise.
Lender. The word "Lender" means NORWEST BANK TEXAS, SOUTH CENTRAL,
its successors and assigns.
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.
NATURE OF GUARANTY. Guarantor's liability under this Guaranty shall be open
and continuous for so long as this Guaranty remains in force. Guarantor
intends to guarantee at all times the performance and prompt payment when due,
whether at maturity or earlier by reason of acceleration or otherwise, of all
Indebtedness. Accordingly, no payments made upon the Indebtedness will
discharge or diminish the continuing liability of Guarantor in connection with
any remaining portions of the Indebtedness or any of the Indebtedness which
subsequently arises or is thereafter incurred or contracted.
DURATION OF GUARANTY. This Guaranty will take effect when received by Lender
without the necessity of any acceptance by Lender, or any notice to Guarantor
or to Borrower, and will continue in full force until all Indebtedness incurred
or contracted before receipt by Lender of any notice of revocation shall have
been fully and finally paid and satisfied and all other obligations of
Guarantor under this Guaranty shall have been performed in full. If Guarantor
elects to revoke this Guaranty, Guarantor may only do so in writing.
Guarantor's written notice of revocation must be mailed to Lender, by certified
mail, at the address of Lender listed above or such other place as Lender may
designate in writing. Written revocation of this Guaranty will apply only to
advances or new Indebtedness created after actual receipt by Lender of
Guarantor's written revocation and Lender's written acknowledgment of receipt.
For this purpose and without limitation, the term "new Indebtedness" does not
include Indebtedness which at the time of notice of revocation is contingent,
unliquidated, undetermined or not due and which later becomes absolute,
liquidated, determined or due. This Guaranty will continue to bind Guarantor
for all Indebtedness incurred by Borrower or committed by Lender prior to
receipt of Guarantor's written notice of revocation, including any extensions,
renewals, substitutions or modifications of the Indebtedness. All renewals,
extensions, substitutions, and modifications
2
<PAGE> 3
of the Indebtedness granted after Guarantor's revocation, are contemplated
under this Guaranty and, specifically will not be considered to be new
Indebtedness. This Guaranty shall bind the estate of Guarantor as to
Indebtedness created both before and after the death or incapacity of
Guarantor, regardless of Lender's actual notice of Guarantor's death. Subject
to the foregoing, Guarantor's executor or administrator or other legal
representative may terminate this Guaranty in the same manner in which
Guarantor might have terminated it and with the same effect. Release of any
other guarantor or termination of any other guaranty of the Indebtedness shall
not affect the liability of Guarantor under this Guaranty. A revocation
received by Lender from any one or more Guarantors shall not affect the
liability of any remaining Guarantors under this Guaranty. It is anticipated
that fluctuations may occur in the aggregate amount of Indebtedness covered by
this Guaranty, and it is specifically acknowledged and agreed by Guarantor that
reductions in the amount of Indebtedness, even to zero dollars ($0.00), prior
to written revocation of this Guaranty by Guarantor shall not constitute a
termination of this Guaranty. This Guaranty is binding upon Guarantor and
Guarantor's heirs, successors and assigns so long as any of the guaranteed
Indebtedness remains unpaid and even though the Indebtedness guaranteed may
from time to time be zero dollars ($0.00).
GUARANTOR'S AUTHORIZATION TO LENDER. Guarantor authorizes Lender, either
before or after any revocation hereof, without notice or demand and without
lessening or otherwise affecting Guarantor's liability under this Guaranty,
from time to time: (a) prior to revocation as set forth above, to make one or
more additional secured or unsecured loans to Borrower, to lease equipment or
other goods to Borrower, or other to extend additional credit to Borrower; (b)
to alter, compromise, renew, extend, accelerate, or otherwise change one or
more times the time for payment or other terms of the Indebtedness or any part
of the Indebtedness, including increases and decreases of the rate of interest
on the Indebtedness; extensions may be repeated and may be for longer than the
original loan term; (c) to take and hold security for the payment of this
Guaranty or the Indebtedness, and exchange, enforce, waive, subordinate, fall
or decide not to perfect, and release any such security with or without the
substitution of new collateral; (d) to release, substitute, agree not to sue,
or deal with any one or more of Borrower's sureties, endorsers, or other
guarantors on any terms or in any manner Lender may choose; (e) to determine
how, when and what application of payments and credits shall be made on the
Indebtedness; (f) to apply such security and direct the order or manner of sale
thereof, including without limitation, any nonjudicial sale permitted by the
terms of the controlling security agreement or deed of trust, as Lender in its
discretion may determine; (g) to sell, transfer, assign, or grant
participations in all or part of the Indebtedness; and (h) to assign or
transfer this Guaranty in whole or in part.
GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants
to Lender that (a) no representations or agreements of any kind have been made
to Guarantor which would limit or qualify in any way the terms of this
Guaranty; (b) this Guaranty is executed at Borrower's request and not at the
request of Lender; (c) Guarantor has full power, right and authority to enter
into this Guaranty; (d) the provisions of this Guaranty do not conflict with or
result in a default under any agreement or other instrument
3
<PAGE> 4
binding upon Guarantor and do not result in a violation of any law, regulation,
court decree or order applicable to Guarantor; (e) Guarantor has not and will
not, without the prior written consent of Lender, sell, lease, assign,
encumber, hypothecate, transfer, or otherwise dispose of all or substantially
all of Guarantor's assets, or any interest therein; (f) upon Lender's request,
Guarantor will provide to Lender financial and credit information in form
acceptable to Lender, and all such financial information which currently has
been, and all future financial information which will be provided to Lender is
and will be true and correct in all material respects and fairly present the
financial condition of Guarantor as of the dates the financial information is
provided; (g) no material adverse change has occurred in Guarantor's financial
condition since the date of the most recent financial statements provided to
lender and no event has occurred which may materially adversely affect
Guarantors financial condition; (h) no litigation, claim, investigation,
administrative proceeding or similar action (including those for unpaid taxes)
against Guarantor is pending or threatened; (i) Lender has made no
representation to Guarantor as to the creditworthiness of Borrower; and (j)
Guarantor has established adequate means of obtaining from Borrower on a
continuing basis information regarding Borrower's financial condition.
Guarantor agrees to keep adequately informed from such means of any facts,
events or circumstances which might in any way affect Guarantor's risks under
this Guaranty, and Guarantor further agrees that, absent a request for
information, Lender shall have no obligation to disclose to Guarantor any
information or documents acquired by Lender in the course of its relationship
with Borrower.
GUARANTOR'S WAIVERS. Except as prohibited by applicable law, Guarantor waives
any right to require Lender (a) to continue lending money or to extend other
credit to Borrower; (b) to make any presentment, protest, demand or notice of
any kind, including notice of any nonpayment of the Indebtedness or of any
nonpayment related to any collateral, or notice of any action or nonaction on
the part of Borrower, Lender, any surety, endorser, or other guarantor in
connection with the Indebtedness or in connection with the creation of new or
additional loans or obligations; (c) to resort for payment or to proceed
directly or at once against any person, including Borrower or any other
guarantor; (d) to proceed directly against or exhaust any collateral held by
Lender from Borrower, any other guarantor, or any other person; (e) to give
notice of the terms, time, and place of any public or private sale of personal
property security held by Lender from Borrower or to comply with any other
applicable provisions of the Uniform Commercial Code; (f) to pursue any other
remedy within Lender's power; or (g) to commit any act or omission of any kind,
or at any time, with respect to any matter whatsoever.
If now or hereafter (a) Borrower shall be or become insolvent, and (b) the
Indebtedness shall not at all times until paid by fully secured by collateral
pledged by Borrower, Guarantor hereby forever waives and relinquishes in favor
of Lender and Borrower, and their respective successors, any claim or right to
payment Guarantor may now have or hereafter have or acquire against Borrower,
by subrogation or otherwise, so that at no time shall Guarantor be or become a
"creditor" or Borrower within the meaning of 11 U.S.C. section 547(b), or any
successor provision of the Federal bankruptcy laws.
4
<PAGE> 5
Guarantor waives all rights of Guarantor under Chapter 34 of the Texas Business
and Commerce Code. Guarantor also waives any and all rights or defenses
arising by reason of (a) any "one action" or "anti-deficiency" law or any other
law which may prevent Lender from bringing any action, including a claim for
deficiency against Guarantor, before or after Lender's commencement or
completion of any foreclosure action, either judicially or by exercise of power
of sale; (b) any election of remedies by Lender which destroys or otherwise
adversely affects Guarantor's subrogation rights or Guarantor's right to
proceed against Borrower for reimbursement, including without limitation, any
loss of rights Guarantor may suffer by reason of any law limiting, qualifying,
or discharging the Indebtedness; (c) any disability or other defense of
Borrower, of any other guarantor, or of any other person, or by reason of the
cessation of Borrower's liability from any cause whatsoever, other than payment
in full in legal tender, of the Indebtedness; (d) any right to claim discharge
of the Indebtedness on the basis of unjustified impairment of any collateral
for the Indebtedness; (e) any statute of limitations, if at any time any action
or suit brought by Lender against Guarantor is commenced there is outstanding
Indebtedness of Borrower to Lender which is not barred by any applicable
statute of limitations; or (f) any defenses given to guarantors at law or in
equity other than actual payment and performance of the Indebtedness. If
payment is made by Borrower, whether voluntarily or otherwise, or by any third
party, on the Indebtedness and thereafter Lender is forced to remit the amount
of that payment to Borrower's trustee in bankruptcy or to any similar person
under any federal or state bankruptcy law or law for the relief of debtors, the
Indebtedness shall be considered unpaid for the purpose of enforcement of this
Guaranty.
Guarantor further waives and agrees not to assert or claim at any time any
deductions to the amount guaranteed under this Guaranty for any claim of
setoff, counterclaim, counter demand, recoupment or similar right, whether such
claim, demand or right may be asserted by the Borrower, the Guarantor, or both.
GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants and
agrees that each of the waivers set forth above is made with Guarantor's full
knowledge of its significance and consequences and that, under the
circumstances, the waivers are reasonable and not contrary to public policy or
law. If any such waiver is determined to be contrary to any applicable law or
public policy, such waiver shall be effective only to the extent permitted by
law or public policy.
LENDER'S RIGHT OF SETOFF. In addition to all liens upon and rights of setoff
against the moneys, securities or other property of Guarantor given to Lender
by law, Lender shall have, with respect to Guarantor's obligations to Lender
under this Guaranty and to the extent permitted by law, a contractual
possessory security interest in and a right of setoff against, and Guarantor
hereby assigns, conveys, delivers, pledges, and transfers to Lender all of
Guarantor's right, title and interest in and to, all deposits, moneys,
securities and other property of Guarantor now or hereafter in the possession
of or on deposit with Lender, whether held in a general or special account of
deposit, whether held jointly with someone else, or whether held for
safekeeping or otherwise, excluding however all IRA, Keogh, and
5
<PAGE> 6
trust accounts. Every such security interest and right of setoff may be
exercised without demand upon or notice to Guarantor. No security interest or
right of setoff shall be deemed to have been waived by any act or conduct on
the part of Lender or by any neglect to exercise such right of setoff or to
enforce such security interest or by any delay in so doing. Every right of
setoff and security interest shall continue in full force and effect until such
right of setoff or security interest is specifically waived or released by an
instrument in writing executed by Lender.
SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Guarantor agrees that the
Indebtedness of Borrower to Lender, whether now existing or hereafter created,
shall be prior to any claim that Guarantor may now have or hereafter acquire
against Borrower, whether or not Borrower becomes insolvent. Guarantor hereby
expressly subordinates any claim Guarantor may have against Borrower, upon any
account whatsoever, to any claim that Lender may now or hereafter have against
Borrower. In the event of insolvency and consequent liquidation of assets of
Borrower, through bankruptcy, by an assignment for the benefit of creditors, by
voluntary liquidation, or otherwise, the assets of Borrower applicable to the
payment of the claims of both Lender and Guarantor shall be paid to Lender and
shall be first applied to Lender to the Indebtedness of Borrower to Lender.
Guarantor does hereby assign to Lender all claims which it may have or acquire
against Borrower or against any assignee or trustee in bankruptcy of Borrower;
provided however, that such assignment shall be effective only for the purpose
of assuring to Lender full payment in legal tender of the Indebtedness. If
Lender so requests, any notes or credit agreements now or hereafter evidencing
any debts or obligations of Borrower to Guarantor shall be marked with a legend
that the same are subject to this Guaranty and shall be delivered to Lender.
Guarantor agrees, and Lender hereby is authorized, in the name of Guarantor,
from time to time to execute and file financing statements and continuation
statements and to execute such other documents and to take such other actions
as Lender deems necessary or appropriate to perfect, preserve and enforce its
rights under this Guaranty.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Guaranty:
AMENDMENTS. This Guaranty, together with any Related Documents
constitutes the entire understanding and agreement of the parties as
to the matters set forth in this Guaranty. No alteration or amendment
to this Guaranty 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 Guaranty 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 Guaranty occurred in TRAVIS
County, Guarantor agrees upon Lender's request to submit to the
jurisdiction of the courts of TRAVIS County, State of Texas. This
Guaranty shall be governed by and construed in accordance with the
laws of the State of Texas and applicable Federal laws.
6
<PAGE> 7
ATTORNEYS' FEES. In addition to the amount of this Guaranty set forth
above, Lender may hire an attorney to help enforce this Guaranty if
Guarantor does not pay, and Guarantor will pay Lender's reasonable
attorneys' fees. Guarantor 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 Guaranty; 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 Guaranty.
NOTICES. All notices required to be given by either party to the
other under this Guaranty shall be in writing, may be sent by
telefacsimile, and, except for revocation notices by Guaranty, shall
be effective when actually delivered or when deposited with a
nationally recognized overnight courier, or when deposited in the
United States mail, first class postage prepared, addressed to the
party to whom the notice is to be given at the address shown above or
to such other addresses as either party may designate to the other in
writing. All revocation notices by Guarantor shall be in writing and
shall be effective only upon delivery to Lender as provided above in
the section title "DURATION OF GUARANTY." If there is more than one
Guarantor, notice to any Guarantor will constitute notice to all
Guarantors. For notice purposes, Guarantor agrees to keep Lender
informed at all times of Guarantor's current address.
INTERPRETATION. In all cases where there is more than one Borrower or
Guarantor, then all words used in this Guaranty in the singular shall
be deemed to have been used in the plural where the context and
construction so require; and where there is more than one Borrower
named in this Guaranty or when this Guaranty is executed by more than
one Guarantor, the words "Borrower" and "Guarantor" respectively shall
mean all and any one or more of them. The words "Guarantor,"
"Borrower," and "Lender" include the heirs, successors, assigns, and
transferees of each of them. Caption headings in this Guaranty are
for convenience purposes only and are not to be used to interpret or
define the provisions of this Guaranty. If a court of competent
jurisdiction finds any provision of this Guaranty 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, and all provisions of this Guaranty in all other
respects shall remain valid and enforceable. If any one or more of
Borrower or Guarantor are corporations or partnerships, it is not
necessary for Lender to inquire into the powers of Borrower or
Guarantor or of the officers, directors, partners, or agents acting or
purporting to act on their behalf, and any Indebtedness made or
created in reliance upon the professed exercise of such powers shall
be guaranteed under this Guaranty.
WAIVER. Lender shall not be deemed to have waived any rights under
this Guaranty 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 Guaranty shall not
7
<PAGE> 8
prejudice or constitute a waiver of Lender's right otherwise to demand
strict compliance with that provision or any other provision of this
Guaranty. No prior waiver by Lender, nor any course of dealing
between Lender and Guarantor, shall constitute a waiver of any of
Lender's rights or of any of Guarantor's obligations as to any future
transactions. Whenever the consent of Lender is required under this
Guaranty, 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.
EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS
GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR UNDERSTANDS THAT
THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND DELIVERY OF THIS
GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE UNTIL TERMINATED IN THE
MANNER SET FORTH IN THE SECTION TITLED "DURATION AND GUARANTY." NO FORMAL
ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS GUARANTY EFFECTIVE. THIS
GUARANTY IS DATED AUGUST 11, 1997.
GUARANTOR:
/s/John van der Hagen
- ---------------------------
JOHN VAN DER HAGEN
8
<PAGE> 1
COMMERCIAL GUARANTY EXHIBIT 10.4(C)
<TABLE>
<S><C>
PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS
0839426 714
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.
</TABLE>
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
Guarantor: JAMES OLSON
9703 VISTA VIEW DRIVE
AUSTIN, TX
- --------------------------------------------------------------------
AMOUNT OF GUARANTY. The amount of this Guaranty is Unlimited.
CONTINUING UNLIMITED GUARANTY. For good and valuable consideration, JAMES
OLSON ("Guarantor") absolutely and unconditionally guarantees and promises to
pay to NORWEST BANK TEXAS, SOUTH CENTRAL ("Lender") or its order, in legal
tender of the United States of America, the indebtedness (as that term is
defined below) of SURREY, INC. ("Borrower") to Lender on the terms and
conditions set forth in this Guaranty. Under this Guaranty, the liability of
Guarantor is unlimited and the obligations of Guarantor are continuing.
DEFINITIONS. The following words shall have the following meanings when used
in this Guaranty:
Borrower. The word "Borrower" means SURREY, INC.
Guarantor. The word "Guarantor" means JAMES OLSON.
Guaranty. The word "Guaranty" means this Guaranty made by Guarantor
for the benefit of Lender dated August 11, 1997.
Indebtedness. The word "Indebtedness" is used in its most
comprehensive sense and means and includes any and all of Borrower's
liabilities, obligations, debts, and Indebtedness to Lender, now
existing or hereinafter incurred or created, including, without
limitation, all loans, advances, interest, costs, attorneys' fees,
debts, overdraft Indebtedness, credit card Indebtedness, lease
obligations, other obligations, and
<PAGE> 2
liabilities of Borrower, or any of them, and any present or future
judgments against Borrower, or any of them; and whether any such
Indebtedness is voluntarily or involuntarily incurred, due or not due,
absolute or contingent, liquidated or unliquidated, determined or
undetermined; whether Borrower may be liable individually or jointly
with others, or primarily or secondarily, or as guarantor or surety;
whether recovery on the Indebtedness may be or may become or
unenforceable against Borrower for any reason whatsoever; and whether
the Indebtedness arises from transactions which may be voidable on
account of infancy, insanity, ultra vires, or otherwise.
Lender. The word "Lender" means NORWEST BANK TEXAS, SOUTH CENTRAL,
its successors and assigns.
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.
NATURE OF GUARANTY. Guarantor's liability under this Guaranty shall be open
and continuous for so long as this Guaranty remains in force. Guarantor
intends to guarantee at all times the performance and prompt payment when due,
whether at maturity or earlier by reason of acceleration or otherwise, of all
Indebtedness. Accordingly, no payments made upon the Indebtedness will
discharge or diminish the continuing liability of Guarantor in connection with
any remaining portions of the Indebtedness or any of the Indebtedness which
subsequently arises or is thereafter incurred or contracted.
DURATION OF GUARANTY. This Guaranty will take effect when received by Lender
without the necessity of any acceptance by Lender, or any notice to Guarantor
or to Borrower, and will continue in full force until all Indebtedness incurred
or contracted before receipt by Lender of any notice of revocation shall have
been fully and finally paid and satisfied and all other obligations of
Guarantor under this Guaranty shall have been performed in full. If Guarantor
elects to revoke this Guaranty, Guarantor may only do so in writing.
Guarantor's written notice of revocation must be mailed to Lender, by certified
mail, at the address of Lender listed above or such other place as Lender may
designate in writing. Written revocation of this Guaranty will apply only to
advances or new Indebtedness created after actual receipt by Lender of
Guarantor's written revocation and Lender's written acknowledgment of receipt.
For this purpose and without limitation, the term "new Indebtedness" does not
include Indebtedness which at the time of notice of revocation is contingent,
unliquidated, undetermined or not due and which later becomes absolute,
liquidated, determined or due. This Guaranty will continue to bind Guarantor
for all Indebtedness incurred by Borrower or committed by Lender prior to
receipt of Guarantor's written notice of revocation, including any extensions,
renewals, substitutions or modifications of the Indebtedness. All renewals,
extensions, substitutions, and modifications
2
<PAGE> 3
of the Indebtedness granted after Guarantor's revocation, are contemplated
under this Guaranty and, specifically will not be considered to be new
Indebtedness. This Guaranty shall bind the estate of Guarantor as to
Indebtedness created both before and after the death or incapacity of
Guarantor, regardless of Lender's actual notice of Guarantor's death. Subject
to the foregoing, Guarantor's executor or administrator or other legal
representative may terminate this Guaranty in the same manner in which
Guarantor might have terminated it and with the same effect. Release of any
other guarantor or termination of any other guaranty of the Indebtedness shall
not affect the liability of Guarantor under this Guaranty. A revocation
received by Lender from any one or more Guarantors shall not affect the
liability of any remaining Guarantors under this Guaranty. It is anticipated
that fluctuations may occur in the aggregate amount of Indebtedness covered by
this Guaranty, and it is specifically acknowledged and agreed by Guarantor that
reductions in the amount of Indebtedness, even to zero dollars ($0.00), prior
to written revocation of this Guaranty by Guarantor shall not constitute a
termination of this Guaranty. This Guaranty is binding upon Guarantor and
Guarantor's heirs, successors and assigns so long as any of the guaranteed
Indebtedness remains unpaid and even though the Indebtedness guaranteed may
from time to time be zero dollars ($0.00).
GUARANTOR'S AUTHORIZATION TO LENDER. Guarantor authorizes Lender, either
before or after any revocation hereof, without notice or demand and without
lessening or otherwise affecting Guarantor's liability under this Guaranty,
from time to time: (a) prior to revocation as set forth above, to make one or
more additional secured or unsecured loans to Borrower, to lease equipment or
other goods to Borrower, or other to extend additional credit to Borrower; (b)
to alter, compromise, renew, extend, accelerate, or otherwise change one or
more times the time for payment or other terms of the Indebtedness or any part
of the Indebtedness, including increases and decreases of the rate of interest
on the Indebtedness; extensions may be repeated and may be for longer than the
original loan term; (c) to take and hold security for the payment of this
Guaranty or the Indebtedness, and exchange, enforce, waive, subordinate, fall
or decide not to perfect, and release any such security with or without the
substitution of new collateral; (d) to release, substitute, agree not to sue,
or deal with any one or more of Borrower's sureties, endorsers, or other
guarantors on any terms or in any manner Lender may choose; (e) to determine
how, when and what application of payments and credits shall be made on the
Indebtedness; (f) to apply such security and direct the order or manner of sale
thereof, including without limitation, any nonjudicial sale permitted by the
terms of the controlling security agreement or deed of trust, as Lender in its
discretion may determine; (g) to sell, transfer, assign, or grant
participations in all or part of the Indebtedness; and (h) to assign or
transfer this Guaranty in whole or in part.
GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants
to Lender that (a) no representations or agreements of any kind have been made
to Guarantor which would limit or qualify in any way the terms of this
Guaranty; (b) this Guaranty is executed at Borrower's request and not at the
request of Lender; (c) Guarantor has full power, right and authority to enter
into this Guaranty; (d) the provisions of this Guaranty do not conflict with or
result in a default under any agreement or other instrument
3
<PAGE> 4
binding upon Guarantor and do not result in a violation of any law, regulation,
court decree or order applicable to Guarantor; (e) Guarantor has not and will
not, without the prior written consent of Lender, sell, lease, assign,
encumber, hypothecate, transfer, or otherwise dispose of all or substantially
all of Guarantor's assets, or any interest therein; (f) upon Lender's request,
Guarantor will provide to Lender financial and credit information in form
acceptable to Lender, and all such financial information which currently has
been, and all future financial information which will be provided to Lender is
and will be true and correct in all material respects and fairly present the
financial condition of Guarantor as of the dates the financial information is
provided; (g) no material adverse change has occurred in Guarantor's financial
condition since the date of the most recent financial statements provided to
lender and no event has occurred which may materially adversely affect
Guarantors financial condition; (h) no litigation, claim, investigation,
administrative proceeding or similar action (including those for unpaid taxes)
against Guarantor is pending or threatened; (i) Lender has made no
representation to Guarantor as to the creditworthiness of Borrower; and (j)
Guarantor has established adequate means of obtaining from Borrower on a
continuing basis information regarding Borrower's financial condition.
Guarantor agrees to keep adequately informed from such means of any facts,
events or circumstances which might in any way affect Guarantor's risks under
this Guaranty, and Guarantor further agrees that, absent a request for
information, Lender shall have no obligation to disclose to Guarantor any
information or documents acquired by Lender in the course of its relationship
with Borrower.
GUARANTOR'S WAIVERS. Except as prohibited by applicable law, Guarantor waives
any right to require Lender (a) to continue lending money or to extend other
credit to Borrower; (b) to make any presentment, protest, demand or notice of
any kind, including notice of any nonpayment of the Indebtedness or of any
nonpayment related to any collateral, or notice of any action or nonaction on
the part of Borrower, Lender, any surety, endorser, or other guarantor in
connection with the Indebtedness or in connection with the creation of new or
additional loans or obligations; (c) to resort for payment or to proceed
directly or at once against any person, including Borrower or any other
guarantor; (d) to proceed directly against or exhaust any collateral held by
Lender from Borrower, any other guarantor, or any other person; (e) to give
notice of the terms, time, and place of any public or private sale of personal
property security held by Lender from Borrower or to comply with any other
applicable provisions of the Uniform Commercial Code; (f) to pursue any other
remedy within Lender's power; or (g) to commit any act or omission of any kind,
or at any time, with respect to any matter whatsoever.
If now or hereafter (a) Borrower shall be or become insolvent, and (b) the
Indebtedness shall not at all times until paid by fully secured by collateral
pledged by Borrower, Guarantor hereby forever waives and relinquishes in favor
of Lender and Borrower, and their respective successors, any claim or right to
payment Guarantor may now have or hereafter have or acquire against Borrower,
by subrogation or otherwise, so that at no time shall Guarantor be or become a
"creditor" or Borrower within the meaning of 11 U.S.C. section 547(b), or any
successor provision of the Federal bankruptcy laws.
4
<PAGE> 5
Guarantor waives all rights of Guarantor under Chapter 34 of the Texas Business
and Commerce Code. Guarantor also waives any and all rights or defenses
arising by reason of (a) any "one action" or "anti-deficiency" law or any other
law which may prevent Lender from bringing any action, including a claim for
deficiency against Guarantor, before or after Lender's commencement or
completion of any foreclosure action, either judicially or by exercise of power
of sale; (b) any election of remedies by Lender which destroys or otherwise
adversely affects Guarantor's subrogation rights or Guarantor's right to
proceed against Borrower for reimbursement, including without limitation, any
loss of rights Guarantor may suffer by reason of any law limiting, qualifying,
or discharging the Indebtedness; (c) any disability or other defense of
Borrower, of any other guarantor, or of any other person, or by reason of the
cessation of Borrower's liability from any cause whatsoever, other than payment
in full in legal tender, of the Indebtedness; (d) any right to claim discharge
of the Indebtedness on the basis of unjustified impairment of any collateral
for the Indebtedness; (e) any statute of limitations, if at any time any action
or suit brought by Lender against Guarantor is commenced there is outstanding
Indebtedness of Borrower to Lender which is not barred by any applicable
statute of limitations; or (f) any defenses given to guarantors at law or in
equity other than actual payment and performance of the Indebtedness. If
payment is made by Borrower, whether voluntarily or otherwise, or by any third
party, on the Indebtedness and thereafter Lender is forced to remit the amount
of that payment to Borrower's trustee in bankruptcy or to any similar person
under any federal or state bankruptcy law or law for the relief of debtors, the
Indebtedness shall be considered unpaid for the purpose of enforcement of this
Guaranty.
Guarantor further waives and agrees not to assert or claim at any time any
deductions to the amount guaranteed under this Guaranty for any claim of
setoff, counterclaim, counter demand, recoupment or similar right, whether such
claim, demand or right may be asserted by the Borrower, the Guarantor, or both.
GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants and
agrees that each of the waivers set forth above is made with Guarantor's full
knowledge of its significance and consequences and that, under the
circumstances, the waivers are reasonable and not contrary to public policy or
law. If any such waiver is determined to be contrary to any applicable law or
public policy, such waiver shall be effective only to the extent permitted by
law or public policy.
LENDER'S RIGHT OF SETOFF. In addition to all liens upon and rights of setoff
against the moneys, securities or other property of Guarantor given to Lender
by law, Lender shall have, with respect to Guarantor's obligations to Lender
under this Guaranty and to the extent permitted by law, a contractual
possessory security interest in and a right of setoff against, and Guarantor
hereby assigns, conveys, delivers, pledges, and transfers to Lender all of
Guarantor's right, title and interest in and to, all deposits, moneys,
securities and other property of Guarantor now or hereafter in the possession
of or on deposit with Lender, whether held in a general or special account of
deposit, whether held jointly with someone else, or whether held for
safekeeping or otherwise, excluding however all IRA, Keogh, and
5
<PAGE> 6
trust accounts. Every such security interest and right of setoff may be
exercised without demand upon or notice to Guarantor. No security interest or
right of setoff shall be deemed to have been waived by any act or conduct on
the part of Lender or by any neglect to exercise such right of setoff or to
enforce such security interest or by any delay in so doing. Every right of
setoff and security interest shall continue in full force and effect until such
right of setoff or security interest is specifically waived or released by an
instrument in writing executed by Lender.
SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Guarantor agrees that the
Indebtedness of Borrower to Lender, whether now existing or hereafter created,
shall be prior to any claim that Guarantor may now have or hereafter acquire
against Borrower, whether or not Borrower becomes insolvent. Guarantor hereby
expressly subordinates any claim Guarantor may have against Borrower, upon any
account whatsoever, to any claim that Lender may now or hereafter have against
Borrower. In the event of insolvency and consequent liquidation of assets of
Borrower, through bankruptcy, by an assignment for the benefit of creditors, by
voluntary liquidation, or otherwise, the assets of Borrower applicable to the
payment of the claims of both Lender and Guarantor shall be paid to Lender and
shall be first applied to Lender to the Indebtedness of Borrower to Lender.
Guarantor does hereby assign to Lender all claims which it may have or acquire
against Borrower or against any assignee or trustee in bankruptcy of Borrower;
provided however, that such assignment shall be effective only for the purpose
of assuring to Lender full payment in legal tender of the Indebtedness. If
Lender so requests, any notes or credit agreements now or hereafter evidencing
any debts or obligations of Borrower to Guarantor shall be marked with a legend
that the same are subject to this Guaranty and shall be delivered to Lender.
Guarantor agrees, and Lender hereby is authorized, in the name of Guarantor,
from time to time to execute and file financing statements and continuation
statements and to execute such other documents and to take such other actions
as Lender deems necessary or appropriate to perfect, preserve and enforce its
rights under this Guaranty.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Guaranty:
AMENDMENTS. This Guaranty, together with any Related Documents
constitutes the entire understanding and agreement of the parties as
to the matters set forth in this Guaranty. No alteration or amendment
to this Guaranty 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 Guaranty 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 Guaranty occurred in TRAVIS
County, Guarantor agrees upon Lender's request to submit to the
jurisdiction of the courts of TRAVIS County, State of Texas. This
Guaranty shall be governed by and construed in accordance with the
laws of the State of Texas and applicable Federal laws.
6
<PAGE> 7
ATTORNEYS' FEES. In addition to the amount of this Guaranty set forth
above, Lender may hire an attorney to help enforce this Guaranty if
Guarantor does not pay, and Guarantor will pay Lender's reasonable
attorneys' fees. Guarantor 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 Guaranty; 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 Guaranty.
NOTICES. All notices required to be given by either party to the
other under this Guaranty shall be in writing, may be sent by
telefacsimile, and, except for revocation notices by Guaranty, shall
be effective when actually delivered or when deposited with a
nationally recognized overnight courier, or when deposited in the
United States mail, first class postage prepared, addressed to the
party to whom the notice is to be given at the address shown above or
to such other addresses as either party may designate to the other in
writing. All revocation notices by Guarantor shall be in writing and
shall be effective only upon delivery to Lender as provided above in
the section title "DURATION OF GUARANTY." If there is more than one
Guarantor, notice to any Guarantor will constitute notice to all
Guarantors. For notice purposes, Guarantor agrees to keep Lender
informed at all times of Guarantor's current address.
INTERPRETATION. In all cases where there is more than one Borrower or
Guarantor, then all words used in this Guaranty in the singular shall
be deemed to have been used in the plural where the context and
construction so require; and where there is more than one Borrower
named in this Guaranty or when this Guaranty is executed by more than
one Guarantor, the words "Borrower" and "Guarantor" respectively shall
mean all and any one or more of them. The words "Guarantor,"
"Borrower," and "Lender" include the heirs, successors, assigns, and
transferees of each of them. Caption headings in this Guaranty are
for convenience purposes only and are not to be used to interpret or
define the provisions of this Guaranty. If a court of competent
jurisdiction finds any provision of this Guaranty 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, and all provisions of this Guaranty in all other
respects shall remain valid and enforceable. If any one or more of
Borrower or Guarantor are corporations or partnerships, it is not
necessary for Lender to inquire into the powers of Borrower or
Guarantor or of the officers, directors, partners, or agents acting or
purporting to act on their behalf, and any Indebtedness made or
created in reliance upon the professed exercise of such powers shall
be guaranteed under this Guaranty.
WAIVER. Lender shall not be deemed to have waived any rights under
this Guaranty 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 Guaranty shall not
7
<PAGE> 8
prejudice or constitute a waiver of Lender's right otherwise to demand
strict compliance with that provision or any other provision of this
Guaranty. No prior waiver by Lender, nor any course of dealing
between Lender and Guarantor, shall constitute a waiver of any of
Lender's rights or of any of Guarantor's obligations as to any future
transactions. Whenever the consent of Lender is required under this
Guaranty, 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.
EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS
GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR UNDERSTANDS THAT
THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND DELIVERY OF THIS
GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE UNTIL TERMINATED IN THE
MANNER SET FORTH IN THE SECTION TITLED "DURATION AND GUARANTY." NO FORMAL
ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS GUARANTY EFFECTIVE. THIS
GUARANTY IS DATED AUGUST 11, 1997.
GUARANTOR:
/s/James Olson
- ------------------
JAMES OLSON
8
<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
$500,000 08-11-1997 03-31-1998 9005 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 JKO
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 August
11, 1997, in the principal amount of $500,000.00 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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<PAGE> 5
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.
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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 AUGUST 11,
1997.
GRANTOR:
SURREY, INC.
By: /s/James Olson By: /s/John van der Hagen
---------------------------------- ----------------------------
JAMES OLSON JOHN VAN DER HAGEN
LENDER:
NORWEST BANK TEXAS, SOUTH CENTRAL
By:
----------------------------------
Authorized Officer
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EXHIBIT 10.4(E)
NORWEST BANKS Norwest Bank Texas, South Central
Post Office Box 2019 Austin, Texas 78768-2019
512/479-0011
August 13, 1997
James K. Olson
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 $500,000.00 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 29, 1996.
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 $500,000 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/ James K. Olson /s/ John van der Hagen
- ---------------------------- -----------------------------
James K. Olson, CEO John Van der Hagen, President
<PAGE> 1
EXHIBIT 10.5(A)
PROMISSORY NOTE
<TABLE>
<CAPTION>
PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C>
$221,234.39 05-31-1997 05-31-1998 9006 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
<TABLE>
<S> <C> <C>
Principal Amount: $221,234.39 Initial Rate: 10.500% Date of Note: May 31, 1997
- -------------------------------------------------------------------------------------------
</TABLE>
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 Two Hundred and Twenty One Thousand Two
Hundred and Thirty Four & 39/100 Dollars ($221,234.39) together with interest
on the unpaid principal balance from May 31, 1997, until maturity. The
interest rate will not increase above 18.000%.
PAYMENT. Subject to any payment changes resulting from changes in the index,
Borrower will pay this loan in 11 regular payments of $5,664.00 each and one
irregular last payment estimated at $179,948.87. Borrower's first payment is
due June 30, 1997 and all subsequent interest payments are due on the last day
of each month after that. Borrower's final payment due May 31, 1998, will be
for all principal and all accrued interest not yet paid. Payments include
principal and interest. 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 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
<PAGE> 2
on its loans and is set by Lender in its sole discretion. If 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 10.500% 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. Whenever increases occur in the interest
rate, Lender, at its option, may do one or more of the following: (a) increase
Borrower's payments to ensure Borrower's loan will pay off by its original
final maturity date, (b) increase Borrower's payments to cover accruing
interest, (c) increase the number of Borrower's payments, and (d) continue
Borrower's payments at the same amount and increase Borrower's final payment.
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 under the payment schedule. Rather, they will reduce the
principal balance due and may result in Borrower making fewer payments.
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
2
<PAGE> 3
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 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 ON
INVENTORY, FURNITURE, FIXTURES & EQUIPMENT.
RENEWAL AND EXTENSION. This Note is given in renewal and extension and not in
novation of the following described indebtedness: RENEW LN 0839426-9004.
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
3
<PAGE> 4
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.
BORROWER:
SURREY, INC.
By: /s/James Olson By: /s/John van der Hagen
-------------------------------------- --------------------------
JAMES OLSON JOHN VAN DER HAGEN
LENDER:
NORWEST BANK TEXAS, SOUTH CENTRAL
By:
--------------------------------------
Authorized Officer
4
<PAGE> 1
EXHIBIT 10.5(B)
COMMERCIAL GUARANTY
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS
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
Guarantor: JOHN VAN DER HAGEN
12901 LOST RIDGE CIRCLE
AUSTIN, TX
- --------------------------------------------------------------------------------
AMOUNT OF GUARANTY. The amount of this Guaranty is Unlimited.
CONTINUING UNLIMITED GUARANTY. For good and valuable consideration, JOHN VAN
DER HAGEN ("Guarantor") absolutely and unconditionally guarantees and promises
to pay to NORWEST BANK TEXAS, SOUTH CENTRAL ("Lender") or its order, in legal
tender of the United States of America, the indebtedness (as that term is
defined below) of SURREY, INC. ("Borrower") to Lender on the terms and
conditions set forth in this Guaranty. Under this Guaranty, the liability of
Guarantor is unlimited and the obligations of Guarantor are continuing.
DEFINITIONS. The following words shall have the following meanings when used
in this Guaranty:
Borrower. The word "Borrower" means SURREY, INC.
Guarantor. The word "Guarantor" means JOHN VAN DER HAGEN.
Guaranty. The word "Guaranty" means this Guaranty made by Guarantor for the
benefit of Lender dated May 31, 1997.
Indebtedness. The word "Indebtedness" is used in its most comprehensive
sense and means and includes any and all of Borrower's liabilities,
obligations, debts, and Indebtedness to Lender, now existing or hereinafter
incurred or created, including, without limitation, all loans, advances,
interest, costs, attorneys' fees, debts, overdraft Indebtedness, credit card
Indebtedness, lease obligations, other obligations, and
<PAGE> 2
05-31-1997 COMMERCIAL GUARANTY
Loan No. 9006 (continued)
- --------------------------------------------------------------------------------
liabilities of Borrower, or any of them, and any present or future judgments
against Borrower, or any of them; and whether any such Indebtedness is
voluntarily or involuntarily incurred, due or not due, absolute or
contingent, liquidated or unliquidated, determined or undetermined; whether
Borrower may be liable individually or jointly with others, or primarily or
secondarily, or as guarantor or surety; whether recovery on the Indebtedness
may be or may become barred or unenforceable against Borrower for any reason
whatsoever; and whether the Indebtedness arises from transactions which may
be voidable on account of infancy, insanity, ultra vires, or otherwise.
Lender. The word "Lender" means NORWEST BANK TEXAS, SOUTH CENTRAL, its
successors and assigns.
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.
NATURE OF GUARANTY. Guarantor's liability under this Guaranty shall be open
and continuous for so long as this Guaranty remains in force. Guarantor
intends to guarantee at all times the performance and prompt payment when due,
whether at maturity or earlier by reason of acceleration or otherwise, of all
Indebtedness. Accordingly, no payments made upon the Indebtedness will
discharge or diminish the continuing liability of Guarantor in connection with
any remaining portions of the Indebtedness or any of the Indebtedness which
subsequently arises or is thereafter incurred or contracted.
DURATION OF GUARANTY. This Guaranty will take effect when received by Lender
without the necessity of any acceptance by Lender, or any notice to Guarantor
or to Borrower, and will continue in full force until all Indebtedness incurred
or contracted before receipt by Lender of any notice of revocation shall have
been fully and finally paid and satisfied and all other obligations of
Guarantor under this Guaranty shall have been performed in full. If Guarantor
elects to revoke this Guaranty, Guarantor may only do so in writing.
Guarantor's written notice of revocation must be mailed to Lender, by certified
mail, at the address of Lender listed above or such other place as Lender may
designate in writing. Written revocation of this Guaranty will apply only to
advances or new Indebtedness created after actual receipt by Lender of
Guarantor's written revocation and Lender's written acknowledgment of receipt.
For this purpose and without limitation, the term "new Indebtedness" does not
include Indebtedness which at the time of notice of
2
<PAGE> 3
05-31-1997 COMMERCIAL GUARANTY
Loan No. 9006 (continued)
- --------------------------------------------------------------------------------
revocation is contingent, unliquidated, undetermined or not due and which later
becomes absolute, liquidated, determined or due. This Guaranty will continue
to bind Guarantor for all Indebtedness incurred by Borrower or committed by
Lender prior to receipt of Guarantor's written notice of revocation, including
any extensions, renewals, substitutions or modifications of the Indebtedness.
All renewals, extensions, substitutions, and modifications of the Indebtedness
granted after Guarantor's revocation, are contemplated under this Guaranty and,
specifically will not be considered to be new Indebtedness. This Guaranty
shall bind the estate of Guarantor as to Indebtedness created both before and
after the death or incapacity of Guarantor, regardless of Lender's actual
notice of Guarantor's death. Subject to the foregoing, Guarantor's executor or
administrator or other legal representative may terminate this Guaranty in the
same manner in which Guarantor might have terminated it and with the same
effect. Release of any other guarantor or termination of any other guaranty of
the Indebtedness shall not affect the liability of Guarantor under this
Guaranty. A revocation received by Lender from any one or more Guarantors
shall not affect the liability of any remaining Guarantors under this Guaranty.
It is anticipated that fluctuations may occur in the aggregate amount of
Indebtedness covered by this Guaranty, and it is specifically acknowledged and
agreed by Guarantor that reductions in the amount of Indebtedness, even to zero
dollars ($0.00), prior to written revocation of this Guaranty by Guarantor
shall not constitute a termination of this Guaranty. This Guaranty is binding
upon Guarantor and Guarantor's heirs, successors and assigns so long as any of
the guaranteed Indebtedness remains unpaid and even though the Indebtedness
guaranteed may from time to time be zero dollars ($0.00).
GUARANTOR'S AUTHORIZATION TO LENDER. Guarantor authorizes Lender, either
before or after any revocation hereof, without notice or demand and without
lessening or otherwise affecting Guarantor's liability under this Guaranty,
from time to time: (a) prior to revocation as set forth above, to make one or
more additional secured or unsecured loans to Borrower, to lease equipment or
other goods to Borrower, or otherwise to extend additional credit to Borrower;
(b) to alter, compromise, renew, extend, accelerate, or otherwise change one or
more times the time for payment or other terms of the Indebtedness or any part
of the Indebtedness, including increases and decreases of the rate of interest
on the Indebtedness; extensions may be repeated and may be for longer than the
original loan term; (c) to take and hold security for the payment of this
Guaranty or the Indebtedness, and exchange, enforce, waive, subordinate, fail
or decide not to perfect, and release any such security with or without the
substitution of new collateral; (d) to release, substitute, agree not to sue,
or deal with any one or more of Borrower's sureties, endorsers, or other
guarantors on any terms or in any manner Lender may choose; (e) to determine
how, when and what application of payments and credits shall be made on the
Indebtedness; (f) to apply such security and direct the order or manner of sale
thereof, including without limitation, any nonjudicial sale
3
<PAGE> 4
05-31-1997 COMMERCIAL GUARANTY
Loan No. 9006 (continued)
- --------------------------------------------------------------------------------
permitted by the terms of the controlling security agreement or deed of trust,
as Lender in its discretion may determine; (g) to sell, transfer, assign, or
grant participations in all or part of the Indebtedness; and (h) to assign or
transfer this Guaranty in whole or in part.
GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants
to Lender that (a) no representations or agreements of any kind have been made
to Guarantor which would limit or qualify in any way the terms of this
Guaranty; (b) this Guaranty is executed at Borrower's request and not at the
request of Lender; (c) Guarantor has full power, right and authority to enter
into this Guaranty; (d) the provisions of this Guaranty do not conflict with or
result in a default under any agreement or other instrument binding upon
Guarantor and do not result in a violation of any law, regulation, court decree
or order applicable to Guarantor; (e) Guarantor has not and will not, without
the prior written consent of Lender, sell, lease, assign, encumber,
hypothecate, transfer, or otherwise dispose of all or substantially all of
Guarantor's assets, or any interest therein; (f) upon Lender's request,
Guarantor will provide to Lender financial and credit information in form
acceptable to Lender, and all such financial information which currently has
been, and all future financial information which will be provided to Lender is
and will be true and correct in all material respects and fairly present the
financial condition of Guarantor as of the dates the financial information is
provided; (g) no material adverse change has occurred in Guarantor's financial
condition since the date of the most recent financial statements provided to
lender and no event has occurred which may materially adversely affect
Guarantor's financial condition; (h) no litigation, claim, investigation,
administrative proceeding or similar action (including those for unpaid taxes)
against Guarantor is pending or threatened; (i) Lender has made no
representation to Guarantor as to the creditworthiness of Borrower; and (j)
Guarantor has established adequate means of obtaining from Borrower on a
continuing basis information regarding Borrower's financial condition.
Guarantor agrees to keep adequately informed from such means of any facts,
events or circumstances which might in any way affect Guarantor's risks under
this Guaranty, and Guarantor further agrees that, absent a request for
information, Lender shall have no obligation to disclose to Guarantor any
information or documents acquired by Lender in the course of its relationship
with Borrower.
GUARANTOR'S WAIVERS. Except as prohibited by applicable law, Guarantor waives
any right to require Lender (a) to continue lending money or to extend other
credit to Borrower; (b) to make any presentment, protest, demand or notice of
any kind, including notice of any nonpayment of the Indebtedness or of any
nonpayment related to any collateral, or notice of any action or nonaction on
the part of Borrower, Lender, any surety, endorser, or other guarantor in
connection with the Indebtedness or in connection with the creation of new or
additional loans or obligations; (c) to resort for payment or to proceed
directly or at once
4
<PAGE> 5
05-31-1997 COMMERCIAL GUARANTY
Loan No. 9006 (continued)
- --------------------------------------------------------------------------------
against any person, including Borrower or any other guarantor; (d) to proceed
directly against or exhaust any collateral held by Lender from Borrower, any
other guarantor, or any other person; (e) to give notice of the terms, time,
and place of any public or private sale of personal property security held by
Lender from Borrower or to comply with any other applicable provisions of the
Uniform Commercial Code; (f) to pursue any other remedy within Lender's power;
or (g) to commit any act or omission of any kind, or at any time, with respect
to any matter whatsoever.
If now or hereafter (a) Borrower shall be or become insolvent, and (b) the
Indebtedness shall not at all times until paid by fully secured by collateral
pledged by Borrower, Guarantor hereby forever waives and relinquishes in favor
of Lender and Borrower, and their respective successors, any claim or right to
payment Guarantor may now have or hereafter have or acquire against Borrower,
by subrogation or otherwise, so that at no time shall Guarantor be or become a
"creditor" or Borrower within the meaning of 11 U.S.C. section 547(b), or any
successor provision of the Federal bankruptcy laws.
Guarantor waives all rights of Guarantor under Chapter 34 of the Texas Business
and Commerce Code. Guarantor also waives any and all rights or defenses
arising by reason of (a) any "one action" or "anti-deficiency" law or any other
law which may prevent Lender from bringing any action, including a claim for
deficiency against Guarantor, before or after Lender's commencement or
completion of any foreclosure action, either judicially or by exercise of power
of sale; (b) any election of remedies by Lender which destroys or otherwise
adversely affects Guarantor's subrogation rights or Guarantor's rights to
proceed against Borrower for reimbursement, including without limitation, any
loss of rights Guarantor may suffer by reason of any law limiting, qualifying,
or discharging the Indebtedness; (c) any disability or other defense of
Borrower, of any other guarantor, or of any other person, or by reason of the
cessation of Borrower's liability from any cause whatsoever, other than payment
in full in legal tender, of the Indebtedness; (d) any right to claim discharge
of the Indebtedness on the basis of unjustified impairment of any collateral
for the Indebtedness; (e) any statute of limitations, if at any time any action
or suit brought by Lender against Guarantor is commenced there is outstanding
Indebtedness of Borrower to Lender which is not barred by any applicable
statute of limitations; or (f) any defenses given to guarantors at law or in
equity other than actual payment and performance of the Indebtedness. If
payment is made by Borrower, whether voluntarily or otherwise, or by any third
party, on the Indebtedness and thereafter Lender is forced to remit the amount
of that payment to Borrower's trustee in bankruptcy or to any similar person
under any federal or state bankruptcy law or law for the relief of debtors, the
Indebtedness shall be considered unpaid for the purpose of enforcement of this
Guaranty.
5
<PAGE> 6
05-31-1997 COMMERCIAL GUARANTY
Loan No. 9006 (continued)
- --------------------------------------------------------------------------------
Guarantor further waives and agrees not to assert or claim at any time any
deductions to the amount guaranteed under this Guaranty for any claim of
setoff, counterclaim, counter demand, recoupment or similar right, whether such
claim, demand or right may be asserted by the Borrower, the Guarantor, or both.
GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants and
agrees that each of the waivers set forth above is made with Guarantor's full
knowledge of its significance and consequences and that, under the
circumstances, the waivers are reasonable and not contrary to public policy or
law. If any such waiver is determined to be contrary to any applicable law or
public policy, such waiver shall be effective only to the extent permitted by
law or public policy.
LENDER'S RIGHT OF SETOFF. In addition to all liens upon and rights of setoff
against the moneys, securities or other property of Guarantor given to Lender
by law, Lender shall have, with respect to Guarantor's obligations to Lender
under this Guaranty and to the extent permitted by law, a contractual
possessory security interest in and a right of setoff against, and Guarantor
hereby assigns, conveys, delivers, pledges, and transfers to Lender all of
Guarantor's right, title and interest in and to, all deposits, moneys,
securities and other property of Guarantor now or hereafter in the possession
of or on deposit with Lender, whether held in a general or special account or
deposit, whether held jointly with someone else, or whether held for
safekeeping or otherwise, excluding however all IRA, Keogh, and trust accounts.
Every such security interest and right of setoff may be exercised without
demand upon or notice to Guarantor. No security interest or right of setoff
shall be deemed to have been waived by any act or conduct on the part of Lender
or by any neglect to exercise such right of setoff or to enforce such security
interest or by any delay in so doing. Every right of setoff and security
interest shall continue in full force and effect until such right of setoff or
security interest is specifically waived or released by an instrument in
writing executed by Lender.
SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Guarantor agrees that the
Indebtedness of Borrower to Lender, whether now existing or hereafter created,
shall be prior to any claim that Guarantor may now have or hereafter acquire
against Borrower, whether or not Borrower becomes insolvent. Guarantor hereby
expressly subordinates any claim Guarantor may have against Borrower, upon any
account whatsoever, to any claim that Lender may now or hereafter have against
Borrower. In the event of insolvency and consequent liquidation of assets of
Borrower, through bankruptcy, by an assignment for the benefit of creditors, by
voluntary liquidation, or otherwise, the assets of Borrower applicable to the
payment of the claims of both Lender and Guarantor shall be paid to Lender and
shall be first applied by Lender and shall be first applied by Lender to the
Indebtedness of
6
<PAGE> 7
05-31-1997 COMMERCIAL GUARANTY
Loan No. 9006 (continued)
- --------------------------------------------------------------------------------
Borrower to Lender. Guarantor does hereby assign to Lender all claims which it
may have or acquire against Borrower or against any assignee or trustee in
bankruptcy of Borrower; provided however, that such assignment shall be
effective only for the purpose of assuring to Lender full payment in legal
tender of the Indebtedness. If Lender so requests, any notes or credit
agreements now or hereafter evidencing any debts or obligations of Borrower to
Guarantor shall be marked with a legend that the same are subject to this
Guaranty and shall be delivered to Lender. Guarantor agrees, and Lender hereby
is authorized, in the name of Guarantor, from time to time to execute and file
financing statements and continuation statements and to execute such other
documents and to take such other actions as Lender deems necessary or
appropriate to perfect, preserve and enforce its rights under this Guaranty.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Guaranty:
AMENDMENTS. This Guaranty, together with any Related Documents constitutes
the entire understanding and agreement of the parties as to the matters set
forth in this Guaranty. No alteration of or amendment to this Guaranty 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 Guaranty 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 Guaranty occurred in TRAVIS County, Guarantor agrees upon
Lender's request to submit to the jurisdiction of the courts of TRAVIS
County, State of Texas. This Guaranty shall be governed by and construed in
accordance with the laws of the State of Texas and applicable Federal laws.
ATTORNEYS' FEES. In addition to the amount of this Guaranty set forth above,
Lender may hire an attorney to help enforce this Guaranty if Guarantor does
not pay, and Guarantor will pay Lender's reasonable attorneys' fees.
Guarantor 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 Guaranty; 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 Guaranty.
NOTICES. All notices required to be given by either party to the other under
this Guaranty shall be in writing, may be sent by telefacsimile, and, except
for revocation
7
<PAGE> 8
05-31-1997 COMMERCIAL GUARANTY
Loan No. 9006 (continued)
- --------------------------------------------------------------------------------
notices by Guarantor, shall be effective when actually delivered or when
deposited with a nationally recognized overnight courier, or when deposited
in the United States mail, first class postage prepared, addressed to the
party to whom the notice is to be given at the address shown above or to such
other addresses as either party may designate to the other in writing. All
revocation notices by Guarantor shall be in writing and shall be effective
only upon delivery to Lender as provided above in the section title "DURATION
OF GUARANTY." If there is more than one Guarantor, notice to any Guarantor
will constitute notice to all Guarantors. For notice purposes, Guarantor
agrees to keep Lender informed at all times of Guarantor's current address.
INTERPRETATION. In all cases where there is more than one Borrower or
Guarantor, then all words used in this Guaranty in the singular shall be
deemed to have been used in the plural where the context and construction so
require; and where there is more than one Borrower named in this Guaranty or
when this Guaranty is executed by more than one Guarantor, the words
"Borrower" and "Guarantor" respectively shall mean all and any one or more of
them. The words "Guarantor," "Borrower," and "Lender" include the heirs,
successors, assigns, and transferees of each of them. Caption headings in
this Guaranty are for convenience purposes only and are not to be used to
interpret or define the provisions of this Guaranty. If a court of competent
jurisdiction finds any provision of this Guaranty 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, and all provisions of this Guaranty in all other respects
shall remain valid and enforceable. If any one or more of Borrower or
Guarantor are corporations or partnerships, it is not necessary for Lender to
inquire into the powers of Borrower or Guarantor or of the officers,
directors, partners, or agents acting or purporting to act on their behalf,
and any Indebtedness made or created in reliance upon the professed exercise
of such powers shall be guaranteed under this Guaranty.
WAIVER. Lender shall not be deemed to have waived any rights under this
Guaranty 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 Guaranty shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Guaranty. No prior waiver by Lender, nor any
course of dealing between Lender and Guarantor, shall constitute a waiver of
any of Lender's rights or of any of Guarantor's obligations as to any future
transactions. Whenever the consent of Lender is required under this
Guaranty, the granting of such consent by Lender in any instance shall not
constitute
8
<PAGE> 9
05-31-1997 COMMERCIAL GUARANTY
Loan No. 9006 (continued)
- --------------------------------------------------------------------------------
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.
EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS
GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR UNDERSTANDS THAT
THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND DELIVERY OF THIS
GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE UNTIL TERMINATED IN THE
MANNER SET FORTH IN THE SECTION TITLED "DURATION AND GUARANTY." NO FORMAL
ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS GUARANTY EFFECTIVE. THIS
GUARANTY IS DATED MAY 31, 1997.
GUARANTOR:
/s/John van der Hagen
- -------------------------
JOHN VAN DER HAGEN
9
<PAGE> 1
EXHIBIT 10.5(C)
COMMERCIAL GUARANTY
<TABLE>
<S><C>
PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS
0839426 714
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.
</TABLE>
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
Guarantor: JAMES OLSON
9703 VISTA VIEW DRIVE
AUSTIN, TX
- ---------------------------------------------------------------------
AMOUNT OF GUARANTY. The amount of this Guaranty is Unlimited.
CONTINUING UNLIMITED GUARANTY. For good and valuable consideration, JAMES
OLSON ("Guarantor") absolutely and unconditionally guarantees and promises to
pay to NORWEST BANK TEXAS, SOUTH CENTRAL ("Lender") or its order, in legal
tender of the United States of America, the indebtedness (as that term is
defined below) of SURREY, INC. ("Borrower") to Lender on the terms and
conditions set forth in this Guaranty. Under this Guaranty, the liability of
Guarantor is unlimited and the obligations of Guarantor are continuing.
DEFINITIONS. The following words shall have the following meanings when used
in this Guaranty:
Borrower. The word "Borrower" means SURREY, INC.
Guarantor. The word "Guarantor" means JAMES OLSON.
Guaranty. The word "Guaranty" means this Guaranty made by Guarantor
for the benefit of Lender dated May 31, 1997.
Indebtedness. The word "Indebtedness" is used in its most
comprehensive sense and means and includes any and all of Borrower's
liabilities, obligations, debts, and Indebtedness to Lender, now
existing or hereinafter incurred or created, including, without
limitation, all loans, advances, interest, costs, attorneys' fees,
debts, overdraft Indebtedness, credit card Indebtedness, lease
obligations, other obligations, and
<PAGE> 2
05-31-1997 COMMERCIAL GUARANTY
Loan No. 9006 (continued)
liabilities of Borrower, or any of them, and any present or future
judgments against Borrower, or any of them; and whether any such
Indebtedness is voluntarily or involuntarily incurred, due or not due,
absolute or contingent, liquidated or unliquidated, determined or
undetermined; whether Borrower may be liable individually or jointly
with others, or primarily or secondarily, or as guarantor or surety;
whether recovery on the Indebtedness may be or may become barred or
unenforceable against Borrower for any reason whatsoever; and whether
the Indebtedness arises from transactions which may be voidable on
account of infancy, insanity, ultra vires, or otherwise.
Lender. The word "Lender" means NORWEST BANK TEXAS, SOUTH CENTRAL, its
successors and assigns.
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.
NATURE OF GUARANTY. Guarantor's liability under this Guaranty shall be open
and continuous for so long as this Guaranty remains in force. Guarantor
intends to guarantee at all times the performance and prompt payment when due,
whether at maturity or earlier by reason of acceleration or otherwise, of all
Indebtedness. Accordingly, no payments made upon the Indebtedness will
discharge or diminish the continuing liability of Guarantor in connection with
any remaining portions of the Indebtedness or any of the Indebtedness which
subsequently arises or is thereafter incurred or contracted.
DURATION OF GUARANTY. This Guaranty will take effect when received by Lender
without the necessity of any acceptance by Lender, or any notice to Guarantor
or to Borrower, and will continue in full force until all Indebtedness incurred
or contracted before receipt by Lender of any notice of revocation shall have
been fully and finally paid and satisfied and all other obligations of
Guarantor under this Guaranty shall have been performed in full. If Guarantor
elects to revoke this Guaranty, Guarantor may only do so in writing.
Guarantor's written notice of revocation must be mailed to Lender, by certified
mail, at the address of Lender listed above or such other place as Lender may
designate in writing. Written revocation of this Guaranty will apply only to
advances or new Indebtedness created after actual receipt by Lender of
Guarantor's written revocation and Lender's written acknowledgment of receipt.
For this purpose and without limitation, the term "new Indebtedness" does not
include Indebtedness which at the time of notice of
2
<PAGE> 3
05-31-1997 COMMERCIAL GUARANTY
Loan No. 9006 (continued)
revocation is contingent, unliquidated, undetermined or not due and which later
becomes absolute, liquidated, determined or due. This Guaranty will continue
to bind Guarantor for all Indebtedness incurred by Borrower or committed by
Lender prior to receipt of Guarantor's written notice of revocation, including
any extensions, renewals, substitutions or modifications of the Indebtedness.
All renewals, extensions, substitutions, and modifications of the Indebtedness
granted after Guarantor's revocation, are contemplated under this Guaranty and,
specifically will not be considered to be new Indebtedness. This Guaranty
shall bind the estate of Guarantor as to Indebtedness created both before and
after the death or incapacity of Guarantor, regardless of Lender's actual
notice of Guarantor's death. Subject to the foregoing, Guarantor's executor or
administrator or other legal representative may terminate this Guaranty in the
same manner in which Guarantor might have terminated it and with the same
effect. Release of any other guarantor or termination of any other guaranty of
the Indebtedness shall not affect the liability of Guarantor under this
Guaranty. A revocation received by Lender from any one or more Guarantors
shall not affect the liability of any remaining Guarantors under this Guaranty.
It is anticipated that fluctuations may occur in the aggregate amount of
Indebtedness covered by this Guaranty, and it is specifically acknowledged and
agreed by Guarantor that reductions in the amount of Indebtedness, even to zero
dollars ($0.00), prior to written revocation of this Guaranty by Guarantor
shall not constitute a termination of this Guaranty. This Guaranty is binding
upon Guarantor and Guarantor's heirs, successors and assigns so long as any of
the guaranteed Indebtedness remains unpaid and even though the Indebtedness
guaranteed may from time to time be zero dollars ($0.00).
GUARANTOR'S AUTHORIZATION TO LENDER. Guarantor authorizes Lender, either
before or after any revocation hereof, without notice or demand and without
lessening or otherwise affecting Guarantor's liability under this Guaranty,
from time to time: (a) prior to revocation as set forth above, to make one or
more additional secured or unsecured loans to Borrower, to lease equipment or
other goods to Borrower, or otherwise to extend additional credit to Borrower;
(b) to alter, compromise, renew, extend, accelerate, or otherwise change one or
more times the time for payment or other terms of the Indebtedness or any part
of the Indebtedness, including increases and decreases of the rate of interest
on the Indebtedness; extensions may be repeated and may be for longer than the
original loan term; (c) to take and hold security for the payment of this
Guaranty or the Indebtedness, and exchange, enforce, waive, subordinate, fail
or decide not to perfect, and release any such security with or without the
substitution of new collateral; (d) to release, substitute, agree not to sue,
or deal with any one or more of Borrower's sureties, endorsers, or other
guarantors on any terms or in any manner Lender may choose; (e) to determine
how, when and what application of payments and credits shall be made on the
Indebtedness; (f) to apply such security and direct the order or manner of sale
thereof, including without limitation, any nonjudicial sale
3
<PAGE> 4
05-31-1997 COMMERCIAL GUARANTY
Loan No. 9006 (continued)
permitted by the terms of the controlling security agreement or deed of trust,
as Lender in its discretion may determine; (g) to sell, transfer, assign, or
grant participations in all or part of the Indebtedness; and (h) to assign or
transfer this Guaranty in whole or in part.
GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants
to Lender that (a) no representations or agreements of any kind have been made
to Guarantor which would limit or qualify in any way the terms of this
Guaranty; (b) this Guaranty is executed at Borrower's request and not at the
request of Lender; (c) Guarantor has full power, right and authority to enter
into this Guaranty; (d) the provisions of this Guaranty do not conflict with or
result in a default under any agreement or other instrument binding upon
Guarantor and do not result in a violation of any law, regulation, court decree
or order applicable to Guarantor; (e) Guarantor has not and will not, without
the prior written consent of Lender, sell, lease, assign, encumber,
hypothecate, transfer, or otherwise dispose of all or substantially all of
Guarantor's assets, or any interest therein; (f) upon Lender's request,
Guarantor will provide to Lender financial and credit information in form
acceptable to Lender, and all such financial information which currently has
been, and all future financial information which will be provided to Lender is
and will be true and correct in all material respects and fairly present the
financial condition of Guarantor as of the dates the financial information is
provided; (g) no material adverse change has occurred in Guarantor's financial
condition since the date of the most recent financial statements provided to
lender and no event has occurred which may materially adversely affect
Guarantor's financial condition; (h) no litigation, claim, investigation,
administrative proceeding or similar action (including those for unpaid taxes)
against Guarantor is pending or threatened; (i) Lender has made no
representation to Guarantor as to the creditworthiness of Borrower; and (j)
Guarantor has established adequate means of obtaining from Borrower on a
continuing basis information regarding Borrower's financial condition.
Guarantor agrees to keep adequately informed from such means of any facts,
events or circumstances which might in any way affect Guarantor's risks under
this Guaranty, and Guarantor further agrees that, absent a request for
information, Lender shall have no obligation to disclose to Guarantor any
information or documents acquired by Lender in the course of its relationship
with Borrower.
GUARANTOR'S WAIVERS. Except as prohibited by applicable law, Guarantor waives
any right to require Lender (a) to continue lending money or to extend other
credit to Borrower; (b) to make any presentment, protest, demand or notice of
any kind, including notice of any nonpayment of the Indebtedness or of any
nonpayment related to any collateral, or notice of any action or nonaction on
the part of Borrower, Lender, any surety, endorser, or other guarantor in
connection with the Indebtedness or in connection with the creation of new or
additional loans or obligations; (c) to resort for payment or to proceed
directly or at once
4
<PAGE> 5
05-31-1997 COMMERCIAL GUARANTY
Loan No. 9006 (continued)
against any person, including Borrower or any other guarantor; (d) to proceed
directly against or exhaust any collateral held by Lender from Borrower, any
other guarantor, or any other person; (e) to give notice of the terms, time,
and place of any public or private sale of personal property security held by
Lender from Borrower or to comply with any other applicable provisions of the
Uniform Commercial Code; (f) to pursue any other remedy within Lender's power;
or (g) to commit any act or omission of any kind, or at any time, with respect
to any matter whatsoever.
If now or hereafter (a) Borrower shall be or become insolvent, and (b) the
Indebtedness shall not at all times until paid by fully secured by collateral
pledged by Borrower, Guarantor hereby forever waives and relinquishes in favor
of Lender and Borrower, and their respective successors, any claim or right to
payment Guarantor may now have or hereafter have or acquire against Borrower,
by subrogation or otherwise, so that at no time shall Guarantor be or become a
"creditor" or Borrower within the meaning of 11 U.S.C. section 547(b), or any
successor provision of the Federal bankruptcy laws.
Guarantor waives all rights of Guarantor under Chapter 34 of the Texas Business
and Commerce Code. Guarantor also waives any and all rights or defenses
arising by reason of (a) any "one action" or "anti-deficiency" law or any other
law which may prevent Lender from bringing any action, including a claim for
deficiency against Guarantor, before or after Lender's commencement or
completion of any foreclosure action, either judicially or by exercise of power
of sale; (b) any election of remedies by Lender which destroys or otherwise
adversely affects Guarantor's subrogation rights or Guarantor's rights to
proceed against Borrower for reimbursement, including without limitation, any
loss of rights Guarantor may suffer by reason of any law limiting, qualifying,
or discharging the Indebtedness; (c) any disability or other defense of
Borrower, of any other guarantor, or of any other person, or by reason of the
cessation of Borrower's liability from any cause whatsoever, other than payment
in full in legal tender, of the Indebtedness; (d) any right to claim discharge
of the Indebtedness on the basis of unjustified impairment of any collateral
for the Indebtedness; (e) any statute of limitations, if at any time any action
or suit brought by Lender against Guarantor is commenced there is outstanding
Indebtedness of Borrower to Lender which is not barred by any applicable
statute of limitations; or (f) any defenses given to guarantors at law or in
equity other than actual payment and performance of the Indebtedness. If
payment is made by Borrower, whether voluntarily or otherwise, or by any third
party, on the Indebtedness and thereafter Lender is forced to remit the amount
of that payment to Borrower's trustee in bankruptcy or to any similar person
under any federal or state bankruptcy law or law for the relief of debtors, the
Indebtedness shall be considered unpaid for the purpose of enforcement of this
Guaranty.
5
<PAGE> 6
05-31-1997 COMMERCIAL GUARANTY
Loan No. 9006 (continued)
Guarantor further waives and agrees not to assert or claim at any time any
deductions to the amount guaranteed under this Guaranty for any claim of
setoff, counterclaim, counter demand, recoupment or similar right, whether such
claim, demand or right may be asserted by the Borrower, the Guarantor, or both.
GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants and
agrees that each of the waivers set forth above is made with Guarantor's full
knowledge of its significance and consequences and that, under the
circumstances, the waivers are reasonable and not contrary to public policy or
law. If any such waiver is determined to be contrary to any applicable law or
public policy, such waiver shall be effective only to the extent permitted by
law or public policy.
LENDER'S RIGHT OF SETOFF. In addition to all liens upon and rights of setoff
against the moneys, securities or other property of Guarantor given to Lender
by law, Lender shall have, with respect to Guarantor's obligations to Lender
under this Guaranty and to the extent permitted by law, a contractual
possessory security interest in and a right of setoff against, and Guarantor
hereby assigns, conveys, delivers, pledges, and transfers to Lender all of
Guarantor's right, title and interest in and to, all deposits, moneys,
securities and other property of Guarantor now or hereafter in the possession
of or on deposit with Lender, whether held in a general or special account or
deposit, whether held jointly with someone else, or whether held for
safekeeping or otherwise, excluding however all IRA, Keogh, and trust accounts.
Every such security interest and right of setoff may be exercised without
demand upon or notice to Guarantor. No security interest or right of setoff
shall be deemed to have been waived by any act or conduct on the part of Lender
or by any neglect to exercise such right of setoff or to enforce such security
interest or by any delay in so doing. Every right of setoff and security
interest shall continue in full force and effect until such right of setoff or
security interest is specifically waived or released by an instrument in
writing executed by Lender.
SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Guarantor agrees that the
Indebtedness of Borrower to Lender, whether now existing or hereafter created,
shall be prior to any claim that Guarantor may now have or hereafter acquire
against Borrower, whether or not Borrower becomes insolvent. Guarantor hereby
expressly subordinates any claim Guarantor may have against Borrower, upon any
account whatsoever, to any claim that Lender may now or hereafter have against
Borrower. In the event of insolvency and consequent liquidation of assets of
Borrower, through bankruptcy, by an assignment for the benefit of creditors, by
voluntary liquidation, or otherwise, the assets of Borrower applicable to the
payment of the claims of both Lender and Guarantor shall be paid to Lender and
shall be first applied by Lender and shall be first applied by Lender to the
Indebtedness of
6
<PAGE> 7
05-31-1997 COMMERCIAL GUARANTY
Loan No. 9006 (continued)
Borrower to Lender. Guarantor does hereby assign to Lender all claims which it
may have or acquire against Borrower or against any assignee or trustee in
bankruptcy of Borrower; provided however, that such assignment shall be
effective only for the purpose of assuring to Lender full payment in legal
tender of the Indebtedness. If Lender so requests, any notes or credit
agreements now or hereafter evidencing any debts or obligations of Borrower to
Guarantor shall be marked with a legend that the same are subject to this
Guaranty and shall be delivered to Lender. Guarantor agrees, and Lender hereby
is authorized, in the name of Guarantor, from time to time to execute and file
financing statements and continuation statements and to execute such other
documents and to take such other actions as Lender deems necessary or
appropriate to perfect, preserve and enforce its rights under this Guaranty.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Guaranty:
AMENDMENTS. This Guaranty, together with any Related Documents
constitutes the entire understanding and agreement of the parties as
to the matters set forth in this Guaranty. No alteration of or
amendment to this Guaranty 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 Guaranty 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 Guaranty occurred in TRAVIS
County, Guarantor agrees upon Lender's request to submit to the
jurisdiction of the courts of TRAVIS County, State of Texas. This
Guaranty shall be governed by and construed in accordance with the
laws of the State of Texas and applicable Federal laws.
ATTORNEYS' FEES. In addition to the amount of this Guaranty set forth
above, Lender may hire an attorney to help enforce this Guaranty if
Guarantor does not pay, and Guarantor will pay Lender's reasonable
attorneys' fees. Guarantor 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 Guaranty; 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 Guaranty.
NOTICES. All notices required to be given by either party to the
other under this Guaranty shall be in writing, may be sent by
telefacsimile, and, except for revocation
7
<PAGE> 8
05-31-1997 COMMERCIAL GUARANTY
Loan No. 9006 (continued)
notices by Guarantor, shall be effective when actually delivered or
when deposited with a nationally recognized overnight courier, or when
deposited in the United States mail, first class postage prepared,
addressed to the party to whom the notice is to be given at the
address shown above or to such other addresses as either party may
designate to the other in writing. All revocation notices by
Guarantor shall be in writing and shall be effective only upon
delivery to Lender as provided above in the section title "DURATION OF
GUARANTY." If there is more than one Guarantor, notice to any
Guarantor will constitute notice to all Guarantors. For notice
purposes, Guarantor agrees to keep Lender informed at all times of
Guarantor's current address.
INTERPRETATION. In all cases where there is more than one Borrower or
Guarantor, then all words used in this Guaranty in the singular shall
be deemed to have been used in the plural where the context and
construction so require; and where there is more than one Borrower
named in this Guaranty or when this Guaranty is executed by more than
one Guarantor, the words "Borrower" and "Guarantor" respectively shall
mean all and any one or more of them. The words "Guarantor,"
"Borrower," and "Lender" include the heirs, successors, assigns, and
transferees of each of them. Caption headings in this Guaranty are
for convenience purposes only and are not to be used to interpret or
define the provisions of this Guaranty. If a court of competent
jurisdiction finds any provision of this Guaranty 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, and all provisions of this Guaranty in all other
respects shall remain valid and enforceable. If any one or more of
Borrower or Guarantor are corporations or partnerships, it is not
necessary for Lender to inquire into the powers of Borrower or
Guarantor or of the officers, directors, partners, or agents acting or
purporting to act on their behalf, and any Indebtedness made or
created in reliance upon the professed exercise of such powers shall
be guaranteed under this Guaranty.
WAIVER. Lender shall not be deemed to have waived any rights under
this Guaranty 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 Guaranty shall not prejudice
or constitute a waiver of Lender's right otherwise to demand strict
compliance with that provision or any other provision of this
Guaranty. No prior waiver by Lender, nor any course of dealing
between Lender and Guarantor, shall constitute a waiver of any of
Lender's rights or of any of Guarantor's obligations as to any future
transactions. Whenever the consent of Lender is required under this
Guaranty, the granting of such consent by Lender in any instance shall
not constitute
8
<PAGE> 9
05-31-1997 COMMERCIAL GUARANTY
Loan No. 9006 (continued)
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.
EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS
GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR UNDERSTANDS THAT
THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND DELIVERY OF THIS
GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE UNTIL TERMINATED IN THE
MANNER SET FORTH IN THE SECTION TITLED "DURATION AND GUARANTY." NO FORMAL
ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS GUARANTY EFFECTIVE. THIS
GUARANTY IS DATED MAY 31, 1997.
GUARANTOR:
/s/James Olson
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JAMES OLSON
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EXHIBIT 10.5(d)
COMMERCIAL SECURITY AGREEMENT
<TABLE>
<CAPTION>
PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$221,234.39 05-31-1997 05-31-1998 9006 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:
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(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 them, 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
JKO
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 May
31, 1997, in the principal amount of $221,234.39 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 Grantor and do not conflict with, result in a violation of, or
constitute a default under (a) any provision of its articles of
incorporation or 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 its 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
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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 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,
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<PAGE> 5
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 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'
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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 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
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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 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
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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 cost of the
Collateral.
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 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.
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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 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
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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 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 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.
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,
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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 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 of any other remedy, and an election to make
expenditures or to take action to perform an obligation of Grantor
under this Agreement, after 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.
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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 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.
12
<PAGE> 13
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 INTEREST. 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 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 MAY 31,
1997.
GRANTOR:
SURREY, INC.
By: /s/James Olson By: /s/John van der Hagen
--------------------------------- ----------------------------
JAMES OLSON JOHN VAN DER HAGEN
LENDER:
NORWEST BANK TEXAS, SOUTH CENTRAL
By:
------------------------------------------------
Authorized Officer
13
<PAGE> 1
EXHIBIT 10.6
[LETTERHEAD]
SURREY, INC.
13110 TRAILS END ROAD, LEANDER, TEXAS 78641
(512) 267-7172
FAX 512-267-4864
PROMISSORY NOTE
Date: March 11, 1996
Maker: Surrey, Inc.
Makers Mailing Address: 13110 Trails End Rd.
Leander, TX 78641
Payee: John B. van der Hagen and Mary A. van der Hagen
Place for Payment: 12901 Lost Ridge Circle
Leander, TX 78641
Principal Amount: $100,000.00
Annual Interest Rate on Unpaid Principal from Date: 12% per annum
Terms of payment (principal and interest); Principal and interest are due and
payable in monthly installments of $2,000.00 each beginning April 11, 1996 and
continuing until all principal and interest are paid in full.
Maker may repay all or any part of the principal of this note before maturity
without penalty, and interest shall immediately cease to accrue on any amount
so prepaid. Partial payments shall be credited to principal, and installments
shall continue as scheduled. Maker promises to pay to the order of Payee at
the place of payment and according to the terms of payment the principal amount
plus interest at the rate stated above. All unpaid amounts shall be due by the
final scheduled payment date.
<PAGE> 2
(2)
If maker defaults in the payment of this note, and the default continues after
Payee gives Maker notice of the default and the time within which it must be
cured, as may be required by law or by written agreement, then Payee may
declare the unpaid principal balance and the earned interest on this note
immediately due. Maker and each surety, endorser, and guarantor waive all
demands for payment, presentations for payment, notices of intention to
accelerate maturity, notices of actual acceleration of maturity, protests and
notices of protest.
If this note is given to an attorney for collection, or if suit is brought for
collection, or if it is collected through probate, bankruptcy, or other
judicial proceedings, then Maker shall pay Payee all costs of collection,
including reasonable attorney's fees and court costs, in addition to other
amounts due. Reasonable attorney's fees shall be at least 10% of all amounts
due unless either party pleads otherwise.
Interest on the debt evidenced by this note shall not exceed the maximum amount
of non-usurious interest that may be contracted for, taken, reserved, charged,
or received under law; any interest in excess of that maximum amount shall be
credited on the principal of the debt or, if that has been paid, refunded. On
any acceleration or required or permitted prepayment, any such excess shall be
cancelled automatically as of the acceleration or prepayment or, if already
paid, credited on the principal of the debt or, if the principal of the debt
has been paid, refunded. This provision overrides other provisions in this and
all other instruments concerning the debt.
Maker may prepay this note in any amount at any time before maturity without
penalty. Any prepayment should be applied first toward the payment of accrued
interest and next to the principal installments of the note, if any, in the
inverse order of maturity.
<PAGE> 3
(3)
Each Maker is responsible for all obligations represented by this note.
When the context requires, singular nouns and pronouns include the plural.
The parties hereby agree that in the event of any dispute regarding the terms
of this note, venue shall be in Travis County, Texas.
SURREY, INC.
By /s/James K. Olson
---------------------------
James K. Olson
Its Chief Executive Officer
<PAGE> 1
EXHIBIT 10.7
[LETTERHEAD]
SURREY, INC.
13110 TRAILS END ROAD, LEANDER, TEXAS 78641
(512) 267-7172
FAX 512-267-4864
PROMISSORY NOTE
Date: March 11, 1996
Maker: Surrey, Inc.
Makers Mailing Address: 13110 Trails End Rd.
Leander, TX 78641
Payee: James K. Olson and Louise K. Olson
Place for Payment: 9703 Vista View Drive
Austin, TX 78750
Principal Amount: $100,000.00
Annual Interest Rate on Unpaid Principal from Date: 12% per annum
Terms of payment (principal and interest); Principal and interest are due and
payable in monthly installments of $2,000.00 each beginning April 11, 1996 and
continuing until all principal and interest are paid in full.
Maker may repay all or any part of the principal of this note before maturity
without penalty, and interest shall immediately cease to accrue on any amount
so prepaid. Partial payments shall be credited to principal, and installments
shall continue as scheduled. Maker promises to pay to the order of Payee at
the place of payment and according to the terms of payment the principal amount
plus interest at the rate stated above. All unpaid amounts shall be due by the
final scheduled payment date.
<PAGE> 2
(2)
If maker defaults in the payment of this note, and the default continues after
Payee gives Maker notice of the default and the time within which it must be
cured, as may be required by law or by written agreement, then Payee may
declare the unpaid principal balance and the earned interest on this note
immediately due. Maker and each surety, endorser, and guarantor waive all
demands for payment, presentations for payment, notices of intention to
accelerate maturity, notices of actual acceleration of maturity, protests and
notices of protest.
If this note is given to an attorney for collection, or if suit is brought for
collection, or if it is collected through probate, bankruptcy, or other
judicial proceedings, then Maker shall pay Payee all costs of collection,
including reasonable attorney's fees and court costs, in addition to other
amounts due. Reasonable attorney's fees shall be at least 10% of all amounts
due unless either party pleads otherwise.
Interest on the debt evidenced by this note shall not exceed the maximum amount
of non-usurious interest that may be contracted for, taken, reserved, charged,
or received under law; any interest in excess of that maximum amount shall be
credited on the principal of the debt or, if that has been paid, refunded. On
any acceleration or required or permitted prepayment, any such excess shall be
cancelled automatically as of the acceleration or prepayment or, if already
paid, credited on the principal of the debt or, if the principal of the debt
has been paid, refunded. This provision overrides other provisions in this and
all other instruments concerning the debt.
Maker may prepay this note in any amount at any time before maturity without
penalty. Any prepayment should be applied first toward the payment of accrued
interest and next to the principal installments of the note, if any, in the
inverse order of maturity.
<PAGE> 3
(3)
Each Maker is responsible for all obligations represented by this note.
When the context requires, singular nouns and pronouns include the plural.
The parties hereby agree that in the event of any dispute regarding the terms
of this note, venue shall be in Travis County, Texas.
SURREY, INC.
By /s/JamesK. Olson
---------------------------
Its Chief Executive Officer
<PAGE> 1
EXHIBIT 10.8
PROMISSORY NOTE
$1,250,000.00
August 15, 1997
FOR VALUE RECEIVED, Surrey, Inc. ("Borrower"), hereby promises to pay to the
order of JAMES K. OLSON, his successors or assigns ("Lender"), on the earliest
of (a) December 31, 1997, (b) the closing of the initial public offering of the
shares of common stock of the Borrower, or (c) such other date as the Borrower
or Lender shall mutually agree in writing, the sum of One Million,Two Hundred
Fifty Thousand Dollars ($1,250,000.00), without interest on such principal
amount, in lawful money of the United States of America, at the Borrower's
headquarter in Texas or such other place as the Borrower and Lender shall
mutually agree in writing.
Borrower may prepay all or any part of the principal of this Note before the
due date stated above without penalty.
All notices and other communications hereunder shall be in writing and will
be deemed to have been duly given if delivered or mailed (registered or
certified mail, postage prepaid, return receipt requested) as follows:
If to the Borrower, to:
Surrey, Inc.
13110 Trails End Road
Leander, Texas 78641
If to Lender, to:
James K. Olson
9703 Vista View Drive
Austin, Texas 78750
<PAGE> 2
The Borrower hereby waives diligence, demand and presentment, notice of
non-payment and dishonor, protest and notice of protest.
The Borrower further promises that, in the event this Note is not paid when
due, it will pay, in addition to unpaid principal, all costs of collection
including the reasonable fees of attorneys for Lender.
IN WITNESS WHEREOF, Borrower has duly executed this Promissory Note as of the
15th day of August, 1997.
SURREY, INC.
as Borrower
By /s/John B. van der Hagen
-----------------------------
Name: John B. van der Hagen
Title: President
<PAGE> 1
OLSON CONSULTANT AGREEMENT EXHIBIT 10.11
This CONSULTANT AGREEMENT (hereinafter "Agreement") is made this 15th
day of August, 1997, between Surrey, Inc. (hereinafter the "Company"), a Texas
corporation, and James K. Olson (hereinafter "Olson").
R E C I T A L S
A. The Company has purchased the outstanding stock in the Company
owned by Olson pursuant to the terms and conditions of the Stock Purchase
Agreement by and between the Company and Olson dated of even date herewith.
B. Olson served as the Company's Chief Executive Officer and a
Director, and is intimately knowledgeable of the Company's financial affairs
and accounting procedures.
C. Olson has tendered his resignation as an officer and director
of the Company, effective as of the date hereof.
D. The Company desires to have Olson continue to advise the
Company and to perform certain services in accordance with the terms and
conditions hereof.
NOW, THEREFORE, in consideration of the mutual covenants, premises and
agreements contained herein, the parties mutually agree as follows:
AGREEMENT
1. APPOINTMENT OF CONSULTANT. The Company hereby appoints Olson, and
Olson accepts appointment, as the Company's consultant, to perform such
accounting, financial and business review and analysis for the Company as shall
be requested by the Company (the "Services") during normally scheduled work
days and work hours, during the term of this Agreement, unless otherwise agreed
by mutual written agreement. In addition, during the term of this Agreement,
the Company agrees to continue to provide to Olson clerical and administrative
support and facilities commensurate with the support provided to Olson during
the prior fiscal year.
2. TERM. This Agreement shall begin on the date hereof and shall
terminate on the earlier of (i) the closing of the Company's initial public
offering of its common stock, (ii) December 31, 1997, or (iii) such other date
as the parties hereto may mutually agree (the "Term"). The parties may extend
the Term of this Agreement by mutual agreement.
3. COMPENSATION. The Company shall pay to Olson compensation during
the Term of this Agreement in the amount of $125,000 per year, payable
bi-weekly. This compensation is applicable to all the Services, and may be
changed, altered or modified only upon the written
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<PAGE> 2
consent of the parties hereto. In addition, Olson shall be entitled (a) to
participate in all health insurance and other benefits currently offered to
officers of the Company and (b) to receive such stated compensation during any
period of disability occurring during the term of this Agreement.
4. EXPENSES. It is agreed that the Company shall bear all of its own
costs, overhead and business expenses, unless the parties otherwise mutually
agree in writing. This includes but is not limited to expenses incurred by
Olson in performing the Services.
5. SEVERABILITY. The terms of this Agreement are severable, as
allowed by law. In the event any provision of this Agreement is deemed
unenforceable or invalid, the remaining terms shall remain in full force and
effect.
6. ASSIGNMENT. Neither the rights nor obligations of this Agreement
are transferable or assignable, without the written agreement of the parties.
7. ENTIRE AGREEMENT. This Agreement contains the entire agreement and
understanding between the parties, and supersedes any and all previous written
or oral agreements, contracts, representations, discussions, negotiations or
course of dealing between the parties. This Agreement supersedes and takes the
place of any one or all existing contracts or agreements, whether oral or
written.
8. NOTICE. Any notice required or permitted to be given pursuant to
the terms of this Agreement shall be considered effective if hand delivered or
sent via certified United States Mail, postage prepaid, as follows:
If to Olson to: James K. Olson
9703 Vista View Drive
Austin, Texas 78750
With a Copy to: Paul Angenend, Esq.
SAEGERT, ANGENEND & AUGUSTINE
1145 West 5th Street, Suite 300 Austin,
Texas 78703
If to Company: SURREY, INC.
13110 Trails End Road
Leander, Texas 78641
Attn.: John B. van der Hagen
With a Copy to: G. Thomas MacIntosh, Esq.
MACKALL, CROUNSE & MOORE, PLC
1400 AT&T Tower
901 Marquette Avenue
Minneapolis, Minnesota 55402-2859
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<PAGE> 3
9. MODIFICATION. This Agreement shall be modified or amended only by
the parties mutual written consent and agreement.
10. COUNTERPARTS. This Agreement may be executed simultaneously in
one or more counterparts, each of which shall be deemed an original, but all of
which shall together constitute one and the same instrument.
11. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD
TO THE CONFLICTS OF LAW RULES OF SUCH STATE.
12. CONSENT TO JURISDICTION. THE PARTIES IRREVOCABLY SUBMIT TO
THE JURISDICTION OF ANY TEXAS STATE OR FEDERAL COURT SITTING IN THE CITY OF
AUSTIN, TEXAS, OVER ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING
TO THIS AGREEMENT OR ANY RELATED DOCUMENT. SELLER IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER
HAVE TO THE LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT
IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM.
IN WITNESS HEREOF, the parties have executed this Agreement as of the
date provided above.
SURREY, INC. CONSULTANT
By:
/s/John van der Hagen /s/James K. Olson
- ----------------------- --------------------
John van der Hagen James K. Olson
Its President
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<PAGE> 4
INDEMNIFICATION AGREEMENT OF SURREY, INC.
AND JOHN B. VAN DER HAGEN WITH
JAMES K. OLSON AND LOUISE K. OLSON
This Indemnification is given by SURREY, INC., a Texas corporation
("Corporation"), and John B. van der Hagen, individually ("van der Hagen"), to
James K. Olson ("J. Olson") and Louise K. Olson ("L. Olson").
WITNESSETH:
WHEREAS, J. Olson has entered into a Stock Purchase Agreement ("Agreement")
with the Corporation dated as of the date hereof; and
WHEREAS, the Agreement requires that, in the event that J. Olson cannot
obtain a release from any lender or lessor to the Corporation with respect
thereto, the Corporation and/or van der Hagen shall indemnify, on the terms set
forth herein, J. Olson and L. Olson from any obligations or responsibilities
for the payment of all notes, leases or obligations of the Corporation which J.
Olson and/or L. Olson have personally guarantied, or on which J. Olson and/or
L. Olson are personally liable; and
WHEREAS,the Directors of the Corporation have determined that it is in the
best interest of the Corporation to provide such indemnification to J. Olson
and L. Olson.
NOW, THEREFORE, the Corporation and van der Hagen agree as follows:
AGREEMENT
1. INDEMNIFICATION BY CORPORATION. Corporation hereby indemnifies J. Olson
and L. Olson against, and agrees to hold each harmless from, any and all
damage, loss, liability and expense incurred or suffered by J. Olson and/or L.
Olson arising out of any liability arising from (a) any debt, lease, or other
obligation owed by the Corporation and which either required J. Olson and/or L.
Olson's personal guaranty (which guaranty has not been released), or on which
J. Olson and/or L. Olson remain personally liable (collectively, "Debts and
Other Liabilities") and (b) any initial public offering ("IPO") by the
Corporation of its common stock. Corporation further warrants and represents
that it will repay such Debts and Other Liabilities as soon as reasonable
business practice will allow out of the proceeds of any IPO or otherwise.
2. INDEMNIFICATION BY VAN DER HAGEN. Van der Hagen hereby indemnifies J.
Olson and L. Olson against, and agrees to hold each harmless from, any and all
damage, loss, liability and expense incurred or suffered by J. Olson and/or L.
Olson arising out of any liability under Norwest Bank Loan No. GP-767,
982-3006-SA, which required J. Olson and/or L. Olson
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<PAGE> 5
personal guaranty (which guaranty has not been released), or on which J. Olson
and/or L. Olson remain personally liable.
3. PROCEDURE FOR INDEMNIFICATION. J. Olson and/or L. Olson agrees promptly
to give notice to Corporation or van der Hagen, as the case may be, of the
assertion of any claim, or the commencement of any suit, action or proceeding
in respect of which indemnity may be sought under this indemnification.
Corporation and van der Hagen, at the request of J. Olson and/or L. Olson, may
participate in and control the defense of any such suit, action or proceeding
at their own expense. Corporation and van der Hagen may not be liable for any
settlement effected without their consent of any claim, litigation or
proceeding in respect of which indemnity may be sought hereunder.
4. NOTICES. All notices, requests and other communication shall be in
writing (including telex, telecopy or similar writing) and shall be given:
If to Corporation: SURREY, INC.
13110 Trails End Road
Leander, Texas 78641
Attn: John van der Hagen, President
With a copy to: G. Thomas MacIntosh, Esq.
MACKALL, CROUNSE & MOORE, PLC
1400 AT&T Tower
901 Marquette Avenue
Minneapolis, MN 55402-2859
If to van der Hagen: John van der Hagen
13110 Trails End Road
Leander, Texas 78641
With a copy to: G. Thomas MacIntosh, Esq.
MACKALL, CROUNSE & MOORE, PLC
1400 AT&T Tower
901 Marquette Avenue
Minneapolis, MN 55402-2859
If to Olson: James K. Olson
9703 Vista View Drive
Austin, Texas 78750
With a copy to: Paul Angenend, Esq.
SAEGERT, ANGENEND & AUGUSTINE
1145 West Fifth Street, Suite 300
Austin, Texas 78703
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<PAGE> 6
5. SUCCESSORS AND ASSIGNS. The provisions of this indemnification shall be
binding upon and inure to the benefit of J. Olson and/or L. Olson, Corporation
and van der Hagen, and their respective successors and assigns; provided that
any such transfer or assignment by Corporation and van der Hagen will not
relieve Corporation or van der Hagen of their obligations hereunder.
6. GOVERNING LAW. THIS INDEMNIFICATION SHALL BE CONSTRUED IN ACCORDANCE WITH
AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO THE CONFLICTS
OF LAW RULES OF SUCH STATE.
7. CONSENT TO JURISDICTION. THE CORPORATION AND VAN DER HAGEN IRREVOCABLY
SUBMIT THE JURISDICTION OF ANY TEXAS STATE OR FEDERAL COURT SITTING IN THE CITY
OF AUSTIN, TEXAS, OVER ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS INDEMNIFICATION OR ANY RELATED DOCUMENT. CORPORATION AND VAN
DER HAGEN IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
OBLIGATION WHICH THEY MAY HAVE OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF
ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT
SUCH SUIT, ACTION OR PROCEEDING HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
8. CAPTIONS. The captions herein are included for convenience of reference
only and shall be ignored in the construction or interpretation hereof.
IN WITNESS WHEREOF, Surrey, Inc. and John B. van der Hagen have executed this
Indemnification Agreement dated this the 15th day of August, 1997.
SURREY, INC.
By: /s/John B. van der Hagen
------------------------------------
John B. van der Hagen, President
/s/John B. van der Hagen
------------------------------------
John B. van der Hagen
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<PAGE> 7
NON-COMPETITION AND
CONFIDENTIALITY AGREEMENT
This NON-COMPETITION AND CONFIDENTIALITY AGREEMENT (this "Agreement") is made
and entered into effective the 15th day of August, 1997 by and between James K.
Olson, residing in Travis County, Texas ("Olson"), and SURREY, INC., a Texas
corporation (the "Company").
R E C I T A L S
A. Olson and the Company have entered into that certain Stock Purchase
Agreement ("Stock Purchase Agreement") dated of even date herewith, to which
this Agreement is ancillary.
B. Olson is resigning as an officer, employee and director of the Company.
C. Olson, through his association with Company, has obtained intimate
knowledge of the trade secrets and business of the Company which the Company
desires to remain confidential.
D. Olson and the Company have entered into a Consulting Agreement dated of
even date herewith, wherein Olson will continue to render services to the
Company as specified therein.
E. It is a condition to the consummation of the transactions contemplated by
the Stock Purchase Agreement that Olson execute and deliver this Agreement to
the Company.
NOW, THEREFORE, in consideration of the premises hereof and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by the Company and Olson, the Company and Olson hereby covenant
and agree as follows:
AGREEMENT
1. DEFINITIONS. Each capitalized term not defined herein shall have the
meaning assigned to that term in the Stock Purchase Agreement.
2. NONDISCLOSURE. Olson acknowledges that, in the course of his employment
and management relationship with Company, he has received or had access to
certain trade secrets, programs, lists of customers and other sensitive and
confidential information and knowledge concerning the business of the Company
(hereinafter collectively referred to as "Confidential Information"). Olson
understands that the Confidential Information is confidential and agrees not to
reveal the Confidential Information to individual or other business and
corporate entity outside the Company so long as the confidential or secret
nature of the Confidential Information shall continue. Olson further agrees
that he will at no time use the Confidential information in
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competing with Company.
On the date hereof, Olson shall surrender to the Company all papers,
documents, writings and other property produced by him or coming into his
possession by or through his employment and/or management relationship with the
Company or relating to or containing the Confidential Information. Olson
agrees that all such materials will at all times remain the property of
Company. Notwithstanding the above, any Confidential Information necessary
and/or required to be used by Olson in connection with services to be rendered
under the Consulting Agreement shall be delivered to the Company at the
termination of the term of such agreement.
For the purposes of this Agreement, the term "Confidential Information"
shall not include any information or knowledge which: (a) is now available or
hereafter becomes available to the public without a breach by Olson of the
terms stated in this Agreement; (b) is disclosed to Olson by a third party who,
to Olson's knowledge, is not under any obligation of secrecy or
confidentiality; or (c) which Olson or a party is compelled by law to disclose.
3. COVENANTS NOT TO COMPETE.
(a) During the term of the Consulting Agreement and for a period of
twenty-four (24) months after the termination of the Consulting Agreement (the
"Noncompetition Term"), Olson agrees that he will not, as principal, agent,
trustee or through the agency of any corporation, partnership, association or
agent or agency, compete directly or indirectly with the Company by:
(i) engaging in any activity which is competitive with the business of the
Company as of the date hereof in any state in which the Company had
Customers (as hereinafter defined) during the twenty-four (24) month
period immediately preceding the Noncompetition Term or during the
term of the Consulting Agreement;
(ii) soliciting or otherwise attempting to solicit or establish for
himself or for any other person or entity any business relationship
with any Customer, which business relationship is competitive with
Company;
(iii) entering into or seeking to enter into, personally or through or on
behalf of any other person or entity, any contract or other
arrangement with any Customer for the performance of services or
the provision of products of a nature being performed or provided
by Company;
(iv) providing or offering to provide services or products to a Customer,
personally or through or on behalf of any other person or entity,
which services or products are competitive with the services or
products offered by Company;
(v) urging any Customer or person or entity referring any business to the
Company to discontinue, in whole or part, such relations or business
with
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or referral to Company, or discouraging the continuation thereof;
(vi) have any type of equity interest in, or have any employment or
commission relationship with, any venture or entity which engages in
any of the activities referred to in clauses (i) through (v) above; it
being expressly understood that these restrictions do not preclude
Olson from owning stock of any publicly traded company, or less than
five percent (5%) of the stock of a privately held company.
(b) During the Noncompetition Term, Olson further agrees that he will not,
either directly or indirectly, through any person, firm, association or
corporation with which he is now or may hereafter become associated, cause or
induce any present or future employee of the Company to leave the employ of the
Company to accept employment with Olson or with such person, firm, association
or corporation.
(c) As used herein, "Customer" includes (without limitation) any person or
entity that purchased goods or services from the Company in any of the
twenty-four (24) months immediately preceding the Noncompetition Term and any
person or entity controlling, controlled by or under common control with any
such person or entity.
4. REASONABLE RESTRICTIONS. Olson represents to the Company that the
enforcement of the noncompetition covenants contained in this Agreement will
not be unduly burdensome to Olson and acknowledges that Olson is willing and
able to compete in other geographical areas not prohibited by this Agreement.
The parties to this Agreement hereby agree that the covenants contained in this
Agreement are reasonable and necessary restrictions for the purpose of
protecting the goodwill and other business interests of Company, and the
expectation of expanding Company's business in the designated geographic areas
without competition from Olson for the Noncompetition Term.
5. ENTIRE AGREEMENT. This Agreement contains the entire agreement between
the parties hereto and with respect to the subject matter of this Agreement and
supersedes and is in full substitution for any and all prior agreements and
understandings, whether written or oral, between said parties relating to the
subject matter of this Agreement.
6. AMENDMENT. This Agreement may not be amended or modified in any respect
except by an agreement in writing executed by the parties in the same manner as
this Agreement.
7. ASSIGNMENT. This Agreement may be assigned by the Company without the
consent of Olson in connection with the sale, transfer or other assignment of
all or substantially all of the capital stock or assets of, or the merger of,
the Company, provided that the party acquiring such capital stock or assets or
into which the Company merges assumes in writing the obligations of the Company
hereunder and provided further that no such assignment shall release the
Company from its obligations hereunder. Otherwise, this Agreement may not be
assigned by either party hereto without the prior written consent of the other
party.
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<PAGE> 10
8. SUCCESSORS. This Agreement shall be binding upon and shall inure to the
benefit of and be enforceable by each of the parties and their respective
successors and assigns.
9. UNENFORCEABLE PROVISIONS. In the event that a court should determine
that any restriction herein is unenforceable, the parties agree that this
Agreement shall nevertheless be enforceable for the maximum term and
geographical area allowed by law.
10. REMEDIES. Olson agrees that a breach or violation of any provision of
this Agreement shall entitle the Company or its assigns, as a matter of right,
to an injunction, without necessity of posting bond, issued by any court of
competent jurisdiction, restraining any further or continued breach or
violation of such provision. Such right to an injunction shall be cumulative
and in addition to, and not in lieu of, any other remedies to which the Company
or its assigns may show itself justly entitled, including, but not limited to,
specific performance and damages. The parties specifically agree that the
remedy of damages alone is inadequate for a breach or violation of any
provision of this Agreement by Olson. Further, during any period in which
Olson is in actual (as opposed to asserted) breach of any covenant in this
Agreement, the time period of this Agreement shall be extended for an amount of
time that Olson is in breach hereof.
11. NOTICE. All notices, consents, requests, approvals or other
communications in connection with this Agreement and all legal process in
regard hereto shall be in writing and delivered personally or sent by certified
mail, postage prepaid, or by facsimile transmission. Unless changed by written
notice pursuant hereto, the address of each party for the purpose hereof is as
follows:
If to Olson: James K. Olson
9703 Vista View Drive
Austin, Texas 78750
With a copy to: Paul Angenend, Esq.
SAEGERT, ANGENEND & AUGUSTINE
1145 West Fifth Street, Suite 3000
Austin, Texas 78703
If to Company SURREY, INC.
13110 Trails End Road
Leander, Texas 78641
Attn: John van der Hagen
With a copy to: G. Thomas MacIntosh, Esq.
MACKALL, CROUNSE & MOORE, PLC
1400 AT&T Tower
901 Marquette Avenue
Minneapolis, MN 55402-2859
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<PAGE> 11
Notice given by mail as set out above shall be deemed delivered only when
actually received.
12. DESCRIPTIVE HEADINGS. The descriptive headings of the several sections
of this Agreement are inserted for convenience only and shall not control or
affect the meaning of or construction of any of the provisions hereof.
13. GOVERNING LAW. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Texas (without regard to
the conflicts of law principles thereof). The parties agree that in the event
any litigation arises in connection with this Agreement, jurisdiction will lie
in a federal or state court of competent jurisdiction in Travis County, Texas.
IN WITNESS WHEREOF, the parties have duly executed this Non-Competition and
Confidentiality Agreement as of the date first set forth above.
/s/James K. Olson
---------------------
James K. Olson
SURREY, INC.
By: /s/John B. van der Hagen
--------------------------
John B. van der Hagen
Its President
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<PAGE> 1
EXHIBIT 10.12
CONSULTING AGREEMENT
AGREEMENT dated as of , 1997 (the "Agreement") by SURREY, INC.
with offices at 13110 Trails End Road, Leander, Texas 78641 (the "Company") and
STUART, COLEMAN & CO., INC. with offices at 11 West 42nd Street, New York, New
York 10036 (the "Consultant").
RECITALS:
The Company offered its stock to the public by means of an initial
offering ("IPO") on ,1997 and, in connection therewith, wants to
broaden and enhance its financial network.
The Consultant acted as the Representative of the several Underwriters
and Managing Underwriter in connection with the IPO and wishes to aid the
Company in broadening and enhancing its financial network.
NOW, THEREFORE, it is agreed as follows:
1. Engagement.
The Company hereby agrees to engage Consultant and Consultant agrees to
accept such engagement to serve the Company as its Financial Consultant.
2. Term.
The term of this Agreement shall commence as of the closing date of
this IPO (the "Closing Date") and shall continue for a period of two (2) years
thereafter.
3. Services.
The Consultant shall exert its best efforts (I) to aid the Company in
securing any additional financing, as required, on the best terms possible as
well as (ii) to bring to the attention of the Company possible acquisition
candidates.
4. Consulting Fee.
The Company shall pay the Consultant the sum of twelve thousand five
hundred ($12,500.00) dollars per annum, for each of the two (2) years of the
term, payable twenty-five thousand ($25,000) dollars in advance on the Closing
Date.
<PAGE> 2
5. Termination.
The Company may terminate this Agreement by thirty (30) days written
notice to Consultant, prior to the end of the term only for cause. For
purposes of this Agreement, cause shall mean gross negligence and/or willful
malfeasance.
6. Notices.
All notices and other communications provided for by this Agreement
shall be in writing and shall be deemed to have been given when mailed by
certified or registered mail, to the address of the parties as set forth above
or to such changed address as the party may have fixed by notice.
7. Successors and Assigns.
This Agreement shall inure to the benefit of and be binding upon the
Company, its successors and assigns, including without limitation, any
corporation which may acquire all or substantially all of the Company's assets
and business or into which the Company may be consolidated or merged and the
Consultant and its successors and assigns.
8. Applicable Law.
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
IN WITNESS WHEREOF the parties have executed this Agreement as of the
date set forth above.
CONSULTANT
SURREY, INC. STUART, COLEMAN & CO., INC.
By:_____________________________ By:__________________________
John van der Hagen Stuart J. Voisin
Chief Executive Officer Chairman of the Board
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